-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PclVknmtJ6HojbxEZ8G8jaFEgq/bdhTHqj5OZ85cUOQ/f6NgyiQMX8kqfgWqgnMQ IicO+BnLzuGOfAs+OptnFA== 0001012870-98-001320.txt : 19980515 0001012870-98-001320.hdr.sgml : 19980515 ACCESSION NUMBER: 0001012870-98-001320 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 14 FILED AS OF DATE: 19980514 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: POINTCAST INC CENTRAL INDEX KEY: 0001018729 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 770315081 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-52663 FILM NUMBER: 98620946 BUSINESS ADDRESS: STREET 1: 501 MACARA AVE CITY: SUNNYVALE STATE: CA ZIP: 94086 BUSINESS PHONE: 4089907007 MAIL ADDRESS: STREET 1: 501 MACARA AVE CITY: SUNNYVALE STATE: CA ZIP: 94086 S-1 1 FORM S-1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 14, 1998 REGISTRATION STATEMENT NO. 333- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------- POINTCAST INCORPORATED (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 7372 77-0315081 (STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
--------------- 501 MACARA AVENUE SUNNYVALE, CA 94086 (408) 990-7000 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) --------------- DAVID W. DORMAN PRESIDENT AND CHIEF EXECUTIVE OFFICER CHAIRMAN OF THE BOARD POINTCAST INCORPORATED, 501 MACARA AVENUE SUNNYVALE, CA 94086 (408) 990-7000 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) --------------- COPIES TO: LARRY W. SONSINI, ESQ. SCOTT C. DETTMER, ESQ. JUDITH M. O'BRIEN, ESQ. BENNETT L. YEE, ESQ. DONNA M. PETKANICS, ESQ. JONATHAN J. NOBLE, ESQ. BRUCE M. MCNAMARA, ESQ. GUNDERSON DETTMER STOUGH WILSON SONSINI GOODRICH & ROSATI VILLENEUVE FRANKLIN & HACHIGIAN, LLP PROFESSIONAL CORPORATION 155 CONSTITUTION DRIVE 650 PAGE MILL ROAD MENLO PARK, CA 94025 PALO ALTO, CA 94304 (650) 321-2400 (650) 493-9300 --------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] CALCULATION OF REGISTRATION FEE - ------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS OF AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM SECURITIES TO BE TO BE OFFERING PRICE AGGREGATE AMOUNT OF REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE - ------------------------------------------------------------------------------------------------ Common Stock, $0.001 par value................. 4,312,500 shares $12.00 $51,750,000 $15,266.25 - ------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------
(1) Includes 562,500 shares issuable upon exercise of an option granted by the Company to the Underwriters to cover over-allotments, if any. (2) Estimated solely for the purpose of computing the registration fee pursuant to Rule 457. --------------- 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. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS + +OF ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subject to Completion, dated May 14, 1998 PROSPECTUS 3,750,000 SHARES POINTCAST INCORPORATED COMMON STOCK ------------- All of the shares of Common Stock offered hereby are being sold by PointCast Incorporated ("PointCast" or the "Company"). Prior to this offering, there has been no public market for the Common Stock of the Company. It is currently estimated that the initial public offering price will be between $10.00 and $12.00 per share. See "Underwriting" for a discussion of the factors to be considered in determining the initial public offering price. The Common Stock has been approved for quotation on the Nasdaq National Market, subject to notice of issuance, under the symbol "PCST." ------------- THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 6. ------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNDERWRITING PRICE TO DISCOUNTS AND PROCEEDS TO PUBLIC COMMISSIONS(1) COMPANY(2) - -------------------------------------------------------------------------------- Per Share............................... $ $ $ - -------------------------------------------------------------------------------- Total(3)................................ $ $ $ - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
(1) The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (2) Before deducting estimated expenses of $850,000 payable by the Company. (3) The Company has granted the Underwriters a 30-day option to purchase up to 562,500 additional shares of Common Stock on the same terms and conditions as set forth above, solely to cover over-allotments, if any. If such option is exercised in full, the total Price to Public, Underwriting Discounts and Commissions and Proceeds to Company will be $ , $ and $ , respectively. See "Underwriting." ------------- The shares of Common Stock offered by this Prospectus are offered by the Underwriters subject to prior sale, withdrawal, cancellation or modification of the offer without notice, to delivery and acceptance by the Underwriters and to certain further conditions. It is expected that delivery of certificates representing the shares of Common Stock will be made at the offices of Lehman Brothers Inc., New York, New York, on or about , 1998. ------------- LEHMAN BROTHERS BT ALEX. BROWN BANCAMERICA ROBERTSON STEPHENS , 1998 Inside Front Cover of the Prospectus The PointCast Network broadcasts news from approximately 700 sources, including: AccuWeather, Advertising Age, American Banker, American Medical Association, Associated Press, Aviation Week, Boston Globe, Business Wire, Chicago Tribune, CMPnet, CNN Interactive, CNNfn, Edgar Online, Fortune, Government Executive, Hoovers Online, International Mass Retail Association, Johns Hopkins Health News, Los Angeles Times, Money, Morningstar, National Association of Realtors, New York Times, Reuters, Standard & Poor's ComStock, Telecommunications Reports International, Wall Street Journal Interactive Edition, Washington Post, Zacks Investment Research, Zdnet PointCast is partnering with vertical market leaders to provide content in the following industries: Aerospace - EDS, Automotive -- EDS, Banking and Finance - -- KPMG, Consumer Markets -- KPMG, Federal Government -- BTG, Healthcare -- IntelliHealth and Perot Systems, Insurance -- KPMG, Real Estate -- RealSelect and Real Estate On-line, State and Local Government -- Ambac Connect, Telecommunications -- Coopers & Lybrand, Utilities/Energy -- Coopers & Lybrand The PointCast Network Broadcasts Personalized News to Business consumers' PC Screens (Picture of the ChannelViewer displaying the CNN channel) (Picture of the ChannelViewer displaying the Wall Street Journal channel) (Picture of the ChannelViewer displaying the Corporate Banking channel) (Picture of the ChannelViewer displaying the Weather channel) (Picture of the ChannelViewer displaying the New York Times channel) The PointCast Network's SmartScreen technology replaces traditional screensavers with news broadcast directly to viewers' idle computer screens. The Corporate Banking Channel is expected to be released in June 1998. (Picture of the ChannelViewer displaying the Company's channel) With the click of a mouse, viewers receive personalized in-depth coverage in the PointCast Channel Viewer. (Picture of the ticker) The PointCast Network's scrolling ticker displays timely stock quotes, weather forecasts, news headlines, and other information. CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF THE COMMON STOCK OF THE COMPANY, INCLUDING EFFECTING SYNDICATE COVERING TRANSACTIONS, INITIATING BIDS OR EFFECTING PURCHASES ON THE NASDAQ NATIONAL MARKET FOR THE PURPOSE OF PREVENTING OR RETARDING A DECLINE IN THE MARKET PRICE OF THE COMMON STOCK, OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." 2 Since the PointCast Network's launch in 1996, the Company has won more than 75 industry awards and honors. (Pictures of eight of the awards won by the Company) The PointCast Network Enables Advertisers to Reach the Elusive Business Consumer. (Picture of the Company's ChannelViewer with an enlargement of the advertising window displaying an advertisement for Mercedes-Benz) PointCast's innovative ad model enables advertisers to access the attractive and hard-to-reach business consumer audience with engaging, 30-second animated commercials. Advertisers representing a wide range of products - from automotive and consumer goods to personal finance and technology - have successfully utilized the innovative properties of PointCast's advertising medium to build brand awareness and generate sales. (Picture of the ChannelViewer with an enlargement of the advertising window displaying an advertisement for Visa) Select Advertising Customers Consumer/Travel/Automotive: Avis, Boise Office Products, BMW, Colgate-Palmolive, Continental Airlines, InteliHealth, Kodak, Korean Air, Land Rover, Mercedes Benz, Pfizer, Procter & Gamble, Saturn, Levi Strauss & Company (Slates), Toyota Financial: American Express, Ameritrade, Charles Schwab, DLJ Direct, The Dreyfus Corporation, E*Trade, Fidelity Investments, First Chicago, Founders Funds, NationsBank, Northwestern Mutual Life Insurance Company, Quick & Reilly, The Vanguard Group, VISA, Wells Fargo Technology/Telecommunications: 3Com/US Robotics, Compaq Works, Comp USA, Computer Associates, Gateway 2000, Hewlett-Packard, IBM, Intel, MCI, Microsoft, Nortel, Oracle, SAP, Texas Instruments, Toshiba An Exceptionally Affluent and Influential Audience (Chart) Average Age: 39 years Average Household Income: $109,080 College Degree or Greater: 69% Management: 44% Professional/Technical: 41% Purchased Online: 63% Source: IntelliQuest, Inc., November 1997 PointCast Viewer Survey of 4,065 respondents between September 22, 1997 and October 14, 1997. (Picture of the Company's ticker) PROSPECTUS SUMMARY The following summary is qualified in its entirety by and should be read in conjunction with, the more detailed information and the consolidated financial statements and notes thereto appearing elsewhere in this Prospectus. Except as otherwise noted, the information contained in this Prospectus assumes no exercise of the Underwriters' over-allotment option and gives effect to (i) the conversion of all outstanding shares of Mandatorily Redeemable Convertible Preferred Stock ("Preferred Stock") of the Company into Common Stock, which will occur upon the completion of this offering, and the conversion of all outstanding Warrants to purchase Preferred Stock into warrants to purchase Common Stock, (ii) a reincorporation of the Company into Delaware and (iii) a two-for-three reverse stock split of all issued and outstanding Common Stock that will be effected pursuant to the reincorporation into Delaware prior to the effectiveness of this offering. See "Capitalization" and "Description of Capital Stock." THE COMPANY PointCast is the leading broadcaster of personalized news and information to business consumers over the Internet and corporate intranets. The PointCast Network automatically appears whenever the computer is idle, replacing a screensaver with a constant stream of useful, personalized news and information. Viewers can effortlessly absorb headlines, stock quotes and other personalized news on screen or in the scrolling ticker, and can click on any headline to obtain in-depth information. The PointCast Network consists of four principal components: (i) general and business content; (ii) the PointCast Central Broadcast Facility, which receives, translates and transmits content; (iii) the PointCast Network Client that resides on a viewer's PC; and (iv) the PointCast Intranet Broadcast Solution, a suite of free software tools. The PointCast Network is a free, advertising-supported service that has been specifically designed to meet the needs of business consumers, corporations and advertisers. PointCast aggregates content from approximately 700 news and information sources globally, including Associated Press, CNN, The New York Times and The Wall Street Journal Interactive Edition. The Company also offers in-depth vertical market information through relationships with leading industry partners, such as Ambac Connect, Inc., Coopers & Lybrand L.L.P., Electronic Data Systems Corporation and KPMG Peat Marwick LLP. The Company believes it is the largest aggregator of general, business, vertical market and local newspaper content on the Internet. Through its Central Broadcast Facility, the Company broadcasts approximately 450 million news and information items to viewers on a daily basis. New trends are affecting how and where people access and absorb news and information. Business professionals are shifting their news consumption from home to the office, where speed, timeliness and efficiency are key requirements for the media they use. At the same time, new technologies like cellular telephones, fax machines and pagers are accelerating the pace of business and enabling people to work where and when they need to, from home, office and in transit. These technologies are blurring the line between personal and professional activities. As a result, people are increasingly making purchase decisions in the work environment and business people are emerging as "business consumers." The growth of the Internet and corporate intranets is accelerating this fundamental change in business media consumption, making the desktop PC increasingly a focal point for news and information delivery. As business consumers move online for news and information, advertisers are looking for better ways to communicate with this audience and are beginning to allocate advertising dollars to the Internet. Online advertising is expected to grow from an estimated $940 million in 1997 to $5.8 billion in 2001, according to Jupiter Communications. Business consumers are a desirable advertising audience due to their affluence and acquisitiveness as consumers and their influence over business-to-business purchase decisions. In 1997, the Leading National Advertisers/Publishers Information Bureau reported that the value of advertising placements totaled $1.9 billion in the four leading business publications--Business Week, Forbes, Fortune and The Wall Street Journal--whose circulations range from approximately 766,000 to 1.8 million. 3 The Company's strategy is to provide advertisers with a highly effective and efficient vehicle to reach a premium business audience in the work environment, where previously they have been hard to reach through traditional media. The PointCast Network employs a client/server-based advertising model that provides advertisers with more complete audience data, larger and richer advertising units and more detailed advertising statistics than current leading web sites, as well as the ability to target specific audiences. Advertising opportunities on the PointCast Network currently consist of 30-second animated commercials, a variety of SmartScreen, ticker and content sponsorships and banner advertisements. Representative companies that advertised on the PointCast Network during 1997 include Avis Rent A Car, Inc., Charles Schwab & Co., Inc., Fidelity Investments Institutional Services Company, Inc., Hewlett-Packard Company, Levi Strauss & Company, MCI Communications Corporation, Daimler-Benz North America Corp., Microsoft Corporation, The Procter & Gamble Company and Wells Fargo & Company. The Company had an average of approximately 1.2 million active viewers worldwide in the first quarter of 1998. Based on independent survey data, the Company believes its viewers are well educated, affluent individuals who are likely to purchase products and services online. In addition, the Company believes its viewers use its service more days per month and more minutes per day than the typical visitor to leading Web sites, based on the Company's own usage data and ongoing metering studies conducted by Media Metrix. An important part of the Company's strategy is to capitalize on its high rate of historical viewer registration, which has ranged between 850,000 and 1,000,000 registrations per quarter throughout 1997 and the first quarter of 1998. The Company has experienced a low retention rate during the initial 90 days after registration and has conducted extensive market research, which it believes identifies the causes. According to a survey conducted by the Company approximately two-thirds of respondents indicated they left the PointCast Network for specific performance reasons related to the PointCast Network Client. Based on its research, the Company intends to release a new version of the PointCast Network Client in the second half of 1998, which is designed to improve performance in order to increase viewer retention. The Company believes corporate acceptance is a significant factor in increasing viewership and has invested substantially in creating a unique value proposition for corporations. The Company's strategy is to offer its free PointCast Intranet Broadcast Solution and employ multiple distribution channels to promote its deployment within corporations. The PointCast Intranet Broadcast Solution is designed to motivate corporate-wide adoption by providing efficient network management, enabling control of content on employee desktops, and integrating internal company news broadcasts. Since the introduction of the PointCast Intranet Broadcast Solution in January 1998, more than 40 corporations have deployed at least 500 desktops utilizing the PointCast Intranet Broadcast Solution, including American International Life Assurance Company of New York, BankAmerica Corporation, E.I. du Pont de Nemours and Company, MCI Communications Corporation, Monsanto Company, Northrop Grumman and The Procter & Gamble Company. In addition to a direct enterprise marketing team, there are more than 60 Solution Partners/VAR organizations that have been trained and certified to install and deploy the PointCast Intranet Broadcast Solution in their own client accounts. The enterprise marketing team also works closely with the Company's partners in vertical markets to capture enterprise accounts. The Company has financed its operations to date through private equity investments from media and technology companies, as well as financial investors. These investors include Adobe Systems, Inc., Asahi Shimbun, Benchmark Capital, Cendant Corporation, Gannett Media Technologies International, Knight-Ridder, Inc., KPMG Peat Marwick LLP, Merrill, Pickard, Anderson & Eyre, Mohr, Davidow Ventures, SOFTBANK Holdings, Inc. and Times Mirror. The Company was incorporated in California in 1992 as PED Software Corporation. The Company changed its name to PointCast Incorporated in 1995 and will reincorporate in Delaware in 1998. The Company's web site can be found at http://www.pointcast.com. Information contained in the Company's web site shall not be deemed to be a part of this Prospectus. The Company's principal executive office is located at 501 Macara Avenue, Sunnyvale, CA 94086, and its telephone number at that location is (408) 990-7000. ---------------- PointCast is a registered trademark of the Company. The Company has also applied for registration of the following trademarks: PointCast Network, SmartScreen, EntryPoint and the Company's logo. This Prospectus also includes product names and other trade names and trademarks of the Company and of other organizations. 4 THE OFFERING Common Stock offered................... 3,750,000 shares Common Stock to be outstanding after the offering.......................... 21,337,112 shares(1) Use of proceeds........................ For general corporate purposes, including working capital and capital expenditures and expansion of sales capabilities and marketing efforts. See "Use of Proceeds." Proposed Nasdaq National Market symbol. PCST
SUMMARY CONSOLIDATED AND PRO FORMA FINANCIAL DATA
THREE MONTHS ENDED YEARS ENDED DECEMBER 31, MARCH 31, ------------------------------------------- ---------------- 1993 1994 1995 1996 1997 1997 1998 ----- ------- ------- -------- -------- ------- ------- (in thousands, except per share data) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenue................ $ 146 $ 816 $ 765 $ 5,199 $ 17,993 $ 2,967 $ 5,106 Gross profit........... 127 603 756 2,573 10,595 1,926 2,579 Total operating expenses(2)........... 342 1,779 5,006 18,375 40,528 8,428 9,189 Loss from operations... (215) (1,176) (4,250) (15,802) (29,933) (6,502) (6,610) Net loss............... (215) (1,059) (4,221) (15,134) (29,111) (6,238) (6,395)
MARCH 31, 1998 ------------------------------------- ACTUAL PRO FORMA(3) AS ADJUSTED(4) -------- ------------ -------------- (in thousands) CONSOLIDATED BALANCE SHEET DATA: Cash, cash equivalents and short-term investments............................ $ 19,066 $ 19,066 $ 56,579 Working capital......................... 9,243 9,243 46,756 Total assets............................ 32,800 32,800 70,313 Long-term obligations................... 2,679 2,679 2,679 Mandatorily redeemable securities....... 72,240 -- -- Stockholders' (deficit) equity.......... (58,119) 14,121 51,634
- -------- (1) As of March 31, 1998. Excludes: (i) 936,370 shares of the Company's Common Stock reserved for issuance pursuant to warrants at a weighted average exercise price of $12.41 per share, (ii) 4,720,160 shares subject to outstanding options at March 31, 1998 and (iii) 2,927,018 shares reserved for issuance under the Company's 1994 Stock Plan, 1998 Employee Stock Purchase Plan and 1998 Director Option Plan. Subsequent to March 31, 1998, options to purchase 471,846 shares were exercised at a weighted average exercise price of $1.69 per share and the Company granted additional options to purchase an aggregate of 746,094 shares of Common Stock under the 1994 Stock Plan at a weighted average exercise price of $7.66 per share. See "Management--Stock Plans," "Certain Transactions," "Description of Capital Stock" and Notes 6, 8 and 11 of Notes to Consolidated Financial Statements. (2) Total operating expenses include non-recurring and non-cash stock compensation expense and amortization of warrants aggregating $562,000 and $6,059,000 for the years ended December 31, 1996 and 1997, respectively, and $459,000 and $696,000 for the three months ended March 31, 1997 and 1998. There were no such expenses for the years ended December 31, 1993, 1994 and 1995. (3) Pro forma to reflect the assumed conversion of all outstanding shares of Preferred Stock into 11,775,560 shares of Common Stock upon the completion of this offering and conversion of warrants to purchase 701,756 shares of Preferred Stock into warrants to purchase 701,756 shares of Common Stock. (4) As adjusted to reflect the sale of the 3,750,000 shares of Common Stock offered hereby at an assumed initial public offering price of $11.00 per share and the receipt of net proceeds therefrom. Assumes no exercise of the Underwriters' over-allotment option. See "Use of Proceeds," "Capitalization" and "Underwriting." 5 RISK FACTORS Prospective investors should consider carefully the following risk factors, in addition to the other information contained in this Prospectus concerning the Company and its business, before purchasing the shares of Common Stock offered hereby. Certain statements contained in "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business," including statements regarding the anticipated growth in the market for Internet advertising and the belief of the Company as to its future operating performance and other statements contained in this Prospectus that are not historical facts, are "forward- looking" statements within the meaning of the U.S. federal securities laws. Because such statements include risks and uncertainties, actual results may differ materially from those anticipated in such forward-looking statements as a result of certain factors, including those set forth herein and in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." History of Net Losses; Accumulated Deficit; Expected Future Net Losses. The Company has incurred net losses since its inception in July 1992. The Company incurred net losses of $4.2 million, $15.1 million, $29.1 million and $6.4 million in fiscal 1995, 1996, 1997 and for the three months ended March 31, 1998, respectively. As of March 31, 1998, the Company had an accumulated deficit of $56.8 million. In addition, the Company did not recognize revenue relating to the PointCast Network until February 1996. Accordingly, the Company has a history of net losses and its prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies with limited histories of generating revenue from their core services, particularly companies in the new and rapidly evolving markets for the Internet and Internet services, including the Internet advertising market. To increase revenue, the Company must, among other things, enhance performance of the PointCast Network by further developing and upgrading its technology, significantly grow and increase retention of its viewing audience, effectively develop new relationships and maintain existing relationships with its advertising customers, particularly advertisers who have historically relied on traditional media for advertising, their advertising agencies and other third parties, obtain widespread acceptance of enterprise-wide deployment of the PointCast Network, maintain and form new relationships with third-party content providers and media partners, obtain, aggregate and distribute original and compelling content to Internet users, increase PointCast brand awareness, successfully expand international operations, respond to competitive developments and attract, retain and motivate qualified personnel. There can be no assurance that the Company will be able to successfully address these and other risks and increase revenue, and the failure to do so could have a material adverse effect on the Company's business, financial condition and results of operations. The Company does not expect significant growth, if any, in revenue for at least the next two quarters, and the Company expects to incur increased net losses for at least the next two quarters and significant net losses for the foreseeable future. There can be no assurance that revenue from advertisers or other sources will not decline in the future or that the Company's net losses will not continue to increase in the future or that the Company will ever achieve or maintain profitability. The Company intends to substantially increase its operating expenses in order to increase brand awareness, increase its sales and marketing operations and continue to expand internationally. The Company also expects its operating expenses to increase as a result of the costs associated with becoming a public company. The Company expects its costs of revenue to increase due to increased costs of data transmission, content acquisition and international expansion. To the extent that revenue does not grow at anticipated rates, the Company would be unable to decrease operating expense levels quickly enough to offset the lack of growth in revenue. In such event, the Company's business, financial condition and results of operations would be materially adversely affected. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Need to Retain and Increase Viewer Base. The Company's advertising revenue is based primarily on the size and demographics of the Company's viewer base and the Company's future success depends in part upon the Company's ability to retain and increase the number of active viewers, particularly among business consumers. The Company had an average of approximately 1.2 million active viewers worldwide in the first quarter of 1998. Although the Company received between 850,000 and 1,000,000 registrations per quarter during the last five fiscal quarters, the Company's active viewer base has been relatively flat during this period. A 6 substantial majority of the attrition occurs during the initial 90 days after registration. After conducting surveys of former viewers to identify the issues underlying the attrition rate, the Company believes that the high rate of attrition during the first 90 days of viewer use is due to a variety of factors, including poor performance and stability issues with the PointCast Network Client. The Company released version 2.5 of the PointCast Network Client in May 1998 to begin addressing some of these problems and expects to release version 2.6 in the second half of 1998 to address additional specific performance and stability issues. There can be no assurance that these and future versions of the PointCast Network Client will adequately resolve these performance, stability and other software problems or that the Company will be successful in increasing its number of active viewers, including by reducing viewer attrition. The failure by the Company to reduce attrition levels and increase its installed viewer base would have a material adverse effect on the Company's ability to increase advertising revenues which would have a material adverse effect on the Company's business, financial condition and results of operations. See "--Need to Improve Performance and Stability of the PointCast Network Client; New Product Development and Technological Change." In addition, the format of the PointCast Network represents a paradigm shift from active Internet exploration to passive information consumption, and there can be no assurance that viewers accustomed to active Internet exploration will widely accept passive information consumption. If the Company is unable to obtain widespread viewer acceptance of passive information consumption, it will be unable to retain and increase the number of active viewers possessing demographic characteristics attractive to advertisers. In such event, advertising revenues would likely decline and the Company's business, financial condition and results of operations would be materially adversely affected. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Need to Improve Performance and Stability of the PointCast Network Client; New Product Development and Technological Change. The Company has a high viewer attrition rate during the initial 90 days after registration, which the Company believes is due to poor performance of the PointCast Network Client, including high usage of certain operating system resources, lengthy update times, connection and downloading problems and other stability issues. A key element of the Company's strategy to increase and retain its viewer base is to improve the performance and stability of the PointCast Network through the introduction and release of enhancements and upgrades to its PointCast Network Client. The Company has recently released version 2.5 of its PointCast Network Client to begin to address certain stability issues. In addition, the Company is currently developing version 2.6, which it expects to be commercially released in the second half of 1998. Version 2.6 is being developed to address specific performance and stability issues, in particular to redesign the PointCast Network's animation engine to reduce its consumption of the graphical display interface resources on a PC. There can be no assurance that the Company will not experience difficulties that could prevent the successful rollout of version 2.5 or that could delay or prevent the successful development, introduction and rollout of version 2.6, that versions 2.5 and 2.6 will provide the technological improvements the Company expects, that these versions will adequately meet viewer requirements or that they will gain widespread market acceptance. Furthermore, there is no assurance that during the rollout periods for both versions 2.5 and 2.6 the Company will not continue to experience significant viewer attrition. If the Company were to incur delays in the introduction of these products, or if these products do not provide the improvements expected or do not gain widespread market acceptance, the Company's business, financial condition and results of operations would be materially adversely affected. See "Business--PointCast Viewership." The Company's success will depend on its ability to continue to enhance the PointCast Network Client, including the addition of features, functions and channels, and to continue to develop and introduce, on a timely and cost- effective basis, new versions of the PointCast Network Client that keep pace with technological developments, address increasingly sophisticated customer requirements and resolve any future performance problems with the PointCast Network Client. The markets for the Company's product offerings are characterized by rapidly changing technology and frequent new product and service offerings. The introduction of new technologies can render existing products and services obsolete or unmarketable. In addition, changes in firewall and other security applications could prevent or impair the Company's ability to receive information from its 7 viewers, including important demographic information for the Company's advertising customers. The research, development and marketing of enhancements to the PointCast Network, including the addition of features, functions and channels, can be time consuming and require considerable resources. In order to add new features and enhancements to the PointCast Network Client, the Company has in the past and may in the future enter into partnering, development and/or marketing agreements with third parties who pay certain fees to the Company. There can be no assurance that the Company will be successful in identifying, developing and marketing enhancements, including the addition of new channels that respond to technological changes or problems, or meet the Company's or third-party requirements, that the Company will not experience difficulties that could delay or prevent the successful development, introduction and marketing of product enhancements with new features, functionality or channels or new products, or that its product enhancements and new products will adequately meet viewer requirements and achieve widespread market acceptance. Any failure to meet, or delay in meeting performance requirements the Company is contractually obligated to provide could result in claims for liability. In addition, the Company's business, financial condition and operating results could be materially adversely affected should the Company incur delays in developing and releasing enhancements or new versions of the PointCast Network Client or if such enhancements or new versions do not gain widespread market acceptance. See "Business--PointCast Viewership" and "Business--Central Broadcast Facility and Technology." Potential Fluctuations in Quarterly Operating Results; Seasonality. The Company's results of operations may fluctuate significantly in the future as a result of a variety of factors, many of which are beyond the Company's control. These factors include the number, timing and performance of upgrades and enhancements to the PointCast Network, the addition or loss of viewers using the PointCast Network, the addition or loss of advertisers, the demographics of the installed base of viewers, demand for and market acceptance of Internet advertising, seasonal trends in Internet usage and advertising placements, advertisers' budgeting cycles, the commitment of advertising budgets to Internet advertising, changes in pricing models for Internet advertising, the loss of one or more third-party content providers, technical difficulties or Central Broadcast Facility downtime, capacity constraints of the Central Broadcast Facility, the amount and timing of costs relating to the expansion of the Company's Internet operations and the scaling of the PointCast Network infrastructure, introduction of or improvements in competing products or services, price competition or pricing changes in the industry, the level of use of the Internet and general economic conditions. Due to all of the foregoing factors, the Company believes that period-to- period comparisons of its results of operations are not necessarily meaningful and should not be relied upon as indications of future performance. In addition, the Company has been, and expects in the future to be, subject to seasonal fluctuations in the amount of Internet advertising revenue, as advertisers have historically spent more during the fourth calendar quarter of each year and less during the first calendar quarter of each year. Additional seasonal patterns in Internet advertising spending and other seasonal fluctuations may emerge as the market matures. Due to all of the foregoing factors, it is possible that in some future quarters the Company's results of operations may fall below the expectations of securities analysts and investors. In such event, the trading price of the Company's Common Stock would likely be materially and adversely affected. See "Management's Discussion and Analysis of Financial Condition and Results of Operations-- Quarterly Results of Operations." Dependence on Advertising Revenue and Cancelable Advertising Contracts. Since the launch of the PointCast Network, the Company has primarily derived its revenues from the sale of advertisements. In 1997 and the first quarter of 1998, advertising revenue represented 87% and 96%, respectively, of the Company's total revenue. The Company expects that advertising revenue will account for substantially all of its revenue for the foreseeable future. The Company's ability to increase its advertising revenue and inventory of advertisements is a function of several factors, including the ability of the Company to retain and increase the number of active viewers of the PointCast Network, the amount of usage of the PointCast Network by such viewers and the level of advertising rates charged. Advertising revenues are recognized in the period the advertisement is displayed, provided no significant Company obligations remain and collection of the resulting receivable is probable. Company obligations typically include guarantees of a minimum number of "billable deliveries," a measurement of the number of times an advertisement is delivered to viewers of the PointCast Network. To the 8 extent billable delivery guarantees are met, the Company recognizes revenue and invoices the advertiser for the billable deliveries provided or, if an amount has been invoiced in excess of the billable deliveries provided, the Company defers recognition of the corresponding revenue until minimum billable delivery guarantees are satisfied. In addition, the Company may be committed to "make good" or provide additional billable deliveries, which may adversely affect the availability of advertising inventory. The Company's expense levels are based in part on its expectations concerning future revenue and to a large extent are fixed. Quarterly revenues and operating results depend substantially upon the advertising revenues received within the quarter, which are difficult to forecast accurately. Accordingly, the cancellation or deferral of a small number of advertising contracts could have a material adverse effect on the Company's business, results of operations or financial condition. Advertisements delivered by the Company are typically sold pursuant to purchase order agreements which can be cancelled by the customer at any time on two weeks notice. Consequently, the Company's advertising customers may change or cancel their advertising expenditures, move their advertising to competing Internet sites, or from the Internet to traditional media, quickly and with minimal penalty, thereby increasing the Company's exposure to competitive pressures and fluctuations in revenue and operating results. In selling Internet advertising, the Company also depends to a significant extent on advertising agencies, which exercise substantial control over the placement of advertisements for the Company's existing and potential advertising customers. There can be no assurance that current advertisers will continue to purchase advertising from the Company or that the Company will be able to attract additional advertisers. If the Company loses advertising customers, fails to attract new customers or is forced to reduce advertising rates in order to retain or attract customers, the Company's business, financial condition and results of operations will be materially adversely affected. See "Business--Advertising on the PointCast Network." The Company received 8% and 11% of its total advertising revenue from TransCosmos Incorporated ("TransCosmos") in the three months ended December 31, 1997 and March 31, 1998, respectively. TransCosmos is the holder of approximately 2% of the Company's outstanding capital stock (prior to this offering). The Company expects advertising revenue from TransCosmos to account for less than 10% of the Company's total advertising revenue for fiscal 1998. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Developing Internet Advertising Market; Unproven Acceptance and Effectiveness of Internet Advertising. The market for Internet advertising has only recently begun to develop, is rapidly evolving and is characterized by an increasing number of market entrants. As is typical in the case of a new and rapidly evolving industry, demand and market acceptance for recently introduced products and services are subject to a high level of uncertainty. Since the Company expects to derive substantially all of its revenues in the foreseeable future from Internet advertising, the future success of the Company is highly dependent on the increased use of the Internet as an advertising medium. The Internet as an advertising medium has not been available for a sufficient period of time to gauge its effectiveness as compared with traditional advertising media. Most of the Company's current or potential advertising customers have limited or no experience using the Internet as an advertising medium, have not devoted a significant portion of their advertising expenditures to Internet advertising and may not find Internet advertising to be effective for promoting their products and services relative to advertising on traditional media. Also, certain advertising filter software programs are available that limit or remove advertising from an Internet user's desktop. Such software, if generally adopted by viewers, may have a material adverse effect upon the viability of advertising on the Internet. In addition, the Company's advertising model is based in substantial part on the Company's ability to attract advertisers who have historically relied upon traditional media for advertising. This will require such advertisers to accept the Internet as a viable advertising medium. There can be no assurance that the market for Internet advertising will continue to emerge or become sustainable. If the market fails to develop or develops more slowly than expected, or if advertisers who rely on traditional media do not accept the Internet as an advertising medium, the Company's business, results of operations and financial condition would be materially and adversely affected. A majority of the advertisements placed on the Internet today are banner advertisements. The Company's advertising model and future revenue, are based in substantial part on its advertising customers' use of highly 9 interactive, animated advertisements sometimes called intermercials or commercials. The cost per advertisement is substantially higher for an intermercial than a banner advertisement and intermercials are substantially more expensive and time consuming to create. There can be no assurance that the Company's advertising customers will consider the Company's commercials to be more effective than other less expensive forms of Internet advertisements, such as banners, or that the Company's advertising customers will be willing to spend the time and money to create such advertisements. The failure to achieve widespread acceptance of the intermercial could result in flat or reduced advertising revenue, which would have a material adverse effect on the Company's business, financial condition and results of operations. There are no widely accepted standards for the measurement of the effectiveness of Internet advertising, and there can be no assurance that such standards will develop sufficiently to support Internet advertising as a significant advertising medium. In addition, there also can be no assurance that advertisers will accept the Company's or other third-party measurements of the effectiveness of the Company's advertisements or that such measurements will not contain errors. In addition, the effectiveness of Internet advertising is dependent upon the accuracy of information contained in the databases used to target advertisements to particular viewers. Like any database, there can be no assurance that the information in the Company's database will be accurate or that advertisers will be willing to have advertisements targeted by any database containing such potential inaccuracies. Acceptance of Corporate-Wide Deployment of the PointCast Network. The Company's PointCast Network broadcasts news and information to viewers primarily in the work environment. Some companies have prohibited their employees from using the PointCast Network because of the adverse impact that large numbers of PointCast Network viewers within those companies have had on local area network performance. The Company has addressed and continues to address the system performance and reliability issues of the PointCast Network through the release of improvements and enhancements to the PointCast Network Client. However, there can be no assurance that such enhancements or improvements will not prevent companies from prohibiting the use of the PointCast Network by their employees, which would have a material adverse effect on the Company's business, financial condition and operating results. See "--Need to Improve Performance and Stability of the PointCast Network Client; New Product Development and Technological Change." The Company believes that corporate-wide adoption of the PointCast Network is a key element in the Company's strategy to increase its viewer base. In order to implement this strategy, the Company must obtain the support of corporate information technology departments, corporate librarians, corporate communications departments, as well as company management that the deployment of the PointCast Network within company local area networks is a useful addition to the corporate intranet and not as a distraction to their employees. There can be no assurance that the Company will be able to do so. The Company recently began delivery of its Intranet Broadcast Solution in January 1998, which is designed to both alleviate network congestion problems that may be caused by the PointCast Network and to allow managers of corporate intranets to broadcast content tailored to employees and thereby reduce resistance to PointCast Network deployment. There can be no assurance, however, that such tools will work as planned or that the Company will be able to convince the various corporate constituencies to use the tools or to adopt the PointCast Network as an intranet broadcast system. If the Company fails to convince company management and the other corporate constituencies to support the PointCast Network, the Company's business, financial condition and results of operations could be materially adversely affected. See "Business-- Strategy." Intense Competition. The market for Internet content and information services and Internet advertising is new and rapidly evolving, and competition for viewers and advertisers is intense and is expected to increase significantly in the future. The Company competes for viewers with many other Internet content and service providers, including Web directories, search engines, shareware archives, sites that offer original editorial content, commercial online services and sites maintained by Internet service providers, as well as thousands of Internet sites operated by individuals and government and educational institutions. These competitors include subscription services such as Bloomberg L.P. ("Bloomberg"), Dow Jones & Company Inc. ("Dow Jones Telerate"), NewsEdge Corporation ("NewsEdge"), Reuters America Holdings, Inc. ("Reuters Limited"), 10 The Wall Street Journal Interactive and other business-oriented internet sites, as well as free information, search and content sites or services, such as America Online, Inc. ("AOL"), CNet, Inc. ("CNet"), CNN/Time Warner, Inc.("CNN/TimeWarner"), Excite, Inc., Infoseek Corporation ("Infoseek"), Lycos, Inc. ("Lycos"), Netscape Communications Corporation ("Netscape") and Yahoo! Inc. ("Yahoo!"), some of whom, such as CNN/Time Warner, Inc., may also provide content to the PointCast Network. The Company believes that the principal competitive factors in attracting Internet viewers include the quality of presentation, the PointCast Network Client performance and the relevance, timeliness, depth and breadth of information and services offered by the Company. The Company also competes with many companies for advertisers, including those companies with whom the Company competes for viewers as well as traditional forms of media such as newspapers, magazines, radio and television. The Company believes that the principal competitive factors in attracting advertisers include the number of viewers of the PointCast Network, the demographics of the Company's viewers, the Company's ability to deliver focused advertising through the PointCast Network and the overall cost- effectiveness and value of advertising offered by the Company. The Company also believes that companies with access to large installed bases of end users through the telecommunications infrastructure are potential competitors of the PointCast Network. Such potential competitors could include regional Bell operating companies, cable television companies, long-distance telephone service providers and large content publishers. The Company currently has an agreement with Microsoft Corporation ("Microsoft") pursuant to which Microsoft includes the PointCast Network on its Active Desktop product. This agreement is scheduled to expire in September 1998. Currently, the Company is not receiving a significant number of new viewer registrations as a result of this agreement and the Company does not expect Microsoft to renew the agreement. Although the Company is not aware of any plan by Microsoft to develop any directly competing product or service, Microsoft has a vastly greater installed user base and vastly greater financial, research and development, marketing, sales and distribution resources than the Company. The announcement or introduction by Microsoft of a directly competitive product could have an immediate, material adverse affect on the Company's business, financial condition and operating results. There is no provision in the Company's agreement with Microsoft which would prohibit Microsoft from competing with the Company. The Company expects competition to persist and intensify and the number of competitors to increase significantly in the future. Many of the Company's current competitors have significantly greater financial, editorial, technical and marketing resources, longer operating histories, greater name recognition and more established relationships with advertisers and advertising agencies than the Company. Such competitors may be able to undertake more extensive marketing campaigns, adopt more aggressive pricing policies and devote substantially more resources to attract viewers and advertisers than the Company. In addition, although the Company believes that it currently collects more data regarding its viewer profiles than its competitors, other companies are currently collecting, or have announced their intention to collect, more detailed viewer profile information. There can be no assurance that the Company will be able to compete successfully against current or future competitors or that competitive pressures faced by the Company will not materially adversely affect the Company's business, financial condition and operating results. See "Business--Competition." Dependence on Intellectual Property Rights; Risks of Infringement; Potential Patent Claims. The Company regards its intellectual property as critical to its success, and the Company relies on patent, trademark, copyright and trade secret laws in the United States and other jurisdictions to protect its proprietary rights. The Company has been issued one patent, has filed nine patent applications with the United States Patent and Trademark Office and has filed one patent application in three foreign jurisdictions to protect certain aspects of its technology. The Company pursues the protection of its trademarks by applying to register the trademarks in the United States and (based upon anticipated use) internationally, and is the owner of a registration for the PointCast trademark. There can be no assurance that any of the Company's pending or future patent or trademark applications will be granted or approved. In addition, there can be no assurance that the Company's current patent and trademarks or any future patents or trademarks will not be successfully challenged by others or invalidated or narrowed through the administrative process or litigation. Patent, trademark, copyright and trade secret protection may not be available or enforceable in every country in which the Company's products are distributed 11 or made available. In addition, the Company seeks to protect its proprietary rights through the use of confidentiality agreements with employees, consultants, advisors and others. There can be no assurance that such agreements will provide adequate protection for the Company's proprietary rights in the event of any unauthorized use or disclosure, that employees of the Company, consultants, advisors or others will maintain the confidentiality of such proprietary information or that such proprietary information will not otherwise become known, or be independently developed, by competitors or others. Legal standards relating to the validity, enforceability and scope of protection of certain proprietary rights in Internet-related industries are uncertain and still evolving, and no assurance can be given as to the future viability or value of any proprietary rights of the Company or other companies within the industry. There can be no assurance that the steps taken by the Company to protect its proprietary rights will be adequate or that third parties will not infringe or misappropriate the Company's proprietary rights. Policing unauthorized use of the Company's proprietary technology and other intellectual property rights could entail significant expenses and could be difficult or impossible, particularly given the global nature of the Internet and the fact that the laws of other countries may afford the Company little or no effective protection of its intellectual property. Any such infringement or misappropriation, should it occur, could have a material adverse effect on the Company's business, results of operations and financial condition. In addition, there can be no assurance that third parties will not bring claims of patent, copyright or trademark infringement or claims of trade secret misappropriation against the Company. The Company anticipates an increase in patent infringement claims involving Internet-related technologies as the number of products and competitors in this market grows and as related patents are issued. Any claims of infringement or misappropriation, with or without merit, could be time consuming to defend, result in costly litigation, divert the Company's resources, require the Company to enter into costly royalty or licensing arrangements, if available, or prevent the Company from using important technologies or methods, any of which could have a material adverse effect on the Company's business, financial condition or operating results. There can be no assurance that the Company would be able to enter into arrangements with such third parties on commercially reasonable terms allowing the Company to continue to use such patented technology or trademarks. From time to time, the Company receives notices that its products and services may infringe the intellectual property rights of others. In 1995, Unisys Corporation ("Unisys") announced its intention to require the payment of royalties for the use of compression technology associated with the popular Graphics Interchange Format ("GIF"). In March 1998 the Company received a letter from Unisys stating that it holds a patent (the "Welch" patent) on certain data compression/decompression technology that it claims is applicable to the graphics incorporated in GIF file format in certain of the content and advertising delivered on the PointCast Network. The Company is currently reviewing the matter with its patent counsel in order to determine the scope of the claims in the Welch patent and to determine its response to Unisys' request that the Company license the Welch patent. The Company could incur additional expense and liability if the Company enters into a license with Unisys under the Welch patent or if the Company becomes involved in litigation with Unisys relating to the Welch patent. There is no assurance the Company would prevail in such litigation. If the Company's incorporation of GIF files in the content and advertising distributed on the PointCast Network is found to be within the scope of the Welch patent, the Company could incur liability and related expense resulting from such infringement. The assertion of these patent rights by Unisys, if successful, could result in additional expense to the Company should it decide to utilize a different graphics file format for the content and advertising distributed on the PointCast Network. There can be no assurance that the Company's products or services are not subject to the Welch patent. In March 1997, the Company received a letter from Wang Corporation ("Wang"), stating that Wang was interested in licensing a portion of its patent portfolio to PointCast or other interested parties involved in Internet- related technology. The Company reviewed the proffered patents with its patent counsel and has informed Wang that the Company is not interested in pursuing a purchase or license agreement at this time. Wang filed a lawsuit alleging patent infringement regarding some or all of the profferred patents against Netscape and AOL. In May 1998, this lawsuit was dismissed on summary judgment. There can be no assurance that Wang's lawsuit against 12 Netscape and AOL will not be reinstated on appeal, or that Wang will not assert claims against the Company, notwithstanding the Company's belief that its products do not infringe the profferred Wang patents. In April 1997 the Company received a letter from Charles Hill & Associates stating that the operation of the PointCast Network infringes one or more claims of a patent which relates to updating an electronic product catalog across a network. After reviewing the patent, the Company's patent counsel concluded that the PointCast Network does not infringe any of the claims of the patent. There can be no assurance that infringement claims, or claims for indemnification resulting from infringement claims, based upon the foregoing or upon future claims will not be asserted or prosecuted against the Company or that any such assertions or prosecutions will not materially adversely affect the Company's business, financial condition or results of operations. Irrespective of the validity or the successful assertion of such claims, the Company would incur significant costs and diversion of resources with respect to the defense thereof which could have a material adverse effect on the Company's business, financial condition or results of operations. If any claims or actions are asserted against the Company, the Company may seek to obtain a license under a third-party's intellectual property rights. There can be no assurance, however, that under such circumstances, a license would be available on commercially reasonable terms or at all. See "Business-- Intellectual Property." Need to Continue to Obtain Compelling Content; Reliance on Third-Party Content Providers. The Company's future success depends in part upon the Company's ability to deliver original and compelling content through the PointCast Network to attract viewers with demographic characteristics valuable to the Company's advertising customers. There can be no assurance that the Company's existing and future content sources will continue to provide content, that such content will be original and compelling, that such sources will not seek to charge the Company a significant fee for the supply of such content, that they will not enter into similar arrangements with or provide similar content to the Company's competitors, that they will continue their relationship with the Company, or that they will not establish their own services to compete against the Company for advertising revenue. Termination of one or more of the Company's current significant content provider agreements would decrease the availability of information which the Company can offer its customers and could have a material adverse effect on the Company's business, results of operations and financial condition. In addition, if the Company's costs with respect to obtaining such content significantly increase, the Company's business, results of operations and financial condition could be materially adversely affected. The Company relies on certain of its content providers and business partners to develop and provide industry-specific content for one or more PointCast Industry Insider channels. The agreements with such content providers and business partners generally have a one to two year term. Termination or nonrenewal of one or more of the Company's agreements with these parties could result in suspension of one or more of the Company vertical market channels, loss of content and termination of running advertising units on such channel, any of which could have a material adverse effect on the Company's business, financial condition and results of operations. The content on certain of the Company's broadcast channels is currently controlled by the Company's sponsors for those channels. Therefore, in certain cases the Company has no contractual relationship with the actual content providers. If the agreements between the Company's sponsors and the content providers are inadequate, or the relationship between the sponsor and the content provider is terminated, supply to such content could be terminated and the Company's business, financial condition and results of operations could be materially adversely affected. See "Business--The PointCast Network Offerings." Risk of System Failure. The continuing and uninterrupted performance of the PointCast Network is critical to the success of the Company's business. Any system failure that causes interruptions in the Company's ability to broadcast to its viewers, including failures that affect the ability of the Company to deliver advertisements without significant delay to the viewer, could reduce viewer satisfaction and, if sustained or repeated, would reduce the attractiveness of the PointCast Network to advertisers and viewers, which could have a material adverse effect on the Company's business, financial condition and results of operations. If there is a sudden increase in viewership that exceeds the PointCast Network's capacity, there will be a degradation in system 13 performance. There are also many other risks attendant to the PointCast Network, including, without limitation, network shutdowns and outages, whether caused by natural disaster, human interference or mistake, unannounced or unexpected changes in transmission protocols or other technology or content format changes by content providers. The Company and its Internet access providers on occasion have had network outages and it is reasonable to expect that additional such outages will occur in the future. Pursuant to an agreement with Electronic Data Systems Corporation ("EDS"), EDS maintains a back-up facility in Plano, Texas, which replicates a portion of the functionality of the Central Broadcast Facility. There can be no assurance, however, that simultaneous outages would not occur at both the Sunnyvale and Plano facilities. Currently, there is no automated method to monitor the Company's servers. If one or more of the Company's servers were to experience errors in transmission, shutdowns or outages and such errors, shutdowns or outages were not detected in a timely manner, the Company's ability to broadcast content updates to is viewers could be materially adversely affected. In addition, third-party content from PointCast's various content providers flows into the Company's Central Broadcast Facility via satellite, the Internet and leased lines, with secondary delivery methods in place as back-up for the most important data sources, where it is reconfigured and sent out to the Company's viewers for periodic updates. Currently, other than the most important data sources, the Company has no backup capability with respect to the collection of third-party content and does not expect to have fully operational backup capability until the first quarter of 1999, if ever. If the Central Broadcast Facility were to experience a shutdown or outage, the Company would be unable to feed content updates to its viewers, which, if sustained or repeated, could result in the loss of viewers and reduce the attractiveness of the PointCast Network to advertisers, which would have a material adverse effect on the Company's business, financial condition and results of operations. See "Business--Central Broadcast Facility and Technology." Risks Associated with International Expansion. In August 1997, the Company launched its PointCast Network in Japan. A key component of the Company's strategy is to continue to expand its international operations and international sales and marketing efforts. The Company is still in the early stages of launching its PointCast Network in Japan. The Company needs to continue to develop third-party relationships with content providers, advertisers and distributors in Japan and other countries in order for its international expansion efforts to be successful. To date, the Company has limited experience in developing localized versions of its PointCast Network and in marketing, selling and distributing its PointCast Network internationally. There can be no assurance that the Company will be able to successfully market, sell and deliver its products in these markets. In Japan, the Company is relying on its business partner for conducting operations, establishing local networks and coordinating sales and marketing efforts and the Company expects to enter into similar partnering arrangements for other international markets. The Company's success in such markets will be directly dependent on the success of its business partners in such activities. No assurance can be given that such business partners will be successful or that such business partners will dedicate sufficient resources to the business relationship. The failure of the Company's business partners to successfully establish operations and sales and marketing efforts in such markets could have a material adverse effect on the Company's business, financial condition and results of operations. In addition, there are certain material risks inherent in doing business in international markets, such as unexpected changes in regulatory requirements, export restrictions, export controls relating to encryption technology, tariffs and other trade barriers, difficulties in staffing and managing foreign operations, longer payment cycles, political instability, fluctuations in currency exchange rates and potentially adverse tax consequences, which could adversely impact the success of the Company's international operations. Furthermore, the telecommunications infrastructure in much of the rest of the world is undeveloped and therefore typically has less bandwidth, higher cost and poor reliability, which could significantly hamper the Company's efforts to distribute the PointCast Network abroad, any of which could have a material adverse effect on the success of the Company's international operations and, consequently, on the Company's business, financial condition and results of operations. Management of Growth; Dependence on and Need to Recruit and Retain Key Management and Technical Personnel; Recent Additions to Senior Management. The Company has experienced rapid growth in its 14 operations and the Company anticipates that significant growth of its operations may continue for the foreseeable future. This rapid growth has placed, and is expected to continue to place, a strain on the Company's management and its operational and financial resources. The Company has grown from 57 employees as of January 1, 1996 to 267 employees as of March 31, 1998. In 1997, the Company added a number of key managerial and technical employees including a new Chief Executive Officer and a new Chief Financial Officer. In addition, the Company recently experienced a transition in senior management of its advertising sales organization. In addition, improving the PointCast Network Client's performance is critical to the success of the Company and the Company is currently seeking to hire a Senior Vice President of Engineering. Competition for such personnel is intense and there can be no assurance the Company will be able to hire such personnel on a timely basis. In order to effectively manage the Company, these new members of senior management must be integrated into the Company. The increase in the number of employees and the Company's product development activities have resulted in increased responsibility for the Company's management. In order to manage the expected growth of its operations, the Company will be required to implement and improve its operational and financial systems, procedures and controls, including the improvement of its accounting and other internal management systems, on a timely basis, and to train, manage and expand its already growing employee base. There can be no assurance that the Company's systems, procedures or controls will be adequate to support the Company's expanding operations or that Company management will be able to achieve the rapid execution necessary to successfully implement its business plan. The failure of the Company to manage its growth effectively would have a material adverse effect on the Company's business, financial condition and results of operations. The Company's future success depends, in significant part, upon the continued service of its key technical, sales and senior management personnel. The loss of the services of one or more of the Company's key personnel, including David Dorman, the Company's Chairman, President and Chief Executive Officer, could have a material adverse effect on the Company's business, financial condition and results of operations. The Company's future success also depends on its continuing ability to attract and retain highly qualified technical, sales and marketing, customer support, financial and accounting and managerial personnel. Competition for such personnel in the Internet industry is intense, and there can be no assurance that the Company will be able to retain its key personnel or that it can attract, assimilate or retain other highly qualified personnel in the future. The Company has in the past experienced, and expects to continue to experience in the future, difficulty in hiring and retaining candidates with appropriate qualifications. The failure by the Company to successfully hire and retain candidates with appropriate qualifications could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business--Employees" and "Management." Dependence on the Internet Infrastructure. The Company's success will depend, in large part, upon the maintenance of the Internet infrastructure, such as a reliable network backbone with the necessary speed, data capacity and security, and timely development of enabling products such as high speed modems, for providing reliable Internet access and services. To the extent that the Internet continues to experience increased numbers of users, frequency of use or increased bandwidth requirements of users, there can be no assurance that the Internet infrastructure will continue to be able to support the demands placed on it or that the performance or reliability of the Internet will not be adversely affected. Furthermore, the Internet has experienced a variety of outages and other delays as a result of damage to portions of its infrastructure, and such outages and delays, including outages and delays resulting from the inability of certain computers or software to distinguish dates in the 21st century from dates in the 20th century, could materially adversely affect the Company's ability to broadcast the PointCast Network. In addition, the Internet could lose its viability as a form of media due to delays in the development or adoption of new standards and protocols (for example, the next generation Internet Protocol) that can handle increased levels of activity. There can be no assurance that the infrastructure or complementary products or services necessary to establish and maintain the Internet as a viable commercial medium will be developed, or, if they are developed, that the Internet will become a viable commercial medium for advertisers. If the necessary infrastructure, standards or protocols, or complementary products, services or facilities are not developed, or if the Internet does not become a viable commercial medium, the Company's business, financial condition and results of operations will be materially and adversely affected. Even if such infrastructure, standards or protocols, 15 or complementary products, services or facilities are developed, there can be no assurance that the Company will not be required to incur substantial expenditures in order to adapt its solutions to changing or emerging technologies, which could have a material adverse effect on the Company's business, financial condition and results of operations. Moreover, critical issues concerning the commercial use and government regulation of the Internet (including security, cost, ease of use and access, intellectual property ownership and other legal liability issues) remain unresolved and could materially and adversely impact both the growth of the Internet and the Company's business, financial condition and results of operations. See "-- Potential Litigation/Liability Related to Year 2000 Compliance." Security Risks. The Company has experienced attempts by experienced programmers or "hackers" to penetrate the Company's network security, and believes it is reasonable to expect that they will continue to do so. If successful, such actions could have a material adverse effect on the Company's business, financial condition and results of operations. A party who is able to penetrate the Company's network security could misappropriate proprietary information or cause interruptions in the Company's Internet operations. The Company may be required to expend significant capital and resources to protect against the threat of such security breaches or to alleviate problems caused by such breaches. Concerns over the security of Internet transactions and the privacy of users, as well as concerns related to computer viruses, may also inhibit the growth of the Internet generally, particularly as a means of conducting commercial transactions. Security breaches or the inadvertent transmission of computer viruses could expose the Company to a risk of loss or litigation and possible liability. There can be no assurance that contractual provisions attempting to limit the Company's liability in such areas will be successful or enforceable, or that other parties will accept such contractual provisions as part of the Company's agreements. See "Business--Central Broadcast Facility and Technology." Liability for Internet Content. The Company faces possible liability for defamation, negligence, copyright, patent or trademark infringement and other claims, such as product or service liability, based on the nature and content of the materials that it distributes. Such claims have been brought, and sometimes successfully pressed, against online services. The law in these areas is highly unclear and, accordingly, the Company has no ability to predict the possible existence or extent of its liability in this area or related areas. In addition, the Company could be subject to liability with respect to content that may be accessible through the Company's Web sites or third-party Web sites linked from the PointCast Network. The Company currently does not carry insurance that covers liability for content. Any costs or imposition of liability that is not covered by insurance could have a material adverse effect on the Company's business, financial condition or results of operations. Potential Litigation/Liability Related to Year 2000 Compliance. The "Year 2000" issue arises from computer programs that use two digits rather than four to define the applicable year. Such computer programs may cause computer systems to recognize a date using "00" as the calendar year 1900 rather than the calendar year 2000. Systems that do not properly recognize such information could generate erroneous data or cause a system to fail. The Company believes all of its products are Year 2000 compliant. There is no assurance, however, that the Company's financial systems software or its PointCast Network Client do not contain undetected errors or defects associated with Year 2000 date functions, which could cause a disruption of the Company's accounting systems or ability to provide its PointCast Network, which could result in a loss of revenue, diversion of development resources or damage to the Company's reputation, any of which could materially adversely affect the Company's business, financial condition, or results of operations. Some commentators have predicted significant litigation regarding Year 2000 compliance issues. Because of the unprecedented nature of such litigation, it is uncertain whether or to what extent the Company may be affected by it. Although the Company currently believes that this issue will not pose significant operational problems, delays in the modification or conversion of its systems, or the failure to fully identify all Year 2000 dependencies in the Company's systems could have a material adverse effect on the Company's business, financial condition and results of operations. In addition, the Company cannot be sure that systems of other companies on which the Company's systems rely will be converted in a timely manner. The Company relies on third-party systems to facilitate broadcast from the Central Broadcast Facility to its clients. The disruption of a broadcast to its clients could prevent the Company from obtaining the minimum "billable deliveries" required by its advertisers and 16 could therefore have a material adverse effect on the Company's business, financial condition and results of operations. In addition, the Company relies on the integration of many systems in aggregating the content from multiple sources. The failure of any of those systems as a result of Year 2000 compliance issues could prevent the Company from delivering the content, which could have a material adverse effect on the Company's retention and acquisition of viewers, resulting in a material adverse effect on the Company's ability to sell advertising and meet its billable delivery requirements under its advertising contracts. The failure of other companies to successfully address Year 2000 issues in the systems on which the Company's systems rely, may have a material adverse effect on the Company's business, financial condition and results of operations. Government Regulation and Legal Uncertainties. Due to concerns arising in connection with the increasing popularity and use of the Internet, a number of laws and regulations may be adopted covering issues such as user privacy, pricing, acceptable content, taxation and quality of products and services. Such legislation could dampen the growth in use of the Internet generally and decrease the acceptance of the Internet as a communications and commercial medium, which could have a material adverse effect on the Company's business, financial condition and results of operations. In addition, because the growing popularity and use of the Internet has burdened the existing telecommunications infrastructure and many areas with high Internet use have begun to experience interruptions in phone service, certain local telephone carriers have petitioned governmental bodies to regulate Internet service providers ("ISPs") and online service providers ("OSPs") in a manner similar to long distance telephone carriers and to impose access fees on ISPs and OSPs. If any of these petitions or the relief sought therein is granted, the costs of communicating on the Internet would increase substantially, potentially adversely affecting the growth in use of the Internet. Further, due to the global nature of the Internet, it is possible that, although transmissions relating to the Company's solutions originate in the State of California, the governments of other states or foreign countries might attempt to regulate the Company's transmissions or levy sales or other taxes relating to the Company's activities. There can be no assurance that violations of local laws will not be alleged or charged by state or foreign governments, that the Company might not unintentionally violate such laws or that such laws will not be modified, or new laws enacted, in the future. Any of the foregoing developments could have a material adverse effect on the Company's business, results of operations and financial condition. Lack of Public Market; Offering Price; Possible Volatility of Stock Price. Prior to this offering, there has been no public market for the Common Stock and there can be no assurance that an active trading market will develop or be sustained after this offering. The price of the Common Stock to be offered hereby will be determined through negotiations between the Company and the representatives of the Underwriters and may not reflect the market price of the Common Stock after this offering. The market price of the Common Stock could be subject to wide fluctuations in response to quarterly variations in the Company's results of operations, changes in earnings estimates by research analysts, conditions in the personal computer industry or general market or economic conditions. In addition, in recent years the stock market has experienced extreme price and volume fluctuations. These fluctuations have had a substantial effect on the market prices for many technology companies, often unrelated to the operating performance of the specific companies. Such market fluctuations could materially adversely affect the market price for the Company's Common Stock. See "Underwriting." Concentration of Stock Ownership. Upon completion of this offering, the present directors, executive officers and their respective affiliates will beneficially own approximately 60% of the outstanding Common Stock assuming no exercise of the Underwriters' over-allotment option and 58% of the outstanding Common Stock assuming full exercise of the Underwriters' over-allotment option. As a result, these stockholders will be able to exercise significant influence over all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. Such concentration of ownership may also have the effect of delaying or preventing a change in control of the Company. See "Principal Stockholders" and "Description of Capital Stock--Anti-takeover Effects of Provisions of the Certificate of Incorporation, Bylaws and Delaware Law." Shares Eligible for Future Sale. Following the completion of this offering, 21,337,112 shares of Common Stock will be outstanding. The 3,750,000 shares of Common Stock offered hereby will be tradeable in the public 17 market without restriction, unless purchased by an affiliate of the Company. The remaining 17,587,112 shares of outstanding Common Stock will be "restricted securities" within the meaning of Rule 144 under the Securities Act of 1933, as amended (the "Securities Act"), which may not be sold other than pursuant to an effective registration statement or pursuant to an exemption from such registration requirement, including the exemption available pursuant to Rule 144 under the Securities Act of 1933, as amended (the "Securities Act"). Other than the shares offered hereby (i) no shares will be eligible for sale prior to 180 days after the date of this Prospectus, except in certain limited exceptions, without the prior written consent of Lehman Brothers Inc., (ii) 16,846,945 shares will be eligible for sale 180 days after the date of this Prospectus upon the expiration of lock-up agreements with the Underwriters and (iii) an additional 740,167 shares will become eligible for sale thereafter pursuant to Rule 144 under the Securities Act. As of March 31, 1998 there were outstanding options and warrants to purchase 5,656,530 shares of Common Stock of which holders of options and warrants exercisable for 5,649,653 shares have also agreed not to sell shares of Common Stock issued upon exercise of such options and warrants for a period of 180 days after the date of this Prospectus, without the prior written consent of Lehman Brothers Inc. Sales of a substantial number of shares of Common Stock in the public market subsequent to this offering, or the perception that such sales could occur, could materially adversely affect the prevailing market price of the Common Stock and could materially adversely affect the Company's ability to raise capital. The Company has agreed not to issue any securities or file a registration statement under the Securities Act, subject to certain exceptions, for a period of 180 days following the date of this Prospectus without the prior written consent of Lehman Brothers Inc. See "Shares Eligible for Future Sale" and "Underwriting." See "Description of Capital Stock--Registration Rights" for a description of the rights of certain persons to cause the Company to register shares of Common Stock for offer and sale to the public. Possible Issuance of Preferred Stock; Anti-Takeover Effects of Certain Charter, Bylaws and Delaware Law Provisions. Following the closing of the offering, the Company's Board of Directors will have the authority to issue up to 5,000,000 shares of preferred stock without any further vote or action by the stockholders, and to determine the price, rights, preferences, privileges and restrictions, including voting rights of such shares. Since the preferred stock could be issued with voting, liquidation, dividend and other rights superior to those of the Common Stock, the rights of the holders of Common Stock will be subject to, and may be adversely affected by, the rights of the holders of any such preferred stock. The issuance of preferred stock could have the effect of making it more difficult for a third party to acquire a majority of the outstanding voting stock of the Company. Further, certain provisions of the Company's Restated Certificate of Incorporation and certain provisions of the Company's Bylaws and of Delaware law could have the effect of delaying or preventing a change in control of the Company. See "Description of Securities--Certain Charter Provisions and Anti-Takeover Effects of Delaware Law." Immediate and Substantial Dilution. Purchasers of shares of Common Stock in this offering will experience immediate and substantial dilution in the net tangible book value per share of their investment of approximately $8.58 per share. See "Dilution." 18 USE OF PROCEEDS The net proceeds to the Company from the 3,750,000 sale of the shares of Common Stock offered hereby at an assumed initial public offering price of $11.00 per share are estimated to be $37.5 million ($43.3 million if the over- allotment option is exercised in full) after deducting underwriting discounts and commissions and estimated offering expenses. The Company intends to use the net proceeds from this offering for general corporate purposes, including working capital and capital expenditures, and for the expansion of its sales capabilities and marketing efforts. In addition, the Company may use a portion of the net proceeds of the offering to acquire or invest in complementary businesses, technologies, services or products, although there are no current agreements or negotiations with respect to any such acquisitions, investments or other transactions. Pending such uses, the net proceeds will be invested in short-term, interest-bearing investment grade obligations. DIVIDEND POLICY The Company does not anticipate declaring or paying any cash dividends in the foreseeable future. In addition, certain provisions of the Company's line of credit place certain restrictions on the Company's ability to pay dividends. 19 CAPITALIZATION The following table sets forth (i) the actual capitalization of the Company as of March 31, 1998, (ii) the pro forma capitalization of the Company as of such date, after giving effect to the conversion of all outstanding shares of Preferred Stock into 11,775,560 shares of Common Stock, the conversion of warrants to purchase Preferred Stock into warrants to purchase Common Stock and the increase in the number of authorized shares of Common Stock and Preferred Stock effected as part of the Company's planned reincorporation, and (iii) the pro forma capitalization of the Company as of March 31, 1998 as adjusted to reflect the sale of 3,750,000 shares of Common Stock offered by the Company hereby at an estimated initial public offering price of $11.00 per share (after deduction of the underwriting discount and estimated expenses of the offering).
MARCH 31, 1998 ---------------------------------------- PRO FORMA ACTUAL PRO FORMA AS ADJUSTED ------------ ------------ ------------ Current portion of notes payable (1). $ 2,895,000 $ 2,895,000 $ 2,895,000 Long-term portion of notes payable (1)................................. 2,044,000 2,044,000 2,044,000 ------------ ------------ ------------ 4,939,000 4,939,000 4,939,000 ------------ ------------ ------------ Mandatorily redeemable convertible preferred stock, $0.001 par value; 13,000,000 designated, 11,775,560 issued and outstanding, actual; no shares designated issued and outstanding, pro forma and pro forma as adjusted......................... 69,240,000 -- -- Mandatorily redeemable convertible preferred stock warrants (2)........ 3,000,000 -- -- ------------ ------------ ------------ 72,240,000 -- -- ------------ ------------ ------------ STOCKHOLDERS' (DEFICIT) EQUITY Preferred stock, $0.001 par value; 13,466,667 authorized; 13,000,000 designated, actual; 5,000,000 authorized, no shares designated, issued or outstanding, pro forma and pro forma as adjusted............... -- -- -- Common stock, $0.001 par value; 33,333,334 authorized 5,811,552 issued and outstanding, actual; 100,000,000 authorized, 17,587,112 issued and outstanding, pro forma; 100,000,000 authorized, 21,337,112, issued and outstanding, pro forma as adjusted (3)........................ 6,000 18,000 21,000 Additional paid-in capital........... 2,384,000 74,612,000 112,122,000 Accumulated deficit.................. (56,786,000) (56,786,000) (56,786,000) Other, primarily deferred stock compensation........................ (3,723,000) (3,723,000) (3,723,000) ------------ ------------ ------------ Total stockholders' (deficit) equity. (58,119,000) 14,121,000 51,634,000 ------------ ------------ ------------ Total capitalization................. $ 19,060,000 $ 19,060,000 $ 56,573,000 ============ ============ ============
- -------- (1) See Note 4 of Notes to the Consolidated Financial Statements. (2) Represents warrants to purchase 701,756 shares of the Company's Common Stock. See Note 6 of Notes to Consolidated Financial Statements. (3) As of March 31, 1998. Excludes: (i) 936,370 shares of the Company's Common Stock reserved for issuance pursuant to warrants at a weighted average exercise price of $12.41 per share, (ii) 4,720,160 shares subject to outstanding options at March 31, 1998 and (iii) 2,927,018 shares reserved for issuance under the Company's 1994 Stock Plan, 1998 Employee Stock Purchase Plan and 1998 Director Option Plan. Subsequent to March 31, 1998, options to purchase 471,846 shares were exercised at weighted average exercise price of $1.69 per share and the Company granted additional options to purchase an aggregate of 746,094 shares of Common Stock under the 1994 Stock Plan at a weighted average exercise price of $7.66 per share. See "Management--Stock Plans," "Certain Transactions," "Description of Capital Stock" and Notes 6, 8 and 11 of Notes to Consolidated Financial Statements. 20 DILUTION The pro forma tangible book value of the Company as of March 31, 1998, after giving effect to the assumed conversion of all outstanding shares of Preferred Stock into 11,775,560 shares of Common Stock and the conversion of warrants to purchase Preferred Stock into warrants to purchase Common Stock was approximately $14,121,000 or $0.80 per share. "Pro forma net tangible book value" represents the amount of total tangible assets of the Company reduced by the amount of its total liabilities divided by the total number of shares of Common Stock outstanding. After giving effect to the sale of 3,750,000 shares of Common Stock offered by the Company hereby at an assumed initial public offering price of $11.00 per share, the adjusted pro forma net tangible book value of the Company as of March 31, 1998 would have been $51,634,000 or $2.42 per share. This represents an immediate increase in the pro forma net tangible book value of $1.62 per share to existing stockholders, including holders of Mandatorily Redeemable Convertible Preferred Stock and an immediate dilution of $8.58 per share to new investors. The following table illustrates the per share dilution in pro forma net tangible book value to new investors: Initial public offering price per share...................... $11.00 Pro forma net tangible book value per share before the offering................................................... $ 0.80 Increase per share attributable to new investors............ 1.62 ------ Adjusted pro forma net tangible book value per share after the offering................................................ 2.42 ------ Dilution per share to new investors.......................... $ 8.58 ======
The following table summarizes as of March 31, 1998, on a pro forma basis, the differences in the total consideration paid and the average price per share paid to the Company by existing stockholders, including holders of mandatorily redeemable convertible preferred stock, and by new investors with respect to the number of shares of Common Stock purchased from the Company.
SHARES TOTAL PURCHASED CONSIDERATION ------------------ -------------------- AVERAGE PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE ---------- ------- ------------ ------- ------------- Existing stockholders... 17,587,112 82.4% $ 70,773,000 63.2% $4.02 New investors........... 3,750,000 17.6 41,250,000 36.8% 11.00 ---------- ----- ------------ ----- Total................... 21,337,112 100.0% $112,023,000 100.0% ========== ===== ============ =====
The foregoing discussion and tables assume no exercise of stock options outstanding at March 31, 1998. As of March 31, 1998, an aggregate of 4,720,160 shares of Common Stock were issuable upon the exercise of outstanding options with a weighted average exercise price of $4.10 per share. The foregoing discussion also excludes 936,370 shares of Common Stock reserved for issuance pursuant to warrants at a weighted average exercise price of $12.41 per share. The foregoing discussion also excludes an aggregate of an additional 2,927,018 shares reserved for issuance under the Company's 1994 Stock Plan, 1998 Employee Stock Purchase Plan and 1998 Director Option Plan. Subsequent to March 31, 1998, options to purchase 471,846 shares were exercised at weighted average exercise price of $1.69 per share and the Company granted additional options to purchase an aggregate of 746,094 shares of Common Stock under the 1994 Stock Plan at a weighted average exercise price of $7.66 per share. The issuance of Common Stock under these plans will result in further dilution to new investors. See "Management--Stock Plans," "Certain Transactions," "Description of Capital Stock" and Notes 6, 8 and 11 of Notes to Consolidated Financial Statements. 21 SELECTED CONSOLIDATED FINANCIAL DATA The following selected consolidated financial data should be read in conjunction with the Consolidated Financial Statements and related notes hereto appearing elsewhere in this Prospectus and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The selected consolidated financial data as of and for each of the years in the three-year period ended December 31, 1997 are derived from consolidated financial statements of the Company included herein that have been audited by Price Waterhouse LLP, independent accountants. The selected consolidated financial data for the fiscal years ended December 31, 1993 and 1994 are derived from financial statements not included herein and the Company's accounting records. The selected consolidated financial data as of March 31, 1998 and for the three months ended March 31, 1997 and 1998 are derived from unaudited consolidated financial statements appearing herein. In the opinion of the Company, such unaudited data reflect all adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of the financial data for such period. The results of operations for the three months ended March 31, 1998 are not necessarily indicative of results that may be expected for the full year.
THREE MONTHS ENDED YEARS ENDED DECEMBER 31, MARCH 31, --------------------------------------------- ---------------- 1993 1994 1995 1996 1997 1997 1998 ------ ------- ------- -------- --------- ------- ------- (in thousands, except per share data) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenue................. $ 146 $ 816 $ 765 $ 5,199 $ 17,993 $ 2,967 $ 5,106 Cost of revenue......... 19 213 9 2,626 7,398 1,041 2,527 ------ ------- ------- -------- --------- ------- ------- Gross profit............ 127 603 756 2,573 10,595 1,926 2,579 ------ ------- ------- -------- --------- ------- ------- Operating expenses: Sales and marketing.... -- -- 1,220 9,182 18,844 4,569 4,504 Product development.... 110 880 1,733 5,496 10,645 2,357 2,728 General and administrative........ 232 899 2,053 3,135 4,980 1,043 1,261 Non-recurring expenses. -- -- -- -- 2,918 -- -- Non-cash stock compensation expense and amortization of warrants.............. -- -- -- 562 3,141 459 696 ------ ------- ------- -------- --------- ------- ------- Total operating expenses.............. 342 1,779 5,006 18,375 40,528 8,428 9,189 ------ ------- ------- -------- --------- ------- ------- Loss from operations.... (215) (1,176) (4,250) (15,802) (29,933) (6,502) (6,610) Interest and other income................. -- 117 67 830 924 302 210 Interest expense........ -- -- (38) (162) (277) (38) (110) Minority interest in losses of consolidated subsidiary............. -- -- -- -- 175 -- 115 ------ ------- ------- -------- --------- ------- ------- Net loss................ $ (215) $(1,059) $(4,221) $(15,134) $ (29,111) $(6,238) $(6,395) ====== ======= ======= ======== ========= ======= ======= Net loss per share: Basic and diluted(1)... $(2.21) $ (0.38) $ (1.45) $ (4.28) $ (6.38) $ (1.45) $ (1.18) ====== ======= ======= ======== ========= ======= ======= Proforma net loss per share: Basic and diluted(1)... $ (1.95) $ (0.38) ========= =======
DECEMBER 31, MARCH 31, 1998 ------------------------------------------- --------------------------------- PRO PRO FORMA 1993 1994 1995 1996 1997 ACTUAL FORMA(2) AS ADJUSTED(3) ----- ------- ------- -------- -------- -------- -------- -------------- (in thousands) CONSOLIDATED BALANCE SHEET DATA: Cash, cash equivalents and short-term investments............ $ 82 $ 3,097 $ 4,918 $ 27,142 $ 22,720 $ 19,066 $19,066 $56,579 Working capital (deficit).............. (161) 2,309 2,733 26,619 14,176 9,243 9,243 46,756 Total assets............ 108 3,476 6,292 37,626 37,427 32,800 32,800 70,313 Long-term obligations... -- 169 678 1,559 4,535 2,679 2,679 2,679 Minority interest....... -- -- -- -- 1,825 1,710 1,710 1,710 Mandatorily redeemable preferred securities... -- 3,999 9,152 50,298 69,785 72,240 -- -- Stockholders' (deficit) equity................. (141) (1,594) (5,310) (20,672) (52,400) (58,119) 14,121 51,634
- -------- (1) See Note 1 of Notes to Consolidated Financial Statements for information concerning the calculation of net loss and pro forma net loss per share. (2) Pro forma capitalization after giving effect to the conversion of all outstanding shares of Preferred Stock into Common Stock and the conversion of warrants to purchase Preferred Stock into warrants to purchase Common Stock. (3) As adjusted to reflect the sale of 3,750,000 shares of Common Stock offered hereby at an assumed initial public offering price of $11.00 per share and the receipt of net proceeds therefrom. Assumes no exercise of the Underwriters over-allotment option. See "Use of Proceeds," "Capitalization" and "Underwriters." 22 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Prospective investors should consider carefully the following discussion of the financial condition and results of operations of the Company in addition to the other information contained in this Prospectus concerning the Company and its business before purchasing the shares of Common Stock offered hereby. Certain statements contained in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" in addition to statements contained in "Prospectus Summary," "Risk Factors" and Business," contain forward-looking statements, including statements regarding the anticipated growth in the market for Internet advertising and the belief of the Company as to its future operating performance. Such statements are not historical facts and are forward looking statements within the meaning of the U.S. Federal Securities Laws. Because such statements include risks and uncertainties the Company's actual results may differ materially from those anticipated in these forward-looking statements, including but not limited to, those set forth herein and in "Risk Factors" and "Business." OVERVIEW PointCast is the leading broadcaster of news and information to business consumers over the Internet and corporate intranets. From inception through 1995 the Company primarily derived its revenue from the sale of software which allowed users to automatically acquire, format and present news and other content from certain online services. In 1995, the Company redirected its focus towards the development of the PointCast Network. In early 1996, the Company launched the PointCast Network and commenced selling advertisements. Since the launch of the PointCast Network, the Company has primarily derived its revenue from the sale of advertisements. The Company generates its advertising revenue from three sources: the sale of 30-second animated commercials, and to a lesser extent, the sale of banner advertisements and sponsorships. The Company expects that advertising revenue, and specifically 30-second commercials, will account for substantially all of its revenue for the forseeable future. The Company's ability to increase its advertising revenue and inventory of advertisements is a function of several factors, including the ability of the Company to retain and increase the number of its active viewers, the amount of usage of the PointCast Network by its viewers and the level of advertising rates charged. The Company sells commercials based on displaying an advertisement over a two to four week period on specific content channels. The pricing of an advertisement is based in part on a guaranteed number of billable deliveries over the specified period of time. A billable delivery is determined by the number of unique viewers to whom the advertisement is delivered multiplied by two impressions (the number of times a viewer sees the advertisement). The Company's experience has been that the number of impressions delivered per viewer has exceeded the two impressions contractually specified. Based on the Company's current rate card, a typical advertisement over a four week period on a National channel yields between $38,000 and $54,000. The revenue that the Company receives from advertisements can vary between the National and Affiliate channels due to certain revenue sharing agreements with Affiliate partners. If the Company sells an advertisement on either the National or Affiliate channel, it records the gross amount of revenue billed to the advertiser. On an Affiliate channel, if the Affiliate partner sells the advertisement, the Company records only its portion of revenue due under such agreements. To date, the majority of the Company's revenue has been generated from advertisements sold on its National channels. The Company recognizes advertising revenue in the period the advertisement is displayed, provided no significant Company obligations remain and collection of the resulting receivable is probable. Company obligations typically include guarantees of a minimum number of billable deliveries. To the extent billable delivery guarantees are met, the Company recognizes revenue and invoices the advertiser for the billable deliveries provided or, if an amount has been invoiced in excess of the billable deliveries provided, the Company defers recognition of the corresponding revenue until minimum billable delivery guarantees are satisfied. In addition, the Company may be committed to "make good" or provide additional billable deliveries in order to satisfy minimum billable delivery guarantees, which may adversely affect the availability of advertising inventory. 23 Advertisements delivered by the Company are typically sold pursuant to purchase order agreements which can be cancelled by the customer at any time on two weeks notice. Consequently, the Company's advertising customers may change or cancel their advertising expenditures, move their advertising to competing Internet sites, or from the Internet to traditional media, quickly and with minimal penalty, thereby increasing the Company's exposure to competitive pressures and fluctuations in revenue and operating results. In selling Internet advertising, the Company also depends to a significant extent on advertising agencies, which exercise substantial control over the placement of advertisements for the Company's existing and potential advertising customers. There can be no assurance that current advertisers will continue to purchase advertising from the Company or that the Company will be able to attract additional advertisers. If the Company loses advertising customers, fails to attract new customers or is forced to reduce advertising rates in order to retain or attract customers, the Company's business, financial condition and results of operations will be materially adversely affected. The Company generates revenue from development, license and other fees, which primarily consists of development fees from the Company's Industry Insider channels. Pursuant to its agreement with its Industry Insider partners, upon the launch of an Industry Insider channel the Company earns a development fee. The Company expects that it will continue to earn development fees in the foreseeable future from the launch of new Industry Insider partner programs but that as a percentage of total revenue these amounts will not be significant. The Company received 8% and 11% of its total advertising revenue from TransCosmos in the three months ended December 31, 1997 and March 31, 1998, respectively. TransCosmos is the holder of approximately 2% of the Company's outstanding capital stock (prior to this offering). The Company believes that the terms of advertising contracts with TransCosmos were similar to those given on orders of similar size to unaffiliated customers. The Company expects advertising revenue from TransCosmos to account for less than 10% of the Company's total advertising revenues for fiscal 1998. The Company's operating expenses have generally increased in absolute dollar amounts since inception through March 1998. This trend reflects the Company's expansion from the product development stage to marketing and offering its services. The Company believes that the continued expansion of operations, product development and investment in viewership growth is essential to achieving and maintaining market leadership. Therefore, the Company anticipates that its operating expenses will continue to increase in the foreseeable future. The Company expenses its product development costs as incurred until technological feasibility has been achieved. After technological feasibility has been demonstrated, the Company capitalizes costs incurred and amortizes the capitalized costs over the estimated product life. No such costs were capitalized through March 31, 1998. During the second quarter of 1997, the Company entered into a joint venture agreement pursuant to which the Company holds a majority interest in a Japanese subsidiary. The subsidiary is still in the early stages of development and expects that the minority interest in operations of the consolidated subsidiary will continue to fluctuate in future periods. Under the terms of the joint venture agreement, the joint venture will pay to the joint venture's 40% stockholder 47% of revenue pursuant to a two year administrative services and management agreement. For the year ended December 31, 1997 and the three months ended March 31, 1998, such fees were $0 and $77,000, respectively. In 1997, the Company recognized non-cash compensation expense and amortization of warrants in the amount of $3.1 million. Of this amount, $900,000 was related to stock compensation expenses and $2.3 million was related to amortization of the cost of warrants granted by the Company in 1996 in exchange for certain advertising space. The deferred stock compensation expense amounts are being recognized ratably over the vesting period of the shares and options granted. The Company recorded $3.6 million of deferred compensation expense in connection with the issuance of 250,000 shares of Preferred Stock to the Company's Chief Executive Officer pursuant to a restricted stock purchase agreement, at the date of hiring based on the price of Preferred Stock sold to unaffiliated investors in contemporaneous transactions. The unamortized balance of this expense, estimated at $2.3 million, will be recorded as a one-time expense upon the closing of the Company's initial public offering due to a contractual obligation to accelerate the vesting of the Preferred Stock at that time. In addition, the Company recorded $1.0 million of deferred compensation expense in connection with options to purchase Common Stock granted with an exercise price below the fair market value at the date of grant as determined primarily in cash transactions between unaffiliated investors. 24 The Company also will record a stock compensation charge of $1.3 million associated with a grant in the three month period ending June 30, 1998 of options to purchase 746,018 shares of Common Stock below the fair market value at the date of grant to be recognized over the four year vesting period. The Company has incurred net losses since its inception in July 1992. The Company incurred net losses of $4.2 million, $15.1 million, $29.1 million and $6.4 million in fiscal 1995, 1996, 1997 and for the three months ended March 31, 1998, respectively. As of March 31, 1998, the Company had an accumulated deficit of $56.8 million. In addition, the Company did not recognize revenue relating to the PointCast Network until February 1996. Accordingly, the Company has a history of net losses and its prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies with limited histories of generating revenue from its core services, particularly companies in the new and rapidly evolving markets for the Internet and Internet services, including the Internet advertising market. To increase revenue, the Company must, among other things, enhance performance of the PointCast Network by further developing and upgrading its technology, significantly grow and increase retention of its viewing audience, particularly the business consumer, effectively develop new relationships and maintain existing relationships with its advertising customers, particularly advertisers who have historically relied on traditional media for advertising, their advertising agencies and other third parties, obtain widespread acceptance of corporate-wide deployment of the PointCast Network, maintain and form new relationships with third-party content providers and media partners, obtain, aggregate and distribute original and compelling content to Internet users, increase PointCast brand awareness, successfully expand international operations, respond to competitive developments and attract, retain and motivate qualified personnel. There can be no assurance that the Company will be able to successfully address these and other risks and to increase revenue and the failure to do so could have a material adverse effect on the Company's business, financial condition and results of operations. The Company does not expect significant growth, if any, in revenue from advertisers for at least the next two quarters, and the Company expects to incur increased net losses for at least the next two quarters and significant net losses for the foreseeable future. There can be no assurance that revenue from advertisers or other sources will not decline in the future or that the Company's net losses will not continue to increase in the future or that the Company will ever achieve or maintain profitability. The Company intends to substantially increase its operating expenses in order to increase brand awareness, increase its sales and marketing operations and continue to expand internationally. The Company also expects its operating expenses to increase as a result of the costs associated with becoming a public company. The Company expects its costs of revenue to increase due to increased costs of data transmission, content acquisition and international expansion. To the extent that revenue does not grow at anticipated rates, the Company would be unable to decrease operating expense levels quickly enough to offset the lack of growth in revenue. In such event, the Company's business, financial condition and results of operations would be materially adversely affected. 25 Three Months Ended March 31, 1998 and 1997 and the Years Ended December 31, 1997, December 31, 1996 and December 31, 1995 RESULTS OF OPERATIONS The following table sets forth consolidated statement of operations data for the periods indicated as a percentage of total revenue:
THREE MONTHS ENDED YEARS ENDED DECEMBER 31, MARCH 31, ------------------------------ --------------- 1995 1996 1997 1997 1998 -------- -------- -------- ------ ------ CONSOLIDATED STATEMENT OF OPERATIONS DATA: Total revenue............... 100.0% 100.0% 100.0% 100.0% 100.0% Cost of revenue............. 1.2 50.5 41.1 35.1 49.5 -------- -------- -------- ------ ------ Gross margin................ 98.8 49.5 58.9 64.9 50.5 -------- -------- -------- ------ ------ Operating expenses: Sales and marketing........ 159.5 176.6 104.7 154.0 88.2 Products development....... 226.5 105.7 59.2 79.4 53.4 General and administrative. 268.4 60.3 27.7 35.1 24.7 Non-recurring expenses..... -- -- 16.2 -- -- Non-cash stock compensation expense and amortization of warrants............... -- 10.8 17.4 15.5 13.7 -------- -------- -------- ------ ------ Total operating expenses. 654.4 353.4 225.2 284.0 180.0 -------- -------- -------- ------ ------ Loss from operations........ (555.6) (303.9) (166.3) (219.1) (129.5) Interest and other income... 8.8 16.0 5.1 10.2 4.1 Interest expense............ (5.0) (3.2) (1.5) (1.3) (2.2) Minority interest in losses of consolidated subsidiary. -- -- 1.0 -- 2.3 -------- -------- -------- ------ ------ Net loss.................... (551.8)% (291.1)% (161.7)% (210.2)% (125.3)% ======== ======== ======== ====== ======
Total Revenue Total revenue principally consists of advertising revenue from the sales of commercials, banners and sponsorships and also includes development, license and other fees from the Company's Industry Insider Agreements. Total revenue for the three month period ended March 31, 1998 and 1997 was $5.1 million and $3.0 million, respectively. Total revenue for the years ended December 31, 1997, 1996 and 1995 was $18.0 million, $5.2 million and $765,000, respectively. The Company began recognizing advertising revenue in the first quarter of 1996. The increase in advertising revenue in 1997 as compared to 1996 is primarily the result of increased sales of advertisements on the PointCast Network, the impact of new revenue sources from the sales of banner advertising which began in the third quarter of 1997 and the sale of sponsorships on the EntryPoint Service which began in the fourth quarter of 1997. The Company expects to continue to derive substantially all of its revenue from the sale of advertisements on its networks. EDS accounted for 13% of advertising revenue in the year ended December 31, 1996. No one customer accounted for 10% or more of advertising revenue for the year ended December 31, 1997 or the three month period ended March 31, 1997. TransCosmos accounted for 11% of advertising revenue for the three month period ended March 31, 1998. In addition, barter revenue represented less than 10% of revenue for the years ended December 31, 1997 and 1996 and for the three month periods ended March 31, 1998 and 1997. The Company derived insignificant revenue from international operations in the three month period ended March 31, 1998. Prior to the three month period ended March 31, 1998, the Company did not have any revenue from international operations. 26 Cost of Revenue Cost of revenue primarily includes costs associated with the operation of the Company's Central Broadcast Facility which consists of payroll and related expenses and expenses for facilities and equipment, content costs, costs associated with certain revenue sharing agreements for the Company's affiliated channels and costs associated with the production of advertisements. Cost of revenue for the three month period ended March 31, 1998 and 1997 was $2.5 million and $1.0 million, respectively. Cost of revenue for the years ended December 31, 1997, 1996 and 1995 was $7.4 million, $2.6 million and $9,000, respectively. Gross margin decreased to 51% for the three month period ended March 31, 1998 from 65% for the three month period ended March 31, 1997. The decrease in gross margin is primarily attributable to increases in fixed costs as the Company expanded its Central Broadcast Facility capacity, as well as the effect of increased content costs. The Company expects that gross margins will continue to be negatively affected by increased content costs, costs associated with the Central Broadcast Facility and the effect of certain revenue sharing agreements. Gross margin increased to 59% from 50% for the years ended December 31, 1997 and 1996, respectively. The increase in gross margin is primarily attributable to cost efficiencies associated with the spread of fixed costs across higher sales volume offset by the effect of increased content costs and the effect of certain revenue sharing arrangements. Sales and Marketing Sales and marketing expenses consist primarily of payroll and related expenses, consulting fees and advertising expenses for marketing programs incurred in promoting and selling advertisements on the PointCast Network. Sales and marketing expenses were $4.5 million and $4.6 million for the respective periods ended March 31, 1998 and 1997. Sales and marketing expenses increased to $18.8 million from $9.2 million for the years ended December 31, 1997 and 1996, respectively. Sales and marketing expenses increased period over period primarily as a result of increased headcount. The Company expects that in order to achieve its strategic objectives it will need to increase promotional and advertising expenses. Accordingly, the Company expects that while sales and marketing costs as a percentage of revenue will decrease these expenses will increase in absolute dollars. Product Development Product development expenses consist of payroll and related expenses and depreciation. Product development efforts have primarily been focused on the development of new or improved technologies designed to enhance the performance and reliability of the PointCast Network. Product development expenses were $2.7 million and $2.4 million for the three month period ended March 31, 1998 and 1997, respectively. Product development expenses were $10.6 million, $5.5 million and $1.7 million for the years ended December 31, 1997, 1996 and 1995, respectively. The increase in absolute dollars period over period was primarily attributable to increases in headcount. The Company believes that continued investment in product development and enhancements is critical to obtaining its strategic objectives, and as a result expects product development to increase in absolute dollars but decrease as a percentage of revenue. General and Administrative General and administrative expenses consist of payroll and related expenses for executive, finance and administrative personnel, professional fees and other general corporate expenses. General and administrative expenses were $1.3 million and $1.0 million for the three months ended March 31, 1998 and 1997, respectively. General and administrative expenses were $5.0 million, $3.1 million and $2.1 million for the years ended December 31, 1997, 1996 and 1995, respectively. The increase in absolute dollars spent on general and administrative expenses resulted primarily from increases in salaries and related benefits to support the expansion of the Company's operations. The Company anticipates that its general and administrative expenses will continue to increase significantly in absolute dollar amounts as the Company adds infrastructure and incurs additional costs related to being a public company. 27 Non-Cash Compensation Expense and Amortization of Warrants During the year ended December 31, 1997, the Company recorded deferred stock compensation aggregating $4.6 million related to preferred stock issued in 1997 and options granted in 1997. The Company is recognizing this compensation expense over the associated vesting periods. The Company recognized $618,000 of this expense during the year ended December 31, 1997. Additionally, the Company recognized compensation expense of $247,000 and $312,000 for the years ended December 31, 1997 and 1996, respectively related to the acceleration of the vesting of certain options upon the termination of certain employees. No deferred compensation charges were recorded during the year ended December 31, 1995. The Company recognized $596,000 of this expense during the three month period ended March 31, 1998. Additionally, the Company recorded $2.3 million, $250,000 and $100,000 in the years ended December 31, 1997 and 1996 and for the three months ended March 31, 1998 related to the amortization of the fair market value of warrants issued in exchange for advertising services. Non-Recurring Expenses During the year ended December 31, 1997, the Company recorded non-recurring expenses of $2.9 million principally in connection with the hiring of the Company's Chief Executive Officer and losses incurred on the sublease of certain excess office space. Interest and Other Income (Expense) Interest and other income (expense) for the three month period ended March 31, 1998 and 1997 was $100,000 and $264,000, respectively. For the years ended December 31, 1997, 1996 and 1995, interest and other income (expense) was $647,000, $668,000 and $29,000, respectively. Minority Interest in Operations of Consolidated Subsidiary The minority interest in losses from operations of the Japanese joint venture was $115,000 for the three months ended March 31, 1998 and $175,000 for the year ended December 31, 1997. Income Taxes No provision for federal and state income taxes has been recorded as the Company incurred net operating losses through March 31, 1998. At December 31, 1997, the Company had approximately $42.0 million of federal net operating loss carry forwards for tax reporting purposes available to offset future taxable income; such losses expire in 2011. Under the Tax Reform Act of 1986, the amounts of and benefits from net operating loss carryforwards may be impaired or limited in certain circumstances. Events which cause limitations in the amount of net operating losses that the Company may utilize in any one year, include but are not limited to, a cumulative ownership change of more than 50%, as defined, over a three year period. During 1997, in connection with the sale of preferred stock the Company triggered a limitation, and as a result, is limited to utilizing approximately $11.0 million of federal net operating losses annually to offset taxable income. 28 QUARTERLY RESULTS The following table presents unaudited quarterly data for each of the five quarters ended March 31, 1998 and such data expressed as a percentage of revenue for such quarters. In the Company's opinion, this information has been presented on the same basis as the annual consolidated financial statements appearing elsewhere in the Prospectus, and reflects all adjustments, which include only normal returning adjustments, necessary to present fairly the unaudited quarterly results when read in conjunction with the audited financial statements of the Company. Results of operations for any quarter are not necessarily indicative of the results to be expected for the entire year of any future period.
THREE MONTHS ENDED ---------------------------------------------------- MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, 1997 1997 1997 1997 1998 ---------- --------- ---------- --------- ---------- (in thousands) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Total revenue............. $ 2,967 $ 3,535 $ 4,409 $ 7,082 $ 5,106 Cost of revenue........... 1,041 1,565 1,950 2,842 2,527 ------- ------- ------- ------- ------- Gross profit.............. 1,926 1,970 2,459 4,240 2,579 ------- ------- ------- ------- ------- Operating expenses: Sales and marketing...... 4,569 5,009 4,536 4,730 4,504 Product development...... 2,357 2,658 2,855 2,775 2,728 General and administrative.......... 1,043 1,159 1,142 1,636 1,261 Non-recurring expenses... -- 413 165 2,340 -- Non-cash stock compensation expense and amortization of warrants................ 459 623 756 1,303 696 ------- ------- ------- ------- ------- Total operating expenses.............. 8,428 9,862 9,454 12,784 9,189 ------- ------- ------- ------- ------- Loss from operations...... (6,502) (7,892) (6,995) (8,544) (6,610) Interest and other income. 302 244 150 228 210 Interest expense.......... (38) (51) (37) (151) (110) Minority interest in losses of consolidated subsidiary............... -- -- 35 140 115 ------- ------- ------- ------- ------- Net loss.................. $(6,238) $(7,699) $(6,847) $(8,327) $(6,395) ======= ======= ======= ======= =======
THREE MONTHS ENDED ------------------------------------------------------ MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, 1997 1997 1997 1997 1998 ---------- --------- ---------- --------- ---------- AS A PERCENTAGE OF TOTAL REVENUE: Total revenue............. 100.0% 100.0% 100.0% 100.0% 100.0% Cost of revenue........... 35.1 44.3 44.2 40.2 49.5 ------ ------ ------ ------ ------ Gross margin.............. 64.9 55.7 55.8 59.8 50.5 ------ ------ ------ ------ ------ Operating expenses: Sales and marketing...... 154.0 141.7 102.9 66.8 88.2 Product development...... 79.4 75.2 64.8 39.2 53.4 General and administrative.......... 35.1 32.8 25.9 23.1 24.7 Non-recurring expenses... -- 11.7 3.7 33.1 -- Non-cash stock compensation expense and amortization of warrants................ 15.5 17.6 17.2 18.3 13.7 ------ ------ ------ ------ ------ Total operating expenses.............. 284.0 279.0 214.5 180.5 180.0 ------ ------ ------ ------ ------ Loss from operations...... (219.1) (223.3) (158.7) (120.7) (129.5) Interest and other income. 10.2 6.9 3.4 3.2 4.1 Interest and other income. (1.3) (1.5) (0.8) (2.1) (2.2) Minority interest in losses of consolidated subsidiary............... -- -- 0.8 2.0 2.3 ------ ------ ------ ------ ------ Net loss.................. (210.2)% (217.9)% (155.3)% (117.6)% (125.3)% ====== ====== ====== ====== ======
29 Revenue for the three month period ended March 31, 1998 decreased by $2.0 million compared to the three month period ended December 31, 1997. Approximately $1.1 million of this decrease is due to decreased advertising sales which the Company believes is primarily the result of seasonality. Advertisers typically spend more in the fourth calendar quarter of the year then in the first calendar quarter. In addition, in the three month period ended December 31, 1997, the Company had approximately $900,000 of revenue related to the customization and development of industry specific channels for use in connection with the Industry Insider program to various Industry Insider partner agreements. Gross margin percentages over the five quarters have varied primarily because of increased fixed costs associated with expanding the Central Broadcast Facility capacity to support increased future viewership levels. Gross margin percentages have also been impacted by varied content costs and the effect of various revenue sharing arrangements. The Company expects that gross margins will continue to be affected by increased content costs and the effect of various revenue sharing arrangements. The Company's results of operations may fluctuate significantly in the future as a result of a variety of factors, many of which are beyond the Company's control. These factors include the number, timing and performance of upgrades and enhancements to the PointCast Network, the addition or loss of viewers using the PointCast Network, the addition or loss of advertisers, the demographics of the installed base of viewers, demand for and market acceptance of Internet advertising, seasonal trends in Internet usage and advertising placements, advertisers' budgeting cycles, the commitment of advertising budgets to Internet advertising, changes in pricing models for Internet advertising, the loss of one or more third-party content providers, technical difficulties or Central Broadcast Facility downtime, capacity constraints of the Company's Central Broadcast Facility, the amount and timing of costs relating to the expansion of the Company's Internet operations and the scaling of the PointCast Network infrastructure, introduction of or improvements in competing products or services, price competition or pricing changes in the industry, the level of use of the Internet and general economic conditions. Due to all of the foregoing factors, the Company believes that period-to-period comparisons of its results of operations are not necessarily meaningful and should not be relied upon as indications of future performance. In addition, the Company has been, and expects in the future to be, subject to seasonal fluctuations in the amount of Internet advertising revenues, as advertisers historically spend more during the fourth calendar quarter of each year and less during the first calendar quarter of each year. Additional seasonal patterns in Internet advertising spending and other seasonal fluctuations may emerge as the market matures. Furthermore, it is possible that in some future quarters the Company's results of operations may fall below the expectations of securities analysts and investors. In such event, the trading price of the Company's Common Stock would likely be materially and adversely affected. LIQUIDITY AND CAPITAL RESOURCES At March 31, 1998, the Company had cash, cash equivalents and short-term investments totaling $19.0 million comprised of $16.5 million in cash and cash equivalents and $2.5 million in short-term investments. The Company invests principally in instruments that are highly liquid, of high quality investment grade, and predominantly have maturities of less than one year with the intent to make such funds readily available for operating purposes. The Company believes that the net proceeds from this offering together with existing sources of liquidity will provide adequate cash to fund its operations for at least the next twelve months. Since inception, the Company has raised approximately $68.2 million through private equity placements to leading media and technology companies, as well as financial investors. These investors include: Adobe Systems, Inc. ("Adobe"), Asahi Shimbun, Benchmark Capital, Cendant Corporation ("Cendant"), Gannett Media Technologies International ("Gannett Media Technologies"), Knight-Ridder, Inc. ("Knight-Ridder"), KPMG Peat Marwick LLP ("KPMG"), Merrill, Pickard, Anderson & Eyre ("Merrill, Pickard, Anderson & Eyre"), Mohr, Davidow Ventures ("Mohr, Davidow"), Softbank Holdings, Inc. ("Softbank Holdings") and Times Mirror. Additionally, during the years ended December 31, 1997, 1996 and 1995 the Company raised approximately $4.8 million, $1.0 million and $707,000 through the issuance of notes payable. During 1997, the Company repaid $1.7 million of notes payable and issued a note to a stockholder for $2.0 million. At March 31, 1997, the Company had $1.4 million payable under a line of credit with a financial institution and $3.1 million 30 of borrowings outstanding under a note payable due to an insurance company. The line of credit with the financial institution provides for borrowings up to $5.0 million, however, advances in excess of $2.0 million must be supported by a borrowing base calculated on accounts receivable. The line of credit is secured by certain specified assets of the Company, expires March 31, 1999 and charges interest at a variable rate based on the bank's prime rate (8.5% at December 31, 1997 and March 31, 1998). Under the line of credit, the Company is required to maintain certain financial covenants. The Company was in compliance with all such covenants at March 31, 1998. The note payable due to the insurance company bears interest at 9.7% and is secured by the Company's property and equipment. The Company is required to make monthly payments of principal and interest under the note of $107,000 through December 2001. Net cash used in operating activities was $2.8 million, $13.4 million, $17.4 million, $2.8 million and $5.4 million for the years ended December 31, 1995, 1996 and 1997 and the three months ended March 31, 1997 and 1998, respectively. The increases in cash used in operating activities were primarily due to increasing losses, offset by non cash charges for depreciation and amortization, stock compensation expense and amortization of the fair value of warrants issued in exchange for advertising. Net cash (used in) provided by investing activities totaled ($1.1) million, ($26.9) million, $5.0 million, $4.5 million and $9.5 million for the years ended December 31, 1995, 1996 and 1997 and the three months ended March 31, 1997 and 1998, respectively. Cash flows from investing activities reflect the purchase, maturity and sale of short-term investments and capital expenditures of $1.1 million, $3.2 million, $6.2 million, $1.2 million and $0.4 million for the years ended December 31, 1995, 1996 and 1997 and the three months ended March 31, 1997 and 1998, respectively. Net cash provided by (used in) financing activities totaled $5.8 million, $38.8 million, $19.3 million, ($41,000) and $2.2 million for the years ended December 31, 1995, 1996 and 1997 and the three months ended March 31, 1997 and 1998, respectively. Net cash provided by financing activities primarily relates to proceeds from private equity sales and borrowings under notes payable. The Company believes all of its products are Year 2000 compliant. There is no assurance, however, that the Company's financial systems software or its PointCast Network Client do not contain undetected errors or defects associated with Year 2000 date functions, which could result in a disruption of the Company's accounting systems or ability to provide the PointCast Network, which could result in a loss of revenue, diversion of development resources, or damage to the Company's reputation, or any of which could materially adversely affect the Company's business, financial condition, or results of operations. In addition, the Company cannot be sure that systems of other companies on which the Company's systems rely will be converted in a timely manner. The Company relies on third-party systems to facilitate broadcast from the Central Broadcast Facility to its clients. The disruption of a broadcast to its clients could prevent the Company from obtaining the minimum "billable deliveries" required by its advertisers and could therefore have a material adverse affect on the Company's business, results of operations and financial condition. In addition, the Company relies on the integration of many systems in aggregating the content from multiple sources. The failure of any of those systems as a result of Year 2000 compliance issues could prevent the Company from delivering the content, which could have material adverse affect on the Company's retention and acquisition of viewers and the resulting material adverse affect on the Company's ability to sell advertising and meet its billable deliveries requirements under its advertising contract. The failure of other companies to successfully address Year 2000 issues in their systems on which the Company's systems rely, may have a material adverse effect on the Company's business, financial condition and results of operations. See "Risk Factors--Potential Litigation/Liability Related to Year 2000 Compliance." NEW ACCOUNTING PRONOUNCEMENTS See Note 1 of Notes to Consolidated Financial Statements for recently adopted and recently issued accounting standards. 31 BUSINESS OVERVIEW PointCast is the leading broadcaster of personalized news and information to business consumers over the Internet and corporate intranets. The PointCast Network is a free, advertising-supported service that has been specifically designed to meet the needs of business consumers, corporations and advertisers. The PointCast Network automatically appears whenever the computer is idle, replacing a screensaver with a continuous stream of useful, personalized news and information. With approximately 700 content sources, the Company believes it is the largest aggregator of free general, business, vertical market and local newspaper content on the Internet. The Company had an average of approximately 1.2 million active viewers worldwide in the first quarter of 1998. Since January 1998, the Company has offered its free PointCast Intranet Broadcast Solution to stimulate corporate-wide deployment of the PointCast Network. PointCast's corporate customers include American International Life Assurance Company of New York ("AIG"), BankAmerica Corporation ("Bank of America"), E.I. du Pont de Nemours and Company ("DuPont"), Goodyear Tire and Rubber Company ("Goodyear"), MCI Communications Corporation ("MCI"), Monsanto Company ("Monsanto"), Northrop Grumman Corporation ("Northrop Grumman") and The Procter & Gamble Company ("Procter & Gamble"). The PointCast Network employs a client/server-based advertising model that the Company believes provides advertisers with richer advertising units in the form of 30 second, animated commercials, more complete audience data and more detailed advertising performance statistics than leading Web sites, as well as the ability to target specific audiences. Based on independent survey data, the Company believes its viewers are more affluent and better educated than typical Internet users, and are likely to purchase products and services online. Representative advertisers include Charles Schwab & Co., Inc. ("Charles Schwab"), Hewlett-Packard Company ("Hewlett-Packard"), Levi Strauss & Company ("Levi Strauss"), MCI, Daimler-Benz North America Corp. ("Mercedes Benz"), Microsoft and Procter & Gamble. INDUSTRY BACKGROUND Each major change in the form and delivery of modern media has brought benefits to both consumers and to advertisers wishing to reach those consumers. The advent of the newspaper allowed mass audiences to receive timely news and analysis for the first time. Radio introduced sound and immediacy. Television brought the captivating power of visual imagery, allowing new forms of programming and advertising to engage an audience. Most recently, the Internet has emerged as a cost-effective, interactive network that is capable of rapidly distributing personalized information to millions of computer users worldwide. The Emerging Business Consumer and Changes in Media Consumption New trends are affecting how and where people work, as well as how and where they access and absorb news and information. New information and communication technologies like cellular phones, pagers, e-mail and fax machines keep people continuously connected and are accelerating the pace of business. Due to competitive pressures, companies are increasingly seeking greater productivity and often require employees to perform a multitude of tasks and functions in compressed timeframes. Business professionals experience a hectic work day punctuated by frequent interruptions. As a result, speed, timeliness and the efficiency with which an individual can absorb information are the key requirements for the media they use. These new information and communication technologies are blurring the distinction between business and personal life. Business professionals are working longer hours, spending more time working at home and while in transit. Moreover, these business professionals are shifting their news and information consumption patterns from early morning or evening review of the latest events at home to absorption in the work environment throughout the day. The increasingly blurred line between home and work is causing business professionals to make more purchase decisions in a work environment and is transforming the business professional into a "business consumer." 32 The growth of the Internet and corporate intranets is accelerating this fundamental change in business media consumption, making the desktop PC increasingly a focal point for news and information delivery. International Data Corporation estimates that by the end of 1998 there will be approximately 40 million people worldwide connected to the Web in a work environment, of which approximately 21 million will be in the United States. Obtaining news and information is a common activity on the Internet, and according to published research is engaged in by 82% of all Internet users. Electronic publishers have made unprecedented amounts of news and information available on the Internet, and search engines and directories have emerged as the most common tools for finding information. However, these tools can be time-consuming and inefficient, because users must proactively seek information, know what they are looking for, and generally monitor multiple sources to get the latest news. Some search engines allow users to customize Web pages to receive selected types of information, but the user is still required to initiate contact with the Web and thus can miss timely receipt of relevant information. Information Needs of the Corporation In order to improve employee productivity and build competitive advantage, corporations are integrating the use of information and technological innovation into their business strategies. Corporations are making significant investments in distributed computing systems utilizing client/server architectures. The PC has become an important corporate asset, although the typical computer may sit idle for several hours a day and thus be under utilized. Nevertheless, the PC is emerging as a focal point for the distribution of news and information. In addition to general and business news, the corporation itself often has high priority internal and industry news it wishes employees to receive on a timely basis. For this reason, an increasing number of companies are setting up corporate intranets. However, intranets, much like the Internet itself, require employees to proactively initiate a search through large volumes of data, and therefore, companies cannot be assured that important information is widely seen and read. Because the Internet allows access to an unprecedented amount of timely information, employees can now often find information directly, eliminating the wait for reports from corporate librarians and/or information technology ("IT") departments. However, corporations are striving to balance the benefits of broadly available news and information with the need for relevance and corporate control. Advertising to the Business Consumer Business professionals, or business consumers, are a desirable demographic group to advertisers due to their affluence and acquisitiveness as consumers, as well as their influence over business-to-business purchase decisions. The median annual household income of Business Week and Forbes subscribers is approximately $72,000 and $70,000, respectively, compared to the median annual household income in the U.S. of approximately $35,500. This group is also highly educated, with 80% and 83% of Business Week and Forbes readers, respectively, having a college or higher degree. To date, the business consumer has been difficult for advertisers to reach for a variety of reasons, including limited advertising media typically available in a work environment. Advertisers have typically used business print and trade publications to reach the business consumer. In 1997, the Leading National Advertisers/Publishers Information Bureau reported that the value of advertising placements totalled $1.9 billion in four leading business publications: Business Week, Forbes, Fortune, and The Wall Street Journal, which had circulations of approximately 902,000, 786,000, 766,000 and 1,775,000, respectively. The average advertising dollars spent per subscriber for Business Week and The Wall Street Journal in 1997 were $365 and $623, respectively. As media consumption habits of these business professionals move online, advertising spending is beginning to follow. As this transition occurs, the Company believes advertisers will place higher expectations on the Internet and will look to combine the Internet's potential for interactivity, targeting and accountability with the proven strengths of traditional forms of advertising, such as brand building capabilities. 33 In order to accomplish these objectives, Internet advertisers will require flexible and robust advertising units. Industry sources estimate that the revenue share of these rich creative units will increase significantly, while the revenue share of traditional advertisement banners on the Internet will decline. Jupiter Communications projects that the market share for long play animated Internet advertisements, sometimes referred to as "intermercials," will increase from 5% of online advertising in 1997 to 25% in 2001 or approximately $1.5 billion in the year 2001. The total online advertising market is expected to grow from an estimated $940 million in 1997 to $5.8 billion in 2001, according to Jupiter Communications. This market opportunity represents only 3.3% of the estimated $175 billion in total advertising expenditures across all media in 2001. Currently, however, the bandwidth constraints of the Internet limit the ability of marketers to effectively deliver advertisements that are rich enough to accomplish their objectives without an unacceptable delay. This delay is due to the fact that such advertisements require that large files be downloaded and transferred to the viewer over the Internet when the viewer accesses the web page on which the advertisement appears. In order to take advantage of the Internet's potential, advertisers are demanding better audience information, the ability to target advertisements to specific audience segments and more extensive reporting capabilities to measure a return on investment ("ROI"), in addition to the branding capabilities enjoyed with traditional media. To date, the leading Internet advertisers have been technology companies, financial service companies and Web publishers. Traditional media advertisers, including consumer products companies, automobile manufacturers and others, have been hesitant to allocate significant advertising dollars to the Internet without more accurate audience data, and the ability to target advertisements and to measure the results of this advertising. Because few Web sites require viewers to register and provide personal information, the majority of these sites are currently unable to provide advertisers with audience demographic data. In addition, most advertising reporting contains general statistics but does not offer specific information about the individual who responded unless the data is captured at the advertiser's Web site. Because of these factors, most Web publishers only give advertisers the opportunity to expose their message to "anonymous" users. The Company believes there is an opportunity for a free business media service that broadcasts timely news and information via the Internet to business consumers on their PCs continuously during the workday. The Company believes that corporations will increasingly need to deliver rich and relevant information to their employees throughout the corporation in a highly efficient and cost-effective manner. The Company also believes that advertisers will value the opportunity to reach the business consumer in the workplace through rich advertising content and to receive detailed reports on the effectiveness of their marketing campaigns. THE POINTCAST SOLUTION PointCast is the pioneer and leader in broadcasting personalized news and information to business consumers through the Internet and corporate intranets. The PointCast Network is a free, advertising-supported service that automatically appears in place of a screensaver and broadcasts current news to viewers' PC screens over the Internet. The Company believes that the PointCast Network better meets the needs of business consumers, corporations and advertisers than current media alternatives by providing the following benefits: Business Consumers. PointCast is designed to meet the information consumption patterns of busy, multi-tasking business professionals at work. The PointCast Network allows its viewers to receive updated, relevant information efficiently and automatically. PointCast viewers also have the ability to personalize the PointCast Network Client to specify in detail which news and information topics they wish to follow. With the PointCast Network, updated news automatically appears when the computer is idle. In addition, a news ticker can always be "on" while other work is performed, scrolling dynamically across the viewer's screen with news, internal corporate messages, stock quotes and other information. PointCast designed its screens and ticker with simple, scrolling headlines after careful study of the most effective way time constrained individuals absorb news in an information saturated world. Viewers can quickly digest news headlines, while simultaneously performing other work. If desired, viewers can click on a headline to view the full-text article. 34 Corporate Customers. The PointCast Intranet Broadcast Solution, which became available in January 1998, is a suite of software tools that allows corporations to manage network traffic, configure the PointCast Network client on employee desktops and broadcast internal news and information. These tools are free and designed to increase the usage of the PointCast Network in large companies. The Company believes that the PointCast Network is the only free service that gives companies general, business, industry and internal corporate news in one integrated newscast. By utilizing the PC's idle time to broadcast useful, personalized news and information, PointCast leverages companies' existing computing investments to build more competitive and responsive organizations. Advertisers. PointCast believes that it provides advertisers with an innovative and compelling advertising proposition based on its ability to: (i) reach a highly affluent and influential viewer base that is hard to reach via traditional media sources; (ii) provide better access to these business consumers during the business day; (iii) offer a rich and flexible animated advertising unit; (iv) target advertisements by a variety of measures; and (v) provide advertisers audience information and advertising results. PointCast allows advertisers to present dynamic, 30-second advertisements to viewers, which are animated in a manner similar to commercials on television. The animation and repeated exposures of these advertisements to viewers is desirable to advertisers because they can capture and hold a viewer's attention, increasing brand impact and communication value. PointCast's client/server system allows these rich, animated advertisements to be downloaded in advance of their presentation, stored on a viewer's system and played without delay. The Company believes this capability is a distinct advantage over advertising-supported Web sites, whose creative capabilities are limited by the difficulty and delay in transmitting large animation files from back-end Web servers. Because PointCast registers its viewers, the Company has the ability to target advertisements by a variety of factors, including gender, location, age, occupation, industry, special interest and channel selection. PointCast also enables a high degree of accountability to advertisers through audits, registration data, online reporting and monthly campaign summaries. A broad range and depth of advertising characteristics can be measured, including the number of unique viewers that received and viewed the advertisement, the number of viewers that clicked through to an advertiser's Web site and the demographic characteristics of those who clicked. The Company believes that the specific data it can provide its advertisers provides it with a competitive advantage over leading search engines and other Web sites today. STRATEGY PointCast's objective is to be the leading broadcast news provider to business consumers throughout the business day. The Company aggregates a hard- to-reach business audience in the work environment with attractive demographics for advertisers. The Company intends to grow its viewer base, stimulate greater engagement with the PointCast Network among its viewers and differentiate itself by obtaining more relevant information about its viewers than other online, advertising-based news and information services. Key elements of the Company's strategy include: Maintain Leadership in Content Breadth and Depth. PointCast plans to maintain its competitive advantage by continuing to add relevant business, industry and other content to the PointCast Network offerings. With approximately 700 content sources, the Company believes it is the largest aggregator of free general, business, vertical market and local newspaper content on the Internet and that it is currently the only online service which offers world, business, industry and internal corporate news in one place. The Company also offers a Japanese edition of its network with local content delivered in Japanese, and intends to strategically expand to other international markets in the future. Leverage and Promote the PointCast Brand. PointCast believes that developing a strong brand is important to its ability to continue to build a high-quality audience and to attract advertisers. PointCast has been established as one of the most recognized Internet-related brand names, primarily through word of mouth and press coverage. Advertising Age's 1997 Annual Marketing 100 Salute honored those whose ideas have built strong brands, and included PointCast as one of only five technology brands. Since the Company released the PointCast Network in 1996, it has won more than 75 awards and honors, including C/net's Best Internet 35 Application, PC Magazine's Technical Excellence Award and PC Computing's Most Valuable Product award. The Company intends to increase the resources allocated to building equity in the PointCast brand. Increase Viewer Retention and Reacquire Former Viewers. The Company had an average of approximately 1.2 million active viewers worldwide in the first quarter of 1998. PointCast intends to capitalize on its historically high rate of viewer registration, which has ranged between 850,000 and 1,000,000 registrations per quarter throughout 1997 and the first quarter of 1998. However, the Company has experienced a low retention rate during the initial 90 days after the registration. The Company has conducted extensive market research to identify the causes of low viewer retention. According to a survey conducted by the Company, approximately two-thirds of respondents indicated that they left the PointCast Network for identifiable performance reasons. Based on its research, the Company intends to release a new version of the PointCast Network Client in the second half of 1998, which is designed to improve performance of the PointCast Network Client in specified areas in order to increase viewer retention. After the new software is released, PointCast also intends to leverage its large viewer database to contact former viewers with targeted messages to motivate them to use the PointCast Network again. Capture the Corporate Desktop. The Company believes corporate acceptance is a significant factor in increasing viewership and has invested substantially in creating a unique value proposition for the corporate environment. The Company's strategy is to offer its free PointCast Intranet Broadcast Solution and employ multiple distribution channels to promote deployment of the PointCast Intranet Broadcast Solution within corporations. Since the PointCast Intranet Broadcast Solution became available in January 1998, more than 40 corporations have deployed at least 500 desktops, including AIG, Bank of America, DuPont, Goodyear, MCI, Monsanto, Northrop Grumman and Procter & Gamble. In addition to a direct, enterprise marketing team, there are more than 60 Solution Partners/VAR organizations that have been trained and certified to install and deploy the PointCast Intranet Broadcast Solution in their own corporate accounts. The enterprise marketing team also works closely with the Company's partners, who are leaders in their markets, to leverage their existing corporate relationships and penetrate accounts in vertical industries such as banking, healthcare, telecommunications and government. Create and Communicate a Compelling Value Proposition for Advertisers. The Company's strategy is to provide advertisers with the most efficient and effective vehicle to reach a premium business audience at work. The Company believes that it is well positioned to capture advertising dollars that migrate from traditional media, particularly from print media targeted at business consumers. PointCast intends to enhance its value proposition to advertisers and expand its advertising base by: (i) utilizing a highly experienced direct sales force; (ii) enhancing and extending its leadership position on the Internet in the delivery of rich, animated commercial units; (iii) developing new advertising and sponsorship opportunities to accommodate a larger number of advertisers with varying objectives and budgets; (iv) leveraging its database of aggregated viewer profile and behavioral information to allow advertisers to target their messages more specifically; (v) providing high-quality research and reporting to advertisers; and (vi) engaging in high-visibility marketing efforts to advertisers. Maintain and Enhance Intelligent Client/Server Based Network. PointCast intends to maintain and enhance its technology lead in media broadcast solutions over the Internet. The Company has built a robust, scalable, intelligent, end-to-end client/server network that has been designed from the ground up to work efficiently on the Internet and within corporate intranets. The Company's client/server solution allows it to capture a knowledge base about its viewers and generate reports regarding usage to its advertisers that a purely Web-based provider would have difficulty providing. The Company intends to leverage its Central Broadcast Facility and intellectual property to continue to enhance the performance of its broadcasting services. 36 THE POINTCAST NETWORK OFFERINGS The PointCast Network is a scalable, end-to-end client/server news and information service for business consumers and corporations. The PointCast Network combines the latest news and information with innovative technology to broadcast personalized news and business information to the viewer automatically. The PointCast Network service consists of four principal components: (i) general and business content aggregated from approximately 700 sources; (ii) the PointCast Central Broadcast Facility, which receives, translates and transmits content; (iii) the PointCast Network Client that resides on a viewer's PC and displays customized news broadcasts; and (iv) the PointCast Intranet Broadcast Solution, a suite of free software tools that are designed to enable corporations to control and configure PointCast Network broadcasts throughout the company. For the past three years, the Company has developed and refined this technology solution in order to effectively and efficiently addresses the complex tasks of retrieving content feeds, compressing and delivering data and synchronizing delivery to software clients globally. The Company believes that this robust, end-to-end client/server Internet solution gives it significant strategic and operational advantages over other means of distributing news and information via the Internet. [CHART APPEARS HERE] A chart depicting the flow of content into the Company's Central Broadcast Facility and out to the Company's PointCast Network Client both directly and through Corporate Intranets. PointCast Content PointCast aggregates content from approximately 700 news and information sources globally. Using television's "channel" format, PointCast integrates this information from disparate sources into a consistent and easy-to-navigate format. Viewers can select up to 12 of the 54 channels available on the PointCast Network as well as the intranet channel, which is provided by the viewer's organization using the PointCast Intranet Broadcast Solution. Each channel represents either a specific source, such as CNN, or general category of news or information topic, such as weather. Within each channel, viewers can select the subtopics for which they wish to receive news updates. For example, within The New York Times channel, viewers may choose to receive world and business news and exclude politics and sports. 37 PointCast's content channels include the following categories: (i) general and business content; (ii) vertical market content; (iii) internal corporate content; and (iv) international content. POINTCAST NETWORK CHANNELS POINTCAST-OPERATED NATIONAL CHANNELS INDUSTRY INSIDER CHANNELS Companies Banking (scheduled for release third Industries quarter 1998): Lifestyles Consumer Banking News Corporate Banking Sports Investment Management Weather Consumer Markets: AFFILIATE CHANNELS Apparel & Accessories Consumer Products National Affiliates: Food CMPnet Holiday CNN What's New! CNNfn Health Federal Government: The New York Times Agencies ParentTime@Work Defense Time-Warner/Pathfinder: FCC Fortune, Money and Government Executive Time Magazines Legislative The Wall Street Journal Interactive NASA Edition Procurement WIRED News Technology ZDNet Healthcare: Regional Affiliates: Health News The Boston Globe Health Careers & Education Chicago Tribune Health Resources Detroit Globe and Mail Real Estate: Hot CoCo Commerical Real Estate Los Angeles Times Residential Real Estate Mercury Center Miami Herald State & Local Government: Philadelphia Online Grassroots Seattle Times Heartland Star Tribune Stateline The Tampa Tribune Money Matters washingtonpost.com Telecommunications: Telecom Buzz Managment Equipment/Services In addition, the Company anticipates releasing the following additional vertical markets in 1998: Aerospace & Defense, Automotive, Insurance and Utilities. There can be no assurance that these channels will be released on schedule or at all. General & Business Content. PointCast organizes its wide range of general news and business content into two types of programming: National channels and Affiliate channels. National channels represent specific topic areas and are based upon content that the Company licenses from suppliers, including AccuWeather, Inc., Associated Press, Business Wire, Hoover's, Morningstar, Inc., P.R. Newswire, Reuters Limited, Standard & 38 Poor's Comstock, The Weather Network and Zack's Investment Research. PointCast's six PointCast-operated National channels include Companies, Industries, News, Weather, Sports and Lifestyle. The Companies channel is PointCast's most popular, enabling viewers to obtain information on up to 50 companies (including stock prices) of their choice, as well as monitor multiple personal investment portfolios and initiate online securities trading through PointCast's online trading sponsors. These online trading partners include AmeriTrade Holding Corporation ("AmeriTrade"), Charles Schwab, Datek Online, E*TRADE Group, Inc. ("E*TRADE"), Donaldson, Lufkin & Jenrette, Inc. ("DLJdirect"), Fidelity Investments Institutional Services Company, Inc. ("Fidelity Investments") and SURETRADE. Leading national news brands, such as CNN, The Wall Street Journal Interactive Edition and The New York Times, are broadcast to viewers via PointCast's Affiliate channels, which provide the unique editorial value of these respected sources integrated within PointCast's consistent interface. PointCast believes it also offers the broadest selection of free local newspapers available on the Internet, including The Boston Globe, Chicago Tribune, Los Angeles Times, San Jose Mercury News, Washington Post and many others. Based on viewers' zip codes, PointCast automatically displays the appropriate regional newspaper channel when available as a default. Vertical Market Content. PointCast leverages the knowledge and market power of certain key vertical market leaders, or "Industry Insider" partners, to provide in-depth current industry news broadcasts in strategic markets to business viewers. PointCast has partnered with seven leading professional services firms representing the following 11 vertical markets: [GRAPHIC APPEARS HERE] A picture of the Company's current and proposed eleven vertical market channels. * Scheduled to be released in 1998. There can be no assurance that the channels scheduled for release in 1998 will be released on schedule or at all. To date the Company has deployed 25 vertical market channels, covering consumer markets, federal government, real estate, state and local government and telecommunications, and the Company intends to launch additional vertical channels in the future. The Industry Insider partners allow PointCast to leverage their organizations' marketing and distribution power in their respective vertical markets to obtain access both to leading industry information sources and to key corporate accounts. The Industry Insider partners are responsible for identifying compelling industry news sources, obtaining the content and integrating it into channels on the PointCast Network. In addition, the Company's Industry Insider partners have their own sales forces who seek to deploy the PointCast Network within their customers' organizations. In exchange, these Industry Insider partners receive prominent co-branding on the PointCast Network Client, expanding their brand awareness among key constituents. Additionally, their PointCast Network deployment efforts provide them with new opportunities to strengthen and extend customer relationships. Vertical market content can also be obtained through a separate co-branded version of the PointCast Network Client offered by PointCast's Industry Insider partners. 39 Internal Corporate Content. PointCast Network viewers within a corporation can receive, at the company's discretion, a private, internal company channel integrated into the PointCast Network and broadcast over the organization's secure intranet. Typically, this channel is used to communicate corporate messages and promote the use of the corporate intranet. By broadcasting important company information directly to employees' desktops, the PointCast Network provides corporations with a powerful complement to standard communication tools, such as e-mail and bulletin boards. Below are a few examples of how certain corporations are using the PointCast Network: . Federal Aviation Administration. Titan Software Systems, a PointCast Premier Solution Partner, has integrated the PointCast Network with secure executive information for the Air Traffic Service of the Federal Aviation Administration ("FAA"). Air Traffic Service operates and maintains the United States air traffic control system. The PointCast solution replaces labor intensive paper, fax and e-mail processes with a fully automated process, delivering the same up-to-date, time-sensitive information to the desktops of Air Traffic Service executives nationwide. With a single user interface, FAA management can see internal information on air traffic alerts, key performance metrics, long term trends and facility profiles along with the latest relevant news, weather, congressional and aviation-related information delivered from the PointCast Network. . Hewlett-Packard. Hewlett-Packard's Software and Services Group ("SSG") is in the process of rolling out the PointCast Network to its sales force and delivery organization. In addition to receiving news and information about their customers and competitors, SSG employees will also receive a summary of time-sensitive news items about the company's products and industry broadcasts via their intranet channel. The PointCast/SSG news service, called "The Edge," is also used as a way to promote company events, individual accomplishments and departmental announcements. . Houston Industries. Houston Industries, a diversified international energy services company, uses the PointCast Network and the PointCast Intranet Broadcast Solution to highlight important company and industry news in a compelling manner. Information is broadcast via their intranet channel, including competitive news flashes, company stock price, gas and electric futures, industry legislation and key plant operating statistics such as overtime, inventory and outages. With the deregulation of the energy industry, PointCast is helping Houston Industries compete by focusing employees on competition, industry changes and customer service. . National Semiconductor. National Semiconductor Corporation ("National Semiconductor") developed a reporting system based on the PointCast Network and the PointCast Intranet Broadcast Solution that consolidates sales and forecast information from National Semiconductor's Web site and intranet. Information broadcast to employees includes customer and reseller orders, sales forecasting, production levels, shipping history and mainframe-based billing, booking and backlog data. The system provides product planners with the information they need to quickly respond to market shifts and generate more product turns and more revenue. . PNC Bank. PNC Bank uses its intranet channel to broadcast headlines from various lines of business as well as breaking news items about the banking industry. All information is stored in a Lotus Notes database which PNC has seamlessly integrated with their PointCast Network intranet channel. PNC is also using the PointCast Network Banking channels to receive pertinent industry information. International Content. The Company's long-term growth strategy includes incorporating local-language content and advertising into the PointCast Network offerings. In October 1997, the Company launched a separate Japanese- language edition of the PointCast Network. The Japanese edition broadcasts information from Japanese content sources such as Asahi Shimbun and Japanese advertisements from its own local broadcast facility to local viewers. The Company intends to continue to strategically expand the PointCast Network to include content from other countries and geographic regions. The PointCast Central Broadcast Facility In order to deliver personalized information and advertising to a mass audience, PointCast developed and operates a sophisticated client/server network that can scale to millions of viewers. Over the past three years, the 40 Company has refined a broadcast server solution that effectively and efficiently addresses the complex tasks of retrieving content feeds, compressing and delivering data and synchronizing delivery to clients globally. PointCast's Central Broadcast Facility transforms incoming news streams from approximately 700 sources into an efficient and consistent broadcast which it delivers to PointCast's viewers. The Central Broadcast Facility, located in the Company's Sunnyvale, California headquarters, receives continuously updated news feeds via satellite, the Internet and leased lines. These feeds are automatically formatted and characterized, then encoded, compressed, and populated into databases in preparation for broadcast. Dedicated servers utilizing proprietary software broadcast approximately 450 million news articles and information items each day in response to requests from individual PointCast Network Clients. The PointCast Network Client The PointCast Network Client is a free software program that resides on the PC's hard drive and frequently communicates through the Internet with the Company's Central Broadcast Facility. The PointCast Network Client receives content feeds from the Central Broadcast Facility or the PointCast Caching Manager and displays it on the viewer's PC, as well as collects viewer information and transmits it back to the Central Broadcast Facility. Viewers can consume news, information and advertising in three principal modes: (i) SmartScreen mode; (ii) Channel Viewer mode; and (iii) via the scrolling ticker at the bottom or top of the viewer's screen. Advertising is displayed in 30- second animated commercials in the SmartScreen and Channel Viewer modes, as banners in the Channel Viewer Mode, and as ticker, SmartScreen and content sponsorships. PointCast complements its broadcast service with EntryPoint, a Web-based offering that enables viewers to quickly retrieve information or access services on demand. PointCast intends to continue to expand its offerings to include other services that capitalize on the depth and interactivity of the Web. [GRAPHIC APPEARS HERE] A picture of the Company's SmartScreen A picture of the Company's Channel Viewer Screen A picture of the Company's Ticker . SmartScreen. The PointCast SmartScreen incorporates the Company's patented technology and replaces the traditional PC screensaver with a dynamic news broadcast. When the computer is idle, the SmartScreen automatically displays headlines and advertisements in a graphical, eye- catching newscast. The PointCast Network channels rotate continuously while in SmartScreen mode. When viewers are interested in more detail regarding a news story, they can click on the SmartScreen headline to retrieve full-text articles in the Channel Viewer mode. 41 . Channel Viewer. The Channel Viewer enables viewers to read news articles and review in-depth information, navigate between content channels and personalize their PointCast Network preferences. . Ticker. The PointCast Network's configurable ticker displays a continuous stream of breaking news such as stock quotes, headlines, weather forecasts and internal company announcements. In addition to being integrated with the Channel Viewer and SmartScreen, the ticker can also run independently along the top or bottom of the computer screen, enabling viewers to monitor current news and information while using other desktop applications. The PointCast Intranet Broadcast Solution PointCast offers a suite of free corporate intranet tools that are designed to increase viewership in the business environment by delivering substantial value to executive management, IT departments, corporate communications departments and corporate librarians. The PointCast Intranet Broadcast Solution allows companies to enjoy the benefits of PointCast's free news and information while minimizing PointCast Network traffic. In addition, the Company's Intranet Broadcast Solution is designed to allow customers to preconfigure desktops and manage the content and advertising within their corporations, and by allowing them to broadcast internal news and information to employees. The PointCast Intranet Broadcast Solution consists of the following four components: . PointCast Caching Manager. The PointCast Caching Manager is designed to reduce traffic through the corporate firewall from use of the PointCast Network by approximately 85%. It supports corporate alerts, allowing companies to rapidly inform employees of time-sensitive breaking news via multicast. . PointCast Intranet Broadcast Manager. The PointCast Intranet Broadcast Manager is designed to allow corporations to broadcast timely internal news and information, such as new product announcements, news on competitors, changes in employee benefits and other timely company information. A customized intranet channel runs alongside the public PointCast Network channels and is available only to employees securely behind the firewall. . PointCast Administrator. The PointCast Administrator is designed to enable IT professionals to control and configure PointCast Network channels for their employees. The IT department can filter up to five competitive advertisers and five channels and recommend or mandate that certain broadcasts such as those from suppliers or key partners appear on employee desktops. In addition, corporations can also optimize network performance by using PointCast Administrator to designate client update schedules. . PointCast Studio. The PointCast Studio is designed to enable corporations to use this bandwidth-optimized animation tool to create a customized look for their internal corporate channel and the animated advertising they may choose to run on their intranet channel. PointCast Studio supports dynamic animation effects, drag-and-drop graphics and precise creative control. POINTCAST VIEWERSHIP The PointCast Network reaches a premium business audience that is highly attractive to advertisers. The value of the audience to advertisers is a function of demographic characteristics as well as the amount of time viewers spend with the PointCast Network to stay informed. The Company believes that its viewers are well-educated, affluent individuals who are likely to buy products and services online. Surveys indicate that the median annual income of a PointCast viewer is substantially higher than the median annual income of readers of Business Week and Forbes as reported by those publications. The Company believes its viewers spend more time using its service than users of any other leading Web site today. The Company had an average of approximately 1.2 million active viewers worldwide in the first quarter of 1998. An active viewer is someone who received at least one content update automatically or manually in the last month. In addition, since the PointCast Network was introduced in February 1996, the Company has received approximately 7.0 million registrations. A registration is generated when a viewer installs and registers the PointCast Network Client. 42 The table below contains certain information from two 1997 surveys conducted by IntelliQuest Inc. which reflect differences that the Company believes exist between PointCast Network viewers and other Internet users.
POINTCAST INTERNET DEMOGRAPHIC TRAITS: VIEWERS (1) USERS ------------------- ----------- --------- Average Age............................................ 39 years 35 years Average Annual Household Income........................ $109,080 $ 66,025 College Degree or Greater.............................. 69% 42% Management............................................. 44% 33% Administrative/Services/Other.......................... 15% 30% Purchased Online in 30 Days Prior to Survey............ 32% 16%
- -------- Sources: November 1997 PointCast Viewer Study, IntelliQuest Inc., and 1997 IntelliQuest WWITS Study The Company believes its viewers are more engaged, as measured by the duration and frequency of use, than are readers of business magazines and typical visitors to leading Web sites. For example, according to a report by Media Metrix in March 1998, the typical PointCast Network viewer is exposed to PointCast 6.8 days per month and an average of 57.2 minutes per usage day. According to the same report, a typical Yahoo! viewer uses Yahoo! for an average of 3.9 days per month and 7.0 minutes per usage day. In addition, Business Week reports that its average reader spends approximately 1.4 hours per weekly issue. Primarily through word of mouth and press articles, the Company has experienced a consistently high rate of new viewer registrations. Throughout 1997 and the first quarter of 1998, the Company has received between 850,000 and 1,000,000 registrations per quarter. Despite the strong awareness and interest in the PointCast Network, the Company has experienced a low retention rate in the first 90 days after registration. The Company has conducted market research to identify the causes of viewer attrition. According to a survey conducted by the Company, approximately two-thirds of respondents indicated that they left the PointCast Network for identifiable performance reasons associated with the PointCast Network Client. Based on this research, the Company intends to release a new version of the PointCast Network Client in the second half of 1998, which is designed to improve performance of the PointCast Network Client in specified areas. The Company believes that release of this new version will help improve viewer retention and may motivate former PointCast Network viewers to again use the PointCast Network. Many former PointCast Network viewers have indicated that they believe that the PointCast Network is a useful information source for business people. See "Risk Factors--Need to Retain and Increase Viewer Base." The Company released version 2.5 of the PointCast Network Client in April 1998, which begins to address certain identified software reliability issues. In addition, the Company is developing version 2.6 to specifically address performance issues. The Company expects that version 2.6 will be in beta testing in the third quarter of 1998. Importantly, version 2.6 is being developed to redesign the PointCast Network Client's animation engine to reduce its consumption of the PC's graphical display interface ("GDI") resource by more than two-thirds from an average of 43% to less than 7%, making it comparable to non-graphically intense desktop applications like popular word processors and spreadsheets. The Company believes version 2.6 will substantially improve PointCast Network Client's performance in key areas, including reducing the transition time between the SmartScreen and other applications and improving stability in a multi-tasking environment. The Company believes this is an important factor in increasing viewer retention. The Company intends to continue to improve and enhance the performance of the PointCast Network Client with new versions. For example, the Company is developing future upgrades to continue maximizing performance, address connectivity issues and assist viewers in the download and installation process. There can be no assurance that the Company will not experience difficulties that could delay or prevent the successful development, introduction and marketing of versions 2.5, 2.6 or future upgrades, or that these products will provide the technological improvements the Company expects or that they will adequately meet the market's requirements. If the Company were to incur delays in the introduction of these versions, or if such versions do 43 not provide the improvements expected, the Company's business, financial condition and results of operations could be materially adversely affected. See "Risk Factors--Need to Improve System Performance and Stability; New Product Development and Technological Changes." ADVERTISING ON THE POINTCAST NETWORK The Company derives substantially all of its revenue from the sale of advertisements. Advertisements appear to viewers in the SmartScreen and the Channel Viewer modes and as logo sponsorships on the ticker. Advertising revenue represented 87.2% and 96.1% of the Company's total revenue for fiscal 1997 and the first quarter of 1998, respectively. The Company believes it has been able to achieve its advertising revenue to date primarily through the value proposition it offers to advertisers, the extensive knowledge and relationship base of its direct sales force, its regular marketing efforts targeted to the advertising community and through the sales efforts of the Company's local and national media partners. Advertising opportunities on the PointCast Network currently consist of 30- second animated commercials, a variety of SmartScreen, ticker and content sponsorships and banner advertisements, which are designed to meet a broad range of marketing objectives, including brand marketing, direct-response marketing and new product introductions. Each advertising unit includes an interactive element through a link to the advertisers' Web site. The majority of advertising sales today are based on the 30-second animated advertisements that PointCast pioneered. The Company believes it has produced and deployed more animated advertising units than any other internet-based property. These commercials combine attention-drawing advertisements with frequency of delivery to generate awareness and stimulate interest. Such advertisements also capitalize on the strengths of the Internet, allowing customers immediate access to more information and the ability to transact through an advertiser's Web site. Based upon the current rate card, a typical advertisement over a four week period on a National channel would yield between $38,000 and $54,000. Key Advantages PointCast believes that the characteristics of its viewer environment and demographics offer compelling reasons for advertisers to choose the PointCast Network to deliver their marketing messages. Advertisements on the PointCast Network are primarily seen by consumers at work who constitute an attractive audience in an environment that has previously been difficult for marketers to access. The ability to reach business consumers in their offices allows advertisers to appeal to the interests and needs of premium business audiences with products such as financial services, computers and automobiles, as well as products and services that can be purchased on behalf of their companies and organizations. Because all of the PointCast Network's viewers are registered, the Company has the ability to target advertisements by a variety of factors, including gender, location, age, occupation, special interest and channel selection. The PointCast Network is unique in its ability to download in advance, store on the viewer's system and sequentially play rich, 30-second animated commercials with no delay. PointCast's technology also includes the ability to track and report detailed advertising performance statistics. This data is collected on the viewer's computer and periodically uploaded to PointCast. The Company has created advertising reports which are more detailed than those available through other advertising venues. Like most advertising-supported Web sites, the PointCast Network can also report the total number of impressions and number of clicks generated. Unlike most advertising-supported Web sites, the PointCast Network reports tally the number of unique viewers who received a commercial, the frequency with which a commercial played and a demographic profile of those who clicked. 44 Top Advertising Customers The Company has attracted a broad range of advertisers. During 1997, more than 200 advertisers placed advertisements on the PointCast Network. The following is a representative list of companies that purchased more than $30,000 in advertising on the PointCast Network during 1997: TECHNOLOGY/ CONSUMER/TRAVEL/AUTOMOTIVE FINANCIAL TELECOMMUNICATIONS - -------------------------- ------------------------- --------------------- Avis Rent A Car, Inc. American Express Company 3Com Corporation Boise Cascade Office AmeriTrade Holding Compaq Computer Products Corporation Corporation BMW AG Charles Schwab & Co., Comp USA Colgate-Palmolive Inc. Computer Associates Company Donaldson, Lufkin & International, Inc. Continental Airlines, Jenrette, Inc. Gateway 2000 Inc. Inc. The Dreyfus Corporation Hewlett-Packard Company Inteli-Health, Inc. E*TRADE Group, Inc. International Business Eastman Kodak Company Fidelity Investments Machines Corporation Korean Air Lines Institutional Services Intel Corporation Land Rover North Company, Inc. MCI Communications America, Inc. First Chicago NDB Corporation Daimler-Benz North Corporation Microsoft Corporation America Corp. Founders Asset Northern Telecom Limited Pfizer, Inc. Management LLC Oracle Corporation The Procter & Gamble NationsBank Corporation SAP AG Company Northwestern Mutual Life Texas Instruments Saturn Corporation Insurance Company Incorporated Levi Strauss & Company Quick & Reilly Toshiba America, Inc. (Slates) The Vanguard Group, Inc. Toyota Motor Sales VISA International (TMS), U.S.A., Inc. Wells Fargo & Company Each of the Company's advertising contracts can be cancelled by the customer at any time on two weeks notice. Consequently, the Company's advertising customers may move their advertising to competing Internet sites, or from the Internet to traditional media, quickly and with minimal penalty, thereby increasing the Company's exposure to competitive pressures and fluctuations in net revenues and operating results. In selling Internet advertising, the Company also depends to a significant extent on advertising agencies, which exercise substantial control over the placement of advertising for the Company's existing and potential advertising customers. If the Company loses advertising customers, fails to attract new customers or is forced to reduce advertising rates in order to retain or attract customers, the Company's business, financial condition and operating results will be materially adversely affected. There can be no assurance that any of the Company's advertising customers, including those listed above, will continue to purchase advertising in the future. See "Risk Factors--Dependence on Advertising." Advertising Sales Organization As of March 31, 1998, the Company's sales organization consisted of 48 employees, including 24 advertising sales representatives located in Sunnyvale, New York, Los Angeles, Chicago and Miami. The staff collectively has advertising experience at traditional and online publishing firms and advertising agencies such as AOL, CMP Media Inc. ("CMP Media"), Foote Cone & Belding, The Hearst Corporation, The New York Times Company ("New York Times"), Prodigy Services Corporation, Time Warner Inc., Wired Ventures, Inc. ("Wired Ventures") and Ziff-Davis Inc. ("Ziff-Davis"). The Company believes that having an internal sales force with significant prior experience will allow it to better understand and meet advertisers' needs, increase its access to potential advertisers and maintain strong relationships with its existing base of advertising clients. MARKETING AND DISTRIBUTION To date, the Company has built awareness of the PointCast Network primarily through press coverage and word of mouth. The Company's strategy is to increase its brand equity and overall awareness through formalized campaigns, including advertising, direct mail and other promotions. PointCast's extensive viewer database 45 enables the Company to target service-related messages to active and former viewers. PointCast plans to leverage this asset to increase viewership by contacting past viewers with incentives to try new service upgrades or other offerings. The Company intends to conduct aggressive viewer reacquisition and reactivation programs around future software releases that address key performance issues. Similarly, PointCast plans to encourage viewer loyalty and referrals by targeting messages and offers to appropriate subsets of its installed base of viewers. The Company is highly focused on attracting corporate viewers. The Company works closely with IT professionals, executive management, corporate communications and corporate librarians in Fortune 1000 companies to build support for corporate-wide deployment of the PointCast Network. The Company is utilizing multiple distribution methods to increase corporate deployment, including a direct sales force, Solution Partners/VARs and vertical market partners. Direct Corporate. The Company has an enterprise sales and marketing force which is compensated based on the number of viewers acquired in corporations. In addition, the Company has a post-sale group that assists key accounts in the technical and marketing aspects of deploying throughout the enterprise. The Company has active relationships with more than 150 Fortune 1000 accounts. Solution Partners/VARs. The Company has recruited and trained more than 60 Solution Partners or VARs. Each Solution Partner creates customized PointCast intranet solutions and markets and distributes the PointCast Network in their own corporate accounts. Solution Partners extend the PointCast Network's capabilities by performing such functions as custom application development, database integration and corporate SmartScreen design. The Company's Solution Partners are compensated directly by corporate accounts for their assistance in installation, intranet content development, integration with legacy systems and other services. Examples of some of the Company's Solution Partners include: . Brainstorm Technology, Inc. With eight offices worldwide, Brainstorm Technology, Inc. provides business solutions for intranets, extranets and the Internet. Clients of Brainstorm utilizing the PointCast Network include Texaco, Continental Airlines, Security Capital Group and Dayton Hudson. . Randall Marsden Design. Randall Marsden Design is a developer of high- quality multimedia solutions, emphasizing content design, animation and graphics, whose clients utilizing the PointCast Network include Charles Schwab and Lockheed Martin. . SenseNet, Inc. SenseNet, Inc. ("SenseNet") is a premier provider of high-end Internet and intranet business solutions. Clients of SenseNet that utilize the PointCast Network include ConEdison, Kodak and Pfizer. . USWeb Northcoast. USWeb Northcoast is part of the USWeb network of qualified Internet/intranet systems integrators. Clients of USWeb utilizing the PointCast Network include CNA Insurance and Dana Corporation. Vertical Market Partners: The Company's vertical market partners, called Industry Insider partners, are leading firms such as Ambac, Coopers & Lybrand, EDS, Inteli-Health and KPMG, which are co-developing with the Company 27 industry channels covering 11 vertical markets. Each of the Company's vertical market partners markets and distributes the PointCast Network to its clients as part of its overall offerings. The Company works closely with these partners to win corporate accounts. For example, recently PointCast and KPMG persuaded several banks to test the PointCast Network Banking channels for future rollout in their organizations. In exchange for the content and distribution they offer PointCast, vertical market partners receive prominent co-branding on the PointCast Network Client, which increases awareness of their brand within their market. These professional services firms can also leverage their PointCast Network deployment activities to expand existing relationships with key customers. CENTRAL BROADCAST FACILITY AND TECHNOLOGY In order to deliver personalized information and advertising to a mass audience, PointCast developed and operates a sophisticated client/server network that can scale to millions of viewers. Over the past three years, the 46 Company has refined a broadcast server solution that effectively and efficiently addresses the complex tasks of retrieving content feeds, compressing and delivering data and synchronizing delivery to clients globally. This internal server development effort has produced an intelligent server-based broadcast solution that is highly reliable, scales on the Internet and corporate Intranets and allows the collection of demographic and usage data from the PointCast Network Clients. In addition, the Company has leveraged this client/server architecture to implement proprietary methods for the description of information and identification of viewers that makes the sophisticated display modes in its client possible. Because it designed both the client and the server, the Company can tailor the service to provide additional value to corporate managers by allowing them to control the operation of PointCast Network Clients within their intranets in a manner that is extremely difficult to do with Web sites. The Company considers these proprietary client and server-side technologies and know-how to be significant strategic advantages over conventional Web site operators and other competitors. The Company intends to continue to develop internally its technology and broadcast infrastructure, as well as to integrate with externally developed, third-party server software where appropriate. For the initial client development, a number of proprietary technologies, including the networking layer and browser, needed to be built internally in order to achieve the level of integration and automation desired. Over time, it is the Company's intention to replace some of these client-side components with licensable or freely available technologies, so that the Company's technical teams can focus on future opportunities. The PointCast Network Internet Infrastructure [GRAPHIC APPEARS HERE] A drawing depicting the Company's Network Internet Infrastructure within the United States and out to international viewers. The Company's Central Broadcast Facility, based on proprietary technologies and housed in a custom-built data broadcast facility located in the Company's Sunnyvale, California headquarters, is designed to be fully scalable, reliable and secure. The Company believes its robust end-to-end client/server Internet broadcast solution gives it significant strategic and operational advantages over others distributing news and information via the 47 Internet. On an average day, the Company estimates that the Central Broadcast Facility broadcasts approximately 450 million individual news and information items. The scalability of the server system is designed to accommodate rapid and efficient growth of PointCast Network viewership. The end-to-end structure of the PointCast Network client/server system allows the Company to seamlessly provide the entire installed viewer base with new versions of the PointCast Network Client software which contain new technologies. Without proprietary software on an individual's PC, it is extremely difficult for Web site operators publishing to standard browser software to automatically distribute new technologies to their entire user base. The PointCast Network broadcasting process begins with the acquisition and processing of over 150 independent streams of content from PointCast's various media providers. Content feeds flow into the Central Broadcast Facility via satellite, the Internet and leased lines, with secondary delivery methods in place as back-up for the most important data sources. The Company has developed technology that continuously formats and characterizes the raw feeds, without operator or editorial intervention. The individual news articles are then encoded, compressed, and populated into databases in preparation for broadcast to viewers. Content is broadcast to PointCast's viewers through a series of dedicated servers linked by proprietary software that is optimized for speed, load balancing and redundancy. The Central Broadcast Facility is linked to the Internet via a state-of-the- art OC48 fiber-optic connection to the Sunnyvale headquarters, with a second redundant fiber connection available in the case of catastrophic failure. The Company presently utilizes Internet connectivity distributed across several leading top-tier service providers, including ANS, InterNEX Technologies, Inc. ("InterNEX"), SAVVIS Communications Corporation ("SAVVIS") and UUNet Technologies, Inc. ("UUNET"), via private peering arrangements. Two Internet connections, InterNEX and UUNet, are available through the Palo Alto Internet Exchange maintained by Digital Equipment Corporation. A back-up facility, maintained in Plano, Texas under contract with EDS, replicates a portion of the functionality of the Central Broadcast Facility. Emergency electricity supplies are provided in the case of a power failure at the Sunnyvale headquarters through UPS and on-site generators. Since the launch of the PointCast Network in February 1996, the Central Broadcast Facility has been a reliable, mission-critical facility, sustaining constant operations 24 hours a day, seven days a week without interruption for well over 99% of the time. See "Risk Factors--Risk of System Failure." The PointCast Network Client PointCast Network viewers receive news and information from the Central Broadcast Facility through the PointCast Network Client. The PointCast Network Client software is based upon the Company's patented, proprietary technologies. The software confers advantages upon PointCast Network viewers through close integration with features supported by the Central Broadcast Facility. These competitive advantages include: . Minimization of bandwidth usage through data compression, differential downloading of content and intelligent client-side caching; . Personalization of content for each viewer in accordance with their individual selections and demographic interests; . Dynamic construction and playback of SmartScreen and ticker animations based upon the viewer's personalization and demographics; . The ability to pre-download, store on the viewer's system and sequentially play rich, 30-second animated commercials with no delay; . The ability to view a full news article even when the viewer is not actively connected to the Internet; . The collection and uploading of detailed viewership statistics, even for periods when a viewer is not actively connected to the Internet; and . The invisible downloading of the PointCast Network Client updates. 48 A key element of the Company's strategy to retain and increase its viewer base is to improve the performance and reliability of the PointCast Network through the introduction and release of enhancements and upgrades to its PointCast Network Client. The Company released version 2.5 of its PointCast Network Client in April 1998. The Company is currently developing version 2.6 and expects it to be released in the second half of 1998. There can be no assurance that the Company will not experience difficulties in the rollout of version 2.5 or difficulties that could delay or prevent the successful development, introduction and rollout of version 2.6, that versions 2.5 and 2.6 will provide the technological improvements the Company expects, that these products will adequately meet the market's requirements or that they will gain market acceptance. Furthermore, there is no assurance that during the rollout period of the new versions the Company will not continue to experience significant viewer attrition. If the Company were to incur delays in the introduction of version 2.6, or if these versions 2.5 and 2.6 do not provide the improvements expected or do not gain market acceptance, the Company's business, financial condition and results of operations could be materially adversely affected. COMPETITION The market for Internet content and information services, and Internet advertising is new and rapidly evolving, and competition for viewers and advertisers is intense and is expected to increase significantly in the future. The Company competes for viewers with many other Internet content and service providers, including Web directories, search engines, shareware archives, sites that offer original editorial content, commercial online services and sites maintained by Internet service providers, as well as thousands of Internet sites operated by individuals, government and educational institutions. These competitors include subscription services such as Bloomberg, Dow Jones Telerate, NewsEdge, Reuters Limited, The Wall Street Journal Interactive Edition and other business-oriented internet sites, as well as free information, search and content sites or services offered by companies such as AOL, CNet, CNN/Time Warner, Excite, Infoseek, Lycos, Netscape and Yahoo! some of whom, such as CNN/Time Warner, may also provide content to the PointCast Network. The Company believes that the principal competitive factors in attracting Internet viewers include the quality of presentation the PointCast Network Client performance and the relevance, timeliness, depth and breadth of information and services offered by the Company. The Company also competes with many companies for advertisers, including those companies with whom the Company competes for viewers as well as traditional forms of media such as newspapers, magazines, radio and television. The Company believes that the principal competitive factors in attracting advertisers include the number of viewers of the PointCast Network, the demographics of the Company's viewers, the Company's ability to deliver focused advertising through the PointCast Network and the overall cost- effectiveness and value of advertising offered by the Company. The Company also believes that companies with access to large installed bases of end users through the telecommunications infrastructure are potential competitors of the PointCast Network. Such potential competitors could include regional Bell operating companies, cable television companies, long-distance telephone service providers and large content publishers. The Company currently has an agreement with Microsoft pursuant to which Microsoft includes the PointCast Network on its Active Desktop product. This agreement is scheduled to expire in September 1998, subject to Microsoft's right to renew the agreement for an additional year. Currently, the Company is not receiving a significant number of new viewer registrations as a result of this agreement and the Company does not believe Microsoft intends to renew the agreement. Although the Company is not aware of any plan by Microsoft to develop any directly competing product or service, Microsoft has a vastly greater installed user base and vastly greater financial, research and development, marketing, sales and distribution resources than the Company. The announcement or introduction by Microsoft of a directly competitive product could have an immediate, material adverse affect on the Company's business, financial condition and operating results. There is no provision in the Company's agreement with Microsoft which would prohibit Microsoft from competing with the Company. The Company expects competition to persist and intensify and the number of competitors to increase significantly in the future. Many of the Company's current competitors have significantly greater financial, editorial, technical and marketing resources, longer operating histories, greater name recognition and more 49 established relationships with advertisers and advertising agencies than the Company. Such competitors may be able to undertake more extensive marketing campaigns, adopt more aggressive pricing policies and devote substantially more resources to attract viewers and advertisers than the Company. In addition, although the Company believes that it currently collects more data regarding its viewer profiles than its competitors, other companies are currently or have announced their intention to collect more detailed viewer profile information. There can be no assurance that the Company will be able to compete successfully against current or future competitors or that competitive pressures faced by the Company will not materially adversely affect the Company's business, financial condition and operating results. INTELLECTUAL PROPERTY The Company regards its intellectual property as critical to its success, and the Company relies on patent, trademark, copyright and trade secret laws in the United States laws and other jurisdictions to protect its proprietary rights. The Company has been issued one patent, has filed nine patent applications with the United States Patent and Trademark Office and has filed one patent applications in three foreign jurisdictions to protect certain aspects of its technology. The Company pursues the protection of its trademarks by applying to register the trademarks in the United States and (based on anticipated use) internationally, and is the owner of a registration for the PointCast trademark. There can be no assurance that any of the Company's pending or future patent or trademark applications will be granted or approved. In addition, there can be no assurance that the Company's current patent and trademarks or any future patents or trademarks will not be successfully challenged by others or invalidated or narrowed through the administrative process or litigation. Patent, trademark, copyright and trade secret protection may not be available or enforceable in every country in which the country in which the Company's products are distributed or made available. In addition, the Company seeks to protect its proprietary rights through the use of confidentiality agreements with employees, consultants, advisors and others. There can be no assurance that such agreements will provide adequate protection for the Company's proprietary rights in the event of any unauthorized use or disclosure, that employees of the Company, consultants, advisors or others will maintain the confidentiality of such proprietary information or that such proprietary information will not otherwise become known, or be independently developed, by competitors or others. The Company incorporates an electronic version of a "shrink wrap" license into all of its software distributed to end users in order to protect the Company's intellectual property rights in such software products. Since the electronic "shrink wrap" licenses are not signed by the end user, they may not be deemed enforceable under the laws of certain jurisdictions. Legal standards relating to the validity, enforceability and scope of protection of certain proprietary rights in Internet-related industries are uncertain and still evolving, and no assurance can be given as to the future viability or value of any proprietary rights of the Company or other companies within the industry. There can be no assurance that the steps taken by the Company to protect its proprietary rights will be adequate or that third parties will not infringe or misappropriate the Company's proprietary rights. Policing unauthorized use of the Company's proprietary technology and other intellectual property rights could entail significant expenses and could be difficult or impossible, particularly given the global nature of the Internet and the fact that the laws of other countries may afford the Company little or no effective protection of its intellectual property. Any such infringement or misappropriation, should it occur, could have a material adverse effect on the Company's business, results of operations and financial condition. In addition, there can be no assurance that third parties will not bring claims of patent, copyright or trademark infringement against the Company. The Company anticipates an increase in patent infringement claims involving Internet- related technologies as the number of products and competitors in this market grows and as related patents are issued. Further, there can be no assurance that third parties will not claim that the Company has misappropriated their trade secrets or otherwise infringed upon their proprietary rights. Any claims of infringement, with or without merit, could be time consuming to defend, result in costly litigation, divert the Company's resources, require the Company to enter into costly royalty or licensing arrangements, if available, or prevent the Company from using important technologies or methods, any of which could have a material adverse effect on the Company's business, financial condition or operating results. There can be no assurance that the Company would be able to enter into 50 arrangements with such third parties on commercially reasonable terms allowing the Company to continue to use such patented technology or trademarks. From time to time, the Company receives notices that its products and services may infringe the intellectual property rights of others. In 1995, Unisys announced its intention to require the payment of royalties for the use of compression technology associated with the popular Graphics Interchange Format ("GIF"). In March 1998 the Company received a letter from Unisys stating that it holds a patent (the "Welch" patent) on certain data compression/decompression technology that it claims is applicable to the graphics incorporated in GIF file format in certain of the content and advertising delivered on the PointCast Network. The Company is currently reviewing the matter with its patent counsel in order to determine the scope of the claims in the Welch patent and to determine its response to Unisys' request that the Company license the Welch patent. The Company could incur additional expense and liability if the Company enters into a license with Unisys under the Welch patent or if the Company becomes involved in litigation with Unisys relating to the Welch patent. There is no assurance the Company will prevail in such litigation. If the Company's incorporation of GIF files in the content and advertising distributed on the PointCast Network is found to be within the scope of the Welch patent, the Company could incur liability and related expense resulting from such infringement. The assertion of these patent rights by Unisys, if successful, could result in additional expense to the Company should it decide to utilize a different graphics file format for the content and advertising distributed on the PointCast Network. There can be no assurance that the Company's products or services are not subject to the Welch patent. In March 1997, the Company received a letter from Wang, stating that Wang was interested in licensing a portion of its patent portfolio to PointCast or other interested parties involved in Internet-related technology. The Company reviewed the proffered patents with its patent counsel and has informed Wang that the Company is not interested in pursuing a purchase or license agreement at this time. Wang filed a lawsuit alleging patent infringement regarding some or all of the profferred patents against Netscape and AOL. In May 1998, this lawsuit was dismissed on summary judgment. There can be no assurance that Wang's lawsuit against Netscape and AOL will not be reinstated on appeal, or that Wang will not assert claims against the Company, notwithstanding the Company's belief that its products do not infringe the profferred Wang patents. In April 1997 the Company received a letter from Charles Hill & Associates stating that the operation of the PointCast Network infringes one or more claims of a patent which relates to updating an electronic product catalog across a network. After reviewing the patent, the Company's patent counsel concluded that the PointCast Network does not infringe any of the claims of the patent. There can be no assurance that infringement claims, or claims for indemnification resulting from infringement claims, based upon the foregoing or upon future claims will not be asserted or prosecuted against the Company or that any such assertions or prosecutions will not materially adversely affect the Company's business, financial condition or results of operations. Irrespective of the validity or the successful assertion of such claims, the Company would incur significant costs and diversion of resources with respect to the defense thereof which could have a material adverse effect on the Company's business, financial condition or results of operations. If any claims or actions are asserted against the Company, the Company may seek to obtain a license under a third-party's intellectual property rights. There can be no assurance, however, that under such circumstances, a license would be available on commercially reasonable terms or at all. EMPLOYEES As of March 31, 1998, the Company had a total of 267 employees, of which 259 are based in the United States and 8 are based in Japan. Of the employees based in the United States, 91 were involved in engineering, 59 were engaged in marketing and customer support, 48 were involved in sales, and 61 had general and administrative duties. None of the Company's employees is represented by a labor union. The Company has not experienced any work stoppages and considers its relations with its employees to be good. The Company has rapidly and significantly expanded its operations and anticipates that significant expansion of its operations will continue to be required in order to address potential market opportunities. This 51 rapid growth has placed, and is expected to continue to place, a significant strain on the Company's management, operational and financial resources. From January 1, 1996 to March 31, 1998, the Company grew from 57 to 267 employees. The Company has also recently added a number of key managerial and technical employees and the Company expects to add additional key personnel in the future. FACILITIES The Company leases approximately 64,800 square feet of office space in a building in Sunnyvale, California that houses the Company's principal administrative, finance, sales, marketing, Internet broadcasting operations and product development. The Company's Sunnyvale headquarters facility is leased for a term of 5 1/2 years through October 31, 2002 and the Company has two five-year renewal options. The Company subleases a facility contiguous to its headquarters through August 2000. The Company is obligated under the lease for this facility through October 31, 2002. The Company also has a short term operating lease for a sales office in New York and is seeking office space of approximately 2,500 square feet to replace this short term lease. The Company anticipates that additional facilities will be required if the Company is successful in achieving its growth objectives and believes that suitable additional space will be available on commercially reasonable terms. LEGAL PROCEEDINGS The Company is from time to time a party to legal proceedings that arise in the ordinary course of business. There is no pending or threatened legal proceeding to which the Company is a party that, in the opinion of the Company's management, is likely to have a material adverse effect on the Company's business, financial condition or operating results. 52 MANAGEMENT EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS The following table sets forth the names, ages and positions of the executive officers, key employees and directors of the Company, as of April 30, 1998:
NAME AGE POSITION(S) ---- --- ----------- David W. Dorman......... 44 Chairman, President and Chief Executive Officer Philip J. Koen.......... 46 Senior Vice President, Finance and Operations and Chief Financial Officer Jaleh Bisharat.......... 39 Senior Vice President, Marketing Douglas W.C. Boake...... 32 Senior Vice President, Strategic Sales and Affiliate Development James F. Wickett........ 47 Senior Vice President, Worldwide Business Development Gary A. Paranzino....... 37 Vice President, General Counsel and Secretary Sanford R. Climan....... 42 Director Jonathan Feiber(2)...... 41 Director Charles Geschke(1)...... 58 Director Kevin R. Harvey(1)...... 33 Director Gregory P. Hassett...... 32 Director Steven Heyer............ 45 Director Andrew S. Rachleff(2)... 39 Director
- -------- (1) Member of the Compensation Committee (2) Member of the Audit Committee David W. Dorman has served as the Company's President and Chief Executive Officer since November 1997 and as the Company's Chairman since February 1998. Mr. Dorman served as the Executive Vice President of SBC Communications, a telecommunications company, from August 1997 to November 1997 following last year's merger between SBC Communications Inc. and Pacific Telesis Group, Pacific Bell's parent company. Prior to the merger, Mr. Dorman served as Chairman of the Board of Directors, President and CEO of Pacific Bell, a telecommunications company, from July 1994 to July 1997. From 1981 to 1994, Mr. Dorman held several senior management positions, including President of the Sprint Business division of Sprint Corporation, a telecommunications company. Mr. Dorman is also a director of 3Com Corporation and Scientific-Atlanta, Inc. Mr. Dorman received a B.S. from the Georgia Institute of Technology. Philip J. Koen has served as Senior Vice President, Finance and Operations and Chief Financial Officer of the Company since May 1997. From December 1993 to May 1997, he served as Chief Financial Officer of Etec Systems, Inc., a maker of semiconductor equipment used to create photolithography mask patterns. From April 1989 to December 1993, he served as Chief Financial Officer and Vice President of Manufacturing at Levolor Corporation, a consumer products manufacturer. Mr. Koen is a director of Centura Software Corporation, a software developer. Mr. Koen received a B.A. from Claremont McKenna College and an M.B.A. from the University of Virginia. Mr. Koen is a certified public accountant, inactive status. Jaleh Bisharat has served as Senior Vice President, Marketing of the Company since February 1997. Ms. Bisharat served as Vice President, Marketing upon joining the Company in January 1996. From January 1995 through January 1996, Ms. Bisharat served as General Manager, Lotus Database Division of Lotus Development Corporation. From September 1991 through December 1995, she served as Vice President, Marketing of Approach Software, a database software company acquired by Lotus Development Corporation in July 1993. Ms. Bisharat holds an A.B. from Harvard University and an M.B.A. from Harvard Business School. Douglas W.C. Boake has served as Senior Vice President, Strategic Sales and Affiliate Development of the Company since March 1998. From December 1997 to February 1998, Mr. Boake served as Vice President, International for the Company and from May 1996 to December 1997, he served as the Company's Vice 53 President, Pacific Rim. From October 1993 to April 1996, Mr. Boake served as Vice President, International of Radius Inc., a graphics peripherals and software company. From October 1988 to October 1993, Mr. Boake served as President, Representative Director and Managing Director, Pacific Rim of Claris Japan, Inc., a wholly owned Japanese subsidiary of Claris Corporation (now FileMaker, Inc.), a database software company. Mr. Boake earned a B.A. from Rice University. James F. Wickett has served as Senior Vice President, Worldwide Business Development of the Company since February 1997. He served as Vice President, Worldwide Business Development upon joining the Company in July 1996. Mr. Wickett served as Chief Operating Officer and as a director of Rocket Science Games, Inc., an interactive video game company, from March 1995 to July 1996 and as Vice President, Business Development from December 1993 to March 1995. Mr. Wickett served as Chief Operating Officer of Structural Analysis Technologies, Inc., a software developer, from June 1991 through June 1993. Previously, Mr. Wickett served in executive positions with companies in the video services industry including One Pass, Inc. Mr. Wickett is a director of Epiphany, Inc., a marketing software company. Mr. Wickett is a member of the California state bar (inactive status). Gary A. Paranzino has served as Vice President, General Counsel and Secretary of the Company since February 1998. He served as Assistant General Counsel upon joining the Company in July 1996. From September 1986 to July 1996, Mr. Paranzino practiced law in New York, most recently with Morgan, Lewis & Bockius LLP. Mr. Paranzino earned an A.B. from Cornell University and a J.D. from Cornell Law School and is a member of the California and New York state bars. Sanford R. Climan has served as a director of the Company since December 1995. Since June 1997, Mr. Climan has been a Senior Management Team Member at Creative Artists Agency, Inc., a literary and talent agency. From October 1995 to May 1997, Mr. Climan served as an Executive Vice President of MCA (now Universal Studios, Inc.), an entertainment company. From June 1986 to September 1995, Mr. Climan held various executive management positions at Creative Artists Agency, Inc. Mr. Climan is also a director of Signature Resorts, Inc., a time-share resort developer and operator. Mr. Climan has a B.A. from Harvard College, an M.B.A. from Harvard Business School and an M.S. in Health Policy and Management from the Harvard School of Public Health. Jonathan Feiber has served as a director of the Company since June 1994. Mr. Feiber has been a General Partner of Mohr, Davidow Ventures, a venture capital firm, since 1991. From 1983 to 1991, Mr. Feiber held numerous management positions at Sun Microsystems, Inc., most recently as Vice President, Networking. Mr. Feiber is also a director of several privately held companies. Mr. Feiber earned a B.A. in Computer Sciences from the University of Colorado. Dr. Charles Geschke has served as a director of the Company since October 1994. Dr. Geschke founded Adobe Systems, Inc. ("Adobe"), a computer software company, in December 1982 and has served as its President since April 1989 and as the Chairman of the board of directors since September 1997. Dr. Geschke is also a director of Rambus Inc., a semiconductor technology company. Prior to founding Adobe in December 1982, Dr. Geschke was the manager of the imaging sciences laboratory at Xerox Corporation's Palo Alto, California research center. Dr. Geschke received an A.B. and an M.S. from Xavier University and a Ph.D. from Carnegie Mellon University. Kevin R. Harvey has served as a director of the Company since June 1994. Mr. Harvey has been a General Partner of Benchmark Capital, a venture capital firm, since January 1995. In August 1990, Mr. Harvey founded Approach Software ("Approach"), a software company, where he served as the President and Chief Executive Officer until July 1993 when Approach was sold to Lotus Development Corporation. From July 1993 to January 1995, he served as General Manager for Lotus Development Corporation. Prior to founding Approach, Mr. Harvey founded Styleware, a software company, which was subsequently sold to Claris Corporation. Mr. Harvey is also a director of Silicon Gaming, Inc., an entertainment and gaming technology company and a director of several privately held companies. Mr. Harvey holds a B.S.E.E. from Rice University. 54 Gregory P. Hassett co-founded the Company in 1992 and has served as a director of the Company since June 1997. He previously served as the Company's Senior Vice President, Engineering from January 1998 to April 1998 and as the Company's Vice President, Engineering from June 1992 to January 1998. From 1981 to May 1992, Mr. Hassett was a software engineer for Digital Equipment Corporation, a computer hardware and technical services company. Steven Heyer has served as a director of the Company since October 1997. Since January 1998, Mr. Heyer has been the President and Chief Operating Officer of Turner Broadcasting Systems, Inc., a wholly owned subsidiary of Time Warner Inc., an entertainment company. From September 1992 through May 1994, he was the President and Chief Operating Officer of Young & Rubicam Inc., an advertising company. Mr. Heyer is also a director of Vistana Inc., a time-share resort development and operating company. Mr. Heyer received an A.B. from Cornell University and an M.B.A. from the New York University Stern School of Business. Andrew S. Rachleff has served as a director of the Company since June 1994. Mr Rachleff has been a General Partner of Benchmark Capital, a venture capital firm, since January 1995 and a General Partner of Merrill, Pickard, Anderson & Eyre V, L.P., a venture capital firm, since 1989. Mr. Rachleff is also a director of CATS Software Inc. and several privately held companies. Mr. Rachleff received a B.S. degree from the University of Pennsylvania and an M.B.A. from the Stanford University Graduate School of Business. The number of directors of the Company is currently fixed at nine. At each annual meeting of stockholders, the successors to directors whose terms will then expire will be elected to serve from the time of election and qualification until the next annual meeting following election and until their successors have been duly elected and qualified. Each officer serves at the discretion of the Board of Directors. There are no family relationships among any of the directors or officers of the Company. DIRECTOR COMPENSATION The Company does not pay cash compensation to its directors, but does reimburse directors for expenses incurred in attending board and committee meetings. The Company has also adopted the 1998 Director Option Plan. See "Stock Plans." COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Company's Compensation Committee was formed in April 1996 to review and approve all forms of compensation and benefits for the executive officers and directors of the Company and its subsidiaries, administer the Company's stock purchase and stock option plans and make recommendations to the Board of Directors regarding such matters. The committee is currently composed of Charles Geschke and Kevin R. Harvey. No interlocking relationship exists between the Company's Board of Directors or Compensation Committee and the board of directors or compensation committee of any other company, nor has any such interlocking relationship existed in the past. AUDIT COMMITTEE The Company's Audit Committee was formed in April 1996 to review, act on and report to the Board of Directors with respect to various auditing and accounting matters, including the selection of the Company's independent auditors, the scope of the annual audits, fees to be paid to the independent auditors and the accounting practices of the Company. The committee is currently composed of Jonathan Feiber and Andrew S. Rachleff. EMPLOYMENT AGREEMENTS AND CHANGE OF CONTROL ARRANGEMENTS The Company entered into employment agreements with Messrs. Christopher Hassett and Gregory Hassett in June 1997, setting forth terms under which Messrs. Hassett agreed to serve as part-time employees of the 55 Company upon cessation of their respective full-time employment arrangements. The employment agreements provide for compensation of $250,000 to Christopher Hassett and $150,000 to Gregory Hassett for the 12 months after the termination of their respective employment arrangements and that Messrs. Hassett shall be free to serve as directors, employees, consultants or advisors to any other corporation or other business enterprise without the prior written consent of the Company so long as such activities do not interfere with their duties and obligations under the respective agreements, including covenants not to compete and solicit. The covenants not to compete and not to solicit terminate upon a change of control of the Company. The Company entered into an employment agreement with Mr. David Dorman in October 1997, which was amended in February 1998 (as amended, the "Employment Agreement"), pursuant to which Mr. Dorman agreed to serve as Chief Executive Officer and President of the Company, as well as Chairman of the Company's Board of Directors. In addition, the Company agreed to re-nominate Mr. Dorman for Board membership when his initial term expires. Under the Employment Agreement, Mr. Dorman received a starting bonus of $1,437,500 and an annual base salary of $250,000. The Employment Agreement provides that Mr. Dorman is eligible to receive a bonus in the Company's fiscal year ended December 31, 1999, with installment payments to be paid at the end of each quarter of such fiscal year based upon performance criteria mutually acceptable to Mr. Dorman and the Board of Directors; provided, however, that the amount of such bonus payments shall not be less than $250,000 in the aggregate; and provided further, that the payment of any such bonuses shall be subject to Mr. Dorman's continued employment with the Company through the end of such fiscal quarters. In addition, Mr. Dorman is entitled to receive at the end of the Company's 1999 fiscal year an additional bonus of $1,800,000 if (i) the Company has achieved a total year-end viewership of at least 3,000,000 viewers; (ii) the Company's audited financial statements for fiscal 1999 determined on a consolidated basis reflect positive operating income in the aggregate of at least $0.01; and (iii) Mr. Dorman remains employed by the Company through the end of that fiscal year. The Company periodically evaluates the available evidence to determine whether it is probable that the goals associated with the bonus will be achieved and will begin to record expense associated with the bonus in the period such a determination is made. In connection with the Employment Agreement, the Company loaned Mr. Dorman $1,400,000, all of which remains outstanding. Mr. Dorman has entered into a full-recourse promissory note for this loan. The note is also secured by 70% of the 83,334 shares of Series E Preferred Stock of the Company purchased by Mr. Dorman and 70% of the 250,000 shares of Series E Preferred Stock granted to Mr. Dorman. The loan is due and payable upon the earlier of the four-year anniversary of Mr. Dorman's employment date or ninety days following the date upon which Mr. Dorman's employment with the Company terminates. The loan bears interest at the rate of 6.01%, compounded semi-annually and interest is payable annually. Also pursuant to the Employment Agreement, the Company extended a second loan to Mr. Dorman of $600,000, all of which remains outstanding Mr. Dorman has entered into a full-recourse promissory note for this loan. The note is also secured by the remaining 30% of the Series E Preferred Stock not securing the loan described above. This loan is due and payable upon the earlier of the four-year anniversary of Mr. Dorman's employment date or ninety days following the date upon which Mr. Dorman's employment with the Company terminates. This loan bears interest at the rate of 6.01% compounded semi-annually and interest is payable annually. In connection with the Employment Agreement, Mr. Dorman received a stock option to purchase 1,666,667 shares of the Company's Common Stock at an exercise price of $6.00 per share, which vests at the rate of 1/48th of the shares on each month following the first day of Mr. Dorman's employment with the Company. The Employment Agreement provides Mr. Dorman with the right to purchase 83,334 shares of the Company's Series E Preferred Stock at a purchase price of $14.25 per share. This right was exercised in December 1997. Mr. Dorman also received a stock bonus of 250,000 shares of the Company's Series E Preferred Stock with a fair market value equal to $14.25 per share (the "Restricted Stock"), which vests with respect to 62,500 shares on October 22, 1998, and with respect to 5,208 shares on the 22nd day of each month thereafter, until all shares are vested on October 22, 2001, subject in each case to Mr. Dorman's continued employment. If within two years following Mr. Dorman's employment commencement date, Mr. Dorman's employment with the Company 56 is involuntarily terminated by the Company without cause, then Mr. Dorman's Restricted Stock and stock options shall vest as to an additional 25% of the remaining unvested shares covered by such awards on the date of such termination of employment and Mr. Dorman shall receive a lump sum payment of $250,000, less applicable withholding, promptly following such termination of employment. An additional 25% of the remaining unvested shares covered by such awards vest in the event of Mr. Dorman's death. In the event of a change of control or upon the closing of this offering, Mr. Dorman's Restricted Stock and his stock options shall become 100% vested. Under the terms of an employment agreement reached in May 1997, the Company granted to Mr. Philip J. Koen an option to purchase 339,458 shares of the Company's Common Stock at an exercise price of $1.50 per share. Such shares are subject to certain vesting provisions, but shall become fully vested and exercisable upon a merger of the Company in which greater than 50% of the total voting power is transferred. In the event that Mr. Koen is involuntarily terminated, he will continue to receive salary and benefits for six months and his unvested options shall be accelerated by two years. See "Certain Transactions." LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS The Company's Certificate of Incorporation limits the liability of directors to the maximum extent permitted by Delaware law. Delaware law provides that a corporation's certificate of incorporation may contain a provision eliminating or limiting the personal liability of a director for monetary damages for breach of their fiduciary duties as directors, except for liability (i) for any breach of their duty of loyalty to the corporation or its stockholders; (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (iii) for unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law; or (iv) for any transaction from which the director derived an improper personal benefit. The Company's Bylaws provide that the Company shall indemnify its directors and officers and may indemnify its employees and agents to the fullest extent permitted by law. The Company believes that indemnification under its Bylaws covers at least negligence and gross negligence on the part of indemnified parties. The Company has entered into agreements to indemnify its directors and officers, in addition to the indemnification provided for in the Company's Bylaws. These agreements, among other things, indemnify the Company's directors and officers for certain 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 the Company, arising out of such person's services as a director or officer of the Company, any subsidiary of the Company or any other company or enterprise to which the person provides services at the request of the Company. The Company believes that these provisions and agreements are necessary to attract and retain qualified directors and officers. At present, there is no pending litigation or proceeding involving any director, officer, employee or agent of the Company where indemnification will be required or permitted. The Company is not aware of any threatened litigation or proceeding that might result in a claim for such indemnification. 57 EXECUTIVE COMPENSATION The following table sets forth information concerning the compensation earned during the Company's fiscal year ended December 31, 1997 by the Company's Chief Executive Officer and each of the Company's other most highly compensated current executive officers and executive officers serving at December 31, 1997 whose total annual salary and bonus during such fiscal year exceeded $100,000 (collectively, the "Named Officers"): SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ----------------------- ANNUAL COMPENSATION AWARDS -------------------- ----------------------- RESTRICTED STOCK SECURITIES AWARDS UNDERLYING NAME AND PRINCIPAL POSITION SALARY($) BONUS($) ($) OPTIONS(#) --------------------------- --------- ---------- ----------- ----------- David W. Dorman(1)............. $ 49,359 $1,437,500 $3,562,500 1,750,001 Chairman, President and Chief Executive Officer Christopher R. Hassett(2)...... 175,000 50,000 -- -- Chairman, President and Chief Executive Officer Philip J. Koen(3).............. 111,923 44,769 -- 339,458 Senior Vice President, Finance and Operations and Chief Financial Officer Jaleh Bisharat................. 184,328 50,000 -- 133,334 Senior Vice President, Market- ing James F. Wickett............... 150,000 75,000 -- 233,334 Senior Vice President, Worldwide Business Development Anna Zornosa(4)................ 135,000 85,500(5) -- -- Senior Vice President, Advertising, Sales and Affiliate Development Douglas Boake.................. 141,667 25,000 -- 20,000 Senior Vice President, Strategic Sales and Affiliate Development
- -------- (1) Mr. Dorman joined the Company in October 1997. Mr. Dorman's salary for 1997 reflects a partial year of service. Mr. Dorman's annual base salary is $250,000. Under his Employment Agreement, Mr. Dorman received a bonus of restricted stock of 250,000 shares of the Company's Series E Preferred Stock with a fair market value of $14.25 per share, which shall be fully vested upon the closing of this offering. No dividends are paid on Mr. Dorman's Restricted Stock. See "Management--Employment Agreements and Change of Control Arrangements." (2) Mr. Hassett served as the Company's President and Chief Executive Officer until July 1997 and as Chairman of the Board of Directors from June 25, 1997 until December 31, 1997. (3) Mr. Koen joined the Company in May 1997. Mr. Koen's salary for 1997 reflects a partial year of service. Mr. Koen's annual base salary is $180,000. (4) Ms. Zornosa resigned from her position effective April 1, 1998. (5) Represents amounts paid to Ms. Zornosa as commissions. 58 OPTION GRANTS IN LAST FISCAL YEAR The following table sets forth for each of the Named Officers certain information concerning stock options granted during the Company's fiscal year ended December 31, 1997. No stock appreciation rights were granted during the Company's fiscal year ended December 31, 1997.
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF STOCK PRICE APPRECIATION INDIVIDUAL GRANTS FOR OPTION TERM(5) ------------------------------------------------------- --------------------------------- NUMBER OF PERCENT OF SECURITIES TOTAL UNDERLYING OPTIONS OPTIONS GRANTED TO EXERCISE GRANTED EMPLOYEES PRICE MARKET EXPIRATION NAME (#)(1) IN 1997(2) ($ / SH)(3) PRICE DATE(4) 0%($) 5%($) 10%($) - ------------------------ ---------- ---------- ----------- ------ ---------- ---------- ---------- ----------- David W. Dorman(6)...... 1,666,667 50.81% $ 6.00 $ 6.00 10/21/07 -- $6,288,950 $15,937,420 83,334 2.54 14.25 14.25 -- -- 746,810 1,892,560 Christopher R. Hassett.. -- -- -- -- -- -- -- -- Philip J. Koen(7)....... 339,458 10.35 1.50 4.50 6/24/07 $1,018,370 1,979,040 3,452,910 Jaleh Bisharat.......... 66,667(8) 2.03 6.00 6.00 8/26/07 -- 251,560 637,500 66,667(9) 2.03 6.00 6.00 8/26/07 -- 251,560 637,500 Douglas W.C. Boake...... 20,000 0.61 6.75 6.75 10/30/07 -- 84,900 215,160 James F. Wickett........ 66,667(10) 2.03 3.00 3.00 1/06/02 -- 125,780 318,750 100,000(11) 3.05 6.00 6.00 8/26/07 -- 377,340 956,250 66,667(12) 2.03 6.00 6.00 8/26/07 -- 251,560 637,500 Anna Zornosa............ -- -- -- -- -- -- -- --
- -------- (1) Except as noted, options were granted under the Company's 1994 Option Plan and generally vest over four years as to 1/4 of the total after one year and 1/48 of the total at the end of each subsequent month. In each case, vesting is subject to the optionees' continued relationship with the Company. Once exercised, the unvested shares become subject to the Company's right to repurchase the shares at the original purchase price. The Company's repurchase right lapses over time at such times and in such amounts as the shares would have vested and become exercisable under the option agreement(s) pursuant to which the options were granted. (2) In 1997, the Company granted options to purchase an aggregate of 3,279,963 shares of Common Stock. (3) In determining the fair market value of the Company's Common Stock, the Board of Directors considered various factors, including the Company's financial condition and business prospects, its operating results, the absence of a market for its Common Stock and the risks normally associated with high technology companies. The exercise price may be paid in cash, check or promissory note, or any combination of such methods. (4) Options may terminate before their expiration dates if the optionee's status as an employee or consultant is terminated or upon the optionee's death or disability. (5) The 0%, 5% and 10% assumed annual rates of compounded stock price appreciation are mandated by rules of the Securities and Exchange Commission and do not represent the Company's estimate or projection of the Company's future Common Stock prices. (6) In October 1997, in connection with his Employment Agreement, Mr. Dorman also received options to purchase 1,666,667 shares of the Company's Common Stock at an exercise price of $6.00 per share which vests at the rate of 1/48 of the shares on each month following the first day of Mr. Dorman's employment with the Company. With regard to this grant 83,334 shares are incentive stock options, and 1,583,333 shares are nonstatutory stock options. The Employment Agreement also provided Mr. Dorman with the fully vested right to purchase 83,334 shares of the Company's Series E Preferred Stock at a purchase price of $14.25 per share. See "Employment Agreements and Change of Control Arrangements" and "Certain Transactions." (7) Mr. Koen received an option outside of the Company's existing stock plans. See "Employment Agreements and Change of Control Arrangements" and "Certain Transactions." (8) The shares subject to this option vest over 12 months. With regard to this grant, 55,978 shares are incentive stock options, and 10,689 shares are nonstatutory stock options. (9) With regard to this grant, 5,555 shares are incentive stock options, and 61,112 shares are nonstatutory stock options. (10) With regard to this grant, 595 shares are incentive stock options, and 66,072 shares are nonstatutory stock options. (11) The shares subject to this option vest over 12 months. With regard to this grant, 46,369 shares are incentive stock options, and 53,631 shares are nonstatutory stock options. (12) All of the options subject to this grant are nonstatutory stock options. 59 AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES The following table sets forth certain information with respect to the Named Officers concerning options exercised during the year ended December 31, 1997 and the number of shares subject to both exercisable and unexercisable stock options as of December 31, 1997. Also reported are values for "in-the-money" options that represent the positive spread between the respective exercise prices of outstanding options and the fair market value of the Company's Common Stock as of December 31, 1997.
VALUE REALIZED NUMBER OF SECURITIES VALUE OF UNEXERCISED NUMBER OF (MARKET PRICE AT UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT SHARES EXERCISE LESS OPTIONS AT FY-END(#) FY-END($)(1) ACQUIRED ON EXERCISE ------------------------- ------------------------- NAME EXERCISE(#) PRICE)($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- ----------- ---------------- ----------- ------------- ----------- ------------- David W. Dorman......... 86,668 $ 10,000 69,444 1,597,223 $104,170 $2,395,840 Christopher R. Hassett.. -- -- -- -- -- -- Philip J. Koen.......... 133,334 600,000 -- 206,125 -- 1,236,750 Jaleh Bisharat.......... 65,692 182,293 82,442 247,967 471,430 1,162,290 Douglas W. C. Boake..... -- -- 35,626 74,374 240,480 382,030 James F. Wickett........ -- -- 108,889 271,112 467,920 960,090 Anna Zornosa............ 43,317 127,349 58,875 111,080 410,830 776,840
- -------- (1) Calculated by determining the difference between the fair market value of the securities underlying the option at December 31, 1997 ($7.50 per share as determined by the Board of Directors) and the exercise price of the Named Officer's option. In determining the fair market value of the Company's Common Stock, the Board of Directors considered various factors, including the Company's financial condition and business prospects, its operating results, the absence of a market for its Common Stock and the risks normally associated with high technology companies. STOCK PLANS 1994 Stock Plan The Company's 1994 Stock Plan (the "1994 Plan") was adopted by the Board of Directors in July 1994 and approved by the stockholders in July 1994 and as amended from time to time. A total of 8,333,334 shares of Common Stock, plus annual increases to be added on the first day of the Company's fiscal year (beginning in 1999) equal to the lesser of (i) 2,000,000 shares; (ii) 5% of the outstanding shares; or (iii) a lesser amount determined by the Board of Directors, are currently reserved for issuance pursuant to the 1994 Plan. Unless terminated sooner, the 1994 Plan will terminate automatically in May 2008. The 1994 Plan provides for the grant of incentive stock options, within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, (the "Code") to employees (including officers and employee directors) and for the grant of nonstatutory stock options and stock purchase rights ("SPRs") to employees, directors and consultants. The 1994 Plan may be administered by the Board of Directors or a committee of the Board (as applicable, the "Administrator"). The Administrator has the power to determine the terms of the options or SPRs granted, including the exercise price of the option or SPR, the number of shares subject to each option or SPR, the exercisability thereof, and the form of consideration payable upon such exercise. In addition, the Administrator has the authority to amend, suspend or terminate the 1994 Plan, provided that no such action may affect any share of Common Stock previously issued and sold or any option previously granted under the 1994 Plan. The exercise price of all incentive stock options granted under the 1994 Plan must be at least equal to the fair market value of the Common Stock on the date of grant. The exercise price of nonstatutory stock options and SPRs granted under the 1994 Plan is determined by the Administrator, but with respect to nonstatutory stock options intended to qualify as "performance-based compensation" within the meaning of Section 162(m) of the 60 Code, the exercise price must be at least equal to the fair market value of the Common Stock on the date of grant. With respect to any participant who owns stock possessing more than 10% of the voting power of all classes of the Company's outstanding capital stock, the exercise price of any incentive stock option granted must be at least equal to 110% of the fair market value on the grant date and the term of such incentive stock option must not exceed five years. The term of all other options granted under the 1994 Plan may not exceed ten years. No employee may be granted options to purchase more than 2,000,000 shares in any fiscal year of the Company. In the case of SPRs, unless the Administrator determines otherwise, the Restricted Stock Purchase Agreement shall grant the Company a repurchase option exercisable upon the voluntary or involuntary termination of the purchaser's employment or consulting relationship with the Company for any reason (including death or disability). The purchase price for Shares repurchased pursuant to the Restricted Stock Purchase Agreement shall be the original price paid by the purchaser and may be paid by cancellation of any indebtedness of the purchaser to the Company. The repurchase option shall lapse at a rate determined by the Administrator. Options and SPRs granted under the 1994 Plan are generally not transferable by the optionee, and each option and SPR is exercisable during the lifetime of the optionee only by such optionee. Options granted under the 1994 Plan must generally be exercised within three months after the end of the optionee's status as an employee, director or consultant of the Company, or within six months or twelve months after such optionee's termination by disability or death, respectively, but in no event later than the expiration of the option's term. The 1994 Plan provides that in the event of a merger of the Company with or into another corporation, or a sale of substantially all of the Company's assets, (i) the vesting of each outstanding option and share that was subject to an option but is still subject to vesting pursuant to a restricted stock purchase agreement shall accelerate as to an additional one year's vesting; and (ii) each option and SPR shall be assumed or an equivalent option substituted for by the successor corporation. If the outstanding options and SPRs are not assumed or substituted for by the successor corporation, the option or SPR will terminate as of the closing of the merger or asset sale. 1998 Employee Stock Purchase Plan The Company's 1998 Employee Stock Purchase Plan (the "1998 Purchase Plan") was adopted by the Board of Directors in May 1998, subject to stockholder approval. A total of 500,000 shares of Common Stock has been reserved for issuance under the 1998 Purchase Plan, plus annual increases to be added on the first day of the Company's fiscal year (beginning in 1999) equal to the lesser of (i) 750,000 shares; (ii) 2.5% of the outstanding shares on such date; or (iii) a lesser amount determined by the Board. The 1998 Purchase Plan, which is intended to qualify under Section 423 of the Code, contains consecutive, overlapping, twenty-four month offering periods. Each offering period includes four six-month purchase periods. The offering periods generally start on the first trading day on or after February 1 and August 1 of each year, except for the first such offering period which commences on the first trading day on or after the effective date of this offering and ends on the last trading day before August 1, 2000. Employees are eligible to participate if they are customarily employed by the Company or any participating subsidiary for at least 20 hours per week and more than five months in any calendar year. However, any employee who (i) immediately after grant owns stock possessing 5% or more of the total combined voting power or value of all classes of the capital stock of the Company; or (ii) whose rights to purchase stock under all employee stock purchase plans of the Company accrues at a rate which exceeds $25,000 worth of stock for each calendar year may not be granted an option to purchase stock under the 1998 Purchase Plan. The 1998 Purchase Plan permits participants to purchase Common Stock through payroll deductions of up to 15% of the participant's "compensation." Compensation is defined as the participant's base straight time gross earnings and commissions but excludes payments for overtime, shift premium, incentive compensation, incentive payments, bonuses and other compensation. The maximum number of shares a participant may purchase during a single purchase period is 1,667 shares. 61 Amounts deducted and accumulated by the participant are used to purchase shares of Common Stock at the end of each purchase period. The price of stock purchased under the 1998 Purchase Plan is 85% of the lower of the fair market value of the Common Stock (i) at the beginning of the offering period; or (ii) at the end of the purchase period; provided, however, that the Board may change the determination of the purchase price with respect to subsequent offering periods to 85% of the fair market value of the Common Stock at the end of the purchase period. In the event the fair market value at the end of a purchase period is less than the fair market value at the beginning of the offering period, the participants will be withdrawn from the current offering period following exercise and automatically re-enrolled in a new offering period. The new offering period will use the lower fair market value as of the first date of the new offering period to determine the purchase price for future purchase periods. Participants may end their participation at any time during an offering period, and they will be paid their payroll deductions to date. Participation ends automatically upon termination of employment with the Company. Rights granted under the 1998 Purchase Plan are not transferable by a participant other than by will, the laws of descent and distribution, or as otherwise provided under the 1998 Purchase Plan. The 1998 Purchase Plan provides that, in the event of a merger of the Company with or into another corporation or a sale of substantially all of the Company's assets, each outstanding option may be assumed or substituted for by the successor corporation. If the successor corporation refuses to assume or substitute for the outstanding options, the offering period then in progress will be shortened and a new exercise date will be set. The 1998 Purchase Plan will terminate in 2008. The Board of Directors has the authority to amend or terminate the 1998 Purchase Plan, including shortening or terminating an offering period at any time, except that no such action may adversely affect any outstanding options under the 1998 Purchase Plan. 1998 Director Option Plan The 1998 Director Option Plan (the "Director Plan") was adopted by the Board of Directors in May 1998, and is subject to stockholder approval. The Director Plan provides for the grant of nonstatutory stock options to non-employee directors. The Director Plan has a term of ten years, unless terminated sooner by the Board. A total of 200,000 shares of Common Stock has been reserved for issuance under the Director Plan, plus annual increases to be added on the first day of the Company's fiscal year (beginning in 1999) equal to the lesser of (i) the number of shares needed to restore the maximum aggregate number of shares available for sale under the Director Plan to 200,000 shares; or (ii) a lesser amount determined by the Board. The Director Plan provides that each non-employee director will receive an automatic grant of nonqualified stock options to purchase 20,000 shares of Common Stock (the "First Option") at an exercise price per share equal to the fair market value on the date of grant. In addition to the First Option, each non-employee director shall automatically be granted an option to purchase 5,000 shares (a "Subsequent Option") each year on the date of the Company's annual meeting of stockholders, if on such date he or she shall have served on the Board for at least six months. Each First Option and Subsequent Option shall have a term of 10 years. The shares subject to the First Option shall vest as to 25% of the optioned stock one year from the date of grant, and 1/48 of the optioned stock shall vest each month thereafter, so long as the optionee remains a director of the Company on such dates. The shares subject to the Subsequent Option shall vest as to 100% of the optioned stock on the fourth anniversary of the date of grant. In the event of a merger of the Company or the sale of substantially all of the assets of the Company, (i) each outstanding option shall accelerate as to 25% of the option shares; and (ii) each outstanding option may be assumed or an equivalent option substituted for by the successor corporation. If an option is not assumed or substituted for by the successor corporation, the option will terminate as of the closing of the merger or asset sale. If an option is assumed or substituted for by the successor corporation, it shall continue to vest as provided in the Director Plan. Options granted under the Director Plan must be exercised within three months of the end of the optionee's tenure as a director of the Company, or within twelve months after such director's termination by death or disability, but in no event later than the expiration of the option's ten-year term. No option granted under the Director Plan is transferable by the optionee other than by will or the laws of descent and distribution, and each option is exercisable, during the lifetime of the optionee, only by such optionee. The Director Plan will terminate in 2008. 62 CERTAIN TRANSACTIONS In December 1997, the Company granted to Benchmark Capital Partners, L.P. a Common Stock Purchase Warrant to purchase 182,786 shares of Common Stock at an exercise price of $7.50 per share and to Benchmark Founders' Fund, L.P. a Common Stock Purchase Warrant to purchase 25,548 shares of Common Stock at an exercise price of $7.50 per share. Kevin R. Harvey and Andrew S. Rachleff, members of the Company's Board of Directors, are managing members of Benchmark Capital Management Co., LLC, the General Partner of Benchmark Capital Partners, L.P. and Benchmark Founders' Fund, L.P. The warrants were granted in exchange for services rendered by Mr. Harvey as acting Chief Executive Officer while the Company completed its search for a Chief Executive Officer. Mr. Harvey received no cash compensation for such services. In December 1997, the Company loaned Mr. Dorman $421,000. This loan bore no interest and was repaid in full in March 1998. In December 1997, pursuant to the Employment Agreement entered into in October 1997, the Company granted a stock bonus to Mr. Dorman of 250,000 shares of the Company's Series E Preferred Stock. The Company recorded a deferred stock compensation expense of $3.6 million in connection with the stock bonus based on the prices of shares sold to unaffiliated investors in contemporaneous transactions. See "Employment Agreements and Change of Control Arrangements." In November 1997, in connection with the Employment Agreement, the Company extended loans to Mr. Dorman in the amount of $1,400,000 and $600,000. See "Employment Agreements and Change of Control Arrangements." In May 1997, the Company granted to Mr. Koen an option outside of the Company's existing option plans to purchase 339,458 shares of Common Stock at an exercise price of $1.50 per share, which was below the then fair market value of the Company's Common Stock of $4.50 per share. The option is exercisable as to 1/4th of the shares on the first anniversary of the vesting commencement date of May 19, 1997 and an additional 1/48th of the shares become exercisable at the end of each month thereafter. In addition, the shares subject to such option become fully vested and exercisable upon a merger of the Company in which greater than 50% of the total voting power is transferred. The Company recorded a deferred stock compensation expense of $1.0 million which is being amortized over the four-year vesting period of the options. In October 1997, Mr. Koen exercised stock options to purchase 133,334 shares of Common Stock with a full recourse promissory note in the amount of $200,000 with an interest rate of 6.01%. The entire principal amount under the loan remains outstanding. In June 1997, Messrs. Christopher and Gregory Hassett sold 216,667 and 125,000 shares of the Company's Common Stock, respectively, at a purchase price $6.00 per share, to Benchmark Capital Partners, L.P., Benchmark Founders' Fund, L.P., Merrill, Pickard, Anderson & Eyre V, L.P. and Mohr, Davidow Ventures III. Kevin Harvey and Andrew S. Rachleff, members of the Company's Board of Directors, are managing members of Benchmark Capital Management Co., LLC, the General Partner of Benchmark Capital Partners, L.P. and Benchmark Founders' Fund, L.P. Mr. Rachleff is also a General Partner of MPAE V Management Co., the General Partner of Merrill, Pickard, Anderson & Eyre V, L.P. Jonathan Feiber, also a member of the Company's Board of Directors, is a General Partner of WLPJ Partners, the General Partner of Mohr, Davidow Ventures III. The Company waived its rights of first refusal related to the sales of such shares and any notice requirements in connection therewith. The Company has entered into indemnification agreements with its officers and directors containing provisions which may require the Company, among other things, to indemnify its officers and directors against certain liabilities that may arise by reason of their status or service as officers or directors (other than liabilities arising from willful misconduct of a culpable nature) and to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified. The Company also intends to execute such agreements with its future directors and executive officers. See "Management--Limitation of Liability and Indemnification Matters." 63 PRINCIPAL STOCKHOLDERS The following table sets forth certain information with respect to the beneficial ownership of the Company's Common Stock as of April 1, 1998 and as adjusted to reflect the sale of Common Stock offered hereby for (i) each person or entity who is known by the Company to beneficially own five percent (5%) or more of the outstanding Common Stock of the Company; (ii) each of the Company's directors; (iii) each of the Named Officers; and (iv) all current directors and executive officers of the Company as a group:
PERCENTAGE OF SHARES BENEFICIALLY OWNED(3) NUMBER OF SHARES ----------------- BENEFICIALLY BEFORE AFTER NAME OR GROUP OF BENEFICIAL OWNERS(1)(2) OWNED OFFERING OFFERING ---------------------------------------- ----------------- -------- -------- Andrew S. Rachleff(4)...................... 4,768,352 26.80% 22.13% Jonathan Feiber(5)......................... 3,447,102 19.60 16.16 David W. Dorman(6)......................... 2,003,335 10.40 8.71 Kevin R. Harvey(7)......................... 1,883,861 10.59 8.74 Christopher R. Hassett..................... 1,576,935 8.97 7.39 Gregory P. Hassett......................... 1,199,801 6.82 5.62 Jaleh Bisharat(8).......................... 396,102 2.22 1.83 James F. Wickett(9)........................ 380,001 2.11 1.75 Philip J. Koen(10)......................... 339,458 1.91 1.58 Anna Zornosa(11)........................... 116,632 * * Douglas W.C. Boake(12)..................... 110,000 * * Charles Geschke(13)........................ 106,625 * * Sanford R. Climan.......................... 66,667 * * Steven Heyer(14)........................... 66,667 * * Mohr, Davidow Ventures III................. 3,447,102 19.60 16.16 2775 Sand Hill Road Suite 240 Menlo Park, CA 94025 Entities affiliated with Merrill Pickard Anderson & Eyre(15)....................... 2,884,491 16.40 13.52 2480 Sand Hill Road Suite 200 Menlo Park, CA 94025 Entities affiliated with Benchmark Capital(16)............................... 1,883,861 10.59 8.74 2480 Sand Hill Road Suite 200 Menlo Park, CA 94025 All current directors and executive officers as a group (14 persons)(17)...... 14,597,679 70.36 59.59
- -------- (*) Represents beneficial ownership of less than 1% of the Company's Common Stock. (1) Assumes no exercise of the Underwriters' over-allotment option except as specifically described in the footnotes below. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of Common Stock subject to options held by that person that are currently exercisable or exercisable within 60 days of April 1, 1998 are deemed outstanding. Such shares, however, are not deemed outstanding for the purposes of computing the percentage ownership of each other person. Except as indicated in the footnotes to this table and pursuant to applicable community property laws, each stockholder named in the table has sole voting and investment power with respect to the shares set forth opposite such stockholder's name. (2) Unless otherwise indicated, the address of each beneficial owner is c/o PointCast Incorporated, 501 Macara Avenue, Sunnyvale, California 94086. 64 (3) Percentage of shares beneficially owned is based upon 17,587,112 shares of the Company's Common Stock outstanding as of April 1, 1998 and 21,337,112 shares outstanding after the Offering. (4) Consists of 1,499,137 shares held by the Benchmark Capital Partners, L.P., 176,390 shares held by Benchmark Founders' Fund, L.P., 2,813,874 shares held by Merrill Pickard Anderson & Eyre V, L.P. and 70,617 shares held by MPAE V Affiliates Fund. Also includes 182,786 shares and 25,548 shares issuable upon exercise of warrants exercisable within 60 days of April 1, 1998 held by Benchmark Capital Partners, L.P. and Benchmark Founders' Fund, L.P., respectively. Mr. Rachleff, a director of the Company, is a managing member of Benchmark Capital Management Co., LLC, the General Partner of Benchmark Capital Partners, L.P. and Benchmark Founders' Fund, L.P. and a General Partner of MPAE V Management Co., the General Partner of Merrill Pickard Anderson & Eyre V, L.P. and MPAE V Affiliates Fund, L.P. He shares voting and dispositive power with respect to the shares held by each such entity and disclaims beneficial ownership of such shares in which he has no pecuniary interest. (5) Consists of 3,447,102 shares held by Mohr, Davidow Ventures III. Mr. Feiber, a director of the Company, is a general partner of WLPJ Partners, the General Partner of Mohr, Davidow Ventures III, shares voting and dispositive power with respect to the shares held by such entity and disclaims beneficial ownership of such shares in which he has no pecuniary interest. (6) Includes 1,666,667 shares issuable upon exercise of options exercisable within 60 days. (7) Consists of 1,499,137 shares held by the Benchmark Capital Partners, L.P. and 176,390 shares held by Benchmark Founders' Fund, L.P. Also includes 182,786 shares and 25,548 shares issuable upon exercise of warrants exerciseable within 60 days of April 1, 1998 held by Benchmark Capital Partners, L.P. and Benchmark Founders' Fund, L.P., respectively. Mr. Harvey, a director of the Company, is a managing member of Benchmark Capital Management Co., LLC, the General Partner of Benchmark Capital Partners, L.P., and Benchmark Founders' Fund, L.P. He shares voting and dispositive power with respect to the shares held by each such entity and disclaims beneficial ownership of such shares in which he has no pecuniary interest. (8) Includes 264,718 shares issuable upon exercise of options exercisable within 60 days of April 1, 1998. (9) Includes 380,001 shares issuable upon exercise of options exercisable within 60 days of April 1, 1998. (10) Includes 206,124 shares issuable upon exercise of options exercisable within 60 days of April 1, 1998. (11) Includes 30,000 shares issuable upon exercise of options exercisable within 60 days of April 1, 1998. (12) Includes 110,000 shares issuable upon exercise of options exercisable within 60 days of April 1, 1998. (13) Dr. Geschke is the President of Adobe Systems Incorporated, which holds 561,404 shares of the Company. Dr. Geschke disclaims beneficial ownership of such shares in which he has no pecuniary interest. (14) Includes 66,667 shares issuable upon exercise of options exercisable within 60 days of April 1, 1998. (15) Consists of 2,813,874 shares held by Merrill Pickard Anderson & Eyre V, L.P. and 70,617 shares held by MPAE V Affiliates Fund. (16) Consists of 1,681,923 shares held by Benchmark Capital Partners, L.P. and 201,938 shares held by Benchmark Founders' Fund, L.P. (17) Includes 3,130,847 shares issuable upon exercise of options and warrants, exercisable within 60 days of April 1, 1998. 65 DESCRIPTION OF CAPITAL STOCK GENERAL Upon the closing of this offering, the Company will be authorized to issue 100,000,000 shares of Common Stock, $0.001 par value and 5,000,000 shares of undesignated preferred stock, $0.001 par value. Upon the closing of the offering, 21,337,112 shares of Common Stock will be issued and outstanding and no shares of preferred stock will be issued and outstanding. The discussion herein describes the Company's capital stock, the Bylaws and the Restated Certificate of Incorporation (the "Restated Certificate"). The following summary of certain provisions of the Company's capital stock describes all material provisions of, but does not purport to be complete and is subject to, and qualified in its entirety by, the Restated Certificate and the Bylaws of the Company that are included as exhibits to the Registration Statement of which this prospectus forms a part and by the provisions of applicable law. The Restated Certificate and Bylaws contain certain provisions that are intended to enhance the likelihood of continuity and stability in the composition of the Board of Directors and which may have the effect of delaying, deferring or preventing a future takeover or change in control of the Company unless such a takeover or change is approved by the Board of Directors. COMMON STOCK Subject to the prior rights of the holders of any preferred stock, the holders of Common Stock are entitled to receive ratably such dividends, if any, as may be declared by the Board of Directors out of funds legally available for the payment of dividends. See "Dividend Policy." In the event of a liquidation, dissolution or winding up of the Company, the holders of Common Stock are entitled to share ratably in all assets remaining after payment of liabilities and liquidation preferences of any outstanding shares of preferred stock. Holders of Common Stock have no preemptive rights or rights to convert their Common Stock into any other securities. There are no redemption or sinking fund provisions applicable to the Common Stock. All outstanding shares of Common Stock are fully paid and non-assessable, and the shares of Common Stock to be issued upon completion of this offering will be fully paid and non-assessable. The holders of Common Stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders. PREFERRED STOCK The Company is authorized to issue up to 5,000,000 shares of preferred stock in one or more series and to fix the designations, powers, preferences, privileges and relative participating, optional or special rights and the qualifications, limitations or restrictions thereof, without any further vote or action by the Company's stockholders, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights of the Common Stock. The issuance of preferred stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of delaying, deferring or preventing a change in control of the Company without further action by the stockholders and may adversely affect the market price of the Common Stock, and the voting and other rights of the holders of Common Stock. As of the closing of the offering, there will be no shares of preferred stock outstanding, and the Company has no plan to issue any of the preferred stock. WARRANTS In July 1995, pursuant to an equipment lease line, the Company issued warrants to purchase an aggregate of 26,280 shares of Common Stock at an exercise price of $2.11 per share to Lighthouse Capital Partners; such warrants expire on July 31, 2002. In December 1997, the Company issued a warrant to Benchmark Capital Partners, L.P. to purchase 182,786 shares of Common Stock at an exercise price of $7.50 per share and a warrant to Benchmark Founders' Fund L.P. to purchase 25,548 shares of Common Stock at an exercise price of $7.50 per share; such warrants expire 18 months after the effective date of this offering. In December 1996, the Company issued warrants to purchase an aggregate of 701,756 shares of Common Stock at an exercise price of 66 $14.25 per share to CNN and Time Inc. New Media; such warrants expire on December 10, 2001. All of the warrants will be outstanding as of the closing of this offering. CERTAIN CHARTER PROVISIONS AND ANTI-TAKEOVER EFFECTS OF DELAWARE LAW Restated Certificate of Incorporation and Bylaws The Company's Restated Certificate and Bylaws contain several provisions that could have the effect of delaying, deterring or preventing the acquisition of control of the Company by means of tender offer, open market purchases, a proxy contest or otherwise. Set forth below is a description of those provisions. The Company's Restated Certificate provides that the directors of the Company will be elected without the application of cumulative voting. The Restated Certificate also provides that any action permitted to be taken by stockholders of the Company must be effected at a duly called annual or special meeting of the stockholders and may not be effected by a consent in writing. The Company's Restated Certificate also requires the affirmative vote of two-thirds of the outstanding shares entitled to vote for the adoption, amendment or repeal of certain sections of the Company's Bylaws. Pursuant to the Restated Certificate, the Board of Directors will have the authority to issue up to 5,000,000 shares of preferred stock and to fix the rights, preferences, privileges and restrictions, including voting rights, of these shares without any further vote or action by the stockholders. In addition, the Company's Bylaws also contain certain of the above provisions found in the Company's Restated Certificate. The Bylaws provide that special meetings may be called only by the Board of Directors, the Chairman of the Board, or the President of the Company. The Bylaws also establish advance notice procedures with regard to the nomination, other than by or at the direction of the Board of Directors, of candidates for election as directors and with regard to certain matters to be brought before an annual meeting of stockholders of the Company. Moreover, the Bylaws provide that the business permitted to be conducted in any annual meeting or special meeting of stockholders is limited to business properly brought before the meeting. Delaware Takeover Statute The Company is subject to Section 203 of the Delaware General Corporation Law ("Section 203") which, subject to certain exceptions, prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years following the date that such stockholder became an interested stockholder, unless: (i) prior to such date, the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned (x) by persons who are directors and also officers and (y) by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) on or subsequent to such date, the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. Section 203 defines business combination to include: (i) any merger or consolidation involving the corporation and an interested stockholder; (ii) any sale, transfer, pledge or other disposition involving an interested stockholder of 10% or more of the assets of the corporation; (iii) subject to certain exceptions, any transaction which results in the issuance or transfer by the corporation of any stock of the corporation to an interested stockholder; (iv) any transaction involving the corporation which has the effect of increasing the proportionate share of the stock of any class or series of the corporation beneficially owned by an interested stockholder; or (v) the receipt by an interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation. In general, Section 203 defines an interested stockholder as any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person affiliated with or controlling or controlled by such entity or person. 67 REGISTRATION RIGHTS After the offering, the holders of approximately 14,552,277 shares of Common Stock (the "Registrable Securities") will be entitled to certain rights with respect to the registration of such shares under the Securities Act. These rights are provided under the terms of an agreement between the Company and the holders of Registrable Securities. Subject to certain limitations in the agreement, the holders of Registrable Securities may require, on two occasions beginning after the earlier of July 19, 2001 or six months after the effective date of this Offering, that the Company use its best efforts to register the Registrable Securities for public resale. If the Company registers any of its Common Stock either for its own account or for the account of other securityholders, the holders of Registrable Securities are entitled to include their shares of Common Stock in such registration, subject to the ability of the underwriters to limit the number of shares included in such offering. The holders of Registrable Securities may also require the Company (not more than once in any twelve-month period) to register all or a portion of their Registrable Securities on Form S-3 when use of such form becomes available to the Company; provided, among other limitations, that the proposed aggregate selling price to the public exceeds $500,000. All registration expenses must be borne by the Company, and all selling expenses related to securities registered on behalf of the holders of Registrable Securities shall be borne by the holders of the securities being registered. TRANSFER AGENT AND REGISTRAR The Transfer Agent and Registrar for the Company's Common Stock is . Its telephone number is . LISTING The Common Stock has been approved for quotation on the Nasdaq National Market under the symbol "PCST." 68 SHARES ELIGIBLE FOR FUTURE SALE Prior to the offering, there has been no market for the Common Stock of the Company. The amount and timing of any future sales of substantial amounts of Common Stock in the public market could adversely affect market prices prevailing from time to time. Following the completion of this offering, 21,337,112 shares of Common Stock will be outstanding. The 3,750,000 shares of Common Stock offered hereby will be tradeable in the public market without restriction, unless purchased by an affiliate of the Company. The remaining 17,587,112 shares of outstanding Common Stock will be "restricted securities" within the meaning of Rule 144 under the Securities Act of 1933, as amended (the "Securities Act"), which may not be sold other than pursuant to an effective registration statement or pursuant to an exemption from such registration requirement, including the exemption available pursuant to Rule 144. Other than the shares offered hereby (i) no shares will be eligible for sale prior to 180 days after the date of this Prospectus, except in certain limited exceptions, without the prior written consent of Lehman Brothers Inc., (ii) 16,846,945 shares will be eligible for sale 180 days after the date of this Prospectus upon the expiration of lock-up agreements with the Underwriters and (iii) an additional 740,167 shares will become eligible for sale thereafter pursuant to Rule 144 under the Securities Act. As of March 31, 1998 there were outstanding options and warrants to purchase 5,656,530 shares of Common Stock of which holders of options and warrants exercisable for 5,649,653 shares have also agreed not to sell shares of Common Stock issued upon exercise of such options and warrants for a period of 180 days after the date of this Prospectus, without the prior written consent of Lehman Brothers Inc. Sales of a substantial number of shares of Common Stock in the public market subsequent to this offering, or the perception that such sales could occur, could materially adversely affect the prevailing market price of the Common Stock and could materially adversely affect the Company's ability to raise capital. The Company has agreed not to issue any securities or file a registration statement under the Securities Act, subject to certain exceptions, for a period of 180 days following the date of this Prospectus without the prior written consent of Lehman Brothers Inc. See "Underwriting." In general, under Rule 144 as currently in effect, beginning 90 days after the date of this Prospectus, a person (or persons whose shares are aggregated) is entitled to sell any "restricted shares" beneficially owned by him or her, provided that at least one year has elapsed since such shares were acquired from the Company or an affiliate of the Company and subject to certain volume limitations and requirements as to the manner of sale, notice and the availability of current public information regarding the Company. Under the volume limitations of Rule 144, a person (or persons whose shares are aggregated) who has beneficially owned restricted shares for at least one year (including the holding period of any prior except an affiliate) would be entitled to sell within a three-month period a number of shares that does not exceed the greater of (i) one percent of the then outstanding shares of Common Stock (approximately 213,370 shares immediately after the offering) or (ii) the average weekly trading volume of the Common Stock during the four calendar weeks preceding the filing of a form 144 with respect to such sale. However, a person who has not been an "affiliate" of the Company at any time within three months prior to the sale is entitled to sell his or her shares without regard to the volume limitations or other requirements of Rule 144, provided that at least two years have elapsed since such shares were acquired from the Company or an affiliate of the Company. Pursuant to Rule 701 under the Securities Act, shares purchased by an employee, officer or director of the Company pursuant to a written compensatory plan or contract may be resold under Rule 144 without complying with the holding period requirement, provided that the Company has been subject to the reporting requirements of the Exchange Act for at least 90 days. Upon completion of this offering, the holders of approximately 14,302,296 shares of Common Stock, or their transferees, will be entitled to certain rights with respect to the registration of such shares under the Securities Act. See "Description of Capital Stock--Registration Rights." Registration of such shares under the Securities Act would result in such shares becoming freely tradeable without restriction under the Securities Act (except for shares purchased by Affiliates) immediately upon the effectiveness of such registration. 69 Following the offering, the Company intends to file registration statements under the Securities Act covering approximately shares of Common Stock issued and outstanding, subject to outstanding options or reserved for issuance under the Company's stock plans. See "Management--Stock Plans." Accordingly, shares registered under such registration statement will, subject to Rule 144 volume limitations applicable to affiliates, be available for sale in the open market, except to the extent that such shares are subject to vesting restrictions with the Company or the contractual restrictions described above. 70 UNDERWRITING Under the terms and subject to the conditions contained in the Underwriting Agreement, the form of which is filed as an exhibit to the Registration Statement of which this Prospectus forms a part, the Underwriters named below, for whom Lehman Brothers Inc., BT Alex. Brown Incorporated and BancAmerica Robertson Stephens are acting as representatives (the "Representatives"), have severally agreed to purchase from the Company, and the Company has agreed to sell to each Underwriter, the aggregate number of shares set forth opposite the name of each such Underwriter below:
NUMBER OF UNDERWRITERS SHARES ------------ --------- Lehman Brothers Inc................................................ BT Alex. Brown Incorporated........................................ BancAmerica Robertson Stephens..................................... --------- Total............................................................ 3,750,000 =========
The Company has been advised by the Representatives that the Underwriters propose to offer the shares to the public at the initial public offering price set forth on the cover page hereof, and to certain dealers at such initial public offering price less a concession not in excess of $ per share. The Underwriters may allow, and such dealers may reallow, a concession not in excess of $ per share to certain other Underwriters or to certain other brokers or dealers. After the initial offering to the public, the offering price and other selling terms may be changed by the Representatives. The Underwriting Agreement provides that the obligations of the several Underwriters to pay for and accept delivery of the shares offered hereby are subject to approval of certain legal matters by counsel and to certain other conditions, including the condition that no stop order suspending the effectiveness of the Registration Statement is in effect and no proceedings for such purpose are pending or threatened by the Securities and Exchange Commission and that there has been no material adverse change or any development involving a prospective material adverse change in the condition of the Company and its subsidiaries, taken as a whole, from that set forth in the Registration Statement, and that certain certificates, opinions and letters have been received from the Company and its counsel and independent auditors. The Company and the Underwriters have agreed in the Underwriting Agreement to indemnify each other against certain liabilities, including liabilities under the Securities Act. The Company has granted to the Underwriters an option to purchase up to an additional 562,500 shares of Common Stock, exercisable solely to cover over- allotments, at the initial public offering price, less the underwriting discounts and commissions shown on the cover page of this Prospectus. Such option may be exercised at any time until 30 days after the date of the Underwriting Agreement. To the extent that such option is exercised, each Underwriter will be committed, subject to certain conditions, to purchase a number of the additional shares of Common Stock that is proportionate to such Underwriter's initial commitment as indicated in the preceding table. All of the directors and executive officers and substantially all of the stockholders and optionholders of the Company have each agreed, subject to certain limited exceptions, not to offer, sell, contract to sell, hypothecate or otherwise dispose (or enter into any transaction which is designed to, or could be expected to, result in the disposition by any person) of, directly or indirectly, any shares of Common Stock (including, without limitation, shares which may be deemed to be beneficially owned in accordance with the Rules and Regulations of the 71 Securities and Exchange Commission under the Securities Act of 1933, as amended), or any security convertible into or exercisable for Common Stock, or any rights to purchase or acquire, Common Stock of the Company (other than pursuant to bona fide gifts to persons who agree in writing to be bound by the provisions of the agreement) for a period of 180 days from the date of this Prospectus without the prior written consent of Lehman Brothers Inc. In addition, certain of the stockholders and optionholders are subject to separate 180-day lock-up agreements with the Company. The Company has agreed that it will not release any of such stockholders or optionholders from these lock-up agreements without the prior consent of Lehman Brothers Inc. Except for the Common Stock to be sold in the offering, the Company has agreed, with certain limited exceptions relating to the grant of options and issuance of Common Stock pursuant to the Company's stock option plans and stock purchase plans, not to offer for sale, sell or otherwise dispose of (or enter into any transaction or device which is designed to, or could be expected to, result in the disposition by any person at any time in the future of), directly or indirectly, any shares of Common Stock or other capital stock or any securities convertible into or exchangeable or exercisable for, or any rights to acquire, Common Stock or other capital stock, prior to the expiration of 180 days from the date of this Prospectus without the prior written consent of Lehman Brothers Inc. on behalf of the Representatives. The Representatives have informed the Company that the Underwriters do not intend to confirm sales to accounts over which they exercise discretionary authority. Until the distribution of the shares is completed, the rules of the Commission may limit the ability of the Underwriters and certain selling group members to bid for and purchase shares of Common Stock. As an exception to these rules, the Representatives are permitted to engage in certain transactions that stabilize the price of the Common Stock. Such transactions may consist of bids or purchases for the purpose of pegging, fixing or maintaining the price of the Common Stock. In addition, if the Representatives over-allot (sell more shares of Common Stock than are set forth on the cover page of this Prospectus), and thereby create a short position in the Common Stock in connection with this offering, the Representatives may reduce that short position by purchasing Common Stock in the open market. The Representatives may also elect to reduce any short position by exercising all or part of the over-allotment option described herein. The Representatives may also impose a penalty bid on certain Underwriters and selling group members. This means that if the Representatives purchase shares of the Common Stock in the open market to reduce the Underwriters' short position or to stabilize the price of the Common Stock, they may reclaim the amount of the selling concession from the Underwriters and selling group members who sold those shares as part of this offering. In general, purchases of shares of Common Stock for the purpose of stabilization or to reduce a syndicate short position could cause the price of the Common Stock to be higher than it might otherwise be in the absence of such purchases. The imposition of a penalty bid might have an effect on the price of a security to the extent that it were to discourage resales of the security by purchasers in the offering. Neither the Company nor any of the Underwriters makes any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the Common Stock. In addition, neither the Company nor any of the Underwriters makes any representation that the Representatives will engage in such transactions or that such transactions, once commenced, will not be discontinued without notice. Prior to this offering, there has been no public market for the shares of Common Stock. The initial public offering price will be determined through negotiations among the Company and the Representatives. Among the factors to be considered in determining the initial public offering price of the Common Stock, in addition to prevailing market conditions, will be the Company's historical performance, capital structure, estimates of the business potential and earnings prospects of the Company, an assessment of the Company's management, consideration of the above factors in relation to market valuation of companies in related businesses and other factors deemed relevant. 72 LEGAL MATTERS Certain legal matters with respect to the legality of the issuance of the shares of Common Stock offered hereby will be passed upon for the Company by Wilson Sonsini Goodrich & Rosati, Professional Corporation, 650 Page Mill Road, Palo Alto, California 94304. As of the date of this Prospectus, an affiliated investment partnership of Wilson Sonsini Goodrich & Rosati owns 42,812 shares of the Company's Common Stock. Certain legal matters in connection with this offering will be passed upon for the Underwriters by Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, 155 Constitution Drive, Menlo Park, CA 94025. EXPERTS The consolidated financial statements as of December 31, 1997 and 1996 and for each of the three years in the period ended December 31, 1997 included in this Prospectus have been so included in reliance on the report of Price Waterhouse LLP, independent accountants, given on authority of said firm as experts in auditing and accounting. CHANGE IN ACCOUNTANTS Effective June 1997, Price Waterhouse LLP was engaged as the Company's independent accountants and replaced Arthur Andersen LLP who were dismissed as the Company's independent accountants. The decision to change independent accountants was approved by the Company's Board of Directors. Prior to June 1997, Arthur Andersen LLP issued no audit report which was qualified or modified as to uncertainty, audit scope or accounting principles, no adverse opinions or disclaimers of opinion on any of the Company's consolidated financial statements, and there were no disagreements with Arthur Andersen LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures. Arthur Andersen LLP has not audited or reported on any of the financial statements or information included in this Prospectus. Prior to June 1997, the Company had not consulted with Price Waterhouse LLP on items which involved the Company's accounting principles or the form of audit opinion to be issued on the Company's consolidated financial statements. ADDITIONAL INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission"), Washington, D.C. 20549, a Registration Statement on Form S-1 under the Securities Act with respect to the shares of Common Stock offered hereby. This Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits and schedules thereto. Certain items are omitted in accordance with the rules and regulations of the Commission. For further information with respect to the Company and the Common Stock offered hereby, reference is made to the Registration Statement and the exhibits and schedules filed therewith. Statements contained in this Prospectus as to the contents of any contract or any other document referred to are not necessarily complete, and, in each instance, reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. A copy of the Registration Statement, and the exhibits and schedules thereto, may be inspected without charge at the public reference facilities maintained by the Commission in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commissions regional offices located at the Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York 10048, and copies of all or any part of the Registration Statement may be obtained from such offices upon the payment of the fees prescribed by the Commission. The Commission maintains a World Wide Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. The address of the site is http://www.sec.gov. 73 POINTCAST INCORPORATED INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Report of Independent Accountants.......................................... F-2 Consolidated Balance Sheets................................................ F-3 Consolidated Statements of Operations...................................... F-4 Consolidated Statements of Stockholders' Deficit........................... F-5 Consolidated Statements of Cash Flows...................................... F-6 Notes to Consolidated Financial Statements................................. F-7
F-1 REPORT OF INDEPENDENT ACCOUNTANTS The Delaware reincorporation, including the reverse stock split described in the first paragraph of Note 11 to the consolidated financial statements has not been consummated at May 13, 1998. When it has been consummated, we will be able to furnish the following report: "To the Board of Directors and Stockholders of PointCast Incorporated In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of stockholders' deficit and of cash flows present fairly, in all material respects, the financial position of PointCast Incorporated and its subsidiary at December 31, 1996 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above." San Jose, California February 18, 1998, except for Note 11, which is as of May 13, 1998 F-2 POINTCAST INCORPORATED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, -------------------------- MARCH 31, 1996 1997 1998 ------------ ------------ ------------ (unaudited) ASSETS Current assets: Cash and cash equivalents.......... $ 3,459,000 $ 10,282,000 $ 16,531,000 Short-term investments............. 23,683,000 12,438,000 2,535,000 Accounts receivable, net of allow- ance for doubtful accounts of $721,000, $604,000 and $630,000 (unaudited)....................... 3,145,000 4,266,000 3,253,000 Prepaid expenses and other current assets............................ 2,773,000 872,000 1,214,000 ------------ ------------ ------------ Total current assets............. 33,060,000 27,858,000 23,533,000 Property and equipment, net ......... 3,981,000 7,438,000 7,025,000 Notes receivable from stockholder.... -- 2,000,000 2,000,000 Other assets......................... 585,000 131,000 242,000 ------------ ------------ ------------ $ 37,626,000 $ 37,427,000 $ 32,800,000 ============ ============ ============ LIABILITIES, MANDATORILY REDEEMABLE SECURITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Current portion of notes payable... $ 594,000 $ 1,450,000 $ 2,895,000 Accounts payable................... 3,085,000 6,254,000 6,048,000 Accrued expenses................... 1,103,000 2,309,000 2,993,000 Deferred revenue................... 1,659,000 3,669,000 2,354,000 ------------ ------------ ------------ Total current liabilities........ 6,441,000 13,682,000 14,290,000 Notes payable........................ 1,559,000 3,820,000 2,044,000 Other liabilities, primarily deferred rent obligations.................... -- 715,000 635,000 ------------ ------------ ------------ 8,000,000 18,217,000 16,969,000 ------------ ------------ ------------ Minority interest in consolidated subsidiary.......................... -- 1,825,000 1,710,000 ------------ ------------ ------------ Mandatorily redeemable convertible preferred stock $0.001 par value, 13,000,000 shares designated, 10,241,941, 11,635,209 and 11,775,560 (unaudited) shares issued and outstanding..................... 47,298,000 66,785,000 69,240,000 Mandatorily redeemable convertible preferred stock warrants............ 3,000,000 3,000,000 3,000,000 ------------ ------------ ------------ 50,298,000 69,785,000 72,240,000 ------------ ------------ ------------ Commitments and contingencies (Note 5) Stockholders' deficit: Preferred stock, 13,466,667 shares authorized, 13,000,000 shares designated as mandatorily redeemable convertible preferred stock............................. -- -- -- Common stock, $0.001 par value, 33,333,334 authorized; 4,772,245, 5,587,750 and 5,811,552 (unaudited) shares issued and outstanding....................... 5,000 6,000 6,000 Additional paid-in capital......... 436,000 2,304,000 2,384,000 Accumulated deficit................ (21,113,000) (50,357,000) (56,786,000) Other, primarily deferred stock compensation...................... -- (4,353,000) (3,723,000) ------------ ------------ ------------ Total stockholders' deficit...... (20,672,000) (52,400,000) (58,119,000) ------------ ------------ ------------ $ 37,626,000 $ 37,427,000 $ 32,800,000 ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements. F-3 POINTCAST INCORPORATED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS YEAR ENDED DECEMBER 31, ENDED MARCH 31, --------------------------------------- ------------------------ 1995 1996 1997 1997 1998 ----------- ------------ ------------ ----------- ----------- (unaudited) Revenue: Advertising............ $ -- $ 4,114,000 $ 15,690,000 $ 2,548,000 $ 4,909,000 Development, license and other fees........ 765,000 1,085,000 2,303,000 419,000 197,000 ----------- ------------ ------------ ----------- ----------- Total revenue.......... 765,000 5,199,000 17,993,000 2,967,000 5,106,000 ----------- ------------ ------------ ----------- ----------- Cost of revenue: Advertising............ -- 2,433,000 6,985,000 948,000 2,527,000 Development, license and other fees........ 9,000 193,000 413,000 93,000 -- ----------- ------------ ------------ ----------- ----------- Total cost of revenue.. 9,000 2,626,000 7,398,000 1,041,000 2,527,000 ----------- ------------ ------------ ----------- ----------- Gross profit............ 756,000 2,573,000 10,595,000 1,926,000 2,579,000 ----------- ------------ ------------ ----------- ----------- Operating expenses: Sales and marketing.... 1,220,000 9,182,000 18,844,000 4,569,000 4,504,000 Product development.... 1,733,000 5,496,000 10,645,000 2,357,000 2,728,000 General and administrative........ 2,053,000 3,135,000 4,980,000 1,043,000 1,261,000 Non-recurring expenses. -- -- 2,918,000 -- -- Non-cash stock compensation expense and amortization of warrants.............. -- 562,000 3,141,000 459,000 696,000 ----------- ------------ ------------ ----------- ----------- Total operating expenses.............. 5,006,000 18,375,000 40,528,000 8,428,000 9,189,000 ----------- ------------ ------------ ----------- ----------- Loss from operations.... (4,250,000) (15,802,000) (29,933,000) (6,502,000) (6,610,000) Interest and other income................. 67,000 830,000 924,000 302,000 210,000 Interest expense........ (38,000) (162,000) (277,000) (38,000) (110,000) Minority interest in losses of consolidated subsidiary............. -- -- 175,000 -- 115,000 ----------- ------------ ------------ ----------- ----------- Net loss................ $(4,221,000) $(15,134,000) $(29,111,000) $(6,238,000) $(6,395,000) =========== ============ ============ =========== =========== Net loss per share: Basic and diluted...... $ (1.45) $ (4.28) $ (6.38) $ (1.45) $ (1.18) =========== ============ ============ =========== =========== Shares used in calculation........... 2,909,135 3,550,561 4,586,079 4,324,383 5,448,150 =========== ============ ============ =========== =========== Pro forma net loss per share: Basic and diluted...... $ (1.95) $ (0.38) ============ =========== Shares used in calculation........... 14,974,857 16,723,694 ============ ===========
The accompanying notes are an integral part of these consolidated financial statements. F-4 POINTCAST INCORPORATED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
COMMON STOCK ADDITIONAL ---------------- PAID-IN ACCUMULATED SHARES AMOUNT CAPITAL DEFICIT OTHER TOTAL --------- ------ ---------- ------------ ----------- ------------ Balance at December 31, 1994................... 4,360,958 $5,000 $ 92,000 $ (1,691,000) $ -- $ (1,594,000) Issuance of common stock, net of issuance costs................. 66,667 -- 4,000 -- -- 4,000 Issuance of common stock in connection with the exercise of stock options......... 17,548 -- 1,000 -- -- 1,000 Net loss............... -- -- -- (4,221,000) -- (4,221,000) --------- ------ ---------- ------------ ----------- ------------ Balance at December 31, 1995................... 4,445,173 5,000 97,000 (5,912,000) -- (5,810,000) Issuance of common stock in connection with the exercise of stock options......... 327,072 -- 27,000 -- -- 27,000 Stock compensation expense............... -- -- 312,000 -- -- 312,000 Accretion of mandatorily redeemable convertible preferred stock redemption value................. -- -- -- (67,000) -- (67,000) Net loss............... -- -- -- (15,134,000) -- (15,134,000) --------- ------ ---------- ------------ ----------- ------------ Balance at December 31, 1996................... 4,772,245 5,000 436,000 (21,113,000) -- (20,672,000) Issuance of common stock in connection with the exercise of stock options in exchange for cash and notes receivable...... 815,505 1,000 1,621,000 -- (1,218,000) 404,000 Deferred stock compensation expense recorded in connection with CEO Agreement (Note 6).............. -- -- -- -- (3,563,000) (3,563,000) Stock compensation expense............... -- -- 247,000 -- 618,000 865,000 Accretion of mandatorily redeemable convertible preferred stock redemption value................. -- -- -- (133,000) -- (133,000) Net loss............... -- -- -- (29,111,000) -- (29,111,000) Foreign currency translation adjustment............ -- -- -- -- (190,000) (190,000) --------- ------ ---------- ------------ ----------- ------------ Balance at December 31, 1997................... 5,587,750 6,000 2,304,000 (50,357,000) (4,353,000) (52,400,000) Issuance of common stock in connection with the exercise of stock options (unaudited)........... 223,802 -- 80,000 -- -- 80,000 Stock compensation expense (unaudited)... -- -- -- -- 596,000 596,000 Accretion of mandatorily redeemable convertible preferred stock redemption value (unaudited)........... -- -- -- (34,000) -- (34,000) Net loss (unaudited)... -- -- -- (6,395,000) -- (6,395,000) Foreign currency translation adjustment (unaudited)........... -- -- -- -- 34,000 34,000 --------- ------ ---------- ------------ ----------- ------------ Balance at March 31, 1998 (unaudited)....... 5,811,552 $6,000 $2,384,000 $(56,786,000) $(3,723,000) $(58,119,000) ========= ====== ========== ============ =========== ============
The accompanying notes are an integral part of these consolidated financial statements. F-5 POINTCAST INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, --------------------------------------- ------------------------ 1995 1996 1997 1997 1998 ----------- ------------ ------------ ----------- ----------- (unaudited) (unaudited) Cash flows from operat- ing activities: Net loss............... $(4,221,000) $(15,134,000) $(29,111,000) $(6,238,000) $(6,395,000) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amor- tization.............. 142,000 1,055,000 2,723,000 492,000 831,000 Minority interest in losses of subsidiary.. -- -- (175,000) -- (115,000) Stock compensation ex- pense ................ -- 312,000 865,000 24,000 596,000 Amortization of war- rants................. -- 250,000 2,276,000 435,000 100,000 Changes in current as- sets and liabilities: Accounts receivable... 45,000 (3,141,000) (1,121,000) 693,000 1,013,000 Prepaid expenses and other assets......... (51,000) (493,000) 79,000 (38,000) (553,000) Accounts payable...... 754,000 2,193,000 3,169,000 1,168,000 (206,000) Accrued expenses...... 569,000 456,000 1,206,000 266,000 684,000 Deferred revenue...... (76,000) 1,125,000 2,010,000 351,000 (1,315,000) Other liabilities..... -- -- 715,000 -- (80,000) ----------- ------------ ------------ ----------- ----------- Net cash used in op- erating activities.. (2,838,000) (13,377,000) (17,364,000) (2,847,000) (5,440,000) ----------- ------------ ------------ ----------- ----------- Cash flows from invest- ing activities: Purchase of short-term investments........... -- (23,683,000) (21,090,000) -- (2,511,000) Maturity of short-term investments........... -- -- 32,335,000 5,743,000 12,414,000 Purchase of property and equipment......... (1,131,000) (3,247,000) (6,180,000) (1,243,000) (418,000) ----------- ------------ ------------ ----------- ----------- Net cash (used in) provided by invest- ing activities ..... (1,131,000) (26,930,000) 5,065,000 4,500,000 9,485,000 ----------- ------------ ------------ ----------- ----------- Cash flows from financ- ing activities: Proceeds from issuance of common stock, net of issuance costs..... 5,000 27,000 404,000 55,000 80,000 Proceeds from issuance of mandatorily redeemable convertible preferred stock, net of issuance costs..... 5,153,000 38,079,000 15,791,000 -- 2,000,000 Repayment of note pay- able.................. (75,000) (258,000) (1,669,000) (96,000) (331,000) Proceeds from repay- ments on notes receiv- ables................. -- -- -- -- 421,000 Proceeds from issuance of notes payable...... 707,000 1,000,000 4,786,000 -- -- Issuance of note re- ceivable due from stockholder........... -- -- (2,000,000) -- -- Proceeds from minority investment in subsidi- ary................... -- -- 2,000,000 -- -- ----------- ------------ ------------ ----------- ----------- Net cash provided by (used in) financing activities.......... 5,790,000 38,848,000 19,312,000 (41,000) 2,170,000 ----------- ------------ ------------ ----------- ----------- Effects of exchange rate changes on cash........ -- -- (190,000) -- 34,000 Net increase (decrease) in cash and cash equivalents............ 1,821,000 (1,459,000) 6,823,000 1,612,000 6,249,000 Cash and cash equiva- lents at beginning of year .................. 3,097,000 4,918,000 3,459,000 3,459,000 10,282,000 ----------- ------------ ------------ ----------- ----------- Cash and cash equiva- lents at end of year... $ 4,918,000 $ 3,459,000 $ 10,282,000 $ 5,071,000 $16,531,000 =========== ============ ============ =========== =========== Supplemental cash flow information: Cash paid for interest. $ 33,000 $ 162,000 $ 277,000 $ 33,000 $ 73,000 =========== ============ ============ =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-6 POINTCAST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1--THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Company PointCast Incorporated, (the "Company"), was incorporated in July 1992. In February 1996, the Company launched the PointCast Network, offering personalized news and information to business consumers over the Internet and corporate intranets. The Company operates in one business segment. Basis of presentation The consolidated financial statements include the accounts of PointCast and its majority-owned subsidiary, PointCast Japan L.L.C. ("PointCast Japan"). During 1997, the Company established PointCast Japan, a joint venture to offer the Company's services in Japan. The Company contributed $1.0 million of cash and certain rights to technology and trademarks for use in Japan in consideration of its 60% ownership interest. The minority shareholder contributed $2.0 million in cash in exchange for its 40% interest. No gain was recognized on the formation of the joint venture. The equity and losses attributable to the minority shareholder interest in PointCast Japan are shown separately in the consolidated balance sheets and consolidated statements of operations, respectively. Losses in excess of the minority interest equity would be charged against the Company, if incurred. Under the terms of the joint venture agreement, the joint venture will pay to the 40% shareholder a management fee equal to 47% of the joint venture's revenue over the two year life of the administrative services and management agreement. For the year ended December 31, 1997 and the three-months ended March 31, 1998 such management fees were $0 and $77,000, respectively. Revenue recognition Advertising revenue is derived from the sale of advertising space on the PointCast Network. Advertising revenue is recognized in the period the advertisement is displayed, provided no significant Company obligations remain and collection of the resulting receivable is probable. Company obligations typically include guarantees of a minimum number of "billable deliveries," a measurement of the number of times an advertisement is downloaded to a unique user of the PointCast Network. To the extent minimum billable delivery guarantees are met, the Company recognizes revenue and invoices the advertiser for the billable deliveries provided or, if an amount has been invoiced in the excess of the billable deliveries provided, the Company defers recognition of the corresponding revenue until the minimum billable delivery guarantees are satisfied. Deferred revenue primarily represents billings in excess of revenue recognized on advertising contracts. For the years ended December 31, 1996 and 1997, and the three months ended, March 31, 1997 and 1998 advertising revenue represented 79%, 87%, 86% (unaudited) and 96% (unaudited) of total revenue, respectively. Revenue from the sale of certain advertising space on the PointCast Network is shared with third parties under the terms of certain agreements. Where the Company shares collection risk or is not responsible for invoicing or collection of the receivable, the Company recognizes only its pro rata share of revenue from the contract. Development, license and other fees primarily consist of development fees from the Company's agreements with partners ("Industry Insider Agreements") and fees for the customization of versions of the PointCast Network Client. Fees for the development of industry specific channels and customization of the PointCast Network Client are recognized using the completed contract method. Revenue from barter transactions is recognized as advertisements are run on the PointCast Network. Barter transactions are recorded at the estimated fair value of the goods or services provided or received, whichever is more readily determinable. To date, the value of barter transactions has been less than 10% of the Company's revenue. During 1995, 1996 and 1997, the Company licensed software under noncancelable license agreements. Revenue from perpetual software license agreements was recognized upon shipment of the software if there were F-7 POINTCAST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) no significant post-delivery obligations, if collection was probable, and if payment was due within one year. Revenue from post contract support services was recognized ratably over the term of the support period. Software licenses represented less than 5% of the Company's 1997 revenue. The Company's PointCast Network Client is provided to users without charge and the Company does not expect revenue from the licensing of software or post-contract support to be a significant component of revenue in the future. Cost of advertising revenue Cost of advertising revenue is expensed as incurred and includes the costs to run the Company's Central Broadcasting Facility and the costs associated with licensed content. Cash equivalents and short-term investments The Company considers all highly liquid instruments with an original maturity of three months or less to be cash equivalents. Those with original maturities greater than three months and current maturities less than twelve months from the balance sheet date are considered short-term investments, and those with maturities greater than twelve months from the balance sheet date are considered long-term investments. Short-term investments in marketable securities are classified as available- for-sale and consist primarily of high-grade commercial paper and debt instruments of U.S. Government agencies. The fair value of the investments approximates cost. Concentration of credit risk Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash, cash equivalents, short-term investments and accounts receivable. Substantially all of the Company's cash, cash equivalents and short-term investments are invested in high-grade commercial paper and debt instruments of U.S. Government agencies. The Company's accounts receivable have been derived primarily from revenue earned from customers located in the United States and are denominated in U.S. dollars. The Company performs ongoing credit evaluations of its customers' financial condition and generally requires no collateral. The Company maintains an allowance for doubtful accounts receivable based upon the expected collectibility of accounts receivable. The following table summarizes revenue from customers comprising 10% or more of the revenues for the periods indicated:
THREE MONTHS YEAR ENDED ENDED DECEMBER 31, MARCH 31, -------------- ------------- 1995 1996 1997 1997 1998 ---- ---- ---- ------ ------ (unaudited) Company A....................................... -- 10% 3% 4% 3% Company B....................................... 69% 2% -- -- -- Company C....................................... -- -- 3% -- 10%
Company C is a holder of approximately 2% of the Company's pro forma outstanding Common Stock at March 31, 1998 (Note 1). One customer accounted for 26% of net accounts receivable at December 31, 1996. Net loss per share and pro forma net loss per share The Company computes net loss per share in accordance with the provisions of Statement of Financial Accounting Standards No. 128, "Earning per share" ("SFAS 128") and SEC Staff Accounting Bulletin No. 98 F-8 POINTCAST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) ("SAB 98"). Under the provisions of SFAS 128 and SAB 98, basic and diluted net loss per share is computed by dividing the net loss available to common stockholders for the period by the weighted average number of common shares outstanding during the period. The weighted average shares used to compute basic and diluted net loss per share include outstanding shares of Common Stock from the date of issuance if such shares are vested. Additionally, the weighted average number of common shares outstanding excludes certain unvested shares until the date such shares vest. Weighted averaged shares used to compute basic and diluted net loss per share excludes 1,260,191, 733,079, 265,104, 616,085 (unaudited) and 202,303 (unaudited) shares of issued and outstanding Common Stock subject to repurchase rights for the years ended December 31, 1995, 1996, and 1997 and the three-months ended March 31, 1997 and 1998. The calculation of diluted net loss per share excludes 8,064,839, 12,999,946, 17,401,376, 13,725,005 (unaudited) and 17,431,930 (unaudited) shares of Common Stock for the years ended December 31, 1995, 1996, and 1997 and the three months ended March 31, 1997 and 1998 issuable upon the exercise of employee stock options, the exercise of warrants to purchase common stock, the conversion of the mandatorily redeemable convertible preferred stock into common stock and the exercise of warrants to purchase mandatorily redeemable convertible preferred stock and the conversion of such shares into common stock as the effect of the exercise or conversion would be antidilutive. Pro forma basic and diluted net loss per share gives effect to the conversion of mandatorily redeemable convertible preferred stock, less 250,000 shares of mandatorily redeemable convertible preferred stock subject to repurchase rights for the year ended December 31, 1997 and the three months ended March 31, 1998 (unaudited), respectively. Weighted average shares used to compute pro forma basic and diluted loss per share excludes the 701,756 shares of mandatorily redeemable convertible preferred stock issuable upon the exercise of outstanding warrants. (Note 6) A reconciliation of basic and diluted net loss per share and pro forma basic and diluted net loss per share is as follows:
YEAR ENDED DECEMBER 31, 1997 THREE MONTH PERIOD ENDED MARCH 31, 1998 ------------------------------------- ---------------------------------------------- (LOSS) SHARES PER SHARE (LOSS) SHARES PER SHARE (NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT ------------ ------------- --------- --------------- -------------- ------------ (unaudited) (unaudited) (unaudited) Net loss................ $(29,111,000) -- -- $ (6,395,000) -- -- Accretion to redemption value of Mandatorily Redeemable Convertible Preferred Stock....... (133,000) -- -- (34,000) -- -- ------------ ------ --------------- ---------- Basic and diluted net loss per share......... (29,244,000) 4,586,079 $(6.38) (6,429,000) 5,448,150 $ (1.18) ====== ========== Pro forma effect of dilutive securities Assumed conversion of Mandatorily Redeemable Convertible Preferred Stock to Common Stock. 133,000 10,388,778 34,000 11,275,544 ------------ ---------- --------------- -------------- Pro forma basic and di- luted net loss per share.................. $(29,111,000) 14,947,857 $(1.95) $ (6,395,000) 16,723,694 $ (0.38) ============ ========== ====== =============== ============== ==========
Product development costs Product development costs are expensed as incurred. After technological feasibility is established, product development costs are capitalized. The capitalized costs are then amortized on a straight line basis over the estimated product life or on the ratio of current revenues to total projected product revenue, whichever is greater. To date, the period between achieving technological feasibility, which the Company has defined as the establishment of a working model and which typically occurs when beta testing commences, and the general availability of such products has been short and product development costs qualifying for capitalization have been insignificant. Accordingly, the Company has not capitalized any product development costs. F-9 POINTCAST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Property and equipment Property and equipment are stated at historical cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally three to five years, or the shorter of the lease term or the estimated useful life of the respective assets, if applicable. Advertising expense Advertising is expensed as incurred. Advertising expense totaled $2,435,000, $4,844,000, $1,396,000 (unaudited) and $476,000 (unaudited) for the years ended December 31, 1996 and 1997 and the three months ended March 31, 1997 and 1998, respectively. There was no advertising expense in the year ended December 31, 1995. Non-recurring expenses Non-recurring expenses represent one-time charges incurred during 1997, principally in connection with the hiring of the Company's Chief Executive Officer and losses incurred on the sublease of certain excess office space. Stock-based compensation The Company accounts for stock-based employee compensation arrangements in accordance with provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," ("APB No. 25") and complies with the disclosure provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," ("SFAS No. 123"). Under APB No. 25, compensation expense is recognized based on the difference, if any, on the date of grant between the fair value of the Company's stock and the amount an employee must pay to acquire the stock. The compensation expense is recognized over the option vesting period. Foreign currency and international operations The functional currency of the Company's subsidiary is the local currency. The financial statements of the subsidiary are translated to United States dollars using the year-end rate of exchange for assets and liabilities and average rates for the year for revenue, costs and expenses. Translation losses are deferred and accumulated as a component of stockholders' equity. Net gains and losses resulting from foreign exchange transactions are included in the consolidated statements of operations and were not significant. International revenues and assets were not significant for all periods presented. Other comprehensive income (loss) Effective January 1, 1998, the Company adopted the provisions of Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes standards for reporting comprehensive income (loss) and its components in financial statements. Comprehensive income (loss) as defined, includes all changes in equity (net assets) during a period from nonowner sources. The only item included in other comprehensive income (loss) which is excluded from net income (loss) is the foreign currency translation adjustment. Other comprehensive loss totaled $(6,238,000) (unaudited) and $(6,361,000) (unaudited) for the three months ended March 31, 1997 and 1998, respectively. New accounting pronouncement In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, "Disclosure about Segments of an Enterprise and Related Information." ("SFAS 131"). This statement establishes standards for the way companies report information about operating segments in F-10 POINTCAST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) annual financial statements. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. The disclosures prescribed by SFAS 131 will be effective for the year ending December 31, 1998. Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Pro forma stockholders' equity (unaudited) If the offering contemplated in this Prospectus (the "Offering") is consummated, unaudited pro forma stockholders' equity at March 31, 1998 as adjusted for (i) the assumed conversion of 11,775,560 shares of Mandatorily Redeemable Convertible Preferred Stock into shares of Common Stock and (ii) giving effect to the reverse stock split and recapitalization described in Note 11, would be as follows: Preferred Stock, $0.001 par value; 5,000,000 shares authorized No shares issued and outstanding............................. $ -- Common Stock, $0.001 par value; 100,000,000 shares authorized; 17,587,112 issued and outstanding............................ 18,000 Additional paid-in-capital.................................... 74,612,000 Accumulated deficit........................................... (56,786,000) Other......................................................... (3,723,000) ------------ $ 14,121,000 ============
Interim results (unaudited) The accompanying interim consolidated financial statements as of March 31, 1998 and for the three months ended March 31, 1997 and 1998 are unaudited. In the opinion of management, the unaudited interim financial statements have been prepared on the same basis as the annual consolidated financial statements and reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the consolidated financial position as of March 31, 1998 and the consolidated results of the Company's operations and its cash flows for the three months ended March 31, 1997 and 1998. The financial data and other information disclosed in these notes to the consolidated financial statements related to these periods are unaudited. The results for the three months ended March 31, 1998 are not necessarily indicative of the results to be expected for the year ending December 31, 1998. NOTE 2--BALANCE SHEET COMPONENTS
DECEMBER 31, ------------------------ MARCH 31, 1996 1997 1998 ----------- ----------- ----------- (unaudited) Property and equipment, net: Computer and equipment.............. $ 4,770,000 $ 8,314,000 $ 8,676,000 Furniture and fixtures.............. 246,000 1,549,000 1,589,000 Leasehold and fixtures.............. 207,000 1,257,000 1,273,000 ----------- ----------- ----------- 5,223,000 11,120,000 11,538,000 Less: accumulated depreciation...... (1,242,000) (3,682,000) (4,513,000) ----------- ----------- ----------- $ 3,981,000 $ 7,438,000 $ 7,025,000 =========== =========== ===========
F-11 POINTCAST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Property and equipment included $1,273,000 of fixed assets under capital leases at December 31, 1996 and 1997 and March 31, 1998 (unaudited). Accumulated amortization of such assets was $372,000, $796,000 and $902,000 (unaudited) at December 31, 1996 and 1997 and March 31, 1998, respectively.
DECEMBER 31, --------------------- MARCH 31, 1996 1997 1998 ---------- ---------- ----------- (unaudited) Accrued expenses: Administrative expenses.................. $ 700,000 $ 750,000 $ 951,000 Payroll and related expenses............. 391,000 1,456,000 1,297,000 Other.................................... 12,000 103,000 745,000 ---------- ---------- ---------- $1,103,000 $2,309,000 $2,993,000 ========== ========== ==========
NOTE 3--RELATED PARTY TRANSACTIONS Industry Insider Agreements During 1996 and 1997, the Company entered into Industry Insider Agreements with certain stockholders who own in the aggregate 3% of the Company's pro forma outstanding Common Stock at March 31, 1998 (Note 1). Management believes that the terms of these agreements were similar to those terms given to unaffiliated Industry Insider partners. During 1997, the Company recognized $457,000 of revenue from Industry Insider Agreements with related parties. There was no revenue recognized during the years ended December 31, 1995 and 1996 or for the three months ended March 31, 1997 and 1998. Fees for customization and channel development are recognized using the completed contract method. Advertising revenue In 1997 and the three months ended March 31, 1997 and 1998, the Company recognized advertising revenue from holders of 2% of the Company's pro forma outstanding Common Stock at March 31, 1998 in the amount of $527,000, $58,000 (unaudited) and $648,000 (unaudited), respectively, in exchange for cash. The Company believes that the terms of advertising contracts with related parties were similar to those given on orders of similar size to unaffiliated customers. Note receivable due from stockholder Under the terms of a 1997 employment agreement with the Company's Chief Executive Officer (the "CEO Agreement"), the Company in October 1997 entered into two full recourse notes receivable amounting to $2,000,000. The notes issued are further secured by approximately 233,000 shares of Series E mandatorily redeemable convertible preferred stock, bear interest at the rate of 6.01% compounded semi-annually and are due no later than 2002. The notes were classified as Notes Receivable from Stockholder in the accompanying balance sheet at December 31, 1997 and March 31, 1998. Another loan for $421,000 was made in 1997 in connection with the purchase of Series E mandatorily redeemable convertible preferred stock by the Chief Executive Officer. The loan was recorded as a reduction of the carrying value of mandatorily redeemable convertible preferred stock at December 31, 1997 and was repaid in full in March 1998. The Chief Executive Officer is entitled to receive at December 31, 1999 a bonus of $1,800,000 if the executive remains employed at that date, the Company has achieved a total year-end viewership of at least 3,000,000 viewers and the Company's audited consolidated financial statements for the year ended December 31, 1999, reflect operating income. The bonus may be paid in cash or through the forgiveness of F-12 POINTCAST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) amounts due from the Chief Executive Officer. The Company periodically evaluates the available evidence to determine whether it is probable that the goals associated with the bonus will be achieved and will record expense associated with the bonus in the period such a determination is made. Based on the Company's results through March 31, 1998, the Company does not consider it probable that the goals associated with the bonus will be achieved and no amount has been accrued. NOTE 4--BORROWINGS At December 31, 1997 and March 31, 1998, the Company had $1,439,000 and $1,439,000 (unaudited), respectively, payable under a line of credit with a financial institution. The line of credit provides for borrowings of up to $5,000,000. Advances in excess of $2,000,000 must be supported by a borrowing base calculated based on qualified accounts receivable. The line of credit is secured by certain specified assets of the Company, expires March 31, 1999 and bears interest at a variable rate based on the prime rate (8.5% at December 31, 1997 and March 31, 1998) . Under the line of credit, the Company is required to maintain certain financial covenants. The Company was in compliance with all covenants at December 31, 1997 and March 31, 1998. At December 31, 1997 and March 31, 1998, the Company had $3,079,000 and $2,831,000 (unaudited) of borrowings outstanding under a note payable due to an insurance company. The note payable bears interest at an annual rate of 9.7% and is secured by the Company's property and equipment. The Company is required to make monthly payments of principal and interest under the note of $107,000 through December 2001. At December 31, 1996, the Company had loans outstanding totaling $1,088,000 payable to a bank. The loans were repaid during 1997. At December 31, 1996 and 1997 and March 31, 1998, the Company had $1,065,000, $752,000 and $669,000 (unaudited), respectively, outstanding and due under two capital lease agreements with third parties. The capital lease agreements charge interest at rates ranging up to eleven percent per annum. As of December 31, 1997, the maturities under the line of credit, note payable and capital leases are as follows: YEAR ENDING DECEMBER 31, 1998............................................................ $1,450,000 1999............................................................ 2,763,000 2000............................................................ 1,014,000 2001............................................................ 43,000 ---------- 5,270,000 Less current portion.............................................. 1,450,000 ---------- Long-term portion................................................. $3,820,000 ==========
NOTE 5--COMMITMENTS AND CONTINGENCIES Operating leases The Company leases office space and equipment under noncancelable operating leases with various expiration dates through 2002. Rent expense for the years ended December 31, 1995, 1996 and 1997 and the three-months ended March 31, 1997 and 1998 was $168,000, $680,000, $1,751,000, $222,000 (unaudited) and $394,000 (unaudited), respectively. The terms of a facility lease and certain equipment leases provide for rental payments that increase over the term of the lease. The Company recognizes the expense on a straight-line basis over the lease period, and has accrued for rent expense incurred but not paid. F-13 POINTCAST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Future minimum lease payments under noncancelable operating leases and future minimum sub-lease rental income under noncancelable operating leases are as follows:
OPERATING SUB-LEASE LEASE INCOME ----------- ----------- Year Ending December 31, 1998.............................................. $ 3,043,000 $ (872,000) 1999.............................................. 2,755,000 (898,000) 2000.............................................. 2,546,000 (610,000) 2001.............................................. 2,577,000 -- 2002.............................................. 2,701,000 -- Thereafter........................................ -- -- ----------- ----------- Total........................................... $13,622,000 $(2,380,000) =========== ===========
Litigation From time to time, the Company is subject to legal proceedings and claims in the ordinary course of business, including claims against the Company of alleged infringement of patents, trademarks and other intellectual property rights and challenges to the validity or enforceability of certain intellectual property rights held by the Company. The Company has received inquiries from patent holders alleging that elements of The PointCast Network infringe their rights and offering to license such patents to the Company. Legal standards relating to the validity, enforceability and scope of protection of intellectual property rights in Internet-related industries are evolving. Accordingly, the ultimate outcome of intellectual property claims against the Company and the ability of the Company to defend against such claims are difficult to predict. However, the Company is not currently aware of any legal proceedings or claims that the Company believes will have, individually or in the aggregate, a material adverse impact on the Company's financial condition, results of operations or cash flows. NOTE 6--MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK Mandatorily redeemable convertible preferred stock at December 31, 1997 consists of the following series:
SHARES ---------------------- PAR VALUE LIQUIDATION SERIES AUTHORIZED OUTSTANDING PER SHARE AMOUNT ------ ---------- ----------- --------- ----------- A............................... 4,333,334 4,280,925 $0.001 $ 4,025,000 B............................... 2,666,667 2,449,634 $0.001 5,170,000 C............................... 1,000,000 971,038 $0.001 2,913,000 D............................... 3,533,333 2,540,356 $0.001 36,200,000 E............................... 1,933,333 1,393,256 $0.001 19,854,000 ---------- ---------- ----------- 13,466,667 11,635,209 $68,162,000 ========== ========== ===========
During the three months ended March 31, 1998, the Company issued 140,351 shares of Series E mandatorily redeemable convertible preferred stock for total proceeds of approximately $2,000,000 (unaudited). At March 31, 1998, the liquidation amount of Series E mandatorily redeemable convertible preferred stock was $21,854,000 (unaudited). F-14 POINTCAST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The holders of mandatorily redeemable convertible preferred stock have various rights and preferences as follows: Voting Each share of mandatorily redeemable convertible preferred stock has voting rights equal to an equivalent number of shares of common stock into which it is convertible and votes together as one class with the common stock. As long as any of the shares of mandatorily redeemable convertible preferred stock remain outstanding, the Company must obtain approval from the holders of at least 55% of the shares of mandatorily redeemable convertible preferred stock in order to alter the articles of incorporation as they relate to mandatorily redeemable convertible preferred stock, change the authorized number of shares of mandatorily redeemable convertible preferred stock, authorize or issue other equity having a preference over the preferred stock with respect to voting dividends, redemption, or upon liquidation, repurchase any shares of common stock other than shares subject to the right of repurchase by the Company, pay any dividends on common stock, or change the authorized number of directors. Dividends Holders of Series A, B, C, D and E mandatorily redeemable convertible preferred stock are entitled to receive noncumulative dividends at the rate of $0.093, $0.21, $0.30 $1.425 and $1.425 per share, respectively, when and if declared by the Board of Directors. The holders of the Series A, B, C, D and E of mandatorily redeemable convertible preferred stock will also be entitled to participate in dividends on common stock, when and if declared by the Board of Directors, based on the number of shares of common stock held on an converted basis. No dividends on mandatorily redeemable convertible preferred stock or common stock have been declared by the Board from inception through March 31, 1998. Liquidation In the event of any acquisition, liquidation, dissolution or winding up of the Company, or in the event of a sale of greater than 50% of the assets of the Company, the holders of Series A, B, C, D, and E mandatorily redeemable convertible preferred stock are entitled to receive an amount of $0.9402, $2.1104, $3.00, $14.25 and $14.25 per share, respectively, plus any declared but unpaid dividends prior to and in preference to any distribution to the holders of common stock. After payment has been made to the holders of the mandatorily redeemable convertible preferred stock of the full liquidation amount, any remaining assets of the Company would be distributed with equal priority and pro rata among the holders of common stock. Conversion Each share of mandatorily redeemable convertible preferred stock is convertible into common stock on a one-for-one basis at the option of the holder subject to adjustment for dilution. Each share of mandatorily redeemable convertible preferred stock automatically converts into common stock at the then prevailing conversion ratio upon the closing of a public offering of common stock with gross proceeds in excess of $20,000,000. Redemption The holders may request that the shares of mandatorily redeemable convertible preferred stock be redeemed at any time after June 3, 2001. Shares of mandatorily redeemable convertible preferred stock may be redeemed at a price equal to the original issue price, subject to adjustment for dilution and declared but unpaid dividends. The difference between the carrying value of shares of mandatorily redeemable convertible preferred stock and their redemption value is being accreted through June 3, 2001. Accretion is charged directly to accumulated F-15 POINTCAST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) deficit and totaled $67,000, $133,000 and $34,000 (unaudited) for 1996, 1997 and the three months ended March 31, 1998, respectively. Other In connection with a lease agreement, the Company issued warrants to purchase 26,280 shares of Series B mandatorily redeemable convertible preferred stock during 1995. The warrants are exercisable at a price of $2.1104 per share and expire on July 31, 2002. Management determined that the value of the warrants at the date of grant was insignificant. In connection with an advertising agreement under the terms of which the Company received certain advertising space during December 1996, the Company issued immediately exercisable warrants to purchase 701,756 shares of the Company's Series D mandatorily redeemable convertible preferred stock at a per share price of $14.25 of which warrants to purchase 350,878 shares expire in 1999 and warrants to purchase 350,878 shares expire in 2001, subject to provisions for acceleration of the expiration date due to an initial public offering or the acquisition of the Company. The Company calculated the fair value of the warrants, which approximated the value of advertising received at the date of grant, as $3,000,000 (using an established option pricing model) which was recorded as prepaid advertising. The Company is recognizing the advertising expense over the greater of straight-line over the advertising period or as such advertising is used by the Company. The Company has recorded advertising expense of $250,000, $2,276,000, $435,000 (unaudited) and $100,000 (unaudited) for the years ended December 31, 1996 and 1997 and the three months ended March 31, 1997 and 1998, respectively, related to the advertising agreement which is included in "non-cash compensation expense and amortization of warrants" in the accompanying statements of operations. Under the terms of the CEO Agreement, the Chief Executive Officer received 250,000 shares of the Company's Series E mandatorily redeemable convertible preferred stock at the date of hiring. The shares are subject to repurchase by the Company in the event of termination for any reason; provided, however, that such repurchase right lapses as to 62,500 shares on October 22, 1998 and as to 5,208 shares on the 22nd day of each month thereafter. Such shares shall fully vest upon a change in control or upon the closing of an initial public offering. The Company recorded deferred stock compensation of $3,563,000 in connection with the Executive Agreement based on the price of preferred shares sold to unaffiliated investors in contemporaneous transactions. The deferred stock compensation is being amortized over the vesting period of the shares. Upon closing of the Company's initial public offering, the unamortized balance will be expensed. Deferred compensation expense of $309,000 and $463,000 (unaudited) was amortized during 1997 and the three months ended March 31, 1998, respectively. Additionally, the Chief Executive Officer purchased 83,334 shares of the Company's Series E mandatorily redeemable convertible preferred stock at $14.25 per share under the Executive Agreement. The purchase price of the shares was similar to that paid by unaffiliated investors in contemporaneous transactions. NOTE 7--COMMON STOCK A portion of the outstanding shares are subject to a right of repurchase by the Company at the original price paid by the purchaser subject to vesting, which is generally over a four year period from the earlier of grant date or employee hire date, as applicable. At December 31, 1997 and March 31, 1998, there were 299,164 and 202,299 (unaudited) shares subject to repurchase. As of March 31, 1998, the Company has reserved shares of common stock as follows: Conversion of mandatorily redeemable convertible preferred stock (unaudited)..................................................... 11,775,560 Exercise of common stock and mandatorily redeemable convertible preferred stock warrants (unaudited)............................ 936,370 Options under stock option plan (Note 8) (unaudited)............. 6,947,018 ---------- Total shares reserved.......................................... 19,658,948 ==========
F-16 POINTCAST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 8--COMMON STOCK OPTIONS AND WARRANTS In 1994, the Company adopted the 1994 Stock Option Plan (the "Plan"). The Plan provides for the granting of stock options to employees and consultants of the Company. Options granted under the Plan may be either incentive stock options or nonqualified stock options. Incentive stock options ("ISO") may be granted only to Company employees (including officers and directors who are also employees). Nonqualified stock options ("NSO") may be granted to Company employees and consultants. Options under the Plan may be granted for periods of up to ten years and at prices no less than 85% of the estimated fair value of the shares on the date of grant as determined by the Board of Directors, provided, however, that (i) the exercise price of an ISO and NSO shall not be less than 100% and 85% of the estimated fair value of the shares on the date of grant, respectively, and (ii) the exercise price of an ISO and NSO granted to a 10% shareholder shall not be less than 110% of the estimated fair value of the shares on the date of grant, respectively. Options are exercisable immediately and if exercised prior to vesting subject to a repurchase option which expires over the four year vesting period. To date, options granted generally vest over four years. During 1997, the Company granted 339,458 non-qualified options to purchase common stock at an exercise price below the fair market value at the date of grant primarily based on the value of the Company's common stock as established in cash transactions between unaffiliated investors. The Company recorded deferred stock compensation of $1,018,000 which it is recognizing over the four year vesting period of the options. The Company recognized $309,000 and $132,000 (unaudited) of compensation expense during 1997 and the three months ended March 31, 1998 in connection with the options. Approximately 133,334 of such options were exercised by the holder in exchange for a full recourse note receivable. The note bears interest at an annual rate of 6.01%, is due in October 2001 and has been recorded in Other Stockholders' Equity in the accompanying balance sheet at December 31, 1997 and March 31, 1998. Amounts outstanding under the note totaled $200,000 at December 31, 1997 and March 31, 1998 (unaudited). During 1996 and 1997, the Company accelerated the vesting of common stock options for certain executives in connection with severance agreements and recorded compensation expense of $312,000 and $243,000 respectively. Such compensation expense represents the difference between the exercise price and the then-deemed fair value of the shares on the date that vesting was accelerated. During December 1997, the Company issued warrants to purchase 208,334 shares of the Company's Common Stock to partnerships associated with two directors. The warrants have an exercise price of $7.50, which the Company believes represents the fair value of the Company's Common Stock at the date of grant, and expire in 2002. The warrants were issued in exchange for services by a director as an acting Chief Executive Officer while the Company completed its search for a Chief Executive Officer. The director received no cash compensation for his services. A summary of options outstanding under the Plan and certain other options noted below outstanding as of December 31, 1995, 1996, 1997 and March 31, 1998, and changes during the periods then ended is presented below:
OPTIONS OUTSTANDING ------------------------------- DECEMBER 31, ------------------------------- MARCH 31, 1995 1996 1997 1998 --------- --------- --------- ----------- (unaudited) Outstanding at beginning of year.......................... 612,000 1,308,000 2,733,000 4,830,000 Granted...................... 786,000 1,929,000 3,280,000 200,000 Exercised.................... (17,000) (327,000) (813,000) (226,000) Canceled..................... (73,000) (177,000) (370,000) (84,000) --------- --------- --------- --------- Outstanding at end of year..... 1,308,000 2,733,000 4,830,000 4,720,000 ========= ========= ========= ========= Weighted average fair value of options granted during the year.......................... $ 0.06 $ 0.95 $ 5.24 $ 7.50 ========= ========= ========= =========
F-17 POINTCAST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) At March 31, 1998, 2,227,018 options were available for grant under the Plan.
OPTIONS OUTSTANDING AT MARCH 31, OPTIONS VESTED AT 1998 MARCH 31, 1998 -------------------------------- -------------------- WEIGHTED AVERAGE WEIGHTED WEIGHTED REMAINING AVERAGE AVERAGE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE RANGE OF EXERCISE PRICE OUTSTANDING LIFE PRICE OUTSTANDING PRICE ----------------------- ----------- ----------- -------- ----------- -------- $0.00 - 0.75............ 1,035,128 2.7 $0.40 442,691 $0.36 0.76 - 1.50............ 499,016 3.4 1.50 128,447 1.50 1.51 - 4.50............ 630,089 3.8 3.54 168,120 3.31 4.51 - 7.50............ 2,555,767 5.0 6.24 279,895 6.03 --------- --------- 4,720,000 1,019,153 ========= =========
Fair value disclosures Had the Company's stock based compensation cost been determined based on the minimum value at the grant dates for the awards under the Plan and the grant of warrants to a director consistent with the method of SFAS No. 123, the Company's net loss would have been increased to the pro forma amounts indicated below:
YEAR ENDED DECEMBER 31, ---------------------------------- 1995 1996 1997 ---------- ----------- ----------- Net loss: As reported............................. $4,221,000 $15,134,000 $29,111,000 ========== =========== =========== Pro forma............................... $4,222,000 $15,533,000 $30,253,000 ========== =========== ===========
The Company calculated the minimum value of each option grant on the date of grant using the minimum value method with the following assumptions: no dividend yield, weighted average expected option term of 2.75 years; risk free interest rate of 5.06%, 5.87% and 5.51% for the years ended December 31, 1995, 1996 and 1997. NOTE 9--EMPLOYEE BENEFIT PLANS In 1995, the Company adopted a 401(k) Plan that is intended to qualify under section 401(k) of the Internal Revenue Code of 1986, as amended. The 401(k) Plan covers substantially all of the Company's employees. Participants may elect to contribute a percentage of their compensation to this plan, up to the statutory maximum amount. Through March 31, 1998, the Company has made no discretionary contributions to the 401(k) Plan. NOTE 10--INCOME TAXES No provision for income taxes was recorded from inception through December 31, 1997 as the Company incurred net operating losses during the period. The components of the net deferred tax asset as of December 31, 1996, and 1997 were as follows:
DECEMBER 31, ------------------------- 1996 1997 ----------- ------------ Net operating loss carryforwards.................. $ 6,524,000 $ 16,020,000 Cumulative temporary differences.................. 755,000 1,305,000 Tax credit carryforwards.......................... 413,000 1,059,000 ----------- ------------ 7,692,000 18,384,000 Valuation allowance............................... (7,692,000) (18,384,000) ----------- ------------ Net deferred tax asset............................ $ -- $ -- =========== ============
F-18 POINTCAST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Management believes that, based on a number of factors including the absence of taxable income to date, the available objective evidence creates sufficient uncertainty regarding the realizability of the deferred tax assets such that a full valuation allowance has been recorded. At December 31, 1997, the Company had approximately $42,000,000 of federal and $22,000,000 of California net operating loss carryforwards available to offset future taxable income. The federal loss carryforwards expire through the year 2017 and the California loss carry forwards expire at various dates from 1997 through the year 2001. Under the Tax Reform Act of 1986, the amounts of and benefits from net operating loss carryforwards may be impaired or limited in certain circumstances. Events which cause limitations in the amount of net operating losses that the Company may utilize in any one year include, but are not limited to, a cumulative ownership change of more than 50%, as defined, over a three year period. At December 31, 1997, the Company may utilize approximately $11,000,000 of federal net operating losses annually to offset taxable income. NOTE 11--SUBSEQUENT EVENTS Reincorporation, amendment to the Articles of Incorporation and reverse stock split During May 1998, the Company's Board of Directors authorized the reincorporation, effective prior to the Company's initial public offering of the Company in the State of Delaware, including a 2 for 3 reverse stock split of the outstanding shares of the Company's Common Stock effected through the exchange ratio of the reincorporation merger. Upon reincorporation, the Company will be authorized to issue 100,000,000 shares of Common Stock, $0.001 par value and 5,000,000 shares of undesignated Preferred Stock, $0.001 par value. Also during May 1998, the Company's Board of Directors approved an amendment to the Company's Articles of Incorporation to provide that upon the closing of a public offering by the Company with gross proceeds of at least $20,000,000, all outstanding shares of mandatorily redeemable convertible preferred stock will convert to shares of Common Stock at the then-prevailing conversion ratio (Note 6) and all outstanding warrants to purchase shares of mandatorily redeemable convertible preferred stock will convert into warrants to purchase common stock. All share and per share data have been retroactively adjusted to reflect the reverse stock split. 1994 Stock Plan In May 1998, the Company's Board of Director amended the 1994 Stock Plan to provide for the maximum aggregate number of shares subject to the plan to be 8,333,334 shares of Common Stock, plus annual increases to be added on the first day of the Company's fiscal year (beginning in 1999) equal to the lesser of (i) 2,000,000 shares, (ii) 5% of the outstanding shares, or (iii) a lesser amount determined by the Board of Directors. Stock option grants In April and May 1998, the Company's Board of Directors authorized the grant of options to acquire an aggregate of 746,094 shares of the Company's Common Stock with a weighted average exercise price of $7.66 per share. The Company will record deferred stock compensation expense of $1,252,000 in connection with these options which it will recognize over the vesting period of the options. Employee stock purchase plan In May 1998, the Company's Board of Directors adopted the 1998 Employee Stock Purchase Plan (the "Purchase Plan") and reserved 500,000 shares of Common Stock for issuance thereunder with annual increases equal to the lesser of (i) 750,000 shares, (ii) 2.5% of the outstanding shares on such date, or (iii) a lesser amount determined by the Board of Directors. Adoption of the Purchase Plan requires approval of the Company's Stockholders who are expected to vote on adoption during June 1998. The Purchase Plan permits eligible F-19 POINTCAST INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED) employees to acquire shares of the Company's Common Stock through periodic payroll deductions of up to 15% of their annual compensation, with annual contributions not to exceed $25,000. Each offering period will have a maximum duration of 24 months. Each offering period includes four six-month purchase periods. Eligible employees may purchase up to 5,000 shares in any purchase period. The price at which the Common Stock is purchased under the Purchase Plan is 85% of the lesser of the fair market value of the Company's Common Stock on the first day of the applicable offering period or on the last day of the respective purchase period. The initial offering period will commence on the effectiveness of the Offering and will end on the last trading day before August 1, 2000. The Purchase Plan will terminate after a period of 10 years unless terminated earlier as permitted by the plan. Directors stock option plan In May 1998, the Company's Board of Directors adopted the 1998 Directors Stock Option Plan (the "Directors Plan") and reserved 200,000 shares of Common Stock for issuance thereunder with annual increases to be added on the first day of the Company's fiscal year, beginning in 1999, equal to the lesser of (i) the number of shares needed to restore the maximum aggregate number of shares available for sale under the Directors Plan to 200,000, or (ii) a lesser amount determined by the Board of Directors. Adoption of the Directors Plan requires approval of the Company's Stockholders who are expected to vote on adoption during June 1998. Only non-employee directors may be granted options under the Directors Plan. The Directors Plan provides for an initial grant to outside directors of 20,000 shares. In addition, the Directors Plan provides for automatic annual grants on the date of the Company's annual meeting of stockholders of 5,000 shares thereafter to all directors who have served on the Board for at least six months. The exercise price must be 100% of the fair market value of the Company's Common Stock on the date of the grant. F-20 Back Inside Cover of Prospectus PointCast Helps Companies Build More Informed Organizations Content Feeds The PointCast Network receives continuously updated news feeds from approximately 700 sources via satellite, the Internet and leased lines. (Pictorial flow chart depicting the flow of content into the Company's Central Broadcast Facility and out to the Company's PointCast network Client both directly and through Corporate Intranets) (Picture of the Company's Central Broadcast Facility) PointCast Central Broadcast Facility PointCast's Central Broadcast Facility organizes incoming news streams into an efficient and consistent broadcast. (Picture of people viewing the Company's Pointcast Network Client) Individual viewers receive PointCast Network broadcasts over the Internet to their small business or home office. (Picture displaying the Company's Intranet Broadcast Solution tools and the flow of information through the corporate intranet tools to the viewer) Firewall PointCast Administrator PointCast Intranet Broadcast Manager PointCast Studio Web Server PointCast Caching Manager Corporate Intranet PointCast Intranet Broadcast Solution With PointCast's Intranet Broadcast Solution, companies can equip employees with internal company, industry and world news, delivered right to their computer screens. The PointCast Network's robust, end-to-end broadcast infrastructure transforms news fees into personalized news broadcasts, delivering approximately 450 million news and information items each day. (Picture of the Company's ticker) - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. --------------- TABLE OF CONTENTS
PAGE ---- Prospectus Summary........................................................ 3 Risk Factors.............................................................. 6 Use of Proceeds........................................................... 19 Dividend Policy........................................................... 19 Capitalization............................................................ 20 Dilution.................................................................. 21 Selected Consolidated Financial Data...................................... 22 Management's Discussion and Analysis of Financial Condition and Results of Operations............................................................... 23 Business.................................................................. 32 Management................................................................ 53 Certain Transactions...................................................... 63 Principal Stockholders.................................................... 64 Description of Capital Stock.............................................. 66 Shares Eligible for Future Sale........................................... 69 Underwriting.............................................................. 71 Legal Matters............................................................. 73 Experts................................................................... 73 Change in Accountants..................................................... 73 Additional Information.................................................... 73 Index to Consolidated Financial Statements................................ F-1
THROUGH AND INCLUDING , 1998 (THE 25TH DAY AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 3,750,000 SHARES POINTCAST INCORPORATED COMMON STOCK ----------------- PROSPECTUS JULY 1998 ----------------- LEHMAN BROTHERS BT ALEX. BROWN BANCAMERICA ROBERTSON STEPHENS - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable by the Registrant in connection with the sale of Common Stock being registered. All amounts are estimates except the SEC registration fee, the NASD filing fee and the Nasdaq National Market listing fee.
AMOUNT TO BE PAID ---------- SEC registration fee........................................... $15,267 NASD filing fee................................................ 5,675 Nasdaq National Market listing fee............................. * Printing and shipping fees..................................... * Legal fees and expenses........................................ * Accounting fees and expenses................................... * Directors and officers liability insurance..................... * Blue Sky qualification fees and expenses....................... * Transfer agent and registrar fees.............................. * Miscellaneous fees............................................. * ------- Total........................................................ $ * =======
- -------- * To be filed by amendment. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS Reference is made to the following documents filed as exhibits to this Registration Statement regarding relevant indemnification provisions described above and elsewhere herein:
EXHIBIT DOCUMENT NUMBER -------- ------- Form of Underwriting Agreement................................... 1.1 Restated Certificate of Incorporation............................ 3.2 Bylaws........................................................... 3.2 Amended and Restated Investors Rights Agreement.................. 4.2 Form of Indemnification Agreement entered into by the Registrant with each of its directors and executive officers............... 10.1
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES Since March 31, 1995, the Registrant has issued and sold the following securities: 1. Since March 31, 1995, the Registrant issued and sold 1,386,155 shares of Common Stock to directors, employees and consultants at prices ranging from $0.06 to $7.50 per share, upon exercise of stock options pursuant to the Registrant's 1994 Stock Plan and pursuant to Common Stock Purchase Agreements. 2. On December 7, 1995, the Registrant issued and sold an aggregate of 2,449,634 shares of Series B Preferred Stock to a total of seven investors at $2.11 per share, for an aggregate purchase price of $5,169,578.08. 3. On February 9, 1996, the Registrant issued and sold an aggregate of 971,038 shares of Series C Preferred Stock to a total of five investors at $3.00 per share, for an aggregate purchase price of $2,913,108.00. 4. From July 19, 1996 to July 31, 1996, the Registrant issued and sold an aggregate of 2,540,356 shares of Series D Preferred Stock to a total of 14 investors at $14.25 per share, for an aggregate purchase price of $36,200,006.50. II-1 5. From September 12, 1997 to January 13, 1998, the Registrant issued and sold an aggregate of 1,533,607 shares of Series E Preferred Stock to a total of nine investors at $14.25 per share, for an aggregate purchase price of $21,853,838.00. 6. On July 31, 1995, the Registrant granted warrants to purchase an aggregate of 26,280 shares of Series B Preferred Stock to one investor at $2.1104 per share. 7. On December 10, 1996, the Registrant granted a warrant to purchase an aggregate of 701,756 shares of Series D Preferred Stock to two investors at $14.25 per share. 8. On December 11, 1997, the Registrant granted warrants to purchase an aggregate of 208,334 shares of Common Stock to two investors at $7.50 per share. The sale of the above securities was deemed to be exempt from registration under the Securities Act in reliance upon Section 4(2) of the Securities Act or Regulation D promulgated thereunder, or Rule 701 promulgated under Section 3(b) of the Securities Act as transactions by an issuer not involving any public offering or transactions pursuant to compensation benefit plans and contracts relating to compensation as provided under such Rule 701. The recipients of securities in each such transaction represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were affixed to the share certificates issued in such transactions. All recipients had adequate access, through their relationships with the Registrant, to information about the Registrant. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits
EXHIBIT NO. DESCRIPTION ----------- ----------- 1.1* Form of Underwriting Agreement. 3.1* Certificate of Incorporation of Registrant. 3.2* Amended and Restated Certificate of Incorporation. 3.3* Bylaws of Registrant. 4.1* Form of Registrant's Common Stock Certificate. 4.2* Amended and Restated Investors' Rights Agreement dated September 12, 1997. 5.1* Opinion of Wilson Sonsini Goodrich & Rosati regarding legality of the securities being issued. 10.1 Form of Indemnification Agreement entered into by Registrant with each of its directors and executive officers. 10.2* Option Agreement with Philip J. Koen dated May 1997. 10.3 1994 Stock Plan and related agreements, as amended. 10.4 1998 Employee Stock Purchase Plan and related agreements. 10.5 1998 Director Option Plan and related agreements. 10.6+* PointCast Japan, L.L.C. Limited Liability Company Agreement by and between the Registrant and TransCosmos, Incorporated dated as of May 30, 1997. 10.7+* Assignment of Commercial Exploitation Rights Agreement by and among the Registrant, TransCosmos, Incorporated and PointCast Japan, L.L.C. effective as of May 30, 1997. 10.8+* Assignment of Commercial Exploitation Rights by and between PointCast Japan, L.L.C. and PointCast K.K. effective as of July 25, 1997. 10.9+* Commercial Exploitation Rights Agreement by and between TransCosmos, Incorporated and the Registrant dated as of July 25, 1997. 10.10+* Administrative Services and Management Agreement by and between PointCast K.K. and TransCosmos, Incorporated dated as of July 25, 1997.
II-2
EXHIBIT NO. DESCRIPTION ----------- ----------- 10.11+* Sub-License of Technology and Trademark Rights by and between PointCast Japan, L.L.C. and PointCast K.K. effective as of July 25, 1997. 10.12+* Maintenance and Support Agreement by and between the Registrant and PointCast K.K. dated as of July 25, 1997. 10.13+* Technology and Trademark License Agreement by and between the Registrant and PointCast Japan, L.L.C. dated as of May 30, 1997. 10.14 Employment Agreement by and between the Registrant and David Dorman dated as of November 1, 1997 and related agreements. 10.15 Lease Agreement by and between John Arrillaga, Trustee, UTA dated 7/20/77 as amended, and Richard T. Peery, Trustee, UTA dated 7/20/77 as amended, and the Registrant dated as of January 22, 1997. 10.16 Sublease by and between the Registrant and Internet Shopping Network, Inc. dated as of August 29, 1997. 10.17 Lease Agreement by and between John Arrillaga, Trustee, UTA dated 7/20/77 as amended, and Richard T. Peery, Trustee, UTA dated 7/30/77 as amended, and the Registrant dated as of May 21, 1996, and the amendment thereto. 10.18+* Services Agreement by and between Electronic Data Systems Corporation and the Registrant dated as of December 19, 1996. 10.19 Part-Time Employment and Non-Competition Agreement by and between the Registrant and Christopher R. Hassett. 10.20 Part-Time Employment and Non-Competition Agreement by and between the Registrant and Gregory P. Hassett. 10.21* Preferred Stock Purchase Warrant granted to Lighthouse Capital Partners, L.P. dated as of August 10, 1995. 10.22* Common Stock Purchase Warrant granted to Benchmark Capital Partners, L.P. 10.23* Common Stock Purchase Warrant granted to Benchmark Founders' Fund, L.P. 16.1 Letter of Arthur Andersen LLP, Independent Auditors. 21.1 Subsidiaries. 23.1* Consent of Wilson Sonsini Goodrich & Rosati (included in Exhibit 5.1). 23.2 Consent of Price Waterhouse LLP, Independent Accountants (see page II-7). 24.1 Power of Attorney (see page II-5 of the Registration Statement). 27.1 Financial Data Schedule.
- -------- * To be filed by amendment. + Confidential treatment will be requested for certain portions which have been blacked out in the copy of the exhibit to be filed with the Securities and Exchange Commission. The omitted information will be filed separately with the Securities and Exchange Commission pursuant to the application for confidential treatment. (b) Financial Statement Schedule Schedule II--Valuation and Qualifying Accounts........................ S-1
Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the consolidated 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. II-3 Insofar as indemnification for liabilities arising under the Securities Act, may be permitted to directors, officers and controlling persons of the Registrant pursuant to the Delaware General Corporation Law, the Registrant's Restated Certificate of Incorporation, the Registrant's Bylaws, the Registrant's indemnification agreements 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 hereunder, 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, 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, each post-effective amendment that contains a form of Prospectus shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Sunnyvale, State of California, on this 14th day of May 1998. PointCast Incorporated /s/ David W. Dorman By: _________________________________ DAVID W. DORMAN, President and Chief Executive Officer POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature appears below constitutes and appoints, jointly and severally, David W. Dorman and Philip J. Koen, and each one of them, his true and lawful attorney-in-fact and agents, each with full power of substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and to sign any registration statement for the same offering covered by this Registration Statement that is to be effective upon filing pursuant to Rule 462(b) promulgated under the Securities Act of 1933, and all post-effective amendments thereto, and to file the same, with all exhibits thereto and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that each of said attorneys-in-fact and agents or any of them, or his or their substitute or substitutes, may lawfully do or cause to be done or by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. SIGNATURE TITLE DATE /s/ David W. Dorman Chairman of the May 14, 1998 - ------------------------------------- Board, President (DAVID W. DORMAN) and Chief Executive Officer (Principal Executive Officer) /s/ Philip J. Koen Senior Vice May 14, 1998 - ------------------------------------- President, Finance (PHILIP J. KOEN) and Chief Financial Officer (Principal Financial and Accounting Officer) II-5 SIGNATURE TITLE DATE /s/ Sanford R. Climan Director May 14, 1998 - ------------------------------------ (SANFORD R. CLIMAN) /s/ Jonathan Feiber Director May 14, 1998 - ------------------------------------ (JONATHAN FEIBER) /s/ Charles Geschke Director May 14, 1998 - ------------------------------------ (CHARLES GESCHKE) /s/ Kevin R. Harvey Director May 14, 1998 - ------------------------------------ (KEVIN R. HARVEY) /s/ Gregory P. Hassett Director May 14, 1998 - ------------------------------------ (GREGORY P. HASSETT) /s/ Steven Heyer Director May 14, 1998 - ------------------------------------ (STEVEN HEYER) /s/ Andrew S. Rachleff Director May 14, 1998 - ------------------------------------ (ANDREW S. RACHLEFF) II-6 EXHIBIT 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in the Prospectus constituting part of this Registration Statement on Form S-1 of our report dated February 18, 1998, except Note 11, which is as of May 13, 1998, relating to the consolidated financial statements of PointCast Incorporated, which appears in such Prospectus. We also consent to the application of such report to the Financial Statement Schedule for the three years ended December 31, 1997 listed under Item 16(b) of this Registration Statement when such schedule is read in conjunction with the consolidated financial statements referred to in our report. The audits referred to in such report also included this schedule. We also consent to the references to us under the headings "Experts" and "Selected Financial Data" in such Prospectus. However, it should be noted that Price Waterhouse LLP has not prepared or certified such "Selected Financial Data." Price Waterhouse LLP San Jose, California May 13, 1998 II-7 SCHEDULE II POINTCAST INCORPORATED VALUATION AND QUALIFYING ACCOUNTS FOR THE THREE YEARS ENDED DECEMBER 31, 1997 (IN THOUSANDS)
BALANCE AT CHARGED TO DEDUCTIONS BALANCE AT BEGINNING STATEMENTS FROM END OF OF PERIOD OF OPERATIONS RESERVES PERIOD ---------- ------------- ---------- ---------- December 31, 1997: Allowance for doubtful accounts...................... $721 $ 27 $(144) $604 December 31, 1996: Allowance for doubtful accounts...................... 30 722 (32) 721 December 31, 1995: Allowance for doubtful accounts...................... 30 -- -- 30
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION ----------- ----------- 1.1* Form of Underwriting Agreement. 3.1* Certificate of Incorporation of Registrant. 3.2* Amended and Restated Certificate of Incorporation. 3.3* Bylaws of Registrant. 4.1* Form of Registrant's Common Stock Certificate. 4.2* Amended and Restated Investors' Rights Agreement dated September 12, 1997. 5.1* Opinion of Wilson Sonsini Goodrich & Rosati regarding legality of the securities being issued. 10.1 Form of Indemnification Agreement entered into by Registrant with each of its directors and executive officers. 10.2* Option Agreement with Philip J. Koen dated May 1997. 10.3 1994 Stock Plan and related agreements, as amended. 10.4 1998 Employee Stock Purchase Plan and related agreements. 10.5 1998 Director Option Plan and related agreements. 10.6+* PointCast Japan, L.L.C. Limited Liability Company Agreement by and between the Registrant and TransCosmos, Incorporated dated as of May 30, 1997. 10.7+* Assignment of Commercial Exploitation Rights Agreement by and among the Registrant, TransCosmos, Incorporated and PointCast Japan, L.L.C. effective as of May 30, 1997. 10.8+* Assignment of Commercial Exploitation Rights by and between PointCast Japan, L.L.C. and PointCast K.K. effective as of July 25, 1997. 10.9+* Commercial Exploitation Rights Agreement by and between TransCosmos, Incorporated and the Registrant dated as of July 25, 1997. 10.10+* Administrative Services and Management Agreement by and between PointCast K.K. and TransCosmos, Incorporated dated as of July 25, 1997. 10.11+* Sub-License of Technology and Trademark Rights by and between PointCast Japan, L.L.C. and PointCast K.K. effective as of July 25, 1997. 10.12+* Maintenance and Support Agreement by and between the Registrant and PointCast K.K. dated as of July 25, 1997. 10.13+* Technology and Trademark License Agreement by and between the Registrant and PointCast Japan, L.L.C. dated as of May 30, 1997. 10.14 Employment Agreement by and between the Registrant and David Dorman dated as of November 1, 1997 and related agreements. 10.15 Lease Agreement by and between John Arrillaga, Trustee, UTA dated 7/20/77 as amended, and Richard T. Peery, Trustee, UTA dated 7/20/77 as amended, and the Registrant dated as of January 22, 1997. 10.16 Sublease by and between the Registrant and Internet Shopping Network, Inc. dated as of August 29, 1997. 10.17 Lease Agreement by and between John Arrillaga, Trustee, UTA dated 7/20/77 as amended, and Richard T. Peery, Trustee, UTA dated 7/30/77 as amended, and the Registrant dated as of May 21, 1996, and the amendment thereto. 10.18+* Services Agreement by and between Electronic Data Systems Corporation and the Registrant dated as of December 19, 1996.
EXHIBIT NO. DESCRIPTION ----------- ----------- 10.19 Part-Time Employment and Non-Competition Agreement by and between the Registrant and Christopher R. Hassett. 10.20 Part-Time Employment and Non-Competition Agreement by and between the Registrant and Gregory P. Hassett. 10.21* Preferred Stock Purchase Warrant granted to Lighthouse Capital Partners, L.P. dated as of August 10, 1995. 10.22* Common Stock Purchase Warrant granted to Benchmark Capital Partners, L.P. 10.23* Common Stock Purchase Warrant granted to Benchmark Founders' Fund, L.P. 16.1 Letter of Arthur Andersen LLP, Independent Auditors. 21.1 Subsidiaries. 23.1* Consent of Wilson Sonsini Goodrich & Rosati (included in Exhibit 5.1). 23.2 Consent of Price Waterhouse LLP, Independent Accountants (see page II-7). 24.1 Power of Attorney (see page II-5 of the Registration Statement). 27.1 Financial Data Schedule.
- -------- * To be filed by amendment. + Confidential treatment will be requested for certain portions which have been blacked out in the copy of the exhibit to be filed with the Securities and Exchange Commission. The omitted information will be filed separately with the Securities and Exchange Commission pursuant to the application for confidential treatment. EX-10.1 2 FORM OF INDEMNIFICATION AGREEMENT EXHIBIT 10.1 POINTCAST INCORPORATED INDEMNIFICATION AGREEMENT This Indemnification Agreement (the "Agreement") is effective as of 1, by and between PointCast Incorporated, a Delaware corporation (the "Company"), and 2 (the "Indemnitee"). WHEREAS, the Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, to serve the Company and its related entities; WHEREAS, in order to induce Indemnitee to continue to provide services to the Company, the Company wishes to provide for the indemnification of, and advancement of expenses to, Indemnitee to the maximum extent permitted by law; WHEREAS, Indemnitee does not regard the current protection available as adequate under the present circumstances, and the Indemnitee and other directors, officers, employees, agents and fiduciaries of the Company may not be willing to continue to serve in such capacities without additional protection; WHEREAS, the Company and Indemnitee recognize the continued difficulty in obtaining liability insurance for the Company's directors, officers, employees, agents and fiduciaries, the significant increases in the cost of such insurance and the general reductions in the coverage of such insurance; WHEREAS, the Company and Indemnitee further recognize the substantial increase in corporate litigation in general, subjecting directors, officers, employees, agents and fiduciaries to expensive litigation risks at the same time as the availability and coverage of liability insurance has been severely limited; and WHEREAS, in view of the considerations set forth above, the Company desires that Indemnitee shall be indemnified by the Company as set forth herein; NOW, THEREFORE, the Company and Indemnitee hereby agree as set forth below. 1. Certain Definitions. ------------------- (a) "Change in Control" shall mean, and shall be deemed to have occurred if, on or after the date of this Agreement, (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company acting in such capacity or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing more than 50% of the total voting power represented by the Company's then outstanding Voting Securities, (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company and any new director whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least two thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation other than a merger or consolidation which would result in the Voting Securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least 80% of the total voting power represented by the Voting Securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of (in one transaction or a series of related transactions) all or substantially all of the Company's assets. (b) "Claim" shall mean any threatened, pending or completed action, suit, proceeding or alternative dispute resolution mechanism, or any hearing, inquiry or investigation that Indemnitee in good faith believes might lead to the institution of any such action, suit, proceeding or alternative dispute resolution mechanism, whether civil, criminal, administrative, investigative or other. (c) References to the "Company" shall include, in addition to PointCast Incorporated, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger to which PointCast Incorporated (or any of its wholly owned subsidiaries) is a party which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees, agents or fiduciaries, so that if Indemnitee is or was a director, officer, employee, agent or fiduciary of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, employee benefit plan, trust or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued. (d) "Expenses" shall mean any and all expenses (including attorneys' fees and all other costs, expenses and obligations incurred in connection with investigating, defending, being a witness in or participating in (including on appeal), or preparing to defend, to be a witness in or to participate in, any action, suit, proceeding, alternative dispute resolution mechanism, hearing, inquiry or investigation), judgments, fines, penalties and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld) of any Claim regarding any Indemnifiable Event and any federal, state, local or foreign taxes imposed on the Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement. (e) "Expense Advance" shall mean an advance payment of Expenses to Indemnitee pursuant to Section 3(a). (f) "Indemnifiable Event" shall mean any event or occurrence related to the fact that Indemnitee is or was a director, officer, employee, agent or fiduciary of the Company, or any subsidiary of the Company, or is or was serving at the request of the Company as a director, officer, employee, -2- agent or fiduciary of another corporation, partnership, joint venture, trust or other enterprise, or by reason of any action or inaction on the part of Indemnitee while serving in such capacity. (g) "Independent Legal Counsel" shall mean an attorney or firm of attorneys, selected in accordance with the provisions of Section 2(c) hereof, who shall not have otherwise performed services for the Company or Indemnitee within the last three years (other than with respect to matters concerning the rights of Indemnitee under this Agreement, or of other indemnitees under similar indemnity agreements). (h) References to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on Indemnitee with respect to an employee benefit plan; and references to "serving at the request of the Company" shall include any service as a director, officer, employee, agent or fiduciary of the Company which imposes duties on, or involves services by, such director, officer, employee, agent or fiduciary with respect to an employee benefit plan, its participants or its beneficiaries; and if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have acted in a manner "not opposed to the best interests of the Company" as referred to in this Agreement. (i) "Reviewing Party" shall mean any appropriate person or body consisting of a member or members of the Company's Board of Directors or any other person or body appointed by the Board of Directors who is not a party to the particular Claim for which Indemnitee is seeking indemnification, or Independent Legal Counsel. (j) "Voting Securities" shall mean any securities of the Company that vote generally in the election of directors. 2. Indemnification. --------------- (a) Indemnification of Expenses. The Company shall indemnify --------------------------- Indemnitee to the fullest extent permitted by law if Indemnitee was or is or becomes a party to or witness or other participant in, or is threatened to be made a party to or witness or other participant in, any Claim by reason of (or arising in part out of) any Indemnifiable Event against Expenses, including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses. Such payment of Expenses shall be made by the Company as soon as practicable but in any event no later than five (5) business days after written demand by Indemnitee therefor is presented to the Company. (b) Reviewing Party. Notwithstanding the foregoing, (i) the --------------- obligations of the Company under Section 2(a) shall be subject to the condition that the Reviewing Party shall not have determined (in a written opinion, in any case in which the Independent Legal Counsel referred to in Section 2(c) hereof is involved) that Indemnitee would not be permitted to be indemnified under applicable law, and (ii) the obligation of the Company to make an Expense Advance shall be subject to the condition that, if, when and to the extent that the Reviewing Party determines that Indemnitee would not be permitted to be so indemnified under applicable law, the Company shall be entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the Company) for all such amounts theretofore paid; provided, however, that if Indemnitee has commenced or -------- ------- thereafter commences legal -3- proceedings in a court of competent jurisdiction to secure a determination that Indemnitee should be indemnified under applicable law, any determination made by the Reviewing Party that Indemnitee would not be permitted to be indemnified under applicable law shall not be binding and Indemnitee shall not be required to reimburse the Company for any Expense Advance until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or lapsed). Indemnitee's obligation to reimburse the Company for any Expense Advance shall be unsecured and no interest shall be charged thereon. If there has not been a Change in Control, the Reviewing Party shall be selected by the Board of Directors, and if there has been such a Change in Control (other than a Change in Control which has been approved by a majority of the Company's Board of Directors who were directors immediately prior to such Change in Control), the Reviewing Party shall be the Independent Legal Counsel. If there has been no determination by the Reviewing Party or if the Reviewing Party determines that Indemnitee substantively would not be permitted to be indemnified in whole or in part under applicable law, Indemnitee shall have the right to commence litigation seeking an initial determination by the court or challenging any such determination by the Reviewing Party or any aspect thereof, including the legal or factual bases therefor, and the Company hereby consents to service of process and to appear in any such proceeding. Absent such litigation, any determination by the Reviewing Party shall be conclusive and binding on the Company and Indemnitee. (c) Change in Control. The Company agrees that if there is a Change ----------------- in Control of the Company (other than a Change in Control which has been approved by a majority of the Company's Board of Directors who were directors immediately prior to such Change in Control), then with respect to all matters thereafter arising concerning the rights of Indemnitee to payments of Expenses and Expense Advances under this Agreement or any other agreement or under the Company's Certificate of Incorporation or Bylaws as now or hereafter in effect, Independent Legal Counsel, if desired by Indemnitee, shall be selected by Indemnitee and approved by the Company (which approval shall not be unreasonably withheld). Such counsel, among other things, shall render its written opinion to the Company and Indemnitee as to whether and to what extent Indemnitee would be permitted to be indemnified under applicable law and the Company agrees to abide by such opinion. The Company agrees to pay the reasonable fees of the Independent Legal Counsel referred to above and to indemnify fully such counsel against any and all expenses (including attorneys' fees), claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto. Notwithstanding any other provision of this Agreement, the Company shall not be required to pay Expenses of more than one Independent Legal Counsel in connection with all matters concerning a single Indemnitee, and such Independent Legal Counsel shall be the Independent Legal Counsel for any or all other Indemnitees unless (i) the Company otherwise determines or (ii) any Indemnitee shall provide a written statement setting forth in detail a reasonable objection to such Independent Legal Counsel representing other Indemnitees. (d) Mandatory Payment of Expenses. Notwithstanding any other ----------------------------- provision of this Agreement other than Section 10 hereof, to the extent that Indemnitee has been successful on the merits or otherwise, including, without limitation, the dismissal of an action without prejudice, in defense of any Claim regarding any Indemnifiable Event, Indemnitee shall be indemnified against all Expenses incurred by Indemnitee in connection therewith. 3. Expenses; Indemnification Procedure. ----------------------------------- -4- (a) Advancement of Expenses. The Company shall advance all Expenses ----------------------- incurred by Indemnitee. The advances to be made hereunder shall be paid by the Company to Indemnitee as soon as practicable but in any event no later than seven (7) business days after written demand by Indemnitee therefor to the Company. Expenses incurred in defending any proceeding may be advanced by the Company prior to the final disposition of the proceeding upon receipt of an undertaking by or on behalf of Indemnitee to repay the Expenses incurred, if it shall be determined ultimately that Indemnitee is not entitled to be indemnified. (b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a -------------------------------- condition precedent to Indemnitee's right to be indemnified under this Agreement, give the Company notice in writing as soon as practicable of any Claim made against Indemnitee for which indemnification will or could be sought under this Agreement. Notice to the Company shall be directed to the Chief Executive Officer of the Company at the address shown on the signature page of this Agreement (or such other address as the Company shall designate in writing to Indemnitee). In addition, Indemnitee shall give the Company such information and cooperation as it may reasonably require and as shall be within Indemnitee's power. (c) No Presumptions; Burden of Proof. For purposes of this Agreement, -------------------------------- the termination of any Claim by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of nolo contendere, or its --------------- equivalent, shall not create a presumption that Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by applicable law. In addition, neither the failure of the Reviewing Party to have made a determination as to whether Indemnitee has met any particular standard of conduct or had any particular belief, nor an actual determination by the Reviewing Party that Indemnitee has not met such standard of conduct or did not have such belief, prior to the commencement of legal proceedings by Indemnitee to secure a judicial determination that Indemnitee should be indemnified under applicable law, shall be a defense to Indemnitee's claim or create a presumption that Indemnitee has not met any particular standard of conduct or did not have any particular belief. (d) Notice to Insurers. If, at the time of the receipt by the Company ------------------ of a notice of a Claim pursuant to Section 3(b) hereof, the Company has liability insurance in effect which may cover such Claim, the Company shall give prompt notice of the commencement of such Claim to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such Claim in accordance with the terms of such policies. (e) Selection of Counsel. In the event the Company shall be obligated -------------------- hereunder to pay the Expenses of any Claim the Company, if appropriate, shall be entitled to assume the defense of such Claim with counsel approved by Indemnitee (not to be unreasonably withheld) upon the delivery to Indemnitee of written notice of the Company's election so to do. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same Claim; provided that, (i) Indemnitee shall have the right to employ Indemnitee's separate counsel in any such Claim at Indemnitee's expense and (ii) if (A) the employment of separate counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee -5- in the conduct of any such defense, or (C) the Company shall not continue to retain such counsel to defend such Claim, then the fees and expenses of Indemnitee's separate counsel shall be at the expense of the Company. 4. Additional Indemnification Rights; Nonexclusivity. ------------------------------------------------- (a) Scope. The Company hereby agrees to indemnify the Indemnitee to ----- the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Company's Certificate of Incorporation, the Company's Bylaws or by statute. In the event of any change after the date of this Agreement in any applicable law, statute or rule which expands the right of a Delaware corporation to indemnify a member of its board of directors or an officer, employee, agent or fiduciary, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits afforded by such change. In the event of any change in any applicable law, statute or rule which narrows the right of a Delaware corporation to indemnify a member of its board of directors or an officer, employee, agent or fiduciary, such change, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement, shall have no effect on this Agreement or the parties' rights and obligations hereunder except as set forth in Section 9(a) hereof. (b) Nonexclusivity. The indemnification provided by this Agreement -------------- shall be in addition to any rights to which Indemnitee may be entitled under the Company's Certificate of Incorporation, its Bylaws, any other agreement, any vote of stockholders or disinterested directors, the General Corporation Law of the State of Delaware, or otherwise. The indemnification provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an indemnified capacity even though Indemnitee may have ceased to serve in such capacity. 5. No Duplication of Payments. The Company shall not be liable under -------------------------- this Agreement to make any payment in connection with any Claim made against Indemnitee to the extent Indemnitee has otherwise actually received payment (under any insurance policy, provision of the Company's Certificate of Incorporation, bylaw or otherwise) of the amounts otherwise indemnifiable hereunder. 6. Partial Indemnification. If Indemnitee is entitled under any ----------------------- provision of this Agreement to indemnification by the Company for some or a portion of Expenses incurred in connection with any Claim, but not, however, for all of the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such Expenses to which Indemnitee is entitled. 7. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge --------------------- that in certain instances, federal law or applicable public policy may prohibit the Company from indemnifying its directors, officers, employees, agents or fiduciaries under this Agreement or otherwise. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the Securities and Exchange Commission to submit the question of indemnification to a court in certain circumstances for a determination of the Company's right under public policy to indemnify Indemnitee. 8. Liability Insurance. To the extent the Company maintains liability ------------------- insurance applicable to directors, officers, employees, agents or fiduciaries, Indemnitee shall be covered by such policies in such a manner as to provide Indemnitee the same rights and benefits as are provided to the most -6- favorably insured of the Company's directors, if Indemnitee is a director; or of the Company's officers, if Indemnitee is not a director of the Company but is an officer; or of the Company's key employees, agents or fiduciaries, if Indemnitee is not an officer or director but is a key employee, agent or fiduciary. 9. Exceptions. Notwithstanding any other provision of this Agreement, ---------- the Company shall not be obligated pursuant to the terms of this Agreement: (a) Excluded Action or Omissions. To indemnify Indemnitee for acts, ---------------------------- omissions or transactions from which Indemnitee may not be indemnified under applicable law. (b) Claims Initiated by Indemnitee. To indemnify or advance expenses ------------------------------ to Indemnitee with respect to Claims initiated or brought voluntarily by Indemnitee and not by way of defense, except (i) with respect to actions or proceedings brought to establish or enforce a right to indemnification under this Agreement or any other agreement or insurance policy or under the Company's Certificate of Incorporation or Bylaws now or hereafter in effect relating to Claims for Indemnifiable Events, (ii) in specific cases if the Board of Directors has approved the initiation or bringing of such Claim, or (iii) as otherwise required under Section 145 of the Delaware General Corporation Law, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advance expense payment or insurance recovery, as the case may be. (c) Lack of Good Faith. To indemnify Indemnitee for any expenses ------------------ incurred by the Indemnitee with respect to any proceeding instituted by Indemnitee to enforce or interpret this Agreement, if a court of competent jurisdiction determines that each of the material assertions made by the Indemnitee in such proceeding was not made in good faith or was frivolous. (d) Claims Under Section 16(b). To indemnify Indemnitee for expenses -------------------------- and the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor statute. 10. Period of Limitations. No legal action shall be brought and no cause --------------------- of action shall be asserted by or in the right of the Company against Indemnitee, Indemnitee's estate, spouse, heirs, executors or personal or legal representatives after the expiration of two years from the date of accrual of such cause of action, and any claim or cause of action of the Company shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such two-year period; provided, however, that if any shorter -------- ------- period of limitations is otherwise applicable to any such cause of action, such shorter period shall govern. 11. Counterparts. This Agreement may be executed in one or more ------------ counterparts, each of which shall constitute an original. 12. Binding Effect; Successors and Assigns. This Agreement shall be -------------------------------------- binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors, assigns (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), spouses, heirs and personal and legal representatives. The Company shall require and cause any successor (whether direct or indirect, and whether by purchase, merger, consolidation or otherwise) to all, substantially all, or a substantial part, -7- of the business or assets of the Company, by written agreement in form and substance satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. This Agreement shall continue in effect regardless of whether Indemnitee continues to serve as a director, officer, employee, agent or fiduciary (as applicable) of the Company or of any other enterprise at the Company's request. 13. Attorneys' Fees. In the event that any action is instituted by --------------- Indemnitee under this Agreement or under any liability insurance policies maintained by the Company to enforce or interpret any of the terms hereof or thereof, Indemnitee shall be entitled to be paid all Expenses incurred by Indemnitee with respect to such action, regardless of whether Indemnitee is ultimately successful in such action, and shall be entitled to the advancement of Expenses with respect to such action, unless as a part of such action a court of competent jurisdiction over such action determines that each of the material assertions made by Indemnitee as a basis for such action were not made in good faith or were frivolous. In the event of an action instituted by or in the name of the Company under this Agreement to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be paid all Expenses incurred by Indemnitee in defense of such action (including costs and expenses incurred with respect to Indemnitee's counterclaims and cross-claims made in such action), and shall be entitled to the advancement of Expenses with respect to such action, unless as a part of such action a court having jurisdiction over such action determines that each of Indemnitee's material defenses to such action were made in bad faith or were frivolous. 14. Notice. All notices, requests, demands and other communications under ------ this Agreement shall be in writing and shall be deemed duly given (i) if delivered by hand and signed for by the party addressed, on the date of such delivery, or (ii) if mailed by domestic certified or registered mail with postage prepaid, on the third business day after the date postmarked. Addresses for notice to either party are as shown on the signature page of this Agreement, or as subsequently modified by written notice. 15. Consent to Jurisdiction. The Company and Indemnitee each hereby ----------------------- irrevocably consent to the jurisdiction of the courts of the State of Delaware for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement and agree that any action instituted under this Agreement shall be commenced, prosecuted and continued only in the Court of Chancery of the State of Delaware in and for New Castle County, which shall be the exclusive and only proper forum for adjudicating such a claim. 16. Severability. The provisions of this Agreement shall be severable in ------------ the event that any of the provisions hereof (including any provision within a single section, paragraph or sentence) are held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable, and the remaining provisions shall remain enforceable to the fullest extent permitted by law. Furthermore, to the fullest extent possible, the provisions of this Agreement (including, without limitations, each portion of this Agreement containing any provision held to be invalid, void or otherwise unenforceable, that is not itself invalid, void or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. -8- 17. Choice of Law. This Agreement shall be governed by and its provisions ------------- construed and enforced in accordance with the laws of the State of Delaware as applied to contracts between Delaware residents entered into and to be performed entirely within the State of Delaware. 18. Subrogation. In the event of payment under this Agreement, the ----------- Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company effectively to bring suit to enforce such rights. 19. Amendment and Termination. No amendment, modification, termination or ------------------------- cancellation of this Agreement shall be effective unless it is in writing signed by both the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed to be or shall constitute a waiver of any other provisions hereof (whether or not similar), nor shall such waiver constitute a continuing waiver. 20. Integration and Entire Agreement. This Agreement sets forth the -------------------------------- entire understanding between the parties hereto and supersedes and merges all previous written and oral negotiations, commitments, understandings and agreements relating to the subject matter hereof between the parties hereto. 21. No Construction as Employment Agreement. Nothing contained in this --------------------------------------- Agreement shall be construed as giving Indemnitee any right to be retained in the employ of the Company or any of its subsidiaries or affiliated entities. [Remainder of page left blank intentionally] -9- IN WITNESS WHEREOF, the parties hereto have executed this Indemnification Agreement as of the date first above written. "COMPANY" POINTCAST INCORPORATED By:___________________________________ Name: David Dorman Title: President and Chief Executive Officer Address: 10101 N. DeAnza Blvd., 4th Floor Cupertino, CA 95014 "INDEMNITEE" ______________________________________ Address:______________________________ ______________________________ ______________________________ [SIGNATURE PAGE TO POINTCAST INCORPORATED INDEMNIFICATION AGREEMENT] -10- EX-10.3 3 1994 STOCK PLAN AND RELATED AGREEMENTS AS AMENDED EXHIBIT 10.3 POINTCAST INCORPORATED 1994 STOCK PLAN (AS AMENDED FEBRUARY 24, 1998) (AS AMENDED EFFECTIVE AS OF THE EFFECTIVE DATE OF THE IPO) 1. Purposes of the Plan. The purposes of this Stock Plan are to attract -------------------- and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees and Consultants of the Company and its Subsidiaries and to promote the success of the Company's business. Options granted under the Plan may be incentive stock options (as defined under Section 422 of the Code) or non-statutory stock options, as determined by the Administrator at the time of grant of an option and subject to the applicable provisions of Section 422 of the Code, as amended, and the regulations promulgated thereunder. Stock purchase rights may also be granted under the Plan. 2. Definitions. As used herein, the following definitions shall apply: ----------- (a) "Administrator" means the Board or any of its Committees appointed pursuant to Section 4 of the Plan. (b) "Applicable Laws" means the requirements relating to the --------------- administration of stock option plans under U. S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any foreign country or jurisdiction where Options or Stock Purchase Rights are, or will be, granted under the Plan. (c) "Board" means the Board of Directors of the Company. ----- (d) "Code" means the Internal Revenue Code of 1986, as amended. ---- (e) "Committee" means a Committee appointed by the Board of Directors --------- in accordance with Section 4 of the Plan. (f) "Common Stock" means the common stock of the Company. ------------ (g) "Company" means PointCast Incorporated, a Delaware corporation. ------- (h) "Consultant" means any person who is engaged by the Company or ---------- any Parent or Subsidiary to render consulting or advisory services and is compensated for such services, and any director of the Company whether compensated for such services or not. (i) "Continuous Status as an Employee or Consultant" means that the ---------------------------------------------- employment or consulting relationship with the Company or any Parent or Subsidiary is not interrupted or terminated. Continuous Status as an Employee or Consultant shall not be considered interrupted in the case of: (i) any leave of absence approved by the Company, including sick leave, military leave, or any other personal leave; provided, however, that for purposes of Incentive Stock Options, no such leave may exceed ninety (90) days, unless reemployment upon the expiration of such leave is guaranteed by contract (including certain Company policies) or statute; provided, further, that on the ninety-first (91st) day of any such leave (where reemployment is not guaranteed by contract or statute) the Optionee's Incentive Stock Option shall cease to be treated as an Incentive Stock Option and will be treated for tax purposes as a Nonstatutory Stock Option; or (ii) transfers between locations of the Company or between the Company, its Parent, its Subsidiaries or its successor. (j) "Employee" means any person, including officers and directors, -------- employed by the Company or any Parent or Subsidiary of the Company. The payment of a director's fee by the Company shall not be sufficient to constitute "employment" by the Company. (k) "Exchange Act" means the Securities Exchange Act of 1934, as ------------ amended. (l) "Fair Market Value" means, as of any date, the value of Common ----------------- Stock determined as follows: (i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day prior to the time of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; (ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a Share of Common Stock shall be the mean between the high bid and low asked prices for 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 Administrator deems reliable; or (iii) In the absence of an established market for the Common Stock, the Fair Market Value shall be determined in good faith by the Administrator. (m) "Incentive Stock Option" means an Option intended to qualify as ---------------------- an incentive stock option within the meaning of Section 422 of the Code. (n) "Nonstatutory Stock Option" means an Option not intended to ------------------------- qualify as an Incentive Stock Option. (o) "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. -2- (p) "Option" means a stock option granted pursuant to the Plan. ------ (q) "Optioned Stock" means the Common Stock subject to an Option or a -------------- Stock Purchase Right. (r) "Optionee" means an Employee or Consultant who receives an Option -------- or Stock Purchase Right. (s) "Parent" means a "parent corporation", whether now or hereafter ------ existing, as defined in Section 424(e) of the Code. (t) "Plan" means this 1994 Stock Plan. ---- (u) "Restricted Stock" means shares of Common Stock acquired pursuant ---------------- to a grant of a Stock Purchase Right under Section 11 below. (v) "Share" means a share of the Common Stock, as adjusted in ----- accordance with Section 12 below. (w) "Stock Purchase Right" means the right to purchase Common Stock -------------------- pursuant to Section 11 below. (x) "Subsidiary" means a "subsidiary corporation", whether now or ---------- hereafter existing, as defined in Section 424(f) of the Code. 3. Stock Subject to the Plan. Subject to the provisions of Section 12 of ------------------------- the Plan, the maximum aggregate number of shares which may be optioned and sold under the Plan is 8,333,334 Shares, plus an annual increase to be added on the first day of the Company's fiscal year (beginning in 1999) equal to the lesser of (i) 2,000,000 shares, (ii) five percent (5%) of the outstanding shares on such date or (iii) a lesser amount determined by the Board. The Shares may be authorized, but unissued, or reacquired Common Stock. If an Option or Stock Purchase Right should expire or become unexercisable for any reason without having been exercised in full, the unpurchased Shares which were subject thereto shall, unless the Plan shall have been terminated, become available for future grant under the Plan. 4. Administration of the Plan. -------------------------- (a) Procedure. --------- (i) Multiple Administrative Bodies. The Plan may be ------------------------------ administered by different Committees with respect to different groups of Service Providers. -3- (ii) Section 162(m). To the extent that the Administrator -------------- determines it to be desirable to qualify Options granted hereunder as "performance-based compensation" within the meaning of Section 162(m) of the Code, the Plan shall be administered by a Committee of two or more "outside directors" within the meaning of Section 162(m) of the Code. (iii) Rule 16b-3. To the extent desirable to qualify transactions ---------- hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder shall be structured to satisfy the requirements for exemption under Rule 16b-3. (iv) Other Administration. Other than as provided above, the -------------------- Plan shall be administered by (A) the Board or (B) a Committee, which committee shall be constituted to satisfy Applicable Laws. (b) Powers of the Administrator. Subject to the provisions of the --------------------------- Plan and, in the case of a Committee, the specific duties delegated by the Board to such Committee, and subject to the approval of any relevant authorities, including the approval, if required, of any stock exchange upon which the Common Stock is listed, the Administrator shall have the authority, in its discretion: (i) to determine the Fair Market Value of the Common Stock; (ii) to select the Employees and Consultants to whom Options and Stock Purchase Rights may from time to time be granted hereunder; (iii) to determine whether and to what extent Options and Stock Purchase Rights or any combination thereof are granted hereunder; (iv) to determine the number of Shares to be covered by each such award granted hereunder; (v) to approve forms of agreement for use under the Plan; (vi) to determine the terms and conditions of any award granted hereunder; (vii) to determine whether and under what circumstances an Option may be settled in cash under subsection 9(e) instead of Common Stock; (vii) to reduce the exercise price of any Option to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Option shall have declined since the date the Option was granted; -4- (ix) to determine the terms and restrictions applicable to Stock Purchase Rights and the Restricted Stock purchased by exercising such Stock Purchase Rights; and (x) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan. (c) Effect of Administrator's Decision. All decisions, determinations ---------------------------------- and interpretations of the Administrator shall be final and binding on all Optionees and any other holders of any Options or Stock Purchase Rights. 5. Eligibility. ----------- (a) Nonstatutory Stock Options and Stock Purchase Rights may be granted to Employees and Consultants. Incentive Stock Options may be granted only to Employees. An Employee or Consultant who has been granted an Option or Stock Purchase Right may, if otherwise eligible, be granted additional Options or Stock Purchase Rights. (b) Each Option shall be designated in the written option agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designations, to the extent that the aggregate Fair Market Value: (i) of Shares subject to an Optionee's Incentive Stock Options granted by the Company, any Parent or Subsidiary, which (ii) become exercisable for the first time during any calendar year (under all plans of the Company or any Parent or Subsidiary) exceeds $100,000, such excess Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 5(b), Incentive Stock Options shall be taken into account in the order in which they were granted, and the Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is granted. (c) The Plan shall not confer upon any Optionee any right with respect to continuation of employment relationship with the Company, nor shall it interfere in any way with his or her right or the Company's right to terminate his or her employment relationship at any time, with or without cause. (d) Upon the Company or a successor corporation issuing any class of common equity securities required to be registered under Section 12 of the Exchange Act or upon the Plan being assumed by a corporation having a class of common equity securities required to be registered under Section 12 of the Exchange Act, the following limitations shall apply to grants of Options and Stock Purchase Rights to Employees: -5- (i) No Employee shall be granted, in any fiscal year of the Company, Options to purchase more than 2,000,000 Shares. (ii) The foregoing limitations shall be adjusted proportionately in connection with any change in the Company's capitalization as described in Section 12 of this Plan. (iii) If an Option is canceled in the same fiscal year of the Company in which it was granted (other than in connection with a transaction described in Section 12), the canceled Option will be counted against the limit set forth in Section 5(d)(i). For this purpose, if the exercise price of an Option is reduced, the transaction will be treated as a cancellation of the Option and the grant of a new Option. 6. Term of Plan. The Plan shall become effective upon the earlier to ------------ occur of its adoption by the Board of Directors or its approval by the stockholders of the Company, as described in Section 18 of the Plan. It shall continue in effect until May 4, 2008, unless sooner terminated under Section 14 of the Plan. 7. Term of Option. The term of each Option shall be the term stated in -------------- the Option Agreement; provided, however, that the term shall be no more than ten (10) years from the date of grant thereof. However, in the case of an Incentive Stock Option granted to an Optionee who, at the time the Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Option shall be five (5) years from the date of grant thereof or such shorter term as may be provided in the Option Agreement. 8. Option Exercise Price and Consideration. --------------------------------------- (a) The per share exercise price for the Shares to be issued pursuant to exercise of an Option shall be such price as is determined by the Board, but shall be subject to the following: (i) In the case of an Incentive Stock Option (A) granted to an Employee who, at the time of the grant of such Incentive Stock Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant. (B) granted to any Employee other than an Employee described in the preceding paragraph, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant. -6- (ii) In the case of a Nonstatutory Stock Option, the per Share exercise price shall be determined by the Administrator. In the case of a Nonstatutory Stock Option intended to qualify as "performance-based compensation" within the meaning of Section 162(m) of the Code, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant. (iii) Notwithstanding the foregoing, Options may be granted with a per Share exercise price of less than 100% of the Fair Market Value per Share on the date of grant pursuant to a merger or other corporate transaction. (b) The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined at the time of grant) and may consist entirely of (1) cash, (2) check, (3) promissory note, (4) other Shares which (x) in the case of Shares acquired upon exercise of an option, have been owned by the Optionee for more than six (6) months on the date of surrender, and (y) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised, (5) delivery of a properly executed exercise notice together with such other documentation as the Administrator and the broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the exercise price, or (6) any combination of the foregoing methods of payment. In making its determination as to the type of consideration to accept, the Board shall consider if acceptance of such consideration may be reasonably expected to benefit the Company. 9. Exercise of Option. ------------------ (a) Procedure for Exercise; Rights as a Stockholder. Any Option ----------------------------------------------- granted hereunder shall be exercisable at such times and under such conditions as determined by the Board, including performance criteria with respect to the Company and/or the Optionee, and as shall be permissible under the terms of the Option Agreement. Unless the Administrator provides otherwise, vesting of Options granted hereunder shall be tolled during any unpaid leave of absence. An Option may not be exercised for a fraction of a Share. An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Full payment may, as authorized by the Board, consist of any consideration and method of payment allowable under Section 8(b) of the Plan. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or -7- cause to be issued) such stock certificate promptly upon exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 12 of the Plan. Exercise of an Option in any manner shall result in a decrease in the number of Shares which thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) Termination of Employment or Consulting Relationship. In the ---------------------------------------------------- event of termination of an Optionee's Continuous Status as an Employee or Consultant with the Company (but not in the event of an Optionee's change of status from Employee to Consultant (in which case an Employee's Incentive Stock Option shall automatically convert to a Nonstatutory Stock Option on the ninety- first (91st) day following such change of status) or from Consultant to Employee), such Optionee may, but only within such period of time as is determined by the Administrator, of at least thirty (30) days, with such determination in the case of an Incentive Stock Option not exceeding three (3) months after the date of such termination (but in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), exercise his or her Option to the extent that Optionee was entitled to exercise it at the date of such termination. To the extent that Optionee was not entitled to exercise the Option at the date of such termination, or if Optionee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate. (c) Disability of Optionee. In the event of termination of Optionee's ---------------------- Continuous Status as an Employee of Consultant as a result of his or her disability, Optionee may, but only within six (6) months from the date of such termination (and in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), exercise the Option to the extent otherwise entitled to exercise it at the date of such termination; provided, however, that if such disability is not a "disability" as such term is defined in Section 22(e)(3) of the Code, in the case of an Incentive Stock Option such Incentive Stock Option shall automatically convert to a Nonstatutory Stock Option on the day three (3) months and one (1) day following such termination. To the extent that Optionee was not entitled to exercise the Option at the date of termination, or if Optionee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (d) Death of Optionee. In the event of the death of an Optionee, the ----------------- Option may be exercised at any time within twelve (12) months following the date of death (but in no event later than the expiration of the term of such Option as set forth in the Notice of Grant), by the Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent that the Optionee was entitled to exercise the Option at the date of death. If, at the time of death, the Optionee was not entitled to exercise his or her entire Option, the Shares covered by the unexercisable portion of the Option shall immediately revert to the Plan. If, after death, the Optionee's estate or a person who acquired the right to exercise the -8- Option by bequest or inheritance does not exercise the Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (e) Buyout Provisions. The Administrator may at any time offer to buy ----------------- out for a payment in cash or Shares, an Option previously granted, based on such terms and conditions as the Administrator shall establish and communicate to the Optionee at the time that such offer is made. 10. Non-Transferability of Options and Stock Purchase Rights. Unless -------------------------------------------------------- determined otherwise by the Administrator, an Option or Stock Purchase Right may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. If the Administrator makes an Option or Stock Purchase Right transferable, such Option or Stock Purchase Right shall contain such additional terms and conditions as the Administrator deems appropriate. 11. Stock Purchase Rights. --------------------- (a) Rights to Purchase. Stock Purchase Rights may be issued either ------------------ alone, in addition to, or in tandem with other awards granted under the Plan and/or cash awards made outside of the Plan. After the Administrator determines that it will offer Stock Purchase Rights under the Plan, it shall advise the offeree in writing of the terms, conditions and restrictions related to the offer, including the number of Shares that such person shall be entitled to purchase, the price to be paid, and the time within which such person must accept such offer, which shall in no event exceed thirty (30) days from the date upon which the Administrator made the determination to grant the Stock Purchase Right. The offer shall be accepted by execution of a Restricted Stock purchase agreement in the form determined by the Administrator. Shares purchased pursuant to the grant of a Stock Purchase Right shall be referred to herein as "Restricted Stock." (b) Repurchase Option. Unless the Administrator determines otherwise, ----------------- the Restricted Stock purchase agreement shall grant the Company a repurchase option exercisable at any time within ninety (90) days after the voluntary or involuntary termination of the purchaser's employment with the Company for any reason (including death or disability). The purchase price for Shares repurchased pursuant to the Restricted Stock purchase agreement shall be the original price paid by the purchaser and must be paid by cash or cancellation of purchase money indebtedness for the shares. (c) Other Provisions. The Restricted Stock purchase agreement shall ---------------- contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Administrator in its sole discretion. In addition, the provisions of Restricted Stock purchase agreements need not be the same with respect to each purchaser. -9- (d) Rights as a Stockholder. Once the Stock Purchase Right is ----------------------- exercised, the purchaser shall have the rights equivalent to those of a stockholder, and shall be a stockholder when his or her purchase is entered upon the records of the duly authorized transfer agent of the Company. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Stock Purchase Right is exercised, except as provided in Section 12 of the Plan. 12. Adjustments Upon Changes in Capitalization, Dissolution, Merger or ------------------------------------------------------------------ Asset Sale. - ---------- (a) Changes in Capitalization. Subject to any required action by the ------------------------- stockholders of the Company, the number of shares of Common Stock covered by each outstanding Option or Stock Purchase Right, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options or Stock Purchase Rights have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option or Stock Purchase Right, as well as the price per share of Common Stock covered by each such outstanding Option or Stock Purchase Right, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option or Stock Purchase Right. (b) Dissolution or Liquidation. In the event of the proposed -------------------------- dissolution or liquidation of the Company, the Board shall notify the Optionee at least fifteen (15) days prior to such proposed action. To the extent it has not been previously exercised, the Option or Stock Purchase Right will terminate immediately prior to the consummation of such proposed action. (c) Merger or Asset Sale. In the event of a merger of the Company -------------------- with or into another corporation, or the sale of substantially all of the assets of the Company, each outstanding Option or Stock Purchase Right shall be assumed or an equivalent option or right shall be substituted by such successor corporation or a parent or subsidiary of such successor corporation. If, in such event, the Option or Stock Purchase Right is not assumed or substituted, the Option or Stock Purchase Right shall terminate as of the date of the closing of the merger. For the purposes of this paragraph, the Option or Stock Purchase Right shall be considered assumed if, following the merger, the option or right confers the right to purchase, for each Share of Optioned Stock subject to the Option or Stock Purchase Right immediately prior to the merger, the consideration (whether stock, cash, or other securities or property) received in the merger by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of -10- the outstanding Shares); provided, however, that if such consideration received in the merger was not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option or Stock Purchase Right, for each Share of Optioned Stock subject to the Option or Stock Purchase Right, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger. (d) Change of Control Vesting Acceleration. In the event of a merger -------------------------------------- of the Company with or into another corporation or the sale of substantially all of the assets of the Company, each Option and Shares that were subject to an Option that are still subject to vesting pursuant to a restricted stock purchase agreement shall have their vesting accelerated as to one years' additional vesting, effective immediately prior to the consummation of such merger or asset sale. Such accelerated vesting shall decrease the remaining time for complete vesting under any such Option or unvested Shares by one year, and such Option or unvested Shares shall continue vesting at the same rate following the merger or asset sale as prior to the merger or asset sale, subject to the Optionee remaining in Continuous Status as an Employee or Consultant. 13. Time of Granting Options and Stock Purchase Rights. The date of grant -------------------------------------------------- of an Option or Stock Purchase Right shall, for all purposes, be the date on which the Administrator makes the determination granting such Option or Stock Purchase Right, or such other date as is determined by the Board. Notice of the determination shall be given to each Employee or Consultant to whom an Option or Stock Purchase Right is so granted within a reasonable time after the date of such grant. 14. Amendment and Termination of the Plan. ------------------------------------- (a) Amendment and Termination. The Board may at any time amend, ------------------------- alter, or discontinue the Plan, but no amendment, alteration, suspension or discontinuation shall be made which would impair the rights of any Optionee under any grant theretofore made, without his or her consent. In addition, to the extent necessary and desirable to comply with Applicable Laws, the Company shall obtain stockholder approval of any Plan amendment in such a manner and to such a degree as required. (b) Effect of Amendment or Termination. Any such amendment or ---------------------------------- termination of the Plan shall not affect Options or Stock Purchase Rights already granted, and such Options and Stock Purchase Rights shall remain in full force and effect as if this Plan had not been amended or terminated, unless mutually agreed otherwise between the Optionee and the Board, which agreement must be in writing and signed by the Optionee and the Company. 15. Conditions Upon Issuance of Shares. Shares shall not be issued ---------------------------------- pursuant to the exercise of an Option or Stock Purchase Right unless the exercise of such Option or Stock Purchase Right and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, -11- the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of an Option or Stock Purchase Right, the Company may require the person exercising such Option or Stock Purchase Right to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned relevant provisions of law. 16. Reservation of Shares. The Company, during the term of this Plan, will --------------------- at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 17. Agreements. Options and Stock Purchase Rights shall be evidenced by ---------- written agreements in such form as the Board shall approve from time to time. 18. Stockholder Approval. Continuance of the Plan shall be subject to -------------------- approval by the stockholders of the Company within twelve (12) months before or after the date the Plan is adopted. Such stockholder approval shall be obtained in the degree and manner required under applicable state and federal law and the rules of any stock exchange upon which the Common Stock is listed. -12- POINTCAST INCORPORATED 1994 STOCK PLAN STOCK OPTION AGREEMENT Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Option Agreement. I. NOTICE OF STOCK OPTION GRANT ---------------------------- [Optionee's Name and Address] You have been granted an option to purchase Common Stock of the Company, subject to the terms and conditions of the Plan and this Option Agreement, as follows: Grant Number _________________________ Date of Grant _________________________ Vesting Commencement Date _________________________ Exercise Price per Share $________________________ Total Number of Shares Granted _________________________ Total Exercise Price $_________________________ Type of Option: ___ Incentive Stock Option ___ Nonstatutory Stock Option Term/Expiration Date: _________________________ Vesting Schedule: ---------------- This Option may be exercised, in whole or in part, in accordance with the following schedule: [25% of the Shares subject to the Option shall vest twelve months after the Vesting Commencement Date, and 1/48 of the Shares subject to the Option shall vest each month thereafter, subject to the Optionee's Continous Status as an Employee or Consultant. Termination Period: ------------------ This Option may be exercised for _____ [days/months] after Optionee ceases to be a Service Provider. Upon the death or disability of the Optionee, this Option may be exercised for [one year] after Optionee ceases to be a Service Provider. In no event shall this Option be exercised later than the Term/Expiration Date as provided above. II. AGREEMENT --------- 1. Grant of Option. The Plan Administrator of the Company hereby grants --------------- to the Optionee named in the Notice of Grant attached as Part I of this Agreement (the "Optionee") an option (the "Option") to purchase the number of Shares, as set forth in the Notice of Grant, at the exercise price per share set forth in the Notice of Grant (the "Exercise Price"), subject to the terms and conditions of the Plan, which is incorporated herein by reference. Subject to Section 15(c) of the Plan, in the event of a conflict between the terms and conditions of the Plan and the terms and conditions of this Option Agreement, the terms and conditions of the Plan shall prevail. If designated in the Notice of Grant as an Incentive Stock Option ("ISO"), this Option is intended to qualify as an Incentive Stock Option under Section 422 of the Code. However, if this Option is intended to be an Incentive Stock Option, to the extent that it exceeds the $100,000 rule of Code Section 422(d) it shall be treated as a Nonstatutory Stock Option ("NSO"). 2. Exercise of Option. ------------------ (a) Right to Exercise. This Option is exercisable during its term in ----------------- accordance with the Vesting Schedule set out in the Notice of Grant and the applicable provisions of the Plan and this Option Agreement. (b) Method of Exercise. This Option is exercisable by delivery of an ------------------ exercise notice, in the form attached as Exhibit A (the "Exercise Notice"), which shall state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised (the "Exercised Shares"), and such other representations and agreements as may be required by the Company pursuant to the provisions of the Plan. The Exercise Notice shall be completed by the Optionee and delivered to [Title] of the Company. The Exercise Notice shall be accompanied by payment of the aggregate Exercise Price as to all Exercised Shares. This Option shall be deemed to be exercised upon receipt by the Company of such fully executed Exercise Notice accompanied by such aggregate Exercise Price. No Shares shall be issued pursuant to the exercise of this Option unless such issuance and exercise complies with Applicable Laws. Assuming such compliance, for income tax purposes the Exercised Shares shall be considered transferred to the Optionee on the date the Option is exercised with respect to such Exercised Shares. 3. Method of Payment. Payment of the aggregate Exercise Price shall be ----------------- by any of the following, or a combination thereof, at the election of the Optionee: (a) cash; or (b) check[; or (c) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan][; or (d) surrender of other Shares which (i) in the case of Shares acquired upon exercise of an option, have been owned by the Optionee for more than six (6) months on the date of surrender, AND (ii) have a Fair Market Value on the date of surrender equal to the aggregate Exercise Price of the Exercised Shares][; or (e) with the Administrator's consent, delivery of Optionee's promissory note (the "Note") in the form attached hereto as Exhibit C, in the amount of the aggregate Exercise Price of the Exercised Shares together with the execution and delivery by the Optionee of the Security Agreement attached hereto as Exhibit B. The Note shall bear interest at the "applicable federal rate" prescribed under the Code and its regulations at time of purchase, and shall be secured by a pledge of the Shares purchased by the Note pursuant to the Security Agreement]. 4. Non-Transferability of Option. This Option may not be transferred in ----------------------------- any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by the Optionee. The terms of the Plan and this Option Agreement shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee. 5. Term of Option. This Option may be exercised only within the term set -------------- out in the Notice of Grant, and may be exercised during such term only in accordance with the Plan and the terms of this Option Agreement. 6. Tax Consequences. Some of the federal tax consequences relating to ---------------- this Option, as of the date of this Option, are set forth below. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES. (a) Exercising the Option. --------------------- (i) Nonstatutory Stock Option. The Optionee may incur regular ------------------------- federal income tax liability upon exercise of a NSO. The Optionee will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the Fair Market Value of the Exercised Shares on the date of exercise over their aggregate Exercise Price. If the Optionee is an Employee or a former Employee, the Company will be required to withhold from his or her compensation or collect from Optionee and pay to the applicable taxing authorities an amount in cash equal to a percentage of this compensation income at the time of exercise, and may refuse to honor the exercise and refuse to deliver Shares if such withholding amounts are not delivered at the time of exercise. (ii) Incentive Stock Option. If this Option qualifies as an ---------------------- ISO, the Optionee will have no regular federal income tax liability upon its exercise, although the excess, if any, of the Fair Market Value of the Exercised Shares on the date of exercise over their aggregate Exercise Price will be treated as an adjustment to alternative minimum taxable income for federal tax purposes and may subject the Optionee to alternative minimum tax in the year of exercise. In the event that the Optionee ceases to be an Employee but remains a Service Provider, any Incentive Stock Option of the Optionee that remains unexercised shall cease to qualify as an Incentive Stock Option and will be treated for tax purposes as a Nonstatutory Stock Option on the date three (3) months and one (1) day following such change of status. (b) Disposition of Shares. --------------------- (i) NSO. If the Optionee holds NSO Shares for at least one --- year, any gain realized on disposition of the Shares will be treated as long- term capital gain for federal income tax purposes. (ii) ISO. If the Optionee holds ISO Shares for at least one year --- after exercise and two years after the grant date, any gain realized on disposition of the Shares will be treated as long-term capital gain for federal income tax purposes. If the Optionee disposes of ISO Shares within one year after exercise or two years after the grant date, any gain realized on such disposition will be treated as compensation income (taxable at ordinary income rates) to the extent of the excess, if any, of the lesser of (A) the difference between the Fair Market Value of the Shares acquired on the date of exercise and the aggregate Exercise Price, or (B) the difference between the sale price of such Shares and the aggregate Exercise Price. Any additional gain will be taxed as capital gain, short-term or long-term depending on the period that the ISO Shares were held. (c) Notice of Disqualifying Disposition of ISO Shares. If the ------------------------------------------------- Optionee sells or otherwise disposes of any of the Shares acquired pursuant to an ISO on or before the later of (i) two years after the grant date, or (ii) one year after the exercise date, the Optionee shall immediately notify the Company in writing of such disposition. The Optionee agrees that he or she may be subject to income tax withholding by the Company on the compensation income recognized from such early disposition of ISO Shares by payment in cash or out of the current earnings paid to the Optionee. 7. Entire Agreement; Governing Law. The Plan is incorporated herein by ------------------------------- reference. The Plan and this Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof, and may not be modified adversely to the Optionee's interest except by means of a writing signed by the Company and Optionee. This agreement is governed by the internal substantive laws, but not the choice of law rules, of [state]. 8. NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES AND AGREES --------------------------------- THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE. By your signature and the signature of the Company's representative below, you and the Company agree that this Option is granted under and governed by the terms and conditions of the Plan and this Option Agreement. Optionee has reviewed the Plan and this Option Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option Agreement and fully understands all provisions of the Plan and Option Agreement. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions relating to the Plan and Option Agreement. Optionee further agrees to notify the Company upon any change in the residence address indicated below. OPTIONEE: [COMPANY NAME] _______________________________ ___________________________________________ Signature By _______________________________ ___________________________________________ Print Name Title _______________________________ Residence Address _______________________________ EXHIBIT A --------- 1994 STOCK PLAN EXERCISE NOTICE PointCast Incorporated 501 Macara Avenue Sunnyvale, CA 94086 Attention: [Title] 1. Exercise of Option. Effective as of today, ________________, 199__, ------------------ the undersigned ("Purchaser") hereby elects to purchase ______________ shares (the "Shares") of the Common Stock of PointCast Incorporated] (the "Company") under and pursuant to the 1994 Stock Plan (the "Plan") and the Stock Option Agreement dated _____________, 19___ (the "Option Agreement"). The purchase price for the Shares shall be $_____________, as required by the Option Agreement. 2. Delivery of Payment. Purchaser herewith delivers to the Company the ------------------- full purchase price for the Shares. 3. Representations of Purchaser. Purchaser acknowledges that Purchaser ---------------------------- has received, read and understood the Plan and the Option Agreement and agrees to abide by and be bound by their terms and conditions. 4. Rights as Shareholder. Until the issuance (as evidenced by the --------------------- appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the Shares, no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Shares so acquired shall be issued to the Optionee as soon as practicable after exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date of issuance, except as provided in [Section 13] of the Plan. 5. Tax Consultation. Purchaser understands that Purchaser may suffer ---------------- adverse tax consequences as a result of Purchaser's purchase or disposition of the Shares. Purchaser represents that Purchaser has consulted with any tax consultants Purchaser deems advisable in connection with the purchase or disposition of the Shares and that Purchaser is not relying on the Company for any tax advice. 6. Entire Agreement; Governing Law. The Plan and Option Agreement are ------------------------------- incorporated herein by reference. This Agreement, the Plan and the Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Purchaser with respect to the subject matter hereof, and may not be modified adversely to the Purchaser's interest except by means of a writing signed by the Company and Purchaser. This agreement is governed by the internal substantive laws, but not the choice of law rules, of California. Submitted by: Accepted by: PURCHASER: POINTCAST INCORPORATED ______________________________ ______________________________________ Signature By ______________________________ ______________________________________ Print Name Its Address: Address: - ------- ------- ______________________________ 501 Macara Avenue ______________________________ Sunnyvale, CA 94086 _____________________________________ ____ Date Received POINTCAST INCORPORATED 1994 STOCK PLAN STOCK OPTION AGREEMENT Unless otherwise defined herein, the terms defined in the 1994 Stock Plan shall have the same defined meanings in this Stock Option Agreement. I. NOTICE OF STOCK OPTION GRANT Name:_________________________________ Address:______________________________ You have been granted an option to purchase Common Stock of the Company, subject to the terms and conditions of the Plan and this Stock Option Agreement, as follows: Grant Number ____________________________ Date of Grant ____________________________ Vesting Commencement Date ____________________________ Exercise Price per Share $___________________________ Total Number of Shares Granted ____________________________ Total Exercise Price $___________________________ Type of Option: Nonstatutory Stock Option Term/Expiration Date: ____________________________ Exercise and Vesting Schedule: ----------------------------- This Option shall be exercisable, in whole or in part, according to the following vesting schedule: 25% of the Shares subject to the Option shall vest twelve months after the Vesting Commencement Date, and 1/48 of the Shares subject to the Option shall vest each month thereafter, subject to your remaining in Continuing Status as an Employee or Consultant on such dates. Termination Period: ------------------ This Option may be exercised, to the extent vested, for thirty (30) days after termination of Optionee's Continuous Status as an Employee or Consultant, or such longer period as may be applicable upon death or disability of Optionee as provided in Sections 9 and 10 of the Agreement below, but in no event later than the Term/Expiration Date as provided above. II. AGREEMENT --------- 1. Grant of Option. PointCast Incorporated (the "Company"), hereby --------------- grants to the Optionee named in the Notice of Grant (the "Optionee"), an option (the "Option") to purchase the total number of shares of Common Stock (the "Shares") set forth in the Notice of Grant, at the exercise price per share set forth in the Notice of Grant (the "Exercise Price") subject to the terms, definitions and provisions of the 1994 Stock Plan (the "Plan") adopted by the Company, which is incorporated herein by reference. 2. Right to Exercise. This Option shall be exercisable during its term ----------------- in accordance with the Vesting Schedule set out in the Notice of Grant and with the applicable provisions of the Plan and this Option Agreement. 3. Method of Exercise. This Option shall be exercisable by delivery of ------------------ an exercise notice in the form attached as Exhibit A (the "Exercise Notice") --------- which shall state the election to exercise the Option, the number of Shares with respect to which the Option is being exercised, and such other representations and agreements as may be required by the Company. The Exercise Notice shall be accompanied by payment of the aggregate Exercise Price as to all Exercised Shares. This Option shall be deemed to be exercised upon receipt by the Company of such fully executed Exercise Notice accompanied by the aggregate Exercise Price. No Shares shall be issued pursuant to the exercise of an Option unless such issuance and such exercise complies with Applicable laws. Assuming such compliance, for income tax purposes the Shares shall be considered transferred to the Optionee on the date on which the Option is exercised with respect to such Shares. 4. Optionee's Representations. In the event the Shares purchasable -------------------------- pursuant to the exercise of this Option have not been registered under the Securities Act of 1933, as amended, at the time this Option is exercised, Optionee shall, if required by the Company, concurrently with the exercise of all or any portion of this Option, deliver to the Company his or her Investment Representation Statement in the form attached hereto as Exhibit B. 5. Lock-Up Period. Optionee hereby agrees that if so requested by the -------------- Company or any representative of the underwriters (the "Managing Underwriter") in connection with any registration of the offering of any securities of the Company under the Securities Act, Optionee shall not sell or otherwise transfer any Shares or other securities of the Company during the 180-day period (or such longer period as may be requested in writing by the Managing Underwriter and agreed to in writing by the Company) (the "Market Standoff Period") following the effective date of a registration statement of the Company filed under the Securities Act; provided, however, that such restriction shall apply only to the first registration statement of the Company to become effective under the Securities Act that includes securities to be sold on behalf of the Company to the public in an underwritten public offering under the Securities Act. The Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of such Market Standoff Period. 6. Method of Payment. Payment of the Exercise Price shall be by any of ----------------- the following, or a combination thereof, at the election of the Optionee: (a) cash; or (b) check; or (c) surrender of other shares of Common Stock of the Company which (A) in the case of Shares acquired pursuant to the exercise of a Company option, have been owned by the Optionee for more than six (6) months on the date of surrender, and (B) have a Fair Market Value on the date of surrender equal to the Exercise Price of the Shares as to which the Option is being exercised; or (d) to the extent permitted by the Administrator, delivery of a properly executed exercise notice together with such other documentation as the Administrator and the broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the Exercise Price. 7. Restrictions on Exercise. This Option may not be exercised until ------------------------ such time as the Plan has been approved by the shareholders of the Company, or if the issuance of such Shares upon such exercise or the method of payment of consideration for such shares would constitute a violation of any applicable federal or state securities or other law or regulation, including any rule under Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G") as promulgated by the Federal Reserve -3- Board. As a condition to the exercise of this Option, the Company may require Optionee to make any representation and warranty to the Company as may be required by any applicable law or regulation. 8. Termination of Relationship. In the event an Optionee's Continuous --------------------------- Status as an Employee or Consultant terminates, Optionee may, to the extent the Option was vested at the date of such termination (the "Termination Date"), exercise this Option during the Termination Period set out in the Notice of Grant. To the extent that Optionee was not vested in this Option at the date of such termination, or if Optionee does not exercise this Option within the time specified herein, the Option shall terminate. 9. Disability of Optionee. Notwithstanding the provisions of Section 6 ---------------------- above, in the event of termination of an Optionee's Continuous Status as an Employee or Consultant as a result of his or her disability, Optionee may, but only within twelve (12) months from the date of such termination (and in no event later than the expiration date of the term of such Option as set forth in the Stock Option Agreement), exercise the Option to the extent the Option was vested at the date of such termination. To the extent that Optionee is not vested in the Option at the date of termination, or if Optionee does not exercise such Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. 10. Death of Optionee. In the event of termination of Optionee's ----------------- Continuous Status as an Employee or Consultant as a result of the death of Optionee, the Option may be exercised at any time within twelve (12) months following the date of death (but in no event later than the date of expiration of the term of this Option as set forth in Section 10 below), by Optionee's estate or by a person who acquires the right to exercise the Option by bequest or inheritance, but only to the extent the Option was vested at the date of death. To the extent that Optionee is not vested in the Option at the date of death, or if the Option is not exercised within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. 11. Non-Transferability of Option. This Option may not be transferred ----------------------------- in any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by Optionee. The terms of this Option shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee. 12. Term of Option. This Option may be exercised only within the term -------------- set out in the Notice of Grant, and may be exercised during such term only in accordance with the Plan and the terms of this Option. 13. Tax Consequences. Set forth below is a brief summary as of the date ---------------- of this Option of some of the federal tax consequences of exercise of this Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES. -4- There may be a regular federal income tax liability upon the exercise of an NSO. The Optionee will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the fair market value of the Shares on the date of exercise over the Exercise Price. If Optionee is an Employee, the Company will be required to withhold from Optionee's compensation or collect from Optionee and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income at the time of exercise. Upon disposition, if Shares are held for at least one year, any gain realized on disposition of the Shares will be treated as long- term capital gain for federal income tax purposes. OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S STOCK OPTION PLAN WHICH IS INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT CAUSE. Optionee acknowledges receipt of a copy of the Plan and represents that he is familiar with the terms and provisions thereof, and hereby accepts this Option subject to all of the terms and provisions thereof. Optionee has reviewed the Plan and this Option in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option and fully understands all provisions of the Option. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan or this Option. Optionee further agrees to notify the Company upon any change in the residence address indicated below. POINTCAST INCORPORATED OPTIONEE By:__________________________________________ ______________________________ Philip J. Koen, Senior Vice President & Chief Financial Officer Date:________________________________________ Date:_________________________ -5- EXHIBIT A --------- 1994 STOCK PLAN EXERCISE NOTICE PointCast Incorporated Attention: Stock Option Administration 1. Exercise of Option. Effective as of today, ___________, 199__, the ------------------ undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase _________ shares of the Common Stock (the "Shares") of PointCast Incorporated (the "Company") under and pursuant to the 1994 Stock Plan, as amended (the "Plan") and the Stock Option Agreement dated ________, 199___ (the "Option Agreement"). 2. Representations of Optionee. Optionee acknowledges that Optionee has --------------------------- received, read and understood the Plan and the Option Agreement and agrees to abide by and be bound by their terms and conditions. 3. Rights as Shareholder. Until the stock certificate evidencing such --------------------- Shares is issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such stock certificate promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 12 of the Plan. Optionee shall enjoy rights as a shareholder until such time as Optionee disposes of the Shares or the Company and/or its assignee(s) exercises the Right of First Refusal hereunder. Upon such exercise, Optionee shall have no further rights as a holder of the Shares so purchased except the right to receive payment for the Shares so purchased in accordance with the provisions of this Agreement, and Optionee shall forthwith cause the certificate(s) evidencing the Shares so purchased to be surrendered to the Company for transfer or cancellation. 4. Company's Right of First Refusal. Before any Shares held by Optionee -------------------------------- or any transferee (either being sometimes referred to herein as the "Holder") may be sold or otherwise transferred (including transfer by gift or operation of law), the Company or its assignee(s) shall have a right of first refusal to purchase the Shares on the terms and conditions set forth in this Section (the "Right of First Refusal"). (a) Notice of Proposed Transfer. The Holder of the Shares shall --------------------------- deliver to the Company a written notice (the "Notice") stating: (i) the Holder's bona fide intention to sell or otherwise transfer such Shares; (ii) the name of each proposed purchaser or other transferee ("Proposed Transferee"); (iii) the number of Shares to be transferred to each Proposed Transferee; and (iv) the bona fide cash price or other consideration for which the Holder proposes to transfer the Shares (the "Offered Price"), and the Holder shall offer the Shares at the Offered Price to the Company or its assignee(s). (b) Exercise of Right of First Refusal. At any time within thirty (30) ---------------------------------- days after receipt of the Notice, the Company and/or its assignee(s) may, by giving written notice to the Holder, elect to purchase all, but not less than all, of the Shares proposed to be transferred to any one or more of the Proposed Transferees, at the purchase price determined in accordance with subsection (c) below. (c) Purchase Price. The purchase price ("Purchase Price") for the Shares -------------- purchased by the Company or its assignee(s) under this Section shall be the Offered Price. If the Offered Price includes consideration other than cash, the cash equivalent value of the non-cash consideration shall be determined by the Board of Directors of the Company in good faith. (d) Payment. Payment of the Purchase Price shall be made, at the option ------- of the Company or its assignee(s), in cash (by check), by cancellation of all or a portion of any outstanding indebtedness of the Holder to the Company (or, in the case of repurchase by an assignee, to the assignee), or by any combination thereof within 30 days after receipt of the Notice or in the manner and at the times set forth in the Notice. (e) Holder's Right to Transfer. If all of the Shares proposed in the -------------------------- Notice to be transferred to a given Proposed Transferee are not purchased by the Company and/or its assignee(s) as provided in this Section, then the Holder may sell or otherwise transfer such Shares to that Proposed Transferee at the Offered Price or at a higher price, provided that such sale or other transfer is consummated within 120 days after the date of the Notice and provided further that any such sale or other transfer is effected in accordance with any applicable securities laws and the Proposed Transferee agrees in writing that the provisions of this Section shall continue to apply to the Shares in the hands of such Proposed Transferee. If the Shares described in the Notice are not transferred to the Proposed Transferee within such period, a new Notice shall be given to the Company, and the Company and/or its assignees shall again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise transferred. (f) Exception for Certain Family Transfers. Anything to the contrary -------------------------------------- contained in this Section notwithstanding, the transfer of any or all of the Shares during the Optionee's lifetime or on the Optionee's death by will or intestacy to the Optionee's immediate family or a trust for the benefit of the Optionee's immediate family shall be exempt from the provisions of this Section. "Immediate Family" as used herein shall mean spouse, lineal descendant or antecedent, father, mother, brother or sister. In such case, the transferee or other recipient shall receive and hold the Shares so transferred subject to the provisions of this Section, and there shall be no further transfer of such Shares except in accordance with the terms of this Section. -2- (g) Termination of Right of First Refusal. The Right of First Refusal ------------------------------------- shall terminate as to any Shares 90 days after the first sale of Common Stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission under the Securities Act of 1933, as amended. 5. Tax Consultation. Optionee understands that Optionee may suffer ---------------- adverse tax consequences as a result of Optionee's purchase or disposition of the Shares. Optionee represents that Optionee has consulted with any tax consultants Optionee deems advisable in connection with the purchase or disposition of the Shares and that Optionee is not relying on the Company for any tax advice. 6. Restrictive Legends and Stop-Transfer Orders. -------------------------------------------- (a) Legends. Optionee understands and agrees that the Company shall ------- cause the legends set forth below or legends substantially equivalent thereto, to be placed upon any certificate(s) evidencing ownership of the Shares together with any other legends that may be required by state or federal securities laws: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH. THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND RIGHT OF FIRST REFUSAL OPTIONS HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE EXERCISE NOTICE BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES OF THESE SHARES. (b) Stop-Transfer Notices. Optionee agrees that, in order to ensure --------------------- compliance with the restrictions referred to herein, the Company may issue appropriate "stop transfer" instructions to its transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records. -3- (c) Refusal to Transfer. The Company shall not be required (i) to ------------------- transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares shall have been so transferred. 7. Successors and Assigns. The Company may assign any of its rights ---------------------- under this Agreement to single or multiple assignees, and this Agreement shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Agreement shall be binding upon Optionee and his or her heirs, executors, administrators, successors and assigns. 8. Interpretation. Any dispute regarding the interpretation of this -------------- Agreement shall be submitted by Optionee or by the Company forthwith to the Company's Board of Directors or the committee thereof that administers the Plan, which shall review such dispute at its next regular meeting. The resolution of such a dispute by the Board or committee shall be final and binding on the Company and on Optionee. 9. Governing Law; Severability. This Agreement shall be governed by and --------------------------- construed in accordance with the laws of the State of California excluding that body of law pertaining to conflicts of law. Should any provision of this Agreement be determined by a court of law to be illegal or unenforceable, the other provisions shall nevertheless remain effective and shall remain enforceable. 10. Notices. Any notice required or permitted hereunder shall be given in ------- writing and shall be deemed effectively given upon personal delivery or upon deposit in the United States mail by certified mail, with postage and fees prepaid, addressed to the other party at its address as shown below beneath its signature, or to such other address as such party may designate in writing from time to time to the other party. 11. Further Instruments. The parties agree to execute such further ------------------- instruments and to take such further action as may be reasonably necessary to carry out the purposes and intent of this Agreement. 12. Delivery of Payment. Optionee herewith delivers to the Company the ------------------- full Exercise Price for the Shares. 13. Entire Agreement. The Plan and Notice of Grant/Option Agreement are ---------------- incorporated herein by reference. This Agreement, the Plan, the Option Agreement, the Restricted Stock Purchase Agreement, and the Investment Representation Statement constitute the entire agreement of the parties and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof. -4- Submitted by: Accepted by: OPTIONEE: POINTCAST INCORPORATED _______________________________ By:______________________________ Its:_____________________________ Address: ------- ____ _______________________________ -5- EXHIBIT B --------- INVESTMENT REPRESENTATION STATEMENT OPTIONEE : COMPANY : POINTCAST INCORPORATED SECURITY : COMMON STOCK AMOUNT : DATE : In connection with the purchase of the above-listed Securities, the undersigned Optionee represents to the Company the following: (a) Optionee is aware of the Company's business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Securities. Optionee is acquiring these Securities for investment for Optionee's own account only and not with a view to, or for resale in connection with, any "distribution" thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act"). (b) Optionee acknowledges and understands that the Securities constitute "restricted securities" under the Securities Act and have not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of Optionee's investment intent as expressed herein. In this connection, Optionee understands that, in the view of the Securities and Exchange Commission, the statutory basis for such exemption may be unavailable if Optionee's representation was predicated solely upon a present intention to hold these Securities for the minimum capital gains period specified under tax statutes, for a deferred sale, for or until an increase or decrease in the market price of the Securities, or for a period of one year or any other fixed period in the future. Optionee further understands that the Securities must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. Optionee further acknowledges and understands that the Company is under no obligation to register the Securities. Optionee understands that the certificate evidencing the Securities will be imprinted with a legend which prohibits the transfer of the Securities unless they are registered or such registration is not required in the opinion of counsel satisfactory to the Company, a legend prohibiting their transfer without the consent of the Commissioner of Corporations of the State of California and any other legend required under applicable state securities laws. (c) Optionee is familiar with the provisions of Rule 701 and Rule 144, each promulgated under the Securities Act, which, in substance, permit limited public resale of "restricted securities" acquired, directly or indirectly from the issuer thereof, in a non-public offering subject to the satisfaction of certain conditions. Rule 701 provides that if the issuer qualifies under Rule 701 at the time of the grant of the Option to the Optionee, the exercise will be exempt from registration under the Securities Act. In the event the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, ninety (90) days thereafter (or such longer period as any market stand-off agreement may require) the Securities exempt under Rule 701 may be resold, subject to the satisfaction of certain of the conditions specified by Rule 144, including: (1) the resale being made through a broker in an unsolicited "broker's transaction" or in transactions directly with a market maker (as said term is defined under the Securities Exchange Act of 1934); and, in the case of an affiliate, (2) the availability of certain public information about the Company, (3) the amount of Securities being sold during any three month period not exceeding the limitations specified in Rule 144(e), and (4) the timely filing of a Form 144, if applicable. In the event that the Company does not qualify under Rule 701 at the time of grant of the Option, then the Securities may be resold in certain limited circumstances subject to the provisions of Rule 144, which requires the resale to occur not less than one year after the later of the date the Securities were sold by the Company or the date the Securities were sold by an affiliate of the Company, within the meaning of Rule 144; and, in the case of acquisition of the Securities by an affiliate, or by a non-affiliate who subsequently holds the Securities less than two years, the satisfaction of the conditions set forth in sections (1), (2), (3) and (4) of the paragraph immediately above. (d) Optionee further understands that in the event all of the applicable requirements of Rule 701 or 144 are not satisfied, registration under the Securities Act, compliance with Regulation A, or some other registration exemption will be required; and that, notwithstanding the fact that Rules 144 and 701 are not exclusive, the Staff of the Securities and Exchange Commission has expressed its opinion that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to Rules 144 or 701 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales, and that such persons and their respective brokers who participate in such transactions do so at their own risk. Optionee understands that no assurances can be given that any such other registration exemption will be available in such event. Signature of Optionee: _____________________________________ Date:_______________________, 199__ -2- EX-10.4 4 1998 EMPLOYEE STOCK PURCHASE PLAN EXHIBIT 10.4 POINTCAST INCORPORATED 1998 EMPLOYEE STOCK PURCHASE PLAN The following constitute the provisions of the 1998 Employee Stock Purchase Plan of PointCast Incorporated. 1. Purpose. The purpose of the Plan is to provide employees of the ------- Company and its Designated Subsidiaries with an opportunity to purchase Common Stock of the Company through accumulated payroll deductions. It is the intention of the Company to have the Plan qualify as an "Employee Stock Purchase Plan" under Section 423 of the Internal Revenue Code of 1986, as amended. The provisions of the Plan, accordingly, shall be construed so as to extend and limit participation in a manner consistent with the requirements of that section of the Code. 2. Definitions. ----------- (a) "Board" shall mean the Board of Directors of the Company. ----- (b) "Code" shall mean the Internal Revenue Code of 1986, as amended. ---- (c) "Common Stock" shall mean the common stock of the Company. ------------ (d) "Company" shall mean PointCast Incorporated and any Designated ------- Subsidiary of the Company. (e) "Compensation" shall mean all base straight time gross earnings ------------ and commissions, but exclusive of payments for overtime, shift premium, incentive compensation, incentive payments, bonuses and other compensation. (f) "Designated Subsidiary" shall mean any Subsidiary which has been --------------------- designated by the Board from time to time in its sole discretion as eligible to participate in the Plan. (g) "Employee" shall mean any individual who is an employee of the -------- Company for tax purposes whose customary employment with the Company is at least twenty (20) hours per week and more than five (5) months in any calendar year. For purposes of the Plan, the employment relationship shall be treated as continuing intact while the individual is on sick leave or other leave of absence approved by the Company. Where the period of leave exceeds 90 days and the individual's right to reemployment is not guaranteed either by statute or by contract, the employment relationship shall be deemed to have terminated on the 91st day of such leave. (h) "Enrollment Date" shall mean the first day of each Offering --------------- Period. (i) "Exercise Date" shall mean the last Trading Day of each Purchase ------------- Period. (j) "Fair Market Value" shall mean, as of any date, the value of ----------------- Common Stock determined as follows: (1) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day on the date of such determination, as reported in The Wall Street Journal or such other source as the Board deems reliable, or; (2) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean of the closing bid and asked prices for the Common Stock on the date of such determination, as reported in The Wall Street Journal or such other source as the Board deems reliable, or; (3) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Board, or; (4) For purposes of the Enrollment Date of the first Offering Period under the Plan, the Fair Market Value shall be the initial price to the public as set forth in the final prospectus included within the registration statement in Form S-1 filed with the Securities and Exchange Commission for the initial public offering of the Company's Common Stock (the "Registration Statement"). (k) "Offering Periods" shall mean the periods of approximately ---------------- twenty-four (24) months during which an option granted pursuant to the Plan may be exercised, commencing on the first Trading Day on or after February 1 and August 1 of each year and terminating on the last Trading Day in the periods ending twenty-four months later; provided, however, that the first Offering Period under the Plan shall commence with the first Trading Day on or after the date on which the Securities and Exchange Commission declares the Company's Registration Statement effective and ending on the last Trading Day on or before July 31, 2000. The duration and timing of Offering Periods may be changed pursuant to Section 4 of this Plan. (l) "Plan" shall mean this 1998 Employee Stock Purchase Plan. ---- (m) "Purchase Period" shall mean the approximately six month period --------------- commencing after one Exercise Date and ending with the next Exercise Date, except that the first Purchase Period of any Offering Period shall commence on the Enrollment Date and end with the next Exercise Date; provided, however, that the first Purchase Period under the Plan shall commence with the first Trading Day on or after the date on which the Securities and Exchange Commission declares the Company's Registration Statement effective and shall end on the last Trading Day on or before January 31, 1999. -2- (n) "Purchase Price" shall mean 85% of the Fair Market Value of a -------------- share of Common Stock on the Enrollment Date or on the Exercise Date, whichever is lower; provided however, that with respect to subsequent Offering Periods, the Board may, in its discretion, provide that the Purchase Price shall be 85% of Fair Market Value of a share of Common Stock on the Exercise Date. (o) "Reserves" shall mean the number of shares of Common Stock covered -------- by each option under the Plan which have not yet been exercised and the number of shares of Common Stock which have been authorized for issuance under the Plan but not yet placed under option. (p) "Subsidiary" shall mean a corporation, domestic or foreign, of ---------- which not less than 50% of the voting shares are held by the Company or a Subsidiary, whether or not such corporation now exists or is hereafter organized or acquired by the Company or a Subsidiary. (q) "Trading Day" shall mean a day on which national stock exchanges ----------- and the Nasdaq System are open for trading. 3. Eligibility. ----------- (a) Any Employee who shall be employed by the Company on a given Enrollment Date shall be eligible to participate in the Plan. (b) Any provisions of the Plan to the contrary notwithstanding, no Employee shall be granted an option under the Plan (i) to the extent that, immediately after the grant, such Employee (or any other person whose stock would be attributed to such Employee pursuant to Section 424(d) of the Code) would own capital stock of the Company and/or hold outstanding options to purchase such stock possessing five percent (5%) or more of the total combined voting power or value of all classes of the capital stock of the Company or of any Subsidiary, or (ii) to the extent that his or her rights to purchase stock under all employee stock purchase plans of the Company and its subsidiaries accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of stock (determined at the fair market value of the shares at the time such option is granted) for each calendar year in which such option is outstanding at any time. 4. Offering Periods. The Plan shall be implemented by consecutive, ---------------- overlapping Offering Periods with a new Offering Period commencing on the first Trading Day on or after February 1 and August 1 of each year, or on such other date as the Board shall determine, and continuing thereafter until terminated in accordance with Section 20 hereof; provided, however, that the first Offering Period under the Plan shall commence with the first Trading Day on or after the date on which the Securities and Exchange Commission declares the Company's Registration Statement effective and ending on the last Trading Day on or before July 31, 2000. The Board shall have the power to change the duration of Offering Periods (including the commencement dates -3- thereof) with respect to future offerings without stockholder approval if such change is announced prior to the scheduled beginning of the first Offering Period to be affected thereafter. 5. Participation. ------------- (a) An eligible Employee may become a participant in the Plan by completing a subscription agreement authorizing payroll deductions in the form of Exhibit A to this Plan and filing it with the Company's payroll office prior to the applicable Enrollment Date. (b) Payroll deductions for a participant shall commence on the first payroll following the Enrollment Date and shall end on the last payroll in the Offering Period to which such authorization is applicable, unless sooner terminated by the participant as provided in Section 10 hereof. 6. Payroll Deductions. ------------------ (a) At the time a participant files his or her subscription agreement, he or she shall elect to have payroll deductions made on each pay day during the Offering Period in an amount not exceeding fifteen percent (15%) of the Compensation which he or she receives on each pay day during the Offering Period. (b) All payroll deductions made for a participant shall be credited to his or her account under the Plan and shall be withheld in whole percentages only. A participant may not make any additional payments into such account. (c) A participant may discontinue his or her participation in the Plan as provided in Section 10 hereof, or may increase or decrease the rate of his or her payroll deductions during the Offering Period by completing or filing with the Company a new subscription agreement authorizing a change in payroll deduction rate. The Board may, in its discretion, limit the number of participation rate changes during any Offering Period. The change in rate shall be effective with the first full payroll period following five (5) business days after the Company's receipt of the new subscription agreement unless the Company elects to process a given change in participation more quickly. A participant's subscription agreement shall remain in effect for successive Offering Periods unless terminated as provided in Section 10 hereof. (d) Notwithstanding the foregoing, to the extent necessary to comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's payroll deductions may be decreased to zero percent (0%) at any time during a Purchase Period. Payroll deductions shall recommence at the rate provided in such participant's subscription agreement at the beginning of the first Purchase Period which is scheduled to end in the following calendar year, unless terminated by the participant as provided in Section 10 hereof. -4- (e) At the time the option is exercised, in whole or in part, or at the time some or all of the Company's Common Stock issued under the Plan is disposed of, the participant must make adequate provision for the Company's federal, state, or other tax withholding obligations, if any, which arise upon the exercise of the option or the disposition of the Common Stock. At any time, the Company may, but shall not be obligated to, withhold from the participant's compensation the amount necessary for the Company to meet applicable withholding obligations, including any withholding required to make available to the Company any tax deductions or benefits attributable to sale or early disposition of Common Stock by the Employee. 7. Grant of Option. On the Enrollment Date of each Offering Period, each --------------- eligible Employee participating in such Offering Period shall be granted an option to purchase on each Exercise Date during such Offering Period (at the applicable Purchase Price) up to a number of shares of the Company's Common Stock determined by dividing such Employee's payroll deductions accumulated prior to such Exercise Date and retained in the Participant's account as of the Exercise Date by the applicable Purchase Price; provided that in no event shall an Employee be permitted to purchase during each Purchase Period more than 1,667 shares of the Company's Common Stock (subject to any adjustment pursuant to Section 19), and provided further that such purchase shall be subject to the limitations set forth in Sections 3(b) and 12 hereof. Exercise of the option shall occur as provided in Section 8 hereof, unless the participant has withdrawn pursuant to Section 10 hereof. The option shall expire on the last day of the Offering Period. 8. Exercise of Option. Unless a participant withdraws from the Plan as ------------------ provided in Section 10 hereof, his or her option for the purchase of shares shall be exercised automatically on the Exercise Date, and the maximum number of full shares subject to option shall be purchased for such participant at the applicable Purchase Price with the accumulated payroll deductions in his or her account. No fractional shares shall be purchased; any payroll deductions accumulated in a participant's account which are not sufficient to purchase a full share shall be retained in the participant's account for the subsequent Purchase Period or Offering Period, subject to earlier withdrawal by the participant as provided in Section 10 hereof. Any other monies left over in a participant's account after the Exercise Date shall be returned to the participant. During a participant's lifetime, a participant's option to purchase shares hereunder is exercisable only by him or her. 9. Delivery. As promptly as practicable after each Exercise Date on -------- which a purchase of shares occurs, the Company shall arrange the delivery to each participant, as appropriate, of a certificate representing the shares purchased upon exercise of his or her option. 10. Withdrawal. ---------- (a) A participant may withdraw all but not less than all the payroll deductions credited to his or her account and not yet used to exercise his or her option under the Plan at any time by giving written notice to the Company in the form of Exhibit B to this Plan. All of the -5- participant's payroll deductions credited to his or her account shall be paid to such participant promptly after receipt of notice of withdrawal and such participant's option for the Offering Period shall be automatically terminated, and no further payroll deductions for the purchase of shares shall be made for such Offering Period. If a participant withdraws from an Offering Period, payroll deductions shall not resume at the beginning of the succeeding Offering Period unless the participant delivers to the Company a new subscription agreement. (b) A participant's withdrawal from an Offering Period shall not have any effect upon his or her eligibility to participate in any similar plan which may hereafter be adopted by the Company or in succeeding Offering Periods which commence after the termination of the Offering Period from which the participant withdraws. 11. Termination of Employment. ------------------------- Upon a participant's ceasing to be an Employee, for any reason, he or she shall be deemed to have elected to withdraw from the Plan and the payroll deductions credited to such participant's account during the Offering Period but not yet used to exercise the option shall be returned to such participant or, in the case of his or her death, to the person or persons entitled thereto under Section 15 hereof, and such participant's option shall be automatically terminated. The preceding sentence notwithstanding, a participant who receives payment in lieu of notice of termination of employment shall be treated as continuing to be an Employee for the participant's customary number of hours per week of employment during the period in which the participant is subject to such payment in lieu of notice. 12. Interest. No interest shall accrue on the payroll deductions of a -------- participant in the Plan. 13. Stock. ----- (a) Subject to adjustment upon changes in capitalization of the Company as provided in Section 19 hereof, the maximum number of shares of the Company's Common Stock which shall be made available for sale under the Plan shall be five hundred thousand (500,000) shares, plus an annual increase to be added on the first day of the Company's fiscal year (beginning in 1999) equal to the lesser of (i) 750,000 shares, (ii) two and one-half percent (2.5%) of the outstanding shares on such date or (iii) a lesser amount determined by the Board. If, on a given Exercise Date, the number of shares with respect to which options are to be exercised exceeds the number of shares then available under the Plan, the Company shall make a pro rata allocation of the shares remaining available for purchase in as uniform a manner as shall be practicable and as it shall determine to be equitable. (b) The participant shall have no interest or voting right in shares covered by his option until such option has been exercised. -6- (c) Shares to be delivered to a participant under the Plan shall be registered in the name of the participant or in the name of the participant and his or her spouse. 14. Administration. The Plan shall be administered by the Board or a -------------- committee of members of the Board appointed by the Board. The Board or its committee shall have full and exclusive discretionary authority to construe, interpret and apply the terms of the Plan, to determine eligibility and to adjudicate all disputed claims filed under the Plan. Every finding, decision and determination made by the Board or its committee shall, to the full extent permitted by law, be final and binding upon all parties. 15. Designation of Beneficiary. -------------------------- (a) A participant may file a written designation of a beneficiary who is to receive any shares and cash, if any, from the participant's account under the Plan in the event of such participant's death subsequent to an Exercise Date on which the option is exercised but prior to delivery to such participant of such shares and cash. In addition, a participant may file a written designation of a beneficiary who is to receive any cash from the participant's account under the Plan in the event of such participant's death prior to exercise of the option. If a participant is married and the designated beneficiary is not the spouse, spousal consent shall be required for such designation to be effective. (b) Such designation of beneficiary may be changed by the participant at any time by written notice. In the event of the death of a participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such participant's death, the Company shall deliver such shares and/or cash to the executor or administrator of the estate of the participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such shares and/or cash to the spouse or to any one or more dependents or relatives of the participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate. 16. Transferability. Neither payroll deductions credited to a --------------- participant's account nor any rights with regard to the exercise of an option or to receive shares under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution or as provided in Section 15 hereof) by the participant. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw funds from an Offering Period in accordance with Section 10 hereof. 17. Use of Funds. All payroll deductions received or held by the Company ------------ under the Plan may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such payroll deductions. 18. Reports. Individual accounts shall be maintained for each participant ------- in the Plan. Statements of account shall be given to participating Employees at least annually, which statements -7- shall set forth the amounts of payroll deductions, the Purchase Price, the number of shares purchased and the remaining cash balance, if any. 19. Adjustments Upon Changes in Capitalization, Dissolution, Liquidation, --------------------------------------------------------------------- Merger or Asset Sale. -------------------- (a) Changes in Capitalization. Subject to any required action by the ------------------------- stockholders of the Company, the Reserves, the maximum number of shares each participant may purchase each Purchase Period (pursuant to Section 7), as well as the price per share and the number of shares of Common Stock covered by each option under the Plan which has not yet been exercised shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration". Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an option. (b) Dissolution or Liquidation. In the event of the proposed -------------------------- dissolution or liquidation of the Company, the Offering Period then in progress shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and shall terminate immediately prior to the consummation of such proposed dissolution or liquidation, unless provided otherwise by the Board. The New Exercise Date shall be before the date of the Company's proposed dissolution or liquidation. The Board shall notify each participant in writing, at least ten (10) business days prior to the New Exercise Date, that the Exercise Date for the participant's option has been changed to the New Exercise Date and that the participant's option shall be exercised automatically on the New Exercise Date, unless prior to such date the participant has withdrawn from the Offering Period as provided in Section 10 hereof. (c) Merger or Asset Sale. In the event of a proposed sale of all or -------------------- substantially all of the assets of the Company, or the merger of the Company with or into another corporation, each outstanding option shall be assumed or an equivalent option substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the option, any Purchase Periods then in progress shall be shortened by setting a new Exercise Date (the "New Exercise Date") and any Offering Periods then in progress shall end on the New Exercise Date. The New Exercise Date shall be before the date of the Company's proposed sale or merger. The Board shall notify each participant in writing, at least ten (10) business days prior to the New Exercise Date, that the Exercise Date for the participant's option has been changed to the New Exercise Date and that the participant's option shall be exercised -8- automatically on the New Exercise Date, unless prior to such date the participant has withdrawn from the Offering Period as provided in Section 10 hereof. 20. Amendment or Termination. ------------------------ (a) The Board of Directors of the Company may at any time and for any reason terminate or amend the Plan. Except as provided in Section 19 hereof, no such termination can affect options previously granted, provided that an Offering Period may be shortened or terminated by the Board at any time at the discretion of the Board, provided further, that, with respect to subsequent Offering Periods, the Board may change the determination of Purchase Price as provided in Section 2(n) hereof. Except as provided in this paragraph or Section 19 hereof, no amendment may make any change in any option theretofore granted which adversely affects the rights of any participant. To the extent necessary to comply with Section 423 of the Code (or any successor rule or provision or any other applicable law, regulation or stock exchange rule), the Company shall obtain stockholder approval in such a manner and to such a degree as required. (b) Without stockholder consent and without regard to whether any participant rights may be considered to have been "adversely affected," the Board (or its committee) shall be entitled to limit the frequency and/or number of changes in the amount withheld during an Offering Period, establish the exchange ratio applicable to amounts withheld in a currency other than U.S. dollars, permit payroll withholding in excess of the amount designated by a participant in order to adjust for delays or mistakes in the Company's processing of properly completed withholding elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock for each participant properly correspond with amounts withheld from the participant's Compensation, and establish such other limitations or procedures as the Board (or its committee) determines in its sole discretion advisable which are consistent with the Plan. 21. Notices. All notices or other communications by a participant to the ------- Company under or in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof. 22. Conditions Upon Issuance of Shares. Shares shall not be issued with ---------------------------------- respect to an option unless the exercise of such option and the issuance and delivery of such shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. -9- As a condition to the exercise of an option, the Company may require the person exercising such option to represent and warrant at the time of any such exercise that the shares are being purchased only for investment and without any present intention to sell or distribute such shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned applicable provisions of law. 23. Term of Plan. The Plan shall become effective upon the approval by ------------ the stockholders of the Company. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 20 hereof. 24. Automatic Transfer to Low Price Offering Period. To the extent ----------------------------------------------- permitted by any applicable laws, regulations, or stock exchange rules if the Fair Market Value of the Common Stock on any Exercise Date in an Offering Period is lower than the Fair Market Value of the Common Stock on the Enrollment Date of such Offering Period, then all participants in such Offering Period shall be automatically withdrawn from such Offering Period immediately after the exercise of their option on such Exercise Date and automatically re-enrolled in the immediately following Offering Period as of the first day thereof. -10- EXHIBIT A --------- POINTCAST INCORPORATED 1998 EMPLOYEE STOCK PURCHASE PLAN SUBSCRIPTION AGREEMENT _____ Original Application Enrollment Date: ___________ _____ Change in Payroll Deduction Rate _____ Change of Beneficiary(ies) 1. ______________ hereby elects to participate in the PointCast Incorporated 1998 Employee Stock Purchase Plan (the "Employee Stock Purchase Plan") and subscribes to purchase shares of the Company's Common Stock in accordance with this Subscription Agreement and the Employee Stock Purchase Plan. 2. I hereby authorize payroll deductions from each paycheck in the amount of __% of my Compensation on each payday (not to exceed 15%) during the Offering Period in accordance with the Employee Stock Purchase Plan. (Please note that no fractional percentages are permitted.) 3. I understand that said payroll deductions shall be accumulated for the purchase of shares of Common Stock at the applicable Purchase Price determined in accordance with the Employee Stock Purchase Plan. I understand that if I do not withdraw from an Offering Period, any accumulated payroll deductions will be used to automatically exercise my option. 4. I have received a copy of the complete Employee Stock Purchase Plan. I understand that my participation in the Employee Stock Purchase Plan is in all respects subject to the terms of the Plan. I understand that my ability to exercise the option under this Subscription Agreement is subject to stockholder approval of the Employee Stock Purchase Plan. 5. Shares purchased for me under the Employee Stock Purchase Plan should be issued in the name(s) of (Employee or Employee and Spouse only): _______________________________________. 6. I understand that if I dispose of any shares received by me pursuant to the Plan within 2 years after the Enrollment Date (the first day of the Offering Period during which I purchased such shares) or one year after the Exercise Date, I will be treated for federal income tax purposes as having received ordinary income at the time of such disposition in an amount equal to the excess of the fair market value of the shares at the time such shares were purchased by me over the price which I paid for the shares. I hereby agree -------------- to notify the Company in writing within 30 days after the date of any --------------------------------------------------------------------- disposition of my shares and I will make adequate provision for Federal, ------------------------------------------------------------------------ state or other tax withholding obligations, if any, which arise upon the ------------------------------------------------------------------------ disposition of the Common Stock. The Company may, but will not be ------------------------------- obligated to, withhold from my compensation the amount necessary to meet any applicable withholding obligation including any withholding necessary to make available to the Company any tax deductions or benefits attributable to sale or early disposition of Common Stock by me. If I dispose of such shares at any time after the expiration of the 2-year and 1-year holding periods, I understand that I will be treated for federal income tax purposes as having received income only at the time of such disposition, and that such income will be taxed as ordinary income only to the extent of an amount equal to the lesser of (1) the excess of the fair market value of the shares at the time of such disposition over the purchase price which I paid for the shares, or (2) 15% of the fair market value of the shares on the first day of the Offering Period. The remainder of the gain, if any, recognized on such disposition will be taxed as capital gain. 7. I hereby agree to be bound by the terms of the Employee Stock Purchase Plan. The effectiveness of this Subscription Agreement is dependent upon my eligibility to participate in the Employee Stock Purchase Plan. 8. In the event of my death, I hereby designate the following as my beneficiary(ies) to receive all payments and shares due me under the Employee Stock Purchase Plan: NAME: (Please print)______________________________________________ (First) (Middle) (Last) ___________________________________ ____________________________________ Relationship ____________________________________ (Address) -2- Employee's Social Security Number: ____________________________________ Employee's Address: ____________________________________ ____________________________________ ____________________________________ I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME. Dated:_________________________ ____________________________________ Signature of Employee ____________________________________ Spouse's Signature (If beneficiary other than spouse) -3- EXHIBIT B --------- POINTCAST INCORPORATED 1998 EMPLOYEE STOCK PURCHASE PLAN NOTICE OF WITHDRAWAL The undersigned participant in the Offering Period of the PointCast Incorporated 1998 Employee Stock Purchase Plan which began on ____________, 19____ (the "Enrollment Date") hereby notifies the Company that he or she hereby withdraws from the Offering Period. He or she hereby directs the Company to pay to the undersigned as promptly as practicable all the payroll deductions credited to his or her account with respect to such Offering Period. The undersigned understands and agrees that his or her option for such Offering Period will be automatically terminated. The undersigned understands further that no further payroll deductions will be made for the purchase of shares in the current Offering Period and the undersigned shall be eligible to participate in succeeding Offering Periods only by delivering to the Company a new Subscription Agreement. Name and Address of Participant: ________________________________ ________________________________ ________________________________ Signature: ________________________________ Date:___________________________ EX-10.5 5 1998 DIRECTOR OPTION PLAN AND RELATED AGREEMENTS EXHIBIT 10.5 POINTCAST INCORPORATED 1998 DIRECTOR OPTION PLAN 1. Purposes of the Plan. The purposes of this 1998 Director Option Plan -------------------- are to attract and retain the best available personnel for service as Outside Directors (as defined herein) of the Company, to provide additional incentive to the Outside Directors of the Company to serve as Directors, and to encourage their continued service on the Board. All options granted hereunder shall be nonstatutory stock options. 2. Definitions. As used herein, the following definitions shall apply: ----------- (a) "BOARD" means the Board of Directors of the Company. (b) "CODE" means the Internal Revenue Code of 1986, as amended. (c) "COMMON STOCK" means the common stock of the Company. (d) "COMPANY" means PointCast Incorporated, a Delaware corporation. (e) "DIRECTOR" means a member of the Board. (f) "DISABILITY" means total and permanent disability as defined in Section 22(e)(3) of the Code. (g) "EMPLOYEE" means any person, including officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. The payment of a Director's fee by the Company shall not be sufficient in and of itself to constitute "employment" by the Company. (h) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. (i) "FAIR MARKET VALUE" means, as of any date, the value of Common Stock determined as follows: (i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day prior to the time of determination as reported in The Wall Street Journal or such other source as the Administrator deems reliable; (ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a Share of Common Stock shall be the mean between the high bid and low asked prices for the Common Stock for the last market trading day prior to the time of determination, as reported in The Wall Street Journal or such other source as the Board deems reliable; (iii) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Board; or (iv) For purposes of Options granted pursuant to Section 4(b)(i), the Fair Market Value shall be the initial price to the public as set forth in the final prospectus included within the registration statement in Form S-1 filed with the Securities and Exchange Commission for the initial public offering of the Company's Common Stock (the "REGISTRATION STATEMENT"). (j) "INSIDE DIRECTOR" means a Director who is an Employee. (k) "OPTION" means a stock option granted pursuant to the Plan. (l) "OPTIONED STOCK" means the Common Stock subject to an Option. (m) "OPTIONEE" means a Director who holds an Option. (n) "OUTSIDE DIRECTOR" means a Director who is not an Employee. (o) "PARENT" means a "parent corporation," whether now or hereafter existing, as defined in Section 424(e) of the Code. (p) "PLAN" means this 1998 Director Option Plan. (q) "SHARE" means a share of the Common Stock, as adjusted in accordance with Section 10 of the Plan. (r) "SUBSIDIARY" means a "subsidiary corporation," whether now or hereafter existing, as defined in Section 424(f) of the Internal Revenue Code of 1986. 3. Stock Subject to the Plan. Subject to the provisions of Section 10 of ------------------------- the Plan, the maximum aggregate number of Shares which may be optioned and sold under the Plan is 200,000 Shares (the "POOL"), plus an annual increase to be added on the first day of the Company's fiscal year (beginning in 1999) equal to the lesser of (i) the number of Shares needed to restore the maximum aggregate number of Shares available for sale under the Plan to 200,000 Shares, or (ii) a lesser amount determined by the Board (the "Pool"). The Shares may be authorized, but unissued, or reacquired Common Stock. -2- If an Option expires or becomes unexercisable without having been exercised in full, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated). Shares that have actually been issued under the Plan shall not be returned to the Plan and shall not become available for future distribution under the Plan. 4. Administration and Grants of Options under the Plan. All grants of --------------------------------------------------- Options to Outside Directors under this Plan shall be automatic and nondiscretionary and shall be made strictly in accordance with the following provisions: (a) No person shall have any discretion to select which Outside Directors shall be granted Options or to determine the number of Shares to be covered by Options. (b) Each Outside Director shall be automatically granted an Option to purchase 20,000 Shares (the "First Option") on the date on which the later of the following events occurs: (i) the date the Company's shareholders approve the Plan, or (ii) the date on which such person first becomes an Outside Director, whether through election by the stockholders of the Company or appointment by the Board to fill a vacancy; provided, however, that an Inside Director who ceases to be an Inside Director but who remains a Director shall not receive a First Option. (c) Each Outside Director shall be automatically granted an Option to purchase 5,000 Shares (a "Subsequent Option") on the date of the annual meeting of the stockholders of each year provided he or she is then an Outside Director and if as of such date, he or she shall have served on the Board for at least the preceding six (6) months. (d) Notwithstanding the provisions of subsections (b) and (c) hereof, any exercise of an Option granted before the Company has obtained stockholder approval of the Plan in accordance with Section 16 hereof shall be conditioned upon obtaining such stockholder approval of the Plan in accordance with Section 16 hereof. (e) The terms of a First Option granted hereunder shall be as follows: (i) the term of the First Option shall be ten (10) years. (ii) the First Option shall be exercisable only while the Outside Director remains a Director of the Company, except as set forth in Sections 8 and 10 hereof. (iii) the exercise price per Share shall be 100% of the Fair Market Value per Share on the date of grant of the First Option. (iv) subject to Section 10 hereof, the First Option shall become exercisable as to twenty-five percent (25%) of the Shares subject to the First Option on the first anniversary of -3- its date of grant, and 1/48 of the Shares subject to the First Option at the end of each full month thereafter, provided that the Optionee continues to serve as a Director on such dates. (f) The terms of a Subsequent Option granted hereunder shall be as follows: (i) the term of the Subsequent Option shall be ten (10) years. (ii) the Subsequent Option shall be exercisable only while the Outside Director remains a Director of the Company, except as set forth in Sections 8 and 10 hereof. (iii) the exercise price per Share shall be 100% of the Fair Market Value per Share on the date of grant of the Subsequent Option. (iv) subject to Section 10 hereof, the Subsequent Option shall become exercisable as to one hundred percent (100%) of the Shares subject to the Subsequent Option on the fourth anniversary of its date of grant, provided that the Optionee continues to serve as a Director on such date. (g) In the event that any Option granted under the Plan would cause the number of Shares subject to outstanding Options plus the number of Shares previously purchased under Options to exceed the Pool, then the remaining Shares available for Option grant shall be granted under Options to the Outside Directors on a pro rata basis. No further grants shall be made until such time, if any, as additional Shares become available for grant under the Plan through action of the Board or the stockholders to increase the number of Shares which may be issued under the Plan or through cancellation or expiration of Options previously granted hereunder. 5. Eligibility. Options may be granted only to Outside Directors. All ----------- Options shall be automatically granted in accordance with the terms set forth in Section 4 hereof. The Plan shall not confer upon any Optionee any right with respect to continuation of service as a Director or nomination to serve as a Director, nor shall it interfere in any way with any rights which the Director or the Company may have to terminate the Director's relationship with the Company at any time. 6. Term of Plan. The Plan shall become effective upon the approval by ------------ the stockholders of the Company. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 11 hereof. 7. Form of Consideration. The consideration to be paid for the Shares to --------------------- be issued upon exercise of an Option, including the method of payment, shall consist of (i) cash, (ii) check, (iii) other shares which (x) in the case of Shares acquired upon exercise of an option, have been owned by the Optionee for more than six (6) months on the date of surrender, and (y) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which -4- said Option shall be exercised, (iv) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan, or (v) any combination of the foregoing methods of payment. 8. Exercise of Option. ------------------ (a) Procedure for Exercise; Rights as a Stockholder. Any Option ----------------------------------------------- granted hereunder shall be exercisable at such times as are set forth in Section 4 hereof; provided, however, that no Options shall be exercisable until stockholder approval of the Plan in accordance with Section 16 hereof has been obtained. An Option may not be exercised for a fraction of a Share. An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Full payment may consist of any consideration and method of payment allowable under Section 7 of the Plan. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. A share certificate for the number of Shares so acquired shall be issued to the Optionee as soon as practicable after exercise of the Option. No adjustment shall be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 10 of the Plan. Exercise of an Option in any manner shall result in a decrease in the number of Shares which thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) Termination of Continuous Status as a Director. Subject to ---------------------------------------------- Section 10 hereof, in the event an Optionee's status as a Director terminates (other than upon the Optionee's death or Disability), the Optionee may exercise his or her Option, but only within three (3) months following the date of such termination, and only to the extent that the Optionee was entitled to exercise it on the date of such termination (but in no event later than the expiration of its ten (10) year term). To the extent that the Optionee was not entitled to exercise an Option on the date of such termination, and to the extent that the Optionee does not exercise such Option (to the extent otherwise so entitled) within the time specified herein, the Option shall terminate. (c) Disability of Optionee. In the event Optionee's status as a ---------------------- Director terminates as a result of Disability, the Optionee may exercise his or her Option, but only within twelve (12) months following the date of such termination, and only to the extent that the Optionee was entitled to exercise it on the date of such termination (but in no event later than the expiration of its ten (10) -5- year term). To the extent that the Optionee was not entitled to exercise an Option on the date of termination, or if he or she does not exercise such Option (to the extent otherwise so entitled) within the time specified herein, the Option shall terminate. (d) Death of Optionee. In the event of an Optionee's death, the ----------------- Optionee's estate or a person who acquired the right to exercise the Option by bequest or inheritance may exercise the Option, but only within twelve (12) months following the date of death, and only to the extent that the Optionee was entitled to exercise it on the date of death (but in no event later than the expiration of its ten (10) year term). To the extent that the Optionee was not entitled to exercise an Option on the date of death, and to the extent that the Optionee's estate or a person who acquired the right to exercise such Option does not exercise such Option (to the extent otherwise so entitled) within the time specified herein, the Option shall terminate. 9. Non-Transferability of Options. Unless provided otherwise by the ------------------------------ Administrator, the Option may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. If the Administrator makes an Option transferable, such Option shall contain such additional terms and conditions as the Administrator deems appropriate. 10. Adjustments Upon Changes in Capitalization, Dissolution, Merger or ------------------------------------------------------------------ Asset Sale. - ---------- (a) Changes in Capitalization. Subject to any required action by the ------------------------- stockholders of the Company, the number of Shares covered by each outstanding Option, the number of Shares which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per Share covered by each such outstanding Option, and the number of Shares issuable pursuant to the automatic grant provisions of Section 4 hereof shall be proportionately adjusted for any increase or decrease in the number of issued Shares resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued Shares effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares subject to an Option. (b) Dissolution or Liquidation. In the event of the proposed -------------------------- dissolution or liquidation of the Company, to the extent that an Option has not been previously exercised, it shall terminate immediately prior to the consummation of such proposed action. (c) Merger or Asset Sale. In the event of a merger of the Company -------------------- with or into another corporation or the sale of substantially all of the assets of the Company, (i) outstanding Options shall have their vesting accelerated as to an additional twenty-five percent (25%) of the -6- Shares subject to such Option effective immediately prior to the consummation of such merger or asset sale, and (ii) outstanding Options may be assumed or equivalent options may be substituted by the successor corporation or a Parent or Subsidiary thereof (the "Successor Corporation"). If an Option is assumed or substituted for, the Option or equivalent option shall continue to be exercisable as provided in Section 4 hereof for so long as the Optionee serves as a Director or a director of the Successor Corporation. If the Successor Corporation does not assume an outstanding Option or substitute for it an equivalent option, the Option shall terminate as of the date of the closing of the merger or asset sale. For the purposes of this Section 10(c), an Option shall be considered assumed if, following the merger or sale of assets, the Option confers the right to purchase or receive, for each Share of Optioned Stock subject to the Option immediately prior to the merger or sale of assets, the consideration (whether stock, cash, or other securities or property) received in the merger or sale of assets by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares). If such consideration received in the merger or sale of assets is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option, for each Share of Optioned Stock subject to the Option, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger or sale of assets. 11. Amendment and Termination of the Plan. ------------------------------------- (a) Amendment and Termination. The Board may at any time amend, ------------------------- alter, suspend, or discontinue the Plan, but no amendment, alteration, suspension, or discontinuation shall be made which would impair the rights of any Optionee under any grant theretofore made, without his or her consent. In addition, to the extent necessary and desirable to comply with any applicable law, regulation or stock exchange rule, the Company shall obtain stockholder approval of any Plan amendment in such a manner and to such a degree as required. (b) Effect of Amendment or Termination. Any such amendment or ---------------------------------- termination of the Plan shall not affect Options already granted and such Options shall remain in full force and effect as if this Plan had not been amended or terminated. 12. Time of Granting Options. The date of grant of an Option shall, for ------------------------ all purposes, be the date determined in accordance with Section 4 hereof. 13. Conditions Upon Issuance of Shares. Shares shall not be issued ---------------------------------- pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, state securities laws, and the requirements of any stock exchange upon -7- which the Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares, if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned relevant provisions of law. Inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 14. Reservation of Shares. The Company, during the term of this Plan, --------------------- will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. 15. Option Agreement. Options shall be evidenced by written option ---------------- agreements in such form as the Board shall approve. 16. Stockholder Approval. The Plan shall be subject to approval by the -------------------- stockholders of the Company within twelve (12) months after the date the Plan is adopted. Such stockholder approval shall be obtained in the degree and manner required under applicable state and federal law and any stock exchange rules. -8- POINTCAST INCORPORATED 1998 DIRECTOR OPTION PLAN DIRECTOR OPTION AGREEMENT [FIRST OPTION] 1. Grant of Option. Effective as of today, _______________, 19__, --------------- PointCast Incorporated, a Delaware corporation (the "Company"), hereby grants to _______________________ (the "Optionee"), a nonstatutory stock option to purchase a total of twenty thousand (20,000) shares of the Company's Common Stock ("Common Stock"), at the price determined as provided herein, and in all respects subject to the terms, definitions and provisions of the Company's 1998 Director Option Plan (the "Plan") adopted by the Company which is incorporated herein by reference. The terms defined in the Plan shall have the same defined meanings herein. 2. Exercise Price. The exercise price is $_______ for each share of -------------- Common Stock. 3. Exercise of Option. This Option shall be exercisable during its term ------------------ in accordance with the provisions of Section 8 of the Plan as follows: (a) Right to Exercise. ----------------- (i) This Option shall become exercisable in installments cumulatively with respect to twenty-five percent (25%) of the shares subject to the Option on the first anniversary of the date of grant, and as to an additional 1/48 of the shares subject to the Option at the end of each full month thereafter, subject to Optionee continuing to provide services as a Director, so that one hundred percent (100%) of the Optioned Stock shall be exercisable four years after the date of grant; provided, however, that in no event shall any Option be exercisable prior to the date the stockholders of the Company approve the Plan. (ii) This Option may not be exercised for a fraction of a share. (iii) In the event of Optionee's death, Disability or other termination of service as a Director, the exercisability of the Option is governed by Section 8 of the Plan. (b) Method of Exercise. This Option shall be exercisable by written ------------------ notice which shall state the election to exercise the Option and the number of Shares in respect of which the Option is being exercised. Such written notice, in the form attached hereto as Exhibit A, shall be signed by the Optionee and shall be delivered in person or by certified mail to the Secretary of the Company. The written notice shall be accompanied by payment of the exercise price. 4. Method of Payment. Payment of the exercise price shall be by any of ----------------- the following, or a combination thereof, at the election of the Optionee: (a) cash; (b) check; or (c) surrender of other shares which (x) in the case of Shares acquired upon exercise of an option, have been owned by the Optionee for more than six (6) months on the date of surrender, and (y) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised; or (d) delivery of a properly executed exercise notice together with such other documentation as the Company and the broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the exercise price. 5. Restrictions on Exercise. This Option may not be exercised if the ------------------------ issuance of such Shares upon such exercise or the method of payment of consideration for such shares would constitute a violation of any applicable federal or state securities or other law or regulations, or if such issuance would not comply with the requirements of any stock exchange upon which the Shares may then be listed. As a condition to the exercise of this Option, the Company may require Optionee to make any representation and warranty to the Company as may be required by any applicable law or regulation. 6. Non-Transferability of Option. This Option may not be transferred in ----------------------------- any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by the Optionee. The terms of this Option shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee. 7. Term of Option. This Option may not be exercised more than ten (10) -------------- years from the date of grant of this Option, and may be exercised during such period only in accordance with the Plan and the terms of this Option. 8. Taxation Upon Exercise of Option. Optionee understands that, upon -------------------------------- exercise of this Option, he or she will recognize income for tax purposes in an amount equal to the excess of the then Fair Market Value of the Shares purchased over the exercise price paid for such Shares. Since the Optionee is subject to Section 16(b) of the Securities Exchange Act of 1934, as amended, under certain limited circumstances the measurement and timing of such income (and the commencement of any capital gain holding period) may be deferred, and the Optionee is advised to contact a tax advisor concerning the application of Section 83 in general and the availability a Section 83(b) election in particular in connection with the exercise of the Option. Upon a resale of such Shares by the Optionee, any difference between the sale price and the Fair Market Value of the Shares on the date of exercise of the Option, to the extent not included in income as described above, will be treated as capital gain or loss. Optionee acknowledges receipt of a copy of the Plan, a copy of which is attached hereto, and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts this Option subject to all of the terms and provisions thereof. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions arising under the Plan. OPTIONEE: POINTCAST INCORPORATED ___________________________________ ______________________________________ Signature By ___________________________________ ______________________________________ Print Name Title ____________________________________ Residence Address ____________________________________ -3- EXHIBIT A --------- 1998 DIRECTOR OPTION PLAN DIRECTOR OPTION EXERCISE NOTICE PointCast Incorporated 501 Macara Avenue Sunnyvale, CA 94086 Attention: Secretary 1. Exercise of Option. The undersigned ("Optionee") hereby elects to ------------------ exercise Optionee's option to purchase ______ shares of the Common Stock (the "Shares") of PointCast Incorporated (the "Company") under and pursuant to the Company's 1998 Director Option Plan and the Director Option Agreement dated _______________ (the "Agreement"). 2. Representations of Optionee. Optionee acknowledges that Optionee has --------------------------- received, read and understood the Agreement. 3. Tax Consequences. Optionee understands that Optionee may suffer ---------------- adverse tax consequences as a result of Optionee's purchase or disposition of the Shares. Optionee represents that Optionee has consulted with any tax consultant(s) Optionee deems advisable in connection with the purchase or disposition of the Shares and that Optionee is not relying on the Company for any tax advice. 4. Delivery of Payment. Optionee herewith delivers to the Company the ------------------- aggregate purchase price for the Shares that Optionee has elected to purchase and has made provision for the payment of any federal or state withholding taxes required to be paid or withheld by the Company. 5. Entire Agreement. The Agreement is incorporated herein by reference. ---------------- This Exercise Notice, the Plan and the Agreement constitute the entire agreement of the parties and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof. This Exercise Notice, the Plan and the Agreement are governed by California law except for that body of law pertaining to conflict of laws. Submitted by: Accepted by: PURCHASER: POINTCAST INCORPORATED __________________________________ _____________________________________ Signature By __________________________________ _____________________________________ Print Name Its Address: Address: - ------- ------- _________________________________ 501 Macara Avenue _________________________________ Sunnyvale, CA 94086 _________________________________ Date Received -2- POINTCAST INCORPORATED 1998 DIRECTOR OPTION PLAN DIRECTOR OPTION AGREEMENT [SUBSEQUENT OPTION] 1. Grant of Option. Effective as of today, _______________, 19__, --------------- PointCast Incorporated, a Delaware corporation (the "Company"), hereby grants to _______________________ (the "Optionee"), a nonstatutory stock option to purchase a total of five thousand (5,000) shares of the Company's Common Stock ("Common Stock"), at the price deter mined as provided herein, and in all respects subject to the terms, definitions and provisions of the Company's 1998 Director Option Plan (the "Plan") adopted by the Company which is incorporated herein by reference. The terms defined in the Plan shall have the same defined meanings herein. 2. Exercise Price. The exercise price is $_______ for each share of -------------- Common Stock. 3. Exercise of Option. This Option shall be exercisable during its term ------------------ in accordance with the provisions of Section 8 of the Plan as follows: (a) Right to Exercise. ----------------- (i) This Option shall become exercisable in installments cumulatively with respect to one hundred percent (100%) of the shares subject to the Option on the fourth anniversary of the date of grant, subject to Optionee continuing to provide services as a Director, so that one hundred percent (100%) of the Optioned Stock shall be exercisable four years after the date of grant; provided, however, that in no event shall any Option be exercisable prior to the date the stockholders of the Company approve the Plan. (ii) This Option may not be exercised for a fraction of a share. (iii) In the event of Optionee's death, Disability or other termination of service as a Director, the exercisability of the Option is governed by Section 8 of the Plan. (b) Method of Exercise. This Option shall be exercisable by written ------------------ notice which shall state the election to exercise the Option and the number of Shares in respect of which the Option is being exercised. Such written notice, in the form attached hereto as Exhibit A, shall be signed by the Optionee and shall be delivered in person or by certified mail to the Secretary of the Company. The written notice shall be accompanied by payment of the exercise price. 4. Method of Payment. Payment of the exercise price shall be by any of ----------------- the following, or a combination thereof, at the election of the Optionee: (a) cash; (b) check; or (c) surrender of other shares which (x) in the case of Shares acquired upon exercise of an option, have been owned by the Optionee for more than six (6) months on the date of surrender, and (y) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised; or (d) delivery of a properly executed exercise notice together with such other documentation as the Company and the broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the exercise price. 5. Restrictions on Exercise. This Option may not be exercised if the ------------------------ issuance of such Shares upon such exercise or the method of payment of consideration for such shares would constitute a violation of any applicable federal or state securities or other law or regulations, or if such issuance would not comply with the requirements of any stock exchange upon which the Shares may then be listed. As a condition to the exercise of this Option, the Company may require Optionee to make any representation and warranty to the Company as may be required by any applicable law or regulation. 6. Non-Transferability of Option. This Option may not be transferred in ----------------------------- any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by the Optionee. The terms of this Option shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee. 7. Term of Option. This Option may not be exercised more than ten (10) -------------- years from the date of grant of this Option, and may be exercised during such period only in accordance with the Plan and the terms of this Option. 8. Taxation Upon Exercise of Option. Optionee understands that, upon -------------------------------- exercise of this Option, he or she will recognize income for tax purposes in an amount equal to the excess of the then Fair Market Value of the Shares purchased over the exercise price paid for such Shares. Since the Optionee is subject to Section 16(b) of the Securities Exchange Act of 1934, as amended, under certain limited circumstances the measurement and timing of such income (and the commencement of any capital gain holding period) may be deferred, and the Optionee is advised to contact a tax advisor concerning the application of Section 83 in general and the availability a Section 83(b) election in particular in connection with the exercise of the Option. Upon a resale of such Shares by the Optionee, any difference between the sale price and the Fair Market Value of the Shares on the date of exercise of the Option, to the extent not included in income as described above, will be treated as capital gain or loss. Optionee acknowledges receipt of a copy of the Plan, a copy of which is attached hereto, and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts this Option subject to all of the terms and provisions thereof. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions arising under the Plan. OPTIONEE: POINTCAST INCORPORATED ___________________________________ ___________________________________ Signature By ___________________________________ ___________________________________ Print Name Title ___________________________________ Residence Address ____________________________________ -3- EXHIBIT A --------- 1998 DIRECTOR OPTION PLAN DIRECTOR OPTION EXERCISE NOTICE PointCast Incorporated 501 Macara Avenue Sunnyvale, CA 94086 Attention: Secretary 1. Exercise of Option. The undersigned ("Optionee") hereby elects to ------------------ exercise Optionee's option to purchase ______ shares of the Common Stock (the "Shares") of PointCast Incorporated (the "Company") under and pursuant to the Company's 1998 Director Option Plan and the Director Option Agreement dated _______________ (the "Agreement"). 2. Representations of Optionee. Optionee acknowledges that Optionee has --------------------------- received, read and understood the Agreement. 3. Tax Consequences. Optionee understands that Optionee may suffer ---------------- adverse tax consequences as a result of Optionee's purchase or disposition of the Shares. Optionee represents that Optionee has consulted with any tax consultant(s) Optionee deems advisable in connection with the purchase or disposition of the Shares and that Optionee is not relying on the Company for any tax advice. 4. Delivery of Payment. Optionee herewith delivers to the Company the ------------------- aggregate purchase price for the Shares that Optionee has elected to purchase and has made provision for the payment of any federal or state withholding taxes required to be paid or withheld by the Company. 5. Entire Agreement. The Agreement is incorporated herein by reference. ---------------- This Exercise Notice, the Plan and the Agreement constitute the entire agreement of the parties and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof. This Exercise Notice, the Plan and the Agreement are governed by California law except for that body of law pertaining to conflict of laws. Submitted by: Accepted by: PURCHASER: POINTCAST INCORPORATED ___________________________________ ___________________________________ Signature By ___________________________________ ___________________________________ Print Name Its Address: Address: - ------- ------- _________________________________ 501 Macara Avenue _________________________________ Sunnyvale, CA 94086 _________________________________ Date Received -2- EX-10.14 6 EMPLOYMENT AGREEMENT DATED NOVEMBER 1, 1997 EXHIBIT 10.14 POINTCAST INC. EMPLOYMENT AGREEMENT This Agreement is made by and between PointCast Inc. (the "Company"), and David Dorman ("Executive") as of November 1, 1997. 1. Duties and Scope of Employment. ------------------------------ (a) Position; Employment Commencement Date; Duties. Executive's ---------------------------------------------- employment with the Company pursuant to this Agreement shall commence on November 1, 1997 (the "Employment Commencement Date"). As of the Employment Commencement Date, the Company shall employ the Executive as the Chief Executive Officer and President of the Company reporting to the Board of Directors of the Company (the "Board"). The period of Executive's employment hereunder is referred to herein as the "Employment Term." During the Employment Term, Executive shall render such business and professional services in the performance of his duties, consistent with Executive's position within the Company, as shall reasonably be assigned to him by the Board. (b) Board Membership. Upon the Employment Commencement Date, ---------------- Executive shall be appointed to the Board. Thereafter during the Employment Term, the Company agrees to nominate Executive for Board membership when Executive's term as a member of the Board is due to expire. Subject to continued election to the Board by the Company's shareholders, Executive shall remain a member of the Board during the period of his employment with the Company. While a member of the Board, Executive shall have the right to request the Board to elect him as Chairman of the Board. Upon such request, the Board agrees to promptly so elect Executive and the Chairman of the Board at such time (if any) agrees to resign his or her position as Chairman of the Board upon the date of such election. (c) Obligations. During the Employment Term, Executive shall devote ----------- his full business efforts and time to the Company; provided, however, that Executive's provision of services pursuant to his consulting agreement with Southwestern Bell involving, in the aggregate, a minimal time expenditure by Executive, shall not be considered a breach of this obligation. Executive agrees, during the Employment Term, not to actively engage in any other employment, occupation or consulting activity for any direct or indirect remuneration without the prior approval of the Board; provided, however, that Executive may serve in any capacity with any civic, educational or charitable organization, or as a member of corporate Boards of Directors or committees thereof upon which Executive currently serves, without the approval of the Board. 2. Employee Benefits. ----------------- (a) General. During the Employment Term, Executive shall be eligible ------- to participate in the employee benefit plans maintained by the Company that are applicable to other senior management to the full extent provided for under those plans. (b) Vacation. Executive shall be entitled to paid vacation of three -------- weeks per year in accordance with the Company's vacation policy. 3. At-Will Employment. Executive and the Company understand and ------------------ acknowledge that Executive's employment with the Company constitutes "at-will" employment. Executive and the Company acknowledge that this employment relationship may be terminated at any time, upon written notice to the other party, with or without good cause or for any or no cause, at the option either of the Company or Executive. 4. Compensation. ------------ (a) Base Salary. While employed by the Company, the Company shall pay ----------- the Executive as compensation for his services a base salary at the annualized rate of $250,000 (the "Base Salary"). Such salary shall be paid periodically in accordance with normal Company payroll practices and subject to the usual, required withholding. Executive understands and agrees that neither his job performance nor promotions, commendations, bonuses or the like from the Company give rise to or in any way serve as the basis for modification, amendment, or extension, by implication or otherwise, of this Agreement. (b) Bonuses. ------- (i) Sign-On Bonus. Upon November 10, 1997, Executive shall ------------- receive a sign-on bonus payment equal to one million four hundred and thirty- seven thousand five hundred dollars ($1,437,500), less applicable withholding. (ii) Fiscal Year 1999 Bonus. Executive shall eligible to ---------------------- receive a bonus on account of the Company's 1999 fiscal year, with installment payments at the end of each quarter of such fiscal year, based upon performance criteria mutually acceptable to the Executive and the Board of Directors; provided, however, that the amount of such bonus payments shall not be less than $250,000 in the aggregate; provided, further, that the payment of any such bonuses shall be subject to Executive's employment with the Company through the end of such fiscal quarters. (iii) Milestone Bonus. If, at the end of the Company's 1999 --------------- fiscal year, (i) the Company has achieved a total year-end viewership of at least three million viewers, (ii) the Company's audited financial statements for fiscal year 1999, determined on a consolidated basis and in accordance with U.S. generally accepted accounting principles, reflect positive operating income of at least $.01, and (iii) Executive remains employed by the Company through the end of the Company's 1999 fiscal year, then Executive shall receive a bonus equal to one million eight hundred thousand dollars ($1,800,000). The Company may discharge its bonus obligation hereunder by either, as determined in its sole discretion (i) payment of cash, or (ii) forgiveness of indebtedness of Executive to the Company. In either case, such cash -2- payment or debt forgiveness shall be subject to withholding, and in the case of debt forgiveness, shall result in imputed income to Executive. (c) Equity Compensation. ------------------- (i) Stock Option. Executive shall receive a stock option, which ------------ shall be, to the extent possible under the $100,000 rule of Section 422(d) of the Internal Revenue Code of 1986, as amended (the "Code") an "incentive stock option" (as defined in Section 422 of the Code) to purchase a total of two million five hundred thousand (2,500,000) shares of Company Common Stock with a per share exercise price of $4.00 (the "Stock Option"). The Stock Option shall be for a term of ten years (or shorter upon termination of employment or consulting relationship with the Company) and, subject to accelerated vesting as set forth elsewhere herein, shall vest at the rate of 1/48 of the shares originally subject to the Stock Option each month following the first day of Executive's employment with the Company, so as to be 100% vested on the four year anniversary thereof, conditioned upon Executive's continued employment or consulting relationship with the Company as of each vesting date. Except as specified otherwise herein, this option grant is in all respects subject to the terms, definitions and provisions of the Company's 1994 Stock Plan (the "Stock Plan") and the standard form of stock option agreement thereunder to be entered into by and between Executive and the Company (the "Option Agreement"), both of which documents are incorporated herein by reference. (ii) Preferred Stock Purchase. On November 10, 1997, Executive ------------------------ agrees to purchase one hundred and twenty-five thousand (125,000) shares of Company Series E Preferred Stock (the "Purchased Stock") at the price of, and with a fair market value equal to, $9.50 per share. On the date of purchase, the Purchased Stock shall be 100% vested. (iii) Restricted Stock Bonus. On December 11, 1997, ---------------------- Executive shall be awarded three hundred and seventy-five thousand (375,000) shares of Company Series E Preferred Stock (the "Restricted Stock") with a fair market value equal to $9.50 per share. Subject to accelerated vesting as specified elsewhere in this Agreement, the Restricted Stock shall vest as to ninety-three thousand seven hundred and fifty (93,750) shares on the first anniversary of the Employment Commencement Date and as to seven thousand eight hundred twelve and one-half (7,812.5) shares on the first day of each month following such one year anniversary, so as to be 100% vested on the four year anniversary of the Employment Commencement Date, conditioned upon Executive's continued employment with the Company as of such vesting dates. Except as otherwise specified herein, in the event that Executive's employment with the Company terminates, any unvested Restricted Stock shall be forfeited to the Company. This award is in all other respects subject to the terms, definitions and provisions of the standard form of restricted stock purchase agreement to be entered into by and between Executive and the Company (the "Restricted Stock Purchase Agreement"), incorporated herein by reference. -3- (d) Loans. ----- (i) First Loan. As of November 10, 1997, the Company shall ---------- provide Executive with a loan in the amount of one million four hundred thousand dollars ($1,400,000) (the "First Loan") upon Executive entering into a fully recourse promissory note (the "First Loan Note") and a security agreement covering seventy percent (70%) of the Purchased Stock as security for the First Loan; additionally, upon December 11, 1997, Executive agrees to enter into a security agreement covering seventy percent (70%) of the Restricted Stock as security for the First Loan (together, the "First Loan Security Agreements"). The First Loan shall become due and payable upon the earlier of (i) the four year anniversary of the Employment Commencement Date, or (ii) ninety (90) days following the date upon which Executive's employment with the Company terminates. The First Loan shall bear an interest rate of 6.01%, compounded semi-annually and payable annually. (ii) Second Loan. As of November 10, 1997, the Company shall ----------- provide Executive with a loan in the amount of six hundred thousand dollars ($600,000) (the "Second Loan") upon Executive entering into a fully recourse promissory note (the "Second Loan Note") and a security agreement covering the remaining 30% of the Purchased Stock that is not securing the First Loan as security for the Second Loan; additionally, upon December 11, 1997, Executive agrees to enter into a security agreement covering the remaining thirty percent (30%) of the Restricted Stock that is not securing the First Loan as security for the Second Loan (together, the "Second Loan Security Agreements"). The Second Loan shall become due and payable upon the earlier of (i) the four year anniversary of the Employment Commencement Date, or (ii) ninety (90) days following the date upon which Executive's employment with the Company terminates. The Second Loan shall bear an interest rate of 6.01%, compounded semi-annually and payable annually. (e) Severance. In the event that, within two years following the --------- Employment Commencement Date, Executive's employment with the Company is involuntarily terminated by the Company without "Cause" (as defined below), then (i) Executive's Restricted Stock and Stock Option shall vest as to an additional twenty-five percent (25%) of the remaining unvested shares covered by such awards on the date of such termination of employment, and (ii) Executive shall receive a lump-sum payment of two hundred and fifty thousand dollars ($250,000), less applicable withholding, promptly following such termination of employment. For the purposes of this Agreement, "Cause" shall mean (i) Executive's engaging in misconduct which is materially injurious to the Company or its affiliates; (ii Executive's committing of or plea of nolo contendere to a ---- ---------- felony, (iii) Executive's committing an act of fraud against the Company or its affiliates; or (iv) Executive's gross negligence in the performance of his duties. Notwithstanding the foregoing, Executive shall not be deemed to have been terminated for Cause without (i) reasonable notice to Executive setting forth the reasons for the Company's intention to terminate for Cause, and (ii) an opportunity for Executive, together with his counsel, if any, to be heard before the Board. -4- 5. Expenses. The Company will pay or reimburse Executive for reasonable -------- travel, entertainment or other expenses incurred by Executive in the furtherance of or in connection with the performance of Executive's duties hereunder in accordance with the Company's established policies. 6. Change of Control. In the event of a Change of Control of the ----------------- Company, (i) Executive's Restricted Stock shall become 100% vested, and (ii) Executive's Stock Option shall become 100% vested. For this purpose, "Change of Control of the Company" is defined as: (a) Any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the total voting power represented by the Company's then outstanding voting securities; or (b) A change in the composition of the Board occurring within a two- year period, as a result of which fewer than a majority of the directors are Incumbent Directors. "Incumbent Directors" shall mean directors who either (A) are directors of the Company as of the date hereof, or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but shall not include an individual whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company); or (c) The consummation of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (d) the consummation of the sale or disposition by the Company of all or substantially all the Company's assets. 7. Initial Public Offering. In the event that the Company effects an ----------------------- initial public offering of its Common Stock pursuant to a registration statement filed with the Securities and Exchange Commission (the "IPO"), Executive's Restricted Stock shall become 100% vested. 8. Total Disability of Executive. Upon Executive's becoming permanently ----------------------------- and totally disabled (as defined in accordance with Internal Revenue Code Section 22(e)(3) or its successor provision) during the term of this Agreement, employment hereunder shall automatically terminate, all payments of compensation by the Company to Executive hereunder shall immediately terminate (except as to amounts already earned) and all vesting of the Executive's stock options and Restricted Stock shall immediately cease. -5- 9. Death of Executive. ------------------ (a) General. If Executive dies while employed by the Company pursuant ------- to this Agreement, all payments of compensation by the Company to Executive hereunder shall immediately terminate (except as to amounts already earned, which shall be paid to Executive's estate) and Executive's Stock Option and Restricted Stock shall immediately vest as to an additional 25% of the remaining unvested shares but shall otherwise cease vesting. (b) Purchased Stock and Restricted Stock Put Right. If Executive dies ---------------------------------------------- while employed by the Company pursuant to this Agreement, Executive's estate shall have the right (but not the obligation), for a period of ninety (90) days following the date of Executive's death (so long as the IPO has not occurred by the date the estate exercises such right), to sell up to that amount of Purchased Stock and/or Restricted Stock purchased hereunder sufficient to retire outstanding accrued principal and interest on the Second Loan back to the Company at a price equal to the greater of (i) the fair market value of such Purchased Stock and/or Restricted Stock on the date such right is exercised by the estate, as reasonably determined by the Board in good faith, or (ii) $9.50 per share (the "Put Right"). The Put Right must be exercised in writing by Executive's estate within ninety (90) days following Executive's death or it shall become void and without further force and effect. 10. Assignment. This Agreement shall be binding upon and inure to the ---------- benefit of (a) the heirs, executors and legal representatives of Executive upon Executive's death and (b) any successor of the Company. Any such successor of the Company shall be deemed substituted for the Company under the terms of this Agreement for all purposes. As used herein, "successor" shall include any person, firm, corporation or other business entity which at any time, whether by purchase, merger or otherwise, directly or indirectly acquires all or substantially all of the assets or business of the Company. None of the rights of Executive to receive any form of compensation payable pursuant to this Agreement shall be assignable or transferable except through a testamentary disposition or by the laws of descent and distribution upon the death of Executive following termination without cause. Any attempted assignment, transfer, conveyance or other disposition (other than as aforesaid) of any interest in the rights of Executive to receive any form of compensation hereunder shall be null and void. 11. Notices. All notices, requests, demands and other communications ------- called for hereunder shall be in writing and shall be deemed given if (i) delivered personally, (ii) one (1) day after being sent by Federal Express or a similar commercial overnight service, or (iii) three (3) days after being mailed by registered or certified mail, return receipt requested, prepaid and addressed to the parties or their successors in interest at the following addresses, or at such other addresses as the parties may designate by written notice in the manner aforesaid: If to the Company: PointCast Inc. 501 Macara Ave. -6- Sunnyvale, CA 04086 Attn: Chief Financial Officer ---- If to Executive: David Dorman at the last residential address known by the Company. 12. Severability. In the event that any provision hereof becomes or is ------------ declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision. 13. Proprietary Information Agreement. Executive agrees to enter into the --------------------------------- Company's standard Proprietary Information Agreement (the "Proprietary Information Agreement") upon commencing employment hereunder. 14. Entire Agreement. This Agreement, the Stock Plan, the Option ---------------- Agreement, the Restricted Stock Purchase Agreement, the First and Second Loan Notes, the First and Second Loan Security Agreements and the Proprietary Information Agreement of even date herewith represent the entire agreement and understanding between the Company and Executive concerning Executive's employment relationship with the Company, and supersede and replace any and all prior agreements and understandings concerning Executive's employment relationship with the Company. 15. Arbitration and Equitable Relief. -------------------------------- (a) Except as provided in Section 15(d) below, Executive agrees that any dispute or controversy arising out of, relating to, or in connection with this Agreement, or the interpretation, validity, construction, performance, breach, or termination thereof shall be settled by arbitration to be held in Santa Clara County, California, in accordance with the National Rules for the Resolution of Employment Disputes then in effect of the American Arbitration Association (the "Rules"). The arbitrator may grant injunctions or other relief in such dispute or controversy. The decision of the arbitrator shall be final, conclusive and binding on the parties to the arbitration. Judgment may be entered on the arbitrator's decision in any court having jurisdiction. (b) The arbitrator shall apply California law to the merits of any dispute or claim, without reference to rules of conflict of law. The arbitration proceedings shall be governed by federal arbitration law and by the Rules, without reference to state arbitration law. Executive hereby expressly consents to the personal jurisdiction of the state and federal courts located in California for any action or proceeding arising from or relating to this Agreement and/or relating to any arbitration in which the parties are participants. -7- (c) The Company and Executive shall each pay one-half of the costs and expenses of such arbitration, and shall separately pay its counsel fees and expenses. (d) Executive understands that nothing in Section 15 modifies Executive's at-will status. Either the Company or Executive can terminate the employment relationship at any time, with or without cause. (e) EXECUTIVE HAS READ AND UNDERSTANDS SECTION 15, WHICH DISCUSSES ARBITRATION. EXECUTIVE UNDERSTANDS THAT BY SIGNING THIS AGREEMENT, EXECUTIVE AGREES TO SUBMIT ANY FUTURE CLAIMS ARISING OUT OF, RELATING TO, OR IN CONNECTION WITH THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE, BREACH, OR TERMINATION THEREOF TO BINDING ARBITRATION, AND THAT THIS ARBITRATION CLAUSE CONSTITUTES A WAIVER OF EXECUTIVE'S RIGHT TO A JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THE EMPLOYER/EXECUTIVE RELATIONSHIP, INCLUDING BUT NOT LIMITED TO, THE FOLLOWING CLAIMS: (i) ANY AND ALL CLAIMS FOR WRONGFUL DISCHARGE OF EMPLOYMENT; BREACH OF CONTRACT, BOTH EXPRESS AND IMPLIED; BREACH OF THE COVENANT OF GOOD FAITH AND FAIR DEALING, BOTH EXPRESS AND IMPLIED; NEGLIGENT OR INTENTIONAL INFLICTION OF EMOTIONAL DISTRESS; NEGLIGENT OR INTENTIONAL MISREPRESENTATION; NEGLIGENT OR INTENTIONAL INTERFERENCE WITH CONTRACT OR PROSPECTIVE ECONOMIC ADVANTAGE; AND DEFAMATION. (ii) ANY AND ALL CLAIMS FOR VIOLATION OF ANY FEDERAL STATE OR MUNICIPAL STATUTE, INCLUDING, BUT NOT LIMITED TO, TITLE VII OF THE CIVIL RIGHTS ACT OF 1964, THE CIVIL RIGHTS ACT OF 1991, THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967, THE AMERICANS WITH DISABILITIES ACT OF 1990, THE FAIR LABOR STANDARDS ACT, THE CALIFORNIA FAIR EMPLOYMENT AND HOUSING ACT, AND LABOR CODE SECTION 201, et seq; (iii) ANY AND ALL CLAIMS ARISING OUT OF ANY OTHER LAWS AND REGULATIONS RELATING TO EMPLOYMENT OR EMPLOYMENT DISCRIMINATION. 16. Legal and Accounting Fee Reimbursement. The Company agrees to pay -------------------------------------- Executive's legal and accounting fees associated with entering into this Agreement up to $5,000 upon receiving invoices for such services. 17. No Oral Modification, Cancellation or Discharge. This Agreement may ----------------------------------------------- only be amended, canceled or discharged in writing signed by Executive and the Company. -8- 18. Withholding. The Company shall be entitled to withhold, or cause to ----------- be withheld, from payment any amount of withholding taxes required by law with respect to payments made to Executive in connection with his employment hereunder. 19. Governing Law. This Agreement shall be governed by the laws of the ------------- State of California. 20. Effective Date. This Agreement is effective immediately upon the -------------- termination of Executive's employment agreement with Pacific Telesis Group. 21. Acknowledgment. Executive acknowledges that he has had the -------------- opportunity to discuss this matter with and obtain advice from his private attorney, has had sufficient time to, and has carefully read and fully understands all the provisions of this Agreement, and is knowingly and voluntarily entering into this Agreement. IN WITNESS WHEREOF, the undersigned have executed this Agreement on the respective dates set forth below: POINTCAST INC. By: _______________________ _____________________________ Signature Title: _______________________ EXECUTIVE _____________________________ David Dorman -9- EXHIBIT A --------- POINTCAST INC. FIRST LOAN PROMISSORY NOTE $1,400,000 Sunnyvale, CA November 10, 1997 FOR VALUE RECEIVED, David Dorman promises to pay to PointCast Inc. (the "Company"), or order, the principal sum of one million four hundred thousand dollars ($1,400,000), together with interest on the unpaid principal hereof from the date hereof at the rate of six and one one-hundredth percent (6.01%) per annum, compounded semiannually. Principal and interest shall be due and payable on October 22, 2001. Payment of principal and interest shall be made in lawful money of the United States of America. The undersigned may at any time prepay all or any portion of the principal or interest owing hereunder. This Note is secured in part by a pledge of the Company's Series E Preferred Stock under the terms of a Security Agreement of even date herewith and is subject to all the provisions thereof. The holder of this Note shall have full recourse against the undersigned, and shall not be required to proceed against the collateral securing this Note in the event of default. In the event the undersigned shall cease to be an employee of the Company for any reason, this Note shall be accelerated, and the whole unpaid balance on this Note of principal and accrued interest shall be due and payable within ninety (90) days following the date upon which the undersigned's employment terminates. Should any action be instituted for the collection of this Note, the reasonable costs and attorneys' fees therein of the holder shall be paid by the undersigned. ________________________________ David Dorman EXHIBIT B --------- POINTCAST INC. SECOND LOAN PROMISSORY NOTE $600,000 Sunnyvale, CA November 10, 1997 FOR VALUE RECEIVED, David Dorman promises to pay to PointCast Inc. (the "Company"), or order, the principal sum of six hundred thousand dollars ($600,000), together with interest on the unpaid principal hereof from the date hereof at the rate of six and one one-hundredth percent (6.01%) per annum, compounded semiannually. Principal and interest shall be due and payable on October 22, 2001. Payment of principal and interest shall be made in lawful money of the United States of America. The undersigned may at any time prepay all or any portion of the principal or interest owing hereunder. This Note is secured in part by a pledge of the Company's Series E Preferred Stock under the terms of a Security Agreement of even date herewith and is subject to all the provisions thereof. The holder of this Note shall have full recourse against the undersigned, and shall not be required to proceed against the collateral securing this Note in the event of default. In the event the undersigned shall cease to be an employee of the Company for any reason, this Note shall be accelerated, and the whole unpaid balance on this Note of principal and accrued interest shall be due and payable within ninety (90) days following the date upon which the undersigned's employment terminates. Should any action be instituted for the collection of this Note, the reasonable costs and attorneys' fees therein of the holder shall be paid by the undersigned. _________________________________ David Dorman EXHIBIT C --------- FIRST LOAN SECURITY AGREEMENT #1 This Security Agreement is made as of November 10, 1997 between PointCast Inc., a California corporation ("Pledgee"), and David Dorman ("Pledgor"). Recitals -------- Pledgor has purchased one hundred and twenty-five thousand (125,000) shares of Pledgee's Series E Preferred Stock (the "Shares") at a price of $9.50 per share, for a total purchase price of one million one hundred and eighty-seven thousand five hundred dollars ($1,187,500). Pledgor has also received a one million four hundred thousand dollar ($1,400,000) loan from Pledgee pursuant to Pledgor's October 22, 1997 employment agreement with Pledgee (the "Employment Agreement"), evidenced by the First Loan Promissory Note (the "Note"), set forth as Exhibit A to the Employment Agreement. NOW, THEREFORE, it is agreed as follows: 1. Creation and Description of Security Interest. In consideration of the one --------------------------------------------- million four hundred thousand dollar ($1,400,000) loan from Pledgee, Pledgor, pursuant to the Note, hereby pledges eighty-seven thousand five hundred (87,500) of the Shares (herein sometimes referred to as the "Collateral") represented by certificate number ______________. 2. Pledgor's Representations and Covenants. To induce Pledgee to enter into --------------------------------------- this Security Agreement, Pledgor represents and covenants to Pledgee, its successors and assigns, as follows: a. Payment of Indebtedness. Pledgor will pay the principal sum of the ----------------------- Note secured hereby, together with interest thereon, at the time and in the manner provided in the Note. b. Encumbrances. The Shares are free of all other encumbrances, defenses ------------ and liens, and Pledgor will not further encumber the Shares without the prior written consent of Pledgee. c. Margin Regulations. In the event that Pledgee's Common Stock is now or ------------------ later becomes margin-listed by the Federal Reserve Board and Pledgee is classified as a "lender" within the meaning of the regulations under Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G"), Pledgor agrees to cooperate with Pledgee in making any amendments to the Note or providing any additional collateral as may be necessary to comply with such regulations. 3. Voting Rights. During the term of this pledge and so long as all payments ------------- of principal and interest are made as they become due under the terms of the Note, Pledgor shall have the right to vote all of the Shares pledged hereunder. 4. Stock Adjustments. In the event that during the term of the pledge any ----------------- stock dividend, reclassification, readjustment or other changes are declared or made in the capital structure of Pledgee, all new, substituted and additional shares or other securities issued by reason of any such change shall be subject to the terms of this Security Agreement in the same manner as the Shares originally pledged hereunder. In the event of substitution of such securities, Pledgor and Pledgee shall cooperate and execute such documents as are reasonable so as to provide for the substitution of such Collateral and, upon such substitution, references to "Shares" in this Security Agreement shall include the substituted shares of capital stock of Pledgor as a result thereof. 5. Options and Rights. In the event that, during the term of this pledge, ------------------ subscription Options or other rights or options shall be issued in connection with the pledged Shares, such rights, Options and options shall be the property of Pledgor and, if exercised by Pledgor, all new stock or other securities so acquired by Pledgor as it relates to the pledged Shares then held by Pledgeholder shall be immediately subject to the terms of this Security Agreement in the same manner as the Shares initially pledged. 6. Default. Pledgor shall be deemed to be in default of the Note and of this ------- Security Agreement in the event that payment of principal or interest on the Note shall be delinquent ("Default"). In the event of Default, Pledgee shall have the right to accelerate payment of the Note upon notice to Pledgor, and Pledgee shall thereafter be entitled to pursue its remedies under the California Commercial Code. 7. Release of Collateral. Subject to any applicable contrary rules under --------------------- Regulation G, there shall be released from this pledge a portion of the pledged Shares held by Pledgeholder hereunder upon payments of the principal of the Note. The number of the pledged Shares which shall be released shall be that number of full Shares which bears the same proportion to the initial number of Shares pledged hereunder as the payment of principal bears to the initial full principal amount of the Note. 8. Withdrawal or Substitution of Collateral. Pledgor shall not sell, ---------------------------------------- withdraw, pledge, substitute or otherwise dispose of all or any part of the Collateral without the prior written consent of Pledgee. 9. Term. The within pledge of Shares shall continue until the payment of all ---- indebtedness secured hereby, subject to the provisions for prior release of a portion of the Collateral as provided in paragraph 7 above. -4- 10. Insolvency. Pledgor agrees that if a bankruptcy or insolvency proceeding ---------- is instituted by or against it, or if a receiver is appointed for the property of Pledgor, or if Pledgor makes an assignment for the benefit of creditors, the entire amount unpaid on the Note shall become immediately due and payable, and Pledgee may proceed as provided in the case of default. 11. Pledgeholder Liability. In the absence of willful or gross negligence, ---------------------- Pledgeholder shall not be liable to any party for any of his acts, or omissions to act, as Pledgeholder. 12. Invalidity of Particular Provisions. Pledgor and Pledgee agree that the ----------------------------------- enforceability or invalidity of any provision or provisions of this Security Agreement shall not render any other provision or provisions herein contained unenforceable or invalid. 13. Successors or Assigns. Pledgor and Pledgee agree that all of the terms of --------------------- this Security Agreement shall be binding on their respective successors and assigns, and that the term "Pledgor" and the term "Pledgee" as used herein shall be deemed to include, for all purposes, the respective designees, successors, assigns, heirs, executors and administrators. 14. Governing Law. This Security Agreement shall be interpreted and governed ------------- under the internal substantive laws, but not the choice of law rules, of California. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. "PLEDGOR" _________________________________ David Dorman "PLEDGEE" POINTCAST INC. ________________________________ Philip Koen -5- EXHIBIT D --------- FIRST LOAN SECURITY AGREEMENT #2 This Security Agreement is made as of December 16, 1997 between PointCast Inc., a California corporation ("Pledgee"), and David Dorman ("Pledgor"). Recitals -------- Pledgor has been awarded three hundred and seventy-five thousand (375,000) shares of Pledgee's Series E Preferred Stock (the "Shares") subject to vesting and as otherwise specified in the Restricted Stock Bonus Agreement by and between Pledgor and Pledgee. Pledgor has also received a one million four hundred thousand dollar ($1,400,000) loan from Pledgee pursuant to Pledgor's October 22, 1997 employment agreement with Pledgee (the "Employment Agreement"), evidenced by the First Loan Promissory Note (the "Note"), set forth as Exhibit A to the Employment Agreement. NOW, THEREFORE, it is agreed as follows: Creation and Description of Security Interest. In consideration of the one --------------------------------------------- million four hundred thousand dollar ($1,400,000) loan from Pledgee, Pledgor, pursuant to the Note, hereby pledges two hundred and sixty-two thousand five hundred (262,500) of the Shares (herein sometimes referred to as the "Collateral") represented by certificate number ______________. 1. Pledgor's Representations and Covenants. To induce Pledgee to enter into --------------------------------------- this Security Agreement, Pledgor represents and covenants to Pledgee, its successors and assigns, as follows: a. Payment of Indebtedness. Pledgor will pay the principal sum of the ----------------------- Note secured hereby, together with interest thereon, at the time and in the manner provided in the Note. b. Encumbrances. Other than the vesting restrictions, the Shares are free ------------ of all other encumbrances, defenses and liens, and Pledgor will not further encumber the Shares without the prior written consent of Pledgee. c. Margin Regulations. In the event that Pledgee's Common Stock is now or ------------------ later becomes margin-listed by the Federal Reserve Board and Pledgee is classified as a "lender" within the meaning of the regulations under Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G"), Pledgor agrees to cooperate with Pledgee in making any amendments to the Note or providing any additional collateral as may be necessary to comply with such regulations. 2. Voting Rights. During the term of this pledge and so long as all payments ------------- of principal and interest are made as they become due under the terms of the Note, Pledgor shall have the right to vote all of the Shares pledged hereunder. 3. Stock Adjustments. In the event that during the term of the pledge any ----------------- stock dividend, reclassification, readjustment or other changes are declared or made in the capital structure of Pledgee, all new, substituted and additional shares or other securities issued by reason of any such change shall be subject to the terms of this Security Agreement in the same manner as the Shares originally pledged hereunder. In the event of substitution of such securities, Pledgor and Pledgee shall cooperate and execute such documents as are reasonable so as to provide for the substitution of such Collateral and, upon such substitution, references to "Shares" in this Security Agreement shall include the substituted shares of capital stock of Pledgor as a result thereof. 4. Options and Rights. In the event that, during the term of this pledge, ------------------ subscription Options or other rights or options shall be issued in connection with the pledged Shares, such rights, Options and options shall be the property of Pledgor and, if exercised by Pledgor, all new stock or other securities so acquired by Pledgor as it relates to the pledged Shares then held by Pledgeholder shall be immediately subject to the terms of this Security Agreement in the same manner as the Shares initially pledged. 5. Default. Pledgor shall be deemed to be in default of the Note and of this ------- Security Agreement in the event that payment of principal or interest on the Note shall be delinquent ("Default"). In the event of Default, Pledgee shall have the right to accelerate payment of the Note upon notice to Pledgor, and Pledgee shall thereafter be entitled to pursue its remedies under the California Commercial Code. 6. Release of Collateral. Subject to any applicable contrary rules under --------------------- Regulation G, there shall be released from this pledge a portion of the pledged Shares held by Pledgeholder hereunder upon payments of the principal of the Note. The number of the pledged Shares which shall be released shall be that number of full Shares which bears the same proportion to the initial number of Shares pledged hereunder as the payment of principal bears to the initial full principal amount of the Note. 7. Withdrawal or Substitution of Collateral. Pledgor shall not sell, ---------------------------------------- withdraw, pledge, substitute or otherwise dispose of all or any part of the Collateral without the prior written consent of Pledgee. -2- 8. Term. The within pledge of Shares shall continue until the payment of all ---- indebtedness secured hereby, subject to the provisions for prior release of a portion of the Collateral as provided in paragraph 7 above. 9. Insolvency. Pledgor agrees that if a bankruptcy or insolvency proceeding ---------- is instituted by or against it, or if a receiver is appointed for the property of Pledgor, or if Pledgor makes an assignment for the benefit of creditors, the entire amount unpaid on the Note shall become immediately due and payable, and Pledgee may proceed as provided in the case of default. 10. Pledgeholder Liability. In the absence of willful or gross negligence, ---------------------- Pledgeholder shall not be liable to any party for any of his acts, or omissions to act, as Pledgeholder. 11. Invalidity of Particular Provisions. Pledgor and Pledgee agree that the ----------------------------------- enforceability or invalidity of any provision or provisions of this Security Agreement shall not render any other provision or provisions herein contained unenforceable or invalid. 12. Successors or Assigns. Pledgor and Pledgee agree that all of the terms of --------------------- this Security Agreement shall be binding on their respective successors and assigns, and that the term "Pledgor" and the term "Pledgee" as used herein shall be deemed to include, for all purposes, the respective designees, successors, assigns, heirs, executors and administrators. 13. Governing Law. This Security Agreement shall be interpreted and governed ------------- under the internal substantive laws, but not the choice of law rules, of California. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. "PLEDGOR" _________________________________ David Dorman "PLEDGEE" POINTCAST INC. ________________________________ Philip Koen -3- EXHIBIT E --------- SECOND LOAN SECURITY AGREEMENT #1 This Security Agreement is made as of November 10, 1997 between PointCast Inc., a California corporation ("Pledgee"), and David Dorman ("Pledgor"). Recitals -------- Pledgor has purchased one hundred and twenty-five thousand (125,000) shares of Pledgee's Series E Preferred Stock (the "Shares") at a price of $9.50 per share, for a total purchase price of one million one hundred and eighty-seven thousand five hundred dollars ($1,187,500). Pledgor has also received a six hundred thousand dollar ($600,000) loan from Pledgee pursuant to Pledgor's October 22, 1997 employment agreement with Pledgee (the "Employment Agreement"), evidenced by the Second Loan Promissory Note (the "Note"), set forth as Exhibit B to the Employment Agreement. NOW, THEREFORE, it is agreed as follows: 1. Creation and Description of Security Interest. In consideration of the six --------------------------------------------- hundred thousand dollar ($600,000) loan from Pledgee, Pledgor, pursuant to the Note, hereby pledges thirty-seven thousand five hundred (37,500) of the Shares (herein sometimes referred to as the "Collateral") represented by certificate number ______________. 2. Pledgor's Representations and Covenants. To induce Pledgee to enter into --------------------------------------- this Security Agreement, Pledgor represents and covenants to Pledgee, its successors and assigns, as follows: a. Payment of Indebtedness. Pledgor will pay the principal sum of the ----------------------- Note secured hereby, together with interest thereon, at the time and in the manner provided in the Note. b. Encumbrances. The Shares are free of all other encumbrances, defenses ------------ and liens, and Pledgor will not further encumber the Shares without the prior written consent of Pledgee. c. Margin Regulations. In the event that Pledgee's Common Stock is now ------------------ or later becomes margin-listed by the Federal Reserve Board and Pledgee is classified as a "lender" within the meaning of the regulations under Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G"), Pledgor agrees to cooperate with Pledgee in making any amendments to the Note or providing any additional collateral as may be necessary to comply with such regulations. 3. Voting Rights. During the term of this pledge and so long as all payments ------------- of principal and interest are made as they become due under the terms of the Note, Pledgor shall have the right to vote all of the Shares pledged hereunder. 4. Stock Adjustments. In the event that during the term of the pledge any ----------------- stock dividend, reclassification, readjustment or other changes are declared or made in the capital structure of Pledgee, all new, substituted and additional shares or other securities issued by reason of any such change shall be subject to the terms of this Security Agreement in the same manner as the Shares originally pledged hereunder. In the event of substitution of such securities, Pledgor and Pledgee shall cooperate and execute such documents as are reasonable so as to provide for the substitution of such Collateral and, upon such substitution, references to "Shares" in this Security Agreement shall include the substituted shares of capital stock of Pledgor as a result thereof. 5. Options and Rights. In the event that, during the term of this pledge, ------------------ subscription Options or other rights or options shall be issued in connection with the pledged Shares, such rights, Options and options shall be the property of Pledgor and, if exercised by Pledgor, all new stock or other securities so acquired by Pledgor as it relates to the pledged Shares then held by Pledgeholder shall be immediately subject to the terms of this Security Agreement in the same manner as the Shares initially pledged. 6. Default. Pledgor shall be deemed to be in default of the Note and of this ------- Security Agreement in the event that payment of principal or interest on the Note shall be delinquent ("Default"). In the event of Default, Pledgee shall have the right to accelerate payment of the Note upon notice to Pledgor, and Pledgee shall thereafter be entitled to pursue its remedies under the California Commercial Code. 7. Release of Collateral. Subject to any applicable contrary rules under --------------------- Regulation G, there shall be released from this pledge a portion of the pledged Shares held by Pledgeholder here under upon payments of the principal of the Note. The number of the pledged Shares which shall be released shall be that number of full Shares which bears the same proportion to the initial number of Shares pledged hereunder as the payment of principal bears to the initial full principal amount of the Note. 8. Withdrawal or Substitution of Collateral. Pledgor shall not sell, ---------------------------------------- withdraw, pledge, substitute or otherwise dispose of all or any part of the Collateral without the prior written consent of Pledgee. 9. Term. The within pledge of Shares shall continue until the payment of all ---- indebtedness secured hereby, subject to the provisions for prior release of a portion of the Collateral as provided in paragraph 7 above. -2- 10. Insolvency. Pledgor agrees that if a bankruptcy or insolvency proceeding ---------- is instituted by or against it, or if a receiver is appointed for the property of Pledgor, or if Pledgor makes an assignment for the benefit of creditors, the entire amount unpaid on the Note shall become immediately due and payable, and Pledgee may proceed as provided in the case of default. 11. Pledgeholder Liability. In the absence of willful or gross negligence, ---------------------- Pledgeholder shall not be liable to any party for any of his acts, or omissions to act, as Pledgeholder. 12. Invalidity of Particular Provisions. Pledgor and Pledgee agree that the ----------------------------------- enforceability or invalidity of any provision or provisions of this Security Agreement shall not render any other provision or provisions herein contained unenforceable or invalid. 13. Successors or Assigns. Pledgor and Pledgee agree that all of the terms of --------------------- this Security Agreement shall be binding on their respective successors and assigns, and that the term "Pledgor" and the term "Pledgee" as used herein shall be deemed to include, for all purposes, the respective designees, successors, assigns, heirs, executors and administrators. 14. Governing Law. This Security Agreement shall be interpreted and governed ------------- under the internal substantive laws, but not the choice of law rules, of California. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. "PLEDGOR" _________________________________ David Dorman "PLEDGEE" POINTCAST INC. ________________________________ Philip Koen -3- EXHIBIT F --------- SECOND LOAN SECURITY AGREEMENT #2 This Security Agreement is made as of December 16, 1997 between PointCast Inc., a California corporation ("Pledgee"), and David Dorman ("Pledgor"). Recitals -------- Pledgor has been awarded three hundred and seventy-five thousand (375,000) shares of Pledgee's Series E Preferred Stock (the "Shares") subject to vesting and as otherwise specified in the Restricted Stock Bonus Agreement by and between Pledgor and Pledgee. Pledgor has also received a six hundred thousand dollar ($600,000) loan from Pledgee pursuant to Pledgor's October 22, 1997 employment agreement with Pledgee (the "Employment Agreement"), evidenced by the Second Loan Promissory Note (the "Note"), set forth as Exhibit B to the Employment Agreement. NOW, THEREFORE, it is agreed as follows: 1. Creation and Description of Security Interest. In consideration of the six --------------------------------------------- hundred thousand dollar ($600,000) loan from Pledgee, Pledgor, pursuant to the Note, hereby pledges one hundred and twelve thousand five hundred (112,500) of such Shares (herein sometimes referred to as the "Collateral") represented by certificate number ______________. 2. Pledgor's Representations and Covenants. To induce Pledgee to enter into --------------------------------------- this Security Agreement, Pledgor represents and covenants to Pledgee, its successors and assigns, as follows: a. Payment of Indebtedness. Pledgor will pay the principal sum of the ----------------------- Note secured hereby, together with interest thereon, at the time and in the manner provided in the Note. b. Encumbrances. Other than the vesting restrictions, the Shares are ------------ free of all other encumbrances, defenses and liens, and Pledgor will not further encumber the Shares without the prior written consent of Pledgee. c. Margin Regulations. In the event that Pledgee's Common Stock is now ------------------ or later becomes margin-listed by the Federal Reserve Board and Pledgee is classified as a "lender" within the meaning of the regulations under Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G"), Pledgor agrees to cooperate with Pledgee in making any amendments to the Note or providing any additional collateral as may be necessary to comply with such regulations. 3. Voting Rights. During the term of this pledge and so long as all payments ------------- of principal and interest are made as they become due under the terms of the Note, Pledgor shall have the right to vote all of the Shares pledged hereunder. 4. Stock Adjustments. In the event that during the term of the pledge any ----------------- stock dividend, reclassification, readjustment or other changes are declared or made in the capital structure of Pledgee, all new, substituted and additional shares or other securities issued by reason of any such change shall be subject to the terms of this Security Agreement in the same manner as the Shares originally pledged hereunder. In the event of substitution of such securities, Pledgor and Pledgee shall cooperate and execute such documents as are reasonable so as to provide for the substitution of such Collateral and, upon such substitution, references to "Shares" in this Security Agreement shall include the substituted shares of capital stock of Pledgor as a result thereof. 5. Options and Rights. In the event that, during the term of this pledge, ------------------ subscription Options or other rights or options shall be issued in connection with the pledged Shares, such rights, Options and options shall be the property of Pledgor and, if exercised by Pledgor, all new stock or other securities so acquired by Pledgor as it relates to the pledged Shares then held by Pledgeholder shall be immediately subject to the terms of this Security Agreement in the same manner as the Shares initially pledged. 6. Default. Pledgor shall be deemed to be in default of the Note and of this ------- Security Agreement in the event that payment of principal or interest on the Note shall be delinquent ("Default"). In the event of Default, Pledgee shall have the right to accelerate payment of the Note upon notice to Pledgor, and Pledgee shall thereafter be entitled to pursue its remedies under the California Commercial Code. 7. Release of Collateral. Subject to any applicable contrary rules under --------------------- Regulation G, there shall be released from this pledge a portion of the pledged Shares held by Pledgeholder hereunder upon payments of the principal of the Note. The number of the pledged Shares which shall be released shall be that number of full Shares which bears the same proportion to the initial number of Shares pledged hereunder as the payment of principal bears to the initial full principal amount of the Note. 8. Withdrawal or Substitution of Collateral. Pledgor shall not sell, ---------------------------------------- withdraw, pledge, substitute or otherwise dispose of all or any part of the Collateral without the prior written consent of Pledgee. 9. Term. The within pledge of Shares shall continue until the payment of all ---- indebtedness secured hereby, subject to the provisions for prior release of a portion of the Collateral as provided in paragraph 7 above. -2- 10. Insolvency. Pledgor agrees that if a bankruptcy or insolvency proceeding ---------- is instituted by or against it, or if a receiver is appointed for the property of Pledgor, or if Pledgor makes an assignment for the benefit of creditors, the entire amount unpaid on the Note shall become immediately due and payable, and Pledgee may proceed as provided in the case of default. 11. Pledgeholder Liability. In the absence of willful or gross negligence, ---------------------- Pledgeholder shall not be liable to any party for any of his acts, or omissions to act, as Pledgeholder. 12. Invalidity of Particular Provisions. Pledgor and Pledgee agree that the ----------------------------------- enforceability or invalidity of any provision or provisions of this Security Agreement shall not render any other provision or provisions herein contained unenforceable or invalid. 13. Successors or Assigns. Pledgor and Pledgee agree that all of the terms of --------------------- this Security Agreement shall be binding on their respective successors and assigns, and that the term "Pledgor" and the term "Pledgee" as used herein shall be deemed to include, for all purposes, the respective designees, successors, assigns, heirs, executors and administrators. 14. Governing Law. This Security Agreement shall be interpreted and governed ------------- under the internal substantive laws, but not the choice of law rules, of California. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. "PLEDGOR" _________________________________ David Dorman "PLEDGEE" POINTCAST INC. ________________________________ Philip Koen -3- EX-10.15 7 LEASE AGREEMENT DATED 7/20/77 EXHIBIT 10.15 BLDG: Macara B OWNER: 500 PROP: 76 UNIT: 1 TENANT: 7601 LEASE AGREEMENT THIS LEASE, made this 22nd day of January, 1997 between JOHN ARRILLAGA, Trustee, or his Successor Trustee, UTA dated 7/20/77 (ARRILLAGA FAMILY TRUST) as amended, and RICHARD T. PEERY, Trustee, or his Successor Trustee, UTA dated 7/20/77 (RICHARD T. PEERY SEPARATE PROPERTY TRUST) as amended, hereinafter called Landlord and POINTCAST, INC., a California corporation, hereinafter called Tenant. WITNESSETH: Landlord hereby leases to Tenant and Tenant hereby hires and takes from Landlord those certain premises (the "Premises") outlined in red on Exhibit "A", attached hereto and incorporated herein by this reference thereto more particularly described as follows: All of that certain 31,266 +/- square foot, two-story building, parking and landscape appurtenant thereto, to be constructed by Landlord and located at 500 Macara Avenue, Sunnyvale, California. Said Premises is more particularly shown within the area outlined in Red on Exhibit A to be attached hereto. The entire --------- parcel, of which the Premises is a part, and Tenant's exclusive parking are shown within the area outlined in Green on Exhibit A to be attached hereto. The --------- interior of the Premises will be improved as shown in Red on Exhibit B to be --------- attached hereto. The building shell and site improvements shall be constructed in accordance with the shell and site improvements specifications set forth on Exhibit A. Landlord shall use the same architect for the design of said building - --------- that Landlord uses for the design of the building leased by Tenant under the Macara A Lease (as hereinafter defined). The word "Premises" as used throughout this lease is hereby defined to include the nonexclusive use of landscaped areas, sidewalks, and driveways in front of or adjacent to the Premises, and the nonexclusive use of the area directly underneath or over such sidewalks and driveways. The gross leasable area of the building shall be measured from outside of exterior walls to outside of exterior walls, and shall include any atriums, covered entrances or egresses and covered loading areas. Said letting and hiring is upon and subject to the terms, covenants and conditions hereinafter set forth and Tenant covenants as a material part of the consideration for this Lease to perform and observe each and all of said terms, covenants and conditions. This Lease is made upon the conditions of such performance and observance. 1. USE Tenant shall use the Premises only in conformance with applicable governmental laws, regulations, rules and ordinances for the purpose of general office, light manufacturing, research and development, and storage and other uses necessary for Tenant to conduct Tenant's business, provided that such uses shall be in accordance with all applicable governmental laws and ordinances, and for no other purpose. Tenant shall not do or permit to be done in or about the Premises nor bring or keep or permit to be brought or kept in or about the Premises anything which is prohibited by or will in any way increase the existing rate of (or otherwise affect) fire or any insurance covering the Premises or any part thereof, or any of its contents, or will cause a cancellation of any insurance covering the Premises or any part thereof, or any of its contents. Tenant shall not do or permit to be done anything in, on or about the Premises which will in any way obstruct or interfere with the rights of other tenants or occupants of the Premises or neighboring premises or injure or annoy them, or use or allow the Premises to be used for any improper, immoral, unlawful or objectionable purpose, nor shall Tenant cause, maintain or permit any nuisance in, on or about the Premises. No sale by auction shall be permitted on the Premises. Tenant shall not place any loads upon floors, walls, or ceiling which endanger the structure, or place any harmful fluids or other materials in the drainage system of the building, or overload existing electrical or other mechanical systems. No waste materials or refuse shall be dumped upon or permitted to remain upon any part of the Premises or outside of the building in which the Premises are a part, except in trash containers placed inside exterior enclosures designated by Landlord for that purpose or inside of the building proper where designated by Landlord. No materials, supplies, equipment, finished products or semi-finished products, raw materials or articles of any nature shall be stored upon or permitted to remain outside the Premises. Tenant shall not place anything or allow anything to be placed near the glass of any window, door partition or wall which may appear unsightly from outside the Premises. No loudspeaker or other device, system or apparatus which can be heard outside the Premises shall be used in or at the Premises without the prior written consent of Landlord. Tenant shall not commit or suffer to be committed any waste in or upon the Premises. Tenant shall indemnify, defend and hold Landlord harmless against any loss, expense, damage, reasonable attorneys' fees, or liability arising out of failure of Tenant to comply with any applicable law that governs Tenant's use of the Premises. Tenant shall comply with any covenant, condition, or restriction ("CC&R's") affecting the Premises. The provisions of this paragraph are for the benefit of Landlord only and shall not be construed to be for the benefit of any tenant or occupant of the Premises. 2. TERM* A. The term of this Lease shall be for a period of FIVE (5) YEARS SIX (6) months (unless sooner terminated as hereinafter provided) and, subject to Paragraphs 2B and 3, shall commence on the 1st day of May, 1997 and end on the 31st day of October, 2002. B. Possession of the Premises shall be deemed tendered and the term of the Lease shall commence when the first of the following occurs: (a) One day after a Certificate of Occupancy is granted by the proper governmental agency, or, if the governmental agency having jurisdiction over the area in which the Premises are situated does not issue certificates of occupancy, then the same number of days after certification by Landlord's architect or contractor that Landlord's construction work has been completed); and when the Tenant Improvements have been substantially completed for Tenant's use and occupancy, in accordance with Exhibit B of this Lease Agreement; or --------- (b) Upon the occupancy of the Premises by any Tenant's operating personnel; or (c) As otherwise agreed in writing. *It is agreed in the event said Lease commences on a date other than the first day of the month the term of the Lease will be extended to account for the number of days in the partial month. The Basic Rent during the resulting partial month will be pro-rated (for the number of days in the partial month) at the Basic Rent rate scheduled for the projected commencement date as shown in Paragraph 39. page 1 of 8 3. POSSESSION If Landlord, for any reason whatsoever, cannot deliver possession of said premises to Tenant at the commencement of the said term, as hereinbefore specified, this Lease shall not be void or voidable; no obligation of Tenant shall be affected thereby; nor shall Landlord or Landlord's agents be liable to Tenant for any loss or damage resulting therefrom; but in that event the commencement and termination dates of the Lease, and all other dates affected thereby shall be revised to conform to the date of Landlord's delivery of possession, as specified in Paragraph 2B, above. The above is, however, subject to the provision that the period of delay of delivery of the Premises shall not exceed 180 days from the commencement date herein (except those delays caused by acts of god, strikes, war, utilities, governmental bodies, weather, unavailable materials, and delays beyond Landlord's control shall be excluded in calculating such period) in which instance Tenant, at its option, may, by written notice to Landlord, terminate this Lease. 4. RENT A. Basic Rent. Tenant agrees to pay to Landlord at such place as Landlord may designate without deduction, offset, prior notice, or demand, and Landlord agrees to accept as Basic Rent for the leased Premises the total sum of TO BE DETERMINED Dollars ($ TO BE DETERMINED) in lawful money of the United States of America, payable as follows: See Paragraph 39 for Basic Rent Schedule and Aggregate Basic Rent B. Time for Payment. Full monthly rent is due in advance on the first day of each calendar month. In the event that the term of this Lease commences on a date other than the first day of a calendar month, on the date of commencement of the term hereof Tenant shall pay to Landlord as rent for the period from such date of commencement to the first day of the next succeeding calendar month that proportion of the monthly rent hereunder which the number of days between such date of commencement and the first day of the next succeeding calendar month bears to thirty (30). In the event that the term of this Lease for any reason ends on a date other than the last day of a calendar month, on the first day of the last calendar month of the term hereof Tenant shall pay to Landlord as rent for the period from said first day of said last calendar month to and including the last day of the term hereof that proportion of the monthly rent hereunder which the number of days between said first day of said last calendar month and the last day of the term hereof bears to thirty (30). C. Late Charge. Notwithstanding any other provision of this Lease, if Tenant is in default in the payment of rental as set forth in this Paragraph 4 when due, or any part thereof, Tenant agrees to pay Landlord, in addition to the delinquent rental due, a late charge for each rental payment in default ten (10) days. Said late charge shall equal ten percent (10%) of each rental payment so in default. D. Additional Rent. Beginning with the commencement date of the term of this Lease, Tenant shall pay to Landlord or to Landlord's designated agent in addition to the Basic Rent and as Additional Rent the following: (a) All Taxes relating to the Premises as set forth in Paragraph 9, and (b) All insurance premiums relating to the Premises, as set forth in Paragraph 12, and (c) All charges, costs and expenses, which Tenant is required to pay hereunder, together with all interest and penalties, costs and expenses including reasonable attorneys' fees and legal expenses, that may accrue thereto in the event of Tenant's failure to pay such amounts, and damages, reasonable costs and expenses which Landlord may incur by reason of default of Tenant or failure on Tenant's part to comply with the terms of this Lease. In the event of nonpayment by Tenant of Additional Rent, Landlord shall have all the rights and remedies with respect thereto as Landlord has for nonpayment of rent. The Additional Rent due hereunder shall be paid to Landlord or Landlord's agent (i) within five days for taxes and insurance and within thirty (30) days for all other Additional Rent items after presentation of invoice from Landlord or Landlord's agent setting forth such Additional Rent and/or (ii) at the option of Landlord, Tenant shall pay to Landlord monthly, in advance, Tenant's prorata share of an amount estimated by Landlord to be Landlord's approximate average monthly expenditure for such Additional Rent items, which estimated amount shall be reconciled within 120 days of each calendar year or more frequently if Landlord elects to do so at Landlord's sole and absolute discretion as compared to Landlord's actual expenditure for said Additional Rent items, with Tenant paying to Landlord, upon demand, any amount of actual expenses expended by Landlord in excess of said estimated amount, or Landlord refunding to Tenant (providing Tenant is not in default in the performance of any of the terms, covenants and conditions of this Lease)in which case Landlord shall credit such amount towards cure of Tenant's default and, once default is cured, return any balance to Tenant any amount of estimated payments made by Tenant in excess of Landlord's actual expenditures for said Additional Rent items. E. Fixed Management Fee. Beginning with the Commencement Date of the Term -------------------- of this Lease, Tenant shall pay to Landlord, in addition to the Basic Rent and Additional Rent, a fixed monthly management fee ("Management Fee") equal to 1% of the Basic Rent due for each month during the Lease Term. The respective obligations of Landlord and Tenant under this paragraph shall survive the expiration or other termination of the term of this Lease, and if the term hereof shall expire or shall otherwise terminate on a day other than the last day of a calendar year, the actual Additional Rent incurred for the calendar year in which the term hereof expires or otherwise terminates shall be determined and settled on the basis of the statement of actual Additional Rent for such calendar year and shall be prorated in the proportion which the number of days in such calendar year preceding such expiration or termination bears to 365. F. Place of Payment of Rent and Additional Rent. All Basic Rent hereunder and all payments hereunder for Additional Rent shall be paid to Landlord at the office of Landlord at Peery/Arrillaga, File 1504, P.O. Box 60000, San Francisco, CA 94160 or to such other person or to such other place as Landlord may from time to time designate in writing. G. Security Deposit Subject to Paragraph 49, concurrently with Tenant's execution of this Lease, Tenant shall deposit with Landlord the sum of ONE HUNDRED SEVENTY ONE THOUSAND NINE HUNDRED SIXTY THREE AND NO/100----- Dollars ($171,963.00-------------. Said sum shall be held by Landlord as a Security Deposit for the faithful performance by Tenant of all of the terms, covenants, and conditions of this Lease to be kept and performed by Tenant during the term hereof. If Tenant defaults with respect to any provision of this Lease, including, but not limited to, the provisions relating to the payment of rent and any of the monetary sums due herewith, Landlord may (but shall not be required to) use, apply or retain all or any part of this Security Deposit for the payment of any other amount which Landlord may spend by reason of Tenant's default or to compensate Landlord for page 2 of 8 any other loss or damage which Landlord may suffer by reason of Tenant's default. If any portion of said Deposit is so used or applied, Tenant shall, within ten (10) days after written demand therefor, deposit cash with Landlord in the amount sufficient to restore the Security Deposit to its original amount. Tenant's failure to do so shall be a material breach of this Lease. Landlord shall not be required to keep this Security Deposit separate from its general funds, and Tenant shall not be entitled to interest of such Deposit. If Tenant fully and faithfully performs every provision of this Lease to be performed by it, the Security Deposit or any balance thereof shall be returned to Tenant (or at Landlord's option, to the last assignee of Tenant's interest hereunder) within thirty (30) days of the expiration of the Lease term and after Tenant has vacated the Premises. In the event of termination of Landlord's interest in this Lease, Landlord shall transfer said Deposit to Landlord's successor in interest whereupon Tenant agrees to release Landlord from liability for the return of such Deposit or the accounting therefor. The use or disposition of the Security Deposit shall be subject to the provisions of California Civil Code Section 1950.7. 5. ACCEPTANCE AND SURRENDER OF PREMISES By entry hereunder, Tenant accepts the Premises as being in good and sanitary order, condition and repair and accepts the building and improvements included in the Premises in their present condition and without representation or warranty by Landlord as to the condition of such building or as to the use or occupancy which may be made thereof. Any exceptions to the foregoing must be by written agreement executed by Landlord and Tenant. Tenant agrees on the last day of the Lease term, or on the sooner termination of this Lease, to surrender the Premises promptly and peaceably to Landlord in good condition and repair (damage by Acts of God, fire, normal wear and tear excepted), with all interior walls painted or cleaned so that they appear freshly painted, and repaired and replaced, if damaged; all floors cleaned and waxed; all carpets cleaned and shampooed; all broken, marred and nonconforming acoustical ceiling tiles replaced; all windows washed; the airconditioning and heating systems serviced by a reputable and licensed service firm and in good operating condition and repair; the plumbing and electrical systems and lighting in good order and repair, including replacement of any burned out or broken light bulbs or ballasts; the lawn and shrubs in good condition including the replacement of any dead or damaged plantings; the sidewalk, driveways and parking areas in good order, condition and repair; together with all alterations, additions, and improvements which may have been made in, to, or on the Premises (except moveable trade fixtures installed at the expenses of Tenant) except that Tenant shall ascertain from Landlord within ninety (90) days before the end of the term of this Lease whether Landlord desires to have the Premises or any part or parts thereof restored to their condition and configuration as when the Premises were delivered to Tenant and if Landlord shall so desire, then Tenant shall restore said Premises or such part or parts thereof before the end of this Lease at Tenant's sole cost and expense. Tenant, on or before the end of the term or sooner termination of this Lease, shall remove all of Tenant's personal property and trade fixtures from the Premises, and all property not so removed on or before the end of the term or sooner termination of this Lease shall be deemed abandoned by Tenant and title to same shall thereupon pass to Landlord without compensation to Tenant. Landlord may, upon termination of this Lease, remove all moveable furniture and equipment so abandoned by Tenant, at Tenant's sole cost and repair any damage caused by such removal at Tenant's sole cost. If the Premises be not surrendered at the end of the term or sooner termination of this Lease, Tenant shall indemnify Landlord against loss or liability resulting from the delay by Tenant in so surrendering the Premises including, without limitation, any claims made by any succeeding tenant founded on such delay. Nothing contained herein shall be construed as an extension of the term hereof or as a consent of Landlord to any holding over by Tenant. The voluntary or other surrender of this Lease or the Premises by Tenant or a mutual cancellation of this Lease shall not work as a merger and, at the option of Landlord, shall either terminate all or any existing subleases or subtenancies or operate as an assignment to Landlord of all or any such subleases or subtenancies. See Paragraph 52. 6. ALTERATIONS AND ADDITIONS Tenant shall not make, or suffer to be made, any alteration or addition to the Premises, or any part thereof, without the written consent of Landlord first had and obtained by Tenant (such consent not to be unreasonably withheld), but at the cost of Tenant, and any addition to, or alteration of, the Premises, except moveable furniture and trade fixtures, shall at once become a part of the Premises and belong to Landlord. Landlord reserves the right to approve all contractors and mechanics proposed by Tenant to make such alterations and additions. Tenant shall refrain title to all moveable furniture and trade fixtures placed in the Premises. All heating, lighting, electrical, airconditioning, floor to ceiling partitioning, drapery, permanent hard walls, carpeting, and floor installations made by Tenant, together with a property that has become an integral part of the Premises, shall not be deemed trade fixtures. Tenant agrees that it will not proceed to make such alteration or additions, without having obtained consent from Landlord to do so, and until five (5) days from the receipt of such consent, in order that Landlord may post appropriate notices to avoid any liability to contractors or material suppliers for payment for Tenant's improvements. Tenant will at all times permit such notices to be posted and to remain posted until the completion of work. Tenant shall, if required by Landlord, secure at Tenant's own cost and expense, a completion and lien indemnity bond, satisfactory to Landlord, for such work. Tenant further covenants and agrees that any mechanic's lien filed against the Premises for work claimed to have been done for, or materials claimed to have been furnished to Tenant, will be discharged by Tenant, by bond or otherwise, within ten (10) days after the filing thereof, at the cost and expense of Tenant. Any exceptions to the foregoing must be made in writing and executed by both Landlord and Tenant. See Paragraph 52. 7. TENANT MAINTENANCE Tenant shall, at its sole cost and expense, keep and maintain the Premises (including appurtenances) and every part thereof in a high standard of maintenance and repair, or replacement, and in good and sanitary condition. Tenant's maintenance and repair responsibilities herein referred to include, but are not limited to, janitorization, all windows (interior and exterior), window frames, plate glass and glazing (destroyed by accident or act of third parties), truck doors, plumbing systems (such as water and drain lines, sinks, toilets, faucets, drains, showers and water fountains), electrical systems (such as panels, conduits, outlets, lighting fixtures, lamps, bulbs, tubes and ballasts), heating and airconditioning systems (such as compressors, fans, air handlers, ducts, mixing boxes, thermostats, time clocks, boilers, heaters, supply and return grills), structural elements and exterior surfaces of the building, store fronts, roofs, downspouts, all interior improvements within the premises including but not limited to wall coverings, window coverings, carpet, floor coverings, partitioning, ceilings, doors (both interior and exterior), including closing mechanisms, latches, locks, skylights (if any), automatic fire extinguishing systems, and elevators and all other interior improvements of any nature whatsoever, and all exterior improvements including but not limited to landscaping, sidewalks, driveways, parking lots including striping and sealing, sprinkler systems, lighting, ponds, fountains, waterways, and drains. Tenant agrees to provide carpet shields under all rolling chairs or to otherwise be responsible for wear and tear of the carpet caused by such rolling chairs if such wear and tear exceeds that caused by normal foot traffic in surrounding areas. Areas of excessive wear shall be replaced at Tenant's sole expense upon Lease termination. Tenant hereby waives all rights under, and benefits of, Subsection 1 of Section 1932 and Section 1941 and 1942 of the California Civil Code and under any similar law, statute or ordinance now or hereafter in effect. In the event any of the above maintenance responsibilities apply to any other tenant(s) of Landlord where there is common usage with other tenant(s), such maintenance responsibilities and charges shall be allocated to the leased Premises by square footage or other equitable basis as calculated and determined by Landlord. See Paragraph 44 8. UTILITIES Tenant shall pay promptly, as the same become due, all charges for water, gas, electricity, telephone, telex and other electronic communication service, sewer service, waste pick-up and any other utilities, materials or services furnished directly to or used by Tenant on or about the Premises during the term of this Lease, including, without limitation, any temporary or permanent utility surcharge or other exactions whether or not hereinafter imposed. In the event the above charges apply to any other tenant(s) of Landlord where there is common usage with other tenant(s), such charges shall be allocated to the leased Premises by square footage or other equitable basis as calculated and determined by Landlord. Landlord shall not be liable for and Tenant shall not be entitled to any abatement or reduction of rent by reason of any interruption or failure of utility services to the Premises when such interruption or failure is caused by accident, breakage, repair, strikes, lockouts, or other labor disturbances or labor disputes of any nature, or by any other cause, similar or dissimilar, beyond the reasonable control of Landlord. 9. TAXES A. As Additional Rent and in accordance with Paragraph 4D of this Lease, Tenant shall pay to Landlord, or if Landlord so directs, directly to the Tax Collector, all Real Property Taxes relating to the Premises. In the event the Premises leased hereunder consist of only a portion of the entire tax parcel, Tenant shall pay to Landlord Tenant's proportionate share of such real estate taxes allocated to the leased Premises by square footage or other reasonable basis as calculated and determined by Landlord. If the tax billing pertains 100% to the Leased Premises, and the Landlord chooses to have Tenant pay said real estate taxes directly to the Tax Collector, then in such event it shall be the responsibility of Tenant to obtain the tax and assessment bills and pay, prior to delinquency, the applicable real property taxes and assessments pertaining to the leased Premises, and failure to receive a bill for taxes and/or assessments shall not provide a basis for cancellation of or nonresponsibility for payment of penalties for nonpayment or late payment by Tenant. The term "Real Property Taxes", as used herein, shall mean (i) all taxes, assessments, levies and other charges of any kind or nature whatsoever, general and special, foreseen and unforeseen (including all installments of principal and interest required to pay any general or special assessments for public improvements and any increases resulting from reassessments caused by any change in ownership of the Premises) now or hereafter imposed by any governmental or quasi-governmental authority or special district having the direct or indirect power to tax or levy assessments, which are levied or assessed against, or with respect to the value, occupancy or use of, all or any portion of the Premises (as now constructed or as may at any time hereafter be constructed, altered, or otherwise changed) or Landlord's interest therein; any improvements located within the Premises (regardless of ownership); the fixtures, equipment and other property of Landlord, real or personal, that are an integral part of and located in the Premises; or parking areas, public utilities, or energy within the Premises; (ii) all charges, levies or less imposed by reason of environmental regulation or other governmental control of the Premises; and (iii) all costs and fees (including page 3 of 8 reasonable attorneys' fees) incurred by Landlord in reasonably contesting any Real Property Tax and in negotiating with public authorities as to any Real Property Tax. If at any time during the term of this Lease the taxation or assessment of the Premises prevailing as of the commencement date of this Lease shall be altered so that in lieu of or in addition to any Real Property Tax described above there shall be levied, assessed or imposed (whether by reason of a change in the method of taxation or assessment, creation of a new tax or charge, or any other cause) an alternate or additional tax or charge (i) on the value, use or occupancy of the Premises or Landlord's interest therein or (ii) on or measured by the gross receipts, income or rentals from the Premises, on Landlord's business of leasing the Premises, or computed in any manner with respect to the operation of the Premises, then any such tax or charge, however designated, shall be included with the meaning of the term "Real Property Taxes" for purposes of this Lease. If any Real Property Tax is based upon property or rents unrelated to the Premises, then only that part of such Real Property Tax that is fairly allocable to the Premises shall be included within the meaning of the term "Real Property Taxes". Notwithstanding the foregoing, the term "Real Property Taxes" shall not include estate, inheritance, gift or franchise taxes of Landlord or the federal or state net income tax imposed on Landlord's income from all sources. See Paragraph 53 8. Taxes on Tenant's Property Tenant shall be liable for and shall pay ten days before delinquency, taxes levied against any personal property or trade fixtures placed by Tenant in or about the Premises. If any such taxes on Tenant's personal property or trade fixtures are levied against Landlord or Landlord's property or if the assessed value of the Premises is increased by the inclusion therein of a value placed upon such personal property or trade fixtures of Tenant and if Landlord, after written notice to Tenant, pays the taxes based on such increased assessment, which Landlord shall have the right to do regardless of the validity thereof, but only under proper protest if requested by Tenant. Tenant shall upon demand, as the case may be, repay to Landlord the taxes so levied against Landlord, or the proportion of such taxes resulting from such increase in the assessment; provided that in any such event Tenant shall have the right, in the name of Landlord and with Landlord's full cooperation, to bring suit in any court of competent jurisdiction to recover the amount of such taxes so paid under protext, and any amount so recovered shall belong to Tenant. 10. LIABILITY INSURANCE Tenant, at Tenant's expense, agrees to keep in force during the term of this Lease a policy of commercial general liability insurance with combined single limit coverage of not less than Two Million Dollars ($2,000,000) per occurrence for bodily injury and property damage occurring in, on or about the Premises, including parking and landscaped areas. Such insurance shall be primary and noncontributory as respects any insurance carried by Landlord. The policy or policies effecting such insurance shall name Landlord as additional insureds, and shall insure any liability of Landlord, contingent or otherwise, as respects acts or omissions of Tenant, its agents, employees or invitees or otherwise by any conduct or transactions of any of said persons in or about or concerning the Premises, including any failure of Tenant to observe or perform any of its obligations hereunder; shall be issued by an insurance company admitted to transact business in the State of California; and shall provide that the insurance effected thereby shall not be canceled, except upon thirty (30) days' prior written notice to Landlord. A certificate of insurance of said policy shall be delivered to Landlord. If, during the term of this Lease, in the considered opinion of Landlord's Lender, insurance advisor, or counsel, the amount of insurance described in this Paragraph 10 is not adequate, Tenant agrees to increase said coverage to such reasonable amount as Landlord's Lender, insurance advisor, or counsel shall deem adequate. 11. TENANT'S PERSONAL PROPERTY INSURANCE AND WORKMAN'S COMPENSATION INSURANCE Tenant shall maintain a policy or policies of fire and property damage insurance in "all risk" form with a sprinkler leakage endorsement insuring the personal property, inventory, trade fixtures, and leasehold improvements within the leased Premises for the full replacement value thereof. The proceeds from any of such policies shall be used for the repair or replacement of such items so insured. Tenant shall also maintain a policy or policies of workman's compensation insurance and any other employee benefit insurance sufficient to comply with all laws. 12. PROPERTY INSURANCE Landlord shall purchase and keep in force, and as Additional Rent and in accordance with Paragraph 4D of this Lease, Tenant shall pay to Landlord (or Landlord's agent if so directed by Landlord) Tenant's proportionate share (allocated to the leased Premises by square footage or other equitable basis as calculated and determined by Landlord) of the deductibles on insurance claims and the cost of, policy or policies of insurance covering loss or damage to the Premises (excluding routine maintenance and repairs and incidental damage or destruction caused by accidents or vandalism for which Tenant is responsible under Paragraph 7) in the amount of the full replacement value thereof, providing protection against those perils included within the classification of "all risks" insurance and flood and/or earthquake insurance, if available, plus a policy of rental income insurance in the amount of one hundred (100%) percent of twelve (12) months Base Rent, plus sums paid as Additional Rent. If such insurance cost is increased due to Tenant's use of the Premises, Tenant agrees to pay to Landlord the full cost of such increase. Tenant shall have no interest in nor any right to the proceeds of any insurance procured by Landlord for the Premises. Landlord and Tenant do each hereby respectively released the other, to the extent of insurance coverage of the releasing party, from any liability for loss or damage caused by fire or any of the extended coverage casualties included in the releasing party's insurance policies, irrespective of the cause of such fire or casualty; provided, however, that if the insurance policy of either releasing party prohibits such waiver, then this waiver shall not take effect until consent to such waiver is obtained. If such waiver is so prohibited, the insured party affected shall promptly notify the other party thereof. 13. INDEMNIFICATION Landlord shall not be liable to Tenant and Tenant hereby waives all claims against Landlord for any injury to or death of any person or damage to or destruction of property in or about the Premises by or from any cause whatsoever, including, without limitation, gas, fire, oil, electricity or leakage of any character from the roof, walls, basement or other portion of the Premises but excluding, however, the willful misconduct or negligence of Landlord, its agents, servants, employees, invitees, or contractors of which negligence Landlord has knowledge and reasonable time to correct. Except as to injury to person or damage to property to the extent arising from the willful misconduct or the negligence of Landlord, its agents, servants, employees, invitees or contractors, and subject to the last two (2) sentences of Paragraph 12, Tenant shall hold Landlord harmless from and defend Landlord against any and all expenses, including reasonable attorneys' fees, in connection therewith, arising out of any injury to or death of any person or damage to or destruction of property occurring in, on or about the Premises, or any part thereof, from any cause whatsoever. 14. COMPLIANCE Tenant, at its sole cost and expense, shall promptly comply with all laws, statutes, ordinances and governmental rules, regulations or requirements now or hereafter in effect; with the requirements of any board of the fire underwriters or other similar body now or hereafter constituted; and with any direction or occupancy certificate issued pursuant to law by any public officer; provided, however, that no such failure shall be deemed a breach of the provisions if Tenant, immediately upon notification, commences to remedy or rectify said failure. The judgment of any court of competent jurisdiction of the admission of Tenant in any action against Tenant, whether Landlord be a party thereto or not, that Tenant has violated any such law, statute, ordinance or governmental rule, regulation, requirement, direction or provision, shall be conclusive of that fact as between Landlord and Tenant. Tenant shall, at its sole cost and expense, comply with any and all requirements pertaining to said Premises, of any insurance organization or company, necessary for the maintenance of reasonable fire and public liability insurance covering requirements pertaining to said Premises, of any insurance organization or company, necessary for the maintenance of reasonable fire and public liability insurance covering the Premises. See Paragraph 45 15. LIENS Tenant shall keep the Premises free from any liens arising out of any work performed, materials furnished or obligation incurred by Tenant. In the event that Tenant shall not, within ten (10) days following the imposition of such lien, cause the same to be released of record, Landlord shall have in addition to all other remedies provided herein and by law, the right, but no obligation, to cause the same to be released by such means as it shall deem proper, including payment of the claim giving rise to such lien. All sums paid by Landlord for such purpose, and all expenses incurred by it in connection therewith, shall be payable to Landlord by Tenant on demand with interest at the prime rate of interest as quoted by the Bank of America. 16. ASSIGNMENT AND SUBLETTING Tenant shall not assign, transfer, or hypothecate the leasehold estate under this Lease, or any interest therein, and shall not sublet the Premises, or any part thereof, or any right or privilege appurtenant thereto, or suffer any other person or entity to occupy or use the Premises, or any portion thereof, without, in each case, the prior written consent of Landlord which consent will not be unreasonably withheld. As a condition for granting this consent to any assignment, transfer, or subletting, Landlord may require that Tenant agrees to pay to Landlord, as additional rent, fifty percent (50%) of all rents or additional consideration received by Tenant from its assignees, transferees, or subtenants in excess of the rent payable by Tenant to Landlord hereunder provided, however, that before sharing such excess rent, Tenant shall first be entitled to recover from such excess rent the amount of any reasonable leasing commission paid by Tenant to third parties not affiliated with Tenant. Tenant shall by thirty (30) days written notice, advise Landlord of its intent to assign or transfer Tenant's interest in the Lease or sublet the Premises or any portion thereof for any part of the term hereof. Within thirty (30) days after receipt of said written notice, Landlord may, in its sole discretion, elect to terminate this Lease as to the portion of the Premises described in Tenant's notice on the date specified in Tenant's notice by giving written notice of such election to terminate. If no such notice to terminate is given to Tenant within said thirty (30) day period, Tenant may proceed to locate an acceptable sublessee, assignee, or other transferee for presentment to Landlord for Landlord's approval, all in accordance with the terms, covenants, and conditions of this paragraph 16. If Tenant intends to sublet the entire Premises and Landlord elects to terminate this Lease, this Lease shall be terminated on the date specified in Tenant's notice. If, however, this Lease shall terminate pursuant to the foregoing with respect to less than all the Premises, the rent, as defined and reserved hereinabove shall be adjusted on a pro rata basis to the number of square feet retained by Tenant, and this Lease as so amended shall continue in full force and effect. Notwithstanding the above, Landlord shall not have the right to terminate said Lease for preauthorized sublet(s) or assignment(s) as directed in Paragraph 46. In the event Tenant is allowed to assign, transfer or sublet the whole or any part of the Premises, with the prior written page 4 of 8 consent of Landlord, no assignee, transferee or subtenant shall assign or transfer this Lease, either in whole or in part, or sublet the whole or any part of the Premises, without also having obtained the prior written consent of Landlord. A consent of Landlord to one assignment, transfer, hypothecation, subletting, occupation or use by any other person shall not release Tenant from any Tenant's obligations hereunder or be deemed to be a consent to any subsequent similar or dissimilar assignment, transfer, hypothecation, subletting, occupation or use by any other person. Any such assignment, transfer, hypothecation, subletting, occupation or use without such consent shall be void and shall constitute a breach of this Lease by Tenant and shall, at the option of Landlord exercised by written notice to Tenant, terminate this Lease. The leasehold estate under this Lease shall not, nor shall any interest therein, be assignable for any purpose by operation of law without the written consent of Landlord. As a condition to its consent, Landlord shall require Tenant to pay all expenses in connection with the assignment, and Landlord shall require Tenant's assignee or transferee (or other assignees or transferees) to assume in writing all of the obligations under this Lease and for Tenant to remain liable to Landlord under the Lease. Notwithstanding the above, in no event will Landlord consent to a sub-sublease. See Paragraph 46. 17. SUBORDINATION AND MORTGAGES In the event Landlord's title or leasehold interest is now or hereafter encumbered by a deed of trust, upon the interest of Landlord in the land and buildings in which the demised Premises are located, to secure a loan from a lender (hereinafter referred to as "Lender") to Landlord, Tenant shall, at the request of Landlord or Lender, execute in writing an agreement subordinating its rights under this Lease to the lien of such deed of trust, or, if so requested, agreeing that the lien of Lender's deed of trust shall be or remain subject and subordinate to the rights of Tenant under this Lease. Notwithstanding any such subordination, Tenant's possession under this Lease shall not be disturbed if Tenant is not in default and so long as Tenant shall pay all rent and observe and perform all of the provisions set forth in this Lease. 18. ENTRY BY LANDLORD Landlord reserves, and shall at all reasonable times after at least 24 hours notice (except in emergencies) have, the right to enter the Premises to inspect them; to perform any services to be provided by Landlord hereunder,; to make repairs or provide any services to a contiguous tenant(s); to submit the Premises to prospective purchasers, mortgagers or tenants; to post notices of nonresponsibility; and to alter, improve or repair the Premises or other parts of the building, all without abatement of rent, and may erect scaffolding and other necessary structures in or through the Premises where reasonable required by the character of the work to be performed, however that the business of Tenant shall be interfered with to the least extent that is reasonably practical. Any entry to the Premises by Landlord for the purposes provided for herein shall not under any circumstances be construed or deemed to be a forcible or unlawful entry into or a detainer of the Premises or an eviction, actual or constructive, of Tenant from the Premises or any portion thereof. See Paragraph 55 19. BANKRUPTCY AND DEFAULT The commencement of a bankruptcy action or liquidation action or reorganization action or insolvency action or an assignment of or by Tenant for the benefit of creditors, or any similar action undertaken by Tenant, or the insolvency of Tenant, shall, at Landlord's option, constitute a breach of this Lease by Tenant. If the trustee or receiver appointed to serve during a bankruptcy, liquidation, reorganization, insolvency or similar action elects to reject Tenant's unexpired Lease, the trustee or receiver shall notify Landlord in writing of its election within thirty (30) days after an order for relief in a liquidation action or within thirty (30) days after the commencement of any action. Within thirty (30) days after court approval of the assumption of this Lease, the trustee or receiver shall cure (or provide adequate assurance to the reasonable satisfaction of Landlord that the trustee or receiver shall cure) any and all previous defaults under the unexpired Lease and shall compensate Landlord for all actual pecuniary loss and shall provide adequate assurance of future performance under said Lease to the reasonable satisfaction of Landlord. Adequate assurance of future performance, as used herein, includes, but shall not be limited to: (i) assurance of source and payment of rent, and other consideration due under this Lease; (ii) assurance that the assumption or assignment of this Lease will not breach substantially any provision, such as radius, location, use, or exclusivity provision, in any agreement relating to the above described Premises. Nothing contained in this section shall affect the existing right of Landlord to refuse to accept an assignment upon commencement of or in connection with a bankruptcy, liquidation, reorganization or insolvency action or an assignment of Tenant for the benefit of creditors or other similar act. Nothing contained in this Lease shall be construed as giving or granting or creating an equity in the demised Premises to Tenant. In no event shall the leasehold estate under this Lease, or any interest therein, be assigned by voluntary or involuntary bankruptcy proceeding without the prior written consent of Landlord. In no event shall this Lease or any rights or privileges hereunder be an asset of Tenant under any bankruptcy, insolvency or reorganization proceedings. The failure to perform or honor any covenant, condition or representation made under this Lease shall constitute a default hereunder by Tenant upon expiration of the appropriate grace period hereinafter provided. Tenant shall have a period of five (5) days from the date of written notice from Landlord within which to cure any default to the payment of rental or adjustment thereto. Tenant shall have a period of thirty (30) days from the date of written notice from Landlord within which to cure any other default under this Lease; provided, however, that if the nature of Tenant's failure is such that more than thirty (30) days is reasonably required to cure the same, Tenant shall not be in default so long as Tenant commences performance with in such thirty (30) day period and thereafter prosecutes the same to completion. Upon an uncured default of this Lease by Tenant, Landlord shall have the following rights and remedies in addition to any other rights or remedies available to Landlord at law or in equity: (a) The rights and remedies provided for by California Civil Code Section 1951.2, including but not limited to, recovery of the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of rental loss for the same period that Tenant proves could be reasonable avoided, as computed pursuant to subsection (b) of said Section 1951.2. Any proof by Tenant under subparagraphs (2) and (3) of Section 1951.2 of the California Civil Code of the amount of rental loss that could be reasonably avoided shall be made in the following manner: Landlord and Tenant shall each select a licensed real estate broker in the business of renting property of the same type and use as the Premises and in the same geographic vicinity. Such two real estate brokers shall select third licensed real estate broker, and the three licensed real estate brokers so selected shall determine the amount of the rental loss that could be reasonably avoided from the balance of the term of this Lease after the time of award. The decision of the majority of said licensed real estate brokers shall be final and binding upon the parties hereto. (b) The rights and remedies provided by California Civil Code Section which allows Landlord to continue the Lease in effect and to enforce all of its rights and remedies under this Lease, including the right to recover rent as it becomes due, for so long as Landlord does not terminate Tenant's right to possession; acts of maintenance or preservation, efforts to relet the Premises, or the appointment of a receiver upon Landlord's initiative to protect its interest under this Lease shall not constitute a termination of Tenant's right to possession. (c) The right to terminate this Lease by giving notice to Tenant in accordance with applicable law. (d) To the extent permitted by law and in any event not less that three (3) business days' prior written notice, the right and power, to enter the Premises and remove therefrom all persons and property, to store such property in a public warehouse or elsewhere at the cost of and for the account of Tenant, and to sell such property and apply such proceeds therefrom pursuant to applicable California law. Landlord may from time to time sublet the Premises or any part thereof for such term or terms (which may extend beyond the term of this Lease) and at such rent and such other terms as Landlord in its reasonable sole discretion may deem advisable, with the right to make alterations and repairs to the Premises. Upon each subletting, (i) Tenant shall be immediately liable to pay Landlord, in addition to indebtedness other than rent due hereunder, the reasonable cost of such subletting, including, but not limited to, reasonable attorneys' fees, and any real estate commissions actually paid, and the cost of such reasonable alterations and repairs incurred by Landlord and the amount, if any, by which the rent hereunder for the period of such subletting (to the extent such period does not exceed the term hereof) exceeds the amount to be paid as renter for the Premises for such period or (ii) at the option of Landlord, rents received from such subletting shall be applied first to payment of indebtedness other than rent due hereunder from Tenant to Landlord; second, to the payment of any costs of such subletting and of such alterations and repairs; third to payment of rent due and unpaid hereunder; and the residue, if any, shall be held by Landlord and applied in payment of future rent as the same becomes due hereunder. If Tenant has been credited with any rent to be received by such subletting under option (i) and such rent shall not be promptly paid to Landlord by the subtenant(s), or if such rentals received from such subletting under option (ii) during any month be less than that to be paid during that month by Tenant hereunder, Tenant shall pay any such deficiency to Landlord. Such deficiency shall be calculated and paid monthly. No taking possession of the Premises by Landlord shall be construed as an election on its part to terminate this Lease unless a written notice of such intention be given to Tenant. Notwithstanding any such subletting without terminate, Landlord may at any time hereafter elect to terminate this Lease for such previous breach. (e) The right to have a receiver appointed for Tenant upon application by Landlord to take possession of the Premises and to apply any rental collected from the Premises and to exercise all other rights and remedies granted to Landlord pursuant to subparagraph d above. 20. ABANDONMENT Tenant shall not vacate or abandon the Premises at any time during the term of this Lease (except that Tenant may vacate so long as it pays rent, provides an on-site security guard during normal business hours from Monday through Friday, and otherwise performs its obligations hereunder) and if Tenant shall abandon, vacate or surrender said Premises, or be dispossessed by the process of law, or otherwise, any personal property belonging to Tenant and left on the Premises shall be deemed to be abandoned, at the option of Landlord, except such property as may be mortgaged to Landlord. 21. DESTRUCTION In the event the Premises are destroyed in whole or in part from any cause, except for routine maintenance and repairs and incidental page 5 of 8 damage and destruction caused from vandalism and accidents for which Tenant is responsible under Paragraph 7. Landlord must either, at its option; (a) Rebuild or restore the Premises to their condition prior to the damage or destruction, or (b) Terminate this Lease. (providing that the Premises is damaged to the extent of more than 33 1/3% of the replacement cost) If Landlord does not give Tenant notice in writing within thirty (30) days from the destruction of the Premises of its election to either rebuild and restore them, or to terminate this Lease, Landlord shall be deemed to have elected to rebuild or restore them, in which event Landlord agrees, at its expense, promptly to rebuild or restore the Premises to their condition prior to the damage or destruction. Tenant shall be entitled to a reduction in rent while such repair is being made in the proportion that the area of the Premises rendered untenantable by such damage bears to the total area of the Premises. If Landlord initially estimates that the rebuilding or restoration will exceed 180 days or if Landlord does not complete the rebuilding or restoration within one hundred eighty (180) days following the date of destruction (such period of time to be extended for delays caused by the fault or neglect of Tenant or because of Acts of God, acts of public agencies, labor disputes, strikes, fires, freight embargos, rainy or stormy weather, inability to obtain materials, supplies or fuels, acts of contractors or subcontractors, or delay of the contractors or subcontractors due to such causes or other contingencies beyond the control of Landlord), then Tenant shall have the right to terminate this Lease by giving fifteen (15) days prior written notice to Landlord. Notwithstanding anything herein to the contrary, Landlord's obligation to rebuild or restore shall be limited to the building and interior improvements constructed by Landlord as they existed as of the commencement date of the Lease and shall not include restoration of Tenant's trade fixtures, equipment, merchandise, or any improvements, alterations or additions made by Tenant to the Premises, which Tenant shall forthwith replace or fully repair at Tenant's sole cost and expense provided this Lease is not cancelled according to the provisions above. Unless this Lease is terminated pursuant to the foregoing provisions, this Lease shall remain in full force and effect. Tenant hereby expressly waives the provisions of Section 1932, Subdivision 2, in Section 1933, Subdivision 4 of the California Civil Code. In the event that the building in which the Premises are situated is damaged or destroyed to the extent of not less than 33 1/3% of the replacement cost thereof, Landlord may elect to terminate this Lease, whether the Premises be injured or not. Notwithstanding anything to the contrary herein, Landlord may terminate this Lease in the event of an uninsured event or if insurance proceeds are insufficient to cover one hundred percent of the rebuilding costs net of the deductible; provided, however, Tenant shall have the right to elect, in its discretion, to contribute such excess funds to permit Landlord to repair the Premises. 22. EMINENT DOMAIN If all or any part of the Premises shall be taken by any public or quasi-public authority under the power of eminent domain or conveyance in lieu thereof, this Lease shall terminate as to any portion of the Premises so taken or conveyed on the date when title vests in the condemnor, and Landlord shall be entitled to any and all payment, income, rent, award, or any interest therein whatsoever which may be paid or made in connection with such taking or conveyance, and Tenant shall have no claim against Landlord or otherwise for the value of any unexpired term of this Lease. Notwithstanding the foregoing paragraph, any compensation specifically awarded Tenant for loss of business, Tenant's personal property, moving costs or loss of goodwill, shall be and remain the property of Tenant. If any action or proceeding is commenced for such taking of the Premises or any part thereof, or if Landlord is advised in writing by any entity or body having the right or power of condemnation of its intention to condemn the premises or any portion thereof, then Landlord shall have the right to terminate this Lease by giving Tenant written notice thereof within sixty (60) days of the date of receipt of said written advice, or commencement of said action or proceeding, or taking conveyance, which termination shall take place as of the first to occur of the last day of the calendar month next following the month in which such notice is given or the date on which title to the Premises shall vest in the condemnor. In the event of such a partial taking or conveyance of the Premises, if the portion of the Premises taken or conveyed is so substantial that the Tenant can no longer reasonably conduct its business, Tenant shall have the privilege of terminating this Lease within sixty (60) days from the date of such taking or conveyance, upon written notice to Landlord of its intention so to do, and upon giving of such notice this Lease shall terminate on the last day of the calendar month next following the month in which such notice is given, upon payment by Tenant of the rent from the date of such taking or conveyance to the date of termination. If a portion of the Premises be taken buy condemnation or conveyance in lieu thereof and neither Landlord nor Tenant shall terminate this Lease as provided here, this Lease shall continue in full force and effect as to the part of the Premises not so taken or conveyed, and the rent herein shall be apportioned as of the date of such taking or conveyance so that thereafter the rent to be paid by Tenant shall be in the ratio that the area of the portion of the Premises not so taken or conveyed bears to the total area of the Premises prior to such taking. 22. SALE OR CONVEYANCE BY LANDLORD In the event of a sale or conveyance of the Premises or any interest therein, by any owner of the reversion then constituting Landlord, the transferor shall thereby be released from any further liability upon any of the terms, covenants or conditions (express or implied) herein contained in favor of Tenant, and in such event, insofar as such transfer is concerned, Tenant agrees to look solely to the responsibility of the successor in interest of such transferor in and to the Premises and this Lease. This Lease shall not be affected by any such sale or conveyance, and Tenant agrees to attorn to the successor in interest of such transferor. See Paragraph 56 24. ATTORNMENT TO LENDER OR THIRD PARTY In the event the interest of Landlord in the land and buildings in which the leased Premises are located (whether such interest of Landlord is a fee title interest or a leasehold interest) is encumbered by deed of trust, and such interest is acquired by the lender or any third party through judicial foreclosure or by exercise of a power of sale at private trustee's foreclosure sale, Tenant hereby agrees to attorn to the purchaser at any such foreclosure sale and to recognize such purchaser as the Landlord under this Lease. In the event the lien of the deed of trust securing the loan from a Lender or Landlord is prior and paramount to the Lease, this Lease shall nonetheless continue in full force and effect for the remainder of the unexpired term hereof, at the same rental herein reserved and upon all the other terms, conditions and covenants herein contained. 25. HOLDING OVER Any holding over by Tenant after expiration or other termination of the term of this Lease with the written consent of Landlord delivered to Tenant shall not constitute a renewal or extension of the Lease or give Tenant any rights in or to the leased Premises except as expressly provided in this Lease. Any holding over after the expiration or other termination of the term of this Lease, with the consent of Landlord, shall be construed to be a tenancy from month to month, on the same terms and conditions herein specified insofar as applicable except that the monthly Basic Rent shall be increased to an amount equal to one hundred fifty (150%) percent of the monthly Basic Rent required during the last month of the Lease term. 26. CERTIFICATE OF ESTOPPEL Tenant shall at any time upon not less tan ten (10) days prior written notice from Landlord execute, acknowledge and deliver to Landlord a statement in writing (i) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect) and the date to which the rent and other charges are paid in advance, if any, and (ii) acknowledging that there are not, to Tenant's knowledge, any uncured defaults on the part of Landlord hereunder, or specifying such defaults, if any, are claimed. Any such statement may be conclusively relied upon by any prospective purchaser or encumbrancer of the Premises. Tenant's failure to deliver such statement within such time shall be conclusive upon Tenant that this Lease is in full force and effect, without modification except as may be represented by Landlord, that there are no uncured defaults in Landlord's performance, and that not more than one month's rent has been paid in advance. 27. CONSTRUCTION CHANGES It is understood that the description of the Premises and the location of ductwork, plumbing and other facilities therein are subject to such minor changes as Landlord or Landlord's architect determines to be desirable in the course of construction of the Premises, and no such changes shall affect this Lease or entitle Tenant to any reduction of rent hereunder or result in any liability of Landlord to Tenant. Landlord does not guarantee the accuracy of any drawing supplied to Tenant and verification of the accuracy of such drawings rests with Tenant. 28. RIGHT OF LANDLORD TO PERFORM All terms, covenants and conditions of this Lease to be performed or observed by Tenant shall be performed or observed by Tenant at Tenant's sole cost and expense and without any reduction of rent. If Tenant shall fail to pay any sum of money, or other rent, required to be paid by it hereunder or shall fail to perform any other term or covenant hereunder on its part to be performed, and such failure shall continue for five (5)days after written notice thereof by Landlord, Landlord, without waiving or releasing Tenant from any obligation of Tenant hereunder, may, but shall not be obliged to, make any such payment or perform any such other term or covenant on Tenant's part to be performed. All sums so paid by Landlord and all necessary costs of such performance by Landlord together with interest thereon at the rate of the prime rate of interest per annum as quoted by the Bank of America from the date of such payment on performance by Landlord, shall be paid (and Tenant covenants to make such payment) to Landlord on demand by Landlord, and Landlord shall have (in addition to any other right or remedy of Landlord) the same rights and remedies in the event of nonpayment by Tenant as in the case of failure by Tenant in the payment of rent hereunder. 29. ATTORNEYS' FEES A. In the vent that either Landlord or Tenant should bring suit for the possession of the Premises, for the recovery of any sum due under this Lease or because of the breach of any provision of this Lease, or for any other relief against the other party hereunder, then all costs and expenses, including reasonable attorneys' fees, page 6 of 8 incurred by the prevailing party, which obligation on the part of the other party shall be deemed to have accrued on the date of the commencement of such action and shall be enforceable whether or not the action is prosecuted to judgment. B. Should Landlord be named as a defendant in any suit brought against Tenant in connection with or arising out of Tenant's occupancy hereunder, Tenant shall pay to Landlord its costs and expenses incurred in such suit, including a reasonable attorney's fee. 30. WAIVER The waiver by either party of the other party's failure to perform or observe any term, covenant or condition herein contained to be performed or observed by such waiving party shall not be deemed to be a waiver of such term, covenant or condition or of any subsequent failure of the party failing to perform or observe the same or any other such term, covenant or condition therein contained, and no custom or practice which may develop between the parties hereto during the term hereof shall be deemed a waiver of, or in any way affect, the right of either party to insist upon performance and observance by the other party in strict accordance with the terms hereof. 31. NOTICES All notices, demands, requests, advises or designations which may be or are required to be given by either party to the other hereunder shall be in writing. All notices, demands, requests, advises or designations by Landlord to Tenant shall be sufficiently given, made or delivered if personally served on Tenant by leaving the same at the Premises of it sent by United Stated certified or registered mail, postage prepaid, addressed to Tenant at the Premises. All notices, demands, requests, advises or designations by Tenant to Landlord shall be sent by United States certified or registered mail, postage prepaid, addressed to Landlord at its offices at Peery/Arrillaga, 2560 Mission College Blvd., Suite 101, Santa Clara, CA 95054. Each notice, request, demand, advice or designation referred to in this paragraph shall be deemed received on the date of receipt of the personal service or mailing thereof in the manner herein provided, as the case may be. 32. EXAMINATION OF LEASE Submission of this instrument for examination or signature by Tenant does not constitute a reservation of or option for a lease, and this instrument is not effective as a lease or otherwise until its execution and delivery by both Landlord and Tenant. 33. DEFAULT BY LANDLORD Landlord shall not be in default unless Landlord fails to perform obligations required of Landlord within a reasonable time, but in no event earlier than (30) days after written notice by Tenant to Landlord and to the holder of any first mortgage or deed of trust covering the Premises whose name and address shall have heretofore been furnished to Tenant in writing, specifying wherein Landlord has failed to perform such obligations; provided, however, that if the nature of Landlord's obligations is such that more than thirty (30) days are required for performance, then Landlord shall not be in default if Landlord commences performance within such thirty (30) day period and thereafter diligently prosecutes the same to completion. 34. CORPORATE AUTHORITY If Tenant is a corporation (or a partnership), each individual executing this Lease on behalf of said corporation (or partnership) represents and warrants that he is duly authorized to execute and deliver this Lease on behalf of said corporation (or partnership) in accordance with the by- laws of said corporation (or partnership in accordance with the partnership agreement) and that this Lease is binding upon said corporation (or partnership) in accordance with its terms. If Tenant is a corporation, Tenant shall, within thirty (30) days after execution of this Lease, deliver to Landlord a certified copy of the resolution of the Board of Directors of said corporation authorizing or ratifying the execution of this Lease. 36. LIMITATION OF LIABILITY In consideration of the benefits accruing hereunder, Tenant and all successors and assigns covenant and agree that, in the event of any actual or alleged failure, breach or default hereunder by Landlord: (a) the sole and exclusive remedy shall be against Landlord's interest in the Premises leased herein; (b) no partner of Landlord shall be sued or named as a party in any suit or action (except as may be necessary to secure jurisdiction of the partnership); (c) no service of process shall be made against any partner of Landlord (except as may be necessary to secure jurisdiction of the partnership); (d) no partner of Landlord shall be required to answer or otherwise plead to any service of process; (e) no judgment will be taken against any partner of Landlord; (f) any judgment taken against any partner of Landlord may be vacated and set aside at any time without hearing; (g) no writ of execution will ever by levied against the assets of any partner of Landlord; (h) these covenants and agreements are enforceable both by Landlord and also by any partner of Landlord. Tenant agrees that each of the foregoing covenants and agreements shall be applicable to any covenant or agreement either expressly contained in this Lease or imposed by statute or at common law. 37. SIGNS No sign, placard, picture, advertisement, name or notice shall be inscribed, displayed or printed or affixed on or to any part of the outside of the Premises or any exterior windows of the Premises without the written consent of Landlord first had and obtained and Landlord shall have the right to remove any such sign, placard, picture, advertisement, name or notice without notice to and at the expense of Tenant. If Tenant is allowed to print or affix or in any way place a sign in, on, or about the Premises, upon expiration or other sooner termination of this Lease, Tenant at Tenant's sole cost and expense shall both remove such sign and repair all damage in such a manner as to restore all aspects of the appearance of the Premises to the condition prior to the placement of said sign. All approved signs or lettering on outside doors shall be printed, painted, affixed or inscribed at the expense of Tenant by a person approved by Landlord. Tenant shall not place anything or allow anything to be placed near the glass of any window, door partition or wall which may appear unsightly from outside the Premises. 38. MISCELLANEOUS AND GENERAL PROVISIONS A. Use of Building Name. Tenant shall not, without the written consent of Landlord, use the name of the building for any purpose other than as the address of the business conducted by Tenant in the Premises. page 7 of 8 B. Choice of Law; Severability. this Lease shall in all respects be governed by and construed in accordance with the laws of the State of California. If any provision of this Lease shall be invalid, unenforceable or ineffective for any reason whatsoever, all other provisions hereof shall be and remain in full force and effect. C. Definition of Terms. The term "Premises" includes the space leased hereby and any improvements now or hereafter installed therein or attached thereto. The term "Landlord" or any pronoun used in place thereof includes the plural as well as the singular and the successors and assigns of Landlord. The term "Tenant" or any pronoun used in place thereof includes the plural as well as the singular and individuals, firms, associations, partnerships and corporations, and their and each of their respective heirs, executors, administrators, successors and permitted assigns, according to the context hereof, and the provisions of this Lease shall inure to the benefit of and bind such heirs, executors, administrators, successors and permitted assigns. The term "person" includes the plural as well as the singular and individuals, firms, associations, partnerships and corporations. Words used in any gender include other genders. If there be more than one Tenant the obligations of Tenant hereunder are joint and several. The paragraph heading of this Lease are for convenience of reference only and shall have no effect upon the construction or interpretation of any provision hereof. D. Time of Essence. Time is of the essence of this Lease and of each and all of its provisions. E. Quitclaim. At the expiration or earlier termination of this Lease, Tenant shall execute, acknowledge and deliver to Landlord, within ten (10) days after written demand from Landlord to Tenant, any quitclaim deed or other document required by any reputable title company, licensed to operate in the State of California, to remove the cloud or encumbrance created by this Lease from the real property of which Tenant's Premises are a part. F. Incorporation of Prior Agreements; Amendments. This instrument along with any exhibits and attachments hereto constitutes the entire agreement between Landlord and Tenant relative to the Premises and this agreement and the exhibits and attachments may be altered, amended or revoked only by an instrument in writing signed by both Landlord and Tenant. Landlord and Tenant agree hereby that all prior or contemporaneous oral agreements between and among themselves and their agents or representatives relative to the leasing of the Premises are merged in or revoked by this agreement. G. Recording. Neither Landlord nor Tenant shall record this Lease or a short form memorandum hereof without the consent of the other. H. Amendments for Financing. Tenant further agrees to execute any amendments reasonably required by a lender to enable Landlord to obtain financing, so long as Tenant's rights hereunder; are not materially or adversely affected and there is no change in Basic Rent, Additional Rent, Options to Extend, Term or Construction obligations of Landlord. I. Additional Paragraphs. Paragraph 39 through 59 are added hereto and are included as a part of this lease. J. Clauses, Plats and Riders. Clauses, plats and riders, if any, signed by Landlord and Tenant and endorsed on or affixed to this Lease are a part hereof. K. Diminution of Light, Air or View. Tenant convenants and agrees that no diminution or shutting off of light, air or view by any structure which may be hereafter erected (whether or not by Landlord) shall in any way affect his Lease, entitle Tenant to any reduction of rent hereunder or result in any liability of Landlord to Tenant. IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered this Lease as of the day and year last written below. LANDLORD: TENANT: ARRILLAGA FAMILY TRUST POINTCAST, INC. a California corporation By /s/ John Arrillaga By /s/ Christopher Hassett John Arrillaga, Trustee Date: 4/4/97 Title President RICHARD T. PEERY SEPARATE PROPERTY TRUST Type or Print Name Christopher Hassett By /s/ Richard T. Peery Date: August 4/3/97 Richard T. Peery, Trustee Date: 4/7/97
page 8 of 8 Paragraphs 39 through 59 to Lease Agreement dated January 22, 1997, By and Between the Arrillaga Family Trust and the Richard T. Peery Separate Property Trust, as Landlord, and Pointcast, Inc., a California corporation, as Tenant for 31,266 Square Feet of Space Located at 500 Macara Avenue, Sunnyvale, California. 39. BASIC RENT: In accordance with Paragraphs 2B and 4A herein, the Basic ---------- Rent due shall be payable as follows during the Term of the Lease:
Monthly Basic Rent Monthly Period Rate PSF Basic Rent ---------- ---------- Months 01-12 $2.50/sf $78,165.00 (plus the partial calendar month, if any, following the Commencement Date) Months 13-24 $2.55/sf $79,728.30 Months 25-36 $2.60/sf $81,291.60 Months 37-48 $2.65/sf $82,854.90 Months 49-60 $2.70/sf $84,418.20 Months 61-66 $2.75/sf $85,981.50
The total Aggregate Rent shall be determined once the actual Lease Commencement Date is established. 40. ASSIGNMENT OF WARRANTIES: During the Term of the Lease, Landlord hereby ------------------------ assigns to Tenant all of Landlord's Contractor's warranties and shall cooperate with Tenant in enforcing any of such warranties except that Landlord shall not be required to pay any legal fees or incur any expenses in this regard. 41. CONSENT: Whenever the consent of one party to the other is required ------- hereunder, such consent shall not be unreasonably withheld. 42. AUTHORITY TO EXECUTE. The parties executing this Lease Agreement hereby -------------------- warrant and represent that they are properly authorized to execute this Lease Agreement and bind the parties on behalf of whom they execute this Lease Agreement and to all of the terms, covenants and conditions of this Lease Agreement as they relate to the respective parties hereto. 43. ASSESSMENT CREDITS: The demised property herein may be subject to a ------------------ special assessment levied by the City of Sunnyvale as part of an Improvement District. As a part of said special assessment proceedings (if any), additional bonds were or may be sold and assessments were or may be levied to provide for construction contingencies and reserve funds. Interest shall be earned on such funds created for contingencies and on reserve funds which will be credited for the benefit of said assessment district. To the extent surpluses are created in said district through unused contingency funds, interest earnings or reserve funds, such surpluses shall be deemed the property of Landlord. Notwithstanding that such surpluses may be credited on assessments otherwise due against the Leased Premises, Tenant shall pay to Landlord, as additional rent if, and at the time of any such credit of surpluses, an amount equal to all such surpluses so credited. For example: if (i) the property is subject to an annual assessment of $1,000.00, and (ii) a surplus of $200.00 is credited towards the current year's assessment which reduces the assessment amount shown on the property tax bill from $1,000.00 to $800.00, Tenant shall, upon receipt of notice from Landlord, pay to Landlord said $200.00 credit as Additional Rent. 44. MAINTENANCE OF THE PREMISES: In addition to, and notwithstanding anything --------------------------- to the contrary in Paragraph 7, Landlord shall maintain, replace and repair damage to the structural shell, Page 9 foundation and roof structure (but not the interior improvements, roof membrane, or glazing) of the building leased hereunder at Landlord's cost and expense provided Tenant has not caused such damage, in which event Tenant shall be responsible for 100 percent of any such costs for repair or damage so caused by the Tenant. Notwithstanding the foregoing, a crack in the foundation, or exterior walls that does not endanger the structural integrity of the building, or which is not life-threatening, shall not be considered material, nor shall Landlord be responsible for repair of same. 45. COMPLIANCE (CONTINUED): Any non-conformance of the improvements installed ---------------------- and paid for by Landlord as set forth on Exhibit B, required to be corrected by --------- the governing agency, shall be corrected at the cost and expense of Landlord if such non-conformance exists as of the Commencement Date of the Lease. Any non- conformance of the Premises occurring after the Commencement Date of this Lease Agreement shall be the responsibility of Tenant to correct at Tenant's cost and expense. 46. ASSIGNMENT AND SUBLETTING (CONTINUED): In addition to and notwithstanding ------------------------------------- anything to the contrary in Paragraph 16 of this Lease, Landlord hereby agrees to consent to Tenant's assigning or subletting said Lease to: (i) any parent or subsidiary corporation, affiliate, or corporation with which Tenant merges or consolidates, provided that the net worth of said parent or subsidiary corporation, affiliate, or said corporation has a net worth equal to or greater than the net worth of Tenant at the time of such assignment, merger, or consolidation; or (ii) any third party or entity to whom Tenant sells all or substantially all of its assets; provided, that the net worth of the resulting or acquiring corporation has a net worth after the merger, consolidation or acquisition equal to or greater than the net worth of Tenant at the time of such merger, consolidation or acquisition. No such assignment or subletting will release the Tenant from its liability and responsibility under this Lease to the extent Tenant continues in existence following such transaction. Notwithstanding the above, Tenant shall be required to (a) give Landlord written notice prior to such assignment or subletting to any party as described in (i) and (ii) above, and (b) execute Landlord's consent document prepared by Landlord reflecting the assignment or subletting. Any and all sublease agreement(s) between Tenant and any and all subtenant(s) (which agreements must be consented to by Landlord, pursuant to the requirements of this Lease) shall contain the following language: "If Landlord and Tenant jointly and voluntarily elect, for any reason whatsoever, to terminate the Master Lease prior to the scheduled Master Lease termination date, then this Sublease (if then still in effect) shall terminate concurrently with the termination of the Master Lease. Subtenant expressly acknowledges and agrees that (1) the voluntary termination of the Master Lease by Landlord and Tenant and the resulting termination of this Sublease shall not give Subtenant any right or power to make any legal or equitable claim against Landlord, including without limitation any claim for interference with contract or interference with prospective economic advantage, and (2) Subtenant hereby waives any and all rights it may have under law or at equity against Landlord to challenge such an early termination of the Sublease, and unconditionally releases and relieves Landlord, and its officers, directors, employees and agents, from any and all claims, demands, and/or causes of action whatsoever (collectively, "Claims"), whether such matters are known or unknown, latent or apparent, suspected or unsuspected, foreseeable or unforeseeable, which Subtenant may have arising out of or in connection with any such early termination of this Sublease. Subtenant knowingly and intentionally waives any and all protection which is or may be given by Section 1542 of the California Civil Code which provides as follows: 'A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with debtor. The term of this Sublease is therefore subject to early termination. Subtenant's initials here below evidence (a) Subtenant's consideration of and agreement to this early termination provision, (b) Subtenant's acknowledgment that, in determining the net benefits to be derived by Subtenant under the terms of this Sublease, Subtenant has anticipated the potential for early termination, and (c) Subtenant's agreement to the general waiver and release of Claims above. Initials:_______________ Initials:_______________" Subtenant Tenant Page 10 47. TWO (2)- FIVE (5) YEAR OPTIONS TO EXTEND: Landlord hereby grants to ---------------------------------------- Tenant, subject to the provisions below, two (2)- five (5) year Options to Extend this Lease Agreement as follows: A. FIRST FIVE (5)-YEAR OPTION PERIOD: Landlord hereby grants to Tenant an --------------------------------- Option to Extend this Lease Agreement for an additional five (5) year period ("Extended Term') upon the following terms and conditions: 1. Tenant shall give Landlord written notice of Tenant's exercise of this Option to Extend not later than one hundred eighty (180) days prior to the scheduled Lease Termination Date, which Termination Date is currently projected to be October 31, 2002, in which event the Lease shall be considered extended for an additional five (5) years subject to (i) the Basic Rental provisions set forth below; (ii) upon the same terms and conditions; however the terms and conditions are subject to amendment by Landlord, in its sole and absolute discretion, to incorporate its current Lease provisions that are standard in Landlord's leases as of the date of Tenant's exercise of its Option to Extend; and (iii) the deletion of this Paragraph 47(A). In the event that Tenant fails to timely exercise Tenant's option as set forth herein in writing, Tenant shall have no further Option to Extend this Lease, and this Lease shall continue in full force and effect for the full remaining term hereof, absent this Paragraph 47(A) and Paragraph 47(B). 2. In the event Tenant timely exercises Tenant's Option to Extend as set forth herein, Landlord shall, within fifteen (15) days after receipt of Tenant's exercise of option, advise Tenant of the Basic Rental required for the Extended Term of the Lease. Tenant shall have five (5) days after receipt from the Landlord of said new Basic Rental in which to accept said new Basic Rental and enter into written documentation confirming same. In the event Tenant fails to execute said written documentation confirming said new Basic Rental for the Extended Term of Lease within said five (5) day period, Tenant shall have no further Option to Extend this Lease, and this Lease shall continue in full force and effect for the full remaining Term hereof absent of this Paragraph 47, with Landlord having no further responsibility or obligation to Tenant with respect to Tenant's Option to Extend. 3. It is agreed that if Tenant is at any time prior to exercising its Option to Extend in default of this Lease and has failed to cure the default in the time period allowed, this Paragraph 47 will be null and void and Tenant will have no further rights under this Paragraph. It is further agreed that if Tenant has exercised its Option to Extend and is subsequently in default prior to, or at the scheduled Commencement Date of the first Extended Term, Landlord may at its sole and absolute discretion, cancel Tenant's Option to Extend, and this Lease will continue in full force and effect for the full remaining Term hereof, absent of this Paragraph 47. 4. The option rights of Tenant under this Paragraph 47, and the Extended Term thereunder, are granted for Tenant's personal benefit and may not be assigned or transferred by Tenant (except to: a parent or a subsidiary corporation; or a corporation with which Tenant merges or consolidates; or a corporation to whom Tenant sells all or substantially all of its assets, provided that Landlord has pre-approved the assignment of the Lease to any such entities as provided for in Paragraph 46) either voluntarily or by operation of law, in any manner whatsoever. After the expiration of the twenty-fourth month of the Lease Term, in the event that Landlord consents to a sublease or assignment under Paragraph 16, the option granted herein and any Extended Term thereunder shall be void and of no force and effect, unless Tenant is occupying no less than ten percent (10%) of the Premises after subleasing the remainder of the Premises during the initial Lease Term and further provided Tenant occupies ten percent (10%) of the Premises during any and all Extended Terms as provided for herein and in Paragraph 47B ("Second Five (5)- Year Option Period"). 5. INCREASED SECURITY DEPOSIT: In the event the Term of Tenant's Lease is extended pursuant to this Paragraph 47(A), Tenant's Security Deposit shall be increased to equal twice the Basic Rental due for the last month of the Extended Term. B. SECOND FIVE (5)-YEAR OPTION PERIOD: Provided Tenant has extended the ---------------------------------- Lease for an additional five (5) year period as set forth in Paragraph 47(A) above, Landlord hereby grants to Tenant an Option to Extend this Lease Agreement for an additional five (5) years ('Second Extended Term') upon the following terms and conditions: 1. Tenant shall give Landlord written notice of Tenant's exercise of this Option to Extend at least one hundred eighty (180) days prior to the expiration of the Extended Term pursuant to Page 11 Paragraph 47(A) hereof, which Termination Date is scheduled to be October 31, 2007, in which event the Lease shall be considered extended for an additional five (5) years subject to (i) the Basic Rental provisions set forth below; (ii) upon the same terms and conditions; however the terms and conditions are subject to amendment by Landlord, in its sole and absolute discretion, to incorporate its current Lease provisions that are standard in Landlord's leases as of the date of Tenant's exercise of its Option to Extend; and (iii) the deletion of this Paragraph 47(B). In the event that Tenant fails to timely exercise Tenant's option as set forth herein in writing, Tenant shall have no further Option to Extend this Lease, and this Lease shall continue in full force and effect for the full remaining Term hereof, absent this Paragraph 47(B). 2. In the event Tenant timely exercises Tenant's Option to Extend as set forth herein, Landlord shall, within fifteen (15) days after receipt of Tenant's exercise of option, advise Tenant of the Basic Rental (which shall not be less than the Basic Rental for the fifth year of the first five (5) year Extended Term) required for the Second Extended Term of the Lease. Tenant shall have five (5) days after receipt from the Landlord of said new Basic Rental in which to accept said new Basic Rental and enter into written documentation confirming same. In the event Tenant fails to execute said written documentation confirming said new Basic Rental for the Second Extended Term of Lease within said five (5) day period, Tenant shall have no further Option to Extend this Lease, and this Lease shall continue in full force and effect for the full remaining Term hereof absent of this Paragraph 47(B), with Landlord having no further responsibility or obligation to Tenant with respect to Tenant's Option to Extend. 3. It is agreed that if Tenant is at any time prior to exercising its Option to Extend in default of this Lease and has failed to cure the default in the time period allowed, this Paragraph 47(B) will be null and void and Tenant will have no further rights under this Paragraph. It is further agreed that if Tenant has exercised its Option to Extend and is subsequently in default prior to, or at the time the lease commences on the Second Extended Term, Landlord may at its sole and absolute discretion, cancel Tenant's Option to Extend, and this Lease will continue in full force and effect for the full remaining term hereof, absent of this Paragraph 47(B). 4. The option rights of Tenant under this Paragraph 47(B), and the Second Extended Term thereunder, are granted for Tenant's personal benefit and may not be assigned or transferred by Tenant, (except to: a parent or a subsidiary corporation; or a corporation with which Tenant merges or consolidates; or a corporation to whom Tenant sells all or substantially all of its assets, provided that Landlord has pre-approved the assignment of the Lease to any such entities as provided for in Paragraph 46) either voluntarily or by operation of law, in any manner whatsoever. In the event that Landlord consents to a sublease or assignment under Paragraph 16, the option granted herein and any Second Extended Term thereunder shall be void and of no force and effect, unless Tenant is occupying no less than ten percent (10%) of the Premises after subleasing the remainder of the Premises during the initial Lease Term, during Tenant's first Extended Term and further provided Tenant occupies ten percent (10%) of the Premises during any and all Extended Terms as provided for herein. 5. INCREASED SECURITY DEPOSIT: In the event the Term of Tenant's Lease is extended pursuant to this Paragraph 47(B), Tenant's Security Deposit shall be increased to equal twice the Basic Rental due for the last month of the Second Extended Term. 48. TENANT INTERIOR IMPROVEMENTS: Landlord shall, at its sole cost and ---------------------------- expense, construct certain interior improvements (the "Tenant Improvements") in the Premises, as shown on Exhibit B to be attached to the Lease and Landlord --------- agrees to deliver the Premises leased hereunder to Tenant, at Landlord's expense, in the configuration shown in Red on Exhibit B to be attached hereto. --------- Notwithstanding anything to the contrary above, it is specifically understood and agreed that Landlord shall be required to furnish only a standard air conditioning/heating system, normal electrical outlets, standard fire sprinkler systems, standard bathroom, standard lobby, 2' x 4' suspended acoustical tile drop ceiling throughout the entire space leased, carpeting and/or vinyl-coated floor tile, and standard office partitions and doors, as shown on Exhibit B to --------- be attached hereto; provided however, that any special HVAC and/or plumbing and/or electrical requirements over and above that normally supplied by Landlord shall be 100 percent the responsibility of and be paid for 100 percent by Tenant. By February 17, 1997, Tenant shall furnish Landlord, for Landlord's review and approval, Tenant's required specification and a preliminary space plan (collectively, the "Preliminary Plans") showing the layout of the improvements to be constructed in the Premises. Upon completion of Landlord's review and approval, Landlord shall, as soon as possible thereafter, have the working drawings of the interior plans (the "Working Drawings") drawn by Landlord's architect which Working Drawing shall be consistent with, and logical evolutions of, the Preliminary Plans. Within three (3) business days following receipt of the Working Drawings, Tenant shall approve in writing the final plans for the Page 12 interior improvements or notify Landlord in writing of its specific objections (if any) within such three (3)-day period. If Tenant so objects, the parties shall confer and use their best efforts to reach agreement upon final interior improvement plans and together shall apply the standards set forth in this Paragraph 48 to resolve Tenant's objections and incorporate such resolution into final interior improvement plans. In resolving Tenant's objections, the parties agree to act reasonably so as to promptly finalize the final interior improvement plans. The interior finishes, except as otherwise requested by Tenant, shall be substantially similar to those finishes within that certain building located at 3201 Scott Boulevard, Santa Clara, California. The final interior improvement plans, as approved by Landlord and Tenant, shall be attached to this Lease as Exhibit B. If the Preliminary Plans are not received --------- by Landlord for Landlord's approval (which approval shall not be unreasonably withheld) by February 17, 1997, then it is agreed that, notwithstanding anything to the contrary in this Lease, this Lease and Tenant's obligation to perform all terms, covenants and conditions of this Lease shall commence as of the date it would otherwise have commenced absent delay caused by Tenant. Landlord shall complete construction of the interior improvements as soon as reasonably possible thereafter. Notwithstanding anything to the contrary, it is agreed that in the event Tenant makes changes, additions, or modifications to the final interior plans reflecting the improvements (as approved by Tenant and Landlord) to be constructed by Landlord as set forth herein, or improvements are installed for Tenant in excess of those to be provided Tenant by Landlord as set forth on Exhibit B, any increased cost(s) resulting from said changes, additions, and/or - --------- modifications and/or improvements in excess of those to be provided Tenant shall be contracted for with Landlord and paid for one hundred percent (100%) by Tenant. The interior shall be constructed in accordance with Exhibit B of the Lease, it --------- being agreed, however, that if the interior improvements constructed by Landlord relating thereto, do not conform exactly but conform materially to the plans and specifications as set forth in the Lease, and the general appearance, structural integrity, and Tenant's uses and occupancy of the Premises and interior improvements relating thereto are not materially or unreasonably affected by such deviation, it is agreed that the commencement date of the Lease, and Tenant's obligation to pay rental, shall not be affected, and Tenant hereby agrees, in such event, to accept the Premises and interior improvements as constructed by Landlord. Tenant shall have thirty (30) days after the Commencement Date to provide Landlord with a "punch list" pertaining to Landlord's work with respect to Tenant's interior improvements. As soon as reasonably possible thereafter, Landlord, or one of Landlord's representatives (if so approved by Landlord), and Tenant shall conduct a joint walk-through of the Premises (if Landlord so requires), and inspect such Tenant Improvements, using their best efforts to agree on the incomplete or defective construction related to the Tenant Improvements installed by Landlord. After such inspection has been completed, Landlord shall prepare, and both parties shall sign, a list of all "punch list" items which the parties reasonably agree are to be corrected by Landlord (but which shall exclude any damage or defects caused by Tenant, its employees, agents or parties Tenant has contracted with to work on the Premises). Landlord shall have thirty (30) days thereafter (or longer if necessary, provided Landlord is diligently pursuing the completion of the same) to complete, at Landlord's expense, the repairs on the "punch list" without the Commencement Date of the Lease and Tenant's obligation to pay Rental thereunder being affected provided that such "punch list" items do not materially affect Tenant's total use of the Premises. This Paragraph shall be of no force and effect if Tenant shall fail to give any such notice to Landlord within thirty (30) days after the Commencement Date of this Lease. 49. SECURITY DEPOSIT IN THE FORM OF AN IRREVOCABLE STANDBY LETTER OF CREDIT: ----------------------------------------------------------------------- The cash Security Deposit provided for in Paragraph 4G of the Lease shall be deposited by Tenant with Landlord upon execution of this Lease; however, Tenant shall have the right, at Tenant's sole election, to replace the cash Security Deposit held by Landlord with an irrevocable letter of credit, drawn upon an institutional lender reasonably acceptable to Landlord in form and content reasonably satisfactory to Landlord and for a term equal to the Term of this Lease plus a period of sixty (60) days. Such irrevocable letter of credit shall be renewed by the issuer prior to the renewal date thereof from time to time during the Lease Term, and shall be held by Landlord as security for the faithful performance by Tenant of all the terms, covenants and conditions of this Lease to be kept and performed by Tenant. Notwithstanding anything to the contrary above, if, for any reason, the issuer is unable or unwilling to so renew the irrevocable letter of credit, the issuer shall automatically, without demand from Landlord, on or before any renewal date of such irrevocable letter of credit, issue a cashier's check payable to Landlord in the amount of $171,963.00 as set forth in Paragraph 4G of this Lease or the adjusted amounts, if applicable, under Paragraph 47(A) and/or 47(B). The cash Security Deposit held by Landlord shall be refunded to Tenant upon Landlord's receipt of an acceptable Page 13 irrevocable letter of credit. If Tenant defaults with respect to any provisions of this Lease, including but not limited to provisions relating to the payment of Rent, Landlord may (but shall not be required to) draw down on the irrevocable letter of credit for payment of any sum which Landlord may spend or become obligated to spend by reason of Tenant's default, or to compensate Landlord for any loss or damage which Landlord may suffer by reason of Tenant's default. Landlord and Tenant acknowledge that such irrevocable letter of credit will be treated as if it were a cash Security Deposit, and such irrevocable letter of credit may be drawn down upon by Landlord upon demand and presentation of evidence of the identity of Landlord to the issuing bank, in the event that Tenant defaults with respect to any provision of this Lease and such default is not cured within any applicable cure period. Landlord acknowledges that it is not entitled to draw down such irrevocable letter of credit unless Landlord would have been entitled to draw upon a cash Security Deposit pursuant to the terms of Paragraph 4G of the Lease. Concurrently with the delivery of the required information to the issuing bank, Landlord shall deliver to Tenant written evidence of the default upon which the draw down was based, together with evidence that Landlord has provided to Tenant the written notice of such default which was required under the applicable provision of the Lease, and evidence of the failure of Tenant to cure such default within the applicable grace period following receipt of such notice of default. If any portion of the irrevocable letter of credit is used or applied pursuant hereto, Tenant shall, within ten (10) days after receipt of a written demand therefor from Landlord, restore and replace the value of such security by either (i) depositing cash with Landlord in the amount equal to the sum drawn down under the irrevocable letter of credit, or (ii) increasing the irrevocable letter of credit to its value immediately prior to such application. Tenant's failure to replace the value of the security as provided in the preceding sentence shall be a material breach of its obligation under this Lease. 50. HAZARDOUS MATERIALS: Landlord and Tenant agree as follows with respect to ------------------- the existence or use of "Hazardous Materials" (as defined herein) on, in, under or about the Premises and real property located beneath said Premises, which includes the entire parcel of land on which the Premises are located as shown in Green on Exhibit A attached hereto (hereinafter collectively referred to as the --------- "Property"): A. As used herein, the term "Hazardous Materials" shall mean any material, waste, chemical, mixture or byproduct which is or hereafter is defined, listed or designated under Environmental Laws (defined below) as a pollutant, or as a contaminant, or as a toxic or hazardous substance, waste or material, or any other unwholesome, hazardous, toxic, biohazardous, or radioactive material, waste, chemical, mixture or byproduct, or which is listed, regulated or restricted by any Environmental Law (including, without limitation, petroleum hydrocarbons or any distillates or derivatives or fractions thereof, polychlorinated biphenyls, or asbestos). As used herein, the term "Environmental Laws" shall mean any applicable Federal, State of California or local government law (including common law), statute, regulation, rule, ordinance, permit, license, order, requirement, agreement, or approval, or any determination, judgment, directive, or order of any executive or judicial authority at any level of Federal, State of California or local government (whether now existing or subsequently adopted or promulgated) relating to pollution or the protection of the environment, ecology, natural resources, or public health and safety. B. Tenant shall obtain Landlord's written consent, which may be withheld in Landlord's discretion, prior to the occurrence of any Tenant's Hazardous Materials Activities (defined below); provided, however, that Landlord's consent shall not be required for normal use in compliance with applicable Environmental Laws of customary household and office supplies (Tenant shall first provide Landlord with a list of said materials use), such as mild cleaners, lubricants and copier toner. As used herein, the term "Tenant's Hazardous Materials Activities" shall mean any and all use, handling, generation, storage, disposal, treatment, transportation, release, discharge, or emission of any Hazardous Materials on, in, beneath, to, from, at or about the Property, in connection with Tenant's use of the Property, or by Tenant or by any of Tenant's agents, employees, contractors, vendors, invitees, visitors or its future subtenants or assignees. Tenant agrees that any and all Tenant's Hazardous Materials Activities shall be conducted in strict, full compliance with applicable Environmental Laws at Tenant's expense, and shall not result in any contamination of the Property or the environment. Tenant agrees to provide Landlord with prompt written notice of any spill or release of Hazardous Materials at the Property during the term of the Lease of which Tenant becomes aware, and further agrees to provide Landlord with prompt written notice of any violation of Environmental Laws in connection with Tenant's Hazardous Materials Activities of which Tenant becomes aware. If Tenant's Hazardous Materials Activities involve Hazardous Materials other than normal use of customary household and office supplies, Tenant also agrees at Tenant's expense: (i) to install such Hazardous Materials monitoring, storage and containment devices as Landlord reasonably deems necessary (Landlord shall have no obligation to evaluate the need for any such installation or to require any such installation); (ii) provide Landlord with a written inventory of such Hazardous Materials, including an update of same each year upon the anniversary date of the Commencement Date of the Page 14 Lease ("Anniversary Date"); and (iii) on each Anniversary Date, to retain a qualified environmental consultant, acceptable to Landlord, to evaluate whether Tenant is in compliance with all applicable Environmental Laws with respect to Tenant's Hazardous Materials Activities. Tenant, at its expense, shall submit to Landlord a report from such environmental consultant which discusses the environmental consultant's findings within two (2) months of each Anniversary Date. Tenant, at its expense, shall promptly undertake and complete any and all steps necessary, and in full compliance with applicable Environmental Laws, to fully correct any and all problems or deficiencies identified by the environmental consultant, and promptly provide Landlord with documentation of all such corrections. C. Prior to termination or expiration of the Lease, Tenant, at its expense, shall (i) properly remove from the Property all Hazardous Materials which come to be located at the Property in connection with Tenant's Hazardous Materials Activities, and (ii) fully comply with and complete all facility closure requirements of applicable Environmental Laws regarding Tenant's Hazardous Materials Activities, including but not limited to (x) properly restoring and repairing the Property to the extent damaged by such closure activities, and (y) obtaining from the local Fire Department or other appropriate governmental authority with jurisdiction a written concurrence that closure has been completed in compliance with applicable Environmental Laws. Tenant shall promptly provide Landlord with copies of any claims, notices, work plans, data and reports prepared, received or submitted in connection with any such closure activities. D. If Landlord, in its sole discretion, believes that the Property has become contaminated as a result of Tenant's Hazardous Materials Activities, Landlord in addition to any other rights it may have under this Lease or under Environmental Laws or other laws, may enter upon the Property and conduct inspection, sampling and analysis, including but not limited to obtaining and analyzing samples of soil and groundwater, for the purpose of determining the nature and extent of such contamination. Tenant shall promptly reimburse Landlord for the costs of such an investigation, including but not limited to reasonable attorneys' fees Landlord incurs with respect to such investigation, that discloses Hazardous Materials contamination for which Tenant is liable under this Lease. Except as may be required of Tenant by applicable Environmental Laws, Tenant shall not perform any sampling, testing, or drilling to identify the presence of any Hazardous Materials at the Property, without Landlord's prior written consent which may be withheld in Landlord's discretion. Tenant shall promptly provide Landlord with copies of any claims, notices, work plans, data and reports prepared, received or submitted in connection with any sampling, testing or drilling performed pursuant to the preceding sentence. E. Tenant shall indemnify, defend (with legal counsel acceptable to Landlord, whose consent shall not unreasonably be withheld) and hold harmless Landlord, its employees, assigns, successors, successors-in-interest, agents and representatives from and against any and all claims (including but not limited to third party claims from a private party or a government authority), liabilities, obligations, losses, causes of action, demands, governmental proceedings or directives, fines, penalties, expenses, costs (including but not limited to reasonable attorneys', consultants' and other experts' fees and costs), and damages, which arise from or relate to: (i) Tenant's Hazardous Materials Activities; (ii) any Hazardous Materials contamination caused by Tenant prior to the Commencement Date of the Lease; or (iii) the breach of any obligation of Tenant under this Paragraph 50 (collectively, "Tenant's Environmental Indemnification"). Tenant's Environmental Indemnification shall include but is not limited to the obligation to promptly and fully reimburse Landlord for losses in or reductions to rental income, and diminution in fair market value of the Property. Tenant's Environmental Indemnification shall further include but is not limited to the obligation to diligently and properly implement to completion, at Tenant's expense, any and all environmental investigation, removal, remediation, monitoring, reporting, closure activities, or other environmental response action (collectively, "Response Actions"). Tenant shall promptly provide Landlord with copies of any claims, notices, work plans, data and reports prepared, received or submitted in connection with any Response Actions. It is agreed that the Tenant's responsibilities related to Hazardous Materials will survive the expiration or termination of this Lease and that Landlord may obtain specific performance of Tenant's responsibilities under this Paragraph 50. 51. LANDLORD'S RIGHT TO TERMINATE: It is understood that the Premises to be ----------------------------- leased by Tenant are to be constructed by Landlord, and that Landlord is required to obtain the necessary building permits before construction of said Premises can commence. Therefore, it is agreed, that in the event Landlord cannot obtain all of the necessary building permits for said Premises within one hundred twenty (120) days from the date this executed Lease is received by Landlord, that Landlord can terminate this Lease Agreement without any liability to Tenant of any type whatsoever, and that Page 15 this Lease Agreement will be null and void as of the date of said cancellation. Landlord agrees to use its best efforts to obtain the required permits within the aforementioned 120-day period. 52. ALTERATIONS AND TRADE FIXTURES: The provisions of this Paragraph 52 shall ------------------------------ modify Paragraphs 5 and 6: A. As used herein, the Term "Alteration" shall mean any alteration, addition or improvement made by Tenant to the Premises during the Term of the Lease, but shall not include Tenant's trade fixtures so long as such trade fixtures are not installed in such a manner that they have become an integral part of the building. B. Notwithstanding the foregoing, Tenant shall have the right to reconfigure modular freestanding walls and the non-floor-to-ceiling partitions without Landlord's prior consent, which have been installed by Tenant and paid for by Tenant. Notwithstanding the above, Tenant may not remove or reconfigure the floor-to-ceiling ultrawall partitions without receiving Landlord's prior written consent; however, Tenant may remove and/or reconfigure its furniture partitions (including its floor-to-ceiling furniture partitions); provided Tenant, at Tenant's expense, repairs any and all damage caused by such removal and/or reconfiguration. C. At all times during the Lease Term: (i) Tenant shall maintain and keep updated "as-built" plans for all alterations constructed by Tenant, and (ii) Tenant shall provide to Landlord 1/8 inch scale sepias of such "as-built" plans as such Alterations are made. D. At the time Tenant requests the consent of Landlord to approve the installation of an Alteration requiring the consent of Landlord, Tenant shall seek from Landlord a written statement of whether or not Landlord will require Tenant to remove such Alteration and restore all or part of the Premises as required by Landlord in accordance with this Paragraph and Paragraph 5 at the expiration or earlier termination of the Term of the Lease. If Tenant does not obtain from Landlord a statement in writing that Landlord will not require such Alteration to be removed, then at the expiration or sooner termination of the Term of this Lease, it is agreed that Tenant may be required by Landlord to remove all or part of such Alterations, and return the Premises to the condition and configuration existing prior to the installation of such Alterations as provided for in Paragraph 5 above. Alterations for which Landlord has given its written consent to Tenant that such Alteration need not be removed, need not be removed by Tenant at the expiration or earlier termination of the Term of the Lease. 53. REAL PROPERTY TAXES: Paragraph 9 is modified by the following: ------------------- A. If any assessments for public improvements are levied against the Premises, Landlord may elect either to pay the assessment in full or to allow the assessment to go to bond. If Landlord pays the assessment in full, Tenant shall pay to Landlord or any assignee or purchaser of the Premises, each time payment of Real Property Taxes is made, a sum equal to that which would have been payable (as both principal and interest) had Landlord allowed the assessment to go to bond. B. In addition to and notwithstanding anything to the contrary contained in Paragraph 9, it is agreed that Tenant shall have the right to contest the real estate taxes and/or assessments levied against the Premises leased hereunder with the specific understanding and agreement that any such contest shall in no way and in no event relieve Tenant from Tenant's responsibility to pay all real estate taxes and assessments as they appear on the tax bill as they become due. In the event any such contest by Tenant is successful, the proportionate portion of the refund relating to real estate taxes and assessments actually paid by Tenant shall be refunded to Tenant. It is further understood and agreed that Landlord shall in no event be responsible for any liability or for any cost or expense incurred by Tenant by reason of Tenant's contest of such taxes and/or assessments. 54. SUBORDINATION AND MORTGAGES: Paragraph 17 is modified to provide that this --------------------------- Lease shall not be subordinate to a mortgage or deed of trust unless the Lender holding such mortgage or deed of trust enters into a written subordination, non- disturbance and attornment agreement in which the Lender agrees that notwithstanding any subordination of this Lease to such Lender's mortgage or deed of trust, (i) such Lender shall recognize all of Tenant's rights under this Lease, and (ii) in the event of a foreclosure, this Lease shall not be terminated so long as Tenant is not in default of its obligations under this Lease, but shall continue in effect and Tenant and such Lender (or any party acquiring the Premises through such foreclosure) shall each be bound to perform the respective obligations of Tenant and Landlord with respect to the Premises arising after such foreclosure. Page 16 55. LANDLORD'S RIGHT TO ENTER: Notwithstanding the provisions of Paragraph 18, ------------------------- (i) except in the event of an emergency, Landlord shall give Tenant twenty-four (24) hours notice prior to entering the Premises, agrees to comply with any reasonable safety and/or security regulations imposed by Tenant with respect to such entry, and shall only enter the Premises when accompanied by Tenant or its agent (so long as Tenant makes itself reasonably available for this purpose), and (ii) Landlord may install "for lease" signs relating to the Premises only during the last 180 days of the Lease term. Landlord agrees to use its reasonable, good faith efforts such that any entry by Landlord, and Landlord's agents, employees, contractors and invitees shall be performed in a manner with as minimal interference as possible with Tenant's business at the Premises. Subject to the foregoing, Tenant agrees to cooperate with Landlord and Landlord's agents, employees and contractors so that responsibilities of Landlord under the Lease can be fulfilled in a reasonable manner during normal business hours so that no extraordinary costs are incurred by Landlord. 56. TRANSFER BY LANDLORD: The provisions of Paragraph 23 of the Lease to the -------------------- contrary notwithstanding, Landlord shall not be relieved of its obligations under the Lease which may accrue after the date of a sale or other transfer unless and until (i) the transferee agrees to assume and be bound by the terms of this Lease and to perform all obligations of the Landlord under the Lease which may accrue after the date of such transfer, and (ii) Landlord transfers the balance, as of the date of said transfer of the Security Deposit to its successor in interest (transferee) in accordance with the provisions of California Civil Code Section 1950.7, as amended or recodified. 57. TENANT'S INSTALLATION OF ROOFTOP SATELLITE DISHES: Landlord agrees to ------------------------------------------------- allow Tenant to install and connect satellite dishes on the rooftop of the building (provided said satellite dishes are not visible and are completely hidden from view from the street), with Tenant bearing sole responsibility for all costs, permits, structural engineering, construction and installation related to said satellite dishes, and complying with any and all regulations imposed by a governing agency regarding the installation and/or use of said satellite dishes. Tenant shall be responsible for removing said satellite dishes and for reporting and restoring any area altered and/or damaged, as a result of said satellite dishes' installation and/or removal, to its original condition subject to Paragraph 8 ("Acceptance and Surrender of Premises") prior to the Lease Termination Date. 58. INITIAL LEASE TERMS CO-TERMINOUS: It is acknowledged that (i) Landlord and -------------------------------- Tenant have previously executed a separate lease agreement, dated May 21, 1996, for premises located at 501 Macara Avenue, Sunnyvale, California (hereinafter referred to as the "Macara A Lease"), which property is contiguous to the Premises leased hereunder, and (ii) it is the intention of the parties that the initial Term of this Lease be co-terminous with the initial term of the Macara A Lease such that the initial terms of both leases expire on the same date; provided, however, the termination of this Lease resulting from the terms and conditions stated under Paragraph 21 ("Destruction") or Paragraph 22 ("Eminent Domain") shall not result in a termination of the Macara A Lease. As soon as the parties are able to implement the provisions of this Paragraph because the Commencement Date of this Lease has been determined, the parties shall execute (i) an amendment to this Lease establishing (a) the actual Commencement Date and the adjusted Termination Date in accordance with the foregoing provisions of this Paragraph 58 and (b) the actual date for each rent adjustment provided for in this Lease, based upon the actual Lease Commencement Date, and (ii) an amendment to the Macara A Lease extending the initial term of said Macara A Lease to be co-terminous with the initial Termination Date of this Lease ("Extension Period"). For example, if the Macara A Lease commences on March 1, 1997, and this Lease commences on the projected Lease Commencement Date of May 1, 1997, the initial term of the Macara A Lease shall be extended by two months and the monthly Basic Rent under the Macara A Lease during the Extension Period shall be $136,080.00 ($2.05 + $0.05 per square foot x 64,800 square feet = $136,080.00). Notwithstanding the above, it is hereby agreed that the Term of this Lease may be extended to coincide with the termination date of the Macara A Lease if the Macara A Lease commences after the Commencement Date of this Lease, however, in no event will the Term of this Lease be for a period of less than five (5) years and six (6) months nor will the termination date of the Macara A Lease be prior to the Termination Date of this Lease, 59. CROSS DEFAULT: As a material part of the consideration for the execution ------------- of this Lease by Landlord, it is agreed between Landlord and Tenant (as long as Landlord is the fee owner of the real property subject to this Lease and subject to the Macara A Lease) that a default under this Lease, or a default under said Macara A Lease may, at the option of the Landlord, be considered a default under both leases, in which event Landlord shall be entitled (but in no event required) to apply all rights and remedies of Landlord under the terms of one lease to both leases including, but not limited to, the right to terminate one or both of said leases by reason of a default under said Macara A Lease or hereunder. EX-10.16 8 SUBLEASE DATED AS OF AUGUST 29, 1997 EXHIBIT 10.16 SUBLEASE 1. Parties: This Sublease is made and entered into as of August 29, 1997, by and between Pointcast, Inc., a California corporation ("Sublandlord"), and Internet Shopping Network, Inc., a California corporation ("Subtenant"), with respect to that certain Master Lease dated January 22, 1997, between Arrillaga Family Trust and Richard T. Peery Separate Property Trust, as "Landlord" and Sublandlord under this Sublease as "Tenant." A copy of the Master Lease is attached hereto as Exhibit A and incorporated herein by this reference. 2. Provisions Constituting Sublease: 2.1 This Sublease is subject and subordinate to the Master Lease. Upon any termination of the Master Lease, this Sublease shall also terminate. Sublandlord shall not terminate the Master Lease without the consent of Subtenant; provided however, that Sublandlord may terminate the Master Lease in the event of a casualty or condemnation without Subtenant's consent if Sublandlord has the fight to do so under the Master Lease. If Sublandlord elects to terminate the Master Lease in such circumstances, Sublandlord shall notify Subtenant concurrently with giving notice to Landlord, which notice shall be given not less than one hundred twenty (120) days following the date of the casualty or condemnation, as the case may be; provided however, that Sublandlord shall have the fight to provide earlier notice if Sublandlord is required to do so under the Master Lease. Subtenant hereby assumes and agrees to perform all of the obligations of "Tenant" under the Master Lease except as specifically set forth herein. Sublandlord hereby agrees to use reasonable efforts to cause Landlord under the Master Lease to perform all of the obligations of Landlord thereunder. Subtenant shall not commit or permit to be committed on the Subleased Premises any act .which violates any term or condition of the Master Lease. 2.2 All of the terms and conditions contained in the Master Lease that are set forth in subparagraph (h) below are incorporated into this Sublease as if fully set forth herein subject to the following and any additional exceptions set forth in said subparagraph (h): (a) All references in such incorporated provisions to "Landlord", "Tenant", "Premises", "Lease" and "Basic Annual Rent" for the purposes of this Sublease shall be deemed to refer respectively to "Sublandlord", "Subtenant", the "Subleased Premises" this "Sublease" and "Base Monthly Rent" as such terms are defined in this Sublease; and all references to paragraph numbers of the Master Lease in incorporated provisions of the Master Lease shall be deemed to be references to such paragraphs as incorporated into this Sublease. (b) In any case where under the incorporated provisions of the Master Lease the "Landlord" reserves or is granted the right to manage, supervise, control, repair, alter, regulate the use of, enter or use the Premises or any areas beneath, above or adjacent thereto, such reservation or grant of right of entry shall be deemed to be for the benefit of both Landlord and Sublandlord. (c) In any case where under the incorporated provisions of the Master Lease the "Landlord's" consent or approval is required, the consent or approval of both Landlord and Sublandlord shall be required and, if a provision of the Master Lease (as incorporated into this Sublease) or this Sublease requires Sublandlord not to unreasonably withhold its consent, Sublandlord shall not be in default of this Sublease or otherwise liable to Subtenant for withholding its consent if Landlord fails to consent to the matter in question. If Landlord is required to act reasonably under the Master Lease, Sublandlord shall (i) also act reasonably, and (ii) use reasonable efforts to obtain Landlord's consent. (d) In any case where under the incorporated provisions of the Master Lease "Tenant" is to indemnify or to waive or release any claims against "Landlord", such indemnity and/or waiver shall be deemed to run from Subtenant to both Landlord and Sublandlord. (e) In any case where under the incorporated provisions of the Master Lease "Tenant" is to execute and deliver certain documents or notices, or to provide any documents or information, to "Landlord", such obligation shall be deemed to run from Subtenant to both Landlord and Sublandlord. (f) The time limits provided for in the Master Lease for the giving of notice, making of demands, performance of any act, condition or covenant, or the exercise of any right, remedy or option, are amended for the purposes of this Sublease by lengthening or shortening the time limits in each instance by five (5) days, as appropriate, so that notices may be given, demands made or any act, condition or covenant performed, or any right, remedy or option hereunder exercised, by Sublandlord or Subtenant, as the case may be, within the time limit relating thereto contained in the Master Lease; provided, if the Master Lease allows only five (5) days or less for Sublandlord to perform any act, or to undertake to perform any act, or to correct any failure relating to the Premises or this Sublease, then Subtenant shall nevertheless be allowed the lesser of the time permitted in the Master Lease or three (3) days to perform the act, undertake the act and/or correct the failure relating to the Premises or this Sublease. (g) Subtenant acknowledges that with respect to any work, services, repairs, restoration, insurance obligations or the performance of any other obligation of Landlord under the Master Lease, that Sublandlord shall be under no obligation to provide any such services or work or satisfy any such obligations or covenants; provided, however, Sublandlord shall use reasonable efforts to enforce the obligations of Landlord under the Master Lease. Wherever in this Sublease Sublandlord is required to take any action to enforce the obligations of Landlord on behalf of Subtenant, Subtenant shall reimburse Sublandlord for all reasonable out-of-pocket costs incurred by Sublandlord in so doing; provided however, that Sublandlord shall not take any action for which it will request (and for which it has the right to request) reimbursement until Sublandlord obtains Subtenant's approval of the estimated cost thereof. (h) The following paragraphs of the Master Lease are incorporated into this 2 Sublease: the introductory paragraph immediately preceding Section 1 defining the term "Premises"; 1; 4.C; 4.D (provided however, the time for payment of Additional Rent shall be changed from five (5) days and thirty (30) days to three (3) days and twenty (20) days, respectively); 5 (provided however, that Subtenant shall not be required to remove any of the alterations or improvements constructed in the Subleased Premises by Landlord pursuant to paragraph 48 of the Master Lease); 6; 7; 8; 9; 10; 11; 12 (provided however, that Landlord, and not Sublandlord, shall be responsible for maintaining the insurance described therein); 13; 14; 15; 16 (provided however, that Sublandlord and Subtenant acknowledge that the Master Lease provides that in no event will Landlord consent to a sub-sublease and accordingly, the parties agree that Sublandlord shall be reasonable in withholding its consent to any sublease or assignment or other transfer of the Premises if Landlord does not consent to the proposed transaction for any reason whatsoever and Sublandlord shall not be obligated to take any action against or with respect to Landlord to cause Landlord to grant consent to such transaction); 17 (provided however, that the references to "Landlord" shall mean Landlord and not Sublandlord and the references to "Tenant" shall mean both Sublandlord and Subtenant); 18; 19; 20; 21 (provided however, that Subtenant shall be entitled to an abatement of rent in the event of a casualty only to the extent that Sublandlord receives an abatement of rent under the Master Lease and further, provided however, Landlord, and not Sublandlord, shall be responsible for the repair and restoration obligations of the "Landlord"); 22 (provided however, that Subtenant shall be entitled to an abatement of Rent only to the extent that Sublandlord receives an abatement of rent under the Master Lease); 23 (provided however, that the "sale or conveyance" referenced therein shall apply to the assignment of the Master Lease); 24; 25; 26; 27; 28; 29; 30; 31 (provided however, that the addresses for notice shall be those set forth in this Sublease); 32; 33; 34; 36 (provided however, that subparagraph (a) is deleted and further, provided however, that the references to "partner" shall be replaced with "shareholder, officer or director"); 37; 38 (provided however, that subparagraph (i) shall be deleted); 40, 41; 42; 43; 44 (provided however, that Landlord, and not Sublandlord, shall be responsible for the obligations of the "Landlord"); 45 (provided however, that Landlord, and not Sublandlord, shall be responsible for the obligations of "Landlord"); 46 (excluding the first three sentences thereof); 50 (provided however, that Landlord, and not Sublandlord, shall be responsible for the obligations of "Landlord"); 52; 53 (provided however, that with respect to Subtenant's right to contest Real Property Taxes, Subtenant shall only have the right to do so if Landlord consents thereto); 54 (provided however, that Sublandlord only shall be obligated to use reasonable efforts to cause Subtenant to benefit from the provisions of said Section 54); 55; 56; and 57. 3. Subleased Premises and Rent: 3.1 Subleased Premises: Sublandlord leases to Subtenant and Subtenant leases from Sublandlord the Subleased Premises upon all of the terms, covenants and conditions contained in this Sublease. The Subleased Premises consist of all of the premises leased to Sublandlord under the Master Lease as follows: an approximately 31,266 (+/-) square foot two-story building located at 500 Macara Avenue, Sunnyvale, CA together with the parking, sidewalks, driveways and landscaped areas appurtenant thereto. Sublandlord shall deliver the Subleased Premises in the configuration shown on Exhibit B attached 3 hereto; provided however, at Subtenant's request (and without cost to Subtenant), the carpet and the drop-ceiling shall not be installed until improvements to be constructed by, or at the direction of, Subtenant are substantially completed. Tenant acknowledges that it has had an opportunity to conduct, and has conducted, such inspections of the Subleased Premises as it deems necessary to evaluate its condition. Tenant agrees to accept possession of the Subleased Premises in its then existing condition, "as is, where is, with all faults", subject to the rights of the "Tenant" under the last paragraph of Section 48 of the Master Lease, which rights shall be enforced jointly by Subtenant and Sublandlord, as necessary. Notwithstanding the foregoing to the contrary, Sublandlord's obligations with respect to the correction of defects and "punch list" items shall be limited to using reasonable efforts to cause Landlord to repair and/or complete such items. Sublandlord hereby assigns to Subtenant during the Term the right to enforce any warranties in effect with respect to the Subleased Premises to the extent such warranties would reduce Subtenant's obligations hereunder and shall cooperate with Subtenant in entering into any such warranties except that the Sublandlord shall not be required to incur any expenses in this regard. Subtenant acknowledges that Sublandlord has not made any representation or warranty to Subtenant with regard to the Subleased Premises including, without limitation, the suitability of the Subleased Premises for the conduct of Subtenant's business, the physical, environmental and economic condition and the compliance of the Subleased Premises with applicable legal requirements except as otherwise expressly provided herein. 3.2 Rent: Commencing on the Commencement Date, Subtenant shall pay to Sublandlord as base monthly rent ("Base Monthly Rent") for the Subleased Premises the following: MONTHS RENT/SQ. FT./MO. NNN Commencement Date $71,911.80 through 8/31/98 9/1/98 through 8/31/99 $74,100.42 9/1/99 through 8/31/00 $76,289.04 Rent shall be payable by Subtenant to Sublandlord in consecutive monthly installments on or before the first day of each calendar month during the Sublease Term without deductions, offset, prior notice or demand. If the Commencement Date or the termination date of the Sublease occurs on a date other than the first day or the last day, respectively, of a calendar month, then the Rent for such partial month shall be prorated based on the actual number of days in the calendar month and the prorated Rent shall be payable on the Commencement Date or on the first day of the calendar month in which the Sublease termination date occurs, respectively. In addition to Base Monthly Rent, and as additional rent, Subtenant shall pay to Sublandlord all other costs, expenses and other amounts payable by Sublandlord under the Master Lease including, without limitation all amounts payable by Sublandlord pursuant to paragraph 4.D of the 4 Master Lease and all costs of utilities serving the Subleased Premises; provided however, Subtenant shall not be required to pay any additional rent that is payable as a result of a default by Sublandlord of any of its obligations under the Master Lease. All amounts in addition to Base Monthly Rent required to be paid by Subtenant under this Sublease shall be deemed to be rent ("Rent"). Upon execution hereof, Subtenant shall deposit with Sublandlord the sum of Seventy- One Thousand Nine Hundred Eleven Dollars and Eighty Cents ($71,911.80) which amount shall be applied against the Base Monthly Rent due under this Sublease for the first month of the Sublease Term. In consideration of Sublandlord's agreement to enter into this Sublease, and as additional rent, on or before ten (10) days following the date that this Sublease is fully executed and delivered by Sublandlord and Subtenant, Subtenant shall pay to Landlord an amount equal to fifty percent (50%) of the amount of Basic Rent (as that term is defined in the Master Lease) and Additional Rent (as that term is defined in the Master Lease) that is payable by Sublandlord to Landlord for the month of August. 3.3 Security Deposit: Upon the execution hereof, Subtenant shall deposit with Sublandlord a security deposit (the "Security Deposit") in the amount of Seventy-Six Thousand Two Hundred Eighty-Nine Dollars and Four Cents ($76,289.04). Sublandlord may use and commingle the Security Deposit with other funds of Sublandlord. If Subtenant fails to pay Rent or other charges due hereunder or otherwise fails to perform any other obligations of Subtenant under this Sublease beyond any applicable notice and cure period, then Sublandlord may draw upon, use, apply or retain all or any portion of the Security Deposit for the payment of any Rent or other charge in default, for the payment of any other sum which Sublandlord has become obligated to pay by reason of Subtenant's default, or to compensate Sublandlord for any loss or damage which Sublandlord has suffered thereby. If Sublandlord so uses or applies all or any portion of the Security Deposit, then Subtenant shall, within ten (10) days after demand therefor, deposit cash with Sublandlord in the amount required to restore the Security Deposit to the full amount stated above and Subtenant's failure to so restore shall constitute a material default by Subtenant under this Sublease. Upon the expiration of this Sublease and Subtenant's vacation of the Subleased Premises, Sublandlord shall, within ten (10) days, return to Subtenant that portion of the Security Deposit which has not been applied by Sublandlord pursuant to this paragraph, or which is not otherwise required to cure Subtenant's defaults. 4. Rights of Access and Use: 4.1 Use: Subtenant shall use the Subleased Premises only for those purposes permitted in the Master Lease, unless Sublandlord and Landlord consent in writing to other uses prior to the commencement thereof. Notwithstanding anything to the contrary in this Sublease or the Master Lease, in no event shall Subtenant or its agents, employees, contractors, invitees, subtenants or assignees use, store, dispose of, release, manufacture, recycle, treat, discard, transport or otherwise 5 bring upon, keep or use any Hazardous Materials (as that term is defined in paragraph 50 of the Master Lease) in, on, to, or about the Subleased Premises (other than customary quantities and types of Hazardous Materials used solely for office and janitorial purposes). 5. Sublease Term: 5.1 Sublease Term: The Sublease Term shall be for the period commencing September 1, 1997 (the "Commencement Date") and continuing through August 31, 2000. In no event shall the Sublease Term extend beyond the Term of the Master Lease. 5.2 Inability to Deliver Possession: In the event Sublandlord is unable to deliver possession of the Subleased Premises on September 1, 1997, Sublandlord shall not be liable for any damage caused thereby, nor shall this Sublease be void or voidable but Subtenant shall not be liable for Rent until such time as Sublandlord delivers possession of the Subleased Premises to Subtenant (which date shall become the Commencement Date). The Term hereof shall not be extended by such delay. If Subtenant, with Sublandlord's consent, takes possession prior to the Commencement Date, Subtenant shall do so subject to all the covenants and conditions hereof and shall pay Rent for the period commencing on the date Subtenant first takes occupancy of the Subleased Premises and ending on the Commencement Date at the same rental as that prescribed for the first month of the term prorated at a rate of 1/31st thereof per day. If Sublandlord is unable to deliver possession of the Subleased Premises in the configuration shown on Exhibit B on or before October 15, 1997, Subtenant, at Subtenant's option, may terminate this Sublease at any time thereafter prior to delivery of possession by giving Sublandlord written notice of its election to do so. 6. Notices: All notices, demands, consents and approvals which may or are required to be given by either party to the other-hereunder shall be given in the manner provided in paragraph 31 of the Master Lease, at the addresses shown on the signature page hereof. Sublandlord shall notify Subtenant of any event of default under the Master Lease, or of any other event of which Sublandlord has actual knowledge which will impair Subtenant's ability to conduct its normal business at the Subleased Premises, as soon as reasonably practicable following the earlier of Sublandlord's receipt of notice from the Landlord of an event of default or actual knowledge of such impairment. Sublandlord shall send a copy of all notices given to Subtenant under this Sublease to HSN at the following address: Home Shopping Network, Inc., Legal Dept., Attention: General Counsel, One HSN Drive, St. Petersburg, Florida 33729. 7. Lease Guaranty: 6 Subtenant is a wholly owned subsidiary of Home Shopping Network, Inc. ("HSN"), who has agreed to guarantee this sublease per the attached lease guaranty form (see Exhibit C). The obligations of Sublandlord hereunder are conditioned upon Sublandlord's receipt of a fully-executed guaranty from HSN in the form attached. 8. Security System/Network Cabling: Subtenant shall install in the Subleased Premises a security system and network. The components and design of the system and network shall be subject to the prior written approval of Sublandlord, which approval shall not be unreasonably withheld or delayed. Additional functionality or features over and above the basic design shall be paid for by Subtenant. Sublandlord shall reimburse Subtenant for forty percent (40%) of the cost of the system and network; provided, however, in no event shall Sublandlord be required to reimburse Subtenant for an amount in excess of Twenty-Five Thousand Nine Hundred Eighty-Four Dollars ($25,984). At the end of the Term, the security system and network cabling shall revert to Sublandlord. 9. Parking: Subtenant shall have the right to use all of the parking allocated for the Subleased Premises under the Master Lease which totals approximately 107 spaces. 10. Signage: Sublandlord, at Sublandlord's cost, shall install a monument sign on the comer of Macara Avenue and Maude Avenue pursuant to the diagram attached hereto as Exhibit D for Subtenant's exclusive use during the Sublease Term subject to all of the terms of the Master Lease. Subtenant shall be responsible for all costs for signage graphics. 11. Landlord's Consent: The obligations of the parties hereunder and the effectiveness of this Sublease are expressly conditioned upon Sublandlord's and Subtenant's receipt of Landlord's written consent to this Sublease in form reasonably acceptable to Sublandlord and Subtenant within ten (10) business days of the date hereof. 12. Brokers: Sublandlord and Subtenant warrant and represent that they have dealt with no real estate brokers in connection with this Sublease other than Cornish & Carey Commercial ("Broker"), and that no other broker is entitled to any commission on account of this Sublease. Sublandlord shall pay to Broker a leasing commission to which Broker is entitled on account of this Sublease pursuant to a separate agreement between Sublandlord and Broker. Subtenant and Sublandlord shall indemnify, defend, protect and hold each other harmless from and against any loss, cost or expense, 7 including, but not limited to, reasonable attorneys' fees and court costs, resulting from any claim for any fee, commission or other compensation made by any other agent, broker, salesman or finder as a consequence of the indemnifying party's actions or dealings with such agent, broker, salesman or finder. 13. Compliance with Laws: Notwithstanding anything to the contrary in this Sublease or the Master Lease, if Subtenant is required to construct any structural improvement or alteration within the Subleased Premises to comply with any law, statute, ordinance or governmental rule or regulation pursuant to the terms of paragraphs 14 and 45 of the Master Lease (as such paragraphs are incorporated into this Sublease) (a "Required Alteration"), then, unless such Required Alteration is required as a result of Subtenant's use of the Subleased Premises or "triggered" by alterations or improvements constructed, or to be constructed, in the Subleased Premises by Subtenant following the Commencement Date, Sublandlord and Subtenant shall share the cost of the Required Alteration in accordance with the following formula: (i) the cost of the Required Alteration (the "Required Alteration Cost") shall be amortized over the number of months remaining in the initial term of the Master Lease as of the date that the Required Alteration is completed, (ii) Subtenant shall be responsible for that portion of the Required Alteration Cost which bears the same proportion to the Required Alteration Cost as the number of months remaining in the Sublease Term as of the date the Required Alteration is completed bears to the number of months remaining in the initial term of the Master Lease as of the date the Required Alteration is completed, and (iii) Sublandlord shall pay the balance of the Required Alteration Cost. Sublandlord shall have the right to approve the scope of the Required Alteration and the Required Alteration Cost, which approval shall not be unreasonably withheld or delayed. 14. Assignment and Subleasing: Sublandlord and Subtenant acknowledge that Section t 6 of the Master Lease provides that "in no event will Landlord consent, to a sub-sublease." Sublandlord and Subtenant agree as follows with respect to Subtenant's right to assign Subtenant's interest in this Sublease or sublease all or any portion of the Subleased Premises: A. Subtenant shall not sub-sublease the Subleased Premises or assign Subtenant's interest in this Sublease (each, a "Transfer") without Sublandlord's consent, which consent shall not be unreasonably withheld. Accordingly, Subtenant shall have the right to engage a Transfer with any third party, including without limitation, Home Shopping Network Incorporated and its affiliates with Sublandlord's consent, which consent shall not be unreasonably withheld. Subtenant acknowledges that Landlord has no obligation to consent to a Transfer and accordingly, (i) Sublandlord shall have no liability if Landlord refuses to consent to a Transfer, and (ii) Subtenant shall not enter into a Transfer without Landlord's consent. B. Notwithstanding the foregoing to the contrary, as between Sublandlord and 8 Subtenant, Subtenant shall have the right, without the consent of Sublandlord (but with ten (10) days' prior written notice to Sublandlord describing the proposed transferee and terms of the assignment or sublease, as the case may be), to assign Subtenant's interest in this Sublease or sublease the Subleased Premises to (i) HSN or (ii) to an affiliate of Subtenant which is also controlled by HSN (each, a "Permitted Transfer"). HSN shall "control" such affiliate if HSN owns stock of such affiliate possessing more than fifty percent (50%) of the total combined voting power of all classes of the capital stock of such affiliate issued, outstanding and entitled to vote for the election of directors. Notwithstanding the foregoing, Subtenant shall not enter into a Permitted Transfer until Subtenant obtains Landlord's consent thereto, to the extent such consent is required under the Master Lease and/or Landlord's Consent to Sublease executed in connection with this Sublease. C. If Sublandlord does not consent to a proposed Transfer, then Subtenant may request that this Sublease be terminated and that a new sublease (the "New Sublease") be entered into between the proposed subtenant or assignee, as the case may be, and Sublandlord on the same terms as this Sublease (except that the term of the New Sublease shall be for the balance of the term of this Sublease as of the effective date of the New Sublease). Sublandlord shall not unreasonably withhold its consent to such request provided that (i) HSN executes a new guaranty (in the form of the Guaranty attached hereto as Exhibit C) guaranteeing the obligations of the proposed subtenant under the New Sublease, (ii) Subtenant (or the then subtenant of the Premises) also executes a guaranty (in the form of the Guaranty attached hereto as Exhibit C) guaranteeing the obligations of the proposed subtenant under the New Sublease, and (iii) Sublandlord shall not incur any out-of-pocket costs in connection with the New Sublease including, without limitation, brokerage commissions and/or attorneys' fees, unless Subtenant reimburses Sublandlord for the same. D. In connection with a Transfer described in subparagraph 14.A hereof or a New Sublease described in subparagraph 14.C hereof, Subtenant shall give Sublandlord and Landlord written notice of the proposed terms of the Transfer or the New Sublease, as the case may be, and request Sublandlord's and Landlord's approval, which notice shall include the following: (i) the name and legal composition of the proposed transferee; (ii) a current financial statement of the transferee, financial statements of the transferee covering the preceding three years, to the extent the same exist, and (if available) an audited financial statement of the transferee for a period ending not more than one (1) year prior to the proposed effective date of the Transfer or the New Sublease, as the case may be, all of which are prepared in accordance with generally accepted accounting principles; (iii) the nature of the proposed transferee's business to be carded on in the Subleased Premises; (iv) all consideration to be given on account of the Transfer or New Sublease, as the case may be; and (v) a current financial statement of Subtenant (if available). Subtenant shall provide to Sublandlord and Landlord such other information as may be reasonably requested by Sublandlord and/or Landlord. E. In the event of any inconsistencies between the terms of this paragraph 14 and paragraph 16 and 46 of the Master Lease, as incorporated into this Sublease, the terms of this paragraph 14 shall prevail. 9 Sublandlord: Subtenant: POINTCAST, INC., INTERNET SHOPPING NETWORK; INC., a a California corporation California Corporation By: _______________________________ By: _________________________________ Its: ______________________________ Its: _________________________________ Date: _____________________________ Date: _______________________________ 501 Macara Avenue 3475 Deer Creek Road Sunnyvale, California 94086 Palo Alto, California 94304 10 EX-10.17 9 LEASE AGREEMENT DATED MAY 21, 1996 EXHIBIT 10.17 BLDG: Macara A OWNER: 500 PROP: UNIT: 1 TENANT: LEASE AGREEMENT THIS LEASE, made this 21st day of May, 1996 between JOHN ARRILLAGA, Trustee, or his Successor Trustee, UTA dated 7/20/77 (ARRILLAGA FAMILY TRUST) as amended, and RICHARD T. PEERY, Trustee, or his Successor Trustee, UTA dated 7/20/77 (RICHARD T. PEERY SEPARATE PROPERTY TRUST) as amended, hereinafter called Landlord, and POINTCAST, INC., a California corporation, hereinafter called Tenant. WITNESSETH: Landlord hereby leases to Tenant and Tenant hereby hires and takes from Landlord those certain premises (the "Premises") outlined in red on Exhibit "A", attached hereto and incorporated herein by this reference thereto more particularly described as follows: All of that certain 64,800 +/- square foot, two-story building, parking and landscape appurtenant thereto, to be constructed by Landlord and located at the corner of West Maude Avenue and Macara Avenue, Sunnyvale, California (previously known as 1001 West Maude Avenue but which address is subject to approval by the City of Sunnyvale). Said Premises is more particularly shown within the area outlined in Red on Exhibit A to be attached hereto. The entire parcel, of which --------- the Premises is a part, and Tenant's exclusive parking are shown within the area outlined in Green on Exhibit A to be attached hereto. The interior of the --------- Premises will be improved as shown in Red on Exhibit B to be attached hereto. --------- The building shell and site improvements shall be constructed in accordance with the shell and site improvements specifications set forth on Exhibit A. Landlord --------- shall use the same architect for the design of said building that Landlord uses for the design of the building leased by Tenant under the Macara A Lease (as hereinafter defined). The word "Premises" as used throughout this lease is hereby defined to include the nonexclusive use of landscaped areas, sidewalks, and driveways in front of or adjacent to the Premises, and the nonexclusive use of the area directly underneath or over such sidewalks and driveways. The gross leasable area of the building shall be measured from outside of exterior walls to outside of exterior walls, and shall include any atriums, covered entrances or egresses and covered loading areas. Said letting and hiring is upon and subject to the terms, covenants and conditions hereinafter set forth and Tenant covenants as a material part of the consideration for this Lease to perform and observe each and all of said terms, covenants and conditions. This Lease is made upon the conditions of such performance and observance. 1. USE Tenant shall use the Premises only in conformance with applicable governmental laws, regulations, rules and ordinances for the purpose of general office, light manufacturing, research and development, and storage and other uses necessary for Tenant to conduct Tenant's business, provided that such uses shall be in accordance with all applicable governmental laws and ordinances, and for no other purpose. Tenant shall not do or permit to be done in or about the Premises nor bring or keep or permit to be brought or kept in or about the Premises anything which is prohibited by or will in any way increase the existing rate of (or otherwise affect) fire or any insurance covering the Premises or any part thereof, or any of its contents, or will cause a cancellation of any insurance covering the Premises or any part thereof, or any of its contents. Tenant shall not do or permit to be done anything in, on or about the Premises which will in any way obstruct or interfere with the rights of other tenants or occupants of the Premises or neighboring premises or injure or annoy them, or use or allow the Premises to be used for any improper, immoral, unlawful or objectionable purpose, nor shall Tenant cause, maintain or permit any nuisance in, on or about the Premises. No sale by auction shall be permitted on the Premises. Tenant shall not place any loads upon floors, walls, or ceiling which endanger the structure, or place any harmful fluids or other materials in the drainage system of the building, or overload existing electrical or other mechanical systems. No waste materials or refuse shall be dumped upon or permitted to remain upon any part of the Premises or outside of the building in which the Premises are a part, except in trash containers placed inside exterior enclosures designated by Landlord for that purpose or inside of the building proper where designated by Landlord. No materials, supplies, equipment, finished products or semi-finished products, raw materials or articles of any nature shall be stored upon or permitted to remain outside the Premises. Tenant shall not place anything or allow anything to be placed near the glass of any window, door partition or wall which may appear unsightly from outside the Premises. No loudspeaker or other device, system or apparatus which can be heard outside the Premises shall be used in or at the Premises without the prior written consent of Landlord. Tenant shall not commit or suffer to be committed any waste in or upon the Premises. Tenant shall indemnify, defend and hold Landlord harmless against any loss, expense, damage, reasonable attorneys' fees, or liability arising out of failure of Tenant to comply with any applicable law that governs Tenant's use of the Premises. Tenant shall comply with any covenant, condition, or restriction ("CC&R's") affecting the Premises. The provisions of this paragraph are for the benefit of Landlord only and shall not be construed to be for the benefit of any tenant or occupant of the Premises. 2. TERM* A. The term of this Lease shall be for a period of FIVE (5) YEARS SIX (6) months (unless sooner terminated as hereinafter provided) and, subject to Paragraphs 2B and 3, shall commence on the 1st day of February, 1997 and end on the 31st day of July, 2002. B. Possession of the Premises shall be deemed tendered and the term of the Lease shall commence when the first of the following occurs: (a) One day after a Certificate of Occupancy is granted by the proper governmental agency, or, if the governmental agency having jurisdiction over the area in which the Premises are situated does not issue certificates of occupancy, then the same number of days after certification by Landlord's architect or contractor that Landlord's construction work has been completed); and when the Tenant Improvements have been substantially completed for Tenant's use and occupancy, in accordance with Exhibit B of this Lease Agreement; or --------- (b) Upon the occupancy of the Premises by any Tenant's operating personnel; or (c) As otherwise agreed in writing. *It is agreed in the event said Lease commences on a date other than the first day of the month the term of the Lease will be extended to account for the number of days in the partial month. The Basic Rent during the resulting partial month will be pro-rated (for the number of days in the partial month) at the Basic Rent rate scheduled for the projected commencement date as shown in Paragraph 39. page 1 of 8 3. POSSESSION If Landlord, for any reason whatsoever, cannot deliver possession of said premises to Tenant at the commencement of the said term, as hereinbefore specified, this Lease shall not be void or voidable; no obligation of Tenant shall be affected thereby; nor shall Landlord or Landlord's agents be liable to Tenant for any loss or damage resulting therefrom; but in that event the commencement and termination dates of the Lease, and all other dates affected thereby shall be revised to conform to the date of Landlord's delivery of possession, as specified in Paragraph 2B, above. The above is, however, subject to the provision that the period of delay of delivery of the Premises shall not exceed 180 days from the commencement date herein (except those delays caused by acts of god, strikes, war, utilities, governmental bodies, weather, unavailable materials, and delays beyond Landlord's control shall be excluded in calculating such period) in which instance Tenant, at its option, may, by written notice to Landlord, terminate this Lease. 4. RENT A. Basic Rent. Tenant agrees to pay to Landlord at such place as Landlord may designate without deduction, offset, prior notice, or demand, and Landlord agrees to accept as Basic Rent for the leased Premises the total sum of TO BE DETERMINED Dollars ($ TO BE DETERMINED) in lawful money of the United States of America, payable as follows: See Paragraph 39 for Basic Rent Schedule and Aggregate Basic Rent B. Time for Payment. Full monthly rent is due in advance on the first day of each calendar month. In the event that the term of this Lease commences on a date other than the first day of a calendar month, on the date of commencement of the term hereof Tenant shall pay to Landlord as rent for the period from such date of commencement to the first day of the next succeeding calendar month that proportion of the monthly rent hereunder which the number of days between such date of commencement and the first day of the next succeeding calendar month bears to thirty (30). In the event that the term of this Lease for any reason ends on a date other than the last day of a calendar month, on the first day of the last calendar month of the term hereof Tenant shall pay to Landlord as rent for the period from said first day of said last calendar month to and including the last day of the term hereof that proportion of the monthly rent hereunder which the number of days between said first day of said last calendar month and the last day of the term hereof bears to thirty (30). C. Late Charge. Notwithstanding any other provision of this Lease, if Tenant is in default in the payment of rental as set forth in this Paragraph 4 when due, or any part thereof, Tenant agrees to pay Landlord, in addition to the delinquent rental due, a late charge for each rental payment in default ten (10) days. Said late charge shall equal ten percent (10%) of each rental payment so in default. D. Additional Rent. Beginning with the commencement date of the term of this Lease, Tenant shall pay to Landlord or to Landlord's designated agent in addition to the Basic Rent and as Additional Rent the following: (a) All Taxes relating to the Premises as set forth in Paragraph 9, and (b) All insurance premiums relating to the Premises, as set forth in Paragraph 12, and (c) All charges, costs and expenses, which Tenant is required to pay hereunder, together with all interest and penalties, costs and expenses including reasonable attorneys' fees and legal expenses, that may accrue thereto in the event of Tenant's failure to pay such amounts, and damages, reasonable costs and expenses which Landlord may incur by reason of default of Tenant or failure on Tenant's part to comply with the terms of this Lease. In the event of nonpayment by Tenant of Additional Rent, Landlord shall have all the rights and remedies with respect thereto as Landlord has for nonpayment of rent. The Additional Rent due hereunder shall be paid to Landlord or Landlord's agent (i) within five days for taxes and insurance and within thirty (30) days for all other Additional Rent items after presentation of invoice from Landlord or Landlord's agent setting forth such Additional Rent and/or (ii) at the option of Landlord, Tenant shall pay to Landlord monthly, in advance, Tenant's prorata share of an amount estimated by Landlord to be Landlord's approximate average monthly expenditure for such Additional Rent items, which estimated amount shall be reconciled within 120 days of each calendar year or more frequently if Landlord elects to do so at Landlord's sole and absolute discretion as compared to Landlord's actual expenditure for said Additional Rent items, with Tenant paying to Landlord, upon demand, any amount of actual expenses expended by Landlord in excess of said estimated amount, or Landlord refunding to Tenant (providing Tenant is not in default in the performance of any of the terms, covenants and conditions of this Lease)in which case Landlord shall credit such amount towards cure of Tenant's default and, once default is cured, return any balance to Tenant any amount of estimated payments made by Tenant in excess of Landlord's actual expenditures for said Additional Rent items. E. Fixed Management Fee. Beginning with the Commencement Date of the Term -------------------- of this Lease, Tenant shall pay to Landlord, in addition to the Basic Rent and Additional Rent, a fixed monthly management fee equal to 1% of the Basic Rent due for each month during the Lease Term ("Management Fee") The respective obligations of Landlord and Tenant under this paragraph shall survive the expiration or other termination of the term of this Lease, and if the term hereof shall expire or shall otherwise terminate on a day other than the last day of a calendar year, the actual Additional Rent incurred for the calendar year in which the term hereof expires or otherwise terminates shall be determined and settled on the basis of the statement of actual Additional Rent for such calendar year and shall be prorated in the proportion which the number of days in such calendar year preceding such expiration or termination bears to 365. F. Place of Payment of Rent and Additional Rent. All Basic Rent hereunder and all payments hereunder for Additional Rent shall be paid to Landlord at the office of Landlord at PEERY/ARRILLAGA, File 1504, P.O. Box 60000, San Francisco, CA 94160 or to such other person or to such other place as Landlord may from time to time designate in writing. G. Security Deposit Subject to Paragraph 49, concurrently with Tenant's execution of this Lease, Tenant shall deposit with Landlord the sum of TWO HUNDRED SIXTY FIVE THOUSAND SIX HUNDRED EIGHTY AND 00/100----- Dollars ($265,680.00-------------. Said sum shall be held by Landlord as a Security Deposit for the faithful performance by Tenant of all of the terms, covenants, and conditions of this Lease to be kept and performed by Tenant during the term hereof. If Tenant defaults with respect to any provision of this Lease, including, but not limited to, the provisions relating to the payment of rent and any of the monetary sums due herewith, Landlord may (but shall not be required to) use, apply or retain all or any part of this Security Deposit for the payment of any other amount which Landlord may spend by reason of Tenant's default or to compensate Landlord for page 2 of 8 any other loss or damage which Landlord may suffer by reason of Tenant's default. If any portion of said Deposit is so used or applied, Tenant shall, within ten (10) days after written demand therefor, deposit cash with Landlord in the amount sufficient to restore the Security Deposit to its original amount. Tenant's failure to do so shall be a material breach of this Lease. Landlord shall not be required to keep this Security Deposit separate from its general funds, and Tenant shall not be entitled to interest of such Deposit. If Tenant fully and faithfully performs every provision of this Lease to be performed by it, the Security Deposit or any balance thereof shall be returned to Tenant (or at Landlord's option, to the last assignee of Tenant's interest hereunder) within thirty (30) days of the expiration of the Lease term and after Tenant has vacated the Premises. In the event of termination of Landlord's interest in this Lease, Landlord shall transfer said Deposit to Landlord's successor in interest whereupon Tenant agrees to release Landlord from liability for the return of such Deposit or the accounting therefor. The use or disposition of the Security Deposit shall be subject to the provisions of California Civil Code Section 1950.7. 5. ACCEPTANCE AND SURRENDER OF PREMISES By entry hereunder, Tenant accepts the Premises as being in good and sanitary order, condition and repair and accepts the building and improvements included in the Premises in their present condition and without representation or warranty by Landlord as to the condition of such building or as to the use or occupancy which may be made thereof. Any exceptions to the foregoing must be by written agreement executed by Landlord and Tenant. Tenant agrees on the last day of the Lease term, or on the sooner termination of this Lease, to surrender the Premises promptly and peaceably to Landlord in good condition and repair (damage by Acts of God, fire, normal wear and tear excepted), with all interior walls painted or cleaned so that they appear freshly painted, and repaired and replaced, if damaged; all floors cleaned and waxed; all carpets cleaned and shampooed; all broken, marred and nonconforming acoustical ceiling tiles replaced; all windows washed; the airconditioning and heating systems serviced by a reputable and licensed service firm and in good operating condition and repair; the plumbing and electrical systems and lighting in good order and repair, including replacement of any burned out or broken light bulbs or ballasts; the lawn and shrubs in good condition including the replacement of any dead or damaged plantings; the sidewalk, driveways and parking areas in good order, condition and repair; together with all alterations, additions, and improvements which may have been made in, to, or on the Premises (except moveable trade fixtures installed at the expenses of Tenant) except that Tenant shall ascertain from Landlord within ninety (90) days before the end of the term of this Lease whether Landlord desires to have the Premises or any part or parts thereof restored to their condition and configuration as when the Premises were delivered to Tenant and if Landlord shall so desire, then Tenant shall restore said Premises or such part or parts thereof before the end of this Lease at Tenant's sole cost and expense. Tenant, on or before the end of the term or sooner termination of this Lease, shall remove all of Tenant's personal property and trade fixtures from the Premises, and all property not so removed on or before the end of the term or sooner termination of this Lease shall be deemed abandoned by Tenant and title to same shall thereupon pass to Landlord without compensation to Tenant. Landlord may, upon termination of this Lease, remove all moveable furniture and equipment so abandoned by Tenant, at Tenant's sole cost and repair any damage caused by such removal at Tenant's sole cost. If the Premises be not surrendered at the end of the term or sooner termination of this Lease, Tenant shall indemnify Landlord against loss or liability resulting from the delay by Tenant in so surrendering the Premises including, without limitation, any claims made by any succeeding tenant founded on such delay. Nothing contained herein shall be construed as an extension of the term hereof or as a consent of Landlord to any holding over by Tenant. The voluntary or other surrender of this Lease or the Premises by Tenant or a mutual cancellation of this Lease shall not work as a merger and, at the option of Landlord, shall either terminate all or any existing subleases or subtenancies or operate as an assignment to Landlord of all or any such subleases or subtenancies. See Paragraph 52. 6. ALTERATIONS AND ADDITIONS Tenant shall not make, or suffer to be made, any alteration or addition to the Premises, or any part thereof, without the written consent of Landlord first had and obtained by Tenant (such consent not to be unreasonably withheld), but at the cost of Tenant, and any addition to, or alteration of, the Premises, except moveable furniture and trade fixtures, shall at once become a part of the Premises and belong to Landlord. Landlord reserves the right to approve all contractors and mechanics proposed by Tenant to make such alterations and additions. Tenant shall refrain title to all moveable furniture and trade fixtures placed in the Premises. All heating, lighting, electrical, airconditioning, floor to ceiling partitioning, permanent hard walls, drapery, carpeting, and floor installations made by Tenant, together with a property that has become an integral part of the Premises, shall not be deemed trade fixtures. Tenant agrees that it will not proceed to make such alteration or additions, without having obtained consent from Landlord to do so, and until five (5) days from the receipt of such consent, in order that Landlord may post appropriate notices to avoid any liability to contractors or material suppliers for payment for Tenant's improvements. Tenant will at all times permit such notices to be posted and to remain posted until the completion of work. Tenant shall, if required by Landlord, secure at Tenant's own cost and expense, a completion and lien indemnity bond, satisfactory to Landlord, for such work. Tenant further covenants and agrees that any mechanic's lien filed against the Premises for work claimed to have been done for, or materials claimed to have been furnished to Tenant, will be discharged by Tenant, by bond or otherwise, within ten (10) days after the filing thereof, at the cost and expense of Tenant. Any exceptions to the foregoing must be made in writing and executed by both Landlord and Tenant. See Paragraph 52. 7. TENANT MAINTENANCE Tenant shall, at its sole cost and expense, keep and maintain the Premises (including appurtenances) and every part thereof in a high standard of maintenance and repair, or replacement, and in good and sanitary condition. Tenant's maintenance and repair responsibilities herein referred to include, but are not limited to, janitorization, all windows (interior and exterior), window frames, plate glass and glazing (destroyed by accident or act of third parties), truck doors, plumbing systems (such as water and drain lines, sinks, toilets, faucets, drains, showers and water fountains), electrical systems (such as panels, conduits, outlets, lighting fixtures, lamps, bulbs, tubes and ballasts), heating and airconditioning systems (such as compressors, fans, air handlers, ducts, mixing boxes, thermostats, time clocks, boilers, heaters, supply and return grills), structural elements and exterior surfaces of the building, store fronts, roofs, downspouts, all interior improvements within the premises including but not limited to wall coverings, window coverings, carpet, floor coverings, partitioning, ceilings, doors (both interior and exterior), including closing mechanisms, latches, locks, skylights (if any), automatic fire extinguishing systems, and elevators and all other interior improvements of any nature whatsoever, and all exterior improvements including but not limited to landscaping, sidewalks, driveways, parking lots including striping and sealing, sprinkler systems, lighting, ponds, fountains, waterways, and drains. Tenant agrees to provide carpet shields under all rolling chairs or to otherwise be responsible for wear and tear of the carpet caused by such rolling chairs if such wear and tear exceeds that caused by normal foot traffic in surrounding areas. Areas of excessive wear shall be replaced at Tenant's sole expense upon Lease termination. Tenant hereby waives all rights under, and benefits of, Subsection 1 of Section 1932 and Section 1941 and 1942 of the California Civil Code and under any similar law, statute or ordinance now or hereafter in effect. In the event any of the above maintenance responsibilities apply to any other tenant(s) of Landlord where there is common usage with other tenant(s), such maintenance responsibilities and charges shall be allocated to the leased Premises by square footage or other equitable basis as calculated and determined by Landlord. See Paragraph 44 8. UTILITIES Tenant shall pay promptly, as the same become due, all charges for water, gas, electricity, telephone, telex and other electronic communication service, sewer service, waste pick-up and any other utilities, materials or services furnished directly to or used by Tenant on or about the Premises during the term of this Lease, including, without limitation, any temporary or permanent utility surcharge or other exactions whether or not hereinafter imposed. In the event the above charges apply to any other tenant(s) of Landlord where there is common usage with other tenant(s), such charges shall be allocated to the leased Premises by square footage or other equitable basis as calculated and determined by Landlord. Landlord shall not be liable for and Tenant shall not be entitled to any abatement or reduction of rent by reason of any interruption or failure of utility services to the Premises when such interruption or failure is caused by accident, breakage, repair, strikes, lockouts, or other labor disturbances or labor disputes of any nature, or by any other cause, similar or dissimilar, beyond the reasonable control of Landlord. 9. TAXES A. As Additional Rent and in accordance with Paragraph 4D of this Lease, Tenant shall pay to Landlord, or if Landlord so directs, directly to the Tax Collector, all Real Property Taxes relating to the Premises. In the event the Premises leased hereunder consist of only a portion of the entire tax parcel, Tenant shall pay to Landlord Tenant's proportionate share of such real estate taxes allocated to the leased Premises by square footage or other reasonable basis as calculated and determined by Landlord. If the tax billing pertains 100% to the Leased Premises, and the Landlord chooses to have Tenant pay said real estate taxes directly to the Tax Collector, then in such event it shall be the responsibility of Tenant to obtain the tax and assessment bills and pay, prior to delinquency, the applicable real property taxes and assessments pertaining to the leased Premises, and failure to receive a bill for taxes and/or assessments shall not provide a basis for cancellation of or nonresponsibility for payment of penalties for nonpayment or late payment by Tenant. The term "Real Property Taxes", as used herein, shall mean (i) all taxes, assessments, levies and other charges of any kind or nature whatsoever, general and special, foreseen and unforeseen (including all installments of principal and interest required to pay any general or special assessments for public improvements and any increases resulting from reassessments caused by any change in ownership of the Premises) now or hereafter imposed by any governmental or quasi-governmental authority or special district having the direct or indirect power to tax or levy assessments, which are levied or assessed against, or with respect to the value, occupancy or use of, all or any portion of the Premises (as now constructed or as may at any time hereafter be constructed, altered, or otherwise changed) or Landlord's interest therein; any improvements located within the Premises (regardless of ownership); the fixtures, equipment and other property of Landlord, real or personal, that are an integral part of and located in the Premises; or parking areas, public utilities, or energy within the Premises; (ii) all charges, levies or less imposed by reason of environmental regulation or other governmental control of the Premises; and (iii) all costs and fees (including page 3 of 8 reasonable attorneys' fees) incurred by Landlord in reasonably contesting any Real Property Tax and in negotiating with public authorities as to any Real Property Tax. If at any time during the term of this Lease the taxation or assessment of the Premises prevailing as of the commencement date of this Lease shall be altered so that in lieu of or in addition to any Real Property Tax described above there shall be levied, assessed or imposed (whether by reason of a change in the method of taxation or assessment, creation of a new tax or charge, or any other cause) an alternate or additional tax or charge (i) on the value, use or occupancy of the Premises or Landlord's interest therein or (ii) on or measured by the gross receipts, income or rentals from the Premises, on Landlord's business of leasing the Premises, or computed in any manner with respect to the operation of the Premises, then any such tax or charge, however designated, shall be included with the meaning of the term "Real Property Taxes" for purposes of this Lease. If any Real Property Tax is based upon property or rents unrelated to the Premises, then only that part of such Real Property Tax that is fairly allocable to the Premises shall be included within the meaning of the term "Real Property Taxes". Notwithstanding the foregoing, the term "Real Property Taxes" shall not include estate, inheritance, gift or franchise taxes of Landlord or the federal or state net income tax imposed on Landlord's income from all sources. See Paragraph 53 8. Taxes on Tenant's Property Tenant shall be liable for and shall pay ten days before delinquency, taxes levied against any personal property or trade fixtures placed by Tenant in or about the Premises. If any such taxes on Tenant's personal property or trade fixtures are levied against Landlord or Landlord's property or if the assessed value of the Premises is increased by the inclusion therein of a value placed upon such personal property or trade fixtures of Tenant and if Landlord, after written notice to Tenant, pays the taxes based on such increased assessment, which Landlord shall have the right to do regardless of the validity thereof, but only under proper protest if requested by Tenant. Tenant shall upon demand, as the case may be, repay to Landlord the taxes so levied against Landlord, or the proportion of such taxes resulting from such increase in the assessment; provided that in any such event Tenant shall have the right, in the name of Landlord and with Landlord's full cooperation, to bring suit in any court of competent jurisdiction to recover the amount of such taxes so paid under protext, and any amount so recovered shall belong to Tenant. 10. LIABILITY INSURANCE Tenant, at Tenant's expense, agrees to keep in force during the term of this Lease a policy of commercial general liability insurance with combined single limit coverage of not less than Two Million Dollars ($2,000,000) per occurrence for bodily injury and property damage occurring in, on or about the Premises, including parking and landscaped areas. Such insurance shall be primary and noncontributory as respects any insurance carried by Landlord. The policy or policies effecting such insurance shall name Landlord as additional insureds, and shall insure any liability of Landlord, contingent or otherwise, as respects acts or omissions of Tenant, its agents, employees or invitees or otherwise by any conduct or transactions of any of said persons in or about or concerning the Premises, including any failure of Tenant to observe or perform any of its obligations hereunder; shall be issued by an insurance company admitted to transact business in the State of California; and shall provide that the insurance effected thereby shall not be canceled, except upon thirty (30) days' prior written notice to Landlord. A certificate of insurance of said policy shall be delivered to Landlord. If, during the term of this Lease, in the considered opinion of Landlord's Lender, insurance advisor, or counsel, the amount of insurance described in this Paragraph 10 is not adequate, Tenant agrees to increase said coverage to such reasonable amount as Landlord's Lender, insurance advisor, or counsel shall deem adequate. 11. TENANT'S PERSONAL PROPERTY INSURANCE AND WORKMAN'S COMPENSATION INSURANCE Tenant shall maintain a policy or policies of fire and property damage insurance in "all risk" form with a sprinkler leakage endorsement insuring the personal property, inventory, trade fixtures, and leasehold improvements within the leased Premises for the full replacement value thereof. The proceeds from any of such policies shall be used for the repair or replacement of such items so insured. Tenant shall also maintain a policy or policies of workman's compensation insurance and any other employee benefit insurance sufficient to comply with all laws. 12. PROPERTY INSURANCE Landlord shall purchase and keep in force, and as Additional Rent and in accordance with Paragraph 4D of this Lease, Tenant shall pay to Landlord (or Landlord's agent if so directed by Landlord) Tenant's proportionate share (allocated to the leased Premises by square footage or other equitable basis as calculated and determined by Landlord) of the deductibles on insurance claims and the cost of, policy or policies of insurance covering loss or damage to the Premises (excluding routine maintenance and repairs and incidental damage or destruction caused by accidents or vandalism for which Tenant is responsible under Paragraph 7) in the amount of the full replacement value thereof, providing protection against those perils included within the classification of "all risks" insurance and flood and/or earthquake insurance, if available, plus a policy of rental income insurance in the amount of one hundred (100%) percent of twelve (12) months Base Rent, plus sums paid as Additional Rent. If such insurance cost is increased due to Tenant's use of the Premises, Tenant agrees to pay to Landlord the full cost of such increase. Tenant shall have no interest in nor any right to the proceeds of any insurance procured by Landlord for the Premises. Landlord and Tenant do each hereby respectively released the other, to the extent of insurance coverage of the releasing party, from any liability for loss or damage caused by fire or any of the extended coverage casualties included in the releasing party's insurance policies, irrespective of the cause of such fire or casualty; provided, however, that if the insurance policy of either releasing party prohibits such waiver, then this waiver shall not take effect until consent to such waiver is obtained. If such waiver is so prohibited, the insured party affected shall promptly notify the other party thereof. 13. INDEMNIFICATION Landlord shall not be liable to Tenant and Tenant hereby waives all claims against Landlord for any injury to or death of any person or damage to or destruction of property in or about the Premises by or from any cause whatsoever, including, without limitation, gas, fire, oil, electricity or leakage of any character from the roof, walls, basement or other portion of the Premises but excluding, however, the willful misconduct or negligence of Landlord, its agents, servants, employees, invitees, or contractors of which negligence Landlord has knowledge and reasonable time to correct. Except as to injury to person or damage to property to the extent arising from the willful misconduct or the negligence of Landlord, its agents, servants, employees, invitees or contractors, and subject to the last two (2) sentences of Paragraph 12, Tenant shall hold Landlord harmless from and defend Landlord against any and all expenses, including reasonable attorneys' fees, in connection therewith, arising out of any injury to or death of any person or damage to or destruction of property occurring in, on or about the Premises, or any part thereof, from any cause whatsoever. 14. COMPLIANCE Tenant, at its sole cost and expense, shall promptly comply with all laws, statutes, ordinances and governmental rules, regulations or requirements now or hereafter in effect; with the requirements of any board of the fire underwriters or other similar body now or hereafter constituted; and with any direction or occupancy certificate issued pursuant to law by any public officer; provided, however, that no such failure shall be deemed a breach of the provisions if Tenant, immediately upon notification, commences to remedy or rectify said failure. The judgment of any court of competent jurisdiction of the admission of Tenant in any action against Tenant, whether Landlord be a party thereto or not, that Tenant has violated any such law, statute, ordinance or governmental rule, regulation, requirement, direction or provision, shall be conclusive of that fact as between Landlord and Tenant. Tenant shall, at its sole cost and expense, comply with any and all requirements pertaining to said Premises, of any insurance organization or company, necessary for the maintenance of reasonable fire and public liability insurance covering requirements pertaining to said Premises, of any insurance organization or company, necessary for the maintenance of reasonable fire and public liability insurance covering the Premises. See Paragraph 45 15. LIENS Tenant shall keep the Premises free from any liens arising out of any work performed, materials furnished or obligation incurred by Tenant. In the event that Tenant shall not, within ten (10) days following the imposition of such lien, cause the same to be released of record, Landlord shall have in addition to all other remedies provided herein and by law, the right, but no obligation, to cause the same to be released by such means as it shall deem proper, including payment of the claim giving rise to such lien. All sums paid by Landlord for such purpose, and all expenses incurred by it in connection therewith, shall be payable to Landlord by Tenant on demand with interest at the prime rate of interest as quoted by the Bank of America. 16. ASSIGNMENT AND SUBLETTING Tenant shall not assign, transfer, or hypothecate the leasehold estate under this Lease, or any interest therein, and shall not sublet the Premises, or any part thereof, or any right or privilege appurtenant thereto, or suffer any other person or entity to occupy or use the Premises, or any portion thereof, without, in each case, the prior written consent of Landlord which consent will not be unreasonably withheld. As a condition for granting this consent to any assignment, transfer, or subletting, Landlord may require that Tenant agrees to pay to Landlord, as additional rent, fifty percent (50%) of all rents or additional consideration received by Tenant from its assignees, transferees, or subtenants in excess of the rent payable by Tenant to Landlord hereunder provided, however, that before sharing such excess rent, Tenant shall first be entitled to recover from such excess rent the amount of any reasonable leasing commissions paid by Tenant to third parties not affiliated with Tenant. Tenant shall by thirty (30) days written notice, advise Landlord of its intent to assign or transfer Tenant's interest in the Lease or sublet the Premises or any portion thereof for any part of the term hereof. Within thirty (30) days after receipt of said written notice, Landlord may, in its sole discretion, elect to terminate this Lease as to the portion of the Premises described in Tenant's notice on the date specified in Tenant's notice by giving written notice of such election to terminate. If no such notice to terminate is given to Tenant within said thirty (30) day period, Tenant may proceed to locate an acceptable sublessee, assignee, or other transferee for presentment to Landlord for Landlord's approval, all in accordance with the terms, covenants, and conditions of this paragraph 16. If Tenant intends to sublet the entire Premises and Landlord elects to terminate this Lease, this Lease shall be terminated on the date specified in Tenant's notice. If, however, this Lease shall terminate pursuant to the foregoing with respect to less than all the Premises, the rent, as defined and reserved hereinabove shall be adjusted on a pro rata basis to the number of square feet retained by Tenant, and this Lease as so amended shall continue in full force and effect. Notwithstanding the above, Landlord shall not have the right to terminate said Lease for preauthorized sublet(s) or assignment(s) as directed in Paragraph 46. In the event Tenant is allowed to assign, transfer or sublet the whole or any part of the Premises, with the prior written page 4 of 8 consent of Landlord, no assignee, transferee or subtenant shall assign or transfer this Lease, either in whole or in part, or sublet the whole or any part of the Premises, without also having obtained the prior written consent of Landlord which consent shall not be unreasonably withheld. A consent of Landlord to one assignment, transfer, hypothecation, subletting, occupation or use by any other person shall not release Tenant from any Tenant's obligations hereunder or be deemed to be a consent to any subsequent similar or dissimilar assignment, transfer, hypothecation, subletting, occupation or use by any other person. Any such assignment, transfer, hypothecation, subletting, occupation or use without such consent shall be void and shall constitute a breach of this Lease by Tenant and shall, at the option of Landlord exercised by written notice to Tenant, terminate this Lease. The leasehold estate under this Lease shall not, nor shall any interest therein, be assignable for any purpose by operation of law without the written consent of Landlord which consent shall not be unreasonably withheld. As a condition to its consent, Landlord may require Tenant to pay all expenses in connection with the assignment, and Landlord may require Tenant's assignee or transferee (or other assignees or transferees) to assume in writing all of the obligations under this Lease and for Tenant to remain liable to Landlord under the Lease. Notwithstanding the above, in no event will Landlord consent to a sub-sublease. See Paragraph 46. 17. SUBORDINATION AND MORTGAGES In the event Landlord's title or leasehold interest is now or hereafter encumbered by a deed of trust, upon the interest of Landlord in the land and buildings in which the demised Premises are located, to secure a loan from a lender (hereinafter referred to as "Lender") to Landlord, Tenant shall, at the request of Landlord or Lender, execute in writing an agreement subordinating its rights under this Lease to the lien of such deed of trust, or, if so requested, agreeing that the lien of Lender's deed of trust shall be or remain subject and subordinate to the rights of Tenant under this Lease. Notwithstanding any such subordination, Tenant's possession under this Lease shall not be disturbed if Tenant is not in default and so long as Tenant shall pay all rent and observe and perform all of the provisions set forth in this Lease. 18. ENTRY BY LANDLORD Landlord reserves, and shall at all reasonable times after at least 24 hours notice (except in emergencies) have, the right to enter the Premises to inspect them; to perform any services to be provided by Landlord hereunder,; to make repairs or provide any services to a contiguous tenant(s); to submit the Premises to prospective purchasers, mortgagers or tenants; to post notices of nonresponsibility; and to alter, improve or repair the Premises or other parts of the building, all without abatement of rent, and may erect scaffolding and other necessary structures in or through the Premises where reasonable required by the character of the work to be performed, however that the business of Tenant shall be interfered with to the least extent that is reasonably practical. Any entry to the Premises by Landlord for the purposes provided for herein shall not under any circumstances be construed or deemed to be a forcible or unlawful entry into or a detainer of the Premises or an eviction, actual or constructive, of Tenant from the Premises or any portion thereof. See Paragraph 55 19. BANKRUPTCY AND DEFAULT The commencement of a bankruptcy action or liquidation action or reorganization action or insolvency action or an assignment of or by Tenant for the benefit of creditors, or any similar action undertaken by Tenant, or the insolvency of Tenant, shall, at Landlord's option, constitute a breach of this Lease by Tenant. If the trustee or receiver appointed to serve during a bankruptcy, liquidation, reorganization, insolvency or similar action elects to reject Tenant's unexpired Lease, the trustee or receiver shall notify Landlord in writing of its election within thirty (30) days after an order for relief in a liquidation action or within thirty (30) days after the commencement of any action. Within thirty (30) days after court approval of the assumption of this Lease, the trustee or receiver shall cure (or provide adequate assurance to the reasonable satisfaction of Landlord that the trustee or receiver shall cure) any and all previous defaults under the unexpired Lease and shall compensate Landlord for all actual pecuniary loss and shall provide adequate assurance of future performance under said Lease to the reasonable satisfaction of Landlord. Adequate assurance of future performance, as used herein, includes, but shall not be limited to: (i) assurance of source and payment of rent, and other consideration due under this Lease; (ii) assurance that the assumption or assignment of this Lease will not breach substantially any provision, such as radius, location, use, or exclusivity provision, in any agreement relating to the above described Premises. Nothing contained in this section shall affect the existing right of Landlord to refuse to accept an assignment upon commencement of or in connection with a bankruptcy, liquidation, reorganization or insolvency action or an assignment of Tenant for the benefit of creditors or other similar act. Nothing contained in this Lease shall be construed as giving or granting or creating an equity in the demised Premises to Tenant. In no event shall the leasehold estate under this Lease, or any interest therein, be assigned by voluntary or involuntary bankruptcy proceeding without the prior written consent of Landlord. In no event shall this Lease or any rights or privileges hereunder be an asset of Tenant under any bankruptcy, insolvency or reorganization proceedings. The failure to perform or honor any covenant, condition or representation made under this Lease shall constitute a default hereunder by Tenant upon expiration of the appropriate grace period hereinafter provided. Tenant shall have a period of five (5) days from the date of written notice from Landlord within which to cure any default to the payment of rental or adjustment thereto. Tenant shall have a period of thirty (30) days from the date of written notice from Landlord within which to cure any other default under this Lease; provided, however, that if the nature of Tenant's failure is such that more than thirty (30) days is reasonably required to cure the same, Tenant shall not be in default so long as Tenant commences performance with in such thirty (30) day period and thereafter prosecutes the same to completion. Upon an uncured default of this Lease by Tenant, Landlord shall have the following rights and remedies in addition to any other rights or remedies available to Landlord at law or in equity: (a) The rights and remedies provided for by California Civil Code Section 1951.2, including but not limited to, recovery of the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of rental loss for the same period that Tenant proves could be reasonable avoided, as computed pursuant to subsection (b) of said Section 1951.2. Any proof by Tenant under subparagraphs (2) and (3) of Section 1951.2 of the California Civil Code of the amount of rental loss that could be reasonably avoided shall be made in the following manner: Landlord and Tenant shall each select a licensed real estate broker in the business of renting property of the same type and use as the Premises and in the same geographic vicinity. Such two real estate brokers shall select third licensed real estate broker, and the three licensed real estate brokers so selected shall determine the amount of the rental loss that could be reasonably avoided from the balance of the term of this Lease after the time of award. The decision of the majority of said licensed real estate brokers shall be final and binding upon the parties hereto. (b) The rights and remedies provided by California Civil Code Section which allows Landlord to continue the Lease in effect and to enforce all of its rights and remedies under this Lease, including the right to recover rent as it becomes due, for so long as Landlord does not terminate Tenant's right to possession; acts of maintenance or preservation, efforts to relet the Premises, or the appointment of a receiver upon Landlord's initiative to protect its interest under this Lease shall not constitute a termination of Tenant's right to possession. (c) The right to terminate this Lease by giving notice to Tenant in accordance with applicable law. (d) To the extent permitted by law and in any event not less that three (3) business days' prior written notice, the right and power, to enter the Premises and remove therefrom all persons and property, to store such property in a public warehouse or elsewhere at the cost of and for the account of Tenant, and to sell such property and apply such proceeds therefrom pursuant to applicable California law. Landlord may from time to time sublet the Premises or any part thereof for such term or terms (which may extend beyond the term of this Lease) and at such rent and such other terms as Landlord in its reasonable sole discretion may deem advisable, with the right to make alterations and repairs to the Premises. Upon each subletting, (i) Tenant shall be immediately liable to pay Landlord, in addition to indebtedness other than rent due hereunder, the reasonable cost of such subletting, including, but not limited to, reasonable attorneys' fees, and any real estate commissions actually paid, and the cost of such reasonable alterations and repairs incurred by Landlord and the amount, if any, by which the rent hereunder for the period of such subletting (to the extent such period does not exceed the term hereof) exceeds the amount to be paid as renter for the Premises for such period or (ii) at the option of Landlord, rents received from such subletting shall be applied first to payment of indebtedness other than rent due hereunder from Tenant to Landlord; second, to the payment of any costs of such subletting and of such alterations and repairs; third to payment of rent due and unpaid hereunder; and the residue, if any, shall be held by Landlord and applied in payment of future rent as the same becomes due hereunder. If Tenant has been credited with any rent to be received by such subletting under option (i) and such rent shall not be promptly paid to Landlord by the subtenant(s), or if such rentals received from such subletting under option (ii) during any month be less than that to be paid during that month by Tenant hereunder, Tenant shall pay any such deficiency to Landlord. Such deficiency shall be calculated and paid monthly. No taking possession of the Premises by Landlord shall be construed as an election on its part to terminate this Lease unless a written notice of such intention be given to Tenant. Notwithstanding any such subletting without terminate, Landlord may at any time hereafter elect to terminate this Lease for such previous breach. (e) The right to have a receiver appointed for Tenant upon application by Landlord to take possession of the Premises and to apply any rental collected from the Premises and to exercise all other rights and remedies granted to Landlord pursuant to subparagraph d above. 20. ABANDONMENT Tenant shall not vacate or abandon the Premises at any time during the term of this Lease (except that Tenant may vacate so long as it pays rent, provides an on-site security guard during normal business hours from Monday through Friday, and otherwise performs its obligations hereunder) and if Tenant shall abandon, vacate or surrender said Premises, or be dispossessed by the process of law, or otherwise, any personal property belonging to Tenant and left on the Premises shall be deemed to be abandoned, at the option of Landlord, except such property as may be mortgaged to Landlord. 21. DESTRUCTION In the event the Premises are destroyed in whole or in part from any cause, except for routine maintenance and repairs and incidental page 5 of 8 damage and destruction caused from vandalism and accidents for which Tenant is responsible under Paragraph 7. Landlord must either, at its option; (a) Rebuild or restore the Premises to their condition prior to the damage or destruction, or (b) Terminate this Lease. (providing that the Premises is damaged to the extent of more than 33 1/3% of the replacement cost) If Landlord does not give Tenant notice in writing within thirty (30) days from the destruction of the Premises of its election to either rebuild and restore them, or to terminate this Lease, Landlord shall be deemed to have elected to rebuild or restore them, in which event Landlord agrees, at its expense, promptly to rebuild or restore the Premises to their condition prior to the damage or destruction. Tenant shall be entitled to a reduction in rent while such repair is being made in the proportion that the area of the Premises rendered untenantable by such damage bears to the total area of the Premises. If Landlord initially estimates that the rebuilding or restoration will exceed 180 days or if Landlord does not complete the rebuilding or restoration within one hundred eighty (180) days following the date of destruction (such period of time to be extended for delays caused by the fault or neglect of Tenant or because of Acts of God, acts of public agencies, labor disputes, strikes, fires, freight embargos, rainy or stormy weather, inability to obtain materials, supplies or fuels, acts of contractors or subcontractors, or delay of the contractors or subcontractors due to such causes or other contingencies beyond the control of Landlord), then Tenant shall have the right to terminate this Lease by giving fifteen (15) days prior written notice to Landlord. Notwithstanding anything herein to the contrary, Landlord's obligation to rebuild or restore shall be limited to the building and interior improvements constructed by Landlord as they existed as of the commencement date of the Lease and shall not include restoration of Tenant's trade fixtures, equipment, merchandise, or any improvements, alterations or additions made by Tenant to the Premises, which Tenant shall forthwith replace or fully repair at Tenant's sole cost and expense provided this Lease is not cancelled according to the provisions above. Unless this Lease is terminated pursuant to the foregoing provisions, this Lease shall remain in full force and effect. Tenant hereby expressly waives the provisions of Section 1932, Subdivision 2, in Section 1933, Subdivision 4 of the California Civil Code. In the event that the building in which the Premises are situated is damaged or destroyed to the extent of not less than 33 1/3% of the replacement cost thereof, Landlord may elect to terminate this Lease, whether the Premises be injured or not. 22. EMINENT DOMAIN If all or any part of the Premises shall be taken by any public or quasi-public authority under the power of eminent domain or conveyance in lieu thereof, this Lease shall terminate as to any portion of the Premises so taken or conveyed on the date when title vests in the condemnor, and Landlord shall be entitled to any and all payment, income, rent, award, or any interest therein whatsoever which may be paid or made in connection with such taking or conveyance, and Tenant shall have no claim against Landlord or otherwise for the value of any unexpired term of this Lease. Notwithstanding the foregoing paragraph, any compensation specifically awarded Tenant for loss of business, Tenant's personal property, moving costs or loss of goodwill, shall be and remain the property of Tenant. If any action or proceeding is commenced for such taking of the Premises or any part thereof, or if Landlord is advised in writing by any entity or body having the right or power of condemnation of its intention to condemn the premises or any portion thereof, then Landlord shall have the right to terminate this Lease by giving Tenant written notice thereof within sixty (60) days of the date of receipt of said written advice, or commencement of said action or proceeding, or taking conveyance, which termination shall take place as of the first to occur of the last day of the calendar month next following the month in which such notice is given or the date on which title to the Premises shall vest in the condemnor. In the event of such a partial taking or conveyance of the Premises, if the portion of the Premises taken or conveyed is so substantial that the Tenant can no longer reasonably conduct its business, Tenant shall have the privilege of terminating this Lease within sixty (60) days from the date of such taking or conveyance, upon written notice to Landlord of its intention so to do, and upon giving of such notice this Lease shall terminate on the last day of the calendar month next following the month in which such notice is given, upon payment by Tenant of the rent from the date of such taking or conveyance to the date of termination. If a portion of the Premises be taken buy condemnation or conveyance in lieu thereof and neither Landlord nor Tenant shall terminate this Lease as provided here, this Lease shall continue in full force and effect as to the part of the Premises not so taken or conveyed, and the rent herein shall be apportioned as of the date of such taking or conveyance so that thereafter the rent to be paid by Tenant shall be in the ratio that the area of the portion of the Premises not so taken or conveyed bears to the total area of the Premises prior to such taking. 22. SALE OR CONVEYANCE BY LANDLORD In the event of a sale or conveyance of the Premises or any interest therein, by any owner of the reversion then constituting Landlord, the transferor shall thereby be released from any further liability upon any of the terms, covenants or conditions (express or implied) herein contained in favor of Tenant, and in such event, insofar as such transfer is concerned, Tenant agrees to look solely to the responsibility of the successor in interest of such transferor in and to the Premises and this Lease. This Lease shall not be affected by any such sale or conveyance, and Tenant agrees to attorn to the successor in interest of such transferor. See Paragraph 56 24. ATTORNMENT TO LENDER OR THIRD PARTY In the event the interest of Landlord in the land and buildings in which the leased Premises are located (whether such interest of Landlord is a fee title interest or a leasehold interest) is encumbered by deed of trust, and such interest is acquired by the lender or any third party through judicial foreclosure or by exercise of a power of sale at private trustee's foreclosure sale, Tenant hereby agrees to attorn to the purchaser at any such foreclosure sale and to recognize such purchaser as the Landlord under this Lease. In the event the lien of the deed of trust securing the loan from a Lender or Landlord is prior and paramount to the Lease, this Lease shall nonetheless continue in full force and effect for the remainder of the unexpired term hereof, at the same rental herein reserved and upon all the other terms, conditions and covenants herein contained. 25. HOLDING OVER Any holding over by Tenant after expiration or other termination of the term of this Lease with the written consent of Landlord delivered to Tenant shall not constitute a renewal or extension of the Lease or give Tenant any rights in or to the leased Premises except as expressly provided in this Lease. Any holding over after the expiration or other termination of the term of this Lease, with the consent of Landlord, shall be construed to be a tenancy from month to month, on the same terms and conditions herein specified insofar as applicable except that the monthly Basic Rent shall be increased to an amount equal to one hundred fifty (150%) percent of the monthly Basic Rent required during the last month of the Lease term. 26. CERTIFICATE OF ESTOPPEL Tenant shall at any time upon not less than ten (10) days prior written notice from Landlord execute, acknowledge and deliver to Landlord a statement in writing (i) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect) and the date to which the rent and other charges are paid in advance, if any, and (ii) acknowledging that there are not, to Tenant's knowledge, any uncured defaults on the part of Landlord hereunder, or specifying such defaults, if any, are claimed. Any such statement may be conclusively relied upon by any prospective purchaser or encumbrancer of the Premises. Tenant's failure to deliver such statement within such time shall be conclusive upon Tenant that this Lease is in full force and effect, without modification except as may be represented by Landlord, that there are no uncured defaults in Landlord's performance, and that not more than one month's rent has been paid in advance. 27. CONSTRUCTION CHANGES It is understood that the description of the Premises and the location of ductwork, plumbing and other facilities therein are subject to such minor changes as Landlord or Landlord's architect determines to be desirable in the course of construction of the Premises, and no such changes shall affect this Lease or entitle Tenant to any reduction of rent hereunder or result in any liability of Landlord to Tenant. Landlord does not guarantee the accuracy of any drawing supplied to Tenant and verification of the accuracy of such drawings rests with Tenant. 28. RIGHT OF LANDLORD TO PERFORM All terms, covenants and conditions of this Lease to be performed or observed by Tenant shall be performed or observed by Tenant at Tenant's sole cost and expense and without any reduction of rent. If Tenant shall fail to pay any sum of money, or other rent, required to be paid by it hereunder or shall fail to perform any other term or covenant hereunder on its part to be performed, and such failure shall continue for five (5)days after written notice thereof by Landlord, Landlord, without waiving or releasing Tenant from any obligation of Tenant hereunder, may, but shall not be obliged to, make any such payment or perform any such other term or covenant on Tenant's part to be performed. All sums so paid by Landlord and all necessary costs of such performance by Landlord together with interest thereon at the rate of the prime rate of interest per annum as quoted by the Bank of America from the date of such payment on performance by Landlord, shall be paid (and Tenant covenants to make such payment) to Landlord on demand by Landlord, and Landlord shall have (in addition to any other right or remedy of Landlord) the same rights and remedies in the event of nonpayment by Tenant as in the case of failure by Tenant in the payment of rent hereunder. 29. ATTORNEYS' FEES A. In the vent that either Landlord or Tenant should bring suit for the possession of the Premises, for the recovery of any sum due under this Lease or because of the breach of any provision of this Lease, or for any other relief against the other party hereunder, then all costs and expenses, including reasonable attorneys' fees, page 6 of 8 incurred by the prevailing party, which obligation on the part of the other party shall be deemed to have accrued on the date of the commencement of such action and shall be enforceable whether or not the action is prosecuted to judgment. B. Should Landlord be named as a defendant in any suit brought against Tenant in connection with or arising out of Tenant's occupancy hereunder, Tenant shall pay to Landlord its costs and expenses incurred in such suit, including a reasonable attorney's fee. 30. WAIVER The waiver by either party of the other party's failure to perform or observe any term, covenant or condition herein contained to be performed or observed by such waiving party shall not be deemed to be a waiver of such term, covenant or condition or of any subsequent failure of the party failing to perform or observe the same or any other such term, covenant or condition therein contained, and no custom or practice which may develop between the parties hereto during the term hereof shall be deemed a waiver of, or in any way affect, the right of either party to insist upon performance and observance by the other party in strict accordance with the terms hereof. 31. NOTICES All notices, demands, requests, advises or designations which may be or are required to be given by either party to the other hereunder shall be in writing. All notices, demands, requests, advises or designations by Landlord to Tenant shall be sufficiently given, made or delivered if personally served on Tenant by leaving the same at the Premises of it sent by United Stated certified or registered mail, postage prepaid, addressed to Tenant at the Premises. All notices, demands, requests, advises or designations by Tenant to Landlord shall be sent by United States certified or registered mail, postage prepaid, addressed to Landlord at its offices at PEERY/ARRILLAGA, 2560 Mission College Blvd., Suite 101, Santa Clara, CA 95054. Each notice, request, demand, advice or designation referred to in this paragraph shall be deemed received on the date of receipt of the personal service or mailing thereof in the manner herein provided, as the case may be. 32. EXAMINATION OF LEASE Submission of this instrument for examination or signature by Tenant does not constitute a reservation of or option for a lease, and this instrument is not effective as a lease or otherwise until its execution and delivery by both Landlord and Tenant. 33. DEFAULT BY LANDLORD Landlord shall not be in default unless Landlord fails to perform obligations required of Landlord within a reasonable time, but in no event earlier than (30) days after written notice by Tenant to Landlord and to the holder of any first mortgage or deed of trust covering the Premises whose name and address shall have heretofore been furnished to Tenant in writing, specifying wherein Landlord has failed to perform such obligations; provided, however, that if the nature of Landlord's obligations is such that more than thirty (30) days are required for performance, then Landlord shall not be in default if Landlord commences performance within such thirty (30) day period and thereafter diligently prosecutes the same to completion. 34. CORPORATE AUTHORITY If Tenant is a corporation (or a partnership), each individual executing this Lease on behalf of said corporation (or partnership) represents and warrants that he is duly authorized to execute and deliver this Lease on behalf of said corporation (or partnership) in accordance with the by- laws of said corporation (or partnership in accordance with the partnership agreement) and that this Lease is binding upon said corporation (or partnership) in accordance with its terms. If Tenant is a corporation, Tenant shall, within thirty (30) days after execution of this Lease, deliver to Landlord a certified copy of the resolution of the Board of Directors of said corporation authorizing or ratifying the execution of this Lease. 36. LIMITATION OF LIABILITY In consideration of the benefits accruing hereunder, Tenant and all successors and assigns covenant and agree that, in the event of any actual or alleged failure, breach or default hereunder by Landlord: (a) the sole and exclusive remedy shall be against Landlord's interest in the Premises leased herein; (b) no partner of Landlord shall be sued or named as a party in any suit or action (except as may be necessary to secure jurisdiction of the partnership); (c) no service of process shall be made against any partner of Landlord (except as may be necessary to secure jurisdiction of the partnership); (d) no partner of Landlord shall be required to answer or otherwise plead to any service of process; (e) no judgment will be taken against any partner of Landlord; (f) any judgment taken against any partner of Landlord may be vacated and set aside at any time without hearing; (g) no writ of execution will ever by levied against the assets of any partner of Landlord; (h) these covenants and agreements are enforceable both by Landlord and also by any partner of Landlord. Tenant agrees that each of the foregoing covenants and agreements shall be applicable to any covenant or agreement either expressly contained in this Lease or imposed by statute or at common law. 37. SIGNS No sign, placard, picture, advertisement, name or notice shall be inscribed, displayed or printed or affixed on or to any part of the outside of the Premises or any exterior windows of the Premises without the written consent of Landlord first had and obtained and Landlord shall have the right to remove any such sign, placard, picture, advertisement, name or notice without notice to and at the expense of Tenant. If Tenant is allowed to print or affix or in any way place a sign in, on, or about the Premises, upon expiration or other sooner termination of this Lease, Tenant at Tenant's sole cost and expense shall both remove such sign and repair all damage in such a manner as to restore all aspects of the appearance of the Premises to the condition prior to the placement of said sign. All approved signs or lettering on outside doors shall be printed, painted, affixed or inscribed at the expense of Tenant by a person approved by Landlord. Tenant shall not place anything or allow anything to be placed near the glass of any window, door partition or wall which may appear unsightly from outside the Premises. 38. MISCELLANEOUS AND GENERAL PROVISIONS A. Use of Building Name. Tenant shall not, without the written consent of Landlord, use the name of the building for any purpose other than as the address of the business conducted by Tenant in the Premises. page 7 of 8 B. Choice of Law; Severability. this Lease shall in all respects be governed by and construed in accordance with the laws of the State of California. If any provision of this Lease shall be invalid, unenforceable or ineffective for any reason whatsoever, all other provisions hereof shall be and remain in full force and effect. C. Definition of Terms. The term "Premises" includes the space leased hereby and any improvements now or hereafter installed therein or attached thereto. The term "Landlord" or any pronoun used in place thereof includes the plural as well as the singular and the successors and assigns of Landlord. The term "Tenant" or any pronoun used in place thereof includes the plural as well as the singular and individuals, firms, associations, partnerships and corporations, and their and each of their respective heirs, executors, administrators, successors and permitted assigns, according to the context hereof, and the provisions of this Lease shall inure to the benefit of and bind such heirs, executors, administrators, successors and permitted assigns. The term "person" includes the plural as well as the singular and individuals, firms, associations, partnerships and corporations. Words used in any gender include other genders. If there be more than one Tenant the obligations of Tenant hereunder are joint and several. The paragraph heading of this Lease are for convenience of reference only and shall have no effect upon the construction or interpretation of any provision hereof. D. Time of Essence. Time is of the essence of this Lease and of each and all of its provisions. E. Quitclaim. At the expiration or earlier termination of this Lease, Tenant shall execute, acknowledge and deliver to Landlord, within ten (10) days after written demand from Landlord to Tenant, any quitclaim deed or other document required by any reputable title company, licensed to operate in the State of California, to remove the cloud or encumbrance created by this Lease from the real property of which Tenant's Premises are a part. F. Incorporation of Prior Agreements; Amendments. This instrument along with any exhibits and attachments hereto constitutes the entire agreement between Landlord and Tenant relative to the Premises and this agreement and the exhibits and attachments may be altered, amended or revoked only by an instrument in writing signed by both Landlord and Tenant. Landlord and Tenant agree hereby that all prior or contemporaneous oral agreements between and among themselves and their agents or representatives relative to the leasing of the Premises are merged in or revoked by this agreement. G. Recording. Neither Landlord nor Tenant shall record this Lease or a short form memorandum hereof without the consent of the other. H. Amendments for Financing. Tenant further agrees to execute any amendments reasonably required by a lender to enable Landlord to obtain financing, so long as Tenant's rights hereunder; are not materially or adversely affected and there is no change in Basic Rent, Additional Rent, Options to Extend, Term or Construction obligations of Landlord. I. Additional Paragraphs. Paragraph 39 through 57 are added hereto and are included as a part of this lease. J. Clauses, Plats and Riders. Clauses, plats and riders, if any, signed by Landlord and Tenant and endorsed on or affixed to this Lease are a part hereof. K. Diminution of Light, Air or View. Tenant convenants and agrees that no diminution or shutting off of light, air or view by any structure which may be hereafter erected (whether or not by Landlord) shall in any way affect his Lease, entitle Tenant to any reduction of rent hereunder or result in any liability of Landlord to Tenant. IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered this Lease as of the day and year last written below. LANDLORD: TENANT: ARRILLAGA FAMILY TRUST POINTCAST, INC. a California corporation By /s/ John Arrillaga By /s/ John P. Jewett John Arrillaga, Trustee Date: 8/13/96 Title Vice President, Finance & Operations RICHARD T. PEERY SEPARATE PROPERTY TRUST Type or Print Name John P. Jewett By /s/ Richard T. Peery Date: August 12, 1996 Richard T. Peery, Trustee Date: 8/13/96 page 8 of 8 Paragraphs 39 through 57 to Lease Agreement Dated May 21, 1996, By and Between The Arrillaga Family Trust and the Richard T. Peery Separate Property Trust, as Landlord, and PointCast, Inc., a California corporation, as Tenant for 64,800+ Square Feet of Space Located at the corner of West Maude Avenue and Macara Avenue, Sunnyvale, California. 39. BASIC RENT: In accordance with Paragraphs 2B and 4A herein, the Basic ---------- Rent due shall be payable as follows during the months of the term of the Lease:
Monthly Basic Rent Monthly Period Rate PSF Basic Rent ------ ------------------ ----------- Months 01-06 $1.142/sf* $ 74,000.00 (plus the partial calendar *(effective rate month, if any, following calculated from the Commencement Date) 40,000sf@$1.85psf) Months 07-12 $1.85/sf $119,880.00 Months 13-24 $1.90/sf $123,120.00 Months 25-36 $1.95/sf $126,360.00 Months 37-48 S2.00/sf $129,600.00 Months 49-66 S2.05/sf $132,840.00
The total Aggregate Rent shall be determined once the actual Lease Commencement Date is established. 40. ASSIGNMENT OF WARRANTIES: During the Term of the Lease, Landlord hereby ------------------------ assigns to Tenant all of Landlord's Contractor's warranties and shall cooperate with Tenant in enforcing any of such warranties except that Landlord shall not be required to pay any legal fees or incur any expenses in this regard. 41. CONSENT: Whenever the consent of one party to the other is required ------- hereunder, such consent shall not be unreasonably withheld. 42. CHOICE OF LAW; SEVERABILITY. This Lease shall in all respects be governed --------------------------- by and construed in accordance with the laws of the State of California. If any provisions of this Lease shall be invalid, unenforceable, or ineffective for any reason whatsoever, all other provisions hereof shall be and remain in full force and effect. 43. ASSESSMENT CREDITS: The demised property herein may be subject to a ------------------ special assessment levied by the City of Sunnyvale as part of an Improvement District. As a part of said special assessment proceedings (if any), additional bonds were or may be sold and assessments were or may be levied to provide for construction contingencies and reserve funds. Interest shall be earned on such funds created for contingencies and on reserve funds which will be credited for the benefit of said assessment district. To the extent surpluses are created in said district through unused contingency funds, interest earnings or reserve funds, such surpluses shall be deemed the property of Landlord. Notwithstanding that such surpluses may be credited on assessments otherwise due against the Leased Premises, Tenant shall pay to Landlord, as additional rent if, and at the time of any such credit of surpluses, an amount equal to all such surpluses so credited. 44. MAINTENANCE OF THE PREMISES: In addition to, and notwithstanding anything --------------------------- to the contrary in Paragraph 7 Landlord shall maintain, replace and repair damage to the structural shell, foundation and roof structure (but not the interior improvements, roof membrane, or glazing) of the building leased hereunder at Landlord's cost and expense provided Tenant has not caused such damage, in which event Tenant shall be responsible for 100 percent of any such costs for repair or damage so caused by the Tenant. Notwithstanding the foregoing, a crack in the foundation, or exterior Page 9 walls that does not endanger the structural integrity of the building, or which is not life-threatening, shall not be considered material, nor shall Landlord be responsible for repair of same. 45. COMPLIANCE (CONTINUED): Any non-conformance of the improvements installed ---------------------- and paid for by Landlord as set forth on Exhibit B, required to be corrected by --------- the governing agency, shall be corrected at the cost and expense of Landlord if such non-conformance exists as of the Commencement Date of the Lease. Any non- conformance of the Premises occurring after the Commencement Date of this Lease Agreement shall be the responsibility of Tenant to correct at Tenant's cost and expense. 46. ASSIGNMENT AND SUBLETTING (CONTINUED): In addition to and notwithstanding ------------------------------------- anything to the contrary in Paragraph 16 of this Lease, Landlord hereby agrees to consent to Tenant's assigning or subletting said Lease to: (i) any parent or subsidiary corporation, affiliate, or corporation with which Tenant merges or consolidates, provided that the net worth of said parent or subsidiary corporation, affiliate, or said corporation has a net worth equal to or greater than the net worth of Tenant at the time of such assignment, merger, or consolidation; or (ii) any third party or entity to whom Tenant sells all or substantially all of its assets; provided, that the net worth of the resulting or acquiring corporation has a net worth after the merger, consolidation or acquisition equal to or greater than the net worth of Tenant at the time of such merger, consolidation or acquisition. No such assignment or subletting will release the Tenant from its liability and responsibility under this Lease to the extent Tenant continues in existence following such transaction. Notwithstanding the above, Tenant shall be required to (a) give Landlord written notice prior to such assignment or subletting to any party as described in (i) and (ii) above, and (b) execute Landlord's consent document prepared by Landlord reflecting the assignment or subletting. Any and all sublease agreement(s) between Tenant and any and all subtenant(s) (which agreements must be consented to by Landlord, pursuant to the requirements of this Lease) shall contain the following language: "If Landlord and Tenant jointly and voluntarily elect, for any reason whatsoever, to terminate the Master Lease prior to the scheduled Master Lease termination date, then this Sublease (if then still in effect) shall terminate concurrently with the termination of the Master Lease. Subtenant expressly acknowledges and agrees that (1) the voluntary termination of the Master Lease by Landlord and Tenant and the resulting termination of this Sublease shall not give Subtenant any right or power to make any legal or equitable claim against Landlord, including without limitation any claim for interference with contract or interference with prospective economic advantage, and (2) Subtenant hereby waives any and all rights it may have under law or at equity against Landlord to challenge such an early termination of the Sublease, and unconditionally releases and relieves Landlord, and its officers, directors, employees and agents, from any and all claims, demands, and/or causes of action whatsoever (collectively, "Claims"), whether such matters are known or unknown, latent or apparent, suspected or unsuspected, foreseeable or unforeseeable, which Subtenant may have arising out of or in connection with any such early termination of this Sublease. Subtenant knowingly and intentionally waives any and all protection which is or may be given by Section 1542 of the California Civil Code which provides as follows: "A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with debtor. The term of this Sublease is therefore subject to early termination. Subtenant's initials here below evidence (a) Subtenant's consideration of and agreement to this early termination provision, (b) Subtenant's acknowledgment that, in determining the net benefits to be derived by Subtenant under the terms of this Sublease, Subtenant has anticipated the potential for early termination, and (c) Subtenant's agreement to the general waiver and release of Claims above. Initials:_______________ Initials:_______________" Subtenant Tenant 47. TWO (2)- FIVE (5) YEAR OPTIONS TO EXTEND: Landlord hereby grants to ---------------------------------------- Tenant, subject to the provisions below, two (2)- five (5) year Options to Extend this Lease Agreement as follows: Page 10 A. FIRST FIVE (5)-YEAR OPTION PERIOD: Provided Tenant is not in default --------------------------------- (pursuant to Paragraph 19 of the Lease, i.e., Tenant has received notice and any ---- applicable cure period has expired without cure) in any of the terms, covenants, and conditions of this Lease Agreement, Landlord hereby grants to Tenant an Option to Extend this Lease Agreement for an additional five (5) year period ("Extended Term") upon the following terms and conditions: 1. Tenant shall give Landlord written notice of Tenant's exercise of this Option to Extend not later than one hundred eighty (180) days prior to the scheduled Lease Termination Date, which Termination Date is currently projected to be July 31, 2002, in which event the Lease shall be considered extended for an additional five (5) years upon the same terms and conditions, absent this Paragraph 47, and subject to the Basic Rental provisions set forth below. In the event that Tenant fails to timely exercise Tenant's option as set forth herein in writing, Tenant shall have no further Option to Extend this Lease, and this Lease shall continue in full force and effect for the full remaining term hereof, absent this Paragraph 47(A) and Paragraph 47(B). 2. In the event Tenant timely exercises Tenant's Option to Extend as set forth herein, Landlord shall, within fifteen (15) days after receipt of Tenant's exercise of option, advise Tenant of the Basic Rental required for the Extended Term of the Lease. Tenant shall have five (5) days after receipt from the Landlord of said new Basic Rental in which to accept said new Basic Rental and enter into written documentation confirming same. In the event Tenant fails to execute said written documentation confirming said new Basic Rental for the Extended Term of Lease within said five (5) day period, Tenant shall have no further Option to Extend this Lease, and this Lease shall continue in full force and effect for the full remaining Term hereof absent of this Paragraph 47, with Landlord having no further responsibility or obligation to Tenant with respect to Tenant's Option to Extend. 3. It is agreed that if Tenant is at any time prior to exercising its Option to Extend in default of this Lease and has failed to cure the default in the time period allowed, this Paragraph 47 will be null and void and Tenant will have no further rights under this Paragraph. It is further agreed that if Tenant has exercised its Option to Extend and is subsequently in default prior to, or at the scheduled Commencement Date of the first Extended Term, Landlord may at its sole and absolute discretion, cancel Tenant's Option to Extend, and this Lease will continue in full force and effect for the full remaining Term hereof, absent of this Paragraph 47. 4. The option rights of Tenant under this Paragraph 47, and the Extended Term thereunder, are granted for Tenant's personal benefit and may not be assigned or transferred by Tenant (except to: a parent or a subsidiary corporation; or a corporation with which Tenant merges or consolidates; or a corporation to whom Tenant sells all or substantially all of its assets, provided that Landlord has pre-approved the assignment of the Lease to any such entities as provided for in Paragraph 46) either voluntarily or by operation of law, in any manner whatsoever. In the event that Landlord consents to a sublease or assignment under Paragraph 16, the option granted herein and any Extended Term thereunder shall be void and of no force and effect, unless Tenant is occupying no less than ten percent (10%) of the Premises after subleasing the remainder of the Premises during the initial Lease Term and further provided Tenant occupies ten percent (10%) of the Premises during any and all Extended Terms as provided for herein and in Paragraph 47B ("Second Five (5)- Year Option Period"). 5. INCREASED SECURITY DEPOSIT: In the event the Term of Tenant's Lease is extended pursuant to this Paragraph 47(A), Tenant's Security Deposit shall be increased to equal twice the Basic Rental due for the last month of the Extended Term. B. SECOND FIVE (5)-YEAR OPTION PERIOD: Provided Tenant is not in default ---------------------------------- (pursuant to Paragraph 19 of the Lease, i.e., Tenant has received notice and any ---- applicable cure period has expired without cure) in any of the terms, covenants, and conditions of this Lease Agreement and has extended the Lease for an additional five (5) year period as set forth in Paragraph 47(A) above, Landlord hereby grants to Tenant an Option to Extend this Lease Agreement for an additional five (5) years ("Second Extended Term") upon the following terms and conditions: 1. Tenant shall give Landlord written notice of Tenant's exercise of this Option to Extend at least one hundred eighty (180) days prior to the expiration of the Extended Term pursuant to Paragraph 47(A) hereof, which Termination Date is scheduled to be July 31, 2007, in which event the Lease shall be considered extended for an additional five (5) years upon the same terms and conditions, absent this Paragraph 47(B), and subject to the Basic Rental provisions set forth below. In the event that Tenant fails to timely exercise Tenant's option as set forth herein in writing, Tenant shall have no further Option to Extend this Lease, and this Lease shall continue in full force and effect for the full remaining Term hereof, absent this Paragraph 47(B). Page 11 2. In the event Tenant timely exercises Tenant's Option to Extend as set forth herein, Landlord shall, within fifteen (15) days after receipt of Tenant's exercise of option, advise Tenant of the Basic Rental (which shall not be less than the Basic Rental for the fifth year of the first five (5) year Extended Term) required for the Second Extended Term of the Lease. Tenant shall have five (5) days after receipt from the Landlord of said new Basic Rental in which to accept said new Basic Rental and enter into written documentation confirming same. In the event Tenant fails to execute said written documentation confirming said new Basic Rental for the Second Extended Term of Lease within said five (5) day period, Tenant shall have no further Option to Extend this Lease, and this Lease shall continue in full force and effect for the full remaining Term hereof absent of this Paragraph 47(B), with Landlord having no further responsibility or obligation to Tenant with respect to Tenant's Option to Extend. 3. It is agreed that if Tenant is at any time prior to exercising its Option to Extend in default of this Lease and has failed to cure the default in the time period allowed, this Paragraph 47(B) will be null and void and Tenant will have no further rights under this Paragraph. It is further agreed that if Tenant has exercised its Option to Extend and is subsequently in default prior to, or at the time the lease commences on the Second Extended Term, Landlord may at its sole and absolute discretion, cancel Tenant's Option to Extend, and this Lease will continue in full force and effect for the full remaining term hereof, absent of this Paragraph 47(B). 4. The option rights of Tenant under this Paragraph 47(B), and the Second Extended Term thereunder, are granted for Tenant's personal benefit and may not be assigned or transferred by Tenant, (except to: a parent or a subsidiary corporation; or a corporation with which Tenant merges or consolidates; or a corporation to whom Tenant sells all or substantially all of its assets, provided that Landlord has pre-approved the assignment of the Lease to any such entities as provided for in Paragraph 46) either voluntarily or by operation of law, in any manner whatsoever. In the event that Landlord consents to a sublease or assignment under Paragraph 16, the option granted herein and any Second Extended Term thereunder shall be void and of no force and effect, unless Tenant is occupying no less than ten percent (10%) of the Premises after subleasing the remainder of the Premises during the initial Lease Term, during Tenant's first Extended Term and further provided Tenant occupies ten percent (10%) of the Premises during any and all Extended Terms as provided for herein. 5. INCREASED SECURITY DEPOSIT: In the event the Term of Tenant's Lease is extended pursuant to this Paragraph 47(B), Tenant's Security Deposit shall be increased to equal twice the Basic Rental due for the last month of the Second Extended Term. 48. TENANT INTERIOR IMPROVEMENTS: Landlord shall, at its sole cost and ---------------------------- expense, construct certain interior improvements (the "Tenant Improvements") in the Premises, as shown on Exhibit B to be attached to the Lease and Landlord --------- agrees to deliver the Premises leased hereunder to Tenant, at Landlord's expense, in the configuration shown in Red on Exhibit B to be attached hereto. --------- Notwithstanding anything to the contrary above, it is specifically understood and agreed that Landlord shall be required to furnish only a standard air conditioning/heating system, normal electrical outlets, standard fire sprinkler systems, standard bathroom, standard lobby, 2'x 4' suspended acoustical tile drop ceiling throughout the entire space leased, carpeting and/or vinyl-coated floor tile, and standard office partitions and doors, as shown on Exhibit B to --------- be attached hereto; provided however, that any special HVAC and/or plumbing and/or electrical requirements over and above that normally supplied by Landlord shall be 100 percent the responsibility of and be paid for 100 percent by Tenant. By June 15, 1996, Tenant shall furnish Landlord, for Landlord's review and approval, Tenant's required specification and a preliminary space plan (collectively, the "Preliminary Plans") showing the layout of the improvements to be constructed in the Premises. Upon completion of Landlord's review and approval, Landlord shall, as soon as possible thereafter, have the working drawings of the interior plans (the "Working Drawings") drawn by Landlord's architect which Working Drawings shall be consistent with, and logical evolutions of, the Preliminary Plans. Within three (3) business days following receipt of the Working Drawings, Tenant shall approve in writing the final plans for the interior improvements or notify Landlord in writing of its specific objections (if any) within such three (3)-day period. If Tenant so objects, the parties shall confer and use their best efforts to reach agreement upon final interior improvement plans and together shall apply the standards set forth in this Paragraph 57 to resolve Tenant's objections and incorporate such resolution into final interior improvement plans. In resolving Tenant's objections, the parties agree to act reasonably so as to promptly finalize the final interior improvement plans. The interior finishes, except as otherwise requested by Tenant, shall be substantially similar to those finishes within that certain building located at 3201 Scott Boulevard, Santa Clara, California. The final interior improvement plans, as approved Landlord and Tenant, shall be attached to this Lease as Exhibit B. --------- Page 12 If the Preliminary Plans are not received by Landlord for Landlord's approval (which approval shall not be unreasonably withheld) by June 15, 1996, then it is agreed that, notwithstanding anything to the contrary in this Lease, this lease and Tenant's obligation to perform all terms, covenants and conditions of this Lease shall commence as of the date it would otherwise have commenced absent delay caused by Tenant. Landlord shall complete construction of the interior improvements as soon as reasonably possible thereafter. Notwithstanding anything to the contrary, it is agreed that in the event Tenant makes changes, additions, or modifications to the final interior plans reflecting the improvements (as approved by Tenant and Landlord) to be constructed by Landlord as set forth herein, or improvements are installed for Tenant in excess of those to be provided Tenant by Landlord as set forth on Exhibit B, any increased cost(s) resulting from said changes, additions, and/or - --------- modifications and/or improvements in excess of those to be provided Tenant shall be contracted for with Landlord and paid for one hundred percent (100%) by Tenant. The interior shall be constructed in accordance with Exhibit B of the Lease, it --------- being agreed, however, that if the interior improvements constructed by Landlord relating thereto, do not conform exactly but conform materially to the plans and specifications as set forth in the Lease, and the general appearance, structural integrity, and Tenant's uses and occupancy of the Premises and interior improvements relating thereto are not materially or unreasonably affected by such deviation, it is agreed that the commencement date of the Lease, and Tenant's obligation to pay rental, shall not be affected, and Tenant hereby agrees, in such event, to accept the Premises and interior improvements as constructed by Landlord. Tenant shall have thirty (30) days after the Commencement Date to provide Landlord with a "punch list" pertaining to Landlord's work with respect to Tenant's interior improvements. As soon as reasonably possible thereafter, Landlord, or one of Landlord's representatives (if so approved by Landlord), and Tenant shall conduct a joint walk-through of the Premises (if Landlord so requires), and inspect such Tenant Improvements, using their best efforts to agree on the incomplete or defective construction related to the Tenant Improvements installed by Landlord. After such inspection has been completed, Landlord shall prepare, and both parties shall sign, a list of all "punch list" items which the parties reasonably agree are to be corrected by Landlord (but which shall exclude any damage or defects caused by Tenant, its employees, agents or parties Tenant has contracted with to work on the Premises). Landlord shall have thirty (30) days thereafter (or longer if necessary, provided Landlord is diligently pursuing the completion of the same) to complete, at Landlord's expense, the repairs on the "punch list" without the Commencement Date of the Lease and Tenant's obligation to pay Rental thereunder being affected provided that such "punch list" items do not materially affect Tenant's total use of the Premises. This Paragraph shall be of no force and effect if Tenant shall fail to give any such notice to Landlord within thirty (30) days after the Commencement Date of this Lease. 49. SECURITY DEPOSIT IN THE FORM OF AN IRREVOCABLE STANDBY LETTER OF CREDIT: ----------------------------------------------------------------------- The cash Security Deposit provided for in Paragraph 4G of the Lease shall be deposited by Tenant with Landlord upon execution of this Lease; however, Tenant shall have the right, at Tenant's sole election, to replace the cash Security Deposit held by Landlord with an irrevocable letter of credit, drawn upon an institutional lender reasonably acceptable to Landlord in form and content reasonably satisfactory to Landlord and for a term equal to the Term of this Lease plus a period of thirty (30) days. Such irrevocable letter of credit shall be renewed by the issuer prior to the renewal date thereof from time to time during the Lease Term, and shall be held by Landlord as security for the faithful performance by Tenant of all the terms, covenants and conditions of this Lease to be kept and performed by Tenant. Notwithstanding anything to the contrary above, if, for any reason, the issuer is unable or unwilling to so renew the irrevocable letter of credit, the issuer shall automatically, without demand from Landlord, on or before any renewal date of such irrevocable letter of credit, deposit cash with Landlord in the amount of $265,680.00 as set forth in Paragraph 4G of this Lease or the adjusted amounts, if applicable, under Paragraph 47(A) and/or 47(B). The cash Security Deposit held by Landlord shall be refunded to Tenant upon Landlord's receipt of an acceptable irrevocable letter or credit. If Tenant defaults with respect to any provisions of this Lease, including but not limited to provisions relating to the payment of Rent, Landlord may (but shall not be required to) draw down on the irrevocable letter of credit for payment of any sum which Landlord may spend or become obligated to spend by reason of Tenant's default, or to compensate Landlord for any loss or damage which Landlord may suffer by reason of Tenant's default. Landlord and Tenant acknowledge that such irrevocable letter of credit will be treated as if it were a cash Security Deposit, and such irrevocable letter of credit may be drawn down upon by Landlord upon demand and presentation of evidence of the identity of Landlord to the issuing bank, in the event that Tenant defaults with respect to any provision of this Lease and such default is not cured within any applicable cure period. Landlord acknowledges that it is not entitled to draw down such irrevocable letter of credit unless Landlord would have been Page 13 entitled to draw upon a cash Security Deposit pursuant to the terms of Paragraph 4G of the Lease. Concurrently with the delivery of the required information to the issuing bank, Landlord shall deliver to Tenant written evidence of the default upon which the draw down was based, together with evidence that Landlord has provided to Tenant the written notice of such default which was required under the applicable provision of the Lease, and evidence of the failure of Tenant to cure such default within the applicable grace period following receipt of such notice of default. If any portion of the irrevocable letter of credit is used or applied pursuant hereto, Tenant shall, within ten (10) days after receipt of a written demand therefor from Landlord, restore and replace the value of such security by either (i) depositing cash with Landlord in the amount equal to the sum drawn down under the irrevocable letter of credit, or (ii) increasing the irrevocable letter of credit to its value immediately prior to such application. Tenant's failure to replace the value of the security as provided in the preceding sentence shall be a material breach of its obligation under this Lease. 50. HAZARDOUS MATERIALS: Landlord and Tenant agree as follows with respect to ------------------- the existence or use of "Hazardous Materials" (as defined herein) on, in, under or about the Premises and real property located beneath said Premises (hereinafter collectively referred to as the "Property"): As used herein, the term "Hazardous Materials" shall mean any hazardous or toxic substance, material or waste which is or becomes subject to or regulated by any local governmental authority, the State of California, or the United States Government. The term "Hazardous Materials" includes, without limitation any material or hazardous substance which is (i) listed under Article 9 or defined as "hazardous" or "extremely hazardous" pursuant to Article II of Title 22 of the California Administrative Code, Division 4, Chapter 30, (ii) listed or defined as a "hazardous waste" pursuant to the Federal Resource Conservation and Recovery Act, Section 42 U.S.C. Section 6901 et. seq., (iii) listed or defined as a "hazardous substance" pursuant to the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601 et. seq. (42 U.S.C. Section 9601), (iv) petroleum or any derivative of petroleum, or (v) asbestos. Subject to the terms of this Paragraph 50, Tenant shall have no obligation to "clean up", reimburse, release, indemnify, or defend Landlord with respect to any Hazardous Materials or wastes which Tenant (prior to and during the term of the Lease) or other parties on the Property, (during the term of this Lease) did not store, dispose, or transport in, use, or cause to be on the Property in violation of applicable law. Tenant shall be 100 percent liable and responsible for: (i) any and all "investigation and cleanup" of said Hazardous Materials contamination which Tenant, its agents, employees, contractors, vendors, invitees, visitors or its future subtenants and/or assignees (if any) (prior to or during the Term of this Lease, or other parties on the Property (during the Term of this Lease), does store, dispose, or transport in, use or cause to be on the Property, and (ii) any claims, including third party claims, resulting from such Hazardous Materials contamination. Tenant shall indemnify Landlord and hold Landlord harmless from any liabilities, demands, costs, expenses and damages, including, without limitation, attorney fees incurred as a result of any claims resulting from such Hazardous Materials contamination. Tenant also agrees not to use or dispose of any Hazardous Materials on the Property without first obtaining Landlord's written consent. Tenant agrees to complete compliance with governmental regulations regarding the use or removal or remediation of Hazardous Materials used, stored, disposed of, transported or caused to be on the Property as stated above, and prior to the termination of said Lease Tenant agrees to follow the proper closure procedures and will obtain a clearance from the local fire department and/or the appropriate governing agency. If Tenant uses Hazardous Materials, Tenant also agrees to install, at Tenant's expense, such Hazardous Materials monitoring devices as Landlord deems reasonably necessary. It is agreed that the Tenant's responsibilities related to Hazardous Materials will survive the termination date of the Lease and that Landlord may obtain specific performance of Tenant's responsibilities under this Paragraph 50. 51. LANDLORD'S RIGHT TO TERMINATE: It is understood that the Premises to be ----------------------------- leased by Tenant are to be constructed by Landlord, and that Landlord is required to obtain the necessary building permits before construction of said Premises can commence. Therefore, it is agreed, that in the event Landlord cannot obtain all of the necessary building permits for said Premises within one hundred twenty (120) days from the date this executed Lease is received by Landlord, that Landlord can terminate this Lease Agreement without any liability to Tenant of any type whatsoever, and that this Lease Agreement will be null and void as of the date of said cancellation. Landlord agrees to use its best efforts to obtain the required permits within the aforementioned 120-day period. Page 14 52. ALTERATIONS AND TRADE FIXTURES: The provisions of this Paragraph 52 shall ------------------------------ modify Paragraphs 5 and 6: A. As used herein, the Term "Alteration" shall mean any alteration, addition or improvement made by Tenant to the Premises during the Term of the Lease, but shall not include Tenant's trade fixtures so long as such trade fixtures are not installed in such a manner that they have become an integral part of the building. B. Notwithstanding the foregoing, Tenant shall have the right to reconfigure modular freestanding walls and the non-floor-to-ceiling partitions without Landlord's prior consent, which have been installed by Tenant and paid for by Tenant. Notwithstanding the above, Tenant may not remove or reconfigure the floor-to-ceiling ultrawall partitions without receiving Landlord's prior written consent; however, Tenant may remove and/or reconfigure its furniture partitions (including its floor-to-ceiling furniture partitions). C. At all times during the Lease Term: (i) Tenant shall maintain and keep updated "as-built plans for all alterations constructed by Tenant, and (ii) Tenant shall provide to Landlord 1/8 inch scale sepias of such "as-built" plans as such Alterations arc made. D. At the time Tenant requests the consent of Landlord to approve the installation of an Alteration requiring the consent of Landlord, Tenant shall seek from Landlord a written statement of whether or not Landlord will require Tenant to remove such Alteration and restore all or part of the Premises as required by Landlord in accordance with this Paragraph and Paragraph 5 at the expiration or earlier termination of the Term of the Lease. If Tenant does not obtain from Landlord a statement in writing that Landlord will not require such Alteration to be removed, then at the expiration or sooner termination of the Term of this Lease, it is agreed that Tenant may be required by Landlord to remove all or part of such Alterations, and return the Premises to the condition and configuration existing prior to the installation of such Alterations as provided for in Paragraph 5 above. Alterations for which Landlord has given its written consent to Tenant that such Alteration need not be removed, need not be removed by Tenant at the expiration or earlier termination of the Term of the Lease. 53. REAL PROPERTY TAXES: Paragraph 9 is modified by the following: ------------------- A. If any assessments for public improvements are levied against the Premises, Landlord may elect either to pay the assessment in full or to allow the assessment to go to bond. If Landlord pays the assessment in full, Tenant shall pay to Landlord or any assignee or purchaser of the Premises, each time payment of Real Property Taxes is made, a sum equal to that which would have been payable (as both principal and interest) had Landlord allowed the assessment to go to bond. B. In addition to and notwithstanding anything to be contrary contained in Paragraph 9, it is agreed that Tenant shall have the right to contest the real estate taxes and/or assessments levied against the Premises leased hereunder with the specific understanding and agreement that any such contest shall in no way and in no event relieve Tenant from Tenant's responsibility to pay all real estate taxes and assessments as they appear on the tax bill as they become due. In the event any such contest by Tenant is successfully, the proportionate portion of the refund relating to real estate taxes and assessment actually paid by Tenant shall be refunded to Tenant. It is further understood and agreed that Landlord shall in no event be responsible for any liability or for any cost or expense incurred by Tenant by reason of Tenant's contest of such taxes and/or assessments. 54. SUBORDINATION AND MORTGAGES: Paragraph 17 is modified to provide that this --------------------------- Lease shall not be subordinate to a mortgage or deed of trust unless the Lender holding such mortgage or deed of trust enters into a written subordination, non- disturbance and attornment agreement in which the Lender agrees that notwithstanding any subordination of this Lease to such Lender's mortgage or deed of trust, (i) such Lender shall recognize all or Tenant's rights under this Lease, and (ii) in the event of a foreclosure, this Lease shall not be terminated so long as Tenant is not in default of its obligations under this Lease, but shall continue in effect and Tenant and such Lender (or any party acquiring the Premises through such foreclosure) shall each be bound to perform the respective obligations of Tenant and Landlord with respect to the Premises arising after such foreclosure. 55. LANDLORD'S RIGHT TO ENTER: Notwithstanding the provisions of Paragraph 18, ------------------------- (i) except in the event of an emergency, Landlord shall give Tenant twenty-four (24) hours notice prior to entering the Premises, agrees to comply with any reasonable safety and/or security regulations imposed Page 15 by Tenant with respect to such entry, and shall only enter the Premises when accompanied by Tenant or its agent (so long as Tenant makes itself reasonably available for this purpose), and (ii) Landlord may install "for lease" signs relating to the Premises only during the last 180 days of the Lease term. Landlord agrees to use its reasonable, good faith efforts such that any entry by Landlord, and Landlord's agents, employees, contractors and invitees shall be performed in a manner with as minimal interference as possible with Tenant's business at the Premises. Subject to the foregoing, Tenant agrees to cooperate with Landlord and Landlord's agents, employees and contractors so that responsibilities of Landlord under the Lease can be fulfilled in a reasonable manner during normal business hours so that no extraordinary costs arc incurred by Landlord. 56. TRANSFER BY LANDLORD: The provisions of Paragraph 23 of the Lease to the -------------------- contrary notwithstanding, Landlord shall not be relieved of its obligations under the Lease which may accrue after the date of a sale or other transfer unless and until (i) the transferee agrees to assume and be bound by the terms of this Lease and to perform all obligations of the Landlord under the Lease which may accrue after the date of such transfer, and (ii) Landlord transfers the balance, as of the date of said transfer of the Security Deposit to its successor in interest (transferee) in accordance with the provisions of California Civil Code Section 1950.7, as amended or recodified. 57. TENANT'S INSTALLATION OF ROOFTOP SATELLITE DISHES: Landlord agrees to ------------------------------------------------- allow Tenant to install and connect satellite dishes on the rooftop of the building (provided said satellite dishes are not visible and are completely hidden from view from the street), with Tenant bearing sole responsibility for all costs, permits, structural engineering, construction and installation related to said satellite dishes, and complying with any and all regulations imposed by a governing agency regarding the installation and/or use of said satellite dishes. Tenant shall be responsible for removing said satellite dishes and for repairing and restoring any area altered and/or damaged, as a result of said satellite dishes' installation and/or removal, to its original condition, subject to Paragraph 8 ("Acceptance and Surrender of Premises") prior to the Lease: Termination Date. Page 16 [PRELIMINARY FIRST FLOOR SPACE PLAN IMAGE NOT SHOWN] [PRELIMINARY SECOND FLOOR SPACE PLAN IMAGE NOT SHOWN] [SITE PLAN STATISTICS IMAGE NOT SHOWN] MACARA A AMENDMENT NO. 1 TO LEASE THIS AMENDMENT NO. 1 is made and entered into this 22nd day of January, 1997, by and between JOHN ARRILLAGA, Trustee, or his Successor Trustee UTA dated 7/20/77 (ARRILLAGA FAMILY TRUST) as amended, and RICHARD T. PEERY, Trustee, or his Successor Trustee UTA dated 7/20/77 (RICHARD T. PEERY SEPARATE PROPERTY TRUST) as amended, collectively as LANDLORD, and POINTCAST, INC., a California corporation, as TENANT. RECITALS A. WHEREAS, by Lease Agreement dated May 21, 1997 Landlord leased to Tenant all of that certain 64,800+ square foot building located at 1001 W. Maude - Avenue, Sunnyvale, California, the details of which are more particularly set forth in said May 21, 1996 Lease Agreement, and B. WHEREAS, it is now the desire of the parties hereto to amend the Lease by (i) confirming the street address of the Premises, (ii) adding a "Cross Default" Paragraph and a "Co-terminous" Paragraph to said Lease Agreement as hereinafter set forth. AGREEMENT NOW THEREFORE, for valuable consideration, receipt of which is hereby acknowledged, and in consideration of the hereinafter mutual promises, the parties hereto do agree as follows: 1. ADDRESS OF LEASED PREMISES: It is hereby agreed that the address for -------------------------- the Premises, as assigned by the City of Sunnyvale, shall be 501 Macara Avenue, Sunnyvale, California 94086. 2. CROSS DEFAULT: It is understood that concurrently with the execution ------------- of this Amendment No. 1, Landlord and Tenant shall enter into another lease, dated January 22, 1997, for premises located at 500 Macara Avenue, Sunnyvale, California (hereinafter referred to as the "Macara B Lease"), which property is contiguous to the Premises leased hereunder. As a material part of the consideration for the execution of said Macara B Lease by Landlord, it is agreed between Landlord and Tenant (as long as Landlord is the fee owner of the real property subject to this Lease and subject to the Macara B Lease) that a default under this Lease, or a default under said Macara B Lease may, at the option of Landlord, be considered a default under both leases, in which event Landlord shall be entitled (but in no event required) to apply all rights and remedies of Landlord under the terms of one lease to both leases including, but not limited to, the right to terminate one or both of said leases by reason of a default under said Macara B Lease or hereunder. 3. INITIAL LEASE TERMS CO-TERMINOUS: It is acknowledged that it is the -------------------------------- intention of the parties that the initial Term or this Lease be co-terminous with the initial term of the Macara B Lease such that the initial terms of both leases expire on the same date; provided, however, the termination of this Lease resulting from the terms and conditions stated under Paragraph 21 ("Destruction") or Paragraph 22 ("Eminent Domain") shall not result in a termination of the Macara B Lease. It is hereby agreed that following the date upon which the commencement date of the Macara B Lease becomes established, the initial Term of this Lease shall be extended to coincide with the termination date of the Macara B Lease ("Extension Period"), however, in no event will the Term of this Lease be for a period of less than five (5) years and six (6) months. As soon as the parties are able to implement the provisions of this Paragraph because the commencement date of them Macara B Lease has been determined, the parties shall execute an amendment to this Lease extending the initial Term of this Lease to be co- terminous with the initial termination date of the Macara B Lease. The monthly Basic Rent during the Extension Period shall be increased by $.05 per square foot on the commencement date of said Extension Period. For example, if the Macara B Lease commences on the MACARA A projected lease commencement date of May 1, 1997, and this Lease commences on March 1, 1997, the initial Term of this Lease shall be extended by two months and the monthly Basic Rent during the Extension Period shall be S136,080.00 ($2.05 + $0.05 per square foot x 64,800 square feet = $136,080.00). EXCEPT AS MODIFIED HEREIN, all other terms, covenants, and conditions of said May 21, 1996 Lease Agreement shall remain in full force and effect. IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment No. 1 to Lease as of the day and year last written below. LANDLORD: TENANT: ARRILLAGA FAMILY TRUST POINTCAST, INC. a California corporation By: /s/ John Arrillaga By: /s/ Christopher Hassett John Arrillaga, Trustee CHRISTOPHER HASSETT Print or Type Name Date: 4/4/97 Title: President RICHARD T. PEERY SEPARATE PROPERTY TRUST By: /s/ Richard T. Peery Date: 4/3/97 Richard T. Peery, Trustee Date: 4/3/97 EX-10.19 10 PART-TIME EMPLOYMENT AND NON-COMPETITION AGMT EXHIBIT 10.19 POINTCAST INC. PART-TIME EMPLOYMENT AND NON-COMPETITION AGREEMENT THIS PART-TIME EMPLOYMENT AND NON-COMPETITION AGREEMENT (the "Agreement") is entered into by and between PointCast Inc. ("PointCast") and Christopher R. Hassett ("Employee") (together, the "Parties"). WHEREAS, Employee is and has been employed by PointCast as a full-time employee; and WHEREAS, Employee desires to resign from such full-time employment; and WHEREAS, the Parties have mutually agreed to (i) release each other from any claims arising from or related to the Employee's relationship with PointCast, and (ii) transition Employee into a position wherein he provides part-time employment services to PointCast; and WHEREAS, subject to the provisions hereof, PointCast desires to ensure that Employee does not compete with it or engage in certain solicitations for the period of time set forth herein; NOW, THEREFORE, in consideration of the covenants and agreements hereinafter set forth, the parties hereto agree as follows: 1. Effectiveness of Agreement. This Agreement shall be effective on the -------------------------- date signed by the Parties. Employee hereby agrees to resign from his full-time employment with PointCast and from his position as an officer of PointCast on such date hereafter as is specified by either PointCast or Employee to the other in writing (the "Employment Transition Date"). 2. Part-Time Employment; Board Membership; Duties. The Parties agree ---------------------------------------------- that Employee's continued provision of services to PointCast during the Part- Time Employment Term (as defined in Section 3 of this Agreement) shall be upon the terms and conditions set forth herein. During the Part-Time Employment Term, Employee shall be required to devote such time in rendering his services as shall be mutually agreed upon and acceptable to the Employee and to PointCast. During the Part-Time Employment Term, Employee shall be free to serve as a director, employee, consultant or advisor to any other corporation or other business enterprise without the prior written consent of PointCast so long as such activities do not interfere with his duties and obligations under this Agreement, including, without limitation, Employee's obligations under Section 7 hereof. It is understood and agreed that Employee will be considered an employee of PointCast for tax purposes and for the purposes of this Agreement and any other contracts between Employee and PointCast for the duration of the Part-Time Employment Term. However, Employee agrees that the only benefits he shall be entitled to as such an employee during the Part-Time Employment Term are those specifically set forth or referred to herein as inuring to Employee's benefit. Employee acknowledges that as such an employee during the Part-Time Employment Term, he shall not have the power to bind PointCast. As of the Effective Date, Employee accepts the position of Chairman of the Board of Directors of PointCast (the "Board"). Employee agrees to resign from the position of Chairman of the Board (but not from his position as a member of the Board) if and when asked to so resign by a successor chief executive officer of PointCast. As Chairman of the Board, Employee's duties will be principally strategic. As Chairman of the Board, Employee will not be involved in operations, and he will not have any officers or other employees reporting directly to him, unless the Board determines otherwise. 3. Part-Time Employment Term. Employee's provision of services under ------------------------- this Agreement shall commence at the Employment Transition Date. The period commencing on the Employment Transition Date and ending one year later is referred to herein as the "Part-Time Employment Term." 4. Compensation. ------------ (a) Cash Compensation. Subject to Employee not materially breaching ----------------- this Agreement, PointCast shall pay Employee $250,000 during the twelve-month Part-Time Employment Term, payable in accordance with PointCast's standard policy and timing. (b) Continued Vesting. Notwithstanding any contrary provisions of ----------------- Employee's stock purchase/option agreements and subject to Employee not willfully and materially breaching this Agreement, Employee's outstanding PointCast restricted stock and stock options shall continue to vest during the twelve-month Part-Time Employment Term. 5. Employee Benefits. Except with respect to COBRA benefits, after the ----------------- Effective Date Employee shall not be eligible to receive severance or other benefits under any of PointCast's benefit plans and Employee expressly waives any rights thereto. Employee and his spouse and/or dependents shall be entitled to group health, dental and vision continuation coverage under COBRA, at PointCast's expense during the Part-Time Employment Term, and thereafter at Employee's expense. 6. Death. In the event of Employee's death during the Part-Time ----- Employment Term, PointCast shall provide to Employee's estate the benefits specifically provided for in Section 4 hereof as if Employee had continued living. 7. Covenants Not to Compete And Solicit. ------------------------------------ (a) Covenant Not to Compete. During the Part-Time Employment Term, ----------------------- Employee will not render services in the "Restricted Business" as an employee or consultant to any business that engages in a "Restricted Business" in a "Restricted Territory" (as such terms are defined below). -2- (b) Covenant Not to Solicit. During the Part-Time Employment Term, ----------------------- Employee will not directly or indirectly: (i) solicit, encourage, or take any other action which is intended to induce any employee or independent contractor of PointCast or any affiliated corporation to terminate his or its relationship with PointCast or any affiliated corporation, or (ii) interfere in any manner with the contractual or employment relationship between PointCast or any affiliated corporation and any such employee, independent contractor or supplier of PointCast or any affiliated corporation. Notwithstanding any of the foregoing, nothing shall prohibit Employee or any business in which Employee is an employee, officer, director or shareholder from (i) soliciting and hiring persons who have resigned as employees or consultants of PointCast or (ii) soliciting and hiring employees or consultants of PointCast that either initiate the contact with Employee or the business or respond to ads for employment by Employee or the business with the intent of having such employee or consultant become engaged in or with a business whether or not the business that the employee or contractor is engaged in is the Restricted Business. (c) Restricted Business. "Restricted Business" means a business which ------------------- generates revenue through subscription or advertising delivered against news via the internet or corporate intranets; provided, however, that a "Restricted Business" shall not include a business that the Board does not reasonably believe to be in competition with PointCast. (d) Restricted Territory. "Restricted Territory" means each county in -------------------- the State of California, each State in the United States and each country in the world. (e) Representations. The Parties intend that the covenants contained --------------- in Sections 7(a) and (b) shall be construed as a series of separate covenants, one for each county, city, state, territory, jurisdiction, country or analogous entity of the Restricted Territory. Except for geographic coverage, each such separate covenant shall be deemed identical. Employee represents that he (i) is familiar with the covenants not to compete and not to solicit contained herein, and (ii) is fully aware of his obligations thereunder, including, without limitation, the reasonableness of the length of time, scope and geographic coverage of these covenants. (f) Termination. Employee's obligations under this Section 7 shall ----------- terminate upon a "change of control" of PointCast. For purposes of this Agreement a "change of control" shall be (a) a dissolution or liquidation of PointCast, (b) a merger or consolidation of PointCast in which the shareholders of PointCast immediately prior to such merger or consolidation do not own a majority of the voting power of the surviving corporation or its parent immediately after the merger or consolidation, or (c) the sale of substantially all of the assets of PointCast, or (d) any -3- other corporate transaction, business combination or tender offer in which more than 50% of the voting power of PointCast is sold or transferred. 8. Non-Disparagement. Each Party agrees to refrain from any ----------------- disparagement, criticism, defamation, slander of the other, or tortious interference with the contracts and relationships of the other. 9. Mutual Release of Claims. ------------------------ (a) Except as set forth in Section 9(b), Employee and PointCast, on behalf of themselves, and their respective heirs, executors, officers, directors, employees, investors, shareholders, administrators, predecessor and successor corporations, and assigns, hereby fully and forever release each other and their respective heirs, executors, officers, directors, employees, investors, shareholders, administrators, predecessor and successor corporations, and assigns, of and from any claim, duty, obligation or cause of action relating to any matters of any kind, whether presently known or unknown, suspected or unsuspected, that any of them may possess arising from any omissions, acts or facts that have occurred up until and including the Employment Transition Date, including, but not limited to (i) any and all claims relating to or arising from or relating to Employee's relationship with PointCast as an officer, director or employee and the termination of that relationship; (ii) any and all claims relating to, or arising from, Employee's right to purchase, or actual purchase of shares of stock of PointCast; (iii) any and all claims for or relating to wrongful discharge of employment; breach of contract or breach or failure to perform duties or obligations as an employee, officer or director, both express and implied; breach of a covenant of good faith and fair dealing, both express and implied; negligent or intentional infliction of emotional distress; negligent or intentional misrepresentation; negligent or intentional interference with contract or prospective economic advantage; and defamation; (iv) any and all claims for violation of any federal, state or municipal statute, including, but not limited to, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Age Discrimination in Employment Act of 1967, the Americans with Disabilities Act of 1990, and the California Fair Employment and Housing Act; (v) any and all claims arising out of any other laws and regulations relating to employment or employment discrimination; and (vi) any and all claims for attorneys' fees and costs. -4- PointCast and Employee agree that the release set forth in this section shall be and remain in effect in all respects as a complete general release as to the matters released. (b) This release does not extend to or release any obligations incurred under or with respect to (i) this Agreement, (ii) Employee's rights to stock and stock options currently issued to Employee and Employee's right to continue to vest to stock or stock options as contemplated herein and in such stock or stock option agreements, and (iii) the Amended and Restated Investor Rights Agreement dated July 19, 1996. 10. Arbitration and Equitable Relief. -------------------------------- (a) The Parties agree that any dispute or controversy arising out of, relating to, or in connection with this Agreement, or the interpretation, validity, construction, performance, breach, or termination thereof shall be settled by arbitration to be held in Santa Clara County, California, in accordance with the National Rules for the Resolution of Employment Disputes then in effect of the American Arbitration Association (the "Rules"). The arbitrator may grant injunctions or other relief in such dispute or controversy. The decision of the arbitrator shall be final, conclusive and binding on the parties to the arbitration. Judgment may be entered on the arbitrator's decision in any court having jurisdiction. (b) The arbitrator shall apply California law to the merits of any dispute or claim, without reference to rules of conflict of law. The arbitration proceedings shall be governed by federal arbitration law and by the Rules, without reference to state arbitration law. The parties hereto hereby expressly consent to the personal jurisdiction of the state and federal courts located in California for any action or proceeding arising from or relating to this Agreement and/or relating to any arbitration in which the parties are participants. (c) PointCast and Employee shall each pay one-half of the costs and expenses of such arbitration, and shall separately pay its counsel fees and expenses. (d) THE PARTIES HERETO HAVE READ AND UNDERSTAND SECTION 10, WHICH DISCUSSES ARBITRATION. THE PARTIES HERETO UNDERSTAND THAT BY SIGNING THIS AGREEMENT, THEY AGREE TO SUBMIT ANY FUTURE CLAIMS ARISING OUT OF, RELATING TO, OR IN CONNECTION WITH THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE, BREACH, OR TERMINATION THEREOF TO BINDING ARBITRATION, AND THAT THIS ARBITRATION CLAUSE CONSTITUTES A WAIVER OF THEIR RIGHT TO A JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THE EMPLOYER/EMPLOYEE RELATIONSHIP, INCLUDING BUT NOT LIMITED TO, THE FOLLOWING CLAIMS: -5- (i) ANY AND ALL CLAIMS FOR WRONGFUL DISCHARGE OF EMPLOYMENT; BREACH OF CONTRACT OR BREACH OR FAILURE TO PERFORM DUTIES OR OBLIGATIONS AS AN EMPLOYEE, OFFICER OF DIRECTOR, BOTH EXPRESS AND IMPLIED; BREACH OF THE COVENANT OF GOOD FAITH AND FAIR DEALING, BOTH EXPRESS AND IMPLIED; NEGLIGENT OR INTENTIONAL INFLICTION OF EMOTIONAL DISTRESS; NEGLIGENT OR INTENTIONAL MISREPRESENTATION; NEGLIGENT OR INTENTIONAL INTERFERENCE WITH CONTRACT OR PROSPECTIVE ECONOMIC ADVANTAGE; AND DEFAMATION. (ii) ANY AND ALL CLAIMS FOR VIOLATION OF ANY FEDERAL STATE OR MUNICIPAL STATUTE, INCLUDING, BUT NOT LIMITED TO, TITLE VII OF THE CIVIL RIGHTS ACT OF 1964, THE CIVIL RIGHTS ACT OF 1991, THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967, THE AMERICANS WITH DISABILITIES ACT OF 1990, THE FAIR LABOR STANDARDS ACT, THE CALIFORNIA FAIR EMPLOYMENT AND HOUSING ACT, AND LABOR CODE SECTION 201, et seq; (iii) ANY AND ALL CLAIMS ARISING OUT OF ANY OTHER LAWS AND REGULATIONS RELATING TO EMPLOYMENT OR EMPLOYMENT DISCRIMINATION. 11. No Other Payments Due. PointCast agrees to pay Employee on or before --------------------- the Employment Transition Date all salary and expense reimbursements as may then be due Employee. Employee will execute an acknowledgment of receipt of all such payments as received. 12. Civil Code Section 1542. The Parties represent that they are not ----------------------- aware of any claim by either of them other than the claims that are released by this Agreement. Employee and PointCast acknowledge that they have been advised by legal counsel and are familiar with the provisions of California Civil Code Section 1542, which provides as follows: A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR. Employee and PointCast, being aware of said code section, agree to expressly waive any rights they may have thereunder, as well as under any other statute or common law principles of similar effect. 13. Notices. Any notice required or permitted under this Agreement shall ------- be given in writing and shall be deemed to have been effectively made or given if personally delivered, or if sent by facsimile, or mailed to the other party at its address set forth below in this Section 13, or at such other address as such party may designate by written notice to the other party hereto. Any -6- effective notice hereunder shall be deemed given on the date personally delivered or on the date sent by facsimile or deposited in the United States mail (sent by certified mail, return receipt requested), as the case may be, at the following addresses: -7- (i) If to PointCast: PointCast Inc. 2475 Augustine, Suite 101 Santa Clara, CA 95054 Att.: Chief Financial Officer ---- (ii) If to Employee: Christopher Hassett 21518 Saratoga Heights Drive Saratoga, CA 95070 14. Severability. If any term or provision of this Agreement shall to any ------------ extent be declared illegal or unenforceable by an arbitrator or a duly authorized court of competent jurisdiction, then the remainder of this Agreement or the application of such term or provision in circumstances other than those as to which it is so declared illegal or unenforceable, shall not be affected thereby, each term and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law and the illegal or unenforceable term or provision shall be deemed replaced by a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term of provision. 15. Entire Agreement. This Agreement, the Proprietary Information ---------------- Agreement (subject to the provisions of this Agreement which address the subject matters covered by Section 7, which provision supersedes any provisions in the Proprietary Information Agreement that address similar matters) entered into by and between Employee and PointCast and the written agreements referenced herein represent the entire agreement of the parties with respect to the matters set forth herein, and supersedes all such previous contracts, arrangements or understandings between PointCast and Employee with respect to the subject matter hereof. The Agreement may be amended at any time only by mutual written agreement of the parties hereto. 16. Successors. This Agreement shall be binding upon and inure to the ---------- benefit of, and shall be enforceable by Employee, PointCast, their respective heirs, executors, administrators and assigns. Subject to the provisions of 7(f) hereof, in the event PointCast is merged, consolidated, liquidated by a parent corporation, or otherwise combined into one or more corporations, the provisions of this Agreement shall be binding upon and inure to the benefit of the parent corporation or the corporation resulting from such merger or to which the asset shall be sold or transferred, which corporation from and after the date of such merger, consolidation, sale or transfer shall be deemed to be PointCast for purposes of this Agreement. In the event of any other assignment of this Agreement by PointCast, by operation of law or otherwise, PointCast shall remain primarily liable for its obligations hereunder. This Agreement shall not be assignable by Employee. -8- 17. Headings. The headings of sections herein are included solely for -------- convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement. 18. Counterparts. This Agreement may be executed by either of the parties ------------ hereto in counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of June ___, 1997. POINTCAST INC. ____________________________ Andrew Rachleff EMPLOYEE ____________________________ Christopher R. Hassett -9- EX-10.20 11 AGREEMENT BETWEEN REGISTRANT & GREGORY P. HASSET EXHIBIT 10.20 POINTCAST INC. PART-TIME EMPLOYMENT AND NON-COMPETITION AGREEMENT THIS PART-TIME EMPLOYMENT AND NON-COMPETITION AGREEMENT (the "Agreement") is entered into by and between PointCast Inc. ("PointCast") and Gregory P. Hassett ("Employee") (together, the "Parties"). WHEREAS, Employee is and has been employed by PointCast as a full-time employee; and WHEREAS, the Parties desire to enter into an agreement covering the future termination of such employment, if any; and WHEREAS, the Parties have mutually agreed to, in the event of any future termination of Employee's employment, (i) release each other from any claims arising from or related to the full-time employment relationship, and (ii) transition Employee into a position wherein he provides part-time employment services to PointCast; and WHEREAS PointCast desires to ensure that Employee does not compete with it or engage in certain solicitations for the period of time set forth herein; NOW, THEREFORE, in consideration of the covenants and agreements hereinafter set forth, the parties hereto agree as follows: 1. Effectiveness of Agreement. This Agreement shall be effective on the -------------------------- date signed by the Parties, and shall govern the Employee's provision of services to PointCast as of the date, if any, upon which his full-time employment with PointCast terminates (the "Employment Transition Date"). 2. Part-Time Employment; Board Membership; Duties. The Parties agree ---------------------------------------------- that Employee's continued provision of services to PointCast during the Part- Time Employment Term (as defined in Section 3 of this Agreement) shall be upon the terms and conditions set forth herein. During the Part-Time Employment Term, Employee shall be required to devote such time in rendering his services as shall be mutually agreed upon and acceptable to the Employee and to PointCast. During the Part-Time Employment Term, Employee shall be free to serve as a director, employee, consultant or advisor to any other corporation or other business enterprise without the prior written consent of PointCast so long as such activities do not interfere with his duties and obligations under this Agreement, including, without limitation, Employee's obligations under Section 7 hereof. It is understood and agreed that Employee will be considered an employee of PointCast for tax purposes and for the purposes of this Agreement and any other contracts between Employee and PointCast for the duration of the Part-Time Employment Term. However, Employee agrees that the only benefits he shall be entitled to as such an employee are those specifically set forth or referred to herein as inuring to Employee's benefit. Employee acknowledges that as such an employee he shall not have the power to bind PointCast. 3. Part-Time Employment Term. Employee's provision of services under ------------------------- this Agreement shall commence at the Employment Transition Date. The period commencing on the Employment Transition Date and ending one year later is referred to herein as the "Part-Time Employment Term." 4. Compensation. ------------ (a) Cash Compensation. Subject to Employee not materially breaching ----------------- this Agreement, PointCast shall pay Employee $150,000 during the twelve-month Part-Time Employment Term, payable in accordance with PointCast's standard policy and timing. (b) Continued Vesting. Notwithstanding any contrary provisions of ----------------- Employee's stock purchase/option agreements and subject to Employee not willfully and materially breaching this Agreement, Employee's outstanding PointCast stock options and PointCast restricted stock shall continue to vest during the twelve-month Part-Time Employment Term. 5. Employee Benefits. As of the Employment Transition Date, except with ----------------- respect to COBRA benefits, Employee shall not be eligible to receive severance or other benefits under any of PointCast's benefit plans and Employee expressly waives any rights thereto. Employee and his spouse and/or dependents shall be entitled to group health, dental and vision continuation coverage under COBRA, at PointCast's expense during the Part-Time Employment Term, and thereafter at Employee's expense. 6. Death. In the event of Employee's death during the Part-Time ----- Employment Term, PointCast shall provide to Employee's estate the benefits specifically provided for in Section 4 hereof as if Employee had continued living. 7. Covenants Not to Compete And Solicit. ------------------------------------ (a) Covenant Not to Compete. During the Part-Time Employment Term, ----------------------- Employee will not render services in the "Restricted Business" as an employee or consultant to any business that engages in a "Restricted Business" in a "Restricted Territory" (as such terms are defined below). (b) Covenant Not to Solicit. During the Part-Time Employment Term, ----------------------- Employee will not directly or indirectly: -2- (i) solicit, encourage, or take any other action which is intended to induce any employee or independent contractor of PointCast or any affiliated corporation to terminate his or its relationship with PointCast or any affiliated corporation, or (ii) interfere in any manner with the contractual or employment relationship between PointCast or any affiliated corporation and any such employee, independent contractor or supplier of PointCast or any affiliated corporation. Notwithstanding any of the foregoing, nothing shall prohibit Employee or any business in which Employee is an employee, officer, director or shareholder from (i) soliciting and hiring persons who have resigned as employees or consultants of PointCast or (ii) soliciting and hiring employees or consultants of PointCast that either initiate the contact with Employee or the business or respond to ads for employment by Employee or the business with the intent of having such employee or consultant become engaged in or with a business whether or not the business that the employee or contractor is engaged in is the Restricted Business. (c) Restricted Business. "Restricted Business" means a business ------------------- which generates revenue through subscription or advertising delivered against news via the internet or corporate intranets; provided, however, that a "Restricted Business" shall not include a business that the Board does not reasonably believe to be in competition with PointCast. (d) Restricted Territory. "Restricted Territory" means each county in -------------------- the State of California, each State in the United States and each country in the world. (e) Representations. The Parties intend that the covenants contained --------------- in Sections 7(a) and (b) shall be construed as a series of separate covenants, one for each county, city, state, territory, jurisdiction, country or analogous entity of the Restricted Territory. Except for geographic coverage, each such separate covenant shall be deemed identical. Employee represents that he (i) is familiar with the covenants not to compete and not to solicit contained herein, and (ii) is fully aware of his obligations thereunder, including, without limitation, the reasonableness of the length of time, scope and geographic coverage of these covenants. (f) Termination. Employee's obligations under this Section 7 shall ----------- terminate upon a "change of control" of PointCast. For purposes of this Agreement a "change of control" shall be (a) a dissolution or liquidation of PointCast, (b) a merger or consolidation of PointCast in which the shareholders of PointCast immediately prior to such merger or consolidation do not own a majority of the voting power of the surviving corporation or its parent immediately after the merger or consolidation, or (c) the sale of substantially all of the assets of PointCast, or (d) any other corporate transaction, business combination or tender offer in which more than 50% of the voting power of PointCast is sold or transferred. -3- 8. Non-Disparagement. Each Party agrees to refrain from any ----------------- disparagement, criticism, defamation, slander of the other, or tortious interference with the contracts and relationships of the other. 9. Mutual Release of Claims. ------------------------ (a) Except as set forth in Section 9(b), Employee and PointCast, on behalf of themselves, and their respective heirs, executors, officers, directors, employees, investors, shareholders, administrators, predecessor and successor corporations, and assigns, hereby fully and forever release each other and their respective heirs, executors, officers, directors, employees, investors, shareholders, administrators, predecessor and successor corporations, and assigns, of and from any claim, duty, obligation or cause of action relating to any matters of any kind, whether presently known or unknown, suspected or unsuspected, that any of them may possess arising from any omissions, acts or facts that have occurred up until and including the Employment Transition Date, including, but not limited to, (i) any and all claims relating to or arising from Employee's full-time employment relationship with PointCast and the termination of that relationship; (ii) any and all claims relating to, or arising from, Employee's right to purchase, or actual purchase of shares of stock of PointCast; (iii) any and all claims for or relating to wrongful discharge of employment; breach of contract, or breach or failure to perform duties or obligations as an employee, officer or director both express and implied; breach of a covenant of good faith and fair dealing, both express and implied; negligent or intentional infliction of emotional distress; negligent or intentional misrepresentation; negligent or intentional interference with contract or prospective economic advantage; and defamation; (iv) any and all claims for violation of any federal, state or municipal statute, including, but not limited to, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Age Discrimination in Employment Act of 1967, the Americans with Disabilities Act of 1990, and the California Fair Employment and Housing Act; (v) any and all claims arising out of any other laws and regulations relating to employment or employment discrimination; and (vi) any and all claims for attorneys' fees and costs. -4- PointCast and Employee agree that the release set forth in this section shall be and remain in effect in all respects as a complete general release as to the matters released. The Parties agree to re-execute this Agreement as of the Employment Transition Date in order to facilitate this release of claims. (b) This release does not extend to or release any obligations incurred under or with respect to (i) this Agreement, (ii) Employee's rights to stock and stock options currently issued to Employee and Employee's right to continue to vest to stock or stock options as contemplated herein and in such stock or stock option agreements, and (iii) the Amended and Restated Investor Rights Agreement dated July 19, 1996. 10. Arbitration and Equitable Relief. -------------------------------- (a) The Parties agree that any dispute or controversy arising out of, relating to, or in connection with this Agreement, or the interpretation, validity, construction, performance, breach, or termination thereof shall be settled by arbitration to be held in Santa Clara County, California, in accordance with the National Rules for the Resolution of Employment Disputes then in effect of the American Arbitration Association (the "Rules"). The arbitrator may grant injunctions or other relief in such dispute or controversy. The decision of the arbitrator shall be final, conclusive and binding on the parties to the arbitration. Judgment may be entered on the arbitrator's decision in any court having jurisdiction. (b) The arbitrator shall apply California law to the merits of any dispute or claim, without reference to rules of conflict of law. The arbitration proceedings shall be governed by federal arbitration law and by the Rules, without reference to state arbitration law. The parties hereto hereby expressly consent to the personal jurisdiction of the state and federal courts located in California for any action or proceeding arising from or relating to this Agreement and/or relating to any arbitration in which the parties are participants. (c) and expenses of such arbitration, and shall separately pay its counsel fees and expenses. (d) THE PARTIES HERETO HAVE READ AND UNDERSTAND SECTION 10, WHICH DISCUSSES ARBITRATION. THE PARTIES HERETO UNDERSTAND THAT BY SIGNING THIS AGREEMENT, THEY AGREE TO SUBMIT ANY FUTURE CLAIMS ARISING OUT OF, RELATING TO, OR IN CONNECTION WITH THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE, BREACH, OR TERMINATION THEREOF TO BINDING ARBITRATION, AND THAT THIS ARBITRATION CLAUSE CONSTITUTES A WAIVER OF THEIR RIGHT TO A JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THE EMPLOYER/EMPLOYEE RELATIONSHIP, INCLUDING BUT NOT LIMITED TO, THE FOLLOWING CLAIMS: -5- (i) ANY AND ALL CLAIMS FOR WRONGFUL DISCHARGE OF EMPLOYMENT; BREACH OF CONTRACT, OR BREACH OR FAILURE TO PERFORM DUTIES OR OBLIGATIONS AS AN EMPLOYEE, OFFICER OF DIRECTOR, BOTH EXPRESS AND IMPLIED; BREACH OF THE COVENANT OF GOOD FAITH AND FAIR DEALING, BOTH EXPRESS AND IMPLIED; NEGLIGENT OR INTENTIONAL INFLICTION OF EMOTIONAL DISTRESS; NEGLIGENT OR INTENTIONAL MISREPRESENTATION; NEGLIGENT OR INTENTIONAL INTERFERENCE WITH CONTRACT OR PROSPECTIVE ECONOMIC ADVANTAGE; AND DEFAMATION. (ii) ANY AND ALL CLAIMS FOR VIOLATION OF ANY FEDERAL STATE OR MUNICIPAL STATUTE, INCLUDING, BUT NOT LIMITED TO, TITLE VII OF THE CIVIL RIGHTS ACT OF 1964, THE CIVIL RIGHTS ACT OF 1991, THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967, THE AMERICANS WITH DISABILITIES ACT OF 1990, THE FAIR LABOR STANDARDS ACT, THE CALIFORNIA FAIR EMPLOYMENT AND HOUSING ACT, AND LABOR CODE SECTION 201, et seq; (iii) ANY AND ALL CLAIMS ARISING OUT OF ANY OTHER LAWS AND REGULATIONS RELATING TO EMPLOYMENT OR EMPLOYMENT DISCRIMINATION. 11. No Other Payments Due. PointCast agrees to pay Employee on or before --------------------- the Employment Transition Date all salary and expense reimbursements as may then be due Employee. Employee will execute an acknowledgment of receipt of all such payments as received. 12. Civil Code Section 1542. The Parties represent that they are not ----------------------- aware of any claim by either of them other than the claims that are released by this Agreement. Employee and PointCast acknowledge that they have been advised by legal counsel and are familiar with the provisions of California Civil Code Section 1542, which provides as follows: A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR. Employee and PointCast, being aware of said code section, agree to expressly waive any rights they may have thereunder, as well as under any other statute or common law principles of similar effect. 13. Notices. Any notice required or permitted under this Agreement shall ------- be given in writing and shall be deemed to have been effectively made or given if personally delivered, or if sent by facsimile, or mailed to the other party at its address set forth below in this Section 13, or -6- at such other address as such party may designate by written notice to the other party hereto. Any effective notice hereunder shall be deemed given on the date personally delivered or on the date sent by facsimile or deposited in the United States mail (sent by certified mail, return receipt requested), as the case may be, at the following addresses: (i) If to PointCast: PointCast Inc. 2475 Augustine, Suite 101 Santa Clara, CA 95054 Att.: Chief Financial Officer ---- (ii) If to Employee: Gregory P. Hassett ___________________ ___________________ 14. Severability. If any term or provision of this Agreement shall ------------ to any extent be declared illegal or unenforceable by an arbitrator or a duly authorized court of competent jurisdiction, then the remainder of this Agreement or the application of such term or provision in circumstances other than those as to which it is so declared illegal or unenforceable, shall not be affected thereby, each term and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law and the illegal or unenforceable term or provision shall be deemed replaced by a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term of provision. 15. Entire Agreement. This Agreement, the Proprietary Information ---------------- Agreement (subject to the provisions of this Agreement which address the subject matters covered by Section 7, which provision supersedes any provisions in the Proprietary Information Agreement that address similar matters) entered into by and between Employee and PointCast and the written agreements referenced herein represent the entire agreement of the parties with respect to the matters set forth herein, and supersedes all such previous contracts, arrangements or understandings between PointCast and Employee with respect to the subject matter hereof. The Agreement may be amended at any time only by mutual written agreement of the parties hereto. 16. Successors. This Agreement shall be binding upon and inure to the ---------- benefit of, and shall be enforceable by Employee, PointCast, their respective heirs, executors, administrators and assigns. Subject to the provisions of 7(f) hereof, in the event PointCast is merged, consolidated, liquidated by a parent corporation, or otherwise combined into one or more corporations, the provisions of this Agreement shall be binding upon and inure to the benefit of the parent corporation or the corporation resulting from such merger or to which the asset shall be sold or transferred, which corporation from and after the date of such merger, consolidation, sale or -7- transfer shall be deemed to be PointCast for purposes of this Agreement. In the event of any other assignment of this Agreement by PointCast, by operation of law or otherwise, PointCast shall remain primarily liable for its obligations hereunder. This Agreement shall not be assignable by Employee. 17. Headings. The headings of sections herein are included solely for -------- convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement. 18. Counterparts. This Agreement may be executed by either of the parties ------------ hereto in counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of June ____, 1997. POINTCAST INC. __________________________________ Andrew Rachleff __________________________________ Re-Execution Signature __________________________________ Re-Execution Date EMPLOYEE __________________________________ Gregory P. Hassett __________________________________ Re-Execution Signature __________________________________ Re-Execution Date -8- EX-16.1 12 LETTER OF ARTHUR ANDERSEN LLP, INDEPENDENT AUDITORS EXHIBIT 16.1 [LETTERHEAD OF ARTHUR ANDERSEN] May 12, 1998 Securities and Exchange Commission 450 Fifth Street Washington, D.C. 20549 Dear Ladies and Gentlemen: We have read the section entitled "Change in Accountants" included in the attached Form S-1 dated May 14, 1998 of PointCast Incorporated to be filed with the Securities and Exchange Commission and are in agreement with the statements contained therein. Very truly yours, /s/ Arthur Andersen LLP ARTHUR ANDERSEN LLP San Jose, California EX-21.1 13 SUBSIDIARIES Exhibit 21.1 Subsidiaries Name: Jurisdiction of Incorporation - ----- ----------------------------- PointCast Japan, L.L.C. Delaware EX-27.1 14 FINANCIAL DATA SCHEDULE
5 YEAR 3-MOS DEC-31-1997 DEC-31-1998 JAN-01-1997 JAN-01-1998 DEC-31-1997 MAR-31-1998 10,282,000 16,531,000 12,438,000 2,535,000 4,266,000 3,253,000 604,000 630,000 0 0 27,858,000 23,533,000 7,438,000 7,025,000 3,682,000 4,513,000 37,427,000 32,800,000 13,682,000 14,290,000 0 0 69,785,000 72,240,000 0 0 2,310,000 2,390,000 (4,353,000) (3,723,000) 37,427,000 32,800,000 17,993,000 5,106,000 17,993,000 5,106,000 7,398,000 2,527,000 40,528,000 9,189,000 0 0 0 0 (277,000) (110,000) (29,111,000) (6,395,000) 0 0 0 0 0 0 0 0 0 0 (29,111,000) (6,395,000) (6.38) (1.16) (6.38) (1.16)
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