-----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, IP1nrIjn72zmVV563KZn0iyFYOG7d2czQnBBOu2UbavSBmKNyprCGCRqTomDNtaP VoAcidkWstSJACKs734Edg== 0000927016-01-001148.txt : 20010307 0000927016-01-001148.hdr.sgml : 20010307 ACCESSION NUMBER: 0000927016-01-001148 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 20010301 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEACHANGE INTERNATIONAL INC CENTRAL INDEX KEY: 0001019671 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 043197974 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-56410 FILM NUMBER: 1559642 BUSINESS ADDRESS: STREET 1: 124 ACTON ST STREET 2: 2ND FLOOR CITY: MAYNARD STATE: MA ZIP: 01754 BUSINESS PHONE: 9788970100 MAIL ADDRESS: STREET 1: 124 ACTON ST STREET 2: SECOND FLOOR CITY: MAYNARD STATE: MA ZIP: 01754 S-1 1 0001.txt FORM S-1 As filed with the Securities and Exchange Commission on March 1, 2001 Registration No. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 --------------- FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------- SeaChange International, Inc. (Exact Name of Registrant as Specified in Its Charter) Delaware 3663 04-3197974 (State or Other Jurisdiction of (Primary Standard Industrial (IRS Employer Incorporation or Organization) Classification Code Number) Identification No.)
124 Acton Street, Maynard, MA 01754, (978) 897-0100 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) William C. Styslinger, III Chairman, President and Chief Executive Officer SeaChange International, Inc. 124 Acton Street Maynard, MA 01754 (978) 897-0100 (Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service) --------------- Copy to: William B. Simmons, Jr., Esq. TESTA, HURWITZ & THIBEAULT, LLP 125 High Street Boston, Massachusetts 02110 (617) 248-7000 --------------- Approximate date of commencement of proposed sale to the public: From time to time after the effective date of this Registration Statement as determined by market conditions and other factors. 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, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] --------------- CALCULATION OF REGISTRATION FEE - ------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------
Proposed Proposed Maximum Amount Maximum Aggregate Amount of Title of each Class of to be Offering Price Offering Registration Shares to be Registered Registered Per Share(1) Price(1) Fee(2) - ------------------------------------------------------------------------------------ Common Stock, $.01 par value................. 756,144 shares $14.375 $10,869,570.00 $2,717.40 - ------------------------------------------------------------------------------------ Common Stock, $.01 par value (upon exercise of a warrant).............. 100,000 shares $14.375 $ 1,437,500.00 $ 359.38 - ------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------
(1) Estimated solely for purposes of calculating the registration fee pursuant to Rule 457 under the Securities Act of 1933. (2) Pursuant to Rule 457(c) of the Securities Act of 1933, the registration fee has been calculated based upon the average of the high and low prices per share of the Common Stock of SeaChange International, Inc. (the "Company") on the Nasdaq National Market on February 27, 2001. --------------- The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +The information in this prospectus is not complete and may be changed. We may + +not sell these securities until the registration statement filed with the + +Securities and Exchange Commission is effective. This prospectus is not an + +offer to sell these securities and it is not soliciting an offer to buy these + +securities in any state where the offer or sale is not permitted. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION DATED MARCH 1, 2001 PROSPECTUS 856,144 SHARES SEACHANGE INTERNATIONAL, INC. COMMON STOCK ----------- This prospectus is part of a registration statement that covers 856,144 shares of our common stock held by Comcast SC Investment, Inc., a wholly-owned subsidiary of Comcast Corporation, or which may be acquired by it upon the exercise of a warrant held by it. The shares may be offered and sold from time to time by Comcast SC. We will receive no proceeds from the sale of the shares. Our shares are traded on the Nasdaq National Market under the symbol "SEAC." On February 27, 2001, the last reported sale price of our common stock on the Nasdaq National Market was $14.375 per share. ----------- Investing in the common stock involves risks. See "Risk Factors" beginning on page 5. ----------- The Securities and Exchange Commission and state securities regulators have not approved or disapproved of these securities, or determined if this prospectus is truthful or complete. It is illegal for any person to tell you otherwise. ----------- The date of this Prospectus is , 2001. SEACHANGE INTERNATIONAL We develop, manufacture and sell systems, known as video storage servers, that automate the management and distribution of both short-form video streams, such as advertisements, and long-form video streams, such as movies or other feature presentations, each of which requires precise, accurate and continuous execution, to television operators, telecommunications companies and broadcast television companies. Our systems utilize both standard industry components and our embedded proprietary software that performs the specific functions of information processing such as order processing, invoicing and other similar functions. Our digital video systems with their state-of-the-art electronic storage and retrieval capabilities are designed to provide a higher image quality and to be more reliable, easier to use and less expensive than analog tape-based systems that are based on transmission of a continuous electronic signal that may vary in both frequency and amplitude. We believe that by automating the management and distribution process our systems help our customers reduce their ongoing operating costs while simultaneously allowing our customers to increase revenues by offering more targeted services such as local advertising segments, known as geography-specific spot advertising, inserted into cable programming; movies, known as video-on-demand movies, that the subscriber is able to watch at any time with pause, rewind and fast forward features; and other services, known as interactive television services, that allow consumers to customize and/or interact with their television viewing experience in a manner similar to that of using a personal computer. In our broadband or high bandwidth network or facility business systems segment, we have one existing movie product and two video-on-demand products for the interactive television markets. Our Movie System product provides long- form video storage and delivery for the pay-per-view movie markets. Our GuestServe System product delivers video-on-demand and other guest services, Internet access and personal computer games in a hotel environment for cable television and telecommunications companies. Our ITV System product provides residential video on demand or interactive television system services, including accessing movies and other programs, purchasing products and retrieving Internet content through the television, to digitally manage, store and distribute digital video for cable television operators and telecommunications companies. Starting in 1998, the market for our ITV System expanded when we entered into agreements with several cable companies to provide our ITV System for demonstration and testing of their video-on-demand systems and in 2000, several of these cable operators began deploying our ITV System. We also have agreements with leading producers of digital set-top boxes, including Scientific-Atlanta, Motorola and Sony Corporation to test and integrate their products with our ITV System. In addition to our video on demand systems, our broadband system business segment includes our SPOT System product, which, based on currently available industry sources and our internal data, is the leading system in the United States for the transmission of video content, known as a video insertion system, in the multichannel television market for digital advertisement and other short-form video. Our SPOT System converts analog video forms such as advertisements and news updates to digital video forms, stores the digital video forms in remote or local storage devices, known as digital libraries, and inserts them automatically into television network streams. The SPOT System provides both high accuracy relative to the volume of video being played and high video image quality, permits geographic and demographic specificity of advertisements and we believe reduces operating costs by automating the management and distribution process. Our Advertising Management Software product operates in conjunction with our SPOT System to automate and simplify complex sales, scheduling and billing processes for the multichannel television market. A majority of our customers for these products consist of major cable television operators and telecommunications companies in the United States. In our broadcast or cable network systems business segment, our Broadcast MediaCluster product offers call letter stations, such as KSTP-Saint Paul, the ability to directly transmit content, such as commercials and syndicated or other programming for broadcast television companies, to their viewers. Today, the technology utilized by broadcasters is going through a transition away from analog tape libraries to digital server based storage of content. We believe that our broadcast Mediacluster system will eliminate the need for 2 analog tape libraries and will provide broadcasters the automated storage and playback features that they require. Since 1998, we have installed broadcast systems at customer locations including network affiliates and multi-channel operations in the United States, Europe and the Far East. Nevertheless, we face significant challenges in our business, as the market in which we operate is intensely competitive and still emerging, meaning that the success of our business is contingent upon the widespread marketplace acceptance of our products and the technology on which they are based. Currently, we have a certain limited number of customers that each account for more than ten percent of our revenues and we also have sole raw material supplier relationships with several of our vendors. Each of these factors, along with the challenges inherent in managing our growth, could limit our ability to grow and succeed in accordance with our business plan. We were incorporated in Delaware in July 1993. Our principal executive offices are located at 124 Acton Street, Maynard, Massachusetts 01754, and our telephone number is (978) 897-0100. Our web site is located at www.schange.com. The information contained on our web site is not incorporated by reference into this document and should not be considered a part of this prospectus. Our web site address is included in this document as an inactive textual reference only. 3 WHERE YOU CAN FIND MORE INFORMATION We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and accordingly file reports, proxy statements and other information with the Securities and Exchange Commission. Reports, proxy statements and other information filed by SeaChange International may be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. Our common stock is traded on the Nasdaq National Market. Reports, proxy statements and other information concerning SeaChange International may be inspected at the offices of the National Association of Securities Dealers, Inc. located at 1735 K Street, N.W., Washington, D.C. 20006. We have filed with the Securities and Exchange Commission a registration statement on Form S-1 under the Securities Act of 1933, as amended, with respect to the shares of our common stock offered hereby. This prospectus does not contain all information set forth in the registration statement, certain parts of which are omitted in accordance with the rules and regulations of the Securities and Exchange Commission. For further information regarding us and the shares of our common stock offered hereby, we refer you to the registration statement and to the exhibits and schedules filed with it. Statements contained in this prospectus regarding the contents of any agreement or other document filed as an exhibit to the registration statement are necessarily summaries of those documents, and in each instance we refer you to the copy of that document filed as an exhibit to the registration statement for a more complete description of the matters involved. The registration statement, including the exhibits and schedules thereto, may be inspected at the public reference facilities maintained by the Securities and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and copies of all or any part thereof may be obtained from that office upon payment of the prescribed fees. In addition, the Securities and Exchange Commission maintains a web site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Securities and Exchange Commission. We will provide without charge to each person who is delivered a prospectus, on written or oral request, a copy of any or all of the documents incorporated by reference in this document (other than exhibits to those documents unless those exhibits are specifically incorporated by reference into those documents). Requests for copies should be directed to Investor Relations, SeaChange International, Inc., 124 Acton Street, Maynard, Massachusetts 01754, Telephone: (978) 897-0100. 4 RISK FACTORS You should carefully consider the following risks before investing in our common stock. If any of the following risks come to fruition, our business, results of operations or financial condition could be materially adversely affected. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment. You should also refer to the other information set forth in this prospectus, including our financial statements and the accompanying notes. If we are unable to manage our growth and the related expansion in our operations effectively, our business may be harmed through a decreased ability to monitor and control effectively our operations, and a decrease in the quality of work and innovation of our employees. Our ability to successfully offer products and services and implement our business plan in a rapidly evolving market requires effective planning and management. Not only are we growing in size, but we are also continuing to transition towards greater reliance on our video-on-demand products for an increased portion of our revenue. Our growth has placed, and our anticipated future operations will continue to place, a significant strain on our management, administrative, operational and other resources. To manage future growth effectively, we must continue to improve our management and operational controls, enhance our reporting systems and procedures, integrate new personnel and manage expanded operations. A failure to manage our growth may harm our business through a decreased ability to monitor and control effectively our operations, and a decrease in the quality of work and innovation of our employees upon which our business is dependent. We may not be able to hire and retain highly skilled employees, particularly managerial, engineering, selling and marketing, finance and manufacturing personnel, which could affect our ability to compete effectively because our business is technology-based and there is a shortage of these employees within the New England area. Our success depends to a significant degree upon the continued contributions of our key management, engineering, selling and marketing and manufacturing personnel, many of whom would be difficult to replace given the shortage within the New England area of qualified persons for these positions. We do not have employment contracts with our key personnel. We believe that our future success will also depend in large part upon our ability to attract and retain highly skilled managerial, engineering, selling and marketing, finance and manufacturing personnel, as our business is technology-based. Because competition for these personnel is intense, we may not be able to attract and retain qualified personnel in the future. The loss of the services of any of the key personnel, the inability to attract or retain qualified personnel in the future or delays in hiring required personnel, particularly software engineers and sales personnel, could have a material adverse effect on our business, financial condition and results of operations because our business is technology-based. Cancellation or deferral of purchases of our products could cause our operating results to be below the expectations of the public market stock analysts who cover our stock, resulting in a decrease in the market price of our common stock. Any significant cancellation or deferral of purchases of our products could have a material adverse effect on our business, financial condition and results of operations in any particular quarter due to the resulting decrease in revenue and our relatively fixed costs. In addition, to the extent significant sales occur earlier than expected, operating results for subsequent quarters may be adversely affected because our expense levels are based, in part, on our expectations as to our future revenues, and we may be unable to adjust spending in a timely manner to compensate for any revenue shortfall. Because of these factors, in some future quarter our operating results may be below the expectations of public market analysts and investors which may adversely affect the market price of our common stock. 5 Seasonal trends may cause our quarterly operating results to fluctuate, making period-to-period comparisons of our operating results meaningless. We have experienced significant variations in the revenue, expenses and operating results from quarter to quarter and these variations are likely to continue. We believe that fluctuations in the number of orders being placed from quarter to quarter are principally attributable to the buying patterns and budgeting cycles of television operators and broadcast companies, the primary buyers of the digital advertising systems and broadcast systems, respectively. We expect that there will continue to be fluctuations in the number and value of orders received. As a result, our results of operations have in the past and likely will, at least in the near future, fluctuate in accordance with this purchasing activity making period-to-period comparisons of our operating results meaningless. In addition, because these factors are difficult for us to forecast, our business, financial condition and results of operations for one quarter or a series of quarters may be adversely affected and below the expectations of public market analysts and investors, resulting in a decrease in the market price of our common stock. Due to the lengthy sales cycle involved in the sale of our products, our quarterly results may vary and should not be relied on as an indication of future performance. Digital video, movie and broadcast products are relatively complex and their purchase generally involves a significant commitment of capital, with attendant delays frequently associated with large capital expenditures and implementation procedures within an organization. Moreover, the purchase of these products typically requires coordination and agreement among a potential customer's corporate headquarters and its regional and local operations. For these and other reasons, the sales cycle associated with the purchase of our digital video, movie and broadcast products are typically lengthy and subject to a number of significant risks, including customer's budgetary constraints and internal acceptance reviews, over which we have little or no control. Based upon all of the foregoing, we believe that our quarterly revenues, expenses and operating results are likely to vary significantly in the future, that period- to-period comparisons of our results of operations are not necessarily meaningful and that, in any event, these comparisons should not be relied upon as indications of future performance. If we are unable to successfully compete in our marketplace, our financial condition and operating results may be adversely affected. We currently compete against suppliers of both analog tape-based and digital systems in the digital advertisement insertion market and against both computer companies offering video server platforms and more traditional movie application providers in the movie system market. In the television broadcast market, we compete against various computer companies offering video server platforms and television equipment manufacturers. Due to the rapidly evolving markets in which we compete, additional competitors with significant market presence and financial resources, including computer hardware and software companies and television equipment manufacturers, may enter those markets, thereby further intensifying competition. Increased competition could result in price reductions and loss of market share which would adversely affect our business, financial condition and results of operations. Many of our current and potential competitors have greater financial, selling and marketing, technical and other resources than we do. Moreover, our competitors may also foresee the course of market developments more accurately than us. Although we believe that we have certain technological and other advantages over our competitors, realizing and maintaining these advantages will require a continued high level of investment by us in research and product development, marketing and customer service and support. In the future we may not have sufficient resources to continue to make these investments or to make the technological advances necessary to compete successfully with our existing competitors or with new competitors. If we are unable to compete effectively, our business, prospects, financial condition and operating results would be materially adversely affected because of the difference in our operating results from the assumptions on which our business model is based. 6 If the emerging digital video market does not gain commercial acceptance, our business, financial condition and results of operations would be negatively affected because the market for our products would be more limited than we currently believe and have communicated to the financial markets. Cable television operators and television broadcasters have historically relied on traditional analog technology for video management, storage and distribution. Digital video technology is still a relatively new technology and requires a significant initial investment of capital. Our future growth will depend on the rate at which television operators convert to digital video systems. In addition, to date our products have been purchased primarily by cable television operators and telecommunications companies. An inability to penetrate new markets would have a material adverse effect on our business, financial condition and results of operations because the market for our products would be more limited than we currently believe and have communicated to the financial markets. If there were a decline in sales of our SPOT System, our revenues could be materially affected because we currently derive a large percentage of our revenues from this product. Sales of our SPOT System have historically accounted for a large percentage of our revenues, and this product and related enhancements are expected to continue to account for a significant portion of our revenues in the remainder of fiscal year 2000 and in fiscal year 2001. Our success depends in part on continued sales of our SPOT System product. Accordingly, a decline in demand or average selling prices for our SPOT System product line, whether as a result of new product introductions by others, price competition, technological change, inability to enhance the products in a timely fashion, or otherwise, would have a material adverse effect on our business, financial condition and results of operations. If we fail to respond to rapidly changing technologies related to digital video, our business, financial condition and results of operations would be materially adversely affected because the competitive advantage of our products relative to those of our competitors would decrease. The markets for our products are characterized by rapidly changing technology, evolving industry standards and frequent new product introductions and enhancements. Future technological advances in the television and video industries may result in the availability of new products or services that could compete with the solutions provided by us or reduce the cost of existing products or services, any of which could enable our existing or potential customers to fulfill their video needs better and more cost efficiently than with our products. Our future success will depend on our ability to enhance our existing digital video products, including the development of new applications for our technology, and to develop and introduce new products to meet and adapt to changing customer requirements and emerging technologies. In the future, we may not be successful in enhancing our digital video products or developing, manufacturing and marketing new products which satisfy customer needs or achieve market acceptance. In addition, there may be services, products or technologies developed by others that render our products or technologies uncompetitive, unmarketable or obsolete, or announcements of currently planned or other new product offerings either by us or our competitors that cause customers to defer or fail to purchase our existing solutions. If we are unable to successfully introduce to our marketplace new products or enhancements to existing products, our financial condition and operating results may be adversely effected by a decrease in purchases of our products. Because our business plan is based on technological development in the form of both development of new products and enhancements to our existing products, our future success is dependent on our successful introduction to the marketplace of these products and enhancements. In the future we may experience difficulties that could delay or prevent the successful development, introduction and marketing of these and other new products and enhancements, or find that our new products and enhancements do not adequately meet 7 the requirements of the marketplace or achieve market acceptance. Announcements of currently planned or other new product offerings may cause customers to defer purchasing our existing products. Moreover, despite testing by us, and by current and potential customers, errors or failures may be found in our products, or, if discovered, successfully corrected in a timely manner. These errors or failures could cause delays in product introductions and shipments, or require design modifications that could adversely affect our competitive position. Our inability to develop on a timely basis new products, enhancements to existing products or error corrections, or the failure of these new products or enhancements to achieve market acceptance could have a material adverse effect on our business, financial condition and results of operations. Because our customer base is highly concentrated among a limited number of large customers, the loss of or reduced demand of these customers could have a material adverse effect on our business, financial condition and results of operations. Our customer base is highly concentrated among a limited number of large customers, and, therefore, a limited number of customers account for a significant percentage of our revenues in any year. In 1997, 1998 and 1999, revenues from our five largest customers represented approximately 66%, 55% and 47%, respectively, of our total revenues. In 1997, 1998 and 1999, three, two and two customers, respectively, each accounted for more than 10% of our revenues. We generally do not have written continuing purchase agreements with our customers and do not generally have written agreements that require customers to purchase fixed minimum quantities of our products. Our sales to specific customers tend to vary significantly from year to year depending upon these customers' budgets for capital expenditures and new product introductions. In addition, we derive a substantial portion of our revenues from products that have a selling price in excess of $200,000. We believe that revenue derived from current and future large customers will continue to represent a significant proportion of our total revenues. The loss of, or reduced demand for products or related services from, any of our major customers could have a material adverse effect on our business, financial condition and results of operations. Because we purchase certain of the components used in manufacturing our product from a sole supplier and we use a limited number of third party manufacturers to manufacture our product, our business, financial condition and results of operation could be materially adversely affected by a failure of this supplier or these manufacturers. Certain key components of our products are currently purchased from a sole supplier, including a computer chassis manufactured by Trimm Technologic Inc., a different computer chassis manufactured by JMR Electronics, Inc., a switch chassis manufactured by Ego Systems, a decoder card manufactured by Vela Research, Inc. for MPEG-2, the industry standard for digital video and audio compression, and an MPEG-2 encoder manufactured by Optibase, Inc. We have in the past experienced quality control problems, where products did not meet specifications or were damaged in shipping, and delays in the receipt of these components. These problems were generally of short duration and did not have a material adverse effect on us. However, we may in the future experience similar types of problems which could be more severe or more prolonged. The inability to obtain sufficient key components as required, or to develop alternative sources if and as required in the future, could result in delays or reductions in product shipments which, in turn, could have a material adverse effect on our business, financial condition and results of operations. In addition, we rely on a limited number of third parties who manufacture certain components used in our products. While to date there has been suitable third party manufacturing capacity readily available at acceptable quality levels, in the future there may not be manufacturers that are able to meet our future volume or quality requirements at a price that is favorable to us. Any financial, operational, production or quality assurance difficulties experienced by these third party manufacturers that result in a reduction or interruption in supply to us could have a material adverse effect on our business, financial condition and results of operations. 8 The success of our business model depends on both the response of the market to the current regulatory structure and the continued deregulation of the telecommunications and television industries. The telecommunications and television industries are subject to extensive regulation which may limit the growth of our business, both in the United States and other countries. Although recent legislation has lowered the legal barriers to entry for telecommunications companies into the United States multichannel television market, telecommunications companies may either choose not to enter or be unable to successfully enter this or related markets. Moreover, the growth of our business internationally in the manner and to the extent currently contemplated by our business model is dependent in part on similar deregulation of the telecommunications industry abroad, the timing and magnitude of which is uncertain. Television operators are also subject to extensive government regulation by the Federal Communications Commission and other federal and state regulatory agencies. These regulations could have the effect of limiting capital expenditures by television operators and thus could have a material adverse effect on our business, financial condition and results of operations. The enactment by federal, state or international governments of new laws or regulations, changes in the interpretation of existing regulations or a reversal of the trend toward deregulation in these industries could adversely affect our customers, and thereby materially adversely affect our business, financial condition and results of operations. If we are unable to protect our intellectual property we may lose valuable assets on which our business is based or incur costly litigation to protect our rights. Our success and ability to compete depends upon our intellectual property, including our proprietary technology and confidential information, as the broadband and broadcast systems that we develop, market, license and sell are dependent on this technology and information. We rely on patent, trademark, trade secret and copyright laws to protect our intellectual property. Despite our efforts to protect our intellectual property, a third party could copy or otherwise obtain our proprietary information without authorization. Our means of protecting our proprietary rights may not be adequate and our competitors may independently develop similar technology, or duplicate our products or our other intellectual property. We may have to resort to litigation to enforce our intellectual property rights, to protect our trade secrets or know-how or to determine their scope, validity or enforceability. Enforcing or defending our proprietary technology is expensive, could cause the diversion of our resources, and may not prove successful. Our protective measures may prove inadequate to protect our proprietary rights, and any failure to enforce or protect our rights could cause us to lose a valuable asset. Future acquisitions may be difficult to integrate, disrupt our business, dilute stockholder value or divert management attention. As part of our business strategy, we may seek to acquire or invest in businesses, products or technologies that we believe could complement or expand our business, augment our market coverage, enhance our technical capabilities or otherwise offer growth opportunities. Acquisitions could create risks for us, including: . difficulties in assimilation of acquired personnel, operations, technologies or products which may affect our ability to develop new products and services and compete in our rapidly changing marketplace due to a resulting decrease in the quality of work and innovation of our employees upon which our business is dependent; and . adverse effects on our existing business relationships with suppliers and customers, which may be of particular importance to our business because our customer base is highly concentrated among a limited number of large customers and we purchase certain of the components used in manufacturing our product from a sole supplier and we use a limited number of third party manufacturers to manufacture our product. In addition, if we consummate acquisitions through an exchange of our securities, our existing stockholders could suffer significant dilution. Any future acquisitions, even if successfully completed, may not generate any additional revenue or provide any benefit to our business. 9 Because our business is susceptible to risks associated with international operations, we may not be able to maintain or increase international sales of our products. International sales accounted for approximately 12%, 13% and 23% of our revenues in 1997, 1998 and 1999, respectively. We expect that international sales will account for a significant portion of our business in the future. However, in the future we may be unable to maintain or increase international sales of our products. International sales are subject to a variety of risks, including: . difficulties in establishing and managing international distribution channels; . difficulties in selling, servicing and supporting overseas products and in translating products into foreign languages; . the uncertainty of laws and enforcement in certain countries relating to the protection of intellectual property; . multiple and possibly overlapping tax structures; . currency and exchange rate fluctuations; and . economic or political changes in international markets. Our executive officers, directors and major stockholders possess significant control over us which may lead to conflicts with other stockholders over corporate governance matters. Our officers, directors and their affiliated entities, and other holders of 5% or more of our outstanding capital stock, together beneficially owned approximately 28.54% of the outstanding shares of our common stock as of January 31, 2001. As a result, these persons will strongly influence the composition of our board of directors and the outcome of corporate actions requiring stockholder approval, irrespective of how other of our stockholders may vote. This concentration of ownership may have the effect of delaying or preventing a change in control of us which may be favored by a majority of the remaining stockholders, or cause a change of control not favored by our other stockholders. FORWARD-LOOKING STATEMENTS This prospectus contains certain "forward-looking statements" based on our current expectations, assumptions, estimates and projections about our company and our industry. These forward-looking statements involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of many factors, as more fully described in the preceding section and elsewhere in the prospectus. USE OF PROCEEDS We will not receive any proceeds from the sale of shares by Comcast SC. See "Comcast SC Investment, Inc." and "Plan of Distribution" described below. 10 SELECTED FINANCIAL DATA The selected consolidated financial data set forth below should be read in conjunction with our consolidated financial statements and notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations," appearing elsewhere in this prospectus. The consolidated statement of operations data for each of the five years ended December 31, 1995, 1996, 1997, 1998 and 1999 and for the one month periods ended January 31, 1999 and 2000 and for the nine month periods ended October 31, 1999 and 2000 and the consolidated balance sheet data at December 31, 1995, 1996, 1997, 1998 and 1999 and as at January 31 and October 31, 2000 are detailed below. An explanation of the determination of the number of shares used in computing net income (loss) per share is given in the notes to the consolidated financial statements.
Year ended December 31, ----------------------------------------- 1995 1996 1997 1998 1999 ------- ------- ------- ------- ------- (in thousands, except per share data) Consolidated Statement of Operations Data: Revenues Systems......................... $21,999 $45,745 $60,414 $58,033 $68,457 Services........................ 1,965 4,378 8,268 14,891 16,764 ------- ------- ------- ------- ------- 23,964 50,123 68,682 72,924 85,221 ------- ------- ------- ------- ------- Costs of revenues Systems......................... 14,917 27,133 34,740 35,772 38,889 Services........................ 2,014 4,538 7,898 13,611 14,962 ------- ------- ------- ------- ------- 16,931 31,671 42,638 49,383 53,851 ------- ------- ------- ------- ------- Gross profit........................ 7,033 18,452 26,044 23,541 31,370 ------- ------- ------- ------- ------- Operating expenses: Research and development.......... 2,367 5,393 11,758 15,763 16,302 Selling and marketing............. 2,016 4,694 6,248 8,566 8,595 General and administrative........ 1,024 2,364 3,932 6,132 5,335 Restructuring of operations....... -- -- -- 676 -- Write-off of acquired in-process research and development......... -- -- 5,290 -- -- Acquisition costs................. -- -- -- -- 684 ------- ------- ------- ------- ------- 5,407 12,451 27,228 31,137 30,916 ------- ------- ------- ------- ------- Income (loss) from operations....... 1,626 6,001 (1,184) (7,596) 454 Interest income, net................ 121 375 663 235 28 ------- ------- ------- ------- ------- Income (loss) before income taxes... 1,747 6,376 (521) (7,361) 482 Provision (benefit) for income taxes.............................. 713 2,483 1,776 (2,789) (15) ------- ------- ------- ------- ------- Net income (loss)................... $ 1,034 $ 3,893 $(2,297) $(4,572) $ 497 ======= ======= ======= ======= ======= Basic earnings (loss) per share..... $ .18 $ .48 $ (.15) $ (.24) $ .02 ======= ======= ======= ======= ======= Diluted earnings (loss) per share... $ .06 $ .22 $ (.15) $ (.24) $ .02 ======= ======= ======= ======= ======= Consolidated Balance Sheet Data: Working capital................. $ 4,483 $26,943 $24,949 $22,871 $23,365 Total assets.................... 14,651 46,467 52,512 54,527 62,304 Long-term liabilities........... -- -- -- 1,027 1,231 Deferred revenue................ 767 2,192 3,851 3,939 4,380 Total liabilities............... 8,646 14,240 17,510 23,207 27,963 Redeemable convertible preferred stock.......................... 4,008 -- -- -- -- Total stockholders' equity...... 1,997 32,227 35,004 31,320 34,341
11
One month ended Nine months ended ----------------------- ----------------------- January 31, January 31, October 31, October 31, 1999 2000 1999 2000 ----------- ----------- ----------- ----------- Consolidated Statement of Operations Data: Revenues Systems................... $ 697 $ 226 $51,642 $55,233 Services.................. 1,211 1,484 12,305 16,892 ------- ------- ------- ------- 1,908 1,710 63,947 72,125 ------- ------- ------- ------- Costs of revenues Systems................... 670 633 30,420 29,835 Services.................. 1,049 1,445 11,058 13,271 ------- ------- ------- ------- 1,719 2,078 41,478 43,106 ------- ------- ------- ------- Gross profit (loss)........... 189 (368) 22,469 29,019 ------- ------- ------- ------- Operating expenses: Research and development.... 1,324 1,764 12,332 14,456 Selling and marketing....... 522 1,034 6,323 8,284 General and administrative.. 447 457 4,047 4,977 ------- ------- ------- ------- 2,293 3,255 22,702 27,717 ------- ------- ------- ------- Income (loss) from operations................... (2,104) (3,623) (233) 1,302 Interest income (expense), net.......................... 9 9 (5) (30) ------- ------- ------- ------- Income (loss) before income taxes........................ (2,095) (3,614) (238) 1,272 Provision (benefit) for income taxes........................ (691) (1,156) (438) 407 ------- ------- ------- ------- Net income (loss)............. (1,404) (2,458) 200 865 ======= ======= ======= ======= Basic earnings (loss) per share........................ (0.07) (0.12) 0.01 0.04 ======= ======= ======= ======= Diluted earnings (loss) per share........................ (0.07) (0.12) 0.01 0.04 ======= ======= ======= ======= Consolidated Balance Sheet Data: Working capital........... 20,983 31,270 Total assets.............. 56,712 79,198 Long-term liabilities..... 1,144 4,024 Deferred revenue.......... 6,292 6,701 Total liabilities......... 24,761 34,269 Total stockholders' equity................... 31,951 44,929
12 MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion and analysis together with our financial statements, related notes and other financial information appearing elsewhere in this prospectus. In addition to historical information, the following discussion and other parts of this prospectus contain forward-looking information that involves risks and uncertainties. Our actual results could differ materially from those anticipated by such forward-looking information due to competitive factors and other factors discussed under "Risk Factors" and elsewhere in this prospectus. Overview We develop, manufacture and sell systems, known as video storage servers, that automate the management and distribution of both short-form video streams, such as advertisements, and long-form video streams, such as movies or other feature presentations, each of which requires precise, accurate and continuous execution, and the related services and movie content to television operators, telecommunications companies and broadcast television companies. Revenues from sales of systems are recognized upon shipment provided title and risk of loss has passed to the customer, there is evidence of an arrangement, fees are fixed or determinable and collection of the related receivable is probable. Installation, project management and training revenue is deferred and recognized as these services are performed. Revenue from technical support and maintenance is deferred and recognized ratably over the period of the related agreements, generally twelve months. Customers are billed for installation, project management, training and maintenance at the time of the product sale. Revenue from content fees, primarily movies, is recognized based on the volume of monthly purchases that are made by hotel guests. Revenue from product development contract services is recognized based on the time and materials incurred to complete the work. Our transactions frequently involve the sales of systems and services under multiple element arrangements. Systems sales always include one year of free technical support and maintenance services. Revenue under multiple element arrangements is allocated to all elements except systems based upon the fair value of those elements. The amounts allocated to training, project management, technical support and maintenance and content fees is based upon the price charged when these elements are sold separately and unaccompanied by the other elements. The amount allocated to installation revenue is based upon hourly rates and the estimated time required to complete the service. The amount allocated to systems is done on a residual method basis. Under this method, the total arrangement value is allocated first to undelivered elements, based on their fair values, with the remainder being allocated to systems revenue. Installation, training and project management services are not essential to the functionality of systems as these services do not alter the equipment's capabilities, are available from other vendors and the systems are standard products. We have experienced fluctuations in the number of orders being placed from quarter to quarter. We believe this is principally attributable to the buying patterns and budgeting cycles of television operators and broadcast companies, the primary buyers of digital advertising insertion systems and broadcast systems, respectively. We expect that there will continue to be fluctuations in the number and value of orders received and that at least in the near future, our revenue and results of operations will reflect these fluctuations. Our results are significantly influenced by a number of factors, including our pricing, the costs of materials used in our products and the expansion of our operations. We price our products and services based upon our costs as well as in consideration of the prices of competitive products and services in the marketplace. The costs of our products primarily consist of the costs of components and subassemblies that have generally declined over time. As a result of the growth of our business, our operating expenses have increased in the areas of research and development, selling and marketing, customer service and support and administration. On December 30, 1999, we acquired all of the outstanding capital stock of Digital Video Arts, Ltd. in exchange for 330,000 shares of our common stock using an exchange ratio of 0.033 of one share of our 13 common stock for each share of Digital Video Arts. The acquisition was accounted for as a pooling of interests. Digital Video Arts is a developer of custom software products specializing in digital video and interactive television. As a result of the acquisition, Digital Video Arts became our wholly-owned subsidiary. The accompanying consolidated financial statements for all the periods presented have been restated to include the results of operations, financial position and cash flows of Digital Video Arts. On December 10, 1997, we exchanged 937,500 shares of our common stock for all of the outstanding capital stock of IPC Interactive Pte. Ltd. which was renamed to SeaChange Asia Pacific Operations Pte. Ltd. The total consideration including transaction costs was $4,805,000. SC Asia provides interactive television network systems to the hospitality and commercial property markets. The transaction was accounted for under the purchase method and, accordingly, our results of operations include the operating results of SC Asia from the date of acquisition. Year Ended December 31, 1998 Compared to the Year Ended December 31, 1999 Revenues Systems. Our systems revenues consist of sales of our digital video insertion, movie, broadcast and interactive television system products. Systems revenues increased 18% from $58.0 million in 1998 to $68.5 million in 1999. Revenues from the digital advertising insertion segment or SPOT Systems, which accounted for 60.5% and 52.3% of total revenues in 1998 and 1999, respectively, increased slightly from $44.1 million in 1998 to $44.6 million in 1999. The most significant increase in systems revenues in 1999 compared to 1998 resulted primarily from the sale of broadcast systems, a product that was first introduced and sold by us in the second quarter of 1998. Broadcast segment revenues increased from $4.2 million, or 5.8% of total revenues, in 1998 to $16.8 million, or 19.7% of total revenues, in 1999. In addition, during the third quarter of 1999, we sold our first interactive television systems which are used by cable operators and telecommunications companies to provide movie and other interactive services directly to the home of the cable subscriber. Revenues from the interactive television segment were $500,000 in 1999. These increases in systems revenues were offset in part by a $3.1 million decrease in systems revenues from the movies segment which was due to the timing of receiving large volume orders. We expect future systems revenue growth, if any, to come principally from our broadcast and interactive television segments. As revenues from broadcast and interactive television segments increase, the digital advertising insertion segment will become a smaller portion of total system revenues. For the years ended December 31, 1998 and 1999, certain customers accounted for more than 10% of our total revenues. Individual customers accounted for 24% and 15% of total revenues in 1998 and 15% and 10% of total revenues in 1999. Revenues from these customers were predominantly in the digital advertising insertion segment. We believe that revenues from current and future large customers will continue to represent a significant proportion of our total revenues. International sales accounted for approximately 13% and 23% of total revenues in the years ended December 31, 1998 and 1999, respectively. We expect that international sales will remain a significant portion of our business in the future. As of December 31, 1999, substantially all sales our products were made in United States dollars. We do not expect to change this practice in the foreseeable future. Therefore, we have not experienced, nor do we expect to experience in the near term, any material impact from fluctuations in foreign currency exchange rates on our results of operations or liquidity. If this practice changes in the future, we will reevaluate our foreign currency exchange rate risk. Services. Our services revenues consist of fees for installation, training, product maintenance, technical support services and movie content fees. Our services revenues increased 13% to $16.8 million in 1999 from $14.9 million in 1998. This increase in services revenues primarily resulted from the renewals of maintenance and support contracts and the impact of a growing installed base of systems. 14 Gross Profit Systems. Costs of systems revenues consist primarily of the cost of purchased components and subassemblies, labor and overhead relating to the final assembly and testing of complete systems and related expenses. Costs of systems revenues increased 9% from $35.8 million in 1998 to $38.9 million in 1999. In 1999, the increase in costs of systems revenues reflects the higher revenue level and increased manufacturing labor and overhead costs incurred to support changes in the product mix, including the introduction of the new broadcast and video on demand products. We expect costs of systems revenues for products in the broadcast and interactive television segments to be higher as a percentage of revenue when the products are first introduced and to decrease as a percentage of revenues as we improve manufacturing efficiencies, spread fixed costs over a larger production volume and achieve lower material costs through improved purchasing efficiencies. Systems gross profit as a percentage of systems revenues were 38.4% and 43.2% in 1998 and 1999, respectively. The increase in systems gross profit in 1999 was primarily due to higher systems revenue and lower material and labor costs as a percentage of systems revenue. Gross profit for the digital advertising insertion and the movies segments increased from 39.8% and 30.0% in 1998 to 43.2% and 38.4% in 1999, respectively, primarily as a result of continued reductions in manufacturing material and labor costs as a percentage of segment revenues. Gross profit for the broadcast segment also improved from 42.7% in 1998 to 45.3% in 1999 as a result of higher revenues and lower material and labor manufacturing costs as a percentage of revenues. The gross profits in 1998 and 1999 were impacted by increases of approximately $2.0 million and $500,000, respectively, in our inventory valuation allowance. We evaluate inventory levels and expected usage on a periodic basis and provide a valuation allowance for estimated inactive, obsolete and surplus inventory. Services. Costs of services revenues consist primarily of labor, materials and overhead relating to the installation, training, product maintenance and technical support services provided by us and costs associated with providing movie content. Costs of services revenues increased 10% from $13.6 million in 1998 to $15.0 million in 1999, primarily as a result of the costs associated with our hiring and training additional service personnel to provide worldwide support for the growing installed base of digital ad insertion, movie, broadcast and video on demand systems and costs associated with providing movie content. Services gross profit margin as a percentage of services revenue was 9.0% in 1998 and 11% in 1999. The higher services gross profit in 1999 is primarily due to higher level of services revenue. We expect that we will continue to experience fluctuations in gross profit as a percentage of services revenue as a result of the timing of revenues from product and maintenance support and other services to support the growing installed base of systems and the timing of costs associated with our ongoing investment required to build a service organization to support the installed base of systems and new products. Research and Development. Research and development expenses consist primarily of compensation of development personnel, depreciation of equipment and an allocation of related facilities expenses. Research and development expenses increased 3% from $15.8 million in 1998 to $16.3 million in 1999. The increase in the dollar amount in 1999 was primarily attributable to the hiring and contracting of additional development personnel which reflects our continuing investment in new products. All internal software development costs to date have been expensed by us. We expect that research and development expenses will continue to increase in dollar amount as we continue our development and support of new and existing products. Selling and Marketing. Selling and marketing expenses consist primarily of compensation expenses, including sales commissions, travel expenses and certain promotional expenses. Selling and marketing expenses remained flat at $8.6 million in 1998 and 1999. General and Administrative. General and administrative expenses consist primarily of compensation of executive, finance, human resource and administrative personnel, legal and accounting services and an allocation of related facilities expenses. General and administrative expenses decreased 13% from $6.1 million in 1998 to $5.3 million in 1999. The decrease in the dollar amounts was primarily attributable to lower payroll and related costs related to the centralization of accounting and administrative functions and lower legal costs. 15 Restructuring of Operations. In March 1998, we recorded a charge of $676,000 for the restructuring of operations as part of a planned consolidation of the operations of SC Asia. The charge for restructuring included $569,000 related to the termination of 13 employees, a provision of $60,000 related to the planned vacating of premises and $47,000 of compensation expense associated with stock options for certain terminated employees. At March 31, 1998, we had notified all terminated employees. All restructuring charges were paid as of December 31, 1998. Acquisition Costs. On December 30, 1999, we acquired all of the authorized and outstanding common stock of Digital Video Arts, Ltd. in exchange for 330,000 shares of our common stock using an exchange ratio of 0.033 of one share of our common stock for each share of Digital Video Arts. The acquisition was accounted for as a pooling of interests. Digital Video Arts is a developer of custom software products specializing in digital video and interactive television. As a result of the acquisition, Digital Video Arts became our wholly-owned subsidiary. Total revenues of $85.2 million for the year ended December 31, 1999 consisted of $84.2 million of our revenues and $1.0 million of Digital Video Arts' revenues. Net income of $497,000 for the same period consisted of our net income of $1.1 million and a Digital Video Arts net loss of $592,000. Included in net income were acquisition costs of $684,000 consisting primarily of professional service fees. Due to the acquisition, Digital Video Arts' previously unrecognized tax benefits of operating loss carryforwards were recognized in our consolidated results in the applicable period. Interest Income, net. Interest income, net was approximately $235,000 and $28,000 in 1998 and 1999, respectively. The decrease in interest income, net in 1999 primarily resulted from lower average invested balances in 1999 and interest expense on borrowings. Provision (Benefit) for Income Taxes. Our effective tax benefit rate was 37.9% and 3% in 1998 and 1999, respectively, due to the taxable loss in 1998 and the utilization of operating tax loss carryforwards associated with the acquisition of Digital Video Arts in 1999. We had net deferred tax assets of $1,967,000 and $2,900,000 at December 31, 1998 and 1999, respectively. We have made the determination that it is more likely than not that we will realize the benefits of the net deferred tax assets. As a result of the acquisition of IPC, we acquired deferred tax assets of $3.4 million, consisting primarily of net operating loss carryforwards. As discussed in note 7 of the consolidated financial statements, we maintain a valuation allowance on the acquired net deferred tax assets. Year Ended December 31, 1997 Compared to the Year Ended December 31, 1998 Revenues Systems. Systems revenues decreased 4% from $60.4 million in 1997 to $58.0 million in 1998. The decreased systems revenues in 1998 compared to 1997 resulted from a decrease of approximately $11.9 million in digital advertising insertion systems revenues, offset by an increase of $5.3 million in movie systems revenues and an increase $4.2 million in broadcast systems revenues. The decrease in revenues in the digital advertising insertion system segment or SPOT Systems revenues from $56.0 million, or 81.5% of total revenues, in 1997 to $44.1 million, or 60.5% of total revenues, in 1998 is primarily attributable to a decrease in the volume of digital video insertion systems sold due to a shift in spending by United States cable operators on these products. United States cable operators have shifted their spending patterns to buy expansions to existing systems and to buy smaller scale digital ad insertion systems. The increase in 1998 of movie system revenues from $4.4 million, or 6.5% of total revenues, to $9.7 million, or 13.3% of total revenues, is primarily attributable to an increase in the volume of movie systems sold as a result of the acquisition of SC Asia. The increase in 1998 of approximately $4.2 million, or 5.8% of total revenues, in broadcast segment revenues is attributable to the initial introduction of the product during the quarter ended June 30, 1998. We expect future systems revenue growth, if any, to come principally from our broadcast and interactive television segments. As revenues from broadcast and interactive television segments increase, the digital advertising insertion segment will become a smaller portion of total system revenues. 16 For the years ended December 31, 1997 and 1998, certain customers accounted for more than 10% of our total revenues. Individual customers accounted for 24%, 17% and 10% of total revenues in 1997 and 24% and 15% of total revenues in 1998. International sales accounted for approximately 12% and 13% of total revenues in the years ended December 31, 1997 and 1998, respectively. Services. Our services revenues increased 80% to $14.9 million in 1998 from $8.3 million in 1997. These increases in services revenues primarily resulted from the increase in product sales and renewals of maintenance and support contracts related to the growing installed base of systems and additional service revenues in the form of movie content fees as a result of the acquisition of SC Asia. Gross Profit Systems. Costs of systems revenues increased 3% from $34.7 million in 1997 to $35.8 million in 1998. In 1998, the increase in costs of systems revenues reflects increased manufacturing labor and overhead costs incurred to support changes in the product mix, including the introduction of the broadcast products. We expect costs of systems revenues for products in the broadcast and interactive television segments to be higher as a percentage of revenue when the products are first introduced and to decrease as a percentage of revenues as we improves manufacturing efficiencies, spread fixed costs over a larger production volume and achieve lower material costs through improved purchasing efficiencies. Systems gross profit as a percentage of systems revenues was 42.5% and 38.4% in 1997 and 1998, respectively. The decrease in systems gross profit in 1998 is attributable to a shift in the mix of system sales and higher manufacturing labor and overhead costs. The decrease in gross profit in the digital advertising insertion segment, from 42.2% in 1997 to 39.8% in 1998, is primarily attributable to revenues including a greater percentage of smaller scale digital ad insertion systems and expansions to existing systems which have higher costs on certain purchased components and the overall higher manufacturing, labor and overhead costs. The decrease in gross profit in the movies segment, from 46.2% in 1997 to 30.0% in 1998, is primarily attributable to higher costs on certain purchased components, specifically set-top boxes, and overall higher manufacturing labor and overhead costs. The 42.7% gross profit in the broadcast segment offset the decreases in the gross profit of the movie and digital advertising insertion system products. The gross profits in 1997 and 1998 were impacted by increases of approximately $1.7 million and $2.0 million, respectively, in our inventory valuation allowance. Services. Costs of services revenues increased 72% from $7.9 million in 1997 to $13.6 million in 1998, primarily as a result of the costs associated with us hiring and training additional service personnel to provide worldwide support for the growing installed base of digital ad insertion, movie and broadcast systems and costs associated with providing movie content. Services gross profit as a percentage of services revenue was 4.5% and 8.6% in 1997 and 1998, respectively. Improvements in the services gross profit in 1998 reflects the increases in the installed base of systems under service contracts. Also, the services gross profit in 1998 includes gross profit generated from the movie content fees as a result of the acquisition of SC Asia. Research and Development. Research and development expenses increased 34% from $11.8 million in 1997 to $15.8 million in 1998. The increase in the dollar amount in 1998 was primarily attributable to the hiring and contracting of additional development personnel which reflects our continuing investment in new products and the additional resources acquired with IPC. Selling and Marketing. Selling and marketing expenses increased 37% from $6.2 million in 1997 to $8.6 million in 1998. The increases in the dollar amounts were attributable to the hiring of additional selling and marketing personnel, increased international selling efforts and expanded promotional activities to support the movie and broadcast products. General and Administrative. General and administrative expenses increased 56% from $3.9 million in 1997 to $6.1 million in 1998. The increases in the dollar amounts were primarily attributable to increased staffing and related costs to support our expanded operations and the acquisition of SC Asia. 17 Write-off of Acquired In-Process Research and Development. In connection with the acquisition of IPC, we acquired certain technology that can be used with our video server technology to provide interactive television network systems to the hospitality and commercial property markets. As discussed in Note 5 to the consolidated financial statements, we recorded a charge to operations of $5,290,000 for the write-off of in-process research and development. In addition, we recorded intangible assets of $1,635,000 that included approximately $850,000 of software. Of the acquired technology, the capitalized amount reflects the allocation of the purchase price to the software technology deemed technologically feasible, including the operating system and software for the distribution of movies over the network. Acquired technology, including software to provide certain new interactive features and functions over the network, included in the in-process write-off reflects the purchase price allocated to technology currently under development and not considered technologically feasible at the time of the acquisition and with no alternative future use. We were continuing the development of the software applications and hardware design of this in-process development as of December 31, 1998. Management has substantially completed this in-process development as of December 31, 1999 and expects to complete some features in 2000. Restructuring of Operations. In March 1998, we recorded a charge of $676,000 for the restructuring of operations as part of a planned consolidation of the operations of SC Asia. The charge for restructuring included $569,000 related to the termination of 13 employees, a provision of $60,000 related to the planned vacating of premises and $47,000 of compensation expense associated with stock options for certain terminated employees. At March 31, 1998, we had notified all terminated employees. All restructuring charges were paid as of December 31, 1998. Interest Income, net. Interest income, net was approximately $663,000 and $235,000 in 1997 and 1998, respectively. The decrease in interest income, net in 1998 primarily resulted from lower average invested balances in 1998. Provision (Benefit) for Income Taxes. Our effective tax rate for 1997 was significantly impacted by the write-off of the acquired in-process research and development which due to the tax-free nature of the transaction to IPC stockholders, is not deductible by us for tax purposes. Accordingly, in 1997 we recorded a tax provision of approximately $1.8 million despite a book pre-tax operating loss. Our effective tax benefit rate was 37.9% in 1998 due to the taxable loss in 1998. We had net deferred tax assets of $1,091,000 and $1,967,000 at December 31, 1997 and 1998, respectively. We have made the determination it is more likely than not that we will realize the benefits of the net deferred tax assets. As a result of the acquisition of IPC, we acquired deferred tax assets of $3.4 million, consisting primarily of net operating loss carryforwards. As discussed in note 7 of our consolidated financial statements, we maintain a valuation allowance on the acquired net deferred tax assets. Nine Months Ended October 31, 2000 Compared to the Nine Months Ended October 31, 1999 Revenues Systems. Systems revenues increased 7% from $51.6 million in the nine months ended October 31, 1999 to $55.2 million in the nine months ended October 31, 2000. Revenues from the broadband segment, which accounted for 54% and 62% of total revenues in the nine months ended October 31, 2000 and 1999, respectively, decreased from $39.6 million in 1999 to $38.7 million in 2000. This decrease in broadband revenues is primarily attributable to a shift in the timing of orders by U.S. cable operators between quarters this year versus the previous year. We expect future growth, if any, in the broadband business to come primarily from our interactive television systems. Broadcast system segment revenues were $16.5 million in the nine months ended October 31, 2000 compared to $12.0 million in the nine months ended October 31, 1999. The 37% increase in broadcast revenues for the nine months ended October 31, 2000 was primarily from the timing of receipt of customer orders and related shipments for new U.S. broadcast customers. We expect future growth, if any, in the broadcast business to come from both U.S. and international customers. 18 Services. Our services revenues increased 37% to $16.9 million in nine months ended October 31, 2000 from $12.3 million in the nine months ended October 31, 1999. This increase in services revenues primarily resulted from the renewals of technical support and maintenance, price increases on certain technical support and maintenance, the impact of a growing installed base of systems and a higher level of product development services. For the nine-month periods ended October 31, 2000 and October 31, 1999, certain customers each accounted for more than 10% of our total revenues. Single customers each accounted for 10% of total revenues in the nine months ended October 31, 2000 and 17% and 12% of total revenues in the nine months ended October 31, 1999. Revenue from these customers was primarily in the broadband segment. We believe that revenues from current and future large customers will continue to represent a significant proportion of total revenues. International sales accounted for approximately 19% and 24% of total revenues in the nine-month periods ended October 31, 2000 and October 31, 1999, respectively. We expect that international sales will remain a significant portion of our business in the future. As of October 31, 2000, substantially all sales of our products were made in United States dollars. We do not expect to change this practice in the foreseeable future. Therefore, we have not experienced, nor do we expect to experience in the near term, any material impact from fluctuations in foreign currency exchange rates on our results of operations or liquidity. If this practice changes in the future, we will reevaluate our foreign currency exchange rate risk. Gross Profit Systems. Costs of systems revenues decreased to $29.8 million in the nine months ended October 31, 2000 as compared to $30.4 million in the nine months ended October 31, 1999. In the nine months ended October 31, 2000, the cost of systems revenues decreased from the prior year despite the increase in systems revenues as a result of improved manufacturing efficiencies and lower material costs through improved purchasing efficiencies for both the digital advertising insertion and broadcast products. We expect the cost of systems revenues for the interactive television products within the broadband segment to be higher as a percentage of revenues as the products are first deployed and to decrease as a percentage of revenues as the revenue level increases and we improve our manufacturing and material purchasing efficiencies. Systems gross profit as a percentage of systems revenues was 46% and 41% in the nine months ended October 31, 2000 and October 31, 1999, respectively. The increase in systems gross profit in the nine months ended October 31, 2000 was primarily due to lower material and other manufacturing costs as a percentage of systems revenue within the broadband segment and specifically for system revenues for the digital advertising insertion products. Gross profit for the broadband segment improved from 40% for the nine months ended October 31, 1999 to 46% for the nine months ended October 31, 2000 while gross profit for the broadcast segment increased slightly to 45% for the nine months ended October 31, 2000 compared to 44% for the nine months ended October 31, 1999. The improvement in gross margins for the broadband segment was the result of lower material and other manufacturing costs as a percentage of system revenues. Services. Costs of services revenues increased 20% from $11.1 million in the nine months ended October 31, 1999 to $13.3 million in the nine months ended October 31, 2000, primarily as a result of increased revenues and the costs associated with our hiring and training additional service personnel to provide worldwide support for the growing installed base of broadband and broadcast systems and costs associated with providing movie content. Services gross profit as a percentage of services revenue was 21% in the nine months ended October 31, 2000 and 10% in the nine months ended October 31, 1999. Improvements in the services gross profit in the nine months ended October 31, 2000 reflect the increase in the installed base of systems under maintenance, price increases on certain annual technical support and maintenance and higher product development revenues. We expect that we will continue to experience fluctuations in gross profit as a percentage of services revenue as a result of the timing of revenues from product and maintenance support and other services to support the growing installed base of systems and the timing of costs associated with our ongoing investment required to build a service organization to support the installed base of systems and new products. 19 Research and Development. Research and development expenses increased 17% from approximately $12.3 million in the nine months ended October 31, 1999 to $14.5 million in the nine months ended October 31, 2000. The increase in the dollar amount was primarily attributable to the hiring and contracting of additional development personnel which reflects our continuing investment in new products. We expect that research and development expenses will continue to increase in dollar amount as we continue to focus on the development of new technology and support of new and existing products. Selling and Marketing. Selling and marketing expenses increased 31% from $6.3 million in the nine months ended October 31, 1999 to $8.3 million in the nine months ended October 31, 2000. This increase is primarily due to the hiring of additional sales personnel for our broadcast and interactive television products, increased sales commissions on higher revenues and higher marketing expenses. General and Administrative. General and administrative expenses increased 23% from $4.0 million in the nine months ended October 31, 1999 to $5.0 million in the nine months ended October 31, 2000. This increase is primarily due to increased legal expenses associated with various litigation matters. Interest expense, net. Interest expense, net, was approximately $30,000 and $4,000 in the nine months ended October 31, 2000 and October 31, 1999, respectively. The increase in 2000 in interest expense, net, primarily resulted from interest expense on borrowings. Provision for Income Taxes. Our effective tax rate was 32% in the nine months ended October 31, 2000. The effective tax provision was favorably impacted by the utilization of research and development tax credits. One Month Ended January 31, 2000 Compared to the One Month Ended January 31, 1999 Revenues Systems. Systems revenues decreased 68% from $697,000 in the one month ended January 31, 1999 to $226,000 in the one month ended January 31, 2000. This decreased systems revenues resulted primarily from the timing of receipt of customer orders and related shipment within both the broadband and broadcast segments. Services. Our services revenues increased 23% from approximately $1.2 million in the one month ended January 31, 1999 to $1.5 million in the one month ended January 31, 2000. This increase in services revenues resulted primarily from renewals of technical support and maintenance contracts, higher product development revenues and the impact of a growing installed base of systems. For the one month period ended January 31, 2000 and January 31, 1999, certain customers accounted for more than 10% of our total revenues. Single customers accounted for 16% and 11% of total revenues in one month ended January 31, 2000 and 17%, 12% and 10% of total revenues in the one month ended January 31, 1999. Revenues from these customers were primarily in the broadband segment. We believe that revenues from current and future large customers will continue to represent a significant proportion of total revenues. International sales accounted for approximately 18% and 38% of total revenues for the one month ended January 31, 2000 and January 31, 1999, respectively. We expect that international sales will remain a significant portion of our revenues in the future. As of January 31, 2000, substantially all sales of our products were made in United States dollars. We do not expect any material change to this practice in the foreseeable future. Therefore, we have not experienced, nor do we expect to experience in the near term, any material impact from fluctuations in foreign currency exchange rates on our results of operations or liquidity. If this practice changes in the future, we will reevaluate our foreign currency exchange rate risk. Gross Profit Systems. Costs of systems revenues decreased 6% from $670,000 in the one month ended January 31, 1999 to $633,000 in the one month ended January 31, 2000. For the one month ended January 31, 2000, the 20 decrease in cost of systems revenues primarily reflects lower systems revenue offset in part by fixed manufacturing labor and overhead costs. Systems gross profit as a percentage of systems revenues was a negative 180% in the one month ended January 31, 2000. In the one month ended January 31, 1999, gross profit as a percentage of systems revenues was 4%. The decrease in systems gross profit in 2000 was primarily due to lower systems revenue and higher material and fixed manufacturing costs as a percentage of systems revenues. Services. Costs of services revenues increased 38% from approximately $1.0 million in the one month ended January 31, 1999 to $1.4 million in the one month ended January 31, 2000, primarily as a result of the costs associated with our hiring and training additional service personnel to provide worldwide support for the growing installed base of broadband and broadcast systems and costs associated with providing movie content. Services gross profit as a percentage of services revenue decreased to 3% in the one month ended January 31, 2000 compared to a gross profit margin of 13% in the one month ended January 31, 1999. We expect that we will continue to experience fluctuations in gross profit as a percentage of services revenue as a result of the timing of revenues from technical support and maintenance and other services to support the growing installed base of systems and the timing of costs associated with our ongoing investment required to build a service organization to support the installed base of systems and new products. Research and Development. Research and development expenses increased 33% from approximately $1.3 million, in the one month ended January 31, 1999 to $1.8 million in the one month ended January 31, 2000. The increase in the dollar amount was primarily attributable to the hiring and contracting of additional development personnel which reflects our continuing investment in new products. We expect that research and development expenses will continue to increase in dollar amount as we continue our development and support of new and existing products. Selling and Marketing. Selling and marketing expenses increased 98% from $522,000 in the one month ended January 31, 1999 to $1.0 million in the one month ended January 31, 2000. This increase is primarily due to the hiring of additional sales personnel for our broadcast and interactive television products and higher tradeshow expenses. General and Administrative. General and administrative expenses increased 2% from $447,000 in the one month ended January 31, 1999 to $457,000 in the one month ended January 31, 2000. Interest Income, net. Interest income, net, was approximately $9,000 in the one month ended January 31, 2000 and January 31, 1999, respectively. Benefit for Income Taxes. Our effective tax benefit rate was 32% and 33% in the one month ended January 31, 2000 and January 31,1999, respectively. 21 Quarterly Results of Operations The following tables present certain unaudited quarterly information for the eight quarters ended December 31, 1999 and for the three month periods ended April 30, 1999 and 2000, July 31, 1999 and 2000, and October 31, 1999 and 2000. Gross profit shown for systems and services revenues at the bottom of the table is stated as a percentage of related revenues. This information is derived from unaudited financial statements and has been prepared on the same basis as our audited financial statements which appear elsewhere in this prospectus. In the opinion of our management, this data reflects all adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of the information when read in conjunction with our consolidated financial statements and notes thereto. The results for any quarter are not necessarily indicative of future quarterly results, and we believe that period-to-period comparisons should not be relied upon as an indication of future performance.
Quarter Ended ------------------------------------------------------------------------------ March 31, June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30, Dec. 31, 1998 1998 1998 1998 1999 1999 1999 1999 --------- -------- --------- -------- --------- -------- --------- -------- (in thousands, except per share data) Quarterly Financial Data (Unaudited): Revenues Systems................ $14,807 $13,207 $14,240 $15,779 $16,924 $17,443 $17,507 $16,583 Services............... 3,531 3,728 3,924 3,708 3,887 4,231 4,202 4,444 ------- ------- ------- ------- ------- ------- ------- ------- 18,338 16,935 18,164 19,487 20,811 21,674 21,709 21,027 ------- ------- ------- ------- ------- ------- ------- ------- Costs of revenues Systems................ 8,967 8,223 8,897 9,685 9,873 10,080 9,895 9,041 Services............... 3,092 3,206 3,861 3,452 3,444 3,633 3,813 4,072 ------- ------- ------- ------- ------- ------- ------- ------- 12,059 11,429 12,758 13,137 13,317 13,713 13,708 13,113 ------- ------- ------- ------- ------- ------- ------- ------- Gross profit............ 6,279 5,506 5,406 6,350 7,494 7,961 8,001 7,914 ------- ------- ------- ------- ------- ------- ------- ------- Operating expenses Research and development........... 4,003 3,900 3,897 3,963 4,120 4,274 3,979 3,929 Selling and marketing.. 1,921 2,158 2,013 2,474 1,996 2,031 2,154 2,414 General and administrative........ 1,637 1,801 1,259 1,435 1,388 1,360 1,332 1,255 Restructuring of operations............ 676 -- -- -- -- -- -- -- Acquisition costs...... -- -- -- -- -- -- -- 684 ------- ------- ------- ------- ------- ------- ------- ------- 8,237 7,859 7,169 7,872 7,504 7,665 7,465 8,282 ------- ------- ------- ------- ------- ------- ------- ------- Income (loss) from operations............. (1,958) (2,353) (1,763) (1,522) (10) 296 536 (368) Interest income (expense), net......... 107 77 26 25 11 8 (13) 22 ------- ------- ------- ------- ------- ------- ------- ------- Income (loss) before income taxes........... (1,851) (2,276) (1,737) (1,497) 1 304 523 (346) Provision (benefit) for income taxes........... (709) (769) (770) (541) 33 (96) 231 (183) ------- ------- ------- ------- ------- ------- ------- ------- Net income (loss)....... $(1,142) $(1,507) $ (967) $ (956) $ (32) $ 400 $ 292 $ (163) ------- ------- ------- ------- ------- ------- ------- ------- Basic earnings (loss) per share.............. $ (.06) $ (.08) $ (.05) $ (.05) $ 0.00 $ 0.02 $ 0.01 $ (0.01) Diluted earnings (loss) per share.............. $ (.06) $ (.08) $ (.05) $ (.05) $ 0.00 $ 0.02 $ 0.01 $ (0.01) Gross profit Systems................ 39.4% 37.7% 37.5% 38.6% 41.7% 42.2% 43.5% 45.5% Services............... 12.4% 14.0% 1.6% 6.9% 11.4% 14.1% 9.3% 8.4%
22
Quarter Ended ---------------------------------------------------- April July Oct. April July Oct. 30, 31, 31, 30, 31, 31, 1999 1999 1999 2000 2000 2000 ------- ------- ------- ------- ------- ------- (in thousands, except per share data) Quarterly Financial Data (Unaudited): Revenues Systems................ $17,434 $18,277 $15,931 $16,868 $20,059 $18,306 Services............... 3,855 4,351 4,099 5,468 5,508 5,916 ------- ------- ------- ------- ------- ------- 21,289 22,628 20,030 22,336 25,567 24,222 ------- ------- ------- ------- ------- ------- Costs of revenues Systems................ 10,073 10,686 9,661 9,272 10,928 9,635 Services............... 3,424 3,809 3,825 4,232 4,457 4,582 ------- ------- ------- ------- ------- ------- 13,497 14,495 13,486 13,504 15,385 14,217 ------- ------- ------- ------- ------- ------- Gross profit............ 7,792 8,133 6,544 8,832 10,182 10,005 ------- ------- ------- ------- ------- ------- Operating expenses Research and development........... 4,249 4,098 3,985 4,353 5,002 5,101 Selling and marketing.. 2,126 1,990 2,207 2,490 2,625 3,169 General and administrative........ 1,388 1,330 1,329 1,503 1,799 1,675 Acquisition costs...... -- -- -- -- -- -- ------- ------- ------- ------- ------- ------- 7,763 7,418 7,521 8,346 9,426 9,945 ------- ------- ------- ------- ------- ------- Income (loss) from operations............. 29 715 (977) 486 756 60 Interest income (expense), net......... 5 2 (12) 25 (1) (54) ------- ------- ------- ------- ------- ------- Income (loss) before income taxes........... 34 717 (989) 511 755 6 Provision (benefit) for income taxes........... 33 (96) (375) 162 243 2 ------- ------- ------- ------- ------- ------- Net income (loss)....... $ 1 $ 813 $ (614) $ 349 $ 512 $ 4 ======= ======= ======= ======= ======= ======= Basic earnings (loss) per share.............. $ 0.00 $ 0.04 $ (0.03) $ 0.02 $ 0.02 $ 0.00 Diluted earnings (loss) per share.............. $ 0.00 $ 0.04 $ (0.03) $ 0.02 $ 0.02 $ 0.00 Gross profit Systems................ 42% 42% 39% 45% 46% 47% Services............... 11% 12% 7% 23% 19% 23%
We have experienced significant variations in revenues, expenses and operating results from quarter to quarter and such variations are likely to continue. A significant portion of our revenues have been generated from a limited number of customers and it is difficult to predict the timing of future orders and shipments to these and other customers. Customers can cancel or reschedule shipments, and development or production difficulties could delay shipments. During the quarterly periods in 1998 and 1999, we experienced variations in our revenues from quarter to quarter primarily related to the significant growth of our broadcast segment with the introduction products during the second quarter of 1998. For the quarterly periods, the broadcast segment revenues had no revenues in the first quarter of 1998 and increased to a high of $4.9 million in the third quarter of 1999. In addition, the quarterly revenues within the movies segment varied from quarter to quarter due primarily to the timing of receiving large volume orders from a relatively small customer base. We have also experienced significant variations in our quarterly systems gross margins. Changes in pricing policies, the product mix, the timing and significance of new product introductions and product enhancements, and fluctuations in the number of systems so affects manufacturing efficiencies and, accordingly, the gross profits. Quarterly services gross margins have historically fluctuated significantly because installation and training service revenue varies by quarter while the related costs are relatively consistent by quarter. During the quarterly periods in 1998 and 1999, the systems gross margins improved significantly from a low of 37.5% in the third quarter of 1998 to a high of 45.5% in the fourth quarter of 1999 as a result of a reduction in prices of hardware components for digital advertising insertion and broadcast segment products, increased revenues of 23 $12.6 million within the broadcast segment and the decrease of $1.5 million in additional inventory valuation allowances recorded in 1999. Operating expenses also vary with the number, timing and significance of new product and product enhancement introductions by us and our competitors, increased competition, the gain or loss of significant customers, the hiring of new personnel and general economic conditions. During the quarterly periods in 1998 and 1999, we experienced certain fluctuations in our operating expenses. Specifically, restructuring costs related to our acquisition of SC Asia caused operating expenses to be significantly higher in the first quarter of 1998 and acquisition costs related to our purchase of Digital Video Arts in the fourth quarter of 1999 resulted in increased operating expenses. During the second quarter of 1998, we centralized our accounting and administrative operations which reduced general and administrative expenses during the subsequent quarterly periods. In addition, our selling and marketing costs fluctuate from quarter to quarter as a result of large tradeshows that take place in the second and third quarter of the year and significant promotional costs that are incurred for new product introductions. All of the above factors are difficult for us to forecast, and these or other factors may materially adversely effect our business, financial condition and results of operations for one quarter or a series of quarters. Only a small portion of our expenses vary with revenues in the short-term and there would likely be a material adverse effect on our operating results if future revenues are lower than expectations. Based upon all of the foregoing, we believe that quarterly revenues and operating results are likely to vary significantly in the future and that period-to-period comparisons of our results of operations are not necessarily meaningful and, therefore, should not be relied upon as indications of future performance. Liquidity and Capital Resources Year Ended December 31, 1999 We have financed our operations and capital expenditures primarily with the proceeds of our common stock, borrowings and cash flows generated from operations. Cash, cash equivalents and marketable securities increased $5.9 million from $5.4 million at December 31, 1998 to $11.3 million at December 31, 1999. Working capital increased from approximately $22.9 million at December 31, 1998 to approximately $23.4 million at December 31, 1999. Net cash used in operating activities was approximately $9.0 million and $7.5 million for the years ended December 31, 1997 and 1998, respectively. Net cash provided by operating activities was approximately $8.6 million for the year ended December 31, 1999. The net cash provided by operating activities during 1999 was the result of the net income adjusted for non-cash expenses including depreciation and amortization, deferred income taxes, inventory valuation allowance and the changes in certain assets and liabilities. The significant net changes in assets and liabilities that provided cash in operations include an increase in accounts payable and a decrease in income taxes receivable, primarily resulting from a $1.8 million federal income tax refund. These items that provided cash from operations were offset by an increase in inventories, principally attributable to the increase in the number of product lines. We expect that the broadcast and the interactive television segments will continue to require a significant amount of cash to fund future product development, manufacture and deploy customer test and demonstration equipment and to meet the higher revenue levels in both product segments. Net cash used in investing activities was approximately $10.8 and $3.1 million for the years ended December 31, 1997 and 1999, respectively. Net cash provided by investing activities was approximately $5.5 million in the year ended December 31, 1998. Investment activity consisted primarily of capital expenditures related to the acquisition of computer equipment, office furniture, and other capital equipment required to support the expansion and growth of the business. Net cash provided by financing activities was approximately $4.1 million and $364,000 for the years ended December 31, 1998 and 1999, respectively. Net cash used in financing activities was approximately $454,000 in the year ended December 31, 1997. In 1999, the cash provided by financing included $1.1 million 24 of borrowings under the equipment line of credit and $2.0 million received in connection with the issuance of common stock pursuant to both the exercise of stock options and purchases under the employee stock purchase plan. During the same period, cash used by financing activities included the repayment of $2.2 million outstanding under the revolving line of credit and the equipment line of credit and $500,000 in principal payments under our capital lease obligations. We had a $6.0 million revolving line of credit and a $5.0 million equipment line of credit with a bank. This revolving line of credit expired in March 2000 and our ability to make purchases applied to the equipment line of credit expired in March 2000. In July 2000, we renewed our revolving line of credit and equipment line of credit with a bank. The revolving line of credit was extended until March 2001 and borrowings under the facility increased to $7.5 million. The equipment line of credit was extended to provide us with additional equipment financing of $4.0 million through March 2001. In addition, we entered into a $3 million line of credit facility with the Export-Import Bank of the United States which allows us to borrow money based upon eligible foreign customer account balances. This facility also expires in March 2001. Borrowings under all the lines of credit are secured by substantially all of our assets. Loans made under the revolving line of credit would generally bear interest at a rate per annum equal to the LIBOR rate plus 2% (9.05% at January 31, 2001). Loans under the EXIM line of credit bear interest at a rate per annum equal to the prime rate (9.0% at January 31, 2001). Loans made under the equipment line of credit bear interest at a rate per annum equal to the bank's base rate plus 1.0% (10.5% at October 31, 2000). The loan agreement relating to the lines of credit requires that we provide the bank with certain periodic financial reports and comply with certain financial ratios including the maintenance of total liabilities, excluding deferred revenue, to net worth of at least .80 to 1.0. As of January 31, 2001, there were $4.0 million in borrowings against the line of credit and borrowings outstanding under the equipment line of credit were $4.9 million. In October 2000, we entered into an agreement with a bank to finance $1.2 million of the construction costs related to the purchase and renovation of a manufacturing mill in New Hampshire that had been previously purchased in February 2000. During the construction period, interest is accrued and payable at a per annum rate of 8.875%. Upon our occupancy of the building, the loan will convert to two promissory notes whereby we will pay principal and interest based upon a fixed interest rate per annum using a five and ten year amortization schedule (8.875% at January 31, 2001). Borrowings under the loan are secured by the land and buildings of the renovated mill. The loan agreement requires that we provide the bank with certain periodic financial reports and comply with certain financial ratios. As of January 31, 2001, borrowings outstanding under the loan were $1.2 million. We believe that existing funds together with available borrowings under the line of credit and equipment line facility are adequate to satisfy our working capital and capital expenditure requirements for the foreseeable future. We had no material capital expenditure commitments as of December 31, 1999. Nine months ended October 31, 2000 We have financed our operations and capital expenditures primarily with the proceeds of our common stock, borrowings and cash flows generated from operations. Cash and cash equivalents increased $4.5 million from $2.7 million at January 31, 2000 to $7.2 million at October 31, 2000. Working capital increased from approximately $21.0 million at January 31, 2000 to approximately $31.3 million at October 31, 2000. Net cash used in operating activities was approximately $2.0 million for the nine month period ended October 31, 2000. Net cash provided by operating activities was approximately $3.5 million for the nine months ended October 31, 1999. The net cash used in operating activities in the nine months ended October 31, 2000 was the result of the net income adjusted for non-cash expenses including depreciation and amortization of $3.7 million offset by changes in certain operating assets and liabilities. The significant net changes in assets and liabilities that used cash in operations included an increase in accounts receivable of $6.5 million, an 25 increase in inventories of $3.2 million and an increase in prepaid expenses and other assets of $2.5 million. Inventory levels increased during the period principally as a result of procurement of long lead components for the interactive television and broadcast products. We expect these inventory levels to decrease as revenues from both these products increase. We expect that the broadcast segment and the interactive television products within the broadband segment will continue to require a significant amount of cash to fund future product development, to manufacture and deploy customer test and demonstration equipment and to meet higher revenue levels in both product segments. These items that used cash in operations were partially offset by an increase in accounts payable of $4.5 million and an increase in customer deposits of $1.4 million. Net cash used in investing activities was approximately $9.6 million and $2.7 million for the nine months ended October 31, 2000 and October 31, 1999, respectively. Investment activity consisted primarily of capital expenditures related to construction to expand the current manufacturing facility and the acquisition of computer equipment, office furniture, and other capital equipment required to support the expansion and growth of the business. Net cash provided by financing activities was approximately $16.1 million and $1.5 million for the nine months ended October 31, 2000 and October 31, 1999, respectively. In the nine months ended October 31, 2000, the cash provided by financing included $11.9 million received in connection with the issuance of common stock ($10 million of which was issued to Microsoft Corporation) and $5.4 million in borrowings under the equipment line of credit and our construction loan. Microsoft entered into an agreement with us to collaborate on extending Microsoft Windows Media Technologies from Broadband Internet delivery to cable and broadcast television systems. Concurrent with this agreement, Microsoft purchased 277,162 shares of our common stock for $10 million. Microsoft has agreed to purchase additional shares of our common stock based upon the achievement of mutually agreed upon development milestones including the development of software that meets specific streaming performance levels and the commercial release of an enhanced version of the software that will be used with Microsoft's Next Generation Media Server. During the same period, cash used in financing activities included approximately $1.2 million in principal payments under our equipment line of credit and capital lease obligations. In July 2000, we renewed our revolving line of credit and equipment line of credit with a bank. The revolving line of credit was extended until March 2001 and borrowings under the facility increased to $7.5 million. The equipment line of credit was extended to provide us additional equipment financing of $4.0 million through March 2001. In addition, we entered into a $3 million line of credit facility with the Export-Import Bank of the United States which allows us to borrow money based upon eligible foreign customer account balances. This facility also expires in March 2001. Borrowings under all the lines of credit are secured by substantially all of our assets. Loans made under the revolving line of credit would generally bear interest at a rate per annum equal to the LIBOR rate plus 2% (9.05% at October 31, 2000). Loans under the EXIM line of credit bear interest at a rate per annum equal to the prime rate (9.5% at October 31, 2000). Loans made under the equipment line of credit bear interest at a rate per annum equal to the bank's base rate plus 1.0% (10.5% at October 31, 2000). The loan agreement relating to the lines of credit requires that we provide the bank with certain periodic financial reports and comply with certain financial ratios including the maintenance of total liabilities, excluding deferred revenue, to net worth of at least .80 to 1.0. At October 31, 2000 we were in compliance with all covenants. As of October 31, 2000, there were no borrowings against the revolving line of credit and borrowings outstanding under the equipment line of credit were $4.9 million. In October 2000, we entered into an agreement with a bank to finance $1.2 million of the construction costs related to the purchase and renovation of a manufacturing mill in New Hampshire that had been previously purchased in February 2000. During the construction period, interest is accrued and payable at a per annum rate of 8.875%. Upon occupancy of the building by us, the loan will convert to two promissory notes whereby we will pay principal and interest based upon a fixed interest rate per annum using a five and ten year amortization schedule (8.875% at October 31, 2000). Borrowings under the loan are secured by the land and buildings of the renovated mill. The loan agreement requires that we provide the bank with certain periodic financial reports and comply with certain financial ratios. At October 31, 2000, we were in compliance with all covenants. As of October 31, 2000, borrowings outstanding under the loan were $1.0 million. 26 We believe that existing funds together with available borrowings under the revolving line of credit and equipment line facility are adequate to satisfy our working capital and capital expenditure requirements for the foreseeable future. We had no material capital expenditure commitments as of October 31, 2000. One month ended January 31, 2000 During the one month periods ended January 31, 2000 and January 31, 1999, we used cash in operations of $8.3 million, and $1.3 million, respectively. It is typical for us to experience fluctuations in our monthly operating results primarily due to the timing of receiving customer orders and the related shipment of these customer orders. As a result of these monthly fluctuations, we may experience an increase in our inventories as a result of procurement of both short and long lead components for anticipated orders for both our product segments, a decrease in our accounts payable balance primarily due to the timing of payments for materials purchased for prior month shipments, a decrease in accounts receivable amounts as a result of customer payments without corresponding customer shipments and a resulting decrease in cash and cash equivalents. We believe that existing funds together with available borrowings under the revolving line of credit and equipment line facility are adequate to satisfy our working capital and capital expenditure requirements for the foreseeable future. We had no material capital expenditure commitments as of January 31, 2000. Effects of Inflation Our management believes that financial results have not been significantly impacted by inflation and price changes. Recent Accounting Pronouncements. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivatives and Hedging Activities," which establishes accounting and reporting standards for derivative instruments, including derivative instruments embedded in other contracts, collectively referred to as derivatives, and for hedging activities. We will adopt SFAS No. 133 as required by SFAS No. 137, "Deferral of the effective date of the FASB Statement No. 133," in fiscal year 2001. To date we have not utilized derivative instruments or hedging activities and, therefore, the adoption of SFAS 133 is not expected to have a material impact on our financial position or results of operations. In December 1999, the SEC issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements." SAB 101 summarizes the SEC's view in applying generally accepted accounting principles to selected revenue recognition issues. The application of the guidance in SAB 101 will be required in our fourth quarter of the fiscal year 2001. The effects of applying this guidance will be reported as a cumulative effect adjustment resulting from a change in accounting principle. SeaChange estimates that the cumulative effect of the change in accounting principle will result in a charge to income before income taxes of approximately $1.6 million, which will be included in the results of operations for the fiscal year ended January 31, 2001. 27 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We face exposure to financial market risks, including adverse movements in foreign currency exchange rates and changes in interest rates. These exposures may change over time as business practices evolve and could have a material adverse impact on our financial results. Our primary exposure has been related to local currency revenue and operating expenses in Europe and Asia. Historically, we have not hedged specific currency exposures as gains and losses on foreign currency transactions have not been material to date. At January 31, 2001, we had $10.1 million outstanding related to variable rate U.S. dollar denominated short-term debt. The carrying value of these short-term borrowings approximates fair value due to the short maturities of these instruments. Assuming a hypothetical 10% adverse change in the interest rate, interest expense on these short-term borrowings would increase by $95,000. The carrying amounts reflected in the consolidated balance sheet of cash and cash equivalents, trade receivables, and trade payables approximates fair value at December 31, 1999 due to the short maturities of these instruments. We maintain investment portfolio holdings of various issuers, types, and maturities. Our cash and marketable securities include cash equivalents, which we consider to be securities purchased with original maturities of three months or less. Given the short maturities and investment grade quality of the portfolio holdings at December 31, 1999, a sharp rise in interest rates should not have a material adverse impact on the fair value of our investment portfolio. As a result, we do not currently hedge these interest rate exposures. 28 BUSINESS Incorporated in Delaware in July 1993, we develop, manufacture and sell systems, known as video storage servers, that automate the management and distribution of both short-form video streams, such as advertisements, and long-form video streams, such as movies or other feature presentations, each of which requires precise, accurate and continuous execution, to television operators, telecommunications companies and broadcast television companies. Our systems utilize both standard industry components and our embedded proprietary software that performs the specific functions of information processing such as order processing, invoicing and other similar functions. Our digital video systems with their state-of-the-art electronic storage and retrieval capabilities are designed to provide a higher image quality and to be more reliable, easier to use and less expensive than analog tape-based systems that are based on transmission of a continuous electronic signal that may vary in both frequency and amplitude. We believe that by automating the management and distribution process our systems help our customers reduce their ongoing operating costs while simultaneously allowing our customers to increase revenues by offering more targeted services such as local advertising segments, known as geography-specific spot advertising, inserted into cable programming; movies, known as video-on-demand movies, that the subscriber is able to watch at any time with pause, rewind and fast forward features; and other services, known as interactive television services, that allow consumers to customize and/or interact with their television viewing experience in a manner similar to that of using a personal computer. In our broadband or high bandwidth network or facility systems business segment, we have one existing movie product and two video-on-demand products for the interactive television markets. Our Movie System product provides long- form video storage and delivery for the pay-per-view movie markets. Our GuestServe System product delivers video-on-demand and other guest services, Internet access and personal computer games in a hotel environment for cable television and telecommunications companies. Our ITV System product provides residential video on demand or interactive television system services, including accessing movies and other programs, purchasing products and retrieving Internet content through the television, to digitally manage, store and distribute digital video for cable television operators and telecommunications companies. Starting in 1998, the market for our ITV System expanded when we entered into agreements with several cable companies to provide our ITV System for demonstration and testing of their video-on-demand systems and in 2000, several of these cable operators began deploying our ITV System. We also have agreements with leading producers of hardware devices, known as set-top boxes, used to receive and unscramble television signals, including agreements with Scientific-America, Motorola and Sony Corporation to test and integrate their products with our ITV System. In addition to our video on demand systems, our broadband system business segment includes our SPOT System product, which, based on currently available industry sources and our internal data, is the leading system in the United States for the transmission of video content, known as a video insertion system, in the multichannel television market for digital advertisement and other short-form video. Our SPOT System converts analog video forms such as advertisements and news updates to digital video forms, stores the digital video forms in remote or local storage devices, known as digital libraries, and inserts them automatically into television network streams. The SPOT System provides both high accuracy relative to the volume of video being played and high video image quality, permits geographic and demographic specificity of advertisements and we believe reduces operating costs by automating the management and distribution process. Our Advertising Management Software product operates in conjunction with our SPOT System to automate and simplify complex sales, scheduling and billing processes for the multichannel television market. A majority of our customers for these products consist of major cable television operators and telecommunications companies in the United States. In our broadcast or cable network systems business segment, our Broadcast MediaCluster product offers call letter stations, such as KSTP-Saint Paul, the ability to directly transmit content, such as commercials and syndicated or other programming for broadcast television companies, to their viewers. Today, the technology utilized by broadcasters is going through a transition away from analog tape libraries to digital server based storage of content. We believe that our broadcast MediaCluster system will eliminate the need for analog tape libraries and will provide broadcasters the automated storage and playback features that they 29 require. Since 1998, we have installed broadcast systems at customer locations including network affiliates and multi-channel operations in the United States, Europe and the Far East. Financial information regarding our business segments is located in the footnotes to our financial statements included with this prospectus under the heading "Segment Information." Industry Background Television operators, the largest users of professional quality video, historically have relied on videotape technology such as reel-to-reel technology and tape cassettes for the storage and distribution of video streams. These systems, which use videotape as the primary mechanism for the storage and distribution of video, have substantial limitations. Videotapes and their associated recording playback mechanisms are subject to mechanical failure and generational loss of video quality. Tape-based systems also require significant manual intervention, which makes them expensive and cumbersome to operate and limits their flexibility for programming and schedule changes. Finally, videotapes are bulky and have limited storage capacity. Over the past decade, the limitations of video tape-based systems have become increasingly apparent. Changes in government regulation and increased competition have forced television operators to seek new revenue sources and reduce costs. In addition, competition has forced television operators to find and offer new and enhanced video services while simultaneously improving the efficiency of their operations. While video tape-based systems are sufficient for some traditional applications, they do not meet the performance and cost requirements of video-on-demand, Internet and other applications. Cable Television Operators & Telecommunications Companies According to industry sources, there are approximately 12,000 cable television systems currently in the United States, serving over 70 million subscribers. In 1999, 96% of all cable systems provided over 30 channels of programming to their subscribers and most systems provided fifty or more channels. The number of cable subscribers world-wide has been estimated at 150 million. Over the last several years, cable operators have spent billions of dollars to upgrade their networks from analog to digital yielding a significant increase in available bandwidth, channel capacity and two-way capability. We believe this investment by the cable operators reflects their commitment to video on demand, advertising insertion, Internet and other applications. Video on demand represents a new opportunity for cable television operators. The increased channel capacity through the installation of fiber optic cables is providing many cable television operators with the capacity to offer specific video on demand services to residential cable subscribers. In 2000, cable operators and telecommunications companies began the deployment of residential video on demand services which allows the subscriber the ability to watch video programming at any time with pause, rewind and fast forward capabilities. The first application offered by these cable operators has been movies on demand. Because cable television programming is sent over broadband or high bandwidth network or facility lines, operators have the opportunity to segment and target their programming to viewers in selected geographies. In addition, the continuing growth in cable television's multiple specialized programming networks, such as CNN, MTV and ESPN and other networks such as Black Entertainment Television, the Discovery Channel and Nickelodeon, allow advertisers to target viewers in selected demographic profiles. Despite this advantage over television broadcasters, cable television operators historically have not realized advertising revenues in proportion to their share of television viewers. According to industry sources, in 1999, 48% of all television viewers were watching cable networks, yet cable television advertising revenue accounted for only 24% of the total television advertising revenue. In addition, advertising represents the major source of revenue for television broadcasters, while most cable television operators derive less than 5% of their gross revenue from advertising. The limitations of video tape-based technology were a major factor which had 30 prevented cable television operators from historically exploiting their advantages over television broadcasters as these systems are difficult to manage in multichannel and multi-zone environments, resulting in relatively poor video insertion accuracy and high operating costs. The Telecommunications Act of 1996 has lowered the legal barriers to entry for telecommunications companies to enter the multichannel video delivery market. Telecommunications companies are attempting to capitalize on the new growth opportunities by acquiring existing cable television operators and by leveraging their existing telephony networks to establish new multichannel video delivery operations. However, telecommunications companies face the same limitations as cable television operators in offering targeted, value-added services with analog tape-based systems on a cost-effective basis. Increased demand for video and audio content over the Internet will require a substantial increase in storage capacity and bandwidth over time. We believe that cable television operators and telecommunications companies will play an integral role in providing these broadband Internet applications. We also believe that in order to offer high quality video applications over the Internet, cable television operators and telecommunications companies will need storage and distribution products capable of complex management and scheduling of video data streams. We believe that our patented video server technology is well suited to meet this market opportunity. Television Broadcasters The more than 1,500 broadcast stations in the United States, including network affiliates and independent stations, face many of the same technological issues as cable television operators. Additionally, television broadcasters rely on advertising for nearly all of their revenue and require high accuracy relative to the volume of video being played and high image quality. To date, television broadcasters have utilized tape-based systems with robotic libraries, which are cumbersome and require high levels of maintenance and manual intervention to ensure that the needed performance requirements are met. Also, the videotapes in these systems need to be replaced frequently due to repeated use. In addition, many television broadcasters are beginning to use the recently available digital bandwidth to originate multiple program streams. As this application develops further, television operators will require video storage and delivery systems that can effectively manage and deliver these multiple television signals. As television broadcasters continue to automate their entire programming in order to reduce overall operating costs and improve reliability, we believe that our Broadcast MediaCluster products provide a unique solution that addresses these requirements. The SeaChange Solution We develop, manufacture and sell systems, known as video storage servers, that automate the management and distribution of both short-form video streams, such as advertisements, and long-form video streams, such as movies or other feature presentations, each of which requires precise, accurate and continuous execution, and the related services and movie content to television operators, telecommunications companies and broadcast television companies. Our solutions are based on the following five core areas of functionality: . real-time conversion of analog video into digital video format; . storage and retrieval of video content to and from digital libraries; . scheduled distribution of video streams between digital libraries by means of local and wide area data networks; . delivery of video streams over single and multiple channels; and . Management of video sales, scheduling, billing and execution of related business transactions. We use these core areas of functionality to provide solutions to a number of commercial markets. Our systems are designed to provide a consistent set of features and benefits, including: 31 . Viewer Targeting. Our digital video products enable television operators to efficiently target viewers in specific demographic or geographic groups. The ability to target selected viewers enables television operators to increase revenues by offering more targeted services. Our ITV and GuestServe systems make it possible for television operators to offer video-on-demand movies to individual residences or hotel rooms, our SPOT System offers this capability to television operators and our Broadcast MediaCluster offers this capability to broadcast television networks companies. . Cost Reduction. Our products are designed to provide our customers operating cost reductions as compared to analog tape-based systems due to, among other things, the elimination of videotapes and their storage and lower operating personnel requirements. We are also able to price our products on a competitive basis by using standard operating systems and components. We believe that the combination of competitive pricing of our products and reductions in the operating costs of our customers results in attractive payback periods on the initial capital outlay by our customers for our products. . Scalability. Our products are scalable to the needs of a particular cable television operator or television broadcaster whether operating in a single channel system concentrated in one specific zone or a system with hundreds of channels serving multiple zones and markets. Moreover, our proprietary storage technology enables the scalability of storage of digital video from a few minutes to hundreds of hours of video. . Reliability. Our products eliminate the need for traditional mechanical tape-based systems, thereby reducing the likelihood of breakdowns. Furthermore, through the use of redundant low cost standard computer industry components and proprietary storage technology and application software, our products are designed to be fault resilient, providing the high reliability required for television operations. . Scheduling Flexibility. The digitizing and storage of video streams allows advertisements, news updates and movies to be inserted on channels in local communities and allows cable television operators to insert or delete video content rapidly. This flexibility enables the provision of services such as video-on-demand movies and provides advertisers and television broadcasters the opportunity to insert new video content on short notice. . Video Image Quality. Because digital video streams do not degrade with playback, image content and quality remain at the original professional level even after multiple airings. . Ease of Use. We believe our products are simple to learn, require less maintenance, and are less personnel intensive than analog systems. Due to their innovative architecture, our products offer a number of features that simplify their use, including remote monitoring and service and automated short- and long-form video distribution. Strategy Our objective is to be the leader in the emerging market for the storage, management and distribution of professional quality digital video for the television marketplace. The key elements of our strategy are to: . Develop long-term Customer Relationships. We are focusing our product development, marketing and direct sales efforts on developing long-term customer relationships with cable television operators, telecommunications companies and television broadcasters in the United States and internationally. We have formed our customer relationships by providing digital video solutions to address customers' immediate problems, such as advertisement and other short-form video insertion. We intend to continue to leverage our customer relationships to offer new, compatible products to meet evolving market needs, such as video-on- demand programming. We believe that the fundamental shift from analog to digital video and the growing emphasis on interactive technologies will continue to present opportunities for us to develop, market and support our products to both our existing customer base and to customers in additional markets. 32 . Offer Complete Solutions. Our customers operate complex networks that require the delivery and management of video programming across multiple channels and target zones. We believe television operators desire complete solutions that integrate all steps of digital video delivery from scheduling to post-air verification and billing. To address these needs, we provide integrated applications and support services, which are more effective than individual functional products not specifically designed to work together. We believe that providing complete integrated solutions has been a significant factor in our success and will be an increasingly important competitive advantage. . Establish and Maintain Technological Leadership Through Systems Integration. We believe our competitive position is dependent in a large part on the features and performance of our integrated systems. As a result, we focus our research and development efforts on introducing systems with improved hardware and software capabilities. . Provide Superior Customer Service and Support. Our products operate in customer environments where continuous operation is critical. As a result, we believe that providing a high level of service and support give us a competitive advantage and is a differentiating factor in developing and maintaining key customer relationships. Our in- depth industry and application knowledge allows us to better understand the service needs of our customers. As of January 31, 2001 more than 34% of our employees were dedicated to customer service and support, including project design and implementation, installation and training. In addition, using remote diagnostic and communications features embedded in our products, the service organization has the ability to monitor the performance of customer installations and, in most cases, rectify problems remotely. Customers have access to service personnel via 24- hour, seven-day a week telephone support. Products We integrate standard industry components and embedded proprietary software with television components into our products. These products are marketed to cable television operators, telecommunication companies, television broadcasters, systems integrators and value-added resellers. Broadband Products Interactive Television Products SeaChange ITV System. We have developed and are deploying our interactive television system. This system is sold to cable television operators and other telecommunications companies and enables them to offer video on demand and other interactive services, including accessing movies and other programs, purchasing products and retrieving Internet content through the television, to their subscribers who have digital set-top boxes and access two way cable plants. This system consists of our MediaCluster product which will reside at headends or nodes in the cable system, our Command Center control software to manage and control the system, and interfaces to digital headend modulators and control systems and subscriber management systems. The delivery of video content to the subscriber utilizes our proprietary MediaCluster technology through the following steps: . Customer selection: When a customer selects from their set top box a video title to view, a message is transmitted from the set top box to our MediaCluster video server system located at the headend of the cable system. . Video selection execution: The MediaCluster video server system receives the video title request and retrieves the selection from the storage disk; which is an MPEG-2 compressed digital video file. The video file is loaded on the video server, which then executes the program. . Transmission to the customer: A network management device assesses the best route along the operator's network to deliver the video selection. The video file is delivered to a modulator, 33 which formats the video file so that it can be delivered across the broadband network. The video file is then delivered back to the customer's set top box. . Customer viewing: The set top box receives the video file and decrypts the signal and delivers it to the television for viewing. The software in the set top box provides the subscriber with the functionality of a traditional video cassette recorder, allowing the customer to pause, fast-forward and rewind the video file. Some set top boxes have storage capabilities that enable the customer to store the video file for an extended period of time. SeaChange Guestserve System. Our Guestserve System product is a platform for the storage and delivery of long-form video streams, particularly movies on demand and interactive guest services such as hotel checkout, Internet access and personal computer games. We are marketing our Guestserve System to cable television operators as part of an integrated product that allows these operators to package full-scale video on demand systems for hotels and apartments. The integrated system consists of user interfaces and application hardware and software, including set-top boxes, remote control devices, and our MediaCluster product that contains software architecture for the delivery and storage of movies. The video servers are installed at the cable headend and the video is delivered over a dedicated fiber optic line. The integrated system is designed to provide cable television operators with a new source of revenue and a competitive advantage over the encroaching services of direct broadcast satellite companies. SeaChange Movie System. Our Movie System product provides cable television operators, pay-per-view movie service providers and direct-to-home providers with capability to originate multiple pay-per-view movie channels or any other scheduled video programming. Our Movie System includes both our MediaCluster products that contains technology for storage and delivery of the video programming and an MPEG-2 encoder for capturing movies from video tape, and scheduling software and hardware to enable creating programming schedules for the pay-per-view channels. This system includes fault resiliency in both the video server technology and scheduling technology so as to ensure the highest levels of up time. SeaChange SPOT System Product Our SPOT System product automates the complex process of advertisement and other video insertion across multiple channels and geographic zones for cable television operators and telecommunications companies. Through our embedded proprietary software, our SPOT System allows cable television operators to insert local and regional advertisements and other short-form video streams into the time allocated for these video streams by cable television networks such as CNN, MTV, ESPN, Black Entertainment Television, the Discovery Channel and Nickelodeon. Our SPOT System is an integrated solution composed of software applications, hardware platforms, data networks and easy to use graphical interfaces. Our SPOT System is designed to be installed at local cable transmission sites, known as headends, and advertising sales business offices. Our video insertion process consists of six steps: . Encoding: The process begins with our Encoding Station product which uses our embedded proprietary encoding software and hardware that embodies MPEG-2, the industry standard for digital video and audio compression, to transform in real time and compress analog to digital short-and long-form video. . Storage: Digital video is then stored in a disk-based video library, capable of storing thousands of spots, where our SPOT System organizes, manages and stores these video streams. . Scheduling: Our advertising management software coordinates with the traffic and billing application to determine the designated time slot, channel and geographic zone for each video stream. . Distribution: Our strategic digital video software then copies the video files from the master video library and distributes them over the operator's data network to appropriate headends, where they are stored in video servers for future play. 34 . Insertion: Following a network cue, our video switch module automatically inserts the video stream into the network feed (initiating the analog conversion, if necessary), where they are then seen by television viewers. . Verification: After the video streams run, our proprietary software and hardware verifies the content, accuracy, timing and placement of these video streams to facilitate proper customer billing. We have developed a variety of different models of the SPOT System to support operators' differing requirements. The selling price for our SPOT Systems ranges from under $100,000 to several million dollars; the average system selling price of approximately $250,000. SeaChange Advertising Management Software Our Advertising Management Software product, referred to in the past as our Traffic and Billing Software product, is designed to permit television operators to manage advertising sales, scheduling, packaging and billing operations. This product provides advertising sales executives with management performance reports, inventory tracking, and order entry, billing and accounts receivable management. Our Advertising Management Software can be integrated with our SPOT System and is also compatible with many other commercially available third party advertisement insertion systems. Broadcast Products SeaChange Broadcast MediaCluster System. Our Broadcast MediaCluster System product is designed to provide high quality, MPEG-2 based video storage and playback for use with automation systems in broadcast television stations. This product is intended to replace on-air tape decks used to store and play back advertising, movies and other programming from video tape cart systems and, in some cases, to replace the cart systems themselves. Our Broadcast MediaCluster System is designed for customers both in larger broadcast television markets, which use station automation systems, and in smaller markets, which use control software included in the system. As with the ITV System in the broadband segment, our Broadcast MediaCluster System is designed to simultaneously record, encode, store to a disk and play video content using compression and decompression hardware. This product is designed to seamlessly integrate into television broadcasters' current tape-based operations and meet the high performance requirements of television broadcasters. Currently, our Broadcast MediaCluster system is composed of three to seven individual video servers arranged in a cluster acting as one system. Each video server in a cluster is connected to every other video server in the cluster creating a system with no single point of failure. Our broadcast system utilizes parity data to ensure fault tolerance in the event of component or video server failure and provides for more efficient data storage and eliminates the need for mirrored back-up video servers. Our Broadcast MediaCluster system also has other features that enable the broadcaster to have end to end functionality and reliability. One feature enables the broadcasters to schedule its programming for a week of television content. Customer Service and Support We install, maintain and support our products in North America, Asia, South America and Europe. We offer basic and advanced formal on-site training for customer employees. We currently provide installation, maintenance and support to international customers and also provide movie content in conjunction with sales of our GuestServe System. We offer technical support to customers, agents and distributors on a 24-hour, seven-day a week basis. Our systems sales include always one year of free maintenance. Customers We currently sell our products primarily to cable television operators, broadcast and telecommunications companies. 35 Our customer base is highly concentrated among a limited number of large customers, primarily due to the fact that the cable, movie, broadcast, and telecommunications industries in the United States are dominated by a limited number of large companies. A significant portion of our revenues in any given fiscal period have been derived from substantial orders placed by these large organizations. In 1997, 1998 and 1999, revenues from our five largest customers represented approximately 66%, 55% and 47% respectively, of our total revenues. Customers accounting for more than 10% of total revenues consisted of Tele- Communications (24%), Time Warner (17%) and Comcast (10%) in 1997; Tele- Communications (24%) and Time Warner (15%) in 1998; and AT&T Media Services (15%) and Time Warner (10%) in 1999. We expect that we will continue to be dependent upon a limited number of customers for a significant portion of our revenues in future periods. As a result of this customer concentration, our business, financial condition and results of operations could be materially adversely affected by the failure of anticipated orders to materialize and by deferrals or cancellations of orders as a result of changes in customer requirements or new product announcements or introductions. In addition, the concentration of customers may make variations in revenue, expenses and operating results due to seasonality of orders more pronounced. We believe that our backlog at any particular time is not meaningful as an indicator of our future level of sales for any particular period. Because of the nature of our products and our use of standard components, substantially all of the backlog at the end of a quarter can be manufactured by us and is intended to be shipped by the end of the following quarter. However, because of the requirements of particular customers these backlogs may not be shipped or, if shipped, the related revenues may not be recognized in that quarter. Therefore, there is no direct correlation between the backlog at the end of any quarter and our total sales for the following quarter or other periods. Selling and Marketing We sell and market our products in the United States primarily through a direct field sales organization and internationally primarily through independent agents and distributors, complemented by a coordinated marketing effort of our marketing group. Direct sales activities in the United States are conducted from our Massachusetts headquarters and seven field offices. In October 1996, we entered into an exclusive sales and marketing services agreement with a private Italian company to provide these services throughout continental Europe. We also market certain of our products, namely our MediaCluster, to systems integrators and value-added resellers. As of January 31, 2001, our selling and marketing organization consisted of 40 people. In light of the complexity of our digital video products, we primarily employ a consultative direct sales process. Working closely with customers to understand and define their needs enables us to obtain better information regarding market requirements, enhance our expertise in our customers' industries, and more effectively and precisely convey to customers how our solutions address the customer's specific needs. In addition to the direct sales process, customer references and visits by potential customers to sites where our products are in place are often critical in the sales process. We use several marketing programs focused on our targeted markets to support the sale and distribution of our products. We use exhibitions at a limited number of prominent industry trade shows and conferences and presentations at technology seminars to promote awareness of us and our products. We also publish technical articles in trade and technical journals and promotional product literature. Research and Product Development Our management believes that our success will depend to a substantial degree upon our ability to develop and introduce in a timely fashion new products and enhancements to our existing products that meet changing customer requirements in our current and new markets. We have in the past made, and intend to continue to make, substantial investments in product and technological development. Through our direct sales process we monitor changing customer needs, changes in the marketplace and emerging industry standards, and are therefore better able to focus our research and development efforts to address these evolving industry requirements. 36 Our research and development expenditures totaled approximately $11.8 million, $15.8 million and $16.3 million for the years ended December 31, 1997, 1998 and 1999, respectively. At January 31, 2001, 157 employees were engaged in research and product development. We believe that the experience of our product development personnel is an important factor in our success. We perform our research and product development activities at our headquarters and in offices in Greenville, New Hampshire; Atlanta, Georgia; and Fort Washington, Pennsylvania. We have historically expensed our direct research and development costs as incurred. We have a variety of new products being developed and tested, including interactive television products for cable television operators and telecommunications companies, digital play-to-air systems for television broadcasters and the next version of our MediaCluster software. In December 1999, we enhanced our research and development capabilities through the acquisition of Digital Video Arts, Ltd., a developer of custom software products specializing in digital video and interactive television. However, in the future we may not be able to successfully develop and market these products, or to identify, develop, manufacture, market or support other new products or enhancements to our existing products successfully or on a timely basis. In addition, our products may not gain market acceptance, or we may be unable to respond effectively to product announcements by competitors or technological changes. Manufacturing Our manufacturing operations are located at facilities in Maynard, Massachusetts and in Greenville, New Hampshire. The manufacturing operations in Massachusetts consist primarily of component and subassembly procurement, system integration and final assembly, testing and quality control of the complete systems. Our operations in New Hampshire consist primarily of component and subassembly procurement, video server integration and final assembly, testing and quality control of the video servers. We rely on independent contractors to manufacture components and subassemblies to our specifications. Each of our products undergoes testing and quality inspection at the final assembly stage. We attempt to use standard parts and components available from multiple vendors. Certain components used in our products, however, are currently purchased from a single source, including a computer chassis manufactured by Trimm Technologic, a disk controller manufactured by Mylex, a decoder card for MPEG-2, the standard for digital video and audio compression, manufactured by Vela Research and an MPEG-2 encoder manufactured by Optivision, Inc. While we believe that there are alternative suppliers available for these components, we believe that the procurement of these components from alternative suppliers would take anywhere from 45-120 days. However, these alternative components may not be functionally equivalent or may be unavailable on a timely basis or on similar terms. In addition, we purchase several other components from a single supplier, although we believe that alternative suppliers for these components are readily available on a timely basis. We generally purchase sole source or other components pursuant to purchase orders placed from time to time in the ordinary course of business and have no written agreements or guaranteed supply arrangements with our sole source suppliers. We have experienced quality control problems and supply shortages for sole source components in the past and, in the future, it is possible that we may again experience significant quality control problems or supply shortages for these components. However, any interruption in the supply of these single source components could have a material adverse effect on our business, financial condition and results of operations. Because of our reliance on these vendors, we may also be subject to increases in component costs which could adversely affect our business, financial condition and results of operations. Competition The markets in which we compete are characterized by intense competition, with a large number of suppliers providing different types of products to different segments of the markets. We currently compete principally on the basis of the breadth of our products' features and benefits, including the ability to precisely target viewers in specific geographic or demographic groups, and the flexibility, scalability, professional quality, ease of use, reliability and cost effectiveness of our products; and our reputation and the depth of our expertise, 37 customer service and support. While we believe that we currently compete favorably overall with respect to these factors and that our ability to provide solutions to manage, store and distribute digital video differentiates us from our competitors, in the future we may not be able to continue to compete successfully with respect to these factors. In the digital advertisement insertion market, we generally compete only with nCube (formerly SkyConnect, Inc.). In the market for long-form video products including video-on-demand, we compete with various companies offering video server platforms such as Concurrent Computer Corp., nCube, Diva Systems Corp. and more traditional movie application providers like The Ascent Entertainment Group, Panasonic Company, and Lodgenet Entertainment. In addition, our Advertising Management Software competes against certain products of Columbine Cable Systems, Inc., Cable Computerized Management Systems, Inc., a subsidiary of Indenet Inc., CAM Systems, Inc., a subsidiary of Starnet Inc., LAN International USA, Inc., Visiontel, Inc. and various suppliers of sales, scheduling and billing software products. In the television broadcast market, we compete against Grass Valley Group, Inc., Pinnacle Systems, Inc., Sony Corporation, and ASC Incorporated. We expect the competition in each of these markets to intensify in the future. Many of our current and prospective competitors have significantly greater financial, technical, manufacturing, sales, marketing and other resources than us. As a result, these competitors may be able to devote greater resources to the development, promotion, sale and support of their products than us. Moreover, these companies may introduce additional products that are competitive with ours or enter into strategic relationships to offer complete solutions, and in the future our products may not be able to compete effectively with these products. Although we believe that we have certain technological and other advantages over our competitors, maintaining these advantages will require continued investment by us in research and development, selling and marketing and customer service and support. In addition, as we enter new markets, distribution channels, technical requirements and competition levels may be different than those in our current markets. In the future we not be able to compete successfully against either current or potential competitors. Proprietary Rights Our success and our ability to compete is dependent, in part, upon our proprietary rights. We have been granted one U.S. patent for our MediaCluster technology and have filed a foreign patent application for the same technology. We also have other patent applications in process for other technologies. In addition, we rely on a combination of contractual rights, trademark laws, trade secrets and copyright laws to establish and protect our proprietary rights in our products. It is possible that in the future not all of these patents will be issued or that, if issued, the validity of these patents would be upheld. It is also possible that the steps taken by us to protect our intellectual property will be inadequate to prevent misappropriation of our technology or that our competitors will independently develop technologies that are substantially equivalent or superior to our technology. In addition, the laws of some foreign countries in which our products are or may be distributed do not protect our proprietary rights to the same extent as do the laws of the United States. We are also subject to the risk of adverse claims and litigation alleging infringement of intellectual property rights of others. We attempt to ensure that our products do not infringe any existing proprietary rights of others. A version of our Advertising and Management Software that is in limited distribution was based on software we licensed from Summit Software Systems, Inc. of Boulder, Colorado in May 1996. We have been granted a perpetual, nonexclusive license to this software in return for the payment of an up-front license fee and royalties for sales occurring prior to June 1998. Employees As of January 31, 2001, we employed 448 persons, including 157 in research and development, 153 in customer service and support, 40 in selling and marketing, 64 in manufacturing and 34 in finance and 38 administration. One of our employees is represented by a collective bargaining arrangement. We believe that our relations with our employees are good. Facilities Our corporate headquarters, which is also our principal administrative, selling, marketing, customer service and support and product development facility, is located in Maynard, Massachusetts and consists of approximately 105,000 square feet under a lease which expires on March 31, 2005 with annual base rent of $530,000. We purchased approximately 24,000 square feet of office and manufacturing space in Greenville, New Hampshire on February 15, 2000 for $280,000. We also lease two facilities totaling approximately 13,000 square feet in Greenville, New Hampshire that are used for the development and final assembly of our video servers. In connection with the acquisition in December 1999 of Digital Video Arts, we entered into a lease for approximately 8,000 square feet of office space in Fort Washington, Pennsylvania, which is primarily used for the development of custom software products for companies specializing in digital video and interactive television. We also lease small research and development and/or sales and support offices in Atlanta, Georgia, San Francisco, California, Denver, Colorado, St. Louis, Missouri, Reno, Nevada, Valbonne, France, and Singapore. Legal Proceedings On March 17, 2000, Beam Laser Systems, Inc. and Frank L. Beam instituted a claim (Civil Action No. 2:00-CV-195) in the federal courts in the Eastern District of Virginia against one of our customers, Cox Communications, Inc. This claim was later amended by Beam Laser on June 16, 2000 to also include two related companies of Cox Communications: CableRep, Inc. and CoxCom, Inc. Beam Laser has asserted that the ad insertion technology, which includes our spot ad insertion system, used by Cox Communications, CableRep and CoxCom infringes two of the patents held by Beam Laser (Patents No. 4,814,883 and 5,200,825). Beam Laser is seeking both an injunction and monetary damages from the defendants in that case. The defendants have made a counterclaim against Beam Laser seeking a declaration of non-infringement, invalidity and unenforceability of the two patents held by Beam Laser that are at question. On May 19, 2000, we filed a motion seeking to intervene in the action between our customer and Beam Laser, and to transfer the case to the District Court of Massachusetts. On June 23, 2000, the court granted our intervention motion and deferred ruling on the issue of transfer. Also on June 23, 2000, we filed our intervenor complaint in the Virginia action seeking, among other things, a declaratory judgment of non-infringement, invalidity and unenforceability regarding the two patents of Beam Laser that are at question. In addition, we have agreed to indemnify our customer for claims brought against the customer that are related to the customer's use of our products. On October 23, 2000, the court denied our motion to transfer. On November 29, 2000, Beam Laser filed a motion to amend its pleading to add claims against us seeking equitable relief, a finding of willful or contributory infringement, and attorneys' fees. On January 26, 2001, the magistrate denied Beam Laser's motion to amend. Beam Laser has filed an objection to this denial, but the court has not yet ruled on Beam Laser's objection. This dispute has a scheduled trial date commencing April 2001. On June 13, 2000, we filed in the United States District Court for the District of Delaware a lawsuit against one of our competitors, nCube Corp., whereby we alleged that nCube's MediaCube-4 product infringed a patent held by us (Patent No. 5,862,312). In instituting the claim, we sought both a permanent injunction and damages in an unspecified amount. nCube made a counterclaim against us that the patent held by us was invalid and that nCube's MediaCube-4 product did not infringe our patent. On September 25, 2000 the court upheld the validity of our patent. At this time we are awaiting the court's decision regarding a permanent injunction. Damages will be determined in future proceedings. On January 8, 2001, nCube Corp. filed a complaint against us in the United States District Court for the District of Delaware alleging that our use of our Media Cluster, Media Express and Media Server technology each infringe a patent held by nCube (Patent No. 5,805,804). In instituting the claim, nCube has sought both an injunction and monetary damages in an unspecified amount. We responded on January 26, 2001, 39 denying that the claim of infringement. We also asserted a counterclaim seeking a declaration from the District court that U.S. Patent No. 5,805,804 is invalid and not infringed. On June 14, 1999, we filed a defamation complaint against Jeffrey Putterman, Lathrop Investment Management, Inc. and Concurrent Computer Corporation in the Circuit Court of Pulaski County, Arkansas alleging that the defendants conspired to injure our business and reputation in the marketplace. The complaint further alleges that Mr. Putterman and Lathrop Investment Management, Inc. defamed us through false postings on an Internet message board. The complaint seeks unspecified amounts of compensatory and punitive damages. On June 14, 2000, Concurrent filed a counterclaim under seal against us seeking unspecified damages. These motions are currently pending and no trial date has been set. We cannot be certain of the outcome of the foregoing litigation, but do plan to oppose allegations against us and assert our claims against other parties vigorously. In addition, as these claims are in the early stages of discovery and certain claims for damages are as yet unspecified, we are unable to estimate the impact to our business, financial condition, and results of operations or cash flows. 40 MANAGEMENT The following table sets forth for each of our Class I, Class II and Class III Directors, each Class III Director and our executive officers, their ages and the positions currently held by each such person with us:
Name Age Position ---- --- -------- William C. Styslinger, III..... 54 President, Chief Executive Officer, Chairman of the Board and Director William L. Fiedler............. 56 Chief Financial Officer, Treasurer, Secretary and Vice President, Finance and Administration Scott Blais.................... 42 Vice President, Customer Services Jeffrey M. Boone............... 37 Vice President, Software Engineering Edward J. Delaney, Jr.......... 41 Vice President, Marketing Ira Goldfarb................... 43 Vice President, Worldwide Sales Bruce E. Mann.................. 52 Vice President, Network Storage Engineering Martin R. Hoffmann (1)(2)...... 68 Director Carmine Vona (1)(2)............ 63 Director
- -------- (1) Member of Compensation and Option Committee. (2) Member of Audit Committee. William C. Styslinger, III, has served as our President, Chief Executive Officer and a Director since our inception in July 1993 and as Chairman of the Board since January 1995. Prior to our formation in 1993, Mr. Styslinger was employed at Digital Equipment Corporation since March 1978, most recently as manager of the Cable Television Business Unit from October 1991 to May 1993. Mr. Styslinger is a member of the Board of Directors of Omtool, Inc., a provider of enterprise client/server facsimile software solutions. Martin R. Hoffmann has served as one of our Directors since January 1995. Mr. Hoffmann currently engages in consulting activities and is pursuing pro bono opportunities. Mr. Hoffmann served as Of Counsel to the Washington D.C. office of Skadden, Arps, Slate, Meagher & Flom LLP from January 1996 until July 2000. From April 1995 to January 1996, Mr. Hoffmann maintained a law practice and business consulting practice. He was a Visiting Senior Fellow at the Center for Policy, Industry and Industrial Development at Massachusetts Institute of Technology from May 1993 to April 1995, prior to which, from April 1989, he served as Vice President and General Counsel for Digital Equipment Corporation. Mr. Hoffmann is a member of the Boards of Directors of Castle Energy Corporation, an oil and gas exploration and production company, and Mitretek Systems, a non-profit technology and services company. Carmine Vona has served as one of our Directors since January 1995. Mr. Vona has been President and Chief Executive Officer of Vona Information Systems, Inc., a consulting firm, since June 1996. Prior to that, Mr. Vona was Executive Vice President and Senior Managing Director for worldwide technology at Bankers Trust Co. from November 1969 to June 1996. From August 1986 to June 1996 Mr. Vona was Chairman of BT-FSIS, a software development company and a wholly owned subsidiary of Bankers Trust Co. Executive Officers Scott Blais has served as our Vice President, Customer Services since October 1998. Prior to joining us, Mr. Blais spent three years holding various positions including Vice President and General Manager at Adra Systems, Inc., a software company. Prior to that, Mr. Blais held the position of Director of Customer Services and Quality Assurance for Keyfile Corporation, a software company. Jeffrey M. Boone has served as our Vice President, Software Engineering since January 1998. Prior to that, Mr. Boone served as our Engineering Manager from June 1996 to December 1997, and as a member of the our technical staff from September 1995 to June 1996. Prior to joining us, Mr. Boone was a Systems Architect at Logica North American, a software consulting company, from June 1994 to September 1995. 41 Edward J. Delaney, Jr. joined us in February 1994 as our Vice President, Sales and Marketing and Mr. Delaney has served as our Vice President, Marketing since January 1998. Prior to joining us, Mr. Delaney spent 12 years with Digital Equipment Corporation in a variety of positions, including Marketing and Operations Manager for Digital's Cable Television Business Unit, marketing manager of media products for the Asia/Pacific region, executive assistant to the Vice President of United States Sales, and sales manager. William L. Fiedler has served as our Chief Financial Officer, Treasurer and Vice President, Finance and Administration since September 1998 and as our Secretary since May 2000. Prior to joining us, Mr. Fiedler served from July 1984 to June 1998 as the Chief Financial Officer, Treasurer and Senior Vice President, Finance and Administration of Matrix One, Inc., a developer of product data management systems. Prior to that, Mr. Fiedler served as the Chief Financial Officer of Hendrix Electronics Inc., a developer of text processing and graphics publishing systems, and had also held controllership positions at Bose Corporation and GTE Sylvania. Ira Goldfarb has served as our Vice President, Worldwide Sales since January 1998. Prior to that, Mr. Goldfarb served as our Vice President, U.S. Systems Sales from August 1997 to January 1998, as our Vice President, Eastern Region from January 1997 to August 1997, and as Vice President, Central Region, from August 1994 to January 1997. Prior to joining us, Mr. Goldfarb held several sales management positions at Digital Equipment Corporation from September 1983 to July 1994. Bruce E. Mann joined us in September 1994 as Vice President, Network Storage Engineering. Mr. Mann is also President of SeaChange Systems, Inc., one of our subsidiaries which develops and manufactures video server-based products. Prior to joining us, Mr. Mann served as Director of Engineering at Ungermann-Bass, Inc., a subsidiary of Tandem Computers Inc., from March 1993 to September 1994. Prior to that, from September 1976 to March 1993, Mr. Mann was an engineer at Digital Equipment Corporation, most recently as Senior Consulting Engineer. Our executive officers are appointed by, and serve at the discretion of, our board of directors, and serve until their successors have been duly elected and qualified. There are no family relationships among any of the our executive officers or directors. Certain Relationships and Related Transactions We have adopted a policy that all transactions between us and our officers, directors, principal stockholders and affiliates will be approved by a majority of the board of directors, including a majority of the independent and disinterested outside directors on the board of directors, and will be on terms no less favorable to us than could be obtained from unaffiliated third parties. 42 COMPENSATION AND OTHER INFORMATION CONCERNING DIRECTORS AND OFFICERS Executive Compensation Summary The following table sets forth summary information concerning the compensation we paid for services rendered to us during the fiscal year ended January 31, 2001, the one-month period ended January 31, 2000, and the preceding two fiscal years ended December 31, 1999 and 1998, respectively, by our chief executive officer and each of our four other most highly compensated executive officers who serve as of January 31, 2001. This presentation reflects the change on April 14, 2000 in our fiscal year-end from December 31 to January 31. In addition, the disclosure regarding Mr. Fiedler for the fiscal year ended December 31, 1998 reflects the fact that he began employment with us in September 1998. SUMMARY COMPENSATION TABLE
Long-Term Compensation Awards ------------ Annual Compensation Securities ----------------------- Underlying Name and Principal Position Period Salary Bonus Options(#) --------------------------- ------ -------- ------- ------------ William C. Styslinger, III 2001 $217,372 -- 41,000 President and Chief Executive 2000 15,545 -- -- Officer.............................. 1999 184,108 -- 30,000 1998 174,509 -- 6,000 William L. Fiedler 2001 $194,258 $22,862 18,000 Chief Financial Officer, Treasurer 2000 15,750 7,291 -- and Vice President, Finance and 1999 179,398 20,000 15,000 Administration....................... 1998 55,080 -- 112,500 Edward J. Delaney, Jr. 2001 $169,820 $19,800 18,000 Vice President, Marketing............ 2000 13,736 2,088 -- 1999 154,071 -- 7,500 1998 147,388 -- 6,000 Bruce E. Mann 2001 $188,858 $30,329 18,000 Vice President, Network Storage 2000 15,580 -- -- Engineering.......................... 1999 173,852 15,739 7,500 1998 165,674 -- 6,000 Jeffrey M. Boone 2001 $148,469 $25,337 14,000 Vice President, Software 2000 12,012 -- -- Engineering.......................... 1999 129,309 13,379 7,500 1998 113,325 -- 16,500
Option Grants in Last Fiscal Year The following table sets forth information as to stock options granted to each of our named executive officers during the fiscal year ended January 31, 2001 under our amended and restated 1995 stock option plan. No stock options were granted in the one month period ending January 31, 2000 to our named executive officers. All options listed below were granted under our amended and restated 1995 stock option plan and vest 20% on the first anniversary of the date of grant and 5% each quarter thereafter. The percentage of total options granted to our employees in the fiscal year ended January 31, 2001 is based on options granted during that period to purchase an aggregate of 1,022,717 shares. Amounts that may be realized upon exercise of the options immediately before the expiration of their term, assuming the specified compound rates of appreciation (5% and 10%) on the market value of the 43 common stock on the date of option grant over the term of the options. These numbers are calculated based on rules promulgated by the SEC and do not reflect our estimate of future stock price growth. Actual gains, if any, on stock option exercises and common stock holdings are dependent on the timing of exercise and the future performance of the common stock. However, the rates of appreciation assumed in this table may not be realized or the amounts reflected may not be received by the individuals.
Individual Grants ------------------------------------------ Potential Realizable Value At Assumed Percent of Annual Rates of No. of Total Stock Price Securities Options Exercise Appreciation for Underlying Granted to or Base Option Term Options Employees Price Per Expiration ------------------- Name Granted in Year Share Date 5% 10% ---- ---------- ---------- --------- ---------- -------- ---------- William C. Styslinger, III.................... 41,000 4.01% $26.75 5/24/10 $690,953 $1,743,833 William L. Fiedler...... 7,668 0.75% $34.00 4/14/10 $164,249 $ 414,532 10,332 1.01% $26.75 5/24/10 $174,120 $ 439,446 Edward J. Delaney, Jr... 7,668 0.75% $34.00 4/14/10 $164,249 $ 414,532 10,332 1.01% $26.75 5/24/10 $174,120 $ 439,446 Bruce E. Mann........... 7,668 0.75% $34.00 4/14/10 $164,249 $ 414,532 10,332 1.01% $26.75 5/24/10 $174,120 $ 439,446 Jeffrey M. Boone........ 5,964 0.58% $34.00 4/14/10 $127,749 $ 322,414 8,036 0.79% $26.75 5/24/10 $135,427 $ 341,791
Option Exercises and Fiscal Year-End Values The following table sets forth as of January 31, 2001 information with respect to options to purchase our common stock granted under our amended and restated 1995 stock option plan to our named executive officers. The value of unexercised in-the-money options as of January 31, 2001 is based on the difference between the option exercise price and the fair market value of our common stock at January 31, 2001, our fiscal year-end ($26.453 per share as quoted on the Nasdaq National Market), multiplied by the number of shares underlying the option. AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
Number of Securities Underlying Unexercised Value of Unexercised Options at In-the-Money Options Shares January 31, 2001 at January 31, 2001 Acquired Value ------------------------- --------------------------- Name on Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable ---- ----------- ---------- ------------------------- --------------------------- William C. Styslinger, III.................... 40,500 $1,007,438 28,597/56,403 $ 316,159.70/$427,880.35 William L. Fiedler...... 11,500 $ 410,500 69,784/99,486 $1,469,409.31/$1,601,406.01 Edward J. Delaney, Jr... 31,575 $ 785,428 7,049/37,776 $ 51,838.35/$205,066.13 Bruce E. Mann........... -- -- 13,499/18,501 $ 181,441.58/$348,272.93 Jeffrey M. Boone........ -- -- 25,367/38,182 $ 411,764.57/$334,848.20
Compensation Committee Interlocks and Insider Participation The members of our compensation and option committee are Messrs. Hoffmann and Vona. In addition, prior to his resignation on December 14, 2000 as one of our directors, Mr. Paul Saunders also served as a member of our compensation and option committee. No person who served as a member of this committee was, during the past fiscal year, an officer or employee of us or any of our subsidiaries, was formerly an officer 44 of us or any of our subsidiaries, or had any relationship requiring disclosure herein. In addition, none of our executive officers served as a member of the compensation committee of another entity (or other committee of the board of directors performing equivalent functions or, in the absence of any such committee, the entire board of directors), one of whose executive officers served as one of our directors. Compensation of Directors During the fiscal year ended January 31, 2001, directors who were also employees of us received no cash compensation for their services as directors, except for reimbursement of expenses incurred in connection with attending meetings. In fiscal 2001, we paid directors who are not employees of us a fee of $1,000 for each meeting of the Board of Directors that they attended in person and such directors were reimbursed for their reasonable out-of-pocket expenses incurred in attending such meetings. Messrs. Hoffmann and Saunders were each paid $1,000 in fiscal 2001. Each non-employee director is also entitled to participate in our 1996 non-employee director stock option plan. Limitation of Liability and Indemnification of Officers and Directors Our amended and restated certificate of incorporation provides that our directors and officers will be indemnified by us to the fullest extent permitted by Delaware law, as it now exists or may in the future be amended, against all expenses and liabilities reasonably incurred in connection with their service for us or on our behalf. In addition, our amended and restated certificate of incorporation provides that our directors will not be personally liable for monetary damages to us for breaches of their fiduciary duty as directors, unless they: . violated their duty of loyalty to us or our stockholders; . acted or failed to act in bad faith; . knowingly or intentionally violated the law; . authorized illegal dividends or redemptions; or . derived an improper benefit from their action as directors. We have insurance that insures our directors and officers against certain losses and us against our obligations to indemnify our directors and officers. 45 PRINCIPAL STOCKHOLDERS The following table sets forth information regarding the beneficial ownership of our common stock as of January 31, 2001 by: . each person or entity who is known by us to beneficially own more than 5% of our common stock; . each of our directors and named executive officers; and . all of our directors and executive officers as a group. Except as indicated below, none of these entities has a relationship with us. Unless otherwise indicated, the address of each person or entity named in the table is c/o SeaChange International, Inc., 124 Acton Street, Maynard, Massachusetts 01754, and each person or entity has sole voting power and investment power, (or shares such power with his or her spouse,) with respect to all shares of capital stock listed as owned by such person or entity. The number and percentage of shares beneficially owned is determined in accordance with the rules of the SEC, and is not necessarily indicative of beneficial ownership for any other purpose. Under these rules, beneficial ownership includes any shares as to which a person has sole or shared voting power or investment power and also any shares of common stock underlying options or warrants that are exercisable by that person within 60 days of January 31, 2001. However, these shares underlying options or warrants are not treated as outstanding for the purpose of computing the percentage ownership of any other person or entity. Unless otherwise indicated in the footnotes, each person has sole voting and investment power, (or shares such powers with his or her spouse,) with respect to the shares shown as beneficially owned. Percentage of beneficial ownership prior to the offering is based on 22,048,252 shares of our common stock outstanding as of January 31, 2001 and assumes the conversion of all outstanding shares of our convertible preferred stock into shares of common stock. Percentage of beneficial ownership after the offering assumes 22,904,396 shares of common stock to be outstanding after completion of this offering.
Percent of Percent of Amount and Common Stock Common Stock Nature of Outstanding Outstanding Beneficial Before the After the Name Ownership Offering Offering ---- ---------- ------------ ------------ William C. Styslinger, III(1)........ 2,242,828 10.2% 9.9% William L. Fiedler(2)................ 75,373 * Scott Blais(3)....................... 16,106 * Jeffrey M. Boone(4).................. 88,241 * Edward J. Delaney, Jr.(5)............ 1,380,493 6.3% 6.1% Ira Goldfarb(6)...................... 116,740 * Martin R. Hoffmann(7)................ 202,084 * Bruce E. Mann(8)..................... 368,573 1.7% 1.6% Carmine Vona(9)...................... 29,056 * Credit Suisse Asset Management, LLC.. 1,202,255 5.5% 5.3% 466 Lexington Avenue New York, New York 10017 All executive officers and directors as a group (9 persons)(10).......... 4,519,494 17.01% 16.4%
- -------- * Less than 1% (1) Includes 225,000 shares of Common Stock owned by Merrill Lynch, Trustee f/b/o William C. Styslinger, III, IRA. Excludes (i) 96,429 shares of Common Stock owned by Thomas and Emily Franeta as Trustees of The Styslinger Family Trust; (ii) 10,147 shares of Common Stock held by Thomas Franeta as Custodian for Kimberly J. Styslinger; and (iii) 75,000 shares of Common Stock owned by his wife, Joyce Styslinger. Mr. Styslinger disclaims beneficial ownership of the shares held by The Styslinger Family Trust, by Thomas Franeta as Custodian for Kimberly J. Styslinger and by his wife, Joyce Styslinger. 46 Includes 30,649 shares of Common Stock issuable pursuant to outstanding stock options that may be exercised within 60 days of January 31, 2001. (2) Includes 75,373 shares of Common Stock issuable pursuant to outstanding options that may be exercised within 60 days of January 31, 2001. (3) Includes 8,001 shares of Common Stock issuable pursuant to outstanding options that may be exercised within 60 days of January 31, 2001. (4) Includes 26,816 shares of Common Stock issuable pursuant to outstanding options that may be exercised within 60 days of January 31, 2001. (5) Includes (i) 540,000 shares of Common Stock held by The Delaney Family Limited Partnership of which Mr. Delaney is both a general and a limited partner; and (ii) 7,948 shares of Common Stock issuable pursuant to outstanding stock options that may be exercised within 60 days of January 31, 2001. Excludes (i) 206,760 shares of Common Stock held by Merrill Lynch, Trustee f/b/o Kathryn H. Delaney, IRA; (ii) 1,700 shares of Common Stock owned by Mr. Delaney's son, Joseph; and (iii) 1,700 shares of Common Stock owned by Mr. Delaney's daughter, Mary. Mr. Delaney disclaims beneficial ownership of the shares held by Merrill Lynch and his children. (6) Includes 18,106 shares of Common Stock issuable pursuant to outstanding options that may be exercised within 60 days of January 31, 2001. (7) Includes 12,182 shares of Common Stock issuable pursuant to outstanding stock options that may be exercised within 60 days of January 31, 2001. (8) Includes 17,023 shares of Common Stock issuable pursuant to outstanding stock options that may be exercised within 60 days of January 31, 2001. Excludes an aggregate of 23,824 shares of Common Stock held by Mr. Mann's three children. (9) Includes 12,181shares of Common Stock issuable pursuant to outstanding stock options that may be exercised within 60 days of January 31, 2001. (10) Includes 208,279 shares of Common Stock issuable pursuant to outstanding stock options that may be exercised within 60 days of January 31, 2001. 47 MARKET PRICE Our common stock is traded on the Nasdaq National Market under the symbol "SEAC." The following table sets forth the high and low closing sale prices for the Common Stock for the periods indicated, as reported on the Nasdaq National Market.
High Low ------- ------- Three Month Period Ended: March 31, 1998.......................................... $ 5.667 $ 4.417 June 30, 1998........................................... 8.667 3.959 September 30, 1998...................................... 7.833 3.833 December 31, 1998....................................... 5.833 3.833 March 31, 1999.......................................... 6.083 4.000 June 30, 1999........................................... 12.078 5.297 September 30, 1999...................................... 14.220 8.750 December 31, 1999....................................... 35.375 10.670 One Month Period Ended January 31, 2000................... 46.750 27.750 Three Month Period Ended: April 30, 2000.......................................... 73.500 30.000 July 31, 2000........................................... 41.188 21.078 October 31, 2000........................................ 40.750 19.063 January 31, 2001........................................ 34.750 16.375
On February 23, 2001, the last reported sale price of our common stock on the Nasdaq National Market was $15.1875. We have not paid any cash dividends on our capital stock since its inception, and do not expect to pay cash dividends on our common stock in the foreseeable future. We currently intend to retain all of our future earnings for use in the operation and expansion of the business. 48 DESCRIPTION OF CAPITAL STOCK General Our authorized capital stock consists of 100,000,000 shares of common stock, $0.01 par value per share, and 5,000,000 shares of preferred stock, $0.01 par value per share. As of January 31, 2001, there were outstanding (1) 22,048,252 shares of common stock held by 126 stockholders of record, (2) no shares of preferred stock and (3) options to purchase an aggregate of 3,464,964 shares of common stock. Common Stock As of January 31, 2001 there were 22,048,252 shares of common stock outstanding held by 126 stockholders of record. We believe that the number of beneficial holders of our common stock exceeds 2,500. Based upon the number of shares outstanding as of that date and giving effect to the issuance of the 856,144 shares of common stock offered in this offering, there will be approximately 22,904,396 shares of common stock outstanding upon the closing of this offering. In addition, as of January 31, 2001, there were outstanding stock options to purchase 3,464,964 shares of common stock. Holders of common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders and do not have cumulative voting rights. Directors are elected by a plurality of the votes of the shares present in person or by proxy at the meeting and entitled to vote in this election. Holders of common stock are entitled to receive ratably dividends, if any, as may be declared by the board of directors out of funds legally available therefor, after provision has been made for any preferential dividend rights of outstanding preferred stock. Upon our liquidation, dissolution or winding up, the holders of common stock are entitled to receive ratably the net assets available after the payment of all of our debts and other liabilities, and after the satisfaction of the rights of any outstanding preferred stock. Holders of the common stock have no preemptive, subscription, redemption or conversion rights, nor are they entitled to the benefit of any sinking fund. The outstanding shares of common stock are, and the shares offered in this offering will be, when issued and paid for, validly issued, fully paid and non- assessable. The rights, powers, preferences and privileges of holders of common stock are subordinate to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock which we may designate and issue in the future. Preferred Stock The board of directors generally will be authorized, without further stockholder approval, to issue from time to time up to an aggregate of 5,000,000 shares of preferred stock, in one or more series. Each series of preferred stock will have the number of shares, designations, preferences, voting powers, qualifications and special or relative rights or privileges as is determined by the board of directors, which may include, among others, dividend rights, voting rights, redemption and sinking fund provisions, liquidation preferences, conversion rights and preemptive rights. Our stockholders have granted the board of directors authority to issue the preferred stock and to determine the rights and preferences of the preferred stock in order to eliminate delays associated with a stockholder vote on specific issuances. The rights of the holders of common stock will be subordinate to the rights of holders of any preferred stock issued in the future. The issuance of preferred stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could adversely affect the voting power or other rights of the holders of common stock, and could make it more difficult for a third party to acquire, or discourage a third party from attempting to acquire, a majority of our outstanding voting stock. We have no present plans to issue any shares of this preferred stock. Anti-takeover Effects of Provisions of Delaware Law and our Certificate of Incorporation and By-Laws Upon completion of this offering, the provisions of section 203 of the Delaware General Corporation Law of Delaware will prohibit us from engaging in a "business combination" with an "interested stockholder" 49 for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. A "business combination" includes mergers, asset sales and other transactions resulting in a financial benefit to the interested stockholder. An "interested stockholder" is generally defined as a person who, together with affiliates and associates, owns, or within three years did own, 15% or more of the corporation's voting stock. Our amended and restated by-laws provides for the division of the board of directors into three classes, as nearly equal in size as possible, with staggered three-year terms. In addition, our amended and restated by-laws provide that the number of directors will be determined from time to time by resolution adopted by a majority of the board of directors, vacancies on the board of directors may be filled by the board unless and until filled by the stockholders, and directors may be removed only for cause by the vote of the holders of at least 75% of the shares then entitled to vote at an election of directors. The classification of the board of directors and the limitations on the removal of directors and the filling of vacancies could make it more difficult for a third party to acquire or discourage a third party from acquiring control of us by increasing the time required for the stockholders to change the composition of the board of directors. For example, in general, at least two annual meetings of the stockholders will be necessary to effect a change in a majority of the members of the board of directors. Our amended and restated by-laws also provides that any action required or permitted to be taken by our stockholders at an annual meeting or special meeting of stockholders may only be taken if it is properly brought before the meeting and may not be taken by written consent in lieu of a meeting. Our amended and restated by-laws provide that special meetings of stockholders may only be called by the board of directors, the chairman of the board of directors or the president. Our amended and restated by-laws further provide that in order for any matter to be considered "properly brought" before a meeting, a stockholder must comply with requirements regarding advance notice to us. The foregoing provisions could have the effect of delaying until the next stockholders' meeting actions that are favored by the holders of a majority of our outstanding voting securities. These provisions may also discourage a third party from making a tender offer for our common stock, because, even if it acquired a majority of our outstanding voting securities, the third party would only be able to take action as a stockholder, such as electing new directors or approving a merger, at a duly called stockholders' meeting, and not by written consent. Our amended and restated certificate of incorporation empowers our board of directors, when considering a tender offer or merger or acquisition proposal, to take into account any factors that it determines to be relevant, including, without limitation: . the interests of our stockholders, including the possibility that these interests might be best served by our continued independence; . whether the proposed transaction might violate federal or state laws; . not only the consideration being offered in the proposed transaction, in relation to the then current market price for our outstanding capital stock, but also to the market price for our capital stock over a period of years, the estimated price that might be achieved in a negotiated sale of our business as a whole or in part or through orderly liquidation, the premiums over market price for the securities of other corporations in similar transactions, current political, economic and other factors bearing on securities prices and our financial condition and future prospects; . the social, legal and economic effects upon employees, suppliers, customers, creditors and others having similar relationships with us, upon the communities in which we conduct our business and upon the economy of the state, region and nation. These provisions may discourage a third party from making a tender offer for our common stock, as these provisions decrease the likelihood that our board of directors would find such a transaction to be in the interests of our stockholders. 50 The Delaware General Corporation Law provides generally that the affirmative vote of a majority of the shares entitled to vote on any matter is required to amend a corporation's certificate of incorporation or by-laws, unless a corporation's certificate of incorporation or by-laws, as the case may be, requires a greater percentage. Our fifth amended and restated certificate of incorporation requires the affirmative vote of the holders of at least 75% of the shares of our capital stock that are issued and outstanding and entitled to vote to amend or repeal any of the foregoing provisions of the fifth amended and restated certificate of incorporation. Our third amended and restated by- laws may generally be amended or repealed by a majority vote of the board of directors and may also be amended or repealed by the affirmative vote of the holders of at least 75% of the shares of our capital stock that are issued and outstanding and entitled to vote. The 75% stockholder vote would be in addition to any separate class vote that might in the future be required in accordance with the terms of any series of preferred stock that might be outstanding at the time these amendments are submitted to stockholders. 51 COMCAST SC INVESTMENT, INC. The following table sets forth, as of the date of the prospectus, the number and percentage of shares of our common stock beneficially owned by Comcast SC prior to this offering and the maximum number of shares that Comcast SC, its transferees, distributees, pledgees, donees or other successors in interest may offer and sell under the terms of this prospectus. Since Comcast SC may sell all, some or none of its shares, we cannot estimate the actual number of shares of our common stock that will be sold by Comcast SC or the aggregate number or percentage of shares of our common stock that Comcast SC will own upon completion of this offering. See "Plan of Distribution." The shares of our common stock offered under this prospectus may be offered from time to time by and for the account of Comcast SC. Comcast SC has sole voting and investment power over the shares shown below as beneficially owned by it. The applicable percentage of ownership listed below is based on 22,048,252 shares of our common stock outstanding as of January 31, 2001 and assumes the exercise of the warrant held by Comcast SC to purchase 100,000 shares of our common stock.
Number and Percentage of Shares Beneficially Number of Shares Owned Prior to Offering Offered Under -------------------------- the terms of Selling Stockholder Number Percent this Prospectus ------------------- ------------- ------------ ---------------- Comcast SC..................... 856,144 3.7% 856,144
On December 1, 2000, we entered into a common stock and warrant purchase agreement with Comcast SC under the terms of which we agreed to sell in a private placement to Comcast SC in exchange for approximately $10,000,000 an aggregate of 466,255 shares of common stock and a warrant to purchase 100,000 shares of our common stock with an exercise price of $21.4475 per share. This agreement was terminated by Comcast SC and us on February 28, 2001. On February 28, 2001, we signed and closed a new common stock and warrant purchase agreement on terms similar to the prior agreement. Under the terms of this new agreement, we sold in a private placement to Comcast SC for approximately $10,000,000 an aggregate of 756,144 shares of our common stock and a warrant to purchase 100,000 shares of our common stock with an exercise price of $13.225 per share. In addition, the new purchase agreement provides that an additional number of shares of common stock shall be issued to Comcast SC without any additional consideration as is equal to the difference between $10,000,000 divided by the lower of 92% of the closing market price of our common stock on the date of effectiveness of this registration statement and the average of the closing market price of our common stock for the five trading days ending on the effective date of this registration statement and $13.225. The warrant agreement contains an adjustment mechanism such that the warrant is exercisable for an additional 25,000 shares of our common stock if this registration has not been declared effective on or before March 31, 2001 and an additional 333.33 shares of our common stock per day beginning on and including May 1, 2001 for each day up to and including the day this registration statement is declared effective. The warrant agreement also provides that the exercise price of the warrant will be reduced on the effective date of this registration statement to the lower of 92% of the closing market price of our common stock on the effective date of this registration statement and the average of the closing market prices of our common stock for the five trading days ending on the date of effectiveness of this registration statement if either of such prices is lower than $13.225, the exercise price as of the closing date. This registration statement covers only the 756,144 shares of our common stock purchased pursuant to the purchase agreement and the initial 100,000 shares of our common stock that may be issued upon exercise of the warrant. Comcast SC represented to us that it was acquiring these shares and the warrant in the private placement without any present intention of effecting a distribution of those shares, the warrant, or the shares of our common stock issuable upon exercise of the warrant other than in compliance with applicable securities laws. In recognition of the fact, however, that Comcast SC may desire the ability to sell those shares of our 52 common stock it owns or will own upon exercise of the warrant when it considers it appropriate, in connection with the private placement we agreed to file this registration statement with the Securities and Exchange Commission to permit the public sale of these shares and to use our best efforts to keep this registration statement effective until the earlier of the second anniversary of the effective date of this registration statement or the sale of all of the shares covered by this registration statement. We will prepare and file amendments and supplements to this registration statement as may be necessary to keep it effective during this period. PLAN OF DISTRIBUTION The shares of our common stock offered hereby may be sold from time to time by Comcast SC or its transferees, distributees, pledgees, donees or other successors in interest, in each case for its own respective account. We are responsible for the expenses incurred in the registration of the shares, other than the underwriting discounts and selling commissions and stock transfer fees and taxes applicable to the sale of the shares. In addition, we have agreed to indemnify Comcast SC against certain liabilities, including liabilities under the Securities Act, and Comcast SC has agreed to indemnify us against certain liabilities, including liabilities under the Securities Act. The distribution of the shares by Comcast SC is not currently subject to any underwriting agreement. Sales may be made at fixed prices that may be changed, at market prices prevailing at the time of sale, at prices related to these prevailing market prices, or at negotiated prices. Sales may be effected in the over-the-counter market, on the National Association of Securities Dealers Automated Quotation System, on the Nasdaq National Market, or on any exchange on which the shares may then be listed. Sales may be effected by one or more of the following: . one or more block trades in which a broker or dealer so engaged will attempt to sell all or a portion of the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; . purchases by a broker or dealer as principal and resale by that broker or dealer for its account under the terms of this prospectus; . ordinary brokerage transactions and transactions in which the broker solicits purchasers; . in negotiated transactions, including short sales and transactions relating to the purchase or sale of options to purchase shares; and . through other means. These transactions may be effected by selling shares to or through broker-dealers, and these broker-dealers will receive compensation in negotiated amounts in the form of underwriting discounts, concessions, commissions or fees from the seller and/or the purchasers of the shares for whom these broker-dealers may act as agent or to whom they sell as principal, or both (which compensation to a particular broker-dealer might be in excess of customary commissions). These brokers or dealers or the participating brokers or dealers may be deemed to be "underwriters" within the meaning of the Securities Act, in connection with these sales, and any commissions received by these broker-dealers may be deemed to be underwriting compensation. We have informed Comcast SC that the antimanipulation rules under the Securities Exchange Act of 1934 (including, without limitation, Rule 10b-5 and Regulation M--Rule 102) may apply to sales in the market and will furnish Comcast SC upon request with a copy of these Rules. We will also inform Comcast SC of the need for delivery of copies of this prospectus. Any shares of our common stock covered by the prospectus that qualify for sale under Rule 144 under the Securities Act may be sold under Rule 144 rather than under this prospectus. We agreed to file a registration statement to register the resale of the shares and to use our best efforts to maintain the effectiveness of the registration statement until the earlier of the second anniversary of the effective date of this registration statement and the sale of all of the shares covered by this registration statement. 53 Sales of shares offered hereby are not restricted as to the price or prices at which these sales may be effected. Sales of these shares at less than the market prices may depress the market price of our common stock. During the effective time of this prospectus, Comcast SC has agreed to potential restrictions on resale if notified by us of certain potential material events, the disclosure of which could have a material adverse effect on our business and financial condition, for a period commencing upon the date of that notice and ending upon the earlier of forty-five days after we have notified Comcast SC of that event and the time we notify Comcast SC that the event has been disclosed to the public or has ceased to be material or that sales under this registration statement may otherwise be resumed. Notwithstanding the foregoing, we have agreed that no sales blackout shall occur within ninety days of the purchase by Comcast SC of our shares covered hereby or any other sales blackout period and that no more than two sales blackouts shall be commenced by us in any twelve month period. There is no restriction as to the number of shares which may be sold at any one time, and it is possible that a significant number of shares could be sold at the same time. Transfer Agent and Registrar ChaseMellon Shareholder Services, L.L.C., 111 Founders Plaza, Suite 1100, East Hartford, Connecticut 06108 is the transfer agent for our common stock. LEGAL MATTERS Certain legal matters with respect to the issuance of the shares offered hereby will be passed upon for SeaChange International by Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts. As of the date of this prospectus, certain attorneys with the firm of Testa, Hurwitz & Thibeault, LLP beneficially own an aggregate of 2,250 shares of our common stock. EXPERTS The consolidated financial statements as of December 31, 1998 and 1999 and for each of the three years in the period ended December 31, 1999 included in this prospectus have been so included in reliance upon the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. 54 SEACHANGE INTERNATIONAL, INC. INDEX TO FINANCIAL STATEMENTS REPORT OF INDEPENDENT ACCOUNTANTS......................................... F-2 CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1998 AND 1999............... F-3 CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999...................................................... F-4 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999......................................... F-5 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999...................................................... F-6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS................................ F-7 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE......... F-22 VALUATION OF QUALIFYING ACCOUNTS AND RESERVES............................. F-23 CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1999, JANUARY 31, 2000 AND OCTOBER 31, 2000 ........................................................ F-24 CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED OCTOBER 31, 1999 AND OCTOBER 31, 2000 AND THE ONE MONTH ENDED JANUARY 31, 1999 AND JANUARY 31, 2000......................................................... F-25 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE NINE MONTHS ENDED OCTOBER 31, 1999 AND OCTOBER 31, 2000 AND THE ONE MONTH ENDED JANUARY 31, 1999 AND JANUARY 31, 2000......................................................... F-26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS................................ F-27
F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of SeaChange International, Inc.: In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, of stockholders' equity and of cash flows present fairly, in all material respects, the financial position of SeaChange International, Inc. and its subsidiaries at December 31, 1998 and 1999 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PricewaterhouseCoopers LLP Boston, Massachusetts January 31, 2000 F-2 SEACHANGE INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEET (in thousands, except share data)
December 31, ---------------- 1998 1999 ------- ------- Assets Current assets Cash and cash equivalents................................. $ 5,442 $11,318 Accounts receivable, net of allowance for doubtful accounts of $870 at December 31, 1998 and $908 at December 31, 1999........................................ 17,663 17,840 Inventories............................................... 16,157 17,128 Income taxes receivable................................... 2,117 60 Prepaid expenses.......................................... 1,705 1,508 Deferred income taxes..................................... 1,967 2,243 ------- ------- Total current assets.................................... 45,051 50,097 Property and equipment, net................................. 8,050 10,538 Other assets................................................ 229 884 Goodwill and intangibles, net............................... 1,197 785 ------- ------- $54,527 $62,304 ======= ======= Liabilities and Stockholders' Equity Current liabilities Line of credit............................................ $ 2,000 $ -- Current portion of equipment line of credit and obligations under capital lease.......................... 555 1,048 Accounts payable.......................................... 10,103 15,038 Accrued expenses.......................................... 3,404 3,499 Customer deposits......................................... 1,704 2,092 Deferred revenue.......................................... 3,939 4,380 Income taxes payable...................................... 475 675 ------- ------- Total current liabilities............................... 22,180 26,732 ------- ------- Long-term equipment line of credit and obligations under capital lease.............................................. 1,027 1,231 ------- ------- Commitments (Note 11) Stockholders' Equity Common stock, $.01 par value; 50,000,000 shares authorized; 20,918,260 shares and 21,285,855 shares issued at December 31, 1998 and 1999, respectively............................ 209 213 Additional paid-in capital.................................. 33,107 35,634 Accumulated deficit......................................... (1,937) (1,440) Treasury stock, 60,750 shares............................... -- (1) Accumulated other comprehensive income...................... (59) (65) ------- ------- Total stockholders' equity.............................. 31,320 34,341 ------- ------- $54,527 $62,304 ======= =======
The accompanying notes are an integral part of these consolidated financial statements. F-3 SEACHANGE INTERNATIONAL, INC. CONSOLIDATED STATEMENT OF OPERATIONS (in thousands, except share data)
Year ended December 31, ---------------------------------- 1997 1998 1999 ---------- ---------- ---------- Revenues Systems.................................. $ 60,414 $ 58,033 $ 68,457 Services................................. 8,268 14,891 16,764 ---------- ---------- ---------- 68,682 72,924 85,221 ---------- ---------- ---------- Costs of revenues Systems.................................. 34,740 35,772 38,889 Services................................. 7,898 13,611 14,962 ---------- ---------- ---------- 42,638 49,383 53,851 ---------- ---------- ---------- Gross profit............................. 26,044 23,541 31,370 ---------- ---------- ---------- Operating expenses Research and development................. 11,758 15,763 16,302 Selling and marketing.................... 6,248 8,566 8,595 General and administrative............... 3,932 6,132 5,335 Restructuring of operations.............. -- 676 -- Write-off of acquired in-process research and development......................... 5,290 -- -- Acquisition costs........................ -- -- 684 ---------- ---------- ---------- 27,228 31,137 30,916 ---------- ---------- ---------- Income (loss) from operations.............. (1,184) (7,596) 454 Interest income, net....................... 663 235 28 ---------- ---------- ---------- Income (loss) before income taxes........ (521) (7,361) 482 Provision (benefit) for income taxes....... 1,776 (2,789) (15) ---------- ---------- ---------- Net income (loss)........................ $ (2,297) $ (4,572) $ 497 ========== ========== ========== Basic and diluted earnings (loss) per share..................................... $ (.15) $ (.24) $ .02 ========== ========== ========== Shares used in calculating: Basic earnings (loss) per share.......... 15,716,000 18,982,000 20,883,000 ========== ========== ========== Diluted earnings (loss) per share........ 15,716,000 18,982,000 21,774,000 ========== ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. F-4 SEACHANGE INTERNATIONAL, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (in thousands, except share data)
Common Stock Retained ----------------- Additional earnings Cumulative Total Number of Par paid-in (accumulated translation Treasury stockholders' Comprehensive shares value capital deficit) adjustment stock equity income (loss) ---------- ----- ---------- ------------ ----------- -------- ------------- ------------- Balance at December 31, 1996, (prior to split and acquisition)....... 12,859,234 $129 $26,167 $ 5,534 $-- $-- $31,830 $ 4,262 Issuance of common stock in connection with 3:2 stock split............ 6,429,616 64 (64) -- -- -- -- Issuance of common stock in connection with acquisition of Digital Video Arts, Ltd. ...... 312,922 3 998 (602) -- -- 399 ---------- ---- ------- ------- ---- ---- ------- ------- Balance at December 31, 1996................... 19,601,772 196 27,101 4,932 -- -- 32,229 $ 4,262 Purchase of treasury stock.................. (13,500) -- -- -- -- -- -- Compensation expense associated with stock issuance............... -- -- 45 -- -- -- 45 Issuance of common stock pursuant to exercise of stock options.......... 133,499 1 203 -- -- -- 204 Issuance of common stock in connection with employee stock purchase plan................... 44,042 1 478 -- -- -- 479 Issuance of common stock in connection with acquisition of IPC Interactive, Pte. Ltd. .................. 937,500 9 4,321 -- -- -- 4,330 Translation adjustment.. -- -- -- -- 14 -- 14 14 Net loss................ -- -- -- (2,297) -- -- (2,297) (2,297) ---------- ---- ------- ------- ---- ---- ------- ------- Comprehensive loss...... $(2,283) Balance at December 31, 1997................... 20,703,313 207 32,148 2,635 14 -- 35,004 Issuance of common stock pursuant to exercise of stock options.......... 135,790 1 507 -- -- -- 508 Issuance of common stock in connection with employee stock purchase plan................... 79,157 1 405 -- -- -- 406 Compensation expense associated with stock issuance............... -- -- 47 -- -- -- 47 Translation adjustment.. -- -- -- -- (73) -- (73) (73) Net loss................ -- -- -- (4,572) -- -- (4,572) (4,572) ---------- ---- ------- ------- ---- ---- ------- ------- Comprehensive loss...... $(4,645) Balance at December 31, 1998................... 20,918,260 209 33,107 (1,937) (59) -- 31,320 Issuance of common stock pursuant to exercise of stock options.......... 310,753 3 1,195 -- -- -- 1,198 Issuance of common stock in connection with employee stock purchase plan................... 87,014 1 422 -- -- -- 423 Issuance of common stock in connection with Digital Video Arts, Ltd. acquisition....... 17,078 -- 528 -- -- -- 528 Purchase of treasury stock.................. (47,250) -- -- -- -- (1) (1) Tax benefit from stock options................ -- -- 382 -- -- -- 382 Translation adjustment.. -- -- -- -- (6) -- (6) (6) Net income.............. -- -- -- 497 -- -- 497 497 ---------- ---- ------- ------- ---- ---- ------- ------- Comprehensive income.... $ 491 Balance at December 31, 1999................... 21,285,855 $213 $35,634 $(1,440) $(65) $ (1) $34,341 ========== ==== ======= ======= ==== ==== ======= =======
The accompanying notes are an integral part of these consolidated financial statements. F-5 SEACHANGE INTERNATIONAL, INC. CONSOLIDATED STATEMENT OF CASH FLOWS Increase (Decrease) in Cash and Cash Equivalents (in thousands)
Year ended December 31, -------------------------- 1997 1998 1999 -------- ------- ------- Cash flows from operating activities Net income (loss)................................. $ (2,297) $(4,572) $ 497 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization..................... 2,816 4,813 4,218 Inventory valuation allowance..................... 1,730 2,016 458 Compensation expense associated with stock and stock options.................................... 45 47 -- Write-off of acquired in-process research and development...................................... 5,290 -- -- Acquisition costs................................. -- -- 684 Deferred income taxes............................. (516) (876) (933) Changes in assets and liabilities, net of the effect of the acquisition of IPC Interactive Pte. Ltd. in 1997: Accounts receivable.............................. (4,410) (6,525) (177) Inventories...................................... (7,049) (4,368) (4,257) Income taxes receivable.......................... (1,131) (986) 2,057 Prepaid expenses and other assets................ (331) (624) 192 Accounts payable................................. (1,179) 1,255 4,935 Accrued expenses................................. (87) 656 (61) Customer deposits................................ (3,260) (345) 388 Deferred revenue................................. 1,273 1,644 441 Income taxes payable............................. 85 390 200 -------- ------- ------- Net cash provided by (used in) operating activities..................................... (9,021) (7,475) 8,642 -------- ------- ------- Cash flows from investing activities Purchases of property and equipment............... (2,187) (3,816) (3,130) Proceeds from sale and maturity of marketable securities....................................... 8,966 10,212 -- Purchases of marketable securities................ (18,276) (902) -- Cash acquired related to the acquisition of IPC Interactive Pte. Ltd., net of transaction costs.. 665 -- -- -------- ------- ------- Net cash provided by (used in) investing activities..................................... (10,832) 5,494 (3,130) -------- ------- ------- Cash flows from financing activities Proceeds from borrowings under equipment line of credit........................................... -- 1,226 1,106 Proceeds from borrowings under line of credit..... -- 2,000 -- Repayments under line of credit and equipment line of credit........................................ (1,137) -- (2,245) Repayment of obligation under capital lease....... -- (18) (500) Proceeds from issuance of common stock............ 683 914 2,003 -------- ------- ------- Net cash provided by (used in) financing activities..................................... (454) 4,122 364 -------- ------- ------- Net increase (decrease) in cash and cash equivalents...................................... (20,307) 2,141 5,876 Cash and cash equivalents, beginning of year...... 23,608 3,301 5,442 -------- ------- ------- Cash and cash equivalents, end of year............ $ 3,301 $ 5,442 $11,318 ======== ======= ======= Supplemental disclosure of cash flow information: Income taxes paid................................. $ 1,691 $ 132 $ 81 Interest paid..................................... $ -- $ 35 $ 210 Supplemental disclosure of noncash activity: Transfer of items originally classified as inventories to fixed assets...................... $ 1,829 $ 584 $ 227 Transfer of items originally classified as fixed assets to inventories............................ $ -- $ 668 $ 3,055 Equipment acquired under capital lease............ $ -- $ 374 $ 336 Acquisition of all of the outstanding shares of IPC Interactive Pte. Ltd. (Note 5): Fair value of assets acquired (including intangible assets and in-process research and development)..................................... $ 12,396 $ -- $ -- Fair value of common shares issued................ (4,330) -- -- Transaction costs................................. (475) -- -- -------- ------- ------- Liabilities assumed............................... $ 7,591 $ -- $ -- ======== ======= =======
The accompanying notes are an integral part of these consolidated financial statements. F-6 SEACHANGE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Nature of Business SeaChange develops computer systems to digitally manage, store and distribute video. Through December 31, 1999, substantially all of SeaChange's revenues were derived from the sale of digital video insertion, movie and broadcast systems and related services and content to cable television operators, broadcast and telecommunications companies in the United States and internationally. 2. Summary of Significant Accounting Policies Significant accounting policies followed in the preparation of the accompanying consolidated financial statements are as follows: Principles of Consolidation The consolidated financial statements include the accounts of SeaChange and its subsidiaries. All significant intercompany accounts and transactions have been eliminated. Revenue Recognition Revenues from sales of systems are recognized upon shipment provided title and risk of loss has passed to the customer, there is evidence of an arrangement, fees are fixed or determinable and collection of the related receivable is probable. Installation, project management and training revenue is deferred and recognized as these services are performed. Revenue from technical support and maintenance is deferred and recognized ratably over the period of the related agreements, generally twelve months. Customers are billed for installation, project management, training and maintenance at the time of the product sale. Revenue from content fees, primarily movies, is recognized based on the volume of monthly purchases that are made by hotel guests. Revenue from product development contract services is recognized based on the time and materials incurred to complete the work. SeaChange's transactions frequently involve the sales of systems and services under multiple element arrangements. Systems sales always include one year of free technical support and maintenance services. Revenue under multiple element arrangements is allocated to all elements except systems based upon the fair value of those elements. The amounts allocated to training, project management, technical support and maintenance and content fees is based upon the price charged when these elements are sold separately and unaccompanied by the other elements. The amount allocated to installation revenue is based upon hourly rates and the estimated time required to complete the service. The amount allocated to systems is done on a residual method basis. Under this method, the total arrangement value is allocated first to undelivered elements, based on their fair values, with the remainder being allocated to systems revenue. Installation, training and project management services are not essential to the functionality of systems as these services do not alter the equipment's capabilities, are available from other vendors and the systems are standard products. Concentration of Credit Risk Financial instruments which potentially expose SeaChange to concentrations of credit risk include trade accounts receivable. To minimize this risk, SeaChange evaluates customers' financial condition, requires advance payments from certain of its customers and maintains reserves for potential credit losses. At December 31, 1998 and 1999, SeaChange had an allowance for doubtful accounts of $870,000 and $908,000, respectively, to provide for potential credit losses and such losses to date have not exceeded management's expectations. In 1997, 1998 and 1999, revenues from SeaChange's five largest customers represented approximately 66%, 55% and 47%, respectively, of SeaChange's total revenues. In 1997, 1998 and 1999 three, F-7 SEACHANGE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) two and two customers, respectively, each accounted for more than 10% of SeaChange's revenues. The same two customers accounted for more than 10% of SeaChange's revenues in 1997, 1998 and 1999. 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, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Cash, Cash Equivalents and Marketable Securities SeaChange considers all highly liquid investments purchased with an original maturity of three months or less at the date of purchase to be cash equivalents. SeaChange invests its excess cash in money market funds, municipal securities and corporate debt securities that are subject to minimal credit and market risk. Marketable securities are classified as available-for-sale and are carried at market value, and any unrealized gains or losses are recorded as a part of stockholders' equity. Gross unrealized gains and losses on securities for the years ended December 31, 1997, 1998 and 1999, the cost of which is based upon the specific identification method, were not significant. Property and Equipment Property and equipment consist of office and computer equipment, leasehold improvements, demonstration equipment, deployed assets and spare components and assemblies used to service SeaChange's installed base. Demonstration equipment consists of systems manufactured by SeaChange for use in marketing and selling activities. Property and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful lives. Leasehold improvements are amortized over the shorter of their estimated useful lives or the term of the respective leases by use of the straight-line method. Deployed assets are the movie systems owned and manufactured by us that are installed in a hotel environment. Deployed assets are depreciated over the life of the related service agreements ranging from 3 to 7 years. Maintenance and repair costs are expensed as incurred. Significant improvements are capitalized and depreciated. Upon retirement or sale, the cost of the assets disposed of, and the related accumulated depreciation, are removed from the accounts, and any resulting gain or loss is included in the determination of net income. Inventories Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method. Inventories consist primarily of components and subassemblies and finished products held for sale. Rapid technological change and new product introductions and enhancements could result in excess or obsolete inventory. To minimize this risk, SeaChange evaluates inventory levels and expected usage on a periodic basis and records valuation allowances as required. SeaChange is dependent upon certain vendors for the manufacture of significant components of its digital advertising insertion, movie and broadcast systems. If these vendors were to become unwilling or unable to continue to manufacture these products in required volumes, SeaChange would have to identify and qualify acceptable alternative vendors. The inability to develop alternate sources, if required in the future, could result in delays or reductions in product shipments and thereby adversely affect SeaChange's revenue and profits. Goodwill and Intangible Assets Goodwill and assembled workforce are amortized on a straight-line basis over five to seven years. Software acquired in connection with acquisitions is amortized over the greater of the amount computed using F-8 SEACHANGE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (a) the ratio that current gross revenues for related products bear to total current and anticipated future gross revenues for that product or (b) on a straight-line basis over the estimated remaining life of the software. The carrying value of goodwill and intangible assets is reviewed on a quarterly basis for the existence of facts and circumstances both internally and externally that may suggest impairment or that the useful lives of these assets are no longer appropriate. To date, no such impairment has occurred. SeaChange determines whether an impairment has occurred based on gross expected future cash flows and measures the amount of impairment based on the related future estimated discounted cash flows. The cash flow estimates used to determine the impairment, if any, contain management's best estimates, using appropriate and customary assumptions and projections at that time. Research and Development and Software Development Costs Costs incurred in the research and development of SeaChange's products are expensed as incurred, except for certain software development costs. Costs associated with the development of computer software are expensed prior to establishing technological feasibility and capitalized thereafter until the product is released for sale. Amortization is based on the straight-line method over the remaining estimated life of the product. Software development costs eligible for capitalization to date have not been material to SeaChange's financial statements. Costs associated with acquired software rights are capitalized if technological feasibility of the software has been established. Stock Compensation Employee stock awards under SeaChange's and its subsidiaries' compensation plans are accounted for in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, ("APB 25") and related interpretations. SeaChange provides the disclosure requirements of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, ("SFAS 123") and related interpretations. Non-employee stock awards are accounted for in accordance with Emerging Issues Task Force Issue No. 96-18. Foreign Currency Translation SeaChange has determined that the functional currency of its foreign subsidiaries is the local currency. Accordingly, assets and liabilities are translated to U.S. dollars at current exchange rates as of each balance sheet date. Income and expense items are translated using average exchange rates during the year. Cumulative currency translation adjustments are presented as a separate component of stockholders' equity. Transaction gains and losses and unrealized gains and losses on intercompany receivables are recognized in the Statement of Operations and have not been material to date. Comprehensive Income Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" requires that changes in comprehensive income be shown in a financial statement that is displayed with the same prominence as other financial statements. SeaChange has presented accumulated other comprehensive income and other comprehensive income in the Statement of Stockholders' (Deficit) Equity. Other comprehensive loss consists primarily of cumulative translation adjustments. Advertising Costs Advertising costs are charged to expense as incurred. Advertising costs were $659,000, $624,000 and $857,000 for the years ended December 31, 1997, 1998 and 1999 respectively. F-9 SEACHANGE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Earnings Per Share Earnings per share are presented in accordance with Statement of Financial Accounting Standards No. 128, Earnings Per Share, ("SFAS 128") which requires the presentation of "basic" earnings per share and "diluted" earnings per share. Basic earnings per share is computed by dividing income available to common shareholders by the weighted-average shares of common stock outstanding during the period. For the purposes of calculating diluted earnings per share the denominator includes both the weighted average number of shares of common stock outstanding during the period and the weighted average number of potential common stock, such as stock options and restricted stock. For the years ended December 31, 1997 and 1998, 702,467 and 360,966 common shares issuable upon the exercise of stock options, respectively, and 3,992,738 and 1,791,732 shares of unvested restricted common stock, respectively, are antidilutive because SeaChange recorded a net loss for the years and, therefore, have been excluded from the diluted earnings per share computations. Below is a summary of the shares used in calculating basic and diluted earnings per share for the years indicated:
Year ended December 31, -------------------------------- 1997 1998 1999 ---------- ---------- ---------- Weighted average shares used in calculating earnings per share-- Basic................................. 15,716,000 18,982,000 20,883,000 Shares attributable to unvested restricted common stock............... -- -- 2,000 Acquisition escrow shares.............. -- -- 1,000 Dilutive stock options................. -- -- 888,000 ---------- ---------- ---------- Weighted average shares used in calculating earnings per share-- Diluted............................... 15,716,000 18,982,000 21,774,000 ========== ========== ==========
New Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,"Accounting for Derivatives and Hedging Activities," which establishes accounting and reporting standards for derivative instruments, including derivative instruments embedded in other contracts, collectively referred to as derivatives, and for hedging activities. SeaChange will adopt SFAS No. 133 as required by SFAS No. 137, "Deferral of the effective date of the FASB Statement No. 133," in fiscal year 2001. To date SeaChange has not utilized derivative instruments or hedging activities and, therefore, the adoption of SFAS 133 is not expected to have a material impact on our financial position or results of operations. In December 1999, the SEC issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements." SAB 101 summarizes the SEC's view in applying generally accepted accounting principles to selected revenue recognition issues. The application of the guidance in SAB 101 will be required in SeaChange's fourth quarter of the fiscal year 2001. The effects of applying this guidance will be reported as a cumulative effect adjustment resulting from a change in accounting principle. SeaChange estimates that the cumulative effect of the change in accounting principle will result in a charge to income before income taxes of approximately $1.6 million, which will be included in the results of operations for the fiscal year ended January 31, 2001. F-10 SEACHANGE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 3. Consolidated Balance Sheet Detail Inventories consist of the following:
December 31, ----------------------- 1998 1999 ----------- ----------- Components and assemblies........................ $14,592,000 $14,739,000 Finished products................................ 1,565,000 2,389,000 ----------- ----------- $16,157,000 $17,128,000 =========== ===========
Property and equipment consist of the following:
Estimated useful December 31, life ----------------------- (years) 1998 1999 --------- ----------- ----------- Office furniture and equipment........ 5 $ 1,602,000 $ 1,645,000 Computer and demonstration equipment.. 3 9,139,000 12,213,000 Deployed assets....................... 3-7 1,789,000 4,065,000 Service and spare components.......... 5 2,584,000 2,584,000 Leasehold improvements................ 1-7 760,000 1,096,000 Automobiles........................... 5 56,000 56,000 ----------- ----------- 15,930,000 21,659,000 Less--Accumulated depreciation and amortization......................... 7,880,000 11,121,000 ----------- ----------- $ 8,050,000 $10,538,000 =========== ===========
Depreciation expense was $2,529,000, $3,857,000 and $3,806,000 for the years ended December 31, 1997, 1998 and 1999, respectively. Accrued expenses consist of the following:
December 31, --------------------- 1998 1999 ---------- ---------- Accrued software license fees...................... $1,206,000 $1,565,000 Accrued sales and use taxes........................ 733,000 647,000 Other accrued expenses............................. 1,465,000 1,287,000 ---------- ---------- $3,404,000 $3,499,000 ========== ==========
4. Segment Information SeaChange has five reportable segments: digital advertising insertion, movies systems, broadcast systems, interactive television systems (ITV) and services. The digital advertising insertion systems segment provides products to digitally manage, store and distribute digital video for television operators and telecommunications companies. The movie systems segment comprises products to provide long-form video storage and delivery for the pay-per-view markets for the hospitality and commercial property markets. The broadcast systems segment provides products for the storage, archival, on-air playback of advertising and other video programming for the broadcast television industry. The ITV segment comprises products to provide long-form video storage and delivery for television operators and telecommunication companies for the residential market. The service segment provides installation, training, product maintenance and technical support for the above systems and content which is distributed by the movie product segment. The accounting policies of the F-11 SEACHANGE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) segments are the same as those described in the summary of significant accounting policies. SeaChange does not measure the assets allocated to the segments. SeaChange measures results of the segments based on the respective gross profits. There were no intersegment sales or transfers. Long-lived assets are principally located in the United States. The following summarizes the revenues and cost of revenues by reportable segment:
Year ended December 31, ----------------------------------- 1997 1998 1999 ----------- ----------- ----------- Revenues Digital advertising insertion...... $55,977,000 $44,088,000 $44,553,000 Movies............................. 4,437,000 9,722,000 6,582,000 Broadcast.......................... -- 4,223,000 16,793,000 ITV................................ -- -- 529,000 Services........................... 8,268,000 14,891,000 16,764,000 ----------- ----------- ----------- $68,682,000 $72,924,000 $85,221,000 =========== =========== =========== Costs of revenues Digital advertising insertion...... $32,356,000 $26,551,000 $25,302,000 Movies............................. 2,384,000 6,801,000 4,057,000 Broadcast.......................... -- 2,420,000 9,187,000 ITV................................ -- -- 343,000 Services........................... 7,898,000 13,611,000 14,962,000 ----------- ----------- ----------- $42,638,000 $49,383,000 $53,851,000 =========== =========== ===========
The following summarizes revenues by geographic locations:
Year ended December 31, ----------------------------------- 1997 1998 1999 ----------- ----------- ----------- Revenues United States...................... $60,650,000 $63,497,000 $65,730,000 Canada and South America........... 2,696,000 691,000 5,371,000 Europe............................. 4,481,000 4,272,000 9,777,000 Rest of world...................... 855,000 4,464,000 4,343,000 ----------- ----------- ----------- $68,682,000 $72,924,000 $85,221,000 =========== =========== ===========
For the years ended December 31, 1997, 1998 and 1999, certain customers accounted for more than 10% of SeaChange's revenues. Individual customers accounted for 24%, 17% and 10% in 1997; 24% and 15% in 1998; and 15% and 10% in 1999. 5. Acquisitions and Restructuring of Operations Acquisitions On December 30, 1999, SeaChange acquired all of the authorized and outstanding common stock of Digital Video Arts, Ltd. in exchange for 330,000 shares of SeaChange's common stock using an exchange ratio of 0.033 of one share of SeaChange's common stock for each share of Digital V. The acquisition was accounted for as a pooling of interests. Digital Video Arts is a developer of custom software products specializing in digital video and interactive television. As a result of the acquisition, Digital Video Arts became a wholly- F-12 SEACHANGE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) owned subsidiary of SeaChange. Total revenues of $85.2 million for the year ended December 31, 1999 consisted of $84.2 million of SeaChange's revenues and $1.0 million of Digital Video Arts' revenues. Net income of $497,000 for the same period consisted of SeaChange's net income of $1.1 million and Digital Video Arts' net loss of $592,000. Included in net income were acquisition costs of $684,000 consisting primarily of professional service fees. All intercompany transactions were eliminated in consolidation. Due to the acquisition, Digital Video Arts' previously unrecognized tax benefits of operating loss carryforwards were recognized by the combined Company in the applicable period. The accompanying consolidated financial statements for all the periods presented have been restated to include the results of operations, financial position and cash flows of Digital Video Arts. On December 10, 1997, SeaChange exchanged 937,500 shares of its common stock for all of the outstanding capital stock of IPC Interactive Pte. Ltd. ("IPC") which was renamed to SeaChange Asia Pacific Operations Pte. Ltd. ("SC Asia"). SC Asia provides interactive television network systems to the hospitality and commercial property markets. The total consideration, including transaction costs, was $4,805,000. The acquisition was accounted for under the purchase method. Accordingly, the purchase price was allocated to the estimated fair value of the acquired assets and liabilities. Management determined the fair value of the intangible assets, excluding goodwill, based primarily on a discounted cash flow analysis. A portion of the purchase price was allocated to in-process research and development, resulting in an immediate charge to SeaChange's operations of $5,290,000 at the date of acquisition. The amount allocated to in-process research and development represented technology which had not reached technological feasibility and had no alternative future use. The appraisal also valued intangibles, including assembled workforce and software. Goodwill and intangibles, net of related accumulated amortization totaled $1,608,000 and $1,197,000 at December 31, 1997 and 1998, respectively. Amortization expense was $27,000 and $411,000 for the years ended December 31, 1997 and 1998, respectively. The consolidated results of operations include the operating results of IPC from the date of acquisition. The purchase price was allocated to the acquired assets and liabilities as follows: Tangible assets.............................................. $ 5,471,000 Assumed liabilities.......................................... (7,591,000) Intangible assets: In-process research and development........................ 5,290,000 Software................................................... 850,000 Assembled workforce........................................ 280,000 Goodwill................................................... 505,000 ----------- $ 4,805,000 ===========
Included in assumed liabilities were a line of credit of $700,000 and notes payable to related parties of $437,000. The notes payable to related parties were due to two companies owned by new shareholders of SeaChange as a result of the acquisition. SeaChange paid these assumed liabilities in full and canceled the line of credit prior to December 31, 1997. F-13 SEACHANGE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The following unaudited pro forma data summarizes the consolidated results of SeaChange and IPC as if the acquisition had occurred on February 1, 1996 (inception of IPC) and excludes the $5,290,000 charge for in-process research and development. The unaudited pro forma information is not necessarily indicative either of results of operations that would have occurred had the purchase been made at the beginning of the periods presented, or of future results of operations of the combined companies.
Pro forma for the year ended December 31, ----------------------- 1996 1997 ----------- ----------- (unaudited) (unaudited) Revenues........................................ $61,229,000 $76,368,000 Net income (loss)............................... $ 716,000 $(3,280,000) Basic earnings (loss) per share................. $ .09 $ (.21) Diluted earnings (loss) per share............... $ .04 $ (.21)
Restructuring of Operations In March 1998, SeaChange recorded a charge of $676,000 for the restructuring of operations as part of a planned consolidation of the operations of SC Asia. The charge for restructuring included $569,000 related to the termination of 13 employees, a provision of $60,000 related to the planned vacating of premises and $47,000 of compensation expense associated with stock options for certain terminated employees. At March 31, 1998, SeaChange had notified all terminated employees. All restructuring charges were paid as of December 31, 1998. 6. Lines of Credit SeaChange had a $6.0 million revolving line of credit and a $3.0 million equipment line of credit with a bank. The revolving line of credit expired in October 1999 and was subsequently extended until March 31, 2000. The equipment line of credit expired in June 1999 and was subsequently extended until March 31, 2000. Borrowings under the lines of credit are secured by substantially all of SeaChange's assets. Loans made under the revolving line of credit bear interest at a rate per annum equal to the bank's base rate plus .5%. Loans made under the equipment line of credit bear interest at a rate per annum equal to the bank's base rate plus 1.0% (9.5% at December 31, 1999). The loan agreement relating to the lines of credit requires that SeaChange provide the bank with certain periodic financial reports and comply with certain financial ratios including the maintenance of total liabilities, excluding deferred revenue, to net worth of at least .80 to 1.0. At December 31, 1999 SeaChange was in compliance with all covenants. As of December 31, 1999, there were no borrowings under the revolving line of credit. As of December 31, 1999, borrowings against the equipment line of credit were $1,688,000. Maturities of the equipment line of credit are $859,000, $614,000 and $215,000 in 2000, 2001 and 2002, respectively. 7. Income Taxes The components of income (loss) before income taxes are as follows:
Year ended December 31, -------------------------------- 1997 1998 1999 --------- ----------- -------- Domestic................................. $(521,000) $(7,361,000) $331,000 Foreign.................................. -- -- 151,000 --------- ----------- -------- $(521,000) $(7,361,000) $482,000 ========= =========== ========
F-14 SEACHANGE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The components of the provision (benefit) for income taxes are as follows:
Year ended December 31, ---------------------------------- 1997 1998 1999 ---------- ----------- --------- Current provision (benefit): Federal............................ $1,920,000 $(1,913,000) $ 532,000 State.............................. 371,000 -- 354,000 Foreign............................ -- -- 56,000 ---------- ----------- --------- 2,291,000 (1,913,000) 942,000 ---------- ----------- --------- Deferred benefit: Federal............................ (394,000) (124,000) (586,000) State.............................. (121,000) (752,000) (371,000) Foreign............................ -- -- -- ---------- ----------- --------- (515,000) (876,000) (957,000) ---------- ----------- --------- $1,776,000 $(2,789,000) $ (15,000) ========== =========== =========
The components of deferred income taxes are as follows:
December 31, ------------------------ 1998 1999 ----------- ----------- Deferred tax assets: Inventories................................. $ 1,299,000 $ 1,282,000 Allowance for doubtful accounts............. 320,000 405,000 Deferred revenue............................ 126,000 115,000 Software.................................... 111,000 107,000 Accrued expenses............................ 153,000 135,000 Property and equipment...................... -- 104,000 Research and development credit carryforwards.............................. -- 198,000 State net operating loss carryforwards...... 398,000 554,000 Acquired net operating loss carryforwards and basis differences...................... 3,361,000 3,361,000 ----------- ----------- 5,768,000 6,261,000 Valuation allowance......................... (3,361,000) (3,361,000) ----------- ----------- Total deferred tax assets................. 2,407,000 2,900,000 ----------- ----------- Deferred tax liabilities: Property and equipment...................... 430,000 -- Other....................................... 10,000 -- ----------- ----------- Total deferred tax liabilities............ 440,000 -- ----------- ----------- Net deferred income taxes..................... $ 1,967,000 $ 2,900,000 =========== ===========
Deferred income taxes reflect the tax impact of temporary differences between the amount of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws and regulations. Under Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," the benefit associated with future deductible temporary differences is recognized if it is more likely than not that the benefit will be realized. The measurement of deferred tax assets is reduced by a valuation allowance if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. F-15 SEACHANGE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The valuation allowance of $3,361,000 at December 31, 1998 and 1999 relates to net operating loss carryforwards and tax basis differences acquired in SeaChange's purchase of SC Asia. These acquired deferred tax assets may only be utilized to offset future taxable income attributable to SC Asia. In addition, the recognition of these deferred tax assets are subject to Internal Revenue Code change in ownership rules which may limit the amount that can be utilized to offset future taxable income. SeaChange believes that the valuation allowance is appropriate given the weight of objective evidence, including the historical operating results of IPC. Any tax benefits subsequently recognized related to these assets will first reduce the remaining balance in goodwill and then other acquired intangible assets. Based on the weight of available evidence, SeaChange believes its remaining deferred tax assets will be realizable. The amount of the deferred tax asset considered realizable is subject to change based on future events. SeaChange will assess the need for the valuation allowance at each balance sheet date based on all available evidence. In accordance with APB 23, SeaChange does not provide for U.S. federal income taxes on the earnings of its non-U.S. subsidiaries, as it is management's plan to permanently reinvest in operations outside the U.S. At December 31, 1999, undistributed earnings of approximately $40,000 are considered by SeaChange to be permanently invested in certain foreign subsidiaries. The amount of tax that would be owed if the profits were distributed is $14,000. At December 31, 1999, SeaChange had state net operating loss carryforwards of approximately $5,127,000 which expire at various dates through 2013. The income tax provision (benefit) computed using the federal statutory income tax rate differs from SeaChange's effective tax rate primarily due to the following:
Year ended December 31, ---------------------------------- 1997 1998 1999 ---------- ----------- --------- Statutory U.S. federal tax rate...... $ (91,000) $(2,552,000) $ 164,000 State taxes after state tax credits, net of federal tax benefits......... 165,000 (496,000) (12,000) Other................................ 145,000 355,000 98,000 Research and development tax credits............................. (334,000) (316,000) (446,000) Non-deductible acquisition costs..... -- -- 233,000 Acquired net operating losses........ -- -- (192,000) Nondeductible expenses, including write-off of acquired in-process research and development in 1997.... 1,891,000 220,000 140,000 ---------- ----------- --------- $1,776,000 $(2,789,000) $ (15,000) ========== =========== =========
SeaChange's effective tax benefit rate was 37.9% and 3% in 1998 and 1999, respectively. In the second quarter of 1999, the separate return limitation year (SRLY) regulations were finalized to allow for the use of acquired net operating loss carryforwards where an ownership change and an acquisition has taken place within a six month period. As a result of SeaChange's acquisition of Digital Video Arts, SeaChange recorded a tax benefit of $192,000 in the second quarter of 1999 related to the use of Digital Video Arts net operating loss carryforwards. In the fourth quarter of 1999, the federal research and development tax credit was retroactively extended through June 30, 2004. As a result, SeaChange recorded a tax benefit of $446,000 in the fourth quarter of 1999 related to the utilization of these tax credits. F-16 SEACHANGE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 8. Common Stock Stock Split On December 10, 1999, the Board of Directors authorized a 3-for-2 stock split of SeaChange's common stock, which became effective on December 27, 1999. All shares of common stock, common stock options, preferred stock conversion ratios and per share amounts included in the accompanying consolidated financial statements have been adjusted to give retroactive effect to the stock split for 1999. Restriction Agreements Certain common shares are subject to stock restriction and repurchase agreements under which SeaChange may repurchase unvested common shares at the original issuance price and vested common shares at fair value upon termination of a business relationship with SeaChange. Common shares subject to these agreements vest ratably over a five-year period and, at December 31, 1999, 59,738 of such shares are unvested. Treasury Stock In 1997 and in 1999, SeaChange repurchased 13,500 and 47,250 shares of its common stock, respectively, from employees of SeaChange. The 1997 shares were held for less than six months from the time the shares became vested. Accordingly, compensation expense was recorded for the difference between the repurchase price and the original purchase price paid by the stockholder. Compensation expense recorded in 1997 as a result of this transaction was $45,000. Reserved Shares At December 31, 1999, SeaChange had 1,475,575 shares of common stock reserved for issuance upon the exercise of common stock options and the purchase of stock under the Employee Stock Purchase Plan. 9. Convertible Preferred Stock Stock Authorization The Board of Directors is authorized to issue from time to time up to an aggregate of 5,000,000 shares of preferred stock, in one or more series. Each such series of preferred stock shall have the number of shares, designations, preferences, voting powers, qualifications and special or relative rights or privileges to be determined by the Board of Directors, including dividend rights, voting rights, redemption rights and sinking fund provisions, liquidation preferences, conversion rights and preemptive rights. 10. Stock Plans Employee Stock Purchase Plan In September 1996, SeaChange's Board of Directors adopted and the stockholders approved an employee stock purchase plan (the "Stock Purchase Plan"), effective January 1, 1997, which provides for the issuance of a maximum of 450,000 shares of common stock to participating employees who meet eligibility requirements. Employees who would immediately after the grant own 5% or more of the total combined voting power or value of SeaChange's stock and directors who are not employees of SeaChange may not participate in the Stock Purchase Plan. The purchase price of the stock is 85% of the lesser of the average market price of the common stock on the first or last business day of each six-month plan period. During 1997, 1998, and 1999, 44,042, 79,157, and 87,014 shares of common stock, respectively, were issued under the Stock Purchase Plan. F-17 SEACHANGE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 1995 Stock Option Plan The 1995 Stock Option Plan (the "1995 Stock Option Plan") provides for the grant of incentive stock options and nonqualified stock options for the purchase of up to an aggregate of 2,925,000 shares of SeaChange's common stock by officers, employees, consultants and directors of SeaChange. The Board of Directors is responsible for administration of the 1995 Stock Option Plan and determining the term of each option, option exercise price, number of shares for which each option is granted and the rate at which each option is exercisable. Options generally vest ratably over five years. SeaChange may not grant an employee incentive stock options with a fair value in excess of $100,000 that are initially exercisable during any one calendar year. Incentive stock options may be granted to employees at an exercise price per share of not less than the fair value per common share on the date of the grant (not less than 110% of the fair value in the case of holders of more than 10% of SeaChange's voting stock). Nonqualified stock options may be granted to any officer, employee, director or consultant at an exercise price per share as determined by SeaChange's Board of Directors. Options granted under the 1995 Stock Option Plan generally expire ten years from the date of the grant (five years for incentive stock options granted to holders of more than 10% of SeaChange's voting stock). Director Stock Option Plan In June 1996, SeaChange's Board of Directors adopted and the stockholders approved a director stock option plan (the "Director Option Plan") which provides for the grant of options to full time directors of SeaChange to purchase a maximum of 45,000 shares of common stock under the Director Option Plan. Under the Director Option Plan, participating directors receive an option to purchase 5,062 shares of common stock per annum. Options granted under the Director Option Plan vest as to 33 1/3% of the shares underlying the option immediately upon the date of the grant, and vest as to an additional 8 1/3% of the shares underlying the option at the end of each of the next 8 quarters, provided that the optionee remains a director. Directors will also receive, on each three-year anniversary of such director's option grant date, an additional option to purchase 5,062 shares of common stock, provided that such director continues to serve on the Board of Directors. All options granted under the Director Option Plan have an exercise price equal to the fair value of the common stock on the date of grant and a term of ten years from the date of grant. Transactions under the 1995 Stock Option Plan and the Director Option Plan during the years ended December 31, 1997, 1998 and 1999 are summarized as follows:
Year ended December 31, ----------------------------------------------------------- 1997 1998 1999 ------------------- ------------------- ------------------- Weighted Weighted Weighted average average average exercise exercise exercise Shares price Shares price Shares price --------- -------- --------- -------- --------- -------- Outstanding at beginning of period.............. 1,109,001 $ 3.91 1,714,586 $ 7.60 2,113,824 $ 5.34 Granted................. 878,304 12.02 1,334,594 4.95 524,739 14.76 Exercised............... (133,499) 1.53 (135,790) 3.71 (310,753) 3.94 Cancelled............... (139,220) 11.87 (799,566) 9.99 (287,757) 6.00 ========= ========= ========= Outstanding at period end.................... 1,714,586 $ 7.60 2,113,824 $ 5.34 2,040,053 $ 7.79 ========= ========= ========= Options exercisable at period end............. 307,797 473,465 594,265 Weighted average fair value of options granted during the period................. $ 7.33 $ 3.54 $ 7.11
F-18 SEACHANGE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The following table summarizes information about employee and director stock options outstanding at December 31, 1999:
Options outstanding at December 31, 1999 --------------------------------------------- Weighted average remaining Number contractual life Weighted average outstanding (years) exercise price ----------- ---------------- ---------------- Range of exercise prices $0.33..................... 32,192 5.65 $0.33 0.82 to 0.91............ 114,624 3.05 0.87 2.80 to 4.00............ 546,740 8.60 3.87 4.45 to 6.25............ 704,431 8.10 5.48 6.58 to 10.00............ 287,492 8.58 7.47 10.33 to 14.33............ 145,233 9.26 11.55 19.17 to 35.375........... 209,341 8.87 28.52 --------- 2,040,053 =========
Options exercisable at December 31, 1999 ---------------------------- Number Weighted average exercisable exercise price ----------- ---------------- Range of exercise prices $0.33...................................... 26,496 $0.33 0.82 to 0.91............................. 88,704 0.87 2.80 to 4.00............................. 149,150 3.74 4.45 to 6.25............................. 233,144 5.41 6.58 to 10.00............................. 46,179 7.63 10.33 to 14.33............................. 11,757 12.90 19.17 to 35.375............................ 38,835 19.35 ------- 594,265 =======
Fair Value Disclosures SeaChange applies APB 25 in accounting for employee stock awards. Compensation expense of $45,000, $47,000 and $-- has been recorded for the years ended December 31, 1997, 1998 and 1999, respectively. Had compensation expense for SeaChange's employee stock plans been determined based on the fair value at the grant dates, as prescribed in SFAS 123, SeaChange's net income (loss) and earnings (loss) per share would have been as follows:
Year ended December 31, ---------------------------------- 1997 1998 1999 ----------- ----------- -------- Net income (loss) As reported......................... $(2,297,000) $(4,572,000) $497,000 Pro forma........................... $(3,167,000) $(6,456,000) $122,000 Basic earnings (loss) per share As reported......................... $ (.15) $ (.24) $ .02 Pro forma........................... $ (.20) $ (.34) $ .01 Diluted earnings (loss) per share As reported......................... $ (.15) $ (.24) $ .02 Pro forma........................... $ (.20) $ (.34) $ .01
F-19 SEACHANGE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The fair value of each option granted was estimated on the date of grant assuming a weighted average volatility factor of 67% for the years ended December 31, 1997 and 1998 and 46% for the year ended December 31, 1999. Additional weighted average assumptions used for grants during the years ended December 31, 1997, 1998 and 1999 included: dividend yield of 0.0% for all periods; risk-free interest rates of 5.70% to 6.75% for options granted during the year ended December 31, 1997, 6.00% for options granted during the year ended December 31, 1998, and 5.54% for options granted during the year ended December 31, 1999; and an expected option term of 5 years for all periods. Because additional option grants are expected to be made each year and options vest over several years, the above pro forma disclosures are not representative of pro forma effects of reported net income for future years. Stock Option Repricing On January 23, 1998, the Compensation and Option Committee of the Board of Directors of SeaChange ("Committee") determined that, because certain stock options held by employees of SeaChange had an exercise price significantly higher than the fair market value of SeaChange's common stock, such stock options were not providing the desired long-term incentive to employees. Accordingly, the Committee granted those employees whose options were between $10.00 and $16.42 per share an opportunity to cancel their existing options for new options on a 1-for-1 basis, with a new five-year vesting schedule beginning on January 23, 1998. Employees whose options were above $16.42 were offered an opportunity to cancel their existing options for new options on a 2-for-3 basis, with no change in their original vesting schedule. As a result of this stock option repricing, new options were granted to purchase 319,169 shares of common stock and the average exercise price of such options was reduced from $14.79 per share to $5.50 per share, the fair market value of SeaChange's common stock at the close of the market on January 22, 1998. With the exception of one executive officer, SeaChange's directors and executive officers were not eligible to participate in this stock option repricing. During the execution of the stock option repricing plan, SeaChange's stock price was below $5.50 per share and, therefore, no compensation charge was recorded as a result of the stock option repricing. 11. Commitments SeaChange leases its operating facilities and certain office equipment under non-cancelable capital and operating leases, which expire at various dates through 2005. Rental expense under operating leases was approximately $600,000, $1,341,000 and $1,681,000 for the years ended December 31, 1997, 1998 and 1999, respectively. Future commitments under minimum lease payments as of December 31, 1999 are as follows:
Capital Operating -------- ---------- Year ended December 31, 2000......................... $236,000 $1,680,000 2001............................................... 221,000 1,411,000 2002............................................... 156,000 895,000 2003............................................... 67,000 714,000 2004............................................... -- 687,000 Thereafter........................................... -- 171,000 -------- Minimum lease payments............................... 680,000 Less: Amount representing interest................... 89,000 -------- $591,000 ========
SeaChange had non-cancelable purchase commitments for inventories of approximately $1,600,000 at December 31, 1999. F-20 SEACHANGE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) In the ordinary course of business, SeaChange is subject to various types of litigation. In the opinion of management, all litigation currently pending or threatened will not have a material adverse effect on SeaChange's financial position or results of operations. 12. Employee Benefit Plan SeaChange sponsors a 401(k) retirement savings plan ( the "Plan"). Participation in the Plan is available to full-time employees who meet eligibility requirements. Eligible employees may contribute up to 15% of their annual salary, subject to certain limitations. SeaChange matches contributions up to 25% of the first 6% of compensation contributed by the employee to the Plan. During 1997, 1998 and 1999, SeaChange contributed $68,000, $189,000 and $225,000, respectively, to the Plan. F-21 SEACHANGE INTERNATIONAL, INC. REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors of SeaChange International, Inc.: Our audits of the consolidated financial statements referred to in our report dated January 31, 2000 appearing in the 1999 Annual Report to Shareholders of SeaChange International, Inc. also included an audit of the financial statement schedule listed in Item 14 (a) (2) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/ PricewaterhouseCoopers LLP Boston, Massachusetts January 31, 2000 F-22 Schedule II SEACHANGE INTERNATIONAL, INC. VALUATION OF QUALIFYING ACCOUNTS AND RESERVES
Balance at Charged to Deductions Balance at beginning costs and and write- end of of period expenses offs Other period ---------- ---------- ----------- -------- ---------- Allowance for Doubtful Accounts: Year ended December 31, 1997............. $ 173,000 $ 485,000 $ (174,000) $ 75,000 $ 559,000 Year ended December 31, 1998............. $ 559,000 $ 497,000 $ (186,000) $ -- $ 870,000 Year ended December 31, 1999............. $ 870,000 $ 225,000 $ (187,000) $ -- $ 908,000 Inventory Valuation Allowance: Year ended December 31, 1997............. $ 750,000 $1,730,000 $(1,076,000) $100,000 $1,504,000 Year ended December 31, 1998............. $1,504,000 $2,016,000 $ (919,000) $ -- $2,601,000 Year ended December 31, 1999............. $2,601,000 $ 458,000 $ (395,000) $ -- $2,664,000
F-23 SEACHANGE INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEET (in thousands, except share-related data)
December 31, January 31, October 31, 1999 2000 2000 ------------ ----------- ----------- Assets Current assets Cash and cash equivalents.............. $11,318 $ 2,721 $ 7,244 Accounts receivable, net of allowance for doubtful accounts of $908 at December 31, 1999, $908 at January 31, 2000 and $638 at October 31, 2000..... 17,840 16,756 23,457 Inventories............................ 17,128 20,089 23,468 Income taxes receivable................ 60 Prepaid expenses and other current assets................................ 1,508 1,634 3,946 Deferred income taxes.................. 2,243 3,400 3,400 ------- ------- ------- Total current assets................. 50,097 44,600 61,515 Property and equipment, net.............. 10,538 10,492 14,171 Other assets............................. 884 869 907 Goodwill and intangibles, net............ 785 751 2,605 ------- ------- ------- $62,304 $56,712 $79,198 ======= ======= ======= Liabilities and Stockholders' Equity Current liabilities Current portion of equipment line of credit and obligations under capital lease................................. $ 1,048 $ 1,045 $ 2,335 Accounts payable....................... 15,038 10,451 14,927 Accrued expenses....................... 3,499 2,776 1,972 Customer deposits...................... 2,092 2,428 3,873 Deferred revenue....................... 4,380 6,292 6,701 Income taxes payable................... 675 625 437 ------- ------- ------- Total current liabilities............ 26,732 23,617 30,245 ------- ------- ------- Long-term equipment line of credit and obligations under capital lease......... 1,231 1,144 4,024 ------- ------- ------- Commitments and contingencies (Note 8) Stockholders' Equity Common stock, $.01 par value; 100,000,000 shares authorized; 21,285,855, 21,300,185 and 21,956,614 shares issued at December 31, 1999, January 31, 2000 and October 31, 2000, respectively...... 213 213 220 Additional paid-in capital............... 35,634 35,696 47,907 Accumulated deficit...................... (1,440) (3,898) (3,033) Treasury stock, 60,750 shares............ (1) (1) (1) Accumulated other comprehensive loss..... (65) (59) (164) ------- ------- ------- Total stockholders' equity........... 34,341 31,951 44,929 ------- ------- ------- $62,304 $56,712 $79,198 ======= ======= =======
The accompanying notes are an integral part of these consolidated financial statements. F-24 SEACHANGE INTERNATIONAL, INC. CONSOLIDATED STATEMENT OF OPERATIONS (in thousands, except per share data)
Nine months ended One month ended ----------------------- ----------------------- October 31, October 31, January 31, January 31, 1999 2000 1999 2000 ----------- ----------- ----------- ----------- Revenues Systems..................... $51,642 $55,233 $ 697 $ 226 Services.................... 12,305 16,892 1,211 1,484 ------- ------- ------- ------- 63,947 72,125 1,908 1,710 ------- ------- ------- ------- Costs of revenues Systems..................... 30,420 29,835 670 633 Services.................... 11,058 13,271 1,049 1,445 ------- ------- ------- ------- 41,478 43,106 1,719 2,078 ------- ------- ------- ------- Gross profit (loss)......... 22,469 29,019 189 (368) ------- ------- ------- ------- Operating expenses Research and development.... 12,332 14,456 1,324 1,764 Selling and marketing....... 6,323 8,284 522 1,034 General and administrative.. 4,047 4,977 447 457 ------- ------- ------- ------- 22,702 27,717 2,293 3,255 ------- ------- ------- ------- Income (loss) from operations................. (233) 1,302 (2,104) (3,623) Interest income (expense), net.......................... (5) (30) 9 9 ------- ------- ------- ------- Income (loss) before income taxes...................... (238) 1,272 (2,095) (3,614) Provision (benefit) for income taxes........................ (438) 407 (691) (1,156) ------- ------- ------- ------- Net income (loss)........... $ 200 $ 865 $(1,404) $(2,458) ======= ======= ======= ======= Basic and diluted earnings (loss) per share............. $ 0.01 $ 0.04 $ (0.07) $ (0.12) ======= ======= ======= ======= Shares used in calculating: Basic earnings per share.... 21,036 21,668 20,901 21,269 ======= ======= ======= ======= Diluted earnings per share.. 22,030 23,170 20,901 21,269 ======= ======= ======= =======
The accompanying notes are an integral part of these consolidated financial statements. F-25 SEACHANGE INTERNATIONAL, INC. CONSOLIDATED STATEMENT OF CASH FLOWS INCREASE IN CASH AND CASH EQUIVALENTS (IN THOUSANDS)
Nine months ended One month ended ----------------------- ----------------------- October 31, October 31, January 31, January 31, 1999 2000 1999 2000 ----------- ----------- ----------- ----------- Cash flows from operating activities Net income................... $ 200 $ 865 $(1,404) $(2,458) Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization.............. 3,092 3,546 379 355 Inventory valuation allowance................. 558 149 -- -- Deferred income taxes...... -- -- (691) (1,156) Changes in operating assets and liabilities: Accounts receivable...... (3,887) (6,528) 5,019 1,084 Inventories.............. (1,543) (3,204) (1,630) (2,961) Prepaid expenses, other current assets and other assets.................. 2,938 (2,455) (743) (46) Accounts payable......... 2,484 4,476 (2,678) (4,587) Accrued expenses......... (117) (804) (652) (723) Customer deposits........ 883 1,445 188 336 Deferred revenue......... (359) 409 1,037 1,912 Income taxes payable..... (344) 107 (115) (50) ------ ------ ------- ------- Net cash provided by (used in) operating activities............ 3,905 (1,994) (1,290) (8,294) ------ ------ ------- ------- Cash flows from investing activities Purchases of property and equipment................... (2,674) (7,367) (62) (275) Increase in intangible assets...................... -- (2,209) -- -- Net cash used in investing activities.. (2,674) (9,576) (62) (275) ------ ------ ------- ------- Cash flows from financing activities Proceeds from borrowings under construction loan..... -- 1,044 -- -- Proceeds from borrowings under equipment line of credit...................... 1,116 4,324 -- -- Repayments under equipment line of credit.............. (462) (1,017) (2,039) (72) Repayments of obligation under capital lease......... (72) (181) (11) (18) Proceeds from issuance of common stock................ 886 11,923 50 62 ------ ------ ------- ------- Net cash provided by financing activities.. 1,468 16,093 (2,000) (28) ------ ------ ------- ------- Net increase in cash and cash equivalents................. 2,699 4,523 (3,352) (8,597) Cash and cash equivalents, beginning of period......... 2,090 2,721 5,442 11,318 ------ ------ ------- ------- Cash and cash equivalents, end of period............... $4,789 $7,244 $ 2,090 $ 2,721 ====== ====== ======= ======= Supplemental disclosure of noncash activity: Transfer of items originally classified as inventories to fixed assets................ $2,070 $ -- $ 109 $ -- Transfer of items originally classified as fixed assets to inventories............... $ 162 $ 497 $ -- $ -- Equipment acquired under capital leases.............. $ 336 $ -- $ -- $ --
The accompanying notes are an integral part of these consolidated financial statements. F-26 SEACHANGE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited; in thousands, except share and per share data) 1. Basis of Presentation The accompanying unaudited consolidated financial statements include the accounts of SeaChange International, Inc. and its subsidiaries. SeaChange believes that the unaudited consolidated financial statements reflect all adjustments (consisting of only normal recurring adjustments), necessary for a fair statement of SeaChange's financial position, results of operations and cash flows at the dates and for the periods indicated. The results of operations for periods presented are not necessarily indicative of results expected for the full fiscal year or any other future periods. The unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes for the year ended December 31, 1999, included in SeaChange's Annual Report on Form 10-K for such fiscal year. 2. Revenue Recognition Revenues from sales of systems are recognized upon shipment provided title and risk of loss has passed to the customer, there is evidence of an arrangement, fees are fixed or determinable and collection of the related receivable is probable. Installation, project management and training revenue is deferred and recognized as these services are performed. Revenue from technical support and maintenance is deferred and recognized ratably over the period of the related agreements, generally twelve months. Customers are billed for installation, project management, training and maintenance at the time of the product sale. Revenue from content fees, primarily movies, is recognized based on the volume of monthly purchases that are made by hotel guests. Revenue from product development contract services is recognized based on the time and materials incurred to complete the work. SeaChange's transactions frequently involve the sales of systems and services under multiple element arrangements. Systems sales always include one year of free technical support and maintenance services. Revenue under multiple element arrangements is allocated to all elements except systems based upon the fair value of those elements. The amounts allocated to training, project management, technical support and maintenance and content fees is based upon the price charged when these elements are sold separately and unaccompanied by the other elements. The amount allocated to installation revenue is based upon hourly rates and the estimated time required to complete the service. The amount allocated to systems is done on a residual method basis. Under this method, the total arrangement value is allocated first to undelivered elements, based on their fair values, with the remainder being allocated to systems revenue. Installation, training and project management services are not essential to the functionality of systems as these services do not alter the equipment's capabilities, are available from other vendors and the systems are standard products. 3. Earnings Per Share For the one month ended January 31, 1999 and January 31, 2000, common shares of 157,000 and 1,674,000, respectively, issuable upon the exercise of stock options, are antidilutive because SeaChange recorded a net loss for the period, and therefore, have been excluded from the diluted earnings per share computation. F-27 SEACHANGE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (unaudited; in thousands, except share and per share data) Below is a summary of the shares used in calculating basic and diluted earnings per share for the periods indicated:
Nine months ended One month ended --------------------- --------------------- October October January January 31, 1999 31, 2000 31, 1999 31, 2000 ---------- ---------- ---------- ---------- Weighted average shares used in calculating earnings per share-- Basic........................... 21,036,000 21,668,000 20,901,000 21,269,000 Dilutive stock options.......... 994,000 1,502,000 -- -- ---------- ---------- ---------- ---------- Weighted average shares used in calculating earnings per share Diluted......................... 22,030,000 23,170,000 20,901,000 21,269,000 ========== ========== ========== ==========
4. Inventories
December 31, January 31, October 31, 1999 2000 2000 ------------ ----------- ----------- Components and assemblies.................. $14,739 $17,602 $19,185 Finished Products.......................... 2,389 2,487 4,283 ------- ------- ------- $17,128 $20,089 $23,468 ======= ======= =======
5. Comprehensive Income (Loss) For the nine months ended October 31, 1999 and October 31, 2000 and the one month ended January 31, 1999 and January 31, 2000, SeaChange's comprehensive income (loss) was as follows:
Nine months ended One month ended ----------------------- ----------------------- October 31, October 31, January 31, January 31, 1999 2000 1999 2000 ----------- ----------- ----------- ----------- Net income (loss)............. $200 $865 $(1,404) $(2,458) Other comprehensive income (expense), net of tax: Foreign currency translation adjustment, net of tax of $(45), ($33), $8 and $2, respectively............... 47 (72) 17 4 ---- ---- ------- ------- Other comprehensive income (expense).................... 47 (72) 17 4 ---- ---- ------- ------- Comprehensive income (loss)... $247 $793 $(1,387) $(2,454) ==== ==== ======= =======
6. New Accounting Pronouncements In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which establishes accounting and reporting standards for derivative instruments, including derivative instruments embedded in other contracts, collectively referred to as derivatives, and for hedging activities. In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities", an amendment to SFAS No. 133. This accounting standard amended the accounting and reporting standards of SFAS No. 133 for certain derivative instruments and hedging activities. To date SeaChange has not utilized derivative instruments or F-28 SEACHANGE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (unaudited; in thousands, except share and per share data) hedging activities and, therefore, the adoption of SFAS No. 133 is not expected to have a material impact on SeaChange's financial position or results of operations. In December 1999, the SEC issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements." SAB 101 summarizes the SEC's view in applying generally accepted accounting principles to selected revenue recognition issues. The application of the guidance in SAB 101 is required in SeaChange's fourth quarter of its current fiscal year. The effects of applying this guidance will be reported as a cumulative effect adjustment resulting in a change in accounting principle. SeaChange estimates that the cumulative effect of the change in accounting principle will result in a charge to income before income taxes of approximately $1.6 million, which will be included in the results of operations for the fiscal year ended January 31, 2001. 7. Segment Information SeaChange has three reportable segments: broadband systems, broadcast systems and services. The broadband systems segment provides products to digitally manage, store and distribute digital video for television operators and telecommunications companies. The broadcast systems segment provides products for the storage, archival, on-air playback of advertising and other video programming for the broadcast television industry. The service segment provides installation, training, product maintenance and technical support for all of the above systems and content which is distributed by the broadband product segment. SeaChange does not measure the assets allocated to the segments. SeaChange measures results of the segments based on the respective gross profits. There were no inter-segment sales or transfers. Long-lived assets are principally located in the United States. SeaChange has changed its reportable segments from the prior quarter and prior year-end and has reclassed prior period amounts to conform to these current segments. The following summarizes the revenues and cost of revenues by reportable segment:
Nine months ended One month ended ----------------------- ----------------------- October 31, October 31, January 31, January 31, 1999 2000 1999 2000 ----------- ----------- ----------- ----------- Revenues Broadband................... $39,637 $38,728 $ 467 $ 190 Broadcast................... 12,005 16,505 230 36 Services.................... 12,305 16,892 1,211 1,484 ------- ------- ------ ------ Total..................... $63,947 $72,125 $1,908 $1,710 ------- ------- ------ ------ Costs of revenues Broadband................... $23,663 $20,730 $ 463 $ 503 Broadcast................... 6,757 9,105 207 130 Services.................... 11,058 13,271 1,049 1,445 ------- ------- ------ ------ Total..................... $41,478 $43,106 $1,719 $2,078 ------- ------- ------ ------ The following summarizes revenues by geographic locations: Revenues United States................. $48,593 $57,403 $1,185 $1,398 Canada and South America...... 3,960 3,051 626 44 Europe........................ 8,574 5,589 19 234 Asian Pacific and rest of world........................ 2,820 6,082 78 34 ------- ------- ------ ------ $63,947 $72,125 $1,908 $1,710 ------- ------- ------ ------
F-29 SEACHANGE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (unaudited; in thousands, except share and per share data) For the nine months ended October 31, 1999 and October 31, 2000 and the one month ended January 31, 1999 and January 31, 2000 certain customers each accounted for more than 10% of SeaChange's revenue. Individual customers each accounted for 17% and 12% in the nine months ended October 31, 1999; 10% in the nine months ended October 31, 2000; 17%, 12% and 10% in the one month ended January 31, 1999; and 16% and 11% in the one month ended January 31, 2000. 8. Legal Proceedings On March 17, 2000, Beam Laser Systems, Inc. and Frank L. Beam instituted a claim (Civil Action No. 2:00-CV-195) in the federal courts in the Eastern District of Virginia against one of SeaChange's customers, Cox Communications, Inc. This claim was later amended by Beam Laser on June 16, 2000 to also include two related companies of Cox Communications: CableRep, Inc. and CoxCom, Inc. Beam Laser has asserted that the ad insertion technology, which includes SeaChange's spot ad insertion system, used by Cox Communications, CableRep and CoxCom infringes two of the patents held by Beam Laser (Patents No. 4,814,883 and 5,200,825). Beam Laser is seeking both an injunction and monetary damages from the defendants in that case. The defendants have made a counterclaim against Beam Laser seeking a declaration of non-infringement, invalidity and unenforceability of the two patents held by Beam Laser that are at question. On May 19, 2000, SeaChange filed a motion seeking to intervene in the action between its customer and Beam Laser, and to transfer the case to the District Court of Massachusetts. On June 23, 2000, the court granted SeaChange's intervention motion and deferred ruling on the issue of transfer. Also on June 23, 2000, SeaChange filed its Intervenor Complaint in the Virginia action seeking, among other things, a declaratory judgment of non-infringement, invalidity and unenforceability regarding the two patents of Beam Laser that are at question. In addition, SeaChange has agreed to indemnify its customer for claims brought against the customer that are related to the customer's use of SeaChange's products. On October 23, 2000, the court denied SeaChange's motion to transfer. On November 29, 2000, Beam Laser filed a motion to amend its pleading to add claims against SeaChange seeking equitable relief, a finding of willful or contributory infringement, and attorneys' fees. On January 26, 2001, the magistrate denied Beam Laser's motion to amend. Beam Laser has filed an objection this denial, but the court has not yet ruled on Beam Laser's objection. This dispute has a scheduled trial date commencing April 2001. On June 13, 2000, SeaChange filed in the United States District Court for the District of Delaware a lawsuit against one of its competitors, nCube Corp., whereby SeaChange alleged that nCube's MediaCube-4 product infringed a patent held by SeaChange (Patent No. 5,862,312). In instituting the claim, SeaChange sought both a permanent injunction and damages in an unspecified amount. nCube made a counterclaim against SeaChange that the patent held by SeaChange was invalid and that nCube's MediaCube-4 product did not infringe SeaChange's patent. On September 25, 2000 the court upheld the validity of SeaChange's patent. At this time SeaChange is awaiting the court's decision regarding a permanent injunction. Damages will be determined in future proceedings. On June 14, 1999, SeaChange filed a defamation complaint against Jeffrey Putterman, Lathrop Investment Management, Inc. and Concurrent Computer Corporation in the Circuit Court of Pulaski County, Arkansas alleging that the defendants conspired to injure the business and reputation of SeaChange in the marketplace. The complaint further alleges that Mr. Putterman and Lathrop Investment Management, Inc. defamed SeaChange through postings on an Internet message board. On June 14, 2000, Concurrent filed a counterclaim under seal against SeaChange seeking unspecified damages. These motions are currently pending and no trial date has been set. SeaChange cannot be certain of the outcome of the foregoing litigation, but does plan to oppose allegations against it and assert its claims against other parties vigorously. In addition, as these claims are in the F-30 SEACHANGE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (unaudited; in thousands, except share and per share data) early stages of discovery and certain claims for damages are as yet unspecified, SeaChange is unable to estimate the impact to its business, financial condition, and results of operations or cash flows. 9. Fiscal Year Change In April 2000, SeaChange's Board of Directors voted to change SeaChange's fiscal accounting year from December 31 to January 31, such that the current fiscal accounting year began on February 1, 2000 and will end on January 31, 2001. SeaChange has recast its financial statements to present the comparable prior year periods to conform to the current year fiscal periods. 10. Construction Loan In October 2000, SeaChange entered into an agreement with a bank to finance $1.2 million of the construction costs related to the purchase and renovation of a manufacturing mill in New Hampshire that had been previously purchased in February 2000. During the construction period, interest is accrued and payable at a per annum rate of 8.875%. Upon occupancy of the building by SeaChange, the loan will convert to two promissory notes whereby SeaChange will pay principal and interest based upon a fixed interest rate per annum using a five and ten year amortization schedule (8.875% at October 31, 2000). Borrowings under the loan are secured by the land and buildings of the renovated mill. The loan agreement requires that SeaChange provide the bank with certain periodic financial reports and comply with certain financial ratios. At October 31, 2000, SeaChange was in compliance with all covenants. As of October 31, 2000, borrowings outstanding under the loan were $1.0 million. 11. Subsequent Event On December 1, 2000, SeaChange and Comcast Cable Communications, Inc. entered into a video-on-demand purchase agreement for SeaChange's interactive television video servers and related services. Under the terms of the video-on- demand purchase agreement, Comcast has committed to purchase SeaChange's equipment capable of serving a minimum of one million cable subscribers by approximately December 2002. In addition, Comcast may earn up to an additional 450,000 incentive common stock purchase warrants through December 2003 based on the number of cable subscribers in excess of one million who are served by SeaChange's equipment which has been purchased by Comcast. In connection with the execution of this commercial agreement, SeaChange entered into a common stock and warrant purchase agreement, dated as of December 1, 2000, with Comcast SC Investment, Inc., whereby Comcast SC agreed to purchase, subject to certain closing conditions including registration of the shares purchased thereby, 466,255 shares of SeaChange's common stock for approximately $10 million and Comcast SC would receive a warrant to purchase 100,000 shares, exercisable at $21.445 per share, of SeaChange's common stock. This stock and warrant purchase agreement was terminated by SeaChange and Comcast SC on February 28, 2001. The terms and conditions of the video-on-demand purchase agreement have not been modified. On February 28, 2001, SeaChange and Comcast SC signed and closed a new common stock and warrant purchase agreement on terms similar to the prior agreement. Under the terms of this new agreement, SeaChange sold in a private placement to Comcast SC for approximately $10,000,000 an aggregate of 756,144 shares of SeaChange's common stock and a warrant to purchase 100,000 shares of SeaChange's common stock with an exercise price of $13.225 per share. In addition, the new purchase agreement provides that an additional number of shares of common stock shall be issued to Comcast SC without any additional consideration as is equal to the difference between $10,000,000 divided by the lower of 92% of the closing market price of SeaChange's common stock on the date of effectiveness of this registration statement and the F-31 SEACHANGE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (unaudited; in thousands, except share and per share data) average of the closing market price of our common stock for the five trading days ending on the effective date of this registration statement and $13.225. The warrant agreement contains an adjustment mechanism such that the warrant is exercisable for an additional 25,000 shares of SeaChange's common stock if this registration statement has not been declared effective on or before March 31, 2001 and an additional 333.33 shares of SeaChange's common stock per day beginning on and including May 1, 2001 for each day up to and including the day this registration statement is declared effective. The warrant agreement also provides that the exercise price of the warrant will be reduced on the effective date of this registration statement to the lower of 92% of the closing market price of SeaChange's common stock on the effective date of this registration statement and the average of the closing market prices of SeaChange's common stock for the five trading days ending on the date of effectiveness of this registration statement if either of such prices is lower than $13.225, the exercise price as of the closing date. SeaChange will determine the intrinsic value of the common stock purchase and will measure the fair value of the 100,000 common stock purchase warrants at the closing date and will record these amounts as contra-equity. Upon effectiveness of the registration statement, SeaChange will measure the fair value of the additional common shares issued, if any, and the incremental fair value of the common stock warrants, and will add those amounts to the amount of contra-equity initially recorded at the closing date. The contra-equity amount will be amortized in future periods as an offset to gross revenue in proportion to the revenue recognized with respect to the first one million subscribers Comcast has committed to under the video-on-demand purchase agreement. The fair value of the additional incentive common stock purchase warrants will also be recorded as an offset to gross revenue as the warrants are earned by Comcast, if any. F-32 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. Comcast SC Investment, Inc. is offering to sell, and seeking offers to buy, the securities only in jurisdictions where offers and sales are permitted. Neither the delivery of this prospectus nor any sales made hereunder after the date of this prospectus shall create an implication that the information contained in this document is correct as of any time subsequent to the date hereof or that the affairs of SeaChange have not changed since the date hereof. In this prospectus, references to "SeaChange International," "we," "our" and "us" refer to SeaChange International, Inc. ---------------- TABLE OF CONTENTS
Page ---- SeaChange International.................................................. 2 Where You Can Find More Information...................................... 4 Risk Factors............................................................. 5 Forward-Looking Statements............................................... 10 Use of Proceeds.......................................................... 10 Selected Financial Data.................................................. 11 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................... 13 Quantitative and Qualitative Disclosures About Market Risk............... 28 Business................................................................. 29 Management............................................................... 41 Principal Stockholders................................................... 46 Market Price............................................................. 48 Description of Capital Stock............................................. 49 Comcast SC Investment, Inc............................................... 52 Plan of Distribution..................................................... 53 Legal Matters............................................................ 54 Experts.................................................................. 54 Index to Financial Statements............................................ F-1
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 856,144 Shares SEACHANGE INTERNATIONAL, INC. COMMON STOCK ---------------- PROSPECTUS ---------------- , 2001 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 13. Other Expenses of Issuance and Distribution. Estimated expenses (other than underwriting discounts and commissions) payable in connection with the sale of the Common Stock offered hereby are as follows: SEC Registration Fee............................................ $ 3,076.78 Nasdaq Filing Fees.............................................. 8,561.44 Legal fees and expenses......................................... 100,000.00 Accounting fees and expenses.................................... 10,000.00 ----------- Total......................................................... $121,638.22 ===========
We will bear all expenses shown above. Comcast SC will bear all underwriting discounts and selling commissions and stock transfer fees and taxes applicable to the sale of the shares sold under this prospectus. Item 14. Indemnification of Directors and Officers. The Delaware General Corporation Law and our Certificate of Incorporation provide for indemnification of our directors and officers for liabilities and expenses that they may incur in those capacities. In general, directors and officers are indemnified with respect to actions taken in good faith in a manner reasonably believed to be in, or not opposed to, the best interests of SeaChange, and with respect to any criminal action or proceeding, actions that the indemnitee had no reasonable cause to believe were unlawful. We refer you to our Certificate of Incorporation filed as Exhibit 4.2 to our registration statement on Form S-8 filed with the SEC on December 8, 1996 (File No. 333- 17379) and the amendment thereto filed as Exhibit 4.2 to our registration statement on Form S-3 filed with the SEC on December 6, 2000 (File No. 333- 51386). We maintain directors' and officers' liability insurance to insure our directors and certain officers against certain liabilities and expenses which arise out of or in connection with their capacities as directors and officers. In addition, the stock purchase agreement executed in connection with the private placement provides that Comcast SC is obligated, under certain circumstances, to indemnify SeaChange and its directors and officers against certain liabilities, including liabilities under the Securities Act. Reference is made to the common stock and warrant purchase agreement filed as Exhibit 10.1 to this registration statement on Form S-1. Item 15. Recent Sales of Unregistered Securities On December 30, 1999, in connection with the acquisition by us of all of the issued and outstanding shares of capital stock of Digital Video Arts, Ltd., we issued an aggregate of 330,000 shares of common stock to the shareholders of Digital Video Arts, Ltd. and to Corum Group Ltd. pursuant to Section 4(2) of the Securities Act. No underwriter was used in connection with this private placement of securities. On May 23, 2000, we sold 277,162 shares of our common stock to Microsoft Corporation in exchange for an aggregate purchase price of $10,000,004.96. This sale was exempt from the registration requirements of the Securities Act, pursuant to Rule 506 of Regulation D of the rules promulgated by the SEC pursuant to the Securities Act as we did not make any general solicitation relating to the sale of these shares and Microsoft Corporation represented to us that it was an accredited investor as such term is defined pursuant to Rule 501 of Regulation D of the rules promulgated by the SEC pursuant to the Securities Act. II-1 On February 28, 2001, we sold in a private placement to Comcast SC Investment, Inc. for approximately $10,000,000 an aggregate of 756,144 shares of our common stock and a warrant to purchase 100,000 shares of our common stock with an exercise price of $13.225 per share. The number of shares purchased under the purchase agreement, the number of shares for which the warrant is exercisable and the per share exercise price of the warrant is subject to adjustment, as detailed in the prospectus under the heading "Comcast SC Investment, Inc." This sale was exempt from the registration requirements of the Securities Act, pursuant to Rule 506 of Regulation D of the rules promulgated by the SEC pursuant to the Securities Act as we did not make any general solicitation relating to the sale of these shares and Comcast SC represented to us that it was an accredited investor as such term is defined pursuant to Rule 501 of Regulation D of the rules promulgated by the SEC pursuant to the Securities Act. Item 16. Exhibits.
Exhibit No. Description ----------- ----------- 3.1 --Amended and Restated Certificate of Incorporation of the Company (filed as Exhibit 3.3 to the Company's Registration Statement on Form S-1 previously filed on November 4, 1996 with the Commission (File No. 333-12233) and incorporated herein by reference). 3.2 --Certificate of Amendment, filed May 25, 2000 with the Secretary of State in the State of Delaware, to the Amended and Restated Certificate of Incorporation of the Company (filed as Exhibit 4.1 to the Company's Quarterly Report on 10-Q previously filed on December 15, 2000 with the Commission (Filed No. 000-21393) and incorporated herein by reference). 3.3 --Amended and Restated By-laws of the Company (filed as Exhibit 3.5 to the Company's Registration Statement on Form S-1 previously filed on November 4, 1996 with the Commission (File No. 333-12233) and incorporated herein by reference). 4.1 --Specimen certificate representing the Common Stock (filed as Exhibit 4.1 to the Company's Registration Statement on Form S-1 previously filed on November 4, 1996 with the Commission (File No. 333-12233) and incorporated herein by reference). 4.2 --Amended and Restated Certificate of Incorporation of the Company (filed as Exhibit 3.3 to the Company's Registration Statement on Form S-1 previously filed on November 4, 1996 with the Commission (File No. 333-12233) and incorporated herein by reference). 4.3 --Certificate of Amendment, filed May 25, 2000 with the Secretary of State in the State of Delaware, to the Amended and Restated Certificate of Incorporation of the Company (filed as Exhibit 4.2 to the Company's registration statement on Form S-3 previously filed on December 6, 2000 with the Commission (Filed No. 333- 51386) and incorporated herein by reference). 5.1* --Opinion of Testa, Hurwitz & Thibeault, LLP. 10.1 --Amended and Restated 1995 Stock Option Plan (filed as Annex A to the Company's Proxy Statement on Form 14a previously filed on April 28, 2000 with the Commission (File No. 000-21393) and incorporated herein by reference). 10.2 --1996 Non-Employee Director Stock Option Plan (filed as Exhibit 10.2 to the Company's Registration Statement on Form S-1 previously filed on November 4, 1996 with the Commission (File No. 333-12233) and incorporated herein by reference). 10.3* --Second Amended and Restated 1996 Employee Stock Purchase Plan of the Company. 10.4 --Loan Agreement, dated as of October 16, 2000, by and between the Company and the Bank of New Hampshire, N.A. (filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q previously filed on December 15, 2000 with the Commission (File No. 000- 21393) and incorporated herein by reference).
II-2
Exhibit No. Description ----------- ----------- 10.5 --Loan and Security Agreement, dated as of November 10, 1998, by and between Silicon Valley Bank and the Company (filed as Exhibit 10.5 to the Company's Annual Report on Form 10-K previously filed on March 24, 1999 with the Commission (File No. 000-21393) and incorporated herein by reference). 10.6 --First Loan Modification Agreement, dated as of March 27, 2000, by and between the Company and Silicon Valley Bank (filed as Exhibit 10.12 to the Company's Annual Report on Form 10-K/A previously filed on April 14, 2000 with the Commission (File No.000-21393) and incorporated herein by reference). 10.7 --Second Loan Modification Agreement, dated as of July 25, 2000, by and among the Company, Silicon Valley Bank and Silicon Valley Bank, doing business as Silicon Valley East (filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q previously filed on September 14, 2000 with the Commission (File No. 000- 21393) and incorporated herein by reference). 10.8 --Revolving Line of Credit Amendment, dated as of March 1, 2000, by and between the Company and Silicon Valley Bank (filed as Exhibit 10.13 to the Company's Annual Report on Form 10-K/A previously filed on April 14, 2000 with the Commission (File No.000-21393) and incorporated herein by reference). 10.9 --Export-Import Bank Loan and Security Agreement, dated as of July 25, 2000, by and among the Company, Silicon Valley Bank and Silicon Valley Bank, doing business as Silicon Valley East (filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q previously filed on September 14, 2000 with the Commission (File No. 000-21393) and incorporated herein by reference). 10.10 --Common Stock Purchase Agreement, dated as of May 23, 2000, by and between the Company and Microsoft Corporation (filed as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q previously filed on September 14, 2000 with the Commission (File No. 000-21393) and incorporated herein by reference). 10.11 --Registration Rights Agreement, dated as of May 23, 2000, by and between the Company and Microsoft Corporation (filed as Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q previously filed on September 14, 2000 with the Commission (File No. 000- 21393) and incorporated herein by reference). 10.12 --License and Development Agreement, dated as of May 8, 2000, by and between the Company and Microsoft Licensing, Inc. (filed as Exhibit 10.5 to the Company's Amended Quarterly Report on 10-Q for the quarterly period ended July 31, 2000 filed on March 1, 2001 with the Commission (File No. 000-21393) and incorporated herein by reference). 10.13 --Investment Term Sheet, dated as of May 8, 2000, by and between the Company and Microsoft Corporation (filed as Exhibit 10.6 to the Company's Amended Quarterly Report on 10-Q for the quarterly period ended July 31, 2000 filed on March 1, 2001 with the Commission (File No. 000-21393) and incorporated herein by reference). 10.14 --Video-on-Demand Purchase Agreement, dated as of December 1, 2000, by and between the Company and Comcast Cable Communications of Pennsylvania, Inc. (filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed on December 15, 2000 with the Commission (File No. 000-21393) and incorporated herein by reference). 10.15* --Stock Purchase Agreement, dated as of February 28, 2001, by and between the Company and Comcast SC Investment, Inc. 10.16* --Amended and Restated Registration Rights Agreement, dated as of February 28, 2001, by and between the Company and Comcast SC Investment, Inc.
II-3
Exhibit No. Description ----------- ----------- 10.17 --Stock Purchase Agreement, dated as of December 10, 1997, by and among the Company, IPC Interactive Pte. Ltd. and the shareholders of IPC Interactive Pte. Ltd. (filed as Exhibit 2.1 to the Company's Current Report on Form 8-K previously filed on December 24, 1997 with the Commission (File No. 000-21393) and incorporated herein by reference). 10.18 --Stock Purchase Agreement, dated as of December 30, 1999, by and among the Company, Digital Video Arts, Ltd. and the stockholders of Digital Video Arts, Ltd. and Corum Group Ltd. (filed as Exhibit 2.1 to the Company's Current Report on Form 8-K previously filed on January 14, 2000 with the Commission (File No. 000-21393) and incorporated herein by reference). 10.19 --Registration Rights Agreement, dated as of December 30, 1999, by and among the Company, Digital Video Arts, Ltd. and the stockholders of Digital Video Arts, Ltd. and Corum Group Ltd. (filed as Exhibit 2.2 to the Company's Current Report on Form 8-K previously filed on January 14, 2000 with the Commission (File No. 000-21393) and incorporated herein by reference). 10.20 --License Agreement dated May 30, 1996 between Summit Software Systems, Inc. and the Company (filed as Exhibit 10.7 to the Company's Registration Statement on Form S-1 previously filed on November 4, 1996 with the Commission (File No. 333-12233) and incorporated herein by reference). 10.21 --Lease Agreement dated May 28, 1998 between Robert Quirk, Trustee of Maynard Industrial Properties Associates Trust and the Company (filed as Exhibit 10.3 to the Company's Annual Report on Form 10- K previously filed on March 24, 1999 with the Commission (File No. 000-21393) and incorporated herein by reference). 21.1 --List of Significant Subsidiaries (filed as Exhibit 21.1 to the Company's Annual Report on Form 10-K/A previously filed on April 14, 2000 with the Commission (File No.000-21393) and incorporated herein by reference). 23.1* --Consent of PricewaterhouseCoopers LLP 23.2 --Consent of Testa, Hurwitz & Thibeault, LLP (included in Exhibit 5.1) 24.1 --Power of Attorney (included on signature page).
- -------- * Filed herewith. Item 17. Undertakings. The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) to reflect in the prospectus any facts or events arising after the effective date of this registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in this registration statement; and (iii) to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in this registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment 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 (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. II-5 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Maynard and Commonwealth of Massachusetts on March 1, 2001. Seachange International, Inc. /s/ William C. Styslinger, III By: _________________________________ William C. Styslinger, III President, Chief Executive Officer, Director and Chairman POWER OF ATTORNEY AND SIGNATURES We, the undersigned officers and directors of SeaChange International, Inc., hereby severally constitute and appoint William C. Styslinger, III and William L. Fiedler, and each of them singly, our true and lawful attorneys, with full power to them and each of them singly, to sign for us in our names in the capacities indicated below, all pre-effective and post-effective amendments to this registration statement, and generally do all things in our names and on our behalf in such capacities to enable SeaChange International, Inc. to comply with the provisions of the Securities Act of 1933 and all requirements of the Securities and Exchange Commission. Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed below by the following persons in the capacities and on the dates indicated.
Signature Titles Date --------- ------ ---- /s/ William C. Styslinger, III President, Chief Executive March 1, 2001 ______________________________________ Officer, Director and William C. Styslinger, III Chairman (Principal Executive Officer) /s/ William L. Fiedler Chief Financial Officer, March 1, 2001 ______________________________________ Secretary, Treasurer and William L. Fiedler Vice President, Finance and Administration (Principal Financial Officer and Principal Accounting Officer) /s/ Martin R. Hoffmann Director March 1, 2001 ______________________________________ Martin R. Hoffmann /s/ Carmine Vona Director March 1, 2001 ______________________________________
Carmine Vona II-6 EXHIBIT INDEX
Exhibit No. Description ----------- ----------- 3.1 --Amended and Restated Certificate of Incorporation of the Company (filed as Exhibit 3.3 to the Company's Registration Statement on Form S-1 previously filed on November 4, 1996 with the Commission (File No. 333-12233) and incorporated herein by reference). 3.2 --Certificate of Amendment, filed May 25, 2000 with the Secretary of State in the State of Delaware, to the Amended and Restated Certificate of Incorporation of the Company (filed as Exhibit 4.1 to the Company's Quarterly Report on 10-Q previously filed on December 15, 2000 with the Commission (Filed No. 000-21393) and incorporated herein by reference). 3.3 --Amended and Restated By-laws of the Company (filed as Exhibit 3.5 to the Company's Registration Statement on Form S-1 previously filed on November 4, 1996 with the Commission (File No. 333-12233) and incorporated herein by reference). 4.1 --Specimen certificate representing the Common Stock (filed as Exhibit 4.1 to the Company's Registration Statement on Form S-1 previously filed on November 4, 1996 with the Commission (File No. 333-12233) and incorporated herein by reference). 4.2 --Amended and Restated Certificate of Incorporation of the Company (filed as Exhibit 3.3 to the Company's Registration Statement on Form S-1 previously filed on November 4, 1996 with the Commission (File No. 333-12233) and incorporated herein by reference). 4.3 --Certificate of Amendment, filed May 25, 2000 with the Secretary of State in the State of Delaware, to the Amended and Restated Certificate of Incorporation of the Company (filed as Exhibit 4.2 to the Company's registration statement on Form S-3 previously filed on December 6, 2000 with the Commission (Filed No. 333- 51386) and incorporated herein by reference). 5.1* --Opinion of Testa, Hurwitz & Thibeault, LLP. 10.1 --Amended and Restated 1995 Stock Option Plan (filed as Annex A to the Company's Proxy Statement on Form 14a previously filed on April 28, 2000 with the Commission (File No. 000-21393) and incorporated herein by reference). 10.2 --1996 Non-Employee Director Stock Option Plan (filed as Exhibit 10.2 to the Company's Registration Statement on Form S-1 previously filed on November 4, 1996 with the Commission (File No. 333-12233) and incorporated herein by reference). 10.3* --Second Amended and Restated 1996 Employee Stock Purchase Plan of the Company. 10.4 --Loan Agreement, dated as of October 16, 2000, by and between the Company and the Bank of New Hampshire, N.A. (filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q previously filed on December 15, 2000 with the Commission (File No. 000- 21393) and incorporated herein by reference). 10.5 --Loan and Security Agreement, dated as of November 10, 1998, by and between Silicon Valley Bank and the Company (filed as Exhibit 10.5 to the Company's Annual Report on Form 10-K previously filed on March 24, 1999 with the Commission (File No. 000-21393) and incorporated herein by reference). 10.6 --First Loan Modification Agreement, dated as of March 27, 2000, by and between the Company and Silicon Valley Bank (filed as Exhibit 10.12 to the Company's Annual Report on Form 10-K/A previously filed on April 14, 2000 with the Commission (File No. 000-21393) and incorporated herein by reference).
Exhibit No. Description ----------- ----------- 10.7 --Second Loan Modification Agreement, dated as of July 25, 2000, by and among the Company, Silicon Valley Bank and Silicon Valley Bank, doing business as Silicon Valley East (filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q previously filed on September 14, 2000 with the Commission (File No. 000- 21393) and incorporated herein by reference). 10.8 --Revolving Line of Credit Amendment, dated as of March 1, 2000, by and between the Company and Silicon Valley Bank (filed as Exhibit 10.13 to the Company's Annual Report on Form 10-K/A previously filed on April 14, 2000 with the Commission (File No.000-21393) and incorporated herein by reference). 10.9 --Export-Import Bank Loan and Security Agreement, dated as of July 25, 2000, by and among the Company, Silicon Valley Bank and Silicon Valley Bank, doing business as Silicon Valley East (filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q previously filed on September 14, 2000 with the Commission (File No. 000-21393) and incorporated herein by reference). 10.10 --Common Stock Purchase Agreement, dated as of May 23, 2000, by and between the Company and Microsoft Corporation (filed as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q previously filed on September 14, 2000 with the Commission (File No. 000-21393) and incorporated herein by reference). 10.11 --Registration Rights Agreement, dated as of May 23, 2000, by and between the Company and Microsoft Corporation (filed as Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q previously filed on September 14, 2000 with the Commission (File No. 000- 21393) and incorporated herein by reference). 10.12 --License and Development Agreement, dated as of May 8, 2000, by and between the Company and Microsoft Licensing, Inc. (filed as Exhibit 10.5 to the Company's Amended Quarterly Report on 10-Q for the quarterly period ended July 31, 2000 filed on March 1, 2001 with the Commission (File No. 000-21393) and incorporated herein by reference). 10.13 --Investment Term Sheet, dated as of May 8, 2000, by and between the Company and Microsoft Corporation (filed as Exhibit 10.6 to the Company's Amended Quarterly Report on 10-Q for the quarterly period ended July 31, 2000 filed on March 1, 2001 with the Commission (File No. 000-21393) and incorporated herein by reference). 10.14 --Video-on-Demand Purchase Agreement, dated as of December 1, 2000, by and between the Company and Comcast Cable Communications of Pennsylvania, Inc. (filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed on December 15, 2000 with the Commission (File No. 000-21393) and incorporated herein by reference). 10.15* --Stock Purchase Agreement, dated as of February 28, 2001, by and between the Company and Comcast SC Investment, Inc. 10.16* --Amended and Restated Registration Rights Agreement, dated as of February 28, 2001, by and between the Company and Comcast SC Investment, Inc. 10.17 --Stock Purchase Agreement, dated as of December 10, 1997, by and among the Company, IPC Interactive Pte. Ltd. and the shareholders of IPC Interactive Pte. Ltd. (filed as Exhibit 2.1 to the Company's Current Report on Form 8-K previously filed on December 24, 1997 with the Commission (File No. 000-21393) and incorporated herein by reference). 10.18 --Stock Purchase Agreement, dated as of December 30, 1999, by and among the Company, Digital Video Arts, Ltd. and the stockholders of Digital Video Arts, Ltd. and Corum Group Ltd. (filed as Exhibit 2.1 to the Company's Current Report on Form 8-K previously filed on January 14, 2000 with the Commission (File No. 000-21393) and incorporated herein by reference).
Exhibit No. Description ----------- ----------- 10.19 --Registration Rights Agreement, dated as of December 30, 1999, by and among the Company, Digital Video Arts, Ltd. and the stockholders of Digital Video Arts, Ltd. and Corum Group Ltd. (filed as Exhibit 2.2 to the Company's Current Report on Form 8-K previously filed on January 14, 2000 with the Commission (File No. 000-21393) and incorporated herein by reference). 10.20 --License Agreement dated May 30, 1996 between Summit Software Systems, Inc. and the Company (filed as Exhibit 10.7 to the Company's Registration Statement on Form S-1 previously filed on November 4, 1996 with the Commission (File No. 333-12233) and incorporated herein by reference). 10.21 --Lease Agreement dated May 28, 1998 between Robert Quirk, Trustee of Maynard Industrial Properties Associates Trust and the Company (filed as Exhibit 10.3 to the Company's Annual Report on Form 10- K previously filed on March 24, 1999 with the Commission (File No. 000-21393) and incorporated herein by reference). 21.1 --List of Significant Subsidiaries (filed as Exhibit 21.1 to the Company's Annual Report on Form 10-K/A previously filed on April 14, 2000 with the Commission (File No. 000-21393) and incorporated herein by reference). 23.1* --Consent of PricewaterhouseCoopers LLP. 23.2 --Consent of Testa, Hurwitz & Thibeault, LLP (included in Exhibit 5.1). 24.1 --Power of Attorney (included on signature page).
- -------- * Filed herewith. EX-5.1 2 0002.txt OPINION OF TESTA, HURWITZ & THIBEAULT EXHIBIT 5.1 ----------- Testa, Hurwitz & Thibeault, LLP Attorneys At Law 125 High Street Office (617) 248-7000 Boston, Massachusetts 02110 Fax (617) 248-7100 February 28, 2001 SeaChange International, Inc. 124 Acton Street Maynard, Massachusetts 01754 Re: S-1 Registration Statement -------------------------- Ladies and Gentlemen: We are counsel to SeaChange International, Inc., a Delaware corporation (the "Company"), and have represented the Company in connection with the preparation and filing of the Company's Registration Statement on Form S-1 (the "Registration Statement") under the Securities Act of 1933, as amended, covering the sale to the public by Comcast SC Investment, Inc. ("Comcast") of up to 756,144 shares (the "Purchased Shares") of the Company's Common Stock, $.01 par value per share (the "Common Stock"), purchased pursuant to that certain common stock and warrant purchase agreement, dated as of February 28, 2001, by and between the Company and Comcast SC Investment, Inc. ("Comcast") and 100,000 shares (the "Warrant Shares" and collectively with the Purchased Shares, the "Shares") of Common Stock issuable upon exercise of that certain warrant agreement, dated as of February 28, 2001 (the "Investment Warrant"), issued by the Company in favor of Comcast. We have reviewed the corporate proceedings taken by the Board of Directors of the Company with respect to the authorization and issuance of the Shares. We have also examined and relied upon originals or copies, certified or otherwise authenticated to our satisfaction, of all corporate records, documents, agreements or other instruments of the Company and have made all investigations of law and have discussed with the Company's officers all questions of fact that we have deemed necessary or appropriate. Based upon and subject to the foregoing, we are of the opinion that the Purchased Shares are legally issued, fully paid and nonassessable and the Warrant Shares, when issued and paid for in accordance with the terms of the Investment Warrant, will be legally issued, fully paid and nonassessable. We hereby consent to the filing of this opinion as Exhibit 5.1 to the Registration Statement and to the reference to our firm in the Prospectus contained in the Registration Statement under the caption "Legal Matters." Very truly yours, /s/ Testa, Hurwitz & Thibeault, LLP TESTA, HURWITZ & THIBEAULT, LLP EX-10.3 3 0003.txt SECOND AMENDED AND RESTATED 1996 EMPLOYEE STOCK Exhibit 10.3 SEACHANGE INTERNATIONAL, INC. SECOND AMENDED AND RESTATED 1996 EMPLOYEE STOCK PURCHASE PLAN Article 1--Purpose. This Second Amended and Restated 1996 Employee Stock Purchase Plan (the "Plan") is intended to encourage stock ownership by all eligible employees of SeaChange International, Inc. (the "Company"), a Delaware corporation, and its participating subsidiaries (as defined in Article 17) so that they may share in the growth of the Company by acquiring or increasing their proprietary interest in the Company. The Plan is designed to encourage eligible employees to remain in the employ of the Company and its participating subsidiaries. The Plan is intended to constitute an "employee stock purchase plan" within the meaning of Section 423(b) of the Internal Revenue Code of 1986, as amended (the "Code"). Article 2--Administration of the Plan. The Plan may be administered by a committee appointed by the Board of Directors of the Company (the "Committee"). The Committee shall consist of not less than two members of the Company's Board of Directors. The Board of Directors may from time to time remove members from, or add members to, the Committee. Vacancies on the Committee, howsoever caused, shall be filled by the Board of Directors. The Committee may select one of its members as Chairman, and shall hold meetings at such times and places as it may determine. Acts by a majority of the Committee, or acts reduced to or approved in writing by a majority of the members of the Committee, shall be the valid acts of the Committee. The interpretation and construction by the Committee of any provisions of the Plan or of any option granted under it shall be final, unless otherwise determined by the Board of Directors. The Committee may from time to time adopt such rules and regulations for carrying out the Plan as it may deem best, provided that any such rules and regulations shall be applied on a uniform basis to all employees under the Plan. No member of the Board of Directors or the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any option granted under it. In the event the Board of Directors fails to appoint or refrains from appointing a Committee, the Board of Directors shall have all power and authority to administer the Plan. In such event, the word "Committee" wherever used herein shall be deemed to mean the Board of Directors. Article 3--Eligible Employees. All employees of the Company or any of its participating subsidiaries whose customary employment is more than 20 hours per week and for more than five months in any calendar year shall be eligible to receive options under the Plan to purchase Common Stock (as defined herein), and all eligible employees shall have the same rights and privileges hereunder. Persons who are eligible employees on the first business day of any Payment Period (as defined in Article 5) shall receive their options as of such day. Persons who become eligible employees after any date on which options are granted under the Plan shall be granted options on the first day of the next succeeding Payment Period on which options are granted to eligible employees under the Plan. In no event, however, may an employee be granted an option if such employee, immediately after the option was granted, would be treated as owning stock possessing five percent or more of the total combined voting power or value of all classes of stock of the Company or of any parent corporation or subsidiary corporation, as the terms "parent corporation" and "subsidiary corporation" are defined in Section 424(e) and (f) of the Code. For purposes of determining stock ownership under this paragraph, the rules of Section 424(d) of the Code shall apply, and stock which the employee may purchase under outstanding options shall be treated as stock owned by the employee. Article 4--Stock Subject to the Plan. The stock subject to the options under the Plan shall be shares of the Company's authorized but unissued Common Stock, par value $.01 per share (the "Common Stock"), or shares of Common Stock reacquired by the Company, including shares purchased in the open market. The aggregate number of shares which may be issued pursuant to the Plan is 450,000, subject to adjustment as provided in Article 12. If any option granted under the Plan shall expire or terminate for any reason without having been exercised in full or shall cease for any reason to be exercisable in whole or in part, the unpurchased shares subject thereto shall again be available under the Plan. Article 5--Payment Period and Stock Options. Prior to May 1, 2000, Payment Periods shall consist of the six-month periods commencing on May 1 and November 1 and ending on October 31 and April 30. The Payment Period commencing May 1, 2000 shall extend for the seven-month period from May 1, 2000 to November 30, 2000. Thereafter and for the remainder of the duration of the Plan, Payment Periods shall consist of the six-month periods commencing on June 1 and December 1 and ending on November 30 and May 31. Twice each year, on the first business day of each Payment Period, the Company will grant to each eligible employee who is then a participant in the Plan an option to purchase on the last business day of such Payment Period, at the Option Price hereinafter provided for, a maximum of 1,125 shares, on condition that such employee remains eligible to participate in the Plan throughout the remainder of such Payment Period. The participant shall be entitled to exercise the option so granted only to the extent of the participant's accumulated payroll deductions on the last business day of such Payment Period. If the participant's accumulated payroll deductions on the last business day of the Payment Period would enable the participant to purchase more than 1,125 shares except for the 1,125-share limitation, the excess of the amount of the accumulated payroll deductions over the aggregate purchase price of the 1,125 shares shall be promptly refunded to the participant by the Company, without interest. The Option Price per share for each Payment Period shall be the lesser of (i) 85% of the average market price of the Common Stock on the first business day of the Payment Period and (ii) 85% of the average market price of the Common Stock on the last business day of the Payment Period, in either event rounded up to avoid fractions of a dollar other than 1/4, 1/2 and 3/4. The foregoing limitation on the number of shares subject to options and the Option Price shall be subject to adjustment as provided in Article 12. For purposes of the Plan, the term "average market price" on any date means (i) the average (on that date) of the high and low prices of the Common Stock on the principal national securities exchange on which the Common Stock is traded, if the Common Stock is then traded on a national securities exchange; or (ii) the last reported sale price (on that date) of the Common Stock on the Nasdaq National Market, if the Common Stock is not then traded on a national securities exchange; or (iii) the average of the closing bid and asked prices last quoted (on that date) by an established quotation service for over-the-counter securities, if the Common Stock is not then traded on a national securities exchange or reported on the Nasdaq National Market; or (iv) if the Common Stock is not publicly traded, the fair market value of the Common Stock as determined by the Committee after taking into consideration all factors which it deems appropriate, including, without limitation, recent sale and offer prices of the Common Stock in private transactions negotiated at arm's length. For purposes of the Plan, the term "business day" means a day on which there is trading on the Nasdaq National Market or the aforementioned national securities exchange, whichever is applicable pursuant to the preceding paragraph; and if neither is applicable, a day that is not a Saturday, Sunday or legal holiday in the Commonwealth of Massachusetts. No employee shall be granted an option which permits the employee's right to purchase stock under the Plan, and under all other Section 423(b) employee stock purchase plans of the Company and any parent or subsidiary corporations, to accrue at a rate which exceeds $25,000 of fair market value of such stock (determined on the date or dates that options on such stock were granted) for each calendar year in which such option is outstanding at any time. The purpose of the limitation in the preceding sentence is to comply with Section 423(b)(8) of the Code. If the participant's accumulated payroll deductions on the last business day of the Payment Period would otherwise enable the participant to purchase Common Stock in excess of the Section 423(b)(8) limitation described in this paragraph, the excess of the amount of the accumulated payroll deductions over the aggregate purchase price of the shares actually purchased shall be promptly refunded to the participant by the Company, without interest. Article 6--Exercise of Option. Each eligible employee who continues to be a participant in the Plan on the last business day of a Payment Period shall be deemed to have exercised his or her option on such date and shall be deemed to have purchased from the Company such number of full shares of Common Stock reserved for the purpose of the Plan as the participant's accumulated payroll deductions on such date will pay for at the Option Price, subject to the 1,125-share limit of the option and the Section 423(b)(8) limitation described in Article 5. If the individual is not a participant on the last business day of a Payment Period, he or she shall not be entitled to exercise his or her option. Only full shares of Common Stock may be purchased under the Plan. Unused payroll deductions remaining in a participant's account at the end of a Payment Period by reason of the inability to purchase a fractional share shall be carried forward to the next Payment Period. Article 7--Authorization for Entering the Plan. An employee may elect to enter the Plan by filling out, signing and delivering to the Company an authorization: A. Stating the percentage to be deducted regularly from the employee's pay; B. Authorizing the purchase of stock for the employee in each Payment Period in accordance with the terms of the Plan; and C. Specifying the exact name or names in which stock purchased for the employee is to be issued as provided under Article 11 hereof. Such authorization must be received by the Company at least ten days before the first day of the next succeeding Payment Period and shall take effect only if the employee is an eligible employee on the first business day of such Payment Period. Unless a participant files a new authorization or withdraws from the Plan, the deductions and purchases under the authorization the participant has on file under the Plan will continue from one Payment Period to succeeding Payment Periods as long as the Plan remains in effect. The Company will accumulate and hold for each participant's account the amounts deducted from his or her pay. No interest will be paid on these amounts. Article 8--Maximum Amount of Payroll Deductions. An employee may authorize payroll deductions in an amount (expressed as a whole percentage) not less than one percent (1%) but not more than ten percent (10%) of the employee's total compensation, including base pay or salary and any overtime, bonuses or commissions. Article 9--Change in Payroll Deductions. Deductions may not be increased or decreased during a Payment Period. However, a participant may withdraw in full from the Plan. Article 10--Withdrawal from the Plan. An employee may withdraw from the Plan (in whole but not in part) at any time prior to the last business day of a Payment Period by delivering a withdrawal notice to the Company, in which event the Company shall promptly refund the entire balance of the employee's deductions not previously used to purchase stock under the Plan. To re-enter the Plan, an employee who has previously withdrawn must file a new authorization at least ten days before the first day of the next Payment Period in which he or she wishes to participate. The employee's re-entry into the Plan becomes effective at the beginning of such Payment Period, provided that he or she is an eligible employee on the first business day of the Payment Period. Article 11--Issuance of Stock. Certificates for stock issued to participants shall be delivered as soon as practicable after each Payment Period by the Company's transfer agent. Stock purchased under the Plan shall be issued only in the name of the participant, or if the participant's authorization so specifies, in the name of the participant and another person of legal age as joint tenants with rights of survivorship. Article 12--Adjustments. Upon the happening of any of the following described events, a participant's rights under options granted under the Plan shall be adjusted as hereinafter provided: A. In the event that the shares of Common Stock shall be subdivided or combined into a greater or smaller number of shares or if, upon a reorganization, split-up, liquidation, recapitalization or the like of the Company, the shares of Common Stock shall be exchanged for other securities of the Company, each participant shall be entitled, subject to the conditions herein stated, to purchase such number of shares of Common Stock or amount of other securities of the Company as were exchangeable for the number of shares of Common Stock that such participant would have been entitled to purchase except for such action, and appropriate adjustments shall be made in the purchase price per share to reflect such subdivision, combination or exchange; and B. In the event the Company shall issue any of its shares as a stock dividend upon or with respect to the shares of stock of the class which shall at the time be subject to option hereunder, each participant upon exercising such an option shall be entitled to receive (for the purchase price paid upon such exercise) the shares as to which the participant is exercising his or her option and, in addition thereto (at no additional cost), such number of shares of the class or classes in which such stock dividend or dividends were declared or paid, and such amount of cash in lieu of fractional shares, as is equal to the number of shares thereof and the amount of cash in lieu of fractional shares, respectively, which the participant would have received if the participant had been the holder of the shares as to which the participant is exercising his or her option at all times between the date of the granting of such option and the date of its exercise. Upon the happening of any of the foregoing events, the class and aggregate number of shares set forth in Article 4 hereof which are subject to options which have been or may be granted under the Plan and the limitations set forth in the second paragraph of Article 5 shall also be appropriately adjusted to reflect the events specified in paragraphs A and B above. Notwithstanding the foregoing, any adjustments made pursuant to paragraphs A or B shall be made only after the Committee, based on advice of counsel for the Company, determines whether such adjustments would constitute a "modification" (as that term is defined in Section 424 of the Code). If the Committee determines that such adjustments would constitute a modification, it may refrain from making such adjustments. If the Company is to be consolidated with or acquired by another entity (x) in a merger, consolidation or other reorganization in which the holders of the outstanding voting stock of the Company immediately preceding the consummation of such event shall, immediately following such event, hold, as a group, less than a majority of the voting securities of the surviving or resulting entity, (y) a sale of all or substantially all of the Company's assets or (z) otherwise (an "Acquisition"), the Committee or the board of directors of any entity assuming the obligations of the Company hereunder (the "Successor Board") shall, with respect to options then outstanding under the Plan, either (i) make appropriate provision for the continuation of such options by arranging for the substitution on an equitable basis for the shares then subject to such options either (a) the consideration payable with respect to the outstanding shares of the Common Stock in connection with the Acquisition, (b) shares of stock of the surviving or successor corporation, or a parent or subsidiary of such corporation, or (c) such other securities as the Successor Board deems appropriate, the fair market value of which shall not materially exceed the fair market value of the shares of Common Stock subject to such options immediately preceding the Acquisition; or (ii) terminate each participant's options in exchange for a cash payment equal to the excess of (a) the fair market value on the date of the Acquisition, of the number of shares of Common Stock that the participant's accumulated payroll deductions as of the date of the Acquisition could purchase, at an option price determined with reference only to the first business day of the applicable Payment Period and subject to the 1125-share, Code Section 423(b)(8) and fractional-share limitations on the amount of stock a participant would be entitled to purchase, over (b) the result of multiplying such number of shares by such option price. The Committee or Successor Board shall determine the adjustments to be made under this Article 12, and its determination shall be conclusive. Article 13--No Transfer or Assignment of Employee's Rights. An option granted under the Plan may not be transferred or assigned and may be exercised only by the participant. Article 14--Termination of Employee's Rights. Whenever a participant ceases to be an eligible employee because of retirement, voluntary or involuntary termination, resignation, layoff, discharge, death or for any other reason, his or her rights under the Plan shall immediately terminate, and the Company shall promptly refund, without interest, the entire balance of his or her payroll deduction account under the Plan. Notwithstanding the foregoing, eligible employment shall be treated as continuing intact while a participant is on military leave, sick leave or other bona fide leave of absence, for up to 90 days, or for so long as the participant's right to re-employment is guaranteed either by statute or by contract, if longer than 90 days. Article 15--Termination and Amendments to Plan. Unless terminated sooner as provided below, the Plan shall terminate on December 31, 2006. The Plan may be terminated at any time by the Company's Board of Directors but such termination shall not affect options then outstanding under the Plan. It will terminate in any case when all or substantially all of the unissued shares of stock reserved for the purposes of the Plan have been purchased. If at any time shares of stock reserved for the purpose of the Plan remain available for purchase but not in sufficient number to satisfy all then unfilled purchase requirements, the available shares shall be apportioned among participants in proportion to the amount of payroll deductions accumulated on behalf of each participant that would otherwise be used to purchase stock, and the Plan shall terminate. Upon such termination or any other termination of the Plan, all payroll deductions not used to purchase stock will be refunded, without interest. The Committee or the Board of Directors may from time to time adopt amendments to the Plan provided that, without the approval of the stockholders of the Company, no amendment may (i) increase the number of shares that may be issued under the Plan, or (ii) change the class of employees eligible to receive options under the Plan, if such action would be treated as the adoption of a new plan for purposes of Section 423(b) of the Code. Article 16--Limits on Sale of Stock Purchased under the Plan. The Plan is intended to provide shares of Common Stock for investment and not for resale. The Company does not, however, intend to restrict or influence any employee in the conduct of his or her own affairs. An employee may, therefore, sell stock purchased under the Plan at any time the employee chooses, subject to compliance with any applicable federal or state securities laws and subject to any restrictions imposed under Article 21 to ensure that tax withholding obligations are satisfied. THE EMPLOYEE ASSUMES THE RISK OF ANY MARKET FLUCTUATIONS IN THE PRICE OF THE COMMON STOCK. Article 17--Participating Subsidiaries. The term "participating subsidiary" shall mean any present or future subsidiary of the Company, as that term is defined in Section 424(f) of the Code, which is designated from time to time by the Board of Directors to participate in the Plan. The Board of Directors shall have the power to make such designation before or after the Plan is approved by the stockholders. Article 18--Optionees Not Stockholders. Neither the granting of an option to an employee nor the deductions from his or her pay shall constitute such employee a stockholder of the shares covered by an option until such shares have been actually purchased by the employee. Article 19--Application of Funds. The proceeds received by the Company from the sale of Common Stock pursuant to options granted under the Plan will be used for general corporate purposes. Article 20--Notice to Company of Disqualifying Disposition. By electing to participate in the Plan, each participant agrees to notify the Company in writing immediately after the participant transfers Common Stock acquired under the Plan, if such transfer occurs within two years after the first business day of the Payment Period in which such Common Stock was acquired. Each participant further agrees to provide any information about such a transfer as may be requested by the Company or any subsidiary corporation in order to assist it in complying with the tax laws. Such dispositions generally are treated as "disqualifying dispositions" under Sections 421 and 424 of the Code, which have certain tax consequences to participants and to the Company and its participating subsidiaries. Article 21--Withholding of Additional Income Taxes. By electing to participate in the Plan, each participant acknowledges that the Company and its participating subsidiaries are required to withhold taxes with respect to the amounts deducted from the participant's compensation and accumulated for the benefit of the participant under the Plan, and each participant agrees that the Company and its participating subsidiaries may deduct additional amounts from the participant's compensation, when amounts are added to the participant's account, used to purchase Common Stock or refunded, in order to satisfy such withholding obligations. Each participant further acknowledges that when Common Stock is purchased under the Plan the Company and its participating subsidiaries may be required to withhold taxes with respect to all or a portion of the difference between the fair market value of the Common Stock purchased and its purchase price, and each participant agrees that such taxes may be withheld from compensation otherwise payable to such participant. It is intended that tax withholding will be accomplished in such a manner that the full amount of payroll deductions elected by the participant under Article 7 will be used to purchase Common Stock. However, if amounts sufficient to satisfy applicable tax withholding obligations have not been withheld from compensation otherwise payable to any participant, then, notwithstanding any other provision of the Plan, the Company may withhold such taxes from the participant's accumulated payroll deductions and apply the net amount to the purchase of Common Stock, unless the participant pays to the Company, prior to the exercise date, an amount sufficient to satisfy such withholding obligations. Each participant further acknowledges that the Company and its participating subsidiaries may be required to withhold taxes in connection with the disposition of stock acquired under the Plan and agrees that the Company or any participating subsidiary may take whatever action it considers appropriate to satisfy such withholding requirements, including deducting from compensation otherwise payable to such participant an amount sufficient to satisfy such withholding requirements or conditioning any disposition of Common Stock by the participant upon the payment to the Company or such subsidiary of an amount sufficient to satisfy such withholding requirements. Article 22--Governmental Regulations. The Company's obligation to sell and deliver shares of Common Stock under the Plan is subject to the approval of any governmental authority required in connection with the authorization, issuance or sale of such shares. Government regulations may impose reporting or other obligations on the Company with respect to the Plan. For example, the Company may be required to identify shares of Common Stock issued under the Plan on its stock ownership records and send tax information statements to employees and former employees who transfer title to such shares. Article 23--Governing Law. The validity and construction of the Plan shall be governed by the laws of the State of Delaware, without giving effect to the principles of conflicts of law thereof. Article 24--Approval of Board of Directors and Stockholders of the Company. The 1996 Employee Stock Purchase Plan was adopted by the Board of Directors on September 6, 1996 and was approved by the stockholders of the Company on October 25, 1996. The 1996 Employee Stock Purchase Plan was amended and restated on May 29, 1997 to constitute the Amended and Restated 1996 Employee Stock Purchase Plan. The Amended and Restated 1996 Employee Stock Purchase Plan was amended and restated on April 14, 2000 to constitute the Plan. EX-10.15 4 0004.txt STOCK PURCHASE AGREEMENT DATE 02/28/2001 EXHIBIT 10.15 ------------- COMMON STOCK AND WARRANT PURCHASE AGREEMENT This COMMON STOCK AND WARRANT PURCHASE AGREEMENT (this "AGREEMENT") is made as of this 28th day of February, 2001 between SeaChange International, Inc., a Delaware corporation (the "COMPANY"), and Comcast SC Investment, Inc., a Delaware corporation (the "PURCHASER"). RECITALS WHEREAS, the Company and the Purchaser entered into that certain Common Stock and Warrant Purchase Agreement dated as of December 1, 2000 (the "INITIAL AGREEMENT"), pursuant to which the Company agreed to issue and sell to the Purchaser, and the Purchaser agreed to purchase from the Company, shares of the Company's Common Stock, $0.01 par value per share (the "COMMON STOCK"), and a warrant to purchase additional shares of Common Stock, which Initial Agreement was terminated by mutual written consent of the Company and the Purchaser pursuant to Section 9.1(a) thereof; and WHEREAS, the Company now desires to issue and sell to the Purchaser, and the Purchaser desires to purchase from the Company, shares of the Company's Common Stock and a warrant to purchase additional shares of Common Stock, all on the terms and conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the foregoing recitals, the mutual promises hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, the parties hereto agree as follows: SECTION 1 PURCHASE AND SALE OF COMMON STOCK AND WARRANT 1.1 PURCHASE AND SALE OF COMMON STOCK AND WARRANT. Upon the terms and --------------------------------------------- subject to the conditions of this Agreement, at the Closing (as defined in Section 2.1 below), the Company shall issue and sell to the Purchaser, and the Purchaser shall purchase from the Company, 756,144 shares (the "SHARES") of Common Stock and a warrant (the "WARRANT") to purchase 100,000 shares of Common Stock, subject to increase and adjustment as provided therein (the "WARRANT SHARES"), for an aggregate purchase price of $10,000,004.40 (the "PURCHASE PRICE"). The Warrant shall have the rights, preferences, privileges and restrictions set forth in the form of Warrant attached hereto as Exhibit A (the --------- "WARRANT CERTIFICATE"). 1.2 POST-CLOSING ADJUSTMENT. ----------------------- (a) If, on the Effective Date (as defined in Section 7.1(a)(ii) below), the Effective Price (as defined below) of the Common Stock is less than $13.225, the Company shall issue to the Purchaser, without any additional consideration therefor, such number of additional shares of Common Stock, rounded up or down to the nearest whole share (the "ADDITIONAL SHARES") as is equal to the difference between (i) the number obtained by dividing (A) the Purchase Price by (B) the Effective Price of the Common Stock on the Effective Date, and (ii) the number of Shares actually issued and sold to the Purchaser on the Closing Date. Notwithstanding the foregoing, in no event shall the number of Additional Shares that the Company is required to issue pursuant to this Section 1.2 exceed such number of shares of Common Stock as would require the Company to obtain shareholder approval pursuant to The Nasdaq Stock Market Rule 4350(i)(D) (the "NASDAQ RULE"); provided, that, in the event that the number of Additional Shares to be issued pursuant the terms of this Section 1.2 and/or the Warrant Number (as such term is defined in the Warrant) would be required to be so limited as a result of the Nasdaq Rule, the Warrant Number shall be limited first by the amount of the Additional Warrant Number (as such term is defined in the Warrant) and the number of Additional Shares to be issued pursuant hereto shall only be limited to the extent required as a result of the Nasdaq Rule after such limitation imposed upon the Warrant Number. No adjustment shall be made if the Effective Price of the Common Stock is equal to or greater than $13.225 on the Effective Date. (b) For purposes of this Section 1.2, the following terms shall have the following meanings: (i) "EFFECTIVE PRICE" on the Effective Date shall mean the lesser of (A) ninety-two percent (92%) of the Closing Price (as defined below) of the Common Stock on the Effective Date or (B) the average of the Closing Prices of the Common Stock for the five consecutive Trading Days (as defined below) ending on the Effective Date. (ii) "CLOSING PRICE" shall mean, for any given day, the reported last sale price regular way of the Common Stock on such day (and, in case no reported sale takes place on such day, the average of the reported closing bid and asked prices regular way on such day shall be used in place of the reported last sale price regular way) on the New York Stock Exchange or, if the Common Stock is not listed or admitted to trading on such Exchange, on the principal national securities exchange on which the Common Stock is listed or admitted to trading or, if not listed or admitted to trading on any national securities exchange, on the Nasdaq National Market System or, if the Common Stock is not listed or admitted to trading on any national securities exchange or quoted on the Nasdaq National Market System, the average of the closing bid and asked prices in the over-the-counter market on such day as furnished by any New York Stock Exchange member firm reasonably selected from time to time by the Board of Directors of the Company for that purpose. (iii) "TRADING DAY" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday other than any day on which the Common Stock is not traded on the applicable securities exchange or in the applicable securities market. 2 SECTION 2 CLOSING DATE; DELIVERY 2.1 CLOSING DATE. The closing of the purchase and sale of the Shares and ------------ the Warrant hereunder (the "CLOSING") shall be held (i) at the offices of the Company at 5:00 p.m. on the date hereof, or (ii) at such other time and place as the Company and the Purchaser mutually agree (the date of the Closing being hereinafter referred to as the "CLOSING DATE"). 2.2 DELIVERY. At the Closing, the Company shall deliver, or shall instruct -------- its transfer agent to deliver, to the Purchaser (i) a certificate or certificates representing the Shares, registered in the name of the Purchaser or its assigns, and (ii) the Warrant, in each case against payment of the Purchase Price therefor by wire transfer of immediately available funds to an account designated in writing by the Company. 2.3 POST-CLOSING DELIVERY. Within two days following the Effective Date, --------------------- the Company shall (a) compute the number of Additional Shares required to be issued pursuant to Section 1.2 above, (b) prepare a certificate signed by the treasurer of the Company setting forth the number of Additional Shares (even if such number is zero), showing in reasonable detail the facts upon which the calculation of such number of Additional Shares is based, (c) deliver a copy of such certificate to the Purchaser in accordance with the notice provisions of Section 9.6, and (d) if the Company is required to issue any Additional Shares, deliver, or instruct its transfer agent to deliver, to the Purchaser a certificate or certificates representing such Additional Shares, registered in the name of the Purchaser or its assigns. SECTION 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY Except as disclosed in a document referring specifically to the representations and warranties in this Agreement that identifies by section number the section and subsection to which such disclosure relates and is delivered by the Company to the Purchaser prior to the execution of this Agreement, the Company hereby represents and warrants to the Purchaser as follows: 3.1 ORGANIZATION. The Company is a corporation duly organized and validly ------------ existing under the laws of the State of Delaware and is in good standing under such laws. Each of the Company's subsidiaries is a corporation duly organized and validly existing under the laws of the jurisdiction of its organization and is in good standing under such laws. The Company has the requisite corporate power to own, lease and operate its properties and assets and to carry on its business as presently conducted and as proposed to be conducted. The Company and each of its subsidiaries is qualified to do business and is in good standing as a foreign corporation in each jurisdiction in which the ownership of its property or the nature of its business requires such qualification, except where the failure to be so qualified would not, individually or in the aggregate, have a materially adverse effect on the business, financial condition, results of operations or prospects of the Company and its subsidiaries taken as a whole (a "MATERIAL ADVERSE EFFECT"). 3 3.2 AUTHORIZATION. All corporate action on the part of the Company ------------- necessary for the authorization, execution, delivery and performance of this Agreement, the Warrant and the First Amended and Restated Registration Rights Agreement substantially in the form attached hereto as Exhibit B (the --------- "REGISTRATION RIGHTS AGREEMENT") by the Company and the authorization, sale, issuance and delivery of the Shares and Additional Shares (if any) hereunder and the Warrant Shares pursuant to the Warrant has been taken. This Agreement, the Warrant and the Registration Rights Agreement constitute legal, valid and binding obligations of the Company enforceable in accordance with their respective terms, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies, and to limitations of public policy as they may apply to Section 7.1(e) of this Agreement and Section 6 of the Registration Rights Agreement. Upon their issuance and delivery pursuant to this Agreement, the Shares, the Additional Shares (if any) and the Warrant will be duly authorized, validly issued, fully paid and nonassessable. Upon their issuance and delivery pursuant to the Warrant, the Warrant Shares will be duly authorized, validly issued, fully paid and nonassessable. The Shares, the Additional Shares (if any) and the Warrant, upon their issuance and delivery pursuant to this Agreement, and the Warrant Shares, upon their issuance and delivery pursuant to the Warrant, will be free of any liens or encumbrances other than as a result of any action by the Purchaser. The rights, preferences, privileges and restrictions of the Shares, the Additional Shares (if any) and the Warrant Shares are as stated in the Company's Certificate of Incorporation. The rights, preferences, privileges and restrictions of the Warrant are as stated in the Warrant Certificate. The Warrant Shares have been duly and validly reserved for issuance. The issuance and sale of the Shares, the Additional Shares (if any) and the Warrant and the subsequent issuance of the Warrant Shares upon exercise of the Warrant are not subject to and will not give rise to any preemptive rights or rights of first refusal applicable to the Company. 3.3 COMPLIANCE WITH LAW AND OTHER INSTRUMENTS; NO CONFLICT. ------------------------------------------------------ (a) Neither the Company nor any of its subsidiaries is in violation of or default under, and has not received any notices of violation or default with respect to, (i) any provision of the Certificate of Incorporation or Bylaws of the Company, (ii) any mortgage, indenture, lease, contract or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries, properties or assets may be bound, or (iii) any permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation of any federal, state or local government, court, administrative agency or commission or other governmental authority (each, a "GOVERNMENTAL ENTITY") applicable to the Company or any of its subsidiaries, properties or assets, including, but not limited to, any statute, law, ordinance, rule or regulation relating to the protection of the environment or concerning the handling, storage, disposal or discharge or toxic materials, except, in the case of (ii) and (iii), to the extent the effect of any such violation or default would not, individually or in the aggregate, have a Material Adverse Effect. 4 (b) The execution and delivery of this Agreement, the Warrant and the Registration Rights Agreement, the issuance of the Shares, the Additional Shares (if any) and the Warrant and, upon exercise of the Warrant, the Warrant Shares, and the consummation of the transactions contemplated hereby and thereby do not and will not conflict with, result in any violation of or default under (with or without notice or lapse of time, or both), or give rise to a right of termination, cancellation or acceleration of any obligation or to a loss of a material benefit under, (i) any provision of the Certificate of Incorporation or Bylaws of the Company, (ii) any mortgage, indenture, lease, contract or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries, properties or assets may be bound, or (iii) any permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation of any Governmental Entity applicable to the Company or any of its subsidiaries, properties or assets, except (A) in the case of (ii) and (iii), to the extent the effect of any such conflict, violation, default, termination, cancellation, acceleration or loss would not, individually or in the aggregate, have a Material Adverse Effect, or impair, delay or restrict the Company's power to perform its obligations with respect to the transactions contemplated hereby, and (B) in the case of (iii), any filings, consents or approvals required under the HSR Act (as defined in Section 7.7 below) that may be required with respect to the issuance of the Warrant Shares. 3.4 SEC DOCUMENTS. ------------- (a) The Company has filed all required reports, schedules, forms, statements and other documents required to be filed by the Company with the Securities and Exchange Commission (the "SEC") since January 1, 2000 (the "SEC DOCUMENTS"). As of their respective dates, (i) the SEC Documents complied in all material respects with the requirements of the Securities Act of 1933, as amended (including the rules and regulations of the SEC promulgated thereunder, the "SECURITIES ACT") or the Securities Exchange Act of 1934, as amended (including the rules and regulations of the SEC promulgated thereunder, the "EXCHANGE ACT"), as the case may be, and (ii) none of the SEC Documents, except to the extent that information contained in any SEC Document has been revised or superseded by a later Filed SEC Document (as defined in Section 3.5 below), contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. When the Registration Statement (as defined in Section 7.1(a)(i) below), as such may be amended from time to time, is declared effective by the SEC, such Registration Statement will comply in all material respects with the requirements of the Securities Act and will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. (b) The financial statements of the Company (including, in each case, any related notes thereto) included in the SEC Documents (including, without limitation, the audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 1999) (i) comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, (ii) have been prepared in accordance with U.S. generally accepted accounting principles 5 ("GAAP") applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and (iii) fairly present the consolidated financial position of the Company and its consolidated subsidiaries as of the dates thereof and the consolidated results of their operation and cashflows for the periods then ending in accordance with GAAP (subject, in the case of the unaudited statements, to normal year end audit adjustments). Except as set forth in the Filed SEC Documents, neither the Company nor any of its subsidiaries has any material liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise) required by GAAP to be set forth on a consolidated balance sheet of the Company and its consolidated subsidiaries or in the notes thereto, that would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. 3.5 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in the SEC ------------------------------------ Documents filed and publicly available on the EDGAR system by December 31, 2000 "FILED SEC DOCUMENTS"), since the date of the most recent audited financial statements included in the Filed SEC Documents, there has not been (i) any declaration, setting aside or payment of any dividend or distribution (whether in cash, stock or property) with respect to any of the Company's capital stock, (ii) any redemption, repurchase or other acquisition by the Company or any of its subsidiaries of any of the capital stock or other securities of the Company; (iii) any split, combination or reclassification of any of its capital stock or any issuance or the authorization of any issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock, (iv) any damage, destruction or loss of property, whether or not covered by insurance, that has or is likely to have a Material Adverse Effect, (v) any change in accounting methods, principles or practices by the Company materially affecting its assets, liabilities, or business, except insofar as may have been required by a change in GAAP, or (vi) any other development or event, or series of developments or events, that has or is likely to have a Material Adverse Effect, other than, in the case of (vi), changes affecting the industry in which the Company operates generally and changes affecting the world, United States or regional economy generally. To the Company's knowledge, there is no fact, matter or event as of the date hereof that would permit, and as of the Closing Date that will permit, the Company to effect a Sales Blackout Period (as defined in Section 7.1(d)(i) below). 3.6 GOVERNMENTAL CONSENTS. In reliance on the representations of the --------------------- Purchaser contained herein, no consent, approval, order or authorization of, or registration, designation, declaration or filing with, any Governmental Entity on the part of the Company is required in connection with the valid execution and delivery of this Agreement, the Warrant or the Registration Rights Agreement, the offer, sale or issuance of the Shares, the Additional Shares (if any), the Warrant and, upon exercise of the Warrant, the Warrant Shares, or the consummation of any other transaction contemplated hereby or thereby to occur at Closing, except such filings as may be required to be made with the SEC and the National Association of Securities Dealers, Inc. and, with respect to the issuance of the Warrant Shares, any filings, consents or approvals required under the HSR Act. 3.7 LITIGATION. Except as is disclosed in the Filed SEC Documents, there ---------- is no private or governmental suit, action, proceeding, claim, arbitration or investigation pending before any agency, court or tribunal, foreign or domestic, or, to the knowledge of the Company, threatened, against the Company, any of its subsidiaries, or any of their respective officers or 6 directors (in their capacities as such), properties or assets, that, if determined adversely to the Company, would, individually or in the aggregate, (i) have a Material Adverse Effect, (ii) impair the ability of the Company to perform its obligations under this Agreement, the Warrant or the Registration Rights Agreement, or (iii) prevent the consummation of any of the transactions contemplated by said agreements. Except as is disclosed in the Filed SEC Documents, there is no judgment, decree or order against the Company, any of its subsidiaries or, to the knowledge of the Company, any of their respective officers or directors (in their capacities as such) relating to the business of the Company or any of its subsidiaries, the existence of which would, individually or in the aggregate, (i) have a Material Adverse Effect, (ii) impair the ability of the Company to perform its obligations under this Agreement, the Warrant or the Registration Rights Agreement, or (iii) prevent the consummation of any of the transactions contemplated by said agreements. 3.8 CAPITALIZATION. -------------- (a) The authorized capital stock of the Company consists of 100,000,000 shares of Common Stock and 5,000,000 shares of preferred stock, par value $0.01 per share, of the Company (the "PREFERRED STOCK"). (b) As of February 23, 2001, there were (1) 22,048,424 shares of Common Stock issued and outstanding, (2) 40,500 shares of Common Stock held in the treasury of the Company, and (3) no shares of Preferred Stock issued and outstanding. As of February 23, 2001, there were 3,440,988 shares of Common Stock reserved for issuance upon exercise of outstanding stock options issued by the Company to current or former employees, directors and consultants of the Company and its subsidiaries. (c) All outstanding shares of the Common Stock are duly authorized, validly issued, fully paid and nonassessable, free from any liens created by the Company with respect to the issuance and delivery thereof and not subject to preemptive rights or other similar rights, and were issued in compliance with all applicable laws concerning the issuance of securities. (d) Other than (i) as disclosed in the Filed SEC Documents and (ii) stock options issued and employee stock purchases made under the Company's stock option, stock incentive and stock purchase plans described in the Filed SEC Documents, there are no outstanding (A) securities convertible into or exchangeable for the capital stock of the Company, (B) options, warrants or other rights to purchase or subscribe for any capital stock of the Company or securities convertible into or exchangeable for the capital stock of the Company, or (C) any other contracts, commitments, agreements, understandings, arrangements or other rights of any kind (including preemptive rights, anti- dilution rights, rights of first refusal and registration rights) to which the Company is a party or by which the Company is bound, or, to the Company's knowledge, to which any other Person is a party or by which any other Person is bound, relating to the issuance, conversion, registration, voting, sale or transfer of any equity interests or other securities of the Company or obligating the Company to purchase or redeem any such equity interests or other securities of the Company. 7 3.9 STOCKHOLDERS' CONSENT. No consent or approval of the stockholders of --------------------- the Company is required for the Company to enter into this Agreement, the Warrant and the Registration Rights Agreement, to issue the Shares, the Additional Shares (if any) and the Warrant and, upon exercise of the Warrant, the Warrant Shares, or to consummate the transactions contemplated hereby and thereby. 3.10 INTELLECTUAL PROPERTY. Each of the Company and its subsidiaries (a) either owns or possesses adequate licenses or other rights to use all patents, trademarks, service marks, trade names, copyrights, technology, software, know- how and trade secrets (collectively, "INTELLECTUAL PROPERTY") necessary to conduct the business now conducted by the Company and its subsidiaries and (b) either owns or possesses, or can acquire on commercially reasonable terms, adequate licenses or other rights to use all Intellectual Property necessary to conduct the business proposed to be conducted by the Company and its subsidiaries. Neither the Company nor any of its subsidiaries has received any notice of infringement of or conflict with (and knows of no such infringement of or conflict with) asserted rights of others with respect to any Intellectual Property used in the business of the Company and its subsidiaries, as such business is now conducted and as it is proposed to be conducted, and, to the Company's knowledge, none of the discoveries, inventions, products, services and processes used in the business of the Company and its subsidiaries, as such business is now conducted and as it is proposed to be conducted, infringe upon or conflict with any right or patent of any third party or any discovery, invention, product, service or process that is the subject of a patent application filed by any third party. 3.11 AGREEMENTS WITH AFFILIATES; EMPLOYMENT AGREEMENTS; SPECIAL BENEFITS. ------------------------------------------------------------------- (a) Except as otherwise disclosed in the Filed SEC Documents, there are no agreements, understandings or proposed transactions, in any such case involving obligations (contingent or otherwise) of, or payments to, the Company in excess of $500,000, between the Company and any of its officers, directors, Affiliates (as defined below) or any Affiliate thereof. For purposes of this Agreement, "AFFILIATE" means any Person directly or indirectly controlled by, controlling or under common control with another Person. For purposes of this definition, "CONTROL" means the power to direct the management of the Person in question. (b) Each of the Company's Chief Executive Officer, Chief Financial Officer and its four other most highly compensated executive officers has executed an employee noncompetition, nondisclosure and developments agreement with the Company in the form attached hereto as Exhibit C, without any --------- modifications thereto, and has not entered into any other agreements with the Company relating to his or her employment, other than stock option agreements substantially in the form of the Company's standard Incentive Stock Option Agreement or Non-Qualified Stock Option Agreement. (c) There exist no provisions contained in any employment or severance agreement or benefit plan of the Company that provide for the payment, accrual or acceleration of any benefit to any Person as a result of the consummation of the transactions contemplated hereby. 8 3.12 OFFERING VALID. Assuming the accuracy of the Purchaser's -------------- representations and warranties contained in Sections 4.3 through 4.7 hereof, the offer, issuance and sale of the Shares, the Additional Shares (if any) and the Warrant pursuant to the terms of this Agreement, and the Warrant Shares pursuant to the terms of the Warrant, will be exempt from the registration requirements of the Securities Act and will have been registered or qualified, or will be exempt from registration and qualification, under the requirements of all other applicable securities laws. None of the Company or any of its Affiliates, nor any Person acting on its or their behalf, has offered to sell or sold any Common Stock by means of any form of general solicitation or general advertising within the meaning of Rule 502(c) under the Securities Act that would subject the issuance and sale of the Shares, the Additional Shares (if any), the Warrant or the Warrant Shares to the registration provisions of the Securities Act. SECTION 4 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER The Purchaser hereby represents and warrants to the Company as follows: 4.1 ORGANIZATION. The Purchaser is a corporation duly organized and ------------ validly existing and in good standing under the laws of Delaware, and Comcast Corporation, a Pennsylvania corporation, directly or indirectly owns all of the currently outstanding stock of the Purchaser. 4.2 AUTHORITY. All corporate action on the part of the Purchaser --------- necessary for the authorization, execution, delivery and performance of this Agreement and the Registration Rights Agreement by the Purchaser has been taken. This Agreement and the Registration Rights Agreement have been duly executed and delivered by the Purchaser and constitute legal, valid and binding obligations of the Purchaser, enforceable in accordance with their respective terms, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies, and to limitations of public policy as they may apply to Section 7.1(e) of this Agreement and Section 6 of the Registration Rights Agreement. The execution and delivery of said agreements do not, and the consummation of the transactions contemplated hereby and thereby will not, conflict with or result in any violation of any obligation under any provision of the Certificate of Incorporation or Bylaws of the Purchaser or any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to the Purchaser. 4.3 INVESTMENT. The Purchaser is acquiring the Shares, the Additional ---------- Shares (if any), the Warrant and the Warrant Shares for investment for its own account, not as a nominee or agent, and not with a view to, or for resale in connection with, any distribution thereof other than in compliance with applicable securities laws. The Purchaser understands that the sale of the Shares, the Additional Shares (if any) and the Warrant hereunder and the Warrant Shares upon exercise of the Warrant has not been registered under the Securities Act by reason of a specific exemption from the registration provisions of the Securities Act that depends upon, among other things, the bona fide nature of the investment intent and the accuracy of the Purchaser's representations and warranties contained in this Section 4. It is understood that transfers by the Purchaser of the Shares, the Additional Shares (if any), the Warrant or the Warrant Shares, or any 9 portion thereof, to one or more members of the Purchaser Group (as defined in Section 9.4 below) shall not be deemed to be inconsistent with this Section 4.3, and the Purchaser shall be permitted to make such transfers from time to time without restriction, so long as any such transfer complies with the Securities Act and any applicable state securities laws. 4.4 DISCLOSURE OF INFORMATION. The Purchaser has had full access to all ------------------------- information it considers necessary or appropriate to make an informed investment decision with respect to the Shares, the Additional Shares (if any) and the Warrant to be purchased by the Purchaser under this Agreement. The Purchaser further has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Shares, the Additional Shares (if any), the Warrant and the Warrant Shares and to obtain additional information necessary to verify any information furnished to the Purchaser or to which the Purchaser had access. 4.5 INVESTMENT EXPERIENCE. The Purchaser understands that the purchase of --------------------- the Shares, the Additional Shares (if any), the Warrant and, upon exercise of the Warrant, the Warrant Shares involves substantial risk. The Purchaser has experience as an investor in securities of companies and acknowledges that it is able to fend for itself, can bear the economic risk of its investment in the Shares, the Additional Shares (if any), the Warrant and the Warrant Shares and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of this investment in the Shares, the Additional Shares (if any), the Warrant and the Warrant Shares and protecting its own interests in connection with this investment. 4.6 ACCREDITED INVESTOR STATUS. The Purchaser is an "accredited investor" -------------------------- within the meaning of Regulation D promulgated under the Securities Act. 4.7 RESTRICTED SECURITIES. --------------------- (a) The Purchaser understands that the Shares, the Additional Shares (if any) and the Warrant to be purchased by the Purchaser hereunder and the Warrant Shares to be purchased upon exercise of the Warrant are characterized as "restricted securities" under the Securities Act inasmuch as they are being acquired from the Company in a transaction not involving a public offering, and that, under the Securities Act and applicable regulations thereunder, such securities may not be resold except as provided in Section 8 hereof. (b) The Purchaser acknowledges that the Shares, the Additional Shares (if any), the Warrant and the Warrant Shares have not been registered under the Securities Act and must be held indefinitely by the Purchaser unless they are registered under the Securities Act or an exemption from registration is available. The Purchaser further acknowledges that the Company is under no obligation to register the Warrant or, except as contemplated in the Registration Rights Agreement and Section 7.1 hereof, the Shares, the Additional Shares (if any) or the Warrant Shares. 10 (c) The Purchaser is familiar with Rule 144 of the Securities Act, as presently in effect, and understands the resale limitations imposed thereby and by the Securities Act in general. 4.8 GOVERNMENTAL CONSENTS. Partially in reliance on the representations of --------------------- the Company contained herein, no consent, approval, order or authorization of, or registration, designation, declaration or filing with, any Governmental Entity on the part of the Purchaser is required in connection with the valid execution and delivery of this Agreement or the Registration Rights Agreement or the consummation of any transaction contemplated hereby or thereby to occur at Closing, except such filings as may be required to be made with the SEC and the National Association of Securities Dealers, Inc. SECTION 5 CONDITIONS TO OBLIGATION OF THE PURCHASER The Purchaser's obligation to purchase the Shares and the Warrant at the Closing is subject to the fulfillment on or prior to the Closing Date of the following conditions: 5.1 NO ORDER PENDING. There shall not then be in effect any order, ---------------- injunction or decree of any nature by any Governmental Entity enjoining or restraining the transactions contemplated by this Agreement. 5.2 NO LAW PROHIBITING OR RESTRICTING SALE OF THE SHARES. There shall not ---------------------------------------------------- be in effect any law, rule or regulation prohibiting or restricting the sale of the Shares, the Additional Shares (if any), the Warrant or the Warrant Shares, or requiring any consent or approval of any individual, partnership, corporation, business trust, trust, unincorporated association, joint venture, Governmental Entity or other entity of whatever nature (each, a "PERSON") that shall not have been obtained to issue the Shares, the Additional Shares (if any), the Warrant or the Warrant Shares, except, with respect to the issuance of the Warrant Shares, any filings, consents or approvals required under the HSR Act. 5.3 REGISTRATION RIGHTS AGREEMENT. The Company shall have executed and ----------------------------- delivered the Registration Rights Agreement. 5.4 OPINION OF COUNSEL. The Purchaser shall have received an opinion dated ------------------ as of the Closing Date of Testa, Hurwitz & Thibeault, LLP, counsel to the Company, substantially in the form attached as Exhibit D. 5.5 CLOSING DELIVERIES. The Company shall have delivered to the Purchaser ------------------ all items required to be delivered by the Company at the Closing pursuant to Section 2.2 hereof. 5.6 ORGANIZATIONAL DOCUMENTS AND BOARD APPROVAL. The Company shall have ------------------------------------------- delivered to the Purchaser copies of (a) the Certificate of Incorporation of the Company, (b) the Bylaws of the Company and (c) resolutions duly adopted by the Board of Directors of the Company authorizing and approving (i) the consummation of the transactions contemplated 11 hereby, (ii) the Company's execution and delivery of this Agreement and (iii) the Company's execution and delivery of the other documents described herein, in each case certified as true, complete and in full force and effect as of the Closing Date by an appropriate officer of the Company. SECTION 6 CONDITIONS TO OBLIGATION OF THE COMPANY The Company's obligation to issue and sell the Shares and the Warrant at the Closing is subject to the fulfillment on or prior to the Closing Date of the following conditions: 6.1 NO ORDER PENDING. There shall not then be in effect any order, ---------------- injunction or decree of any nature by any Governmental Entity enjoining or restraining the transactions contemplated by this Agreement. 6.2 NO LAW PROHIBITING OR RESTRICTING THE SALE OF THE SHARES. There shall -------------------------------------------------------- not be in effect any law, rule or regulation prohibiting or restricting the sale of the Shares, the Additional Shares (if any), the Warrant or the Warrant Shares, or requiring any consent or approval of any Person that shall not have been obtained to issue the Shares, the Additional Shares (if any), the Warrant or the Warrant Shares, except, with respect to the issuance of the Warrant Shares, any filings, consents or approvals required under the HSR Act. 6.3 PURCHASE PRICE. The Purchaser shall have paid the Purchase Price by -------------- wire transfer of immediately available funds to an account designated in writing by the Company. 12 SECTION 7 COVENANTS 7.1 REGISTRATION RIGHTS. ------------------- (a) Company Registration. -------------------- (i) The Company shall file with the SEC, within two business days after the Closing Date, (A) a registration statement on Form S-1 (the "REGISTRATION STATEMENT") covering the registration of the resale of the Shares and the Warrant Shares under the Securities Act, (B) the Company's quarterly report on Form 10-Q for the period ended April 30, 2000 (the "APRIL 10-Q"), and (C) amendments to (1) the Company's quarterly report on Form 10-Q for the period ended July 31, 2000, (2) the Company's quarterly report on Form 10-Q for the period ended October 31, 2000 and (3) the Company's annual report on Form 10-K for the fiscal year ended December 31, 1999, in each case (1), (2) and (3) addressing those comments raised by the SEC in its letter dated January 4, 2001 to the Company. (ii) The Company shall use its best efforts to cause the Registration Statement to become effective under the Securities Act as promptly as possible and remain effective during the period from the date the Registration Statement is declared effective by the SEC (the "EFFECTIVE DATE") until the earlier of (A) the second anniversary of the Effective Date, or (B) the date on which all Shares and Warrant Shares registered thereunder have been sold (such period, as the case may be, the "REGISTRATION PERIOD"). (iii) During the Registration Period, the Company shall: (A) prepare and file with the SEC such amendments and supplements to the Registration Statement and the prospectus used in connection with the Registration Statement as may be necessary to keep the Registration Statement effective during the Registration Period and to comply with the provisions of the Securities Act with respect to the sale or other disposition of the Shares and the Warrant Shares by the Purchaser or any other member of the Purchaser Group, and furnish to the Purchaser any such supplement or amendment prior to it being used and/or filed with the SEC; (B) comply in all material respects with the provisions of the Securities Act applicable to the Company with respect to the disposition of all securities covered by the Registration Statement; (C) furnish to the Purchaser (1) such number of copies (including manually executed and conformed copies) of the Registration Statement and of each amendment thereof and supplement thereto (including all annexes, appendices, schedules and exhibits), (2) such number of copies of the prospectus used in connection with the Registration Statement (including each preliminary prospectus, any summary prospectus and the final prospectus and including prospectus supplements), and (3) such number of copies of other 13 documents, if any, incorporated by reference in the Registration Statement or prospectus, in each case as the Purchaser may reasonably request; (D) notify the Purchaser promptly and, if requested by the Purchaser, confirm such notification in writing, (1) when a prospectus or any prospectus supplement has been filed with the SEC and when the Registration Statement or any post-effective amendment thereto has been filed with and declared effective by the SEC, (2) of the issuance by the SEC of any stop order or the coming to its knowledge of the initiation of any proceedings for that purpose, (3) of the receipt by the Company of any notification with respect to the suspension of the qualification of any of the Shares or the Warrant Shares for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, (4) of the occurrence of any event that requires the making of any changes to the Registration Statement or related prospectus so that such documents will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (and the Company shall promptly prepare and furnish to the Purchaser, upon request, a reasonable number of copies of a supplemented or amended prospectus such that, as thereafter delivered to the purchasers of the Shares or the Warrant Shares, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they are made, not misleading), and (5) of the Company's determination that the filing of a post-effective amendment to the Registration Statement shall be necessary or appropriate; and, upon the receipt of any notice from the Company of the occurrence of any event of the kind described in this Section 7.1(a)(iii)(D)(2), (3) (but only with respect to the jurisdiction suspending qualification), (4) or (5), (I) the Purchaser shall forthwith discontinue any offer and disposition of the Shares and the Warrant Shares pursuant to the Registration Statement covering such Shares and Warrant Shares and, if so directed by the Company, shall deliver to the Company all copies (other than permanent file copies) of the defective prospectus covering such Shares and Warrant Shares that are then in the Purchaser's possession or control, and (II) the Company shall, as promptly as practicable thereafter (subject, in the case of Section 7.1(a)(iii)(D)(4), to the provisions of Section 7.1(d)), take such action as shall be necessary to remedy such event to permit the Purchaser to continue to offer and dispose of the Shares and the Warrant Shares, including, without limitation, preparing and filing with the SEC and furnishing to the Purchaser a supplement or amendment to such prospectus so that, as thereafter deliverable to the purchasers of the Shares and the Warrant Shares, such prospectus will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; (E) use its best efforts to register or qualify the Shares and the Warrant Shares covered by such Registration Statement under and to the extent required by such other securities or state blue sky laws of such jurisdictions as the Purchaser shall request, and do any and all other acts and things that may be necessary under such securities or blue sky laws to enable the Purchaser to consummate the public sale or other disposition in such jurisdictions of the Shares and the Warrant Shares owned by the Purchaser, except that the Company shall not for any such purpose be required to qualify to do business as a foreign corporation in any 14 jurisdiction wherein it is not so qualified or submit to liability for state or local taxes where it would not otherwise be liable for such taxes; (F) if requested by the Purchaser, promptly incorporate in a prospectus supplement or post-effective amendment such information as is required by the applicable rules and regulations of the SEC and as the Purchaser specifies should be included therein relating to the terms of the sale of the Shares and the Warrant Shares, including, without limitation, information with respect to the number of Shares and Warrant Shares being sold by the Purchaser or any other member of the Purchaser Group, the name and description of the Purchaser or such other member of the Purchaser Group, the offering price of such Shares and Warrant Shares and any other terms of the offering of the Shares and the Warrant Shares by the Purchaser or such other member of the Purchaser Group; and make all required filings of such prospectus supplement or post- effective amendment promptly after notification of the matters to be incorporated in such prospectus supplement or post-effective amendment; (G) use its best efforts to obtain the consent or approval of each governmental agency or authority, whether federal, state or local, that may be required to effect such registration or the offering or sale in connection therewith or to enable the Purchaser and any other member of the Purchaser Group to offer, or to consummate the disposition of, the Shares and the Warrant Shares; (H) furnish to the Purchaser on a timely basis and at the Company's expense, certificates free of any restrictive legends representing ownership of the Shares or the Warrant Shares sold in such denominations and registered in such names as the Purchaser shall request, and notify the transfer agent of the Company's securities that it may effect transfers of the Shares and the Warrant Shares upon notification from the Purchaser that it has complied with this Agreement and the prospectus delivery requirements of the Securities Act; and (I) comply with all applicable rules and regulations of the SEC, and make generally available to its securityholders, as soon as practicable but in any event not later than 18 months after the Effective Date, an earnings statement of the Company and its subsidiaries complying with Section 11(a) of the Securities Act (including, at the option of the Company, Rule 158 thereunder). (b) Payment of Expenses. All expenses incurred by the Company in ------------------- connection with any registration, qualification or compliance pursuant to the provisions of this Section 7.1 (including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel for the Company, blue sky fees and expenses and the expenses of any special audits incident to or required by any such registration, but excluding all applicable underwriting discounts and selling commissions) shall be borne by the Company. (c) Information Furnished by the Purchaser. It shall be a -------------------------------------- condition precedent to the Company's obligations under this Section 7.1 that the Purchaser furnish to the Company in writing such information regarding the Purchaser and the distribution of the Shares and the 15 Warrant Shares proposed by the Purchaser as the Company may reasonably request to complete or amend the information required by the Registration Statements. (d) Information Blackout; No Stabilization. -------------------------------------- (i) At any time when the Registration Statement is effective, upon written notice from the Company to the Purchaser that the Company, after consultation with outside counsel, has determined reasonably and in good faith that the sale of Shares and Warrant Shares pursuant to the Registration Statement would require disclosure of non-public material information, the disclosure of which at such time could reasonably be expected to have a material adverse effect on the business or affairs of the Company or a material adverse effect on any proposal or plan by the Company or any of its subsidiaries to engage in any extraordinary engagement or activity by the Company, including, without limitation, any material acquisition of assets or any merger, consolidation, tender offer or similar transaction, the Purchaser shall suspend sales of the Shares and the Warrant Shares pursuant to the Registration Statement until the earlier of (A) 45 days after the Company notifies the Purchaser of such good faith determination, and (B) such time as the Company notifies the Purchaser that such material information has been disclosed to the public or has ceased to be material or that sales pursuant to the Registration Statement may otherwise be resumed (the number of days from such suspension of sales by the Purchaser until the day when such sales may be resumed hereunder is hereinafter called a "SALES BLACKOUT PERIOD"). A Sales Blackout Period shall not preclude any sales of Shares or Warrant Shares that the Purchaser may effect in compliance with Rule 144; provided that the Purchaser otherwise conforms with the requirements under the Securities Act and the Exchange Act. (ii) No Sales Blackout Period shall be commenced by the Company within 90 days after the Effective Date or the end of a Sales Blackout Period, and the Company shall not be permitted to commence more than two Sales Blackout Periods in any 12 month period. (iii) The Purchaser shall not, during the Registration Period, (A) effect any stabilization transactions or engage in any stabilization activity in connection with the Common Stock or other equity securities of the Company in contravention of Regulation M under the Exchange Act, or (B) permit any "Affiliated Purchaser" (as that term is defined in Regulation M under the Exchange Act) to bid for or purchase for any account in which the Purchaser has a beneficial interest, or attempt to induce any other Person to purchase, any shares of Common Stock or Shares or Warrant Shares in contravention of Regulation M under the Exchange Act. 16 (e) Indemnification. --------------- (i) With respect to the offering and sale of the Shares and the Warrant Shares made pursuant to the Registration Statement only, the Company shall indemnify and hold harmless the Purchaser, its officers, directors, members and partners, and each Person, if any, who controls any of the foregoing within the meaning of the Securities Act ("PURCHASER INDEMNITEES"), from and against any and all claims, liabilities, losses, damages, expenses and judgments, joint or several, to which they or any of them may become subject, including any amount paid in settlement of any litigation commenced or threatened, and shall promptly reimburse them, as and when incurred, for any legal or other expenses incurred by them in connection with investigating any claims and defending any actions, insofar as such losses, claims, damages, liabilities or actions shall arise out of, or shall be based upon, any violation or alleged violation by the Company of the Securities Act, any blue sky laws or securities laws of any state or county in which the Shares and the Warrant Shares are offered, and relating to action taken or action or inaction required of the Company in connection with such offering, or shall arise out of, or shall be based upon, any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or in any preliminary or final prospectus included therein) relating to the offering and sale of the Shares and the Warrant Shares, or any amendment thereof or supplement thereto, or in any document incorporated by reference therein, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, the Company shall not be liable to any Purchaser Indemnitee in any such case to the extent that any such loss, claim, damage, liability or action arises out of, or is based upon, any untrue statement or alleged untrue statement, or any omission or alleged omission, if such statement or omission shall have been made in reliance upon and in conformity with information furnished to the Company in writing by or on behalf of any Purchaser Indemnitee for inclusion in the Registration Statement (or in any preliminary or final prospectus included therein), or any amendment thereof or supplement thereto. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Purchaser Indemnitee and shall survive the transfer of such securities. The foregoing indemnity agreement is in addition to any liability that the Company may otherwise have to any Purchaser Indemnitee. (ii) With respect to the offering and sale of the Shares and the Warrant Shares made pursuant to the Registration Statement only, the Purchaser shall indemnify and hold harmless the Company, its officers and directors and each Person, if any, who controls any of the foregoing within the meaning of the Securities Act (the "COMPANY INDEMNITEES"), from and against any and all claims, liabilities, losses, damages, expenses and judgments, joint or several, to which they or any of them may become subject, including any amount paid in settlement of any litigation commenced or threatened, and shall promptly reimburse them, as and when incurred, for any legal or other expenses incurred by them in connection with investigating any claims and defending any actions, insofar as any such losses, claims, damages, liabilities or actions shall arise out of, or shall 17 be based upon, any violation or alleged violation by the Purchaser of the Securities Act, any blue sky laws or securities laws of any state or country in which the Shares and the Warrant Shares are offered and relating to action taken or action or inaction required of the Purchaser in connection with such offering, or shall arise out of, or shall be based upon, any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or in any preliminary or final prospectus included therein) relating to the offering and sale of the Shares and the Warrant Shares or any amendment thereof or supplement thereto, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, but in each case only to the extent that such untrue statement is contained in, or such fact is omitted from, information furnished to the Company in writing by or on behalf of the Purchaser for inclusion in the Registration Statement (or in any preliminary or final prospectus included therein). Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of any Company Indemnitee. The foregoing indemnity is in addition to any liability that the Purchaser may otherwise have to any Company Indemnitee. (iii) In case any proceeding (including any governmental investigation) shall be instituted involving any Person in respect of which indemnity may be sought pursuant to this Section 7.1(e), such Person (the "INDEMNIFIED PARTY") shall promptly notify the Person against whom such indemnity may be sought (the "INDEMNIFYING PARTY") in writing. No indemnification provided for in subsection (i) or (ii) shall be available to any Person who shall fail to give notice as provided in this subsection (iii) if the indemnifying party to whom notice was not given was unaware of the proceeding to which such notice would have related and was materially prejudiced by the failure to give such notice, but the failure to give such notice shall not relieve the indemnifying party or parties from any liability that it or they may have to the indemnified party for indemnification pursuant to subsection (i) or (ii) to the extent it was not materially prejudiced. In case any such proceeding shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party and shall pay as incurred the fees and disbursements of such counsel related to such proceeding. In any such proceeding, any indemnified party shall have the right to retain its own counsel at its own expense. Notwithstanding the foregoing, the indemnifying party shall pay as incurred the fees and expenses of the counsel retained by the indemnified party in the event (A) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel, (B) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel, in the written opinion of such counsel, would be inappropriate due to actual or potential differing interests between them, or (C) the indemnifying party does not promptly defend the indemnified party. The indemnifying party shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees and expenses of more than one separate firm for all such indemnified parties (in addition to local counsel if required). Such firm shall be designated in writing by the Purchaser in the case of Purchaser Indemnitees and by the Company in the case of Company Indemnitees. The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent (which consent shall not be unreasonably withheld) but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party shall indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. The obligations 18 of the Company and the Purchaser under this Section 7.1(e) shall survive the completion of any offering of Shares or Warrant Shares pursuant to the Registration Statement. (iv) The indemnity provided for hereunder shall not inure to the benefit of any indemnified party to the extent that the claim is based on such indemnified party's failure to comply with the applicable prospectus delivery requirements of the Securities Act as then applicable to the Person asserting the loss, claim, damage or liability for which indemnity is sought. (v) If the indemnification provided for in this Section 7.1(e) is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any claims, liabilities, losses, damages, expenses or judgments referred to herein, the indemnifying party, in lieu of indemnifying such indemnified party thereunder, shall to the extent permitted by applicable law contribute to the amount paid or payable by such indemnified party as a result of such claim, liability, loss, damage, expense or judgment in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the circumstances that resulted in such claim, liability, loss, damage, expense or judgment, as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by a court of law by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 7.1(e) were determined by pro rata allocation or any other method of allocation that does not take into account the equitable consideration referred to in this paragraph (v). (vi) In no event shall the liability of the Purchaser under this Section 7.1(e), whether for indemnification or contribution, exceed the net proceeds received by the Purchaser from the sale of the Shares and the Warrant Shares pursuant to the Registration Statement. (f) Rule 144. With a view to making available to the Purchaser ---- --- the benefits of Rule 144 and any other rule or regulation of the SEC that may at any time permit the Purchaser to sell securities of the Company to the public without registration, in addition to the foregoing provisions of this Section 7.1, the Company shall, from and after the filing with the SEC of the April 10- Q: (i) make and keep adequate current public information with respect to the Company available, as those terms are understood and defined in Rule 144; (ii) use its best efforts to file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and 19 (iii) furnish to the Purchaser upon written request (A) a written statement by the Company as to whether it has complied with the reporting requirements of Rule 144, the Securities Act and the Exchange Act, (B) a copy of the most recent annual or quarterly report of the Company, and (C) such other reports and documents of the Company as the Purchaser may reasonably request and as is publicly available to enable the Purchaser to avail itself of any rule or regulation of the SEC that permits the selling of any such securities without registration. 7.2 OBSERVER RIGHTS. On and after the Closing until the earlier of (i) the --------------- fifth anniversary of this Agreement or (ii) the date on which the Purchaser Group (as defined in Section 9.4 below) ceases to collectively own a number of shares of Common Stock equal to at least thirty percent (30%) of the shares of Common Stock held collectively by the Purchaser Group immediately after the Closing (as adjusted for stock splits, stock dividends, combinations, reorganizations, reclassifications and other similar events), the Company shall permit one (1) representative designated by the Purchaser and reasonably acceptable to the Company (the "PURCHASER OBSERVER") to attend, in a non-voting observer capacity, each meeting of the Board of Directors of the Company and each meeting of any committee thereof and to participate in all discussions during each such meeting. The Company shall send to the Purchaser Observer notice of the time and place of any such meeting, in the same manner and at the same time as notice is sent to its directors. The Company shall also provide to the Purchaser Observer copies of all notices, reports, minutes, contracts and other documents, at the time and in the same manner as such documents are provided to the Board of Directors of the Company. Any materials furnished to the Purchaser Observer and the discussions and presentations in connection with or at any meeting shall be considered confidential information and the Purchaser Observer will keep such materials and discussions confidential and will not disclose or divulge such materials and discussions to any third party. Notwithstanding the foregoing, the Company reserves the right to exclude the Purchaser Observer from access to any materials or meetings or portions thereof if the Board of Directors or management of the Company shall reasonably determine, upon advice of counsel in the case of (A) or (B), that such exclusion is necessary (A) to preserve the attorney-client privilege, (B) to prevent a conflict of interest, (C) to protect confidential proprietary information or (D) because the Purchaser Observer's presence may otherwise be detrimental to the business interests of the Company. The Company expressly acknowledges that any of the following persons would be acceptable to the Company if selected by the Purchaser to serve as Purchaser Observer: Robert Pick, Brad Dusto, Mark Hess, and Steve Heeb. 7.3 FUTURE AND CURRENT INVESTMENTS AND ACTIVITIES; INFORMATION. ---------------------------------------------------------- (a) The Company acknowledges that (i) the Purchaser and its Affiliates engage in a wide variety of activities and have investments in many other companies, (ii) it is critical to the Purchaser that the Purchaser and its Affiliates be permitted to continue to develop their current and future businesses and investment activities without any restriction arising from an investment by the Purchaser or any of its Affiliates in the Company, the right of the Purchaser to designate a Purchaser Observer or any relationship, contractual or otherwise, between the Purchaser or any of its Affiliates and the Company or any of its Affiliates, and (iii) from time to time, in connection with the foregoing activities of the Purchaser and its current and future Affiliates (the "ACTIVITIES"), the Purchaser and its Affiliates may have information that may be 20 useful to the Company (which information may or may not be known by the Purchaser Observer). The Company further acknowledges that (I) the Company does not intend or desire that the relationship of the Purchaser and any of its Affiliates with the Company and any of its Affiliates (A) interfere with or impose conditions or restrictions on any of the Activities of the Purchaser or any of its current or future Affiliates, or (B) confer upon the Company any right to participate in any of the Activities of the Purchaser or any of its Affiliates, and (II) the Company intends and desires that (X) the Purchaser and its Affiliates shall be free to engage in the Activities in any capacity, whether active or passive, without any obligation or liability to the Company or to its shareholders, including, without any limitation, any obligation to offer the Company a right to acquire, participate or have any interest of any nature whatsoever in any of such Activities, and (Y) the Purchaser, its Affiliates and the Purchaser Observer shall have no duty to disclose any information known to such person to the Company; provided, however, that this Section 7.3 shall not relieve the Purchaser, its Affiliates or the Purchaser Observer of its or his duty of confidentiality with respect to information pertaining to the Company. (b) The Company acknowledges that, except as expressly set forth in any written agreement between the Company or any of its Affiliates and the Purchaser or any of its Affiliates, neither the Purchaser nor any of its Affiliates shall have any duty or obligation to use or promote the use of any of the goods, products, equipment or services offered by the Company. 7.4 MOST FAVORED INVESTOR TREATMENT. ------------------------------- (a) From the date hereof until the date six months following the Closing Date, in the event that the Company or any of its Affiliates sells or issues, or enters into any agreements (whether oral or written) regarding the sale or issuance of, (i) any shares of the Company's Common Stock, (ii) any securities convertible into or exchangeable for any shares of the Company's Common Stock or (iii) any options, warrants or other rights to purchase shares of the Company's Common Stock or securities convertible into or exchangeable for shares of the Company's Common Stock, on terms (including, but not limited to, (A) a greater than 8% discount in the purchase price from the then current market value of the shares of Common Stock or other securities so purchased, (B) the number of options, warrants or other purchase rights issued as a percentage of the number of shares of Common Stock or other securities purchased and the terms (including, without limitation, the duration and exercise price) of such options, warrants or other purchase rights, and (C) the registration rights granted with respect to the securities so purchased) that are more favorable to the purchaser thereof than those terms contained in this Agreement, the Warrant and the Registration Rights Agreement, the Company shall take such measures (including, without limitation, the issuance of additional shares of Common Stock, an adjustment to the terms of the Warrant and the number of shares issuable thereunder and an amendment to the Registration Rights Agreement) to ensure that the Purchaser is afforded the benefit of such terms, without any additional consideration and applied retroactively to the terms of this Agreement, the Warrant and the Registration Rights Agreement. The "most favored investor" status afforded the Purchaser hereunder shall apply by comparison of all of the terms contained in this Agreement, the Warrant and the Registration Rights Agreement to all of the terms pertaining to any subsequent sale or issuance of securities, such that the overall investment by any third party shall be on no more favorable terms than the overall investment by the Purchaser hereunder, each taken in its entirety. The Purchaser 21 acknowledges that a third party may have more favorable terms with regard to a specific line item, and such shall not in and of itself constitute a violation or breach of this Section 7.4. (b) Notwithstanding the foregoing, no provision of this Section 7.4 shall apply to the issuance of (i) stock options or stock grants to employees of the Company pursuant to the Company's stock option, stock incentive and stock purchase plans described in the Filed SEC Documents or otherwise approved by the Board of Directors of the Company or (ii) shares of the Company's Common Stock in connection with a public offering of such shares by the Company for its own account. 7.5 LISTING OF THE SHARES. The Company shall use its best efforts to cause --------------------- the Shares, the Additional Shares (if any) and the Warrant Shares to be listed on the Nasdaq National Market System or such other securities exchange or quotation system on which the Common Stock is then listed or quoted. 7.6 WARRANT SHARES. The Company shall at all times reserve and keep -------------- available, solely for issuance and delivery upon the exercise of the Warrant, the number of shares of Common Stock issuable from time to time upon such exercise. 7.7 HSR ACT FILINGS. In the event that, as the result of the Purchaser's --------------- decision to exercise the Warrant or any other warrants hereinafter issued by the Company to the Purchaser or for any other reason, it becomes necessary at any time after the Closing for the Purchaser to make any filings under the Hart- Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR ACT"), the Company shall cooperate with the Purchaser in connection with any such filings by (i) making all filings required to be made on the Company's part under the HSR Act and (ii) promptly furnishing, or causing to be furnished, any information that may be required by the Federal Trade Commission or the Department of Justice under the HSR Act. 7.8 FULFILLMENT OF CONDITIONS. Each of the Company and the Purchaser shall ------------------------- use its reasonable efforts to perform, comply with and fulfill all obligations, covenants and conditions required by this Agreement to be performed, complied with or fulfilled by it on or after the Closing Date, including, without limitation, all actions required under any law, rule or regulation adopted subsequent to the date hereof. 7.9 CONFIDENTIALITY; COMPLIANCE WITH SECURITIES LAWS. At Closing, the ------------------------------------------------ Purchaser and the Company shall execute a Confidentiality Agreement substantially in the form attached hereto as Exhibit E. In addition, in connection with the Purchaser's observer rights pursuant to Section 7.2 hereof or otherwise through its relationship with the Company, the Purchaser hereby acknowledges that it may become aware of material non-public information concerning the Company and that the United States securities laws generally prohibit any person who has material non-public information concerning an issuer from publicly purchasing, selling or otherwise trading in securities of such issuer, and it shall comply with all applicable securities laws to the extent it receives any such information. 22 SECTION 8 COMPLIANCE WITH SECURITIES ACT; RESTRICTIONS ON TRANSFERABILITY 8.1 COMPLIANCE WITH SECURITIES ACT. The Shares, the Additional Shares (if ------------------------------ any), the Warrant and the Warrant Shares shall not be transferable except upon the conditions specified in Section 8.3, which conditions are intended, among other things, to ensure compliance with the provisions of the Securities Act and applicable state securities laws in respect of any such transfer. 8.2 RESTRICTIVE LEGEND. The certificate or certificates representing the ------------------ Shares, the Additional Shares (if any) and the Warrant Shares shall each be subject to the following legend restricting transfer under the Securities Act: THE TRANSACTION IN WHICH THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ACQUIRED WAS NOT REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAW. NO TRANSFER OF THE SHARES REPRESENTED BY THIS CERTIFICATE SHALL BE VALID OR EFFECTIVE UNLESS SUCH TRANSFER IS MADE (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS, OR (B) IN A TRANSACTION THAT QUALIFIES AS AN EXEMPT TRANSACTION UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS AND FOR WHICH, SUBJECT TO LIMITED EXCEPTIONS, AN OPINION OF COUNSEL IN FORM AND SUBSTANCE REASONABLY ACCEPTABLE TO THE COMPANY TO SUCH EFFECT HAS BEEN PROVIDED. The Company shall remove this legend from the certificate or certificates representing any of the Shares, the Additional Shares (if any) or the Warrant Shares upon the termination of the restrictions on transferability with respect to such Shares, the Additional Shares (if any) or Warrant Shares, in accordance with the last sentence of Section 8.4. 8.3 RESTRICTIONS ON TRANSFERABILITY. The Company shall not be required to ------------------------------- register the transfer of the Shares, the Additional Shares (if any), the Warrant or the Warrant Shares on the books of the Company unless the Company shall have been provided with an opinion of counsel in form and substance reasonably satisfactory to the Company that the Shares, the Additional Shares (if any), the Warrant or the Warrant Shares, as applicable, are eligible for transfer without registration under the Securities Act; provided, however, that no such opinion of counsel shall be necessary in order to effectuate a transfer of any of the Shares, the Additional Shares (if any), the Warrant or Warrant Shares (i) in accordance with the provisions of Rule 144(k) promulgated under the Securities Act, (ii) with respect to the Shares, the Additional Shares (if any) and the Warrant Shares, in accordance with the intended method of disposition set forth in the applicable Registration Statement or (iii) with respect to the Warrant Shares, in accordance with the intended method of disposition set forth in any other registration statement 23 filed by the Company and covering the Warrant Shares pursuant to the Registration Rights Agreement. 8.4 TERMINATION OF RESTRICTIONS ON TRANSFERABILITY. The conditions ---------------------------------------------- precedent imposed by this Section 8 upon the transferability of the Shares, the Additional Shares (if any), the Warrant and the Warrant Shares shall cease and terminate as to any of the Shares, the Additional Shares (if any), the Warrant and the Warrant Shares (i) when such securities shall have been registered under the Securities Act and sold or otherwise disposed of in accordance with the intended method of disposition by the seller or sellers thereof set forth in the registration statement covering such securities (including, without limitation, the Registration Statements), (ii) at such time as the Company shall have been provided with an opinion of counsel in form and substance reasonably satisfactory to the Company to the effect that the restrictive legend on such securities is no longer required in order to establish compliance with the provisions of the Securities Act, or (iii) when such securities are transferred pursuant to Rule 144 or become transferable in accordance with the provisions of Rule 144(k) promulgated under the Securities Act. Whenever the conditions imposed by this Section 8 shall terminate as hereinabove provided with respect to any of the Shares, the Additional Shares (if any) or the Warrant Shares, the holder of any such securities bearing the legend set forth in Section 8.2 shall be entitled to receive from the Company, without expense (except for the payment of any applicable transfer taxes) and as expeditiously as possible, new stock certificates not bearing such legend. SECTION 9 MISCELLANEOUS 9.1 GOVERNING LAW. This Agreement shall be governed in all respects by the ------------- internal laws of the State of Delaware as applied to contracts entered into solely between residents of, and to be performed entirely within, such state, and without reference to principles of conflicts of laws or choice of laws. 9.2 SPECIFIC ENFORCEMENT; VENUE. The parties hereto acknowledge and agree --------------------------- that each would be irreparably damaged if any of the provisions of this Agreement are not performed by the other in accordance with their specific terms or are otherwise breached. It is accordingly agreed that each party shall be entitled to seek an injunction or injunctions to prevent breaches of this Agreement by the other and to enforce this Agreement and the terms and provisions hereof specifically against the other, in addition to any other remedy to which such aggrieved party may be entitled at law or in equity. Any action or proceeding seeking to enforce any provision of, or based on any rights arising out of, this Agreement may be brought against any of the parties in the courts of the State of Delaware, County of New Castle, or in the United States District Court for the District of Delaware, and each of the parties consents to the jurisdiction of such courts (and of the appropriate appellate courts) in any such action or proceeding and waives any objection to venue laid therein. Process in any action or proceeding referred to in the preceding sentence may be served on any party anywhere in the world. 9.3 SURVIVAL. The representations and warranties in Sections 3 and 4 of -------- this Agreement shall survive the Closing and shall not merge in the performance of any obligation by 24 any party hereto; provided, however, that the representations and warranties made shall only be deemed to have been made as of the date hereof and as of the Closing Date (or such other date referenced in such representation or warranty). 9.4 SUCCESSORS AND ASSIGNS. The rights and obligations set forth herein ---------------------- may not be assigned or delegated by the Company or the Purchaser without the prior written consent of the other, except that the Purchaser may assign, in whole or in part, its rights and delegate its obligations hereunder (including, without limitation, the right to purchase any or all of the Shares, the Additional Shares (if any) and the Warrant and the obligation to pay all or any portion of the Purchase Price) to any Affiliate of the Purchaser (collectively, together with the Purchaser, the "PURCHASER GROUP") without obtaining the prior written consent of the Company. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. 9.5 ENTIRE AGREEMENT; AMENDMENT. Except as expressly provided to the --------------------------- contrary in any separate agreement, this Agreement, the Warrant and the Registration Rights Agreement constitute the full and entire understanding and agreement between the parties with regard to the subject matter hereof and thereof, and supersede all prior agreements and understandings among the parties relating to the subject matter hereof and thereof (including, without limitation, the Initial Agreement). Neither this Agreement nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the party against whom enforcement of any such amendment, waiver, discharge or termination is sought. 9.6 NOTICES. All notices, requests, demands or other communications that ------- are required or may be given pursuant to the terms of this Agreement shall be in writing and shall be deemed to have been duly given: (i) on the date of delivery if personally delivered by hand, (ii) upon the third day after such notice is (a) deposited in the United States mail, if mailed by registered or certified mail, postage prepaid, return receipt requested, or (b) sent by a nationally recognized overnight express courier, or (iii) by facsimile upon written confirmation (other than the automatic confirmation that is received from the recipient's facsimile machine) of receipt by the recipient of such notice: (a) if to the Company, to it at: SeaChange International, Inc. 124 Acton Street Maynard, MA 01754 Facsimile Number: (978) 897-9590 Attention: William L. Fiedler 25 with a copy to: William B. Simmons, Jr., Esq. Testa, Hurwitz & Thibeault, LLP 125 High Street Boston, MA 02110 Facsimile Number: (617) 248-7100 (b) if to the Purchaser, to it at: c/o Comcast Corporation 1500 Market Street Philadelphia, PA 19102-2148 Attention: Arthur Block Facsimile Number: (215) 981-7794 with a copy to: Howard A. Blum, Esq. Drinker Biddle & Reath LLP One Logan Square 18th and Cherry Streets Philadelphia, PA 19103-6996 Facsimile Number: (215) 988-2757 or to such other address or facsimile number as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address or facsimile number shall be effective only upon receipt. 9.7 BROKERS. ------- (a) The Company has not engaged, consented to or authorized any broker, finder or intermediary to act on its behalf, directly or indirectly, as a broker, finder or intermediary in connection with the transactions contemplated by this Agreement. The Company shall indemnify and hold harmless the Purchaser from and against all fees, commissions or other payments owing to any party acting on behalf of the Company hereunder. (b) The Purchaser has not engaged, consented to or authorized any broker, finder or intermediary to act on its behalf, directly or indirectly, as a broker, finder or intermediary in connection with the transactions contemplated by this Agreement. The Purchaser shall indemnify and hold harmless the Company from and against all fees, commissions or other payments owing to any party acting on behalf of the Purchaser hereunder. 9.8 FEES, COSTS AND EXPENSES. All fees, costs and expenses (including ------------------------ attorneys' fees and expenses) incurred by either party hereto in connection with the preparation, negotiation and execution of this Agreement, the Warrant and the Registration Rights Agreement and the 26 consummation of the transactions contemplated hereby and thereby, shall be the sole and exclusive responsibility of such party. 9.9 DELAYS OR OMISSIONS. No delay or omission to exercise any right, power ------------------- or remedy accruing to any Person hereunder shall impair any such right, power or remedy nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring, nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any Person hereunder of any breach or default under this Agreement, or any waiver on the part of any such Person of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies either under this Agreement or by law or otherwise shall be cumulative and not alternative. 9.10 SEVERABILITY. If any term, provision, covenant or restriction of this ------------ Agreement, the Warrant or the Registration Rights Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restriction of this Agreement, the Warrant or the Registration Rights Agreement, as applicable, shall remain in full force and effect and shall in no way be affected, impaired or invalidated. 9.11 COUNTERPARTS. This Agreement may be executed in two or more partially ------------ or fully executed counterparts and by facsimile signatures, each of which shall be deemed an original and shall bind the signatory, but all of which together shall constitute but one and the same instrument. The execution and delivery of the signature page to this Agreement by any party hereto who shall have been furnished the final form of this Agreement shall constitute the execution and delivery of this Agreement by such party. 9.12 PUBLIC ANNOUNCEMENT. The Company and the Purchaser shall agree on the ------------------- form and content of any public announcement that shall be made concerning this Agreement, the Warrant and the Registration Rights Agreement and the transactions contemplated hereby and thereby, and neither the Company nor the Purchaser shall make any such public announcement without the consent of the other, except as required by law. 9.13 FURTHER ASSURANCES. The Company and the Purchaser shall each use its ------------------ reasonable efforts at any time and from time to time prior to, at and after the Closing to execute and deliver to the other such further documents and instruments and to take all such further actions as the other may reasonably request in order to convey and transfer the Shares, the Additional Shares (if any), the Warrant and, upon exercise of the Warrant, the Warrant Shares, and to consummate the transactions contemplated by this Agreement, the Warrant and the Registration Rights Agreement. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 27 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective authorized officers as of the date first above written. COMCAST SC INVESTMENT, INC. By: /s/ Rosemarie S. Teta ----------------------------------- Name: Rosemarie S. Teta --------------------------------- Title: Vice President -------------------------------- SEACHANGE INTERNATIONAL, INC. By: /s/ William L. Fiedler ----------------------------------- Name: William L. Fiedler --------------------------------- Title: Vice President -------------------------------- [SIGNATURE PAGE TO COMMON STOCK AND WARRANT PURCHASE AGREEMENT] 28 EXHIBIT A --------- THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAW. NO TRANSFER OF THIS WARRANT SHALL BE VALID OR EFFECTIVE UNLESS SUCH TRANSFER IS MADE (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS, OR (B) IN A TRANSACTION THAT QUALIFIES AS AN EXEMPT TRANSACTION UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS AND FOR WHICH, SUBJECT TO LIMITED EXCEPTIONS, AN OPINION OF COUNSEL IN FORM AND SUBSTANCE REASONABLY ACCEPTABLE TO THE COMPANY TO SUCH EFFECT HAS BEEN PROVIDED. Warrant No. S-__ Date: February 28, 2001 WARRANT TO PURCHASE COMMON STOCK OF SEACHANGE INTERNATIONAL, INC. Void after 5:00 P.M. (United States Eastern Time) on February 27, 2006, as provided herein. This certifies that, for value received, receipt and sufficiency of which are hereby acknowledged, Comcast SC Investment, Inc., or its registered assigns (the "HOLDER"), is entitled, subject to the terms and conditions set forth below, to purchase from SeaChange International, Inc., a Delaware corporation (the "COMPANY"), the number calculated pursuant to Section 1(a) below (the "WARRANT NUMBER") of validly issued, fully paid and nonassessable shares (the "WARRANT SHARES") of Common Stock of the Company, par value $0.01 per share (the "COMMON STOCK"), subject to adjustment as provided herein, at a purchase price calculated pursuant to Section 1(b) below (the "EXERCISE PRICE"), subject to adjustment as provided herein. The term "WARRANT" as used herein shall mean this Warrant, and any warrants delivered in substitution or exchange therefor as provided herein. 1. Calculation of Warrant Number and Exercise Price. ------------------------------------------------ (a) The Warrant Number shall equal (i) One Hundred Thousand (100,000) plus (ii) if the Effective Date (as such term is defined in that certain Common Stock and Warrant Purchase Agreement dated as of February 28, 2001 between the Company and the initial purchaser of this Warrant (the "PURCHASE AGREEMENT")) has not occurred on or before March 31, 2001, Twenty-Five Thousand (25,000) plus (iii) if the Effective Date has not occurred on or 1 before April 30, 2001, Three Hundred Thirty-Three and Thirty-Three Hundredths (333.33) per day beginning on and including May 1, 2001 for each day up to and including the Effective Date (the amount of the increase in the Warrant Number pursuant to clauses (ii) and (iii) of this Section 1(a) being herein referred to as the "ADDITIONAL WARRANT NUMBER"), the entirety of which shall be subject to adjustment as provided in Section 7. For purposes of illustration only, if the Effective Date were to occur on June 29, 2001, the Warrant Number would be One Hundred Forty-Four Thousand Nine Hundred Ninety-Nine and Eight Tenths (144,999.8). Notwithstanding the foregoing, in no event shall the Additional Warrant Number exceed such number as would require the Company to obtain shareholder approval pursuant to The Nasdaq Stock Market Rule 4350(i)(D) (the "NASDAQ RULE") in connection with the issuance of this Warrant and the Shares and Additional Shares (as such terms are defined in the Purchase Agreement) pursuant to the terms of the Purchase Agreement; provided that, in the event that the Warrant Number (pursuant to the terms hereof) and/or the number of Additional Shares to be issued pursuant to the Purchase Agreement (pursuant to the terms thereof) would be required to be so limited as a result of the Nasdaq Rule, the Warrant Number shall be limited first by the amount of the Additional Warrant Number and the number of Additional Shares to be issued pursuant to the Purchase Agreement shall only be limited to the extent required as a result of the Nasdaq Rule after such limitation imposed upon the Warrant Number. (b) The Exercise Price shall equal (i) from the date hereof until the Effective Date, $13.225 per share, subject to adjustment as provided in Section 7, and (ii) from the Effective Date until the expiration date for this Warrant, the lowest of (A) the Exercise Price in effect immediately prior to the Effective Date as determined pursuant to clause (i) of this Section 1(b) and adjusted pursuant to Section 7, (B) ninety-two percent (92%) of the Current Market Price (as defined in Section 7(i) below) of the Common Stock on the Effective Date, or (C) the average of the Current Market Prices of the Common Stock for the five consecutive Trading Days (as defined below) ending on the Effective Date, in any case subject to further adjustment as provided in Section 7. For purposes of this Warrant, the term "TRADING DAY" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday other than any day on which the Common Stock is not traded on the applicable securities exchange or in the applicable securities market. (c) Within two days following the Effective Date, the Company shall (i) compute the Warrant Number and the Exercise Price based on the calculations described in subsections (a) and (b) of this Section 1, including any adjustments made thereto pursuant to Section 7 through the Effective Date, (ii) prepare a certificate signed by the treasurer of the Company setting forth the Warrant Number and the Exercise Price as of the Effective Date, showing in reasonable detail the facts upon which such calculations are based, and (iii) mail a copy of such certificate to the Holder of the Warrant at its last address as shall appear in the Warrant Register (as defined in Section 8(a) below). 2. Term of Warrant. Subject to the terms and conditions set forth herein, --------------- this Warrant shall be exercisable, in whole or in part, during the term commencing on February 28, 2001 and ending at 5:00 P.M. (United States Eastern Time) on February 27, 2006 (subject to extension as provided below, the "EXERCISE PERIOD"); provided, however, that (a) in the event that the expiration date of this Warrant shall fall on a Saturday, Sunday or United States federally recognized holiday, the expiration date for this Warrant shall be extended to 5:00 P.M. (United 2 States Eastern Time) on the Business Day (as defined in Section 7(i)) following such Saturday, Sunday or recognized holiday, (b) in the event that, on the expiration date of this Warrant, the Company is then required, pursuant to an effective demand therefor under that certain First Amended and Restated Registration Rights Agreement dated as of February 28, 2001 between the Company, the initial purchaser hereof and an affiliate of the initial purchaser (the "REGISTRATION RIGHTS AGREEMENT") to use its best efforts to effect, or is in the process of effecting, a registration under the Securities Act of 1933, as amended (the "SECURITIES ACT") for a public offering in which Warrant Shares are entitled to be included as provided in the Registration Rights Agreement, or if the Company is in default of any such obligations to register the sale of such Common Stock, the right to exercise this Warrant shall continue until the later of 5:00 P.M. (United States Eastern Time) on the 30th day following the date on which such registration shall have become effective or the 30th day following the date all such defaults shall have been cured, and (c) in the event that, on the expiration date of this Warrant, the Holder and the Company are in the process of complying with the provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR ACT"), in accordance with the provisions of Section 3(d) below, the right to exercise this Warrant shall continue until 5:00 P.M. (United States Eastern Time) on the 30th day following the date on which any waiting period under the HSR Act applicable to the exercise of the Warrant shall have expired or been terminated; provided that, in the case of (b), the Holder has requested that the Company commence the registration of Warrant Shares at least 30 days prior to the expiration date of the Exercise Period. 3. Exercise of Warrant. ------------------- (a) This Warrant may be exercised by the Holder, in whole or in part, by (i) the surrender of this Warrant to the Company, with the Notice of Exercise annexed hereto duly completed and executed on behalf of the Holder, at the office of the Company (or such other office or agency of the Company as it may designate by notice in writing to the Holder at the address of the Holder appearing on the books of the Company) during the Exercise Period and (ii) the delivery of payment to the Company of the Exercise Price for the number of Warrant Shares specified in the Notice of Exercise in any manner specified in subsection (c) of this Section 3. (b) The Company agrees that such Warrant Shares shall be deemed to be issued to the Holder as the record holder of such Warrant Shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for the Warrant Shares as aforesaid. A stock certificate or certificates for the Warrant Shares specified in the Notice of Exercise shall be delivered to the Holder as promptly as practicable, and in any event within ten days thereafter. If this Warrant shall have been exercised only in part, the Company shall, at the time of delivery of the stock certificate or certificates, deliver to the Holder a new Warrant evidencing the rights to purchase the remaining Warrant Shares, which new Warrant shall in all other respects be identical with this Warrant. No adjustments shall be made on Warrant Shares issuable on the exercise of this Warrant for any cash dividends paid or payable to holders of record of Common Stock prior to the date as of which the Holder shall be deemed to be the record holder of such Warrant Shares. (c) The Exercise Price shall be payable (i) in cash or its equivalent, payable by wire transfer of immediately available funds to a bank account specified by the Company or by 3 certified or bank cashiers' check in lawful money of the United States of America; (ii) by surrendering to the Company the right to purchase a number of Warrant Shares equal to the product obtained by multiplying the number of Warrant Shares to be purchased (including any Warrant Shares to be surrendered) by a fraction, the numerator of which is the Exercise Price and the denominator of which is the Current Market Price of the Common Stock on the date of exercise of the Warrant, or (iii) in any combination of (i) or (ii). In the event the Exercise Price is to be paid, in whole or in part, in accordance with the payment method described in clause (ii), and compliance with the provisions of the HSR Act is required in accordance with subsection (d) of this Section 3 prior to the consummation of such exercise, the Current Market Price of the Common Stock shall be calculated as of the date on which the Holder notifies the Company of its decision to exercise the Warrant, pending compliance with the provisions of the HSR Act, rather than the date of the consummation of such exercise. (d) The Holder agrees that any exercise of this Warrant is, to the extent applicable, subject to compliance with the provisions of the HSR Act. The Company agrees that, in the event that the exercise of this Warrant by the Holder requires compliance with any provisions of the HSR Act, the Company shall cooperate with the Holder in connection with any such filings by (i) making all filings required to be made on the Company's part under the HSR Act and (ii) promptly furnishing, or causing to be furnished, any information that may be required by the Federal Trade Commission or the Department of Justice under the HSR Act. 4. No Fractional Shares or Scrip. No fractional shares or scrip ----------------------------- representing fractional shares shall be issued upon the exercise of this Warrant. In lieu of any fractional share to which the Holder would otherwise be entitled, the Company shall make a cash payment equal to the Current Market Price multiplied by such fraction or, at the Company's option, round such fractional share to the nearest whole share. 5. Replacement of Warrant. On receipt of evidence reasonably satisfactory ---------------------- to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and substance to the Company or, in the case of mutilation, on surrender and cancellation of this Warrant, the Company at its expense shall execute and deliver, in lieu of this Warrant, a new warrant of like tenor and amount. 6. Rights of Stockholders. Subject to the provisions of Sections 7(l) and ---------------------- 9 hereof, the Holder shall not be entitled to vote or receive dividends or be deemed the holder of Common Stock or any other securities of the Company that may at any time be issuable on the exercise hereof for any purpose, nor shall anything contained herein be construed to confer upon the Holder, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issuance of stock, reclassification of stock, change of par value, or change of stock to no par value, consolidation, merger, conveyance or otherwise) or to receive notice of meetings, or to receive dividends or subscription rights or otherwise until the Warrant shall have been exercised as provided herein. 4 7. Antidilution Provisions. The Exercise Price and the Warrant Number ----------------------- (including any increases pursuant to Section 1) shall be subject to adjustment from time to time as provided in this Section 7. (a) In case the Company shall pay or make a dividend or other distribution on the Common Stock of the Company in Common Stock or any other security convertible into or exchangeable for shares of Common Stock (other than any rights, options or warrants described in subsection (b) of this Section 7), the Exercise Price in effect immediately prior to the opening of business on the next Business Day following the date fixed for determination of stockholders entitled to receive such dividend or other distribution shall be reduced by multiplying such Exercise Price by a fraction of which (i) the numerator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination and (ii) the denominator shall be the sum of (A) such number of shares referred to in clause (i) and (B) the total number of shares of Common Stock constituting such dividend or other distribution (or, in the case of a dividend or distribution of securities convertible into or exchangeable for shares of Common Stock, the total number of shares of Common Stock underlying such securities), such reduction to become effective immediately prior to the opening of business on the next Business Day following the date fixed for such determination. For the purposes of this subsection (a), the number of shares of Common Stock at any time outstanding shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. (b) In case the Company shall hereafter issue rights, options or warrants to all holders of its Common Stock entitling them to subscribe for or purchase shares of Common Stock or any other security convertible into or exchangeable for shares of Common Stock (such rights, options or warrants not being available on an equivalent basis to Holders of the Warrants upon exercise) at a price per share less than the Current Market Price of the Common Stock on the date fixed for the determination of stockholders entitled to receive such rights, options or warrants (other than pursuant to a dividend reinvestment plan), (i) the Exercise Price in effect immediately prior to the opening of business on the next Business Day following the date fixed for such determination shall be reduced by multiplying the Exercise Price in effect immediately prior to the close of business on the date fixed for the determination of holders of Common Stock entitled to receive such rights, options or warrants by a fraction of which (A) the numerator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination plus the number of shares of Common Stock that the aggregate of the offering price of the total number of shares of Common Stock so offered for subscription or purchase would purchase at such Current Market Price and (B) the denominator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination plus the number of shares of Common Stock so offered for subscription or purchase (or such number of shares of Common Stock underlying any convertible securities so offered for subscription or purchase), such reduction to become effective immediately prior to the opening of business on the next Business Day following the date fixed for such determination (for the purposes of this subsection (b), the number of shares of Common Stock at any time outstanding shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock), and (ii) if any such rights, options or warrants expire or terminate without having been exercised or are exercised for a consideration different from that utilized in the computation of any adjustment or adjustments on account of such rights, options or warrants, 5 the Exercise Price with respect to any Warrant not theretofore exercised shall be readjusted such that the Exercise Price would be the same as would have resulted had such adjustment been made without regard to the issuance of such expired or terminated rights, options or warrants or based upon the actual consideration received upon exercise thereof, as the case may be, which readjustment shall become effective upon such expiration, termination or exercise, as applicable; provided, however, that all readjustments in the Exercise Price based upon any expiration, termination or exercise for a different consideration of any such right, option or warrant, in the aggregate, shall not cause the Exercise Price to exceed the Exercise Price immediately prior to the time such rights, options or warrants were initially issued (without regard to any other adjustments of such number under this subsection (b) that may have been made since the date of the issuance of such rights, options or warrants). (c) In case the outstanding shares of Common Stock shall be subdivided into a greater number of shares of Common Stock, the Exercise Price in effect immediately prior to the opening of business on the next Business Day following the day upon which such subdivision becomes effective shall be proportionately reduced, and, conversely, in case the outstanding shares of Common Stock shall each be combined into a smaller number of shares of Common Stock, the Exercise Price in effect immediately prior to the opening of business on the next Business Day following the day upon which such combination becomes effective shall be proportionately increased. (d) In case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock evidences of its indebtedness or assets (including securities, but excluding any rights, options or warrants referred to in subsection (b) of this Section 7, any dividend or distribution paid exclusively in cash and any dividend referred to in subsection (a) of this Section 7), the Exercise Price shall be adjusted so that the same shall equal the price determined by multiplying the Exercise Price in effect immediately prior to the close of business on the date fixed for the determination of stockholders entitled to receive such distribution by a fraction of which (i) the numerator shall be the Current Market Price at the close of business on the date fixed for such determination less the then fair market value of the portion of the assets or evidences of indebtedness so distributed applicable to one share of Common Stock, and (ii) the denominator shall be such Current Market Price, such adjustment to become effective immediately prior to the opening of business on the next Business Day following the date fixed for the determination of stockholders entitled to receive such distribution. (e) The Company may make such reductions in the Exercise Price, in addition to those required by subsections (a), (b), (c) and (d) of this Section 7, as it considers to be advisable in order that any event treated for Federal income tax purposes as a dividend of stock or stock rights shall not be taxable to the recipients. (f) In case of any reclassification, recapitalization or other change in the outstanding securities of the class issuable upon exercise of this Warrant (including any such reclassification, recapitalization or other change upon a consolidation or merger in which the Company is the continuing corporation, but not including any transactions for which an adjustment is provided in subsection (c), (d) or (g) of this Section 7), the Company shall execute and deliver to the Holder a new warrant certificate, satisfactory in form and substance to the Holder and without payment of any additional consideration therefor, providing that the Holder 6 shall have the right thereafter, during the period such Warrant shall be outstanding, to exercise such Warrant into the kind and amount (if any) of securities, cash and other property receivable upon such reclassification, recapitalization or other change by a holder of the number of shares of Common Stock issuable upon exercise of this Warrant had it been exercised immediately prior to such reclassification, recapitalization or other change. Such new Warrant shall provide for adjustments that, for events subsequent to the effective date of such new Warrant, shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 7. The above provisions of this subsection (f) shall similarly apply to successive reclassifications, recapitalizations and other changes in the outstanding securities of the class issuable upon exercise of this Warrant. (g) In case of any consolidation of the Company with, or merger of the Company into, any other person, any merger of another person into the Company (other than a merger that does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of the Common Stock) or any sale or transfer of all or substantially all of the assets of the Company, at the election of the Holder of the Warrant represented hereby, the person formed by such consolidation or resulting from such merger or that acquires such assets, as the case may be, shall execute and deliver to the Holder a new warrant certificate, satisfactory in form and substance to the Holder and without payment of any additional consideration therefor, providing that the Holder shall have the right thereafter, during the period such Warrant shall be outstanding, to exercise such Warrant into the kind and amount (if any) of securities, cash and other property receivable upon such consolidation, merger, sale of transfer by a holder of the number of shares of Common Stock issuable upon exercise of this Warrant had it been exercised immediately prior to such consolidation, merger, sale or transfer. If the holders of the Common Stock may elect from choices the kind or amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer, then for the purpose of this Section 7 the kind and amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer shall be deemed to be the choice specified by the Holder, which specification shall be made by the Holder by the later of (i) ten Business Days after the Holder is provided with a final version of all information required by law or regulation to be furnished to holders of Common Stock concerning such choice, or, if no such information is required, ten Business Days after the Holder is provided with a final version of all information that was otherwise furnished to the holders of Common Stock concerning such choice, and (ii) the last time at which holders of Common Stock are permitted to make their specification known to the Company. If the Holder fails to make any specification, the Holder's choice shall be deemed to be whatever choice is made by a plurality of holders of Common Stock not affiliated with the Company or the other person to the merger or consolidation. Such new Warrant shall provide for adjustments that, for events subsequent to the effective date of such new Warrant, shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 7. The above provisions of this subsection (g) shall similarly apply to successive consolidations, mergers, sales or transfers. (h) Whenever there shall be any change in the Exercise Price under this Section 7, then there shall be an adjustment (to the nearest thousandth of a share) in the Warrant Number, which adjustment shall become effective at the time such change in the Exercise Price becomes effective and shall be made by multiplying the Warrant Number in effect immediately before 7 such change in the Exercise Price by a fraction the numerator of which is the Exercise Price immediately before such change and the denominator of which is the Exercise Price immediately after such change. (i) For the purpose of any computation under subsection (b) of Section 1, subsection (c) of Section 3, Section 4 or subsection (b) or (d) of this Section 7, the current market price per share of Common Stock (the "CURRENT MARKET PRICE") on any day shall be deemed to be the closing price per share on the earlier of the day in question or the day before the Ex Date (as defined below) with respect to the issuance, payment or distribution. For this purpose, the term "EX DATE," when used with respect to any issuance or distribution, shall mean the first date on which the Common Stock trades regular way on the applicable securities exchange or in the applicable securities market without the right to receive such issuance or distribution. The closing price for each day shall be the reported last sale price regular way or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices regular way, in either case on the New York Stock Exchange or, if the Common Stock is not listed or admitted to trading on such Exchange, on the principal national securities exchange on which the Common Stock is listed or admitted to trading or, if not listed or admitted to trading on any national securities exchange, on the Nasdaq National Market System or, if the Common Stock is not listed or admitted to trading on any national securities exchange or quoted on the Nasdaq National Market System, the average of the closing bid and asked prices in the over-the-counter market as furnished by any New York Stock Exchange member firm reasonably selected from time to time by the Board for that purpose. For purposes of this Warrant, the term "BUSINESS DAY" shall mean any day except a Saturday, Sunday or any day on which banking institutions are authorized or required to close in the city of New York, New York. (j) No adjustment in the Exercise Price shall be required unless such adjustment (plus any adjustments not previously made by reason of this subsection (j)) would require an increase or decrease of at least 1% in such Exercise Price; provided, however, that any adjustments that by reason of this subsection (j) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this subsection (j) shall be made to the nearest cent or to the nearest 1/100 of a share of Common Stock, as the case may be. Notwithstanding the foregoing, any adjustment required by this subsection (j) shall be made no later than the expiration of the right to exercise the Warrant or a portion thereof. (k) Whenever the Exercise Price is adjusted as herein provided: (i) the Company shall compute the adjusted Exercise Price in accordance with Section 7 and shall prepare a certificate signed by the treasurer of the Company setting forth the adjusted Exercise Price and showing in reasonable detail the facts upon which such adjustment is based, and such certificate shall forthwith be filed with any transfer agent; and (ii) a notice stating that the Exercise Price has been adjusted and setting forth the adjusted Exercise Price shall forthwith be required, and as soon as practicable after it is required, such notice (together with a copy of the certificate prepared under Section 7(k)(i) hereof) shall be mailed by the Company to the Holder of the Warrant at its last address as shall appear in the Warrant Register (as defined in Section 8(a)). 8 (l) In case: (i) the Company shall declare a dividend or other distribution on its Common Stock (other than a dividend payable exclusively in cash that would not cause an adjustment to the Exercise Price to take place pursuant to Section 7 above); (ii) the Company or any of its subsidiaries shall make a tender offer for the Common Stock; (iii) the Company shall authorize the granting to all Holders of its Common Stock of rights, options or warrants to subscribe for or purchase any shares of capital stock of any class; (iv) of any reclassification of the Common Stock (other than a subdivision or combination of its outstanding shares of Common Stock), or of any consolidation, merger or share exchange to which the Company is a party and for which approval of any stockholders of the Company is required, or of the sale or transfer of all or substantially all of the assets of the Company; or (v) of the voluntary of involuntary dissolution, liquidation or winding up of the Company; then the Company shall cause to be filed with any warrant agent, and shall cause to be mailed to the Holder of this Warrant at its last address as shall appear in the Warrant Register, at least ten days prior to the effective date hereinafter specified, a notice stating (A) the date on which a record has been taken for the purpose of such dividend, distribution or grant of rights, options or warrants, or, if record is not to be taken, the date as of which the identity of the holders of Common Stock of record entitled to such dividend, distribution, rights, options or warrants is to be determined, or (B) the date on which such reclassification, consolidation, merger, share exchange, sale, transfer, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, share exchange, sale, transfer, dissolution, liquidation or winding up. Neither the failure to give such notice nor any defect therein shall affect the legality or validity of the proceedings described in clauses (i) through (v) of this subsection (l). 8. Transfer of Warrant. ------------------- (a) Warrant Register. The Company will maintain a register (the ---------------- "WARRANT REGISTER") containing the names and addresses of the Holder or Holders. Any Holder of this Warrant or any portion thereof may change his address as shown on the Warrant Register or transfer this Warrant in accordance with the terms of this Warrant by written notice to the Company requesting such change. Any notice or written communication required or permitted to be given to the Holder may be delivered or given by mail to such Holder as shown on the Warrant Register and at the address shown on the Warrant Register. Until receipt by the Company of written notice from the Holder requesting a change of address or the transfer of this 9 Warrant, the Company may treat the Holder as shown on the Warrant Register as the absolute owner of this Warrant for all purposes. (b) Warrant Agent. The Company may, by written notice to the Holder, appoint an agent for the purpose of maintaining the Warrant Register referred to in subsection (a) of this Section 8, issuing the Common Stock or other securities then issuable upon the exercise of this Warrant, exchanging this Warrant, replacing this Warrant, or any or all of the foregoing. Thereafter, any such registration, issuance, exchange, or replacement, as the case may be, shall be made at the office of such agent. (c) Transferability. Subject to the restrictions on transfer set forth in subsection (d) of this Section 8, title to this Warrant may be transferred, in whole or in part, by endorsement (by the Holder executing the Assignment Form annexed hereto) and delivery in the same manner as a negotiable instrument transferred by endorsement and delivery. Upon surrender of this Warrant for transfer, properly endorsed on the Assignment Form, the Company at its expense shall issue, on the order of the Holder, a new warrant or warrants of like tenor, in such name as the Holder (on payment by the Holder of any applicable transfer taxes) may direct, for the number of shares issuable upon exercise hereof. Each holder of this Warrant, by holding it, agrees that this Warrant, when endorsed in blank, may be deemed negotiable, and that, when this Warrant shall have been so endorsed, the holder of this Warrant may be treated by the Company and all other persons dealing with this Warrant as the absolute owner of this Warrant for any purpose and as the person entitled to exercise the rights represented by this Warrant, or to the transfer of this Warrant on the books of the Company, any notice to the contrary notwithstanding. (d) Compliance with Securities Laws. ------------------------------- (i) The Holder of this Warrant, by acceptance hereof, acknowledges that the transfer of this Warrant and the Warrant Shares is subject to the Holder's compliance with the provisions of the Securities Act and any applicable state securities laws in respect of any such transfer. (ii) The certificate or certificates representing any Warrant Shares acquired upon exercise of this Warrant, and any Common Stock or other securities issued in respect of such Warrant Shares upon any stock split, stock dividend, recapitalization, merger, consolidation or similar event, shall be stamped or otherwise imprinted with the following legend (unless such a legend is no longer required under the Securities Act): THE TRANSACTION IN WHICH THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ACQUIRED WAS NOT REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAW. NO TRANSFER OF THE SHARES REPRESENTED BY THIS CERTIFICATE SHALL BE VALID OR EFFECTIVE UNLESS SUCH TRANSFER IS MADE (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS, OR (B) IN A TRANSACTION THAT QUALIFIES AS AN EXEMPT 10 TRANSACTION UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS AND FOR WHICH, SUBJECT TO LIMITED EXCEPTIONS, AN OPINION OF COUNSEL IN FORM AND SUBSTANCE REASONABLY ACCEPTABLE TO THE COMPANY TO SUCH EFFECT HAS BEEN PROVIDED. (iii) The Company shall not be required to register the transfer of this Warrant or the Warrant Shares on the books of the Company unless the Company shall have been provided with an opinion of counsel in form and substance reasonably satisfactory to the Company that this Warrant or the Warrant Shares, as applicable, are eligible for transfer without registration under the Securities Act; provided, however, that no such opinion of counsel shall be necessary in order to effectuate a transfer of this Warrant or any of the Warrant Shares (A) in accordance with the provisions of Rule 144(k) promulgated under the Securities Act or (B) with respect to the Warrant Shares, in accordance with the intended method of disposition set forth in the registration statement to be filed by the Company pursuant to the Purchase Agreement or any other registration statement filed by the Company and covering the Warrant Shares pursuant to the Registration Rights Agreement. (iv) The conditions precedent imposed by this subsection (d) upon the transferability of this Warrant and the Warrant Shares shall cease and terminate as to this Warrant and any of the Warrant Shares (A) when such securities shall have been registered under the Securities Act and sold or otherwise disposed of in accordance with the intended method of disposition by the seller or sellers thereof set forth in the registration statement covering such securities, (B) at such time as the Company shall have been provided with an opinion of counsel in form and substance reasonably satisfactory to the Company to the effect that the restrictive legend on such securities is no longer required in order to establish compliance with the provisions of the Securities Act, or (C) when such securities are transferred pursuant to Rule 144 or become transferable in accordance with the provisions of Rule 144(k) promulgated under the Securities Act. Whenever the conditions imposed by this subsection (d) shall terminate as hereinabove provided with respect to any of the Warrant Shares, the holder of any such securities bearing the legend set forth in Section 8(d)(ii) shall be entitled to receive from the Company, without expense (except for the payment of any applicable transfer taxes) and as expeditiously as possible, new stock certificates not bearing such legend. 9. Covenants of the Company. The Company hereby covenants and agrees ------------------------ that: (a) during the term of this Warrant, the Company will reserve a sufficient number of shares of authorized and unissued Common Stock to provide for the issuance of Common Stock, which shares shall be duly authorized, fully paid and non-assessable, upon the exercise of this Warrant and, from time to time, will take all steps necessary to amend its Certificate of Incorporation to provide sufficient reserves of shares of Common Stock issuable upon exercise of the Warrant; (b) the Company will not, by amendment of its Certificate of Incorporation or through reorganization, consolidation, merger, dissolution or sale of assets, or by any other voluntary act, avoid or seek to avoid the observance or performance of any of the covenants, stipulations or conditions to be observed or performed hereunder by the Company; 11 (c) all shares that may be issued upon the exercise of this Warrant, upon exercise of this Warrant and payment of the Exercise Price, all as set forth herein, will be free from all taxes, liens and charges in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously or otherwise specified herein); (d) issuance of this Warrant by the Company shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Common Stock upon the exercise of this Warrant; and (e) the Company shall use its best efforts to cause all Warrant Shares upon issuance to be listed on the Nasdaq National Market System or the principal such other securities exchange or quotation system on which the Common Stock is then listed or quoted. 10. Notices. Notices under this Warrant to the Company and the Holder ------- shall be provided in the manner, and to the addresses of the Company and the Holder, set forth in the Registration Rights Agreement, or to such other address as any party may have furnished to the others in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 11. Amendments. Neither this Warrant nor any term hereof may be amended, ---------- waived, discharged or terminated other than by a written instrument signed by the party against whom enforcement of any such amendment, waiver, discharge or termination is sought. 12. Governing Law. This Warrant shall be governed in all respects by the ------------- internal laws of the State of Delaware as applied to contracts entered into solely between residents of, and to be performed entirely within, such state, and without reference to principles of conflicts of laws or choice of laws. 13. Successors and Assigns. This Warrant shall be binding upon the ---------------------- Company's successors and assigns and shall inure to the benefit of the Holder's successors, legal representatives and assigns. 14. Attorney's Fees. In the event of a dispute with regard to the --------------- interpretation of this Warrant, the prevailing party may collect the cost of reasonable attorney's fees, litigation expenses or such other expenses as may be incurred in the enforcement of the prevailing party's rights hereunder. 12 IN WITNESS WHEREOF, SEACHANGE INTERNATIONAL, INC. has caused this Warrant to be executed by its authorized officer. Dated: February __, 2001 SEACHANGE INTERNATIONAL, INC. By: --------------------------------- Name: ------------------------------- Title: ------------------------------ 13 NOTICE OF EXERCISE To: SEACHANGE INTERNATIONAL, INC. The undersigned hereby elects to purchase _______________ shares of Common Stock of SeaChange International, Inc., pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price for such shares in full. In exercising this Warrant, the undersigned hereby confirms and acknowledges that the shares of Common Stock to be issued upon exercise are being acquired solely for the account of the undersigned and not as a nominee for any other party, or for investment, and that the undersigned will not offer, sell or otherwise dispose of any such shares of Common Stock except under circumstances that will not result in a violation of the registration provisions of the Securities Act of 1933, as amended, or any applicable state securities laws. Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below: ________________________________ (Name) ________________________________ (Name) 15. Please issue a new Warrant for the unexercised portion of the attached Warrant in the name of the undersigned or in such other name as is specified below: ________________________________ (Name) ________________ ________________________________ (Date) (Signature) ASSIGNMENT FORM FOR VALUE RECEIVED, the undersigned registered owner of this Warrant hereby sells, assigns and transfers unto the Assignee named below all of the rights of the undersigned under the within Warrant, with respect to the number of shares of Common Stock set forth below: No of Name of Assignee Address Shares ---------------- ------- ------ and does hereby irrevocably constitute and appoint as Attorney __________________to make such transfer on the books of SEACHANGE INTERNATIONAL, INC., maintained for the purpose, with full power of substitution in the premises. The undersigned also represents that, by assignment hereof, the Assignee acknowledges that this Warrant and the shares of stock to be issued upon exercise hereof are being acquired for investment and that the Assignee will not offer, sell or otherwise dispose of this Warrant or any shares of stock to be issued upon exercise hereof except under circumstances that will not result in a violation of the registration provisions of the Securities Act of 1933, as amended, or any applicable state securities laws. Dated: ----------------------------- ------------------------------- Signature of Holder Exhibit B Incorporated by reference to Exhibit 10.16 filed herewith. EXHIBIT C --------- EMPLOYEE NONCOMPETITION, NONDISCLOSURE AND DEVELOPMENTS AGREEMENT ---------------------------------------- In consideration and as a condition of my employment or continued employment by SeaChange International, Inc. (the "Company"), I hereby agree with the Company as follows: 1. During the period of my employment by the Company (the "Employment Period"), I will devote my full time and best efforts to the business of the Company. Further, during the period of my employment by the Company and for one year thereafter, I agree that I will not, directly or indirectly, alone or as a partner, officer, director, employee or stockholder of any entity, (a) engage in any business activity which is in competition with the products or services being developed, manufactured or sold by the Company or (b) solicit, interfere with or endeavor to entice away any employee of the Company. The period following the termination of my employment during which these restrictions apply (the "Post-employment Period") shall be extended by the length of any period of time during the Post-employment Period during which I am in violation of this paragraph. 2. I will not at any time, whether during or after the Employment Period, reveal to any person or entity any of the trade secrets or confidential information concerning the organization, business or finances of the Company or of any third party which the Company is under an obligation to keep confidential (including but not limited to trade secrets or confidential information respecting inventions, products, designs, methods, know-how, techniques, systems, processes, software programs, works of authorship, customer lists, projects, plans and proposals), except as may be required in the ordinary course of performing my duties as an employee of the Company, and I shall keep secret all matters entrusted to me and shall not use or attempt to use any such information in any manner which may injure or cause loss or may be calculated to injure or cause loss, whether directly or indirectly, to the Company. Further, I agree that during and after the Employment Period I shall not make, use or permit to be used any notes, memoranda, reports, lists, records, drawings, sketches, specifications, software programs, data, documentation or other materials of any nature relating to any matter within the scope of the business of the Company or concerning any of its dealings or affairs otherwise than for the benefit of the Company, it being agreed that all of the foregoing shall be and remain the sole and exclusive property of the Company, and that immediately upon the termination of my employment I shall deliver all of the foregoing, and all copies thereof, to the Company, at its main office. 3. If at any time or times during my employment, I shall (either alone or with others) make, conceive, create, discover, invent or reduce to practice any invention, modification, discovery, design, development, improvement, process, software program, work of authorship, documentation, formula, data, technique, know-how, trade secret or intellectual property right whatsoever or any interest therein (whether or not patentable or registrable under copyright, trademark or similar statutes or subject to analogous protection) (herein called "Developments") 1 that (i) relates to the business of the Company or any customer of or supplier to the Company or any of the products or services being developed, manufactured or sold by the Company or which may be used in relation therewith, (ii) results from tasks assigned me by the Company or (iii) results from the use of premises or personal property (whether tangible or intangible) owned, leased or contracted for by the Company, then: (a) such Developments and the benefits thereof are and shall immediately become the sole and absolute property of the Company and its assigns, as works made for hire or otherwise; (b) I shall promptly disclose to the Company (or any persons designated by it) each such Development; (c) as may be necessary to ensure the Company's ownership of such Developments, I hereby assign any rights (including, but not limited to, any copyrights and trademarks) I may have or acquire in the Developments and benefits and/or rights resulting therefrom to the Company and its assigns without further compensation; and (d) I shall communicate, without cost or delay, and without disclosing to others the same, all available information relating thereto (with all necessary plans and models) to the Company. 4. I will, during and after the Employment Period, at the request and cost of the Company, promptly sign, execute, make and do all such deeds, documents, acts and things as the Company and its duly authorized agents may reasonably require: (a) to apply for, obtain, register and vest in the name of the Company alone (unless the Company otherwise directs) letters patent, copyrights, trademarks or other analogous protection in any country throughout the world and when so obtained or vested to renew and restore the same; and (b) to defend any judicial, opposition or other proceedings in respect of such applications and any judicial, opposition or other proceedings or petitions or applications for revocation of such letters patent, copyright, trademark or other analogous protection. In the event the Company is unable, after reasonable effort, to secure my signature on any application for letters patent, copyright or trademark registration or other documents regarding any legal protection relating to a Development, whether because of my physical or mental incapacity or for any other reason whatsoever, I hereby irrevocably designate and appoint the Company and its duly authorized officers and agents as my agent and attorney-in-fact, to act for and in my behalf and stead to execute and file any such application or applications or other documents and to do all other lawfully permitted acts to further the prosecution and issuance of letters patent, copyright or trademark registrations or any other legal protection thereon with the same legal force and effect as if executed by me. 2 5. I agree that any breach of this Agreement by me will cause irreparable damage to the Company and that in the event of such breach the Company shall have, in addition to any and all remedies of law, the right to an injunction, specific performance or other equitable relief to prevent the violation of my obligations hereunder. I further agree and acknowledge that the post-employment non-competition provision set forth in Paragraph 1 hereof, and the remedies set forth in this paragraph, are necessary and reasonable to protect the business of the Company. 6. I understand that this Agreement does not create an obligation on the Company or any other person or entity to continue my employment. 7. No claim of mine against the Company shall serve as a defense against the Company's enforcement of any provision of this Agreement. 8. I represent that the Developments identified in the pages, if any, attached hereto as Exhibit A comprise all the unpatented and unregistered copyrightable Developments which I have made, conceived or created prior to the Employment Period, which Developments are excluded from this Agreement. I understand that it is only necessary to list the title and purpose of such Developments but not details thereof. 9. I further represent that my performance of all of the terms of this Agreement and as an employee of the Company does not and will not breach any agreement to keep in confidence proprietary information acquired by me in confidence or in trust prior to my employment by the Company. I have not entered into, and I agree I will not enter into, any agreement, either written or oral, in conflict with the terms of this Agreement. 10. Any waiver by the Company of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach of such provision or any other provision hereof. 11. I hereby agree that each provision herein shall be treated as a separate and independent clause, and the unenforceability of any one clause shall in no way impair the enforceability of any of the other clauses herein. Moreover, if one or more of the provisions contained in this Agreement shall for any reason be held to be excessively broad as to scope, activity, subject or otherwise so as to be unenforceable at law, such provision or provisions shall be construed by the appropriate judicial body by limiting or reducing it or them, so as to be enforceable to the maximum extent compatible with the applicable law as it shall then appear. 12. My obligations under this Agreement shall survive the termination of my employment regardless of the manner of such termination and shall be binding upon my heirs, executors, administrators and legal representatives. 13. The term "Company" shall include SeaChange International, Inc. and any of its subsidiaries, subdivisions or affiliates. The Company shall have the right to assign this Agreement to its successors and assigns, and all covenants and agreements hereunder shall inure to the benefit of and be enforceable by said successors or assigns. 3 14. This Agreement shall be governed by and construed in accordance with the internal laws of the Commonwealth of Massachusetts. Any claims or legal actions by one party against the other arising out of the relationship between the parties contemplated herein (whether or not arising under this Agreement) shall be governed by the laws of the Commonwealth of Massachusetts and shall be commenced and maintained in any state or federal court located in Boston, Massachusetts, and both parties hereby submit to the jurisdiction and venue of any such court. IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the ________________________, 2000. Signature ______________________________ 4 EXHIBIT D --------- February __, 2001 Comcast SC Investment, Inc. 1500 Market Street Philadelphia, PA 19102 Ladies and Gentlemen: We have acted as counsel for SeaChange International, Inc., a Delaware corporation (the "Company"), in connection with the Common Stock and Warrant Purchase Agreement dated February __, 2001 by and between you and the Company (the "Stock Purchase Agreement"). This opinion is furnished to you pursuant to and in satisfaction of Section 5.4 of the Stock Purchase Agreement. Capitalized terms used herein, unless otherwise defined herein, shall have meanings assigned to such terms in the Stock Purchase Agreement. In rendering our opinion, we have examined and relied upon originals or certified copies of the certificate of incorporation and by-laws, each as amended, of the Company, the Stock Purchase Agreement, the Warrant and the Registration Rights Agreement (the Stock Purchase Agreement, the Warrant and the Registration Rights Agreement together constitute the "Transaction Documents"), the certificate for the shares of Common Stock to be issued and delivered under the Stock Purchase Agreement, and such other documents as we have deemed necessary as a basis for the opinions hereinafter expressed. As to all matters of fact relevant to this opinion, we have assumed the completeness and accuracy of, and are relying upon, the statements set forth in certificates of public officials, officers of the Company and the representations and warranties of the Company and the other parties thereto set forth in the Transaction Documents, and have undertaken no independent verification of such facts. In our examination of the foregoing documents, we have assumed the genuineness of all signatures and the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as copies, whether certified or not, and the completeness of the corporate minute books and other record books of the Company. For purposes of this opinion, we have assumed compliance by you with all laws and regulations relating to your authority to enter into the Transaction Documents and to effect the transactions contemplated thereby, we have assumed that you have all requisite power and authority and have taken all action necessary for you to enter the Transaction Documents and to effect such transactions contemplated thereby, and we have assumed that each of the Transaction Documents has been duly authorized, executed and delivered by you, and constitutes the valid, binding and enforceable obligation of you. 1 Any reference to "our knowledge" or to matters "known to us" or "of which we have knowledge," or any variation thereof, shall mean the actual knowledge, but not including any constructive or imputed notice of any information, of attorneys in our firm who regularly perform services for the Company without any independent investigation, except for inquiry of officers of the Company. This opinion is based upon our knowledge of the law and facts as of the date hereof and assumes no event will take place in the future which would affect the opinions set forth herein. We assume no duty to communicate with you with respect to any change in law or facts which comes to our attention hereafter. Our opinion in paragraph 1 below as to due incorporation, valid existence and good standing of the Company is based solely on a certificate received from the Secretary of State of the State of Delaware, and such opinion is limited accordingly and is rendered on the date of such certificate. All opinions herein contained with respect to the enforceability of documents and instruments are qualified to the extent that: (a) the availability of equitable remedies, including without limitation, specific enforcement and injunctive relief, is subject to the discretion of the court before which any proceedings therefor may be brought; and (b) the enforceability of certain terms provided in the Transaction Documents may be limited by (i) applicable bankruptcy, reorganization, arrangement, fraudulent conveyance or transfer, insolvency, moratorium or similar laws affecting the enforcement of creditors' rights generally as at the time in effect, (ii) general principles of equity and the discretion of a court in granting equitable remedies (whether enforceability is considered in a proceeding at law or in equity), or (iii) public policy. In addition, we express no opinion as to (i) waivers or provisions relating to delay or omission of enforcement of remedies, (ii) provisions dealing with the effect of invalidity or unenforceability of any provisions of the Transaction Documents on the validity or enforceability of any other provision thereof, (iii) the effect of the rules of law governing specific performance, injunctive relief or other equitable remedies, (iv) compliance with, or non- contravention of, state securities laws, (v) provisions relating to choice of law, (vi) anti-trust laws or regulations, (vii) anti-fraud laws or regulations, or (viii) the validity or enforceability of the indemnification and contribution provisions of the Stock Purchase Agreement and the Registration Rights Agreement. Furthermore, with respect to our opinions in paragraphs 2, 3, 4 and 8 below as to the Company's obligations under the Registration Rights Agreement, we assume compliance by the Company at such time with the registration requirements of the Securities Act. Based on the foregoing, we are of the opinion that: 1. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware. 2 2. The Company has all requisite corporate power to conduct its business as it is now conducted, to execute and deliver the Transaction Documents, to consummate the transactions contemplated thereby and to perform its obligations thereunder. 3. Each of the Transaction Documents has been duly authorized, executed and delivered by the Company and constitutes a valid and binding obligation of the Company enforceable against it in accordance with its terms. 4. The execution and delivery by the Company of the Transaction Documents and the consummation by the Company of the transactions contemplated thereby do not and will not conflict with, result in a violation of or default under (with or without notice or lapse of time, or both), or give rise to a right of termination, cancellation or acceleration of any obligation or to a loss of a material benefit under (i) any provision of the Certificate of Incorporation or Bylaws of the Company, (ii) any Delaware corporate or federal law or regulation, (iii) any mortgage, indenture, lease, contract or other agreement or instrument known to us to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries, properties or assets may be bound which has been filed with the SEC, or (iv) any permit, concession, franchise, license, judgment, order, decree or ruling known to us of any court or governmental authority applicable to the Company or any of its subsidiaries, properties or assets, except (A) in the case of (iii) and (iv), to the extent the effect of any such conflict, violation, default, termination, cancellation, acceleration or loss would not, individually or in the aggregate, have a Material Adverse Effect, or impair, delay or restrict the Company's power to perform its obligations with respect to the transactions contemplated by the Transaction Documents, and (B) in the case of (ii), any filings, consents or approvals required under the HSR Act that may be required with respect to the issuance of the Warrant Shares. 5. The Shares, the Additional Shares (if any) and the Warrant Shares have been duly and validly authorized for issuance and, when issued upon payment therefor in accordance with the terms of the Stock Purchase Agreement and the Warrant, respectively, will be duly authorized, validly issued, fully paid and nonassessable. The Company has duly and validly reserved the Warrant Shares for issuance upon exercise of the Warrant. Neither the issuance, sale nor delivery of the Shares, the Additional Shares (if any), the Warrant or the Warrant Shares is subject to any statutory or, to the best of our knowledge, other preemptive right of any of the stockholders of the Company that has not been waived or complied with. 6. Except (i) as disclosed in the Filed SEC Documents and (ii) stock options issued and employee stock purchases made under the Company's stock option, stock incentive and stock purchase plans described in the Filed SEC Documents, to the best of our knowledge, (i) there is no commitment or arrangement to issue, and there are no outstanding options, warrants or other rights providing for the issuance of, any shares of capital stock of the Company, or any security or instrument that by its terms is convertible into or exercisable or exchangeable for capital stock of the Company, to any person, and (ii) no person or entity has the right to require the registration under the Securities Act of shares of Common Stock or other securities of the Company by reason of the filing or effectiveness of the Registration Statement. 3 7. To the best of our knowledge, there is no litigation, adversarial proceeding or governmental investigation pending or overtly threatened against the Company that relates to any of the transactions contemplated by the Transaction Documents. 8. Based in part on the representations of the Purchaser in Sections 4.3 through 4.8 of the Stock Purchase Agreement, no consent, approval, order or authorization of, or registration, designation, declaration or filing with, any Delaware corporate or federal governmental authority on the part of the Company is required in connection with the valid execution and delivery of the Transaction Documents or the consummation by the Company of the transactions contemplated thereby, except for (a) the Company's filing with the SEC of (i) a Form D pursuant to Regulation D promulgated by the SEC pursuant to the Securities Act, and (ii) a registration statement on Form S-1 with respect to the registration of the Shares and the Warrant Shares and (b) with respect to the issuance of the Warrant Shares, any filings, consents or approvals required under the HSR Act. We are members of the bar of the Commonwealth of Massachusetts and have not made an independent review of the laws of any state or jurisdiction other than those of the Commonwealth of Massachusetts, the federal securities laws of the United States of America, and the General Corporation Law of the State of Delaware ("DGCL"). With respect to any and all opinions rendered herein, to the extent such opinions would otherwise purport to opine on matters governed by laws other than the laws of the Commonwealth of Massachusetts, the DGCL and the federal securities laws of the United States of America, we have assumed with your consent that such laws are identical in all respects to the laws of the Commonwealth of Massachusetts. Accordingly, we express no opinion herein with respect to the laws of any state or jurisdiction other than those of the Commonwealth of Massachusetts, the federal securities laws of the United States of America, and the DGCL. For the purposes of this opinion, we have assumed that the facts and law governing the performance by the Company under the Transaction Documents will be identical to the facts and law governing such performance as of the date of this opinion. The opinions herein expressed are solely for the benefit and information of, and may be relied upon solely by you and no other person shall be entitled to rely upon the opinions herein expressed. Except with our prior written consent, the opinions herein expressed are not to be used, circulated, quoted or otherwise referred to nor are they to be filed with any governmental agency or any other person. The opinion is rendered solely for purposes of the transaction contemplated by the Stock Purchase Agreement and may not be relied upon for any other purpose. Very truly yours, TESTA, HURWITZ & THIBEAULT, LLP 4 EXHIBIT E --------- CONFIDENTIALITY AND NONDISCLOSURE AGREEMENT ------------------------------------------- AGREEMENT dated as of February __, 2001, by and between SeaChange International, Inc., a Delaware corporation, with its principal offices at 124 Acton Street, Maynard, Massachusetts 01754 (the "Company"), and Comcast SC Investment, Inc., a Delaware corporation ("Recipient"). WHEREAS, the Company is the owner and/or holder of certain confidential information (hereinafter the "Confidential Information"), identified in paragraph (1), below; and WHEREAS, the Company may be requested or required to disclose confidential information to Recipient or its affiliates pursuant to Recipient's board observer rights and due diligence rights; and WHEREAS, the Company wishes to maintain in confidence the Confidential Information and Recipient recognizes the necessity of maintaining the strictest confidence with respect to said information. In consideration of the mutual agreements and covenants herein, as well as other valuable consideration received, the parties agree as follows: 1. "Confidential Information" consists of any trade secrets or otherwise confidential information concerning the organization, products, technology, business or finances of the Company or of any third party which the Company is under an obligation to keep confidential, including but not limited to proprietary information respecting inventions, products, designs, methods, know-how, systems, processes, software programs, works of authorship, financial records and data, customer lists, projects, plans and proposals disclosed to Recipient by the Company, orally, visually or in tangible form. Confidential Information shall not include any information that Recipient can demonstrate was (a) publicly known at the time of disclosure to it, or becomes publicly known through no act of Recipient; (b) rightfully received from a third party without a duty of confidentiality known to Recipient; (c) developed by it on a completely independent basis; or (d) required to be disclosed by Recipient by law or through judicial or governmental order, in which case (d) Recipient shall promptly notify the Company and cooperate with the Company, at the Company's expense, in contesting such order or in protecting the Company's rights prior to disclosure. 2. During the period in which, and to the extent that, Recipient actually exercises its board observer rights or due diligence rights and receives Confidential Information pursuant thereto, for a period of two years from the date of disclosure, Recipient shall maintain in confidence and not disclose any Confidential Information, using the same degree of care, 1 but no less than reasonable care, as used to protect its own confidential information of like nature. 3. Recipient may use the Confidential Information only for the permitted purpose of evaluating Recipient's ownership, purchase or sale of the Company's securities or of evaluating the possibility of a further business relationship with Company (hereinafter the "Permitted Purpose"). Recipient may disclose the Confidential Information only to its employees or its other duly authorized representatives who need to know such information for the effective performance of their duties and who are contractually or otherwise bound to protect such information. 4. Confidential Information may not be reproduced, except as required for the limited Permitted Purpose outlined above. 5. Recipient agrees not to remove any proprietary rights legend from, and upon Company's reasonable request shall add such legend to, materials disclosing or embodying Confidential Information. 6. In order to assist the Company in complying with Regulation FD under the United States securities laws, Recipient acknowledges that the United States securities laws prohibit persons having access to any material, nonpublic information received from the Company from purchasing or selling the Company's publicly traded securities or from communicating any such information to any other person under circumstances in which it is reasonably foreseeable that such person is likely to purchase or sell such securities. Recipient agrees to advise its directors, officers, shareholders, employees and representatives of its advisors who receive confidential information pursuant to paragraph (3) hereof accordingly. 7. Each provision of this Agreement shall be treated as a separate and independent clause, and the enforceability of any one clause shall in no way impair the enforceability of any other clauses herein. Moreover, if one or more of the provisions herein contained shall for any reason be held excessively broad so as to be unenforceable at law, the appropriate judicial body shall construe such provision by limiting or reducing it or them, so as to be enforceable to the maximum extent compatible with the applicable law as it shall then appear. 8. Any waiver by the Company of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach of such provision or any other provision hereof. 9. This Agreement and all aspects of the relationship between the parties hereto shall be construed and enforced in accordance with and governed by the internal laws of the Commonwealth of Massachusetts without regard to its conflict of laws provisions. Any claims or legal actions by one party against the other may be commenced and maintained in any state or federal court located in Massachusetts, and both parties hereby submit to the non- exclusive jurisdiction and venue of any such court. 2 10. Notwithstanding any of the foregoing, the Company acknowledges that (a) Recipient and its affiliates engage in a wide variety of activities and have investments in many other companies, (b) it is critical to Recipient that Recipient and its affiliates be permitted to continue to develop their current and future businesses and investment activities without any restriction arising from an investment by Recipient or any of its affiliates in the Company, the right of Recipient to designate a board observer or any relationship, contractual or otherwise, between Recipient or any of its affiliates and the Company or any of its affiliates, and (c) from time to time, in connection with the foregoing activities of Recipient and its current and future affiliates (the "Activities"), Recipient and its affiliates may have information that may be useful to the Company (which information may or may not be known by any board observer designated by Recipient). The Company further acknowledges that (i) the Company does not intend or desire that the relationship of Recipient and any of its affiliates with the Company and any of its affiliates (A) interfere with or impose conditions or restrictions on any of the Activities of Recipient or any of its current or future affiliates, or (B) confer upon the Company any right to participate in any of the Activities of Recipient or any of its affiliates, and (ii) the Company intends and desires that (X) Recipient and its affiliates shall be free to engage in the Activities in any capacity, whether active or passive, without any obligation or liability to the Company or to its shareholders, including, without any limitation, any obligation to offer the Company a right to acquire, participate or have any interest of any nature whatsoever in any of such Activities, and (Y) Recipient, its affiliates and any board observer designated by Recipient shall have no duty to disclose any information known to such person to the Company; provided, however, that this paragraph (10) shall not relieve Recipient, its affiliates or any board observer designated by Recipient of its or his duty of confidentiality with respect to information pertaining to the Company. 3 IN WITNESS WHEREOF, the parties have executed this Confidentiality and Nondisclosure Agreement as of the date first above written. SEACHANGE INTERNATIONAL, INC. COMCAST SC INVESTMENT, INC. By: By: ------------------------------ ------------------------------ Title: Title: --------------------------- --------------------------- EX-10.16 5 0005.txt FIRST AMENDED & RESTATED REGISTRATION RIGHTS AGRMT EXHIBIT 10.16 FIRST AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT This FIRST AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT") is made as of this 28th day of February, 2001 between SeaChange International, Inc., a Delaware corporation (the "COMPANY"), Comcast SC Investment, Inc., a Delaware corporation (the "PURCHASER"), and Comcast Cable SC Investment, Inc., a Delaware corporation (the "PROVIDER" and, together with the Purchaser and any and all of their respective permitted assignees of the rights granted hereunder, the "HOLDERS"). WHEREAS, the Company and the Purchaser entered into that certain Common Stock and Warrant Purchase Agreement dated as of December 1, 2000 (the "INITIAL PURCHASE AGREEMENT"), pursuant to which the Company agreed to sell, and the Purchaser agreed to purchase, shares of the Company's Common Stock, $0.01 par value per share (the "COMMON STOCK"), and a warrant to purchase additional shares of Common Stock; and WHEREAS, the Company and Comcast Cable Communications, Inc., the parent corporation of the Provider, entered into that certain Video-On-Demand Purchase Agreement dated as of December 1, 2000 (the "SERVICE AGREEMENT"), pursuant to which the Provider is entitled to receive, in exchange for certain services performed thereunder and upon the satisfaction of certain thresholds set forth therein, additional warrants to purchase shares of Common Stock (the "INCENTIVE WARRANTS"); and WHEREAS, as an inducement and a condition to consummating the Initial Purchase Agreement and entering into the Service Agreement, the Company entered into that certain Registration Rights Agreement dated as of December 1, 2000 (the "INITIAL AGREEMENT"), pursuant to which the Company granted to the Purchaser and the Provider certain registration rights; and WHEREAS, the Company and the Purchaser terminated the Initial Purchase Agreement in its entirety and entered into that certain Common Stock and Warrant Purchase Agreement of even date herewith (the "NEW PURCHASE AGREEMENT"), pursuant to which the Company agreed to sell, and the Purchaser agreed to purchase, shares of Common Stock (the "SHARES"), a warrant to purchase additional shares of Common Stock (the "INVESTMENT WARRANT" and, together with the Incentive Warrants, the "WARRANTS") and, under certain circumstances and in addition to the Shares and the Investment Warrant, additional shares (the "ADDITIONAL SHARES") of Common Stock; and WHEREAS, as a condition to consummating the New Purchase Agreement, the Purchaser has required that the Company and the Provider amend and restate the Initial Agreement in its entirety as set forth in this Agreement; and WHEREAS, pursuant to Section 12(e) of the Initial Agreement, the Initial Agreement may be amended by the written consent of the Company, the Purchaser and the Provider; and 1 WHEREAS, the Company, the Purchaser and the Provider desire to amend and restate the Initial Agreement in its entirety as set forth in this Agreement, and, by entering into this Agreement, the Company, the Purchaser and the Provider hereby consent to so amending and restating the Initial Agreement in its entirety as set forth herein. NOW, THEREFORE, in consideration of the foregoing recitals, the mutual promises hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, the parties hereto agree as follows: 1. DEFINITIONS. As used in this Agreement, the following terms shall have ----------- the following respective meanings: (a) "AFFILIATE" shall mean any person directly or indirectly controlled by, controlling or under common control with another person, where the term "control," for purposes of this definition, means the power to direct the management of the person in question. (b) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. (c) "FORM S-3" shall mean such form under the Securities Act as is in effect on the date hereof or any successor registration form under the Securities Act subsequently adopted by the SEC that permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC. (d) "NASD" shall mean the National Association of Securities Dealers, Inc. (e) The term "PERSON" shall mean any individual, partnership, corporation, business trust, trust, unincorporated association, joint venture or other entity of whatever nature. (f) "REGISTRABLE SECURITIES" shall mean (i) the Additional Shares, (ii) the Common Stock issued or issuable upon exercise of the Warrants and (iii) any Common Stock issued as (or issued or issuable upon the conversion, exchange or exercise of any Rights of the Company that are issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, the Additional Shares, the Warrants or the Common Stock issued upon exercise of the Warrants. Notwithstanding the foregoing, Registrable Securities shall not include (A) the Shares and, to the extent that and for so long as they are registered for resale pursuant to the effective Registration Statement (as such term is defined in the New Purchase Agreement), the shares of Common Stock issuable upon exercise of the Investment Warrant, or (B) any other shares of Common Stock that have been sold (1) to the public pursuant to a registration statement filed under the Securities Act or in reliance on the exemption from registration provided by Rule 144 under the Securities Act or (2) in a private transaction in which the transferor's rights under this Agreement are not assigned. (g) "Registration Expenses" shall mean all expenses incurred by the Company in connection with any registration, qualification or compliance pursuant to the provisions 2 hereof, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel for the Company, blue sky fees and expenses and the expenses of any special audits incident to or required by any such registration. (h) "Rights" shall mean any options, warrants, securities, rights or other instruments convertible into or exchangeable or exercisable for, or otherwise giving the holder thereof the right to acquire, with or without consideration, directly or indirectly, any Common Stock or any other such option, warrant, security, right or instrument, including any instrument the value of which is measured by reference to the value of the Common Stock. (i) "SEC" shall mean the United States Securities and Exchange Commission. (j) "SECURITIES ACT" shall mean the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. (k) "SELLING EXPENSES" shall mean all underwriting discounts and selling commissions applicable to a sale of Registrable Securities. (l) The term "UNDERWRITER" shall have the meaning ascribed to such term in Section 2(11) of the Securities Act, including any person deemed to be an underwriter within the meaning of Section 2(11) of the Securities Act. (m) "UNDERWRITTEN DEMAND NUMBER" shall equal one (1), unless and until the Purchaser earns Incentive Warrants covering at least 250,000 shares of Common Stock (as adjusted for stock splits, stock dividends, combinations, reorganizations, reclassifications and other similar events), at which time the Underwritten Demand Number shall equal two (2). 2. REGISTRATION UNDER THE SECURITIES ACT. (a) Demand Registration. ------------------- (i) Subject to the provisions set forth in this Section 2(a)(i), at any time and from time to time, any Holder or Holders may elect, by giving written notice thereof to the Company, to require the Company to use its reasonable best efforts to register all or a portion of the Registrable Securities of such Holder or Holders (each, an "INITIATING HOLDER," and, collectively, the "INITIATING HOLDERS") under the Securities Act; provided, however, that, except with respect to a demand relating to the Additional Shares and any shares of Common Stock issuable upon exercise of the Investment Warrant that are not registered for resale pursuant to the effective Registration Statement (for which no minimum demand shall apply), the Company shall be obligated to use its best efforts to register the Registrable Securities upon such demand only if the number of Registrable Securities to be so registered is at least equal to the lesser of (A) 50,000 shares (as adjusted for stock splits, stock dividends, combinations, reorganizations, reclassifications and other similar events) or (B) such number of shares as have a total market value (or, if there is no existing public market, a proposed maximum aggregate offering price to be set forth on the facing page of the applicable registration statement) of $3 million; and provided, further, that, unless the sum of the number of Additional Shares plus the Additional Warrant Number (as such term is defined in the Investment Warrant) is equal to or greater than 3 171,229, no Holder shall be entitled to make a demand pursuant to this Section 2(a)(i) prior to July 1, 2001. Promptly following such demand, the Company shall (A) give notice to each other Holder of Registrable Securities of such demand, which notice shall set forth the identity of the Initiating Holders, and (B) use its reasonable best efforts, in accordance with the provisions of Section 3(a), to cause to be declared or become effective under the Securities Act a Form S-3 registration statement providing for the registration of, and the sale in accordance with the intended method or methods of distribution thereof by the Initiating Holders of, the Registrable Securities to be so registered. Any other Holder of Registrable Securities may elect, by giving written notice to such effect to the Company no later than ten business days after the Company shall have given the notice referred to in clause (A) of the preceding sentence, to have all or a portion of such Holder's Registrable Securities included in such registration, and such Holder shall thereby become an Initiating Holder with respect to such registration for all purposes hereunder. In the event that the Company is not then eligible to use Form S-3, the registration statement shall be filed using such form as may be available for the proposed distribution by the Initiating Holders with which it is least burdensome for the Company to comply. Subject to the limitations in Section 5 and the termination of the registration rights granted under this Agreement pursuant to Section 10, the Holders may make an unlimited number of such demands; provided, however, that (1) the Company shall be required to use its best efforts to cause to become effective no more than one registration statement in any six month period pursuant to a demand made under this Section 2(a)(i); (2) the number of instances in which the Holders shall be permitted to request that a registration of Registrable Securities demanded pursuant to this Section 2(a)(i) be underwritten shall not exceed the Underwritten Demand Number; and (3) no Holder shall be permitted to make a demand pursuant to this Section 2(a)(i) for the period beginning on the date that the Holders receive written notice from the Company pursuant to Section 2(b)(i) of its good faith intention to register any of its Common Stock under the Securities Act for purposes of an offering or sale by or on behalf of the Company of its Common Stock for its own account, and ending on the earliest of (x) the 90th day following the date on which the registration statement pertaining to such offering becomes effective, (y) the 180th day following the date on which the Holders receive such written notice from the Company stating its intention to effect such a registration or (z) the date on which the Company no longer has a good faith intention to effect such a registration (provided that the Company shall promptly notify the Holders at such time as it no longer has a good faith intention to effect such a registration). (ii) In the event of any registration of Registrable Securities pursuant to Section 2(a)(i) hereof, the Company shall not, without the prior express written consent of the Initiating Holders owning a majority of such Registrable Securities, cause or permit any other securities of the Company or of any other person (whether such securities are to be issued by the Company, are held in the Company's treasury or are then outstanding and held by other persons) to be covered by such registration statement or otherwise to be included in such registration, and, accordingly, the Company shall not grant to any other person registration rights pursuant to which such person would have the right to register securities on a registration statement filed by the Company pursuant to a demand made under Section 2(a)(i) hereof. (iii) If, in connection with a registration of Registrable Securities pursuant to Section 2(a)(i) hereof, any managing underwriter shall advise the Initiating Holders 4 in writing that, in its opinion, the inclusion in the registration statement of some or all of the Registrable Securities sought to be registered by the Initiating Holders creates a substantial risk that the price per unit that such Initiating Holders will derive from such registration will be materially and adversely affected or that the number of Registrable Securities sought to be registered is too large a number to be reasonably sold, the Company will include in such registration statement such number of Registrable Securities as the Initiating Holders are so advised can reasonably be sold in such offering, or can be sold without such an effect, allocated pro rata and without any priority as between the Initiating Holders, in proportion to the number of Registrable Securities that each Initiating Holder owns or has the right to acquire relative to the total number of Registrable Securities that all Initiating Holders own or have the right to acquire. (b) Company Registration. -------------------- (i) If, at any time (but without any obligation to do so), the Company proposes to register any of its Common Stock, Rights or other equity securities under the Securities Act on Form S-1, Form S-2 or Form S-3 (or an equivalent general registration form then in effect) for purposes of an offering or sale by or on behalf of the Company of its Common Stock, Rights or other equity securities for its own account, then each such time the Company shall, at least 20 business days prior to the time when any such registration statement is filed with the SEC, give prompt written notice to the Holders of its intention to do so. Such notice shall specify, at a minimum, the number and class of shares, Rights or other equity securities so proposed to be registered, the proposed date of filing of such registration statement, any proposed means of distribution of such shares, Rights or other equity securities, any proposed managing underwriter or underwriters of such shares, Rights or other equity securities and a good faith estimate by the Company of the proposed maximum offering price thereof, as such price is proposed to appear on the facing page of such registration statement. Upon the written direction of any Holder or Holders, given within 15 business days following the receipt by such Holder of such written notice (which direction shall specify the number of Registrable Securities intended to be disposed of by such Holder and the intended method of distribution thereof), the Company shall include in such registration statement any or all of the Registrable Securities then held by such Holder requesting such registration (a "SELLING HOLDER") to the extent necessary to permit the sale or other disposition of such number of Registrable Securities as such Selling Holder has so directed the Company to be so registered. Notwithstanding the foregoing, the Holders shall not have any right under this Section 2(b)(i) if the registration proposed to be effected by the Company (A) is initiated at the request of a person other than the Company and relates solely to the sale of Common Stock, Rights or other equity securities by such person or (B) relates solely to shares of Common Stock, Rights or other equity securities that are issuable (1) solely to officers or employees of the Company or any subsidiary thereof pursuant to a bona fide employee stock option, bonus or other employee benefit plan or (2) as direct consideration in connection with a merger, exchange offer or acquisition of a business. (ii) In the event that the Company proposes to register shares of Common Stock, Rights or other equity securities for purposes of an offering described in the first sentence of Section 2(b)(i), and any managing underwriter shall advise the Company and the Selling Holders in writing that, in its opinion, the inclusion in the registration statement of some 5 or all of the Registrable Securities sought to be registered by such Selling Holders creates a substantial risk that the price per unit the Company will derive from such registration will be materially and adversely affected or that the number of shares, Rights or securities sought to be registered (including, in addition to the securities sought to be registered by the Company, any Registrable Securities sought to be included in such registration statement by the Selling Holders) is too large a number to be reasonably sold, then the Company will include in such registration statement such number of shares, Rights or securities as the Company and such Selling Holders are so advised can be sold in such offering without such an effect (the "OFFERING MAXIMUM NUMBER"), as follows and in the following order of priority: (A) first, such number of shares, Rights or securities as the Company, in its reasonable judgment and acting in good faith and in accordance with sound financial practice, shall have determined, and (B) second, if and to the extent that the number of shares, Rights or securities to be registered under clause (A) is less than the Offering Maximum Number, Registrable Securities of each Selling Holder, allocated pro rata and without any priority as between the Selling Holders, in proportion to the number sought to be registered by each Selling Holder relative to the number sought to be registered by all the Selling Holders, that, in the aggregate, when added to the number of shares, Rights or securities to be registered under clause (A), equals the Offering Maximum Number. (iii) The Company shall have no obligation under this Section 2(b) to make any offering of its securities, or to complete an offering of its securities that it proposes to make, and shall incur no liability to the Holders for its failure to do so. (c) Withdrawals. Any Holder having notified or directed the Company ----------- to include any or all of such Holder's Registrable Securities in a registration statement pursuant to Section 2(a) or 2(b) hereof shall have the right to withdraw such notice or direction with respect to any or all of the Registrable Securities designated for registration thereby by giving written notice to such effect to the Company at least five business days prior to the anticipated effective date of such registration statement. In the event of any such withdrawal, the Company shall amend such registration statement and take such other actions as may be necessary so that such withdrawn Registrable Securities are not included in the applicable registration and not sold pursuant thereto, and such withdrawn Registrable Securities shall continue to be Registrable Securities in accordance herewith. No such withdrawal shall affect the obligations of the Company with respect to Registrable Securities not so withdrawn; provided, however, that in the case of a registration pursuant to Section 2(a) hereof, if such withdrawal shall reduce the total number of Registrable Securities to be so registered to less than the lesser of (i) 50,000 shares (as adjusted for stock splits, stock dividends, combinations, reorganizations, reclassifications and other similar events) or (ii) such number of shares as have a total market value (or, if there is no existing public market, a proposed maximum aggregate offering price to be set forth on the facing page of the applicable registration statement) of $3 million, then the Company shall, prior to the filing or effectiveness, as appropriate, of such registration statement, give each Holder of Registrable Securities so to be registered notice, referring to this Agreement, of such fact and, within ten business days following the giving of such notice, either the Company or the Holders of a majority of such Registrable Securities may, by written notice to each Holder of such Registrable Securities and the Company, as the case may be, elect that such registration statement not be filed or, if it has theretofore been filed, that it be withdrawn. During such ten business day period, the Company shall not file such registration statement or, if it has 6 theretofore been filed, shall use its reasonable best efforts not to permit it to become effective. In the event of any election contemplated by the proviso to the next preceding sentence, no registration statement with respect to Registrable Securities shall thereafter be filed with the SEC without compliance with all of the procedures set forth in Section 2(a) hereof. 3. REGISTRATION PROCEDURES. ----------------------- (a) Company Obligations. In connection with the Company's obligations ------------------- with respect to any registration of Registrable Securities pursuant to Section 2 hereof, the Company shall use its reasonable best efforts to effect or cause such registration to permit the sale of the Registrable Securities by the Holders thereof in accordance with the intended method or methods of distribution thereof described in the registration statement relating thereto and to maintain the effectiveness of such registration statement for the period from the date of effectiveness (the "EFFECTIVE DATE") of such registration statement until the date on which the disposition of all of the Registrable Securities covered by such registration statement is completed (such period, the "REGISTRATION PERIOD"). In connection therewith, the Company shall, as soon as reasonably possible: (i) prepare and file with the SEC a registration statement on Form S-3, or such other form as may be utilized by the Company and as shall permit the disposition of the Registrable Securities in accordance with the intended method or methods thereof, as specified in writing by the Holders thereof, and use its reasonable best efforts to cause such registration statement to become effective as soon as reasonably possible thereafter; (ii) (A) prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to keep such registration statement effective during the Registration Period and to comply with the provisions of the Securities Act with respect to the sale or other disposition of the Registrable Securities by the Holders, and (B) furnish to the Holders of Registrable Securities registered thereby and the underwriters, if any, thereof and the sales or placement agent, if any, therefor copies of any such supplement or amendment prior to its being used and/or filed with the SEC; (iii) comply in all material respects with the provisions of the Securities Act applicable to the Company with respect to the disposition of all of the Registrable Securities covered by such registration statement in accordance with the intended method or methods of disposition by the Holders thereof; (iv) provide (A) any Holder registering more than 10% of the Registrable Securities to be registered, (B) the underwriters, if any, thereof, (C) the sales or placement agent, if any, therefor, (D) counsel for such underwriters or agent, and (E) counsel for the Holders thereof the opportunity to participate in the preparation of such registration statement, each prospectus included therein or filed with the SEC and each supplement or amendment thereto; (v) furnish to each of the parties referred to in Section 3(a)(iv) and to each other Holder of Registrable Securities to be registered in such registration statement (A) 7 such number of copies (including manually executed and conformed copies) of such registration statement and of each amendment thereof and supplement thereto (including all annexes, appendices, schedules and exhibits), (B) such number of copies of the prospectus used in connection with such registration statement (including each preliminary prospectus, any summary prospectus and the final prospectus and including prospectus supplements), and (C) such number of copies of other documents, if any, incorporated by reference in such registration statement or prospectus, in each case as each respective party may reasonably request in order to facilitate the offering and disposition of the Registrable Securities owned by any such Holder, offered or sold by such agent, or underwritten by such underwriter, and to permit each Holder, agent and underwriter to satisfy the prospectus delivery requirements of the Securities Act; and the Company hereby consents to the use of such prospectus (including each preliminary prospectus, any summary prospectus and the final prospectus) and any amendment or supplement thereto by each Holder and by any such agent and underwriter, in each case in the form most recently provided to such party by the Company, in connection with the offering and sale of the Registrable Securities covered by the prospectus (including each preliminary prospectus, any summary prospectus and the final prospectus) or any supplement or amendment thereto; (vi) promptly notify the Holders of Registrable Securities registered thereby, the managing underwriter or underwriters, if any, thereof and the sales or placement agent, if any, therefor and, if requested by any such party, confirm such notification in writing, (A) when a prospectus or any prospectus supplement has been filed with the SEC and when the registration statement or any post-effective amendment thereto has been filed with and declared effective by the SEC, (B) of the issuance by the SEC of any stop order or the coming to its knowledge of the initiation of any proceedings for that purpose, (C) of the receipt by the Company of any notification with respect to the suspension of the qualification of any of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, (D) of the occurrence of any event that requires the making of any changes to the registration statement or related prospectus so that such documents will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (and the Company shall promptly prepare and furnish to the parties referred to in Section 3(a)(v), upon request, a reasonable number of copies of a supplemented or amended prospectus such that, as thereafter delivered to the purchasers of the Registrable Securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they are made, not misleading), and (E) of the Company's determination that the filing of a post-effective amendment to the registration statement shall be necessary or appropriate; and, upon the receipt of any notice from the Company of the occurrence of any event of the kind described in this Section 3(a)(vi)(B), (C) (but only with respect to the jurisdiction suspending qualification), (D) or (E), (1) the Holders, underwriters and agents shall forthwith discontinue any offer and disposition of the Registrable Securities pursuant to the registration statement covering such Registrable Securities and, if so directed by the Company, shall deliver to the Company all copies (other than permanent file copies) of the defective prospectus covering such Registrable Securities that are then in the Holders', underwriters' and agents' possession or control, and (2) the Company shall, as 8 promptly as practicable thereafter (subject, in the case of Section 3(a)(vi)(D), to the provisions of Section 5), take such action as shall be necessary to remedy such event to permit the Holders (and the underwriters and agents, if any) to continue to offer and dispose of the Registrable Securities, including, without limitation, preparing and filing with the SEC and furnishing to the parties referred to in Section 3(a)(v) a supplement or amendment to such prospectus so that, as thereafter deliverable to the purchasers of the Registrable Securities, such prospectus will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; (vii) use its reasonable best efforts to register or qualify the Registrable Securities covered by such registration statement under and to the extent required by such other securities or state blue sky laws of such jurisdictions as any Holder, underwriter or sales or placement agent shall request, and do any and all other acts and things that may be necessary under such securities or blue sky laws to enable the Holders, underwriters and agents to consummate the public sale or other disposition in such jurisdictions of the Registrable Securities owned by the Holders, except that the Company shall not for any such purpose be required to qualify to do business as a foreign corporation in any jurisdiction wherein it is not so qualified or submit to liability for state or local taxes where it would not otherwise be liable for such taxes; (viii) for a reasonable period prior to the filing of such registration statement, and throughout the Registration Period, make available for inspection by the parties referred to in Section 3(a)(iv), subject to execution and delivery of a confidentiality agreement in customary form in favor of the Company by the Holders seeking to exercise such inspection rights, such financial and other information and books and records of the Company, and cause the officers, directors, employees, counsel and independent certified public accountants of the Company to respond to such inquiries, as shall be reasonably necessary, in the judgment of the respective counsel referred to in Section 3(a)(iv), to conduct a reasonable investigation within the meaning of Section 11 of the Securities Act; (ix) if requested by any managing underwriter or underwriters, any placement or sales agent or any Holder, promptly incorporate in a prospectus supplement or post-effective amendment such information as is required by the applicable rules and regulations of the SEC and as such managing underwriter or underwriters, such agent or such Holder specifies should be included therein relating to the terms of the sale of such Registrable Securities, including, without limitation, information with respect to the number of Registrable Securities being sold by the Holders or agent or to any underwriters, the name and description of the Holders, agent or underwriter, the offering price of such Registrable Securities and any discount, commission or other compensation payable in respect thereof, the purchase price being paid therefor by such underwriters and with respect to any other terms of the offering of the Registrable Securities to be sold by the Holders or agent or to such underwriters; and make all required filings of such prospectus supplement or post-effective amendment promptly after notification of the matters to be incorporated in such prospectus supplement or post-effective amendment; (x) use its reasonable best efforts to obtain the consent or approval of each governmental agency or authority, whether federal, state or local, that may be required to 9 effect such registration or the offering or sale in connection therewith or to enable the Holders to offer, or to consummate the disposition of, the Registrable Securities; (xi) furnish to the Holders or the managing underwriters, if any, on a timely basis and at the Company's expense, certificates free of any restrictive legends representing ownership of the Registrable Securities being sold in such denominations and registered in such names as the Holders or managing underwriters shall request, and notify the transfer agent of the Company's securities that it may effect transfers of the Registrable Securities upon notification from each respective Holder that it has complied with this Agreement and the prospectus delivery requirements of the Securities Act; (xii) enter into one or more underwriting agreements, engagement letters, agency agreements, "best efforts" underwriting agreements or similar agreements, as appropriate, and take such other actions in connection therewith as the Holders shall reasonably request in order to expedite or facilitate the disposition of the Registrable Securities so registered; (xiii) (A) make such representations and warranties to the Holders and the placement or sales agent, if any, therefor and the underwriters, if any, thereof in form, substance and scope as are customarily made in connection with an underwritten or a non-underwritten offering, as the case may be, of common stock or other equity securities pursuant to any appropriate agreement and/or to a registration statement filed on the form applicable to such registration; (B) if any portion of the offering contemplated by the registration statement is an underwritten offering, use its reasonable best efforts to obtain an opinion of counsel to the Company in customary form and covering such matters, of the type customarily covered by such an opinion, as the managing underwriters, if any, and as the Holders may reasonably request, addressed to the Holders and the placement or sales agent, if any, therefor and the underwriters, if any, thereof, and dated the Effective Date (and if such registration statement contemplates an underwritten offering of a part or all of the Registrable Securities, dated the date of the closing under the underwriting agreement relating thereto); (C) if any portion of the offering contemplated by the registration statement is an underwritten offering, use its reasonable best efforts to obtain a "comfort" letter or letters from the independent certified public accountants of the Company addressed to the Holders and the placement or sales agent, if any, therefor and the underwriters, if any, thereof, dated (1) the Effective Date, (2) the effective date of each prospectus supplement, if any, to the prospectus included in such registration statement or post-effective amendment to such registration statement that includes unaudited or audited financial statements as of a date or for a period subsequent to that of the latest such statements included in such prospectus and (3) if such registration statement contemplates an underwritten offering pursuant to any prospectus supplement to the prospectus included in such registration statement or post- effective amendment to such registration statement that includes unaudited or audited financial statements as of a date or for a period subsequent to that of the latest such statements included in such prospectus, dated the date of the closing under the underwriting agreement relating thereto, such letter or letters to be in customary form and covering such matters of the type customarily covered by letters of such type; (D) deliver such documents and certificates, including officers' certificates, as may be reasonably requested by the Holders and the placement or sales agent, if any, therefor and the managing underwriters, if any, thereof to evidence the accuracy of the representations and warranties made pursuant to clause (A) of this Section 10 3(a)(xiii) and the compliance with or satisfaction of any agreements or conditions contained in the underwriting agreement or other agreement entered into by the Company; and (E) undertake such obligations relating to expense reimbursement, indemnification and contribution as are provided in Section 6 hereof; (xiv) in the event that (A) any broker-dealer registered under the Exchange Act shall underwrite any Registrable Securities or participate as a member of an underwriting syndicate or selling group or "assist in the distribution" (within the meaning of the Rules of Fair Practice and the By-Laws of the NASD) thereof, whether as a Holder of Registrable Securities or as an underwriter, a placement or sales agent or a broker or dealer in respect thereof, or otherwise, or (B) more than 10% of the net offering proceeds, not including underwriting compensation, of such distribution is intended to be paid to any such broker-dealer or "associated or affiliated persons" of such broker- dealer or "members of the immediate family of such persons" (each within the meaning of such Rules), the Company shall take reasonable steps to assist such broker-dealer in complying with the requirements of such Rules and By-Laws, including, without limitation, by (1) if such Rules or By-Laws shall so require, engaging a "qualified independent underwriter" (as defined in such Schedule) to participate in the preparation of the registration statement relating to such Registrable Securities, to exercise usual standards of due diligence in respect thereto and, if any portion of the offering contemplated by such registration statement is an underwritten offering or is made through a placement or sales agent, to recommend the price of such Registrable Securities, (2) indemnifying any such qualified independent underwriter to the extent of the indemnification of underwriters provided in Section 6 hereof, and (3) providing such information to such broker-dealer as may be required in order for such broker-dealer to comply with the requirements of the Rules of Fair Practice of the NASD; (xv) comply with all applicable rules and regulations of the SEC, and make generally available to its securityholders, as soon as practicable but in any event not later than 18 months after the Effective Date, an earning statement of the Company and its subsidiaries complying with Section 11(a) of the Securities Act (including, at the option of the Company, Rule 158 thereunder); and (xvi) use its reasonable best efforts to list prior to the Effective Date, subject to notice of issuance, the Registrable Securities covered by such registration statement, to the extent they are not already so listed, on the Nasdaq National Market System or such other securities exchange or quotation system on which the Common Stock is then listed or quoted. (b) Holders' Obligations. (i) It shall be a condition precedent to the Company's obligations under Section 2 hereof that each of the Holders of Registrable Securities included in any registration hereunder furnish to the Company in writing such information regarding that Holder and the distribution of the Registrable Securities proposed by that Holder as the Company may reasonably request to complete or amend the information required by the registration statement to be filed by the Company pursuant to Section 3(a). 11 (ii) The Holders of Registrable Securities included in any registration hereunder shall, and shall cause the underwriters, if any, thereof and the sales or placement agents, if any, therefor to, (A) offer to sell or otherwise distribute the Registrable Securities in reliance upon a registration contemplated by this Agreement only after a registration statement shall have been filed with the SEC, (B) sell or otherwise distribute the Registrable Securities in reliance upon such registration only if a registration statement is then effective under the Securities Act, (C) comply with the provisions of Section 3(a)(vi)(1) hereof, (D) distribute the Registrable Securities only in accordance with the manner of distribution contemplated by the prospectus and (E) report to the Company distributions made by the Holders, the underwriters or the agents of Registrable Securities pursuant to the prospectus. (iii) The Holders of Registrable Securities included in any registration hereunder, and the underwriters, if any, thereof and the sales or placement agents, if any, therefor, shall not, during the Registration Period, (A) effect any stabilization transactions or engage in any stabilization activity in connection with the Common Stock or other equity securities of the Company in contravention of Regulation M under the Exchange Act, or (B) permit any "Affiliated Purchaser" (as that term is defined in Regulation M under the Exchange Act) to bid for or purchase for any account in which any such Holder has a beneficial interest, or attempt to induce any other Person to purchase, any shares of Common Stock or other equity securities in contravention of Regulation M under the Exchange Act. 4. REGISTRATION EXPENSES. The Company shall bear and pay or cause to be --------------------- paid promptly upon request being made therefor all Registration Expenses. The Holders of the Registrable Securities so registered shall bear and pay or cause to be paid promptly upon request being made therefor all Selling Expenses, allocated pro rata on the basis of the number of Registered Securities so registered by each Holder. 5. INFORMATION BLACKOUT. -------------------- (a) In the event that, following any demand pursuant to Section 2(a)(i) hereof but prior to the filing of a registration statement in respect of such demand, (i) the Company, after consultation with outside counsel, determines reasonably and in good faith that the sale of Registrable Securities pursuant to a registration statement filed hereunder would require disclosure of non-public material information, the disclosure of which at such time could reasonably be expected to have a material adverse effect on the business or affairs of the Company or a material adverse effect on any proposal or plan by the Company or any of its subsidiaries to engage in any extraordinary engagement or activity by the Company, including, without limitation, any material acquisition of assets or any merger, consolidation, tender offer or similar transaction, and (ii) the Company gives the Initiating Holders written notice of such determination (which notice shall include a copy of the resolutions of the Board of Directors of the Company reflecting such determination), the Company shall, notwithstanding the provisions of Section 2(a)(i) hereof, be entitled to postpone for up to 45 days the filing of any registration statement otherwise required to be prepared and filed by it pursuant to Section 2(a)(i) hereof (the number of days of any such postponement is hereinafter called a "REGISTRATION POSTPONEMENT PERIOD"). 12 (b) At any time when a registration statement covering Registrable Securities is effective, upon written notice from the Company to the Holders of Registrable Securities included in such registration statement, and the underwriters, if any, thereof and the sales or placement agents, if any, therefor, that the Company, after consultation with outside counsel, has determined reasonably and in good faith that the sale of Registrable Securities pursuant to the registration statement would require disclosure of non-public material information, the disclosure of which at such time could reasonably be expected to have a material adverse effect on the business or affairs of the Company or a material adverse effect on any proposal or plan by the Company or any of its subsidiaries to engage in any extraordinary engagement or activity by the Company, including, without limitation, any material acquisition of assets or any merger, consolidation, tender offer or similar transaction, such Holders, underwriters and agents shall suspend sales of the Registrable Securities pursuant to the registration statement until the earlier of (i) 45 days after the Company notifies the Holders, underwriters and agents of such good faith determination, or (ii) such time as the Company notifies the Holders, underwriters and agents that such material information has been disclosed to the public or has ceased to be material or that sales pursuant to the registration statement may otherwise be resumed (the number of days from such suspension of sales by the Holders until the day when such sales may be resumed hereunder is hereinafter called a "SALES BLACKOUT PERIOD"). (c) No Registration Postponement Period or Sales Blackout Period shall be commenced by the Company within 90 days after the end of a Registration Postponement Period or Sales Blackout Period, and the Company shall not be permitted to commence more than two Registration Postponement Periods or Sales Blackout Periods, collectively, in any 12 month period. (d) No Registration Postponement Period or Sales Blackout Period shall preclude any sales of Registrable Securities that the Holder thereof may effect in compliance with Rule 144; provided that the Holder otherwise conforms with the requirements under the Securities Act and the Exchange Act. 6. INDEMNIFICATION. --------------- (a) Indemnification by the Company. Upon the registration of any ------------------------------ Registrable Securities pursuant to Section 2 hereof, the Company shall indemnify and hold harmless the Holders, their respective officers, directors, members and partners, and each person, if any, who controls any of the foregoing within the meaning of the Securities Act ("HOLDER INDEMNITEES"), from and against any and all claims, liabilities, losses, damages, expenses and judgments, joint or several, to which they or any of them may become subject, including any amount paid in settlement of any litigation commenced or threatened, and shall promptly reimburse them, as and when incurred, for any legal or other expenses incurred by them in connection with investigating any claims and defending any actions, insofar as such losses, claims, damages, liabilities or actions shall arise out of, or shall be based upon, any violation or alleged violation by the Company of the Securities Act, any blue sky laws or securities laws of any state or county in which the Registrable Securities are offered, and relating to action taken or action or inaction required of the Company in connection with such offering, or shall arise out of, or shall be based upon, any untrue statement or alleged untrue statement of a material fact contained in the registration statement (or in any preliminary or final prospectus included therein) relating to the 13 offering and sale of the Registrable Securities, or any amendment thereof or supplement thereto, or in any document incorporated by reference therein, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, the Company shall not be liable to any Holder Indemnitee in any such case to the extent that any such loss, claim, damage, liability or action arises out of, or is based upon, any untrue statement or alleged untrue statement, or any omission or alleged omission, if such statement or omission shall have been (i) made in reliance upon and in conformity with information furnished to the Company in writing by or on behalf of any Holder Indemnitee for inclusion in such registration statement (or in any preliminary or final prospectus included therein), or any amendment thereof or supplement thereto, or (ii) made in any preliminary prospectus and the final prospectus shall have corrected such statement or omission and a copy of such final prospectus shall have been delivered to the Holder Indemnitee prior to the time such final prospectus is required to be delivered by such Holder Indemnitee under applicable law. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Holder Indemnitee and shall survive the transfer of such securities. The foregoing indemnity agreement is in addition to any liability that the Company may otherwise have to any Holder Indemnitee. (b) Indemnification by the Holder and Any Underwriters. The Company -------------------------------------------------- may require, as a condition to including any Registrable Securities in any registration statement filed pursuant to Section 2 hereof and to entering into any underwriting agreement with respect thereto, that the Company shall have received an undertaking from the Holder thereof and from each underwriter named in such underwriting agreement, severally and not jointly, to indemnify and hold harmless the Company and all other Holders, if any, of Registrable Securities selling under the same registration statement, their respective officers and directors and each person, if any, who controls any of the foregoing within the meaning of the Securities Act (the "COMPANY INDEMNITEES"), from and against any and all claims, liabilities, losses, damages, expenses and judgments, joint or several, to which they or any of them may become subject, including any amount paid in settlement of any litigation commenced or threatened, and shall promptly reimburse them, as and when incurred, for any legal or other expenses incurred by them in connection with investigating any claims and defending any actions, insofar as any such losses, claims, damages, liabilities or actions shall arise out of, or shall be based upon, any violation or alleged violation by the Holder or underwriters of the Securities Act, any blue sky laws or securities laws of any state or country in which the Registrable Securities are offered and relating to action taken or action or inaction required of the Holder or underwriters in connection with such offering, or shall arise out of, or shall be based upon, any untrue statement or alleged untrue statement of a material fact contained in such registration statement (or in any preliminary or final prospectus included therein) relating to the offering and sale of the Registrable Securities or any amendment thereof or supplement thereto, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, but in each case (i) only to the extent that such untrue statement is contained in, or such fact is omitted from, information furnished to the Company in writing by or on behalf of the Holder for inclusion in the registration statement (or in any preliminary or final prospectus included therein), and (ii) if such statement or omission is incorporated by the Company in any preliminary prospectus, only to the 14 extent that such statement or omission shall not have been corrected in writing by or on behalf of the Holder prior to the time the final prospectus is required to be delivered by the Company under applicable law. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of any Company Indemnitee. The foregoing indemnity is in addition to any liability that the Holder and underwriters may otherwise have to any Company Indemnitee. (c) Indemnification Procedures. In case any proceeding (including any -------------------------- governmental investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to this Section 6, such person (the "INDEMNIFIED PARTY") shall promptly notify the person against whom such indemnity may be sought (the "INDEMNIFYING PARTY") in writing. No indemnification provided for in subsection (a) or (b) shall be available to any person who shall fail to give notice as provided in this subsection (c) if the indemnifying party to whom notice was not given was unaware of the proceeding to which such notice would have related and was materially prejudiced by the failure to give such notice, but the failure to give such notice shall not relieve the indemnifying party or parties from any liability that it or they may have to the indemnified party for indemnification pursuant to subsection (a) or (b) to the extent it was not materially prejudiced. In case any such proceeding shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party and shall pay as incurred the fees and disbursements of such counsel related to such proceeding. In any such proceeding, any indemnified party shall have the right to retain its own counsel at its own expense. Notwithstanding the foregoing, the indemnifying party shall pay as incurred the fees and expenses of the counsel retained by the indemnified party in the event (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel, (ii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel, in the written opinion of such counsel, would be inappropriate due to actual or potential differing interests between them, or (iii) the indemnifying party does not promptly defend the indemnified party. The indemnifying party shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees and expenses of more than one separate firm for all such indemnified parties (in addition to local counsel if required). Such firm shall be designated in writing by the Holder in the case of Holder Indemnitees and by the Company in the case of Company Indemnitees. The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent (which consent shall not be unreasonably withheld) but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party shall indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. The obligations of the Company and the Holders and underwriters under this Section 6 shall survive the completion of any offering of Registrable Securities pursuant to a registration effected pursuant to Section 2 hereof. (d) Limitations on Indemnity. ------------ 15 (i) The indemnity provided for hereunder shall not inure to the benefit of any indemnified party to the extent that the claim is based on such indemnified party's failure to comply with the applicable prospectus delivery requirements of the Securities Act as then applicable to the person asserting the loss, claim, damage or liability for which indemnity is sought. (ii) In no event shall the liability of any Holder or underwriter under this Section 6, whether for indemnification or contribution, exceed the net proceeds received by the Holder or underwriter from the sale of Registrable Securities pursuant to the registration effected pursuant to Section 2 hereof. (e) Contribution. If the indemnification provided for in this Section ------------ 6 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any claims, liabilities, losses, damages, expenses or judgments referred to herein, the indemnifying party, in lieu of indemnifying such indemnified party thereunder, shall to the extent permitted by applicable law contribute to the amount paid or payable by such indemnified party as a result of such claim, liability, loss, damage, expense or judgment in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the circumstances that resulted in such claim, liability, loss, damage, expense or judgment, as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by a court of law by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 6 were determined by pro rata allocation or any other method of allocation that does not take into account the equitable consideration referred to in this paragraph (e). 7. UNDERWRITTEN OFFERINGS. ---------------------- (a) Demand Registration. If any of the Registrable Securities covered ------------------- by any registration statement filed pursuant to Section 2(a) hereof are to be sold pursuant to an underwritten offering, the managing underwriter or underwriters thereof shall be designated by the Initiating Holders, provided that such designated managing underwriter or underwriters is or are reasonably acceptable to the Company. (b) Company Registration. If any of the Registrable Securities -------------------- covered by any registration statement filed pursuant to Section 2(b) hereof are to be sold pursuant to an underwritten offering, the managing underwriter or underwriters thereof shall be designated by the Company, and no Holder of Registrable Securities so to be offered shall be entitled to participate therein unless such Holder agrees to sell its Registrable Securities pursuant to the terms of the underwriting arrangement as agreed upon between the Company and the designated managing underwriter or underwriters, and to complete and execute all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangement. 16 8. RULE 144. With a view to making available to the Holders the benefits -------- of Rule 144 and any other rule or regulation of the SEC that may at any time permit the Holders to sell securities of the Company to the public without registration, in addition to the foregoing provisions of this Agreement, the Company shall, from and after the filing with the SEC of the April 10-Q (as such term is defined in the New Purchase Agreement): (a) make and keep adequate current public information with respect to the Company available, as those terms are understood and defined in Rule 144; (b) use its best efforts to file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and (c) furnish to each Holder upon written request (A) a written statement by the Company as to whether it has complied with the reporting requirements of Rule 144, the Securities Act and the Exchange Act, (B) a copy of the most recent annual or quarterly report of the Company, and (C) such other reports and documents of the Company as such Holder may reasonably request and as is publicly available to enable such Holder to avail itself of any rule or regulation of the SEC that permits the selling of any such securities without registration. 9. ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company to --------------------------------- use its best efforts to register Registrable Securities pursuant to Section 2 hereof may be assigned by a Holder to a transferee or assignee of Registrable Securities (or Rights or other securities upon the conversion, exchange or exercise of which Registrable Securities are issuable) to a transferee or assignee of Registrable Securities (or Rights or other securities upon the conversion, exchange or exercise of which Registrable Securities are issuable) that (a) is an Affiliate of such Holder, (b) is a member of such Holder's family or is a trust for the benefit of such Holder or a member of such Holder's family, or (c) acquires at least 25,000 shares (as adjusted for stock splits, stock dividends, combinations, reorganizations, reclassifications and other similar events) of Registrable Securities (or Rights or other securities upon the conversion, exchange or exercise of which Registrable Securities are issuable); provided, however, that (i) the transferor furnishes to the Company, within ten business days after such transfer, written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned and such other information as the Company may reasonably request and (ii) the transferee agrees in writing to be subject to all restrictions set forth in this Agreement. 10. TERMINATION OF REGISTRATION RIGHTS. A Holder's registration rights ---------------------------------- provided hereunder with respect to any Registrable Securities shall terminate upon the earlier of (a) the second anniversary of the date on which the shares of Common Stock that are the subject of such Registrable Securities are actually issued to such Holder, or (b) the date on which all Registrable Securities issued or issuable to such Holder on the basis of a cash exercise price may be sold in accordance with the provisions of Rule 144(k) under the Securities Act. 11. NO INCONSISTENT AGREEMENTS. The Company shall not (a) grant -------------------------- registration rights with respect to any shares of Common Stock, Rights or other equity securities that would be inconsistent with the terms contained in this Agreement, or (b) enter into or become bound by, or permit any subsidiary of the Company to enter into or become bound by, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument that would prohibit, be 17 violated by, conflict with or provide that a default would arise from, the compliance by the Company with any of the provisions of this Agreement or the consummation of the transactions herein contemplated, except for any such prohibitions, violations, conflicts or defaults that, individually and in the aggregate, would not have a material adverse effect on the business, financial condition, results of operations or prospects of the Company and its subsidiaries taken as a whole and would not impair, delay or restrict the exercise by the Holders of their rights hereunder. The Company represents and warrants that it is not currently a party to any agreement with respect to any of its equity or debt securities granting any registration rights to any person, other than those agreements set forth on Schedule 1 hereto. 12. MISCELLANEOUS. ------------- (a) Governing Law. This Agreement shall be governed in all respects ------------- by the internal laws of the State of Delaware as applied to contracts entered into solely between residents of, and to be performed entirely within, such state, and without reference to principles of conflicts of laws or choice of laws. (b) Specific Enforcement; Venue. The parties hereto acknowledge and --------------------------- agree that each would be irreparably damaged if any of the provisions of this Agreement are not performed by the other in accordance with their specific terms or are otherwise breached. It is accordingly agreed that each party shall be entitled to seek an injunction or injunctions to prevent breaches of this Agreement by the other and to enforce this Agreement and the terms and provisions hereof specifically against the other, in addition to any other remedy to which such aggrieved party may be entitled at law or in equity. Any action or proceeding seeking to enforce any provision of, or based on any rights arising out of, this Agreement may be brought against any of the parties in the courts of the State of Delaware, County of New Castle, or in the United States District Court for the District of Delaware, and each of the parties consents to the jurisdiction of such courts (and of the appropriate appellate courts) in any such action or proceeding and waives any objection to venue laid therein. Process in any action or proceeding referred to in the preceding sentence may be served on any party anywhere in the world. (c) Survival. The respective indemnitees, agreements, -------- representations, warranties and each other provision set forth in this Agreement or made pursuant hereto shall survive delivery of and payment for the Shares, Additional Shares (if any) and Investment Warrant pursuant to the New Purchase Agreement, the delivery of the Incentive Warrants pursuant to the Service Agreement, the delivery of the shares of Common Stock issuable upon exercise of the Warrants and the transfer and registration of Registrable Securities by any Holder. (d) Successors and Assigns. The rights and obligations set forth ---------------------- herein may not be assigned or delegated by the Company or the Holders without the prior written consent of the other, except that the Holders may assign, in whole or in part, its rights and delegate its obligations hereunder in accordance with the provisions of Section 9 hereof without obtaining the prior written consent of the Company. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. (e) Entire Agreement; Amendment. Except as expressly provided to the --------------------------- contrary in any separate agreement, this Agreement constitutes the full and entire understanding and 18 agreement between the parties with regard to the subject matter hereof, and supersedes all prior agreements and understandings among the parties relating to the subject matter hereof (including, without limitation, the Initial Agreement). Neither this Agreement nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the party against whom enforcement of any such amendment, waiver, discharge or termination is sought. (f) Notices. All notices, requests, demands or other communications ------- that are required or may be given pursuant to the terms of this Agreement shall be in writing and shall be deemed to have been duly given: (A) on the date of delivery if personally delivered by hand, (B) upon the third day after such notice is (1) deposited in the United States mail, if mailed by registered or certified mail, postage prepaid, return receipt requested, or (2) sent by a nationally recognized overnight express courier, or (C) by facsimile upon written confirmation (other than the automatic confirmation that is received from the recipient's facsimile machine) of receipt by the recipient of such notice: (i) if to the Company, to it at: SeaChange International, Inc. 124 Acton Street Maynard, MA 01754 Facsimile Number: (978) 897-9590 Attention: William L. Fiedler with a copy to: William B. Simmons, Jr., Esq. Testa, Hurwitz & Thibeault, LLP 125 High Street Boston, MA 02110 Facsimile Number: (617) 248-7100 (ii) if to the Purchaser, to it at: c/o Comcast Corporation 1500 Market Street Philadelphia, PA 19102-2148 Attention: Arthur Block Facsimile Number: (215) 981-7794 with a copy to: Howard A. Blum, Esq. Drinker Biddle & Reath LLP One Logan Square 18th and Cherry Streets Philadelphia, PA 19103-6996 Facsimile Number: (215) 988-2757 19 (iii) if to any other Holder, to it at such address as is provided to the Company in the written notice described in Section 9(i); or to such other address or facsimile number as any party may have furnished to the others in writing in accordance herewith, except that notices of change of address or facsimile number shall be effective only upon receipt. (g) Delays or Omissions. No delay or omission to exercise any right, ------------------- power or remedy accruing to any person hereunder shall impair any such right, power or remedy nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring, nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any person hereunder of any breach or default under this Agreement, or any waiver on the part of any such person of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies either under this Agreement or by law or otherwise shall be cumulative and not alternative. (h) Severability. If any term, provision, covenant or restriction of ------------ this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restriction of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. (i) Counterparts. This Agreement may be executed in two or more ------------ partially or fully executed counterparts and by facsimile signatures, each of which shall be deemed an original and shall bind the signatory, but all of which together shall constitute but one and the same instrument. The execution and delivery of the signature page to this Agreement by any party hereto who shall have been furnished the final form of this Agreement shall constitute the execution and delivery of this Agreement by such party. (j) Further Assurances. Each of the Company and the Holders shall use ------------------ its reasonable efforts at any time and from time to time to execute and deliver to the other such further documents and instruments and to take all such further actions as the other may reasonably request in order to consummate the transactions contemplated hereby. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 20 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective authorized officers as of the date first above written. SEACHANGE INTERNATIONAL, INC. By: /s/ William L. Fiedler ------------------------------ Name: William L. Fiedler ---------------------------- Title: Vice President --------------------------- COMCAST SC INVESTMENT, INC. By: /s/ Rosemarie S. Teta ------------------------------ Name: Rosemarie S. Teta ---------------------------- Title: Vice President --------------------------- COMCAST CABLE SC INVESTMENT, INC. By: /s/ Rosemarie S. Teta ------------------------------ Name: Rosemarie S. Teta ---------------------------- Title: Vice President --------------------------- [SIGNATURE PAGE TO FIRST AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT] SCHEDULE I ---------- 1. Registration Rights Agreement, dated as of May 23, 2000, by and between SeaChange International, Inc. and Microsoft Corporation 2. Registration Rights Agreement, dated as of December 30, 1999, by and among SeaChange International, Inc., Corum Group Ltd. and the former shareholders of Digital Video Arts, Ltd., as set forth on the signature pages thereto 3. Registration Rights Agreement, dated as of December 10, 1997, by and among SeaChange International, Inc. and the former shareholders of IPC Interactive Pte. Ltd., as set forth on the signature pages thereto EX-23.1 6 0006.txt CONSENT OF PRICEWATERHOUSECOOPERS Exhibit 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in this Registration Statement on Form S-1 of our reports dated January 31, 2000 relating to the financial statements and financial statement schedule of SeaChange International, Inc., which appear in such Registration Statement. We also consent to the references to us under the heading "Experts" in such Registration Statement. /s/ PricewaterhouseCoopers LLP Boston, Massachusetts February 28, 2001 -----END PRIVACY-ENHANCED MESSAGE-----