-----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, HDdCFIKXmRrCwCzQy6KRiB3qvHzm7HuCGdgKj7qtUu/XXMwPM0oZjq0gVatBoOm+ CJW+2AaIMIFocZkkYI1UNg== 0001012870-00-000232.txt : 20000203 0001012870-00-000232.hdr.sgml : 20000203 ACCESSION NUMBER: 0001012870-00-000232 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 20 FILED AS OF DATE: 20000126 FILER: COMPANY DATA: COMPANY CONFORMED NAME: REPLAYTV INC CENTRAL INDEX KEY: 0001103772 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 770465127 STATE OF INCORPORATION: CA FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-95425 FILM NUMBER: 513652 BUSINESS ADDRESS: STREET 1: 1945 CHARLESTON ROAD CITY: MOUNTAIN VIEW STATE: CA ZIP: 94043 BUSINESS PHONE: 6502101020 S-1 1 FORM S-1 As filed with the Securities and Exchange Commission on January 26, 2000 Registration No. 333- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------- FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------- REPLAYTV, INC. (Exact Name of Registrant as Specified in Its Charter) ---------------
Delaware 4841 77-0465127 (State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Incorporation or Organization) Classification Code Number) Identification Number)
1945 Charleston Road Mountain View, CA 94043-1201 (650) 210-1000 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) --------------- Earle H. "Kim" LeMasters, III Chairman and Chief Executive Officer ReplayTV, Inc. 1945 Charleston Road Mountain View, CA 94043-1201 (650) 210-1000 (Name, Address Including Zip Code, and Telephone Number Including Area Code, of Agent for Service) --------------- Copies to: Mark A. Medearis Richard J. Sandler Laura A. Donald DAVIS POLK & WARDWELL Kristen A. Lamb 450 Lexington Avenue Scott S. Ring New York, NY 10017 VENTURE LAW GROUP (212) 450-4000 A Professional Corporation 2800 Sand Hill Road Menlo Park, CA 94025 (650) 854-4488
--------------- Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. --------------- If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [_] If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] --------------- CALCULATION OF REGISTRATION FEE - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Title Of Each Class Of Securities To Be Registered Proposed Maximum Aggregate Offering Price(1) Amount Of Registration Fee - --------------------------------------------------------------------------------------------------------------------------- Common Stock, par value $0.001.................... $150,000,000 $39,600 - --------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(a) and Rule 457(o) under the Securities Act. The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +The information in this prospectus is not complete and may be changed. We may + +not sell these securities until the registration statement filed with the + +Securities and Exchange Commission is effective. This prospectus is not an + +offer to sell these securities and we are not soliciting offers to buy these + +securities in any state where the offer or sale is not permitted. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ PROSPECTUS (Subject to Completion) Issued January 26, 2000 Shares [ReplayTV logo] COMMON STOCK ----------- We are offering shares of our common stock. This is our initial public offering and no public market exists for our shares. We anticipate that the initial public offering price will be between $ and $ per share. ----------- We have applied to list our common stock on the Nasdaq National Market under the trading symbol "RPLY." ----------- Investing in our common stock involves risks. See "Risk Factors" beginning on page 10. ----------- PRICE $ A SHARE -----------
Price to Underwriting Discounts Proceeds to Public and Commissions ReplayTV -------- ---------------------- ----------- Per Share............... $ $ $ Total................... $ $ $
We have granted the underwriters the right to purchase up to an additional shares of common stock to cover over-allotments. The Securities and Exchange Commission and state securities regulators have not approved or disapproved these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. Morgan Stanley & Co. Incorporated expects to deliver the shares to purchasers on , 2000. ----------- MORGAN STANLEY DEAN WITTER BEAR, STEARNS & CO. INC. CHASE H&Q DEUTSCHE BANC ALEX. BROWN WASSERSTEIN PERELLA SECURITIES, INC. , 2000 [INSIDE FRONT COVER] [COLOR ARTWORK] TABLE OF CONTENTS
Page ---- Special Note About Forward-Looking Statements ........................... 4 Prospectus Summary ...................................................... 5 Risk Factors ............................................................ 10 Use of Proceeds ......................................................... 22 Dividend Policy ......................................................... 22 Capitalization .......................................................... 23 Dilution ................................................................ 24 Selected Financial Data ................................................. 25 Management's Discussion and Analysis of Financial Condition and Results of Operations .......................................................... 26 Business ................................................................ 32 Management .............................................................. 47 Related Party Transactions .............................................. 57 Principal Stockholders .................................................. 60 Description of Capital Stock ............................................ 62 Shares Eligible for Future Sale ......................................... 65 Underwriters ............................................................ 67 Legal Matters ........................................................... 69 Experts ................................................................. 69 Additional Information Available to You ................................. 69 Index to Financial Statements............................................ F-1
You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from the information contained in this prospectus. We are offering to sell, and seeking offers to buy, the common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of when this prospectus is delivered or when any sale of our common stock occurs. Until , 2000, all dealers that buy, sell or trade shares of common stock, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS We have made forward-looking statements in this prospectus, including the section entitled "Management's Discussion and Analysis of Financial Condition and Result of Operations," that are based on our management's beliefs and assumptions and on information currently available to our management. Forward- looking statements include the information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, potential growth opportunities, benefits resulting from this offering and the effects of competition. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words "believes," "expects," "anticipates," "intends," "plans," "estimates" or similar expressions. Forward-looking statements involve risks, uncertainties and assumptions. Actual results may differ materially from those expressed in these forward- looking statements. You should not put undue reliance on any forward-looking statements. We do not have any intention or obligation to update forward- looking statements after we distribute this prospectus. You should understand that many important factors, in addition to those discussed elsewhere in this prospectus, could cause our results to differ materially from those expressed in forward-looking statements. These factors include our competitive environment, economic and other conditions in the markets in which we operate, consumer and retailer preferences, alternative technological advances, prices and supplies of components and cyclical and seasonal fluctuations in our operating results. 4 PROSPECTUS SUMMARY This summary highlights selected information in this prospectus, but it may not contain all of the information that is important to you. To better understand this offering, and for a more complete description of this offering, you should read this entire prospectus carefully, including the "Risk Factors" section and the financial statements and the notes to those statements, which are included elsewhere in this prospectus. References in this prospectus to "we," "our," "us" and the "Company" refer to ReplayTV, Inc. Information contained in our web site, located at www.replaytv.com, does not constitute part of this prospectus. REPLAYTV ReplayTV empowers television viewers to watch what they want when they want. We have developed the ReplayTV Service as a living room portal through which viewers can easily access, navigate, control and store television programming. We believe the ReplayTV Service will transform the way consumers access television programming, advertising and, ultimately, commerce services. We believe our portal creates a new, more effective medium for advertisers, content providers and cable and satellite system operators to target consumers. Based on ReplayTV-sponsored survey data, viewers using the ReplayTV Service watch and record more hours of television per week and find television viewing more appealing than before using the ReplayTV Service. We believe this is because the ReplayTV Service gives viewers greater choice and more control over their television viewing. The ReplayTV Service is currently delivered through a personal video recorder, or PVR, designed and developed by us. The PVR is a device connected to a television that employs a hard disk drive, software and other technology to digitally record and access content. Through ReplayTV's combination of proprietary software, hardware and media relationships, viewers personalize their television viewing. The ReplayTV Service allows viewers to set up personal channels that automatically record their favorite shows. Programs can then be replayed "on demand," with no tapes to search or rewind. Viewers can also search for programs based on a theme, a specific hobby or a favorite actor or director. ReplayTV-enabled PVRs operate with existing broadcast, cable and satellite infrastructures. In the future, we expect that our PVR technology will be incorporated into other television-related consumer electronics devices that will provide access to the ReplayTV Service. Our goal is to build a major media company that benefits viewers, content providers, advertisers and cable and satellite system operators. . Benefits to Viewers. Just as consumers have achieved enhanced freedom and control over their lives through automated teller machines, cellular phones, the Internet and 24-hour grocery stores, we believe television viewers want greater freedom and control with respect to their television viewing. The ReplayTV Service provides this freedom and control by enabling viewers to: watch what they want when they want; never miss their favorite shows; locate, capture and record the best in television from thousands of weekly programming choices; control live TV; and enjoy personal television services with no monthly fees. . Benefits to Content Providers. The ReplayTV Service allows content providers to reach an audience that may not have watched particular shows due to constraints including conflicts between broadcast times and their own personal schedules. ReplayTV-sponsored surveys indicate that viewers using the ReplayTV Service watch an average of about 2.5 more hours and record an average of about seven more hours of television each week than before they began using the ReplayTV Service. The ReplayTV Service also enables television programmers and broadcasters to pro-actively compile and promote their content, thereby creating an opportunity for greater audience growth, loyalty, recognition and measurement. In addition, the ReplayTV Service is being developed to facilitate an entirely new paradigm for delivering programming, products and services to viewers. ReplayTV anticipates that viewers will be able to simply 5 "point and click" when ordering merchandise, movies, sports events, programming packages, games and other products and services. . Benefits to Advertisers. We believe that our ReplayTV Service provides advertisers a more effective way to deliver information to consumers, a more efficient way to spend advertising budgets and a better way to target audiences and identify, monitor and respond to consumers' programming and purchasing preferences. The ReplayTV Service will enable advertisers to more effectively target consumers who have actively selected specific programs to watch and therefore are more likely to watch an entire show. Advertisers will also be able to target advertising to viewers who have created theme-based ReplayTV channels based on a specific topic, such as "tennis." ReplayTV's basic PVR architecture can support a wide range of additional innovative advertising services. For example, advertisers may be able to purchase new advertising spots on recorded shows with the use of lead-in and lead-out advertisements. . Benefits to Cable and Satellite System Operators. The ReplayTV Service enables cable and satellite system operators to enhance the attractiveness of their existing and anticipated services to consumers. We believe this will enable cable and satellite system operators to increase acceptance of new service offerings and improve growth prospects of existing lines of business. Key benefits offered to cable and satellite system operators include: opportunities to reduce churn and grow subscriber bases; enhanced appeal of premium offerings; enhanced appeal of pay-per-view offerings; and a platform for new services for better capacity utilization. We intend to establish our proprietary ReplayTV Service as the leading living room portal to enrich personal television viewing, advertising and television commerce. We anticipate that, as a media company, the majority of our revenues will be generated from the sale of advertising on the ReplayTV Service. We also anticipate recognizing revenue from media sponsorships, premium and near video-on-demand services and e-commerce via television, or TV- commerce. Our strategy includes the following key elements that leverage the benefits of the ReplayTV Service: . Enhance the living room experience by establishing the ReplayTV Service as a portal to access personal television; . Aggressively drive rapid market penetration through our manufacturing and distribution relationships; . Leverage the strength of our existing media relationships to deliver and promote content; . Create new and innovative advertising opportunities; and . Develop enhanced services. We plan to leverage our media relationships to expand our advertising and sponsorship opportunities, offer unique programming content, differentiate the ReplayTV Service and enhance the ReplayTV brand. We are pursuing strategic relationships with television programmers, advertising agencies and other potential media partners. For example, we are creating theme-based or branded content areas called ReplayZones with NBC, Showtime and Turner. Our existing equity investors include leading media companies such as Disney, Liberty Media, NBC, Showtime, Time Warner and Tribune. We announced our ReplayTV Service in January 1999 and began shipment of our PVRs in April 1999. We intend to commence full-scale retail distribution through leading consumer electronics companies this year and are pursuing strategic manufacturing and distribution relationships to accelerate the market penetration of ReplayTV-enabled products and rapidly grow our installed base of viewers. For example, we have entered into an agreement with Matsushita- Kotobuki Electronics Industries, Ltd., or MKE, a subsidiary of Matsushita 6 Electric Industrial Co., Ltd., the largest manufacturer of VCRs sold in North America. MKE will initially market and sell PVRs under the Panasonic brand featuring the ReplayTV logo. The retail launch with MKE is expected to occur in mid-2000, and MKE is working to develop new consumer electronics devices that incorporate ReplayTV technology. We are also in discussions with a number of other consumer electronics companies, cable and satellite system operators and manufacturers of cable and satellite set-top boxes regarding the manufacture, marketing and distribution of ReplayTV-enabled products. For example, we have entered into a non-binding letter of intent with EchoStar Communications Corporation to incorporate the ReplayTV Service into its DISH Network satellite set-top boxes and a non-binding letter of intent with Sharp for the manufacture and distribution of ReplayTV-enabled PVRs. Our existing equity investors include leading manufacturing and multi-channel distribution companies such as EchoStar, MKE, Sharp and Time Warner. We intend to leverage these manufacturing and distribution relationships to accelerate our market penetration and rapidly grow our installed base of viewers. We believe that relying on MKE and others in the future to manufacture, market and sell ReplayTV-enabled products will allow us to focus our creative resources on promoting and enhancing the ReplayTV Service. ---------------- We were incorporated in California in August 1997 and changed our name to Replay Networks, Inc. in June 1998. We changed our name to ReplayTV, Inc. in January 2000 and intend to reincorporate in Delaware prior to the completion of this offering. Our principal executive offices are located at 1945 Charleston Road, Mountain View, California 94043. Our telephone number at that location is (650) 210-1000. 7 THE OFFERING Common stock offered................................ shares Common stock to be outstanding after this offering.. shares Use of proceeds..................................... We intend to use the net proceeds of this offering for working capital and general corporate purposes, including: advertising to promote the ReplayTV Service and the ReplayTV brand; subsidies related to the manufacture of ReplayTV- enabled products; product development; and expansion of our sales, marketing and service capabilities. See "Use of Proceeds." Proposed Nasdaq National Market symbol.............. RPLY
The number of shares of common stock to be outstanding after this offering is estimated based on the number of shares outstanding on December 31, 1999 on a pro forma basis to reflect the issuance of 5,627,267shares of Series F preferred stock in January 2000 and the automatic conversion of all shares of preferred stock, including the shares of Series F preferred stock issued in January 2000, outstanding as of the date of this prospectus into shares of common stock. It excludes 18,218,561 shares subject to outstanding options or reserved for future grants or purchases pursuant to our stock option and purchase plans and 6,666 shares of common stock subject to an outstanding warrant. See "Management--Stock Plans" and "Description of Capital Stock." Except as otherwise indicated, information in this prospectus is based on the following assumptions: . The conversion of all outstanding shares of preferred stock, including the shares of Series F preferred stock issued in January 2000, into shares of common stock on a one-for-one basis upon the closing of this offering; . No exercise of the underwriters' over-allotment option; . Our reincorporation into Delaware at or before the closing of this offering; and . The filing of our amended and restated certificate of incorporation upon the closing of this offering. 8 SUMMARY FINANCIAL INFORMATION The following table sets forth a summary of our statement of operations data for the periods presented. Please see "Use of Proceeds," "Capitalization" and note 1 to our financial statements for the determination of the number of shares used in computing actual and pro forma basic and diluted net loss per share. The statement of operations data does not give effect to the issuance of 5,627,267 shares of Series F preferred stock in January 2000 or the issuance of shares in this offering.
Period from Nine Months Period from August 27, 1997 Ended September August 27, 1997 (Inception) Year Ended 30, (Inception) to December 31, December 31, ----------------- to September 30, 1997 1998 1998 1999 1999 --------------- ------------ ------- -------- ---------------- (in thousands, except per share data) Statement of Operations Data: Total costs and expenses............... $ 155 $ 3,256 $ 1,555 $ 20,459 $ 23,870 Interest income (expense), net......... -- (28) (4) 342 314 Net loss................ (155) (3,284) (1,559) (20,117) (23,556) Basic and diluted net loss per share......... $(0.08) $ (0.48) $ (0.23) $ (2.73) $ (3.35) Basic and diluted weighted average shares used in computation of net loss per share..... 2,026 6,889 6,880 7,359 7,037 Pro forma basic and diluted net loss per share.................. $(0.29) $ (0.84) Pro forma basic and diluted weighted average shares......... 11,282 23,953
The following table summarizes our balance sheet data as of September 30, 1999: . on an actual basis; . on a pro forma basis to reflect the issuance of 5,627,267 shares of Series F preferred stock in January 2000 and the automatic conversion of 31,368,852 shares of preferred stock, including the shares of Series F preferred stock issued in January 2000, outstanding as of the date of this prospectus into 31,368,852 shares of common stock; and . on a pro forma basis as further adjusted to reflect the sale of shares of common stock in this offering at an assumed initial public offering price of $ per share after deducting estimated underwriting discounts and commissions and estimated offering expenses.
As of September 30, 1999 ----------------------------- Pro Forma Actual Pro Forma As Adjusted ------- --------- ----------- (in thousands) Balance Sheet Data: Cash, cash equivalents and short-term investments.................................... $49,840 $111,240 $ Working capital................................. 46,038 107,438 Total assets.................................... 53,406 114,806 Total stockholders' equity...................... 47,999 109,399
9 RISK FACTORS This offering involves a high degree of risk. You should carefully consider the risks and uncertainties described below and the other information in this prospectus before deciding whether to invest in shares of our common stock. If any of the following risks actually materialize, our business, financial condition or operating results could be materially adversely affected. This could cause the trading price of our common stock to decline, and you may lose part or all of your investment. Risks Related to Our Business We have recognized no operating revenues, and we will need to build an installed base and enhance the features of our ReplayTV Service before we can generate significant advertising revenues or achieve profitability. As a media company, we will need to generate our revenues primarily from sales of advertising and other media services. To date, we have recognized no operating revenues, have incurred significant losses and have had substantial negative cash flow, and we may never achieve profitability. As of September 30, 1999, we had an accumulated deficit of $23.6 million. We expect to incur significant operating expenses over the next several years in connection with the continued development and expansion of our business, including substantial expenses related to advertising and subsidies to encourage purchases of ReplayTV-enabled products. Although we have received limited proceeds from shipments of our personal video recorders, these proceeds are considered incidental to our business and therefore are not recognized as revenues. We do not expect to generate significant revenues from advertising or other services in 2000, and we may not be able to generate significant revenues thereafter. As a result, we expect to continue to incur significant losses and negative cash flow for the foreseeable future. With increased expenses, we will need to generate significant revenues to achieve profitability. Consequently, we may never achieve profitability, and even if we do, we may not sustain or increase profitability on a quarterly or annual basis in the future. We cannot be sure that the ReplayTV Service will generate a broad enough viewer base to sustain our business. Personal television services are a new and untested media format. The ReplayTV Service is in an early stage of development, and many viewers, retailers and potential media, advertising, consumer electronics and distribution partners are not aware of its benefits. As a result, it is uncertain whether the market will accept and demand the ReplayTV Service and ReplayTV-enabled products. We believe that establishing the ReplayTV brand is critical to attracting and retaining viewers and to enabling us to develop key strategic relationships and advertising revenue opportunities. Our ability to promote broad acceptance of the ReplayTV Service depends upon: . successful marketing and distribution of ReplayTV-enabled products; . continued development of new ReplayTV services and ReplayTV-enabled products; and . high quality customer support. In addition, the introduction of new consumer electronics products is often characterized by high rates of return following a product roll-out, as the result of either product defects or lack of customer satisfaction with the product category. ReplayTV-enabled products have been and in the future may be subject to high return rates, which would impair our ability to establish broad consumer acceptance of the ReplayTV Service. 10 If our retail launch is not successful, viewers and consumer electronics manufacturers, distributors and other potential partners may not accept the ReplayTV Service and ReplayTV-enabled products. To date, we have generated shipments of ReplayTV-enabled personal video recorders only through our web site, our 1-877-ReplayTV toll-free telephone number and a limited number of online retailers. As of December 31, 1999, we had shipped about 6,000 ReplayTV-enabled personal video recorders. Our success depends on, among other things, our ability to expand our distribution through relationships with consumer electronics companies and distributors. We plan to begin our full-scale retail launch in mid-2000 with Matsushita-Kotobuki Electronics Industries, Ltd., or MKE, a subsidiary of Matsushita Electric Industrial Co., Ltd., which will market, sell and distribute ReplayTV-enabled personal video recorders under the Panasonic brand featuring the ReplayTV logo. The launch requires, among other things, that: . we educate consumers on the benefits of the ReplayTV Service and ReplayTV-enabled personal video recorder, which will require an extensive marketing campaign; . MKE enter into distribution and promotional arrangements with major national and regional retail chains; . we commit a substantial amount of human and financial resources to achieve successful retail distribution; and . we coordinate our own sales, marketing and support activities with those of MKE and other distributors and retailers. We or our strategic partners may not achieve any or all of these objectives. In addition, the launch may be delayed, consumers may perceive the ReplayTV- enabled personal video recorder as too expensive or complex or the ReplayTV Service as not sufficiently appealing, and our marketing campaign may not effectively attract new viewers. Additionally, since we will rely on MKE and other distributors and retailers to assist us with sales, marketing and support activities, the success of the marketing process is not entirely within our control. We do not control the time and resources that these third parties devote to our business, and we cannot be sure that these parties will perform as expected. Any of these events may reduce consumer demand and market acceptance, diminish our brand and impair our ability to attract and retain viewers of the ReplayTV Service. We have established only a limited number of strategic relationships with media partners, and we must rely on strategic relationships to enhance the ReplayTV Service. To be successful, we must establish and maintain strategic relationships with leaders in the television media industry, including advertisers, television programmers and broadcast companies. To date, we have established only a limited number of strategic relationships with media partners, and these relationships are in the early stages of development. We cannot be certain that relationships with other media partners will be available to us in the future or on terms favorable to us. These relationships are critical to our success, and our failure to establish and maintain these relationships would: . limit the acceptance and use of the ReplayTV Service; . impair our ability to obtain rights to content; . impair our ability to deploy certain forms of advertising; . impair our ability to generate revenues from multiple sources; and . impair our ability to further enhance the ReplayTV brand. Entering into strategic relationships is complicated because some of our current and future media partners may decide to compete with us or to enter into relationships with our competitors. For example, some of our current and potential partners currently have relationships with our primary competitors in the market for personal television services. In addition, we may not be able to establish relationships with key participants in 11 the media industry if we have established relationships with competitors of these key participants. Moreover, many potential partners may resist working with us unless and until the ReplayTV Service and ReplayTV-enabled personal video recorder have been introduced on a larger scale and have achieved market acceptance. In order to induce media companies to partner with us, we may have to share substantial portions of our revenues with them or provide other incentives to them, which could limit our ability to achieve profitability or result in dilution to existing investors. If we fail to establish additional relationships with media partners, or if our media partners fail to actively pursue additional business relationships with us, we would not be able to execute our business plan and our business would suffer significantly. We need to create multiple revenue streams. Our future growth and long-term success are dependent upon our ability to generate multiple revenue streams. Our business model is particularly dependent upon generating revenues from advertisers, who may not readily adopt the personal television medium. We compete with traditional advertising media such as print, radio and television for a share of advertisers' total advertising budgets. If advertisers do not perceive personal television as an effective advertising medium or are otherwise opposed to personal television, they may be reluctant to devote a significant portion of their advertising and marketing budgets to promotions on the ReplayTV Service. Our long-term success will also depend in part upon securing multiple revenue streams in addition to advertising, including premium subscription and personalized pay-per-view services such as near video-on-demand, sponsorships from content providers and other media partners and television-commerce. We will need to work closely with media partners, cable and satellite system operators, electronic commerce companies and consumer electronics manufacturers to develop services in these areas. We may not be able to effectively work with these parties to develop services that are sufficient to justify their costs. In addition, to attract and retain viewers and generate revenues from advertising and other sources, we must continue to add capabilities to the ReplayTV Service and introduce services that embody new technologies and, in some instances, new industry standards. For example, version 2.0 of the ReplayTV Service software, to be offered in conjunction with our full-scale retail launch, provides advertising and sponsorship capabilities solely on theme-based or branded content areas called ReplayZones. In order to generate significant advertising revenues, we need to expand the capabilities of the ReplayTV Service to permit full-motion video advertisements on multiple viewer interfaces. We must also expand the capabilities of the ReplayTV Service to permit premium subscription services, near video-on-demand and television- commerce, none of which are currently available in version 2.0 of the ReplayTV Service software. These features will not be available until the release of future versions of the ReplayTV Service software. If we are unable to add these features to the ReplayTV Service, or if we delay the introduction of these capabilities, our ability to attract and retain viewers and generate revenues will suffer. Furthermore, early versions of ReplayTV-enabled products may not be capable of accommodating new services and capabilities we introduce in the future. For example, early versions of ReplayTV-enabled products may not have sufficient memory to handle software upgrades required to provide full-motion video advertisements and near video-on-demand capabilities. If early versions of ReplayTV-enabled products cannot be upgraded to support new services we introduce, our ability to generate revenues from these new services will suffer. We rely on third parties to manufacture, distribute and market our products. We currently rely on a single third party contract manufacturer, Flextronics International, to manufacture ReplayTV-enabled personal video recorders. We have entered into an agreement with MKE to manufacture and distribute ReplayTV-enabled products, and we intend to enter into similar relationships with other consumer electronics companies in the future. In addition, we will rely significantly on our relationship with MKE to 12 establish our retail distribution channel. We will rely on MKE's sales force, marketing budget and brand image to promote and support ReplayTV-enabled products and the ReplayTV Service, both before and after our full-scale retail launch. We currently anticipate that MKE will begin distributing ReplayTV- enabled personal video recorders, manufactured by Flextronics, under the Panasonic brand featuring the ReplayTV logo, in mid-2000. We do not control the time and resources that third party manufacturers and distributors devote to our business, and we cannot ensure that these parties will perform as expected. The use of equipment manufacturers, particularly the transition to new equipment manufacturers, subjects us to the risk of delays and unforeseen problems such as defects, shortages of critical components and cost overruns. In addition, we expect that these manufacturers will require substantial lead times to manufacture sufficient quantities of ReplayTV- enabled personal video recorders to satisfy demand. Any delays or unforeseen problems could impair our full-scale retail launch and brand image and make it difficult for us to attract and retain viewers. Furthermore, since our relationships with some of these manufacturers are not based on exclusive agreements, they may also support services that compete with us or offer similar or greater support to our competitors. In addition, MKE may terminate our agreements with them upon written notice to us. The loss of Flextronics, MKE or any of our other manufacturers or distributors would require us to identify and contract with alternative sources of manufacturing and distribution, which may not be available to us when needed or on acceptable terms. This outcome could harm our ability to compete effectively and achieve market acceptance and brand recognition. We are dependent on single suppliers for several key components and services. If these suppliers fail to provide us with the products necessary to manufacture our products and provide our services, we may be unable to find alternative suppliers or deliver our services or ReplayTV-enabled products to our customers on time. We currently rely on sole suppliers for a number of the key components and services used in ReplayTV-enabled personal video recorders. For example: . Philips is the sole supplier of a number of semiconductors used in the ReplayTV-enabled personal video recorder; . Sony is the sole supplier of our MPEG2 encoder semiconductor device; . Tribune is the sole supplier of program guide data; and . Universal Electronics, Inc. is the sole supplier of our universal remote controls and cable set-top box compatibility codes. Philips, Sony and Tribune each have relationships with TiVo Inc., one of our primary competitors in the market for personal television services. We cannot be sure that these and other key components and services used in ReplayTV-enabled personal video recorders will be available from these suppliers when needed or, if available, that these components and services will be available on favorable terms. In addition, we rely on the quality of the products supplied to us and the program guide data and cable set-top box compatibility information supplied to us. The number of alternative suppliers available for these products and services may be very limited. If we or other manufacturers of ReplayTV-enabled personal video recorders were unable to obtain sufficient quantities of these components or accurate program guide data, the search for and/or transition to alternate suppliers could result in extensive delays, added expense or disruption in services or product availability. In addition, we could have to re-engineer the ReplayTV-enabled personal video recorder in order to incorporate alternative products or services, which could render our products and services unavailable for extended periods. We have agreed to subsidize the cost of our personal video recorders, and we may be unable to generate enough revenues to cover these subsidies and other obligations. We have agreed to subsidize the cost of our personal video recorders to maintain attractive retail prices for ReplayTV-enabled products and to encourage the manufacture of ReplayTV-enabled personal television products. For example, we have agreed to subsidize MKE and expect to subsidize other equipment manufacturers 13 in the future. We expect these subsidies to be one of our largest expense items for the foreseeable future. If our competitors lower the retail price of their products, we may have to increase the amount of our subsidies. Our decision to subsidize the manufacturing cost of ReplayTV-enabled products is based upon our belief that increasing our installed base as rapidly as possible will help us obtain viewers, broaden market acceptance for personal television and increase our future revenues. If these expectations are not met, we may be unable to generate sufficient revenues to cover our expenses and other obligations. Intellectual property claims against us could be costly and could result in the loss of significant rights. We have been contacted by various parties that have asserted that our personal television service violates patents, copyrights or other rights of such parties. If any of these parties, or other parties that may assert similar claims in the future, were to successfully litigate these claims against us, the outcome of the litigation could: . prevent us from manufacturing or licensing products or providing the ReplayTV Service; . cause the cancellation of new services; . cause delays in product delivery and new service introduction; and . require us to pay significant royalties or licensing fees. In addition, litigation of these claims, whether or not they are successful, could divert management's attention and resources away from our business and otherwise be time-consuming and expensive. The television industry is highly litigious, particularly in the area of electronic program guides. Many patents relating to interactive television technologies have been granted. For example, we are aware of patents relating to pausing live television, electronic program guides, recording video on hard-disk drives, viewer profiling and video compression, among others. In some cases, we have been contacted by patent owners offering us the opportunity to license their patents. Some of these patent owners have alleged that ReplayTV is infringing their patents. In each case, we have evaluated the patents to determine whether a license is necessary or desirable. Despite our conclusion to date that no licenses are required, we cannot provide any assurance that the respective patent owners would agree with our decision or that they will not further pursue the matter by making a claim of infringement against us. We may be subject to claims of infringement and may be required to seek patent licenses from third parties. A number of companies in the television industry earn substantial profits from technology licensing, and the introduction of new technologies such as ours is likely to provoke claims and/or lawsuits from such companies. A successful claim of infringement against us could result in a finding of significant monetary damages against us. In addition, if we are unable to obtain an acceptable license from the holder of the patent or other right or design around an asserted patent or other right, we might have to cease manufacturing or licensing the ReplayTV- enabled personal video recorder or providing the ReplayTV Service, or both, which would eliminate our ability to generate revenues. On January 18, 2000, a subsidiary of Gemstar International Group, Inc. sued TiVo, Inc., one of our competitors, for allegedly infringing a patent related to recording of television programming. This action seeks an injunction and damages. We cannot assure you that Gemstar will not bring a similar action against us in the future. If Gemstar were to bring such an action and be successful, it could materially adversely impact our business. We and TiVo have been sued by PhoneTel Communications, Inc. for allegedly infringing a patent related to specifying an order for playback of recorded television programs. In addition, we are aware that some media companies may attempt to form organizations to develop standards and practices in the personal television industry. These organizations or individual media companies may attempt to require companies in the personal television industry to obtain copyright or other licenses for the use of the companies' programming. A number of articles have appeared in the press recently regarding the formation of a consortium of broadcast and cable television networks called the Advanced Television Copyright Coalition. Some of those articles have indicated that the coalition is prepared to support litigation and to explore legislative solutions unless the providers of personal television services and products agree to obtain license agreements for the use of the companies' programming. We have received letters and oral indications from a 14 number of content providers, including Fox Television, Universal Studios and The Walt Disney Company, asserting their belief that our business activities will require approvals and licenses from these content providers. In addition, under our Network Service Agreement with Turner Broadcasting Systems, Inc., Turner reserved the right to assert any claims or rights against us. We are also aware of similar indications from other content providers. Lawsuits or other actions taken by these types of organizations or companies could make it more difficult or impossible for us to introduce new services, delay widespread consumer acceptance of our services, restrict our use of some television content, increase our costs and materially adversely affect our business. We face intense competition from a number of sources, which may impair our ability to generate viewers and future revenues. The market for personal television services is new and evolving rapidly, and we are unable to predict the future of the market. We expect competition from a number of sources. We are likely to face intense direct competition from companies such as TiVo Inc. and WebTV Networks Inc. These companies offer, or have announced their intention to offer, products with one or more of the ReplayTV Service's functions or features and, in some instances, combine these features with Internet browsing, interactive capabilities or traditional broadcast, cable or satellite television programming. Many of these companies have greater brand recognition and market presence, a significantly larger installed base and substantially greater financial, marketing and distribution resources than we do. For example, Microsoft Corporation owns and provides financial backing to WebTV. Some of these companies also have established relationships with third party consumer electronics manufacturers, satellite and cable operators, television programmers, Internet service providers and others, which could make it harder for us to compete with them and may make it difficult for us to establish relationships and enter into agreements with these third parties. For example, TiVo has manufacturing relationships with several consumer electronics manufacturers and a distribution relationship with DirecTV, Inc. TiVo also recently announced an agreement with Blockbuster Inc. to cross-market products and services. In addition, TiVo and Liberate Technologies recently announced an agreement to bundle Liberate's interactive television platform with TiVo's service and market it to network operators, as well as to deliver personal video recorder capabilities in connection with a new interactive television service to be offered by America Online, Inc. under the brand name AOL TV. Some of these competitors also have relationships with our strategic partners, and a number of media partners that have invested in ReplayTV have also invested in our competitors. WebTV has a distribution relationship with EchoStar Communications Corporation, the operator of the DISH Network. In addition, General Instrument Corporation and Charter Communications, Inc. recently announced an agreement to manufacture and distribute set-top boxes that provide personal video recorder capabilities. Faced with this competition, we may be unable to expand our market share and attract an increasing number of viewers to the ReplayTV Service. Furthermore, we and our manufacturing partners also compete with consumer electronics companies that may incorporate competing personal television capabilities into future generations of their consumer electronics products. We compete with consumer electronics products in the television and home entertainment industry. The television and home entertainment industry is characterized by rapid technological innovation, a small number of dominant manufacturers and intense price competition. As a new product category, personal television enters a market that is crowded with several established services. The competition for consumer spending in the television and home entertainment market is intense, and our services may compete with: . VCRs and DVD players and recorders; . video-on-demand services; . interactive television services; and . personal computers. Many of these technologies, services or devices have an established market, a broad viewer base and proven consumer acceptance. In addition, many of the manufacturers and distributors of these competing technologies, services and devices have substantially greater brand recognition, market presence, financial resources, distribution channels, advertising and marketing budgets and promotional and other strategic partners than we 15 do. Faced with this competition, we may be unable to effectively differentiate the ReplayTV-enabled personal video recorder or the ReplayTV Service from these technologies, services or devices. The cost of ReplayTV-enabled personal video recorders will also impact consumer choices in the home entertainment market, and many of the alternative home entertainment devices and services may be purchased by consumers at lower prices than a ReplayTV-enabled personal video recorder. Further, cable and satellite services are already a large expense item for many households, and consumers may be unwilling to make the additional expenditure required to purchase a ReplayTV-enabled personal video recorder to complement these services. In addition, since our Internet service provider's access numbers require long distance calls for a portion of television households in the United States, some potential ReplayTV viewers may have to pay recurring long distance charges to connect to the ReplayTV Service network, which could impact our ability to market ReplayTV-enabled personal video recorders in these markets. We may also compete with new and evolving forms of delivery of video programs to viewers' homes. For example, a number of companies are developing video-on-demand products and services, which would use broadband delivery systems to feed video as demanded by viewers in real time. In addition, as broadband delivery systems become more prevalent, it is possible that more and more programs may be available for ordering, over the Internet or otherwise, which may lessen the importance of broadcast television and weaken the appeal of the ReplayTV Service. If these companies are successful in developing these services, their products and services may be more appealing to viewers than ours. The market for personal television services is evolving rapidly, and we or our strategic partners may not be able to adequately address this market. Because of the early stage of the personal television industry, the life cycle of our services is difficult to estimate. We or our strategic partners may not be able to develop and introduce new services and enhancements that respond to technological changes, evolving industry standards or consumer preferences on a timely basis, or at all, in which case our business would suffer. In addition, we cannot predict the rate of adoption by consumers of our services and products which enable our service, or the price they will be willing to pay for these services and products. As a result, it is extremely difficult to predict our future prices for these services and the future size, growth rate and profitability of this market. We must integrate the ReplayTV Service with the products and services provided by cable and satellite system operators. We intend to enter into relationships for the distribution of the ReplayTV Service with cable and satellite system operators and/or with the manufacturers of set-top boxes that enable cable and satellite services. We cannot be certain that these parties will be willing to enter into agreements with us to directly integrate the ReplayTV Service into set-top boxes or that we will be able to negotiate agreements on terms favorable to us. Historically, cable and satellite system operators have been hesitant to implement new services. In addition, cable and satellite system operators and the manufacturers of cable and satellite receivers may choose to develop their own services in competition with us or to enter into relationships with our competitors. For example, General Instrument Corporation and Charter Communications, Inc. recently announced an agreement to manufacture and distribute set-top boxes that provide personal video recorder features. If we fail to establish distribution relationships with cable and satellite system operators or the manufacturers of set-top boxes, we may not be able to execute our business plan, and our business could suffer significantly. We must also work with cable and satellite system operators to ensure that the ReplayTV Service and ReplayTV-enabled products are compatible with their products and services. If a viewer using a ReplayTV-enabled personal video recorder receives a cable or broadcast signal through a separate set-top box 16 rather than a receiver integrated with the ReplayTV Service, then the viewer must input a number corresponding to the set-top box to enable the ReplayTV- enabled personal video recorder to work with the particular set-top box. There are hundreds of models of cable and satellite set-top boxes, with new designs coming to market on a regular basis and, consequently, hundreds of corresponding numbers. If we are unable to update these numbers in a timely manner and adequately ensure that the ReplayTV Service is compatible with our viewers' cable and satellite systems, we may not be able to attract and retain viewers and our reputation may be harmed. If we lose key management personnel, we may not be able to successfully operate our business. Our future performance will be substantially dependent on the continued services of our senior management and other key personnel. The loss of any members of our executive management team and our inability to hire additional executive management could harm our business and results of operations. In addition, we do not have term employment agreements with, or key man insurance policies for, any of our key personnel. We have recently hired several senior executive officers. Any inability by these individuals to execute our business strategy and manage our growth could harm our ability to generate revenues and achieve profitability. Several members of our executive management team were hired in 1999, including our Chief Executive Officer; Executive Vice President, ReplayTV Service; Executive Vice President, Finance and Chief Financial Officer; Executive Vice President, Sales and Marketing; and Executive Vice President, Business Operations. These individuals have not previously worked together nor with the other members of our management team and, therefore, may require time to adequately familiarize themselves with the nature of our business and operations and each other. We cannot assure you that these individuals will be able to successfully work together or manage any growth we may experience. The process of integrating these individuals into our management team may detract from the operation of our business. Failure to manage our growth could disrupt our business and impair our ability to generate revenues. Since we began our business in August 1997, we have significantly expanded our operations. We anticipate continued expansion in our headcount, facilities and infrastructure to support potential growth in our viewer base and to allow us to pursue market opportunities. This expansion has placed, and will continue to place, a significant strain on our management, operational and financial resources and systems. Specific risks we face as our business expands include: . We may not be able to fulfill orders for ReplayTV-enabled products as demand for the ReplayTV Service grows. We do not have experience in manufacturing a large volume of ReplayTV-enabled products and may not be able to accurately forecast and respond to consumer demand for our products and services. . We may be unable to successfully attract, integrate or retain sufficiently qualified personnel. Competition for employees is intense in the San Francisco Bay Area where we are based, especially for engineers and personnel with the relevant and necessary media and television experience. . We must continually improve our systems to accommodate the growth of our viewer base and add new features to the ReplayTV Service. The ability of our systems to scale as we add new viewers and capabilities is unproven. Our inability to accommodate additional viewers or to upgrade our technology, systems or network infrastructure could adversely affect our business, cause interruptions in the ReplayTV Service or delay the introduction of new services. . We will need to provide acceptable customer support. If we or our distribution partners are unable to adequately support ReplayTV Service viewers, our brand and our ability to generate and retain new viewers will be harmed. . We will need to improve our operational and financial systems to support our expected growth, and any inability to do so will adversely impact our business. 17 Seasonal trends in consumer and advertiser spending behavior may cause our operating results to fluctuate in any period. Our business model anticipates that a majority of our future revenues will come from targeted commercials and other forms of television advertising enabled by the ReplayTV Service. Expenditures by advertisers tend to be seasonal and cyclical, reflecting overall economic conditions as well as budgeting and buying patterns. A decline in the economic prospects of advertisers or the economy in general could alter current or prospective advertisers' spending priorities or increase the time it takes to close a sale with our advertisers, which could cause our revenues from advertisements to decline significantly in any given period. In addition, we are subject to seasonality in consumer electronics product sales, which have traditionally been much higher during the holiday shopping season (occurring in the fourth quarter) than during other times of the year. Although predicting consumer demand for our products will be very difficult, we believe that sales of ReplayTV-enabled personal video recorders and attraction of new viewers to the ReplayTV Service will be disproportionately high during the holiday shopping season when compared to other times of the year. Because we expect to subsidize the purchase price of ReplayTV-enabled personal video recorders, we will incur greater costs and expenses when more ReplayTV-enabled personal video recorders are sold. If we are unable to raise additional capital on acceptable terms, our ability to effectively manage growth and build a strong brand could be harmed. We expect that our existing capital resources, combined with the net proceeds of this offering, will be sufficient to meet our cash requirements through the next 12 months. We may be required to raise additional capital sooner if consumer acceptance of the ReplayTV Service occurs more rapidly than we expect or if we have to increase our subsidies earlier than we anticipate to meet competitive retail pricing. In order to continue to grow our business, we will have to raise additional capital, which may not be available on acceptable terms. If we cannot raise necessary additional capital on acceptable terms, we may not be able to develop or enhance our services, take advantage of future opportunities or respond to competitive pressures or unanticipated requirements. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our operations or future opportunities. Risks Related to our Service and Technology System failures, interruptions to the ReplayTV Service or product defects may have a negative impact on our revenues, damage our reputation and decrease our ability to attract new viewers. Our ability to provide high quality products, service and customer support is critical to our success because consumers of television-related products are not accustomed to, and may not accept, interruptions in their television service. Our ability to provide this service and support depends on the efficient and uninterrupted operation of our computer and communications systems. Substantially all of the computer and networking hardware systems that form the backbone of the ReplayTV Service are housed in a facility operated by Exodus Communications, Inc. in Santa Clara, California. We also rely on UUNET Technologies, Inc. to provide an Internet connection for communications between ReplayTV-enabled personal video recorders and the ReplayTV Service network. Interruptions to the services provided by either Exodus or UUNET would significantly impact the quality of the ReplayTV Service which could impair our ability to retain existing viewers or attract new viewers to the ReplayTV Service. Our network, communications hardware and other operating systems for the ReplayTV Service are vulnerable to damage or interruption from earthquakes, floods, fires, power loss, telecommunication failures and similar events. They are also subject to break-ins, sabotage, intentional acts of vandalism and similar misconduct. In addition, our hardware and software may contain bugs. These types of interruptions in the ReplayTV Service may reduce our revenues and profits. Our business also will be harmed if consumers believe our service is unreliable. In addition to placing increased burdens on our engineering staff, service outages will create a flood of customer questions and complaints that must be responded to by our or our partners' customer support personnel. Any frequent or persistent system failures could irreparably damage our reputation and brand. 18 We have detected and may continue to detect errors and product defects in our software and ReplayTV-enabled personal video recorders. For example, the hard disk used in the ReplayTV-enabled personal video recorder was originally designed for use in personal computers, and as a result exhibits behaviors that are viewed as typical and minimally disruptive when using a personal computer but may result in the viewer momentarily facing a black television screen when using the ReplayTV Service. In addition, ReplayTV viewers with HDTV television sets are currently required to watch and record programming in standard broadcast resolution as opposed to HDTV resolution. Any errors and product defects can affect system uptime, result in returns and significant warranty and repair costs and cause customer relations problems. For example, as a result of errors and defects detected in product development, we have experienced some delays in releasing new versions of our ReplayTV-enabled personal video recorders. In addition, we have agreed to indemnify MKE in connection with its manufacture and distribution of ReplayTV-enabled products. Correcting errors in our software and hardware design requires significant time and resources, which could delay future product releases and affect market acceptance of the ReplayTV Service. Any delivery by us of products or upgrades with undetected material product defects or software errors could harm our credibility and market acceptance of the ReplayTV Service. Our success depends on our ability to secure and protect patents, trademarks and other proprietary rights. Our success and ability to compete are substantially dependent upon our internally developed technology. We rely on patent, trademark and copyright law, trade secret protection and confidentiality or license agreements with our employees, customers, partners and others to protect our proprietary rights. However, the steps we take to protect our proprietary rights may be inadequate. We are currently the assignee of two United States patents. We have also filed patent applications and provisional patent applications relating to important aspects of the ReplayTV technology and the ReplayTV Service, including its features and capabilities. To date, none of these patents has been granted, and we cannot assure you that any patents will ever be granted, that any issued patents will protect our intellectual property or that third parties will not challenge any issued patents. In addition, other parties may independently develop similar or competing technologies designed around any patents that may be issued to us. Our failure to protect our proprietary rights could have a material adverse effect on our business. Laws, regulations, agreements and standards that govern the television industry and the delivery of programming could expose us to legal action if we fail to comply or could require us to change our business. Personal television and the delivery of television programming through the ReplayTV Service and the ReplayTV-enabled personal video recorder represent a new category in the television and home entertainment industries. As such, it is difficult to predict what laws or regulations will govern our business. Changes in the regulatory climate or the enforcement or interpretation of existing laws could expose us to additional costs and expenses and could require changes to our business. For example, copyright laws could be applied or amended to restrict the capture or alteration of television programming, which would materially adversely affect our business. It is unknown whether existing laws and regulations will apply to the personal television market. Therefore, it is difficult to anticipate the impact of current or future laws and regulations on our business. The Federal Communications Commission has broad jurisdiction over the telecommunications and cable industries. Regulations adopted by the FCC may directly affect us and the strategic partners on whom we substantially rely for the marketing and distribution of ReplayTV-enabled personal video recorders and the ReplayTV Service. As such, the effect of these regulations may negatively impact the adoption of ReplayTV-enabled personal video recorders and the use of the ReplayTV Service. In addition, the FCC could promulgate new regulations or interpret existing regulations in a manner that would cause us to incur significant compliance costs or force us to alter the features or capabilities of the ReplayTV Service. Several manufacturers, media companies and content delivery providers, such as cable and satellite system operators, have developed and will continue to develop standards that govern how these companies operate and interact with one another. For example, cable modem manufacturers and cable operators are developing standards 19 relating to cable systems and cable modems. Media companies, consumer electronics companies, computer companies and semiconductor companies are developing standards relating to copyright protection of media content. If we are unable to develop services that comply with the agreements and standards set by these consortiums, we may be prevented from marketing and distributing ReplayTV-enabled personal video recorders and providing the ReplayTV Service. We need to safeguard the security and privacy of our viewers' confidential data, and any inability to do so may harm our reputation and brand and could result in lawsuits. The ReplayTV-enabled personal video recorder collects and stores viewer preferences and other data that our viewers may consider confidential. Any compromise or breach of the encryption and other security measures that we use to protect this data could harm our reputation and expose us to potential liability. Advances in computer capabilities, new discoveries in the field of cryptography or other events or developments could compromise or breach the systems we use to protect our viewers' confidential information. We may be required to make significant expenditures to protect against security breaches or to remedy problems caused by any breaches. Viewers may be concerned about the use of personal information gathered by the ReplayTV Service and the ReplayTV-enabled personal video recorder. We do not release this data to third parties, and we are committed to complying with all privacy laws and to protecting the confidentiality of our viewers. Privacy concerns, however, could create uncertainty in the marketplace for personal television and our services. In addition, privacy concerns or breaches, or consumers' dissatisfaction with any privacy policy we may adopt, could reduce demand for the ReplayTV Service, increase the cost of doing business as a result of litigation costs or increased service delivery costs, or otherwise harm our reputation and business. Risks Related to this Offering and Our Common Stock Purchasers of our common stock in this offering will suffer immediate and substantial dilution and may be harmed by future debt or equity issuances. The initial public offering price per share will significantly exceed our net tangible book value per share. You will experience immediate dilution of $ in the pro forma adjusted net tangible book value per share of common stock, assuming an initial public offering price of $ per share. You also will experience additional dilution when outstanding options and warrants are exercised. If we raise additional capital through the issuance of equity securities, the percentage ownership of our existing stockholders will decline, you may experience dilution in net book value per share, and these equity securities may have rights, preferences or privileges senior to those of the holders of our common stock. Any debt financing, if available, may involve covenants limiting or restricting our operations or future opportunities. Management has broad discretion as to how to use the proceeds from this offering and may apply these proceeds to uses that do not increase our revenues or market value. We expect to spend a substantial amount, including amounts from the net proceeds we receive in connection with this offering, to advertise and promote the ReplayTV Service and the ReplayTV brand, to subsidize the retail price of ReplayTV-enabled personal video recorders, to develop new services and for other working capital and general corporate purposes. We have not determined the specific amounts we intend to spend in any of these areas or the timing of these expenditures. Consequently, management will have broad discretion with respect to the use of the net proceeds from this offering. Because of the number and variability of factors that determine our use of proceeds from this offering, we cannot assure you that the uses will not vary from our current intentions. 20 Our certificate of incorporation, bylaws and Delaware law contain provisions that could discourage a third party from acquiring us and consequently decrease the market value of your investment. Some provisions of our certificate of incorporation and bylaws and of Delaware law could delay or prevent a change of control or changes in our management that a stockholder might consider favorable. Any delay or prevention of a change of control or change in management could cause the market price of our common stock to decline. For more information about particular anti-takeover provisions, see "Description of Capital Stock." Our stock price may be volatile after this offering and you may lose some or all of your investment. Prior to this offering, there has been no public market for our common stock. The initial public offering price will be determined by negotiations between the representatives of the underwriters and us and may not be indicative of the market price for the common stock that may develop after this offering. We do not know the extent to which investor interest will lead to the development of an active public market. You may not be able to resell your shares of our common stock at or above the initial public offering price and you may lose some or all of your investment as a result. We expect our operating results to fluctuate significantly due to a number of factors, many of which are described elsewhere in this prospectus. In addition to our operating results, many factors may cause our stock price to fluctuate, including: . economic or market conditions generally or in the technology, television, media or home entertainment industries; . our failure to meet estimates of our financial performance by securities analysts; and . changes in estimates of our financial performance or changes in recommendations by securities analysts. An aggregate of 40,952,916 shares, or %, of our outstanding stock will become eligible for resale in the public market between 180 days and one year after this offering, and future sales of this stock may cause our stock price to decline. The market price of our common stock could drop as a result of sales of a large number of shares of common stock in the market after this offering or in response to the perception that sales of a large number of shares could occur. We cannot predict the effect that future sales of common stock will have on the market price of our common stock. Of the shares of our common stock to be outstanding upon completion of this offering, the shares offered hereby (plus any shares issued upon exercise of the underwriters' over-allotment option) will be freely tradable. All of the shares outstanding prior to the offering will be "restricted securities" as the term is defined under Rule 144 promulgated under the Securities Act. Unless sold pursuant to Rule 144, which provides for minimum holding periods, public availability of information, and volume and manner restrictions on sales, "restricted securities" cannot be sold without an effective registration statement on file with the SEC. Based on shares outstanding as of December 31, 1999, as adjusted to reflect the issuance of 5,627,267 shares of Series F preferred stock in January 2000, these shares will be available for sale in the public market as follows:
Number of Shares/ Percent Outstanding Date When Shares Become Available for Resale in the After this Offering Public Market ------------------- --------------------------------------------------- 35,306,093 / % 180 days after the date of this prospectus pursuant to agreements between the stockholders and the underwriters or ReplayTV, provided that Morgan Stanley & Co. Incorporated can waive this restriction at any time. 24,070,571 of these shares will also be subject to sales volume restrictions under Rule 144 under the Securities Act 5,646,823 / % Upon expiration of applicable one-year holding periods under Rule 144, which will expire between , 2000 and January 25, 2001, subject to sales volume restrictions under Rule 144
In addition, we intend to file a registration statement on Form S-8 under the Securities Act to register an aggregate of 18,218,561 shares of common stock reserved for issuance under our various stock plans. 21 USE OF PROCEEDS We expect to receive net proceeds of about $ from this offering, or $ if the underwriters exercise their over-allotment option in full, assuming an initial public offering price of $ per share, (based on the midpoint of the range set forth on the cover page of this prospectus) after deducting the estimated underwriting discount and commissions and estimated offering expenses. We estimate our offering expenses to be about $ . The principal reason for this offering is to raise capital for: . subsidies related to the manufacture of ReplayTV-enabled products; . advertising to promote the ReplayTV Service and ReplayTV brand; . development of new products and services; and . other working capital and general corporate purposes. The amounts and timing of these expenditures will vary depending on a number of factors, including competitive and technological developments and the rate of growth, if any, of our business. We will retain broad discretion in the allocation of the net proceeds of this offering. Because of the number and variability of factors that determine our use of proceeds from this offering, we cannot assure you that the uses will not vary from our current intentions. Pending the uses described above, we will invest the net proceeds in short- term, interest bearing, investment-grade securities. We cannot predict whether the proceeds will be invested to yield a favorable return. DIVIDEND POLICY We have never declared or paid any cash dividends on our common stock. In addition, under our bank credit facility, we cannot pay dividends without our bank's consent, with limited exceptions. We currently intend to retain any future earnings to fund the development and growth of our business and do not anticipate paying any cash dividends in the foreseeable future. 22 CAPITALIZATION The following table sets forth our capitalization as of September 30, 1999: . on an actual basis; . on a pro forma basis to reflect the issuance of 5,627,267 shares of Series F preferred stock in January 2000 and the automatic conversion of 31,368,852 shares of preferred stock, including the shares of Series F preferred stock issued in January 2000, outstanding as of the date of this prospectus into 31,368,852 shares of common stock; and . on a pro forma basis as further adjusted to reflect the sale of shares of common stock in this offering at an assumed initial public offering price of $ per share (based on the midpoint of the range set forth on the cover page of this prospectus) after deducting the estimated underwriting discount and commissions and estimated offering expenses. The capitalization information set forth in the table below is qualified by, and you should read it in conjunction with, more detailed financial statements and related notes and the information included under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this prospectus.
As of September 30, 1999 -------------------------------- Pro Forma Actual Pro Forma As Adjusted -------- --------- ----------- (in thousands, except share and per share data) Cash, cash equivalents and short-term investments................................... $ 49,840 $111,240 $ ======== ======== === Line of credit................................. $ -- $ -- $ -------- -------- --- Stockholders' equity (deficit): Convertible Preferred Stock, issuable in series, $0.001 par value; 27,137,306 shares authorized, 25,741,585 shares issued and outstanding actual; 35,077,301 shares authorized, no shares issued and outstanding pro forma; 5,000,000 shares authorized, no shares issued and outstanding pro forma as adjusted.................................... $ 26 $ -- $ Common Stock, $0.001 par value; 75,000,000 shares authorized, 9,209,194 shares issued and outstanding actual; 75,000,000 shares authorized, 40,578,046 shares issued and outstanding pro forma; 200,000,000 shares authorized, shares issued and outstanding pro forma as adjusted........... 6 37 Additional paid-in capital................... 93,501 154,896 Notes receivable............................. (1,700) (1,700) Unearned stock-based compensation............ (20,278) (20,278) Deficit accumulated during development stage....................................... (23,556) (23,556) -------- -------- --- Total stockholders' equity................. 47,999 109,399 -------- -------- --- Total capitalization..................... $ 47,999 $109,399 $ ======== ======== ===
This table excludes the following shares as of September 30, 1999: . 6,666 shares of common stock issuable upon the exercise of an outstanding warrant at an exercise price of $7.50 per share; . 8,369,618 shares of common stock issuable upon the exercise of stock options outstanding under our stock option plans at a weighted average exercise price of $1.50 per share; and . 1,210,924 shares of common stock available for issuance under our stock option plans. 23 DILUTION The pro forma net tangible book value of ReplayTV, Inc. as of September 30, 1999 was $109.4 million or $2.70 per share of common stock. Pro forma net tangible book value per share represents the amount of total tangible assets less total liabilities, divided by the number of shares of common stock outstanding, after giving effect to the conversion of all outstanding shares of preferred stock (including shares of preferred stock issued after September 30, 1999) into common stock immediately prior to the closing of this offering. Assuming the sale by us of shares of common stock in this offering at an assumed initial public offering price of $ per share, our pro forma net tangible book value as of September 30, 1999 would have been $ million, or $ per share of common stock. This represents an immediate increase in pro forma net tangible book value of $ per share to our existing stockholders and an immediate dilution in pro forma net tangible book value of $ per share to new investors purchasing shares in this offering. The following table illustrates this dilution on a per share basis: Assumed initial public offering price per share................. $ Pro forma net tangible book value per share as of September 30, 1999..................................................... $2.70 Increase per share attributable to new investors.............. ----- Pro forma net tangible book value per share after this offering....................................................... ---- Dilution per share to new investors............................. $ ====
The following table summarizes on a pro forma basis, as of September 30, 1999, the number of shares of common stock, including shares of preferred stock to be converted into shares of common stock at the closing of this offering, purchased from us, the total consideration paid to us and the average price per share paid by existing stockholders and by new investors. The information presented is based upon an assumed initial public offering price of $ per share for shares purchased in this offering, before deducting the estimated underwriting discount and commissions and estimated offering expenses:
Shares Purchased Total Consideration ------------------ -------------------- Average Price Number Percent Amount Percent Per Share ---------- ------- ------------ ------- ------------- Existing stockholders... 40,578,046 % $131,863,000 % $3.25 New investors........... ---------- --- ------------ --- Totals................ 100% $ 100% ========== === ============ ===
These tables assume no exercise of any outstanding stock options or warrants to purchase common stock. As of December 31, 1999, there were: . 10,789,637 shares of common stock issuable upon the exercise of stock options outstanding at a weighted average exercise price of $3.05 per share; and . 6,666 shares of common stock issuable upon the exercise of an outstanding warrant at an exercise price of $7.50 per share. To the extent these options or warrants are exercised, there will be further dilution to the new investors. 24 SELECTED FINANCIAL DATA The following selected financial data should be read in conjunction with our financial statements and related notes included elsewhere in this prospectus and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The statement of operations data for the period from August 27, 1997 (inception) to December 31, 1997 and for the year ended December 31, 1998, and the balance sheet data as of December 31, 1997 and 1998, are derived from the audited financial statements included elsewhere in this prospectus. The statement of operations data for the nine months ended September 30, 1998 and 1999 and for the period from August 27, 1997 (inception) to September 30, 1999, and the balance sheet data as of September 30, 1999, are derived from our unaudited financial statements included elsewhere in this prospectus and include all adjustments, consisting only of normal recurring adjustments, necessary for the fair statement of this information when read in conjunction with the audited financial statements and related notes. The diluted net loss per share computation excludes potential shares of common stock (preferred stock, options and warrants to purchase common stock and common stock subject to repurchase rights that we hold), since their effect would be antidilutive. See note 1 of the notes to financial statements included elsewhere in this prospectus for a detailed explanation of the determination of the shares used to compute actual and pro forma basic and diluted net loss per share. The historical results are not necessarily indicative of results to be expected for future periods.
Period from Nine Months Period from August 27, 1997 Ended September August 27, 1997 (Inception) to Year Ended 30, (Inception) to December 31, December 31, ----------------- September 30, 1997 1998 1998 1999 1999 --------------- ------------ ------- -------- --------------- (in thousands, except per share data) Statement of Operations Data: Costs and expenses: Research and development.......... $ 136 $ 1,961 $ 1,003 $ 4,814 $ 6,911 Programming and content.............. -- -- -- 560 560 Sales and marketing... 10 764 293 8,735 9,509 General and administrative....... 9 325 159 2,091 2,425 Hardware distribution costs, net........... -- -- -- 770 770 Stock-based compensation......... -- 206 100 3,489 3,695 ------ ------- ------- -------- -------- Total costs and expenses......... 155 3,256 1,555 20,459 23,870 ------ ------- ------- -------- -------- Operating loss.......... (155) (3,256) (1,555) (20,459) (23,870) Interest income (expense), net......... -- (28) (4) 342 314 ------ ------- ------- -------- -------- Net loss................ $ (155) $(3,284) $(1,559) $(20,117) $(23,556) ====== ======= ======= ======== ======== Basic and diluted net loss per share......... $(0.08) $ (0.48) $ (0.23) $ (2.73) $ (3.35) Basic and diluted weighted average shares used in computation of net loss per share..... 2,026 6,889 6,880 7,359 7,037 Pro forma basic and diluted net loss per share.................. $ (0.29) $ (0.84) Pro forma basic and diluted weighted average shares......... 11,282 23,953 As of December 31, As of ----------------- September 30, 1997 1998 1999 ------- -------- --------------- (in thousands) Balance Sheet Data: Cash, cash equivalents and short-term investments............ $ 103 $ 711 $ 49,840 Working capital (deficit).............. 94 (392) 46,038 Total assets............ 144 1,068 53,406 Total stockholders' equity (deficit)....... 125 (260) 47,999
25 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This prospectus contains statements of a forward-looking nature relating to future events or the future financial performance of ReplayTV. Prospective investors are cautioned that forward-looking statements involve risks and uncertainties, and that actual events or results may differ materially. In evaluating such statements, prospective investors should specifically consider the various factors identified in this prospectus, including the matters set forth under the caption "Risk Factors," which could cause actual results to differ materially from those indicated by such forward-looking statements. Overview ReplayTV was incorporated in August 1997, and through the first quarter of 1999, our operating activities consisted primarily of product and service development. We continue to operate as a development stage company and have not yet recognized any operating revenues from advertising or other sources. In April 1999, we launched the ReplayTV Service and the ReplayTV-enabled PVR via direct sales from our web site and toll free telephone number. More recently, our products have become available through online retailers. We have received proceeds from the shipment of ReplayTV-enabled PVRs; however, these proceeds are considered incidental to our ongoing business and thus have been reported as a reduction of the related hardware distribution costs in our statement of operations. We do not intend to manufacture PVRs. Instead, we intend to license our technology to partners to manufacture PVRs or incorporate our technology in their consumer electronics products such as VCRs, DVD players and recorders, set-top boxes or televisions. We recently entered into such an agreement with MKE, and we intend to enter into similar relationships with other consumer electronics companies in the future. MKE initially will purchase from us a minimum number of ReplayTV-enabled products manufactured by Flextronics and will market, sell and distribute those products under the Panasonic brand name featuring the ReplayTV logo. We will also work with MKE to jointly develop future ReplayTV-enabled products. MKE will focus on hardware development while we will focus primarily on the further development of the ReplayTV Service. MKE may also develop ReplayTV- enabled products independent of us. We will work with MKE to develop and establish customer service and support standards and processes for ReplayTV- enabled products. We will also cooperate with MKE to market and promote the ReplayTV Service and ReplayTV-enabled products. MKE will have primary responsibility for promoting Panasonic-branded ReplayTV-enabled products while we maintain primary responsibility for promoting the ReplayTV Service. MKE has agreed to commit a minimum dollar amount toward the promotion and advertising of ReplayTV-enabled products to be sold under the Panasonic brand. MKE has agreed to exclusively deal with us in the area of personal video recorders for the term of our agreement. We anticipate that the majority of our revenues will be generated from the sale of advertising on the ReplayTV Service. We will recognize advertising revenue ratably over the period in which the advertising is displayed, provided that no significant performance obligations remain. We do not expect these revenues to become significant until we reach a substantially larger installed viewer base and develop additional ReplayTV Service functionality. We do not expect to generate significant revenues from advertising in 2000, and we may not be able to generate significant revenues thereafter. As a result, we expect to continue to incur significant losses and negative operating cash flow for the foreseeable future. We also anticipate recognizing revenues from future services, such as media sponsorships, premium and near video-on-demand services and TV-commerce. Revenues from media sponsorships will be recognized in the period in which the programming is delivered, provided that no significant performance obligations remain. Revenues from premium and near video-on-demand services will be recognized during the period in which the services are provided to the subscriber. Commissions revenue received for orders processed over the ReplayTV Service will be recognized as we forward the order information to the vendor. We do not generate any revenues from the provision of our basic service. 26 Version 2.0 of our ReplayTV Service software, to be offered in conjunction with our full-scale retail launch, will permit us to deliver certain limited advertising; however, we are continuing to develop additional functionality to enable us to deliver additional advertising and other services on the ReplayTV Service in conjunction with various media partners. Version 2.0 will provide advertising and sponsorship capabilities solely on theme-based or branded content areas called ReplayZones. In order to generate significant advertising revenues, we need to expand the capabilities of the ReplayTV Service to permit full-motion video advertisements on multiple viewer interfaces. We also intend to expand the capabilities of the ReplayTV Service to permit premium subscription services, near video-on-demand and TV-commerce, none of which will be included in version 2.0 of the ReplayTV Service software. We expect to share a significant portion of the related advertising and service revenues with our media partners. We also intend to enter into agreements with multiple distribution partners to encourage more rapid adoption of the ReplayTV Service. These agreements will provide for retail and other distribution of ReplayTV-enabled products as well as subsidization of hardware costs. Our decision to subsidize the manufacturing cost of ReplayTV- enabled products is based upon our expectation that lower retail prices will help us obtain viewers, broaden market acceptance for personal television and increase our future revenues. If these expectations are not met, we may be unable to generate sufficient revenues to cover our expenses and other obligations. Results of Operations Nine Months Ended September 30, 1999 and 1998 Research and Development. Research and development expenses consist of engineering personnel and related expenses, materials, connectivity costs and outside consulting costs related to developing and enhancing the ReplayTV Service and ReplayTV-enabled PVR. Total research and development expenses increased to $4.8 million for the nine-month period ended September 30, 1999 from $1.0 million for the nine-month period ended September 30, 1998. The increase was attributable to increased engineering personnel, consultants and materials necessary to support the development and launch of the ReplayTV platform and related service in April 1999. We expect that research and development costs will continue to increase in the foreseeable future as we continue to devote resources to develop additional functionality within the ReplayTV Service. Programming and Content. Programming and content expenses consist of personnel and related expenses and outside consulting costs related to developing and presenting content on the ReplayTV Service. Programming and content expenses for the nine-month period ended September 30, 1999 were $560,000. No programming and content costs were incurred during the nine-month period ended September 30, 1998, as the ReplayTV Service was not launched until April 1999. The increase was attributable to increased personnel necessary for content development. We anticipate that programming and content costs will continue to increase as we develop and provide additional services and content within the ReplayTV Service. Sales and Marketing. Sales and marketing expenses consist of advertising, promotional activities, trade shows, personnel and related expenses and outside consulting costs. Sales and marketing expenses increased to $8.7 million for the nine-month period ended September 30, 1999 from $293,000 for the nine-month period ended September 30, 1998. The increase was attributable to increased personnel and promotional costs associated with the promotion of the commercial launch of the ReplayTV Service and ReplayTV-enabled PVR in April 1999. We anticipate that sales and marketing expenses will continue to increase as we support the full-scale retail launch of the ReplayTV-enabled PVR in the year 2000. Starting in the second half of the year 2000, we expect to incur additional sales and marketing expenses to support the sale of advertising on the ReplayTV Service. General and Administrative. General and administrative expenses consist of personnel and related expenses and professional fees related to the management, legal, finance, accounting and other administrative functions. General and administrative expenses increased to $2.1 million from $159,000 for the nine-month 27 periods ended September 30, 1999 and 1998, respectively. The increase was the result of increased personnel and consultants necessary to support our growth. We expect that general and administrative expenses will continue to increase in the foreseeable future. Hardware Distribution Costs, Net. Hardware distribution costs, net, include costs to manufacture and distribute the ReplayTV-enabled PVR net of the proceeds from sales to customers. As we plan to transition the manufacturing and distribution of our PVRs to MKE and other partners, sales of PVRs are considered incidental to our business and, therefore, have been reflected as a reduction of the related costs. Hardware distribution costs, net, were $770,000 for the nine-month period ended September 30, 1999. During the nine-month period ended September 30, 1999, we shipped about 3,000 PVRs and incurred manufacturing and distribution costs of $4.2 million. Proceeds from sales of PVRs were $3.4 million during the same period. We have agreed to subsidize Matsushita in connection with their manufacturing and distribution of ReplayTV-enabled PVRs in future periods. We expect the subsidies to increase significantly as we increase our installed base. Stock-Based Compensation. Stock-based compensation includes the amortization of unearned employee stock-based compensation and expenses for stock granted to consultants in exchange for services. In connection with the grant of employee stock options, we recorded aggregate unearned stock-based compensation of $23.5 million through September 30, 1999 and additional unearned stock-based compensation of about $13.5 million for stock options granted in October, November and December 1999. Employee stock-based compensation expense is amortized over the vesting period of the options, which is generally four years, using the multiple-option approach. We recorded employee stock-based compensation expense of $3.0 million for the nine months ended September 30, 1999. We currently expect to record employee stock-based compensation expenses of about $4.0 million for the quarter ended December 31, 1999, $4.7 million for the quarter ending March 31, 2000 and $4.4 million for the quarter ending June 30, 2000. We anticipate that these expenses will decrease in future periods. Unearned stock-based compensation expense will be reduced in future periods to the extent that options are terminated prior to full vesting. We recorded expenses of $444,000 for the nine months ended September 30, 1999 in connection with the vesting of stock options issued for services. Expenses related to options granted to consultants may increase in future periods if we grant additional options to consultants in exchange for services or the fair value of our stock increases during the vesting period of the options. We also recorded expenses of $71,000 for the nine months ended September 30, 1999 in connection with common stock issued for services. Interest Income (Expense), Net. Interest income (expense), net, consists of interest earned on cash equivalents and short-term investments, offset by interest expense related to bank borrowings and other financing lines. Interest income (expense), net, was $342,000 for the nine-month period ended September 30, 1999 and ($4,000) for the nine-month period ended September 30, 1998. The increase in interest income was due to higher average cash equivalents and short-term investment balances from additional sales of preferred stock completed in the first three quarters of 1999. Provision for Income Taxes. We have incurred operating losses for all periods from inception through September 30, 1999, and therefore have not recorded a provision for income taxes. Our deferred tax asset primarily consists of net operating loss carryforwards and nondeductible accruals and allowances. We have recorded a valuation allowance for the full amount of our net deferred tax assets, as the future realization of the tax benefit is not currently likely. As of December 31, 1998, we had net operating loss carryforwards for federal and state tax purposes of about $1.9 million and $1.9 million, respectively. These federal and state tax loss carryforwards are available to reduce future taxable income and expire at various dates into the year 2018. We expect that the amount of net operating loss carryforwards that could be utilized annually in the future to offset taxable income will be limited by "change in ownership" provisions of the Internal Revenue Code. This annual limitation may result in the expiration of net operating loss carryforwards before their utilization. 28 Year Ended December 31, 1998 and Period from Inception to December 31, 1997 Research and Development. Research and development expenses increased to $2.0 million in fiscal 1998 from $136,000 for the period from inception to December 31, 1997. The increase was the result of growth in ReplayTV's engineering personnel, consultants and materials from inception throughout 1998. Sales and Marketing. Sales and marketing expenses increased to $764,000 in fiscal 1998 from $10,000 for the period from inception to December 31, 1997. The increase was the result of increased personnel to support the commercial launch of the ReplayTV Service and ReplayTV-enabled PVR in April 1999. General and Administrative. General and administrative expenses increased to $325,000 in fiscal 1998 from $9,000 for the period from inception to December 31, 1997. The increase was the result of increased personnel costs to support our overall growth. Stock-Based Compensation. In connection with the grant of employee stock options, we recorded unearned stock-based compensation of $857,000 for the year ended December 31, 1998, which is being amortized over a four-year vesting period using the multiple-option approach. Interest Income (Expense), Net. Interest income (expense), net, was $(28,000) and $0 for the year ended December 31, 1998 and for the period from inception to December 31, 1997, respectively. The increase in interest expense was due to interest paid on a convertible promissory note issued by one of our founders. Quarterly Results of Operations The following table sets forth a summary of our unaudited quarterly operating results for each of the seven quarters in the period ended September 30, 1999. This information has been derived from our unaudited financial statements contained elsewhere in this prospectus and includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of this information when read in conjunction with our audited financial statements and related notes. The amount and timing of our costs and operating expenses generally will vary from quarter to quarter depending on our level of actual and anticipated business activities. Our revenues, if any, costs and operating results are difficult to forecast and will fluctuate, and we believe that period-to-period comparisons of our operating results will not necessarily be meaningful. As a result, you should not rely on them as an indication of future performance.
Quarter Ended ------------------------------------------------------------------- Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, 1998 1998 1998 1998 1999 1999 1999 -------- -------- --------- -------- -------- -------- --------- (in thousands) Statement of Operations Data: Costs and expenses: Research and development.......... $ 160 $ 297 $ 546 $ 958 $ 1,462 $ 1,148 $ 2,204 Programming and content.............. -- -- -- -- -- 79 481 Sales and marketing... 6 50 237 471 1,484 3,259 3,992 General and administrative....... 18 30 111 166 314 532 1,245 Hardware distribution costs, net........... -- -- -- -- -- 167 603 Stock-based compensation......... 12 24 64 106 200 915 2,374 ----- ----- ----- ------- ------- ------- -------- Total costs and expenses........... 196 401 958 1,701 3,460 6,100 10,899 ----- ----- ----- ------- ------- ------- -------- Operating loss.......... (196) (401) (958) (1,701) (3,460) (6,100) (10,899) Interest income (expense), net......... 1 1 (6) (24) (33) 33 342 ----- ----- ----- ------- ------- ------- -------- Net loss................ $(195) $(400) $(964) $(1,725) $(3,493) $(6,067) $(10,557) ===== ===== ===== ======= ======= ======= ========
29 Costs and expenses increased each quarter from the first quarter of 1998 through the first quarter of 1999 as we completed the development and introduction of the ReplayTV Service and ReplayTV-enabled PVR. Costs and expenses increased during the second and third quarters of 1999 as we continued to enhance the functionality of the ReplayTV Service and increased personnel and related costs in anticipation of the full-scale retail launch of the ReplayTV-enabled PVR in 2000. We expect that future costs and expenses will increase substantially for the foreseeable future due to subsidies of ReplayTV-enabled products to reduce consumer prices and encourage the distribution of our products and increased advertising and promotional efforts. Seasonality Expenditures by advertisers tend to be seasonal and cyclical, reflecting overall economic conditions as well as budgeting and buying patterns. A decline in the economic prospects of advertisers or the economy in general could alter current or prospective advertisers' spending priorities or increase the time it takes to close a sale with our advertisers, which could cause our revenues from advertisements to decline significantly in any given period. We are subject to seasonality in consumer electronics product sales, which have traditionally been much higher during the holiday shopping season (occurring in the fourth quarter) than during other times of the year. Although predicting consumer demand for our products will be very difficult, we believe that sales of ReplayTV-enabled products and attraction of new viewers to the ReplayTV Service will be disproportionately high during the holiday shopping season when compared to other times of the year. Because we expect to subsidize the purchase price of ReplayTV-enabled products, we will incur greater costs and expenses when more ReplayTV-enabled products are sold. Liquidity and Capital Resources Since inception, we have financed our operations primarily through private sales of our equity securities. At September 30, 1999, we had raised $67.8 million from the sale of our preferred and common stock and had an accumulated deficit of $23.6 million, and held cash, cash equivalents and short-term investments totaling $49.8 million. Our operating activities used cash in the amount of $13.5 million for the nine months ended September 30, 1999, $2.5 million for fiscal 1998 and $144,000 for the period from inception through December 31, 1997. This negative operating cash flow resulted primarily from our net losses experienced during these periods. Since inception, we have invested in the development of our ReplayTV Service and ReplayTV-enabled PVRs and related marketing efforts and hired additional personnel to support our growth. Net cash used in investing activities totaled $36.9 million for the nine months ended September 30, 1999, $149,000 for fiscal 1998 and $33,000 for the period from inception through December 31, 1997. The net cash used was primarily for the purchase of property and equipment and the purchase of short-term investments in the third quarter of 1999. We will continue to invest our cash in excess of current operating requirements in short-term, interest-bearing, investment-grade securities, some of which are classified for accounting purposes as cash equivalents and some as short-term investments. Our financing activities generated cash of $64.3 million for the nine months ended September 30, 1999, $3.3 million for fiscal 1998 and $280,000 for the period from inception through December 31, 1997. The issuance of preferred stock to financial investors and strategic corporate partners generated net proceeds of $67.8 million, or nearly this entire amount. In June 1999, we entered into a line of credit agreement with a financial institution. The line provides for the issuance to ReplayTV of up to $1.25 million on a non-formula basis subject to meeting a monthly liquidity covenant. The line bears interest at the bank's prime rate plus 0.75% and expires in May 2000. At September 30, 1999, we had no borrowings and a $500,000 standby letter of credit to a vendor secured under this line. 30 In January 2000, we issued 5,627,267 shares of Series F preferred stock at $11.00 per share resulting in net cash proceeds of about $61.4 million. Upon the closing of this offering, all outstanding shares of Series F preferred stock will be converted on a one-for-one basis into shares of common stock. For the quarter ending March 31, 2000, the Company will record a non-cash preferred stock dividend to reflect the beneficial conversion ratio as a result of the difference between the issuance price of the Series F preferred stock and the low end of the assumed initial price range of the common stock in this offering. As of September 30, 1999, our principal commitments consisted of our line of credit and a facilities operating lease totaling $16.1 million through its expiration in March 2006. We expect to incur significant operating expenses over the next several years in connection with the continued development and expansion of our business. As a result, we expect to continue to incur significant losses and negative cash flow for the foreseeable future. We expect to devote significant resources to marketing the ReplayTV Service and to subsidizing our partners' distribution of ReplayTV-enabled products. Although we believe that our existing cash, cash equivalents, short-term investments and net proceeds from this offering will be sufficient to satisfy our cash requirements for the next 12 months, there can be no assurance that we will not require additional financing within this time frame. If market acceptance of our ReplayTV Service is faster than expected or we increase the amount of subsidy per unit in order to maintain competitive pricing within the retail market, we will devote substantially more resources to subsidize our distribution partners than currently anticipated. In addition, we will need to raise additional capital beyond the next 12 months in order to fund the continued development and distribution of the ReplayTV Service. We may not be able to raise additional funds on terms acceptable to us, or at all. If additional funds are raised through the sale of equity or convertible debt securities, our stockholders may experience additional dilution, and these securities may have rights, preferences or privileges senior to those of our stockholders. 31 BUSINESS Overview ReplayTV empowers television viewers to watch what they want when they want. We have developed the ReplayTV Service as a living room portal through which viewers can easily access, navigate, control and store television programming. We believe the ReplayTV Service will transform the way consumers access television programming, advertising and, ultimately, commerce services. We believe our portal creates a new, more effective medium for advertisers, content providers and cable and satellite system operators to target consumers. Based on ReplayTV-sponsored survey data, viewers using the ReplayTV Service watch and record more hours of television per week and find television viewing more appealing than before using the ReplayTV Service. We believe this is because the ReplayTV Service gives viewers greater choice and more control over their television viewing. The ReplayTV Service is currently delivered through a personal video recorder, or PVR, designed and developed by us. The PVR is a device connected to a television that employs a hard disk drive, software and other technology to digitally record and access content. Through ReplayTV's combination of proprietary software, hardware and media relationships, viewers personalize their television viewing. The ReplayTV Service allows viewers to set up personal channels that automatically record their favorite shows. Programs can then be replayed "on demand," with no tapes to search or rewind. Viewers can also search for programs based on a theme, a specific hobby or a favorite actor or director. ReplayTV-enabled PVRs operate with existing broadcast, cable and satellite infrastructures. In the future, we expect that our PVR technology will be incorporated into other television-related consumer electronics devices that will provide access to the ReplayTV Service. We announced our ReplayTV Service in January 1999 and began shipment of our PVRs in April 1999. We intend to commence full-scale retail distribution through leading consumer electronics companies this year. Matsushita-Kotobuki Electronics Industries, Ltd., or MKE, a subsidiary of Matsushita Electric Industrial Co., Ltd., the largest manufacturer of VCRs sold in North America, has agreed to market and sell PVRs under the Panasonic brand featuring the ReplayTV logo. The retail launch with MKE is expected to occur in mid-2000, and MKE is working to develop new consumer electronics devices that incorporate ReplayTV technology. We believe that relying on MKE in the future to manufacture, market and sell ReplayTV-enabled products will allow us to focus our creative resources on promoting and enhancing the ReplayTV Service. We are also in discussions with a number of other consumer electronics companies regarding the manufacture, marketing and sale of ReplayTV-enabled products. The ReplayTV Service has been designed to enable advertisers, content providers and cable and satellite system operators to exploit the dramatic growth potential of PVRs. Paul Kagan Associates, Inc. estimates that there will be about six million devices with PVR functionality installed in U.S. households by 2002, with that number increasing to about 16 million by 2005, representing about 15% of projected U.S. households in 2005. International Data Corporation estimates that there will be about nine million devices with PVR functionality installed in U.S. households by 2002, with that number increasing to about 40 million by 2005, representing about 37% of projected U.S. households in 2005. Industry Background More American households have televisions than have telephone service. The average television adult in the United States spends about 4.3 hours per day watching television. According to Kagan, there are about 100 million television households in the United States, implying a market penetration of nearly 98%. According to U.S. government data, the average American household owns about 2.4 televisions. The number of television programming options available to the average viewer has increased significantly in recent years. The explosive growth in the number of available channels has led to an overwhelmingly diverse selection of programming through which viewers must sort. Viewers have thousands of programming choices each week. 32 Television advertising remains the dominant medium for building general awareness for consumer products and services. Kagan estimates that over $52 billion was spent on broadcast and cable television advertising in the U.S. in 1999. Over the past several decades, revenue from television advertising has consistently increased despite the introduction of new technologies that initially appeared to threaten traditional TV advertising, such as the remote control and the VCR. Indeed, even in the face of viewer fragmentation, revenue from television advertising has increased in every year but one since 1975. The ubiquitous nature of television, its singular ability to reach large and increasingly more targeted audiences, and the growing number of television viewing choices are creating significant new challenges for viewers, content providers, advertisers and system operators. These challenges create opportunities for personal television service providers. Challenges Faced by Viewers. Television has always provided viewers with programming choices. However, with rapidly increasing numbers of channels and programs, viewer choice now borders on confusion. Despite an increasing number of available channels and programs, viewers continue to complain that they cannot find anything that they want to watch. Viewers desire greater ease of use, convenience and control in television viewing, particularly in light of their decreasing leisure time. We believe today's television viewers want the ability to: . view the shows they want to watch at times that are convenient to them, rather than at the times at which they are scheduled; . easily find and record every episode of their favorite show whenever it is on; . easily navigate through available content offerings to locate interesting programs to watch, especially when they do not have a particular show in mind; and . access expanded information about available programming content. Challenges Faced by Content Providers. Competition for the attention of television viewers has dramatically increased over the past decade. The expansion of the cable and satellite broadcast infrastructure and the subsequent proliferation of available channels have fragmented the television audience. In addition, the emergence of rival media, such as the Internet and DVDs, and even the videocassette, has further compounded the problem. This fragmentation and broader competition has placed additional pressure on content providers to attract more targeted audiences and to more effectively evaluate viewer habits, preferences and frequency of watching specific television shows. These developments make it increasingly more difficult for content providers to attract more viewers. In order to do so, content providers must: . promote their shows more effectively and efficiently; . continue to increase television usage in the face of alternative media; . build their own brand recognition and loyalty; and . provide viewers with easier access to their programs. Challenges Faced by Advertisers. Despite declining market share and ratings with respect to individual networks and programs, the cost of broadcast advertising has increased. According to data from Nielsen Media Research, the average cost of prime time advertisements on the major television networks increased almost 28% between the 1994/95 season and the 1998/99 season. In addition, cost constraints and the basic nature of traditional broadcast television have placed limits on the length of messages that advertisers can deliver. At the same time, advertisers have been forced to spend increasing amounts to target desired demographic groups and 33 to spread their advertising budgets over an ever-expanding number of channels and programs. As a result of these trends, advertisers must: . target viewers by finding better ways to identify, measure and respond to viewers' programming and purchasing preferences; . deliver information to consumers more effectively; and . spend advertising budgets as efficiently as possible. Challenges Faced by Cable and Satellite System Operators. Cable and satellite system operators continue to make heavy investments to upgrade their broadband infrastructures in response to competitive pressures, growing consumer demand for additional and better programming and the advent of new technologies. In order to realize returns on these investments, system operators face the challenge of increasing revenues through the launch of new services without cannibalizing existing lines of business. Furthermore, selling excess network capacity can provide additional returns on these investments. In addition, reducing subscriber churn and growing subscriber bases have become core strategic goals because the market valuations of cable and satellite system operators are largely based on numbers of subscribers. As a result of these trends, cable and satellite system operators must: . provide new features and functionality in order to retain existing customers and attract new customers; . enhance the appeal of existing premium offerings, thereby increasing premium penetration and reducing subscriber churn rates for premium services; . enhance the appeal of existing pay-per-view offerings, thereby increasing pay-per-view buy rates; and . launch new and enhanced services such as video-on-demand and TV-commerce at the lowest possible cost to maximize returns. The ReplayTV Service We have developed the ReplayTV Service to become the living room portal that allows viewers to easily store, navigate and control television viewing, thereby creating a new medium for advertisers, content providers and cable and satellite system operators. Through this new medium, content providers and advertisers can promote and deliver their programming and commercial messages more effectively to consumers. The ReplayTV Service has won several consumer awards, including the "Best of Show" award in the video category announced at the International Consumer Electronics Show in January 1999, the "Innovations 2000" award in both the video software and video hardware categories announced at the International Consumer Electronics Show in January 2000 and David Coursey's Showcase 1999 People's Choice Award. Benefits to Viewers. Just as consumers have achieved enhanced freedom and control over their lives through automated teller machines, cellular phones, the Internet and 24-hour grocery stores, we believe television viewers want greater freedom and control with respect to their television viewing experiences. The ReplayTV Service provides this freedom and control by enabling viewers to: . Watch what they want when they want. With ReplayTV, viewers can watch shows on their own schedules. Viewers can easily select, view or replay television shows through a simple-to-use on-screen channel guide. ReplayTV's interactive channel guide and clock are conveniently and automatically updated and synchronized on a nightly basis when the ReplayTV-enabled PVR dials into a secure remote server. . Never miss their favorite shows. ReplayTV is unlike any VCR. Most viewers use their VCRs only for viewing pre-recorded tapes rather than recording their favorite shows, due to the complexity involved in programming the VCR. ReplayTV uses a hard disk drive rather than videotape to record, store and replay currently up to twenty hours of television programming and content using MPEG2, a digital compression technology. Recordings are activated at the touch of a button using ReplayTV's universal remote. 34 Programs can be easily configured into personal, or on-demand channels, so that viewers will never miss their favorite shows. . Locate, capture and record the best in television. ReplayTV enables viewers to locate programs of interest, especially when they do not have a particular show in mind to watch. With the ReplayTV Service, viewers will be able to find and record programs that match their viewing preferences so that when they are ready to watch TV, they will be able to choose from a number of shows that interest them. The ReplayTV Service is expected to feature unique and exciting program information, promotions and content on theme-based or branded content areas called ReplayZones. ReplayZones will allow viewers to easily navigate through the wide variety of content that viewers might otherwise be unaware of. . Control live TV. The ReplayTV Service offers real-time viewing features not possible with VCRs, such as pause, multi-speed slow motion, rewind and seven-second instant replay because the ReplayTV Service continuously records the program being watched. In addition, viewers can use the fast forward feature to catch up to the live broadcast in progress. . Enjoy personal television services with no monthly fees. With the purchase of a ReplayTV-enabled PVR, the basic ReplayTV Service is provided to viewers with no monthly fees and includes free software upgrades and promotional content. Benefits to Content Providers. The ReplayTV Service can enable television programmers and broadcasters to proactively compile their content in ways that will effectively promote their shows, thereby creating an opportunity for greater audience growth, loyalty, recognition and measurement. Key benefits offered to content providers include: . Generating a larger audience. The ReplayTV Service allows content providers to reach an audience that may have been unable to watch their shows due to conflicts between broadcast times and their own personal schedules. ReplayTV-sponsored surveys indicate that viewers using the ReplayTV Service watch an average of about 2.5 more hours and record an average of about seven more hours of television each week than before they began using the ReplayTV Service. In addition, because these viewers are able to watch programming on their own schedule with VCR-like functionality, we believe they are more likely to actually watch the whole show. The ReplayTV Service will allow content providers to create ReplayZones that will deliver program information, promotions and content on channels that are branded and edited by the content providers themselves. In the future, we also plan to offer content providers the opportunity to promote shows that are similar even if the shows are not broadcast sequentially. Other future programming opportunities include sponsoring premium personal channels and providing additional footage, such as "director's cuts," of programs for ReplayTV viewers. . Enhanced viewer loyalty and retention. We believe that the ability to easily record programs using the ReplayTV Service will increase the likelihood that viewers will continue viewing new episodes of a particular series or show. For example, the show-based recording feature allows viewers to automatically record every episode of their favorite show. Viewers also can easily replay the shows they have recorded at their convenience long after they have aired, thereby enhancing viewer retention and loyalty. . New platform for innovative content delivery. The ReplayTV Service is being developed to facilitate an entirely new paradigm for delivering programming, products and services to viewers. We anticipate that viewers will be able to simply "point and click" when ordering merchandise, movies, sports events, programming packages, games and other products and services, thereby offering content providers a new way to attract viewers and expand audiences. Benefits to Advertisers. We believe that our ReplayTV Service will offer advertisers a new platform that provides a more effective way to deliver information to consumers, a more efficient way to spend advertising budgets and a better way to target audiences and identify, monitor and respond to consumers' programming and purchasing preferences. Key benefits offered to advertisers include: . More effective targeting of consumers. The ReplayTV Service creates a platform for specialized advertising. The ReplayTV platform is expected to provide more accurate audience measurement and 35 viewer data, while maintaining viewer privacy on an individual basis. The ReplayTV Service will enable advertisers to more effectively target consumers who have actively selected specific programs to watch and therefore are more likely to watch an entire show. Advertisers will also be able to target advertising to viewers who have created theme-based ReplayTV channels based on a specific topic, such as "tennis." . Platform for new advertising opportunities. ReplayTV's basic PVR architecture can support a wide range of future innovative advertising services. For example, advertisers may be able to purchase new advertising on recorded shows with the use of lead-in and lead-out advertisements. Viewers may also be able to click on banners or short, full motion video commercials to obtain longer, infomercial-style content. Ultimately, viewers may be able to purchase a featured product or service using the remote control, creating an interactive on-air shopping experience for the viewer. Benefits to Cable and Satellite System Operators. The ReplayTV Service enables cable and satellite system operators to enhance the attractiveness of their existing and anticipated services to consumers. We believe this will enable cable and satellite system operators to increase acceptance of new service offerings and improve growth prospects of existing lines of business. Furthermore, we believe that greater customer satisfaction will lead to reduced subscriber churn rates and increase the operators' ability to market to new customers. Key benefits offered to cable and satellite system operators include: . Opportunities to reduce churn and grow subscriber base. The ReplayTV Service is designed to reduce viewer frustration, make programming accessible to viewers on their schedule, assist viewers in navigating the expanding programming universe and allow viewers to customize their viewing experience based on their personal preferences. We expect that these benefits will increase customer satisfaction with cable and satellite subscriptions and, therefore, reduce subscriber churn. In addition, these benefits provide system operators with new marketing tools to convert households that have never subscribed to or have cancelled cable or satellite services into paying subscribers. . Enhanced appeal of premium offerings. We believe that there is a significant portion of cable and satellite customers who do not subscribe to premium channels such as HBO and Showtime because they lack the ability to easily watch what they want when they want. By enabling subscribers to view their favorite premium shows on their own schedules, we believe that service operators can increase premium penetration and retention rates. . Enhanced appeal of pay-per-view offerings. Convenience increases pay-per- view usage. For example, the buy rates, or movie purchases per month, for households with access to more advanced cable or satellite technologies known as near video-on-demand are more than three times those for conventional pay-per-view systems. With future versions of the ReplayTV Service, subscribers will be able to watch selected movies or events when they want, with the ability to control how they view the movie or event with features that exceed VCR functionality. . Platform for new services and better capacity utilization. We expect that the ReplayTV Service will provide new sources of revenue for system operators, such as near video-on-demand or TV-commerce services. For example, system operators could pre-deliver onto ReplayTV-enabled products a variety of pay-per-view movies or events from which subscribers could choose to purchase and view at their convenience. The hard disk capacity of the ReplayTV Service can be used to store data transmitted into viewers' homes during off- or non-peak hours, thereby supporting data-intensive services such as near video-on-demand with bandwidth for which there are few current applications. 36 ReplayTV Strategy Our goal is to build a major media company by establishing our proprietary ReplayTV Service as the leading living room portal to enrich personal television viewing, advertising and TV-commerce. Our strategy to achieve this goal includes the following key elements that leverage the benefits of the ReplayTV Service: Enhance the Living Room Experience. The ReplayTV Service is designed to enhance the traditional living room experience. ReplayTV incorporates the best personal computer technologies, such as hard drive storage, a search engine and a microprocessor, while still maintaining the ease and comfort of living room TV entertainment. Because we do not identify the ReplayTV Service as either a personal computer or an Internet-based service, we believe the ReplayTV Service will appeal to a broader range of viewers. Aggressively Drive Rapid Market Penetration. We are focused on making ReplayTV the standard for personal television, which depends upon vigorously accelerating our market penetration. . Partnership-based distribution model. Our strategy is to increase our market penetration by incentivizing consumer electronics manufacturers and cable and satellite system operators to deliver ReplayTV-enabled products to their customers. We plan to license our technology to major consumer electronics manufacturers to manufacture, distribute and market ReplayTV-enabled units to customers. We have a manufacturing, marketing and distribution agreement with MKE, a subsidiary of Matsushita Electric Industrial Co., Ltd., the largest manufacturer of VCRs sold in North America, and we intend to enter into similar relationships with other consumer electronics companies in the future. We anticipate that future versions of our service will be integrated into other consumer electronics products, such as cable set-top boxes, satellite receivers, DVD players, television sets and Internet access devices. By offering consumers a broad array of ReplayTV-enabled products, we can expand the infrastructure upon which our services may be offered and increase our installed base. . Lower consumer price point. We plan to subsidize the retail price of our PVRs in order to lower the cost to the consumer. We anticipate that the prices of our PVRs and size of the subsidy will generally decrease over the long term as economies of scale and decreasing component costs reduce manufacturing costs. We expect that component costs will decline largely because our PVRs utilize components that are under continual pricing pressure as a result of the proliferation of consumer electronics products, such as DVD players and personal computer peripherals, that incorporate many of these components. . Multi-channel marketing to customers. We intend to dedicate substantial resources to promoting the ReplayTV brand through multiple advertising and marketing channels, including direct mail, infomercials, non- infomercial television, radio, online and print advertising, and free- standing inserts. . Free ReplayTV Service and customer support. We have designed the ReplayTV Service with customer needs in mind. The basic ReplayTV Service is available free of charge to purchasers of ReplayTV-enabled products, while the services offered by our competitors are subscription-based. We also provide free promotional content and free upgrades, which we download remotely without effort by the viewer. In addition, we provide free customer support by e-mail and telephone. Leverage the Strength of Our Existing Media Relationships. We are building strong industry relationships by offering benefits to established industry participants. The ReplayTV Service is designed to benefit broadcasters, cable and satellite system operators, content companies and other existing industry participants by offering new revenue opportunities while preserving traditional revenue streams. Based on this model, we are building strong relationships with some of the largest media companies in the world. For example, we are creating ReplayZones for NBC, Showtime and Turner, and our existing equity investors include Disney, Liberty Media, NBC, Showtime, Time Warner and Tribune. Our ability to build strong industry relationships is greatly enhanced by our senior management team, which has substantial high- level experience in television programming, content development, advertising and promotion, and media-related finance. Create New and Innovative Advertising Opportunities. We believe our ReplayTV portal will provide advertising opportunities that do not exist in television today. For example, we plan to offer graphic and full- 37 motion advertising on the Replay Guide and other viewer interfaces, transitional advertisements when the pause or other features are activated, lead-in or lead-out advertisements inserted at the beginning or end of recorded programs and, with the cooperation of content providers, targeted advertisements inserted over existing broadcast messages. Develop Enhanced Services. We plan to expand the revenue-generating opportunities of the ReplayTV Service by working with and, in appropriate cases, securing licenses from, strategic partners to include future generation services such as premium subscription services, near video-on-demand, and TV- commerce. . Premium subscription services. We intend to offer subscriptions to a premium service that would allow customers to create personalized channels such as individualized news, sports, business and weather channels containing segments of content that are automatically combined according to viewer preferences. For example, we are working with CNN to index its program segments by key word and deliver targeted segments to a viewer's personal news channel based upon his or her customized preferences. We believe that sponsorship of premium subscription services by content providers will provide a new revenue stream. . Near video-on-demand. We intend to offer near video-on-demand services that would enable viewers to watch select pay-per-view movies at the times convenient to them. A selection of pay-per-view movies would be downloaded to the ReplayTV Service overnight, and viewers could then choose a movie for viewing at their desired time for a one-time fee. With future increases in both hard disk storage and transmission capacity, we expect to be able to pre-deliver a substantial library of movies to the ReplayTV Service, which viewers could conveniently access on a pay-per- view basis. . TV-commerce. As a living room portal, the ReplayTV interface provides several TV-commerce opportunities. Similar to the Internet, we intend to provide the viewer with access to one-click shopping for merchandise offered by partners through the ReplayTV Service. The ReplayTV Platform The ReplayTV-enabled PVR. The ReplayTV Service is delivered through a personal video recorder, or PVR, designed and developed by ReplayTV. The ReplayTV-enabled PVR connects with a viewer's television set and cable or satellite set-top box and employs a hard disk drive and software technology to digitally record and replay analog or digital broadcast television signals. As a viewer watches television, the ReplayTV-enabled PVR automatically records the current program onto its hard disk, enabling the viewer to control live television with features such as pause, rewind and multi-speed slow motion. Using the ReplayTV remote control, the viewer can manipulate a live broadcast, select shows to record or replay recorded shows stored on the hard disk. The hard disk in the current model of the ReplayTV-enabled PVR can accommodate up to 20 hours of recording under standard resolution, and we expect to introduce an additional model that will accommodate 30 hours of standard recording capacity in mid-2000. The ReplayTV Network. The ReplayTV network forms the backbone of the ReplayTV Service. ReplayTV-enabled PVRs automatically dial into the ReplayTV network each night through a standard telephone line to receive downloads of updated information. Through this connection, individual ReplayTV-enabled PVRs are able to receive regular updates of Channel Guide data, advertisements and, in the future, ReplayZone content. In addition, connecting to the ReplayTV network allows ReplayTV-enabled PVRs to receive free software upgrades and to automatically download new features of the ReplayTV Service. We expect that current users of the ReplayTV Service will be upgraded to version 2.0 of the ReplayTV Service software in mid-2000. Communications services for the ReplayTV network are currently provided by UUNET Technologies, Inc. The software for the ReplayTV network is currently maintained in servers owned by ReplayTV and operated by Exodus Communications, Inc. in a data center located in Santa Clara, California. ReplayTV has also arranged for backup data center services at a second outside facility. We are in the process of qualifying additional network communications providers in order to incorporate redundancy in our network. We plan to enter into an arrangement with an additional network provider in the near future, and then to set up a duplicate data center in the eastern United States. 38 The ReplayTV Experience The ReplayTV Service is designed for television viewers who want to watch their favorite shows when they want to watch them, with no monthly fees. The ReplayTV Service is customized for the traditional living room viewing experience. With an easy-to-use interface, the ReplayTV Service allows viewers to personalize their television viewing by: . automatically recording television shows on a hard disk; . controlling live television using features such as pause, rewind, multi- speed slow motion and seven-second instant replay; . easily finding the shows that interest them; and . accessing specialized content on theme-based or branded content areas called ReplayZones, to be available in version 2.0 of the ReplayTV Service software. Using the ReplayTV Service. The viewer navigates the ReplayTV Service using the ReplayTV remote control. ReplayTV offers three basic interfaces--the Channel Guide, the Replay Guide and, with the introduction of version 2.0 of the ReplayTV Service software, ReplayZones--rather than just one access point. The Channel Guide combines regularly updated television programming with proprietary software to provide an interactive lineup of all channels available to the viewer. The Replay Guide is an on-screen guide of personal channels that viewers create based on shows they select to record or themes they define to locate and record shows. ReplayZones are portals to access theme-based programming focused around a category or a network. The viewer can directly access the central screens through their corresponding remote control buttons or by selecting them from the Main Menu, both of which are shown below: [SCREEN SHOTS OF 1. MAIN MENU, AND 2. REPLAYTV PVR AND REMOTE CONTROL] Channel Guide. The ReplayTV Service includes an on-screen Channel Guide that combines regularly updated television programming with proprietary software to provide an interactive lineup of all channels available to the viewer. The Channel Guide is shown here: [SCREEN SHOT OF CHANNEL GUIDE SHOWING ALLY McBEAL] The Channel Guide is updated nightly via an automatic download from the ReplayTV Service and is based directly on the analog broadcast, cable or satellite services that the viewer subscribes to, as specified by the viewer during the on-screen setup process. If the viewer receives television from more than one source, the Channel Guide presents all of the available programming in one convenient guide. From the Channel Guide screen, the viewer can either select a show to watch or select a show for recording at a later time. Finding shows to record. The ReplayTV Service allows the viewer to quickly find a show for recording through its Find Shows feature. The viewer can search by entering the show title, a part of the title, an actor or director or even a topic. A sample search using the Find Shows feature is shown below: [SCREEN SHOT OF FIND SHOWS SEARCH FOR "TENNIS"] Once the ReplayTV Service completes a search, the viewer can choose to record an episode of a particular show located by the Find Shows feature or create a show-based ReplayTV channel that will automatically record every episode of a selected show. A single-record ReplayTV channel is a channel that the viewer has set up to record just one broadcast of a show. Only the chosen show is recorded. A show-based ReplayTV channel set up by the viewer will record every episode of a recurring show, whether it is broadcast daily or weekly. When searching by topic, the viewer can also create a theme-based ReplayTV channel that will automatically search for and record every show related to that topic on an ongoing basis. For example, the viewer can create a theme-based channel to record all shows related to the keyword "tennis." In addition to capturing televised tennis matches, the tennis-themed ReplayTV channel would also record a biography about a famous tennis player or a show about the history of tennis at Wimbledon. 39 Recording shows. The ReplayTV Service allows the viewer to record a show with the touch of a button without programming exact start times or channel settings. Once the viewer has identified a particular show, the viewer simply presses the Record button on the remote control to record the show for future viewing. By pressing the Record button twice, the viewer creates a show-based ReplayTV channel, which automatically records every episode of the show. The viewer can also select shows to record by pressing the Select button on the remote control and completing the Record Options screen, as shown below: [SCREEN SHOTS OF 1. CHANNEL GUIDE SHOWING ALLY McBEAL, AND 2. RECORD OPTIONS SCREEN] Once a show has been selected for recording, the Channel Guide displays a single solid red dot to confirm a guaranteed recording of a single show and two solid red dots to confirm a guaranteed recording of a show-based ReplayTV channel. Non-guaranteed recordings are represented by hollow red dots. The ReplayTV Service will always record guaranteed shows, and will record non- guaranteed shows if space is available on the hard disk at the time the show is scheduled to air. The viewer manages hard disk space by setting up guaranteed and non-guaranteed shows and by deleting recorded shows after they have been watched. ReplayZones. ReplayZones, to be available in version 2.0 of the ReplayTV Service software, are portals to access theme-based programming around a category or a network. ReplayZones, which are created by our media partners or by ReplayTV, contain program information, promotions and content for viewers. Viewers can browse through topical ReplayZones and choose programs to record. For example, we plan to introduce a Movie Zone, where the viewer chooses movie channels that are organized by genre, such as action adventure, romantic comedy or drama. Once the viewer selects a particular channel from the ReplayZone, it is added to the Replay Guide for future recording. By choosing a genre represented within a ReplayZone instead of a specific program, a viewer can record many programs automatically. ReplayZones are a dynamic part of the ReplayTV Service, and we plan to continuously adapt them in order to encourage repeated visits and use. In addition, through strategic relationships with ReplayTV, television programmers and other content providers can create their own branded ReplayZones with customized content and promotions for viewers. An example of a ReplayZone is shown here: [SCREEN SHOT OF REPLAYZONE] Replay Guide. Recorded shows are listed in the Replay Guide, shown below. To watch a recorded show, the viewer selects a show from the Replay Guide and chooses "Play" from the on-screen menu. All control features offered by the ReplayTV Service, such as pause, rewind, multi-speed slow motion, fast forward, seven-second instant replay and frame-by-frame advance, are available while viewing a recorded ReplayTV show. Viewers can also cancel a recording before it airs and change the recording options they had previously set for any ReplayTV show. [SCREEN SHOT OF REPLAY GUIDE] Customer support. Viewers can access our free high-quality customer support by e-mail and telephone. ReplayTV Advertising Services Advertisers have embraced every new avenue and medium to reach their audience, but continue to favor television over other forms of media due to its unique "living room" access and its broad reach. We believe that our ReplayTV Service will offer advertisers a new platform that provides a more effective way to deliver information to consumers, a more efficient way to spend advertising budgets and a better way to target audiences and identify, monitor and respond to consumers' programming and purchasing preferences. The ReplayTV Platform is expected to provide more accurate audience measurement and viewer data, while maintaining viewer privacy on an individual basis. This should allow advertisers to better target advertisements at viewers who have actively selected and chosen specific programs to watch. 40 Version 2.0 of the ReplayTV Service software will offer advertisers the ability to advertise in theme-based or branded content areas called ReplayZones. For example, a "health" zone focused on healthcare and fitness- related programming would provide a target audience for pharmaceutical companies and other advertisers seeking a health-focused demographic. ReplayTV's basic PVR architecture can support a wide range of future advertising services. In the future, we intend to offer a variety of additional advertising opportunities through the ReplayTV Service, such as: . graphic and full-motion video advertising on the Replay Guide and other viewer interfaces; . transitional advertising such as screen swipes when the pause button or other features are activated; . lead-in and lead-out advertising inserted at the beginning or end of recorded programming; and . targeted advertisements inserted over existing broadcast messages with the cooperation of content providers. Future Offerings The ReplayTV Service is being developed to facilitate an entirely new paradigm for delivering programming, products and services to viewers based on TV-commerce. We anticipate that viewers will ultimately be able to use the ReplayTV Service to simply "point and click" when ordering movies, sports events, programming packages, games and other products and services. In particular, we plan to expand the revenue-generating opportunities of the ReplayTV Service by working with, and, in appropriate cases, securing licenses from, strategic partners to include future generation services such as premium subscription services, near video-on-demand, and TV-commerce. . Premium Subscription Services. We intend to offer subscriptions to a premium service that would allow customers to create personalized channels, such as individualized news, sports, business and weather channels containing segments of content that are automatically combined according to viewer preferences. For example, we are working with CNN to index its program segments by key word and deliver targeted segments to a viewer's personal news channel based on his or her customized preferences. . Near Video-on-Demand. We intend to offer near-video-on-demand services that would enable viewers to watch select pay-per-view movies at the times convenient to them. A selection of pay-per-view movies would be downloaded to the ReplayTV Service overnight, and viewers could then choose a movie for viewing at their desired time for a one-time fee. . TV-Commerce. We intend to provide the viewer with access to one-click shopping for merchandise offered by partners, including sponsors of ReplayZones, through the ReplayTV Service. Media Relationships As part of our strategy to become a major media company, we are pursuing strategic relationships with television programmers, advertising agencies and other potential media partners. Our existing equity investors include leading media companies such as Disney, Liberty Media, NBC, Showtime, Time Warner and Tribune.We plan to leverage our media relationships to expand our advertising and sponsorship opportunities, offer unique programming content, differentiate the ReplayTV Service and enhance the ReplayTV brand. For example, we have entered into an agreement with Turner Broadcasting to produce ReplayZones that highlight current and upcoming programming from the Turner television networks. Turner and ReplayTV will jointly sell advertising space on the Turner ReplayZones and will share advertising revenues. In addition, we have agreed to work with Turner to develop future collaborative offerings on the ReplayTV Service, including a CNN premium channel, advertisements promoting Turner television programs and TV-commerce for Turner 41 products. We have also entered into agreements to produce ReplayZones with NBC and Showtime, and we expect to enter into additional programming and sponsorship relationships with other media companies in the future. Distribution and Manufacturing Relationships We are pursuing strategic relationships with consumer electronics manufacturers, cable and satellite system operators and manufacturers of cable and satellite receivers to manufacture, distribute and market ReplayTV-enabled products. Our existing equity investors include leading manufacturing and multi-channel distribution companies such as EchoStar, MKE, Sharp and Time Warner. We intend to leverage these manufacturing and distribution relationships to accelerate our market penetration and rapidly grow our installed base of viewers. All ReplayTV-enabled PVRs are currently manufactured by Flextronics International, a third party contract manufacturer. In addition, we have entered into an agreement with MKE, a subsidiary of Matsushita Electric Industrial Co., Ltd., the largest manufacturer of VCRs sold in North America, to manufacture, distribute and market ReplayTV-enabled PVRs under the Panasonic brand featuring the ReplayTV logo. We anticipate that MKE will begin distributing ReplayTV-enabled PVRs manufactured by Flextronics in mid-2000. Under our agreement with MKE, MKE has been granted subsidies and favored customer terms, as well as licenses to manufacture and distribute ReplayTV- enabled PVRs incorporating our driver and client device software. We also intend to enter into agreements with other equipment manufacturers to integrate the ReplayTV Service into additional consumer electronics products, such as DVD players, television sets and Internet access devices. We believe that entering into strategic relationships with MKE and other consumer electronics companies to manufacture and sell ReplayTV-enabled products will enable us to focus our creative resources on promoting and enhancing the ReplayTV Service. In addition, we intend to leverage these partners' established retail distribution channels to drive the rapid market penetration of the ReplayTV Service. We also plan to establish distribution relationships with cable and satellite system operators and manufacturers of cable and satellite set-top boxes. We believe that strategic relationships with cable and satellite system operators will enable us to rapidly expand our installed base of viewers. Furthermore, we intend to enter into relationships with cable and satellite equipment manufacturers to integrate the ReplayTV Service with cable set-top boxes and satellite receivers and expand the distribution of the ReplayTV Service. To drive rapid market penetration, we anticipate that all of our agreements with third-party manufacturers will require us to subsidize the manufacturing cost of ReplayTV-enabled products for the foreseeable future in order to lower the retail price to the consumer. We anticipate that the size of the subsidy and the price of ReplayTV-enabled products will generally decrease over the long term as the cost of manufacturing ReplayTV-enabled products declines due to increases in volume and also as the costs of the components incorporated into ReplayTV-enabled products decrease. We expect that component costs will decline largely because our ReplayTV-enabled products utilize components that are under continual pricing pressure as a result of the proliferation of consumer electronics products, such as DVD players and personal computer peripherals, that incorporate many of these components. Sales and Marketing ReplayTV's sales and marketing strategy is designed to establish the ReplayTV brand, increase customer awareness of personal television and the ReplayTV Service and build our installed base of viewers. Beginning in mid- 2000, we plan to initiate an aggressive marketing campaign to promote the ReplayTV Service as the brand leader in the personal television market. This multi-channel campaign will include infomercials, conventional television and radio advertising, print, outdoor and online advertising, and free-standing inserts, on both national and regional levels. We anticipate that retail distribution will become the primary channel for sales of ReplayTV-enabled products in 2000. Since we began shipping ReplayTV- enabled PVRs in April 1999, we have sold PVRs to 42 consumers principally through our web site, www.replaytv.com, and our toll- free number, 1-877-ReplayTV, as well as through online retailers such as Amazon.com, Roxy.com and 800.com. MKE plans to launch the full-scale retail distribution of ReplayTV-enabled PVRs under the Panasonic brand featuring the ReplayTV logo in mid-2000 through major national and regional retail chains. We intend to leverage the established retail distribution channels of MKE and our other distribution partners to drive our installed base of ReplayTV viewers. In addition, we intend to subsidize the cost of manufacturing ReplayTV-enabled products in order to maintain an attractive retail price and accelerate our market penetration. MKE and our other distribution partners will take primary responsibility for selling ReplayTV-enabled products to retailers and supporting the retail channel through marketing, in-store promotions and sales force training. However, we will guide the creative content of these marketing efforts in conjunction with our broader marketing campaign. In addition, we will support the sales and marketing efforts of MKE and our other distribution partners by educating retailers about PVRs and the ReplayTV Service and by training their sales teams. The current version of our ReplayTV Service permits us to provide certain limited advertising; however, we are continuing to develop additional functionality to enable us to deliver additional advertising and other services on the ReplayTV Service in conjunction with various media partners. We expect to share a significant portion of the related advertising and service revenues with these media partners. Beginning in the second half of 2000, we expect to build a direct sales force to market our advertising inventory. Research and Development Our engineering efforts are focused on three main areas: hardware platform engineering, client service software development and network infrastructure development. Hardware Platform Engineering. We have developed hardware reference implementations (including both electrical and mechanical designs) and the necessary platform-specific software to enable our partners to design, manufacture and distribute a large number of products enabled by the ReplayTV Service, including stand-alone devices, DVD players and cable and satellite set-top boxes. Our implementations are used by our partners as the basis for their own product designs, with each partner deciding how much of our reference implementation it will use. We also develop and provide documentation of our reference platform designs, as well as samples of various elements of the platform-specific software. As with our agreement with MKE, we anticipate that we will grant third-party manufacturers licenses to use our client device and driver software to distribute and manufacture ReplayTV- enabled devices and to develop improvements to the platform-specific software. We work closely with our partners and with component suppliers and data storage suppliers to lower the cost of the ReplayTV platform and to take advantage of newly developed technologies. We intend to work with a broad range of partners to develop our technology platform and to establish ReplayTV as the leading platform in the personal television market. Client Service Software Development. Because we plan ultimately to deliver the ReplayTV Service on a variety of hardware platforms, we devote significant engineering effort to building a flexible and robust client software implementation of our network services. This client software is designed to operate on many different platforms in a manner that provides a consistent and clearly branded ReplayTV Service offering. Version 2.0 of the ReplayTV Service software is currently in beta testing, and we plan to release it to coincide with our full-scale retail launch in mid-2000. Viewers receive automatic updates of the ReplayTV Service via the nightly download from the ReplayTV Service network. Network Infrastructure Development. The creation of content and advertising by our partners and the aggregation, management and delivery of that content to the ReplayTV Service requires a complex network infrastructure. We develop tools that allow our media partners and advertisers to create content for the ReplayTV Service quickly and easily, using non-technical personnel and existing equipment. We also develop software to run on the ReplayTV Service servers to verify the quality of that content and to deliver it to the correct viewers. 43 Our research and development expenses totaled $136,000 for the period from inception to December 31, 1997, $1,961,000 for the year ended December 31, 1998 and $4,814,000 for the nine months ended September 30, 1999. As of December 31, 1999, we had 49 employees engaged in research and development activities. Competition The market for home entertainment goods and services is intensely competitive, rapidly evolving and subject to rapid technological change. We believe that the principal competitive factors in this market are brand recognition, performance, pricing, ease of use, features, installed base and quality of service and support. Because the personal television market is new and rapidly evolving, we expect to face significant barriers in our efforts to secure broad market acceptance and will confront intense competition at several different levels. Personal television competes in a consumer electronics market that is crowded with several established products and services, especially products delivering television programming and other home video entertainment. PVRs and the ReplayTV Service compete with products and technologies that have established markets and proven consumer support, including VCRs, DVD players, cable and satellite television systems and personal computers. In addition, many of the manufacturers and distributors of these products have more strategic partners and greater brand recognition, market presence, financial resources, distribution channels, advertising and marketing budgets and promotional and other strategic partners than we do. To be successful, we believe we will need to spend significant resources to develop consumer awareness of the ReplayTV Service and the personal television product category. Our ability to establish an installed base will depend on consumers purchasing ReplayTV-enabled PVRs. Many consumers who have purchased VCRs, DVD players or other home video entertainment products may be reluctant to purchase PVRs. The ReplayTV-enabled PVR and the ReplayTV Service do, however, offer several advantages over traditional home video entertainment products, including: . an on-air guide to television programming updated on a nightly basis; . the ability to digitally store and retrieve up to 20 hours of television programming using the current model of the ReplayTV-enabled PVR, and up to 30 hours of programming using an additional model we expect to introduce in mid-2000; . the ability to pause and rewind live television, and fast forward to catch up to live broadcasts in progress; . the ability to record every episode of a given show at the click of a button; . the ability to search and navigate television shows by theme based on a viewer's customized preferences; and . specialized programming and content, including ReplayZones. In addition to competition from established consumer electronics products, we face competition from companies that offer personal television capabilities. For example, TiVo Inc. markets a PVR that includes a hard disk drive and features similar to those of the ReplayTV-enabled PVR. Although the TiVo PVR is less expensive to purchase than the ReplayTV-enabled PVR, TiVo charges viewers a monthly subscription fee for its service, unlike the basic ReplayTV Service, which is free to the customer. TiVo currently offers a one- time lifetime subscription fee, resulting in an overall cost of the TiVo product substantially equivalent to that of the ReplayTV-enabled PVR. We also face competition from companies that intend to combine personal video recorder features with Internet access, interactive television features and/or broadcast, cable or satellite television reception into a single medium. For example, WebTV Networks, Inc., a subsidiary of Microsoft Corporation, and EchoStar Communications Corporation have released products that combine Internet access with an electronic program guide and offer features similar to those of the ReplayTV-enabled PVR. The WebTV personal television service is offered on a monthly subscription fee basis. TiVo recently announced an agreement with Blockbuster Inc. to 44 jointly develop the capability to deliver products and video-on-demand services. In addition, TiVo and Liberate Technologies have announced an agreement to bundle Liberate's interactive television platform with TiVo's service and market it to network operators, as well as to deliver PVR capabilities in connection with a new interactive television service to be offered by America Online, Inc. under the brand name AOL TV. While some of these competitive products and services offer fewer services than the ReplayTV Service, we do not currently offer Internet or interactive television features. We may also face additional competition as a result of future technological developments. For example, cable and satellite system operators could in the future offer video-on-demand services that might reduce consumer demand for personal television services. As broadband delivery systems become more prevalent, it is possible that more and more programs may be available for ordering, over the Internet or otherwise, which may lessen the importance of broadcast television and weaken the appeal of the ReplayTV Service. Patents and Intellectual Property We have adopted a proactive patent and trademark strategy designed to protect our technology and intellectual property. We are the assignee of two United States patents, have filed twelve United States patent applications and have filed four international patent applications. Our pending patent applications relate to our technology, including hardware, software and the ReplayTV Service features and appearance; however, these patent applications may never result in the issuance of patents. We have filed trademark applications covering substantially all of our trade dress, logos and slogans, including: . ReplayTV logo .Watch What You Want When You Want . ReplayTV .Zone . Primetime. Anytime. .It's Television Made Personal
These applications are currently pending with the United States Patent and Trademark Office. We also have international trademark applications pending for our ReplayTV logo. We have licensed the use of our name and logo to some of our strategic partners. The emerging enhanced television industry is highly litigious, particularly with respect to patent infringement and other intellectual property claims. In some cases we have been contacted by patent owners offering us the opportunity to license their patents. Some of these patent owners have alleged that we are infringing their patents. Trademarks Our trademarks are listed above. All other trademarks and service marks appearing in this prospectus are trademarks or service marks of the respective companies that use them. Employees As of December 31, 1999, we had 127 full-time employees, including 58 in product management and engineering, five in programming and content, 15 in sales and marketing, 27 in business operations, nine in finance and administration and 13 in customer care. We expect our workforce to increase substantially over the next 12 months. We believe our employee relations are good. Facilities We have 61,728 square feet of space in a facility located in Mountain View, California, under a lease that expires in March 2006. We believe that our current facilities are adequate to meet our needs through the end of 2000, at which time we may need to lease additional space. 45 Legal Matters We are aware that media companies and other organizations may support litigation or explore legislative solutions unless the members of the personal television industry agree to obtain license agreements for the use of certain programming. We have received letters and oral indications from a number of content providers, including Fox Television, Universal Studios and The Walt Disney Company, asserting their belief that our business activities and those of some of our competitors will require approvals and licenses from these content providers. In addition, under our Network Service Agreement with Turner Broadcasting Systems, Inc., Turner has reserved the right to assert any claims or rights against us. In addition, we and TiVo have been sued by PhoneTel Communications, Inc. for allegedly infringing a patent related to specifying an order for playback of recorded television programs. 46 MANAGEMENT Executive Officers and Directors The names and ages of our executive officers and directors as of December 31, 1999 are as follows:
Name Age Position(s) - ---- --- ----------- Earle H. "Kim" LeMasters, III......... 50 Chief Executive Officer and Chairman of the Board Anthony J. Wood......... 34 President, Products and Director Layne L. Britton........ 44 Executive Vice President, ReplayTV Service Craig W. Dougherty...... 43 Executive Vice President, Finance and Chief Financial Officer Alexander Gray.......... 42 Executive Vice President, Business Operations Bruce L. Kaplan......... 50 Executive Vice President, Sales and Marketing Jeffrey Berg (1)........ 52 Director Kevin L. Bohren......... 42 Director Sky D. Dayton (1)....... 28 Director William R. Hearst III (1).................... 50 Director
- -------- (1) Member of audit committee and compensation committee. Earle H. "Kim" LeMasters, III has served as Chief Executive Officer and Chairman since September 1999. Previously, Mr. LeMasters worked as a freelance television writer from June 1999 to September 1999 and served as Executive Producer at Twentieth Television from May 1996 to June 1999. From June 1992 to May 1996, Mr. LeMasters served as President of Stephen J. Cannell Productions, a television production company which was acquired by New World Television in 1996. From 1976 to 1990, Mr. LeMasters was employed by CBS Television, serving most recently as President of CBS Entertainment. Mr. LeMasters holds a Bachelor of Arts from the University of California at Los Angeles. Anthony J. Wood founded ReplayTV and has served as President, Products since November 1999 and as a director since August 1997. From August 1997 to August 1999, he served as Chairman and from November 1997 to August 1999 he served as President and Chief Executive Officer. Previously, Mr. Wood served as Vice President of Internet Authoring at Macromedia from March 1996 to September 1997. From January 1995 to March 1996, Mr. Wood co-founded and served as President and Chief Executive Officer of iband, Inc., which was acquired by Macromedia in 1996. From August 1990 to January 1995, he founded and served as President and Chief Executive Officer of SunRize Industries, a developer of audio hardware and software. Mr. Wood holds a Bachelor of Science in Electrical Engineering from Texas A&M University. Layne L. Britton has served as Executive Vice President, ReplayTV Service since June 1999. From October 1997 to May 1999, Mr. Britton served as Executive Vice President of Business Operations at United Paramount Networks. From October 1996 to October 1997, he served as President and Chief Operating Officer of Ticketmaster Ventures, a ticketing and merchandising company acquired by Home Shopping Network in 1997. Previously, Mr. Britton was employed as Vice President of Business Affairs at CBS Entertainment, as Vice President of Business Affairs at NBC Entertainment, and as Director of Business Affairs at The Dick Clark Company, Inc. Mr. Britton holds a Bachelor of Arts from Loyola University and a Juris Doctorate from the UCLA School of Law. Craig W. Dougherty has served as Executive Vice President, Finance and Chief Financial Officer since November 1999. Previously, Mr. Dougherty was employed at Union Bank of California from 1979 to October 1999, serving most recently as Executive Vice President and Manager of the Specialized Industries Group, which provides corporate financing to the entertainment, media, communication, telecom and retailing industries. Mr. Dougherty was also President of the Private Capital Group, a merchant banking arm that provides equity and mezzanine financing for privately held growth companies. Mr. Dougherty holds a Bachelor of Arts in Economics and French from Tufts University. 47 Alexander Gray has served as Executive Vice President, Business Operations since November 1999. From July 1997 to November 1999, Mr. Gray was employed at Lucent Technologies, serving most recently as Vice President and General Manager of Internet Communications, a business unit developing a family of next-generation Internet-oriented communications systems. Previously, Mr. Gray was employed by Octel Communications, serving as Senior Vice President of Operations from January 1996 to July 1997 and as Vice President and Chief Information Officer from December 1992 to January 1996. Mr. Gray holds a Bachelors of Science in Computer Science and a Masters in Electrical Engineering from Washington University. Bruce L. Kaplan has served as Executive Vice President, Sales and Marketing since November 1999. Previously, Mr. Kaplan served as President of Kaplan & Co., a marketing consulting firm, from February 1990 to September 1999. From March 1990 to February 1999, Mr. Kaplan also served as Executive Vice President of Fattal & Collins, a wholly-owned subsidiary of Grey Advertising. From January 1997 to February 1998, Mr. Kaplan served as Vice Chairman of American Cybercast, an online entertainment company. Mr. Kaplan holds a Bachelor of Arts in Political Science and a Juris Doctorate from the University of California at Los Angeles. Jeffrey Berg has served as a director since April 1999. Since November 1994, Mr. Berg has served as Chairman and Chief Executive Officer of International Creative Management, a talent agency. Since November 1997, he has served as a director of Oracle Corporation, an enterprise software company. Mr. Berg holds a Bachelor of Arts from the University of California at Berkeley and a Masters of Liberal Arts from the University of Southern California. Kevin L. Bohren has served as a director since July 1998. Since October 1998, Mr. Bohren has been employed as a private investor. From January 1997 to October 1998, Mr. Bohren served as President and Chief Executive Officer of Traveling Software (now LapLink.com), a leading manufacturer of remote communications software. From March 1983 to January 1997, Mr. Bohren was employed at Compaq Corporation, serving most recently as Vice President, Desktop Division. Mr. Bohren holds a Bachelor of Arts in Geography from the University of Minnesota. Sky D. Dayton has served as a director since April 1999. Since June 1999, Mr. Dayton has been a co-founder of eCompanies LLC, an incubator of Internet start-ups. Mr. Dayton founded Earthlink Network, an Internet service provider, in May 1994 and served as its Chairman until January 2000. Mr. Dayton remains a director of Earthlink. William R. Hearst III has served as a director since March 1999. Since January 1995, Mr. Hearst has been a Partner at Kleiner Perkins Caufield & Byers, a venture capital firm. From May 1995 until August 1996, he was the Chief Executive Officer for @Home Network, a high speed Internet access and consumer online services company. Previously, Mr. Hearst served as Editor and Publisher of the San Francisco Examiner from 1984 until 1995. Mr. Hearst is a director of Juniper Networks, Excite@Home, Com21 and Hearst-Argyle Television. Mr. Hearst holds a Bachelor of Arts in Mathematics from Harvard College. Board Composition We currently have authorized six directors. Currently, each director is elected for a period of one year at our annual meeting of stockholders and serves until the next annual meeting or until his successor is duly elected and qualified. Beginning at the first annual meeting of stockholders after the annual meeting of stockholders at which we have at least 800 stockholders, the board of directors will be divided into three classes, each serving staggered three-year terms: Class I, whose term will expire at the first annual meeting of stockholders after our first annual meeting of stockholders at which we have 800 stockholders; Class II, whose term will expire at the second annual meeting of stockholders after our first annual meeting of stockholders at which we have 800 stockholders; and Class III, whose term will expire at the third annual meeting of stockholders after our first annual meeting of stockholders at which we have 800 stockholders. As a result, only one class of directors will be elected at each annual meeting of our stockholders, with the other classes continuing for the remainder of their respective terms. Our officers are appointed by the board of directors and serve at the discretion of the board of directors. There are no family relationships among any of our directors or executive officers. 48 Board Compensation Our directors do not currently receive compensation for their services as members of the board of directors, except for reimbursement for reasonable travel expenses relating to attendance at board meetings. Employee directors are eligible to participate in our 1997 stock option plan and 1999 stock plan and will be eligible to participate in our 2000 employee stock purchase plan. Nonemployee directors are eligible to participate in our 1997 stock option plan and 1999 stock plan and will be eligible to participate in our 2000 directors' stock option plan. See "Stock Plans." In July 1998, we granted Kevin L. Bohren an option to purchase 120,000 shares of common stock at $0.03 per share. The option becomes exercisable at the rate of 1/3rd of the total number of shares on July 27, 1999 and 1/36th of the total shares per month thereafter. In April 1999, we granted Mr. Bohren an option to purchase 80,000 shares of common stock at $0.25 per share. The option becomes exercisable at the rate of 1/3rd of the total number of shares on April 23, 2000 and 1/36th of the total shares per month thereafter. We entered into a consulting relationship with Mr. Bohren in March 1999, pursuant to which he has earned an aggregate of $71,666 and have issued him an aggregate of 38,720 shares of restricted stock as of December 31, 1999. In April 1999, we granted Sky D. Dayton and Jeffrey Berg each an option to purchase 200,000 shares of common stock at $0.25 per share. These options become exercisable at the rate of 1/3rd of the total number of shares on April 28, 2000 and 1/36th of the total shares per month thereafter. In April 1999, we granted Anthony J. Wood an option to purchase 275,000 shares of common stock at $0.275 per share. The option becomes exercisable at the rate of 1/12th of the total number of shares per month from and after August 1, 2000. In September 1999, we granted Earle H. "Kim" LeMasters, III an option to purchase 2,500,000 shares of common stock at $4.00 per share. The option is immediately exercisable, but the underlying shares are subject to a repurchase option in favor of us which lapses at the rate of 1/8th of the total number of shares on March 13, 2000 and 1/48th of the total shares per month thereafter. Board Committees In January 2000, the board of directors established the audit committee and the compensation committee. The compensation committee currently consists of Jeffrey Berg, Sky D. Dayton and William R. Hearst III. The functions of the compensation committee are to: . review and approve the compensation and benefits for our executive officers and grant stock options under our stock option plans; and . make recommendations to the board of directors regarding these matters. The audit committee consists of Jeffrey Berg, Sky D. Dayton and William R. Hearst III. The functions of the audit committee are to: . make recommendations to the board of directors regarding the selection of independent auditors; . review the results and scope of the audit and other services provided by our independent auditors; and . review and evaluate our audit and control functions. Compensation Committee Interlocks and Insider Participation The members of the compensation committee of the board of directors are currently Jeffrey Berg, Sky D. Dayton and William R. Hearst III, none of whom has ever been an officer or employee of ReplayTV. None of our executive officers serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our board of directors or compensation committee. Before establishing 49 the compensation committee in January 2000, the board of directors as a whole performed the functions delegated to the compensation committee. Executive Compensation The following table sets forth the compensation received for services rendered to us during the year ended December 31, 1999 by the two individuals who served as Chief Executive Officer during 1999 and the four other most highly compensated executive officers during the year ended December 31, 1999. Summary Compensation Table
Long-Term Compensation Annual Compensation Awards -------------------------------------- ------------ Securities Name and Principal Salary Other Annual Underlying All Other Position ($) Bonus ($)(7) Compensation ($) Options (#) Compensation ($) - ------------------ -------- ------------ ---------------- ------------ ---------------- Earle H. "Kim" LeMasters, III(1)...... $109,154 -- 2,500,000 -- Chairman and Chief Executive Officer Anthony J. Wood(2)...... 144,250 -- 275,000 -- President, Products Layne L. Britton(3)..... 140,000 -- 1,120,000 -- Executive Vice President, ReplayTV Service Craig W. Dougherty(4)... 41,667 $25,000 600,000 -- Executive Vice President, Finance and Chief Financial Officer Alexander Gray(5)....... 41,667 -- 600,000 -- Executive Vice President, Business Operations Bruce L. Kaplan(6)...... 40,000 $12,000 30,000 500,000 -- Executive Vice President, Sales and Marketing
- -------- (1) Mr. LeMasters commenced employment with us in September 1999. On an annual basis, Mr. LeMasters' salary for the fiscal year ended December 31, 1999 would have been $360,000 plus reimbursement of expenses up to $50,000. (2) Mr. Wood served as Chief Executive Officer until August 1999. In September 1999, he was appointed President, Products. The amount excludes deferred compensation of $84,500 which Mr. Wood earned during the fiscal year ended December 31, 1998 but which was paid to him during the fiscal year ending December 31, 1999. Effective January 1, 2000, the board of directors approved raising Mr. Wood's annual salary to $250,000. (3) Mr. Britton commenced employment with us in July 1999. On an annual basis, Mr. Britton's salary for the fiscal year ended December 31, 1999 would have been $240,000, plus reimbursement of up to $50,000 of relocation expenses. (4) Mr. Dougherty commenced employment with us in November 1999. On an annual basis, Mr. Dougherty's salary for the fiscal year ended December 31, 1999 would have been $250,000. Mr. Dougherty is entitled to a signing bonus of $50,000 to $100,000, the actual amount of which has not yet been determined by the board of directors. Mr. Dougherty must repay 100% of this bonus in the event he resigns or is terminated with cause within 12 months following his start date and 50% of this bonus in the event he resigns or is terminated with cause between 12 and 24 months following his start date. The $25,000 of other annual compensation represents a relocation allowance. (5) Mr. Gray commenced employment with us in November 1999. On an annual basis, Mr. Gray's salary for the fiscal year ended December 31, 1999 would have been $250,000. 50 (6) Mr. Kaplan commenced employment with us in November 1999. On an annual basis, Mr. Kaplan's salary for the fiscal year ended December 31, 1999 would have been $240,000. The $30,000 of other annual compensation represents a relocation allowance. (7) Other than Mr. Kaplan, who received a guaranteed bonus, each officer is eligible to receive a bonus for the year ended December 31, 1999, the amounts of which have not yet been determined by the board of directors. Option Grants The following table provides summary information regarding stock options granted to the two individuals who served as Chief Executive Officer during the year ended December 31, 1999 and the four other most highly compensated executive officers during the year ended December 31, 1999. No stock appreciation rights were granted to these individuals during the year. The options were granted pursuant to the 1997 stock option plan and the 1999 stock plan. Options granted to Messrs. LeMasters, Dougherty, Gray and Britton are exercisable for all option shares; however, any shares purchased upon exercise of these options are subject to repurchase by us at the original exercise price per share upon the termination of the optionee's employment with us. This right of repurchase lapses over time, with the shares issuable upon exercise of options held by each of Messrs. LeMasters, Dougherty and Gray vesting as to 1/8th of the shares on the six month anniversary of the vesting commencement date specified in the respective option agreement, or March 13, 2000 in the case of Mr. LeMasters and May 1, 2000 in the cases of Mr. Dougherty and Mr. Gray, and with 1/48th of the shares in each case vesting each month thereafter. Shares purchased by Mr. Britton pursuant to his exercise of options are similarly subject to our repurchase; however, these shares vest at the rate of 1/48th per month beginning June 30, 1999. Additionally, the option granted to Mr. Wood becomes exercisable at the rate of 1/12th of the total number of shares on September 1, 2000 and 1/12th of the total number of shares each month thereafter, and the option granted to Mr. Kaplan becomes exercisable at the rate of 1/8th of the total number of shares on May 1, 2000 and 1/48th of the total number of shares each month thereafter. The percentages below are based on a total of 10,882,500 shares subject to options granted by us during the year ended December 31, 1999 to all of our employees and consultants, including the executive officers named in the table. The exercise price per share of each option was equal to the fair market value of the common stock as determined by the board of directors on the date of grant. The potential realizable value is calculated assuming the fair market value on the date of grant appreciates at the indicated rate for the entire term of the option and that the option is exercised at the exercise price and sold on the last day of its term at the appreciated price. All options have a term of ten years. Stock price appreciation of 5% and 10% is assumed pursuant to the rules of the Securities and Exchange Commission. There can be no assurance that the actual stock price will appreciate over the ten- year option term at the assumed rates of 5% and 10% or at any other defined rate. Unless the market price of the common stock appreciates over the option term, no value will be realized from the option grants made to the below named executive officers. Option Grants in 1999
Individual Grants ------------------------------------------- Potential Realizable Percent of Value at Assumed Number of Total Annual Rates of Stock Securities Options Price Appreciation For Underlying Granted in Exercise Option Term Options Fiscal Price Expiration ---------------------- Name Granted (#) 1999 ($/Share) Date 5% 10% - ---- ----------- ---------- --------- ---------- ---------- ----------- Earle H. "Kim" LeMasters, III......... 2,500,000 22.97% $4.00 9/13/09 $6,288,946 $15,937,425 Anthony J. Wood......... 275,000 2.53 0.275 4/27/09 47,560 120,527 Layne L. Britton........ 1,120,000 10.29 0.625 5/31/09 440,226 1,115,620 Craig W. Dougherty...... 600,000 5.51 5.00 10/31/09 1,886,684 4,781,227 Alexander Gray.......... 600,000 5.51 5.00 10/31/09 1,886,684 4,781,227 Bruce L. Kaplan......... 500,000 4.59 5.00 10/31/09 1,572,237 3,984,356
51 Option Exercises and Holdings The following table provides summary information concerning the shares of common stock represented by outstanding stock options held by the two individuals who served as Chief Executive Officer during the year ended December 31, 1999 and the four other most highly compensated executive officers during the year ended December 31, 1999. Since there was no public trading market for our common stock as of December 31, 1999, the values realized and the values of unexercised options at December 31, 1999 are based on the fair market value of our common stock of $8.00 per share as determined by our board of directors on December 29, 1999. Therefore, these values are calculated based on the value of $8.00 per share, less the applicable exercise price per share, multiplied by the number of shares underlying these options. Aggregated Option Exercises in 1999 and Fiscal Year-End Option Values
Number of Securities Underlying Value of Unexercised Shares Unexercised Options at In-the-Money Options Acquired December 31, 1999 at December 31, 1999 on Value ------------------------- ------------------------- Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable - ---- --------- ---------- ----------- ------------- ----------- ------------- Earle H. "Kim" LeMasters, III......... 250,000 $1,000,000 2,250,000 -- $9,000,000 -- Anthony J. Wood......... -- -- -- 275,000 -- $2,124,375 Layne L. Britton........ 1,120,000 8,260,000 -- -- -- -- Craig W. Dougherty...... 200,000 600,000 400,000 -- 1,200,000 -- Alexander Gray.......... 100,000 300,000 500,000 -- 1,500,000 -- Bruce L. Kaplan......... -- -- -- 500,000 -- 1,500,000
Change of Control Agreements We entered into an Offer Letter with Earle H. "Kim" LeMasters, III which entitles Mr. LeMasters to 12 months accelerated vesting of his options and restricted stock in the event there is a change of control within 18 months following his commencement of employment with us and acceleration of 75% of the then unvested options and restricted stock held by him in the event there is a change of control after 18 months following his commencement of employment. In addition, Mr. LeMasters is entitled to 12 months severance and an additional 12 months accelerated vesting of his unvested options or restricted stock in the event he is terminated without cause or resigns with good reason following a change of control. We entered into Offer Letters with Craig W. Dougherty and Bruce L. Kaplan which entitle each such officer to six months severance and accelerated vesting equal to the greater of 12 months or 50% of the then unvested stock options or restricted stock held by him in the event he is terminated without cause or resigns for good reason within 12 months following a change of control transaction. We entered into Offer Letters with Layne L. Britton and Alexander Gray which entitle each such officer to accelerated vesting equal to the greater of 12 months or 50% of the then unvested stock options or restricted stock held by him in the event he is terminated without cause or resigns for good reason within 12 months following a change of control. Stock Plans 1999 Stock Plan. Our 1999 stock plan provides for the grant of incentive stock options to employees, including employee directors, and of nonstatutory stock options and stock purchase rights to employees, directors and consultants. The purposes of the 1999 stock plan are to attract and retain the best available personnel, to provide additional incentives to our employees and consultants and to promote the success of our business. The 52 1999 stock plan was originally adopted by our board of directors and approved by our stockholders in August 1999. As of December 31, 1999, an aggregate of 4,230,000 shares were reserved for issuance under the 1999 stock plan, options to purchase 3,680,000 shares of common stock were outstanding under the 1999 stock plan at a weighted average exercise price of $4.38 per share, 550,000 shares had been issued upon exercise of options or pursuant to restricted stock purchase rights at a weighted average purchase price of $4.55 per share and no shares remained available for future grant. In January 2000, the board of directors amended the 1999 stock plan to increase the total number of shares reserved for issuance under the plan by 5,470,000 shares, so that an aggregate of 9,700,000 shares are reserved as of the date of this offering, and to provide for an automatic annual increase on the first day of each of our fiscal years beginning in 2001 through 2009 equal to the greater of 4,000,000 shares or 6% of our outstanding common stock on the last day of the immediately preceding fiscal year. In addition, the 1999 stock plan was amended to provide that up to 7,600,000 shares of common stock that either return to our 1997 stock option plan upon cancellation of options issued under that plan or are shares of stock issued under our 1997 stock option plan that we repurchase when the holder terminates his or her employment or consulting relationship with us shall become available for issuance under the 1999 stock plan. As currently structured, the maximum aggregate number of shares that are approved for issuance over the ten-year term of our 1999 stock plan is 62,300,000 (including the maximum number of shares that may become available for issuance under the plan as a result of award cancellations and repurchases under our 1997 stock option plan). These amendments to the 1999 stock plan will be submitted for approval by our stockholders prior to the completion of this offering. Unless terminated earlier by the board of directors, the 1999 stock plan will terminate in August 2009. The 1999 stock plan may be administered by the board of directors or a committee of the board, each known as the administrator. The administrator determines the terms of options and stock purchase rights granted under the 1999 stock plan, including the number of shares subject to the award, the exercise or purchase price, and the vesting and/or exercisability of the award and any other conditions to which the award is subject. No employee may receive awards for more than 5,000,000 shares under the 1999 stock plan in any fiscal year. Incentive stock options granted under the 1999 stock plan must have an exercise price of at least 100% of the fair market value of the common stock on the date of grant. The plan does not impose restrictions on the exercise or purchase price applicable to nonstatutory stock options and stock purchase rights, although we expect that nonstatutory stock options and stock purchase rights granted to our Chief Executive Officer and our four other most highly compensated officers will generally equal at least 100% of the grant date fair market value. Payment of the exercise or purchase price may be made in cash or any other consideration allowed by the administrator. With respect to options granted under the 1999 stock plan, the administrator determines the term of options, which may not exceed ten years (or five years in the case of an incentive stock option granted to a holder of more than 10% of the total voting power of all classes of our stock). Generally, an option is nontransferable other than by will or the laws of descent and distribution, and may be exercised during the lifetime of the optionee only by such optionee. In certain circumstances, the administrator has the discretion to grant nonstatutory stock options with limited transferability rights. Stock options are generally subject to vesting, meaning that the optionee earns the right to exercise the option over a specified period of time only if he or she continues to provide services to ReplayTV over that period. Stock issued pursuant to stock purchase rights granted under the 1999 stock plan is generally subject to a repurchase right exercisable by ReplayTV upon the termination of the holder's employment or consulting relationship with us for any reason (including death or disability). This repurchase right will lapse in accordance with the terms of the stock purchase right determined by the administrator at the time of grant. If we are acquired by another corporation, each outstanding option and stock purchase right may be assumed or an equivalent award substituted by our acquiror. If our acquiror did not agree to assume or substitute outstanding awards, those awards would terminate to the extent they had not been exercised prior to consummation of the transaction. Outstanding awards, the number of shares remaining available for issuance under the plan, the number of shares added to the plan each year under the plan's evergreen provision and the annual per-employee share limit will each adjust in the event of a stock split, stock dividend or other similar 53 change in our capital. The administrator has the authority to amend or terminate the 1999 stock plan, but no action may be taken that materially and adversely impairs the rights of any holder of an outstanding option or stock purchase right without the holder's consent. In addition, we must obtain stockholder approval of amendments to the plan as required by applicable law. 1997 Stock Option Plan. Our 1997 stock option plan was adopted by our board of directors in August 1997 and approved by our stockholders in November 1997. The 1997 stock option plan provides for the grant of incentive stock options to employees (including employee directors) of incentive stock options and the grant of nonstatutory stock options to employees, consultants and directors. As of December 31, 1999 an aggregate of 9,070,000 shares of common stock were reserved for issuance under the 1997 stock option plan, options to purchase 7,109,637 shares of common stock at a weighted average exercise price of $1.55 per share were outstanding, 1,831,439 shares with a weighted average purchase price of $0.39 per share had been issued upon exercise of options and 128,924 shares remained available for future grant. In January 2000, the board of directors amended the 1997 stock option plan to increase the total number of shares reserved for issuance under the plan by 530,000 shares to an aggregate of 9,600,000 shares. In addition, at that time, the 1997 stock option plan was also amended to provide that up to 7,600,000 shares of stock subject to options issued under the plan that would otherwise become available for grant under the plan upon cancellation of such options and sold under the plan that we repurchase upon termination of the holder's employment or consulting relationship with us shall become available for issuance under our 1999 stock plan. Unless terminated earlier, the 1997 stock option plan will terminate in August 2007. Following this offering, the terms of awards issued under our 1997 stock option plan are generally the same as those that may be issued under our 1999 stock plan, except with respect to the following features. The 1997 stock option plan does not provide for the issuance of stock purchase rights, and it does not impose an annual limitation on the number of shares of stock subject to options that may be granted to any individual employee during a fiscal year. 2000 Employee Stock Purchase Plan. Our 2000 employee stock purchase plan was adopted by the board of directors in January 2000 and will be submitted for approval by our stockholders prior to completion of this offering. An aggregate of 1,000,000 shares of common stock were reserved for issuance under the 2000 purchase plan, none of which have been issued as of the date of this offering. The number of shares reserved for issuance under the 2000 purchase plan will be subject to an automatic annual increase on the first day of each of our fiscal years beginning in 2001 through 2009 equal to the lesser of 500,000 shares, 2% of our outstanding common stock on the last day of the immediately preceding fiscal year, or a lesser number of shares as the board of directors determines. The 2000 purchase plan becomes effective upon the date of this offering. Unless terminated earlier by the board of directors, the 2000 purchase plan will terminate in January 2020. The 2000 purchase plan, which is intended to qualify under Section 423 of the Internal Revenue Code, will be implemented by a series of overlapping offering periods of approximately 24 months' duration, with new offering periods (other than the first offering period) commencing on May 1 and November 1 of each year. Each offering period will generally consist of four consecutive purchase periods of six months' duration, at the end of which an automatic purchase will be made for participants. The initial offering period is expected to commence on the date of this offering and end on April 30, 2002; the initial purchase period is expected to begin on the date of this offering and end on October 31, 2000, with subsequent purchase periods ending on April 30, 2001, October 31, 2001 and April 30, 2002. The 2000 purchase plan will be administered by the board of directors or by a committee appointed by the board. Our employees (including officers and employee directors), or of any majority-owned subsidiary designated by the board, are eligible to participate in the 2000 purchase plan if they are employed by us or any such subsidiary for at least 20 hours per week and more than five months per year. The 2000 purchase plan permits eligible employees to purchase common stock through payroll deductions, which in any event may not exceed 15% of an employee's base salary. The purchase price is equal to the lower of 85% of the fair market value of the common stock at the beginning of each offering period or at the end of each purchase period, subject to certain adjustments as provided in the plan. Employees may end their participation in the 2000 purchase plan at any time during an offering period, and participation ends automatically on termination of employment. 54 An employee is not eligible to participate in the 2000 purchase plan if immediately after the grant of an option to purchase stock under the plan such employee would own stock and/or hold outstanding options to purchase stock equaling 5% or more of the total voting power or value of all classes of our stock or stock of our subsidiaries, or if such option would permit an employee's rights to purchase stock under the 2000 purchase plan at a rate that exceeds $25,000 of fair market value of such stock for each calendar year in which the option is outstanding. In addition, no employee may purchase more than 3,000 shares of common stock under the 2000 purchase plan in any one purchase period. If the fair market value of the common stock on a purchase date is less than the fair market value at the beginning of the offering period, each participant in that offering period shall automatically be withdrawn from the offering period as of the end of the purchase date and re- enrolled in the new 24 month offering period beginning on the first business day following the purchase date. If we merge or consolidate with or into another corporation or sell all or substantially all of our assets, each right to purchase stock under the 2000 purchase plan will be assumed or an equivalent right substituted by our acquiror. If our acquiror did not agree to assume or substitute stock purchase rights, any offering period and purchase period then in progress would be shortened and a new exercise date occurring prior to the closing of the transaction would be set. Outstanding awards, the number of shares remaining available for issuance under the plan, the number of shares added to the plan each year under the plan's evergreen provision and the maximum number of shares that may be purchased by a participant during a purchase period will each adjust in the event of a stock split, stock dividend or other similar change in our capital. Our board of directors has the power to amend or terminate the 2000 purchase plan and to change or terminate offering periods as long as such action does not adversely affect any outstanding rights to purchase stock thereunder. However, the board of directors may amend or terminate the 2000 purchase plan or an offering period even if it would adversely affect outstanding options in order to avoid our incurring adverse accounting charges. 2000 Directors' Stock Option Plan. The 2000 directors' stock option was adopted by the board of directors in January 2000 and will be submitted for approval by our stockholders prior to completion of this offering. It will become effective upon the date of this offering. An aggregate of 300,000 shares of common stock were reserved for issuance under the 2000 directors' plan, all of which remain available for future grants. In addition, the 2000 directors' plan provides that as of January 1 of each year beginning in 2001 and ending in 2009, the aggregate number of shares available to be issued under the plan will automatically be increased by the number of shares necessary to cause the number of shares then available for issuance under the plan to be restored to 300,000 shares, provided that the maximum number of shares that will be available for issuance under the plan over the ten-year term of the plan will not exceed 3,000,000 shares. The 2000 directors' plan provides for the grant of nonstatutory stock options to our nonemployee directors. The 2000 directors' plan is designed to work automatically without administration; however, to the extent administration is necessary, it will be performed by the board of directors. To the extent they arise, it is expected that conflicts of interest will be addressed by abstention of any interested director from both deliberations and voting regarding matters in which a director has a personal interest. Unless terminated earlier, the 2000 directors' plan will terminate in January 2010. The 2000 directors' plan provides that each person who becomes a nonemployee director after the completion of this offering will be granted a nonstatutory stock option to purchase 50,000 shares of common stock on the date on which such individual first becomes a member of our board of directors. In addition, on the date of each annual stockholders meeting after completion of this offering, each nonemployee director who will continue serving on the board following the meeting and who has been a director of ReplayTV for at least six months prior to the meeting date will be granted an option to purchase 15,000 shares of common stock. All options granted under the 2000 directors' plan will have a term of ten years and an exercise price equal to the fair market value of our common stock on the date of grant and will generally be nontransferable, except in certain limited circumstances to family members and family trusts or similar entities. The options to purchase 50,000 shares granted to directors joining our board after this offering will vest in installments as to one-third of the underlying shares on each of the first, second and third anniversaries of the option grant date. The options to purchase 15,000 shares granted to directors annually on the date of our stockholders meetings will vest as to all 55 underlying shares on the first anniversary of the option grant date. If a nonemployee director ceases to serve as a director for any reason other than death or disability, he or she may, but only within 90 days after the date he or she ceases to be a director, exercise options granted under the 2000 directors' plan. If he or she does not exercise the option within such 90-day period, the option shall terminate. If a director's service terminates as a result of his or her disability or death, or if a director dies within three months following termination for any reason, the director or his or her estate will have 12 months after the date of termination or death, as applicable, to exercise options that were vested as of the date of termination. In addition, if ReplayTV determines that a director has engaged in fraud, embezzlement or similar acts against us, or if a director has disclosed information that is confidential to ReplayTV or engaged in any conduct constituting unfair competition against us, we have the right to suspend or terminate that director's right to exercise an option under the 2000 directors' plan. If we are acquired by another corporation, each option outstanding under the 2000 directors' plan will be assumed or equivalent options substituted by our acquiror, unless our acquiror does not agree to such assumption or substitution, in which case the options will terminate upon consummation of the transaction to the extent not previously exercised. In connection with any acquisition, each director holding options under the 2000 directors' plan will have the right to exercise his or her options immediately before the consummation of the merger as to all shares underlying the options, including shares which would not have been vested and exercisable but for the acquisition. Outstanding awards, the number of shares remaining available for issuance under the plan, the number of shares to be granted to new directors and to directors annually on stockholder meeting dates, and the number of shares automatically added to the plan each year will each adjust in the event of a stock split, stock dividend or other similar change in capital. Our board of directors may amend or terminate the 2000 directors' plan as long as such action does not adversely affect any outstanding option and we obtain stockholder approval for any amendment to the extent required by applicable law. Limitation of Liability and Indemnification Matters Our certificate of incorporation limits the liability of directors to the maximum extent permitted by Delaware law. Delaware law provides that directors of a corporation will not be personally liable for monetary damages for breach of their fiduciary duties as directors, except liability for: . any breach of their duty of loyalty to the corporation or its stockholders; . acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; . unlawful payments of dividends or unlawful stock repurchases or redemptions; or . any transaction from which the director derived an improper personal benefit. This limitation of liability does not apply to liabilities arising under the federal securities laws and does not affect the availability of equitable remedies such as injunctive relief or rescission. Our certificate of incorporation and bylaws provide that we shall indemnify our directors and executive officers and may indemnify our other officers and employees and other agents to the fullest extent permitted by law. We believe that indemnification under our bylaws covers at least negligence and gross negligence on the part of indemnified parties. Our bylaws also permit us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in that capacity, regardless of whether the bylaws would permit indemnification. We have entered into agreements to indemnify our directors and executive officers in addition to the indemnification provided for in our bylaws. These agreements, among other things, provide for indemnification of our directors and executive officers for expenses specified in the agreements, including attorneys' fees, judgments, fines and settlement amounts incurred by a director or executive officer in any action or proceeding arising out of his or her services as a director or executive officer of ReplayTV or any subsidiary of ReplayTV. In addition, we maintain directors' and officers' insurance. We believe that these provisions and agreements are necessary to attract and retain qualified persons as directors and executive officers. At present, we are not aware of any pending or threatened litigation or proceeding involving a director, officer, employee or agent in which indemnification would be required or permitted. We are not aware of any threatened litigation or proceeding that might result in a claim for such indemnification. 56 RELATED PARTY TRANSACTIONS Agreements with Management In March 1999, we entered into a consulting relationship with Kevin L. Bohren, pursuant to which Mr. Bohren has earned an aggregate of $71,666 as of December 31, 1999. We have also issued to Mr. Bohren an aggregate of 38,720 shares of restricted stock as of December 31, 1999. In September 1997, we sold Anthony J. Wood 6,000,000 shares of common stock at $0.0005 per share pursuant to a Common Stock Purchase Agreement. In March 1999, we entered into a Revised Offer Letter with Mr. Wood which entitles him to a salary of $150,000 per year, 12 months accelerated vesting of his options and restricted stock and 12 months severance in the event he is terminated without cause or resigns with good reason, and full vesting with respect to the 6,000,000 shares of restricted stock held by Mr. Wood in the event he is replaced as Chief Executive Officer. Mr. Wood's 6,000,000 shares of restricted stock vested in September 1999 when Earle H. "Kim" LeMasters, III became Chief Executive Officer. In April 1999, we granted Mr. Wood an option to purchase 275,000 shares of common stock at $0.275 per share which vests with respect to 1/12th of the total number of shares on August 1, 2000 and 1/12th of the total number of shares each month thereafter. In July 1999, we entered into an Offer Letter with Layne L. Britton. The agreement entitles Mr. Britton to a salary of $240,000 per year and reimbursement of up to $50,000 of relocation expenses. In the event Mr. Britton is terminated without cause or resigns for good reason, he is entitled to nine months accelerated vesting of his restricted stock and severance benefits equal to six months of salary and 50% of the bonus paid to him during the prior year. If Mr. Britton is terminated without cause or resigns for good reason within 12 months following a change of control, he is instead entitled to the greater of 12 months accelerated vesting or acceleration of 50% of his then unvested options and restricted stock. In connection with his commencement of employment, we granted Mr. Britton an option to purchase 1,120,000 shares of common stock at $0.625 per share. The option was exercised in full but is subject to a right of repurchase at cost in our favor in the event Mr. Britton ceases employment with us. Our repurchase option lapses at the rate of 1/48th of the total shares per month. In September 1999, we entered into an Offer Letter with Earle H. "Kim" LeMasters, III. The agreement entitles Mr. LeMasters to a salary of $360,000 per year and reimbursement of expenses of up to $50,000 per year. In September 1999, we granted Mr. LeMasters an option to purchase 2,500,000 shares of common stock at $4.00 per share. The option has been partially exercised, but the underlying shares are subject to a right of repurchase at cost in our favor in the event Mr. LeMasters ceases employment with us. Our repurchase option lapses at the rate of 1/8th of the total number of shares on March 13, 2000 and 1/48th of the total shares per month thereafter. Mr. LeMasters is entitled to 12 months accelerated vesting of all stock and options held by him in the event there is a change of control within 18 months following his commencement of employment with us and acceleration of 75% of his restricted stock and options in the event there is a change of control after 18 months following his commencement of employment. In addition, Mr. LeMasters is entitled to 12 months severance and an additional 12 months accelerated vesting in the event he is terminated without cause or resigns with good reason following a change of control. In October 1999, we entered into an Offer Letter with Craig W. Dougherty. The agreement entitles Mr. Dougherty to a salary of $250,000 per year, a relocation bonus of $25,000 and severance benefits equal to six months salary in the event he is terminated or resigns with good reason. In addition, Mr. Dougherty is entitled to a signing bonus of between $50,000 and $100,000. He must repay 100% of this bonus if he resigns or is terminated with cause during the first year of his employment with us and 50% of this bonus if he resigns or is terminated with cause during the second year of his employment with us. In November 1999, we granted Mr. Dougherty an option to purchase 600,000 shares of common stock at $5.00 per share. The option has been partially exercised, but the underlying shares are subject to a right of repurchase at cost in our favor in the event Mr. Dougherty ceases employment with us. Our repurchase option lapses at the rate of 1/8th of the total number of shares on May 1, 2000 and 1/48th of the total shares per month thereafter. Mr. Dougherty is entitled to six 57 months accelerated vesting of his unvested options or restricted stock in the event he is terminated without cause or resigns with good reason. Alternatively, Mr. Dougherty is entitled to accelerated vesting equal to the greater of 12 months or 50% of the then unvested stock options and restricted stock held by him in the event he is terminated without cause or resigns for good reason within 12 months following a change of control. In October 1999, we entered into an Offer Letter with Alexander Gray. The agreement entitles Mr. Gray to a salary of $250,000 per year. In November 1999, we granted Mr. Gray an option to purchase 600,000 shares of common stock at $5.00 per share. The option has been partially exercised, but the underlying shares are subject to a right of repurchase at cost in our favor in the event Mr. Gray ceases employment with us. Our repurchase option lapses at the rate of 1/8th of the total number of shares on May 1, 2000 and 1/48th of the total shares per month thereafter. Mr. Gray is entitled to six months accelerated vesting and six months severance in the event he is terminated without cause or resigns with good reason. Alternatively, Mr. Gray is entitled to accelerated vesting equal to the greater of 12 months or 50% of the then unvested stock options or restricted stock held by him in the event he is terminated without cause or resigns for good reason within 12 months following a change of control. In October 1999, we entered into an Offer Letter with Bruce L. Kaplan. The agreement entitles Mr. Kaplan to a salary of $240,000 per year, a guaranteed first year bonus of $72,000 and a relocation bonus of $30,000. In November 1999, we granted Mr. Kaplan an option to purchase 500,000 shares of common stock at $5.00 per share which becomes exercisable at the rate of 1/8th of the total number of shares on May 1, 2000 and 1/48th of the total per month thereafter. Mr. Kaplan is entitled to six months accelerated vesting and six months severance in the event he is terminated without cause or resigns with good reason. Alternatively, Mr. Kaplan is entitled to accelerated vesting equal to the greater of 12 months or 50% of the then unvested stock options or restricted stock held by him in the event he is terminated without cause or resigns for good reason within 12 months following a change of control. We have entered into indemnification agreements with each of our executive officers and directors. These indemnification agreements may require us to indemnify these persons against liabilities that may arise by reason of their status as officers or directors, other than liabilities arising from willful misconduct of a culpable nature, and to advance their expenses as a result of any proceeding against them. Loans to Management The following executive officers have issued full recourse promissory notes in our favor in connection with their early exercise of stock options issued pursuant to their original stock option agreements under the 1997 stock option plan and the 1999 stock plan:
Date of Principal Interest Name Note Amount Date Due Rate - ---- -------- ---------- -------- -------- Earle H. "Kim" LeMasters, III............. 9/23/99 $1,000,000 9/22/04 5.98% Layne L. Britton.......................... 7/1/99 600,000 7/1/04 5.74 Layne L. Britton.......................... 7/1/99 100,000 7/1/04 5.74 Craig W. Dougherty........................ 11/15/99 1,000,000 11/15/04 6.08 Alexander Gray............................ 11/15/99 500,000 11/15/04 6.08
58 Private Placement Transactions The following table summarizes the shares of preferred stock purchased by executive officers, directors and 5% stockholders and persons and entities associated with them in private placement transactions. Each share of preferred stock converts into one share of common stock automatically upon the closing of this offering. The shares of Series A preferred stock were sold at $0.11 per share, the shares of Series B preferred stock were sold at $0.31 per share, the shares of Series C preferred stock were sold at $0.632 per share, the shares of Series D preferred stock were sold at $0.775 per share and the shares of Series E preferred stock were sold at $7.50 per share. See "Principal Stockholders."
Series A Series B Series C Series D Series E Name Preferred Preferred Preferred Preferred Preferred - ---- --------- --------- --------- --------- --------- Entities affiliated with KPCB Holdings (William R. Hearst III)(1)............. -- -- -- 7,870,968 133,333 Anthony J. Wood............. 2,040,600 241,934 158,128 103,226 -- Kevin L. Bohren............. -- 645,160 395,324 51,612 -- Sky D. Dayton............... -- -- 790,648 -- 13,333 Layne L. Britton............ -- -- -- -- 8,394
- -------- (1) All shares are held by KPCB Holdings Inc., as nominee. Mr. Hearst is a general partner of Kleiner Perkins Caufield & Byers and is a Vice President of KPCB Holdings, Inc. He disclaims beneficial ownership except to the extent of his pecuniary interest therein. 59 PRINCIPAL STOCKHOLDERS The following table sets forth information known to us with respect to beneficial ownership of our common stock as of December 31, 1999, as adjusted to reflect the issuance of 5,627,267 shares of Series F preferred stock in January 2000 and the sale of common stock offered in this offering, by: . each person, or group of affiliated persons, known by us to own beneficially more than 5% of our outstanding common stock, . each director, . the two individuals who served as chief executive officer and four other most highly compensated executive officers during the fiscal year ended December 31, 1999, and . all directors and executive officers as a group.
Percent Beneficially Owned ----------------- Number of Before After Shares Offering Offering ---------- -------- -------- Anthony J. Wood.................................. 8,457,438 20.65% KPCB Holdings Inc. .............................. 8,004,301 19.55 KPCB Holdings Inc. 2750 Sand Hill Road Menlo Park, CA 94025 William R. Hearst III(1)......................... 8,004,301 19.55 KPCB Holdings Inc. 2750 Sand Hill Road Menlo Park, CA 94025 Earle H. "Kim" LeMasters, III(2)................. 2,500,000 5.79 Kevin L. Bohren(3)............................... 1,194,149 2.91 Layne L. Britton................................. 1,128,394 2.76 Sky D. Dayton.................................... 803,981 1.96 Craig W. Dougherty(4)............................ 600,000 1.45 Alexander Gray(5)................................ 600,000 1.45 Jeffrey Berg..................................... -- * * Bruce L. Kaplan.................................. -- * * All directors and executive officers as a group (10 persons).................................... 23,288,263 52.73% %
- -------- * Less than one percent of the outstanding shares of common stock. (1) All shares are held by KPCB Holdings Inc., as nominee. Mr. Hearst is a general partner of Kleiner Perkins Caufield & Byers and a Vice President of KPCB Holdings, Inc. He disclaims beneficial ownership except to the extent of his pecuniary interest therein. (2) Includes 2,250,000 shares issuable upon exercise of an option which will be exercisable within 60 days of December 31, 1999 but which are subject to a right of repurchase at cost in our favor in the event Mr. LeMasters ceases employment with us. (3) Includes 63,333 shares issuable upon exercise of an option which will be exercisable within 60 days of December 31, 1999. (4) Includes 400,000 shares issuable upon exercise of an option which will be exercisable within 60 days of December 31, 1999 but which are subject to a right of repurchase at cost in our favor in the event Mr. Dougherty ceases employment with us. (5) Includes 500,000 shares issuable upon exercise of an option which will be exercisable within 60 days of December 31, 1999 but which are subject to a right of repurchase at cost in our favor in the event Mr. Gray ceases employment with us. Except as otherwise noted, the address of each person listed in the above table is c/o ReplayTV, Inc., 1945 Charleston Road, Mountain View, CA 94043- 1201. Beneficial ownership is determined in accordance with the 60 rules of the Securities and Exchange Commission and includes voting or investment power with respect to shares. To our knowledge, except under applicable community property laws or as otherwise indicated, the persons named in the table have sole voting and sole investment control with respect to all shares beneficially owned. The applicable percentage of ownership for each stockholder is based on 40,952,916 shares of common stock outstanding as of December 31, 1999 on a pro forma basis to reflect the issuance of 5,627,267 shares of Series F preferred stock in January 2000 and the automatic conversion of all shares of preferred stock, including the shares of Series F preferred stock issued in January 2000, into shares of common stock, and an assumed shares outstanding after the completion of this offering, in each case, together with applicable options for that stockholder. Shares of common stock issuable upon the exercise of options and other rights beneficially owned that are exercisable within 60 days of December 31, 1999 are deemed outstanding for the purpose of computing the percentage ownership of the person holding those options and other rights but are not deemed outstanding for the purposes of computing the percentage ownership of each other person. A portion of the shares issued or issuable upon exercise of options in the table below is subject to repurchase by us at the original purchase price in the event of termination of the holder's relationship as an employee or director of ReplayTV, which repurchase right lapses over time. The table assumes that the underwriters' over-allotment to purchase up to shares of common stock is not exercised. 61 DESCRIPTION OF CAPITAL STOCK Upon the completion of this offering, we will be authorized to issue 200,000,000 shares of common stock, $0.001 par value, and 5,000,000 shares of undesignated preferred stock, $0.001 par value. The following description of our capital stock is intended to be a summary and does not describe all provisions of our certificate of incorporation or bylaws or Delaware law applicable to us. For a more thorough understanding of the terms of our capital stock, you should refer to our certificate of incorporation and bylaws, which are included as exhibits to the registration statement of which this prospectus is a part. Common Stock As of December 31, 1999, there were 40,952,916 shares of common stock outstanding on a pro forma basis to reflect the issuance of 5,627,267 shares of Series F preferred stock in January 2000 held by approximately 95 stockholders, which reflects the conversion of all outstanding shares of preferred stock, including the shares of Series F preferred stock issued in January 2000, into common stock. In addition, as of December 31, 1999, there were options outstanding to purchase 10,789,637 shares of common stock and a warrant outstanding to purchase 6,666 shares of common stock at an exercise price of $7.50 per share, which expires on May 31, 2004. Upon completion of this offering, there will be shares of common stock outstanding, assuming no exercise of the underwriters' overallotment option or additional exercise of outstanding options under our stock option plan and warrants. The holders of common stock are entitled to one vote per share on all matters to be voted upon by stockholders. Subject to preferences that may be applicable to any outstanding preferred stock, holders of common stock are entitled to receive ratably dividends as may be declared by the board of directors out of funds legally available for that purpose. In the event of our liquidation, dissolution or winding up, the holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities and the liquidation preference of any outstanding preferred stock. The common stock has no preemptive or conversion rights, other subscription rights, or redemption or sinking fund provisions. All outstanding shares of common stock are fully paid and non-assessable, and the shares of common stock to be issued upon completion of this offering will be fully paid and non-assessable. Preferred Stock Upon the closing of this offering, all outstanding shares of preferred stock, including the shares of Series F preferred stock issued in January 2000, will be converted on a one-for-one basis into 31,368,852 shares of common stock and automatically retired. Thereafter, the board of directors will have the authority, without further action by the stockholders, to issue up to 5,000,000 shares of preferred stock in one or more series and to designate the rights, preferences, privileges and restrictions of each series. The issuance of preferred stock could have the effect of restricting dividends on the common stock, diluting the voting power of the common stock, impairing the liquidation rights of the common stock or delaying or preventing our change in control without further action by the stockholders. We have no present plans to issue any shares of preferred stock. Registration Rights Following conversion of the preferred stock into common stock, the holders of 31,368,852 shares of common stock and warrants to purchase 6,666 shares of common stock are entitled to have their shares registered by us under the Securities Act under the terms of an agreement between us and the holders of these "registrable securities." Subject to limitations specified in the agreement, these registration rights include the following: The holders of at least 50% of the outstanding registrable securities may require, on two occasions beginning six months after the date of this prospectus, that we use our best efforts to register the registrable securities for public resale, provided that the aggregate offering price for these registrable securities is at least $5,000,000. This right is subject to the ability of the underwriters to limit the number of shares included in this offering in view of market conditions. 62 If we register any common stock, either for our own account or for the account of other security holders, the holders of registrable securities are entitled to include their shares of common stock in that registration. This right is subject to the ability of the underwriters to limit the number of shares included in this offering in view of market conditions. The holders of at least 20% of the then outstanding registrable securities may require us to register all or a portion of their registrable securities on Form S-3 when use of this form becomes available to us, provided that the proposed aggregate offering price is at least $500,000. The holders of registrable securities may not exercise this right if we have already effected two Form S-3 registrations previously demanded by the holders of registrable securities during the preceding twelve-month period. We will bear all registration expenses other than underwriting discounts and commissions, except in the case of registrations on Form S-3 after the first two such registrations, in which case the holders will bear the expenses of registration. All registration rights terminate on the date five years following the closing of this offering, or, with respect to each holder of registrable securities, at the time when the holder is entitled to sell all of its shares in any three month period under Rule 144 of the Securities Act. Delaware Anti-Takeover Law and Provisions of our Certificate of Incorporation and Bylaws Provisions of Delaware law and our certificate of incorporation and bylaws could make it more difficult for a third party to acquire us or to remove our incumbent officers and directors. These provisions, summarized below, are expected to discourage coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of ReplayTV to first negotiate with us. We believe that the benefits of increased protection of our ability to negotiate with the proponent of an unfriendly or unsolicited acquisition proposal outweigh the disadvantages of discouraging these proposals because, among other things, negotiation could result in an improvement of their terms. We are subject to Section 203 of the Delaware General Corporation Law, which regulates corporate acquisitions. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a business combination with an interested stockholder for a period of three years following the date the person became an interested stockholder, unless: . the board of directors approved the transaction in which the person became an interested stockholder prior to the date the interested stockholder attained this status; . upon consummation of the transaction that resulted in the person's becoming an interested stockholder, he or she owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding shares owned by persons who are directors and also officers; or . on or after the date of the business combination, it is approved by the board of directors and authorized at an annual or special meeting of stockholders. A business combination generally includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. In general, an interested stockholder is a person who, together with affiliates and associates, owns, or within three years prior to the determination of interested stockholder status, did own, 15% or more of a corporation's voting stock. Our certificate of incorporation and bylaws do not provide for the right of stockholders to act by written consent without a meeting or for cumulative voting in the election of directors. In addition, our certificate of incorporation permits the board of directors to issue preferred stock with voting or other rights without any stockholder action. Our certificate of incorporation provides for the board of directors to be divided into three classes, with staggered three-year terms, commencing at our first annual meeting of stockholders following the date on which we have at least 800 stockholders. As a result, only one class of directors will be elected at each annual meeting of stockholders. Each of the two other classes of directors will continue to serve for the remainder 63 of its respective three-year term. These provisions, which require the vote of stockholders holding at least two thirds of the outstanding common stock to amend, may have the effect of deterring hostile takeovers or delaying changes in our management. Transfer Agent and Registrar The transfer agent and registrar for the common stock is . The transfer agent's address and telephone number is . 64 SHARES ELIGIBLE FOR FUTURE SALE Prior to this offering, there has been no market for our common stock. Future sales of substantial amounts of common stock in the public market could adversely affect prevailing market prices. As described below, no shares currently outstanding will be available for sale immediately after this offering because of contractual restrictions on resale. Sales of substantial amounts of our common stock in the public market after the restrictions lapse could adversely affect the prevailing market price and impair our ability to raise equity capital in the future. Upon completion of the offering, we will have outstanding shares of common stock. Of these shares, the shares sold in this offering, plus any shares issued upon exercise of the underwriters' overallotment option, will be freely tradable without restriction under the Securities Act, unless purchased by our "affiliates" as that term is defined in Rule 144 under the Securities Act. In general, affiliates include executive officers, directors or 10% stockholders. Shares purchased by affiliates will remain subject to the resale limitations of Rule 144. The remaining 40,952,916 shares outstanding as of December 31, 1999, as adjusted to reflect the issuance of 5,627,267 shares of Series F preferred stock in January 2000, are restricted securities within the meaning of Rule 144. Restricted securities may be sold in the public market only if registered or if they qualify for an exemption from registration under Rules 144, 144(k) or 701 promulgated under the Securities Act, which are summarized below. Sales of restricted securities in the public market, or the availability of these shares for sale, could adversely affect the market price of the common stock. Our directors, executive officers and certain of our stockholders and option holders have entered into lock-up agreements in connection with this offering, as more fully described under "Underwriting," generally providing that they will not offer, sell, contract to sell or grant any option to purchase or otherwise dispose of our common stock or any securities exercisable for or convertible into our common stock owned by them for a period of 180 days after the date of this prospectus without the prior written consent of Morgan Stanley & Co. Incorporated. Notwithstanding possible earlier eligibility for sale under the provisions of Rules 144, 144(k) and 701, shares subject to lock-up agreements will not be salable until these agreements expire or are waived by Morgan Stanley & Co. Incorporated. Taking into account the lock-up agreements, and assuming Morgan Stanley & Co. Incorporated does not release stockholders from these agreements, the following shares will be eligible for sale in the public market at the following times: . Beginning on the date of this prospectus, only the shares sold in this offering will be immediately available for sale in the public market. . Beginning 180 days after the date of this prospectus, about 9,411,088 shares will be eligible for sale pursuant to Rule 701, of which 7,708,720 are held by affiliates. . Beginning 180 days after the date of this prospectus, about 1,824,434 shares will be eligible for sale pursuant to Rule 144(k), none of which are held by affiliates. . Beginning 180 days after the date of this prospectus, about 20,070,571 shares will be eligible for sale subject to volume, manner of sale and other limitations under Rule 144, of which 12,366,210 are held by affiliates. . The remaining 5,646,823 shares will be eligible for sale pursuant to Rule 144 upon the expiration of various one-year holding periods during the six months following 180 days after the date of this prospectus, none of which are held by affiliates. In general, under Rule 144 as currently in effect, after the expiration of the lock-up agreements, a person who has beneficially owned restricted securities for at least one year would be entitled to sell within any three- month period a number of shares that does not exceed the greater of: . one percent of the number of shares of common stock then outstanding which will equal about shares immediately after this offering; or . the average weekly trading volume of the common stock during the four calendar weeks preceding the sale. 65 Sales under Rule 144 are also subject to requirements with respect to manner of sale, notice and the availability of current public information about us. Under Rule 144(k), a person who is not deemed to have been our affiliate at any time during the three months preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, is entitled to sell his or her shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. Rule 701, as currently in effect, permits our employees, officers, directors or consultants who purchased shares pursuant to a written compensatory plan or contract to resell these shares in reliance upon Rule 144 but without compliance with specific restrictions. Rule 701 provides that affiliates may sell their Rule 701 shares under Rule 144 without complying with the holding period requirement and that non-affiliates may sell their shares in reliance on Rule 144 without complying with the holding period, public information, volume limitation or notice provisions of Rule 144. In addition, we intend to file registration statements under the Securities Act as promptly as possible after the effective date to register shares to be issued pursuant to our employee benefit plans. As a result, any options or rights exercised under the 1999 stock plan, the 1997 stock option plan, the 2000 employee stock purchase plan, the 2000 directors' stock option plan or any other benefit plan after the effectiveness of the registration statements will also be freely tradable in the public market. However, such shares held by affiliates will still be subject to the volume limitation, manner of sale, notice and public information requirements of Rule 144 unless otherwise resalable under Rule 701. As of December 31, 1999 there were outstanding options for the purchase of 10,789,637 shares of common stock, of which options to purchase 1,799,526 shares were exercisable. 66 UNDERWRITERS Under the terms and subject to the conditions contained in an underwriting agreement dated the date of this prospectus, the underwriters named below, for whom Morgan Stanley & Co. Incorporated, Bear, Stearns & Co. Inc., Deutsche Bank Securities Inc., Hambrecht & Quist LLC and Wasserstein Perella Securities, Inc., are acting as representatives, have severally agreed to purchase and we have agreed to sell to them, the respective number of shares of common stock set forth opposite the names of these underwriters below:
Number of Name Shares ---- --------- Morgan Stanley & Co. Incorporated................................ Bear, Stearns & Co. Inc.......................................... Deutsche Bank Securities Inc..................................... Hambrecht & Quist LLC............................................ Wasserstein Perella Securities, Inc.............................. ------- Total........................................................ =======
The underwriters are offering the shares of common stock subject to their acceptance of the shares from us and subject to prior sale. The underwriting agreement provides that the obligations of the several underwriters to pay for and accept delivery of the shares of common stock offered by this prospectus are subject to the approval of specified legal matters by their counsel and to other conditions. The underwriters are obligated to take and pay for all of the shares of common stock offered by this prospectus, except those shares covered by the over-allotment option described below, if any shares are taken. The underwriters initially propose to offer part of the shares of common stock directly to the public at the public offering price set forth on the cover page of this prospectus and a portion to some dealers at a price that represents a concession not in excess of $ per share under the public offering price. Any underwriter may allow, and these dealers may reallow, a concession not in excess of $ per share to other underwriters or to other dealers. After the initial offering of the shares of common stock, the offering price and other selling terms may from time to time be varied by the representatives. We have granted to the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to an aggregate of additional shares at the public offering price set forth on the cover page of this prospectus, less underwriting discounts and commissions. The underwriters may exercise this option solely for the purpose of covering over-allotments, if any, made in connection with the offering of the shares offered by this prospectus. To the extent this option is exercised, each underwriter will become obligated, subject to specified conditions, to purchase about the same percentage of additional shares as the number set forth next to the underwriter's name in the preceding table bears to the total number of shares set forth next to the names of all underwriters in the preceding table. If the underwriters exercise the over-allotment option in full, the total price to the public for this offering would be $ , the total underwriting discounts and commissions would be $ and the total proceeds to ReplayTV would be $ . The underwriters have informed us that they do not intend sales to discretionary accounts to exceed five percent of the total number of shares of common stock offered by them. At our request, the underwriters have reserved up to shares of common stock offered by this prospectus for sale at the initial public offering price to some of our directors, officers, employees, business associates and related persons of ReplayTV. The number of shares available for sale to the general public will be reduced to the extent that these persons purchase these reserved shares. Any reserved shares not so purchased will be offered by the underwriters to the general public on the same basis as the other shares offered by this prospectus. ReplayTV has applied to list the common stock on the Nasdaq National Market under the symbol "RPLY." 67 ReplayTV, our directors and executive officers and certain of our stockholders and option holders have each agreed that, without the prior written consent of Morgan Stanley & Co. Incorporated on behalf of the underwriters, he, she or it will not, during the period ending 180 days after the date of this prospectus: . offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of, directly or indirectly, any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock; or . enter into any swap or other agreement that transfers to another, in whole or in part, any of the economic consequences of ownership of the common stock, whether any transaction described above is to be settled by delivery of common stock or such other securities, in cash or otherwise. The restrictions described in the immediately preceding paragraph do not apply to: . the issuance by us of shares of common stock upon the exercise of an option or a warrant or the conversion of a security outstanding on the date of this prospectus of which the underwriters have been advised in writing; . shares sold by us in this offering; or . transactions by any person other than ReplayTV relating to shares of common stock or other securities acquired in open market transactions after the completion of this offering. In order to facilitate the offering of the common stock, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the common stock. Specifically, the underwriters may over-allot in connection with the offering, creating a short position in the common stock for their own account. In addition, to cover over-allotments or to stabilize the price of the common stock, the underwriters may bid for, and purchase, shares of common stock in the open market. Finally, the underwriting syndicate may reclaim selling concessions allowed to an underwriter or a dealer for distributing the common stock in the offering, if the syndicate repurchases previously distributed shares of common stock in transactions to cover syndicate short positions, in stabilization transactions or otherwise. Any of these activities may stabilize or maintain the market price of the common stock above independent market levels. The underwriters are not required to engage in these activities, and may end any of these activities at any time. ReplayTV and the underwriters have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act. Pricing of this Offering Prior to this offering, there has been no public market for the common stock. Consequently, the initial public offering price will be determined by negotiations between us and the representatives of the underwriters. Among the factors to be considered in determining the initial public offering price will be: . the future prospects of ReplayTV and its industry in general; . earnings and certain other financial and operating information of ReplayTV in recent periods; and . the price-earnings ratios, price-sales ratios, market prices of securities and certain financial and operating information of companies engaged in activities similar to those of ReplayTV. The estimated initial public offering price range set forth on the cover page of this prospectus is subject to change as a result of market conditions and other factors. 68 LEGAL MATTERS The validity of the common stock in this offering will be passed upon by Venture Law Group, A Professional Corporation, 2800 Sand Hill Road, Menlo Park, California 94025. Mark Medearis, a Director of Venture Law Group, is our Secretary. Legal matters in connection with this offering will be passed upon for the underwriters by Davis Polk & Wardwell, 450 Lexington Avenue, New York, New York 10017. As of the date of this prospectus, attorneys of Venture Law Group and an investment partnership controlled by Venture Law Group beneficially own an aggregate of 19,412 shares of our common stock. EXPERTS The financial statements of ReplayTV, Inc. as of December 31, 1997 and 1998 and for the period from August 27, 1997 (inception) to December 31, 1997 and the year ended December 31, 1998 included in this prospectus have been so included in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. ADDITIONAL INFORMATION AVAILABLE TO YOU We have filed with the Securities and Exchange Commission a registration statement on Form S-1 with respect to the shares of common stock offered by this prospectus. This prospectus does not contain all of the information set forth in the registration statement and its exhibits and schedules. For further information with respect to us and our common stock being offered, see the registration statement and its exhibits and schedules. A copy of the registration statement and its exhibits and schedules may be inspected without charge at the public reference facilities maintained by the SEC located at Room 1024, 450 Fifth Street, Washington, D.C. 20549 and at the SEC's regional offices located at the Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York 10048. Copies of all or any part of the registration statement may be obtained from these offices upon the payment of the fees prescribed by the SEC. Information on the operation of the public reference room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains a web site at http://www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. 69 REPLAYTV, INC. (a development stage company) INDEX TO FINANCIAL STATEMENTS
Page ---- Report of Independent Accountants.......................................... F-2 Balance Sheet.............................................................. F-3 Statement of Operations.................................................... F-4 Statement of Stockholders' Equity (Deficit)................................ F-5 Statement of Cash Flows.................................................... F-6 Notes to Financial Statements.............................................. F-7
F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of ReplayTV, Inc. The reincorporation described in Note 10 to the financial statements has not been consummated as of January 26, 2000. When the reincorporation has been completed, we will be in a position to furnish the following report: "In our opinion, the accompanying balance sheets and the related statements of operations, of stockholders' equity (deficit), and of cash flows present fairly, in all material respects, the financial position of ReplayTV, Inc. (a development stage company) at December 31, 1997 and 1998, and the results of its operations and its cash flows for the period from August 27, 1997 (inception) to December 31, 1997 and the year ended December 31, 1998 in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States which require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above." PricewaterhouseCoopers LLP San Jose, California August 31, 1999, except for Note 10, which is as of January , 2000 F-2 REPLAYTV, INC. (a development stage company) BALANCE SHEET (in thousands, except per share amounts)
Pro Forma Stockholders' December 31, Equity at -------------- September 30, September 30, 1997 1998 1999 1999 ----- ------- ------------- ------------- (unaudited) ASSETS Current assets: Cash and cash equivalents........ $ 103 $ 686 $ 14,636 Short-term investments........... -- 25 35,204 Accounts receivable, net of allowances of $0, $0 and $9..... -- -- 283 Inventory........................ -- -- 988 Prepaid expenses and other current assets.................. 10 225 334 ----- ------- -------- Total current assets............... 113 936 51,445 Property and equipment, net........ 31 132 1,708 Other assets....................... -- -- 253 ----- ------- -------- Total assets....................... $ 144 $ 1,068 $ 53,406 ===== ======= ======== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable................. $ 15 $ 682 $ 4,100 Accrued liabilities.............. 4 45 1,307 Notes payable to related party... -- 601 -- ----- ------- -------- Total current liabilities.......... 19 1,328 5,407 ----- ------- -------- Commitments and contingencies (Note 4) Stockholders' equity (deficit): Convertible Preferred Stock, issuable in series, $0.001 par value, 2,494, 8,237 and 27,137 shares authorized at December 31, 1997, 1998 and September 30, 1999 (unaudited), respectively; 2,494, 7,915 and 25,742 shares issued and outstanding at December 31, 1997, 1998 and September 30, 1999 (unaudited), respectively; 5,000,000 shares authorized; no shares issued and outstanding pro forma (unaudited)..................... 3 8 26 $ -- Common Stock, $0.001 par value, 20,000, 30,000 and 75,000 shares authorized at December 31, 1997, 1998 and September 30, 1999 (unaudited), respectively; 7,863, 6,970 and 9,209 shares issued and outstanding at December 31, 1997, 1998 and September 30, 1999 (unaudited), respectively; 200,000,000 shares authorized and 34,951 shares issued and outstanding pro forma (unaudited)..................... 4 4 6 32 Additional paid-in capital....... 273 3,818 93,501 93,501 Notes receivable................. -- -- (1,700) (1,700) Unearned stock-based compensation.................... -- (651) (20,278) (20,278) Deficit accumulated during development stage............... (155) (3,439) (23,556) (23,556) ----- ------- -------- -------- Total stockholders' equity (deficit)......................... 125 (260) 47,999 $ 47,999 ----- ------- -------- ======== Total liabilities and stockholders' equity (deficit).................. $ 144 $ 1,068 $ 53,406 ===== ======= ========
The accompanying notes are an integral part of these financial statements. F-3 REPLAYTV, INC. (a development stage company) STATEMENT OF OPERATIONS (in thousands, except per share amounts)
Period from Period from August 27, Nine Months August 27, 1997 Ended September 1997 (inception) to Year Ended 30, (inception) to December 31, December 31, ----------------- September 30, 1997 1998 1998 1999 1999 -------------- ------------ ------- -------- -------------- (unaudited) (unaudited) Costs and expenses: Research and development.......... $ 136 $ 1,961 $ 1,003 $ 4,814 $ 6,911 Programming and content.............. -- -- -- 560 560 Sales and marketing... 10 764 293 8,735 9,509 General and administrative....... 9 325 159 2,091 2,425 Hardware distribution costs, net........... -- -- -- 770 770 Stock-based compensation......... -- 206 100 3,489 3,695 ------ ------- ------- -------- -------- Total costs and expenses........... 155 3,256 1,555 20,459 23,870 ------ ------- ------- -------- -------- Operating loss.......... (155) (3,256) (1,555) (20,459) (23,870) Interest income (expense), net......... -- (28) (4) 342 314 ------ ------- ------- -------- -------- Net loss................ $ (155) $(3,284) $(1,559) $(20,117) $(23,556) ====== ======= ======= ======== ======== Basic and diluted net loss per share......... $(0.08) $ (0.48) $ (0.23) $ (2.73) $ (3.35) ====== ======= ======= ======== ======== Basic and diluted weighted average shares used in computation of net loss per share..... 2,026 6,889 6,880 7,359 7,037 ====== ======= ======= ======== ======== Pro forma basic and diluted net loss per share (unaudited)...... $ (0.29) $ (0.84) ======= ======== Pro forma basic and diluted weighted average shares (unaudited)............ 11,282 23,953 ======= ========
The accompanying notes are an integral part of these financial statements. F-4 REPLAYTV, INC. (a development stage company) STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) (in thousands)
Convertible Deficit Preferred Accumulated Total Stock Common Stock Additional Unearned During Stockholders' ------------- -------------- Paid-In Notes Stock-Based Development Equity Shares Amount Shares Amount Capital Receivable Compensation Stage (Deficit) ------ ------ ------ ------ ---------- ---------- ------------ ----------- ------------- Issuance of Common Stock at inception........... -- $ -- 7,863 $ 4 $ -- $ -- $ -- $ -- $ 4 Issuance of Series A Preferred Stock, net... 2,494 3 -- -- 273 -- -- -- 276 Net loss................ -- -- -- -- -- -- -- (155) (155) ------ ---- ----- --- ------- ------- -------- -------- ------- Balance at December 31, 1997................... 2,494 3 7,863 4 273 -- -- (155) 125 Issuance of Series B Preferred Stock, net... 2,258 2 -- -- 695 -- -- -- 697 Issuance of Series C Preferred Stock, net... 3,163 3 -- -- 1,993 -- -- -- 1,996 Exercise of Common Stock options................ -- -- 90 -- -- -- -- -- -- Repurchase of Common Stock.................. -- -- (983) -- -- -- -- -- -- Unearned stock-based compensation........... -- -- -- -- 857 -- (857) -- -- Stock-based compensation........... -- -- -- -- -- -- 206 -- 206 Net loss................ -- -- -- -- -- -- -- (3,284) (3,284) ------ ---- ----- --- ------- ------- -------- -------- ------- Balance at December 31, 1998................... 7,915 8 6,970 4 3,818 -- (651) (3,439) (260) Issuance of Series D Preferred Stock, net (unaudited)............ 10,194 10 -- -- 7,831 -- -- -- 7,841 Issuance of Series E Preferred Stock, net (unaudited)............ 7,633 8 -- -- 56,995 -- -- -- 57,003 Issuance of Common Stock (unaudited)............ -- -- 2,239 2 1,782 (1,700) -- -- 84 Issuance of stock options for services (unaudited)............ -- -- -- -- 444 -- -- -- 444 Issuance of warrants to purchase Series E Preferred Stock (unaudited)............ -- -- -- -- 30 -- -- -- 30 Unearned stock-based compensation (unaudited)............ -- -- -- -- 22,601 -- (22,601) -- -- Stock-based compensation (unaudited)............ -- -- -- -- -- -- 2,974 -- 2,974 Net loss (unaudited).... -- -- -- -- -- -- -- (20,117) (20,117) ------ ---- ----- --- ------- ------- -------- -------- ------- Balance at September 30, 1999 (unaudited)....... 25,742 $ 26 9,209 $ 6 $93,501 $(1,700) $(20,278) $(23,556) $47,999 ====== ==== ===== === ======= ======= ======== ======== =======
The accompanying notes are an integral part of these financial statements. F-5 REPLAYTV, INC. (a development stage company) STATEMENT OF CASH FLOWS (in thousands)
Period from Period from August 27, August 27, 1997 Nine Months 1997 (inception) Ended September (inception) to Year Ended 30, to December 31, December 31, ----------------- September 30, 1997 1998 1998 1999 1999 ------------ ------------ ------- -------- ------------- (unaudited) (unaudited) Cash flows from operating activities: Net loss............... $(155) $(3,284) $(1,559) $(20,117) $(23,556) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization........ 2 23 17 131 156 Stock-based compensation........ -- 206 100 3,519 3,725 Changes in assets and liabilities: Accounts receivable........ -- -- -- (283) (283) Inventory.......... -- -- -- (988) (988) Accounts payable and other current liabilities....... 19 739 398 4,649 5,407 Prepaid expenses and other assets.. (10) (215) (55) (362) (587) ----- ------- ------- -------- -------- Net cash used in operating activities...... (144) (2,531) (1,099) (13,451) (16,126) ----- ------- ------- -------- -------- Cash flows from investing activities: Purchase of property and equipment......... (33) (124) (63) (1,707) (1,864) Purchase of short-term investments........... -- (25) -- (35,179) (35,204) ----- ------- ------- -------- -------- Net cash used in investing activities...... (33) (149) (63) (36,886) (37,068) ----- ------- ------- -------- -------- Cash flows from financing activities: Proceeds from the issuance of Common Stock................. 4 -- -- 13 17 Proceeds from the sale of Preferred Stock.... 276 2,693 698 64,844 67,813 Proceeds from (repayment of) notes payable............... -- 570 363 (570) -- ----- ------- ------- -------- -------- Net cash provided by financing activities...... 280 3,263 1,061 64,287 67,830 ----- ------- ------- -------- -------- Net increase (decrease) in cash and cash equivalents........... 103 583 (101) 13,950 14,636 Cash and cash equivalents at the beginning of the period................ -- 103 103 686 -- ----- ------- ------- -------- -------- Cash and cash equivalents at the end of the period......... $ 103 $ 686 $ 2 $ 14,636 $ 14,636 ===== ======= ======= ======== ======== Supplemental disclosure of cash flow information: Interest paid.......... $ -- $ -- $ -- $ 37 $ 37 ===== ======= ======= ======== ========
The accompanying notes are an integral part of these financial statements. F-6 REPLAYTV, INC. (a development stage company) NOTES TO FINANCIAL STATEMENTS (Information for the nine months ended September 30, 1998 and 1999 is unaudited) Note 1--The Company and Its Significant Accounting Policies: ReplayTV, Inc. (the "Company") was incorporated in California in August 1997, and through the first quarter of 1999, the Company's operating activities consisted primarily of product and service development. The Company continues to operate as a development stage company and has not yet recognized any operating revenues from advertising or other sources. In April 1999, the Company launched the ReplayTV Service and the ReplayTV-enabled personal video recorder, or PVR, via direct sales from its web site and toll free telephone number. More recently, the Company's products have become available through online retailers. The Company has received proceeds from the shipment of ReplayTV-enabled PVRs; however, these proceeds are considered incidental to the Company's ongoing business and thus have been reported as a reduction of the related hardware distribution costs in its statement of operations. The Company does not intend to manufacture PVRs. Instead, it intends to license its technology to partners to manufacture PVRs or incorporate ReplayTV's technology in their consumer electronics products such as VCRs, DVD players and recorders, set-top boxes or televisions. The Company recently entered into such an agreement with Matsushita-Kotobuki Electronics Industries, Ltd., a subsidiary of Matsushita Electric Industrial Co., Ltd. ("MKE"), and intends to enter into similar relationships with other consumer electronics companies in the future. Unaudited interim results The interim financial statements as of September 30, 1999 and for the nine months ended September 30, 1998 and 1999 are unaudited. In the opinion of management, these interim financial statements have been prepared on the same basis as the audited financial statements and reflect all adjustments, consisting only of normal, recurring adjustments necessary for the fair presentation of the results of interim periods. The financial data and other information disclosed in these notes to the financial statements for the related periods are unaudited. The results of the interim periods are not necessarily indicative of the results to be expected for any future periods. Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and cash equivalents The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The carrying amount reported in the balance sheet for cash and cash equivalents approximates its fair value. Short-term investments The Company classifies all investments in accordance with Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities" which requires investment securities to be classified as either held to maturity, trading or available- for-sale. All of the Company's investments are classified as available-for- sale and are stated at fair market value which approximates cost. F-7 REPLAYTV, INC. (a development stage company) NOTES TO FINANCIAL STATEMENTS--(Continued) (Information for the nine months ended September 30, 1998 and 1999 is unaudited) The Company's short-term investments consist of a certificate of deposit of $25,000 at December 31, 1998 and commercial paper of $35,204,000 at September 30, 1999. Unrealized gains or losses have been insignificant for all periods presented. Property and equipment Property and equipment are stated at cost. Depreciation is computed using the straight-line method based upon the estimated useful lives of the assets of one to five years. Hardware distribution costs, net The costs associated with manufacturing and distribution of the PVRs were $4.2 million for the nine months ended September 30, 1999. Proceeds from sales of the PVRs totaled $3.4 million during the same period. As the Company plans to transition the manufacturing and distribution of its PVRs to MKE and other partners, the sales of PVRs are considered incidental to its business. Therefore, the Company has reflected the proceeds as a reduction of the related hardware distribution costs. The Company has agreed to subsidize MKE in connection with their manufacturing and distribution of ReplayTV-enabled PVRs in future periods. The Company records a provision for estimated warranty costs at the time of sale. Net loss per share Basic net loss per share is computed by dividing the net loss for the period by the weighted average number of shares of Common Stock outstanding during the period. Diluted net loss per share is computed by dividing the net loss for the period by the weighted average number of common and potential common equivalent shares outstanding during the period. The calculation of diluted net loss per share excludes potential common shares if the effect is antidilutive. Potential common shares are composed of Common Stock subject to repurchase rights and incremental shares of Common Stock issuable upon the exercise of stock options and warrants and Common Stock issuable upon conversion of Preferred Stock. F-8 REPLAYTV, INC. (a development stage company) NOTES TO FINANCIAL STATEMENTS--(Continued) (Information for the nine months ended September 30, 1998 and 1999 is unaudited) The following table sets forth the computation of basic and diluted net loss per share for the periods indicated:
Period from Period from August 27, Nine Months August 27, 1997 Ended September 1997 (inception) to Year Ended 30, (inception) to December 31, December 31, ----------------- September 30, 1997 1998 1998 1999 1999 -------------- ------------ ------- -------- -------------- (unaudited) (unaudited) (in thousands, except per share amounts) Numerator: Net loss.............. $ (155) $(3,284) $(1,559) $(20,117) $(23,556) ------ ------- ------- -------- -------- Denominator: Weighted average shares............... 2,315 6,889 6,880 7,735 7,174 Weighted average shares of Common Stock subject to repurchase agreements........... (289) -- -- (376) (137) ------ ------- ------- -------- -------- Denominator for basic and diluted calculation.......... 2,026 6,889 6,880 7,359 7,037 ------ ------- ------- -------- -------- Basic and diluted net loss per share......... $(0.08) $ (0.48) $ (0.23) $ (2.73) $ (3.35) ====== ======= ======= ======== ========
The following table sets forth the weighted average potential shares of Common Stock that are not included in the diluted net loss per share calculation above because to do so would be antidilutive for the periods indicated:
Period from Nine Months Period from August 27, Ended August 27, 1997 September 1997 (inception) to Year Ended 30, (inception) to December 31, December 31, ------------ September 30, 1997 1998 1998 1999 1999 -------------- ------------ ----- ------ -------------- (unaudited) (unaudited) (in thousands) Weighted average effect of dilutive securities: Series A Preferred Stock................ 242 2,494 2,494 2,494 2,197 Series B Preferred Stock................ -- 1,460 889 2,258 1,507 Series C Preferred Stock................ -- 439 -- 3,163 1,339 Series D Preferred Stock................ -- -- -- 7,022 2,545 Series E Preferred Stock................ -- -- -- 1,657 614 Warrant to purchase Series E Preferred Stock................ -- -- -- 1 1 Employee stock options.............. 31 1,635 1,659 4,677 3,645 Common Stock subject to repurchase agreements........... 289 -- -- 376 137 --- ----- ----- ------ ------ 562 6,028 5,042 21,648 11,985 === ===== ===== ====== ======
Income taxes Income taxes are accounted for using the asset and liability approach in accordance with SFAS No. 109, "Accounting for Income Taxes." Under the asset and liability approach, a current tax liability or asset is F-9 REPLAYTV, INC. (a development stage company) NOTES TO FINANCIAL STATEMENTS--(Continued) (Information for the nine months ended September 30, 1998 and 1999 is unaudited) recognized for the estimated taxes payable or refundable on tax returns for the current year. A deferred tax liability or asset is recognized for the estimated future tax effects attributable to temporary differences and carryforwards. The measurement of deferred tax assets is reduced, if necessary, by the amount of any benefits that, based on available evidence, are not expected to be realized. Pro forma net loss per share (unaudited) Pro forma net loss per share for the year ended December 31, 1998 and the nine months ended September 30, 1999 is computed using the weighted average number of common shares outstanding, including the conversion of the Company's Convertible Preferred Stock into shares of the Company's Common Stock effective upon the closing of the Company's initial public offering, as if such conversion occurred at January 1, 1998 or at date of original issuance, if later. The resulting unaudited pro forma adjustment includes an increase in the weighted average shares used to compute basic and diluted net loss per share of 4,393,000 and 16,594,000 for the year ended December 31, 1998 and nine months ended September 30, 1999, respectively. The calculation of pro forma diluted net loss per share excludes incremental Common Stock issuable upon the exercise of stock options and warrants as the effect would be antidilutive. Comprehensive income Effective January 1, 1998, the Company adopted the provisions of SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for reporting comprehensive income and its components in financial statements. Comprehensive income, as defined, includes all changes in equity (net assets) during a period from non-owner sources. During the period from August 27, 1997 (inception) to December 31, 1997, the year ended December 31, 1998 and the nine months ended September 30, 1998 and 1999 (unaudited) the Company has not had any significant transactions that are required to be reported in comprehensive income (loss). Stock-based compensation The Company accounts for stock-based compensation arrangements in accordance with the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and complies with the disclosure provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." Under APB 25, unearned compensation is based on the difference, if any, on the date of the grant, between the fair value of the Company's stock and the exercise price. Unearned compensation is amortized and expensed in accordance with Financial Accounting Standards Board Interpretation No. 28 using the multiple-option approach. The Company accounts for stock-based compensation issued to non-employees in accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force No. 96-18, "Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services." Concentration of risk Financial instruments which potentially subject the Company to concentration of credit risk consist primarily of cash equivalents and short- term investments. Cash equivalents and short-term investments, primarily composed of investments in money market funds and commercial paper, are maintained with a single institution, and the composition and maturities are regularly monitored by management. The carrying value of all financial instruments approximate their respective fair value. F-10 REPLAYTV, INC. (a development stage company) NOTES TO FINANCIAL STATEMENTS--(Continued) (Information for the nine months ended September 30, 1998 and 1999 is unaudited) The Company relies on a single third-party contractor to manufacture the ReplayTV-enabled PVRs. The Company also relies on other third party suppliers to provide certain components necessary to manufacture the PVRs. The loss of any manufacturer or supplier could delay or prevent the Company from commercializing its services and have a material adverse effect on the Company's business, financial position and results of operations. Recent accounting pronouncements In March 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-1, "Accounting for the Cost of Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 is effective for financial statements for years beginning after December 15, 1998. SOP 98-1 provides guidance over accounting for computer software developed or obtained for internal use including the requirement to capitalize specified costs and amortization of such costs. The adoption of the provisions of SOP 98-1 during the fiscal year beginning January 1, 1999, did not have a material effect on the financial statements. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivatives and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. In July 1999, the Financial Accounting Standards Board issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities-- Deferral of the Effective Date of FASB Statement No. 133". SFAS No. 137 deferred the effective date until the first fiscal quarter ending on or after June 30, 2000. The Company will adopt SFAS No. 133 in its quarter ending June 30, 2000. The Company has not engaged in hedging activities or invested in derivative instruments. Note 2--Balance Sheet Components:
December 31, -------------- September 30, 1997 1998 1999 ------ ------ ------------- (unaudited) (in thousands) Property and equipment: Computer equipment and software............. $ 33 $ 138 $1,101 Lab and manufacturing equipment............. -- 11 239 Office furniture and equipment.............. -- 8 524 ----- ------ ------ 33 157 1,864 Less: accumulated depreciation................ (2) (25) (156) ----- ------ ------ $ 31 $ 132 $1,708 ===== ====== ====== Accrued liabilities: Payroll and related expense................. $ 4 $ 45 $ 201 Warranty reserve............................ -- -- 67 Production costs............................ -- -- 319 Deferred rent............................... -- -- 180 Other....................................... -- -- 540 ----- ------ ------ $ 4 $ 45 $1,307 ===== ====== ======
F-11 REPLAYTV, INC. (a development stage company) NOTES TO FINANCIAL STATEMENTS--(Continued) (Information for the nine months ended September 30, 1998 and 1999 is unaudited) Note 3--Line of Credit: On June 10, 1999, the Company entered into a loan agreement (the "Facility") with a bank. The Facility is secured by the Company's assets. The Facility allows for borrowings of up to $1.25 million bearing interest at a rate equal to the bank's prime rate plus 0.75% and expires in May 2000. The Company must comply with certain financial covenants and conditions as described in the Facility. The Company was in compliance as of September 30, 1999. As of September 30, 1999, no borrowings were outstanding under the Facility. The Company has an outstanding Letter of Credit of $500,000 under the loan agreement. Under the terms of the loan agreement, the Company is prohibited from paying dividends without approval from the bank. Note 4--Commitments and Contingencies: Operating leases The Company leases office space under a noncancelable operating lease which expires in March 2006. Rent expense totaled $9,000, $120,000, $77,000 and $973,000 in 1997, 1998 and for the nine months ended September 30, 1998 and 1999 (unaudited), respectively. Future minimum lease payments under noncancelable leases are as follows (in thousands):
Years Ending December 31, ------------------------- 1999................................................................. $ 394 2000................................................................. 2,198 2001................................................................. 2,411 2002................................................................. 2,483 2003................................................................. 2,555 Thereafter........................................................... 6,019 ------- Total minimum lease payments....................................... $16,060 =======
Contingencies From time to time, the Company may have certain contingent liabilities, including intellectual property claims, that arise in the ordinary course of its business activities. The Company accrues contingent liabilities when it is probable that future expenditures will be made and such expenditures can be reasonably estimated. In the opinion of management, there are no pending claims for which the outcome is expected to result in a material adverse effect on the financial position or results of operations or cash flows of the Company. F-12 REPLAYTV, INC. (a development stage company) NOTES TO FINANCIAL STATEMENTS--(Continued) (Information for the nine months ended September 30, 1998 and 1999 is unaudited) Note 5--Income Taxes: The Company incurred net operating losses for the period from August 27, 1997 (inception) to December 31, 1997 and the year ended December 31, 1998 and accordingly, no provision for income taxes has been recorded. The tax benefit is reconciled to the amount computed using the federal statutory rate as follows:
Period from August 27, 1997 (inception) to Year Ended December 31, December 31, 1997 1998 -------------- ------------ (in thousands) Federal statutory benefit........................ $53 $1,116 State taxes, net of federal benefit.............. 13 263 Future benefits not currently recognized......... (71) (1,365) Nondeductible compensation....................... -- (82) Other............................................ 5 68 --- ------ $-- $ -- === ======
At December 31, 1998, the Company had approximately $1.9 million of federal and $1.9 million of state net operating loss carryforwards available to offset future taxable income which expire at various dates through 2018. Under the Tax Reform Act of 1986, the amounts of and benefits from net operating loss carryforwards may be impaired or limited in certain circumstances. Events which cause limitations in the amount of net operating losses that the Company may utilize in any one year include, but are not limited to, a cumulative ownership change of more than 50%, as defined, over a three-year period. Deferred tax assets and liabilities consist of the following:
December 31, --------------- 1997 1998 --------------- (in thousands) Deferred tax assets: Net operating loss carryforwards.......................... $ 53 $ 744 Accruals and allowances................................... 8 544 Research credits.......................................... 10 148 ----- -------- Net deferred tax assets................................. 71 1,436 Valuation allowance....................................... (71) (1,436) ----- -------- $ -- $ -- ===== ========
The Company has incurred losses since inception. Management believes that based on the history of such losses and other factors, the weight of available evidence indicates that it is more likely than not that the Company will not be able to realize its deferred tax assets, and thus a full valuation reserve has been recorded at December 31, 1997 and 1998. F-13 REPLAYTV, INC. (a development stage company) NOTES TO FINANCIAL STATEMENTS--(Continued) (Information for the nine months ended September 30, 1998 and 1999 is unaudited) Note 6--Convertible Preferred Stock: Convertible Preferred Stock ("Preferred Stock") consists of the following:
Proceeds Per Net of Shares Shares Share Liquidation Issuance Series Authorized Outstanding Amount Amount Costs ------ ---------- ----------- ------ ----------- -------- (in thousands, except per share amounts) A....................... 2,494 2,494 $0.11 $ 276 $ 276 ------ ------ ------- ------- Balance at December 31, 1997............. 2,494 2,494 276 276 B....................... 2,580 2,258 0.31 700 697 C....................... 3,163 3,163 0.63 1,999 1,996 ------ ------ ------- ------- Balance at December 31, 1998............. 8,237 7,915 2,975 2,969 D (unaudited)........... 10,200 10,194 0.78 7,900 7,841 E (unaudited)........... 8,700 7,633 7.50 57,300 57,003 ------ ------ ------- ------- Balance at September 30, 1999, (unaudited).......... 27,137 25,742 $68,175 $67,813 ====== ====== ======= =======
The above table excludes the Series F Preferred Stock financing which occurred subsequent to September 30, 1999 (see Note 10). The holders of the Convertible Preferred Stock have various rights and preferences as follows: Dividends Holders of the Series A, Series B, Series C, Series D and Series E Preferred Stock are each entitled to receive annual dividends of 8% per share, when as and if declared by the Board of Directors prior to the declaration of dividends to holders of Common Stock. Conversion Each share of Series A, Series B, Series C, Series D and Series E Preferred Stock is convertible into shares of Common Stock based on a formula which currently results in a one-for-one exchange ratio. This formula is subject to adjustment, as defined, which essentially provides adjustments for holders of the Preferred Stock in the event of dilutive issuances, stock splits, combinations or other recapitalizations. Such conversion is automatic upon the earlier of (i) the effective date of a public offering of Common Stock resulting in an offering price of not less than $7.50 per share (appropriately adjusted for any stock split, dividend, combination or other recapitalizations) or (ii) written notice to the Company by the holders of at least 66 2/3% of the then outstanding shares of Preferred Stock of their intent to convert into shares of Common Stock. Liquidation In the event of liquidation, holders of the Series A Preferred Stock are entitled to a per share distribution in preference to holders of Common Stock equal to the Series A stated value of $0.11 plus any declared but unpaid dividends. The holders of Series B Preferred Stock are entitled to a per share distribution preference to holders of Common Stock equal to the Series B stated value of $0.31 plus any declared but unpaid dividends. The holders F-14 REPLAYTV, INC. (a development stage company) NOTES TO FINANCIAL STATEMENTS--(Continued) (Information for the nine months ended September 30, 1998 and 1999 is unaudited) of Series C Preferred Stock are entitled to a per share distribution preference to holders of Common Stock equal to the Series C stated value of $0.63 plus any declared but unpaid dividends. The holders of Series D Preferred Stock are entitled to a per share distribution preference to holders of Common Stock equal to the Series D stated value of $0.78 plus any declared but unpaid dividends. The holders of Series E Preferred Stock are entitled to a per share distribution preference to holders of Common Stock equal to the Series E stated value of $7.50 plus any declared but unpaid dividends. In the event funds are sufficient to make a complete distribution to holders of Series A, Series B, Series C, Series D and Series E as described above, the remaining assets will be distributed ratably among the holders of Common Stock. Redemption The holders of the Series A, B, C, D and E Preferred Stock have no redemption rights. Voting The holders of the Series A, B, C, D and E Preferred Stock have one vote for each share of Common Stock into which such Preferred Stock may be converted. Warrants for Preferred Stock In connection with a loan agreement entered into in June 1999, the Company issued a warrant to purchase 6,666 shares of Series E Preferred Stock to the lender. The warrant may be exercised at any time between May 1999 and May 2004 at an exercise price of $7.50 per share. The warrant was recorded as a debt discount at its estimated fair value of $30,000. The Company estimated the fair value of the warrant using the Black-Scholes option pricing model using the following assumptions: risk-free interest rate of 5.5%; volatility of 80%; and an expected life of five years. Note 7--Common Stock: At December 31, 1997 and 1998, there were 7,863,000 and 6,970,000 shares outstanding, respectively, of Common Stock issued to the founders of the Company, affiliates and other nonrelated parties. At September 30, 1999, there were 9,209,000 shares of Common Stock outstanding. A portion of the shares sold are subject to a right of repurchase by the Company subject to vesting. At December 31, 1997 and 1998 and September 30, 1999, there were approximately 983,000, 0 and 1,370,000 shares, respectively, subject to repurchase. In June 1998, the Company repurchased 983,000 shares of unvested Common Stock from a founder of the Company at $0.0005 per share. In July 1999, the Board of Directors approved a two-for-one stock split of the Company's Common Stock and Preferred Stock with a corresponding adjustment to outstanding stock options and warrants. All Common and Preferred converted share and per share data in the accompanying financial statements have been adjusted retroactively to give effect to the stock split. In connection with Common Stock issued for services during the third quarter of 1999, the Company recorded $71,000 of stock-based compensation expense. F-15 REPLAYTV, INC. (a development stage company) NOTES TO FINANCIAL STATEMENTS--(Continued) (Information for the nine months ended September 30, 1998 and 1999 is unaudited) The Company has reserved shares of Common Stock as follows:
September 30, 1999 -------------- (unaudited) (in thousands) Conversion of Series A....................................... 2,494 Conversion of Series B....................................... 2,258 Conversion of Series C....................................... 3,163 Conversion of Series D....................................... 10,194 Conversion of Series E....................................... 7,633 Common Stock issued.......................................... 9,209 Exercise of options under the equity incentive plans......... 9,581 Exercise of warrants issued for Series E Preferred Stock..... 7 Undesignated................................................. 30,461 ------ 75,000 ======
The above shares do not include shares reserved under the 2000 Employee Stock Purchase Plan and 2000 Directors' Stock Option Plan (See Note 10). Note 8--Stock Option Plan: In November 1997, the Board of Directors adopted the 1997 Stock Option Plan (the "1997 Plan") providing for the issuance of incentive and nonstatutory stock options to employees, consultants and outside directors of the Company. As of September 30, 1999, 9,070,000 shares are authorized for issuance under the 1997 Plan. In September 1999, the Board of Directors adopted the 1999 Stock Option Plan (the "1999 Plan") providing for the issuance of incentive and non statutory stock options to employees, consultants and outside directors of the Company. As of September 30, 1999, 2,530,000 shares are authorized for issuance under the 1999 Plan. Under the 1997 and 1999 Plans, options may be granted at an exercise price at the date of grant of not less than the fair market value per share for incentive stock options and not less than 85% of the fair market value per share for nonstatutory stock options, except for options granted to a person owning greater than 10% of the total combined voting power of all classes of stock of the Company, for which the exercise price of the option must be not less than 110% of the fair market value. The fair market value of the Company's common stock is determined by the Board of Directors. In determining the fair market value on each grant date, the Board of Directors considered among other things, the developmental stage of the Company, the absence of a public trading market for the Company's securities and the nature of the Company's business. Options granted under the 1997 and 1999 Plans generally become exercisable at a rate of 25% per year over four years and expire no later than ten years after the grant date. Under the 1999 Plan, a stock purchase right may be issued, either alone, in addition to, or in tandem with other awards granted under the 1999 Plan and/or cash awards made outside of the 1999 Plan. The purchase price of the shares subject to the stock purchase right are determined by the Board. Shares purchased using the stock purchase right are subject to the Company's option to repurchase the shares from the purchaser at the purchaser's original cost per share upon the voluntary or involuntary termination of the purchaser's employment or consulting relationship for any reason, including death or disability. F-16 REPLAYTV, INC. (a development stage company) NOTES TO FINANCIAL STATEMENTS--(Continued) (Information for the nine months ended September 30, 1998 and 1999 is unaudited) The following table summarizes information about stock option transactions under the 1997 and 1999 Plans:
Period from August 27, 1997 Nine Months (inception) to Year Ended Ended December 31, December 31, September 30, 1997 1998 1999 --------------- ---------------- ---------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price ------ -------- ------ -------- ------ -------- (unaudited) (in thousands, except per share amounts) Outstanding at beginning of period..................... -- $ -- 260 $0.01 2,567 $0.02 Granted below fair value.... -- 2,616 0.02 7,995 1.78 Granted at fair value....... 260 0.01 -- -- -- -- Exercised................... -- -- (90) 0.01 (1,929) 0.89 Canceled.................... -- -- (219) 0.01 (263) 0.10 --- ----- ------ Outstanding at end of period..................... 260 0.01 2,567 0.02 8,370 1.50 === ===== ====== Options vested.............. -- 219 432 === ===== ====== Weighted average fair value of options granted during the period................. $0.01 $0.35 $4.71 ===== ===== =====
At September 30, 1999, the Company had 1,210,924 shares available for future grant under the 1997 and 1999 Plans. The following table summarizes the information about stock options outstanding and exercisable as of December 31, 1998:
Options Outstanding and Exercisable ------------------------------------------------------------------- Weighted Average Remaining Weighted Range of Number Contractual Average Exercise Outstanding Life (in Exercise Prices (in thousands) years) Price ----------- -------------- ----------- -------- $0.011-0.03 217 9.19 $0.015 0.25 2 10.00 0.25
The following table summarizes the information about stock options outstanding and exercisable as of September 30, 1999 (unaudited):
Options Outstanding and Exercisable ------------------------------------------------------------------- Weighted Average Remaining Weighted Range of Number Contractual Average Exercise Outstanding Life (in Exercise Prices (in thousands) years) Price ----------- -------------- ----------- -------- $0.011-0.03 358 8.60 $0.028 0.25-0.375 35 9.32 0.25 0.625 30 9.46 0.625 2.00-4.00 9 9.58 2.15
F-17 REPLAYTV, INC. (a development stage company) NOTES TO FINANCIAL STATEMENTS--(Continued) (Information for the nine months ended September 30, 1998 and 1999 is unaudited) The weighted average remaining contractual life of stock options outstanding at December 31, 1998 and September 30, 1999 was 9.48 and 9.41 years, respectively. Fair value disclosures The Company applies the measurement principles of APB 25 in accounting for its stock option plans. Had compensation expense for options granted been determined based on the fair value at the grant date as prescribed by SFAS No. 123, the Company's net loss and net loss per share would have been decreased to the pro forma amounts indicated below:
Period from Period from August 27, August 27, 1997 Nine Months 1997 (inception) Ended September (inception) to Year Ended 30, to December 31, December 31, ----------------- September 30, 1997 1998 1998 1999 1999 ------------ ------------ ------- -------- ------------- (unaudited) (unaudited) (in thousands, except per share amounts) Net loss: As reported......................... $ (155) $(3,284) $(1,559) $(20,117) $(23,556) ====== ======= ======= ======== ======== Pro forma........................... $ (155) $(3,166) $(1,496) $(18,464) $(21,785) ====== ======= ======= ======== ======== Basic and diluted net loss per share: As reported......................... $(0.08) $ (0.48) $ (0.23) $ (2.73) $ (3.35) ====== ======= ======= ======== ======== Pro forma........................... $(0.08) $ (0.46) $ (0.22) $ (2.51) $ (3.10) ====== ======= ======= ======== ========
The Company calculated the minimum fair value of each option grant on the date of grant using the Black-Scholes option pricing model as prescribed by SFAS No. 123 using the following assumptions:
Period from Period from August 27, August 27, 1997 Nine Months 1997 (inception) Ended (inception) to Year Ended September 30, to December 31, December 31, --------------- September 30, 1997 1998 1998 1999 1999 ------------ ------------ ------ ------ ------------- (unaudited) (unaudited) Risk-free interest rates.................. 5.5% 5.5% 5.5% 5.5% 5.5% Expected lives (in years)................. 5 5 5 5 5 Dividend yield.......... 0% 0% 0% 0% 0% Expected volatility..... 0% 0% 0% 0% 0%
Because the determination of fair value of all options granted after such time as the Company becomes a public entity will include an expected volatility factor in addition to the factors described in the preceding paragraph, the above results may not be representative of future periods. Unearned stock-based compensation In connection with certain stock option grants to employees, during the year ended December 31, 1998 and the nine months ended September 30, 1999, the Company recognized unearned stock-based compensation totaling $857,000 and $22.6 million, respectively, which is being amortized over the vesting periods of the related options, which is generally four years, using the multiple option approach. Amortization expense recognized for the year ended December 31, 1998 and the nine months ended September 30, 1999 totaled approximately $206,000 and $3.0 million, respectively. The Company also recorded amortization expense of F-18 REPLAYTV, INC. (a development stage company) NOTES TO FINANCIAL STATEMENTS--(Continued) (Information for the nine months ended September 30, 1998 and 1999 is unaudited) $444,000 for the nine months ended September 30, 1999 in connection with stock options issued for services. The Company estimated the fair value of the options issued for services using the Black-Scholes option pricing model using the following assumptions; risk-free interest rate of 5.5%; volatility of 80%; and an expected life of two to five years. The allocation of stock-based compensation expense by functional area would be as follows:
Period from Period from August 27, August 27, Nine Months 1997 1997 Ended (inception) (inception) to Year Ended September 30, to December 31, December 31, ------------- September 30, 1997 1998 1998 1999 1999 -------------- ------------ ------------- ------------- (unaudited) (unaudited) (in thousands) Research and development............ $ -- $163 $ 88 $ 920 $1,083 Programming and content................ -- 15 4 1,221 1,236 Sales and marketing..... -- 15 1 407 422 General and administrative......... -- 13 7 928 941 Hardware distribution cost, net.............. -- -- -- 13 13 ------ ---- ----- ------- ------ Total stock-based $206 $3,695 compensation......... $ -- $ 100 $ 3,489 ====== ==== ===== ======= ======
Note 9--Related Party Transactions: In September and October 1998 a certain founder of the Company received convertible promissory notes in exchange for $570,000. The notes bore interest at 20% per annum. In March 1999, the note and accrued interest of $628,000 was repaid in full. In July and September 1999, certain executives of the Company exercised their stock options prior to vesting by issuance of full recourse promissory notes to the Company. The aggregate notes of $1.7 million bear interest at a rate of 5.74% through 5.98% per annum and are due in July and September 2004. The notes are collateralized by the related 1,370,000 shares of Common Stock issued, which are subject to the Company's right to repurchase. The net amount outstanding has been reflected as a separate component of stockholders' equity. Note 10--Subsequent Events: Reincorporation In January 2000, the Company's Board of Directors authorized the reincorporation of the Company in the State of Delaware. As a result of the reincorporation, the Company is authorized to issue 200,000,000 shares of $0.001 par value Common Stock and 5,000,000 shares of $0.001 par value Preferred Stock. The Board of Directors has the authority to issue the undesignated Preferred Stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof. The par value and additional paid-in capital related to the issuance of Preferred Stock and Common Stock have been retroactively adjusted to reflect the reincorporation. Stock option grants (unaudited) During October, November and December 1999, the Company granted options to purchase 2,401,000 shares of Common Stock to existing and new employees at a weighted average exercise price of $5.25. In connection with these stock option grants, the Company will recognize $11.8 million in unearned stock- based compensation that will be amortized over the related vesting periods. F-19 REPLAYTV, INC. (a development stage company) NOTES TO FINANCIAL STATEMENTS--(Continued) (Information for the nine months ended September 30, 1998 and 1999 is unaudited) Promissory notes issued to related parties (unaudited) In November 1999, certain executives of the Company exercised their stock options prior to vesting by issuance of full recourse promissory notes to the Company. The aggregate notes of $1.5 million bear interest at a rate of 6.08% per annum and are due in November 2004. The notes are collateralized by the related 300,000 shares of Common Stock issued, which are subject to the Company's right to repurchase. MKE Agreement (unaudited) In December 1999, the Company entered into an agreement (the "Agreement") with MKE. Under the Agreement, MKE will purchase from the Company ReplayTV- enabled products currently manufactured by another third party and will market, sell and distribute those products under the Panasonic brand name featuring the ReplayTV logo. Also, the Company will work jointly with MKE to develop ReplayTV-enabled products. During the term of the Agreement, the Company will subsidize MKE for products that are shipped by or on behalf of MKE. Series F Preferred Stock (unaudited) In January 2000, the Company issued 5,627,267 shares of Series F Preferred Stock ("Series F") at $11.00 per share resulting in cash proceeds of $61.9 million. Each share of Series F has voting rights equal to the number of shares of Common Stock into which such share is convertible. Holders of Series F are entitled to receive annual dividends of $0.88 per share, when and if declared by the Board of Directors, on a pari passu basis with the holders of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock, and prior to the Common Stock. The Series F is convertible at any time into Common Stock at a one-for- one exchange ratio. Such conversion is automatic upon the effective date of an initial public offering provided the public offering price is at least $7.50 per share. In the event of any liquidation, dissolution or winding up of the Company, the holders of Series F are entitled to receive an amount equal to $11.00 per share, plus any declared but unpaid dividends, prior and in preference to any holders of Common Stock. The Series F is redeemable at the option of the Company on or at any time after February 15, 2004 or upon the receipt by the Company in writing from the holders of not less than 66 2/3% of the Preferred Stock of a request for redemption of their Preferred Stock, at a redemption price equal to $11.00 per share, plus any declared but unpaid dividends. For the first quarter ending March 31, 2000, the Company will record a non-cash Preferred Stock dividend to reflect the beneficial conversion ratio as a result of the difference between the issuance price of the Series F and the estimated fair value of the Company's Common Stock. 2000 Stock Plans (unaudited) In January 2000, the Company's Board of Directors approved the 2000 Directors' Stock Option Plan (the "2000 Directors' Plan") and the 2000 Employee Stock Purchase Plan (the "2000 ESPP"), which will become effective immediately prior to the completion of an initial public offering. Under the 2000 Directors' Plan, a total of 300,000 shares have been reserved for future issuance to nonemployee directors. The shares reserved under the 2000 Directors' Plan will be automatically reset to 300,000 shares on the first day of each fiscal year beginning in 2001. Under the 2000 ESPP, a total of 1,000,000 shares have been reserved for future issuance. The shares reserved will be subject to automatic annual increases on the first day of the fiscal year beginning in 2001, equal to the lesser of 500,000 shares, 2% of the outstanding Common Stock on the last day of the immediately preceding fiscal year, or a lesser number of shares as determined by the board of directors. F-20 [REPLAYTV LOGO] PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 13. Other Expenses of Issuance and Distribution The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable by us in connection with the sale of common stock being registered. All amounts are estimates except the SEC registration fee and the NASD filing fee and the Nasdaq National Market listing fee.
Amount to be Paid ---------- SEC registration fee............................................ $ 39,600 NASD filing fee................................................. 15,500 Nasdaq National Market listing fee.............................. 95,000 Printing and engraving expenses................................. 200,000 Legal fees and expenses......................................... 400,000 Accounting fees and expenses.................................... 300,000 Blue Sky qualification fees and expenses........................ * Transfer Agent and Registrar fees............................... * Miscellaneous fees and expenses................................. * -------- Total......................................................... *
- -------- * to be filed by amendment Item 14. Indemnification of Directors and Officers Section 145 of the Delaware General Corporation Law (the "Delaware Law") authorizes a court to award, or a corporation's Board of Directors to grant, indemnity to directors and officers in terms sufficiently broad to permit such indemnification under certain circumstances for liabilities (including reimbursement for expenses incurred) arising under the Securities Act of 1933, as amended (the "Securities Act"). Article XIV of our certificate of incorporation (Exhibit 3.2 hereto) and Article VI of our bylaws (Exhibit 3.4 hereto) provide for indemnification of our directors, officers, employees and other agents to the maximum extent permitted by Delaware Law. In addition, we have entered into Indemnification Agreements (Exhibit 10.2 hereto) with our officers and directors. The Underwriting Agreement (Exhibit 1.1) also provides for cross-indemnification among ReplayTV and the underwriters with respect to certain matters, including matters arising under the Securities Act. Item 15. Recent Sales of Unregistered Securities Since our incorporation in August 1997, we have issued and sold the following securities: 1. On September 15, 1997, we sold 7,862,770 shares of common stock for an aggregate purchase price of $3,931 to two investors. 2. On November 26, 1997, we sold 2,494,070 shares of Series A preferred stock for an aggregate purchase price of $274,348 to two investors. 3. On March 11, 1998, we issued a promissory note in the aggregate principal amount of $100,000 to one investor. 4. On April 10, 1998, we sold 1,451,610 shares of Series B preferred stock for an aggregate purchase price of $450,000, including cancellation of the $100,000 note described in 3 above, to four investors. 5. On June 29, 1998, we sold 806,448 shares of Series B preferred stock for an aggregate purchase price of $250,000 to four investors. II-1 6. On September 11, 1998, September 14, 1998, September 28, 1998, October 6, 1998, October 15, 1998 and October 27, 1998 we issued six promissory notes in the aggregate principal amount of $570,000 to one investor. 7. On November 5, 1998, we sold 1,818,488 shares of Series C preferred stock for an aggregate purchase price of $1,150,000 to three investors. 8. On November 19, 1998, we sold 1,344,096 shares of Series C preferred stock for an aggregate purchase price of $850,000 to six investors. 9. On February 12, 1999, February 22, 1999 and March 11, 1999, we issued three promissory notes in the aggregate principal amount of $1,500,000 to one investor. 10. On March 24, 1999, we sold 10,193,544 shares of Series D preferred stock for an aggregate purchase price of $7,900,000, including cancellation of $80,000 of the notes described in 6 above and cancellation of the notes described in 9 above, to twelve investors. 11. On May 31, 1999, we issued a warrant to purchase 6,666 shares of Series E preferred stock to a lender in connection with a line of credit. 12. On July 16, 1999 and July 19, 1999, we issued two promissory notes in the aggregate principal amount of $600,000 to two investors. 13. On July 30, 1999, we sold 6,886,663 shares of Series E preferred stock for an aggregate purchase price of $52,249,973, including cancellation of the notes described in 12 above, to 41 investors. 14. On August 16, 1999, we sold 666,666 shares of Series E preferred stock for an aggregate purchase price of $5,000,000 to one investor. 15. On January 25, 2000, we sold 5,627,267 shares of Series F preferred stock for an aggregate price of $61,899,937 to 12 investors. 16. From April 28, 1999 to December 31, 1999, we issued an aggregate of 322,507 shares of common stock to one director and 14 consultants outside of our stock plans. 17. From November 19, 1997 to December 31, 1999, we issued options to purchase an aggregate of 9,545,522 shares of common stock to employees, directors and consultants pursuant to the 1997 stock option plan. 18. From August 26, 1999 to December 31, 1999, we issued options to purchase an aggregate of 4,230,000 shares of common stock to employees, directors and consultants pursuant to the 1999 stock plan. The issuances of the above securities were deemed to be exempt from registration under the Securities Act in reliance on Section 4(2) of such Securities Act as transactions by an issuer not involving any public offering. In addition, certain issuances described in Items 1, 17 and 18 were deemed exempt from registration under the Securities Act in reliance upon Rule 701 promulgated under the Securities Act. The recipients of securities in each such transaction represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the share certificates and warrants issued in such transactions. All recipients had adequate access, through their relationships with us, to information about us. II-2 Item 16. Exhibits and Financial Statement Schedules (a) Exhibits
Number Description ------- ----------- 1.1* Form of Underwriting Agreement. 3.1 Sixth Amended and Restated Articles of Incorporation of ReplayTV. 3.2 Amended and Restated Certificate of Incorporation of ReplayTV (as proposed). 3.3 Amended and Restated Bylaws of ReplayTV. 3.4 Amended and Restated Bylaws of ReplayTV (as proposed). 4.1* Specimen Stock Certificate. 4.2 Warrant dated May 31, 1999 issued by the Company to Imperial Bancorp. 5.1* Opinion of Venture Law Group regarding the legality of the common stock being registered. 10.1 Sixth Amended and Restated Investors' Rights Agreement dated January 25, 2000 among ReplayTV and certain investors. 10.2 Form of Indemnification Agreement between ReplayTV and each of its executive officers and directors. 10.3* 1997 Stock Option Plan (as amended) and forms of Stock Option Agreements. 10.4* 1999 Stock Plan and forms of Stock Option Agreement and Restricted Stock Purchase Agreement. 10.5 2000 Employee Stock Purchase Plan and form of Subscription Agreement. 10.6 2000 Directors' Stock Option Plan and form of Stock Option Agreement. 10.7 Offer Letter with Earle H. "Kim" LeMasters, III. 10.8 Offer Letter with Anthony J. Wood. 10.9 Offer Letter with Craig W. Dougherty. 10.10 Offer Letter with Bruce L. Kaplan. 10.11 Offer Letter with Alexander Gray. 10.12 Offer Letter with Layne L. Britton. 10.13*+ Master Collaboration Agreement dated December 20, 1999 between ReplayTV and Matsushita-Kotobuki Electronics Industries, Ltd. 10.14*+ OEM Distribution Agreement dated December 20, 1999 between ReplayTV and Matsushita-Kotobuki Electronics Industries, Ltd. 10.15*+ Manufacturing Agreement dated November 3, 1998 between ReplayTV and Flextronics International USA, Inc. 10.16*+ Television Listings Agreement dated June 1, 1998, as amended October 26, 1998, between ReplayTV and Tribune Media Services, Inc. 10.17*+ Agreement dated February 1, 1999 between ReplayTV and Showtime Networks Inc. 10.18*+ Agreement dated July 30, 1999 between ReplayTV and National Broadcasting Company, Inc. 10.19*+ Network Service Agreement dated July 30, 1999 between ReplayTV and Turner Broadcasting System, Inc. 10.20 Common Stock Purchase Agreement dated September 15, 1997 between ReplayTV and Anthony J. Wood. 10.21 Consulting Agreements between ReplayTV and Kevin Bohren. 10.22* Lease Agreement dated January 27, 1999 between John Arrillaga, Trustee, or his Successor Trustee, UTA dated July 20, 1977 (John Arrillaga Survivor's Trust) as amended, and Richard T. Perry, Trustee, or his Successor Trustee, UTA dated July 20, 1977 (Richard T. Perry Separate Property Trust) as amended, and ReplayTV, as amended.
II-3
Number Description ------ ----------- 23.1 Independent Auditors' Consent. 23.2* Consent of Attorney (see Exhibit 5.1). 24.1 Power of Attorney (see page II-5). 27.1 Financial Data Schedule.
- -------- *To be supplied by amendment. +Confidential treatment requested as to certain portions of this Exhibit. (b) Financial Statement Schedules Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto. Item 17. Undertakings The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-4 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 Mountain View, State of California on January 26, 2000. REPLAYTV, INC. By: /s/ Earle H. "Kim" LeMasters, III ----------------------------------- Earle H. "Kim" LeMasters, III Chief Executive Officer and Chairman POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints, jointly and severally, Earle H. "Kim" LeMasters, III and Craig W. Dougherty and each of them, as his attorney- in-fact, with full power of substitution, for him in any and all capacities, to sign any and all amendments to this Registration Statement (including post- effective amendments), and any and all Registration Statements filed pursuant to Rule 462 under the Securities Act of 1933, as amended, in connection with or related to the offering contemplated by this Registration Statement and its amendments, if any, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming our signatures as they may be signed by our said attorney to any and all amendments to said Registration Statement. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated:
Signature Title Date --------- ----- ---- /s/ Earle H. "Kim" LeMasters, III Chief Executive Officer and January 26, 2000 ____________________________________ Chairman (Principal Earle H. "Kim" LeMasters, III Executive Officer) /s/ Craig W. Dougherty Executive Vice President, January 26, 2000 ____________________________________ Finance and Chief Financial Craig W. Dougherty Officer (Principal Financial and Accounting Officer) /s/ Jeffrey Berg Director January 26, 2000 ____________________________________ Jeffrey Berg /s/ Kevin L. Bohren Director January 26, 2000 ____________________________________ Kevin L. Bohren /s/ Sky D. Dayton Director January 26, 2000 ____________________________________ Sky D. Dayton /s/ William R. Hearst III Director January 26, 2000 ____________________________________ William R. Hearst III /s/ Anthony J. Wood Director January 26, 2000 ____________________________________ Anthony J. Wood
II-5 EXHIBIT INDEX
Exhibit Number Description ------- ----------- 1.1* Form of Underwriting Agreement. 3.1 Sixth Amended and Restated Articles of Incorporation of ReplayTV. 3.2 Amended and Restated Certificate of Incorporation of ReplayTV (as proposed). 3.3 Amended and Restated Bylaws of ReplayTV. 3.4 Amended and Restated Bylaws of ReplayTV (as proposed). 4.1* Specimen Stock Certificate. 4.2 Warrant dated May 31, 1999 issued by the Company to Imperial Bancorp. 5.1* Opinion of Venture Law Group regarding the legality of the common stock being registered. 10.1 Sixth Amended and Restated Investors' Rights Agreement dated January 25, 2000 among ReplayTV and certain investors. 10.2 Form of Indemnification Agreement between ReplayTV and each of its executive officers and directors. 10.3* 1997 Stock Option Plan (as amended) and forms of Stock Option Agreements. 10.4* 1999 Stock Plan and forms of Stock Option Agreement and Restricted Stock Purchase Agreement. 10.5 2000 Employee Stock Purchase Plan and form of Subscription Agreement. 10.6 2000 Directors' Stock Option Plan and form of Stock Option Agreement. 10.7 Offer Letter with Earle H. "Kim" LeMasters, III. 10.8 Offer Letter with Anthony J. Wood. 10.9 Offer Letter with Craig W. Dougherty. 10.10 Offer Letter with Bruce L. Kaplan. 10.11 Offer Letter with Alexander Gray. 10.12 Offer Letter with Layne L. Britton. 10.13*+ Master Collaboration Agreement dated December 20, 1999 between ReplayTV and Matsushita-Kotobuki Electronics Industries, Ltd. 10.14*+ OEM Distribution Agreement dated December 20, 1999 between ReplayTV and Matsushita-Kotobuki Electronics Industries, Ltd. 10.15*+ Manufacturing Agreement dated November 3, 1998 between ReplayTV and Flextronics International USA, Inc. 10.16*+ Television Listings Agreement dated June 1, 1998, as amended October 26, 1998, between ReplayTV and Tribune Media Services, Inc. 10.17*+ Agreement dated February 1, 1999 between ReplayTV and Showtime Networks Inc. 10.18*+ Agreement dated July 30, 1999 between ReplayTV and National Broadcasting Company, Inc. 10.19*+ Network Service Agreement dated July 30, 1999 between ReplayTV and Turner Broadcasting System, Inc. 10.20 Common Stock Purchase Agreement dated September 15, 1997 between ReplayTV and Anthony J. Wood. 10.21 Consulting Agreements between ReplayTV and Kevin Bohren. 10.22* Lease Agreement dated January 27, 1999 between John Arrillaga, Trustee, or his Successor Trustee, UTA dated July 20, 1977 (John Arrillaga Survivor's Trust) as amended, and Richard T. Perry, Trustee, or his Successor Trustee, UTA dated July 20, 1977 (Richard T. Perry Separate Property Trust) as amended, and ReplayTV, as amended. 23.1 Independent Auditors' Consent. 23.2* Consent of Attorney (see Exhibit 5.1). 24.1 Power of Attorney (see page II-5). 27.1 Financial Data Schedule.
- -------- *To be supplied by amendment. +Confidential treatment requested as to certain portions of this Exhibit. EX-3.1 2 6TH AM. & RESTATED ARTICLES OF INCORPORATION EXHIBIT 3.1 SIXTH AMENDED AND RESTATED ARTICLES OF INCORPORATION OF REPLAY NETWORKS, INC. The undersigned, Earl H. LeMasters III and Mark A. Medearis, hereby certify that: 1. They are the duly elected and acting Chief Executive Officer and Secretary, respectively, of Replay Networks, Inc., a California corporation. 2. The Articles of Incorporation of this corporation shall be amended and restated to read in full as follows: "ARTICLE I The name of this corporation is ReplayTV, Inc. (the "Corporation"). ----------- ARTICLE II The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code. ARTICLE III (A) Classes of Stock. The Corporation is authorized to issue two classes ---------------- of stock to be designated, respectively, "Common Stock" and "Preferred Stock." ------------ --------------- The total number of shares which the Corporation is authorized to issue is 110,077,301 shares, each with a par value of $0.001 per share. 75,000,000 shares shall be Common Stock and 35,077,301 shares shall be Preferred Stock. (B) Rights, Preferences and Restrictions of Preferred Stock. The Preferred ------------------------------------------------------- Stock authorized by these Sixth Amended and Restated Articles of Incorporation may be issued from time to time in one or more series. The first series of Preferred Stock shall be designated "Series A Preferred Stock" and shall consist ------------------------ of 2,494,070 shares. The second series of Preferred Stock shall be designated "Series B Preferred Stock" and shall consist of 2,580,644 shares. The third - ------------------------- series of Preferred Stock shall be designated "Series C Preferred Stock" and ------------------------ shall consist of 3,162,592 shares. The fourth series of Preferred Stock shall be designated "Series D Preferred Stock" and shall consist of 10,200,000 shares. ------------------------ The fifth series of Preferred Stock shall be designated "Series E Preferred ------------------ Stock" and shall consist of 7,639,995 shares. The sixth series of Preferred - ----- Stock shall be designated "Series F Preferred Stock" and shall consist of ------------------------ 9,000,000 shares. The rights, preferences, privileges and restrictions granted to and imposed on the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock are as set forth below in this Article III(B). 1. Dividend Provisions. Subject to the rights of series of ------------------- Preferred Stock that may from time to time come into existence, the holders of shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock shall be entitled to receive dividends, out of any assets legally available therefor, prior and in preference to any declaration or payment of any dividend (payable other than in Common Stock or other securities and rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of Common Stock of the Corporation) on the Common Stock of the Corporation, on a pro rata basis at the rate of (i) $0.00884 per share (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares) per annum on each outstanding share of Series A Preferred Stock, (ii) $0.0248 per share (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares) per annum on each outstanding share of Series B Preferred Stock, (iii) $0.0505915 per share (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares) per annum on each outstanding share of Series C Preferred Stock, (iv) $0.062 per share (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares) per annum on each outstanding share of Series D Preferred Stock, (v) $0.60 per share (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares) per annum on each outstanding share of Series E Preferred Stock and (vi) $0.88 per share (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares) per annum on each outstanding share of Series F Preferred Stock, payable quarterly when, as and if declared by the Board of Directors. No dividends shall be paid in any calendar year on any share of Common Stock unless a full dividend pursuant to the above provisions of this Section 1 is paid in such year with respect to all outstanding shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock in an amount for each such share of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock together with an amount equal to or greater than the aggregate amount of such dividends for all shares of Common Stock into which each such share of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock could then be converted. Such dividends shall not be cumulative. 2. Liquidation. ----------- (a) Preference. In the event of any liquidation, dissolution or ---------- winding up of the Corporation, either voluntary or involuntary, subject to the rights of series of Preferred Stock that may from time to time come into existence in accordance herewith, the holders of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Corporation to the holders of Common Stock by reason of their ownership thereof, an amount per share equal to (i) $0.1105 per share (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like -2- with respect to such shares) for each share of Series A Preferred Stock then held by them, (ii) $0.31 per share (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares) for each share of Series B Preferred Stock then held by them, (iii) $0.6323925 per share (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares) for each share of Series C Preferred Stock then held by them, (iv) $0.775 per share (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares) for each share of Series D Preferred Stock then held by them, (v) $7.50 per share (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares) for each share of Series E Preferred Stock held by them and (vi) $11.00 per share (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares) for each share of Series F Preferred Stock held by them, plus declared but unpaid dividends. If, upon the occurrence of such event, the assets and funds thus distributed among the holders of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then, subject to the rights of series of Preferred Stock that may from time to time come into existence in accordance herewith, the entire assets and funds of the Corporation legally available for distribution shall be distributed ratably among the holders of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock in proportion to the preferential amount each such holder is otherwise entitled to receive. (b) Remaining Assets. Upon the completion of the distribution ---------------- required by Section 2(a) above and any other distribution that may be required with respect to series of Preferred Stock that may from time to time come into existence in accordance herewith, if assets remain in the Corporation, the holders of the Common Stock of the Corporation shall receive all of the remaining assets of the Corporation pro rata based on the number of shares of Common Stock held by each. (c) Certain Acquisitions. -------------------- (i) Deemed Liquidation. For purposes of this Section 2, a ------------------ liquidation, dissolution or winding up of the Corporation shall be deemed to be occasioned by, or to include, (A) the acquisition of the Corporation by another entity by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation, but excluding any merger effected exclusively for the purpose of changing the domicile of the Corporation); or (B) a sale, lease, license or other conveyance of all or substantially all of the assets of the Corporation, unless the Corporation's ------ shareholders of record as constituted immediately prior to such acquisition or sale will, immediately after such acquisition or sale (by virtue of securities issued as consideration in the acquisition or sale or otherwise) hold at least 50% of the voting power of the surviving or acquiring entity in approximately the same relative percentages after such acquisition or sale as before such acquisition or sale. -3- (ii) Valuation of Consideration. In the event of a deemed -------------------------- liquidation as described in Section 2(c)(i) above, if the consideration received by the Corporation is other than cash, its value will be deemed its fair market value. Any securities shall be valued as follows: (A) Securities not subject to investment letter or other similar restrictions on free marketability covered by (B) below: (1) If traded on a securities exchange or the Nasdaq National Market, the value shall be deemed to be the average of the closing prices of the securities on such exchange over the thirty-day period ending three days prior to the closing; (2) If traded over-the-counter, the value shall be deemed to be the average of the closing bid or sale prices (whichever is applicable) over the thirty-day period in which sales actually occur ending three days prior to the closing; and (3) If there is no public market, the value shall be the fair market value thereof, as mutually determined by the Corporation and the holders of at least a majority of the voting power of all then outstanding shares of Preferred Stock. (B) The method of valuation of securities subject to investment letter or other restrictions on free marketability (other than restrictions arising solely by virtue of a shareholder's status as an affiliate or former affiliate) shall be to make an appropriate discount from the market value determined as above in Section 2(c)(ii)(A) to reflect the approximate fair market value thereof, as mutually determined by the Corporation and the holders of at least a majority of the voting power of all then outstanding shares of Preferred Stock. (iii) Notice of Transaction. The Corporation shall give each --------------------- holder of record of Preferred Stock written notice of such impending transaction not later than twenty (20) days prior to the shareholders' meeting called to approve such transaction, or twenty (20) days prior to the closing of such transaction, whichever is earlier, and shall also notify such holders in writing of the final approval of such transaction. The first of such notices shall describe the material terms and conditions of the impending transaction, the record date for determining shareholders entitled to vote (if applicable) and the provisions of this Section 2, and the Corporation shall thereafter give such holders prompt notice of any material changes. The transaction shall in no event take place sooner than twenty (20) days after the Corporation has given the first notice provided for herein or sooner than ten (10) days after the Corporation has given notice of any material changes provided for herein; provided, however, that such periods may be shortened upon the written consent of the holders of Preferred Stock that are entitled to such notice rights and that represent at least a majority of the voting power of all then outstanding shares of such Preferred Stock. (iv) Effect of Noncompliance. In the event the requirements of ----------------------- this Section 2(c) are not complied with, the Corporation shall forthwith either cause the closing of the transaction to be postponed until such requirements have been complied with, or cancel -4- such transaction, in which event the rights, preferences and privileges of the holders of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock shall revert to and be the same as such rights, preferences and privileges existing immediately prior to the date of the first notice referred to in Section 2(c)(iii) hereof. 3. Redemption. ---------- (a) Date and Amount. On or at any time after (i) February 15, --------------- 2004, or (ii) the receipt by the Corporation in writing from the holders of not less than 66 2/3% of the Preferred Stock then outstanding of their consent to redemption hereunder, the Corporation may at any time it may lawfully do so, at the option of the Board of Directors, redeem in whole or in part the Preferred Stock by paying in cash therefor (i) $0.1105 per share for each share of Series A Preferred Stock then outstanding (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares), (ii) $0.31 per share for each share of Series B Preferred Stock then outstanding (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares), (iii) $0.6323925 per share for each share of Series C Preferred Stock then outstanding (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares), (iv) $0.775 per share for each share of Series D Preferred Stock then outstanding (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares), (v) $7.50 per share for each share of Series E Preferred Stock then outstanding (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares) and (vi) $11.00 per share for each share of Series F Preferred Stock then outstanding (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares), plus in each case an amount equal to all declared but unpaid dividends on the outstanding shares of such Preferred Stock (such total amount per share is hereinafter referred to as the "Redemption Price"). ---------------- (b) Partial Redemption. In the event of any redemption of only ------------------ a part of the then outstanding shares of the Preferred Stock, the Corporation shall effect such redemption pro rata among all the holders of Preferred Stock (as to the number of shares, series by series, held on the date of notice of redemption). (c) Notice and Procedure. At least 45 days prior to the date -------------------- fixed for any redemption of the Preferred Stock (hereinafter referred to as the "Redemption Date"), written notice shall be mailed, postage prepaid, to each - ---------------- holder of record of the Preferred Stock, at the holder's post office address last shown on the records of the Corporation (provided, however, that in the -------- ------- case of non-domestic investors, written notice shall instead be delivered by confirmed fax at the holder's fax number last shown on the records of the Corporation within the same time period), notifying such holder of the election of the Corporation to redeem such shares, specifying the Redemption Date and the date on which such holder's Conversion Rights (as hereinafter defined) as to such shares terminate, which date shall be no earlier than five business days prior to the Redemption Date, and calling upon such holder to surrender to the Corporation, in the manner and at the place designated, the holder's certificate or certificates representing the shares to be redeemed (such notice is hereinafter referred to as the "Redemption Notice"). On or ----------------- -5- prior to the Redemption Date, each holder of the Preferred Stock to be redeemed shall surrender his or her certificate or certificates representing such shares to the Corporation, in the manner and at the place designated in the Redemption Notice, and thereupon the aggregate Redemption Price (the Redemption Price per share to be redeemed multiplied by the number of shares to be redeemed) for the shares to be redeemed shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof and each surrendered certificate shall be canceled. In calculating the aggregate Redemption Price, the number of shares shall be reduced by the number of shares which have been converted pursuant to Section 4 hereof between the date of notice of redemption and the date on which Conversion Rights to such shares terminate. In the event less than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. From and after the Redemption Date, unless there shall have been a default in payment of the aggregate Redemption Price for shares to be redeemed (whether because there is no source of funds legally available for such redemption or because such funds shall not be paid or made available for payment), all rights of the holders of the Preferred Stock designated for redemption in the Redemption Notice as holders of such series of the Preferred Stock of the Corporation (except the right to receive the aggregate Redemption Price without interest upon surrender of their certificate or certificates) shall cease with respect to such shares, and such shares shall not thereafter be transferred on the books of the Corporation or be deemed to be outstanding for any purpose whatsoever. (d) Payment. On or prior to the Redemption Date, the ------- Corporation shall deposit the aggregate Redemption Price of all shares of Preferred Stock designated for redemption in the Redemption Notice and not yet redeemed with a bank or trust company having aggregate capital and surplus in excess of $100,000,000 as a trust fund for the benefit of the respective holders of the shares designated for redemption and not yet redeemed, with irrevocable instructions and authority to the bank or trust company to pay the Redemption Price for such shares to their respective holders on or after the Redemption Date upon receipt of notification from the Corporation that such holder has surrendered his or her share certificate to the Corporation pursuant to Section 3(c) above. Such instructions shall also provide that any monies deposited by the Corporation pursuant to this Section 3(d) for the redemption of shares thereafter converted into shares of the Corporation's Common Stock pursuant to Section 4 hereof no later than the fifth day preceding the Redemption Date shall be returned to the Corporation forthwith upon such conversion. The balance of any monies deposited by the Corporation pursuant to this Section 3(d) remaining unclaimed at the expiration of two years following the Redemption Date shall thereafter be returned to the Corporation upon its request expressed in a resolution of its Board of Directors. 4. Conversion. The holders of the Series A Preferred Stock, Series ---------- B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock shall have conversion rights as follows (the "Conversion Rights"): ----------------- (a) Right to Convert. Subject to Section 4(d), each share of ---------------- Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share, at the office of the Corporation or any transfer agent for such stock, into such number of fully paid and nonassessable shares of -6- Common Stock as is determined by dividing (i) $0.1105 in the case of the Series A Preferred Stock, (ii) $0.31 in the case of the Series B Preferred Stock, (iii) $0.6323925 in the case of the Series C Preferred Stock, (iv) $0.775 in the case of the Series D Preferred Stock, (v) $7.50 in the case of the Series E Preferred Stock and (vi) $11.00 in the case of the Series F Preferred Stock by the Conversion Price applicable to such share, determined as hereinafter provided, in effect on the date the certificate is surrendered for conversion. The initial "Conversion Price" per share shall be $0.1105 for shares of Series A ---------------- Preferred Stock, $0.31 for shares of Series B Preferred Stock, $0.6323925 for shares of Series C Preferred Stock, $0.775 for shares of Series D Preferred Stock, $7.50 for shares of Series E Preferred Stock and $11.00 for shares of Series F Preferred Stock. Such initial Conversion Prices shall be subject to adjustment as set forth in Section 4(d) below. In the event that all shares of Preferred Stock are automatically converted pursuant to Section 4(b) in connection with the Corporation's sale of its Common Stock in a firm commitment underwritten public offering pursuant to a registration statement under the Securities Act of 1933, as amended (the "Securities Act"), in which the Offering -------------- Price (as defined below) is less than the Conversion Price of the Series E Preferred Stock or Series F Preferred Stock then in effect (appropriately adjusted for any stock split, dividend, combination or other recapitalization), then the Conversion Price of the Series E Preferred Stock and/or Series F Preferred Stock, as the case may be, shall be adjusted, effective immediately prior to the closing of such offering, such that the Conversion Price after such adjustment (and after appropriate adjustments for stock splits, combinations and the like) shall be equal to the Offering Price. The "Offering Price" is defined -------------- as the price per share at which shares of the Corporation's Common Stock are initially sold by the Corporation to the public in such offering. (b) Automatic Conversion. Each share of Preferred Stock shall -------------------- automatically be converted into shares of Common Stock at the Conversion Price at the time in effect for such share immediately upon the earlier of (i) except as provided below in Section 4(c), the Corporation's sale of its Common Stock in a firm commitment underwritten public offering pursuant to a registration statement under the Securities Act, the public offering price of which is not less than $7.50 per share (appropriately adjusted for any stock split, dividend, combination or other recapitalization) or (ii) as to any particular series of Preferred Stock, the date specified by written consent or agreement of the holders of at least 66 2/3% of the then outstanding shares of such series of Preferred Stock, voting together as a class. (c) Mechanics of Conversion. Before any holder of Series A Preferred ----------------------- Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock or Series F Preferred Stock shall be entitled to convert the same into shares of Common Stock, he shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for such series of Preferred Stock, and shall give written notice to the Corporation at its principal corporate office, of the election to convert the same and shall state therein the name or names in which the certificate or certificates for shares of Common Stock are to be issued. The Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Preferred Stock, or to the nominee or nominees of such holder, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of such series of Preferred Stock to be converted, and the person or persons entitled to receive the -7- shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock as of such date. If the conversion is in connection with an underwritten offering of securities registered pursuant to the Securities Act the conversion may, at the option of any holder tendering such Preferred Stock for conversion, be conditioned upon the closing with the underwriters of the sale of securities pursuant to such offering, in which event the person(s) entitled to receive Common Stock upon conversion of such Preferred Stock shall not be deemed to have converted such Preferred Stock until immediately prior to the closing of such sale of securities. (d) Conversion Price Adjustments of Preferred Stock for Certain ----------------------------------------------------------- Dilutive Issuances, Splits and Combinations. The Conversion Prices of the - ------------------------------------------- Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock shall be subject to adjustment from time to time as follows: (i) Issuance of Additional Stock below Purchase Price. If the -------------------------------------------------- Corporation shall issue, after the date upon which any shares of Series F Preferred Stock were first issued (the "Purchase Date"), any Additional Stock ------------- (as defined below) without consideration or for a consideration per share less than the Conversion Price for such series in effect immediately prior to the issuance of such Additional Stock, the Conversion Price for such series in effect immediately prior to each such issuance shall automatically be adjusted as set forth in this Section 4(d)(i), unless otherwise provided in this Section 4(d)(i). (A) Adjustment Formula. Whenever the Conversion Price is ------------------ adjusted pursuant to this Section 4(d)(i), the new Conversion Price for any series shall be a price equal to the quotient obtained by dividing the total computed under clause (x) below by the total computed under clause (y) below as follows: (x) an amount equal to the sum of (1) the aggregate purchase price of the shares of such series sold pursuant to the agreement pursuant to which shares of such series were first issued (the "Series Purchase Price" with respect to such --------------------- series), plus (2) the aggregate consideration, if any, received by the Corporation for all Additional Stock issued on or after the Purchase Date; (y) an amount equal to the sum of : (1) the Series Purchase Price for such series divided by the initial Conversion Price for such series (or such higher or lower Conversion Price as results from the application of Sections 4(d)(ii) and (iii) hereof), plus (2) the number of shares of Additional Stock issued on or after the Purchase Date (as adjusted pursuant to Sections 4(d)(ii) and (iii) hereof, if applicable). -8- (B) Definition of "Additional Stock". For purposes of this -------------------------------- Section 4(d)(i), "Additional Stock" shall mean any shares of Common Stock or ---------------- capital stock, securities, options, warrants to purchase or other instruments of similar effect convertible into or exchangeable for Common Stock issued (or deemed to have been issued pursuant to Section 4(d)(i)(E)) by the Corporation after the Purchase Date other than (1) Common Stock issued pursuant to a transaction described in Section 4(d)(ii) hereof, (2) Shares of Common Stock issuable or issued to employees, consultants or directors of the Corporation directly or pursuant to a stock option plan or restricted stock plan or agreement approved by the Board of Directors of the Corporation, (3) Up to 100,000 shares of Common Stock issuable or issued to vendors of the Corporation, (4) Capital stock, or options or warrants to purchase capital stock, issued to financial institutions or lessors in connection with commercial credit arrangements, equipment financings or similar transactions, the terms of which are approved by the Board of Directors of the Corporation, (5) Capital stock or warrants or options to purchase capital stock issued in connection with bona fide acquisitions, mergers or similar transactions, the terms of which are approved by the Board of Directors of the Corporation, (6) Shares of Common Stock issued or issuable upon conversion of the Preferred Stock authorized for issuance as of the date hereof, and (7) Shares of Common Stock issued or issuable in a public offering prior to or in connection with which all outstanding shares of Preferred Stock will be converted to Common Stock. (C) No Fractional Adjustments. No adjustment of the ------------------------- Conversion Price for the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock or Series F Preferred Stock shall be made in an amount less than one cent per share, provided that any adjustments which are not required to be made by reason of this sentence shall be carried forward and shall be either taken into account in any subsequent adjustment made prior to three years from the date of the event giving rise to the adjustment being carried forward, or shall be made at the end of three years from the date of the event giving rise to the adjustment being carried forward. (D) Determination of Consideration. In the case of the ------------------------------ issuance of Common Stock for cash, the consideration shall be deemed to be the amount of cash paid therefor before deducting any reasonable and actual discounts, commissions, compensations or concessions allowed, paid or incurred by the Corporation for any underwriting in connection with the issuance and sale thereof but without deduction of any expenses paid by the Corporation. In the case of the issuance of Common Stock for a consideration in whole or in -9- part other than cash, the consideration other than cash shall be deemed to be the fair value thereof as determined in good faith by the Board of Directors irrespective of any accounting treatment. (E) Deemed Issuances of Common Stock. In the case of -------------------------------- the issuance (whether before, on or after the Purchase Date) of options to purchase or rights to subscribe for Common Stock, securities by their terms convertible into or exchangeable for Common Stock or options to purchase or rights to subscribe for such convertible or exchangeable securities, the following provisions shall apply for all purposes of this Section 4(d)(i): (1) The aggregate maximum number of shares of Common Stock deliverable upon exercise (assuming the satisfaction of any conditions to exercisability, including without limitation, the passage of time, but without taking into account potential antidilution adjustments) of such options to purchase or rights to subscribe for Common Stock shall be deemed to have been issued at the time such options or rights were issued and for a consideration equal to the consideration (determined in the manner provided in Section 4(d)(i)(D)), if any, received by the Corporation upon the issuance of such options or rights plus the minimum exercise price provided in such options or rights (without taking into account potential antidilution adjustments) for the Common Stock covered thereby. (2) The aggregate maximum number of shares of Common Stock deliverable upon conversion of or in exchange (assuming the satisfaction of any conditions to convertibility or exchangeability, including, without limitation, the passage of time, but without taking into account potential antidilution adjustments) for any such convertible or exchangeable securities or upon the exercise of options to purchase or rights to subscribe for such convertible or exchangeable securities and subsequent conversion or exchange thereof shall be deemed to have been issued at the time such securities were issued or such options or rights were issued and for a consideration equal to the consideration, if any, received by the Corporation for any such securities and related options or rights (excluding any cash received on account of accrued interest or accrued dividends), plus the minimum additional consideration, if any, to be received by the Corporation (without taking into account potential antidilution adjustments) upon the conversion or exchange of such securities or the exercise of any related options or rights (the consideration in each case to be determined in the manner provided in Section 4(d)(i)(D)). (3) In the event of any change in the number of shares of Common Stock deliverable or in the consideration payable to the Corporation upon exercise of such options or rights or upon conversion of or in exchange for such convertible or exchangeable securities, including, but not limited to, a change resulting from the antidilution provisions thereof, the Conversion Price of each of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock, to the extent in any way affected by or computed using such options, rights or securities, shall be recomputed to reflect such change, but no further adjustment shall be made for the actual issuance of Common Stock or any payment of such consideration upon the exercise of any such options or rights or the conversion or exchange of such securities. -10- (4) Upon the expiration of any such options or rights, the termination of any such rights to convert or exchange or the expiration of any options or rights related to such convertible or exchangeable securities, the Conversion Price of each of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock, to the extent in any way affected by or computed using such options, rights or securities or options or rights related to such securities, shall be recomputed to reflect the issuance of only the number of shares of Common Stock (and convertible or exchangeable securities which remain in effect) actually issued upon the exercise of such options or rights, upon the conversion or exchange of such securities or upon the exercise of the options or rights related to such securities. (5) The number of shares of Common Stock deemed issued and the consideration deemed paid therefor pursuant to Sections 4(d)(i)(E)(1) and 4(d)(i)(E)(2) shall be appropriately adjusted to reflect any change, termination or expiration of the type described in either Section 4(d)(i)(E)(3) or 4(d)(i)(E)(4). (F) No Increased Conversion Price. Notwithstanding ----------------------------- any other provisions of this Section (4)(d)(i), except to the limited extent provided for in Sections 4(d)(i)(E)(3) and 4(d)(i)(E)(4), no adjustment of the Conversion Price pursuant to this Section 4(d)(i) shall have the effect of increasing the Conversion Price above the Conversion Price in effect immediately prior to such adjustment. (ii) Stock Splits and Dividends. In the event the -------------------------- Corporation should at any time or from time to time after the Purchase Date fix a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock or the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of Common Stock (hereinafter referred to as "Common Stock Equivalents") without payment of ------------------------ any consideration by such holder for the additional shares of Common Stock or the Common Stock Equivalents (including the additional shares of Common Stock issuable upon conversion or exercise thereof), then, as of such record date (or the date of such dividend distribution, split or subdivision if no record date is fixed), the Conversion Price of each of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock shall be appropriately decreased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be increased in proportion to such increase of the aggregate of shares of Common Stock outstanding and those issuable with respect to such Common Stock Equivalents with the number of shares issuable with respect to Common Stock Equivalents determined from time to time in the manner provided for deemed issuances in Section 4(d)(i)(E). (iii) Reverse Stock Splits. If the number of shares of -------------------- Common Stock outstanding at any time after the Purchase Date is decreased by a combination of the outstanding shares of Common Stock, then, following the record date of such combination, the Conversion Price for each of the Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock, the Series E Preferred Stock and the -11- Series F Preferred Stock shall be appropriately increased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be decreased in proportion to such decrease in outstanding shares. (e) Other Distributions. In the event the Corporation shall ------------------- declare a distribution payable in securities of other persons, evidences of indebtedness issued by the Corporation or other persons, assets (excluding cash dividends) or options or rights not referred to in Section 4(d)(ii), then, in each such case for the purpose of this Section 4(e), the holders of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock shall be entitled to a proportionate share of any such distribution as though they were the holders of the number of shares of Common Stock of the Corporation into which their shares of Preferred Stock are convertible as of the record date fixed for the determination of the holders of Common Stock of the Corporation entitled to receive such distribution. (f) Recapitalizations. If at any time or from time to time ----------------- there shall be a recapitalization, reclassification, combination, subdivision, merger, transfer, exchange, sale or other disposition of assets, stock split, stock dividend, reverse stock split or other distribution in respect of the Common Stock (other than a subdivision, combination or merger or sale of assets transaction provided for elsewhere in this Section 4 or in Section 2) provision shall be made so that the holders of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock shall thereafter be entitled to receive upon conversion of such Preferred Stock the number of shares of stock or other securities or property of the Corporation or otherwise, to which a holder of Common Stock deliverable upon conversion would have been entitled on such recapitalization. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 4 with respect to the rights of the holders of such Preferred Stock after the recapitalization to the end that the provisions of this Section 4 (including adjustment of the Conversion Price then in effect and the number of shares purchasable upon conversion of such Preferred Stock) shall be applicable after that event and be as nearly equivalent as practicable. (g) No Impairment. The Corporation will not, by amendment of ------------- its Articles of Incorporation or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 4 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of Preferred Stock against impairment and dilution consistent with the terms hereof. (h) No Fractional Shares and Certificate as to Adjustments. ------------------------------------------------------ (i) No fractional shares shall be issued upon the conversion of any share or shares of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock or Series F Preferred Stock, and the number of shares of Common Stock to be issued shall be rounded to the nearest whole share -12- (with one-half being rounded upward). The number of shares issuable upon such conversion shall be determined on the basis of the total number of shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock or Series F Preferred Stock the holder is at the time converting into Common Stock and the number of shares of Common Stock issuable upon such aggregate conversion. (ii) Upon the occurrence of each adjustment or readjustment of the Conversion Price of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock or Series F Preferred Stock pursuant to this Section 4, the Corporation, at its expense, shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of such Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock or Series F Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (A) such adjustment and readjustment, (B) the Conversion Price for such series of Preferred Stock at the time in effect, and (C) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of a share of such series of Preferred Stock. (i) Notices of Record Date. In the event of any taking by the ---------------------- Corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend) or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, the Corporation shall mail to each holder of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock or Series F Preferred Stock, at least ten (10) days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right. (j) Reservation of Stock Issuable Upon Conversion. The --------------------------------------------- Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of such series of Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of such series of Preferred Stock, in addition to such other remedies as shall be available to the holder of such Preferred Stock, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in best efforts to obtain the requisite shareholder approval of any necessary amendment to these articles. -13- (k) Notices. Any notice required by the provisions of this ------- Section 4 to be given to the holders of shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock or Series F Preferred Stock shall be in writing and shall be deemed sufficient upon delivery, when delivered personally or by overnight courier or sent by telegram or fax, or, in the case of domestic recipients, five (5) business days after being deposited in the United States mail as certified or registered mail, postage prepaid, and addressed to each holder of record at his address appearing on the books of the Corporation. (l) Taxes. The Corporation will pay all taxes (other than taxes ----- based upon income) and other governmental charges that may be imposed with respect to the issue or delivery of shares of Common Stock upon conversion of the Preferred Stock, excluding any tax or other charge imposed in connection with any transfer involved in the issue and delivery of shares of Common Stock in a name other than that in which the shares of the converted Preferred Stock were registered. 5. Voting Rights. The holders of the Preferred Stock shall have ------------- voting rights as follows: (a) In General. Subject to subsection (b) hereof, the holder of ---------- each share of Preferred Stock shall have the right to one vote for each share of Common Stock into which such Preferred Stock could then be converted, and with respect to such vote, such holder shall have full voting rights and powers equal to the voting rights and powers of the holders of Common Stock, and shall be entitled, notwithstanding any provision hereof, to notice of any stockholders' meeting in accordance with the bylaws of the Corporation, and shall be entitled to vote, together with holders of Common Stock, with respect to any question upon which holders of Common Stock have the right to vote. Fractional votes shall not, however, be permitted and any fractional voting rights available on an as-converted basis (after aggregating all shares into which shares of Preferred Stock held by each holder could be converted) shall be rounded to the nearest whole number (with one-half being rounded upward). (b) Voting for Board of Directors. The holders of shares of ----------------------------- Series D Preferred Stock, voting together as a single class, shall elect one member of the Board of Directors of the Corporation. Additional members of the Board of Directors, if any, shall be elected by the holders of shares of Common Stock and Preferred Stock, voting together as a single class and on an as- converted basis. 6. Protective Provisions. --------------------- (a) So long as any shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series E Preferred Stock or Series F Preferred Stock are outstanding, the Corporation shall not without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a majority of the then outstanding shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series E Preferred Stock and Series F Preferred Stock, voting together as a class: -14- (i) effect (A) the acquisition of the Corporation by another entity by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation, but excluding any merger effected exclusively for the purpose of changing the domicile of the Corporation); or (B) a sale, lease, license or other conveyance of all or substantially all of the assets of the Corporation, unless the ------ Corporation's shareholders of record as constituted immediately prior to such acquisition or sale will, immediately after such acquisition or sale (by virtue of securities issued as consideration in the acquisition or sale or otherwise) hold at least 50% of the voting power of the surviving or acquiring entity in approximately the same relative percentages after such acquisition or sale as before such acquisition or sale; (ii) alter or change the rights, preferences or privileges of the shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series E Preferred Stock or Series F Preferred Stock so as to affect adversely the shares of such series; (iii) increase or decrease (other than by redemption or conversion) the total number of authorized shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock or Series F Preferred Stock; (iv) authorize, issue or reclassify, or obligate itself to issue or reclassify, any other equity security, including any other security convertible into or exercisable for any equity security having a preference over, or being on a parity with, the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock or Series F Preferred Stock with respect to voting, dividends, conversion rights or upon liquidation; (v) redeem, purchase or otherwise acquire (or pay into or set funds aside for a sinking fund for such purpose) any share or shares of Preferred Stock or Common Stock; provided, however, that this restriction shall -------- ------- not apply to the redemption of shares of Preferred Stock pursuant to Section 3 hereof or to the repurchase of shares of Common Stock from employees, officers, directors, consultants or other persons performing services for the Company or any subsidiary pursuant to agreements under which the Company has the option to repurchase such shares at cost or at fair market value upon the occurrence of certain events, such as the termination of employment or a proposed transfer of such shares; or (vi) consummate a transaction subject to Section 305 of the Internal Revenue Code of 1986, as amended. (b) Subject to the rights of series of Preferred Stock which may from time to time come into existence in accordance herewith, so long as any shares of Series D Preferred Stock are outstanding, the Corporation shall not without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a majority of the then outstanding shares of Series D Preferred Stock, voting as a separate class: -15- (i) effect (A) the acquisition of the Corporation by another entity by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation, but excluding any merger effected exclusively for the purpose of changing the domicile of the Corporation); or (B) a sale, lease, license or other conveyance of all or substantially all of the assets of the Corporation, unless the ------ Corporation's shareholders of record as constituted immediately prior to such acquisition or sale will, immediately after such acquisition or sale (by virtue of securities issued as consideration in the acquisition or sale or otherwise) hold at least 50% of the voting power of the surviving or acquiring entity in approximately the same relative percentages after such acquisition or sale as before such acquisition or sale; (ii) alter or change the rights, preferences or privileges of the shares of Series D Preferred so as to affect adversely the shares of such series; (iii) increase or decrease (other than by redemption or conversion) the total number of authorized shares of Series D Preferred; (iv) authorize, issue or reclassify, or obligate itself to issue or reclassify, any other equity security, including any other security convertible into or exercisable for any equity security having a preference over, or being on a parity with, the Series D Preferred Stock with respect to voting, dividends, conversion rights or upon liquidation; (v) redeem, purchase or otherwise acquire (or pay into or set funds aside for a sinking fund for such purpose) any share or shares of Preferred Stock or Common Stock; provided, however, that this restriction shall -------- ------- not apply to the redemption of shares of Preferred Stock pursuant to Section 3 hereof or to the repurchase of shares of Common Stock from employees, officers, directors, consultants or other persons performing services for the Company or any subsidiary pursuant to agreements under which the Company has the option to repurchase such shares at cost or at fair market value upon the occurrence of certain events, such as the termination of employment or a proposed transfer of such shares; (vi) amend or repeal any provision of, or add any provision to, the Corporation's Articles of Incorporation or Bylaws if such action would alter or change the rights, preferences, privileges or restrictions of the shares of Series D Preferred Stock so as to affect adversely the shares of such series; or (vii) consummate a transaction subject to Section 305 of the Internal Revenue Code of 1986, as amended. (c) Notwithstanding the foregoing, with respect to any series of Preferred Stock, the Corporation shall not, without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a majority of the then outstanding shares of such series of Preferred Stock, voting as a separate class, amend or repeal any provision of, or add any provision to, the Corporation's Articles of Incorporation if such action adversely -16- affects such series in a different manner than other series of Preferred Stock. 7. Status of Converted Stock. In the event any shares of Preferred ------------------------- Stock shall be converted pursuant to Section 4 hereof, the shares so converted shall be canceled and shall not be issuable by the Corporation. The Articles of Incorporation of the Corporation shall be appropriately amended to effect the corresponding reduction in the Corporation's authorized capital stock. 8. Repurchase of Shares. In connection with repurchases by the -------------------- Corporation of its Common Stock pursuant to its agreements with certain of the holders thereof, Sections 502 and 503 of the California General Corporation Law shall not apply in whole or in part with respect to such repurchases. (C) Common Stock. ------------ 1. Dividend Rights. Subject to the prior rights of holders of all --------------- classes of stock at the time outstanding having prior rights as to dividends, the holders of the Common Stock shall be entitled to receive, when and as declared by the Board of Directors, out of any assets of the Corporation legally available therefor, such dividends as may be declared from time to time by the Board of Directors. 2. Liquidation Rights. Upon the liquidation, dissolution or winding ------------------ up of the Corporation, the assets of the Corporation shall be distributed as provided in Section 2 of Division (B) of this Article III. 3. Redemption. The Common Stock is not redeemable. ---------- 4. Voting Rights. The holder of each share of Common Stock shall ------------- have the right to one vote, and shall be entitled to notice of any shareholders' meeting in accordance with the bylaws of the Corporation, and shall be entitled to vote upon such matters and in such manner as may be provided by law. ARTICLE IV (A) The liability of the directors of the Corporation for monetary damages shall be eliminated to the fullest extent permissible under California law. (B) The Corporation is authorized to provide indemnification of agents (as defined in Section 317 of the California Corporations Code) to the fullest extent permissible under California law. (C) Any amendment or repeal or modification of the foregoing provisions of this Article IV by the shareholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification." * * * -17- 3. The foregoing amendment has been approved by the Board of Directors of this corporation. 4. The foregoing amendment was approved by the holders of the requisite number of shares of this corporation in accordance with Sections 902 and 903 of the California General Corporation Law. The total number of outstanding shares entitled to vote with respect to the foregoing amendment was 9,582,064 shares of Common Stock, 2,494,070 shares of Series A Preferred Stock, 2,258,058 shares of Series B Preferred Stock, 3,162,584 shares of Series C Preferred Stock, 10,193,544 shares of Series D Preferred Stock and 7,633,329 shares of Series E Preferred Stock. The number of shares voting in favor of the foregoing amendment equaled or exceeded the vote required. The percentage vote required was (i) a majority of the outstanding shares of Common Stock, (ii) a majority of the outstanding shares of Preferred Stock, (iii) a majority of the outstanding shares of Series A, Series B, Series C and Series E, voting together as a single class, (iv) a majority of the Series D Preferred Stock voting as a single class, and (v) a majority of the outstanding shares of Common Stock and Preferred Stock, voting together as a class. -18- The undersigned certify under penalty of perjury under the laws of the State of California that the matters set forth in this Certificate are true and correct of our own knowledge. Executed at Mountain View, California, on January 14, 2000. /s/ Earl H. LeMasters III --------------------------------- Earl H. LeMasters III, Chief Executive Officer /s/ Mark A. Medearis --------------------------------- Mark A. Medearis, Secretary -19- EX-3.2 3 AM. & RESTATED CERTIFICATE OF INCORPORATION (AS PROPOSED) EXHIBIT 3.2 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF REPLAYTV, INC. Earle H. LeMasters, III and Mark A. Medearis hereby certify that: 1. The date of filing the original Certificate of Incorporation of this corporation with the Secretary of State of the State of Delaware is January ____, 2000. 2. They are the duly elected and acting Chief Executive Officer and Secretary, respectively, of ReplayTV, Inc., a Delaware corporation. 3. The Certificate of Incorporation of this corporation is hereby amended and restated to read as follows: ARTICLE I "The name of this corporation is ReplayTV, Inc. (the "Corporation"). ----------- ARTICLE II The address of the registered office of the Corporation in the State of Delaware is 1013 Centre Road, City of Wilmington, County of New Castle, Delaware 19805. The name of its registered agent at such address is Corporation Service Company. ARTICLE III The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. ARTICLE IV (A) Classes of Stock. The Corporation is authorized to issue two classes ---------------- of stock to be designated, respectively, "Common Stock" and "Preferred Stock." ------------ --------------- The total number of shares which the Corporation is authorized to issue is 205,000,000 shares, each with a par value of $0.001 per share. 200,000,000 of such shares shall be Common Stock, and 5,000,000 of such shares shall be Preferred Stock. (B) The Preferred Stock may be issued from time to time in one or more series. The Board of Directors is hereby authorized, within the limitations and restrictions stated in this Certificate of Incorporation, to determine or alter the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock and the number of shares constituting any such series and the designation thereof, or any of them; and to increase or decrease the number of shares of any series subsequent to the issuance of shares of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series. ARTICLE V The number of directors of the Corporation shall be fixed from time to time by a Bylaw or amendment thereof duly adopted by the Board of Directors. ARTICLE VI "Listing Event" as used in this Amended and Restated Certificate of ------------- Incorporation shall mean the first annual meeting of stockholders following such time as the Corporation meets the criteria set forth in subdivisions (1), (2) or (3) of Section 2115(c) the California Corporations Code as of the record date of such meeting. For the management of the business and for the conduct of the affairs of the Corporation, and in further definition, limitation and regulation of the powers of the Corporation, its directors and its stockholders or any class thereof, as the case may be, it is further provided that, effective upon the occurrence of the Listing Event: (i) The number of directors which shall constitute the entire Board of Directors, and the number of directors in each class, shall be fixed exclusively by one or more resolutions adopted from time to time by the Board of Directors. The Board of Directors shall be divided into three classes, designated as Class I, Class II and Class III, respectively. Directors shall be assigned to each class in accordance with a resolution or resolutions adopted by the Board of Directors. Until changed by a resolution of the Board of Directors, Class I shall consist of three directors, each of whom shall be designated by the Board of Directors; Class II shall consist of three directors, each of whom shall be designated by the Board of Directors; and Class III shall consist of three directors, each of whom shall be designated by the Board of Directors. At the first annual meeting of stockholders or any special meeting in lieu thereof following the Listing Event, the terms of office of the Class I directors shall expire, and Class I directors shall be elected for a full term of three years. At the first annual meeting of stockholders following the Listing Event, the term of office of the Class II directors shall expire, and Class II directors shall be elected for a full term of three years. At the second annual meeting of stockholders following the Listing Event, the term of office of the Class III directors shall expire, and Class III directors shall be elected for a full term of three years. At each succeeding annual meeting of stockholders, directors shall be elected for a full term of three years to succeed the directors of the class whose terms expire at such annual meeting. -2- Notwithstanding the foregoing provisions of this Article VI, each director shall serve until his or her successor is duly elected and qualified or until his or her death, resignation, or removal. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. Any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal, or other causes shall be filled by either (i) the affirmative vote of the holders of a majority of the voting power of the then-outstanding shares of voting stock of the corporation entitled to vote generally in the election of directors (the "Voting Stock") voting together ------------ as a single class; or (ii) by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the Board of Directors. Newly created directorships resulting from any increase in the number of directors shall, unless the Board of Directors determines by resolution that any such newly created directorship shall be filled by the stockholders, be filled only by the affirmative vote of the directors then in office, even though less than a quorum of the Board of Directors. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until such director's successor shall have been elected and qualified. In addition to the requirements of law and any other provisions hereof (and notwithstanding the fact that approval by a lesser vote may be permitted by law or any other provision hereof), the affirmative vote of the holders of at least 66-2/3% of the Voting Stock, voting together as a single class, shall be required to amend, alter, repeal, or adopt any provision inconsistent with this Section (i) of this Article VI. (ii) There shall be no right with respect to shares of stock of the Corporation to cumulate votes in the election of directors. (iii) Any director, or the entire Board of Directors, may be removed from office at any time (i) with cause by the affirmative vote of the holders of at least a majority of the voting power of the then-outstanding shares of the Voting Stock, voting together as a single class; or (ii) without cause by the affirmative vote of the holders of at least 66-2/3% of the voting power of the then-outstanding shares of the Voting Stock. ARTICLE VII In the election of directors, each holder of shares of any class or series of capital stock of the Corporation shall be entitled to one vote for each share held. No stockholder will be permitted to cumulate votes at any election of directors. ARTICLE VIII No action shall be taken by the stockholders of the Corporation other than at an annual or special meeting of the stockholders, upon due notice and in accordance with the provisions of the Bylaws of the Corporation, and no action shall be taken by the stockholders by written consent. -3- ARTICLE IX The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Amended and Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. ARTICLE X (A) The Board of Directors of the Corporation is expressly authorized to adopt, amend or repeal Bylaws. (B) The directors of the Corporation need not be elected by written ballot unless the Bylaws so provide. (C) Advance notice of stockholder nominations for the election of directors or of business to be brought by the stockholders before any meeting of the stockholders of the corporation shall be given in the manner provided in the Bylaws. ARTICLE XI Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws may provide. The books of the Corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Corporation. ARTICLE XII The Corporation shall have perpetual existence. ARTICLE XIII (A) To the fullest extent permitted by the General Corporation Law of Delaware, as the same may be amended from time to time, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. If the General Corporation Law of Delaware is hereafter amended to authorize, with the approval of a corporation's stockholders, further reductions in the liability of the Corporation's directors for breach of fiduciary duty, then a director of the Corporation shall not be liable for any such breach to the fullest extent permitted by the General Corporation Law of Delaware, as so amended. (B) Any repeal or modification of the foregoing provisions of this Article XIII shall not adversely affect any right or protection of a director of the Corporation with respect to any acts or omissions of such director occurring prior to such repeal or modification. -4- ARTICLE XIV (A) To the fullest extent permitted by applicable law, the Corporation is also authorized to provide indemnification of (and advancement of expenses to) such agents (and any other persons to which Delaware law permits the Corporation to provide indemnification) though Bylaw provisions, agreements with such agents or other persons, vote of stockholders or disinterested directors or otherwise, in excess of the indemnification and advancement otherwise permitted by Section 145 of the Delaware General Corporation Law, subject only to limits created by applicable Delaware law (statutory or non-statutory), with respect to actions for breach of duty to a corporation, its stockholders, and others. (B) Any repeal or modification of any of the foregoing provisions of this Article XIV shall not adversely affect any right or protection of a director, officer, agent or other person existing at the time of, or increase the liability of any director of the Corporation with respect to any acts or omissions of such director, officer or agent occurring prior to such repeal or modification." * * * -5- The foregoing Amended and Restated Certificate of Incorporation has been duly adopted by this Corporation's Board of Directors and stockholders in accordance with the applicable provisions of Section 228, 242 and 245 of the General Corporation Law of the State of Delaware. Executed at Mountain View, California, on ____________________, 1999. ________________________________ Earle H. LeMasters, III Chief Executive Officer ________________________________ Mark A. Medearis Secretary EX-3.3 4 AM. & RESTATED BYLAWS OF REPLAYTV Exhibit 3.3 BYLAWS OF REPLAYTV, INC. TABLE OF CONTENTS
Page ---- ARTICLE I CORPORATE OFFICES............................................. 1 1.1 Principal Office.................................................. 1 1.2 Other Offices..................................................... 1 ARTICLE II MEETINGS OF SHAREHOLDERS..................................... 1 2.1 Place of Meetings................................................. 1 2.2 Annual Meeting.................................................... 1 2.3 Special Meeting................................................... 1 2.4 Notice of Shareholders' Meetings.................................. 2 2.5 Manner of Giving Notice; Affidavit of Notice...................... 2 2.6 Quorum............................................................ 3 2.7 Adjourned Meeting; Notice......................................... 3 2.8 Voting............................................................ 4 2.9 Validation of Meetings; Waiver of Notice; Consent................. 4 2.10 Shareholder Action by Written Consent without a Meeting.......... 5 2.11 Record Date for Shareholder Notice, Voting or Giving Consents.... 6 2.12 Proxies.......................................................... 6 2.13 Inspectors of Election........................................... 7 ARTICLE III DIRECTORS................................................... 7 3.1 Powers............................................................ 7 3.2 Number of Directors............................................... 8 3.3 Election and Term of Office of Directors.......................... 8 3.5 Place of Meetings; Meetings by Telephone.......................... 9 3.6 Regular Meetings.................................................. 9 3.7 Special Meetings; Notice.......................................... 9 3.8 Quorum............................................................ 10 3.9 Waiver of Notice.................................................. 10 3.10 Adjournment...................................................... 10 3.11 Notice of Adjournment............................................ 10 3.12 Board Action by Written Consent without a Meeting................ 11 3.13 Fees and Compensation of Directors............................... 11 3.14 Approval of Loans to Officers.................................... 11 ARTICLE IV COMMITTEES................................................... 11 4.1 Committees of Directors........................................... 11 4.2 Meetings and Action of Committees................................. 12 ARTICLE V OFFICERS...................................................... 12 5.1 Officers.......................................................... 12 5.2 Election of Officers.............................................. 13 5.3 Subordinate Officers.............................................. 13
5.4 Removal and Resignation of Officers............................... 13 5.5 Vacancies in Offices.............................................. 13 5.6 Chairman of the Board............................................. 13 5.7 President......................................................... 13 5.8 Vice Presidents................................................... 14 5.9 Secretary......................................................... 14 5.10 Chief Financial Officer.......................................... 14 ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER AGENTS.................................................... 15 6.1 Indemnification of Directors and Officers......................... 15 6.2 Indemnification of Others......................................... 15 6.3 Payment of Expenses in Advance.................................... 16 6.4 Indemnity Not Exclusive........................................... 16 6.5 Insurance Indemnification......................................... 16 6.6 Conflicts......................................................... 16 ARTICLE VII RECORDS AND REPORTS......................................... 17 7.1 Maintenance and Inspection of Share Register...................... 17 7.2 Maintenance and Inspection of Bylaws.............................. 17 7.3 Maintenance and Inspection of Other Corporate Records............. 18 7.4 Inspection by Directors........................................... 18 7.5 Annual Report to Shareholders; Waiver............................. 18 7.6 Financial Statements.............................................. 18 7.7 Representation of Shares of Other Corporations.................... 19 ARTICLE VIII GENERAL MATTERS............................................ 19 8.1 Record Date for Purposes other than Notice and Voting............. 19 8.2 Checks; Drafts; Evidences of Indebtedness......................... 20 8.3 Corporate Contracts and Instruments; How Executed................ 20 8.4 Certificates for Shares........................................... 20 8.5 Lost Certificates................................................. 20 8.6 Construction; Definitions......................................... 21 ARTICLE IX AMENDMENTS................................................... 21 9.1 Amendment by Shareholders......................................... 21 9.2 Amendment by Directors............................................ 21
(ii) BYLAWS OF REPLAYTV, INC. ARTICLE I CORPORATE OFFICES ----------------- 1.1 Principal Office. ---------------- The Board of Directors shall fix the location of the principal executive office of the corporation at any place within or outside the State of California. If the principal executive office is located outside such state and the corporation has one or more business offices in such state, then the Board of Directors shall fix and designate a principal business office in the State of California. 1.2 Other Offices. -------------- The Board of Directors may at any time establish branch or subordinate offices at any place or places where the corporation is qualified to do business. ARTICLE II MEETINGS OF SHAREHOLDERS ------------------------ 2.1 Place of Meetings. ------------------ Meetings of shareholders shall be held at any place within or outside the State of California designated by the Board of Directors. In the absence of any such designation, shareholders' meetings shall be held at the principal executive office of the corporation. 2.2 Annual Meeting. --------------- The annual meeting of shareholders shall be held each year on a date and at a time designated by the Board of Directors. In the absence of such designation, the annual meeting of shareholders shall be held on the first Wednesday of May of each year. However, if such day falls on a legal holiday, then the meeting shall be held at the same time and place on the next succeeding full business day. At the meeting, directors shall be elected, and any other proper business may be transacted. 2.3 Special Meeting. --------------- A special meeting of the shareholders may be called at any time by the Board of Directors, or by the chairman of the board, or by the president, or by one or more shareholders holding shares in the aggregate entitled to cast not less than ten percent (10%) of the votes at that meeting. If a special meeting is called by any person or persons other than the Board of Directors or the president or the chairman of the board, then the request shall be in writing, specifying the time of such meeting and the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the chairman of the board, the president, any vice president or the secretary of the corporation. The officer receiving the request shall cause notice to be promptly given to the shareholders entitled to vote, in accordance with the provisions of Sections 2.4 and 2.5 of these bylaws, that a meeting will be held at the time requested by the person or persons calling the meeting, so long as that time is not less than thirty-five (35) nor more than sixty (60) days after the receipt of the request. If the notice is not given within twenty (20) days after receipt of the request, then the person or persons requesting the meeting may give the notice. Nothing contained in this paragraph of this Section 2.3 shall be construed as limiting, fixing or affecting the time when a meeting of shareholders called by action of the Board of Directors may be held. 2.4 Notice of Shareholders' Meetings. -------------------------------- All notices of meetings of shareholders shall be sent or otherwise given in accordance with Section 2.5 of these bylaws not less than ten (10) (or, if sent by third-class mail pursuant to Section 2.5 of these bylaws, thirty (30)) nor more than sixty (60) days before the date of the meeting. The notice shall specify the place, date and hour of the meeting and (a) in the case of a special meeting, the general nature of the business to be transacted (no business other than that specified in the notice may be transacted) or (b) in the case of the annual meeting, those matters which the Board of Directors, at the time of giving the notice, intends to present for action by the shareholders (but subject to the provisions of the next paragraph of this Section 2.4 any proper matter may be presented at the meeting for such action). The notice of any meeting at which directors are to be elected shall include the name of any nominee or nominees who, at the time of the notice, the board intends to present for election. If action is proposed to be taken at any meeting for approval of (a) a contract or transaction in which a director has a direct or indirect financial interest, pursuant to Section 310 of the Corporations Code of California (the "Code"), (b) an amendment of the articles of incorporation, pursuant to Section ---- 902 of the Code, (c) a reorganization of the corporation, pursuant to Section 1201 of the Code, (d) a voluntary dissolution of the corporation, pursuant to Section 1900 of the Code, or (e) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares, pursuant to Section 2007 of the Code, then the notice shall also state the general nature of that proposal. 2.5 Manner of Giving Notice; Affidavit of Notice. -------------------------------------------- Written notice of any meeting of shareholders shall be given either (a) personally or (b) by first-class mail or (c) by third-class mail but only if the corporation has outstanding shares held of record by five hundred (500) or more persons (determined as provided in -2- Section 605 of the Code) on the record date for the shareholders' meeting, or (d) by telegraphic or other written communication. Notices not personally delivered shall be sent charges prepaid and shall be addressed to the shareholder at the address of that shareholder appearing on the books of the corporation or given by the shareholder to the corporation for the purpose of notice. If no such address appears on the corporation's books or is given, notice shall be deemed to have been given if sent to that shareholder by mail or telegraphic or other written communication to the corporation's principal executive office, or if published at least once in a newspaper of general circulation in the county where that office is located. Notice shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by telegram or other means of written communication. If any notice addressed to a shareholder at the address of that shareholder appearing on the books of the corporation is returned to the corporation by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice to the shareholder at that address, then all future notices or reports shall be deemed to have been duly given without further mailing if the same shall be available to the shareholder on written demand of the shareholder at the principal executive office of the corporation for a period of one (1) year from the date of the giving of the notice. An affidavit of the mailing or other means of giving any notice of any shareholders' meeting, executed by the secretary, assistant secretary or any transfer agent of the corporation giving the notice, shall be prima facie evidence of the giving of such notice. 2.6 Quorum. ------ The presence in person or by proxy of the holders of a majority of the shares entitled to vote thereat constitutes a quorum for the transaction of business at all meetings of shareholders. The shareholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. 2.7 Adjourned Meeting; Notice. ------------------------- Any shareholders' meeting, annual or special, whether or not a quorum is present, may be adjourned from time to time by the vote of the majority of the shares represented at that meeting, either in person or by proxy. In the absence of a quorum, no other business may be transacted at that meeting except as provided in Section 2.6 of these bylaws. When any meeting of shareholders, either annual or special, is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place are announced at the meeting at which the adjournment is taken. However, if a new record date for the adjourned meeting is fixed or if the adjournment is for more than forty-five (45) days from the date set for the original meeting, then notice of the adjourned meeting shall be given. Notice of any such adjourned meeting shall be given to each shareholder of record entitled to vote at the adjourned meeting in accordance with the provisions of Sections 2.4 and 2.5 of these bylaws. At -3- any adjourned meeting the corporation may transact any business which might have been transacted at the original meeting. 2.8 Voting. ------ The shareholders entitled to vote at any meeting of shareholders shall be determined in accordance with the provisions of Section 2.11 of these bylaws, subject to the provisions of Sections 702 through 704 of the Code (relating to voting shares held by a fiduciary, in the name of a corporation or in joint ownership). The shareholders' vote may be by voice vote or by ballot; provided, however, that any election for directors must be by ballot if demanded by any shareholder at the meeting and before the voting has begun. Except as provided in the last paragraph of this Section 2.8, or as may be otherwise provided in the articles of incorporation, each outstanding share, regardless of class, shall be entitled to one vote on each matter submitted to a vote of the shareholders. Any shareholder entitled to vote on any matter may vote part of the shares in favor of the proposal and refrain from voting the remaining shares or, except when the matter is the election of directors, may vote them against the proposal; but, if the shareholder fails to specify the number of shares which the shareholder is voting affirmatively, it will be conclusively presumed that the shareholder's approving vote is with respect to all shares which the shareholder is entitled to vote. If a quorum is present, the affirmative vote of the majority of the shares represented and voting at a duly held meeting (which shares voting affirmatively also constitute at least a majority of the required quorum) shall be the act of the shareholders, unless the vote of a greater number or a vote by classes is required by the Code or by the articles of incorporation. At a shareholders' meeting at which directors are to be elected, a shareholder shall be entitled to cumulate votes (i.e., cast for any candidate a number of votes greater than the number of votes which such shareholder normally is entitled to cast) if the candidates' names have been placed in nomination prior to commencement of the voting and the shareholder has given notice prior to commencement of the voting of the shareholder's intention to cumulate votes. If any shareholder has given such a notice, then every shareholder entitled to vote may cumulate votes for candidates in nomination either (a) by giving one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which that shareholder's shares are normally entitled or (b) by distributing the shareholder's votes on the same principle among any or all of the candidates, as the shareholder thinks fit. The candidates receiving the highest number of affirmative votes, up to the number of directors to be elected, shall be elected; votes against any candidate and votes withheld shall have no legal effect. 2.9 Validation of Meetings; Waiver of Notice; Consent. ------------------------------------------------- The transactions of any meeting of shareholders, either annual or special, however called and noticed, and wherever held, shall be as valid as though taken at a meeting duly held -4- after regular call and notice, if a quorum is present either in person or by proxy, and if, either before or after the meeting, each person entitled to vote, who was not present in person or by proxy, signs a written waiver of notice or a consent to the holding of the meeting or an approval of the minutes thereof. The waiver of notice or consent or approval need not specify either the business to be transacted or the purpose of any annual or special meeting of shareholders, except that if action is taken or proposed to be taken for approval of any of those matters specified in the second paragraph of Section 2.4 of these bylaws, the waiver of notice or consent or approval shall state the general nature of the proposal. All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance by a person at a meeting shall also constitute a waiver of notice of and presence at that meeting, except when the person objects at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Attendance at a meeting is not a waiver of any right to object to the consideration of matters required by the Code to be included in the notice of the meeting but not so included, if that objection is expressly made at the meeting. 2.10 Shareholder Action by Written Consent without a Meeting. ------------------------------------------------------- Any action which may be taken at any annual or special meeting of shareholders may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take that action at a meeting at which all shares entitled to vote on that action were present and voted. In the case of election of directors, such a consent shall be effective only if signed by the holders of all outstanding shares entitled to vote for the election of directors. However, a director may be elected at any time to fill any vacancy on the Board of Directors, provided that it was not created by removal of a director and that it has not been filled by the directors, by the written consent of the holders of a majority of the outstanding shares entitled to vote for the election of directors. All such consents shall be maintained in the corporate records. Any shareholder giving a written consent, or the shareholder's proxy holders, or a transferee of the shares, or a personal representative of the shareholder, or their respective proxy holders, may revoke the consent by a writing received by the secretary of the corporation before written consents of the number of shares required to authorize the proposed action have been filed with the secretary. If the consents of all shareholders entitled to vote have not been solicited in writing and if the unanimous written consent of all such shareholders has not been received, then the secretary shall give prompt notice of the corporate action approved by the shareholders without a meeting. Such notice shall be given to those shareholders entitled to vote who have not consented in writing and shall be given in the manner specified in Section 2.5 of these bylaws. In the case of approval of (a) a contract or transaction in which a director has a direct or indirect financial interest, pursuant to Section 310 of the Code, (b) indemnification of a corporate "agent," pursuant to Section 317 of the Code, (c) a reorganization of the corporation, pursuant to -5- Section 1201 of the Code, or (d) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares, pursuant to Section 2007 of the Code, the notice shall be given at least ten (10) days before the consummation of any action authorized by that approval. 2.11 Record Date for Shareholder Notice, Voting or Giving Consents. ------------------------------------------------------------- For purposes of determining the shareholders entitled to notice of any meeting or to vote thereat or entitled to give consent to corporate action without a meeting, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty (60) days nor less than ten (10) days before the date of any such meeting nor more than sixty (60) days before any such action without a meeting, and in such event only shareholders of record on the date so fixed are entitled to notice and to vote or to give consents, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date, except as otherwise provided in the Code. If the Board of Directors does not so fix a record date: (a) the record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held; and (b) the record date for determining shareholders entitled to give consent to corporate action in writing without a meeting, (i) when no prior action by the board has been taken, shall be the day on which the first written consent is given, or (ii) when prior action by the board has been taken, shall be at the close of business on the day on which the board adopts the resolution relating to that action, or the sixtieth (60th) day before the date of such other action, whichever is later. The record date for any other purpose shall be as provided in Article VIII of these bylaws. 2.12 Proxies. ------- Every person entitled to vote for directors, or on any other matter, shall have the right to do so either in person or by one or more agents authorized by a written proxy signed by the person and filed with the secretary of the corporation. A proxy shall be deemed signed if the shareholder's name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission or otherwise) by the shareholder or the shareholder's attorney-in- fact. A validly executed proxy which does not state that it is irrevocable shall continue in full force and effect unless (a) the person who executed the proxy revokes it prior to the time of voting by delivering a writing to the corporation stating that the proxy is revoked or by executing a subsequent proxy and presenting it to the meeting or by voting in person at the meeting, or (b) written notice of the death or incapacity of the maker of that proxy is received by the corporation before the vote pursuant to that proxy is counted; provided, however, that no proxy shall be valid after the expiration of eleven (11) months from the date of the proxy, unless -6- otherwise provided in the proxy. The dates contained on the forms of proxy presumptively determine the order of execution, regardless of the postmark dates on the envelopes in which they are mailed. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Sections 705(e) and 705(f) of the Code. 2.13 Inspectors of Election. ---------------------- Before any meeting of shareholders, the Board of Directors may appoint an inspector or inspectors of election to act at the meeting or its adjournment. If no inspector of election is so appointed, then the chairman of the meeting may, and on the request of any shareholder or a shareholder's proxy shall, appoint an inspector or inspectors of election to act at the meeting. The number of inspectors shall be either one (1) or three (3). If inspectors are appointed at a meeting pursuant to the request of one (1) or more shareholders or proxies, then the holders of a majority of shares or their proxies present at the meeting shall determine whether one (1) or three (3) inspectors are to be appointed. If any person appointed as inspector fails to appear or fails or refuses to act, then the chairman of the meeting may, and upon the request of any shareholder or a shareholder's proxy shall, appoint a person to fill that vacancy. Such inspectors shall: (a) determine the number of shares outstanding and the voting power of each, the number of shares represented at the meeting, the existence of a quorum, and the authenticity, validity, and effect of proxies; (b) receive votes, ballots or consents; (c) hear and determine all challenges and questions in any way arising in connection with the right to vote; (d) count and tabulate all votes or consents; (e) determine when the polls shall close; (f) determine the result; and (g) do any other acts that may be proper to conduct the election or vote with fairness to all shareholders. ARTICLE III DIRECTORS --------- 3.1 Powers. ------ Subject to the provisions of the Code and any limitations in the articles of incorporation and these bylaws relating to actions required to be approved by the shareholders or -7- by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board of Directors. 3.2 Number of Directors. ------------------- The number of directors of the corporation shall be not less than five (5) nor more than nine (9). The exact number of directors shall be five (5) until changed, within the limits specified above, by a bylaw amending this Section 3.2, duly adopted by the Board of Directors or by the shareholders. The indefinite number of directors may be changed, or a definite number may be fixed without provision for an indefinite number, by a duly adopted amendment to the articles of incorporation or by an amendment to this bylaw duly adopted by the vote or written consent of holders of a majority of the outstanding shares entitled to vote; provided, however, that an amendment reducing the fixed number or the minimum number of directors to a number less than five (5) cannot be adopted if the votes cast against its adoption at a meeting, or the shares not consenting in the case of an action by written consent, are equal to more than sixteen and two-thirds percent (16-2/3%) of the outstanding shares entitled to vote thereon. No amendment may change the stated maximum number of authorized directors to a number greater than two (2) times the stated minimum number of directors minus one (1). No reduction of the authorized number of directors shall have the effect of removing any director before that director's term of office expires. 3.3 Election and Term of Office of Directors. ---------------------------------------- Directors shall be elected at each annual meeting of shareholders to hold office until the next annual meeting. Each director, including a director elected to fill a vacancy, shall hold office until the expiration of the term for which elected and until a successor has been elected and qualified. 3.4 Resignation and Vacancies. ------------------------- Any director may resign effective on giving written notice to the chairman of the board, the president, the secretary or the Board of Directors, unless the notice specifies a later time for that resignation to become effective. If the resignation of a director is effective at a future time, the Board of Directors may elect a successor to take office when the resignation becomes effective. Vacancies in the Board of Directors may be filled by a majority of the remaining directors, even if less than a quorum, or by a sole remaining director; however, a vacancy created by the removal of a director by the vote or written consent of the shareholders or by court order may be filled only by the affirmative vote of a majority of the shares represented and voting at a duly held meeting at which a quorum is present (which shares voting affirmatively also constitute a majority of the required quorum), or by the unanimous written consent of all shares entitled to vote thereon. Each director so elected shall hold office until the next annual meeting of the shareholders and until a successor has been elected and qualified. -8- A vacancy or vacancies in the Board of Directors shall be deemed to exist (a) in the event of the death, resignation or removal of any director, (b) if the Board of Directors by resolution declares vacant the office of a director who has been declared of unsound mind by an order of court or convicted of a felony, (c) if the authorized number of directors is increased, or (d) if the shareholders fail, at any meeting of shareholders at which any director or directors are elected, to elect the number of directors to be elected at that meeting. The shareholders may elect a director or directors at any time to fill any vacancy or vacancies not filled by the directors, but any such election other than to fill a vacancy created by removal, if by written consent, shall require the consent of the holders of a majority of the outstanding shares entitled to vote thereon. 3.5 Place of Meetings; Meetings by Telephone. ---------------------------------------- Regular meetings of the Board of Directors may be held at any place within or outside the State of California that has been designated from time to time by resolution of the board. In the absence of such a designation, regular meetings shall be held at the principal executive office of the corporation. Special meetings of the board may be held at any place within or outside the State of California that has been designated in the notice of the meeting or, if not stated in the notice or if there is no notice, at the principal executive office of the corporation. Any meeting, regular or special, may be held by conference telephone or similar communication equipment, so long as all directors participating in the meeting can hear one another; and all such directors shall be deemed to be present in person at the meeting. 3.6 Regular Meetings. ---------------- Regular meetings of the Board of Directors may be held without notice if the times of such meetings are fixed by the Board of Directors. 3.7 Special Meetings; Notice. ------------------------ Special meetings of the Board of Directors for any purpose or purposes may be called at any time by the chairman of the board, the president, any vice president, the secretary or any two directors. Notice of the time and place of special meetings shall be delivered personally or by telephone (including a voice messaging system or other system or technology designed to record and communicate messages), facsimile, electronic mail, or other electronic means, to each director or sent by first- class mail or telegram, charges prepaid, addressed to each director at that director's address as it is shown on the records of the corporation. If the notice is mailed, it shall be deposited in the United States mail at least four (4) days before the time of the holding of the meeting. If the notice is delivered personally or by telephone, telegram, facsimile, electronic mail or other electronic means, it shall be delivered at least forty-eight (48) hours before the time of the holding of the meeting. Any oral notice given personally or by telephone, facsimile or -9- electronic mail may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose or the place of the meeting, if the meeting is to be held at the principal executive office of the corporation. 3.8 Quorum. ------ A majority of the authorized number of directors shall constitute a quorum for the transaction of business, except to adjourn as provided in Section 3.10 of these bylaws. Every act or decision done or made by a majority of the directors present at a duly held meeting at which a quorum is present shall be regarded as the act of the Board of Directors, subject to the provisions of Section 310 of the Code (as to approval of contracts or transactions in which a director has a direct or indirect material financial interest), Section 311 of the Code (as to appointment of committees), Section 317(e) of the Code (as to indemnification of directors), the articles of incorporation and other applicable law. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting. 3.9 Waiver of Notice. ---------------- Notice of a meeting need not be given to any director (a) who signs a waiver of notice or a consent to holding the meeting or an approval of the minutes thereof, whether before or after the meeting, or (b) who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to such director. All such waivers, consents and approvals shall be filed with the corporate records or made part of the minutes of the meeting. A waiver of notice need not specify the purpose of any regular or special meeting of the Board of Directors. 3.10 Adjournment. ----------- A majority of the directors present, whether or not constituting a quorum, may adjourn any meeting to another time and place. 3.11 Notice of Adjournment. --------------------- Notice of the time and place of holding an adjourned meeting need not be given unless the meeting is adjourned for more than twenty-four (24) hours. If the meeting is adjourned for more than twenty-four (24) hours, then notice of the time and place of the adjourned meeting shall be given before the adjourned meeting takes place, in the manner specified in Section 3.7 of these bylaws, to the directors who were not present at the time of the adjournment. -10- 3.12 Board Action by Written Consent without a Meeting. ------------------------------------------------- Any action required or permitted to be taken by the Board of Directors may be taken without a meeting, provided that all members of the board individually or collectively consent in writing to that action. Such action by written consent shall have the same force and effect as a unanimous vote of the Board of Directors. Such written consent and any counterparts thereof shall be filed with the minutes of the proceedings of the board. 3.13 Fees and Compensation of Directors. ---------------------------------- Directors and members of committees may receive such compensation, if any, for their services and such reimbursement of expenses as may be fixed or determined by resolution of the Board of Directors. This Section 3.13 shall not be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee or otherwise and receiving compensation for those services. 3.14 Approval of Loans to Officers. ----------------------------- The corporation may, upon the approval of the Board of Directors alone, make loans of money or property to, or guarantee the obligations of, any officer of the corporation or its parent or subsidiary, whether or not a director, or adopt an employee benefit plan or plans authorizing such loans or guaranties provided that (a) the Board of Directors determines that such a loan or guaranty or plan may reasonably be expected to benefit the corporation, (b) the corporation has outstanding shares held of record by 100 or more persons (determined as provided in Section 605 of the Code) on the date of approval by the Board of Directors, and (c) the approval of the Board of Directors is by a vote sufficient without counting the vote of any interested director or directors. ARTICLE IV COMMITTEES ---------- 4.1 Committees of Directors. ----------------------- The Board of Directors may, by resolution adopted by a majority of the authorized number of directors, designate one (1) or more committees, each consisting of two (2) or more directors, to serve at the pleasure of the board. The board may designate one (1) or more directors as alternate members of any committee, who may replace any absent member at any meeting of the committee. The appointment of members or alternate members of a committee requires the vote of a majority of the authorized number of directors. Any committee, to the extent provided in the resolution of the board, shall have all the authority of the board, except with respect to: (a) the approval of any action which, under the Code, also requires shareholders' approval or approval of the outstanding shares; -11- (b) the filling of vacancies on the Board of Directors or in any committee; (c) the fixing of compensation of the directors for serving on the board or any committee; (d) the amendment or repeal of these bylaws or the adoption of new bylaws; (e) the amendment or repeal of any resolution of the Board of Directors which by its express terms is not so amendable or repealable; (f) a distribution to the shareholders of the corporation, except at a rate or in a periodic amount or within a price range determined by the Board of Directors; or (g) the appointment of any other committees of the Board of Directors or the members of such committees. 4.2 Meetings and Action of Committees. --------------------------------- Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of Article III of these bylaws, Section 3.5 (place of meetings), Section 3.6 (regular meetings), Section 3.7 (special meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice), Section 3.10 (adjournment), Section 3.11 (notice of adjournment), and Section 3.12 (action without meeting), with such changes in the context of those bylaws as are necessary to substitute the committee and its members for the Board of Directors and its members; provided, however, that the time of regular meetings of committees may be determined either by resolution of the Board of Directors or by resolution of the committee, that special meetings of committees may also be called by resolution of the Board of Directors, and that notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The Board of Directors may adopt rules for the government of any committee not inconsistent with the provisions of these bylaws. ARTICLE V OFFICERS -------- 5.1 Officers. -------- The officers of the corporation shall be a president, a secretary and a chief financial officer. The corporation may also have, at the discretion of the Board of Directors, a chairman of the board, one or more vice presidents, one or more assistant secretaries, one or more assistant treasurers and such other officers as may be appointed in accordance with the provisions of Section 5.3 of these bylaws. Any number of offices may be held by the same person. -12- 5.2 Election of Officers. -------------------- The officers of the corporation, except such officers as may be appointed in accordance with the provisions of Section 5.3 or Section 5.5 of these bylaws, shall be chosen by the board, subject to the rights, if any, of an officer under any contract of employment. Any contract of employment with an officer shall be unenforceable unless in writing and specifically authorized by the Board of Directors. 5.3 Subordinate Officers. -------------------- The Board of Directors may appoint, or may empower the president to appoint, such other officers as the business of the corporation may require, each of whom shall hold office for such period, have such authority and perform such duties as are provided in these bylaws or as the Board of Directors may from time to time determine. 5.4 Removal and Resignation of Officers. ----------------------------------- Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by the Board of Directors at any regular or special meeting of the board or, except in case of an officer chosen by the Board of Directors, by any officer upon whom such power of removal may be conferred by the Board of Directors. Any officer may resign at any time by giving written notice to the corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party. 5.5 Vacancies in Offices. -------------------- A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in these bylaws for regular appointments to that office. 5.6 Chairman of the Board. --------------------- The chairman of the board, if such an officer is elected, shall, if present, preside at meetings of the Board of Directors and exercise and perform such other powers and duties as may from time to time be assigned to him by the Board of Directors or as may be prescribed by these bylaws. If there is no president, then the chairman of the board shall also be the chief executive officer of the corporation and shall have the powers and duties prescribed in Section 5.7 of these bylaws. 5.7 President. --------- Subject to such supervisory powers, if any, as may be given by the Board of Directors to the chairman of the board, if there is such an officer, the president shall be the chief -13- executive officer of the corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and the officers of the corporation. He or she shall preside at all meetings of the shareholders and, in the absence or nonexistence of a chairman of the board, at all meetings of the Board of Directors. The President shall have the general powers and duties of management usually vested in the office of president of a corporation, and shall have such other powers and duties as may be prescribed by the Board of Directors or these bylaws. 5.8 Vice Presidents. --------------- In the absence or disability of the president, the vice presidents, if any, in order of their rank as fixed by the Board of Directors or, if not ranked, a vice president designated by the Board of Directors, shall perform all the duties of the president and when so acting shall have all the powers of, and be subject to all the restrictions upon, the president. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors, these bylaws, the president or the chairman of the board. 5.9 Secretary. --------- The secretary shall keep or cause to be kept, at the principal executive office of the corporation or such other place as the Board of Directors may direct, a book of minutes of all meetings and actions of directors, committees of directors and shareholders. The minutes shall show the time and place of each meeting, whether regular or special (and, if special, how authorized and the notice given), the names of those present at directors' meetings or committee meetings, the number of shares present or represented at shareholders' meetings, and the proceedings thereof. The secretary shall keep, or cause to be kept, at the principal executive office of the corporation or at the office of the corporation's transfer agent or registrar, as determined by resolution of the Board of Directors, a share register, or a duplicate share register, showing the names of all shareholders and their addresses, the number and classes of shares held by each, the number and date of certificates evidencing such shares, and the number and date of cancellation of every certificate surrendered for cancellation. The secretary shall give, or cause to be given, notice of all meetings of the shareholders and of the Board of Directors required to be given by law or by these bylaws. He or she shall keep the seal of the corporation, if any, in safe custody and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or by these bylaws. 5.10 Chief Financial Officer. ----------------------- The chief financial officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, -14- disbursements, gains, losses, capital, retained earnings and shares. The books of account shall at all reasonable times be open to inspection by any director. The chief financial officer shall deposit all money and other valuables in the name and to the credit of the corporation with such depositories as may be designated by the Board of Directors. He or she shall disburse the funds of the corporation as may be ordered by the Board of Directors, shall render to the president and directors, whenever they request it, an account of all of his or her transactions as chief financial officer and of the financial condition of the corporation, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or these bylaws. ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES ------------------------------------------------- AND OTHER AGENTS ---------------- 6.1 Indemnification of Directors and Officers. ----------------------------------------- The corporation shall, to the maximum extent and in the manner permitted by the Code, indemnify each of its directors and officers against expenses (as defined in Section 317(a) of the Code), judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding (as defined in Section 317(a) of the Code), arising by reason of the fact that such person is or was an agent of the corporation. For purposes of this Article VI, a "director" or "officer" of the corporation -------- ------- includes any person (a) who is or was a director or officer of the corporation, (b) who is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, or (c) who was a director or officer of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. 6.2 Indemnification of Others. ------------------------- The corporation shall have the power, to the extent and in the manner permitted by the Code, to indemnify each of its employees and agents (other than directors and officers) against expenses (as defined in Section 317(a) of the Code), judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding (as defined in Section 317(a) of the Code), arising by reason of the fact that such person is or was an agent of the corporation. For purposes of this Article VI, an "employee" or "agent" of the -------- ----- corporation (other than a director or officer) includes any person (a) who is or was an employee or agent of the corporation, (b) who is or was serving at the request of the corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or (c) who was an employee or agent of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. -15- 6.3 Payment of Expenses in Advance. ------------------------------ Expenses incurred in defending any civil or criminal action or proceeding for which indemnification is required pursuant to Section 6.1 or for which indemnification is permitted pursuant to Section 6.2 following authorization thereof by the Board of Directors shall be paid by the corporation in advance of the final disposition of such action or proceeding upon receipt of an undertaking by or on behalf of the indemnified party to repay such amount if it shall ultimately be determined that the indemnified party is not entitled to be indemnified as authorized in this Article VI. 6.4 Indemnity Not Exclusive. ----------------------- The indemnification provided by this Article VI shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any bylaw, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office, to the extent that such additional rights to indemnification are authorized in the articles of incorporation. 6.5 Insurance Indemnification. ------------------------- The corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation against any liability asserted against or incurred by such person in such capacity or arising out of such person's status as such, whether or not the corporation would have the power to indemnify him or her against such liability under the provisions of this Article VI. 6.6 Conflicts. --------- No indemnification or advance shall be made under this Article VI, except where such indemnification or advance is mandated by law or the order, judgment or decree of any court of competent jurisdiction, in any circumstance where it appears: (1) That it would be inconsistent with a provision of the articles of incorporation, these bylaws, a resolution of the shareholders or an agreement in effect at the time of the accrual of the alleged cause of the action asserted in the proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification; or (2) That it would be inconsistent with any condition expressly imposed by a court in approving a settlement. -16- ARTICLE VII RECORDS AND REPORTS ------------------- 7.1 Maintenance and Inspection of Share Register. -------------------------------------------- The corporation shall keep either at its principal executive office or at the office of its transfer agent or registrar (if either is appointed), as determined by resolution of the Board of Directors, a record of its shareholders listing the names and addresses of all shareholders and the number and class of shares held by each shareholder. A shareholder or shareholders of the corporation holding at least five percent (5%) in the aggregate of the outstanding voting shares of the corporation or who hold at least one percent (1%) of such voting shares and have filed a Schedule 14A with the Securities and Exchange Commission relating to the election of directors, may (a) inspect and copy the records of shareholders' names, addresses and shareholdings during usual business hours on five (5) days' prior written demand on the corporation, (b) obtain from the transfer agent of the corporation, on written demand and on the tender of such transfer agent's usual charges for such list, a list of the names and addresses of the shareholders who are entitled to vote for the election of directors, and their shareholdings, as of the most recent record date for which that list has been compiled or as of a date specified by the shareholder after the date of demand. Such list shall be made available to any such shareholder by the transfer agent on or before the later of five (5) days after the demand is received or five (5) days after the date specified in the demand as the date as of which the list is to be compiled. The record of shareholders shall also be open to inspection on the written demand of any shareholder or holder of a voting trust certificate, at any time during usual business hours, for a purpose reasonably related to the holder's interests as a shareholder or as the holder of a voting trust certificate. Any inspection and copying under this Section 7.1 may be made in person or by an agent or attorney of the shareholder or holder of a voting trust certificate making the demand. 7.2 Maintenance and Inspection of Bylaws. ------------------------------------ The corporation shall keep at its principal executive office or, if its principal executive office is not in the State of California, at its principal business office in California, the original or a copy of these bylaws as amended to date, which bylaws shall be open to inspection by the shareholders at all reasonable times during office hours. If the principal executive office of the corporation is outside the State of California and the corporation has no principal business office in such state, then the secretary shall, upon the written request of any shareholder, furnish to that shareholder a copy of these bylaws as amended to date. -17- 7.3 Maintenance and Inspection of Other Corporate Records. ----------------------------------------------------- The accounting books and records and the minutes of proceedings of the shareholders, of the Board of Directors and of any committee or committees of the Board of Directors shall be kept at such place or places as are designated by the Board of Directors or, in absence of such designation, at the principal executive office of the corporation. The minutes shall be kept in written form, and the accounting books and records shall be kept either in written form or in any other form capable of being converted into written form. The minutes and accounting books and records shall be open to inspection upon the written demand of any shareholder or holder of a voting trust certificate, at any reasonable time during usual business hours, for a purpose reasonably related to the holder's interests as a shareholder or as the holder of a voting trust certificate. The inspection may be made in person or by an agent or attorney and shall include the right to copy and make extracts. Such rights of inspection shall extend to the records of each subsidiary corporation of the corporation. 7.4 Inspection by Directors. ----------------------- Every director shall have the absolute right at any reasonable time to inspect all books, records and documents of every kind as well as the physical properties of the corporation and each of its subsidiary corporations. Such inspection by a director may be made in person or by an agent or attorney. The right of inspection includes the right to copy and make extracts of documents. 7.5 Annual Report to Shareholders; Waiver. ------------------------------------- The Board of Directors shall cause an annual report to be sent to the shareholders not later than one hundred twenty (120) days after the close of the fiscal year adopted by the corporation. Such report shall be sent at least fifteen (15) days (or, if sent by third-class mail, thirty-five (35) days) before the annual meeting of shareholders to be held during the next fiscal year and in the manner specified in Section 2.5 of these bylaws for giving notice to shareholders of the corporation. The annual report shall contain (a) a balance sheet as of the end of the fiscal year, (b) an income statement, (c) a statement of changes in financial position for the fiscal year, and (d) any report of independent accountants or, if there is no such report, the certificate of an authorized officer of the corporation that the statements were prepared without audit from the books and records of the corporation. The foregoing requirement of an annual report shall be waived so long as the shares of the corporation are held by fewer than one hundred (100) holders of record. 7.6 Financial Statements. -------------------- If no annual report for the fiscal year has been sent to shareholders, then the corporation shall, upon the written request of any shareholder made more than one hundred -18- twenty (120) days after the close of such fiscal year, deliver or mail to the person making the request, within thirty (30) days thereafter, a copy of a balance sheet as of the end of such fiscal year and an income statement and statement of changes in financial position for such fiscal year. If a shareholder or shareholders holding at least five percent (5%) of the outstanding shares of any class of stock of the corporation makes a written request to the corporation for an income statement of the corporation for the three-month, six-month or nine-month period of the then current fiscal year ended more than thirty (30) days before the date of the request, and for a balance sheet of the corporation as of the end of that period, then the chief financial officer shall cause such statement or statements to be prepared, if not already prepared, and shall deliver personally or mail such statement or statements to the person making the request within thirty (30) days after the receipt of the request. If the corporation has not sent to the shareholders its annual report for the last fiscal year, the statements referred to in the first paragraph of this Section 7.6 shall likewise be delivered or mailed to the shareholder or shareholders within thirty (30) days after the request. The quarterly income statements and balance sheets referred to in this section shall be accompanied by the report, if any, of any independent accountants engaged by the corporation or by the certificate of an authorized officer of the corporation that the financial statements were prepared without audit from the books and records of the corporation. 7.7 Representation of Shares of Other Corporations. ---------------------------------------------- The chairman of the board, the president, any vice president, the chief financial officer, the secretary or assistant secretary of this corporation, or any other person authorized by the Board of Directors or the president or a vice president, is authorized to vote, represent and exercise on behalf of this corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this corporation. The authority herein granted may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by the person having such authority. ARTICLE VIII GENERAL MATTERS --------------- 8.1 Record Date for Purposes other than Notice and Voting. ----------------------------------------------------- For purposes of determining the shareholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the shareholders entitled to exercise any rights in respect of any other lawful action (other than action by shareholders by written consent without a meeting), the Board of Directors may fix, in advance, a record date, which shall not be more than sixty (60) days before any such action. In that case, only shareholders of record at the close of business on the date so fixed are entitled to receive the dividend, distribution or allotment of rights, or to exercise such rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date so fixed, except as otherwise provided in the Code. -19- If the Board of Directors does not so fix a record date, then the record date for determining shareholders for any such purpose shall be at the close of business on the day on which the board adopts the applicable resolution or the sixtieth (60th) day before the date of that action, whichever is later. 8.2 Checks; Drafts; Evidences of Indebtedness. ----------------------------------------- From time to time, the Board of Directors shall determine by resolution which person or persons may sign or endorse all checks, drafts, other orders for payment of money, notes or other evidences of indebtedness that are issued in the name of or payable to the corporation, and only the persons so authorized shall sign or endorse those instruments. 8.3 Corporate Contracts and Instruments; How Executed. -------------------------------------------------- The Board of Directors, except as otherwise provided in these bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the Board of Directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. 8.4 Certificates for Shares. ----------------------- A certificate or certificates for shares of the corporation shall be issued to each shareholder when any of such shares are fully paid. The Board of Directors may authorize the issuance of certificates for shares partly paid provided that these certificates shall state the total amount of the consideration to be paid for them and the amount actually paid. All certificates shall be signed in the name of the corporation by the chairman of the board or the vice chairman of the board or the president or a vice president and by the chief financial officer or an assistant treasurer or the secretary or an assistant secretary, certifying the number of shares and the class or series of shares owned by the shareholder. Any or all of the signatures on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed on a certificate ceases to be that officer, transfer agent or registrar before that certificate is issued, it may be issued by the corporation with the same effect as if that person were an officer, transfer agent or registrar at the date of issue. 8.5 Lost Certificates. ----------------- Except as provided in this Section 8.5, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the corporation and canceled at the same time. The Board of Directors may, in case any share certificate or certificate for any other security is lost, stolen or destroyed, authorize the issuance of replacement certificates on such terms and conditions as the board may require; in such case, the -20- board may require indemnification of the corporation secured by a bond or other adequate security sufficient to protect the corporation against any claim that may be made against it, including any expense or liability, on account of the alleged loss, theft or destruction of the certificate or the issuance of the replacement certificate. 8.6 Construction; Definitions. ------------------------- Unless the context requires otherwise, the general provisions, rules of construction and definitions in the Code shall govern the construction of these bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular and the term "person" includes both a corporation and a natural person. ARTICLE IX AMENDMENTS ---------- 9.1 Amendment by Shareholders. ------------------------- New bylaws may be adopted or these bylaws may be amended or repealed by the vote or written consent of holders of a majority of the outstanding shares entitled to vote; provided, however, that if the articles of incorporation of the corporation set forth the number of authorized directors of the corporation, then the authorized number of directors may be changed only by an amendment of the articles of incorporation. 9.2 Amendment by Directors. ---------------------- Subject to the rights of the shareholders as provided in Section 9.1 of these bylaws, bylaws, other than a bylaw or an amendment of a bylaw changing the authorized number of directors (except to fix the authorized number of directors pursuant to a bylaw providing for a variable number of directors), may be adopted, amended or repealed by the Board of Directors. -21- CERTIFICATE OF ADOPTION OF BYLAWS OF REPLAYTV, INC. ADOPTION BY INCORPORATOR ------------------------ The undersigned person appointed in the articles of incorporation to act as the Incorporator of ReplayTV, Inc. hereby adopts the foregoing Bylaws, comprising twenty-one (21) pages, as the Bylaws of the corporation. Executed this 28th day of August, 1997. /s/ Laura A. Gordon ------------------------------ Laura A. Gordon, Incorporator CERTIFICATE BY SECRETARY OF ADOPTION BY INCORPORATOR ---------------------------------------------------- The undersigned hereby certifies that the undersigned is the duly elected, qualified, and acting Secretary of ReplayTV, Inc., and that the foregoing Bylaws, comprising twenty-one (21) pages, were adopted as the Bylaws of the corporation on August 27, 1997, by the person appointed in the articles of incorporation to act as the Incorporator of the corporation. Executed this 28th day of August, 1997. /s/ Mark A. Medearis --------------------------- Mark A. Medearis, Secretary Exhibit 3.3A CERTIFICATE OF AMENDMENT OF BYLAWS of REPLAY NETWORKS, INC. The undersigned, Mark Medearis, hereby certifies that: 1. He is the duly elected and incumbent Secretary of Replay Networks, Inc. (the "Company"). 2. By written consent of the Shareholders effective July 19, 1999, Article III, Section 2 of the Bylaws of the Company is hereby amended to read in full as follows: "The number of directors of the corporation shall be not less than five (5) nor more than nine (9). The exact number of directors shall be five (5) until changed, within the limits specified above, by a bylaw amending this Section 3.2, duly adopted by the Board of Directors or by the shareholders. The indefinite number of directors may be changed, or a definite number may be fixed without provision for an indefinite number, by a duly adopted amendment to the articles of incorporation or by an amendment to this bylaw duly adopted by the vote or written consent of holders of a majority of the outstanding shares entitled to vote; provided, however, that an amendment reducing the fixed number or the minimum number of directors to a number less than five (5) cannot be adopted if the votes cast against its adoption at a meeting, or the shares not consenting in the case of an action by written consent, are equal to more than sixteen and two-thirds percent (16-2/3%) of the outstanding shares entitled to vote thereon. No amendment may change the stated maximum number of authorized directors to a number greater than two (2) times the stated minimum number of directors minus one (1). No reduction of the authorized number of directors shall have the effect of removing any director before that director's term of office expires." 3. The matters set forth in this certificate are true and correct of my own knowledge. Date: July 20, 1999 /s/ Mark A. Medearis --------------------- Mark Medearis, Secretary Exhibit 3.3B CERTIFICATE OF AMENDMENT OF BYLAWS The undersigned, Mark A. Medearis, hereby certifies that: 1. He is the duly elected and incumbent Secretary of ReplayTV, Inc. (the "Company"). 2. At a meeting of the Board of Directors held January 21, 2000 and by an Action by Written Consent of the Shareholders, Article III, Section 3.2 of the Bylaws of the Company was amended to read in its entirety as follows: "The number of the corporation's directors shall be not less than six (6) nor more than eleven (11), with the exact number of directors to be fixed within the limits specified by a resolution adopted by a majority of the Board. Such minimum and maximum number of directors may be changed by amendment to this Section 2.2 duly adopted by the shareholders, provided that no amendment to this Section reducing the number of directors to a number below five (5) shall be enacted if the votes cast against its adoption at a meeting, or the shares not consenting in the case of action by written consent, are equal to more than 16- 2/3 percent of the outstanding shares entitled to vote." No reduction of the authorized number of directors shall have the effect of removing any director before that director's term of office expires." 3. The matters set forth in this certificate are true and correct of my own knowledge. Date: January 21, 2000 /s/ Mark A. Medearis --------------------- Mark A. Medearis, Secretary EX-3.4 5 AM. & RESTATED BYLAWS OF REPLAYTV (AS PROPOSED) EXHIBIT 3.4 BYLAWS OF REPLAYTV, INC. TABLE OF CONTENTS
Page ---- ARTICLE I - CORPORATE OFFICES............................................................... 3 1.1 Registered Office............................................................. 3 1.2 Other Offices................................................................. 3 ARTICLE II - MEETINGS OF STOCKHOLDERS....................................................... 3 2.1 Place Of Meetings............................................................. 3 2.2 Annual Meeting................................................................ 1 2.3 Special Meeting............................................................... 3 2.4 Notice of Shareholder's Meeting; Affidavit Of Notice.......................... 3 2.5 Advance Notice of Stockholder Nominees........................................ 3 2.6 Quorum........................................................................ 4 2.7 Adjourned Meeting; Notice..................................................... 4 2.8 Conduct Of Business........................................................... 4 2.9 Voting........................................................................ 5 2.10 Waiver Of Notice.............................................................. 5 2.11 Record Date For Stockholder Notice; Voting.................................... 5 2.12 Proxies....................................................................... 6 ARTICLE III - DIRECTOR...................................................................... 6 3.1 Powers........................................................................ 6 3.2 Number Of Directors........................................................... 6 3.3 Election, Qualification And Term Of Office Of Directors....................... 6 3.4 Resignation And Vacancies..................................................... 6 3.5 Place Of Meetings; Meetings By Telephone...................................... 7 3.6 Regular Meetings.............................................................. 8 3.7 Special Meetings; Notice...................................................... 8 3.8 Quorum........................................................................ 8 3.9 Waiver Of Notice.............................................................. 8 3.10 Board Action By Written Consent Without A Meeting............................. 9 3.11 Fees And Compensation Of Directors............................................ 9 3.12 Approval Of Loans To Officers................................................. 9 3.13 Removal Of Directors.......................................................... 9 3.14 Chairman Of The Board Of Directors............................................ 10 ARTICLE IV - COMMITTEES..................................................................... 10 4.1 Committees Of Directors....................................................... 10 4.2 Committee Minutes............................................................. 10 4.3 Meetings And Action Of Committees............................................. 11 ARTICLE V - OFFICERS........................................................................ 13 5.1 Officers...................................................................... 13
i 5.2 Appointment Of Officers....................................................... 13 5.3 Subordinate Officers.......................................................... 13 5.4 Removal And Resignation Of Officers........................................... 14 5.5 Vacancies In Offices.......................................................... 12 5.6 Chief Executive Officer....................................................... 14 5.7 President..................................................................... 14 5.8 Vice Presidents............................................................... 13 5.9 Secretary..................................................................... 13 5.10 Chief Financial Officer....................................................... 15 5.11 Representation Of Shares Of Other Corporations................................ 16 5.12 Authority And Duties Of Officers.............................................. 16 ARTICLE VI - INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS............ 16 6.1 Indemnification Of Directors And Officers..................................... 16 6.2 Indemnification Of Others..................................................... 16 6.3 Payment Of Expenses In Advance................................................ 17 6.4 Indemnity Not Exclusive....................................................... 17 6.5 Insurance..................................................................... 17 6.6 Conflicts..................................................................... 17 ARTICLE VII - RECORDS AND REPORTS........................................................... 18 7.1 Maintenance And Inspection Of Records......................................... 18 7.2 Inspection By Directors....................................................... 18 7.3 Annual Statement To Stockholders.............................................. 18 ARTICLE VIII - GENERAL MATTERS.............................................................. 19 8.1 Checks........................................................................ 19 8.2 Execution Of Corporate Contracts And Instruments.............................. 19 8.3 Stock Certificates; Partly Paid Shares........................................ 19 8.4 Special Designation On Certificates........................................... 20 8.5 Lost Certificates............................................................. 20 8.6 Construction; Definitions..................................................... 20 8.7 Dividends..................................................................... 20 8.8 Fiscal Year................................................................... 21 8.9 Seal.......................................................................... 21 8.10 Transfer Of Stock............................................................. 21 8.11 Stock Transfer Agreements..................................................... 21 8.12 Registered Stockholders....................................................... 21 ARTICLE IX - AMENDMENTS..................................................................... 21
-ii- BYLAWS OF REPLAYTV, INC. ARTICLE I CORPORATE OFFICES ----------------- 1.1 Registered Office. ----------------- The address of the Corporation's registered office in the State of Delaware is 1013 Centre Road, Wilmington, Delaware, County of New Castle, 19805. The name of its registered agent at such address is Corporation Service Company. 1.2 Other Offices. ------------- The Board of Directors may at any time establish other offices at any place or places where the corporation is qualified to do business. ARTICLE II MEETINGS OF STOCKHOLDERS ------------------------ 2.1 Place Of Meetings. ----------------- Meetings of stockholders shall be held at any place, within or outside the State of Delaware, designated by the Board of Directors. In the absence of any such designation, stockholders' meetings shall be held at the registered office of the corporation. 2.2 Annual Meeting. -------------- (a) The annual meeting of stockholders shall be held each year on a date and at a time designated by the Board of Directors. At the meeting, directors shall be elected and any other proper business may be transacted. (b) Nominations of persons for election to the Board of Directors of the corporation and the proposal of business to be transacted by the stockholders may be made at an annual meeting of stockholders (i) pursuant to the corporation's notice with respect to such meeting, (ii) by or at the direction of the Board of Directors or (iii) by any stockholder of the corporation who was a stockholder of record at the time of giving of the notice provided for in this Section 2.2, who is entitled to vote at the meeting and who has complied with the notice procedures set forth in this Section 2.2. (c) In addition to the requirements of Section 2.5, for nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (iii) of paragraph (b) of this Section 2.2, the stockholder must have given timely notice thereof in writing to the secretary of the corporation and such business must be a proper matter for stockholder action under the General Corporation Law of Delaware. To be timely, a stockholder's notice shall be delivered to the secretary at the principal executive offices of the corporation not less than twenty (20) days nor more than ninety (90) days prior to the first anniversary of the preceding year's annual meeting of stockholders; provided, however, that in the event that the date of the annual meeting is more than thirty (30) days prior to or more than sixty (60) days after such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the ninetieth (90th) day prior to such annual meeting and not later than the close of business on the later of the twentieth (20th) day prior to such annual meeting or the tenth (10th) day following the day on which public announcement of the date of such meeting is first made. Such stockholder's notice shall set forth (i) as to each person whom the stockholder proposes to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act") (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (ii) as to any other business that the stockholder proposes to bring before the meeting, a brief description of such business, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (iii) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (A) the name and address of such stockholder, as they appear on the corporation's books, and of such beneficial owner and (B) the class and number of shares of the corporation which are owned beneficially and of record by such stockholder and such beneficial owner. (d) Only such business shall be conducted at an annual meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 2.2. The chairman of the meeting shall determine whether a nomination or any business proposed to be transacted by the stockholders has been properly brought before the meeting and, if any proposed nomination or business has not been properly brought before the meeting, the chairman shall declare that such proposed business or nomination shall not be presented for stockholder action at the meeting. (e) For purposes of this Section 2.2, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or a comparable national news service. (f) Nothing in this Section 2.2 shall be deemed to affect any rights of stockholders to request inclusion of proposals in the corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act. 2.3 Special Meeting. --------------- -4- (a) A special meeting of the stockholders may be called at any time by the Board of Directors, or by the chairman of the board, or by the president. (b) Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to such notice of meeting (i) by or at the direction of the Board of Directors or (ii) by any stockholder of the corporation who is a stockholder of record at the time of giving of notice provided for in Section 2.5, who shall be entitled to vote at the meeting and who complies with the notice procedures set forth in Section 2.5. 2.4 Notice of Stockholder's Meetings; Affidavit Of Notice. ----------------------------------------------------- All notices of meetings of stockholders shall be in writing and shall be sent or otherwise given in accordance with this Section 2.4 of these Bylaws not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting (or such longer or shorter time as is required by Section 2.5 of these Bylaws, if applicable). The notice shall specify the place, date, and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Written notice of any meeting of stockholders, if mailed, is given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the corporation. An affidavit of the secretary or an assistant secretary or of the transfer agent of the corporation that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. 2.5 Advance Notice of Stockholder Nominees. -------------------------------------- Only persons who are nominated in accordance with the procedures set forth in this Section 2.5 shall be eligible for election as directors. Nominations of persons for election to the Board of Directors of the corporation may be made at a meeting of stockholders by or at the direction of the Board of Directors or by any stockholder of the corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this Section 2.5. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the secretary of the corporation. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the corporation not less than sixty (60) days nor more than ninety (90) days prior to the meeting; provided, however, that in the event that less than sixty (60) days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Such stockholder's notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or re- election as a Director, (i) the name, age, business address and residence address of such person, (ii) the principal occupation or employment of such person, (iii) the class and number of shares of the corporation which are beneficially owned by such person and (iv) any other information relating to such person that is required to be disclosed in solicitations of proxies for election of Directors, or is otherwise -5- required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including, without limitation, such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); and (b) as to the stockholder giving the notice (i) the name and address, as they appear on the corporation's books, of such stockholder and (ii) the class and number of shares of the corporation which are beneficially owned by such stockholder. At the request of the Board of Directors any person nominated by the Board of Directors for election as a director shall furnish to the secretary of the corporation that information required to be set forth in a stockholder's notice of nomination which pertains to the nominee. No person shall be eligible for election as a director of the corporation unless nominated in accordance with the procedures set forth in this Section 2.5. The Chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by the Bylaws, and if he or she should so determine, he or she shall so declare to the meeting and the defective nomination shall be disregarded. 2.6 Quorum. ------ The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum is not present or represented at any meeting of the stockholders, then either (a) the chairman of the meeting or (b) the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present or represented. At such adjourned meeting at which a quorum is present or represented, any business may be transacted that might have been transacted at the meeting as originally noticed. 2.7 Adjourned Meeting; Notice. ------------------------- When a meeting is adjourned to another time or place, unless these Bylaws otherwise require, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business that might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. 2.8 Conduct Of Business. ------------------- The chairman of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including the manner of voting and the conduct of business. -6- 2.9 Voting. ------ (a) The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 2.11 of these Bylaws, subject to the provisions of Sections 217 and 218 of the General Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners of stock and to voting trusts and other voting agreements). (b) Except as may be otherwise provided in the certificate of incorporation, each stockholder shall be entitled to one vote for each share of capital stock held by such stockholder. 2.10 Waiver Of Notice. ---------------- Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the certificate of incorporation or these Bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice unless so required by the certificate of incorporation or these Bylaws. 2.11 Record Date For Stockholder Notice; Voting. ------------------------------------------ In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action. If the Board of Directors does not so fix a record date: (a) The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. (b) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. -7- 2.12 Proxies. ------- Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for such stockholder by a written proxy, signed by the stockholder and filed with the secretary of the corporation, but no such proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. A proxy shall be deemed signed if the stockholder's name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission or otherwise) by the stockholder or the stockholder's attorney-in-fact. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212(e) of the General Corporation Law of Delaware. ARTICLE III DIRECTORS --------- 3.1 Powers. ------ Subject to the provisions of the General Corporation Law of Delaware and any limitations in the certificate of incorporation or these Bylaws relating to action required to be approved by the stockholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board of Directors. 3.2 Number Of Directors. ------------------- The number of directors constituting the entire Board of Directors shall be six(6) until changed by a bylaw amending this Section 3.2, duly adopted by the Board of Directors or by the stockholders. 3.3 Election, Qualification And Term Of Office Of Directors. ------------------------------------------------------- Except as provided in Section 3.4 of these Bylaws, directors shall be elected at each annual meeting of stockholders to hold office until the next annual meeting. Directors need not be stockholders unless so required by the certificate of incorporation or these Bylaws, wherein other qualifications for directors may be prescribed. Each director, including a director elected to fill a vacancy, shall hold office until his or her successor is elected and qualified or until his or her earlier resignation or removal. Elections of directors need not be by written ballot. 3.4 Resignation And Vacancies. ------------------------- Any director may resign at any time upon written notice to the attention of the Secretary of the corporation. When one or more directors so resigns and the resignation is effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when -8- such resignation or resignations shall become effective, and each director so chosen shall hold office as provided in this section in the filling of other vacancies. A vacancy created by the removal of a director by the vote of the stockholders or by court order may be filled only by the affirmative vote of a majority of the shares represented and voting at a duly held meeting at which a quorum is present (which shares voting affirmatively also constitute a majority of the quorum. Each director so elected shall hold office until the next annual meeting of the stockholders and until a successor has been elected and qualified. Unless otherwise provided in the certificate of incorporation or these Bylaws: (a) Vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. (b) Whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions of the certificate of incorporation, vacancies and newly created directorships of such class or classes or series may be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected. If at any time, by reason of death or resignation or other cause, the corporation should have no directors in office, then any officer or any stockholder or an executor, administrator, trustee or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate of a stockholder, may call a special meeting of stockholders in accordance with the provisions of the certificate of incorporation or these Bylaws, or may apply to the Court of Chancery for a decree summarily ordering an election as provided in Section 211 of the General Corporation Law of Delaware. If, at the time of filling any vacancy or any newly created directorship, the directors then in office constitute less than a majority of the whole board (as constituted immediately prior to any such increase), then the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten (10) percent of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office as aforesaid, which election shall be governed by the provisions of Section 211 of the General Corporation Law of Delaware as far as applicable. 3.5 Place Of Meetings; Meetings By Telephone. ---------------------------------------- The Board of Directors of the corporation may hold meetings, both regular and special, either within or outside the State of Delaware. Unless otherwise restricted by the certificate of incorporation or these Bylaws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or any committee, by means of conference -9- telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. 3.6 Regular Meetings. ---------------- Regular meetings of the Board of Directors may be held without notice at such time and at such place as shall from time to time be determined by the board. 3.7 Special Meetings; Notice. ------------------------ Special meetings of the Board of Directors for any purpose or purposes may be called at any time by the chairman of the board, the president, any vice president, the secretary or any two directors. Notice of the time and place of special meetings shall be delivered personally or by telephone to each director or sent by first-class mail or telegram, charges prepaid, addressed to each director at that director's address as it is shown on the records of the corporation. If the notice is mailed, it shall be deposited in the United States mail at least four (4) days before the time of the holding of the meeting. If the notice is delivered personally or by telephone or by telegram, it shall be delivered personally or by telephone or to the telegraph company at least forty-eight (48) hours before the time of the holding of the meeting, or on such shorter notice as the person or persons calling such meeting may deem necessary and appropriate in the circumstances. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose or the place of the meeting, if the meeting is to be held at the principal executive office of the corporation. 3.8 Quorum. ------ At all meetings of the Board of Directors, a majority of the authorized number of directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation. If a quorum is not present at any meeting of the Board of Directors, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting. 3.9 Waiver Of Notice. ---------------- -10- Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the certificate of incorporation or these Bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the directors, or members of a committee of directors, need be specified in any written waiver of notice unless so required by the certificate of incorporation or these Bylaws. 3.10 Board Action By Written Consent Without A Meeting. ------------------------------------------------- Unless otherwise restricted by the certificate of incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the board or committee, as the case may be, consent thereto in writing and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. Written consents representing actions taken by the board or committee may be executed by telex, telecopy or other facsimile transmission, and such facsimile shall be valid and binding to the same extent as if it were an original. 3.11 Fees And Compensation Of Directors. ---------------------------------- Unless otherwise restricted by the certificate of incorporation or these Bylaws, the Board of Directors shall have the authority to fix the compensation of directors. No such compensation shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. 3.12 Approval Of Loans To Officers. ----------------------------- The corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the corporation or of its subsidiary, including any officer or employee who is a director of the corporation or its subsidiary, whenever, in the judgment of the directors, such loan, guaranty or assistance may reasonably be expected to benefit the corporation. The loan, guaranty or other assistance may be with or without interest and may be unsecured, or secured in such manner as the Board of Directors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Nothing in this section contained shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute. 3.13 Removal Of Directors. -------------------- Unless otherwise restricted by statute, by the certificate of incorporation or by these Bylaws, any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors; -11- provided, however, that if the stockholders of the corporation are entitled to cumulative voting, if less than the entire Board of Directors is to be removed, no director may be removed without cause if the votes cast against his removal would be sufficient to elect him if then cumulatively voted at an election of the entire Board of Directors. No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of such director's term of office. 3.14 Chairman Of The Board Of Directors. ---------------------------------- The corporation may also have, at the discretion of the Board of Directors, a chairman of the Board of Directors who shall not be considered an officer of the corporation. ARTICLE IV COMMITTEES ---------- 4.1 Committees Of Directors. ----------------------- The Board of Directors may, by resolution passed by a majority of the whole board, designate one or more committees, with each committee to consist of one or more of the directors of the corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors or in the Bylaws of the corporation, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers that may require it; but no such committee shall have the power or authority to (a) amend the certificate of incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the Board of Directors as provided in Section 151(a) of the General Corporation Law of Delaware, fix the designations and any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the corporation or fix the number of shares of any series of stock or authorize the increase or decrease of the shares of any series), (b) adopt an agreement of merger or consolidation under Sections 251 or 252 of the General Corporation Law of Delaware, (c) recommend to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, (d) recommend to the stockholders a dissolution of the corporation or a revocation of a dissolution, or (e) amend the Bylaws of the corporation; and, unless the board resolution establishing the committee, the Bylaws or the certificate of incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend, to authorize the -12- issuance of stock, or to adopt a certificate of ownership and merger pursuant to Section 253 of the General Corporation Law of Delaware. 4.2 Committee Minutes. ----------------- Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. 4.3 Meetings And Action Of Committees. --------------------------------- Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of Section 3.5 (place of meetings and meetings by telephone), Section 3.6 (regular meetings), Section 3.7 (special meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice), and Section 3.10 (action without a meeting) of these Bylaws, with such changes in the context of such provisions as are necessary to substitute the committee and its members for the Board of Directors and its members; provided, however, that the time of regular meetings of committees may be determined either by resolution of the Board of Directors or by resolution of the committee, that special meetings of committees may also be called by resolution of the Board of Directors and that notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The Board of Directors may adopt rules for the government of any committee not inconsistent with the provisions of these Bylaws. ARTICLE V OFFICERS -------- 5.1 Officers. -------- The officers of the corporation shall be a chief executive officer, a president, a secretary, and a chief financial officer. The corporation may also have, at the discretion of the Board of Directors, one or more vice presidents, one or more assistant secretaries, one or more assistant treasurers, and any such other officers as may be appointed in accordance with the provisions of Section 5.3 of these Bylaws. Any number of offices may be held by the same person. 5.2 Appointment Of Officers. ----------------------- The officers of the corporation, except such officers as may be appointed in accordance with the provisions of Sections 5.3 or 5.5 of these Bylaws, shall be appointed by the Board of Directors, subject to the rights, if any, of an officer under any contract of employment. 5.3 Subordinate Officers. -------------------- The Board of Directors may appoint, or empower the chief executive officer or the president to appoint, such other officers and agents as the business of the corporation may require, each of whom shall hold office for such period, have such authority, and perform such -13- duties as are provided in these Bylaws or as the Board of Directors may from time to time determine. 5.4 Removal And Resignation Of Officers. ----------------------------------- Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by an affirmative vote of the majority of the Board of Directors at any regular or special meeting of the board or, except in the case of an officer chosen by the Board of Directors, by any officer upon whom such power of removal may be conferred by the Board of Directors. Any officer may resign at any time by giving written notice to the attention of the Secretary of the corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party. 5.5 Vacancies In Offices. -------------------- Any vacancy occurring in any office of the corporation shall be filled by the Board of Directors. 5.6 Chief Executive Officer. ----------------------- Subject to such supervisory powers, if any, as may be given by the Board of Directors to the chairman of the board, if any, the chief executive officer of the corporation shall, subject to the control of the Board of Directors, have general supervision, direction, and control of the business and the officers of the corporation. He or she shall preside at all meetings of the stockholders and, in the absence or nonexistence of a chairman of the board, at all meetings of the Board of Directors and shall have the general powers and duties of management usually vested in the office of chief executive officer of a corporation and shall have such other powers and duties as may be prescribed by the Board of Directors or these Bylaws. 5.7 President. --------- Subject to such supervisory powers, if any, as may be given by the Board of Directors to the chairman of the board (if any) or the chief executive officer, the president shall have general supervision, direction, and control of the business and other officers of the corporation. He or she shall have the general powers and duties of management usually vested in the office of president of a corporation and such other powers and duties as may be prescribed by the Board of Directors or these Bylaws. 5.8 Vice Presidents. --------------- -14- In the absence or disability of the chief executive officer and president, the vice presidents, if any, in order of their rank as fixed by the Board of Directors or, if not ranked, a vice president designated by the Board of Directors, shall perform all the duties of the president and when so acting shall have all the powers of, and be subject to all the restrictions upon, the president. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors, these Bylaws, the president or the chairman of the board. 5.9 Secretary. --------- The secretary shall keep or cause to be kept, at the principal executive office of the corporation or such other place as the Board of Directors may direct, a book of minutes of all meetings and actions of directors, committees of directors, and stockholders. The minutes shall show the time and place of each meeting, the names of those present at directors' meetings or committee meetings, the number of shares present or represented at stockholders' meetings, and the proceedings thereof. The secretary shall keep, or cause to be kept, at the principal executive office of the corporation or at the office of the corporation's transfer agent or registrar, as determined by resolution of the Board of Directors, a share register, or a duplicate share register, showing the names of all stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates evidencing such shares, and the number and date of cancellation of every certificate surrendered for cancellation. The secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the Board of Directors required to be given by law or by these Bylaws. He or she shall keep the seal of the corporation, if one be adopted, in safe custody and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or by these Bylaws. 5.10 Chief Financial Officer. ----------------------- The chief financial officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital retained earnings, and shares. The books of account shall at all reasonable times be open to inspection by any director. The chief financial officer shall deposit all moneys and other valuables in the name and to the credit of the corporation with such depositories as may be designated by the Board of Directors. He or she shall disburse the funds of the corporation as may be ordered by the Board of Directors, shall render to the president, the chief executive officer, or the directors, upon request, an account of all his or her transactions as chief financial officer and of the -15- financial condition of the corporation, and shall have other powers and perform such other duties as may be prescribed by the Board of Directors or the Bylaws. 5.11 Representation Of Shares Of Other Corporations. ---------------------------------------------- The chairman of the board, the chief executive officer, the president, any vice president, the chief financial officer, the secretary or assistant secretary of this corporation, or any other person authorized by the Board of Directors or the chief executive officer or the president or a vice president, is authorized to vote, represent, and exercise on behalf of this corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this corporation. The authority granted herein may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by the person having such authority. 5.12 Authority And Duties Of Officers. -------------------------------- In addition to the foregoing authority and duties, all officers of the corporation shall respectively have such authority and perform such duties in the management of the business of the corporation as may be designated from time to time by the Board of Directors or the stockholders. ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS -------------------------------------------------------------------- 6.1 Indemnification Of Directors And Officers. ----------------------------------------- The corporation shall, to the maximum extent and in the manner permitted by the General Corporation Law of Delaware, indemnify each of its directors and officers against expenses (including attorneys' fees), judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an agent of the corporation. For purposes of this Section 6.1, a "director" or "officer" of the corporation includes any person (a) who is or was a director or officer of the corporation, (b) who is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, or (c) who was a director or officer of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. 6.2 Indemnification Of Others. ------------------------- The corporation shall have the power, to the maximum extent and in the manner permitted by the General Corporation Law of Delaware, to indemnify each of its employees and agents (other than directors and officers) against expenses (including attorneys' fees), judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an agent of the corporation. -16- For purposes of this Section 6.2, an "employee" or "agent" of the corporation (other than a director or officer) includes any person (a) who is or was an employee or agent of the corporation, (b) who is or was serving at the request of the corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or (c) who was an employee or agent of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. 6.3 Payment Of Expenses In Advance. ------------------------------ Expenses incurred in defending any action or proceeding for which indemnification is required pursuant to Section 6.1 or for which indemnification is permitted pursuant to Section 6.2 following authorization thereof by the Board of Directors shall be paid by the corporation in advance of the final disposition of such action or proceeding upon receipt of an undertaking by or on behalf of the indemnified party to repay such amount if it shall ultimately be determined that the indemnified party is not entitled to be indemnified as authorized in this Article VI. 6.4 Indemnity Not Exclusive. ----------------------- The indemnification provided by this Article VI shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any Bylaw, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office, to the extent that such additional rights to indemnification are authorized in the certificate of incorporation 6.5 Insurance. --------- The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the corporation would have the power to indemnify him or her against such liability under the provisions of the General Corporation Law of Delaware. 6.6 Conflicts. --------- No indemnification or advance shall be made under this Article VI, except where such indemnification or advance is mandated by law or the order, judgment or decree of any court of competent jurisdiction, in any circumstance where it appears: (a) That it would be inconsistent with a provision of the certificate of incorporation, these Bylaws, a resolution of the stockholders or an agreement in effect at the time of the accrual of the alleged cause of the action asserted in the proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification; or -17- (b) That it would be inconsistent with any condition expressly imposed by a court in approving a settlement. ARTICLE VII RECORDS AND REPORTS ------------------- 7.1 Maintenance And Inspection Of Records. ------------------------------------- The corporation shall, either at its principal executive offices or at such place or places as designated by the Board of Directors, keep a record of its stockholders listing their names and addresses and the number and class of shares held by each stockholder, a copy of these Bylaws as amended to date, accounting books, and other records. Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders, and its other books and records and to make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to such person's interest as a stockholder. In every instance where an attorney or other agent is the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing that authorizes the attorney or other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the corporation at its registered office in Delaware or at its principal place of business. 7.2 Inspection By Directors. ----------------------- Any director shall have the right to examine the corporation's stock ledger, a list of its stockholders, and its other books and records for a purpose reasonably related to his or her position as a director. The Court of Chancery is hereby vested with the exclusive jurisdiction to determine whether a director is entitled to the inspection sought. The Court may summarily order the corporation to permit the director to inspect any and all books and records, the stock ledger, and the stock list and to make copies or extracts therefrom. The Court may, in its discretion, prescribe any limitations or conditions with reference to the inspection, or award such other and further relief as the Court may deem just and proper. 7.3 Annual Statement To Stockholders. -------------------------------- The Board of Directors shall present at each annual meeting, and at any special meeting of the stockholders when called for by vote of the stockholders, a full and clear statement of the business and condition of the corporation. -18- ARTICLE VIII GENERAL MATTERS --------------- 8.1 Checks. ------ From time to time, the Board of Directors shall determine by resolution which person or persons may sign or endorse all checks, drafts, other orders for payment of money, notes or other evidences of indebtedness that are issued in the name of or payable to the corporation, and only the persons so authorized shall sign or endorse those instruments. 8.2 Execution Of Corporate Contracts And Instruments. ------------------------------------------------ The Board of Directors, except as otherwise provided in these Bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the Board of Directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. 8.3 Stock Certificates; Partly Paid Shares. -------------------------------------- The shares of a corporation shall be represented by certificates, provided that the Board of Directors of the corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the corporation. Notwithstanding the adoption of such a resolution by the Board of Directors, every holder of stock represented by certificates and upon request every holder of uncertificated shares shall be entitled to have a certificate signed by, or in the name of the corporation by the chairman or vice-chairman of the Board of Directors, or the chief executive officer or the president or vice- president, and by the chief financial officer or an assistant treasurer, or the secretary or an assistant secretary of such corporation representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue. The corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly paid shares, upon the books and records of the corporation in the case of uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully paid shares, the corporation shall declare a dividend upon -19- partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon. 8.4 Special Designation On Certificates. ----------------------------------- If the corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate that the corporation shall issue to represent such class or series of stock; provided, however, that, except as otherwise provided in Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate that the corporation shall issue to represent such class or series of stock a statement that the corporation will furnish without charge to each stockholder who so requests the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. 8.5 Lost Certificates. ----------------- Except as provided in this Section 8.5, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the corporation and canceled at the same time. The corporation may issue a new certificate of stock or uncertificated shares in the place of any certificate previously issued by it, alleged to have been lost, stolen or destroyed, and the corporation may require the owner of the lost, stolen or destroyed certificate, or the owner's legal representative, to give the corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares. 8.6 Construction; Definitions. ------------------------- Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the Delaware General Corporation Law shall govern the construction of these Bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a corporation and a natural person. 8.7 Dividends. --------- The directors of the corporation, subject to any restrictions contained in (a) the General Corporation Law of Delaware or (b) the certificate of incorporation, may declare and pay dividends upon the shares of its capital stock. Dividends may be paid in cash, in property, or in shares of the corporation's capital stock. -20- The directors of the corporation may set apart out of any of the funds of the corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve. Such purposes shall include but not be limited to equalizing dividends, repairing or maintaining any property of the corporation, and meeting contingencies. 8.8 Fiscal Year. ----------- The fiscal year of the corporation shall be fixed by resolution of the Board of Directors and may be changed by the Board of Directors. 8.9 Seal. ---- The corporation may adopt a corporate seal, which may be altered at pleasure, and may use the same by causing it or a facsimile thereof, to be impressed or affixed or in any other manner reproduced. 8.10 Transfer Of Stock. ----------------- Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate, and record the transaction in its books. 8.11 Stock Transfer Agreements. ------------------------- The corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the corporation to restrict the transfer of shares of stock of the corporation of any one or more classes owned by such stockholders in any manner not prohibited by the General Corporation Law of Delaware. 8.12 Registered Stockholders. ----------------------- The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner, shall be entitled to hold liable for calls and assessments the person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE IX AMENDMENTS ---------- The Bylaws of the corporation may be adopted, amended or repealed by the stockholders entitled to vote; provided, however, that the corporation may, in its certificate of incorporation, confer the power to adopt, amend or repeal Bylaws upon the directors. The fact -21- that such power has been so conferred upon the directors shall not divest the stockholders of the power, nor limit their power to adopt, amend or repeal Bylaws. -22- EX-4.2 6 WARRANT DATED MAY 31, 1999 EXHIBIT 4.2 THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED. WARRANT TO PURCHASE STOCK Corporation: Replay Networks, Inc., a California corporation Number of Shares: 11,000 (subject to Section 1.9) Class of Stock: Common (subject to Section 1.9) Initial Exercise Price: $7.50 per share (subject to Section 1.9) Issue Date: May 31, 1999 Expiration Date: May 31, 2004 (Subject to Article 4.1) THIS WARRANT CERTIFIES THAT, in consideration of the payment of $1.00 and for other good and valuable consideration, IMPERIAL BANCORP or registered assignee ("Holder") is entitled to purchase the number of fully paid and nonassessable shares of the class of securities (the "Shares") of the corporation (the "Company") at the initial exercise price per Share (the "Warrant Price") all as set forth above and as adjusted pursuant to Article 2 of this Warrant, subject to the provisions and upon the terms and conditions set forth in this Warrant. ARTICLE 1. EXERCISE -------- 1.1 Method of Exercise. Holder may exercise this Warrant by delivering ------------------ this Warrant and a duly executed Notice of Exercise in substantially the form attached as Appendix 1 to the principal office of the Company. Unless Holder is exercising the conversion right set forth in Section 1.2, Holder shall also deliver to the Company a check for the aggregate Warrant Price for the Shares being purchased. 1.2 Conversion Right. In lieu of exercising this Warrant as specified in ---------------- Section 1.1, Holder may from time to time convert this Warrant, in whole or in part, into a number of Shares determined by dividing (a) the aggregate fair market value of the Shares or other securities otherwise issuable upon exercise of this Warrant minus the aggregate Warrant Price of such Shares by (b) the fair market value of one Share. The fair market value of the Shares shall be determined pursuant to Section 1.5. 1.3 Omitted. ------- 1.4 Omitted. ------- 1.5 Fair Market Value. If the Shares are traded regularly in a public ----------------- market, the fair market value of the Shares shall be the closing price of the Shares (or the closing price of the Company's stock into which the Shares are convertible) reported for the business day immediately before Holder delivers its Notice of Exercise to the Company. If the Shares are not regularly traded in a public market, the Board of Directors of the Company shall determine fair market value in its reasonable good faith judgment. The foregoing notwithstanding, if Holder advises the Board of Directors in writing that Holder disagrees with such determination, then the Company and Holder shall promptly agree upon a reputable investment banking firm to undertake such valuation. If the valuation of such investment banking firm is greater than that determined by the Board of Directors, then all fees and expenses of such investment banking firm shall be paid by the Company. In all other circumstances, such fees and expenses shall be paid by Holder. 1.6 Delivery of Certificate and New Warrant. Promptly after Holder --------------------------------------- exercises or converts this Warrant, the Company shall deliver to Holder certificates for the Shares acquired and, if this Warrant has not been fully exercised or converted and has not expired, a new Warrant representing the Shares not so acquired. 1.7 Replacement of Warrants. 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 amount to the Company or, in the case of mutilation, or 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. 1.8 Repurchase on Sale, Merger, or Consolidation of the Company. ----------------------------------------------------------- 1.8.1. "Acquisition". For the purpose of this Warrant, "Acquisition" ------------- means any sale, license, or other disposition of all or substantially all of the assets (including intellectual property) of the Company, or any reorganization, consolidation, or merger of the Company where the holders of the Company's securities before the transaction beneficially own less than 50% of the outstanding voting securities of the surviving entity after the transaction. 1.8.2. Assumption of Warrant. If upon the closing of any Acquisition --------------------- the successor entity assumes the obligations of this Warrant, then this Warrant shall be exercisable for the same securities, cash, and property as would be payable for the Shares issuable upon exercise of the unexercised portion of this Warrant as if such Shares were outstanding on the record date for the Acquisition and subsequent closing. The Warrant Price shall be adjusted accordingly. The Company shall use reasonable efforts to cause the surviving corporation to assume the obligations of this Warrant. 1.8.3. Nonassumption. If upon the closing of any Acquisition the ------------- successor entity does not assume the obligations of this Warrant and Holder has not otherwise exercised this Warrant in full, then the unexercised portion of this Warrant shall be deemed to have been automatically converted pursuant to Section 1.2 and thereafter Holder shall participate in the Acquisition on the same terms as other holders of the same class of securities of the Company. 1.9 Adjustment in Underlying Stock Price and Exercise Price. If on or ------------------------------------------------------- before July 31, 1999, the Company sells and issues to any investors, preferred stock with aggregate gross proceeds to the Company of at least $8,000,000, this Warrant shall concurrent with the issuance of such shares of preferred stock automatically be adjusted to instead be exercisable for shares of the same series and class and bearing the same rights, preferences, and privileges, of such shares of stock, with the Warrant Price hereunder adjusted to equal the per share purchase price of such stock, and the number of such shares subject to this Warrant adjusted to equal (i) Fifty Thousand Dollars ($50,000), divided by (ii) such modified per share Warrant Price. ARTICLE 2. ADJUSTMENTS TO THE SHARES. ------------------------- 2.1 Stock Dividends, Splits, Etc. If the Company declares or pays a ---------------------------- dividend on its common stock payable in common stock, or other securities or subdivides the outstanding common stock into a greater amount of common stock, then upon exercise of this Warrant, for each Share acquired, Holder shall receive, without cost to Holder, the total number and kind of securities to which Holder would have been entitled had Holder owned the Shares of record as of the date the dividend or subdivision occurred. 2.2 Reclassification, Exchange or Substitution. Upon any reclassification, ------------------------------------------ exchange, substitution, or other event that results in a change of the number and/or class of the securities issuable upon exercise or conversion of this Warrant, Holder shall be entitled to receive, upon exercise or conversion of this Warrant, the number and kind of securities and property that Holder would have received for the Shares if this Warrant had been exercised immediately before such reclassification, exchange, substitution, or other event. Such an event shall include any automatic conversion of the outstanding or issuable securities of the Company of the same class or series as the Shares to common stock purser to the terms of the Company's Articles of Incorporation upon the closing of a registered public offering of the Company's common stock. The Company or its successor shall promptly issue to Holder a new Warrant for such new securities or other property. The new Warrant shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article 2 including, without limitation, adjustments to the Warrant Price and to the number of securities or property issuable upon exercise of the new Warrant. The provisions of this Section 2.2 shall similarly apply to successive reclassifications, exchanges, substitutions, or other events. 2.3 Adjustments for Combinations, Etc. If the outstanding Shares are --------------------------------- combined or consolidated, by reclassification or otherwise, into a lesser number of shares, the Warrant Price shall be proportionately increased and the number of shares purchasable upon exorcise of this warrant shall be proportionately decreased. 2.4 Adjustments for Diluting Issuances. The Warrant Price and the number ---------------------------------- of Shares issuable upon exercise of this Warrant shall be subject to adjustment, from time to time, in the manner set forth on Exhibit B, in the event (i) the Warrant is adjusted to be exercisable for preferred stock as specified in Section 1.9 above in combination with (ii) the occurrence of Diluting Issuances (as defined on Exhibit B). 2.5 No Impairment. The Company shall not, by amendment of its Articles of ------------- Incorporation or through a reorganization, transfer of assets, consolidation, merger, dissolution, issue, or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed under this Warrant by the Company, but shall at all times in good faith assist in carrying out all the provisions of this Article 2 and in taking all such action as may be necessary or appropriate to protect Holder's rights under this Article against impairment. If the Company takes any action affecting the Shares or its common stock other than as described above that adversely affects Holder's rights under this Warrant, the Warrant Price shall be adjusted downward and the number of Shares issuable upon exercise of this Warrant shall be adjusted upward in such a manner that the aggregate Warrant Price of this Warrant is unchanged. 2.6 Certificate as to Adjustments. Upon each adjustment of the Warrant ----------------------------- Price, the Company at its expense shall promptly compute such adjustment, and furnish Holder with a certificate of its Chief Financial Officer setting forth such adjustment and the facts upon which such adjustment is based. The Company shall, upon written request, furnish Holder a certificate setting forth the Warrant Price in effect upon the date thereof and the series of adjustments leading to such Warrant Price. ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY. -------------------------------------------- 3.1 Representations and Warranties. The Company hereby represents and ------------------------------ warrants to the Holder as follows: (a) All Shares which may be issued upon the exercise of the purchase right represented by this Warrant, and all securities, if any, issuable upon conversion of the Shares, shall, upon issuance, be duly authorized, validly issued, fully paid and nonassessable, and free of arty liens and encumbrances except for restrictions on transfer provided for herein or under applicable federal and state securities laws or created by the Holder. 3.2 Notice of Certain Events. If the Company proposes at any time (a) to ------------------------ declare any dividend or distribution upon its common stock, whether in cash, property, stock, or other securities and whether or not a regular cash dividend; (b) to offer for subscription pro rata to the holders of any class or series of its stock any additional shares of stock of any class or series or other rights; (c) to effect any reclassification or recapitalization of common stock; (d) to merge or consolidate with or into any other corporation, or sell, lease, license, or convey all or substantially all of its assets, or to liquidate, dissolve or wind up; or (e) offer holders of registration rights the opportunity to participate in an underwritten public offering of the company's securities for cash, then, in connection with each such event, the Company shall give Holder (1) at least 20 days prior written notice of the date on which a, record will be taken for such dividend, distribution, or subscription rights (and specifying the date on which the holders of common stock will be entitled thereto) or for determining rights to vote, if any, in respect of the matters referred to in (c) and (d) above; (2) in the case of the matters referred to in (c) and (d) above at least 20 days prior written notice of the date when the same will take place (and specifying the date on which the holders of common stock will be entitled to exchange their common stock for securities or other property deliverable upon the occurrence of such event); and (3) in the case of the matter referred to in (e) above, the same notice as is given to the holders of such registration rights. 3.3 Information Rights. So long as the Holder holds this Warrant and/or ------------------ any of the Shares, the Company shall deliver to the Holder (a) promptly after mailing, copies of all communiques to the, shareholders of the Company, (b) within one hundred twenty (120) days after the end of each fiscal year of the Company, the annual audited financial statements of the Company certified by independent public accountants of recognized standing and (c) within forty-five (45) days after the end of each of the first three quarters of each fiscal year, the Company's quarterly, unaudited financial statements. 3.4 Registration Under Securities Act of 1933, as amended. The Company ----------------------------------------------------- agrees that the Shares shall be subject to the registration rights set forth on Exhibit C. ARTICLE 4. MISCELLANEOUS. ------------- 4.1 Term. This Warrant is exercisable, in whole or in part, at any time ---- and from time to time on or before the Expiration Date set forth above. 4.2 Legends. This Warrant and the Shares (and the securities issuable, ------- directly or indirectly, upon conversion of the Shares, if any) shall be imprinted with a legend in substantially the following form: THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE, TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED. 4.3 Compliance with Securities Laws on Transfer. This Warrant and the ------------------------------------------- Shares issuable upon exercise this Warrant (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) may not be transferred or assigned in whole or in part without compliance with applicable federal and state securities laws by the transferor and the transferee (including, without limitation, the delivery of investment representation letters and legal opinions reasonably satisfactory to the Company). The Company shall not require Holder to provide an opinion of counsel if the transfer is to an affiliate of Holder or if there is no material question as to the availability of current information as referenced in Rule 144(e), Holder represents that it has complied with Rule 144(d) and (e) in reasonable detail, the selling broker represents that it has complied with Rule 144(f), and the Company is provided with a copy of Holder's notice of proposed sale. 4.4 Transfer Procedure. Subject to the provisions of Section 4.3, Holder ------------------ may transfer all or part of this Warrant or the Shares issuable upon exercise of this Warrant (or the securities issuable, directly or indirectly, upon conversion of the Shares, if any) by giving the Company notice of the portion of the Warrant being transferred setting forth the name, address and taxpayer identification number of the transferee and surrendering this Warrant to the Company for reissuance to the transferee(s) (and Holder, if applicable). Unless the Company is filing financial, information with the SEC pursuant to the Securities Exchange Act of 1934. the Company shall have the right to refuse to transfer any portion of this Warrant to any person who directly competes with the Company. 4.5 Notices. All notices and other communications from the Company to the ------- Holder, or vice versa, shall be deemed delivered and effective when given personally or mailed by first-class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company or the Holder, as the case may be, in writing by the Company or such Holder from time to time. 4.6 Waiver. This Warrant and any term hereof may be changed, waived, ------ discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. 4.7 Attorneys' Fees. In the event of any dispute between the parties --------------- concerning the terms and provisions of this Warrant, the party prevailing in such dispute shall be entitled to collect from the other party all costs incurred in such dispute, including reasonable attorneys' fees. 4.8 Governing Law. This Warrant shall be governed by and construed in ------------- accordance with the laws of the State of California, without giving effect to its principles regarding conflicts of law. Replay Networks, Inc. By: /s/ Anthony Wood By: /s/ Illegible ----------------------------------- --------------------------------- Name: Anthony Wood Name: --------------------------------- ------------------------------- Title: CEO Title: -------------------------------- ------------------------------ APPENDIX I NOTICE OF EXERCISE ------------------ 1. The undersigned hereby elects to purchase _________ shares of the ________Stock of Replay Networks, Inc. pursuant to the terms of the attached Warrant. and tenders herewith payment of the purchase price of such shares in full. 1. The undersigned hereby elects to convert the attached Warrant into Shares in the manner specified in the Warrant. This conversion is exercised with respect to ________ of the Shares covered by the Warrant. [Strike paragraph that does not apply.] 2. Please issue a certificate or certificates representing said shares in the name of the undersigned or in such other name as is specified below: Chief Financial Officer Controllers Department Imperial Bancorp P.O. Box 92991 Los Angeles, CA 90009 Or Registered Assignee 3. The undersigned represents it is acquiring the shares solely for its own account and not as a nominee for any other party and not with a view toward the resale or distribution thereof except in compliance with applicable securities laws. IMPERIAL BANCORP or Registered Assignee __________________________________ (Signature) ________________ (Date) EXHIBIT A --------- Omitted ------- EXHIBIT B --------- Anti-Dilution Provisions In the event of the issuance (a "Diluting Issuance") by the Company, after the Issue Date of the Warrant, of securities at a price per share less than the Warrant Price, then the number of shares of common stock issuable upon conversion of the Shares shall be adjusted in accordance with those provisions (the "Provisions") of the Company's Articles (Certificate) of Incorporation which apply to Diluting Issuances. Under no circumstances shall the aggregate Warrant Price payable by the Holder upon exercise of the Warrant increase as a result of any adjustment arising from a Diluting Issuance. EXHIBIT C --------- Registration Rights ------------------- The Shares shall be deemed "registrable securities" or otherwise entitled to "piggy back", registration rights in accordance with the terms of the following agreement (the "Agreement") between the Company and its investor(s): Replay Networks, Inc. Fourth Amended and Restated Investors Rights Agreement The Company agrees that no amendments will be made to the Agreement which would have an adverse impact on Holder's registration rights thereunder without the consent of Holder. By acceptance of the Warrant to which this Exhibit C is attached, Holder shall not be deemed to be a party to the Agreement, but solely entitled to the registration rights created thereby. If no amended Agreement is entered into, then the Replay Networks, Inc. Third Amended and Restated Investors Rights Agreement dated March 24, 1999 shall be the applicable document for this provision. EX-10.1 7 6TH AM. & RESTATED INVESTORS' RIGHTS AGREEMENT EXHIBIT 10.1 REPLAYTV, INC. SIXTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT January 25, 2000 REPLAYTV, INC. SIXTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT ------------------------------------------------------ This Sixth Amended and Restated Investors' Rights Agreement (the "Agreement") is entered into as of the 25th day of January, 2000, by and among --------- ReplayTV, Inc., a California corporation (the "Company"), persons holding at ------- least a majority of the Registrable Securities under the Fifth Amended and Restated Investors' Rights Agreement dated November 29, 1999 (the "Existing -------- Rights Agreement") (as "Registrable Securities" is defined under the Existing - ---------------- ---------------------- Rights Agreement) (the "Prior Holders") and the Purchasers under the Series F ------------- Preferred Stock Purchase Agreement (the "Series F Agreement") of even date ------------------ herewith (the "Series F Purchasers" and collectively with the Prior Holders, the ------------------- "Investors"). --------- RECITALS WHEREAS, the Company wishes to raise additional capital by issuing Series F Preferred Stock with the rights, privileges and preferences set forth in the Sixth Amended and Restated Articles of Incorporation attached to the Series F Agreement. WHEREAS, pursuant to Section 3.7 of the Existing Rights Agreement, the Existing Rights Agreement may be amended by written consent of the holders of a majority of the outstanding shares of the Registrable Securities and the Company; and WHEREAS, a condition to the Series F Purchasers' obligations under the Series F Agreement is that the Company and the Investors enter into this Agreement in order to provide the Series F Purchasers with (i) certain rights to register shares of the Company's Common Stock issuable upon conversion of the Series F Preferred Stock purchased by the Series F Purchasers, (ii) certain rights to receive or inspect information pertaining to the Company, and (iii) a right of first offer with respect to certain issuances by the Company of its securities. The Company and the Investors each desire to induce the Series F Purchasers to purchase shares of Series F Preferred Stock pursuant to the Series F Agreement by agreeing to the terms and conditions set forth herein. NOW, THEREFORE, the parties hereby agree that the Existing Rights Agreement is amended and restated in its entirety as follows: AGREEMENT --------- 1. Registration Rights. The Company and the Investors covenant and agree ------------------- as follows: 1.1 Definitions. For purposes of this Section 1: ----------- (a) The terms "register," "registered," and "registration" -------- ---------- ------------ refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Securities Act of 1933, as amended (the "Act"), and the --- declaration or ordering of effectiveness of such registration statement or document; (b) The term "Registrable Securities" means (i) the shares ---------------------- of Common Stock issuable or issued upon conversion of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock (including any such shares of Series E Preferred Stock that may be issued upon exercise of outstanding warrants to purchase Series E Preferred Stock held by Imperial Barcorp (the "Warrant Stock")) and ------------- Series F Preferred Stock (such shares of Common Stock are collectively referred to hereinafter as the "Stock"); provided, however, that, for the purposes of ----- -------- ------- Sections 1.2, 1.4 or 1.13 hereof, the Warrant Stock (and the Common Stock issuable upon conversion thereof) shall not be deemed Registrable Securities or Stock and a holder of Warrant Stock shall not be deemed a Holder, and (ii) any other shares of Common Stock of the Company issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, the Stock; provided, however, that the foregoing definition -------- ------- shall exclude in all cases any Registrable Securities sold by a person in a transaction in which his or her rights under this Agreement are not assigned. Notwithstanding the foregoing, Common Stock or other securities shall only be treated as Registrable Securities if and so long as they have not been (A) sold to or through a broker or dealer or underwriter in a public distribution or a public securities transaction, or (B) sold in a transaction exempt from the registration and prospectus delivery requirements of the Act under Section 4(1) thereof so that all transfer restrictions, and restrictive legends with respect thereto, if any, are removed upon the consummation of such sale; (c) The number of shares of "Registrable Securities then --------------------------- outstanding" shall be determined by the number of shares of Common Stock - ----------- outstanding which are, and the number of shares of Common Stock issuable pursuant to then exercisable or convertible securities which are, Registrable Securities; (d) The term "Holder" means any person owning or having the ------ right to acquire Registrable Securities or any assignee thereof in accordance with Section 1.12 hereof; (e) The term "Form S-3" means such form under the Act as in -------- effect on the date hereof or any successor form under the Act; and (f) The term "SEC" means the Securities and Exchange --- Commission. 1.2 Request for Registration. ------------------------ (a) If the Company shall receive at any time after the earlier of (i) February 1, 2003, or (ii) six (6) months after the effective date of the first registration statement for a public offering of securities of the Company (other than a registration statement relating either to the sale of securities to employees of the Company pursuant to a stock option, stock purchase or similar plan or an SEC Rule 145 transaction pursuant to which the Company's -2- securities are not listed on a national exchange or an over-the-counter market), a written request from Holders of not less than 35% of the Registrable Securities then outstanding that the Company file a registration statement under the Act covering the registration of Registrable Securities with an anticipated aggregate offering price, net of underwriting discounts and commissions, of not less than $5,000,000, then the Company shall, within ten (10) days of the receipt thereof, give written notice of such request to all Holders and shall, subject to the limitations of subsection 1.2(b), use its best efforts to effect as soon as practicable, and in any event within sixty (60) days of the receipt of such request, the registration under the Act of all Registrable Securities which the Holders request to be registered within twenty (20) days of the mailing of such notice by the Company in accordance with Section 3.5. (b) If the Holders initiating the registration request hereunder ("Initiating Holders") intend to distribute the Registrable Securities ------------------ covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to this Section 1.2 and the Company shall include such information in the written notice referred to in subsection 1.2(a). The underwriter will be selected by a majority in interest of the Initiating Holders and shall be reasonably acceptable to the Company. In such event, the right of any Holder to include his or her Registrable Securities in such registration shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder) to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company as provided in subsection 1.5(e)) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by a majority in interest of the Initiating Holders. Notwithstanding any other provision of this Section 1.2, if the underwriter advises the Initiating Holders in writing that marketing factors require a limitation of the number of shares to be underwritten, then the Initiating Holders shall so advise all Holders of Registrable Securities which would otherwise be underwritten pursuant hereto, and the number of shares of Registrable Securities that may be included in the underwriting shall be allocated among all Holders thereof, including the Initiating Holders, in proportion (as nearly as practicable) to the amount of Registrable Securities requested for inclusion in the registration by each Holder; provided, however, -------- ------- that the number of shares of Registrable Securities to be included in such underwriting shall not be reduced unless all other securities are first entirely excluded from the underwriting. In the event that the underwriter informs the Initiating Holders that marketing factors require a reduction in the number of shares to be underwritten of greater than 50% of the aggregate number of shares requested for inclusion by the Initiating Holders, then a majority in interest of the Initiating Holders may notify the Company and the underwriters in writing that they elect to withdraw their request for registration, provided that such notice -------- is given no later than 10 business days following the underwriter's written notice of the reduction in the number of shares to be registered. In the event of such withdrawal, the request for registration shall not be considered as a request for registration for purposes of Sections 1.2(d) and 1.7(a). -3- (c) Notwithstanding the foregoing, if the Company shall furnish to Holders requesting a registration statement pursuant to this Section 1.2, a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its shareholders for such registration statement to be filed and it is therefore essential to defer the filing of such registration statement, the Company shall have the right to defer such filing for a period of not more than 90 days after receipt of the request of the Initiating Holders; provided, however, that the Company may not utilize this -------- ------- right more than once in any twelve-month period. (d) In addition, the Company shall not be obligated to effect, or to take any action to effect, any registration pursuant to this Section 1.2: (i) After the Company has effected two (2) registrations pursuant to this Section 1.2 and such registrations have been declared or ordered effective; (ii) During the period starting with the date thirty (30) days prior to the Company's good faith estimate of the date of filing of, and ending on a date one hundred eighty (180) days after the effective date of, a registration subject to Section 1.3 hereof; provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective; or (iii) If the Initiating Holders propose to dispose of shares of Registrable Securities, all of which may be immediately registered on Form S-3 pursuant to a request made pursuant to Section 1.4 below. 1.3 Company Registration. If (but without any obligation to do -------------------- so) the Company proposes to register (including for this purpose a registration effected by the Company for shareholders other than the Holders) any of its stock under the Act in connection with the public offering of such securities solely for cash (other than a registration relating solely to the sale of securities to participants in a Company stock plan or a transaction covered by Rule 145 under the Act, a registration in which the only stock being registered is Common Stock issuable upon conversion of debt securities which are also being registered, or any registration on any form which does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities), the Company shall, at such time, promptly give each Holder written notice of such registration. Upon the written request of each Holder given within twenty (20) days after mailing of such notice by the Company in accordance with Section 3.5, the Company shall, subject to the provisions of Section 1.8, cause to be registered under the Act all of the Registrable Securities that each such Holder has requested to be registered. If shares are withdrawn from the registration, the Company shall then offer to all persons who have retained the right to include securities in the registration the right to include additional securities in the registration in an aggregate amount equal to the number of shares so withdrawn, with such shares to be allocated among the persons requesting additional inclusion in accordance with Section 1.8 hereof. -4- 1.4 Form S-3 Registration. In case the Company shall receive --------------------- from any Holder or Holders of not less than 20% of the Registrable Securities then outstanding a written request or requests that the Company effect a registration on Form S-3 and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Holder or Holders, the Company will: (a) promptly give written notice of the proposed registration, and any related qualification or compliance, to all other Holders; and (b) as soon as practicable, effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holder's or Holders' Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within 15 days after receipt of such written notice from the Company; provided, however, that the Company shall not be obligated to effect any such registration, qualification or compliance, pursuant to this Section 1.4: (1) if Form S-3 is not available for such offering by the Holders; (2) if the Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) at an aggregate price to the public of less than $500,000; (3) if the Company shall furnish to the Holders a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its shareholders for such Form S-3 Registration to be effected at such time, in which event the Company shall have the right to defer the filing of the Form S-3 registration statement for a period of not more than ninety (90) days after receipt of the request of the Holder or Holders under this Section 1.4; provided, however, that the Company shall not utilize this right more than once in any twelve month period; (4) if the Company has, within the twelve (12) month period preceding the date of such request, already effected two (2) registrations on Form S-3 for the Holders pursuant to this Section 1.4; or (5) in any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance. (c) Subject to the foregoing, the Company shall file a registration statement covering the Registrable Securities and other securities so requested to be registered as soon as practicable after receipt of the request or requests of the Holders but not more than sixty (60) days after the receipt of such request. Registrations effected pursuant to this Section 1.4 shall not be counted as demands for registration or registrations effected pursuant to Sections 1.2 or 1.3, respectively. 1.5 Obligations of the Company. Whenever required under this -------------------------- Section 1 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible: (a) Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement -5- to become effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for up to one hundred twenty (120) days, provided, however, that (1) such 120-day period shall be extended for a period of time equal to the period the Holder refrains from selling any securities included in such registration at the request of the underwriter or the Company; (2) such 120-day period shall be extended to the extent reasonably necessary to respond to or incorporate comments provided by counsel to the Holders, as set forth below, and (3) in the case of any registration of Registrable Securities on Form S-3 which are intended to be offered on a continuous or delayed basis, such 120-day period shall be extended, if necessary, to keep the registration statement effective until all such Registrable Securities are sold, provided that Rule 415, or any successor rule under the Securities Act, permits an offering on a continuous or delayed basis. Prior to filing such registration statement or any amendment thereto, if requested in writing by the Holders, the Company shall also deliver copies of the registration statement to one special counsel designated by the Holders and permit a reasonable opportunity for such counsel to provide comments prior to filing. (b) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Act with respect to the disposition of all securities covered by such registration statement. (c) Furnish to the Holders such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them. The Company shall also make available to the Holders copies of the registration statement and any amendments thereto. (d) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. (e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement. (f) Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. -6- (g) Cause all such Registrable Securities registered pursuant hereto to be listed on each securities exchange on which similar securities issued by the Company are then listed. (h) Provide a transfer agent and registrar for all Registrable Securities registered pursuant hereto and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration. (i) Use its best efforts to furnish, at the request of any Holder requesting registration of Registrable Securities pursuant to this Section 1, on the date that such Registrable Securities are delivered to the underwriters for sale in connection with a registration pursuant to this Section 1, if such securities are being sold through underwriters, or, if such securities are not being sold through underwriters, on the date that the registration statement with respect to such securities becomes effective, (i) an opinion, dated such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities and (ii) a letter dated such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering. 1.6 Furnish Information. It shall be a condition precedent to ------------------- the obligations of the Company to take any action pursuant to this Section 1 with respect to the Registrable Securities of any selling Holder that such Holder shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as shall be required to effect the registration of such Holder's Registrable Securities. The Company shall have no obligation with respect to any registration requested pursuant to Section 1.2 or Section 1.4 of this Agreement if, as a result of any Holder or Holders failing to provide the information set forth in the preceding sentence, the number of shares or the anticipated aggregate offering price of the Registrable Securities to be included in the registration does not equal or exceed the number of shares or the anticipated aggregate offering price required to originally trigger the Company's obligation to initiate such registration as specified in subsection 1.2(a) or subsection 1.4(b)(2), whichever is applicable. 1.7 Expenses of Registration. ------------------------ (a) Demand Registration. All expenses other than stock ------------------- transfer taxes and underwriting discounts and commissions incurred in connection with registrations, filings or qualifications pursuant to Section 1.2, including (without limitation) all registration, filing and qualification fees, printers' and accounting fees, fees and disbursements of counsel for the Company, and the reasonable fees and disbursements of one (1) counsel for the selling Holders selected by them with the approval of the Company, which approval shall not be unreasonably withheld, shall be borne by the Company; provided, however, that the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 1.2 if the registration request is subsequently withdrawn at the request of the Holders of a -7- majority of the Registrable Securities to be registered (in which case all withdrawing Holders shall bear such expenses), unless (i) the Holders of a majority of the Registrable Securities agree to forfeit their right to one (1) demand registration pursuant to Section 1.2 (ii) the withdrawal is due to the occurrence of a material adverse effect regarding the Company or its business which was not known by the Initiating Holders prior to their request for registration, (iii) the withdrawal is due to the Company exercising its right to defer the registration pursuant to Section 1.2(c), Section 1.2(d)(ii) or Section 1.4(b)(3), or (iv) the Initiating Holders withdraw the registration following a limitation by the underwriter in the number of shares to be underwritten pursuant to Section 1.2(b). (b) Company Registration. The Company shall bear and pay -------------------- all expenses incurred in connection with any registration, filing or qualification of Registrable Securities with respect to the registrations pursuant to Section 1.3 for each Holder (which right may be assigned as provided in Section 1.12), including (without limitation) all registration, filing and qualification fees, printers' and accounting fees relating or apportionable thereto and the reasonable fees and disbursements of one (1) counsel for the selling Holders selected by them with the approval of the Company, which approval shall not be unreasonably withheld, but excluding stock transfer taxes and underwriting discounts and commissions relating to Registrable Securities. (c) Registration on Form S-3. All expenses incurred in ------------------------ connection with a registration requested pursuant to Section 1.4, including (without limitation) all registration, filing, qualification, printers' and accounting fees and the reasonable fees and disbursements of one counsel for the selling Holder or Holders selected by them with the approval of the Company, which approval shall not be unreasonably withheld, and counsel for the Company, and any underwriters' discounts or commissions associated with Registrable Securities, shall be borne, for the first two registrations pursuant to Section 1.4, by the Company, and for any registrations pursuant to Section 1.4 thereafter, pro rata by the Holder or Holders participating in the Form S-3 Registration. 1.8 Underwriting Requirements. In connection with any offering ------------------------- involving an underwriting of shares of the Company's capital stock, the Company shall not be required under Section 1.3 to include any of the Holders' securities in such underwriting unless they accept the terms of the underwriting as agreed upon between the Company and the underwriters selected by it (or by other persons entitled to select the underwriters), and then only in such quantity as the underwriters determine in their sole discretion will not jeopardize the success of the offering by the Company. If the total amount of securities, including Registrable Securities and shares of Common Stock of the Company with registration rights (if any), requested by shareholders to be included in such offering exceeds the amount of securities sold other than by the Company that the underwriters determine in their sole discretion is compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Registrable Securities, which the underwriters determine in their sole discretion will not jeopardize the success of the offering (the securities so included to be apportioned pro rata among the selling shareholders according to the total amount of securities entitled to be included therein owned by each selling shareholder or in such other -8- proportions as shall mutually be agreed to by such selling shareholders) but in no event shall (i) the amount of securities of the selling Holders included in the offering be reduced below twenty-five percent (25%) of the total amount of securities included in such offering, unless such offering is the initial public offering of the Company's securities in which case the selling shareholders may be excluded if the underwriters make the determination described above and no other shareholder's securities are included or (ii) notwithstanding (i) above, any shares being sold by a shareholder exercising a demand registration right similar to that granted in Section 1.2 be excluded from such offering. For purposes of the preceding provision concerning apportionment, for any selling shareholder which is a holder of Registrable Securities and which is a partnership or corporation, the partners, retired partners and shareholders of such holder, or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing persons shall be deemed to be a single "selling shareholder," and any pro-rata reduction with ------------------- respect to such "selling shareholder" shall be based upon the aggregate amount of shares carrying registration rights owned by all entities and individuals included in such "selling shareholder," as defined in this sentence. With further regard to allocation, if any Holder or other selling shareholder does not request inclusion of the maximum number of shares of Registrable Securities and other shares of Common Stock with registration rights allocated to him pursuant to the above-described procedure, the remaining portion of his allocation shall be reallocated among those requesting Holders and other selling shareholders whose allocation did not satisfy their requests pro rata on the basis of the number of shares of Registrable Securities and other shares of Common Stock with registration rights which would be held by such Holders and other selling shareholders, assuming conversion, and this procedure shall be repeated until all of the shares of Registrable Securities and other shares of Common Stock with registration rights which may be included in the registration on behalf of the Holders and other selling shareholders have been so allocated. 1.9 Delay of Registration. No Holder shall have any right to --------------------- obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 1. 1.10 Indemnification. In the event any Registrable Securities are --------------- included in a registration statement under this Section 1: (a) To the extent permitted by law, the Company will indemnify and hold harmless each Holder, each of such Holder's officers, directors, partners and agents, any underwriter (as defined in the Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Act or the Securities Exchange Act of 1934, as amended (the "Exchange Act"), against any losses, claims, damages or liabilities (joint or ------------ several) to which they may become subject under the Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a "Violation"): (i) any untrue statement or alleged untrue statement of a material --------- fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or -9- alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Act, the Exchange Act, any state securities law or any rule or regulation promulgated under the Act, the Exchange Act or any state securities law; and the Company will pay to each such Holder, underwriter or controlling person, as incurred, any legal or other expenses reasonably incurred by them in connection with investigating, defending and settling any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this subsection 1.10(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by any such Holder, underwriter or controlling person. (b) To the extent permitted by law, each selling Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, its agents, each person, if any, who controls the Company within the meaning of the Act, any underwriter, any other Holder selling securities in such registration statement and any controlling person of any such underwriter or other Holder, against any losses, claims, damages or liabilities (joint or several) to which any of the foregoing persons may become subject, under the Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with such registration; and each such Holder will pay, as incurred, any legal or other expenses reasonably incurred by any person intended to be indemnified pursuant to this subsection 1.10(b) in connection with investigating, defending and settling any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this subsection 1.10(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; provided, that, in no event shall any indemnity under this subsection 1.10(b) exceed the net proceeds from the offering received by such Holder, except in the case of willful fraud by such Holder. (c) Promptly after receipt by an indemnified party under this Section 1.10 of notice of the commencement of any action (including any governmental action) or the receipt of actual knowledge of any claim as to which indemnity may be sought, such indemnified party will, if a claim for indemnification in respect thereof is to be made against any indemnifying party under this Section 1.10, deliver to the indemnifying party a written notice of the commencement thereof, and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party (together with all other indemnified parties which may be represented without conflict by one counsel) shall have the right to retain one separate -10- counsel, with the reasonable fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 1.10, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 1.10. (d) If the indemnification provided for in this Section 1.10 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage or expense referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage or expense as well as any other relevant equitable considerations; provided, that, in no event shall any contribution by a Holder under this subsection 1.10(d) exceed the net proceeds from the offering received by such Holder, except in the case of willful fraud by such Holder. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. (e) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control. (f) The obligations of the Company and Holders under this Section 1.10 shall survive the completion of any offering of Registrable Securities in a registration statement under this Section 1, and otherwise. 1.11 Reports Under Securities Exchange Act of 1934. With a view --------------------------------------------- to making available to the Holders the benefits of Rule 144 promulgated under the Act and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3, the Company agrees to: (a) make and keep public information available, as those terms are understood and defined in SEC Rule 144, at all times following the effective date of the first -11- registration statement under the Act filed by the Company for the offering of its securities to the general public; (b) take such action, including the voluntary registration of its Common Stock under Section 12 of the Exchange Act, as is necessary to enable the Holders to utilize Form S-3 for the sale of their Registrable Securities, such action to be taken as soon as practicable after the end of the fiscal year in which the first registration statement filed by the Company for the offering of its securities to the general public is declared effective; (c) file with the SEC in a timely manner all reports and other documents required of the Company under the Act and the Exchange Act; and (d) furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (i) a written statement by the Company that it has complied with the reporting requirements of SEC Rule 144 (at any time following the effective date of the first registration statement filed by the Company), the Act and the Exchange Act (at any time after it has become subject to such reporting requirements), or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC which permits the selling of any such securities without registration or pursuant to such form. 1.12 Assignment of Registration Rights. The rights to cause the --------------------------------- Company to register Registrable Securities pursuant to this Section 1 may be assigned (but only with all related obligations) by a Holder to (i) any partner or retired partner of any Holder that is a partnership, (ii) any member or former member of any Holder that is a limited liability company, (iii) any family member or trust or other entity primarily for the benefit of any individual Holder (iv) any transferee or assignee that controls, is controlled by or is under common control with any Holder that is a corporation or a limited liability company (with "control" defined for the purposes of this Section 1.12 as beneficial ownership of voting securities that constitute at least 50% of the voting power of the entity), or (v) a transferee or assignee of at least 100,000 shares (as appropriately adjusted for stock splits, stock dividends, combinations and the like) of such securities, provided the Company is, within a reasonable time after such transfer, furnished with written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned; and provided, further, that such assignment shall be effective only if immediately following such transfer the further disposition of such securities by the transferee or assignee is restricted under the Act. The provisions of Section 3.9 of this Agreement shall govern for the purposes of determining the number of shares of Registrable Securities held by a transferee or assignee; provided that all assignees and transferees who would not qualify individually for assignment of registration rights shall have a single attorney-in-fact for the purpose of exercising any rights, receiving notices or taking any action under Section 1. -12- 1.13 Limitations on Subsequent Registration Rights. From and --------------------------------------------- after the date of this Agreement, the Company shall not, without the prior written consent of the Holders of a majority of the outstanding Registrable Securities, enter into any agreement with any holder or prospective holder of any securities of the Company which would allow such holder or prospective holder (a) to include such securities in any registration filed under Section 1.2 hereof, unless under the terms of such agreement, such holder or prospective holder may include such securities in any such registration only to the extent that the inclusion of his or her securities will not reduce the amount of the Registrable Securities of the Holders which is included or (b) to make a demand registration which could result in such registration statement being declared effective prior to the earlier of either of the dates set forth in subsection 1.2(a) or within one hundred twenty (120) days of the effective date of any registration effected pursuant to Section 1.2. 1.14 "Market Stand-Off" Agreement. Each Holder hereby agrees ---------------------------- that, during the period of duration (up to, but not exceeding, 180 days) specified by the Company and an underwriter of Common Stock or other securities of the Company, following the effective date of a registration statement of the Company filed under the Act, it shall not, to the extent requested by the Company and such underwriter, directly or indirectly sell, offer to sell, contract to sell (including, without limitation, any short sale), grant any option to purchase or otherwise transfer or dispose of (other than to donees who agree to be similarly bound) any securities of the Company held by it at any time during such period except Common Stock included in such registration; provided, however, that: (a) such agreement shall be applicable only to the first such registration statement of the Company which covers Common Stock (or other securities) to be sold on its behalf to the public in an underwritten offering; (b) all officers and directors of the Company and all one- percent (1%) securityholders are bound by and have entered into similar agreements; and (c) to the extent that the Company and the underwriter of the Company's Common Stock or other securities of the Company releases any Registrable Securities from the obligations of this Section 1.14, such release shall apply on a pro-rata basis such that each Holder is entitled to release from the restrictions imposed by this Section 1.14 that number of Registrable Securities obtained by multiplying (i) the proportion of Registrable Securities held by such Holder to the total number of Registrable Securities then outstanding by (ii) the aggregate number of Registrable Securities released. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to the Registrable Securities of each Holder (and the shares or securities of every other person subject to the foregoing restriction) until the end of such period, and each Holder agrees that, if so requested, such Holder will execute an agreement in the form provided by the underwriter containing terms which are essentially consistent with the provisions of this Section 1.14. -13- Notwithstanding the foregoing, the obligations described in this Section 1.14 shall not apply to a registration relating solely to employee benefit plans on Form S-1 or Form S-8 or similar forms which may be promulgated in the future, or a registration relating solely to an SEC Rule 145 transaction on Form S-4 or similar forms which may be promulgated in the future. 1.15 Termination of Registration Rights. No Holder shall be ---------------------------------- entitled to exercise any right provided for in this Section 1 after the earlier of (i) five (5) years following the consummation of the sale of securities pursuant to a registration statement filed by the Company under the Act in connection with the initial firm commitment underwritten offering of its securities to the general public, or (ii) such time as Rule 144 or another similar exemption under the Act is available for the sale of all of such Holder's shares during a three (3)-month period without registration. 2. Covenants of the Company. ------------------------ 2.1 Delivery of Financial Statements. The Company shall deliver -------------------------------- to each Investor holding not less than 200,000 shares of Registrable Securities (as determined in accordance with Section 3.9 of this Agreement and as adjusted for recapitalizations, stock splits, stock dividends and the like): (a) as soon as practicable, but in any event within ninety (90) days after the end of each fiscal year of the Company, an income statement for such fiscal year, a balance sheet of the Company and statement of shareholder's equity as of the end of such year, and a statement of cash flows for such year, such year-end financial reports to be in reasonable detail, prepared in accordance with generally accepted accounting principles ("GAAP"), ---- and audited and certified by an independent public accounting firm of nationally recognized standing selected by the Company; (b) as soon as practicable, but in any event within forty- five (45) days after the end of each of the first three (3) quarters of each fiscal year of the Company, an unaudited profit or loss statement, a statement of cash flows for such fiscal quarter and an unaudited balance sheet as of the end of such fiscal quarter; and (c) with respect to the financial statements called for in subsection (b) of this Section 2.1, an instrument executed by the Chief Financial Officer or President of the Company and certifying that such financials were prepared in accordance with GAAP consistently applied with prior practice for earlier periods (with the exception of footnotes that may be required by GAAP) and fairly present the financial condition of the Company and its results of operations for the period specified, subject to year-end audit adjustment, provided that the foregoing shall not restrict the right of the Company to change its accounting principles consistent with GAAP, if the Board of Directors determines that it is in the best interest of the Company to do so. 2.2 Additional Information. As long as an Investor holds not ---------------------- less than 200,000 shares of Registrable Securities (as determined in accordance with Section 3.9 of -14- this Agreement), as adjusted for recapitalizations, stock splits, stock dividends and the like, upon request, the Company will deliver the following reports to such Investor: (a) as soon as practicable after the end of each fiscal month, and in any event within thirty (30) days thereafter, an unaudited consolidated balance sheet of the Company as at the end of such month, and unaudited consolidated statements of income and unaudited consolidated statements of cash flows for such month and for the current fiscal year to date. Such financial statements shall be prepared in accordance with generally accepted accounting principles consistently applied (other than accompanying notes), all in reasonable detail and shall include a comparison against plan; (b) as soon as practicable, but in any event prior to the end of each fiscal year, a budget for the next fiscal year, prepared on a monthly basis, including balance sheets, income statements and statements of cash flows for such months and, as soon as prepared, any other budgets or revised budgets prepared by the Company; (c) such other information relating to the financial condition, business, prospects or corporate affairs of the Company as the Investor or any assignee of the Investor may from time to time reasonably request (including, without limitation, making available copies of registration statements on Form S-1 filed by the Company), provided, however, that the Company shall not be obligated under this subsection (c) to provide information which it deems in good faith to be a trade secret or similar confidential information. 2.3 Inspection. The Company shall permit each Investor who ---------- holds not less than 200,000 shares of Registrable Securities (as determined in accordance with Section 3.9 of this Agreement and as adjusted for recapitalizations, stock splits, stock dividends and the like), at such Investor's expense, to visit and inspect the Company's properties, to examine its books of account and records and to discuss the Company's affairs, finances and accounts with its officers, all at such reasonable times as may be requested by the Investor; provided, however, that the Company shall not be obligated pursuant to this Section 2.3 to provide access to any information which it reasonably considers to be a trade secret or similar confidential information. 2.4 Termination of Information and Inspection Covenants. The --------------------------------------------------- covenants set forth in Sections 2.1, 2.2 and 2.3 shall terminate as to Investors and be of no further force or effect upon the earlier of (i) the consummation of the Company's sale of its Common Stock in an underwritten public offering pursuant to an effective registration statement filed under the Securities Act or (ii) the registration by the Company of a class of its equity securities under Section 12(b) or 12(g) of the Exchange Act. 2.5 Right of First Offer. Subject to the terms and conditions -------------------- specified in this Section 2.5, the Company hereby grants to each Major Investor (as hereinafter defined) a right of first offer with respect to future sales by the Company of its Shares (as hereinafter defined). For purposes of this Section 2.5, a "Major Investor" shall mean any person who holds at least 200,000 -------------- shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock or Series F Preferred Stock -15- (or the Common Stock issued upon conversion thereof) (as determined in accordance with Section 3.9 of this Agreement and as adjusted for recapitalizations, stock splits, stock dividends and the like). A Major Investor who chooses to exercise the right of first offer may designate as purchasers under such right itself or its partners or affiliates in such proportions as it deems appropriate. Each time the Company proposes to offer any shares of, or securities convertible into or exercisable for any shares of, any class of its capital stock ("Shares"), the Company shall first make an offering of such ------ Shares to each Major Investor in accordance with the following provisions: (a) The Company shall deliver a notice by confirmed fax or by overnight courier ("Notice") to the Major Investors stating (i) its bona fide ------ intention to offer such Shares, (ii) the number of such Shares to be offered, and (iii) the price and terms, if any, upon which it proposes to offer such Shares. (b) Within twenty (20) calendar days after delivery of the Notice, the Major Investor may elect to purchase or obtain, at the price and on the terms specified in the Notice, up to that portion of such Shares which equals the proportion that the number of shares of Common Stock issued and held, or issuable upon conversion and exercise of all convertible or exercisable securities then held, by such Major Investor bears to the total number of shares of Common Stock then outstanding (assuming full conversion and exercise of all convertible or exercisable securities). The Company shall promptly, in writing, inform each Major Investor that purchases all the shares available to it (each, a "Fully-Exercising Investor") of any other Major Investor's failure to do ------------------------- likewise. During the ten (10)-day period commencing after receipt of such information, each Fully-Exercising Investor shall be entitled to obtain that portion of the Shares for which Major Investors were entitled to subscribe but which were not subscribed for by the Major Investors that is equal to the proportion that the number of shares of Common Stock issued and held, or issuable upon conversion and exercise of all convertible or exercisable securities then held, by such Fully-Exercising Investor bears to the total number of shares of Common Stock then held by all Fully-Exercising Investors (assuming full conversion and exercise of all convertible or exercisable securities). (c) The Company may, during the 45-day period following the expiration of the period provided in subsection 2.5(b) hereof, offer the remaining unsubscribed portion of the Shares to any person or persons at a price not less than, and upon terms no more favorable to the offeree than those specified in the Notice. If the Company does not enter into an agreement for the sale of the Shares within such period, or if such agreement is not consummated within sixty (60) days of the execution thereof, the right provided hereunder shall be deemed to be revived and such Shares shall not be offered unless first reoffered to the Major Investors in accordance herewith. (d) The right of first offer in this paragraph 2.5 shall not be applicable (i) to the issuance or sale of securities (or options therefor) to employees, consultants or directors pursuant to plans or agreements approved by the Board of Directors for the primary -16- purpose of soliciting or retaining their services, (ii) to the issuance of up to 100,000 shares of Common Stock to vendors of the Company, (iii) to the issuance of securities in connection with strategic partnering arrangements approved by the Board of Directors (iv) to or after consummation of a bona fide, firmly underwritten public offering of shares of Common Stock registered under the Act pursuant to a registration statement, (v) to the issuance of securities pursuant to the conversion or exercise of convertible or exercisable securities previously subject to, or exempt from, this Section 2.5, (vi) to the issuance of securities in connection with a bona fide business acquisition of or by the Company, whether by merger, consolidation, sale of assets, sale or exchange of stock or otherwise, the terms of which are approved by the Board of Directors of the Company, (vii) to the issuance of securities to financial institutions or lessors in connection with commercial credit arrangements, equipment financings or similar transactions, the terms of which are approved by the Board of Directors of the Company, (viii) to the issuance or sale of the Series F Preferred Stock or Common Stock issued upon conversion of the Preferred Stock, (ix) to the issuance of securities that, with unanimous approval of the Board of Directors of the Company (including a director elected by the holders of Series D Preferred Stock), are not offered to any existing shareholder of the Company, or (x) to stock splits, stock dividends or like transactions. 2.6. Lock-Up Agreements. The Company covenants that it ------------------ will, subsequent to the Closing (as defined in the Series F Agreement), use its best efforts to have all officers and directors of the Company, and all one- percent (1%) securityholders, enter into lock-up agreements with Morgan Stanley & Co. Incorporated, substantially in the form attached to the Series F Agreement as Exhibit G. 3. Miscellaneous. ------------- 3.1 Successors and Assigns. Except as otherwise provided ---------------------- herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties (including transferees of any of the Preferred Stock or any Common Stock issued upon conversion thereof). Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 3.2 Governing Law. This Agreement and all acts and ------------- transactions pursuant hereto shall be governed, construed and interpreted in accordance with the laws of the State of California, without giving effect to principles of conflicts of laws. 3.3 Counterparts. This Agreement may be executed in two (2) ------------ or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 3.4 Titles and Subtitles. The titles and subtitles used in -------------------- this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. -17- 3.5 Notices. Unless otherwise provided, any notice required ------- or permitted by this Agreement shall be in writing and shall be deemed sufficient upon delivery, when delivered personally or by overnight courier or sent by telegram or confirmed fax, or (in the case of domestic recipients) five business days after being deposited in the U.S. mail, as certified or registered mail, with postage prepaid, and addressed to the party to be notified at such party's address as set forth below or on Exhibit A hereto or as subsequently --------- modified by written notice. 3.6 Expenses. If any action at law or in equity is -------- necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled. 3.7 Entire Agreement; Amendments and Waivers. This ---------------------------------------- Agreement (including the Exhibits hereto) constitutes the full and entire understanding and agreement between the parties with respect to the subjects hereof and thereof. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the holders of a majority of the Registrable Securities then outstanding. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any Registrable Securities then outstanding, each future holder of all such Registrable Securities and the Company, but in no event shall the obligations or rights of any Holder hereunder be materially increased or decreased, as applicable, in a manner different from all other Holders, except upon written consent of such Holder. 3.8 Severability. If one or more provisions of this ------------ Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (x) such provision shall be excluded from this Agreement, (y) the balance of the Agreement shall be interpreted as if such provision were so excluded and (z) the balance of the Agreement shall be enforceable in accordance with its terms. 3.9 Aggregation of Stock. For the purpose of determining -------------------- the availability of any rights under this Agreement, the number of shares of Preferred Stock or Registrable Securities held by (i) affiliated entities or persons, (ii) any partner or retired partner of any Holder or Investor that is a partnership, (iii) any member or former member of any Holder or Investor that is a limited liability company, or (iv) any family member or trust or other entity primarily for the benefit of any individual Holder or Investor, shall be aggregated together. 3.10 Indemnification. The Company will indemnify members of --------------- the Board of Directors to the broadest extent permitted by applicable law and will indemnify each Investor for any claims brought against such Investor by any third party (including any other shareholder of the Company) as a result of the Company's Series E Preferred Stock financing or Series F Preferred Stock financing. -18- 3.11 Waiver of Right of First Offer. By execution of this ------------------------------ Agreement below, the holders of the Company's Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock, and each of them, hereby consent to the issuance of the shares of Series F Preferred Stock to the Series F Purchasers as contemplated by the Series F Agreement and waive any rights to notice or to acquire shares of Series F Preferred Stock to which they may be entitled, including but not limited to those provided in Section 2.5 of the Existing Rights Agreement (such waiver intended to apply to all holders of Registrable Securities under the Existing Rights Agreement). 3.12 Waiver of Registration Rights for Proposed Initial -------------------------------------------------- Public Offering. By execution of this Agreement below, the Holders and each of - --------------- them, hereby acknowledge that the Company is considering an underwritten initial public offering of its Common Stock, which would involve the registration of a certain number of shares of such Common Stock with the SEC (the "Proposed -------- Offering"), and hereby agree and consent (such agreement and consent intended to - -------- apply to all holders of Registrable Securities under this Agreement), provided that the Proposed Offering is completed prior to June 30, 2000, to each of the following matters: (a) The Holder hereby elects not to register or sell any of Holder's shares of Common Stock of the Company in connection with the Proposed Offering; (b) The Holder hereby agrees to waive any registration rights and any notice requirements under Section 1.3 of this Agreement with respect to, or arising out of the sale of, the shares of Common Stock proposed to be offered by the Company in the Proposed Offering; and (c) The Holder hereby agrees to waive any rights of first offer and any notice requirements under Section 2.5 of this Agreement with respect to, or arising out of the sale of, the shares of Common Stock proposed to be offered by the Company in the Proposed Offering. [Signature Page Follows] -19- The parties have executed this Sixth Amended and Restated Investors' Rights Agreement as of the date first above written. COMPANY: INVESTORS: REPLAYTV, INC. _______________________________ (Investor) By: /s/ Earle H. LeMasters By: ___________________________ --------------------------------- Earle H. LeMasters III, Chief Executive Officer Name:__________________________ (print name of signatory) Address: Title:_________________________ 1945 Charleston Road Mountain View, CA 94043-1201 [INDIVIDUAL INVESTOR SIGNATURE BLOCKS OMITTED] -20- EXHIBIT A --------- (omitted) EX-10.2 8 FORM OF INDEMNIFICATION AGREEMENT EXHIBIT 10.2 INDEMNIFICATION AGREEMENT ------------------------- This Indemnification Agreement (the "Agreement") is made as of --------- _______________, by and between ReplayTV, Inc., a Delaware corporation (the "Company"), and _____________ (the "Indemnitee"). ------- ---------- RECITALS -------- The Company and Indemnitee recognize the increasing difficulty in obtaining liability insurance for directors, officers and key employees, the significant increases in the cost of such insurance and the general reductions in the coverage of such insurance. The Company and Indemnitee further recognize the substantial increase in corporate litigation in general, subjecting directors, officers and key employees to expensive litigation risks at the same time as the availability and coverage of liability insurance has been severely limited. Indemnitee does not regard the current protection available as adequate under the present circumstances, and Indemnitee and agents of the Company may not be willing to continue to serve as agents of the Company without additional protection. The Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, and to indemnify its directors, officers and key employees so as to provide them with the maximum protection permitted by law. AGREEMENT --------- In consideration of the mutual promises made in this Agreement, and for other good and valuable consideration, receipt of which is hereby acknowledged, the Company and Indemnitee hereby agree as follows: 1. Indemnification. --------------- (a) Third Party Proceedings. The Company shall indemnify Indemnitee ----------------------- if Indemnitee is or was a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while an officer or director or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld) actually and reasonably incurred by Indemnitee in connection with such action, suit or proceeding if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe Indemnitee's conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, or, with respect to any criminal action or proceeding, that Indemnitee had reasonable cause to believe that Indemnitee's conduct was unlawful. (b) Proceedings By or in the Right of the Company. The Company shall --------------------------------------------- indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made a party to any threatened, pending or completed action or proceeding by or in the right of the Company or any subsidiary of the Company to procure a judgment in its favor by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while an officer or director or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees) and, to the fullest extent permitted by law, amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld), in each case to the extent actually and reasonably incurred by Indemnitee in connection with the defense or settlement of such action or suit if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company and its stockholders, except that no indemnification shall be made in respect of any claim, issue or matter as to which Indemnitee shall have been finally adjudicated by court order or judgment to be liable to the Company in the performance of Indemnitee's duty to the Company and its stockholders unless and only to the extent that the court in which such action or proceeding is or was pending shall determine upon application that, in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper. (c) Mandatory Payment of Expenses. To the extent that Indemnitee has ----------------------------- been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 1(a) or Section 1(b) or the defense of any claim, issue or matter therein, Indemnitee shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by Indemnitee in connection therewith. 2. No Employment Rights. Nothing contained in this Agreement is intended -------------------- to create in Indemnitee any right to continued employment. 3. Expenses; Indemnification Procedure. ----------------------------------- (a) Advancement of Expenses. The Company shall advance all expenses ----------------------- incurred by Indemnitee in connection with the investigation, defense, settlement or appeal of any civil or criminal action, suit or proceeding referred to in Section l(a) or Section 1(b) hereof (including amounts actually paid in settlement of any such action, suit or proceeding). Indemnitee hereby undertakes to repay such amounts advanced only if, and to the extent that, it shall ultimately be determined that Indemnitee is not entitled to be indemnified by the Company as authorized hereby. (b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a -------------------------------- condition precedent to his or her right to be indemnified under this Agreement, give the Company notice in -2- writing as soon as practicable of any claim made against Indemnitee for which indemnification will or could be sought under this Agreement. Notice to the Company shall be directed to the Chief Executive Officer of the Company and shall be given in accordance with the provisions of Section 12(d) below. In addition, Indemnitee shall give the Company such information and cooperation as it may reasonably require and as shall be within Indemnitee's power. (c) Procedure. Any indemnification and advances provided for in --------- Section 1 and this Section 3 shall be made no later than twenty (20) days after receipt of the written request of Indemnitee. If a claim under this Agreement, under any statute, or under any provision of the Company's Certificate of Incorporation or Bylaws providing for indemnification, is not paid in full by the Company within twenty (20) days after a written request for payment thereof has first been received by the Company, Indemnitee may, but need not, at any time thereafter bring an action against the Company to recover the unpaid amount of the claim and, subject to Section 11 of this Agreement, Indemnitee shall also be entitled to be paid for the expenses (including attorneys' fees) of bringing such action. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in connection with any action, suit or proceeding in advance of its final disposition) that Indemnitee has not met the standards of conduct which make it permissible under applicable law for the Company to indemnify Indemnitee for the amount claimed, but the burden of proving such defense shall be on the Company and Indemnitee shall be entitled to receive interim payments of expenses pursuant to Section 3(a) unless and until such defense may be finally adjudicated by court order or judgment from which no further right of appeal exists. It is the parties' intention that if the Company contests Indemnitee's right to indemnification, the question of Indemnitee's right to indemnification shall be for the court to decide, and neither the failure of the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its stockholders) to have made a determination that indemnification of Indemnitee is proper in the circumstances because Indemnitee has met the applicable standard of conduct required by applicable law, nor an actual determination by the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its stockholders) that Indemnitee has not met such applicable standard of conduct, shall create a presumption that Indemnitee has or has not met the applicable standard of conduct. (d) Notice to Insurers. If, at the time of the receipt of a notice of ------------------ a claim pursuant to Section 3(b) hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies. (e) Selection of Counsel. In the event the Company shall be -------------------- obligated under Section 3(a) hereof to pay the expenses of any proceeding against Indemnitee, the Company, if appropriate, shall be entitled to assume the defense of such proceeding, with counsel approved by Indemnitee, upon the delivery to Indemnitee of written notice of its election so to do. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel -3- by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same proceeding, provided that (i) Indemnitee shall have the right to employ counsel in any such proceeding at Indemnitee's expense; and (ii) if (A) the employment of counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense or (C) the Company shall not, in fact, have employed counsel to assume the defense of such proceeding, then the fees and expenses of Indemnitee's counsel shall be at the expense of the Company. 4. Additional Indemnification Rights; Nonexclusivity. ------------------------------------------------- (a) Scope. Notwithstanding any other provision of this Agreement, ----- the Company hereby agrees to indemnify the Indemnitee to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Company's Certificate of Incorporation, the Company's Bylaws or by statute. In the event of any change, after the date of this Agreement, in any applicable law, statute, or rule which expands the right of a Delaware corporation to indemnify a member of its board of directors or an officer, such changes shall be deemed to be within the purview of Indemnitee's rights and the Company's obligations under this Agreement. In the event of any change in any applicable law, statute or rule which narrows the right of a Delaware corporation to indemnify a member of its board of directors or an officer, such changes, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement shall have no effect on this Agreement or the parties' rights and obligations hereunder. (b) Nonexclusivity. The indemnification provided by this Agreement -------------- shall not be deemed exclusive of any rights to which Indemnitee may be entitled under the Company's Certificate of Incorporation, its Bylaws, any agreement, any vote of stockholders or disinterested members of the Company's Board of Directors, the General Corporation Law of the State of Delaware, or otherwise, both as to action in Indemnitee's official capacity and as to action in another capacity while holding such office. The indemnification provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an indemnified capacity even though he or she may have ceased to serve in any such capacity at the time of any action, suit or other covered proceeding. 5. Partial Indemnification. If Indemnitee is entitled under any ----------------------- provision of this Agreement to indemnification by the Company for some or a portion of the expenses, judgments, fines or penalties actually or reasonably incurred in the investigation, defense, appeal or settlement of any civil or criminal action, suit or proceeding, but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such expenses, judgments, fines or penalties to which Indemnitee is entitled. 6. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge --------------------- that in certain instances, Federal law or public policy may override applicable state law and prohibit the Company from indemnifying its directors and officers under this Agreement or otherwise. -4- For example, the Company and Indemnitee acknowledge that the Securities and Exchange Commission (the "SEC") has taken the position that indemnification is --- not permissible for liabilities arising under certain federal securities laws, and federal legislation prohibits indemnification for certain ERISA violations. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the SEC to submit the question of indemnification to a court in certain circumstances for a determination of the Company's right under public policy to indemnify Indemnitee. 7. Officer and Director Liability Insurance. The Company shall, from ---------------------------------------- time to time, make the good faith determination whether or not it is practicable for the Company to obtain and maintain a policy or policies of insurance with reputable insurance companies providing the officers and directors of the Company with coverage for losses from wrongful acts, or to ensure the Company's performance of its indemnification obligations under this Agreement. Among other considerations, the Company will weigh the costs of obtaining such insurance coverage against the protection afforded by such coverage. In all policies of director and officer liability insurance, Indemnitee shall be named as an insured in such a manner as to provide Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company's directors, if Indemnitee is a director; or of the Company's officers, if Indemnitee is not a director of the Company but is an officer; or of the Company's key employees, if Indemnitee is not an officer or director but is a key employee. Notwithstanding the foregoing, the Company shall have no obligation to obtain or maintain such insurance if the Company determines in good faith that such insurance is not reasonably available, if the premium costs for such insurance are disproportionate to the amount of coverage provided, if the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit, or if Indemnitee is covered by similar insurance maintained by a parent or subsidiary of the Company. 8. Severability. Nothing in this Agreement is intended to require or ------------ shall be construed as requiring the Company to do or fail to do any act in violation of applicable law. The Company's inability, pursuant to court order, to perform its obligations under this Agreement shall not constitute a breach of this Agreement. The provisions of this Agreement shall be severable as provided in this Section 8. If this Agreement or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify Indemnitee to the full extent permitted by any applicable portion of this Agreement that shall not have been invalidated, and the balance of this Agreement not so invalidated shall be enforceable in accordance with its terms. 9. Exceptions. Any other provision herein to the contrary ---------- notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement: (a) Claims Initiated by Indemnitee. To indemnify or advance expenses ------------------------------ to Indemnitee with respect to proceedings or claims initiated or brought voluntarily by Indemnitee and not by way of defense, except with respect to proceedings brought to establish or enforce a right to indemnification under this Agreement or any other statute or law or otherwise as required under Section 145 of the Delaware General Corporation Law, but such indemnification or -5- advancement of expenses may be provided by the Company in specific cases if the Board of Directors finds it to be appropriate; (b) Lack of Good Faith. To indemnify Indemnitee for any expenses ------------------ incurred by Indemnitee with respect to any proceeding instituted by Indemnitee to enforce or interpret this Agreement, if a court of competent jurisdiction determines that each of the material assertions made by Indemnitee in such proceeding was not made in good faith or was frivolous; (c) Insured Claims. To indemnify Indemnitee for expenses or -------------- liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties, and amounts paid in settlement) to the extent such expenses or liabilities have been paid directly to Indemnitee by an insurance carrier under a policy of officers' and directors' liability insurance maintained by the Company; or (d) Claims under Section 16(b). To indemnify Indemnitee for expenses -------------------------- or the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor statute. 10. Construction of Certain Phrases. ------------------------------- (a) For purposes of this Agreement, references to the "Company" shall ------- include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that if Indemnitee is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued. (b) For purposes of this Agreement, references to "other enterprises" ----------------- shall include employee benefit plans; references to "fines" shall include any ----- excise taxes assessed on Indemnitee with respect to an employee benefit plan; and references to "serving at the request of the Company" shall include any ------------------------------------- service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants, or beneficiaries; and if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have acted in a manner "not --- opposed to the best interests of the Company" as referred to in this Agreement. - -------------------------------------------- 11. Attorneys' Fees. In the event that any action is instituted by --------------- Indemnitee under this Agreement to enforce or interpret any of the terms hereof, Indemnitee shall be entitled to be paid all court costs and expenses, including reasonable attorneys' fees, incurred by Indemnitee -6- with respect to such action, unless as a part of such action, the court of competent jurisdiction determines that each of the material assertions made by Indemnitee as a basis for such action were not made in good faith or were frivolous. In the event of an action instituted by or in the name of the Company under this Agreement or to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be paid all court costs and expenses, including attorneys' fees, incurred by Indemnitee in defense of such action (including with respect to Indemnitee's counterclaims and cross-claims made in such action), unless as a part of such action the court determines that each of Indemnitee's material defenses to such action were made in bad faith or were frivolous. 12. Miscellaneous. ------------- (a) Governing Law. This Agreement and all acts and transactions ------------- pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of Delaware, without giving effect to principles of conflict of law. (b) Entire Agreement; Enforcement of Rights. This Agreement sets --------------------------------------- forth the entire agreement and understanding of the parties relating to the subject matter herein and merges all prior discussions between them. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, shall be effective unless in writing signed by the parties to this Agreement. The failure by either party to enforce any rights under this Agreement shall not be construed as a waiver of any rights of such party. (c) Construction. This Agreement is the result of negotiations ------------ between and has been reviewed by each of the parties hereto and their respective counsel, if any; accordingly, this Agreement shall be deemed to be the product of all of the parties hereto, and no ambiguity shall be construed in favor of or against any one of the parties hereto. (d) Notices. Any notice, demand or request required or permitted to ------- be given under this Agreement shall be in writing and shall be deemed sufficient when delivered personally or sent by telegram or fax, or forty-eight (48) hours after being deposited in the U.S. mail, as certified or registered mail, with postage prepaid, and addressed to the party to be notified at such party's address as set forth below or as subsequently modified by written notice. (e) Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. (f) Successors and Assigns. This Agreement shall be binding upon the ---------------------- Company and its successors and assigns, and inure to the benefit of Indemnitee and Indemnitee's heirs, legal representatives and assigns. (g) Subrogation. In the event of payment under this Agreement, the ----------- Company shall be subrogated to the extent of such payment to all of the rights of recovery of -7- Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company to effectively bring suit to enforce such rights. [Signature Page Follows] -8- The parties hereto have executed this Agreement as of the day and year set forth on the first page of this Agreement. REPLAYTV, INC. By:_____________________________________ Title:__________________________________ Address: 1945 Charleston Road Mountain View, CA 94043-1201 AGREED TO AND ACCEPTED: ____________________ _____________________________________ (Signature) Address:_____________________________ _____________________________________ -9- EX-10.5 9 2000 EMPLOYEE STOCK PURCHASE PLAN EXHIBIT 10.5 REPLAYTV, INC. 2000 EMPLOYEE STOCK PURCHASE PLAN --------------------------------- The following constitute the provisions of the 2000 Employee Stock Purchase Plan of ReplayTV, Inc. 1. Purpose. The purpose of the Plan is to provide employees of the ------- Company and its Designated Subsidiaries with an opportunity to purchase Common Stock of the Company. It is the intention of the Company to have the Plan qualify as an "Employee Stock Purchase Plan" under Section 423 of the Code. The provisions of the Plan shall, accordingly, be construed so as to extend and limit participation in a manner consistent with the requirements of that section of the Code. 2. Definitions. ----------- (a) "Board" means the Board of Directors of the Company. ----- (b) "Code" means the Internal Revenue Code of 1986, as amended. ---- (c) "Common Stock" means the Common Stock of the Company. ------------ (d) "Company" means ReplayTV, Inc., a Delaware corporation. ------- (e) "Compensation" means all regular straight time gross earnings and ------------ shall not include commissions or payments for overtime, shift premium, incentive compensation, incentive payments, bonuses and other compensation. (f) "Continuous Status as an Employee" means the absence of any -------------------------------- interruption or termination of service as an Employee. Continuous Status as an Employee shall not be considered interrupted in the case of (i) sick leave; (ii) military leave; (iii) any other leave of absence approved by the Company, provided that such leave is for a period of not more than 90 days, unless reemployment upon the expiration of such leave is guaranteed by contract or statute, or unless provided otherwise pursuant to Company policy adopted from time to time; or (iv) in the case of transfers between locations of the Company or between the Company and its Designated Subsidiaries. (g) "Contributions" means all amounts credited to the account of a ------------- participant pursuant to the Plan. (h) "Corporate Transaction" means a sale of all or substantially all --------------------- of the Company's assets, or a merger, consolidation or other capital reorganization of the Company with or into another corporation. (i) "Designated Subsidiaries" means the Subsidiaries which have been ----------------------- designated by the Board from time to time in its sole discretion as eligible to participate in the Plan; provided however that the Board shall only have the discretion to designate Subsidiaries if the issuance of options to such Subsidiary's Employees pursuant to the Plan would not cause the Company to incur adverse accounting charges. (j) "Employee" means any person, including an Officer, who is -------- customarily employed for at least twenty (20) hours per week and more than five (5) months in a calendar year by the Company or one of its Designated Subsidiaries. (k) "Exchange Act" means the Securities Exchange Act of 1934, as ------------ amended. (l) "Offering Date" means the first business day of each Offering ------------- Period of the Plan. (m) "Offering Period" means a period of twenty-four (24) months --------------- commencing on May 1 and November 1 of each year, except for the first Offering Period as set forth in Section 4(a). (n) "Officer" means a person who is an officer of the Company within ------- the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. (o) "Plan" means this Employee Stock Purchase Plan. ---- (p) "Purchase Date" means the last day of each Purchase Period of the ------------- Plan. (q) "Purchase Period" means a period of six (6) months within an --------------- Offering Period, except for the first Purchase Period as set forth in Section 4(b). (r) "Purchase Price" means with respect to a Purchase Period an amount -------------- equal to 85% of the Fair Market Value (as defined in Section 7(b) below) of a Share of Common Stock on the Offering Date or on the Purchase Date, whichever is lower; provided, however, that in the event (i) of any increase in the number of Shares available for issuance under the Plan as a result of a stockholder- approved amendment to the Plan, and (ii) all or a portion of such additional Shares are to be issued with respect to one or more Offering Periods that are underway at the time of such increase ("Additional Shares"), and (iii) the Fair ----------------- Market Value of a Share of Common Stock on the date of such increase (the "Approval Date Fair Market Value") is higher than the Fair Market Value on the - -------------------------------- Offering Date for any such Offering Period, then in such instance the Purchase Price with respect to Additional Shares shall be 85% of the Approval Date Fair Market Value or the Fair Market Value of a Share of Common Stock on the Purchase Date, whichever is lower. (s) "Share" means a share of Common Stock, as adjusted in accordance ----- with Section 19 of the Plan. (t) "Subsidiary" means a corporation, domestic or foreign, of which ---------- not less than 50% of the voting shares are held by the Company or a Subsidiary, whether or not such corporation now exists or is hereafter organized or acquired by the Company or a Subsidiary. -2- 3. Eligibility. ----------- (a) Any person who is an Employee as of the Offering Date of a given Offering Period shall be eligible to participate in such Offering Period under the Plan, subject to the requirements of Section 5(a) and the limitations imposed by Section 423(b) of the Code; provided that eligible Employees may not participate in more than one Offering Period at a time. (b) Any provisions of the Plan to the contrary notwithstanding, no Employee shall be granted an option under the Plan (i) if, immediately after the grant, such Employee (or any other person whose stock would be attributed to such Employee pursuant to Section 424(d) of the Code) would own capital stock of the Company and/or hold outstanding options to purchase stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or of any subsidiary of the Company, or (ii) if such option would permit his or her rights to purchase stock under all employee stock purchase plans (described in Section 423 of the Code) of the Company and its Subsidiaries to accrue at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) of the Fair Market Value (as defined in Section 7(b) below) of such stock (determined at the time such option is granted) for each calendar year in which such option is outstanding at any time. 4. Offering Periods and Purchase Periods. ------------------------------------- (a) Offering Periods. The Plan shall be implemented by a series of ---------------- Offering Periods of approximately twenty-four (24) months' duration, with new Offering Periods commencing on or about May 1 and November 1 of each year (or at such other time or times as may be determined by the Board of Directors). The first Offering Period shall commence on the beginning of the effective date of the Registration Statement on Form S-1 for the initial public offering of the Company's Common Stock (the "IPO Date") and continue until April 30, 2002. The -------- Plan shall continue until terminated in accordance with Section 20 hereof. The Board of Directors of the Company shall have the power to change the duration and/or the frequency of Offering Periods with respect to future offerings without stockholder approval if such change is announced at least five (5) days prior to the scheduled beginning of the first Offering Period to be affected. (b) Purchase Periods. Each Offering Period shall consist of four (4) ---------------- consecutive purchase periods of approximately six (6) months' duration. The last day of each Purchase Period shall be the "Purchase Date" for such Purchase ------------- Period. A Purchase Period commencing on May 1 shall end on the next October 31. A Purchase Period commencing on November 1 shall end on the next April 30. The first Purchase Period shall commence on the IPO Date and shall end on October 31, 2000. The Board of Directors of the Company shall have the power to change the duration and/or frequency of Purchase Periods with respect to future purchases without stockholder approval if such change is announced at least five (5) days prior to the scheduled beginning of the first Purchase Period to be affected. -3- 5. Participation. ------------- (a) An eligible Employee may become a participant in the Plan by completing a subscription agreement on the form provided by the Company and filing it with the Company's payroll office prior to the applicable Offering Date, unless a later time for filing the subscription agreement is set by the Board for all eligible Employees with respect to a given Offering Period. The subscription agreement shall set forth the percentage of the participant's Compensation (subject to Section 6(a) below) to be paid as Contributions pursuant to the Plan. (b) Payroll deductions shall commence on the first payroll following the Offering Date and shall end on the last payroll paid on or prior to the last Purchase Period of the Offering Period to which the subscription agreement is applicable, unless sooner terminated by the participant as provided in Section 10. 6. Method of Payment of Contributions. ---------------------------------- (a) A participant shall elect to have payroll deductions made on each payday during the Offering Period in an amount not less than one percent (1%) and not more than ten percent (10%) (or such greater percentage as the Board may establish from time to time before an Offering Date, which percentage shall not exceed fifteen percent (15%)) of such participant's Compensation on each payday during the Offering Period. All payroll deductions made by a participant shall be credited to his or her account under the Plan. A participant may not make any additional payments into such account. (b) A participant may discontinue his or her participation in the Plan as provided in Section 10, or, on one occasion only during the Offering Period may increase and on one occasion only during the Offering Period may decrease the rate of his or her Contributions with respect to the Offering Period by completing and filing with the Company a new subscription agreement authorizing a change in the payroll deduction rate. The change in rate shall be effective as of the beginning of the next calendar month following the date of filing of the new subscription agreement, if the agreement is filed at least ten (10) business days prior to such date and, if not, as of the beginning of the next succeeding calendar month. (c) Notwithstanding the foregoing, to the extent necessary to comply with Section 423(b)(8) of the Code and Section 3(b), a participant's payroll deductions may be decreased by the Company to 0% at any time during a Purchase Period. Payroll deductions shall re-commence at the rate provided in such participant's subscription agreement at the beginning of the first Purchase Period which is scheduled to end in the following calendar year, unless terminated by the participant as provided in Section 10. In addition, a participant's payroll deductions may be decreased by the Company to 0% at any time during a Purchase Period in order to avoid unnecessary payroll contributions as a result of application of the maximum share limit set forth in Section 7(a), in which case payroll deductions shall re-commence at the rate provided in such participant's subscription agreement at the beginning of the next Purchase Period, unless terminated by the participant as provided in Section 10. -4- 7. Grant of Option. --------------- (a) On the Offering Date of each Offering Period, each eligible Employee participating in such Offering Period shall be granted an option to purchase on each Purchase Date a number of Shares of the Company's Common Stock determined by dividing such Employee's Contributions accumulated prior to such Purchase Date and retained in the participant's account as of the Purchase Date by the applicable Purchase Price; provided that the maximum number of Shares an Employee may purchase during each Purchase Period shall be 3,000 Shares and provided further that such purchase shall be subject to the limitations set forth in Sections 3(b) and 13. (b) The fair market value of the Company's Common Stock on a given date (the "Fair Market Value") shall be determined by the Board in its ----------------- discretion based on the closing sales price of the Common Stock for such date (or, in the event that the Common Stock is not traded on such date, on the immediately preceding trading date), as reported by the National Association of Securities Dealers Automated Quotation (Nasdaq) National Market or, if such price is not reported, the mean of the bid and asked prices per share of the Common Stock as reported by Nasdaq or, in the event the Common Stock is listed on a stock exchange, the Fair Market Value per share shall be the closing sales price on such exchange on such date (or, in the event that the Common Stock is not traded on such date, on the immediately preceding trading date), as reported in The Wall Street Journal. For purposes of the Offering Date under the first ----------------------- Offering Period under the Plan, the Fair Market Value of a share of the Common Stock of the Company shall be the Price to Public as set forth in the final prospectus filed with the Securities and Exchange Commission pursuant to Rule 424 under the Securities Act of 1933, as amended. 8. Exercise of Option. Unless a participant withdraws from the Plan as ------------------ provided in Section 10, his or her option for the purchase of Shares will be exercised automatically on each Purchase Date of an Offering Period, and the maximum number of full Shares subject to the option will be purchased at the applicable Purchase Price with the accumulated Contributions in his or her account. No fractional Shares shall be issued. The Shares purchased upon exercise of an option hereunder shall be deemed to be transferred to the participant on the Purchase Date. During his or her lifetime, a participant's option to purchase Shares hereunder is exercisable only by him or her. 9. Delivery. As promptly as practicable after each Purchase Date of each -------- Offering Period, the Company shall arrange the delivery to each participant, as appropriate, of a certificate representing the Shares purchased upon exercise of his or her option. Any payroll deductions accumulated in a participant's account which are not sufficient to purchase a full Share shall be retained in the participant's account for the subsequent Purchase Period or Offering Period, subject to earlier withdrawal by the participant as provided in Section 10 below. Any other amounts left over in a participant's account after a Purchase Date shall be returned to the participant. -5- 10. Voluntary Withdrawal; Termination of Employment. ----------------------------------------------- (a) A participant may withdraw all but not less than all the Contributions credited to his or her account under the Plan at any time prior to each Purchase Date by giving written notice to the Company. All of the participant's Contributions credited to his or her account will be paid to him or her promptly after receipt of his or her notice of withdrawal and his or her option for the current period will be automatically terminated, and no further Contributions for the purchase of Shares will be made during the Offering Period. (b) Upon termination of the participant's Continuous Status as an Employee prior to the Purchase Date of an Offering Period for any reason, including retirement or death, the Contributions credited to his or her account will be returned to him or her or, in the case of his or her death, to the person or persons entitled thereto under Section 14, and his or her option will be automatically terminated. (c) In the event an Employee fails to remain in Continuous Status as an Employee during the Offering Period in which the employee is a participant, he or she will be deemed to have elected to withdraw from the Plan and the Contributions credited to his or her account will be returned to him or her and his or her option terminated. (d) A participant's withdrawal from an offering will not have any effect upon his or her eligibility to participate in a succeeding offering or in any similar plan which may hereafter be adopted by the Company. 11. Automatic Withdrawal. If the Fair Market Value of the Shares on any -------------------- Purchase Date of an Offering Period is less than the Fair Market Value of the Shares on the Offering Date for such Offering Period, then every participant shall automatically (i) be withdrawn from such Offering Period at the close of such Purchase Date and after the acquisition of Shares for such Purchase Period, and (ii) be enrolled in the Offering Period commencing on the first business day subsequent to such Purchase Period. Participants shall automatically be withdrawn as of April 20, 2000 from the Offering Period beginning on the IPO Date and re-enrolled in the Offering Period beginning on May 1, 2000 if the Fair Market Value of the Shares on the IPO Date is greater than the Fair Market Value of the Shares on April 30, 2000, unless a participant notifies the Administrator prior to April 30, 2000 that he or she does not wish to be withdrawn and re- enrolled. 12. Interest. No interest shall accrue on the Contributions of a -------- participant in the Plan. 13. Stock. ----- (a) Subject to adjustment as provided in Section 19, the maximum number of Shares which shall be made available for sale under the Plan shall be 1,000,000 Shares plus an annual increase on the first day of each of the Company's fiscal years beginning in 2001 through 2009 equal to the lesser of (i) 500,000 Shares, (ii) two percent (2%) of the Shares outstanding on the last day of the immediately preceding fiscal year, or (iii) such lesser number of Shares as is -6- determined by the Board. The Shares may be authorized, but unissued, or reacquired Common Stock. (b) If the Board determines that, on a given Purchase Date, the number of Shares with respect to which options are to be exercised may exceed (i) the number of shares of Common Stock that were available for sale under the Plan on the Offering Date of the applicable Offering Period, or (ii) the number of shares available for sale under the Plan on such Purchase Date, the Board may in its sole discretion provide (x) that the Company shall make a pro rata allocation of the Shares of Common Stock available for purchase on such Offering Date or Purchase Date, as applicable, in as uniform a manner as shall be practicable and as it shall determine in its sole discretion to be equitable among all participants exercising options to purchase Common Stock on such Purchase Date, and continue all Offering Periods then in effect, or (y) that the Company shall make a pro rata allocation of the shares available for purchase on such Offering Date or Purchase Date, as applicable, in as uniform a manner as shall be practicable and as it shall determine in its sole discretion to be equitable among all participants exercising options to purchase Common Stock on such Purchase Date, and terminate any or all Offering Periods then in effect pursuant to Section 20 below. The Company may make pro rata allocation of the Shares available on the Offering Date of any applicable Offering Period pursuant to the preceding sentence, notwithstanding any authorization of additional Shares for issuance under the Plan by the Company's stockholders subsequent to such Offering Date. (c) The participant shall have no interest or voting right in Shares covered by his or her option until such option has been exercised. (d) Shares to be delivered to a participant under the Plan will be registered in the name of the participant or in the name of the participant and his or her spouse. 14. Administration. The Board, or a committee named by the Board, shall -------------- supervise and administer the Plan and shall have full power to adopt, amend and rescind any rules deemed desirable and appropriate for the administration of the Plan and not inconsistent with the Plan, to construe and interpret the Plan, and to make all other determinations necessary or advisable for the administration of the Plan. 15. Designation of Beneficiary. -------------------------- (a) A participant may file a written designation of a beneficiary who is to receive any Shares and cash, if any, from the participant's account under the Plan in the event of such participant's death subsequent to the end of a Purchase Period but prior to delivery to him or her of such Shares and cash. In addition, a participant may file a written designation of a beneficiary who is to receive any cash from the participant's account under the Plan in the event of such participant's death prior to the Purchase Date of an Offering Period. If a participant is married and the designated beneficiary is not the spouse, spousal consent shall be required for such designation to be effective. (b) Such designation of beneficiary may be changed by the participant (and his or her spouse, if any) at any time by written notice. In the event of the death of a participant -7- and in the absence of a beneficiary validly designated under the Plan who is living at the time of such participant's death, the Company shall deliver such Shares and/or cash to the executor or administrator of the estate of the participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such Shares and/or cash to the spouse or to any one or more dependents or relatives of the participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate. 16. Transferability. Neither Contributions credited to a participant's --------------- account nor any rights with regard to the exercise of an option or to receive Shares under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution, or as provided in Section 15) by the participant. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw funds in accordance with Section 10. 17. Use of Funds. All Contributions received or held by the Company under ------------ the Plan may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such Contributions. 18. Reports. Individual accounts will be maintained for each participant ------- in the Plan. Statements of account will be given to participating Employees at least annually, which statements will set forth the amounts of Contributions, the per Share Purchase Price, the number of Shares purchased and the remaining cash balance, if any. 19. Adjustments Upon Changes in Capitalization; Corporate Transactions. ------------------------------------------------------------------ (a) Adjustment. Subject to any required action by the stockholders of ---------- the Company, the number of Shares covered by each option under the Plan which has not yet been exercised and the number of Shares which have been authorized for issuance under the Plan but have not yet been placed under option (collectively, the "Reserves"), as well as the maximum number of shares of -------- Common Stock which may be purchased by a participant in a Purchase Period, the number of shares of Common Stock set forth in Section 13(a)(i) above, and the price per Share of Common Stock covered by each option under the Plan which has not yet been exercised, shall be proportionately adjusted for any increase or decrease in the number of issued Shares resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock (including any such change in the number of Shares of Common Stock effected in connection with a change in domicile of the Company), or any other increase or decrease in the number of Shares effected without receipt of consideration by the Company; provided however that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares subject to an option. -8- (b) Corporate Transactions. In the event of a dissolution or ---------------------- liquidation of the Company, any Purchase Period and Offering Period then in progress will terminate immediately prior to the consummation of such action, unless otherwise provided by the Board. In the event of a Corporate Transaction, each option outstanding under the Plan shall be assumed or an equivalent option shall be substituted by the successor corporation or a parent or Subsidiary of such successor corporation. In the event that the successor corporation refuses to assume or substitute for outstanding options, each Purchase Period and Offering Period then in progress shall be shortened and a new Purchase Date shall be set (the "New Purchase Date"), as of which date any Purchase Period and ----------------- Offering Period then in progress will terminate. The New Purchase Date shall be on or before the date of consummation of the transaction and the Board shall notify each participant in writing, at least ten (10) days prior to the New Purchase Date, that the Purchase Date for his or her option has been changed to the New Purchase Date and that his or her option will be exercised automatically on the New Purchase Date, unless prior to such date he or she has withdrawn from the Offering Period as provided in Section 10. For purposes of this Section 19, an option granted under the Plan shall be deemed to be assumed, without limitation, if, at the time of issuance of the stock or other consideration upon a Corporate Transaction, each holder of an option under the Plan would be entitled to receive upon exercise of the option the same number and kind of shares of stock or the same amount of property, cash or securities as such holder would have been entitled to receive upon the occurrence of the transaction if the holder had been, immediately prior to the transaction, the holder of the number of Shares of Common Stock covered by the option at such time (after giving effect to any adjustments in the number of Shares covered by the option as provided for in this Section 19); provided however that if the consideration received in the transaction is not solely common stock of the successor corporation or its parent (as defined in Section 424(e) of the Code), the Board may, with the consent of the successor corporation, provide for the consideration to be received upon exercise of the option to be solely common stock of the successor corporation or its parent equal in Fair Market Value to the per Share consideration received by holders of Common Stock in the transaction. The Board may, if it so determines in the exercise of its sole discretion, also make provision for adjusting the Reserves, as well as the price per Share of Common Stock covered by each outstanding option, in the event that the Company effects one or more reorganizations, recapitalizations, rights offerings or other increases or reductions of Shares of its outstanding Common Stock, and in the event of the Company's being consolidated with or merged into any other corporation. 20. Amendment or Termination. ------------------------ (a) The Board may at any time and for any reason terminate or amend the Plan. Except as provided in Section 19, no such termination of the Plan may affect options previously granted, provided that the Plan or an Offering Period may be terminated by the Board on a Purchase Date or by the Board's setting a new Purchase Date with respect to an Offering Period and Purchase Period then in progress if the Board determines that termination of the Plan and/or the Offering Period is in the best interests of the Company and the stockholders or if continuation of the Plan and/or the Offering Period would cause the Company to incur adverse -9- accounting charges as a result of a change after the effective date of the Plan in the generally accepted accounting rules applicable to the Plan. Except as provided in Section 19 and in this Section 20, no amendment to the Plan shall make any change in any option previously granted which adversely affects the rights of any participant. In addition, to the extent necessary to comply with Rule 16b-3 under the Exchange Act, or under Section 423 of the Code (or any successor rule or provision or any applicable law or regulation), the Company shall obtain stockholder approval in such a manner and to such a degree as so required. (b) Without stockholder consent and without regard to whether any participant rights may be considered to have been adversely affected, the Board (or its committee) shall be entitled to change the Offering Periods and Purchase Periods, limit the frequency and/or number of changes in the amount withheld during an Offering Period, establish the exchange ratio applicable to amounts withheld in a currency other than U.S. dollars, permit payroll withholding in excess of the amount designated by a participant in order to adjust for delays or mistakes in the Company's processing of properly completed withholding elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock for each participant properly correspond with amounts withheld from the participant's Compensation, and establish such other limitations or procedures as the Board (or its committee) determines in its sole discretion advisable which are consistent with the Plan. 21. Notices. All notices or other communications by a participant to the ------- Company under or in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof. 22. Conditions Upon Issuance of Shares. Shares shall not be issued with ---------------------------------- respect to an option unless the exercise of such option and the issuance and delivery of such Shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, applicable state securities laws and the requirements of any stock exchange upon which the Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of an option, the Company may require the person exercising such option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned applicable provisions of law. 23. Term of Plan; Effective Date. The Plan shall become effective upon ---------------------------- the IPO Date. It shall continue in effect for a term of twenty (20) years unless sooner terminated under Section 20. -10- REPLAYTV, INC. 2000 EMPLOYEE STOCK PURCHASE PLAN SUBSCRIPTION AGREEMENT ---------------------- New Election ______ Change of Election ______ 1. I, ________________________, hereby elect to participate in the ReplayTV, Inc. 2000 Employee Stock Purchase Plan (the "Plan") for the Offering ---- Period ______________, ____ to _______________, ____, and subscribe to purchase shares of the Company's Common Stock in accordance with this Subscription Agreement and the Plan. 2. I elect to have Contributions in the amount of ____% of my Compensation, as those terms are defined in the Plan, applied to this purchase. I understand that this amount must not be less than 1% and not more than 10% of my Compensation during the Offering Period. (Please note that no fractional percentages are permitted). 3. I hereby authorize payroll deductions from each paycheck during the Offering Period at the rate stated in Item 2 of this Subscription Agreement. I understand that all payroll deductions made by me shall be credited to my account under the Plan and that I may not make any additional payments into such account. I understand that all payments made by me shall be accumulated for the purchase of shares of Common Stock at the applicable purchase price determined in accordance with the Plan. I further understand that, except as otherwise set forth in the Plan, shares will be purchased for me automatically on the Purchase Date of each Offering Period unless I otherwise withdraw from the Plan by giving written notice to the Company for such purpose. 4. I understand that I may discontinue at any time prior to the Purchase Date my participation in the Plan as provided in Section 10 of the Plan. I also understand that I can increase or decrease the rate of my Contributions on one occasion only with respect to any increase and one occasion only with respect to any decrease during any Offering Period by completing and filing a new Subscription Agreement with such increase or decrease taking effect as of the beginning of the calendar month following the date of filing of the new Subscription Agreement, if filed at least ten (10) business days prior to the beginning of such month. Further, I may change the rate of deductions for future Offering Periods by filing a new Subscription Agreement, and any such change will be effective as of the beginning of the next Offering Period. In addition, I acknowledge that, unless I discontinue my participation in the Plan as provided in Section 10 of the Plan, my election will continue to be effective for each successive Offering Period. 5. I have received a copy of the Company's most recent description of the Plan and a copy of the complete "ReplayTV, Inc. 2000 Employee Stock Purchase Plan." I understand that my participation in the Plan is in all respects subject to the terms of the Plan. 6. Shares purchased for me under the Plan should be issued in the name(s) of (name of employee or employee and spouse only): ____________________________________ ____________________________________ 7. In the event of my death, I hereby designate the following as my beneficiary(ies) to receive all payments and shares due to me under the Plan: NAME: (Please print) _____________________________________ (First) (Middle) (Last) ________________________ _____________________________________ (Relationship) (Address) _____________________________________ 8. I understand that if I dispose of any shares received by me pursuant to the Plan within 2 years after the Offering Date (the first day of the Offering Period during which I purchased such shares) or within 1 year after the Purchase Date, I will be treated for federal income tax purposes as having received ordinary compensation income at the time of such disposition in an amount equal to the excess of the fair market value of the shares on the Purchase Date over the price which I paid for the shares, regardless of whether I disposed of the shares at a price less than their fair market value at the Purchase Date. The remainder of the gain or loss, if any, recognized on such disposition will be treated as capital gain or loss. I hereby agree to notify the Company in writing within 30 days after the ------------------------------------------------------------------------ date of any such disposition, and I will make adequate provision for federal, - ----------------------------------------------------------------------------- state or other tax withholding obligations, if any, which arise upon the - ------------------------------------------------------------------------ disposition of the Common Stock. The Company may, but will not be obligated to, - ------------------------------- withhold from my compensation the amount necessary to meet any applicable withholding obligation including any withholding necessary to make available to the Company any tax deductions or benefits attributable to the sale or early disposition of Common Stock by me. 9. If I dispose of such shares at any time after expiration of the 2-year and 1-year holding periods, I understand that I will be treated for federal income tax purposes as having received compensation income only to the extent of an amount equal to the lesser of (1) the excess of the fair market value of the shares at the time of such disposition over the purchase price which I paid for the shares under the option, or (2) 15% of the fair market value of the -2- shares on the Offering Date. The remainder of the gain or loss, if any, recognized on such disposition will be treated as capital gain or loss. I understand that this tax summary is only a summary and is subject to ---------------------------------------------------------------------- change. I further understand that I should consult a tax advisor concerning the - ------ tax implications of the purchase and sale of stock under the Plan. 10. In connection with the initial public offering of the Company's securities and upon request of the Company or the underwriters managing any underwritten offering of the Company's securities, I agree not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any securities of the Company, however or whenever I acquired them, without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed 180 days) from the effective date of such registration as may be requested by the Company or such managing underwriters and to execute an agreement reflecting the foregoing as may be requested by the underwriters at the time of the public offering. 11. I hereby agree to be bound by the terms of the Plan. The effectiveness of this Subscription Agreement is dependent upon my eligibility to participate in the Plan. SIGNATURE: __________________________ SOCIAL SECURITY #: __________________ DATE:________________________________ SPOUSE'S SIGNATURE (necessary if beneficiary is not spouse): _____________________________________ (Signature) _____________________________________ (Print name) -3- REPLAYTV, INC. 2000 EMPLOYEE STOCK PURCHASE PLAN NOTICE OF WITHDRAWAL -------------------- I, __________________________, hereby elect to withdraw my participation in the ReplayTV, Inc. 2000 Employee Stock Purchase Plan (the "Plan") for the ---- Offering Period that began on _________ ___, _____. This withdrawal covers all Contributions credited to my account and is effective on the date designated below. I understand that all Contributions credited to my account will be paid to me within ten (10) business days of receipt by the Company of this Notice of Withdrawal and that my option for the current period will automatically terminate, and that no further Contributions for the purchase of shares can be made by me during the Offering Period. The undersigned further understands and agrees that he or she shall be eligible to participate in succeeding offering periods only by delivering to the Company a new Subscription Agreement. Dated:___________________ _______________________________________ Signature of Employee _______________________________________ Social Security Number EX-10.6 10 2000 DIRECTORS' STOCK OPTION PLAN Exhibit 10.6 REPLAYTV, INC. 2000 DIRECTORS' STOCK OPTION PLAN --------------------------------- 1. Purposes of the Plan. The purposes of this Directors' Stock Option -------------------- Plan are to attract and retain the best available personnel for service as Directors of the Company, to provide additional incentive to the Outside Directors of the Company to serve as Directors, and to encourage their continued service on the Board. All options granted hereunder shall be nonstatutory stock options. 2. Definitions. As used herein, the following definitions shall apply: ----------- (a) "Board" means the Board of Directors of the Company. ----- (b) "Change of Control" means a sale of all or substantially all of ----------------- the Company's assets, or any merger or consolidation of the Company with or into another corporation other than a merger or consolidation in which the holders of more than 50% of the shares of capital stock of the Company outstanding immediately prior to such transaction continue to hold (either by the voting securities remaining outstanding or by their being converted into voting securities of the surviving entity) more than 50% of the total voting power represented by the voting securities of the Company, or such surviving entity, outstanding immediately after such transaction. (c) "Code" means the Internal Revenue Code of 1986, as amended. ---- (d) "Common Stock" means the Common Stock of the Company. ------------ (e) "Company" means ReplayTV, Inc., a Delaware corporation. ------- (f) "Continuous Status as a Director" means the absence of any ------------------------------- interruption or termination of service as a Director. (g) "Corporate Transaction" means a dissolution or liquidation of the --------------------- Company, a sale of all or substantially all of the Company's assets, or a merger, consolidation or other capital reorganization of the Company with or into another corporation. (h) "Director" means a member of the Board. -------- (i) "Employee" means any person, including any officer or Director, -------- employed by the Company or any Parent or Subsidiary of the Company. The payment of a director's fee by the Company shall not be sufficient in and of itself to constitute "employment" by the Company. (j) "Exchange Act" means the Securities Exchange Act of 1934, as ------------ amended. (k) "Option" means a stock option granted pursuant to the Plan. All ------ options shall be nonstatutory stock options (i.e., options that are not intended to qualify as incentive stock options under Section 422 of the Code). (l) "Optioned Stock" means the Common Stock subject to an Option. -------------- (m) "Optionee" means an Outside Director who receives an Option. -------- (n) "Outside Director" means a Director who is not an Employee. ---------------- (o) "Parent" means a "parent corporation," whether now or hereafter ------ existing, as defined in Section 424(e) of the Code. (p) "Plan" means this 2000 Directors' Stock Option Plan. ---- (q) "Share" means a share of the Common Stock, as adjusted in ----- accordance with Section 11 of the Plan. (r) "Subsidiary" means a "subsidiary corporation," whether now or ---------- hereafter existing, as defined in Section 424(f) of the Code. 3. Stock Subject to the Plan. Subject to the provisions of Section 11 of ------------------------- the Plan, the number of Shares that are available to be sold under the Plan is 300,000 Shares of Common Stock. As of January 1 of each year beginning in 2001 and ending in 2009, the aggregate number of Shares available to be sold under the Plan shall automatically be increased by the number of Shares necessary to cause the number of Shares then available for sale to be restored to 300,000 Shares. Notwithstanding the above, the maximum aggregate number of Shares that may be sold over the term of the Plan shall be 3,000,000. The Shares may be authorized, but unissued, or reacquired Common Stock. If an Option should expire or become unexercisable for any reason without having been exercised in full, the unpurchased Shares that were subject thereto shall, unless the Plan has been terminated, become available for future grant under the Plan. In addition, any Shares of Common Stock that are retained by the Company upon exercise of an Option in order to satisfy the exercise price for such Option, or any withholding taxes due with respect to such exercise, shall be treated as not issued and shall continue to be available under the Plan. If Shares that were acquired upon exercise of an Option are subsequently repurchased by the Company, such Shares shall not in any event be returned to the Plan and shall not become available for future grant under the Plan. 4. Administration of and Grants of Options under the Plan. ------------------------------------------------------ (a) Administrator. Except as otherwise required herein, the Plan ------------- shall be administered by the Board. -2- (b) Procedure for Grants. All grants of Options hereunder shall be -------------------- automatic and nondiscretionary and shall be made strictly in accordance with the following provisions: (i) No person shall have any discretion to select which Outside Directors shall be granted Options or to determine the number of Shares to be covered by Options granted to Outside Directors. (ii) Each Outside Director who becomes an Outside Director after the effective date of this Plan shall be automatically granted an Option to purchase 50,000 Shares (the "First Option") on the date on which such person ------------ first becomes an Outside Director, whether through election by the stockholders of the Company or appointment by the Board to fill a vacancy. (iii) Each Outside Director shall thereafter be automatically granted an Option to purchase 15,000 Shares (a "Annual Option") on the date of ------------- each Annual Meeting of the Company's stockholders immediately following which such Outside Director is serving on the Board, provided that, on such date, he or she shall have served on the Board for at least six (6) months prior to the date of such Annual Meeting. (iv) Notwithstanding the provisions of subsections (ii) and (iii) hereof, in the event that a grant would cause the number of Shares subject to outstanding Options plus the number of Shares previously purchased upon exercise of Options to exceed the Pool, then each such automatic grant shall be for that number of Shares determined by dividing the total number of Shares remaining available for grant by the number of Outside Directors receiving an Option on the automatic grant date. Any further grants shall then be deferred until such time, if any, as additional Shares become available for grant under the Plan through action of the stockholders to increase the number of Shares which may be issued under the Plan or through cancellation or expiration of Options previously granted hereunder. (v) Notwithstanding the provisions of subsections (ii) and (iii) hereof, any grant of an Option made before the Company has obtained stockholder approval of the Plan in accordance with Section 17 hereof shall be conditioned upon obtaining such stockholder approval of the Plan in accordance with Section 17 hereof. (vi) The terms of each First Option granted hereunder shall be as follows: (1) the First Option shall be exercisable only while the Outside Director remains a Director of the Company, except as set forth in Section 9 below; (2) the exercise price per Share shall be 100% of the fair market value per Share on the date of grant of the First Option, determined in accordance with Section 8 hereof; and -3- (3) the First Option shall become vested and exercisable in installments as to one-third of the Shares subject to the First Option on each of the first, second and third anniversaries of the date of grant of the Option. (vii) The terms of each Annual Option granted hereunder shall be as follows: (1) the Annual Option shall be exercisable only while the Outside Director remains a Director of the Company, except as set forth in Section 9 below; (2) the exercise price per Share shall be 100% of the fair market value per Share on the date of grant of the Annual Option, determined in accordance with Section 8 hereof; and (3) the Annual Option shall become vested and exercisable as to 100% of the Shares subject to the Annual Option on the first anniversary of the date of grant of the Option. (c) Powers of the Board. Subject to the provisions and restrictions ------------------- of the Plan, the Board shall have the authority, in its discretion: (i) to determine, upon review of relevant information and in accordance with Section 8(b) of the Plan, the fair market value of the Common Stock; (ii) to determine the exercise price per Share of Options to be granted, which exercise price shall be determined in accordance with Section 8 of the Plan; (iii) to interpret the Plan; (iv) to prescribe, amend and rescind rules and regulations relating to the Plan; (v) to authorize any person to execute on behalf of the Company any instrument required to effectuate the grant of an Option previously granted hereunder; and (vi) to make all other determinations deemed necessary or advisable for the administration of the Plan. (d) Effect of Board's Decision. All decisions, determinations and -------------------------- interpretations of the Board shall be final and binding on all Optionees and any other holders of any Options granted under the Plan. (e) Suspension or Termination of Option. If the Chief Executive ----------------------------------- Officer or his or her designee reasonably believes that an Optionee has committed an act of misconduct, such officer may suspend the Optionee's right to exercise any option pending a determination by the Board (excluding the Outside Director accused of such misconduct). If the Board (excluding the Outside Director accused of such misconduct) determines an Optionee has committed an act of embezzlement, fraud, dishonesty, nonpayment of an obligation owed to the Company, breach of fiduciary duty or deliberate disregard of the Company rules resulting in loss, damage or injury to the Company, or if an Optionee makes an unauthorized disclosure of any Company trade secret or confidential information, engages in any conduct constituting unfair competition, induces any Company customer to breach a contract with the Company or induces any principal for whom the Company acts as agent to terminate such agency relationship, neither the Optionee nor his or her estate shall be entitled to exercise any Option whatsoever. In making such determination, the Board of Directors (excluding the Outside Director accused of such -4- misconduct) shall act fairly and shall give the Optionee an opportunity to appear and present evidence on Optionee's behalf at a hearing before the Board or a committee of the Board. 5. Eligibility. Options may be granted only to Outside Directors. All ----------- Options shall be automatically granted in accordance with the terms set forth in Section 4(b) above. An Outside Director who has been granted an Option may, if he or she is otherwise eligible, be granted an additional Option or Options in accordance with such provisions. The Plan shall not confer upon any Optionee any right with respect to continuation of service as a Director or nomination to serve as a Director, nor shall it interfere in any way with any rights which the Director or the Company may have to terminate his or her directorship at any time. 6. Term of Plan; Effective Date. The Plan shall become effective on the ---------------------------- effectiveness of the registration statement under the Securities Act of 1933, as amended, relating to the Company's initial public offering of securities. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 13 of the Plan. 7. Term of Options. The term of each Option shall be ten (10) years from --------------- the date of grant thereof unless an Option terminates sooner pursuant to Section 9 below. 8. Exercise Price and Consideration. -------------------------------- (a) Exercise Price. The per Share exercise price for the Shares to be -------------- issued pursuant to exercise of an Option shall be 100% of the fair market value per Share on the date of grant of the Option. (b) Fair Market Value. The fair market value as of any date shall be ----------------- determined by the Board; provided however that in the event the Common Stock is traded on the Nasdaq National Market or listed on a stock exchange, the fair market value per Share shall be the closing sales price on such system or exchange on the date of grant of the Option (or, in the event that the Common Stock is not traded on such date, on the immediately preceding trading date), as reported in The Wall Street Journal, or if there is a public market for the ----------------------- Common Stock but the Common Stock is not traded on the Nasdaq National Market or listed on a stock exchange, the fair market value per Share shall be the mean of the bid and asked prices of the Common Stock in the over-the-counter market on the date of grant, as reported in The Wall Street Journal (or, if not so ------------------------ reported, as otherwise reported by the National Association of Securities Dealers Automated Quotation ("Nasdaq") System). (c) Form of Consideration. The consideration to be paid for the --------------------- Shares to be issued upon exercise of an Option shall consist entirely of cash, check, other Shares of Common Stock having a fair market value on the date of surrender equal to the aggregate exercise price of the Shares as to which the Option shall be exercised (which, if acquired from the Company, shall have been held more than six months), delivery of a properly executed exercise notice together with such other documentation as the Administrator and the broker, if applicable, shall require to effect exercise of the Option and prompt delivery to the Company of the sale or loan proceeds -5- required to pay the exercise price, or any combination of such methods of payment and/or any other consideration or method of payment as shall be permitted under applicable corporate law. 9. Exercise of Option. ------------------ (a) Procedure for Exercise; Rights as a Stockholder. Any Option ----------------------------------------------- granted hereunder shall be exercisable at such times as are set forth in Section 4(b) above; provided however that no Options shall be exercisable prior to stockholder approval of the Plan in accordance with Section 17 below has been obtained. An Option may not be exercised for a fraction of a Share. An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Full payment may consist of any consideration and method of payment allowable under Section 8(c) of the Plan. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. A share certificate for the number of Shares so acquired shall be issued to the Optionee as soon as practicable after exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 11 of the Plan. Exercise of an Option in any manner shall result in a decrease in the number of Shares which thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) Termination of Continuous Status as a Director. If an Outside ---------------------------------------------- Director ceases to serve as a Director, he or she may, but only within ninety (90) days after the date he or she ceases to be a Director of the Company, exercise his or her Option to the extent that he or she was entitled to exercise it at the date of such termination. Notwithstanding the foregoing, in no event may the Option be exercised after its term set forth in Section 7 has expired. To the extent that such Outside Director was not entitled to exercise an Option at the date of such termination, or does not exercise such Option (to the extent he or she was entitled to exercise) within the time specified above, the Option shall terminate and the Shares underlying the unexercised portion of the Option shall revert to the Plan. (c) Disability of Optionee. Notwithstanding Section 9(b) above, in ---------------------- the event a Director is unable to continue his or her service as a Director with the Company as a result of his or her total and permanent disability (as defined in Section 22(e)(3) of the Code), he or she may, but only within twelve (12) months from the date of such termination, exercise his or her Option to the extent he or she was entitled to exercise it at the date of such termination. Notwithstanding the foregoing, in no event may the Option be exercised after its term set forth in Section 7 has expired. To the extent that he or she was not entitled to exercise the Option at the -6- date of termination, or if he or she does not exercise such Option (to the extent he or she was entitled to exercise) within the time specified above, the Option shall terminate and the Shares underlying the unexercised portion of the Option shall revert to the Plan. (d) Death of Optionee. In the event of the death of an Optionee (i) ----------------- during the term of the Option who is, at the time of his or her death, a Director of the Company and who shall have been in Continuous Status as a Director since the date of grant of the Option, or (ii) three (3) months after the termination of Continuous Status as a Director, the Option may be exercised, at any time within twelve (12) months following the date of death, by the Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent of the right to exercise that had accrued at the date of death or the date of termination, as applicable. Notwithstanding the foregoing, in no event may the Option be exercised after its term set forth in Section 7 has expired. To the extent that an Optionee was not entitled to exercise the Option at the date of death or termination or if he or she does not exercise such Option (to the extent he or she was entitled to exercise) within the time specified above, the Option shall terminate and the Shares underlying the unexercised portion of the Option shall revert to the Plan. 10. Nontransferability of Options. The Option may not be sold, pledged, ----------------------------- assigned, hypothecated, transferred or disposed of in any manner other than (a) by will or by the laws of descent or distribution; (b) pursuant to a qualified domestic relations order (as defined by the Code or the rules thereunder); (c) by gift to the Optionee's Family; or (d) by gift or in exchange for an interest in such entity to (i) a trust in which Optionee and/or Optionee's Family have more than fifty percent of the beneficial interest, (ii) a foundation in which Optionee and/or Optionee's Family control the management of assets, or (iii) any other entity in which Optionee and/or Optionee's Family own more than fifty percent of the voting interests. For purposes of this Section 10, Optionee's "Family" shall include any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law, including adoptive relationships, and any person sharing the employee's household (other than a tenant or employee). The designation of a beneficiary by an Optionee does not constitute a transfer. An Option may be exercised during the lifetime of an Optionee only by the Optionee or a transferee permitted by this Section. 11. Adjustments Upon Changes in Capitalization; Corporate Transactions. ------------------------------------------------------------------ (a) Adjustment. Subject to any required action by the stockholders of ---------- the Company, the number of shares of Common Stock covered by each outstanding Option, the number of Shares of Common Stock set forth in Sections 4(b)(ii) and (iii) above, and the number of Shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per Share of Common Stock covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued Shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock (including any such change -7- in the number of Shares of Common Stock effected in connection with a change in domicile of the Company) or any other increase or decrease in the number of issued Shares of Common Stock effected without receipt of consideration by the Company; provided however that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option. (b) Corporate Transactions. In the event of a Corporate Transaction, ---------------------- each outstanding Option shall be assumed or an equivalent option shall be substituted by the successor corporation or a Parent or Subsidiary of such successor corporation, unless the successor corporation does not agree to assume the outstanding Options or to substitute equivalent options, in which case the Options shall terminate upon the consummation of the transaction; provided however that in the event of any transaction that qualifies as a Change of Control and notwithstanding whether or not outstanding Options are assumed, substituted for or terminated in connection with the transaction, the vesting of each outstanding Option shall accelerate in full such that each Optionee shall have the right to exercise his or her Option as to all of the Optioned Stock, including Shares as to which the Option would not otherwise be exercisable, immediately prior to consummation of the transaction. For purposes of this Section 11(b), an Option shall be considered assumed, without limitation, if, at the time of issuance of the stock or other consideration upon such Corporate Transaction, each Optionee would be entitled to receive upon exercise of an Option the same number and kind of shares of stock or the same amount of property, cash or securities as the Optionee would have been entitled to receive upon the occurrence of such transaction if the Optionee had been, immediately prior to such transaction, the holder of the number of Shares of Common Stock covered by the Option at such time (after giving effect to any adjustments in the number of Shares covered by the Option as provided for in this Section 11); provided however that if such consideration received in the transaction was not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon exercise of the Option to be solely common stock of the successor corporation or its Parent equal to the Fair Market Value of the per Share consideration received by holders of Common Stock in the transaction. (c) Certain Distributions. In the event of any distribution to the --------------------- Company's stockholders of securities of any other entity or other assets (other than dividends payable in cash or stock of the Company) without receipt of consideration by the Company, the Administrator may, in its discretion, appropriately adjust the price per Share of Common Stock covered by each outstanding Option to reflect the effect of such distribution. 12. Time of Granting Options. The date of grant of an Option shall, for ------------------------ all purposes, be the date determined in accordance with Section 4(b) hereof. Notice of the -8- determination shall be given to each Outside Director to whom an Option is so granted within a reasonable time after the date of such grant. 13. Amendment and Termination of the Plan. ------------------------------------- (a) Amendment and Termination. The Board may amend or terminate the ------------------------- Plan from time to time in such respects as the Board may deem advisable; provided that, to the extent necessary and desirable to comply with Rule 16b-3 under the Exchange Act (or any other applicable law or regulation), the Company shall obtain approval of the stockholders of the Company to Plan amendments to the extent and in the manner required by such law or regulation. (b) Effect of Amendment or Termination. Any such amendment or ---------------------------------- termination of the Plan that would impair the rights of any Optionee shall not affect Options already granted to such Optionee and such Options shall remain in full force and effect as if this Plan had not been amended or terminated, unless mutually agreed otherwise between the Optionee and the Board, which agreement must be in writing and signed by the Optionee and the Company. 14. Conditions Upon Issuance of Shares. Notwithstanding any other ---------------------------------- provision of the Plan or any agreement entered into by the Company pursuant to the Plan, the Company shall not be obligated, and shall have no liability for failure, to issue or deliver any Shares under the Plan unless such issuance or delivery would comply with the legal requirements relating to the administration of stock option plans under applicable U.S. state corporate laws, U.S. federal and applicable state securities laws, the Code, any stock exchange or Nasdaq rules or regulations to which the Company may be subject and the applicable laws of any other country or jurisdiction where Options are granted under the Plan, as such laws, rules, regulations and requirements shall be in place from time to time (the "Applicable Laws"). Such compliance shall be determined by the --------------- Company in consultation with its legal counsel. As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by law. 15. Reservation of Shares. The Company, during the term of this Plan, --------------------- will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. 16. Option Agreement. Options shall be evidenced by written option ---------------- agreements in such form as the Board shall approve. 17. Stockholder Approval. If required by the Applicable Laws, continuance -------------------- of the Plan shall be subject to approval by the stockholders of the Company. Such stockholder approval shall be obtained in the manner and to the degree required under the Applicable Laws. -9- REPLAYTV, INC. 2000 DIRECTORS' STOCK OPTION PLAN NOTICE OF STOCK OPTION GRANT ---------------------------- ((Optionee)) You have been granted an option to purchase Common Stock of ReplayTV, Inc. (the "Company") as follows: ------- Date of Grant ((GrantDate)) Vesting Commencement Date ((VestingStartDate)) Exercise Price per Share ((ExercisePrice)) Total Number of Shares Granted ((SharesGranted)) Total Exercise Price ((TotalExercisePrice)) Expiration Date ((ExpirDate)) Vesting Schedule This Option shall vest and become exercisable according to the following schedule: [for First Options: one-third of the Shares subject to the Option shall vest and become exercisable on each of the first, second and third anniversaries of the date of grant of the Option]; [for Annual Options: 100% of the Shares subject to the Option shall vest and become exercisable on the first anniversary of the date of grant of the Option.] Termination Period This Option may be exercised for 90 days after termination of Optionee's Continuous Status as a Director, or such longer period as may be applicable upon death or Disability of Optionee as provided in the Plan, but in no event later than the Expiration Date as provided above. By your signature and the signature of the Company's representative below, you and the Company agree that this option is granted under and governed by the terms and conditions of the 2000 Directors' Stock Option Plan and the Nonstatutory Stock Option Agreement, all of which are attached and made a part of this document. In addition, you agree and acknowledge that your rights to any Shares underlying the Option will be earned only as you provide services to the Company over time and that the grant of the Option is not as consideration for services you rendered to the Company prior to your Vesting Commencement Date. OPTIONEE: REPLAYTV, INC. ____________________________ By:_______________________ ((Optionee)) Title:____________________ -2- REPLAYTV, INC. NONSTATUTORY STOCK OPTION AGREEMENT ----------------------------------- 1. Grant of Option. The Board of Directors of the Company hereby grants --------------- to the Optionee named in the Notice of Stock Option Grant (the "Optionee") -------- attached to this Agreement an option (the "Option") to purchase a number of ------ Shares, as set forth in the Notice of Stock Option Grant, at the exercise price per share set forth in the Notice of Stock Option Grant (the "Exercise Price"'), -------------- subject to the terms and conditions of the 2000 Directors' Stock Option Plan (the "Plan"), which is incorporated herein by reference. Capitalized terms not ---- defined herein shall have the meanings ascribed to such terms in the Plan. In the event of a conflict between the terms and conditions of the Plan and the terms and conditions of this Nonstatutory Stock Option Agreement, the terms and conditions of the Plan shall prevail. 2. Exercise of Option. ------------------ (a) Right to Exercise. This Option is exercisable during its term in ----------------- accordance with the Vesting Schedule set out in the Notice of Stock Option Grant and the applicable provisions of the Plan and this Nonstatutory Stock Option Agreement. In the event of Optionee's death, disability or other termination of Optionee's service as a Director, the exercisability of the Option is governed by the applicable provisions of the Plan and this Nonstatutory Stock Option Agreement. (b) Method of Exercise. This Option is exercisable by delivery of an ------------------ exercise notice, in the form attached as Exhibit A (the "Exercise Notice"), --------- --------------- which shall state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised (the "Exercised Shares"), and ---------------- such other representations and agreements as may be required by the Company pursuant to the provisions of the Plan. The Exercise Notice shall be signed by the Optionee and shall be delivered in person or by certified mail to the Secretary of the Company. The Exercise Notice shall be accompanied by payment of the aggregate Exercise Price as to all Exercised Shares. This Option shall be deemed to be exercised upon receipt by the Company of such fully executed Exercise Notice accompanied by such aggregate Exercise Price. No Shares shall be issued pursuant to the exercise of this Option unless such issuance and exercise complies with all relevant provisions of law and the requirements of any stock exchange or quotation service upon which the Shares are then listed. Assuming such compliance, for income tax purposes the Exercised Shares shall be considered transferred to the Optionee on the date the Option is exercised with respect to such Exercised Shares. 3. Method of Payment. Payment of the aggregate Exercise Price shall be by ----------------- any of the following, or a combination thereof, at the election of the Optionee: (a) cash; (b) check; (c) delivery of a properly executed exercise notice together with such other documentation as the Administrator and the broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the exercise price; or (d) surrender of other Shares which (i) in the case of Shares acquired upon exercise of an option, have been owned by the Optionee for more than six (6) months on the date of surrender, and (ii) have a Fair Market Value on the date of surrender equal to the aggregate Exercise Price of the Exercised Shares. 4. Non-Transferability of Option. This Option may not be sold, pledged, ----------------------------- assigned, hypothecated, transferred or disposed of in any manner other than (a) by will or by the laws of descent or distribution; (b) pursuant to a qualified domestic relations order (as defined by the Code or the rules thereunder); (c) by gift to the Optionee's Family (as defined in Section 10 of the Plan); or (d) by gift or in exchange for an interest in such entity to (i) a trust in which Optionee and/or Optionee's Family have more than fifty percent of the beneficial interest, (ii) a foundation in which Optionee and/or Optionee's Family control the management of assets, or (iii) any other entity in which Optionee and/or Optionee's Family own more than fifty percent of the voting interests. An Option may be exercised during the lifetime of an Optionee only by the Optionee or a transferee permitted by this Section. The terms of the Plan and this Nonstatutory Stock Option Agreement shall be binding upon the executors, administrators, heirs, successors, assigns and transferees of the Optionee. 5. Term of Option. This Option may be exercised only within the term set -------------- out in the Notice of Stock Option Grant, and may be exercised during such term only in accordance with the Plan and the terms of this Nonstatutory Stock Option Agreement. 6. Tax Consequences. Set forth below is a brief summary of certain ---------------- federal and California tax consequences relating to this Option under the law in effect as of the date of grant. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT HIS OR HER OWN TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES. (a) Exercising the Option. Since this Option does not qualify as an --------------------- incentive stock option under Section 422 of the Code, the Optionee may incur regular federal and California income tax liability upon exercise. The Optionee will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the fair market value of the Exercised Shares on the date of exercise over their aggregate Exercise Price. (b) Disposition of Shares. If the Optionee holds the Option Shares --------------------- for more than one year, gain realized on disposition of the Shares will be treated as long-term capital gain for federal and California income tax purposes. Long-term capital gain will be taxed for federal income tax and alternative minimum tax purposes at a maximum rate of 20% if the Shares are held more than one year after exercise. -2- By your signature and the signature of the Company's representative below, you and the Company agree that this Option is granted under and governed by the terms and conditions of the Plan and this Nonstatutory Stock Option Agreement. Optionee has reviewed the Plan and this Nonstatutory Stock Option Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Nonstatutory Stock Option Agreement and fully understands all provisions of the Plan and Nonstatutory Stock Option Agreement. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions relating to the Plan and Nonstatutory Stock Option Agreement. REPLAYTV, INC. _____________________________ By:_______________________________ ((Optionee)) Title:____________________________ CONSENT OF SPOUSE ----------------- The undersigned spouse of Optionee has read and hereby approves the terms and conditions of the Plan and this Nonstatutory Stock Option Agreement. In consideration of the Company's granting his or her spouse the right to purchase Shares as set forth in the Plan and this Nonstatutory Stock Option Agreement, the undersigned hereby agrees to be irrevocably bound by the terms and conditions of the Plan and this Nonstatutory Stock Option Agreement and further agrees that any community property interest shall be similarly bound. The undersigned hereby appoints the undersigned's spouse as attorney-in-fact for the undersigned with respect to any amendment or exercise of rights under the Plan or this Nonstatutory Stock Option Agreement. __________________________________ Spouse of Optionee -3- EXHIBIT A --------- NOTICE OF EXERCISE ------------------ To: ReplayTV, Inc. Attn: Stock Option Administrator Subject: Notice of Intention to Exercise Stock Option -------------------------------------------- This is official notice that the undersigned ("Optionee") intends to -------- exercise Optionee's option to purchase __________ shares of ReplayTV, Inc. Common Stock, under and pursuant to the Company's 2000 Directors' Stock Option Plan and the Nonstatutory Stock Option Agreement dated _______________, as follows: Grant Number: _________________________________ Date of Purchase: _________________________________ Number of Shares: _________________________________ Purchase Price: _________________________________ Method of Payment of Purchase Price: _________________________________ Social Security No.: _________________________________ The shares should be issued as follows: Name: _________________________________ Address: _________________________________ _________________________________ _________________________________ Signed: _________________________________ Date: _________________________________ EX-10.7 11 OFFER LETTER WITH EARL H. "KIM" LEMASTERS, III EXHIBIT 10.7 August 20, 1999 Mr. Kim LeMasters 3455 Wonder View Place Los Angeles, CA 90068 Dear Kim, I speak for the entire Board in saying how much we have valued the meetings and conversation we've had with you over the last few weeks. It is clear that your experience, judgement, and leadership would be of enormous benefit to Replay Networks. Recognizing that you have other opportunities available to you, we wish to act decisively to attract your talents to our Company. On behalf of the Board of Directors, I am pleased to offer you the position of Chairman of the Board and Chief Executive Officer of Replay Networks. Accordingly, the terms of our offer are specified as follows: TITLE & RESPONSIBILITIES Your title will be Chairman of the Board and Chief Executive Officer. You will have responsibility for the direction and organization of the Company, all budget matters, and the supervision of, the assignment of work to, and the hiring and firing of all employees, contractors and consultants of the Company. This offer is for a full time position located at offices of the Company, except as travel to other locations may be necessary to fulfill your responsibilities. Assuming your acceptance, the Board members, at their next meeting, will vote in their capacity as directors, in such a manner so as to elect you as Chairman of the Board. Upon your election, the Board will task you with forming a Nominating Committee whose function shall be to identify individuals of proven business experience who might be willing to join the Board. The Company will continue to nominate you for election as a Board member at each Annual Meeting of Shareholders so long as you serve as Chief Executive Officer. In your capacity as CEO, you will report to the Board of Directors of the Company. Mr. Kim LeMasters August 20, 1999 Page 2 COMPENSATION Your initial base salary will be $30,000 per month, subject to increase in good faith by the Board of Directors, payable in accordance with the Company's customary payroll practice. The Company will reimburse you for all reasonable expenses incurred by you and related to the performance of your corporate duties, including all reasonable travel and related expenses, up to $50,000 per year. You will also be eligible to participate in the Company's incentive bonus program. Within 60 days after you commence employment, the Board of Directors acting through its Compensation Committee will develop jointly with you the goals and objectives connected with the incentive bonus award. Based on the approval of the Board and the achievement of both the Company and individual performance goals, you will be eligible to receive an annual bonus of up to 50% ($180,000 currently) of your base salary. Upon acceptance of this offer and after satisfaction of the terms herein incumbent upon you, the Board of Directors will vote to grant you an option to purchase 2,500,000 shares of the Company's Common Stock representing 6% of the fully diluted capital stock of the company, including presently reserved shares under all option plans. The vesting of this stock award will begin with the date of your commencement of full time employment pursuant to this letter agreement. Options become exercisable according to a 48 month exercise schedule which calls for the initial vesting of 12-1/2% (312,500 shares) of the total after the first 6 months of continuous service, and thereafter an additional 52,083 shares per month will become exercisable, at the close of each month of employment, over the remainder of the exercise term. The strike price for these options will be $4.00 per share, which is the current fair market price of the Company Common Stock, provided that you commence your employment with the Company on or before September 13, 1999. The option will be an incentive stock option to the maximum allowed by the tax code and will be subject to the terms of the Company's Stock Option Plan and the Stock Option Agreement between you and the Company. Accordingly, the Board will allow you to elect which portion of the shares you obtain in the form of: 1) immediate purchase under Section 83(b) of the Internal Revenue Code, subject to re-purchase; 2) Incentive Stock Option; 3) Non-Qualified Options. Corporate counsel at Venture Law Group will be available to assist you in evaluating the tax benefits of these different stock and option programs. The grant of the option will be subject to your execution of a mutually acceptable option agreement. In connection with the exercise of your option, the Company will provide a loan of up to $1,000,000. This loan will be evidenced by a full recourse promissory note, which will be secured by the shares purchased and will provide for interest at the minimum Mr. Kim LeMasters August 20, 1999 Page 3 Applicable Federal Rate, compounded annually. The term of this Note shall be five years, and any interest accrued will be due at such time as the principal is due. Further, and predicated upon your acceptance, the Board members, at their next meeting, will vote in their capacity as directors, and also with respect to the shares of stock for which they exercise voting control, in such a manner so as to permit you to purchase up to 100,000 shares of Series E Preferred at the same price ($7.50 per share), and on the same terms, as any other investor in the Series E Preferred securities. For the purpose of this agreement a "Change of Control Transaction" is defined as either: 1) the Company's merger or consolidation with another entity, or a series of related transactions, as a result of which the shareholders of the Company immediately prior to the transaction own less than 50% of the voting power of the entity surviving such transaction; or 2) the sale of all or substantially all of the Company's assets, business or capital stock, with the exception that an Initial Public Offering (IPO) shall not be deemed a Change of Control Transaction. Upon the closing of such a Change of Control Transaction, any time after 18 months from your commencement of full time employment, 75% of any unvested options which you then hold will become immediately vested. Should such a transaction occur within the first 18 months of your tenure, then your unvested options will be accelerated in their vesting schedule by one year; that is, the monthly vesting rate shall continue at 52,083 shares per month and the most distant options shall be accelerated. Further, if, following a Change of Control Transaction, the Company terminates your employment without cause (as defined below) or you terminate your employment for "just cause" (as defined below), the Company will continue to pay your salary and continue your benefits for 12 months and accelerate the vesting of your options by an additional 12 months, as described below. If, due to the benefits provided under this letter agreement, you are subject to any excise tax due to characterization of any amount payable hereunder as excess parachute payments pursuant to Sections 280G and 4999 of the Internal Revenue Code, Replay will pay the excise taxes otherwise payable by you under Section 4999 (but not any income or excise taxes on such payment of taxes by Replay on your behalf) with respect to any amounts payable to you under this Agreement, up to a maximum of $1,500,000. OTHER TERMS Subject to fulfillment of any conditions imposed by this letter agreement, you will commence the executive position with Replay Networks not later than Monday, September 13, 1999. It is our understanding that you will be available to participate in meetings of the Company's Board of Directors immediately. You will not render commercial or professional services of any nature to any person or organization, whether or not for compensation, without the prior written consent of the Company's Board of Directors. And you will not directly or indirectly engage or Mr. Kim LeMasters August 20, 1999 Page 4 participate in any business that is competitive in any manner with the business of the Company. However, the Company acknowledges that you already serve on the board of both public and private companies and those existing commitments do not represent a conflict of interest with Replay Networks. Because of Federal regulations adopted in the Immigration Reform and Control Act of 1986, you will need to present documentary evidence of your identity and eligibility for employment in the United States. Such documentation must be provided to the Company within 3 business days of your date of hire. As an employee of Replay Networks, you will have access to certain Company confidential information and you may, during the course of your employment, develop certain information or inventions which will be the property of the Company. To protect the interest of the Company, you will need to sign the Company's standard "Employee Inventions and Confidentiality Agreement" as a condition of your employment. The Company will provide you with their standard benefits package, which includes medical, dental, vision, life and long term disability. You will be entitled to three (3) weeks paid vacation in any one (1) calendar year with the understanding that such vacation benefits, if unused, shall not accumulate. While we look forward to a long and profitable relationship, should you decide to accept our offer, the employment relationship is for no specified period and can be terminated by either of us for any reason, with or without cause, at any time, and without further obligation or liability. Further, your participation in any stock option or benefit program is not to be regarded as assuring you of continuing employment for any particular period of time. Should the Board terminate you, other than for Cause, the Company will continue to pay your salary and continue your benefits for 12 months from the date of such an event; and accelerate the vesting of your options by an additional 12 months (625,000 shares), over and above any options which would have vested by that time. For purposes of this letter agreement, the term "cause" shall mean: 1) willful and repeated failure to comply with the lawful written directions of the Board of Directors, which failure, if capable of cure, has not been cured within 30 days of written notice from the Board of Directors; 2) gross negligence or willful misconduct in the performance of duties to the Company, which, if capable of cure, has not been cured within 30 days of written notice from the Board of Directors; 3) commission of any act of fraud with respect to the Company; or 4) conviction of a felony or a crime causing material harm to the standing and reputation of the Company, in each case as determined in good faith by the Board of Directors Mr. Kim LeMasters August 20, 1999 Page 5 You shall have the right, on written notice to the Company, to terminate your employment if you resign for "just cause," which shall mean a resignation as a direct result of: (a) a material breach of the Company of its obligations under this Agreement, provided that if such breach is capable of remedy, a written notice of such breach shall be provided to the Company within 30 days of such breach, an opportunity to cure such breach shall be afforded the Company and, in such event, just cause shall exist if the Company shall fail to cure such breach with a reasonable period of time after notice but not to exceed 30 days; (b) any material decrease of your duties or authority or any change in your reporting relationship, provided, however, that your continuing as Chief Executive Officer of a business unit, division or subsidiary or Chief Executive Officer of the Company or a company into which the Company is merged in a Change of Control Transaction or otherwise acquiring assets or stock of the Company in connection with a Change of Control Transaction, or a parent of such a company, shall not in and of itself constitute a material decrease of your duties or authority or a change in your reporting relationship, absent some other material decrease of your duties or authority; (c) a material decrease in the benefits provided pursuant to this Agreement; (d) the relocation of the place of your employment to a location outside California; or (e) failure of any successor to assume this Agreement. In the event of your termination of your employment pursuant to just cause, the Company shall pay your salary and continue your benefits for 12 months from the date of such an event, and accelerate vesting of your options by an additional 12 months (625,000 shares) over any options that would have vested by that time. This offer will expire at 12:00 p.m. on Wednesday, August 25, 1999. However, in the interim, should you desire access to Company information or documents, or require more time to make your decision, please let me know. To indicate your acceptance of the Company's offer, please sign and date this letter in the space provided below and return it to me. A duplicate original is enclosed for your records. This letter agreement sets forth the terms of your employment with Replay Networks, and supersedes any prior representations or agreements, whether written or oral. This letter agreement may not be modified or amended except by a written agreement, signed by an officer of the Company and by you. Mr. Kim LeMasters August 20, 1999 Page 6 Kim, we are enormously excited about the possibility of you joining Replay Networks. We look forward with high expectations to working with you. I am confident you will make a great Chief Executive. Sincerely, ON BEHALF OF THE BOARD OF DIRECTORS OF REPLAY NETWORKS, INC. William R. Hearst III, Director /s/ William R. Hearst III Agreed and Accepted 8/27/1999 /s/ Kim LeMasters ------------------------------------------- Kim LeMasters EX-10.8 12 OFFER LETTER WITH ANTHONY J. WOOD EXHIBIT 10.8 March 5, 1999 Anthony J. Wood 11 Somerset Place Palo Alto, CA 94301 Dear Anthony: The following sets forth the revised terms of your employment relationship with Replay Networks, Inc. (the "Company"). This letter agreement replaces and ------- supercedes in its entirety that certain employment offer letter agreement dated November 10, 1997 between you and Pacific Digital Media, Inc. (the "Prior Offer ----------- Letter"). - ------ 1. Position. -------- a. You will continue to serve as the Chairman, President, Chief Executive Officer and Acting Chief Financial Officer of the Company. You will report to the Company's Board of Directors. b. You agree to the best of your ability and experience that you will at all times loyally and conscientiously perform all of the duties and obligations required of and from you pursuant to the express and implicit terms hereof, and to the reasonable satisfaction of the Company. During the term of your employment, you further agree that you will devote all of your business time and attention to the business of the Company, the Company will be entitled to all of the benefits and profits arising from or incident to all such work services and advice, you will not render commercial or professional services of any nature to any person or organization, whether or not for compensation, without the prior written consent of the Company's Board of Directors, and you will not directly or indirectly engage or participate in any business that is competitive in any manner with the business of the Company. Nothing in this letter agreement will prevent you from accepting speaking or presentation engagements in exchange for honoraria or from serving on boards of charitable organizations, or from owning no more than one percent (1%) of the outstanding equity securities of a corporation whose stock is listed on a national stock exchange. 2. Compensation. ------------ a. Base Salary. You will be paid a monthly salary of $12,500, which ----------- is equivalent to $150,000 on an annualized basis. Your salary will be payable in two equal payments per month pursuant to the Company's regular payroll policy (or in the same manner as other March 5, 1999 Page 2 officers of the Company). Pursuant to the Prior Offer Letter, as of January 26, 1998, your annual base salary should have been increased to $100,000 from $12,000. To the extent such increase was not implemented, you will be entitled to deferred compensation from January 26, 1998 until such date as the Company first begins to pay you at the rate of $100,000 or greater per year, equal to the difference between the base salary actually paid during such period and $100,000, both on an annualized basis. b. Annual Review. Your base salary will be reviewed at the end of ------------- each calendar year as part of the Company's normal salary review process. 3. Stock. ----- a. Current Position. Pursuant to a Common Stock Purchase Agreement ---------------- dated as of September 15, 1997, you purchased 3,000,000 shares of Common Stock of the Company (the "Shares"). The Shares are subject to a repurchase option in ------ favor of the Company should your employment with the Company terminate. Such repurchase option currently lapses at the rate of 1/36th of the total number of Shares each month from the vesting commencement date of August 1, 1997, and will be fully released from the Company's repurchase option as of August 1, 2000 (the "Vesting Schedule"). ---------------- b. Acceleration of Vesting. In the event that the Company hires a ----------------------- new Chief Executive Officer, all of the Shares that have not yet been released from the Company's repurchase option pursuant to the Vesting Schedule will immediately be released from the repurchase option and will be fully vested as of the date of hire of the new Chief Executive Officer. c. New Option Grant. The Company will recommend that the Board of ---------------- Directors grant you an option to purchase 137,500 shares of the Company's Common Stock ("Option Shares") with an exercise price equal to the fair market value on ------------- the date of the grant. These option shares will vest at the rate of 1/12th of the total number of Option Shares on each monthly anniversary of the vesting commencement date, which shall be August 1, 2000. Vesting will, of course, depend on your continued employment with the Company. The option will be an incentive stock option to the maximum extent allowed by the tax code and will be subject to the terms of the Company's 1997 Stock Option Plan and the Stock Option Agreement between you and the Company. d. Subsequent Option Grants. Subject to the discretion of the ------------------------ Company's Board of Directors, you may be eligible to receive additional grants of stock options or purchase rights from time to time in the future, on such terms and subject to such conditions as the Board of Directors shall determine as of the date of any such grant. 4. Benefits. -------- a. Insurance Benefits. The Company will provide you with standard ------------------ medical and dental insurance benefits. In addition, the Company currently indemnifies all officers and -2- March 5, 1999 Page 3 directors to the maximum extent permitted by law, and you have entered into the Company's standard form of Indemnification Agreement giving you such protection. Pursuant to the Indemnification Agreement, the Company has agreed to advance any expenses for which indemnification is available to the extent allowed by applicable law. b. Vacation, Sick Leave and Holidays. You will be entitled to three --------------------------------- weeks paid vacation/sick leave per year, plus seven paid holidays. 5. Severance Agreement. ------------------- a. If your employment is terminated by the Company or its successor for any reason other than Cause (as defined below) or you become subject to an Involuntary Termination (as defined below), you will be entitled to receive continuation of your base salary and insurance benefits and continued vesting under all stock options or restricted stock purchases for a period of 12 months following the date of termination of your employment. b. "Cause" shall mean (i) gross negligence or willful misconduct in ----- the performance of your duties to the Company where such gross negligence or willful misconduct has resulted or is likely to result in substantial and material damage to the Company or its subsidiaries, (ii) repeated unexplained or unjustified absence from the Company, (iii) a material and willful violation of any federal or state law; (iv) commission of any act of fraud with respect to the Company; or (v) conviction of a felony or a crime involving moral turpitude causing material harm to the standing and reputation of the Company, in each case as determined in good faith by the Board of Directors of the Company. c. "Involuntary Termination" shall include any termination by the ----------------------- Company other than for Cause and your voluntary termination, upon 30 days prior written notice to the Company, following (i) a material reduction or change in job duties, responsibilities and requirements inconsistent with your position with the Company and your prior duties, responsibilities and requirements, other than the hiring of a new Chief Executive Officer of the Company; (ii) any reduction of your base compensation (other than in connection with a general decrease in base salaries for most similarly situated employees); or (iii) your refusal to relocate to a location more than 50 miles from the Company's current location. 6. Confidentiality of Terms. You agree to follow the Company's strict ------------------------ policy that employees must not disclose, either directly or indirectly, any information, including any of the terms of this agreement, regarding salary, bonuses or stock purchase or option allocations to any person, including other employees of the Company; provided, however, that you may discuss such terms with members of your immediate family and any legal, tax or accounting specialists who provide you with individual legal, tax or accounting advice. 7. At-Will Employment. Notwithstanding the Company's obligation ------------------ described in Section 5 above, your employment with the Company will be on an "at will" basis, meaning that either you or the Company may terminate your employment at any time for any reason or no reason, without further obligation or liability. -3- March 5, 1999 Page 4 To indicate your acceptance of this offer, please sign and date this letter in the space provided below and return it to me. This letter, together with the Confidential Information and Invention Assignment Agreement previously executed by you, set forth the terms of your employment with the Company and supersede any prior representations or agreements, whether written or oral. This letter may not be modified or amended except by a written agreement, signed by the Company and by you. Very truly yours, REPLAY NETWORKS, INC. By: /s/ Anthony Wood ------------------------------ Title: President -------------------------- ACCEPTED AND AGREED: ANTHONY J. WOOD /s/ Anthony Wood - ------------------------------ Signature 3/5/99 - ------------------------------ Date -4- EX-10.9 13 OFFER LETTER WITH CRAIG W. DOUGHERTY EXHIBIT 10.9 October 13, 1999 Mr. Craig W. Dougherty 1885 Sunset Plaza Drive Los Angeles, CA 90069 Dear Craig, On behalf of the Board of Directors, I am pleased to offer you the position of Executive Vice President of Finance and Chief Financial Officer for Replay Networks, Inc. I have attached the details of your offer in an Appendix to this letter. This offer expires on October 21, 1999. Craig, there are many exciting challenges directly ahead and we have high expectations for the Company. I am confident that with your skills and experience, you will make a great contribution and will develop your skills at the same time. We think you'll find this new venture to be a fun and exciting place to work. You'll be working with a small group of excellent, dedicated professionals producing an innovative new consumer electronics product and service. We're looking forward to working with you! Best regards, /s/ Kim LeMasters Kim LeMasters CEO October 13, 1999 Page 2 Appendix The following sets forth the terms of your employment relationship with Replay Networks, Inc. (the "Company"). ------- 1) Position. -------- a) You will serve as the Executive Vice President of Finance and Chief Financial Officer. You will report to the Company's CEO. b) You agree to the best of your ability and experience that you will at all times loyally and conscientiously perform all of the duties and obligations required of and from you pursuant to the express and implicit terms hereof, and to the reasonable satisfaction of the Company. During the term of your employment, you further agree that you will devote all of your business time and attention to the business of the Company, the Company will be entitled to all of the benefits and profits arising from or incident to all such work services and advice, you will not render commercial or professional services of any nature to any person or organization, whether or not for compensation, without the prior written consent of the Company's CEO, and you will not directly or indirectly engage or participate in any business that is competitive in any manner with the business of the Company. c) Your start date will be November 1, 1999. ("Start Date"). 2) Compensation. ------------ a) Base Salary. You will be paid a monthly salary of $20,833.33, which ----------- is equivalent to $250,000 on an annualized basis. Your salary will be payable in two equal payments per month pursuant to the Company's regular payroll policy (or in the same manner as other officers of the Company). You will also be eligible to participate in the Company's incentive bonus program. The CEO will develop jointly with you the goals and objectives connected with the incentive bonus award. Based on the achievement of both the Company and individual performance goals, you will be eligible to receive an annual bonus of up to 40% of your base salary. b) Sign-on/Relocation Bonus. You will be eligible to receive a sign-on bonus calculated as the lesser of i) $100,000 or ii) the difference between $200,000 and the amount of the fiscal 1999 bonus you receive from Union Bank of California, subject to a minimum sign-on bonus of $50,000. In the event that you voluntarily resign or are terminated with Cause from your position with the Company prior to the date that is twelve months from the date your employment commences, you will repay the Company the full sum of your sign-on bonus. Further, in the event that you voluntarily resign or are terminated with Cause from your position with the Company after the date that is twelve months from the date your employment commences but prior to the date that is twenty-four months from the date your employment commences, you will repay the Company 50% of the sign-on bonus. Such payment shall be in the form of personal check or other negotiable instrument acceptable by the Company. You will also receive a $25,000 relocation allowance, payable with your first paycheck after commencing employment (reduced by applicable tax withholdings). c) Annual Review. Your base salary will be reviewed each calendar year ------------- as part of the Company's normal salary review process. October 13, 1999 Page 3 3) Stock. ----- a) On your Start Date the Board of Directors will grant you an option to purchase 600,000 shares of the Company Common Stock. The exercise price for these options will be the fair market value of the Company Common Stock at the date of grant. The options will vest according to a 4 year exercise schedule which calls for the initial vesting of 12.5% of the total number of shares after the first 6 months of continuous service, and provides for monthly vesting at the rate of an additional 1/48/th/ of the total number of shares at the close of each month of employment, over the remainder of the vesting schedule. The option will be an incentive stock option to the maximum allowed by the tax code and will be subject to the terms of the Company's Stock Option Plan and the Stock Option Agreement between you and the Company. Accordingly, the Board will allow you to elect which portion of the shares you obtain in the form of: 1) immediate purchase under Section 83(b) of the Internal Revenue Code, subject to re-purchase; 2) Incentive Stock Option; 3) Non-Qualified Options. Corporate counsel at Venture Law Group will be available to assist you in evaluating the tax benefits of these different stock and option programs. The grant of the option will be subject to your execution of a mutually acceptable option agreement. In connection with the exercise of your option, the Company will provide a loan of up to $1,000,000. This loan will be evidenced by a full recourse promissory note, which will be secured by the shares purchased and will provide for interest at the minimum Applicable Federal Rate, compounded annually. The term of this Note shall be five years, and any interest accrued will be due at such time as the principal is due. 4) Benefits. -------- a) Insurance Benefits. The Company will provide you with standard ------------------ medical and dental insurance benefits. In addition, the Company currently indemnifies all Officers to the maximum extent permitted by law. Upon entering into the Company's standard form of Indemnification Agreement, the Company will advance any expenses for which indemnification is available to the extent allowed by applicable law. b) Vacation, Sick Leave and Holidays. You will be entitled to three --------------------------------- weeks paid vacation/sick leave per year, plus eight paid holidays. c) 401(K). You will be eligible to participate in the Company's standard ------ 401(K) plan. 5) Severance Agreement. ------------------- a) If your employment is terminated by the Company or its successor for any reason other than Cause (as defined below) or you become subject to an Involuntary Termination (as defined below), within 12 months of a Change in Control (as defined below), you will be entitled to receive continuation of your base salary and insurance benefits for a period of 6 months and continued vesting under all stock options or restricted stock purchases for the greater of twelve (12) months or vesting of fifty (50%) percent of the shares that remain unvested at the time of such termination. b) In the event 5a does not apply, and your employment is terminated by the Company or its successor for any reason other than Cause (as defined below) or you become subject to an Involuntary Termination (as defined below), you will be entitled to receive continuation of your base salary and insurance benefits and continued vesting under all stock options or restricted stock purchases for a period of 6 months following the date of termination of your employment. October 13, 1999 Page 4 c) "Change in Control" shall mean i) the Company's merger or ----------------- consolidation with another entity, or a series of related transactions, as a result of which the shareholders of the Company immediately prior to the transaction own less than 50% of the voting power of the entity surviving or ii) the sale of substantially all of the assets of Replay. Cause" shall mean (I) gross negligence or ----- willful misconduct in the performance of your duties to the Company where such gross negligence or willful misconduct has resulted or is likely to result in substantial and material damage to the Company or its subsidiaries, (ii) repeated unexplained or unjustified absence from the Company, (iii) a material and willful violation of any federal or state law causing material harm to the standing and reputation of the Company; (iv) commission of any act of fraud with respect to the Company; (v) your material breach of this agreement if not cured within 10 days of notification by the Company or a material breach of your Employee Inventions and Confidentiality Agreement; (vi) conviction of a felony or a crime involving moral turpitude causing material harm to the standing and reputation of the Company, in each case as determined in good faith by the Board of Directors of the Company. d) "Involuntary Termination" shall include any termination by the Company ----------------------- other than for Cause and your voluntary termination, upon 30 days prior written notice to the Company, following (I) a material reduction or change in job duties, responsibilities and requirements inconsistent with your position with the Company and your prior duties, responsibilities and requirements (taking into account the difference in job title and duties that may occur following an acquisition but that do not actually result in a material change in your job duties, responsibilities, and requirements); (ii) any reduction of your base compensation (other than in connection with a general decrease in base salaries for most similarly situated employees); or (iii) your refusal to relocate to a location more than 50 miles from the Company's current location. e) If due to the benefits provided under this letter agreement, you are subject to any excise tax due to characterization of any amount payable hereunder as excess parachute payments pursuant to Sections 280G and 4999 of the Internal Revenue Code, Replay will pay the excise taxes otherwise payable by you under Section 4999 (but not any income or excise taxes on such payment of taxes by Replay on your behalf) with respect to any amounts payable to you under this agreement, up to a maximum of $1,000,000. 6) Confidentiality of Terms. You agree to follow the Company's strict policy ------------------------ that employees must not disclose, either directly or indirectly, any information, including any of the terms of this agreement, regarding salary, bonuses or stock purchase or option allocations to any person, including other employees of the Company; provided, however, that you may discuss such terms with members of your immediate family and any legal, tax or accounting specialists who provide you with individual legal, tax or accounting advice. 7) Employee Inventions and Confidentiality Agreement. As an employee of ------------------------------------------------- Replay Networks, you will have access to certain Company confidential information and you may, during the course of your employment, develop certain information or inventions which will be the property of the Company. To protect the interest of the Company, you will be required to sign the Company's standard "Employee Inventions and Confidentiality Agreement" as a condition of your employment. 8) At-Will Employment. Notwithstanding the Company's obligation described in ------------------ Section 5 above, your employment with the Company will be on an "at will" basis, meaning that either you or the Company may terminate your employment at any time for any reason or no reason, without further obligation or liability. October 13, 1999 Page 5 To indicate your acceptance of this offer, please sign and date this letter in the space provided below and return it to Human Resources, attention: Chris Copeland. This letter sets forth the terms of your employment with the Company and supersedes any prior representations or agreements, whether written or oral. This letter may not be modified or amended except by written agreement, signed by the Company and by you. Very truly yours, REPLAY NETWORKS, INC. By: /s/ Kim LeMasters -------------------------------- Name/Title: Kim LeMasters, CEO ------------------------ ACCEPTED AND AGREED: /s/ Craig W. Dougherty - ---------------------------------- Craig W. Dougherty 10/21/99 - ---------------------------------- Date EX-10.10 14 OFFER LETTER WITH BRUCE L. KAPLAN EXHIBIT 10.10 October 11, 1999 Mr. Buzz Kaplan 134 Northstar Mall Marina Del Rey, CA 90292 Dear Buzz, On behalf of the Board of Directors, I am pleased to offer you the position of Senior Vice President, Sales and Marketing for Replay Networks, Inc. I have attached the details of your offer in an Appendix to this letter. This offer expires on October 18, 1999. Buzz, there are many exciting challenges directly ahead and we have high expectations for the company. I am confident that with your skills and experience, you will make a great contribution and will develop your skills at the same time. We think you'll find this new venture to be a fun and exciting place to work. You'll be working with a small group of excellent, dedicated professionals producing an innovative new consumer electronics product and service. We're looking forward to working with you! Best regards, /s/ Kim LeMasters Kim LeMasters CEO October 11, 1999 Page 2 Appendix The following sets forth the terms of your employment relationship with Replay Networks, Inc. (the "Company"). ------- 1) Position. -------- a) You will serve as the Senior Vice President, Sales and Marketing. You will report to the Company's CEO. b) You agree to the best of your ability and experience that you will at all times loyally and conscientiously perform all of the duties and obligations required of and from you pursuant to the express and implicit terms hereof, and to the reasonable satisfaction of the Company. During the term of your employment, you further agree that you will devote all of your business time and attention to the business of the Company, the Company will be entitled to all of the benefits and profits arising from or incident to all such work services and advice, you will not render commercial or professional services of any nature to any person or organization, whether or not for compensation, without the prior written consent of the Company's CEO, and you will not directly or indirectly engage or participate in any business that is competitive in any manner with the business of the Company. c) Your start date will be November 1, 1999 ("Start Date"). 2) Compensation. ------------ a) Base Salary. You will be paid a monthly salary of $20,000.00, which is ----------- equivalent to $240,000 on an annualized basis. Your salary will be payable in two equal payments per month pursuant to the Company's regular payroll policy (or in the same manner as other officers of the Company). You will also be eligible to participate in the Company's incentive bonus program. The CEO will develop jointly with you the goals and objectives connected with the incentive bonus award. Based on the achievement of both the Company and individual performance goals, you will be eligible to receive an annual bonus of up to 30% of your base salary. b) Annual Review. Your base salary will be reviewed each calendar year ------------- as part of the Company's normal salary review process. 3) Stock. ----- a) On your Start Date the Board of Directors will grant you an option to purchase 500,000 shares of the Company Common Stock. The exercise price for these options will be the fair market price of the Company Common Stock at the date of grant. The options will vest and become exercisable according to a 4 year exercise schedule which calls for the initial vesting of 12.5% of the total after the first 6 months of continuous service, and provides for monthly vesting at the rate of an additional 1/48/th/ of the shares at the close of each month of employment, over the remainder of the vesting schedule. October 11, 1999 Page 3 4) Benefits. -------- a) Insurance Benefits. The Company will provide you with standard ------------------ medical and dental insurance benefits. In addition, the Company currently indemnifies all to the maximum extent permitted by law. Upon entering into the Company's standard form of Indemnification Agreement, the Company will advance any expenses for which indemnification is available to the extent allowed by applicable law. b) Vacation, Sick Leave and Holidays. You will be entitled to three weeks --------------------------------- paid vacation/sick leave per year, plus eight paid holidays. c) 401(K). You will be eligible to participate in the company's standard --- 401(K)plan. 5) Severance Agreement. ------------------- a) If your employment is terminated by the Company or its successor for any reason other than Cause (as defined below) or you become subject to an Involuntary Termination (as defined below), within 12 months of a Change in Control (as defined below), you will be entitled to receive continuation of your base salary and insurance benefits for a period of 6 months and continued vesting under all stock options or restricted stock purchases by the greater of twelve (12) months or vesting of fifty (50%) percent of the shares that remain unvested at the time of such termination. b) In the event 5a does not apply, and your employment is terminated by the Company or its successor for any reason other than Cause (as defined below) or you become subject to an Involuntary Termination (as defined below), you will be entitled to receive continuation of your base salary and insurance benefits and continued vesting under all stock options or restricted stock purchases for a period of 6 months following the date of termination of your employment. c) "Change in Control" shall mean the Company's merger or consolidation ----------------- with another entity, or a series of related transactions, as a result of which the shareholders of the Company immediately prior to the transaction own less than 50% of the voting power of the entity surviving. d) "Cause" shall mean (I) gross negligence or willful misconduct in the ----- performance of your duties to the Company where such gross negligence or willful misconduct has resulted or is likely to result in substantial and material damage to the Company or its subsidiaries, (ii) repeated unexplained or unjustified absence from the Company, (iii) a material and willful violation of any federal or state law; (iv) commission of any act of fraud with respect to the Company; (v) your material breach of this agreement or your Employee Inventions and Confidentiality Agreement; (vi) conviction of a felony or a crime involving moral turpitude causing material harm to the standing and reputation of the Company, in each case as determined in good faith by the Board of Directors of the Company. October 11, 1999 Page 4 e) "Involuntary Termination" shall include any termination by the Company ----------------------- other than for Cause and your voluntary termination, upon 30 days prior written notice to the Company, following (I) a material reduction or change in job duties, responsibilities and requirements inconsistent with your position with the Company and your prior duties, responsibilities and requirements (taking into account the difference in job title and duties that may occur following an acquisition but that do not actually result in a material change in your job duties, responsibilities, and requirements); (ii) any reduction of your base compensation (other than in connection with a general decrease in base salaries for most similarly situated employees); or (iii) your refusal to relocate to a location more than 50 miles from the Company's current location. 6) Confidentiality of Terms. You agree to follow the Company's strict policy ------------------------ that employees must not disclose, either directly or indirectly, any information, including any of the terms of this agreement, regarding salary, bonuses or stock purchase or option allocations to any person, including other employees of the Company; provided, however, that you may discuss such terms with members of your immediate family and any legal, tax or accounting specialists who provide you with individual legal, tax or accounting advice. 7) Employee Inventions and Confidentiality Agreement. As an employee of ------------------------------------------------- ReplayNetworks, you will have access to certain Company confidential information and you may, during the course of your employment, develop certain information or inventions which will be the property of the Company. To protect the interest of the Company, you will need to sign the Company's standard "Employee Inventions and Confidentiality Agreement" as a condition of your employment. 8) At-Will Employment. Notwithstanding the Company's obligation described in ------------------ Section 5 above, your employment with the Company will be on an "at will" basis, meaning that either you or the Company may terminate your employment at any time for any reason or no reason, without further obligation or liability. To indicate your acceptance of this offer, please sign and date this letter in the space provided below and return it to Human Resources, attention: Chris Copeland. This letter sets forth the terms of your employment with the Company and supersedes any prior representations or agreements, whether written or oral. This letter may not be modified or amended except by written agreement, signed by the Company and by you. Very truly yours, REPLAY NETWORKS, INC. By: /s/ Kim LeMasters --------------------------- Title: CEO ----------------------- ACCEPTED AND AGREED: Buzz Kaplan /s/ Buzz Kaplan - ------------------------- Signature 10/14/99 - ------------------------- Date EX-10.11 15 OFFER LETTER WITH ALEXANDER GRAY EXHIBIT 10.11 October 7, 1999 Mr. Alexander Gray 28690 Barn Rock Drive Hayward, CA 94542-2233 Dear Alex, I speak for the entire Board in saying how much we have valued the meetings and conversation we've had with you over the last few weeks. It is clear that your experience, judgement, and leadership would be of enormous benefit to Replay Networks. Recognizing that you have other opportunities available to you, we wish to act decisively to attract your talents to our Company. On behalf of the Board of Directors, I am pleased to offer you the position of Executive Vice President, Business Operations. I have attached the details of your offer in an Appendix to this letter. This offer expires on October 14, 1999. There are many exciting challenges directly ahead and we have high expectations for the company. I am confident that with your skills and experience, you will make a great contribution and will develop your skills at the same time. We think you'll find this new venture to be a fun and exciting place to work. You'll be working with a small group of excellent, dedicated professionals producing an innovative new consumer electronics product and service. We're looking forward to working with you! Best regards, /s/ Kim LeMasters Kim LeMasters CEO October 7, 1999 Page 2 Appendix The following sets forth the terms of your employment relationship with Replay Networks, Inc. (the "Company"). ------- 1) Position. -------- a) You will serve as the Executive Vice President, Business Operations. You will report to the Company's CEO. b) You agree to the best of your ability and experience that you will at all times loyally and conscientiously perform all of the duties and obligations required of and from you pursuant to the express and implicit terms hereof, and to the reasonable satisfaction of the Company. During the term of your employment, you further agree that you will devote all of your business time and attention to the business of the Company, the Company will be entitled to all of the benefits and profits arising from or incident to all such work services and advice, you will not render commercial or professional services of any nature to any person or organization, whether or not for compensation, without the prior written consent of the Company's CEO, and you will not directly or indirectly engage or participate in any business that is competitive in any manner with the business of the Company. It is understood, however, that your may continue to provide incidental consultations to Lucent through December 31, 1999, as long as such services do not interfere with your responsibilities at the Company. c) Your start date will be November 1, 1999 ("Start Date"). 2) Compensation. ------------ a) Base Salary. You will be paid a monthly salary of $20,833.33, which ----------- is equivalent to $250,000 on an annualized basis. Your salary will be payable in two equal payments per month pursuant to the Company's regular payroll policy (or in the same manner as other officers of the Company). You will also be eligible to participate in the Company's incentive bonus program. The CEO will develop jointly with you the goals and objectives connected with the incentive bonus award. Based on the achievement of both the Company and individual performance goals, you will be eligible to receive an annual bonus of up to 40% of your base salary. b) Annual Review. Your base salary will be reviewed each calendar year ------------- as part of the Company's normal salary review process. 3) Stock. ----- a) On your Start Date the Board of Directors will grant you an option to purchase 600,000 shares of the Company Common Stock. The exercise price for these options will be the fair market price of the Company Common Stock at the date of grant. The options will vest and become exercisable according to a 4 year exercise schedule which calls for the initial vesting of 12.5% of the total after the first 6 months of continuous service, and provides for monthly vesting at the rate of an additional 1/48/th/ of the shares at the close of each month of employment, over the remainder of the vesting schedule. October 7, 1999 Page 3 Stock, continued. ---------------- The option will be an incentive stock option to the maximum allowed by the tax code and will be subject to the terms of the Company's Stock Option Plan and the Stock Option Agreement between you and the Company. Accordingly, the Board will allow you to elect which portion of the shares you obtain in the form of: 1) immediate purchase under Section 83(b) of the Internal Revenue Code, subject to re-purchase; 2) Incentive Stock Option; 3) Non-Qualified Options. Corporate counsel at Venture Law Group will be available to assist you in evaluating the tax benefits of these different stock and option programs. The grant of the option will be subject to your execution of a mutually acceptable option agreement. In connection with the exercise of your option, the Company will provide a loan of up to $1,000,000. This loan will be evidenced by a full recourse promissory note, which will be secured by the shares purchased and will provide for interest at the minimum Applicable Federal Rate, compounded annually. The term of this Note shall be five years, and any interest accrued will be due at such time as the principal is due. 4) Benefits. -------- a) Insurance Benefits. The Company will provide you with standard ------------------ medical and dental insurance benefits. In addition, the Company currently indemnifies all to the maximum extent permitted by law, and you have entered into the Company's standard form of Indemnification Agreement giving you such protection. Pursuant to the Indemnification Agreement, the Company has agreed to advance any expenses for which indemnification is available to the extent allowed by applicable law. b) Vacation, Sick Leave and Holidays. You will be entitled to three --------------------------------- weeks paid vacation/sick leave per year, plus eight paid holidays. c) 401(K). You will be eligible to participate in the company's standard ------ 401(K) plan. 5) Severance Agreement. ------------------- a) If your employment is terminated by the Company or its successor for any reason other than Cause (as defined below) or you become subject to an Involuntary Termination (as defined below), within 12 months of a Change in Control (as defined below), you will be entitled to receive continuation of your base salary and insurance benefits for a period of 6 months and continued vesting under all stock options or restricted stock purchases by the greater of twelve (12) months of vesting of fifty (50%) percent of the shares that remain unvested at the time of such termination. b) In the event 5a does not apply, and your employment is terminated by the Company or its successor for any reason other than Cause (as defined below) or you become subject to an Involuntary Termination (as defined below), you will be entitled to receive continuation of your base salary and insurance benefits and continued vesting under all stock options or restricted stock purchases for a period of 6 months following the date of termination of your employment. c) "Change in Control" shall mean the Company's merger or consolidation ----------------- with another entity, or a series of related transactions, as a result of which the shareholders of the Company immediately prior to the transaction own less than 50% of the voting power of the entity surviving. d) "Cause" shall mean (I) gross negligence or willful misconduct in the ----- performance of your duties to the Company where such gross negligence or willful misconduct has resulted or is likely to result in substantial and material damage to the Company or its subsidiaries, (ii) repeated unexplained or unjustified absence from the Company, (iii) a material and willful violation of any federal or state law; (iv) commission of any act of fraud with respect to the Company; (v) your material breach of this agreement or your Employee Inventions and Confidentiality Agreement; (vi) conviction of a felony or a crime involving moral turpitude causing material harm to the standing and reputation of the Company, in each case as determined in good faith by the Board of Directors of the Company. October 7, 1999 Page 4 e) "Involuntary Termination" shall include any termination by the Company ----------------------- other than for Cause and your voluntary termination, upon 30 days prior written notice to the Company, following (I) a material reduction or change in job duties, responsibilities and requirements inconsistent with your position with the Company and your prior duties, responsibilities and requirements (taking into account the difference in job title and duties that may occur following an acquisition but that do not actually result in a material change in your job duties, responsibilities, and requirements); (ii) any reduction of your base compensation (other than in connection with a general decrease in base salaries for most similarly situated employees); or (iii) your refusal to relocate to a location more than 50 miles from the Company's current location. 6) Confidentiality of Terms. You agree to follow the Company's strict policy ------------------------ that employees must not disclose, either directly or indirectly, any information, including any of the terms of this agreement, regarding salary, bonuses or stock purchase or option allocations to any person, including other employees of the Company; provided, however, that you may discuss such terms with members of your immediate family and any legal, tax or accounting specialists who provide you with individual legal, tax or accounting advice. 7) Employee Inventions and Confidentiality Agreement. As an employee of ------------------------------------------------- Replay Networks, you will have access to certain Company confidential information and you may, during the course of your employment, develop certain information of inventions which will be the property of the Company. To protect the interest of the Company, you will need to sign the Company's standard "Employee Inventions and Confidentiality Agreement" as a condition of your employment. 8) At-Will Employment. Notwithstanding the Company's obligation described in ------------------ Section 5 above, your employment with the Company will be on an "at will" basis, meaning that either you or the Company may terminate your employment at any time for any reason or no reason, without further obligation or liability. To indicate your acceptance of this offer, please sign and date this letter in the space provided below and return it to Human Resources, attention: Chris Copeland. This letter sets forth the terms of your employment with the Company and supersedes any prior representations or agreements, whether written or oral. This letter may not be modified or amended except by written agreement, signed by the Company and by you. Very truly yours, REPLAY NETWORKS, INC. By: /s/ Kim LeMasters -------------------------------- Title: CEO ----------------------------- ACCEPTED AND AGREED: ALEXANDER GRAY /s/ Alex Gray - ----------------------------- Signature 10/8/99 - ----------------------------- Date EX-10.12 16 OFFER LETTER WITH LAYNE L. BRITTON EXHIBIT 10.12 [Letterhead of Replay Networks, Inc.] Mr. Layne Leslie Britton 3677 Boise Ave. Los Angeles, CA 90066 Employment Agreement -------------------- Dear Layne: On behalf of the Board of Directors of Replay Networks, Inc. ("Replay"), I am pleased to offer you the position of Executive Vice President, Replay Networks on the terms set forth below. 1. Position. You will be employed by Replay as its Executive Vice -------- President Replay Networks effective on June 1, 1999 (the "Commencement Date"). You will have sole overall responsibility for the management of all of Replay's network service elements, including but not limited to, Replay's core service business of media business development, editorial, programming, business affairs, scheduling, affiliate relations and advertising sales, and you will report directly and only to the Chief Executive Officer. During your term, you will be present at all Board of Directors meetings. During your term, you will be expected to devote your full working time and attention to the business of Replay. Notwithstanding the foregoing, you may (i) serve on the board of directors of DEN and on other boards of directors of organizations that are not competitive with Replay, that do not materially interfere with your duties to Replay and that are approved by Replay, (ii) serve as a consultant to UPN through December 31, 1999, so long as such activity does not materially interfere with your duties to Replay, or (iii) own up to 1% of the outstanding equity securities of any corporation whose stock is listed on a national stock exchange. You will also be expected to comply with and be bound by Replay's operating policies, procedures and practices that are from time to time in effect during the term of your employment. 2. Base Salary. Your initial base monthly salary will be $20,000, or ----------- a base annual salary of $240,000, payable in accordance with Replay's normal payroll practices with such payroll deductions and withholdings as are required by law. Your base salary will be reviewed on an annual basis by the Compensation Committee of the Board of Directors and increased from time to time, in the discretion of the Board of Directors, but in any event such compensation shall not be reduced below $240,000. 1 3. Bonus. You will be eligible to receive an annual bonus based on the ----- evaluation of your performance by the Board of Directors. 4. Equity Compensation. ------------------- On the Commencement Date, the Compensation Committee of the Board of Directors shall grant you an option to purchase 560,000 shares of Common Stock at an exercise price equal to $1.25 per share, which options shall be "incentive stock options" to the maximum extent permitted under the Internal Revenue Code of 1986, as amended. These shares will vest ratably on a monthly basis over 48 months commencing with your first day of employment. The option will be immediately exercisable, subject to repurchase of the unvested shares by Replay on termination of employment at your original purchase price, which repurchase option will lapse over the 48 month vesting schedule. You will be permitted to pay for shares with a full recourse promissory note with interest accruing at the minimum applicable federal rate and with principal and interest deferred for five years and payable in a balloon payment on the fifth anniversary of the grant, subject to acceleration 30 days following termination of employment. You should consult a tax advisor concerning your income tax consequences before exercising any of the options. Notwithstanding any other provision of this Section 4 to the contrary, upon "Involuntary Termination," "Termination without Cause," or "Termination for Death or Disability," unvested shares shall vest as provided in Section 8 below, and grant of the option to you shall be subject to your execution of an option agreement in the form approved by the Company. 5. Other Benefits. You will be entitled to the following additional -------------- benefits: (a) You will be eligible for the same vacation, health/dental, vision, life insurance, 401 (k) and other benefits offered to any other Replay senior executives of similar rank and status. (b) Replay will provide you with up to $50,000 reimbursement for your expenses incurred in connection with your relocation to Northern California prior to December 31, 1999. 6. At-Will Employment and Termination. Your employment with Replay will ---------------------------------- be at-will and may be terminated by you or by Replay at any time for any reason as follows: (a) You may terminate your employment upon written notice to the Board of Directors at any time for "Good Reason," as defined below (an "Involuntary Termination"); (b) You may terminate your employment upon written notice to the Board of Directors at any time in your discretion without Good Reason ("Voluntary Termination"); (c) Replay at the direction of the Board of Directors may terminate your employment upon written notice to you at any time for "Cause," as defined below ("Termination for Cause"); 2 (d) Replay at the direction of the Board of Directors may terminate your employment upon written notice to you at any time without a determination that there is Cause for such termination ("Termination without Cause"); (e) Your employment will automatically terminate upon your death or your disability as determined by the Board of Directors provided that "disability" shall mean your complete inability to perform your job responsibilities for a period of 180 consecutive days or 180 days in the aggregate in any 12-month period ("Termination for Death or Disability"). 7. Definitions. As used in this agreement, the following terms have the ----------- following meanings: (a) "Good Reason" means (i) a change in your reporting relationship such that you no longer report only and directly to the Chief Executive Officer of Replay or, following a Change in Control, the Chief Executive Officer of the surviving entity or acquiror; (ii) your no longer being Executive Vice President, Replay Network or, in the case of a Change in Control, an Executive Vice President of the surviving entity or acquiror that results from any Change in Control; (iii) a material reduction in your duties or responsibilities, provided that your continuing as an Executive Vice President of the surviving entity or acquiror following a Change of Control, shall not constitute a material reduction in duties or responsibilities; (iv) any reduction in your base annual salary or material breach by Replay of any of its obligations hereunder that remains uncured for a period of 30 days following notice thereof; (v) relocation of your principal office to a facility more than 50 miles from Replay's current headquarters; or (vi) failure of any successor to assume this agreement. (b) "Cause" means (i) willful misconduct in the performance of your duties to Replay that has resulted or is likely to result in substantial and material damage to Replay; (ii) commission of any act of fraud with respect to Replay; (iii) conviction of a felony or a crime involving moral turpitude causing material harm to the business and affairs of Replay; (iv) your willful and repeated failure to follow the directions of the Chief Executive Officer of Replay or, following a Change in Control, the Chief Executive Officer of the surviving entity or acquiror; or (v) your material breach of this Agreement or your Employee Confidentiality and Assignment of Inventions Agreement. No act or failure to act by you shall be considered "willful" if done or omitted by you in good faith with reasonable belief that your action or omission was in the best interests of Replay. (c) "Change in Control" means (i) any person or entity becoming the beneficial owner, directly or indirectly, of securities of Replay representing fifty (50%) percent of the total voting power of all its then outstanding voting securities, (ii) a merger or consolidation of Replay in which its voting securities immediately prior to the merger or consolidation do not represent, or are not converted into securities that represent, a majority of the voting power of all voting securities of the surviving entity immediately after the merger or consolidation, (iii) a sale of substantially all of the assets of Replay or a liquidation or dissolution of Replay, or (iv) individuals who, as of the Commencement Date, constitute the Board of Directors (the "Incumbent Board") cease for any reason to constitute at least a majority of such Board; provided 3 that any individual who becomes a director of Replay subsequent to the Commencement Date, whose election, or nomination for election by Replay stockholders, was approved by the vote of at least a majority of the directors then in office shall be deemed a member of the Incumbent Board. 8. Separation and Change in Control Benefits. Upon termination of your ----------------------------------------- employment with Replay for any reason, you will receive payment of all salary, bonus and unpaid vacation accrued to the date of your termination of employment. In addition, you will be entitled to receive the severance benefits as set forth below. (a) In the event of your Voluntary Termination or Termination for Cause, you will be entitled to any accrued but unpaid salary and bonus, but you will not be entitled to any additional cash severance benefits or additional vesting of shares. (b) In the event of your Involuntary Termination or Termination without Cause, and, subject to your execution of a mutual release of claims agreement ("Release Agreement") provided to you by the Company and your resignation from all positions you hold with the Company, you will be entitled to a lump sum severance payment equal to any accrued but unpaid salary and bonus and an amount equal to six months of your then current annual base salary and 50% of your prior year's bonus payable within five days after the effective date of your execution of the Release Agreement and nine (9) months of accelerated vesting of your unvested shares; provided, however, that if such Involuntary --------------------------------------------------- Termination or Termination without Cause occurs within one year following a - --------------------------------------------------------------------------- Change in Control, the accelerated vesting shall be as set forth in Section 8(d) - -------------------------------------------------------------------------------- below. All payments hereunder shall be less applicable deductions and - ----- withholdings. Replay shall reimburse you for all COBRA premiums paid by you for a period of six months. (c) In the event of your Termination for Death or Disability, the vesting of your unvested shares of restricted stock and the vesting of your shares shall be immediately accelerated by two years. (d) Notwithstanding anything in this agreement to the contrary, the vesting of all your options or shares will be immediately accelerated upon your Involuntary Termination or Termination without Cause within one year following a Change in Control by the greater of twelve (12) months of vesting or fifty (50%) percent of the shares that remain unvested at the time of such Change in Control. (e) If, due to the benefits provided under this letter agreement, you are subject to any excise tax due to characterization of any mount payable hereunder as excess parachute payments pursuant to Sections 280G and 4999 of the Internal Revenue Code, Replay will pay the excise taxes otherwise payable by you under Section 4999 (but not any income or excise taxes on such payment of taxes by Replay on your behalf) with respect to any amounts payable to you under this Agreement, up to a maximum of $1,000,000. Notwithstanding the foregoing, you ----------------------------- will in good faith discuss with the Company whether it is appropriate to request stockholders of the Company to approve payments to you upon a Change of Control in order to 4 minimize or eliminate any such excise taxes, provided that you shall not be required to agree with the Company to request such stockholder approval. (f) No payments due you hereunder shall be subject to mitigation or offset. 9. Confidential Information and Invention Assignment Agreement. Upon your ----------------------------------------------------------- commencement of employment with Replay, you will be required to sign its standard form of Employee Confidentiality and Assignment of Inventions Agreement. 10. Dispute Resolution. The parties agree that any dispute regarding the ------------------ interpretation or enforcement of this agreement shall be decided by confidential, final and binding arbitration conducted by Judicial Arbitration and Mediation Services ("JAMS") under the then existing JAMS roles rather than by litigation in court, trial by jury, administrative proceeding or in any other forum. If a legal action or other proceeding is brought for enforcement of this agreement because of an alleged dispute, breach, default or misrepresentation in connection with any of the provisions of this agreement, the successful or prevailing party shall be entitled to recover reasonable attorney's fees and costs incurred, both before and after judgment, in addition to any other relief to which they may be entitled. 11. Miscellaneous. -------------- (a) Successors. This agreement is binding on and may be enforced by ---------- Replay and its successors and assigns and is binding on and may be enforced by you and your heirs and legal representatives. Any successor to Replay or substantially all of its business (whether by purchase, merger, consolidation or otherwise) will in advance assume in writing and be bound by all of Replay's obligations under this agreement. (b) Entire Agreement. This agreement represents the entire agreement ---------------- between us concerning the subject matter of your employment by Replay. (c) Governing Law. This agreement will be governed by the laws of the ------------- State of California without reference to conflict of laws provisions. Layne, we are very pleased to extend this offer of employment to you and look forward to your joining Replay as its Executive Vice President, Replay Networks. Please indicate your acceptance of the terms of this agreement by signing in the place indicated below. Very truly yours, Accepted July 29, 1999: REPLAY NETWORKS, INC. By:/s/ Anthony Wood /s/ Layne Leslie Britton --------------------- ------------------------- Anthony Wood Layne Leslie Britton 5 EX-10.20 17 COMMON STOCK PURCHASE AGREEMENT EXHIBIT 10.20 PACIFIC DIGITAL MEDIA, INC. COMMON STOCK PURCHASE AGREEMENT ------------------------------- This Common Stock Purchase Agreement (the "Agreement") is made as of --------- September 15, 1997 by and between Pacific Digital Media, Inc., a California corporation (the "Company"), and Anthony J. Wood ("Purchaser"). ------- --------- 1. Sale of Stock. Subject to the terms and conditions of this Agreement, ------------- on the Purchase Date (as defined below) the Company will issue and sell to Purchaser, and Purchaser agrees to purchase from the Company, 3,000,000 shares of the Company's Common Stock (the "Shares") at a purchase price of $0.001 per ------ Share for a total purchase price of $3,000.00. The term "Shares" refers to the ------ purchased Shares and all securities received in replacement of or in connection with the Shares pursuant to stock dividends or splits, all securities received in replacement of the Shares in a recapitalization, merger, reorganization, exchange or the like, and all new, substituted or additional securities or other properties to which Purchaser is entitled by reason of Purchaser's ownership of the Shares. 2. Purchase. The purchase and sale of the Shares under this Agreement -------- shall occur at the principal office of the Company simultaneously with the execution of this Agreement or at such other time and place as the Company and Purchaser shall agree (the "Purchase Date"). On the Purchase Date, the Company ------------- will deliver to Purchaser a certificate representing the Shares to be purchased by Purchaser (which shall be issued in Purchaser's name) against payment of the purchase price therefor by Purchaser by (a) check made payable to the Company, (b) cancellation of indebtedness of the Company to Purchaser, or (c) by a combination of the foregoing. 3. Limitations on Transfer. In addition to any other limitation on ----------------------- transfer created by applicable securities laws, Purchaser shall not assign, encumber or dispose of any interest in the Shares while the Shares are subject to the Company's Repurchase Option (as defined below), except as provided below. After any Shares have been released from the Repurchase Option, Purchaser shall not assign, encumber or dispose of any interest in such Shares except in compliance with the provisions below and applicable securities laws. (a) Repurchase Option. ----------------- (i) In the event of the voluntary or involuntary termination of Purchaser's employment or consulting relationship with the Company for any reason (including death or disability), with or without cause, the Company shall upon the date of such termination (the "Termination Date") have an irrevocable, ---------------- exclusive option (the "Repurchase Option") for a period of sixty (60) days from ----------------- such date to repurchase all or any portion of the Shares held by Purchaser as of the Termination Date which have not yet been released from the Company's Repurchase Option at the original purchase price per Share specified in Section 1 (adjusted for any stock splits, stock dividends and the like); provided, -------- however, that the Repurchase Option shall continue for a period of up to one - ------- year from the Termination Date to the extent that the Company reasonably determines that such an extension of time is necessary to prevent the repurchase of Purchaser's Shares from causing other capital stock of the Company to not qualify as "small business stock" under Section 1202 of the Internal Revenue Code of 1986, as amended. (ii) The Repurchase Option shall be exercised by the Company by written notice to Purchaser or Purchaser's executor and, at the Company's option, (A) by delivery to Purchaser or Purchaser's executor with such notice of a check in the amount of the purchase price for the Shares being purchased, or (B) in the event Purchaser is indebted to the Company, by cancellation by the Company of an amount of such indebtedness equal to the purchase price for the Shares being repurchased, or (C) by a combination of (A) and (B) so that the combined payment and cancellation of indebtedness equals such purchase price. Upon delivery of such notice and payment of the purchase price in any of the ways described above, the Company shall become the legal and beneficial owner of the Shares being repurchased and all rights and interest therein or related thereto, and the Company shall have the right to transfer to its own name the number of Shares being repurchased by the Company, without further action by Purchaser. (iii) One hundred percent (100%) of the Shares shall initially be subject to the Repurchase Option. 1/36th of the Shares shall be released from the Repurchase Option at the end of each month following the Vesting Commencement Date (as set forth on the signature page of this Agreement), until all Shares are released from the Repurchase Option (provided in each case that Purchaser's employment or consulting relationship with the Company has not been terminated prior to the date of any such release). Fractional shares shall be rounded to the nearest whole share. (b) Right of First Refusal. Before any Shares held by Purchaser or ---------------------- any transferee of Purchaser (either being sometimes referred to herein as the "Holder") may be sold or otherwise transferred (including transfer by gift or ------ operation of law), the Company or its assignee(s) shall have a right of first refusal to purchase the Shares on the terms and conditions set forth in this Section 3(b) (the "Right of First Refusal"). ---------------------- (i) Notice of Proposed Transfer. The Holder of the Shares --------------------------- shall deliver to the Company a written notice (the "Notice") stating: (A) the ------ Holder's bona fide intention to sell or otherwise transfer such Shares; (B) the name of each proposed purchaser or other transferee ("Proposed Transferee"); (C) ------------------- the number of Shares to be transferred to each Proposed Transferee; and (D) the terms and conditions of each proposed sale or transfer. The Holder shall offer the Shares at the same price (the "Offered Price") and upon the same terms (or ------------- terms as similar as reasonably possible) to the Company or its assignee(s). (ii) Exercise of Right of First Refusal. At any time within ---------------------------------- thirty (30) days after receipt of the Notice, the Company and/or its assignee(s) may, by giving written notice to the Holder, elect to purchase all, but not less than all, of the Shares proposed to be transferred to any one or more of the Proposed Transferees, at the purchase price determined in accordance with subsection (iii) below. (iii) Purchase Price. The purchase price ("Purchase Price") for -------------- -------------- the Shares purchased by the Company or its assignee(s) under this Section 3(b) shall be the Offered -2- Price. If the Offered Price includes consideration other than cash, the cash equivalent value of the non-cash consideration shall be determined by the Board of Directors of the Company in good faith. (iv) Payment. Payment of the Purchase Price shall be made, at ------- the option of the Company or its assignee(s), in cash (by check), by cancellation of all or a portion of any outstanding indebtedness of the Holder to the Company (or, in the case of repurchase by an assignee, to the assignee), or by any combination thereof within thirty (30) days after receipt of the Notice or in the manner and at the times set forth in the Notice. (v) Holder's Right to Transfer. If all of the Shares proposed -------------------------- in the Notice to be transferred to a given Proposed Transferee are not purchased by the Company and/or its assignee(s) as provided in this Section 3(b), then the Holder may sell or otherwise transfer such Shares to that Proposed Transferee at the Offered Price or at a higher price, provided that such sale or other transfer is consummated within sixty (60) days after the date of the Notice and provided further that any such sale or other transfer is effected in accordance with any applicable securities laws and the Proposed Transferee agrees in writing that the provisions of this Section 3 shall continue to apply to the Shares in the hands of such Proposed Transferee. If the Shares described in the Notice are not transferred to the Proposed Transferee within such period, or if the Holder proposes to change the price or other terms to make them more favorable to the Proposed Transferee, a new Notice shall be given to the Company, and the Company and/or its assignees shall again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise transferred. (vi) Exception for Certain Family Transfers. Anything to the -------------------------------------- contrary contained in this Section 3(b) notwithstanding, the transfer of any or all of the Shares during Purchaser's lifetime or on Purchaser's death by will or intestacy to Purchaser's Immediate Family or a trust for the benefit of Purchaser's Immediate Family shall be exempt from the provisions of this Section 3(b). "Immediate Family" as used herein shall mean spouse, lineal descendant or ---------------- antecedent, father, mother, brother or sister. In such case, the transferee or other recipient shall receive and hold the Shares so transferred subject to the provisions of this Section 3, and there shall be no further transfer of such Shares except in accordance with the terms of this Section 3. (c) Involuntary Transfer. -------------------- (i) Company's Right to Purchase upon Involuntary Transfer. In ----------------------------------------------------- the event, at any time after the date of this Agreement, of any transfer by operation of law or other involuntary transfer (including death or divorce, but excluding a transfer to Immediate Family as set forth in Section 3(b)(vi) above) of all or a portion of the Shares by the record holder thereof, the Company shall have an option to purchase all of the Shares transferred at the greater of the purchase price paid by Purchaser pursuant to this Agreement or the fair market value of the Shares on the date of transfer. Upon such a transfer, the person acquiring the Shares shall promptly notify the Secretary of the Company of such transfer. The right to purchase such -3- Shares shall be provided to the Company for a period of thirty (30) days following receipt by the Company of written notice by the person acquiring the Shares. (ii) Price for Involuntary Transfer. With respect to any stock ------------------------------ to be transferred pursuant to Section 3(c)(i), the price per Share shall be a price set by the Board of Directors of the Company that will reflect the current value of the stock in terms of present earnings and future prospects of the Company. The Company shall notify Purchaser or his or her executor of the price so determined within thirty (30) days after receipt by it of written notice of the transfer or proposed transfer of Shares. However, if the Purchaser does not agree with the valuation as determined by the Board of Directors of the Company, the Purchaser shall be entitled to have the valuation determined by an independent appraiser to be mutually agreed upon by the Company and the Purchaser and whose fees shall be borne equally by the Company and the Purchaser. (d) Assignment. The right of the Company to purchase any part of the ---------- Shares may be assigned in whole or in part to any shareholder or shareholders of the Company or other persons or organizations; provided, however, that an assignee, other than a corporation that is the parent or a 100% owned subsidiary of the Company, must pay the Company, upon assignment of such right, cash equal to the difference between the original purchase price and fair market value, if the original purchase price is less than the fair market value of the Shares subject to the assignment. (e) Restrictions Binding on Transferees. All transferees of Shares ----------------------------------- or any interest therein will receive and hold such Shares or interest subject to the provisions of this Agreement, including, insofar as applicable, the Repurchase Option. Any sale or transfer of the Company's Shares shall be void unless the provisions of this Agreement are met. (f) Termination of Rights. The right of first refusal granted the --------------------- Company by Section 3(b) above and the option to repurchase the Shares in the event of an involuntary transfer granted the Company by Section 3(c) above shall terminate upon the first sale of Common Stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission under the Securities Act of 1933, as amended (the "Securities Act"). Upon termination of the right of first refusal -------------- described in Section 3(b) and the expiration or exercise of the Repurchase Option, a new certificate or certificates representing the Shares not repurchased shall be issued, on request, without the legend referred to in Section 6(a)(ii) below and delivered to Purchaser. 4. Escrow of Unvested Shares. For purposes of facilitating the ------------------------- enforcement of the provisions of Section 3 above, Purchaser agrees, immediately upon receipt of the certificate(s) for the Shares subject to the Repurchase Option, to deliver such certificate(s), together with an Assignment Separate from Certificate in the form attached to this Agreement as Exhibit A executed by --------- Purchaser and by Purchaser's spouse (if required for transfer), in blank, to the Secretary of the Company, or the Secretary's designee, to hold such certificate(s) and Assignment Separate from Certificate in escrow and to take all such actions and to effectuate all such transfers and/or releases as are in accordance with the terms of this Agreement. Purchaser -4- hereby acknowledges that the Secretary of the Company, or the Secretary's designee, is so appointed as the escrow holder with the foregoing authorities as a material inducement to make this Agreement and that said appointment is coupled with an interest and is accordingly irrevocable. Purchaser agrees that said escrow holder shall not be liable to any party hereof (or to any other party). The escrow holder may rely upon any letter, notice or other document executed by any signature purported to be genuine and may resign at any time. Purchaser agrees that if the Secretary of the Company, or the Secretary's designee, resigns as escrow holder for any or no reason, the Board of Directors of the Company shall have the power to appoint a successor to serve as escrow holder pursuant to the terms of this Agreement. 5. Investment and Taxation Representations. In connection with the --------------------------------------- purchase of the Shares, Purchaser represents to the Company the following: (a) Purchaser is aware of the Company's business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Shares. Purchaser is purchasing the Shares for investment for his or her own account only and not with a view to, or for resale in connection with, any "distribution" thereof within the meaning of the Securities Act. (b) Purchaser understands that the Shares have not been registered under the Securities Act by reason of a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of Purchaser's investment intent as expressed herein. (c) Purchaser understands that the Shares are "restricted securities" under applicable U.S. federal and state securities laws and that, pursuant to these laws, Purchaser must hold the Shares indefinitely unless they are registered with the Securities and Exchange Commission and qualified by state authorities, or an exemption from such registration and qualification requirements is available. Purchaser acknowledges that the Company has no obligation to register or qualify the Shares for resale. Purchaser further acknowledges that if an exemption from registration or qualification is available, it may be conditioned on various requirements including, but not limited to, the time and manner of sale, the holding period for the Shares and requirements relating to the Company which are outside of the Purchaser's control, and which the Company is under no obligation and may not be able to satisfy. (d) Purchaser understands that Purchaser may suffer adverse tax consequences as a result of Purchaser's purchase or disposition of the Shares. Purchaser represents that Purchaser has consulted any tax consultants Purchaser deems advisable in connection the purchase or disposition of the Shares and that Purchaser is not relying on the Company for any tax advice. 6. Restrictive Legends and Stop-Transfer Orders. -------------------------------------------- (a) Legends. The certificate or certificates representing the Shares ------- shall bear the following legends (as well as any legends required by applicable state and federal corporate and securities laws): -5- (i) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933. (ii) THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY. (iii) Any legend required to be placed thereon by the California Commissioner of Corporations. (b) Stop-Transfer Notices. Purchaser agrees that, in order to ensure --------------------- compliance with the restrictions referred to herein, the Company may issue appropriate "stop transfer" instructions to its transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records. (c) Refusal to Transfer. The Company shall not be required (i) to ------------------- transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares shall have been so transferred. 7. No Employment Rights. Nothing in this Agreement shall affect in any -------------------- manner whatsoever the right or power of the Company, or a parent or subsidiary of the Company, to terminate Purchaser's employment, for any reason, with or without cause. 8. Section 83(b) Election. Purchaser understands that Section 83(a) of ---------------------- the Internal Revenue Code of 1986, as amended (the "Code"), taxes as ordinary ---- income the difference between the amount paid for the Shares and the fair market value of the Shares as of the date any restrictions on the Shares lapse. In this context, "restriction" means the right of the Company to buy back the ----------- Shares pursuant to the Repurchase Option set forth in Section 3(a) of this Agreement. Purchaser understands that Purchaser may elect to be taxed at the time the Shares are purchased, rather than when and as the Repurchase Option expires, by filing an election under Section 83(b) (an "83(b) Election") of the -------------- Code with the Internal Revenue Service within -6- thirty (30) days from the date of purchase. Even if the fair market value of the Shares at the time of the execution of this Agreement equals the amount paid for the Shares, the election must be made to avoid income under Section 83(a) in the future. Purchaser understands that failure to file such an election in a timely manner may result in adverse tax consequences for Purchaser. Purchaser further understands that an additional copy of such election form should be filed with his or her federal income tax return for the calendar year in which the date of this Agreement falls. Purchaser acknowledges that the foregoing is only a summary of the effect of United States federal income taxation with respect to purchase of the Shares hereunder, and does not purport to be complete. Purchaser further acknowledges that the Company has directed Purchaser to seek independent advice regarding the applicable provisions of the Code, the income tax laws of any municipality, state or foreign country in which Purchaser may reside, and the tax consequences of Purchaser's death. Purchaser agrees that he or she will execute and deliver to the Company with this executed Agreement a copy of the Acknowledgment and Statement of Decision Regarding Section 83(b) Election (the "Acknowledgment"), attached -------------- hereto as Exhibit B. Purchaser further agrees that Purchaser will execute and --------- submit with the Acknowledgment a copy of the 83(b) Election, attached hereto as Exhibit C, if Purchaser has indicated in the Acknowledgment his or her decision - --------- to make such an election. 9. Market Standoff Agreement. In connection with the initial public ------------------------- offering of the Company's securities and upon request of the Company or the underwriters managing any underwritten offering of the Company's securities, Purchaser agrees not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any Shares (other than those included in the registration) without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed 180 days) from the effective date of such registration as may be requested by the Company or such managing underwriters and to execute an agreement reflecting the foregoing as may be requested by the underwriters at the time of the public offering. 10. Miscellaneous. ------------- (a) Governing Law. This Agreement and all acts and transactions ------------- pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of California, without giving effect to principles of conflicts of law. (b) Entire Agreement; Enforcement of Rights. This Agreement sets --------------------------------------- forth the entire agreement and understanding of the parties relating to the subject matter herein and merges all prior discussions between them. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, shall be effective unless in writing signed by the parties to this Agreement. The failure by either party to enforce any rights under this Agreement shall not be construed as a waiver of any rights of such party. (c) Severability. If one or more provisions of this Agreement are ------------ held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. -7- In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (i) such provision shall be excluded from this Agreement, (ii) the balance of this Agreement shall be interpreted as if such provision were so excluded and (iii) the balance of this Agreement shall be enforceable in accordance with its terms. (d) Construction. This Agreement is the result of negotiations ------------ between and has been reviewed by each of the parties hereto and their respective counsel, if any; accordingly, this Agreement shall be deemed to be the product of all of the parties hereto, and no ambiguity shall be construed in favor of or against any one of the parties hereto. (e) Notices. Any notice required or permitted by this Agreement shall ------- be in writing and shall be deemed sufficient when delivered personally or sent by telegram or fax or forty-eight (48) hours after being deposited in the U.S. mail, as certified or registered mail, with postage prepaid, and addressed to the party to be notified at such party's address as set forth below or as subsequently modified by written notice. (f) Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. (g) Successors and Assigns. The rights and benefits of this Agreement ---------------------- shall inure to the benefit of, and be enforceable by the Company's successors and assigns. The rights and obligations of Purchaser under this Agreement may only be assigned with the prior written consent of the Company. (h) California Corporate Securities Law. THE SALE OF THE SECURITIES ----------------------------------- WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO THE QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON THE QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT. [Signature Page Follows] -8- The parties have executed this Agreement as of the date first set forth above. PACIFIC DIGITAL MEDIA, INC. By: /s/ Anthony Wood -------------------------------- Title: Chairman of Board ----------------------------- Address: 555 Clyde Avenue Mountain View, CA 94043 PURCHASER ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO SECTION 3 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS AN EMPLOYEE OR CONSULTANT AT THE WILL OF THE COMPANY. PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS AGREEMENT SHALL CONFER UPON PURCHASER ANY RIGHT WITH RESPECT TO CONTINUATION OF SUCH EMPLOYMENT OR CONSULTING RELATIONSHIP WITH THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH PURCHASER'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE PURCHASER'S EMPLOYMENT OR CONSULTING RELATIONSHIP AT ANY TIME, WITH OR WITHOUT CAUSE. PURCHASER: ANTHONY J. WOOD /s/ Anthony Wood ------------------------------- (Signature) Address: 11 Somerset Place Palo Alto, CA 94301 Vesting Commencement Date: August 1, 1997 I, Susan P. Wood, spouse of Anthony J. Wood, have read and hereby approve the foregoing Agreement. In consideration of the Company's granting my spouse the right to purchase the Shares as set forth in the Agreement, I hereby agree to be irrevocably bound by the Agreement and further agree that any community property or other such interest shall be similarly bound by the Agreement. I hereby appoint my spouse as my attorney-in-fact with respect to any amendment or exercise of any rights under the Agreement. /s/ Susan P. Wood ------------------------------- Spouse of Anthony J. Wood -9- EXHIBIT A --------- ASSIGNMENT SEPARATE FROM CERTIFICATE ------------------------------------ FOR VALUE RECEIVED and pursuant to that certain Common Stock Purchase Agreement between the undersigned ("Purchaser") and Pacific Digital Media, Inc. --------- (the "Company") dated _______________ (the "Agreement"), Purchaser hereby sells, ------- --------- assigns and transfers unto the Company _________________________________ (________) shares of the Common Stock of the Company standing in Purchaser's name on the Company's books and represented by Certificate No. _____, and does hereby irrevocably constitute and appoint ______________________ to transfer said stock on the books of the Company with full power of substitution in the premises. THIS ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT AND THE EXHIBITS THERETO. Dated: ______________________ Signature: /s/ Anthony J. Wood ------------------------------ Anthony J. Wood /s/ Susan P. Wood ------------------------------ Spouse of Anthony J. Wood (if applicable) Instruction: Please do not fill in any blanks other than the signature line. The purpose of this assignment is to enable the Company to exercise its repurchase option set forth in the Agreement without requiring additional signatures on the part of Purchaser. EXHIBIT B --------- ACKNOWLEDGMENT AND STATEMENT OF DECISION ---------------------------------------- REGARDING SECTION 83(b) ELECTION -------------------------------- The undersigned has entered into a stock purchase agreement with Pacific Digital Media, Inc., a California corporation (the "Company"), pursuant to which ------- the undersigned is purchasing 3,000,000 shares of Common Stock of the Company (the "Shares"). In connection with the purchase of the Shares, the undersigned ------ hereby represents as follows: 1. The undersigned has carefully reviewed the stock purchase agreement pursuant to which the undersigned is purchasing the Shares. 2. The undersigned either [check and complete as applicable]: (a) X has consulted, and has been fully advised by, the undersigned's ---- own tax advisor, Laurie Crawford, whose business address is San Jose, California, regarding the federal, state and local tax consequences of purchasing the Shares, and particularly regarding the advisability of making elections pursuant to Section 83(b) of the Internal Revenue Code of 1986, as amended (the "Code") and pursuant to the ---- corresponding provisions, if any, of applicable state law; or (b) ____ has knowingly chosen not to consult such a tax advisor. 3. The undersigned hereby states that the undersigned has decided [check as applicable]: (a) X to make an election pursuant to Section 83(b) of the Code, and is ---- submitting to the Company, together with the undersigned's executed Common Stock Purchase Agreement, an executed form entitled "Election Under Section 83(b) of the Internal Revenue Code of 1986"; or (b) ____ not to make an election pursuant to Section 83(b) of the Code. 4. Neither the Company nor any subsidiary or representative of the Company has made any warranty or representation to the undersigned with respect to the tax consequences of the undersigned's purchase of the Shares or of the making or failure to make an election pursuant to Section 83(b) of the Code or the corresponding provisions, if any, of applicable state law. Date: 9/26/97 /s/ Anthony J. Wood ----------------------- --------------------------- Anthony J. Wood Date: 9/26/97 /s/ Susan P. Wood ----------------------- --------------------------- Spouse of Anthony J. Wood -2- EXHIBIT C --------- ELECTION UNDER SECTION 83(b) ---------------------------- OF THE INTERNAL REVENUE CODE OF 1986 ------------------------------------ The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the Internal Revenue Code, to include in taxpayer's gross income for the current taxable year, the amount of any compensation taxable to taxpayer in connection with taxpayer's receipt of the property described below: 1. The name, address, taxpayer identification number and taxable year of the undersigned are as follows: NAME OF TAXPAYER: Anthony J. Wood NAME OF SPOUSE: Susan D. Wood ADDRESS: (omitted) IDENTIFICATION NO. OF TAXPAYER: (omitted) IDENTIFICATION NO. OF SPOUSE: (omitted) TAXABLE YEAR: 1997 2. The property with respect to which the election is made is described as follows: 3,000,000 shares of the Common Stock, $0.001 par value, of Pacific Digital Media, Inc., a California corporation (the "Company"). 3. The date on which the property was transferred is: 9/15/97 4. The property is subject to the following restrictions: Repurchase option at cost in favor of the Company upon termination of taxpayer's employment or consulting relationship. 5. The fair market value at the time of transfer, determined without regard to any restriction other than a restriction which by its terms will never lapse, of such property is: $3,000. 6. The amount (if any) paid for such property: $3,000 The undersigned has submitted a copy of this statement to the person for whom the services were performed in connection with the undersigned's receipt of the above-described property. The transferee of such property is the person performing the services in connection with the transfer of said property. The undersigned understands that the foregoing election may not be revoked - -------------------------------------------------------------------------- except with the consent of the Commissioner. - ------------------------------------------- Dated: 9/26/97 /s/ Anthony J. Wood ---------------------- ----------------------------- Taxpayer Dated: 9/26/97 /s/ Susan P. Wood ---------------------- ----------------------------- Spouse of Taxpayer RECEIPT ------- Pacific Digital Media, Inc. hereby acknowledges receipt of a check in the amount of $3,000 given by Anthony J. Wood as consideration for Certificate No. ____ for 3,000,000 shares of Common Stock of Pacific Digital Media, Inc. Dated: 9/26/97 ---------------- PACIFIC DIGITAL MEDIA, INC. By: /s/ Edward M. Kessler ---------------------------- Title: President ------------------------- RECEIPT AND CONSENT ------------------- The undersigned hereby acknowledges receipt of a photocopy of Certificate No. _____ for 3,000,000 shares of Common Stock of Pacific Digital Media, Inc. (the "Company"). ------- The undersigned further acknowledges that the Secretary of the Company, or his or her designee, is acting as escrow holder pursuant to the Common Stock Purchase Agreement Purchaser has previously entered into with the Company. As escrow holder, the Secretary of the Company, or his or her designee, holds the original of the aforementioned certificate issued in the undersigned's name. Dated: _________________________ ______________________________ Anthony J. Wood EX-10.21 18 CONSULTING AGREEMENTS EXHIBIT 10.21 REPLAY NETWORKS, INC. CONSULTING AGREEMENT -------------------- This Consulting Agreement (the "Agreement") is entered into by and --------- between Replay Networks, Inc. (the "Company") and Kevin Bohren ("Consultant"). ------- ---------- 1. Consulting Relationship. During the term of this agreement, ----------------------- Consultant will provide consulting services (the "Services") to the Company as -------- described on Exhibit A attached to this Agreement. Consultant shall use --------- Consultant's best efforts to perform the Services in a manner satisfactory to the Company. 2. Fees; Support. As consideration for the Services to be provided ------------- by Consultant and other obligations, the Company will compensate Consultant as described in Exhibit B to this Agreement. As additional consideration for the --------- Services, the Company will provide Consultant with such support facilities and space as may be required in the Company's judgment to enable Consultant to properly perform the Services. 3. Expenses. Consultant shall not be authorized to incur on behalf -------- of the Company any expenses without the prior consent of the Company's CEO. As a condition to receipt of reimbursement, Consultant shall be required to submit to the Company reasonable evidence that the amount involved was expended and related to Services provided under this Agreement. 4. Term and Termination. Consultant shall serve as a consultant to -------------------- the Company for a period commencing on March 1, 1999, and terminating on June 30, 1999 OR the earlier of the date on which Consultant ceases to provide services to the Company under this Agreement. Either party may terminate this Agreement at any time upon ten (10) days' written notice. 5. Independent Contractor. Consultant's relationship with the ---------------------- Company will be that of an independent contractor and not that of an employee. Consultant will not be eligible for any employee benefits, nor will the Company make deductions from payments made to Consultant for taxes, all of which will be Consultant's responsibility. Consultant agrees to indemnify and hold the Company harmless from any liability for, or assessment of, any such taxes imposed on the Company by relevant taxing authorities. Consultant will have no authority to enter into contracts that bind the Company or create obligations on the part of the Company without the prior written authorization of the Company. 6. Supervision of Consultant's Services. All services to be ------------------------------------ performed by Consultant, including but not limited to the Services, will be as agreed between Consultant and the Company's CEO. Consultant will be required to report to the CEO concerning the Services performed under this Agreement. The nature and frequency of these reports will be left to the discretion of the CEO. 7. Consulting or Other Services for Competitors. Consultant -------------------------------------------- represents and warrants that Consultant will not, during the term of this Agreement, perform any consulting or other services for any company, person or entity whose business or proposed business in any way involves products or services which could reasonably be determined to be competitive with the products or services or proposed products or services of the Company. 8. Confidentiality Agreement. Consultant shall sign, or has signed, ------------------------- a Confidential Information and Invention Assignment Agreement substantially in the form attached to this Agreement as Exhibit C (the "Confidentiality --------- --------------- Agreement"), prior to or on the date on which Consultant's consulting - --------- relationship with the Company commences. In the event that Consultant is an entity or otherwise will be causing individuals in its employ or under its supervision to participate in the rendering of the Services, Consultant warrants that it shall cause each of such individuals to execute a Confidentiality Agreement in the form attached as Exhibit C. --------- 9. Conflicts with this Agreement. Consultant represents and warrants ----------------------------- that neither Consultant nor any of Consultant's partners, employees or agents is under any pre-existing obligation in conflict or in any way inconsistent with the provisions of this Agreement. Consultant warrants that Consultant has the right to disclose or use all ideas, processes, techniques and other information, if any, which Consultant has gained from third parties, and which Consultant discloses to the Company in the course of performance of this Agreement, without liability to such third parties. Consultant represents and warrants that Consultant has not granted any rights or licenses to any intellectual property or technology that would conflict with Consultant's obligations under this Agreement. Consultant will not knowingly infringe upon any copyright, patent, trade secret or other property right of any former client, employer or third party in the performance of the services required by this Agreement. 10. Miscellaneous. ------------- (a) Amendments and Waivers. Any term of this Agreement may be ---------------------- amended or waived only with the written consent of the parties. (b) Sole Agreement. This Agreement, including the Exhibits -------------- hereto, constitutes the sole agreement of the parties and supersedes all oral negotiations and prior writings with respect to the subject matter hereof. (c) Notices. Any notice required or permitted by this Agreement ------- shall be in writing and shall be deemed sufficient upon receipt, when delivered personally or by courier, overnight delivery service or confirmed facsimile, or forty-eight (48) hours after being deposited in the regular mail as certified or registered mail (airmail if sent internationally) with postage prepaid, if such notice is addressed to the party to be notified at such party's address or facsimile number as set forth below, or as subsequently modified by written notice. (d) Choice of Law. The validity, interpretation, construction ------------- and performance of this Agreement shall be governed by the laws of the State of California, without giving effect to the principles of conflict of laws. (e) Severability. If one or more provisions of this Agreement ------------ are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. -2- In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (i) such provision shall be excluded from this Agreement, (ii) the balance of the Agreement shall be interpreted as if such provision were so excluded and (iii) the balance of the Agreement shall be enforceable in accordance with its terms. (f) Counterparts. This Agreement may be executed in ------------ counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument. (g) Arbitration. Any dispute or claim arising out of or in ----------- connection with any provision of this Agreement, excluding Section 7 hereof, will be finally settled by binding arbitration in Mountain View, California in accordance with the rules of the American Arbitration Association by one arbitrator appointed in accordance with said rules. The arbitrator shall apply California law, without reference to rules of conflicts of law or rules of statutory arbitration, to the resolution of any dispute. Judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. Notwithstanding the foregoing, the parties may apply to any court of competent jurisdiction for preliminary or interim equitable relief, or to compel arbitration in accordance with this paragraph, without breach of this arbitration provision. This Section 10(g) shall not apply to the Confidentiality Agreement. (h) Advice of Counsel. EACH PARTY ACKNOWLEDGES THAT, IN ----------------- EXECUTING THIS AGREEMENT, SUCH PARTY HAS HAD THE OPPORTUNITY TO SEEK THE ADVICE OF INDEPENDENT LEGAL COUNSEL, AND HAS READ AND UNDERSTOOD ALL OF THE TERMS AND PROVISIONS OF THIS AGREEMENT. THIS AGREEMENT SHALL NOT BE CONSTRUED AGAINST ANY PARTY BY REASON OF THE DRAFTING OR PREPARATION HEREOF. [Signature Page Follows] -3- The parties have executed this Agreement on the respective dates set forth below. REPLAY NETWORKS, INC. By: /s/ Anthony Wood -------------------------------- Title: CEO ----------------------------- Address: 1945 Charleston Rd. Mountain View, CA 94043 Date:______________________________ KEVIN BOHREN /s/ Kevin Bohren ----------------------------------- Signature Address:___________________________ Date:______________________________ EXHIBIT A --------- DESCRIPTION OF CONSULTING SERVICES ---------------------------------- Description of Services Schedule/Deadline ----------------------- ----------------- Advisory services for sales, marketing and n/a business development activities (approx 2 days per week) EXHIBIT B --------- EXHIBIT B COMPENSATION ------------ Check applicable payment terms: [_] For Services rendered by Consultant under this Agreement, the Company shall pay Consultant at the rate of $______ per hour, payable monthly within thirty (30) days following receipt of Consultant's invoice for the work done during the prior month. Unless otherwise agreed upon in writing by Company, Company's maximum liability for all Services performed during the term of this Agreement shall not exceed $____________. [_] Consultant shall be paid $_________ per month, payable in arrears on the ___ day of each month following the end of the month in which the Services are rendered. Consultant shall provide Services of at least ___ hours per week. Unless otherwise agreed upon in writing by Company, Company's maximum liability for all Services performed during the term of this Agreement shall not exceed $____________. [_] Consultant shall be paid $____________ upon the execution of this Agreement and $____________ upon completion of the Services specified on Exhibit A to --------- this Agreement. [_] Consultant will be granted a non-qualified option to purchase _________ shares of the Company's Common Stock, at an exercise price equal to the fair market value (as determined by the Company's Board of Directors) on the date of grant (currently estimated to be $ _____ per share). This option will vest and become exercisable as follows: ___________________________________________________________________________ [_] Consultant is authorized to incur the following expenses: ___________________________________________________________________________ [X] Other: Consultant will be granted 4,840 shares of Replay common stock for each month of services performed. REPLAY NETWORKS, INC. CONSULTING AGREEMENT -------------------- This Consulting Agreement (the "Agreement") is entered into by and --------- between Replay Networks, Inc. (the "Company") and Kevin Bohren ("Consultant"). ------- ---------- 1. Consulting Relationship. During the term of this agreement, ----------------------- Consultant will provide consulting services (the "Services") to the Company as -------- described on Exhibit A attached to this Agreement. Consultant shall use --------- Consultant's best efforts to perform the Services in a manner satisfactory to the Company. 2. Fees; Support. As consideration for the Services to be provided ------------- by Consultant and other obligations, the Company will compensate Consultant as described in Exhibit B to this Agreement. As additional consideration for the --------- Services, the Company will provide Consultant with such support facilities and space as may be required in the Company's judgment to enable Consultant to properly perform the Services. 3. Expenses. Consultant shall not be authorized to incur on behalf -------- of the Company any expenses without the prior consent of the Company's CEO. As a condition to receipt of reimbursement, Consultant shall be required to submit to the Company reasonable evidence that the amount involved was expended and related to Services provided under this Agreement. 4. Term and Termination. Consultant shall serve as a consultant to -------------------- the Company for a period commencing on July 1, 1999, and terminating on September 30, 1999 OR the earlier of the date on which Consultant ceases to provide services to the Company under this Agreement. Either party may terminate this Agreement at any time upon ten (10) days' written notice. 5. Independent Contractor. Consultant's relationship with the ---------------------- Company will be that of an independent contractor and not that of an employee. Consultant will not be eligible for any employee benefits, nor will the Company make deductions from payments made to Consultant for taxes, all of which will be Consultant's responsibility. Consultant agrees to indemnify and hold the Company harmless from any liability for, or assessment of, any such taxes imposed on the Company by relevant taxing authorities. Consultant will have no authority to enter into contracts that bind the Company or create obligations on the part of the Company without the prior written authorization of the Company. 6. Supervision of Consultant's Services. All services to be ------------------------------------ performed by Consultant, including but not limited to the Services, will be as agreed between Consultant and the Company's CEO. Consultant will be required to report to the CEO concerning the Services performed under this Agreement. The nature and frequency of these reports will be left to the discretion of the CEO. 7. Consulting or Other Services for Competitors. Consultant -------------------------------------------- represents and warrants that Consultant will not, during the term of this Agreement, perform any consulting or other services for any company, person or entity whose business or proposed business in any way involves products or services which could reasonably be determined to be competitive with the products or services or proposed products or services of the Company. 8. Confidentiality Agreement. Consultant shall sign, or has signed, ------------------------- a Confidential Information and Invention Assignment Agreement substantially in the form attached to this Agreement as Exhibit C (the "Confidentiality --------- --------------- Agreement"), prior to or on the date on which Consultant's consulting - --------- relationship with the Company commences. In the event that Consultant is an entity or otherwise will be causing individuals in its employ or under its supervision to participate in the rendering of the Services, Consultant warrants that it shall cause each of such individuals to execute a Confidentiality Agreement in the form attached as Exhibit C. --------- 9. Conflicts with this Agreement. Consultant represents and warrants ----------------------------- that neither Consultant nor any of Consultant's partners, employees or agents is under any pre-existing obligation in conflict or in any way inconsistent with the provisions of this Agreement. Consultant warrants that Consultant has the right to disclose or use all ideas, processes, techniques and other information, if any, which Consultant has gained from third parties, and which Consultant discloses to the Company in the course of performance of this Agreement, without liability to such third parties. Consultant represents and warrants that Consultant has not granted any rights or licenses to any intellectual property or technology that would conflict with Consultant's obligations under this Agreement. Consultant will not knowingly infringe upon any copyright, patent, trade secret or other property right of any former client, employer or third party in the performance of the services required by this Agreement. 10. Miscellaneous. ------------- (a) Amendments and Waivers. Any term of this Agreement may be ---------------------- amended or waived only with the written consent of the parties. (b) Sole Agreement. This Agreement, including the Exhibits -------------- hereto, constitutes the sole agreement of the parties and supersedes all oral negotiations and prior writings with respect to the subject matter hereof. (c) Notices. Any notice required or permitted by this Agreement ------- shall be in writing and shall be deemed sufficient upon receipt, when delivered personally or by courier, overnight delivery service or confirmed facsimile, or forty-eight (48) hours after being deposited in the regular mail as certified or registered mail (airmail if sent internationally) with postage prepaid, if such notice is addressed to the party to be notified at such party's address or facsimile number as set forth below, or as subsequently modified by written notice. (d) Choice of Law. The validity, interpretation, construction ------------- and performance of this Agreement shall be governed by the laws of the State of California, without giving effect to the principles of conflict of laws. -2- (e) Severability. If one or more provisions of this Agreement are ------------ held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (i) such provision shall be excluded from this Agreement, (ii) the balance of the Agreement shall be interpreted as if such provision were so excluded and (iii) the balance of the Agreement shall be enforceable in accordance with its terms. (f) Counterparts. This Agreement may be executed in counterparts, ------------ each of which shall be deemed an original, but all of which together will constitute one and the same instrument. (g) Arbitration. Any dispute or claim arising out of or in connection ----------- with any provision of this Agreement, excluding Section 7 hereof, will be finally settled by binding arbitration in Mountain View, California in accordance with the rules of the American Arbitration Association by one arbitrator appointed in accordance with said rules. The arbitrator shall apply California law, without reference to rules of conflicts of law or rules of statutory arbitration, to the resolution of any dispute. Judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. Notwithstanding the foregoing, the parties may apply to any court of competent jurisdiction for preliminary or interim equitable relief, or to compel arbitration in accordance with this paragraph, without breach of this arbitration provision. This Section 10(g) shall not apply to the Confidentiality Agreement. (h) Advice of Counsel. EACH PARTY ACKNOWLEDGES THAT, IN EXECUTING ----------------- THIS AGREEMENT, SUCH PARTY HAS HAD THE OPPORTUNITY TO SEEK THE ADVICE OF INDEPENDENT LEGAL COUNSEL, AND HAS READ AND UNDERSTOOD ALL OF THE TERMS AND PROVISIONS OF THIS AGREEMENT. THIS AGREEMENT SHALL NOT BE CONSTRUED AGAINST ANY PARTY BY REASON OF THE DRAFTING OR PREPARATION HEREOF. [Signature Page Follows] -3- The parties have executed this Agreement on the respective dates set forth below. REPLAY NETWORKS, INC. By: /s/ Anthony Wood --------------------------- Title: CEO ------------------------- Address: 1945 Charleston Rd. Mountain View, CA 94043 Date: 7/20/99 -------------------------- KEVIN BOHREN /s/ Kevin Bohren ------------------------------ Signature Address: P.O. Box 6632 Avon, CO 81620 Date: 7/23/99 -------------------------- EXHIBIT A --------- DESCRIPTION OF CONSULTING SERVICES ---------------------------------- Description of Services Schedule/Deadline ----------------------- ----------------- Advisory services for sales, marketing and n/a business development activities (approx 2 days per week) EXHIBIT B --------- EXHIBIT B COMPENSATION ------------ Check applicable payment terms: [_] For Services rendered by Consultant under this Agreement, the Company shall pay Consultant at the rate of $______ per hour, payable monthly within thirty (30) days following receipt of Consultant's invoice for the work done during the prior month. Unless otherwise agreed upon in writing by Company, Company's maximum liability for all Services performed during the term of this Agreement shall not exceed $____________. [X] Consultant shall be paid $7,500 per month, payable in arrears on the 30th day of each month following the end of the month in which the Services are rendered. Consultant shall provide Services of at least 16 hours per week. Unless otherwise agreed upon in writing by Company, Company's maximum liability for all Services performed during the term of this Agreement shall not exceed $22,500. [_] Consultant shall be paid $____________ upon the execution of this Agreement and $____________ upon completion of the Services specified on Exhibit A --------- to this Agreement. [_] Consultant will be granted a non-qualified option to purchase _________ shares of the Company's Common Stock, at an exercise price equal to the fair market value (as determined by the Company's Board of Directors) on the date of grant (currently estimated to be $ _____ per share). This option will vest and become exercisable as follows: ------------------------------------------------------------------------------ [_] Consultant is authorized to incur the following expenses: ------------------------------------------------------------------------------ [_] Other: EXHIBIT C --------- CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENT ------------------------------ (omitted) REPLAY NETWORKS, INC. CONSULTING AGREEMENT -------------------- This Consulting Agreement (the "Agreement") is entered into by and --------- between Replay Networks, Inc. (the "Company") and Kevin Bohren ("Consultant"). ------- ---------- 1. Consulting Relationship. During the term of this agreement, ----------------------- Consultant will provide consulting services (the "Services") to the Company as -------- described on Exhibit A attached to this Agreement. Consultant shall use --------- Consultant's best efforts to perform the Services in a manner satisfactory to the Company. 2. Fees; Support. As consideration for the Services to be provided ------------- by Consultant and other obligations, the Company will compensate Consultant as described in Exhibit B to this Agreement. As additional consideration for the --------- Services, the Company will provide Consultant with such support facilities and space as may be required in the Company's judgment to enable Consultant to properly perform the Services. 3. Expenses. Consultant shall not be authorized to incur on behalf -------- of the Company any expenses without the prior consent of the Company's CEO. As a condition to receipt of reimbursement, Consultant shall be required to submit to the Company reasonable evidence that the amount involved was expended and related to Services provided under this Agreement. 4. Term and Termination. Consultant shall serve as a consultant to -------------------- the Company for a period commencing on October 1, 1999, and terminating on March 31, 2000 OR the earlier of the date on which Consultant ceases to provide services to the Company under this Agreement. Either party may terminate this Agreement at any time upon ten (10) days' written notice. 5. Independent Contractor. Consultant's relationship with the ---------------------- Company will be that of an independent contractor and not that of an employee. Consultant will not be eligible for any employee benefits, nor will the Company make deductions from payments made to Consultant for taxes, all of which will be Consultant's responsibility. Consultant agrees to indemnify and hold the Company harmless from any liability for, or assessment of, any such taxes imposed on the Company by relevant taxing authorities. Consultant will have no authority to enter into contracts that bind the Company or create obligations on the part of the Company without the prior written authorization of the Company. 6. Supervision of Consultant's Services. All services to be ------------------------------------ performed by Consultant, including but not limited to the Services, will be as agreed between Consultant and the Company's CEO. Consultant will be required to report to the CEO concerning the Services performed under this Agreement. The nature and frequency of these reports will be left to the discretion of the CEO. 7. Consulting or Other Services for Competitors. Consultant -------------------------------------------- represents and warrants that Consultant will not, during the term of this Agreement, perform any consulting or other services for any company, person or entity whose business or proposed business in any way involves products or services which could reasonably be determined to be competitive with the products or services or proposed products or services of the Company. 8. Confidentiality Agreement. Consultant shall sign, or has signed, ------------------------- a Confidential Information and Invention Assignment Agreement substantially in the form attached to this Agreement as Exhibit C (the "Confidentiality --------- --------------- Agreement"), prior to or on the date on which Consultant's consulting - --------- relationship with the Company commences. In the event that Consultant is an entity or otherwise will be causing individuals in its employ or under its supervision to participate in the rendering of the Services, Consultant warrants that it shall cause each of such individuals to execute a Confidentiality Agreement in the form attached as Exhibit C. --------- 9. Conflicts with this Agreement. Consultant represents and warrants ----------------------------- that neither Consultant nor any of Consultant's partners, employees or agents is under any pre-existing obligation in conflict or in any way inconsistent with the provisions of this Agreement. Consultant warrants that Consultant has the right to disclose or use all ideas, processes, techniques and other information, if any, which Consultant has gained from third parties, and which Consultant discloses to the Company in the course of performance of this Agreement, without liability to such third parties. Consultant represents and warrants that Consultant has not granted any rights or licenses to any intellectual property or technology that would conflict with Consultant's obligations under this Agreement. Consultant will not knowingly infringe upon any copyright, patent, trade secret or other property right of any former client, employer or third party in the performance of the services required by this Agreement. 10. Miscellaneous. ------------- (a) Amendments and Waivers. Any term of this Agreement may be ---------------------- amended or waived only with the written consent of the parties. (b) Sole Agreement. This Agreement, including the Exhibits -------------- hereto, constitutes the sole agreement of the parties and supersedes all oral negotiations and prior writings with respect to the subject matter hereof. (c) Notices. Any notice required or permitted by this Agreement ------- shall be in writing and shall be deemed sufficient upon receipt, when delivered personally or by courier, overnight delivery service or confirmed facsimile, or forty-eight (48) hours after being deposited in the regular mail as certified or registered mail (airmail if sent internationally) with postage prepaid, if such notice is addressed to the party to be notified at such party's address or facsimile number as set forth below, or as subsequently modified by written notice. (d) Choice of Law. The validity, interpretation, construction ------------- and performance of this Agreement shall be governed by the laws of the State of California, without giving effect to the principles of conflict of laws. -2- (e) Severability. If one or more provisions of this Agreement are ------------ held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (i) such provision shall be excluded from this Agreement, (ii) the balance of the Agreement shall be interpreted as if such provision were so excluded and (iii) the balance of the Agreement shall be enforceable in accordance with its terms. (f) Counterparts. This Agreement may be executed in counterparts, ------------ each of which shall be deemed an original, but all of which together will constitute one and the same instrument. (g) Arbitration. Any dispute or claim arising out of or in ----------- connection with any provision of this Agreement, excluding Section 7 hereof, will be finally settled by binding arbitration in Mountain View, California in accordance with the rules of the American Arbitration Association by one arbitrator appointed in accordance with said rules. The arbitrator shall apply California law, without reference to rules of conflicts of law or rules of statutory arbitration, to the resolution of any dispute. Judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. Notwithstanding the foregoing, the parties may apply to any court of competent jurisdiction for preliminary or interim equitable relief, or to compel arbitration in accordance with this paragraph, without breach of this arbitration provision. This Section 10(g) shall not apply to the Confidentiality Agreement. (h) Advice of Counsel. EACH PARTY ACKNOWLEDGES THAT, IN EXECUTING ----------------- THIS AGREEMENT, SUCH PARTY HAS HAD THE OPPORTUNITY TO SEEK THE ADVICE OF INDEPENDENT LEGAL COUNSEL, AND HAS READ AND UNDERSTOOD ALL OF THE TERMS AND PROVISIONS OF THIS AGREEMENT. THIS AGREEMENT SHALL NOT BE CONSTRUED AGAINST ANY PARTY BY REASON OF THE DRAFTING OR PREPARATION HEREOF. [Signature Page Follows] -3- The parties have executed this Agreement on the respective dates set forth below. REPLAY NETWORKS, INC. By: /s/ Kim LeMasters --------------------------------- Title: Chairman, CEO ------------------------------ Address: 1945 Charleston Rd. Mountain View, CA 94043 Date:_______________________________ KEVIN BOHREN /s/ Kevin Bohren ------------------------------------- Signature Address: P.O. Box 6632 Avon, CO 81620 Date: 12/9/99 -------------------------------- SIGNATURE PAGE TO ((COMPANYNAME)) CONSULTING AGREEMENT EXHIBIT A --------- DESCRIPTION OF CONSULTING SERVICES ---------------------------------- Description of Services Schedule/Deadline ----------------------- ----------------- Advisory services for business development n/a activities Search for permanent VP Business Development n/a candidate EXHIBIT B --------- EXHIBIT B COMPENSATION ------------ Check applicable payment terms: [ ] For Services rendered by Consultant under this Agreement, the Company shall pay Consultant at the rate of $______ per hour, payable monthly within thirty (30) days following receipt of Consultant's invoice for the work done during the prior month. Unless otherwise agreed upon in writing by Company, Company's maximum liability for all Services performed during the term of this Agreement shall not exceed $____________. [X] Beginning November 1, 1999 consultant shall be paid $20,833 per month, payable in arrears on the 15/th/ day of each month following the end of the month in which the Services are rendered. Consultant will be paid $7,500 for services rendered during the month of October 1999. Consultant shall provide Services of at least 40 hours per week. Unless otherwise agreed upon in writing by Company, Company's maximum liability for all Services performed during the term of this Agreement shall not exceed $111,665. [ ] Consultant shall be paid $____________ upon the execution of this Agreement and $____________ upon completion of the Services specified on Exhibit A to --------- this Agreement. [ ] Consultant will be granted a non-qualified option to purchase _________ shares of the Company's Common Stock, at an exercise price equal to the fair market value (as determined by the Company's Board of Directors) on the date of grant (currently estimated to be $ _____ per share). This option will vest and become exercisable as follows: ________________________________________________________________________________ [ ] Consultant is authorized to incur the following expenses: ________________________________________________________________________________ EXHIBIT C --------- CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENT ------------------------------ (omitted) EX-23.1 19 INDEPENDENT AUDITORS' CONSENT EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in this Registration Statement on Form S-1 of our report dated August 31, 1999 relating to the financial statements of ReplayTV, Inc., which appears in such Registration Statement. We also consent to the reference to us under the heading "Experts" in such Registration Statement. PricewaterhouseCoopers LLP San Jose, California January 26, 2000 EX-27.1 20 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS IN FORM S-1 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS YEAR SEP-30-1999 DEC-31-1998 JAN-01-1999 JAN-01-1998 SEP-30-1999 DEC-31-1998 14,636 686 35,204 25 292 0 9 0 988 0 334 225 1,864 157 156 25 53,406 1,068 5,407 1,328 0 0 0 0 26 8 6 4 47,967 (272) 53,406 1,068 0 0 0 0 0 0 20,459 3,256 0 0 0 0 (342) 28 (20,117) (3,284) 0 0 (20,117) (3,284) 0 0 0 0 0 0 (20,117) (3,284) (2.73) (0.48) (2.73) (0.48)
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