-----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, H0WTFvpD2J0jeDgrQolf9N/cE+cSx3ov8FoDDHsLdPLITWmUJS6QFOnXCUAUfT0o mTCCCKO0MPTk3aaBq3jgig== 0001012870-00-001140.txt : 20000307 0001012870-00-001140.hdr.sgml : 20000307 ACCESSION NUMBER: 0001012870-00-001140 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 20000303 FILER: COMPANY DATA: COMPANY CONFORMED NAME: REPLAYTV INC CENTRAL INDEX KEY: 0001103772 STANDARD INDUSTRIAL CLASSIFICATION: CABLE & OTHER PAY TELEVISION SERVICES [4841] IRS NUMBER: 770465127 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-95425 FILM NUMBER: 560336 BUSINESS ADDRESS: STREET 1: 1945 CHARLESTON ROAD CITY: MOUNTAIN VIEW STATE: CA ZIP: 94043 BUSINESS PHONE: 6502101020 S-1/A 1 AMENDMENT NO. 3 TO THE FORM S-1 As filed with the Securities and Exchange Commission on March 3, 2000 Registration No. 333-95425 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------- AMENDMENT NO. 3 TO 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 Scott S. Ring 450 Lexington Avenue VENTURE LAW GROUP New York, NY 10017 A Professional Corporation (212) 450-4000 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 - -------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------
Proposed Proposed Amount maximum maximum Amount of Title of each class of to be offering price aggregate Registration securities to be registered registered(1) per Share(2) offering price(2) Fee(3) - -------------------------------------------------------------------------------------------------- Common Stock, $.001 par value........ 9,775,000 $15.00 $146,625,000 $38,709 - --------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------- (1)Includes 1,275,000 shares of Common Stock issuable upon exercise of the Underwriters' over-allotment option. (2)Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(a) under the Securities Act. (3)$39,600 has been previously paid by the Registrant in connection with the filing of the Registration Statement on January 26, 2000. 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 March 3, 2000 8,500,000 Shares [ReplayTV logo] COMMON STOCK ----------- We are offering 8,500,000 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 $13 and $15 per share. ----------- We have applied to list our common stock on the Nasdaq National Market under the trading symbol "RPTV." ----------- Investing in our common stock involves risks. See "Risk Factors" beginning on page 5. ----------- 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 1,275,000 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: - ------------------- Middle of page: Large ReplayTV Logo GATEFOLD - First Page: - ---------------------- Top three-quarters of the page: An image of a television screen with the following text on the screen in large letters: "TV now has a brain." Bottom left corner of page: A picture of the ReplayTV-enabled personal video recorder, together with a picture of the ReplayTV remote control. Below these pictures in the lower left corner of this page is a footnote stating "* These features are not currently available". Starting on the bottom left of the gatefold and running across the gatefold is text stating the following: "ReplayTV serves content providers, advertisers and cable and satellite system operators by allowing viewers to find, record and watch programs on demand." This text is followed immediately by a small ReplayTV logo. GATEFOLD - Second Page: - ----------------------- Right side of page: Four pictures of screen shots from the ReplayTV Service. These pictures are listed below in the order presented on the page, from top to bottom. 1) Screen shot showing an example of the "ReplayGuide". 2) Screen shot showing an example of the "Find Shows" feature. 3) Screen shot showing an example of a TV-commerce page. This particular example shows a Panasonic camcorder and gives the viewer the option to buy, learn more or exit. Immediately to the upper left of the picture is a "*", which is keyed to the footnote on the first page of the gatefold. 4) Screen shot showing an example of the "ReplayZones" screen. This particular example shows a page listing various ReplayZones and highlights the "Movie Zone". Immediately to the upper left of the picture is a "*", which is keyed to the footnote on the first page of the gatefold. INSIDE BACK COVER: - ------------------ Middle of page: Four pictures showing buttons from the ReplayTV remote control. Each picture has a short caption on its left. These pictures are listed below in the order presented on the page, from top to bottom. 1) Picture of the "pause" button with caption stating "Pause live TV" to the left of the picture. 2) Picture of the "instant replay" button with caption stating ""Instant Replay" to the left of the picture. 3) Picture of the "replay zones" button with caption stating "ReplayZones" to the left of the picture. 4) Picture of the "record" button with caption stating ""Record" to the left of the picture. OUTSIDE BACK COVER - ------------------ Middle of page: small ReplayTV Logo TABLE OF CONTENTS
Page ---- Prospectus Summary ...................................................... 1 Risk Factors ............................................................ 5 Use of Proceeds ......................................................... 17 Dividend Policy ......................................................... 17 Capitalization .......................................................... 18 Dilution ................................................................ 19 Selected Financial Data ................................................. 20 Management's Discussion and Analysis of Financial Condition and Results of Operations .......................................................... 21 Business ................................................................ 27 Management .............................................................. 42 Related Party Transactions .............................................. 52 Principal Stockholders .................................................. 55 Description of Capital Stock ............................................ 57 Shares Eligible for Future Sale ......................................... 60 Underwriters ............................................................ 62 Legal Matters ........................................................... 64 Experts ................................................................. 64 Additional Information Available to You ................................. 64 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. i 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. 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. Our ReplayTV Service is delivered through a personal video recorder, or PVR, that connects to a viewer's television set and provides 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 also 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. ReplayTV is a media company that benefits viewers, content providers, advertisers and cable and satellite system operators. . Benefits to Viewers. Through our combination of proprietary software, hardware and media relationships, the ReplayTV Service provides viewers with greater freedom and control with respect to their television viewing. The ReplayTV Service personalizes television viewing 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. In addition, the ReplayTV Service 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. The ReplayTV Service is also 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 "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. For example, advertisers are able to target advertising to viewers who have created theme-based ReplayTV channels based on a specific topic, such as "tennis." In addition, ReplayTV's basic PVR architecture can support a wide range of additional innovative advertising services, such as graphic and full-motion advertising on the Replay Guide and other viewer interfaces, transitional advertisements when the pause or other features are activated, and lead- in or lead-out advertisements inserted at the beginning or end of recorded programs. 1 . 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, 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 to better utilize broadcast capacity. We announced our ReplayTV Service in January 1999, began shipment of our PVRs in April 1999 and intend to commence full-scale retail distribution through leading consumer electronics companies this year. Our strategy is to establish our proprietary ReplayTV Service as the leading living room portal to enrich personal television viewing, advertising and TV-commerce. We anticipate generating revenues from the sale of advertisements, media sponsorships, premium subscription services, near video-on-demand services and TV-commerce. We continue to pursue strategic relationships with television programmers, advertising agencies and other potential media partners to expand our advertising and sponsorship opportunities, offer unique programming content, differentiate the ReplayTV Service and enhance the ReplayTV brand. For example, we are creating theme-based or branded content areas called ReplayZones with NBC, Showtime and Turner. We are also pursuing strategic manufacturing and distribution relationships to aggresively drive rapid market penetration of ReplayTV-enabled products and 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 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, including EchoStar Communications and Sharp Electronics, with whom we have non-binding letters of intent. 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 are a development stage company, and as of December 31, 1999, we had shipped only about 6,000 ReplayTV-enabled PVRs and had recognized no revenues. We have incurred significant losses to date and expect to incur significant losses and negative cash flow for the foreseeable future. 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. 2 THE OFFERING Common stock offered................................ 8,500,000 shares Common stock to be outstanding after this offering.. 49,452,916 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 distribution of ReplayTV- enabled products; product development; and expansion of our sales, marketing and service capabilities. See "Use of Proceeds." Proposed Nasdaq National Market symbol.............. RPTV
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 5,627,267 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, 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. 3 SUMMARY FINANCIAL INFORMATION The following table sets forth a summary of our statement of operations data for the periods presented. 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 Period from August 27, 1997 Year Ended August 27, 1997 (Inception) December 31, (Inception) to December 31, ----------------- to December 31, 1997 1998 1999 1999 --------------- ------- -------- ---------------- (in thousands, except per share data) Statement of Operations Data: Total costs and expenses............... $ 155 $ 3,256 $ 36,710 $ 40,121 Interest income (expense), net......... -- (28) 960 932 Net loss................ (155) (3,284) (35,750) (39,189) Basic and diluted net loss per share......... $(0.08) $ (0.48) $ (4.73) $ (5.48) Basic and diluted weighted average shares used in computation of net loss per share..... 2,026 6,889 7,565 7,157 Pro forma basic and diluted net loss per share.................. $ (1.35) Pro forma basic and diluted weighted average shares......... 26,476
Please see 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 following table summarizes our balance sheet data as of December 31, 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 at $11.00 per share resulting in net cash proceeds of about $61.4 million 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 8,500,000 shares of common stock in this offering at an assumed initial public offering price of $14.00 per share after deducting estimated underwriting discounts and commissions and estimated offering expenses.
As of December 31, 1999 ----------------------------- Pro Forma Actual Pro Forma As Adjusted ------- --------- ----------- (in thousands) Balance Sheet Data: Cash, cash equivalents and short-term investments.................................... $36,150 $97,550 $207,120 Working capital................................. 33,606 95,006 204,576 Total assets.................................... 43,449 104,849 214,419 Total stockholders' equity...................... 36,698 98,098 207,668
4 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. 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 December 31, 1999, we had an accumulated deficit of $39.2 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. 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 5 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 to 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 and execute our business plan. 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 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. 6 If we are unable to create multiple revenue streams we will not be able to execute our business plan and achieve profitability. 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. Version 2.0 of the ReplayTV Service software 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. 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, we must expand the capabilities of the ReplayTV Service to permit these services, 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, and these parties may not perform as expected. 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 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 7 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 our program guide data; and . Universal Electronics, Inc. is the sole supplier of our universal remote controls and cable set-top box compatibility information. 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 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 prices 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. The television industry is highly litigious, particularly in the area of electronic program guides. Many patents relating to interactive television technologies have been granted. We have been contacted by various parties that have asserted that our personal television service violates patents, copyrights or other rights of such 8 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 which would eliminate our ability to generate revenues; . cause the cancellation of new services; . cause delays in product delivery and new service introduction; and . require us to pay significant monetary damages, 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. 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 these companies. In some cases, we have been contacted by patent owners offering us the opportunity to license 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. In January 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. In addition, in January 2000, we and TiVo were sued by PhoneTel Communications, Inc. for allegedly infringing a patent related to specifying an order for playback of recorded television programs. We are also 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/or oral indications from a number of content providers, including Fox Television, Universal Studios, The Walt Disney Company and Warner Bros., asserting their belief that our business activities will require approvals and licenses from these content providers. In addition, under our Network Service Agreement with Time Warner and 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. 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 9 substantially greater financial, marketing and distribution resources than we do. Some of these companies also have established relationships with third party consumer electronics manufacturers, satellite and cable system 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. 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. 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. Faced with this competition, we may be unable to expand our market share and attract an increasing number of viewers to the ReplayTV Service. We also 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. 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 the ReplayTV Service 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. 10 If we are unable to integrate the ReplayTV Service with the products and services provided by cable and satellite system operators, we will not be able to grow our installed base as rapidly as we expect. 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 set-top boxes 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 rather than a set-top box 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. Additional risks we face as our business expands include: . 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. 11 . We may be unable to successfully attract, integrate or retain sufficiently qualified personnel, especially engineers and personnel with the relevant and necessary media and television experience. . 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. . 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. Seasonal trends in consumer and advertiser spending behavior may cause our operating results to fluctuate. 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 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. 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 numerous 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. 12 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 result in delays in releasing new versions of our ReplayTV-enabled personal video recorders, affect system uptime, result in returns and significant warranty and repair costs and cause customer relations problems. 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. Any failure to secure and protect our patents, trademarks and other proprietary rights could reduce our competitive advantage. 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. Because 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, it is difficult to predict what laws or regulations will govern 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. 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, the Federal Communications Commission has broad jurisdiction over the telecommunications and cable industries. New 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, which may negatively impact the adoption of the ReplayTV Service. In addition, the FCC could 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 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. 13 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 $9.80 in the pro forma adjusted net tangible book value per share of common stock, assuming an initial public offering price of $14.00 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. 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 14 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 approximately 83%, 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 49,452,916 shares of our common stock to be outstanding upon completion of this offering, the 8,500,000 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 / 71% 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 / 11% 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 as of December 31, 1999. We have made forward-looking statements in this prospectus, but actual results may differ materially. 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. 15 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. 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. 16 USE OF PROCEEDS We expect to receive net proceeds of about $109.6 million from this offering, or $126.2 million if the underwriters exercise their over-allotment option in full, assuming an initial public offering price of $14.00 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 $1.1 million. The principal reason for this offering is to raise capital for: . subsidies related to the distribution 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 foregoing discussion is based on our current expectations, and we may allocate the net proceeds among these purposes as we deem necessary or appropriate. These determinations will be based upon various factors, a number of which are not yet known, including: . competitive and technological developments; . the rate of growth, if any, of our business; . the number of PVRs that we sell, which may result in increases in subsidies; . marketing expenses, which may vary depending on our strategic relationships; and . the amount of advertising revenue we receive. In addition, these and other market factors may require us to allocate portions of the net proceeds for purposes other than those described above. 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. 17 CAPITALIZATION The following table sets forth our capitalization as of December 31, 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 at $11.00 per share resulting in net cash proceeds of about $61.4 million 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 8,500,000 shares of common stock in this offering at an assumed initial public offering price of $14.00 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 December 31, 1999 -------------------------------- Pro Forma Actual Pro Forma As Adjusted -------- --------- ----------- (in thousands, except share and per share data) Cash, cash equivalents and short-term investments................................... $ 36,150 $ 97,550 $207,120 ======== ======== ======== 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, 9,584,064 shares issued and outstanding actual; 75,000,000 shares authorized, 40,952,916 shares issued and outstanding pro forma; 200,000,000 shares authorized, 49,452,916 shares issued and outstanding pro forma as adjusted........... 6 37 46 Additional paid-in capital................... 109,634 171,029 280,590 Notes receivable............................. (3,200) (3,200) (3,200) Unearned stock-based compensation............ (30,579) (30,579) (30,579) Deficit accumulated during development stage....................................... (39,189) (39,189) (39,189) -------- -------- -------- Total stockholders' equity................. 36,698 98,098 207,668 -------- -------- -------- Total capitalization..................... $ 36,698 $ 98,098 $207,668 ======== ======== ========
This table excludes the following shares as of December 31, 1999: . 6,666 shares of common stock issuable upon the exercise of an outstanding warrant at an exercise price of $7.50 per share; . 10,789,637 shares of common stock issuable upon the exercise of stock options outstanding under our stock option plans at a weighted average exercise price of $2.53 per share; and . 128,924 shares of common stock available for issuance under our stock option plans. 18 DILUTION The pro forma net tangible book value of ReplayTV, Inc. as of December 31, 1999 was $98.1 million or $2.40 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 5,627,267 shares of Series F preferred stock issued at $11.00 per share in January 2000) into common stock immediately prior to the closing of this offering. Assuming the sale by us of 8,500,000 shares of common stock in this offering at an assumed initial public offering price of $14.00 per share, our pro forma net tangible book value as of December 31, 1999 would have been $207.7 million, or $4.20 per share of common stock. This represents an immediate increase in pro forma net tangible book value of $1.80 per share to our existing stockholders and an immediate dilution in pro forma net tangible book value of $9.80 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............... $14.00 Pro forma net tangible book value per share as of December 31, 1999................................................... $2.40 Increase per share attributable to new investors............ 1.80 ----- Pro forma net tangible book value per share after this offering..................................................... 4.20 ------ Dilution per share to new investors........................... $ 9.80 ======
The following table summarizes on a pro forma basis, as of December 31, 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 $14.00 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... 40,952,916 82.8% $133,435,000 52.9% $ 3.26 New investors........... 8,500,000 17.2 119,000,000 47.1 14.00 ---------- ----- ------------ ----- Totals................ 49,452,916 100.0% $252,435,000 100.0% ========== ===== ============ =====
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 $2.53 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. 19 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, for the year ended December 31, 1998 and 1999 and for the period from August 27, 1997 (inception) to December 31, 1999 and the balance sheet data as of December 31, 1998 and 1999, are derived from the audited financial statements included elsewhere in this prospectus. The historical results are not necessarily indicative of results to be expected for future periods.
Period from Period from August 27, 1997 Year Ended August 27, 1997 (Inception) to December 31, (Inception) to December 31, ----------------- December 31, 1997 1998 1999 1999 --------------- ------- -------- --------------- (in thousands, except per share data) Statement of Operations Data: Costs and expenses: Research and development (excludes stock-based compensation of $0, $163, $1,588 and $1,751)....... $ 136 $ 1,961 $ 7,980 $ 10,077 Programming and content (excludes stock-based compensation of $0, $15, $2,179 and $2,194)....... -- -- 1,029 1,029 Sales and marketing (excludes stock-based compensation of $0, $15, $755 and $770)........... 10 764 14,586 15,360 General and administrative (excludes stock-based compensation of $0, $13, $2,959 and $2,972)....... 9 325 3,271 3,605 Hardware distribution costs, net (excludes stock-based compensation of $0, $0, $333 and $333).................... -- -- 2,030 2,030 Stock-based compensation.. -- 206 7,814 8,020 ------ ------- -------- -------- Total costs and expenses............. 155 3,256 36,710 40,121 ------ ------- -------- -------- Operating loss.............. (155) (3,256) (36,710) (40,121) Interest income (expense), net........................ -- (28) 960 932 ------ ------- -------- -------- Net loss.................... $ (155) $(3,284) $(35,750) $(39,189) ====== ======= ======== ======== Basic and diluted net loss per share.................. $(0.08) $ (0.48) $ (4.73) $ (5.48) Basic and diluted weighted average shares used in computation of net loss per share...................... 2,026 6,889 7,565 7,157 Pro forma basic and diluted net loss per share......... $ (1.35) Pro forma basic and diluted weighted average shares.... 26,476
Please see 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.
As of December 31, -------------------- 1997 1998 1999 ---- ------ ------- (in thousands) Balance Sheet Data: Cash, cash equivalents and short-term investments......... $103 $ 711 $36,150 Working capital (deficit)................................. 94 (392) 33,606 Total assets.............................................. 144 1,068 43,499 Total stockholders' equity (deficit)...................... 125 (260) 36,698
20 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 subscription services, near video-on-demand services and TV-commerce. Revenues from media sponsorships, which will primarily take the form of ReplayZones that promote branded content provided and edited by media sponsors, 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. Version 2.0 of our ReplayTV Service software permits 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 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 21 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 are 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 Year Ended December 31, 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 $8.0 million for the year ended December 31, 1999 from $2.0 million for the year ended December 31, 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 year ended December 31, 1999 were $1.0 million. No programming and content costs were incurred during the year ended December 31, 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 $14.6 million for the year ended December 31, 1999 from $764,000 for the year ended December 31, 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 $3.3 million for the year ended December 31, 1999 from $325,000 for the year ended December 31, 1998. 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 22 to our business and, therefore, have been reflected as a reduction of the related costs. Hardware distribution costs, net, were $2.0 million for the year ended December 31, 1999. During the year ended December 31, 1999, we shipped about 6,000 PVRs and incurred manufacturing and distribution costs of $7.2 million. Proceeds from sales of PVRs were $5.1 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 $37.7 million through December 31, 1999 and additional unearned stock-based compensation of about $4.2 million for stock options granted in January and February 2000. 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 $7.0 million for the year ended December 31, 1999. We currently expect to record employee stock-based compensation expenses of about $4.9 million for the quarter ending March 31, 2000 and $4.5 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 $734,000 for the year ended December 31, 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 $136,000 for the year ended December 31, 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 $960,000 for the year ended December 31, 1999 and ($28,000) for the year ended December 31, 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 December 31, 1999, and therefore have not recorded a provision for income taxes. Our deferred tax asset primarily consists of net operating loss carryforwards, nondeductible accruals and allowances and research credits. 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, 1999, we had net operating loss carryforwards for both federal and state tax purposes of about $29.6 million. These federal and state tax loss carryforwards are available to reduce future taxable income and expire at various dates into the year 2019. 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. 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. 23 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 eight quarters in the period ended December 31, 1999. 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, Dec. 31, 1998 1998 1998 1998 1999 1999 1999 1999 -------- -------- --------- -------- -------- -------- --------- -------- (in thousands) Statement of Operations Data: Costs and expenses: Research and development........... $ 160 $ 297 $ 546 $ 958 $ 1,462 $ 1,145 $ 2,204 $ 3,169 Programming and content............... -- -- -- -- -- 79 431 519 Sales and marketing.... 6 50 237 471 1,484 3,274 4,058 5,770 General and administrative........ 18 30 111 166 314 532 1,231 1,194 Hardware distribution costs, net............ -- -- -- -- -- 167 589 1,274 Stock-based compensation.......... 12 24 64 106 200 960 2,329 4,325 ----- ----- ----- ------- ------- ------- -------- -------- Total costs and expenses............. 196 401 958 1,701 3,460 6,157 10,842 16,251 ----- ----- ----- ------- ------- ------- -------- -------- Operating loss.......... (196) (401) (958) (1,701) (3,460) (6,157) (10,842) (16,251) Interest income (expense), net......... 1 1 (6) (24) (33) 33 342 618 ----- ----- ----- ------- ------- ------- -------- -------- Net loss................ $(195) $(400) $(964) $(1,725) $(3,493) $(6,124) $(10,500) $(15,633) ===== ===== ===== ======= ======= ======= ======== ========
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. 24 We may be subject to seasonality in consumer electronics product sales, which are traditionally 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 December 31, 1999, we had raised $67.8 million from the sale of our preferred and common stock and had an accumulated deficit of $39.2 million, and held cash, cash equivalents and short-term investments totaling $36.1 million. Our operating activities used cash in the amount of $26.0 million for the year ended December 31, 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 $27.3 million for the year ended December 31, 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 year ended December 31, 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 December 31, 1999, we had no borrowings and a $500,000 standby letter of credit to a vendor secured under this line. 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 of $11.3 million 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 December 31, 1999, our principal commitments consisted of our line of credit and a facilities operating lease totaling $15.7 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 25 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 we are unable to raise additional funds, we will not be able to execute on our operating plan in the manner we currently anticipate. 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. 26 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. Prior to our full-scale retail launch scheduled for the first half of 2000, we have shipped only about 6,000 ReplayTV-enabled PVRs. Industry Background More American households have televisions than have telephone service. The average television adult in the U.S. spends about 4.3 hours per day watching television. According to Kagan, there are about 100 million television households in the U.S., 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. 27 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 28 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. 29 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 features unique and exciting program information, promotions and content on theme-based or branded content areas called ReplayZones. ReplayZones 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, seven-second instant replay and still-frame advance 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 30 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. ReplayTV Strategy Our goal is to establish 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 31 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 and satellite set-top boxes, 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 have entered into an agreement with Turner Broadcasting to produce ReplayZones that highlight current and upcoming programming from the Turner television networks, and we are also creating ReplayZones for NBC and Showtime. See "--Media Relationships." 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-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. 32 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. We do not expect these services to be available prior to the end of 2001. 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. 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. 33 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, seven-second instant replay and still-frame advance; . easily finding the shows that interest them; and . accessing specialized content on theme-based or branded content areas called ReplayZones. 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 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. 34 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 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 still-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 Service 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. 35 Version 2.0 of the ReplayTV Service software offers 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. We do not expect these services to be available prior to the end of 2001. . 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 We plan to leverage our existing media relationships and are pursuing additional strategic relationships with television programmers, advertising agencies and other potential media partners 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 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. The ReplayTV Service currently features a number of Turner and NBC ReplayZones. To date, we have received no revenues from our agreements with Turner, NBC or Showtime. 36 Our investors include leading media companies such as Disney, Liberty Media, NBC, Showtime, Time Warner and Tribune. Distribution and Manufacturing Relationships We are pursuing strategic relationships with consumer electronics manufacturers, cable and satellite system operators and manufacturers of cable and satellite set-top boxes to manufacture, distribute and market ReplayTV- enabled products. When established, we intend to leverage these manufacturing and distribution relationships to accelerate our market penetration and rapidly grow our installed base of viewers. For example, we have entered into a non-binding letter of intent with EchoStar Communications to incorporate the ReplayTV Service into its DISH network satellite set-top boxes and a non- binding letter of intent with Sharp Electronics for the manufacture and distribution of ReplayTV-enabled PVRs. Our investors include leading manufacturing companies and cable and satellite system operators such as EchoStar, MKE, Sharp and Time Warner. 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 and satellite set-top boxes 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 37 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 other parties with whom we establish distribution relationships to drive our installed base of ReplayTV viewers. In addition, we intend to subsidize the cost of distributing ReplayTV-enabled products in order to maintain an attractive retail price and accelerate our market penetration. MKE and other parties with whom we establish distribution relationships 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 other parties with whom we establish distribution relationships 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. 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. 38 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 $7,893,000 for the year ended December 31, 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. TiVo has manufacturing relationships with several consumer electronics manufacturers and a distribution relationship with DirecTV, Inc. 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, the operator of the DISH Network, 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 jointly develop the 39 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. In order to compete effectively, we will need to enter into similar strategic relationships. 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. 40 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/or oral indications from a number of content providers, including Fox Television, Universal Studios, The Walt Disney Company and Warner Bros., 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 Time Warner and Turner Broadcasting Systems, Inc., Turner has reserved the right to assert any claims or rights against us. In addition, on January 6, 2000, we and TiVo were sued by PhoneTel Communications, Inc. in the U.S. District Court for the Northern District of Texas for allegedly infringing a patent related to specifying an order for playback of recorded television programs. PhoneTel has asserted that it is entitled to recover unspecified damages, but in no event less than a reasonable royalty, and has requested an injunction prohibiting further acts of infringement. On February 23, 2000, we filed a declaratory judgment action against PhoneTel in the Northern District of California seeking declaration that the patent is not infringed. 41 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. 42 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. 43 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; however, if the option is exercised, we have the right to repurchase the underlying shares at a price of $4.00 per share upon the termination of Mr. LeMasters' employment with us. Our right to repurchase 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 44 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 -- $125,000 600,000 -- 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 $100,000, which has not yet been paid. 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 remaining $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. 45 (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, if an option is exercised, we have the right to repurchase the underlying shares at the original exercise price per share upon the termination of the optionee's employment with us. Our right to repurchase the shares exercised by Messrs. LeMasters, Dougherty and Gray lapses at the rate of 1/8th of the total number of 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 1/48th of the total number of shares each month thereafter. Our right to repurchase shares exercised by Mr. Britton lapses at the rate of 1/48th of the total number of shares 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 $14.00 per share assumed initial public offering price (based upon the midpoint of the range set forth on the cover page of this prospectus) appreciates at the indicated rate from the date of grant until the end of the term of the option and that the option is exercised at the exercise price and sold on the last day of its term at the appreciated price. All options have a term of ten years. Stock price appreciation of 5% and 10% is assumed pursuant to the rules of the Securities and Exchange Commission. There can be no assurance that the actual stock price will appreciate over the ten-year option term at the assumed rates of 5% and 10% or at any other defined rate. Unless the market price of the common stock appreciates over the option term, no value will be realized from the option grants made to the below named executive officers. Option Grants in 1999
Individual Grants ------------------------------------------- Potential Realizable Percent of Value at Assumed Annual Number of Total Rates of Stock Price Securities Options Appreciation For Option Underlying Granted in Exercise Term Options Fiscal Price Expiration ----------------------- Name Granted (#) 1999 ($/Share) Date 5% 10% - ---- ----------- ---------- --------- ---------- ----------- ----------- Earle H. "Kim" LeMasters, III......... 2,500,000 22.97% $4.00 9/13/09 $47,011,312 $80,780,986 Anthony J. Wood......... 275,000 2.53 0.275 4/27/09 6,195,619 9,910,283 Layne L. Britton........ 1,120,000 10.29 0.625 5/31/09 24,841,068 39,969,882 Craig W. Dougherty...... 600,000 5.51 5.00 10/31/09 10,682,715 18,787,437 Alexander Gray.......... 600,000 5.51 5.00 10/31/09 10,682,715 18,787,437 Bruce L. Kaplan......... 500,000 4.59 5.00 10/31/09 8,902,262 15,656,197
46 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. The values realized and the values of unexercised options at December 31, 1999 are based on the assumed initial public offering price of $14.00 per share, which is the midpoint of the range set forth on the cover page of this prospectus . Therefore, these values are calculated based on the value of $14.00 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 $ 2,500,000 2,250,000 -- $22,500,000 -- Anthony J. Wood......... -- -- -- 275,000 -- $3,774,375 Layne L. Britton........ 1,120,000 14,980,000 -- -- -- -- Craig W. Dougherty...... 200,000 1,800,000 400,000 -- 3,600,000 -- Alexander Gray.......... 100,000 900,000 500,000 -- 4,500,000 -- Bruce L. Kaplan......... -- -- -- 500,000 -- 4,500,000
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 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 47 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 and stockholders approved an amendment to 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. At the same time, the board approved amendments to the plan providing 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, and providing 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, 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 the 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 as provided 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 or as a result of cancelled options or repurchases of shares under our 1997 plan and the annual per-employee share limit will each adjust in the event of a stock split, stock dividend or other similar change in our capital stock. 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. 48 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) 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 and our stockholders approved amendments to 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 will generally be 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. 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 49 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 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. 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 after this offering will vest as to all 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 50 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. 51 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 $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 months accelerated vesting of his unvested options or restricted stock in the event he is terminated without cause or 52 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. In February 2000, we granted Mr. Kaplan an option to purchase 100,000 shares of Common Stock at $11.05 per share which becomes exercisable at the rate of 1/4th of the total number of shares on February 1, 2001 and 1/48th of the total shares 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
53 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. 54 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% 17.10% KPCB Holdings Inc. .............................. 8,004,301 19.55 16.19 KPCB Holdings Inc. 2750 Sand Hill Road Menlo Park, CA 94025 William R. Hearst III(1)......................... 8,004,301 19.55 16.19 KPCB Holdings Inc. 2750 Sand Hill Road Menlo Park, CA 94025 Earle H. "Kim" LeMasters, III(2)................. 2,500,000 5.79 4.84 Kevin L. Bohren(3)............................... 1,194,149 2.91 2.41 Layne L. Britton................................. 1,128,394 2.76 2.28 Sky D. Dayton.................................... 803,981 1.96 1.63 Craig W. Dougherty(4)............................ 600,000 1.45 1.20 Alexander Gray(5)................................ 600,000 1.45 1.20 Jeffrey Berg..................................... -- * * Bruce L. Kaplan.................................. -- * * All directors and executive officers as a group (10 persons).................................... 23,288,263 52.73% 44.22%
- -------- * 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 55 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 49,452,916 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 above 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 1,275,000 shares of common stock is not exercised. 56 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 49,452,916 shares of common stock outstanding, assuming no exercise of the underwriters' overallotment option or additional exercise of outstanding options under our stock option plans 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. 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 $5.0 million. 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. 57 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 58 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 American Stock Transfer & Trust Company. The transfer agent's address is 40 Wall Street, New York, NY, 10005 and its telephone number is (212) 936-5100. 59 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 this offering, we will have 49,452,916 outstanding shares of common stock. Of these shares, the 8,500,000 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 8,500,000 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 494,529 shares immediately after this offering; or . the average weekly trading volume of the common stock during the four calendar weeks preceding the sale. 60 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. 61 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., Chase Securities Inc., Deutsche Bank Securities Inc. 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......................................... Chase Securities Inc. .......................................... Deutsche Bank Securities Inc.................................... Wasserstein Perella Securities, Inc............................. ---------- Total....................................................... 8,500,000 ==========
Morgan Stanley Dean Witter Online, Inc., an affiliate of Morgan Stanley & Co. Incorporated and facilitator of Internet distribution, is acting as a selected dealer in connection with this offering. 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 1,275,000 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 425,000 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. 62 ReplayTV has applied to list the common stock on the Nasdaq National Market under the symbol "RPTV." 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; . 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; or . in the case of ReplayTV, the grant of options to purchase common stock or the issuance of restricted stock to our employees or consultants or the issuance of shares of common stock or other rights to acquire our capital stock, so long as these options and shares of stock are subject to the same restrictions as those contained in this and the preceding paragraph. 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 63 . 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. 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, 1998 and 1999 and for the period from August 27, 1997 (inception) to December 31, 1997, each of the two years in the period ended December 31, 1999 and the period from August 27, 1997 (inception) to December 31, 1999 included in this prospectus have been so included in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. 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. 64 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 March 3, 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, 1998 and 1999, and the results of its operations and its cash flows for the period from August 27, 1997 (inception) to December 31, 1997, each of the two years in the period ended December 31, 1999 and the period from August 27, 1997 (inception) to December 31, 1999 in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States which require that we plan and perform the 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 February 22, 2000, except for Note 10, which is as of March , 2000 F-2 REPLAYTV, INC. (a development stage company) BALANCE SHEET (in thousands, except per share amounts)
Pro Forma Stockholders' December 31, Equity at ----------------- December 31, 1998 1999 1999 ------- -------- ------------- (unaudited) ASSETS Current assets: Cash and cash equivalents................... $ 686 $ 11,731 Short-term investments...................... 25 24,419 Accounts receivable, net of allowances of $0 and $13.................................... -- 1,464 Inventory................................... -- 1,700 Prepaid expenses and other current assets... 225 1,043 ------- -------- Total current assets.......................... 936 40,357 Property and equipment, net................... 132 2,751 Other assets.................................. -- 341 ------- -------- Total assets.................................. $ 1,068 $ 43,449 ======= ======== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable............................ $ 682 $ 5,406 Accrued liabilities......................... 45 1,345 Notes payable to related party.............. 601 -- ------- -------- Total current liabilities..................... 1,328 6,751 ------- -------- Commitments and contingencies (Note 4) Stockholders' equity (deficit): Convertible Preferred Stock, issuable in series, $0.001 par value, 8,237 and 27,137 shares authorized at December 31, 1998 and 1999, respectively; 7,915 and 25,742 shares issued and outstanding at December 31, 1998 and 1999, respectively; 5,000 shares authorized; no shares issued and outstanding pro forma ..................... 8 26 $ -- Common Stock, $0.001 par value, 30,000 and 75,000 shares authorized at December 31, 1998 and 1999, respectively; 6,970 and 9,584 shares issued and outstanding at December 31, 1998 and 1999 respectively; 200,000 shares authorized and 35,326 shares issued and outstanding pro forma .......... 4 6 32 Additional paid-in capital.................. 3,818 109,634 109,634 Notes receivable............................ -- (3,200) (3,200) Unearned stock-based compensation........... (651) (30,579) (30,579) Deficit accumulated during development stage...................................... (3,439) (39,189) (39,189) ------- -------- -------- Total stockholders' equity (deficit).......... (260) 36,698 $ 36,698 ------- -------- ======== Total liabilities and stockholders' equity (deficit).................................... $ 1,068 $ 43,449 ======= ========
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, August 27, 1997 Year Ended 1997 (inception) to December 31, (inception) to December 31, ----------------- December 31, 1997 1998 1999 1999 -------------- ------- -------- -------------- Costs and expenses: Research and development (excludes stock-based compensation of $0, $163, $1,588 and $1,751)......... $ 136 $ 1,961 $ 7,980 $ 10,077 Programming and content (excludes stock-based compensation of $0, $15, $2,179 and $2,194)......... -- -- 1,029 1,029 Sales and marketing (excludes stock-based compensation of $0, $15, $755 and $770)............. 10 764 14,586 15,360 General and administrative (excludes stock-based compensation of $0, $13, $2,959 and $2,972)......... 9 325 3,271 3,605 Hardware distribution costs, net (excludes stock-based compensation of ($0, $0, $333 and $333)............. -- -- 2,030 2,030 Stock-based compensation.... -- 206 7,814 8,020 ------ ------- -------- -------- Total costs and expenses.. 155 3,256 36,710 40,121 ------ ------- -------- -------- Operating loss................ (155) (3,256) (36,710) (40,121) Interest income (expense), net.......................... -- (28) 960 932 ------ ------- -------- -------- Net loss...................... $ (155) $(3,284) $(35,750) $(39,189) ====== ======= ======== ======== Basic and diluted net loss per share........................ $(0.08) $ (0.48) $ (4.73) $ (5.48) ====== ======= ======== ======== Basic and diluted weighted average shares used in computation of net loss per share........................ 2,026 6,889 7,565 7,157 ====== ======= ======== ======== Pro forma basic and diluted net loss per share (unaudited).................. $ (1.35) ======== Pro forma basic and diluted weighted average shares (unaudited).................. 26,476 ========
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 .. 10,194 10 -- -- 7,831 -- -- -- 7,841 Issuance of Series E Preferred Stock, net .. 7,633 8 -- -- 56,995 -- -- -- 57,003 Issuance of Common Stock ................. -- -- 2,614 2 3,354 (3,200) -- -- 156 Issuance of stock options for services .. -- -- -- -- 734 -- -- -- 734 Issuance of warrants to purchase Series E Preferred Stock ....... -- -- -- -- 30 -- -- -- 30 Unearned stock-based compensation .......... -- -- -- -- 36,872 -- (36,872) -- -- Stock-based compensation .......... -- -- -- -- -- -- 6,944 -- 6,944 Net loss................ -- -- -- -- -- -- -- (35,750) (35,750) ------ ---- ----- --- -------- ------- -------- -------- ------- Balance at December 31, 1999................... 25,742 $ 26 9,584 $ 6 $109,634 $(3,200) $(30,579) $(39,189) $36,698 ====== ==== ===== === ======== ======= ======== ======== =======
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 1997 (inception) Year Ended (inception) to December 31, to December 31, ----------------- December 31, 1997 1998 1999 1999 ------------ ------- -------- ------------ Cash flows from operating activities: Net loss......................... $(155) $(3,284) $(35,750) $(39,189) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization.. 2 23 275 300 Stock-based compensation....... -- 206 7,844 8,050 Changes in assets and liabilities: Accounts receivable.......... -- -- (1,464) (1,464) Inventory.................... -- -- (1,700) (1,700) Accounts payable and other current liabilities......... 19 739 5,993 6,751 Prepaid expenses and other assets...................... (10) (215) (1,159) (1,384) ----- ------- -------- -------- Net cash used in operating activities................ (144) (2,531) (25,961) (28,636) ----- ------- -------- -------- Cash flows from investing activities: Purchase of property and equipment....................... (33) (124) (2,894) (3,051) Purchase of short-term investments..................... -- (25) (35,204) (35,229) Sale of short-term investments... -- -- 10,810 10,810 ----- ------- -------- -------- Net cash used in investing activities................ (33) (149) (27,288) (27,470) ----- ------- -------- -------- Cash flows from financing activities: Proceeds from the issuance of Common Stock.................... 4 -- 20 24 Proceeds from the sale of Preferred Stock................. 276 2,693 64,844 67,813 Proceeds from (repayment of) notes payable................... -- 570 (570) -- ----- ------- -------- -------- Net cash provided by financing activities...... 280 3,263 64,294 67,837 ----- ------- -------- -------- Net increase in cash and cash equivalents..................... 103 583 11,045 11,731 Cash and cash equivalents at the beginning of the period......... -- 103 686 -- ----- ------- -------- -------- Cash and cash equivalents at the end of the period............... $ 103 $ 686 $ 11,731 $ 11,731 ===== ======= ======== ======== Supplemental disclosure of cash flow information: Interest paid.................... $ -- $ -- $ 37 $ 37 ===== ======= ======== ======== Supplemental disclosure of noncash transactions: Issuance of stock in exchange for notes........................... $ -- $ -- $ 3,200 $ 3,200 ===== ======= ======== ========
The accompanying notes are an integral part of these financial statements. F-6 REPLAYTV, INC. (a development stage company) NOTES TO FINANCIAL STATEMENTS 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. 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. The Company's short-term investments consist of a certificate of deposit of $25,000 at December 31, 1998 and commercial paper of $24.4 million at December 31, 1999. Unrealized gains or losses have been insignificant for all periods presented. Inventory Inventory is stated at the lower of cost or market, determined on a first- in, first-out basis. 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. F-7 REPLAYTV, INC. (a development stage company) NOTES TO FINANCIAL STATEMENTS--(Continued) Software development costs Software development costs incurred prior to the establishment of technological feasibility are charged to research and development expense as incurred. Material software development costs incurred subsequent to the time a product's technological feasibility has been established using the working model approach, through the time the product is available for general release to customers, are capitalized. To date, development costs qualifying for capitalization have been insignificant and therefore have been expensed as incurred. Hardware distribution costs, net The costs associated with manufacturing and distribution of the PVRs were $7.2 million for the year ended December 31, 1999. Proceeds from sales of the PVRs totaled $5.1 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 provides a warranty to customers for a period of one year and records a provision for estimated warranty costs at the time of sale. Warranty expenses have been immaterial to date. 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. 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, August 27, 1997 Year Ended 1997 (inception) to December 31, (inception) to December 31, ----------------- December 31, 1997 1998 1999 1999 -------------- ------- -------- -------------- (in thousands, except per share amounts) Numerator: Net loss.............. $ (155) $(3,284) $(35,750) $(39,189) ------ ------- -------- -------- Denominator: Weighted average shares............... 2,315 6,889 8,161 7,412 Weighted average shares of Common Stock subject to repurchase agreements........... (289) -- (596) (255) ------ ------- -------- -------- Denominator for basic and diluted calculation.......... 2,026 6,889 7,565 7,157 ------ ------- -------- -------- Basic and diluted net loss per share......... $(0.08) $ (0.48) $ (4.73) $ (5.48) ====== ======= ======== ========
F-8 REPLAYTV, INC. (a development stage company) NOTES TO FINANCIAL STATEMENTS--(Continued) 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 Period from August 27, August 27, 1997 Year Ended 1997 (inception) to December 31, (inception) to December 31, ------------ December 31, 1997 1998 1999 1999 -------------- ----- ------ -------------- (in thousands) Weighted average effect of dilutive securities: Series A Preferred Stock...... 242 2,494 2,494 2,229 Series B Preferred Stock...... -- 1,460 2,258 1,587 Series C Preferred Stock...... -- 439 3,163 1,533 Series D Preferred Stock...... -- -- 7,843 3,358 Series E Preferred Stock...... -- -- 3,153 1,360 Warrant to purchase Series E Preferred Stock.............. -- -- 3 1 Employee stock options........ 31 1,635 6,160 3,358 Common Stock subject to repurchase agreements........ 289 -- 596 255 --- ----- ------ ------ 562 6,028 25,670 13,681 === ===== ====== ======
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 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, 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 of 18,911,000 shares in the weighted average shares used to compute basic and diluted net loss per share for the year ended December 31, 1999. 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, each of the two years in the period ended December 31, 1999 and the period from August 27, 1997 (inception) to December 31, 1999 the Company has not had any significant transactions that are required to be reported in comprehensive income (loss). F-9 REPLAYTV, INC. (a development stage company) NOTES TO FINANCIAL STATEMENTS--(Continued) 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. 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. F-10 REPLAYTV, INC. (a development stage company) NOTES TO FINANCIAL STATEMENTS--(Continued) Note 2--Balance Sheet Components:
December 31, -------------- 1998 1999 ------ ------- (in thousands) Property and equipment: Computer equipment and software............... $ 138 $ 2,138 Lab and manufacturing equipment.............. 11 206 Office furniture and equipment.............. 8 707 ----- ------- 157 3,051 Less: accumulated depreciation............. (25) (300) ----- ------- $ 132 $ 2,751 ===== ======= Accrued liabilities: Payroll and related expense................ $ 45 $ 505 Warranty reserve........ -- 91 Deferred rent........... -- 270 Other................... -- 479 ----- ------- $ 45 $ 1,345 ===== =======
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 December 31, 1999. As of December 31, 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 and $1.5 million in 1997, 1998 and 1999, respectively. Future minimum lease payments under noncancelable leases are as follows (in thousands):
Years Ending December 31, ------------------------- 2000................................................................. $ 2,198 2001................................................................. 2,411 2002................................................................. 2,483 2003................................................................. 2,555 2004................................................................. 2,627 Thereafter........................................................... 3,392 ------- Total minimum lease payments....................................... $15,666 =======
F-11 REPLAYTV, INC. (a development stage company) NOTES TO FINANCIAL STATEMENTS--(Continued) MKE agreement In December 1999, the Company entered into a three-year 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 distributed by or on behalf of MKE. The Company will expense such costs as incurred. 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. 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 1999 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 Year Ended (inception) to December 31, December 31, ----------------- 1997 1998 1999 -------------- ------- -------- (in thousands) Federal statutory benefit................ $ 53 $ 1,116 $ 12,155 State taxes, net of federal benefit........ 13 263 2,860 Future benefits not currently recognized... (71) (1,365) (11,547) Nondeductible compensation........... -- (82) (3,125) Other................... 5 68 343 ---- ------- -------- $ -- $ -- $ -- ==== ======= ========
At December 31, 1999, the Company had approximately $29.6 million of federal and 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. F-12 REPLAYTV, INC. (a development stage company) NOTES TO FINANCIAL STATEMENTS--(Continued) Deferred tax assets and liabilities consist of the following:
December 31, ----------------- 1998 1999 ------- -------- (in thousands) Deferred tax assets: Net operating loss carryforwards........................ $ 744 $ 11,715 Accruals and allowances................................. 544 567 Research credits........................................ 148 641 ------- -------- Net deferred tax assets............................... 1,436 12,983 Valuation allowance..................................... (1,436) (12,983) ------- -------- $ -- $ -- ======= ========
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, 1998 and 1999. 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....................... 10,200 10,194 0.78 7,900 7,841 E....................... 8,700 7,633 7.50 57,300 57,003 ------ ------ ------- ------- Balance at December 31, 1999, ........... 27,137 25,742 $68,175 $67,813 ====== ====== ======= =======
The above table excludes the Series F Preferred Stock financing which occurred subsequent to December 31, 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. F-13 REPLAYTV, INC. (a development stage company) NOTES TO FINANCIAL STATEMENTS--(Continued) 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 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. A merger, acquisition, sale of voting control or sale of substantially all of the assets of the Company, in which the shareholders of the Company do not own a majority (50% or more) of the outstanding shares of the surviving corporation is deemed to be a liquidation. 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, 1998 and 1999, there were 6,970,000 and 9,584,000 shares outstanding, respectively, of Common Stock issued to the founders of the Company, affiliates and other nonrelated parties. A portion of the shares sold are subject to a right of repurchase by the Company subject to vesting. At December 31, 1998 and F-14 REPLAYTV, INC. (a development stage company) NOTES TO FINANCIAL STATEMENTS--(Continued) 1999, there were approximately 0 and 1,530,000 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. The Company issued 311,000 shares of fully vested common stock for services during 1999. The Company recorded $136,000 of stock-based compensation expense, based on the estimated fair value of the services rendered which was more readily determinable than the fair value of the stock issued. The Company has reserved shares of Common Stock as follows:
December 31, 1999 -------------- (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.......................................... 9,584 Exercise of options under the equity incentive plans......... 9,219 Exercise of warrants issued for Series E Preferred Stock..... 7 Undesignated................................................. 30,448 ------ 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 December 31, 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 December 31, 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 F-15 REPLAYTV, INC. (a development stage company) NOTES TO FINANCIAL STATEMENTS--(Continued) 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. The following table summarizes information about stock option transactions under the 1997 and 1999 Plans:
Period from August 27, 1997 (inception) to Year Ended December 31, December 31, --------------------------------- 1997 1998 1999 --------------- ---------------- ---------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price ------ -------- ------ -------- ------ -------- (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 10,883 2.83 Granted at fair value....... 260 0.01 -- -- -- -- Exercised................... -- -- (90) 0.01 (2,291) 1.53 Canceled.................... -- -- (219) 0.01 (369) 1.17 --- ----- ------ Outstanding at end of period..................... 260 0.01 2,567 0.02 10,790 2.53 === ===== ====== Options vested.............. -- 219 889 === ===== ====== Weighted average fair value of options granted during the period................. $0.01 $0.35 $10.44 ===== ===== ======
At December 31, 1999, the Company had 128,924 shares available for future grant under the 1997 and 1999 Plans. F-16 REPLAYTV, INC. (a development stage company) NOTES TO FINANCIAL STATEMENTS--(Continued) The following table summarizes information about stock options outstanding which were exercisable as of December 31, 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 ----------- -------------- ----------- -------- $0.011-0.03 489 8.56 $0.027 0.125-0.25 331 9.15 0.173 0.625 30 9.47 0.625 2.00-4.00 23 9.58 2.363 7.00-8.00 16 9.95 7.385
The weighted average remaining contractual life of stock options outstanding at December 31, 1999 was 9.43 years. 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 August 27, Period from 1997 August 27, (inception) Year Ended 1997 to December 31, (inception) to December 31, ----------------- December 31, 1997 1998 1999 1999 ------------ ------- -------- -------------- (in thousands, except per share amounts) Net loss: As reported......................... $ (155) $(3,284) $(35,750) $(39,189) ====== ======= ======== ======== Pro forma........................... $ (155) $(3,289) $(36,559) $(40,003) ====== ======= ======== ======== Basic and diluted net loss per share: As reported......................... $(0.08) $ (0.48) $ (4.73) $ (5.48) ====== ======= ======== ======== Pro forma........................... $(0.08) $ (0.48) $ (4.83) $ (5.89) ====== ======= ======== ========
F-17 REPLAYTV, INC. (a development stage company) NOTES TO FINANCIAL STATEMENTS--(Continued) 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 1997 (inception) Year Ended (inception) to December 31, to December 31, --------------- December 31, 1997 1998 1999 1999 ------------ ------ ------ ------------ Risk-free interest rates............ 5.5% 5.5% 5.5% 5.5% Expected lives (in years)........... 5 5 5 5 Dividend yield...................... 0% 0% 0% 0% Expected volatility................. 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 1999, the Company recognized unearned stock- based compensation totaling $857,000 and $36.9 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 1999 totaled approximately $206,000 and $7.0 million, respectively. The Company also recorded amortization expense of $734,000 for the year ended December 31, 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 ten years (term). 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, September and November 1999, certain executives of the Company exercised their stock options prior to vesting by issuance of full recourse promissory notes to the Company. Stock options that have been exercised prior to vesting are subject to a right of repurchase at cost in the Company's favor should the executive cease employment. The aggregate notes of $3.2 million bear interest at a rate of 5.74% through 6.08% per annum and are due in July, September and November 2004. The notes are collateralized by the related 1,670,000 shares of Common Stock issued, of which 1,530,000 are subject to the Company's right to repurchase. The net amount outstanding loan balance 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. When the reincorporation and related filings are effected, the Company will be authorized to F-18 REPLAYTV, INC. (a development stage company) NOTES TO FINANCIAL STATEMENTS--(Continued) 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 will have 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 January and February 2000, the Company granted options to purchase 1,238,000 shares of Common Stock to existing and new employees at a weighted average exercise price of $9.64. In connection with these stock option grants, the Company will recognize $4.2 million in unearned stock-based compensation that will be amortized over the related vesting periods. 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, winding up or a change in control 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 of $11.3 million to reflect the beneficial conversion ratio as a result of the difference between the issuance price of the Series F and $13.00, 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-19 [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....................... 10,000 Transfer Agent and Registrar fees.............................. 2,000 Miscellaneous fees and expenses................................ 37,900 ---------- Total........................................................ $1,100,000 ==========
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 founders. 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 accredited investors. 3. On March 11, 1998, we issued a promissory note in the aggregate principal amount of $100,000 to one accredited 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 accredited 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 accredited 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 founder. 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 accredited 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 accredited 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 accredited 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 12 accredited 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 accredited 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 accredited and/or institutional 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 accredited and/or institutional 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 accredited and/or institutional 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 and 17 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 among ReplayTV, Turner Broadcasting System, Inc. and Time Warner, Inc, as amended February 10, 2000. 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 Accountants' 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. ** Previously filed. ***Supersedes previously filed Exhibit. +Confidential treatment requested as to certain portions of this Exhibit. II-3 (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 Amendment No. 3 to Registration Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Mountain View, State of California on March 3, 2000. REPLAYTV, INC. By: /s/ Craig W. Dougherty --------------------------------- Craig W. Dougherty Executive Vice President, Finance and Chief Financial Officer Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 3 to Registration Statement on Form S-1 has been signed by the following persons in the capacities and on the dates indicated:
Signature Title Date --------- ----- ---- * Chief Executive Officer and March 3, 2000 ____________________________________ Chairman (Principal Earle H. "Kim" LeMasters, III Executive Officer) /s/ Craig W. Dougherty Executive Vice President, March 3, 2000 ____________________________________ Finance and Chief Financial Craig W. Dougherty Officer (Principal Financial and Accounting Officer) * Director March 3, 2000 ____________________________________ Jeffrey Berg * Director March 3, 2000 ____________________________________ Kevin L. Bohren * Director March 3, 2000 ____________________________________ Sky D. Dayton * Director March 3, 2000 ____________________________________ William R. Hearst III * Director March 3, 2000 ____________________________________ Anthony J. Wood
* Power of Attorney /s/ Craig W. Dougherty By:____________________________ Craig W. Dougherty 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 among ReplayTV, Turner Broadcasting System, Inc. and Time Warner, Inc., as amended February 10, 2000. 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 Accountants' 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. ** Previously filed. ***Supersedes previously filed Exhibit. +Confidential treatment requested as to certain portions of this Exhibit. EX-1.1 2 FORM OF UNDERWRITING AGREEMENT EXHIBIT 1.1 8,500,000 Shares REPLAYTV, INC. COMMON STOCK, PAR VALUE $0.001 PER SHARE FORM OF UNDERWRITING AGREEMENT __________, 2000 _______________, 2000 Morgan Stanley & Co. Incorporated Bear, Stearns & Co. Inc. Chase Seucrities Inc. Deutsche Bank Securities Inc. Wasserstein Perella Securities, Inc. c/o Morgan Stanley & Co. Incorporated 1585 Broadway New York, New York 10036 Dear Sirs and Mesdames: ReplayTV, Inc., a Delaware corporation (the "Company"), proposes to issue and sell to the several Underwriters named in Schedule I hereto (the "Underwriters") 8,500,000 shares of its common stock, par value $0.001 per share (the "Firm Shares"). Morgan Stanley & Co. Incorporated, Bear, Stearns & Co. Inc., Deutsche Bank Securities Inc., Hambrecht & Quist LLC and Wasserstein Perella Securities, Inc. shall act as representatives (the "Representatives") of the several Underwriters. The Company also proposes to issue and sell to the several Underwriters not more than an additional 1,275,000 shares of its common stock, par value $0.001 (the "Additional Shares") if and to the extent that the Representatives shall have determined to exercise, on behalf of the Underwriters, the right to purchase such shares of common stock granted to the Underwriters in Section 2 hereof. The Firm Shares and the Additional Shares are hereinafter collectively referred to as the "Shares." The shares of common stock, par value $0.001, of the Company to be outstanding after giving effect to the sales contemplated hereby are hereinafter referred to as the "Common Stock." The Company has filed with the Securities and Exchange Commission (the "Commission") a registration statement (File No. 333-95425), including a prospectus, relating to the Shares. The registration statement as amended at the time it becomes effective, including the information (if any) deemed to be part of the registration statement at the time of effectiveness pursuant to Rule 430A under the Securities Act of 1933, as amended (the "Securities Act"), is hereinafter 2 referred to as the "Registration Statement"; the prospectus in the form first used to confirm sales of Shares is hereinafter referred to as the "Prospectus." If the Company has filed an abbreviated registration statement to register additional shares of Common Stock pursuant to Rule 462(b) under the Securities Act (the "Rule 462 Registration Statement"), then any reference herein to the term "Registration Statement" shall be deemed to include such Rule 462 Registration Statement. The representatives have agreed to reserve a portion of the Shares to be purchased by them under this Agreement for sale by an affiliate of Deutsche Bank Securities Inc. to the Company's directors, officers, employees and business associates and other parties related to the Company (collectively, "Participants"), as set forth in the Prospectus under the heading "Underwriters" (the "Directed Share Program"). The Shares to be sold by Deutsche Bank Securities Inc. and its affiliates pursuant to the Directed Share Program are hereinafter referred to as the "Directed Shares." Any Directed Shares not orally confirmed for purchase by any Participants by the end of the business day on which this Agreement is executed will be offered to the public by the Underwriters as set forth in the Prospectus. 1. Representations and Warranties. The Company represents and warrants to and agrees with each of the Underwriters that: (a) The Registration Statement has become effective; no stop order suspending the effectiveness of the Registration Statement is in effect, and no proceedings for such purpose are pending before or, to the Company's knowledge, threatened by the Commission. (b) (i) The Registration Statement, when it became effective, did not contain and, as amended or supplemented, if applicable, will not contain, any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) the Registration Statement and the Prospectus comply and, as amended or supplemented, if applicable, will comply in all material respects with the Securities Act and the applicable rules and regulations of the Commission thereunder and (iii) the Prospectus does not contain and, as amended or supplemented, if applicable, will not contain, any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that the representations and warranties set forth in this paragraph do not apply to statements or omissions in the Registration Statement or the Prospectus based upon information relating to any Underwriter furnished to the 3 Company in writing by such Underwriter through you expressly for use therein. (c) The Company has been duly incorporated, is validly existing as a corporation in good standing under the laws of Delaware, has the corporate power and authority to own its property and to conduct its business as described in the Prospectus and is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the Company. (d) The Company does not own a controlling interest in, or otherwise control, directly or indirectly, any corporation, association or other business entity. (e) This Agreement has been duly authorized, executed and delivered by the Company. (f) The authorized capital stock of the Company conforms in all material respects as to legal matters to the description thereof contained in the Prospectus. (g) The shares of Common Stock outstanding prior to or concurrently with the issuance of the Shares (including the shares of Common Stock issued upon conversion of all of the Company's preferred stock) have been duly authorized and are validly issued, fully paid and non-assessable. (h) Each share of the Company's outstanding preferred stock will automatically convert into one share of Common Stock on the Closing Date, as described in the Prospectus. (i) The shares of Common Stock of the Company to be issued upon conversion of all of the Company's preferred stock have been duly authorized and, when issued and delivered pursuant to the terms of the Company's certificate of incorporation, will be validly issued, fully paid and non-assessable. (j) The Shares have been duly authorized and, when issued and delivered in accordance with the terms of this Agreement, will be validly 4 issued, fully paid and non-assessable, and the issuance of such Shares will not be subject to any preemptive or similar rights, other than rights that have been validly waived with respect to the Shares. (k) The execution and delivery by the Company of, and the performance by the Company of its obligations under, this Agreement will not contravene any provision of applicable law or the certificate of incorporation or by-laws of the Company or, except where such contravention would not, singly or in the aggregate, have a material adverse effect on the Company, any agreement or other instrument binding upon the Company or any judgment, order or decree of any governmental body, agency or court having jurisdiction over the Company, and no consent, approval, authorization or order of, or qualification with, any governmental body or agency is required for the performance by the Company of its obligations under this Agreement, except such as have been obtained under the federal securities laws or as may be required by the securities or Blue Sky laws of the various states in connection with the offer and sale of the Shares. (l) There has not occurred any material adverse change in the condition, financial or otherwise, or in the earnings, business, operations or prospects of the Company from that set forth in the Prospectus (exclusive of any amendments or supplements thereto subsequent to the date of this Agreement). (m) Each of (i) the OEM Distribution Agreement dated as of July 30, 1999 and amended as of December 20, 1999 between Matsushita-Kotobuki Electronics Industries, Ltd ("MKE") and the Company, (ii) the Master Collaboration Agreement dated as of December 20, 1999 between MKE and the Company, (iii) the Agreement, dated as of February 1, 1999 between Showtime Networks, Inc. and the Company, (iv) the Replay Network Service Agreement dated as of July 30, 1999 between Turner Broadcasting System, Inc. and the Company, (v) the Letter Agreement dated July 30, 1999 between National Broadcasting, Inc. and the Company and (vi) the Flextronics International Manufacturing Contract dated November 3, 1998 between Flextronics International USA, Inc. and the Company (collectively, the "Contracts") is in full force and effect, the Company (i) is not in breach of or default under any Contract in any manner that would allow any party to any such Contract to terminate such 5 Contract as a result of such breach or default and (ii) has received no notification of an intention by any party to terminate any Contract. (n) None of (i) Tribune Media Services, Inc., (ii) Sony, (iii) Philips, (iv) Quantum Corporation, (v) Universal Electronics, Inc. or (vi) any other sole supplier of the Company (each a "Sole Supplier") has notified the Company that such party cannot, or does not intend to, continue to supply the Company with the goods and/or services it is currently supplying the Company in quantities sufficient to meet the Company's reasonably foreseeable requirements for such goods and/or services. (o) There are no legal or governmental proceedings pending or, to the Company's knowledge, threatened to which the Company is a party or to which any of the properties of the Company is subject that are required to be described in the Registration Statement or the Prospectus and are not so described or any statutes, regulations, contracts or other documents that are required to be described in the Registration Statement or the Prospectus or to be filed as exhibits to the Registration Statement that are not described or filed as required. (p) Each preliminary prospectus filed as part of the registration statement as originally filed or as part of any amendment thereto, or filed pursuant to Rule 424 under the Securities Act, complied when so filed in all material respects with the Securities Act and the applicable rules and regulations of the Commission thereunder. (q) The Company is not, and after giving effect to the offering and sale of the Shares and the application of the proceeds thereof as described in the Prospectus will not be, required to register as an "investment company" as such term is defined in the Investment Company Act of 1940, as amended. (r) The Company (i) is in compliance with any and all applicable federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants ("Environmental Laws"), (ii) has received all permits, licenses or other approvals required of it under applicable Environmental Laws to conduct its business and (iii) is in compliance with all terms and conditions of any such permit, license or approval, except where such noncompliance with Environmental Laws, failure to receive required permits, licenses or other approvals or failure to 6 comply with the terms and conditions of such permits, licenses or approvals would not, singly or in the aggregate, have a material adverse effect on the Company. (s) There are no costs or liabilities associated with Environmental Laws (including, without limitation, any capital or operating expenditures required for clean-up, closure of properties or compliance with Environmental Laws or any permit, license or approval, any related constraints on operating activities and any potential liabilities to third parties) which would, singly or in the aggregate, have a material adverse effect on the Company. (t) There are no contracts, agreements or understandings between the Company and any person granting such person the right to require the Company to file a registration statement under the Securities Act with respect to any securities of the Company or to require the Company to include such securities with the Shares registered pursuant to the Registration Statement, except any such right which has been disclosed to the Representatives and which has been effectively waived in writing by the holder of such right. 7 (u) Subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, (i) the Company has not incurred any material liability or obligation, direct or contingent, nor entered into any material transaction not in the ordinary course of business; (ii) the Company has not purchased any of its outstanding capital stock (other than repurchases of Common Stock from terminated employees or consultants pursuant to pre-existing contractual arrangements), nor declared, paid or otherwise made any dividend or distribution of any kind on its capital stock; and (iii) there has not been any change in the capital stock (other than (x) issuances of Common Stock upon exercise of existing options, (y) repurchases of Common Stock from terminated employees or consultants pursuant to pre-existing contractual arrangements and (z) grants prior to the date hereof of options to purchase Common Stock, the terms of which, in the case of clause (z), the Representatives have been advised in writing) or debt of the Company, except in each case as described in the Prospectus (exclusive of any amendments or supplements thereto subsequent to the date of this Agreement). (v) The Company has good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by it which is material to the business of the Company, in each case free and clear of all liens, encumbrances and defects except such as are described in the Prospectus or such as do not materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company; and any real property and buildings held under lease by the Company are held by it under valid, subsisting and, to the Company's knowledge, enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company, in each case except as described in the Prospectus. (w) The Company owns or possesses, or can acquire on reasonable terms, all material patents, patent rights, licenses, inventions, copyrights, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures), trademarks, service marks and trade names currently employed by it in connection with the business now operated by it, in each case except as disclosed in the Prospectus. The Company has not received any notice of infringement of or conflict with asserted rights of others with respect to any of the foregoing which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would have a material adverse effect on the Company, in each case except as disclosed in the Prospectus. To its knowledge, the Company's services and products (and any underlying technology related 8 thereto) do not infringe any U.S. patent, copyright, trade secret or other proprietary right of any third party or otherwise conflict with the rights of any third party. (x) No material labor dispute with the employees of the Company exists or, to the knowledge of the Company, is imminent; and the Company is not aware of any existing, threatened or imminent labor disturbance by the employees of any of its principal suppliers, manufacturers or contractors that could have a material adverse effect on the Company. (y) The Company is insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which it is engaged; the Company has not been refused any insurance coverage sought or applied for; and the Company has no reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a material adverse effect on the Company. (z) The Company possesses all certificates, authorizations and permits issued by the appropriate federal or state regulatory authorities necessary to conduct its business as described in the Prospectus, except where the failure to possess any such certificate, authorization or permit would not have a material adverse effect on the Company, and the Company has not received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would have a material adverse effect on the Company. (aa) The Company maintains a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. 9 (bb) Except as described in the Registration Statement or Prospectus (exclusive of any amendments or supplements thereto subsequent to the date of this Agreement), the Company has not sold, issued or distributed any shares of Common Stock, or any options, rights or warrants to purchase shares of Common Stock or any class of preferred stock of the Company, or any other securities convertible into Common Stock or such preferred stock during the six-month period preceding the date hereof, including any sales pursuant to Rule 144A, Regulation D or Regulation S under the Securities Act, except for any options to purchase Common Stock or restricted stock granted to employees or consultants of the Company. Except as described in the Prospectus and except for any options to purchase Common Stock or restricted stock granted or committed for issuance to employees or consultants of the Company after the date of the Prospectus (which shall be in accordance with the Company's ordinary business practice and generally in accordance with written guidelines provided to the Representatives by the Company prior to the date hereof), there are no options, rights or warrants to purchase shares of Common Stock or any class of preferred stock of the Company, or any other securities convertible into Common Stock or such preferred stock, outstanding, or any existing commitments by the Company to sell or issue shares of Common Stock or any such preferred stock. (cc) The Registration Statement, the Prospectus and any preliminary prospectus comply in all material respects, and any amendments or supplements thereto will comply in all material respects, with any applicable laws or regulations of any jurisdiction in which the Prospectus or any preliminary prospectus, as amended or supplemented, if applicable, is distributed in connection with the Directed Share Program; no consent, approval, authorization or order of, or qualification with, any governmental body or agency, other than those obtained, is required in connection with the offering of the Directed Shares in any jurisdiction where the Directed Shares are being offered. (dd) The Company has not offered, or caused Morgan Stanley or its affiliates to offer, Shares to any person pursuant to the Directed Share Program with the specific intent to unlawfully influence (i) a customer or supplier of the Company to alter the customer's or supplier's level or type of business with the Company, or (ii) a trade journalist or publication to write or publish favorable information about the Company or its products. 10 2. Agreements to Sell and Purchase. The Company hereby agrees to sell to the several Underwriters, and each Underwriter, upon the basis of the representations and warranties herein contained, but subject to the conditions hereinafter stated, agrees, severally and not jointly, to purchase from the Company the respective numbers of Firm Shares set forth in Schedule I hereto opposite its name at $______ a share (the "Purchase Price"). On the basis of the representations and warranties contained in this Agreement, and subject to its terms and conditions, the Company agrees to sell to the Underwriters the Additional Shares, and the Underwriters shall have a one-time right to purchase, severally and not jointly, up to 1,275,000 Additional Shares at the Purchase Price. If the Representatives, on behalf of the Underwriters, elect to exercise such option, the Representatives shall so notify the Company in writing not later than 30 days after the date of this Agreement, which notice shall specify the number of Additional Shares to be purchased by the Underwriters and the date on which such shares are to be purchased. Such date may be the same as the Closing Date (as defined below) but not earlier than the Closing Date nor later than ten business days after the date of such notice. Additional Shares may be purchased as provided in Section 4 hereof solely for the purpose of covering over-allotments made in connection with the offering of the Firm Shares. If any Additional Shares are to be purchased, each Underwriter agrees, severally and not jointly, to purchase the number of Additional Shares (subject to such adjustments to eliminate fractional shares as the Representatives may determine) that bears the same proportion to the total number of Additional Shares to be purchased as the number of Firm Shares set forth in Schedule I hereto opposite the name of such Underwriter bears to the total number of Firm Shares. The Company hereby agrees that, without the prior written consent of Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it will not, during the period ending 180 days after the date of the Prospectus, (i) 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 (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Common Stock, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise. The foregoing sentence shall not apply to (A) the Shares to be sold hereunder, (B) the issuance by the Company of shares of Common Stock 11 upon the exercise of an option or warrant or the conversion of a security outstanding on the date hereof of which the Underwriters have been advised in writing , (C) the grant of options to purchase Common Stock or the issuance of restricted stock to employees or consultants of the Company or (D) the issuance of any shares of Common Stock or right to acquire shares of capital stock of the Company; provided that, in the case of clauses (C) and (D), (x) any such option or right to acquire shares of capital stock shall not be exercisable prior to the expiration of the 180 day period (and the Company agrees not to accelerate the exercisability thereof) or the recipient thereof shall have executed a "lock-up" agreement substantially in the form of Exhibit A hereto, (y) any such shares of restricted stock shall have restrictions attached thereto substantially to the effect of the "lock-up" agreement attached as Exhibit A hereto or the recipient thereof shall have executed a "lock-up" agreement substantially in the form of Exhibit A hereto and (z) the recipient of any shares of Common Stock shall have executed a "lock-up" agreement substantially in the form of Exhibit A hereto. 3. Terms of Public Offering. The Company is advised by you that the Underwriters propose to make a public offering of their respective portions of the Shares as soon after the Registration Statement and this Agreement have become effective as in your judgment is advisable. The Company is further advised by you that the Shares are to be offered to the public initially at $_____________ a share (the "Public Offering Price") and to certain dealers selected by you at a price that represents a concession not in excess of $______ a share under the Public Offering Price, and that any Underwriter may allow, and such dealers may reallow, a concession, not in excess of $_____ a share, to any Underwriter or to certain other dealers. 4. Payment and Delivery. Payment for the Firm Shares shall be made to the Company in Federal funds immediately available in New York City against delivery of such Firm Shares for the respective accounts of the several Underwriters at 10:00 a.m., New York City time, on ____________, 2000, or at such other time on the same or such other date, not later than _________, 2000, as shall be designated in writing by you. The time and date of such payment are hereinafter referred to as the "Closing Date." Payment for any Additional Shares shall be made to the Company in Federal funds immediately available in New York City against delivery of such Additional Shares for the respective accounts of the several Underwriters at 10:00 a.m., New York City time, on the date specified in the notice described in Section 2 or at such other time on the same or on such other date, in any event not later than _______, 2000, as shall be designated in writing by you. The time and date of such payment are hereinafter referred to as the "Option Closing Date." 12 Certificates for the Firm Shares and Additional Shares shall be in definitive form and registered in such names and in such denominations as you shall request in writing not later than one full business day prior to the Closing Date or the Option Closing Date, as the case may be. The certificates evidencing the Firm Shares and Additional Shares shall be delivered to you on the Closing Date or the Option Closing Date, as the case may be, for the respective accounts of the several Underwriters, with any transfer taxes payable in connection with the transfer of the Shares to the Underwriters duly paid, against payment of the Purchase Price therefor. 5. Conditions to the Underwriters' Obligations. The obligations of the Company to sell the Shares to the Underwriters and the several obligations of the Underwriters to purchase and pay for the Shares on the Closing Date are subject to the condition that the Registration Statement shall have become effective not later than 4:30 p.m. (New York City time) on the date hereof. The several obligations of the Underwriters are subject to the following further conditions: (a) Subsequent to the execution and delivery of this Agreement and prior to the Closing Date: (i) there shall not have occurred any downgrading, nor shall any notice have been given of any intended or potential downgrading or of any review for a possible change that does not indicate the direction of the possible change, in the rating accorded any of the Company's securities by any "nationally recognized statistical rating organization," as such term is defined for purposes of Rule 436(g)(2) under the Securities Act; and (ii) there shall not have occurred any change in the condition, financial or otherwise, or in the earnings, business, operations or prospects of the Company from that set forth in the Prospectus (exclusive of any amendments or supplements thereto subsequent to the date of this Agreement) that, in your judgment, is material and adverse and that makes it, in your judgment, impracticable to market the Shares on the terms and in the manner contemplated in the Prospectus. (b) The Underwriters shall have received on the Closing Date a certificate, dated the Closing Date and signed by the Chairman and Chief Executive Officer of the Company, to the effect set forth in Section 5(a)(i) 13 above and to the effect that the representations and warranties of the Company contained in this Agreement are true and correct as of the Closing Date and that the Company has complied with all of the agreements and satisfied all of the conditions on its part to be performed or satisfied hereunder on or before the Closing Date. The officer signing and delivering such certificate may rely upon the best of his or her knowledge as to proceedings threatened. (c) The Underwriters shall have received on the Closing Date an opinion of Venture Law Group, A Professional Corporation, outside counsel for the Company, dated the Closing Date, to the effect that: (i) the Company has been duly incorporated, is validly existing as a corporation in good standing under the laws of Delaware, has the corporate power and authority to own its property and to conduct its business as described in the Prospectus and is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the Company; (ii) the authorized capital stock of the Company conforms in all material respects as to legal matters to the description thereof contained in the Prospectus; (iii) the shares of Common Stock outstanding prior to or concurrently with the issuance of the Shares (including the shares of Common Stock issued upon conversion of all of the Company's preferred stock) have been duly authorized and are validly issued, fully paid and non-assessable; (iv) the Shares have been duly authorized and, when issued and delivered in accordance with the terms of this Agreement, will be validly issued, fully paid and non-assessable, and the issuance of such Shares will not be subject to any preemptive rights set forth in the Company's certificate of incorporation or bylaws or, to the knowledge of such counsel, 14 similar rights, other than rights that have been validly waived with respect to the Shares; (v) this Agreement has been duly authorized, executed and delivered by the Company; (vi) the execution and delivery by the Company of, and the performance by the Company of its obligations under, this Agreement will not contravene any provision of applicable law or the certificate of incorporation or bylaws of the Company or, to such counsel's knowledge, any agreement or other instrument binding upon the Company that is material to the Company, or, to such counsel's knowledge, any judgment, order or decree of any governmental body, agency or court having jurisdiction over the Company, and no consent, approval, authorization or order of, or qualification with, any governmental body or agency is required for the performance by the Company of its obligations under this Agreement, except such as have been obtained under the federal securities laws or as may be required by the securities or Blue Sky laws of the various states in connection with the offer and sale of the Shares; (vii) the statements (A) in the Prospectus under the captions "Risk Factors -- Risks Related to this Offering and Our Common Stock -- An aggregate of 40,952,916 shares, or approximately 83%, 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 second sentence under "Dividend Policy," the second paragraph under "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Overview," the second paragraph under "Business -- Media Relationships," "Management -- Board Composition," Management -- Board Committees," "Management -- Option Grants" "Management -- Change of Control Agreements," "Management -- Stock Plans," "Management -- Limitation of Liability and Indemnification Matters," "Related Party Transactions," "Description of Capital Stock" and "Shares Eligible for Future Sale" and 15 (B) in the Registration Statement in Items 14 and 15, in each case insofar as such statements constitute summaries of the legal matters, documents or proceedings referred to therein, fairly present the information called for with respect to such legal matters, documents and proceedings and fairly summarize the matters referred to therein; (viii) such counsel does not know of any legal or governmental proceedings pending or threatened to which the Company is a party or to which any of the properties of the Company is subject that are required to be described in the Registration Statement or the Prospectus and are not so described or of any statutes, regulations, contracts or other documents that are required to be described in the Registration Statement or the Prospectus or to be filed as exhibits to the Registration Statement that are not described or filed as required; (ix) the Company is not, and after giving effect to the offering and sale of the Shares and the application of the proceeds thereof as described in the Prospectus will not be, required to register as an "investment company" as such term is defined in the Investment Company Act of 1940, as amended; and (x) such counsel has no reason to believe that (A) the Registration Statement and Prospectus (except for the financial statements and financial schedules and other financial and statistical data included therein, as to which such counsel need not express any belief) do not comply as to form in all material respects with the requirements of the Securities Act and the applicable rules and regulations of the Commission thereunder or (B) (x) the Registration Statement and the prospectus included therein (except for the financial statements and financial schedules and other financial and statistical data included therein, as to which such counsel need not express any belief) at the time the Registration Statement became effective contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or (y) the Prospectus (except as stated) as of its date and as of the date hereof contained or contains an untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. 16 (d) The Underwriters shall have received on the Closing Date an opinion of Davis Polk & Wardwell, counsel for the Underwriters, dated the Closing Date, covering the matters referred to in Sections 5(c)(iv), 5(c)(v), 5(c)(vii) (but only as to the statements in the Prospectus under "Description of Capital Stock" and "Underwriters") and 5(c)(x) above. (e) The Underwriters shall have received on the Closing Date an opinion of Blakely, Sokoloff, Taylor & Zafman, patent counsel for the Company, dated the Closing Date, to the effect that: (i) the statements in the Registration Statement and Prospectus in the third and fourth paragraphs under the caption "Risk Factors -- Risks Related to Our Business -- Intellectual property claims against us could be costly and could result in the loss of significant rights," under the caption "Risk Factors -- Risks Related to our Service and Technology -- Our success depends on our ability to secure and protect patents, trademarks and other proprietary rights," under the caption "Business -- Patents and Intellectual Property" and in the last sentence under the caption "Business -- Legal Matters" (the "Patent Paragraphs"), in each case insofar as such statements constitute summaries of the legal matters, documents or proceedings referred to therein, fairly present the information called for with respect to such legal matters, documents and proceedings and fairly summarize the matters referred to therein; (ii) to the knowledge of such counsel, there are no legal or governmental proceedings other than patent applications pending, relating to patent rights of the Company to which the Company is a party, and to such counsel's knowledge, no such proceedings are threatened or contemplated by governmental authorities or others; (iii) to the knowledge of such counsel, the Company has not received any communications in which it is alleged that the Company is infringing or violating the patent of third parties, except as disclosed in the Prospectus or to the Representatives in writing; (iv) to the knowledge of such counsel, except as disclosed in the Prospectus, the Company possesses all right, title and 17 interest to all patent applications described or referred to in the Prospectus as owned by it; and (v) such counsel has no reason to believe that (A) the descriptions and statements in the Patent Paragraphs in the Registration Statement and the prospectus included therein at the time the Registration Statement became effective contained any untrue statement of a material fact with respect to patent rights of the Company or omitted to state a material fact with respect to patent rights of the Company required to be stated therein or necessary in order to make the statements therein not misleading or (B) the Prospectus as of its date and as of the date hereof contained or contains an untrue statement of a material fact with respect to patent rights of the Company or omitted or omits to state a material fact with respect to patent rights of the Company necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. (f) The Underwriters shall have received on the Closing Date an opinion of Gipson, Hoffman & Pancione, copyright counsel for the Company, dated the Closing Date, to the effect that: (i) the statements in the Registration Statement and Prospectus in the last paragraph under the caption "Risk Factors -- Risks Related to Our Service and Technology -- Intellectual property claims against us could be costly and could result in the loss of significant rights" and in the first three sentences under the caption "Business -- Legal Matters" (the "Copyright Paragraphs"), insofar as such statements constitute summaries of the legal matters, documents or proceedings referred to therein, fairly present the information called for with respect to such legal matters, documents and proceedings and fairly summarize the matters referred to therein; (ii) to the knowledge of such counsel, except as disclosed in the Prospectus, the Company has not received any communications in which it is alleged that the Company is infringing or violating the copyrights of third parties; (iii) to the knowledge of such counsel, except as disclosed in the Prospectus, the Company possesses all right, title and 18 interest to all copyrighted materials described or referred to in the Prospectus as owned by it; and (iv) such counsel has no reason to believe that (A) the descriptions and statements in the Copyright Paragraph in the Registration Statement and the prospectus included therein at the time the Registration Statement became effective contained any untrue statement of a material fact with respect to copyrights of the Company or omitted to state a material fact with respect to copyrights of the Company required to be stated therein or necessary in order to make the statements therein not misleading or (B) the Prospectus as of its date and as of the date hereof contained or contains an untrue statement of a material fact with respect to copyrights of the Company or omitted or omits to state a material fact with respect to copyrights of the Company necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. With respect to Sections 5(c)(x), 5(e)(v) and 5(f)(vi) above, as applicable, Venture Law Group, Davis Polk & Wardwell, Blakely, Sokoloff, Taylor & Zafman and Gipson, Hoffman & Pancione may state that their opinion and belief are based upon their participation in the preparation of the Registration Statement and Prospectus and any amendments or supplements thereto and review and discussion of the contents thereof, but are without independent check or verification, except as specified. The opinions of Venture Law Group, Blakely, Sokoloff, Taylor & Zafman and Gipson, Hoffman & Pancione described in Sections 5(c), 5(e) and 5(f) above shall be rendered to the Underwriters at the request of the Company and shall so state therein. (g) The Underwriters shall have received, on each of the date hereof and the Closing Date, a letter dated the date hereof or the Closing Date, as the case may be, in form and substance reasonably satisfactory to the Underwriters, from PricewaterhouseCoopers LLP, independent public accountants, containing statements and information of the type ordinarily included in accountants' "comfort letters" to underwriters with respect to the financial statements and certain financial information contained in the Registration Statement and the Prospectus; provided that the letter delivered on the Closing Date shall use a "cut-off date" not earlier than the date hereof. (h) The "lock-up" agreements, each substantially in the form of Exhibit A hereto, between Morgan Stanley & Co. Incorporated and certain stockholders, officers and directors of the Company relating to sales and 19 certain other dispositions of shares of Common Stock or certain other securities, delivered to you on or before the date hereof, shall be in full force and effect on the Closing Date. (i) The Nasdaq National Market shall have approved the Common Stock for listing, subject only to official notice of issuance. The several obligations of the Underwriters to purchase Additional Shares hereunder are subject to the delivery to you on the Option Closing Date of such documents as you may reasonably request with respect to the good standing of the Company, the due authorization and issuance of the Additional Shares and other matters related to the issuance of the Additional Shares. 6. Covenants of the Company. In further consideration of the agreements of the Underwriters herein contained, the Company covenants with each Underwriter as follows: (a) To furnish to you, without charge, five signed copies of the Registration Statement (including exhibits thereto) and for delivery to each other Underwriter a conformed copy of the Registration Statement (without exhibits thereto) and to furnish to you in New York City, without charge, prior to 10:00 a.m. New York City time on the business day next succeeding the date of this Agreement and during the period mentioned in Section 6(c) below, as many copies of the Prospectus and any supplements and amendments thereto or to the Registration Statement as you may reasonably request. (b) Before amending or supplementing the Registration Statement or the Prospectus, to furnish to you a copy of each such proposed amendment or supplement and not to file any such proposed amendment or supplement to which you reasonably object, and to file with the Commission within the applicable period specified in Rule 424(b) under the Securities Act any prospectus required to be filed pursuant to such Rule. (c) If, during such period after the first date of the public offering of the Shares as in the reasonable opinion of counsel for the Underwriters the Prospectus is required by law to be delivered in connection with sales by an Underwriter or dealer, any event shall occur or condition exist as a result of which it is necessary to amend or supplement the Prospectus in order to make the statements therein, in the light of the circumstances when the Prospectus is delivered to a purchaser, not misleading, or if, 20 during such period, in the reasonable opinion of counsel for the Underwriters, it is necessary to amend or supplement the Prospectus to comply with applicable law, forthwith to prepare, file with the Commission and furnish, at its own expense, to the Underwriters and to the dealers (whose names and addresses you will furnish to the Company) to which Shares may have been sold by you on behalf of the Underwriters and to any other dealers upon request, either amendments or supplements to the Prospectus so that the statements in the Prospectus as so amended or supplemented will not, in the light of the circumstances when the Prospectus is delivered to a purchaser, be misleading or so that the Prospectus, as amended or supplemented, will comply with law. (d) To endeavor to qualify the Shares for offer and sale under the securities or Blue Sky laws of such jurisdictions as you shall reasonably request; provided, however, that the Company shall not be obligated to file any general consent to service of process or to qualify as a foreign corporation or as a dealer in securities in any jurisdiction in which it is not so qualified or to subject itself to taxation in respect of doing business in any jurisdiction in which it is not otherwise so subject. (e) To make generally available to the Company's security holders and to you as soon as practicable an earning statement covering the twelve- month period ending __________, 2001 that satisfies the provisions of Section 11(a) of the Securities Act and the rules and regulations of the Commission thereunder. (f) To place stop transfer orders on any Directed Shares that have been sold to Participants subject to the three month restriction on sale, transfer, assignment, pledge or hypothecation imposed by NASD Regulation, Inc. under its Interpretative Material 2110-1 on free-riding and withholding to the extent necessary to ensure compliance with the three month restrictions. (g) To comply with all applicable securities and other applicable laws, rules and regulations in each jurisdiction in which the Directed Shares are offered in connection with the Directed Share Program. (h) Whether or not the transactions contemplated in this Agreement are consummated or this Agreement is terminated, to pay or cause to be paid all expenses incident to the performance of its obligations under this Agreement, including: (i) the fees, disbursements and expenses of the Company's counsel and the Company's accountants in connection with the registration and delivery of the Shares under the Securities Act and all other fees and expenses in connection with the preparation and filing of the Registration Statement, any preliminary prospectus, the Prospectus and amendments and supplements to any of the foregoing, 21 including all printing costs associated therewith, and the mailing and delivering of copies thereof to the Underwriters and dealers, in the quantities hereinabove specified, (ii) all costs and expenses related to the transfer and delivery of the Shares to the Underwriters, including any transfer or other taxes payable thereon, (iii) the cost of printing or producing any Blue Sky memorandum in connection with the offer and sale of the Shares under state securities laws and all expenses in connection with the qualification of the Shares for offer and sale under state securities laws as provided in Section 6(d) hereof, including filing fees and the reasonable fees and disbursements of counsel for the Underwriters in connection with such qualification and in connection with the Blue Sky memorandum not to exceed $10,000, (iv) all filing fees and the reasonable fees and disbursements of counsel to the Underwriters incurred in connection with the review and qualification of the offering of the Shares by the National Association of Securities Dealers, Inc. not to exceed $20,000, (v) all fees and expenses in connection with the preparation and filing of the registration statement on Form 8-A relating to the Common Stock and all costs and expenses incident to listing the Shares on the Nasdaq National Market, (vi) the cost of printing certificates representing the Shares, (vii) the costs and charges of any transfer agent, registrar or depositary, (viii) all fees and disbursements of counsel incurred by the Underwriters in connection with the Directed Share Program and stamp duties, similar taxes or duties or other taxes, if any, incurred by the Underwriters in connection with the Directed Share Program, (ix) the costs and expenses of the Company relating to investor presentations on any "road show" undertaken in connection with the marketing of the offering of the Shares, including, without limitation, expenses associated with the production of road show slides and graphics, fees and expenses of any consultants engaged in connection with the road show presentations with the prior approval of the Company, travel and lodging expenses of the representatives and officers of the Company and any such consultants, and the cost of any aircraft chartered in connection with the road show, and (x) all other costs and expenses incident to the performance of the obligations of the Company hereunder for which provision is not otherwise made in this Section. It is understood, however, that except as provided in this Section, Section 7 entitled "Indemnity and Contribution," and the last paragraph of Section 9 below, the Underwriters will pay all of their costs and expenses, including fees and disbursements of their counsel, stock transfer taxes payable on resale of any of the Shares by them and any advertising expenses connected with any offers they may make. 7. Indemnity and Contribution. (a) The Company agrees to indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of either Section 15 of the Securities Act or Section 20 of the Securities Exchange Act of 1934, as amended (the "Exchange 22 Act"), from and against any and all losses, claims, damages and liabilities (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) caused by any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or any amendment thereof, any preliminary prospectus or the Prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto), or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages or liabilities are caused by any such untrue statement or omission or alleged untrue statement or omission based upon information relating to any Underwriter furnished to the Company in writing by such Underwriter through you expressly for use therein; provided, however, that the foregoing indemnity agreement with respect to any preliminary prospectus shall not inure to the benefit of any Underwriter from whom the person asserting any such losses, claims, damages or liabilities purchased Shares, or any person controlling such Underwriter, if a copy of the Prospectus (as then amended or supplemented if the Company shall have furnished any amendments or supplements thereto) was not sent or given by or on behalf of such Underwriter to such person, if required by law so to have been delivered, at or prior to the written confirmation of the sale of the Shares to such person, and if the Prospectus (as so amended or supplemented) would have cured the defect giving rise to such losses, claims, damages or liabilities, unless such failure is a result of noncompliance by the Company with Section 6(a) hereof. (b) Each Underwriter agrees, severally and not jointly, to indemnify and hold harmless the Company, its directors, its officers who sign the Registration Statement and each person, if any, who controls the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the foregoing indemnity from the Company to such Underwriter, but only with reference to information relating to such Underwriter furnished to the Company in writing by such Underwriter through you expressly for use in the Registration Statement, any preliminary prospectus, the Prospectus or any amendments or supplements thereto. (c) In case any proceeding (including any governmental investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to Section 7(a) or 7(b), such person (the "indemnified party") shall promptly notify the person against whom such indemnity may be sought (the "indemnifying party") in writing and the indemnifying party, upon request of the indemnified party, shall retain counsel reasonably satisfactory to the indemnified party to represent the indemnified party and any others the indemnifying party 23 may designate in such proceeding and shall pay the fees and disbursements of such counsel related to such proceeding. In any such proceeding, any indemnified party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that the indemnifying party shall not, in respect of the legal expenses of any indemnified party in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all such indemnified parties and that all such fees and expenses shall be reimbursed as they are incurred. Such firm shall be designated in writing by Morgan Stanley & Co. Incorporated, in the case of parties indemnified pursuant to Section 7(a), and by the Company, in the case of parties indemnified pursuant to Section 7(b). The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceeding. (d) To the extent the indemnification provided for in Section 7(a) or 7(b) is unavailable to an indemnified party or insufficient in respect of any losses, claims, damages or liabilities referred to therein, then each indemnifying party under such paragraph, in lieu of indemnifying such indemnified party thereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other hand from the offering of the Shares or (ii) if the allocation provided by clause 7(d)(i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause 7(d)(i) above but also the relative fault of the Company on the one hand and of the Underwriters on the other hand in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, 24 as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriters on the other hand in connection with the offering of the Shares shall be deemed to be in the same respective proportions as the net proceeds from the offering of the Shares (before deducting expenses) received by the Company and the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover of the Prospectus, bear to the aggregate Public Offering Price of the Shares. The relative fault of the Company on the one hand and the Underwriters on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or by the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Underwriters' respective obligations to contribute pursuant to this Section 7 are several in proportion to the respective number of Shares they have purchased hereunder, and not joint. (e) The Company and the Underwriters agree that it would not be just or equitable if contribution pursuant to this Section 7 were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in Section 7(d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages and liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 7, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Shares underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages that such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The remedies provided for in this Section 7 are not exclusive and shall not limit any rights or remedies which may otherwise be available to any indemnified party at law or in equity. (f) The indemnity and contribution provisions contained in this Section 7 and the representations, warranties and other statements of the Company contained in this Agreement shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, (ii) any investigation made by 25 or on behalf of any Underwriter or any person controlling any Underwriter or by or on behalf of the Company, its officers or directors or any person controlling the Company and (iii) acceptance of and payment for any of the Shares. 26 8. Termination. This Agreement shall be subject to termination by notice given by you to the Company, if (a) after the execution and delivery of this Agreement and prior to the Closing Date (i) trading generally shall have been suspended or materially limited on or by, as the case may be, any of the New 27 York Stock Exchange, the American Stock Exchange or the National Association of Securities Dealers, Inc., (ii) trading of any securities of the Company shall have been suspended on any exchange or in any over-the-counter market, (iii) a general moratorium on commercial banking activities in New York shall have been declared by either Federal or New York State authorities or (iv) there shall have occurred any outbreak or escalation of hostilities or any change in financial markets or any calamity or crisis that, in your judgment, is material and adverse and (b) in the case of any of the events specified in clauses 8(a)(i) through 8(a)(iv), such event, singly or together with any other such event, makes it, in your judgment, impracticable to market the Shares on the terms and in the manner contemplated in the Prospectus. 9. Effectiveness; Defaulting Underwriters. This Agreement shall become effective upon the execution and delivery hereof by the parties hereto. If, on the Closing Date or the Option Closing Date, as the case may be, any one or more of the Underwriters shall fail or refuse to purchase Shares that it has or they have agreed to purchase hereunder on such date, and the aggregate number of Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase is not more than one-tenth of the aggregate number of the Shares to be purchased on such date, the other Underwriters shall be obligated severally in the proportions that the number of Firm Shares set forth opposite their respective names in Schedule I bears to the aggregate number of Firm Shares set forth opposite the names of all such non-defaulting Underwriters, or in such other proportions as you may specify, to purchase the Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase on such date; provided that in no event shall the number of Shares that any Underwriter has agreed to purchase pursuant to this Agreement be increased pursuant to this Section 9 by an amount in excess of one-ninth of such number of Shares without the written consent of such Underwriter. If, on the Closing Date, any Underwriter or Underwriters shall fail or refuse to purchase Firm Shares and the aggregate number of Firm Shares with respect to which such default occurs is more than one-tenth of the aggregate number of Firm Shares to be purchased, and arrangements satisfactory to you and the Company for the purchase of such Firm Shares are not made within 36 hours after such default, this Agreement shall terminate without liability on the part of any non-defaulting Underwriter or the Company. In any such case either you or the Company shall have the right to postpone the Closing Date, but in no event for longer than seven days, in order that the required changes, if any, in the Registration Statement and in the Prospectus or in any other documents or arrangements may be effected. If, on the Option Closing Date, any Underwriter or Underwriters shall fail or refuse to 28 purchase Additional Shares and the aggregate number of Additional Shares with respect to which such default occurs is more than one-tenth of the aggregate number of Additional Shares to be purchased, the non-defaulting Underwriters shall have the option to (i) terminate their obligation hereunder to purchase Additional Shares or (ii) purchase not less than the number of Additional Shares that such non-defaulting Underwriters would have been obligated to purchase in the absence of such default. Any action taken under this paragraph shall not relieve any defaulting Underwriter from liability in respect of any default of such Underwriter under this Agreement. If this Agreement shall be terminated by the Underwriters, or any of them, because of any failure or refusal on the part of the Company to comply with the terms or to fulfill any of the conditions of this Agreement, or if for any reason the Company shall be unable to perform its obligations under this Agreement, the Company will reimburse the Underwriters or such Underwriters as have so terminated this Agreement with respect to themselves, severally, for all out-of-pocket expenses (including the fees and disbursements of their counsel) reasonably incurred by such Underwriters in connection with this Agreement or the offering contemplated hereunder. 11. Counterparts. This Agreement may be signed in two or more counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 12. Applicable Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York. 13. Headings. The headings of the sections of this Agreement have been inserted for convenience of reference only and shall not be deemed a part of this Agreement. Very truly yours, REPLAYTV, INC. By: -------------------------- Name: Title: 29 Accepted as of the date hereof Morgan Stanley & Co. Incorporated Bear, Stearns & Co. Inc. Chase Securities Inc. Deutsche Bank Securities Inc. Wasserstein Perella Securities, Inc. Acting severally on behalf of themselves and the several Underwriters named in Schedule I hereto. By: Morgan Stanley & Co. Incorporated By: -------------------------------------------------------- Name: Title: 30 SCHEDULE I Underwriter Number of Firm Shares To Be Purchased Morgan Stanley & Co. Incorporated................. Bear, Stearns & Co. Inc........................... Chase Securities Inc.............................. Deutsche Bank Securities Inc...................... Wasserstein Perella Securities, Inc............... -------------------- Total:....................................... 8,500,000 ==================== 31 EXHIBIT A Replay Networks, Inc. ----------, --------- Morgan Stanley & Co. Incorporated 1585 Broadway New York, NY 10036 Dear Sirs and Mesdames: The undersigned understands that Morgan Stanley & Co. Incorporated ("Morgan Stanley") proposes to enter into an Underwriting Agreement (the "Underwriting Agreement") with Replay Networks, Inc., a California corporation (the "Company"), providing for the public offering (the "Public Offering") by certain underwriters, including Morgan Stanley (the "Underwriters"), of an as yet undetermined number of shares (the "Shares") of the common stock, par value $0.001 per share, of the Company (the "Common Stock"). To induce the Underwriters that may participate in the Public Offering to continue their efforts in connection with the Public Offering, the undersigned hereby agrees that, without the prior written consent of Morgan Stanley on behalf of the Underwriters, it will not, during the period commencing on the date of the final prospectus relating to the Public Offering (the "Prospectus") and continuing to and including the date 180 days after the date of such final Prospectus, (1) 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 (other than the Shares) or (2) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Common Stock (other than the Shares), whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise. The foregoing sentence shall not apply to transactions relating to any Shares purchased by the undersigned in the Public Offering or to shares of Common Stock or other securities acquired in open market transactions after the completion of the Public Offering, and are not intended to prevent the undersigned from exercising or converting securities convertible into or exercisable or exchangeable for Common Stock (it being understood that any such shares of Common Stock shall be subject to the restrictions set forth herein). Further, the lock-up restriction described in this paragraph shall not apply to (a) bona fide gifts, (b) distributions of the capital stock of the Company to limited partners or shareholders of the undersigned, (c) dispositions to any trust for the direct or indirect benefit of the undersigned or the immediate family of the undersigned, or (d) if the undersigned is a corporation, transfers of the capital stock of the Company to any wholly owned subsidiary of such corporation; provided, however, that -------- ------- in any such case, it shall be a condition to the transfer that the transferee agrees in writing to be bound by the restrictions set forth herein. In addition, the undersigned agrees that, without the prior written consent of Morgan Stanley on behalf of the Underwriters, it will not, during the period commencing on the date of the final Prospectus and continuing to and including 180 days after the date of the Prospectus, make any demand for or exercise any right with respect to, the registration of any shares of Common Stock or any security convertible into or exercisable or exchangeable for Common Stock. Whether or not the Public Offering actually occurs depends on a number of factors, including market conditions. Any Public Offering will only be made pursuant to an Underwriting Agreement, the terms of which are subject to negotiation between the Company and the Underwriters. Very truly yours, ---------------------------- Name ---------------------------- Authorized Signature Address: 2 EX-10.3 3 1997 STOCK OPTION PLAN EXHIBIT 10.3 REPLAYTV, INC. 1997 STOCK OPTION PLAN (Amended as of January 21, 2000) 1. Purposes of the Plan. The purposes of this 1997 Stock Option Plan are -------------------- to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees and Consultants of the Company and its Subsidiaries and to promote the success of the Company's business. Options granted under the Plan may be incentive stock options (as defined under Section 422 of the Code) or nonstatutory stock options, as determined by the Administrator at the time of grant of an option and subject to the applicable provisions of Section 422 of the Code, as amended, and the regulations promulgated thereunder. 2. Definitions. As used herein, the following definitions shall apply: ----------- (a) "Administrator" means the Board or its Committee appointed ------------- pursuant to Section 4 of the Plan. (b) "Applicable Laws" means the legal requirements relating to the --------------- administration of stock option and restricted stock purchase plans under applicable U.S. state corporate laws, U.S. federal and applicable state securities laws, the Code, any Stock Exchange rules or regulations 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. (c) "Board" means the Board of Directors of the Company. ----- (d) "Code" means the Internal Revenue Code of 1986, as amended. ---- (e) "Committee" means one or more committees or subcommittees of the --------- Board appointed by the Board to administer the Plan in accordance with Section 4 below. (f) "Common Stock" means the Common Stock of the Company. ------------ (g) "Company" means ReplayTV, Inc., a California corporation. ------- (h) "Consultant" means any person, including an advisor, who is ---------- engaged by the Company or any Parent or Subsidiary to render services and is compensated for such services, and any director of the Company whether compensated for such services or not. (i) "Continuous Status as an Employee or Consultant" means the absence ---------------------------------------------- of any interruption or termination of service as an Employee or Consultant. Continuous Status as an Employee or Consultant shall not be considered interrupted in the case of: (i) sick leave; (ii) military leave; (iii) any other leave of absence approved by the Administrator, provided that such leave is for a period of not more than ninety (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, its Subsidiaries or their respective successors. A change in status from an Employee to a Consultant or from a Consultant to an Employee will not constitute an interruption of Continuous Status as an Employee or Consultant. (j) "Employee" means any person, including officers and directors, -------- employed by the Company or any Parent or Subsidiary of the Company, with the status of employment determined based upon such minimum number of hours or periods worked as shall be determined by the Administrator in its discretion, subject to any requirements of the Code. The payment of a director's fee to a Director shall not be sufficient to constitute "employment" of such Director by the Company. (k) "Exchange Act" means the Securities Exchange Act of 1934, as ------------ amended. (l) "Fair Market Value" means, as of any date, the fair market value ----------------- of Common Stock as determined by the Administrator in good faith on such basis as it deems appropriate and applied consistently with respect to Participants. Whenever possible, the determination of Fair Market Value shall be based upon the closing price for the Shares as reported in the Wall Street Journal for the applicable date. (m) "Incentive Stock Option" means an Option intended to qualify as an ---------------------- incentive stock option within the meaning of Section 422 of the Code, as designated in the applicable written option agreement. (n) "Listed Security" means any security of the Company that is --------------- listed or approved for listing on a national securities exchange or designated or approved for designation as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc. (o) "Nonstatutory Stock Option" means an Option not intended to ------------------------- qualify as an Incentive Stock Option, as designated in the applicable written option agreement. (p) "Option" means a stock option granted pursuant to the Plan. ------ (q) "Optioned Stock" means the Common Stock subject to an Option. -------------- (r) "Optionee" means an Employee or Consultant who receives an Option. -------- (s) "Parent" means a "parent corporation," whether now or hereafter ------ ------------------ existing, as defined in Section 424(e) of the Code, or any successor provision. (t) "Participant" means any holder of one or more Options, or the ----------- Shares issuable or issued upon exercise of such Options, under the Plan. (u) "Plan" means this 1997 Stock Option Plan. ---- -2- (v) "Reporting Person" means an officer, director, or greater than ten ---------------- percent shareholder of the Company within the meaning of Rule 16a-2 under the Exchange Act, who is required to file reports pursuant to Rule 16a-3 under the Exchange Act. (w) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act, ---------- as the same may be amended from time to time, or any successor provision. (x) "Share" means a share of the Common Stock, as adjusted in ----- accordance with Section 11 of the Plan. (y) "Stock Exchange" means any stock exchange or consolidated stock -------------- price reporting system on which prices for the Common Stock are quoted at any given time. (z) "Subsidiary" means a "subsidiary corporation," whether now or ---------- ---------------------- hereafter existing, as defined in Section 424(f) of the Code, or any successor provision. 3. Stock Subject to the Plan. Subject to the provisions of Section 11 of ------------------------- the Plan, the maximum aggregate number of shares that may be sold under the Plan is 9,600,000 shares of Common Stock. 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 shall have been terminated, become available for future grant under the Plan. In addition, any Shares of Common Stock which are retained by the Company upon exercise of an Option in order to satisfy the exercise or purchase 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. Shares repurchased by the Company pursuant to any repurchase right which the Company may have shall not be available for future grant under the Plan. Notwithstanding the above, with respect to up to an aggregate of 7,600,000 Shares (a) subject to Options granted under the Plan that become available for resale under the Plan as a result of cancellations of such Options and (b) sold under the Plan that are repurchased by the Company pursuant to any repurchase right which the Company may have, such Shares shall not be available for resale under the Plan, but shall be treated as though transferred to, and shall thereafter be available for sale under, the Company's 1999 Stock Plan. 4. Administration of the Plan. -------------------------- (a) General. The Plan shall be administered by the Board or a ------- Committee, or a combination thereof, as determined by the Board. The Plan may be administered by different administrative bodies with respect to different classes of Participants and, if permitted by the Applicable Laws, the Board may authorize one or more officers to make awards under the Plan. (b) Committee Composition. If a Committee has been appointed pursuant --------------------- to this Section 4, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. From time to time the Board may increase the size of any Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies (however caused) and remove all members of a -3- Committee and thereafter directly administer the Plan, all to the extent permitted by the Applicable Laws and, in the case of a Committee administering the Plan in accordance with the requirements of Rule 16b-3 or Section 162(m) of the Code, to the extent permitted or required by such provisions. (c) Powers of the Administrator. Subject to the provisions of the --------------------------- Plan and in the case of a Committee, the specific duties delegated by the Board to such Committee, the Administrator shall have the authority, in its discretion: (i) to determine the Fair Market Value of the Common Stock, in accordance with Section 2(l) of the Plan; (ii) to select the Employees and Consultants to whom Options may from time to time be granted; (iii) to determine whether and to what extent Options are granted; (iv) to determine the number of Shares of Common Stock to be covered by each award granted; (v) to approve the form(s) of agreement(s) used under the Plan; (vi) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any award granted hereunder; (vii) to determine whether and under what circumstances an Option may be settled in cash under Section 9(f) instead of Common Stock; (viii) to reduce the exercise price of any Option to the then- current Fair Market Value if the Fair Market Value of the Common Stock covered by such Option shall have declined since the date the Option was granted; (ix) to construe and interpret the terms of the Plan and awards granted under the Plan, which constructions, interpretations and decisions shall be final and binding on all Participants; and (x) in order to fulfill the purposes of the Plan and without amending the Plan, to modify grants of Options to Participants who are foreign nationals or employed outside of the United States in order to recognize differences in local law, tax policies or customs. 5. Eligibility. ----------- (a) Recipients of Grants. Nonstatutory Stock Options may be granted -------------------- to Employees and Consultants. Incentive Stock Options may be granted only to Employees. -4- (b) Type of Option. Each Option shall be designated in the written -------------- option agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designations, to the extent that the aggregate Fair Market Value of the Shares with respect to which Options designated as Incentive Stock Options are exercisable for the first time by any Optionee during any calendar year (under all plans of the Company or any Parent or Subsidiary) exceeds $100,000, such excess Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 5(b), Incentive Stock Options shall be taken into account in the order in which they were granted, and the Fair Market Value of the Shares subject to an Incentive Stock Option shall be determined as of the date of the grant of such Option. (c) Employment Relationship. The Plan shall not confer upon any ----------------------- Optionee any right with respect to continuation of employment or consulting relationship with the Company, nor shall it interfere in any way with such Optionee's right or the Company's right to terminate his or her employment or consulting relationship at any time, with or without cause. 6. Term of Plan. The Plan shall become effective upon the earlier to ------------ occur of its adoption by the Board of Directors or its approval by the shareholders of the Company as described in Section 18 of the Plan. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 14 of the Plan. 7. Term of Option. The term of each Option shall be the term stated in -------------- the Option Agreement; provided, however, that the term shall be no more than ten (10) years from the date of grant thereof or such shorter term as may be provided in the Option Agreement. However, in the case of an Incentive Stock Option granted to an Optionee who, at the time the Option is granted, owns stock representing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Option shall be five (5) years from the date of grant thereof or such shorter term as may be provided in the Option Agreement. 8. Option Exercise Price and Consideration. --------------------------------------- (a) The per share exercise price for the Shares to be issued pursuant to exercise of an Option shall be such price as is determined by the Administrator and set forth in the applicable option agreement, but shall be subject to the following: (i) In the case of an Incentive Stock Option that is: (A) granted to an Employee who, at the time of the grant of such Incentive Stock Option, owns stock representing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary (a "Ten Percent Holder"), the per Share exercise ------------------ price shall be no less than 110% of the Fair Market Value per Share on the date of grant. (B) granted to any Employee, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant. -5- (ii) In the case of a Nonstatutory Stock Option that is: (A) granted prior to the date, if any, on which the Common Stock becomes a Listed Security to a person who is at the time of grant is a Ten Percent Holder, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant if required by the Applicable Laws and, if not so required, shall be such price as is determined by the Administrator; (B) granted prior to the date, if any, on which the Common Stock becomes a Listed Security to any person other than a Ten Percent Holder, the per Share exercise price shall be no less than 85% of the Fair Market Value per Share on the date of grant if required by the Applicable Laws and, if not so required, shall be such price as is determined by the Administrator; or (C) granted on or after the date, if any, on which the Common Stock becomes a Listed Security to any eligible person, the per Share exercise price shall be such price as determined by the Administrator, provided that is such person is, at the time of the grant of the Option, a Named Executive of the Company, the per Share Exercise Price shall be no less than 100% of the Fair Market Value on the date of grant if such Option is intended to qualify as performance-based compensation under Section 162(m) of the Code and if not so intended shall be such price as is determined by the Administrator. (iii) Notwithstanding the foregoing, Options may be granted with a per Share exercise price other than as required above pursuant to a merger or other corporate transaction. (b) The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined at the time of grant) and may consist entirely of (1) cash, (2) check, (3) promissory note, (4) other Shares that (x) in the case of Shares acquired upon exercise of an Option, have been owned by the Optionee for more than six months on the date of surrender or such other period as may be required to avoid a charge to the Company's earnings, and (y) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which such Option shall be exercised, (5) delivery of a properly executed exercise notice together with such other documentation as the Administrator and the broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the exercise price and any applicable income or employment taxes, (6) delivery of an irrevocable subscription agreement for the Shares that irrevocably obligates the option holder to take and pay for the Shares not more than twelve months after the date of delivery of the subscription agreement, or (7) any combination of the foregoing methods of payment. In making its determination as to the type of consideration to accept, the Administrator shall consider if acceptance of such consideration may be reasonably expected to benefit the Company. -6- 9. Exercise of Option. ------------------ (a) General. ------- (i) Exercisability. Any Option granted hereunder shall be -------------- exercisable such times and under such conditions as determined by the Administrator, consistent with the term of the Plan and reflected in the Option Agreement, including vesting requirements and/or performance criteria with respect to the Company and/or the Optionee; provided however that, if required by the Applicable Laws, any Option granted prior to the date, if any, upon which the Common Stock becomes a Listed Security shall become exercisable at the rate of at least 20% per year over five years from the date the Option is granted. In the event that any of the Shares issued upon exercise of an Option (which exercise occurs prior to the date, if any, upon which the Common Stock becomes a Listed Security) should be subject to a right of repurchase in the Company's favor, such repurchase right shall, if required by the Applicable Laws, lapse at the rate of at least 20% per year over five years from the date the Option is granted. Notwithstanding the above, in the case of an Option granted to an officer, Director or Consultant of the Company or any Parent or Subsidiary, the Option may become fully exercisable, or a repurchase right, if any, in favor of the Company shall lapse, at any time or during any period established by the Administrator. (ii) Fractional Shares. An Option may not be exercised for a ----------------- fraction of a Share. (iii) Procedures for and Results of Exercise. An Option shall be -------------------------------------- deemed 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 the Company has received full payment for the Shares with respect to which the Option is exercised. Full payment may, as authorized by the Administrator, consist of any consideration and method of payment allowable under Section 8(b) of the Plan. Exercise of an Option in any manner shall result in a decrease in the number of Shares that 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. (iv) Rights as Stockholder. Until the issuance (as evidenced by --------------------- the entry on the books of the Company or of a duly authorized transfer agent of the Company) of the Shares, no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Stock, notwithstanding the 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. (b) Termination of Employment or Consulting Relationship. Subject to ---------------------------------------------------- Section 9(c) and (d), in the event of termination of an Optionee's Continuous Status as an Employee or Consultant with the Company, such Optionee may, but only within three (3) months (or such other period of time not less than thirty (30) days as is determined by the Administrator, with such determination in the case of an Incentive Stock Option being made at -7- the time of grant of the Option) after the date of such termination (but in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), exercise his or her Option to the extent that the Optionee was entitled to exercise it at the date of such termination. To the extent that Optionee was not entitled to exercise the Option at the date of such termination, or if Optionee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate. No termination shall be deemed to occur and this Section 9(b) shall not apply if (i) the Optionee is a Consultant who becomes an Employee; or (ii) the Optionee is an Employee who becomes a Consultant. (c) Disability of Optionee. Notwithstanding Section 9(b) above, ---------------------- (i) In the event of termination of an Optionee's Continuous Status as an Employee or Consultant as a result of his or her total and permanent disability (within the meaning of Section 22(e)(3) of the Code), Optionee may, but only within twelve (12) months from the date of such termination (but in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), exercise the Option to the extent otherwise entitled to exercise it at the date of such termination. To the extent that Optionee was not entitled to exercise the Option at the date of termination, or if Optionee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate. (ii) In the event of termination of an Optionee's Continuous Status as an Employee or Consultant as a result of a disability which does not fall within the meaning of total and permanent disability (as set forth in Section 22(e)(3) of the Code), Optionee may, but only within six (6) months from the date of such termination (but in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), exercise the Option to the extent otherwise entitled to exercise it at the date of such termination. However, to the extent that such Optionee fails to exercise an Option which is an Incentive Stock Option ("ISO") (within the meaning of Section --- 422 of the Code) within three (3) months of the date of such termination, the Option will not qualify for ISO treatment under the Code. To the extent that Optionee was not entitled to exercise the Option at the date of termination, or if Optionee does not exercise such Option to the extent so entitled within six months (6) from the date of termination, the Option shall terminate. (d) Death of Optionee. Notwithstanding Section 9(b) above, in the ----------------- event of the death of an Optionee during the period of Continuous Status as an Employee or Consultant since the date of grant of the Option, or within thirty (30) days following termination of Optionee's Continuous Status as an Employee or Consultant, the Option may be exercised, at any time within six (6) months following the date of death (but in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), by 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, if earlier, the date of termination of Optionee's Continuous Status as an Employee or Consultant. To the extent that Optionee was not entitled to exercise the Option at the date of death or termination, as the case may be, or if Optionee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate. -8- (e) Rule 16b-3. Options granted to Reporting Persons shall comply ---------- with Rule 16b-3 and shall contain such additional conditions or restrictions as may be required thereunder to qualify for the maximum exemption for Plan transactions. (f) Buyout Provisions. The Administrator may at any time offer to buy ----------------- out for a payment in cash or Shares, an Option previously granted, based on such terms and conditions as the Administrator shall establish and communicate to the Optionee at the time that such offer is made. (g) Extension of Exercise Period. The Administrator shall have full ---------------------------- power and authority to extend the period of time for which an Option is to remain exercisable following termination of an Optionee's Continuous Service as an Employee or Consultant from the periods set forth in Sections 9(b), 9(c) or 9(d) above or in the applicable option agreement to such greater time as the Administrator shall deem appropriate, provided that in no event shall an Option be exercisable later than the date of expiration of the term of the Option as set forth in the option agreement. 10. Stock Withholding to Satisfy Withholding Tax Obligations. At the -------------------------------------------------------- discretion of the Administrator, Optionees may satisfy withholding obligations as provided in this paragraph. When an Optionee incurs tax liability in connection with an Option, which tax liability is subject to tax withholding under applicable tax laws, and the Optionee is obligated to pay the Company an amount required to be withheld under applicable tax laws, the Optionee may satisfy the withholding tax obligation by one or some combination of the following methods: (a) by cash payment, or (b) out of Optionee's current compensation, (c) if permitted by the Administrator, in its discretion, by surrendering to the Company Shares that (i) in the case of Shares previously acquired from the Company, have been owned by the Optionee for more than six months on the date of surrender, and (ii) have a fair market value on the date of surrender equal to or less than amount required to be withheld under applicable tax laws, or (d) by electing to have the Company withhold from the Shares to be issued upon exercise of the Option, if any, that number of Shares having a fair market value equal to the amount required to be withheld. If the Administrator allows the withholding or surrender of Shares to satisfy a Participant's tax withholding obligations under this Section 10, the Administrator shall not allow Shares to be withheld or surrendered in an amount that exceeds the Participant's minimum statutory withholding rates for federal and state tax purposes, including payroll taxes. For this purpose, the Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined (the "Tax Date"). -------- Any surrender by a Reporting Person of previously owned Shares to satisfy tax withholding obligations arising upon exercise of this Option must comply with the applicable provisions of Rule 16b-3. All elections by an Optionee to have Shares withheld to satisfy tax withholding obligations shall be made in writing in a form acceptable to the Administrator and shall be subject to the following restrictions: (a) the election must be made on or prior to the applicable Tax Date; -9- (b) once made, the election shall be irrevocable as to the particular Shares of the Option as to which the election is made; and (c) all elections shall be subject to the consent or disapproval of the Administrator. In the event the election to have Shares withheld is made by an Optionee and the Tax Date is deferred under Section 83 of the Code because no election is filed under Section 83(b) of the Code, the Optionee shall receive the full number of Shares with respect to which the Option is exercised but such Optionee shall be unconditionally obligated to tender back to the Company the proper number of Shares on the Tax Date. 11. Adjustments Upon Changes in Capitalization, Merger or Certain Other ------------------------------------------------------------------- Transactions. - ------------ (a) Changes in Capitalization. Subject to any required action by the ------------------------- shareholders of the Company, the number of Shares of Common Stock covered by each outstanding Option, and the number of Shares of Common Stock that have been authorized for issuance under the Plan but as to which no Options have yet been granted or that 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, recapitalization or reclassification of the Common Stock, or any other increase or decrease in the number of issued Shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Administrator, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares of Common Stock subject to an Option. (b) Dissolution or Liquidation. In the event of the proposed -------------------------- dissolution or liquidation of the Company, the Board shall notify the Optionee at least fifteen (15) days prior to such proposed action. To the extent it has not been previously exercised, the Option will terminate immediately prior to the consummation of such proposed action. (c) Merger or Sale of Assets. In the event of a proposed sale of all ------------------------ or substantially all of the Company's assets or a merger of the Company with or into another corporation where the successor corporation issues its securities or other consideration to the Company's shareholders, each outstanding Option shall be assumed or an equivalent option or right shall be substituted by such successor corporation or a parent or subsidiary of such successor corporation, unless the successor corporation does not agree to assume the Option or to substitute an equivalent option, in which case such Option shall terminate upon the consummation of the merger or sale of assets. -10- For purposes of this Section 11(c), an Option shall be considered assumed, without limitation, if, at the time of issuance of the stock or other consideration upon a merger or sale of assets each Optionee 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 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 that if such consideration received in the transaction is not solely common stock of the successor corporation, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon exercise of the award to be solely common stock of the successor corporation equal to the Fair Market Value of the per Share consideration received by holders of Common Stock in the transaction. (d) Certain Distributions. In the event of any distribution to the --------------------- Company's shareholders 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. Non-Transferability of Options. ------------------------------ (a) General. Except as set forth in this Section 12, Options may not -------- be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner other than by will or by the laws of descent or distribution. The designation of a beneficiary by an Optionee will not constitute a transfer. An Option may be exercised, during the lifetime of the holder of Option, only by such holder or a transferee permitted by this Section 12. (b) Limited Transferability Rights. Notwithstanding anything else in ------------------------------ this Section 12, prior to the date, if any, on which the Common Stock becomes a Listed Security, the Administrator may in its discretion grant Nonstatutory Stock Options that may be transferred by instrument to an inter vivos or testamentary trust in which the Options are to be passed to beneficiaries upon the death of the trustor (settlor) or by gift to "Immediate Family" (as defined below), on such terms and conditions as the Administrator deems appropriate. Following the date, if any, on which the Common Stock becomes a Listed Security, the Administrator may in its discretion grant transferable Nonstatutory Stock Options pursuant to option agreements specifying the manner in which such Nonstatutory Stock Options are transferable. "Immediate Family" means any ---------------- child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, and shall include adoptive relationships. Options may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised or purchased during the lifetime of the Optionee, only by the Optionee. -11- 13. Time of Granting Options. The date of grant of an Option shall, for ------------------------ all purposes, be the date on which the Administrator makes the determination granting such Option, or such other date as is determined by the Board; provided however that in the case of any Incentive Stock Option, the grant date shall be the later of the date on which the Administrator makes the determination granting such Incentive Stock Option or the date of commencement of the Optionee's employment relationship with the Company. Notice of the determination shall be given to each Employee or Consultant to whom an Option is so granted within a reasonable time after the date of such grant. 14. Amendment and Termination of the Plan. ------------------------------------- (a) Authority to Amend or Terminate. The Board may at any time amend, ------------------------------- alter, suspend or discontinue the Plan, but no amendment, alteration, suspension or discontinuation shall be made that would impair the rights of any Optionee under any grant theretofore made, without his or her consent. In addition, to the extent necessary and desirable to comply with Rule 16b-3 or with Section 422 of the Code (or any other Applicable Law), the Company shall obtain shareholder approval of any Plan amendment in such a manner and to such a degree as required. (b) Effect of Amendment or Termination. No amendment or termination ---------------------------------- of the Plan shall adversely affect Options already granted, unless mutually agreed otherwise between the Optionee and the Board, which agreement must be in writing and signed by the Optionee and the Company. 15. Conditions Upon Issuance of Shares. Shares shall not be issued ---------------------------------- pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of the Applicable Laws. 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. 16. Reservation of Shares. The Company, during the term of this Plan, --------------------- will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 17. Agreements. Options shall be evidenced by written agreements in such ---------- form as the Administrator shall approve from time to time. -12- 18. Shareholder Approval. Continuance of the Plan shall be subject to -------------------- approval by the shareholders of the Company within twelve (12) months before or after the date the Plan is adopted. Such shareholder approval shall be obtained in the degree and manner required under the Applicable Laws. All Options issued under the Plan shall become void in the event such approval is not obtained. 19. Information and Documents to Optionees and Purchasers. Prior to the ----------------------------------------------------- date, if any, upon which the Common Stock becomes a Listed Security and if required by the Applicable Laws, the Company shall provide financial statements at least annually to each Optionee and to each individual who acquired Shares pursuant to the Plan, during the period such Optionee or purchaser has one or more Options outstanding, and in the case of an individual who acquired Shares pursuant to the Plan, during the period such individual owns such Shares. The Company shall not be required to provide such information if the issuance of Options under the Plan is limited to key employees whose duties in connection with the Company assure their access to equivalent information. -13- REPLAYTV, INC. 1997 STOCK OPTION PLAN NOTICE OF STOCK OPTION GRANT ---------------------------- ((Optionee)) You have been granted an option to purchase Common Stock ("Common Stock") ------------ of ReplayTV, Inc. (the "Company") as follows: -------
Board Approval Date: ((BoardApprovalDate)) Date of Grant (Later of Board Approval Date or Commence- ment of Employment/Consulting): ((GrantDate)) Vesting Commencement Date: ((VestingCommenceDate)) Exercise Price per Share: $((ExercisePrice)) Total Number of Shares Granted: ((NoofShares)) Total Exercise Price: $((TotalExercisePrice)) Type of Option: ((ISOAmount)) Shares Incentive Stock Option ((NSOAmount)) Shares Nonstatutory Stock Option Term/Expiration Date: ((ExpirDate)) Vesting Schedule: This Option may be exercised, in whole or in part, in accordance with the following schedule: ((CliffVestAmount)) of the Shares subject to the Option shall vest on the ((CliffMonthNumber)) month anniversary of the Vesting Commencement Date and 1/((TotalVestingMonths)) of the total number of Shares subject to the Option shall vest each month thereafter. Termination Period: Option may be exercised for 30 days after termination of employment or consulting relationship except as set out in Sections 6 and 7 of the Stock Option Agreement (but in no event later than the Expiration Date).
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 1997 Stock Option Plan and the Stock Option Agreement, both of which are attached and made a part of this document. ((Optionee)) REPLAYTV, INC. - ------------------------------ By:-------------------------- Signature - ------------------------------ -------------------------- Print Name Print Name and Title 2 REPLAYTV, INC. 1997 STOCK OPTION PLAN STOCK OPTION AGREEMENT ---------------------- 1. Grant of Option. ReplayTV, Inc., a California corporation (the --------------- "Company"), hereby grants to ((Optionee)) ("Optionee"), an option (the "Option") ------- -------- ------ to purchase a total number of shares of Common Stock (the "Shares") 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, -------------- definitions and provisions of the ReplayTV, Inc. 1997 Stock Option Plan (the "Plan") adopted by the Company, which is incorporated herein by reference. ---- Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Option. If designated an Incentive Stock Option, this Option is intended to qualify as an Incentive Stock Option as defined in Section 422 of the Code. 2. Exercise of Option. This Option shall be exercisable during its Term ------------------ in accordance with the Vesting Schedule set out in the Notice of Stock Option Grant and with the provisions of Section 9 of the Plan as follows: (a) Right to Exercise. ----------------- (i) This Option may not be exercised for a fraction of a share. (ii) In the event of Optionee's death, disability or other termination of employment, the exercisability of the Option is governed by Sections 5, 6 and 7 below, subject to the limitation contained in Section 2(a)(i). (iii) In no event may this Option be exercised after the date of expiration of the Term of this Option as set forth in the Notice of Stock Option Grant. (b) Method of Exercise. This Option shall be exercisable by ------------------ execution and delivery of the Exercise Notice and Restricted Stock Purchase Agreement attached hereto as Exhibit A (the "Exercise Agreement") or of any --------- ------------------ other form of written notice approved for such purpose by the Company which shall state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised, and such other representations and agreements as to the holder's investment intent with respect to such shares of Common Stock as may be required by the Company pursuant to the provisions of the Plan. Such written notice shall be signed by Optionee and shall be delivered in person or by certified mail to the Secretary of the Company. The written notice shall be accompanied 3 by payment of the Exercise Price. This Option shall be deemed to be exercised upon receipt by the Company of such written notice accompanied by the Exercise Price. No Shares will be issued pursuant to the exercise of an Option unless such issuance and such exercise shall comply with all relevant provisions of applicable law and the requirements of any stock exchange upon which the Shares may then be listed. Assuming such compliance, for income tax purposes the Shares shall be considered transferred to Optionee on the date on which the Option is exercised with respect to such Shares. 3. Method of Payment. Payment of the Exercise Price shall be by any of ----------------- the following, or a combination thereof, at the election of Optionee: (a) cash; (b) check; (c) surrender of other shares of Common Stock of the Company which (i) in the case of Shares acquired pursuant to the exercise of a Company option, have been owned by 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 Exercise Price of the Shares as to which the Option is being exercised; (d) if there is a public market for the Shares and they are registered under the Securities Act of 1933, as amended, delivery of a properly executed exercise notice together with irrevocable instructions to a broker to deliver promptly to the Company the amount of sale or loan proceeds required to pay the exercise price; or 4. Restrictions on Exercise. This Option may not be exercised until such ------------------------ time as the Plan has been approved by the shareholders of the Company, or if the issuance of such Shares upon such exercise or the method of payment of consideration for such shares would constitute a violation of any applicable federal or state securities or other law or regulation, including any rule under Part 207 of Title 12 of the Code of Federal Regulations as promulgated by the Federal Reserve Board. As a condition to the exercise of this Option, the Company may require Optionee to make any representation and warranty to the Company as may be required by any applicable law or regulation. 5. Termination of Relationship. In the event of termination of --------------------------- Optionee's Continuous Status as an Employee or Consultant, Optionee may, to the extent otherwise so entitled at the date of such termination (the "Termination Date"), exercise this Option during the Termination Period set ---------------- forth in the Notice of Stock Option Grant. To the extent that Optionee was not entitled to exercise this Option at such Termination Date, or if Optionee does not exercise this Option within the Termination Period, the Option shall terminate. 4 6. Disability of Optionee. ---------------------- (a) Notwithstanding the provisions of Section 5 above, in the event of termination of Continuous Status as an Employee or Consultant as a result of Optionee's total and permanent disability (as defined in Section 22(e)(3) of the Code), Optionee may, but only within twelve (12) months from the Termination Date (but in no event later than the Expiration Date set forth in the Notice of Stock Option Grant), exercise this Option to the extent Optionee was entitled to exercise it as of such Termination Date. To the extent that Optionee was not entitled to exercise the Option as of the Termination Date, or if Optionee does not exercise such Option (to the extent so entitled) within the time specified in this Section 6(a), the Option shall terminate. (b) Notwithstanding the provisions of Section 5 above, in the event of termination of Optionee's consulting relationship or Continuous Status as an Employee as a result of disability not constituting a total and permanent disability (as set forth in Section 22(e)(3) of the Code), Optionee may, but only within six (6) months from the Termination Date (but in no event later than the Expiration Date set forth in the Notice of Stock Option Grant), exercise the Option to the extent Optionee was entitled to exercise it as of such Termination Date; provided, however, that if this is an Incentive Stock Option and Optionee fails to exercise this Incentive Stock Option within three (3) months from the Termination Date, this Option will cease to qualify as an Incentive Stock Option (as defined in Section 422 of the Code) and Optionee will be treated for federal income tax purposes as having received ordinary income at the time of such exercise in an amount generally measured by the difference between the Exercise Price for the Shares and the fair market value of the Shares on the date of exercise. To the extent that Optionee was not entitled to exercise the Option at the Termination Date, or if Optionee does not exercise such Option to the extent so entitled within the time specified in this Section 6(b), the Option shall terminate. 7. Death of Optionee. In the event of the death of Optionee (a) during ----------------- the Term of this Option and while an Employee or Consultant of the Company and having been in Continuous Status as an Employee or Consultant since the date of grant of the Option, or (b) within thirty (30) days after Optionee's Termination Date, the Option may be exercised at any time within six (6) months following the date of death (but in no event later than the Expiration Date set forth in the Notice of Stock Option Grant), by 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 Termination Date. 8. Non-Transferability of Option. This Option may not be transferred in ----------------------------- any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by him or her. The terms of this Option shall be binding upon the executors, administrators, heirs, successors and assigns of Optionee. 5 9. Term of Option. This Option may be exercised only within the Term set -------------- forth in the Notice of Stock Option Grant, subject to the limitations set forth in Section 7 of the Plan. 10. Tax Consequences. Set forth below is a brief summary as of the date ---------------- of this Option of certain of the federal and California tax consequences of exercise of this Option and disposition of the Shares under the laws 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 A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES. (a) Exercise of Incentive Stock Option. If this Option qualifies as ---------------------------------- an Incentive Stock Option, there will be no regular federal or California income tax liability upon the exercise of the Option, although the excess, if any, of the fair market value of the Shares on the date of exercise over the Exercise Price will be treated as an adjustment to the alternative minimum tax for federal tax purposes and may subject Optionee to the alternative minimum tax in the year of exercise. (b) Exercise of Nonstatutory Stock Option. If this Option does not ------------------------------------- qualify as an Incentive Stock Option, there may be a regular federal income tax liability and a California income tax liability upon the exercise of the Option. Optionee will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the fair market value of the Shares on the date of exercise over the Exercise Price. If Optionee is an employee, the Company will be required to withhold from Optionee's compensation or collect from Optionee and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income at the time of exercise. (c) Disposition of Shares. In the case of a Nonstatutory Stock --------------------- Option, if Shares are held for at least one year, any gain realized on disposition of the Shares will be treated as long-term capital gain for federal and California income tax purposes. In the case of an Incentive Stock Option, if Shares transferred pursuant to the Option are held for at least one year after exercise and are disposed of at least two years after the Date of Grant, any gain realized on disposition of the Shares will also be treated as long-term capital gain for federal and California income tax purposes. If Shares purchased under an Incentive Stock Option are disposed of within such one-year period or within two years after the Date of Grant, any gain realized on such disposition will be treated as compensation income (taxable at ordinary income rates) to the extent of the difference between the Exercise Price and the lesser of (i) the fair market value of the Shares on the date of exercise, or (ii) the sale price of the Shares. 6 (d) Notice of Disqualifying Disposition of Incentive Stock Option ------------------------------------------------------------- Shares. If the Option granted to Optionee herein is an Incentive Stock Option, - ------ and if Optionee sells or otherwise disposes of any of the Shares acquired pursuant to the Incentive Stock Option on or before the later of (i) the date two years after the Date of Grant, or (ii) the date one year after the date of exercise, Optionee shall immediately notify the Company in writing of such disposition. Optionee acknowledges and agrees that he or she may be subject to income tax withholding by the Company on the compensation income recognized by Optionee from the early disposition by payment in cash or out of the current earnings paid to Optionee. 11. Withholding Tax Obligations. Optionee understands that, upon --------------------------- exercising a Nonstatutory Stock Option, he or she will recognize income for tax purposes in an amount equal to the excess of the then fair market value of the Shares over the Exercise Price. However, the timing of this income recognition may be deferred for up to six months if Optionee is subject to Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). If Optionee ------------ is an employee, the Company will be required to withhold from Optionee's compensation, or collect from Optionee and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income. Additionally, Optionee may at some point be required to satisfy tax withholding obligations with respect to the disqualifying disposition of an Incentive Stock Option. Optionee shall satisfy his or her tax withholding obligation arising upon the exercise of this Option by one or some combination of the following methods: (a) by cash payment, (b) out of Optionee's current compensation, (c) if permitted by the Administrator, in its discretion, by surrendering to the Company Shares which (i) in the case of Shares previously acquired from the Company, have been owned by Optionee for more than six months on the date of surrender, and (ii) have a fair market value on the date of surrender equal to or greater than Optionee's marginal tax rate times the ordinary income recognized, or (d) by electing to have the Company withhold from the Shares to be issued upon exercise of the Option that number of Shares having a fair market value equal to the amount required to be withheld. For this purpose, the fair market value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined (the "Tax Date"). -------- If Optionee is subject to Section 16 of the Exchange Act (an "Insider"), ------- any surrender of previously owned Shares to satisfy tax withholding obligations arising upon exercise of this Option must comply with the applicable provisions of Rule 16b-3 promulgated under the Exchange Act ("Rule 16b-3"). ---------- All elections by Optionee to have Shares withheld to satisfy tax withholding obligations shall be made in writing in a form acceptable to the Administrator and shall be subject to the following restrictions: (a) the election must be made on or prior to the applicable Tax Date; 7 (b) once made, the election shall be irrevocable as to the particular Shares of the Option as to which the election is made; and (c) all elections shall be subject to the consent or disapproval of the Administrator. 12. 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, Optionee hereby 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. [Signature Page Follows] 8 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 document. REPLAYTV, INC. By:-------------------------- -------------------------- (Print Name and Title) OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE OPTION HEREOF IS EARNED ONLY BY CONTINUING EMPLOYMENT OR CONSULTANCY AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S STOCK OPTION PLAN WHICH IS INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT CAUSE. Optionee acknowledges receipt of a copy of the Plan and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts this Option subject to all of the terms and provisions thereof. Optionee has reviewed the Plan and this Option in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option and fully understands all provisions of the Option. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan or this Option. Dated:------------------------ ----------------------------- ((Optionee)) 9 EXHIBIT A --------- REPLAYTV, INC. 1997 STOCK OPTION PLAN EXERCISE NOTICE AND RESTRICTED STOCK PURCHASE AGREEMENT ------------------------------------------------------- This Agreement ("Agreement") is made as of ________________, by and between --------- ReplayTV, Inc., a California corporation (the "Company"), and ((Optionee)) ------- ("Purchaser"). To the extent any capitalized terms used in this Agreement are --------- not defined, they shall have the meaning ascribed to them in the 1997 Stock Option Plan. 1. Exercise of Option. Subject to the terms and conditions hereof, ------------------ Purchaser hereby elects to exercise his or her option to purchase ____________ shares of the Common Stock (the "Shares") of the Company under and pursuant to ------ the Company's 1997 Stock Option Plan (the "Plan") and the Stock Option Agreement ---- granted ((GrantDate)), (the "Option Agreement"). The purchase price for the ---------------- Shares shall be $((ExercisePrice)) per Share for a total purchase price of $__________________. The term "Shares" refers to the purchased Shares and all ------ securities received in replacement of the Shares or as 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. Time and Place of Exercise. The purchase and sale of the Shares under -------------------------- this Agreement shall occur at the principal office of the Company simultaneously with the execution and delivery of this Agreement in accordance with the provisions of Section 2(b) of the Option Agreement. On such 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 exercise price therefor by Purchaser by (a) check made payable to the Company, (b) cancellation of indebtedness of the Company to Purchaser, (c) delivery of shares of the Common Stock of the Company in accordance with Section 3 of the Option Agreement, or (d) 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 except in compliance with the provisions below and applicable securities laws. (a) 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(a) (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: (i) the ------ Holder's bona fide 10 intention to sell or otherwise transfer such Shares; (ii) the name of each proposed purchaser or other transferee ("Proposed Transferee"); (iii) the number ------------------- of Shares to be transferred to each Proposed Transferee; and (iv) the 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(a) shall be the Offered Price. If the Offered Price includes consideration other than cash, the cash equivalent value of the non-cash consideration shall be determined by the Board of Directors of the Company in good faith. (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 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(a), 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 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(a) 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(a). "Immediate Family" as used herein shall mean spouse, lineal descendant or ---------------- antecedent, father, mother, brother or sister. In such case, the transferee or other recipient shall receive and hold the Shares so transferred subject to the provisions of this Section, and there shall be no further transfer of such Shares except in accordance with the terms of this Section 3. 11 (b) 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(a)(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 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(b)(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. (c) 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. (d) 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. Any sale or transfer of the Company's Shares shall be void unless the provisions of this Agreement are satisfied. (e) Termination of Rights. The right of first refusal granted the --------------------- Company by Section 3(a) above and the option to repurchase the Shares in the event of an involuntary transfer granted the Company by Section 3(b) 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(a) above, a new certificate or certificates representing the Shares not repurchased shall be issued, on request, without the legend referred to in Section 5(a)(ii) herein and delivered to Purchaser. 12 4. 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 securities. Purchaser is purchasing these securities 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 securities 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 with the purchase or disposition of the Shares and that Purchaser is not relying on the Company for any tax advice. 5. 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): (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. 13 (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. (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. 6. 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. 7. Market Stand-off 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. 8. 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 14 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. (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. 15 The parties have executed this Exercise Notice and Restricted Stock Purchase Agreement as of the date first set forth above. COMPANY: REPLAYTV, INC. By:-------------------------- Name:------------------------ (Print) Title:----------------------- Address: 1945 Charleston Road Mountain View, CA 94043-1201 PURCHASER: ((Optionee)) ----------------------------- (Signature) Address: ----------------------------- ----------------------------- I, -----------------------, spouse of ((Optionee)), 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 hereby by 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. ------------------------------ Spouse of ((Optionee)) 16 REPLAY NETWORKS, INC. 1997 STOCK OPTION PLAN NOTICE OF STOCK OPTION GRANT ---------------------------- ((Optionee)) You have been granted an option to purchase Common Stock ("Common Stock") ------------ of Replay Networks, Inc. (the "Company") as follows: ------- Board Approval Date: ((BoardApprovalDate)) Date of Grant (Later of Board Approval Date or Commence- ment of Employment/Consulting): ((GrantDate)) Vesting Commencement Date: ((VestingCommenceDate)) Exercise Price per Share: $((ExercisePrice)) Total Number of Shares Granted: ((NoofShares)) Total Exercise Price: $((TotalExercisePrice)) Type of Option: ((ISOAmount)) Shares Incentive Stock Option ((NSOAmount)) Shares Nonstatutory Stock Option Term/Expiration Date: ((ExpirDate)) Vesting Schedule: This Option may be exercised, in whole or in part, in accordance with the following schedule:((CliffVestAmount)) of the Shares subject to the Option shall vest on the ((CliffMonthNumber)) month anniversary of the Vesting Commencement Date and 1/((TotalVestingMonths)) of the total number of Shares subject to the Option shall vest each month thereafter. Termination Period: Option may be exercised for 30 days after termination of employment or consulting relationship except as set out in Sections 6 and 7 of the Stock Option Agreement (but in no event later than the Expiration Date). 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 1997 Stock Option Plan and the Stock Option Agreement, both of which are attached and made a part of this document. ((Optionee)) REPLAY NETWORKS, INC. _____________________________ By:___________________________ Signature _____________________________ ___________________________ Print Name Print Name and Title -2- REPLAY NETWORKS, INC. 1997 STOCK OPTION PLAN STOCK OPTION AGREEMENT ---------------------- 1. Grant of Option. Replay Networks, Inc., a California corporation (the --------------- "Company"), hereby grants to ((Optionee)) ("Optionee"), an option (the "Option") ------- -------- ------ to purchase a total number of shares of Common Stock (the "Shares") 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, -------------- definitions and provisions of the Replay Networks, Inc. 1997 Stock Option Plan (the "Plan") adopted by the Company, which is incorporated herein by reference. ---- Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Option. If designated an Incentive Stock Option, this Option is intended to qualify as an Incentive Stock Option as defined in Section 422 of the Code. 2. Exercise of Option. This Option shall be exercisable during its Term ------------------ in accordance with the Vesting Schedule set out in the Notice of Stock Option Grant and with the provisions of Section 9 of the Plan as follows: (a) Right to Exercise. ----------------- (i) This Option may not be exercised for a fraction of a share. (ii) In the event of Optionee's death, disability or other termination of employment, the exercisability of the Option is governed by Sections 5, 6 and 7 below, subject to the limitation contained in Section 2(a)(i). (iii) In no event may this Option be exercised after the date of expiration of the Term of this Option as set forth in the Notice of Stock Option Grant. (b) Method of Exercise. This Option shall be exercisable by execution ------------------ and delivery of the Exercise Notice and Restricted Stock Purchase Agreement attached hereto as Exhibit A (the "Exercise Agreement") or of any other form of --------- ------------------ written notice approved for such purpose by the Company which shall state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised, and such other representations and agreements as to the holder's investment intent with respect to such shares of Common Stock as may be required by the Company pursuant to the provisions of the Plan. Such written notice shall be signed by Optionee and shall be delivered in person or by certified mail to the Secretary of the Company. The written notice shall be accompanied by payment of the Exercise Price. This Option shall be deemed to be exercised upon receipt by the Company of such written notice accompanied by the Exercise Price. No Shares will be issued pursuant to the exercise of an Option unless such issuance and such exercise shall comply with all relevant provisions of applicable law and the requirements of any stock exchange upon which the Shares may then be listed. Assuming such compliance, for income tax purposes the Shares shall be considered transferred to Optionee on the date on which the Option is exercised with respect to such Shares. 3. Method of Payment. Payment of the Exercise Price shall be by any of ----------------- the following, or a combination thereof, at the election of Optionee: (a) cash; (b) check; (c) surrender of other shares of Common Stock of the Company which (i) in the case of Shares acquired pursuant to the exercise of a Company option, have been owned by 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 Exercise Price of the Shares as to which the Option is being exercised; (d) if there is a public market for the Shares and they are registered under the Securities Act of 1933, as amended, delivery of a properly executed exercise notice together with irrevocable instructions to a broker to deliver promptly to the Company the amount of sale or loan proceeds required to pay the exercise price; or (e) a promissory note in the form attached to this Agreement as Exhibit B, or in any other form approved by the Company. 4. Restrictions on Exercise. This Option may not be exercised until such ------------------------ time as the Plan has been approved by the shareholders of the Company, or if the issuance of such Shares upon such exercise or the method of payment of consideration for such shares would constitute a violation of any applicable federal or state securities or other law or regulation, including any rule under Part 207 of Title 12 of the Code of Federal Regulations as promulgated by the Federal Reserve Board. As a condition to the exercise of this Option, the Company may require Optionee to make any representation and warranty to the Company as may be required by any applicable law or regulation. 5. Termination of Relationship. In the event of termination of Optionee's --------------------------- Continuous Status as an Employee or Consultant, Optionee may, to the extent otherwise so entitled at the date of such termination (the "Termination Date"), ---------------- exercise this Option during the Termination Period set forth in the Notice of Stock Option Grant. To the extent that Optionee was not entitled to exercise this Option at such Termination Date, or if Optionee does not exercise this Option within the Termination Period, the Option shall terminate. 6. Disability of Optionee. ---------------------- (a) Notwithstanding the provisions of Section 5 above, in the event of termination of Continuous Status as an Employee or Consultant as a result of Optionee's total and permanent disability (as defined in Section 22(e)(3) of the Code), Optionee may, but only within twelve (12) months from the Termination Date (but in no event later than the Expiration Date set forth in the Notice of Stock Option Grant), exercise this Option to the extent Optionee was entitled to exercise it as of such Termination Date. To the extent that Optionee was not entitled to exercise the Option as of the Termination Date, or if Optionee does not exercise such Option (to the extent so entitled) within the time specified in this Section 6(a), the Option shall terminate. (b) Notwithstanding the provisions of Section 5 above, in the event of termination of Optionee's consulting relationship or Continuous Status as an Employee as a result of disability not constituting a total and permanent disability (as set forth in Section 22(e)(3) of the Code), Optionee may, but only within six (6) months from the Termination Date (but in no event later than the Expiration Date set forth in the Notice of Stock Option Grant), exercise the Option to the extent Optionee was entitled to exercise it as of such Termination Date; provided, however, that if this is an Incentive Stock Option and Optionee fails to exercise this Incentive Stock Option within three (3) months from the Termination Date, this Option will cease to qualify as an Incentive Stock Option (as defined in Section 422 of the Code) and Optionee will be treated for federal income tax purposes as having received ordinary income at the time of such exercise in an amount generally measured by the difference between the Exercise Price for the Shares and the fair market value of the Shares on the date of exercise. To the extent that Optionee was not entitled to exercise the Option at the Termination Date, or if Optionee does not exercise such Option to the extent so entitled within the time specified in this Section 6(b), the Option shall terminate. 7. Death of Optionee. In the event of the death of Optionee (a) during ----------------- the Term of this Option and while an Employee or Consultant of the Company and having been in Continuous Status as an Employee or Consultant since the date of grant of the Option, or (b) within thirty (30) days after Optionee's Termination Date, the Option may be exercised at any time within six (6) months following the date of death (but in no event later than the Expiration Date set forth in the Notice of Stock Option Grant), by 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 Termination Date. 8. Non-Transferability of Option. This Option may not be transferred in ----------------------------- any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by him or her. The terms of this Option shall be binding upon the executors, administrators, heirs, successors and assigns of Optionee. 9. Term of Option. This Option may be exercised only within the Term set -------------- forth in the Notice of Stock Option Grant, subject to the limitations set forth in Section 7 of the Plan. 10. Tax Consequences. Set forth below is a brief summary as of the date ---------------- of this Option of certain of the federal and California tax consequences of exercise of this Option and disposition of the Shares under the laws 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 A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES. (a) Exercise of Incentive Stock Option. If this Option qualifies as ---------------------------------- an Incentive Stock Option, there will be no regular federal or California income tax liability upon the exercise of the Option, although the excess, if any, of the fair market value of the Shares on the date of exercise over the Exercise Price will be treated as an adjustment to the alternative minimum tax for federal tax purposes and may subject Optionee to the alternative minimum tax in the year of exercise. (b) Exercise of Nonstatutory Stock Option. If this Option does not ------------------------------------- qualify as an Incentive Stock Option, there may be a regular federal income tax liability and a California income tax liability upon the exercise of the Option. Optionee will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the fair market value of the Shares on the date of exercise over the Exercise Price. If Optionee is an employee, the Company will be required to withhold from Optionee's compensation or collect from Optionee and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income at the time of exercise. (c) Disposition of Shares. In the case of a Nonstatutory Stock --------------------- Option, if Shares are held for at least one year, any gain realized on disposition of the Shares will be treated as long-term capital gain for federal and California income tax purposes. In the case of an Incentive Stock Option, if Shares transferred pursuant to the Option are held for at least one year after exercise and are disposed of at least two years after the Date of Grant, any gain realized on disposition of the Shares will also be treated as long-term capital gain for federal and California income tax purposes. If Shares purchased under an Incentive Stock Option are disposed of within such one-year period or within two years after the Date of Grant, any gain realized on such disposition will be treated as compensation income (taxable at ordinary income rates) to the extent of the difference between the Exercise Price and the lesser of (i) the fair market value of the Shares on the date of exercise, or (ii) the sale price of the Shares. (d) Notice of Disqualifying Disposition of Incentive Stock Option ------------------------------------------------------------- Shares. If the Option granted to Optionee herein is an Incentive Stock Option, - ------ and if Optionee sells or otherwise disposes of any of the Shares acquired pursuant to the Incentive Stock Option on or before the later of (i) the date two years after the Date of Grant, or (ii) the date one year after the date of exercise, Optionee shall immediately notify the Company in writing of such disposition. Optionee acknowledges and agrees that he or she may be subject to income tax withholding by the Company on the compensation income recognized by Optionee from the early disposition by payment in cash or out of the current earnings paid to Optionee. 11. Withholding Tax Obligations. Optionee understands that, upon --------------------------- exercising a Nonstatutory Stock Option, he or she will recognize income for tax purposes in an amount equal to the excess of the then fair market value of the Shares over the Exercise Price. However, the timing of this income recognition may be deferred for up to six months if Optionee is subject to Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). If Optionee ------------ is an employee, the Company will be required to withhold from Optionee's compensation, or collect from Optionee and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income. Additionally, Optionee may at some point be required to satisfy tax withholding obligations with respect to the disqualifying disposition of an Incentive Stock Option. Optionee shall satisfy his or her tax withholding obligation arising upon the exercise of this Option by one or some combination of the following methods: (a) by cash payment, (b) out of Optionee's current compensation, (c) if permitted by the Administrator, in its discretion, by surrendering to the Company Shares which (i) in the case of Shares previously acquired from the Company, have been owned by Optionee for more than six months on the date of surrender, and (ii) have a fair market value on the date of surrender equal to or greater than Optionee's marginal tax rate times the ordinary income recognized, or (d) by electing to have the Company withhold from the Shares to be issued upon exercise of the Option that number of Shares having a fair market value equal to the amount required to be withheld. For this purpose, the fair market value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined (the "Tax Date"). -------- If Optionee is subject to Section 16 of the Exchange Act (an "Insider"), ------- any surrender of previously owned Shares to satisfy tax withholding obligations arising upon exercise of this Option must comply with the applicable provisions of Rule 16b-3 promulgated under the Exchange Act ("Rule 16b-3"). ---------- All elections by Optionee to have Shares withheld to satisfy tax withholding obligations shall be made in writing in a form acceptable to the Administrator and shall be subject to the following restrictions: (a) the election must be made on or prior to the applicable Tax Date; (b) once made, the election shall be irrevocable as to the particular Shares of the Option as to which the election is made; and (c) all elections shall be subject to the consent or disapproval of the Administrator. 12. 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, Optionee hereby 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. [Signature Page Follows] 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 document. REPLAY NETWORKS, INC. By:_____________________________________ _____________________________________ (Print name and title) OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE OPTION HEREOF IS EARNED ONLY BY CONTINUING EMPLOYMENT OR CONSULTANCY AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S STOCK OPTION PLAN WHICH IS INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT CAUSE. Optionee acknowledges receipt of a copy of the Plan and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts this Option subject to all of the terms and provisions thereof. Optionee has reviewed the Plan and this Option in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option and fully understands all provisions of the Option. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan or this Option. Dated:____________________________ ___________________________________ ((Optionee)) EXHIBIT A --------- REPLAY NETWORKS, INC. 1997 STOCK OPTION PLAN EXERCISE NOTICE AND RESTRICTED STOCK PURCHASE AGREEMENT ------------------------------------------------------- This Agreement ("Agreement") is made as of ______________, by and between --------- Replay Networks, Inc., a California corporation (the "Company"), and ------- ((Optionee)) ("Purchaser"). To the extent any capitalized terms used in this --------- Agreement are not defined, they shall have the meaning ascribed to them in the 1997 Stock Option Plan. 1. Exercise of Option. Subject to the terms and conditions hereof, ------------------ Purchaser hereby elects to exercise his or her option to purchase __________ shares of the Common Stock (the "Shares") of the Company under and pursuant to ------ the Company's 1997 Stock Option Plan (the "Plan") and the Stock Option Agreement ---- granted ((GrantDate)), (the "Option Agreement"). The purchase price for the ---------------- Shares shall be $((ExercisePrice)) per Share for a total purchase price of $_______________. The term "Shares" refers to the purchased Shares and all ------ securities received in replacement of the Shares or as 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. Time and Place of Exercise. The purchase and sale of the Shares under -------------------------- this Agreement shall occur at the principal office of the Company simultaneously with the execution and delivery of this Agreement in accordance with the provisions of Section 2(b) of the Option Agreement. On such 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 exercise price therefor by Purchaser by (a) check made payable to the Company, (b) cancellation of indebtedness of the Company to Purchaser, (c) delivery of shares of the Common Stock of the Company in accordance with Section 3 of the Option Agreement, (d) delivery of a promissory note attached as Exhibit B. to the Option Agreement (or in any form acceptable to the Company), or (e) by a combination of the foregoing. If the Purchaser delivers a promissory note as partial or full payment of the purchase price, Purchaser will also deliver a Pledge and Security agreement in the form attached as Exhibit C to the Option Agreement (or in any form acceptable to the Company). 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 except in compliance with the provisions below and applicable securities laws. (a) 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(a) (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: (i) the ------ Holder's bona fide intention to sell or otherwise transfer such Shares; (ii) the name of each proposed purchaser or other transferee ("Proposed Transferee"); ------------------- (iii) the number of Shares to be transferred to each Proposed Transferee; and (iv) the 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(a) shall be the Offered Price. If the Offered Price includes consideration other than cash, the cash equivalent value of the non-cash consideration shall be determined by the Board of Directors of the Company in good faith. (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 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(a), 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 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(a) 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(a). "Immediate Family" as used herein ---------------- shall mean spouse, lineal descendant or antecedent, father, mother, brother or sister. In such case, the transferee or other recipient shall receive and hold the Shares so transferred subject to the provisions of this Section, and there shall be no further transfer of such Shares except in accordance with the terms of this Section 3. (b) 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(a)(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 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(b)(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. (c) 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. (d) 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. Any sale or transfer of the Company's Shares shall be void unless the provisions of this Agreement are satisfied. (e) Termination of Rights. The right of first refusal granted the --------------------- Company by Section 3(a) above and the option to repurchase the Shares in the event of an involuntary transfer granted the Company by Section 3(b) 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(a) above, a new certificate or certificates representing the Shares not repurchased shall be issued, on request, without the legend referred to in Section 5(a)(ii) herein and delivered to Purchaser. 4. 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 securities. Purchaser is purchasing these securities 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 securities 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 with the purchase or disposition of the Shares and that Purchaser is not relying on the Company for any tax advice. 5. 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): (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. (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. 6. 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. 7. Market Stand-off 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. 8. 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. 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. (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. The parties have executed this Exercise Notice and Restricted Stock Purchase Agreement as of the date first set forth above. COMPANY: REPLAY NETWORKS, INC. By:_____________________________________ Name:___________________________________ (print) Title:__________________________________ Address:________________________________ 1945 Charleston Road Mountain View, CA 94043-1201 PURCHASER: ((Optionee)) ________________________________________ (Signature) Address: ________________________________________ ________________________________________ I, ______________________, spouse of ((Optionee)), 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 hereby by 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. ________________________________________ Spouse of ((Optionee)) EXHIBIT B --------- PROMISSORY NOTE --------------- $__________ __________, California _______________,____ For value received, the undersigned promises to pay Replay Networks, Inc., a California corporation (the "Company"), at its principal office the principal ------- sum of $__________ with interest from the date hereof at a rate of _____% per annum, compounded semiannually, on the unpaid balance of such principal sum. Such principal and interest shall be due and payable on __________. If the undersigned's employment or consulting relationship with the Company is terminated prior to payment in full of this Note, this Note shall be immediately due and payable. Principal and interest are payable in lawful money of the United States of America. AMOUNTS DUE UNDER THIS NOTE MAY BE PREPAID AT ANY TIME WITHOUT PREMIUM OR PENALTY. Should suit be commenced to collect any sums due under this Note, such sum as the Court may deem reasonable shall be added hereto as attorneys' fees. The makers and endorsers have severally waived presentment for payment, protest, notice of protest and notice of nonpayment of this Note. This Note, which is full recourse, is secured by a pledge of certain shares of Common Stock of the Company and is subject to the terms of a Pledge and Security Agreement between the undersigned and the Company of even date herewith. _____________________________ ((Optionee)) EXHIBIT C --------- PLEDGE AND SECURITY AGREEMENT ----------------------------- This Pledge and Security Agreement (the "Agreement") is entered into this --------- _____ day of __________________________ by and between Replay Networks, Inc., a California corporation (the "Company") and ((Optionee)) ("Purchaser"). ------- --------- RECITALS -------- In connection with Purchaser's exercise of an option to purchase certain shares of the Company's Common Stock (the "Shares") pursuant to an Option ------ Agreement dated __________ between Purchaser and the Company, Purchaser is delivering a promissory note of even date herewith (the "Note") in full or ---- partial payment of the exercise price for the Shares. The company requires that the Note be secured by a pledge of the Shares on the terms set forth below. AGREEMENT --------- In consideration of the Company's acceptance of the Note as full or partial payment of the exercise price of the Shares, and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows: 1. The Note shall become payable in full upon the voluntary or involuntary termination or cessation of employment of Purchaser with the Company, for any reason, with or without cause (including death or disability). 2. Purchaser shall deliver to the Secretary of the Company, or his or her designee (hereinafter referred to as the "Pledge Holder"), all certificates ------------- representing the Shares, together with an Assignment Separate from Certificate in the form attached to this Agreement as Attachment A executed by Purchaser and ------------ by Purchaser's spouse (if required for transfer), in blank, for use in transferring all or a portion of the Shares to the Company if, as and when required pursuant to this Agreement. In addition, if Purchaser is married, Purchaser's spouse shall execute the signature page attached to this Agreement. 3. As security for the payment of the Note and any renewal, extension or modification of the Note, Purchaser hereby grants to the Company a security interest in and pledges with and delivers to the Company Purchaser's Shares (sometimes referred to herein as the "Collateral"). ---------- 4. In the event that Purchaser prepays all or a portion of the Note, in accordance with the provisions thereof, Purchaser intends, unless written notice to the contrary is delivered to the Pledge Holder, that the Shares represented by the portion of the Note so repaid, including annual interest thereon, shall continue to be so held by the Pledge Holder, to serve as independent collateral for the outstanding portion of the Note for the purpose of commencing the holding period set forth in Rule 144(d) promulgated under the Securities Act of 1933, as amended (the "Securities Act"). -------------- 5. In the event of any foreclosure of the security interest created by this Agreement, the Company may sell the Shares at a private sale or may repurchase the Shares itself. The parties agree that, prior to the establishment of a public market for the Shares of the Company, the securities laws affecting sale of the Shares make a public sale of the Shares commercially unreasonable. The parties further agree that the repurchasing of such Shares by the Company, or by any person to whom the Company may have assigned its rights under this Agreement, is commercially reasonable if made at a price determined by the Board of Directors in its discretion, fairly exercised, representing what would be the Fair Market Value of the Shares reduced by any limitation on transferability, whether due to the size of the block of shares or the restrictions of applicable securities laws. 6. In the event of default in payment when due of any indebtedness under the Note, the Company may elect then, or at any time thereafter, to exercise all rights available to a secured party under the California Commercial Code including the right to sell the Collateral at a private or public sale or repurchase the Shares as provided above. The proceeds of any sale shall be applied in the following order: (a) To the extent necessary, proceeds shall be used to pay all reasonable expenses of the Company in enforcing this Agreement and the Note, including, without limitation, reasonable attorney's fees and legal expenses incurred by the Company. (b) To the extent necessary, proceeds shall be used to satisfy any remaining indebtedness under Purchaser's Note. (c) Any remaining proceeds shall be delivered to Purchaser. 7. Upon full payment by Purchaser of all amounts due under the Note, Pledge Holder shall deliver to Purchaser all Shares in Pledge Holder's possession belonging to Purchaser, and Pledge Holder shall thereupon be discharged of all further obligations under this Agreement. The parties have executed this Pledge and Security Agreement as of the date first set forth above. COMPANY: REPLAY NETWORKS, INC. By:_____________________________________ Name:___________________________________ (print) Title:__________________________________ 1945 Charleston Road Mountain View, CA 94043-1201 PURCHASER: ((Optionee)) ________________________________________ (Signature) ________________________________________ (Print Name) Address: ________________________________________ ________________________________________ ATTACHMENT A ------------ ASSIGNMENT SEPARATE FROM CERTIFICATE ------------------------------------ FOR VALUE RECEIVED and pursuant to that certain Pledge and Security Agreement between the undersigned ("Purchaser") and Replay Networks, 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 books of the Company and represented by Certificate No. ____, and hereby irrevocably appoints _____________________________ 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. Dated: _________________ Signature: ________________________________________ ((Optionee)) ________________________________________ Spouse of ((Optionee)) (if applicable) Instruction: Please do not fill in any blanks other than the signature line. The purpose of this assignment is to perfect the security interest of the Company pursuant to the Agreement. EX-10.4 4 1999 STOCK PLAN EXHIBIT 10.4 REPLAYTV, INC. 1999 STOCK PLAN (As Amended January 21, 2000) 1. Purposes of the Plan. The purposes of this 1999 Stock Plan are to -------------------- attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees and Consultants and to promote the success of the Company's business. Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options, as determined by the Administrator at the time of grant of an Option and subject to the applicable provisions of Section 422 of the Code and the regulations promulgated thereunder. Stock Purchase Rights may also be granted under the Plan. 2. Definitions. As used herein, the following definitions shall apply: ----------- (a) "Administrator" means the Board or its Committee appointed ------------- pursuant to Section 4 of the Plan. (b) "Affiliate" means an entity other than a Subsidiary (as defined --------- below) in which the Company owns an equity interest or which, together with the Company, is under common control of a third person or entity. (c) "Applicable Laws" means the legal requirements relating to the --------------- administration of stock option and restricted stock purchase plans under applicable U.S. state corporate laws, U.S. federal and applicable state securities laws, the Code, any Stock Exchange rules or regulations and the applicable laws of any other country or jurisdiction where Options or Stock Purchase Rights are granted under the Plan, as such laws, rules, regulations and requirements shall be in place from time to time. (d) "Board" means the Board of Directors of the Company. ----- (e) "Change in Control" 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; provided however that a merger, consolidation or other capital reorganization 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 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 shall not constitute a Change in Control. (f) "Code" means the Internal Revenue Code of 1986, as amended. ---- (g) "Committee" means one or more committees or subcommittees of the --------- Board appointed by the Board to administer the Plan in accordance with Section 4 below. (h) "Common Stock" means the Common Stock of the Company. ------------ 1 (i) "Company" means ReplayTV, Inc., a California corporation. ------- (j) "Consultant" means any person, including an advisor, who is ---------- engaged by the Company or any Parent, Subsidiary or Affiliate to render services and is compensated for such services, and any director of the Company whether compensated for such services or not. (k) "Continuous Service Status" means the absence of any interruption ------------------------- or termination of service as an Employee or Consultant. Continuous Service Status shall not be considered interrupted in the case of: (i) sick leave; (ii) military leave; (iii) any other leave of absence approved by the Administrator, provided that such leave is for a period of not more than ninety (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, its Parents, Subsidiaries, Affiliates or their respective successors. A change in status from an Employee to a Consultant or from a Consultant to an Employee will not constitute an interruption of Continuous Service Status. (l) "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. (m) "Director" means a member of the Board. -------- (n) "Employee" means any person (including, if appropriate, any Named -------- Executive, officer or Director) employed by the Company or any Parent, Subsidiary or Affiliate of the Company, with the status of employment determined based upon such minimum number of hours or periods worked as shall be determined by the Administrator in its discretion, subject to any requirements of the Code. The payment by the Company of a director's fee to a Director shall not be sufficient to constitute "employment" of such Director by the Company. (o) "Exchange Act" means the Securities Exchange Act of 1934, as ------------ amended. (p) "Fair Market Value" means, as of any date, the fair market value ----------------- of Common Stock as determined by the Administrator in good faith on such basis as it deems appropriate and applied consistently with respect to Participants. Whenever possible, the determination of Fair Market Value shall be based upon the closing price for the Shares as reported in the Wall Street Journal for the applicable date. (q) "Incentive Stock Option" means an Option intended to qualify as an ---------------------- incentive stock option within the meaning of Section 422 of the Code, as designated in the applicable Option Agreement. (r) "Listed Security" means any security of the Company that is listed --------------- or approved for listing on a national securities exchange or designated or approved for designation as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc. -2- (s) "Named Executive" means any individual who, on the last day of the --------------- Company's fiscal year, is the chief executive officer of the Company (or is acting in such capacity) or among the four most highly compensated officers of the Company (other than the chief executive officer). Such officer status shall be determined pursuant to the executive compensation disclosure rules under the Exchange Act. (t) "Nonstatutory Stock Option" means an Option not intended to ------------------------- qualify as an Incentive Stock Option, as designated in the applicable Option Agreement. (u) "Option" means a stock option granted pursuant to the Plan. ------ (v) "Option Agreement" means a written document, the form(s) of which ---------------- shall be approved from time to time by the Administrator, reflecting the terms of an Option granted under the Plan and includes any documents attached to or incorporated into such Option Agreement, including, but not limited to, a notice of stock option grant and a form of exercise notice. (w) "Option Exchange Program" means a program approved by the ----------------------- Administrator whereby outstanding Options are exchanged for Options with a lower exercise price. (x) "Optioned Stock" means the Common Stock subject to an Option or a -------------- Stock Purchase Right. (y) "Optionee" means an Employee or Consultant who receives an Option. -------- (z) "Parent" means a "parent corporation," whether now or hereafter ------ existing, as defined in Section 424(e) of the Code, or any successor provision. (aa) "Participant" means any holder of one or more Options or Stock ----------- Purchase Rights, or the Shares issuable or issued upon exercise of such awards, under the Plan. (bb) "Plan" means this 1999 Stock Plan. ---- (cc) "Reporting Person" means an officer, Director, or greater than ---------------- ten percent stockholder of the Company within the meaning of Rule 16a-2 under the Exchange Act, who is required to file reports pursuant to Rule 16a-3 under the Exchange Act. (dd) "Restricted Stock" means Shares of Common Stock acquired pursuant ---------------- to a grant of a Stock Purchase Right under Section 11 below. (ee) "Restricted Stock Purchase Agreement" means a written document, ----------------------------------- the form(s) of which shall be approved from time to time by the Administrator, reflecting the terms of a Stock Purchase Right granted under the Plan and includes any documents attached to such agreement. (ff) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act, ---------- as amended from time to time, or any successor provision. -3- (gg) "Share" means a share of the Common Stock, as adjusted in ----- accordance with Section 14 of the Plan. (hh) "Stock Exchange" means any stock exchange or consolidated stock -------------- price reporting system on which prices for the Common Stock are quoted at any given time. (ii) "Stock Purchase Right" means the right to purchase Common Stock -------------------- pursuant to Section 11 below. (jj) "Subsidiary" means a "subsidiary corporation," whether now or ---------- hereafter existing, as defined in Section 424(f) of the Code, or any successor provision. (kk) "Ten Percent Holder" means a person who owns stock representing ------------------ more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary. 3. Stock Subject to the Plan. Subject to the provisions of Section 14 of ------------------------- the Plan, the maximum aggregate number of Shares that may be sold under the Plan is 9,700,000 Shares of Common Stock, plus (i) up to an aggregate of 7,600,000 Shares that (a) return to the Company's 1997 Stock Option Plan upon cancellation of outstanding options issued under that plan and (b) were Shares issued under the 1997 Stock Option Plan that the Company repurchases when the holder thereof terminates his or her service relationship with the Company, and (ii) an annual increase on the first day of each of the Company's fiscal years beginning in 2001 through 2009 equal to the greater of (x) 4,000,000 Shares, or (y) six percent (6%) of the Shares outstanding on the last day of the immediately preceding fiscal year. Notwithstanding the above, the maximum aggregate number of Shares that may be sold under the Plan during its term (as set forth in Section 6 below) is 62,300,000 Shares. The Shares may be authorized, but unissued, or reacquired Common Stock. If an award should expire or become unexercisable for any reason without having been exercised in full, or is surrendered pursuant to an Option Exchange Program, the unpurchased Shares that were subject thereto shall, unless the Plan shall have been terminated, become available for future grant under the Plan. In addition, any Shares of Common Stock which are retained by the Company upon exercise of an Option or Stock Purchase Right in order to satisfy the exercise or purchase price for such Option or Stock Purchase Right or any withholding taxes due with respect to such exercise or purchase shall be treated as not issued and shall continue to be available under the Plan. Shares issued under the Plan and later repurchased by the Company pursuant to any repurchase right which the Company may have shall not be available for future grant under the Plan. 4. Administration of the Plan. -------------------------- (a) General. The Plan shall be administered by the Board or a ------- Committee, or a combination thereof, as determined by the Board. The Plan may be administered by different administrative bodies with respect to different classes of Participants and, if permitted by the Applicable Laws, the Board may authorize one or more officers to grant Options or Stock Purchase Rights to Employees and Consultants. -4- (b) Committee Composition. If a Committee has been appointed pursuant --------------------- to this Section 4, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. From time to time the Board may increase the size of any Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies (however caused) and remove all members of a Committee and thereafter directly administer the Plan, all to the extent permitted by the Applicable Laws and, in the case of a Committee administering the Plan in accordance with the requirements of Rule 16b-3 or Section 162(m) of the Code, to the extent permitted or required by such provisions. (d) Powers of the Administrator. Subject to the provisions of the --------------------------- Plan and in the case of a Committee, the specific duties delegated by the Board to such Committee, the Administrator shall have the authority, in its discretion: (i) to determine the Fair Market Value of the Common Stock, in accordance with Section 2(p) of the Plan; (ii) to select the Employees and Consultants to whom Options and Stock Purchase Rights or any combination thereof may from time to time be granted; (iii) to determine whether and to what extent Options and Stock Purchase Rights or any combination thereof are granted; (iv) to determine the number of Shares of Common Stock to be covered by each such award granted; (v) to approve forms of agreement for use under the Plan; (vi) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any award granted hereunder, which terms and conditions include but are not limited to the exercise or purchase price, the time or times when Options or Stock Purchase Rights may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Option, Optioned Stock, Stock Purchase Right or Restricted Stock, based in each case on such factors as the Administrator, in its sole discretion, shall determine; (vii) to determine whether and under what circumstances an Option may be settled in cash under Section 10(f) instead of Common Stock; (viii) to implement an Option Exchange Program on such terms and conditions as the Administrator in its discretion deems appropriate, provided however that no amendment or adjustment to an Option that would materially and adversely affect the rights of any Optionee shall be made without the prior written consent of the Optionee; (ix) to determine the terms and restrictions applicable to Stock Purchase Rights and the Restricted Stock purchased by exercising such Stock Purchase Rights; -5- (x) to construe and interpret the terms of the Plan and awards granted under the Plan, which constructions, interpretations, and decisions shall be final and binding on all Participants; and (xi) in order to fulfill the purposes of the Plan and without amending the Plan, to modify grants of Options or Stock Purchase Rights to Participants who are foreign nationals or employed outside of the United States in order to recognize differences in local law, tax policies or customs. 5. Eligibility. ----------- (a) Recipients of Grants. Nonstatutory Stock Options and Stock -------------------- Purchase Rights may be granted to Employees and Consultants. Incentive Stock Options may be granted only to Employees, provided however that Employees of Affiliates shall not be eligible to receive Incentive Stock Options. (b) Type of Option. Each Option shall be designated in Option -------------- Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designations, to the extent that the aggregate Fair Market Value of Shares with respect to which Options designated as Incentive Stock Options are exercisable for the first time by any Optionee during any calendar year (under all plans of the Company or any Parent or Subsidiary) exceeds $100,000, such excess Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 5(b), Incentive Stock Options shall be taken into account in the order in which they were granted, and the Fair Market Value of the Shares subject to an Incentive Stock Option shall be determined as of the date of the grant of such Option. (c) No Employment Rights. The Plan shall not confer upon any -------------------- Participant any right with respect to continuation of an employment or consulting relationship with the Company, nor shall it interfere in any way with such Participant's right or the Company's right to terminate his or her employment or consulting relationship at any time, with or without cause. 6. Term of Plan. The Plan shall become effective upon its adoption by the ------------ Board. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 15 of the Plan. 7. Term of Option. The term of each Option shall be the term stated in -------------- the Option Agreement; provided however that the term shall be no more than ten (10) years from the date of grant thereof or such shorter term as may be provided in the Option Agreement and provided further that, in the case of an Incentive Stock Option granted to a person who at the time of such grant is a Ten Percent Holder, the term of the Option shall be five (5) years from the date of grant thereof or such shorter term as may be provided in the Option Agreement. 8. Limitation on Grants to Employees. Subject to adjustment as provided --------------------------------- in Section 14 below, the maximum number of Shares that may be subject to Options and Stock Purchase Rights granted to any one Employee under the Plan during a single fiscal year of the Company shall be 5,000,000. -6- 9. Option 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 such price as is determined by the Administrator and set forth in the Option Agreement, but shall be subject to the following: (i) In the case of an Incentive Stock Option (A) granted to an Employee who at the time of grant is a Ten Percent Holder, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant; or (B) granted to any other Employee, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant. (ii) In the case of a Nonstatutory Stock Option, the per Share exercise price shall be such price as is determined by the Administrator; provided however that in the case of a Nonstatutory Stock option granted to a person who, at the time of the grant of such Option, is a Named Executive of the Company, the per Share Exercise Price shall be no less than 100% of the Fair Market Value on the date of grant if such Option is intended to qualify as performance-based compensation under Section 162(m) of the Code and if not so intended shall be such price as is determined by the Administrator. (iii) Notwithstanding the foregoing, Options may be granted with a per Share exercise price other than as required above pursuant to a merger or other corporate transaction. (b) Permissible Consideration. The consideration to be paid for the ------------------------- Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined at the time of grant) and may consist entirely of (1) cash; (2) check; (3) delivery of Optionee's promissory note with such recourse, interest, security and redemption provisions as the Administrator determines to be appropriate (subject, if applicable, to the provisions of Section 153 of the Delaware General Corporation Law); (4) cancellation of indebtedness; (5) other Shares that (x) in the case of Shares acquired upon exercise of an Option either have been owned by the Optionee for more than six months on the date of surrender (or such other period as may be required to avoid a charge to the Company's earnings) or were not acquired, directly or indirectly, from the Company, and (y) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which the Option is exercised; (6) 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 required to pay the exercise price and any applicable withholding taxes; or (7) any combination of the foregoing methods of payment. In making its determination as to the type of consideration to accept, the Administrator shall consider if acceptance of such consideration may be reasonably expected to benefit the Company and the Administrator may refuse to accept a particular form of consideration at the time of any Option -7- exercise if, in its sole discretion, acceptance of such form of consideration is not in the best interests of the Company at such time. 10. Exercise of Option. ------------------ (a) General. ------- (i) Exercisability. Any Option granted hereunder shall be -------------- exercisable at such times and under such conditions as determined by the Administrator, consistent with the terms of the Plan, and reflected in the Option Agreement, including vesting requirements and/or performance criteria with respect to the Company and/or the Optionee. The Administrator shall have the discretion to determine whether and to what extent the vesting of Options shall be tolled during any unpaid leave of absence; provided that in the absence of such determination, vesting shall be tolled during an unpaid leave. (ii) Fractional Shares. An Option may not be exercised for a ----------------- fraction of a Share. (iii) Procedures for and Results of Exercise. An Option shall be -------------------------------------- deemed 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 the Company has received full payment for the Shares with respect to which the Option is exercised. Full payment may, as authorized by the Administrator, consist of any consideration and method of payment allowable under Section 9(b) of the Plan; provided that the Administrator may refuse to accept any form of consideration if, at the time of exercise, the Administrator determines in its sole discretion that acceptance of such form of consideration is not in the best interests of the Company at that time. Exercise of an Option in any manner shall result in a decrease in the number of Shares that 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. (iv) Rights as Stockholder. Until the issuance (as evidenced by --------------------- the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the Shares, no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Stock, notwithstanding the 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 14 of the Plan. (b) Termination of Employment or Consulting Relationship. In the ---------------------------------------------------- event of termination of an Optionee's Continuous Service Status, such Optionee may, but only within three (3) months (or such other period of time as is determined by the Administrator, with such determination in the case of an Incentive Stock Option being made at the time of grant of the Option) after the date of such termination (but in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), exercise his or her Option to the extent that the Optionee was entitled to exercise it at the date of such termination. To the extent that the Optionee was not entitled to exercise the Option at the date of such termination, or if the -8- Optionee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate. No termination shall be deemed to occur and this Section 10(b) shall not apply if (i) the Optionee is a Consultant who becomes an Employee; or (ii) the Optionee is an Employee who becomes a Consultant. (c) Disability of Optionee. Notwithstanding Section 10(b) above, in ---------------------- the event of termination of an Optionee's Continuous Service Status as a result of his or her total and permanent disability (within the meaning of Section 22(e)(3) of the Code), Optionee may, but only within twelve (12) months (or such other period of time as is determined by the Administrator, with such determination in the case of an Incentive Stock Option made at the time of grant of the Option) from the date of such termination (but in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), exercise the Option to the extent otherwise entitled to exercise it at the date of such termination. To the extent that Optionee was not entitled to exercise the Option at the date of termination, or if Optionee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate. (d) Death of Optionee. Notwithstanding Section 10(b) above, in the ----------------- event of the death of an Optionee during the period of Continuous Service Status since the date of grant of the Option, or within thirty (30) days following termination of Optionee's Continuous Service Status, the Option may be exercised, at any time within twelve (12) months (or such other period of time as is determined by the Administrator, with such determination in the case of an Incentive Stock Option made at the time of grant of the Option) following the date of death (but in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), by 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, if earlier, the date of termination of Optionee's Continuous Service Status. To the extent that Optionee was not entitled to exercise the Option at the date of death or termination, as the case may be, or if the person entitled to exercise the Option does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate. (e) Extension of Exercise Period. The Administrator shall have full ---------------------------- power and authority to extend the period of time for which an Option is to remain exercisable following termination of an Optionee's Continuous Service Status from the periods set forth in Sections 10(b), 10(c) and 10(d) above or in the Option Agreement to such greater time as the Administrator shall deem appropriate, provided that in no event shall such Option be exercisable later than the date of expiration of the term of such Option as set forth in the Option Agreement. (f) Buyout Provisions. The Administrator may at any time offer to buy ----------------- out for a payment in cash or Shares an Option previously granted under the Plan based on such terms and conditions as the Administrator shall establish and communicate to the Optionee at the time that such offer is made. 11. Stock Purchase Rights. --------------------- (a) Rights to Purchase. After the Administrator determines that it ------------------ will offer Stock Purchase Rights under the Plan, it shall advise the offeree in writing of the terms, -9- conditions and restrictions related to the offer, including the number of Shares that such person shall be entitled to purchase, the price to be paid, and the time within which such person must accept such offer. The purchase price of Shares subject to Stock Purchase Rights shall be as determined by the Administrator in accordance with the Applicable Laws. The offer to purchase Shares subject to Stock Purchase Rights shall be accepted by execution of a Restricted Stock Purchase Agreement in the form determined by the Administrator. (b) Repurchase Option. Unless the Administrator determines otherwise, ----------------- the Restricted Stock Purchase Agreement shall grant the Company a repurchase option exercisable upon the voluntary or involuntary termination of the purchaser's employment or consulting relationship with the Company for any reason (including death or disability). The purchase price for Shares repurchased pursuant to the Restricted Stock Purchase Agreement shall be the original purchase price paid by the purchaser and may be paid by cash or cancellation of any indebtedness of the purchaser to the Company. The repurchase option shall lapse at such rate as the Administrator may determine in accordance with the Applicable Laws. (c) Other Provisions. The Restricted Stock Purchase Agreement shall ---------------- contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Administrator in its sole discretion. In addition, the provisions of Restricted Stock Purchase Agreements need not be the same with respect to each purchaser. (d) Rights as a Stockholder. Once the Stock Purchase Right is ----------------------- exercised, the purchaser shall have the rights equivalent to those of a stockholder, and shall be a stockholder when his or her purchase is entered upon the records of the duly authorized transfer agent of the Company. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Stock Purchase Right is exercised, except as provided in Section 14 of the Plan. 12. Taxes. ----- (a) As a condition of the exercise of an Option or Stock Purchase Right granted under the Plan, the Participant (or in the case of the Participant's death, the person exercising the Option or Stock Purchase Right) shall make such arrangements as the Administrator may require for the satisfaction of any applicable federal, state, local or foreign withholding tax obligations that may arise in connection with the exercise of Option or Stock Purchase Right and the issuance of Shares. The Company shall not be required to issue any Shares under the Plan until such obligations are satisfied. If the Administrator allows the withholding or surrender of Shares to satisfy a Participant's tax withholding obligations under this Section 12 (whether pursuant to Section 12(c), (d) or (e), or otherwise), the Administrator shall not allow Shares to be withheld in an amount that exceeds the minimum statutory withholding rates for federal and state tax purposes, including payroll taxes. (b) In the case of an Employee and in the absence of any other arrangement, the Employee shall be deemed to have directed the Company to withhold or collect from his or her compensation an amount sufficient to satisfy such tax obligations from the next payroll payment otherwise payable after the date of an exercise of the Option or Stock Purchase Right. -10- (c) This Section 12(c) shall apply only after the date, if any, upon which the Common Stock becomes a Listed Security. In the case of Participant other than an Employee (or in the case of an Employee where the next payroll payment is not sufficient to satisfy such tax obligations, with respect to any remaining tax obligations), in the absence of any other arrangement and to the extent permitted under the Applicable Laws, the Participant shall be deemed to have elected to have the Company withhold from the Shares to be issued upon exercise of the Option or Stock Purchase Right that number of Shares having a Fair Market Value determined as of the applicable Tax Date (as defined below) equal to the amount required to be withheld. For purposes of this Section 12, the Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined under the Applicable Laws (the "Tax Date"). -------- (d) If permitted by the Administrator, in its discretion, a Participant may satisfy his or her tax withholding obligations upon exercise of an Option or Stock Purchase Right by surrendering to the Company Shares that have a Fair Market Value determined as of the applicable Tax Date equal to the amount required to be withheld. In the case of Shares previously acquired from the Company that are surrendered under this Section 12(d), such Shares must have been owned by the Participant for more than six (6) months on the date of surrender. (e) Any election or deemed election by a Participant to have Shares withheld to satisfy tax withholding obligations under Section 12(c) or (d) above shall be irrevocable as to the particular Shares as to which the election is made and shall be subject to the consent or disapproval of the Administrator. Any election by a Participant under Section 12(d) above must be made on or prior to the applicable Tax Date. (f) In the event an election to have Shares withheld is made by a Participant and the Tax Date is deferred under Section 83 of the Code because no election is filed under Section 83(b) of the Code, the Participant shall receive the full number of Shares with respect to which the Option or Stock Purchase Right is exercised but such Participant shall be unconditionally obligated to tender back to the Company the proper number of Shares on the Tax Date. 13. Non-Transferability of Options and Stock Purchase Rights. Options and -------------------------------------------------------- Stock Purchase Rights may not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner other than by will or by the laws of descent or distribution; provided that the Administrator may in its discretion and to the extent permitted by the Applicable Laws grant transferable Nonstatutory Stock Options pursuant to Option Agreements specifying (i) the manner in which such Nonstatutory Stock Options are transferable and (ii) that any such transfer shall be subject to the Applicable Laws. The designation of a beneficiary by an Optionee will not constitute a transfer. An Option or Stock Purchase Right may be exercised, during the lifetime of the holder of Option or Stock Purchase Right, only by such holder or a transferee permitted by this Section 13. 14. Adjustments Upon Changes in Capitalization, Merger or Certain Other ------------------------------------------------------------------- Transactions. - ------------ -11- (a) Changes in Capitalization. Subject to any required action by the ------------------------- stockholders of the Company, the number of Shares of Common Stock covered by each outstanding Option or Stock Purchase Right, each of the Share numbers set forth in Sections 3 and 8 above, and the number of Shares of Common Stock that have been authorized for issuance under the Plan but as to which no Options or Stock Purchase Rights have yet been granted or that have been returned to the Plan upon cancellation or expiration of an Option or Stock Purchase Right, as well as the price per Share of Common Stock covered by each such outstanding Option or Stock Purchase Right, shall be proportionately adjusted for any increase or decrease in the number of issued Shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination, recapitalization or reclassification of the Common Stock, or any other increase or decrease in the number of issued Shares of Common Stock effected without receipt of consideration by the Company; provided however that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Administrator, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares of Common Stock subject to an Option or Stock Purchase Right. (b) Dissolution or Liquidation. In the event of the proposed -------------------------- dissolution or liquidation of the Company, the Board shall notify the Optionee at least fifteen (15) days prior to such proposed action. To the extent it has not been previously exercised, the Option or Stock Purchase Right will terminate immediately prior to the consummation of such proposed action. (c) Corporate Transaction. In the event of a Corporate Transaction, --------------------- each outstanding Option or Stock Purchase Right shall be assumed or an equivalent option or right shall be substituted by the Company's successor corporation or a parent or subsidiary of such successor corporation (the "Successor Corporation"), unless the successor corporation does not agree to - ---------------------- assume the Options or Stock Purchase Rights or to substitute an equivalent option or right, in which case such Options or Stock Purchase Rights shall terminate upon the consummation of the transaction. For purposes of this Section 14(c), an Option or a Stock Purchase Right shall be considered assumed, without limitation, if, at the time of issuance of the stock or other consideration upon a Corporate Transaction or a Change of Control, as the case may be, each holder of an Option or Stock Purchase Right would be entitled to receive upon exercise of the award 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 such transaction, the holder of the number of Shares of Common Stock covered by the award at such time (after giving effect to any adjustments in the number of Shares covered by the Option or Stock Purchase Right as provided for in this Section 14); provided that if such consideration received in the transaction is not solely common stock of the Successor Corporation, the Administrator may, with the consent of the Successor Corporation, provide for the consideration to be received upon exercise of the award to be solely common stock of the Successor Corporation equal to the Fair Market Value of the per Share consideration received by holders of Common Stock in the transaction. -12- (d) 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 or Stock Purchase Right to reflect the effect of such distribution. 15. Time of Granting Options and Stock Purchase Rights. The date of grant -------------------------------------------------- of an Option or Stock Purchase Right shall, for all purposes, be the date on which the Administrator makes the determination granting such Option or Stock Purchase Right, or such other date as is determined by the Administrator; provided however that in the case of any Incentive Stock Option, the grant date shall be the later of the date on which the Administrator makes the determination granting such Incentive Stock Option or the date of commencement of the Optionee's employment relationship with the Company. Notice of the determination shall be given to each Employee or Consultant to whom an Option or Stock Purchase Right is so granted within a reasonable time after the date of such grant. 16. Amendment and Termination of the Plan. ------------------------------------- (a) Authority to Amend or Terminate. The Board may at any time amend, ------------------------------- alter, suspend or discontinue the Plan, but no amendment, alteration, suspension or discontinuation (other than an adjustment pursuant to Section 14 above) shall be made that would materially and adversely affect the rights of any Participant, without his or her consent. In addition, to the extent necessary and desirable to comply with the Applicable Laws, the Company shall obtain stockholder approval of any Plan amendment in such a manner and to such a degree as required. (b) Effect of Amendment or Termination. No amendment or termination ---------------------------------- of the Plan shall materially and adversely affect Options or Stock Purchase Rights already granted, unless mutually agreed otherwise between the Participant and the Administrator, which agreement must be in writing and signed by the Participant and the Company. 17. 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 Applicable Laws, with such compliance determined by the Company in consultation with its legal counsel. As a condition to the exercise of an Option or Stock Purchase Right, the Company may require the person exercising such Option or Stock Purchase Right to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by law. 18. 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. -13- 19. Agreements. Options and Stock Purchase Rights shall be evidenced by ---------- Option Agreements and Restricted Stock Purchase Agreements, respectively, in such form(s) as the Administrator shall from time to time approve. 20. Stockholder Approval. If required by the Applicable Laws, continuance -------------------- of the Plan shall be subject to approval by the stockholders of the Company within twelve (12) months before or after the date the Plan is adopted. Such stockholder approval shall be obtained in the manner and to the degree required under the Applicable Laws. -14- REPLAYTV, INC. 1999 STOCK PLAN NOTICE OF STOCK OPTION GRANT ---------------------------- ((Optionee)) You have been granted an option to purchase Common Stock "Common Stock" of ------------ ReplayTV, Inc. (the "Company") as follows: -------
Board Approval Date: ((BoardApprovalDate)) Date of Grant (Later of Board Approval Date or Commence- ment of Employment/Consulting): ((GrantDate)) Vesting Commencement Date: ((VestingCommenceDate)) Exercise Price per Share: $((ExercisePrice)) Total Number of Shares Granted: ((NoofShares)) Total Exercise Price: $((TotalExercisePrice)) Type of Option: ((ISOAmount)) Incentive Stock Option)) ((NSOAmount)) Nonstatutory Stock Option)) Term/Expiration Date: ((ExpirDate)) Vesting Schedule: This Option may be exercised, in whole or in part, in accordance with the following schedule: ((CliffVestAmount)) of the Shares subject to the Option shall vest on the ((CliffMonthNumber)) month anniversary of the Vesting Commencement Date and 1/((TotalVestingMonths)) of the total number of Shares subject to the Option shall vest each month thereafter. Termination Period: This Option may be exercised for 30 days after termination of employment or consulting relationship except as set out in Sections 6 and 7 of the Stock Option Agreement (but in no event later than the Expiration Date).
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 1999 Stock Plan and the Stock Option Agreement, both of which are attached and made a part of this document. ((Optionee)): ReplayTV, Inc. - --------------------------- By: Signature ---------------------------- - --------------------------- ---------------------------- Print Name Print Name and Title -2- REPLAYTV, INC. 1999 STOCK PLAN STOCK OPTION AGREEMENT ---------------------- 1. Grant of Option. ReplayTV, Inc., a California corporation (the --------------- "Company"), hereby grants to Optionee~ ("Optionee"), an option (the "Option") to - ------- -------- ------ purchase a total number of shares of Common Stock (the "Shares") 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, -------------- definitions and provisions of the ReplayTV, Inc.1999 Stock Plan (the "Plan") ---- adopted by the Company, which is incorporated herein by reference. Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Option. If designated an Incentive Stock Option, this Option is intended to qualify as an Incentive Stock Option as defined in Section 422 of the Code. 2. Exercise of Option. This Option shall be exercisable during its Term ------------------ in accordance with the Vesting Schedule set out in the Notice of Stock Option Grant and with the provisions of Section 9 of the Plan as follows: (a) Right to Exercise. ----------------- (i) This Option may not be exercised for a fraction of a share. (ii) In the event of Optionee's death, disability or other termination of employment, the exercisability of the Option is governed by Sections 5, 6 and 7 below, subject to the limitation contained in Section 2(a)(i). (iii) In no event may this Option be exercised after the Expiration Date of this Option as set forth in the Notice of Stock Option Grant. (b) Method of Exercise. This Option shall be exercisable by execution ------------------ and delivery of the Exercise Notice and Restricted Stock Purchase Agreement attached hereto as Exhibit A (the "Exercise Agreement") or of any other form of --------- ------------------ written notice approved for such purpose by the Company which shall state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised, and such other representations and agreements as to the holder's investment intent with respect to such shares of Common Stock as may be required by the Company pursuant to the provisions of the Plan. Such written notice shall be signed by Optionee and shall be delivered in person or by certified mail to the Secretary of the Company. The written notice shall be accompanied by payment of the Exercise Price. This Option shall be deemed to be exercised upon receipt by the Company of such written notice accompanied by the Exercise Price. -3- No Shares will be issued pursuant to the exercise of an Option unless such issuance and such exercise shall comply with all relevant provisions of applicable law and the requirements of any stock exchange upon which the Shares may then be listed. Assuming such compliance, for income tax purposes the Shares shall be considered transferred to Optionee on the date on which the Option is exercised with respect to such Shares. 3. Method of Payment. Payment of the Exercise Price shall be by cash, ----------------- check or any other method permitted under the Plan; provided however that the Administrator may refuse to allow Optionee to tender a particular form of payment (other than cash or check) if, in the Administrator's sole discretion, acceptance of such form of consideration would not be in the best interests of the Company at such time. 4. Restrictions on Exercise. This Option may not be exercised until such ------------------------ time as the Plan has been approved by the shareholders of the Company, or if the issuance of such Shares upon such exercise or the method of payment of consideration for such shares would constitute a violation of any applicable federal or state securities or other law or regulation, including any rule under Part 207 of Title 12 of the Code of Federal Regulations as promulgated by the Federal Reserve Board. As a condition to the exercise of this Option, the Company may require Optionee to make any representation and warranty to the Company as may be required by any applicable law or regulation. 5. Termination of Relationship. In the event of termination of --------------------------- Optionee's Continuous Status as an Employee or Consultant, Optionee may, to the extent otherwise so entitled at the date of such termination (the "Termination ----------- Date"), exercise this Option during the Termination Period set forth in the - ---- Notice of Stock Option Grant. To the extent that Optionee was not entitled to exercise this Option at such Termination Date, or if Optionee does not exercise this Option within the Termination Period, the Option shall terminate. 6. Disability of Optionee. ---------------------- (a) Notwithstanding the provisions of Section 5 above, in the event of termination of Optionee's Continuous Status as an Employee or Consultant as a result of Optionee's total and permanent disability (as defined in Section 22(e)(3) of the Code), Optionee may, but only within twelve months from the Termination Date (but in no event later than the Expiration Date set forth in the Notice of Stock Option Grant), exercise this Option to the extent Optionee was entitled to exercise it as of such Termination Date. To the extent that Optionee was not entitled to exercise the Option as of the Termination Date, or if Optionee does not exercise such Option (to the extent so entitled) within the time specified in this Section 6(a), the Option shall terminate. (b) Notwithstanding the provisions of Section 5 above, in the event of termination of Optionee's consulting relationship or Continuous Status as an Employee as a result of disability not constituting a total and permanent disability (as set forth in Section 22(e)(3) of the Code), Optionee may, but only within six months from the Termination Date (but in no event later than the Expiration Date set forth in the Notice of Stock Option Grant), exercise the Option to the extent Optionee was entitled to exercise it as of such Termination Date; -4- provided, however, that if this is an Incentive Stock Option and Optionee fails to exercise this Incentive Stock Option within three months from the Termination Date, this Option will cease to qualify as an Incentive Stock Option (as defined in Section 422 of the Code) and Optionee will be treated for federal income tax purposes as having received ordinary income at the time of such exercise in an amount generally measured by the difference between the Exercise Price for the Shares and the Fair Market Value of the Shares on the date of exercise. To the extent that Optionee was not entitled to exercise the Option at the Termination Date, or if Optionee does not exercise such Option to the extent so entitled within the time specified in this Section 6(b), the Option shall terminate. 7. Death of Optionee. In the event of the death of Optionee (a) during ----------------- the Term of this Option and while an Employee or Consultant of the Company and having been in Continuous Status as an Employee or Consultant since the date of grant of the Option, or (b) within 30 days after Optionee's Termination Date, the Option may be exercised at any time within six months following the date of death (but in no event later than the Expiration Date set forth in the Notice of Stock Option Grant), by 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 Termination Date. 8. Non-Transferability of Option. This Option may not be transferred in ----------------------------- any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by him or her. The terms of this Option shall be binding upon the executors, administrators, heirs, successors and assigns of Optionee. 9. Term of Option. This Option may be exercised only within the Term set -------------- forth in the Notice of Stock Option Grant, subject to the limitations set forth in Section 7 of the Plan. 10. Tax Consequences. Set forth below is a brief summary as of the date ---------------- of this Option of certain of the federal and California tax consequences of exercise of this Option and disposition of the Shares under the laws 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 A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES. (a) Exercise of Incentive Stock Option. If this Option qualifies as ---------------------------------- an Incentive Stock Option, there will be no regular federal or California income tax liability upon the exercise of the Option, although the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price will be treated as an adjustment to the alternative minimum tax for federal tax purposes and may subject Optionee to the alternative minimum tax in the year of exercise. (b) Exercise of Nonstatutory Stock Option. If this Option does not ------------------------------------- qualify as an Incentive Stock Option, there may be a regular federal income tax liability and a California income tax liability upon the exercise of the Option. Optionee will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price. If Optionee is an -5- employee, the Company will be required to withhold from Optionee's compensation or collect from Optionee and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income at the time of exercise. (c) Disposition of Shares. In the case of a Nonstatutory Stock --------------------- Option, if Shares are held for more than one year, any gain realized on disposition of the Shares will be treated as long-term capital gain for federal and California income tax purposes. In the case of an Incentive Stock Option, if Shares transferred pursuant to the Option are held for more than one year after exercise and are disposed of at least two years after the Date of Grant, any gain realized on disposition of the Shares will also be treated as long-term capital gain for federal and California income tax purposes. In either case, the 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. If Shares purchased under an Incentive Stock Option are disposed of within one year after exercise or within two years after the Date of Grant, any gain realized on such disposition will be treated as compensation income (taxable at ordinary income rates) to the extent of the difference between the Exercise Price and the lesser of (i) the Fair Market Value of the Shares on the date of exercise, or (ii) the sale price of the Shares. (d) Notice of Disqualifying Disposition of Incentive Stock Option ------------------------------------------------------------- Shares. If the Option granted to Optionee herein is an Incentive Stock Option, - ------ and if Optionee sells or otherwise disposes of any of the Shares acquired pursuant to the Incentive Stock Option on or before the later of (i) the date two years after the Date of Grant, or (ii) the date one year after the date of exercise, Optionee shall immediately notify the Company in writing of such disposition. Optionee acknowledges and agrees that he or she may be subject to income tax withholding by the Company on the compensation income recognized by Optionee from the early disposition by payment in cash or out of the current earnings paid to Optionee. 11. Withholding Tax Obligations. --------------------------- (a) General Withholding Obligations. As a condition to the exercise ------------------------------- of Option granted hereunder, Optionee shall make such arrangements as the Administrator may require for the satisfaction of any federal, state, local or foreign withholding tax obligations that may arise in connection with the exercise, receipt or vesting of the Option. The Company shall not be required to issue any Shares under the Plan until such obligations are satisfied. Optionee understands that, upon exercising a Nonstatutory Stock Option, he or she will recognize income for tax purposes in an amount equal to the excess of the then Fair Market Value of the Shares over the Exercise Price. If Optionee is an employee, the Company will be required to withhold from Optionee's compensation, or collect from Optionee and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income. Additionally, Optionee may at some point be required to satisfy tax withholding obligations with respect to the disqualifying disposition of an Incentive Stock Option. Optionee shall satisfy his or her tax withholding obligation arising upon the exercise of this Option by one or some combination of the following methods: (i) by cash or check payment, (ii) out of Optionee's current compensation, (iii) if permitted by the Administrator, in its discretion, by surrendering to the Company Shares which (A) in the case of Shares previously acquired from the Company, have -6- been owned by Optionee for more than six months on the date of surrender, and (B) have a Fair Market Value determined as of the applicable Tax Date (as defined in Section 11(c) below) on the date of surrender equal to the amount required to be withheld, or (iv) by electing to have the Company withhold from the Shares to be issued upon exercise of the Option that number of Shares having a Fair Market Value determined as of the applicable Tax Date equal to the amount required to be withheld. (b) Stock Withholding to Satisfy Withholding Tax Obligations. In the -------------------------------------------------------- event the Administrator allows Optionee to satisfy his or her tax withholding obligations as provided in Section 11(a)(iii) or (iv) above, such satisfaction must comply with the requirements of this Section (11)(b) and all applicable laws. All elections by Optionee to have Shares withheld to satisfy tax withholding obligations shall be made in writing in a form acceptable to the Administrator and shall be subject to the following restrictions: (i) the election must be made on or prior to the applicable Tax Date (as defined in Section 11(c) below); (ii) once made, the election shall be irrevocable as to the particular Shares of the Option as to which the election is made; and (iii) all elections shall be subject to the consent or disapproval of the Administrator. In the event the election to have Shares withheld is made by Optionee and the Tax Date is deferred under Section 83 of the Code because no election is filed under Section 83(b) of the Code, Optionee shall receive the full number of Shares with respect to which the Option is exercised but Optionee shall be unconditionally obligated to tender back to the Company the proper number of Shares on the Tax Date. (c) Definitions. For purposes of this Section 11, the Fair Market ----------- Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined under the applicable laws (the "Tax Date"). -------- 12. 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 such underwritten offering of the Company's securities, Optionee agrees 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 (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 Company's initial public offering. [Signature Page Follows] -7- 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 document. REPLAYTV, INC. By: ------------------------------- ------------------------------- (Print name and title) OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE OPTION HEREOF IS EARNED ONLY BY CONTINUING EMPLOYMENT OR CONSULTANCY AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S STOCK OPTION PLAN WHICH IS INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT CAUSE. Optionee acknowledges receipt of a copy of the Plan and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts this Option subject to all of the terms and provisions thereof. Optionee has reviewed the Plan and this Option in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option and fully understands all provisions of the Option. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan or this Option. Dated: ________________________ ______________________________ ((Optionee)) -8- EXHIBIT A --------- REPLAYTV, INC. 1999 STOCK PLAN EXERCISE NOTICE AND RESTRICTED STOCK PURCHASE AGREEMENT ------------------------------------------------------- This Agreement ("Agreement") is made as of ______________, by and between --------- ReplayTV, Inc., a California corporation (the "Company"), and ((Optionee)) ------- ("Purchaser"). To the extent any capitalized terms used in this Agreement are - ----------- not defined, they shall have the meaning ascribed to them in the 1999 Stock Plan. 1. Exercise of Option. Subject to the terms and conditions hereof, ------------------ Purchaser hereby elects to exercise his or her option to purchase __________ shares of the Common Stock (the "Shares") of the Company under and pursuant to ------ the Company's 1999 Stock Plan (the "Plan") and the Stock Option Agreement dated ---- ______________, (the "Option Agreement"). The purchase price for the Shares ---------------- shall be ((ExercisePrice)) per Share for a total purchase price of $_______________. The term "Shares" refers to the purchased Shares and all ------ securities received in replacement of the Shares or as 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. Time and Place of Exercise. The purchase and sale of the Shares under -------------------------- this Agreement shall occur at the principal office of the Company simultaneously with the execution and delivery of this Agreement in accordance with the provisions of Section 2(b) of the Option Agreement. On such 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 exercise price therefor by Purchaser by (a) check made payable to the Company, (b) cancellation of indebtedness of the Company to Purchaser, (c) delivery of shares of the Common Stock of the Company in accordance with Section 3 of the Option Agreement, or (d) 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 except in compliance with the provisions below and applicable securities laws. (a) 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(a) (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: (i) the Holder's bona fide -9- intention to sell or otherwise transfer such Shares; (ii) the name of each proposed purchaser or other transferee ("Proposed Transferee"); ------------------- (iii) the number of Shares to be transferred to each Proposed Transferee; and (iv) the 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 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(a) shall be the Offered Price. If the Offered Price includes consideration other than cash, the cash equivalent value of the non-cash consideration shall be determined by the Board of Directors of the Company in good faith. (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 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(a), 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 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(a) 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 (as defined below) or a trust for the benefit of Purchaser's Immediate Family shall be exempt from the provisions of this Section 3(a). "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 -10- provisions of this Section, and there shall be no further transfer of such Shares except in accordance with the terms of this Section 3. (b) 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 divorce or death, but excluding, in the event of death, a transfer to Immediate Family as set forth in Section 3(a)(vi) above) of all or a portion of the Shares by the record holder thereof, the Company shall have the right 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 Shares shall be provided to the Company for a period of 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(b)(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 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. (c) 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. (d) 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. Any sale or transfer of the Shares shall be void unless the provisions of this Agreement are satisfied. (e) Termination of Rights. The Right of First Refusal and the --------------------- Company's right to repurchase the Shares in the event of an involuntary transfer pursuant to Section 3(b) 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"). -------------- (f) 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 such 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 -11- securities of the Company (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 Company's initial public offering. 4. 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 with the purchase or disposition of the Shares and that Purchaser is not relying on the Company for any tax advice. 5. 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): (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 -12- VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION 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) IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES. Purchaser understands that transfer of the Shares may be restricted by Section 260.141.11 of the Rules of the California Corporations Commissioner, a copy of which is attached to this Agreement. (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. (d) Removal of Legend. When all of the following events have ----------------- occurred, the Shares then held by Purchaser will no longer be subject to the legend referred to in Section 5(a)(ii): (i) the termination of the Right of First Refusal; and (ii) the expiration or termination of the market standoff provisions of Section 3(f) (and of any agreement entered pursuant to Section 3(f)). After such time, and upon Purchaser's request, a new certificate or certificates representing -13- the Shares not repurchased shall be issued without the legend referred to in Section 5(a)(ii), and delivered to Purchaser. 6. 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 or consulting relationship, for any reason, with or without cause. 7. 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. 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. (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 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 -14- 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] -15- The parties have executed this Exercise Notice and Restricted Stock Purchase Agreement as of the date first set forth above. COMPANY: ReplayTV, Inc. By: ________________________ Name:_______________________ (print) Title:______________________ 1945 Charleston Road Mountain View, CA 94043-1201 PURCHASER: ((OPTIONEE)) ____________________________ (Signature) Address: ____________________________ ____________________________ I, ______________________, spouse of ((Optione)), 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 bound irrevocably by the Agreement and further agree that any community property or similar interest that I may have in the Shares shall hereby 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. _________________________ Spouse of ((Optionee)) -16- STATE OF CALIFORNIA - CALIFORNIA ADMINISTRATIVE CODE ---------------------------------------------------- Title 10. Investment - Chapter 3.Commissioner of Corporations 260.141.11: Restriction on Transfer. ---------- ----------------------- (a) The issuer of any security upon which a restriction on transfer has been imposed pursuant to Sections 260.102.6, 260.141.10 or 260.534 shall cause a copy of this section to be delivered to each issuee or transferee of such security at the time the certificate evidencing the security is delivered to the issuee or transferee. (b) It is unlawful for the holder of any such security to consummate a sale or transfer of such security, or any interest therein, without the prior written consent of the Commissioner (until this condition is removed pursuant to Section 260.141.12 of these rules), except: (1) to the issuer; (2) pursuant to the order or process of any court; (3) to any person described in Subdivision (i) of Section 25102 of the Code or Section 260.105.14 of these rules; (4) to the transferor's ancestors, descendants or spouse, or any custodian or trustee for the account of the transferor or the transferor's ancestors, descendants, or spouse; or to a transferee by a trustee or custodian for the account of the transferee or the transferee's ancestors, descendants or spouse; (5) to holders of securities of the same class of the same issuer; (6) by way of gift or donation inter vivos or on death; (7) by or through a broker-dealer licensed under the Code (either acting as such or as a finder) to a resident of a foreign state, territory or country who is neither domiciled in this state to the knowledge of the broker- dealer, nor actually present in this state if the sale of such securities is not in violation of any securities law of the foreign state, territory or country concerned; (8) to a broker-dealer licensed under the Code in a principal transaction, or as an underwriter or member of an underwriting syndicate or selling group; (9) if the interest sold or transferred is a pledge or other lien given by the purchaser to the seller upon a sale of the security for which the Commissioner's written consent is obtained or under this rule not required; (10) by way of a sale qualified under Sections 25111, 25112, 25113 or 25121 of the Code, of the securities to be transferred, provided that no order under Section 25140 or Subdivision (a) of Section 25143 is in effect with respect to such qualification; (11) by a corporation to a wholly owned subsidiary of such corporation, or by a wholly owned subsidiary of a corporation to such corporation; (12) by way of an exchange qualified under Section 25111, 25112 or 25113 of the Code, provided that no order under Section 25140 or Subdivision (a) of Section 25143 is in effect with respect to such qualification; (13) between residents of foreign states, territories or countries who are neither domiciled nor actually present in this state; (14) to the State Controller pursuant to the Unclaimed Property Law or to the administrator of the unclaimed property law of another state; (15) by the State Controller pursuant to the Unclaimed Property Law or by the administrator of the unclaimed property law of another state if, in either such case, such person (i) discloses to potential purchasers at the sale that transfer of the securities is restricted under this rule, (ii) delivers to each purchaser a copy of this rule, and (iii) advises the Commissioner of the name of each purchaser; (16) by a trustee to a successor trustee when such transfer does not involve a change in the beneficial ownership of the securities; or (17) by way of an offer and sale of outstanding securities in an issuer transaction that is subject to the qualification requirement of Section 25110 of the Code but exempt from that qualification requirement by subdivision (f) of Section 25102; provided that any such transfer is on the condition that any certificate evidencing the security issued to such transferee shall contain the legend required by this section. (c) The certificates representing all such securities subject to such a restriction on transfer, whether upon initial issuance or upon any transfer thereof, shall bear on their face a legend, prominently stamped or printed thereon in capital letters of not less than 10-point size, reading as follows: "IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES." -17- EX-10.5 5 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 30, 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 6 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. 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 (including the number of Shares that may be added to the Plan each year under Section 3 above) 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-10.22 7 LEASE AGREEMENT DATED JANUARY 27, 1999 EXHIBIT 10.22 BLDG: Charleston 1 LEASE AGREEMENT OWNER: 500 PROP: 11 UNIT: 201 TENANT: 1103 THIS LEASE, made this 27th day of January, 1999 between JOHN ARRILLAGA, Trustee, or his Successor Trustee, UTA dated 7/20/77 (JOHN ARRILLAGA SURVIVOR'S TRUST) as amended, and RICHARD T. PEERY, Trustee, or his Successor Trustee, UTA dated 7/20/77 (RICHARD T. PEERY SEPARATE PROPERTY TRUST) as amended, hereinafter called Landlord, and REPLAY NETWORKS, INC., a California corporation, hereinafter called Tenant. WITNESSETH: Landlord hereby leases to Tenant and Tenant hereby hires and takes from Landlord those certain premises (the "Premises") outlined in red on Exhibit "A", attached hereto and incorporated herein by this reference thereto more particularly described as follows: A portion of that certain 61,000+ square foot, two-story building located - at 1945 Charleston Road, Suite 201, Mountain View, California 94043, consisting of approximately 32,078 + square feet on the first and second floors of the - building. Said Premises is more particularly shown within the area outlined in Red on Exhibit A attached hereto. The entire parcel, of which the Premises is a --------- part, is shown within the area outlined in Green on Exhibit A attached. The --------- Premises shall be improved by Landlord as shown on Exhibit B to be attached ------------ hereto, and is leased on an "as-is" basis, in its present condition, and in the configuration as shown in Red on Exhibit B to be attached hereto. --------- As used herein the Complex shall mean and include all of the land outlined in Green and described in Exhibit "A", attached hereto, and all of the buildings, improvements, fixtures and equipment now or hereafter situated on said land. Said letting and hiring is upon and subject to the terms, covenants and conditions hereinafter set forth and Tenant covenants as a material part of the consideration for this Lease to perform and observe each and all of said terms, covenants and conditions. This Lease is made upon the conditions of such performance and observance. 1. USE Tenant shall use the Premises only in conformance with applicable governmental laws, regulations, rules and ordinances for the purpose of general office, light manufacturing, research and development, and storage and other uses necessary for Tenant to conduct Tenant's business, provided that such uses shall be in accordance with all applicable governmental laws and ordinances and for no other purpose. Tenant shall not do or permit to be done in or about the Premises or the Complex nor bring or keep or permit to be brought or kept in or about the Premises or the Complex anything which is prohibited by or will in any way increase the existing rate of (or otherwise affect) fire or any insurance covering the Complex or any part thereof, or any of its contents, or will cause a cancellation of any insurance covering the Complex or any part thereof, or any of its contents. Tenant shall not do or permit to be done anything in, on or about the Premises or the Complex which will in any way obstruct or interfere with the rights of other tenants or occupants of the Complex or injure or annoy them, or use or allow the Premises to be used for any improper, immoral, unlawful or objectionable purpose, nor shall Tenant cause, maintain or permit any nuisance in, on or about the Premises or the Complex. No sale by auction shall be permitted on the Premises. Tenant shall not place any loads upon the floors, walls, or ceiling, which endanger the structure, or place any harmful fluids or other materials in the drainage system of the building, or overload existing electrical or other mechanical systems. No waste materials or refuse shall be dumped upon or permitted to remain up on any part of the Premises or outside of the building in which the Premises are a part, except in trash containers placed inside exterior enclosures designated by Landlord for that purpose or inside of the building proper where designated by Landlord. No materials, supplies, equipment, finished products or semi-finished products, raw materials or articles of any nature shall be stored upon or permitted to remain outside the Premises or on any portion of common area of the Complex. No loudspeaker or other device, system or apparatus which can be heard outside the Premises shall be used in or at the Premises without the prior written consent of Landlord. Tenant shall not commit or suffer to be committed any waste in or upon the Premises. Tenant shall indemnify, defend and hold Landlord harmless against any loss, expense, damage, attorneys' fees, or liability arising out of failure of Tenant to comply with any applicable law. Tenant shall comply with any covenant, condition, or restriction ("CC&R's") affecting the Premises. The provisions of this paragraph are for the benefit of Landlord only and shall not be construed to be for the benefit of any tenant or occupant of the Complex. There are no CC&R's affecting the Premises at the time of Lease execution. In the event CC&R's are subsequently implemented, Landlord shall provide a copy of said CC&R's to Tenant. 2. TERM * A. The term of this Lease shall be for a period of SEVEN (7) years (unless sooner terminated as hereinafter provided) and, subject to Paragraphs 2(B) and 3, shall commence on the 1st day of March, 1999 and end on the 28th day February of 2006. B. Possession of the Premises shall be deemed tendered and the term of this Lease shall commence when the first of the following occurs: (a) One day after a Certificate of Occupancy is granted by the proper governmental agency, or, if the governmental agency having jurisdiction over the area in which the Premises are situated does not issue certificates of occupancy, then the same number of days after certification by Landlord's architect or contractor that Landlord's construction work has been completed; or (b) Upon the occupancy of the Premises by any of Tenant's operating personnel; or (c) When the Tenant Improvements have been substantially completed for ------------------------------------------------------------------ Tenant's use and occupancy, in accordance and compliance with Exhibit B of this - ------------------------------------------------------------------------------- Lease Agreement; or - ---------------- -- (d) As otherwise agreed in writing. 3. POSSESSION If Landlord, for any reason whatsoever, cannot deliver possession of said premises to Tenant at the commencement of the said term, as hereinbefore specified, this Lease shall not be void or voidable; no obligation of Tenant shall be affected thereby; nor shall Landlord or Landlord's agents be liable to Tenant for any loss or damage resulting therefrom: but in that event the commencement and termination dates of the Lease, and all other dates affected thereby shall be revised to conform to the date of Landlord's delivery of possession, as specified in Paragraph 2(b), above. The above is, however, subject to the provision that the period of delay, of delivery of the premises shall not exceed 30 days (however, in no event shall any period of delay exceed 90 days except for delays caused by Tenant) from the commencement date herein (except those delays caused by Acts of God, strikes, war, utilities, governmental bodies, weather, unavailable materials, and delays beyond Landlord's control shall be excluded in calculating such period) in which instance Tenant, at its option, may, by written notice to Landlord, terminate this Lease. * It is agreed in the event said Lease commences on a date other than the first day of the month the term of the Lease will be extended to account for the number of days in the partial month. The Basic Rent during the resulting partial month will be pro-rated (for the number of days in the partial month) at the Basic Rent scheduled for the projected commencement date as shown in Paragraph 43. page 1 of 8 4. RENT A. Basic Rent. Tenant agrees to pay to Landlord at such place as Landlord may designate without deduction, offset, prior notice or demand, and Landlord agrees to accept as Basic Rent for the leased Premises the total sum of EIGHT MILLION FOUR HUNDRED EIGHTY ONE THOUSAND TWO HUNDRED THIRTEEN ($ 8,481,213.60) - ------------------------------------------------------------- ------------ Dollars in lawful money of the United States of America, payable as follows: SEE PARAGRAPH 43 FOR BASIC RENT SCHEDULE. B. Time for Payment. In the event that the term of this Lease commences on a date other than the first day of a calendar month, on the date of commencement of the term hereof Tenant shall pay to Landlord as rent for the period from such date of commencement to the first day of the next succeeding calendar month that proportion of the monthly rent hereunder which the number of days between such date of commencement and the first day of the next succeeding calendar month bears to thirty (30). In the event that the term of this Lease for any reason ends on a date other than the last day of a calendar month, on the first day of the last calendar month of the term hereof Tenant shall pay to Landlord as rent for the period from said first day of said last calendar month to and including the last day of the term hereof that proportion of the monthly rent hereunder which the number of days between said first day of said last calendar month and the last day of the term hereof bears to thirty (30). C. Late Charge. Notwithstanding any other provision of this Lease, if Tenant is in default in the payment of rental as set forth in this Paragraph 4 when due, or any part hereof Tenant agrees to pay Landlord. in addition to the delinquent rental due, a late charge for each rental payment in default ten (10) days. Said late charge shall equal ten (10%) percent of each rental payment so in default. D. Additional Rent. Beginning with the commencement date of the term of this Lease, Tenant shall pay to Landlord in addition to the Basic Rent and as Additional Rent the following: (a) Tenant's proportionate share of all Taxes relating to the Complex as set forth in Paragraph 12, and (b) Tenant's proportionate share of all insurance premiums relating to the Complex, as set forth in Paragraph 15, and (c) Tenant's proportionate share of expenses for the operation, management, maintenance and repair of the Building (including common areas of the Building) and Common Areas of the Complex in which the Premises are located as set forth in Paragraph 7, and (d) All charges, costs and expenses, which Tenant is required to pay hereunder, together with all interest and penalties, costs and expenses including attorneys' fees and legal expenses, that my accrue thereto in the event of Tenant's failure to pay such amounts, and all damages, reasonable costs and expenses which Landlord my incur by reason of default of Tenant or failure on Tenant's part to comply with the terms of this Lease. In the event of nonpayment by Tenant of Additional Rent Landlord shall have all the rights and remedies with respect thereto as Landlord ha for nonpayment of rent. The Additional Rent due hereunder shall be paid to Landlord or Landlord's agent (i) within five days for taxes and insurance and within thirty days for all other Additional Rent items after presentation of invoice from Landlord or Landlord's agent setting forth such Additional Rent and/or (ii) at the option of Landlord, Tenant shall pay to Landlord monthly, in advance, Tenant's prorata share of an amount estimated by Landlord to be Landlord's approximate average monthly expenditure for such Additional Rent items, which estimated amount shall be reconciled within 120 days of the end of each calendar year or more frequently if Landlord so elects to do so at Landlord's sole and absolute discretion as compared to Landlord's actual expenditure for said Additional Rent items, with Tenant paying to Landlord, upon demand, any amount of actual expenses expended by Landlord in excess of said estimated amount, or Landlord crediting to Tenant (or if the Lease is terminated, then as a net refund to Tenant) (providing Tenant is not in default in the performance of any of the terms, covenants and conditions of this Lease) any amount of estimated payments made by Tenant in excess of Landlord's actual expenditures for said Additional Rent items. The respective obligations of Landlord and Tenant under this paragraph shall survive the expiration or other termination of the term of this Lease, and if the term hereof shall expire or shall otherwise terminate on a day other than the last day of a calendar year, the actual Additional Rent incurred for the calendar year in which the term hereof expires or otherwise terminates shall be determined and settled on the basis of the statement of actual Additional Rent for such calendar year and shall be prorated in the proportion which the number of days in such calendar year preceding such expiration or termination bears to 365. E. Fixed Management Fee. Beginning with the Commencement Date of the Term -------------------- of this Lease, Tenant shall pay to Landlord, in addition to the Basic Rent and Additional Rent, a fixed monthly management fee ("Management Fee") equal to 3% of the Basic Rent due for each month during the Lease Term. F. Place of Payment of Rent and Additional Rent. All Basic Rent hereunder and all payments hereunder for Additional Rent shall be paid to Landlord at the office of Landlord at Peery/Arrillaqa: File 1504, Box 60000, San Francisco, CA -------------------------------------------------------- 94160 - ------------------------------------------------------------------------------ or such other person or to such other place as Landlord may from time to time designate in writing. *G. Security Deposit. Concurrently with Tenant's execution of this Lease, Tenant shall deposit with Landlord the sum of TWO HUNDRED THIRTY THOUSAND NINE -------------------------------- HUNDRED SIXTY ONE AND 60/100 ($ 230,961.60 ) Dollars. Said sum shall be held by - ---------------------------- ----------- Landlord as a Security Deposit for the faithful performance by Tenant of all of the terms, covenants, and conditions of this Lease to be kept and performed by Tenant during the term hereof. If Tenant defaults with respect to any provision of this Lease, including, but not limited to, the provisions relating to the payment of rent and any of the monetary sums due herewith, Landlord may (but shall not be required to) use, apply or retain all or any part of this Security Deposit for the payment of any other amount which Landlord may spend by reason of Tenant's default or to compensate Landlord for any other loss or damage which Landlord may suffer by reason of Tenant's default. If any portion of said Deposit is so used or applied, Tenant shall, within ten (10) days after written demand therefor, deposit cash with Landlord in the amount sufficient to restore the Security Deposit to its original amount. Tenant's failure to do so shall be a material breach of this Lease. Landlord shall not be required to keep this Security Deposit separate from its general funds, and Tenant shall not be entitled to interest on such Deposit. If Tenant fully and faithfully performs every provision of this Lease to be performed by it, the Security Deposit or any balance thereof shall be returned to Tenant (or at Landlord's option, to the last assignee of Tenant's interest hereunder) at the expiration of the Lease term and after Tenant has vacated the Premises. In the event of termination of Landlord's interest in this Lease, Landlord shall transfer said Deposit to Landlord's successor in interest whereupon Tenant agrees to release Landlord from liability for the return of such Deposit or the accounting therefor. 5. RULES AND REGULATIONS AND COMMON AREA Subject the terms and conditions of this Lease and such Rules and Regulations as Landlord may from time to time prescribe, Tenant and Tenant's employees, invitees and customers shall, in common with other occupants of the Complex in which the Premises are located, and their respective employees, invitees and customers, and others entitled to the use thereof, have the non-exclusive right to use the access roads, parking areas, and facilities provided and designated by Landlord for the general use and convenience of the occupants of the Complex in which the Premises are located, which areas and facilities are referred to herein as "Common Area". This right shall terminate upon the termination of this Lease. Landlord reserves the right from time to time to make changes in the in the shape, size, location, amount and extent of Common Area. Landlord further reserves the right to promulgate such reasonable rules and regulations relating to the use of the Common Area, and any part or parts thereof, as Landlord may deem appropriate for the best interests of the occupants of the Complex. The Rules and Regulations shall be binding upon Tenant upon delivery of a copy of them to Tenant, and Tenant shall abide by them and cooperate in their observance. Such Rules and Regulations may be amended by Landlord from time to time, with or without advance notice, and all amendments shall be effective upon delivery of a copy to Tenant. Landlord shall not be responsible to Tenant for the non-performance by any other tenant or occupant of the Complex of any of said Rules and Regulations. Landlord shall operate, manage and maintain the common Area. The manner in which the Common Area shall be maintained and the expenditures for such maintenance shall be at the discretion of Landlord. * $115,480.80 cash due upon Lease execution $115,480.80 Promissory Note due February 28, 2000 6. PARKING Tenant shall have the right to use with other tenants or occupants of the Complex 95 parking spaces in the common parking areas of the Complex. -- Tenant agrees, that Tenant, Tenant's employees, agents, representatives and/or invitees shall not use parking spaces in excess of said 95 parking spaces -- allocated to Tenant hereunder. Landlord shall have the right, at Landlord's sole discretion, to specifically designate the location of Tenant's parking spaces within the common parking areas of the Complex in the event of a dispute among the tenants occupying the building and/or Complex referred to herein, in which event Tenant agrees that Tenant, Tenant's employees, agents, representatives and/or invitees shall not use any parking spaces other than those parking spaces specifically designated by Landlord for Tenant's use. Said parking spaces, if specifically designated by Landlord to Tenant, may be relocated by Landlord at any time. and From time to time. Landlord reserves the right, at Landlord's sole discretion, to rescind any specific designation of parking spaces, thereby returning Tenant's parking spaces to the common parking area. Landlord shall give Tenant written notice of any change in Tenant's parking spaces. Tenant shall not, at any time, park, or permit to be parked, any trucks or vehicles adjacent to the loading areas so as to interfere in any way with the use of such areas, nor shall Tenant at any time park.or permit the parking of Tenant's trucks or other vehicles or the trucks and vehicles of Tenant's suppliers or others, in any portion of the common area not designated by Landlord for such use by Tenant. Tenant shall not park nor permit to be parked, any inoperative vehicles or equipment on any portion of the common parking area or other common areas of the Complex, Tenant agrees to assume responsibility for compliance by its employees with the parking provision contained herein. If Tenant or its employees park in other then such designated parking areas, then Landlord may charge Tenant, as an additional charge, and Tenant agrees to pay, ten ($10.00) Dollars per day for each day or partial day each such vehicle is parked in any area other than that designated. Tenant hereby authorizes Landlord at Tenant's sole expense to tow away from the Complex any vehicle belonging to Tenant or Tenant's employees parked in violation of these provisions, or to attach violation stickers or notices to such vehicles. Tenant shall use the parking areas for vehicle parking only, and shall not use the parking areas for storage. 7. EXPENSES OF OPERATION, MANAGEMENT, AND MAINTENANCE OF THE COMMON AREAS OF THE COMPLEX AND BUILDING IN WHICH THE PREMISES ARE LOCATED As Additional Rent and in accordance with Paragraph 4 D of this Lease, Tenant shall pay to Landlord Tenant's proportionate share (calculated on a square footage or other equitable basis as calculated by Landlord) of all expenses of operation, management, maintenance and repair of the Common Areas of the Complex including, but not limited to, license, permit, and inspection fees; security; utility charges associated with exterior landscaping and lighting (including water and sewer charges); all charges incurred in the maintenance and replacement of landscaped areas, lakes, parking lots and paved areas (including repairs, replacement, resealing and restriping) sidewalks, driveway's; maintenance, repair and replacement of all fixtures and electrical, mechanical, and plumbing systems; structural elements and exterior surfaces of the buildings; salaries and employee benefits of personnel and payroll taxes applicable thereto; supplies, materials, equipment and tools; the cost of capital expenditures which have the effect of reducing operating expenses, provided, however, that in the event Landlord makes such capital improvements, Landlord may amortize its investment in said improvements (together with interest at the rate of fifteen (15%) percent per annum on the unamortized balance) as an operating expense in accordance with standard accounting practices, provided, that such amortization is not at a rate greater than the anticipated savings in the operating expenses. "Additional Rent" as used herein shall not include Landlord's debt repayments; interest on charges; expenses directly or indirectly incurred by Landlord for the benefit of any other tenant; cost for the installation of partitioning or any other tenant improvements; cost of attracting tenants; depreciation, interest, or executive salaries As Additional Rent and in accordance with paragraph 4 D of this Lease, Tenant shall pay its proportionate share (calculated on a square footage or other equitable basis as calculated by Landlord) of the cost of operation (including common utilities), management, maintenance, and repair of the building (including common areas such as lobbies, restrooms, janitor's closets, hallways, elevators, mechanical and telephone rooms, stairwells, entrances, spaces above the ceilings and janitorization of said common areas) in which the Premises are located. The maintenance items herein referred to include, but are not limited to, all windows, window frames, plate glass, glazing,, truck doors, main plumbing systems of the building (such as water and drain lines, sinks, toilets, faucets, drains, showers and water fountains), main electrical systems (such as panels and conduits), heating and airconditioning systems (such as compressors, fans, air handlers, ducts, boilers, heaters), store fronts, roofs, downspouts, building common area interiors (such as wall coverings, window coverings, floor coverings and partitioning), ceilings, building exterior doors, skylights (if any), automatic fire extinguishing systems, and elevators; license, permit, and inspection fees; security; salaries and employee benefits of personnel and payroll taxes applicable thereto; supplies, materials, equipment and tools; the cost of capital expenditures which have the effect of reducing operating expenses, provided, however, that in the event Landlord makes such capital improvements, Landlord may amortize its investment in said improvements (together with interest at the rate of fifteen (15%) percent per annum on the unamortized balance) as an operating expense in accordance with standard accounting practices, provided, that such amortization is not at a rate greater than the anticipated savings in the operating expenses. Tenant hereby waives all rights under, and benefits of, subsection 1 of Section 1932 and Sections 1941 and 1942 of the California Civil Code and under any similar law, statute or ordinance now or hereafter in effect. 8. ACCEPTANCE AND SURRENDER OF PREMISES By entry hereunder, Tenant accepts the Premises as being in good and sanitary order, condition and repair and accepts the building and improvements included in the Premises in their present condition and without representation or warranty by Landlord as to the condition of such building or as to the use or Occupancy which may be made thereof. Any exceptions to the foregoing must be by written agreement executed by Landlord and Tenant. Tenant agrees on the last day of the Lease term, or on the sooner termination of this Lease, to surrender the Premises promptly and peaceably to Landlord in good condition and repair (damage by Acts of God, fire, normal wear and tear excepted), with all interior walls painted, or cleaned so that they appear freshly painted, and repaired and replaced, if damaged; all floors cleaned and waxed; all carpets cleaned and shampooed; the airconditioning and heating equipment serviced by a reputable and licensed service firm and in good operating condition (provided the maintenance of such equipment has been Tenant's responsibility during the term of this Lease) together with all alterations, additions, and improvements which may have been made in, to, or on the Premises (except for those improvements shown on Exhibit B) (except movable trade fixtures installed at the expense of Tenant) except that Tenant shall ascertain from Landlord within thirty (30) days before the end of the term of this Lease whether Landlord desires to have the Premises or any part or parts thereof restored to their condition and configuration as when the Premises were delivered to Tenant and if Landlord shall so desire, then Tenant shall restore said Premises or such part or parts thereof before the end of this Lease at Tenant's sole cost and expense. Tenant, on or before the end of the term or sooner termination of this Lease, shall remove all of Tenant's personal property and trade fixtures from the Premises, and all property not so removed on or before the end of the term or sooner termination of this Lease shall be deemed abandoned by Tenant and title to same shall thereupon pass to Landlord without compensation to Tenant. Landlord may, upon termination of this Lease, remove all moveable furniture and equipment so abandoned by Tenant, at Tenant's sole cost, and repair any damage caused by such removal at Tenant's sole cost. If the Premises be not surrendered at the end of the term or sooner termination of this Lease, Tenant shall indemnify Landlord against loss or liability resulting from the delay by Tenant in so surrendering the Premises including, without limitation, any claims made by any succeeding tenant founded on such delay. Nothing contained herein shall be construed as an extension of the term hereof or as a consent of Landlord to any holding over by Tenant. The voluntary or other surrender of this Lease or the Premises by Tenant or a mutual cancellation of this Lease shall not work as a merger and, at the option of Landlord, shall either terminate all or any existing subleases or subtenancies or operate as an assignment to Landlord of all or any such subleases or subtenancies. 9. ALTERATIONS AND ADDITIONS Tenant shall not make, or suffer to be made, any alteration or addition to the Premises, or any part thereof, without the written consent of Landlord first had and obtained by Tenant (except for those improvements shown on Exhibit C), but at the cost of Tenant, and any addition to, or alteration of, the Premises, except moveable furniture and trade fixtures, shall at once become a part of the Premises and belong to Landlord. Landlord reserves the right to approve all contractors and mechanics proposed by Tenant to make such alterations and additions. Tenant shall retain title to all moveable furniture and trade fixtures placed in the Premises. All heating, lighting, electricial, airconditioning, floor to ceiling partitioning, drapery, carpeting, and floor installations made by Tenant, together with all property that has become an integral part of the Premises, shall not be deemed trade fixtures. Tenant agrees that it will not proceed to make such alteration or additions, without having obtained consent from Landlord to do so, and until five (5) days from the receipt of such consent, in order that Landlord may post appropriate notices to avoid any liability to contractors or material suppliers for payment for Tenant's improvements. Tenant will at all times permit such notices to be posted and to remain posted until the completion of work. Tenant shall, if required by Landlord, secure at Tenant's own cost and expense, a completion and lien indemnity bond, satisfactory to Landlord, for such work. Tenant further covenants and agrees that any mechanic's lien filed against the Premises or against the Complex for work claimed to have been done for, or materials claimed to have been furnished to Tenant, will be discharged by Tenant, by bond or otherwise, within ten (10) days after the filing thereof, at the cost and expense of Tenant. Any exceptions to the foregoing must be made in writing and executed by both Landlord and Tenant. See Paragraph 55 10. TENANT MAINTENANCE Tenant shall, at its sole cost and expense, keep and maintain the Premises (including appurtenances) and every part thereof in a high standard of maintenance and repair, and in good and sanitary condition. Tenant's maintenance and repair responsibilities herein referred to include, but are not limited to, janitorization, plumbing, systems within the non-common areas of the Premises (such as water and drain lines, sinks), electrical systems within the Premises (such as outlets, lighting fixtures, lamps, bulbs, tubes, ballasts), heating, and airconditioning controls within the Premises (such as mixing boxes, thermostats, time clocks, supply and return grills), all interior improvements within the premises including but not limited to: wall coverings, window coverings, acoustical ceilings, vinyl tile, carpeting, partitioning, doors (both interior and exterior, including closing mechanisms, latches, locks), and all other interior improvements of any nature whatsoever. Tenant agrees to provide carpet shields under all rolling chairs or to otherwise be responsible for wear and tear of the carpet caused by such rolling chairs if such wear and tear exceeds that caused by normal foot traffic in surrounding areas. Areas of excessive wear shall be replaced at Tenant's sole expense upon Lease termination. 11. UTILITIES OF THE BUILDING IN WHICH THE PREMISES ARE LOCATED As Additional Rent and in accordance with paragraph 4D of this Lease, Tenant shall pay its proportionate share (calculated on a square footage or other equitable basis as calculated by Landlord) of the cost of all utility charges such as water, gas, electricity, telephone, telex and other electronic communications service, sewer service, waste-pick-up and any other utilities, materials, or services furnished directly to the building in which the Premises are located, including, without limitation, any temporary or permanent utility surcharge or other exactions whether or not hereinafter imposed. Landlord shall not be liable for and Tenant shall not be entitled to any abatement or reduction of rent by reason of any interruption or failure of utility services to the Premises, when such interruption or failure is caused by accident, breakage, repair, strikes, lockouts, or other labor disturbances or labor disputes of any nature, or by any other cause, similar or dissimilar, beyond the reasonable control of Landlord. Provided that Tenant is not in default in the performance or observance of any of the terms, covenants or conditions of this Lease to be performed or observed by it, Landlord shall furnish to the Premises between the hours of 8:00AM and 6:00PM. Mondays through Fridays (holidays excepted) and subject to the rules and regulations of the Complex hereinbefore referred to, reasonable quantities of water, gas and electricity suitable for the intended use of the Premises and heat and airconditioning required in Landlord's judgement for the comfortable use and occupation of the Premises for such purposes. Tenant may, from time to time, have its staff and equipment operate on a twenty-four (24) hour-a-day, seven (7) day-a-week schedule, and Tenant shall pay for any extra utilities used by Tenant. Tenant agrees that at all times it will cooperate fully with Landlord and abide by all regulations and requirements that Landlord may prescribe for the proper functioning and protection of the building heating, ventilating and airconditioning system. Whenever heat generating machines, equipment, or any other devices (including exhaust fans) are used in the Premises by Tenant which affect the temperature or otherwise maintained by the airconditioning system. Landlord shall have the right to install supplementary airconditioning units in the Premises and the cost thereof, including the cost of installation and the cost of operation and maintenance thereof, shall be paid by Tenant to Landlord upon demand by Landlord. Tenant will not, without the written consent of Landlord. use any apparatus or device in the Premises (including. without limitation), electronic data processing machines or machines using current in excess of 110 Volts which will in any way increase the amount of electricity, gas. water or airconditioning usually furnished or supplied to premises being used as general office space, or connect with electric current (except through existing electrical outlets in the Premises), or with gas or water pipes and apparatus or device for the purposes of using electric current, gas, or water. If Tenant shall require water, gas, or electric current in excess of that usually furnished or supplied to premises being used as general office space. Tenant shall first obtain the written consent of Landlord. which consent shall not be unreasonably withheld and Landlord may cause an electric current, gas, or water meter to be installed in the Premises in order to measure the amount of electric current, gas or water consumed for any such excess use. The cost of any such meter and of the installation, maintenance and repair thereof, all charges for such excess water, gas and electric current consumed (as shown by such meters and at the rates then charged by the furnishing public utility) and any additional expense incurred by Landlord in keeping account of electric current, gas or water so consumed shall be paid by Tenant. and Tenant agrees to pay Landlord therefor promptly upon demand by Landlord. 12. TAXES A. As Additional Rent and in accordance with Paragraph 4 D of this Lease, Tenant shall pay to Landlord Tenant's proportionate share of all Real Property Taxes, which prorata share shall be allocated to the leased Premises by square footage or other equitable basis, as calculated by Landlord. The term "Real Property Taxes" as used herein, shall mean (i) all taxes, assessments, levies and other charges of any kind or nature whatsoever, general and special, foreseen and unforeseen (including all installments of principal and interest required to pay any general or special assessments for public improvements and any increases resulting from reassessments caused by any change in ownership of the Complex) now or hereafter imposed by any governmental or quasi-governmental authority or special district having the direct or indirect power to tax or levy assessments, which are levied or assessed against, or with respect to the value, occupancy or use of all or any portion of the Complex (as now constructed or as may at any time hereafter be constructed, altered, or otherwise changed) or Landlord's interest therein; any improvements located within the Complex regardless of ownership); the fixtures, equipment and other property of Landlord. real or personal, that are an integral part of and located in the Complex; or parking areas, public utilities, or energy within the Complex: (ii) all charges, levies or taxes imposed by reason of environmental regulation or other governmental control of the Complex; and (iii) all costs and fees (including attorneys' fees) incurred by Landlord in contesting any Real Property Tax and in negotiating with public authorities as to any Real Property Tax. If at any time during the term of this Lease the taxation or assessment of the Complex prevailing as of the commencement date of this Lease shall be altered that in lieu of or in addition to any Real Property Tax described above there shall be levied, assessed or imposed (whether by reason of a change in the method of taxation or assessment, creation era new tax or charge, or any other cause) an alternate or additional tax or charge (i) on the value, use or occupancy of the Complex or Landlord's interest therein or (ii) on or measured by the gross receipts, income or rentals from the Complex. on Landlord's business of leasing the Complex. or computed in any manner with respect to the operation of the Complex. then any such tax or charge, however designated, shall be included within the meaning of the term "Real Property Taxes" for purposes of this Lease. If any Real Property Tax is based upon property or rents unrelated to the Complex, then only that part of such real Property Tax that is fairly allocable to the Complex shall be included within the meaning of the term "Real Property Taxes". Notwithstanding the foregoing, the term "Real Property Taxes" shall not include estate, inheritance, gift or franchise taxes or City or County transfer taxes of Landlord or the federal or state net income tax imposed on Landlord's income from all sources. B. Taxes on Tenant's Property (a) Tenant shall be liable for and shall pay ten days before delinquency, taxes levied against any personal property or trade fixtures placed by Tenant in or about the Premises. If any such taxes on Tenant's personal property or trade fixtures are levied against Landlord or Landlord's property or if the assessed value of the Premises is increased by the inclusion therein of a value placed upon such personal property or trade fixtures of Tenant and if Landlord. after written notice to Tenant, pays the taxes based on such increased assessment, which Landlord shall have the right to do regardless of the validity thereof, but only under proper protest if requested by Tenant. Tenant shall upon demand, as the case may be, repay to Landlord the taxes so levied against Landlord, or the proportion of such taxes resulting from such increase in the assessment; provided that in any such event Tenant shall have the right, in the name of Landlord and with Landlord's full cooperation, to bring suit in any court of competent jurisdiction to recover the amount of any such taxes so paid under protest, and any amount so recovered shall belong to Tenant. (b) if the Tenant improvements in the Premises. whether installed, and/or paid for by Landlord or Tenant and whether or not affixed to the real property so as to become a part thereof, are assessed for real property tax purposes at a valuation higher than the valuation at which standard office improvements in other space in the Complex are assessed, then the real property taxes and assessments levied against Landlord or the Complex by reason of such excess assessed valuation shall be deemed to be taxes levied against personal property of Tenant and shall be governed by the provisions of 12Ba, above. If the records of the County Assessor are available and sufficiently detailed to serve as a basis for determining whether said Tenant improvements are assessed at a higher valuation than standard office improvements in other space in the Complex, such records shall be binding on both the Landlord and the Tenant. If the records of the County Assessor are not available or sufficiently detailed to serve as a basis for making said determination, the actual cost of construction shall be used. 13. LIABILITY INSURANCE Tenant at Tenant's expense, agrees to keep in force during the term of this Lease a policy of commercial general liability insurance with a combined single limit coverage of not less than Two Million Dollars ($2,000,000) per occurrence for injuries to or death of persons occurring in, on or about the Premises or the Complex, and property damage insurance, certificates of insurance of which shall be furnished to Landlord, shall name Landlord as additional insurers, and shall insure any liability of Landlord. contingent or otherwise, as respects acts or omissions of Tenant, its agents, employees or invitees or otherwise by any conduct or transactions of any of said persons in or about or concerning the Premises, including any failure of Tenant to observe or perform any of its obligations hereunder; shall be issued by an insurance company admitted to transact business in the State of California; and shall provide that the insurance effected thereby shall not be canceled, except upon thirty (30) days prior written notice to Landlord. If, during the term of this Lease, in the considered opinion of Landlord's Lender, insurance advisor, or counsel, the amount of insurance described in this paragraph 13 is not adequate. Tenant agrees to increase said coverage to such reasonable amount as Landlord's Lender, insurance advisor, or counsel shall deem adequate, 14. TENANT'S PERSONAL PROPERTY INSURANCE AND WORKMAN'S COMPENSATION INSURANCE Tenant shall maintain a policy or policies of fire and property damage insurance in "all risk" form with a sprinkler leakage endorsement insuring the personal property, inventory, trade fixtures, and leasehold improvements installed by Tenant within the leased Premises for the full replacement value thereof. The proceeds from any of such policies shall be used for the repair or replacement of such items so insured. Tenant shall also maintain a policy or policies of workman's compensation insurance and any other employee benefit insurance sufficient to comply with all laws. 15. PROPERTY INSURANCE Landlord shall purchase and keep in force and as Additional Rent and in accordance with Paragraph 4D of this Lease. Tenant shall pay to Landlord (or Landlord's agent if so directed by Landlord) Tenant's proportionate share (calculated on a square footage or other equitable basis as calculated by Landlord) of the deductibles on insurance claims and the cost of policy or policies; of insurance covering loss or damage to the Premises and Complex in the amount of the full replacement value thereof, providing protection against those perils included within the classification of "all risks" insurance and flood and/or earthquake insurance, if available, plus a policy of rental income insurance in the amount of one hundred (100%) percent of twelve (12) months Basic Rent, plus sums paid as Additional Rent. If such insurance cost is increased due to Tenant's use of the Premises or the Complex. Tenant agrees to pay to Landlord the full cost of such increase. Tenant shall have no interest in nor any right to the proceeds of any insurance procured by Landlord for the Complex. Landlord and Tenant do each hereby respectively release the other, to the extent of insurance coverage of the releasing party, from any liability for loss or damage caused by fire or any of the extended coverage casualties included in the releasing party's insurance policies, irrespective of the cause of such fire or casualty; provided, however, that if the insurance policy of either releasing party prohibits such waiver, then this waiver shall not take effect until consent to such waiver is obtained. If such waiver is so prohibited, the insured party affected shall promptly notify the other party thereof. 16. INDEMNIFICATION Landlord shall not be liable to Tenant and Tenant hereby waives all claims against Landlord for any injury to or death of any person or damage to or destruction of property in or about the Premises or the Complex by or from any cause whatsoever, including, without limitation, gas, fire, oil, electricity or leakage of any character from the roof, walls, basement or other portion of the Premises or the Complex but excluding, however, the willful misconduct or negligence of Landlord, its agents, servants, employees, invitees, or contractors of which negligence Landlord has knowledge and reasonable time to correct. Except as to injury to persons or damage to property to the extent arising from the willful misconduct or the negligence of Landlord. Tenant shall hold Landlord harmless from and defend Landlord against any and all expenses, including reasonable attorneys' fees, in connection therewith, arising out of any injury to or death of any person or damage to or destruction of property occurring in, on or about the Premises, or any part thereof, from any cause whatsoever. 17. COMPLIANCE Tenant, at its sole cost and expense, shall promptly comply with all laws, statutes, ordinances and governmental rules regulations or requirements now or hereafter in effect; with the requirements of any board of fire underwriters or other similar body now or hereafter constituted; and with any direction or occupancy certificate issued pursuant to law by any public officer; provided, however, that no such failure shall be deemed a breach of the provisions if Tenant, immediately upon notification, commences to remedy or rectify said failure. The judgment of any court of competent jurisdiction or the admission of Tenant in any action against Tenant whether Landlord be a party thereto or not. that Tenant has violated any such law, statute, ordinance or governmental rule, regulation, requirement, direction or provision, shall be conclusive of that fact as between Landlord and Tenant. This paragraph shall not be interpreted as requiring Tenant to make structural changes or improvements, except to the extent such changes or improvements are required as a result of Tenant's use of the Premises. Tenant shall, at its sole cost and expense, comply with any and all requirements pertaining to said Premises. of any insurance organization or company, necessary for the maintenance or reasonable fire and public liability insurance covering the Premises. 18. LIENS Tenant shall keep the Premises and the Complex free from any liens arising out of any work performed, materials furnished or obligation incurred by Tenant. In the event that Tenant shall not, within ten (10) days following the imposition of such lien, cause the same to be released of record. Landlord shall have, in addition to all other remedies provided herein and by law, the right, but no obligation, to cause the same to be released by such means as it shall deem proper, including payment of the claim giving rise to such lien. All sums paid by Landlord for such purpose, and all expenses incurred by it in connection therewith, shall be payable to Landlord by Tenant on demand with interest at the prime rate of interest as quoted by the Bank of America. 19. ASSIGNMENT AND SUBLETTING Tenant's shall not assign, transfer, or hypothecate the leasehold estate under this Lease, or any interest therein, and shall not sublet the Premises, or any part thereof, or any right or privilege appurtenant thereto, or suffer any other person or entity to occupy or use the Premises, or any portion thereof, without, in each case, the prior written consent of Landlord which consent will not be unreasonably withheld. As a condition for granting this consent to any assignment transfer, or subletting, Landlord shall require Tenant to pay to Landlord, as Additional Rent, all rents and/or additional consideration. Tenant from its assignees, transferees, or subtenants in excess of the Rent payable by Tenant by Tenant to Landlord hereunder for the assigned, transferred, and/or subleased space. Tenant shall, by thirty (30) days written notice, advise Landlord of its intent to assign or transfer Tenant's interest in the Lease or sublet the Premises or any portion thereof for any part of the term hereof. Within thirty (30) days after receipt of said written notice, Landlord may, in its sole discretion, elect to terminate this Lease as to the portion of the Premises described in Tenant's notice on the date specified in Tenant's notice by giving written notice of such election to terminate. If no such notice to terminate is given to Tenant within said thirty (30) day period, Tenant may proceed to locate an acceptable sublessee, assignee, or other transferee for presentment to Landlord for Landlord's approval, all in accordance with the terms, covenants, and conditions of this paragraph 19. If Tenant intends to sublet the entire Premises and Landlord elects to terminate this Lease, this Lease shall be terminated on the date specified in Tenant's notice. If, however, this Lease shall terminate pursuant to the foregoing with respect to less than all the Premises, the rent, as defined and reserved hereinabove shall be adjusted on a pro rata basis to the number of square feet retained by Tenant, and this Lease as so amended shall continue in full force and effect. In the event Tenant is allowed to assign, transfer or sublet the whole or any part of the Premises, with the prior written consent of Landlord. no assignee, transferee or subtenant shall assign or transfer this Lease, either in whole or in part, or sublet the whole or any part of the Premises, without also having obtained the prior written consent of Landlord. A consent of Landlord to one assignment, transfer, hypothecation, subletting, occupation or use by any other person shall not release Tenant from any of Tenant's obligations hereunder or be deemed to be a consent to any subsequent similar or dissimilar assignment. transfer, hypothecation, subletting, occupation or use by any other person. Any such assignment, transfer, hypothecation, subletting, occupation or use without such consent shall be void and shall constitute a breach of this Lease by tenant and shall, at the option of Landlord exercised by written notice to Tenant, terminate this Lease. The leasehold estate under this Lease shall not, nor shall any interest therein, be assignable for any purpose by operation of law without the written consent of Landlord. As a condition to its consent, Landlord shall require Tenant to pay all expenses in connection with the assignment, and Landlord require Tenant's assignee or as a condition to its consent, Landlord, require Tenant to transferee (or other assignees or transferees) to assume in writing all of the obligations under this Lease and for Tenant to remain liable to Landlord under the Lease. 20. SUBORDINATION AND MORTGAGES In the event Landlord's title or leasehold interest is now or hereafter encumbered by a deed of trust, upon the interest Landlord in the land and buildings in which the demised Premises are located, to secure a loan from a lender (hereinafter referred to as "Lender") to Landlord. Tenant shall, at the request of Landlord or Lender, execute in writing an agreement subordinating its rights under this Lease to the lien of such deed of trust, or, if so requested, agreeing that the lien of Lender's deed of trust shall be or remain subject and subordinate to the rights of Tenant under this Lease. Notwithstanding any such subordination. Tenant's possession under this Lease shall not be disturbed if Tenant is not in default and as long as Tenant shall pay all rent and observe and perform all of the provisions set forth in this Lease. 21. ENTRY BY LANDLORD Landlord reserves, and shall at all reasonable times after at least 24 hours notice (except in emergencies) have, the right to enter the Premises to inspect them; to perform any services to be provided by Landlord hereunder: to submit the Premises to prospective purchasers, mortgagers or tenants; to post notices of nonresponsibility; and to alter, improve or repair the Premises and any portion of the Complex, all without abatement of rent; and may erect scaffolding and other necessary structures in or through the Premises where reasonably required by the character of the work to be performed; provided, however that the business of Tenant shall be interfered with to the least extent that is reasonably practical. For each of the foregoing purposes, any entry to the Premises obtained by Landlord by any of said means, or otherwise, shall not under any circumstances be construed or deemed to be a forcible or unlawful entry into or a detainer of the Premises or an eviction, actual or constructive, of Tenant from the Premises or any portion thereof. Landlord shall also have the right at any time to change the arrangement or location of entrances or passageways, doors and doorways, and corridors, elevators, stairs, toilets or other public parts of the Complex and to change the name. number or designation by which the Complex is commonly known, and none of the foregoing shall be deemed an actual or constructive eviction of Tenant or shall entitle Tenant to any reduction of rent hereunder. 22. BANKRUPTCY AND DEFAULT The commencement of a bankruptcy action or liquidation action or reorganization action or insolvency action or an assignment of or by Tenant for the benefit of creditors, or any similar action undertaken by Tenant. or the insolvency of Tenant. shall, at Landlord's option, constitute a breach of this Lease by Tenant. If the trustee or receiver appointed to serve during a bankruptcy, liquidation, reorganization, insolvent) or similar action elects to reject Tenant's unexpired Lease. the trustee or receiver shall not (ii), Landlord in writing of its election within thirty (30) days after an order for relief in a liquidation action or within thirty (30) days after the commencement of any action. Within thirty (30) days after court approval of the assumption of this Lease, the trustee or receiver shall cure (or provide adequate assurance to the reasonable satisfaction of Landlord that the trustee or receiver shall cure) any and all previous defaults under the unexpired Lease and shall compensate Landlord for all actual pecuniary loss and shall provide adequate assurance of future performance under said Lease to the reasonable satisfaction of Landlord. Adequate assurance of future performance, as used herein, includes, but shall not be limited to: (i) assurance or source and payment of rent, and other consideration due under this Lease: (ii) assurance that the assumption or assignment of this Lease will not breach substantially any provision, such as radius, location, use. or exclusivity provision, in any agreement relating to the above described Premises. Nothing contained in this section shall affect the existing right of Landlord to refuse to accept an assignment upon commencement of or in connection with a bankruptcy, liquidation, reorganization or insolvency action or an assignment of Tenant for the benefit of creditors or other similar act. Nothing contained in this Lease shall be construed as giving or granting or creating an equity in the demised Premises to Tenant. In no event shall the leasehold estate under this Lease, or any interest therein, be assigned by voluntary or involuntary bankruptcy proceeding without the prior written consent of Landlord. In no event shall this Lease or any rights or privileges hereunder be an asset of Tenant under any bankruptcy, insolvency or reorganization proceedings. The failure to perform or honor any covenant, condition or representation made under this Lease shall constitute a default hereunder by Tenant upon expiration of the appropriate grace period hereinafter provided. Tenant shall have a period of five (5) days from the date of written notice from Landlord within which to cure any default in the payment of rental or adjustment thereto. Tenant shall have a period of thirty (30) days from the date of written notice from Landlord within which to cure any other default under this Lease. Upon an uncured default of this Lease by Tenant, Landlord shall have the following rights and remedies in addition to any other rights or remedies available to Landlord at lay, or in equity: (a) The rights and remedies provided for by California Civil Code Section 1951.2. including but not limited to, recovery of the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time award exceeds the amount of rental loss for the same period that Tenant proves could be reasonably avoided, as computed pursuant to subsection (b) of said Section 1951.2. Any proof by Tenant under subparagraphs (2) and (3) of Section 1951.2 of the California Civil Code of the amount of rental loss that could be reasonably avoided shall be made in the following manner; Landlord and Tenant shall each select a licensed real estate broker in the business of renting property of the same type and use as the Premises and in the same geographic vicinity. Such two real estate brokers shall select a third licensed real estate broker, and the three licensed real estate brokers so selected shall determine the amount of the rental loss that could be reasonably avoided from the balance of the term of this Lease after the time of award. The decision of the majority of said licensed real estate brokers shall be final and binding upon the parties hereto. (b). The rights and remedies provided by California Civil Code Section which allows Landlord to continue the Lease in effect and to enforce all of its rights and remedies under this Lease, including the right to recover rent as it becomes due, for so long as Landlord does not terminate Tenant's right to possession acts of maintenance or preservation, efforts to relet the Premises, or the appointment of a receiver upon Landlord's initiative to protect its interest under this Lease shall not constitute a termination of Tenant's right to possession. (c). The right to terminate this Lease by giving notice to Tenant in accordance with applicable law. (d). To the extent permitted by law, the right and power, to enter the Premises and remove therefrom all persons and property, to store such property in a public warehouse or elsewhere at the cost of and for the account of Tenant, and to sell such property and apply such proceeds therefrom pursuant to applicable California law. Landlord, may from time to time sublet the Premises or any part thereof for such term or terms (which may extend beyond the term of this Lease) and at such rent and such other terms as Landlord in its sole discretion may deem advisable, with the right to make alterations and repairs to the Premises. Upon each subletting, (i) Tenant shall be immediately liable to pay Landlord, in addition to indebtedness other than rent due hereunder, the cost of such subletting, including, but not limited to, reasonable attorneys' fees, and any real estate commissions actually paid, and the cost of such alterations and repairs incurred by Landlord and the amount, if any, by which the rent hereunder for the period of such subletting (to the extent such period does not exceed the term hereof) exceeds the amount to be paid as rent for the Premises for such period or (ii) at the option of Landlord, rents received from such subletting shall be applied first to payment of indebtedness other than rent due hereunder from Tenant to Landlord; second, to the payment of any costs of such subletting and of such alterations and repairs; third to payment of rent due and unpaid hereunder; anti the residue, if any, shall be held by Landlord and applied in payment of future rent as the same becomes due hereunder. If Tenant has been credited with any rent to be received by such subletting under option (i) and such rent shall not be promptly paid to Landlord by the subtenant(s), or if such rentals received from such subletting under option (ii) during any month be less than that to be paid during that month by Tenant hereunder. Tenant shall pay any such deficiency to Landlord. Such deficiency shall be calculated and paid monthly. For all purposes set forth in this subparagraph d. No taking possession of the Premises by Landlord, shall be construed as an election on its part to terminate this Lease unless a written notice of such intention be given to Tenant. Notwithstanding any such subletting without termination. Landlord may at any time hereafter elect to terminate this Lease for such previous breach. (e). The right to have a receiver appointed for Tenant upon application by Landlord, to take possession of the Premises and to apply any rental collected from the Premises and to exercise all other rights and remedies granted to Landlord pursuant to subparagraph d, above. See Paragraph 50 23. ABANDONMENT Tenant shall not vacate or abandon the Premises at any time during the term of this Lease and is Tenant shall abandon, vacate or surrender said Premises, or be dispossessed by the process of law, or otherwise, any personal Property belonging to Tenant and left on the Premises shall be deemed to be abandoned, at the option of Landlord, except such property as may be mortgaged to Landlord. See Paragraph 51 24. DESTRUCTION In the event the Premises are destroyed in whole or in part from any cause, except for routine maintenance and repairs and incidental damage and destruction caused from vandalism and accidents for which Tenant is responsible for under Paragraph 10. Landlord may, at its option: (a) Rebuild or restore the Premises to their condition prior to the damage or destruction, or (b) Terminate this Lease. (providing that the Premises is damaged to the extent of 33 1/3% of the replacement cost) If Landlord does not give Tenant notice in writing within thirty (30) days from the destruction of the Premises of its election to either rebuild and restore them, or to terminate this Lease. Landlord shall be deemed to have elected to rebuild or restore them, in which event Landlord agrees, at its expense, promptly to rebuild or restore the Premises to their original condition prior to the damage or destruction. Tenant shall be entitled to a reduction in rent while such repair is being made in the proportion that the area of the Premises rendered untenantable by such damage bears to the total area of the Premises. If Landlord initially estimates that the rebuilding or restoration will exceed 180 days or if Landlord does not complete the rebuilding or restoration within one hundred eighty (180) days following the date of destruction (such period of time to be extended for delays caused by the fault or neglect of Tenant or because of Acts of God, acts of public agencies, labor disputes, strikes, fires, freight embargoes, rainy or stormy weather, inability to obtain materials, supplies or fuels, acts of contractors or subcontractors, or delay of the contractors or subcontractors due to such causes or other contingencies beyond the control of Landlord), then Tenant shall have the right to terminate this Lease by giving fifteen (15) days prior written notice to Landlord. Notwithstanding anything herein to the contrary, Landlord's obligation to rebuild or restore shall be limited to the building and interior improvements constructed by Landlord as they existed as of the commencement date of the Lease and shall not include restoration of Tenant's trade fixtures, equipment, merchandise, or any improvements, alterations or additions made by Tenant to the Premises, which Tenant shall forthwith replace or fully repair at Tenant's sole cost and expense provided this Lease is not cancelled according to the provisions above. Unless this Lease is terminated pursuant to the foregoing provisions, this Lease shall remain in full force and effect. Tenant hereby expressly waives the provisions of Section 1932, Subdivision 2. in Section 1933, Subdivision 4 of the California Civil Code. In the event that the building in which the Premises are situated is damaged or destroyed to the extent of not less than 33 1/3% of the replacement cost thereof, Landlord may elect to terminate this Lease whether the Premises be injures or not. Notwithstanding anything to the contrary herein, Landlord may terminate this Lease in the event of an uninsured event to if insurance proceeds are insufficient to cover 100% of the rebuilding costs net of the deductible; provided, however, Tenant shall have the right to elect, in its discretion. To contribute such excess funds (within 10 days of Tenant's receipt of an invoice from Landlord) to permit Landlord to repair the Premises. 25. EMINENT DOMAIN If all or any part of the Premises shall be taken by any public or quasi-public authority under the power of eminent domain or conveyance in lieu thereof, this Lease shall terminate as to any portion of the Premises so taken or conveyed on the date when title vests in the condemner, and Landlord shall be entitled to any and all payment, income, rent, award, or any interest therein whatsoever which may be paid or made in connection with such taking or conveyance, and Tenant shall have no claim against Landlord or otherwise for the value of any unexpired term of this Lease. Notwithstanding the foregoing paragraph, any compensation specifically awarded Tenant for loss of business, Tenant's personal property, moving cost or loss of goodwill, shall be and remain the property of Tenant. If (i) any action or proceeding is commenced for such taking of the Premises or any part thereof, or if Landlord is advised in writing by any entity or body having the right or power of condemnation of its intention to condemn the premises or any portion thereof, or (ii) any of the foregoing events occur with respect to the taking of any space in the Complex not leased hereby, or if any such spaces so taken or conveyed in lieu of such taking and Landlord shall decide to discontinue the use and operation of the Complex, or decide to demolish, alter or rebuild the Complex, then, in any of such events Landlord shall have the right to terminate this Lease by giving Tenant written notice thereof within sixty (60) days of the date of receipt of said written advice, or commencement of said action or proceeding, or taking conveyance, which termination shall take place as of the first to occur of the last day of the calendar month next following the month in which such notice is given or the date on which title to the Premises shall vest in the condemnor. In the event of such a partial taking or conveyance of the Premises, if the portion of the Premises taken or conveyed is so substantial that the Tenant can no longer reasonably conduct its business, Tenant shall have the privilege of terminating this Lease within sixty (60) days from the date of such taking or conveyance, upon written notice to Landlord of its intention so to do, and upon giving of such notice this Lease shall terminate on the last day of the calendar month next following the month in which such notice is given, upon payment by Tenant of the rent from the date of such taking or conveyance to the date of termination. If a portion of the Premises be taken by condemnation or conveyance in lieu thereof and neither Landlord nor Tenant shall terminate this Lease as provided herein, this Lease shall continue in full force and effect as to the part of the Premises not so taken or conveyed, and the rent herein shall be apportioned as of the date of such taking or conveyance so that thereafter the rent to be paid by Tenant shall be in the ratio that the area of the portion of the Premises not so taken or conveyed bears to the total area of the Premises prior to such taking. 26. SALE OR CONVEYANCE BY LANDLORD In the event of a sale or conveyance of the Complex or any interest therein, by any owner of the reversion then constituting Landlord, the transferor shall thereby be released from any further liability upon any of the terms, covenants or conditions (express or implied) herein contained in favor of Tenant, and in such event, insofar as such transfer is concerned, Tenant agrees to look solely to the responsibility of the successor in interest of such transferor in and to the Complex and this Lease. This Lease shall not be affected by any such sale or conveyance, and Tenant agrees to attorn to the successor in interest of such transferor. See Paragraph 53 27. ATTORNMENT TO LENDER OR THIRD PARTY In the event the interest of Landlord in the land and buildings in whi.ch the leased Premises are located (whether such interest of Landlord is a fee title interest or a leasehold interest ) is encumbered by deed of trust, and such interest is acquired by the lender or any third party through judicial foreclosure or by exercise era power of sale at private trustee's foreclosure sale, Tenant hereby agrees to attorn to the purchaser at any such foreclosure sale and to recognize such purchaser as the Landlord under this Lease. In the event the lien of the deed of trust securing the loan from a Lender to Landlord is prior and paramount to the Lease, this Lease shall nonetheless continue in full force and effect for the remainder of the unexpired term hereof, at the same rental herein reserved and upon all the other terms, conditions and covenants herein contained. 28. HOLDING OVER Any holding over by Tenant after expiration or other termination of the term of this Lease with the written consent of Landlord delivered to Tenant shall not constitute a renewal or extension of the Lease or give Tenant any rights in or to the leased Premises except as expressly provided in this Lease. Any holding over after the expiration or other termination of the term of this Lease, with the consent of Landlord. shall be construed to be a tenancy from month to month on the same terms and conditions herein specified insofar as applicable except that the monthly Basic Rent shall be increased to an amount equal to on hundred fifty (150%) percent of the monthly Basic Rent required during the last month of the Lease term. 29. CERTIFICATE OF ESTOPPEL Tenant shall at any time upon not less than ten (10) days' prior written notice from Landlord execute, acknowledge and deliver to Landlord a statement in writing (i) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect and the date to which the rent and other charges are paid in advance, if any, and (ii) acknowledging that there are not, to Tenant's knowledge, any uncured defaults on the part of Landlord hereunder, or specifying such defaults, if any, are claimed. Any such statement may be conclusively relied upon by any prospective purchaser or encumbrancer of the Premises. Tenant's failure to deliver such statement within such time shall be conclusive upon Tenant that this Lease is in full three and effect, without modification except as may be represented by Landlord; that there are no uncured defaults in Landlord's performance, and that not more than one month's rent has been paid in advance. 30. CONSTRUCTION CHANGES It is understood that the description of the Premises and the location of ductwork, plumbing and other facilities therein are subject to such minor changes as Landlord or Landlord's architect determines to be desirable in the course of construction of the Premises, and no such changes, or any changes in plans for any other portions of the Complex shall affect this Lease or entitle Tenant to any reduction of rent hereunder or result in any liability of Landlord to Tenant. Landlord does not guarantee the accuracy of any drawings supplied to Tenant and verification of the accuracy of such drawings rests with Tenant. 31. RIGHT OF LANDLORD TO PERFORM All terms covenants and conditions of this Lease to be Performed or observed by Tenant shall be performed or observed by Tenant at Tenant's sole cost and expense and without any reduction of rent. If Tenant shall fail to pay any sum of money, or other rent, required to be paid by it hereunder or shall fail to perform any other term or covenant hereunder on its part to be performed, and such failure shall continue for thirty (30) days after written notice thereof by Landlord, Landlord, without waiving or releasing Tenant from any obligation of Tenant hereunder, may. but shall not be obligated to, make any such payment or perform any such other term or covenant on Tenant's part to be performed. All sums so paid by Landlord and all necessary costs of such performance by Landlord together with interest thereon at the rate of the prime rate of interest per annum as quoted by the Bank of America from the date of such payment or performance by Landlord. shall be paid tend Tenant covenants to make such payment) to Landlord on demand by Landlord, and Landlord shall have (in addition to any other right or remedy of Landlord l the same rights and remedies in the event of nonpayment by Tenant as in the case of failure by Tenant in the payment of rent hereunder. 32. ATTORNEYS' FEES (A) In the event that Landlord should bring suit for the possession of the Premises, for the recovery of any sum due under this Lease. or because of the breach of any provision of this Lease, or for any other relief against the other party hereunder, then all costs and expenses, including reasonable attorneys' fees incurred by the prevailing party therein shall be paid by the other party, which obligation on the part of the other party shall be deemed to have accrued on the date of the commencement of such action and shall be enforceable whether or not the action is prosecuted to judgement. (B) Should Landlord be named as a defendant in any suit brought against Tenant in connection with or arising out of Tenant's occupancy hereunder. Tenant shall pay to Landlord its costs and expenses incurred in such suit, including a reasonable attorney's fee. 33. WAIVER The waiver by either party of the other party's failure to perform or observe any term, covenant or condition herein contained to be performed or observed by such waiving party shall not be deemed to be a waiver of such term. covenant or condition or of any subsequent failure of the party failing to perform or observe the same or any other such term, covenant or condition therein contained, and no custom or practice which may develop between the parties hereto during the term hereof shall be deemed a waiver of, or in any way affect, the right of either party to insist upon performance and observance by the other party in strict accordance with the terms hereof. 34. NOTICES All notices, demands, requests, advices or designations which may be or are required to be given by either party to the other hereunder shall be in writing. All notices, demands, requests, advices or designations by Landlord to Tenant shall be sufficiently given, made or delivered if personally served on Tenant by leaving the same at the Premises or if sent by United States certified or registered mail, postage prepaid, addressed to Tenant at the Premises. All notices demands, requests, advices or designations by Tenant to Landlord shall be sent by United States certified or registered mail, postage prepaid, addressed to Landlord at its offices at Peery/Arrillaga, 2560 Mission College ------------------------------------- Blvd., Suite 101, Santa Clara, CA 95054. Each notice, request, demand, advice - --------------------------------------- or designation referred to in this paragraph shall be deemed received on the date or the personal service for mailing thereof in the manner herein provided, as the case may be. 35. EXAMINATION OF LEASE Submission of this instrument for examination or signature by Tenant does not constitute a reservation of or option for a lease, and this instrument is not effective as a lease or otherwise until its execution and delivery by both Landlord and Tenant. 36. DEFAULT BY LANDLORD Landlord shall not be in default unless Landlord fails to perform obligations required of Landlord within a reasonable time, but in no event earlier than thirty (30) days after written notice by Tenant to Landlord and to the holder of any first mortgage or deed of trust covering the Premises whose name and address shall have heretofore been furnished to Tenant in writing, specifying wherein Landlord has failed to perform such obligations; provided, however, that if the nature of Landlord's obligations is such that more than thirty (30) days are required for performance, then Landlord shall not be in default if Landlord commences performance within such thirty (30) day period and thereafter diligently prosecutes the same to completion. 37. CORPORATE AUTHORITY If Tenant is a corporation. (or a partnership) each individual executing this Lease on behalf of said corporation (or partnership) represents and warrants that he is duly authorized to execute and deliver this Lease on behalf of said corporation (or partnership) in accordance with the by- laws of said corporation (or partnership in accordance with the partnership agreement) and that this Lease is binding upon said corporation (or partnership) in accordance with its terms. If Tenant is a corporation, Tenant shall, within thirty (30) days after execution of this Lease, deliver to Landlord a certified copy of the resolution of the Board of Directors of said corporation authorizing or ratifying the execution of this Lease. 39. LIMITATION OF LIABILITY In consideration of the benefits accruing hereunder, Tenant and all successors and assigns covenant and agree that, in the event of any actual or alleged failure, breach or default hereunder by Landlord: (i) the sole and exclusive remedy shall be against Landlord's interest in the Premises leased herein; (ii) no partner of Landlord shall be sued or named as a party in any suit or action (except as may be necessary to secure jurisdiction of the partnership) (iii) no service of process shall be made against any partner of Landlord (except as may be necessary to secure jurisdiction of the partnership) (iv) no partner of Landlord shall be required to answer or otherwise plead to any service of process; (v) no judgment will be taken against any partner of Landlord; (vi) any judgment taken against any partner of Landlord may be vacated and set aside at any time without hearing; (vii) no writ of execution will ever be levied against the assets of any partner of Landlord; (viii) these covenants and agreements are enforceable both by Landlord and also by any partner of Landlord, Tenant agrees that each of the foregoing covenants and agreements shall be applicable to any covenant or agreement either expressly contained in this Lease or imposed by statute or at common law. 40. MISCELLANEOUS AND GENERAL PROVISIONS a. Tenant shall not, without the written consent of Landlord, use the name of the building for any purpose other than as the address of the business conducted by Tenant in the Premises. b. This Lease shall in all respects be governed by and construed in accordance with the laws of the State of California. If any provision of this Lease shall be invalid, unenforceable or ineffective for any reason whatsoever, all other provisions hereof shall be and remain in full force and effect. c. The term "Premises" includes the space leased hereby and any improvements now or hereafter installed therein or attached thereto. The term "Landlord" or any pronoun used in place thereof includes the plural as well as the singular and the successors and assigns of Landlord. The term "Tenant" or any pronoun used in place thereof includes the plural as well as the singular and individuals, firms, associations, partnerships and corporations, and their and each of their respective heirs, executors, administrators, successors and permitted assigns, according to the context hereof, and the provisions of this Lease shall inure to the benefit of and bind such heirs, executors, administrators, successors and permitted assigns. The term "person" includes the plural as well as the singular and individuals, firms, associations, partnerships and corporations. Words used in any gender include other genders. If there be more than one Tenant the obligations of Tenant hereunder are joint and several. The paragraph headings of this Lease are for convenience of reference only and shall have no effect upon the construction or interpretation of any provision hereof. d. Time is of the essence of this Lease and of each and all of its provisions. e. At the expiration or earlier termination of this Lease, Tenant shall execute, acknowledge and deliver to Landlord. within ten (10) days after written demand from Landlord to Tenant. any quitclaim deed or other document required by any reputable title company, licensed to operate in the State of California, to remove the cloud or encumbrance created by this Lease from the real property of which Tenant's Premises are a part. f. This instrument along with any exhibits and attachments hereto constitutes the entire agreement between Landlord and Tenant relative to the Premises and this agreement and the exhibits and attachments may be altered, amended or revoked only by an instrument in writing signed by both Landlord and Tenant. Landlord and Tenant agree hereby that all prior or contemporaneous oral agreements between and among themselves and their agents or representatives relative to the leasing of the Premises are merged in or revoked by this agreement. g. Neither Landlord nor Tenant shall record this Lease or a short form memorandum hereof without the consent of the other. h. Tenant further agrees to execute any amendments required by a lender to enable Landlord to obtain financing, so long as Tenant's rights hereunder are not substantially affected. i. Paragraphs 43 through 56 are added hereto and are included as a part or ---- ---- this lease. j. Clauses, plats and riders, if any, signed by Landlord and Tenant and endorsed on or affixed to this Lease are a part hereof. k. Tenant covenants and agrees that no diminution or shutting off of light, air or view by any structure which may be hereafter erected (whether or not by Landlord) shall in any way affect his Lease, entitle Tenant to any reduction of rent hereunder or result in any liability of Landlord to Tenant. 41. BROKERS Tenant warrants that it had dealings with only the following real estate brokers or agents in connection with the negotiation of this Lease: none ---- - ------------------------------------------------------------------------------- and that it knows of no other real estate broker or agent who is entitled to a commission in connection with this Lease. 42. SIGNS No sign. placard, picture, advertisement, name or notice shall be inscribed, displayed or printed or affixed on or to any part of the outside of the Premises or any exterior windows of the Premises without the written consent of Landlord first had and obtained and Landlord shall have the right to remove any such sign, placard, picture, advertisement, name or notice without notice to and at the expense of Tenant. If Tenant is allowed to print or affix or in any way place a sign in, on, or about the Premises. upon expiration or other sooner termination of this Lease, Tenant at Tenant's sole cost and expense shall both remove such sign and repair all damage in such a manner as to restore all aspects of the appearance of the Premises to the condition prior to the placement of said sign. All approved signs or lettering on outside doors shall be printed, painted, affixed or inscribed at the expense of Tenant by a person approved of by Landlord. Tenant shall not place anything or allow anything to be placed near the glass of any window door partition or wall which may appear unsightly from outside the Premises. See Paragraph 54 IN WITNESS WHEREOF. Landlord and Tenant have executed and delivered this Lease as of the day and year last written below. LANDLORD: TENANT: JOHN ARRILLAGA SURVIVOR'S TRUST REPLAY NETWORKS, INC. a California corporation By /s/ John Arrillaga By /s/ --------------------------- --------------------------------- John Arrillaga, Trustee Date: 2/24/99 -------------------------- Title Director of Finance ---------------------------- RICHARD T. PERRY SEPARATE PROPERTY TRUST Type or Print Name M?? Smith ---------------- Date: 2/23/99 ---------------------------- By /s/ Richard Perry ------------------ Richard T. Perry Date: 2/24/99 ------------------ AMENDMENT 1 AMENDMENT NO. 1 TO LEASE THIS AMENDMENT NO. 1 is made and entered into this 16/th/ day of August, 1999, by and between JOHN ARRILLAGA, Trustee, or his Successor Trustee UTA dated 7/20/77 (JOHN ARRILLAGA SURVIVOR'S TRUST) as amended, and RICHARD T. PEERY, Trustee, or his Successor Trustee UTA dated 7/20/77 (RICHARD T. PEERY SEPARATE PROPERTY TRUST) as amended, collectively as LANDLORD, and REPLAY NETWORKS, INC., a California corporation, as TENANT. RECITALS A. WHEREAS, by Lease Agreement dated January 27, 1999 Landlord leased to Tenant approximately 32,078+ square feet of that certain 61,000+ square foot - - building located at 1945 Charleston Road, Mountain View, California, the details of which are more particularly set forth in said January 27, 1999 Lease Agreement, and B. WHEREAS, said Lease was amended by the Commencement Letter dated March 18, 1999 which changed the Commencement Date of the Lease from March 1, 1999 to March 15, 1999, and changed the Termination Date from February 28, 2006 to March 31, 2006, and, B. WHEREAS, it is now the desire of the parties hereto to amend the Lease by: (i) correcting the size of the Leased Premises and the total size of the building in which the Leased Premises is a part; (ii) increasing the Leased Premises by 14,768 square feet effective September 1, 1999, (iii) amending the Basic Rent Schedule and Aggregate Rent; (iv) increasing the Security Deposit and (v) increasing Tenant's non-exclusive parking spaces under said Lease Agreement as hereinafter set forth. AGREEMENT NOW THEREFORE, for valuable consideration, receipt of which is hereby acknowledged, and in consideration of the hereinafter mutual promises, the parties hereto do agree as follows: 1. SIZE OF LEASED PREMISES AND BUILDING SQUARE FOOTAGE: It is agreed --------------------------------------------------- between the parties that the size of the Leased Premises was understated in the Lease by 4,073+ square feet and shall be changed from approximately 32,078+ - - square feet to approximately 36,151+ square feet and that the total size of the - building of which the Leased Premises is a part was incorrectly stated as a certain 61,000+ square foot building and shall now be correctly stated as a - certain 61,728+ square foot building. - 2. INCREASED PREMISES: Subject to Paragraph 3 below, effective September ------------------ 1, 1999, the size of the Leased Premises will be increased by 14,768+ square - feet, or from 36,151+ square feet to 50,919+ square feet of space. Total said - - Premises are more particularly shown within the area outlined in Red on Exhibit ------- A. The entire parcel, of which the Leased Premises is a part, is shown within - - the area outlined in Green on Exhibit A. The additional 14,768+ square feet of --------- - space is leased on an "as-is" basis, in its present condition and configuration, as set forth in Blue on Exhibit B attached hereto ("Scenix Space"), with the --------- entire interior leased Premises shown in Red on Exhibit B. Tenant may within --------- thirty days of execution of this Amendment No. 1, at Tenant's sole cost and expense, have the Premises remeasured by Vance Brown, Inc. or Landlord's architect, Habitec Associates, and if the remeasured square footage leased herein is 50 square feet more or less than the square footage referenced herein, the Lease shall be further amended to correct the total square feet leased herein. 3. AMENDMENT SUBJECT TO LANDLORD'S OBTAINING TERMINATION AGREEMENT WITH -------------------------------------------------------------------- CURRENT TENANT FOR CURRENT TENANT'S SPACE: This Amendment is subject to - ----------------------------------------- Landlord obtaining from Scenix Semiconductor, Inc. ("Scenix"), the current tenant occupying the Premises leased hereunder, a Termination Agreement satisfactory to Landlord on or before August 31, 1999. In the event Landlord is unable to obtain said satisfactory Agreement on or before August 31, 1999, and/or in the event Scenix fails to timely vacate the Premises and surrender same to Landlord free and clear of its occupancy, Paragraph 2 of this Amendment shall, at Landlord's option: a) be rescinded, or b) Initial:__________ the Commencement Date of the increased Premises related to the Scenix Space hereof shall be modified to reflect the date Landlord so obtains said satisfactory Termination Agreement and receives possession of the Increased Premises free and clear of Scenix's occupancy; provided, however, that said period of delay caused by Scenix shall not extend beyond September 30, 1999. In the event Landlord cannot deliver said Increased Premises by October 1, 1999, Paragraph 2 of this Amendment No. 1, as related to the Scenix Space shall be automatically rescinded, and the Basic Rent Schedule shall be further amended to reflect the Basic Rent due absent the increased Premises related to the Scenix Space. 4. BASIC RENT SCHEDULE: Because of the increase in the square footage of ------------------- the Leased Premises, the Basic Monthly Rent Schedule and the Aggregate Basic Rent as shown in Paragraphs 4A and 43 of the Lease shall be changed as follows: On September 1, 1999, the sum of ONE HUNDRED SIX THOUSAND THREE HUNDRED FOUR AND NO/100 DOLLARS ($106,304.00) shall be due, and a like sum due on the first day of each month thereafter, through and including March 1, 2000. On April 1, 2000, the sum of ONE HUNDRED FIFTY SEVEN THOUSAND EIGHT HUNDRED FORTY EIGHT AND 90/100 DOLLARS ($157,848.90) shall be due, and a like sum due on the first day of each month thereafter, through and including March 1, 2001. On April 1, 2001, the sum of ONE HUNDRED SIXTY TWO THOUSAND NINE HUNDRED FORTY AND 80/100 DOLLARS ($162,940.80) shall be due, and a like sum due on the first day of each month thereafter, through and including March 1, 2002. On April 1, 2002, the sum of ONE HUNDRED SIXTY EIGHT THOUSAND THIRTY TWO AND 70/100 DOLLARS ($168,032.70) shall be due, and a like sum due on the first day of each month thereafter, through and including March 1, 2003. On April 1, 2003, the sum of ONE HUNDRED SEVENTY THREE THOUSAND ONE HUNDRED TWENTY FOUR AND 60/100 DOLLARS ($173,124.60) shall be due, and a like sum due on the first day of each month thereafter, through and including March 1, 2004. On April 1, 2004, the sum of ONE HUNDRED SEVENTY EIGHT THOUSAND TWO HUNDRED SIXTEEN AND 50/100 DOLLARS ($178,216.50) shall be due, and a like sum due on the first day of each month thereafter, through and including March 1, 2005. On April 1, 2005, the sum of ONE HUNDRED EIGHTY THREE THOUSAND THREE HUNDRED EIGHT AND 40/100 DOLLARS ($183,308.40) shall be due, and a like sum due on the first day of each month thereafter, through and including March 1, 2006. As a result of the change in square footage, the Aggregate Rental shall be increased by $4,854,577.20, or from $8,515,213.60 to $13,369,790.80. 5. SECURITY DEPOSIT: Tenant's Security Deposit shall be increased by ---------------- $135,655.20, or from $230,961.60 to $366,616.80, payable upon Tenant's execution of this Amendment No. 1. 6. INCREASED PARKING: Tenant's nonexclusive parking spaces shall be ----------------- increased by 53 spaces or from 95 spaces to 148 spaces. EXCEPT AS MODIFIED HEREIN, all other terms, covenants, and conditions of said January 27, 1999 Lease Agreement shall remain in full force and effect. IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment No. 1 to Lease Initial:____________ as of the day and year last written below. LANDLORD: TENANT: JOHN ARRILLAGA SURVIVOR'S TRUST REPLAY NETWORKS, INC. a California corporation By /s/ John Arrillaga By /s/ Marcus Smith -------------------------------- ------------------------------- John Arrillaga, Trustee Marcus Smith Date: 9/14/99 --------------------------------- ------------------------------- Print or Type Name RICHARD T. PEERY SEPARATE Title: Director of Finance PROPERTY TRUST --------------------------- By /s/ Richard Peery Date: 8/31/99 -------------------------------- ---------------------------- Richard T. Peery, Trustee Date: 9/15/99 -------------------------------- Initial:________________ AMENDMENT NO. 2 TO LEASE THIS AMENDMENT NO. 2 is made and entered into this 25th day of October, 1999, by and between JOHN ARRILLAGA, Trustee, or his Successor Trustee UTA dated 7/20/77 (JOHN ARRILLAGA SURVIVOR'S TRUST) as amended, and RICHARD T. PEERY, Trustee, or his Successor Trustee UTA dated 7/20/77 (RICHARD T. PEERY SEPARATE PROPERTY TRUST) as amended, collectively as LANDLORD, and REPLAY NETWORKS, INC., a California corporation, as TENANT. RECITALS A. WHEREAS, by Lease Agreement dated January 27, 1999 Landlord leased to Tenant approximately 32,078+ square feet of that certain 61,000+ square foot - - building located at 1945 Charleston Road, Mountain View, California, the details of which are more particularly set forth in said January 27, 1999 Lease Agreement, and B. WHEREAS, said Lease was amended by the Commencement Letter dated March 18, 1999 which changed the Commencement Date of the Lease from March 1, 1999 to March 15, 1999, and changed the Termination Date from February 28, 2006 to March 31, 2006, and, C. WHEREAS, said Lease was amended by Amendment No. 1 dated August 16, 1999 which amended the Lease by: (i) correcting the size of the Leased Premises and the total size of the building in which the Leased Premises is a part; (ii) increasing the Leased Premises by 14,768 square feet effective September 1, 1999, (iii) amending the Basic Rent Schedule and Aggregate Rent; (iv) increasing the Security Deposit and (v) increasing Tenant's non-exclusive parking spaces under said Lease Agreement accordingly, and D. WHEREAS, it is now the desire of the parties hereto to amend the Lease by: (i) increasing the Leased Premises by 10,809 square feet effective November 1, 1999 (one hundred percent of the Building), (iii) amending the Basic Rent Schedule and Aggregate Rent; (iv) increasing the Security Deposit (v) increasing Tenant's non-exclusive parking spaces, and (vi) replacing Lease Paragraphs 7 ("Expenses of Operation, Management, and Maintenance of the Common Areas of the Complex and Building in Which the Premises are Located"), 10 ("Tenant Maintenance"), and 11 ("Utilities of the Building in Which the Premises are Located") of said Lease Agreement as hereinafter set forth. AGREEMENT NOW THEREFORE, for valuable consideration, receipt of which is hereby acknowledged, and in consideration of the hereinafter mutual promises, the parties hereto do agree as follows: 1. INCREASED PREMISES: Effective November 1, 1999, the size of the Leased ------------------ Premises will be increased by 10,809+ square feet, or from 50,919+ square feet - - to 61,728+ square feet of space, or one hundred percent of the Building in which - the Premises are located. Total said Premises are more particularly shown within the area outlined in Red on Exhibit A. The entire parcel, of which the --------- Leased Premises is a part, is shown within the area outlined in Green on Exhibit ------- A. The additional 10,809+ square feet of space is leased on an "as-is" basis, - - - in its present condition and configuration, as set forth in Blue on Exhibit B --------- attached hereto, with the entire interior leased Premises shown in Red on Exhibit B. - --------- 2. BASIC RENT SCHEDULE: The Basic Monthly Rent Schedule and the Aggregate ------------------- Basic Rent as shown in Paragraphs 4A and 43 of the Lease shall be adjusted as follows: On November 1, 1999, the sum of ONE HUNDRED FORTY FOUR THOUSAND ONE HUNDRED THIRTY FIVE AND 50/100 DOLLARS ($144,135.50) shall be due, and a like sum due on the first day of each month thereafter, through and including March 1, 2000. On April 1, 2000, the sum of ONE HUNDRED NINETY FIVE THOUSAND SIX HUNDRED Initial:_________ EIGHTY AND 40/100 DOLLARS ($195,680.40) shall be due, and a like sum due on the first day of each month thereafter, through and including October 1, 2000. On November 1, 2000, the sum of ONE HUNDRED NINETY SIX THOUSAND SEVEN HUNDRED SIXTY ONE AND 30/100 DOLLARS ($196,761.30) shall be due, and a like sum due on the first day of each month thereafter, through and including March 1, 2001. On April 1, 2001, the sum of TWO HUNDRED ONE THOUSAND EIGHT HUNDRED FIFTY THREE AND 20/100 DOLLARS ($201,853.20) shall be due, and a like sum due on the first day of each month thereafter, through and including October 1, 2001. On November 1, 2001, the sum of TWO HUNDRED TWO THOUSAND NINE HUNDRED THIRTY FOUR AND 10/100 DOLLARS ($202,934.10) shall be due, and a like sum due on the first day of each month thereafter, through and including March 1, 2002. On April 1, 2002, the sum of TWO HUNDRED EIGHT THOUSAND TWENTY SIX AND NO/100 DOLLARS ($208,026.00) shall be due, and a like sum due on the first day of each month thereafter, through and including October 1, 2002. On November 1, 2002, the sum of TWO HUNDRED NINE THOUSAND ONE HUNDRED SIX AND 90/100 DOLLARS ($209,106.90) shall be due, and a like sum due on the first day of each month thereafter, through and including March 1, 2003. On April 1, 2003, the sum of TWO HUNDRED FOURTEEN THOUSAND ONE HUNDRED NINETY EIGHT AND 80/100 DOLLARS ($214,198.80) shall be due, and a like sum due on the first day of each month thereafter, through and including October 1, 2003. On November 1, 2003, the sum of TWO HUNDRED FIFTEEN THOUSAND TWO HUNDRED SEVENTY NINE AND 70/100 DOLLARS ($215,279.70) shall be due, and a like sum due on the first day of each month thereafter, through and including March 1, 2004. On April 1, 2004, the sum of TWO HUNDRED TWENTY THOUSAND THREE HUNDRED SEVENTY ONE AND 60/100 DOLLARS ($220,371.60) shall be due, and a like sum due on the first day of each month thereafter, through and including October 1, 2004. On November 1, 2004, the sum of TWO HUNDRED TWENTY ONE THOUSAND FOUR HUNDRED FIFTY TWO AND 50/100 DOLLARS ($221,452.50) shall be due, and a like sum due on the first day of each month thereafter, through and including March 1, 2005. On April 1, 2005, the sum of TWO HUNDRED TWENTY SIX THOUSAND FIVE HUNDRED FORTY FOUR AND 40/100 DOLLARS ($226,544.40) shall be due, and a like sum due on the first day of each month thereafter, through and including October 1, 2005. On November 1, 2005, the sum of TWO HUNDRED TWENTY SEVEN THOUSAND SIX HUNDRED TWENTY FIVE AND 30/100 DOLLARS ($227,625.30) shall be due, and a like sum due on the first day of each month thereafter, through and including March 1, 2006. The Aggregate Rental shall be increased by $3,140,014.50, or from $13,369,790.80 to $16,509,805.30. 3. SECURITY DEPOSIT: Tenant's Security Deposit shall be increased by ---------------- $88,633.80, or from $366,616.80 to $455,250.60, payable upon Tenant's execution of this Amendment No. 2. 4. INCREASED PARKING: Tenant's nonexclusive parking spaces shall be ----------------- increased by 32 spaces or from 148 spaces to 180 spaces. 5. EXPENSES OF OPERATION, MANAGEMENT, AND MAINTENANCE OF THE COMMON AREAS ---------------------------------------------------------------------- OF THE COMPLEX AND BUILDING IN WHICH THE PREMISES ARE LOCATED: Effective - ------------------------------------------------------------- November 1, 1999, Tenant shall occupy one hundred percent (100%) of the Building in which the Premises are located, and as a result, Lease Paragraph 7 shall be deleted in its Initial:_________ entirety and replaced with the following: "7. EXPENSES OF OPERATION, MANAGEMENT, AND MAINTENANCE OF THE COMMON AREAS OF THE COMPLEX: As Additional Rent and in accordance with Paragraph 4D of this Lease, Tenant shall pay to Landlord Tenant's proportionate share (calculated on a square footage or other equitable basis as calculated by Landlord) of all expenses of operation, management, maintenance and repair of the Common Areas of the Complex including, but not limited to, license, permit, and inspection fees; security; utility charges associated with exterior landscaping and lighting (including water and sewer charges); all charges incurred in the maintenance and replacement of landscaped areas, lakes, parking lots and paved areas (including repair, replacement, resealing and restriping), sidewalks, driveways; maintenance, repair, and replacement of all fixtures and electrical, mechanical and plumbing systems; structural elements and exterior surfaces of the buildings; salaries and employees benefits of personnel and payroll taxes applicable thereto; supplies, materials, equipment and tools; the cost of capital expenditures which have the effect of reducing operating expenses, provided, however, that in the event Landlord makes such capital improvements, Landlord may amortize its investment in said improvements (together with interest at the rate of fifteen percent (15%) per annum on the unamortized balance) as an operating expense in accordance with standard accounting practices, provided, that such amortization is not at a rate greater than the anticipated savings in the operating expenses. "Additional Rent" as used herein shall not include Landlord's debt repayments, interest on charges; expenses directly or indirectly incurred by Landlord for the benefit of any other tenant; cost for the installation of partitioning or any other tenant improvements; cost of attracting tenants; depreciation; interest, or executive salaries." 6. TENANT MAINTENANCE: Effective November 1, 1999, Tenant shall occupy ------------------ one hundred percent (100%) of the Building in which the Premises are located, and as a result, Lease Paragraph 10 shall be deleted in its entirety and replaced with the following: "10. TENANT MAINTENANCE. Tenant shall, at its sole cost and expense, keep and maintain the Premises (including appurtenances) and every part thereof in a high standard of maintenance and repair, or replacement, and in good and sanitary condition. Tenant's maintenance and repair responsibilities herein referred to include, but are not limited to, janitorization, all windows (interior and exterior), window frames, plate glass and glazing (destroyed by accident or act of third parties), truck doors, plumbing systems (such as water and drain lines, sinks, toilets, faucets, drains, showers and water fountains), electrical systems (such as panels, conduits, outlets, lighting fixtures, lamps, bulbs, tubes and ballasts), heating and air conditioning systems (such as compressors, fans, air handlers, ducts, mixing boxes, thermostats, time clocks, boilers, heaters, supply and return grills), structural elements and exterior surfaces of the building, store fronts, roofs, downspouts, all interior improvements within the Premises including but not limited to wall coverings, window coverings, carpet, floor coverings, partitioning, ceilings, doors (both interior and exterior), including closing mechanisms, latches, locks, skylights (if any), automatic fire extinguishing systems, and elevators and all other interior improvements of any nature whatsoever. Tenant agrees to provide carpet shields under all rolling chairs or to otherwise be responsible for wear and tear of the carpet caused by such rolling chairs if such wear and tear exceeds that caused by normal foot traffic in surrounding areas. Areas of excessive wear shall be replaced at Tenant's sole expense upon Lease termination. Tenant hereby waives all rights under, and benefits of, Subsection 1 of Section 1932 and Section 1941 and 1942 of the California Civil Code and under any similar law, statute or ordinance now or hereafter in effect. In the event any of the above maintenance responsibilities apply to any other tenant(s) of Landlord where there is common usage with other tenant(s), such maintenance responsibilities and charges shall be allocated to the Leased Premises by square footage or other equitable basis as calculated and determined by Landlord." 7. UTILITIES OF THE BUILDING IN WHICH THE PREMISES ARE LOCATED: Effective ----------------------------------------------------------- November 1, 1999, Tenant shall occupy one hundred percent (100%) of the Building in which Initial:________ the Premises are located, and as a result, Lease Paragraph 11 shall be deleted in its entirety and replaced with the following: "11. UTILITIES. Tenant shall have all utilities servicing the Premises transferred into Tenant's name effective November 1, 1999. Tenant shall pay promptly, as the same become due, all charges for water, gas, electricity, telephone, telex and other electronic communication service, sewer service, waste pick-up and any other utilities, materials or services furnished directly to or used by Tenant on or about the Premises during the Term of this Lease, including, without limitation, any temporary or permanent utility surcharge or other exactions whether or not hereinafter imposed. In the event the above charges apply to any other tenant(s) of Landlord where there is common usage with other tenant(s), such charges shall be allocated to the Leased Premises by square footage or other equitable basis as calculated and determined by Landlord. Landlord shall not be liable for and Tenant shall not be entitled to any abatement or reduction of Rent by reason of any interruption or failure of utility services to the Premises when such interruption or failure is caused by accident, breakage, repair, strikes, lockouts, or other labor disturbances or labor disputes of any nature, or by any other cause, similar or dissimilar, beyond the reasonable control of Landlord." EXCEPT AS MODIFIED HEREIN, all other terms, covenants, and conditions of said January 27, 1999 Lease Agreement shall remain in full force and effect. IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment No. 2 to Lease as of the day and year last written below. LANDLORD: TENANT: JOHN ARRILLAGA SURVIVOR'S TRUST REPLAY NETWORKS, INC. a California corporation By /s/ John Arrillaga By /s/ Marcus Smith ----------------------------- ---------------------------- John Arrillaga, Trustee Marcus Smith ------------------------------ Date: 11/30/99 Print or Type Name -------------------------- RICHARD T. PEERY SEPARATE Title: VP Finance ------------------------ PROPERTY TRUST By /s/ Richard Peery Date: 11/99 ----------------------------- ------------------------- Richard T. Peery, Trustee Date: 11/30/99 -------------------------- Initial:___________ EX-23.1 8 CONSENT OF PRICEWATERHOUSECOOPERS LLP 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 February 22, 2000 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. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP San Jose, California March 3, 2000 EX-27.1 9 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 12-MOS YEAR DEC-31-1999 DEC-31-1998 JAN-01-1999 JAN-01-1998 DEC-31-1999 DEC-31-1998 11,731 686 24,419 25 1,477 0 13 0 1,700 0 1,043 225 3,051 157 300 25 43,449 1,068 6,751 1,328 0 0 0 0 26 8 6 4 36,666 (272) 43,449 1,068 0 0 0 0 0 0 36,710 3,256 0 0 0 0 (960) 28 (35,750) (3,284) 0 0 (35,750) (3,284) 0 0 0 0 0 0 (35,750) (3,284) (4.73) (0.48) (4.73) (0.48)
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