EXHIBIT (a)(1)
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OFFER TO EXCHANGE CERTAIN OUTSTANDING OPTIONS FOR NEW OPTIONS
(THE "OFFER TO EXCHANGE")
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THIS SUPPLEMENT CONSTITUTES PART OF THE SECTION 10(a) PROSPECTUS RELATING TO
THE RESONATE INC. 1996 STOCK PLAN, AS AMENDED, AND THE SECTION 10(a) PROSPECTUS
RELATING TO THE RESONATE INC. 2000 STOCK PLAN
June 25, 2001
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RESONATE INC.
OFFER TO EXCHANGE CERTAIN OUTSTANDING OPTIONS FOR NEW OPTIONS
(THE "OFFER TO EXCHANGE")
THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 5:00 P.M., PACIFIC DAYLIGHT TIME,
ON JULY 27, 2001 UNLESS THE OFFER IS EXTENDED.
Resonate Inc. ("Resonate") is offering eligible employees the
opportunity to exchange certain outstanding options to purchase shares of
Resonate common stock for new options which we will grant under the Resonate
Inc. 2000 Stock Plan. We are making the offer upon the terms and conditions
described in (i) this Offer to Exchange (the "Offer to Exchange"); (ii) the
related memorandum from ▇▇▇▇▇ ▇▇▇▇▇▇▇ dated June 25, 2001; (iii) the Election
Form; and (iv) the Notice to Withdraw from the Offer (which together, as they
may be amended from time to time, constitute the "offer" or "program").
The number of shares subject to the new options to be granted to each
eligible employee will be equal to the number of shares subject to the options
tendered by the eligible employee and accepted for exchange. Subject to the
terms and conditions of this offer, we will grant the new options on the first
business day which is at least six (6) months and one (1) day after the date we
cancel the options accepted for exchange. You may only tender options for all or
none of the outstanding, unexercised shares subject to an individual option
grant. Only options with an exercise price equal to or greater than ten dollars
($10) per share are eligible for exchange. All tendered options accepted by us
through the offer will be cancelled promptly after 5:00 PM Pacific Daylight Time
on the date the offer ends. The offer is currently scheduled to expire on July
27, 2001 (the "Expiration Date") and we expect to cancel options on July 30,
2001, which is the first business day following the Expiration Date (the
"Cancellation Date"). IF YOU TENDER ANY OPTION GRANT FOR EXCHANGE, YOU WILL BE
REQUIRED TO ALSO TENDER ALL OPTION GRANTS THAT YOU RECEIVED DURING THE SIX (6)
MONTH PERIOD PRIOR TO THE CANCELLATION DATE, EVEN IF THOSE OPTION GRANTS HAVE AN
EXERCISE PRICE OF LESS THAN TEN DOLLARS ($10) PER SHARE. Since we currently
expect to cancel all tendered options on July 30, 2001, this means that if you
participate in the offer, you will be required to tender all options granted to
you since January 30, 2001.
The offer is not conditioned on a minimum number of options being
tendered. Participation in the offer is completely voluntary. The offer is
subject to conditions that we describe in Section 7 of this Offer to Exchange.
You may participate in the offer if you are an employee of Resonate
Inc. or one of our subsidiaries who resides or works in the United States;
however, directors and employees who are defined as "officers" for purposes of
Section 16(b) of the Exchange Act of 1934, as amended, comprised of those
officers listed on Schedule A to this Offer to Exchange, are not eligible to
participate. In order to receive a new option pursuant to this offer, you must
continue to be an employee as of the date on which the new options are granted,
which will be at least six (6) months and one (1) day after the Cancellation
Date.
If you tender options for exchange as described in the offer, and we
accept your tendered options, then, subject to the terms of this offer, we will
grant you new options under the 2000 Stock Plan.
The exercise price per share of the new options will be 100% of the
fair market value on the date of grant, as determined by the closing price
reported by the Nasdaq National Market on the date of grant. If, however, prior
to the date of grant of the new options Resonate enters into a merger or stock
acquisition whereby Resonate is acquired by another company, then the new stock
options you receive could be for the purchase of the acquirer's stock (as
opposed to Resonate's), with an exercise price equal to the fair market value of
such acquirer's stock on the date the new option is granted. Even upon the
happening of such events, the date the new option is granted will remain a date
which is at least six (6) months and one (1) day after the Cancellation Date. We
expect the date of grant of the new options to be January 31, 2002.
Each new option will be exercisable for the same number of shares as
remained outstanding under the tendered options. Upon the happening of a merger
or stock acquisition whereby Resonate is acquired by another company, the number
of shares subject to your new option would be adjusted so that the number of
shares you receive would be equal to the number of our shares that were accepted
for exchange, multiplied by the exchange ratio that was used in the merger or
acquisition.
Each new option granted will vest in accordance with the vesting
schedule of the cancelled options. Each new option granted will vest as follows:
- any shares that were fully vested on the Cancellation Date will be fully
vested,
- all unvested options on the Cancellation Date that would have been
fully vested on the date the new options are granted (at least six (6)
months and one (1) day from the Cancellation Date) will be fully vested, and
- all remaining unvested options will have a vesting schedule that is
equivalent to what would have been in place had the cancelled option
remained in effect. For example:
- An employee cancels an option that is 20/48th vested at the time of
cancellation.
- The new grant occurs six (6) months and one (1) day after
cancellation.
- The replacement option will be 26/48th (plus one (1) day) vested
at the time of grant.
Although our Board of Directors has approved the offer, neither we nor
our Board of Directors makes any recommendation as to whether you should tender
or not tender your options for exchange. You must make your own decision whether
or not to tender your options.
Shares of Resonate common stock are traded on the Nasdaq National
Market under the symbol "RSNT." On June 19, 2001, the closing price of our
common stock reported on the Nasdaq National Market was $3.54 per share.
WE RECOMMEND THAT YOU EVALUATE CURRENT MARKET QUOTES FOR OUR COMMON
STOCK, AMONG OTHER FACTORS, BEFORE DECIDING WHETHER OR NOT TO TENDER YOUR
OPTIONS.
THIS OFFER TO EXCHANGE HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION (THE "SEC") OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SEC OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS OFFER TO EXCHANGE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
You should direct questions about the offer or requests for assistance
or for additional copies of this Offer to Exchange, the memorandum from ▇▇▇▇▇
▇▇▇▇▇▇▇ dated June 25, 2001, the Election Form and the Notice to Withdraw from
the Offer, to ▇▇▇▇▇▇ ▇▇▇▇ at Resonate Inc., ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇ (telephone: (▇▇▇) ▇▇▇-▇▇▇▇).
IMPORTANT
If you wish to tender your options for exchange, you must complete and
sign the Election Form in accordance with its instructions, and fax or hand
deliver it and any other required documents to ▇▇▇▇▇▇ ▇▇▇▇ at fax number (408)
▇▇▇-▇▇▇▇ on or before 5:00 p.m. on July 27, 2001.
We are not making the offer to, and we will not accept any tender of
options from or on behalf of, option holders in any jurisdiction in which the
offer or the acceptance of any tender of options would not be in compliance with
the laws of that jurisdiction. However, we may, at our discretion, take any
actions necessary for us to make the offer to option holders in any of these
jurisdictions.
WE HAVE NOT AUTHORIZED ANY PERSON TO MAKE ANY RECOMMENDATION ON OUR
BEHALF AS TO WHETHER YOU SHOULD TENDER OR NOT TENDER YOUR OPTIONS THROUGH THE
OFFER. YOU SHOULD RELY ONLY ON THE INFORMATION IN THIS DOCUMENT OR TO WHICH WE
HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO GIVE YOU ANY INFORMATION OR
TO MAKE ANY REPRESENTATION IN CONNECTION WITH THE OFFER OTHER THAN THE
INFORMATION AND REPRESENTATIONS CONTAINED IN THIS DOCUMENT AND IN THE RELATED
MEMORANDUM FROM ▇▇▇▇▇ ▇▇▇▇▇▇▇ DATED JUNE 25, 2001, THE ELECTION FORM AND THE
NOTICE TO WITHDRAW FROM THE OFFER. IF ANYONE MAKES ANY RECOMMENDATION OR
REPRESENTATION TO YOU OR GIVES YOU ANY INFORMATION, YOU MUST NOT RELY UPON THAT
RECOMMENDATION, REPRESENTATION OR INFORMATION AS HAVING BEEN AUTHORIZED BY US.
TABLE OF CONTENTS
PAGE
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SUMMARY TERM SHEET....................................................................................................1
CERTAIN RISKS OF PARTICIPATING IN THE OFFER..........................................................................10
INTRODUCTION.........................................................................................................14
THE OFFER............................................................................................................16
1. Eligibility.................................................................................................16
2. Number of options; expiration date..........................................................................16
3. Purpose of the offer........................................................................................17
4. Procedures for tendering options............................................................................18
5. Withdrawal Rights and Change of Election....................................................................19
6. Acceptance of options for exchange and issuance of new options..............................................20
7. Conditions of the offer.....................................................................................22
8. Price range of shares underlying the options................................................................23
9. Source and amount of consideration; terms of new options....................................................24
10. Information concerning Resonate.............................................................................29
11. Interests of directors and officers; transactions and arrangements concerning the options...................30
12. Status of options acquired by us in the offer; accounting consequences of the offer.........................30
13. Legal matters; regulatory approvals.........................................................................31
14. Material U.S. Federal Income Tax Consequences...............................................................31
15. Extension of offer; termination; amendment..................................................................34
16. Fees and expenses...........................................................................................35
17. Additional information......................................................................................35
18. Summary Financial Statements................................................................................37
19. Miscellaneous...............................................................................................37
SCHEDULE A Information Concerning the Directors and Executive Officers of Resonate Inc...................A-1
SCHEDULE B Summary Financial Statements of Resonate Inc..................................................B-1
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SUMMARY TERM SHEET
The following are answers to some of the questions that you may have
about the offer. We urge you to read carefully the remainder of this Offer to
Exchange, the accompanying memorandum from ▇▇▇▇▇ ▇▇▇▇▇▇▇ dated June 25, 2001,
the Election Form and the Notice to Withdraw from the Offer because the
information in this summary is not complete, and additional important
information is contained in the remainder of this Offer to Exchange, the
accompanying memorandum from ▇▇▇▇▇ ▇▇▇▇▇▇▇ dated June 25, 2001, the Election
Form and the Notice to Withdraw from the Offer. We have included page references
to the remainder of this Offer to Exchange where you can find a more complete
description of the topics in this summary.
WHAT SECURITIES ARE RESONATE OFFERING TO EXCHANGE?
We are offering to exchange all outstanding, unexercised options to
purchase shares of common stock of Resonate Inc. ("Resonate") issued under the
1996 Stock Plan and the 2000 Stock Plan that have an exercise price equal to or
greater than ten dollars ($10) per share and which are held by eligible
employees, in return for new options we will grant under the 2000 Stock Plan.
Options to purchase common stock of Resonate that have an exercise price of less
than ten dollars ($10) are not eligible to participate in the offer, except that
if you participate in the offer, then all options received since January 30,
2001 must be tendered, even if the option has an exercise price less than ten
dollars ($10) per share. (Page 16)
WHO IS ELIGIBLE TO PARTICIPATE?
Employees are eligible to participate if they are employees of Resonate
or one of Resonate's subsidiaries as of the date the offer commences and remain
employees through the date on which the tendered options are cancelled, but only
if they live or work in the United States; however, affiliates of the Company,
which shall include members of the Board of Directors and all employees who are
defined as "officers" for purposes of Section 16(b) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), (as listed on Schedule A to this
Offer to Exchange) are not eligible to participate. In order to receive a new
option, you must remain an employee as of the date the new options are granted,
which will be at least six (6) months and one (1) day after the Cancellation
Date. If Resonate does not extend the offer, the new options will be granted on
January 31, 2002. (Page 16)
ARE EMPLOYEES OUTSIDE THE UNITED STATES ELIGIBLE TO PARTICIPATE?
No. Only employees who live or work in the United States are eligible
to participate.
WHY IS RESONATE MAKING THE OFFER?
We believe that granting stock options motivates high levels of
performance and provides an effective means of recognizing employee
contributions to the success of our company. The offer provides an opportunity
for us to offer eligible employees a valuable incentive to stay with our
company. Some of our outstanding options, whether or not they are currently
exercisable, have exercise prices that are significantly higher than the current
market price of our shares. We believe these options are unlikely to be
exercised in the foreseeable future. By making this offer to exchange
outstanding options for new options that will have an exercise price at least
equal to the market value of the shares on the grant date, we intend to provide
our eligible employees with the benefit of owning options that over time may
have a greater potential to increase in value, create better performance
incentives for eligible employees and thereby maximize stockholder value. (Page
17)
WHAT ARE THE CONDITIONS TO THE OFFER?
The offer is not conditioned on a minimum number of options being
tendered. Participation in the offer is completely voluntary. The conditions are
described in Section 7 of this Offer to Exchange. (Page 22)
ARE THERE ANY ELIGIBILITY REQUIREMENTS THAT I MUST SATISFY AFTER THE EXPIRATION
DATE OF THE OFFER TO RECEIVE THE NEW OPTIONS?
To receive a grant of new options through the offer and under the terms
of the 2000 Stock Plan, you must be employed by Resonate or one of its
subsidiaries as of the date the new options are granted.
As discussed below, subject to the terms of this offer, we will grant
the new options on the first business day which is at least six (6) months and
one (1) day after the date we cancel the options accepted for exchange. We
expect that we will grant the new options on January 31, 2002. If, for any
reason, you do not remain an employee of Resonate or one of its subsidiaries
through the date we grant the new options, you will not receive any new options
or other consideration in exchange for your tendered options that have been
accepted for exchange and subsequently cancelled. You are reminded that unless
expressly provided in your employment agreement, your employment with Resonate
remains "at will" and can be terminated by you or Resonate at any time, with or
without cause or notice. (Page 16)
HOW MANY NEW OPTIONS WILL I RECEIVE IN EXCHANGE FOR MY TENDERED OPTIONS?
If you meet the eligibility requirements and subject to the terms of
this offer, we will grant you new options to purchase the number of shares equal
to the number of shares subject to the options you tender. If, however, prior to
the date of grant of the new options Resonate enters into a merger or stock
acquisition whereby Resonate is acquired by another company, then the new stock
options you receive could be for the purchase of the acquirer's stock (as
opposed to Resonate's), and the number of shares would be adjusted. For example,
if we were acquired by means of a merger, you would receive the number of shares
that were accepted for exchange and cancelled, multiplied by the exchange ratio
that was used in the merger. New options will be granted under our 2000 Stock
Plan, unless prevented by law or applicable regulations. All new options will be
subject to a new option agreement between you and us. You must execute the new
option agreement before receiving new options. (Page 16)
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WHEN WILL I RECEIVE MY NEW OPTIONS?
We will grant the new options on the first business day which is at
least six (6) months and one (1) day after the date we cancel the options
accepted for exchange (the "New Option Grant Date"). Under no circumstances will
we grant the new options prior to the first business day which is at least six
(6) months and (1) day after the date we cancel the options accepted for
exchange. If we cancel tendered options on July 30, 2001, which is the scheduled
date for the cancellation of the options (the first business day following the
expiration date of the offer), the new options will be granted on January 31,
2002. You must continue to be an employee on the date we are granting the new
options in order to be eligible to receive them. (Page 20)
WHY WON'T I RECEIVE MY NEW OPTIONS IMMEDIATELY AFTER THE EXPIRATION DATE OF THE
OFFER?
If we were to grant the new options on any date which is earlier than
six (6) months and one (1) day after the date we cancel the options accepted for
exchange, we would be subject to onerous accounting charges. We would be
required for financial reporting purposes to treat the new options as variable
awards. This means that we would be required to record the non-cash accounting
impact of decreases and increases in the company's stock price as a compensation
expense for the new options issued under this offer. We would have to continue
this variable accounting for these new options until they were exercised,
forfeited or terminated. The higher the market value of our shares, the greater
the compensation expense we would have to record. By deferring the grant of the
new options for at least six (6) months and one (1) day, we believe we will not
have to treat the new options as variable awards.
IF I TENDER OPTIONS IN THE OFFER, WILL I BE ELIGIBLE TO RECEIVE OTHER OPTION
GRANTS BEFORE I RECEIVE MY NEW OPTIONS?
No. If we accept options you tender in the offer, you can not receive
any other option grants before you receive your new options. We will defer until
the grant date for your new options the grant of other options, such as annual,
bonus or promotional options, for which you may otherwise be eligible before the
new option grant date. We will defer the grant to you of these other options if
we determine it is necessary for us to do so to avoid incurring compensation
expense against our earnings because of accounting rules that could apply to
these interim option grants as a result of the offer. Instead, we will issue a
promise to grant stock option(s) to you on the date when such grant would no
longer subject us to these onerous accounting charges as a result of the
exchange offer. However, if you are no longer employed at Resonate or one of its
subsidiaries on the date of grant of the new options, you will not receive new
options even if a Promise to Grant Stock Option(s) has been issued to you. (Page
21)
WILL I BE REQUIRED TO GIVE UP ALL MY RIGHTS TO THE CANCELLED OPTIONS?
Yes. Once we have accepted options tendered by you, your options will
be cancelled and you will no longer have any rights under those options. We
intend to cancel all options accepted for exchange on the first business day
following the expiration of the offer (the "Cancellation Date"). We expect the
Cancellation Date to be July 30, 2001. (Page 20)
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WHAT WILL THE EXERCISE PRICE OF THE NEW OPTIONS BE?
The exercise price per share of the new options will be 100% of the
fair market value on the date of grant, as determined by the closing price
reported by the Nasdaq National Market on the date of grant.
If, however, prior to the date of grant of the new options Resonate
enters into a merger or stock acquisition whereby Resonate is acquired by
another company, then the new stock options you receive could be for the
purchase of the acquirer's stock (as opposed to Resonate's), with an exercise
price equal to the fair market value of such acquirer's stock on the New Option
Grant Date. Regardless of any such merger or stock acquisition, the New Option
Grant Date will be at least six (6) months and one (1) day after the
Cancellation Date.
Accordingly, we cannot predict the exercise price of the new options.
Because we will grant new options on the first business day that is at least six
(6) months and one (1) day after the date we cancel the options accepted for
exchange, the new options may have a higher exercise price than some or all of
your current options. We recommend that you evaluate current market quotes for
our shares, among other factors, before deciding whether or not to tender your
options. (Page 26)
WHEN WILL THE NEW OPTIONS VEST?
The vesting of the newly issued options will be in accordance with the
vesting schedule of the cancelled options. You will receive credit for vesting
accrued prior to the cancellation of the tendered options and will receive
credit for the period between the cancellation of the tendered options and the
grant of the new options.
Each new option granted will vest as follows:
- any shares that were fully vested on the Cancellation Date will be fully
vested,
- all unvested options on the Cancellation Date that would have been
fully vested on the date the new options are granted (at least six (6)
months and one (1) day from the Cancellation Date) will be fully vested, and
- all remaining unvested options will have a vesting schedule that is
equivalent to what would have been in place had the cancelled option
remained in effect. For example:
- An employee cancels an option that is 20/48th vested at the time of
cancellation.
- The new grant occurs six (6) months and one (1) day after
cancellation.
- The replacement option will be 26/48th (plus one (1) day) vested at
the time of grant. (Page 26)
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WHAT IF RESONATE ENTERS INTO A MERGER OR STOCK ACQUISITION WHEREBY RESONATE IS
ACQUIRED BY ANOTHER COMPANY?
It is possible that, prior to the grant of new options, we might effect
or enter into an agreement such as a merger or stock acquisition whereby
Resonate is acquired by another company. The Promise to Grant Stock Option(s)
which we will give you is a binding commitment, and any successor to our company
will honor that commitment.
You should be aware that these types of transactions could have
substantial effects on our stock price, including potentially substantial
appreciation in the price of our shares. Depending on the structure of this type
of transaction, tendering option holders might be deprived of any further price
appreciation in the shares associated with the new options. For example, if our
shares were acquired in a cash merger, the fair market value of our shares, and
hence the price at which we grant the new options, would likely be a price at or
near the cash price being paid for the shares in the transaction, yielding
limited or no financial benefit to a recipient of the new options for that
transaction. In addition, in the event of an acquisition of our company for
stock, tendering option holders might receive options to purchase shares of a
different issuer. Optionholders who do not tender in the offer will have their
outstanding options treated in accordance with the terms of the plan they are
granted under and if their options are assumed by the successor to our company,
those options would be priced in accordance with the terms of the transaction.
This could potentially result in a greater financial benefit for those
optionholders who opted not to participate in this offer and who instead
retained their original options.
Finally, if we are acquired by another company, that company may, as
part of the transaction or otherwise, decide to terminate some or all of our
employees prior to the grant of new options under this option exchange program.
TERMINATION FOR THIS, OR ANY OTHER, REASON BEFORE THE REPLACEMENT OPTION IS
GRANTED MEANS THAT YOU WILL NOT RECEIVE THE REPLACEMENT OPTION, NOR WILL YOU
RECEIVE ANY OTHER CONSIDERATION FOR THE OPTIONS THAT WERE CANCELLED.
ARE THERE CIRCUMSTANCES WHERE I WOULD NOT BE GRANTED NEW OPTIONS?
Yes. If, for any reason, you are no longer an employee on the date we
grant new options, you will not receive any new options. You are reminded that
unless expressly provided in your employment agreement, your employment with
Resonate will remain "at-will" and can be terminated by you or Resonate at any
time, with or without cause or notice. (Page 28)
Moreover, even if we accept your tendered options, we will not grant
new options to you if we are prohibited by applicable law or regulations from
doing so. Such a prohibition could result from changes in SEC rules, regulations
or policies or Nasdaq listing requirements. We will use reasonable efforts to
avoid any such prohibitions, but if it is applicable throughout the period after
the first business day that is at least six (6) months and one (1) day after we
cancel the options accepted for exchange (the period after the date we intend to
grant the new options), you will not be granted a new option. We do not
anticipate any such prohibitions and are referring to the possibility in an
abundance of caution. (Page 31)
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IF I CHOOSE TO TENDER AN OPTION WHICH IS ELIGIBLE FOR EXCHANGE, DO I HAVE TO
TENDER ALL THE SHARES IN THAT OPTION?
Yes. We are not accepting partial tenders of options. However, you may
tender the remaining portion of an option which you have partially exercised.
Accordingly, you may tender one or more of your option grants, but you must
tender all of the unexercised shares subject to each grant or none of the shares
for that particular grant. For example and except as otherwise described below,
if you hold (i) an option to purchase 1,000 shares at $10.00 per share, 700 of
which you have already exercised, (ii) an option to purchase 1,000 shares at an
exercise price of $20.00 per share and (iii) an option to purchase 2,000 shares
at an exercise price of $40.00 per share, you may tender:
- none of your options,
- options with respect to the 300 remaining unexercised shares under the first
option grant,
- options with respect to all 1,000 shares under the second option grant,
- options with respect to all 2,000 shares under the third option grant,
- all unexercised options with respect to two of the three option grants, or
- all unexercised options under all three of the option grants.
You may not tender options with respect to only 150 shares (or any
other partial amount) under the first option grant or less than all of the
shares under the second and third option grants. (Page 21)
ALSO, IF YOU DECIDE TO TENDER ANY OF YOUR OPTIONS, THEN YOU MUST TENDER
ALL OF YOUR OPTIONS THAT WERE GRANTED TO YOU DURING THE SIX (6) MONTH PERIOD
PRIOR TO THE CANCELLATION OF ANY TENDERED OPTIONS, EVEN IF THE EXERCISE PRICE OF
THOSE OPTIONS IS LESS THAN TEN DOLLARS ($10) PER SHARE. For example, if you
received an option grant in January 2001 and a grant in May 2001 and you want to
tender your January 2001 option grant, you would also be required to tender your
May 2001 option grant. (Page 21).
WHAT HAPPENS TO OPTIONS THAT I CHOOSE NOT TO TENDER OR THAT ARE NOT ACCEPTED FOR
EXCHANGE?
Options that you choose not to tender for exchange or that we do not
accept for exchange remain outstanding until they expire by their terms and
retain their current exercise price and current vesting schedule.
You should note that there is a risk that any incentive stock options
you have may be affected, even if you do not participate in the exchange. We
believe that eligible options that you choose not to tender for exchange will
not be subject to current U.S. federal income tax if you do not elect to
participate in the option exchange program. We also believe that the option
exchange program will not change the U.S. federal income tax treatment of
subsequent grants and exercises of your incentive stock options (and sales of
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shares acquired upon exercises of such options) if you do not participate in
this offer to exchange options. However, the IRS may characterize this offer to
exchange options as a "modification" of those incentive stock options, even if
you decline to participate. In 1991, the IRS issued a private letter ruling in
which another company's option exchange program was characterized as a
"modification" of all of the incentive stock options that could be exchanged.
This does not necessarily mean that our offer to exchange options will be viewed
the same way. Private letter rulings given by the IRS contain the IRS's opinion
regarding only the specific facts presented by a specific person or company. The
person or company receiving the letter may rely on it, but no other person or
company may rely on the letter ruling, nor may they assume the same opinion
would apply to their situation, even if the facts at issue are similar. While
such letters do not provide certainty, they may indicate how the IRS will view a
similar situation. We therefore do not know if the IRS will assert the position
that our offer constitutes a "modification" of incentive stock options eligible
for tender. A successful assertion by the IRS of this position could extend the
options' holding period to qualify for favorable tax treatment. Accordingly, to
the extent you dispose of your incentive stock option shares prior to the lapse
of the new extended holding period, your incentive stock option could be taxed
similarly to a nonstatutory stock option.
WILL I HAVE TO PAY TAXES IF I EXCHANGE MY OPTIONS IN THE OFFER?
If you exchange your current options for new options, you should not be
required under current law to recognize income for U.S. federal income tax
purposes at the time of the exchange. Further, at the grant date of the new
options, you will not be required under current law to recognize income for U.S.
federal income tax purposes.
FOR ALL EMPLOYEES, WE RECOMMEND THAT YOU CONSULT WITH YOUR OWN TAX
ADVISOR TO DETERMINE THE TAX CONSEQUENCES OF THE OFFER THAT PERTAIN TO YOU. IF
YOU ARE LIVING OR WORKING IN THE UNITED STATES, BUT ARE ALSO SUBJECT TO THE TAX
LAWS IN ANOTHER COUNTRY, YOU SHOULD BE AWARE THAT THERE MAY BE OTHER TAX AND
SOCIAL INSURANCE CONSEQUENCES WHICH MAY APPLY TO YOU; YOU SHOULD BE CERTAIN TO
CONSULT YOUR OWN ADVISORS. IN ADDITION, WE STRONGLY URGE YOU TO READ SECTION 14
OF THE OFFER TO EXCHANGE FOR A DISCUSSION OF TAX CONSEQUENCES WHICH MAY APPLY TO
YOU AS A RESULT OF PARTICIPATION IN THIS OFFER. (Page 31)
IF MY CURRENT OPTIONS ARE INCENTIVE STOCK OPTIONS, WILL MY NEW OPTIONS BE
INCENTIVE STOCK OPTIONS?
If your current options are incentive stock options, your new options
will be granted as incentive stock options to the maximum extent they qualify as
incentive stock options under the tax laws on the date of the grant. For options
to qualify as incentive stock options under the current tax laws, the value of
shares subject to options that first become exercisable by the option holder in
any calendar year cannot exceed $100,000, as determined using the option
exercise price. The excess value is deemed to be a non-qualified stock option,
which is an option that is not qualified to be an incentive stock option under
the current tax laws. (Page 24)
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WHEN WILL MY NEW OPTIONS EXPIRE?
Your new options will expire ten (10) years from the date of grant, or
earlier if your employment with Resonate terminates. (Page 25)
WHEN DOES THE OFFER EXPIRE? CAN THE OFFER BE EXTENDED, AND IF SO, HOW WILL I BE
NOTIFIED IF IT IS EXTENDED?
The offer expires on July 27, 2001, at 5:00 p.m., Pacific Daylight
Time, unless it is extended by us. We may, in our discretion, extend the offer
at any time, but we cannot assure you that the offer will be extended or, if
extended, for how long. If the offer is extended, we will make a public
announcement of the extension no later than 6:00 a.m., Pacific Daylight Time, on
the next business day following the previously scheduled expiration of the offer
period. (Page 17)
HOW DO I TENDER MY OPTIONS?
If you decide to tender your options, you must deliver, before 5:00
p.m., Pacific Daylight Time, on July 27, 2001 (or such later date and time as we
may extend the expiration of the offer), a properly completed and executed
Election Form and any other documents required by the Election Form via
facsimile (fax # (▇▇▇) ▇▇▇-▇▇▇▇) or hand delivery to ▇▇▇▇▇▇ ▇▇▇▇. This is a
one-time offer, and we will strictly enforce the tender offer period. We reserve
the right to reject any or all tenders of options that we determine are not in
appropriate form or that we determine are unlawful to accept. Subject to our
rights to extend, terminate and amend the offer, we presently expect that we
will accept all properly tendered options promptly after the expiration of the
offer. (Page 18)
DURING WHAT PERIOD OF TIME MAY I WITHDRAW PREVIOUSLY TENDERED OPTIONS?
You may withdraw your tendered options at any time before the offer
expires at 5:00 p.m., Pacific Daylight Time, on July 27, 2001. If we extend the
offer beyond that time, you may withdraw your tendered options at any time until
the extended expiration of the offer. In addition, although we currently intend
to accept validly tendered options promptly after the expiration of this offer,
if we have not accepted your tendered options by 9:00 p.m., Pacific Daylight
Time, on August 17, 2001, you may withdraw your tendered options at any time
after August 17, 2001. To withdraw tendered options, you must deliver to us via
facsimile (fax # (▇▇▇) ▇▇▇-▇▇▇▇) or hand delivery to ▇▇▇▇▇▇ ▇▇▇▇ a signed Notice
to Withdraw from the Offer, with the required information while you still have
the right to withdraw the tendered options. Once you have withdrawn options, you
may re-tender options only by again following the delivery procedures described
above. (Page 19)
Please note that if you submit a Notice to Withdraw from the Offer, you
will no longer participate in the offer. If you do not wish to withdraw all your
tendered options from the Offer, you should not submit a Notice to Withdraw from
the Offer. If you wish to change your mind about which options to tender, you
must submit a new Election Form. Please read the following question and answer
regarding a change in election.
-8-
CAN I CHANGE MY ELECTION REGARDING PARTICULAR TENDERED OPTIONS?
Yes, you may change your election regarding particular tendered options
at any time before the offer expires at 5:00 p.m., Pacific Daylight Time, on
July 27, 2001. If we extend the offer beyond that time, you may change your
election regarding particular tendered options at any time until the extended
expiration of the offer. In order to change your election, you must deliver to
us a new Election Form via facsimile (fax # (▇▇▇) ▇▇▇-▇▇▇▇) or hand delivery to
▇▇▇▇▇▇ ▇▇▇▇, which includes the information regarding your new election, and is
signed and clearly dated after your original Election Form. (Page 19)
WHAT DOES RESONATE AND THE BOARD OF DIRECTORS THINK OF THE OFFER?
Although our Board of Directors has approved the offer, neither we nor
our Board of Directors makes any recommendation as to whether you should tender
or not tender your options. You must make your own decision whether or not to
tender options. For questions regarding tax implications or other
investment-related questions, you should talk to your own legal counsel,
accountant and/or financial advisor.
WHOM CAN YOU TALK TO IF YOU HAVE QUESTIONS ABOUT THE OFFER?
For additional information or assistance, you should contact:
▇▇▇▇▇▇ ▇▇▇▇
General Counsel
Resonate Inc.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
(▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇▇@▇▇▇▇▇▇▇▇.▇▇▇
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CERTAIN RISKS
OF PARTICIPATING IN THE OFFER
Participation in the offer involves a number of potential risks,
including those described below. This list highlights the material risks of
participating in this offer. If you are living or working in the United States,
but are also subject to the tax laws in another country, you should be aware
that there may be other tax and social insurance consequences which may apply to
you; you should be certain to consult your own advisors. Eligible participants
should carefully consider these risks and are encouraged to speak with an
investment and tax advisor as necessary before deciding to participate in the
offer. In addition, we strongly urge you to read Section 14 in this Offer to
Exchange discussing tax consequences in the United States, as well as the rest
of this Offer to Exchange, the memorandum from ▇▇▇▇▇ ▇▇▇▇▇▇▇ dated June 25,
2001, the Election Form and the Notice to Withdraw from the Offer for a more
in-depth discussion of the risks which may apply to you before deciding to
participate in the exchange offer.
ECONOMIC RISKS
- PARTICIPATION IN THE OFFER WILL MAKE YOU INELIGIBLE TO RECEIVE ANY
OPTION GRANTS UNTIL JANUARY 31, 2002 AT THE EARLIEST.
Employees are generally eligible to receive option grants at any time
that the Board of Directors or Compensation Committee chooses to make them.
However, if you participate in the offer, you will not be eligible to receive
any option grants until January 31, 2002 at the earliest.
- IF OUR STOCK PRICE INCREASES AFTER THE DATE YOUR TENDERED OPTIONS ARE
CANCELLED, YOUR CANCELLED OPTIONS MIGHT HAVE BEEN WORTH MORE THAN THE
REPLACEMENT OPTIONS THAT YOU HAVE RECEIVED IN EXCHANGE FOR THEM.
For example, if you cancel options with a $35 strike price, and
Resonate's stock appreciates to $50 per share when the replacement grants are
made, your replacement option will have a higher strike price than the cancelled
option.
- IF RESONATE IS ACQUIRED BY OR MERGES WITH ANOTHER COMPANY, YOUR
CANCELLED OPTIONS MIGHT HAVE BEEN WORTH MORE THAN THE REPLACEMENT
OPTIONS THAT YOU HAVE RECEIVED IN EXCHANGE FOR THEM.
These types of transactions could have substantial effects on our stock
price, including potentially substantial appreciation in the price of our stock.
Depending on the structure of this type of transaction, tendering optionholders
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might be deprived of any further price appreciation in the stock associated with
the new options.
In addition, in the event of an acquisition of our company for stock,
tendering optionholders might receive options to purchase shares of a successor
to our company, where the exercise price of the new options would be equal to
the fair market value of such acquirer's stock on the New Option Grant Date. The
New Option Grant Date, expected to be January 31, 2002, will be at least six (6)
months and one (1) day after the cancellation of the tendered options.
Optionholders who do not tender in the offer will have their outstanding options
treated in accordance with the terms of the plan they are granted under and if
their options are assumed by the successor to our company, those options would
be priced in accordance with the terms of the transaction. This could
potentially result in a greater financial benefit for those optionholders who
opted not to participate in this offer and who instead retained their original
options.
- IF YOUR EMPLOYMENT TERMINATES PRIOR TO THE GRANT OF THE REPLACEMENT
OPTION, YOU WILL RECEIVE NEITHER A REPLACEMENT OPTION NOR THE RETURN OF
YOUR CANCELLED OPTION.
Once your option is cancelled, it is gone for good. Accordingly, if
your employment terminates for any reason prior to the grant of the replacement
option, you will have the benefit of neither the cancelled option nor the
replacement option.
- IF YOUR EMPLOYMENT TERMINATES AS PART OF A REDUCTION-IN-FORCE PRIOR TO
THE GRANT OF THE REPLACEMENT OPTION, YOU WILL RECEIVE NEITHER A
REPLACEMENT OPTION NOR THE RETURN OF YOUR CANCELLED OPTION.
Resonate's revenues are dependent on the health of the economy and the
growth of its customers and potential future customers. If the economic
conditions in the United States remain stagnant or worsen or if a wider or
global economic slowdown occurs, the Company may experience a material adverse
impact on its business, operating results, and financial condition and may
undertake various measures to reduce its expenses including, but not limited to,
a reduction-in-force of certain of its employees. Should your employment be
terminated as part of any such reduction-in-force, you will have the benefit of
neither the cancelled option nor the replacement option.
- IF YOUR EMPLOYMENT TERMINATES AS A RESULT OF AN ACQUISITION OR MERGER
OF RESONATE PRIOR TO THE GRANT OF THE REPLACEMENT OPTION, YOU WILL
RECEIVE NEITHER A REPLACEMENT OPTION NOR THE RETURN OF YOUR CANCELLED
OPTION.
If Resonate is acquired by another company, that company may, as part
of the transaction or otherwise, decide to terminate some or all of our
employees prior to the grant of new options under this option exchange program.
Termination for this, or any other, reason before the replacement option is
granted means that you will not receive the replacement option, nor will you
receive any other consideration for the options that were cancelled.
-11-
TAX-RELATED RISKS FOR U.S. RESIDENTS
- YOUR REPLACEMENT OPTION MAY BE A NONSTATUTORY STOCK OPTION, WHEREAS
YOUR CANCELLED OPTION MAY HAVE BEEN AN INCENTIVE STOCK OPTION.
If your cancelled option was an incentive stock option, your new option
will be an incentive stock option, but only to the extent they qualify under the
Internal Revenue Code of 1986, as amended. For options to qualify as incentive
stock options, the value of shares subject to options that first become
exercisable by the option holder in any calendar year cannot exceed $100,000, as
determined using the option exercise price. It is possible that by participating
in this exchange, your options will exceed this limit and will be treated as
nonstatutory stock options. In general, nonstatutory stock options are less
favorable to you from a tax perspective. For more detailed information, please
read the rest of the Offer to Exchange, and see the tax disclosure set forth in
the prospectus for the Resonate Inc. 2000 Stock Plan, which is attached as
exhibit (d)(2) to the Schedule TO filed with the SEC in connection with this
Offer to Exchange.
- EVEN IF YOU ELECT NOT TO PARTICIPATE IN THE OPTION EXCHANGE PROGRAM,
YOUR INCENTIVE STOCK OPTIONS MAY BE AFFECTED.
We believe that you will not be subject to current U.S. federal income
tax if you do not elect to participate in the option exchange program. We also
believe that the option exchange program will not change the U.S. federal income
tax treatment of subsequent grants and exercises of your incentive stock options
(and sales of shares acquired upon exercises of such options) if you do not
participate in this offer to exchange options. However, the IRS may characterize
this offer to exchange options as a "modification" of those incentive stock
options, even if you decline to participate. In 1991, the IRS issued a private
letter ruling in which another company's option exchange program was
characterized as a "modification" of all of the incentive stock options that
could be exchanged. This does not necessarily mean that our offer to exchange
options will be viewed the same way. Private letter rulings given by the IRS
contain the IRS's opinion regarding only the specific facts presented by a
specific person or company. The person or company receiving the letter may rely
on it, but no other person or company may rely on the letter ruling, nor may
they assume the same opinion would apply to their situation, even if the facts
at issue are similar. While such letters do not provide certainty, they may
indicate how the IRS will view a similar situation. We therefore do not know if
the IRS will assert the position that our offer constitutes a "modification" of
incentive stock options eligible for tender. A successful assertion by the IRS
of this position could extend the options' holding period to qualify for
favorable tax treatment. Accordingly, to the extent you dispose of your
incentive stock option shares prior to the lapse of the new extended holding
period, your incentive stock option could be taxed similarly to a nonstatutory
stock option.
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TAX-RELATED RISKS FOR TAX RESIDENTS OF NON-U.S. COUNTRIES
If you are eligible for this exchange because you are an employee
living or working in the United States, but are also subject to the tax laws in
another country, you should be aware that there may be other tax and social
insurance consequences which may apply to you. You should be certain to consult
your own tax advisors to discuss these consequences.
BUSINESS-RELATED RISKS
For a description of risks related to Resonate's business, please see
Section 19 of this Offer to Exchange.
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INTRODUCTION
Resonate Inc. ("Resonate" or the "Company") is offering to exchange
certain outstanding options to purchase shares of Resonate common stock held by
eligible employees for new options we will grant under the Resonate Inc. 2000
Stock Plan (the "2000 Stock Plan"). Outstanding options with an exercise price
equal to or greater than ten dollars ($10) per share issued under the Resonate
Inc. 1996 Stock Plan, as amended (the "1996 Stock Plan") or the 2000 Stock Plan
are eligible to be exchanged. An "eligible employee" refers to employees of
Resonate or its subsidiaries who are employees as of the date the offer
commences and remain employees through the date the tendered options are
cancelled; however, only employees who live or work in the United States are
eligible to participate in the exchange offer. In addition, members of our Board
of Directors and all employees who are defined as officers for purposes of
Section 16(b) of the Exchange Act ("Section 16(b) officers"), are not eligible
to participate in the exchange offer. The Section 16(b) officers are those
employees of Resonate listed on Schedule A to this Offer to Exchange. We are
making the offer upon the terms and the conditions described in this Offer to
Exchange and in the related memorandum from ▇▇▇▇▇ ▇▇▇▇▇▇▇ dated June 25, 2001,
the Election Form and the Notice to Withdraw from the Offer (which together, as
they may be amended from time to time, constitute the "offer" or "program").
The number of shares subject to the new options to be granted to each
eligible employee will be equal to the number of shares subject to the options
tendered by the eligible employee and accepted for exchange. Subject to the
terms and conditions of this offer, we will grant the new options on the first
business day which is at least six (6) months and one (1) day after the date we
cancel the options accepted for exchange. The grant date for the new options
will be January 31, 2002, unless the offer is extended, in which case the grant
date of the new options will be at least six (6) months and one (1) day after
the cancellation of the options accepted for exchange. You may only tender
options for all or none of the unexercised shares subject to an individual
option grant. All tendered options accepted by us through the offer will be
cancelled on the day following the date the offer expires or as soon as possible
thereafter (the "Cancellation Date"). If you tender any option grant for
exchange, you will be required to also tender all option grants that you
received during the six (6) month period immediately prior to the Cancellation
Date. We expect to cancel all tendered options on July 30, 2001, which means
that if you participate in the offer, you will be required to tender all options
granted to you since January 30, 2001.
The offer is not conditioned on a minimum number of options being
tendered. The offer is subject to conditions that we describe in Section 7 of
this Offer to Exchange.
If you tender options for exchange as described in the offer and we
accept your tendered options, then, subject to the terms of this offer, we will
grant you new options under the 2000 Stock Plan.
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The exercise price per share of the new options will be 100% of the
fair market value on the date of grant, as determined by the closing price
reported by the Nasdaq National Market on the date of grant.
Each new option will be exercisable for the same number of shares as
remained outstanding under the tendered options.
The new options will vest in accordance with the vesting schedule of
the cancelled options. Each new option granted will vest as follows:
- any shares that were fully vested on the Cancellation Date will be fully
vested,
- all unvested options on the Cancellation Date that would have been fully
vested on the date the new options are granted (at least six (6) months and
one (1) day from the Cancellation Date) will be fully vested, and
- all remaining unvested options will have a vesting schedule that is
equivalent to what would have been in place had the cancelled option
remained in effect. For example:
- An employee cancels an option that is 20/48th vested at the time of
cancellation.
- The new grant occurs six (6) months and one (1) day after
cancellation.
- The replacement option will be 26/48th (plus one (1) day) vested
at the time of grant.
As of June 18, 2001, options to purchase 3,148,713 of our shares were
issued and outstanding under the 1996 Stock Plan and the 2000 Stock Plan
combined, and options to purchase 1,000,000 of our shares were issued and
outstanding outside of the two plans. Of the total options issued and
outstanding, options to purchase approximately 667,000 of our shares,
constituting approximately 16% of the aggregate 4,148,713 options outstanding,
were held by employees eligible to participate in the offer.
-15-
THE OFFER
1. Eligibility.
Employees are "eligible employees" if they are employees of Resonate or
one of Resonate's subsidiaries as of the date the offer commences and remain
employees through the date on which the tendered options are cancelled if, and
only if, they live or work in the United States. However, affiliates of the
Company, which shall include members of the Board of Directors and all employees
who are defined as "officers" for purposes of Section 16(b) of the Exchange Act
are not eligible to participate in the offer. The employees of Resonate who are
officers for the purposes of such Section 16(b) are listed on Schedule A to this
Offer to Exchange.
In order to receive a new option, you must remain an employee as of the
date the new options are granted (the "New Option Grant Date"), which will be at
least six (6) months and one (1) day after the Cancellation Date. If Resonate
does not extend the offer, the new options will be granted on January 31, 2002.
Only outstanding, unexercised options granted pursuant to the 1996
Stock Plan and the 2000 Stock Plan that have an exercise price equal to or
greater than ten dollars ($10) per share may be tendered for exchange. Each
option grant that is tendered for exchange must be tendered for the entirety of
the portion that remains outstanding and unexercised. If you tender any options
for exchange, all options granted in the six (6) months prior to the
Cancellation Date must also be tendered, even if the exercise price of those
options are less than ten dollars ($10) per share.
2. Number of options; expiration date.
Subject to the terms and conditions of the offer, we will exchange
outstanding, unexercised options with exercise prices equal to or greater than
ten dollars ($10) per share held by eligible employees that are properly
tendered and not validly withdrawn in accordance with Section 5 of this Offer to
Exchange before the "expiration date," as defined below, in return for new
options. We will not accept partial tenders of options for any portion of the
unexercised shares subject to an individual option grant. Therefore, you may
tender options for all or none of the unexercised shares subject to each of your
eligible options. In addition, if you tender any option grant for exchange, you
will be required to also tender all option grants that you received during the
six (6) month period prior to the date the tendered option was cancelled, even
if those grants have exercise prices of less than ten dollars ($10) per share.
We currently expect to cancel all tendered options on July 30, 2001, which means
that if you participate in the offer, you will be required to tender all options
granted to you since January 30, 2001.
If your options are properly tendered and accepted for exchange, the
options will be cancelled and, subject to the terms of this offer, you will be
entitled to receive one or more new options to purchase the number of shares of
common stock equal to the number of shares subject to the options tendered by
you and accepted for exchange, subject to adjustments for any stock splits,
-16-
stock dividends and similar events. All new options will be subject to the terms
of the 2000 Stock Plan, and to a new option agreement between you and us. If,
for any reason, you do not remain an employee of Resonate or its subsidiaries
through the date we grant the new options, you will not receive any new options
or other consideration in exchange for your tendered options that have been
accepted for exchange. This means that if you quit, with or without a good
reason, or die or we terminate your employment, with or without cause, prior to
the date we grant the new options, you will not receive anything for the options
that you tendered and we cancelled.
The term "expiration date" means 5:00 p.m., Pacific Daylight Time, on
July 27, 2001, unless and until we, in our discretion, have extended the period
of time during which the offer will remain open, in which event the term
"expiration date" refers to the latest time and date at which the offer, as so
extended, expires. See Section 15 of this Offer to Exchange for a description of
our rights to extend, delay, terminate and amend the offer.
If we decide to take any of the following actions, we will publish
notice or otherwise inform you in writing of such action:
- we increase or decrease the amount of consideration offered for the options,
- we decrease the number of options eligible to be tendered in the offer, or
- we increase the number of options eligible to be tendered in the offer by
an amount that exceeds 2% of the shares issuable upon exercise of the
options that are subject to the offer immediately prior to the increase.
If the offer is scheduled to expire at any time earlier than the tenth
(10th) business day from, and including, the date that notice of the increase or
decrease is first published, sent or given in the manner specified in Section 15
of this Offer to Exchange, we will extend the offer so that the offer is open at
least ten (10) business days following the publication, sending or giving of
notice.
We will also notify you of any other material change in the information
contained in this Offer to Exchange.
For purposes of the offer, a "business day" means any day other than
a Saturday, Sunday or federal holiday and consists of the time period from
12:01 a.m. through 12:00 midnight, Eastern Daylight Time.
3. Purpose of the offer.
We issued the options outstanding to:
- provide our eligible employees with additional incentive and to promote the
success of our business, and
- encourage our eligible employees to continue their employment with us.
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One of the keys to our continued growth and success is the retention of
our most valuable asset, our employees. The offer provides an opportunity for us
to offer our eligible employees a valuable incentive to stay with Resonate. Some
of our outstanding options, whether or not they are currently exercisable, have
exercise prices that are significantly higher than the current market price of
our shares. We believe these options are unlikely to be exercised in the
foreseeable future. By making this offer to exchange outstanding options for new
options that will have an exercise price at least equal to the market value of
the shares on the grant date, we intend to provide our eligible employees with
the benefit of owning options that over time may have a greater potential to
increase in value, create better performance incentives for employees and
thereby maximize stockholder value. Because we will not grant new options until
at least six (6) months and one (1) day after the date we cancel the options
accepted for exchange, the new options may have a higher exercise price than
some or all of our current outstanding options.
Neither we nor our Board of Directors makes any recommendation as to
whether you should tender or not tender your options, nor have we authorized any
person to make any such recommendation. You are urged to evaluate carefully all
of the information in this Offer to Exchange and to consult your own investment
and tax advisors. You must make your own decision whether or not to tender your
options for exchange.
4. Procedures for tendering options.
Proper Tender of Options.
To validly tender your options through the offer, you must, in
accordance with the terms of the Election Form, properly complete, execute and
deliver the Election Form to us via facsimile (fax # (▇▇▇) ▇▇▇-▇▇▇▇) or hand
delivery to ▇▇▇▇▇▇ ▇▇▇▇, along with any other required documents. ▇▇▇▇▇▇ ▇▇▇▇
must receive all of the required documents before the expiration date. The
expiration date is 5:00 PM Pacific Daylight Time on July 27, 2001.
THE DELIVERY OF ALL DOCUMENTS, INCLUDING ELECTION FORMS AND ANY NOTICES
TO CHANGE ELECTION FROM ACCEPT TO REJECT AND ANY OTHER REQUIRED DOCUMENTS, IS AT
YOUR RISK. WE INTEND TO CONFIRM THE RECEIPT OF YOUR ELECTION FORM WITHIN TWO (2)
BUSINESS DAYS; IF YOU HAVE NOT RECEIVED SUCH A CONFIRMATION OF RECEIPT, IT IS
YOUR RESPONSIBILITY TO ENSURE THAT YOUR ELECTION FORM HAS BEEN RECEIVED BY US.
Determination of Validity; Rejection of Options; Waiver of Defects; No
Obligation to Give Notice of Defects.
We will determine, in our discretion, all questions as to the form of
documents and the validity, form, eligibility, including time of receipt, and
acceptance of any tender of options. Our determination of these matters will be
final and binding on all parties. We reserve the right to reject any or all
tenders of options that we determine are not in appropriate form or that we
determine are unlawful to accept. Otherwise, we will accept properly and timely
tendered options that are not validly withdrawn. We also reserve the right to
waive any of the conditions of the offer or any defect or irregularity in any
tender of any particular options or for any particular option holder. No tender
-18-
of options will be deemed to have been properly made until all defects or
irregularities have been cured by the tendering option holder or waived by us.
Neither we nor any other person is obligated to give notice of any defects or
irregularities in tenders, nor will anyone incur any liability for failure to
give any notice. This is a one-time offer, and we will strictly enforce the
offer period, subject only to an extension which we may grant in our sole
discretion.
Our Acceptance Constitutes an Agreement.
Your tender of options pursuant to the procedures described above
constitutes your acceptance of the terms and conditions of the offer. OUR
ACCEPTANCE FOR EXCHANGE OF YOUR OPTIONS TENDERED BY YOU THROUGH THE OFFER WILL
CONSTITUTE A BINDING AGREEMENT BETWEEN US AND YOU UPON THE TERMS AND SUBJECT TO
THE CONDITIONS OF THE OFFER.
Subject to our rights to extend, terminate and amend the offer,
discussed in Section 15 of this Offer to Exchange, we currently expect that we
will accept promptly after the expiration of the offer all properly tendered
options that have not been validly withdrawn.
5. Withdrawal Rights and Change of Election.
You may only withdraw your tendered options or change your election in
accordance with the provisions of this Section.
You may withdraw your tendered options at any time before 5:00 p.m.,
Pacific Daylight Time, on July 27, 2001. If we extend the offer beyond that
time, you may withdraw your tendered options at any time until the extended
expiration of the offer. In addition, if we have not accepted your tendered
options for exchange by 9:00 p.m., Pacific Daylight Time, on August 17, 2001,
you may withdraw your tendered options at any time after August 17, 2001.
To validly withdraw tendered options, you must deliver to ▇▇▇▇▇▇ ▇▇▇▇
via facsimile (fax # (▇▇▇) ▇▇▇-▇▇▇▇) or hand delivery, in accordance with the
procedures listed in Section 4 above, a signed and dated Notice to Withdraw from
the Offer, with the required information, while you still have the right to
withdraw the tendered options.
To validly change your election regarding the tender of particular
options, you must deliver a new Election Form to ▇▇▇▇▇▇ ▇▇▇▇ via facsimile (fax
# (▇▇▇) ▇▇▇-▇▇▇▇) or hand delivery, in accordance with the procedures listed in
Section 4 above. If you deliver a new Election Form that is properly signed and
dated, it will replace any previously submitted Election Form, which will be
disregarded. The new Election Form must be signed and dated and must specify:
- the name of the option holder who tendered the options,
- the grant number of all options to be tendered,
- the grant date of all options to be tendered,
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- the exercise price of all options to be tendered, and
- the total number of unexercised option shares subject to each option to be
tendered.
Even if you change your election regarding the tender of certain option
grants, your continued participation in the offer means that you must tender all
grants received since January 30, 2001.
Except as described in the following sentences, the Notice to Withdraw
from the Offer and any new or amended Election Form must be executed by the
option holder who tendered the options to be withdrawn exactly as the option
holder's name appears on the option agreement or agreements evidencing such
options. If the optionholder's name has legally been changed since the signing
of the option agreement, the optionholder must submit proof of the legal name
change. If the signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation or another person acting in a
fiduciary or representative capacity, the signer's full title and proper
evidence of the authority of such person to act in that capacity must be
indicated on the notice of withdrawal.
You may not rescind any withdrawal, and any options you withdraw will
thereafter be deemed not properly tendered for purposes of the offer, unless you
properly re-tender those options before the expiration date by following the
procedures described in Section 4 of this Offer to Exchange.
Neither we nor any other person is obligated to give notice of any
defects or irregularities in any Notice to Withdraw from the Offer or any new or
amended Election Form, nor will anyone incur any liability for failure to give
any notice. We will determine, in our discretion, all questions as to the form
and validity, including time of receipt, of Notices to Withdraw from the Offer
and new or amended Election Forms. Our determination of these matters will be
final and binding.
6. Acceptance of options for exchange and issuance of new options.
Upon the terms and conditions of the offer and promptly following the
expiration date, we will accept for exchange and cancel eligible options
properly tendered and not validly withdrawn before the expiration date. Only
options with an exercise price of ten dollars ($10) or more issued under the
1996 Stock Plan or the 2000 Stock Plan are eligible options. Once the options
are cancelled, you will no longer have any rights with respect to those options.
Subject to the terms and conditions of this offer, if your options are properly
tendered and accepted for exchange, these options will be cancelled as of the
date of our acceptance, which we anticipate to be July 30, 2001, and you will be
granted new options on the first business day that is at least six (6) months
and one (1) day after the date we cancel the options accepted for exchange. If
the options you tendered were incentive stock options, your new options will
also be incentive stock options, to the extent they qualify as incentive stock
options under the Internal Revenue Code of 1986, as amended. All other newly
granted options will be nonstatutory stock options. Thus, subject to the terms
and conditions of this offer, if your options are properly tendered by July 27,
2001, the scheduled expiration date of the offer, and accepted for exchange and
cancelled on July 30, 2001 you will be granted new options on or about January
31, 2002. If we accept and cancel options properly
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tendered for exchange after July 30, 2001, the period in which the new options
will be granted will be similarly delayed. As promptly as practicable after we
accept and cancel options tendered for exchange, we will issue to you a Promise
to Grant Stock Option(s), which will evidence our binding commitment to grant
stock options to you on a date no earlier than January 31, 2002 covering the
same number of shares as the options cancelled pursuant to this offer, provided
that you remain an eligible employee on the date on which the grant is to be
made.
If we accept options you tender in the offer, we will defer any grant
to you of other options, such as annual, bonus or promotional options, for which
you may be eligible before the new option grant date until after the expiration
date, so that you are granted no new options for any reason until at least six
(6) months and one (1) day after any of your tendered options have been
cancelled. We will defer the grant to you of these other options in order to
avoid incurring compensation expense against our earnings as a result of
accounting rules that could apply to these interim option grants as a result of
the offer. We may issue to you a Promise to Grant Stock Option(s), which is a
binding commitment to grant you an option or options on a date no earlier than
January 31, 2002, provided that you remain an eligible employee on the date on
which the grant is to be made.
It is possible that, prior to the grant of new options, we might effect
or enter into an agreement such as a merger or stock acquisition whereby
Resonate would be acquired by another company. The Promise to Grant Stock
Option(s) which we will give you evidences our binding commitment to you, and
any successor to our company will honor that commitment. Accordingly, in the
event of any such merger or acquisition, the acquirer would be obligated to
grant you a new stock option on the New Option Grant Date, which is expected to
be January 31, 2002 (assuming that Resonate does not extend the offer). Such a
stock option could be for the purchase of the acquirer's stock (as opposed to
Resonate's) and as a result, the number of shares subject to your new option
would be adjusted. For example, if we were acquired by means of a merger, the
number of shares would be equal to the number of our shares that you would have
received, multiplied by the exchange ratio that was used in the merger. Your new
option to purchase such acquirer's stock would have an exercise price equal to
the fair market value of such acquirer's stock on the New Option Grant Date.
Your new options will entitle you to purchase the number of shares
which is equal to the number of shares subject to the options you tender, as
adjusted for any stock splits, stock dividends and similar events. If, for any
reason, you are not an employee of Resonate, its subsidiaries or a successor
entity through the date we grant the new options, you will not receive any new
options or other consideration in exchange for your tendered options which have
been cancelled pursuant to this offer.
We will not accept partial tenders of your eligible option grants.
However, you may tender the remaining portion of an option which you have
partially exercised. Accordingly, you may tender one or more of your option
grants, but you may only tender all of the unexercised shares subject to that
option or none of those shares. In addition, if you tender any option grant for
exchange, you will be required to also tender all option grants that you
received during the six (6) month period prior to the cancellation of your
tendered options, even if the exercise price of those options is less than ten
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dollars ($10) per share. We currently expect to cancel all tendered options on
July 30, 2001, which means that if you participate in the offer, you will be
required to tender all options granted to you since January 30, 2001.
Within two (2) business days of the receipt of your Election Form or
your Notice to Withdraw from the Offer, Resonate intends to e-mail the option
holder a Confirmation of Receipt. However, this is not by itself an acceptance
of the options for exchange. For purposes of the offer, we will be deemed to
have accepted options for exchange that are validly tendered and not properly
withdrawn as of the time when we give oral or written notice to ▇▇▇▇▇▇ ▇▇▇▇, or
to the option holders of our acceptance for exchange of such options, which
notice may be made by press release. Subject to our rights to extend, terminate
and amend the offer, discussed in Section 15 of this Offer to Exchange, we
currently expect that we will accept promptly after the expiration of the offer
all properly tendered options that are not validly withdrawn. Options accepted
for exchange will be cancelled on the Cancellation Date, which we presently
expect to be July 30, 2001.
7. Conditions of the offer.
Notwithstanding any other provision of the offer, we will not be
required to accept any options tendered for exchange, and we may terminate or
amend the offer, or postpone our acceptance and cancellation of any options
tendered for exchange, in each case, subject to Rule 13e-4(f)(5) under the
Exchange Act, if at any time on or after June 25, 2001, and prior to the
expiration date, any of the following events has occurred, or has been
determined by us to have occurred, and, in our reasonable judgment in any case
and regardless of the circumstances giving rise to the event, including any
action or omission to act by us, the occurrence of such event or events makes it
inadvisable for us to proceed with the offer or with such acceptance and
cancellation of options tendered for exchange:
- there shall have been threatened or instituted or be pending any
action or proceeding by any governmental, regulatory or
administrative agency or authority that directly or indirectly
challenges the making of the offer, the acquisition of some or all
of the tendered options pursuant to the offer, or the issuance of
new options, or otherwise relates in any manner to the offer, or
that, in our reasonable judgment, could materially and adversely
affect our business, condition, income, operations or prospects or
materially impair the contemplated benefits of the offer to
Resonate;
- there shall have been any action threatened, pending or taken, or
approval withheld, or any statute, rule, regulation, judgment,
order or injunction threatened, proposed, sought, promulgated,
enacted, entered, amended, enforced or deemed to be eligible to
the offer or Resonate, by any court or any authority, agency or
tribunal that, in our reasonable judgment, would or might directly
or indirectly:
(1) make the acceptance for exchange of, or issuance of new options for,
some or all of the tendered options illegal or otherwise restrict or
prohibit consummation of the offer or that otherwise relates in any
manner to the offer;
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(2) delay or restrict our ability, or render us unable, to accept for
exchange, or issue new options for, some or all of the tendered options;
(3) materially impair the contemplated benefits of the offer to Resonate; or
(4) materially and adversely affect Resonate's business, condition, income,
operations or prospects or materially impair the contemplated benefits of
the offer to Resonate;
- there shall have occurred any change, development, clarification
or position taken in generally accepted accounting standards that
could or would require us to record compensation expense against
our earnings in connection with the offer for financial reporting
purposes;
- a tender or exchange offer for some or all of our shares, or a
merger or acquisition proposal for Resonate, shall have been
proposed, announced or made by another person or entity or shall
have been publicly disclosed;
- any change or changes shall have occurred in Resonate's business,
condition, assets, income, operations, prospects or stock
ownership that, in our reasonable judgment, is or may be material
to Resonate or may materially impair the contemplated benefits of
the offer to Resonate; or
- any of our executive officers or directors shall have tendered any of their
options pursuant to the offer.
The conditions to the offer are for Resonate's benefit. We may assert
them in our discretion regardless of the circumstances giving rise to them
before the expiration date. We may waive them, in whole or in part, at any time
and from time to time prior to the expiration date, in our discretion, whether
or not we waive any other condition to the offer. Our failure at any time to
exercise any of these rights will not be deemed a waiver of any such rights. The
waiver of any of these rights with respect to particular facts and circumstances
will not be deemed a waiver with respect to any other facts and circumstances.
Any determination we make concerning the events described in this Section 7 will
be final and binding upon all persons.
8. Price range of shares underlying the options.
The shares underlying your options are currently traded on the Nasdaq
National Market under the symbol "RSNT". The following table shows, for the
periods indicated, the high and low sales prices per share of our common stock
as reported by the Nasdaq National Market.
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HIGH LOW
------- -------
FISCAL YEAR 2001
Quarter ended March 31, 2001....................... $11.25 $2.53
FISCAL YEAR 2000
Quarter ended December 31, 2000.................... 47.50 9.50
August 3, 2000 through September 30, 2000.......... 44.25 29.88
As of June 19, 2001, the last reported sale price during regular
trading hours of our common stock, as reported by the Nasdaq National Market,
was $3.54 per share.
WE RECOMMEND THAT YOU EVALUATE CURRENT MARKET QUOTES FOR OUR COMMON
STOCK, AMONG OTHER FACTORS, BEFORE DECIDING WHETHER
OR NOT TO TENDER YOUR OPTIONS.
9. Source and amount of consideration; terms of new options
Consideration.
We will issue new options to purchase shares of common stock under our
2000 Stock Plan in exchange for the eligible outstanding options properly
tendered and accepted for exchange by us which will be cancelled. The number of
shares subject to the new options to be granted to each option holder will be
equal to the number of shares subject to the options tendered by the option
holder and accepted for exchange and cancelled by us, as adjusted for any stock
splits, reverse stock splits, stock dividends and similar events. If we receive
and accept tenders of all outstanding options from eligible employees, subject
to the terms and conditions of this offer we will grant new options to purchase
a total of approximately 667,000 shares of common stock. The shares issuable
upon exercise of these new options would equal approximately 2.4% of the total
shares of our common stock outstanding as of June 18, 2001.
Terms of New Options.
The new options will be granted under our 2000 Stock Plan. For every
new option granted, a new option agreement will be entered into between Resonate
and each option holder who has tendered options in the offer for every new
option granted. The terms and conditions of the new options may vary from the
terms and conditions of the options tendered for exchange, but generally will
not substantially and adversely affect the rights of option holders. However,
you should note that new options will only be incentive stock options to the
extent they qualify under the Internal Revenue Code of 1986, as amended. For
options to qualify as incentive stock options, the value of shares subject to
options that first become exercisable by the option holder in any calendar year
cannot exceed $100,000, as determined using the option exercise price. It is
possible that by participating in this exchange, your options will exceed this
limit and will be treated as nonstatutory stock options. Nonstatutory stock
options receive tax treatment which is generally less favorable than the
treatment received by incentive stock options. Please read "U.S. Federal Income
Tax Consequences" later in this Section, as well as Section 14 of this Offer to
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Exchange for a discussion of the potential tax consequences for United States
employees. If you are living or working in the United States, but are also
subject to the tax laws in another country, you should be aware that there may
be other tax and social insurance consequences which may apply to you; you
should be certain to consult your own advisors to discuss these consequences. In
addition, you should note that because we will not grant new options until at
least six (6) months and one (1) day after the date we cancel the options
accepted for exchange, the new options may have a higher exercise price than
some or all of the options tendered for exchange. The following description
summarizes the material terms of our 2000 Stock Plan and the options granted
under the Plan.
2000 Stock Plan.
The maximum number of shares available for issuance through the
exercise of options granted under our 2000 Stock Plan is 4,570,105 shares, plus
an annual increase to be added each year equal to the lesser of (i) 1,500,000
shares; (ii) 5% of the outstanding shares on the first day of our fiscal year;
or (iii) a lesser number of shares determined by our Board of Directors. Our
2000 Stock Plan permits the granting of options intended to qualify as incentive
stock options under the Internal Revenue Code and options that do not qualify as
incentive stock options, referred to as nonstatutory stock options.
Administration.
The 2000 Stock Plan is administered by the Board of Directors or a
committee appointed by the Board of Directors (the "Administrator"). Subject to
the other provisions of the 2000 Stock Plan, the Administrator has the power to
determine the terms and conditions of the options granted, including the
exercise price, the number of shares subject to the option and the
exercisability of the options.
Term.
Options generally have a term of ten (10) years. Incentive Stock
Options granted to an employee who, at the time the incentive stock option is
granted, owns stock representing more than 10% of the voting rights of all
classes of stock of Resonate or an affiliate company have a term of no more than
five (5) years.
Termination.
Except as your option agreement otherwise provides, your options will
terminate following the termination of your employment, unless the options are
exercised, to the extent that they were exercisable immediately before such
termination, within the time frame permitted by your stock option agreement or,
if no time period is specified in your option agreement, within three (3) months
following your termination. In the event that the termination of your employment
is by reason of permanent or total disability or death, you, or your executors,
administrators, legatees or distributees of your estate, may exercise any option
held by you at the date of your employment termination, to the extent that it
was exercisable immediately before such termination, within the time frame
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specified in your option agreement or, if no time is specified, for twelve (12)
months following such termination.
The termination of your option under the circumstances specified in
this section will result in the termination of your interests in our 2000 Stock
Plan. In addition, your option may terminate, together with our stock option
plans and all other outstanding options issued to other employees, following the
occurrence of certain corporate events, as described below.
Exercise Price.
Generally, the Administrator determines the exercise price at the time
the option is granted. For all eligible employees, the exercise price per share
of the new options will be one hundred percent (100%) of the fair market value
on the date of grant, as determined by the closing price reported by the Nasdaq
National Market on the date of grant.
However, the exercise price may not be less than one hundred and ten
percent (110%) of the closing price per share reported by the Nasdaq National
Market on the date of grant for options intended to qualify as incentive stock
options, granted to an employee who, at the time the incentive stock option is
granted, owns stock representing more than ten percent (10%) of the voting
rights of all classes of stock of Resonate or an affiliate company.
Vesting and Exercise.
Each stock option agreement specifies the term of the option and the
date when the option becomes exercisable. The terms of vesting are determined by
the Administrator. Options granted by us generally vest at a rate of 25% of the
shares subject to the option after twelve (12) months, and then 1/48(th) of the
shares subject to the option vest each month thereafter, provided the employee
remains continuously employed by Resonate.
The new options granted through the offer will vest as follows:
- any shares that were fully vested on the Cancellation Date will be fully
vested,
- all unvested options on the Cancellation Date that would have been
fully vested on the date the new options are granted (at least six
(6) months and one (1) day from the Cancellation Date) will be
fully vested, and
- all remaining unvested options will have a vesting schedule that
is equivalent to what would have been in place had the cancelled
option remained in effect. For example:
- An employee cancels an option that is 20/48th vested at the time of
cancellation.
- The new grant occurs six (6) months and one (1) day after
cancellation.
- The replacement option will be 26/48th (plus one (1) day) vested
at the time of grant.
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Payment of Exercise Price.
You may exercise your options, in whole or in part, by delivery of a
written notice to us together with a share subscription or purchase form which
is accompanied by payment in full of the eligible exercise price. The
permissible methods of payment of the option exercise price are determined by
the Administrator and generally include the following:
- cash,
- check,
- promissory note,
- certain other shares of our common stock,
- a reduction in the amount of our liability to the optionee,
- consideration received by us under a cashless exercise program, or
- a combination of the foregoing methods.
Adjustments Upon Certain Events.
Events Occurring before the New Option Grant Date. In the event there
is a merger or stock acquisition whereby Resonate is acquired by another company
that occurs after the expiration of the offer but BEFORE new options are granted
pursuant to this offer, the successor will honor any Promises to Grant Stock
Option(s). In the event of any such merger transaction, the successor would be
obligated to grant you a new stock option on or about January 31, 2002 (assuming
that Resonate does not extend the offer), which could be for the purchase of the
acquirer's stock (as opposed to Resonate's) and as a result, the number of
shares subject to your new option would be adjusted. For example, if we were
acquired by means of a merger, the number of shares would be equal to the number
of our shares that you would have received, multiplied by the exchange ratio
that was used in the merger. The new options for the purchase of the acquirer's
stock will have an exercise price equal to the fair market value of such
acquirer's stock on the New Option Grant Date.
Events Occurring after the New Option Grant Date. If there is a change
in our capitalization, such as a stock split, reverse stock split, stock
dividend or other similar event, and the change results in an increase or
decrease in the number of issued shares without receipt of consideration by us,
an appropriate adjustment will be made to the price of each option and the
number of shares subject to each option.
In the event there is a liquidation or dissolution of Resonate, your
outstanding options will terminate immediately prior to the consummation of the
liquidation or dissolution. The Administrator may, however, provide for the
acceleration of the exercisability of any option.
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Per the terms of the 2000 Stock Plan, in the event there is a sale of
all or substantially all of our assets, or we merge with another corporation,
your options may be assumed or replaced with new options of the successor
corporation; however, if the successor corporation refuses to assume or
substitute your options, they will automatically terminate at the closing of the
merger or sale.
As noted elsewhere in this Offer to Exchange, if you do not participate
in the offer and there is a sale of all or substantially all of our assets or we
merge with another company, any options you did not tender will simply be
treated in accordance with the terms of the stock option plan under which they
were granted. Under both the 1996 Stock Plan and the 2000 Stock Plan, upon such
events your options will be assumed or replaced with new options of the
successor corporation or your options will terminate immediately upon the
closing of the event. If your options are assumed or substituted, you will
receive a certain number of options based on the exchange ratio determined at
some point during the process of the sale or merger. The new exercise price will
also be set during the transaction. This is unlike new options which will be
granted in exchange for options tendered pursuant to this offer. Although the
number of such new options will be affected by the exchange ratio, the exercise
price for the new options will be the fair market value of the acquirer's stock
on the New Option Grant Date, which will be no earlier than January 31, 2002.
Therefore, if there is a sale or merger of Resonate, options that are NOT
tendered for exchange may receive a lower or higher exercise price, depending on
the terms of the transaction, than those options that ARE tendered for exchange.
In addition, the value of Resonate or the successor corporation could increase
as a result of an acquisition or merger, which could result in your current
options no longer being "underwater" or result in less benefit to optionholders
participating in the offer. We can not predict the effect of an acquisition of
Resonate or a merger on the option price or the value of the shares and
therefore urge you to take this possibility into consideration when deciding
whether to participate in the offer.
Termination of Employment Before the New Option Grant Date.
If, for any reason, you are not an employee of Resonate from the date
you tender options through the date we grant the new options, you will not
receive any new options or any other consideration in exchange for your tendered
options that have been accepted for exchange. This means that if you quit, with
or without good reason, or die, or we terminate your employment, with or without
cause, before the date we grant the new options, you will not receive anything
for the options that you tendered and which we cancelled.
Transferability of Options.
New options, whether incentive stock options or non-qualified stock
options, may not be transferred, other than by will or the laws of descent and
distribution. In the event of your death, options may be exercised by a person
who acquires the right to exercise the option by bequest or inheritance.
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Registration of Option Shares.
4,570,105 shares of common stock issuable upon exercise of options
under our 2000 Stock Plan have been registered under the Securities Act on
registration statements on Form S-8 filed with the SEC. All the shares issuable
upon exercise of all new options to be granted before the offer will be
registered under the Securities Act. Unless you are one of our affiliates, you
will be able to sell your option shares free of any transfer restrictions under
applicable U.S. securities laws.
U.S. Federal Income Tax Consequences.
You should refer to Section 14 of this Offer to Exchange for a
discussion of the U.S. federal income tax consequences of the new options and
the options tendered for exchange, as well as the consequences of accepting or
rejecting the new options under this offer to exchange. If you are living or
working in the United States, but are also subject to the tax laws in another
country, you should be aware that there may be other tax and social insurance
consequences which may apply to you; we strongly recommend that you consult with
your own advisors to discuss the consequences to you of this transaction.
Our statements in this Offer to Exchange concerning our 1996 Stock
Plan, 2000 Stock Plan and the new options are merely summaries and do not
purport to be complete. The statements are subject to, and are qualified in
their entirety by reference to, all provisions of our 1996 Stock Plan, 2000
Stock Plan, and the forms of option agreement under each of the plans. Please
contact us at Resonate Inc., ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇,
Attention: ▇▇▇▇▇▇ ▇▇▇▇ (telephone: (▇▇▇) ▇▇▇-▇▇▇▇) (e-mail: ▇▇▇▇▇@▇▇▇▇▇▇▇▇.▇▇▇),
to receive a copy of our 1996 Stock Plan, 2000 Stock Plan, and the forms of
option agreements thereunder. We will promptly furnish you copies of these
documents at our expense.
10. Information concerning Resonate.
Our principal executive offices are located at ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, and our telephone number is (▇▇▇) ▇▇▇-▇▇▇▇. Questions
regarding this option exchange should be directed to ▇▇▇▇▇▇ ▇▇▇▇ at Resonate at
the above address (telephone: (▇▇▇) ▇▇▇-▇▇▇▇) (e-mail: ▇▇▇▇▇@▇▇▇▇▇▇▇▇.▇▇▇).
Resonate develops and markets a family of software products, solutions
and services that ensure high levels of availability and performance for
Internet, intranet and extranet applications. Our family of software products
and solutions integrates network traffic management and systems monitoring and
management functions, which together provide real-time monitoring, reporting and
automated service level control of eBusiness applications. We call the
collection of capabilities that our products and solutions provide active
service level management.
The financial information included in our annual report on Form 10-K
for the fiscal year ended December 31, 2000 and our quarterly report for the
quarter ended March 31, 2001 is incorporated herein by reference. See
"Additional Information" in Section 17 of this Offer to Exchange for
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instructions on how you can obtain copies of our SEC filings, including filings
that contain our financial statements.
11. Interests of directors and officers; transactions and arrangements
concerning the options.
A list of our directors and executive officers is attached to this
Offer to Exchange as Schedule A. As of June 18, 2001, our executive officers and
directors (eleven (11) persons) as a group beneficially owned options
outstanding under our 1996 Stock Plan to purchase a total of 205,016 of our
shares, which represented approximately 11% of the shares subject to all options
outstanding under that plan as of that date. Directors and executive officers,
as a group, beneficially owned options outstanding under our 2000 Stock Plan to
purchase a total of 291,500 of our shares, which represented 22% of the shares
subject to all options outstanding under that plan as of that date. Directors
and executive officers, as a group, beneficially owned options outstanding
outside of the two plans to purchase a total of 1,000,000 of our shares, which
represented 100% of the shares subject to all options outstanding outside of the
two plans. Directors and executive officers, as a group, beneficially owned
options outstanding under all of our stock plans and agreements to purchase a
total of 1,496,516 of our shares, which represented approximately 36% of the
shares subject to all options outstanding under the plans and agreements as of
that date. These options to purchase our shares owned by directors and Section
16(b) officers are not eligible to be tendered in the offer.
In the sixty (60) days prior to and including June 18, 2001, the
executive officers and directors of Resonate had the following transactions in
Resonate shares:
- In May 2001, ▇▇▇▇▇ ▇▇▇▇▇▇▇ sold 20,000 shares of our stock at a price of
between $3.00 and $3.04 per share;
- In June 2001, ▇▇▇▇▇ ▇▇▇▇▇▇▇ was granted an option to purchase 30,000 shares
of our stock; and
- In June 2001, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ gifted 5,000 shares of our stock.
Except as otherwise described above, there have been no transactions in
options to purchase our shares or in our shares which were effected during the
60 days prior to June 18, 2001 by Resonate or, to our knowledge, by any
executive officer, director or affiliate of Resonate.
12. Status of options acquired by us in the offer; accounting consequences
of the offer.
Options issued under the 2000 Stock Plan which we acquire through the
offer will be cancelled and the shares subject to those options will be returned
to the pool of shares available for grants of new options under the 2000 Stock
Plan. To the extent these shares are not fully reserved for issuance upon
exercise of the new options to be granted in connection with the offer, the
shares will be available for future awards to employees and other eligible 2000
Stock Plan participants without further stockholder action, except as required
by applicable law or the rules of the Nasdaq National Market or any other
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securities quotation system or any stock exchange on which our shares are then
quoted or listed.
Options issued under the 1996 Stock Plan which we acquire through the
offer will be cancelled and the shares subject to those options will be returned
to Resonate's general authorized, unissued share reserve.
We believe that we will not incur any compensation expense solely as a
result of the transactions contemplated by the offer because:
- we will not grant any new options until a business day that is at least
six (6) months and one (1) day after the date that we accept and cancel
options tendered for exchange, and
- the exercise price of all new options will at least equal the market value
of the shares of common stock on the date we grant the new options.
13. Legal matters; regulatory approvals.
We are not aware of any license or regulatory permit that appears to be
material to our business that might be adversely affected by our exchange of
options and issuance of new options as contemplated by the offer, or of any
approval or other action by any government or governmental, administrative or
regulatory authority or agency, domestic or foreign, that would be required for
the acquisition or ownership of our options as contemplated herein. Should any
such approval or other action be required, we presently contemplate that we will
seek such approval or take such other action. We cannot assure you that any such
approval or other action, if needed, could be obtained or what the conditions
imposed in connection with such approvals would entail or whether the failure to
obtain any such approval or other action would result in adverse consequences to
our business. Our obligation under the offer to accept tendered options for
exchange and to issue new options for tendered options is subject to the
conditions described in Section 7 of this Offer to Exchange.
If we are prohibited by applicable laws or regulations from granting
new options during the period beginning immediately after the date we expect to
grant the new options (expected to be January 31, 2002), we will not grant any
new options. We are unaware of any such prohibition at this time, and we will
use reasonable efforts to effect the grant, but if the grant is prohibited
throughout the period we will not grant any new options and you will not get any
other consideration for the options you tendered.
14. Material U.S. Federal Income Tax Consequences.
The following is a general summary of the material U.S. federal income
tax consequences of the exchange of options pursuant to the offer. This
discussion is based on the Internal Revenue Code, its legislative history,
Treasury Regulations thereunder and administrative and judicial interpretations
thereof as of the date of the offer, all of which are subject to change,
possibly on a retroactive basis. This summary does not discuss all of the tax
consequences that may be relevant to you in light of your particular
circumstances, nor is it intended to be applicable in all respects to all
-31-
categories of optionholders. If you are living or working in the United States,
but are also subject to the tax laws in another country, you should be aware
that there may be other tax and social insurance consequences which may apply to
you. We strongly recommend that you consult your own advisors to discuss the
consequences to you of participating in the offer.
Option holders who exchange outstanding options for new options should
not be required to recognize income for federal income tax purposes at the time
of the exchange. We believe that the exchange will be treated as a non-taxable
exchange. WE ADVISE ALL OPTION HOLDERS CONSIDERING EXCHANGING THEIR OPTIONS TO
MEET WITH THEIR OWN TAX ADVISORS WITH RESPECT TO THE FEDERAL, STATE, LOCAL AND
FOREIGN TAX CONSEQUENCES OF PARTICIPATING IN THE OFFER.
Incentive Stock Options
Under current law, an option holder will not realize taxable income
upon the grant of an incentive stock option under our 2000 Stock Plan. In
addition, an option holder generally will not realize taxable income upon the
exercise of an incentive stock option. However, an option holder's alternative
minimum taxable income will be increased by the amount that the aggregate fair
market value of the shares underlying the option, which is generally determined
as of the date of exercise, exceeds the aggregate exercise price of the option.
Except in the case of an option holder's death or disability, if an option is
exercised more than three (3) months after the option holder's termination of
employment, the option ceases to be treated as an incentive stock option and is
subject to taxation under the rules that apply to non-qualified stock options.
If an option holder sells the option shares acquired upon exercise of
an incentive stock option, the tax consequences of the disposition depend upon
whether the disposition is qualifying or disqualifying. The disposition of the
option shares is qualifying if it is made:
- at least two (2) years after the date the incentive stock option was
granted, and
- at least one (1) year after the date the incentive stock option was
exercised.
If the disposition of the option shares is qualifying, any excess of
the sale price of the option shares, over the exercise price of the option will
be treated as long-term capital gain taxable to the option holder at the time of
the sale. Any such capital gain will be taxed at the long-term capital gain rate
in effect at the time of sale. If the disposition is not qualifying, which we
refer to as a "disqualifying disposition," the excess of the fair market value
of the option shares on the date the option was exercised, over the exercise
price will be taxable income to the option holder at the time of the
disposition.
Of that income, the amount up to the excess of the fair market value of
the shares at the time the option was exercised over the exercise price will be
ordinary income for income tax purposes and the balance, if any, will be
long-term or short-term capital gain, depending upon whether or not the shares
were sold more than one (1) year after the option was exercised.
-32-
Unless an option holder engages in a disqualifying disposition, we will
not be entitled to a deduction with respect to an incentive stock option. If an
option holder engages in a disqualifying disposition, we will be entitled to a
deduction equal to the amount of compensation income taxable to the option
holder.
If you tender incentive stock options and those options are accepted
for exchange, the new options will be granted as incentive stock options to the
maximum extent they qualify. For options to qualify as incentive stock options,
the value of shares subject to options that first become exercisable in any
calendar year cannot exceed $100,000, as determined using the option exercise
price. The excess value is deemed to be a non-qualified stock option. You should
note that if the new options have a higher exercise price than some or all of
your current options, the new options may exceed the limit for incentive stock
options.
You should note that there is a risk that any incentive stock options
you have may be affected, even if you do not participate in the exchange. We do
not believe that our offer to you will change any of the terms of your eligible
incentive stock options if you do not accept the offer. We believe that you will
not be subject to current U.S. federal income tax if you do not elect to
participate in the option exchange program. We also believe that the option
exchange program will not change the U.S. federal income tax treatment of
subsequent grants and exercises of your incentive stock options (and sales of
shares acquired upon exercises of such options) if you do not participate in
this offer to exchange options. However, the IRS may characterize this offer to
exchange options as a "modification" of those incentive stock options, even if
you decline to participate. In 1991, the IRS issued a private letter ruling in
which another company's option exchange program was characterized as a
"modification" of all of the incentive stock options that could be exchanged.
This does not necessarily mean that our offer to exchange options will be viewed
the same way. Private letter rulings given by the IRS contain the IRS's opinion
regarding only the specific facts presented by a specific person or company. The
person or company receiving the letter may rely on it, but no other person or
company may rely on the letter ruling, nor may they assume the same opinion
would apply to their situation, even if the facts at issue are similar. While
such letters do not provide certainty, they may indicate how the IRS will view a
similar situation. We therefore do not know if the IRS will assert the position
that our offer constitutes a "modification" of incentive stock options eligible
for tender. A successful assertion by the IRS of this position could extend the
options' holding period to qualify for favorable tax treatment. Accordingly, to
the extent you dispose of your incentive stock option shares prior to the lapse
of the new extended holding period, your incentive stock option could be taxed
similarly to a nonstatutory stock option.
-33-
Non-Qualified Stock Options.
Under current law, an option holder will not realize taxable income
upon the grant of an option which is not qualified as an incentive stock option,
also referred to as a nonstatutory stock option. However, when an option holder
exercises the option, the difference between the exercise price of the option,
and the fair market value of the shares subject to the option on the date of
exercise will be compensation income taxable to the option holder.
We will be entitled to a deduction equal to the amount of compensation
income taxable to the option holder if we comply with eligible reporting
requirements.
WE RECOMMEND THAT YOU CONSULT YOUR OWN TAX ADVISOR WITH RESPECT TO THE
FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF PARTICIPATING IN THE
OFFER, AS THE TAX CONSEQUENCES TO YOU OF PARTICIPATION IN THE OFFER ARE
DEPENDENT ON YOUR INDIVIDUAL TAX SITUATION.
15. Extension of offer; termination; amendment.
We expressly reserve the right, in our discretion, at any time and from
time to time, and regardless of whether or not any event listed in Section 7 of
this Offer to Exchange has occurred or is deemed by us to have occurred, to
extend the period of time during which the offer is open and thereby delay the
acceptance for exchange of any options by giving oral or written notice of such
extension to the option holders or making a public announcement thereof.
We also expressly reserve the right, in our reasonable judgment, prior
to the expiration date to terminate or amend the offer and to postpone our
acceptance and cancellation of any options tendered for exchange upon the
occurrence of any of the events listed in Section 7 of this Offer to Exchange,
by giving oral or written notice of such termination or postponement to you or
by making a public announcement thereof. Our reservation of the right to delay
our acceptance and cancellation of options tendered for exchange is limited by
Rule 13e-4(f)(5) promulgated under the Exchange Act, which requires that we must
pay the consideration offered or return the options tendered promptly after
termination or withdrawal of a tender offer.
Subject to compliance with applicable law, we further reserve the
right, in our discretion, and regardless of whether any event listed in Section
7 of this Offer to Exchange has occurred or is deemed by us to have occurred, to
amend the offer in any respect, including, without limitation, by decreasing or
increasing the consideration offered in the offer to option holders or by
decreasing or increasing the number of options being sought in the offer.
Amendments to the offer may be made at any time and from time to time
by public announcement of the amendment. In the case of an extension, the
amendment must be issued no later than 6:00 a.m., Pacific Daylight Time, on the
next business day after the last previously scheduled or announced expiration
date. Any public announcement made through the offer will be disseminated
promptly to option holders in a manner reasonably designated to inform option
holders of the change. Without limiting the manner in which we may choose to
make a public announcement, except as required by applicable law, we have no
-34-
obligation to publish, advertise or otherwise communicate any such public
announcement other than by making a press release to the Dow ▇▇▇▇▇ News Service.
If we materially change the terms of the offer or the information
concerning the offer, or if we waive a material condition of the offer, we will
extend the offer to the extent required by Rules 13e-4(d)(2) and 13e-4(e)(3)
under the Exchange Act. These rules require that the minimum period during which
an offer must remain open following material changes in the terms of the offer
or information concerning the offer, other than a change in price or a change in
percentage of securities sought, will depend on the facts and circumstances,
including the relative materiality of such terms or information.
If we decide to take any of the following actions, we will publish
notice or otherwise inform you in writing of these actions:
- we increase or decrease the amount of consideration offered for the options,
- we decrease the number of options eligible to be tendered in the offer, or
- we increase the number of options eligible to be tendered in the offer by
an amount that exceeds 2% of the shares issuable upon exercise of the
options that are subject to the offer immediately prior to the increase.
If the offer is scheduled to expire at any time earlier than the tenth
(10th) business day from, and including, the date that notice of such increase
or decrease is first published, sent or given in the manner specified in this
Section, we will extend the offer so that the offer is open at least ten (10)
business days following the publication, sending or giving of notice.
For purposes of the offer, a "business day" means any day other than
a Saturday, Sunday or federal holiday and consists of the time period from
12:01 a.m. through 12:00 midnight, Eastern Daylight Time.
16. Fees and expenses.
We will not pay any fees or commissions to any broker, dealer or
other person for soliciting tenders of options pursuant to this Offer to
Exchange.
17. Additional information.
This Offer to Exchange is part of a Tender Offer Statement on Schedule
TO that we have filed with the SEC. This Offer to Exchange does not contain all
of the information contained in the Schedule TO and the exhibits to the Schedule
TO. We recommend that you review the Schedule TO, including its exhibits, and
the following materials which we have filed with the SEC before making a
decision on whether to tender your options:
-35-
1. Resonate's quarterly report on Form 10-Q for our fiscal quarter
ended March 31, 2001, filed with the SEC on May 10, 2001 (file number
000-31139);
2. Resonate's annual report on Form 10-K for our fiscal year ended
December 31, 2000, filed with the ▇▇▇ ▇▇ ▇▇▇▇▇ ▇▇, ▇▇▇▇ (▇▇▇▇ number
000-31139); and
3. the description of our shares contained in our Registration
Statement on Form 8-A, filed with the SEC on July 25, 2000 (file number
000-31139).
These filings, our other annual, quarterly and current reports, our
proxy statements and our other SEC filings may be examined, and copies may be
obtained, at the following SEC public reference rooms:
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇. 7 World Trade Center ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇ Suite 1300 Suite 1400
Washington, D.C. 20549 ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
You may obtain information on the operation of the public reference
rooms by calling the SEC at 1-800-SEC-0330.
Our SEC filings are also available to the public on the SEC's Internet
site at ▇▇▇▇://▇▇▇.▇▇▇.▇▇▇.
Our common stock is quoted on the Nasdaq National Market under the
symbol "RSNT" and our SEC filings can be read at the following Nasdaq address:
Nasdaq Operations
▇▇▇▇ ▇ ▇▇▇▇▇▇, ▇.▇.
▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇
Each person to whom a copy of this Offer to Exchange is delivered may obtain a
copy of any or all of the documents to which we have referred you, other than
exhibits to such documents (unless such exhibits are specifically incorporated
by reference into such documents) at no cost, by writing to us at Resonate Inc.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇▇ ▇▇▇▇ or
telephoning ▇▇▇▇▇▇ ▇▇▇▇ at (▇▇▇) ▇▇▇-▇▇▇▇ (e-mail: ▇▇▇▇▇@▇▇▇▇▇▇▇▇.▇▇▇).
As you read the foregoing documents, you may find some inconsistencies
in information from one document to another. If you find inconsistencies between
the documents, or between a document and this Offer to Exchange, you should rely
on the statements made in the most recent document.
The information contained in this Offer to Exchange about Resonate
should be read together with the information contained in the documents to which
we have referred you, in making your decision as to whether or not to
participate in this Offer to Exchange.
-36-
18. Summary Financial Statements.
Attached hereto as Schedule B to this Offer to Exchange are the Summary
Financial Statements of Resonate, as filed in Resonate's Annual Report on Form
10-K for our fiscal year ended December 31, 2000, filed with the ▇▇▇ ▇▇ ▇▇▇▇▇
▇▇, ▇▇▇▇ (▇▇▇▇ number 000-31139) and Resonate's Quarterly Report on Form 10-Q
for our fiscal quarter ended March 31, 2001, filed with the SEC on May 10, 2001
(file number 000-31139). More complete financial information may be obtained by
accessing our public filings with the SEC by following the instructions in
Section 17 of this Offer to Exchange.
19. Miscellaneous.
This Offer to Exchange and our SEC reports referred to above include
"forward-looking statements." When used in this Offer to Exchange, the words
"anticipate," "believe," "estimate," "expect," "intend" and "plan" as they
relate to Resonate or our management are intended to identify these
forward-looking statements. All statements by us regarding our expected future
financial position and operating results, our business strategy, our financing
plans and expected capital requirements, forecasted trends relating to our
services or the markets in which we operate and similar matters are
forward-looking statements. The documents we filed with the SEC, including our
annual report on Form 10-K filed on March 27, 2001 and our quarterly report on
Form 10-Q filed on May 10, 2001, discuss some of the risks that could cause our
actual results to differ from those contained or implied in the forward-looking
statements. These risks include, but are not limited to:
- We only began substantive operations in April 1996 and, as a result, it
is difficult to forecast our future operating results;
- We have a history of losses, expect to continue to incur significant
operating expenses and losses in the future, and may never achieve or
sustain profitability;
- Our quarterly operating results may fluctuate significantly, and may be
subject to seasonality, which may cause our stock price to fall;
- If we fail to successfully educate potential customers regarding
the benefits of our active service level management solutions, our
ability to sell our products and solutions and grow our business
will be severely limited;
- If our Central Dispatch, Commander, Global Dispatch or Enterprise
Service Console products, Resonate Commander solutions or other
new products and solutions, product enhancements or services fail
to achieve customer acceptance, our growth and revenue will be
limited;
- Our revenues may be harmed if general economic conditions continue to
worsen;
-37-
- Our Sales of Central Dispatch generated approximately 65% of our
product revenue in the first quarter of 2001, and a decline in our
sales, in absolute dollars, of Central Dispatch could materially
harm our results of operations;
- Our ability to grow our business depends upon increased demand for
our products and solutions from corporate enterprises and the
extent to which our products and solutions can accommodate the
needs of corporate enterprises;
- We derive substantially all of our revenue through the sale of
upfront licenses of our software products and solutions, and
alternative business models employed by competition could erode
our product pricing;
- Our markets are highly competitive, our customers may choose to
purchase our competitors' products, and we cannot assure you that
we will be able to compete effectively;
- Our sales cycle is lengthy and unpredictable, involving
significant expense and effort by us in advance of product orders,
and may cause our operating results to fluctuate, which could
result in volatility in our stock price;
- We rely on our relationships with a limited number of third
parties to implement and promote our software platform, and if
these relationships fail, our revenue or our ability to grow our
revenue may decrease;
- If we do not develop our direct and indirect sales channels effectively,
our ability to sustain or increase our sales will be harmed;
- Our recent expansion into international markets may not succeed
and will expose us to risks associated with international operations
and result in higher personnel costs;
- We may not be able to attract, train or retain qualified personnel;
- Our intellectual property could be used by others without our consent
because protection of our intellectual property is limited;
- Our recent growth has placed a significant strain on our management,
systems and resources, and we may experience difficulties managing our
future growth, if any;
- We depend on our key personnel and loss of any key personnel may harm our
business and results of operations;
- The development of new operating systems, the emergence of new network
standards or the discontinuation of support for a given standard could
cause our products to become obsolete, less competitive or require us to
redesign our products;
-38-
- Undetected software errors in our products could harm our reputation and
cause us to incur significant warranty and repair costs;
- Because our products could interfere with the operations of our
customers' other software applications, we may be subject to
potential product liability and warranty claims by these
customers, which may be costly and may not be adequately covered
by insurance;
- Our products may infringe the intellectual property rights of
others, and resulting claims against us could be costly and
require us to enter into disadvantageous license and royalty
arrangements;
- Our products incorporate the Java run time environment, which we
license from Sun Microsystems, and our product shipments could be
delayed if that software is no longer available to us;
- A disaster could severely damage our operations because we do not have a
separate geographically located backup system;
- We rely on a continuous power supply to conduct our operations, and
California's current energy crisis could disrupt our operations and
increase our expenses;
- We may need to raise additional funds, which may not be available on
terms favorable to us, if at all;
- Our executive officers, directors and 5% stockholders and their
affiliates are able to exercise significant control over all
matters requiring stockholder approval;
- We are at risk of securities class action litigation due to our stock
price volatility;
- We may engage in future acquisitions that dilute our stockholders, cause
us to incur debt or assume contingent liabilities;
- We have broad discretion to use the proceeds from our initial public
offering and may not use the proceeds effectively; and
- Provisions in our charter documents and Delaware law may delay or prevent an
acquisition of our company.
For a complete description of the above-mentioned risks, please see the
SEC filings referred to in Section 17 of this Offer to Exchange, entitled
"Additional Information," above.
We are not aware of any jurisdiction where the making of the offer is
not in compliance with applicable law. If we become aware of any jurisdiction
where the making of the offer is not in compliance with any valid applicable
law, we will make a good faith effort to comply with such law. If, after such
-39-
good faith effort, we cannot comply with such law, the offer will not be made
to, nor will tenders be accepted from or on behalf of, the option holders
residing in such jurisdiction.
WE HAVE NOT AUTHORIZED ANY PERSON TO MAKE ANY RECOMMENDATION ON OUR
BEHALF AS TO WHETHER YOU SHOULD TENDER OR NOT TENDER YOUR OPTIONS THROUGH THE
OFFER. YOU SHOULD RELY ONLY ON THE INFORMATION IN THIS DOCUMENT OR DOCUMENTS TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO GIVE YOU ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER OTHER
THAN THE INFORMATION AND REPRESENTATIONS CONTAINED IN THIS DOCUMENT, THE
MEMORANDUM FROM ▇▇▇▇▇ ▇▇▇▇▇▇▇ DATED JUNE 25, 2001, THE ELECTION FORM AND THE
NOTICE TO WITHDRAW FROM THE OFFER. IF ANYONE MAKES ANY RECOMMENDATION OR
REPRESENTATION TO YOU OR GIVES YOU ANY INFORMATION, YOU MUST NOT RELY UPON THAT
RECOMMENDATION, REPRESENTATION OR INFORMATION AS HAVING BEEN AUTHORIZED BY US.
Resonate Inc. June 25, 2001
-40-
SCHEDULE A
INFORMATION CONCERNING THE EXECUTIVE OFFICERS
AND DIRECTORS OF RESONATE INC.
The executive officers and directors of Resonate Inc. and their
positions and offices as of June 18, 2001, are set forth in the following table:
NAME POSITION AND OFFICES HELD
---------------------------- --------------------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ President, Chief Executive Officer and Director
▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ Founder, Corporate Vice President and Director
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ Vice President and Chief Financial Officer
▇▇▇▇▇ ▇▇▇▇▇▇ Vice President, Engineering
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Vice President, Americas Sales and Services
▇▇▇▇▇ ▇. ▇▇▇▇▇▇ Vice President, Marketing
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ Chairman of the Board
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇. Director
I. ▇▇▇▇▇▇ ▇▇▇▇▇▇ Director
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ Director
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ Director
The address of each executive officer and director is: c/o Resonate Inc.,
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇.
A-1
SCHEDULE B
SUMMARY OF FINANCIAL STATEMENTS
OF RESONATE INC.
FINANCIAL STATEMENTS FOR THE MOST RECENT QUARTER ENDED MARCH 31, 2001
RESONATE INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
(unaudited)
March 31, December 31,
2001 2000
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 85,332 $ 76,053
Short-term investments 17,431 32,981
Accounts receivable, net 2,766 6,189
Prepaid expenses and other current assets 1,064 1,413
----------- -----------
Total current assets 106,593 116,636
Property and equipment, net 4,781 5,089
Other assets 628 218
----------- -----------
Total assets $ 112,002 $ 121,943
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,306 $ 1,132
Accrued liabilities 2,962 3,875
Deferred revenue 4,441 4,996
Debt, current 2,779 2,793
Capital lease obligation, current 841 1,091
----------- -----------
Total current liabilities 12,329 13,887
Debt, long-term 1,706 2,418
Capital lease obligation, long-term 298 471
----------- -----------
Total liabilities 14,333 16,776
----------- -----------
Stockholders' equity:
Preferred stock -- --
Common stock 3 3
Additional paid-in capital 192,487 195,120
Notes receivable from stockholders (1,054) (1,055)
Unearned stock-based compensation (9,917) (14,360)
Accumulated deficit (83,850) (74,541)
------------ ------------
Total stockholders' equity 97,669 105,167
----------- -----------
Total liabilities and stockholders' equity $ 112,002 $ 121,943
=========== ===========
Book value per share $ 3.55 $ 1.11
=========== ===========
B-1
RESONATE INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
Three Months Ended
March 31,
---------------------------
2001 2000
----------- -----------
Revenue:
Product $ 1,657 $ 2,732
Services 1,465 937
----------- -----------
Total revenue 3,122 3,669
----------- -----------
Cost of revenue:
Product 64 24
Services (including stock-based compensation
of $152 and $419, respectively) 1,134 1,155
----------- -----------
Total cost of revenue 1,198 1,179
----------- -----------
Gross profit 1,924 2,490
Operating expenses:
Research and development (including stock-based
compensation of $(111) and $980, respectively) 3,440 3,981
Sales and marketing (including stock-based
compensation of $226 and $1,389, respectively) 6,186 8,218
General and administrative (including stock-
based compensation of $639 and $1,149,
respectively) 2,882 2,640
----------- -----------
Total operating expenses 12,508 14,839
----------- -----------
Loss from operations (10,584) (12,349)
Interest and other income 1,483 117
Interest and other expenses (208) (202)
------------ ------------
Net loss $ (9,309) $ (12,434)
============ ===========
Net loss per share:
Basic and diluted $ (0.35) $ (2.04)
=========== ===========
Shares used in per share calculation 26,431 6,086
=========== ===========
B-2
RESONATE INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended
March 31,
--------------------------
2001 2000
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (9,309) $ (12,434)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 699 382
Provision for doubtful accounts 170 50
Stock-based compensation 906 3,936
Amortization of stock options issued for services 36 618
Warrant related interest expense 31 31
Changes in assets and liabilities:
Accounts receivable 3,253 693
Prepaid expenses and other current assets 349 (83)
Other assets (410) (70)
Accounts payable 174 1,084
Accrued liabilities (913) 778
Deferred revenue (555) (296)
------------ ------------
Net cash used in operating activities (5,569) (5,311)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (391) (1,541)
Purchase of short-term investments (16,578) (6,000)
Proceeds from maturities or sales of short-term investments 32,145 10,000
----------- -----------
Net cash provided by investing activities 15,176 2,459
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt (757) (448)
Principal payments under capital lease obligations (423) (210)
Proceeds from issuance of mandatorily redeemable convertible preferred
stock, net of issuance costs -- 10,000
Payments for stock repurchases (114) --
Proceeds from exercise of preferred stock warrants -- 5
Proceeds from issuance of common stock upon exercise of stock options
and employee stock purchase plan 966 567
----------- -----------
Net cash provided by (used in) financing activities (328) 9,914
------------ -----------
Net increase in cash and cash equivalents 9,279 7,062
Cash and cash equivalents at beginning of period 76,053 5,011
----------- -----------
Cash and cash equivalents at end of period $ 85,332 $ 12,073
=========== ===========
B-3
FINANCIAL STATEMENTS FOR THE LAST TWO FISCAL YEARS ENDED DECEMBER 31
RESONATE INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
December 31, December 31,
2000 1999
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 76,053 $ 5,011
Short-term investments 32,981 6,988
Accounts receivable, net 6,189 3,751
Prepaid expenses and other current assets 1,413 320
----------- -----------
Total current assets 116,636 16,070
Property and equipment, net 5,089 2,160
Other assets 218 156
----------- -----------
Total assets $ 121,943 $ 18,386
=========== ===========
LIABILITIES, MANDATORILY REDEEMABLE
CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Debt, current $ 2,793 $ 1,725
Accounts payable 1,132 983
Accrued liabilities 3,875 1,635
Deferred revenue 4,996 3,399
Capital lease obligation, current 1,091 654
----------- -----------
Total current liabilities 13,887 8,396
Debt, long-term 2,418 2,422
Capital lease obligation, long-term 471 924
----------- -----------
Total liabilities 16,776 11,742
----------- -----------
Mandatorily redeemable convertible preferred stock -- 28,027
Mandatorily redeemable convertible preferred stock
warrants -- 374
----------- -----------
-- 28,401
----------- -----------
Stockholders' equity (deficit):
Series A convertible preferred stock -- --
Preferred stock -- --
Common stock 3 1
Additional paid-in capital 195,120 29,371
Notes receivable from stockholders (1,055) (755)
Unearned stock-based compensation (14,360) (18,948)
Accumulated deficit (74,541) (31,426)
----------- -----------
Total stockholders' equity (deficit) 105,167 (21,757)
----------- -----------
Total liabilities, mandatorily redeemable
convertible preferred stock and stockholders'
equity (deficit) $ 121,943 $ 18,386
=========== ===========
Book value per share $ 3.84 $ 0.39
=========== ===========
B-4
RESONATE INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
YEAR ENDED DECEMBER 31,
------------------------
2000 1999
--------- ---------
Revenue:
Product ....................................................... $ 14,867 $ 8,004
Services ....................................................... 5,127 1,910
--------- ---------
Total revenue............................................... 19,994 9,914
--------- ---------
Cost of revenue:
Product ....................................................... 321 62
Services (including stock-based compensation of $1,610; $306
and $4, respectively).................................. 6,526 1,348
--------- ---------
Total cost of revenue....................................... 6,847 1,410
--------- ---------
Gross profit......................................................... 13,147 8,504
Operating expenses:
Research and development (including stock-based compensation
of $3,509; $1,169 and $101, respectively).............. 16,273 7,976
Sales and marketing (including stock-based compensation of
$5,145; $2,177 and $379, respectively)................. 31,939 13,517
General and administrative (including stock-based compensation
of $4,273; $2,136 and $394, respectively) ....... 10,469 5,770
--------- ---------
Total operating expenses.................................... 58,681 27,263
--------- ---------
Loss from operations................................................. (45,534) (18,759)
Interest and other income............................................ 3,345 506
Interest and other expenses.......................................... (926) (612)
--------- ---------
Net loss ........................................................... (43,115) (18,865)
Beneficial conversion of Series F preferred stock.................... 6,750 --
--------- ---------
Net loss attributable to common stockholders......................... $ (49,865) $ (18,865)
========== ==========
Net loss per share attributable to common stockholders:
Basic and diluted................................................ $ (3.41) $ (4.18)
========= =========
Weighted average shares.......................................... 14,609 4,513
========= =========
B-5
RESONATE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
YEAR ENDED DECEMBER 31,
------------------------
2000 1999
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $ (43,115) $(18,865)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 2,165 801
Loss on disposal of property and equipment................ -- --
Provision for doubtful accounts........................... 456 79
Stock-based compensation.................................. 14,537 5,788
Issuance of stock and stock options for services.......... 746 646
Warrant related non-cash interest expense................. 125 125
Changes in operating assets and liabilities:
Accounts receivable................................ (2,894) (2,225)
Prepaid expenses and other current assets.......... (1,093) (117)
Other assets....................................... (62) --
Accounts payable................................... 149 697
Accrued liabilities................................ 2,240 1,039
Deferred revenue................................... 2,061 2,614
--------- ---------
Net cash used in operating activities....................... (24,685) (9,418)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.......................... (4,046) (46)
Proceeds from disposal of property and equipment ....... -- --
Purchase of short-term investments ....... (41,034) (6,988)
Proceeds from maturities or sales of short-term investments. 15,000 --
--------- ---------
Net cash used in investing activities....................... (30,080) (7,034)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock in initial public
offering, net of issuance costs........................ 88,029 --
Proceeds from issuance of mandatorily redeemable convertible
preferred stock, net of issuance costs................. 37,000 12,982
Proceeds from issuance of long-term debt.................... 3,001 4,910
Repayments of long-term debt................................ (2,048) (1,205)
Borrowings under working capital line of credit............. -- --
Repayments of borrowings under working capital line of credit -- --
Principal payments under capital lease obligations.......... (1,078) (264)
Proceeds from the exercise of stock warrants................ 36 12
Proceeds from the issuance of common stock upon exercise
of stock options....................................... 867 706
--------- ---------
Net cash provided by financing activities................... 125,807 17,141
Net increase in cash and cash equivalents............................ 71,042 689
Cash and cash equivalents at beginning of year....................... 5,011 4,322
--------- ---------
Cash and cash equivalents at end of year............................. $ 76,053 $ 5,011
========== =========
B-6