\nSUMMARY TERM SHEET…………………………………………….. 6<\/p>\nCERTAIN RISKS OF PARTICIPATING IN THE OFFER………………………. 13<\/p>\n
THE OFFER…………………………………………………….. 14
\n 1. Eligibility…………………………………………….. 14
\n 2. Number of Options; Expiration Date………………………… 14
\n 3. Purpose of the Offer…………………………………….. 15
\n 4. Procedures for Electing to Exchange Options………………… 16
\n 5. Change in Election; Withdrawal Rights……………………… 17
\n 6. Acceptance of Options for Exchange and Cancellation
\n and Issuance of New Options………………………………. 18
\n 7. Conditions of the Offer………………………………….. 18
\n 8. Price Range of Common Stock………………………………. 20
\n 9. Source and Amount of Consideration; Terms of New Options…….. 20
\n 10. Information About Loudeye Technologies, Inc………………… 24
\n 11. Interests of Directors and Officers; Transactions and
\n Arrangements Concerning the Options……………………….. 24
\n 12. Status of Options Acquired by Us in the Offer; Accounting
\n Consequences of the Offer………………………………… 26
\n 13. Legal Matters; Regulatory Approvals……………………….. 26
\n 14. Material U.S. Federal Income Tax Consequences………………. 27
\n 15. Extension of Offer; Termination; Amendment…………………. 28
\n 16. Fees and Expenses……………………………………….. 29
\n 17. Additional Information…………………………………… 29
\n 18. Forward Looking Statements; Miscellaneous………………….. 30<\/p>\n
SCHEDULE A–Information About the Directors and Executive Officers of
\n Loudeye Technologies, Inc……………………………………… 32
\n<\/c><\/s><\/caption>\n<\/table>\n
-5-<\/p>\n
SUMMARY TERM SHEET<\/p>\n
The following are answers to some of the questions that you may have about
\nthis offer. We urge you to carefully read the remainder of this Offer to
\nExchange and the accompanying Cover Letter because the information in this
\nsummary is not complete. We have included references to the relevant sections of
\nthis Offer to Exchange where you can find a more complete description of the
\ntopics in this summary.<\/p>\n
Q1. WHO IS ELIGIBLE TO PARTICIPATE IN THE OPTION EXCHANGE OFFER?<\/p>\n
To be eligible to participate in the offer, you must be an employee of
\nLoudeye Technologies, Inc. on the date the new options are granted. (See
\nQuestion 5 below regarding the date the new options will be granted.)
\nConsultants, former employees and directors of Loudeye Technologies, Inc. and
\nemployees of any subsidiary of Loudeye Technologies, Inc. are not eligible.<\/p>\n
Q2. WHAT SECURITIES ARE WE OFFERING TO EXCHANGE?<\/p>\n
We are offering to exchange all outstanding stock options having an
\nexercise price of more than $4.30 per share that are outstanding under our 1998
\nPlan and 2000 Plan held by eligible employees. Outstanding incentive stock
\noptions (“ISO”) will be exchanged for new ISOs, to the extent allowed by
\napplicable tax law, and outstanding nonstatutory stock options (“NSO”) will be
\nexchanged for new NSOs. (See Sections 2, 9 and 14 of the Offer.)<\/p>\n
Q3. WHY ARE WE MAKING THE OFFER?<\/p>\n
We as a company are philosophically committed to the concept of
\nincentivizing employees to create value for the stockholders and to the concept
\nof employees as owners. In light of the recent stock market volatility,
\nespecially for technology stocks, many of our outstanding options have exercise
\nprices that are significantly higher than the current market price of our common
\nstock. We believe it is appropriate to offer this exchange program to help us
\nadvance our philosophy by creating better incentives for and thus increasing the
\nretention of our employees.<\/p>\n
Q4. ARE THERE CONDITIONS TO THE OFFER?<\/p>\n
The offer is subject to a number of conditions, including the conditions
\ndescribed in Section 7 of the Offer. However, the offer is not conditioned on a
\nminimum number of option holders accepting the offer or a minimum number of
\noptions being exchanged.<\/p>\n
Q5. WHEN WILL I RECEIVE MY NEW OPTIONS?<\/p>\n
We will grant new options as soon as practicable after the expiration date
\nof the offer, but in any event no later than 15 days following the expiration
\ndate. We expect that the expiration date of this Offer to Exchange will be on
\nor about Tuesday, July 3, 2001, in which case the grant<\/p>\n
-6-<\/p>\n
date would be on or prior to July 18, 2001. We cannot predict the exercise price
\nof the new options. We expect to distribute the new option agreements within
\nfour to six weeks after the expiration of this offer. (See Section 6 of the
\nOffer.)<\/p>\n
Q6. HOW MANY NEW OPTIONS WILL I RECEIVE IN EXCHANGE FOR THE OPTIONS I RETURN?<\/p>\n
Each new option granted in the offer will allow you to purchase, subject to
\nvesting requirements, a number of shares of our common stock equal to seventy-
\nfive percent (75%) of the number of shares purchasable on exercise of the
\noption(s) you surrendered in the offer. For example, if you hold an eligible
\noption to purchase 1,000 shares, that option will be exchanged for a new option
\nto purchase 750 shares.<\/p>\n
Q7. WHAT WILL THE EXERCISE PRICE OF THE NEW OPTIONS BE?<\/p>\n
Each new option that qualifies as an incentive stock option will have an
\nexercise price equal to the closing price for the common stock as reported by
\nthe Nasdaq National Market on the date the new options are granted (see Question
\n5 above). Each new option that does not qualify as an incentive stock option
\nwill have an exercise price equal to the lowest closing price for the common
\nstock as reported by the Nasdaq National Market for the period from June 6, 2001
\nthrough and including the date the new options are granted, but not less than
\n85% of the closing price on the date the new options are granted.<\/p>\n
The exercise price of any option you return must be more than $4.30 per
\nshare. This price is higher than the current market price of our common stock,
\nwhich closed at $1.25 on June 5, 2001. We recommend that you obtain current
\nmarket quotations for our common stock before deciding whether to elect to
\nexchange your options. (See Section 8 of the Offer)<\/p>\n
We will tell you what the exercise price for the new options is on or about
\nthe date the new options are granted. We will post the exercise price on the
\nLoudeye Technologies, Inc. intranet home page and post the exercise price in the
\nCompany’s offices on or about the date the new options are granted.<\/p>\n
Q8. WHEN WILL THE NEW OPTIONS VEST?<\/p>\n
Generally, each new option will vest over a three-year period in equal
\nincrements every three months beginning on the date the new options are granted.
\nYou “vest” in your option shares (meaning that you earn the right to exercise
\nand retain the exercised shares) as you continue over time to work for Loudeye
\nTechnologies, Inc. The first vest date will be three months from the date the
\nnew options are granted, which would be on or about October 18, 2001 assuming a
\nJuly 18, 2001 grant date, when 1\/12th (8.33%) of each new option will become
\nvested and exercisable. On the last day of each three-month period after the
\ninitial three-month period, an additional 1\/12th (8.33%) of each new option will
\nvest and become exercisable.<\/p>\n
New options for employees that are eligible for overtime pay will be
\nsubject to a six-<\/p>\n
-7-<\/p>\n
month “cliff” on vesting such that the first vest date will be six months from
\nthe date the new options are granted, which would be on or about January 18,
\n2002 assuming a July 18, 2001 grant date, when 1\/6th (16.66%) of each new option
\nwill become vested and exercisable. On the last day of each three-month period
\nafter the initial six-month cliff, an additional 1\/12th (8.33%) of each new
\noption will vest and become exercisable.<\/p>\n
Assuming continued employment, three years from the date the new options
\nare granted, which would be on or about July 18, 2004 assuming a July 18, 2001
\ngrant date, all new options will be fully vested.<\/p>\n
Q9. WHAT IF I AM AN EMPLOYEE OF LOUDEYE TECHNOLOGIES, INC. WHEN THE OFFER
\n EXPIRES, BUT NOT AN EMPLOYEE ON THE DATE THE NEW OPTIONS ARE GRANTED AND
\n WHEN THE NEW OPTIONS BEGIN TO VEST?<\/p>\n
If you will not be an employee on the date the new options are granted (See
\nQuestion 5 above) and when the new options begin to vest (or if you believe
\nthere is a significant possibility you will not be an employee on the date the
\nnew options are granted and begin to vest), we recommend that you not accept the
\noffer. Your eligible options may currently be fully or partially vested. If you
\ndo not accept the offer, if your employment with Loudeye Technologies, Inc.
\nends, you generally will be able to exercise your eligible options for three
\nmonths thereafter to the extent those options are vested on the day your
\nemployment ends. However, if you accept the offer, your eligible options will be
\ncancelled and the new options you receive will not begin to vest until either
\nOctober 18, 2001 or January 18, 2002 (See Question 8 above). As a result, if
\nyour employment with Loudeye Technologies, Inc. ends before the new options
\nbegin to vest, you will not be able to exercise the new options.<\/p>\n
Q10. WHEN WILL THE NEW OPTIONS EXPIRE?<\/p>\n
The new options will expire at 11:59 p.m., Pacific Time, ten years from the
\ndate the new options are granted, which would be on or about July 18, 2011
\nassuming a July 18, 2001 grant date.<\/p>\n
Q11. HOW DOES A LEAVE OF ABSENCE IMPACT THIS OFFER?<\/p>\n
A leave of absence will not have any impact on the number of shares you may
\npurchase under the new options. However, like our other options, vesting under
\nthe new options may be suspended for unpaid leave in excess of 30 days in
\naccordance with Loudeye Technologies, Inc. policy. If you are currently on
\nleave, and the vesting of your options is suspended as described above, if you
\naccept this offer your new options will not begin to vest until you return to
\nwork. If your new option expires before you vest in full because vesting was
\nsuspended while you were on leave, any unvested portion will be cancelled. This
\npolicy may vary as required by law.<\/p>\n
-8-<\/p>\n
Q12. WILL I HAVE TO WAIT LONGER TO PURCHASE COMMON STOCK UNDER MY NEW OPTIONS
\n THAN I WOULD UNDER THE OPTIONS I EXCHANGE?<\/p>\n
Yes, to the extent the eligible options you surrender will be vested or
\npartially vested before three months, or six months in the case of employees
\nthat are eligible for overtime pay, from the date the new options are granted.
\nThe new options you receive will not be vested, even if the options you exchange
\nare fully or partially vested. You will not be able to exercise any of the new
\noptions until three months from the date the new options are granted when 1\/12th
\nof the new options will vest, or six months from the date the new options are
\ngranted when 1\/6th of the new options will vest for employees that are eligible
\nfor overtime pay, and your new options will not vest in full until three years
\nfrom the date the new options are granted, which would be on or about July 18,
\n2004 assuming a July 18, 2001 grant date and assuming you remain an employee of
\nLoudeye Technologies, Inc. through that time.<\/p>\n
Q13. IF I ELECT TO EXCHANGE ELIGIBLE OPTIONS, DO I HAVE TO EXCHANGE ALL OF MY
\n ELIGIBLE OPTIONS OR CAN I JUST EXCHANGE SOME OF THEM?<\/p>\n
If you have more than one eligible option, then you must exchange all of
\nyour eligible option grants. For example, if you have three options grants at
\ndifferent exercise prices ($2.00, $6.00 and $8.00, respectively), and you accept
\nthe offer, you must exchange all of the $6.00 and $8.00 options. You will not be
\nable to exchange the $2.00 option because it will not be eligible for the offer.<\/p>\n
Q14. WILL YOU BE REQUIRED TO GIVE UP ALL YOUR RIGHTS TO THE CANCELLED OPTIONS?<\/p>\n
Yes. Once we have accepted options tendered by you, these options will be
\ncancelled and you will no longer have any rights under those options. (See
\nSection 12 of the Offer.)<\/p>\n
Q15. ARE THERE CIRCUMSTANCES IN WHICH YOU MIGHT NOT BE GRANTED NEW OPTIONS?<\/p>\n
Yes. Even if we accept your eligible options, we will not grant new
\noptions to you if we are prohibited to do so by applicable law. We do not
\nanticipate that we will be prohibited from granting your new options and we will
\nuse reasonable efforts to avoid any prohibition. Also, if you are no longer an
\nemployee on the date the new options are granted, you will not receive any new
\noptions. (See Section 6 of the Offer.)<\/p>\n
Q16. WILL I HAVE TO PAY TAXES IF I EXCHANGE MY OPTIONS IN THE OFFER?<\/p>\n
If you accept the offer, you will not recognize income for U.S. federal
\nincome tax purposes at the time of the exchange or at the time we grant new
\noptions to you. We recommend that you consult with your own tax advisor to
\ndetermine the tax consequences of accepting the offer. (See Section 14 of the
\nOffer.)<\/p>\n
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Q17. IF MY CURRENT OPTIONS ARE INCENTIVE STOCK OPTIONS, WILL MY NEW OPTIONS BE
\n INCENTIVE STOCK OPTIONS?<\/p>\n
Yes, to the extent allowed by applicable law.<\/p>\n
Q18. IF I HAVE INCENTIVE STOCK OPTIONS, WHAT HAPPENS IF I ELECT NOT TO EXCHANGE
\n THEM IN THIS OFFER?<\/p>\n
If you elect not to exchange your eligible options for new options in
\nconnection with the offer, you will not be subject to current income tax.
\nHowever, if your options are incentive stock options, you should be aware that
\nthe Internal Revenue Service may characterize the offer as a “modification” of
\nthose incentive stock options, even if you decline the offer. A successful
\nassertion by the Internal Revenue Service that your options are modified could
\ncause the options to be deemed re-granted to you, thereby causing your incentive
\nstock option holding period to re-commence as of the date of such re-grant and,
\ndepending on your personal circumstances, possibly causing all or a portion of
\nyour incentive stock options to be treated as nonstatutory options.<\/p>\n
If you intend not to exchange your eligible incentive stock options, we
\nrecommend that you consult with your own tax advisor to determine the tax
\nconsequences of such a decision under your personal circumstances.<\/p>\n
Q19. WHAT ACCOUNTING IMPACT WILL THE OFFER HAVE ON LOUDEYE TECHNOLOGIES, INC.?<\/p>\n
As a result of our decision to extend this offer to our employees, all new
\noptions under this offer will be treated for financial reporting purposes as
\nvariable awards. This means that we will be required to record the non-cash
\naccounting impact of decreases and increases in the company’s stock price in
\ncompensation expense in connection with the new options issued or granted. We
\nwill have to continue this variable accounting with respect to these options
\nuntil the new options are exercised, forfeited or terminated. The higher the
\nmarket value of our common stock, the greater the compensation expense we will
\nrecord.<\/p>\n
Q20. WHEN DOES THE OFFER EXPIRE? CAN THE OFFER BE EXTENDED, AND IF SO, HOW WILL
\n I KNOW IF IT IS EXTENDED?<\/p>\n
The offer expires on Tuesday, July 3, 2001, at 9 p.m., Pacific Time, unless
\nwe extend it.<\/p>\n
Although we do not currently intend to do so, we may, in our discretion,
\nextend the offer at any time. If we extend the offer, we will publicly announce
\nthe extension no later than 6 a.m., Pacific Time, on the next business day
\nfollowing the previously scheduled expiration of the offer period. (See Section
\n15 of the Offer.)<\/p>\n
-10-<\/p>\n
Q21. WHAT DO I NEED TO DO?<\/p>\n
If you choose to accept the offer, you need to make your election and sign
\nthe Election Form and deliver it to Angie Bailey of Loudeye Technologies, Inc.
\nat 414 Olive Way, Suite 500, Seattle, Washington 98101, (206) 832-4111, before 9
\np.m., Pacific Time, on Tuesday, July 3, 2001. If you have questions about
\ndelivery, you may contact Angie Bailey of Loudeye Technologies, Inc. at (206)
\n832-4111. You should review the Offer to Exchange, the Cover Letter and Summary
\nof Terms, the Election Form and all of their attachments before making your
\nelection. We will only accept a paper copy or facsimile of your Election Form.
\nDelivery by email will not be accepted.<\/p>\n
If we extend the offer beyond Tuesday, July 3, 2001, then you must sign and
\ndeliver the Election Form before the extended expiration of the offer. We may
\nreject any eligible options to the extent that we determine the Election Form is
\nnot properly completed or to the extent that we determine it would be unlawful
\nto accept the options. Although we may later extend, terminate or amend the
\noffer, we currently expect to accept all properly exchanged options promptly
\nafter the offer expires. If you do not sign and deliver the Election Form before
\nthe offer expires, it will have the same effect as if you rejected the offer.<\/p>\n
If you cannot deliver your Election Form to Angie Bailey of Loudeye
\nTechnologies, Inc. at 414 Olive Way, Suite 500, Seattle, Washington 98101, then
\nyou should contact her at (206) 832-4111.<\/p>\n
Q22. DURING WHAT PERIOD OF TIME MAY I CHANGE MY PREVIOUS ELECTION?<\/p>\n
You may change your previous election at any time before 9 p.m., Pacific
\nTime, on Tuesday, July 3, 2001. If we extend the offer beyond that time, you may
\nchange your previous election at any time until the extended expiration of the
\noffer. To change your election, you must deliver a change of election form to
\nAngie Bailey of Loudeye Technologies, Inc. at 414 Olive Way, Suite 500, Seattle,
\nWashington 98101, (206) 832-4111 before the offer expires. You may change your
\nelection more than once. (See Section 5 of the Offer.)<\/p>\n
Q23. WHAT HAPPENS TO MY OPTIONS IF I DO NOT ACCEPT THE OFFER OR IF MY OPTIONS
\n ARE NOT ACCEPTED FOR EXCHANGE?<\/p>\n
Nothing. If you do not accept the offer, or if we do not accept the options
\nyou return, you will keep all of your current options, and you will not receive
\nany new options. No changes will be made to your current options. However, if
\nyou currently have incentive stock options that are eligible options under this
\noffer and you do not accept the offer, see Question 18 above.<\/p>\n
Q24. WHAT DO WE AND OUR BOARD OF DIRECTORS THINK OF THE OFFER?<\/p>\n
Although our Board of Directors has approved this offer, neither we nor our
\nBoard of Directors makes any recommendation as to whether you should tender or
\nnot tender your options for exchange because the eligible employees hold options
\nwith a range of exercise prices, widely varying ratios of vested to unvested
\noptions and have future employment plans that are unknown to us, neither we nor
\nour Board of Directors believes that a general recommendation regarding your
\ndecision is appropriate. You must make your own decision whether or not to
\ntender your options. We<\/p>\n
-11-<\/p>\n
encourage you to consult with your personal advisors if you have questions about
\nyour financial or tax situation.<\/p>\n
To our knowledge, all of our eligible executive officers currently intend
\nto accept the offer to exchange their eligible options and receive new options.<\/p>\n
Q25. WHO CAN I TALK TO IF I HAVE QUESTIONS ABOUT THE OFFER?<\/p>\n
For additional information or assistance, you should contact Angie Bailey
\nof Loudeye Technologies, Inc. at 414 Olive Way, Suite 500, Seattle, Washington
\n98101, (206) 832-4111.<\/p>\n
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CERTAIN RISKS OF PARTICIPATING IN THE OFFER<\/p>\n
Participation in the offer involves a number of potential risks, including
\nthose described below. This list and the risk factors set forth in Loudeye
\nTechnologies, Inc. Quarterly Report on Form 10-Q for its fiscal quarter ended
\nMarch 31, 2001, filed with the SEC on May 15, 2001, highlight the material risks
\nof participating in this offer. Eligible participants should carefully consider
\nthese risks and are encouraged to speak with an investment and tax advisor as
\nnecessary before deciding to participate in the offer. In addition, we strongly
\nurge you to read the Sections in this Offer to Exchange discussing tax
\nconsequences, as well as the rest of this Offer to Exchange, the Cover Letter
\nand attached Summary of Terms, the Election Form and the Notice of Change in
\nElection from Accept to Reject for a fuller discussion of the risks which may
\napply to you before deciding to participate in this exchange offer.<\/p>\n
ECONOMIC RISKS<\/p>\n
IF THE STOCK PRICE INCREASES AFTER THE DATE YOUR TENDERED OPTIONS ARE CANCELLED,
\nYOUR CANCELLED OPTIONS MIGHT HAVE BEEN WORTH MORE THAN THE NEW OPTIONS THAT YOU
\nRECEIVE IN EXCHANGE FOR THEM.<\/p>\n
For example, if you cancel options with a $5 strike price, and Loudeye
\nTechnologies, Inc.’s stock appreciates to $7 when the new option grants are
\nmade, your new option will have a higher strike price than the cancelled option.<\/p>\n
IF YOUR EMPLOYMENT TERMINATES PRIOR TO THE GRANT AND VESTING OF THE NEW OPTION,
\nYOU WILL RECEIVE NEITHER A NEW OPTION NOR THE RETURN OF YOUR CANCELLED OPTION.<\/p>\n
Once your option is cancelled, it is gone for good. Accordingly, if your
\nemployment terminates for any reason prior to the grant of the new option, you
\nwill have the benefit of neither the cancelled option nor the new option.<\/p>\n
-13-<\/p>\n
THE OFFER<\/p>\n
1. ELIGIBILITY.<\/p>\n
Employees are “eligible employees” if they are employees of Loudeye
\nTechnologies, Inc. on the date the new options are granted. Consultants,
\ndirectors and former employees of Loudeye Technologies, Inc. are not “eligible
\nemployees.” Employees of any subsidiary of Loudeye Technologies, Inc. are not
\n“eligible employees.”<\/p>\n
2. NUMBER OF OPTIONS; EXPIRATION DATE.<\/p>\n
We are offering to exchange new options to purchase common stock in return
\nfor all eligible options. Eligible options are all outstanding options held by
\neligible employees that have an exercise price of more than $4.30 per share.
\nThis offer does not include the class of options held by option holders who are
\nnot employees of Loudeye Technologies, Inc. on the date the new options are
\ngranted. In addition, this offer does not include consultants or directors of
\nLoudeye Technologies, Inc. or employees of any subsidiary of Loudeye
\nTechnologies, Inc.<\/p>\n
If you elect to participate in this offer, you must return all of your
\noptions having an exercise price of more than $4.30 per share. We will not
\naccept partial returns. For example, if you have three options grants at
\ndifferent exercise prices ($2.00, $6.00 and $8.00, respectively), and you accept
\nthe offer, you must exchange all of the $6.00 and $8.00 options. You will not be
\nable to exchange the $2.00 option because it will not be eligible for the offer.
\nOur offer is subject to the terms and conditions described in this Offer to
\nExchange, and the Cover Letter and attached Summary of Terms. We will only
\naccept eligible options that are properly returned and not validly withdrawn in
\naccordance with Sections 4 and 5 of this Offer to Exchange before the offer
\nexpires on the “expiration date” as defined below.<\/p>\n
Each new option will be exercisable, subject to vesting requirements, for
\nthe number of shares equal to seventy-five percent (75%) of the number of shares
\nsubject to the eligible option. For example, if you hold an eligible option to
\npurchase 1,000 shares, that option will be exchanged for a new option to
\npurchase 750 shares.<\/p>\n
The minimum option grant will be for 100 shares, regardless of the eligible
\noptions exchanged. The exact number of option shares that you have now and that
\nyou would have if you accepted the exchange is set forth in the enclosed
\nElection Form. We will not issue any options exercisable for fractional shares,
\nand will round up all fractional shares. All new options will be issued under
\nthe same option plan as the eligible options surrendered and will be subject to
\na new option agreement between you and us.<\/p>\n
The term “expiration date” means 9 p.m., Pacific Time, on Tuesday, July 3,
\n2001, unless and until we, in our discretion or if required by applicable SEC
\nrules, extend the period of time during which the offer will remain open. If we
\nextend the period of time during which the offer remains open, the term
\n“expiration date” will refer to the latest time and date at which the offer
\nexpires. See Section 15 for a description of our rights to extend, delay,
\nterminate and amend the <\/p>\n
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offer.<\/p>\n
If we decide to take any of the following actions, we will publish a
\nnotice:<\/p>\n
. we increase or decrease what we will give you in exchange for your
\n options;<\/p>\n
. we decrease the number of options eligible to be exchanged in the
\n offer; or<\/p>\n
. we increase the number of options eligible to be tendered in the offer
\n by an amount that exceeds 2% of the shares issuable upon exercise of
\n the options that are subject to the offer immediately prior to the
\n increase.<\/p>\n
If the offer is scheduled to expire within ten business days from the date
\nwe notify you of such an increase or decrease, we will also extend the offer for
\na period of ten business days after the date the notice is published.<\/p>\n
We will also notify you if any other material change in the information
\ncontained in this Offer to Exchange.<\/p>\n
A “business day” means any day other than a Saturday, Sunday or federal
\nholiday and consists of the time period from 12:01 a.m. through 12:00 midnight,
\nPacific Time.<\/p>\n
3. PURPOSE OF THE OFFER.<\/p>\n
Many of our outstanding options, whether or not they are currently
\nexercisable, have exercise prices that are significantly higher than the current
\nmarket price of our common stock. By making this offer we intend to maximize
\nstockholder value by creating better performance incentives for, and thus
\nincreasing retention of, our employees. In addition, we believe this offer will
\nhelp us better achieve our commitment to the concept of employees as owners.<\/p>\n
Except as otherwise described in this Offer to Exchange or in our filings
\nwith the SEC, we presently have no plans, proposals or negotiations that relate
\nto or would result in:<\/p>\n
. an extraordinary corporate transaction, such as a merger,
\n reorganization or liquidation, involving us or any of our material
\n subsidiaries;<\/p>\n
. purchase, sale or transfer of a material amount of our assets or any
\n subsidiary’s assets;<\/p>\n
. any material change in our present dividend rate or policy, or our
\n indebtedness or capitalization;<\/p>\n
. any change in our present board of directors or senior management,
\n including a change in the number or term of directors or to fill any
\n existing board vacancies or change any executive officer’s material
\n terms of employment; provided, however, that Stuart J. Ellman has
\n resigned as a director and pursuant to the certificate of<\/p>\n
-15-<\/p>\n
incorporation and bylaws of Loudeye Technologies, Inc., the vacancy
\n created by Mr. Ellman’s resignation may be filled by a majority vote
\n of the remaining directors then in office.<\/p>\n
. any other material change in our corporate structure or business;<\/p>\n
. our common stock not being authorized for quotation in an automated
\n quotation system operated by a national securities association;<\/p>\n
. our common stock becoming eligible for termination of registration
\n pursuant to section 12(g)(4) of the Securities Exchange Act;<\/p>\n
. the suspension of our obligation to file reports pursuant to Section
\n 15(d) of the Securities Exchange Act;<\/p>\n
. the acquisition by any person of any of our securities or the
\n disposition by any person of any of our securities, other than in
\n connection with the option plans; or<\/p>\n
. change our certificate of incorporation or bylaws, or any actions which
\n may make it more difficult for any person to acquire control of our
\n company.<\/p>\n
Although our Board of Directors has approved this offer, neither we nor our
\nBoard of Directors makes any recommendation as to whether you should tender or
\nnot tender your eligible options for exchange because the eligible employees
\nhold options with a range of exercise prices, widely varying ratios of vested to
\nunvested options and have future employment plans that are unknown to us,
\nneither we nor our Board of Directors believes that a general recommendation
\nregarding your deicision is appropriate. You must make your own decision whether
\nor not to tender your options. We encourage you to consult with your personal
\nadvisors if you have questions about your financial or tax situation.<\/p>\n
To our knowledge, all of our eligible executive officers currently intend
\nto accept the offer to exchange their eligible options and receive new options.<\/p>\n
4. PROCEDURES FOR ELECTING TO EXCHANGE OPTIONS.<\/p>\n
Making Your Election. To make your election to accept this offer, you must
\nmake your election, sign and deliver the Election Form and any other required
\ndocuments to Angie Bailey of Loudeye Technologies, Inc. at 414 Olive Way, Suite
\n500, Seattle, Washington, 98101, (206) 832-4111 before the expiration date of
\nthis offer, Tuesday, July 3, 2001. We will only accept a paper copy or facsimile
\nof your Election Form. Delivery by email will not be accepted. You do not need
\nto return your stock option letter agreements for your eligible options to
\neffectively elect to accept the offer. If you do not sign and deliver the
\nElection Form before the offer expires, it will have the same effect as if you
\nrejected the offer.<\/p>\n
Determination of Validity; Rejection of Options; Waiver of Defects; No
\nObligation to Give Notice of Defects. We will determine, in our discretion, all
\nquestions as to the number of shares subject to eligible options and the
\nvalidity, form, eligibility (including time of receipt) and acceptance of
\nElection Forms and change of election forms. Our determination of these <\/p>\n
-16-<\/p>\n
matters will be final and binding on all parties. We may reject any or all
\nElection Forms, change of election forms or returned options to the extent that
\nwe determine they were not properly executed or delivered or to the extent that
\nwe determine it is unlawful to accept the returned options. Otherwise, we will
\naccept properly and timely returned options that are not validly withdrawn. We
\nmay waive any of the conditions of the offer or any defect or irregularity in
\nany Election Form or change of election form with respect to any particular
\noptions or any particular option holder. No options will be properly returned
\nuntil all defects or irregularities have been cured by the option holder
\nreturning the options or waived by us. Neither we nor any other person is
\nobligated to give notice of any defects or irregularities involved in the return
\nof any options, and no one will be liable for failing to give notice of any
\ndefects or irregularities.<\/p>\n
Our Acceptance Constitutes an Agreement. If you elect to exchange your
\noptions and you return your eligible options according to the procedures
\ndescribed above, you will accept the terms and conditions of the offer. Our
\nacceptance of eligible options that are properly returned will form a binding
\nagreement between us and you on the terms and subject to the conditions of this
\noffer.<\/p>\n
Subject to our rights to extend, terminate and amend the offer, we
\ncurrently expect that we will accept promptly after the expiration of the offer
\nall properly returned options that have not been validly withdrawn.<\/p>\n
Amendment of Election Form. The form of the Election Form was modified and
\nredistributed on June 15, 2001. If you signed and delivered the prior version of
\nthe Election Form, you do not need to resign and deliver a new Election Form.
\nPlease note that the representation in the prior version of the Election Form to
\nthe effect that you “have read and understand” the offering materials shall be
\nstricken and have no legal effect.<\/p>\n
5. CHANGE IN ELECTION; WITHDRAWAL RIGHTS.<\/p>\n
You may only change your election by following the procedures described in
\nthis Section 5. If you elect to accept the offer and exchange your options and
\nyou later want to change your election to reject the offer, you must reject the
\noffer with respect to all your eligible options. No partial rejections will be
\naccepted. We will only accept a paper copy of your change of election. Delivery
\nby e-mail will not be accepted.<\/p>\n
You may change your election at any time before 9 p.m., Pacific Time, on
\nTuesday, July 3, 2001. If we extend the offer beyond that time, you may change
\nyour election at any time until the extended expiration of the offer. In
\naddition, if we have not accepted or cancelled your tendered options for
\nexchange by 9:00 p.m., Pacific Time, on August 1, 2001, you may withdraw your
\ntendered options at any time after August 1, 2001.<\/p>\n
To change your election, you must deliver a change of election form to
\nAngie Bailey of Loudeye Technologies, Inc. at 414 Olive Way, Suite 500, Seattle,
\nWashington, 98101, (206) 832-4111 before the offer expires. The change of
\nelection form must be signed by you, have your name on it, and must clearly
\nindicate that you elect to accept the offer.<\/p>\n
Neither we nor any other person is obligated to give notice of any defects
\nor irregularities in any change of election form, and no one will be liable for
\nfailing to give notice of any defects or irregularities. We will determine, in
\nour discretion, all questions as to the form and validity, including time of
\nreceipt, of change of election forms. Our determinations of these matters will
\nbe final and binding.<\/p>\n
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6. ACCEPTANCE OF OPTIONS FOR EXCHANGE AND CANCELLATION AND ISSUANCE OF NEW
\n OPTIONS.<\/p>\n
On the terms and subject to the conditions of this offer and as promptly as
\npracticable following the expiration date, we will timely accept the eligible
\noptions for exchange and cancel all options properly returned and not validly
\nwithdrawn before the expiration date. Within four to six weeks after expiration
\nof this offer, you will receive your new option agreement. The new options will
\nhave a grant date on or prior to July 18, 2001, assuming an expiration date of
\nTuesday, July 3, 2001.<\/p>\n
If you submit your eligible options for exchange and your employment with
\nLoudeye Technologies, Inc. terminates prior to the date the new options are
\ngranted, your eligible options properly returned and not validly withdrawn will
\nbe cancelled and you will not receive any new options.<\/p>\n
Your new options will entitle you to purchase the amount of Loudeye
\nTechnologies, Inc. common stock set forth on the Election Form. This number has
\nbeen calculated using the formula for new options described in Section 2.<\/p>\n
We will give you written notice of our acceptance for exchange or
\ncancellation of options validly returned and not properly withdrawn as of the
\nexpiration date no later than 3 days following the expiration date. Furthermore,
\nafter we accept returned options for exchange, we will promptly send each option
\nholder who accepted the offer a letter confirming the new options that we
\ngranted to the option holder.<\/p>\n
7. CONDITIONS OF THE OFFER.<\/p>\n
We will not be required to accept any options returned to us, and we may
\nterminate or amend the offer, or postpone our acceptance and cancellation of any
\noptions returned to us, in each case, subject to Rule 13e-4(f)(5) under the
\nSecurities Exchange Act, if at any time on or after June 6, 2001 and before the
\nexpiration date, we determine that any of the following events has occurred,
\nand, in our reasonable judgment, the occurrence of the event makes it
\ninadvisable for us to proceed with the offer or to accept and cancel options
\nreturned to us:<\/p>\n
. any action or proceeding by any government agency, authority or tribunal
\n or any other person, domestic or foreign, is threatened or pending
\n before any court, authority, agency or tribunal that directly or
\n indirectly challenges the making of the offer, the acquisition of some
\n or all of the returned options, the issuance of new options, or
\n otherwise relates to the offer or that, in our reasonable judgment,
\n could materially and adversely affect our business, condition (financial
\n or other), income, operations or prospects or materially impair the
\n benefits we believe we will receive from the offer;<\/p>\n
. any action is threatened, pending or taken, or any approval is withheld,
\n by any court or any authority, agency or tribunal that, in our
\n reasonable judgment, would or might directly or indirectly:<\/p>\n
-18-<\/p>\n
(a) make it illegal for us to accept some or all of the eligible options
\n or to issue some or all of the new options or otherwise restrict or
\n prohibit consummation of the offer or otherwise relate to the offer;<\/p>\n
(b) delay or restrict our ability, or render us unable, to accept the
\n eligible options for exchange and cancellation or to issue new
\n options for some or all of the exchanged eligible options;<\/p>\n
(c) materially impair the benefits we believe we will receive from the
\n offer; or<\/p>\n
(d) materially and adversely affect our business, condition (financial
\n or other), income, operations or prospects;<\/p>\n
. there is:<\/p>\n
(a) any general suspension of trading in, or limitation on prices for,
\n securities on any national securities exchange or in the over-the-
\n counter market;<\/p>\n
(b) the declaration of a banking moratorium or any suspension of
\n payments in respect of banks in the United States, whether or not
\n mandatory; or<\/p>\n
. another person publicly makes or proposes a tender or exchange offer for
\n some or all of our common stock, or an offer to merge with or acquire
\n us, or we learn that:<\/p>\n
(a) any person, entity or “group,” within the meaning of section
\n 13(d)(3) of the Securities Exchange Act, has acquired or proposed to
\n acquire beneficial ownership of more than 5% of the outstanding
\n shares of our common stock, or any new group shall have been formed
\n that beneficially owns more than 5% of the outstanding shares of our
\n common stock, other than any such person, entity or group that has
\n filed a Schedule 13D or Schedule 13G with the SEC on or before July
\n 3, 2001;<\/p>\n
(b) any such person, entity or group that has filed a Schedule 13D or
\n Schedule 13G with the SEC on or before July 3, 2001 has acquired or
\n proposed to acquire beneficial ownership of an additional 2% or more
\n of the outstanding shares of our common stock; or<\/p>\n
(c) any person, entity or group shall have filed a Notification and
\n Report Form under the Hart-Scott-Rodino Antitrust Improvements Act
\n of 1976 or made a public announcement that it intends to acquire us
\n or any of our assets or securities; or<\/p>\n
. any change or changes occurs in our business, condition (financial or
\n other), assets, income, operations, prospects, stock price, or stock
\n ownership that, in our reasonable <\/p>\n
-19-<\/p>\n
judgment, is or may be material to us.<\/p>\n
The conditions to the offer are for our benefit. We may assert them in our
\ndiscretion before the expiration date and we may waive them, in whole or in
\npart, at any time and from time to time prior to the expiration date, whether or
\nnot we waive any other condition to the offer. Our failure to exercise any of
\nthese rights is not a waiver of any of these rights. The waiver of any of these
\nrights will not be deemed a waiver of all of these rights. Any determination we
\nmake concerning the events described in this Section 7 will be final and binding
\nupon everyone.<\/p>\n
8. PRICE RANGE OF COMMON STOCK.<\/p>\n
Our common stock is quoted on the Nasdaq National Market under the symbol
\n“LOUD.” The following table shows, for the periods indicated, the high and low
\nsales prices per share of our common stock as reported by the Nasdaq National
\nMarket. We completed our initial public offering in March 2000. Prior to March
\n2000 there was no public market for our common stock.<\/p>\n
\n\n High Low
\n
\nFiscal Year 2001
\nQuarter Ended
\n June 30, 2001 (through June 5, 2001) 1.99 0.50
\n March 31, 2001 2.4375 0.6875<\/p>\nFiscal Year 2000
\nQuarter Ended
\n December 31, 2000 7.75 1.0625
\n September 30, 2000 19.875 6.125
\n June 30, 2000 35.0 12.625
\n March 31, 2000 (beginning March 15, 2000) 54.0 30.0
\n<\/c><\/c><\/s><\/caption>\n<\/table>\n
As of June 5, 2001, the last reported sale price of our common stock, as
\nreported by the Nasdaq National Market, was $1.25 per share.<\/p>\n
We recommend that you obtain current market quotations for our common stock
\nbefore deciding whether to elect to exchange your options.<\/p>\n
9. SOURCE AND AMOUNT OF CONSIDERATION; TERMS OF NEW OPTIONS.<\/p>\n
Consideration. Each new option will be exercisable for seventy-five
\npercent (75%) of the number of shares subject to the eligible option being
\nexchanged. For example, an eligible option to purchase 1,000 shares of common
\nstock may be exchanged for a new option to purchase 750 shares of common stock.
\nThe minimum option grant will be for 100 shares, regardless of the eligible
\noptions exchanged. The exact number of option shares that you have now and that
\nyou would have if you accepted the exchange is set forth in the enclosed
\nElection Form. The new options, which shall be granted from our 1998 Plan and
\n2000 Plan, will <\/p>\n
-20-<\/p>\n
constitute consideration for the exchange of any eligible options.<\/p>\n
If we receive and accept return of all outstanding eligible options, we
\nwill grant new options to purchase a total of 827,025 shares of our common stock
\nbased on the 1,102,700 eligible options outstanding with exercise prices greater
\nthan $4.30. The common stock issuable upon exercise of the new options will
\nequal approximately 2% of the approximately 41.4 million total shares of our
\ncommon stock outstanding as of June 6, 2001.<\/p>\n
Terms of New Options. The new options will be issued under the applicable
\noption plans (in most cases, the same option plan under which the eligible
\noptions were granted) and a new option agreement will be executed between each
\noption holder who accepts the offer and Loudeye Technologies, Inc.<\/p>\n
Except with respect to:<\/p>\n
. the number of shares that may be purchased under the option,<\/p>\n
. the exercise price,<\/p>\n
. the date that vesting and exercisability begins,<\/p>\n
. the vesting period, and<\/p>\n
. the expiration date,<\/p>\n
and as otherwise specified in this offer, the terms and conditions of the new
\noptions will be substantially the same as the terms and conditions of the
\neligible options. Except as otherwise specified in this offer, the terms and
\nconditions of the new options will be substantially similar to one another,
\nregardless of the option plan under which they are issued.<\/p>\n
The issuance of new options under this offer will not create any
\ncontractual or other right of the recipients to receive any future grants of
\nstock options or benefits in lieu of stock options.<\/p>\n
The following description of the option plans and the new option agreements
\nare summaries, and are not complete. Complete information about the option plans
\nand the new options is included in the option plans and the new option agreement
\nbetween you and us. The forms of the new option agreements have been filed with
\nthe SEC as exhibits to the Schedule TO. In addition, you should consult the
\nprospectuses for the 1998 and 2000 Plans for further information regarding the
\ntax consequences applicable to the new options. Please contact Angie Bailey of
\nLoudeye Technologies, Inc. at 414 Olive Way, Suite 500, Seattle, Washington
\n98101, (206) 832-4111 to request copies of the option plans, prospectuses or the
\nforms of the new option agreements. Copies will be provided promptly and at our
\nexpense.<\/p>\n
General. As of June 6, 2001, the maximum number of shares of common stock
\nwe can issue in connection with options granted under the 1998 Plan and 2000
\nPlan, respectively, was 4,660,000 shares and 4,334,500 shares. Both the 1998
\nPlan and the 2000 Plan permit us to grant options intended to qualify as
\nincentive stock options under the Internal Revenue Code as well as <\/p>\n
-21-<\/p>\n
nonstatutory stock options which are options that do not qualify as incentive
\noptions. The 2000 Plan also allows us to grant stock purchase rights. Incentive
\noptions exchanged in this offer will be replaced with new incentive options, to
\nthe extent allowed under applicable tax law, and nonstatutory options will be
\nreplaced with nonstatutory options.<\/p>\n
Administration. The option plans may be administered by our Board of
\nDirectors or one or more committees of our Board. Generally, the option plans
\nare administered by the Compensation Committee of our Board, comprised of two
\n“non-employee” directors, with respect to executive officers, and by our Stock
\nOption Committee, comprised of our Chief Executive Officer, with respect to all
\nother eligible employees. The body administering our option plans has
\ndiscretion to determine the recipients of awards and the terms of option plan
\nawards granted, including the exercise price, the number of shares subject to
\nawards and the applicable vesting schedule, although the Stock Option
\nCommittee’s discretion is limited to certain parameters established by the
\nCompensation Committee. The administrator’s determination and interpretation of
\noption plan provisions is binding on all parties.<\/p>\n
Term. The term of each option granted under the plan is fixed by the Board
\nof Directors at the time of grant. The new options to be granted under the offer
\nwill have a term that expires at 11:59 p.m., Pacific Time, on the ten year
\nanniversary of the date the new options are granted, which would be on or about
\nJuly 18, 2011 assuming a July 18, 2001 grant date.<\/p>\n
Termination. The Board of Directors has the authority to determine the
\nperiod of time, if any, after which your employment with us ends for any reason
\n(including your death or disability) that you may exercise vested option shares.
\nIf your employment terminates for any reason other than your death or
\ndisability, you generally have three months to exercise option shares that were
\nvested on your last day of employment. Option shares that were unvested on your
\nlast day of employment terminate on that last day and you have no further rights
\nto these shares. If your employment terminates as a result of your death or
\ndisability (or you die within 30 days after your last day of employment), your
\nnew option will be exercisable, to the extent of the number of shares vested and
\nexercisable at the date of such termination, (a) for one year from the date of
\ntermination, if the termination is the result of your total and permanent
\ndisability (as defined in the plan under which the option is granted), (b) for
\nsix months from the date of termination, if the termination is the result of
\nany disability not constituting a total and permanent disability, (c) for one
\nyear from the date of termination, if the termination is the result of your
\ndeath or (d) for three months from the date of termination for any other reason.
\nHowever, in no event can a new option be exercised after its expiration date.<\/p>\n
Upon a “Change in Control,” as defined in the option plan and\/or your new
\noption agreement, the vesting of your new option will automatically be
\naccelerated so that one hundred percent (100%) of the number of shares of common
\nstock covered by the new option shall be fully vested upon the consummation of
\nthe Change in Control; provided, however, that the vesting of your new option
\nwill automatically be accelerated by only twenty-five percent (25%) of the
\nnumber of shares of common stock covered by the new option that are unvested at
\nthe consummation of the Change in Control if and to the extent the option is
\neither to be assumed or replaced by the successor corporation at the
\nconsummation of the Change in Control. Upon a <\/p>\n
-22-<\/p>\n
Change in Control, the percentage of the new options held by executive officers
\nof Loudeye Technologies, Inc. that will be subject to acceleration of vesting is
\ndependent upon the continuation of their employment following the consummation
\nof the Change in Control.<\/p>\n
If your option terminates under the circumstances specified in this
\nsection, your interests in the option plan will also terminate.<\/p>\n
Exercise Price. Each new option that qualifies as an incentive stock
\noption will have an exercise price equal to the closing price for the common
\nstock as reported by the Nasdaq National Market on the date the new options are
\ngranted. Each new option that does not qualify as an incentive stock option
\nwill have an exercise price equal to the lowest closing price for the common
\nstock as reported by the Nasdaq National Market for the period from June 6, 2001
\nthrough and including the date the new options are granted, but not less than
\n85% of the closing price on the date the new options are granted. We will grant
\nnew options as soon as practicable after the expiration date of this offer, but
\nin any event no later than 15 days following the expiration date. We expect
\nthat the expiration date of this Offer to Exchange will be on or about Tuesday,
\nJuly 3, 2001.<\/p>\n
Vesting and Exercise. The Board of Directors has the authority to
\ndetermine the time or times at which options granted under the plans may be
\nexercised. The Board of Directors may also accelerate the exercisability of
\noptions.<\/p>\n
Generally, each new option will vest over a three-year period in equal
\nincrements every three months beginning on the date the new options are granted.
\nYou “vest” in your option shares (meaning that you earn the right to exercise
\nand retain the exercised shares) as you continue over time to work for Loudeye
\nTechnologies, Inc. The first vest date will be three months from the date the
\nnew options are granted, which would be on or about October 18, 2001 assuming a
\nJuly 18, 2001 grant date, when 1\/12th (8.33%) of each new option will become
\nvested and exercisable. On the last day of each three-month period after the
\ninitial three-month period, an additional 1\/12th (8.33%) of each new option will
\nvest and become exercisable.<\/p>\n
New options for employees that are eligible for overtime pay will be
\nsubject to a six-month “cliff” on vesting such that the first vest date will be
\nsix months from the date the new options are granted. which would be on or about
\nJanuary 18, 2002 assuming a July 18, 2001 grant date, when 1\/6th (16.66%) of
\neach new option will become vested and exercisable. On the last day of each
\nthree-month period after the initial six-month cliff, an additional 1\/12th
\n(8.33%) of each new option will vest and become exercisable.<\/p>\n
Three years from the date the new options are granted, which would be on or
\nabout July 18, 2004 assuming a July 18, 2001 grant date, all new options will be
\nfully vested.<\/p>\n
Tax Consequences. You should refer to Section 14 for a discussion of the
\nU.S. federal income tax consequences of the new options, and the eligible
\noptions, as well as the consequences of accepting or rejecting the new options
\nunder this offer to exchange.<\/p>\n
-23-<\/p>\n
Registration of Option Shares. All shares of common stock issuable upon
\nexercise of options under the option plans, including the shares that will be
\nissuable upon exercise of all new options have been registered under the
\nSecurities Act on a registration statement on Form S-8 filed with the SEC.
\nUnless you are considered an “affiliate” of Loudeye Technologies, Inc., you will
\nbe able to sell your option shares free of any transfer restrictions under
\napplicable securities laws, subject to any restrictions on transfer applicable
\nto you under the Loudeye Technologies, Inc. Insider Trading Policy.<\/p>\n
10. INFORMATION ABOUT LOUDEYE TECHNOLOGIES, INC.<\/p>\n
Loudeye Technologies, Inc. provides digital media infrastructure services
\nand applications including transforming audio and video content from traditional
\nsources into Internet compatible formats. Loudeye was formed as a limited
\nliability company in August 1997 and incorporated in Delaware in March 1998. The
\nCompany is headquartered in Seattle, Washington. Loudeye completed its initial
\npublic offering on March 15, 2000, and our common stock is listed on the Nasdaq
\nNational Market under the symbol “LOUD.”<\/p>\n
The financial information included in our annual report on Form 10-K for
\nthe fiscal year ended December 31, 2000, filed with the SEC on February 27, 2001
\nis incorporated by reference. See Section 17 beginning on page 29 for
\ninstructions on how you can obtain copies of our SEC filings, including filings
\nthat contain our financial statements.<\/p>\n
The statements of operations data and balance sheet data for the three
\nmonths ended March 31, 2001 and 2000 and for the years ended December 31, 2000
\nand 1999 are derived from our unaudited financial statements appearing in our
\nQuarterly Report on Form 10-Q as filed with the Securities and Exchange
\nCommission on May 15, 2001 or our audited financial statements appearing in our
\nAnnual Report on Form 10-K as filed with the Securities and Exchange Commission
\non February 27, 2001, which are hereby incorporated by reference.<\/p>\n
All information in thousands except share and per share data<\/p>\n
\n\n Year Ended December 31,
\n Three Months Ended ————————–
\nStatements of Operations: March 31, 2001 2000 1999
\n ———————————– ———– ———–
\n (Unaudited) (Unaudited)
\n
\nNet sales $ 1,929 $ 1,649 $ 11,537 $ 2,645
\nGross margin (1,342) (521) (851) (225)
\nNet loss to common shareholders (26,198) (10,522) (39,524) (25,023)
\nBasic and diluted net loss per share $ (0.68) $ (0.84) $ (1.33) $ (4.62)
\nBasic and diluted pro forma net loss per share (1) $ (0.68) $ (0.35) $ (1.16) $ (1.50)<\/p>\n December 31,
\n ————————–
\nBalance Sheet Data: March 31, 2001 2000 1999
\n —————— ———– ———–
\n (Unaudited)
\nCurrent assets $ 86,547 $ 99,302 $ 51,355
\nNoncurrent assets 30,548 33,374 25,420
\nCurrent liabilities 12,822 9,284 7,323
\nNoncurrent liabilities 6,642 7,324 1,963
\nBook value per share $ 2.36 $ 3.13 $ 2.27
\n<\/c><\/c><\/c><\/c><\/s><\/caption>\n<\/table>\n
———————————
\nNote 1) Basic and diluted pro forma net loss per share is computed based on
\n the weighted average number of shares of common stock outstanding
\n giving effect to the conversion of convertible preferred stock into
\n common stock upon the completion of the Company’s initial public
\n offering on March 15, 2000 (using the if-converted method from the
\n original issue date) as if the conversion and IPO had occurred on
\n January 1, 2000. Basic and diluted pro forma net loss per share
\n excludes the impact of stock options and warrants, as the effect of
\n inclusion would be antidilutive.<\/p>\n
11. INTERESTS OF DIRECTORS AND OFFICERS; TRANSACTIONS AND ARRANGEMENTS
\n CONCERNING THE OPTIONS.<\/p>\n
A list of our directors and executive officers is attached to this Offer to
\nExchange as Schedule A. As of June 25, 2001, our executive officers and non-
\nemployee directors (13 persons) as a group held options outstanding under the
\n1998 Plan to purchase a total of 884,755 shares of our common stock and options
\nunder our 2000 Plan to purchase 1,148,375 shares of our common stock. This,
\nrespectively, represented approximately 55%, and 39% of the shares subject to
\nall options outstanding under the 1998 Plan and the 2000 Plan as of that date.
\nOf the options held by these persons under the 1998 Plan, no options to purchase
\nshares of common stock are eligible options. Of the options held by these
\npersons under the 2000 Plan, options to purchase a total of 562,000 shares of
\ncommon stock are eligible options. To our knowledge, all of our eligible
\nexecutive officers currently intend to accept the offer to exchange their
\neligible options and receive new options. This offer is not being made to our
\ndirectors.<\/p>\n
In the sixty (60) days prior to and including June 25, 2001, the executive
\nofficers and directors of Loudeye Technologies, Inc. had the following
\ntransactions in Loudeye Technologies, Inc. shares:<\/p>\n
. On May 17, 2001, Anthony J. Bay, one of our board members, was granted
\nan option to purchase 7,500 shares of common stock at an exercise price of $1.18
\nper share.<\/p>\n
-24-<\/p>\n
. On May 17, 2001, Johan Liedgren, one of our board members, was granted
\nan option to purchase 7,500 shares of common stock at an exercise price of $1.18
\nper share.<\/p>\n
. On April 9, 2001, John H. Shaw, one of our executive officers, was
\ngranted an option to purchase 187,000 shares of common stock at an exercise
\nprice of $0.82 per share.<\/p>\n
. On April 12, 2001, Martin Tobias, the Chairman of our board, gifted
\n32,000 shares of common stock to his daughter.<\/p>\n
. On May 1, 2001, Alex Tobias, Mr. Tobias’ spouse, sold 15,000 shares of
\ncommon stock in open market transactions at a price of $1.0138 per share.<\/p>\n
. On May 2, 2001, Alex Tobias sold 25,000 shares of common stock in open
\nmarket transactions at a price of $1.0878 per share.<\/p>\n
. On May 3, 2001, Alex Tobias sold 57,500 shares of common stock in open
\nmarket transactions at a price of $1.0710 per share.<\/p>\n
. On May 4, 2001, Alex Tobias sold 75,297 shares of common stock in open
\nmarket transactions at a price of $1.0636 per share.<\/p>\n
. On May 7, 2001, Martin Tobias was granted an option to purchase 7,500
\nshares of common stock at an exercise price of $1.18 per share.<\/p>\n
. On May 10, 2001, Martin Tobias sold 20,000 shares of common stock in
\nopen market transactions at a price of $1.1606 per share.<\/p>\n
. On May 11, 2001, Martin Tobias sold 20,000 shares of common stock in
\nopen market transactions at a price of $1.0788 per share.<\/p>\n
. On May 14, 2001, Martin Tobias sold 10,000 shares of common stock in
\nopen market transactions at a price of $1.1088 per share.<\/p>\n
. On May 15, 2001, Martin Tobias sold 20,000 shares of common stock in
\nopen market transactions at a price of $1.1188 per share.<\/p>\n
. On May 16, 2001, Martin Tobias sold 30,000 shares of common stock in
\nopen market transactions at a price of $1.0305 per share.<\/p>\n
. On May 17, 2001, Martin Tobias sold 45,000 shares of common stock in
\nopen market transactions at a price of $1.0721 per share.<\/p>\n
. On May 18, 2001, Martin Tobias sold 50,000 shares of common stock in
\nopen market transactions at a price of $1.1148 per share.<\/p>\n
-25-<\/p>\n
. On May 21, 2001, Martin Tobias sold 10,000 shares of common stock in
\nopen market transactions at a price of $1.0788 per share.<\/p>\n
. On May 22, 2001, Martin Tobias sold 15,000 shares of common stock in
\nopen market transactions at a price of $1.1088 per share.<\/p>\n
. On May 30, 2001, Martin Tobias sold 60,000 shares of common stock in
\nopen market transactions at a price of $1.5444 per share.<\/p>\n
. On June 7, 2001, Martin Tobias sold 350,000 shares of common stock in
\nopen market transactions at a price of $1.7785 per share.<\/p>\n
. On June 14, 2001, Martin Tobias gifted 300,000 shares of common stock to
\nthe Alex and Martin Tobias Family Foundation Trust.<\/p>\n
. On June 7, 2001, Weld Brown LLC, an indirectly held beneficiary of David
\nL. Weld, Jr., one of our executive officers, sold 15,000 shares of common stock
\nin open market transactions at a price of $1.8033 per share.<\/p>\n
. On June 12, 2001, Weld Brown LLC sold 35,000 shares of common stock in
\nopen market transactions at a price of $1.8744 per share.<\/p>\n
Except as otherwise described above and other than ordinary course grants
\nof stock options to employees who are not officers, there have been no
\ntransactions in options to purchase our common stock or in our common stock
\nwhich were effected during the past sixty (60) days by Loudeye Technologies,
\nInc. or, to our knowledge, by any officer, director, affiliate or subsidiary of
\nLoudeye Technologies, Inc.<\/p>\n
12. STATUS OF OPTIONS ACQUIRED BY US IN THE OFFER; ACCOUNTING CONSEQUENCES OF
\n THE OFFER.<\/p>\n
Eligible options we acquire in connection with the offer will be cancelled
\nand the shares of common stock that may be purchased under those options will be
\nreturned to the pool of shares available for grants of new awards or options
\nunder the option plans without further stockholder action, except as required by
\napplicable law or the rules of the Nasdaq National Market or any other
\nsecurities quotation system or any stock exchange on which our common stock is
\nthen quoted or listed.<\/p>\n
We believe that we will record compensation expense as a result of the
\noffer because:<\/p>\n
. we will grant the new options within fifteen days of the date we accept
\n and cancel eligible options returned to us; and<\/p>\n
. the exercise price of the new options will be less than the exercise price
\n of the eligible options returned to us on the date we grant the new
\n options.<\/p>\n
As a result of our decision to extend this offer to our employees, all new
\noptions issued or granted under this offer will be treated for financial
\nreporting purposes as variable awards. This means that we will be required to
\nrecord a non-cash accounting charge reflecting increases and decreases in the
\nprice of our common stock in compensation expense in connection with the new
\noptions issued or granted under the offer. We will have to continue to reflect
\ndecreases and increases in the price of our common stock in our statement of
\noperations with respect to these new options until they are exercised, forfeited
\nor terminated. The higher the market value of our common stock, the greater the
\ncompensation expense.<\/p>\n
13. LEGAL MATTERS; REGULATORY APPROVALS.<\/p>\n
We are not aware of any license or regulatory permit that appears to be
\nmaterial to our business that might be adversely affected by the offer, or of
\nany approval or other action by any government or regulatory authority or agency
\nthat is required for the acquisition or ownership of the options as described in
\nthe offer. If any other approval or action should be required, we <\/p>\n
-26-<\/p>\n
presently intend to seek the approval or take the action. This could require us
\nto delay the acceptance of options returned to us. We cannot assure you that we
\nwould be able to obtain any required approval or take any other required action.
\nOur failure to obtain any required approval or take any required action might
\nresult in harm to our business. Our obligation under the offer to accept
\nexchanged eligible options and to issue new options is subject to conditions,
\nincluding the conditions described in Section 7.<\/p>\n
14. MATERIAL FEDERAL INCOME TAX CONSEQUENCES.<\/p>\n
The following is a general summary of the material federal income tax
\nconsequences of the exchange of options pursuant to the offer. This discussion
\nis based on the Internal Revenue Code of 1986, as amended, its legislative
\nhistory, treasury regulations thereunder and administrative and judicial
\ninterpretations thereof as of the date of the offer, all of which are subject to
\nchange, possibly on a retroactive basis. This summary does not address all of
\nthe tax consequences that may be relevant to you in light of your particular
\ncircumstances, nor is it intended to be applicable in all respects to all
\ncategories of option holders. The summary does not discuss any state, local or
\nforeign tax consequences of the offer. For additional information regarding the
\ntax consequences of participating in the offer, you should consult the
\nprospectuses for the 1998 and 2000 Plans. Please contact Angie Bailey of Loudeye
\nTechnologies, Inc. at 414 Olive Way, Suite 500, Seattle, Washington 98101, (206)
\n832-4111 to request copies of the prospectuses. Copies will be provided promptly
\nand at our expense.<\/p>\n
We believe that if you exchange outstanding options for new options, you
\nwill not be required to recognize income for federal income tax purposes upon
\nthe surrender of your old options and the receipt of your new options. If the
\noptions you exchange in the offer are incentive stock options, the new options
\nyou receive in the exchange will commence a new incentive stock option holding
\nperiod (rather than continuing the holding period of the current options) as of
\nthe date of the grant of the new options for purposes of qualifying for the
\nbenefits provided to holders of incentive stock options under federal income tax
\nlaw. In addition, depending on your particular circumstances, the new options
\ncould in part fail to qualify as incentive stock options by virtue of a federal
\nincome tax law limitation which provides that, to the extent the aggregate
\nexercise price of stock with respect to which incentive stock options are first
\nexercisable during any calendar year exceeds $100,000, such excess options must
\nbe treated as nonstatutory stock options rather than incentive stock options.
\nYou should consult your own tax advisor with respect to the potential
\napplication of this limitation and the consequences of exceeding it under your
\npersonal circumstances.<\/p>\n
If you elect not to exchange your options for new options in connection
\nwith the offer, you also will not be subject to current income tax. However, if
\nyour options are incentive stock options, you should be aware that the Internal
\nRevenue Service may characterize the offer as a “modification” of those
\nincentive stock options, even if you decline the offer. A successful assertion
\nby the Internal Revenue Service that your options are modified could cause the
\noptions to be deemed re-granted to you as of the date of the offer, thereby
\ncausing your incentive stock option holding period to re-commence as of such
\ndate and, depending on your personal circumstances, possibly causing a portion
\nof your incentive stock options to be treated as nonstatutory options as a
\nresult of the $100,000 limitation referred to above.<\/p>\n
-27-<\/p>\n
WE RECOMMEND THAT YOU CONSULT YOUR OWN TAX ADVISOR WITH RESPECT TO THE
\nFEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF PARTICIPATING OR DECLINING TO
\nPARTICIPATE IN THE OFFER.<\/p>\n
15. EXTENSION OF OFFER; TERMINATION; AMENDMENT.<\/p>\n
We may at any time and from time to time, extend the period of time during
\nwhich the offer is open and delay accepting any options surrendered or exchanged
\nby publicly announcing the extension and giving oral or written notice of the
\nextension to the option holders.<\/p>\n
Prior to the expiration date to terminate or amend the offer we may
\npostpone accepting and canceling any eligible options if any of the conditions
\nspecified in Section 7 occur. In order to postpone accepting or canceling, we
\nmust publicly announce the postponement and give oral or written notice of the
\npostponement to the option holders. Our right to delay accepting and canceling
\neligible options is limited by Rule 13e-4(f)(5) under the Securities Exchange
\nAct, which requires that we must pay the consideration offered or return the
\nsurrendered options promptly after we terminate or withdraw the offer.<\/p>\n
As long as we comply with any applicable laws, we may amend the offer in
\nany way, including decreasing or increasing the consideration offered in the
\noffer to option holders or by decreasing or increasing the number of eligible to
\nbe exchanged or surrendered in the offer.<\/p>\n
We may amend the offer at any time by publicly announcing the amendment. If
\nwe extend the length of time during which the offer is open, the amendment must
\nbe issued no later than 6:00 a.m., Pacific Time, on the next business day
\nfollowing the previously scheduled expiration date. Any public announcement
\nrelating to the offer will be sent promptly to option holders in a manner
\nreasonably designed to inform option holders of the change, for example, by
\nissuing a press release or sending an e-mail message.<\/p>\n
If we materially change the terms of the offer or the information about the
\noffer, or if we waive a material condition of the offer, we will extend the
\noffer to the extent required by Rules 13e-4(d)(2) and 13e-4(e)(3) under the
\nSecurities Exchange Act. Under these rules the minimum period an offer must
\nremain open following material changes in the terms of the offer or information
\nabout the offer, other than a change in price or a change in percentage of
\nsecurities sought, will depend on the facts and circumstances. If we decide to
\ntake any of the following actions, we will publish notice of the action:<\/p>\n
. we increase or decrease what we will give you in exchange for your options;<\/p>\n
. we decrease the number of options eligible to be exchanged in the offer; or<\/p>\n
. we increase the number of options eligible to be tendered in the offer by
\n an amount that exceeds 2% of the shares issuable upon exercise of the
\n options that are subject to the offer immediately prior to the increase.<\/p>\n
-28-<\/p>\n
If the offer is scheduled to expire within ten business days from the date we
\nnotify you of such an increase or decrease, we will also extend the offer for a
\nperiod of ten business days after the date the notice is published.<\/p>\n
16. FEES AND EXPENSES.<\/p>\n
We will not pay any fees or commissions to any broker, dealer or other
\nperson for asking holders of eligible options under this offer to exchange.<\/p>\n
17. ADDITIONAL INFORMATION.<\/p>\n
This Offer to Exchange is a part of a Tender Offer Statement on Schedule TO
\nthat we have filed with the SEC. This Offer to Exchange does not contain all of
\nthe information contained in the Schedule TO and the exhibits to the Schedule
\nTO. We recommend that you review the Schedule TO, including its exhibits, and
\nthe following materials that we have filed with the SEC before making a decision
\non whether to exchange your options:<\/p>\n
(a) our annual report on Form 10-K for our fiscal year ended December 31,
\n 2000, filed with the SEC on February 27, 2001, including the
\n information incorporated by reference in the Form 10-K from our
\n definitive proxy statement for our 2000 annual meeting of stockholders,
\n filed with the SEC on April 11, 2001;<\/p>\n
(b) our quarterly report on Form 10-Q for our fiscal quarter ended March
\n 31, 2001, filed with the SEC on May 15, 2001;<\/p>\n
(c) the description of our common stock included in our registration
\n statement on Form 8-A, which was filed with the SEC on March 15, 2001,
\n including any amendments or reports we file for the purpose of updating
\n that description; and<\/p>\n
(d) our current reports on Form 8-K, filed with the SEC on April 11, 2001
\n and April 18, 2001.<\/p>\n
The SEC file number for these filings is 000-29583. These filings, our
\nother annual, quarterly and current reports, our proxy statements and our other
\nSEC filings may be examined, and copies may be obtained, at the following SEC
\npublic reference rooms:<\/p>\n
450 Fifth Street, N.W. 7 World Trade Center 500 West Madison Street
\n Room 1024 Suite 1300 Suite 1400
\nWashington, D.C. 20549 New York, New York 10048 Chicago, Illinois 60661<\/p>\n
You may obtain information on the operation of the public reference rooms
\nby calling the SEC at 1-800-SEC-0330.<\/p>\n
Our SEC filings are also available to the public on the SEC’s Internet site
\nat http:\/\/www.sec.gov.<\/p>\n
-29-<\/p>\n
Our common stock is quoted on the Nasdaq National Market under the symbol
\n“LOUD,” and our SEC filings can be read at the following Nasdaq address:<\/p>\n
Nasdaq Operations
\n 1735 K Street, N.W.
\n Washington, D.C. 20006<\/p>\n
We will also provide without charge to each person to whom we deliver a
\ncopy of this Offer to Exchange, upon their written or oral request, a copy of
\nany or all of the documents to which we have referred you, other than exhibits
\nto these documents (unless the exhibits are specifically incorporated by
\nreference into the documents). Requests should be directed to:<\/p>\n
Loudeye Technologies, Inc.,
\n Attn: Investor Relations
\n 414 Olive Way, Suite 500
\n Seattle, Washington 98101<\/p>\n
or by telephoning us at (206) 832-4000 between the hours of 9:00 a.m. and 5:00
\np.m., Seattle, Washington local time.<\/p>\n
As you read the documents listed in this Section 17, you may find some
\ninconsistencies in information from one document to another. Should you find
\ninconsistencies between the documents, or between a document and this Offer to
\nExchange, you should rely on the statements made in the most recent document.<\/p>\n
The information contained in this Offer to Exchange about Loudeye
\nTechnologies, Inc. should be read together with the information contained in the
\ndocuments to which we have referred you.<\/p>\n
18. FORWARD LOOKING STATEMENTS; MISCELLANEOUS.<\/p>\n
This Offer to Exchange and our SEC reports referred to above include
\nforward-looking statements. These forward-looking statements involve risks and
\nuncertainties that include, among others, Loudeye Technologies, Inc.’s limited
\noperating history, anticipated losses, unpredictability of future revenues,
\npotential fluctuations in quarterly operating results, management of potential
\ngrowth and risks of new business areas, international expansion, business
\ncombinations and strategic relationships. More information about factors that
\npotentially could affect Loudeye Technologies, Inc.’s financial results is
\nincluded in Loudeye Technologies, Inc.’s filings with the Securities and
\nExchange Commission, including its Annual Report on Form 10- K for the year
\nended December 31, 2000, and its Quarterly Report on Form 10-Q for the quarter
\nended March 31, 2001. Please note that the safe harbor for forward-looking
\nstatements provided in the Private Securities Litigation Reform Act of 1995 does
\nnot apply to statements made in connection with this offer.<\/p>\n
If at any time, we become aware of any jurisdiction where the making of
\nthis offer <\/p>\n
-30-<\/p>\n
violates the law, we will make a good faith effort to comply with the law. If,
\nwe cannot comply with the law, the offer will not be made to, nor will exchanges
\nbe accepted from or on behalf of, the option holders residing in that
\njurisdiction.<\/p>\n
Although our Board of Directors has approved this offer, neither we nor our
\nBoard of Directors makes any recommendation as to whether you should tender or
\nnot tender your options for exchange because the eligible employees hold options
\nwith a range of exercise prices, widely varying ratios of vested to unvested
\noptions and have future employment plans that are unknown to us, neither we nor
\nour Board of Directors believes that a general recommendation regarding your
\ndecision is appropriate. You must make your own decision whether or not to
\ntender your options. We encourage you to consult with your personal advisors if
\nyou have questions about your financial or tax situation. The information about
\nthis offer from Loudeye Technologies, Inc. is limited to this document and the
\nenclosed cover letter and attached summary of terms.<\/p>\n
Loudeye Technologies, Inc. June 6, 2001<\/p>\n
-31-<\/p>\n
SCHEDULE A<\/p>\n
INFORMATION ABOUT THE DIRECTORS AND EXECUTIVE OFFICERS OF
\n LOUDEYE TECHNOLOGIES, INC.<\/p>\n
The directors and executive officers of Loudeye Technologies, Inc. and
\ntheir positions and offices as of June 6, 2001, are set forth in the following
\ntable:<\/p>\n
Name Position and Offices Held
\n —- ————————-<\/p>\n
Directors
\n ———
\n Martin T. Tobias Chairman
\n Charles P. Waite Director
\n Johan C. Liedgren Director
\n Anthony J. Bay Director
\n John T. Baker, IV Director<\/p>\n
Executive Officers
\n ——————
\n John T. Baker, IV President and Chief Executive Officer
\n Bradley A. Berg Senior Vice President and Chief Financial Officer
\n Joel T. McConaughy Senior Vice President and Chief Technology Officer
\n David L. Weld, Jr. Senior Vice President and General Manager of
\n Digital Media Services
\n Todd A. Hinders Senior Vice President of Sales
\n Douglas F. Schulze Senior Vice President of Corporate Development
\n Meena Kang Latta Vice President and General Counsel
\n John H. Shaw Vice President of Corporate Communications
\n Jerold J. Goade, Jr. Vice President of Finance and Controller<\/p>\n
The address of each director and executive officer is: c\/o Loudeye
\nTechnologies, Inc., 414 Olive Way, Suite 500, Seattle, Washington 98101.<\/p>\n
-32-<\/p>\n
OFFER TO EXCHANGE<\/p>\n
OUTSTANDING OPTIONS TO<\/p>\n
PURCHASE COMMON STOCK, PAR VALUE<\/p>\n
$0.001 PER SHARE, HAVING AN EXERCISE<\/p>\n
PRICE OF MORE THAN $4.30<\/p>\n
OF<\/p>\n
LOUDEYE TECHNOLOGIES, INC.<\/p>\n
—————-<\/p>\n
Any questions or requests for assistance or additional copies of any
\ndocuments referred to in the offer to exchange may be directed to Angie Bailey,
\nLoudeye Technologies, Inc., 414 Olive Way, Suite 500, Seattle, Washington 98101,
\ntelephone: (206) 832-4111.<\/p>\n
—————-<\/p>\n
June 6, 2001<\/p>\n","protected":false},"template":"","meta":{"_acf_changed":false,"_stopmodifiedupdate":true,"_modified_date":"","_cloudinary_featured_overwrite":false},"corporate_contracts_companies":[8079],"corporate_contracts_industries":[9510],"corporate_contracts_types":[9539,9545],"class_list":["post-40215","corporate_contracts","type-corporate_contracts","status-publish","hentry","corporate_contracts_companies-loudeye-technologies-inc","corporate_contracts_industries-technology__programming","corporate_contracts_types-compensation","corporate_contracts_types-compensation__esp"],"acf":[],"_links":{"self":[{"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/corporate_contracts\/40215","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/corporate_contracts"}],"about":[{"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/types\/corporate_contracts"}],"wp:attachment":[{"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/media?parent=40215"}],"wp:term":[{"taxonomy":"corporate_contracts_companies","embeddable":true,"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/corporate_contracts_companies?post=40215"},{"taxonomy":"corporate_contracts_industries","embeddable":true,"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/corporate_contracts_industries?post=40215"},{"taxonomy":"corporate_contracts_types","embeddable":true,"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/corporate_contracts_types?post=40215"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}