TCG VENTURES LIMITED
KIRK HOUSE, P.O. BOX 1100-G, GRAND CAYMAN, B.W.I.
TELEPHONE (345) 949-7212 TELEFAX (345) 949-0993 TELEX CP4226
23 December 1997
VIA FAX TO : 011 974 446 640
Total Number of Pages : 5 (including this page)
Jassim M. Jaidah
P.O. Box 150
Dohar Arabian Gulf C R 44
State of Qatar
Investment Vehicle: Jaidah Motors & Trading Company
Commitment: US$5,000,000
Dear Mr. Jaidah,
We are pleased to notify you of the proposed investment of Carlyle Venture Partners, L.P. and its investing affiliates (collectively the “Fund”) in Narrative Communications Corporation (“Narrative”). The Fund, along with certain parallel partnerships, is contributing $3.75 million toward an equity investment in Narrative. A detailed description of this transaction is provided with this letter.
Pursuant to Section 3.1(a) of the Agreement of Limited Partnership dated 7 May 1997 (the “Agreement”), TCG Ventures Limited, as General Partner, is making a capital call for an investment in Narrative Communications Corp.
Funding Obligation
The following summarizes your funding obligation for this capital call:
Investment in Narrative: US$89,286
------
Total Funding ObligationUS$89,286
Your total funding obligation of US$89,286(please include any wiring fees with your payment) must be sent to us according to the following wiring instructions no later than 7 January 1998:
Chase Manhattan Bank N.A.
New York
ABA 021000021
For account Bank Julius Baer & Co. Ltd.
New York account number 544 777 037
For onward credit
Carlyle Venture Partners L.P.
Account number 424 580
Ref: Jaidah Motors & Trading Company
Additional Information
The attachment to this letter contains an overview of Narrative. If you have any questions regarding the investment please contact Bryan Hayhurst at (202) 347-2626. If you have any questions regarding this capital call noticeplease contact Patty Watson at (202) 626-1277 or Megan McGovern at (202) 626-1275.
Thank you for the faith you have placed in us and we appreciate your prompt attention in addressing this notice.
Yours faithfully,
TCG Ventures Limited
TCG Ventures Limited
General Partner
NARRATIVE COMMUNICATIONS CORPORATION
Company Description
Narrative Communications Corp. (“Narrative” or the “Company”) is the leading developer of high-impact advertising and multimedia streaming solutions for the Web. The Company develops and markets advanced software solutions for the advertising agencies, Internet publishers, direct advertisers, on-line retailers, and multimedia content developers. Narrative was founded in late 1995 by former Lotus executives to develop interactive multimedia streaming technologies for the Internet. The Enliven product suite, launched in August 1997, is the industry’s first Internet advertising solution that combines highly interactive capabilities with in-depth tracking and reporting tools to create an engaging and effective direct-response marketing and research vehicle for Web advertisers. Enliven technology transforms the Web into a fully interactive multimedia environment notwithstanding existing low bandwidth connections, and expands the role of the Internet as an advertising and marketing vehicle. Upgrades to the Company’s current product offering will provide a complete turn-key, end-to-end vertical electronic marketing solution including ad creation, delivery, measurement and commerce capabilities. Narrative’s technology is applicable not only to the Web advertising market, but also to multimedia content development, Web delivered edutainment and entertainment, intranet “broadcasting”, computer-based training, Web-site animation and other interactive-dependent opportunities. This broad revenue platform uniquely positions Narrative with a multitude of business opportunities and a scaleable technology platform. Narrative is headquartered in Waltham, MA and has a sales office in Los Altos, CA.
Investment Summary
Carlyle Venture Partners will invest approximately $3.75 million in the Company to acquire Series C Convertible Preferred Stock, convertible into 636,672 shares of common stock based on a $5.89 per share conversion price (the “Preferred Stock”). The transaction is based on a post-deal valuation of $37,250,000. The investment represents a 10.07% ownership of Narrative. Current investors in the Company, including Greylock and Accel partners, will participate in the financing by purchasing the remaining $1.25 million of the $5 million offering.
Summary Financial Information
The following base case projections were developed assuming revenue from only the Web advertising market. Management believes substantial incremental revenues can be achieved by addressing additional markets such as the multimedia content development, Web-delivered entertainment and edutainment, computer-based training and other interactive-dependent markets. The base case projections assume less than 5% market penetration based on an estimate of the potential annual impressions delivered. The chart below summarizes the base case projections:
Key Investment Considerations
Seasoned Management Team and Experienced Venture Backing
The Company was founded by several former executives from Lotus Development Corporation. John Landry, former Chief Technology Officer of Lotus, serves as Chairman of the Board and has over 20 years of software experience. Besides Lotus, Landry has worked with Dun & Bradstreet, Agility Systems, Cullinet, Distribution Management Systems and McCormack & Dodge Corporation. Hilmi Ozguc serves as CEO and previously held a number of senior marketing and development positions over a 7-year career with Lotus. Scott Kliger, President and Chief Technology Officer, previously held various senior technology positions at Lotus, WordPerfect and IBM. Since the founding of the Company Greylock and Accel Partners have provided an aggregated $8 million in equity capital.
Exclusive Animation Streaming Capabilities
Narrative is the only company that currently has the technology and product capabilities for server based streaming of high quality, interactive animations over the Internet without an end user experiencing lengthy delays from download times associated with installing plug-ins, viewers or controls.
Efficient Operation Even on Low Bandwidth Connections
Narrative utilizes a very small Java applet to receive the objects and scripts from the Enliven Server Pro to deliver “real time” animations. The Company’s object-oriented streaming allows the transfer of animations to the user’s desktop utilizing the current bandwidth standards.
Electronic Marketing Capability
Enliven has the ability to measure and report on a user’s “micro” interactions with an advertisement’s interactive prompts, buttons and clickable images. Enliven collects text input, click-through, mouse-hover time and other critical data. With this data, an advertiser can measure, report and demonstrate the effectiveness of its Internet advertising effort. More important, companies can use this data analysis to lower their customer acquisition costs by targeting buyers with higher propensities to buy through one-to-one marketing efforts.
Vertical, End-to-End Application Opportunity
Through partnering with “back-end” transaction processing server providers and providing integration services Narrative will deliver a turn-key, end-to-end vertical electronic marketing solution. This complete solution will range from the creation process to the coordination between the merchant’s existing commerce infrastructure and to the communication with the leading ad rotation, targeting and delivery systems.
Additional Market Applications and Add-on Tools
As noted above, the Enliven technology is applicable to several other business models and industries. Longer-term, as the markets for multimedia content development and other interactive-dependent opportunities develop; the size of Narrative’s addressable markets will expand beyond the multi-billion dollar Internet advertising and commerce opportunities.
Key Identified Risk Factors
Limited Operating History
The Company was formed in September 1995 and throughout 1996 developed its multimedia streaming technology. Initially the target market for the Narrative products was the interactive multimedia entertainment content market. Enliven 1.0, targeted at the entertainment market, was launched in December 1996 and achieved limited success. In response to the rising demand for more effective Internet advertising solutions, Narrative shifted its focus to the Web Advertising market. The Enliven 2.0 product suite was launched in late August 1997 to address the needs of the interactive Web advertising market. The Company has realized limited revenues to this point and is currently building market acceptance and demand.
No Assurance of Market Acceptance
The Company’s ability to sell its technology is dependent on the creation of demand for rich robust highly interactive Web advertisements with key advertising agencies, Web advertisers and content publishers. The success of the Company is also dependent on the continued growth in Web advertising spending. The current product suite was introduced in August 1997, and accordingly it is too early to gauge market penetration rates on these initial offerings. If the Company’s existing and potential customers do not accept the Enliven product suite as a delivery and measurement tool for interactive Web advertisements, Narrative’s business, financial condition and results of operations would be adversely affected.
Competition and Technological Change
Narrative is currently a leader in the emerging market for the creation and delivery of highly interactive Web advertisements. The Company faces competition from market participants and technologies currently used in producing banner advertisements. The current forms of Web advertisements do not provide a high level of interactivity, have limited tracking abilities beyond click-through and are not supported by all advertising rotation servers. Narrative’s challenge is to convince advertisers and publishers that Enliven is a preferred solution due to its increased reliability, ease of authoring, ability to deliver higher impact creative ads which attain superior results and extensive measurement capabilities.
Dependence on Key Personnel
The Company’s future performance depends in part upon the continued service of its key technical, sales and senior management personnel. In addition, Narrative’s future success is dependent on its continuing ability to attract and retain highly qualified technical, sales and managerial personnel.
For additional information, please contact Mitch Reese or Brian Hayhurst at (202) 347-2626.
Carlyle Venture PartnersDecember 1997