<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 15, 1997.
REGISTRATION NO. 333-37725
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PRINCETON VIDEO IMAGE, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
NEW JERSEY 8999 22-3062052
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
------------------------
<TABLE>
<S> <C>
15 PRINCESS ROAD BROWN F WILLIAMS
LAWRENCEVILLE, NJ 08648 PRINCETON VIDEO IMAGE, INC.
(609) 912-9400 15 PRINCESS ROAD
(Address, Including Zip Code, and Telephone LAWRENCEVILLE, NJ 08648
Number, Including Area Code, of Registrant's (609) 912-9400
Principal Executive Office) (Name, Address, Including Zip Code, and
Telephone
Number, Including Area Code, of Agent for
Service)
</TABLE>
------------------------
COPIES TO:
<TABLE>
<S> <C>
RICHARD J. PINTO, ESQ. ROBERT H. WERBEL, ESQ.
Smith, Stratton, Wise, Heher & Brennan GUY N. MOLINARI, ESQ.
600 College Road East Werbel & Carnelutti
Princeton, NJ 08540 A Professional Corporation
(609) 924-6000 711 Fifth Avenue
New York, NY 10022
(212) 832-8300
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS POSSIBLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This Registration Statement covers the registration of (i) 4,000,000 shares
of Common Stock to be offered by the Company, plus 600,000 shares issuable upon
exercise of the Over-Allotment Option, (ii) 300,000 shares of Common Stock (the
"Bridge Warrant Shares") issuable upon exercise of warrants (the "Bridge
Warrants") issued by the Company in October 1997, (iii) the Representatives'
Warrants to purchase 400,000 shares of Common Stock to be issued by the Company
to the representatives of the several Underwriters in connection with the
Offering, (iv) 400,000 shares of Common Stock issuable upon exercise of the
Representatives' Warrants (the "Representatives' Warrant Shares") and (v)
2,000,000 shares of Common Stock and such indeterminate number of additional
shares of Common Stock (collectively, the "Market Maker Shares") as may be sold
solely in connection with the market making activities of Allen & Company
Incorporated. The Bridge Warrant Shares and the Representatives' Warrant Shares
are offered by certain holders of such securities (the "Selling Shareholders")
and not for the account of the Company. Following the Prospectus included in
this Registration Statement are certain pages of the Prospectus relating to the
securities being offered by the Selling Shareholders and the Market Maker
Shares, including alternate front and back cover pages, an alternate "The
Offering" section of the "Prospectus Summary," and sections entitled "Concurrent
Sales By Company", "Selling Shareholders" and "Plan of Distribution." All other
sections of the Prospectus for the Offering, other than "Underwriting," are to
be used in the Prospectus relating to the Selling Shareholders and the Market
Maker Shares. All references in the Prospectus to the "Offering" will be changed
to the "Company Offering" in the Prospectus relating to the Selling Shareholders
and the Market Maker Shares. In addition, cross-references in the Prospectus
included in this Registration Statement shall be adjusted in the Prospectus for
the Selling Shareholders and the Market Maker Shares to refer to the appropriate
alternate Prospectus pages.
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER 15, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS
4,000,000 SHARES
PRINCETON VIDEO IMAGE, INC.
COMMON STOCK
------------------
Princeton Video Image, Inc. ("PVI" or the "Company") hereby offers 4,000,000
shares (the "Shares") of common stock, no par value per share (the "Common
Stock"), of the Company (the "Offering"). Prior to the Offering, there has been
no public market for the Common Stock, and there can be no assurance that a
market will develop or be sustained after the Offering. The Common Stock has
been approved for quotation on the Nasdaq National Market under the symbol
"PVII", subject to notice of issuance. It is currently anticipated that the
initial public offering price for the Common Stock will be between $6.50 and
$7.50 per share. See "Underwriting" for information relating to the factors
considered in determining the initial public offering price.
The Company has also registered on the registration statement of which this
Prospectus constitutes a part the offering by certain selling shareholders (the
"Selling Shareholders") from time to time of up to 700,000 shares of Common
Stock and the offering of 2,000,000 shares and such indeterminate number of
additional shares of Common Stock as may be sold solely in connection with the
market making activities of Allen & Company Incorporated ("Allen"). Concurrently
with the Offering, and subject to certain lock-up arrangements, such Selling
Shareholders may offer and sell such shares of Common Stock on the Nasdaq
National Market, in negotiated transactions or otherwise. No underwriting
arrangements have been entered into by the Selling Shareholders. The Company
will not receive any proceeds from the sale of Common Stock by the Selling
Shareholders or from the resale in the trading market of shares that may be sold
solely in connection with the market making activities of Allen. See "Shares
Eligible for Future Sale."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE "RISK FACTORS" BEGINNING ON PAGE 8 AND "DILUTION."
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING
PUBLIC DISCOUNTS AND COMMISSIONS (1) PROCEEDS TO COMPANY (2)
<S> <C> <C> <C>
Per Share................................. $ $ $
Total (3)................................. $ $ $
</TABLE>
(1) Does not reflect warrants entitling Allen and Barington Capital Group, L.P.
("Barington") (collectively, the "Representatives"), who are serving as the
several underwriters named herein (collectively, the "Underwriters"), to
purchase from the Company, for a period of five years from the date of this
Prospectus, up to 400,000 shares of Common Stock at an exercise price equal
to 120% of the initial public offering price (the "Representatives'
Warrants"). Does not reflect the Company's reimbursement of the
Representatives' out-of-pocket expenses incurred in connection with the
Offering, which are estimated to be $300,000. The Company has also agreed to
indemnify the Underwriters against certain liabilities under the Securities
Act of 1933, as amended (the "Securities Act"). Allen, as the beneficial
owner of 18.8% of the Company's Common Stock, may be deemed to be an
affiliate of the Company. Enrique F. Senior, an Executive Vice President and
Managing Director of Allen, is a director of the Company and may be deemed
to be the beneficial owner of 19.2% of the Company's Common Stock (which
includes the shares of Common Stock beneficially owned by Allen). See
"Underwriting."
(2) Before deducting expenses payable by the Company (including the
Representatives' expenses of approximately $300,000) estimated at $905,000.
See "Use of Proceeds."
(3) The Company has granted to the Underwriters an option exercisable within 45
days after the closing date of the Offering to purchase up to 600,000
additional shares of Common Stock on the same terms and conditions as set
forth above solely to cover over-allotments (the "Over-Allotment Option").
If the Over-Allotment Option is exercised in full, the total Price to
Public, total Underwriting Discounts and Commissions and total Proceeds to
Company will be $ , $ and $ , respectively. See
"Underwriting."
The Common Stock offered hereby is offered subject to prior sale, when, as
and if delivered to and accepted by the Underwriters, and subject to approval of
certain legal matters by their counsel and to certain other conditions. The
Underwriters reserve the right to withdraw, cancel or modify such offer and to
reject any order, in whole or part. It is expected that delivery of the
certificates representing the shares of Common Stock will be made at the offices
of Allen & Company Incorporated, 711 Fifth Avenue, New York, New York, 10022, on
or about December , 1997.
ALLEN & COMPANY BARINGTON CAPITAL GROUP
INCORPORATED
The date of this Prospectus is December , 1997.
<PAGE>
"[The inside front cover page of the Prospectus contains two images taken
from a broadcast of a San Francisco Giants Major League Baseball game. Each
image depicts a baseball pitcher, near the left edge of the image, a batter just
to the right of center, and a catcher and umpire, near the right edge of the
image. In addition, the bottom image contains a "Giants" logo inserted by the
Company's L-VIS(TM) System to appear as if it is located on the wall located
behind home plate. The "Giants" logo is located just to the left of the center
of the top image and is partially occluded by the head and upper torso of the
pitcher. The caption "With L-VIS(TM)" is located above the bottom image and the
caption "Without L-VIS(TM)" is located above the top image.]"
As of the effective date of the Registration Statement, the Company will
become subject to the reporting requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and, in accordance therewith, will file
reports, proxy statements and other information with the Commission. The Company
intends to furnish its shareholders annual reports containing financial
statements audited by independent accountants, and such other periodic reports
as the Company may deem appropriate or as may be required by law.
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT AND OTHER STABILIZING TRANSACTIONS. FOR A DESCRIPTION
OF THESE ACTIVITIES, SEE "UNDERWRITING."
------------------------
L-VIS-TM- is a trademark of Princeton Video Image, Inc. The Company has
applied to the U.S. Patent and Trademark Office for registration of the
trademark, L-VIS. Trade names and trademarks of other companies appearing in
this Prospectus are the property of their respective holders.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING
ELSEWHERE IN THIS PROSPECTUS AND SHOULD BE READ IN CONJUNCTION WITH THAT
INFORMATION AND THOSE FINANCIAL STATEMENTS AND NOTES. PROSPECTIVE INVESTORS ARE
URGED TO READ THIS PROSPECTUS IN ITS ENTIRETY. UNLESS OTHERWISE INDICATED, THE
INFORMATION CONTAINED IN THIS PROSPECTUS ASSUMES THAT THE OVER-ALLOTMENT OPTION
IS NOT EXERCISED. EXCEPT AS OTHERWISE INDICATED, ALL SHARE INFORMATION AND PER
SHARE AMOUNTS SET FORTH IN THIS PROSPECTUS HAVE BEEN ADJUSTED TO REFLECT A
2-FOR-1 STOCK SPLIT EFFECTIVE ON SEPTEMBER 3, 1997. THIS PROSPECTUS CONTAINS
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S
ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN SUCH
FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH DIFFERENCES INCLUDE,
BUT ARE NOT LIMITED TO, THOSE DISCUSSED UNDER THE HEADING "RISK FACTORS." THE
SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
THE COMPANY
COMPANY OVERVIEW
Princeton Video Image, Inc. ("PVI" or the "Company") developed and is
marketing a real-time video insertion system that, through patented pattern
recognition technology, places computer-generated electronic advertising images
into television broadcasts of sporting and other events. These electronic images
range from simple corporate names or logos to sophisticated multi-media 3-D
animated productions. During the broadcast of a sporting event, for example,
these images can be placed to appear to be physically located in various high
visibility locations in a stadium or even on a playing field (e.g., behind home
plate and in the vicinity of goal posts). The Company believes that its Live
Video Insertion System (the "L-VIS System"), which is an integrated hardware and
software system, transcends limitations of traditional television broadcast
advertising mechanisms and can expand the television broadcast advertising
paradigm by placing images into live, as well as pre-recorded, television
broadcasts.
PVI believes that the L-VIS System can substantially benefit (i)
advertisers, through the placement of their ads in new, high visibility
locations and the ability to "narrow cast" by region and brand; (ii)
broadcasters, through a new revenue stream from additional inventory of
advertising space; and (iii) teams and leagues, through increased revenue
streams and greater flexibility and control over in-stadium advertising. As of
September 1997, the L-VIS System had been used to insert advertising images into
more than 300 live television broadcasts of baseball games, soccer matches,
football games and tennis matches, including (i) the 1997 National Football
League ("NFL") pre-season games of the Baltimore Ravens, Pittsburgh Steelers,
San Diego Chargers, San Francisco 49ers, Minnesota Vikings and Washington
Redskins, (ii) several college bowl games and regular season college football
games, and (iii) the 1997 Major League Baseball ("MLB") home games of the San
Francisco Giants and the San Diego Padres. Advertisers who have run ads using
the L-VIS System include: The Coca-Cola Company, Gateway 2000, Inc., GTE
Corporation, Staples, Inc., Toyota Motor Corporation, Kellogg Company, Southwest
Airlines Co., National Car Rental Systems, PepsiCo, Inc., Nissan Motor Company,
Ltd., and Pacific Bell. Additionally, PVI is currently in discussion with
several national network broadcasters including ABC, NBC and ESPN regarding the
use of the L-VIS System with respect to several high-profile sporting events.
INDUSTRY OVERVIEW
Sports advertising and sponsorship is a significant market both inside and
outside the United States. Advertisers in the United States spent an aggregate
of approximately $8.7 billion to purchase television advertising and sponsorship
rights with respect to sporting events in 1996, according to information from
the following industry sources. The 1996 network and cable television sports
advertising markets in the United States were reported by Paul Kagan Associates,
Inc. to be approximately $3.7 billion and $1.1 billion, respectively. The
December 1995 IEG Sponsorship Report, a sports newsletter published bi-weekly by
the International Events Group, projected that $3.9 billion would be spent to
sponsor specific teams,
3
<PAGE>
stadium locations and sporting events in 1996. The Company estimates that
approximately $9 billion was spent on various forms of television sports
advertising and sponsorship in 1996 outside the United States.
The Company believes that, with the advent of cable and satellite
television, the resulting increase in broadcasting channels, and the ease with
which viewers can change or "surf" among these channels, the effectiveness of
the traditional 30-second advertising spot may diminish. The Company further
believes that the growth of sports sponsorship is largely driven by the desire
on the part of advertisers to be "in the game" by having their brands and
products visible during the broadcast of televised live events. The development
of video insertion technology has created a new method of advertising in which
the electronically inserted brand or message can appear, to the television
viewer, to be a part of the stadium where the event is taking place.
Additionally, the L-VIS System can increase the signage capacity of the stadium
or venue from the television viewer's perspective. By exposing the television
viewer to the brand or message during the event, the advertiser is "in the game"
and can be more confident that its message will actually be seen by viewers, as
the advertisement can be placed strategically to appear on the television screen
where traditional signage may not be practical or available.
THE L-VIS SYSTEM
The L-VIS System is a system of proprietary hardware and software that has
been designed by the Company to insert electronic virtual images into live
televised sports broadcasts. The inserted images may be two or three
dimensional, static or animated, opaque or semi-transparent and may be placed so
that they appear to exist on the playing field or in the stadium where the game
is being played. If a player or other object moves in front of an image that is
inserted on a wall or a playing field, the L-VIS System is programmed so that
the passing object occludes that portion of the inserted image. The L-VIS System
can also be used to insert a free standing image so that the image will occlude
a player or other object that "passes behind" it.
The Company's L-VIS System is based upon state of the art, patented pattern
recognition technology. The Company believes that the L-VIS System is the only
video insertion technology that can reliably insert stable broadcast quality
images in outdoor live sporting events and provide for practical occlusion in
stadium environments. The L-VIS System may also be located anywhere in the
television distribution chain, including the stadium where a broadcast typically
originates, the television studio to which a broadcast is relayed and the
microwave links or satellite ground stations where the broadcast is relayed for
distribution to the viewing public. It is the Company's belief that all of these
attributes are necessary for commercial success.
The Company believes that use of the L-VIS System can provide additional
revenue to advertising rights holders and broadcasters and can provide
substantial advantages compared to other forms of advertising, including
scrolling mechanical billboards and 30-second television spots. Without
affecting the stadium, the L-VIS System can create new inventory for advertising
rights holders by providing new advertising locations that are unavailable for
conventional billboards, such as the space in the vicinity of the goal posts
during a football game. An L-VIS System can also place advertising in high
visibility locations, such as the wall behind home plate in a baseball game.
Additionally, the L-VIS System can provide animated and video advertising
in-game, when appropriate, to enhance the impact of the advertisement.
The L-VIS System allows for "narrow casting," the broadcasting of specific
advertising to specific geographical regions. Thus, where desired, a rights
holder can sell the same advertising space to different advertisers for
broadcast to different markets. For instance, the L-VIS System could be used to
insert a soft drink advertisement in a domestic broadcast and a juice
advertisement in an overseas broadcast of the same event. The L-VIS System gives
local advertisers the ability to advertise within national and international
events and enables different advertisers to occupy the same space at different
times during a game.
4
<PAGE>
STRATEGY
The Company's objective is to become the leading provider of electronic
advertising to the sports television advertising market worldwide. The key
elements of the Company's strategy include (i) developing relationships with
rights owners such as the NFL, the National Basketball Association, MLB, FIFA
(soccer's international governing body), other sports governing bodies and
specific teams; (ii) developing relationships with national network broadcasters
such as NBC, CBS, ABC, ESPN, and FOX; (iii) working with high-profile
advertisers to assist them in understanding and capitalizing on the use of the
L-VIS System; and (iv) developing L-VIS System software for additional sporting
and other events.
The Company expects to generate revenues from the sharing of advertising
revenue among the Company, rights holders and broadcasters and from the fees
generated through strategic licensing of the Company's technology. The right to
insert electronic images for advertising purposes into a live broadcast, and
hence the right to sell advertising using the L-VIS System, is held by different
groups in different situations. For example, individual MLB teams control the
rights to the local broadcasts of their regular season games, while MLB controls
the national broadcast of regular season games, play-off games and the World
Series. These rights may be sold for specific games and/or entire seasons to
another party, most notably a broadcaster, who pays the rights holder an
up-front fee for the rights. In each case, the Company must negotiate for the
use of the L-VIS System with the rights holder or holders, typically in exchange
for a percentage of the advertising revenue generated using the L-VIS System.
Because the L-VIS System uses the live feed from the broadcaster to insert
electronic images, the broadcaster must also approve the use of the L-VIS
System. Accordingly, arrangements with several parties including the rights
holder and the broadcaster must be established.
Advertising space using the L-VIS System will be sold either by the rights
holder or by the broadcaster, depending on the specific arrangement between such
parties, and advertising revenues from such advertising will be shared among the
rights holder, the broadcaster and the Company. Accordingly, the Company's
revenues will, to a large extent, be derived from the sales and marketing
efforts of entities that are well versed in selling ad space for sporting events
to large advertisers but that are independent of the Company. To gain
acceptance, the Company has actively discussed the benefits and unique uses of
the L-VIS System with a limited number of high-profile sporting event
advertisers and plans to expand this effort significantly.
In addition to existing software modules that enable the L-VIS System to be
used in live broadcasts of baseball, football, soccer and tennis, the Company is
developing, or intends to develop, software for motor sports, basketball and
golf. The Company also intends to make the L-VIS System available for use with
other events, such as pay-per-view boxing, concerts and award shows such as the
Oscars and the Grammys.
HISTORY
The Company was incorporated in New Jersey on July 23, 1990 by its founders,
Brown F Williams, Chairman of the Board and Treasurer of the Company, and Roy J.
Rosser, Ph.D., Director of Special Projects of the Company. Prior to founding
the Company, Mr. Williams was a senior executive at RCA Laboratories, Inc. with
respect to the development of high technology products. Dr. Rosser was one of
the inventors of the image insertion technology that is the basis for the L-VIS
System. The Company's executive offices are located at 15 Princess Road,
Lawrenceville, New Jersey 08648, and its telephone number is 609-912-9400.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by
the Company........................ 4,000,000 shares of Common Stock
Common Stock Outstanding Immediately
Prior to the Offering (1).......... 3,308,472 shares of Common Stock
Common Stock to be Outstanding
Following the Offering (1)(2)...... 7,308,472 shares of Common Stock
Risk Factors......................... The shares of Common Stock offered hereby involve a
high degree of risk and immediate and substantial
dilution and should be purchased only by persons who
can afford to sustain a total loss of their
investment. See "Risk Factors" and "Dilution."
Use of Proceeds...................... The net proceeds of the Offering will be used by the
Company for: (i) L-VIS System manufacture and
deployment, (ii) research and development, (iii)
repayment of debt, (iv) capital expenditures, (v)
sales and marketing, and (vi) working capital and
general corporate purposes. See "Use of Proceeds."
Nasdaq National Market
Trading Symbol (3)................. PVII
</TABLE>
- ------------------------
(1) Does not include (i) 300,000 shares of Common Stock issuable upon exercise
of warrants (the "Bridge Warrants") issued by the Company to purchasers of
its 10% Senior Secured Promissory Notes (the "Bridge Notes") in connection
with a debt financing consummated prior to the Offering (the "Bridge
Financing"); (ii) 777,130 shares issuable upon exercise of other outstanding
warrants to purchase shares of Common Stock; (iii) 1,560,000 shares of
Common Stock reserved for issuance upon exercise of outstanding options
granted to executive officers, employees and consultants under the Company's
Amended 1993 Stock Option Plan (the "Stock Option Plan"), including
1,210,724 shares issuable upon the exercise of outstanding options. See
"Management--Stock Option Plan," "Certain Transactions" and "Description of
Securities."
(2) Does not include (i) up to 600,000 shares of Common Stock issuable upon
exercise of the Over-Allotment Option, and (ii) 400,000 shares of Common
Stock issuable upon exercise of the Representatives' Warrants. See
"Underwriting."
(3) There is currently no market for the Common Stock and there can be no
assurance that a market for the Common Stock will develop after the
Offering. The Common Stock has been approved for quotation on the Nasdaq
National Market, subject to notice of issuance. There can be no assurance,
however, that the Company will be able to maintain listing of the Common
Stock on such market. See "Risk Factors--Absence of Public Market;
Negotiated Offering Price."
6
<PAGE>
SUMMARY FINANCIAL INFORMATION
The summary financial data set forth below with respect to the Company's
statements of operations for the years ended June 30, 1997 and 1996 and the
balance sheet date at June 30, 1997 have been derived from the financial
statements of the Company, included elsewhere in this Prospectus, audited by
Coopers & Lybrand L.L.P., independent accountants. The report of Coopers &
Lybrand L.L.P., dated September 11, 1997, except for Note 14, for which the date
is October 1, 1997, contains an explanatory paragraph with respect to the
Company's ability to continue as a going concern. The summary financial data for
the three months ended September 30, 1997 and 1996 are derived from unaudited
financial statements included herein. The unaudited financial statements include
all adjustments, consisting only of normal recurring adjustments, which the
Company considers necessary for a fair presentation of the financial position
and results of operations for those periods. Operating results for the three
months ended September 30, 1997 are not necessarily indicative of the results
that may be expected for the entire year ending June 30, 1998 or any future
period. The data set forth below should be read in conjunction with, and is
qualified in its entirety by, reference to the Financial Statements and notes
thereto included elsewhere in this Prospectus and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
(UNAUDITED)
FISCAL YEAR ENDED JUNE 30, THREE MONTHS ENDED SEPT. 30,
---------------------------- ----------------------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
License fee......................................... $ 130,526 $ 1,000,000 $ 57,626 $ 25,000
Advertising revenue................................. 81,108 9,600 75,177 29,198
------------- ------------- ------------- -------------
Total revenue....................................... 211,634 1,009,600 132,803 54,198
Costs and expenses:
L-VIS System costs.................................. 1,274,890 949,804 416,732 190,836
Selling, general and administrative................. 3,028,895 2,602,928 1,223,811 738,130
Research and development............................ 1,722,598 1,604,455 445,994 349,161
------------- ------------- ------------- -------------
Total costs and expenses.......................... 6,026,383 5,157,187 2,086,537 1,278,127
Operating loss........................................ (5,814,749) (4,147,587) (1,953,734) (1,223,929)
Interest and other income............................. (84,088) (237,063) (16,372) (36,527)
------------- ------------- ------------- -------------
Net loss.............................................. $ (5,730,661) $ (3,910,524) $ (1,937,362) $ (1,187,402)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
AT SEPT 30, 1997 (UNAUDITED)
--------------------------------------------
PRO FORMA
AS ADJUSTED
JUNE 30, 1997 ACTUAL PRO FORMA (1) (2)
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)........................... $ (855,605) $ (1,266,043) 383,957 23,496,457
Total assets........................................ 2,761,216 2,449,309 5,449,309 27,211,809
Long term debt...................................... 0 0 0 0
Total redeemable preferred stock.................... 903,555 914,567 914,567 914,567
Deficit accumulated during the development stage.... (19,541,554) (21,478,916) (21,478,916) (23,501,416)
Total shareholders' equity (deficit)................ (1,004,951) (1,303,569) 346,431 23,458,931
</TABLE>
- ------------------------
(1) Pro Forma to give effect to the Bridge Financing, which was completed in
October 1997, including the allocation of $1,650,000 of the proceeds of the
Bridge Financing to additional paid-in capital relating to the estimated
fair value of the Bridge Warrants issued in the transaction. See
"Description of Securities--Debt Securities."
(2) Pro Forma, as adjusted to give effect to the sale by the Company of the
4,000,000 Shares offered hereby at an assumed initial public offering price
of $7.00 per share and receipt of the net proceeds therefrom, the
application of a portion of the net proceeds of the Offering to repay
certain outstanding indebtedness, as set forth under "Use of Proceeds," the
write-off of the debt issuance costs and interest associated with the
indebtedness to be repaid and the write-off of the unamortized discounts
related to the estimated fair value of the Bridge Warrants. See "Use of
Proceeds."
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RISK FACTORS
THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE SUBSTANTIAL RISKS AND
SHOULD BE PURCHASED ONLY BY PERSONS WHO CAN AFFORD TO SUSTAIN THE LOSS OF THEIR
ENTIRE INVESTMENT. THE FOLLOWING RISK FACTORS, IN ADDITION TO THE OTHER
INFORMATION AND FINANCIAL DATA SET FORTH ELSEWHERE IN THIS PROSPECTUS, SHOULD BE
CONSIDERED CAREFULLY IN EVALUATING THE COMPANY AND ITS BUSINESS BEFORE MAKING AN
INVESTMENT IN THE COMMON STOCK. IT MUST BE RECOGNIZED THAT OTHER RISKS, NOT NOW
FORESEEN, MIGHT BECOME SIGNIFICANT IN THE FUTURE AND THAT THE RISKS THAT ARE NOW
FORESEEN MIGHT AFFECT THE COMPANY TO A GREATER EXTENT THAN IS NOW FORESEEN, OR
IN A MANNER NOT NOW CONTEMPLATED. EACH PROSPECTIVE INVESTOR SHOULD CAREFULLY
CONSIDER ALL INFORMATION CONTAINED IN THIS PROSPECTUS AND SHOULD GIVE PARTICULAR
ATTENTION TO THE FOLLOWING RISK FACTORS BEFORE DECIDING TO PURCHASE THE COMMON
STOCK OFFERED HEREBY.
DEVELOPMENT STAGE COMPANY
The Company was incorporated in 1990, but has had a limited operating
history. The Company's operations to date have related primarily to the
technical development of the L-VIS System and its introduction and marketing in
various markets. To date, the Company has 11 L-VIS System units (each, an "L-VIS
Unit") available for operation and is subject to all of the risks inherent in a
company with a limited operating history. The Company is currently attempting to
achieve sufficient acceptance of the L-VIS System with advertisers, broadcasters
and sporting event rights holders, and enter into a sufficient number of
satisfactory contracts to generate revenue adequate to meet operating expenses.
In the event adequate revenues are not generated, the Company will be required
either to raise additional debt and/or equity capital to fund its cash
requirements or to reduce substantially the scale of its operations. There can
be no assurance that the Company will be able to raise such additional capital.
There also can be no assurance that the Company will succeed in addressing any
or all of these objectives and the failure to do so would have a material
adverse effect on its business, financial condition and results of operations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business."
SUBSTANTIAL AND CONTINUING OPERATING LOSSES
The Company has not had a profitable period of operations since its
inception. The Company incurred net losses of $3,910,524 and $5,730,661 for the
fiscal years ended June 30, 1996 and 1997, respectively and $1,937,362 for the
three month period ended September 30, 1997, and at September 30, 1997, had an
accumulated deficit of approximately $21.5 million, primarily from expenses
related to the development of the L-VIS System. To date, the Company has earned
revenues only from two MLB teams for games broadcast during the 1996 and 1997
seasons, four NFL football teams for 1997 local broadcasts of pre-season games,
Comcast Cable of New Jersey for broadcasts of minor league baseball games, ESPN
with respect to broadcasts of certain Western Athletic Conference college
football games, and from a licensing arrangement with Presencia en Medios, S.A.
de C.V. ("Presencia").
The Company expects to continue to incur substantial losses at least through
calendar year 1998 due to the significant costs associated with the
manufacturing, marketing and further enhancement of the L-VIS System. There can
be no assurance that the Company will ever achieve profitability. The Company's
limited operating history makes the prediction of future operating results
difficult or impossible. The Company's prospects must be considered in light of
the risks, expenses and difficulties frequently encountered by companies in the
early stage of development, particularly companies in new or rapidly evolving
markets. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
The Company has received a report from its independent accountants
containing an explanatory paragraph that describes the uncertainty as to the
ability of the Company to continue as a going concern as described in Note 2 to
the Financial Statements. There can be no assurance that the Company will
achieve profitable operations or that the Company will be able to continue its
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Financial Statements-- Report of Independent
Accountants."
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DEPENDENCE ON MARKET ACCEPTANCE
The Company expects to derive substantially all of its revenues from the
operation of the L-VIS System. The ability of the Company to market successfully
the L-VIS System will depend upon broad acceptance of its technology by at least
four distinct groups of participants in the sports advertising market:
television viewers, advertisers, broadcasters and sporting event rights holders.
To be successful, there must be satisfactory commercial arrangements among the
advertisers, rights holders, broadcasters and the Company. To date, few
broadcasters, broadcast rights holders and advertisers have agreed to use the
L-VIS System during live sports broadcasts. Moreover, there is no data on
television viewers' reactions to the L-VIS System. However, some press coverage
of the Company's technology has raised concerns about its desirability and
potential misuse. For instance, an article has described inserted advertising
images as subliminal advertising. In addition, the technology has been described
as tampering with the television picture in a manner which may not be ethical. A
danger of overcommercialization has also been voiced. There can be no assurance
that the use of the Company's system will be accepted by television viewers or
that the Company will be able to combat effectively potential future negative
publicity regarding its or similar technology. Further, there can be no
assurance that existing arrangements will continue or that the Company will be
able to enter into additional arrangements. The failure of any one or more of
the market participants to embrace use of the L-VIS System will prevent the
Company from successfully marketing the L-VIS System, which would have a
material adverse effect on its business, financial condition and results of
operations, could result in a total loss by the holders of Common Stock of their
entire investment and, further, could impair the Company's ability to continue
its operations. See "Business--Strategy" and "-- Sales and Marketing."
DEPENDENCE ON KEY PERSONNEL
The Company is dependent upon a number of key technical and management
personnel, including Brown F Williams, Chairman of the Board and Treasurer;
Douglas J. Greenlaw, President and Chief Executive Officer; Samuel A. McCleery,
Vice President of Marketing and Sales; Louis A. Lippincott, Director of Hardware
Development; Howard J. Kennedy, Director of Software Development; and Roy J.
Rosser, Director of Special Projects. The loss of the services of one or more
key individuals will have a material adverse impact on the Company. The
Company's success also depends on its ability to attract and retain additional
qualified financial, technical, marketing and other key management personnel.
The Company faces competition for such personnel, and there can be no assurance
that it will be able to attract or retain such personnel. The Company has
employment agreements only with Messrs. Williams, Greenlaw and McCleery. The
Company has obtained key man life insurance on the lives of Messrs. Williams and
McCleery in the amounts of $2 million and $1 million, respectively. The Company
intends to purchase key man life insurance on the life of Mr. Greenlaw, assuming
reasonable quotations are available. Although its employees are subject to
certain confidentiality and non-competition obligations, there can be no
assurance that the Company's key personnel will remain with the Company or will
not become employed by a competitor. In addition, the Company relies on
consultants to assist it in research and development strategy. All of the
Company's consultants are employed by third parties and may have commitments to,
or consulting or advisory contracts with, other entities that may limit their
availability to the Company. See "Management" and "Business--Employees."
DEPENDENCE ON THIRD PARTY SALES FORCES
Pursuant to the terms of existing contracts and future contracts, if any,
the Company receives or expects to receive, as the case may be, a percentage of
the advertising revenues earned by rights holders which control the marketing
and sales of L-VIS System advertising. There can be no assurance that the rights
holders will be successful in marketing and selling L-VIS System advertising. If
the rights holders are unable to enter into arrangements with a substantial
number of advertisers, such failure will have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business--Strategy" and "--Sales and Marketing."
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RISKS ASSOCIATED WITH EXPANSION AND GROWTH
The Company intends to grow, in part, by increasing its product development
activities and expanding its sales force and other marketing activities. The
Company expects that the expenditures relating to these efforts will precede its
realization of the benefits, if any, of such expenditures. The Company's
operating results will be adversely affected if sales do not increase in
proportion to the increase in expenses caused by this expansion. Implementation
of the Company's proposed expansion will be dependent on, among other things,
its ability to identify markets, hire and retain skilled management, financial,
marketing and engineering personnel, and manage growth. As the Company increases
its product development activities, it may become increasingly dependent upon
contract manufacturing, which will, in turn, necessitate devoting additional
Company resources to monitoring operations, controlling costs and maintaining
effective quality, inventory and service controls. There can be no assurance
that the Company will be able to implement successfully its business strategy or
otherwise expand its operations, that its system, procedures and controls will
be adequate to support its operations or that the anticipated increase in
manufacturing capacity and reliance on outsourcing the operation of L-VIS Units
will not have a material adverse effect on its business, financial condition or
results of operations. See "Business--Sales and Marketing" and "--Manufacturing
and Supply."
CONTRACTUAL RESTRAINTS ON USE OF VIDEO INSERTION TECHNOLOGY
Existing or future agreements among advertisers, sponsors, syndicators,
promoters, broadcasters and cable operators may include provisions that inhibit
or prohibit the use of video insertion technology in television broadcasts.
These restrictions may have a material adverse effect on the Company's business,
financial condition and results of operations. There can be no assurance that
such entities will be willing to enter into amendments of existing agreements,
or, if willing, will do so on terms acceptable to the Company and other relevant
parties. Furthermore, there can be no assurance that prospective users of the
L-VIS System will not enter into new agreements inhibiting use of the L-VIS
System. The Company believes that one manufacturer of scrolling billboards used
in stadiums has included such restraints in its contracts. See
"Business--Competition."
RISKS ASSOCIATED WITH INTERNATIONAL STRATEGY
The Company plans to increase its efforts to market the L-VIS System outside
the United States. There can be no assurance that the Company will be successful
in this respect. The Company currently plans to market the L-VIS System
internationally through strategic partners and other key licensees of its
technology. There can be no assurance that the Company will be able to enter
into or maintain favorable relationships with any partners or licensees, that
any partners or licensees will establish a market for the L-VIS System, that any
relationships will generate any revenue for the Company, or that any partners or
licensees will act in good faith and perform their obligations to the Company.
Furthermore, the Company has entered into exclusive arrangements, and expects
that prospective strategic partners and other key licensees will request
exclusive arrangements, for use of the L-VIS System in a specific geographic
area or with respect to a specific sport. To the extent the Company enters into
an exclusive arrangement, such partners or licensees' failure to generate
revenues for the Company could preclude the Company from generating any revenues
in such geographical area or with respect to a specific sport, as the case may
be. Depending upon the scope of the arrangement, such failure could also have a
material adverse effect on the Company's business, financial condition and
results of operations.
Furthermore, there are certain risks inherent in doing business in
international markets, such as unexpected changes in regulatory requirements,
tariffs and other trade barriers, difficulties in staffing and managing foreign
operations, political instability, fluctuations in currency exchange rates,
reduced protection for intellectual property rights in some countries, seasonal
reductions in business activity during the summer months in Europe and certain
other parts of the world, and potentially adverse tax consequences, any of which
could have a material adverse impact upon the success of the Company's
international operations.
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There can be no assurance that one or more of such factors will not have a
material adverse effect on the Company's future international operations, if
any, and, consequently, on its business, financial condition and results of
operations. See "Business--International Business Strategy."
POTENTIAL SEASONALITY FLUCTUATIONS
In the event the Company is unsuccessful in expanding the market for use of
the L-VIS System beyond a limited number of sports, its revenues will be subject
to seasonal fluctuation based upon the game schedules associated with each such
sport. See "Business--Strategy."
TECHNICAL UNCERTAINTIES
The L-VIS System has been used commercially on a limited basis during live
television transmissions of certain sporting events, where images inserted
through use of the L-VIS System have been broadcast to viewers. However, the
circumstances in which the L-VIS System can be used are limited, and cooperation
of the broadcaster is required to obtain acceptable results. To date, the L-VIS
System has been operated primarily by Company personnel, and its over-the-air
use has been successfully demonstrated only for use in certain kinds of sporting
events. Broader use of the L-VIS System will require the development of
additional software and the training of personnel, and may require the
enhancement of the hardware. Accordingly, no assurance can be given that the
L-VIS System will not experience operational problems as a result of wide-spread
commercial application that could delay or defeat its ability to generate
revenues or operating profits. Future operational difficulties of the L-VIS
System could increase the cost of, or delay, implementation of the Company's
business plan which, in turn, could materially adversely affect the success of
the Company. See "Business--Research and Development."
RISKS ASSOCIATED WITH RAPIDLY CHANGING INDUSTRY
The Company operates in a rapidly evolving commercial and technological
environment. The video, electronics, data processing, broadcast television and
cable television industries are changing rapidly due to, among other things,
technological improvements, consolidations and changes in consumer preferences
and customs. In particular, the live video image insertion market is new and
undeveloped. As such, the Company anticipates that as the market matures, it
will be affected by technological change and product improvements. There can be
no assurance that future technological advances by competing systems or changes
in industry broadcast standards will not adversely affect the Company's
competitive position. Accordingly, the Company's success will depend in part
upon its ability to develop product enhancements that keep pace with continuing
changes in technology and customer preferences. There can be no assurance that
the Company will be successful in developing product enhancements to keep
abreast of changing technologies and customer preferences or that its products
or enhancements will be successful in the marketplace. The Company's failure to
develop technological improvements or to adapt its products to technological
change on a timely basis would, over time, have a material adverse effect on its
business, financial condition and results of operations. See "Business--Research
and Development."
MANUFACTURING AND COST UNCERTAINTIES
The Company has only limited experience in manufacturing L-VIS Units for
commercial purposes and does not have well established manufacturing facilities.
The Company believes that the eventual manufacturing cost of L-VIS Units will be
primarily determined by the cost of the digital signal processing circuits used
to perform identification, recognition and insertion functions. Any
manufacturing difficulties and any cost increases, including an increase in the
cost of digital signal processing circuits, may materially adversely affect the
Company's profit margin, if any, on the sale or lease or use of future L-VIS
Units and its ability to develop and deliver L-VIS Units on a timely basis. See
"Business--Manufacturing and Supply."
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DEPENDENCE ON SOLE SOURCE OF SUPPLY
The Company has been dependent upon a single supplier, Lucent Technologies
("Lucent"), for certain hardware components used in the manufacture of L-VIS
Units. Although such hardware components are stock items which are readily
available to the public, there can be no assurance that Lucent will continue to
manufacture and sell the components. The Company is not a party to any agreement
with Lucent. The Company's business, financial condition and results of
operations will be materially adversely affected in the event it is unable to
manufacture L-VIS Units due to an inability to acquire hardware components on a
timely basis or if it is forced to purchase such hardware components at a price
substantially higher than the current price of such components. See
"Business--Manufacturing and Supply."
COMPETITION
The market for electronic video insertion technology is new and evolving.
The Company is aware of three competitors, Symah Vision-SA ("Symah"), Orad Hi
Tech Systems, Ltd. and Scidel Technologies, Ltd. ("SciDel"), that are currently
working on video insertion technologies. In the event the market for electronic
video insertion technology proves lucrative, the Company also expects
substantial competition from established broadcast business participants that
have significantly more extensive financial, technical, marketing and other
resources and a greater number of highly skilled individuals than does the
Company. Many potential competitors have greater name recognition and extensive
customer bases that could be utilized to gain significant market share to the
Company's detriment. Such competitors may be able to produce a superior product,
undertake more extensive promotional activities, offer more attractive terms to
customers and adopt more aggressive pricing policies than the Company. There is
no assurance that the Company will be able to compete effectively with current
or future competitors or that the competitive pressures faced by the Company
will not have a material adverse effect on its business, financial condition and
results of operations.
In addition to competing with other video insertion technologies, the L-VIS
System will compete with advertisers' use of traditional 30-second advertising
spots, which remain the standard in the television advertising industry. The
L-VIS System will also compete with advertisers' use of conventional billboard
products including advertising placed on playing surfaces (such as outfield
walls, football fields and ice hockey rinks) and scrolling billboards,
physically located at the site of an event, which can display sequentially a
series of static advertisements. Scrolling billboards can achieve an effect
similar to that achieved by the L-VIS System for the television viewing audience
in certain circumstances. The availability of scrolling billboards in the
marketplace may adversely affect the marketability of the L-VIS System.
The Company expects that it will generate revenue primarily by causing
existing advertisers and sponsors to switch to use of the L-VIS System and by
attracting new advertisers and sponsors to the sports advertising and
sponsorship market. However, existing advertisers may be reluctant to utilize a
new technology. There can be no assurance that total advertising and sponsorship
expenditures will increase as a result of use of the Company's technology. To
the extent that the Company is competing for television advertising and
sponsorship dollars that are currently allocated to traditional media, such as
30-second spots or rolling billboards, the competition is likely to be more
intense. The Company will only be able to compete effectively with existing
advertising and sponsorship alternatives with the cooperation of broadcasters
and the advertising sales departments of team owners, other rights holders and
broadcasters, on whom the Company will rely for sales of its products to
advertisers. Certain of such rights holders may have incentives, in some cases,
to sell alternative advertising inventory or sponsorship in lieu of the
Company's services which, as a result, will have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Business--Competition."
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POSSIBLE ADVERSE REGULATIONS
The Company believes that no federal or state regulations currently directly
relate to or restrict the use of the L-VIS System. There are existing
regulations imposed on broadcasters which may require disclosure that the L-VIS
System is being used in a particular broadcast. The Company does not, however,
believe that such regulations will materially adversely affect the use of the
L-VIS System as currently contemplated. However, there can be no assurance that
there will not be any regulations or restrictions in the future, which either
directly, or indirectly through broadcaster regulations, adversely affect the
use of the L-VIS System. Such regulations or restrictions could have a material
adverse effect on the Company's business, financial condition and results of
operation.
There can be no assurance that regulatory agencies in foreign jurisdictions
have not adopted, or will not adopt in the future, regulations or restrictions
affecting the use of the L-VIS System. The adoption of such regulations or
restrictions may reduce or eliminate the market for the Company's products in
any country where such regulations or restrictions are adopted, which would have
a material adverse effect on the Company's business, financial condition and
results of operations.
BROAD DISCRETION AS TO USE OF PROCEEDS; REPAYMENT OF BRIDGE NOTES
Management will have broad discretion with respect to the expenditure of the
net proceeds of the Offering. In addition, the Company's estimated allocations
of the uses of the net proceeds of the Offering are subject to reapportionment
among the purposes set forth under "Use of Proceeds" or to other general
corporate purposes, including working capital. An estimated $8,310,000, or 33.0%
of the net proceeds of the Offering (assuming the mid-point of the range for the
anticipated offering price), and any additional net proceeds resulting from the
exercise of the Over-Allotment Option, have been allocated to working capital
and general corporate purposes and will be used for such specific purposes as
management of the Company may determine. The amount and timing of expenditures
will vary depending upon a number of factors, including the progress of the
Company's product development and marketing efforts, changing competitive
conditions and general economic conditions. Further, approximately $3,250,000,
or 12.9% of the net proceeds of the Offering will be used to repay the Bridge
Notes. See "Use of Proceeds."
NEED FOR ADDITIONAL FINANCING
The Company anticipates that the net proceeds of the Offering, together with
its existing capital resources, will be adequate to satisfy its operating and
capital requirements through the next 18 months, assuming that it performs
substantially in accordance with its current business plan. There can be no
assurance that the Company will be able to, or will wish to, follow the current
business plan. Thereafter, depending on revenues actually generated during such
18 month period, the Company may be required to obtain additional capital in
order to finance its development programs, to continue the expansion of its
operations, and to market the L-VIS System worldwide. The Company intends to use
the net proceeds of the Offering, cash flow from operations and borrowings to
support its continued growth. Changes in the market in which the Company
operates, in the Company's business, or in its business plan could affect its
capital requirements, which may require it to raise additional funds earlier
than expected in order to fund its operations, fund expansion, develop new or
enhanced products, respond to competitive pressures or acquire complementary
businesses. The Company's future capital requirements will depend on many
factors, including the size of its research and development programs, the cost
of manufacturing and marketing activities, the ability of the Company to market
products successfully, the length of time required to collect accounts
receivable, and the need to address competing technological and market
developments. If the Company were to raise additional funds through the issuance
of equity or convertible debt securities, shareholders could experience
substantial additional dilution and such securities could have rights,
preferences and privileges senior to those of the holders of the Common Stock.
There can be no assurance that the Company will be able to raise any additional
required funds, or that any such funds will be available on terms favorable to,
or acceptable to, the Company. The lack of availability of adequate
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funds, or the lack of availability of funds on terms acceptable to it, will have
a material adverse effect on the Company's business, financial condition and
results of operations.
Whether or when the Company can achieve cash flow levels sufficient to
support its anticipated growth cannot be accurately predicted. Unless such cash
flow levels are achieved, the Company will be required to borrow money or to
sell debt or equity securities, or a combination thereof, to provide funding for
growth or, alternatively, will be required to reduce growth to a level that can
be supported by internally generated cash flow. The Company can give no
assurances with respect to the impact on its financial condition and results of
operations if it is required to reduce growth to a level that can be supported
by internally generated cash flow. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
PATENTS AND PROTECTION OF PROPRIETARY TECHNOLOGY
The Company's ability to compete effectively will depend, in part, on its
ability to assert and maintain the proprietary nature of its technology.
Although the Company has been assigned three issued United States and one
allowed European patent, has licensed several other patented technologies from
third parties and has filed applications for a number of additional patents in
the United States and abroad, there can be no assurance as to the degree of
protection offered by these patents, or as to the likelihood that pending
patents will be issued. Any patents issued to the Company or its licensors under
the laws of a foreign country may afford a lesser degree of protection than that
enjoyed in the United States, due to the nature or scope of such country's
patent laws. There can be no assurance that competitors in both the United
States and foreign countries, many of which have greater resources than the
Company and have made substantial investments in competing technologies, do not
have or will not obtain patents that will prevent, limit or interfere with its
ability to make L-VIS Units and market the L-VIS System or that intentionally
infringe its patents. There can be no assurance that competitors or strategic
partners will not copy, reverse engineer, I.E., isolate the components of a
complete system to learn how to construct a similar system, or independently
develop technologies that are the same or similar to the Company's patented
technologies. See "Business--Intellectual Property--Patents."
Further, the validity and/or breadth of the Company's owned and licensed
patents generally may be tested in post-allowance court proceedings. There has
been no court test of any of the issued patents, the allowed patent or any of
the pending applications or foreign counterparts of the Company. The Company is
aware of other companies that have patents or patent applications in the field
of electronic video insertion technology. These companies or others may claim
that the Company infringes the patents or rights of such third parties, or these
third parties may infringe the Company's patents. In either event, if the
Company's patents or rights are brought before a court, litigation would involve
complex legal and factual issues, and the outcome, consequently, would be highly
uncertain. Furthermore, any patent litigation would entail considerable cost to
the Company, which would divert resources that otherwise could be used for its
operations and might be resolved in a manner that is unfavorable to the Company.
No assurance can be given that the Company or its licensors would be successful
in enforcing such rights, or that the Company's products or processes do not or
will not infringe the patent or intellectual property rights of a third party.
An adverse outcome in the defense of a patent infringement action could subject
the Company to significant liabilities to third parties, require the Company to
license disputed technology from third parties, if possible, or require it to
cease selling its products. In the event the Company's owned or licensed patents
were successfully challenged in court, its business, financial condition and
results of operations would be materially adversely affected.
It is possible that one or more products developed by a competitor may be
marketed or used in a territory where the Company has patent protection. Because
an image inserted through use of video insertion technology often appears as if
it exists as a physical advertisement at the site of a sporting event, it may be
difficult to know whether, and which, video insertion technology is being used
with respect to any televised sporting event. Thus, infringement of the
Company's patents may be difficult to monitor. The Company's failure to detect
such an infringement may have a material adverse effect on its business,
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financial condition and results of operations. In the event the Company becomes
aware of a potential patent infringement, it may be forced to litigate to
enforce its patent rights. Engaging in an enforcement action may be protracted
and expensive and may have a material adverse effect on the Company's business,
financial condition and results of operations.
Apart from the patents and patent applications that the Company owns or
licenses, the only patents or patent applications of which it is aware relating
to real-time video insertion are owned or controlled by its competitors, Symah
and SciDel. Although the Company has no cause for belief that use of the L-VIS
System would infringe the United States or other patents of third parties, there
can be no assurance that competitors will not initiate a patent infringement
action against the Company. Gerencia de Medios, S.A. ("GDM"), a Spanish media
company that licensed the L-VIS System for use in broadcasts in Spain and
Portugal during a trial period which ended December 1996, received a letter from
a Symah affiliate asserting that use of the L-VIS System in Spain would infringe
one of Symah's patents. Although the Company and GDM have been advised that use
of the L-VIS System would not infringe Symah's patent, there can be no assurance
that Symah will not assert infringement claims against the Company or its
European licensees in the future.
One of the patents of which the Company is aware is U.S. Patent 5,353,392
(the "'392 Patent"). The '392 Patent derives from the same patent application as
does the patent asserted by the Symah affiliate against the L-VIS System in
Spain. The '392 patent has not been asserted against the Company. The Company
believes that the L-VIS System does not infringe the '392 Patent. However, the
Company has not received during the past two years an opinion as to the
non-infringement of the '392 Patent. There can be no assurance that changes in
the L-VIS System, changes in applicable patent law or rulings by the U.S. Patent
and Trademark Office or the courts would not cause the L-VIS System to be found
to infringe the '392 Patent, which could have a material adverse effect on the
Company's business, financial condition and results of operations. If the L-VIS
System were found to infringe the '392 Patent or any other patent, the Company
may be required to modify the L-VIS System or enter into an arrangement to
license such patent, if possible. There can be no assurance that the Company
would be able, under such circumstances, to modify the L-VIS System or enter
into a license arrangement.
The Company also relies in large part on unpatented trade secrets,
improvements and proprietary technology and there can be no assurance that
others, including strategic partners, will not copy, reverse engineer or
independently develop the same or similar technology or otherwise obtain access
to its proprietary technology. To protect its rights in these areas, the Company
currently requires its employees and certain third parties to enter into
confidentiality agreements and, to the extent appropriate, utilizes copyright,
trademark and trade secret protection. There can be no assurance, however, that
these steps will provide meaningful protection for the Company's trade secrets,
know-how or other proprietary information in the event of any unauthorized use,
misappropriation or disclosure thereof. See "Business-- Intellectual Property."
UNCERTAINTIES RELATED TO OWNERSHIP OF VIDEO INSERTION RIGHTS
Ownership of the copyright of the broadcast of a sporting event is governed
by agreements among the applicable teams, leagues, broadcasters and the sports
federation, if any. In many instances, these agreements provide that different
persons shall control the copyrights to the broadcasts in differing
circumstances (for instance, regular season play versus playoffs). These
agreements often govern permitted forms of advertising and permitted
modifications to the broadcast. Because live video insertion is a newly evolving
technology, use of such technology is not specifically discussed under the terms
of many existing agreements, and it is often not clear whose permission must be
obtained to use the L-VIS System. In the event the L-VIS System is utilized
without the consent of applicable broadcast copyright holders, there can be no
assurance that such broadcast copyright holders will not challenge the use of
the L-VIS System under current agreements. The defense and prosecution of
copyright suits is both costly and time-consuming, even if the outcome is
favorable to the Company. Furthermore, there can be no assurance that
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broadcast copyright holders will be willing to enter into amendments of current
agreements, or if willing, will do so on terms acceptable to the Company. See
"Business--Strategy."
IMMEDIATE DILUTION
The initial public offering price per share of Common Stock exceeds the
current book value per share of the Common Stock. Investors in the Offering
will, therefore, incur immediate and substantial dilution of $3.84 per share of
Common Stock, representing 55% of the assumed initial public offering price per
share of $7.00. Additional dilution to public investors may result to the extent
that the Representatives' Options and/or outstanding warrants or options are
exercised at a time when the net tangible book value per share of Common Stock
exceeds the exercise price of any such securities. See "Dilution," "Description
of Securities" and "Underwriting."
ABSENCE OF PUBLIC MARKET; NEGOTIATED OFFERING PRICE
Prior to the Offering, there has been no public market for the Common Stock,
and there can be no assurance that a trading market will develop or, if any such
market develops, that it will be maintained or that the market price of the
Common Stock will not decline below the initial public offering price.
Accordingly, purchasers of shares of Common Stock may experience difficulty
selling or otherwise disposing of their Common Stock. The initial public
offering price of the Common Stock has been established by negotiation among the
Company and the Representatives, consistent with the rules of the National
Association of Securities Dealers (the "NASD"), of which the Representatives are
members, and may not bear any relationship to the Company's book value, assets,
past operating results, financial condition or other established criteria of
value. See "Underwriting."
The Company has issued securities to the following officers, directors or
their affiliates in exchange for promissory notes in favor of the Company: Brown
F Williams, Samuel A. McCleery, John B. Torkelsen, Princeton Venture Research,
Inc., a corporation wholly owned by Mr. Torkelsen, and Pamela R. Torkelsen, the
wife of Mr. Torkelsen. The total number of shares and warrants issued to such
individuals, in exchange for notes payable to the Company which are outstanding
as of the date of this Prospectus is 274,400 shares of Common Stock (or 8.3% of
the shares of Common Stock outstanding immediately prior to the Offering), 6,200
shares of Series B Preferred Stock and 12,400 warrants to purchase 12,400 shares
of Common Stock. The individuals holding such securities have significant
influence over the affairs of the Company. See "Management." Among other
effects, this control could result in a delay of payment by such persons to the
Company. See "Certain Transactions."
POSSIBILITY OF NASDAQ NATIONAL MARKET DELISTING; RISKS OF LOW-PRICED STOCKS
The Company has applied to have the Common Stock quoted on the Nasdaq
National Market. If the listing is approved, the quotation of the Common Stock
on the Nasdaq National Market will be conditioned upon the Company's meeting
certain asset, stock price and other criteria set forth by such quotation
system. The Company believes that upon completion of the Offering and the
receipt of the net proceeds therefrom, it will meet the criteria required by the
Nasdaq National Market. If the Company fails any of the tests after the
Offering, the Common Stock may be delisted from quotation on such system. In the
event the Common Stock is delisted from the Nasdaq National Market, it may be
listed on the Nasdaq SmallCap Market if its listing criteria are met. The
effects of delisting include the limited release of the market prices of the
Company's securities and limited news coverage of the Company. Delisting may
restrict investors' interest in the Common Stock and materially adversely affect
the trading market and prices for the Common Stock and the Company's ability to
issue additional securities or to secure additional financing.
In addition to the risk of possible delisting, low price stocks are subject
to the additional risks of federal and state regulatory requirements and the
potential loss of effective trading markets. In particular, if the Common Stock
were delisted from trading on an appropriate market, including the Nasdaq
National Market or Nasdaq SmallCap Market, and the trading price of the Common
Stock were less than $5.00 per
16
<PAGE>
share, the Common Stock could be subject to Rule 15g-9 under the Exchange Act,
which requires that broker-dealers satisfy special sales practice requirements,
including making individualized written suitability determinations and receiving
any purchaser's written consent, prior to any transaction. In such event, the
additional burdens imposed upon broker-dealers may discourage broker-dealers
from effecting transactions in the Common Stock, which would reduce the
liquidity of the Common Stock. These rules, if they became applicable to the
Common Stock, could then have a material adverse effect on the trading market
for the Common Stock. In addition, the Common Stock could be deemed "penny
stock" under the Securities Enforcement and Penny Stock Reform Act of 1990. If
this were to occur, additional disclosure would be required in connection with
trades in the Common Stock, including the delivery of a disclosure schedule
explaining the nature and risks of the penny stock market. Such requirements
could severely limit the liquidity of the Common Stock and the ability of
purchasers in the Offering to sell their Common Stock in the secondary market.
See "Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Upon completion of the Offering, the Company will have 7,308,472 shares of
Common Stock outstanding (7,908,472 shares if the Representatives'
Over-Allotment Option is exercised in full). Of such shares, all of the
4,000,000 shares sold in the Offering (4,600,000 shares if the Representatives'
Over-Allotment Option is exercised in full) will be freely transferable (except
those purchased by affiliates of the Company) without restriction or further
registration under the Securities Act. In addition, the 400,000 shares of Common
Stock issuable upon exercise of the Representatives' Warrants and 300,000 shares
of Common Stock issuable upon exercise of the Bridge Warrants, all of which also
are being registered under the Securities Act pursuant to the Registration
Statement of which this Prospectus constitutes a part, will be freely
transferable under the Securities Act, subject to restrictions on
transferability for up to one year.
The 3,308,472 shares of Common Stock outstanding prior to this Offering are,
and the 777,130 shares of Common Stock issuable upon exercise of outstanding
warrants will be, "restricted securities" under Rule 144 under the Securities
Act and may not be sold other than in accordance with Rule 144, or pursuant to
an effective registration statement under the Securities Act or an exemption
from such registration requirement. Furthermore, under Rule 144 generally, there
will be 2,240,480, 2,240,480, 2,977,594 and 3,018,002 shares eligible for resale
as of March 1, 1998, June 1, 1998, September 1, 1998 and December 1, 1998,
respectively. Under Rule 144(k), there will be 1,423,850, 1,593,788, 1,593,788
and 1,615,988 shares eligible for resale as of March 1, 1998, June 1, 1998,
September 1, 1998 and December 1, 1998, respectively. In addition to the holding
period requirements imposed by the Rule 144 safe harbor, all holders of
outstanding Common Stock prior to the Offering are subject to a one-year lock-up
following the effective date of this Offering, subject to the ability of Allen
to waive such lock-up restrictions on behalf of the Representatives. At the
request of The Nasdaq National Market, Inc., Allen has agreed not to consent to
the transfer of shares of Common Stock issuable upon exercise of the Bridge
Warrants for such one-year period. See "Shares Eligible for Future Sale--Lock-up
Agreements."
Additionally, the Company has granted certain demand and "piggyback"
registration rights to the holders of 3,308,472 shares of Common Stock and to
the holders of warrants exercisable for an aggregate of 703,332 shares of Common
Stock, to require the Company to register under the Securities Act those shares
of Common Stock and the shares issuable upon exercise of the warrants. If such
holders, by exercising their registration rights, cause a large number of shares
to be registered and sold in the public market, such sales could have a material
adverse effect on the market price for the Common Stock.
The sale of a substantial number of shares of Common Stock or the
availability of Common Stock for sale could adversely affect the market price of
the Common Stock prevailing from time to time. The number of shares of Common
Stock available for sale in the public market is limited by restrictions under
the Securities Act and a lock-up provision under the Second Amended and Restated
Registration Rights Agreement, as amended, among the Company and its
shareholders pursuant to which the parties to such agreement have agreed not to
sell or otherwise dispose of any of their shares of Common Stock for certain
specified periods after the date on which the Offering closes, except in certain
limited circumstances,
17
<PAGE>
without the prior written consent of the Representatives. See "Principal
Shareholders," "Description of Securities," "Shares Eligible for Future Sale"
and "Underwriting."
EFFECT OF OPTIONS, WARRANTS AND REPRESENTATIVES' OPTIONS ON STOCK PRICE
The Company has reserved 1,560,000 shares of Common Stock for issuance to
employees, officers and consultants upon the exercise of options granted, or to
be granted, under the Stock Option Plan. The Company also has reserved 300,000
shares of Common Stock for issuance upon exercise of the Bridge Warrants and
777,130 shares of Common Stock for issuance upon exercise of other outstanding
warrants. The Company also will sell to the Representatives, in connection with
the Offering, the Representatives' Warrants to purchase an aggregate of 400,000
shares, subject to adjustment as provided therein. The existence of the Bridge
Warrants, the other outstanding warrants, the Representatives' Warrants and the
outstanding options issued under the Stock Option could hinder future
financings. In addition, certain holders of such securities have certain
registration rights, and the sale of shares of Common Stock upon exercise of
such rights or the availability of such shares for sale could adversely affect
the market price of the Common Stock. See "Description of Securities" and
"Underwriting."
VOLATILITY OF STOCK PRICES
The market prices of equity securities of technology companies have
experienced substantial price volatility in recent years for reasons both
related and unrelated to the individual performance of specific companies.
Accordingly, the market price of the Common Stock following the Offering may be
highly volatile. Factors such as announcements by the Company or its competitors
concerning products, patents and technology, governmental regulatory actions,
events affecting technology companies generally and general market conditions
may have a significant impact on the market price of the Common Stock and could
cause it to fluctuate substantially. In addition, it is expected that there will
be a relatively small number of shares of Common Stock trading publicly
following the Offering. Accordingly, shareholders may experience difficulty
selling or otherwise disposing of shares of Common Stock at favorable prices, or
at all. See "Shares Eligible for Future Sale" and "Underwriting."
NO DIVIDENDS
The Company has not paid dividends since its inception and does not
anticipate paying any dividends in the foreseeable future. The Company plans to
retain any earnings to finance the development and expansion of its business.
Pursuant to the Company's Restated Certificate of Incorporation, it is
prohibited from paying any dividends on the Common Stock until all accumulated
dividends in respect of the Series A Redeemable Preferred Stock (the "Series A
Preferred Stock") and Series B Redeemable Preferred Stock (the "Series B
Preferred Stock") have been paid. See "Dividend Policy."
CONTINUED CONTROL BY OFFICERS, DIRECTORS AND EXISTING 5% SHAREHOLDERS
Following the Offering, the Company's executive officers and directors,
together with entities affiliated with such individuals, and other holders of
five percent or more of the Company's outstanding capital stock will
beneficially own over 35% of the Common Stock (assuming the exercise of all
vested stock options and warrants). Effectively, these shareholders will be able
to elect a majority of the Company's directors, will have the voting power to
approve all matters requiring shareholder approval and will continue to have
significant influence over the affairs of the Company. Among other effects, this
concentration of ownership could have the effect of delaying or preventing a
change in control of the Company. Allen, a Representative, is the beneficial
owner of 18.8% of the Company's Common Stock, and Enrique F. Senior, an
Executive Vice President and Managing Director of Allen, is a director of the
Company and as such may be deemed to be the beneficial owner of 19.2% of the
Company's Common Stock (which includes the shares of Common Stock beneficially
owned by Allen). These factors could give rise to conflicts of interest between
the Company, on the one hand, and Allen and/or Mr. Senior, on the other hand. In
the event any conflict of interest may arise between the Company and Allen or
Mr. Senior
18
<PAGE>
in the future, the Company intends that any such issue will be resolved by a
majority of directors who do not have a personal interest in the transaction. In
connection with the Offering, because of the relationship between the Company
and Allen, and consistent with the rules of the NASD, of which Allen is a
member, the price of the shares being sold in the Offering is no higher than
that recommended by Barington Capital Group as "qualified independent
underwriter" as defined in, and in compliance with, the applicable provisions of
the rules of the NASD. See "Management," "Principal Shareholders" and
"Underwriting."
LIMITATION ON UTILIZATION OF INCOME TAX LOSS CARRYFORWARDS
Upon the consummation of the sale of the Shares, the Company will undergo an
additional "ownership change" within the meaning of Section 382 of the Internal
Revenue Code of 1986, as amended (the "Code"). Under Section 382 of the Code,
upon undergoing an ownership change, the Company's right to use its then
existing net operating loss carryforwards as of the date of the ownership change
is limited during each future year to a percentage of the fair market value of
the Company's then outstanding capital stock immediately before the ownership
change and if other ownership changes have occurred prior to this ownership
change, the utilization of such losses may be further limited. The Company
expects that its ability to utilize its net operating loss carryforwards to
offset future taxable income will be severely limited annually in the future.
See Note 8 to Notes to Financial Statements.
EFFECTS OF CERTAIN CHARTER, BYLAW AND STATE LAW PROVISIONS
The Company's Board of Directors has the authority to issue up to 1,000,000
shares of Preferred Stock in one or more series and to determine the price,
rights, preferences and privileges of those shares without any further vote or
action by the Company's shareholders. The Company is currently authorized to
issue up to 167,000 and 93,300 shares of the Preferred Stock that have been
designated as the Series A Preferred Stock, par value $4.50 per share, and the
Series B Preferred Stock, par value $5.00 per share, respectively. As of the
date of this Prospectus, there were 67,600 and 86,041 shares of Series A
Preferred Stock and Series B Preferred Stock outstanding, respectively. The
rights of the holders of Common Stock will be subject to, and may be adversely
affected by, the rights of the holders of Preferred Stock. While the Company has
no present intention to issue additional shares of Preferred Stock, such
issuance, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of delaying,
deferring or preventing a change in control of the Company and entrenching
existing management. In addition, such Preferred Stock may have other rights,
including economic rights, senior to the Common Stock, and, as a result, the
issuance thereof could have a material adverse effect on the value of the Common
Stock. The Company is also subject to the anti-takeover provisions of the New
Jersey Shareholder Protection Act, which restrict certain "business
combinations" with "interested shareholders" for five years following the date
the person becomes an interested shareholder, unless the Board of Directors
approves the business combination. By delaying and deterring unsolicited
takeover attempts, these provisions could adversely affect the value of the
Common Stock. See "Description of Capital Stock--Preferred Stock."
19
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the Shares offered hereby, assuming an
initial public offering price of $7.00 per share, and after deducting
underwriting discounts and commissions and other expenses of the Offering
estimated to be $2,865,000, will be approximately $25,135,000 ($29,041,000 if
the Over-Allotment Option is exercised in full).
The Company intends to use the net proceeds of the Offering as follows:
<TABLE>
<CAPTION>
APPROXIMATE PERCENT OF
AMOUNT NET PROCEEDS
------------- -------------
<S> <C> <C>
L-VIS System manufacturing and deployment........................................... $ 4,850,000 19.3%
Research and development............................................................ 4,225,000 16.8%
Repayment of debt................................................................... 3,250,000 12.9%
Capital expenditures................................................................ 2,400,000 9.6%
Sales and marketing................................................................. 2,100,000 8.4%
Working capital and general corporate purposes...................................... 8,310,000 33.0%
------------- -----
Total........................................................................... $ 25,135,000 100.0%
------------- -----
------------- -----
</TABLE>
The Company intends to use approximately $4.9 million of the net proceeds of
the Offering to manufacture and deploy additional L-VIS Units. This amount
includes the capital cost of the equipment and facilities, and the personnel
costs associated with fabrication, testing and service of L-VIS Units. The cost
of customer training, end-user support and equipment service are also included.
The Company intends to spend approximately $4.2 million of the net proceeds
of the Offering to fund its research and development activities, including
enhancement of the L-VIS System. Such costs will also include personnel costs
associated with quality assurance, software engineering and hardware
engineering. The Company also plans to continue to seek intellectual property
protection through trademarks and patents. The Company intends to continue to
retain outside consultants as necessary in order to address specific research
and development needs when it is cost effective to do so.
Approximately $3.3 million of the net proceeds of the Offering will be used
to repay the Bridge Notes in full, including accrued and unpaid interest thereon
and payment of a five percent fee to Barington. The Bridge Notes have an
outstanding principal amount of $3,000,000, mature upon the consummation of the
Offering and bear interest at a fixed rate of 10% per annum. See "Description of
Securities--Debt Securities."
The Company anticipates using approximately $2.4 million of the net proceeds
of the Offering for capital expenditures. These expenditures will include the
acquisition of test equipment to support the research and development efforts,
as well as furniture, fixtures and other personal property to support expanded
staff at the Company's new facilities in Lawrenceville, New Jersey and New York
City.
A significant increase in personnel is projected in the marketing and
customer relations areas. Approximately $2.1 million of the net proceeds of the
Offering will be spent to enhance sales and marketing capabilities and to
establish additional channels for the use of the L-VIS System in sports markets.
The Company plans to support increased travel, and participation in trade shows
and conventions to showcase the L-VIS System to an increased potential customer
base.
The remaining net proceeds of approximately $8.3 million, and any additional
net proceeds resulting from the exercise of the Over-Allotment Option, will be
employed for working capital and general corporate purposes.
The table above represents the Company's best estimate of its allocation of
the uses of the net proceeds of the Offering based upon the current state of its
business operations, its current business plan and strategy, and current
economic and industry conditions. The amount and timing of expenditures will
20
<PAGE>
vary depending upon a number of factors, including, among others, the progress
of the Company's market demand for the L-VIS System, if any, management's
determination as to how to satisfy any such demand, progress of the Company's
research and development activities, technological changes, changing competitive
conditions, and general economic conditions. The allocations of the uses of the
net proceeds of the Offering are subject to reapportionment among the purposes
listed above, and to other general corporate purposes, including working
capital. The actual amount of the uses of proceeds cannot be predicted with any
degree of certainty. See "Risk Factors--Broad Discretion as to Use of Proceeds;
Repayment of Bridge Notes."
Pending application of the net proceeds as described above, the Company
intends to invest the net proceeds in short-term, interest-bearing, investment
grade debt securities, money market accounts, certificates of deposit, or direct
or guaranteed obligations of the United States government.
21
<PAGE>
DIVIDEND POLICY
The Company has not declared or paid any dividends on the Common Stock since
its inception. The Company expects that it will retain all earnings, if any,
generated by its operations for the development and growth of its business and
does not anticipate paying any cash dividends to its shareholders in the
foreseeable future. The payment of future dividends on the Common Stock and the
rate of such dividends, if any, will be determined in light of any applicable
contractual restrictions limiting the Company's ability to pay dividends, the
Company's earnings, financial condition, capital requirements and other factors
deemed relevant by the Board of Directors. Furthermore, pursuant to its Restated
Certificate of Incorporation, the Company is prohibited from paying any
dividends on the Common Stock until all accumulated dividends in respect of the
Series A Preferred Stock and Series B Preferred Stock have been paid. As of
September 30, 1997, the accrued dividends with respect to the shares of Series A
Preferred Stock and Series B Preferred Stock totaled $85,562 and $94,600,
respectively.
The Company is required to redeem the Series A Preferred Stock on a pro rata
basis, at a price of $4.50 per share plus all accrued but unpaid dividends, out
of 30% of the amount, if any, by which the Company's annual net income after
taxes in any year exceeds $5 million, as shown on its audited financial
statements. Subject to the prior redemption of all of the Series A Preferred
Stock, the Company is required to redeem the Series B Preferred Stock, on a pro
rata basis, at a price of $5.00 per share plus all accrued but unpaid dividends
out of 20% of the amount, if any, by which the Company's annual net income after
taxes in any year exceeds $5 million, as shown on its audited financial
statements. See "Description of Securities--Preferred Stock."
22
<PAGE>
DILUTION
As of September 30, 1997, after giving pro forma effect to the Bridge
Financing, which was completed in October 1997, the Company had a pro forma net
tangible book value of approximately $(51,838) or $(0.02) per share of Common
Stock. Without taking into account any other changes in the pro forma net
tangible book value of the Company after September 30, 1997, other than to give
effect to the sale by the Company of the 4,000,000 Shares offered hereby at an
assumed initial offering price of $7.00 per Share and receipt of the net
proceeds therefrom and the application of a portion of the net proceeds of the
Offering to repay certain outstanding indebtedness as set forth under "Use of
Proceeds," and the write-off of debt issuance costs and interest associated with
the indebtedness to be repaid and the write-off of the unamortized discounts
related to the estimated fair value of warrants to purchase common stock issued
in connection with the Bridge Financing, the Company's pro forma net tangible
book value, as adjusted at September 30, 1997, would have been approximately
$23,060,662 or $3.16 per Share. See "Description of Securities" and the Notes to
Financial Statements. This represents an immediate increase in the pro forma net
tangible book value of $3.18 per share of Common Stock to present shareholders
and an immediate dilution of $3.84 or 55% per Share to new investors. The
following table illustrates this dilution (2):
<TABLE>
<S> <C> <C>
Assumed initial public offering price per Share (1).......................... $ 7.00
Pro forma net tangible book value (deficit) per Share at September 30,
1997 (3)................................................................. $ (0.02)
Increase per Share attributable to new investors......................... 3.18
---------
Pro forma net tangible book value per Share after the Offering............... 3.16
---------
Dilution per Share to new investors.......................................... $ 3.84
---------
---------
</TABLE>
- ------------------------
(1) Represents the assumed initial public offering price per Share, before
deducting underwriting discounts and offering expenses payable by the
Company.
(2) The figures set forth in the table and the paragraph above do not take into
account the Over-Allotment Option. Assuming all of the shares underlying the
Over-Allotment Option are included in the Offering, the Pro-forma net
tangible book value per share would be $3.41 per share and thus the dilution
to new investors would be $3.59 per share or 51%.
(3) As of September 30, 1997, the Company's actual net tangible book value
(deficit) was ($1,701,838) or ($0.51) per share.
The following table summarizes, immediately prior to the Offering, the
differences between existing shareholders and investors in the Offering with
respect to the number and percentage of shares of Common Stock purchased from
the Company, the amount and percentage of cash consideration paid, and the
average price per share of Common Stock, before deduction of offering expenses
and underwriting discounts:
<TABLE>
<CAPTION>
SHARES OWNED CONSIDERATION
----------------------- -------------------------- AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
---------- ----------- ------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Existing shareholders......................... 3,308,472 45.3% $ 20,452,787 42.2% $ 6.18
New Investors................................. 4,000,000 54.7% 28,000,000 57.8% $ 7.00
---------- ----- ------------- -----
Total..................................... 7,308,472 100.0% $ 48,452,787 100.0%
---------- ----- ------------- -----
---------- ----- ------------- -----
</TABLE>
23
<PAGE>
The foregoing table does not include (i) 300,000 shares of Common Stock
issuable upon exercise of the Bridge Warrants; (ii) 400,000 shares of Common
Stock issuable upon exercise of the Representatives' Warrants; (iii) 777,130
shares issuable upon the exercise of other outstanding warrants to purchase
shares of Common Stock; (iv) 1,560,000 shares of Common Stock reserved for
issuance upon exercise of options granted to executive officers, employees and
consultants under the Stock Option Plan, including 1,210,724 shares of Common
Stock issuable upon exercise of options outstanding as of the date of this
Prospectus; and (v) 600,000 shares issuable upon exercise of the Over-Allotment
Option. The exercise of any such options and warrants will have a dilutive
effect upon investors in the Offering. See "Management--Stock Option Plan,"
"Certain Transactions," "Description of Securities" and Notes to Financial
Statements.
24
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
September 30, 1997; (ii) as of September 30, 1997, on a pro forma basis, to
reflect the Bridge Financing, which was completed in October 1997; and (iii) as
of September 30, 1997, on a pro forma, as adjusted basis, to reflect (a) the
sale by the Company of the 4,000,000 shares of Common Stock offered hereby at an
assumed initial public offering price of $7.00 per share and the receipt of the
net proceeds therefrom; and (b) the application of a portion of the net proceeds
of the Offering to repay certain outstanding indebtedness, as set forth under
"Use of Proceeds," and the write-off of the debt issuance costs and interest
associated with the indebtedness to be repaid and the write-off of the
unamortized discounts related to the estimated fair value of the Bridge
Warrants. See "Use of Proceeds," "Certain Transactions," "Description of
Securities" and Notes to Financial Statements. This table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Financial Statements and the notes thereto
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
---------------------------------------------
<S> <C> <C> <C>
PRO-FORMA
ACTUAL PRO FORMA AS ADJUSTED
9/30/97 (1)(3) (2)(3)
------------ ------------ ------------
Long term debt.................................................................. $ 0 $ 0 $ 0
------------ ------------ ------------
Redeemable preferred stock:
Series A Redeemable Preferred Stock; $4.50 par value, 167,000 shares
authorized;
67,600 shares issued and outstanding.......................................... 389,762 389,762 389,762
Series B Redeemable Preferred Stock, $5.00 par value, 93,300 shares
authorized;
86,041 shares issued and outstanding.......................................... 524,805 524,805 524,805
------------ ------------ ------------
Total redeemable preferred stock................................................ 914,567 914,567 914,567
Shareholders' (deficit)/equity
Common Stock, no par value; $.005 stated value; 40,000,000 shares authorized;
3,308,472 shares issued and outstanding 7,308,472 shares issued and
outstanding, pro forma,
as adjusted (3)............................................................... 16,542 16,542 36,542
Additional paid-in capital...................................................... 21,197,302 22,847,302 47,962,302
Less: Related party note receivable............................................. (839,263) (839,263) (839,263)
Stock subscription receivable.............................................. (6,945) (6,945) (6,945)
Deferred costs associated with planned initial public offering............. (192,289) (192,289) (192,289)
Deficit accumulated during the development stage................................ (21,478,916) (21,478,916) (23,501,416)
------------ ------------ ------------
Total shareholders' (deficit)/equity............................................ (1,303,569) 346,431 23,458,931
------------ ------------ ------------
Total capitalization.......................................................... $ (389,002) $ 1,260,998 $ 24,373,498
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
- ------------------------
(1) Pro forma gives effect to the Bridge Financing, which was completed in
October 1997. Under the Bridge Financing, the Company issued 30 units, each
unit consisting of one Bridge Note in the principal amount of $100,000 and
bearing interest at 10%, and Bridge Warrants to 10,000 shares of Common
Stock at an exercise price of $.01 per share. The promissory notes are due
and payable upon consummation of the Offering, and, accordingly, have been
recorded as short term debt on a pro-forma basis, as the note has a term of
the shorter of 12 months or the close of the Offering. Additionally,
$1,650,000 of the Bridge Financing was recorded as additional paid in
capital to reflect the estimated fair market value of warrants issued in the
transaction. See "Description of Securities--Warrants" and "--Debt
Securities."
(2) Pro forma, as adjusted, gives effect to (i) the sale by the Company of the
4,000,000 shares of Common Stock offered hereby at an assumed initial public
offering price of $7.00 per share and the receipt of the net proceeds
therefrom; and (ii) the application of a portion of the net proceeds of the
Offering to repay certain outstanding indebtedness (including the Bridge
Note), as set forth under "Use of Proceeds," and the write-off of the debt
issuance costs and interest associated with the indebtedness to be repaid.
(3) Does not include (i) 300,000 shares of Common Stock issuable upon exercise
of the Bridge Warrants; (ii) 400,000 shares of Common Stock issuable upon
exercise of the Representatives' Warrants; (iii) 777,130 shares of Common
Stock issuable upon exercise of other outstanding warrants to purchase
shares of Common Stock; (iv) 1,560,000 shares of Common Stock issuable upon
exercise of options granted under the Stock Option Plan as of September 30,
1997, including 1,210,724 shares of Common Stock issuable upon exercise of
options outstanding as of September 30, 1997; and (v) 600,000 shares of
Common Stock issuable upon exercise of the Over-Allotment Option. See
"Management-- Stock Option Plan" and "Description of Securities."
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S
AUDITED FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN THIS
PROSPECTUS.
OVERVIEW
Since its inception in 1990, the Company has devoted substantially all of
its resources to the development of the L-VIS System, an electronic video
insertion system that was designed to modify broadcasts to television viewers by
inserting electronic video images, primarily advertisements. As of September
1997, the L-VIS System had been used to insert advertising images into more than
300 live television broadcasts of baseball games, soccer matches, football games
and tennis matches, including (i) the 1997 NFL pre-season games of the Baltimore
Ravens, Pittsburgh Steelers, San Diego Chargers, San Francisco 49ers, Minnesota
Vikings and Washington Redskins, (ii) several college football regular season
and bowl games, and (iii) the 1997 MLB home games of the San Francisco Giants
and the San Diego Padres. In addition, the Company has entered into a joint
venture for use of the L-VIS System in Mexico, Latin America and the
Spanish-speaking Caribbean and has signed a letter of intent for use of the
L-VIS System in the Benelux countries.
The Company has incurred substantial operating losses since its inception.
As of September 30, 1997, the Company had an accumulated deficit of
approximately $21,500,000 and expects to incur substantial additional losses for
the foreseeable future. This deficit is the result of research and development
expenses incurred in the development and commercialization of the L-VIS System,
expenses related to field testing of the L-VIS System and its deployment
pursuant to customer contracts, operating expenses relating to manufacturing,
sales and marketing activities of the Company, and general administrative costs.
The Company intends to devote substantial resources to enhance the L-VIS
System and develop additional software applications. In order to increase its
revenue generating user base, the Company has planned a substantial increase in
its sales and marketing staff. The sales and marketing staff is responsible not
only for agreements with teams, leagues and broadcasters, but also for promoting
the L-VIS System to advertisers in order to create market pull. While any
purchase of advertising will be done through the rights holder or the
broadcaster, the Company intends to create advertiser interest and demand by
promoting the L-VIS System directly to potential advertisers. Therefore, the
Company expects to incur substantial additional losses and to experience
substantial negative cash flow from operating activities through at least the
next 12 months or until such later time as it achieves revenues sufficient to
finance its ongoing capital expenditures and operating expenses. The Company's
ability to produce positive cash flow will be determined by numerous factors,
including its ability to reach agreements with, and retain, customers for use of
the L-VIS System, as well as various factors outside of its control. See "Risk
Factors."
The Company expects to generate revenue from ads sold by rights holders that
use the L-VIS System. These revenues are expected to be shared with the rights
holders. Accordingly, in order to generate revenues from the use of the L-VIS
System, the Company will need to enter into agreements with rights holders. The
agreements can take various forms, although the agreements to date in the United
States have been revenue sharing agreements under which the Company received a
percentage of the fee paid by the advertisers. The Company realizes revenue when
the advertisement runs over the air. Due to the seasonal nature of the sporting
events themselves, the Company's revenue will fluctuate seasonally. However,
this seasonality may be moderated by the multi-sport capabilities of the L-VIS
System and its use in non-sporting events.
In addition to the revenue arising from advertising, a second revenue source
is the strategic licensing of the L-VIS System to third parties. These licenses
may be territorial, such as the Company's agreement with Publicidad Virtual,
S.A. de C.V. ("Publicidad"), the joint venture formed by the Company and
Presencia to market the L-VIS System in Mexico, Central and South America and
the Spanish-speaking
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Caribbean, or they may cover individual major broadcast events, such as the Rose
Bowl. In the case of a territorial license, the licensee is responsible for
generating business within the territory and the Company will share in the
business through one or more means including royalties, license fees, and/or
equity participation in the licensee. In the case of individual events, the
Company may receive a flat fee or a fee based on revenues generated by the
licensee, depending on the nature of the license.
The Company has not generated any significant revenue with the exception of
a $2,000,000 license fee paid for an L-VIS System license. The Company
recognized $1,000,000 of this fee as revenue during the fiscal year ended June
30, 1996 ("Fiscal 1996"). The remaining $1,000,000 will be recognized into
income over a 10-year period which commenced on July 1, 1996. See Note 5 to
Notes to Financial Statements.
RESULTS OF OPERATIONS
COMPARISON OF FISCAL YEAR ENDED JUNE 30, 1997 AND FISCAL YEAR ENDED JUNE 30,
1996
REVENUES. Revenues include receipts from advertising use of the L-VIS
System as well as from license fees for use of the L-VIS System outside of the
United States. Total revenue decreased 79% to $211,634 for the fiscal year ended
June 30, 1997 ("Fiscal 1997") from $1,009,600 in Fiscal 1996. Of this total,
advertising revenue increased 745% to $81,108 in Fiscal 1997 from $9,600 in
Fiscal 1996, and license fees decreased 87% to $130,526 in Fiscal 1997 from
$1,000,000 in Fiscal 1996, as a result of the recognition of a non-recurring
$1,000,000 license fee in Fiscal 1996.
L-VIS SYSTEM COSTS. L-VIS System costs include the costs associated with the
material production, depreciation and operational support of the L-VIS Units,
including training costs for operators. L-VIS System costs increased 34% to
$1,274,890 in Fiscal 1997 from $949,804 in Fiscal 1996, due to increased
production of L-VIS Units for U.S. customers and foreign licensees and the fact
that the Company began, for the first time, to train outside operators to run
the L-VIS System.
RESEARCH AND DEVELOPMENT. Research and development expenses include the
costs associated with all personnel, materials and contract personnel engaged in
research and development activities to increase the capabilities of the L-VIS
System hardware platforms, including platforms for overseas use, and to create
and improve software programs for individual sports. Research and development
expenses increased 7% to $1,722,598 in Fiscal 1997 from $1,604,455 in Fiscal
1996 as a result of the Company's ongoing enhancement of the L-VIS System.
The Company's research and development staff is working to reduce its
reliance on outside suppliers by creating custom-designed circuit boards for the
second generation L-VIS Units that will replace and improve upon the functions
now performed by standard video processors that the Company purchases. The
Company expects to continue to incur substantial research and development
expenses as it further enhances the L-VIS System. The Company's research and
development program also includes the preparation of software to enable use of
the L-VIS System with additional sports and other events.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses include selling and marketing expenses, including salaries of sales and
marketing personnel, their travel expenses, advertising and expenses associated
with customer support, and general and administrative expenses, including
salaries of support personnel, allocated rent and office operating costs and
legal and accounting fees. Selling, general and administrative expenses
increased 16% to $3,028,895 in Fiscal 1997 from $2,602,928 in Fiscal 1996,
primarily due to hiring additional management and marketing personnel.
Upon completion of the Offering, the Company intends to hire additional
personnel to expand its financial, marketing and sales personnel, including
customer support and, to a lesser extent, administrative staff personnel to
support accounting and personnel management. See "Risk Factors--Risks Associated
with Expansion and Growth" and "Business--Marketing Strategy." Additionally, the
Company expects
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general and administrative expenses to increase in future periods as it incurs
additional costs related to being a public company and the expansion of its
facilities, including its production facilities.
INTEREST AND OTHER INCOME. Interest income from marketable securities
decreased as expenses of the Company's operations caused cash and marketable
securities to decrease 81% to $852,013 at June 30,1997 from $4,517,657 at June
30, 1996.
NET LOSS. As a result of the foregoing factors, the Company's net loss
increased 47% to $5,730,661 in Fiscal 1997 from $3,910,524 in Fiscal 1996.
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1997 AND THREE MONTHS ENDED
SEPTEMBER 30, 1996
REVENUES. Total revenue increased to $132,803 for the three months ended
September 30, 1997 from $54,198 for the three months ended September 30, 1996.
Advertising revenue increased from $29,198 to $75,177 as a result of increased
usage of the L-VIS System during the baseball season, specifically by the San
Francisco Giants and by the San Diego Padres for the first time. In addition,
the L-VIS System was used during preseason NFL games, where it generated revenue
for the first time. License revenue increased 131% to $57,626 for the three
months ended September 30, 1997 from $25,000 for the three months ended
September 30, 1996 as a result of additional L-VIS systems being sub-licensed.
L-VIS SYSTEM COSTS. L-VIS system costs increased 118% to $416,732 in the
quarter ended September 30, 1997 from $190,836 for the quarter ended September
30, 1996. The costs increased due to increased usage of the L-VIS system during
the baseball season, the use of outside operators to run the L-VIS systems and
expenses related to the NFL preseason which were not present in 1996.
RESEARCH AND DEVELOPMENT. Research and development expenses increased 28%
to $445,994 for the three months ended September 30, 1997 from $349,161 for the
three months ended September 30, 1996 as a result of an increase in software
development personnel working on the development of a new integrated system and
other ongoing research and development projects.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased 66% to $1,223,811 for the three months ended September 30,
1997 from $738,130 for the three months ended September 30, 1996. This increase
was a result of several factors, including: the hiring of outside marketing
consultants to market the L-VIS System to various NFL teams and to explore
potential expansion in certain European markets; non cash compensation charges
incurred related to the issuance of nonrecourse notes to certain officers used
for the purchase of stock; and the addition of several marketing and
administrative personnel in order to staff the New York office, which opened in
July 1997.
INTEREST AND OTHER INCOME. Interest income from marketable securities
decreased 55% to $16,372 for the three months ended September 30, 1997 from
$36,527 for the three months ended September 30, 1996, as operational expenses
caused a decrease in cash available for investment.
NET LOSS. As a result of the foregoing factors, the Company's net loss
increased 63% to $1,937,362 for the three months ended September 30, 1997 from
$1,187,402 for the three months ended September 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company has incurred significant operating losses and negative cash
flows in each year since it commenced operations, due primarily to start-up
costs, the costs of developing the L-VIS System and the cost of building L-VIS
Units. As a result of operating losses, net cash used in operating activities
amounted to $4,095,264 and $3,652,972 in Fiscal 1997 and Fiscal 1996 and
$1,605,205 and $877,833 for the three month periods ended September 30, 1997 and
1996, respectively. Net cash provided by/(used in) investing activities totaled
$2,313,612 and $(1,915,353) in Fiscal 1997 and Fiscal 1996 and $(244,243) and
$2,430,363
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for the three month periods ended September 30, 1997 and 1996, respectively.
Proceeds from the maturity of the Company's investments provided cash of
$3,000,000 and $2,200,000 in Fiscal 1997 and Fiscal 1996 and $0 and $3,000,000
in the three month periods ended September 30, 1997 and 1996, respectively. In
Fiscal 1997, the Company invested $75,535 in marketable securities as compared
to $3,027,826 in Fiscal 1996. This decrease in investments can be attributed to
the decline in the Company's cash balance from Fiscal 1996 to Fiscal 1997,
resulting in the Company having less cash available to invest. The Company has
historically financed its cash requirements for operations primarily through
private sales of equity and debt securities. Net cash proceeds from the sale of
equity securities was $1,050,636 and $5,657,695 in Fiscal 1997 and Fiscal 1996
and $1,304,722 and $30,000 for the three month periods ended September 30, 1997
and 1996, respectively. The decrease from fiscal 1996 to fiscal 1997 is due
directly to the decrease in the amount of private sales of stock and warrants.
The increase for the three months ended September 30, 1997 as compared to the
three months ended September 30, 1996 is due primarily to the receipt of stock
subscriptions from the May 1997 Rights Offering. At June 30, 1997 and September
30, 1997, the Company had a working capital deficit of approximately $855,605
and $1,266,043, respectively. During the period from June 30, 1997 through the
date of this Prospectus, cash proceeds from the private sale of Common Stock was
approximately $1,300,000, primarily from the receipt of stock subscriptions
receivable as of June 30, 1997. In October 1997, the Company closed on the
Bridge Financing, pursuant to which the Company issued Bridge Notes in the
aggregate principal amount of $3,000,000 and Bridge Warrants to purchase 300,000
shares of Common Stock for an exercise price of $0.01 per share. The gross
proceeds realized by the Company in connection with the Bridge Financing were
$3,000,000. See "Description of Securities-- Debt Securities" and the footnotes
to the Capitalization table.
Since inception, the Company has financed its operations from: (i) the net
proceeds of approximately $19,700,000 from private placements of Common Stock,
warrants and redeemable preferred stock, (ii) the payment of a $2,000,000
licensing fee by Presencia in consideration of the license granted by the
Company to Publicidad and (iii) the proceeds of the Bridge Financing which
closed in October 1997.
The Company currently expects to continue to incur significant capital
expenditures to expand its operations, the amount of such expenditures being
dependent in part on the number of arrangements entered into with rights holders
for the use of the L-VIS System and the pace of technological advancements.
Following the consummation of the Offering, the Company plans to undertake a
significant expansion of its marketing efforts. Furthermore, the Company has
recently reached an agreement with Gerencia de Medios ("GDM"), a former licensee
of the L-VIS System, concerning a refund to GDM of $365,000 GDM previously paid
in connection with its license and the return of equipment by GDM. See Note 11
to Notes to Financial Statements and "Risk Factors--Patents and Protection of
Proprietary Technology." Depending on the level of revenues generated, the
Company may be required to raise substantial additional capital to fund the
Company's liquidity needs through issuances of debt or equity by the Company
(either through public offerings, investments by existing stockholders or
investments by third parties). See "Risk Factors."
The Company expects to invest the proceeds of the Offering in short-term,
interest-bearing investment grade securities until such funds are applied to the
capital investments and operating needs of the Company as well as the repayment
of existing obligations. See "Use of Proceeds."
The report of the independent accountants contains an explanatory paragraph
with respect to the Company's ability to continue as a going concern. See
"Financial Statements". The Company has suffered recurring losses from
operations and has an accumulated deficit that raises substantial doubt about
its ability to continue as a going concern. The Company also has significant
liquidity requirements to fund the continuation of operations. The Company has
required substantial funding through debt and equity financings since its
inception to complete its development plans and commence full scale operations.
The Company's management has historically been successful in obtaining outside
financing to meet obligations and fund working capital requirements as they come
due. Recently, the Company's Board of Directors approved the filing of the
registration statement of which this Prospectus is a part. The anticipated
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proceeds from this Offering would be used for L-VIS System manufacturing and
deployment, research and development, repayment of debt, capital expenditures,
sales and marketing, and working capital and general corporate purposes. See
"Use of Proceeds." If the Offering is consummated on the currently expected time
schedule and generates the anticipated proceeds, or if the Company is successful
in completing comparable fund raising activities on a similar time schedule, the
Company believes that it will continue as a going concern. Should the Offering
not be successfully completed, the Company would pursue other debt and equity
financing alternatives. The Company also intends to continue its marketing
efforts aimed at generating revenues. However, there can be no assurance that
the Company will be successful in its attempt to consummate the aforementioned
plans. Further, there can be no assurance, assuming the Company successfully
raises additional funds, that the Company will achieve profitability or positive
cash flow.
The Company believes that the net proceeds from the Offering, together with
its existing resources, will be sufficient to meet its capital needs for
approximately the next 18 months, although there can be no assurance that the
Company will not require additional funds sooner. The Company's actual working
capital requirements will depend on numerous factors, including the progress of
the Company's research and development programs, the Company's (and its
marketing partners', if any) ability to attract customers to use the L-VIS
System, the level of resources the Company is able to allocate to the
development of greater marketing and sales capabilities, technological advances
and the status of competitors. The Company may require substantial funds in
addition to the proceeds of this Offering to market the L-VIS System and
otherwise to meet its business objectives. The Company has no commitments to
obtain any additional funds, and there can be no assurance that such funds will
be available on commercially reasonable terms, or at all.
As of September 30, 1997, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $7,800,000, which expire in the
years 2006 through 2012. The available net operating losses are based on the
assumption that the Company has gone through a change in ownership pursuant to
Internal Revenue Code ("IRC") Section 382 during the fiscal year ended June 30,
1997 as a result of the May 1997 Rights Offering. Under IRC Section 382, the
amount of the net operating loss carryforwards that are available to offset
taxable income in any particular year is severely limited.
Although the Company has determined its net operating losses as if it had
undergone a change of ownership pursuant to IRC Section 382, the Company has not
yet finalized the analysis to make an actual determination of whether such a
change has occurred. Therefore, if such a change has not occurred during the
Fiscal 1997, the amount of net operating loss carryforwards available in total
and on an annual basis may be increased.
EFFECT OF INFLATION
Domestic inflation has not had a significant impact on the Company's sales
or operating results. However, inflation may have an impact upon business in a
number of international markets.
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BUSINESS
GENERAL
Princeton Video Image, Inc. ("PVI" or the "Company") developed and is
marketing a real-time video insertion system that, through patented pattern
recognition technology, places computer-generated electronic advertising images
into live television broadcasts of sporting and other events. These electronic
images range from simple corporate names or logos to sophisticated multi-media
3-D animated productions. During the broadcast of a sporting event, for example,
these images can be placed to appear to be physically located in various high
visibility locations in a stadium or even on a playing field. The Company
believes that its Live Video Insertion System (the "L-VIS System"), which is an
integrated hardware and software system, transcends limitations of traditional
television broadcast advertising mechanisms and can expand the television
broadcast advertising paradigm by placing images into live, as well as
pre-recorded, television broadcasts.
PVI believes that the L-VIS System can substantially benefit (i)
advertisers, through the placement of their ads in new, high visibility
locations and the ability to "narrow cast" by region and brand; (ii)
broadcasters, through a new revenue stream from additional inventory of
advertising space; and (iii) teams and leagues, through increased revenue
streams and greater flexibility and control over in-stadium advertising. As of
September 1997, the L-VIS System had been used to insert advertising images into
more than 300 live television broadcasts of baseball games, soccer matches,
football games and tennis matches. Advertisers who have run ads using the L-VIS
System include: The Coca-Cola Company, Gateway 2000, Inc., GTE Corporation,
Staples, Inc., Toyota Motor Corporation, Kellogg Company, Southwest Airlines
Co., National Car Rental Systems, PepsiCo, Inc., Nissan Motor Company, Ltd., and
Pacific Bell.
The Company's objective is to become the leading provider of electronic
advertising to the sports television advertising market worldwide. The key
elements of the Company's strategy include (i) developing relationships with
rights owners such as the National Football League ("NFL"), National Basketball
Association ("NBA"), Major League Baseball ("MLB"), FIFA (soccer's international
governing body) and specific teams and or other sports governing bodies; (ii)
developing relationships with national network broadcasters such as NBC, CBS,
ABC, ESPN, and FOX; (iii) working with high-profile advertisers to assist them
in understanding and capitalizing on the use of the L-VIS System; and (iv)
developing L-VIS System software for additional sporting and other events.
OVERVIEW OF THE TELEVISION ADVERTISING AND SPONSORSHIP MARKET
Sports advertising and sponsorship is a significant market both inside and
outside the United States. Advertisers in the United States spent an aggregate
of approximately $8.7 billion to purchase television advertising and sponsorship
rights with respect to sporting events in 1996, according to information from
the following industry sources. The 1996 network and cable television sports
advertising markets in the United States were reported by Paul Kagan Associates,
Inc. ("Kagan Associates") to be approximately $3.7 billion and $1.1 billion,
respectively. The December 1995 IEG Sponsorship Report, a sports newsletter
published biweekly by the International Event Group, projected that $3.9 billion
would be spent to sponsor specific teams, stadium locations and sporting events
in 1996. The Company estimates that approximately $9 billion was spent on
various forms of television sports advertising and sponsorship outside the
United States.
The cost of a television commercial spot is normally a function of the
nature and size of the expected audience of the event to be broadcast. A spot in
a national broadcast of a major sporting event, such as the Super Bowl or a
World Series game, sells for a price many times that of a spot in a regular
season game broadcasted only locally or regionally. For example, the costs of a
30-second spot in the broadcast of a local 1997 regular season San Francisco
Giants baseball game, a 1997 nationally broadcast Monday night NFL football game
and the 1997 Super Bowl are approximately $5,000, $350,000 and $1,200,000,
respectively. Television broadcasters (including national television and cable
networks, regional cable networks, and
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local television and cable operators) purchase television broadcast rights to
sporting events from the holders of those rights, which include individual teams
as well as various leagues, federations, associations and other organizations
representing both professional and amateur sports. Rights to specific games or
events may be held by teams, leagues, associations, or any combination thereof,
depending on the arrangements under which each sport is organized.
The Company believes that, with the advent of cable and satellite
television, the resulting increase in broadcasting channels, and the ease with
which viewers can change or "surf" among these channels, the effectiveness of
the traditional 30-second advertising spot may diminish. The Company further
believes that the growth of sports sponsorship is largely driven by the desire
on the part of advertisers to be "in the game" by having their brands and
products visible during the broadcast of televised live events. The development
of video insertion technology has created a new method of advertising in which
the electronically inserted brand or message can appear, to the television
viewer, to be a part of the stadium where the event is taking place. The L-VIS
System can increase the signage capacity of the stadium or venue from the
television viewer's perspective. By exposing the television viewer to the brand
or message during the event, the advertiser is "in the game" and can be more
confident that its message will actually be seen by the viewer, as the
advertisement can be placed strategically to appear on the television screen
where traditional signage may not be practical or available.
Sponsorship generally entails associating the sponsor's name with the event
or stadium as well as "signage rights," i.e., the prominent display of the
sponsor's name and products in specified locations in the stadium or broadcast.
Sponsors purchase sponsorship rights from the holders of those rights. Like
broadcast rights, the ownership of sponsorship rights depends on the specific
sport and the event or location. In some cases, the owner of the venue at which
an event is staged holds the sponsorship rights to the event. In other cases,
the team owner may own the sponsorship rights, including signage. Advertisers or
their representatives negotiate sponsorship arrangements directly with
sponsorship rights holders and not with broadcasters. Since broadcasters
historically have not shared in sponsorship revenue, they traditionally have not
assisted sponsorship programs and, in many cases, try to avoid broadcasting
images of in-stadium signs and other promotions.
ADVANTAGES OF THE L-VIS SYSTEM
The development of video insertion technology has created a new method of
advertising in which the electronically inserted brand or message can appear to
the television viewer to be a part of the stadium where the event is taking
place. By exposing the television viewer to the brand or message during the
event, the advertiser is "in the game" and can be more confident that its
message will actually be seen by viewers.
The Company believes that the L-VIS System can be used to provide additional
revenue to advertising rights holders and broadcasters and provide substantial
advantages when compared to traditional 30-second advertising spots and other
forms of advertising because the L-VIS System:
- ALLOWS FOR "IN THE GAME" ADVERTISING. The L-VIS System allows an
advertiser to be "in the game" by having their brands and products visible
during the broadcast of televised live events;
- REDUCES THE EFFECT OF CHANNEL SURFING AND VIEWER MUTING. Because the L-VIS
System allows for "in the game" advertising, the negative effect of
"channel surfing," which often occurs during traditional 30-second
advertising spots, may be reduced. Similarly, an image inserted using the
L-VIS System is unaffected by viewer muting;
- ALLOWS PLACEMENT OF ADVERTISING IN HIGH VISIBILITY LOCATIONS. The L-VIS
System allows for the insertion of images without affecting the actual
playing surface or other areas where advertising is inserted;
- CREATES NEW INVENTORY FOR ADVERTISING RIGHTS HOLDERS. The L-VIS Systems
allows for new advertising by providing for the insertion of images in
locations that are unavailable for conventional billboards, such as the
space in the vicinity of football goal posts;
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- ALLOWS "NARROW CASTING" OF SPECIFIC ADVERTISING TO SPECIFIC GEOGRAPHICAL
REGIONS. The L-VIS System also allows for "narrow casting" specific
advertising to specific geographical regions. Thus, where desired, a
rights holder can sell the same advertising space to different advertisers
in different markets; for instance, the New York broadcast of a San
Francisco Giants-New York Mets MLB game can include a different inserted
advertisement than the San Francisco broadcast;
- PROVIDES FOR ANIMATION AND AUDIO-VIDEO ADVERTISING. The L-VIS System may
be used, when appropriate, to insert animation and audio-video advertising
within the program to enhance the impact of the advertising;
- ALLOWS BRANDING OF AN EVENT. Insertions made during a live broadcast will
be captured, or branded, on recordings of the event and may then be shown
around the world in re-broadcasts and highlight films of the event. An
advertiser will benefit from every re-broadcast, such as re-broadcasts
which occur during the sports segment of most news programs; and
- PROVIDES ADVERTISING INTO OTHERWISE ADVERTISING-FREE ENVIRONMENTS. The
Company's technology can be used to insert advertising into otherwise
advertising-free environments, e.g., pay-per-view sports events. To date,
the L-VIS System has not been used for such purpose, and there can be no
assurance that it will ever be so used.
THE L-VIS SYSTEM TECHNOLOGY
The L-VIS System, which achieved technological feasibility in January 1995,
is a system of proprietary hardware and software which has been designed by the
Company to insert electronic images into live televised sports broadcast. The
inserted images may be two or three dimensional, static or animated, opaque or
semi-transparent and may be placed so that the inserted images appear to exist
on the playing field or in the stadium or venue where the game or event is being
played. If a player or other object moves in front of an image that is inserted
on a wall or a playing field, the L-VIS System is programmed so that the passing
object occludes that portion of the inserted image. The L-VIS System can also be
used to insert a free standing image so that the image will occlude a player or
other object which "passes behind" it.
The Company's L-VIS System is based upon state of the art, patented pattern
recognition technology. The Company believes that the L-VIS System is the only
video insertion technology that can reliably insert stable broadcast quality
images in outdoor live sporting events and provide for practical occlusion in
stadium environments. The L-VIS System may also be located anywhere in the
television distribution chain, including the stadium where a broadcast typically
originates, the television studio to which a broadcast is relayed and the
microwave links or satellite ground stations where the broadcast is relayed for
distribution to the viewing public. It is the Company's belief that all of these
attributes are necessary for commercial success.
The L-VIS System and its operator may be located at the site of the event,
at the network studios of the broadcaster or at an individual station or cable
system head-end carrying the broadcast. Before the broadcast, the advertising
images to be inserted are prepared, the operator identifies the location in the
broadcast scene where the images will be inserted, and then "trains" the L-VIS
System to recognize such broadcast scene. The L-VIS System is designed to
recognize the broadcast scene in real time during the broadcast and to insert
the image as instructed each time the broadcast scene containing the insert
location appears. The operator controls which image is selected and when it will
be inserted.
The Company has designed software that allows for the live use of the L-VIS
System in football, baseball, soccer and tennis broadcasts. In football, the
L-VIS System software has been designed to insert images in the vicinity of the
goal posts. In baseball, the Company's software allows images to be inserted on
the wall behind home plate, the outfield wall or the area above the outfield
wall. To the television viewer, an advertisement inserted with the L-VIS System
on the wall behind home plate or the outfield wall appears to be part of the
original scene, in proper perspective and fixed in the scene as the camera pans,
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tilts and zooms, and as players move in front of the image. Furthermore, because
the inserted image is not present at the actual site of the baseball game, any
distraction caused to the players by other advertising such as scrolling
billboards will not be present. In soccer, the L-VIS System allows for the
insertion of an image within the field's center circle. See "Risk
Factors--Technical Uncertainties."
STRATEGY
The Company's objective is to become the leading provider of electronic
advertising to the sports television advertising market worldwide. The key
elements of the Company's strategy include:
- DEVELOPING RELATIONSHIPS WITH RIGHTS OWNERS. The Company intends to
develop relationships with rights owners such as the NFL, MLB, NBA, FIFA,
and specific teams and or other sports governing bodies;
- DEVELOPING RELATIONSHIPS WITH BROADCASTERS. The Company is currently in
discussions with several broadcasters and intends to develop relationships
with national network broadcasters such as NBC, CBS, ABC, ESPN and FOX;
- WORKING WITH HIGH-PROFILE ADVERTISERS. To promote acceptance of the L-VIS
System, the Company has actively discussed the L-VIS System's benefits and
unique uses with a limited number of high-profile sporting event
advertisers and plans to expand this effort significantly; and
- ENHANCING AND DEVELOPING ADDITIONAL L-VIS SYSTEM SOFTWARE. In addition to
enhancing existing software for use of the L-VIS System during football
games, baseball games, soccer and tennis matches, the Company is
developing, or intends to develop, software to permit use of the L-VIS
System during the broadcast of additional sports and other events,
including basketball games, motor sports and golf.
OWNERSHIP OF VIDEO INSERTION RIGHTS IN THE NFL, COLLEGE FOOTBALL AND MLB
In the NFL, all television, video insertion and national sponsorship rights
are controlled by the league for all regular season games, the playoffs, the
Super Bowl and the Pro-Bowl. Such rights are controlled by individual NFL teams
with respect to all pre-season games. In 1996, the NFL was under contract with
ABC, NBC, FOX, TNT and ESPN for the rights to broadcast various NFL football
games. Kagan Associates estimated that NBC generated approximately $392 million
through the sale of television advertisements with respect to its broadcast of
regular season AFC games, playoff games and the 1996 Super Bowl, and that ABC
and FOX generated approximately $363 million and $409 million, respectively, in
revenues from the sale of advertising relating to their 1996 regular season and
post-season NFL broadcast rights. Following the end of the 1997 NFL season, the
existing contracts between the NFL and ABC, NBC, FOX, TNT and ESPN,
respectively, will expire. Interested broadcasters will be required to enter
into a bidding process with the NFL for the right to broadcast games following
the 1997 season.
In college football, the television advertising, sponsorship and video
insertion rights to regular season games are held by various college football
conferences. The rights to the various college bowl games are owned by bowl
committees which are often non-profit corporations established to host a bowl
game. Both the conferences and the committees, like other rights holders,
contract with broadcasters for the national or local broadcast of their games.
Kagan Associates estimated that in 1996, ABC, NBC and CBS generated
approximately $124 million, $16 million and $88 million, respectively, in
advertising revenues relating to their regular season and college bowl game
broadcast rights.
MLB holds all television, sponsorship and video insertion advertising rights
with respect to regular season nationally broadcast games, the All Star Game,
playoff games, the World Series and the international distribution of regular
season games. Kagan Associates estimated that the advertising revenues received
by the four major over-the-air broadcast networks with respect to MLB totaled
approximately $223 million in 1993, $37 million in 1994 (a strike shortened
season), $150 million in 1995 and $303 million
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in 1996. Generally, the local television rights, video insertion and sponsorship
rights to regular season baseball games are held individually by each of the 30
MLB teams. Typically, each team sells to over-the-air and cable broadcasters the
broadcast and television advertising rights to individual games or packages of
multiple games for a fixed fee and solicits potential sponsors using a media
sales group. The broadcasters earn revenues through the sale of 30-second spots
to local and national advertisers.
SALES AND MARKETING
The Company expects to generate revenues from the sharing of advertising
revenue among the Company, rights holders and broadcasters and, in certain
circumstances, through the licensing of the Company's technology. As discussed
above, the right to insert electronic images for advertising purposes into a
live broadcast, and hence the right to sell advertising using the L-VIS System,
is held by different groups depending, in most cases, on the sport involved and
the status of the game, i.e., pre-season, regular season or post-season, and
whether the game is to be broadcast internationally, nationally or locally.
These rights may be sold for specific games and/or entire seasons to another
party, most notably a broadcaster who pays the rights holder an up-front fee for
such rights. In each case, the Company must negotiate for the use of the L-VIS
System with the rights holder or holders, typically in exchange for a percentage
of the advertising revenue generated using the L-VIS System. Because the L-VIS
System uses the live feed from the broadcaster to insert its electronic images,
such broadcaster must also approve the use of the L-VIS System. Accordingly,
arrangements with several parties including the rights holder and the
broadcaster must be established. See "Risk Factors--Copyright Uncertainties."
The Company has been successful in establishing such relationships with respect
to various major sporting events. As of August 1997, the L-VIS System has been
used to broadcast, among other events, (i) the 1997 NFL pre-season games of the
Baltimore Ravens, Pittsburgh Steelers, San Diego Chargers, San Francisco 49ers,
Minnesota Vikings and Washington Redskins, (ii) several college bowl games and
regular season football games, and (iii) the 1997 MLB home games of the San
Francisco Giants and the San Diego Padres. PVI is currently in discussion with
several major broadcasters, including ABC, NBC and ESPN regarding the use of the
L-VIS System with respect to several high-profile sporting events. There can be
no assurance, however, that the Company will be successful in establishing or
maintaining a relationship with any party.
The ultimate customers of the Company's L-VIS System are expected to be
sports advertisers and sponsors. Revenues are expected to flow from the
advertisers and sponsors to the rights holders who will pay a share of those
revenues to the Company. Set forth below is a simple diagram showing the
anticipated general flow of services and revenues in connection with the
Company's intended use of the L-VIS System. The diagram is intended to be
illustrative; actual revenue flow may differ from that shown below.
[LOGO]
[GRAPHIC: INDICATED THE FLOW OF SERVICES/TECHNOLOGY, PROMOTIONAL ACTIVITIES AND
REVENUES AMONG THE COMPANY, THE RIGHTS HOLDER/BROADCASTER AND ADVERTISERS]
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Because the right to use video insertion technology and, thus, the right to
sell advertising using the L-VIS System, is held, in most cases, by the sports
teams or their governing leagues, the Company expects that these rights holders
will be its contract partners. The Company expects to provide the L-VIS System
and support services to the rights holders and to be paid by the rights holders
a percentage of the advertising revenues derived from use of the L-VIS System.
The Company further expects that the rights holders will enter into agreements
with broadcasters to provide the services necessary for use of the L-VIS System.
The Company expects that advertising space using the L-VIS System will be sold
either by the rights owner or by the broadcaster, depending on the specific
arrangement between such parties, and that advertising revenues will be shared
among the rights owner, the broadcaster and the Company. As a result, the
Company relies, and will continue to rely, upon the marketing and advertising
staffs of the teams, leagues and broadcasters, which typically target the
manufacturers or producers of nationally distributed products. See "Risk
Factors--Dependence on Third Party Sales Forces."
In addition to relying upon the sales forces of the broadcasters and/or the
rights holders, the Company also promotes the advantages of the L-VIS System
directly to major advertisers. The Company believes that promotion is important
in influencing market acceptance of the L-VIS System among potential
advertisers. Certain press coverage of electronic image insertion technology has
raised concerns about its desirability and potential misuse. For instance, an
article has described inserted advertising as subliminal and the technology has
been described as tampering with the television picture in a manner which may
not be ethical. A danger of overcommercialization has also been voiced. See
"Risk Factors--Dependence on Market Acceptance" and "--Risks Associated with
Expansion and Growth."
The Company has initially focused its sales and marketing efforts on those
sports that account for a significant amount of the United States or worldwide
advertising and sponsorship expenditures. Following is an explanation of the
Company's sales and marketing strategy for several of its target markets:
FOOTBALL
In football, the L-VIS System software has been designed to insert images in
the vicinity of the goal posts either as a lead-in to commercial breaks or
during field goal and extra-point attempts. The Company expects these insertions
to account for substantially all of the Company's football revenue. Insertions
in the vicinity of the goal posts offer rights holders the ability to sell
advertising for a high visibility location where advertising was not previously
located.
During NFL pre-season games in August 1997, the Baltimore Ravens, Minnesota
Vikings, Pittsburgh Steelers, San Diego Chargers, San Francisco 49ers and
Washington Redskins used the L-VIS System to insert promotional material and
advertising in broadcasts of their games.
The ESPN sports network first used the L-VIS System in the broadcast of
football games during the 1995 fall college football season. The most prominent
uses by ESPN were in its December 1995 broadcasts of the Holiday Bowl and the
Peach Bowl. ABC used the L-VIS System to insert ABC logos into its New Year's
Eve 1995 broadcast of the Sugar Bowl from New Orleans. Since then, ESPN and
ESPN2 have used the L-VIS System to make insertions in more than a dozen college
football broadcasts. During the 1996 college football season, ESPN used the
L-VIS System in approximately 80% of its Western Athletic Conference football
broadcasts.
The Company and ESPN have arranged to use the L-VIS System during several
college bowl games in December 1997 and January 1998, including the Holiday
Bowl, Liberty Bowl, Alamo Bowl and Peach Bowl. The Company intends to pursue
additional arrangements for the use of the L-VIS System with respect to the
broadcast of NFL and college football games. However, there can be no assurance
that the Company will be successful in creating greater interest for use of the
L-VIS System with respect to the broadcast of either NFL or college football
games. See "Risk Factors--Dependence on Market Acceptance."
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BASEBALL
The Company focused its initial marketing efforts on the local MLB market
because the advertising rights in each local market are typically held by the
individual teams in that market. This provides a greater number of potential
customers than are available in many other sports. Because a normal baseball
game is divided into 18 half-innings, static advertisements can be sold by the
rightsholder using a half-inning advertising unit, which enables the rights
holder to know exactly how many advertising units may be sold and what its
revenues will be from the sale of such advertising. The Company has negotiated
and intends to continue negotiating for the right to consent to any pricing
model before its implementation.
In 1995, the Company introduced the L-VIS System to broadcast television,
inserting advertisements into broadcasts of the Trenton Thunder minor league
baseball games broadcast by Comcast Cable of New Jersey. In 1996, the Company
contracted with the San Francisco Giants for use of the L-VIS System for
broadcasts of Giants home games on San Francisco station KTVU and SportsChannel.
In addition, FOX carried one of the Giants home games on its "Game of the Week"
program during which the L-VIS System was used. The Giants pay a fee to the
broadcaster for use of the video feed required by the L-VIS System and to
facilitate its utilization.
Through the use of the L-VIS System by the San Francisco Giants, the Company
gained access to other MLB teams. The Giants and the San Diego Padres used the
L-VIS System throughout the 1997 MLB season. In order to interest more teams in
the Company's technology, PVI installed a second system in San Diego for use by
visiting teams in broadcasts to their home cities. The Company believes that
this exposure to the L-VIS System by the visiting teams and their broadcasters
will lead to increased use of the L-VIS System in 1998. However, there can be no
assurance that the Company will be successful in creating greater interest for
use of the L-VIS System in MLB. See "Risk Factors--Dependence on Market
Acceptance."
SOCCER
Although revenues from soccer television advertising in the United States
historically have been very small, the Company has marketed, and intends to
continue marketing, the L-VIS System for use in soccer matches in Europe, Latin
America and Asia, where the popularity of soccer is significantly greater than
in the United States. PVI believes that use of the L-VIS system in soccer may
ultimately become a significant worldwide source of revenue for the Company.
The L-VIS System has been designed to insert an image onto the center circle
of a soccer field. The Company first used the L-VIS System to insert advertising
logos onto the center circle during live international broadcasts of the
Parmalat Cup soccer tournament in August 1995. RTBF, the French language
national broadcaster in Belgium, successfully used the L-VIS System in May 1996
to insert three dimensional images into the broadcast of the Belgian Cup. The
Company also used the L-VIS System to insert logos during the December 1996
World Cup qualifying match between the Dutch and Belgian national teams and,
through Publicidad, to insert advertisements in more than 100 soccer matches in
Mexico.
FIFA currently opposes the insertion of advertising on to the field of play.
The L-VIS System has not been used in FIFA-sanctioned matches to insert images
on the field of play while a match is in progress. Instead, the L-VIS System has
been used before and after a match. The Company continues to explore ways to
encourage FIFA to grant permission to use the L-VIS System in FIFA-sanctioned
matches. For example, the Company has discussed using the L-VIS System to insert
advertising on sideboards during FIFA-sanctioned matches. Without this
permission, the Company's potential revenue from soccer will be substantially
reduced. There can be no assurance that FIFA will give such permission. See
"Risk Factors-- Dependence on Market Acceptance."
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OTHER SPORTS
Kagan Associates estimated that in 1996, 18% and 6% of the combined sports
advertising revenues generated by ABC, CBS, NBC and FOX were for basketball and
golf, respectively. Motor sports have also generated significant revenues
worldwide. The Company intends to develop software to use the L-VIS System for
broadcasts of motor sports, basketball and golf during 1998-1999. ESPN used the
L-VIS System in international broadcasts of the X-Games, which were taped in San
Diego in 1997. There can be no assurance that the Company will be successful in
developing software that allows use of the L-VIS System with motor sports,
basketball or golf, or if successful, will be able to gain market acceptance
with respect to such sports. See "Risk Factors--Technical Uncertainties,"
"--Risks Associated with Rapidly Changing Industry," and "--Dependence on Market
Acceptance."
INTERNATIONAL BUSINESS STRATEGY
In the near term, the Company's strategy with respect to sporting and other
events originating outside of the United States is to enter into joint ventures
and licensing transactions principally with foreign broadcast and sports
marketing experts. Initially, the Company expects the L-VIS System to be used
internationally for soccer matches and motor sports. See "Risk Factors--Risks
Associated with International Strategy."
In 1993, the Company entered into a 50/50 joint venture with Presencia en
Medios, pursuant to which the parties formed Publicidad Virtual, S.A. de C.V., a
Mexican limited liability company ("Publicidad"), which was granted an
exclusive, royalty-free license to use, market and sub-license the L-VIS System
throughout Mexico, Central and South America and the Spanish-speaking markets in
the Caribbean basin. The L-VIS System has been used to place insertions into
broadcasts of more than 100 soccer matches, plus tennis matches and bullfighting
on behalf of clients of Publicidad.
The Company has executed a letter of intent with a Belgian company, D&D
Entertainment Group, pursuant to which the Company intends to grant an exclusive
license to use the L-VIS System for domestic transmissions within the Benelux
countries.
RESEARCH AND DEVELOPMENT
The Company recently began integrating the L-VIS System operating software
into a new "Flex-Card" hardware platform. This platform is more powerful than
the platform the Company is currently using and allows re-configuration, which
PVI believes will permit it to meet rapidly changing industry requirements. The
Company has designed the Flex-Card L-VIS System to provide multiple insertion
capability, multiple camera capability, an expanded zoom range, live video
inserts, and has created a simplified graphical user-based interface. The
Company currently intends to introduce the Flex-Card L-VIS System during 1998.
There can be no assurance that the Flex-Card L-VIS System will be available
during 1998, or any time, or that, if available, it will permit each of the
intended advanced features. See "Risk Factors--Technical Uncertainties" and
"--Risks Associated with Rapidly Changing Industry."
The Company is continuing to improve existing software for use of the L-VIS
System during the broadcast of football games, baseball games, soccer and tennis
matches. Further, the Company is developing, or intends to develop, software to
permit use of the L-VIS System during the broadcast of basketball games, motor
sports and golf. The Company also intends to make the L-VIS System available for
use with other events such as pay-per-view boxing and concerts and award shows
such as the Oscars and the Grammys. There can be no assurance that the Company
will be able to prepare such software. See "Risk Factors--Technical
Uncertainties" and "--Risks Associated with Rapidly Changing Industry."
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COMPETITION
PVI knows of three other organizations that it believes are developing
processes and equipment to pursue a business similar to the Company's. These
organizations are Symah Vision-SA ("Symah"), Orad Hi Tech Systems Ltd. ("Orad")
and SciDel Technologies Ltd. ("SciDel"). Symah is owned by the LaGardere Group,
which controls Matra-Hachette, a large French defense and publishing company.
Symah has demonstrated its system publicly and is actively marketing its system
in France, Italy and Spain, among other regions. Orad was founded in 1992 as
part of the ORMAT Group, an Israeli company originally established to create
alternative energy power stations. The Company is unaware of any actual live
broadcast use of the Orad system. SciDel is a subsidiary of Scitex, a large
Israeli corporation that provides services in the electronic imaging area
primarily for the printing and publishing industries. The Company believes that
the SciDel system has been used to insert advertising images into three U.S.
cable broadcasts of tennis tournaments. Apart from the patents or patent
applications that the Company owns or licenses, the only patents or patent
appplications of which it is aware relating to real-time video insertion are
owned or controlled by Symah and SciDel. Although the Company believes that use
of the L-VIS System does not infringe the United States or other patents of
third parties, there can be no assurance that competitors will not initiate a
patent infringement action against the Company. PVI is currently evaluating
whether use of the SciDel system infringes the Company's patents. See "Risk
Factors--Patents and Protection of Proprietary Technology" and "--Intellectual
Property--Patents."
In addition to these known competitors, the Company also expects substantial
competition from established broadcast business participants, if the market for
the L-VIS System proves successful. These potential competitors will likely have
substantially greater financial, technical, marketing and other resources and
many more highly skilled individuals than does the Company. Furthermore, such
potential competitors may have greater name recognition and extensive customer
bases that could be utilized to gain significant market share, to the Company's
detriment.
The Company believes that, to date, Orad and Symah have pursued camera head
technology, which is based on electro-mechanical sensors located on the camera.
The Company believes that, although camera head technology may be used to
achieve a result similar to that achieved through the use of the L-VIS System,
such technology alone is not as accurate as that used in the L-VIS System
because, to date, camera head technology has not been capable of compensating
for the vibrations inherent in any broadcast venue (such as a stadium). As a
result of this failure, a viewer is given the subjective impression that the
image inserted using camera head technology is bouncing up and down on the
television screen.
In addition to the products of these competitors, the L-VIS System will
compete with advertisers' use of traditional 30-second advertising spots, which
remain the standard in the television advertising industry, and traditional
signage and sponsorship programs. The Company's revenues will be partially
dependent upon television sports advertisers allocating a portion of their
advertising budgets to use the L-VIS System. There can be no assurance that
advertisers will allocate their advertising expenses in the manner currently
anticipated by the Company.
The L-VIS System will also compete with advertisers' use of conventional
billboard products, including advertising placed on playing surfaces (such as
outfield walls, football fields and ice hockey rinks) and scrolling billboards,
physically located at the site of an event, which can display sequentially a
series of static advertisements. These scrolling billboards are currently
marketed and used in professional baseball, basketball and other sports. These
products achieve an effect that is similar to those L-VIS System insertions that
are static and two-dimensional, and their use generally does not require
broadcaster participation.
Approximately 17 MLB teams had scrolling billboards located behind home
plate in 1997. The existence of these scrolling billboards and other advertising
behind home plate currently limits the marketability of the L-VIS System in
baseball. The Company believes that the typical term of the arrangements between
baseball teams and scrolling billboard advertisers or producers is one to three
years.
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After establishing the utility of the L-VIS System with a number of individual
teams that do not have scrolling billboards, the Company intends to take steps
to form a relationship with additional teams and with MLB for national games and
post-season play, and to sell use of the L-VIS System to these rights holders as
their contract obligations for scrolling billboards expire.
The Company expects to generate revenue primarily by attracting new
advertisers and sponsors to the sports advertising and sponsorship market and by
causing existing advertisers and sponsors to switch to use of the L-VIS System.
There can be no assurance, however, that total advertising and sponsorship
expenditures will increase as a result of the availability of the L-VIS System.
To the extent that the Company is competing for television advertising and
sponsorship dollars that are currently allocated to traditional media, such as
30-second spots or rolling billboards, the competition is likely to become more
intense. The Company will be able to compete effectively with existing
advertising and sponsorship alternatives only with the cooperation of
broadcasters and the advertising sales departments of team owners and
broadcasters, on which the Company will rely for sales to advertisers. Because
certain L-VIS System rights holders may also own traditional television
advertising rights or sponsorship rights, which may provide such rights holders
with a greater percentage of the revenues received from the sale of such
advertising or sponsorship rights than does the sale of L-VIS System
advertisements, incentives may exist in some cases to sell alternative
advertising or sponsorship inventory prior to the sale of L-VIS System
advertising.
The Company's customers have expressed interest in new features, such as
automatic training for new venues, expanded use of the Company's proprietary
search and tracking boards, live video inserts, free roaming animation and
multiple insertion capability. The Company believes that implementation of such
improvements and enhancements will be important factors in enabling it to remain
competitive. The Company's competitors may be able to produce superior products,
including products with these features, undertake more extensive promotional
activities, offer more attractive terms to customers and adopt more aggressive
pricing policies than the Company. There is no assurance that the Company will
be able to compete effectively with current or future competitors. See "Risk
Factors--Competition."
MANUFACTURING AND SUPPLY
The Company has built 11 L-VIS System units (each, an "L-VIS Unit"), of
which approximately 4-9 are being used from time-to-time by customers, potential
customers or foreign marketing partners. An L-VIS Unit consists of standard
electronic equipment racks, containing both standard purchased components and
the Company's proprietary circuit boards, assembled and tested by Company
personnel. The Company is dependent upon a sole supplier, Lucent Technologies,
for certain of the hardware components. Although such hardware components are
stock items which are readily available to the public, there can be no assurance
that Lucent will continue to manufacture and sell the components. The Company is
not a party to any agreement with Lucent. See "Risk Factors--Risks Associated
with Expansion and Growth" and "--Dependence on Sole Source of Supply."
INTELLECTUAL PROPERTY
PATENTS
The Company has been assigned three issued U.S. patents. Patent No.
5,264,933, which relates to the Company's basic pattern recognition video
insertion technology, was issued on November 23, 1993, will expire on November
23, 2010 and was assigned to the Company on January 22, 1992. Patent No.
5,543,856, which relates to the use of remote insertion of images that might be
useful in a narrow casting application, was issued on August 6, 1996, will
expire on August 6, 2013 and was assigned to the Company on October 22, 1993.
Patent No. 5,627,915, which relates to a pattern recognition system using
templates, was issued on May 6, 1997 and will expire on January 31, 2015 and was
assigned to the Company on January 30, 1995. The Company owns all right, title
and interest in each of the patents.
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The Company has filed counterpart patent applications for the three issued
U.S. patents in the European Patent Office and in various non-European countries
around the world where it expects to do business. One patent has been allowed by
the European Patent Office. Four new patent applications are pending in various
countries, including the United States, and two more patent applications are in
preparation.
The Company believes its patents will be important in its future business
dealings, since it believes that any system that is able to deliver the
technical capabilities of the L-VIS System will depend on pattern recognition
technology and will, therefore, fall within the scope of PVI's issued patents.
Although the Company has no cause for belief that use of the L-VIS System
would infringe the United States or other patents of third parties, there can be
no assurance that any patents from pending patent applications or from any
future patent applications will be issued, that any of the Company's patents
will be held valid if subsequently challenged or that others will not claim
rights in, or ownership of, the patents and other proprietary rights held by the
Company. Any patent litigation would entail considerable cost to the Company,
which would divert resources that otherwise could be used for its operations,
and might terminate in a manner that is unfavorable to the Company. In addition,
if the L-VIS System were found to infringe any patent, the Company may be
required to modify the L-VIS System or enter into an arrangement to license such
patent, if possible. There can be no assurance that the Company would be able,
under such circumstance, to modify the L-VIS System or enter into a license
arrangement. Despite the Company's efforts to safeguard and maintain its
proprietary rights, there can be no assurance that it will be successful in
doing so or that its competitors will not independently develop, reverse
engineer or patent technologies that are substantially equivalent or superior to
its technologies. See "Risk Factors-- Patents and Protection of Proprietary
Technology."
LICENSE GRANTS
The Company has entered into the following license agreements relating to
the L-VIS System:
DAVID SARNOFF RESEARCH CENTER, INC. David Sarnoff Research Center, Inc.
("Sarnoff") has granted the Company a worldwide license to practice Sarnoff's
proprietary technology related to the electronic recognition of landmarks,
including an exclusive license covering the specific fields of television
advertising and television sports. The Company has also been granted a
non-exclusive license for use of the Sarnoff technology in all other fields
relating to sports or advertising, including video production, local video
insertion, private networks, medical and scientific applications and uses by the
United States Department of Defense or any other United States government
agency. The Sarnoff license will remain in effect until terminated by the
Company, provided that the Company remains current with respect to its royalty
obligations to Sarnoff. The Company may terminate the license at any time.
During the term of the exclusive license for television advertising and
television sports applications, the Company is obligated to pay Sarnoff
royalties based upon a percentage of the Company's gross revenues. Royalties
accrue as earned, but the Company is not required to make any royalty payments
until the earlier of the date on which its cumulative gross revenues reach $20
million or January 1, 1999. In any event, commencing on January 1, 1999, the
Company will be required to pay minimum royalties each quarter. Royalties have
begun to accrue under the Sarnoff license (less than $100,000) but have not been
paid.
GENERAL ELECTRIC COMPANY. General Electric Company ("GE") granted the
Company a five-year non-exclusive, worldwide license relating to all GE patents
on equipment for electronic recognition of selected landmarks; altering images
in television programs for advertising purposes; or any purpose in television
programs the principal focus of which is sports, as of July 1991 and July 1996.
THESEUS RESEARCH, INC. Theseus Research, Inc. ("Theseus") has granted the
Company a non-exclusive, worldwide license to use and sell Theseus' patented
technology for the warping of images in real
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time. During the term of the Theseus license, the Company is required to pay
Theseus a royalty on net sales of products, if any, that incorporate the Theseus
technology. The Company has paid Theseus an up front license fee of $50,000,
which is creditable against future obligations. The Company may terminate the
Theseus license at any time.
TRADEMARKS
L-VIS-TM- is a trademark of the Company. The Company has filed a U.S.
trademark registration application for L-VIS, the mark under which the Company
is marketing its live video insertion products. This mark has been published for
opposition in the Official Gazette of the United States Patent and Trademark
Office. Following publication, a notice of opposition was filed and the Company
is currently in discussions with the filer of such notice. The Company believes
that its trademark position is adequately protected. However, there can be no
assurance that the Company will be able to resolve matters favorably with the
filer of such notice.
COPYRIGHT AND TRADE SECRET
The Company relies upon copyright and trade secret protection to maintain
the proprietary nature of the computer software it develops that is not
patented.
EMPLOYEES
As of the date of this Prospectus, the Company has 36 full-time employees,
19 of whom are engaged in, or directly support, the Company's hardware and
software research, development and product engineering activities, 6 of whom
assemble and operate L-VIS Systems for potential customers, 7 of whom are
engaged in marketing activities and 4 of whom are engaged in administrative
activities. In addition, the Company utilizes part-time employees and outside
contractors and consultants as needed. None of the Company's employees is
represented by a labor union, and the Company believes that its relations with
its employees are good. See "Risk Factors--Dependence on Key Personnel."
Currently, each of the Company's employees is required to execute an
agreement pursuant to which he or she assigns to the Company all patent rights
and technical or other information which pertain to the Company's business and
are developed by the employee during his or her employment with the Company, and
agrees not to disclose any trade secret or confidential information without the
prior consent of the Company.
FACILITIES AND EQUIPMENT
The Company leases 16,000 square feet of office space in Lawrenceville, New
Jersey, and 4,300 square feet of office space in New York City. The
Lawrenceville facility is the main operations center of the Company, including
product, hardware and software design, manufacturing and product assembly,
product test and documentation, customer training and customer technical
support. The New York City office is the corporate marketing center, interfacing
with the sports leagues, broadcasters and advertisers. The lease in
Lawrenceville expires in September 2002, and the New York City lease expires in
May 2000.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company as of the date of this
Prospectus are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Brown F Williams..................................... 56 Chairman of the Board and Treasurer
Douglas J. Greenlaw.................................. 53 President, Chief Executive Officer and Director
Samuel A. McCleery................................... 47 Vice President of Marketing and Sales
Lawrence Lucchino.................................... 52 Director
Jerome J. Pomerance.................................. 57 Director
Enrique F. Senior.................................... 54 Director
Eduardo Sitt......................................... 66 Director
John B. Torkelsen.................................... 52 Director
</TABLE>
Following are brief descriptions of the current executive officers and
directors of the Company:
BROWN F WILLIAMS is a co-founder of the Company, its Chairman of the Board
and Treasurer. Prior to his election as Chairman of the Board in January 1997,
Mr. Williams served the Company as its President and Chief Executive Officer,
and he has been a director of the Company since its organization in July 1990.
Mr. Williams is a senior executive with more than 25 years experience in the
development of high technology products, primarily during his 20 years with RCA
Laboratories, Inc. Until 1987, Mr. Williams was a Vice President of David
Sarnoff Research Center, Inc. with responsibility for both hardware and software
contract research businesses. Between 1987 and 1991, Mr. Williams was active in
a number of start-up companies, either as a consultant on behalf of the funding
groups or as an executive employee on behalf of the managements of such
companies. Mr. Williams has had significant experience in product development,
product introduction and licensing in Europe and Japan, as well as in the United
States.
DOUGLAS J. GREENLAW joined the Company in January 1997, when he was elected
President and Chief Executive Officer. Mr. Greenlaw was elected to the Board of
Directors of the Company in October 1997. From 1994 through 1996, Mr. Greenlaw
was President and Chief Operating Officer of Multimedia, Inc., a publicly traded
corporation. Mr. Greenlaw also served on the board of directors of Multimedia
and was Chairman of its Executive Committee. Multimedia is a diversified media
company owning radio and television stations, cable systems, newspapers and an
entertainment division responsible for television talk show programming
(DONAHUE, SALLY JESSE RAPHAEL AND JERRY SPRINGER). In a joint effort, with Mr.
Greenlaw overseeing operations, Multimedia was recently sold to Gannett, Inc.
Before joining Multimedia, Mr. Greenlaw had been Chairman and Chief Executive
Officer of Whittle Communications' Venture Division from 1991 through 1994.
Previously, Mr. Greenlaw had been Executive Vice President of Sales and
Marketing for the MTV Networks, a division of Viacom. Mr. Greenlaw was a member
of the Executive Committee of MTV Networks and was in a senior leadership
position with MTV, VH-1, Nickelodeon, Nick at Nite and MTV Networks
International, which involved the planning for MTV Europe, Latin America and
Asia.
SAMUEL A. MCCLEERY has been the Company's Vice President of Marketing and
Sales since November 1991. Prior to November 1991, Mr. McCleery was President of
his own sports marketing and events company with clients that included the
Reagan Foundation. From 1981 to 1989, Mr. McCleery served as the director of
sports marketing for Prince Manufacturing, the world's largest marketer of
tennis racquets. Prior to 1981, Mr. McCleery was a Director of New Business for
Le Coq Sportif, a division of Adidas (France).
LAWRENCE LUCCHINO has been a director of the Company since October 1994. Mr.
Lucchino enjoys a wide variety of connections with the professional sports
industry. In addition to his prior service as a member of the board of directors
of the Washington Redskins, an NFL team, Mr. Lucchino was also a member of the
MLB Operations Committee. He has served as President and Chief Executive Officer
of
43
<PAGE>
the ownership group of the San Diego Padres since December 1994. Prior to his
service with the Padres, Mr. Lucchino was a partner at the Washington, D.C. law
firm of Williams & Connolly from October 1993 to December 1994. Mr. Lucchino
also served as President of the Baltimore Orioles from May 1988 until October
1993.
JEROME J. POMERANCE was elected to the Board of Directors of the Company in
1992. He has served as the President of J.J. Pomerance & Co., Inc., a firm
providing strategic international business advice for product development and
applications, since November 1991. Prior to his founding of that firm, Mr.
Pomerance was Chief Operating Officer and Vice-Chairman of Kroll Associates,
Inc., a leading corporate investigation, due diligence and crisis management
firm. Before joining Kroll in 1983, he was Treasurer, and later President and
Chief Executive Officer, of a group of privately held international ophthalmic
companies and a director of the Optical Manufacturers Association over a period
of 20 years.
ENRIQUE F. SENIOR has been a director of the Company since October 1994. He
has been a Managing Director of Allen & Company Incorporated since 1982 and
Executive Vice President since 1973. Mr. Senior has been a director of Dick
Clark Productions, Inc., a publicly held company, for over five years and on
behalf of Allen & Company Incorporated he is, or has recently been, financial
advisor to several corporations, including The Coca-Cola Company, Tri-Star
Pictures, Columbia Pictures and QVC Network.
EDUARDO SITT has been a director of the Company since October 1993. From
1964 until 1993, he was the principal shareholder and Chief Executive Officer of
Hilaturas de Michoacon, S.A., a Mexican textile manufacturer. Mr. Sitt is a
shareholder and, during the past five years, has served as a director of Grupo
Financiero BBV--Probursa, a publicly held financial corporation and parent
company of Mexico's fifth largest bank (Banco Bilbao Vizcaya, S.A.), a full
service stock brokerage house (Casa de Bolsa BBV-Probursa) and several other
financial firms. Mr. Sitt is the President and principal shareholder of, and the
individual designated to serve on the Board of Directors of the Company by,
Presencia en Medios, S.A. de C.V., a principal shareholder of the Company.
JOHN B. TORKELSEN has been a director of the Company since October 1995.
Since 1984, he has been President of Princeton Venture Research, Inc., a
50-person investment banking, consulting and venture capital firm that he
founded. He is also President of its affiliate, PVR Securities, Inc., formed in
1987. Mr. Torkelsen is the Manager of the General Partner of Acorn Technology
Fund, L.P., a venture capital fund specializing in early stage, high technology
investing. PVR is the Investment Advisor to Acorn Technology Fund. He is
currently a director of three publicly held companies, Objective Communications,
Inc. of Portsmouth, New Hampshire, Voice Control Systems, Inc. of Dallas, Texas,
and Mikros Systems Corporation of Princeton, New Jersey.
44
<PAGE>
KEY EMPLOYEES
Other key employees of the Company are as follows:
HOWARD J. KENNEDY, 48 years old, joined the Company in March 1995 and
currently serves as its Director of Software Development and is responsible for
evaluating and directing the technical design of all software products with
emphasis on consistency and ease of implementation across product lines. Prior
to joining the Company, Mr. Kennedy worked at Intel Corporation from October
1988, where he was Architect and Principal Engineer in the Multimedia Systems
Technology Group. Prior to working at Intel Corp., Mr. Kennedy was co-owner of
Syntex Computer Systems and was instrumental in the development of digital video
interactive technology for clients including Sarnoff, Dow Jones News Retrieval
and Educational Testing Service.
LOUIS A. LIPPINCOTT, 44 years old, joined the Company in August 1995 and
currently serves as its Director of Hardware Development. Mr. Lippincott is
responsible for all hardware design and prototype implementation with special
focus on reliability, speed of implementation and the integration of hardware
and software strategies. Prior to joining the Company, Mr. Lippincott worked at
Intel Corporation from 1988 to 1994, during which period he served as the
Systems Architecture Leader in the Video Products Division and as the Team
Leader and Architect of Intel's Action Media Product. From 1994 through July
1995, Mr. Lippincott worked as a consultant with respect to hardware development
of PC-based digital video products.
ROY J. ROSSER, 44 years old, is a co-founder of PVI and currently serves as
its Director of Special Projects. As well as being one of the inventors of the
technology that is the basis for the L-VIS System, Dr. Rosser is responsible for
coining the "L-VIS" name. Actively involved in both field operations and
software development, Dr. Rosser's special focus is devising more compelling
applications of the L-VIS technology. Prior to joining PVI as a full-time
employee in November 1993, Dr. Rosser served as a scientific and management
consultant in the United Kingdom during 1992 and 1993. Dr. Rosser holds three US
patents. Before inventing L-VIS, Dr. Rosser was a research physicist at the
Princeton Plasma Physics Laboratory and a consultant to Laser Division,
Rutherford-Appleton Laboratories, Oxford, England.
DIRECTOR COMPENSATION
Directors do not receive cash compensation for services on the Board of
Directors or any committee thereof. The Company has granted, subject to certain
conditions (including, without limitation, conditions relating to vesting and
retention), to Mr. Pomerance, options to purchase 50,000 shares (at exercise
prices ranging from $8.00 to $17.50 per share), to Mr. Sitt, options to purchase
40,000 shares (at exercise prices ranging from $8.00 to $17.50 per share), to
each of Messrs. Lucchino, Senior and Torkelsen, options to purchase 30,000
shares (at exercise prices ranging from $8.00 to $17.50 per share), and to Mr.
Williams, options to purchase 20,000 shares (at an exercise price of $17.50 per
share) for their participation on the Board of Directors. All directors are
reimbursed for expenses incurred in connection with attendance at Board of
Directors and committee meetings.
STOCK OPTION PLAN
The Company established the Amended 1993 Stock Option Plan (the "Stock
Option Plan") for the purposes of attracting and retaining the best available
personnel, to provide additional incentive to the Company's employees and
consultants and to promote the success of the Company. The Stock Option Plan
provides for the grant of incentive stock options to employees and the grant of
non-qualified stock options to employees and consultants of the Company on such
terms and conditions as may be determined by the Board of Directors of the
Company or a committee thereof. The powers of the Board of Directors or such
committee, as the case may be, include the determination of which employees and
consultants are to receive stock option grants, the exercise price, number of
shares and the vesting schedule of the grants.
45
<PAGE>
The total number of shares of Common Stock authorized for issuance under the
Stock Option Plan is 1,560,000. As of October 1, 1997, options to purchase
1,210,724 shares of Common Stock are outstanding, of which options to purchase
630,008 shares were exercisable. The exercise prices of the outstanding options
range from $2.50 to $20.00 per share.
The exercise price per share for incentive stock options may not be less
than 100% of the fair market value of the Common Stock underlying the option on
the date of grant; provided, however, in the case of an incentive stock option
granted to an individual who owns at least 10% of the total combined voting
power of all classes of stock of the Company, the Stock Option Plan provides
that the exercise price shall be no less than 110% of the fair market value per
share on the date of grant. The aggregate fair market value of shares which may
be purchased for the first time during any calendar year pursuant to an
incentive stock option granted under the Stock Option Plan, or any other
incentive stock option plan of the Company, may not exceed $100,000.
BOARD COMMITTEES
The Board of Directors has created a Compensation Committee, which makes
recommendations concerning salaries and incentive compensation for employees of
and consultants to the Company; an Audit Committee, which reviews the results
and scope of the audit and other services provided by the Company's independent
auditors; a Finance Committee, which manages the Company's investment funds,
oversees the Company's capital fundraising and reviews the performance of
licensees of the Company's technology; a Standards and Practices Committee,
which develops and maintains standards for customers' use of the Company's
technology and oversees such use; and a Nominating Committee, which nominates
candidates for election to the Board of Directors and to serve on committees of
the Board.
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the annual and
long-term compensation for the fiscal year ended June 30, 1997 of (i) the
Company's chief executive officer, and (ii) the Company's other executive
officers as of June 30, 1997 whose salary and bonus earned during the fiscal
year ended June 30, 1997 exceeded $100,000 (collectively, the "Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
1997 LONG TERM
FISCAL YEAR COMPENSATION
COMPENSATION -------------------
------------- STOCK OPTION AWARDS
NAME AND PRINCIPAL POSITION SALARY (NUMBER OF SHARES)
- ----------------------------------------------------------------------------- ------------- -------------------
<S> <C> <C>
Brown F Williams............................................................. $ 225,000 150,000
Chairman of the Board
and Treasurer
Douglas J. Greenlaw(1)....................................................... $ 106,725 210,000
President and
Chief Executive Officer
Samuel A. McCleery........................................................... $ 150,000 50,000
Vice President-Marketing
and Sales
</TABLE>
- ------------------------
(1) Mr. Greenlaw joined the Company in January 1997, when he was elected
President and Chief Executive Officer. See "--Employment Agreements."
46
<PAGE>
The following table sets forth certain information concerning grants of
stock options to the Named Officers during the fiscal year ended June 30, 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS EMPLOYEES IN BASE PRICE
NAME GRANTED FISCAL 1997 PER SHARE EXPIRATION DATE
- ------------------------------------------------------- ----------- ----------------- ----------- ----------------
<S> <C> <C> <C> <C>
Brown F Williams....................................... 150,000(1) 24% $ 20.00 January 2007
Douglas J. Greenlaw.................................... 210,000(2) 33% $ 20.00 February 2007
Samuel A. McCleery..................................... 50,000(3) 8% $ 20.00 March 2007
</TABLE>
- ------------------------
(1) Such options vest in 36 equal monthly installments over a period of three
years commencing in January 1997.
(2) Such options vest in 48 equal monthly installments over a period of four
years commencing in February 1997.
(3) Such options vest in 36 equal monthly installments over a period of three
years commencing in March 1997.
In addition, in September 1997, the Company granted Mr. McCleery 10-year
stock options to purchase 20,000 shares of Common Stock for a purchase price of
$2.50 per share. Such options vested immediately and were granted to replace
warrants to purchase 20,000 shares of Common Stock that had been granted to Mr.
McCleery when he joined the Company in November 1991 and subsequently expired,
unexercised. Assuming the fair market value of such options to be equal to an
assumed initial public offering price of $7.00 per share, the aggregate value of
such unexercised options is $90,000.
The following table sets forth certain information concerning exercisable
and unexercisable stock options held by the Named Officers as of June 30, 1997.
FISCAL YEAR-END OPTIONS
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED IN-
UNEXERCISED THE-MONEY OPTIONS
OPTIONS AT AT FISCAL
FISCAL YEAR-END YEAR-END
---------------- -----------------
EXERCISABLE/ EXERCISABLE/
NAME UNEXERCISABLE UNEXERCISABLE
- ------------------------------------------------------------------------------- ---------------- -----------------
<S> <C> <C>
Brown F Williams............................................................... 29,164/140,836 $ 0/0
Douglas J. Greenlaw............................................................ 17,500/192,500 0/0
Samuel A. McCleery............................................................. 4,166/65,834 0/0
</TABLE>
EMPLOYMENT AGREEMENTS
In January 1997, the Company and Mr. Williams entered into an employment
agreement that provides for automatic annual renewal and permits the Company to
terminate the agreement upon 90 days' prior notice; provided, however, that Mr.
Williams' term of employment will be automatically extended for a
47
<PAGE>
period of three years following a change in control of the Company. Pursuant to
such agreement, Mr. Williams' base salary will be $225,000 per year, subject to
increases at the discretion of the Board of Directors. Mr. Williams is eligible
for an annual bonus based on performance measures determined by the Compensation
Committee. In the event Mr. Williams' employment is terminated by the Company
without cause or in the event Mr. Williams terminates his employment due to a
detrimental change in the nature or scope of his employment or duties, he is
entitled to receive his then current salary for a period equal to the greater of
two years or the remainder of his current term of employment.
In January 1997, the Company and Mr. Greenlaw entered into an employment
agreement that provides for automatic annual renewal and permits the Company to
terminate the agreement upon 90 days' prior notice. Pursuant to the employment
agreement, Mr. Greenlaw's base salary will be $225,000 per year, subject to
increases at the discretion of the Board of Directors. Mr. Greenlaw will also be
eligible for an annual bonus based on performance measures determined by the
Compensation Committee. In the event Mr. Greenlaw's employment is terminated by
the Company without cause, he is entitled to receive his then current salary for
a period of six months, or three months in the event his employment is
terminated in his first year of employment. In February 1997, Mr. Greenlaw was
granted a 10-year option to purchase 210,000 shares of Common Stock. In
addition, Mr. Greenlaw shall be granted, within 30 days of the first anniversary
of the date of his employment agreement, a 10-year option to purchase 42,000
shares of Common Stock at an exercise price equal to the fair market value of
the Common Stock as determined by the Board of Directors pursuant to the Stock
Option Plan. Such option shall vest over a three year period in equal monthly
increments.
In March 1997, the Company and Mr. McCleery entered into an employment
agreement that provides for automatic annual renewal and permits the Company to
terminate the agreement upon 90 days' prior notice; provided, however, that Mr.
McCleery's term of employment will be automatically extended for a period of
three years following a change in control of the Company. Pursuant to such
agreement, Mr. McCleery's base salary will be $150,000 per year, subject to
increases at the discretion of the Board of Directors. Mr. McCleery is eligible
for an annual bonus based on performance measures determined by the Compensation
Committee. In the event Mr. McCleery's employment is terminated by the Company
without cause or in the event Mr. McCleery terminates his employment due to a
detrimental change in the nature or scope of his employment or duties, he is
entitled to receive his then current salary for a period equal to the greater of
two years or the remainder of his current term of employment.
48
<PAGE>
CERTAIN TRANSACTIONS
John B. Torkelsen, a director of the Company, is the sole shareholder and
President of Princeton Venture Research, Inc. ("PVR"), a shareholder of the
Company. PVR entered into an arrangement with the Company regarding the services
of a consultant that PVR provided to the Company for several months in 1995. In
connection with such arrangement, in September 1997 the Company granted PVR
warrants to purchase 20,000 shares of Common Stock at an exercise price of $4.50
per share. Commencing in July 1997, PVR furnished the Company with extensive
consulting services in connection with financial structuring, negotiations with
various major shareholders and preparation of the Bridge Financing. In
connection with such services, the Company has paid PVR a fee of $100,000. In
consideration for financial advisory services rendered to the Company in
connection with the Bridge Financing, the Company paid PVR Securities, Inc., an
affiliate of PVR, a fee of $70,000, or five percent of the gross proceeds of the
Bridge Financing obtained from investors introduced to the Company by PVR
Securities, Inc. In connection with the exercise of warrants to purchase Common
Stock in May 1995, Mr. Torkelsen, Pamela R. Torkelsen, Mr. Torkelsen's wife, and
PVR executed promissory notes in favor of the Company in the amounts of $80,000,
$20,000 and $24,000, respectively. Such notes, as subsequently amended, will
become due on May 31, 1998, and bear interest at a rate of nine percent per
annum. In connection with the purchase of Common Stock under the Company's 1997
rights offering, Mrs. Torkelsen and PVR executed promissory notes in favor of
the Company in the amounts of $9,720 and $50,542.50, respectively. Such notes
were subsequently paid in full by Mrs. Torkelsen and PVR. Mr. Torkelsen is the
Manager and a member of Acorn Technology Partners, L.L.C., the general partner
of Acorn Technology Fund, L.P., which purchased 1.5 units in the Bridge
Financing in October 1997. Each unit consists of one Bridge Note in the
principal amount of $100,000 and Bridge Warrants to purchase 10,000 shares of
Common Stock at an exercise price of $0.01 per share. The purchase price of each
unit was $100,000. See "Description of Securities--Debt Securities."
Enrique F. Senior, a director of the Company, is a Managing Director and
Executive Vice President of Allen & Company Incorporated ("Allen"), which is a
principal shareholder of the Company, furnishes general financial advisory
services to the Company from time to time and is a Representative. Except as
described herein, no fees have been paid to Allen or to Mr. Senior in connection
with such services and there are no arrangements providing for the payment of
fees for such services. Pursuant to a placement agent agreement, Allen was paid
a fee of $247,000 plus expenses, and received warrants to purchase 28,226 shares
of Common Stock at an exercise price of $19.25 per share, for raising funds for
the Company in a financing that closed in February 1996. Allen, as a
Representative, will receive underwriting discounts and commissions in the
aggregate amount of approximately $ , as well as Representatives'
Warrants initially exercisable for 380,000 shares of Common Stock, with respect
to services rendered on behalf of the Company with respect to the Offering. See
the front cover page of this Prospectus, "Principal Shareholders" and
"Underwriting." Allen may, after the Offering, serve as a market maker for the
Common Stock.
Presencia, a principal shareholder of the Company, was granted warrants to
purchase 24,000 shares of Common Stock at an exercise price of $15.00 per share
in March 1996, in consideration of Presencia's efforts on behalf of the Company
and expenses incurred by Presencia in connection with Publicidad. Such warrants
expire in March 2001. Presencia purchased three units in the Bridge Financing
that closed in October 1997. Following the closing of the Bridge Financing, a
Bridge Financing investor assigned an additional 100,000 Bridge Warrants to
Presencia.
Brown F Williams, Chairman of the Board and Treasurer of the Company,
exercised a warrant to purchase 190,000 shares of Common Stock in July 1997 in
exchange for his non-recourse promissory note in the principal amount of
$475,000, the aggregate exercise price of such warrants. Such note bears an
annual interest rate of 8.5% and has a term of five years. However, the note
will become payable in full when all of the shares issued upon the exercise of
such warrants become freely transferable under applicable securities laws. Mr.
Williams' obligations under the note are secured by a pledge of such shares, and
Mr. Williams is required to assign to the Company any cash or marketable
securities received with
49
<PAGE>
respect to such shares. In connection with the exercise of the warrant in
exchange for a non-recourse note, the Company recorded a compensation charge of
$261,250 in the first quarter of Fiscal 1998.
Samuel A. McCleery, Vice President of Marketing and Sales of the Company,
exercised a warrant to purchase 72,000 shares of Common Stock in July 1997 in
exchange for his promissory note in the principal amount of $180,000, the
aggregate purchase price of such warrants. The terms of such note, and of the
pledge of such shares that secures Mr. McCleery's obligations under the note,
are identical to those of Mr. Williams' note and pledge. In connection with the
exercise of the warrant in exchange for a non-recourse note, the Company
recorded a compensation charge of $99,000 in the first quarter of Fiscal 1998.
Douglas J. Greenlaw, Chief Executive Officer and President of the Company,
purchased one unit in the Bridge Financing that closed in October 1997.
The total number of shares and warrants issued to Brown F Williams, Samuel
A. McCleery, John B. Torkelsen, Pamela R. Torkelsen, Mr. Torkelsen's wife, and
PVR, in exchange for notes payable to the Company which are outstanding as of
the date of this Prospectus is 274,400 shares of Common Stock (or 8.3% of the
shares of Common Stock outstanding immediately prior to the Offering), 6,200
shares of Series B Preferred Stock and warrants to purchase 12,400 shares of
Common Stock. Specifically, Mr. Williams received 190,000 shares of Common Stock
in exchange for a note in the amount of $475,000; Mr. McCleery received 72,000
Shares of Common Stock in exchange for a note in the amount of $180,000; Mr.
Torkelsen received 8,000 shares of Common Stock, 4,000 shares of Series B
Preferred Stock, and warrants to purchase 8,000 shares of Common Stock in
exchange for a note in the amount of $80,000; Ms. Torkelsen received 2,000
shares of Common Stock, 1,000 shares of Series B Preferred Stock and warrants to
purchase 2,000 shares of Common Stock in exchange for a note in the amount of
$20,000 and PVR received 2,400 shares of Common Stock, 1,200 shares of Series B
Preferred Stock and warrants to purchase 2,400 shares of Common Stock in
exchange for a note in the amount of $24,000.
50
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of November 15, 1997, and as of such
date, as adjusted to give effect to the Offering, by (i) each person who is
known to the Company to own beneficially more than 5% of the Common Stock, (ii)
each of the Named Officers and the current directors of the Company, and (iii)
all of the directors and Named Officers as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK NUMBER OF SHARES OF
BENEFICIALLY OWNED COMMON STOCK
PRIOR TO THE BENEFICIALLY OWNED
OFFERING(1) AFTER THE OFFERING(1)
----------------------- -----------------------
<S> <C> <C> <C> <C>
NAME OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
- --------------------------------------------------------------------- ---------- ----------- ---------- -----------
Enrique F. Senior (2)................................................ 725,764 19.2% 1,105,764 13.5%
c/o Allen & Company Incorporated
711 Fifth Avenue
New York, NY 10020
Allen & Company Incorporated (3)..................................... 712,430 18.8% 1,092,430 13.4%
711 Fifth Avenue
New York, NY 10020
Eduardo Sitt (4)..................................................... 507,642 15.1% 637,642 8.5%
c/o Presencia en Medios, S.A. de C.V.
Montes Urales 739A
Lomas de Chapultepec
11000 Mexico, D.F.
Mexico
Presencia en Medios, S.A. de C.V. (5)................................ 484,308 14.5% 614,308 8.2%
Montes Urales 739A
Lomas de Chapultepec
11000 Mexico, D.F.
Mexico
Brown F Williams (6)................................................. 458,860 13.6% 458,860 6.2%
c/o Princeton Video Image, Inc.
15 Princess Road
Lawrenceville, NJ 08648
Blockbuster Entertainment Group (7).................................. 210,000 6.2% 210,000 2.8%
One Blockbuster Plaza
200 South Andrews Avenue
Ft. Lauderdale, FL 33301
Jerome J. Pomerance (8).............................................. 183,176 5.5% 183,176 2.5%
c/o J.J. Pomerance & Co.
780 Third Avenue
New York, NY 10017
Samuel A. McCleery (9)............................................... 159,089 4.7% 159,089 2.2%
John B. Torkelsen (10)............................................... 115,604 3.4% 130,604 1.8%
Lawrence Lucchino (11)............................................... 93,334 2.7% 93,334 1.3%
Douglas J. Greenlaw (12)............................................. 48,125 1.4% 58,125 *
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK NUMBER OF SHARES OF
BENEFICIALLY OWNED COMMON STOCK
PRIOR TO THE BENEFICIALLY OWNED
OFFERING(1) AFTER THE OFFERING(1)
----------------------- -----------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
- --------------------------------------------------------------------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
All directors and Named Officers as a
group (8 persons) (13)............................................... 2,291,594 54.0% 2,826,594 32.2%
</TABLE>
- ------------------------
* Less than one percent
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock subject
to stock options and warrants currently exercisable or exercisable within 60
days are deemed outstanding for computing the percentage ownership of the
person holding such options and the percentage ownership of any group of
which the holder is a member, but are not deemed outstanding for computing
the percentage ownership of any other person. Except as indicated by
footnote, and subject to community property laws where applicable, the
persons named in the table have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them.
Applicable percentage of ownership is based on 3,308,472 shares of Common
Stock outstanding on the date of this Prospectus and on 7,308,472 shares of
Common Stock outstanding after the Offering. Shares of Series A and Series B
Preferred Stock outstanding before the Offering are not reflected above
because such Preferred Stock has no voting rights and is not convertible.
See "Description of Capital Stock--Preferred Stock."
(2) Includes 234,204 shares of Common Stock and 478,226 shares of Common Stock
underlying warrants owned of record by Allen, of which Mr. Senior is a
Managing Director and Executive Vice President. Shares owned after the
Offering also include 380,000 shares of Common Stock underlying the
Representatives' Warrants to be received by Allen as partial consideration
for services rendered on behalf of the Company with respect to the Offering.
See "Underwriting." (See Note 3.) The Company has been informed by Allen
that the shares of Common Stock owned of record by Allen reflects ownership
of such shares on behalf of Allen and certain of its officers, directors and
employees. By virtue of his positions with Allen, Mr. Senior may, under
certain circumstances derive economic benefit from such securities. Includes
13,334 shares of Common Stock underlying options that were exercisable
within 60 days of November 15, 1997. Does not include 6,436 shares of Common
Stock held directly by certain officers, directors or employees of Allen.
(3) Includes 478,226 shares of Common Stock underlying warrants. Shares owned
after the Offering also include 380,000 shares of Common Stock underlying
the Representatives' Warrants to be received by Allen as partial
consideration for services rendered on behalf of the Company with respect to
the Offering. See "Underwriting." Does not include shares of Common Stock
underlying options owned by Enrique F. Senior, a Managing Director and
Executive Vice President of Allen and a director of the Company. Does not
include 6,436 shares of Common Stock held directly by certain officers,
directors or employees of Allen. See prior footnote.
(4) Includes 449,376 shares of Common Stock and 34,932 shares of Common Stock
underlying warrants owned by Presencia, of which Mr. Sitt is President and a
principal shareholder. (See Note 5.) Includes 23,334 shares of Common Stock
underlying options that were exercisable within 60 days of November 15,
1997. Shares owned after the Offering also include 130,000 of Common Stock
underlying Bridge Warrants owned by Presencia. (See Note 5.)
(5) Includes 34,932 shares of Common Stock underlying warrants. Shares owned
after the Offering also include 130,000 shares of Common Stock underlying
Bridge Warrants. Does not include shares of Common Stock underlying options
owned by Eduardo Sitt, the President and a principal shareholder of
Presencia and a director of the Company.
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(6) Includes 1,933 shares of Common Stock owned by Sandra Williams, as custodian
for Bronwyn Williams, Mr. and Mrs. Williams' minor daughter, and 1,933
shares owned by Sandra Williams, Mr. Williams' wife. Also includes 62,222
shares of Common Stock underlying options that were exercisable within 60
days of November 15, 1997. Does not include 4,000 and 2,200 shares of Common
Stock owned by Mr. Williams' brother and a trust of which Mr. Williams'
mother is a beneficiary, respectively. Mr. Williams disclaims beneficial
ownership of the shares of Common Stock that are owned by Sandra Williams,
individually and as custodian for Bronwyn Williams.
(7) Includes 70,000 shares of Common Stock underlying warrants. Does not include
an additional 70,000 shares of Common Stock underlying a second warrant that
the Company has issued to Blockbuster but that has not vested. The second
warrant will vest upon Blockbuster's providing material consulting services
to the Company or entering into a joint venture with the Company, or the
Miami Dolphins' being the first NFL team to support use of the L-VIS System
during the broadcast of its games.
(8) Includes 20,000 shares of Common Stock owned by J.J. Pomerance & Co., Inc.
of which Mr. Pomerance is the President. Also includes 33,334 shares of
Common Stock underlying options that were exercisable within 60 days of
November 15, 1997.
(9) Includes 47,200 shares of Common Stock underlying warrants. Also includes
33,889 shares of Common Stock underlying options that were exercisable
within 60 days of November 15, 1997.
(10) Includes 7,592 shares of Common Stock owned by Pamela R. Torkelsen, Mr.
Torkelsen's wife, and 39,478 shares of Common Stock and 55,200 shares of
Common Stock underlying warrants owned by PVR, a company of which Mr.
Torkelsen is the sole shareholder. Shares owned after the Offering also
includes 15,000 shares of Common Stock underlying Bridge Warrants owned by
Acorn Technology Fund, L.P., a limited partnership of which Acorn Technology
Partners, L.L.C. is the general partner. Mr. Torkelsen is the Manager of
Acorn Technology Partners. Includes 13,334 shares of Common Stock underlying
options that were exercisable within 60 days of November 15, 1997. Mr.
Torkelsen disclaims beneficial ownership of the shares of Common Stock and
the warrants to purchase Common Stock that are owned by Mrs. Torkelsen.
(11) Includes 80,000 shares of Common Stock underlying options owned by LL
Sports Inc. that were exercisable within 60 days of the date of this
Prospectus. Mr. Lucchino controls LL Sports Inc. Also includes 13,334 shares
of Common Stock underlying options that were exercisable within 60 days of
November 15, 1997.
(12) Includes 48,125 shares of Common Stock underlying options that were
exercisable within 60 days of November 15, 1997. Shares owned after the
Offering also include 10,000 shares of Common Stock underlying Bridge
Warrants.
(13) Includes 615,558 shares of Common Stock underlying warrants. Includes
320,906 shares of Common Stock underlying options that were exercisable
within 60 days of November 15, 1997. Shares owned after the Offering also
include 155,000 shares of Common Stock underlying Bridge Warrants and
380,000 shares of Common Stock underlying the Representatives' Warrants.
As of November 15, 1997, the only Named Officer or current director of the
Company who beneficially owned shares of Series A Preferred Stock was Brown F
Williams, who held 700 shares of Series A Preferred Stock, or 1.0% of the
outstanding Series A Preferred Stock. (The foregoing does not include the
holdings of a trust of which Mr. Williams' mother is a beneficiary.)
As of November 15, 1997, the Named Officers and current directors of the
Company who beneficially owned shares of Series B Preferred Stock were John B.
Torkelsen, who beneficially owned 6,200 shares of Series B Preferred Stock (of
which 1,000 shares were owned by Pamela R. Torkelsen, Mr. Torkelsen's wife, and
5,200 shares were owned by PVR, a company of which Mr. Torkelsen is the sole
shareholder), and Eduardo Sitt, who beneficially owned 6,041 shares of Series B
Preferred Stock (all of which was owned by Presencia, a company of which Mr.
Sitt is President and a principal shareholder). Mr. Torkelsen and Mr. Sitt
beneficially own 7.2% and 7.0% of the outstanding Series B Preferred Stock,
respectively, and 14.2% of the outstanding Series B Preferred Stock,
collectively.
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DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 41,000,000 shares,
of which 40,000,000 shares are Common Stock, no par value, and 1,000,000 shares
are Preferred Stock (the "Preferred Stock"), which the Board of Directors has
the power and authority to designate into classes or series. Of the Preferred
Stock, the Board of Directors has designated 167,000 shares as Series A
Preferred Stock and 93,300 shares as Series B Preferred Stock, each with such
relative rights, preferences and limitations as set forth in the Restated
Certificate of Incorporation, which are summarized below.
The following summary of the respective rights of the Common Stock, the
Series A Preferred Stock and the Series B Preferred Stock is qualified in its
entirety by reference to the Restated Certificate of Incorporation, where such
rights are set forth in full.
COMMON STOCK
As of the date of this Prospectus there are 3,308,472 shares of Common Stock
issued and outstanding and held of record by 183 shareholders, plus 300,000
shares reserved for issuance upon the exercise of the Bridge Warrants, 777,130
shares reserved for issuance upon the exercise of other outstanding warrants and
1,560,000 shares reserved for issuance upon the exercise of options under the
Stock Option Plan, including 1,210,724 shares reserved for issuance upon the
exercise of outstanding options. Upon completion of the Offering, there will be
7,308,472 shares of Common Stock issued and outstanding. In addition, there will
be 400,000 shares reserved for issuance upon the exercise of the
Representatives' Warrants, plus 600,000 shares reserved for issuance upon the
exercise of the Over-Allotment Option. See "Shares Eligible for Future Sale" and
"Underwriting."
Holders of shares of Common Stock are entitled to one vote at all meetings
of shareholders for each share held by them. Under the terms of the Restated
Certificate of Incorporation, holders of shares of Common Stock have no
preemptive rights and have no other rights to subscribe for additional shares or
any conversion right or right of redemption. Subject to the rights of the
holders of the Series A Preferred Stock and the Series B Preferred Stock,
holders of the Common Stock are entitled to receive such dividends as, when and
if declared by the Board of Directors out of funds legally available therefor.
The Company has not paid dividends on the Common Stock. The payment of
dividends, if any, in the future with respect to the Common Stock is within the
discretion of the Board of Directors and will depend on the Company's earnings,
capital requirements, financial condition and other relevant factors. At
present, the Board of Directors does not intend to declare any dividend on the
Common Stock in the foreseeable future.
PREFERRED STOCK
The Company is authorized to issue up to 1,000,000 shares of the Preferred
Stock in one or more series. The Company's Board of Directors is authorized to
fix the relative rights, preferences, privileges and restrictions thereof,
including dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, redemption prices, liquidation preferences, the number of
shares constituting any series and the designation of such series. The issuance
of Preferred Stock with voting and conversion rights may adversely affect the
voting power of the holders of the Series A Preferred Stock, the Series B
Preferred Stock and Common Stock, including the loss of voting control. Other
than the shares of Series A Preferred Stock and Series B Preferred Stock
described below, there are no shares of Preferred Stock currently issued and
outstanding.
SERIES A PREFERRED STOCK
The Company is authorized to issue up to 167,000 shares of the Preferred
Stock that have been designated as the Series A Preferred Stock, par value $4.50
per share. As of the date of this Prospectus, there were 67,600 shares of Series
A Preferred Stock outstanding, which were sold for $4.50 per share.
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Series A Preferred Stock has no voting rights, other than as required by
applicable law. The holders of Series A Preferred Stock are entitled to a
dividend of six percent per annum, in cash or Common Stock at the option of the
Company, on a cumulative basis. The failure of the Company to pay dividends on a
current basis does not create any special rights for the holders of Series A
Preferred Stock, except that no dividends may be paid with respect to Common
Stock or Series B Preferred Stock until all cumulated dividends in respect of
Series A Preferred Stock have been paid. As of June 30, 1997, accrued dividends
on the Series A Preferred Stock totaled $81,000, or $1.20 per Share, none of
which has been paid. See Note 9 to Financial Statements.
The Company has the right at any time after the date of original issuance of
the Series A Preferred Stock to redeem the Series A Preferred Stock in whole or
in part at a price of $4.50 per share plus all accrued but unpaid dividends. The
Company is required to redeem the Series A Preferred Stock, on a pro rata basis,
at a price of $4.50 per share plus all accrued but unpaid dividends, out of 30%
of the amount, if any, by which the Company's annual net income after taxes in
any year exceeds $5 million, as shown on its audited financial statements.
The Series A Preferred Stock has no liquidation preference, no conversion
rights and no registration rights.
SERIES B PREFERRED STOCK
The Company is authorized to issue up to 93,300 shares of the Preferred
Stock that have been designated as Series B Preferred Stock, par value $5.00 per
share. As of the date of this Prospectus, there were 86,041 shares of Series B
Preferred Stock outstanding, which were sold for $5.00 per share. Series B
Preferred Stock has no voting rights, other than as required by applicable law.
The holders of Series B Preferred Stock are entitled to a dividend of six
percent per annum, in cash or Common Stock at the option of the Company, on a
cumulative basis. The failure of the Company to pay dividends on a current basis
does not create any special rights for the holders of Series B Preferred Stock,
except that no dividends may be paid with respect to Common Stock until all
cumulated dividends in respect of Series B Preferred Stock have been paid. No
dividends may be paid with respect to Series B Preferred Stock until all
cumulated dividends in respect of Series A Preferred Stock have been paid. As of
June 30, 1997, accrued dividends on the Series B Preferred Stock totaled
$88,150, or $1.02 per share, none of which has been paid. See Note 9 to Note to
Financial Statements.
The Company has the right at any time after the date of original issuance of
the Series B Preferred Stock, but subject to the prior redemption of all of the
Series A Preferred Stock, to redeem the Series B Preferred Stock in whole or in
part at a price of $5.00 per share plus all accrued but unpaid dividends.
Subject to the prior redemption of all of the Series A Preferred Stock, the
Company is required to redeem the Series B Preferred Stock, on a pro rata basis,
at a price of $5.00 per share plus all accrued but unpaid dividends out of 20%
of the amount, if any, by which the Company's annual net income after taxes in
any year exceeds $5 million, as shown on its audited financial statements.
The Series B Preferred Stock has no liquidation preference, no conversion
rights and no registration rights.
WARRANTS
Upon completion of the Offering, the following warrants (excluding the
Representatives' Warrants, described below) to purchase an aggregate of
1,090,730 shares of Common Stock will be outstanding: the Bridge Warrants to
purchase 300,000 shares of Common Stock at an exercise price of $0.01 per share,
which are exercisable for a period of five years following the earlier of the
consummation of the Offering or the one-year anniversary of the issuance
thereof; warrants to purchase 47,200 shares of Common Stock at an exercise price
of $2.50 per share which are currently exercisable and expire between September
1998 and November 1999; warrants to purchase 20,000 shares of Common Stock at an
exercise price of $4.50
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per share which are currently exercisable and expire in September 2000; warrants
to purchase 460,932 shares of Common Stock at $12.50 per share which are
currently exercisable and expire in April 1999; warrants to purchase 29,200
shares of Common Stock at an exercise price of $13.75 per share which are
currently exercisable and expire in February 1999; warrants to purchase 115,572
shares of Common Stock at an exercise price of $15.00 per share which are
currently exercisable and expire between August 1999 and November 2001; warrants
to purchase 6,000 shares of Common Stock at an exercise price of $16.50 per
share which are currently exercisable and expire in April 1999; warrants to
purchase 28,226 shares of Common Stock at an exercise price of $19.25 per share
which are currently exercisable and expire in February 2001; and warrants to
purchase 70,000 shares of Common Stock at an exercise price of $20.00 per share
which will vest upon the occurrence of a milestone controlled by the warrant
holder and will be exercisable for a period of three years following vesting. In
each case, the exercise price of, and the number of shares of Common Stock
underlying, the warrants is subject to adjustment based upon anti-dilution
provisions.
The following discussion of the material terms and provisions of the
warrants is qualified in its entirety by reference to the detailed provisions of
the agreements relating to the issuance of the warrants and the forms of
warrants. Forms of the Bridge Warrants, the Representatives' Warrants and the
other warrants issued by the Company have been filed as exhibits to the
Registration Statement of which this Prospectus constitutes a part. The number
of shares of Common Stock issuable upon exercise of the warrants (including the
Bridge Warrants and the Representatives' Warrants) is subject to adjustment in
certain circumstances, including stock dividends, stock splits, combinations or
reclassifications involving or in respect of the Common Stock. With respect to
the Bridge Warrants only, if the Company elects to extend the maturity date of
the Bridge Notes for a period of up to six months, the number of shares issuable
upon the exercise of Bridge Warrants shall automatically increase by 10% of the
number of shares for which the Bridge Warrants were originally exercisable for
each month that the Bridge Notes continue to remain outstanding during such
extension period. The Bridge Warrant Shares are being registered in the Offering
and are subject to a 12-month lock-up arrangement with the Underwriters. See
"Certain Transactions," "Shares Eligible for Future Sale" and "Underwriting."
REPRESENTATIVES' WARRANTS
The Company also has agreed to sell to the Representatives, or their
designees, Representatives' Warrants to purchase 400,000 shares of Common Stock
at a price of $0.001 per warrant. The Representatives' Warrant will be
exercisable for a period of five years, commencing on the closing date of the
Offering, at an initial per share exercise price equal to 120% of the initial
public offering price per share. The Representatives' Warrants are being
registered in the Offering and cannot be transferred, assigned or hypothecated
for one year from the date of issuance, except that they may be assigned, in
whole or in part, to any successor, officer or partner of the Representatives
(or to officers or partners of any such successor or partner). The
Representatives' Warrants may be exercised as to all or a lesser number of
shares covered by the warrants and will contain certain registration rights and
anti-dilution provisions providing for appropriate adjustment of the exercise
price and number of shares which may be purchased upon exercise, upon the
occurrence of certain events. See "Risk Factors--Shares Eligible for Future
Sale, Registration Rights" and "Underwriting."
DEBT SECURITIES
In connection with the Bridge Financing, the Company issued 30 Bridge Units.
Each Bridge Unit consists of a Bridge Note issued by the Company in the
principal amount of $100,000 and a Bridge Warrant to purchase up to 10,000
shares of Common Stock at an exercise price equal to $0.01 per share. The Bridge
Notes and the Bridge Warrants are separately transferable, subject to certain
restrictions upon transferability.
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The Bridge Notes bear interest at the rate of 10% per annum, with interest
accruing from the date of issuance and payable in four quarterly installments on
the first day of January, April, July and October, commencing on January 1,
1998, and at maturity. The principal of, and any accrued and unpaid interest on,
the Bridge Notes are due and payable in full on the earliest of (i) the
consummation of the Offering, (ii) one year from the date on which the Bridge
Notes were issued, or (iii) the date of the closing of a sale (or the closing of
the last of a series of sales) of securities (other than the Bridge Notes and
Bridge Warrants) by the Company or any subsidiary or affiliate thereof, the net
proceeds of which, in the aggregate, equal or exceed the principal amount of the
Bridge Notes. The Company intends to use a portion of the net proceeds of the
Offering to repay in full the principal balance of the Bridge Notes, and accrued
and unpaid interest thereon. See "Use of Proceeds."
The Company has the right, at its option, to extend the maturity date of the
Bridge Notes for up to six months. In the event that the Company elects to
extend such maturity date, then the number of shares issuable upon the exercise
of each Bridge Warrant will automatically increase by 10% of the number of
shares for which the Bridge Warrants were originally exercisable for each month
that the Bridge Notes continue to remain outstanding during such extension
period.
The Bridge Notes will rank senior in right of payment to all future
indebtedness of the Company. The Bridge Notes are secured by a lien on the fixed
assets of the Company. See Note 14 to Notes to Financial Statements.
ANTI-TAKEOVER PROVISIONS
Use of the Preferred Stock could have the effect of delaying, deferring or
preventing a change in control by granting rights and preferences greater than
those held by the shareholders of Common Stock. To the extent that use of the
Preferred Stock has such effect, removal of the Company's incumbent Board of
Directors and management may be rendered more difficult. Further, such use may
have an adverse impact on the ability of shareholders of the Company to
participate, if applicable, in a tender offer or exchange offer for the Common
Stock and in so doing diminish the value of the Common Stock. See "Risk
Factors--Effects of Certain Charter and Bylaw Provisions" and "Description of
Capital Stock--Preferred Stock."
The Company is also subject to the anti-takeover provisions of the New
Jersey Shareholder Protection Act which restrict certain "business combinations"
with "interested shareholders" for five years following the date the person
becomes an interested shareholder (as defined by such act), unless the Board of
Directors approves the business combination. By delaying and deterring
unsolicited takeover attempts, these provisions could adversely affect the value
of the Common Stock. See "Risk Factors--Effects of Certain Charter and Bylaw
Provisions."
TRANSFER AGENT AND REGISTRAR
The Company has retained American Stock Transfer & Trust Company as transfer
agent and registrar for the Common Stock and the Preferred Stock.
INDEMNIFICATION
The Company has agreed to indemnify the Underwriters (including Allen, which
may be deemed to be an affiliate or control person of the Company) and each
person who controls any Underwriter (including Enrique F. Senior, a director of
the Company who is an Executive Vice President and Managing Director of Allen)
against certain liabilities in connection with the Registration Statement,
including liabilities under the Securities Act. See "Underwriting."
The By-Laws of the Company provide that a director of the Company shall not
be personally liable to the Company or its shareholders for monetary damages for
breach of fiduciary duty as a director.
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However, such By-Laws do not eliminate or limit the liability of a director: (i)
for any breach of the director's duty of loyalty to the Company or its
shareholders; (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of the law; (iii) under Section
14A:6-12 of the New Jersey Business Corporation Act; or (iv) for any transaction
from which the director derived an improper personal benefit.
The Company currently carries liability insurance for the benefit of its
directors and officers which provides coverage for losses of directors and
officers for liabilities arising out of claims against such persons acting as
directors or officers of the Company (or any subsidiary thereof) due to any
breach of duty, neglect, error, misstatement, misleading statement, omission or
act done by such directors and officers, except as prohibited by law. The total
coverage under the insurance policy is $1,000,000, with a deductible of $35,000.
The Company's current policy specifically excludes coverage for any claim made
against the directors and officers based upon (i) the purchase, sale or offer of
any security of the Company, or (ii) any claim brought by a security holder of
the Company. Such exclusion includes claims which allege a violation of the
Securities Act and the Securities Exchange Act of 1934, as amended. The Company
has also purchased additional directors' and officers liability insurance
policies with total coverage of $10,000,000 which provide coverage with respect
to various securities related matters.
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SHARES ELIGIBLE FOR FUTURE SALE
GENERAL
Upon completion of the Offering, there will be 7,308,472 shares of Common
Stock outstanding (7,908,472 if the Over-Allotment Option is exercised in full).
Of such shares, all of the 4,000,000 shares sold in the Offering (4,600,000 if
the Over-Allotment Option is exercised in full) will be freely transferable
(other than those purchased by affiliates of the Company) without restriction or
further registration under the Securities Act. In addition, the 400,000 shares
of Common Stock issuable upon exercise of the Representatives' Warrants and
300,000 shares of Common Stock issuable upon exercise of the Bridge Warrants,
all of which also are being registered under the Securities Act pursuant to the
Registration Statement of which this Prospectus constitutes a part, will be
freely transferable under the Securities Act without restriction or further
registration, subject to the limitation that the Representatives may not
transfer, assign, or hypothecate the Representatives' Warrants or the underlying
shares of Common Stock for a period of one year, with certain limited
exceptions. See "Underwriting."
Subject to certain limited exceptions, the holders of all of the remaining
shares of Common Stock and the holders of certain of the warrants to purchase
shares of Common Stock have agreed not to transfer or otherwise dispose of any
securities of the Company for a one-year period following the closing of the
Offering, without the prior written consent of Allen. At the request of The
Nasdaq National Market, Inc., Allen has agreed not to consent to the transfer of
shares of Common Stock issuable upon exercise of the Bridge Warrants for such
one-year period. See "--Lock-up Agreements" below.
The 3,308,472 shares of Common Stock outstanding prior to this Offering are
"restricted securities" within the meaning of Rule 144 and may not be sold other
than in accordance with Rule 144 or pursuant to an effective registration
statement under the Securities Act or an exemption from such registration
requirement. In general, Rule 144 provides that any person (or persons whose
shares are aggregated) to whom Rule 144 is applicable, including an affiliate,
who has beneficially owned shares for at least a one-year period (as computed
under Rule 144) is entitled to sell within any three-month period the number of
shares that does not exceed the greater of (i) one percent of the then
outstanding shares of the Common Stock (approximately 73,335 shares after giving
effect to the Offering, if the Over-Allotment Option is exercised in full) and
(ii) the reported average weekly trading volume of the then outstanding shares
of Common Stock during the four calendar weeks immediately preceding the date on
which the notice of sale is filed with the Commission. Sales under Rule 144 also
are subject to certain provisions relating to the manner and notice of sale and
the availability of current public information about the Company. A person (or
persons whose shares are aggregated) who is not deemed an affiliate of the
Company at any time during the 90 days immediately preceding a sale, and who has
beneficially owned shares for at least a two-year period (as computed under Rule
144) is entitled to sell such shares under Rule 144(k) without regard to the
volume limitation and other conditions described above. As of December 1, 1997,
2,240,596 of the shares of Common Stock outstanding prior to the Offering will
be eligible for sale under Rule 144 generally 90 days after the date on which
the Registration Statement of which this Prospectus constitutes a part becomes
effective. Of these shares, 1,048,260 shares are also eligible for sale without
regard to the volume limitation and other conditions pursuant to Rule 144(k) as
of the date of this Prospectus.
Furthermore, under Rule 144 generally, there will be 2,240,480, 2,240,480,
2,977,594 and 3,018,002 shares eligible for resale as of March 1, 1998, June 1,
1998, September 1, 1998 and December 1, 1998, respectively. Under Rule 144(k),
there will be 1,423,850, 1,593,788, 1,593,788 and 1,615,988 shares eligible for
resale as of March 1, 1998, June 1, 1998, September 1, 1998 and December 1,
1998, respectively. In addition to the holding period requirements imposed by
the Rule 144 safe harbor, all holders of outstanding Common Stock prior to the
Offering are subject to a one-year lock-up following the effective date of this
Offering, subject to the ability of Allen to waive such lockup restrictions on
behalf of the Representatives. See "--Lock-up Agreements."
Prior to the date of this Prospectus, there has been no public market for
the Common Stock. Trading of the Common Stock is expected to commence following
the completion of the Offering. No prediction
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can be made as to the effect, if any, that future sales of shares, or the
availability of shares for future sale, will have on the market price prevailing
from time to time. Sales of substantial amounts of Common Stock, or the
perception that such sales could occur, could adversely affect prevailing market
prices of the Common Stock and the Company's ability to raise capital in the
future through the sale of additional securities.
Up to 400,000 additional shares of Common Stock may be purchased by the
Representatives through the exercise of the Representatives' Warrants during the
period commencing on the closing of the Offering and ending on the fifth
anniversary of such date. The holders of the Representatives' Warrants will have
certain demand and "piggyback" registration rights with respect to the shares of
Common Stock underlying such options. Such shares of Common Stock issuable upon
exercise of the Representatives' Warrants may be freely tradable, provided that
the Company satisfies certain securities registration and qualification
requirements in accordance with the terms of the Representatives' Warrants. See
"--Registration Rights" and "--Lock-up Agreements" below and "Underwriting."
Up to 777,130 shares of Common Stock may be purchased by the holders of
outstanding warrants other than the Representatives' Warrants and the Bridge
Warrants. The holders of the Bridge Warrants and certain of such other warrants
are entitled to certain demand and "piggyback" registration rights as to such
shares commencing 12 months after the closing of the Offering. Such shares will
be freely tradable upon such registration. See "--Registration Rights" and
"--Lock-up Agreements" below.
REGISTRATION RIGHTS
Subject to the lock-up arrangements described below, the Company has granted
certain demand and "piggyback" registration rights with respect to 3,308,472
outstanding shares of Common Stock, the 400,000 shares of Common Stock issuable
upon exercise of the Representatives' Warrants, and 703,332 of the shares of
Common Stock issuable upon exercise of other outstanding warrants. Subject to
certain conditions and limitations, the registration rights granted to such
holders give them the right to require the Company to register all or any
portion of the Common Stock held by them or issuable upon the exercise of
warrants held by them that are not transferable in a three-month period pursuant
to Rule 144 (collectively, the "Registrable Securities") in connection with any
registration by the Company of its securities on certain registration statements
under the Securities Act. In addition, commencing one year after the Offering,
but not more than once during any 12-month period, such holders who hold at
least 200,000 shares of the Registrable Securities may request registration on
Form S-3, if such registration is available to the Company at the time of such
request, of the Registrable Securities held by the holders of Registrable
Securities, provided the Registrable Securities for which registration is sought
constitute at least two percent of the Common Stock (calculated on a fully
diluted basis). Following such a request, all holders of Registrable Securities
will be given an opportunity to participate in such registration. The
registration rights described herein are subject to certain notice requirements,
timing restrictions and volume limitations which may be imposed by the
underwriters of an offering. The Company is required to bear the expenses of all
such registrations, except for the underwriting discounts and commissions
relating to the sale of the shares of Common Stock held by such investors.
LOCK-UP AGREEMENTS
Pursuant to the Underwriting Agreement, the Company, all of the existing
shareholders of the Company and certain of the existing warrantholders of the
Company as of the effective date of the Registration Statement, have agreed not
to offer, issue, sell, contract to sell, grant any option for the sale of or
otherwise dispose of any securities of the Company for a period of 12 months
from the date of closing of the Offering, without the prior written consent of
Allen. At the request of The Nasdaq National Market, Inc., Allen has agreed not
to consent to the transfer of shares of Common Stock issuable upon exercise of
the Bridge Warrants for such one-year period.
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UNDERWRITING
The Underwriters named below, acting through their representatives, Allen
and Barington (collectively, the "Representatives"), have severally agreed,
subject to the terms and conditions of the Underwriting Agreement, to purchase
from the Company the number of shares of Common Stock set forth opposite their
respective names below. The Underwriters are committed to purchase and pay for
all such shares if any are purchased.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- --------------------------------------------------------------------------- -----------------
<S> <C>
Allen & Company Incorporated...............................................
Barington Capital Group, L.P...............................................
-----------------
Total.................................................................. 4,000,000
-----------------
-----------------
</TABLE>
The Representatives have advised the Company that the Underwriters propose
to offer the Shares to the public at the offering price set forth on the cover
page of this Prospectus and that the Underwriters may allow to certain dealers
who are members of the National Association of Securities Dealers, Inc. (the
"NASD") concessions of not in excess of $ per share of Common Stock, of
which not in excess of $ may be reallowed to other dealers who are
members of the NASD. After the commencement of this Offering, the public
offering price, concession and reallowance to dealers may be reduced by the
Representatives. No such reduction shall change the amount of proceeds to be
received by the Company as set forth on the cover page of this Prospectus.
In connection with the Offering and after the Offering, the Underwriters may
engage in transactions that stabilize, maintain or otherwise affect the price of
the Common Stock. Specifically, the Underwriters may overallot the Offering,
creating a syndicate short position. Underwriters may bid for and purchase
shares of Common Stock in the open market. In addition, the Underwriters may bid
for and purchase shares of Common Stock in the open market to stabilize the
price of the Common Stock. These activities may stabilize, maintain or otherwise
affect the market price of the Common Stock above independent market levels. The
Underwriters are not required to engage in these activities and may end these
activities at any time.
The Company has granted to the Underwriters the Over-Allotment Option,
exercisable during the 45-day period after the closing date of the Offering, to
purchase up to an aggregate of 600,000 additional shares of Common Stock at the
initial public offering price, less underwriting discounts and commissions. The
Underwriters may exercise such option only for the purpose of covering
over-allotments made in connection with the sale of the Common Stock offered
hereby.
As is customary for such arrangements the Company has agreed to indemnify
the Underwriters and each person who controls any Underwriter (including Enrique
F. Senior, a director of the Company who is an Executive Vice President and
Managing Director of Allen) against certain liabilities in connection with the
Registration Statement, including liabilities under the Securities Act,
including for material misstatements or omissions contained in the Registration
Statement. In addition, the Underwriters have agreed to indemnify the Company
for such liabilities arising from material misstatements or omissions in
connection with disclosure for which the underwriters are responsible. Insofar
as indemnification for liabilities arising under the Securities Act maybe
permitted to the Underwriters, the Underwriters have been advised that, in the
opinion of the Commission, such indemnification is against public policy as
expressed in the Securities Act and is, therefore unenforceable.
61
<PAGE>
The Company has agreed to reimburse the Representatives their out-of-pocket
expenses incurred in connection with the Offering, which are estimated to be
$300,000.
The Company also has agreed to sell to the Representatives, or their
designees, Representatives' Warrants to purchase 400,000 shares of Common Stock
at a price of $0.001 per warrant. The Representatives' Warrants will be
exercisable for a period of five years, commencing on the effective date of the
Offering, at an initial per share exercise price equal to 120% of the initial
public offering price per share. The Representatives' Warrants cannot be
transferred, assigned or hypothecated for one year from the date of issuance,
except that they may be assigned, in whole or in part, to any successor, officer
or partner of the Representatives (or to officers or partners of any such
successor or partner). The Representatives' Warrants may be exercised as to all
or a lesser number of shares covered by the options and will contain certain
registration rights and anti-dilution provisions providing for appropriate
adjustment of the exercise price and number of shares which may be purchased
upon exercise, upon the occurrence of certain events. See "Risk Factors--Shares
Eligible for Future Sale; Registration Rights" and "Certain Transactions."
The Company has registered on behalf of the Representatives, under the
Registration Statement of which this Prospectus is a part, the shares of Common
Stock underlying the Representatives' Warrants.
The foregoing discussion of the material terms and provisions of the
Underwriting Agreement is qualified in its entirety by reference to the detailed
provisions of the Underwriting Agreement, the form of which has been filed as an
exhibit to the Registration Statement of which this Prospectus forms a part.
The Company, all of the existing shareholders of the Company and certain
existing warrantholders of the Company (including holders of the Bridge
Warrants) have executed agreements pursuant to which they have agreed not to
offer, pledge, sell, contract to sell, grant any option for the sale of or
otherwise dispose of any of the Company's securities held by them for a period
of 12 months from the date of closing of the Offering, without the prior written
consent of Allen, subject to certain limited exceptions. See "Shares Eligible
for Future Sale--Lock-up Agreements."
Allen and certain of its affiliates beneficially own an aggregate of 712,430
shares of the Company. Enrique F. Senior, an Executive Vice President and
Managing Director of Allen, is an optionholder of the Company and serves as a
Director of the Company. See "Principal Shareholders" and "Certain
Transactions." Consistent with the rules of the NASD, of which Allen is a
member, the Company may be deemed to be an affiliate of Allen, and this Offering
is therefore being made in conformity with the applicable provisions of such
rules, including Rule 2720 of the NASD Conduct Rules. Accordingly, the price of
the Shares being offered hereby is no higher than that recommended by Barington
Capital Group as "qualified independent underwriter" as defined in the
applicable provisions of the rules of the NASD; in connection with serving in
such capacity, Barington is assuming the responsibilities of acting as qualified
independent underwriter in pricing the Offering and in exercising the usual
standards of due diligence in respect thereto. As compensation for serving as a
Representative, Barington will receive 33.3% of the underwriting discounts and
commissions set forth on the front cover page of this Prospectus, as well as 5%
of the Representatives' Warrants. Barington will not receive any additional
compensation for serving as qualified independent underwriter. As compensation
for its participation in the Bridge Financing, Barington will receive a
commission equal to 5% of the gross proceeds to the Company of such Bridge
Financing, which commission shall be paid to Barington only upon closing of the
Offering.
Prior to the Offering, there has been no public market for the Common Stock.
Consequently, the initial public offering price of the shares of Common Stock
offered and sold in the Offering will be determined by negotiation among the
Company and the Representative and will not necessarily bear any relationship to
the Company's book value, assets, past operating results, financial condition,
or other established criteria of value. Factors to be considered in determining
such price, which will also be used as the basis for the exercise price for the
Representatives' Warrants, include the nature of the Company's business, its
history and present state of development, an assessment of the Company's recent
financial results and current financial condition, future prospects of the
Company, the qualifications of the
62
<PAGE>
Company's management, the general condition of the securities markets at the
time of the Offering, the recommendation of Barington as qualified independent
underwriter and other relevant factors. Allen may, after the Offering, serve as
a market maker for the Common Stock.
LEGAL MATTERS
The validity of the Common Stock offered hereby and legal matters will be
passed upon for the Company by Smith, Stratton, Wise, Heher & Brennan,
Princeton, New Jersey. A member of Smith, Stratton, Wise, Heher & Brennan serves
as the Secretary of the Company, for which services such member is not
compensated. Certain legal matters in connection with the Offering will be
passed upon for the Underwriters by Werbel & Carnelutti, a Professional
Corporation, New York, New York.
EXPERTS
The consolidated balance sheet as of June 30, 1997 and the consolidated
statements of operations, changes in shareholders' (deficit)/equity and cash
flows for each of the two years in the period ended June 30, 1997 and for the
period July 23, 1990 to June 30, 1997, included in this Prospectus, have been
included herein in reliance on the report, which includes an explanatory
paragraph with respect to the Company's ability to continue as a going concern,
of Coopers & Lybrand L.L.P., independent accountants, given on the authority of
that firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C., a Registration Statement on Form SB-2 (together
with all amendments, schedules and exhibits thereto, the "Registration
Statement") under the Securities Act with respect to the shares of Common Stock
offered hereby. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement, certain terms of which are omitted in accordance with the rules and
regulations of the Commission. For further information with respect to the
Company and the Common Stock, reference is made to the Registration Statement,
which may be inspected without charge, at the public reference facilities
maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549; Seven World Trade Center, 13th Floor, New York, New York
10048; and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies
of such materials may be obtained from the public reference section of the
Commission, 450 Fifth Street, N.W., Washington, D.C., 20549, at prescribed
rates. The Registration Statement is also publicly available through the
Commission's web site located at http://www.sec.gov.
63
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants.................................................... F-2
Financial Statements:
Balance Sheet...................................................................... F-3
Statements of Operations........................................................... F-4
Statements of Changes in Shareholders' (Deficit)/Equity............................ F-5
Statements of Cash Flows........................................................... F-10
Notes to Financial Statements........................................................ F-11
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders,
Princeton Video Image, Inc.:
We have audited the balance sheet of Princeton Video Image, Inc., a
development stage company, (the "Company"), as of June 30, 1997, and the related
statements of operations, changes in shareholders' (deficit)/equity, and cash
flows for each of the two years in the period ended June 30, 1997 and for the
period July 23, 1990 (date of inception) to June 30, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Princeton Video Image, Inc.
as of June 30, 1997, and the results of its operations and its cash flows for
each of the two years in the period ended June 30, 1997 and for the period July
23, 1990 (date of inception) to June 30, 1997 in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
which raises substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also discussed in Note 2. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Coopers & Lybrand L.L.P.
Princeton, New Jersey
September 11, 1997, except for
Note 14 for which
the date is October 1, 1997
F-2
<PAGE>
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED)
SEPTEMBER 30,
JUNE 30, 1997 1997
------------- -------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents......................................................... $ 775,693 $ 230,967
Restricted marketable securities held to maturity................................. 76,320 133,209
Trade accounts receivable......................................................... 86,993 162,775
Other current assets.............................................................. 37,532 72,474
------------- -------------
Total current assets.......................................................... 976,538 599,425
Property and equipment, net......................................................... 1,266,806 1,286,154
Intangible assets, net.............................................................. 388,754 398,269
Other assets........................................................................ 129,118 165,461
------------- -------------
Total assets.................................................................. $ 2,761,216 $ 2,449,309
------------- -------------
------------- -------------
LIABILITIES AND SHAREHOLDERS' (DEFICIT)/EQUITY
Current Liabilities:
Accounts payable and accrued expenses............................................. $ 976,646 $ 1,009,971
Unearned revenue.................................................................. 430,497 430,497
Customer deposits................................................................. 425,000 425,000
------------- -------------
Total current liabilities..................................................... 1,832,143 1,865,468
Unearned revenue.................................................................... 1,030,469 972,843
------------- -------------
Total liabilities............................................................. 2,862,612 2,838,311
------------- -------------
Commitments and contingencies....................................................... -- --
Redeemable preferred stock:
Cumulative, Series A, conditionally redeemable, $4.50 par value, authorized
167,000 shares; issued and outstanding 67,600 shares at June 30, 1997 and
September 30, 1997, redemption value equal to carrying value (par plus all
accrued but unpaid dividends)................................................... 385,200 389,762
Cumulative, Series B, conditionally redeemable, $5.00 par value, authorized 93,300
shares; issued and outstanding 86,041 shares at June 30, 1997 and September 30,
1997, redemption value equal to carrying value (par plus all accrued but unpaid
dividends)...................................................................... 518,355 524,805
------------- -------------
Total redeemable preferred stock.............................................. 903,555 914,567
Shareholders' (Deficit)/Equity:
Common stock, no par value; $.005 stated value; authorized 40,000,000 shares;
2,646,684 shares issued and outstanding and 291,756 shares subscribed at June
30, 1997; 3,308,472 shares issued and outstanding as of September 30, 1997...... 14,692 16,542
Additional paid-in capital........................................................ 19,910,396 21,197,302
Less: Related party note receivable............................................... (124,000) (839,263)
Deferred costs associated with planned initial public offering............... -- (192,289)
Stock subscription receivable................................................ (1,264,485) (6,945)
Deficit accumulated during the development stage.................................. (19,541,554) (21,478,916)
------------- -------------
Total shareholders' (deficit)/equity.......................................... (1,004,951) (1,303,569)
------------- -------------
Total liabilities, redeemable preferred stock and shareholders'
(deficit)/equity.......................................................... $ 2,761,216 $ 2,449,309
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to financial statements
F-3
<PAGE>
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(UNAUDITED)
JULY 23, 1990 FOR THE THREE MONTHS ENDED
FOR THE YEARS ENDED JUNE 30, (DATE OF SEPTEMBER 30,
---------------------------- INCEPTION) TO ----------------------------
1997 1996 JUNE 30, 1997 1997 1996
------------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
License fee................................ $ 130,526 $ 1,000,000 $ 1,130,526 $ 57,626 $ 25,000
Advertising revenue........................ 81,108 9,600 90,708 75,177 29,198
------------- ------------- -------------- ------------- -------------
Total revenue........................ 211,634 1,009,600 1,221,234 132,803 54,198
Costs and expenses:
Selling, general and administrative...... 3,028,895 2,602,928 9,284,704 1,223,811 738,130
Research and development................. 1,722,598 1,604,455 9,563,941 445,994 349,161
L-VIS System costs....................... 1,274,890 949,804 2,453,313 416,732 190,836
------------- ------------- -------------- ------------- -------------
Total costs and expenses............. 6,026,383 5,157,187 21,301,958 2,086,537 1,278,127
Operating loss............................. (5,814,749) (4,147,587) (20,080,724) (1,953,734) (1,223,929)
Interest and other income.................. (84,088) (237,063) (539,170) (16,372) (36,527)
------------- ------------- -------------- ------------- -------------
Net loss................................... (5,730,661) (3,910,524) (19,541,554) (1,937,362) (1,187,402)
Accretion of preferred stock dividends..... (44,050) (44,050) (169,150) (11,012) (11,012)
------------- ------------- -------------- ------------- -------------
Net loss applicable to common stock........ $ (5,774,711) $ (3,954,574) $ (19,710,704) $ (1,948,374) $ (1,198,414)
------------- ------------- -------------- ------------- -------------
------------- ------------- -------------- ------------- -------------
Net loss per share applicable to common
stock (see Note 2)..................... $ (2.18) $ (1.74) $ (0.60) $ (0.46)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Weighted average number of shares of
common stock outstanding............... 2,653,546 2,266,973 3,260,991 2,579,440
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
<CAPTION>
(UNAUDITED)
JULY 23, 1990
(DATE OF
INCEPTION) TO
SEPTEMBER 30,
1997
--------------
<S> <C>
License fee................................ $ 1,188,152
Advertising revenue........................ 165,885
--------------
Total revenue........................ 1,354,037
Costs and expenses:
Selling, general and administrative...... 10,508,515
Research and development................. 10,009,935
L-VIS System costs....................... 2,870,045
--------------
Total costs and expenses............. 23,388,495
Operating loss............................. (22,034,458)
Interest and other income.................. (555,542)
--------------
Net loss................................... (20,478,916)
Accretion of preferred stock dividends..... (180,162)
--------------
Net loss applicable to common stock........ $ (21,659,078)
--------------
--------------
Net loss per share applicable to common
stock (see Note 2).....................
Weighted average number of shares of
common stock outstanding...............
</TABLE>
See accompanying notes to financial statements
F-4
<PAGE>
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CHANGES IN SHAREHOLDERS' (DEFICIT)/EQUITY
FOR THE PERIOD JULY 23, 1990 (DATE OF INCEPTION) TO SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
RELATED PARTY TREASURY
COMMON STOCK NOTE AND STOCK
------------------------ ADDITIONAL* STOCK -----------
NUMBER OF PAID-IN SUBSCRIPTION DEFERRED NUMBER OF
SHARES AMOUNT CAPITAL RECEIVABLE IPO COSTS SHARES
----------- ----------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock for patent rights
and cash, July 1990, $.0025 per share... 400,000 $ 2,000 (1,000)
Issuance of common stock for services and
cash.................................... 52,000 260 $ 71,240
Issuance of units consisting of 2 shares
of common stock and warrants to purchase
6 shares of stock at $6.25 per share,
May 1991, $2.50 per unit................ 64,000 320 159,630
Net loss from July 23, 1990 through June
30, 1992................................
----------- ----------- ----------- ------------- ----------- -----------
Balance at June 30, 1992.................. 516,000 2,580 229,870
Return of common stock to treasury, April
1992 at no cost......................... (41,200)
Reissuance of treasury shares for
technology, April 1992.................. 103,000 41,200
Issuance of 32,000 warrants for
technology, July 1992, exercise price of
$2.50 per share......................... 32,000
Issuance of units consisting of 200 shares
of common stock and warrants to purchase
134 shares of common stock at $1.13 per
share, August 1992, $225.00 per unit.... 308,000 1,540 344,960
Issuance of 480 units consisting of 200
shares of common stock and 100 shares of
Conditionally Redeemable Series A
Preferred Stock, December 1992, $900.00
per unit................................ 96,000 480 215,520
Issuance of 196 units consisting of 200
shares of common stock and 100 shares of
conditionally Redeemable Series A
Preferred Stock, March 1993 $900.00 per
unit.................................... 39,200 196 88,004
Payments related to issuance of common
stock................................... (102,908)
Accretion of preferred stock dividends.... (8,000)
Net loss..................................
----------- ----------- ----------- ------------- ----------- -----------
Balance at June 30, 1993.................. 959,200 4,796 902,446
----------- ----------- ----------- ------------- ----------- -----------
<CAPTION>
DEFICIT
ACCUMULATED
DURING THE TOTAL
UNEARNED DEVELOPMENT SHAREHOLDERS'
AMOUNT COMPENSATION STAGE EQUITY/(DEFICIT)
----------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
Issuance of common stock for patent rights
and cash, July 1990, $.0025 per share... $ 1,000
Issuance of common stock for services and
cash.................................... 71,500
Issuance of units consisting of 2 shares
of common stock and warrants to purchase
6 shares of stock at $6.25 per share,
May 1991, $2.50 per unit................ 159,950
Net loss from July 23, 1990 through June
30, 1992................................ $ (375,669) (375,669)
----- ------------- ------------ --------------
Balance at June 30, 1992.................. (375,669) (143,219)
Return of common stock to treasury, April
1992 at no cost......................... $ (206) (206)
Reissuance of treasury shares for
technology, April 1992.................. 206 103,206
Issuance of 32,000 warrants for
technology, July 1992, exercise price of
$2.50 per share......................... 32,000
Issuance of units consisting of 200 shares
of common stock and warrants to purchase
134 shares of common stock at $1.13 per
share, August 1992, $225.00 per unit.... 346,500
Issuance of 480 units consisting of 200
shares of common stock and 100 shares of
Conditionally Redeemable Series A
Preferred Stock, December 1992, $900.00
per unit................................ 216,000
Issuance of 196 units consisting of 200
shares of common stock and 100 shares of
conditionally Redeemable Series A
Preferred Stock, March 1993 $900.00 per
unit.................................... 88,200
Payments related to issuance of common
stock................................... (102,908)
Accretion of preferred stock dividends.... (8,000)
Net loss.................................. (1,819,277) (1,819,277)
----- ------------- ------------ --------------
Balance at June 30, 1993.................. (2,194,946) (1,287,704)
----- ------------- ------------ --------------
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE>
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CHANGES IN SHAREHOLDERS' (DEFICIT)/EQUITY
FOR THE PERIOD JULY 23, 1990 (DATE OF INCEPTION) TO SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
RELATED
PARTY
COMMON STOCK NOTE AND TREASURY STOCK
---------------------- ADDITIONAL STOCK ------------------------
NUMBER OF PAID-IN SUBSCRIPTION DEFERRED NUMBER OF
SHARES AMOUNT CAPITAL RECEIVABLE IPO COSTS SHARES AMOUNT
----------- --------- ----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1993............... 959,200 4,796 902,446
Issuance of common stock and warrants
to purchase 132,074 shares of common
stock at $12.12 per share, August
1993................................. 61,906 309 658,309
Exercise of warrants at $12.12 per
share, January 1994.................. 82,542 413 949,587
Issuance of 86 units consisting of
2,000 shares of common stock, 1,000
shares of Conditionally Redeemable
Series B Preferred Stock and warrants
to purchase 2,000 shares of common
stock at $12.50 per share, February
1994, $30,000.00 per unit............ 172,000 860 1,970,381
Unearned compensation related to
issuance of 80,000 options, February
1994, exercise price of $11.25 per
share................................ 360,000
Issuance of common stock on account,
March 1994, $12.50 per share......... 48,000 240 598,328 (598,568)
Issuance of common stock and warrants
to purchase 450,000 shares of common
stock at $12.50 per share, April
1994................................. 120,000 600 1,445,015
Issuance of common stock, April 1994,
$12.50 per share..................... 24,000 120 299,880
Issuance of common stock, June 1994,
$15.00 per share..................... 60,000 300 830,022
Amortization of unearned compensation
related to issuance of options.......
Accretion of preferred stock
dividends............................ (29,000)
Net loss...............................
----------- --------- ----------- ------------ ----------- ----------- -----
Balance at June 30, 1994............... 1,527,648 7,638 7,984,968 (598,568)
----------- --------- ----------- ------------ ----------- ----------- -----
<CAPTION>
DEFICIT
ACCUMULATED
DURING THE TOTAL
UNEARNED DEVELOPMENT SHAREHOLDERS'
COMPENSATION STAGE EQUITY/(DEFICIT)
------------- ------------ --------------
<S> <C> <C> <C>
Balance at June 30, 1993............... (2,194,946) (1,287,704)
Issuance of common stock and warrants
to purchase 132,074 shares of common
stock at $12.12 per share, August
1993................................. 658,618
Exercise of warrants at $12.12 per
share, January 1994.................. 950,000
Issuance of 86 units consisting of
2,000 shares of common stock, 1,000
shares of Conditionally Redeemable
Series B Preferred Stock and warrants
to purchase 2,000 shares of common
stock at $12.50 per share, February
1994, $30,000.00 per unit............ 1,971,241
Unearned compensation related to
issuance of 80,000 options, February
1994, exercise price of $11.25 per
share................................ (360,000) 0
Issuance of common stock on account,
March 1994, $12.50 per share......... 0
Issuance of common stock and warrants
to purchase 450,000 shares of common
stock at $12.50 per share, April
1994................................. 1,445,615
Issuance of common stock, April 1994,
$12.50 per share..................... 300,000
Issuance of common stock, June 1994,
$15.00 per share..................... 830,322
Amortization of unearned compensation
related to issuance of options....... 60,000 60,000
Accretion of preferred stock
dividends............................ (29,000)
Net loss............................... (4,263,754) (4,263,754)
------------- ------------ --------------
Balance at June 30, 1994............... (300,000) (6,458,700) 635,338
------------- ------------ --------------
</TABLE>
See accompanying notes to financial statements
F-6
<PAGE>
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CHANGES IN SHAREHOLDERS' (DEFICIT)/EQUITY
FOR THE PERIOD JULY 23, 1990 (DATE OF INCEPTION) TO SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
COMMON STOCK RELATED PARTY TREASURY STOCK
------------------------ ADDITIONAL NOTE AND STOCK ------------------------
NUMBER OF PAID-IN SUBSCRIPTION DEFERRED NUMBER OF
SHARES AMOUNT CAPITAL RECEIVABLE IPO COSTS SHARES AMOUNT
----------- ----------- ---------- ---------------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1994............ 1,527,648 7,638 7,984,968 (598,568)
Issuance of common stock, warrants
to purchase 70,000 shares of
common stock at $15.00 per share
and warrants to purchase 70,000
shares of common stock at $20.00
per share, July 1994.............. 140,000 700 2,082,600
Issuance of common stock, April
1995, $12.50 per share............ 11,746 59 146,767
Exercise of warrants at $12.50 per
share, May 1995................... 105,300 527 1,298,231 (124,000)
Compensation expense in connection
with note receivable, May 1995.... 24,800
Unearned compensation related to
issuance 20,000 options, June
1995, exercise price of $15.00 per
share............................. 120,000
Receipt of stock subscription
receivable........................ 598,568
Amortization of unearned
compensation related to issuance
of options........................
Accretion of preferred stock
dividends......................... (44,050)
Net loss............................
----------- ----------- ---------- -------- ---------- ----------- -----
Balance at June 30, 1995............ 1,784,694 8,924 11,613,316 (124,000)
----------- ----------- ---------- -------- ---------- ----------- -----
<CAPTION>
DEFICIT
ACCUMULATED
DURING THE TOTAL
UNEARNED DEVELOPMENT SHAREHOLDERS'
COMPENSATION STAGE EQUITY/(DEFICIT)
------------- ------------ --------------
<S> <C> <C> <C>
Balance at June 30, 1994............ (300,000) (6,458,700) 635,338
Issuance of common stock, warrants
to purchase 70,000 shares of
common stock at $15.00 per share
and warrants to purchase 70,000
shares of common stock at $20.00
per share, July 1994.............. 2,083,300
Issuance of common stock, April
1995, $12.50 per share............ 146,826
Exercise of warrants at $12.50 per
share, May 1995................... 1,174,758
Compensation expense in connection
with note receivable, May 1995.... 24,800
Unearned compensation related to
issuance 20,000 options, June
1995, exercise price of $15.00 per
share............................. (120,000) 0
Receipt of stock subscription
receivable........................ 598,568
Amortization of unearned
compensation related to issuance
of options........................ 180,000 180,000
Accretion of preferred stock
dividends......................... (44,050)
Net loss............................ (3,441,669) (3,441,669)
------------- ------------ --------------
Balance at June 30, 1995............ (240,000) (9,900,369) 1,357,871
------------- ------------ --------------
</TABLE>
See accompanying notes to financial statements
F-7
<PAGE>
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CHANGES IN SHAREHOLDERS' (DEFICIT)/EQUITY
FOR THE PERIOD JULY 23, 1990 (DATE OF INCEPTION) TO SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
COMMON STOCK RELATED PARTY TREASURY STOCK
------------------ ADDITIONAL NOTE AND STOCK ------------------
NUMBER OF PAID-IN SUBSCRIPTION DEFERRED NUMBER OF
SHARES AMOUNT CAPITAL RECEIVABLE IPO COSTS SHARES AMOUNT
--------- ------- ----------- -------------- --------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1995................ 1,784,694 8,924 11,613,316 (124,000)
Issuance of .041 units consisting of
2,000 shares of common stock, 1,000
shares of Conditionally Redeemable
Series B Preferred Stock and warrants
to purchase 2,000 shares of common
stock at $12.50 per share, October
1995, $30,000.00 per unit............. 82 0.5 1,025
Issuance of common stock, October 1995,
$12.50 per share...................... 128 0.5 1,600
Issuance of common stock and warrants to
purchase 10,932 shares of common stock
at $12.50 per share, October 1995..... 888 4 11,096
Exercise of warrants at $12.50 per
share, October 1995................... 2,000 10 19,990
Issuance of common stock, February 1996,
$17.50 per share...................... 282,266 1,411 4,558,798
Issuance of 24,000 warrants to joint
venture partner March 1996, exercise
price of $15.00 per share............. 120,000
Exercise of warrants at $1.13 per share,
April 1996............................ 938 5 1,050
Exercise of warrants at $6.25 per share,
May 1996.............................. 170,000 850 1,061,650
Issuance of 15,794 warrants for services
performed during 1996, exercise price
of $15.00 per share................... 71,075
Amortization of unearned compensation
related to issuance of options........
Accretion of preferred stock
dividends............................. (44,050)
Net loss................................
--------- ------- ----------- -------------- --------- --------- ------
Balance at June 30, 1996................ 2,240,996 $11,205 $17,415,550 $(124,000)
--------- ------- ----------- -------------- --------- --------- ------
--------- ------- ----------- -------------- --------- --------- ------
<CAPTION>
DEFICIT
ACCUMULATED
DURING THE TOTAL
UNEARNED DEVELOPMENT SHAREHOLDERS'
COMPENSATION STAGE EQUITY/(DEFICIT)
------------ ------------- ----------------
<S> <C> <C> <C>
Balance at June 30, 1995................ (240,000) (9,900,369) 1,357,871
Issuance of .041 units consisting of
2,000 shares of common stock, 1,000
shares of Conditionally Redeemable
Series B Preferred Stock and warrants
to purchase 2,000 shares of common
stock at $12.50 per share, October
1995, $30,000.00 per unit............. 1,025.5
Issuance of common stock, October 1995,
$12.50 per share...................... 1,600.5
Issuance of common stock and warrants to
purchase 10,932 shares of common stock
at $12.50 per share, October 1995..... 11,100
Exercise of warrants at $12.50 per
share, October 1995................... 20,000
Issuance of common stock, February 1996,
$17.50 per share...................... 4,560,209
Issuance of 24,000 warrants to joint
venture partner March 1996, exercise
price of $15.00 per share............. 120,000
Exercise of warrants at $1.13 per share,
April 1996............................ 1,055
Exercise of warrants at $6.25 per share,
May 1996.............................. 1,062,500
Issuance of 15,794 warrants for services
performed during 1996, exercise price
of $15.00 per share................... 71,075
Amortization of unearned compensation
related to issuance of options........ 240,000 240,000
Accretion of preferred stock
dividends............................. (44,050)
Net loss................................ (3,910,524) (3,910,524)
------------ ------------- ----------------
Balance at June 30, 1996................ $(13,810,893) $ 3,491,862
------------ ------------- ----------------
------------ ------------- ----------------
</TABLE>
See accompanying notes to financial statements
F-8
<PAGE>
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CHANGES IN SHAREHOLDERS' (DEFICIT)/EQUITY
FOR THE PERIOD JULY 23, 1990 (DATE OF INCEPTION) TO SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
RELATED PARTY
COMMON STOCK NOTE AND
------------------ ADDITIONAL STOCK
NUMBER OF PAID-IN SUBSCRIPTION DEFERRED
SHARES AMOUNT CAPITAL RECEIVABLE IPO COSTS
--------- ------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1996.................................. 2,240,996 11,205 17,415,550 (124,000)
Exercise of warrants at $2.50 per share, August 1996...... 8,000 40 19,960
Exercise of warrants at $2.50 per share, September 1996... 4,000 20 9,980
Exercise of warrants at $1.13 per share, May 1997......... 97,930 490 109,681
Issuance of common stock on account, May 1997, $3.75 per
share................................................... 587,514 2,937 2,172,013 (1,264,485)
Issuance of 4,206 warrants for services performed during
1997, exercise price of $15.00 per share................ 18,927
Accretion of preferred stock dividends.................... (44,050)
Compensation expense associated with extension of employee
stock options........................................... 208,335
Net loss..................................................
--------- ------- ----------- ------------- -------------
Balance at June 30, 1997.................................. 2,938,440 $14,692 $19,910,396 $(1,388,485)
Exercise of warrants at $1.13 per share (unaudited)....... 51,062 255 57,189
Exercise of warrants at $2.50 per share July 1997
(unaudited)............................................. 282,000 1,410 703,590 (655,000)
Compensation expense in connection with notes receivable,
July 1997 (unaudited)................................... 360,250
Issuance of 36,970 shares with respect to anti-dilution
rights in July 1997 (unaudited)......................... 36,970 185 (185)
Compensation expense related to issuance of 20,000
options, September 30, 1997, exercise price of $2.50 per
share (unaudited)....................................... 80,000
Issuance of 20,000 warrants in settlement of obligation
accrued, September 1997, exercise price $4.50 per share
(unaudited)............................................. 90,000
Issuance of 1,572 warrants in settlement of obligation
accrued, September 1997, exercise price $15.00 per share
(unaudited)............................................. 7,074
Collection of stock subscriptions receivable
(unaudited)............................................. 1,197,277
Deferred costs associated with planned initial public
offering (unaudited).................................... (192,289)
Accretion of preferred stock dividends (unaudited)........ (11,012)
Net loss (unaudited)......................................
--------- ------- ----------- ------------- -------------
Balance at September 30, 1997 (unaudited)................. 3,308,472 $16,542 $21,197,302 $ (846,208) (192,289)
--------- ------- ----------- ------------- -------------
--------- ------- ----------- ------------- -------------
<CAPTION>
DEFICIT
TREASURY STOCK ACCUMULATED
NUMBER OF DURING THE TOTAL
--------------- UNEARNED DEVELOPMENT SHAREHOLDERS'
SHARES AMOUNT COMPENSATION STAGE EQUITY/(DEFICIT)
------ ------ ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1996.................................. (13,810,893) 3,491,862
Exercise of warrants at $2.50 per share, August 1996...... 20,000
Exercise of warrants at $2.50 per share, September 1996... 10,000
Exercise of warrants at $1.13 per share, May 1997......... 110,171
Issuance of common stock on account, May 1997, $3.75 per
share................................................... 910,465
Issuance of 4,206 warrants for services performed during
1997, exercise price of $15.00 per share................ 18,927
Accretion of preferred stock dividends.................... (44,050)
Compensation expense associated with extension of employee
stock options........................................... 208,335
Net loss.................................................. (5,730,661) (5,730,661)
------ ------ ----- ------------ ----------------
Balance at June 30, 1997.................................. $(19,541,554) $(1,004,951)
Exercise of warrants at $1.13 per share (unaudited)....... 57,444
Exercise of warrants at $2.50 per share July 1997
(unaudited)............................................. 50,000
Compensation expense in connection with notes receivable,
July 1997 (unaudited)................................... 360,250
Issuance of 36,970 shares with respect to anti-dilution
rights in July 1997 (unaudited)......................... --
Compensation expense related to issuance of 20,000
options, September 30, 1997, exercise price of $2.50 per
share (unaudited)....................................... 80,000
Issuance of 20,000 warrants in settlement of obligation
accrued, September 1997, exercise price $4.50 per share
(unaudited)............................................. 90,000
Issuance of 1,572 warrants in settlement of obligation
accrued, September 1997, exercise price $15.00 per share
(unaudited)............................................. 7,074
Collection of stock subscriptions receivable
(unaudited)............................................. 1,197,277
Deferred costs associated with planned initial public
offering (unaudited).................................... (192,289)
Accretion of preferred stock dividends (unaudited)........ (11,012)
Net loss (unaudited)...................................... (1,937,362) (1,937,362)
------ ------ ----- ------------ ----------------
Balance at September 30, 1997 (unaudited)................. $ 0 $ 0 $ 0 $(21,478,916) $(1,303,569)
------ ------ ----- ------------ ----------------
------ ------ ----- ------------ ----------------
</TABLE>
See accompanying notes to financial statements
F-9
<PAGE>
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(UNAUDITED)
(UNAUDITED) JULY 23, 1990
FOR THE YEARS ENDED JULY 23, 1990 FOR THE THREE MONTHS (DATE OF
JUNE 30, (DATE OF ENDED SEPTEMBER 30, INCEPTION)
---------------------- INCEPTION) ---------------------- TO SEPTEMBER 30,
1997 1996 TO JUNE 30, 1997 1997 1996 1997
---------- ---------- ----------------- ---------- ---------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.............................. $(5,730,661) $(3,910,524) $ (19,541,554) $(1,937,362) $(1,187,402) $ (21,478,916)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Amortization of unearned income... (130,526) -- (130,526) (57,626) (25,000) (188,152)
Depreciation expense.............. 478,982 294,765 999,600 146,646 103,141 1,146,246
Amortization of intangibles....... 57,490 10,871 112,347 16,734 14,372 129,081
Charges associated with option and
warrant grants and related party
note receivable................. 227,262 431,075 1,058,137 440,250 169,167 1,498,387
Equity in net loss of affiliate... -- -- 9,048 -- -- 9,048
Increase (decrease) in cash
resulting from changes in:
Trade accounts receivable..... (78,293) (8,700) (86,993) (75,782) (40,200) (162,775)
Current assets................ 77,244 (73,288) (37,532) (23,231) 93,796 (60,763)
Other assets.................. (572) (66,080) (129,118) (36,343) (80) (165,461)
Accounts payable and accrued
expenses.................... 379,044 149,597 976,646 (85,312) (80,102) 891,334
Unearned revenue.............. 391,492 (800,000) 1,591,492 -- 40,000 1,591,492
Customer deposits............. 125,000 300,000 425,000 -- -- 425,000
Miscellaneous other........... 108,274 19,312 119,354 6,821 34,475 126,175
---------- ---------- ----------------- ---------- ---------- -----------------
Net cash used in operating
activities.................. (4,095,264) (3,652,972) (14,634,099) (1,605,205) (877,833) (16,239,304)
---------- ---------- ----------------- ---------- ---------- -----------------
Cash flows from investing activities:
Purchase of held-to-maturity
investments......................... (75,535) (3,027,826) (5,289,558) (52,000) (501,878) (5,341,558)
Proceeds from held-to-maturity
investments......................... 3,000,000 2,200,000 5,200,000 0 3,000,000 5,200,000
Purchases of property and equipment... (523,221) (879,958) (2,278,414) (165,994) (41,137) (2,444,408)
Increase in intangible assets......... (87,632) (207,569) (595,209) (26,249) (26,622) (621,458)
Investments in joint venture.......... -- -- (9,048) -- -- (9,048)
---------- ---------- ----------------- ---------- ---------- -----------------
Net cash provided by (used in)
investing activities.......... 2,313,612 (1,915,353) (2,972,229) (244,243) 2,430,363 (3,216,472)
---------- ---------- ----------------- ---------- ---------- -----------------
Cash flows from financing activities:
Proceeds from issuances of preferred
stock............................... -- 205 734,405 0 0 734,405
Proceeds from issuances of common
stock............................... 1,050,636 5,657,490 17,647,616 1,304,722 30,000 18,952,338
---------- ---------- ----------------- ---------- ---------- -----------------
Net cash provided by financing
activities.................... 1,050,636 5,657,695 18,382,021 1,304,722 30,000 19,686,743
---------- ---------- ----------------- ---------- ---------- -----------------
Net increase (decrease) in cash
and cash equivalents.......... (731,016) 89,370 775,693 (544,726) 1,582,530 230,967
Cash and cash equivalents at beginning
of period............................. 1,506,709 1,417,339 0 775,693 1,506,709 0
---------- ---------- ----------------- ---------- ---------- -----------------
---------- ---------- ----------------- ---------- ---------- -----------------
Cash and cash equivalents at end of
period................................ $ 775,693 $1,506,709 $ 775,693 $ 230,967 $3,089,239 $ 230,967
---------- ---------- ----------------- ---------- ---------- -----------------
---------- ---------- ----------------- ---------- ---------- -----------------
Supplemental cash flow information:
Subscriptions received in connection
with issuance of stock.............. $1,264,485
Deferred costs associated with planned
initial public offering
(unaudited)......................... $ 192,289
Deferred debt issuance costs
(unaudited)......................... 11,711
Fair value of warrants issued in
settlement of accrued obligation
(unaudited)......................... 97,074
</TABLE>
See accompanying notes to financial statements
F-10
<PAGE>
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION RELATED TO THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 IS
UNAUDITED)
1. ORGANIZATION:
Princeton Video Image, Inc., formerly known as Princeton Electronic
Billboard, Inc. ("the Company"), was incorporated on July 23, 1990 in the State
of New Jersey. The Company has developed a Live Video Insertion System (the
"L-VIS System") which utilizes proprietary software and hardware to insert
images into a live television sports broadcast so that the images appear to
actually exist in the stadium where the game is being played. The Company is
marketing this system to advertisers for use in real time insertion of an image
into television transmissions of a live sporting event. The Company intends to
market its systems on a worldwide basis through licensing agreements or the
formation of joint ventures.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern and contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business.
Therefore, the financial statements do not include any adjustments relating to
the recoverability and classification of recorded asset amounts or the amounts
and classification of liabilities that might result from the outcome of this
uncertainty.
The Company has generated minimal revenues to date, incurred recurring
losses since inception and has an accumulated deficit of approximately $19.5
million at June 30, 1997 and $21.5 million as of September 30, 1997. The Company
also has significant liquidity requirements to fund the continuation of
operations. As a result, continuation of the business is dependent on the
ability of the Company to successfully market its technology and obtain
sufficient working capital to finance the continuation of operations.
Management's plans include the continuation of marketing efforts aimed at
generating revenue and to obtain additional funds for working capital
requirements through a public or private placement of debt or equity
instruments. There can be no assurance that the Company will be successful in
its attempt to consummate the aforementioned plans. Further, there can be no
assurance, assuming the Company successfully raises additional funds, that the
Company will achieve profitability or positive cash flow. If the Company is
unable to obtain adequate additional financing, management will be required to
substantially curtail the Company's research and development programs and to
curtail certain other of its operations.
DEVELOPMENT STAGE COMPANY
The accompanying financial statements have been prepared in accordance with
the provisions of Statement of Financial Accounting Standard No. 7, "Accounting
and Reporting by Development Stage Enterprises."
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of petty cash on hand, checking accounts,
money market funds, and all highly liquid debt instruments purchased with a
maturity of three months or less.
F-11
<PAGE>
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATED TO THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 IS
UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
INVESTMENTS
Investments in and the operating results of joint ventures in which the
Company has a 50% interest or otherwise exercises significant influence are
accounted for on the basis of the equity method of accounting.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is provided using the straight-line method over the estimated
useful lives of the respective assets, principally three to seven years. Gains
or losses on depreciable assets retired or sold are recognized in the statement
of operations in the year of disposal.
INTANGIBLE ASSETS
Legal costs incurred to apply for patents are capitalized. Effective July 1,
1996, the Company began amortizing these costs using the straight line method
over an estimated useful life of 7 years, which is shorter than the legal life.
Prior to that date, these costs were amortized over 14 years.
INCOME TAXES
The Company accounts for income taxes by recognizing deferred tax assets and
liabilities for the expected future tax consequences of temporary differences
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the years in which the differences are expected
to reverse.
REVENUE
Non-refundable license fees are recognized as revenue when earned, which is
when all related commitments have been satisfied (see Note 5). Additionally,
under the terms of certain existing agreements, the Company retains title to the
L-VIS System and receives a non-refundable fee which reflects reimbursement for
the construction cost of the system delivered to the licensee. These fees are
recorded as license revenue on a straight-line basis over the shorter of the
license term or useful life of the equipment.
Advertising revenue is recognized when earned, which is when the respective
advertisements are inserted into a television broadcast.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred. Costs associated
with the development of the Company's proprietary computer system which are
incurred prior to technological feasibility are recorded as research and
development expenses.
PER SHARE DATA
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
Topic 4-D, certain issuances of common stock and stock options and warrants
granted by the Company during the twelve months preceding the Company's initial
public offering have been included in the calculation of net loss
F-12
<PAGE>
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATED TO THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 IS
UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
per share applicable to common stock as if they were outstanding for all periods
presented, using the treasury stock method at an assumed public offering price
of $7.00 per share.
Net loss per share applicable to common stock calculated in accordance with
APB Opinion No. 15 ("APB 15") is shown below. The weighted average number of
shares outstanding excludes the number of common shares issuable upon the
exercise of outstanding stock options and warrants since such inclusion would be
antidilutive.
<TABLE>
<CAPTION>
(UNAUDITED)
FOR THE YEARS ENDED FOR THE THREE MONTHS
JUNE 30 ENDED SEPTEMBER 30
---------------------- ----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net loss per share applicable to common stock................. $(2.43) $(2.05) $(0.60) (0.53)
Weighted average number of common shares outstanding.......... 2,372,065 1,933,196 3,240,991 2,245,663
</TABLE>
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128")
which supercedes APB 15. SFAS 128 replaces the presentation of primary earnings
per share with a presentation of basic earnings per share which excludes
dilution and is computed by dividing income available to common stockholders by
the weighted average number of common shares outstanding during the period. SFAS
128 also requires dual presentation of basic earnings per share and diluted
earnings per share on the face of the income statement for all periods
presented. Diluted earnings per share is computed similarly to full diluted
earnings per share pursuant to APB 15, with some modifications. SFAS 128 is
effective for financial statements issued for periods ending after December 15,
1997, including interim periods. The Company will present earnings per share in
accordance with SFAS 128 commencing in fiscal year 1998.
RISK AND UNCERTAINTIES
The Company is subject to a number of risks common to companies in similar
stages of development including, but not limited to, the lack of assurance of
the marketability of the product, the need to raise substantial additional
funds, the risk of technological obsolescence and limited source of supply of
certain components of the L-VIS System.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1996 financial statements to
conform with the 1997 presentation.
F-13
<PAGE>
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATED TO THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 IS
UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
INTERIM FINANCIAL INFORMATION
The financial information presented as of September 30, 1997 and for the
three months ended September 30, 1997 and 1996 and for the period July 23, 1990
(date of inception) to September 30, 1997, in the opinion of management,
reflects all adjustments (which consist of normal accruals) necessary for a fair
presentation of such financial information.
NEW PRONOUNCEMENTS
The Financial Accounting Standards Board issued Financial Accounting
Standard No. 130, "Reporting Comprehensive Income" ("SFAS 130") in June 1997.
Comprehensive income represents the change in net assets of a business
enterprise as a result of nonowner transactions. Management does not believe
that the future adoption of SFAS 130 will have a material effect on the
Company's financial position and results of operations. The Company will adopt
SFAS 130 for the year ending June 30, 1998.
Also in June 1997, the Financial Accounting Standards Board issued Financial
Accounting Standard No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS 131"). SFAS 131 requires that a business enterprise
report certain information about operating segments, products and services,
geographic areas of operation, and major customers in complete sets of financial
statements and in condensed financial statements for interim periods. The
Company will adopt SFAS 131 in 1998.
3. RESTRICTED MARKETABLE SECURITIES HELD TO MATURITY:
At June 30, 1997, the Company had investments in U.S. Treasury Notes which,
at the time of purchase, had a maturity greater than three months but less than
one year and are restricted as to use under the terms of an existing letter of
credit. The Company intends to hold to these debt instruments to maturity and
has accordingly classified them as marketable securities held to maturity at
their amortized cost basis. Unrealized holding losses totaled $206 at June 30,
1997.
4. INVESTMENTS IN JOINT VENTURES:
In 1993, the Company formed a joint venture, Publicidad Virtual S.A. de
C.V., ("Publicidad"), with Presencia en Medios, S.A. de C.V. ("Presencia"), a
Mexican corporation, for purposes of marketing the Company's technology in Latin
America and the Spanish language markets in the Caribbean basin. The Company and
Presencia each own 50% of the voting shares and share equally in the net
earnings of Publicidad. At June 30, 1997, the Company's investment in Publicidad
amounted to $0, reflecting the Company's equity in Publicidad. The Company has
not recognized losses in excess of its investment in Publicidad as it has no
commitment to fund Publicidad's operations.
Under the terms of the joint venture agreement, Presencia manages the
day-to-day operations of Publicidad and is obligated to make such loans or
additional contributions as are necessary to carry out the business. The Company
has no further obligation to the joint venture. In 1994, Publicidad, through
additional contributions made by Presencia, paid the Company $2,000,000 for an
exclusive, royalty-free license granting Publicidad the right to commercially
market the Company's technology in Latin America and the Spanish-speaking
Caribbean. (See Note 5).
F-14
<PAGE>
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATED TO THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 IS
UNAUDITED)
5. LICENSE FEES:
In connection with the joint venture noted above, the Company received a
non-refundable fee of $2,000,000. The Company recognized 50% of this fee
($1,000,000 based upon its percentage ownership in Publicidad) in 1996 when all
the deliverables as defined in the agreement were met. The Company recognized
$100,000 of license fees as revenue relating to the amortization of unearned
revenue in 1997. The remaining $900,000 of unearned revenue, of which $100,000
is included in current liabilities and the remainder in long-term at June 30,
1997, is being amortized into income over a 10 year period commencing July 1,
1996.
Under the terms of certain existing agreements, the Company retains title to
the L-VIS System and receives a non-refundable fee which reflects reimbursement
for the construction cost of the system delivered to the licensee. These fees
are recorded as license revenue on a straight-line basis over the shorter of the
license term or the useful life of the equipment. During 1997, the Company
received $391,492 of such fees, of which $30,526 was recognized as license fee
revenue. The remaining $360,966 is included in unearned revenue, of which
$130,497 is current.
6. PROPERTY AND EQUIPMENT:
The costs and accumulated depreciation of property and equipment at June 30,
1997 are summarized as follows:
<TABLE>
<CAPTION>
1997
------------
<S> <C>
Furniture and fixtures.............................................................................. $ 61,281
Leasehold improvements.............................................................................. 22,583
Office equipment.................................................................................... 802,856
L-VIS Systems....................................................................................... 566,292
Research and development equipment and software..................................................... 417,645
Spare parts......................................................................................... 319,296
------------
Total property and equipment.................................................................. 2,189,953
Less: accumulated depreciation.................................................................... (923,147)
------------
Property and equipment, net......................................................................... $ 1,266,806
------------
------------
</TABLE>
Depreciation expense amounted to $478,982 and $294,765 for the years ended
June 30, 1997 and 1996, respectively.
F-15
<PAGE>
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATED TO THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 IS
UNAUDITED)
7. INTANGIBLE ASSETS:
The costs and accumulated amortization at June 30, 1997 are summarized as
follows:
<TABLE>
<CAPTION>
1997
----------
<S> <C>
Patents............................................................................................... $ 182,358
Patent Applications in Progress....................................................................... 273,084
----------
Total Intangible Assets......................................................................... 455,442
Less: Accumulated amortization.................................................................. (66,688)
----------
Intangible Assets, net.......................................................................... $ 388,754
----------
----------
</TABLE>
Amortization expense amounted to $57,490 and $10,871 for the years ended
June 30, 1997 and 1996, respectively. On May 6, 1997 and August 6, 1996,
respectively, the Company was granted patents relating to a pattern recognition
system to detect specific objects in a video field and a system and method for a
downstream application and control electronic billboard system.
8. INCOME TAXES:
Temporary differences which give rise to significant deferred tax assets and
liabilities at June 30, 1997 are as follows:
<TABLE>
<CAPTION>
1997
-------------
<S> <C>
Deferred tax assets:
Capitalized start-up costs....................................................................... $ 798,000
Fixed assets..................................................................................... 176,000
Deferred revenue and other....................................................................... 484,000
Net operating loss carryforwards................................................................. 2,176,000
State taxes...................................................................................... 1,456,000
Valuation allowance--Federal..................................................................... (3,479,000)
Valuation allowance--State....................................................................... (1,456,000)
-------------
Total deferred tax assets.................................................................... $ 155,000
Deferred tax liabilities:
Intangibles...................................................................................... 155,000
-------------
Total deferred tax liabilities............................................................... 155,000
-------------
Net deferred taxes......................................................................... $ 0
-------------
-------------
</TABLE>
Due to the uncertainty of the realization of the deferred tax assets, a full
valuation allowance has been provided.
As of June 30, 1997, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $6,400,000, which expire in the
years 2006 through 2012. At September 30, 1997, the Company had available net
operating loss carryforwards of approximately $7,800,000. The available net
operating losses are based on the assumption that the Company has gone through a
change in ownership pursuant to Internal Revenue Code ("IRC") Section 382 during
the fiscal year ended June 30, 1997 as a result of the May 1997 Rights Offering.
Under IRC Section 382, the amount of the net operating loss carryforwards that
are available to offset taxable income in any particular year is severely
limited.
F-16
<PAGE>
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATED TO THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 IS
UNAUDITED)
8. INCOME TAXES: (CONTINUED)
Although the Company has determined its net operating losses as if it had
undergone a change of ownership pursuant to IRC Section 382, the Company has not
yet finalized the analysis to make an actual determination of whether such a
change has occurred. Therefore, if such a change has not occurred during the
fiscal year ended June 30, 1997, the amount of net operating loss carryforwards
available in total and on an annual basis may be increased.
9. COMMON AND PREFERRED STOCK:
COMMON STOCK
Pursuant to its Restated Certificate of Incorporation, the Company is
prohibited from paying any dividends on the Common Stock until all accumulated
dividends in respect of the Series A Preferred Stock and Series B Preferred
Stock have been paid.
In May 1995, certain investors in the Company, which included a member of
the Company's current Board of Directors, signed notes ("the Notes") for
$124,000 in consideration for amounts owed under a stock subscription agreement.
The underlying shares of common stock are being held by the transfer agent until
the proceeds from the Notes are received by the Company. These Notes, which bear
interest at a rate of 9%, contain no recourse provisions by which the Company
can enforce collection. Accordingly, a $24,800 charge to general and
administrative expense was recorded in fiscal year 1995 for the excess of the
fair value of the Company's common stock in May 1995 over the purchase price of
the common stock associated with the underlying subscription agreement.
Additionally, the Company did not receive amounts owed upon the maturity of the
Notes in May 1997 and has granted a one year extension of these Notes through
May 1998. However, no charge was recorded in fiscal year 1997, as the fair value
of the Company's common stock in May 1997 was less than the purchase price of
the common stock associated with the underlying subscription agreement.
In February 1996, the Company issued 282,266 shares of common stock in a
private placement offering ("the February 1996 Offering") for $17.50 per share
and received proceeds of $4,560,209.
In May 1997, in order to raise funds to meet current obligations, the
Company issued 587,514 shares of common stock in a special rights offering ("the
Rights Offering") whereby existing shareholders could purchase one share of
common stock at $3.75 per share for every four shares of common stock held. The
Company received proceeds of $910,465 and stock subscriptions receivable
totaling $1,264,485. Prior to the Rights Offering, warrantholders exercised
97,930 warrants at $1.13 per share in order to increase their participation in
the Rights Offering.
In July 1997, certain investors in the Company, which included a member of
the Company's current Board of Directors signed notes ("the July Notes") for
$60,263 in consideration for amount owed under the Rights Offering stock
subscription agreement. The July Notes, which bear interest at a rate of 9%,
contain no recourse provisions by which the Company can enforce collection and
mature in July 1998. However, no charge was recorded in July 1997, as the fair
value of the Company's common stock in July 1997 approximated the purchase price
of the common stock associated with the Rights Offering subscription agreement.
In July 1997, two employees of the Company signed notes ("the Employee
Notes") for $655,000 as consideration for the exercise of warrants to purchase
262,000 shares of common stock at an exercise price of $2.50 per share.
Accordingly, a $360,250 charge to general and administrative expense was
recorded in July 1997 for the excess of the fair value of the Company's stock in
July 1997 over the exercise price of the
F-17
<PAGE>
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATED TO THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 IS
UNAUDITED)
9. COMMON AND PREFERRED STOCK: (CONTINUED)
underlying warrants. The Employee Notes, which bear interest at a rate of 8.5%,
contain no recourse provisions by which the Company can enforce collection and
mature in July 2002.
On September 3, 1997, in preparation for the planned initial public offering
of the Company's common stock, the Board of Directors of the Company declared a
2 for 1 stock split of the Company's common stock. All references in the
financial statements to share and per share numbers and amounts and warrant and
option data have been restated to give retroactive effect to the stock split.
PREFERRED STOCK
The Company is authorized to issue up to 1,000,000 shares of the preferred
stock in one or more series. The Company's Board of Directors is authorized to
fix the relative rights, preferences, privileges and restrictions thereof,
including dividend rights, dividend rates, conversion rights, terms of
redemption, redemption prices, liquidation preferences, the number of shares
constituting any series and the designation of such series. The issuance of
preferred stock with voting and conversion rights may adversely affect the
voting power of the holders of the Company's Series A Preferred Stock, Series B
Preferred Stock and Common Stock, including the loss of voting control. Other
than the shares of Series A Preferred Stock and Series B Preferred Stock, there
are no shares of preferred stock currently issued and outstanding.
SERIES A PREFERRED STOCK
The Company has issued a total of 67,600 shares of Series A Redeemable
Preferred Stock with a par value of $4.50 per share and a six percent per annum
dividend rate. Dividends shall be paid either in cash or common stock of the
Company. The Company has the right at any time after the date of original
issuance of the Series A Preferred Stock to redeem the Series A Preferred Stock
in whole or in part at a price of $4.50 per share plus all accrued but unpaid
dividends. The Company is required to redeem this preferred stock in cash at par
plus all accrued but unpaid dividends from thirty percent of the amount by which
the Company's annual net income after taxes exceeds $5,000,000.
Dividends on the shares of Series A Preferred Stock are cumulative and must
be paid in the event of liquidation and before any distribution to holders of
common stock. Cumulative dividends in arrears at June 30, 1997 totaled $81,000
(or $1.20 per share).
The Series A Preferred Stock has no liquidation preference, no conversion
rights and no registration rights.
SERIES B PREFERRED STOCK
The Company has issued a total of 86,041 shares of Series B Redeemable
Preferred Stock with a par value of $5.00 per share and a six percent per annum
dividend rate. Dividends shall be paid either in cash or common stock of the
Company. The Company has the right at any time after the date of original
issuance of the Series B Preferred Stock, but subject to the prior redemption of
all of the Series A Preferred Stock, to redeem the Series B Preferred Stock in
whole or in part at a price of $5.00 per share plus all accrued but unpaid
dividends. The Company is required, subject to the prior redemption of all of
the Series A Preferred Stock, to redeem this preferred stock in cash at par plus
all accrued but unpaid dividends from twenty percent of the amount by which the
Company's annual net income after taxes in any year exceeds $5,000,000.
F-18
<PAGE>
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATED TO THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 IS
UNAUDITED)
9. COMMON AND PREFERRED STOCK: (CONTINUED)
Dividends on the shares of Series B Preferred Stock are cumulative and must
be paid in the event of liquidation and before any distribution to holders of
common stock. No dividends may be paid with respect to this stock until all
cumulative dividends in respect of Series A Preferred Stock have been paid.
Cumulative dividends in arrears at June 30, 1997 totaled $88,150 (or $1.02 per
share).
The Series B Preferred Stock has no liquidation preference, no conversion
rights and no registration rights.
Changes in the preferred stock accounts were as follows:
<TABLE>
<CAPTION>
SERIES A SERIES B
----------------------- -----------------------
<S> <C> <C> <C> <C> <C>
NUMBER OF NUMBER OF
SHARES AMOUNT SHARES AMOUNT TOTAL
----------- ---------- ----------- ---------- ----------
Balance at June 30, 1992
Stock issued for cash, December 1992................. 48,000 $ 216,000 $ 216,000
Stock issued for cash, March 1993.................... 19,600 88,200 88,200
Accretion of preferred stock dividends............... 8,000 8,000
----------- ---------- ----------- ---------- ----------
Balance at June 30, 1993......................... 67,600 312,200 312,200
----------- ---------- ----------- ---------- ----------
Stock issued for cash, February 1994................. 86,000 $ 430,000 430,000
Accretion of preferred stock dividends............... 18,250 10,750 29,000
----------- ---------- ----------- ---------- ----------
Balance at June 30, 1994......................... 67,600 330,450 86,000 440,750 771,200
----------- ---------- ----------- ---------- ----------
Accretion of preferred stock dividends............... 18,250 25,800 44,050
----------- ---------- ----------- ---------- ----------
Balance at June 30, 1995......................... 67,600 348,700 86,000 466,550 815,250
----------- ---------- ----------- ---------- ----------
Stock issued for cash, September 1995................ 41 205 205
Accretion of preferred stock dividends............... 18,250 25,800 44,050
----------- ---------- ----------- ---------- ----------
Balance at June 30, 1996......................... 67,600 366,950 86,041 492,555 859,505
----------- ---------- ----------- ---------- ----------
Accretion of preferred stock dividends............... 18,250 25,800 44,050
----------- ---------- ----------- ---------- ----------
Balance at June 30, 1997......................... 67,600 385,200 86,041 518,355 903,555
----------- ---------- ----------- ---------- ----------
Accretion of preferred stock dividends (unaudited)... 4,562 6,450 11,012
----------- ---------- ----------- ---------- ----------
Balance at September 30, 1997 (unaudited)........ 67,600 $ 389,762 86,041 $ 524,805 $ 914,567
----------- ---------- ----------- ---------- ----------
----------- ---------- ----------- ---------- ----------
</TABLE>
CO-INVESTMENT RIGHTS, ANTI-DILUTION RIGHTS AND RIGHT OF FIRST REFUSAL
In connection with the August 1993 offering of common stock and warrants to
Presencia ("the August 1993 Offering"), the Company granted co-investment rights
to Presencia with respect to certain offerings of securities by the Company
which are offered at a price equal to or greater than the per share purchase
price paid by Presencia in the August 1993 Offering. Such rights allow Presencia
to purchase, on terms at least as favorable as those on which the offered
securities are to be sold, a sufficient number of the offered securities to
allow Presencia to maintain its percentage ownership interest in the Company.
This co-investment right terminates upon an initial public offering of the
Company's securities.
F-19
<PAGE>
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATED TO THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 IS
UNAUDITED)
9. COMMON AND PREFERRED STOCK: (CONTINUED)
Additionally, in connection with the August 1993 Offering, the Company
granted anti-dilution rights to Presencia with respect to any offering of common
stock issued at a price less than the per share purchase price paid by Presencia
in the August 1993 Offering. Such rights allow Presencia to receive a sufficient
number of shares of common stock to allow Presencia to maintain its percentage
ownership interest in the Company for no additional consideration. This
anti-dilution right terminates upon an initial public offering of the Company's
common stock. Pursuant to these anti-dilution rights and the Rights Offering in
May 1997, Presencia was entitled to be issued an additional 36,970 shares of
common stock for no additional consideration. These shares were issued to
Precensia in July 1997 and were accounted for as a cost of the Rights Offering.
In connection with the July 1994 offering of common stock and warrants to
Blockbuster Entertainment Corporation ("Blockbuster"), the Company granted
co-investment rights to Blockbuster with respect to certain offerings of
securities by the Company. Such rights allow Blockbuster to purchase, on terms
at least as favorable as those on which the offered securities are to be sold, a
sufficient number of the offered securities to allow Blockbuster to maintain its
percentage ownership interest in the Company. This co-investment right
terminates upon an initial public offering of the Company's securities.
Additionally, pursuant to the July 1994 offering of Common Stock and
warrants to Blockbuster, the Company granted Blockbuster the right to purchase
all, but not less than all, of certain securities offered to a third party or
parties for the purchase price at which the securities are offered to the third
party or parties. This right does not apply to certain offers of securities by
the Company, including offers which the Company makes for strategic business
purposes relating to the Company's business, technology or products. This right
of first refusal terminates upon an initial public offering of the Company's
securities.
10. WARRANTS AND OPTIONS:
WARRANTS
The Company had outstanding a total of 790,730 and 1,220,650 warrants to
purchase common stock at September 30, 1997, and June 30, 1997, respectively.
The exercise prices range from $1.13 to $20.00 per share and the expiration of
such warrants range from 1997 to 2002. The following is a description of warrant
activity to date:
In connection with the May 1991 issuance of common stock, the Company issued
warrants with a five year term to purchase 192,000 shares of common stock at an
exercise price of $6.25 per share. In May 1996, warrants for 170,000 shares of
common stock were exercised and the remainder expired.
In August 1991, warrants with a five year term to purchase 8,000 shares of
common stock at an exercise price of $2.50 per share were granted as
consideration for consulting services provided to the Company. These warrants
were exercised in August 1996.
In September 1991, warrants with a five year term to purchase 4,000 shares
of common at an exercise price of $2.50 per share were granted to an outside
director. These warrants vested ratably over the period September 1991 through
September 1993 and expire five years after the vesting date. These warrants were
exercised in September 1996.
In November 1991, warrants with a five year term to purchase 80,800 shares
of common stock at an exercise price of $2.50 per share were granted to an
employee of the Company. These warrants vested as
F-20
<PAGE>
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATED TO THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 IS
UNAUDITED)
10. WARRANTS AND OPTIONS: (CONTINUED)
follows: (i) 20,000 in November 1991, (ii) 13,600 each in November 1992,
November 1993 and November 1994 and (iii) 20,000 in September 1993. Each series
of warrants expires five years after the applicable vesting date. In November
1996, 20,000 of these warrants expired.
In July 1992, warrants with a five year term to purchase 262,000 shares of
common stock at an exercise price of $2.50 per share were issued to two
employees of the Company. These warrants were exercised in July 1997 (see Note
9).
In July 1992, warrants with a five year term to purchase 32,000 shares of
common stock at an exercise price of $2.50 per share were issued to David
Sarnoff Research Center, Inc. The estimated fair value of the warrants of
$32,000 was recorded as research and development expense in fiscal year 1993.
These warrants expired in July 1997.
In July 1992, warrants with a five year term to purchase 20,000 shares of
common stock at an exercise price of $2.50 per share were issued to a financial
advisor in connection with the August 1992 and December 1992 equity offerings.
These warrants were exercised in July 1997.
In July 1992, warrants with a five year term to purchase 30,000 shares of
common stock at an exercise price of $1.13 per share were issued to a financial
advisor in connection with August and December 1992 equity offerings. In May
1997 and July 1997, respectively, warrants for 14,850 and 15,150 shares of
common stock were exercised.
In connection with the August 1992 issuance of common stock, the Company
issued warrants with a five year term to purchase 206,360 shares of common stock
at an exercise price of $1.13 per share. In August 1997, May 1997 and April
1996, respectively, warrants for 35,912, 83,080 and 938 shares of common stock
were exercised. The remaining warrants expired in August 1997.
In connection with the August 1993 issuance of common stock, the Company
issued warrants with a one year term to purchase 132,074 shares of common stock
at an exercise price of $12.12 per share. In January 1994, respectively,
warrants for 82,542 shares of common stock were exercised. The remaining
warrants expired in August 1994.
In connection with the February 1994 issuance of common stock and Series B
Preferred Stock, the Company issued warrants to purchase 172,000 shares of
common stock at an exercise price of $12.50 per share. In May 1995 and October
1995, warrants for 105,300 and 2,000 shares of common stock were exercised,
respectively. The remaining warrants for 64,700 shares of common stock have
expired.
In connection with the April 1994 issuance of common stock, the Company
issued warrants with a five year term to purchase 450,000 shares of common stock
at an exercise price of $12.50 per share.
F-21
<PAGE>
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATED TO THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 IS
UNAUDITED)
10. WARRANTS AND OPTIONS: (CONTINUED)
In connection with the July 1994 issuance of common stock to Blockbuster,
the Company issued warrants with a five year term to purchase 70,000 shares of
common stock at an exercise price of $15.00 per share. Additionally, the Company
granted warrants to purchase 70,000 shares of common stock at an exercise price
of $20.00 per share. These warrants vest upon the future occurrence of any of
the following events: (i) Blockbuster provides consulting services to the
Company which materially enhances the Company's technology relating to real time
insertion; (ii) Blockbuster and the Company enter into a joint venture for the
purpose of exploiting the Company's system in the entertainment industry for
non-television applications; or (iii) the Miami Dolphins are the first National
Football League team to support the use of the Company's system in connection
with broadcast of its games. These warrants expire three years after the vesting
date.
In April 1995, warrants with a five year term to purchase 29,200 shares of
common stock at an exercise price of $13.75 per share were issued to a financial
advisor in connection with the February 1994 equity offering. Additionally,
warrants with a five year term to purchase 6,000 shares of common stock at an
exercise price of $16.50 per share were issued to the same financial advisor in
connection with the April 1994 equity offering. These warrants expire five years
after the closing date of the related offering.
In October 1995, in connection with the exercise of Presencia's
co-investment rights in common stock and Series B Preferred Stock, the Company
issued to Presencia warrants with a one year term to purchase 82 shares of
common stock at an exercise price of $12.50 per share. These warrants expired in
fiscal year 1996. Additionally, the Company issued to Presencia warrants with a
five year term to purchase 10,932 shares of common stock at an exercise price of
$12.50 per share. These warrants expire in April 1999.
In February 1996, warrants with a five year term to purchase 28,226 shares
of common stock at an exercise price of $19.25 per share were issued to
consultants with respect to the February 1996 equity offering.
In March 1996, warrants with a five year term to purchase 24,000 shares of
common stock at an exercise price of $15.00 were issued to Presencia as
consideration for costs incurred by Presencia relating to the License Agreement
between the Company and Presencia. The estimated fair value of the warrants of
$120,000 was recorded as general and administrative expenses in fiscal year
1996.
During 1997 and 1996, respectively, the Company issued warrants with a five
year term to purchase 4,206 and 15,794 shares of common stock at an exercise
price of $15.00 as consideration for consulting services provided to the
Company. The estimated fair value of the warrants of $18,927 and $71,075 was
recorded as general and administrative expense in fiscal year 1997 and 1996,
respectively.
In September 1997, warrants with a five year term to purchase 1,572 shares
of common stock at an exercise price of $15.00 per share were issued in
settlement of an obligation of $7,074 accrued at June 30, 1997 relating to
consulting services provided to the Company.
In September 1997, warrants with a three year term to purchase 20,000 shares
of common stock at an exercise price of $4.50 per share were issued in
settlement of an obligation of $90,000 accrued during 1996, when the consulting
services were provided to the Company.
F-22
<PAGE>
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATED TO THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 IS
UNAUDITED)
10. WARRANTS AND OPTIONS: (CONTINUED)
STOCK OPTION PLAN
The Company adopted a Stock Option Plan (the "Plan") in July 1993 for
employees, officers, directors, consultants and independent contractors of the
Company. The Plan initially reserved 360,000 shares of common stock for issuance
upon the exercise of stock options. The Plan was amended in 1995, 1996 and 1997
to reserve additional shares. As of June 30, 1997, 1,560,000 shares were
reserved for the Plan.
The Plan is administered by the Board of Directors, which determines the
distribution of all options. The Plan provides for the granting of options
intended to qualify as "incentive stock options" ("ISOs") as defined in Section
422A of the Internal Revenue Code of 1986, as amended, and non-qualified stock
options ("NQSOs") to key employees of the Company as well as NQSOs to
non-employee directors, independent contractors and consultants who perform
services for the Company. The exercise price of all ISOs granted under the Plan
may not be less than the fair market value of the shares at the time the option
is granted. Options may be for a period of not more than ten years from the date
of grant and generally vest ratably over a three year period. Options are not
assignable or otherwise transferable except by will or the laws of descent and
distribution.
Information with respect to options under the Plan is as follows:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER OF EXERCISE FAIR VALUE
AVAILABLE OPTIONS OPTION PRICE PRICE PER PER OPTION
FOR GRANT OUTSTANDING RANGE SHARE GRANTED
---------- ----------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1995....................... -- 388,850 $ 10.00-$15.00 $ 11.96
---------- -----------
Authorized..................................... 271,150
Granted........................................ (258,784) 258,784 $ 16.59 $ 9.84
Exercised...................................... -- -- --
Forfeitures.................................... 23,000 (23,000) $ 15.00
---------- -----------
Balance at June 30, 1996....................... 35,366 624,634 $ 10.00-$17.50 $ 13.77
---------- -----------
Authorized..................................... 900,000
Granted........................................ (638,040) 638,040 $ 18.85 $ 16.57
Exercised...................................... -- -- --
Forfeitures.................................... 161,750 (161,750) $ 15.90
---------- -----------
Balance at June 30, 1997....................... 459,076 1,100,924 $ 10.00-$20.00 $ 16.38
---------- -----------
Authorized (unaudited)......................... -- --
Granted (unaudited)............................ (109,800) (109,800) $ 8.29
Exercised (unaudited).......................... -- --
Forfeitures (unaudited)........................ -- --
---------- -----------
Balance at September 30, 1997 (unaudited)...... 349,276 1,210,724 $ 2.50-$20.00 $ 15.65
---------- -----------
---------- -----------
Exercisable at September 30, 1997
(unaudited).................................. 630,008
Exercisable at June 30, 1997................... 559,788 $ 13.93
Exercisable at June 30, 1996................... 337,510 $ 12.19
</TABLE>
F-23
<PAGE>
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATED TO THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 IS
UNAUDITED)
10. WARRANTS AND OPTIONS: (CONTINUED)
The weighted average remaining contractual lives of outstanding options at
June 30, 1997 was 7.3 years.
The Company applies the provisions of Accounting Principles Board Opinion
No. 25 "Accounting for Stock Issued to Employees" and related interpretations in
accounting for its stock-based compensation plans. Accordingly, no compensation
has been recognized in the financial statements with respect to options and
warrants issued with an exercise price at or above the fair market value of the
stock on the grant date. Had compensation costs for such options and warrants
been determined based on the fair value approach promulgated by Statement of
Financial Accounting Standards No. 123 "Accounting for Stock Based
Compensation", the Company's net loss applicable to Common Stock would have been
increased as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
----------------------------
1997 1996
------------- -------------
<S> <C> <C>
Pro forma net loss applicable to common stock....................................... $ (6,739,553) $ (4,123,850)
Pro forma net loss per share applicable to common shares............................ $ (2.84) $ (2.13)
</TABLE>
The pro forma compensation expense of $964,842 and $169,276 for the years
ended June 30, 1997 and 1996, respectively, was calculated on the fair value of
each option using the minimum value method, with the following weighted average
assumptions used for grants:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
JUNE 30,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
Risk free interest rate............................................... 6.5% 6.2%
Expected option lives................................................. 9.5 years 6.7 years
</TABLE>
In connection with certain options granted in February 1994 relating to a
consulting services agreement with a member of the Company's current Board of
Directors, the Company recorded unearned compensation expense in the amount of
$360,000. This unearned compensation was amortized over the 24 month vesting
period. In connection with certain options granted in June 1995 relating to a
consulting services agreement, the Company recorded unearned compensation in the
amount of $120,000, which was expensed when the service was provided in 1996.
During 1997, the Company extended the terms of certain options issued to
employees. As a result, the Company recorded a charge of $208,335, which
represents the fair value of the Company's common stock at the new measurement
date in excess of the exercise price of the underlying option. In September
1997, the Company granted 20,000 fully vested options with an exercise price of
$2.50 per share to an employee to replace certain warrants which had expired in
1996. As a result, the Company recorded a change of $80,000 in September 1997
which represents the fair value of the stock in excess of the exercise price of
the options.
F-24
<PAGE>
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATED TO THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 IS
UNAUDITED)
11. COMMITMENTS AND CONTINGENCIES:
GE AGREEMENT
In July 1991, the Company entered into a license agreement with General
Electric Company ("GE") granting to the Company a non-exclusive license for use
of certain of GE's intellectual property. This agreement expired in July 1996
and management is presently attempting to renegotiate this agreement. In the
event that the Company is not able to negotiate such an extension, and is still
using such technology, the Company might be forced to modify its products to
exclude use of such technology, which may cause the Company to incur additional
costs or experience delays in the further manufacturing and marketing of its
products. Even in the event that the Company is not able to negotiate such an
extension, the license will not terminate with respect to any of the Company's
products that had been manufactured prior to the expiration of the license.
Under the terms of the license, the Company would pay royalties to GE based
upon the Company's gross revenues. All royalties accrue as earned, but no
payments are required to be made until the earlier of the date on which
cumulative gross revenues reach twenty million dollars or the termination of the
agreement. As of June 30, 1997, the amount accrued under this agreement was not
material.
In November 1997, the company negotiated a new agreement with GE which
provides that the Company will pay GE a royalty based on the gross revenues
earned. This agreement which is retroactive to July 1996, has a five-year term.
The amounts owed to GE under this agreement are not material for the year ended
June 30, 1997 or the quarter ended September 30, 1997.
SARNOFF AGREEMENT
The Company entered into an agreement with David Sarnoff Research Center,
Inc. ("Sarnoff") in November 1990, which was amended in August 1991 and June
1995, granting the Company an exclusive, worldwide license for use of the
proprietary Pyramid Image Processing technology developed by Sarnoff in the
fields of television advertising and for any purpose for television programming
involving sports. The Company may terminate this agreement at any time after the
earlier of the date on which the Company's cumulative gross revenues reach
$20,000,000 or January 1, 1999.
Under terms of this agreement, the Company will pay royalties to Sarnoff
based upon the Company's gross revenues. All royalties shall accrue as earned,
but no payments are required to be made until the earlier of the date on which
cumulative gross revenues reach twenty million dollars or January 1, 1999.
Commencing on January 1, 1999, minimum quarterly royalties of $100,000 shall be
paid by the Company to Sarnoff. As of June 30, 1997, the amount accrued under
this agreement was not material.
THESEUS AGREEMENT
In December 1995, the Company entered into a license agreement with Theseus
Research, Inc. ("Theseus") whereby the Company was granted a non-exclusive
worldwide license, without the right of sublicense, to use Theseus technology in
its system. During the term of the license, the Company will pay royalties based
upon a percentage of net sales on a quarterly basis. The agreement terminates
with the expiration of the last of the patents included in the licensed
technology. As of June 30, 1997, the amount accrued under this agreement was not
material.
F-25
<PAGE>
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATED TO THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 IS
UNAUDITED)
11. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
GDM AGREEMENT
In December 1995, the Company entered into a license and association
agreement with Gerencia de Medios, S.A., ("GDM"), a subsidiary of Prisa, a
Spanish media company. The purpose of this association was to allow GDM to
market and use the Company's system in sports broadcasts in Spain and Portugal
throughout a trial period, which expired in December 1996.
Under the terms of the association, GDM paid the Company $500,000 in license
and royalty fees, $200,000 of which was refundable if GDM was unable to use the
Company's system during the trial period because of patent infringement on third
parties. The remaining $300,000 was a deposit paid by GDM for use of the
Company's system which must be refunded to GDM. GDM is seeking a refund of the
license and royalty fee it previously paid to the Company asserting, as one
reason, its receipt of a letter from an affiliate of Symah Vision-SA ("Symah"),
a competitor of the Company, asserting that use of the L-VIS System in Spain
would infringe one of Symah's patents. Although the Company and GDM have been
advised by European patent counsel that use of the L-VIS System would not
infringe Symah's patent, there can be no assurance that the Company will be able
to resolve the issue with GDM satisfactorily or that Symah will not assert
infringement claims against the Company or its European licensees in the future.
Therefore, because of the uncertainties regarding the ultimate amount to be
refunded, the Company has not recognized any portion of the $500,000 fee as
revenue. Accordingly, these amounts are reflected in unearned revenue and
customer deposits at June 30, 1997.
In November 1997 the Company settled its dispute with GDM concerning amounts
owed by the Company to GDM under the terms of their association agreement. GDM
will return the L-VIS system equipment to the Company in exchange for a $365,000
payment to GDM from the Company. The remaining $135,000 will be recorded as
income by the Company in the second quarter 1998.
D&D ENTERTAINMENT LETTER OF INTENT
In May 1997, the Company signed a non-binding letter of intent with D&D
Entertainment for purposes of marketing the Company's technology in the Benelux
region of Europe. Under the terms of this letter of intent, the Company received
$125,000 of advanced licensing fees. Because no legally binding agreement has
been executed, these proceeds are reflected in customer deposits at June 30,
1997.
LEASES
The Company leases its primary office space under operating leases. The
leases on the Company's headquarters expire on October 20, 1997. The Company has
executed a new lease agreement for its headquarters commencing October 1, 1997.
Rent and equipment lease expense for the years ended June 30, 1997 and 1996 was
$141,415 and $155,352, respectively.
F-26
<PAGE>
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATED TO THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 IS
UNAUDITED)
11. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
Future minimum rent and lease payments are as follows:
<TABLE>
<S> <C>
1998............................................................ $ 347,961
1999............................................................ 342,632
2000............................................................ 331,322
2001............................................................ 205,032
2002............................................................ 205,032
Thereafter...................................................... 34,827
---------
Total minimum lease payments.................................... $1,466,806
---------
---------
</TABLE>
Under the terms of a three year lease signed in 1997 for an administrative
facility, the Company is required to maintain an irrevocable, unconditional
$70,000 letter of credit throughout the term of the lease. Under the terms of
another lease, the Company is required to maintain an irrevocable, unconditional
$52,000 letter of credit throughout the lease.
12. RELATED PARTY TRANSACTIONS:
A member of the Board of Directors of the Company is also the President of
J.J. Pomerance & Co., Inc., a corporation that has furnished consulting services
to the Company from time to time.
A member of the Board of Directors of the Company is also a principal
shareholder and the President of the Board of Directors of Presencia, which has
made several equity investments in the Company and is the Company's joint
venture partner in Publicidad.
A member of the Board of Directors of the Company is also the sole
shareholder and President of Princeton Venture Research, Inc. ("PVR"), a
shareholder of the Company. PVR entered into an arrangement with the Company
regarding the services of a consultant that PVR provided to the Company for
several months in 1995. In connection with such arrangement, in September 1997,
the Company granted PVR a warrant to purchase 20,000 shares of common stock at
an exercise price of $4.50 per share. Additionally, of the $124,000 of Notes
received in consideration for amounts owed under a stock subscription agreement
(see Note 9), $80,000 relates to the member of the Board of Directors, $20,000
relates to the wife of the member of the Board of Directors and $24,000 relates
to PVR. Commencing in July 1997, PVR furnished the Company with extensive
consulting services in connection with financial structuring, negotiations with
various major shareholders and preparation of the Bridge Financing. In
connection with such services, the Company has paid PVR a fee of $100,000. In
consideration for financial advisory services rendered to the Company in
connection with the Bridge Financing, the Company paid PVR Securities, Inc., an
affiliate of PVR, a fee of $70,000, or five percent of the gross proceeds of the
Bridge Financing obtained from investors introduced to the Company by PVR
Securities, Inc. In connection with the purchase of Common Stock under the
Company's 1997 rights offering, the wife of the member of the Board of Directors
and PVR executed promissory notes in favor of the Company in the amounts of
$9,720 and $50,543, respectively. Such notes will become due on July 15, 1998,
and bear interest at a rate of nine percent per annum. The member of the Board
of Directors of the Company is also the Manager and a member of Acorn Technology
Partners, L.L.C., the general partner of Acorn Technology Fund, L.P., which
purchased 1.5 units in the Bridge Financing in October 1997. Each unit consists
of one Bridge Note in the principal amount of $100,000 and Bridge Warrants to
purchase 10,000
F-27
<PAGE>
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATED TO THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 IS
UNAUDITED)
12. RELATED PARTY TRANSACTIONS: (CONTINUED)
shares of Common Stock at an exercise price of $0.01 per share. The purchase
price of each unit was $100,000.
A member of the Board of Directors of the Company is also a Managing
Director and Executive Vice President of Allen & Company Incorporated ("Allen &
Co."), which is a principal shareholder of the Company and furnishes financial
advisory services to the Company from time to time. In connection with the
February 1996 Offering, Allen & Co. received a financial advisory fee of
$247,000, plus expenses, as well as a five-year warrants to purchase 28,226
shares of common stock at an exercise price of $19.25 per share. Allen, as a
Representative, will receive underwriting discounts and commissions, as well as
Representatives' Warrants initially exercisable for 380,000 shares of Common
Stock, with respect to services rendered on behalf of the Company with respect
to its planned initial public offering.
A member of the Board of Directors of the Company has been retained as a
consultant to the Company.
The Chief Executive Officer and President of the Company purchased one unit
in the Bridge Financing that closed in October 1997.
13. CONCENTRATION OF CREDIT RISK:
The Company maintains its cash and cash equivalents with major financial
institutions. Held to maturity securities consist of U.S. government Treasury
securities.
14. SUBSEQUENT EVENTS:
In connection with the planned initial public offering of common stock, the
Board of Directors of the Company approved a $3,000,000 Bridge Financing. Under
the terms of the Bridge Financing, which closed in October 1997 the Company
issued 30 units, each unit consisting of i) one promissory note payable with a
principal amount of $100,000 and bearing interest at 10% and ii) warrants with a
five year term to purchase 10,000 shares of common stock at an exercise price of
$.01 per share. The promissory notes mature upon the earlier of i) the
commencement of the planned initial public offering, ii) the first anniversary
of their issuance, subject to a six month extension at the Company's discretion
or iii) the closing of an offering of securities of the Company with aggregate
net proceeds equal to or in excess of the principal amount of the promissory
notes issued. The promissory notes are senior to all other indebtedness of the
Company and are secured by a first lien on the Company's fixed assets. The
warrants will vest upon the earlier of the commencement of the planned initial
offering or the first anniversary of their issuance. In the event the maturity
of the promissory notes is extended, the warrants will become exercisable for an
additional 1/10 share of common stock of the first day of the extension period
and on every thirtieth day thereafter. The fair value of the warrants, which
approximated $1,650,000 at the closing date, will be recorded as an increase to
additional paid-in capital in October 1997. Upon maturity of the promissory
notes, the Company will remit the $3,000,000 principal balance and all accrued
interest on the promissory notes. The difference between the $3,000,000 of
proceeds received from the Bridge Financing and the $1,350,000 of the proceeds
allocated to the promissory notes will be amortized to interest expense over the
estimated three month term of the promissory notes. Additionally, the Company
expects to incur $227,500 of commissions and fees in connection with the Bridge
Financing. These fees will be deferred and amortized over the expected three
month term of the promissory notes.
On October 1, 1997, the Board of Directors of the Company approved a
modification of the terms of all stock options held by individuals who, as of
that date, are currently employees of the Company. The modification, which
affected approximately 320,380 options, reduced the exercise price of such
options to $8.00 per share.
F-28
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING MADE HEREBY, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATES AS OF WHICH SUCH
INFORMATION IS FURNISHED.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 8
Use of Proceeds................................ 20
Dividend Policy................................ 22
Dilution....................................... 23
Capitalization................................. 25
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 26
Business....................................... 31
Management..................................... 43
Certain Transactions........................... 49
Principal Shareholders......................... 51
Description of Securities...................... 54
Shares Eligible for Future Sale................ 59
Underwriting................................... 61
Legal Matters.................................. 63
Experts........................................ 63
Available Information.......................... 63
Index to Financial Statements.................. F-1
</TABLE>
------------------------
UNTIL , 1998 (25 DAYS AFTER THE DATE HEREOF), ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
4,000,000 SHARES
PRINCETON
VIDEO IMAGE, INC.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
ALLEN & COMPANY
INCORPORATED
BARINGTON CAPITAL
GROUP
DECEMBER , 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER 15, 1997
PROSPECTUS
2,700,000 SHARES
PRINCETON VIDEO IMAGE, INC.
COMMON STOCK
----------------
This Prospectus relates to the Offering (the "Offering") by certain selling
shareholders (the "Selling Shareholders") of 700,000 shares (the "Selling
Shareholders Shares") of Common Stock, no par value (the "Common Stock"), of
Princeton Video Image, Inc. (the "Company") which may be sold from time to time
by the Selling Shareholders, or by transferees, on or after the date of this
Prospectus, subject to certain lock-up arrangements which provide that the
Shares may not be sold for a period of 12 months from the date of closing of the
Company Offering (defined below). In addition, this Prospectus relates to
2,000,000 shares of Common Stock and such indeterminate number of additional
shares of Common Stock (collectively, the "Market Maker Shares" and, together
with the Selling Shareholder Shares, the "Shares") as may be sold solely in
connection with the market mating activities of Allen & Company Incorporated
("Allen"), as a registered securities broker-dealer. See "Risk Factors--Shares
Eligible for Future Sale," "Certain Transactions," "Description of Securities,"
"Shares Eligible For Future Sale," "Selling Shareholders" and "Concurrent Sales
By Selling Shareholders."
No underwriting arrangements have been entered into by the Selling
Shareholders. The distribution of the Selling Shareholders Shares by the Selling
Shareholders may be effected from time to time in transactions on the Nasdaq
National Market, in negotiated transactions, through the writing of options on
the Selling Shareholders Shares, or a combination of such methods of sale, at
fixed prices that may be changed, at market prices prevailing at the time of
sale, at prices related to such prevailing market prices, or at negotiated
prices. The Selling Shareholders may effect such transactions by the sale of the
Selling Shareholders Shares to or through broker-dealers, and such
broker-dealers may receive compensation in the form of discounts, concessions or
commissions from the Selling Shareholders and/or the purchasers of the Selling
Shareholders Shares for whom such broker-dealers may act as agent or to whom
they may sell as principal, or both. Usual and customary or specifically
negotiated brokerage fees or commissions may be paid by the Selling Shareholders
in connection with sales of the Selling Shareholders Shares.
The Selling Shareholders and intermediaries through whom the Selling
Shareholders Shares are sold may be deemed "underwriters" within the meaning of
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the securities offered and any profits realized or commissions received may be
deemed underwriting compensation.
The Company will not receive any proceeds from sales of the Shares. See
"Selling Shareholders" and "Plan of Distribution."
A registration statement under the Securities Act has been filed with the
Securities and Exchange Commission with respect to an underwritten public
offering (the "Company Offering") on behalf of the Company of 4,000,000 shares
of Common Stock, plus up to 600,000 shares which may be offered pursuant to the
exercise of an over-allotment option (the "Over-Allotment Option") held by the
underwriters of the Company Offering (the "Underwriters"). The Shares offered
hereunder include shares of common stock underlying warrants entitling the
representatives of the Underwriters to purchase from the Company, for a period
of five years from the date of this Prospectus, up to 400,000 shares of Common
Stock at an exercise price equal to 120% of the initial public offering price
(the "Representatives' Warrants"). See "Concurrent Sales By Company."
------------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE "RISK FACTORS" BEGINNING ON PAGE AND "DILUTION."
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is December , 1997.
Alt-1
<PAGE>
SELLING SHAREHOLDERS
The following table sets forth the name of each person who is a Selling
Shareholder, the number of Shares owned by each Selling Shareholder's account,
the percentage of outstanding shares of Common Stock of the Company owned by
such person prior to this Offering, the number of shares being sold by such
person, the number of shares of Common Stock such person will own after the
completion of this Offering, and the percentage of outstanding shares of Common
Stock of the Company owned by such person after the completion of this Offering.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF NUMBER OF OUTSTANDING
SHARES MAXIMUM SHARES COMMON STOCK
BENEFICIALLY NUMBER OF BENEFICIALLY BENEFICIALLY
OWNED PRIOR SHARES BEING OWNED AFTER OWNED AFTER
NAME OF SELLING SHAREHOLDER TO OFFERING OFFERED OFFERING OFFERING
- -------------------------------------------------------- ----------- ------------- ------------- -----------------
<S> <C> <C> <C> <C>
Acorn Technology Fund, L.P.............................. 15,000 15,000 0 *
Bader M. Al-Humaidhi.................................... 8,540 5,000 3,540 *
Allen & Company Incorporated............................ 1,092,430 380,000 772,430 8.0%
Al-Mal Kuwaiti Company.................................. 7,500 7,500 0 *
Fahad Al-Rajaan......................................... 8,540 5,000 3,540 *
Taleb A. Ali............................................ 10,000 10,000 0 *
Peder A. Arneson........................................ 2,500 2,500 0 *
Aus. Per. No. 1, Inc.................................... 32,250 7,500 24,750 *
Stephen D. Baksa........................................ 7,000 1,250 8,250 *
Barington Capital Group, L.P............................ 20,000 20,000 0 *
Leonard Barrack......................................... 21,500 21,500 0 *
C.A.L.M. Venture Partners, L.P.......................... 6,296 2,500 3,796 *
Nicholas E. Chimicles................................... 2,500 2,500 0 *
Patrick Coughlin........................................ 8,500 2,500 6,000 *
Jonathan W. Cuneo....................................... 1,000 1,000 0 *
Falah Partners.......................................... 4,586 2,500 2,086 *
Matthew A. Gohd......................................... 3,750 3,750 0 *
Matthew A. Gohd, as Trustee for Toricelli Trust......... 3,750 3,750 0 *
Gary J. and Miriam I. Greenberg......................... 5,500 2,500 3,000 *
Douglas J. Greenlaw..................................... 58,125 10,000 48,125 *
Industrial Investments Company.......................... 30,000 30,000 0 *
William S. Lerach....................................... 25,000 10,000 15,000 *
Dennis Mensch........................................... 10,092 2,500 7,592 *
Presencia en Medios, S.A. de C.V........................ 614,308 130,000 484,308 5.9%
Richard Y. Roberts...................................... 5,000 5,000 0 *
Gerald J. Rodos......................................... 14,500 2,500 12,000 *
Paula P. Runnells....................................... 7,250 1,250 6,000 *
John T. Shea............................................ 5,582 2,500 3,082 *
The M and B Weiss Family Limited Partnership of 1996.... 25,000 10,000 15,000 *
</TABLE>
Mr. Douglas J. Greenlaw is the President and Chief Executive Office of the
Company. Mr. John B. Torkelsen, a director of the Company, is the Manager and a
member of Acorn Technology Partners, L.L.C., the general partner of Acorn
Technology Fund., L.P. Mr. Eduardo Sitt, a director of the Company, is the
President of Presencia en Medios, S.A. de C.V., a principal shareholder of the
Company. Mr. Enrique F. Senior, a director of the Company, is an Executive Vice
President and Managing Director of Allen, a
Alt-2
<PAGE>
principal shareholder of the Company. See "Management--Executive Officers and
Directors," "Certain Transactions," "Principal Shareholders" and "Plan of
Distribution."
LOCK-UP ARRANGEMENTS
The Selling Shareholders Shares consist of 400,000 shares of Common Stock
underlying the Representatives' Warrants and 300,000 shares of Common Stock
issuable upon exercise of the Bridge Warrants.
Pursuant to the Underwriting Agreement, each of the holders of Bridge
Warrants as of the effective date of the Registration Statement, has agreed not
to offer, issue, sell, contract to sell, grant any option for the sale of or
otherwise dispose of any securities of the Company for a period of 12 months
from the date of closing of the Offering, without the prior written consent of
Allen. At the request of The Nasdaq National Market, Inc., Allen has agreed not
to consent to the transfer of shares of Common Stock issuable upon exercise of
the Bridge Warrants for such one-year period.
Pursuant to the terms of such Underwriting Agreement, neither the
Representatives' Warrants nor the underlying shares of Common Stock may be
transferred, assigned or hypothecated for a period of one year, except that they
may be assigned in whole or in part, to any successor, officer or partner of
Allen or Barington Capital Group, L.P., as the case may be, or to officers or
partners of any such successor or partner. See "Risk Factors--Shares Eligible
for Future Sale," "Certain Transactions," and "Description of Securities."
PLAN OF DISTRIBUTION
The distribution of the Selling Shareholders Shares by the Selling
Shareholders may be effected from time to time in transactions on the Nasdaq
National Market, in negotiated transactions, through the writing of options on
the Selling Shareholders Shares, or a combination of such methods of sale, at
fixed prices that may be changed, at market prices prevailing at the time of the
sale, at prices related to such prevailing market prices or at negotiated
prices. The Selling Shareholders may effect such transactions by the sale of the
Selling Shareholders Shares to or through broker-dealers, and such
broker-dealers may receive compensation in the form of discounts, concessions or
commissions from the Selling Shareholders and/or the purchasers of the Selling
Shareholders Shares for whom such broker-dealers may act as agent or to whom
they may sell as principal, or both. Usual and customary or specifically
negotiated brokerage fees or commissions may be paid by the Selling Shareholders
in connection with sales of the Selling Shareholders Shares. No underwriting
arrangements have been entered into by the Selling Shareholders.
The Market Maker Shares are shares of Common Stock that Allen (which may be
deemed to be an affiliate of the Company) may sell from time to time solely as a
market maker. Allen and certain of its affiliates beneficially own an aggregate
of 712,430 shares of Common Stock of the Company. Enrique F. Senior, an
Executive Vice President and Managing Director of Allen, is an optionholder of
the Company and serves as a Director of the Company. See "Principal
Shareholders" and "Certain Transactions." For these reasons, Allen may be deemed
to have an ability to influence the policies of the Company and thus may be
deemed to be an "affiliate" of the Company under prevailing interpretations of
what constitutes an affiliate relationship. Any sales of the Selling Shareholder
Shares or the Market Maker Shares pursuant to this Registration Statement will
be made in conformity with the applicable provisions of the rules of the
National Association of Securities Dealers, Inc. ("NASD"), including rule 2720
of the NASD Conduct Rules. The Company will not receive any proceeds from sales
of the Market Maker Shares.
The Selling Shareholders and intermediaries through whom the Selling
Shareholders Shares are sold may be deemed "underwriters" within the meaning of
the Act with respect to the securities offered and any profits realized or
commissions received may be deemed underwriting compensation. The Company has
agreed to indemnify the Selling Shareholders against certain liabilities,
including liabilities under the Securities Act.
Alt-3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Selling
Shareholders............................... 2,700,000 shares of Common Stock
Common Stock Outstanding Immediately Prior to
the Offering (1)........................... 7,308,472 shares of Common Stock
Common Stock to be Outstanding Following the
Offering (1)(2)............................ 8,008,472 shares of Common Stock
Risk Factors................................. The shares of Common Stock offered hereby
involve a high degree of risk and should be
purchased only by persons who can afford to
sustain a total loss of their investment. See
"Risk Factors" and "Dilution."
Use of Proceeds.............................. The Company will not receive any proceeds
from the sale of the Shares
Nasdaq National Market Trading Symbol (3).... PVII
</TABLE>
- ------------------------
(1) Does not include (i) 777,130 shares issuable upon exercise of other
outstanding warrants to purchase shares of Common Stock; and (ii) 1,560,000
shares of Common Stock reserved for issuance upon exercise of options
granted to executive officers, employees and consultants under the Company's
Amended 1993 Stock Option Plan (the "Stock Option Plan"), including
1,210,724 shares exercisable pursuant to outstanding options. See
"Management--Stock Option Plan," "Certain Transactions" and "Description of
Securities."
(2) Does not include up to 600,000 shares of Common Stock issuable upon exercise
of the Over-Allotment Option in the Company Offering.
(3) There is currently no market for the Common Stock and there can be no
assurance that a market for the Common Stock will develop after the
Offering. The Common Stock has been approved for quotation on the Nasdaq
National Market, subject to notice of issuance. There can be no assurance,
however, that the Company will be able to maintain listing of the Common
Stock on such market. See "Risk Factors--Absence of Public Market;
Negotiated Offering Price."
Alt-4
<PAGE>
CONCURRENT SALES BY COMPANY
A registration statement under the Securities Act has been filed by the
Company with the Securities and Exchange Commission with respect to an
underwritten public offering by the Company of 4,000,000 shares of Common Stock,
plus 600,000 shares which may be offered pursuant to exercise of the Over-
Allotment Option.
Concurrent sales of securities by both the Company and by the Selling
Shareholders would likely have an adverse effect on the market price of the
Common Stock. The Selling Shareholders Shares are subject to contractual
restrictions upon resale with Barington. See "Selling Shareholders--Lock-up
Arrangements," "Risk Factors--Shares Eligible for Future Sale" and "Description
of Securities."
Alt-5
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING MADE HEREBY, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS LAWFUL
TO MAKE SUCH AN OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATES AS OF WHICH SUCH INFORMATION IS
FURNISHED.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary.............................
Risk Factors...................................
Dividend Policy................................
Dilution.......................................
Capitalization.................................
Management's Discussion and Analysis of
Financial Condition and Results of
Operations...................................
Business.......................................
Management.....................................
Certain Transactions...........................
Concurrent Sales by Company....................
Selling Shareholders...........................
Principal Shareholders.........................
Description of Securities......................
Shares Eligible for Future Sale................
Legal Matters..................................
Experts........................................
Available Information..........................
Index to Financial Statements..................
</TABLE>
------------------------
UNTIL , 1998 (25 DAYS AFTER THE DATE HEREOF), ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
2,700,000 SHARES
PRINCETON
VIDEO IMAGE, INC.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
DECEMBER , 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Alt-6
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 14A:3-5 of the New Jersey Business Corporation Act (the "Act") gives
a corporation the power, without a specific authorization in its certificate of
incorporation or by-laws, to indemnify a corporate agent, including a director
and/or officer, against expenses and liabilities incurred in connection with
certain proceedings involving such corporate agent by reason of his or her being
or having been a corporate agent, provided that with regard to a proceeding
other than one by or in the right of the corporation, the corporate agent must
have acted in good faith and in a manner reasonably believed to be in or not
opposed to the best interests of the corporation and, with respect to any
criminal proceeding, have had no reasonable cause to believe his or her conduct
was unlawful. In any such proceeding, the termination of a proceeding by
judgment, order, settlement, conviction or upon plea of nolo contendere or its
equivalent does not of itself create a presumption that any corporate agent
failed to meet the above applicable standards of conduct. The indemnification
provided by the Act does not exclude any rights to which a corporate agent may
be entitled under a certificate of incorporation, by-law, agreement, vote of
shareholders or otherwise. No indemnification, other than that required when a
corporate agent is successful on the merits or otherwise in any of the above
proceedings shall be allowed if such indemnification would be inconsistent with
a provision of the certificate of incorporation, a by-law, a resolution of the
board of directors or of the shareholders, an agreement or other proper
corporate action in effect at the time of the accrual of the alleged cause of
action which prohibits, limits or otherwise conditions the exercise of
indemnification powers by the corporation or the rights of indemnification to
which a corporate agent may be entitled.
The Company currently carries liability insurance for the benefit of its
directors and officers which provides coverage for losses of directors and
officers for liabilities arising out of claims against such persons acting as
directors or officers of the Company (or any subsidiary thereof) due to any
breach of duty, neglect, error, misstatement, misleading statement, omission or
act done by such directors and officers, except as prohibited by law. The total
coverage under the insurance policy is $1,000,000, with a deductible of $35,000.
The Company's current policy specifically excludes coverage for any claim made
against the directors and officers based upon (i) the purchase, sale, or offer
of any security of the Company, or (ii) any claim brought by a security holder
of the Company. Such exclusion includes claims which allege a violation of the
Securities Act of 1933 (the "Securities Act"), as amended, and the Securities
Exchange Act of 1934, as amended. The Company has also purchased additional
directors and officers liability insurance policies with total coverage of
$10,000,000 which provides coverage with respect to various securities related
matters.
In addition, the Underwriting Agreement, a proposed form of which is filed
as Exhibit 1.1 hereto, contains provisions for indemnification by the
Underwriters of the Company and its officers, directors and certain other
persons, against certain civil liabilities, including certain liabilities under
the Securities Act.
II-1
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the Registrant's costs and expenses, other
than underwriting discounts and commissions, expected to be incurred in
connection with the issuance and distribution of the securities being
registered. Except for the SEC registration fee, the NASD Filing Fee and the
Nasdaq National Market Fees, the amounts listed below are estimates:
<TABLE>
<S> <C>
SEC Registration Fee.............................................. $ 16,773
NASD Filing Fee................................................... $ 6,035
Nasdaq Listing Applications Fee................................... $ 35,772
Legal fees and expenses........................................... $ 185,000
Blue Sky fees and expenses........................................ $ 35,000
Accounting fees and expenses...................................... $ 165,000
Printing and Engraving expenses................................... $ 120,000
Transfer Agent and Registrar Fees................................. $ 2,500
Miscellaneous expenses............................................ $ 38,920
---------
Total......................................................... $ 605,000
</TABLE>
All expenses of registration incurred in connection herewith are being borne
by the Company. In addition, the Company has purchased directors and officers
liability insurance for $250,000.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
In the three years preceding the filing of this Registration Statement, the
Company has sold the following securities that were not registered under the
Securities Act. All share information and per share amounts have been adjusted
to reflect a 2-for-1 Common Stock split effective on September 3, 1997.
(1) During the period January 1, 1994 through October 1, 1997 the
Company granted stock options to employees, directors and consultants under
its 1993 Amended Stock Option Plan covering an aggregate of 1,277,030 shares
of the Company's Common Stock. Of these, options covering approximately
141,000 shares have been canceled without being exercised. The weighted
average exercise price of the stock options outstanding as of October 1,
1997 was $14.16 per share. During the same period, the Company did not sell
any shares of its Common Stock to employees, directors and consultants upon
the exercise of outstanding stock options.
(2) On May 31, 1995, the Company sold 105,300 shares of Common Stock to
40 accredited investors for an aggregate purchase price of $1,316,250
pursuant to the exercise of warrants.
(3) Between September 1995 and the date of this Registration Statement,
the Company issued warrants to purchase an aggregate of up to 21,572 shares
of Common Stock at an exercise price of $15.00 per share to T.J. Koellhoffer
& Associates in partial consideration for services rendered to the Company.
(4) In October 1995, the Company sold 2,000 shares of Common Stock to
Sheldon S. Wilson for an aggregate purchase price of $25,000, pursuant to
the exercise of warrants.
(5) In October 1995, the Company sold to Presencia 0.041 units, each
unit consisting of 2,000 shares of Common Stock, 1,000 shares of Series B
Redeemable Preferred Stock and warrants to purchase 2,000 shares of Common
Stock at an exercise price of $12.50 per share, 1,016 shares of Common
Stock, and warrants to purchase 10,932 shares of Common Stock at an exercise
price of $12.50 per share, for an aggregate purchase price of $13,930,
pursuant to the exercise of Presencia's right of co-investment.
(6) On February 9, 1996, the Company sold 282,266 shares of Common
Stock to 49 accredited investors for an aggregate purchase price of
$4,939,655. In addition, the Company granted Allen &
II-2
<PAGE>
Company Incorporated warrants to purchase 28,226 shares of Common Stock at
an exercise price of $19.25 per share in consideration of placement agent
services provided by Allen & Company Incorporated in connection with such
private placement.
(7) On March 28, 1996, the Company issued warrants to purchase up to
24,000 shares of Common Stock at an exercise price of $15.00 per share to
Presencia in consideration of its continued efforts and certain expenses
incurred by Presencia in helping to promote use of the L-VIS System in the
Mexican market.
(8) On April 23, 1996, the Company sold 938 shares of Common Stock to
Glen S. Lewy for an aggregate purchase price of $1,055 pursuant to the
exercise of warrants.
(9) On May 2, 1996, the Company sold 170,000 shares of Common Stock to
19 accredited investors for an aggregate purchase price of $1,062,500
pursuant to the exercise of warrants.
(10) On August 31, 1996, the Company sold 8,000 shares of Common Stock
to Richard Khaleel for an aggregate purchase price of $20,000 pursuant to
the exercise of warrants.
(11) On September 10, 1996, the Company sold 4,000 shares of Common
Stock to Richard Cheney for an aggregate purchase price of $10,000 pursuant
to the exercise of warrants.
(12) On June 15, 1997, the Company sold 295,758 shares of Common Stock
to 119 accredited shareholders and warrantholders of the Company for an
aggregate purchase price of $1,109,093, and the Company sold 97,930 shares
of Common Stock to several such warrantholders for an aggregate purchase
price of $110,171, pursuant to the exercise of warrants. In connection with
this sale, Presencia was issued 18,610 shares of Common Stock in July 1997
for no consideration pursuant to its anti-dilution rights which terminate
upon the closing of this Offering. See Note 9 of Notes to Financial
Statements.
(13) As of June 30, 1997, the Company had received subscriptions for
291,756 shares of Common Stock from 42 accredited shareholders of the
Company for an aggregate purchase price of $1,094,085, which shares were
issued by the Company on July 15, 1997. In connection with this sale,
Presencia was issued 18,360 shares of Common Stock in July 1997 for no
consideration pursuant to its anti-dilution rights which terminate upon the
closing of this Offering. See Note 9 of Notes to Financial Statements.
(14) On July 31, 1997, the Company sold 48,550 shares of Common Stock to
7 accredited warrantholders of the Company for an aggregate purchase price
of $82,119, pursuant to the exercise of warrants.
(15) On July 31, 1997, the Company sold 190,000 shares of Common Stock
to Mr. Williams and 72,000 shares of Common Stock to Mr. McCleery pursuant
to the exercise of warrants, in exchange for Mr. Williams' and Mr.
McCleery's delivery of non-recourse promissory notes in the principal amount
of $475,000 and $180,000, respectively, the aggregate exercise price of
their respective warrants.
(16) On August 8, 1997, the Company sold 5,896 shares of Common Stock to
Richard Cheney for an aggregate purchase price of $6,633, pursuant to the
exercise of warrants.
(17) On August 25, 1997, the Company sold 15,678 shares of Common Stock
to Leigh A. Wilson for an aggregate purchase price of $17,638 and 938 shares
of Common Stock to Brown F Williams for an aggregate purchase price of
$1,055, pursuant to the exercise of warrants.
(18) On September 3, 1997, the Company issued a warrant to purchase up
to 20,000 shares of Common Stock at an exercise price of $4.50 per share to
PVR in consideration of consulting services PVR previously provided to the
Company.
II-3
<PAGE>
(19) On October 20, 1997, the Company issued 30 units, each consisting
of a $100,000, 10% senior secured promissory note and warrants to purchase
up to 10,000 shares of Common Stock, to 28 accredited investors for an
aggregate purchase price of $3,000,000.
The sales and issuances of securities in the transactions described in
paragraph (1) above were deemed to be exempt from registration under the
Securities Act by virtue of Rule 701 promulgated thereunder in that they were
offered and sold either pursuant to a written compensatory benefit plan or
pursuant to a written contract relating to compensation, as provided by Rule
701, or were deemed to be exempt from registration under the Securities Act by
virtue of Section 4(2) as transactions not involving any public offering.
The sale and issuance of securities in the transaction described in
paragraphs (10), (11) and (16) above were deemed to be exempt from registration
under the Securities Act by virtue of Section 4(2) as transactions not involving
any public offering. The Company believes that each of the parties was
sophisticated within the meaning of Section 4(2) based upon his business
experience and relationship with the Company. The transactions described in
paragraphs (2) through (9), (12) through (15) and (17) through (19) were deemed
to be exempt from registration under the Securities Act by virtue of Rule 506 as
transactions not involving any public offering. The purchasers in each
transaction represented their intention to acquire the securities for investment
only and not with a view to the distribution thereof. Appropriate legends are
affixed to the stock certificates issued in such transactions. All recipients
either received adequate information about the Company or had access, through
employment or other relationships, to such information.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- -------------------------------------------------------------------------------------------------------
<C> <S>
1.1 --Form of Underwriting Agreement
3.1+ --Restated Certificate of Incorporation
3.2+ --Bylaws
4.1+ --Specimen Common Stock Certificate
4.2 --Form of Warrant for the purchase of 400,000 shares of Common Stock issued to the Representatives
4.3+ --Form of Warrant for the purchase of shares of Common Stock issued in connection with the Company's
bridge financing in October 1997
4.4+ --Form of warrant for the purchase of shares of Common Stock issued by the Company
5.1 --Opinion of Smith, Stratton, Wise, Heher & Brennan
10.1+ --Amended 1993 Stock Option Plan
10.2+ --Form of Employee Confidentiality, Invention Assignment and Non-Compete Agreement
10.3+ --Form of Consultant Confidentiality, Invention Assignment and Non-Compete Agreement
10.4+** --Research Agreement dated November 1, 1990 between the Company and David Sarnoff Research Center,
Inc., as amended by Agreement dated August 9, 1991, letter dated July 1, 1992, Letter Agreement dated
July 9, 1992, letter dated November 30, 1992 and Agreement dated June 26, 1995 and effective as of
December 31, 1993
10.5+** --License Agreement dated as of July 24, 1996 between the Company and the General Electric Company
10.6+ --Letter Agreement dated May 1, 1993 between the Company and Grupo Sitt, as amended by Letter Agreement
dated June 25, 1993
10.7+ --License Agreement dated as of March 1, 1994 between the Company and Publicidad Virtual, S.A. de C.V.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- -------------------------------------------------------------------------------------------------------
<C> <S>
10.8+ --Letter Agreement dated February 3, 1995 between the Company and Capital Cities/ABC, Inc., as amended
by Letter Agreement dated August 29, 1996 between the Company and ESPN, Inc. and by letter dated
April 22, 1996
10.9+ --License Agreement dated December 18, 1995 between the Company and Theseus Research, Inc.
10.10+ --Second Amended and Restated Registration Rights Agreement dated as of February 2, 1996, as amended by
agreement dated October 20, 1997 and by agreement dated October 30, 1997
10.11+ --Employment Agreement dated January 24, 1997 between the Company and Brown F Williams
10.12+ --Employment Agreement dated January 24, 1997 between the Company and Douglas J. Greenlaw
10.13+ --Employment Agreement dated March 4, 1997 between the Company and Samuel A. McCleery
10.14+ --Lease Agreement dated April 21, 1997 between the Company and 1325 Limited Partnership
10.15+ --Promissory Note dated May 31, 1997 of Princeton Venture Research, Inc. in favor of the Company
10.16+ --Promissory Note dated May 31, 1997 of John B. Torkelsen in favor of the Company
10.17+ --Promissory Note dated May 31, 1997 of Pamela R. Torkelsen in favor of the Company
10.18+ --Promissory Note dated July 15, 1997 of Princeton Venture Research, Inc. in favor of the Company
10.19+ --Promissory Note dated July 15, 1997 of Pamela R. Torkelsen in favor of the Company
10.20+ --Lease Agreement dated July 16, 1997 between the Company and Princeton South at Lawrenceville One
10.21+ --Nonrecourse Promissory Note dated July 31, 1997 of Brown F Williams in favor of the Company
10.22+ --Pledge Agreement dated July 31, 1997 between the Company and Brown F Williams
10.23+ --Nonrecourse Promissory Note dated July 31, 1997 of Samuel A. McCleery in favor of the Company
10.24+ --Pledge Agreement dated July 31, 1997 between the Company and Samuel A. McCleery
10.25+ --Assignment dated January 22, 1992 by Roy Jonathon Rosser and Martin Leach to the Company regarding a
patent
10.26+ --Assignment dated October 22, 1993 by Roy Jonathon Rosser and Brown F Williams to the Company
regarding a patent
10.27+ --Assignment dated January 30, 1995 by Roy Rosser, Subhodev Das, Yi Tan and Peter von Kaenel to the
Company regarding a patent
11.1+ --Statement regarding computation of per share earnings
21.1+ --Subsidiaries of the Registrant
23.1 --Consent of Coopers & Lybrand L.L.P., independent public accountants
23.2 --Consent of Smith, Stratton, Wise, Heher & Brennan (contained in Exhibit 5.1)
24.1+ --Power of Attorney
27.1+ --Financial Data Schedule
</TABLE>
- ------------------------
** Confidential treatment has been requested with respect to a portion of this
Exhibit.
+ Previously filed.
II-5
<PAGE>
FINANCIAL STATEMENT SCHEDULES
No schedules are required because the information is either not applicable
or is presented elsewhere herein.
ITEM 28. UNDERTAKINGS.
The undersigned Registrant hereby undertakes that it will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in the volume and price represent no more than 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) Include any additional of changed material information on plan
of distribution.
(2) For the purpose of determining liability under the Securities Act,
treat each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to be
the initial bona fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
(the "Commission") such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that it will:
(1) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act as part of this Registration Statement as of
the time the Commission declared it effective.
(2) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the Registration
Statement, and that offering of the securities at that time as the initial
bona fide offering of those securities.
II-6
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Amendment No. 2
to the Registration Statement to be signed on its behalf by the undersigned, in
the Township of Lawrence, State of New Jersey, on December 12, 1997.
PRINCETON VIDEO IMAGE, INC.
By: /s/ BROWN F WILLIAMS
-----------------------------------------
Brown F Williams
CHAIRMAN OF THE BOARD
AND TREASURER
In accordance with the requirements of the Securities Act of 1933, this
Amendment No. 2 to the Registration Statement has been signed by the following
persons in the capacities and on the dates stated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
Chairman of the Board and
/s/ BROWN F WILLIAMS Treasurer (principal
- ------------------------------ executive officer and December 12, 1997
Brown F Williams principal financial
officer)
/s/ DOUGLAS J. GREENLAW President, Chief Executive
- ------------------------------ Officer and Director December 12, 1997
Douglas J. Greenlaw
/s/ ELIZABETH A. DUMONT Controller (Controller)
- ------------------------------ December 12, 1997
Elizabeth A. Dumont
* Director
- ------------------------------ December 12, 1997
Lawrence Lucchino
* Director
- ------------------------------ December 12, 1997
Jerome J. Pomerance
* Director
- ------------------------------ December 12, 1997
Enrique F. Senior
* Director
- ------------------------------ December 12, 1997
Eduardo Sitt
* Director
- ------------------------------ December 12, 1997
John B. Torkelsen
* By his signature set forth below, the undersigned, pursuant to duly authorized
powers of attorney filed with the Securities and Exchange Commission, has signed
this Amendment No. 2 to the Registration Statement on behalf of the persons
indicated.
By: /s/ BROWN F WILLIAMS
-------------------------
Brown F Williams
ATTORNEY-IN-FACT
II-7
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- ------------------------------------------------------------------------------------------------------
<S> <C>
1.1 --Form of Underwriting Agreement
3.1+ --Restated Certificate of Incorporation
3.2+ --Bylaws
4.1+ --Specimen Common Stock Certificate
4.2 --Form of Warrant for the purchase of 400,000 shares of Common Stock issued to the Representatives
4.3+ --Form of Warrant for the purchase of shares of Common Stock issued in connection with the Company's
bridge financing in October 1997
4.4+ --Form of warrant for the purchase of shares of Common Stock issued by the Company
5.1 --Opinion of Smith, Stratton, Wise, Heher & Brennan
10.1+ --Amended 1993 Stock Option Plan
10.2+ --Form of Employee Confidentiality, Invention Assignment and Non-Compete Agreement
10.3+ --Form of Consultant Confidentiality, Invention Assignment and Non-Compete Agreement
10.4+** --Research Agreement dated November 1, 1990 between the Company and David Sarnoff Research Center,
Inc., as amended by Agreement dated August 9, 1991, letter dated July 1, 1992, Letter Agreement
dated July 9, 1992, letter dated November 30, 1992, and Agreement dated June 26, 1995 and effective
as of December 31, 1993
10.5+** --License Agreement dated as of July 24, 1996 between the Company and the General Electric Company
10.6+ --Letter Agreement dated May 1, 1993 between the Company and Grupo Sitt, as amended by Letter
Agreement dated June 25, 1993
10.7+ --License Agreement dated as of March 1, 1994 between the Company and Publicidad Virtual, S.A. de C.V.
10.8+ --Letter Agreement dated February 3, 1995 between the Company and Capital Cities/ABC, Inc., as amended
by Letter Agreement dated August 29, 1996 between the Company and ESPN, Inc. and by letter dated
April 22, 1996
10.9+ --License Agreement dated December 18, 1995 between the Company and Theseus Research, Inc.
10.10+ --Second Amended and Restated Registration Rights Agreement dated as of February 2, 1996, as amended
by agreement dated October 20, 1997 and by agreement dated October 30, 1997
10.11+ --Employment Agreement dated January 24, 1997 between the Company and Brown F Williams
10.12+ --Employment Agreement dated January 24, 1997 between the Company and Douglas J. Greenlaw
10.13+ --Employment Agreement dated March 4, 1997 between the Company and Samuel A. McCleery
10.14+ --Lease Agreement dated April 21, 1997 between the Company and 1325 Limited Partnership
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- ------------------------------------------------------------------------------------------------------
<S> <C>
10.15+ --Promissory Note dated May 31, 1997 of Princeton Venture Research, Inc. in favor of the Company
10.16+ --Promissory Note dated May 31, 1997 of John B. Torkelsen in favor of the Company
10.17+ --Promissory Note dated May 31, 1997 of Pamela R. Torkelsen in favor of the Company
10.18+ --Promissory Note dated July 15, 1997 of Princeton Venture Research, Inc. in favor of the Company
10.19+ --Promissory Note dated July 15, 1997 of Pamela R. Torkelsen in favor of the Company
10.20+ --Lease Agreement dated July 16, 1997 between the Company and Princeton South at Lawrenceville One
10.21+ --Nonrecourse Promissory Note dated July 31, 1997 of Brown F Williams in favor of the Company
10.22+ --Pledge Agreement dated July 31, 1997 between the Company and Brown F Williams
10.23+ --Nonrecourse Promissory Note dated July 31, 1997 of Samuel A. McCleery in favor of the Company
10.24+ --Pledge Agreement dated July 31, 1997 between the Company and Samuel A. McCleery
10.25+ --Assignment dated January 22, 1992 by Roy Jonathon Rosser and Martin Leach to the Company regarding a
patent.
10.26+ --Assignment dated October 22, 1993 by Roy Jonathon Rosser and Brown F Williams to the Company
regarding a patent.
10.27+ --Assignment dated January 30, 1995 by Roy Rosser, Subhodev Das, Yi Tan and Peter von Kaenel to the
Company regarding a patent.
11.1+ --Statement regarding computation of per share earnings
21.1+ --Subsidiaries of the Registrant
23.1 --Consent of Coopers & Lybrand L.L.P., independent public accountants
23.2 --Consent of Smith, Stratton, Wise, Heher & Brennan (contained in Exhibit 5.1)
24.1+ --Power of Attorney (included on the signature page to the Registration Statement)
27.1+ --Financial Data Schedule
</TABLE>
- ------------------------
** Confidential treatment has been requested with respect to a portion of this
Exhibit.
+ Previously filed.
<PAGE>
EXHIBIT 1.1
W&C DRAFT OF December 12, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4,600,000 SHARES
PRINCETON VIDEO IMAGE, INC.
COMMON STOCK
------------------------------
UNDERWRITING AGREEMENT
SELECTED DEALER AGREEMENT
------------------------------
DECEMBER ___, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
4,600,000 SHARES
PRINCETON VIDEO IMAGE, INC.
COMMON STOCK
---------------------------
UNDERWRITING AGREEMENT
---------------------------
December ____, 1997
ALLEN & COMPANY INCORPORATED
BARINGTON CAPITAL GROUP, L.P.
As Representatives of the Several
Underwriters
c/o Allen & Company Incorporated
711 Fifth Avenue
New York, New York 10022
Ladies/Gentlemen:
Princeton Video Image, Inc., a New Jersey corporation (the "Company"),
hereby confirms its agreement with the several Underwriters named in SCHEDULE A
hereto (the "Underwriters"), for which you are acting as representatives (the
"Representatives"), as follows:
1. DESCRIPTION OF SECURITIES. The Company has authorized by appropriate
corporate action and proposes to issue and sell to the Underwriters its shares
of Common Stock, no par value per share. As further described in Section 3
hereof, 4,000,000 of such shares (the "Purchased Shares") are being sold by the
Company to the Underwriters and the Company is granting to the Underwriters an
option to purchase up to 600,000 additional shares (the "Option Shares"). The
Purchased Shares and Option Shares are herein collectively referred to as the
"Shares."
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2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY. Any
representation, warranty, covenant and agreement of the Company relating to the
Subsidiary (as hereinafter defined) stated in this Agreement and each
certificate of the Company or its officers prepared hereunder to be "to the best
of the Company's knowledge," "to the knowledge of the Company" or similar
language, is so stated to reflect the fact that while the Company has no reason
to believe that the statement of such matter is inaccurate (based solely upon
written representations made by one or more officers of the Subsidiary in a
certificate to such effect), the Company has made no independent factual
investigation with respect to such statement or matter. The Company represents
and warrants to and agrees with each Underwriter that:
(a) A registration statement on Form SB-2 (File No. 333-37725) with
respect to the Shares, including a preliminary form of prospectus, copies of
which have heretofore been delivered to you, has been prepared by the Company in
conformity with the requirements of the Securities Act of 1933, as amended (the
"Act"), and the rules and regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") under the Act, and has
been filed with the Commission under the Act; such amendment or amendments to
such registration statement, copies of which have heretofore been delivered to
you, as may have been made prior to the date of this Agreement have been so
prepared and filed; and the Company has so prepared and proposes so to file in a
timely manner after the effective date of such registration statement the final
form of prospectus. Such registration statement (including all exhibits
thereto), as finally amended and revised as of the time the Underwriters first
offer the Shares for sale to the public together with information, if any, which
is permitted to be, and is, subsequently filed pursuant to Rule 430A of the
Rules and Regulations, is herein referred to as the "Registration Statement."
Such prospectus in the form filed pursuant to Rule 424(b) of the Rules and
Regulations, or, if no final prospectus is filed with the Commission pursuant to
Rule 424(b), in such form as such final prospectus is included in the
Registration Statement, is herein referred to as the "Prospectus." Each
preliminary form of prospectus is herein referred to as a "Preliminary
Prospectus."
(b) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus. At the time of filing of each
Preliminary Prospectus, such prospectus did not include any untrue statement of
a material fact or omit to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. When the Registration Statement was or is declared effective
and at all times subsequent thereto up to and at each Closing Date (hereinafter
defined) (i) the Registration Statement contained or will contain as of its date
all material statements and information which are required to be included
therein in accordance with the Act and Rules and Regulations and will in all
material respects conform to the requirements of the Act and the Rules and
Regulations, and (ii) the Registration Statement did not or will not include as
of its date any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein not misleading. When the
Prospectus or any amendment or supplement thereto is filed with the Commission
pursuant
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to Rule 424(b) (or, if the Prospectus or such amendment or supplement is not
required to be so filed, when the Registration Statement or the amendment
thereto containing such amendment or supplement to the Prospectus was or is
declared effective), on the date when the Prospectus is otherwise amended or
supplemented and on each Closing Date (as hereinafter defined), the Prospectus,
as amended or supplemented at any such time, (i) contained or will contain all
statements required to be stated therein in accordance with, and complied or
will comply in all material respects with the requirements of, the Act and the
Rules and Regulations and (ii) did not or will not include any untrue statement
of a material fact or omit to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading. The foregoing representations and warranties shall not
apply to information contained in or omitted from the Registration Statement or
the Prospectus or any such amendment or supplement in reliance upon, and in
conformity with, written information furnished to the Company by any Underwriter
through you specifically for use in the preparation thereof.
(c) Set forth on SCHEDULE B hereto is the name of the only subsidiary
of the Company (the "Subsidiary") which holds assets or conducts operations
which currently may be material to the condition (financial or otherwise),
results of operations, business or prospects of the Company and its subsidiaries
taken as a whole, and, unless otherwise indicated thereon, the Company holds all
right, title and interest in and to the entire equity interest in the
Subsidiary, free and clear of all material liens, encumbrances or claims.
Except as described in the Prospectus, subsequent to the respective dates as of
which information is given in the Registration Statement and the Prospectus,
neither the Company nor, to the best of the Company's knowledge, the Subsidiary,
has incurred any direct or, to the best of the Company's knowledge, contingent
material liabilities or material obligations, or entered into any material
transactions or contracts not in the ordinary course of business, and there has
not been any change in its capital shares, options or warrants, nor any material
increase or decrease in the amount thereof outstanding or in any of its long-
term debt outstanding, except pursuant to the terms of the instruments governing
the same, or any material adverse change in the condition (financial or
otherwise), results of operations, business or prospects of the Company or the
Subsidiary, respectively.
(d) Except as set forth in the Prospectus, there is not now pending
or, to the knowledge of the Company, threatened, any action, suit or proceeding
to which the Company is a party before any court or governmental agency or body
which could reasonably be expected to result in any material adverse change in
the condition (financial or otherwise), results of operations, business or
prospects of the Company or could reasonably be expected to materially and
adversely affect the properties, assets or ability of the Company to do business
as contemplated in the Prospectus; and there are no contracts or documents
required to be filed as exhibits to the Registration Statement by the Act or by
the Rules and Regulations which have not been filed as exhibits to the
Registration Statement. Except as set forth in the Prospectus, to the best of
the Company's knowledge, there is not now pending or threatened, any action,
suit or proceeding to which the Subsidiary is a party before any court or
governmental agency or body which could
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reasonably be expected to result in a material adverse change in the condition
(financial or otherwise), results of operations, business or prospects of the
Subsidiary, or could reasonably be expected to materially and adversely affect
the properties, assets or ability of the Subsidiary to do business as
contemplated in the Prospectus.
(e) This Agreement has been duly authorized, executed and delivered
on behalf of the Company and constitutes a valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms, except
(1) that such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights and (2) as rights to indemnity or contribution
hereunder may be limited by federal or state securities laws; the execution,
delivery and performance of this Agreement and the consummation of the
transactions herein contemplated will not result in a breach or violation of any
term or provision of, or constitute a default under, (i) any indenture,
mortgage, deed of trust, note agreement or other agreement or instrument filed
as an exhibit to the Registration Statement or any other material indenture,
mortgage, deed of trust, note or agreement or other agreement or instrument to
which the Company is a party or by which it or its property is bound; (ii) the
charter or by-laws of the Company or (iii) to the best of the Company's
knowledge, any currently existing statute, order, rule or regulation of any
court or governmental agency or body having jurisdiction over the Company or
over their properties; no consent, approval, authorization or order of any court
or governmental agency or body is required for the consummation by the Company
of the transactions on its part herein contemplated, except such as have been
obtained or such as may be required under the Act or as may be required under
state or other securities or blue sky laws in connection with the purchase and
distribution of the Shares by the Underwriters. Neither the Company nor, to the
best of the Company's knowledge the Subsidiary, is now in default, and no event
has occurred which with the giving of notice or lapse of time or both would be a
default, under any contract, agreement, indenture, mortgage or other undertaking
to which such entity is a party and which is material to the condition
(financial or otherwise), results of operations, business or prospects of the
Company or the Subsidiary, respectively.
(f) Each of the Company and, to the best of the Company's knowledge,
the Subsidiary has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, with full power and authority, corporate or otherwise, to own its
properties and conduct its business as described and contemplated in the
Registration Statement and is duly qualified to do business as a foreign
corporation in good standing in all other jurisdictions where its operations or
ownership of property requires such qualifications and where failure so to
qualify would impair title to any material properties of the Company or its
rights to enforce contracts against others or expose it to liabilities material
to the Company or the Subsidiary, respectively.
(g) The Company has the authorized and outstanding capital stock set
forth in the Prospectus; the outstanding capital stock of the Company conforms,
and the
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Shares when issued and sold as herein contemplated will conform, in all material
respects to all statements in relation thereto contained in the Registration
Statement and the Prospectus; all such stock has been duly authorized and the
outstanding capital stock has been, and the Shares, when issued and delivered
against payment therefor as provided herein, will be, validly issued, fully-paid
and nonassessable; except as stated in the Prospectus, the stockholders of the
Company have no preemptive rights with respect to the Shares, and there are no
outstanding rights, options or warrants to acquire any securities of the
Company; to the extent that any rights, options or warrants to acquire any
securities of the Company are outstanding, except as otherwise set forth in the
Prospectus, the issuance of the Shares as described in the Prospectus will not
result in an adjustment of the exercise price or number of shares issuable upon
the exercise in respect of any such rights, options or warrants; and, except as
otherwise set forth in the Prospectus, the Company owns (directly or indirectly)
under valid title the respective outstanding shares of capital stock of the
Subsidiary, free and clear of any material liens, encumbrances or claims.
(h) Except as otherwise set forth in the Prospectus, each of the
Company and, to the best of the Company's knowledge, the Subsidiary, owns or
possesses, or can acquire on reasonable terms, adequate patents, patent
licenses, trademarks, service marks and trade names necessary to carry on its
business as presently conducted, and except as set forth in the Prospectus,
neither the Company nor, to the best of the Company's knowledge, the Subsidiary,
has received any notice of infringement of or conflict with asserted rights of
others with respect to any patents, patent licenses, trademarks, service marks
or trade names which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, could materially and adversely affect
the condition (financial or otherwise), earnings, affairs, business or prospects
of the Company or the Subsidiary, respectively.
(i) Except as set forth in the Prospectus, the Company and, to the
best of the Company's knowledge, the Subsidiary, hold in good standing or have
applied for all licenses, permits, authorizations, franchises, consents and
orders of all federal, state, local, and foreign governmental bodies necessary
to carry on their business as reflected or contemplated in the Prospectus;
except as stated in the Prospectus the Company has good and marketable title in
fee simple to all real property and good and marketable title to all personal
property owned by it, in each case free and clear of all liens, encumbrances and
defects with such exceptions as are not material to the Company or the
Subsidiary, respectively; and the real property and personal property referred
to in the Prospectus as held under lease by the Company is held by it under
valid, subsisting and enforceable leases with only such exceptions as in the
aggregate are not material and do not materially interfere with the conduct of
the business of the Company as contemplated by the Prospectus.
(j) The Company is conducting and proposes to conduct its business so
as to comply in all material respects with all applicable federal, state, local
and foreign governmental statutes, rules and regulations; and except as set
forth in the Prospectus, neither the Company nor, to the best of the Company's
knowledge, the Subsidiary, is
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charged with, or, is under investigation with respect to, any violation of any
of such statutes, rules or regulations or, to the best of the Company's
knowledge, is the subject of any pending or threatened proceeding by a
governmental body or regulatory authority relating to any such violation.
(k) Except as set forth in the Registration Statement, the Company
and, to the best of the Company's knowledge, the Subsidiary, are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as are prudent and customary in the business in which they
are engaged; and neither the Company nor any of the Subsidiaries has any reason
to believe that it will not be able to renew its existing insurance coverage as
and when such coverage expires or to obtain similar coverage from similar
insurers as may be necessary to continue its business at a cost that would not
materially and adversely affect the business or financial condition of the
Company or the Subsidiary, respectively, except as described or contemplated in
the Prospectus.
(l) Coopers & Lybrand, L.L.P., which has examined and expressed its
opinion on certain of the financial statements of the Company filed with the
Commission as a part of the Registration Statement, are, to the Company's best
knowledge, independent accountants with respect to the Company within the
meaning of the Act and the Rules and Regulations; the financial statements,
together with the related notes, forming part of the Registration Statement and
Prospectus fairly present the financial condition of the Company and its results
of operations as of the dates and for the periods described in such opinion in
the Prospectus; and, to the best of the Company's knowledge, such financial
statements have been prepared in accordance with the requirements of the
Commission.
(m) The Company and, and to the best of the Company's knowledge, the
Subsidiary, maintain a system of internal accounting controls sufficient to
provide reasonable assurances that transactions are executed in accordance with
management's general or specific authorizations and are recorded as necessary to
permit preparation of financial statements in conformity with generally accepted
accounting principles.
(n) Except as stated in the Prospectus, the Company knows of no
outstanding claims for services, either in the nature of a finder's fee or
origination fee, with respect to the transactions contemplated hereby, and the
Company agrees to indemnify and hold the Underwriters harmless from any such
claim for any such services of such nature arising from the act of any person
other than any Underwriter.
(o) Except as set forth in the Registration Statement no person holds
a right to require or participate in the registration under the Act of the
Common Stock of the Company to be effected by the Registration Statement, which
right has not been effectively waived by the holder thereof as of the date
hereof.
(p) Each of the Company's shareholders and certain of its
warrantholders are party to an agreement that they will not, without the prior
written consent of the Allen
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& Company Incorporated on behalf of the Underwriters, sell, offer for sale,
contract to sell or otherwise dispose of any shares of the Company's Common
Stock or any securities exercisable for or convertible into its Common Stock or
any rights to acquire Common Stock for a period of 12 months from the First
Closing Date (as defined below).
3. PURCHASE, SALE AND DELIVERY OF SHARES. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to sell to each
Underwriter and each Underwriter agrees, severally and not jointly, to purchase
from the Company, at a purchase price of $______ per Share, the number of Shares
set forth opposite the name of such Underwriter in SCHEDULE A hereto.
The Company will deliver the Purchased Shares to you for the accounts
of the several Underwriters at the office of Allen & Company Incorporated, 711
Fifth Avenue, New York, New York, against payment of the purchase price therefor
by certified or official bank check or checks in New York Clearing House funds,
payable to the order of Princeton Video Image, Inc., at 10:00 A.M., New York
Time, on December ____, 1997 or at such other time and date not later than five
full business days thereafter as you and the Company may determine, such time
and date of delivery and payment being herein called the "First Closing Date."
The certificates for the Purchased Shares to be so delivered will be made
available to you at such office for checking at least one full business day
prior to such Closing Date and will be in such names and denominations as you
may request in writing not less than two full business days prior to such
Closing Date.
On the basis of the representations, warranties and agreements herein
contained, but subject to the terms and conditions herein set forth, the Company
grants to the Underwriters an option to purchase up to 600,000 Option Shares at
the same price per share as the Underwriters shall pay for the Purchased Shares.
Such option may be exercised only to cover over-allotments arising in connection
with the sale of Purchased Shares by the Underwriters, such exercise to be upon
written notice by you to the Company within 30 days of the date hereof setting
forth the number of Option Shares as to which the Underwriters are exercising
the option, the denominations and names in which certificates for such Shares
should be registered and the time and place at which such certificates are to be
delivered. Such time and place (unless such time is the First Closing Date),
herein referred to as the "Second Closing Date," shall be determined by you but
shall not be earlier than the First Closing Date, nor earlier than three full
business days or later than ten full business days after the exercise of such
option. The Company will deliver the Option Shares to you for the accounts of
the several Underwriters against payment of the purchase price therefor by
certified or official bank check or checks in New York Clearing House funds
payable to the order of Princeton Video Image, Inc. The number of Option Shares
to be purchased by each Underwriter shall be in the same proportion to the
aggregate number of Option Shares purchased as the number of Purchased Shares
set forth opposite the name of such Underwriter in SCHEDULE A hereto bears to
4,000,000.
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It is understood that you, individually and not as the Representatives
of the several Underwriters, may (but shall not be obligated to) make payment on
behalf of any Underwriter or Underwriters for Shares to be purchased by such
Underwriter or Underwriters. Any such payment by you shall not relieve any such
Underwriter or Underwriters of any of its or their obligations hereunder.
After the Registration Statement becomes effective, the several
Underwriters propose to offer the Shares to the public as set forth in the
Prospectus.
4. COVENANTS OF THE COMPANY. The Company covenants and agrees with the
several Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement and any subsequent amendment thereto to become effective as promptly
as possible; it will notify you, promptly after it shall receive notice thereof,
of the time when the Registration Statement or any subsequent amendment to the
Registration Statement has become effective or any supplement to the Prospectus
has been filed; it will notify you promptly of any request by the Commission for
the amending or supplementing of the Registration Statement or Prospectus or for
additional information; it will prepare and file with the Commission, promptly
upon your request, any amendments or supplements to the Registration Statement
or Prospectus which, in your reasonable opinion, may be necessary or advisable
in connection with the distribution of the Shares by the Underwriters; it will
promptly prepare and file with the Commission, and promptly notify you of the
filing of, any amendments or supplements to the Registration Statement or
Prospectus which may be necessary to correct any statements or omissions, if, at
any time when a prospectus relating to the Shares is required to be delivered
under the Act, any event shall have occurred as a result of which the Prospectus
or any other prospectus relating to the Shares as then in effect would include
an untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading; in case any Underwriter
is required to deliver a prospectus after the nine-month period referred to in
Section 10(a)(3) of the Act in connection with sales of the Shares purchased by
the Underwriters from the Company pursuant to Section 3 or otherwise acquired by
the Underwriters during the distribution of the Shares in connection with
stabilization or otherwise, the Company will prepare and file with the
Commission promptly upon request of, but at the expense of, such Underwriter,
any amendments or supplements to the Registration Statement or Prospectus as may
be necessary, in such Underwriter's reasonable opinion, to permit the sale of
such Shares in the manner determined by such Underwriter, in compliance with the
requirements of the Act, including Section 10(a)(3) thereunder; and it will file
no amendment or supplement to the Registration Statement or Prospectus that
shall not previously have been submitted to you in writing a reasonable time
prior to the proposed filing thereof or to which you shall reasonably object in
writing.
(b) The Company will advise you, promptly after it shall receive
notice or obtain knowledge thereof, of the issuance by the Commission of any
stop order suspending
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the effectiveness of the Registration Statement or of any order suspending
trading in the Shares or other of the Company's securities or of the initiation
or threat of any proceeding for that purpose; and it will use promptly its best
efforts to prevent the issuance of any stop order or to obtain its withdrawal if
such a stop order should be issued.
(c) The Company will use its best efforts to qualify the Shares for
sale under the blue sky or securities laws of such jurisdictions as you may
reasonably designate and to continue such qualifications in effect for so long
as may be required for purposes of the distribution of the Shares, except that
the Company shall not be required in connection therewith or as a condition
thereof to qualify as a foreign corporation or to execute a general consent to
service of process in any state.
(d) The Company will furnish to you, as soon as available, copies of
the Registration Statement (two of which will include all exhibits), each
Preliminary Prospectus, the Prospectus, and any amendments or supplements to
such documents, including any prospectus prepared to permit compliance with
Section 10(a)(3) of the Act, all in such quantities as you may from time to time
reasonably request.
(e) The Company will make generally available to its security holders
as soon as practicable, an earnings statement (which will be in reasonable
detail but need not be audited) covering a 12-month period beginning after the
effective date of the Registration Statement which shall satisfy the provisions
of Section 11(a) of the Act.
(f) The Company agrees, during each fiscal year for a period of two
years from the date hereof, upon request by any stockholder, to furnish to such
stockholder as promptly as may be practicable an annual report (including
financial statements audited by independent public accountants), and a
quarterly report on Form 10-Q (including quarterly financial statements (which
need not be audited)) for each of the first three quarters of each fiscal year,
and to furnish, upon request, to each Underwriter hereunder (i) as soon as
practicable after the end of each of the first three quarters of each fiscal
year, the Company's quarterly report on Form 10-Q or statements of operations
and surplus of the Company for such quarter in reasonable detail and certified
by the Company's principal financial or accounting officer; (ii) as soon as
practicable after the end of each fiscal year, financial statements of the
Company as at the end of such fiscal year, including statements of operations,
retained earnings and changes in financial position of the Company for such
fiscal year, all in reasonable detail and accompanied by a copy of the report
thereon of independent public accountants or the Company's annual report on Form
10-K; and (iii) as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission. During such
period, if and so long as the Company shall have active subsidiaries, the
foregoing financial statements shall be on a combined or consolidated basis to
the extent that the accounts of the Company and its subsidiaries are combined or
consolidated.
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(g) The Company covenants and agrees with the several Underwriters
that the Company will pay or cause to be paid the following: (i) the fees,
disbursements, and expenses of the Company's counsel and accountants in
connection with the registration of the Shares under the Act; (ii) all other
expenses in connection with the preparation, printing, and filing of the
Registration Statement, each Preliminary Prospectus, and the Prospectus and
amendments and supplements thereto, and the mailing and delivering of copies
thereof to the Underwriters and dealers; (iii) the cost of printing this
Agreement, the Selected Dealer Agreement, the Blue Sky Memorandum, and any other
documents in connection with the offering, purchase, sale and delivery of the
Shares; (iv) all costs and expenses in connection with the issuance and delivery
of the Shares hereunder to the Underwriters, including related transfer taxes,
if any; (v) all expenses in connection with the qualification of the Shares for
offering and sale under the securities laws of various jurisdictions, including
the fees and disbursements of counsel for the Underwriters in connection with
such qualification and in connection with the Blue Sky Survey; (vi) the filing
fees incident to securing any required review by the National Association of
Securities Dealers, Inc. of the terms of the sale of the Shares; (vii) the costs
of preparing stock certificates; (viii) the cost and charges of any transfer
agent or registrar; and (ix) all other costs and expenses incident to the
performance of its obligations hereunder which are not otherwise specifically
provided for in this Section 4. In addition to the foregoing, the Company shall
reimburse the Underwriters, upon request from time to time, for their reasonable
itemized out-of-pocket expenses up to a maximum of $300,000, including their
legal fees and disbursements and travel, roadshow and syndicate expenses, upon
the presentation of reasonable documentation thereof. If the Company determines
not to proceed with the offering for any reason, other than the Underwriters'
unwillingness to proceed on the terms and conditions set forth in this
Agreement, or if the Representatives exercise their right to terminate this
Agreement pursuant to Section 10(b)(i) hereof, the Company shall reimburse the
Underwriters for all reasonable out-of-pocket expenses including legal fees and
disbursements and travel, roadshow and syndicate expenses actually incurred by
the Underwriters. The Company shall not in any event be liable to any of the
Underwriters for the loss of anticipated profits from the transactions covered
by this Agreement.
(h) The Company agrees that it will not, without the prior written
consent of Allen & Company Incorporated on behalf of the Underwriters, which
consent shall not unreasonably be withheld, sell, offer for sale, contract to
sell or otherwise dispose of any shares of its Common Stock or any securities
exercisable for or convertible into shares of its Common Stock or any rights to
acquire Common Stock, other than Common Stock or options issued or granted
pursuant to existing stock options or other existing compensation plans, for a
period of 12 months after the First Closing Date. In addition, agreement, each
of the Company's officers and directors, shareholders and certain warrantholders
are party to an agreement that they will not, without the prior written consent
of Allen & Company Incorporated, sell, offer for sale, contract to sell or
otherwise dispose of any of such Common Stock or any securities exercisable for
or convertible into shares of its Common
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Stock or any rights to acquire Common Stock held by such holder for a period of
12 months after the First Closing Date.
5. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
several Underwriters to purchase and pay for the Purchased Shares on the First
Closing Date and the Option Shares on the Second Closing Date, as provided
herein shall be subject to the accuracy, as of the date hereof and such Closing
Date (as if made on and as of such Closing Date), of the representations and
warranties of the Company herein, to the performance by the Company of its
obligations hereunder, and to the following additional conditions:
(a) The Registration Statement shall have become effective not later
than 5:30 P.M., New York City Time, on the date of this Agreement, or such later
date as shall be consented to in writing by you; if required, the Prospectus and
any amendment or supplement thereto shall have been filed with the Commission in
the manner and within the time period required by Rule 424(b) under the Act; and
no stop order suspending the effectiveness thereof shall have been issued and no
proceedings for that purpose shall have been initiated or, to the knowledge of
the Company or any Underwriter, threatened by the Commission, and any request of
the Commission for additional information (to be included in the Registration
Statement or the Prospectus or otherwise) shall have been complied with to your
satisfaction.
(b) Prior to such Closing Date, except as contemplated in the
Prospectus, there shall not have been any change in the capital shares, nor the
issuance of any rights, options, or warrants to purchase any capital shares, nor
any material increase or decrease in any long-term debt of the Company or any
material adverse change in the condition (financial or otherwise), results of
operations, business or prospects of the Company which in your reasonable
judgment renders it inadvisable to proceed with the offering and sale of the
Shares.
(c) You shall have received the opinion of Smith, Stratton, Wise,
Heher & Brennan, counsel for the Company, in form and substance satisfactory to
you and dated such Closing Date, to the effect that:
(i) the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation with full corporate power and authority
to own its properties and to conduct its business as described in the
Registration Statement and is duly qualified to do business as a
foreign corporation in each state or jurisdiction in the United States
where its operations and the ownership of its properties requires such
qualification, except with respect to qualification as a foreign
corporation in such jurisdictions in which the failure to so qualify
would not have a material adverse effect on the business of the
Company;
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(ii) the Company has authorized capital stock as set forth in
the Prospectus; all shares of Common Stock, including the Shares,
conform as to legal matters in all material respects to the
appropriate descriptions thereof under the heading "Description of
Securities" in the Prospectus; and the issuance of the Shares has been
duly authorized and, when issued and delivered in accordance with this
Agreement, the Shares will be validly issued, fully paid and
non-assessable; and, except as described in the Prospectus, the
issuance of the Shares as described in the Prospectus will not result
in any adjustment of the exercise price or number of shares issuable
upon exercise in respect of any outstanding options or warrants of the
Company;
(iii) this Agreement has been duly authorized, executed and
delivered by the Company and constitutes a valid and binding agreement
of the Company, enforceable in accordance with its terms, except that
(1) such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights generally, and to general
principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law) and the exercise of
judicial discretion, and (2) rights to indemnity or contribution
hereunder may be limited by federal or state securities laws; the sale
of the Shares under this Agreement and the consummation of the
transactions herein contemplated do not result in a breach or
violation of any terms or provisions of, or constitute a default under
any indenture, mortgage, deed of trust, note agreement or other
agreement or instrument filed as an exhibit to the Registration
Statement or otherwise known to counsel to which the Company is a
party or by which it or its properties are bound or affected, or to
which any of the material property or assets of the Company is
subject, the Company's certificate of incorporation and by-laws, or,
to the best of such counsel's knowledge, any order, rule or regulation
of any court or governmental agency or body having jurisdiction over
the Company or over its properties;
(iv) no consent, approval, authorization or order of any court
or governmental agency or body is required for the consummation by the
Company of the transactions contemplated by this Agreement that has
not been obtained, except such as may be required under the Act or as
may be required under state securities or blue sky laws in connection
with the purchase and distribution of the Shares by the Underwriters;
(v) the Registration Statement has become effective under the
Act, no stop order suspending the effectiveness of the Registration
Statement has been issued and, to the best of such counsel's
knowledge, no proceedings for that purpose have been instituted or are
pending or threatened under the Act;
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<PAGE>
(vi) except as set forth in the Prospectus, to the best of
such counsel's knowledge, the Company holds in good standing all
material licenses, permits, authorizations, franchises, consents and
orders, of Federal, State or local, governmental bodies necessary to
carry on its business as reflected in the Registration Statement;
(vii) the agreements or documents to which the Company is a
party which are summarized under the headings "Management -
Employment Agreements," "Certain Transactions", "Description of
Securities," "Underwriting" and "Business -- License Grants" in the
Prospectus conform in all material respects to such summaries;
(viii) to the best of such counsel's knowledge after due inquiry
(it being understood that for purposes of this opinion, due inquiry
does not include any search of court or administrative records), there
are no legal or governmental proceedings pending or threatened to
which the Company is a party or to which any properties of the Company
are subject which is required to be described in the Registration
Statement or the Prospectus and is not so described;
(ix) the Registration Statement and the Prospectus, and any
further amendments or supplements thereto made by the Company prior to
the Closing Date, as of their respective effective or issue dates,
comply as to form in all material respects with the requirements of
the Act and the Rules and Regulations (except that such counsel need
express no opinion as to the financial statements, notes to financial
statements, related schedules or other financial data contained in the
Registration Statement or the Prospectus);
(x) to the best of such counsel's knowledge after due
inquiry, all contracts and documents pertaining to the Company
required to be filed as Exhibits to the Registration Statement have
been filed as required and all contracts and documents required to be
described in the Prospectus have been accurately described therein in
all material respects;
(xi) Such counsel shall also state that it has participated in
conferences with officers and other representatives of the Company,
representatives of the independent public accountants for the Company
and the representatives of the Underwriters, at which the contents of
the Registration Statement and the Prospectus and related matters were
discussed and, although such counsel is not passing upon and does not
assume any responsibility for the accuracy, completeness or fairness
of the statements contained in the Registration Statement or the
Prospectus, on the basis of the foregoing (relying as to materiality
to a large extent upon the opinions of officers and other
representatives of the Company), no facts have come to
13
<PAGE>
such counsel's attention which lead such counsel to believe that the
Registration Statement (except with respect to the financial
statements and schedules thereto and other financial or statistical
data, as to which such counsel need not make any statement), at the
time it became effective or at the Closing Date contained any untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading, or that the Prospectus (except with respect to
the financial statements and schedules thereto and other financial or
other statistical data, as to which such counsel need not make any
statement) on the date thereof or on the Closing Date contained any
untrue statement of a material fact or omitted to state a material
fact necessary in order to make the statements therein, in the light
of the circumstances in which they were made, not misleading.
In rendering the foregoing opinions, such counsel may rely as to
factual matters on certificates of officers and representatives of the Company
or any Subsidiary and of public officials and will not be required to
independently verify the accuracy or completeness of information or documents
furnished to it in respect to the Registration Statement or the Prospectus. To
the extent that such counsel's opinion relates to the laws of jurisdictions
other than New York or New Jersey, such counsel shall be permitted to rely on
the opinion of local counsel reasonably satisfactory to counsel for the several
Underwriters.
(d) You shall have received from Werbel & Carnelutti, a Professional
Corporation, counsel for the several Underwriters, an opinion or opinions, dated
such Closing Date, in form and substance satisfactory to you, with respect to
the sufficiency of all such corporate proceedings and other legal matters
relating to this Agreement and the transactions contemplated hereby as you may
reasonably require, and the Company shall have furnished to such counsel such
documents as they may have requested for the purpose of enabling them to pass
upon such matters.
(e) You shall have received, at the time of execution of this
Agreement and on such Closing Date from Coopers & Lybrand, L.L.P., independent
public accountants, a letter or letters, dated the date of delivery thereof,
substantially in the form and substance heretofore approved by you.
(f) You shall have received a certificate, dated such Closing Date,
of the Chairman of the Board of Directors and Treasurer of the Company,
delivered on behalf of the Company, to the effect that:
(i) the representations and warranties of the Company in this
Agreement are true and correct in all material respects as if made on
and as of such Closing Date; and the Company has in all material
respects complied
14
<PAGE>
with all the agreements and satisfied all the conditions on its part
to be performed or satisfied at or prior to such Closing Date;
(ii) no stop order suspending the effectiveness of the
Registration Statement has been issued, and, to his knowledge, no
proceedings for that purpose have been instituted or are contemplated
by the Commission; and
(iii) except as contemplated in the Prospectus, the Company has
not incurred any direct or, to the best of the Company's knowledge,
contingent material liabilities or obligations, or entered into any
material transactions or contracts not in the ordinary course of
business, and there has not been any change in the capital shares of
the Company, nor the issuance of any rights, options, or warrants to
purchase any capital shares, nor any material increase or decrease in
any thereof or in any long-term debt or any material adverse change in
the condition (financial or otherwise) results of operations, business
or prospects of the Company.
(g) The Company shall have furnished to you such certificates, in
addition to those specifically mentioned herein, as you may have reasonably
requested, as to the accuracy and completeness at such Closing Date of any
statement in the Registration Statement or Prospectus, as to the accuracy at
such Closing Date of the representations and warranties of the Company herein,
as to the performance by the Company of its obligations hereunder, and as to the
fulfillment of the conditions concurrent and precedent to the obligations of the
Underwriters hereunder.
(h) The Company shall have furnished to you a copy of the agreements
described in Section 2(p) of this Agreement.
(i) The Company shall have issued and sold to the Representatives
warrants to purchase an aggregate of 400,000 shares of Common Stock at a
purchase price equal to 120% of the price at which the Shares are sold to the
public and on other terms reasonably satisfactory to the Company and the
Representatives.
6. INDEMNIFICATION. (a) The Company will indemnify and hold harmless
each Underwriter and each person, if any, who controls any Underwriter within
the meaning of the Act, against any losses, claims, damages or liabilities,
joint or several, to which such Underwriter or such controlling person may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse each Underwriter and each such controlling person for any
legal or other expenses reasonably incurred by such
15
<PAGE>
Underwriter or such controlling person in connection with investigating or
defending against any such loss, claim, damage, liability or action; provided,
however, that the Company will not be liable in any such case to the extent that
any such loss, claim, damage or liability arises out of or is based upon any
untrue statement or alleged untrue statement or omission or alleged omission
made in the Registration Statement, such Preliminary Prospectus, the Prospectus
or such amendment or such supplement in reliance upon and in conformity with
written information furnished to the Company by any Underwriter through you
specifically for use therein; and provided further, that the foregoing indemnity
with respect to Preliminary Prospectuses shall not inure to the benefit of any
Underwriter (or to the benefit of any person controlling such Underwriter) if
such untrue statement or omission or alleged untrue statement or omission made
in any Preliminary Prospectus is eliminated or remedied in the Prospectus and a
copy of the Prospectus has not been furnished to the person asserting any such
losses, claims, damages, or liabilities at or prior to the written confirmation
of the sale of such Shares to such person. Such indemnity obligation will be in
addition to any liability which the Company may otherwise have. The indemnity
agreement of the Company contained in this paragraph (a) and the representations
and warranties of the Company contained in Section 2 hereof shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any indemnified party and shall survive the delivery of and
payment for the Shares.
(b) Each Underwriter, severally and not jointly, will indemnify and
hold harmless the Company, each of its directors, each of its officers and each
additional employee who signed the Registration Statement, and each person, if
any, who controls the Company within the meaning of the Act, against any losses,
claims, damages or liabilities, joint or several, to which the Company or any
such director, officer or controlling person may become subject, under the Act
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through you specifically for use therein; and will reimburse any legal or other
expenses reasonably incurred by the Company or any such director, officer, other
employee or controlling person in connection with investigating or defending
against any such loss, claim, damage, liability or action. Such indemnity
obligation will be in addition to any liability which such Underwriter may
otherwise have. The indemnity agreement of each Underwriter contained in this
paragraph (b) shall remain operative and in full force and effect regardless of
any investigation made by or on behalf of any indemnified party and shall
survive the delivery of and payment for the Shares.
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<PAGE>
(c) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section, notify the indemnifying party of the commencement thereof.
Indemnification shall not be available to any party who shall fail so to give
notice, if the party to whom notice was required to be given was unaware of the
action, suit, investigation, inquiry or proceeding to which the notice would
have related, to the extent that such party was prejudiced by the failure to
give notice; but the omission so to notify the indemnifying party will not
relieve it from any liability which it may have to any indemnified party
otherwise than under this Section. In case any such action is brought against
any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it may wish jointly with any other indemnifying
party similarly notified, to assume the defense thereof, with counsel chosen by
such indemnifying party which is reasonably satisfactory to such indemnified
party, and after notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof, the indemnifying party will not
be liable to such indemnified party under this Section for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation; provided, however,
that (i) if the indemnified party reasonably determines that there may be a
conflict between the positions of the indemnifying party and of the indemnified
party in conducting the defense of such action, suit, investigation, inquiry or
proceeding or that there may be legal defenses available to such indemnified
party different from or in addition to those available to the indemnifying
party, then counsel for the indemnified party shall be entitled to conduct the
defense to the extent reasonably determined by such counsel to be necessary to
protect the interests of the indemnified party and (ii) in any event, the
indemnified party (at its own expense) shall be entitled to have counsel chosen
by such indemnified party participate in, but not conduct, the defense. No
indemnifying party shall be liable to any indemnified party in respect to any
settlement effected without its prior written consent, which consent shall not
be unreasonably withheld. In addition, the indemnifying party will not, without
the prior written consent of an indemnified party, settle or compromise or
consent to the entry of any judgment in any pending or threatened claim, action,
suit or proceeding in respect of which indemnification may be sought hereunder
(whether or not such indemnified party is a party to such claim, action or suit
or proceeding), unless such settlement, compromise or consent includes an
unconditional release of such indemnified party from all liability arising out
of such claim, action, suit or proceeding.
7. CONTRIBUTION. In order to provide for contribution in circumstances in
which the indemnification provided for in Section 6(a) or 6(b) hereof is for any
reason, other than the first proviso to Section 6(a), held to be unavailable,
the Company and the Underwriters shall contribute to the aggregate losses,
claims, damages and liabilities of the nature contemplated by such
indemnification provisions (including any investigation, legal and other
expenses incurred in connection with, any amount paid in settlement of, any
action, suit or proceeding or any claims asserted) to which the Company and one
or more of the
17
<PAGE>
Underwriters may be subject, in such proportions so that the Underwriters are
responsible for that portion in each case represented by the percentage that the
respective underwriting discounts appearing on the cover page of the Prospectus
bear to the public offering price of the Shares, and the Company is responsible
for the remaining portion; provided, however, that (i) except as may be provided
in its Master Agreement Among Underwriters provided to Allen & Company
Incorporated, in no case shall any Underwriter be responsible for any amount in
excess of the underwriting discount applicable to the Shares purchased by such
Underwriter hereunder and (ii) no person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 7, each person, if any, who
controls an Underwriter within the meaning of Section 15 of the Act shall have
the same rights to contribution as such Underwriter, and each person, if any,
who controls the Company within the meaning of Section 15 of the Act, each
officer and other employee of the Company who shall have signed the Registration
Statement and each director of the Company shall have the same right to
contribution as the Company, subject in each case to clauses (i) and (ii) of
this Section 7. Any party entitled to contribution will, promptly after receipt
of notice of commencement of any action, suit or proceeding against such party
in respect of which a claim for contribution may be made against another party
or parties under this Section 7, notify such party or parties from whom
contribution may be sought, but the omission to so notify such party or parties
shall not relieve the party or parties from whom contribution may be sought from
any other obligation it or they may have hereunder or otherwise than under this
Section 7. No party shall be liable for contribution with respect to any action
or claim settled without its consent, which consent shall not be unreasonably
withheld.
8. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. All
representations, warranties and agreements of the Company or of the Underwriters
herein or in certificates delivered pursuant hereto shall remain operative and
in full force and effect regardless of any investigation made by or on behalf of
any Underwriter or any controlling person, the Company, or any of its officers,
directors, or controlling persons, and shall survive delivery of the Shares to
the several Underwriters hereunder.
9. SUBSTITUTION OF UNDERWRITERS. If any Underwriter or Underwriters shall
fail to take up and pay for the number of Shares to be purchased by such
Underwriter or Underwriters hereunder upon tender of such Shares in accordance
with the terms hereof, and if the aggregate number of Shares which such
defaulting Underwriter or Underwriters so agreed but failed to purchase does
not exceed 10% of the Shares, the remaining Underwriters shall be obligated
severally in proportion to their respective commitments hereunder to take up and
pay for the Shares of such defaulting Underwriter or Underwriters. If one or
more of the Underwriters shall fail or refuse (other than for a reason
sufficient to justify the termination of this Agreement) to purchase on any
Closing Date the aggregate number of Shares agreed to be purchased by such
Underwriter or Underwriters and the aggregate number of Shares agreed to be
purchased by such Underwriter or Underwriters shall exceed 10% of the aggregate
number of Shares to be
18
<PAGE>
sold on any Closing Date hereunder by the Company to the Underwriters, then the
other Underwriters shall have the right to purchase, or procure one or more
other underwriters to purchase, in such proportions as they may agree upon and
upon the terms herein set forth, the Shares which such defaulting Underwriter or
Underwriters agreed to purchase, and this Agreement shall be carried out
accordingly. If such other Underwriters do not exercise such right within
thirty-six hours after receiving notice of any such default, which notice the
Representatives shall have also promptly delivered to the Company, then the
Company shall have the right to procure another party or parties reasonably
satisfactory to the Representatives to purchase or agree to purchase such Shares
on the terms herein set forth. If the Company is unable to procure another such
party, the Company may notify the Representatives that the non-defaulting
Underwriters are, by the giving of such notice, released from their obligations
to purchase such number of Shares being sold hereunder by the Company as are
indicated in such notice as, when subtracted from the total number of Shares
originally agreed to be purchased by all of the Underwriters hereunder, shall
leave a reduced number of Shares to be purchased by the non-defaulting
Underwriters not in excess of 111% of the aggregate number of Shares originally
contracted to be purchased hereunder by the non-defaulting Underwriters, and
each of them, in which event such non-defaulting Underwriters shall purchase
such reduced number of Shares. In any such case, either the Representatives or
the Company shall have the right to postpone any Closing Date for a period of
not more than seven business days in order that necessary changes and
arrangements may be effected by the Representatives and the Company. If neither
the non-defaulting Underwriters nor the Company shall make arrangements within
the period stated for the purchase of the Shares which such defaulting
Underwriter or Underwriters agreed to purchase, including such arrangements for
the purchase of a reduced number of Shares as are provided for in this Section
9, then this Agreement shall terminate without liability on the part of any
non-defaulting Underwriters to the Company and without liability on the part of
the Company to the Underwriters.
In the event of any termination of this Agreement pursuant to the preceding
paragraph of this Section, the Company shall not be under any liability to any
Underwriter (except as provided in Section 4(g) and 6 hereof) nor shall any
Underwriter (other than an Underwriter who shall have failed, otherwise than for
some reason permitted under this Agreement, to purchase the number of Shares to
be purchased by such Underwriter hereunder, which Underwriter shall remain
liable to the Company and the other Underwriters for damages resulting from such
default) be under any liability to the Company (except as provided in Section 6
hereof).
The term "Underwriter" in this Agreement shall include any person
substituted for an Underwriter under this Section 9.
10. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION.
(a) This Agreement shall become effective at the earlier of (i) 6:30
a.m., New York City Time, on the first full business day after the declaration
by the Commission of
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the effectiveness of the Registration Statement, or (ii) the time at which you
in your discretion shall first release the Shares for sale to the public. For
the purposes of this Section, the Shares shall be deemed to have been released
for sale to the public upon release by you for publication of a newspaper
advertisement relating to the Shares or upon release by you of letters or
telegrams offering the Shares for sale to securities dealers, whichever shall
first occur. By giving notice as hereinafter specified before the time this
Agreement becomes effective, you, as Representatives of the several
Underwriters, or the Company may prevent this Agreement from becoming effective
without liability on the part of the Company to any Underwriter or of any
Underwriter to the Company, other than as provided in Sections 4(g) and 6
hereof.
(b) You, as Representatives of the several Underwriters, shall have
the right to terminate this Agreement by giving notice as hereinafter specified
at any time at or prior to the First Closing Date if: (i) the Company shall have
failed, refused or been unable, at or prior to the First Closing Date, to
perform any material agreement on its part to be performed, or because any other
material condition of the Underwriters' obligations hereunder required to be
fulfilled by the Company is not fulfilled; (ii) trading on the New York Stock
Exchange shall have been suspended, or minimum or maximum prices for trading
shall have been fixed, or maximum ranges for prices for securities shall have
been required, on the New York Stock Exchange by the New York Stock Exchange or
by order of the Commission or any other governmental authority having
jurisdiction, since the execution of this Agreement; (iii) a banking moratorium
shall have been declared by Federal or New York authorities since the execution
of this Agreement; or (iv) an outbreak of major hostilities or other national
calamity shall have occurred. Any such termination shall be without liability on
the part of the Company to any Underwriter or of any Underwriter to the Company
other than as provided in Sections 4(g) and 6 hereof.
(c) If you elect to prevent this Agreement from becoming effective or
to terminate this Agreement as provided in this Section, the Company shall be
notified promptly by you by telephone or telegram, confirmed by letter. If the
Company shall elect to prevent this Agreement from becoming effective, you shall
be notified promptly by the Company by telephone or telegram, confirmed by
letter.
11. NOTICES. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and if sent to you shall be
mailed, delivered or telecopied and confirmed to you c/o Allen & Company
Incorporated, 711 Fifth Avenue, New York, New York 10022, with copy to Werbel &
Carnelutti, a Professional Corporation, 711 Fifth Avenue, New York, New York
10022, Attention: Guy N. Molinari, Esq. or if sent to the Company shall be
mailed, delivered or telecopied and confirmed to the Company at 15 Princess
Road, Lawrenceville, New Jersey 08648, with a copy to Smith, Stratton, Wise,
Heher & Brennan, 600 College Road East, Princeton, New Jersey 08540, Attention:
Richard J. Pinto, Esq. Notice to any Underwriter pursuant to Section 6 shall be
mailed, delivered or telecopied and confirmed to such Underwriter's address as
set forth in its
20
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Master Agreement Among Underwriters furnished to Allen & Company Incorporated
and the Company.
12. PARTIES. This Agreement shall inure to the benefit of and be binding
upon the several Underwriters and the Company and their respective successors
and assigns. Nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any person or corporation, other than the parties
hereto and their respective successors and assigns and the controlling persons,
officers and directors referred to in Section 6, any legal or equitable right,
remedy or claim under or in respect of this Agreement or any provision herein
contained; this Agreement and all conditions and provisions hereof being
intended to be and being for the sole and exclusive benefit of the parties
hereto and their respective successors and assigns and said controlling persons
and said officers and directors, and for the benefit of no other person or
corporation. No purchaser of any of the Shares from any Underwriter shall be
construed a successor or assign merely by reason of such purchase.
In all dealings with the Company under this Agreement, you shall be
and are authorized to act on behalf of each of the several Underwriters, and the
Company shall be entitled to act and rely upon any statement request, notice or
agreement on behalf of each of the several Underwriters if the same shall have
been made or given in writing by you.
13. APPLICABLE LAW. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York applicable to
agreements made, and to be fully performed, therein.
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<PAGE>
If the foregoing correctly sets forth the understanding between the
Company and the several Underwriters, please so indicate in the space provided
below for that purpose whereupon this letter shall constitute a binding
agreement between the Company and the several Underwriters.
Very truly yours,
PRINCETON VIDEO IMAGE, INC.
By: _________________________
Name:
Title:
Accepted as of the date
first above written:
ALLEN & COMPANY INCORPORATED
BARINGTON CAPITAL GROUP, L.P.
By: ALLEN & COMPANY INCORPORATED
By: ___________________________
Name:
Title:
On behalf of each of the several
Underwriters named in SCHEDULE A hereto.
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<PAGE>
SCHEDULE A
NUMBER
OF
NAME OF UNDERWRITER SHARES
Allen & Company Incorporated .....................................
Barington Capital Group, L.P......................................
----------
Total..............................................................4,000,000
23
<PAGE>
SCHEDULE B
SUBSIDIARIES OF THE COMPANY
Princeton Video Image, Inc. holds a fifty percent equity interest in, but has no
control over the day to day affairs of, Publicidad Virtual, S.A. de C.V., a
limited liability corporation formed under the laws of the Republic of Mexico
and domiciled in Mexico City, Federal District.
24
<PAGE>
4,600,000 Shares
Common Stock
PRINCETON VIDEO IMAGE, INC.
SELECTED DEALER AGREEMENT
December ____, 1997
Ladies/Gentlemen:
1. PURCHASE OF SECURITIES BY THE SEVERAL UNDERWRITERS. The several
Underwriters named in the enclosed Prospectus, on whose behalf we are acting as
Representatives, have severally agreed to purchase from Princeton Video Image,
Inc. (the "Company") an offering of up to 4,600,000 Shares of the Company's
Common Stock (the "Shares"), as set forth in the Prospectus and subject to the
terms of the Underwriting Agreement between the several Underwriters and the
Company. The Shares are described in the Prospectus, additional copies of which
will be supplied in reasonable quantities upon request to us.
2. OFFERING TO SELECTED DEALERS. One or more of the several Underwriters
acting through us are severally offering a portion of the Shares to certain
dealers ("Selected Dealers") as principals, subject to the terms and conditions
of their purchase, to the terms and conditions hereof, and to the modification
or cancellation of the offering without notice, at the public offering price set
forth in the Prospectus, less a concession not in excess of $.____ per Share.
Shares purchased by the several Underwriters and not sold to the Selected
Dealers as aforesaid may be sold by the several Underwriters. Any of the
several Underwriters may be included among the Selected Dealers.
The offering of a portion of the Shares to Selected Dealers may be made on
the basis of reservations or allotments against subscription. We are advising
you by telegram of the method and terms of the offering. Acceptance of any
reserved Shares received by us at the office of Allen & Company Incorporated,
711 Fifth Avenue, New York, New York 10022, after the time specified therefor in
the telegrams, and any subscriptions for additional Shares, will be subject to
prior sale and allotment. Subscription books may be closed by us at any time
without notice, and the right is reserved to reject any subscriptions in whole
or in part.
3. OFFERING TO PUBLIC BY SELECTED DEALERS. Upon receipt of the
aforementioned telegram, the Shares purchased by you hereunder may be re-offered
to the public in conformity with the terms of offering set forth in the
Prospectus. You may, in accordance with the rules of the National Association of
Securities Dealers, Inc., reallow a concession of $.___ per Share sold by you to
any other dealer or broker who is a member of the National Association of
Securities Dealers, Inc., provided such discount is retained.
1
<PAGE>
Neither you nor any other person is or has been authorized by the Company,
any of the several Underwriters or us to give information or make any
representations in connection with the sale of the Shares other than those
contained in the Prospectus.
In the event that during the term of this agreement we, as Representatives
for the account of the several Underwriters, shall purchase or contract to
purchase, at or below the original public offering price set forth in the
Prospectus, any of the Shares purchased by you hereunder (which Shares
theretofore were not effectively placed for investment by you, including Shares
represented by transfers), we may, at our election, either (a) require you to
repurchase such Shares at a price equal to the total cost of such Shares
purchased by us, including brokerage commissions, if any, and transfer taxes on
the redelivery, or (b) charge you with and collect from you an amount equal to
the selling concession with respect to the Shares so purchased by us.
4. PAYMENT AND DELIVERY. Payment for the Shares which you have agreed to
purchase hereunder shall be made by you on December ____, 1997, or such later
date as we may advise you, at 9:00 a.m., New York Time, at Allen & Company
Incorporated's office at 711 Fifth Avenue, New York, New York 10022, by
certified or bank cashier's check payable in New York Clearing House funds to
the order of Allen & Company Incorporated, against delivery of such Shares.
Delivery instructions must be in our hands at said address at such time as we
request.
Additional Shares confirmed to you shall be delivered on such date or dates
as we shall advise you.
5. BLUE SKY MATTERS. Neither we nor any of the several Underwriters
shall have any obligation or responsibility with respect to the right of any
dealer to sell the Shares in any jurisdiction, notwithstanding any information
which may be furnished as to the states under the securities laws of which it is
believed the Shares may be sold.
6. TERMINATION. This agreement shall terminate 20 full days after the
First Closing Date (as defined in the Underwriting Agreement) but may be
extended for a period or periods not exceeding in the aggregate 20 days as we
may determine. We may terminate this Agreement at any time without prior notice.
Notwithstanding the termination of this agreement, you shall remain liable for
your portion of any transfer tax or other liability which may be asserted or
assessed against us or any one or more of the several Underwriters or Selected
Dealers based upon the claim that the Selected Dealers or any of them constitute
a partnership, an association, an unincorporated business or other separate
entity.
7. OBLIGATIONS OF SELECTED DEALERS. Your acceptance hereof will
constitute an obligation on your part to purchase, upon the terms and conditions
hereof, the aggregate amount of the Shares reserved for and accepted by you and
to perform and observe all the terms and conditions hereof.
2
<PAGE>
You are not authorized to act as agent for any of the several Underwriters
in offering Shares to the public or otherwise. Nothing contained herein shall
constitute the Selected Dealers an association, or partners with the several
Underwriters, with us, or with each other.
8. POSITION OF THE REPRESENTATIVES. We shall have full authority to take
such action as we may deem advisable in respect of all matters pertaining to the
offering or arising hereunder, but shall act only as Representatives of the
several Underwriters. Neither we nor any of the several Underwriters shall be
under any liability to you, except for our own want of good faith, obligations
assumed in this agreement, or any liabilities arising under the Securities Act
of 1933. No obligation not expressly assumed by us in this agreement shall be
implied hereby or inferred herefrom.
9. NOTICES. All communications from you should be addressed to us, c/o
Allen & Company Incorporated, 711 Fifth Avenue, New York, New York 10022. Any
notice from us to you shall be deemed to have been duly given if mailed or
telegraphed to you at the address to which this letter is mailed.
Please confirm the foregoing by signing the duplicate copy of this
agreement enclosed herewith and returning it to us at the address in Section 9
above.
Very truly yours,
ALLEN & COMPANY INCORPORATED
BARINGTON CAPITAL GROUP, L.P.
By: ALLEN & COMPANY INCORPORATED
By: _________________________
Name:
Title:
3
<PAGE>
ALLEN & COMPANY INCORPORATED
BARINGTON CAPITAL GROUP, L.P.
As Representatives of the Several
Underwriters
c/o Allen & Company Incorporated
711 Fifth Avenue
New York, New York 10022
Sirs:
We hereby confirm our agreement to purchase Shares of Princeton Video
Image, Inc. (the "Shares"), subject to your acceptance or rejection in whole or
in part in the case of a subscription subject to allotment or in excess of any
reservation, and subject to all the other terms and conditions stated in the
foregoing letter.
We hereby acknowledge receipt of the prospectus relating to the above
described Shares (the "Prospectus") and we further state that in purchasing the
Shares confirmed to us we have relied upon such Prospectus and on no other
statements whatsoever, written or oral.
We hereby represent that we are a member in good standing of the National
Association of Securities Dealers, Inc. ("NASD") and agree to comply with the
provisions of Article III, Section 24 of the NASD's Rules of Fair Practice (the
"NASD Rules"), or, if we are not such a member, we are a foreign dealer or
institution that is not registered under Section 15(b) of the Securities
Exchange Act of 1934 and that hereby agrees (i) to make no sales within the
United States, its territories or its possessions or to persons who are citizens
thereof or residents therein, (ii) if the offering of the Shares is one within
the scope of the NASD's Interpretation with Respect to Free-Riding and
Withholding, not to make other sales of Shares to persons enumerated in
paragraphs "1" through "5" of such Interpretation or in a manner inconsistent
with paragraph "6" thereof and (iii) to comply with the provisions of Rules
2730, 2740, 2420 and 2750 of the NASD Conduct Rules.
Name of Selected Dealer
____________________________________
____________________________________
(Authorized Signature)
Dated: December ____, 1997
<PAGE>
EXHIBIT 4.2
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 OR THE LAWS OF ANY
STATE. THEY MAY NOT BE SOLD OR OTHERWISE TRANS-
FERRED UNLESS THEY ARE REGISTERED UNDER SUCH ACT
AND APPLICABLE STATE SECURITIES LAWS OR AN
EXEMPTION FROM REGISTRATION IS AVAILABLE.
[400,000] Warrants
PRINCETON VIDEO IMAGE, INC.
WARRANT CERTIFICATE
This warrant certificate ("Warrant Certificate") certifies that for
value received in consideration for certain services rendered, and for other
good and valuable consideration, the sufficiency of which is hereby
acknowledged, [Allen & Company Incorporated/Barington Capital Group, L.P.] or
registered permitted assigns (the "Holder") is the owner of the number of
warrants ("Warrants") specified above, each of which entitles the Holder thereof
to purchase, at any time on or before the Expiration Date (hereinafter defined),
one fully paid and non-assessable share of Common Stock, no par value ("Common
Stock"), of Princeton Video Image, Inc., a New Jersey corporation (the
"Company"), at a purchase price of $______ [120% OF IPO PRICE] per share of
Common Stock in lawful money of the United States of America in cash or by
certified or cashier's check or a combination of cash and certified or cashier's
check (subject to adjustment as hereinafter provided).
1. WARRANT; PURCHASE PRICE
Each Warrant shall entitle the Holder initially to purchase one share
of Common Stock of the Company and the purchase price payable upon exercise of
the Warrants (the "Purchase Price") shall initially be $______ [120% OF IPO
PRICE] per share of Common Stock. The Purchase Price and number of shares of
Common Stock issuable upon exercise of each Warrant are subject to adjustment as
provided in Article 6. The shares of Common Stock issuable upon exercise of the
Warrants (and/or other shares of common stock so issuable by reason of any
adjustments pursuant to Article 6) are sometimes referred to herein as the
"Warrant Shares."
2. EXERCISE; EXPIRATION DATE
2.1 The Warrants are exercisable, at the option of the Holder, in
whole or in part at any time and from time to time on or after the date hereof
and on or before the
<PAGE>
Expiration Date, upon surrender of this Warrant Certificate to the Company
together with a duly completed Notice of Exercise, in the form attached hereto
as Exhibit A, and payment of an amount equal to the Purchase Price times the
number of Warrants to be exercised. In the case of exercise of less than all
the Warrants represented by this Warrant Certificate, the Company shall cancel
the Warrant Certificate upon the surrender thereof and shall execute and deliver
a new Warrant Certificate for the balance of such Warrants.
2.2 The term "Expiration Date" shall mean 5:00 p.m. New York time on
the fifth anniversary of the date hereof, or if such day shall in the State of
New York be a holiday or a day on which banks are authorized to close, then 5:00
p.m. New York time the next following day which in the State of New York is not
a holiday or a day on which banks are authorized to close.
3. REGISTRATION AND TRANSFER ON COMPANY BOOKS
3.1 The Company shall maintain books for the registration and transfer
of the Warrants and the registration and transfer of the Warrant Shares.
3.2 Prior to due presentment for registration of transfer of this
Warrant Certificate, or the Warrant Shares, the Company may deem and treat the
registered Holder as the absolute owner thereof.
3.3 Neither this Warrant Certificate, nor the Warrants represented
hereby, may be sold, assigned or otherwise transferred voluntarily by the
Holder, other than to successors, partners, officers or directors of the Holder
(a "Permitted Transfer"), without the consent of the Company. The Company shall
register upon its books any Permitted Transfer of a Warrant Certificate, upon
surrender of same to the Company with a written instrument of transfer duly
executed by the registered Holder or by a duly authorized attorney. Upon any
such registration of Permitted Transfer, new Warrant Certificate(s) shall be
issued to the transferee(s) and the surrendered Warrant Certificate shall be
canceled by the Company. A Warrant Certificate may also be exchanged, at the
option of the Holder, for new Warrant Certificates of different denominations
representing in the aggregate the number of Warrants evidenced by the Warrant
Certificate surrendered.
4. RESERVATION OF SHARES
The Company covenants that it will at all times reserve and keep
available out of its authorized capital stock, solely for the purpose of issue
upon exercise of the Warrants, such number of shares of capital stock as shall
then be issuable upon the exercise of all outstanding Warrants. The Company
covenants that all shares of capital stock which shall be issuable upon exercise
of the Warrants shall be duly and validly issued and fully paid and non-
assessable and free from all taxes, liens and charges with respect to the issue
thereof, and that upon issuance such shares shall be listed on each national
securities exchange, if any, on which the other shares of such outstanding
capital stock of the Company are then listed.
<PAGE>
5. LOSS OR MUTILATION
Upon receipt by the Company of reasonable evidence of the ownership of
and the loss, theft, destruction or mutilation of any Warrant Certificate and,
in the case of loss, theft or destruction, of indemnity reasonably satisfactory
to the Company, or, in the case of mutilation, upon surrender and cancellation
of the mutilated Warrant Certificate, the Company shall execute and deliver in
lieu thereof a new Warrant Certificate representing an equal number of Warrants.
6. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF
SHARES DELIVERABLE
6.1 The number of Warrant Shares purchasable upon the exercise of each
Warrant and the Purchase Price with respect to the Warrant Shares shall be
subject to adjustment as follows:
(a) In case the Company shall (i) declare a dividend or make a
distribution on its Common Stock payable in shares of its capital stock,
(ii) subdivide its outstanding shares of Common Stock through stock split
or otherwise, (iii) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock, or (iv) issue by reclassification
of its Common Stock (including any reclassification in connection with a
consolidation or merger in which the Company is the continuing corporation)
other securities of the Company, the number and/or nature of Warrant Shares
purchasable upon exercise of each Warrant immediately prior thereto shall
be adjusted so that the Holder shall be entitled to receive the kind and
number of Warrant Shares or other securities of the Company which he would
have owned or have been entitled to receive after the happening of any of
the events described above, had such Warrant been exercised immediately
prior to the happening of such event or any record date with respect
thereto. Any adjustment made pursuant to this paragraph (a) shall become
effective retroactively as of the record date of such event.
(b) In case the Company shall issue rights, options or warrants or
securities convertible into Common Stock to the holders of its shares of
Common Stock generally, entitling them (for a period expiring within 45
days after the record date referred to below in this paragraph (b)) to
subscribe for or purchase shares of Common Stock at a price per share which
(together with the value of the consideration, if any, payable for such
rights, options, warrants or convertible securities) is lower on the record
date referred to below than the then Market Price Per Share of such Common
Stock (as determined pursuant to Section 9.2) the number of Warrant Shares
thereafter purchasable upon the exercise of each Warrant shall be
determined by multiplying the number of Warrant Shares immediately
theretofore purchasable upon exercise of each Warrant by a fraction, of
which the numerator shall be the number of shares of Common Stock
outstanding on such
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<PAGE>
record date plus the number of additional shares of Common Stock offered
for subscription or purchase, and of which the denominator shall be the
number of shares of Common Stock outstanding on such record date plus the
number of shares which the aggregate offering price of the total number of
shares of Common Stock so offered would purchase at the then Market Price
Per Share of such Common Stock. Such adjustment shall be made whenever
such rights, options, warrants or convertible securities are issued, and
shall become effective retroactively as of the record date for the
determination of shareholders entitled to receive such rights, options,
warrants or convertible securities. In the event such subscription price
may be paid in consideration some or all of which is in a form other than
cash, the value of such consideration shall be determined in good faith by
the Board of Directors of the Company.
(c) In case the Company shall distribute to all holders of its shares
of Common Stock, or all holders of Common Stock shall otherwise become
entitled to receive, shares of capital stock of the Company (other than
dividends or distributions on its Common Stock referred to in paragraph (a)
or (b) above), evidences of its indebtedness or rights, options, warrants
or convertible securities providing the right to subscribe for or purchase
any shares of the Company's capital stock or evidences of its indebtedness,
then in each case the number of Warrant Shares thereafter purchasable upon
the exercise of each Warrant shall be determined by multiplying the number
of Warrant Shares theretofore purchasable upon the exercise of each
Warrant, by a fraction, of which the numerator shall be the then Market
Price Per Share of the Warrant Shares (as determined pursuant to Section
9.2) on the record date mentioned below in this paragraph (c), and of which
the denominator shall be the then Market Price Per Share of the Warrant
Shares on such record date, less the then fair value (as determined by the
Board of Directors of the Company, in good faith) of the portion of the
shares of the Company's capital stock other than Common Stock, evidences of
indebtedness, or of such rights, options, warrants or convertible
securities, distributable with respect to each Warrant Share. Such
adjustment shall be made whenever any such distribution is made, and shall
become effective retroactively as of the record date for the determination
of shareholders entitled to receive such distribution.
(d) In the event of any capital reorganization or any reclassification
of the capital stock of the Company or in case of the consolidation or
merger of the Company with another corporation (other than a consolidation
or merger in which the outstanding shares of the Company's Common Stock are
not converted into or exchanged for other rights or interests), or in the
case of any sale, transfer or other disposition to another corporation of
all or substantially all the properties and assets of the Company (any such
event, a "Triggering Event"), the Holder of each Warrant shall thereafter
be entitled to purchase (and it shall be a condition to the consummation of
any such reorganization, reclassification, consolidation, merger, sale,
transfer or other disposition that appropriate provisions shall be made so
that
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<PAGE>
such Holder shall thereafter be entitled to purchase) the kind and amount
of shares of stock and other securities and property (including cash) which
the Holder would have been entitled to receive had such Warrants been
exercised immediately prior to the effective date of such reorganization,
reclassification, consolidation, merger, sale, transfer or other
disposition; and in any such case appropriate adjustments shall be made in
the application of the provisions of this Article 6 with respect to rights
and interest thereafter of the Holder of the Warrants to the end that the
provisions of this Article 6 shall thereafter be applicable, as near as
reasonably may be, in relation to any shares or other property thereafter
purchasable upon the exercise of the Warrants. The provisions of this
Section 6.1(d) shall similarly apply to successive reorganizations,
reclassifications, consolidations, mergers, sales, transfers or other
dispositions.
(e) Whenever the number of Warrant Shares purchasable upon the
exercise of each Warrant is adjusted, as provided in this Section 6.1, the
Purchase Price with respect to the Warrant Shares shall be adjusted by
multiplying such Purchase Price immediately prior to such adjustment by a
fraction, of which the numerator shall be the number of Warrant Shares
purchasable upon the exercise of each Warrant immediately prior to such
adjustment, and of which the denominator shall be the number of Warrant
Shares so purchasable immediately thereafter.
6.2 In the event the Company shall declare a dividend, or make a
distribution to the holders of its Common Stock generally, whether in cash,
property or assets of any kind, including any dividend payable in stock or
securities of any other issuer owned by the Company (excluding regularly payable
cash dividends declared from time to time by the Company's Board of Directors or
any dividend or distribution referred to in Section 6.1(a), (b) or (c) above),
the Purchase Price of each Warrant shall be reduced, without any further action
by the parties hereto, by the Per Share Value (as hereinafter defined) of the
dividend. For purposes of this Section 6.2, the "Per Share Value" of a cash
dividend or other distribution shall be the dollar amount of the distribution on
each share of Common Stock and the "Per Share Value" of any dividend or
distribution other than cash shall be equal to the fair market value of such
non-cash distribution on each share of Common Stock as determined in good faith
by the Board of Directors of the Company.
6.3 No adjustment in the number of Warrant Shares purchasable under
the Warrants, or in the Purchase Price with respect to the Warrant Shares, shall
be required unless such adjustment would require an increase or decrease of at
least 1% in the number of Warrant Shares issuable upon the exercise of such
Warrant, or in the Purchase Price thereof; provided, however, that any
adjustments which by reason of this Section 6.3 are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
All final results of adjustments to the number of Warrant Shares and the
Purchase Price thereof shall be rounded to the nearest one thousandth of a share
or the nearest cent, as the case may be. Anything in this Section 6 to the
contrary notwithstanding, the Company shall be entitled, but shall not be
required, to make such changes in the
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<PAGE>
number of Warrant Shares purchasable upon the exercise of each Warrant, or in
the Purchase Price thereof, in addition to those required by such Section, as it
in its discretion shall determine to be advisable in order that any dividend or
distribution in shares of Common Stock, subdivision, reclassification or
combination of shares of Common Stock, issuance of rights, warrants or options
to purchase Common Stock, or distribution of shares of stock other than Common
Stock, evidences of indebtedness or assets (other than distributions of cash out
of retained earnings) or convertible or exchangeable securities hereafter made
by the Company to the holders of its Common Stock shall not result in any tax to
the holders of its Common Stock or securities convertible into Common Stock.
6.4 Whenever the number of Warrant Shares purchasable upon the
exercise of each Warrant or the Purchase Price of such Warrant Shares is
adjusted, as herein provided, the Company shall mail to the Holder, at the
address of the Holder shown on the books of the Company, a notice of such
adjustment or adjustments, prepared and signed by the Chief Financial Officer or
Secretary of the Company, which sets forth the number of Warrant Shares
purchasable upon the exercise of each Warrant and the Purchase Price of such
Warrant Shares after such adjustment, a brief statement of the facts requiring
such adjustment and the computation by which such adjustment was made.
6.5 In the event that at any time prior to the expiration of the
Warrants and prior to their exercise:
(a) the Company shall declare any distribution (other than a cash
dividend or a dividend payable in securities of the Company with respect to
the Common Stock); or
(b) the Company shall offer for subscription to the holders of the
Common Stock any additional shares of stock of any class or any other
securities convertible into Common Stock or any rights to subscribe
thereto; or
(c) the Company shall declare any stock split, stock dividend,
subdivision, combination, or similar distribution with respect to the
Common Stock, regardless of the effect of any such event on the outstanding
number of shares of Common Stock; or
(d) the Company shall declare a dividend, other than a dividend
payable in shares of the Company's own Common Stock; or
(e) there shall be any capital change in the Company as set forth in
Section 6.1(d); or
(f) there shall be a voluntary or involuntary dissolution,
liquidation, or winding up of the Company (other than in connection with a
consolidation, merger, or sale of all or substantially all of its property,
assets and business as an entity)
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<PAGE>
(each such event hereinafter being referred to as a "Notification Event"), the
Company shall cause to be mailed to the Holder, not less than 20 days prior to
the record date, if any, in connection with such Notification Event (provided,
however, that if there is no record date, or if 20 days prior notice is
impracticable, as soon as practicable) written notice specifying the nature of
such event and the effective date of, or the date on which the books of the
Company shall close or a record shall be taken with respect to, such event.
Such notice shall also set forth facts indicating the effect of such action (to
the extent such effect may be known at the date of such notice) on the Purchase
Price and the kind and amount of the shares of stock or other securities or
property deliverable upon exercise of the Warrants.
7. CONVERSION RIGHTS
7.1 In lieu of exercise of any portion of the Warrants as provided
in Section 2.1 hereof, the Warrants represented by this Warrant Certificate (or
any portion thereof) may, at the election of the Holder, be converted into the
nearest whole number of shares of Common Stock equal to: (1) the product of (a)
the number of shares of Common Stock then issuable upon the exercise of the
Warrants to be so converted and (b) the excess, if any, of (i) the Market Price
Per Share (as determined pursuant to Section 9.2) with respect to the date of
conversion over (ii) the Purchase Price in effect on the business day next
preceding the date of conversion, divided by (2) the Market Price Per Share with
respect to the date of conversion. For example, if the Market Price per Share
on the date of conversion is $4.00 and the Purchase Price is $2.00, then the
Holder would be entitled to receive 15,000 shares of Common Stock upon
conversion of 30,000 Warrants.
7.2 The conversion rights provided under this Section 7 may be
exercised in whole or in part and at any time and from time to time while any
Warrants remain outstanding. In order to exercise the conversion privilege, the
Holder shall surrender to the Company, at its offices, this Warrant Certificate
accompanied by a duly completed Notice of Conversion in the form attached hereto
as Exhibit B. The Warrants (or so much thereof as shall have been surrendered
for conversion) shall be deemed to have been converted immediately prior to the
close of business on the day of surrender of such Warrant Certificate for
conversion in accordance with the foregoing provisions. As promptly as
practicable on or after the conversion date, the Company shall issue and shall
deliver to the Holder (i) a certificate or certificates representing the number
of shares of Common Stock to which the Holder shall be entitled as a result of
the conversion, and (ii) if the Warrant Certificate is being converted in part
only, a new certificate of like tenor and date for the balance of the
unconverted portion of the Warrant Certificate.
8. VOLUNTARY ADJUSTMENT BY THE COMPANY
The Company may, at its option, at any time during the term of the
Warrants, reduce the then current Purchase Price to any amount deemed
appropriate by the Board of Directors of the Company and/or extend the date of
the expiration of the Warrants.
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<PAGE>
9. FRACTIONAL SHARES AND WARRANTS; DETERMINATION OF
MARKET PRICE PER SHARE
9.1 Anything contained herein to the contrary notwithstanding, the
Company shall not be required to issue any fraction of a share of Common Stock
in connection with the exercise of Warrants. Warrants may not be exercised in
such number as would result (except for the provisions of this paragraph) in the
issuance of a fraction of a share of Common Stock unless the Holder is
exercising all Warrants then owned by the Holder. In such event, the Company
shall, upon the exercise of all of such Warrants, issue to the Holder the
largest aggregate whole number of shares of Common Stock called for thereby upon
receipt of the Purchase Price for all of such Warrants and pay a sum in cash
equal to the remaining fraction of a share of Common Stock, multiplied by its
Market Price Per Share (as determined pursuant to Section 9.2 below) as of the
last business day preceding the date on which the Warrants are presented for
exercise.
9.2 As used herein, the "Market Price Per Share" with respect to any
class or series of Common Stock on any date shall mean the average closing price
per share of Company's Common Stock for the 20 trading days immediately
preceding such date. The closing price for each such day shall be the last sale
price regular way or, in case no such sale takes place on such day, the average
of the closing bid and asked prices regular way, in either case on the principal
securities exchange on which the shares of such Common Stock of the Company are
listed or admitted to trading or, if applicable, the last sale price, or in case
no sale takes place on such day, the average of the closing bid and asked prices
of such Common Stock on NASDAQ or any comparable system, or if such Common Stock
is not reported on NASDAQ, or a comparable system, the average of the closing
bid and asked prices as furnished by two members of the National Association of
Securities Dealers, Inc. selected from time to time by the Company for that
purpose. If such bid and asked prices are not available, then "Market Price Per
Share" shall be equal to the fair market value of such Common Stock as
determined in good faith by the Board of Directors of the Company.
10. REGISTRATION RIGHTS
10.1 No sale, transfer, assignment, hypothecation or other disposition
of the Warrant Shares shall be made unless any such transfer, assignment or
other disposition will comply with the rules and statutes administered by the
Securities and Exchange Commission and (i) a registration statement under the
Securities Act of 1933, as amended (the "Act"), including such shares is
currently in effect, or (ii) in the opinion of counsel satisfactory to the
Company a current registration statement is not required for such disposition of
the shares.
10.2 The Company agrees that the Holder shall have the one-time right,
beginning on the first anniversary of the date of this Warrant Certificate, upon
written
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<PAGE>
notice to the Company, to require that the Company prepare and promptly file a
registration statement, as may be required under the Act, in connection with the
public offering, on a time-to-time basis or otherwise, of not less than 50% of
the then outstanding Warrant Shares. In connection therewith, the Company shall
be obligated to prepare and file such registration statement within 45 days of
receipt of any such initial notice and shall be further obligated to use its
reasonable best efforts, including the filing of any amendments or supplements
thereto, to have any such registration statement declared effective under the
Act and the rules and regulations promulgated thereunder as soon as practicable
after the filing date thereof. The Company shall also use its reasonable best
efforts to keep any such registration statement, and the accompanying
prospectus, effective and current under the Act at its expense for such period
of time as is not otherwise burdensome to the Company, in no event to exceed 90
days.
10.3 In addition to the rights of the Holder pursuant to Section 10.2,
the Company agrees that, at any time or times hereafter, as and when it intends
to register any of its securities under the Act other than pursuant to a
registration requested pursuant to Section 10.2 hereof, whether for its own
account and/or on behalf of selling stockholders (except in connection with an
offering on Form S-8 or an offering solely related to an acquisition or exchange
on a Form S-4 or any subsequent similar form) the Company will notify the Holder
of such intention and, upon request from the Holder, will use its reasonable
best efforts to cause the Underlying Shares designated by the Holder to be
registered under the Securities Act. The number of Underlying Shares to be
included in such offering may be reduced if and to the extent that the
underwriter of securities included in the registration statement and offered by
the Company shall be of the opinion that such inclusion would adversely affect
the marketing of the securities to be sold by the Company therein; provided,
however, that the percentage of the reduction of such Underlying Shares shall be
no greater than the percentage reduction of securities of other selling
stockholders, as such percentage reductions are determined in the good faith
judgment of the Company. The Company will use its reasonable best efforts to
keep each such registration statement current for such period of time as is not
otherwise burdensome to the Company, in no event to exceed 90 days.
10.4 Any registration statement referred to in subsection 10.2 or 10.3
hereof shall be prepared and processed in accordance with the following terms
and conditions:
(i) the Holder will cooperate in furnishing promptly to the Company in
writing any information requested by the Company in connection with the
preparation, filing and processing of such registration statement.
(ii) To the extent requested by an underwriter of securities included
in a registration statement referred to in Subsection 10.3 hereof and
offered by the Company, the Holder will defer the sale of Underlying Shares
for a period commencing twenty (20) days prior and terminating one hundred
twenty (120) days after the effective date of the registration statement,
provided that any principal
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<PAGE>
shareholders of the Company who also have shares included in the
registration statement will also defer their sales for a similar period.
(iii) The Company will furnish to the Holder such number of
prospectuses or other documents incident to such registration as may from
time to time be reasonably requested, and cause its shares to be qualified
under the blue-sky laws of those states reasonably requested by the Holder.
(iv) The Company will indemnify the Holder (and any officer, director
or controlling person of the Holder) and any underwriters acting on behalf
of the Holder against all claims, losses, expenses, damages and liabilities
(or actions in respect thereof) to which they may become subject under the
Securities Act or otherwise, arising out of or based upon any untrue or
alleged untrue statement of any material facts contained in any
registration statement filed pursuant hereto, or any document relating
thereto, including all amendments and supplements, or arising out of or
based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein contained not misleading, and will reimburse the Holder (or such
other aforementioned parties) or such underwriters for any legal and all
other expenses reasonably incurred in accordance with investigating or
defending any such claim, loss, damage, liability or action; provided,
however, that the Company will not be liable where the untrue or alleged
untrue statement or omission or alleged omission is based upon information
furnished in writing to the Company by the Holder or any underwriter
obtained by the Holder expressly for use therein, or as a result of the
Holder's or any such underwriter's failure to furnish to the Company
information duly requested in writing by counsel for the Company
specifically for use therein. This indemnity agreement shall be in
addition to any other liability the Company may have. The indemnity
agreement of the Company contained in this paragraph (iv) shall remain
operative and in full force and effect regardless of any investigation made
by or on behalf of any indemnified party and shall survive the delivery of
and payment for the Underlying Shares.
(v) The Holder will indemnify the Company (and any officer, director
or controlling person of the Company) and any underwriters acting on behalf
of the Company against all claims, losses, expenses, damages and
liabilities (or actions in respect thereof) to which they may become
subject under the Securities Act or otherwise, arising out of or based upon
any untrue or alleged untrue statement filed pursuant hereto, or any
document relating thereto, including all amendments, and supplements, or
arising out of or based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein contained not misleading, and, will reimburse the
Company (or such other aforementioned parties) or such underwriters for any
legal and other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability, or
action; provided, however, that the Holder will be
-10-
<PAGE>
liable as aforesaid only to the extent that such untrue or alleged untrue
statement or omission or alleged omission is based upon information
furnished in writing to the Company by the Holder or any underwriter
obtained by the Holder expressly for use therein, or as a result of its or
such underwriter's failure to furnish the Company with information duly
requested in writing by counsel for the Company specifically for use
therein. This indemnity agreement contained in this paragraph (v) shall
remain operative and in full force and effect regardless of any
investigation made by or on behalf of any indemnified party and shall
survive the delivery of and payment for the Underlying Shares.
(vi) Promptly after receipt by an indemnified party under this
subsection 10.4 of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made against
the indemnifying party, promptly notify the indemnifying party of the
commencement thereof, but the omission so to notify the indemnifying party
will not relieve it from any liability which it may have to any indemnified
party otherwise than under this subsection 10.4. In case any such action
is brought against any indemnified party, and it notifies the indemnifying
party of the commencement thereof, the indemnifying party will be entitled
to participate in, and, to the extent that it may wish jointly with any
other indemnifying party similarly notified, to assume the defense thereof,
with counsel reasonably satisfactory to such indemnified party, and after
notice from the indemnifying party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such indemnified
party under this subsection 10.4 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the
defense thereof, other than reasonable costs of investigation or
out-of-pocket expenses or losses or cost incurred in collaborating in the
defense.
(vii) Except as set forth in subsection 10.4(viii), the Company shall
bear all costs and expenses incident to any registration pursuant to this
Section 10.
(viii) The Holder shall pay any and all underwriters' discounts,
brokerage fees and transfer taxes incident to the sale of any securities
sold by such Holder pursuant to this Section 10, and shall pay the fees and
expenses of any attorneys or accountants retained by it.
11. GOVERNING LAW
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed by its officers thereunto duly authorized and its corporate
seal to be affixed hereon, as of this ________ day of December, 1997.
PRINCETON VIDEO IMAGE, INC.
By:
-------------------------
Name:
Title:
[SEAL]
Attest:
[ALLEN & COMPANY INCORPORATED/BARINGTON CAPITAL GROUP, L.P.]
By:
---------------------
Name:
Title:
-12-
<PAGE>
EXHIBIT A
NOTICE OF EXERCISE
The undersigned hereby irrevocably elects to exercise, pursuant to
Section 2 of the Warrant Certificate accompanying this Notice of Exercise,
_______ Warrants of the total number of Warrants owned by the undersigned
pursuant to the accompanying Warrant Certificate, and herewith makes payment of
the Purchase Price of such shares in full.
------------------------------
Name of Holder
------------------------------
Signature
Address:
------------------------------
------------------------------
------------------------------
<PAGE>
EXHIBIT B
NOTICE OF CONVERSION
The undersigned hereby irrevocably elects to convert, pursuant to Section 7 of
the Warrant Certificate accompanying this Notice of Conversion, _______ Warrants
of the total number of Warrants owned by the undersigned pursuant to the
accompanying Warrant Certificate into shares of the Common Stock of the Company
(the "Shares").
The number of Shares to be received by the undersigned shall be calculated in
accordance with the provisions of Section 7.1 of the accompanying Warrant
Certificate.
------------------------------
Name of Holder
------------------------------
Signature
Address:
------------------------------
------------------------------
------------------------------
<PAGE>
[Smith, Stratton, Wise, Heher & Brennan
Letterhead]
December 12, 1997
Princeton Video Image, Inc.
15 Princess Road
Lawrenceville, New Jersey 08648
Ladies and Gentlemen:
We have acted as counsel to Princeton Video Image, Inc., a New Jersey
corporation, (the "Company") in connection with the filing by the Company of
a Registration Statement on Form SB-2 (the "Registration Statement") under
the Securities Act of 1933, as amended (the "Act"), relating to the
registration of shares of the Company's Common Stock, no par value, and
400,000 warrants granted to the representatives of the underwriters (the
"Representatives' Warrants"). The shares registered include 4,000,000 shares
to be purchased by the underwriters from the Company, up to 600,000 shares
which may be purchased by the underwriters from the Company if the
underwriters exercise the option granted to them by the Company to cover
over-allotments (collectively with the 4,000,000 shares to be purchase by the
underwriters, the "Underwritten Shares"), 400,000 shares issuable upon
exercise of the Representatives' Warrants, and 300,000 shares issuable upon
exercise of warrants issued in October 1997 (collectively with the 400,000
shares issuable upon exercise of the Representatives' Warrants, the "Selling
Shareholder Shares").
In connection with the Registration Statement, we have examined such
corporate records, other documents, and questions of law as we have
considered necessary or appropriate for the
<PAGE>
Princeton Video Image, Inc
December 12, 1997
Page -2-
purposes of this opinion. Subject to the foregoing and on the basis of such
examinations, we are of the opinion that:
(i) The Underwritten Shares, when issued, sold and delivered in the
manner contemplated by, and in accordance with, the Registration Statement
and the underwriting agreement (the "Underwriting Agreement") filed as an
exhibit to the Registration Statement and upon receipt by the Company of
payment therefor as provided in the Underwriting Agreement, will be legally
issued, fully paid and nonassessable.
(ii) The Representatives' Warrants, when issued, sold and delivered
in the manner contemplated by, and in accordance with, the Registration
Statement and the Underwriting Agreement and upon receipt by the Company of
payment therefor as provided in the Underwriting Agreement, will be legally
issued, fully paid and nonassessable.
(iii) The Selling Shareholder Shares, when issued, sold and delivered
in the manner contemplated by, and in accordance with, the Registration
Statement, the applicable warrants and, with respect to the shares issuable
upon exercise of the Representatives' Warrants, the Underwriting Agreement
and upon receipt by the Company of payment therefor as provided in the
applicable warrant, will be legally issued, fully paid and nonassessable.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the Prospectus contained therein and elsewhere in the
Registration Statement and Prospectus. Our consent to such reference does
not constitute a consent under Section 7 of the Act as we do not come within
the categories of persons whose consent is required under Section 7 or the
rules and regulations of the Securities and Exchange Commission.
Very truly yours,
/s/ Smith, Stratton, Wise,
Heher & Brennan
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form SB-2
(File No. 333-37725) of our report, which includes an explanatory paragraph with
respect to the Company's ability to continue as a going concern, dated September
11, 1997, except for Note 14, for which the date is October 1, 1997, on our
audits of the financial statements of Princeton Video Image, Inc. We also
consent to the references to our firm under the captions "Experts" and "Summary
Financial Information".
Coopers & Lybrand L.L.P.
Princeton, New Jersey
December 12, 1997
