<PAGE>
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
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. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED OFFERING PRICE (1) PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, no par value (2).............. 4,025,000 shares $7.00 Per Share $28,175,000 $8,537.88
Common Stock, no par value (3).............. 350,000 shares $8.40 Per Share $2,940,000 $890.91
Common Stock, no par value (4).............. 300,000 shares $7.00 Per Share $2,100,000 $636.36
Representatives' Options.................... 350,000 options $0.001 Per Option $350 $0.10
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 under the Securities Act of 1933, as amended.
(2) Includes 525,000 shares that the Underwriters have the option to purchase to
cover over-allotments, if any (the "Over-Allotment Option").
(3) Represents shares issuable upon exercise of the Representatives' Options.
(4) Represents shares issuable upon exercise of the Bridge Warrants.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
EXPLANATORY NOTE
This Registration Statement covers the registration of (i) 3,500,000 shares
of Common Stock to be offered by the Company, plus 525,000 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'
Options to purchase 350,000 shares of Common Stock to be issued by the Company
to the representatives of the several Underwriters in connection with the
Offering, and (iv) 350,000 shares of Common Stock issuable upon exercise of the
Representatives' Options (the "Representatives' Option Shares"). The Bridge
Warrant Shares and the Representatives' Option 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, including alternate front and back cover pages, an
alternate "The Offering" section of the "Prospectus Summary," and sections
entitled "Concurrent Sales By Company" and "Selling Shareholders." All other
sections of the Prospectus for the Offering, other than "Underwriting," are to
be used in the Prospectus relating to the Selling Shareholders. All references
in the Prospectus to the "Offering" will be changed to the "Company Offering" in
the Prospectus relating to the Selling Shareholders. In addition,
cross-references in the Prospectus included in this Registration Statement shall
be adjusted in the Prospectus for the Selling Shareholders to refer to the
appropriate alternate Prospectus pages.
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 10, 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
3,500,000 SHARES
PRINCETON VIDEO IMAGE, INC.
COMMON STOCK
------------------
Princeton Video Image, Inc. ("PVI" or the "Company") hereby offers 3,500,000
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. It is currently
anticipated that the initial public offering price for the Common Stock will be
between $6.00 and $7.00 per share. See "Underwriting" for information relating
to the factors to be considered in determining the initial public offering
price. The Company has applied to have the Common Stock quoted on the Nasdaq
National Market under the symbol "PVII."
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 650,000 shares of Common
Stock. 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. 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 additional compensation to be received by Allen & Company
Incorporated ("Allen") and Barington Capital Group, L.P. ("Barington")
(collectively, the "Representatives"), who are serving as the
representatives of the several underwriters named herein (collectively, the
"Underwriters"), including options entitling the Representatives to purchase
from the Company, for a period of five years from the date of this
Prospectus, up to 350,000 shares of Common Stock at an exercise price equal
to 120% of the initial public offering price (the "Representatives'
Options"). The Company has also agreed to indemnify the Underwriters against
certain liabilities under the Securities Act of 1933, as amended (the
"Securities Act"). See "Underwriting."
(2) Before deducting expenses payable by the Company (including the
Representatives' expenses of approximately $300,000) estimated at $
. 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 525,000
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>
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.
------------------------
SHAREHOLDER REPORTS
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 projected that $3.9 billion would be spent
to sponsor specific teams, stadium locations and sporting events in 1996. The
Company estimates
3
<PAGE>
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 (i) insert stable images in outdoor live
sporting events, (ii) provide for practical occlusion in stadium environments,
and (iii) be located anywhere in the television distribution chain. 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 and 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........................ 3,500,000 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)...... 6,808,472 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."
Proposed 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) 790,730 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 525,000 shares of Common Stock issuable upon
exercise of the Over-Allotment Option, and (ii) 350,000 shares of Common
Stock issuable upon exercise of the Representatives' Options. 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 Company has applied for quotation of the Common Stock on the
Nasdaq National Market. There can be no assurance, however, that such
application for quotation will be approved, or if approved, that listing of
the Common Stock will be maintained. See "Risk Factors--Absence of Public
Market; Negotiated Offering Price."
6
<PAGE>
SUMMARY FINANCIAL INFORMATION
The summary financial data set forth below 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 dated September 11, 1997, except for the third paragraph of
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 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>
FISCAL YEAR ENDED JUNE 30,
----------------------------
1996 1997
------------- -------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
License fee....................................................................... $ 1,000,000 $ 130,526
Advertising revenue............................................................... 9,600 81,108
------------- -------------
Total revenue..................................................................... 1,009,600 211,634
Costs and expenses:
L-VIS System costs................................................................ 949,804 1,274,890
Selling, general and administrative............................................... 2,602,298 3,028,895
Research and development.......................................................... 1,604,455 1,722,598
------------- -------------
Total costs and expenses........................................................ 5,157,187 6,026,383
Operating loss...................................................................... (4,147,587) (5,814,749)
Interest and other income........................................................... (237,063) (84,088)
------------- -------------
Net loss............................................................................ $ (3,910,524) $ (5,730,661)
------------- -------------
------------- -------------
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, 1997
------------------------------------------------
PRO FORMA AS
ADJUSTED (2)
ACTUAL PRO FORMA (1)(3) (3)
------------- ---------------- ---------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)....................................... $ (855,605) $ 794,395 $ 19,154,395
Total assets.................................................... 2,761,216 5,761,216 22,771,216
Long term debt.................................................. 0 0 0
Total redeemable preferred stock................................ 903,555 903,555 903,555
Deficit accumulated during the development stage................ (19,541,554) (19,541,554) (21,564,054)
Total shareholders' equity (deficit)............................ (1,004,951) 645,049 19,005,049
</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
3,500,000 Shares offered hereby at an assumed initial public offering price
of $6.50 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."
(3) Does not give effect to (i) the issuance of 370,032 shares of Common Stock
related to warrants exercised for cash in the amount of $107,455 and
non-recourse notes in the amount of $655,000 between June 30, 1997 and the
date of this Offering, and (ii) the issuance of 291,756 shares of Common
Stock subscribed for as of June 30, 1997 and cash received of approximately
$1,200,000 with respect to such shares.
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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 at June 30, 1997,
had an accumulated deficit of approximately $19.5 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, six 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
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Discussion and Analysis of Financial Condition and Results of Operations" and
"Financial Statements-- Report of Independent Accountants."
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. 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
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material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Strategy" and "--Sales and Marketing."
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
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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.
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
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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."
DEPENDENCE ON SOLE SOURCE OF SUPPLY
The Company has been dependent upon a single supplier, Lucent Technologies,
for certain hardware components used in the manufacture of L-VIS Units. 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, Orad Hi Tech
Systems, Ltd. and Scidel Technologies, Ltd., 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 $6,832,500, or 33.5%
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 15.9% 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 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
Vision-SA ("Symah") and Scidel Technologies, Ltd. 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. 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, is seeking a refund of a licensing fee it previously paid to the Company
asserting, as one reason, its receipt of 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 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.
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 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 $3.47 per share of
Common Stock, representing 53% of the initial public offering price per share.
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
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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. 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, 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."
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 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 6,808,472 shares of
Common Stock outstanding (7,333,472 shares if the Representatives'
Over-Allotment Option is exercised in full). Of such shares, all of the
3,500,000 shares sold in the Offering (4,025,000 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 350,000 shares of Common
Stock issuable upon exercise of the Representatives' Options and 300,000 shares
of
16
<PAGE>
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 two years with respect to the Common Stock issuable
upon the exercise of the Bridge Warrants and one year with respect to the Common
Stock issuable upon exercise of the Representatives' Option. The 3,308,472
shares of Common Stock outstanding prior to this Offering are, and the 790,730
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.
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 716,932 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, 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
790,730 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' Options to purchase an aggregate of 350,000
shares, subject to adjustment as provided therein. The existence of the Bridge
Warrants, the other outstanding warrants, the Representatives' Options 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."
17
<PAGE>
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 34% 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. See "Management" and "Principal Shareholders."
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."
18
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the Shares offered hereby, assuming an
initial public offering price of $6.50 per share, and after deducting
underwriting discounts and commissions and other expenses of the Offering
estimated to be $2,367,500, will be approximately $20,382,500 ($23,556,125 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........................................... $ 3,700,000 18.2%
Repayment of Debt................................................................... 3,250,000 15.9%
Research and development............................................................ 3,200,000 15.7%
Capital expenditures................................................................ 1,800,000 8.8%
Sales and marketing................................................................. 1,600,000 7.9%
Working capital and general corporate purposes...................................... 6,832,500 33.5%
------------- -----
Total........................................................................... $ 20,382,500 100.0%
------------- -----
------------- -----
</TABLE>
The Company intends to use approximately $3.7 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 $3.2 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 $1.8 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 $1.6 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 $6.8 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
19
<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.
20
<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 June
30, 1997, the accrued dividends with respect to the shares of Series A Preferred
Stock and Series B Preferred Stock totaled $81,000 and $88,150, 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."
21
<PAGE>
DILUTION
As of June 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 $256,295 or $.10 per share of Common Stock. Without
taking into account any other changes in the pro forma net tangible book value
of the Company after June 30, 1997, other than to give effect to the sale by the
Company of the 3,500,000 Shares offered hereby at an assumed initial offering
price of $6.50 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 June 30, 1997, would have been approximately $18,616,295 or $3.03 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
$2.93 per share of Common Stock to present shareholders and an immediate
dilution of $3.47 or 53% per Share to new investors. The following table
illustrates this dilution (2) (3):
<TABLE>
<S> <C> <C>
Assumed initial public offering price per Share (1)........................... $ 6.50
Pro forma net tangible book value (deficit) per Share at June 30, 1997
(4)....................................................................... $ 0.10
Increase per Share attributable to new investors.......................... 2.93
---------
Pro forma net tangible book value per Share after the Offering................ 3.03
---------
Dilution per Share to new investors........................................... $ 3.47
---------
---------
</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 (i) the issuance of 370,032 shares of Common Stock related to
warrants exercised for cash in the amount of $107,445 and non-recourse notes
in the amount of $655,000 between June 30, 1997 and the date of this
Offering, and (ii) the issuance of 291,756 shares of Common Stock subscribed
for as of June 30, 1997 and cash received of approximately $1,200,000 with
respect to such shares.
(3) 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 $3.27 per share and thus the dilution
to new investors would be $3.23 per share or 50%.
(4) As of June 30, 1997, the Company's actual net tangible book value (deficit)
was ($1,393,707) or ($0.53) 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 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 48.6% $ 20,452,787 47.3% $ 6.18
New Investors................................. 3,500,000 51.4% 22,750,000 52.7% $ 6.50
---------- ----- ------------- -----
Total..................................... 6,808,472 100.0% $ 43,202,787 100.0%
---------- ----- ------------- -----
---------- ----- ------------- -----
</TABLE>
22
<PAGE>
The foregoing table does not include (i) 300,000 shares of Common Stock
issuable upon exercise of the Bridge Warrants; (ii) 350,000 shares of Common
Stock issuable upon exercise of the Representatives' Options; (iii) 790,730
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) 525,000 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.
23
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
June 30, 1997; (ii) as of June 30, 1997, on a pro forma basis, to reflect the
Bridge Financing, which was completed in October 1997; and (iii) as of June 30,
1997, on a pro forma, as adjusted basis, to reflect (a) the sale by the Company
of the 3,500,000 shares of Common Stock offered hereby at an assumed initial
public offering price of $6.50 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>
JUNE 30, 1997
----------------------------------------------
<S> <C> <C> <C>
PRO FORMA
AS ADJUSTED
ACTUAL PRO FORMA (1) (2)
-------------- -------------- --------------
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........ 385,200 385,200 385,200
Series B Redeemable Preferred Stock, $5.00 par value, 93,300
shares authorized; 86,041 shares issued and outstanding........ 518,355 518,355 518,355
-------------- -------------- --------------
Total redeemable preferred stock................................. 903,555 903,555 903,555
Shareholders' (deficit)/equity
Common Stock, no par value; $.005 stated value; 40,000,000
shares authorized; 2,646,684 shares issued and outstanding and
291,756 shares subscribed for; 6,438,440 shares issued and
outstanding, pro forma, as adjusted (3)........................ 14,692 14,692 32,192
Additional paid-in capital....................................... 19,910,396 21,560,396 41,925,396
Less: Related party note receivable.............................. (124,000) (124,000) (124,000)
Stock subscription receivable............................... (1,264,485) (1,264,485) (1,264,485)
Deficit accumulated during the development stage................. (19,541,554) (19,541,554) (21,564,054)
-------------- -------------- --------------
Total shareholders' (deficit)/equity............................. (1,004,951) 645,049 19,005,049
-------------- -------------- --------------
Total capitalization........................................... $ (101,396) $ 1,548,604 $ 19,908,604
-------------- -------------- --------------
-------------- -------------- --------------
</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 purchase 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."
24
<PAGE>
(2) Pro forma, as adjusted, gives effect to (i) the sale by the Company of the
3,500,000 shares of Common Stock offered hereby at an assumed initial public
offering price of $6.50 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, 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) 350,000 shares of Common Stock issuable upon
exercise of the Representatives' Options; (iii) 1,220,650 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 June 30, 1997,
including 1,100,924 shares of Common Stock issuable upon exercise of options
outstanding as of June 30, 1997; (v) 525,000 shares of Common Stock issuable
upon exercise of the Over-Allotment Option. See "Management--Stock Option
Plan" and "Description of Securities" and (vi) all equity instruments issued
from July 1, 1997 through the date of the Offering.
25
<PAGE>
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 June 30, 1997, the Company had an accumulated deficit of approximately
$19,500,000 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
26
<PAGE>
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 14-year period. See Note 4 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 845% to $81,108 in Fiscal 1997 from $9,600 in
Fiscal 1996, and license fees decreased 89.8% to $101,950 in Fiscal 1997 from
$1,000,000 in Fiscal 1996, as a result of the recognition of a $1,000,000
license fee.
L-VIS SYSTEM COSTS. L-VIS System costs include the costs associated with the
material production and operational support of the L-VIS Units, including
training costs for operators. Operating expenses 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 7.4% 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 16.4% 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.
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,
respectively. Net cash provided by/(used in) investing activities totaled
$2,313,612 and $(1,915,353) in Fiscal 1997 and Fiscal 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, 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 securities. Net cash proceeds from the sale of equity
securities was $1,050,636 and $5,657,695 in Fiscal 1997 and Fiscal 1996,
respectively. This decrease is due directly to the decrease in the amount of
private sales of stock and warrants. At June 30, 1997, the Company had a working
capital deficit of approximately $855,605. 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 $20,500,000 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.
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 is
currently in negotiations with Gerencia de Medios ("GDM"), a former licensee of
the L-VIS System, concerning a refund to GDM of amounts 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."
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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 Coopers & Lybrand, L.L.P. contains an explanatory paragraph
with respect to the Company's ability to continue as a going concern. (See
"Financial Statements")
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 June 30, 1997, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $6,400,000, 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. 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 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 local television and cable operators)
purchase television broadcast rights to sporting events from the
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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 (i) insert stable images in outdoor live
sporting events, (ii) provide for practical occlusion in stadium environments,
and (iii) be located anywhere in the television distribution chain. 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 the location. The L-VIS System is designed to recognize the
location in real time during the broadcast and to insert the image as instructed
each time a scene containing the 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,
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 scrolling billboards
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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 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-
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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. As 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. 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 recently arranged for use of the L-VIS System in international
broadcasts of the Rose Bowl and the Tournament of Roses Parade in January 1998.
In addition, 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 easily sold
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 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 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 during 1998 and basketball and golf during 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 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 permit multiple insertion
capability, multiple camera capability, an expanded zoom range, live video
inserts, free roaming animation and has created a simplified graphical
user-based interface. The Company currently intends to introduce the Flex-Card
L-VIS System during the 1997-1998 college football bowl season. There can be no
assurance that the Flex-Card L-VIS System will be available by such time, 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. PVI is currently evaluating whether use
of the SciDel system infringes the Company's 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.
To date, some of the Company's competitors 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.
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. 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
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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 9 are being used 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. 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 and will expire on
November 23, 2010. 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 and expires on August 6, 2013. 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.
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.
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
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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.
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 the
proprietary electronic recognition of landmarks technology developed at Sarnoff,
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. In 1991, General Electric Company ("GE") granted
the Company a 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. This license expired by its
terms in July 1996. However, GE has indicated its willingness to renew the
license, and the Company and GE are currently negotiating an extension.
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 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.
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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 35 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, 6 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 and Chief Executive Officer
Samuel A. McCleery................................... 47 Vice President of Marketing and Sales
Franklin D. Crawford................................. 69 Director
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. 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).
FRANKLIN D. CRAWFORD has been a director of the Company since 1991. Mr.
Crawford is the founder and has served as the President of Princeton Microfilm
Corporation, a leader in the micro-publishing business, serving colleges,
universities, and medical and research libraries worldwide, since 1963. Prior to
his founding of Princeton Microfilm, Mr. Crawford was a senior systems analyst,
project director and senior
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staff assistant with several major retail firms. Mr. Crawford is also President
of VP Realty Company, which he founded to build and manage various industrial
and commercial properties in Vail, Colorado and Princeton, New Jersey. In
addition to the active management of Princeton Microfilm and VP Realty, Mr.
Crawford is an active member of the Executive Committee of the International
Tennis Hall of Fame in Newport, Rhode Island.
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 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 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.
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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 each of Messrs. Crawford and 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.
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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
651,980 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>
LONG TERM
ANNUAL 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.......................................................... $ 106,725 210,000
President and
Chief Executive Officer
Samuel A. McCleery........................................................... $ 150,000 50,000
Vice President-Marketing
and Sales
</TABLE>
45
<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.
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 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
46
<PAGE>
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.
47
<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 $72,500, 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
will become due on July 15, 1998, and bear interest at a rate of nine percent
per annum. 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 financial advisory services to
the Company from time to time and is a Representative. No fees have been paid to
Mr. Senior in connection with such services. Pursuant to a placement agent
agreement, Allen was paid a fee of $247,000 plus expenses, and received 28,226
warrants to purchase 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. The
Representatives, including Allen, will receive underwriting discounts and
commissions in the aggregate amount of approximately $ 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."
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 respect to such shares. In connection with the exercise
of the warrant in exchange for a non-recourse note, the Company will record a
compensation charge of $261,250 in the first quarter of Fiscal 1998.
48
<PAGE>
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 will
record 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.
49
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of October 1, 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 current 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)................................................ 724,930 19.1% 724,930 9.9%
c/o Allen & Company Incorporated
711 Fifth Avenue
New York, NY 10020
Allen & Company Incorporated (3)..................................... 712,430 18.8% 712,430 9.8%
711 Fifth Avenue
New York, NY 10020
Eduardo Sitt (4)..................................................... 506,808 15.1% 636,808 9.1%
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 8.8%
Montes Urales 739A
Lomas de Chapultepec
11000 Mexico, D.F.
Mexico
Brown F Williams (6)................................................. 454,138 13.5% 454,138 6.6%
c/o Princeton Video Image, Inc.
15 Princess Road
Lawrenceville, NJ 08648
Blockbuster Entertainment Group (7).................................. 210,000 6.2% 210,000 3.1%
One Blockbuster Plaza
200 South Andrews Avenue
Ft. Lauderdale, FL 33301
Jerome J. Pomerance (8).............................................. 182,342 5.5% 182,342 2.7%
c/o J.J. Pomerance & Co.
780 Third Avenue
New York, NY 10017
Samuel A. McCleery (9)............................................... 171,300 5.0% 171,300 2.5%
John B. Torkelsen (10)............................................... 114,770 3.4% 129,770 1.9%
Lawrence Lucchino (11)............................................... 92,500 2.7% 92,500 1.3%
</TABLE>
50
<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>
Franklin D. Crawford (12)............................................ 64,600 1.9% 64,600 *
Douglas J. Greenlaw (13)............................................. 43,750 1.3% 53,750 *
All directors and Named Officers as a
group (9 persons) (14)............................................... 2,355,138 55.1% 2,510,138 31.6%
</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 6,808,472 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 by Allen of which Mr. Senior is a Managing
Director and Executive Vice President. (See Note 3.) By virtue of such
positions, Mr. Senior may, under certain circumstances derive economic
benefit from such securities. Includes 12,500 shares of Common Stock
underlying options that were exercisable within 60 days of October 1, 1997.
(3) Includes 478,226 shares of Common Stock underlying warrants. 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.
(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 22,500 shares of Common Stock
underlying options that were exercisable within 60 days of October 1, 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. Presencia also owns 6,041 shares of
Series B Preferred Stock.
(6) Includes 600 shares of Common Stock owned by Sandra Williams, as custodian
for Bronwyn Williams, Mr. and Mrs. Williams' minor daughter, and 600 shares
owned by Sandra Williams, Mr. Williams' wife. Also includes 57,500 shares of
Common Stock underlying options that were exercisable within 60
51
<PAGE>
days of October 1, 1997. Mr. Williams also owns 700 shares of Series A
Preferred Stock. 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.
(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 32,500 shares of
Common Stock underlying options that were exercisable within 60 days of
October 1, 1997.
(9) Includes 60,800 shares of Common Stock underlying warrants. Also includes
37,500 shares of Common Stock underlying options that were exercisable
within 60 days of October 1, 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 12,500 shares of Common Stock underlying
options that were exercisable within 60 days of the date of this Prospectus.
Mrs. Torkelsen and PVR own 1,000 and 5,200 shares of Series B Preferred
Stock, respectively. 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 12,500 shares
of Common Stock underlying options that were exercisable within 60 days of
October 1, 1997.
(12) Includes 32,500 shares of Common Stock underlying options that were
exercisable within 60 days of October 1, 1997.
(13) Includes 43,750 shares of Common Stock underlying options that were
exercisable within 60 days of October 1, 1997. Shares owned after the
Offering also include 10,000 shares of Common Stock underlying Bridge
Warrants.
(14) Includes 629,158 shares of Common Stock underlying warrants. Includes
338,750 shares of Common Stock underlying options that were exercisable
within 60 days of October 1, 1997. Shares owned after the Offering also
include 155,000 shares of Common Stock underlying Bridge Warrants.
52
<PAGE>
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, 790,730
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
6,808,472 shares of Common Stock issued and outstanding. In addition, there will
be 350,000 shares reserved for issuance upon the exercise of the
Representatives' Options, plus 525,000 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.
53
<PAGE>
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 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 60,800 shares of Common Stock at an
exercise price of $2.50 per share which are currently exercisable and expire
between November 1997 and November 1999; warrants to purchase 20,000 shares of
Common Stock at an exercise price of $4.50 per share which are currently
exercisable and expire in
54
<PAGE>
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 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) 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 24-month lock-up arrangement
with the Underwriter. See "Certain Transactions," "Shares Eligible for Future
Sale" and "Underwriting."
REPRESENTATIVES' OPTIONS
The Company also has agreed to sell to the Representatives, or their
designees, Representatives' Options to purchase 350,000 shares at a price of
$0.001 per option. The Representatives' Options 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' Options 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' Options 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 "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.
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,
55
<PAGE>
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."
56
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
GENERAL
Upon completion of the Offering, there will be 6,808,472 shares of Common
Stock outstanding (7,333,472 if the Over-Allotment Option is exercised in full).
Of such shares, all of the 3,500,000 shares sold in the Offering (4,025,000 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 350,000 shares
of Common Stock issuable upon exercise of the Representatives' Options, 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' Options 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 two-year period following the closing of the
Offering, without the prior written consent of Allen. 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 the date of this
Prospectus, 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.
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 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 350,000 additional shares of Common Stock may be purchased by the
Representatives through the exercise of the Representatives' Options during the
period commencing on the closing of the Offering and ending on the fifth
anniversary of such date. The holders of the Representatives' Options 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' Options
57
<PAGE>
may be freely tradable, provided that the Company satisfies certain securities
registration and qualification requirements in accordance with the terms of the
Representatives' Options. See "--Registration Rights" and "--Lock-up Agreements"
below and "Underwriting."
Up to 300,000 shares of Common Stock may be purchased by the holders of the
Bridge Warrants, and up to 790,730 shares of Common Stock may be purchased by
the holders of other outstanding 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 350,000 shares of Common Stock issuable
upon exercise of the Representatives' Options, and 716,932 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
Subject to the limited exception described below, and 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 24 months from the date of closing
of the Offering, without the prior written consent of Allen. Notwithstanding
such lock-up arrangements, any shareholder subject to such arrangement may sell
all of his, her or its shares of Common Stock commencing 12 months after the
completion of the Offering in the event that prior to the date of sale the sales
price for the Common Stock on its principal exchange has been at least 200% of
the initial public offering price for a period of 20 consecutive trading days.
58
<PAGE>
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.................................................................. 3,500,000
</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, 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 to cover syndicate short positions. 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 or
maintain the market price of the Common Stock above independent market levels.
The Underwriters are not required to engage in these activities and may end
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 525,000 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.
The Company has agreed to indemnify the Underwriters against certain
liabilities in connection with the Registration Statement, including liabilities
under the Securities Act. Insofar as indemnification for liabilities arising
under the Securities Act may be 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.
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' Options to purchase 350,000 shares at a price of
$0.001 per option. The Representatives' Options 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'
59
<PAGE>
Options 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' Options 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."
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' Options.
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 has agreed to pay Barington a commission equal to five percent
of the gross proceeds of the Bridge Financing, which fee shall be paid to
Barington only upon the closing of the Offering.
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 24 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 724,930
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 National Association of
Securities Dealers ("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. 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.
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 arms-length 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 include an assessment of the Company's
recent financial results and current financial condition, future prospects of
the Company, the qualifications of the Company's management and other relevant
factors.
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.
60
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants.................................................... F-3
Financial Statements:
Balance Sheet...................................................................... F-4
Statements of Operations........................................................... F-5
Statements of Changes in Shareholders' (Deficit)/Equity............................ F-6
Statements of Cash Flows........................................................... F-11
Notes to Financial Statements........................................................ F-12
</TABLE>
F-1
<PAGE>
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
F-2
<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.
Princeton, New Jersey
September 11, 1997, except for the third paragraph of Note 14, for which the
date is October 1, 1997.
F-3
<PAGE>
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
JUNE 30, 1997
<TABLE>
<CAPTION>
1997
-------------
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents........................................................................ $ 775,693
Restricted marketable securities held to maturity................................................ 76,320
Trade accounts receivable........................................................................ 86,993
Other current assets............................................................................. 37,532
-------------
Total current assets......................................................................... 976,538
Property and equipment, net........................................................................ 1,266,806
Intangible assets, net............................................................................. 388,754
Other assets....................................................................................... 129,118
-------------
Total assets................................................................................. $ 2,761,216
-------------
-------------
LIABILITIES AND SHAREHOLDERS' (DEFICIT)/EQUITY
Current Liabilities:
Accounts payable and accrued expenses............................................................ $ 976,646
Unearned revenue................................................................................. 430,497
Customer deposits................................................................................ 425,000
-------------
Total current liabilities.................................................................... 1,832,143
Unearned revenue................................................................................... 1,030,469
-------------
Total liabilities............................................................................ 2,862,612
-------------
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, redemption value equal to carrying value
(par plus all accrued but unpaid dividends).................................................... 385,200
Cumulative, Series B, conditionally redeemable, $5.00 par value, authorized 93,300 shares; issued
and outstanding 86,041 shares at June 30, 1997, redemption value equal to carrying value (par
plus all accrued but unpaid dividends)......................................................... 518,355
-------------
Total redeemable preferred stock............................................................. 903,555
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.................................................................................. 14,692
Additional paid-in capital....................................................................... 19,910,396
Less: Related party note receivable.............................................................. (124,000)
Stock subscription receivable............................................................... (1,264,485)
Deficit accumulated during the development stage................................................. (19,541,554)
-------------
Total shareholders' (deficit)/equity......................................................... (1,004,951)
-------------
Total liabilities, redeemable preferred stock and shareholders' (deficit)/equity........... $ 2,761,216
-------------
-------------
</TABLE>
See accompanying notes to financial statements
F-4
<PAGE>
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
AND FOR THE PERIOD JULY 23, 1990 (DATE OF INCEPTION) TO JUNE 30, 1997
<TABLE>
<CAPTION>
JULY 23, 1990
TO
1997 1996 JUNE 30, 1997
------------- ------------- --------------
<S> <C> <C> <C>
License fee......................................................... $ 130,526 $ 1,000,000 $ 1,130,526
Advertising revenue................................................. 81,108 9,600 90,708
------------- ------------- --------------
Total revenue................................................. 211,634 1,009,600 1,221,234
Costs and expenses:
Selling, general and administrative............................... 3,028,895 2,602,928 9,284,704
Research and development.......................................... 1,722,598 1,604,455 9,563,941
L-VIS System costs................................................ 1,274,890 949,804 2,453,313
------------- ------------- --------------
Total costs and expenses...................................... 6,026,383 5,157,187 21,301,958
Operating loss...................................................... (5,814,749) (4,147,587) (20,080,724)
Interest and other income........................................... (84,088) (237,063) (539,170)
------------- ------------- --------------
Net loss............................................................ (5,730,661) (3,910,524) (19,541,554)
Accretion of preferred stock dividends.............................. (44,050) (44,050) (169,150)
------------- ------------- --------------
Net loss applicable to common stock................................. $ (5,774,711) $ (3,954,574) $ (19,710,704)
------------- ------------- --------------
------------- ------------- --------------
Net loss per share applicable to common stock (see Note 2)........ $ (2.19) $ (1.76)
------------- -------------
------------- -------------
Weighted average number of shares of common stock outstanding..... 2,632,090 2,241,534
------------- -------------
------------- -------------
</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 JUNE 30, 1997
<TABLE>
<CAPTION>
RELATED PARTY
COMMON STOCK NOTE AND TREASURY STOCK
------------------------ ADDITIONAL STOCK ------------------------
NUMBER OF PAID-IN SUBSCRIPTION NUMBER OF
SHARES AMOUNT CAPITAL RECEIVABLE SHARES AMOUNT
----------- ----------- ----------- ------------- ----------- -----------
<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) $ (206)
Reissuance of treasury shares for technology,
April 1992...................................... 103,000 41,200 206
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................................ 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'
COMPENSATION STAGE EQUITY/(DEFICIT)
------------- ------------ --------------
<S> <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)
Reissuance of treasury shares for technology,
April 1992...................................... 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-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 JUNE 30, 1997
<TABLE>
<CAPTION>
RELATED
PARTY
COMMON STOCK NOTE AND TREASURY STOCK
---------------------- ADDITIONAL STOCK ------------------------
NUMBER OF PAID-IN SUBSCRIPTION NUMBER OF
SHARES AMOUNT CAPITAL RECEIVABLE SHARES AMOUNT
----------- --------- ----------- ------------ ----------- -----------
<S> <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-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 JUNE 30, 1997
<TABLE>
<CAPTION>
RELATED PARTY
COMMON STOCK NOTE AND TREASURY STOCK
------------------------ ADDITIONAL STOCK ------------------------
NUMBER OF PAID-IN SUBSCRIPTION NUMBER OF
SHARES AMOUNT CAPITAL RECEIVABLE SHARES AMOUNT
----------- ----------- ---------- ------------- ----------- -----------
<S> <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-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 JUNE 30, 1997
<TABLE>
<CAPTION>
RELATED
PARTY
COMMON STOCK NOTE AND TREASURY STOCK
------------------------ ADDITIONAL STOCK ------------------------
NUMBER OF PAID-IN SUBSCRIPTION NUMBER OF
SHARES AMOUNT CAPITAL RECEIVABLE SHARES AMOUNT
----------- ----------- ---------- ------------ ----------- -----------
<S> <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-9
<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 JUNE 30, 1997
<TABLE>
<CAPTION>
RELATED
PARTY
COMMON STOCK NOTE AND TREASURY STOCK
------------------------ ADDITIONAL STOCK NUMBER OF
NUMBER OF PAID-IN SUBSCRIPTION ----------------------
SHARES AMOUNT CAPITAL RECEIVABLE SHARES AMOUNT
----------- ----------- ---------- ------------ --------- -----------
<S> <C> <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)
----------- ----------- ---------- ------------ --------- ---
----------- ----------- ---------- ------------ --------- ---
<CAPTION>
DEFICIT
ACCUMULATED
DURING THE TOTAL
UNEARNED DEVELOPMENT SHAREHOLDERS'
COMPENSATION STAGE EQUITY/(DEFICIT)
------------- ------------ --------------
<S> <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)
------------- ------------ --------------
------------- ------------ --------------
</TABLE>
See accompanying notes to financial statements
F-10
<PAGE>
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
JUNE 30, 1997 AND 1996 AND FOR THE PERIOD
JULY 23, 1990 (DATE OF INCEPTION) TO JUNE 30, 1997
<TABLE>
<CAPTION>
JULY 23, 1990
TO JUNE 30,
1997 1996 1997
------------- ------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss......................................................... $ (5,730,661) $ (3,910,524) $ (19,541,554)
Adjustments to reconcile net loss to net cash used in operating
activities:
Amortization of unearned income.............................. (130,526) -- (130,526)
Depreciation expense......................................... 478,982 294,765 999,600
Amortization of intangibles.................................. 57,490 10,871 112,347
Charges associated with option and warrant grants and related
party note receivable...................................... 227,262 431,075 1,058,137
Equity in net loss of affiliate.............................. -- -- 9,048
Increase (decrease) in cash resulting from changes in:
Trade accounts receivable................................ (78,293) (8,700) (86,993)
Current assets........................................... 77,244 (73,288) (37,532)
Other assets............................................. (572) (66,080) (129,118)
Accounts payable and accrued expenses.................... 379,044 149,597 976,646
Unearned revenue......................................... 391,492 (800,000) 1,591,492
Customer deposits........................................ 125,000 300,000 425,000
Miscellaneous other...................................... 108,274 19,312 119,354
------------- ------------- ---------------
Net cash used in operating activities.................... (4,095,264) (3,652,972) (14,634,099)
------------- ------------- ---------------
Cash flows from investing activities:
Purchase of held-to-maturity investments......................... (75,535) (3,027,826) (5,289,558)
Proceeds from held-to-maturity investments....................... 3,000,000 2,200,000 5,200,000
Purchases of property and equipment.............................. (523,221) (879,958) (2,278,414)
Increase in intangible assets.................................... (87,632) (207,569) (595,209)
Investments in joint venture..................................... -- -- (9,048)
------------- ------------- ---------------
Net cash provided by (used in) investing activities........ 2,313,612 (1,915,353) (2,972,229)
------------- ------------- ---------------
Cash flows from financing activities:
Proceeds from issuances of preferred stock....................... -- 205 734,405
Proceeds from issuances of common stock.......................... 1,050,636 5,657,490 17,647,616
------------- ------------- ---------------
------------- ------------- ---------------
Net cash provided by financing activities.................. 1,050,636 5,657,695 18,382,021
------------- ------------- ---------------
Net increase (decrease) in cash and cash equivalents....... (731,016) 89,370 775,693
Cash and cash equivalents at beginning of period................... 1,506,709 1,417,339 0
------------- ------------- ---------------
------------- ------------- ---------------
Cash and cash equivalents at end of period......................... $ 775,693 $ 1,506,709 $ 775,693
------------- ------------- ---------------
------------- ------------- ---------------
Supplemental cash flow information:
Subscriptions received in connection with issuance of stock...... $ 1,264,485
</TABLE>
See accompanying notes to financial statements
F-11
<PAGE>
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
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. 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.
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.
F-12
<PAGE>
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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.
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 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 $6.50 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>
1997 1996
---------- ----------
<S> <C> <C>
Net loss per share applicable to common stock........................................... $(2.43) $(2.05)
Weighted average number of common shares outstanding.................................... 2,372,065 1,933,196
</TABLE>
F-13
<PAGE>
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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.
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
F-14
<PAGE>
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INVESTMENTS IN JOINT VENTURES: (CONTINUED)
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).
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 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 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)
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. 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. 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)
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
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.
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
F-17
<PAGE>
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. COMMON AND PREFERRED STOCK: (CONTINUED)
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.
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.
F-18
<PAGE>
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. COMMON AND PREFERRED STOCK: (CONTINUED)
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
----------- ---------- ----------- ---------- ----------
----------- ---------- ----------- ---------- ----------
</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.
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.
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
F-19
<PAGE>
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. COMMON AND PREFERRED STOCK: (CONTINUED)
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 1,220,650 and 1,346,374 warrants to
purchase common stock at June 30, 1997 and 1996, 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 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
14).
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.
F-20
<PAGE>
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. WARRANTS AND OPTIONS: (CONTINUED)
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.
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
F-21
<PAGE>
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. WARRANTS AND OPTIONS: (CONTINUED)
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.
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.
F-22
<PAGE>
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. WARRANTS AND OPTIONS: (CONTINUED)
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
---------- -----------
---------- -----------
Exercisable at June 30, 1997................... 559,788 $ 13.93
Exercisable at June 30, 1996................... 337,510 $ 12.19
</TABLE>
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 to $6,739,553 ($2.84 per share) and $4,123,850 ($2.13 per share) for
the years ended June 30, 1997 and June 30, 1996, respectively.
The pro forma compensation expense of $964,842 and $169,276 for 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>
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
F-23
<PAGE>
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. WARRANTS AND OPTIONS: (CONTINUED)
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.
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.
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
F-24
<PAGE>
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
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.
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.
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-25
<PAGE>
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
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.
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.
A member of the Board of Directors of the Company has been retained as a
consultant to the Company.
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.
F-26
<PAGE>
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
14. SUBSEQUENT EVENTS:
In July 1997, two executive officers of the Company exercised warrants to
purchase 262,000 shares of common stock in exchange for non-recourse promissory
notes in the principal amount of $655,000, the aggregate exercise price of such
warrants. In connection with the issuance of the non-recourse promissory notes,
the Company will record a compensation charge of $360,250 in the first quarter
of fiscal year 1998.
On September 3, 1997, the Board of Directors of the Company approved a $3.0
million interim financing program and an initial public offering of the
Company's common stock. Under the interim financing program, the Company will
issue 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.
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. This modification which
affected approximately 320,000 options, reduced the exercise price of such
options to $8.00 per share.
F-27
<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>
Available Information.......................... 2
Prospectus Summary............................. 3
Risk Factors................................... 8
Use of Proceeds................................ 19
Dividend Policy................................ 21
Dilution....................................... 22
Capitalization................................. 24
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 26
Business....................................... 30
Management..................................... 42
Certain Transactions........................... 48
Principal Shareholders......................... 50
Description of Securities...................... 53
Shares Eligible for Future Sale................ 57
Underwriting................................... 59
Legal Matters.................................. 60
Experts........................................ 60
Index to Financial Statements.................. F-1
</TABLE>
------------------------
UNTIL , 1997 (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.
3,500,000 SHARES
PRINCETON
VIDEO IMAGE, INC.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
ALLEN & COMPANY
INCORPORATED
BARINGTON CAPITAL
GROUP
DECEMBER , 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 intends to procure liability
insurance for the benefit of its directors and officers which includes the
coverage which is excluded in its current policy, provided it can obtain
reasonable quotations.
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.............................................. $ 10,066
NASD Filing Fee................................................... $ 3,318
Nasdaq Listing Applications Fee................................... $ 28,375
Legal fees and expenses........................................... $ 150,000
Blue Sky fees and expenses........................................ $ 35,000
Accounting fees and expenses...................................... $ 130,000
Printing and Engraving expenses................................... $ 65,000
Transfer Agent and Registrar Fees................................. $ 2,500
Miscellaneous expenses............................................ $ 50,741
---------
Total......................................................... $ 475,000
</TABLE>
All expenses of registration incurred in connection herewith are being borne
by the Company.
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
several 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 several accredited investors for an aggregate purchase price of
$4,939,655. In addition, the Company granted Allen & Company Incorporated
warrants to purchase 28,226 shares of Common Stock at an exercise
II-2
<PAGE>
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
several 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 several 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 several 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
several 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 1, 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 several accredited shareholders of the
Company 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 (2) through (19) above were deemed to be exempt from registration
under the Securities Act by virtue of Section 4(2) and/or Regulation D as
transactions not involving any public offering, or Regulation S as offers and
sales that occurred outside the United States. The purchasers in each case
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* --Underwriting Agreement
3.1 --Restated Certificate of Incorporation
3.2 --Bylaws
4.1* --Specimen Common Stock Certificate
4.2* --Form of Option for the purchase of 350,000 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 July 24, 1991 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
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<C> <S>
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, as further amended, dated as of September
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
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 (see "Power of Attorney" below)
27.1 --Financial Data Schedule
</TABLE>
- ------------------------
* To be filed by amendment.
** Confidential treatment has been requested with respect to a portion of this
Exhibit.
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 Registration
Statement to be signed on its behalf by the undersigned, in the Township of
Lawrence, State of New Jersey, on October 10, 1997.
PRINCETON VIDEO IMAGE, INC.
By: /s/ BROWN F WILLIAMS
-----------------------------------------
Brown F Williams
CHAIRMAN OF THE BOARD
AND TREASURER
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Brown F Williams, Douglas J. Greenlaw and Samuel
A. McCleery, and each or either one of them, his or her true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or any of them, or
their or his or her substitutes or substitute, may lawfully do or cause to be
done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
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 October 10, 1997
Brown F Williams principal financial
officer)
/s/ ELIZABETH A. DUMONT Controller (Controller)
- ------------------------------ October 10, 1997
Elizabeth A. Dumont
/s/ FRANKLIN D. CRAWFORD Director
- ------------------------------ October 10, 1997
Franklin D. Crawford
/s/ LAWRENCE LUCCHINO Director
- ------------------------------ October 10, 1997
Lawrence Lucchino
/s/ JEROME J. POMERANCE Director
- ------------------------------ October 10, 1997
Jerome J. Pomerance
/s/ ENRIQUE F. SENIOR Director
- ------------------------------ October 10, 1997
Enrique F. Senior
II-7
<PAGE>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ EDUARDO SITT Director
- ------------------------------ October 10, 1997
Eduardo Sitt
/s/ JOHN B. TORKELSEN Director
- ------------------------------ October 10, 1997
John B. Torkelsen
II-8
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<S> <C>
1.1* --Underwriting Agreement
3.1 --Restated Certificate of Incorporation
3.2 --Bylaws
4.1* --Specimen Common Stock Certificate
4.2* --Form of Option for the purchase of 350,000 shares of Common Stock issued to the Representatives
4.3 --Form of Warrant for the purchase of shares of Common Stock, issued on 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 July 24, 1991 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 September 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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<S> <C>
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
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 Date Schedule
</TABLE>
- ------------------------
* To be filed by amendment.
** Confidential treatment has been requested with respect to a portion of this
Exhibit.
<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.
Alt-1
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 10, 1997
PROSPECTUS
650,000 SHARES
PRINCETON VIDEO IMAGE, INC.
COMMON STOCK
----------------
This Prospectus relates to the Offering (the "Offering") by certain selling
shareholders (the "Selling Shareholders") of 650,000 shares (the "Shares") of
Common Stock, no par value, of the Company (the "Common Stock") 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 350,000 shares may not be sold for a period of 12 months and
300,000 Shares may not be sold for a period of 24 months (subject to reduction
of up to 12 months) from the date of closing of the Company Offering (defined
below). 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 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 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 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 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 Shares.
The Selling Shareholders and intermediaries through whom the 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."
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 3,500,000 shares
of Common Stock, plus up to 525,000 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 options 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 350,000 shares of Common
Stock at an exercise price equal to 120% of the initial public offering price
(the "Representatives' Options"). 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-2
<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 SHARES MAXIMUM NUMBER NUMBER OF SHARES OUTSTANDING COMMON
NAME OF BENEFICIALLY OWNED OF SHARES BENEFICIALLY OWNED STOCK BENEFICIALLY
SELLING SHAREHOLDER PRIOR TO OFFERING BEING OFFERED AFTER OFFERING OWNED AFTER OFFERING
- ------------------- ------------------- ------------------- ------------------- ---------------------
<S> <C> <C> <C> <C>
</TABLE>
LOCK-UP ARRANGEMENTS
The Shares consist of 350,000 shares of Common Stock underlying the
Representatives' Options and 300,000 shares of Common Stock issuable upon
exercise of the Bridge Warrants.
Subject to the limited exception described below, and 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 24 months from the date of closing
of the Offering, without the prior written consent of Allen & Company
Incorporated ("Allen"). Notwithstanding such lock-up arrangements, any
shareholder subject to such arrangement may sell all of his, her or its shares
of Common Stock commencing 12 months after the completion of the Offering in the
event that prior to the date of sale the sales price for the Common Stock on its
principal exchange has been at least 200% of the initial public offering price
for a period of 20 consecutive trading days.
Pursuant to the terms of such Underwriting Agreement, neither the
Representatives' Options 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 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 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 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 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 Shares. No underwriting arrangements have been entered into by the
Selling Shareholders.
The Selling Shareholders and intermediaries through whom the 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-2
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Selling
Shareholders............................... 650,000 shares of Common Stock
Common Stock Outstanding Immediately Prior to
the Offering (1)........................... 6,808,472 shares of Common Stock
Common Stock to be Outstanding Following the
Offering (1)(2)............................ 7,458,472 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
Proposed Nasdaq National Market Trading
Symbol (3)................................. PVII
</TABLE>
- ------------------------
(1) Does not include (i) 790,730 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 525,000 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 Company has applied for quotation on the Nasdaq National
Market, subject to notice of issuance. There can be no assurance, however,
that such application for quotation will be approved, or if approved, will
be maintained. See "Risk Factors-- Absence of Public Market; Negotiated
Offering Price."
Alt-3
<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 3,500,000 shares of Common Stock,
plus 525,000 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 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-4
<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>
Available Information..........................
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........................................
Index to Financial Statements..................
</TABLE>
------------------------
UNTIL , 1997 (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.
650,000 SHARES
PRINCETON
VIDEO IMAGE, INC.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
DECEMBER , 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Alt-5
<PAGE>
Exhibit 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
PRINCETON VIDEO IMAGE, INC.
The undersigned, in order to restate the Certificate of Incorporation of
Princeton Video Image, Inc. (the "Corporation"), pursuant to the provisions of
the New Jersey Business Corporation Act (the "Act"), does hereby certify:
FIRST. The name of the Corporation is Princeton Video Image, Inc.
SECOND. The purpose of the Corporation is to engage in any activity within
the purposes for which corporations may be organized under the Act.
THIRD. The total authorized capital stock of the Corporation shall consist
of one class of 40,000,000 shares of Common Stock, one class of 1,000,000 shares
of Preferred Stock, a series of 167,000 shares of such class of Preferred Stock
designated as the Series A Redeemable Preferred Stock, and a series of 93,300
shares of such class of Preferred Stock designated as the Series B Redeemable
Preferred Stock, such classes of Preferred Stock to have such relative rights,
preferences and limitations as herein set forth.
The Series A Redeemable Preferred Stock shall have a par value of $4.50 per
share. The Series A Redeemable Preferred Stock shall have a six percent (6%)
per annum dividend rate and dividends shall be paid annually and shall be
cumulative. The failure of the
<PAGE>
Corporation to pay dividends on a current basis shall not create any special
rights except that no dividends shall be paid in respect of Common Stock until
al accumulated dividends in respect of the Series A Redeemable Preferred Stock
have been paid. Dividends shall be paid either in cash or at the election of
the Corporation in a number of shares of Common Stock determined by the then
current value per share of Common Stock of the Corporation. The Series A
Redeemable Preferred Stock will not have voting rights in connection with the
election of directors of the Corporation, or on any other matter, other than as
required by applicable law. The Corporation shall have the right to redeem the
Series A Redeemable Preferred Stock in whole at any time or in part from time to
time in cash at par plus all accrued but unpaid dividends. The corporation
shall be required to redeem the Series A Redeemable Preferred Stock in cash at
par plus all accrued but unpaid dividends out of thirty percent (30%) of the
amount, if any, by which the Corporations annual net income after taxes in any
year as shown on its audited financial statements exceeds $5,000,000.
The Series B Redeemable Preferred Stock shall have a par value of $5.00 per
share. The Series B Redeemable Preferred Stock shall have a six percent (6%)
per annum dividend rate and dividends shall be paid annually and shall be
cumulative, provided that no dividends shall be paid at any time while there are
accrued but unpaid dividends with respect to the Series A Redeemable Preferred
Stock. The failure of the Corporation to pay dividends on a current basis shall
not create any special rights except that no
-2-
<PAGE>
dividends shall be paid in respect of Common Stock until all accumulated
dividends in respect of the Series B Redeemable Preferred Stock have been paid.
Dividends shall be paid either in cash or at the election of the Corporation in
a number of shares of Common Stock determined by the then current value per
share of Common Stock of the Corporation. The Series B Redeemable Preferred
Stock will not have voting rights in connection with the election of directors
of the Corporation, or on any other matter, other than as required by applicable
law. Provided that no Series A Redeemable Preferred Stock is then outstanding,
the Corporation shall have the right to redeem the Series B Redeemable Preferred
Stock in whole at any time or in part from time to time in cash at par plus all
accrued but unpaid dividends. Provided that no Series A Redeemable Preferred
Stock is then outstanding, the Corporation shall be required to redeem the
Series B Redeemable Preferred Stock in cash at par plus all accrued but unpaid
dividends out of twenty percent (20%) of the amount, if any, by which the
Corporation's annual net income after taxes in any year as shown on its audited
financial statements exceeds $5,000,000.
FOURTH. The Board of Directors of the Corporation is authorized to adopt
from time to time and to cause to be executed and filed without further approval
of the shareholders of amendments to this Certificate of Incorporation that
divide the Preferred Stock into classes and series, specify the designation and
number of shares of any class or series, or determine the relative rights,
preferences and limitations, including without
-3-
<PAGE>
limitation the fixing or alteration of dividend rights, dividend rate or rates,
conversion rights, voting rights, rights and terms of redemption (including
sinking fund provisions), the redemption price or prices, and the liquidation
preferences of any wholly unissued class or series of Preferred Stock, or of any
of them, and to increase or decrease the number of shares of any class or series
subsequent to the issuance of shares of that class or series, but not below the
number of shares then outstanding.
FIFTH. The address of the registered office of the Corporation is c/o
Smith, Stratton, Wise, Heher & Brennan, 600 College Road East, Princeton, New
Jersey 08540. The registered agent of the Corporation at the registered office
is Richard J. Pinto, Esq.
SIXTH. Seven directors constitute the Corporation's current Board of
Directors. Their names and addresses are as follows:
Name Address
Brown F. Williams 47 Hulfish Street, Ste. 500
Princeton, NJ 08540
Franklin D. Crawford P.O. Box 338
Princeton Jct., NJ 08550
Lawrence Lucchino 9449 Friars Road, Lvl. 1A
San Diego, CA 92108
Jerome J. Pomerance 780 Third Avenue, Ste. 4602
New York, NY 10017
Enrique F. Senior 711 Fifth Avenue
New York, NY 10022
Eduardo Sitt Paseo de las Palmas
No 735 Desp. 206
11000 Mexico DF
MEXICO
-4-
<PAGE>
John B. Torkelsen 5 Vaughn Drive
Princeton, NJ 08540
IN WITNESS WHEREOF, the undersigned has executed this Restated Certificate
of Incorporation as of the 31st day of October 1996.
PRINCETON VIDEO IMAGE, INC.
By: /s/ Brown F. Williams
--------------------------
Name: Brown F. Williams
Title: President
-5-
<PAGE>
CERTIFICATE OF ADOPTION OF RESTATED
CERTIFICATE OF INCORPORATION
OF
PRINCETON VIDEO IMAGE, INC.
Pursuant to section 14A:9-5(5) of the New Jersey Business Corporation act,
the undersigned does hereby certify as follows:
1. The name of the corporation is Princeton Video Image, Inc. (the
"Corporation").
2. The Corporation has adopted the Restated Certificate of Incorporation
attached hereto (the "Restated Certificate").
3. The Restated Certificate accurately restates the Corporation's
certificate of incorporation and integrates all amendments that are in effect to
date. The certificate contains no substantive changes to the Corporation's
certificate of incorporation as amended.
4. The Restated Certificate was adopted by the board of directors of
the Corporation as of October 3, 1996.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Adoption of Restated Certificate of Incorporation as of the 31st day of October
1996.
PRINCETON VIDEO IMAGE, INC.
By: /s/ Brown F Williams
-------------------------
Name: Brown F Williams
Title: President
<PAGE>
Exhibit 3.2
BY-LAWS
OF
PRINCETON VIDEO IMAGE, INC.
- --------------------------------------------------------------------------------
ARTICLE I - OFFICES
The registered office of the Corporation shall be at such place in the
State of New Jersey as shall be designated by the Board of Directors
(hereinafter called the "Board").
The Corporation may also have offices at such other places within or
without the State of New Jersey as the Board may from time to time determine or
the business of the Corporation may require.
ARTICLE II - SHAREHOLDERS
1. PLACE OF MEETINGS.
Meetings of shareholders shall be held at the principal office of
the Corporation or at such place within or without the State of New Jersey as
the Board shall authorize.
2. ANNUAL MEETING.
The annual meeting of the shareholders shall be held at such time,
date and place as the Board shall determine by resolution, when the shareholders
shall elect a Board and transact such other business as may properly come before
the meeting.
3. SPECIAL MEETINGS.
Special meetings of the shareholders may be called by the Board or
by the president and shall be called by the president or the secretary at the
request in writing of a majority of the Board or at the request in writing by
any shareholder owning shares of the Corporation's capital stock. Such request
shall state the purpose or purposes of the proposed meeting. Business transacted
at a special meeting shall be confined to the purposes stated in the notice.
4. NOTICE OF MEETINGS OF SHAREHOLDERS.
Written notice of the time, place and purpose or purposes of every
meeting of shareholders shall be given not less than 10 nor more than 60 days
before the date of the meeting, either personally or by mail, to each
shareholder of record entitled to vote at the meeting.
<PAGE>
When a meeting is adjourned to another time or place, it shall not
be necessary, unless the by-laws otherwise provide, to give notice of the
adjourned meeting if the time and place to which the meeting is adjourned are
announced at the meeting at which the adjournment is taken and at the adjourned
meeting only such business is transacted as might have been transacted at the
original meeting. However, if after the adjournment the Board fixes a new record
date for the adjourned meeting, a notice of the adjourned meeting shall be given
to each shareholder of record on the new record date entitled to notice.
5. WAIVER OF NOTICE OR OF LAPSE OF TIME.
Notice of meeting need not be given to any shareholder who signs a
waiver of notice, in person or by proxy, whether before or after the meeting.
The attendance of any shareholder at a meeting, in person or by proxy, without
protesting prior to the conclusion of the meeting the lack of notice of such
meeting, shall constitute a waiver of notice by him.
Whenever shareholders are authorized to take any action after the
lapse of a prescribed period of time, the action may be taken without such lapse
if such requirement is waived in writing, in person or by proxy, before or after
the taking of such action, by every shareholder entitled to vote thereon as at
the date of the taking of such action.
6. ACTION BY SHAREHOLDERS WITHOUT A MEETING.
Any action required or permitted to be taken at a meeting of
shareholders by statute, the certificate of incorporation, or by-laws, other
than the annual election of directors, may be taken without a meeting upon the
written consent of shareholders who would have been entitled to cast the minimum
number of votes which would be necessary to authorize such action at a meeting
at which all shareholders entitled to vote thereon were present and voting. The
written consents of the shareholders consenting thereto shall be filed with the
minutes of proceedings of shareholders.
7. QUORUM OF SHAREHOLDERS.
Unless otherwise provided in the certificate of incorporation, the
holders of shares entitled to cast a majority of the votes at a meeting shall
constitute a quorum at such meeting. The shareholders present in person or by
proxy at a duly organized meeting may continue to do business until adjournment,
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum. Less than a quorum may adjourn a meeting.
-2-
<PAGE>
Whenever the holders of any class or series of shares are entitled
to vote separately on a specified item of business, the provisions of the
preceding paragraph shall apply in determining the presence of a quorum of such
class or series for the transaction of such specified item of business.
ARTICLE III - DIRECTORS
1. BOARD OF DIRECTORS.
Subject to any provision in the certificate of incorporation, the
business of the Corporation shall be managed by its Board, each of whom shall be
at least 18 years of age.
2. NUMBER OF DIRECTORS.
The authorized number of the directors of the Corporation shall be
established from time to time by the Board and shall not be less than one (1)
nor more than seven (7).
3. TERM OF DIRECTORS.
The directors named in the certificate of incorporation shall hold
office until the first annual meeting of shareholders, and until their
successors shall have been elected and qualified. At the first annual meeting of
shareholders and at each annual meeting thereafter the shareholders shall elect
directors to hold office until the next succeeding annual meeting, except as
otherwise required by the certificate of incorporation or the by-laws in the
case of classification of directors. Each director shall hold office for the
term for which he is elected and until his successor shall have been elected and
qualified. A director may resign by written notice to the Corporation. The
resignation shall be effective upon receipt thereof by the Corporation or at
such subsequent time as shall be specified in the notice of resignation.
4. VACANCIES AND NEWLY CREATED DIRECTORSHIPS.
Any directorship not filled at the annual meeting and any vacancy,
however caused, occurring in the Board may be filled by the affirmative vote of
a majority of the remaining directors even though less than a quorum of the
Board, or by a sole remaining director. A director so elected by the Board shall
hold office until the next succeeding annual meeting of shareholders and until
his successor shall have been elected and qualified.
-3-
<PAGE>
When one or more directors shall resign from the Board effective at
a future date, a majority of the directors then in office including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each director so chosen shall hold office as herein provided in
the filling of other vacancies.
Any directorship to be filled by reason of an increase in the number
of directors shall be filled by election at an annual meeting or at a special
meeting of shareholders called for that purpose, unless the certificate of
incorporation or a by-law adopted by the shareholders authorizes the Board to
fill such directorship. A director elected by the Board to fill any such
directorship shall hold office until the next succeeding annual meeting of
shareholders and until his successor shall have been elected and qualified.
If by reason of death, resignation or other cause the Corporation
has no directors in office, any shareholder or the executor or administrator of
a deceased shareholder may call a special meeting of shareholders for the
election of directors and, over his own signature, shall give notice of said
meeting in accordance with the by-laws.
5. REMOVAL OF DIRECTORS.
One or more or all of the directors of the Corporation may be
removed for cause by the shareholders by the affirmative vote of the majority of
the votes cast by the holders of share entitled to vote for the election of
directors.
6. QUORUM OF BOARD OF DIRECTORS AND COMMITTEES; ACTION OF DIRECTORS
WITHOUT A MEETING.
A majority of the entire Board, or of any committee thereof, shall
constitute a quorum for the transaction of business, unless the certificate of
incorporation shall provide that a greater or lesser number shall constitute a
quorum, which in no case shall be less than the greater of two persons or
one-third of the entire Board or committee, except that when a Board of one
director is authorized, one director shall constitute a quorum. Any action
required or permitted to be taken pursuant to authorization voted at a meeting
of the Board or any committee thereof, may be taken without a meeting if, prior
or subsequent to such action, all members of the Board or of such committee, as
the case may be, consent thereto in writing and such written consents are filed
with the minutes of the proceedings of the Board or committee. Such consent
shall have the same effect as a unanimous vote of the Board or committee for all
purposes.
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7. PLACE OF BOARD MEETINGS.
Meetings of the Board may be held either within or without the State
of New Jersey.
8. REGULAR ANNUAL MEETING.
A regular annual meeting of the Board shall be held immediately
following the annual meeting of shareholders at the place of such annual meeting
of shareholders.
9. NOTICE OF MEETINGS OF THE BOARD; ADJOURNMENT.
Regular meetings of the Board may be held with or without notice.
Special meetings of the Board shall be held upon notice to the directors and may
be called by the president upon three days' notice to each director either
personally or by mail or by wire. Special meetings shall be called by the
president or by the secretary in a like manner on written request of two
directors. Notice of any meeting need not be given to any director who signs a
waiver of notice, whether before or after the meeting. The attendance of any
director at a meeting without protesting prior to the conclusion of the meeting
the lack of notice of such meeting shall constitute a waiver of notice by him.
Neither the business to be transacted at, nor the purpose of, any meeting of the
Board need be specified in the notice or waiver of notice of such meeting.
Notice of an adjourned meeting need not be given if the time and place are fixed
at the meeting adjourning and if the period of adjournment does not exceed ten
days in any one adjournment.
A majority of the directors present, whether or not a quorum is
present, may adjourn any meeting to another time and place. Notice of the
adjournment shall be given all directors who were absent at the time of the
adjournment and, unless such time and place are announced at the meeting, to the
other directors.
10. EXECUTIVE AND OTHER COMMITTEES.
The Board, by resolution adopted by a majority of the entire Board,
may designate from among its members an executive committee and other
committees, each consisting of three or more directors. Each such committee
shall serve at the pleasure of the Board.
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11. INDEMNIFICATION.
A director shall not be personally liable to the Corporation or its
shareholders for monetary damages for breach of fiduciary duty as a director;
provided that this sentence shall not eliminate or limit the liability of a
director (i) for any breach of his duty of loyalty to the Corporation 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 derives an improper personal benefit. No amendment to or
repeal of this Section Eleven shall apply to or have any effect on the liability
or alleged liability of any director of the Corporation for or with respect to
any acts or omissions of such director occurring prior to such amendment.
12. COMPENSATION.
No compensation shall be paid to directors, as such, for their
services, but by resolution of the Board a fixed sum and expenses for actual
attendance, at each regular or special meeting of the Board may be authorized.
Nothing herein contained shall be construed to preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor.
ARTICLE IV - OFFICERS
1. OFFICES, ELECTION, TERM, SALARIES, SECURITY.
The officers of the Corporation shall be a chairman of the Board, a
chief executive officer, a chief operating officer, a president, a secretary and
a treasurer. In addition, the Board may elect additional officers such as one or
more vice presidents and such assistant secretaries and assistant treasurers as
the Board may deem proper. The officers shall be elected or appointed by the
Board.
Any two or more offices may be held by the same person.
Any officer elected or appointed as herein provided shall hold
office until the next regular meeting of the Board following the annual meeting
of shareholders or until a successor is elected or appointed and has qualified
subject to earlier termination by removal or resignation.
All officers of the Corporation, as between themselves and the
Corporation, shall have such authority and perform such duties in the management
of the Corporation as may be provided in
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the by-laws, or as may be determined by resolution of the Board not inconsistent
with the by-laws.
The salaries of all officers shall be fixed by the Board.
In case the Board shall so require, any officer or agent of the
Corporation shall execute to the Corporation a bond in such sum and with such
surety or sureties as the Board may direct, conditioned upon the faithful
performance of his duties to the Corporation and including responsibility for
negligence and for the accounting for all property, funds or securities of the
Corporation which may come into his hands.
2. DELEGATION OF DUTIES.
In case of the absence of any officer of the Corporation, or for any
other reason that may seem sufficient to the Board, the directors may, by a
majority vote of the Board, delegate the powers and duties of such officer, for
the time being, to any other officer, or to any director.
3. REMOVAL AND RESIGNATION OF OFFICERS; FILLING OF VACANCIES.
Any officer elected or appointed by the Board may be removed by the
Board with or without cause. An officer elected by the shareholders may be
removed, with or without cause, only by vote of the shareholders but his
authority to act as an officer may be suspended by the Board for cause.
An officer may resign by written notice to the Corporation. The
resignation shall be effective upon receipt thereof by the Corporation or at
such subsequent time as shall be specified in the notice of resignation.
Any vacancy occurring among the officers, however caused, may be
filled by election or appointment by the Board for the unexpired term.
4. CHAIRMAN OF THE BOARD.
The chairman of the Board shall preside at all meetings of the
shareholders and of the Board. He shall have general and active management of
the business of the Corporation, shall oversee the fulfillment of the
Corporation's mission, and shall see that all orders and resolutions of the
Board are carried into effect, subject, however, to the right of the directors
to delegate any specific powers, except such as may be by statute exclusively
conferred on the chairman of the Board, to any other officer or
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officers of the Corporation. He shall have the authority to execute bonds,
mortgages and other contracts under the seal of the Corporation except where the
signing and execution thereof shall be expressly delegated by the Board of
Directors to some other officer or agent of the Corporation. He shall have the
general powers and duties of supervision and management usually vested in an
executive officer and the chairman of the board of a corporation. He shall
present a report of the condition of the business of the Corporation at each
annual meeting of the shareholders and the Board. He shall perform such other
duties as may from time to time be requested by the Board.
5. CHIEF EXECUTIVE OFFICER.
The chief executive officer shall, in the absence of the chairman of
the Board, preside at all meetings of the shareholders and of the Board. Acting
under the direction of the Board and the chairman of the Board, he shall have
general and active management of the business of the Corporation, shall oversee
the marketing, business and strategic development efforts of the Corporation and
shall see that all orders and resolutions of the Board are carried into effect,
subject, however, to the right of the directors to delegate any specific powers
to any other officer or officers of the Corporation. He shall have the authority
to executive bonds, mortgages and other contracts under the seal of the
Corporation except where the signing and execution thereof shall be expressly
designated by the Board to some other officer or agent of the Corporation. He
shall have the general powers and duties of supervision and management usually
vested in the chief executive officer of a corporation. He shall perform such
other duties as may from time to time be requested by the Board or by the
chairman of the Board.
6. PRESIDENT.
The president shall be vested with all of the powers, and shall be
required to perform all of the duties, as may be properly assigned by the Board
or the chairman of the Board.
7. CHIEF OPERATING OFFICER.
A chief operating officer, if one has been appointed, shall be
vested with all of the powers, and shall be required to perform all of the
duties, as may be properly assigned by the Board, the chairman of the Board, the
chief executive officer or the president.
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8. VICE-PRESIDENTS.
During the absence or disability of the president, the
vice-president, or if there are more than one, the executive vice-president
shall have all the powers and functions of the president. Each vice-president
shall perform such other duties as the Board shall prescribe.
9. SECRETARY.
The secretary shall attend all meetings of the Board and of the
shareholders; record all votes and minutes of all proceedings in a book to be
kept for that purpose; give or cause to be given notice of all meetings of
shareholders and of special meetings of the Board; keep in safe custody the seal
of the Corporation and affix it to any instrument when authorized by the Board;
when required, prepare a list of shareholders or cause to be prepared and
available at each meeting of shareholders entitled to vote thereat, indicating
the number of shares of each respective class held by each; keep all the
documents and records of the Corporation as required by law or otherwise in a
proper and same manner; and perform such other duties as may be prescribed by
the Board.
10. ASSISTANT-SECRETARIES.
During the absence or disability of the secretary, the
assistant-secretary, or if there are more than one, the one so designated by the
secretary or by the Board, shall have all the powers and functions of the
secretary.
11. TREASURER.
The treasurer shall: have the custody of the corporate funds and
securities; keep full and accurate accounts of receipts and disbursements in the
corporate books; deposit all money and other valuables in the name and to the
credit of the Corporation in such depositories as may be designated by the
Board; disburse the funds of the Corporation as may be ordered or authorized by
the Board and preserve proper vouchers for such disbursements; render to the
president and Board at the regular meetings of the Board, or whenever they
require it, an account of all his transactions as treasurer and of the financial
condition of the Corporation; render a full financial report at the annual
meeting of the shareholders if so requested; be furnished by all corporate
officers and agents at his request, with such reports and statements as he may
require as to all financial transactions of the Corporation; and perform such
other duties as are given to him by the by-laws or as from
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time to time are assigned to him by the Board, the chairman of the Board, the
chief executive officer or the president.
12. ASSISTANT-TREASURER.
During the absence or disability of the treasurer, the
assistant-treasurer, or if there are more than one, the one so designated by the
secretary or by the Board, shall have all the powers and functions of the
treasurer.
ARTICLE V - CERTIFICATES FOR SHARES AND DIVIDENDS
1. CERTIFICATES REPRESENTING SHARES.
The shares of the Corporation shall be represented by certificates
signed by, or in the name of the Corporation by, the chairman or vice-chairman
of the Board, or the president or a vice-president, and by the treasurer or an
assistant-treasurer, or the secretary or an assistant-secretary of the
Corporation and shall be sealed with the seal of the Corporation or a facsimile
thereof.
2. LOST OR DESTROYED CERTIFICATES.
The Board may direct a new certificate or certificates to be issued
in place of any certificate or certificates theretofore issued by the
Corporation, alleged to have been lost or destroyed, upon the making of an
affidavit of that fact by the person claiming the certificate to be lost or
destroyed. When authorizing such issue of a new certificate or certificates, the
Board may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or give the Corporation a bond in such sum and with such
surety or sureties as it may direct as indemnity against any claim that may be
made against the Corporation with respect to the certificate alleged to have
been lost or destroyed.
3. TRANSFER OF SHARES.
Upon surrender to the Corporation or the transfer agent of the
Corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the Corporation to issue a new certificate to the person entitled
thereto, and cancel the old certificate. Every such transfer shall be entered on
the transfer book of the Corporation which shall be kept at its
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principal office. No transfer shall be made within ten days next preceding the
annual meeting of shareholders.
The Corporation shall be entitled to treat the holder of record of
any share as the holder in fact thereof and, accordingly, shall not be bound to
recognize any equitable or other claim to or interest in such share on the part
of any other person whether or not it shall have express or other notice
thereof, except as expressly provided by New Jersey statutes.
4. CLOSING TRANSFER BOOKS.
The Board shall have the power to close the share transfer books of
the Corporation for a period of not more than ten days during the thirty-day
period immediately preceding (a) any shareholders' meeting, or (b) any date upon
which shareholders shall be called upon to or have a right to take action
without a meeting, or (c) any date fixed for the payment of a dividend or any
other form of distribution, and only those shareholders of record at the time
the transfer books are closed, shall be recognized as such for the purpose of
(a) receiving notice of or voting at such meeting, or (b) allowing them to take
appropriate action, or (c) entitling them to receive any dividend or other form
of distribution.
5. DIVIDENDS.
Subject to the provisions of the certificate of incorporation and to
applicable law, the Corporation may, from time to time, by action of its Board,
declare and pay dividends or make other distribution on its outstanding shares
in cash or in its own shares or in its bonds or other property, including the
shares or bonds of other corporations, except when the Corporation is insolvent
or would thereby be made insolvent.
Dividends may be declared or paid and other distributions may be
made out of surplus only, except as otherwise provided by statute.
ARTICLE VI - CORPORATE SEAL
The seal of the Corporation shall be circular in form and bear the
name of the Corporation, the year of its organization and the words "Princeton
Electronic Billboard, Inc., Corporate Seal 1990 New Jersey." The seal may be
used by causing it to be impressed directly on the instrument or writing to be
sealed, or upon adhesive substance affixed thereto. The seal on the certificates
for shares or any corporate obligation for payment of money may be a facsimile,
engraved or printed.
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ARTICLE VII - FISCAL YEAR
The fiscal year of the Corporation shall begin on the first day of
July of each year.
ARTICLE VIII - BY-LAW CHANGES
AMENDMENT, REPEAL, ADOPTION, ELECTION OF DIRECTORS.
Except as otherwise provided in the certificate of incorporation,
the by-laws may be amended, repealed or adopted by vote of the holders of the
shares at the time entitled to vote in the election of any directors. By-laws
may also be amended, repealed or adopted by the Board but any by-law adopted by
the Board may be amended by the shareholders entitled to vote thereon.
If any by-law regulating an impending election of directors is
adopted, amended or repealed by the Board, there shall be set forth in the
notice of the next meeting of shareholders for the election of directors the
by-law so adopted, amended or repealed, together with a concise statement of the
changes made.
Dated: January 24, 1997
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Exhibit 4.3
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY
STATE AND HAVE BEEN TAKEN FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TO
THE DISTRIBUTION THEREOF, AND, EXCEPT AS STATED IN AN AGREEMENT BETWEEN THE
HOLDER OF THIS CERTIFICATE AND THE ISSUER CORPORATION, SUCH SECURITIES MAY NOT
BE SOLD OR TRANSFERRED UNLESS THE HOLDER HAS COMPLIED WITH THE TERMS OF THAT
CERTAIN NOTE PURCHASE AGREEMENT (THE "AGREEMENT") DATED AS OF SEPTEMBER 30, 1997
AND THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS COVERING SUCH SECURITIES OR THE ISSUER
CORPORATION RECEIVES AN OPINION OF COUNSEL (WHICH MAY BE COUNSEL FOR THE ISSUER
CORPORATION) WHICH IS SATISFACTORY TO THE ISSUER CORPORATION (BOTH AS TO THE
ISSUER OF THE OPINION AND THE FORM AND SUBSTANCE THEREOF) STATING THAT SUCH SALE
OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND ANY PROSPECTUS DELIVERY
REQUIREMENTS UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. COPIES OF
THE AGREEMENT ARE AVAILABLE FROM THE ISSUER CORPORATION DURING NORMAL BUSINESS
HOURS.
VOID AFTER 5:00 P.M., NEW YORK TIME, ON EXPIRATION DATE, AS DEFINED HEREIN, OR
IF NOT A BUSINESS DAY, AS DEFINED HEREIN, AT 5:00 P.M., NEW YORK TIME, ON THE
NEXT FOLLOWING BUSINESS DAY.
WARRANT TO PURCHASE, INITIALLY,
________ SHARES OF COMMON STOCK
NO. _____
WARRANT TO PURCHASE
COMMON STOCK
OF
PRINCETON VIDEO IMAGE, INC.
TRANSFER RESTRICTED -- SEE SECTION 5.01
Reference is hereby made to that certain Senior Secured Promissory
Note (the "Bridge Loan Note") dated as of the Issue Date of PRINCETON VIDEO
IMAGE, INC., a corporation organized and existing under the laws of the State of
New Jersey (the "Company"), in favor of __________ ("Purchaser"), the terms of
which are incorporated by reference. The Bridge Loan Note is one of a series of
substantially identical Bridge Loan Notes being sold to Purchaser and others.
This certifies that, for good and valuable consideration, Purchaser
(the "Warrantholder"), is entitled to purchase from the Company, subject to the
terms and conditions hereof, at any time on
<PAGE>
or after 9:00 A.M., New York time, on the Exercise Commencement Date, and before
5:00 P.M., New York time, on the Expiration Date, the number of fully paid and
non-assessable shares of Common Stock set forth above (the "Initial Number of
Shares"), as may be adjusted from time to time pursuant to the terms hereof, at
the Exercise Price. The Exercise Price and the number of shares purchasable
hereunder are subject to adjustment as provided in Article III hereof.
ARTICLE I
DEFINITIONS
Section 1.01 Definition of Terms. As used in this Warrant, the
following capitalized terms shall have the following respective meanings:
(a) Business Day: A day other than a Saturday, Sunday or other day
on which banks in the State of New York are authorized by law to remain closed.
(b) Common Stock: Common Stock, no par value per share, of the
Company.
(c) Exercise Commencement Date: The earlier of (i) the closing of any
IPO, or (ii) the one-year anniversary of the date of the Issue Date.
(d) Exercise Price: $0.02 per Warrant Share, as such price may be
adjusted from time to time pursuant to Article III hereof.
(e) Expiration Date: 5:00 P.M., New York time, on the fifth
anniversary of the Exercise Commencement Date, or if such day is not a Business
Day, 5:00 P.M., New York time, on the next succeeding day which is a Business
Day.
(f) Holder: A holder of outstanding Warrants.
(g) IPO: The Company's initial Public Offering.
(h) Issue Date: September 30, 1997.
(i) Person: An individual, partnership, joint venture, corporation,
trust, unincorporated organization or government or any department or agency
thereof.
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(j) Public Offering: A public offering of shares of Common Stock
pursuant to an effective registration statement under the Securities Act.
(k) Securities Act: The Securities Act of 1933, as amended.
(l) Transfer: See Section 5.01.
(m) Warrants: This Warrant and all other warrants that may be issued
in its or their place.
(n) Warrantholder: The person or entity to whom this Warrant is
originally issued, or any successor in interest thereto, or any assignee or
transferee thereof, in whose name this Warrant is registered upon the books to
be maintained by the Company for that purpose.
(o) Warrant Shares: Common Stock purchasable upon exercise of the
Warrants.
ARTICLE II
DURATION AND EXERCISE OF WARRANT
Section 2.01 Duration of Warrant. The Warrantholder may exercise
this Warrant at any time and from time to time after 9:00 A.M., New York time,
on the Exercise Commencement Date, and before 5:00 P.M., New York time, on the
Expiration Date. If and to the extent that this Warrant is not exercised on the
Expiration Date, it shall become void, and all rights hereunder shall thereupon
cease.
Section 2.02 Exercise of Warrant.
(a) The Warrantholder may exercise this Warrant, in whole or in part,
by presentation and surrender of this Warrant to the Company at its corporate
office at 15 Princess Road, Lawrenceville, New Jersey 08648, or at the office of
its stock transfer agent, if any, with the Subscription Form annexed hereto duly
executed and accompanied by payment of the full Exercise Price for each Warrant
Share to be purchased.
(b) Upon receipt of this Warrant with the Subscription Form duly
executed and accompanied by payment of the aggregate Exercise Price for the
Warrant Shares for which this Warrant is then being exercised, the Company shall
cause to be issued certificates for the total number of whole shares of Common
Stock for which this Warrant is being exercised (adjusted to reflect the
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effect of the provisions contained in Article III hereof, if any) in such
denominations as are requested for delivery to the Warrantholder, and the
Company shall thereupon deliver such certificates to the Warrantholder. The
Warrantholder shall be deemed to be the holder of record of the shares of Common
Stock issuable upon such exercise, notwithstanding that the stock transfer books
of the Company shall then be closed or that certificates representing such
shares of Common Stock shall not then be actually delivered to the
Warrantholder. If at the time this Warrant is exercised, a registration
statement is not in effect to register under the Securities Act the Warrant
Shares issuable upon exercise of this Warrant, the Company may require the
Warrantholder to make such investment intent and other representations, and to
provide the Company with an opinion of counsel (which may be counsel to the
Company) which is satisfactory to the Company (both as to the issuer of such
opinion and the form and substance thereof) to the effect that the issuance of
the Warrant Shares is exempt from registration under the Securities Act and may
place such legends on certificates representing the Warrant Shares, as may be
reasonably required, in the opinion of counsel to the Company, to permit the
Warrant Shares to be issued without such registration.
(c) In case the Warrantholder shall exercise this Warrant with
respect to less than all of the Warrant Shares that may be purchased under this
Warrant, the Company shall execute a new Warrant in the form of this Warrant for
the balance of such Warrant Shares and deliver such new Warrant to the
Warrantholder.
Section 2.03 Forfeiture of Warrants. If and to the extent the
National Association of Securities Dealers, Inc. deems all or any portion of
this Warrant to be received by the Warrantholder to be compensation attributable
to the Barington Capital Group, L.P. (the "Underwriter") in connection with an
IPO, the Warrantholder shall forfeit same without any additional consideration
from the Company.
Section 2.04 Reservation of Shares. The Company hereby agrees that
at all times there shall be reserved for issuance and delivery upon exercise of
this Warrant such number of shares of Common Stock or other shares of capital
stock of the Company from time to time issuable upon exercise of this Warrant.
All such shares shall be duly authorized, and when issued upon such exercise,
shall be validly issued, fully paid and nonassessable, free and clear of all
liens, security interests, charges and other encumbrances or restrictions on
sale and free and clear of all preemptive rights.
Section 2.05 Fractional Shares. The Company shall not be required
to issue any fraction of a share of its capital stock in connection with the
exercise of this Warrant, and in any case
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where the Warrantholder would, except for the provisions of this Section 2.05,
be entitled under the terms of this Warrant to receive a fraction of a share
upon the exercise of this Warrant, the Company shall, upon the exercise of this
Warrant and receipt of the Exercise Price, issue only the largest number of
whole shares purchasable upon exercise of this Warrant. The Company shall not
be required to make any cash or other adjustment in respect of such fraction of
a share to which the Warrantholder would otherwise be entitled, but shall return
to the Warrantholder that portion of the Exercise Price that represents such
fraction of a share if such portion of the Exercise Price is not less than one
cent.
ARTICLE III
ADJUSTMENT OF SHARES OF COMMON STOCK PURCHASABLE
AND OF EXERCISE PRICE
The Exercise Price and the number and kind of Warrant Shares shall be
subject to adjustment from time to time upon the happening of certain events as
provided in this Article III.
Section 3.01 Adjustment Upon Extension of Note. Upon and after the
Issue Date, this Warrant is exercisable for the Initial Number of Shares. If
and to the extent that, pursuant to Section 2.2 of the Bridge Loan Note, the
Company elects to extend the Initial Maturity Date (as such term is defined
therein), then immediately upon such election, and on each thirtieth day
thereafter during the Extension Period (as such term is defined in the Bridge
Loan Note), the number of Warrant Shares for which this Warrant may be exercised
shall automatically be increased, without any increase in the Exercise Price, by
the number of shares of Common Stock equal to 10% of the Initial Number of
Shares.
Section 3.02 Mechanical Adjustment.
(a) If at any time prior to the exercise of this Warrant in full, the
Company shall (i) declare a dividend or make a distribution on the Common Stock
that is payable in shares of its capital stock (whether shares of Common Stock
or of capital stock of any other class); (ii) subdivide, reclassify or
recapitalize its outstanding Common Stock into a greater number of shares; (iii)
combine, reclassify or recapitalize its outstanding Common Stock into a smaller
number of shares; or (iv) issue any shares of its capital stock by
reclassification of its Common Stock (including any such reclassification in
connection with a consolidation or a merger in which the Company is the
continuing corporation), the Exercise Price in effect at the time of the record
date of such dividend, distribution, subdivision, combination, reclassification
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or recapitalization shall be adjusted so that, upon the tender thereof, as
provided herein, the Warrantholder shall be entitled to receive the aggregate
number and kind of shares which, if this Warrant had been exercised in full
immediately prior to such event, it would have owned by virtue of such exercise
and been entitled to receive by virtue of such dividend, distribution,
subdivision, combination, reclassification or recapitalization. Any adjustment
required by this paragraph 3.02(a) shall be made successively immediately after
the record date, in the case of a dividend or distribution, or the effective
date, in the case of a subdivision, combination, recapitalization or
reclassification, to allow the purchase of such aggregate number and kind of
shares.
(b) Whenever the Exercise Price payable upon exercise of each Warrant
is adjusted pursuant to paragraph 3.02(a), the Warrant Shares shall
simultaneously be adjusted by multiplying the number of Warrant Shares initially
issuable upon exercise of this Warrant by the Exercise Price in effect on the
date thereof and dividing the product so obtained by the Exercise Price, as
adjusted.
(c) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least one percent in such
price; provided, however, that any adjustments which by reason of this paragraph
3.02(c) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Section 3.02
shall be made to the nearest cent or to the nearest one-hundredth of a share, as
the case may be. Notwithstanding anything in this Section 3.02 to the contrary,
the Exercise Price shall not be reduced to less than the then existing par value
of the Common Stock as a result of any adjustment made hereunder.
Section 3.03 Notice of Adjustment. Whenever the number of Warrant
Shares or the Exercise Price is adjusted as herein provided, the Company shall
prepare and deliver to the Warrantholder a certificate signed by an appropriate
officer, setting forth the adjusted number of Warrant Shares purchasable upon
the exercise of this Warrant and the Exercise Price of such Warrant Shares after
such adjustment, setting forth a brief statement of the facts requiring such
adjustment and setting forth the computation by which adjustment was made.
Section 3.04 No Adjustment for Cash Dividends. No adjustment in
respect of any cash dividends shall be made during the term of this Warrant.
Section 3.05 Preservation of Purchase Rights in Certain
Transactions. In case of any reclassification, capital reorganization or other
change of outstanding shares of Common Stock (other than subdivision or
combination of the outstanding Common Stock and other than a change in the par
value of the Common
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Stock and other than in case of any consolidation or merger of the Company with
or into another corporation (other than a merger with a subsidiary in which the
Company is the continuing corporation and that does not result in any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the class issuable upon exercise of this Warrant)) or in the
case of any sale, lease, transfer or conveyance to another person or entity of
the property and assets of the Company as an entirety or substantially as an
entirety, the Company shall, as a condition precedent to such transaction, cause
such successor or purchaser, as the case may be, to execute with the
Warrantholder an agreement granting the Warrantholder the right thereafter, upon
payment of the Exercise Price in effect immediately prior to such action, to
receive upon exercise of this Warrant the kind and amount of shares and other
securities and property which it would have owned or have been entitled to
receive after the happening of such reclassification, change, consolidation,
merger, sale or conveyance had this Warrant been exercised immediately prior to
such action. Such agreement shall provide for adjustments in respect of such
shares of stock and other securities and property, which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this Article
III. In the event that in connection with any such reclassification, capital
reorganization, change, consolidation, merger, sale or conveyance, additional
shares of Common Stock shall be issued in exchange, conversion, substitution or
payment, in whole or in part, for, or of, a security of the Company other than
Common Stock, any such issue shall be treated as an issue of Common Stock
covered by the provisions of this Article III. The provisions of this Section
3.05 shall similarly apply to successive reclassifications, capital
reorganizations, consolidations, mergers, sales or conveyances.
Section 3.06 Form of Warrant After Adjustments. The form of this
Warrant need not be changed because of any adjustments in the Exercise Price or
the number or kind of the Warrant Shares, and Warrants theretofore or thereafter
issued may continue to express the same price and number and kind of shares as
are stated in this Warrant, as initially issued.
Section 3.07 Treatment of Warrantholder. Prior to due presentment
for registration of transfer of this Warrant, the Company may deem and treat the
Warrantholder as the absolute owner of this Warrant (notwithstanding any
notation of ownership or other writing hereon) for all purposes and shall not be
affected by any notice to the contrary.
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<PAGE>
ARTICLE IV
OTHER PROVISIONS RELATING TO
RIGHTS OF WARRANTHOLDER
Section 4.01 No Rights as Shareholders; Notice to Warrantholders.
Nothing contained in this Warrant shall be construed as conferring upon the
Warrantholder or its transferees the right to vote or to receive dividends or to
consent or to receive notice as a shareholder in respect of any meeting of
shareholders for the election of directors of the Company or of any other
matter, or any rights whatsoever as a shareholder of the Company. The Company
shall give notice to the Warrantholder by registered mail, if at any time prior
to the expiration or exercise in full of the Warrants, any of the following
events shall occur:
(a) The Company shall authorize the payment of any dividend payable
in any securities upon shares of Common Stock or authorize the making of any
distribution to the holders of shares of Common Stock;
(b) The Company shall authorize the issuance to all holders of Common
Stock of any additional shares of Common Stock or of rights, options or warrants
to subscribe for or purchase Common Stock or of any other subscription rights,
options or warrants;
(c) A dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation, merger, or sale or conveyance of the
property of the Company as an entirety or substantially as an entirety); or
(d) A capital reorganization or reclassification of the Common Stock
(other than a subdivision or combination of the outstanding Common Stock and
other than a change in the par value of the Common Stock) or any consolidation
or merger of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the continuing corporation and
that does not result in any reclassification or change of Common Stock
outstanding) or any sale or conveyance to another corporation of the property of
the Company as an entirety or substantially an entirety.
Such giving of notice shall be initiated at least 10 Business Days prior to the
date fixed as a record date or effective date or the date of closing of the
Company's stock transfer books for the determination of the shareholders
entitled to such dividend, distribution, or subscription rights, or for the
determination of the shareholders entitled to vote on such proposed merger,
consolidation, sale, conveyance, dissolution, liquidation or
-8-
<PAGE>
winding up. Such notice shall specify such record date or the date of the
closing of the stock transfer books, as the case may be. Failure to provide such
notice shall not affect the validity of any action taken in connection with such
dividend, distribution or subscription rights, or proposed merger,
consolidation, sale, conveyance, dissolution, liquidation or winding up.
Section 4.02 Lost, Stolen, Mutilated or Destroyed Warrants. If this
Warrant is lost, stolen, mutilated or destroyed, the Company may, on such terms
as to indemnity or otherwise as it may in its discretion impose (which shall, in
the case of a mutilated Warrant, include the surrender thereof), issue a new
Warrant of like denomination and tenor as, and in substitution for, this
Warrant.
ARTICLE V
RESTRICTIONS ON TRANSFER OF WARRANTS
Section 5.01 Restrictions on Transfer.
(a) Neither this Warrant nor the Warrant Shares may be disposed of or
encumbered (any such action, a "Transfer"), except: (i) to an underwriter in
connection with a Public Offering of the Common Stock, provided that this
Warrant is exercised immediately upon such Transfer and the Warrant Shares
issued upon such exercise are sold by such underwriter as part of such Public
Offering and only in accordance with and subject to the provisions of the
Securities Act and the rules and regulations promulgated thereunder; (ii) if
such securities are registered under the Securities Act; (iii) if such
securities may be sold under Rule 144(k) of the United States Securities and
Exchange Commission under the Securities Act; or (iv) if the holder of such
securities provides the Company with an opinion of counsel (which may be counsel
for the Company) which is satisfactory to the Company (both as to the issuer of
the opinion and the form and substance thereof) to the effect that such Transfer
may be made without registration under the Securities Act.
(b) In addition to the restrictions imposed by paragraph 5.01(a), a
period (the "Lock-up Period") of 24 months from the effective date of the IPO,
the Warrantholder will not, without the Underwriter's prior written consent,
offer, pledge, sell, contract to sell, grant any option for the sale of or
otherwise dispose of, directly or indirectly, any of the Warrants or Warrant
Shares (each such transaction, a "Sale"). The foregoing restrictions shall not
apply to any Sale of Warrant Shares commencing 12 months after the IPO is
completed in the event that the last sales prices for the
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<PAGE>
Common Stock on its principal exchange has been at least 200% of the initial
public offering price for a period of 20 consecutive trading days. In addition,
the Warrantholder hereby waives any registration rights to which Purchaser would
be entitled, under the Registration Rights Agreement or otherwise, during the
Lock-up Period with respect to the Warrant Shares.
ARTICLE VI
OTHER MATTERS
Section 6.01 Amendments and Waivers. Except as provided in Section
6.04, the provisions of this Warrant, including the provisions of this sentence,
may not be amended, modified or supplemented, and waivers or consents to
departures from the provisions hereof may not be given, unless the Company has
obtained the written consent of holders of at least a majority-in-interest of
the outstanding Warrants. Whenever in this Warrant such consent is required,
such consent may be effected by any available legal means, including without
limitation at a special or regular meeting, by written consent or otherwise.
Holders shall be bound by any consent agreed to by a majority-in-interest of the
outstanding Warrants, whether or not certificates representing such Warrants
have been marked to indicate such consent.
Section 6.02 Governing Law. This Warrant shall be governed by and
construed in accordance with the laws of the State of New Jersey,
notwithstanding principles of conflicts of laws.
Section 6.03 Notice. Any notices or certificates by the Company to
the Holders and by any Holder to the Company shall be deemed delivered if in
writing and delivered any means that produces evidence of delivery thereof, if
to a Holder, addressed to such Holder at the address which such Holder has
designated in writing to the Company, and if to the Company, addressed to it at:
Princeton Video Image, Inc.
Attention: Chairman
47 Hulfish Street, Suite 500
Princeton, NJ 08542
; provided, however, that effective October 15, 1997, the Debtor's address shall
become 15 Princess Road, Lawrenceville, NJ 08648, Facsimile No. (609) 912-0044.
The Company may change its address by written notice to the Holder,
and the Holder may change its address by written notice to the Company.
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<PAGE>
Section 6.04 Third Party Beneficiary. The Underwriter shall be a
third party beneficiary of Section 2.03 and paragraph 5.01(b) of this Agreement,
and such provisions shall not be modified, altered or otherwise amended without
the prior written consent of the Underwriter.
IN WITNESS WHEREOF, this Warrant has been duly executed by the Company as
of the Issue Date.
PRINCETON VIDEO IMAGE, INC.
By:___________________________
Name:_________________________
Title:________________________
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<PAGE>
ASSIGNMENT
(To be executed only upon assignment of Warrant)
Princeton Video Image, Inc.:
For value received, the undersigned hereby sells, assigns and transfers
unto the person(s) named below the within warrant certificate (the "Warrant
Certificate"), together with all right, title and interest therein, and does
hereby irrevocably constitute and appoint
attorney, to transfer the Warrant Certificate on the books of the within-named
Company with respect to the number of Warrants set forth below opposite such
person's name, with full power of substitution in the premises:
Name(s) of
Assignee(s) Address No. of Warrants
___________ _______ _______________
Each assignee has agreed to be bound by the terms of that certain Registration
Rights Agreement of the Company and that certain Shareholders' Agreement of the
Company (as such agreements may be in effect from time to time), if so required
by the terms of such agreements and as provided therein, and shall execute a
copy of such agreements prior to the transfer of the Warrants as set forth
above.
And if said number of Warrants shall not be all the Warrants represented by the
Warrant Certificate, a new warrant certificate shall be issued in the name of
said undersigned for the balance remaining of the Warrants represented by the
Warrant Certificate.
Date: __________________
_______________________________________________________
Note: The above signature should correspond exactly
with the name on the face of the Warrant
Certificate.
<PAGE>
SUBSCRIPTION FORM
(To be executed upon exercise of Warrant)
Princeton Video Image, Inc.:
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within warrant certificate (the "Warrant
Certificate") for, and to purchase thereunder, shares of
Common Stock, as provided for therein, and tenders herewith payment of the
purchase price in full in the form of cash or a certified or official bank check
in the amount of $ .
Please issue a certificate or certificates for such Common Stock in
the name of, and pay cash for any fractional share to:
(Please print Name, Address and Social Security No.)
Name______________________________________
Address___________________________________
__________________________________________
Social Security No._______________________
And if said number of shares shall not be all of the Warrant Shares
purchasable under the Warrant Certificate, a new Warrant Certificate shall be
issued in the name of said undersigned for the balance remaining of the shares
purchasable thereunder, rounded up to the next higher number of shares.
Signature___________________________________________________
The above signature should correspond exactly with
the name on the first page of the Warrant
Certificate or with the name of the assignee
appearing in the assignment form.
<PAGE>
Exhibit 10.1
Amended 1993 Stock Option Plan
PRINCETON VIDEO IMAGE, INC.
AMENDED 1993 STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this Stock Option Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants of
the Company and its Subsidiaries and to promote the success of the Company's
business. Options granted under the Plan may be incentive stock options (as
defined under Section 422 of the Code) or non-statutory stock options, as
determined by the Administrator at the time of grant of an option and subject to
the applicable provisions of Section 422 of the Code, as amended, and the
regulations promulgated thereunder.
2. Certain Definitions. As used herein, the following definitions shall
apply:
(a) "Administrator" means the Board or any of its Committees
appointed pursuant to Section 4 of the Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means the Committee appointed by the Board in
accordance with paragraph (a) of Section 4 of the Plan.
(e) "Common Stock" means the Common Stock of the Company.
(f) "Company" means Princeton Video Image, Inc. a New
Jersey corporation.
(g) "Consultant" means any person, including an advisor, who is
engaged by the Company or any Parent or subsidiary to render services and is
compensated for such services, and any director of the Company whether
compensated for such services or not provided that if and in the event the
Company registers any class of any equity security pursuant to the Exchange Act,
the term Consultant shall thereafter not include directors who are not
compensated for their services or are paid only a director's fee by the Company.
(h) "Continuous Status as an Employee" means the absence of any
interruption or termination of the employment
<PAGE>
relationship by the Company or any Subsidiary. Continuous Status as an Employee
shall not be considered interrupted in the case of: (i) sick leave; (ii)
military leave; (iii) any other leave of absence approved by the Board, provided
that such leave is for a period of not more than ninety (90) days, unless
reemployment upon the expiration of such leave is guaranteed by contract or
statute, or unless provided otherwise pursuant to Company policy adopted from
time to time; or (iv) in the case of transfers between locations of the Company
or between the Company, its Subsidiaries or its successor.
(i) "Date of Grant" means the date on which an Option is granted
under this Plan pursuant to Section 13 of the Plan.
(j) "Employee" means any person, including officers and directors,
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a director's fee by the Company shall not be sufficient to constitute
"employment" by the Company.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(l) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system including without limitation the National
Market System of the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, its Fair Market Value shall be the closing sales
price for such stock (or the closing bid, if no sales were reported) as quoted
on such system or exchange for the last market trading day prior to such date as
reported in the Wall Street Journal or such other source as the Administrator
deems reliable or;
(ii) If the Common Stock is quoted on the NASDAQ System (but
not on the National Market System thereof) or regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high and low asked prices for the Common Stock for
the last market trading day prior to such date or;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(m) "Incentive Stock Option" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code.
<PAGE>
(n) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(o) "Option" means a stock option granted pursuant to the Plan.
grant of an Option by the Company to the Optionee as approved by the Board
pursuant to Section 17 of the Plan.
(q) "Optioned Stock" means the Common Stock subject to an Option.
(r) "Optionee" means a person who receives an Option.
(p) "Option Agreement" shall mean the agreement which must be
entered into between the Optionee and the Company upon the receives an Option.
(s) "Parent" means a "parent corporation", whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(t) "Plan" means this 1993 Stock Option Plan.
(u) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 12 of the Plan.
(v) "Subsidiary" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 12 of
the Plan, the maximum aggregate number of shares which may be optioned and sold
under the Plan is 780,000 shares of Common Stock. The shares may be authorized,
but unissued, or reacquired Common Stock.
If an option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares which were subject
thereto shall, unless the Plan shall have been terminated, become available for
future grant under the Plan.
4. Administration of the Plan.
(a) Procedure.
(i) Administration With Respect to Directors and Officers.
With respect to grants of Options to Employees or Consultants who are also
officers or directors of the Company, the Plan shall be administered by (A) the
Board or (B) a Committee designated by the Board to administer the Plan, which
Committee shall be constituted in such a manner (A) as to permit transactions
under the Plan to qualify for the exemption from Section 16(b) of the Exchange
Act pursuant to Rule 16b-3 promulgated thereunder ("Rule 16b-3") and (B) to
satisfy the legal requirements relating
<PAGE>
to the administration of incentive stock option plans, of New Jersey corporate
and securities laws and of the Code (the "Applicable Laws"). Once appointed,
such Committee shall continue to serve in its designated capacity until
otherwise directed by the Board. From time to time the Board may increase the
size of the Committee and appoint additional members thereof, remove members
(with or without cause) and appoint new members in substitution therefor, fill
vacancies, however caused, and remove all members of the Committee and
thereafter directly administer the Plan, all to the extent permitted by the
Applicable Laws and Rule 16b-3.
(ii) Multiple Administrative Bodies. If permitted by Rule
16b-3, the Plan may be administered by different bodies with respect to
directors, non-director officers and Employees and Consultants who are neither
directors nor officers.
(iii) Administration With Respect to Consultants and Other
Employees. With respect to grants of Options to Employees or Consultants who are
neither directors nor officers of the Company, the Plan shall be administered by
(A) the Board or (B) a Committee designated by the Board, which Committee shall
be constituted in such a manner as to satisfy the Applicable Laws. Once
appointed, such Committee shall continue to serve in its designated capacity
until otherwise directed by the Board. From time to time the Board may increase
the size of the Committee and appoint additional members thereof, remove members
(with or without cause) and appoint new members in substitution therefor, fill
vacancies, however caused, and remove all members of the Committee and
thereafter directly administer the Plan, all to the extent permitted by the
Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
Plan and in the case of a Committee, the specific duties delegated by the Board
to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(l) of the Plan;
(ii) to select the Consultants and Employees to whom Options
may from time to time be granted hereunder;
(iii) to determine whether and to what extent Options are
granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each such Option granted hereunder;
(v) to approve forms of agreement for use under the Plan;
<PAGE>
(vi) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any Option granted hereunder (including, but not
limited to, the share price and any restriction or limitation or waiver of
forfeiture restrictions regarding any Option and/or the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator shall
determine, in its sole discretion);
(vii) to determine whether and under what circum stances an
Option may be settled in cash under subsection 9(f) instead of Common Stock;
(viii) to determine whether, to what extent and under what
circumstances Common Stock and other amounts payable with respect to an Option
under this Plan shall be deferred either automatically or at the election of the
participant (including providing for and determining the amount, if any, of any
deemed earnings on any deferred amount during any deferral period); and
(ix) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option shall have declined since the date the Option was granted.
(c) Effect of Committee's Decision. All decisions, determinations
and interpretations of the Administrator shall be final and binding on all
Optionees and any other holders of any Options.
5. Eligibility.
(a) Nonstatutory Stock Options may be granted to Employees and
Consultants and directors and officers who are not Employees or Consultants.
Incentive Stock Options may be granted only to Employees. An Employee or
Consultant who has been granted an Option may, if he is otherwise eligible, be
granted an additional Option or Options.
(b) Each Option shall be designated in the Option Agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Options designated as Incentive Stock
Options are exercisable for the first time by any optionee during any calendar
year (under all plans of the Company or any Parent or Subsidiary) exceeds
$100,000, such excess Options shall be treated as Nonstatutory Stock Options.
(c) For purposes of Section 5(b), Incentive Stock Options shall be
taken into account in the order in which they were granted, and the Fair Market
Value of the Shares shall be
<PAGE>
determined as of the time the Option with respect to such Shares is granted.
(d) The Plan shall not confer upon any Optionee any right with
respect to continuation of employment or consulting relationship with the
Company, nor shall it interfere in any way with his right or the Company's right
to terminate his employment or consulting relationship at any time, with or
without cause.
6. Term of Plan. The Plan shall become effective upon the earlier to occur
of its adoption by the Board of Directors or its approval by the shareholders of
the Company as described in Section 18 of the Plan. It shall continue in effect
for a term of ten (10) years unless sooner terminated under Section 14 of the
Plan.
7. Term of Option. The term of each Option shall be the term stated in the
Option Agreement; provided, however, that in the case of an Incentive Stock
Option, the term shall be no more than ten (10) years from the date of grant
thereof or such shorter term as may be provided in the Option Agreement.
However, in the case of an Option granted to an Optionee who, at the time the
Option is granted, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or Subsidiary,
the term of the Option shall be five (5) years from the date of grant thereof or
such shorter term as may be provided in the Option Agreement.
8. Option Exercise Price and Consideration.
(a) The per share exercise price for the Shares to be issued
pursuant to exercise of an Option shall be such price as is determined by the
Board, but shall be subject to the following: In the case of an Incentive Stock
Option (i) granted to an Employee who, at the time of the grant of such
Incentive Stock Option, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant; (ii) granted to any Employee, not
described in Section 8(a)(i), the per Share exercise price shall be no less than
100% of the Fair Market Value per Share on the date of grant.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash, (2)
check, (3) promissory note, (4) other Shares which (x) in the case of Shares
acquired upon exercise of an Option either have been owned by the Optionee for
more than six months on the date of surrender or were not acquired, directly or
indirectly, from the Company, and (y) have a Fair Market Value on the date of
surrender equal to the aggregate
<PAGE>
exercise price of the Shares as to which said Option shall be exer cised, (5)
authorization to the Company to retain from the total number of Shares as to
which the Option is exercised that number of Shares having a Fair Market Value
on the date of exercise equal to the exercise price for the total number of
Shares as to which the option is exercised, (6) delivery of a properly executed
exercise notice together with irrevocable instructions to a broker to promptly
deliver to the Company the amount of sale or loan proceeds required to pay the
exercise price, (7) delivery of an irrevocable subscription agreement for the
Shares which irrevocably obligates the option holder to take and pay for the
Shares not more than twelve months after the date of delivery of the
subscription agreement, (8) any combination of the foregoing methods of payment,
or (9) such other consideration and method of payment for the issuance of Shares
to the extent permitted under Applicable Laws. In making its determination as to
the type of consideration to accept, the Board shall consider if acceptance of
such consideration may be reasonably expected to benefit the Company.
9. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Board and set forth in the Option Agreement, including
performance criteria with respect to the Company and/or the Optionee, and as
shall be permissible under the terms of the Plan. Option may not be exercised
for a fraction of a Share.
An Option shall be deemed to be exercised when written notice
of such exercise has been given to the Company in accordance with the terms of
the Option by the person entitled to exercise the Option and full payment for
the Shares with respect to which the Option is exercised has been received by
the Company. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 8(b) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued.
Exercise of an Option in any manner shall result in a decrease
in the number of Shares which thereafter may be available, both for purposes of
the Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
<PAGE>
(b) Termination of Employment. In the event of termination of an
Optionee's consulting relationship or Continuous Status as an Employee with the
Company (as the case may be), such Optionee may, but only within ninety (90)
days (or such other period of time as is determined by the Board, with such
determination in the case of an Incentive Stock Option being made at the time of
grant of the Option and not exceeding ninety (90) days) after the date of such
termination (but in no event later than the expiration date of the term of such
Option as set forth in the Option Agreement), exercise his Option to the extent
that Optionee was entitled to exercise it at the date of such termination. To
the extent that Optionee was not entitled to exercise the Option at the date of
such termination, or if Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate.
(c) Disability of Optionee. Notwithstanding the provisions of
Section 9(b) above, in the event of termination of an Optionee's consulting
relationship or Continuous Status as an Employee as a result of his total and
permanent disability (as defined in Section 22(e)(3) of the Code), Optionee may,
but only within twelve (12) months from the date of such termination (but in no
event later than the expiration date of the term of such Option as set forth in
the Option Agreement), exercise the Option to the extent otherwise entitled to
exercise it at the date of such termination. To the extent that Optionee was not
entitled to exercise the Option at the date of termination, or if Optionee does
not exercise such Option to the extent so entitled within the time specified
herein, the Option shall terminate.
(d) Death of Optionee. In the event of the death of an Optionee, the
Option may be exercised, at any time within twelve (12) months following the
date of death (but in no event later than the expiration date of the term of
such Option as set forth in the Option Agreement), by the Optionee's estate or
by a person who acquired the right to exercise the Option by bequest or
inheritance, but only to the extent the Optionee was entitled to exercise the
Option at the date of death. To the extent that Optionee was not entitled to
exercise the Option at the date of termination, or if Optionee does not exercise
such Option to the extent so entitled within the time specified herein, the
Option shall terminate.
(e) Rule 16b-3. Options granted to persons subject to Section 16(b)
of the Exchange Act must comply with Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions. Shares acquired pursuant to exercise of an Option by any
person who is subject to Section 16(b) of the Exchange Act may not be sold or
otherwise disposed of for a period of six (6) months following the Date of
Grant.
<PAGE>
(f) Buyout Provisions. The Administrator may at any time offer to
buy out for a payment in cash or Shares an Option previously granted, based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
10. Non-Transferability of Options. The Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
11. Stock Withholding to Satisfy Withholding Tax Obligations. At the
discretion of the Administrator, Optionees may satisfy withholding obligations
as provided in this paragraph. When an Optionee incurs tax liability in
connection with an Option, which tax liability is subject to tax withholding
under applicable tax laws, and the Optionee is obligated to pay the Company an
amount required to be withheld under applicable tax laws, the Optionee may
satisfy the withholding tax obligation by electing to have the Company withhold
from the Shares to be issued upon exercise of the Option, if any, that number of
Shares having a Fair Market Value equal to the amount required to be withheld.
The Fair Market Value of the Shares to be withheld shall be determined on the
date that the amount of tax to be withheld is to be determined (the "Tax Date").
All elections by an Optionee to have Shares withheld for this purpose
shall be made in writing in a form acceptable to the Administrator and shall be
subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax
Date;
(b) once made, the election shall be irrevocable as to the
particular Shares of the Option as to which the election is made;
(c) all elections shall be subject to the consent or disapproval of
the Administrator; and
(d) if the Optionee is subject to Rule 16b-3, the election must
comply with the applicable provisions of Rule 16b-3 and shall be subject to such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
In the event the election to have Shares withheld is made by an Optionee
and the Tax Date is deferred under Section 83 of the Code because no election is
filed under Section 83(b) of the Code, the Optionee shall receive the full
number of Shares with respect
<PAGE>
to which the Option is exercised but such Optionee shall be unconditionally
obligated to tender back to the Company the proper number of Shares on the Tax
Date.
12. Adjustments Upon Changes in Capitalization or Merger. Subject to any
required action by the shareholders of the Company, the number of shares of
Common Stock covered by each outstanding Option, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option, as well as the price per share of
Common Stock covered by each such outstanding Option, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.
In the event of the proposed dissolution or liquidation of the Company,
the Board shall notify the Optionee at least fifteen (15) days prior to such
proposed action. To the extent it has not been previously exercised, the Option
will terminate immediately prior to the consummation of such proposed action. In
the event of a merger of the Company with or into another corporation, the
Option shall be assumed or an equivalent option shall be substituted by such
successor corporation or a parent or subsidiary of such successor corporation.
In the event that such successor corporation does not agree to assume the Option
or to substitute an equivalent option, the Board shall, in lieu of such
assumption or substitution, provide for the Optionee to have the right to
exercise the Option as to all of the Optioned Stock, including Shares as to
which the Option would not otherwise be exercisable. If the Board makes an
Option fully exercisable in lieu of assumption or substitution in the event of a
merger, the Board shall notify the Optionee that the Option shall be fully
exercisable for a period of fifteen (15) days from the date of such notice, and
the Option will terminate upon the expiration of such period. For the purposes
of this paragraph, the Option shall be considered assumed if, following the
merger, the Option or right confers the right to purchase, for each Share of
stock subject to the Option immediately prior to the merger, the consideration
(whether stock, cash, or other securities or property) received in
<PAGE>
the merger by holders of Common Stock for each Share held on the effective date
of the transaction (and if holders were offered a choice of consideration, the
type of consideration chosen by the holders of a majority of the outstanding
Shares); provided, however, that if such consideration received in the merger
was not solely common stock of the successor corporation or its Parent, the
Board may, with the consent of the successor corporation and the participant,
provide for the consideration to be received upon the exercise of the Option,
for each Share of stock subject to the Option, to be solely common stock of the
successor corporation or its Parent equal in Fair Market Value to the per share
consideration received by holders of Common Stock in the merger or sale of
assets.
13. Time of Granting Options. The date of grant of an Option shall, for
all purposes, be the date on which the Administrator makes the determination
granting such Option, or such other date as is determined by the Board. Notice
of the determination shall be given to each person to whom an Option is so
granted within a reasonable time after the date of such grant.
14. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend,
alter, suspend or discontinue the Plan, but no amendment, alteration, suspension
or discontinuation shall be made which would impair the rights of any Optionee
under any grant theretofore made, without Optionee's consent. In addition, to
the extent necessary and desirable to comply with Rule 16b-3 under the Exchange
Act or with Section 422 of the Code (or any other applicable law or regulation,
including the requirements of the NASD or an established stock exchange), the
Company shall obtain shareholder approval of any Plan amendment in such a manner
and to such a degree as required.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
15. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such
<PAGE>
compliance. As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
16. Reservation of Shares. The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
17. Agreements. Options shall be evidenced by written agreements in such
form as the Board shall approve from time to time.
18. Shareholder Approval. Continuance of the Plan shall be subject to
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the degree and manner required under applicable state and federal law.
19. Information to Optionees. The Company shall provide to each Optionee,
during the period for which such Optionee has one or more Options outstanding,
copies of all annual reports and other information which are provided to all
shareholders of the Company. The Company shall not be required to provide such
information if the issuance of Options under the Plan is limited to key
employees whose duties in connection with the Company assure their access to
equivalent information.
* * * * *
<PAGE>
Exhibit 10.2
EMPLOYEE CONFIDENTIALITY,
INVENTION ASSIGNMENT AND NON-COMPETE AGREEMENT
THIS EMPLOYEE CONFIDENTIALITY, INVENTION ASSIGNMENT AND
NON-COMPETE AGREEMENT ("Agreement") is made as of ______________, 199_
between Princeton Video Image, Inc. ("PVI"), with offices at 15 Princess
Road, Lawrenceville, New Jersey 08648, and _________________________________
("Employee"), with a principal residence at _______________________________
______________________________.
In consideration of the Employee's employment or continued employment
by PVI, the Employee hereby agrees as follows:
1. Confidential Information Defined. "Confidential Information" means
trade secrets, proprietary information, and confidential knowledge and
information which includes, but is not limited to, matters of a technical
nature (such as discoveries, ideas, concepts, designs, drawings,
specifications, techniques, models, diagrams, test data and know-how), and
matters of a business nature (such as the identity of customers and
prospective customers, suppliers, marketing techniques and materials,
marketing and development plans, pricing or pricing policies, financial
information, plans for further development, and any other information of a
similar nature not available to the public).
2. Non-Disclosure of Confidential Information of PVI. Employee
acknowledges that, during the period of Employee's employment with PVI,
Employee has had or will have access to Confidential Information of PVI.
Therefore, Employee agrees that both during and after the period of
Employee's employment with PVI, Employee shall not, without the prior
written approval of PVI, directly or indirectly (a) reveal, report,
publish, disclose or transfer any Confidential Information of PVI to any
person or entity, or (b) use any Confidential Information of PVI for any
purpose or for the benefit of any person or entity, except as may be
necessary in the performance of Employee's work for PVI.
3. Non-Disclosure of Confidential Information of Others. Employee
acknowledges that, during the period of Employee's employment with PVI,
Employee may have access to Confidential Information of third parties who
have given PVI the right to use such Confidential Information, subject to a
non-disclosure agreement between PVI and such third party. Therefore,
Employee agrees that both during and after the period of Employee's
employment with PVI, Employee shall not, without the prior written approval
of PVI, directly or indirectly (a) reveal, report, publish, disclose or
transfer any Confidential Information of such third parties to any person
or entity, or (b) use any Confidential Information of such third parties
for any purpose or for the benefit of any person or entity, except as may
be necessary in the performance of Employee's work for PVI.
4. Property of PVI. Employee acknowledges and agrees that all
Confidential Information of PVI and all reports, drawings, blueprints,
data, notes, and other documents and records, whether printed, typed,
handwritten, videotaped, transmitted or transcribed
<PAGE>
on data files or on any other type of media, made or compiled by Employee, or
made available to Employee during the period of Employee's employment with
PVI (including the period prior to the date of this Agreement), concerning
PVI's Confidential Information are and shall remain PVI's property and shall
be delivered to PVI on the termination of such employment or at any earlier
time on request of PVI. Employee shall not retain copies of such Confidential
Information, documents and records.
5. Proprietary Notices. Employee shall not remove any proprietary
or other legends or restrictive notices contained in or included in any
Confidential Information.
6. Inventions.
(a) Employee shall promptly, from time to time, fully inform and
disclose to PVI in writing all inventions, copyrightable material, designs,
improvements and discoveries of any kind which Employee now has made,
conceived or developed, or which Employee may later make, conceive or
develop, during the period of Employee's employment with PVI, which pertain
to, or relate to PVI's business or any of the work or businesses carried on
by PVI and result from any work Employee performs for PVI ("Inventions").
This covenant applies to all such Inventions, whether or not they are
eligible for patent, copyright, trademark, trade secret or other legal
protection; and whether or not they are conceived by Employee alone or with
others; and whether or not they are conceived and/or developed during
regular working hours.
(b) All Inventions shall be the sole and exclusive property of
PVI, and shall be deemed part of the Confidential Information of PVI for
purposes of this Agreement, whether or not fixed in a tangible medium of
expression. Employee hereby assigns all Employee's rights in all
Inventions and in all related patents, copyrights and trademarks, trade
secrets and other proprietary rights therein to PVI. Without limiting the
foregoing, Employee agrees that any copyrightable material shall be deemed
to be "works made for hire" and that PVI shall be deemed the author of such
works under the United States Copyright Act, provided that in the event and
to the extent such works are determined not to constitute "works made for
hire", Employee hereby irrevocably assigns and transfers to PVI all right,
title and interest in such works.
(c) Employee shall assist and cooperate with PVI, both during
and after the period of Employee's employment with PVI, at PVI's sole
expense, to obtain, maintain and enforce patent, copyright, trademark,
trade secret and other legal protection for the Inventions. Employee shall
sign all documents, and do all things necessary, to obtain such protection
and to vest PVI with full and exclusive title in all Inventions against
infringement by others. Employee hereby appoints the Secretary of PVI as
Employee's attorney-in-fact to execute documents on Employee's behalf for
this purpose.
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<PAGE>
(d) Employee shall not be entitled to any additional compensation
for any and all Inventions made during the period of Employee's employment
with PVI.
7. Covenant Not to Compete. Employee and PVI agree that the services
rendered by the Employee are unique and irreplaceable. Employee agrees that
during the period of Employee's employment with PVI and for a period of one
(1) year thereafter, Employee shall not, directly or indirectly, through any
other person, firm, corporation or other entity (whether as an officer,
director, employee, partner, consultant, holder of equity or debt investment,
lender or in any other manner or capacity):
(a) in any geographical area in the United States or in those
foreign countries where PVI, during the period of Employee's employment with
PVI, conducts or proposes to conduct business or initiate activities, design,
manufacture, sell, market, offer to sell or supply video or television
technology similar to that being developed or sold by PVI on the date of the
termination of Employee's employment with PVI for any reason;
(b) solicit, induce, encourage or attempt to induce or encourage
any employee of PVI to terminate his or her employment with PVI or to breach
any other obligation to PVI;
(c) solicit, interfere with, disrupt, alter or attempt to disrupt
or alter the relationship, contractual or otherwise, between PVI and any
customer, potential customer, or supplier of PVI; or
(d) engage in or participate in any business conducted under any
name that shall be the same as or similar to the name of PVI or any trade
name used by it.
Employee acknowledges that the foregoing geographic, activity and time
limitations contained in this Section 7 are reasonable and properly required
for the adequate protection of PVI's business. In the event that any such
geographic, activity or time limitation is deemed to be unreasonable by a
court, Employee shall submit to the reduction of either said activity or time
limitation to such activity or period as the court shall deem reasonable. In
the event that Employee is in violation of the aforementioned restrictive
covenants, then the time limitation thereof shall be extended for a period of
time equal to the pendency of such proceedings, including appeals.
8. Representations.
(a) Employee represents that Employee has the right to enter into
this Agreement, and that Employee's performance of all the terms of this
Agreement and his duties as an employee with PVI will not breach any
confidential information agreement, non-competition agreement or other
agreement with any former employer of his services, either as an employee,
consultant or independent contractor, or with any other party. Employee
represents that he
-3-
<PAGE>
will not bring with him to PVI or use in the performance of his duties for
PVI any documents, materials or confidential information of a former employer
or consumer of his services that are not generally available to the public.
Employee represents that all materials furnished by him to PVI will be wholly
original and not copies, in whole or in part, from any work, and such
material will not violate, conflict with, or infringe upon any right of any
other persons or entities.
(b) Employee will indemnify, defend and hold harmless PVI from
and against any losses, damages and expenses (including reasonable
attorneys' fees) related to, based upon or arising from claims of third
persons of breach or a claim of breach of Employee's representations in
Section 8(a).
9. Disclosure of this Agreement. Employee hereby authorizes PVI to
notify others, including but not limited to customers of PVI and any of
Employee's future employers, of the terms of this Agreement and Employee's
responsibilities under this Agreement.
10. Specific Performance. Employee acknowledges that money damages
alone would not adequately compensate PVI in the event of a breach by
Employee of this Agreement, and that, in addition to all other remedies
available to PVI at law or in equity, PVI shall be entitled to injunctive
relief for the enforcement of its rights and to an accounting of profits
made during the period of such breach.
11. Severability.
(a) Each of the covenants provided in this Agreement are separate
and independent covenants. If any provision of this Agreement shall be
determined to be invalid or unenforceable, the remainder of this Agreement
shall not be affected thereby and any such invalid or unenforceable provision
shall be reformed so as to be valid and enforceable to the fullest extent
permitted by law.
(b) It is not a defense to the enforcement of any provision of
this Agreement that PVI has breached or failed to perform any obligation or
covenant hereunder or under any other agreement or understanding between
Employee and PVI.
12. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New Jersey without regard to
conflict of law rules. All suits and claims shall be made only in state or
federal courts located in New Jersey.
13. Supersedes Other Agreements. This Agreement contains the entire
agreement of the parties with respect to subject matter hereof and
supersedes all previous agreements and understandings between the parties
with respect to its subject matter.
-4-
<PAGE>
14. Acknowledgments.
(a) THE EMPLOYEE ACKNOWLEDGES THAT (i) THE EMPLOYEE HAS READ
THIS AGREEMENT; (ii) THE EMPLOYEE HAS BEEN GIVEN THE OPPORTUNITY TO ASK
QUESTIONS; (iii) THE EMPLOYEE HAS BEEN GIVEN SUFFICIENT TIME TO CONSULT AN
ATTORNEY; and (iv) THE EMPLOYEE HAS EITHER CONSULTED WITH AN ATTORNEY OR
AFFIRMATIVELY HAS DECIDED NOT TO CONSULT AN ATTORNEY.
(b) THE EMPLOYEE ACKNOWLEDGES THAT THE EMPLOYEE HAS RECEIVED A
COPY OF THIS AGREEMENT AND FULLY UNDERSTANDS THIS AGREEMENT.
(c) THE EMPLOYEE UNDERSTANDS THAT THE EMPLOYEE'S EMPLOYMENT WITH
THE COMPANY IS AT WILL IS NOT FOR ANY FIXED TERM AND THAT THE EMPLOYEE'S
EMPLOYMENT MAY BE TERMINATED BY THE COMPANY AT ANY TIME, WITH OR WITHOUT
CAUSE.
(d) THE EMPLOYEE UNDERSTANDS THAT THE EMPLOYEE'S OBLIGATIONS
UNDER THIS AGREEMENT SURVIVE THE TERMINATION OF THE EMPLOYEE'S EMPLOYMENT
WITH THE COMPANY FOR ANY REASON.
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first written above.
PRINCETON VIDEO IMAGE, INC.
By:
---------------------------
Name: Brown F Williams
-------------------------
Title: Chairman
------------------------
WITNESS: EMPLOYEE:
By:
- ----------------------------- ---------------------------
Name:
-------------------------
Title:
------------------------
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<PAGE>
Exhibit 10.3
CONSULTANT CONFIDENTIALITY,
INVENTION ASSIGNMENT AND NON-COMPETE AGREEMENT
THIS CONSULTANT CONFIDENTIALITY, INVENTION ASSIGNMENT AND
NON-COMPETE AGREEMENT ("Agreement") is made as of , 199
between Princeton Video Image, Inc. ("PVI"), with offices at 15 Princess Road,
Lawrenceville, New Jersey 08648, and
("Consultant"), with an address at .
In consideration of my being retained or continuing to be retained as an
independent contractor by PVI, the Consultant hereby agrees as follows:
1. Confidential Information Defined. "Confidential Information" means
trade secrets, proprietary information, and confidential knowledge and
information which includes, but is not limited to, matters of a technical
nature (such as discoveries, ideas, concepts, designs, drawings,
specifications, techniques, models, diagrams, test data and know-how), and
matters of a business nature (such as the identity of customers and
prospective customers, suppliers, marketing techniques and materials,
marketing and development plans, pricing or pricing policies, financial
information, plans for further development, and any other information of a
similar nature not available to the public).
2. Non-Disclosure of Confidential Information of PVI. Consultant
acknowledges that, during the period that Consultant is providing services to
PVI, Consultant has had or will have access to Confidential Information of
PVI. Therefore, Consultant agrees that both during and after the period that
Consultant is providing services to PVI, Consultant shall not, without the
prior written approval of PVI, directly or indirectly (a) reveal, report,
publish, disclose or transfer any Confidential Information of PVI to any
person or entity, or (b) use any Confidential Information of PVI for any
purpose or for the benefit of any person or entity, except as may be
necessary in the performance of Consultant's work for PVI.
3. Non-Disclosure of Confidential Information of Others. Consultant
acknowledges that, during the period that Consultant is providing services to
PVI, Consultant may have access to Confidential Information of third parties
who have given PVI the right to use such Confidential Information, subject to
a non-disclosure agreement between PVI and such third party. Therefore,
Consultant agrees that both during and after the period that Consultant is
providing services to PVI, Consultant shall not, without the prior written
approval of PVI, directly or indirectly (a) reveal, report, publish, disclose
or transfer any Confidential Information of such third parties to any person
or entity, or (b) use any Confidential Information of such third parties for
any purpose or for the benefit of any person or entity, except as may be
necessary in the performance of Consultant's work for PVI.
4. Property of PVI. Consultant acknowledges and agrees that all
Confidential Information of PVI and all reports, drawings, blueprints, data,
notes, and other documents and records, whether printed, typed, handwritten,
videotaped, transmitted or transcribed on data files or on any other type of
media, made or compiled by Consultant, or made available to Consultant during
the period that Consultant is providing services to PVI (including the period
prior to the date of this Agreement, if any), concerning PVI's Confidential
Information are and shall remain PVI's property and shall be delivered to PVI
on the termination of such services to PVI or at any earlier time on request
of PVI. Consultant shall not retain copies of such Confidential Information,
documents and records.
5. Proprietary Notices. Consultant shall not remove any proprietary or
other legends or restrictive notices contained in or included in any
Confidential Information.
6. Inventions.
(a) Consultant shall promptly, from time to time, fully inform and
disclose to PVI in writing all inventions, copyrightable material, designs,
improvements and discoveries of any kind which Consultant now has made,
conceived
<PAGE>
or developed, or which Consultant may later make, conceive or develop, during
the period that Consultant is providing services to PVI, which pertain to, or
relate to PVI's business or any of the work or businesses carried on by PVI
and result from any work Consultant performs for PVI ("Inventions"). This
covenant applies to all such Inventions, whether or not they are eligible for
patent, copyright, trademark, trade secret or other legal protection; and
whether or not they are conceived by Consultant alone or with others; and
whether or not they are conceived and/or developed during regular working
hours.
(b) All Inventions shall be the sole and exclusive property of PVI,
and shall be deemed part of the Confidential Information of PVI for purposes
of this Agreement, whether or not fixed in a tangible medium of expression.
Consultant hereby assigns all Consultant's rights in all Inventions and in
all related patents, copyrights and trademarks, trade secrets and other
proprietary rights therein to PVI. Without limiting the foregoing,
Consultant agrees that any copyrightable material shall be deemed to be
"works made for hire" and that PVI shall be deemed the author of such works
under the United States Copyright Act, provided that in the event and to the
extent such works are determined not to constitute "works made for hire",
Consultant hereby irrevocably assigns and transfers to PVI all right, title
and interest in such works.
(c) Consultant shall assist and cooperate with PVI, both during and
after the period that Consultant is providing services to PVI, at PVI's sole
expense, to obtain, maintain and enforce patent, copyright, trademark, trade
secret and other legal protection for the Inventions. Consultant shall sign
all documents, and do all things necessary, to obtain such protection and to
vest PVI with full and exclusive title in all Inventions against infringement
by others. Consultant hereby appoints the Secretary of PVI as Consultant's
attorney-in-fact to execute documents on Consultant's behalf for this purpose.
(d) Consultant shall not be entitled to any additional compensation
for any and all Inventions made during the period that Consultant is
providing services to PVI.
7. Covenant Not to Compete. Consultant and PVI agree that the services
rendered by the Consultant are unique and irreplaceable. Consultant agrees
that during the period that Consultant is providing services to PVI and for a
period of one (1) year thereafter, Consultant shall not, directly or
indirectly, through any other person, firm, corporation or other entity
(whether as an officer, director, employee, partner, consultant, holder of
equity or debt investment, lender or in any other manner or capacity):
(a) in any geographical area in the United States or in those
foreign countries where PVI, during the period that Consultant is providing
services to PVI, conducts or proposes to conduct business or initiate
activities, design, manufacture, sell, market, offer to sell or supply video
or television technology similar to that being developed or sold by PVI on
the date of the termination of Consultant's services to PVI for any reason;
(b) solicit, induce, encourage or attempt to induce or encourage
any employee of PVI to terminate his or her employment with PVI or to breach
any other obligation to PVI;
(c) solicit, interfere with, disrupt, alter or attempt to disrupt
or alter the relationship, contractual or otherwise, between PVI and any
customer, potential customer, or supplier of PVI; or
(d) engage in or participate in any business conducted under any
name that shall be the same as or similar to the name of PVI or any trade
name used by it.
Consultant acknowledges that the foregoing geographic, activity and time
limitations contained in this Section 7 are reasonable and properly required
for the adequate protection of PVI's business. In the event that any such
geographic, activity or time limitation is deemed to be unreasonable by a
court, Consultant shall submit to the reduction of either said activity or
time
-2-
<PAGE>
limitation to such activity or period as the court shall deem reasonable. In
the event that Consultant is in violation of the aforementioned restrictive
covenants, then the time limitation thereof shall be extended for a period of
time equal to the pendency of such proceedings, including appeals.
8. Representations.
(a) Consultant represents that Consultant has the right to enter
into this Agreement, and that Consultant's performance of all the terms of
this Agreement and his duties as an independent contractor to PVI will not
breach any confidential information agreement, non-competition agreement or
other agreement with any former employer of his services, either as an
employee, consultant or independent contractor, or with any other party.
Consultant represents that he will not bring with him to PVI or use in the
performance of his duties for PVI any documents, materials or confidential
information of a former employer or consumer of his services that are not
generally available to the public. Consultant represents that all materials
furnished by him to PVI will be wholly original and not copies, in whole or
in part, from any work, and such material will not violate, conflict with, or
infringe upon any right of any other persons or entities.
(b) Consultant will indemnify, defend and hold harmless PVI from
and against any losses, damages and expenses (including reasonable attorneys'
fees) related to, based upon or arising from claims of third persons of
breach or a claim of breach of Consultant's representations in Section 8(a).
9. Disclosure of this Agreement. Consultant hereby authorizes PVI to
notify others, including but not limited to customers of PVI and any of
Consultant's future employers, of the terms of this Agreement and
Consultant's responsibilities under this Agreement.
10. Specific Performance. Consultant acknowledges that money damages
alone would not adequately compensate PVI in the event of a breach by
Consultant of this Agreement, and that, in addition to all other remedies
available to PVI at law or in equity, PVI shall be entitled to injunctive
relief for the enforcement of its rights and to an accounting of profits made
during the period of such breach.
11. Severability.
(a) Each of the covenants provided in this Agreement are separate
and independent covenants. If any provision of this Agreement shall be
determined to be invalid or unenforceable, the remainder of this Agreement
shall not be affected thereby and any such invalid or unenforceable provision
shall be reformed so as to be valid and enforceable to the fullest extent
permitted by law.
(b) It is not a defense to the enforcement of any provision of this
Agreement that PVI has breached or failed to perform any obligation or
covenant hereunder or under any other agreement or understanding between
Consultant and PVI.
12. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New Jersey without regard to
conflict of law rules. All suits and claims shall be made only in state or
federal courts located in New Jersey.
13. Supersedes Other Agreements. This Agreement contains the entire
agreement of the parties with respect to subject matter hereof and supersedes
all previous agreements and understandings between the parties with respect
to its subject matter.
14. Acknowledgments.
(a) THE CONSULTANT ACKNOWLEDGES THAT (i) THE CONSULTANT HAS READ
THIS AGREEMENT; (ii) THE CONSULTANT HAS BEEN GIVEN THE OPPORTUNITY TO ASK
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<PAGE>
QUESTIONS; (iii) THE CONSULTANT HAS BEEN GIVEN SUFFICIENT TIME TO CONSULT AN
ATTORNEY; and (iv) THE CONSULTANT HAS EITHER CONSULTED WITH AN ATTORNEY OR
AFFIRMATIVELY HAS DECIDED NOT TO CONSULT AN ATTORNEY.
(b) THE CONSULTANT ACKNOWLEDGES THAT THE CONSULTANT HAS RECEIVED A
COPY OF THIS AGREEMENT AND FULLY UNDERSTANDS THIS AGREEMENT.
(c) THE CONSULTANT UNDERSTANDS THAT THE CONSULTANT'S OBLIGATIONS
UNDER THIS AGREEMENT SURVIVE THE TERMINATION OF THE CONSULTANT'S SERVICES TO
THE COMPANY FOR ANY REASON.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
PRINCETON VIDEO IMAGE, INC.
By:
---------------------------
Name: Brown F Williams
------------------------
Title: Chairman
------------------------
WITNESS: CONSULTANT:
By:
- ----------------------------- ---------------------------
Name:
-------------------------
Title:
------------------------
-4-
<PAGE>
Exhibit 10.4
Research Agreement
[NOTE: CERTAIN PORTIONS OF THIS DOCUMENT HAVE BEEN MARKED TO INDICATE THAT
CONFIDENTIALITY HAS BEEN REQUESTED FOR THIS CONFIDENTIAL INFORMATION. THE
CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.]
RESEARCH AGREEMENT
This Research Agreement (the "Agreement"), entered into this 1st day of
November 1990 by and between David Sarnoff Research Center, Inc. ("Sarnoff")
and Princeton Electronic Billboard, Inc. ("PEB"), describes the terms and
conditions for Sarnoff's work in providing research and development services
to PEB for the application of Sarnoff's Pyramid Image Processing Technology
in PEB's Exclusive Field (the "Project"). The Project is entitled "PEB System
for Video Insertion Via Pattern Key" and is described in Sarnoff's Proposal
dated August 1, 1990 (No. 90-3214-291) (the "Proposal") and subsequent work
statements (Phase II and III Proposals) to be agreed upon in writing at a
later date. In the event of a conflict between the terms and conditions of
this Agreement and the Proposal, the terms and conditions of this Agreement
shall govern.
In consideration of the mutual promises contained herein, the Parties agree
that:
ARTICLE I DEFINITIONS
1. The "Exclusive Field" is defined as electronically merging images into video
for advertising purposes.
2. The words "Intellectual Property" shall mean, collectively, Inventions,
ideas, procedures, principles, discoveries, computer software, mask works, and
other forms of intellectual property. An "Invention" is any novel and useful
machine, device, system or process first conceived and reduced to practice
during the time period and under the Project.
3. The term "PEB Funded Property" is defined as that portion of the Sarnoff
Property, defined below, which was developed on the Project and paid for by PEB.
ARTICLE II PERIOD OF PERFORMANCE AND THE TASKS
1. The Project comprises three Phases. Phase I has been entered into as of
August 31, 1990 and will proceed according to the Statement of Work, as
described in our Proposal 90-3214-291 dated August 1, 1990 and incorporated
herein by reference. Phases II and III will be implemented according to the
description contained in the Phase II and III Proposals, and will be
incorporated herein by reference. Sarnoff and PEB agree that they will negotiate
in good faith toward mutually acceptable statements of work and costs for the
performance by Sarnoff of Phases II and III.
2. Any modification to the Statement of Work shall be on mutually acceptable
terms and conditions. No modification to the Statement of Work will be made
unless requested by PEB and accepted by Sarnoff in writing.
3. Sarnoff will perform such work in a manner consistent with the highest
standards of scientific and technical excellence.
4. Sarnoff shall permit PEB personnel to visit Sarnoff's facilities to review
the Project upon reasonable notice and during normal working hours.
ARTICLE III DELIVERABLES
1. As described in Sarnoff's Phase I, II and III Proposals.
ARTICLE IV PRICE AND PAYMENT TERMS
1. Sarnoff has undertaken Phase I on a fixed price basis. The cost for Phase I
is Sixty-Five Thousand Dollars ($65,000.00). All terms of our Proposal
90-3214-291 shall govern Phase I.
<PAGE>
2. Terms for Phase II and III shall be on a best effort, cost-reimbursable
basis. The cost for each Phase shall be negotiated as indicated in Article II,
Paragraph 1, and will not be exceeded without prior written approval of PEB.
3. Payment terms shall be an initial payment of (20% of Phase II and III
estimated cost) upon acceptance of each Phase with the initial payment applied
against the final Phase invoice. As to subsequent payments, Sarnoff shall submit
monthly invoices for all costs incurred during a month. PEB shall pay each
invoice within thirty (30) days of receipt.
4. Sarnoff will assist PEB to the extent it has the legal right to do so in
acquiring third party rights in Pyramid Processing Technology.
ARTICLE V PROPRIETARY INFORMATION
1. The Confidential Disclosure Agreement between the Parties, dated June 12,
1990, is incorporated herein by reference and its obligations are extended to
two (2) years after completion of all Phases of the Project.
ARTICLE VI INTELLECTUAL PROPERTY RIGHTS
1. Sarnoff shall retain ownership of all inventions, computer software and trade
secrets in the field of Pyramid Image Processing Technology developed by
Sarnoff's employees and consultants prior to the Project, during the Project or
concurrently with the Project and of any and all resulting patent applications,
issued patents, copyrights and mask work registrations (collectively the
"Sarnoff Property"). Sarnoff agrees to pay all costs associated with obtaining
and maintaining Sarnoff Property. PEB shall have no rights in Sarnoff Property
except as provided in ARTICLE VII. Sarnoff has represented to PEB and does
hereby represent that the ownership of rights, described in this paragraph 1, is
the standard Sarnoff policy with respect to Pyramid Imaging Processing
Technology and that all research done by Sarnoff in this field is done on this
basis for all clients.
2. Any inventions, computer software and trade secrets jointly developed by one
or more PEB employees or consultants with one or more Sarnoff employees or
consultants together with any patent application, issued patent, copyright or
mask work registration resulting therefrom (collectively the "Joint Property")
shall be jointly owned by PEB and Sarnoff. Each Party shall own an undivided
one-half interest in the whole of any such Joint Property with neither Party
having to account to the other Party for any income or other consideration
received from its exploitation or other use of the Joint Property, except that
Sarnoff agrees that it will not grant any Licenses under its rights in the Joint
Property in the Exclusive Field. The Parties will share equally in all costs
related to obtaining and maintaining any such Joint Property, including any
costs relating to the litigation of the patentability, validity or
enforceability of any such patent application, issued patent, copyright or mask
work registration. If, at any time, a Party declines to share in the costs
described in this Paragraph 2 for a particular item of Joint Property, the Party
so declining shall assign its ownership rights in the particular item of Joint
Property to the other Party.
3. Each Party agrees, upon request, to inform the other Party of the status of
any patent application or issued patent filed on Joint Property and of all prior
art referred to or cited against a pending patent application or issued patent
that the Party is prosecuting or maintaining in any country if the other Party
has a corresponding patent application or issued patent for the same Invention
in another country.
-2-
<PAGE>
ARTICLE VII LICENSES
1. During the term of the Project, Sarnoff grants to PEB an exclusive,
royalty-free, worldwide license, without right to sub-license, to use Sarnoff
Property for research and development in PEB's Exclusive Field. Sarnoff agrees
that it will not grant any other licenses in PEB's exclusive field during the
term of the Project. The license granted in this Paragraph does not include PEB
access to any Sarnoff computer software source code.
2. Sarnoff grants to PEB a worldwide, exclusive license, subject to the payment
of the royalties provided herein to Sarnoff, with right to sublicense, to use,
modify, make, have made and sell Sarnoff Property, in PEB's Exclusive Field,
such exclusive license to be maintained as long as the royalties are paid, as
described in paragraph 3 of this Article.
3. Sarnoff grants to PEB an exclusive, royalty-free, worldwide license with
right to sublicense, to use, modify, make, have made and sell PEB Funded
Property in PEB's Exclusive Field.
4. Royalties
4(a). In consideration for Sarnoff entering into this Agreement and staying out
of the Exclusive Field, as described in Articles VII and VIII, and for the
licenses granted to PEB, PEB shall pay to Sarnoff royalties based on PEB's
audited gross revenue. Such royalties survive this Agreement and continue in
effect as long as PEB, its successors or assigns remain in this field, and
Sarnoff shall remain out of the Exclusive Field as long as royalties are paid.
The amount of royalties due Sarnoff shall be calculated based on the following
schedule.
[CONFIDENTIAL TREATMENT REQUESTED]
4(b). Deferral of Royalties - Royalties shall accrue until such time that PEB's
cumulative gross revenue reaches $20,000,000 or four (4) years after the
completion of Phase III, which ever occurs first. Payments for all accrued
royalties shall commence after PEB's cumulative gross revenue exceeds
$20,000,000 or four (4) years from the date of conclusion of Phase III,
whichever occurs first in four equal quarterly installments beginning three (3)
months after PEB's cumulative gross revenue exceeds $20,000,000 or four (4)
years after the completion of Phase III.
4(c). Once the gross revenue of 20,000,000 or four (4) years after the
completion of Phase III has occurred, PEB shall commence paying royalties
quarterly based on the audited financial records of PEB for the preceding
quarter in accordance with the schedule of Royalties as defined in Article VII,
Paragraph 4.
4(d). An annual statement of PEB's cumulative revenue and the royalties due to
Sarnoff shall be provided by PEB at PEB's expense by an independent, certified
public accountant of PEB's choice. Sarnoff shall have the right to have such
statement created an audited by an independent Certified Public Accountant of
Sarnoff's choice and at Sarnoff's expense on a quarterly basis.
4(e). PEB may terminate its payments and licenses under Subparagraphs 4(b) or
4(c) of this ARTICLE VII, at PEB's election, at any time subsequent to
Subparagraph 4(c) taking effect except that PEB shall remain liable for any
deferred royalties accrued up to the date of termination. If PEB so terminates
its payments, then all licenses and the non-compete clause shall also terminate
as of the date of PEB's termination of its payments.
-3-
<PAGE>
4(f). Each fee payment due to Sarnoff under this Paragraph 3 of this ARTICLE
VII shall be paid during the month following the calendar quarter covered
thereby.
5. Sarnoff agrees to forbare in this field for a period of one (1) year or until
Phase II begins, whichever occurs first, without further consideration. In the
event that Phase II does not commence within one (1) year, PEB will have the
first right of refusal in this field subject to further negotiations. The same
provision applies for a period of one (1) year following the completion of Phase
II or until Phase III begins.
6. In the event that this Agreement is terminated prior to the completion of the
Project for any reason other than the filing of a voluntary bankruptcy petition,
or adjudication of bankruptcy, under Federal U.S. law, PEB agrees to pay the
fees described in Paragraph 4(b) or 4(c) beginning on the termination date of
the Project to maintain the licenses and non-compete clause in force. In the
event that this Agreement is terminated due to the filing of a voluntary
bankruptcy petition, or adjudication of bankruptcy, under Federal U.S. law, the
licenses and non-compete Agreement shall be terminated under the provisions of
ARTICLE XV, paragraph 1.
7. No licenses are implied or granted by either Party to the other Party hereto,
or its Licensees, except as specifically provided in this Agreement.
ARTICLE VIII PERSONNEL/COMPETITORS
1. Sarnoff agrees that none of its employees, consultants or agents assigned to
work on this Project either full-time or part-time will perform services in the
Exclusive Field for other than PEB, during the time they are employed or
retained as employees, agents or consultants by Sarnoff, for the duration of
PEB's Exclusive License.
2. Each party agrees that it will not offer to employ or employ any employee of
the other party assigned to the Project without the other party's written
consent for the duration of the Project and for a period of three years after
the termination of the Project for any reason whatsoever.
3. PEB agrees that it will not compete in any applications of Pyramid Processing
outside of the video insertion field.
ARTICLE IX PUBLICITY
1. The Parties agree that neither will use the name of the other Party, either
express or implied, in any of its advertising, public announcements or
promotional material without the prior written consent of the other Party. Each
Party agrees that it will not disclose the terms of the Agreement to any third
Party without the other Party's prior written consent, except as required by law
and in litigation between the Parties.
ARTICLE X FORCE MAJEURE
1. Sarnoff shall not be liable or deemed to be in default for any delay, failure
in performance, non-performance, or any interruption of service resulting
directly or indirectly from acts of God, acts of the public enemy, war,
accidents, fires, electrical failures, machine failures or unavailability,
postal delays, explosions, earthquakes, floods, the elements, strikes, lockouts,
labor disputes, governmental orders or regulations, shortages of suitable parts,
materials, labor or transportation, or any other cause beyond the reasonable
control of Sarnoff. Increases in the cost of doing business, and circumstances
giving rise to breach of Sarnoff's warranties under this Agreement, shall not be
deemed causes beyond the reasonable control of Sarnoff, and shall not excuse any
failure to perform, default, or liability.
-4-
<PAGE>
ARTICLE XI TERMINATION
1. This Agreement may be terminated by either Party upon: (i) the default of the
other Party or failure to conform to any term or condition of this Agreement,
where the default or failure is not cured within thirty (30) days after written
notice of such default or failure by the non-defaulting Party; or the filing of
a voluntary bankruptcy petition, or adjudication of bankruptcy, under Federal
U.S. law. Notice of default or failure to comply shall be as provided in ARTICLE
XVIII, Paragraph 7.
2. PEB may terminate the Project and any liability for further payments at any
time except as provided in this ARTICLE XI, with or without cause and in PEB's
sole discretion, by written notice to Sarnoff as provided in ARTICLE XIV,
Paragraph 7.
3. Upon termination of this agreement under paragraph 1 or 2 of this ARTICLE
XIV, Sarnoff will use its best efforts to terminate the work being performed
within fourteen (14) days from the date of termination and will be paid the
costs thereof. PEB will not be responsible to pay Sarnoff for work performed
beyond such fourteen (14) day period. In addition, PEB will pay to Sarnoff the
lesser of the cost to Sarnoff of all parts, supplies and equipment, specific to
the performance of the Project and ordered prior to PEB's default or receipt of
PEB's notice of termination, or the cost to Sarnoff of the the cancellation of
such orders, whichever is less. Sarnoff will use its best efforts to minimize
such costs to PEB. Sarnoff will promptly deliver to PEB any and all parts,
supplies and equipment paid for by PEB and work in progress developed to the
effective date of termination to which PEB would otherwise be entitled.
ARTICLE XII EXPORT OF INFORMATION, DATA DESIGNS AND/OR PRODUCTS
1. PEB acknowledges that the information, data, designs and/or products
disclosed or delivered by Sarnoff to PEB may be subject to U.S. Government
regulations which prohibit export or diversion of certain products and/or
technical data to certain countries. Any and all obligations of Sarnoff to
provide information, data, designs and/or products, shall be subject in all
respect to such U.S. laws and regulations that shall from time to time govern
the export of technology and products abroad by persons subject to the
jurisdiction of the U.S., including the Export Administration Act of 1979, as
amended, any successor legislation, and the Export Administration Regulations
issued by The Department of Commerce. PEB and Sarnoff warranty that they will
comply in all respects with the export restrictions set forth in these laws and
regulations as applied to the information, data, designs and/or products
disclosed or delivered by Sarnoff to PEB.
ARTICLE XIII LIMITATION OF LIABILITY
1. SARNOFF ASSUMES NO LIABILITY EXCEPT AS EXPRESSLY PROVIDED IN THESE TERMS AND
CONDITIONS AND IN NO EVENT SHALL SARNOFF BE LIABLE, WHETHER IN CONTRACT, TORT,
OR NEGLIGENCE, FOR SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES.
ARTICLE XIV MISCELLANEOUS PROVISIONS
1. The captions appearing are inserted only as a matter of convenience and in no
way define, limit or describe the scope or intent of this Agreement or any
provision hereof.
2. Nothing in this Agreement shall create any association, partnership or joint
venture between the Parties hereto, it being understood and agreed that the
Parties are independent contractors and neither shall have any authority to bind
the other in any way. Sarnoff shall provide, compensation, tax withholding, and
other duties of an employer to the extent applicable to Sarnoff's employees,
agents or consultants doing work on the Project.
-5-
<PAGE>
3. This Agreement shall be binding upon the Parties, their successors, assigns,
heirs and legal representatives, as the case may be when accepted in writing by
PEB.
4. The Parties agree that any waiver of any term or condition of this Agreement
by a Party shall not construed or deemed to be a waiver of any other term or
condition of this Agreement, nor a waiver of a subsequent breach of the same or
another term or condition.
5. If any term or condition of this Agreement is found invalid or unenforceable,
that term or condition will be enforced to the maximum extent permitted by law,
and the remainder of this Agreement will remain fully in force.
6. All notices, reports, requests, approvals and other communications required
or permitted under this Agreement must be in writing. They will be deemed given
when sent by registered or certified mail, postage prepaid. All communications
must be sent to the receiving Party's address as provided herein or to any other
address that the receiving Party may provide for purposes of notice by notice as
provided herein. All notices to Sarnoff shall be addressed to David Sarnoff
Research Center, Inc. 201 Washington Road, Princeton, NJ 08543-5300 Attention:
Vice President, Corporate Affairs. All notices to PEB shall be addressed to
Princeton Electronic Billboard, Inc., 27 Honey Brook Drive, Princeton, NJ 08540
7. This Agreement shall be governed by and construed in accordance with the laws
of the State of New Jersey in the same manner as contracts entered into and
fully performed therein.
ARTICLE XV ENTIRE AGREEMENT
1. This Agreement and all of the documents incorporated herein constitute the
entire agreement between the Parties and supersedes all previous negotiations,
comments and writing by the Parties. This Agreement shall be changed only by a
writing signed by the Parties. No oral contract or conversation with any
officer, agent or employee of Sarnoff or PEB, either before or after the
execution of this Agreement, shall affect, alter or modify the obligations of
the Parties.
ACCEPTED AND AGREED TO:
DAVID SARNOFF RESEARCH PRINCETON ELECTRONIC
CENTER, INC. BILLBOARD
By: /s/ V. J. Boccanfuso, Jr. By: /s/ R. J. Rosser
------------------------------ --------------------------
Name: V. J. Boccanfuso, Jr. Name: R. J. Rosser
Title: Director, Contracts Title: Chief Operating Officer
Date: October 3, 1990 Date: November 1, 1990
-6-
<PAGE>
ORIGINAL
COPY
AMENDMENT #1
August 9, 1991
The Agreement dated 1 November 1990 by and between David Sarnoff Research
Center, Inc. ("Sarnoff") and Princeton Electronic Billboard ("PEB") (the
"Agreement") is amended as follows:
Delete Article 1, paragraph 1, and insert:
1. The Exclusive Field is defined as electronically recognizing selected
landmarks and/or altering images in real time in any broadly disseminated
television program for advertising purposes or for any purpose in real
time television programs whose principal focus is sports. Broadly
disseminated programs are those which are broadcast over the air, via
cable or via satellite with a distribution to more than 5,000 customers.
Programs disseminated over point to point, or point to multipoint, private
networks are not included in the Exclusive Field.
Add new Article IV, paragraph 5:
5. In exchange for the expansion of the Exclusive Field to include all
applications in television programs whose principle focus is on sports,
PEB agrees to issue to Sarnoff 103,000 shares of common stock of PEB (8%
of the authorized and outstanding stock of PBE as of the date of this
amendment). PEB has represented and does hereby represent that there is
now only only class of authorized stock in PEB, PEB Common Stock, and that
the Stock given to Sarnoff will be of this class, the same class as every
other existing owner of PEB stock. The issuance of stock to Sarnoff will
take place pursuant to definitive documentation which PEB has instructed
its attorneys to prepare.
Add new Article VI, paragraph 4:
4. PEB shall retain ownership of all inventions, computer software and
trade secrets developed by PEB's employees and paid for by PEB that are
based on Sarnoff Technology. PEB shall assign Sarnoff a non-exclusive
license, with right to sublicense, to make, have made, use and sell in all
fields except the Exclusive Field. If in the future there are rights to
PEB developed technology that Sarnoff wishes to convert to exclusive
rights, PEB will negotiate such exclusive rights in good faith using the
present agreement as a model. Jointly-developed intellectual property
shall be jointly owned, Sarnoff shall assign PEB an exclusive license,
with right to sublicense, to make, have made, use and sell in the
Exclusive Field. PEB shall assign Sarnoff an exclusive license, with right
to sublicense, to make, have made, use and sell only outside the Exclusive
Field.
In Article VII, paragraph 2, delete "paragraph 3" and insert "paragraph 4".
Change at the end of the first sentence, Article VII, paragraph 4(a):
"PEB's total Revenue from all sources and its sub-licensee's audited Gross
Revenue from all products, services or applications employing any of the
Sarnoff property or the information, designs or plans delivered to PEB by
Sarnoff (the "Gross Revenue")"
<PAGE>
COPY
AMENDMENT #1
August 9, 1991
Add at the end of Article VII, paragraph 4(b):
"The minimum quarterly payment to maintain the licenses in the Sarnoff
property in effect beginning three (3) year after the completion of Phase
III shall be [CONFIDENTIAL TREATMENT REQUESTED] for the Exclusive
Field defined in Article 1, paragraph 1. For the first two (2) years, PEB
shall have the option of paying the royalty in cash or in PEB stock at its
last issue price."
In Article VII, paragraph 4(f), delete "paragraph 3" and insert "paragraph 4".
Add new Article VII, paragraph 8:
8. Sarnoff and its assigns shall have the right to bid to manufacture
equipments for PEB. The PEB products will be manufactured by and under the
control and supervision of PEB. PEB is sensitive to the strategic nature
of the Sarnoff technology and therefore, PEB agrees to keep Sarnoff
informed of its manufacturing intentions, and will give Sarnoff ninety
(90) days notice of its serious intent to manufacture in countries where
Sarnoff has no patent protection. PEB reaffirms its agreement to maintain
the confidentiality of all confidential material passed to PEB as part of
this agreement with Sarnoff with the same degree of protection as PEB
protects its own property according to the terms of our existing
Confidentiality Agreement.
Add new Article XIII, paragraph 2:
2. Sarnoff warrants that to the best of its knowledge it has full right
and title to issue the License granted herein. No warranty is given, nor
should any be assumed that the use of information, data, plans or designs
delivered to PEB hereunder will be free from infringement of any patent,
copyright and/or mask work registration of a third Party.
Except as explicitly stated, this Agreement does not convey any license or other
rights.
In all other respects the Agreement remains unchanged.
ACCEPTED AND AGREED:
DAVID SARNOFF RESEARCH PRINCETON ELECTRONIC BILLBOARD
CENTER, INC.
By: /s/ Vincent J. Boccanfuso, Jr. By: /s/ Brown F. Williams
------------------------------ ----------------------------------
Vincent J. Boccanfuso, Jr.
Title: Director, Contracts Title: President
2
<PAGE>
[LETTERHEAD OF PRINCETON ELECTRONIC BILLBOARD]
Mr. James Clingham
Vice President
David Sarnoff Research Center
CN 5300
Princeton, NJ 08543-5300 July 1, 1992
Dear Jim,
In accordance with our discussions which are summarized below, we wish to
undertake Phase II of Prototype System for Video Insertion Via Pattern Key. This
research program is Phase II as described in the Research Agreement dated
November 1, 1990 between PEB and Sarnoff, as amended.
It is contemplated that Sarnoff will undertake Phase II for a fixed price of
$2,000,000. Several steps have been discussed for the execution of Phase II.
Step 1. During this step, which will begin as soon as possible,
Sarnoff will begin Phase II with research on solutions to the
occlusion problem. Such work is likely to involve precise alignment.
This step 1 will not exceed $50,000 in costs at Sarnoff and the
actual costs will be shared equally by PEB and Sarnoff. This cost
sharing is intended to reduce Sarnoff's risk for the early start.
Coincident with this step 1, teams from Sarnoff, ABC and PEB will meet to
develop specifications for the functionality (ABC Specs) of the unit to be
developed in Phase II. Incidentally, this work has already begun at ABC.
Step 2. This step will complete the development of solutions to the
occlusion problem. This step will begin upon the agreement between
Sarnoff, ABC and PEB on the specifications of the functionality of
the Phase II unit. This step will cost no more than $400,000 and the
actual cost of this step will be shared equally between Sarnoff and
PEB. This cost sharing is intended to reduce Sarnoff's risk of the
fixed price contract sharing the cost of the highest risk portion of
the program.
Step 3. Upon the successful demonstration of a solution to the occlusion
problem, Sarnoff will undertake the rest of Phase II.
[CONFIDENTIAL TREATMENT REQUESTED] It is anticipated that the program will
take 12-15 months depending on the complexity.
<PAGE>
PEB will reimburse Sarnoff for PEB's portion of the actual costs incurred in
steps 1 & 2 according to Sarnoff's standard procedures.
Would you please prepare a formal description of this program including
timetables for completion of the major and intermediate milestones with emphasis
on Step 1 and Step 2.
Very truly yours,
/s/ Brown F Williams
Brown F Williams
President
<PAGE>
[LETTERHEAD OF DAVID SARNOFF RESEARCH CENTER]
Brown F. Williams, President
Princeton Electronic Billboard, Inc.
27 Honey Brook Drive
Princeton, NJ 08540
Dear Brown: July 9, 1992
Sarnoff is in receipt of the letter of Princeton Electronic Billboard, Inc.
(PEB) dated 1 July 1992 which is incorporated into this letter by reference.
Sarnoff has open and extends its Proposal of September 18, 1991 covering Phase
II. Your letter of 1 July incorporates features of Phase II of the Proposal.
Sarnoff will proceed to perform Step 1 upon receipt of an original of this
agreement signed by PEB. Step 2 will not proceed until Sarnoff reports
successful conclusion of Step 1, as more fully set out in your letter, and at
that time invoice PEB up to a maximum of $25,000 as its cost share.
Should Sarnoff proceed thru Phase II, Step 2, to Step 3, PEB will pay Sarnoff in
accordance with your letter.
Should Sarnoff report the inability to proceed past Step 2, and the parties not
mutually resolve that inability, any continuing obligations between PEB and
Sarnoff under this letter agreement and/or the contract dated November 1, 1990,
as amended, are terminated.
Due to the change in the scope of the work and contract type, the parties agree
to the following:
o The exclusive field of use previously granted to PEB in Sarnoff's
technology shall be retained with the understanding that royalty rates for
advertising gross revenue will remain as currently set out and the rates
for applications in sports unrelated to advertising shall be two (2) times
those of advertising gross revenues.
<PAGE>
Princeton Electronic Billboard, Inc.
Page 2
July 9, 1992
o PEB provides an anti-dilution provision in PEB for Sarnoff that is no less
favorable than that held by Brown F. Williams, personally;
o Sentence one of the Agreement is amended at Article VII, Paragraph 4(b),
to read:
[CONFIDENTIAL TREATMENT REQUESTED ]
All other terms and conditions of the contract dated November 1, 1990, as
amended, remain in full force and effect. To the extent that this letter
agreement conflicts with the contract dated November 1, 1990, as amended, and/or
the proposal dated September 18, 1991, this letter agreement shall govern.
If this proposal is acceptable to you, please sign one of these originals and
return it to me.
Sincerely, Accepted and agreed to
Princeton Electronic Billboard, Inc.
/s/ James H. Clingham By: /s/ Brown F. Williams
----------------------------------
Brown F. Williams, President
Date: July 9, 1992
ch Center
<PAGE>
[LETTERHEAD PEB]
Mr. James Clingham
Vice President
David Sarnoff Research Center
CN 5300
Princeton, NJ 08546-5300 November 30, 1992
Dear Jim,
In accordance with the terms of PEB's July 1, 1992 letter to Sarnoff, the terms
of the letter agreement of July 9, 1992 from Sarnoff to PEB, and the Research
Agreement dated November 1, 1990 between PEB and Sarnoff, as amended, PEB
confirms that Sarnoff is authorized to complete Phase II of that program on the
agreed fixed price basis.
[CONFIDENTIAL TREATMENT REQUESTED]
Very truly yours,
/s/ Brown F Williams
Brown F Williams
President
cc. James E. Carnes
Encl. (Specifications)
<PAGE>
Objective Specification, August 26, 1992
Electronic Billboard System
Size:
Video Processor - 22cm x 43cm X 50cm
Controller and Operator Interface - Sun Sparcstation
Total Weight:
Approx. 50kg including rack
Manufacturing Cost:
Prototype Hardware Cost assuming 50 Units - $100k for single camera unit
$125/unit for more than 1 camera
Security:
Based on name code transmitted in parallel with broadcast. Phone and diskette
verification.
External to system for first unit.
Operator Interface:
Image and mouse/trackball based selection of insertion point.
Operator Functions:
Select landmark and insertion regions. Enable insertions
Input/Output:
D1
Options: D2, NTSC, PAL
Description of Inserted Images:
Basic Prototype System - still images up to 1/2 video frame
Options - video &/or full frame insertions
Processing Speed:
30 frames/sec.
Overall Fixed Time Delay:
Single camera unit - 0.1second
Two or more camera unit - 0.3 seconds
Audio:
Synchronized with video
Zoom Range:
5-1 continuous
Pan characteristics:
10% of frame per frame
Image plane rotation:
Accommodates rotation associated with pan
Camera Translation:
+/-20 ft at 100ft viewing range
Number of Cameras:
User choice. Prototype is single camera
Occlusion:
Multiresolution pattern key
Confidential
<PAGE>
AMENDMENT TO RESEARCH AGREEMENT
The Research Agreement dated November 1, 1990 by and between David
Sarnoff Research Center, Inc. ("Sarnoff") and Princeton Electronic Billboard,
Inc. ("PEB") and all amendments and modifications thereto (hereinafter "Research
Agreement") is hereby amended by this Amendment dated June 26, 1995 and
effective as of December 31, 1993 (the "Effective Date") as follows:
A. DEFINITIONS
A.1. "Access Field" consists of all areas within the scope of the
Research Field which are not within the Exclusive Field or the Sarnoff Field.
A.2. "Broadly Disseminated Television Programs" are those with a
distribution to more than 2500 viewers or customers which are live broadcasts,
pay per view, delayed broadcast, taped broadcast, broadcast over the air, via
cable, or via satellite, or point to multipoint networks, excluding programs
disseminated over point to point, or point to multipoint Private Networks.
A.3. "Cumulative Gross Revenue" means PEB Gross Revenues in the
Exclusive Field cumulated from the date on which Gross Revenues for which
royalties are provided herein are first received and are not to be cumulated on
a yearly basis.
A.4. "Electronic Recognition" is the use of digital image processing
methods, such as correlation, to recognize Landmarks in the scene
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A.5. "Landmarks" are patterns in the scene, whether inside or
outside the field of view, corresponding to objects or locations in the scene,
whether fixed or moving.
A.6. "Occlusion Task" means the task to upgrade the prototype PKI
system to reduce artifacts in the inserted video introduced when landmarks are
partially occluded by foreground objects (the landmark occlusion problem) as
defined in the December 15, 1993 Sarnoff proposal.
A.7.1. "PEB Gross Revenue" means PEB's total revenue, minus any
returns, sales and use taxes, trade samples, refunds, or credits to customers
received from activity within the Exclusive Field from all sources employing any
of the Sarnoff Property or the information, designs or plans delivered to PEB by
Sarnoff, including PEB revenue from a joint venture or sub-license within the
Exclusive Field employing Sarnoff Property, unless said joint venture or
sub-license is not an arm's-length transaction in which case the Revenue
received by the Joint Venture Partner or sub-licensee shall be included in
calculating the Gross Revenue.
A.7.2. "PEB Access Field Revenue" means PEB's total revenue, minus
any returns, sales and use taxes, trade samples, refunds, or credits to
customers received from activity in the Access Field employing any of the
Sarnoff Property or the information, designs or plans delivered to PEB by
Sarnoff, including PEB revenue from a joint venture or sub-license within the
Access Field employing Sarnoff Property, unless said joint venture or
sub-license is not an arm's-length transaction in which
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case the Revenue received by the Joint Venture Partner or sub-licensee shall be
included in calculating the PEB Access Field Revenue.
A.8. "Real Time" shall mean insertion is performed at television
frame rates.
A.9. "Research Field" is defined to include Real Time Video
Insertion based on the Electronic Recognition of Landmarks, including the
tracking of images in sports for outlining or emphasis or in an area such as a
trajectory, strike zone or player, and including anything which is within the
scope of the claims of Rosser. The Research Field shall consist of three fields
- -- the Exclusive Field, the Access Field, and the Sarnoff Field.
A.10. "Sarnoff Client's Gross Revenue" means the total revenue of
the Sarnoff client, minus any returns, sales and use taxes, trade samples,
refunds, or credits to customers, received from activity within the Access Field
or within the Sarnoff Field from all sources, pursuant to any license agreement
with Sarnoff as provided herein, including the client's revenue from a joint
venture or sub-license, unless said joint venture or sub-license is not an
arm's-length transaction in which case the Revenue received by the Joint Venture
Partner or sub-licensee shall be included in calculating the Gross Revenue.
A.11. "Sarnoff's Gross Revenue" means the total revenue, minus any
returns, sales and use taxes, trade samples, refunds, or credits to customers,
received by Sarnoff or its
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Affiliates within the Access Field or the Sarnoff Field from all
sources, including Sarnoff's revenue from a joint venture or sub-license, unless
said joint venture or sub-license is not an arm's-length transaction in which
case the Revenue received by the Joint Venture Partner or sub-licensee shall be
included in calculating the Gross Revenue. Sarnoff's Gross Revenue does not
include royalty received by Sarnoff from the licensing of PEB Owned property to
its clients which is included in paragraph A.10. Sarnoff's Gross Revenue also
does not include funds received from a client for the conduct of research and
development activities.
A.12 "Sarnoff Field" shall mean the following areas: (1) all video
production other than for sports or for advertising purposes, (2) local video
insertions, including location based entertainment, for any purpose other than
sports and advertising, (3) Private Networks other than for sports and
advertising purposes, (4) medical and scientific applications, and (5) use by
the Department of Defense or any U.S. Government agency. Sports and advertising
use in these five areas, which are not in the Exclusive Field, shall be part of
the Access Field and not the Sarnoff Field. Within the Sarnoff Field, "Sarnoff
Field I" shall refer to areas 2, 3, 4, and 5 and "Sarnoff Field II" shall refer
to area 1.
A.13. "Sarnoff Source Code" is all that computer software code
delivered to PEB by Sarnoff prior to the date of this Agreement in human
readable form.
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A.14 "Video Insertion" is the replacement of target patterns,
whether preselected or not, in successive frames of a video sequence with
replacement patterns, including video images, static images, or other images, in
such a way that the substituted replacement patterns appear to a viewer to be
part of the scene.
A.15 "Private Network" is a video distribution system within a
geographical site or an internal network of an organization.
B. AMENDMENTS AND MODIFICATIONS
5.1. Article I, P. 1 defining the Exclusive Field, which was added
to the Research Agreement by amendment dated August 9, 1991, is hereby deleted
and the following provision is hereby substituted as Article I, P.1:
ART. I, P. 1. PEB's Exclusive Field of Use.
The Exclusive Field is defined as the Electronic Recognition of
selected Landmarks for the purpose of Video Insertion in Real Time
in any Broadly Disseminated Television Program for advertising
purposes or for any purpose in television programs whose principal
focus is sports, including tracking images in sports for outlining
or emphasis or in an area such as a trajectory, strike zone or
player.
B.2. Ownership Rights. The parties hereby acknowledge that they are
not aware of any Joint Property, as that term is
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defined by Article VI, P. 2 of the Research Agreement. The parties further agree
that all Property developed after the Effective Date shall be owned as follows:
PEB shall own all Property developed by PEB's employees and paid for by PEB
based on Sarnoff Property or Sarnoff Technology ("PEB Property").
B.3. Licenses.
Article VI, P. 4, shall read as follows:
ART. VI, P.
4. PEB shall retain ownership of all inventions, computer
software and trade secrets developed by PEB's employees and
paid for by PEB that are based on Sarnoff technology. Joint
Property shall be jointly owned. Sarnoff shall assign PEB an
exclusive license, with right to sublicense, in the Joint
Property to make, have made, use and sell in the Exclusive
Field. PEB shall assign Sarnoff an exclusive license, with
right to sublicense, in the Joint Property to make, have made,
use and sell only in the Sarnoff Fields. These exclusive
licenses are subject to the same royalties as provided in
Article VII. In the Access Field, each party shall be free to
license third parties in the Joint Property without having to
account to the other party.
Article VII, P.P. 1, 2 and 3 are hereby deleted, and the following
provisions are substituted in their stead:
ART. VII. Licenses.
1. Licenses from Sarnoff to PEB.
a. Sarnoff grants to PEB a worldwide, exclusive license, in
PEB's Exclusive Field subject to the payment of the
royalties provided herein to Sarnoff, with right to
sublicense, to conduct research and development,
manufacture, sell, rent, modify, use, and otherwise
exploit Sarnoff Property, including PEB-Funded Property,
developed prior to the Effective Date and any PEB-Funded
Property developed prior to the date of this Agreement
and
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delivered to PEB by Sarnoff, such exclusive license to
be maintained as long as the royalties are paid, as
described in P. 4 of this Article VII.
b. Sarnoff grants to PEB a worldwide, non-exclusive
license, subject to the payment of a [CONFIDENTIAL
TREATMENT REQUESTED] royalty under the terms and
conditions provided in Article VII, P. 4 herein to
Sarnoff, with no right to sublicense except to a
related party or joint venture in which PEB owns or
has at least a fifteen percent (15%) ownership
interest, to manufacture, sell, rent, modify, use,
and otherwise exploit Sarnoff Property, including
PEB-Funded Property developed prior to the Effective
Date and any PEB-Funded Property developed after the
Effective Date but prior to the date of this
Agreement and delivered to PEB by Sarnoff within the
Access Field.
c. Except as provided in this subparagraph (c), Sarnoff
does not grant PEB a license in the Sarnoff Field. Any
area of the Sarnoff Field II which Sarnoff converts to
the Access Field pursuant to subparagraph 5(b) below
shall be governed by subparagraph 1(b) above, subject to
the [CONFIDENTIAL TREATMENT REQUESTED] royalty
provided in subparagraph 4(a)(2) below.
d. Source Code
(1) Sarnoff grants to PEB a non-exclusive license to
use the Sarnoff Source Code to create object codes
or to prepare Derivative Works, as that term is
defined at 17 U.S.C. 101, of the Sarnoff Source
Code, within the Exclusive Field and the Access
Field. Within the Sarnoff Field, Sarnoff grants
PEB a non-exclusive license to portions of the
Sarnoff Source Code excluding the algorithms, and
agrees not to assert that any algorithms used by
PEB which are not part of the Sarnoff Source Code
are Derivative Works of the Sarnoff Source Code if
said PEB algorithms do not fall within the claims
of any patents or trade secrets owned by Sarnoff
and listed in Attachment A to be agreed to by the
Parties within twenty (20) days of the date of
this Agreement.
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<PAGE>
(2) PEB agrees that the Sarnoff Source Code is the
copyrighted property and the proprietary
information of Sarnoff and that title to the
Sarnoff Source Code remains in Sarnoff. PEB will
take all reasonable steps to prevent disclosure of
the Sarnoff Source Code to any unrelated third
party. PEB shall have no obligation to maintain
the confidentiality of any information which: (i)
is now or hereafter, through no act or failure on
the part of the PEB, becomes generally known or
publicly available; (ii) is known to PEB at the
time of disclosure by Sarnoff; (iii) becomes known
to PEB without restriction from another source
without breach of this License; or (iv) is at any
time developed by PEB independently of any such
disclosure from Sarnoff. This obligation shall
expire five (5) years from the effective date
above.
(3) PEB will reproduce any notices, including any
proprietary notices and copyright notices, on/in
the Sarnoff Source Code on/in any object code
incorporating portions of the Sarnoff Source Code.
2. Licenses from PEB to Sarnoff and Its Clients.
a. PEB grants to Sarnoff a royalty-free license, with no
right to sublicense, to use U.S. Patent No. 5,264,933
issued to Rosser, et al. ("Rosser") and all PEB owned
Property developed prior to the Effective Date for
research purposes only within the Research Field but
outside of the Exclusive Field.
b. PEB grants to Sarnoff in the Access Field and in the
Sarnoff Field, a non-exclusive license, with right to
sublicense Sarnoff's other clients, to Rosser and to PEB
owned Property developed prior to the Effective Date at
the rates specified in paragraph 5 below. The parties
agree that Sarnoff and its clients have and shall have
no rights to Rosser or other PEB Owned Property under
the Research Agreement or this Amendment except as
provided in this subparagraph.
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B.5. The provisions of Article VII, P. 4, including subparagraphs
4(a)-(f), Royalties, are hereby deleted and the following are substituted in
their stead:
4. Royalties from PEB to Sarnoff
4(a). In consideration for Sarnoff entering into this
Agreement and staying out of the Exclusive Field, as
described in Articles VII and VIII, and for the licenses
granted to PEB, PEB shall pay to Sarnoff royalties based
on PEB Gross Revenue. Such royalties survive this
Agreement and continue in effect as long as PEB, its
successors or assigns remain in the Exclusive Field, and
Sarnoff shall remain out of the Exclusive Field as long
as royalties are paid. Sarnoff agrees that it will not
grant any other license in PEB's Exclusive Field and
will not compete with PEB in the Exclusive Field so long
as the royalties are paid by PEB. The amount of
royalties due Sarnoff shall be calculated based on the
following schedules.
(1) Within the Exclusive Field
Cumulative Gross Revenue Royalty
------------------------ -------
[CONFIDENTIAL TREATMENT REQUESTED]
(2) Within the Access Field.
[CONFIDENTIAL TREATMENT REQUESTED]
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Exclusive Field shall be subject to the royalties
provided in 4(a)(1) above.
4(b). Deferral of Royalties. Royalties within the Exclusive
Field shall accrue until such time that PEB's Cumulative
Gross Revenue reaches $20,000,000 or until January 1,
1999, whichever occurs first. Payments for all accrued
royalties shall commence after PEB's Cumulative Gross
Revenue exceeds $20,000,000 or on January 1, 1999,
whichever occurs first, in four equal quarterly
installments beginning three (3) months after PEB's
Cumulative Gross Revenue exceeds $20,000,000 or January
1, 1999, whichever occurs first.
The minimum quarterly royalty payment to maintain the
licenses in the Sarnoff Property in effect beginning one
quarter after January 1, 1999 shall be One Hundred
Thousand Dollars ($100,000) for the Exclusive Field
defined in Article I, paragraph 1. For the first two (2)
years, PEB shall have the option of paying the minimum
royalty in cash or in PEB stock at its last issue price.
There shall be no minimum royalties outside the
Exclusive Field.
4(c). Once Cumulative Gross Revenues have reached $20,000,000
or on January 1, 1999, whichever occurs first, PEB shall
commence paying royalties quarterly based on the
financial records of PEB for the preceding quarter in
accordance with the schedule of Royalties, as defined in
paragraph 4(a) above of this Article VII.
4(d). An annual statement of PEB Gross Revenue, PEB Access
Field Revenue, Cumulative Gross Revenue and the
royalties due to Sarnoff shall be provided by PEB at
PEB's expense by an independent, certified public
accountant of PEB's choice. Sarnoff shall have the right
to have such statement reviewed by an independent
Certified Public Accountant of Sarnoff's choice and at
Sarnoff's expense on an annual basis.
4(e). PEB may terminate its payments and licenses under
subparagraphs 4(b) or 4(c) of this Article VII, at PEB's
election, at any time subsequent to subparagraph 4(c)
taking effect except that PEB shall remain liable for
any
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<PAGE>
deferred royalties accrued up to the date of
termination. If PEB so terminates its payments, then all
licenses and the non-compete clause shall also terminate
as of the date of PEB's termination of its payments.
4(f). Each royalty payment due to Sarnoff under this paragraph
4 of this Article VII shall be paid during the month
following the calendar quarter covered thereby.
Royalties within the Access Field shall be payable
without the deferral provided in subparagraphs 4(b)-(c).
5. Royalties from Sarnoff to PEB
5(a). [CONFIDENTIAL TREATMENT REQUESTED]
5(b). [CONFIDENTIAL TREATMENT REQUESTED]
5(c). Sarnoff shall collect from its client and pay PEB the
royalties provided in this paragraph 5 and PEB shall not
collect said royalties directly from the Sarnoff client.
If PEB does not receive any payments due hereunder from
a Sarnoff licensee or from Sarnoff for any reason,
including if a particular Sarnoff licensee shall
terminate its payments under a licensing agreement as
provided herein, the license as to that Sarnoff client
or as to Sarnoff for that particular application shall
terminate but not Sarnoff's right to grant licenses to
its other clients for other applications.
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5(d). Each royalty payment due to PEB under this paragraph 5
shall be paid during the second month following the
calendar quarter covered thereby.
5(e). A quarterly statement of the Sarnoff Client's Gross
Revenue or Sarnoff's Gross Revenue, as the case may be,
shall be provided by Sarnoff's client or Sarnoff (the
"Reporter") at the Reporter's expense. An annual
statement of Sarnoff Client's Gross Revenue or Sarnoff's
Gross Revenue, as the case may be, and the royalties due
to PEB shall be provided by an independent, certified
public accountant of the Reporter's choice. PEB shall
have the right to have such statement reviewed by an
independent Certified Public Accountant of PEB's choice
and at PEB's expense on an annual basis solely to
determine that the royalties paid to PEB are correct.
B.6. The anti-dilution provision contained on the top of page 2 of the
Letter Amendment dated July 9, 1992 is hereby deleted and the following is
substituted:
PEB shall provide anti-dilution protection to Sarnoff for the
PEB stock to which Sarnoff is entitled under the Agreement
that is no less favorable than that provided to all other
major holders of PEB stock of the same class, excluding shares
received through a bona fide employee stock benefit plan.
B.7. Article IV, P. 1, shall be amended as follows:
1.. The Project comprises two Phases. Phase I has been
entered into as of August 31, 1990 and will proceed according
to the Statement of Work, as described in our Proposal
90-3214-291 dated August 1, 1990 and incorporated herein by
reference. Phases II will be implemented according to the
description contained in the Phase II-Proposals, and will be
incorporated herein by reference. Sarnoff and PEB agree that
they will negotiate in good faith toward mutually acceptable
statements of
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work and costs for the performance by Sarnoff of Phase II.
Article IV shall be amended by adding new paragraphs 6-7 as
follows:
6. Ongoing Work by Sarnoff.
a Sarnoff physically delivered to PEB the first prototype
unit on April 19, 1995. PEB agrees to return to Sarnoff
the two ACCOM units delivered to PEB in 1994.
b. PEB shall pay to Sarnoff a total of Four Hundred Forty
Seven Thousand Dollars ($447,000); Four Hundred Thousand
Dollars ($400,000) of this total on the date of this
Agreement and the remaining Forty Seven Thousand Dollars
($47,000) on the six (6) month anniversary of the date
of this Agreement.
c. The parties hereby mutually release and discharge each
other from any and all claims or liabilities arising
under Phase II of the Research Agreement and all
proposals and amendments related thereto, for the cost
of parts and components for the second prototype unit,
the Occlusion Task and the performance of the additional
tasks undertaken by Sarnoff at PEB's direction between
the Effective Date and date of this Agreement.
7. The parties hereby agree that except as provided herein, all
rights and obligations contained in the Research Agreement as
amended, including those in Article IV, paragraph 1, as
amended in 5.7 above, regarding the performance of tasks by
Sarnoff and the payment thereof by PEB are hereby deemed fully
satisfied and terminated. Sarnoff hereby acknowledges that
except as provided herein, the obligations assumed hereunder
by PEB shall be in full satisfaction of all moneys which
Sarnoff claims are owing as a result of work performed on the
project. All future work for Sarnoff by PEB shall be under
terms and conditions to be negotiated in good faith at the
time that PEB requests that the work be performed.
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B8. Dispute Resolution Mechanism. Any and all disputes arising out
of or in connection with the negotiation, execution,
interpretation, performance, or non-performance of this
Amendment other than those matters relating to the validity,
enforceability or infringement of a patent, including any
dispute regarding the validity, scope and enforceability of
this arbitration provision, shall be solely and finally
settled by arbitration.
Either party hereto may demand arbitration, in writing, to the
other party. Within thirty (30) days of such demand, the
parties shall select a mutually acceptable arbitrator, who
shall be a professional trained and experienced in the subject
matter of the dispute. If the parties are not able to select a
mutually acceptable arbitrator by such thirty (30) day
deadline, then by such thirty (30) day deadline each party
shall nominate a person to serve as such party's selector.
Such selector shall be independent of the party appointing
him. The two selectors so appointed shall select an
arbitrator, who shall be a professional trained and
experienced in the subject matter of the dispute and
independent of each of the parties. Should either party fail
to appoint its selector within thirty (30) days of the demand
for arbitration, then the requesting party shall name both
selectors and they shall proceed to name the arbitrator as
provided above.
The arbitration shall be conducted in New Jersey in accordance
with rules chosen by the arbitrator.
The arbitrator shall apply the internal law of the State of
New Jersey and shall have the power to grant all legal and
equitable remedies and award compensatory damages provided by
New Jersey law, including, without limitation, the right to
order equitable relief, but shall not have the power to award
punitive damages.
The award of the arbitrator shall be final and binding upon
the parties, and judgment upon any award rendered by the
arbitrator may be entered by any state or federal court having
jurisdiction thereof.
In his award, the arbitrator may, at his discretion, allocate
against the losing parties all costs of arbitration, including
the fees of the
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arbitrator, and reasonable attorneys' fees, costs, and expert
witness expenses of the parties.
The parties intend that this agreement to arbitrate shall be
valid, enforceable and irrevocable.
B.9. Article VII, P.P. 5 and 6; Article VIII, P. 3; and Article XI
are hereby deleted.
B.9 Article V, P. 1, delete "after completion of all Phases of the
Project" and insert "after the Effective Date except for Article VII.1.d where
the obligation shall expire five (5) years from the date of this Amendment."
ACCEPTED AND AGREED TO
Princeton Electronic Billboard, Inc.
By: /s/ Sam McCleery
---------------------------------
Name: Sam McCleery
Title: Vice President
Date: 6/26/95
David Sarnoff Research Center, Inc.
By: /s/ David J. Warnock
---------------------------------
Name: David J. Warnock
Title: Vice President, Finance & Business Operations
Date: 6/26/95
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Exhibit 10.6
Grupo Sitt
Paseo De Las Palmas
No. 735, Desp. 206
11000 Mexico, D.F.
C-O-N-F-I-D-E-N-T-I-A-L
May 1, 1993
Mr. Brown F. Williams
President
Princeton Electronic Billboard, Inc.
27 Honey Brook Drive
Princeton, New Jersey 08540
Re: Proposed Mexican Venture to Exploit New Television Advertising
Technology
Dear Mr. Williams:
This letter will confirm the intention of Grupo Sitt, an association
consisting of Eduardo Sitt, Roberto Sonabend and other Mexican individuals and
entities (all of whom are collectively referred to as "Grupo Sitt"), to organize
a Mexican corporation, i.e., a sociedad anonima de capital variable (the
"Corporacion"), to be capitalized, managed and operated by Grupo Sitt and to be
jointly owned by Grupo Sitt and Princeton Electronic Billboard, Inc. ("PEB"),
pursuant to the following terms and conditions:
I Purpose of Venture - Description of Invention and Technology
1. PEB is the owner and sole proprietor of an invention which is called
the Electronic Billboard (the "Invention") which replaces live television images
with inserted material in a manner which causes the insertion to appear as
though it was part of the original image. PEB is the licensee of certain
technology described below which is being developed by the Sarnoff Laboratories
of Princeton, New Jersey ("Sarnoff") in order to, among other things, implement
and exploit the Invention (the "Technology"). The license which Sarnoff has
granted to PEB (the "Master License") encompasses the exclusive, worldwide right
to exploit the Technology with respect to all forms of television advertising
and all televised sports applications including pay- per-view telecasts, but
<PAGE>
Mr. Brown F. Williams
May 1, 1993
Page 2
excluding so-called point-to-point private network telecasts.
2. The Corporacion shall be the vehicle which shall hold all proprietary
rights required for the commercial exploitation of the Technology pursuant to
the Master License in the territory consisting of Mexico, Central America and
South America (the "Territory"). Such commercial exploitation shall encompass
the generation of income of every nature and description from every commercially
viable use of the Master License (other than the manufacture of the Technology),
including, but not limited to (a) the sale, leasing, licensing or other
conveyance of rights to others to use the Master License and the Technology in
the Territory; (b) the use of the Master License and the Technology by the
Corporacion within the Territory; and (c) the implementation, operation, support
and/or maintenance of the Master License and the Technology by the Corporacion
for, or on behalf of, others who have received rights to use or otherwise
exploit the Master License and the Technology in the Territory from the
Corporacion. Anything herein contained to the contrary notwithstanding, Grupo
Sitt acknowledges and understands that no proprietary ownership interest in all
or any part of the Technology shall be conveyed to the Corporacion.
3. The term "Technology" as used herein, means all that certain computer
hardware and operating system software, firmware and/or applications software
developed by PEB and/or Sarnoff for PEB which, when operated as an integrated
system (the "System"), performs the real time insertion of "billboard-style"
advertising and/or live programing into a live television signal simultaneously
with the transmission of such signal to the television consumer public in a
manner that does not interfere with the television program being transmitted
(the "Task"), together with all of the documentation pertaining thereto.
II Organization and Start-Up of Corporacion: Business Operations
1. Grupo Sitt will cause the Corporacion to be organized under such name
as may be mutually acceptable to Grupo Sitt and PEB (who are hereinafter jointly
referred to as the "Parties").
2. Grupo Sitt (or the individuals who are members of Grupo Sitt) initially
shall be the owner of one-third of the issued and outstanding capital shares of
the Corporacion, and PEB initially shall be the owner of the remaining
two-thirds thereof. PEB and Grupo Sitt shall each pay to the Corporacion nominal
sums in proportional amounts in consideration for the issuance of such shares.
In addition, Grupo Sitt, but not PEB, shall be obligated
<PAGE>
Mr. Brown F. Williams
May 1, 1993
Page 3
to make such loans or additional contributions to the capital of the Corporacion
as shall be necessary to acquire the Technology from PEB, and thereafter
commercially exploit same in accordance with the hereinbelow described business
plan to be jointly approved by the Parties.
3. The Parties recognize that the board of directors (el consejo de
administracion) of Mexican corporations do not enjoy the same degree of sweeping
powers that are conferred upon the boards of US corporations, and that many of
such powers are reserved to the shareholders of a Mexican corporation acting in
assembly (la asemblea de accionistas). The consejo de administracion shall be
comprised of five members. Until such time as Grupo exercises the option
hereinbelow described, two members of the consejo shall be designees of Grupo
Sitt, and three members thereof shall be designees of PEB. The consejo shall
elect such officers and cause the Corporacion to hire such executives and other
employees as they shall deem necessary and appropriate to conduct the business
of the Corporacion.
4. It is the intention of the Parties that Grupo Sitt, through executives
and employees of the Corporacion who will be appointed or hired at its
direction, shall manage the day-to-day corporate and business affairs of the
Corporacion, and that, notwithstanding the uneven split in the Parties'
respective ownership interests in the Corporacion, they shall share all of the
Corporacion's net earnings (utilidad neta) equally.
5. Organizational Expenses. Grupo Sitt shall be solely responsible for all
of the legal, accounting and other costs which shall be incurred with respect to
the organization of the Corporacion and the start-up of its business operations.
III Business Plan - Acquisition of Technology - Implementation
1. Grupo Sitt (with PEB's input and assistance) will develop a business
plan (the "Business Plan") which will provide for the implementation of the
business to be conducted by the Corporacion through exploitation of the
Technology in Mexico first, and then in such other country or countries located
elsewhere in the Territory as Grupo Sitt may determine.
2. In preparation for the implementation of the Business Plan, the
Corporacion shall acquire from PEB (or Grupo Sitt shall acquire from PEB and
thereafter assign to the Corporacion) an irrevocable, perpetual license (the
"License") conferring upon the licensee the exclusive right to commercially
exploit the Invention through the License and the Technology in the Territory
<PAGE>
Mr. Brown F. Williams
May 1, 1993
Page 4
in the manner set forth in paragraph I.1 hereof. The fee payable by the licensee
(all of which shall be paid by Grupo Sitt and/or provided to the Corporacion by
Grupo Sitt as additional capital contributions) shall be US$2,000,000, payable
as follows:
a. $500,000 (the "Deposit") shall be paid to Ohrenstein & Brown,
Esqs. (the "Escrow Agent"), as escrowees who shall hold and dispose of same as
follows:
(i) The Escrow Agent shall place the Deposit into an interest
bearing account. Said Deposit and all interest which shall be earned thereon
shall be paid to:
(1) PEB at such time as the Escrow Agent shall (x)
receive written certification from Sarnoff confirming that a fully operational
System has been completely "bench" assembled which completely performs the Task
in accordance with the specifications annexed hereto which were developed by ABC
or by PEB in cooperation with ABC (the "Specifications") when applied to a live
television signal; and (y) witness a successful demonstration of the System
performing the Task on a live television signal. It is anticipated by PEB that
such demonstration and confirmation should be forthcoming in or about May, 1993.
(2) Grupo Sitt in the event that the conditions set
forth in subparagraph (1) hereof shall not have been satisfied on or before
October 31, 1993, in which event, Grupo Sitt may elect to terminate this
agreement by delivery of written notice to PEB stating that it has so elected.
b. $1,500,000 (the "Balance") shall be paid to PEB not later than 21
days after the date upon which Grupo Sitt (x) observes a successful
demonstration of the System embodied in a prototype work station performing the
Task in accordance with the Specifications when applied to a live television
signal; and (y) receives written certification from PEB that such work station
is the prototype of a series of substantially identical, fully functional,
portable work stations that PEB shall then be making available to all other
parties who shall acquire, by license or otherwise, rights to exploit the
Technology in other territories (the "Work Station"). It is anticipated by PEB
that such demonstration and confirmation should be forthcoming in or about
August, 1993. In the event that PEB shall not satisfy the conditions set forth
in clauses (x) and (y) of the first sentence of this paragraph II 2 b on or
before December 31, 1993, Grupo Sitt may elect to terminate this agreement by
delivery of written notice to PEB stating that it has so elected. In such event,
PEB shall, within five business days after receipt of such notice, refund the
<PAGE>
Mr. Brown F. Williams
May 1, 1993
Page 5
Deposit to the Escrow Agent, and upon the Escrow Agent's receipt thereof, this
Agreement shall be deemed to have been automatically terminated.
3. PEB shall provide to the technical personnel employed by the
Corporacion to operate, repair, maintain and support the System and the
Technology the technological and business know-how and training required to
perform such tasks.
4. Grupo Sitt shall provide to the Corporacion its collective knowledge
and experience regarding the conduct of business in Mexico and compliance with
the rules and regulations of the Mexican governmental authorities who will have
jurisdiction over the Corporacion and its business activities.
5. After PEB shall have produced (or shall have caused to be produced) and
shall have delivered three Work Stations to one or more other parties who shall
acquire, by license or otherwise, rights to exploit the Technology in other
territories, the fourth Work Station so produced shall be delivered by PEB to
the Corporacion. PEB shall make additional products, including Work Stations,
available to the Corporacion, as and when the same may become available, and
subject to such reasonable prioritization of distribution as PEB may employ
based upon the inherent differences in the various television markets located
throughout the world, in such quantities as the Corporacion shall require, and
at such times when they shall be required, pursuant to terms and conditions
which are no less favorable than those under which PEB shall be applying to its
best customers for such Work Stations.
6. As and when PEB commences distribution of enhanced versions of the
System, the Work Stations and/or and components of either, PEB shall make the
same available to the Corporacion on the same terms set forth in paragraph III 5
hereof.
7. In the event that (a) the rights conferred by Sarnoff to PEB under the
Master License shall be expanded to encompass means of exploiting the Technology
other than those described in paragraph I 1 hereof ("Additional Rights"); or (b)
Additional Rights shall be granted by Sarnoff to PEB pursuant to one or more
separate licenses or other agreements pertaining to exploitation of the
Technology, the License shall be deemed to have been automatically modified in
such manner as shall be necessary to confer such Additional Rights of
exploitation of the Technology in the Territory to the Corporacion at no
additional cost.
<PAGE>
Mr. Brown F. Williams
May 1, 1993
Page 6
IV Option to Purchase Majority Interest.
1. PEB shall confer upon Grupo Sitt an option (the "Option") to purchase
from PEB a block of shares of the capital stock of the Corporacion held by PEB
equal to 17-2/3% of the total amount thereof then issued and outstanding (the
"Block"). Such Option shall be exercisable only with respect to the whole Block
during the three year period commencing on the date of payment of the Balance at
an aggregate exercise price of US$6,000,000.
V PEB's Warranties and Representations
1. PEB warrants and represents to Grupo Sitt as follows:
a. PEB is the sole owner of all right, title and proprietary
interest in and with respect to the Invention, and is the exclusive worldwide
licensee of the Technology with respect to all forms of television advertising
and all televised sports applications including pay-per-view telecasts, but
excluding so-called point-to-point private network telecasts.
b. PEB has applied for issuance of a US patent covering the
Invention (or so much thereof as may be patented under applicable law), and PEB
is unaware of any state of facts which would warrant the denial of such
application.
c. PEB will undertake to apply for, or it shall authorize the
Corporacion to apply in its behalf for, letters patent covering the Invention
(and all enhancements thereof) in every country located within the Territory
which will not, pursuant to an applicable convention, automatically recognize
the validity and enforceability of the US patent to be issued to PEB, provided,
however, that PEB shall only be obligated to bear the full cost of such
applications in Mexico and four other countries located within the Territory.
VI Miscellaneous.
1. It is understood that, Grupo Sitt has not engaged any financial advisor
or broker who would be due a transaction fee in connection with the consummation
or implementation of the transactions contemplated by this letter; and that PEB
has not engaged any financial advisor or broker, other than Steven D. Dreyer and
Marc E. Jaffe, who would be due a transaction fee in connection with the
consummation or implementation of the transactions contemplated by this letter.
PEB acknowledges that the
<PAGE>
Mr. Brown F. Williams
May 1, 1993
Page 7
payment of such fees to Messrs. Dreyer and Jaffe is the sole obligation of PEB.
2. The Parties agree to execute such other agreements and instruments as
may be required under the applicable laws of Mexico to implement the provisions
of this agreement. Both Parties understand that the terms and conditions of such
other agreements and instruments shall embody the matters set forth herein and
such other matters as they, upon advice of counsel, shall deem necessary and
appropriate.
If the terms of this proposal are acceptable to PEB, kindly acknowledge
such acceptance by signing the duplicate copy of this letter and returning it
the undersigned at your earliest convenience.
Very truly yours,
Grupo Sitt
By: /s/Eduardo Sitt
-------------------------------
Eduardo Sitt
Accepted on May 12, 1993:
Princeton Electronic Billboard, Inc.
By: /s/Brown F. Williams
-------------------------------
Brown F. Williams, President
The undersigned, in its capacity as the escrow agent identified in the foregoing
agreement, hereby agrees to comply with the provisions thereof pertaining to the
escrow and distribution of the Deposit described therein.
Ohrenstein & Brown, Esqs.
/s/Steven D. Dreyer
By: -------------------------------
Steven D. Dreyer
<PAGE>
Grupo Sitt
Paseo De Las Palmas
No. 735, Desp. 206
11000 Mexico, D.F.
June 25, 1993
Mr. Brown F. Williams
President
Princeton Electronic Billboard, Inc.
27 Honey Brook Drive
Princeton, New Jersey 08540
Re: Mexican Venture to Exploit New Television Advertising Technology
Dear Brown:
Reference is made to the letter agreement dated May 1, 1993 which was
executed by me acting on behalf of Grupo Sitt(1) and by you acting on behalf of
Princeton Electronic Billboard, Inc. (the "Agreement").
When signed by you at the foot of the enclosed copy of this letter, the
Agreement shall be modified to the extent hereinbelow provided.
1. Paragraph 3 of Section II of the Agreement is hereby deemed to have
been deleted and replaced in its entirety with the following:
3. The Parties recognize that the board of directors (el consejo de
administracion) of Mexican corporations do not enjoy the same degree of
sweeping powers that are conferred upon the boards of US corporations, and
that many of such powers are reserved to the shareholders of a Mexican
corporation acting in assembly (la asemblea de accionistas). The consejo
de administracion shall be comprised of six members. Three members of the
consejo shall be designees of Grupo Sitt, and three members thereof shall
be designees of PEB. The consejo shall elect such officers and cause the
Corpora-
- --------------
(1) Unless otherwise indicated, all capitalized terms used throughout
this letter shall have the meanings ascribed to them in the Agreement.
<PAGE>
Mr. Brown F. Williams
June 25, 1993
Page 2
cion to hire such executives and other employees as they shall deem
necessary and appropriate to conduct the business of the Corporacion.
2. Paragraph 2 of Section III of the Agreement is hereby deemed to have
been deleted and replaced in its entirety with the following:
2. In preparation for the implementation of the Business Plan, the
Corporacion shall acquire from PEB (or Grupo Sitt shall acquire from PEB
and thereafter assign to the Corporacion) an irrevocable, perpetual
license (the "License") conferring upon the licensee the exclusive right
to commercially exploit the Invention through the License and the
Technology in the Territory in the manner set forth in paragraph I.1 of
the Agreement. The fee payable by the licensee (all of which shall be paid
by Grupo Sitt and/or provided to the Corporacion by Grupo Sitt as
additional capital contributions) shall be US$2,000,000, payable as
follows:
a. Not later than July 2, 1993, Grupo Sitt shall cause
$500,000 (the "Deposit") to be paid to Ohrenstein & Brown, Esqs. (the
"Escrow Agent"), as escrowees who shall hold and dispose of same as
follows:
(i) On July 2, 1993, the Escrow Agent shall deliver to
PEB one half of the Deposit, i.e., $250,000, by check subject to
collection upon its Special Account, or by wire transfer to an account to
be designated by PEB not later than June 30, 1993. Said $250,000 shall be
considered to be the property of PEB for all purposes, and may be used by
PEB without any restriction or condition.
(ii) The Escrow Agent shall place the remaining $250,000
balance of the Deposit into an interest bearing account. Said balance of
the Deposit and all interest which shall be earned thereon shall be paid
to:
(1) PEB at such time as the Escrow Agent shall (x)
receive written certification from Sarnoff confirming that a fully
operational System has been completely "bench" assembled which completely
performs the Task in accordance with the specifications annexed to the
Agreement which were developed by ABC or by PEB in cooperation with ABC
(the "Specifications")
<PAGE>
Mr. Brown F. Williams
June 25, 1993
Page 3
when applied to a live television signal; and (y) witness a successful
demonstration of the System performing the Task on a live television
signal. It is anticipated by PEB that such demonstration and confirmation
should be forthcoming in or about July, 1993.
(2) Grupo Sitt in the event that the conditions
set forth in subparagraph (1) hereof shall not have been satisfied on or
before October 31, 1993, in which event, Grupo Sitt may elect to terminate
the Agreement by delivery of written notice to PEB stating that it has so
elected. In the event Grupo Sitt delivers such notice of termination to
PEB, PEB shall repay to the Escrow Agent the sum of $250,000 within five
business days of the date of PEB's receipt of said notice of termination,
and upon the Escrow Agent's receipt of said $250,000, the Agreement shall
be deemed to have been automatically terminated.
b. $1,500,000 (the "Balance") shall be paid to PEB not later
than 21 days after the date upon which Grupo Sitt (x) observes a
successful demonstration of the System embodied in a prototype work
station performing the Task in accordance with the Specifications when
applied to a live television signal; and (y) receives written
certification from PEB that such work station is the prototype of a series
of substantially identical, fully functional, portable work stations that
PEB shall then be making available to all other parties who shall acquire,
by license or otherwise, rights to exploit the Technology in other
territories (the "Work Station"). It is anticipated by PEB that such
demonstration and confirmation should be forthcoming in or about August,
1993. In the event that PEB shall not satisfy the conditions set forth in
clauses (x) and (y) of the first sentence of this paragraph 2 b on or
before December 31, 1993, Grupo Sitt may elect to terminate the Agreement
by delivery of written notice to PEB stating that it has so elected. In
such event, PEB shall, within five business days after receipt of such
notice, refund the Deposit to the Escrow Agent, and upon the Escrow
Agent's receipt thereof, this Agreement shall be deemed to have been
automatically terminated.
Please signify PEB's agreement to the foregoing changes and modifications
to the Agreement by signing your name on the line provided at the foot of the
enclosed copy of this letter, and
<PAGE>
Mr. Brown F. Williams
June 25, 1993
Page 4
thereafter returning same to Steve Dreyer at Ohrenstein & Brown.
Very truly yours,
Grupo Sitt
By: /s/Eduardo Sitt
-------------------------------
Eduardo Sitt
Accepted:
Princeton Electronic Billboard, Inc.
By: /s/Brown F. Williams
-------------------------------
Brown F. Williams, President
The undersigned, in its capacity as the escrow agent identified in the foregoing
letter modifying the Agreement, hereby agrees to comply with the provisions
thereof pertaining to the escrow and distribution of the Deposit described
therein
Ohrenstein & Brown, Esqs.
/s/Steven D. Dreyer
By: -------------------------------
Steven D. Dreyer
<PAGE>
Exhibit 10.7
LICENSE AGREEMENT
THIS LICENSE AGREEMENT (the "Agreement") is dated as of March 1,
1994 between PRINCETON ELECTRONIC BILLBOARD, INC., a New Jersey corporation
("PEB") and PUBLICIDAD VIRTUAL, S.A. de C.V., a Mexican limited liability
corporation ("PV").
WITNESSETH:
WHEREAS, PEB owns the exclusive worldwide right to license certain
technology (the "Technology") more specifically identified on Exhibit A hereto
for the purpose of altering live television images by the real time insertion of
new images into television broadcasts;
WHEREAS, PV desires to obtain a license for the use of the
Technology within the Territory; and
WHEREAS, PEB is willing to grant such a license and to provide
technical support and training as well as enhancements and future developments
for a one-time license royalty equal to Two Million United States Dollars
(US$2,000,000) (the "License Fee") subject to the terms and conditions hereof,
NOW, THEREFORE, the parties covenant and agree as follows:
1. DEFINITIONS
As used herein, additional capitalized terms shall have the following
meanings:
1.1 "Copyright Controller" shall mean that person or entity having the
legal right under applicable copyright and other law to control and alter
programming in a given geographical territory by means of the Licensed
Technology or otherwise.
1.2 "Know-How" shall mean all inventions, technology or other information
discovered or developed by or for PEB before or during the term of this
Agreement, whether or not patentable, constituting materials, methods,
processes, techniques and data for the use or sale of any Products.
1.3 "Licensed Patents" shall mean:
1.3.1 the current patents or patent applications owned or controlled
by PEB or jointly owned by David Sarnoff Research Center, Inc. and PEB
relating to the Licensed Technology which are set forth on Exhibit B,
including any
<PAGE>
Supplemental Protection Certificates or the equivalent thereof,
extensions, renewals, continuations, continuations-in-part, divisions,
patents-of-additions, re-examinations, and/or reissues thereof; and
1.3.2 any future patents or patent applications which are foreign
counterparts in any country in the Territory to PEB's current U.S. and
foreign patents and patent applications as set forth on Exhibit B,
including any Supplemental Protection Certificates or the equivalent
thereof, extensions, renewals, continuations, continuations-in-part,
divisions, patents-of-additions, re-examinations, and/or reissues thereof.
1.4 "Licensed Technology" shall mean all inventions, improvements,
discoveries, claims, formulae, processes, trade secrets, technologies, and
Know-How in which PEB has or develops or obtains rights, as the same may be
modified or expanded from time to time: (i) relating to or derived from PEB's
"Electronic Billboard" invention, which replaces live television images with
inserted material in a manner that causes the insertion to appear as though it
was a part of the original image, as more fully described on Exhibit A, or (ii)
claimed, covered or disclosed in any Licensed Patent.
1.5 "Other Licensee" shall mean the person or entity, including PEB if
appropriate, having rights to exploit the Licensed Technology in an Other
Territory.
1.6 "Other Territory" shall mean any specific geographic area outside the
Territory.
1.7 "Permitted Uses" shall mean all legal uses of the Licensed Technology
(i) in real time in any broadly disseminated television program for advertising
purposes or for any purpose in television programs the principal focus of which
is sports, including tracking images in sports for outlining or emphasis or in
an area such as trajectory, strike zone or player; or (ii) as part of video
post-production. Broadly disseminated programs are those which are broadcast
over the air, via cable or via satellite with a distribution to more than 2,500
customers. Programs disseminated over point to point, or point to multipoint,
private networks are not broadly disseminated programs for purposes of this
Agreement.
1.8 "Product" shall mean any product, the manufacture, use or sale of
which is based upon, derived from, or related to any Licensed Technology,
including, but not limited to the System.
1.9 "Sub-Agreement" shall mean each agreement between PV and a
Sub-Licensee pursuant to which said Sub-Licensee is to exploit any of the
Licensed Technology, any Product or any System.
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<PAGE>
1.10 "Sub-Licensee" shall mean any person or entity licensed by PV to
exploit any of the Licensed Technology, any Product or any System within a
specific geographic area which is within the Territory.
1.11 "System" shall mean any and all computer hardware and operating
system software, firmware and/or applications software, and all documentation
pertaining thereto, employed with respect to the exploitation of the Licensed
Technology as permitted by this Agreement.
1.12 "Territory" shall mean Mexico, Central America and South America and
Spanish language markets in the Caribbean basin.
1.13 "User" shall mean any person or entity who or which has been granted
rights to use one or more Products or Systems by PV or any Sub-Licensee or who
or which purports to have acquired such rights from PV or any Sub-Licensee. A
Sub-Licensee may also be a User.
1.14 "User Agreement" shall mean each agreement between PV or any
Sub-Licensee, on the one hand, and a User, on the other hand, pursuant to which
said User is to exploit any of the Licensed Technology, any Product or any
System.
2. GRANT OF RIGHTS
2.1 Grant of License.
2.1.1 In consideration for the License Fee, the receipt of which is
hereby acknowledged, subject to the terms and conditions of this Agreement
PEB hereby grants to PV an exclusive, royalty-free, perpetual license
throughout the Territory, (i) to exploit the Licensed Technology through
Permitted Uses thereof, directly, and by leasing, subleasing, sublicensing
or otherwise conveying rights to others to exploit the Licensed Technology
themselves within the Territory; and (ii) to operate as lessee or licensee
one or more Systems in connection with such exploitation or to cause or
permit others to do so within the Territory.
2.1.2 The license granted in ss.2.1.1 encompasses the rights to the
generation of income of every nature and description from every
commercially viable Permitted Use of the Licensed Technology in the
Territory except as provided in ss.ss.2.1.3 and 2.1.4. Any sublease or
sublicense hereunder shall provide for protection of the Licensed
Technology to the same extent that PV is required to protect the Licensed
Technology pursuant to this Agreement and shall be subject and subordinate
to this Agreement in every respect.
3
<PAGE>
2.1.3 After consultation with PV, other licensees of PEB and
industry experts, PEB will promulgate standards and guidelines for
appropriate commercial applications of the Licensed Technology and the
Products, taking into consideration legal and ethical concerns reasonably
related to PEB's worldwide rights to exploit the Licensed Technology. Such
standards and guidelines shall be reasonably in accord with standards
prevailing within the Territory and shall take effect forty-five (45) days
from the date on which promulgated. In the event that PV objects to such
standards and guidelines, or any part of them, PV nevertheless shall
comply with such standards and guidelines but shall have the right, within
forty-five (45) days of the promulgation of the standard and/or guideline
to which PV objects, to submit the matter to binding arbitration before a
panel of three (3) arbitrators sitting in the New York/New Jersey
metropolitan area pursuant to the rules of the American Arbitration
Association, or any successor organization thereto, then in effect. Each
party hereto shall select its own arbitrator and those two arbitrators
shall select the third. PV recognizes that any use of the Licensed
Technology and the Products in violation of law and commonly recognized
community or industry standards would cause severe and irreparable injury
to PEB's reputation and legitimate business interests and that, as a
result, PEB must exercise control over standards and guidelines for the
Licensed Technology and the Products. Therefore, notwithstanding anything
in this Agreement to the contrary, PV shall not, and it shall not allow
any Sub-Licensee or User to, use any of the Licensed Technology or any
Product in any manner inconsistent with PEB's standards and guidelines, as
in effect from time to time. PV shall distribute to each Sub-Licensee and
each User copies of such standards and guidelines, as and when promulgated
by PEB, and shall obtain written, enforceable undertakings from each such
Sub-Licensee and each User to comply with PEB's standards and guidelines,
as in effect from time to time.
2.1.4 Broadcast insertions made by PV or the relevant Sub-Licensee
or User, as the case may be, shall only be made in strict compliance with
this Agreement and PEB's published standards and guidelines as amended
from time to time by PEB in its sole discretion. PEB retains the right to
control application of the Licensed Technology so as to protect its
proprietary rights therein and so as to prevent use of the Licensed
Technology in any manner which would adversely affect rights granted
hereunder to PV or under similar agreements to Other Licensees. PV or the
relevant Sub-Licensee, as the case may be, deriving any revenue from any
electronic insertion made in the
4
<PAGE>
Territory because such insertion is to be seen in an Other Territory or in
Other Territories, shall share the revenue generated from such insertion
with the relevant Other Licensee(s) in accordance with a formula
established by PEB, as amended from time to time by PEB in its sole but
reasonable discretion. PV shall be responsible for enforcing the
provisions of this Section 2.1.4 as against its Sub-Licensees. PEB shall
make the final determination, in its sole but reasonable discretion, as to
whether PV or the relevant Sub-Licensee or User has complied with the
requirements of this Section 2.1.4.
2.2 Training and Support. PEB shall provide Know-How and training in the
use, operation and maintenance of the Systems, all other Products and the
Licensed Technology to the technical personnel of PV to enable them to operate,
repair, maintain and support the Systems, such other Products and the Licensed
Technology. The number of days of training, the number of technical personnel of
PV to be trained and the dates for such training to occur shall be as mutually
agreed upon by the parties. Additional training of PV personnel upon the release
in the Territory of new versions or significant enhancements of Systems, other
Products or the Licensed Technology shall take place within a reasonable time
from such release. PEB shall use its best efforts to conduct said training
within thirty (30) days of said release. Such training shall be provided at
PEB's offices in Princeton, New Jersey or such other location as may be mutually
agreed upon by the parties. PEB shall provide such training at no cost to PV.
The expenses incurred by PV's technical personnel for travel, meals and lodging
during such training sessions shall be paid for by PV. In addition, PEB shall
make its technical personnel available during its normal business hours for
telephone consultations with PV's technical personnel at no charge. In the event
that training or technical support is required by PV during the term of this
Agreement at any location outside Princeton, New Jersey, PV shall reimburse PEB
for all expenses of PEB's personnel for travel, meals and lodging incurred in
connection with providing such services.
2.3 Best Efforts. PV shall use its best efforts to maximize the economic
return to be derived from its exploitation of the license granted to it
hereunder.
2.4 Restrictions on Use. PV shall not and shall not permit any
Sub-Licensee or User to (i) manufacture any Product or component thereof; (ii)
modify, adapt, merge, translate, decode, reverse engineer, decompile,
disassemble or create derivative works based on the Licensed Technology, any
Products, any Systems or any portion thereof or distribute the same or permit
others to do so within the Territory; or (iii) use the Licensed Technology, the
Products, or any System in any manner prohibited by this Agreement. PV
acknowledges for itself and any Sub-Licensee or User that the restrictions on
use set forth above are necessary in order to protect and maintain the
5
<PAGE>
value of the proprietary and other legitimate business interests of PEB and that
any violation thereof shall cause severe injury to PEB for which any remedy at
law shall be inadequate. Accordingly, PEB shall be entitled to injunctive relief
without having to post bond or other security and without having to prove the
inadequacy of the available remedies at law in addition to all other available
remedies including, without limitation, seeking such damages as it can show it
has sustained by reason of such violation. Neither PV nor any Sub-Licensee or
User shall plead or defend on grounds of adequate remedy at law or any element
thereof in an action by PEB against it for injunctive relief or specific
performance of any obligation pursuant hereto. PV shall take any action
reasonably requested by PEB to enjoin any Sub-Licensee or User from any use of
Licensed Technology, any System, or any Product prohibited by this Agreement.
2.5 Ownership. PV acknowledges and agrees that PEB owns the exclusive
worldwide right to exploit or turn to account all of the Licensed Technology,
the Licensed Patents, the Products, and the Systems, and all copies thereof, all
updates and modifications thereto and all right, title and interest in and to
all patents, patent rights, trade secrets and confidential information relating
thereto. PV acknowledges that, by virtue of this Agreement, PV does not have,
and will not obtain, any right, title or other proprietary interest in and to
any of the foregoing.
2.6 Systems. PV shall have the right to use the Systems delivered by PEB
pursuant to ss.2.1.1 above only for the duration of this Agreement. For purposes
of this Agreement, delivery of those items of equipment identified on Schedule C
hereto shall be deemed delivery of a System. PEB shall deliver the fourth System
produced by it for commercial distribution to PV without additional charge. PV
may order additional Systems from PEB and PEB shall deliver such additional
Systems within ninety (90) days of payment by PV of PEB's invoice for PEB's
actual cost for all Systems to be delivered. PV shall have the right to receive
and PEB shall have the right to substitute new or modified Systems for each
System delivered to PV hereunder at any time subject to their reasonable
availability and to PEB's then existing commitments to deliver Systems to other
persons or entities, and provided that such substitution or replacement shall
not unreasonably interfere with the conduct of business by PV or the relevant
Sub-Licensee or User.
2.7 Maintenance. PV, or the relevant Sub-Licensee or User, as the case may
be, shall, at its own cost and expense, keep the Systems and other Products in
the possession or control of PV, or the relevant Sub-Licensee or User, as the
case may be, in good repair, condition and working order. Except as expressly
provided herein PV, or the relevant Sub-Licensee or User, shall be responsible
for all costs and expenses attributable to the Systems or any other Product, in
the possession or control of PV or the relevant Sub-Licensee or User.
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<PAGE>
3. REPRESENTATIONS AND WARRANTIES; COVENANTS
3.1 Representations and Warranties. Each party represents and warrants to
the other that (i) it has full right, power and authority to execute, deliver
and perform under this Agreement; and (ii) in so doing will not violate any law,
rule or regulation applicable to it or any other agreement to which it is a
party.
3.2 Representations and Warranties of PEB. PEB hereby represents and
warrants to PV that:
3.2.1 PEB is the sole owner of all right, title and proprietary
interest in, or has exclusive right to exploit, all of the Licensed
Patents and Licensed Technology, and has the exclusive right to grant
licenses therefor in the Territory; and
3.2.2 PEB has applied in good faith for, and has been issued, a
United States patent from the United States Patent and Trademark Office
("PTO") covering the Licensed Technology (or so much thereof as patent
counsel has advised may be patented under applicable law). PEB is not
aware of any state of facts that would warrant the invalidation or
non-enforceability of any such patent. PEB has also filed in the PTO
pursuant to the Patent Cooperation Treaty a PCT patent application
directed to the Licensed Technology (or so much thereof as patent counsel
has advised may be patented under applicable law). PEB has received
notification from the PTO that nothing has arisen in the PTO evidencing
any non-entitlement to national patents derived from said PCT patent
application.
3.3 Covenants by PV
3.3.1 PV covenants that it shall maintain in effect insurance in
form and amounts covering such risks as are customarily carried by prudent
companies engaged in the same or similar business as PV. Such insurance
shall include, but not be limited to, errors and omissions coverage, and
general liability and product liability insurance with combined single
limit coverage of a minimum of US$10,000,000 per occurrence, unless such
coverage cannot be obtained either within the Territory or outside the
Territory but with respect to activities or omissions within the
Territory. All of such insurance shall name PEB as an additional insured,
as its interests may appear. Upon PEB's reasonable request, PV shall
periodically increase such minimum coverage to compensate for inflation
and changes in intervening business circumstances. PV shall pay the cost
and periodic premiums of such insurance.
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3.3.2 PV covenants that it shall not challenge PEB's ownership
rights in the Licensed Patents, the Licensed Technology or all rights in
and to all uses of any of them and shall actively assist PEB in defending
any of the foregoing at PEB's expense. PV shall not do any act or thing
which impairs or weakens the ownership rights of PEB with respect to the
Licensed Patents and the Licensed Technology and, if PV becomes aware of
any use of any of the Licensed Patents or Licensed Technology by any
unauthorized person or entity, PV shall promptly send notice of such
unauthorized use to PEB and shall actively aid PEB in its attempts to
prohibit or suppress such unauthorized use.
3.3.3 PV covenants that it shall only grant rights to any
Sub-Licensee or User pursuant to an agreement which legally and validly
binds said Sub-Licensee or User to at least those restrictive terms set
forth on Exhibit D attached hereto including, but not limited to, a full
and complete indemnification of PEB by each Sub-Licensee or User
consistent in scope and content with PV's indemnification of PEB under
ss.6.2 below; a copy of the final and fully executed agreement between PV
and any Sub-Licensee or User shall be delivered to PEB promptly after its
execution; and in the event that PV desires to grant rights to any
Sub-Licensee or User which purport to or shall in any way survive the
termination of PV's license hereunder, PV shall supply to PEB a term sheet
for said agreement and any amendments thereto which it hereby represents
shall be true, correct and complete, for PEB's prior written approval to
be granted or withheld in PEB's sole discretion.
3.3.4 PV covenants that in the event a claim alleging that any
Sub-Licensee or User has violated the rights of a given Copyright
Controller is fully and finally adjudicated by a court of competent
jurisdiction against said Sub-Licensee or User, PV shall, upon PEB's
written request, take every reasonable action necessary to terminate all
of said Sub-Licensee's or User's rights in or to the Licensed Technology.
3.3.5 PV covenants that (i) within thirty (30) days of the end of
each fiscal quarter, PV shall deliver to PEB a quarterly balance sheet and
statement of income and expenses for the relevant quarter; (ii) within
ninety (90) days of the end of PV's fiscal year, PV shall deliver to PEB a
year end balance sheet and statement of income and expenses for such
annual period, audited by independent certified public accountants
reasonably acceptable to PEB in accordance with Mexican generally accepted
accounting
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principles, consistently applied. Contemporaneously, PV shall supply to
PEB any and all additional information necessary for PEB to reconcile said
financial statements with U.S. generally accepted accounting principles.
PEB shall have the right to confirm revenues and expenses related to the
Licensed Technology, Systems, and other Products licensed hereunder by
causing an audit to be performed, at PEB's sole expense and not more
frequently than twice in any twelve (12) month period, of PV's books and
records related thereto. PV shall make all of its books and records
reasonably available to PEB to facilitate such audits and PEB shall use
its best efforts to cause minimal disruption to PV's business as a result
of said audits.
3.4 Covenants by PEB
3.4.1 PEB covenants that the provisions of ss.2.1.4 hereof (modified
only to the extent of substituting in place of PV the appropriate name of
the PEB licensee in question) shall be included in every agreement that it
shall enter into with any other person or entity regarding the licensing,
sublicensing or other conferral of any rights upon such person or entity
to exploit the Licensed Technology and the use of Systems anywhere else in
the world outside the Territory.
3.4.2 PEB covenants that upon deriving any revenue from any
electronic insertion made by PEB because such insertion is to be seen in
the Territory, PEB shall share the revenue generated from such insertion
with PV or the relevant Sub-Licensee in a manner consistent with the
formula established by PEB, as amended from time to time by PEB in its
sole but reasonable discretion, for the sharing of such revenues among PV,
the relevant Sub-Licensee and relevant Other Licensees in accordance with
ss. 2.1.4 above.
4. PATENT PROSECUTION, INFRINGEMENT AND ENFORCEMENT
4.1 Patent Prosecution. PEB shall apply for, or shall authorize PV to do
so on PEB's behalf, in PEB's name and for PEB's benefit, letters patent covering
the Licensed Technology (or so much thereof as patent counsel has advised may be
patented under applicable law) owned by PEB in each country in the Territory
which will not, pursuant to an applicable convention, automatically recognize
the validity and enforceability of the United States patent to be issued to PEB.
PEB shall pay all costs for the preparation and prosecution of all patent
applications and the issuance of all patents in Mexico and four other countries
located within the Territory (such countries to be mutually agreed upon by the
parties) . Thereafter, PEB shall authorize PV to apply for, on PEB's behalf,
letters patent in any
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other countries in the Territory deemed necessary or appropriate by PV, and PV
shall pay all costs for the preparation and prosecution of all such patent
applications and the issuance of all such patents.
4.2 Patent Enforcement. PEB shall have the first right, but not the duty,
to commence and prosecute patent infringement claims, actions or proceedings
against third parties on any Licensed Patent. If PEB does not institute an
infringement claim, action or proceeding against any offending third party, PV
shall have the right, but not the duty to do so. If PV exercises such right, PV
shall not make any settlement or take or permit any action which would adversely
affect the validity of any Licensed Patent and/or adversely affect PEB's
ownership of the Licensed Technology. If PV exercises such right, PV agrees that
PEB at any time at PEB's expense may assume control of any such claim, action or
proceeding instituted by PV. The costs and expenses of any such claim, action or
proceeding (including fees of attorneys or other professionals) shall be borne
by the party instituting the same, or, if the parties elect to cooperate in
instituting and maintaining such claim, action, or proceeding, such costs and
expenses shall be borne by the parties in such proportions as they may agree in
writing. Each party shall execute all necessary and proper documents and take
such actions as shall be reasonably appropriate to allow the other party to
institute and prosecute such infringement actions. Any award paid by third
parties as a result of such an infringement action (whether by way of settlement
or otherwise) shall be paid to the party which instituted and maintained such
action, or, if both parties instituted and maintained such action, such award
shall be allocated between the parties in proportion to their respective
contributions to the costs and expenses incurred in such action.
5. CONFIDENTIALITY
5.1 Confidential Information Defined. "Confidential Information" means
trade secrets, proprietary information, and confidential knowledge and
information which includes, but is not limited to, the Licensed Technology, the
Products and other matters of a technical nature (such as discoveries, ideas,
concepts, designs, drawings, specifications, techniques, models, diagrams, test
data and Know-How), and matters of a business nature (such as marketing
techniques and materials, marketing and development plans, pricing or pricing
policies, financial information, plans for further development), and any other
information of or pertaining to PEB and/or persons or entities to which PEB owes
a duty of confidentiality, of a similar nature not available to the public.
5.2 Non-Disclosure of Confidential Information. PV acknowledges that,
during the term of this Agreement, PV will have access to Confidential
Information. During the term of this Agreement and for a period of five (5)
years thereafter, PV shall not, without the prior written approval of PEB,
directly or indirectly (i) reveal, report,
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publish, disclose, or transfer any Confidential Information to any person or
entity, or (ii) use any Confidential Information for any purpose or for the
benefit of any person or entity, except as is authorized under this Agreement.
PV is hereby authorized to disseminate such information, including Confidential
Information, necessary to operate and maintain the Systems, subject to all terms
and conditions of this Agreement, to all Sub-Licensees and Users.
5.3 Property of PEB. PV acknowledges and agrees that all Confidential
Information and all reports, drawings, blueprints, data, notes, and other
documents and records, whether printed, typed, handwritten, videotaped,
transmitted or transcribed on data files or on any other type of media, made or
compiled by PV, or made available to PV during the term of this Agreement,
concerning Confidential Information are and shall remain PEB's property and
shall be delivered to PEB on the termination of PV's license to use the Licensed
Technology as provided in this Agreement. PV shall not retain copies of such
Confidential Information, documents or records after any such termination. PV
shall only use Confidential Information for legitimate business purposes
hereunder.
5.4 Proprietary Notices. PV shall not, and shall not allow any of its
employees, Sub-Licensees or Users to, remove any proprietary or other legends or
restrictive notices contained in or included in any Confidential Information or
on any Products or Systems.
5.5 Exceptions. PV may disclose Confidential Information only to the
extent such disclosure is reasonably necessary in filing or prosecuting patent
applications, prosecuting or defending litigation, or complying with applicable
governmental regulations, provided that if PV is required to make any such
disclosure of Confidential Information it shall give reasonable advance notice
to PEB of such disclosure requirement and shall cooperate fully with PEB in
limiting or avoiding such disclosure if PEB so elects. If PEB has no objection
to such disclosure, PV shall use its best efforts to secure confidential
treatment of such information required to be disclosed.
6. INDEMNIFICATION
6.1 Mutual. Each party shall indemnify and hold the other party harmless
from and against any and all claims for liability, damage, loss, cost or expense
(including all costs of attorneys and other professionals) arising out of a
party's breach of its representations, warranties or covenants hereunder.
6.2 By PV. In addition, PV shall indemnify and hold PEB harmless from and
against any liability, damage, loss, cost or expense (including all costs of
attorneys and other professionals) resulting from an Event of Default by PV
hereunder or by a Sub-Licensee or User under the applicable Sub-Agreement or
User Agreement, and any and all claims for liability, damage, loss, cost or
expense (including
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all costs of attorneys and other professionals) arising out of third party
claims or suits resulting from the use by PV or any Sub-Licensee or User of the
Licensed Technology, any Product, or any System. PV shall have no obligation to
indemnify and hold PEB harmless under the preceding sentence from any third
party claim, suit, or portion thereof alleging that PV or the relevant
Sub-Licensee or User has infringed upon said third party's intellectual property
rights as a result of PV's or the relevant Sub-Licensee's or User's use of the
Licensed Technology, any Product or any System, as permitted by this Agreement.
6.3 By PEB. PEB shall indemnify and hold PV harmless from and against any
and all claims for liability, damage, loss, cost or expense (including all costs
of attorneys and other professionals) arising out of third party claims or suits
alleging that PV has infringed upon said third party's intellectual property
rights as a result of PV's or the relevant Sub-Licensee's or User's use of the
Licensed Technology, any Product or any System as permitted by this Agreement.
PEB's obligation to indemnify PV pursuant to the foregoing sentence shall be
limited to claims brought prior to the third anniversary of the first date on
which PEB delivers a System to PV and shall in no event exceed the License Fee.
7. TERM; TERMINATION
7.1 Term. It is contemplated by the parties that the license granted under
this Agreement is perpetual and shall remain in effect after the expiration of
the last to expire of the Licensed Patents necessary for the use, lease,
sublicense or other transfer of rights to use the Products in the Territory.
This Agreement shall commence as of the date of this Agreement and, unless
sooner terminated as provided under this Article 7, shall terminate only upon
the mutual agreement of the parties.
7.2 Events of Default; Remedies.
7.2.1 Each of the following shall constitute an Event of Default by
PV hereunder:
(a) any exploitation by PV of any of the Licensed Technology,
any Product or any System in any manner or location not expressly
permitted by this Agreement;
(b) PV's granting or purporting to grant rights to any
Sub-Licensee or User which are not in every respect subject and
subordinate to PEB's rights under this Agreement;
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(c) any failure by PV to conform to the standards and
guidelines promulgated pursuant to ss.2.l.3 above;
(d) any failure by PV to enforce, as against any Sub-Licensee
or User, the terms and conditions of this Agreement to the extent
that said terms and conditions apply to said Sub-Licensee or User;
(e) the attempted, purported or completed sale by PV of any
Product or component part thereof;
(f) the erasure, obscuring or obliteration by PV of physical
or other advertising which, but for such erasure, obscuring or
obliteration, would have been broadcast in any program to which PV
or said Sub-Licensee or User has applied the Licensed Technology
unless the same is in accordance with ss.2.l.4;
(g) the broadcast by PV into or through an Other Territory of
images inserted into programming originating or being transmitting
through the Territory, unless the same is in accordance with Section
2.1.4;
(h) any failure by PV timely to pay monies owed to PEB;
(i) PV's failure to use its reasonable efforts to maximize the
economic return to be derived from its exploitation of the Licensed
Technology (as to any litigated dispute under this clause (i) the
prevailing party shall be entitled to reimbursement from the other
party of its reasonable legal expenses in connection with said
litigation)
(j) the manufacture by PV of any Product or component thereof;
(k) the modification, adaptation, merging, translation,
decoding, reverse engineering, decompilation, disassembly or
creation of derivative works based on the Licensed Technology, any
Products, any Systems, or any portion thereof or the distribution of
the same by PV (except that the nominal modification, adaptation of,
or creation of derivative works
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based on, the foregoing solely for legitimate, technical local
operating anomalies, as determined by PEB in its sole reasonable
discretion, shall not be deemed an Event of Default by PV);
(l) PV's failure to maintain the insurance coverage required
by ss.3.3.l;
(m) PV shall challenge PEB's ownership rights in the Licensed
Patents, Licensed Technology or any rights in and to any uses of any
of them; or PV shall impair or weaken the ownership rights of PEB
with respect to the Licensed Patents and the Licensed Technology; or
PV shall fail actively to aid PEB in its attempts to prohibit or
suppress any unauthorized use of the Licensed Patents or the
Licensed Technology in the Territory or by any Sub-Licensee or User;
(n) PV shall grant rights to any Sub-Licensee or User in an
agreement which does not contain at least those restrictions on
Sub-Licensees and Users as are set forth on Exhibit D hereto or
without first obtaining a written acknowledgment from each such
Sub-Licensee or User that the rights of any such Sub-Licensee or
User are subject and subordinate in every respect to PEB's rights
under this Agreement;
(o) PV shall directly or indirectly reveal, report, publish,
disclose, or transfer any Confidential Information or shall use any
Confidential Information in any manner other than as expressly
authorized under this Agreement or shall use Confidential
Information for other than legitimate business purposes hereunder;
(p) PV shall cause or knowingly permit the removal of any
proprietary or other legend or restrictive notice contained in or
included in Confidential Information or on any Products or Systems;
(q) PV shall assign or attempt or purport to assign this
Agreement or any interest herein without PEB's prior written consent
which PEB may withhold or delay in its sole discretion; and
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(r) PV or any Sub-Licensee or User shall directly or
indirectly solicit, induce or attempt to induce any employee of PEB
or any affiliate of PEB to terminate his or her employment with PEB
or such affiliate.
7.2.2 PEB shall not terminate this Agreement as the result of an
Event of Default by PV unless the same shall be a Material Event of
Default which shall mean:
(a) The failure by PV to cause the incorporation into a
Sub-Agreement of (i) the Events of Default enumerated in Section
7.2.1 (a)-(c), (e)-(k), and (m)-(r) of this Agreement such that any
act or omission by a Sub-Licensee or User that, if by PV, would
constitute an Event of Default hereunder, shall constitute an Event
of Default by said Sub-Licensee under the Sub-Agreement or by said
User under the User Agreement, and (ii) full and complete
indemnification of PEB by each Sub-Licensee and User consistent in
scope and content with PV's indemnification of PEB under ss.6.2
above;
(b) The failure by PV to cure an Event of Default within sixty
(60) days after the receipt of written notice thereof (or, if such
Event of Default cannot be cured within such sixty (60) day period,
if PV does not commence and diligently continue actions to cure such
Event of Default);
(c) The failure by PV diligently to take all reasonable
actions including, but not limited to, the prosecution of an action
and all reasonable appeals thereof in a court of competent
jurisdiction, to (i) compel a Sub-Licensee to comply with the
relevant Sub-Agreement, or (ii) terminate said Sub-Agreement
following an Event of Default by said Sub-Licensee under said
Sub-Agreement if PEB, in its sole discretion, directs PV to effect
such termination;
(d) The failure by PV diligently to take all reasonable
actions including, but not limited to, the prosecution of an action
and all reasonable appeals thereof in a court of competent
jurisdiction, to (i) compel a User to comply with the relevant User
Agreement, or (ii) terminate said User Agreement following an Event
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of Default by said User under said User Agreement if PEB, in its
sole discretion, directs PV to effect such termination; or
(e) The occurrence of a pernicious and egregious course of
conduct by PV hereunder, such as by way of example and not
limitation, the occurrence of three (3) Events of Default in any
twelve (12) month period (regardless of cure thereof)
Upon the occurrence of a Material Event of Default by PV hereunder PEB
shall be entitled, in addition to any other rights or remedies available
to it hereunder, at law or in equity, to terminate this Agreement by
giving written notice to take effect thirty (30) days after such notice
unless PV shall cure such Material Event of Default (other than under
clause (d) above) within said thirty (30) days. PEB's right to terminate
this Agreement, as hereinabove provided, shall not be affected in any way
by its waiver or failure to take action with respect to any previous Event
of Default.
7.2.3 If the Event of Default under this Agreement or under any
Sub-Agreement results from an act or omission of a Sub-Licensee, PEB shall
have the right, but not the obligation, to proceed against such
Sub-Licensee directly to enforce this Agreement or the Sub-Agreement. If
the Event of Default under this Agreement or under any User Agreement
results from an act or omission of a User, PEB shall have the right, but
not the obligation, to proceed against such User directly to enforce this
Agreement or the User Agreement.
7.3 Insolvency or Bankruptcy. Either party may, in addition to any other
remedies available to it at law or in equity, terminate this Agreement by
written notice to the other party in the event the other party shall have
commenced voluntary proceedings in bankruptcy or shall have made an assignment
for the benefit of its creditors, or there shall have been appointed a trustee
or receiver of the other party or for all or a substantial part of its property,
or any case or proceeding shall have been commenced or other action taken by or
against the other party in bankruptcy or seeking reorganization, liquidation,
dissolution, winding-up, arrangement, composition or readjustment of its debts
or any other relief under any bankruptcy, insolvency, reorganization or other
similar act or law of any jurisdiction now or hereafter in effect, or there
shall have been issued a warrant of attachment, execution, distraint or similar
process against any substantial part of the property of the other party, and any
such event shall have continued for ninety (90) days undismissed, unbonded and
undischarged.
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7.4 Effect of Termination of Agreement. Upon the termination by PEB of the
license granted herein as to the Licensed Technology and all Products in the
Territory, all rights in and to any Products, the Licensed Technology and any
and all uses of them granted to PV and all Sub-Licensees and Users shall
immediately revert back to PEB and PV shall, and shall cause all Sub-Licensees
and Users to, immediately cease and forever abstain from any and all uses of the
Licensed Technology and PV shall promptly: (i) return to PEB all Products and
all relevant records, materials concerning the Licensed Technology or
Confidential Information in the possession or control of PV or any Sub-Licensee
or User; (ii) assign to PEB and/or PEB's designee, its right to any trade name
or trademark used by PV for the Products in the Territory; and (iii) execute any
documents or instruments requested by PEB to effect such reversion and the
transfer, grant and assignment to PEB or its designee of any rights which PV may
have acquired with respect to the Licensed Technology and in any patents which
PV may have registered pursuant to ss.4.1 above, which transfers, grants, and
assignments shall require no consideration other than the mutual agreement
represented by this Agreement.
7.5 Surviving Rights. The parties' obligations under Articles 5 and 6 and
ss.ss.2.4, 2.5, 3.3.2, 4.2, 7.4, 8.3, 8.4, 8.5, 8.12 and 8.13 shall survive any
termination of this Agreement.
8. MISCELLANEOUS PROVISIONS
8.1 Relationship of Parties. Nothing in this Agreement is intended or
shall be deemed to constitute a partnership, agency, employer-employee or joint
venture relationship between the parties. No party shall incur any debts or make
any commitments for the other.
8.2 Assignment. Except as otherwise provided herein, neither this
Agreement nor any interest hereunder shall be assignable by either party without
the prior written consent of the other, whether directly or indirectly by
merger, asset sale or operation of law. Notwithstanding the foregoing, PEB may
assign this Agreement or any interest hereunder to any person or entity
controlled by, controlling, or under common control with PEB without the prior
written consent of PV. This Agreement shall be binding upon the successors and
permitted assigns of the parties. Any assignment not in accordance with this
ss.8.2 shall be void and shall nevertheless constitute a material default
hereunder.
8.3 Covenant Not to Solicit Employees. Each party shall not at any time
during the term of this Agreement or for a period of two (2) years following the
termination of this Agreement directly or indirectly solicit, induce, or attempt
to induce any employee of the other or of any affiliate of the other to
terminate his or her employment with the other party or such affiliate.
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8.4 Disclaimer of Warranties. The parties expressly disclaim any
warranties as to validity or enforceability of Licensed Patents, or
non-infringement of third party patents.
8.5 Further Actions. Each party agrees to execute, acknowledge and deliver
such further instruments, and to do all such other acts, as may be reasonably
necessary or appropriate in order to carry out the purposes and intent of this
Agreement.
8.6 Force Majeure. Neither party shall be liable to the other for loss or
damages or shall have any right to terminate this Agreement for any default or
delay attributable to any act of God, or other cause beyond the reasonable
control of such party, if the party affected shall give prompt notice of any
such cause to the other party. The party giving such notice shall thereupon be
excused from such of its obligations hereunder as it is thereby disabled from
performing for so long as it is so disabled.
8.7 Notices. All notices and other communications hereunder shall be in
writing, in English, and shall be deemed given if delivered personally or by
facsimile transmission (receipt verified), telexed, mailed by registered or
certified mail, postage prepaid, or sent by DHL or another international express
courier service of similar stature, to the parties at the following addresses
(or at such other address for a party as shall be specified by like notice;
provided, that notices of change or address shall be effective only upon receipt
thereof):
If to PV, addressed to: Publicidad Virtual, S.A. de C.V.
Montes Urales No. 739-A
11000 Mexico, D.F., Mexico
Attention: President
If to PEB, addressed to: Princeton Electronic Billboard, Inc.
47 Hulfish Street, Suite 500
Princeton, New Jersey 08542, U.S.A.
Attention: President
8.8 Amendment. No amendment, modification or supplement of any provision
of this Agreement shall be valid or effective unless made in writing and signed
by a duly authorized officer of each party.
8.9 Waiver. No provision of this Agreement shall be waived except by an
instrument in writing expressly waiving such provision and signed by the waiving
party.
8.10 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original but all of which shall constitute one
and the same agreement.
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8.11 Descriptive Headings. The descriptive headings in this Agreement are
for convenience only, and shall be of no force or effect in construing or
interpreting any of the provisions of this Agreement.
8.12 Governing Law: English Language This Agreement shall be governed by
and interpreted in accordance with the laws of the State of New Jersey,
applicable to contracts executed and performed wholly within the State of New
Jersey. The English original of this Agreement shall prevail over any
translation thereof.
8.13 Consent to Jurisdiction. The parties hereby irrevocably submit to the
exclusive jurisdiction of any New Jersey State or Federal court sitting in the
State of New Jersey for any action or proceeding arising out of or relating to
this Agreement, and the parties hereby irrevocably agree that all claims in
respect of any such action or proceeding may be heard and determined in New
Jersey State court or, to the extent permitted by law, may be removed to or
brought in any Federal court in New Jersey having jurisdiction. The parties
hereby irrevocably waive, to the fullest extent they may effectively do so, the
defense of an inconvenient forum to the maintenance of any such action or
proceeding.
8.14 Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be prohibited by or
invalid under applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
this Agreement.
8.15 Compliance with Law. Nothing in this Agreement shall be deemed to
permit a party to export, reexport or otherwise transfer any Licensed Technology
transferred hereunder or Products manufactured therefrom without compliance with
applicable laws.
8.16 Entire Agreement of the Parties. This Agreement constitutes and
contains the entire understanding and agreement of the parties with respect to
the Licensed Patents and the Licensed Technology and cancels and supersedes any
and all prior negotiations, correspondence, understandings and agreements,
whether oral or written, between the parties respecting the subject matter
hereof.
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be executed by its duly authorized officer on the 23 day of October, 1995 with
effectiveness as of the day and year first above written.
PRINCETON ELECTRONIC BILLBOARD, INC.
By: /s/ Brown F. Williams
-------------------------------------
Brown F. Williams, President
PUBLICIDAD VIRTUAL, S.A. de C.V.
By: /s/ Eduardo Sitt
-------------------------------------
Eduardo Sitt, President of the Board
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PEB
Real Time Sports &
Entertainment
Advertising
- --------------------------------------------------------------------------------
FAX COVER SHEET
DATE: October 3, 1995
TO: Roberto Sonabend FAX #: O11-525-520-1475
FROM: Brown Willlams Number of pages including cover sheet: 2
- --------------------------------------------------------------------------------
The following information is to be disclosed as the Exhibits to the License
Agreement -
Exhibit A
The "Licensed Technology" is comprised of all inventions, improvements,
discoveries, claims, formulae, processes, trade secrets, technologies, and
Know-How in which PEB has or develops or obtains rights, as the same may be
modified or expanded from time to time: (1) relating to or derived from PEB's
"Electronic Billboard" invention, which replaces live television images with
inserted material in a manner that causes the insertion to appear as though it
was a part of the original image, or (2) claimed, covered or disclosed in any
Licensed Patent.
Exhibit B
The Licensed Patents consist of the following:
1) US Patent No. 5,264,933. The related PCT Application No. is
PCT/US91/05174.
In addition, applications have been filed in the following countries:
Country App.#
------- -----
Mexico 935404
Columbia 412,085
Chile 1224-93
Argentina 326214
Venezuela 1938-93
Costa Rica Pending
Brazil PI9304280
Peru 243152
Panama Pending
(The country applications listed above have, in some cases, been abandoned. You
have indicated that you will find out the actual status of them)
<PAGE>
page 2
2) Us Patent Application No. 08/143,938 with a filing date of 10/27/93. The
related PCT Application No. is PCT/US94/08863 including the designation of
Brazil.
In addition, applications have been filed in the following countries:
Country App.#
------- -----
Mexico 948325
Chile 1575-94
Venezuela 1938/93
Peru 253122
3) US Patent Application No. 08/381,088 with a filing date of 0l/31/95
There has been no PCT case filed regarding this application but it can be
filed up until January 1996.
Exhibit C
The PEB system is comprised of seven modules: (1) the computer workstation and
power conditioning with associated networking peripherals; (2) the PEB digital
video processing system; (3) audio delay and monitoring equipment; (4) analog to
digital and digital to analog video conversion equipment; (5) video monitoring
equipment; (6) audio and video switching components with associated interfacing
hardware; and, (7) L-VIS operating software and operator interface equipment.
<PAGE>
EXHIBIT D(1)
Minimum Restrictions for Sub-License Agreements
All license agreements between PV and any Sub-Licensee shall contain
at least the following terms:
1. DEFINITIONS
The following terms shall not be defined more broadly than:
1.1 "Copyright Controller" shall mean that person or entity having the
legal right under applicable copyright and other law to control and alter
programming in a given geographical territory by means of the Licensed
Technology or otherwise.
1.2 "Know-How" shall mean all inventions, technology or other information
discovered or developed by or for PEB before or during the term of this
Agreement, whether or not patentable, constituting materials, methods,
processes, techniques and data for the use or sale of any Products.
1.3 "Licensed Patents" shall mean:
1.3.1 the current patents or patent applications owned or controlled
by PEB or jointly owned by David Sarnoff Research Center, Inc. and PEB
relating to the Licensed Technology which are set forth on Exhibit B,
including any Supplemental Protection Certificates or the equivalent
thereof, extensions, renewals, continuations, continuations-in-part,
divisions, patents-of-additions re-examinations, and/or reissues thereof;
and
1.3.2 any future patents or patent applications which are foreign
counterparts in any country in the Territory to PEB's current U.S. and
foreign patents and patent applications as set forth on Exhibit B,
including any Supplemental Protection Certificates or the equivalent
thereof, extensions, renewals, continuations, continuations-in-part,
divisions, patents-of-additions, re-examinations, and/or reissues thereof.
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1.4 "Licensed Technology" shall mean all inventions, improvements,
discoveries, claims, formulae, processes, trade secrets, technologies, and
Know-How in which PEB has or develops or obtains rights, as the same may be
modified or expanded from time to time: (i) relating to or derived from PEB's
"Electronic Billboard" invention, which replaces live television images with
inserted material in a manner that causes the insertion to appear as though it
was a part of the original image, as more fully described on Exhibit A, or (ii)
claimed, covered or disclosed in any Licensed Patent.
1.5 "Other Licensee" shall mean the person or entity, including PEB if
appropriate, having rights to exploit the Licensed Technology in an Other
Territory.
1.6 "Other Territory" shall mean any specific geographic area outside the
Territory.
1.7 "Permitted Uses" shall mean all legal uses of the Licensed Technology
(i) in real time in any broadly disseminated television program for advertising
purposes or for any purpose in television programs the principal focus of which
is sports, including tracking images in sports for outlining or emphasis or in
an area such as trajectory, strike zone or player; or (ii) as part of video
post-production. Broadly disseminated programs are those which are broadcast
over the air, via cable or via satellite with a distribution to more than 2,500
customers. Programs disseminated over point to point, or point to multipoint,
private networks are not broadly disseminated programs for purposes of this
Agreement.
1.8 "Product" shall mean any product, the manufacture, use or sale of
which is based upon, derived from, or related to any Licensed Technology,
including, but not limited to the System.
1.9 "Sub-Licensee" shall mean any person or entity directly or indirectly
licensed by PV to exploit any of the Licensed Technology, any Product or any
System within a specific geographic area which is within the Territory. A
Sub-Licensee may also be a User or grant rights to one or more User(s) under
User Agreement(s)
1.10 "System" shall mean any and all computer hardware and operating
system software, firmware and/or applications software,
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and all documentation pertaining thereto, employed with respect to the
exploitation of the Licensed Technology as permitted by this Agreement.
1.11 "Territory" shall mean the specific country or countries in which
rights are granted to Sub-Licensee under this Agreement.
1.12 "User" shall mean any person or entity who or which has been granted
rights to use one or more Products or Systems by PV or any Sub-Licensee or who
or which purports to have acquired such rights from PV or any Sub-Licensee. A
User may not further license any person or entity with respect to any of the
Licensed Technology, any System or any Product in any way.
1.13 "User Agreement" shall mean each agreement between PV or a
Sub-Licensee, on the one hand, and a User on the other hand, pursuant to which
said User is to use any Product or any System.
2. GRANT OF RIGHTS
2.1 Grant of License
2.1.1 In consideration of a license fee and/or royalty stream
subject to the terms and conditions of this Agreement, Sub-Licensee may
directly exploit the Licensed Technology through Permitted Uses thereof,
and by leasing or otherwise conveying rights to Users within the Territory
to operate one or more Systems within the Territory.
2.1.2 The rights granted in ss.2.1.1 must be limited as provided in
ss.ss.2.l.3 and 2.1.4. Any grant of rights hereunder shall provide for
protection of the Licensed Technology to the same extent that Sub-Licensee
is required to protect the Licensed Technology pursuant to this Agreement.
This Agreement and any grant of rights hereunder shall be subject and
subordinate in every respect to PEB's rights under its agreement with PV
except as set forth in Section 7.1 below
2.1.3 Each Sub-Licensee recognizes that any use of the Licensed
Technology and the Products in violation of law and commonly recognized
community or industry
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standards would cause severe and irreparable injury to PEB's reputation
and legitimate business interests and that, as a result, PEB must exercise
control over standards and guidelines for the Licensed Technology and the
Products. Therefore, notwithstanding anything in this Agreement to the
contrary, Sub-Licensee shall not, and it shall not allow any User to, use
any of the Licensed Technology or any Product in any manner inconsistent
with PEB's standards and guidelines, as in effect from time to time.
Sub-Licensee shall distribute to each User copies of such standards and
guidelines, as and when promulgated by PEB, and shall obtain written,
enforceable undertakings from each such User to comply with PEB's
standards and guidelines, as in effect from time to time.
2.1.4 Broadcast insertions made by Sub-Licensee or any User shall
only be made in strict compliance with this Agreement and PEB's published
standards and guidelines as amended from time to time by PEB in its sole
discretion. PEB retains the right to control application of the Licensed
Technology so as to protect its proprietary rights therein and so as to
prevent use of the Licensed Technology in any manner which would adversely
affect rights granted under similar agreements to Other Licensees. If
Sub-Licensee derives any revenue from any electronic insertion made in the
Territory because such insertion is to be seen in an Other Territory or in
Other Territories, it shall share the revenue generated from such
insertion with the relevant Other Licensee(s) in accordance with a formula
established by PEB, as amended from time to time by PEB in its sole
discretion. PEB shall make the final determination, in its sole but
reasonable discretion, as to whether Sub-Licensee or the relevant User has
complied with the requirements of this ss.2.1.4.
2.2 Intentionally Omitted
2.3 Best Efforts. Sub-Licensee shall use its best efforts to maximize the
economic return to be derived from its exploitation of the license granted to it
hereunder.
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2.4 Restrictions on Use. Sub-Licensee shall not and shall not permit any
User to (i) manufacture any Product or component thereof; (ii) modify, adapt,
merge, translate, decode, reverse engineer, decompile, disassemble or create
derivative works based on the Licensed Technology, any Products, any Systems or
any portion thereof or distribute the same or permit others to do so within the
Territory; or (iii) use the Licensed Technology, the Products, or any System in
any manner prohibited by this Agreement. Sub-Licensee acknowledges for itself
and any User that the restrictions on use set forth above are necessary in order
to protect and maintain the value of the proprietary and other legitimate
business interests of PEB and that any violation thereof shall cause severe
injury to PEB for which any remedy at law shall be inadequate. Accordingly, PEB
shall be entitled to injunctive relief without having to post bond or other
security (unless, as to an action brought within a particular jurisdiction, a
specific statutory requirement for bond or other security exists in that
jurisdiction) and without having to prove the inadequacy of the available
remedies at law in addition to all other available remedies including, without
limitation, seeking such damages as it can show it has sustained by reason of
such violation. Neither Sub-Licensee nor any User shall plead or defend on
grounds of adequate remedy at law or any element thereof in an action by PEB
against it for injunctive relief or specific performance of any obligation
pursuant hereto. Sub-Licensee shall take any action reasonably requested by PEB
to enjoin any User from any use of Licensed Technology, any System, or any
Product prohibited by this Agreement.
2.5 Ownership. Sub-Licensee acknowledges and agrees that PEB owns the
exclusive worldwide right to exploit or turn to account all of the Licensed
Technology, the Licensed Patents, the Products, and the Systems, and all copies
thereof, all updates and modifications thereto and all right, title and interest
in and to all patents, patent rights, trade secrets and confidential information
relating thereto. Sub-Licensee acknowledges that, by virtue of this Agreement,
Sub-Licensee does not have, and will not obtain, any right, title or other
proprietary interest in and to any of the foregoing.
2.6 Systems. Sub-Licensee shall have the right to use the Systems
delivered by PV pursuant to ss.2.1.1 above only for the duration of this
Agreement. PV shall have the right to substitute
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new or modified Systems for each System delivered hereunder at any time subject
to their reasonable availability and to PV's then existing commitments to
deliver Systems to other persons or entities.
2.7 Maintenance. Sub-Licensee, or the relevant User, as the case may be,
shall, at its own cost and expense, keep the Systems and other Products in the
possession or control of Sub-Licensee, or the relevant User, as the case may be,
in good repair, condition and working order. Except as expressly provided herein
Sub-Licensee, or the relevant User, shall be responsible for all costs and
expenses attributable to the Systems or any other Product, in the possession or
control of Sub-Licensee or the relevant User.
3. REPRESENTATIONS AND WARRANTIES; COVENANTS
3.1 Representations and Warranties. Each party represents and warrants to
the other that (i) it has full right, power and authority to execute, deliver
and perform under this Agreement; and (ii) in so doing will not violate any law,
rule or regulation applicable to it or any other agreement to which it is a
party.
3.2 Intentionally Omitted
3.3 Covenants by Licensee.
3.3.1 Sub-Licensee covenants that it shall maintain in effect
insurance in form and amounts covering such risks as are customarily
carried by prudent companies engaged in the same or similar business as
Sub-Licensee. Such insurance shall include, but not be limited to, errors
and omissions coverage, and general liability and product liability
insurance with combined single limit coverage of a minimum of
US$10,000,000 per occurrence, unless such coverage cannot be obtained
within the Territory, and shall name PEB as an additional insured, as its
interests may appear. Upon PEB's reasonable request, Sub-Licensee shall
periodically increase such minimum coverage to compensate for inflation
and changes in intervening business circumstances. Sub-Licensee shall pay
the cost and periodic premiums of such insurance.
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3.3.2 Sub-Licensee covenants that it shall not challenge or adversely
affect PEB's ownership rights in the Licensed Patents, the Licensed Technology
or all rights in and to all uses of any of them and shall actively assist PEB in
defending any of the foregoing at PEB's expense. Sub-Licensee shall not do or
permit or allow to be done any act or thing which impairs or weakens the
ownership rights of PEB with respect to the Licensed Patents and the Licensed
Technology and, if Sub-Licensee becomes aware of any use of any of the Licensed
Patents or Licensed Technology by any unauthorized person or entity,
Sub-Licensee shall promptly send notice of such unauthorized use to PEB and
shall actively aid PEB in its attempts to prohibit or suppress such unauthorized
use.
3.3.3 Sub-Licensee covenants that it shall only grant rights to any User
pursuant to an agreement which legally and validly binds said User to at least
those restrictive terms set forth in the applicable Exhibit for User Agreements,
including, but not limited to, a full and complete indemnification of PEB by
each User, consistent in scope and content with PV's indemnification of under
ss.6.2 below; a copy of the final and fully executed agreement between
Sub-Licensee and any User shall be delivered to PEB promptly after its
execution.
3.3.4 Sub-Licensee covenants that in the event a claim alleging that any
User has violated the rights of a given Copyright Controller is fully and
finally adjudicated by a court of competent jurisdiction against said User,
Sub-Licensee shall, upon PEB's or PV's written request, take every reasonable
action necessary to terminate all of said User's rights in or to the Licensed
Technology.
3.3.5 PEB and PV, severally, shall have the right to confirm revenues and
expenses related to the Licensed Technology, Systems, and other Products
licensed hereunder by causing an audit to be performed, at PV's or PEB's sole
expense and not more frequently than twice in any twelve (12) month period, of
Sub-Licensee's books and records related thereto. Sub-Licensee shall make all of
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its books and records reasonably available to PEB or PV to facilitate such
audits and PEB or PV shall use its best efforts to cause minimal disruption to
Sub-Licensee's business as a result of said audits.
3.4 Intentionally Omitted
3.5 Acknowledgment by Licensee. Sub-Licensee acknowledges that
Sub-Licensee's, all Users' and PV's rights with respect to the Licensed
Technology are in every respect subject and subordinate to PEB's rights therein.
Accordingly, in the event of any instruction to Sub-Licensee by PV which is
contrary to any express instruction from PEB, Sub-Licensee shall comply with
PEB's instructions.
4. PATENT ENFORCEMENT
4.1 Intentionally Omitted
4.2 Patent Enforcement. PEB shall have the first right, but not the duty,
to commence and prosecute patent infringement claims, actions or proceedings
against third parties on any Licensed Patent. If PEB declines to exercise such
right, Sub-Licensee shall not make any settlement or take or permit any action
which would adversely affect the validity of any Licensed Patent and/or
adversely affect PEB's ownership of the Licensed Technology. If Sub-Licensee
brings such an action, Sub-Licensee agrees that PEB at any time at PEB's expense
may assume control of any such claim, action or proceeding instituted by
Sub-Licensee. The costs and expenses of any such claim, action or proceeding
(including fees of attorneys or other professionals) shall be borne by the party
instituting the same, or, if the parties elect to cooperate in instituting and
maintaining such claim, action, or proceeding, such costs and expenses shall be
borne by the parties in such proportions as they may agree in writing.
Sub-Licensee shall execute all necessary and proper documents and take such
actions as shall be reasonably appropriate to allow any other party to institute
and prosecute such infringement actions. Any award paid by third parties as a
result of such an infringement action (whether by way of settlement or
otherwise) shall be paid to the party which instituted and maintained such
action, or, if both parties instituted and maintained such action, such award
shall be allocated between the parties in proportion to their respective
contributions to the costs and expenses incurred in such action.
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5. CONFIDENTIALITY
5.1 Confidential Information Defined. "Confidential Information" means
trade secrets, proprietary information, and confidential knowledge and
information which includes, but is not limited to, the Licensed Technology, the
Products and other matters of a technical nature (such as discoveries, ideas,
concepts, designs, drawings, specifications, techniques, models, diagrams, test
data and Know-How), and matters of a business nature (such as marketing
techniques and materials, marketing and development plans, pricing or pricing
policies, financial information, plans for further development), and any other
information of or pertaining to PEB and/or persons or entities to which PEB owes
a duty of confidentiality, of a similar nature not available to the public.
5.2 Non-Disclosure of Confidential Information. Sub-Licensee acknowledges
that, during the term of this Agreement, Sub-Licensee will have access to
Confidential Information. During the term of this Agreement and for a period of
five (5) years thereafter, Sub-Licensee shall not, without the prior written
approval of PEB, directly or indirectly (i) reveal, report, publish, disclose,
or transfer any Confidential Information to any person or entity, or (ii) use
any Confidential Information for any purpose or for the benefit of any person or
entity, except as is authorized under this Agreement. Licensee is hereby
authorized to disseminate such information, including Confidential Information,
necessary to operate and maintain the Systems, subject to all terms and
conditions of this Agreement, to all Users.
5.3 Property of PEB. Sub-Licensee acknowledges and agrees that all
Confidential Information and all reports, drawings, blueprints, data, notes, and
other documents and records, whether printed, typed, handwritten, videotaped,
transmitted or transcribed on data files or on any other type of media, made or
compiled by Sub-Licensee, or made available to Sub-Licensee during the term of
this Agreement, concerning Confidential Information are and shall remain PEB's
property and shall be delivered to PEB on the termination of Sub-Licensee's
license to use the Licensed Technology as provided in this Agreement.
Sub-Licensee shall not retain copies of such Confidential Information, documents
or records after any such termination. Sub-Licensee shall only use
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Confidential Information for legitimate business purposes hereunder.
5.4 Proprietary Notices. Sub-Licensee shall not, and shall not allow any
of its employees or Users to, remove any proprietary or other legends or
restrictive notices contained in or included in any Confidential Information or
on any Products or Systems.
5.5 Exceptions. Sub-Licensee may disclose Confidential Information only to
the extent such disclosure is required to comply with applicable governmental
regulations, provided that if Sub-Licensee is required to make any such
disclosure of Confidential Information it shall give reasonable advance notice
to PEB of such disclosure requirement and shall cooperate fully with PEB in
limiting or avoiding such disclosure if PEB so elects. If PEB has no objection
to such disclosure, Sub-Licensee shall use its best efforts to secure
confidential treatment of such information required to be disclosed.
6. INDEMNIFICATION
6.1 Intentionally Omitted
6.2 By Sub-Licensee. Sub-Licensee shall indemnify and hold PEB and PV
harmless from and against any and all claims for liability, damage, loss, cost
or expense (including all costs of attorneys and other professionals) arising
out of third party claims or suits resulting from the use by Sub-Licensee or any
User of the Licensed Technology, any Product, or any System.
7. TERM; TERMINATION; DEFAULTS
7.1 Term; Non-Disturbance. The term of this Agreement shall be in one or
more multiples of five (5) years commencing on the date of this Agreement. For
purposes of this Section 7.1, each increment of five (5) years shall be referred
to as a "Term". All rights granted hereunder shall terminate at the end of the
final Term unless earlier terminated in accordance herewith. If PV's rights
under PV's license agreement with PEB terminate for any reason PEB will grant to
Sub-Licensee comparable rights to those granted hereunder to the end of the Term
during which PV's rights terminate, provided that (i) before PV's rights
terminate, the Sub-Licensee has demonstrated to PEB that, in PEB's sole
discretion,
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Sub-Licensee has sufficient financial strength, expertise and experience in the
relevant marketplace and industry, and ethical and business reputation to
exploit Sub-Licensee's rights under this Agreement; (ii) during each twelve (12)
month period remaining in the Term in which PV's rights terminate, the
Sub-Licensee shall deliver to PEB or PEB's nominee an annual royalty at least
equal to the aggregate of all payments previously made by the Sub-Licensee to PV
divided by the number of months elapsed in the Term and multiplied by twelve;
(iii) the Sub-Licensee attorns to PEB in every respect; and (iv) PEB shall not
be obligated to recognize any payments previously made by said Sub-Licensee to
PV with respect to the license granted hereunder.
7.2 Events of Default. Remedies. Each of the following shall constitute an
Event of Default by Sub-Licensee hereunder:
(a) any exploitation by Sub-Licensee or any User of any of the
Licensed Technology, any Product or any System in any manner or
location not expressly permitted by this Agreement or the applicable
User Agreement;
(b) Sub-Licensee's granting or purporting to grant rights to
any other Sub-Licensee or User which are not in every respect
subject and subordinate to PEB's rights under this Agreement or the
applicable User Agreement;
(c) any failure by Sub-Licensee or any User to conform to the
standards and guidelines promulgated pursuant to ss.2.1.3 of this
Agreement or the applicable User Agreement;
(d) any failure by Sub-Licensee to enforce, as against any
User, the terms and conditions of the applicable User Agreement;
(e) the attempted, purported or completed sale by Sub-Licensee
or any User of any Product or component part thereof;
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(f) the erasure, obscuring or obliteration by Sub-Licensee or
any User of physical or other advertising which, but for such
erasure, obscuring or obliteration, would have been broadcast in any
program to which Sub-Licensee or said User has applied the Licensed
Technology unless the same is in accordance with ss.2.1.4 of this
Agreement or the applicable User Agreement;
(g) the broadcast by Sub-Licensee or any User into or through
an Other Territory of images inserted into programming originating
or being transmitting through the Territory, unless the same is in
accordance with ss.2.1.4 of this Agreement or the applicable User
Agreement;
(h) Any failure by Sub-Licensee or any User timely to pay
monies owed to PV or PEB;
(i) Sub-Licensee's failure to use its best efforts to maximize
the economic return to be derived from its exploitation of the
Licensed Technology;
(j) the manufacture by Sub-Licensee or any User of any Product
or component thereof;
(k) the modification, adaptation, merging, translation,
decoding, reverse engineering, decompilation, disassembly or
creation of derivative works based on the Licensed Technology, any
Products, any Systems, or any portion thereof or the distribution of
the same by Sub-Licensee or any User;
(l) Sub-Licensee's failure to maintain the insurance coverage
required by ss.3.3.1;
(m) Sub-Licensee shall act or fail to act in a manner which
shall adversely affect
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PEB's ownership rights in the Licensed Patents, Licensed Technology
or any rights in and to any uses of any of them; or Sub-Licensee
shall act or fail to act in a manner, or shall allow any act or
omission, which impairs or weakens the ownership rights of PEB with
respect to the Licensed Patents and the Licensed Technology; or
Sub-Licensee shall fail actively to aid PEB in its attempts to
prohibit or suppress any unauthorized use of the Licensed Patents or
the Licensed Technology in the Territory or by any User;
(n) Sub-Licensee shall grant rights to any User in an
agreement which does not contain at least those restrictions as are
imposed upon Users in the applicable Exhibit with respect to User
Agreements, or without first obtaining a written acknowledgment from
each such User that the rights of any such User are subject and
subordinate in every respect to PEB's and PV's rights under this
Agreement or the master license agreement;
(o) Sub-Licensee or any User shall directly or indirectly
reveal, report, publish, disclose, or transfer any Confidential
Information or shall use any Confidential Information in any manner
other than as expressly authorized under this Agreement or the
applicable User Agreement or shall use Confidential Information for
other than legitimate business purposes hereunder or thereunder;
(p) Sub-Licensee, any of its employees or any User shall
remove or permit the removal of any proprietary or other legend or
restrictive notice contained in or included in Confidential
Information or on any Products or Systems;
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(q) Sub-Licensee or any User shall assign or attempt or
purport to assign this Agreement, or the applicable User Agreement,
or any interest herein or therein; and
(r) Sub-Licensee or any User shall directly or indirectly
solicit, induce or attempt to induce any employee of PEB or any
affiliate of PEB to terminate his or her employment with PEB or such
affiliate.
If the Event of Default results from an act or omission of a User, PEB and PV,
severally, shall be entitled to proceed against Sub-Licensee and User, jointly
and severally, to enforce this Agreement or the applicable User Agreement. If an
Event of Default is not cured within sixty (60) days after the receipt of
written notice thereof (or, if such Event of Default cannot be cured within such
sixty (60) day period, if Sub-Licensee does not commence and diligently continue
actions to cure such Event of Default), PEB and PV, jointly or severally, shall
be entitled, in addition to any other rights or remedies available to either of
them hereunder, at law or in equity, to cause the termination of this Agreement
by giving written notice to take effect thirty (30) days after such notice
unless Sub-Licensee shall cure such default within said thirty (30) days. PEB's
or PV's right to cause the termination of this Agreement, as hereinabove
provided, shall not be affected in any way by its waiver or failure to take
action with respect to any previous Event of Default.
7.3 Insolvency or Bankruptcy. Either party may, in addition to any other
remedies available to it at law or in equity, terminate this Agreement by
written notice to the other party in the event the other party shall have
commenced voluntary proceedings in bankruptcy or shall have made an assignment
for the benefit of its creditors, or there shall have been appointed a trustee
or receiver of the other party or for all or a substantial part of its property,
or any case or proceeding shall have been commenced or other action taken by or
against the other party in bankruptcy or seeking reorganization, liquidation,
dissolution, winding-up, arrangement, composition or readjustment of its debts
or any other relief under any bankruptcy, insolvency, reorganization or other
similar act or law of any jurisdiction now or hereafter in effect, or there
shall have been issued a warrant
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of attachment, execution, distraint or similar process against any substantial
part of the property of the other party, and any such event shall have continued
for ninety (90) days undismissed, unbonded and undischarged.
7.4 Effect of Termination of Agreement. Upon the termination of the
license granted herein as to the Licensed Technology and all Products in the
Territory, all rights in and to any Products, the Licensed Technology and any
and all uses of them granted to Sub-Licensee and all Users shall immediately
revert back to PV and Sub-Licensee shall, and shall cause all Users to,
immediately cease and forever abstain from any and all uses of the Licensed
Technology and Sub-Licensee shall promptly: (i) return to PV all Products and
all relevant records, materials concerning the Licensed Technology or
Confidential Information in the possession or control of Sub-Licensee or any
User; (ii) assign to PV and/or PV's designee, its right to any trade name or
trademark used by Sub-Licensee for the Products in the Territory; and (iii)
execute any documents or instruments requested by PV to effect such reversion
and the transfer, grant and assignment to PV or its designee of any rights which
Sub-Licensee may have acquired with respect to the Licensed Technology which
transfers, grants, and assignments shall require no consideration other than the
mutual agreement represented by this Agreement.
7.5 Surviving Rights. The parties' obligations under Articles 5 and 6 and
ss.ss. 2.4, 2.5, 3.3.2, 4.2, 7.4, 8.3, 8.4, 8.5 and 8.7 shall survive any
termination of this Agreement.
8. MISCELLANEOUS PROVISIONS
8.1 Intentionally Omitted
8.2 Assignment. Except as otherwise provided herein, neither this
Agreement nor any interest hereunder shall be assignable by Sub-Licensee without
the prior written consent of PV whether directly or indirectly by merger, asset
sale or operation of law. This Agreement shall be binding upon the successors
and permitted assigns of the parties. Any assignment not in accordance with this
ss.8.2 shall be void and shall nevertheless constitute a material default
hereunder.
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8.3 Covenant Not to Solicit Employees. Sub-Licensee shall not at any time
during the term of this Agreement or for a period of two (2) years following the
termination of this Agreement directly or indirectly solicit, induce, or attempt
to induce any employee of PEB or of any affiliate of PEB to terminate his or her
employment with PEB or such affiliate.
8.4 Disclaimer of Warranties. User acknowledges that PEB expressly
disclaims any warranties as to validity or enforceability of Licensed Patents,
or non-infringement of third party patents.
8.5 Further Actions. Sub-Licensee agrees to execute, acknowledge and
deliver such further instruments, and to do all such other acts, as may be
reasonably necessary or appropriate in order to carry out the purposes and
intent of this Agreement.
8.6 Intentionally Omitted
8.7 Consent to Jurisdiction. The parties hereby irrevocably submit to the
exclusive jurisdiction of any New Jersey State or Federal court sitting in the
State of New Jersey for any action or proceeding arising out of or relating to
this Agreement brought by PEB or to which PEB is a party, and the parties
hereby irrevocably agree that all claims in respect of any such action or
proceeding may be heard and determined in New Jersey State court or, to the
extent permitted by law, may be removed to or brought in any Federal court in
New Jersey having jurisdiction. The parties hereby irrevocably waive, to the
fullest extent they may effectively do so, the defense of an inconvenient forum
to the maintenance of any such action or proceeding.
8.8 Severability. Whenever possible, each provision of this Agreement will
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision will be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of this
Agreement.
8.9 Compliance with Law. Nothing in this Agreement shall be deemed to
permit a party to export, reexport or otherwise transfer any Licensed Technology
transferred hereunder or Products manufactured therefrom without compliance with
applicable laws.
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8.10 Entire Agreement of the Parties. This Agreement constitutes and
contains the entire understanding and agreement of the parties with respect to
the Licensed Patents and the Licensed Technology and cancels and supersedes any
and all prior negotiations, correspondence, understandings and agreements,
whether oral or written, between the parties respecting the subject matter
hereof.
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EXHIBIT D(2)
Minimum Restrictions for User Agreements
All license agreements between PV or any Licensee or Sub-Licensee,
on the one hand, and any User shall contain at least the following terms:
1. DEFINITIONS
The following terms shall not be defined more broadly than:
1.1 "Copyright Controller" shall mean that person or entity having the
legal right under applicable copyright and other law to control and alter
programming in a given geographical territory by means of the Licensed
Technology or otherwise.
1.2 "Know-How" shall mean all inventions, technology or other information
discovered or developed by or for PEB before or during the term of this
Agreement, whether or not patentable, constituting materials, methods,
processes, techniques and data for the use or sale of any Products.
1.3 "Licensed Patents" shall mean:
1.3.1 the current patents or patent applications owned or controlled
by PEB or jointly owned by David Sarnoff Research Center, Inc. and PEB
relating to the Licensed Technology which are set forth on Exhibit B,
including any Supplemental Protection Certificates or the equivalent
thereof, extensions, renewals, continuations, continuations-in-part,
divisions, patents-of-additions re-examinations, and/or reissues thereof;
and
1.3.2 any future patents or patent applications which are foreign
counterparts in any country in the Territory to PEB's current U.S. and
foreign patents and patent applications as set forth on Exhibit B,
including any Supplemental Protection Certificates or the equivalent
thereof, extensions, renewals, continuations,
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continuations-in-part, divisions, patents-of-additions, re-examinations,
and/or reissues thereof.
1.4 "Licensed Technology" shall mean all inventions, improvements,
discoveries, claims, formulae, processes, trade secrets, technologies, and
Know-How in which PEB has or develops or obtains rights, as the same may be
modified or expanded from time to time: (i) relating to or derived from PEB's
"Electronic Billboard" invention, which replaces live television images with
inserted material in a manner that causes the insertion to appear as though it
was a part of the original image, as more fully described on Exhibit A, or (ii)
claimed, covered or disclosed in any Licensed Patent
1.5 "Other Licensee" shall mean the person or entity, including PEB if
appropriate, having rights to exploit the Licensed Technology in an Other
Territory.
1.6 "Other Territory" shall mean any specific geographic area outside the
Territory.
1.7 "Permitted Uses" shall mean all legal uses of the Licensed Technology
(i) in real time in any broadly disseminated television program for advertising
purposes or for any purpose in television programs the principal focus of which
is sports, including tracking images in sports for outlining or emphasis or in
an area such as trajectory, strike zone or player; or (ii) as part of video
post-production. Broadly disseminated programs are those which are broadcast
over the air, via cable or via satellite with a distribution to more than 2,500
customers. Programs disseminated over point to point, or point to multipoint,
private networks are not broadly disseminated programs for purposes of this
Agreement.
1.8 "Product" shall mean any product, the manufacture, use or sale of
which is based upon, derived from, or related to any Licensed Technology,
including, but not limited to the System.
1.9 "Sub-Licensee" shall mean any person or entity directly or indirectly
licensed by PV to exploit any of the Licensed Technology, any Product or any
System within a specific geographic area which is within the Territory. A
Sub-Licensee may also be a User or grant rights to one or more User(s) to use
one or more Products or Systems under User Agreement(s)
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1.10 "System" shall mean any and all computer hardware and operating
system software, firmware and/or applications software, and all documentation
pertaining thereto, employed with respect to the exploitation of the Licensed
Technology as permitted by this Agreement.
1.11 "Territory" shall mean the specific country or countries in which
rights to exploit the Licensed Technology are granted to Sub-Licensee.
1.12 "User" shall mean any person or entity who or which has been granted
rights to use one or more Products or Systems by PV or any Sub-Licensee or who
or which purports to have acquired such rights from PV or any Sub-Licensee. A
User may not further license any person or entity with respect to any of the
Licensed Technology, any System or any Product in any way.
1.13 "User Agreement" shall mean each agreement between PV or a
Sub-Licensee, on the one hand, and a User on the other hand, pursuant to which
said User is to use any Product or any System.
2. GRANT OF RIGHTS
2.1 Grant of License
2.1.1 In consideration of a license fee and/or royalty stream
subject to the terms and conditions of this Agreement User may operate one
or more Systems within the Territory for Permitted Uses only.
2.1.2 The license granted in ss.2.1.1 must be limited as provided in
ss.ss.2.l.3 and 2.1.4. This Agreement and any grant of rights hereunder
shall be subject and subordinate in every respect to PEB's rights under
its agreement with PV except as set forth in Section 7.1 below.
2.1.3 Each User recognizes that any use of the Licensed Technology
and the Products in violation of law and commonly recognized community or
industry standards would cause severe and irreparable injury to PEB's
reputation and legitimate business interests and that, as a result, PEB
must exercise control over standards and
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guidelines for the Licensed Technology and the Products. Therefore,
notwithstanding anything in this Agreement to the contrary, User shall not
use any of the Licensed Technology or any Product or System in any manner
inconsistent with PEB's standards and guidelines, as in effect from time
to time.
2.1.4 Broadcast insertions made by User shall only be made in strict
compliance with this Agreement and PEB's published standards and
guidelines as amended from time to time by PEB in its sole discretion. PEB
retains the right to control application of the Licensed Technology so as
to protect its proprietary rights therein and so as to prevent use of the
Licensed Technology in any manner which would adversely affect rights
granted to Other Licensees. Any User making any electronic insertion in
the Territory and generating revenue from such insertion because such
insertion is to be seen in an Other Territory or in Other Territories
shall notify its Sub-Licensee of the gross amount it collected from such
insertion and the territories in which the advertiser paid to have said
insertion be seen. PEB shall make the final determination, in its sole but
reasonable discretion, as to whether User has complied with the
requirements of this ss.2.1.4.
2.2 Intentionally Omitted
2.3 Best Efforts. Each User shall use its best efforts to maximize the
economic return to be derived from its rights granted to it hereunder.
2.4 Restrictions on Use. Each User shall not (i) manufacture any Product
or component thereof; (ii) modify, adapt, merge, translate, decode, reverse
engineer, decompile, disassemble or create derivative works based on the
Licensed Technology, any Products, any Systems or any portion thereof or
distribute the same or permit others to do so within the Territory; or (iii) use
the Licensed Technology, the Products, or any System in any manner prohibited by
this Agreement. User acknowledges that the restrictions on use set forth above
are necessary in order to protect and maintain the value of the proprietary and
other legitimate business interests of PEB and that any violation thereof
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shall cause severe injury to PEB for which any remedy at law shall be
inadequate. Accordingly, PEB shall be entitled to injunctive relief without
having to post bond or other security (unless, as to an action brought within a
particular jurisdiction, a specific statutory requirement for bond or other
security exists in that jurisdiction) and without having to prove the inadequacy
of the available remedies at law in addition to all other available remedies
including, without limitation, seeking such damages as it can show it has
sustained by reason of such violation. User shall not plead or defend on grounds
of adequate remedy at law or any element thereof in an action by PEB against it
for injunctive relief or specific performance of any obligation pursuant hereto.
2.5 Ownership. User acknowledges and agrees that PEB owns the exclusive
worldwide right to exploit or turn to account all of the Licensed Technology,
the Licensed Patents, the Products, and the Systems, and all copies thereof, all
updates and modifications thereto and all right, title and interest in and to
all patents, patent rights, trade secrets and confidential information relating
thereto. User acknowledges that, by virtue of this Agreement, User does not
have, and will not obtain, any right, title or other proprietary interest in and
to any of the foregoing.
2.6 Systems. User shall have the right to use the Systems delivered by PV
pursuant to ss.2.1.1 above only for the duration of this Agreement. PV shall
have the right to substitute new or modified Systems for each System delivered
hereunder at any time subject to their reasonable availability and to PV's then
existing commitments to deliver Systems to other persons or entities.
2.7 Maintenance. User shall, at its own cost and expense, keep the Systems
and other Products in the possession or control of User, in good repair,
condition and working order. Except as expressly provided herein, User shall be
responsible for all costs and expenses attributable to the Systems or any other
Product in the possession or control of User.
3. REPRESENTATIONS AND WARRANTIES; COVENANTS
3.1 Representations and Warranties. Each party represents and warrants to
the other that (i) it has full right, power and authority to execute, deliver
and perform under this Agreement; and
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(ii) in so doing will not violate any law, rule or regulation applicable to it
or any other agreement to which it is a party.
3.2 Intentionally Omitted
3.3 Covenants by User.
3.3.1 User covenants that it shall maintain in effect insurance in
form and amounts covering such risks as are customarily carried by prudent
companies engaged in the same or similar business as User. Such insurance
shall include, but not be limited to, errors and omissions coverage, and
general liability and product liability insurance with combined single
limit coverage of a minimum of US$10,000,000 per occurrence, unless such
coverage cannot be obtained within the Territory, and shall name PEB as an
additional insured, as its interests may appear. Upon PEB's reasonable
request, User shall periodically increase such minimum coverage to
compensate for inflation and changes in intervening business
circumstances. User shall pay the cost and periodic premiums of such
insurance.
3.3.2 User covenants that it shall not challenge or adversely affect
PEB's ownership rights in the Licensed Patents, the Licensed Technology or
all rights in and to all uses of any of them and shall actively assist PEB
in defending any of the foregoing at PEB's expense. User shall not do or
permit or allow to be done any act or thing which impairs or weakens the
ownership rights of PEB with respect to the Licensed Patents and the
Licensed Technology and, if User becomes aware of any use of any of the
Licensed Patents or Licensed Technology by any unauthorized person or
entity, User shall promptly send notice of such unauthorized use to PEB
and shall actively aid PEB in its attempts to prohibit or suppress such
unauthorized use.
3.3.3 User covenants that it shall not grant rights to any other
person or entity to exploit the Licensed Technology and the Products, or
to operate one or more Systems in connection with such exploitation.
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3.3.4 PEB and PV, severally, shall have the right to confirm
revenues and expenses related to the Licensed Technology, Systems, and
other Products licensed hereunder by causing an audit to be performed, at
PEB's or PV's sole expense and not more frequently than twice in any
twelve (12) month period, of User's books and records related thereto.
User shall make all of its books and records reasonably available to PEB
or PV to facilitate such audits and PEB or PV shall use its best efforts
to cause minimal disruption to User's business as a result of said audits.
3.4 Intentionally Omitted
3.5 Acknowledgment by User. User acknowledges that User's, PV's and any
Sub-Licensee's rights with respect to the Licensed Technology are in every
respect subject and subordinate to PEB's rights therein. Accordingly, in the
event of any instruction to User by PV or any Licensee or Sub-Licensee which is
contrary to any express instruction from PEB, User shall comply with PEB's
instructions.
4. PATENT ENFORCEMENT
4.1 Intentionally Omitted
4.2 Patent Enforcement. PEB shall have the first right, but not the duty,
to commence and prosecute patent infringement claims, actions or proceedings
against third parties on any Licensed Patent. If PEB declines to exercise such
right, User shall not make any settlement or take or permit any action which
would adversely affect the validity of any Licensed Patent and/or adversely
affect PEB's ownership of the Licensed Technology. If User brings such an
action, User agrees that PEB at any time at PEB's expense may assume control of
any such claim, action or proceeding instituted by User. The costs and expenses
of any such claim, action or proceeding (including fees of attorneys or other
professionals) shall be borne by the party instituting the same, or, if the
parties elect to cooperate in instituting and maintaining such claim, action, or
proceeding, such costs and expenses shall be borne by the parties in such
proportions as they may agree in writing. Each User shall execute all necessary
and proper documents and take such actions as shall be reasonably
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appropriate to allow any other party to institute and prosecute such
infringement actions. Any award paid by third parties as a result of such an
infringement action (whether by way of settlement or otherwise) shall be paid to
the party which instituted and maintained such action, or, if both parties
instituted and maintained such action, such award shall be allocated between the
parties in proportion to their respective contributions to the costs and
expenses incurred in such action
5. CONFIDENTIALITY
5.1 Confidential Information Defined. "Confidential Information" means
trade secrets, proprietary information, and confidential knowledge and
information which includes, but is not limited to, the Licensed Technology, the
Products and other matters of a technical nature (such as discoveries, ideas,
concepts, designs, drawings, specifications, techniques, models, diagrams, test
data and Know-How), and matters of a business nature (such as marketing
techniques and materials, marketing and development plans, pricing or pricing
policies, financial information, plans for further development), and any other
information of or pertaining to PEB and/or persons or entities to which PEB owes
a duty of confidentiality, of a similar nature not available to the public.
5.2 Non-Disclosure of Confidential Information. User acknowledges that,
during the term of this Agreement, User will have access to Confidential
Information. During the term of this Agreement and for a period of five (5)
years thereafter, User shall not, without the prior written approval of PEB,
directly or indirectly (i) reveal, report, publish, disclose, or transfer any
Confidential Information to any person or entity, or (ii) use any Confidential
Information for any purpose or for the benefit of any person or entity, except
as is authorized under this Agreement.
5.3 Property of PEB. User acknowledges and agrees that all Confidential
Information and all reports, drawings, blueprints, data, notes, and other
documents and records, whether printed, typed, handwritten, videotaped,
transmitted or transcribed on data files or on any other type of media, made or
compiled by User, or made available to User during the term of this Agreement,
concerning Confidential Information are and shall remain PEB's property and
shall be delivered to PEB on the termination of User's
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license to use the Licensed Technology as provided in this Agreement. User shall
not retain copies of such Confidential Information, documents or records after
any such termination. User shall only use Confidential Information for
legitimate business purposes hereunder.
5.4 Proprietary Notices. User shall not, and shall not allow any of its
employees to, remove any proprietary or other legends or restrictive notices
contained in or included in any Confidential Information or on any Products or
Systems.
5.5 Exceptions. User may disclose Confidential Information only to the
extent such disclosure is required to comply with applicable governmental
regulations, provided that if User is required to make any such disclosure of
Confidential Information it shall give reasonable advance notice to PEB of such
disclosure requirement and shall cooperate fully with PEB in limiting or
avoiding such disclosure if PEB so elects. If PEB has no objection to such
disclosure, User shall use its best efforts to secure confidential treatment of
such information required to be disclosed.
6. INDEMNIFICATION
6.1 Intentionally Omitted
6.2 By User. User shall indemnify and hold PEB and PV harmless from and
against any and all claims for liability, damage, loss, cost or expense
(including all costs of attorneys and other professionals) arising out of third
party claims or suits resulting from the use by User of the Licensed Technology,
any Product, or any System.
7. TERM; TERMINATION: DEFAULTS
7.1 Term; Non-Disturbance. The term of this Agreement shall be in one or
more multiples of five (5) years commencing on the date of this Agreement. For
purposes of this Section 7.1, each increment of five (5) years shall be referred
to as a "Term". All rights granted hereunder shall terminate at the end of the
final Term unless earlier terminated in accordance herewith. If PV's rights
under PV's license agreement with PEB terminate for any reason PEB will grant to
User comparable rights to those granted
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hereunder to the end of the Term during which PV's rights terminate, provided
that (i) before PV's rights terminate, the User has demonstrated to PEB that, in
PEB's sole discretion, User has sufficient financial strength, expertise and
experience in the relevant marketplace and industry, and ethical and business
reputation to exploit User's rights under this Agreement; (ii) during each
twelve (12) month period remaining in the Term in which PV's rights terminate,
the User shall deliver to PEB or PEB's nominee an annual royalty at least equal
to the aggregate of all payments previously made by the User to PV divided by
the number of months elapsed in the Term and multiplied by twelve; (iii) the
User attorns to PEB in every respect; and (iv) PEB shall not be obligated to
recognize any payments previously made by said User to PV with respect to the
license granted hereunder.
7.2 Events of Default: Remedies. Each of the following shall constitute an
Event of Default by User hereunder:
(a) any exploitation by User of any of the Licensed
Technology, any Product or any System in any manner or location not
expressly permitted by this Agreement;
(b) User's granting or purporting to grant rights to any
person or entity to exploit the Licensed Technology or to use one or
more Products or Systems;
(c) any failure by User to conform to the standards and
guidelines promulgated pursuant to ss.2.1.3 above;
(d) the attempted, purported or completed sale by User of any
Product or component part thereof;
(e) the erasure, obscuring or obliteration by User of physical
or other advertising which, but for such erasure, obscuring or
obliteration, would have been broadcast in any program to which User
has applied the Licensed Technology unless the same is in accordance
with ss.2.1.4;
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(f) the broadcast by User into or through an Other Territory
of images inserted into programming originating or being
transmitting through the Territory, unless the same is in accordance
with ss.2.1.4;
(g) Any failure by User timely to pay monies owed to PV or
PEB;
(h) User's failure to use its best efforts to maximize the
economic return to be derived from its exploitation of the Licensed
Technology;
(i) the manufacture by User of any Product or component
thereof;
(j) the modification, adaptation, merging, translation,
decoding, reverse engineering, decompilation, disassembly or
creation of derivative works based on the Licensed Technology, any
Products, any Systems, or any portion thereof or the distribution of
the same by User;
(k) User's failure to maintain the insurance coverage required
by ss.3.3.1;
(l) User shall act or fail to act in a manner which shall
adversely affect PEB's ownership rights in the Licensed Patents,
Licensed Technology or any rights in and to any uses of any of them;
or User shall act or fail to act in a manner, or shall allow any act
or omission, which impairs or weakens the ownership rights of PEB
with respect to the Licensed Patents and the Licensed Technology; or
User shall fail actively to aid PEB in its attempts to prohibit or
suppress any unauthorized use of the Licensed Patents or the
Licensed Technology in the Territory or by any User;
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(m) User shall directly or indirectly reveal, report, publish,
disclose, or transfer any Confidential Information or shall use any
Confidential Information in any manner other than as expressly
authorized under this Agreement or shall use Confidential
Information for other than legitimate business purposes hereunder;
(n) User or any of its employees shall remove or permit the
removal of any proprietary or other legend or restrictive notice
contained in or included in Confidential Information or on any
Products or Systems;
(o) User shall assign or attempt or purport to assign this
Agreement or any interest herein; and
(p) User shall directly or indirectly solicit, induce or
attempt to induce any employee of PEB or any affiliate of PEB to
terminate his or her employment with PEB or such affiliate.
If an Event of Default is not cured within sixty (60) days after the receipt of
written notice thereof (or, if such Event of Default cannot be cured within such
sixty (60) day period, if User does not commence and diligently continue actions
to cure such Event of Default), PEB and PV, jointly or severally, shall be
entitled, in addition to any other rights or remedies available to either of
them hereunder, at law or in equity, to cause the termination of this Agreement
by giving written notice to take effect thirty (30) days after such notice
unless User shall cure such default within said thirty (30) days. PEB's or PV's
right to cause the termination of this Agreement, as hereinabove provided, shall
not be affected in any way by any waiver or failure to take action with respect
to any previous Event of Default.
7.3 Insolvency or Bankruptcy. Either party may, in addition to any other
remedies available to it at law or in equity, terminate this Agreement by
written notice to the other party in
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the event the other party shall have commenced voluntary proceedings in
bankruptcy or shall have made an assignment for the benefit of its creditors, or
there shall have been appointed a trustee or receiver of the other party or for
all or a substantial part of its property, or any case or proceeding shall have
been commenced or other action taken by or against the other party in bankruptcy
or seeking reorganization, liquidation, dissolution, winding-up, arrangement,
composition or readjustment of its debts or any other relief under any
bankruptcy, insolvency, reorganization or other similar act or law of any
jurisdiction now or hereafter in effect, or there shall have been issued a
warrant of attachment, execution, distraint or similar process against any
substantial part of the property of the other party, and any such event shall
have continued for ninety (90) days undismissed, unbonded and undischarged.
7.4 Effect of Termination of Agreement. Upon the termination of the
license granted herein as to the Licensed Technology and all Products in the
Territory, all rights in and to any Products, the Licensed Technology and any
and all uses of them granted to User shall immediately revert back to PV and
User shall immediately cease and forever abstain from any and all uses of the
Licensed Technology and User shall promptly: (i) return to PV all Products and
all relevant records, materials concerning the Licensed Technology or
Confidential Information in the possession or control of User; (ii) assign to PV
and/or PV's designee, its right to any trade name or trademark used by User for
the Products in the Territory; and (iii) execute any documents or instruments
requested by PV to effect such reversion and the transfer, grant and assignment
to PV or its designee of any rights which User may have acquired with respect to
the Licensed Technology which transfers, grants, and assignments shall require
no consideration other than the mutual agreement represented by this Agreement.
7.5 Surviving Rights. The parties' obligations under Articles 5 and 6 and
ss.ss. 2.4, 2.5, 3.3.2, 4.2, 7.4, 8.3, 8.4, 8.5 and 8.7 shall survive any
termination of this Agreement.
8. MISCELLANEOUS PROVISIONS
8.1 Intentionally Omitted
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8.2 Assignment. Except as otherwise provided herein, neither this
Agreement nor any interest hereunder shall be assignable by User without the
prior written consent of PV whether directly or indirectly by merger, asset sale
or operation of law. This Agreement shall be binding upon the successors and
permitted assigns of the parties. Any assignment not in accordance with this
ss.8.2 shall be void and shall nevertheless constitute a material default
hereunder.
8.3 Covenant Not to Solicit Employees. User shall not at any time during
the term of this Agreement or for a period of two (2) years following the
termination of this Agreement directly or indirectly solicit, induce, or attempt
to induce any employee of PEB or of any affiliate of PEB to terminate his or her
employment with PEB or such affiliate.
8.4 Disclaimer of Warranties. User acknowledges that PEB expressly
disclaims any warranties as to validity or enforceability of Licensed Patents,
or non-infringement of third party patents.
8.5 Further Actions. Each User agrees to execute, acknowledge and deliver
such further instruments, and to do all such other acts, as may be reasonably
necessary or appropriate in order to carry out the purposes and intent of this
Agreement.
8.6 Intentionally Omitted
8.7 Consent to Jurisdiction. The parties hereby irrevocably submit to the
exclusive jurisdiction of any New Jersey State or Federal court sitting in the
State of New Jersey for any action or proceeding arising out of or relating to
this Agreement brought by PEB or to which PEB is a party, and the parties hereby
irrevocably agree that all claims in respect of any such action or proceeding
may be heard and determined in New Jersey State court or, to the extent
permitted by law, may be removed to or brought in any Federal court in New
Jersey having jurisdiction. The parties hereby irrevocably waive, to the fullest
extent they may effectively do so, the defense of an inconvenient forum to the
maintenance of any such action or proceeding.
8.8 Severability. Whenever possible, each provision of this Agreement will
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision will be ineffective only to the extent of
such
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prohibition or invalidity, without invalidating the remainder of this
Agreement.
8.9 Compliance with Law. Nothing in this Agreement shall be deemed to
permit a party to export, reexport or otherwise transfer any Licensed Technology
transferred hereunder or Products manufactured therefrom without compliance with
applicable laws.
8.10 Entire Agreement of the Parties. This Agreement constitutes and
contains the entire understanding and agreement of the parties with respect to
the Licensed Patents and the Licensed Technology and cancels and supersedes any
and all prior negotiations, correspondence, understandings and agreements,
whether oral or written, between the parties respecting the subject matter
hereof.
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Exhibit 10.8
[Letterhead of Capital Cities/ABC, Inc.]
February 3, 1995
Brown Williams
PEB, Inc.
47 Hulfish Street
Princeton, NJ 08542
Dear Sam:
This letter will outline and confirm the mutual understanding and
agreement between Capital Cities/ABC Multimedia Group ("CC/ABC") and PEB, Inc.
("PEB"), for CC/ABC to license PEB'S insertion system on the terms and
conditions set forth below.
The parties anticipate that the provisions set forth below will be
reflected in a more definitive agreement. The definitive agreement may also
include other representations, warranties, conditions and indemnities. Pending
negotiation and execution of a more definitive agreement this letter agreement
shall constitute the binding agreement of the parties.
1. The System. The System shall consist of hardware and software designed
to permit the seamless insertion of an image into a live broadcast on a real
time basis so that the inserted image appears to be part of the background or
scene being broadcast without any degradation of the broadcast signal.
2. License of the System. Subject to the terms and conditions set forth
below, PEB will license to CC/ABC the right to use the System in connection with
telecasts of events in the Designated Sports as defined below. The System may be
used by all programming units of CC/ABC and its subsidiaries, including ABC
Sports and ESPN.
3. Term. The term of the agreement for each of the Designated Sports shall
be for a period of one year commencing upon the earlier of (i) the first
commercial use of the System in that sport by CC/ABC or any of its subsidiaries
or (ii) the first commercial use of the System in that sport by any other local
or regional broadcaster. The term "first commercial use" shall mean the
insertion of any advertising for which a fee is charged.
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4. Exclusivity. During the term of the Agreement, the rights to be
licensed to CC/ABC shall be exclusive to the United States, its territories and
possessions (and such additional territories as may be granted by the holders of
rights in such events to CC/ABC and its subsidiaries subject to existing PEB
agreements) in the following types of sports programming (the "Designated
Sports"):
(a) National Telecasts of football games, including National
Football League games (subject, however, to CC/ABC or any subsidiary obtaining
requisite approvals, if any, from the rights holders).
(b) National Telecasts of regular and post-season baseball games
whether major league, minor league or college, including the Little League World
Series (subject, however, to CC/ABC or any subsidiary obtaining requisite
approvals, if any, from the rights holders).
(c) A "National Telecast" shall consist of a telecast of a single
game, or a series of games telecast by a single programming entity during the
same broadcast window which in the aggregate is capable of being received by at
least 50% of the television households in the case of broadcasts on free
over-the-air television (including the ABC Television Network) or 50% of the
cable households in the case of broadcasts on cable (including ESPN).
(d) PEB agrees from the date of this agreement and continuing until
the expiration of the exclusivity period for each of the Designated Sports PEB
shall not enter into an agreement with any third party unless PEB shall have
first notified CC/ABC of the terms of the proposed license and shall have
offered CC/ABC the opportunity to enter into an agreement on the same terms and
conditions. If CC/ABC does not accept such terms within 10 business days after
receipt thereof from PEB, the PEB may enter into an agreement with such third
party.
5. Additional Sports. CC/ABC and PEB agree to negotiate in good faith from
time to time concerning the license of the System for use in additional sports.
It is the intention of the parties that if CC/ABC materially assists PEB in the
developing the System for use in a particular sport, CC/ABC shall have an
exclusive right for the use of the System in such sport on terms to be
negotiated.
6. Provision of System. PEB will provide to CC/ABC a minimum of two fully
operational systems as well as appropriate personnel to assist CC/ABC in the
installation of the System and to train CC/ABC personnel in the operation of the
System. Such Systems shall be provided a sufficient time in advance of the date
on which the CC/ABC or any subsidiary intends to televise an event to permit
CC/ABC to install and test the System. CC/ABC shall submit all requests for the
provision of the System at least 10 days prior to the date on which ABC or any
subsidiary desires to have the System available for use in a broadcast in the
Designated Sports. PEB shall be responsible for maintaining the System in good
operating order. If CC/ABC desires the use of additional Systems, PEB agrees to
make additional systems available, subject to the parties reaching agreement
with respect to the allocation of costs for the acquisition of such additional
Systems.
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7. License Fees
(a) As consideration for the license of the System, CC/ABC shall
pay, or shall cause its subsidiaries to pay, to PEB a license fee equal to 30%
of the "incremental net advertising revenues" derived by CC/ABC or any
subsidiary from the use of the System.
(b) The term "incremental net advertising revenues" shall mean the
advertising revenues actually collected by CC/ABC or any subsidiary from the
sale of advertising actually inserted using the System minus any advertising
agency commissions. Incremental net advertising revenues shall not include any
other advertising revenues collected by CC/ABC or any subsidiary.
(c) CC/ABC agrees that CC/ABC and its subsidiaries shall be solely
responsible for the solicitation and sale of advertising to be inserted
utilizing the System. Such insertion advertising shall be sold separately or
shall be separately allocated by ABC to reflect the incremental revenue
attributable to the use of the System.
(d) CC/ABC and its subsidiaries shall use their reasonable best
efforts to solicit advertising to be inserted with the System. It is expressly
understood, however, that neither CC/ABC nor any subsidiary has made any express
or implied warranty or representation concerning the amount of advertising
revenues that may be generated utilizing the System.
(e) CC/ABC acknowledges that PEB reasonably has expectations of
revenue from the use of the System during the period of exclusivity and that a
mechanism to assure fair pricing of the advertising will be developed as part of
the more definitive agreement. CC/ABC agrees to use its reasonable best efforts
to solicit advertising for the use of the System. It is the intent of CC/ABC to
maximize the value of the System.
8. Termination. If the System is reliably working and in proper order and
capable of inserting advertising on a real-time basis during live sporting
events in the Designated Sports and in accordance with ABC Sports engineering
standards, and neither CC/ABC nor any Subsidiary has used the System or been
able to sell any advertising to be inserted by the System for a period of 45
consecutive days during the broadcast season for each of the Designated Sports
commencing with the first commercial use of the System, then PEB may, upon 10
days' prior written notice, terminate the Agreement and demand the return of the
System.
9. Publicity. Following the execution of this agreement and the successful
test of the System as described in paragraph 10 below, CC/ABC and PEB shall
issue mutually acceptable press releases announcing the agreement and the launch
of the System. CC/ABC and PEB agree to make available representatives to answer
any questions concerning the System and its launch by CC/ABC.
3
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10. Interim Test of System. CC/ABC agrees to use its reasonable best
efforts to use the System during the telecast by the ABC Sports unit of CC/ABC
of the NFL Skills Event on February 4, 1995. In no event, however, shall CC/ABC
be required to include an image insertion in such telecast if in CC/ABC's
judgment such insertion is not of a quality commensurate with CC/ABC's
engineering standards. This is the only interim used authorized by this
agreement if the test is successful.
11. FCC Matters. If CC/ABC so requests, PEB agrees to assist CC/ABC in
obtaining any FCC approvals that may be necessary and in attending meetings with
the FCC staff to explain the use of the System.
Each party will bear its own expenses in connection with the negotiation,
delivery and execution of this letter and the definitive agreement. Each party
shall be responsible for the payment of the fees of any broker or finder
retained by such party. The parties do not know of any such broker or finder.
The parties agree that this letter shall constitute a binding commitment
and that it shall govern the respective rights and responsibilities of the
parties pending negotiation and execution of a more definitive agreement. The
parties agree to use their reasonable best efforts to negotiate the definitive
agreement as soon as practicable.
If this letter is acceptable to you, please sign below and return it to
us. We look forward to the successful and timely completion of this transaction.
Sincerely,
CAPITAL CITIES/ABC MULTIMEDIA GROUP
By /s/ Michael Dubester
--------------------------------
Michael Dubester, Vice President
Multimedia Group
ACCEPTED AND AGREED TO
PEB, INC.
By /s/ Brown Williams
--------------------------
Brown Williams
4
<PAGE>
8/29/96
Mr. Sam McCleery
PVI, Inc.
47 Hulfish Street
Princeton, New Jersey 08542
Re: ESPN, Inc. Use of PVI's Insertion System
Dear Sam:
This letter, when signed by both parties, will confirm the recent conversations
between ESPN, Inc. ("ESPN") and PVI, Inc. ("PVI") regarding ESPN's license to
use PVI's electronic advertising insertion system. In certain respects, this
letter will also amend the letter agreement between Captial Cities/ABC, Inc.
("ABC"), on behalf of its self and its subsidiaries, including ABC Sports and
ESPN, and PVI (previously, PEB, Inc.) dated February 3, 1995 (the "Agreement").
Unless hereby amended, the parties agree that the terms and conditions of the
Agreement shall govern the relationship between ESPN and PVI during the term.
Unless otherwise defined, capitalized terms herein will have the same meaning
given to them in the Agreement and specifically, Nationally Telecast
cable/satellite Delivery College Football Games (on ESPN/ESPN2).
1. PVI acknowledges and agrees that ESPN, Inc. will continue to have the
right to use the System during the term and pursuant to the terms and
conditions of the Agreement. With respect to football, term of the
Agreement shall commence August 31, 1996.
2. A new Paragraph 12 will be added to the Agreement:
PVI represents and warrants to ESPN that (a) it has all rights necessary
to enter into and perform this Agreement; (b) the System and all
constituent elements thereof and its exploitation by ESPN as specified
herein will not infringe on any proprietary rights of any third party. PVI
will indemnify ESPN, its parent and subsidiary companies, and their
respective officers, directors, employees, shareholders and agents,
against any and all claims, demands and causes of action related to or
arising out of these representations and warranties or any of the other
covenants, undertakings or obligations of PVI stated in the Agreement. Any
and all results from ESPN's exploitation of the System shall be considered
"works made for hire" as that term is understood and interpreted under
U.S. and international copyright laws and, as between ESPN and PVI, will
be the sole and exclusive property of ESPN. To any extent that all such
rights do not vest in ESPN as "works made for hire." PVI hereby
irrevocably assigns to ESPN any and all right, title and interest in and
to such results, including but not limited to copyright.
3. The parties will, prior to the expiration of the Agreement, each endeavor
in good faith to negotiate an extension of the Agreement.
<PAGE>
Please indicate your agreement with the above by signing both copies of this
letter where indicated below and returning one copy to me. The other copy is for
your files. Thank you for your cooperation in this matter.
Very truly yours,
/s/ Robert Jeremiah
Robert Jeremiah
Vice President, Special Sales
ACKNOWLEDGED AND AGREED:
PVI, INC.
By: /s/ Brown F. Williams
------------------------
Title: President
---------------------
Date: August 31, 1996
----------------------
cc: Pamela Miller, Esq. (ABC)
ESPN Legal Department
<PAGE>
[Letterhead of PVI]
April 22, 1996
Bruce Maggin
Executive Vice President
ABC Multimedia Group
77 West 66th Street
New York, NY 10023
Dear Bruce:
This will confirm our recent discussions wherein we agreed that because Capital
Cities/ABC has yet to sell advertising for national telecasts of either baseball
or football games, that any exclusive rights granted to CC/ABC or its affiliates
to use, or negotiate for use, the PVI System for telecasts in the United States,
or any other territory, are hereby terminated.
PVI values is association with CC/ABC and looks forward to a productive
relationship. Therefore, we agree that CC/ABC and its affiliates shall be
granted a non-exclusive right to use the PVI System under terms provided in
the letter agreement of February 3, 1995 until February 28, 1997.
Yours truly,
Sam McCleery
<PAGE>
Exhibit 10.9
[NOTE: CERTAIN PORTIONS OF THIS DOCUMENT HAVE BEEN MARKED TO INDICATE THAT
CONFIDENTIALITY HAS BEEN REQUESTED FOR THIS CONFIDENTIAL INFORMATION. THE
CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION.]
LICENSE AGREEMENT
THIS AGREEMENT is made effective this 18 day of December, 1995, by and between
PRINCETON VIDEO IMAGE, INC., a New Jersey corporation, hereinafter referred to
as "PVI," and THESEUS RESEARCH, INC., a Minnesota corporation, hereinafter
referred to as "RESEARCH."
RECITALS
WHEREAS, RESEARCH owns and controls certain patents, information and knowledge
relating to a new technology of warp algorithms, and has the right to license
all or any part of those rights to others in the United States of America and
elsewhere; and
WHEREAS, PVI desires to obtain a license to make, use and sell products
utilizing such patents, information and knowledge.
NOW, THEREFORE, in consideration of the representations above and the mutual
covenants and promises hereinafter set forth, the parties agree as follows:
ARTICLE I - DEFINITIONS
A. "Affiliate(s)" shall mean any present or future domestic or foreign
corporation which shall be, at the pertinent time, owned or controlled,
directly or indirectly by PVI, or which shall, at the pertinent time, own
or control, directly or indirectly, PVI.
B. "Commercial Sale(s)" shall mean any transfer to, or use by, any party
other than PVI or any Affiliate of PVI of Licensed Products for
consideration, including, but not limited to, by any combination, joint
venture, limited liability company, partnership or other entity, in which
PVI enjoys in any economic sense revenue which is derived from the sale or
use of Licensed Products.
C. "Licensed Product(s)" shall mean any product which embodies the Technology
in whole or in part and which is made by PVI or an Affiliate of PVI.
D. "Net Sales" shall mean the total amount collected by PVI, or its
Affiliates from Commercial Sales of Licensed Product(s) less (i) all
trade, quantity, and cash discounts actually allowed; (ii) all credits and
allowances actually granted on account of rejection, returns, billing
errors, or retroactive price reductions; (iii) demonstrable duties,
customs fees and charges and other landing costs; (iv) excise, sale and
use taxes, and equivalent taxes to the extent indicated on invoices; and
(v) freight, if the obligation of PVI, provided, however that in the event
that a Commercial Sale of License Products occurs by virtue of PVI or its
Affiliate acquiring an economic interest in any Combination, Joint Venture
of other Entity, then the total amount collected by PVI, for purposes of
calculating royalties, shall be equal to and shall not exceed the PVI
share of gross revenue collected by any such Combination, Joint Venture or
Other Entity.
E. "Technology" shall mean any knowledge, information, know-how, techniques
and procedures represented by U.S. Patent Nos. 4,667,190, 1,202,731,
4,835,532 and 5,161,013 and any corresponding foreign applications as well
as continuation and divisional applications of the same.
ARTICLE II - LICENSE GRANT AND COMMERCIAL EFFORT
1
<PAGE>
A. Subject to the terms and conditions set forth herein, RESEARCH hereby
grants to PVI, and PVI hereby accepts from RESEARCH, a non-exclusive
worldwide license, without right of sublicense, to make, use, modify and
sell Licensed Product(s), provided, however, that PVI may not sublicense
any of the Technology unless the Technology is incorporated in a Licensed
Product.
B. The non-exclusive license granted herein shall terminate upon the
termination of this Agreement in accordance with Article V.
C. PVI and its Affiliates shall alone have the obligation to ensure that any
Licensed Product they sell or which is sold by any Affiliate of PVI is not
defective.
ARTICLE III - ROYALTIES, REPORTS AND RECORDS
A. [Confidential Treatment Requested]
B. For the license granted hereunder, PVI shall pay, or cause to be paid, to
RESEARCH a running royalty equal to two (2%) percent of Net Sales
generated by PVI or its Affiliates multiplied by a percentage which is
commensurate with the percentage which the functionality of the Technology
bears to the functionality of the entire Licensed Product. With respect to
video insertion systems, it is agreed that the appropriate percentage is
ten (10% percent, and that therefore the running royalty to be paid to
RESEARCH is two-tenths of one percent (.2%). With respect to Licensed
Products other than video insertion systems, the parties will subsequently
negotiate a fair functionality percentage. The two (2%) percent running
royalty shall be paid until such time as RESEARCH has received an
aggregate of $500,000 in running royalties, at which time the running
royalty percentage shall be decreased to one (1%) percent until such time
as RESEARCH has received a second $500,000 in running royalties, at which
time the running royalty percentage shall be decreased to one-half of one
percent (.5%) until this Agreement shall terminate. PVI shall be
responsible to RESEARCH for the payment of running royalties due with
respect to Net Sales by Affiliates of PVI as though they were Net Sales of
PVI.
C. Royalties shall be payable only once with respect to Net Sales regardless
of the number of patents included in Technology which are incorporated in
a Licensed Product.
D. Royalty payments as hereinabove required to be made by PVI or its
Affiliates to RESEARCH shall be made in United States dollars within sixty
(60) days following each calendar quarter. Any currency translations that
are necessary to calculate payments shall be made at the exchange rate
used by PVI for financial accounting purposes in accordance with generally
accepted accounting principles. Each such payment shall include the
royalties which shall have accrued during the calendar quarter immediately
preceding and shall be accompanied by a report setting forth the Net Sales
of Licensed Product(s) sold during that quarter. Royalty checks shall be
made payable to RESEARCH and mailed to the address specified in Article
IX. In the event that foreign moneys are not capable of export to the
United States, PVI shall cause the same to be deposited in a bank in such
foreign country in an account which shall be established by RESEARCH.
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<PAGE>
E. PVI shall keep and maintain, and shall cause its Affiliates to keep and
maintain for three (3) years records evidencing Net Sales of Licensed
Product(s) that are subject to royalty payments hereunder in order that
RESEARCH may have the right to audit the same. RESEARCH shall pay the cost
of any such audit unless such audit reveals an error prejudicing RESEARCH
by more than ten (10%) percent, in which event the cost of the audit shall
be paid by PVI. Audits shall be conducted during normal business hours by
RESEARCH's then independent accounting firm, and PVI agrees to cooperate,
and to cause its Affiliates to cooperate, fully in such audit. Such
records shall be open to inspection at reasonable times by a certified
public accountant chosen by RESEARCH and acceptable to PVI.
ARTICLE IV - INFRINGEMENT
A. RESEARCH intends to protect the Technology against infringers or otherwise
act to eliminate infringement, when, in RESEARCH'S sole judgment, such
action may be reasonably necessary, proper and justified. In the event
that PVI believes there is infringement of any Technology which is to
PVI'S substantial detriment, PVI shall provide RESEARCH with notification
and reasonable evidence of such infringement.
B. In the event that an alleged infringer of the Technology is identified by
PVI and RESEARCH does not institute an action for infringement against the
alleged infringer within sixty (60) days after receipt of a reasoned
opinion from counsel to initiate enforcement efforts against the alleged
infringer, then PVI shall have the right to bring such action in its name
and at its expense.
C. In the event that RESEARCH, PVI, or an Affiliate of PVI, is sued by a
third party charging patent infringement with respect to the use of
Technology in the manufacture, use or sale of a Licensed Products, the
party sued shall promptly notify the other party. RESEARCH may at its sole
option defend and, if it decides to do so, shall bear the full cost of the
defense of, any patent infringement suit or other suit or action intended
to prevent or curtail the sale of Licensed Products on account of the
inclusion of Technology. If RESEARCH fails to defend any such infringement
action, then PVI at its sole option may elect to defend the same at its
sole cost.
D. If PVI or any of its Affiliates is required to pay a royalty to any person
other than RESEARCH as a result of a final judgment or settlement in an
action described in Article IV, paragraph D above, in order to make, use
and or sell a Licensed Product, the royalty payable to RESEARCH shall be
reduced by the amount of the judgment royalty.
ARTICLE V - TERM AND TERMINATION
A. The term of this Agreement shall end with the expiration of the last of
the patents included in the Technology.
B. RESEARCH shall have the right to terminate this Agreement after sixty (60)
days written notice by certified mail to PVI under the following
circumstances:
1. if royalties due RESEARCH are unpaid;
2. if there is a material breach or default of this Agreement by PVI;
If PVI does not cure the above specified conditions within sixty (60) days
of receipt of notice of termination, such termination shall become
effective.
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<PAGE>
C. PVI may terminate the license granted hereunder at any time upon sixty
(60) days notice by certified mail to RESEARCH.
D. Upon termination of this Agreement for any reason, including the end of
the term as specified above, nothing herein shall be construed to release
either party from any obligation which matured prior to the effective date
of termination. PVI and its Affiliates may after the effective date of
such termination sell all Licensed Product(s) in stock and complete
construction of all Licensed Product(s) in the process of manufacture at
the time of termination and sell the same, provided that PVI pay to
RESEARCH royalties on such Licensed Product(s) as specified in this
Agreement.
ARTICLE VI - CONFIDENTIAL INFORMATION
A. Anything in this Agreement to the contrary notwithstanding, any and all
knowledge, know-how, practices, process, or other information (hereinafter
referred to as "Confidential Information") disclosed or submitted in
writing or in other tangible form which is designated as Confidential
Information to either party by the other shall be received and maintained
by the receiving party in strict confidence and shall not be disclosed to
any third party. Furthermore, neither party shall use said Confidential
Information for any purpose other than those purposes specified in this
Agreement. The parties may disclose Confidential Information to employees
requiring access thereto for the purposes of this Agreement provided,
however, that prior to making any such disclosures each such employee
shall be apprised of the duty and obligation to maintain Confidential
Information in confidence and not to use such information for any purpose
other than in accordance with the terms and conditions of this Agreement.
Neither party will be held financially liable for any inadvertent
disclosure, but each will agree to use its reasonable efforts not to
disclose any agreed to Confidential Information.
B. Nothing contained herein will in any way restrict or impair either party's
right to use, disclose, or otherwise deal with any Confidential
Information which at the time of its receipt:
1. is generally available in the public domain, or thereafter becomes
available to the public through no act of the receiving party; or
2. was independently known prior to receipt thereof, or made available
to such receiving party as a matter of lawful right by a third
party.
C. The above obligations for Confidential Information shall be in effect for
a period of three (3) years after the termination of this Agreement.
D. Anything herein to the contrary notwithstanding, each party may make
disclosures of Confidential Information as may be required by any Federal,
State or Municipal authority having jurisdiction over the party. The
parties agree that they will use their best efforts to persuade the
appropriate authority that because of the nature of the Confidential
Information that the Confidential Information not be disclosed.
ARTICLE VII - INDEMNIFICATION AND INSURANCE
A. Except where such damages or losses are a direct result of the Technology,
PVI agrees to indemnify RESEARCH and hold RESEARCH harmless against all
liabilities, demands, damages, expenses, or losses arising (i) from the
manufacture, use, or sale of a Licensed Product by PVI or an Affiliate of
PVI, or of any Combination, Joint Venture of Other
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<PAGE>
Business entity in which PVI has an economic interest; or: (ii) from the
use of such licensed product by any third party, including any
Combination, Joint Venture or Other Business Entity in which PVI has an
economic interest; provided, however, that nothing contained herein shall
render PVI or its Affiliates liable for any indemnification of RESEARCH
with respect to any claim of patent infringement involving the Technology
brought by any third party.
B. The provisions of this Article shall survive termination of this
Agreement.
ARTICLE VIII - RESOLUTION OF DISPUTES AND ARBITRATION
A. Both PVI and RESEARCH wish to avoid disputes relating to or arising out of
this Agreement. In the event of any dispute or perceived problem, each
pledges itself to give notice to the other party and to seek an amicable
resolution without regard to arbitration.
B. All disputes arising out of or relating to this Agreement (including any
questions of fraud or questions concerning the validity or enforceability
of this Agreement or any of the rights herein conveyed) shall be settled
by arbitration to be held in Minneapolis, Minnesota. Such arbitration
shall be held in English in accordance with the then-existing Commercial
Rules of the American Arbitration Association and the demand for
arbitration shall be filed with the office of the American Arbitration
Association closest to Minneapolis, Minnesota, U.S.A., and immediate
notice of the filing shall be given to the other party. Each party shall
select an arbitrator from its own management team within thirty (30) days
of the notice of filing of any demand for arbitration and each shall be
responsible for the compensation of its own arbitrator. The two
arbitrators shall confer and select by mutual agreement (and at the joint
expense of the parties) a neutral third arbitrator within sixty (60) days
of the notice of filing of any demand for arbitration. If the parties fail
to appoint their own arbitrator or if the party-appointed arbitrators are
unable to agree upon the neutral arbitrator, the vacancies in the
arbitration panel shall be appointed by and according to the rules of the
American Arbitration Association. After appointment, the neutral
arbitrator shall not consult with either party or the other arbitrators in
advance of the arbitration hearing. The arbitration shall be speedily
concluded with the hearing to take place and the awards to be made as soon
as possible, preferably within sixty (60) days following the appointment
of the neutral arbitrator. Judgment upon the award of all or a majority of
the arbitrators shall be binding upon the parties hereto and may be
entered in any court having jurisdiction. Specific performance and
injunctive relief may be ordered by the award. As the sole exception to
arbitration, each party shall have the right to obtain injunctive relief,
only, from any federal court sitting in the State of Minnesota so as to
preserve the party's rights for resolution in any pending or imminent
arbitration proceedings but no such injunction shall prohibit or postpone
such arbitration proceedings and the injunctions may be modified or
vacated as a result of the arbitration award. Each party shall be
responsible for its own costs and attorneys fees.
C. This Article VIII shall survive any termination of this Agreement or the
rights herein conveyed.
ARTICLE IX - MISCELLANEOUS PROVISIONS
A. The rights and licenses granted by RESEARCH in this agreement are personal
to PVI and may not be assigned, sublicensed or otherwise transferred
without the written consent of RESEARCH. Any attempted assignment or
transfer without such consent shall be void.
5
<PAGE>
B. PVI hereby assures RESEARCH that PVI will comply with all United States
export controls as set forth in the Export Administration Regulations, 15
C.F.R. section 770 et seq.
C. This Agreement shall be governed by the laws of the State of Minnesota.
D. For purposes of mailings of notices, payments, or other communications,
the addresses of the parties are given below.
In the case of RESEARCH:
Theseus Research, Inc.
Attention: Chief Executive Officer
1916 S.E. Franklin Avenue
Minneapolis, MN 55414
In the case of PVI:
Princeton Video Image, Inc.
Attention: President
47 Hulfish Street, Suite 500
Princeton, NJ 08542
E. No term or provision of this Agreement shall be waived and no breach
excused, unless such waiver or consent shall be in writing and signed by
the party claimed to have waived or consented. No waiver of a breach shall
be deemed to be a waiver of a different or subsequent breach.
F. This Agreement may not be modified, changed or terminated orally. No
change, modification, addition or amendment shall be valid unless in
writing and signed by the parties hereto.
G. This Agreement constitutes and contains the entire Agreement of the
panties respecting the subject matter hereof and supersedes any and all
prior negotiations, correspondence, understanding, and agreements, whether
written or oral, between the parties respecting the subject matter hereof.
H. The provisions of this Agreement shall be deemed severable. Therefore, if
any part of this Agreement is rendered void, invalid or unenforceable,
such rendering shall not affect the validity and enforceability of the
remainder of this Agreement unless the part or parts which are void,
invalid or unenforceable as aforesaid shall substantially impair the value
of the whole Agreement to either party.
IN WITNESS WHEREOF, RESEARCH and PVI have caused this Agreement to be executed
by their duly authorized officers on the dates indicated.
THESEUS RESEARCH, INC. PRINCETON VIDEO IMAGE, INC.
By /s/ Karl M. Fant By /s/ Brown F. Williams
------------------------------ ------------------------------
Its Chief Executive Officer Its President
6
<PAGE>
EXHIBIT 10.11
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), dated as of January 24,1997
by and between Princeton Video Image, Inc., a New Jersey corporation (the
"Company"), and Brown F Williams (the "Employee").
WHEREAS, the Company and the Employee are parties to that certain
Employment Agreement, dated as of May 1, 1991, pursuant to which the Employee
was, and has continued to be, employed by the Company as its President; and
WHEREAS, the Company and the Employee wish to amend the terms pursuant to
which the Employee shall continue to be employed by the Company as its Chairman,
as set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto hereby agree as follows:
1. Term of Employment.
(a) Subject to the terms and conditions hereof, the Company will
employ the Employee, and the Employee will serve the Company, as its Chairman of
the Board of Directors, or such other senior executive position or positions as
the Company may request from time to time, for a period beginning on the date
hereof and terminating on the first anniversary of such date (the "Initial
Term") . Following the expiration of the Initial Term and of each extension
period referred to in this sentence, the term of this Agreement automatically
shall be extended for a period of one (1) year thereafter (such term, as it may
be shortened by termination of the Employee's employment hereunder pursuant to
the provisions hereof or extended, the "Term of Employment")
(b) Notwithstanding anything to the contrary contained herein, upon
the occurrence of a Change in Control (as hereinafter defined), the then current
Term of Employment shall be extended to the date which is three (3) years after
the effective date of the Change in Control.
(c) As used in this Agreement, "Change in Control" shall mean:
(w) the Company is merged with or into or consolidated with
another corporation or other entity under circumstances where the shareholders
of the Company immediately prior to such merger or consolidation do not own,
after such merger or consolidation, shares representing at least fifty percent
(50%) of the voting power of the Company or the surviving or resulting
corporation or other entity, as the case may be; or
<PAGE>
(x) the Company is liquidated or sells or otherwise disposes
of substantially all of its assets to another corporation or entity; or
(y) any person (as such term is used in Sections 13(d) and
14(d) (2) of the Securities Exchange Act of 1934) shall become the beneficial
owner (within the meaning of Rule 13d-3 under such Act) of forty percent (40%)
or more of the Common Stock of the Company other than pursuant to a plan or
arrangement entered into by such person and the Company or otherwise approved by
the Board; or
(z) during any period of two (2) consecutive years,
individuals who at the beginning of such period constitute the entire Board of
Directors shall cease for any reason to constitute a majority of the Board
unless the election or nomination for election by the Company's shareholders of
each new director was approved by a vote of at least two-thirds of the directors
then still in office who were directors at the beginning of the period.
2. Duties.
(a) During the Term of Employment, the Employee will serve as
Chairman of the Board of Directors and an exectuvie officer of the Company,
subject to the terms of this Agreement and the direction and control of the
Board of Directors of the Company. The primary location of the Employee's
employment hereunder shall be the headquarters of the Company. The Employee
will, during the Term of Employment, serve the Company faithfully, diligently
and competently and to the best of his ability, and will, consistent with the
dignity of the Chairman of the Board of the Company, hold, in addition to the
office of Chairman, such other offices in the Company to which he may be
appointed or assigned from time to time by the Board of Directors of the Company
and will discharge such duties in connection therewith. The Employee shall
devote all of his business time to the performance of his duties hereunder,
provided, that the Employee shall not be precluded from serving as a member of
up to two boards of directors or advisory boards of companies or organizations
so long as such service does not violate the provisions of Section 9 of this
Agreement or interfere with the performance of the Employee's duties hereunder.
(b) The Company will use its best efforts to obtain the nomination
of, and so long as the Employee is an officer of the Company, the election of
the Employee as a director of the Company. In the event that the Employee is, or
is elected as, a director of the Company, the Employee shall perform all duties
incident to such directorship faithfully, diligently and competently.
3. Compensation. The Company will, during the Term of Employment, pay to
the Employee as compensation for the performance of his duties and obligations
hereunder an initial base salary at
-2-
<PAGE>
the rate of $225,000 per annum ("Salary"), payable in equal semi-monthly
installments. Such Salary shall be reviewed annually by the Board of Directors
of the Company in accordance with the Company's compensation program solely for
the purpose of determining increases. During the Term of Employment, the
Employee shall be eligible to receive a bonus, to be awarded at the sole
discretion of the Board of Directors of the Company, upon the attainment of
stated goals and objectives for the Employee to be set by the Compensation
Committee of the Board after consultation with the Employee.
4. Other Benefits. During the Term of Employment:
(a) The Employee shall be entitled to participate in employee
benefit plans and programs of the Company to the extent that his position,
tenure, salary, age, health and other qualifications make him eligible to
participate. The Company does not guarantee the adoption or continuance of any
particular employee benefit plan or program during the Term of Employment, and
the Employee's participation in any such plan or program shall be subject to the
provisions, rules, regulations and laws applicable thereto; provided, however,
that the Employee shall be entitled to health and hospital insurance benefits
consistent with the past practices of the Company in effect with respect to
Company personnel generally.
(b) While employed hereunder, the Employee shall be entitled to
vacation benefits consistent with the past practices of the Company in effect
with respect to Company personnel generally. Such vacation may be taken by the
Employee at such times as do not unreasonably interfere with the business of the
Company. The accumulation of annual vacation time earned but not taken will be
in accordance with the Company policy guidelines. Additional vacation will be
earned in accordance with Company policy.
5. Expenses. During the Term of Employment, all travel and other
reasonable business expenses incident to the rendering of services by the
Employee under this Agreement will be paid or reimbursed by the Company subject
to the submission of appropriate vouchers and receipts in accordance with the
Company's policy from time to time in effect.
6. Death or Disability.
(a) The Employee's employment under this Agreement shall be
terminated by the death of the Employee. In addition, the Employee's employment
under this Agreement may be terminated by the Board of Directors of the Company
if the Employee shall be rendered incapable by illness or any other disability
from complying with the terms, conditions and provisions on his part to be kept,
observed and performed for a period in excess of 180 days (whether or not
consecutive) or 90 days consecutively, as the case may be,
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<PAGE>
during a 12-month period during the Term of Employment ("Disability"). If the
Employee's employment under this Agreement is terminated by reason of Disability
of the Employee, the Company shall give notice to that effect to the Employee in
the manner provided herein. In the event that the Employee receives disability
insurance benefits for which payment was made by the Company after the date of
this Agreement and prior to termination of the Employee's employment under this
Agreement pursuant to this Section 6(a), the Employee's Salary shall be reduced
by an amount equal to such disability insurance benefits during such period.
(b) In addition to and not in substitution for any other benefits
which may be payable by the Company in respect of the death of the Employee, in
the event of such death, the Salary payable hereunder shall continue to be paid
at the then current rate for three (3) months after the termination of
employment, and any bonus to which the Employee would have been entitled for the
year in which his death occurs shall be pro rated to the date of his death and
paid not later than three (3) months after the termination of employment. All
sums payable pursuant to this Section 6(b) shall be paid to the Employee's
personal representative.
(c) In addition to and not in substitution for any other benefits
which may be payable by the Company in respect of the Disability of the
Employee, in the event of the termination of the Employee's employment hereunder
due to such Disability pursuant to Section 6(a), the Company shall pay the
Employee, in forty-eight (48) equal semi-monthly installments, an aggregate
amount equal to two (2) years' Salary at the rate in effect on the effective
date of such termination; provided, however, that the Company shall deduct from
such payments the amount of any and all disability insurance benefits paid
during such two-year period with respect to the Employee that were paid for by
the Company during any period for which payment was made by the Company after
the date of this Agreement and prior to the termination of the Employee's
employment. In addition, any bonus to which the Employee would have been
entitled for the year in which such termination of employment occurs shall be
pro rated to the date of such termination and paid not later than twelve (12)
months after such termination.
7. Disclosure of Information, Inventions and Discoveries. The Employee
shall promptly disclose to the Company all processes, trademarks, inventions,
improvements discoveries and other information related to the business of the
Company (collectively, "Developments") conceived, developed or acquired by him
alone or with others during the Term of Employment or during any earlier period
of employment by the Company or any predecessor of the Company, whether or not
during regular working hours or through the use of materials or facilities of
the Company. All such Developments shall be the sole and exclusive property of
the
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<PAGE>
Company, and, upon request, the Employee shall promptly deliver to the Company
all drawings, sketches, models and other data and records relating to such
Developments. In the event any such Development shall be deemed by the Company
to be patentable, the Employee shall, at the expense of the Company, assist the
Company in obtaining a patent or patents thereon and execute all documents and
do all such other acts and things necessary or proper to obtain letters patent
and to invest in the Company full right, title and interest in and to such
Developments.
8. Non-Disclosure. The Employee shall not, at any time during or after the
Term of Employment or any earlier period of employment by the Company or any
predecessor of the Company, divulge, furnish or make accessible to anyone
(otherwise than in the regular course of business of the Company) or use for his
own account or for the account of any other person any knowledge or information
with respect to confidential or secret processes, inventions, discoveries,
improvements, formulae, plans, materials, devices or ideas or other know-how,
whether patentable or not, with respect to any confidential or secret
development or research work or with respect to any other confidential or secret
aspects of the Company's business (including, without limitation, customer
lists, supplier lists and pricing arrangements with customers or suppliers)
(collectively, the "Confidential Information"). This Section 8 shall not apply
to any information which (i) is or becomes generally available to the public
other than as a result of a disclosure directly or indirectly by the Employee,
or (ii) is or becomes available to the Employee on a non-confidential basis from
a person other than the Company or its officers, directors or agents who, to the
Employee's knowledge after due inquiry, is not and was not bound by a
confidentiality obligation to the Company and was not otherwise prohibited from
transmitting such information to the Employee.
9. Non-Competition. The Company and the Employee agree that the services
rendered by the Employee are unique and irreplaceable. In addition to and in
furtherance of Section 8 of this Agreement, the Company and the Employee agree
that the Employee has had, and will continue to have, unlimited access to the
Confidential Information and that preserving the proprietary nature of the
Confidential Information is of utmost importance to the Company. By giving the
Employee an opportunity or incentive to breach his obligations to the Company
under Section 8 of the Agreement, any relationship between the Employee and a
competitor of the Company during or following the Term of Employment will
potentially cause the Company irreparable injury, regardless (in the event of
termination or expiration of the Term of Employment) of the circumstances under
which the Term of Employment ends, and even if the Employee is terminated by the
Company for cause. Therefore, in light of the foregoing, the Employee agrees
that during the Term of Employment and for a period of two (2) years thereafter,
the Employee shall not, directly or indirectly, through any other
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<PAGE>
person, firm, corporation or other entity (whether as an officer, director,
employee, partner, consultant, holder of equity or debt investment, lender or in
any other manner or capacity):
(a) in any geographical area in the United States or in those
foreign countries where the Company, during the Term of Employment, conducts or
proposes to conduct business or initiate activities, design, manufacture, sell,
market, offer to sell or supply video or television technology similar to that
being developed or sold by the Company on the date of the termination of
Employee's employment under this Agreement for any reason;
(b) solicit, induce, encourage or attempt to induce or encourage any
employee of the Company to terminate his or her employment with the Company or
to breach any other obligation to the Company;
(c) solicit, interfere with, disrupt, alter or attempt to disrupt or
alter the relationship, contractual or otherwise, between the Company and any
customer, potential customer, or supplier of the Company; or
(d) engage in or participate in any business conducted under any
name that shall be the same as or similar to the name of the Company or any
trade name used by it;
provided, however, that in the event the Employee's employment is terminated by
the Company for cause pursuant to Section 11 of this Agreement, then following
such termination Employee shall have no further obligations under this Section 9
unless the Company, in its sole discretion, elects to make additional payments
to Employee as provided under Section 11.
The Employee acknowledges that the foregoing geographic, activity and time
limitations contained in this Section 9 are reasonable and properly required for
the adequate protection of the Company's business. In the event that any such
geographic, activity or time limitation is deemed to be unreasonable by a court,
the Employee shall submit to the reduction of either said activity or time
limitation to such activity or period as the court shall deem reasonable. In the
event that the Employee is in violation of the restrictive covenants set forth
in this Section 9, then the time limitation for such covenants shall be extended
for a period of time equal to the pendency of any proceedings brought to enforce
such covenants, including any appeals.
10. Remedies.
(a) The Employee acknowledges that irreparable injury would result
to the Company if the provisions of Section 7, 8, 9 or 14 of this Agreement were
not specifically enforced and agrees that the Company shall be entitled to any
appropriate legal, equitable
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<PAGE>
or other remedy, including injunctive relief, in respect to any failure to
comply with the provisions of Section 7, 8, 9 or 14.
(b) In furtherance of and not in limitation of Section 10(a), in the
event that, subsequent to the Term of Employment, the Employee breaches any of
his obligations to the Company under Section 7, 8, 9 or 14 of this Agreement,
then the Company's obligation to make further payments to the Employee pursuant
to this Agreement shall terminate. Any such termination shall not limit or
affect the Company's right to pursue any other remedy available to the Company
at law or in equity.
11. Termination for Cause. In addition to any other remedy available to
the Company, either at law or in equity, the Employee's employment with the
Company may be terminated by the Board of Directors for cause, which shall
include (i) the Employee's conviction from which no further appeal may be taken
for, or plea of nolo contendere to, a felony or a crime involving moral
turpitude, (ii) the Employee's commission of a breach of fiduciary duty
involving personal profit in connection with the Employee's employment by the
Company, (iii) the Employee's commission of an act which the Board of Directors
shall reasonably have found to have involved willful misconduct or gross
negligence on the part of the Employee, in the conduct of his duties under this
Agreement, (iv) habitual absenteeism, (v) the Employee's material breach of any
material provision of this Agreement which remains uncured for a period of
thirty (30) days following notice by the Company, or (vi) the willful and
continued failure by the Employee to perform substantially his duties with the
Company (other than any such failure resulting from his incapacity due to
physical or mental illness) . With respect to the matters set forth in
subsections (iii) , (iv) , (v) and (vi) of this Section 11, the Company may not
terminate the Employee's employment unless the Employee has first been given
notice of the conduct forming the cause for such termination and an opportunity
to explain such conduct to the Company. In the event of termination under this
Section 11, the Company's obligations under this Agreement shall cease, and the
Employee shall forfeit all rights to receive any future compensation under this
Agreement. Notwithstanding any termination of this Agreement pursuant to this
Section 11, the Employee, in consideration of his employment hereunder to the
date of such termination, shall remain bound by the provisions of Section 7, 8,
9 and 14 hereof following any such termination; provided, however, the Employee
shall only remain bound by the provisions of Section 9 if the Company elects, in
its sole discretion, upon notice to Employee within thirty (30) days following
the date of termination, to pay Employee in twenty-four equal semi-monthly
installments (commencing as of the Company's next regular pay period immediately
following such notice) full Salary (inclusive of paid medical plan, but
exclusive of bonuses, if any) as such Salary otherwise would have accrued for a
period equal to one (1) year following such termination.
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<PAGE>
12. Termination Without Cause.
(a) Each of the Company and the Employee may terminate the
Employee's employment under this Agreement at any time for any reason
whatsoever, without any further liability or obligation of the Company to the
Employee or of the Employee to the Company from and after the date of such
termination (other than liabilities or obligations accrued but unsatisfied on,
or surviving, the date of such termination), by sending ninety (90) days' prior
notice to the other party. In the event the Company elects to terminate the
Employee's employment under this Agreement pursuant to this Section 12, the
Company shall continue to pay the Employee, in equal semi-monthly installments,
the full Salary (inclusive of paid medical plan, but exclusive of bonuses, if
any) as such Salary otherwise would have accrued for a period equal to the
greater of (i) two (2) years following the date of notice of the Company's
election to terminate the Employee's employment, or (ii) the balance of the then
current Term of Employment. In the event the Employee terminates his employment
hereunder within ninety (90) days after a Detrimental Change (as hereinafter
defined), the Company shall continue to pay the Employee, in equal semi-monthly
installments, the full Salary (inclusive of paid medical plan, but exclusive of
bonuses, if any) as such Salary otherwise would have accrued until the later of
(i) the expiration of the then current Term of Employment, or (ii) the
expiration of two (2) years following the effective date of termination of the
Employee's employment hereunder. In the event the Employee elects to terminate
the Employee's employment under this Agreement, other than as set forth in the
immediately preceding sentence, prior to the end of the Term of Employment, the
Company's obligation to pay Salary shall cease as of the effective date of
termination. Any termination of the Employee's employment under this Agreement
by the Company as provided in this Section 12 shall be in addition to, and not
in substitution for, any rights with respect to termination of the Employee
which the Company may have pursuant to Section 11. Notwithstanding any
termination of the Employee's employment under this Agreement pursuant to this
Section 12, the Employee, in consideration of his employment hereunder to the
date of such termination, shall remain bound by the provisions of Section 7, 8,
9 and 14 hereof following any such termination.
(b) As used in this Agreement, "Detrimental Change" shall mean a
detrimental change in the nature or scope of the Employee's employment or duties
which is inconsistent with those of senior executive management. Detrimental
Change shall include, without limitation, the assignment of the Employee to any
duties substantially inconsistent with those of senior executive management, the
removal of the Employee from, or any failure to re-elect him as an officer and
director of the Company, a reduction in Salary or other employee benefits, the
failure by the Company to continue to provide the Employee with substantially
similar bonus
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<PAGE>
opportunities, the relocation of the Employee's primary office of employment to
a location more than fifty (50) miles from the location of such office prior to
the relocation, and substantially increased travel requirements.
13. Resignation. In the event that the Employee's services under this
Agreement are terminated under any of the provisions of this Agreement (except
by death), the Employee agrees that he will deliver to the Board of Directors
his written resignation from all positions held with the Company, such
resignation to become effective immediately; provided, however, that nothing
herein shall be deemed to affect the provisions of Section 7, 8, 9 and 14 hereof
relating to the survival thereof following termination of the Employee's
services hereunder; and provided, further, that except as expressly provided in
this Agreement, the Employee shall be entitled to no further compensation
hereunder.
14. Data. Upon expiration or termination of the Term of Employment or
termination pursuant to Section 1(b), 6, 11 or 12 hereof, the Employee or his
personal representative shall promptly deliver to the Company all books,
memoranda, plans, records and written data of every kind relating to the
business and affairs of the Company which are then in his possession or control.
15. Insurance. The Company shall have the right, at its own cost and
expense to apply for and to secure in its own name, or otherwise, life, health
or accident insurance or any or all of them covering the Employee, and the
Employee agrees to submit to usual and customary medical examinations and
otherwise to cooperate with the Company in connection with the procurement of
any such insurance and any claims thereunder.
16. Waiver of Breach. Any waiver of any breach of this Agreement shall not
be construed to be a continuing waiver or consent to any subsequent breach on
the part either of the Employee or the Company.
17. Assignment. This Agreement shall inure to the benefit of and be
binding upon the successors and assigns of the Company upon any sale of all or
substantially all of the Company's assets, or upon any merger or consolidation
of the Company with or into any other entity (including, without limitation, any
change in control of the Company) , all as though such successors and assigns of
the Company and their respective successors and assigns were the Company.
Insofar as the Employee is concerned, this Agreement, being personal, may not be
assigned, and any such purported assignment shall be void and of no effect.
18. Severability. To the extent any provision of this Agreement shall be
invalid or unenforceable, it shall be considered deleted herefrom, and the
remainder of such provision and of this Agreement shall be unaffected and shall
continue in full force and
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<PAGE>
effect. In furtherance and not in limitation of the foregoing, should the
duration or geographical extent of, or business activities covered by, any
provision of this Agreement be in excess of that which is valid and enforceable
under applicable law, then such provision shall be construed to cover only that
duration, extent or activities which may be validly and enforceably covered.
19. Notices. All notices, requests and other communications pursuant to
this Agreement shall be in writing and shall be deemed to have been duly given,
if delivered in person or by courier, telegraphed, telexed or by facsimile
transmission (receipt confirmed) or five (5) business days after being sent by
registered or certified mail, return receipt requested, postage paid, addressed
as follows:
(a) If to the Employee
Brown F Williams
27 Honeybrook Drive
Princeton, NJ 08540
Fax No.: (609) 737-0067
(b) If to the Company:
Princeton Video Image, Inc.
47 Hulfish Street, Suite 500
Princeton, NJ 08542
Fax No.: (609) 924-0634
Attn: Board of Directors
with a copy to:
Richard J. Pinto, Esq.
Smith, Stratton, Wise, Heher & Brennan
600 College Road East
Princeton, NJ 08540
Fax No.: (609) 987-6651
Any party may, by written notice to the other in accordance with this Section
19, change the address to which notices to such party are to be delivered or
mailed.
20. General. Except as otherwise provided herein, the terms and provisions
of this Agreement shall constitute the entire agreement by the Company and the
Employee with respect to the subject matter hereof and shall supersede any and
all prior agreements or understandings between the Employee and the Company,
whether written or oral. This Agreement shall be construed and enforced in
accordance with the laws of the State of New Jersey. This Agreement may be
amended or modified only by a written instrument executed by the Employee and
the Company. The headings of the sections of this Agreement are for convenience
of reference
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only and do not constitute part of this Agreement. This Agreement may be
executed in any number of counterparts, each of which, when executed, shall be
deemed to be an original, but all of which together shall constitute one and the
same instrument.
IN WITNESS WHEREOF, each of the parties have executed or caused to be
executed by its duly authorized representative this Employment Agreement as of
the day and year first above written.
PRINCETON VIDEO IMAGE, INC.
By: /s/ Douglas J. Greenlaw
----------------------------------
Name: Doug Greenlaw
Title: President & CEO
/s/ Brown F Williams
-------------------------------------
Brown F Williams
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<PAGE>
EXHIBIT 10.12
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), dated as of January 24, 1997
by and between Princeton Video Image, Inc., a New Jersey corporation (the
"Company"), and Douglas J. Greenlaw (the "Employee").
WHEREAS, the Company and the Employee wish to enter into an agreement
whereby the Employee shall be employed by the Company as its President and Chief
Executive Officer, as set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto hereby agree as follows:
1. Term of Employment.
Subject to the terms and conditions hereof, the Company will employ
the Employee, and the Employee will serve the Company, as President and Chief
Executive Officer, or such other senior executive position or positions as the
Company may request from time to time, for a period beginning on the date hereof
and terminating on the first anniversary of such date (the "Initial Term") .
Following the expiration of the Initial Term and of each extension period
referred to in this sentence, the term of this Agreement automatically shall be
extended for a period of one (1) year thereafter (such term, as it may be
shortened by termination of the Employee's employment hereunder pursuant to the
provisions hereof or extended, the "Term of Employment").
2. Duties.
(a) During the Term of Employment, the Employee will serve as
President and Chief Executive Officer, subject to the terms of this Agreement
and the direction and control of the Board of Directors of the Company and its
Chairman. The primary location of the Employee's employment hereunder shall be
the headquarters of the Company (currently Princeton, New Jersey) and New York
City. The Employee will, during the Term of Employment, serve the Company
faithfully, diligently and competently and to the best of his ability, and will,
consistent with the dignity of the President and Chief Executive Officer of the
Company, hold, in addition to the offices of President and Chief Executive
Officer the Company, such other offices in the Company to which he may be
appointed or assigned from time to time by the Board of Directors of the Company
and will discharge such duties in connection therewith. The Employee shall
devote all of his business time to the performance of his duties hereunder,
provided, that the Employee shall not be precluded from serving as a member of
up to two boards of directors
<PAGE>
or advisory boards of companies or organizations so long as such service does
not violate the provisions of Section 9 of this Agreement or interfere with the
performance of the Employee's duties hereunder.
(b) At or before the next annual meeting of the Company's
shareholders, the Company will use its best efforts to obtain the nomination of,
and so long thereafter as the Employee is President and Chief Executive Officer
of the Company, the election of the Employee as a director of the Company. In
the event that the Employee is, or is elected as, a director of the Company, the
Employee shall perform all duties incident to such directorship faithfully,
diligently and competently.
3. Compensation. The Company will, during the Term of Employment, pay to
the Employee as compensation for the performance of his duties and obligations
hereunder an initial base salary at the rate of $225,000 per annum ("Salary"),
payable in equal semi-monthly installments. Such Salary shall be reviewed
annually by the Board of Directors of the Company in accordance with the
Company's compensation program solely for the purpose of determining increases,
and the Board, in the exercise of its sole discretion, will have the option to
increase such Salary from time to time. During the Term of Employment, the
Employee shall be eligible to receive a bonus, to be awarded at the sole
discretion of the Board of Directors of the Company, upon the attainment of
stated goals and objectives for the Employee to be set by the Compensation
Committee of the Board after consultation with the Employee.
4. Other Benefits. During the Term of Employment:
(a) The Employee shall be entitled to participate in employee
benefit plans and programs of the Company to the extent that his position,
tenure, salary, age, health and other qualifications make him eligible to
participate. The Company does not guarantee the adoption or continuance of any
particular employee benefit plan or program during the Term of Employment, and
the Employee's participation in any such plan or program shall be subject to the
provisions, rules, regulations and laws applicable thereto; provided, however,
that the Employee shall be entitled to health and hospital insurance benefits
consistent with the past practices of the Company in effect with respect to
Company personnel generally; and provided, further, that any employee benefit
plans and programs instituted by the Company for the benefit of its officers
generally will be made available to Employee on terms no less favorable to
Employee than those terms offered to any other officer of the Company.
(b) While employed hereunder, the Employee shall be entitled to
vacation benefits consistent with the past practices of the Company in effect
with respect to Company personnel generally.
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<PAGE>
Such vacation may be taken by the Employee at such times as do not unreasonably
interfere with the business of the Company. The accumulation of annual vacation
time earned but not taken will be in accordance with the Company policy
guidelines. Additional vacation will be earned in accordance with Company
policy.
(c) Within thirty days of the date of this Agreement ,the Company
shall grant to the Employee a stock option, pursuant to the Company's 1993 Stock
Option Plan (the "Plan"), to purchase 105,000 shares of Common Stock of the
Company ("Common Stock") with an exercise price equal to $40 per share. Such
option shall be for a term of ten years, subject to earlier termination ninety
days after termination of Employee's employment (or such later date after such
termination as is as provided in the Plan or Stock Option Grant Agreement), and
shall be in the form of, and on such terms and conditions as provided in, the
Company's standard form of Stock Option Grant Agreement in effect as of the date
of this Agreement. Such option grant shall provide, on condition that the
Employee is employed by the Company on the relevant vesting dates, that such
options shall vest and become exercisable over a four year period at the rate of
1/48 for each calendar month of Employee's employment with the Company.
(d) Within thirty days of the first anniversary of this Agreement,
provided the Employee is then employed by the Company, the Company shall grant
to the Employee a stock option, pursuant to the Plan, to purchase 21,000 shares
of Common Stock with an exercise price equal to the then fair market value of
the Common Stock as determined by the Board of Directors pursuant to the Plan.
Such option shall be for a term of ten years, subject to earlier termination
ninety days after termination of Employee's employment (or such later date after
such termination as is as provided in the Plan or Stock Option Grant Agreement),
and shall be in the form of, and on such terms and conditions as provided in,
the Company's standard form of Stock Option Grant Agreement then in effect. Such
option grant shall provide, on condition that the Employee is employed by the
Company on the relevant vesting dates, that such options shall vest and become
exercisable over a three year period at the rate of 1/36 for each calendar month
of Employee's employment with the Company after the grant.
(e) The Company has provided to Employee, and the Employee
acknowledges receipt of, a copy of the Plan and information concerning the
current the capital structure of the Company, including the number of shares of
Common Stock and other securities currently issued and outstanding, and the
number of shares of Common Stock issuable in connection with outstanding
warrants and options.
(f) The stock option grant agreements for the options described in
Section 4(c) and (d) of this Agreement will also provide that all unvested
options will become exercisable
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<PAGE>
immediately upon a merger, consolidation, acquisition of property or stock,
reorganization (other than a mere reincorporation or the creation of a holding
company) or liquidation of the Company, as a result of which the shareholders of
the Company receive cash, stock or other property in exchange for or in
connection with their shares of the Company's Common Stock. In addition, such
options shall become immediately exercisable in the event of a change in control
of the Company. A change in control of the Company shall be deemed to occur if
(a) the Company is merged with or into or consolidated with another corporation
or other entity under circumstances where the shareholders of the Company
immediately prior to such merger or consolidation do not own after such merger
or consolidation shares representing at least fifty percent of the voting power
of the Company or the surviving or resulting corporation or other entity, as the
case may be, or (b) if the Company is liquidated or sells or otherwise disposes
of substantially all of its assets to another corporation or entity, or (c) if
any person (as such term is used in Sections 13(d) and 14 (d) (2) of the
Securities Exchange Act of 1934 shall become the beneficial owner (within the
meaning of Rule 13d-3 under such Act) of forty (40%) percent or more of the
Common Stock of the Company other than pursuant to a plan or arrangement entered
into by such person and the Company or otherwise approved by the Board of
Directors, or (d) during any period of two (2) consecutive years, individuals
who at the beginning of such period constitute the entire Board of Directors
shall cease for any reason to constitute a majority of the Board unless the
election or nomination for election by the Company's shareholders of each new
director was approved by a vote of at least two-thirds of the directors then
still in office who were directors at the beginning of the period.
(g) In the event that the acceleration, as set forth in Section 4(f)
of this Agreement, of any option to be granted to the Employee pursuant to the
Plan, as the case may be, which causes the option to be exercisable immediately
(the "Accelerated Options") (i) constitutes a "parachute payment" within the
meaning of section 280G of the Internal Revenue Code of 1986, as amended (the
"Code"), and (ii) but for this Section 4(g), would be subject to the excise tax
imposed by section 4999 of the Code (the "Excise Tax") , then the amount of the
Accelerated Options may be reduced to the largest amount which the Employee, in
his sole discretion, determines would result in no portion of the Accelerated
Options (or only such portion thereof as is acceptable to the Employee) being
subject to the Excise Tax. The determination by the Employee of any reduction
shall be conclusive and binding upon the Company. The Company shall reduce such
Accelerated Options only upon written notice by the Employee indicating the
amount of such reduction.
5. Expenses. During the Term of Employment, all travel and other
reasonable business expenses incident to the rendering of services by the
Employee under this Agreement will be paid or
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reimbursed by the Company subject to the submission of appropriate vouchers and
receipts in accordance with the Company's policy from time to time in effect.
6. Death or Disability.
(a) The Employee's employment under this Agreement shall be
terminated by the death of the Employee. In addition, the Employee's employment
under this Agreement may be terminated by the Board of Directors of the Company
if the Employee shall be rendered incapable by illness or any other disability
from complying with the terms, conditions and provisions on his part to be kept,
observed and performed for a period in excess of 180 days (whether or not
consecutive) or 90 days consecutively, as the case may be, during a 12-month
period during the Term of Employment ("Disability"). If the Employee's
employment under this Agreement is terminated by reason of Disability of the
Employee, the Company shall give notice to that effect to the Employee in the
manner provided herein. In the event that the Employee receives disability
insurance benefits for which payment was made by the Company after the date of
this Agreement and prior to termination of the Employee's employment under this
Agreement pursuant to this Section 6(a), the Employee's Salary shall be reduced
by an amount equal to such disability insurance benefits during such period.
(b) In addition to and not in substitution for any other benefits
which may be payable by the Company in respect of the death of the Employee, in
the event of such death, the Salary payable hereunder shall continue to be paid
at the then current rate for three (3) months after the termination of
employment, and any bonus to which the Employee would have been entitled for the
year in which his death occurs shall be pro rated to the date of his death and
paid not later than three (3) months after the termination of employment. All
sums payable pursuant to this Section 6(b) shall be paid to the Employee's
personal representative.
(c) In addition to and not in substitution for any other benefits
which may be payable by the Company in respect of the Disability of the
Employee, in the event of the termination of the Employee's employment hereunder
due to such Disability pursuant to Section 6(a), the Company shall pay the
Employee, in twelve (12) equal semi-monthly installments, an aggregate amount
equal to six (6) months' Salary at the rate in effect on the effective date of
such termination; provided, however, that the Company shall deduct from such
payments the amount of any and all disability insurance benefits paid during
such six-month period with respect to the Employee that were paid for by the
Company during any period for which payment was made by the Company after the
date of this Agreement and prior to the termination of the Employee's
employment. In addition, any bonus to which the Employee would have been
entitled for the year in which such termination of
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employment occurs shall be pro rated to the date of such termination and paid
not later than twelve (12) months after such termination.
7. Disclosure of Information, Inventions and Discoveries. The Employee
shall promptly disclose to the Company all processes, trademarks, inventions,
improvements discoveries and other information related to the business of the
Company (collectively, "Developments") conceived, developed or acquired by him
alone or with others during the Term of Employment or during any earlier period
of employment by the Company or any predecessor of the Company, whether or not
during regular working hours or through the use of materials or facilities of
the Company. All such Developments shall be the sole and exclusive property of
the Company, and, upon request, the Employee shall promptly deliver to the
Company all drawings, sketches, models and other data and records relating to
such Developments. In the event any such Development shall be deemed by the
Company to be patentable, the Employee shall, at the expense of the Company,
assist the Company in obtaining a patent or patents thereon and execute all
documents and do all such other acts and things necessary or proper to obtain
letters patent and to invest in the Company full right, title and interest in
and to such Developments.
8. Non-Disclosure. The Employee shall not, at any time during or after the
Term of Employment or any earlier period of employment by the Company or any
predecessor of the Company, divulge, furnish or make accessible to anyone
(otherwise than in the regular course of business of the Company) or use for his
own account or for the account of any other person any knowledge or information
with respect to confidential or secret processes, inventions, discoveries,
improvements, formulae, plans, materials, devices or ideas or other know-how,
whether patentable or not, with respect to any confidential or secret
development or research work or with respect to any other confidential or secret
aspects of the Company's business (including, without limitation, customer
lists, supplier lists and pricing arrangements with customers or suppliers)
(collectively, the "Confidential Information"). This Section 8 shall not apply
to any information which (I) is or becomes generally available to the public
other than as a result of a disclosure directly or indirectly by the Employee,
or (ii) is or becomes available to the Employee on a non-confidential basis from
a person other than the Company or its officers, directors or agents who, to the
Employee's knowledge after due inquiry, is not and was not bound by a
confidentiality obligation to the Company and was not otherwise prohibited from
transmitting such information to the Employee.
9. Non-Competition. The Company and the Employee agree that the services
rendered by the Employee are unique and irreplaceable. In addition to and in
furtherance of Section 8 of this Agreement, the Company and the Employee agree
that the Employee has had, and
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will continue to have, unlimited access to the Confidential Information and that
preserving the proprietary nature of the Confidential Information is of utmost
importance to the Company. By giving the Employee an opportunity or incentive to
breach his obligations to the Company under Section 8 of the Agreement, any
relationship between the Employee and a competitor of the Company during or
following the Term of Employment will potentially cause the Company irreparable
injury, regardless (in the event of termination or expiration of the Term of
Employment) of the circumstances under which the Term of Employment ends, and
even if the Employee is terminated by the Company for cause. Therefore, in light
of the foregoing, the Employee agrees that during the Term of Employment and for
a period of two (2) years thereafter, the Employee shall not, directly or
indirectly, through any other person, firm, corporation or other entity (whether
as an officer, director, employee, partner, consultant, holder of equity or debt
investment, lender or in any other manner or capacity):
(a) in any geographical area in the United States or in those
foreign countries where the Company, during the Term of Employment, conducts or
proposes to conduct business or initiate activities, design, manufacture, sell,
market, offer to sell or supply video or television technology similar to that
being developed or sold by the Company on the date of the termination of
Employee's employment under this Agreement for any reason;
(b) solicit, induce, encourage or attempt to induce or encourage any
employee of the Company to terminate his or her employment with the Company or
to breach any other obligation to the Company;
(c) solicit, interfere with, disrupt, alter or attempt to disrupt or
alter the relationship, contractual or otherwise, between the Company and any
customer, potential customer, or supplier of the Company; or
(d) engage in or participate in any business conducted under any
name that shall be the same as or similar to the name of the Company or any
trade name used by it;
provided, however, that in the event the Employee's employment is terminated by
the Company for cause pursuant to Section 11 of this Agreement, then following
such termination Employee shall have no further obligations under this Section 9
unless the Company, in its sole discretion, elects to make additional payments
to Employee as provided under Section 11.
The Employee acknowledges that the foregoing geographic, activity and time
limitations contained in this Section 9 are reasonable and properly required for
the adequate protection of the Company's business. In the event that any such
geographic, activity or time limitation is deemed to be unreasonable by a
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court, the Employee shall submit to the reduction of either said activity or
time limitation to such activity or period as the court shall deem reasonable.
In the event that the Employee is in violation of the restrictive covenants set
forth in this Section 9, then the time limitation for such covenants shall be
extended for a period of time equal to the pendency of any proceedings brought
to enforce such covenants, including any appeals.
10. Remedies.
(a) The Employee acknowledges that irreparable injury would result
to the Company if the provisions of Section 7, 8, 9 or 14 of this Agreement were
not specifically enforced and agrees that the Company shall be entitled to any
appropriate legal, equitable or other remedy, including injunctive relief, in
respect to any failure to comply with the provisions of Section 7, 8, 9 or 14.
(b) In furtherance of and not in limitation of Section 10(a), in the
event that, subsequent to the Term of Employment, the Employee breaches any of
his obligations to the Company under Section 7, 8, 9 or 14 of this Agreement,
then the Company's obligation to make further payments to the Employee pursuant
to this Agreement shall terminate. Any such termination shall not limit or
affect the Company's right to pursue any other remedy available to the Company
at law or in equity.
11. Termination for Cause. In addition to any other remedy available to
the Company, either at law or in equity, the Employee's employment with the
Company may be terminated by the Board of Directors for cause, which shall
include (I) the Employee's conviction from which no further appeal may be taken
for, or plea of nolo contendere to, a felony or a crime involving moral
turpitude, (ii) the Employee's commission of a breach of fiduciary duty
involving personal profit in connection with the Employee's employment by the
Company, (iii) the Employee's commission of an act which the Board of Directors
shall reasonably have found to have involved willful misconduct or gross
negligence on the part of the Employee, in the conduct of his duties under this
Agreement, (iv) habitual absenteeism, (v) the Employee's material breach of any
material provision of this Agreement which remains uncured for a period of
thirty (30) days following notice by the Company, or (vi) the willful and
continued failure by the Employee to perform substantially his duties with the
Company (other than any such failure resulting from his incapacity due to
physical or mental illness). With respect to the matters set forth in
subsections (iii), (iv), (v) and (vi) of this Section 11, the Company may not
terminate the Employee's employment unless the Employee has first been given
notice of the conduct forming the cause for such termination and an opportunity
to explain such conduct to the Company. In the event of termination under this
Section 11, the Company's obligations under this Agreement shall cease, and the
Employee shall forfeit all rights to receive any
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<PAGE>
future compensation under this Agreement. Notwithstanding any termination of
this Agreement pursuant to this Section 11, the Employee, in consideration of
his employment hereunder to the date of such termination, shall remain bound by
the provisions of Section 7, 8, 9 and 14 hereof following any such termination.
12. Termination Without Cause.
(a) Each of the Company and the Employee may terminate the
Employee's employment under this Agreement at any time for any reason
whatsoever, without any further liability or obligation of the Company to the
Employee or of the Employee to the Company from and after the date of such
termination (other than liabilities or obligations accrued but unsatisfied on,
or surviving, the date of such termination), by sending ninety (90) days' prior
notice to the other party. In the event the Company elects to terminate the
Employee's employment under this Agreement pursuant to this Section 12, the
Company shall continue to pay the Employee, in equal semi-monthly installments,
the full Salary (inclusive of paid medical plan, but exclusive of bonuses, if
any) as such Salary otherwise would have accrued for a period equal to six (6)
months; provided, however, that if the Company elects to terminate this
Agreement during the Employee's first year of employment with the Company, such
amount shall be limited to three (3) months' salary. The payments described in
the preceding sentence shall be made without regard to whether Employee has
sought or obtained any other employment during such period. In the event the
Employee elects to terminate the Employee's employment under this Agreement,
prior to the end of the Term of Employment, the Company's obligation to pay
Salary shall cease as of the effective date of termination. Any termination of
the Employee's employment under this Agreement by the Company as provided in
this Section 12 shall be in addition to, and not in substitution for, any rights
with respect to termination of the Employee which the Company may have pursuant
to Section 11. Notwithstanding any termination of the Employee's employment
under this Agreement pursuant to this Section 12, the Employee, in consideration
of his employment hereunder to the date of such termination, shall remain bound
by the provisions of Section 7, 8, 9 and 14 hereof following any such
termination.
13. Resignation. In the event that the Employee's services under this
Agreement are terminated under any of the provisions of this Agreement (except
by death), the Employee agrees that he will deliver to the Board of Directors
his written resignation from all positions held with the Company, such
resignation to become effective immediately; provided, however, that nothing
herein shall be deemed to affect the provisions of Section 7, 8, 9 and 14 hereof
relating to the survival thereof following termination of the Employee's
services hereunder; and provided, further, that except as expressly provided in
this Agreement, the Employee shall be entitled to no further compensation
hereunder.
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<PAGE>
14. Data. Upon expiration or termination of the Term of Employment or
termination pursuant to Section 1, 6, 11 or 12 hereof, the Employee or his
personal representative shall promptly deliver to the Company all books,
memoranda, plans, records and written data of every kind relating to the
business and affairs of the Company which are then in his possession or control.
15. Insurance. The Company shall have the right, at its own cost and
expense to apply for and to secure in its own name, or otherwise, life, health
or accident insurance or any or all of them covering the Employee, and the
Employee agrees to submit to usual and customary medical examinations and
otherwise to cooperate with the Company in connection with the procurement of
any such insurance and any claims thereunder.
16. Waiver of Breach. Any waiver of any breach of this Agreement shall not
be construed to be a continuing waiver or consent to any subsequent breach on
the part either of the Employee or the Company.
17. Assignment. This Agreement shall inure to the benefit of and be
binding upon the successors and assigns of the Company upon any sale of all or
substantially all of the Company's assets, or upon any merger or consolidation
of the Company with or into any other entity (including, without limitation, any
change in control of the Company), all as though such successors and assigns of
the Company and their respective successors and assigns were the Company.
Insofar as the Employee is concerned, this Agreement, being personal, may not be
assigned, and any such purported assignment shall be void and of no effect.
18. Severability. To the extent any provision of this Agreement shall be
invalid or unenforceable, it shall be considered deleted herefrom, and the
remainder of such provision and of this Agreement shall be unaffected and shall
continue in full force and effect. In furtherance and not in limitation of the
foregoing, should the duration or geographical extent of, or business activities
covered by, any provision of this Agreement be in excess of that which is valid
and enforceable under applicable law, then such provision shall be construed to
cover only that duration, extent or activities which may be validly and
enforceably covered.
19. Notices. All notices, requests and other communications pursuant to
this Agreement shall be in writing and shall be deemed to have been duly given,
if delivered in person or by courier, telegraphed, telexed or by facsimile
transmission (receipt confirmed) or five (5) business days after being sent by
registered or certified mail, return receipt requested, postage paid, addressed
as follows:
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<PAGE>
(a) If to the Employee:
Douglas J. Greenlaw
84 Villa Road
B-26 Greenville, SC 29615
(b) If to the Company:
Princeton Video Image, Inc.
47 Hulfish Street, Suite 500
Princeton, NJ 08542
Fax No.: (609) 924-0634
Attn: Chairman of the Board of Directors
with a copy to:
Richard J. Pinto, Esq.
Smith, Stratton, Wise, Heher & Brennan
600 College Road East
Princeton, NJ 08540
Fax No.: (609) 987-6651
Any party may, by written notice to the other in accordance with this Section
19, change the address to which notices to such party are to be delivered or
mailed.
20. General. Except as otherwise provided herein, the terms and provisions
of this Agreement shall constitute the entire agreement by the Company and the
Employee with respect to the subject matter hereof and shall supersede any and
all prior agreements or understandings between the Employee and the Company,
whether written or oral. This Agreement shall be construed and enforced in
accordance with the laws of the State of New Jersey. This Agreement may be
amended or modified only by a written instrument executed by the Employee and
the Company. The headings of the sections of this Agreement are for convenience
of reference only and do not constitute part of this Agreement. This Agreement
may be executed in any number of counterparts, each of which, when executed,
shall be deemed to be an original, but all of which together shall constitute
one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, each of the parties have executed or caused to be
executed by its duly authorized representative this Employment Agreement as of
the day and year first above written.
PRINCETON VIDEO IMAGE, INC.
By: /s/ Brown F. Williams
-----------------------------------
Name: Brown F Williams
Title: Chairman of the Board
/s/ Douglas J. Greenlaw
--------------------------------------
Douglas J. Greenlaw
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<PAGE>
EXHIBIT 10.13
[Letterhead of PVI, Inc.]
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), dated as of March 4 ,1997 by
and between Princeton Video Image, Inc., a New Jersey corporation (the
"Company"), and Samuel A. McCleery (the "Employee").
WHEREAS, the Company and the Employee are parties to that certain
Employment Agreement, dated as of November 3, 1991, pursuant to which the
Employee was, and has continued to be, employed by the Company as its
Vice-President of Marketing and Sales; and
WHEREAS, the Company and the Employee wish to amend the terms pursuant to
which the Employee shall continue to be employed by the Company as its
Vice-President of Marketing and Sales, as set forth herein; and
WHEREAS, in partial consideration of the Employee's execution and delivery
of this Agreement, the Company has agreed to reissue or extend certain warrants
to purchase shares of Common Stock of the Company that were previously issued to
the Employee and subsequently expired;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto hereby agree as follows:
1. Term of Employment.
(a) Subject to the terms and conditions hereof, the Company will
employ the Employee, and the Employee will serve the Company, as its
Vice-President of Marketing and Sales, or such other senior executive position
or positions as the Company may request from time to time, for a period
beginning on the date hereof and terminating on the first anniversary of such
date (the "Initial Term"). Following the expiration of the Initial Term and of
each extension period referred to in this sentence, the term of this Agreement
automatically shall be extended for a period of one (1) year thereafter (such
term, as it may be shortened by termination of the Employee's employment
hereunder pursuant to the provisions hereof or extended, the "Term of
Employment").
(b) Notwithstanding anything to the contrary contained herein, upon
the occurrence of a Change in Control (as hereinafter defined), the then current
Term of Employment shall be extended to the date which is three (3) years after
the effective date of the Change in Control.
(c) As used in this Agreement, "Change in Control" shall mean:
(w) the Company is merged with or into or consolidated with
another corporation or other entity under circumstances where the shareholders
of the Company immediately prior to such merger or consolidation do not own,
after such merger or consolidation, shares representing at least fifty percent
(50%) of the voting power of the Company or the surviving or resulting
corporation or other entity, as the case may be; or
(x) the Company is liquidated or sells or otherwise
disposes of substantially all of its assets to another corporation or entity;
or
<PAGE>
(y) any person (as such term is used in Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934) shall become the beneficial
owner (within the meaning of Rule 13d-3 under such Act) of forty percent (40%)
or more of the Common Stock of the Company other than pursuant to a plan or
arrangement entered into by such person and the Company or otherwise approved by
the Board; or
(z) during any period of two (2) consecutive years,
individuals who at the beginning of such period constitute the entire Board of
Directors shall cease for any reason to constitute a majority of the Board
unless the election or nomination for election by the Company's shareholders of
each new director was approved by a vote of at least two-thirds of the directors
then still in office who were directors at the beginning of the period.
2. Duties. During the Term of Employment, the Employee will serve as
Vice-President of Marketing and Sales and an executive officer of the Company,
subject to the terms of this Agreement and the direction and control of the
Chairman of the Board of Directors of the Company. The primary location of the
Employee's employment hereunder shall be the headquarters of the Company. The
Employee will, during the Term of Employment, serve the Company faithfully,
diligently and competently and to the best of his ability, and will, consistent
with the dignity of the Vice-President of Marketing and Sales of the Company,
hold, in addition to such office, such other offices in the Company to which he
may be appointed or assigned from time to time by the Board of Directors of the
Company and will discharge such duties in connection therewith. The Employee
shall devote all of his business time to the performance of his duties
hereunder, provided, that the Employee shall not be precluded from serving as a
member of up to two boards of directors or advisory boards of companies or
organizations so long as such service does not violate the provisions of Section
9 of this Agreement or interfere with the performance of the Employee's duties
hereunder.
3. Compensation. The Company will, during the Term of Employment, pay to
the Employee as compensation for the performance of his duties and obligations
hereunder an initial base salary at the rate of $150,000 per annum ("Salary"),
payable in equal semi-monthly installments. Such Salary shall be reviewed
annually by the Board of Directors of the Company in accordance with the
Company's compensation program solely for the purpose of determining increases.
During the Term of Employment, the Employee shall be eligible to receive a
bonus, to he awarded at the sole discretion of the Board of Directors of the
Company, upon the attainment of stated goals and objectives for the Employee to
be set by the Compensation Committee of the Board after consultation with the
Employee.
4. Other Benefits. During the Term of Employment:
(a) The Employee shall be entitled to participate in employee
benefit plans and programs of the Company to the extent that his position,
tenure, salary, age, health and other qualifications make him eligible to
participate. The Company does not guarantee the adoption or continuance of any
particular employee benefit plan or program during the Term of Employment, and
the Employee's participation in any such plan or program shall be subject to the
provisions, rules, regulations and laws applicable thereto; provided, however,
that the Employee shall be entitled to health and hospital insurance benefits
consistent with the past practices of the Company in effect with respect to
Company personnel generally.
(b) While employed hereunder, the Employee shall be entitled to
vacation benefits consistent with the past practices of the Company in effect
with respect to Company personnel generally. Such vacation may he taken by the
Employee at such times as do not unreasonably interfere with the business of the
Company. The accumulation of annual vacation time earned but not taken will be
in accordance with the Company policy guidelines. Additional vacation will be
earned in accordance with Company policy.
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<PAGE>
5. Expenses. During the Term of Employment, all travel and other
reasonable business expenses incident to the rendering of services by the
Employee under this Agreement will be paid or reimbursed by the Company subject
to the submission of appropriate vouchers and receipts in accordance with the
Company's policy from time to time in effect.
6. Death or Disability.
(a) The Employee's employment under this Agreement shall be
terminated by the death of the Employee. In addition, the Employee's employment
under this Agreement may be terminated by the Board of Directors of the Company
if the Employee shall be rendered incapable by illness or any other disability
from complying with the terms, conditions and provisions on his part to be kept,
observed and performed for a period in excess of 180 days (whether or not
consecutive) or 90 days consecutively, as the case may be, during a 12-month
period during the Term of Employment ("Disability"). If the Employee's
employment under this Agreement is terminated by reason of Disability of the
Employee, the Company shall give notice to that effect to the Employee in the
manner provided herein. In the event that the Employee receives disability
insurance benefits for which payment was made by the Company after the date of
this Agreement and prior to termination of the Employee's employment under this
Agreement pursuant to this Section 6(a), the Employee's Salary shall be reduced
by an amount equal to such disability insurance benefits during such period.
(b) In addition to and not in substitution for any other benefits
which may be payable by the Company in respect of the death of the Employee, in
the event of such death, the Salary payable hereunder shall continue to be paid
at the then current rate for three (3) months after the termination of
employment, and any bonus to which the Employee would have been entitled for the
year in which his death occurs shall be pro rated to the date of his death and
paid not later than three (3) months after the termination of employment. All
sums payable pursuant to this Section 6(b) shall be paid to the Employee's
personal representative.
(c) In addition to and not in substitution for any other benefits
which may be payable by the Company in respect of the Disability of the
Employee, in the event of the termination of the Employee's employment hereunder
due to such Disability pursuant to Section 6(a), the Company shall pay the
Employee, in twenty-four (24) equal semi-monthly installments commencing on the
termination of employment, an aggregate amount equal to one (1) years' Salary at
the rate in effect on the effective date of such termination; provided, however,
that the Company shall deduct from such payments the amount of any and all
disability insurance benefits paid during such one-year period with respect to
the Employee that were paid for by the Company. In addition, any bonus to which
the Employee would have been entitled shall be pro rated to the date of such
termination and paid not later than twelve (12) months after such termination.
7. Disclosure of Information, Inventions and Discoveries. The Employee
shall promptly disclose to the Company all processes, trademarks, inventions,
improvements discoveries and other information related to the business of the
Company (collectively, "Developments") conceived, developed or acquired by him
alone or with others during the Term of Employment or during any earlier period
of employment by the Company or any predecessor of the Company, whether or not
during regular working hours or through the use of materials or facilities of
the Company. All such Developments shall be the sole and exclusive property of
the Company, and, upon request, the Employee shall promptly deliver to the
Company all drawings, sketches, models and other data and records relating to
such Developments. In the event any such Development shall be deemed by the
Company to be patentable, the Employee shall, at the expense of the Company,
assist the Company in obtaining a patent or patents thereon and execute all
documents and do all such other acts and things necessary or proper to obtain
letters patent and to invest in the Company full right, title and interest in
and to such Developments.
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<PAGE>
8. Non-Disclosure. The Employee shall not, at any time during or after the
Term of Employment or any earlier period of employment by the Company or any
predecessor of the Company, divulge, furnish or make accessible to anyone
(otherwise than in the regular course of business of the Company) or use for his
own account or for the account of any other person any knowledge or information
with respect to confidential or secret processes, inventions, discoveries,
improvements, formulae, plans, materials, devices or ideas or other know-how,
whether patentable or not, with respect to any confidential or secret
development or research work or with respect to any other confidential or secret
aspects of the Company's business (including, without limitation, customer
lists, supplier lists and pricing arrangements with customers or suppliers)
(collectively, the "Confidential Information"). This Section 8 shall not apply
to any information which (i) is or becomes generally available to the public
other than as a result of a disclosure directly or indirectly by the Employee,
or (ii) is or becomes available to the Employee on a non-confidential basis from
a person other than the Company or its officers, directors or agents who, to the
Employee's knowledge after due inquiry, is not and was not bound by a
confidentiality obligation to the Company and was not otherwise prohibited from
transmitting such information to the Employee.
9. Non-Competition. The Company and the Employee agree that the services
rendered by the Employee are unique and irreplaceable. In addition to and in
furtherance of Section 8 of this Agreement, the Company and the Employee agree
that the Employee has had, and will continue to have, unlimited access to the
Confidential Information and that preserving the proprietary nature of the
Confidential Information is of utmost importance to the Company. By giving the
Employee an opportunity or incentive to breach his obligations to the Company
under Section 8 of the Agreement, any relationship between the Employee and a
competitor of the Company during or following the Term of Employment will
potentially cause the Company irreparable injury, regardless (in the event of
termination or expiration of the Term of Employment) of the circumstances under
which the Term of Employment ends, and even if the Employee is terminated by the
Company for cause. Therefore, in light of the foregoing, the Employee agrees
that during the Term of Employment and for a period of two (2) years thereafter,
the Employee shall not, directly or indirectly, through any other person, firm,
corporation or other entity (whether as an officer, director, employee, partner,
consultant, holder of equity or debt investment, lender or in any other manner
or capacity):
(a) in any geographical area in the United States or in those
foreign countries where the Company, during the Term of Employment, conducts or
proposes to conduct business or initiate activities, design, manufacture, sell,
market, offer to sell or supply video or television technology similar to that
being developed or sold by the Company on the date of the termination of
Employee's employment under this Agreement for any reason;
(b) solicit, induce, encourage or attempt to induce or encourage any
employee of the Company to terminate his or her employment with the Company or
to breach any other obligation to the Company;
(c) solicit, interfere with, disrupt, alter or attempt to disrupt or
alter the relationship, contractual or otherwise, between the Company and any
customer, potential customer, or supplier of the Company; or
(d) engage in or participate in any business conducted under any
name that shall be the same as or similar to the name of the Company or any
trade name used by it;
provided, however, that in the event the Employee's employment is terminated by
the Company for cause pursuant to Section 11 of this Agreement, then following
such termination Employee shall have no further obligations under this Section 9
unless the Company, in its sole discretion, elects to make additional payments
to Employee as provided under Section 11.
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<PAGE>
The Employee acknowledges that the foregoing geographic, activity and time
limitations contained in this Section 9 are reasonable and properly required for
the adequate protection of the Company's business In the event that any such
geographic, activity or time limitation is deemed to be unreasonable by a court,
the Employee shall submit to the reduction of either said activity or time
limitation to such activity or period as the court shall deem reasonable. In the
event that the Employee is in violation of the restrictive covenants set forth
in this Section 9, then the time limitation for such covenants shall be extended
for a period of time equal to the pendency of any proceedings brought to enforce
such covenants, including any appeals.
10. Remedies.
(a) The Employee acknowledges that irreparable injury would result
to the Company if the provisions of Section 7, 8, 9 or 14 of this Agreement were
not specifically enforced and agrees that the Company shall be entitled to any
appropriate legal, equitable or other remedy, including injunctive relief, in
respect to any failure to comply with the provisions of Section 7, 8, 9 or 14.
(b) In furtherance of and not in limitation of Section 10(a), in the
event that, subsequent to the Term of Employment, the Employee breaches any of
his obligations to the Company under Section 7, 8, 9 or 14 of this Agreement,
then the Company's obligation to make further payments to the Employee pursuant
to this Agreement shall terminate. Any such termination shall not limit or
affect the Company's right to pursue any other remedy available to the Company
at law or in equity.
11. Termination for Cause. In addition to any other remedy available to
the Company, either at law or in equity, the Employee's employment with the
Company may be terminated by the Board of Directors for cause, which shall
include (i) the Employee's conviction from which no further appeal may be taken
for, or plea of nolo contendere to, a felony or a crime involving moral
turpitude, (ii) the Employee's commission of a breach of fiduciary duty
involving personal profit in connection with the Employee's employment by the
Company, (iii) the Employee's commission of an act which the Board of Directors
shall reasonably have found to have involved willful misconduct or gross
negligence on the part of the Employee, in the conduct of his duties under this
Agreement, (iv) habitual absenteeism, (v) the Employee's material breach of any
material provision of this Agreement which remains uncured for a period of
thirty (30) days following notice by the Company, or (vi) the willful and
continued failure by the Employee to perform substantially his duties with the
Company (other than any such failure resulting from his incapacity due to
physical or mental illness). With respect to the matters set forth in
subsections (iii), (iv), (v) and (vi) of this Section 11, the Company may not
terminate the Employee's employment unless the Employee has first been given
notice of the conduct forming the cause for such termination and an opportunity
to explain such conduct to the Company. In the event of termination under this
Section 11, the Company's obligations under this Agreement shall cease, and the
Employee shall forfeit all rights to receive any future compensation under this
Agreement. Notwithstanding any termination of this Agreement pursuant to this
Section 11, the Employee, in consideration of his employment hereunder to the
date of such termination, shall remain bound by the provisions of Section 7, 8,
9 and 14 hereof following any such termination provided, however, the Employee
shall only remain bound by the provisions of Section 9 if the Company elects, in
its sole discretion, upon notice to Employee within thirty (30) days following
the date of termination, to pay Employee in twenty-four equal semi-monthly
installments (commencing as of the Company's next regular pay period immediately
following such notice) full Salary (inclusive of paid medical plan, but
exclusive of bonuses, if any) as such Salary otherwise would have accrued for a
period equal to one (1) year following such termination.
5
<PAGE>
12. Termination Without Cause.
(a) Each of the Company and the Employee may terminate the
Employee's employment under this Agreement at any time for any reason
whatsoever, without any further liability or obligation of the Company to the
Employee or of the Employee to the Company from and after the date of such
termination (other than liabilities or obligations accrued but unsatisfied on,
or surviving, the date of such termination), by sending ninety (90) days' prior
notice to the other party. In the event the Company elects to terminate the
Employee's employment under this Agreement pursuant to this Section 12, the
Company shall continue to pay the Employee, in equal semi-monthly installments,
the full Salary (inclusive of paid medical plan, but exclusive of bonuses, if
any) as such Salary otherwise would have accrued for a period equal to the
greater of (i) two (2) years following the date of notice of the Company's
election to terminate the Employee's employment, or (ii) the balance of the then
current Term of Employment. In the event the Employee terminates his employment
hereunder within ninety (90) days after a Detrimental Change (as hereinafter
defined), the Company shall continue to pay the Employee, in equal semi-monthly
installments, the full Salary (inclusive of paid medical plan, but exclusive of
bonuses, if any) as such Salary otherwise would have accrued until the later of
(i) the expiration of the then current Term of Employment, or (ii) the
expiration of two (2) years following the effective date of termination of the
Employee's employment hereunder. In the event the Employee elects to terminate
the Employee's employment under this Agreement, other than as set forth in the
immediately preceding sentence, prior to the end of the Term of Employment, the
Company's obligation to pay Salary shall cease as of the effective date of
termination. Any termination of the Employee's employment under this Agreement
by the Company as provided in this Section 12 shall be in addition to, and not
in substitution for, any rights with respect to termination of the Employee
which the Company may have pursuant to Section 11. Notwithstanding any
termination of the Employee's employment under this Agreement pursuant to this
Section 12, the Employee, in consideration of his employment hereunder to the
date of such termination, shall remain bound by the provisions of Section 7, 8,
9 and 14 hereof following any such termination.
(b) As used in this Agreement, "Detrimental Change" shall mean a
detrimental change in the nature or scope of the Employee's employment or duties
which is inconsistent with those of senior executive management. Detrimental
Change shall include, without limitation, the assignment of the Employee to any
duties substantially inconsistent with those of senior executive management, the
removal of the Employee from, or any failure to re-elect him as an officer of
the Company, a reduction in Salary or other employee benefits, the failure by
the Company to continue to provide the Employee with substantially similar bonus
opportunities, the relocation of the Employee's primary office of employment to
a location more than fifty (50) miles from the location of such office prior to
the relocation, and substantially increased travel requirements.
13. Resignation. In the event that the Employee's services under this
Agreement are terminated under any of the provisions of this Agreement (except
by death), the Employee agrees that he will deliver to the Board of Directors
his written resignation from all positions held with the Company, such
resignation to become effective immediately; provided, however, that nothing
herein shall be deemed to affect the provisions of Section 7, 8, 9 and 14 hereof
relating to the survival thereof following termination of the Employee's
services hereunder; and provided, further, that except as expressly provided in
this Agreement, the Employee shall be entitled to no further compensation
hereunder.
14. Data. Upon expiration or termination of the Term of Employment or
termination pursuant to Section 1(b), 6, 11 or 12 hereof, the Employee or his
personal representative shall promptly deliver to the Company all books,
memoranda, plans, records and written data of every kind relating to the
business and affairs of the Company which are then in his possession or control.
6
<PAGE>
15. Insurance. The Company shall have the right, at its own cost and
expense to apply for and to secure in its own name, or otherwise, life, health
or accident insurance or any or all of them covering the Employee, and the
Employee agrees to submit to usual and customary medical examinations and
otherwise to cooperate with the Company in connection with the procurement of
any such insurance and any claims thereunder.
16. Waiver of Breach. Any waiver of any breach of this Agreement shall not
be construed to be a continuing waiver or consent to any subsequent breach on
the part either of the Employee or the Company.
17. Assignment. This Agreement shall inure to the benefit of and be
binding upon the successors and assigns of the Company upon any sale of all or
substantially all of the Company's assets, or upon any merger or consolidation
of the Company with or into any other entity (including, without limitation, any
change in control of the Company), all as though such successors and assigns of
the Company and their respective successors and assigns were the Company.
Insofar as the Employee is concerned, this Agreement, being personal, may not be
assigned, and any such purported assignment shall be void and of no effect.
18. Severability. To the extent any provision of this Agreement shall be
invalid or unenforceable, it shall be considered deleted herefrom, and the
remainder of such provision and of this Agreement shall be unaffected and shall
continue in full force and effect. In furtherance and not in limitation of the
foregoing, should the duration or geographical extent of, or business activities
covered by, any provision of this Agreement be in excess of that which is valid
and enforceable under applicable law, then such provision shall be construed to
cover only that duration, extent or activities which may be validly and
enforceably covered.
19. Notices. All notices, requests and other communications pursuant to
this Agreement shall be in writing and shall be deemed to have been duly given,
if delivered in person or by courier, telegraphed, telexed or by facsimile
transmission (receipt confirmed) or five (5) business days after being sent by
registered or certified mail, return receipt requested, postage paid, addressed
as follows:
(a) If to the Employee:
Samuel A. McCleery
222 Hopewell-Princeton Road
Hopewell, NJ 08525
Fax No.: (609) 466-2303
(b) If to the Company:
Princeton Video Image, Inc.
47 Hulfish Street, Suite 500
Princeton, NJ 08542
Fax No.: (609) 924-0634
Attn: Chairman of the Board of Directors
with a copy to:
Richard J. Pinto, Esq.
Smith, Stratton, Wise, Heher & Brennan
600 College Road East
Princeton, NJ 08540
Fax No.: (609) 987-6651
7
<PAGE>
Any party may, by written notice to the other in accordance with this Section
19, change the address to which notices to such party are to be delivered or
mailed.
20. General. Except as otherwise provided herein, the terms and provisions
of this Agreement shall constitute the entire agreement by the Company and the
Employee with respect to the subject matter hereof and shall supersede any and
all prior agreements or understandings between the Employee and the Company,
whether written or oral. This Agreement shall be construed and enforced in
accordance with the laws of the State of New Jersey. This Agreement may be
amended or modified only by a written instrument executed by the Employee and
the Company. The headings of the sections of this Agreement are for convenience
of reference only and do not constitute part of this Agreement. This Agreement
may be executed in any number of counterparts, each of which, when executed,
shall be deemed to be an original, but all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, each of the parties have executed or caused to be
executed by its duly authorized representative this Employment Agreement as of
the day and year first above written.
PRINCETON VIDEO IMAGE, INC.
By: /s/ Brown F Williams
Name: Brown F Williams
Title: Chairman of the Board
/s/ Samuel A. McCleery
Samuel A. McCleery
8
<PAGE>
Exhibit 10.14
LEASE
between
1325 LIMITED PARTNERSHIP,
Landlord
and
PRINCETON VIDEO IMAGE, INC.,
Tenant
Premises
--------
1325 Avenue of the Americas
New York, New York
<PAGE>
TABLE OF CONTENTS
-----------------
1. Demise, Rent and Definitions........................................ 1
2. Use, Compliance and Signs........................................... 9
3. No Representations by Landlord...................................... 10
4. Tax Payments........................................................ 11
5. Operating Expense Payments.......................................... 15
6. Subordination to Mortgages and Superior Leases...................... 24
7. Quiet Enjoyment..................................................... 27
8. Assignment, Subletting and Mortgaging............................... 27
9. Compliance With Legal and Insurance Requirements.................... 35
10. Insurance.......................................................... 38
11. Rules and Regulations.............................................. 41
12. Alterations........................................................ 42
13. Landlord's and Tenant's Property................................... 46
14. Repairs and Maintenance............................................ 47
15. Electric Energy.................................................... 49
16. Heat, Ventilation and Air-Conditioning............................. 51
17. Other Services, Service Interruption and Building Directory........ 53
18. Access, Notice of Occurrences, Windows, Name of Building and No
Dedication........................................................ 56
19. Non-Liability and Indemnification.................................. 59
20. Damage or Destruction.............................................. 62
21. Eminent Domain..................................................... 65
22. Surrender and Holding Over......................................... 67
23. Default............................................................ 68
24. Re-entry by Landlord............................................... 70
25. Damages............................................................ 71
26. Waivers............................................................ 75
27. Curing Tenant's Defaults and Costs of Enforcement.................. 76
28. Broker............................................................. 77
29. Notices............................................................ 78
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30. Estoppel Certificates, Financial Statements, and Memorandum of
Lease............................................................. 79
31. Force Majeure...................................................... 80
32. Consents........................................................... 81
33. Rent Control....................................................... 81
34. Partnership or Multi-Person Tenant................................. 82
35. Special Bankruptcy-Related Provisions.............................. 83
36. Miscellaneous...................................................... 85
37. Security Deposit................................................... 87
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EXHIBITS
--------
Exhibit A - Floor Plan of Premises
Exhibit B - Description of Land
Exhibit C - Schedule of Fixed Rent
Exhibit D - Rules and Regulations
Exhibit E - Cleaning Specifications
Exhibit F - Landlord's Work
-iii-
<PAGE>
LEASE, dated as of April __, 1997, between 1325 LIMITED
PARTNERSHIP, a Delaware limited partnership having an address c/o Edward J.
Minskoff Equities, Inc., 1325 Avenue of the Americas, New York, New York
10019 ("Landlord"), and PRINCETON VIDEO IMAGE, INC., a __________
corporation company having an address at 47 Hullfish Street, Princeton, New
Jersey 08542.
W I T N E S S E T H:
ARTICLE 1. Demise, Rent and Definitions
1.1. Landlord hereby leases to Tenant, and Tenant hereby leases
from Landlord, upon and subject to all of the terms and conditions of this
Lease, that portion of the rentable area of the 8th floor consisting of
approximately 4,300 rentable square feet substantially as shown (by
diagonal lines or shading) on the floor plan(s) attached hereto as Exhibit
A (the "Premises") in the building (which building, including the
equipment, facilities and systems now or hereafter located therein other
than property of tenants, is herein called the "Building") erected on the
land described in Exhibit B ("Land"). Tenant shall have, as appurtenant to
the Premises, the nonexclusive right to use (i) the Common Areas of the
Building and (ii) the common toilets, corridors and elevator lobbies of
such floor, in common with others, subject to the terms and conditions of
this Lease and the Rules and Regulations. For purposes of this Lease,
"Common Areas" shall mean, collectively: the sidewalks, driveways, if any,
entrances, passages, courts, if any, esplanade areas, if any, vestibules,
if any, lobbies, halls, corridors, elevators, public stairways and other
portions of the Building and/or the Land that Landlord makes available from
time to time for the common use of the tenants of the Building. The
Building and the Land are collectively called the "Property."
1.2. The term of this Lease ("Term") shall commence on May 1,
1997 (the "Commencement Date") and shall end at 11:59 p.m. on May 31, 2000
(the "Expiration Date") or on such earlier date upon which this Lease shall
terminate pursuant to the provisions hereof or law.
<PAGE>
1.3. The rents under this Lease shall consist of (a) fixed rent
("Fixed Rent") in the amounts per annum set forth in Exhibit C, and
(b) additional rent ("Additional Charges") consisting of all other sums of
money that become due from Tenant and payable to Landlord hereunder. Fixed
Rent shall be payable in equal monthly installments in advance on the first
day of each and every calendar month during the Term, except that, no Fixed
Rent shall be payable with respect to the period from the Commencement Date
until June 1, 1997 (the "Rent Commencement Date"), subject to any extension
thereof pursuant to the provisions of Section 3.1. Regularly Occurring
Additional Charges (hereinafter defined) shall be due and payable on the
first day of each month with respect to which the same are payable. Except
as otherwise expressly provided herein, all Additional Charges other than
Regularly Occurring Additional Charges (hereinafter defined) shall be due
and payable by Tenant within 30 days after Landlord gives Tenant a
statement therefor. All Fixed Rent and Additional Charges shall be paid in
lawful money of the United States to Landlord at its office c/o Edward J.
Minskoff Equities, Inc., 1325 Avenue of the Americas, New York, New York
10019, Attention: Comptroller, or such other place, or to Landlord's agent
and at such other place, as Landlord designates by Notice to Tenant.
Tenant shall pay Fixed Rent and Additional Charges by good and sufficient
check (subject to collection) drawn on a New York City bank which is a
member of the New York Clearing House or a successor thereto or other bank
reasonably approved by Landlord.
1.4. Tenant shall pay Fixed Rent and Additional Charges promptly
when due without notice (other than as specifically set forth herein) or
demand therefor and without any abatement, deduction or setoff for any
reason whatsoever, except as otherwise provided herein. Landlord shall
have the same remedies for default in payment of Additional Charges as
Landlord has for default in payment of Fixed Rent. If the first day for
which Fixed Rent is payable hereunder occurs on a day other than the first
day of a calendar month, or if this Lease terminates on a day other than
the last day of a
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<PAGE>
calendar month, Fixed Rent for such partial calendar month(s) shall be
prorated.
1.5. No payment by Tenant or receipt or acceptance by Landlord of
a lesser amount than the correct Fixed Rent or Additional Charges shall be
deemed to be other than a payment on account, nor shall any endorsement or
statement on any check or any letter accompanying any check or payment be
deemed an accord and satisfaction, and Landlord may accept such check or
payment without prejudice to Landlord's right to recover the balance or
pursue any other remedy provided in this Lease or at law.
1.6. If Tenant fails to make any payment of Fixed Rent or
Regularly Occurring Additional Charges (hereinafter defined) by the fifth
Business Day (hereinafter defined) following the date such amount became
due and payable, or if Tenant fails to make any payment of any other
Additional Charges by the date such amount became due and payable, such
unpaid amount shall bear interest at a rate per annum (the "Lease Interest
Rate") equal to the lesser of (a) the rate announced by Citibank, N.A. or
its successor from time to time as its prime or base rate (the "Prime
Rate"), plus 2%, or (b) the maximum applicable rate allowed by law, from
the sixth Business Day (hereinafter defined) following the date such Fixed
Rent or Regularly Occurring Additional Charges (hereinafter defined) became
due and payable or from the date such other Additional Charges became due
and payable, as the case may be, to the date of payment thereof by Tenant.
Such interest shall be due and payable on demand.
1.7. The following terms, whenever used in this Lease (including
all Exhibits attached hereto, all of which are and shall be construed to be
an integral part of this Lease), shall have the meanings indicated:
(a) The term "affiliate" shall mean a person which controls, is
controlled by or is under common control with the person in question.
For purposes of this definition, a person shall be deemed "controlled
by" or "under common control with" the person in question if such
person
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<PAGE>
possesses, directly or indirectly, 25% or more of the person being
controlled.
(b) The term "and/or" when applied to two or more matters or
things shall be construed to apply to any one or more or all such
matters or things as the circumstances warrant.
(c) The term "Business Days" shall mean such Mondays, Tuesdays,
Wednesdays, Thursdays and Fridays that do not fall on Holidays. The
term "Holidays" shall mean New Year's Day, Martin Luther King Day,
Presidents' Day, Memorial Day, Independence Day, Labor Day, Columbus
Day, Veterans Day, Thanksgiving Day and Christmas, and any other days
as may now or hereafter be celebrated as holidays under the contract
from time to time in effect between Locals 32B and 32J of the Building
Service Employees Union AFL-CIO (or any successor thereto) and the
Real Estate Advisory Board of New York, Inc. (or any successor
thereto) or on which there is no regular United States postal service
and the New York Stock Exchange (or any successor thereto) is closed.
(d) The term "Business Hours" shall mean 8:00 a.m. to 6:00 p.m.
but only on Business Days.
(e) The term "calendar year" shall mean any 12-month period
commencing on a January 1st.
(f) The term "Consumer Price Index" shall mean the Consumer
Price Index for Urban Wage Earners and Clerical Workers published by
the Bureau of Labor Statistics of the United States Department of
Labor, New York-Northern New Jersey-Long Island, NY-NJ-CT Area, All
Items (1982-84=100), or any successor index thereto, appropriately
adjusted; provided that if there shall be no successor index and the
parties shall fail to agree upon a substitute index within 30 days
after request by either party for such determination, or if the
parties shall fail to agree upon the appropriate adjustment of such
successor or substitute index within 30 days, a substitute index or
the appropriate adjustment of such successor or substitute index, as
the case may be, shall be
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<PAGE>
determined by arbitration pursuant to the then rules of the American
Arbitration Association, New York City Chapter (or successor
organization).
(g) The term "CPI Adjustment" shall mean that the amount in
question shall be increased or decreased in the same proportion that
the Consumer Price Index shall increase or decrease from the Consumer
Price Index last published before the Commencement Date to the
Consumer Price Index last published before the date in question.
(h) The term "emergency" shall mean a condition presenting
imminent danger or damage, as the case may be, to health or safety of
persons or property in or about the Property.
(i) The terms "herein" and "hereunder" and words of similar
import shall be construed to refer to this Lease as a whole and not to
any particular Article or Section unless expressly so stated.
(j) The term "including" shall mean "including, without
limitation."
(k) The term "Insolvency Laws" shall mean the United States
Bankruptcy Code, as the same may hereafter be amended or replaced, and
any federal, state or foreign law covering all or part of the same or
similar subject matter as is covered by the United States Bankruptcy
Code.
(l) The term "Insurance Requirements" shall mean rules,
regulations, orders and requirements which are then applicable to the
Property and/or the Premises, of the New York Fire Insurance Rating
Organization and any other similar body performing the same or similar
functions, whether now or hereafter in force, and requirements of any
insurance policy maintained by Landlord or Tenant at any time.
(m) The term "Landlord" shall mean only the owner at the time in
question of the Building or of a lease of the Building, so that in the
event of any transfer or transfers of title to the Building or of
Landlord's interest in a lease of the Building (as tenant thereunder),
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<PAGE>
the transferor shall be relieved and freed of all obligations of
Landlord under this Lease accruing after such transfer, and such
transferee shall be deemed to have assumed and agreed to perform and
observe all obligations of Landlord under this Lease during the period
it is the holder of Landlord's interest under this Lease, subject to
the provisions, terms and conditions of this Lease.
(n) The term "Lease Year" shall mean the 12-month period
beginning on the Commencement Date and on each anniversary of the
Commencement Date during the Term.
(o) The term "Legal Requirements" shall mean laws and ordinances
of federal, state, city, town, county, borough and village governments
having jurisdiction over the Premises and rules, regulations, orders,
directives and requirements of all departments, subdivisions, bureaus,
agencies or offices thereof, and of any other governmental, public or
quasi-public authorities having jurisdiction over the Premises, and
the directions of any public officers pursuant thereto, whether now or
hereafter in force.
(p) The term "person" shall mean a natural person, a
partnership, a corporation, or any other form of business or legal
association or entity.
(q) The term "Regularly Occurring Additional Charges" shall mean
Operating Payments and any other Additional Charges payable by Tenant
to Landlord on a regular monthly basis in a fixed amount (whether or
not subject to adjustment as provided herein) with respect to services
requested by Tenant or expressly provided for in this Lease.
(r) The term "rentable square feet" shall mean with respect to
the Premises 4,300 square feet.
(s) The term "Tenant" shall mean the original Tenant herein
named or any permitted assignee or other successor in interest
(immediate or remote) of the original Tenant herein named that at the
time in question is the owner of Tenant's interest in this Lease.
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<PAGE>
(t) The words "Tenant indemnifies Landlord against liability" or
"Tenant shall indemnify Landlord against liability" and words of
similar import shall mean that Tenant agrees to indemnify, hold and
save harmless Landlord, each Superior Lessor and Superior Mortgagee,
and their respective partners, directors, officers, agents and
employees from and against all loss, reasonable cost, liability,
claim, damage, fine, penalty and reasonable expense, including
reasonable attorneys' fees and disbursements (whether incurred in
resisting and defending any action or proceeding or incurred in
enforcing the indemnification rights of Landlord against Tenant), and
that in case any action or proceeding is brought against any
indemnified person, Tenant shall resist and defend such action or
proceeding by attorneys reasonably satisfactory to Landlord.
Notwithstanding the foregoing, Tenant shall not be required to
indemnify Landlord against liability for any loss, reasonable cost,
liability, claim, damage, fine, penalty or reasonable expense finally
determined by a court of competent jurisdiction to have resulted from
the negligence or willful misconduct of Landlord or its contractors,
agents or employees or for any matter which should have been covered
by Landlord's insurance. Tenant shall pay to Landlord within thirty
(30) days of rendition by Landlord to Tenant of bills or statements
therefor, an amount equal to all losses, reasonable costs,
liabilities, claims, damages, fines, penalties and reasonable expenses
(i) incurred by Landlord or any Superior Lessor or Superior Mortgagee
or other indemnified person, and (ii) for which Tenant has indemnified
Landlord or any Superior Lessor or Superior Mortgagee or other
indemnified person hereunder. Tenant shall not be required to pay any
amounts incurred by Landlord, any Superior Lessor or Superior
Mortgagee if it is finally determined in such action or proceeding
that Landlord, any Superior Lessor or Superior Mortgagee was not
entitled to be indemnified by Tenant. Landlord shall give notice to
Tenant of each matter which arises for which Tenant has indemnified
Landlord against liability as
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<PAGE>
soon as is reasonably practicable after Landlord obtains knowledge of such
matter. Landlord shall cooperate with Tenant in resisting and defending
any action or proceeding which arises with respect to a matter for which
Landlord has been indemnified provided Landlord does not incur thereby
any liabilities or costs or expenses, unless Tenant agrees to reimburse
Landlord for same, including, without limitation, reasonable attorneys'
fees and disbursements, in which event such reimbursement shall be deemed
rent for all purposes of this Lease. Notwithstanding the foregoing, Tenant
shall be permitted to settle actions and claims for which Tenant must
indemnify Landlord, a Superior Lessor, Superior Mortgagee, and their
respective partners, directors, officers, agents and employees
provided Tenant obtains the prior written consent of all the parties
to be indemnified, such consent not to be unreasonably withheld.
(u) The term "untenantable" shall mean a condition or event
resulting in Tenant being unable to use all or a portion of the
Premises for the normal conduct of Tenant's business.
1.8. The following additional terms, whenever used in this Lease, shall
have the meanings specified in the Sections of this Lease as set forth below
after such terms:
"Additional Charges"Section. . . . . . . . . . . Section 1.3
"Alterations". . . . . . . . . . . . . . . . . . Section 12.1
"Broker" . . . . . . . . . . . . . . . . . . . . Section 28.1
"Building" . . . . . . . . . . . . . . . . . . . Section 1.1
"Commencement Date". . . . . . . . . . . . . . . Section 1.2
"Common Areas" . . . . . . . . . . . . . . . . . Section 1.1
"Date of Taking" . . . . . . . . . . . . . . . . Section 21.1
"Expiration Date". . . . . . . . . . . . . . . . Section 1.2
"Fixed Rent" . . . . . . . . . . . . . . . . . . Section 1.3
"Force Majeure Events" . . . . . . . . . . . . . Section 31.1
"HVAC Charge". . . . . . . . . . . . . . . . . . Section 15.3
"HVAC Units" . . . . . . . . . . . . . . . . . . Section 15.1
"Land" . . . . . . . . . . . . . . . . . . . . . Section 1.1
"Lease Interest Rate". . . . . . . . . . . . . . Section 1.6
"Notice" . . . . . . . . . . . . . . . . . . . . Section 29.1
"Operating Expenses" . . . . . . . . . . . . . . Section 5.1(a)
"Operating Payment" . . . . . . . . . . . . . . Section 5.2
"Operating Statement". . . . . . . . . . . . . . Section 5.4
"Operating Year" . . . . . . . . . . . . . . . . Section 5.1(b)
"Premises" . . . . . . . . . . . . . . . . . . . Section 1.1
"Prime Rate" . . . . . . . . . . . . . . . . . . Section 1.6
"Property" . . . . . . . . . . . . . . . . . . . Section 1.1
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<PAGE>
"Proposed Transaction" . . . . . . . . . . . . . Section 8.7
"Rent Commencement Date" . . . . . . . . . . . . Section 1.3
"Rules and Regulations". . . . . . . . . . . . . Section 11.1
"Sale or Rental Payments". . . . . . . . . . . . Section 8.14
"Sublease Rent". . . . . . . . . . . . . . . . . Section 8.14
"Successor Landlord" . . . . . . . . . . . . . . Section 6.3
"Superior Lease" . . . . . . . . . . . . . . . . Section 6.1
"Superior Lessor". . . . . . . . . . . . . . . . Section 6.1
"Superior Mortgage". . . . . . . . . . . . . . . Section 6.1
"Superior Mortgagee" . . . . . . . . . . . . . . Section 6.1
"Taxes". . . . . . . . . . . . . . . . . . . . . Section 4.1(a)
"Tax Expenses" . . . . . . . . . . . . . . . . . Section 4.1(c)
"Tax Payment". . . . . . . . . . . . . . . . . . Section 4.2
"Tax Year" . . . . . . . . . . . . . . . . . . . Section 4.1(b)
"Tenant's Operating Percentage". . . . . . . . . Section 5.1(c)
"Tenant's Operating Statement" . . . . . . . . . Section 5.5
"Tenant's Property". . . . . . . . . . . . . . . Section 13.2
"Tenant's Tax Percentage". . . . . . . . . . . . Section 4.1(d)
"Term" . . . . . . . . . . . . . . . . . . . . . Section 1.2
ARTICLE 2. Use, Compliance and Signs
2.1. Tenant shall use and occupy the Premises for general office
purposes and for no other purpose.
2.2. If any governmental licenses and permits are required for
the proper and lawful conduct of Tenant's businesses in the Premises,
Tenant, at its expense, shall procure and maintain such licenses and
permits and submit the same to Landlord for inspection upon Landlord's
request. Tenant shall at all times comply with the terms and conditions of
each such license or permit. Tenant shall not use, or suffer or permit any
person to use, the Premises, or any part thereof, in any manner which
(a) violates the certificate of occupancy for the Premises or for the
Building or any other permit or license issued pursuant to any Legal
Requirements, (b) causes injury to the Building, (c) constitutes a
violation of the Legal Requirements or Insurance Requirements, (d) impairs
the character, reputation or appearance of the Building as a first-class
office building, or (e) increases (in any material respect) the cost of
maintenance, operation and repair of the Building (unless Tenant agrees to
pay for such increased cost).
2.3. In addition to the limitations set forth in Section 2.2,
Tenant shall not use, suffer or permit any person to use the Premises or
any part thereof (which predominantly involves direct patronage of the
general
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public) for: sale or rental of any products (other than financial products) or
materials; financial services to the public provided by a commercial bank,
savings bank, safe deposit or savings and loan association or other lender;
issuance or sale of traveller's checks, foreign drafts, letters of credit,
foreign exchange or domestic money orders; receipt of money for transmission;
data processing services rendered primarily to others than Tenant and which are
not strictly ancillary to Tenant's business; school; broadcasting center for
communications firms; reservation center for airlines or for travel agencies;
public auction; or as an office for any of the following: (a) employment
agency, (b) foreign government or political subdivision thereof,
(c) governmental bureau or agency of the United States or any state or
political subdivision thereof, (d) health care professional, (e) clerical
support business, (f) charitable or religious or other not-for-profit
organization, or (g) union; nor shall Tenant use, suffer or permit any person
to use the Premises or any part thereof for any other use or purpose that
(i) in the reasonable judgment of Landlord is not in keeping with the character
and dignity of the Building or (ii) predominantly involves direct patronage
of the general public.
2.4. Tenant shall have the right to place signs within the
Premises provided such signs are not visible from outside the Premises.
Except as permitted under this Section 2.4, Tenant may not place signs
anywhere in the Property, including on the exterior of the Building.
Notwithstanding anything to the contrary contained in this Section 2.4,
Tenant may place a plaque bearing its name and/or logo, of material, size
and design subject to Landlord's reasonable approval in (i) the lobby of
the 8th Floor (in a location to be designated by Landlord) and (ii) on the
exterior of Tenant's doorway to the Premises. Such plaques shall be
installed, cleaned and maintained by Tenant at its sole cost and expense.
ARTICLE 3. No Representations by Landlord
3.1. Landlord and Landlord's agents and representatives have made
no representations or promises with respect to the Building, the real property
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or the Premises except as herein expressly set forth, and no rights,
easements or licenses are acquired by Tenant by implication or otherwise
except as expressly set forth herein. Tenant shall accept possession of the
Premises in the condition which shall exist on the Commencement Date "as is",
and Landlord shall have no obligation to perform any work or make any
installations in order to prepare the Premises for Tenant's occupancy except
as set forth on Exhibit F attached hereto and made a part hereof ("Landlord's
Work"). If Landlord is delayed in completing Landlord's Work by May 1, 1997,
other than as a result of Tenant's actions or Force Majeure Events, the Rent
Commencement Date shall be extended for one day for each day of such delay.
ARTICLE 4. Tax Payments
4.1. For the purposes of this Article and other provisions of
this Lease:
(a) (1) The term "Taxes" shall mean the aggregate amount of all
real estate taxes, personal property taxes (except personal property
taxes related specifically to other tenants) and any general or
special assessments (excluding penalties thereon but including
interest incurred on assessments payable in installments, except to
the extent such interest is payable by reason of the delinquent
payment by Landlord to the taxing authority of such installments)
assessed or imposed upon or in respect of the Property, including
(i) taxes and assessments in respect of any air rights or development
rights now appurtenant to and used in connection with the Building,
(ii) fees, taxes and charges in respect of any vaults, vault space or
other space within or outside the boundaries of the Land,
(iii) assessments for public improvements or benefits to the Building,
the Land, or the locality in which the Land is situated, and
(iv) taxes, assessments and charges in respect of any fixtures,
equipment, facilities, systems or personal property of Landlord
(except in its capacity as a tenant only if Landlord is a tenant in
the Building) serving or used in connection with the Building or the
Land.
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(2) All income, estate, succession, inheritance, transfer
and franchise taxes shall be excluded from Taxes; provided, however,
that if the method of taxation of real estate is changed and as a
result thereof any other tax or assessment, however denominated and
including any franchise, income, profit, use, occupancy, gross
receipts or rental tax, shall be imposed upon Landlord or the owner of
the Property or the rents or income therefrom, in substitution for or
as an addition to, in whole or in part, any of the taxes or
assessments listed in the preceding paragraph, such other tax or
assessment shall be included in and deemed part of Taxes, but
calculated for this purpose as if the Property and all appurtenances
thereto (including development rights) were the only property of
Landlord and the income therefrom were the only income of Landlord.
(3) The amount of any special assessments for public
improvements or benefits to be included in Taxes for any year, in the
case where the same may at the option of the taxpayer be paid in
installments, shall be limited to the amount of the installment due in
respect of such year, together with any interest payable in connection
therewith (other than interest payable by reason of the delinquent
payment of such installments).
(4) During one or more Tax Years during the Term, the Taxes
payable with respect to the Land and/or the Building may be reduced or
increased by reason of the New York City Industrial and Commercial
Incentive Program (as now or hereafter amended, the "ICIP Program").
For purposes of computing the Tax Payment, Taxes shall be calculated
as if such reduction or increase were not applicable (i.e., Taxes will
be deemed to be the amount which would be payable in respect thereof
if the Property had never participated in the ICIP Program).
(b) The term "Tax Year" shall mean each period from July 1
through June 30 (or such other fiscal period as may hereafter be adopted
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by the City of New York as the fiscal year for any tax, levy or charge
included in Taxes).
(c) The term "Tax Expenses" shall mean all reasonable expenses,
including, without limitation, reasonable attorneys' and accountants'
fees and disbursements and experts' and other witnesses' reasonable
fees and disbursements, incurred and paid (excluding any form of
contingent fees or disbursements) by Landlord in seeking to reduce the
amount of any assessed valuation of the Land and/or the Building, in
directly contesting the amount or validity of any Taxes, or in seeking
a refund of any Taxes.
(d) The term "Tenant's Tax Percentage" shall mean 0.590%.
(e) If any Taxes or assessments assessed or imposed upon or in
respect of the Property also cover any other properties, only such
amounts thereof as are equitably allocable to the Property shall be
included in Taxes.
(f) The term "Base Tax Amount" means the product of (i) the tax
rate in effect with respect to the Property for the July 1, 1997-
June 30, 1998 Tax Year (the "Base Tax Rate") and (ii) the assessed
valuation of the Property for the July 1, 1997- June 30, 1998 Tax Year
(the "Base Assessed Valuation").
4.2. From and after the Rent Commencement Date, for each Tax Year
any part of which occurs during the Term, Tenant shall pay to Landlord an
amount ("Tax Payment") equal to Tenant's Tax Percentage of the sum of (a)
the amount by which Taxes for such Tax Year exceed the Base Tax Amount and
(b) the Tax Expenses paid in such Tax Year relating to such Tax Year or any
Tax Year within the term of this Lease. Said payments shall be made as
provided in Section 4.3.
4.3. Landlord shall give Tenant, prior to or after commencement
of each Tax Year, a notice setting forth Landlord's estimate of the Tax
Payments on account of Taxes and Tax Expenses for such Tax Year. Tenant
shall make such Tax Payments for any item of Taxes within 30 days after
Landlord
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gives Tenant a statement therefor; provided, however, Tenant shall
not be required to make any such Tax Payment earlier than 30 days before
the last day such item or installment may be paid to the taxing authority
or its collection agent without incurring interest or penalty for late
payment. The Tax Payment for any item constituting Tax Expenses shall be
made within 30 days after Landlord gives to Tenant a statement therefor.
Such estimate on account of Taxes, as the same may be amended, shall be
based on (a) Taxes for the Tax Year with respect to which Tax Payments will
be made if the tax rate and tentative or actual assessment are then known
or (b) if such information is not then available, 105% of Taxes for the Tax
Year immediately prior to the Tax Year with respect to which Tax Payments
will be made. Landlord may amend such estimate by notice given to Tenant
from time to time to reflect additional information about Taxes and/or Tax
Expenses that comes to Landlord's attention or to correct any error made in
any prior estimate; said notice may require an increase or decrease in one
or more Tax Payments and the Tax Payments shall be adjusted or made as
provided in said notice. Promptly after receipt by Landlord of bills for
such Taxes and Tax Expenses, Landlord shall give notice to Tenant, together
with copies of such bills, of the amount thereof and the computation of the
Tax Payments on account thereof, and (i) in the event of a deficiency,
Tenant shall pay to Landlord the amount thereof within 30 days after demand
therefor, or (ii) in the event of an overpayment, Landlord shall refund to
Tenant the amount thereof within 30 days after Landlord's notice.
4.4. (a) Landlord reserves the right, in its sole discretion, to
file any application or commence any proceeding to reduce Taxes. If as a
result of any such application or proceeding by or on behalf of Landlord
the Base Assessed Valuation is reduced, or if the Base Tax Rate is for any
reason reduced, then the Base Tax Amount shall be recalculated. In such
event, Landlord may recalculate all prior Tax Payments made or owing by
Tenant and bill Tenant for any deficiency resulting from such
recalculation. Tenant shall pay any such bill within 30 days after receipt
thereof. Notwithstanding
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the foregoing, Landlord, so long as Landlord is 1325 Limited Partnership,
shall commence a tax certiorari proceeding each Tax Year.
(b) If Landlord receives a refund of Taxes for any Tax Year,
Landlord shall promptly pay Tenant's Tax Percentage of the net refund
(after deducting from such refund the reasonable costs and expenses of
obtaining same to the extent that such reasonable costs and expenses were
not included in Tax Expenses or Operating Expenses) to Tenant; provided,
however, that such payment to Tenant with respect to a Tax Year shall in no
event exceed Tenant's Tax Payment paid for such Tax Year.
4.5. If the first day for which a Tax Payment is payable
hereunder occurs other than on the first day of a Tax Year or a Tax Year
ends after the Expiration Date, any Additional Charges in respect thereof
payable under this Article shall be equitably prorated to correspond to
that portion of such Tax Year occurring within the Term. In addition, if
the first day for which a Tax Payment is payable hereunder occurs during a
Tax Year in respect of which Landlord already has paid any installments of
Taxes, Tenant shall pay to Landlord within 30 days after demand Tenant's
equitably prorated share of such installments.
ARTICLE 5. Operating Expense Payments
5.1. For the purposes of this Article and other provisions of
this Lease:
(a) (1) The term "Operating Expenses" shall mean all expenses
incurred by Landlord in respect of the repair, maintenance, operation
and cleaning of the Property, including all expenses incurred as a
result of Landlord complying with its obligations under this Lease.
Operating Expenses shall include (i) salaries, wages paid to persons
not above the grade of Building manager, medical, surgical, union and
general welfare benefits, including group life insurance and pension
and welfare payments and contributions and all other fringe benefits
paid to or in respect of all persons (whether employees of Landlord or
its managing agent) engaged in the repair, maintenance, operation or
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cleaning of the Property (which shall include a percentage of the
salary and the fringe benefits of the accountant for the Building,
such percentage being equal to the percentage of the accountant's time
spent on matters relating to the Building), (ii) payroll taxes,
workers' compensation, uniforms, dry cleaning and related expenses for
such persons, (iii) payments under service contracts in connection
with the repair, maintenance, operation and cleaning of the Property,
(iv) charges for gas, steam, electricity, heat, ventilation, air
conditioning, water and other utilities furnished to all parts of the
Building (including the Common Areas and other non-rentable areas),
other than such utilities and services furnished directly or otherwise
billed directly to individual tenants by the party providing the
utility or service in question, (v) except as set forth in clause (D)
hereof, the cost of the 12th floor and ground floor lobby decorations
and of painting and decorating the Common Areas or other non-rentable
areas (excluding the cost of decorations/works of art of the quality
and nature of "fine art" rather than decorative art work customarily
found in first-class office buildings), (vi) the cost (purchase or
rental) of tools, supplies, machinery and equipment used in the
operation, maintenance, repair or cleaning of the Building and
reasonable charges for telephone service, (vii) financial expenses of
a nature customarily incurred by owners of first-class office
buildings in midtown Manhattan in connection with the operation of the
Property, such as insurance premiums (including liability insurance,
fire and other casualty insurance, rent insurance and any other
insurance that is maintained by Landlord), reasonable attorneys' fees
and disbursements (exclusive of fees and disbursements incurred in
connection with the application for any reduction of Taxes, the
leasing of space or negotiations with tenants in the Building or the
enforcement of leases, except to the extent the default giving rise to
the enforcement is nonmonetary and could materially adversely affect
the structure, building systems or
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Common Areas of the Building or disturb or annoy one or more other tenants
or occupants of the Building), auditing and other reasonable professional
fees and expenses (excluding any amounts for the accountants included in
(i) above), real estate related association dues and any other similar
financial expenses incurred in connection with the ownership,
maintenance and operation of the Property which are customary in first
class office buildings in midtown Manhattan, (viii) charges for
window, office, Common Area and other cleaning, janitorial and
security services and any other charges of independent contractors to
the extent such services are performed for the benefit of the
Property, (ix) the cost of repairs and replacements (other than those
classified as capital expenditures under generally accepted accounting
principles) made by Landlord which are reasonably necessary for the
maintenance, operation and/or repair of the Property, or to comply
with Legal Requirements or Insurance Requirements imposed on the
Property which arise out of conditions occurring after the date hereof
or with respect to changes in Legal Requirements or Insurance
Requirements which render conditions existing as of the date hereof to
be violations of such requirements, (x) the cost of governmental
licenses and permits, or renewals thereof, necessary for the operation
of the Property and not for any individual tenant's special use,
(xi) the cost of any capital improvements which are reasonably
necessary for the maintenance, operation and/or repair of the Property
or to comply with Legal Requirements or Insurance Requirements imposed
on the Property after the date hereof or which reduce Operating
Expenses, calculated as follows: the cost of any capital improvement
shall be included in Operating Expenses for the Operating Year in
which such capital improvement was paid for except that to the extent
the cost thereof is required to be (or is customarily capitalized in
first-class Manhattan office buildings) capitalized for federal income
tax purposes, such cost shall be amortized on a straight-line basis
over the useful life thereof utilized for federal income tax
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purposes and only the annual amortization of such capital improvement,
together with interest on the unamortized balance of such cost at the
Lease Interest Rate, shall be included in Operating Expenses for the
Operating Year in question, (xii) the cost of removing rubbish from
the Building (excluding the portion, if any, of such cost which is
paid by other tenants as extra charges in addition to Operating
Expenses), and (xiii) all other charges incurred in connection with
the operation, maintenance, repair and cleaning of the Property,
excluding, however, (A) depreciation, (B) interest on and amortization
of any Superior Mortgage or other debt and the cost of consummating
any financing or refinancing whether consummated or not, (C) rents
under any Superior Lease or other lease and the cost of consummating
any Superior Lease or other lease whether consummated or not, (D) the
cost in connection with (t) the initial construction of the Building,
(u) the correction of any defects which occurred in or resulted from
the initial construction of the roof, curtain wall, columns, beams,
floor slabs, footings and foundations of the Building, (v) the
correction of any defects not listed in clause (u) which occurred in
or resulted from the initial construction of the Building of which
Landlord has actual knowledge within 365 days after the date hereof,
(w) the correction of any defects which occurred in or resulted from
the initial construction of the Building at any time which are covered
by enforceable warranties or guarantees, (x) any installation and
decoration (including the cost of any contributions by Landlord to
individual tenants to the cost of tenant improvements and the cost of
any work in excess of building standard work provided to such tenants)
incurred in connection with preparing space for any tenant of the
Building or preparing the Common Areas of office floors or the
Building, (y) preparing any interior or exterior signs for the
Building which are in the name of a tenant or (z) any lease or other
agreement with a tenant, in the nature of a payment or credit to or on
behalf of a tenant, in order to induce such
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tenant to lease space in the Building, (E) brokerage commissions,
(F) Taxes, (G) any item of Operating Expenses to the extent Landlord
has been or is required to be reimbursed therefor from any person
other than as a contribution to Operating Expenses, (H) Landlord's
advertising and promotion costs, (I) the cost of capital improvements
not covered under Section 5.1(xi), (J) the cost of consummating any
disposition or transfer by Landlord of the Property, whether
consummated or not, (K) the cost of providing services to retail
tenants of the Building that are not generally provided to other
tenants of the Building, and (L) the amount of any judgment against
Landlord for any misrepresentation or default by Landlord. Operating
Expenses shall be calculated on the accrual basis of accounting in
accordance with generally accepted accounting principles consistently
applied. If a cost (or any portion thereof) in connection with the
correction of defects in the initial construction of the Building does
not fall under clause (D) above, is included in and paid by Tenant as
Operating Expenses and is subsequently paid to Landlord by the
contractor in question, Landlord shall pay to Tenant Tenant's
Percentage of the amount so paid to Landlord, after deducting
therefrom any reasonable expenses incurred by Landlord, including
reasonable attorneys' fees, in obtaining such payment.
(2) Any cost or expense of the nature described above shall
be included in Operating Expenses for any Operating Year no more than
once, notwithstanding that such cost or expense may fall under more
than one of the categories listed above.
(3) If during any Operating Year the tenant of any space in
the Building undertook to perform work or services therein in lieu of
having Landlord perform same and the cost thereof would have been
included in Operating Expenses if done by Landlord, then Operating
Expenses for such Operating Year shall include the amount that would
have been incurred if Landlord had performed such work or services
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(excluding any operating expenses apportioned to the restaurant on the
first floor of the Building).
(4) Landlord may use related or affiliated persons to
provide services or furnish materials for the Property if the rates or
fees charged by such persons are competitive with those charged by
unrelated or unaffiliated persons in the Borough of Manhattan for the
same services or materials.
(5) If less than 95% of the rentable area of the Building
(excluding the retail space on the ground floor and excluding any
basement space) is occupied by tenants at any time during any
Operating Year, the amount of Operating Expenses used in calculating
the Operating Payment for such Operating Year shall be the amount that
Operating Expenses would normally have been expected to be had 95% of
such rentable area of the Building been fully occupied throughout such
Operating Year.
(6) If an item of Operating Expenses also covers work or
services in connection with other properties of Landlord or its
affiliates or managing agent, only such amounts thereof as are
equitably allocable to the Property shall be included in Operating
Expenses.
(7) The amounts of any item of Operating Expenses with
respect to which Landlord has discretion and which are not subject to
Legal Requirements, Insurance Requirements, union contracts or other
similar restrictions shall not be in excess of the amounts which
prudent owners or operators of first-class office buildings in
Manhattan would pay for the item in question.
(8) The fact that this Lease may provide for a repair,
service or other item to be provided by Landlord "at Landlord's
expense" or "without charge to Tenant" or words of similar import,
shall not preclude Landlord from including the cost of such repair,
service or item in Operating Expenses if and to the extent such cost
is expressly included as an Operating Expense pursuant to
Section 5.1(a)(1).
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(b) The term "Operating Year" shall mean the calendar year
within which the Commencement Date occurs and each succeeding calendar
year thereafter.
(c) The term "Tenant's Operating Percentage" shall mean 0.597%.
(d) The term "Base Operating Expense Amount" shall mean the
Operating Expenses for the 1997 Operating Year.
5.2. From and after the Rent Commencement Date, for each
Operating Year any part of which occurs during the Term, Tenant shall pay
to Landlord an amount ("Operating Payment") equal to Tenant's Operating
Percentage of (a) the amount by which Operating Expenses for such Operating
Year exceed the Base Operating Expense Amount, and (b) management fees for
the Property not to exceed three percent (3%) or, if no managing agent is
employed by Landlord, or if Landlord employs an affiliate of Landlord as
its managing agent, a sum in lieu thereof equal to 3% of all rents and
other income (excluding reimbursements of items other than Taxes and
Operating Expenses) derived from the operation of the Property. Said
payments shall be made as provided in Section 5.3.
5.3. Landlord shall give Tenant, prior to or after the
commencement of each Operating Year, a notice setting forth Landlord's
estimate of the Operating Payment for such Operating Year. Tenant shall
pay to Landlord on the first day of each month during such Operating Year
an amount equal to 1/12th of Landlord's estimate of the Operating Payment
for such Operating Year. Landlord may amend such estimate by notice given
to Tenant from time to time to reflect additional information about
Operating Expenses that comes to Landlord's attention or to correct any
error made in any prior estimate; said notice may require an increase or
decrease in monthly payments or a separate individual payment and Tenant's
payments shall be adjusted or made as provided in said notice. Said notice
shall summarize the information which caused the increase or decrease in
question. If Landlord gives any such estimate for an Operating Year
subsequent to the commencement thereof, then until the first day of the
month following the month in which such estimate is given to Tenant, Tenant
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shall pay to Landlord on the first day of each month in such Operating Year
an amount equal to 105% of the monthly sum payable by Tenant under this
Section for the last full month of the preceding Operating Year.
5.4. Within 120 days after the end of each Operating Year,
Landlord shall give notice to Tenant containing a reasonably detailed
statement of the Operating Expenses for such Operating Year, the correct
amount of the Operating Payment for such Operating Year and the computation
of Tenant's payment on account thereof ("Operating Statement"), and (i) in
the event of a deficiency Tenant shall pay to Landlord the amount thereof
within 30 days after demand therefor, and (ii) in the event of an
overpayment Landlord shall refund to Tenant the amount thereof within 30
days after such notice. If Landlord fails to pay any refund to Tenant
within such 30-day period, the amount of such refund shall bear interest at
the Lease Interest Rate, from the date such amount was payable to Tenant to
the date of payment thereof by Landlord.
5.5. Within 90 days after receipt of an Operating Statement,
Tenant may give notice to Landlord that Tenant elects to have Tenant's
certified public accountant (who or which may be an employee of Tenant)
examine such of Landlord's books and records as are directly relevant to
the Operating Statement in question. If Tenant does not give such notice
within such 90-day period, then the Operating Statement furnished by
Landlord shall be conclusive and binding upon Tenant. If Tenant contests
an Operating Statement, it must, within 180 days after Tenant receives such
Operating Statement, give notice thereof to Landlord containing a
reasonably detailed statement of Tenant's calculation of the Operating
Expenses for such Operating Year, the amount of the Operating Payment for
such Operating Year and the computation of Tenant's payment on account
thereof ("Tenant's Operating Statement"). If within 30 days after delivery
to Landlord of Tenant's Operating Statement the parties fail to agree on
the Operating Payment for such Operating Year, either party may submit the
matter to arbitration in
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accordance with the provisions of Section 5.7. Tenant, pending the resolution
of any contest, shall continue to pay all sums determined to be due in the
first instance by Landlord's Operating Statement. Upon a resolution of such
contest in favor of Tenant, refund shall be made by Landlord to Tenant,
together with interest thereon at the Lease Interest Rate from the date of
Tenant's payment of the amount in dispute until the date refunded by
Landlord. If it is determined in such arbitration that Landlord undercharged
Tenant, then Tenant shall pay to Landlord the amount of the undercharge,
together with interest thereon at the Lease Interest Rate from the date the
Operating Payment in dispute was due until the date the amount undercharged
is paid by Tenant.
5.6. If the first day for which an Operating Payment is payable
hereunder occurs other than on the first day of an Operating Year or an
Operating Year ends after the Expiration Date, such Operating Payment shall
be equitably prorated to correspond to that portion of the Operating Year
occurring within the Term.
5.7. If Tenant contests an Operating Statement in accordance with
the provisions of Section 5.5, either party may apply to the then Senior
Justice of the Supreme Court of New York, New York County (or the then
highest court of general jurisdiction in New York County) for the selection
of an arbitrator to resolve such dispute. Such arbitration shall be
conducted in the City, County, and State of New York in accordance with the
rules then obtaining of the American Arbitration Association (or any
successor body of comparable function) and a judgment upon the award may be
entered in any court, federal or state, having jurisdiction thereover. The
arbitrator shall have at least ten years' current experience in the
ownership, management or operation of first class office buildings in
midtown Manhattan. The arbitrator shall only determine the Operating
Payment for such Operating Year, which Operating Payment shall be an amount
not less than the amount thereof set forth in Tenant's Operating Statement
for such Operating Year nor more than the amount thereof set forth in the
Operating Statement for such
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Operating Year. Any Superior Mortgagee and Superior Lessor shall have the
right to participate in any such arbitration, and prompt notice thereof shall
be given to each Superior Mortgagee and Superior Lessor by Tenant, provided
and to the extent Tenant shall have been previously notified of the name and
address of such Superior Mortgagees and Superior Lessor. If it is determined
in such arbitration that Tenant overpaid Landlord by 5% or less (but not less
than 1%) of the actual Operating Payment, then the fees and expenses of such
arbitration shall be borne by the parties equally, but each party shall bear
the expense of its own attorneys and experts and of presenting its own proof.
If it is determined in such arbitration that Tenant overpaid Landlord by
more than 5% of the actual Operating Payment, then the fees and expenses of
such arbitration, including the reasonable fees and expenses of Tenant's
attorneys and experts, shall be borne by Landlord. If it is determined in
such arbitration that Landlord's Operating Statement was correct, that Tenant
overpaid Landlord by less than 1% of the actual Operating Payment, or that
Tenant underpaid Landlord, then the fees and expenses of such arbitration,
including the reasonable fees and expenses of Landlord's attorneys and
experts, shall be borne by Tenant.
ARTICLE 6. Subordination to Mortgages and
Superior Leases
6.1. This Lease and all rights of Tenant hereunder shall be
subject and subordinate to all ground leases, overriding leases and
underlying leases of the Land and/or the Building now or hereafter existing
and to all mortgages now or hereafter existing affecting the Land and/or
the Building and/or any of such leases, whether or not such mortgages also
cover other lands and/or buildings and/or leases, to each and every advance
made or hereafter to be made under such mortgages, and to all renewals,
modifications, replacements and extensions of such leases and mortgages,
and spreaders and consolidations of such mortgages, provided that none of
the foregoing shall materially diminish Tenant's rights, or materially
increase Tenant's obligations, hereunder. This Section shall be
self-operative and no further be
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instrument of subordination or priority shall required. In confirmation of
such subordination or priority Tenant shall execute, acknowledge and deliver
promptly after demand therefor any instrument reasonably acceptable to Tenant
that Landlord, the lessor under any such lease or the holder of any such
mortgage may reasonably request to evidence such subordination or priority.
Any lease to which this Lease is subject and subordinate is herein called a
"Superior Lease," and the lessor of a Superior Lease is herein called a
"Superior Lessor." Any mortgage to which this Lease is subject and
subordinate is herein called a "Superior Mortgage" and the holder of a
Superior Mortgage is herein called a "Superior Mortgagee."
6.2. If any act or omission of Landlord would give Tenant the
right, immediately or after lapse of a period of time, to cancel or
terminate this Lease, or to claim a partial or total eviction, Tenant shall
not exercise such right until (a) Tenant gives notice of such act or
omission to Landlord and to each Superior Mortgagee and Superior Lessor
whose name and address were previously furnished to Tenant, and (b) a
reasonable period of time for remedying such act or omission elapses
following the time when such Superior Mortgagee or Superior Lessor becomes
entitled under such Superior Mortgage or Superior Lease to remedy same
(which reasonable period shall in no event be less than the period to which
Landlord is entitled under this Lease or otherwise, after similar notice,
to effect such remedy).
6.3. If any Superior Mortgagee or Superior Lessor succeeds to the
rights of Landlord under this Lease, whether through possession or
foreclosure action or delivery of a new lease or deed, then at the request
of such party succeeding to Landlord's rights ("Successor Landlord") and
upon such Successor Landlord's written agreement to accept Tenant's
attornment, Tenant shall attorn to and recognize such Successor Landlord as
Tenant's landlord under this Lease and shall promptly execute and deliver
any instrument that such Successor Landlord reasonably requests to evidence
such attornment. Upon such attornment this Lease shall continue in full
force and effect as a direct lease between the Successor Landlord and
Tenant upon all of the terms and
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conditions set forth in this Lease except that the Successor Landlord shall
not be (a) liable for any previous act or omission of Landlord under this
Lease (except to the extent that the state of facts resulting from such act
or omission shall continue to exist after the date such Successor Landlord
succeeds to the interest of Landlord and the existence of such state of facts
shall itself constitute a breach of Landlord's obligations under this Lease),
(b) subject to any offset which had accrued to Tenant against Landlord, (c)
obligated to complete any construction of the Building or the Premises other
than as provided in Sections 20 and 21 hereof, (d) obligated to make any
payment to or on behalf of Tenant other than as provided in Sections 4.4(b),
5.4 and 5.5, (e) required to account for any security deposit other than any
actually delivered to the Successor Landlord, or (f) bound by any previous
modification of this Lease or by any prepayment of more than one month's
Fixed Rent or Additional Charges unless such modification or prepayment was
expressly approved in writing by the lessor of the Superior Lease or the
holder of the Superior Mortgage through or by reason of which the Successor
Landlord succeeded to the rights of Landlord under this Lease.
6.4. If any prospective or actual Superior Mortgagee or Superior
Lessor requires any modification of this Lease, Tenant shall, upon notice
thereof from Landlord, promptly execute and deliver to Landlord the
instrument accompanying said notice from Landlord to effect such reasonable
modification if such instrument does not adversely affect any of Tenant's
rights under this Lease and does not increase any of Tenant's monetary or
other obligations under this Lease.
6.5. Tenant hereby irrevocably waives all rights it has, if any,
in connection with any zoning lot merger or transfer of development rights
in respect of the Property, including any rights it has to be a party to,
to contest, or to execute, any declaration of restrictions which would
cause the Property to be merged with any other zoning lot provided that
Tenant's right to quiet enjoyment as provided in Article 7 is not affected
thereby, Tenant's rights hereunder are not diminished and Tenant's
obligations hereunder are not
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increased. This Lease shall be subject and subordinate to any declaration of
restrictions or any other document of similar nature and purpose now or
hereafter affecting the Property, provided such restrictions do not in any
way inhibit the use permitted under this Lease. In confirmation of such
waiver and subordination, Tenant shall promptly execute, acknowledge and
deliver any instrument that Landlord reasonably requests.
ARTICLE 7. Quiet Enjoyment
7.1. So long as Tenant pays all Fixed Rent and Additional Charges
and performs all of Tenant's other obligations under this Lease, Tenant
shall peaceably and quietly have, hold and enjoy the Premises without
hindrance, ejection or molestation by Landlord or any person lawfully
claiming through or under Landlord, subject to the provisions of this Lease
and to any Superior Leases and Superior Mortgages. This covenant shall be
construed as a covenant running with the Land and shall not be construed as
a personal covenant of Landlord except to the extent of Landlord's interest
in this Lease.
ARTICLE 8. Assignment, Subletting and Mortgaging
8.1. Except as otherwise expressly provided in this Lease, Tenant
shall not, voluntarily, involuntarily, by operation of law or otherwise,
except with the prior consent of Landlord: (a) assign or otherwise
transfer this Lease, (b) sublet the Premises or any part thereof, or allow
same to be used, occupied or utilized by any person other than Tenant,
(c) advertise or publicize in the media the availability of the Premises or
any part thereof, provided that Tenant may list the Premises or any part
thereof for assignment or subletting with a broker, agent, representative
or otherwise, who may advertise the availability of the Premises but may
not advertise rental rates, or (d) mortgage, pledge, encumber or otherwise
hypothecate this Lease.
8.2. If and so long as Tenant is a corporation, partnership, or a
limited liability company, the following shall be deemed to be an
assignment of this Lease under Section 8.1 prohibited by said Section
unless Tenant obtains the prior consent of Landlord: one or more sales or
transfers of
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stock or partnership interests, voluntarily, involuntarily, by operation of
law or otherwise, or the issuance of new stock or partnership interests, as a
result of which an aggregate of 50% or more of Tenant's stock or partnership
interests shall be vested in a party or parties who are not stockholders or
partners as of the date hereof; provided, however, that any such sale,
transfer or issuance shall not be deemed an assignment or sublet if (i) it
was effected for legitimate business purposes and not for the purpose of
avoiding the limitations on assignment and subletting set forth in this
Article 8 and (ii) Tenant gives Landlord and each Superior Mortgagee and
Superior Lessor notice of such transaction within thirty (30) days after the
closing of such transaction. This Section and Section 8.1(a) shall not apply
to transactions with a corporation, partnership or limited liability company
into or with which Tenant is merged or consolidated or to which substantially
all of Tenant's assets are transferred or to any corporation, partnership or
limited liability company which controls or is controlled by Tenant or an
affiliate of Tenant or is under common control with Tenant if (a) the
successor to Tenant, based on customary real estate standards, has a
sufficient financial ability to support the obligations of Tenant under this
Lease during the Term, and (b) proof reasonably satisfactory to Landlord of
such financial ability is delivered to Landlord at least 10 days prior to the
effective date of any such transaction. The provisions of this Section shall
not apply to any corporation all the outstanding voting stock of which is
listed on a national securities exchange (as defined in the Securities
Exchange Act of 1934, as amended) or is traded in the over-the-counter market
with quotations reported by the National Association of Securities Dealers
through its automated system for reporting quotations. Notwithstanding the
foregoing, the original Tenant herein named shall have the right to assign
this Lease to an affiliate of the original Tenant herein named without
Landlord's consent, provided (x) Tenant gives notice to Landlord of such
assignment at least 30 days prior to the effective date thereof, (y) such
affiliate of the original Tenant is not
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insolvent and would not be rendered insolvent by the assumption of this
Lease, and (z) the conditions of Section 8.4 are satisfied.
8.3. If this Lease is assigned, whether or not in violation of
the provisions of this Lease, Landlord may collect rent from the assignee.
If the Premises or any part thereof is sublet or occupied by any person
other than Tenant, whether or not in violation of this Lease, Landlord may,
after default by Tenant and expiration of Tenant's time to cure such
default, collect rent from the subtenant or occupant. In either event,
Landlord may apply the net amount collected to Fixed Rent and Additional
Charges, but no such assignment, subletting, occupancy or collection shall
be deemed a waiver of any of the provisions of this Article, or the
acceptance of the assignee, subtenant or occupant as tenant, or a release
of Tenant from the performance by Tenant of Tenant's obligations under this
Lease. The consent by Landlord to any assignment, mortgaging, subletting
or occupancy by others shall not relieve Tenant of the obligation to obtain
the consent of Landlord to any other or further assignment, mortgaging,
subletting or occupancy by others not expressly permitted by this Article
8. References in this Lease to occupancy by others than Tenant shall not
be construed as limited to subtenants and those claiming through or under
subtenants but shall be construed as including also licensees and others
claiming through or under Tenant, immediately or remotely.
8.4. Any assignment or transfer, whether or not Landlord's
consent is required, shall be made only if and shall not be effective until
the assignee executes, acknowledges and delivers to Landlord an agreement
in form and substance reasonably satisfactory to Landlord whereby the
assignee assumes the obligations of Tenant under this Lease and whereby the
assignee agrees that the provisions of this Article shall, notwithstanding
such assignment or transfer, continue to be binding upon it in respect of
all future assignments and transfers. Subject to the provisions of
Section 8.5 and notwithstanding any assignment or transfer, whether or not
in violation of the provisions of this Lease, and notwithstanding the
acceptance of Fixed Rent
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or Additional Charges by Landlord from an assignee, transferee, or any other
person, the original Tenant herein named and any and all successors in
interest of the original Tenant herein named shall remain fully liable
(jointly and severally with any immediate or remote successor in interest,
including the then Tenant) for the payment of Fixed Rent and Additional
Charges and for the other obligations of Tenant under this Lease.
8.5. The liability under this Lease of the original Tenant herein
named and any immediate or remote successor in interest of the original
Tenant herein named shall not be discharged, released or impaired in any
respect by any agreement or stipulation made by Landlord with the then
Tenant extending the time of, or modifying any of the obligations under,
this Lease, or by any waiver or failure of Landlord to enforce any of the
obligations of Tenant under this Lease; provided, however, that the
original Tenant herein named shall not be bound by any agreements made by
Landlord with any then Tenant which increase the obligations or liability
of the Tenant hereunder.
8.6. Neither the listing of any name other than that of Tenant,
whether on the door of the Premises or the Building directory, or
otherwise, nor the acceptance by Landlord of any check drawn by a person
other than Tenant in payment of Fixed Rent or Additional Charges, shall
operate to vest in any person any right or interest in this Lease or in the
Premises, nor shall same be deemed to be the consent of Landlord to any
assignment or transfer of this Lease or to any sublease of the Premises or
to the occupancy thereof by any person other than Tenant.
8.7. Except as specifically provided to the contrary in this
Article 8, if Tenant desires to assign this Lease or sublet all or any part
or the Premises, including any assignment or subletting pursuant to
Insolvency Laws, Tenant shall give notice thereof to Landlord, which notice
shall be accompanied by (a) a conformed or photostatic copy of the proposed
assignment or sublease, the effective date (as to an assignment) or
commencement date (as to a sublease) of which shall be at least 30 days
after the giving of such notice, (b) a statement setting forth in
reasonable detail the identity of the
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proposed assignee or subtenant, the nature of its business and its proposed
use of the Premises, and (c) with respect to a proposed assignment, current
financial information in respect of the proposed assignee, including its most
recent financial report. Such notice shall be deemed an offer from Tenant to
Landlord whereby Landlord (or Landlord's designee) may terminate this Lease
with respect to the space in question if the proposed transaction (the
"Proposed Transaction") is an assignment or is a sublease of all or
substantially all of the Premises to any person other than an affiliate of
the original Tenant herein named. Said option may be exercised by Landlord by
notice to Tenant at any time within 15 Business Days after such notice given
by Tenant to Landlord, and during such 15 Business Day period Tenant shall
not assign this Lease or sublet such space to any person. If Landlord
exercises its option to terminate this Lease, then this Lease shall terminate
on the date that the assignment was to be effective or the sublet was to
commence, and Fixed Rent and Additional Charges shall be apportioned as of
such date, and Tenant shall pay any transfer taxes due and owing in
connection with the termination, including any New York State Real Property
Transfer Taxes and New York City Real Property Transfer Taxes and any sums
due under Section 8.10, and no other sums which may accrue on or after the
effective date of termination with respect to the portion of the Premises as
to which the Lease has terminated shall be due hereunder.
8.8. Intentionally deleted.
8.9. If Landlord does not exercise its option pursuant to
Section 8.7 to so terminate this Lease and Tenant is not in default of any
of its obligations under this Lease beyond any applicable notice and cure
period, Landlord's consent (which shall be in form reasonably satisfactory
to Landlord) to the proposed assignment or sublease shall not be
unreasonably withheld, conditioned or delayed, provided and upon condition
that:
(a) Tenant has complied with the provisions of this Article 8,
(b) in Landlord's reasonable judgment the proposed assignee or
subtenant is engaged in a business and the Premises will be used in a
manner
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which (i) is in keeping with the then standards of the Building, (ii) is
limited to use for general office purposes and is not in violation of the
Rules and Regulations or any provisions of this Lease, and (iii) will not
violate any negative covenant as to use contained in any other lease of space
in the Building,
(c) the proposed assignee or subtenant is a reputable person of
good character and, in the case of the assignee, based on customary real
estate standards, has a sufficient financial ability to support the
obligations of Tenant under this Lease from the date of such assignment
until the Expiration Date, and Landlord has been furnished with reasonable
proof thereof,
(d) neither the proposed assignee or sublessee nor any person
that, directly or indirectly, controls, is controlled by, or is under
common control with, the proposed assignee or sublessee or any person who
controls the proposed assignee or sublessee, is then an occupant (excluding
any affiliate of the original Tenant) of any part of the Building,
provided, however, this subsection (d) shall be of no force and effect if
Landlord does not have comparable space available for rent in the Building,
(e) the proposed assignee or sublessee is not a person with whom
Landlord is then negotiating or in the prior six-month period was
negotiating to lease space in the Building, provided, however, that this
subsection (e) shall be of no force and effect if Landlord does not have
comparable space available for rent in the Building, and
(f) the form of the proposed sublease (if Tenant proposes to
sublease all or part of the Premises) is in form reasonably satisfactory to
Landlord and complies with the applicable provisions of this Article 8.
8.10. Provided Landlord has not exercised its option to terminate
this Lease in accordance with section 8.7 hereof, Tenant shall reimburse
Landlord within 30 days after demand for any reasonable costs incurred by
Landlord to non-affiliates of Landlord in connection with any proposed
assignment or sublease, whether or not consented to by Landlord, including
the
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reasonable cost of making investigations incurred by Landlord to
non-affiliates of Landlord as to the acceptability of the proposed assignee
or subtenant, and reasonable attorneys' fees and disbursements in connection
with the granting of any requested consent.
8.11. Notwithstanding the consent by Landlord to any subletting
to any subtenant and/or acceptance of rent or additional rent by Landlord
from any subtenant, Tenant shall remain fully liable for the payment of
Fixed Rent and Additional Charges due and to become due hereunder and for
all of the other obligations of Tenant under this Lease. Tenant shall
remain fully liable for all acts and omissions of any licensee or subtenant
or any person claiming through or under any licensee or subtenant that are
in violation of any of the obligations of Tenant under this Lease, and any
such violation shall be deemed to be a violation by Tenant.
Notwithstanding any such subletting, no other or further subletting of the
Premises by Tenant or any person claiming through or under Tenant shall be
made except in compliance with and subject to the provisions of this
Article 8. If Landlord reasonably declines to give its consent to any
proposed assignment or sublease (provided Landlord is required to be
reasonable pursuant to the provisions of this Article 8), Tenant shall
indemnify Landlord against liability in connection with any claims made
against Landlord by the proposed assignee or subtenant or by any brokers or
other persons with whom Tenant communicated with respect to such proposed
assignment or sublease.
8.12. If (a) Landlord does not exercise its option under
Section 8.7 and Landlord consents to a proposed assignment or sublease and
(b) Tenant fails to execute and deliver the assignment or sublease to which
Landlord consented within 60 days after the giving of such consent, then
Tenant shall again be required to comply with the provisions of this
Article 8 (as if Tenant had not requested such consent) before assigning
this Lease or subletting all or any part of the Premises.
8.13. Notwithstanding anything to the contrary in this Article 8,
the original Tenant herein named shall have the right to sublet all or a
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portion of the Premises to an affiliate of the original Tenant herein named
without Landlord's consent, provided (a) Tenant gives to Landlord not less
than ten Business Days prior to the effective date of the sublease a notice
including (i) a conformed or photostatic copy of the sublease and (ii) a
certification by an officer of Tenant of the relationship between Tenant
and the proposed subtenant and (b) the conditions of paragraphs (a), (b)
and (c) of Section 8.14 are satisfied.
8.14. In respect of every sublease:
(a) no sublease shall be for a term ending later than the day
before the Expiration Date,
(b) no sublease shall be valid, and no subtenant shall take
possession of the Premises or any part thereof, until an executed
counterpart of such sublease has been delivered to Landlord,
(c) each sublease shall provide that it is subject and
subordinate to this Lease and to the matters to which this Lease is or
shall be subordinate, and that in the event of termination, reentry or
dispossess by Landlord under this Lease, Landlord may, at its option, take
over all of the right, title and interest of Tenant, as sublessor, under
such sublease, and such subtenant shall, at Landlord's option, attorn to
Landlord pursuant to the then executory provisions of such sublease and
execute and deliver such instruments as Landlord may reasonably request to
evidence and confirm such attornment, except that Landlord shall not be
(i) liable for any previous act or omission of Tenant under such sublease,
(ii) subject to any offset which had accrued to such subtenant against
Tenant, (iii) bound by any previous modification of such sublease unless
Landlord shall have consented in writing thereto or by any prepayment of
more than one month's rent or additional rent, (iv) obligated to make any
payment to or on behalf of such subtenant or to perform any repairs or
other work in the subleased space or the Building beyond Landlord's
obligations under this Lease, or (v) required to account for any security
deposit other than any actually delivered to Landlord, and
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(d) the rental and other terms and conditions of each sublease
shall be the same as those contained in the proposed sublease furnished to
Landlord pursuant to Section 8.7.
8.15. If Tenant assigns this Lease or sublets all or any portion
of the Premises, Tenant shall in consideration therefor pay to Landlord:
(a) in the case of an assignment, an amount equal to all sums
and other consideration paid to Tenant by the assignee or any other person
for or in connection with such assignment (including sums paid for the sale
or rental of Tenant's fixtures, leasehold improvements, equipment,
furniture, furnishings or other personal property, less the then net
unamortized or undepreciated cost thereof determined on the basis of
Tenant's federal income tax returns), less customary brokerage fees and
reasonable attorneys' fees and all other reasonable costs incurred by
Tenant in consummating the assignment, and
(b) in the case of a sublease, any rents, additional charges or
other consideration payable to Tenant (collectively, "Sublease Rent"), plus
any sums paid for the sale or rental of Tenant's fixtures, leasehold
improvements, equipment, furniture, furnishings or other personal property,
less, the then net unamortized or undepreciated cost thereof determined on
the basis of Tenant's federal income tax returns, less customary brokerage
fees and reasonable attorneys' fees and all other reasonable costs incurred
by Tenant in consummating the sublease ("Sale or Rental Payments"), to the
extent that the sum of the Sublease Rent and Sale or Rental Payments is in
excess of Fixed Rent and Additional Charges accruing during the term of the
sublease in respect of the subleased space (at the rate per rentable square
foot payable by Tenant hereunder). The deduction for the net unamortized
or undepreciated cost in the case of such a sale shall be made in equal
monthly installments over the term of the sublease. The sums payable under
this subsection shall be paid to Landlord as and when paid by the subtenant
or any other person to Tenant.
ARTICLE 9. Compliance With Legal and
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Insurance Requirements
9.1. Tenant and Landlord shall each give prompt notice to the
other of any notice it receives of the violation of any Legal Requirements
or Insurance Requirements in respect of the Premises or the use or
occupancy thereof. Tenant shall, regardless of whether Landlord has given
Tenant notice as provided in the immediately preceding sentence, at
Tenant's expense, comply with all Legal Requirements and Insurance
Requirements (including, without limitation, requirements of additional
sprinkler heads or changes to the sprinkler system in or serving the
Premises) that, in respect of the Premises or the use or occupancy thereof,
or the abatement of any nuisance in, on or about the Premises, impose any
violation, order or duty on Landlord or Tenant, by reason of or arising out
of (a) Alterations, (b) Tenant's use of the Premises, except for the mere
use of the Premises as provided in Section 2.1, (c) the manner of conduct
of Tenant's business or operation of its installations, equipment or other
property therein, except for the mere use of the Premises as provided in
Section 2.1, (d) any cause or condition created by or at the instance of
Tenant, except for the mere use of the Premises as provided in Section 2.1,
(e) Tenant's business, except for the mere use of the Premises as provided
in Section 2.1, or the location of partitions, trade fixtures or other
contents of the Premises, or (f) the breach of any of Tenant's obligations
under this Lease, and Tenant shall pay all the fines, penalties and damages
imposed upon, and all reasonable costs and expense incurred by, Landlord or
any Superior Lessors or Superior Mortgagees by reason of or arising out of
Tenant's failure to fully and promptly comply with and observe the
provisions of this Section. However, Tenant need not comply with any Legal
Requirement so long as Tenant is contesting the validity thereof or the
applicability thereof to the Premises in accordance with Section 9.2.
Landlord shall comply with all other Legal Requirements and Insurance
Requirements affecting the Premises or access thereto (including Legal
Requirements requiring structural changes, additions, repairs or
alterations provided that same do not arise out of or by reason of the
matters identified
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in clauses (a) through (f) above) but may similarly defer compliance so long
as Landlord is contesting the validity or applicability thereof. Landlord
represents to Tenant that the Premises do not contain any asbestos-containing
materials nor do they contain other hazardous materials (as defined pursuant
to Legal Requirements) in quantities exceeding those permitted under
applicable Legal Requirements. In the event that there is a breach of the
representation in the preceding sentence, Landlord, at its sole expense,
shall (a) remove any such materials present in the Premises on the
Commencement Date or which were brought into the Premises by Landlord
subsequent thereto, and (b) indemnify Tenant with respect thereto.
9.2. Tenant, at its expense, after notice to Landlord, may
contest by appropriate proceedings prosecuted diligently and in good faith
the validity or applicability to the Premises of any Legal Requirements
provided that (a) the condition which is the subject of such contest does
not in Landlord's reasonable judgment pose a danger to persons or property,
(b) neither Landlord nor any Superior Lessor or Superior Mortgagee is
subject to criminal penalty or to prosecution for a crime, and neither the
Building nor any part thereof is subject to being condemned or vacated, by
reason of noncompliance or otherwise by reason of such contest, (c) before
the commencement of such contest, Tenant furnishes to Landlord security in
an amount equal to the cost of such compliance plus any penalties which may
accrue during the term of such noncompliance reasonably satisfactory to
Landlord, and (d) such noncompliance or contest does not constitute or
result in any violation of any Superior Lease or Superior Mortgage (or if
any Superior Lease and/or Superior Mortgage permits such noncompliance or
contest only if Landlord takes some specified action or furnishes security,
such action is taken and/or such security is furnished at the expense of
Tenant). Tenant shall keep Landlord advised as to the status of such
proceedings and Tenant shall indemnify Landlord against liability in
connection with such contest or noncompliance. Without limiting the
application of the above, Landlord, any Superior Lessor and any Superior
Mortgagee shall be deemed
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"subject to prosecution for a crime" for purposes of this Section 9.2 if
Landlord or any Superior Lessor or Superior Mortgagee, or any managing agent
for the Building, or any officer, director, partner, shareholder or employee
of Landlord or of any managing agent for the Building or of any Superior
Lessor or Superior Mortgagee, is charged with, or is at risk of being charged
with, a crime of any kind or degree, whether by service of a summons or
otherwise unless and for so long as such party obtains a court order staying
such summons or other means of charge.
9.3. The provisions of Article 12, to the extent applicable,
shall apply to the work (and the plans and specifications therefor) which
Tenant performs or causes to be performed under this Article 9.
9.4. Landlord shall maintain a certificate of occupancy for the
Building, which would be consistent with the uses permitted under a
certificate of occupancy for the Premises for the uses set forth in
Section 2.1, in full force and effect, provided that Tenant and Tenant's
employees, contractors, agents, licensees and invitees shall not do
anything to cause said certificate of occupancy to be revoked or unable to
be renewed.
ARTICLE 10. Insurance
10.1. Tenant shall not violate or permit the violation of any
Insurance Requirements and shall not do, or permit anything to be done, or
keep or permit anything to be kept in the Premises which would subject
Landlord or any Superior Lessor or Superior Mortgagee to liability or
responsibility for bodily injury or death or property damage, or which
would increase any insurance rate in respect of insurance maintained by
Landlord over the rate which would otherwise then be in effect, or which
would result in an insurance company refusing to insure all or any part of
the Property or any contents thereof in amounts reasonably satisfactory to
Landlord, or which would result in the cancellation of or the assertion of
any defense by the insurer in whole or in part to claims under any policy
of insurance maintained by Landlord.
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10.2. If Landlord has knowledge of any use, cause or condition
with respect to the Premises which may cause the premiums on any insurance
maintained by Landlord to be higher than they otherwise would be, Landlord
shall give Tenant prompt notice thereof. If, by reason of (a) any failure
of Tenant to comply with the provisions of Section 9.1 or Section 10.1,
(b) Tenant's particular use of the Premises, or (c) any cause or condition
created by or at the instance of Tenant, including, without limitation, the
doing of or failure to do any Tenant's work or the making of or failure to
make any Alterations or repairs, the premiums on any insurance maintained
by Landlord shall be higher than they otherwise would be, Tenant shall
reimburse Landlord on demand for that part of such premiums attributable to
such failure on the part of Tenant. A schedule or "make up" of rates for
any insurance maintained by Landlord issued by the New York Fire Insurance
Rating Organization or other similar body making rates shall be conclusive
evidence of the facts therein stated and of the several items and charges
in the insurance rate then applicable to such insurance.
10.3. Tenant, at its expense, shall maintain (a) "broad-form"
property insurance covering Tenant's Property to a limit of not less than
90% of the replacement cost thereof, and (b) comprehensive general
liability insurance, including a contractual liability endorsement, in
respect of the Premises and the conduct or operation of business therein,
with Landlord and its managing agent, if any, and any Superior Lessors and
Superior Mortgagees whose names and addresses were furnished to Tenant, as
additional insureds, with limits of not less than $1,000,000 primary
coverage with $5,000,000 umbrella coverage combined single limit for bodily
injury (or death) and property damage liability in any occurrence. The
limits of such insurance shall not limit the liability of Tenant hereunder.
Tenant shall deliver to Landlord and all additional insureds certificates
and copies of the binders for such insurance in form reasonably
satisfactory to Landlord issued by the insurance company or its authorized
agent no later than 10 days after the Commencement Date, but in any event
prior to the commencement of any Tenant's
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work. All such policies shall be noncancellable in respect of Landlord and
any additional insureds unless 30 days' prior written notice (10 days' prior
written notice in the event of non-payment of the premium) is given to
Landlord and all additional insureds and all such policies shall provide that
no act or omission of Tenant shall affect or limit the obligations of the
insurer in respect of Landlord and the additional insureds. Tenant shall
procure and pay for renewals of such insurance from time to time before the
expiration thereof. Tenant shall deliver to Landlord and all additional
insureds certificates and copies of the binders for renewal policies issued
by the insurance company or its authorized agent at least 10 days prior to
the expiration of any existing policy. All such policies shall be issued by
companies licensed to do business in the State of New York, reasonably
satisfactory to Landlord and with a Best's (or its successor) rating of A XIV
or better.
10.4. Each party shall have included in each of its casualty
insurance policies (insuring the Building and Landlord's property therein
in the case of Landlord, and insuring Tenant's Property in the case of
Tenant) a waiver of the insurer's right of subrogation against the other
party or, if such waiver is unobtainable or unenforceable, (a) an express
agreement that such policy shall not be invalidated if the insured waives
the right of recovery against any party responsible for a casualty covered
by the policy before the casualty, or (b) any other form of permission for
the release of the other party. If such waiver, agreement or permission is
not, or ceases to be, obtainable from either party's then current insurance
company, the insured party shall so notify the other party promptly after
learning thereof, and shall use its reasonable efforts to obtain same from
another insurance company. If such waiver, agreement or permission is
obtainable only by payment of an additional charge, the insured party shall
so notify the other party promptly after learning thereof, and the insured
party shall not be required to obtain said waiver, agreement or permission
unless the other party pays the additional charge therefor. Each party
hereby releases the other in
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respect of any claim (including a claim for negligence) which it might
otherwise have against the other for loss, damage or destruction of or to its
property to the extent to which it is insured under a policy containing (i) a
waiver of subrogation, (ii) express agreement that such policy shall not be
invalidated by such release or (iii) permission to release liability, as
provided above in this Section. If notwithstanding the recovery of insurance
proceeds by either party for loss, damage or destruction of or to its
property, the other party is liable to the first party in respect thereof or
is obligated under this Lease to make replacement, repair, restoration or
payment, then, provided the first party's right of full recovery under its
insurance policy is not thereby prejudiced or otherwise adversely affected,
the amount of the net proceeds of the first party's insurance against such
loss, damage or destruction shall be offset against the second party's
liability to the first party therefor, or shall be made available to the
second party to pay for replacement, repair or restoration, as the case may
be. Nothing contained in this Section shall be deemed to (i) relieve either
party of any duty imposed elsewhere in this Lease to repair, restore or
rebuild or (ii) nullify any abatement or reduction of rents provided for
elsewhere in this Lease.
10.5. Landlord may from time to time, but not more frequently
than once every year, require that the amount of comprehensive general
liability insurance to be maintained by Tenant under Section 10.3 be
reasonably increased, so that the amount thereof adequately protects
Landlord's interest in accordance with standards for such insurance
(a) carried by occupants of similar first-class office buildings in midtown
Manhattan, or (b) of any Superior Mortgagee or Superior Lessor.
ARTICLE 11. Rules and Regulations
11.1. Tenant shall and shall cause its subtenants and licensees,
and its and their respective employees, agents, contractors and invitees,
to observe and comply with the rules and regulations attached hereto as
Exhibit D, and such reasonable changes therein (whether by modification,
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elimination or addition) as Landlord at any time or times makes and
notifies Tenant of which in Landlord's judgment are necessary or desirable
for the reputation, safety, care or appearance of the Building, or the
preservation of good order therein, or the operation or maintenance of the
Building. Such rules and regulations as changed from time to time are
herein called the "Rules and Regulations." In case of any conflict,
inapplicability or inconsistency between the provisions of this Lease and
any of the Rules and Regulations, the provisions of this Lease shall
control.
11.2. Nothing in this Lease contained shall be construed to
impose upon Landlord any duty or obligation to enforce the Rules and
Regulations against any other tenant or other person, and Landlord shall
not be liable to Tenant for violation by any other tenant or other person
of the Rules and Regulations or the rules and regulations contained in such
other leases. Landlord shall enforce the Rules and Regulations in a
non-discriminatory manner against all tenants.
ARTICLE 12. Alterations
12.1. Tenant may from time to time, at its expense, make such
alterations ("Alterations") to the Premises as Tenant reasonably considers
necessary for the conduct of its business in the Premises, provided and
upon condition that: (a) the Alterations are non-structural and the
structural integrity of the Building is not affected, (b) the Alterations
are to the interior of the Premises, no part of the Building outside of the
Premises is affected, and the outside appearance of the Building is not
affected, and (c) the proper functioning of the mechanical, electrical,
sanitary and other service systems of the Building is not adversely
affected and the usage of such systems by Tenant is not materially
increased, provided that if Tenant does not initially use 6 watts of
connected electrical load per rentable square foot of the Premises as
provided in Section 15.1, Tenant shall have the right to increase its
connected electrical load up to such amount. Before proceeding with any
Alteration other than nonstructural decorative changes, Tenant shall submit
to Landlord for Landlord's approval (which shall not be
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unreasonably withheld, delayed or conditioned) plans and/or specifications,
if required, and all changes thereto for the work to be done, and Tenant
shall not proceed with such work until it obtains such approval. Landlord's
approval shall be deemed granted if Landlord has not responded within twenty
(20) Business Days after all such plans and specifications have been
submitted to Landlord. In connection with Alterations affecting mechanical,
electrical, plumbing, heating, ventilation, air conditioning or sprinkler
systems, Tenant shall pay to Landlord within 30 days after demand the
reasonable direct costs and expenses incurred by Landlord to non-affiliates
of Landlord in (i) reviewing said plans and specifications and any changes
thereto and (ii) inspecting the Alterations to determine whether the same are
being performed in accordance with the approved plans and specifications and
all Legal Requirements and Insurance Requirements including the fees or costs
of any architect, engineer or draftsman (excluding the cost of architects,
engineers or draftsmen who are employees of Landlord or affiliates of
Landlord) for such purposes. Before proceeding with any Alteration that will
cost more than $20,000 (exclusive of items constituting Tenant's Property and
nonstructural decorative changes), as estimated, at Tenant's expense, by a
reputable and experienced contractor reasonably satisfactory to Landlord,
Tenant shall obtain and deliver to Landlord a copy of the most recent
financial statement of Tenant's contractor, evidence satisfactory to Landlord
that Tenant's contractor has at least five years' prior experience in
performing the type(s) of Alterations contemplated and such security as shall
be reasonably satisfactory to Landlord. Tenant shall fully and promptly
comply with and observe the Rules and Regulations then in force in respect of
making Alterations. Any review or approval by Landlord of any plans or
specifications in respect of any Alterations is solely for Landlord's benefit
and without any representation or warranty to Tenant as to the adequacy,
correctness or efficiency thereof or otherwise. Landlord shall approve or
disapprove Tenant's plans and/or specifications for Alterations within 10
Business Days after receipt thereof. Failure of Landlord to
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approve or disapprove any portion of Tenant's plans and/or specifications
within such 10 Business Day period shall be deemed approval. Landlord shall
not unreasonably withhold its approval to Tenant's plans and/or
specifications, except those portions thereof which may affect mechanical,
electrical, plumbing, heating, ventilation, air-conditioning or sprinkler
systems. Alterations shall not include Landlord's Work.
12.2. Tenant, at its expense, shall obtain all necessary
governmental permits and certificates for the commencement and prosecution
of Alterations and for final approval thereof upon completion, and shall
cause Alterations to be performed in compliance therewith, with the
provisions of Section 37.2 and with all applicable Legal Requirements and
Insurance Requirements. Alterations shall be diligently performed in a
good and workmanlike manner, using materials and equipment at least equal
in quality and class to those initially installed in the Premises.
Alterations shall be performed by contractors first approved by Landlord as
provided in Section 12.1; provided, however, that any contractor who will
be performing permitted work involving the mechanical, electrical,
plumbing, heating, ventilation, air-conditioning or sprinkler systems in
the Building must be selected from Landlord's then Building standard list.
Such list shall contain at least three contractors per trade and shall be
furnished to Tenant upon request. Alterations shall be performed in such a
manner as not to violate union contracts affecting the Property, or to
create any work stoppage, picketing, labor disruption or dispute or any
interference with the business of Landlord or any tenant of the Building.
If any such event occurs, Tenant shall cause such manner of performance to
be terminated immediately after Tenant has actual knowledge thereof. If
Tenant fails to do so, Landlord, in addition to any rights available to it
under this Lease or pursuant to law or equity, shall have the right of
injunction. In addition, Alterations shall be performed in such a manner
as not to (a) otherwise unreasonably interfere with or delay, or (b) impose
any additional expense upon, Landlord in the construction, maintenance,
repair, operation or cleaning of the Building
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(which additional expense, if charged by an affiliate of Landlord, must be
competitive with that charged by unaffiliated persons for the same services
in first-class office buildings in Manhattan), and if any such additional
expense is incurred by Landlord as a result of Tenant's performance of
Alterations, Tenant shall pay such additional expense to Landlord within 30
days after demand. Throughout the performance of Alterations, Tenant shall
carry, or cause its contractors to carry, workers' compensation insurance in
statutory limits, "Builder's Risk" insurance reasonably satisfactory to
Landlord, and comprehensive general liability insurance, with completed
operation endorsement, for any occurrence in or about the Building, under
which Landlord and its managing agent and any Superior Lessors and Superior
Mortgagees whose names and addresses were furnished to Tenant shall be named
as additional insureds, in such limits as Landlord may reasonably require,
with insurers reasonably satisfactory to Landlord and with a Best's (or its
successor) rating of A XIV or better or the then equivalent of such rating.
Tenant shall furnish Landlord with reasonably satisfactory evidence that such
insurance is in effect before the commencement of Alterations and, on
request, at reasonable intervals during the continuance of Alterations. If
any Alterations involve the removal of any fixtures, equipment or other
property in the Premises, other than Tenant's Property, such fixtures,
equipment or other property shall be promptly replaced at Tenant's expense
with fixtures, equipment or other property of like utility and at least equal
value, except to the extent such items are obsolete or may be replaced by
high quality time-saving items. Upon completion of any Alterations that cost
in excess of $10,000 (other than mere decorations and items constituting
Tenant's Property), Tenant shall deliver to Landlord not less than two scaled
and dimensioned prints of "as-built" plans for such Alteration.
12.3. Tenant, at its expense, shall promptly procure the
cancellation or discharge of all notices of violation arising from or
otherwise connected with Alterations, or any other work, labor, services or
materials done for or supplied to Tenant or any person claiming through or
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under Tenant which are issued by the Department of Buildings of the City of
New York or any other public authority having or asserting jurisdiction.
Tenant shall indemnify Landlord against liability in connection with any and
all mechanics' and other liens and encumbrances filed in connection with
Alterations, or any other work, labor, services or materials done for or
supplied to Tenant or any person claiming through or under Tenant, including
security interests in any materials, fixtures or articles so installed in the
Premises. Tenant, at its expense, shall procure the satisfaction or
discharge (by bond or otherwise) of record of all such liens and encumbrances
within 30 days after Tenant has received notice thereof from any person.
ARTICLE 13. Landlord's and Tenant's Property
13.1. Except as provided in Section 13.2, all fixtures,
equipment, improvements and appurtenances, including utility lines and
equipment, attached to or built into the Premises before or after the
Commencement Date, whether by or at the expense of Landlord or Tenant,
shall be and remain a part of the Premises, shall be deemed the property of
Landlord and shall not be removed by Tenant.
13.2. All movable partitions, business and trade fixtures, machinery
and equipment, communications equipment and office equipment (excluding
cabling), whether or not attached to or built into the Premises, which are
installed in the Premises by Tenant at any time during the Term without
expense to Landlord and which can be removed without structural damage to
the Building, and all furniture, furnishings, and all other articles of
movable personal property owned by Tenant and located and used in the
Premises at any time during the Term (collectively, "Tenant's Property")
shall be and shall remain the property of Tenant and may be removed by
Tenant at any time during the Term, provided that if any Tenant's Property
is installed or removed, Tenant shall repair or pay the cost of repairing
any damage to the Premises (except for minor incidental dents and
scratches) or to the Building resulting from the installation and/or
removal thereof.
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13.3. At or before the Expiration Date, or within 20 days after an
earlier termination date, Tenant, at its expense, shall remove from the
Premises all Tenant's Property, and Tenant shall repair any damage to the
Premises (except for minor incidental dents and scratches) and the Building
resulting from any installation and/or removal of Tenant's Property. Any
other items of Tenant's Property which remain in the Premises after the
Expiration Date, or after 20 days following an earlier termination, may, at
the option of Landlord, be deemed to have been abandoned, and in such case
such items may be retained by Landlord as its property or disposed of by
Landlord without accountability in such manner as Landlord shall determine
at Tenant's expense.
ARTICLE 14. Repairs and Maintenance
14.1. Tenant shall, at its expense, take good care of the Premises,
the fixtures and appurtenances therein, the space above the hung ceiling of
the Premises and the fixtures and appurtenances therein, and any Tenant's
Property. Tenant shall be responsible for and shall promptly make all
repairs, interior and exterior, structural and nonstructural, ordinary and
extraordinary, in and to the Premises and the Building the need for which
arises out of (a) the performance or existence of any Alterations or other
work by Tenant, (b) the installation, use or operation of Tenant's Property
(provided that Tenant shall be responsible for exterior, structural and
extraordinary repairs resulting from such installation, use or operation
only if such installation, use or operation is negligent, constitutes
willful misconduct or is otherwise in breach or default of Tenant's express
obligations under this Lease), (c) the moving of Tenant's Property in or
out of the Premises (except for minor incidental dents and scratches) or
the Building, or (d) the negligence or willful misconduct of or by Tenant
or any of its subtenants or licensees, or its or their respective
employees, agents, contractors or invitees. Tenant, at its expense (except
to the extent covered by Landlord's insurance), shall promptly replace all
damaged or broken doors and glass in and about the Premises and shall be
responsible for all repairs,
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painting, maintenance and replacement of wall and floor coverings in the
Premises and to the extent resulting from or in connection with Alterations
undertaken by Tenant, for the repair, maintenance and replacement of all
mechanical, electrical, sanitary, heating, ventilating, air conditioning and
other fixtures and equipment therein and above the hung ceiling thereof.
Notwithstanding the foregoing, Tenant shall not be responsible for the
repair, maintenance or replacement of the perimeter heating system unless the
need therefor arises out of any of the matters listed in clauses (a) through
(d) above. Any repairs and replacements required to be made by Tenant shall
be performed only by contractors reasonably approved by Landlord; provided,
however, that repairs or replacements to the mechanical, electrical,
sanitary, heating, ventilating, air-conditioning or other systems shall be
performed only by contractors selected from Landlord's then Building standard
list as described in Section 12.2. All replacements shall be at least equal
in utility and value to the utility and value that the materials and
equipment being replaced had when they were installed. Any repairs and
replacements for which Tenant is responsible may, at Landlord's option, be
performed by Landlord upon at least ten (10) Business Days' notice (except in
an emergency) if such repair or replacement will affect any Building system
or any other tenant's premises or work, at Tenant's expense, and Landlord
may, at its option, before Landlord or Tenant commences any such work or at
any time thereafter, require Tenant to furnish to Landlord security
reasonably satisfactory to Landlord under the same terms and conditions as
would apply if such repair or replacement were an Alteration.
Notwithstanding the foregoing, at any time that Tenant has commenced any work
pursuant to this Section 14.1 and is diligently proceeding to complete the
same, Landlord shall not have the right to perform the work in question.
14.2. Landlord shall promptly make all repairs, structural and
otherwise, interior and exterior, as and when needed in or to the Building
and the Premises (including structural repairs and repairs to the Building
systems, provided the need for same does not arise out of any of the
matters
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identified in clauses (a) through (d) of Section 14.1 or the third sentence
of said Section) except for those repairs for which Tenant or any other
tenant is responsible. If such repairs are to be performed within the
Premises, Landlord shall perform them, except in cases of emergency, upon
reasonable notice to Tenant. Notwithstanding anything to the contrary
contained in this Section 14.2, except in cases of emergency, any such
repairs performed within the Premises shall be performed by Landlord after
Business Hours (i) if such repairs would unreasonably interfere with the
normal conduct of Tenant's business or (ii) even if such repairs would not
interfere with the normal conduct of Tenant's business, if Tenant requests
that Landlord perform such repairs after Business Hours and agrees to pay the
additional cost incurred by Landlord as a result thereof.
14.3. Except as otherwise expressly provided in this Lease, Landlord
shall have no liability to Tenant, nor shall Tenant's obligations under this
Lease be reduced or abated in any manner, by reason of any inconvenience,
annoyance, interruption or injury to Tenant's business arising from
Landlord's making any repairs or changes which Landlord is required or
permitted to make hereunder, under any other agreement to which Landlord is a
party or pursuant to Legal Requirements or Insurance Requirements; provided,
however, Landlord shall use reasonable efforts to minimize interference with
Tenant's business in the Premises during the performance of any such repairs.
14.4. Landlord shall maintain and repair the Building as a first-class
office building in accordance with what are customarily considered to be the
standards for first-class office buildings in midtown Manhattan.
ARTICLE 15. Electric Energy
15.1. Landlord has installed a riser and feeder to furnish electric
service to the Premises. Such service shall provide 6 watts of connected
load per rentable square foot of the Premises for all of Tenant's power and
lighting requirements, including any supplemental air conditioning system(s),
computers or other electrical equipment installed by Tenant in the Premises
(but exclusive of electricity to operate the air conditioning
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equipment on the floors on which the Premises is located as
shown on Exhibit A (the "HVAC Units")). All transformers, panel boxes and
circuit breakers required in order to furnish the electric service to the
Premises described in this Section 15.1, shall be furnished and installed
as provided in Article 12 (if done as an Alteration).
15.2. Tenant shall obtain and pay for Tenant's supply of electric
current to the Premises by direct application to and arrangement with the
public utility company servicing the Building, which electric current shall
(subject to the provisions of Section 15.3) also serve the HVAC Units.
Tenant shall not use or install any fixtures, equipment or machines the use
of which in conjunction with other fixtures, equipment and machines in the
Premises would result in an overload of the electrical equipment supplying
electric current to the Premises. Tenant shall not permit its use of
electric current to exceed the lesser of (a) 6 watts per rentable square
foot of the Premises and (b) the capacity of the electrical distribution
system in the Premises.
15.3. Notwithstanding the provisions of Section 15.2, unless and until
the Premises include the entire rentable area of the 8th floor, the following
shall apply:
(a) For the purposes of this Section 15.3, Landlord and Tenant agree
that the term "Cost per Kilowatt Hour" shall mean the total cost for
electricity as charged to Landlord by the public utility company to service
the Premises, as measured by the meter servicing that portion of the Building
in which the Premises are located, during a particular time period (including
all applicable surcharges, demand charges, energy charges, fuel adjustment
charges, time of day charges, taxes and other sums payable in respect thereof
but deducting therefrom any utility company rebates) divided by the total
kilowatt hours for the entire 8th floor purchased by Landlord from the public
utility during such period. Tenant shall pay to Landlord, as Additional
Rent, an amount determined by applying the Cost per Kilowatt Hour to Tenant's
consumption of electricity within the Premises (other than for the HVAC
Units) as recorded on the submeter servicing the Premises (which shall be
installed
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by Landlord at its expense). Landlord shall render to Tenant current bills
for electricity Additional Rent on a monthly basis (If requested by Tenant at
such time, Landlord shall also provide a copy of the underlying utility
bill). If any tax is imposed upon Landlord's receipts from the sale of
electricity to Tenant by Federal, State or municipal authority, Tenant agrees
that, unless prohibited by law, Tenant's proportionate share of such taxes
shall be included in the bill of, and paid by, Tenant to Landlord, as
Additional Rent. The actual reasonable costs incurred by Landlord for meter
readings for the submeter and the actual reasonable costs incurred by
Landlord in the maintenance of such submeter shall be included in the bill
of, and paid by, Tenant to Landlord, as Additional Rent.
(b) The electric current serving the HVAC Units on the 8th floor will be
measured by a separate meter (the "HVAC Meter"). The supply of electric
current measured by the HVAC Meter shall be arranged for by Landlord with the
public utility company servicing the Building. Tenant shall pay to Landlord
for its share of such electric current, an amount which is in the same ratio
to the total cost to Landlord of all electric current measured by the HVAC
Meter as the amount of Tenant's electrical consumption for the 8th floor (as
measured in accordance with Section 15.3(a)) bears to the total electrical
consumption on the 8th floor (other than the electric current consumed by the
HVAC Units on the 8th floor).
15.4. Landlord shall not be liable or responsible to Tenant for any loss,
damage or expense that Tenant sustains or incurs if either the quantity or
character of electric service is changed or interrupted or is no longer
available or suitable for Tenant's requirements unless due to the negligence
or willful misconduct of Landlord, its agents, employees or contractors.
15.5. Landlord, at Tenant's request and Tenant's cost and expense, shall
furnish, install and replace, as required, all lighting tubes, lamps, bulbs
and ballasts required in the Premises at reasonably competitive prices
(except that Landlord shall have furnished and installed all of the
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foregoing at its sole cost and expense as of the Commencement Date). All
lighting tubes, lamps, bulbs and ballasts so installed shall become
Landlord's property upon the Expiration Date or sooner termination of this
Lease.
ARTICLE 16. Heat, Ventilation and Air-Conditioning
16.1. Landlord shall cause the HVAC Units on the floor on which the
Premises is located and which serves the Premises to perform in accordance
with the following design conditions:
Summer:
Outdoor Design Conditions: 89 F db, 75 F wb
Inside Conditions: 78 F db, 50% RH
Winter:
Outdoor Design Conditions: 5 F and 15 mph wind
Inside Temperature: 70 F
At all times during the Term, Landlord shall cause (a) the Building
heating, ventilation and air-conditioning system to provide outside air for
ventilation of not less than 2500 CFM for each floor of the Building on
which the Premises or any portion thereof is located and (b) the HVAC Units
to be inspected, monitored and maintained in accordance with the standard
recommended by the American Society of Heating, Refrigerating and Air
Conditioning Engineers, Inc. for such HVAC Units. Landlord shall, subject
to energy and water conservation Legal Requirements, furnish heat to the
perimeter fin tubes in the Premises and ventilation and air-conditioning to
Tenant's horizontal distribution system in the Premises, as may be
reasonably required (except as otherwise provided in this Lease and except
for any special requirements of Tenant arising from its particular use of
the Premises and except that Tenant shall pay for the electric current that
serves the HVAC Units as set forth in Section 15.3) for reasonably
comfortable occupancy of the Premises during Business Hours as provided
above. If Tenant requires heat, ventilation or air-conditioning at any
other time, Landlord shall furnish such service for such times, if required
for a Business Day, upon not less than three hours' advance notice from
Tenant and if required for a day other than a Business Day, upon notice
from Tenant given not later than 3:00 p.m. on the Business
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Day immediately preceding such other day. Tenant shall pay to Landlord,
within 30 days after demand, Landlord's overtime charge for heating and/or
ventilating the Premises, which is $40 per hour for each floor of the
Premises for which such overtime service is requested by Tenant (which shall
be prorated to the extent other tenants on the 8th floor request overtime for
the same period), subject to CPI Adjustment. If Tenant gives Landlord
shorter notice than as provided above, Landlord shall use reasonable efforts,
but shall not be required, to comply with such request.
16.2. The performance by Landlord of its obligations under Section 16.1
is conditioned upon Tenant's connected load not exceeding 4 watts per
rentable square foot in the Premises and upon the occupancy of the Premises
not exceeding one individual per 125 rentable square feet in the Premises.
Use of the Premises or any part thereof in a manner exceeding the heating,
ventilating and/or air-conditioning design conditions (including occupancy
and connected electrical load), or rearrangement of partitioning which
interferes with normal operation of the heating, ventilation and/or
air-conditioning in the Premises, or the use of computer or data processing
machines or other machines or equipment, may require changes in the heating,
ventilating and/or air-conditioning systems servicing the Premises in order
to provide comfortable occupancy. Such changes shall be made at Tenant's
expense as Alterations in accordance with the provisions of Article 12, but
only to the extent permitted and upon the conditions set forth in that
Article.
ARTICLE 17. Other Services, Service Interruption
and Building Directory
17.1. Landlord shall make available to the floor on which the Premises is
located hot and cold water for drinking, pantry, lavatory and normal cleaning
purposes in the restrooms. If Tenant uses water for any other purpose,
Landlord may install and maintain, at Tenant's expense, meters to measure
Tenant's consumption of such cold water and hot water for such other
purposes. Tenant shall reimburse Landlord, within 30 days after demand, for
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the cost of all cold water and hot water consumed by Tenant as shown on such
meters.
17.2. Landlord shall cause the Premises, including the exterior
and interior of the exterior windows, to be cleaned in a manner standard to
the Building which shall be substantially in accordance with the provisions
of Exhibit E. Landlord may change Exhibit E from time to time to the
extent required to conform to changes in union contracts covering persons
performing such services, in accordance with cleaning standards then
generally applicable to first-class office buildings in midtown Manhattan.
Landlord shall not be required to clean any portions of the Premises used
for the preparation, serving or consumption of food or beverages, training
rooms, data processing or reproducing operations or private lavatories or
toilets. Tenant shall pay to Landlord within 30 days after demand the
costs incurred by Landlord for (a) extra cleaning work in the Premises
required because of (i) the act, omission, misuse or neglect of or by
Tenant or any subtenant or licensee, or their respective employees, agents,
contractors or invitees, (ii) use of portions of the Premises for special
purposes requiring greater or more difficult cleaning work than required in
normal office areas, (iii) interior glass partitions or unusual quantity of
interior glass surfaces, and (iv) special materials or finishes on items
installed by Tenant or its subtenants, (b) collection and removal from the
Premises and the Building of any refuse or rubbish of Tenant in excess of
that ordinarily accumulated in general office occupancy or, at Tenant's
request, at times other than Landlord's standard cleaning times, and
(c) extra cleaning work required due to use of the Premises by Tenant or
any subtenant or licensee or their respective employees, agents,
contractors or invitees other than during Business Hours. The foregoing
costs shall be consistent with charges for similar services then generally
being performed in other first-class office buildings in midtown Manhattan,
taking into consideration the use and nature of the Premises and the work
in question. Promptly after Landlord determines
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that any such costs will be incurred, Landlord shall give Tenant notice
thereof.
17.3. Landlord shall provide passenger elevator service to the Premises
during Business Hours, and Landlord shall have at least one passenger
elevator subject to call at all other times. If Tenant requires freight
elevator service at any time, or more than one passenger elevator at any time
other than during Business Hours, Landlord shall use reasonable efforts to
furnish such service upon not less than five hours' advance notice from
Tenant if required for a Business Day and if required for a day other than a
Business Day, upon notice from Tenant given not later than 1:00 p.m. on the
Business Day immediately preceding such other day, and Tenant shall pay to
Landlord within 30 days after demand Landlord's then established charges
therefor. If other tenants simultaneously require any such elevator service
and Tenant is required to share the use of such service, then Tenant shall
only be required to pay its pro rata share, as reasonably determined by
Landlord, of such charges. The use of the elevators shall be subject to the
Rules and Regulations. In addition, Landlord agrees to provide Tenant, at
Landlord's sole cost and expense, up to ten (10) hours of freight elevator
service during non-Business Hours in connection with Tenant's move into the
Premises.
17.4. Landlord shall have the right, without affecting Tenant's
obligations under this Lease, to stop or interrupt or reduce service of any
of the heating, ventilating, air-conditioning, electric, sanitary, elevator,
sprinkler, water or other Building systems, or to stop or interrupt or reduce
any other services required of Landlord under this Lease (whether or not
specified in Article 16 or in this Article), whenever and for so long as may
be necessary, by reason of (a) Force Majeure Events or (b) the making of
repairs, additions, changes or replacements which Landlord is required or
permitted to make or in good faith deems reasonably necessary; provided,
however, Landlord shall use reasonable efforts to minimize interference with
Tenant's business in the Premises and shall make such repairs with reasonable
diligence. Tenant shall be entitled to an abatement of Fixed Rent and
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Additional Rent if, as a result of Landlord's acts or Force Majeure Events,
there is a loss of access or services which renders the Premises untenantable
for seven (7) consecutive days and Tenant in fact does not use or occupy the
Premises during that period. Such abatement of Fixed Rent shall begin on the
eleventh day and shall be in addition to any other rights or remedies of
Tenant under this Lease.
17.5. Landlord, at Tenant's request, shall maintain listings on the
Building directory of the names of Tenant and any of Tenant's officers,
affiliates and employees and any permitted subtenants or occupants of Tenant,
provided that the names so listed shall not use more than Tenant's Operating
Percentage of the space on the Building directory. Notwithstanding the
foregoing, Landlord shall maintain not less than 25 listings for the benefit
of Tenant and any permitted subtenants of Tenant.
ARTICLE 18. Access, Notice of Occurrences, Windows,
Name of Building and No Dedication
18.1. Except for (a) the space below the hung ceiling and above the floor
and bounded by the interior surfaces of the walls, windows and doors bounding
the Premises, and (b) the space above the hung ceiling in which Tenant is
permitted to install, maintain, operate, repair and replace Tenant's Work and
Alterations, all of the Building, including exterior Building walls, core
corridor walls and doors and any core corridor entrances, any terraces or
roofs adjacent to the Premises and any space in or adjacent to the Premises
used for shafts, stacks, pipes, conduits, fan rooms, ducts, electric or other
utilities, sinks or other Building facilities, and the use thereof, as well
as access thereto through the Premises for the purposes of operation,
maintenance, decoration and repair, are reserved to Landlord. Landlord shall
have the right, at any time, without affecting any of Tenant's obligations
under this Lease, to install, erect, use and maintain pipes, ducts and
conduits in and through the Premises upon reasonable notice to Tenant (except
in the case of emergencies) and to make such changes, alterations, additions
and improvements in or to the Building and Common Areas as Landlord deems
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necessary or desirable, provided the same do not reduce the rentable square
feet of the Premises by more than a de minimis amount or interfere with the
conduct of Tenant's business in the Premises. Landlord shall use
reasonable efforts in such instances to minimize interference with Tenant's
business in the Premises and Landlord shall repair or cause to be repaired
any damage caused to the Premises as a result of the exercise of any such
right.
18.2. Landlord and its agents shall have the right to enter and/or pass
through and/or be on the Premises at any time or times to examine the
Premises and to show it to actual or prospective Superior Lessors or Superior
Mortgagees or prospective purchasers of the Building at reasonable times
(except in the case of emergencies) on reasonable notice (except in the case
of emergencies). Landlord, its agents and contractors (including cleaning
contractors) and their respective employees (a) shall have the right to enter
and/or pass through and/or be on the Premises at reasonable times (except in
the case of emergencies) on reasonable notice (except in the case of
emergencies) to make such repairs, alterations and improvements in or to the
Building as Landlord is required or desires to make (except that access for
Landlord's cleaning contractors and its employees to clean the Premises on
Business Days shall only be from 6:00 p.m. to 8:00 a.m. and shall not require
notice), and (b) shall have the right to use, without charge therefor, all
light, power and water in the Premises while making repairs or alterations in
the Premises. Landlord shall have the right to take all materials into and
on the Premises that may be reasonably required in connection therewith and
such acts shall not be deemed an actual or constructive eviction and shall
have no effect upon Tenant's obligations under this Lease. During the period
of 6 months prior to the Expiration Date, Landlord and its agents may exhibit
the Premises at reasonable times to prospective tenants on reasonable notice
to Tenant. Landlord shall use reasonable efforts not to interfere with the
conduct of Tenant's business in the Premises and shall proceed with
reasonable diligence when Landlord enters and/or passes through and/or is on
the Premises and/or makes Building repairs, alterations and improvements
therein pursuant
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to this Section 18.2, and Landlord shall make Building repairs, alterations
and improvements therein at times other than during Business Hours (except in
the case of emergencies) if such repairs, alterations or improvements would
interfere with the conduct of Tenant's business in the Premises.
18.3. If at any time any windows of the Premises are temporarily darkened
or obstructed by reason of any repairs, improvements, maintenance and/or
cleaning in or about the Building, or if any part of the Building other than
the Premises is temporarily or permanently closed or inoperable, same shall
not be deemed an actual or constructive eviction and, provided there is
reasonable access to the Premises, shall have no effect upon Tenant's
obligations under this Lease.
18.4. Landlord may adopt any name for the Building, and Landlord shall
have the right to change the name and/or address of the Building at any
time and from time to time.
18.5. Landlord and its agents shall have the right to permit access to
the Premises at any time, whether or not Tenant shall be present, (a) by any
receiver, trustee, sheriff, marshal or other public official entitled to, or
purporting to be entitled to, and demanding such access (i) for the purpose
of taking possession of or removing any Tenant's Property or the property of
any other occupant of the Premises, or (ii) for any other lawful purpose, or
(b) by any representative of the fire, police, building, sanitation or other
department or instrumentality of any borough, city, state or federal
government who demands such access (provided that in any such event if
Landlord has prior notice of such demand, Landlord shall use reasonable
efforts to notify Tenant thereof (except in the case of an emergency)).
Nothing contained in, nor any action taken by Landlord under this Section,
shall be deemed to constitute recognition by Landlord that any person other
than Tenant has any right or interest in this Lease or the Premises.
18.6. Tenant shall give notice to Landlord, promptly after Tenant has
notice of same, of (a) any occurrence in or about the Premises for which
Landlord might be liable, (b) any fire or other casualty in the Premises,
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(c) any damage to or defect in the Premises, including the fixtures,
equipment and appurtenances thereof, for the repair of which Landlord might
be responsible, and (d) any damage to or defect in any part of the Building's
sanitary, electrical, sprinkler, heating, ventilating, air-conditioning,
plumbing, elevator or other systems located in or passing through the
Premises.
18.7. If an excavation is made or is to be made upon land adjacent to or
under the Building, upon reasonable notice (except in the case of an
emergency) and at times reasonably approved by Tenant, subject to Legal
Requirements, Tenant shall afford to the person causing or authorized to
cause such excavation, license to enter the Premises for the purpose of
performing such work as said person deems necessary or desirable to preserve
and protect the Building from injury or damage and to support same by proper
foundations, and same shall not be deemed an actual or constructive eviction
and shall have no effect on Tenant's obligations under this Lease.
18.8. If Tenant is not present when for any reason entry into the
Premises is necessary or permissible, Landlord or Landlord's agents may enter
same by a master key, or may forcibly enter same, in the case of an emergency
or if requested by any person listed in Section 18.5, without rendering
Landlord or such agents liable therefor (if during such entry Landlord or
such agents accord reasonable care to Tenant's Property), and such entry
shall not be deemed an actual or constructive eviction and shall have no
effect upon Tenant's obligations under this Lease. Notwithstanding anything
which may be to the contrary hereinabove or in the Rules and Regulations,
Tenant shall have the right to install a security system in the Premises
which permits access by master codes or cards and keys, subject to Landlord's
approval, and Tenant shall be required to provide Landlord only with the
master codes, cards or keys for such system.
18.9. Landlord shall have the right to erect any gate, chain or other
obstruction or to close off any portion of the Property to the public at any
time to the extent necessary to prevent a dedication thereof for public
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use and at any time other than Business Hours to the extent Landlord deems
reasonably necessary for any other reason.
ARTICLE 19. Non-Liability and Indemnification
19.1. Except as otherwise specifically provided herein, neither Landlord
nor any Superior Lessor or Superior Mortgagee shall be liable to Tenant for
any loss, injury or damage to Tenant or to any other person, or to its or
their property, irrespective of the cause of such injury, damage or loss,
except to the extent caused by or resulting from the negligence or misconduct
of Landlord or the Superior Lessor or Superior Mortgagee or their respective
contractors, agents or employees, in the operation or maintenance of the
Premises or the Building. Neither Landlord nor any Superior Lessor or
Superior Mortgagee shall be liable (a) for any damage caused by other tenants
or persons in, on or about the Building, or (b) even if resulting from
negligence or willful misconduct, for consequential damages of Tenant or any
subtenant or licensee of Tenant or for punitive damages.
19.2. Notwithstanding any provision to the contrary, Tenant shall look
solely to the estate and property of Landlord in and to the Property in the
event of any claim against Landlord or any partner, director, officer, agent
or employee of Landlord arising out of or in connection with this Lease, the
relationship of Landlord and Tenant or Tenant's use of the Premises, and the
liability of Landlord arising out of or in connection with this Lease, the
relationship of Landlord and Tenant or Tenant's use of the Premises, shall be
limited to such estate and property of Landlord. No other properties or
assets of Landlord or any partner, director, officer, agent or employee of
Landlord shall be subject to levy, execution or other enforcement procedures
for the satisfaction of any judgment (or other judicial process) or for the
satisfaction of any other remedy of Tenant arising out of or in connection
with this Lease, the relationship of Landlord and Tenant or Tenant's use of
the Premises, and if Tenant acquires a lien on or interest in any other
properties or assets by judgment or otherwise, Tenant shall promptly release
such lien on or interest in such other properties and assets by executing,
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acknowledging and delivering to Landlord an instrument to that effect
prepared by Landlord's attorneys. Tenant hereby waives the right of specific
performance and any other remedy allowed in equity if specific performance or
such other remedy could result in any liability of Landlord for the payment
of money to Tenant or any court or governmental authority (by way of fines or
otherwise) for Landlord's failure or refusal to perform or observe a judicial
decree or determination, unless Tenant looks solely to the estate and
property of Landlord in and to the Property to satisfy such payment. The
foregoing provisions are not intended to, and shall not, limit any right
Tenant may otherwise have to obtain (i) injunctive relief or other equitable
relief to the extent allowed by law except as otherwise provided above; and
(ii) proceeds actually received from any insurance maintained by Landlord.
19.3. Tenant shall indemnify Landlord against liability in connection
with (a) the conduct or management of the Premises or of any business
therein, or any work or thing done, or any condition created (other than by
Landlord or its employees, agents, contractors or invitees) in or about the
Premises during the Term, (b) any negligence or willful misconduct of Tenant
or any subtenant or licensee or their respective employees, agents,
contractors or invitees relating to the Premises or the Property or any
portion thereof, (c) any accident, injury or damage (unless caused by the
negligence or willful misconduct of Landlord, its employees, agents,
contractors or invitees) occurring in, at or upon the Premises, (d) the
failure of Tenant or any subtenant or licensee or their respective employees,
agents, contractors or invitees to comply with Legal Requirements and
Insurance Requirements or (e) any other breach or default by Tenant under
this Lease. Subject to the provisions of Section 10.4 and this Article 19,
Landlord shall indemnify Tenant against liability finally determined by a
court of competent jurisdiction to have arisen or been caused by a breach or
default by Landlord under this Lease, or to have arisen from or been caused
by any negligent act or willful misconduct of Landlord, its employees,
agents, or contractors or to
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have resulted from any other matter arising out of Landlord's ownership of
the Building. In the event of a liability as to which Tenant shall assert
that it is entitled to indemnification by Landlord under this Section 19.3
and as to which Landlord shall assert that it is entitled to indemnification
by Tenant under this Section 19.3, then, notwithstanding the preceding
provisions of this Section 19.3, unless it is otherwise finally determined by
a court of competent jurisdiction, (x) such liability shall be deemed to be a
liability as to which Tenant is required to indemnify Landlord, if and to the
extent that such matter relates to occurrences within the Premises, and (y)
such liability shall be deemed to be a liability as to which Landlord is
required to indemnify Tenant, if and to the extent that such matter relates
to occurrences without the Premises. Notwithstanding anything to the
contrary in this Lease, neither party hereunder shall be liable for
consequential or punitive damages.
ARTICLE 20. Damage or Destruction
20.1. If the Building is partially or totally damaged or destroyed by
fire or other casualty (and this Lease is not terminated as provided in this
Article), Landlord shall repair the damage and restore and rebuild the
Building (except for Tenant's Property) with reasonable diligence after
notice to it of the damage or destruction and the collection of the insurance
proceeds attributable to such damage or destruction. If Tenant is conducting
business in the Premises during the period of repair and restoration,
Landlord shall use reasonable efforts to minimize interference with Tenant's
business in the Premises during the performance of such repairs.
20.2. Notwithstanding the provisions of Section 20.1 and subject to the
provisions of Section 20.5, if all or part of the Premises is damaged or
destroyed or rendered completely or partially untenantable by fire or other
casualty, Fixed Rent and any Additional Charges payable under Article 4 and
Article 5 shall be reduced in the proportion that the untenantable area of
the Premises bears to the total area of the Premises for the period from the
date of the damage or destruction to (a) 5 days after the date the damage to
the
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Premises is substantially repaired so as to permit Tenant to restore any
damaged Tenant's Property, or (b) if the Building and not the Premises is so
damaged or destroyed, 5 days after the date on which the Premises is made
tenantable; provided, however, should Tenant reoccupy a portion of the
Premises during the period in which repair work is taking place and prior to
the date the Premises is substantially repaired or made tenantable, Fixed
Rent and any Additional Charges payable under Article 4 and Article 5
allocable to such reoccupied portion, based upon the proportion which the
rentable square feet of the reoccupied portion of the Premises bears to the
entire rentable square feet of the Premises, shall be payable by Tenant from
the date of such occupancy. Notwithstanding the foregoing, whether or not the
Premises is damaged, if Tenant is unable to obtain safe access to the
Premises and in fact discontinues its use of the Premises by reason of such
inability to obtain safe access, then Fixed Rent and Additional Charges shall
fully abate until such time as safe access is restored.
20.3. Notwithstanding the provisions of Section 20.1, if the Building is
so damaged or destroyed by fire or other casualty (whether or not the
Premises is damaged or destroyed) that its repair or restoration requires the
expenditure (as estimated by a reputable contractor or architect designated
by Landlord) of more than 25% of the full insurable value of the Building
immediately prior to the fire or other casualty, and leases covering at least
50% of the space in the Building are cancelled as a result thereof, then
Landlord may terminate this Lease by giving Tenant notice to such effect
within 90 days after the date of the fire or other casualty and Fixed Rent
and any Additional Charges payable under Article 4 and Article 5 shall be
prorated and adjusted as of the date of termination, which date shall not be
sooner than the tenth day after such notice is given. Any prepaid portion of
Fixed Rent or Additional Charges for any period following the effective date
of termination shall be refunded by Landlord to Tenant.
20.4. Except as otherwise expressly provided in this Section 20, Tenant
shall not be entitled to terminate this Lease and no damages,
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compensation or claim shall be payable by Landlord for inconvenience, loss
of business or annoyance arising from any repair or restoration of any
portion of the Premises or of the Building pursuant to this Article.
Landlord shall use reasonable efforts to make such repair or restoration in
such manner as not unreasonably to interfere with Tenant's use and
occupancy of the Premises and shall perform such repair or restoration with
reasonable diligence, but Landlord shall not be required to do such repair
or restoration work at times other than during Business Hours.
Notwithstanding anything to the contrary contained in this Section 20.4, if
(a) all or substantially all of the Premises is rendered untenantable by a
fire or other casualty, and (b) Landlord shall reasonably estimate that the
time required for the repair or restoration of such damage or destruction
is in excess of 90 days, then either party, at its option, may elect to
terminate this Lease as of the date such fire or other casualty occurred,
as if such date were the Expiration Date. Landlord shall notify Tenant of
such estimate within 10 days after demand therefor. Notwithstanding the
foregoing, if the Premises is damaged by fire or other casualty, and
Landlord fails to commence the repair and restoration of the Premises
within 90 days after such damage, subject to Force Majeure Events, or
Landlord fails to substantially complete the repair and restoration of the
Premises within 270 days after such casualty, subject to Force Majeure
Events, then Tenant shall have the right to terminate this Lease upon
notice to Landlord within 10 days following the date Tenant's right to
terminate this Lease first arises under this sentence. In the event of
such termination, any prepaid portion of Fixed Rent or Additional Charges
for any period following the date such damage occurs shall be refunded by
Landlord to Tenant, except to the extent Tenant continued to use and occupy
the Premises for the conduct of its business, in which event such refund
shall be equitably adjusted to the portion of the Premises which Tenant did
not so use and occupy as the result of such damage.
20.5. Notwithstanding the foregoing provisions of this Article, if by
reason of gross negligence or willful misconduct on the part of Tenant
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or any subtenant or licensee or its or their respective employees, agents,
contractors or invitees, Landlord or any Superior Lessor or Superior
Mortgagee is unable to collect all or substantially all the rent insurance
proceeds, then, without prejudice to any other remedies which may be
available against Tenant, any reduction of Fixed Rent or Additional Charges
provided for herein shall be reduced by the amount by which such rent
insurance proceeds have been so reduced. Further, nothing contained in this
Article 20 shall relieve Tenant from any liability that may exist as a result
of any damage or destruction by fire or other casualty.
20.6. Landlord will not carry insurance of any kind on Tenant's Property
and shall not be obligated to repair any damage to or replace Tenant's
Property.
20.7. The provisions of this Article shall be deemed an express agreement
governing any case of damage or destruction of the Premises by fire or other
casualty, and Section 227 of the Real Property Law of the State of New York,
providing for such a contingency in the absence of an express agreement, and
any other law of like import, now or hereafter in force, shall have no
application in such case and are hereby waived by the parties hereto.
ARTICLE 21. Eminent Domain
21.1. Except as otherwise provided in Section 21.5, if the whole of the
Building or the Premises is taken by condemnation or in any other manner for
any public or quasi-public use or purpose, this Lease shall terminate as of
the date of vesting of title on such taking ("Date of Taking"), and Fixed
Rent and any Additional Charges payable under Article 4 and Article 5 shall
be prorated and adjusted as of such date. Landlord shall give Tenant notice
of any such condemnation proceedings within 10 days after Landlord receives
notice of same.
21.2. Except as otherwise provided in Section 21.5, if any part of the
Building or the Land is so taken, this Lease shall be unaffected by such
taking, except that (a) if leases (including this Lease) covering 50% of the
rentable square feet in the Building are being cancelled, Landlord or
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Tenant may, at its option, terminate this Lease by giving the other party
notice to that effect within 90 days after the Date of Taking, and (b) if 10%
or more of the Premises is so taken and the remaining area of the Premises is
not reasonably sufficient (in Tenant's reasonable judgment) for Tenant to
continue a viable operation of its business, or if by reason of such
acquisition Tenant no longer has a reasonable means of access to the
Premises, Tenant may terminate this Lease by giving Landlord notice to that
effect within 90 days after the Date of Taking. This Lease shall terminate
on the date that such notice from Tenant to Landlord shall be given or 90
days after the date such notice from Landlord to Tenant shall be given, as
the case may be, and Fixed Rent and Additional Charges shall be prorated and
adjusted as of the earlier of the (i) Date of Taking or (ii) such
termination. Upon such partial taking and this Lease continuing in force as
to any part of the Premises, Fixed Rent, Tenant's Tax Percentage, and
Tenant's Operating Percentage shall be equitably adjusted according to the
rentable area remaining.
21.3. Except as otherwise provided in Section 21.5, Landlord shall be
entitled to receive the entire award or payment in connection with any taking
without deduction therefrom for any estate vested in Tenant by this Lease or
otherwise and Tenant shall receive no part of such award. Tenant hereby
assigns to Landlord all of Tenant's right, title and interest in and to all
such awards or payments. The foregoing, however, shall not preclude Tenant
from recovering a separate award for Tenant's moving expenses, loss of
business and Tenant's Property if such award does not reduce and is not
payable out of the award for the Property.
21.4. Except as otherwise provided in Section 21.5, in the event of any
taking of less than the whole of the Building and/or Land which does not
result in termination of this Lease, Landlord, whether or not any award or
awards shall be sufficient for the purpose, shall proceed with reasonable
diligence to repair the remaining parts of the Building (other than Tenant's
Property) to substantially their former condition to the extent that same is
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feasible (subject to reasonable changes which Landlord deems reasonably
necessary and desirable) and so as to constitute the Building complete and
tenantable. Landlord shall use reasonable efforts to minimize interference
with Tenant's business in the Premises during the performance of any such
repairs.
21.5. If the temporary use or occupancy of all or any part of the
Premises is taken by condemnation or in any other manner for any public or
quasi-public use or purpose, this Lease and the Term shall remain unaffected
by such taking and Tenant shall continue to be responsible for all of its
obligations under this Lease (except to the extent prevented from so doing by
reason of such taking). In such event, the Fixed Rent and any Additional
Charges payable under Article 4 and Article 5 shall be reduced for the period
of such taking, in the proportion that the part of the Premises so taken
bears to the total area of the Premises. Landlord shall be entitled to
claim, prove and receive the entire award.
ARTICLE 22. Surrender and Holding Over
22.1. On the Expiration Date or on any earlier termination of this Lease
or on any reentry by Landlord on the Premises, Tenant shall quit and
surrender the Premises to Landlord "broom clean" and in good order, condition
and repair, except for ordinary wear and tear, damage or destruction by fire
and other casualty and such other damage as Landlord is required to repair or
restore under this Lease, and Tenant shall remove all Tenant's Property
therefrom except as otherwise expressly provided in this Lease. No act or
thing done by Landlord or its agents or employees shall be deemed an
acceptance of a surrender of this Lease or the Premises, and no agreement to
accept such surrender prior to the Expiration Date shall be valid unless in
writing and signed by Landlord.
22.2. If Tenant remains in possession of the Premises after the
termination of this Lease without the execution of a new lease, Tenant, at
the option of Landlord, shall be deemed to be occupying the Premises as a
tenant from month to month, subject to all of the other terms and conditions
of this
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Lease insofar as the same are applicable to a month-to-month tenancy, but at
a monthly rental equal to the greater of (a) 150% of the monthly Fixed Rent
last payable by Tenant hereunder, plus all Additional Charges payable
hereunder, and (b) Landlord's then asking price, on a monthly basis, for
comparable space in the Building (or, if Landlord has no asking price, the
monthly rental equal to the prevailing rate for comparable space in
comparable buildings in the vicinity of the Building). Nothing contained in
this Section shall (i) imply any right of Tenant to remain in the Premises
after the termination of this Lease without the execution of a new lease,
(ii) imply any obligation by Landlord to grant a new lease or (iii) be
construed to limit any right or remedy that Landlord has against Tenant as a
holdover tenant or trespasser.
22.3. Tenant expressly waives, for itself and for any person claiming
through or under Tenant, any rights which Tenant or any such person may have
under the provisions of Section 2201 of the New York Civil Practice Law and
Rules and of any similar or successor law of same import then in force, in
connection with any holdover proceedings which Landlord may institute to
enforce the terms and conditions of this Lease.
ARTICLE 23. Default
23.1. This Lease is subject to the limitations that whenever Tenant makes
an assignment for the benefit of creditors, or files a voluntary petition
under any of the Insolvency Laws, or an involuntary petition alleging an act
of bankruptcy or insolvency is filed against Tenant under any Insolvency
Laws, or whenever a petition is filed by or against Tenant under the
reorganization provisions of any Insolvency Laws, or whenever a petition is
filed by Tenant under the arrangement provisions of any Insolvency Laws, or
whenever a receiver of Tenant or of or for the property of Tenant is
appointed, then each of such events shall constitute an event of default
under this Lease and Landlord (a) if such event occurs without the
acquiescence of Tenant, at any time after the event continues for 90 days, or
(b) in any other case at any time after the occurrence of any such event, may
give Tenant a notice of intention to terminate this Lease at the expiration
of 10 days from
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the date of service of such notice of intention, and upon the expiration of
said 10-day period this Lease, whether or not the Term had commenced, shall
terminate with the same effect as if that day were the Expiration Date, but
Tenant shall remain liable for damages as provided in Article 25.
23.2. This Lease is subject to the further limitations that:
(a) if Tenant defaults in the payment of any Fixed Rent or Regularly
Occurring Additional Charges and such default continues for 5 Business Days
after Landlord gives Tenant notice of such default (except that if Citibank,
N.A. or any successor or assign of Citibank, N.A. becomes the Landlord
hereunder, no such notice shall be required after the second such payment
default in any Lease Year), or
(b) if Tenant defaults in the payment of any Additional Charges (other
than Regularly Occurring Additional Charges) and such default continues for
10 Business Days after Landlord gives Tenant notice of such default, or
(c) if Tenant, whether by action or inaction, is in material default of
any other of its obligations under this Lease (other than a default in the
payment of Fixed Rent or Additional Charges) and such default continues and
is not remedied within 30 days after Landlord gives to Tenant a notice
specifying the same, or, in the case of a material default which because of
its nature or Force Majeure Events Tenant cannot with due diligence cure
within a period of 30 days and the continuance of which for the period
required for cure will not (i) subject Landlord or any Superior Lessor or
Superior Mortgagee to prosecution for a crime (as more particularly described
in Section 9.2) or (ii) result in the termination of any Superior Lease or
foreclosure of any Superior Mortgage, if Tenant does not, (x) within said
30-day period advise Landlord of Tenant's intention to take all steps
necessary to remedy such default, (y) duly commence within said 30-day period
and thereafter diligently prosecute to completion all steps necessary to
remedy the default, and (z) complete such remedy within a reasonable time
after the date of said notice from Landlord, subject to Force Majeure Events,
or
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(d) if any event occurs or any contingency arises whereby this
Lease, by operation of law or otherwise, devolves upon or passes to any
person other than Tenant, except as expressly permitted by Article 8, or
(e) if Tenant abandons the Premises, or
(f) if Tenant defaults under any other lease of space in the
Building which default is not remedied within the applicable grace period,
if any, provided therefor under such other lease, then each of such events
shall constitute an event of default under this Lease and in any of said
cases Landlord may give to Tenant a notice of intention to terminate this
Lease at the expiration of 20 days from the date of the service of such
notice of intention, and upon the expiration of said 20-day period this
Lease, whether or not the Term had commenced, shall terminate with the same
effect as if that day were the Expiration Date, but Tenant shall remain
liable for damages as provided in Article 25.
ARTICLE 24. Re-entry by Landlord
24.1. If this Lease terminates as provided in Article 23,
Landlord or Landlord's agents may immediately or at any time thereafter
re-enter the Premises, or any part thereof, either by summary dispossess
proceedings or by any suitable action or proceeding at law, or by force or
otherwise, without being liable for indictment, prosecution or damages
therefor, and may repossess same, and may remove any person therefrom, to
the end that Landlord may have, hold and enjoy the Premises. The word
"re-enter," as used herein, is not restricted to its technical legal
meaning. If this Lease is terminated under the provisions of Article 23,
or if Landlord re-enters the Premises under the provisions of this Article,
or in the event of the termination of this Lease, or of re-entry, by or
under any summary dispossess or other proceeding or action or any provision
of law by reason of default hereunder on the part of Tenant, Tenant shall
thereupon pay to Landlord Fixed Rent and Additional Charges payable to the
time of such termination of this Lease, or of such recovery of possession
of the Premises
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by Landlord, as the case may be, and shall also pay to Landlord damages as
provided in Article 25.
24.2. In the event of a breach or threatened breach by Tenant of
any of its obligations under this Lease, Landlord shall also have the right
of injunction. The special remedies to which Landlord may resort hereunder
are cumulative and are not intended to be exclusive of any other remedies
to which Landlord may lawfully be entitled at any time and Landlord may
invoke any remedy allowed at law or in equity as if specific remedies were
not provided for herein.
24.3. If this Lease is terminated under the provisions of
Article 23, or if Landlord re-enters the Premises under the provisions of
this Article, or in the event of the termination of this Lease, or of
re-entry, by or under any summary dispossess or other proceeding or action
or any provision of law by reason of default hereunder on the part of
Tenant, Landlord shall be entitled to retain all monies, if any, paid by
Tenant to Landlord, whether as advance rent, security or otherwise, but
such monies shall be credited by Landlord against any Fixed Rent or
Additional Charges due from Tenant at the time of such termination or
re-entry or, at Landlord's option, against any damages payable by Tenant
under Article 25 or pursuant to law. In the event there are excess monies,
Landlord shall refund the excess to Tenant.
ARTICLE 25. Damages
25.1. If this Lease is terminated under the provisions of
Article 23, or if Landlord re-enters the Premises under the provisions of
Article 24, or in the event of the termination of this Lease, or of
re-entry, by or under any summary dispossess or other proceeding or action
or any provision of law by reason of default hereunder on the part of
Tenant, Tenant shall pay to Landlord as damages, at the election of
Landlord, either:
(a) a sum which at the time of such termination of this Lease or
at the time of any such re-entry by Landlord, as the case may be,
represents the then value of the excess, if any, of (i) the aggregate
amount of Fixed Rent and Additional Charges which would have been
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payable by Tenant (conclusively presuming the average monthly
Additional Charges to be the same as were payable for the year (or in
the event same were abated for any reason, the amount which would have
been payable in the absence of such abatement), or if less than 365
days have then elapsed since the Commencement Date, the partial year,
immediately preceding such termination or re-entry) for the period
commencing with such earlier termination of this Lease or the date of
any such re-entry, as the case may be, and ending with the date that
would have been the Expiration Date if this Lease had not so
terminated or if Landlord had not so re-entered the Premises, over
(ii) the aggregate rental value of the Premises for the same period,
both discounted to their present value at the rate of 8% per annum, or
(b) sums equal to the Fixed Rent and Additional Charges which
would have been payable by Tenant had this Lease not so terminated, or
had Landlord not so re-entered the Premises, payable upon the due
dates therefor (as provided in this Lease) following such termination
or such re-entry until the date that would have been the Expiration
Date if this Lease had not so terminated or if Landlord had not so
re-entered the Premises; provided, however, that if Landlord shall
relet the Premises during said period, Landlord shall credit Tenant
with the net rents received by Landlord from such reletting, such net
rents to be determined by first deducting from the gross rents as and
when received by Landlord from such reletting the expenses incurred by
Landlord in terminating this Lease or in re-entering the Premises and
in securing possession thereof, as well as the commercially reasonable
expenses of reletting, including altering and preparing the Premises
for new tenants, brokers' commissions, attorneys' fees and
disbursements, and all other reasonable expenses, it being understood
that any such reletting may be for a period shorter or longer than
what would have been the unexpired portion of the Term if this Lease
had not so terminated or if Landlord had not so re-entered the
Premises, but in no
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event shall Tenant be entitled to receive any excess of such net rents
over the sums payable by Tenant to Landlord hereunder, nor shall
Tenant be entitled in any suit for the collection of damages pursuant
to this subdivision to a credit in respect of any net rents from a
reletting, except to the extent that such net rents are actually
received by Landlord. If the Premises or any part thereof is relet
in combination with other space, then proper apportionment on a per
square foot basis shall be made of the rent received from such reletting
and of the expenses of reletting.
If the Premises or any part thereof is relet by Landlord, in an arm's
length transaction entered into with a non-affiliate of Landlord, for what
would have been the unexpired portion of the Term if this Lease had not so
terminated, or if Landlord had not so re-entered the Premises, before
presentation of proof of such damages to any court, commission or tribunal,
the amount of rent set forth in any such lease(s) in connection with such
reletting shall, prima facie, be the fair and reasonable rental value for
the Premises, or part thereof, so relet during the term of the reletting.
Landlord shall have the right to relet the Premises or any part thereof in
Landlord's name or otherwise at such rental or rentals and upon such other
terms and conditions, which may include concessions and free rent periods,
as Landlord, in its reasonable business judgment, shall determine.
Landlord shall not be liable in any way for its failure or refusal to relet
the Premises or any part thereof, or if the Premises or any part thereof is
relet, for its failure to collect the rent under such reletting, and no
such refusal or failure to relet or failure to collect rent shall release
or affect Tenant's liability for damages or otherwise under this Lease.
25.2. Suit or suits for the recovery of such damages, or any
installments thereof, may be brought by Landlord from time to time at its
election, and nothing contained herein shall be deemed to require Landlord
to postpone suit until the date when the Term would have expired if this
Lease had not so terminated or had Landlord not so re-entered the Premises.
Nothing
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herein contained shall be construed to limit or preclude recovery
by Landlord against Tenant of any sums or damages to which, in addition to
the damages particularly provided above, Landlord may lawfully be entitled
by reason of any default of Tenant hereunder. Nothing herein contained
shall be construed to limit or prejudice the right of Landlord to prove for
and obtain as damages by reason of the termination of this Lease or
re-entry on the Premises for the default of Tenant under this Lease an
amount equal to the maximum allowed by any statute or rule of law in effect
at the time when, and governing the proceedings in which, such damages are
to be proved whether or not such amount is greater than, equal to, or less
than any of the sums referred to in Section 25.1.
25.3. In addition, if this Lease is terminated under the
provisions of Article 23, or if Landlord re-enters the Premises under the
provisions of Article 24, Tenant agrees that:
(a) the Premises then shall be in the same condition as that in
which Tenant has agreed to surrender the same to Landlord on the Expiration
Date, and
(b) for the breach of any obligation of Tenant set forth above
in this Section, Landlord shall be entitled immediately, without notice or
other action by Landlord, to recover, and Tenant shall pay as and for
liquidated damages therefor the reasonable cost of performing such
obligation (as estimated by an independent contractor selected by
Landlord).
25.4. Tenant acknowledges that, to induce Tenant to enter into
this Lease, Landlord has incurred significant costs, including some or all
of the following: (i) expenditures incurred to prepare the Premises for
Tenant's occupancy, including, without limitation, any amounts paid to or
on behalf of Tenant by Landlord in respect thereof and (ii) rent abatements
or concessions (collectively, the "Inducements"). Tenant further
acknowledges that Landlord would not have granted the Inducements to Tenant
but for Tenant's agreement to perform all of the terms, covenants,
conditions and agreements to be performed by it under this Lease for the
entire Term. Accordingly, if an event of
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default shall occur hereunder and remain uncured beyond any applicable notice
and cure periods (an "Event of Default"), Tenant shall pay as liquidated
damages for granting the Inducements and not as a penalty, with the next
monthly installment of Fixed Rent ensuing after the occurrence of the Event
of Default, as Additional Charges, the unamortized portion of those
Inducements incurred or granted prior to the date of the Event of Default
(the "Pre-Default Inducements"). For the purposes hereof, the unamortized
portion of the Pre-Default Inducements shall be the product of (i) the
Pre-Default Inducements and (ii) a fraction, the numerator of which shall be
the number of months and/or portions thereof from the date of the occurrence
of the Event of Default to the Expiration Date, not to exceed the number of
months in which Tenant is obligated to pay Rent hereunder without any
abatement or concession, and the denominator of which shall be the number of
months and/or portions thereof in the Term less the number of months in the
Term in which rent concessions and/or abatements are granted to Tenant.
Landlord may or, at Tenant's request, shall, after the occurrence of an Event
of Default, forward a statement to Tenant setting forth the unamortized
portion of the Pre-Default Inducements, but the failure to deliver such a
statement shall not be or be deemed to be a waiver of the right to collect
the unamortized Pre-Default Inducements or extend the date upon which such
obligation shall be due and payable.
ARTICLE 26. Waivers
26.1. Tenant, on behalf of itself and any and all persons
claiming through or under Tenant, does hereby waive and surrender all right
and privilege which it, they or any of them might have under or by reason
of any present or future law, to redeem the Premises or to have a
continuance of this Lease after being dispossessed or ejected therefrom by
process of law or under the terms of this Lease or after the termination of
this Lease.
26.2. If Tenant is in arrears in payment of Fixed Rent or Additional
Charges, Tenant waives its right, if any, to designate the items to which
any payments made by Tenant are to be credited, and Landlord may apply
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any payments made by Tenant to such items as Landlord sees fit, irrespective
of any designation or request by Tenant as to the items to which any such
payments shall be credited.
26.3. Landlord and Tenant hereby waive trial by jury in any
action, proceeding or counterclaim brought by either against the other on
any matter arising out of or in any way connected with this Lease, the
relationship of Landlord and Tenant, Tenant's use or occupancy of the
Premises, including any claim of injury or damage, and any emergency and
other statutory remedy in respect thereof.
26.4. Tenant shall not interpose any counterclaim (other than a
compulsory counterclaim) in any summary proceeding commenced by Landlord to
recover possession of the Premises and shall not seek to consolidate such
proceeding with any action which may have been or will be brought by Tenant
or any other person.
26.5. The failure of either party to insist in any one or more
instances upon the strict performance of any one or more of the obligations
contained in this Lease, or to exercise any election herein contained,
shall not be construed as a waiver or relinquishment for the future of the
performance of such one or more obligations contained in this Lease or of
the right to exercise such election, but same shall continue and remain in
full force and effect in respect of any subsequent breach, act or omission.
The receipt by Landlord of Fixed Rent or Additional Charges with knowledge
of breach by Tenant of any obligation contained in this Lease shall not be
deemed a waiver of such breach.
ARTICLE 27. Curing Tenant's Defaults and
Costs of Enforcement
27.1. If Tenant defaults in the performance of any of Tenant's
obligations under this Lease, Landlord, without thereby waiving such
default, may (but shall not be obligated to) perform same for the account
and at the expense of Tenant, without notice in case of emergency, and in
any other case only if such default continues after notice from Landlord
and the expiration
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of any applicable grace periods. Bills for any expenses incurred by Landlord
in connection with any such performance by it for the account of Tenant, and
bills for all reasonable costs, expenses and disbursements of every kind and
nature, including reasonable attorneys' fees and disbursements, involved in
collecting or endeavoring to collect Fixed Rent or Additional Charges or
enforcing or endeavoring to enforce any rights against Tenant, under or in
connection with this Lease or pursuant to law, including any such reasonable
cost, expense and disbursement involved in instituting and prosecuting
summary proceedings or in recovering possession of the Premises after default
by Tenant or upon the Expiration Date or sooner termination of this Lease,
and interest on all sums advanced by Landlord under this Section at the Lease
Interest Rate, may be sent by Landlord to Tenant monthly, or immediately, at
Landlord's option, and such amounts shall be due and payable in accordance
with the terms of such bills (but in no event sooner than 30 days after the
date of delivery of each such bill).
ARTICLE 28. Broker
28.1.(a) Tenant represents and warrants that no brokers except
Cushman & Wakefield, Inc. and Mitchell Special Services, Inc. (collectively
the "Broker") procured this Lease and that Tenant had no conversations or
negotiations with any broker except Broker concerning the leasing of the
Premises. Tenant shall indemnify Landlord against liability in connection
with a breach of Tenant's representation and warranty in this Section and
in connection with any claim for a brokerage commission arising out of any
conversations or negotiations had by Tenant with any broker other than
Broker.
(b) Landlord represents and warrants that no broker except
Broker procured this Lease and that Landlord had no conversations or
negotiations with any broker except Broker concerning the leasing of the
Premises to Tenant. Landlord shall indemnify Tenant against liability in
connection with a breach of Landlord's representation and warranty in this
Section and in connection with any claim for brokerage commissions arising
out of any conversations or negotiations had by Landlord with any broker other
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than Broker. Landlord agrees to pay any commission due to Broker pursuant to
separate agreement between Landlord and Broker.
(c) The provisions of this Article 28 shall survive the
termination of this Lease.
ARTICLE 29. Notices
29.1. Any notice, demand, consent, approval or other
communication required or permitted to be given by either party to the
other or to any Superior Lessor or Superior Mortgagee (collectively,
"Notices" and individually, "Notice") must be in writing and, except as
otherwise provided in the succeeding Sections, shall be deemed to have been
properly given only if sent by registered or certified mail, return receipt
requested, posted in a United States post office station or letter box in
the continental United States (excluding statements of amounts due which
will be given by (a) hand delivery, (b) regular mail, (c) reputable,
overnight courier service, or (d) both telecopier (to 609-924-0634 prior to
the date Tenant occupies the Premises for the conduct of its business, and
thereafter, to a telecopier number designated by Tenant) and regular mail),
addressed to Landlord or Tenant as the receiving party at its address set
forth at the head of this Lease, and addressed to any Superior Lessor or
Superior Mortgagee to it at the last address of which Landlord or Tenant,
as the case may be, was notified. Copies of Notices to Landlord shall be
sent at the same time and in the same manner to: 1325 Limited Partnership,
c/o Edward J. Minskoff Equities Inc., 1325 Avenue of the Americas, New
York, New York 10019, Attn: Mr. Norman Jacobson and to Battle Fowler LLP,
75 East 55th Street, New York, New York 10022, Attn: Martin L. Edelman,
Esq. Copies of Notices to Tenant shall be sent at the same time and in the
same manner to: Princeton Video Image, Inc., 1325 Avenue of the Americas,
New York, New York 10019, Douglas G. Greenlaw, President and Chief
Executive Officer and to Smith, Stratton, Wise, Heher & Brennan, 600
College Road East, Princeton, New Jersey 08540, Attn: Richard J. Pinto,
Esq. A Notice shall be deemed to have been given on the third Business Day
after the day so mailed by registered or certified mail, and with respect
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to statements of amounts due, (i) on the day hand delivered, (ii) on the
third Business Day after the day mailed by regular mail or (iii) if by
telecopier and regular mail, on the day the telecopy was transmitted.
Either party may, by notice as aforesaid, designate a different address
(or, with respect to statements of amounts due, telecopier number) for
Notices intended for it. At any time that Tenant consists of more than one
person, a Notice to Tenant shall be effective if given to any one of said
persons.
29.2. Notwithstanding the provisions contained in Section 29.1,
any Notice from Landlord or Tenant to the other of a default hereunder may
be given by hand delivery and receipted or sent by Federal Express or other
reputable overnight courier and receipted, with a concurrent copy of such
Notice sent by mail as provided in Section 29.1.
29.3. Notwithstanding the provisions contained in Section 29.1,
(a) Notices from Tenant to Landlord requesting after-hours or special
services pursuant to Article 16 or Article 17 shall be given by hand
delivery to the Building management office or any other person or office in
the Building designated in a notice from Landlord to receive such Notices,
and (b) any Notice may be given by telegram, hand delivery or reputable,
overnight courier service either in case of an emergency or in case United
States certified and registered mail are both not then operating.
29.4. Landlord shall have the right to assume that any Notice
from Tenant signed by any person purporting to be an officer of Tenant if
Tenant is a corporation or a partner in Tenant if Tenant is a partnership
is duly authorized and approved by and binding on Tenant, and Tenant shall
be bound by such Notice whether or not the person signing the Notice was
actually authorized and approved by Tenant.
ARTICLE 30. Estoppel Certificates, Financial
Statements, and Memorandum of Lease
30.1. Each party shall, at any time and from time to time, as
requested by the other party, execute and deliver to the other party within
10 business days after receipt of such request a statement (a) certifying that
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this Lease is unmodified and in full force and effect (or if modified,
that same is in full force and effect as modified and stating the
modifications), (b) certifying the dates to which Fixed Rent and Additional
Charges have been paid, (c) stating whether or not, to the best knowledge
of the signing party, the other party is in default in performance of any
of its obligations under this Lease, and, if so, specifying each such
default of which the signing party has knowledge, and (d) stating whether
or not, to the best knowledge of the signing party, any condition or event
exists which with the giving of notice or passage of time, or both, would
constitute such a default, and, if so, specifying each such condition or
event. Any statement delivered pursuant to this Section shall be deemed a
representation and warranty that may be relied upon by the party requesting
the statement and by others with whom such party may be dealing, regardless
of independent investigation. Tenant also shall include in any such
statement such other information concerning this Lease as any prospective
Superior Mortgagee or Superior Lessor may reasonably require or as Landlord
may reasonably request.
30.2. If Landlord's lender or any prospective lender so requests,
Tenant shall furnish to Landlord: within 120 days after the end of each
fiscal year of Tenant annual consolidated financial statements (balance
sheets and profit and loss statements) of Tenant, certified by an
independent certified public accountant of recognized standing.
30.3. At the request of Landlord, Tenant shall promptly execute,
acknowledge and deliver to Landlord a memorandum in respect of this Lease
and a memorandum of any amendment to or modification of this Lease
sufficient for recording, setting forth only the matters required to be set
forth pursuant to Section 291-c of the New York Real Property Law. Such
memorandum shall not in any circumstance be deemed to change or otherwise
affect any of the terms of this Lease or any amendment or modification.
Landlord may, but Tenant shall not, record this Lease or any amendment or
modification or any memorandum or any other document related hereto.
ARTICLE 31. Force Majeure
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31.1. Except as otherwise provided in this Lease, the obligations
of Tenant under this Lease shall not be affected, impaired or excused and
Landlord shall not have any liability to Tenant (regardless of whether
Landlord is required to proceed with reasonable diligence or to use
reasonable efforts), because Landlord is unable to fulfill, or is delayed
in fulfilling, any of its obligations under this Lease by reason of any of
the following ("Force Majeure Events"): fire or other casualty; acts of
God; war; riot or other civil disturbance; emergency; strike or other labor
trouble; governmental preemption of priorities or other controls in
connection with a national or other public emergency; inability or delay
beyond Landlord's reasonable control in securing proper amounts of or
failure or defect in the supply or quality of fuel, gas, steam, water,
electricity, supplies or labor; or any other event preventing or delaying
Landlord from fulfilling any obligation, whether similar or dissimilar,
beyond Landlord's reasonable control.
ARTICLE 32. Consents
32.1. If Tenant requests Landlord's consent and Landlord fails or
refuses to give such consent, Tenant shall not be entitled to any damages
for any withholding by Landlord of its consent; Tenant's sole remedy
therefor shall be an action for specific performance or injunction, and
such remedy shall be available only in those cases where this Lease
provides that Landlord shall not unreasonably withhold its consent or where
as a matter of law Landlord may not unreasonably withhold its consent,
except that, solely in the event that Landlord fails or refuses to give its
consent to an Alteration or a sublease of the Premises or an assignment of
this Lease, in addition to an action for specific performance or
injunction, Tenant may commence an expedited arbitration proceeding
pursuant to the rules and regulations and under the auspices of the
American Arbitration Association and Section 5.7.
ARTICLE 33. Rent Control
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33.1. If any Fixed Rent or Additional Charges shall become
uncollectible, reduced or required to be refunded because of any Legal
Requirements, Tenant shall enter into such agreements and take such other
steps (without additional expense to Tenant) as Landlord requests and as
may be legally permissible to permit Landlord to collect the maximum rents
which from time to time during the continuance of such legal rent
restriction may be legally permissible (but not in excess of the amounts
reserved therefor under this Lease). If the termination of such legal rent
restriction occurs during the Term, then (a) Fixed Rent and Additional
Charges shall be payable in accordance with the amounts reserved herein for
the periods following such termination through the Expiration Date and
(b) Tenant shall pay to Landlord, to the maximum extent legally
permissible, an amount equal to (i) the Fixed Rent and Additional Charges
that would have been paid pursuant to this Lease but for such legal rent
restriction, less (ii) the rent and additional rent actually paid by Tenant
during the period such legal rent restriction was in effect. The
provisions of this Section 33.1 shall survive the expiration or termination
of this Lease.
ARTICLE 34. Partnership or Multi-Person Tenant
34.1. If the original Tenant herein named is a partnership (or is
comprised of two or more persons, individually or as co-partners of a
partnership) or if Tenant's interest in this Lease is assigned to a
partnership (or to two or more persons, individually or as co-partners of a
partnership), the following provisions shall apply: (a) the liability of
each of the persons at any time comprising the general partners of Tenant
shall be joint and several, (b) each of the persons at any time comprising
Tenant shall be bound by (i) any written instrument executed by Tenant or
any successor Tenant changing, modifying, extending or discharging this
Lease, in whole or in part, or surrendering all or any part of the Premises
to Landlord, (ii) any Notices given by Tenant or by any of the persons
comprising Tenant, (iii) any statement executed by Tenant or any of the
persons comprising Tenant, pursuant to Section 30.1, and (iv) any
memorandum executed by Tenant or any of the
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persons comprising Tenant, pursuant to Section 30.3, (c) any Notices given to
Tenant or to any of such persons shall be binding on Tenant and all such
persons, (d) if Tenant admits new general partners, all of such new general
partners shall, by their admission to Tenant, be deemed to have assumed joint
and several liability for the performance of all of Tenant's obligations
under this Lease, (e) Tenant shall give prompt notice to Landlord of the
admission of any such new general partners, and on demand of Landlord shall
cause each such new general partner to execute and deliver to Landlord an
agreement in form satisfactory to Landlord wherein each such new partner
assumes joint and several liability for the performance of all of Tenant's
obligations under this Lease (but neither Landlord's failure to request any
such agreement nor the failure of any such new partner to execute or deliver
any such agreement to Landlord shall vitiate the provisions of clause (d) of
this Section), and (f) the death, adjudication of incompetency or withdrawal
of an individual comprising Tenant or of an individual partner shall not
relieve him or his personal representatives of any liability for the
performance of Tenant's obligations under this Lease.
ARTICLE 35. Special Bankruptcy-Related Provisions
35.1. All amounts payable by Tenant to or on behalf of Landlord
under this Lease (other than any amounts payable pursuant to Section 25.4
hereof), whether or not expressly denominated rent or additional rent,
shall constitute rent for the purpose of Section 502(b)(6) of the United
States Bankruptcy Code, as same may be amended, and for the purpose of any
similar section of any other present or future Insolvency Laws.
35.2. If Tenant assigns its interest in this Lease, and this Lease
is thereafter disaffirmed or rejected in any proceeding under the Insolvency
Laws, or in the event of termination of this Lease by reason of any such
proceeding, the original Tenant herein named, upon request of Landlord given
within 120 days after such disaffirmance or rejection, shall (a) pay to
Landlord all Fixed Rent and Additional Charges then due and payable to
Landlord under this Lease to and including the date of such disaffirmance or
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rejection and (b) enter into a new lease as lessee with Landlord of the
Premises for a term commencing on the effective date of such disaffirmance or
rejection and ending on the date that would have been the Expiration Date if
this Lease had not been disaffirmed or rejected, at the same Fixed Rent and
Additional Charges and upon the then executory terms and conditions contained
in this Lease, except that (i) the rights of the lessee under the new lease
shall be subject to any possessory rights of the last assignee of this Lease
and any rights of persons claiming through or under such assignee, (ii) such
new lease shall require all defaults existing under this Lease to be cured by
the lessee with reasonable diligence, and (iii) such new lease shall require
the lessee to pay all Fixed Rent and Additional Charges which, had this Lease
not been disaffirmed or rejected, would have become due after the effective
date of such disaffirmance or rejection. If the original Tenant herein named
shall fail or refuse to enter into the new lease within 10 days after
Landlord's request to do so, then in addition to all other rights and
remedies by reason of such default under this Lease, at law or in equity,
Landlord shall have the same rights and remedies against the original Tenant
herein named as Landlord would have had if the original Tenant herein named
had entered into such new lease and such new lease had thereafter been
terminated at the beginning of its term by reason of the default of the
lessee thereunder.
35.3. If pursuant to the Insolvency Laws Tenant is permitted to
assign this Lease in disregard of the restrictions contained in Article 8
or if this Lease is assumed by a trustee, the trustee or assignee shall
cure any default under this Lease and shall provide adequate assurance of
future performance by the trustee or assignee including (a) adequate
assurance of the source of payment of Fixed Rent and Additional Charges and
performance of other obligations of Tenant under this Lease (for which
adequate assurance shall mean the deposit of cash security with Landlord in
an amount equal to the sum of one year's Fixed Rent plus an amount equal to
any Additional Charges under Article 4 and Article 5 payable for the
calendar year preceding
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or subsequent to (in which latter event as such sum shall be reasonably
projected by Landlord), whichever shall be greater, the year in which such
assignment or assumption is intended to become effective, which deposit shall
be held by Landlord, without interest, for the balance of the Term as
security for the full and faithful performance of all of Tenant's obligations
under this Lease, and (b) assurance (in the form of a covenant) that the use
of the Premises shall in no way diminish the reputation of the Building as a
first-class office building or impose any additional burden upon the Building
or increase the services to be provided by Landlord.
ARTICLE 36. Miscellaneous
36.1. Tenant expressly acknowledges and agrees that Landlord has
not made and is not making, and Tenant, in executing and delivering this
Lease, is not relying upon, any warranties, representations, promises or
statements except to the extent that they are expressly set forth in this
Lease or in any other written agreement made between the parties
concurrently with the execution and delivery of this Lease. All prior
understandings and agreements between the parties are merged in this Lease
and any other written agreements made concurrently herewith, which alone
fully and completely express the agreement of the parties and which are
entered into after full investigation.
36.2. No agreement shall be effective to change, modify, waive,
release, discharge, terminate or effect an abandonment of this Lease, in
whole or in part, unless such agreement is in writing, refers expressly to
this Lease and is signed by both parties.
36.3. Except as otherwise expressly provided in this Lease , the
obligations under this Lease shall bind and benefit the successors and
assigns of the parties hereto with the same effect as if mentioned in each
instance where a party is named or referred to; provided, however, that (a)
no violation of the provisions of Article 8 shall operate to vest any rights
in any successor or assignee of Tenant and (b) the provisions of this Section
shall not be construed as modifying the conditions of limitation contained in
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<PAGE>
Article 23. No provision in this Lease shall be construed for the benefit of
any third party except as expressly provided herein.
36.4. Submission by Landlord of this Lease for review and/or
execution by Tenant shall not confer any rights or impose any obligations
on either party unless and until both Landlord and Tenant execute this
Lease and duplicate originals thereof are delivered to the respective
parties.
36.5. Tenant hereby represents to Landlord that it is not
entitled, directly or indirectly, to diplomatic or sovereign immunity. In
all disputes arising out of this Lease, the original Tenant herein named,
each person comprising Tenant, each assignee of Tenant's interest in this
Lease and each person comprising each such assignee, shall be deemed
subject to service in the State of New York and to the jurisdiction of the
state and federal courts located in the State of New York and such service
may be accomplished in the same manner as the giving of a Notice hereunder.
36.6. Irrespective of the place of execution or performance, this
Lease shall be governed by and construed in accordance with the laws of the
State of New York. If any provision of this Lease or the application
thereof to any person or circumstance, for any reason and to any extent, is
invalid or unenforceable, the remainder of this Lease and the application
of that provision to other persons or circumstances shall not be affected
but rather shall be enforced to the extent permitted by law. The table of
contents, captions, headings and titles in this Lease are solely for
convenience of reference and shall not affect its interpretation. This
Lease shall be construed without regard to any presumption or other rule
requiring construction against the party causing this Lease to be drafted.
Each obligation of Tenant under this Lease shall be deemed and construed as
a separate and independent covenant of Tenant, not dependent on any other
provision of this Lease. All terms and words used in this Lease,
regardless of the number or gender in which they are used, shall be deemed
to include any other number and any other gender as the context may
require.
-86-
<PAGE>
36.7. Tenant represents and warrants that (a) Tenant is a duly
formed and validly existing corporation, and (b) the execution, delivery
and performance by Tenant of this Lease have been duly authorized by all
necessary corporate action.
36.8. If Landlord fails to pay any amount due hereunder to Tenant
within 30 days after the same is due to Tenant, such unpaid amount shall
bear interest at the Lease Interest Rate, from the date such payment was
due to Tenant to the date of payment thereof by Landlord.
ARTICLE 37. Security Deposit
37.1.(a) Tenant shall, upon the execution of this lease by
Tenant, deposit with Landlord a letter of credit issued in favor of the
Landlord in the sum of Seventy Thousand Dollars ($70,000.00) as security
for the faithful performance and observance by Tenant of the terms of this
Lease.
(b) The letter of credit shall be an irrevocable, unconditional
letter of credit with an initial term of not less than one year from the
Commencement Date of this lease. Without further act or instrument
required by Landlord, the letter of credit shall be renewed by Tenant not
less than 30 days prior to the then current expiration date of the letter
of credit for successive additional terms of at least one year throughout
the remainder of the Lease. The letter of credit (or any renewal,
extension or replacement thereof) shall continue in full force and effect
and shall be maintained in the Security Amount for one full calendar month
beyond the expiration of the Term of this lease. The letter of credit
shall (i) be negotiable and freely transferable in connection with a sale
or transfer by Landlord as hereinafter described; (ii) be issued by a New
York bank or other banking institution reasonably acceptable to Landlord
which is a member of the New York Clearing House Association or other
association accepted by Landlord; (iii) provide for payment of all or any
portion of the face amount of the Letter of Credit to Landlord upon the
receipt by the issuing bank of a statement signed by a representative of
Landlord that Landlord is entitled to such amount pursuant
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<PAGE>
to the terms of this Lease; and (iv) be otherwise in form and substance
reasonably satisfactory to Landlord. Tenant's failure to maintain the
letter of credit or to substitute a cash security deposit as a replacement
therefor shall constitute a default under this Lease.
(c) If (x) Tenant defaults in the full and prompt payment and
performance of any of Tenant's covenants and obligations under this Lease,
including the payment of Fixed Rent and Additional Charges, or (y) Tenant
fails to deliver to Landlord a renewal or replacement of such letter of
credit or any replacement thereof at least 30 days before the expiry
thereof, Landlord may, but shall not be required to, draw upon such letter
of credit and use, apply or retain the whole or any part of the proceeds
thereof, to the extent required for the payment of any Fixed Rent and
Additional Charges or any other sums as to which Tenant is in default or
for any sum which Landlord may expend or may be required to expend by
reason of Tenant's default in respect of any of the terms, covenants and
conditions of this Lease, including any damages or deficiency in the
reletting of the Premises, whether such damages or deficiency accrue before
or after summary proceedings or other reentry by Landlord. If Landlord
shall so use, apply or retain the whole or any part of such proceeds,
Tenant shall upon demand immediately deposit with Landlord a sum equal to
the amount so used, applied or retained, as security as aforesaid, failing
which Landlord shall have the same rights and remedies as for the
nonpayment of Fixed Rent beyond the applicable grace period. If Tenant
shall fully and faithfully comply with all of Tenant's covenants and
obligations under this Lease, the letter of credit or any proceeds thereof
which have not been so used, applied or retained and any additional amounts
deposited with Landlord under the preceding sentence, shall be returned or
paid over to Tenant upon the Expiration Date or any earlier termination of
this Lease (except by reason of Tenant's default) and after delivery to
Landlord of possession of the entire Premises. In the event of any sale,
transfer or leasing of Landlord's interest in the Building, whether or not
in connection with a sale, transfer or leasing of the Land to a vendee,
-88-
<PAGE>
transferee or lessee, Landlord shall have the right to transfer the letter
of credit, any proceeds thereof which have not been so used, applied or
retained and/or such additional amounts deposited with Landlord, as the
case may be, to the vendee, transferee or lessee and Landlord shall
thereupon be released by Tenant from all liability for the return or
payment thereof, and Tenant shall look solely to the new landlord for the
return or payment of the same. Tenant, at Tenant's expense, shall obtain
promptly upon Landlord's request any amendment of the letter of credit
required to permit such vendee, transferee or lessee to draw upon the same.
Except in connection with an assignment of this Lease permitted under
Article 8, Tenant shall not assign or encumber or attempt to assign or
encumber the letter of credit, any proceeds thereof or such additional
amounts deposited with Landlord, and neither Landlord nor its successors or
assigns shall be bound by any such assignment, encumbrance, attempted
assignment or attempted encumbrance. In any event, in the absence of
evidence satisfactory to Landlord of an assignment of the right to receive
the letter of credit, any proceeds thereof which have not been so used,
applied or retained and such additional amounts deposited with Landlord,
Landlord may return the security to the original Tenant regardless of one
or more assignments of this Lease. Any replacement letter of credit shall
be in the same amount (except as otherwise provided in the first sentence
of this Section 37.1) and in substantially the same form as the letter of
credit being replaced and shall be issued by a commercial bank which is a
member of the New York Clearing House (or successor) or other bank
reasonably acceptable to Landlord and shall be for a term of at least one
year.
(d) Provided Tenant is not then in default under this Lease and
Landlord has not drawn upon such letter of credit as provided herein, Tenant
shall have the right, upon reasonable prior notice to Landlord, to replace
such letter of credit with a good and sufficient check payable to Landlord,
or to any Superior Mortgagee which is then holding such letter of credit;
such check to be in the Security Amount drawn on and certified by a New York
City bank which is then a member of the New York Clearing House or a
successor
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<PAGE>
thereto. The letter of credit shall be returned to Tenant upon collection by
Landlord (or such Superior Mortgagee) of the funds evidenced by such check.
Landlord shall deposit such check in an interest bearing account. The
proceeds of such check, together with the interest earned thereon, shall be
held, used and applied as if they were proceeds of such letter of credit.
(e) Provided that Tenant is not then in default under this Lease
beyond the expiration of any applicable notice and grace periods, upon the
first anniversary of the Rent Commencement Date, Tenant may reduce the
amount of the letter of credit to Thirty-Four Thousand Four Hundred Dollars
($34,400.00).
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<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this
Lease as of the day and year first above written.
LANDLORD:
1325 LIMITED PARTNERSHIP
By: 1325/GP Limited Partnership,
General Partner
By: 1325 Ave/Am GP Corp.,
General Partner
By: /s/ Edward J. Minskoff
--------------------------
Edward J. Minskoff
President
TENANT:
PRINCETON VIDEO IMAGE, INC.
By: /s/ Douglas J. Greenlaw
-------------------------------
Name:
Title: President, CEO
Tenant's Federal Tax Identification
Number
-----------------------------------
-91-
<PAGE>
STATE OF NEW YORK )
ss.:
COUNTY OF NEW YORK )
On the ____ day of ______, 1996, before me personally came Edward
J. Minskoff, to me known, who, being by me duly sworn, did depose and say
that he resides at 730 Park Avenue, New York, New York; that he is the
President of 1325 Ave/Am GP Corp., the general partner of 1325/GP Limited
Partnership, which partnership is the general partner of 1325 Limited
Partnership, the partnership described in and which executed the foregoing
instrument, and that he signed his name thereto by order of the board of
directors of said corporation.
---------------------------------------
Notary Public
STATE OF NEW YORK )
ss.:
COUNTY OF NEW YORK )
On the 26th day of March, 1997, before me personally came Douglas
J. Greenlaw, to me known, who, being by me duly sworn, did depose and say
that he resides at _____________, _____________________________; that he is
a President/CEO of Princeton Video Image, Inc., the corporation described
in and which executed the foregoing instrument; and that he signed his name
thereto by order of the board of directors of said corporation.
/s/ Janet B. Birdt
--------------------------------------
Notary Public
Janet B. Birdt
<PAGE>
FLOOR PLAN(S) OF PREMISES
[FLOOR PLAN OF THE PREMISES]
EXHIBIT A
Page 1
<PAGE>
DESCRIPTION OF LAND
ALL that certain lot, piece or parcel of land, situate, lying and being in
the Borough of Manhattan, City, County and State of New York, bounded and
described as follows:
BEGINNING at a point on the northerly side of West 53rd Street, distant 462
feet 6 inches westerly from the corner formed by the intersection of the
said northerly side of West 53rd Street with the westerly side of Avenue of
the Americas;
THENCE running northerly and parallel with the westerly side of Avenue of
the Americas 100 feet 5 inches to the center line of the block;
THENCE running easterly along the center line of the block 12 feet 6
inches;
THENCE running northerly and parallel with the westerly side of Avenue of
the Americas 100 feet 5 inches to the southerly side of West 54th Street;
THENCE running westerly along said southerly side of West 54th Street, 194
feet;
THENCE running southerly parallel with said westerly side of Avenue of the
Americas 100 feet 5 inches to the center line of the block;
THENCE running easterly along the center line of the block 19 feet;
THENCE running southerly parallel with said westerly side of Avenue of the
Americas 100 feet 5 inches to the said northerly side of West 53rd Street;
THENCE running easterly along said northerly side of West 53rd Street, 162
feet 6 inches to the POINT OR PLACE OF BEGINNING.
EXHIBIT B
Page 1
<PAGE>
FIXED RENT
Annual Rate
Annual Per Rentable
Period Fixed Rent Square Foot
------ ---------- -------------
A. Commencement Date until the
Rent Commencement Date ("RCD") $ 0 $ 0
B. RCD, until May 31, 2000 $137,600.00 $32.00
EXHIBIT C
Page 1
<PAGE>
RULES AND REGULATIONS
1. The rights of each tenant in the Common Areas are limited to
ingress to and egress from such tenant's premises for the tenant and its
employees, subtenants, licensees and invitees, and no tenant shall use, or
permit the use of, the Common Areas for any other purpose. No tenant shall
invite to the tenant's premises, or permit the visit of, persons in such
numbers or under such conditions as to interfere with the use and enjoyment
of any of the Common Areas by any other tenants. Fire exits and fire tower
stairways are for emergency use only, and they shall not be used for any
other purpose by any tenant or any subtenant or licensee of such tenant, or
their respective employees, agents, contractors or invitees. No tenant
shall obstruct, or permit the obstruction of any of the Common Areas.
Landlord reserves the right to control and operate the Common Areas and the
other public facilities, as well as any other facilities furnished for the
common use of the tenants, in such manner as Landlord in its reasonable
judgment deems best for the benefit of the tenants generally, including the
right to allocate certain elevators for delivery service and the right to
designate which Building entrances shall be used by persons making
deliveries in the Building. No doormat of any kind whatsoever shall be
placed or left in any public hall or outside any entry door of any tenant's
premises.
2. Landlord may refuse admission to the Building outside of
Business Hours to any person not known to the watchman or other person in
charge or not having a pass issued by Landlord or the tenant whose premises
are to be entered. Landlord may require all persons admitted to or leaving
the Building outside of Business Hours to provide appropriate
identification, in which case Landlord shall supply identification cards
and be reimbursed by the tenant for its identification cards at Landlord's
cost. Each tenant shall be responsible for all persons for whom it issues
any such pass and shall be liable to Landlord for all acts or omissions of
such persons. Each tenant shall promptly notify Landlord of any lost
identification cards and will
EXHIBIT D
Page 1
<PAGE>
reimburse Landlord at cost for replacement of identification cards. Landlord
shall have the right but shall not be obligated to require all persons
entering the Building outside of Business Hours to sign a register, to be
announced to the tenant such person is visiting, and/or to be accepted as a
visitor by such tenant or to be otherwise properly identified (and, if not so
accepted or identified, Landlord may exclude such persons from the Building)
and Landlord shall have the right but shall not be obligated to require
persons leaving the Building outside of Business Hours to sign a register or
to surrender the pass given to such person. Any person whose presence in the
Building at any time shall, in the judgment of Landlord, be prejudicial to
the safety, character or reputation of the Building or of its tenants may be
denied access to the Building or may be ejected therefrom. During the
continuance of any Force Majeure Events, Landlord may prevent all access to
the Building by closing the doors or otherwise if and to the extent required
for the safety of the tenants and protection of property in the Building.
Landlord may institute, revise and discontinue such security measures,
systems and requirements as Landlord deems appropriate.
3. No tenant shall obtain or accept for use in its premises
drinking water, food, beverage, towel, barbering, bootblacking, floor
polishing, cleaning or other services from any persons prohibited by
Landlord from furnishing such services. Such services shall be furnished
only at such hours, and under such reasonable regulations, as may be fixed
by Landlord from time to time.
4. The cost of repairing any damage to the Common Areas or to
any other public facilities or to any equipment or other facilities used in
common with other tenants, or to any adjoining building or property, or to
any other parts of the Building or to any equipment or facilities therein,
caused by a tenant, subtenant or licensee of such tenant or their
respective employees, agents, contractors or invitees, shall be paid by
such tenant.
5. No awnings or other projections shall be attached to the
outside walls of the Building. No curtains, blinds, shades or screens which
EXHIBIT D
Page 2
<PAGE>
are different from the standards adopted from time to time by Landlord for
the Building shall be attached to or hung in, or used in connection with, any
exterior window or door of the premises of any tenant without the prior
consent of Landlord. Such curtains, blinds, shades or screens must be of a
quality, type, design and color, and attached in the manner reasonably
approved by Landlord.
6. No lettering, sign, advertisement, notice or object shall be
displayed in or on the exterior windows or doors, or on the outside of any
tenant's premises, or at any point inside any tenant's premises where the
same might be visible outside of such premises, without the prior consent
of Landlord. Upon approval by Landlord of any such lettering, sign,
advertisement, notice or object and the location thereof, no further
consent of Landlord shall be required with respect to such location.
Interior signs, elevator cab designations and lettering on doors and the
Building directory shall, if and when approved by Landlord, be inscribed,
painted or affixed for each tenant by Landlord at the expense of such
tenant, and shall be of a size, color and style acceptable to Landlord.
7. The sashes, sash doors, skylights, windows and doors that
reflect or admit light and air into the halls, passageways or other Common
Areas shall not be covered or obstructed by any tenant, nor shall any
bottles, parcels or other articles be placed on the window sills or the
peripheral heating or air conditioning enclosures, if any.
8. No showcases or other articles shall be put in front of or
affixed to any part of the exterior of the Building or of any tenant's
premises or placed in the Common Areas.
9. No noise, including music or the playing of musical
instruments, recordings, radio or television, which in the judgment of
Landlord might disturb other tenants in the Building shall be made or
permitted by any tenant. Nothing shall be done or permitted in the premises
of any tenant which would impair or interfere with the use or enjoyment by any
EXHIBIT D
Page 3
<PAGE>
other tenant in the Building but the foregoing shall not be construed to
limit the use permitted by Tenant under this Lease.
10. Except as permitted in the Lease, no additional locks or
bolts of any kind shall be placed upon any of the doors or windows by any
tenant, nor shall any changes be made in locks or the mechanism thereof,
except where keys therefor are given to Landlord. Additional keys for a
tenant's premises and toilet rooms located outside the tenant's premises
shall be procured only from Landlord who may make a reasonable charge
therefor. Each tenant shall, upon the termination of its lease, turn over
to Landlord all keys to the Building and any facilities therein, either
furnished to, or otherwise procured by, such tenant, and in the event of
the loss of any keys furnished by Landlord, such tenant shall pay to
Landlord the cost incurred by Landlord in replacing the same.
Notwithstanding the foregoing, a tenant may, subject to obtaining
Landlord's prior consent, install a security system in its premises which
uses master codes or cards instead of keys, provided that such tenant
provides Landlord with the master code or card for such system. No tenant
shall lend or furnish to any public messenger the keys to any toilet rooms.
11. All removals, or the carrying in or out of any safes,
freight, furniture, packages, boxes, crates or any other object or matter
of any description must take place during such hours and in such elevators,
and in such manner as Landlord or its agent may determine from time to time
are appropriate. No persons shall be employed to move safes or other
similarly heavy objects unless reasonably acceptable to Landlord and, if so
required by law, unless such persons hold a Master Rigger's license.
Arrangements must be made by each tenant with Landlord for moving large
quantities of furniture and equipment into or out of the Building. All
labor and engineering costs incurred by Landlord in connection with any
moving of safes or other similarly heavy objects, including a reasonable
charge for overhead, and the cost of overtime or extra work for Landlord's
or Landlord's agent's employees, shall be paid by the tenant to Landlord,
within 30 days after demand.
EXHIBIT D
Page 4
<PAGE>
12. Landlord reserves the right to inspect all objects to be
brought into the Building and to exclude from the Building all objects
which violate any of these Rules and Regulations or this Lease. Landlord
shall have the right but shall not be obligated to require any person
leaving the Building with any package or other object to submit a pass,
listing such package or object, from the tenant from whose premises the
package or object is being removed, but the establishment and enforcement
of such requirement shall not impose any responsibility on Landlord for the
protection of any tenant against the removal of property from the premises
of such tenant. Landlord shall in no way be liable to any tenant for
damages or loss arising from the admission, exclusion or ejection of any
person to or from the premises or the Building under the provisions of this
Rule or of Rule 2 hereof.
13. No tenant shall occupy or permit any portion of its premises
to be occupied for (a) the possession, storage, manufacture or sale of
liquor, narcotics or tobacco in any form, (b) gambling activities, (c) the
conduct of obscene, pornographic or similar disreputable activities, (d)
public assembly purposes, (e) lodging or sleeping, or (f) any immoral or
illegal purpose.
14. Landlord shall have the right to prohibit any tenant's
advertising or identifying sign which, in Landlord's reasonable judgment,
impairs the reputation of the Building or its desirability, and upon notice
from Landlord such tenant shall refrain from and discontinue such
advertising or identifying sign. Once Landlord has approved Tenant's
advertising or identifying sign, Landlord will not exercise its rights
under this paragraph with respect to the same or any substantially similar
advertising or identifying sign. With respect to Tenant's advertising,
Landlord's rights shall arise only if the Property or any portion thereof
is referred to or identified in such advertising (but such rights shall not
arise if such advertising, including ordinary business materials, merely
lists the Property as Tenant's address (including invitations to the
Premises)).
EXHIBIT D
Page 5
<PAGE>
15. Tenant shall not place a load upon the floor of the Premises
in excess of 70 pounds per usable square foot of the Premises. Landlord
shall have the right to prescribe the weight and position of safes and
other objects of excessive weight, and no safe or other object whose weight
exceeds the lawful load for the area upon which it would stand shall be
brought into or kept upon any tenant's premises. If in the judgment of
Landlord the concentrated weight of any heavy object should be distributed,
the work involved in such distribution shall be done at the expense of the
tenant and in such manner as Landlord shall determine.
16. No machinery or mechanical equipment other than ordinary
portable business machines may be installed or operated in any tenant's
premises without Landlord's prior consent which consent shall not be
unreasonably withheld, and in no case (even where same are of a type so
excepted or as so consented to by Landlord) shall any machines or
mechanical equipment be so placed or operated as to disturb other tenants.
Machines and mechanical equipment permitted to be installed and used in a
tenant's premises shall be so equipped, installed and maintained by such
tenant as to prevent any disturbing noise, vibration or electrical or other
interference from being transmitted from such premises to any other area of
the Building.
17. The requirements of tenants will be attended to only upon
application at the office of the Building. Employees of Landlord or its
managing agent shall not perform any work or do anything outside of their
regular duties unless under special instructions from Landlord.
18. Canvassing, soliciting and peddling in the Building are
prohibited and each tenant shall cooperate to prevent same.
19. No tenant shall cause or permit any unusual or objectionable
odors to emanate from its premises which would annoy other tenants or
create a public or private nuisance. No cooking shall be done in the
premises of any tenant except as is expressly permitted herein and in such
tenant's lease.
20. Nothing shall be done or permitted in any tenant's premises,
and nothing shall be brought into or kept in any tenant's premises, which
EXHIBIT D
Page 6
<PAGE>
would impair or interfere with any of the Building's services or the proper
and economic heating, ventilating, air conditioning, cleaning or other
servicing of the Building, or the use or enjoyment by any other tenant of
its premises, nor shall any tenant install any ventilating,
airconditioning, electrical or other equipment of any kind which in the
reasonable judgment of Landlord might cause any such impairment or
interference.
21. No acids, vapors or other materials shall be discharged or
permitted to be discharged into the waste lines, vents or flues of the
Building. The water and wash closets and other plumbing fixtures in or
serving any tenant's premises shall not be used for any purpose other than
the purposes for which they were designed or constructed, and no sweepings,
rubbish, rags, acids or other foreign substances shall be deposited
therein. Nothing shall be swept or thrown into the Common Areas or into or
on any heating or ventilating vents or registers or plumbing apparatus in
the Building, or on adjoining buildings or land or the street. Any
cuspidors or containers or receptacles used as such or for garbage or
similar refuse in the premises of any tenant shall be emptied, cared for
and cleaned by and at the expense of such tenant.
22. All entrance doors in each tenant's premises shall be left
locked and all windows shall be left closed by the tenant when the tenant's
premises are not in use. Entrance doors shall not be left open at any
time.
23. Hand trucks not equipped with rubber tires, side guards and
such other safeguards as Landlord may require shall not be used within the
Building. No hand trucks shall be used in passenger elevators.
24. All windows in each tenant's premises shall be kept closed, and
all blinds therein above the ground floor shall be lowered as reasonably
required because of the position of the sun, during the operation of the
Building air-conditioning system to cool or ventilate the tenant's premises,
unless Landlord permits otherwise. If Landlord elects to install any energy
saving film on the windows of the Building or to install energy saving
windows in place of the present windows, each tenant shall cooperate with the
EXHIBIT D
Page 7
<PAGE>
reasonable requirements of Landlord in connection with such installation and
thereafter the maintenance and replacement of the film and/or windows and
shall permit Landlord to have access to the tenant's premises at reasonable
times during Business Hours to perform such work in accordance with the terms
of the Lease.
25. Each tenant at its own expense shall cause all portions of
its premises used for the storage, preparation, service or consumption of
food or beverages to be cleaned daily in a manner reasonably satisfactory
to Landlord, and to be exterminated against infestation by vermin, rodents
or roaches regularly and, in addition, whenever evidence of any infestation
is discovered. No tenant shall permit any person to enter its premises or
the Building for the purpose of providing such extermination services other
than persons first approved by Landlord, such approval not to be
unreasonably withheld. If Landlord's cleaning contractor cleans the
portions of the Premises used for storage, preparation, service or
consumption of food or beverages, the charges therefor shall be consistent
for similar services in other first-class office buildings in midtown
Manhattan, taking into consideration the use and nature of the Premises and
the work in question.
26. No tenant, subtenant or licensee, or any contractor,
employee, agent or invitee of any tenant, subtenant or licensee shall at
any time bring into or keep upon any premises or the Building any
inflammable, combustible, explosive or otherwise dangerous fluid, chemical
or substance.
27. Except as otherwise permitted pursuant to the Lease, no tenant
shall mark, paint, drill into, or in any way deface, any part of its premises
or the Building. Except as otherwise permitted pursuant to the Lease, no
boring, cutting or stringing of wires or instruments shall be permitted
except with the prior consent of, and as directed by, Landlord. No telephone,
telegraph or other wires shall be installed by any tenant except in a manner
approved by Landlord. Except as otherwise permitted pursuant to the Lease,
no tenant shall lay linoleum, or other similar floor covering so that the
same shall come in direct contact with the floor of its premises, and, if
EXHIBIT D
Page 8
<PAGE>
linoleum or other similar floor covering is desired to be used, an
interlining of builder's deadening felt shall be first affixed to the floor
by a paste or other material, soluble in water, the use of cement or other
similar adhesive material being expressly prohibited.
28. No bicycles, vehicles, animals (except seeing eye dogs),
fish or birds of any kind shall be brought into or kept in or about the
premises of any tenant.
29. All paneling, doors, trim or other wood products not
considered furniture shall be of fire-retardant materials. Before
installation of any such materials, certification of the materials'
fire-retardant characteristics shall be submitted to Landlord, and such
materials shall be installed in a manner approved by Landlord.
30. Whenever any tenant submits to Landlord any plan, agreement
or other document for the consent or approval of Landlord, such tenant
shall pay to Landlord, on demand, a processing fee in the amount of the
reasonable out-of-pocket fees for the review thereof, including the
services of any architect, engineer or attorney employed by Landlord to
review such plan, agreement or documents.
31. Landlord reserves the right to rescind, alter, waive or add
any rule or regulation at any time when, in Landlord's judgment, Landlord
deems it necessary, desirable or proper for the best interest of the
Building or for the best interest of the tenants generally. No alteration,
rescission, waiver or addition of any rule or regulation in favor of one
tenant shall operate as an alteration, rescission, waiver or addition in
favor of any other tenant. Landlord shall enforce the Rules and
Regulations in a non-discriminatory manner but Landlord shall not be
responsible to any tenant for the nonobservance or violation by any other
tenant of any of the Rules and Regulations.
EXHIBIT D
Page 9
<PAGE>
CLEANING SPECIFICATIONS
CLEANING SPECIFICATIONS FOR OFFICE SPACE
Nightly -- Business Days:
General Offices:
1. All hardsurfaced flooring to be swept using approved
dustdown preparation.
2. Vacuum all carpets, moving only light furniture (desks, file
cabinets, etc. not to be moved).
3. Hand dust and wipe clean all furniture, fixtures and window
sills.
4. Empty and clean all ash trays and screen all sand urns.
5. Empty and clean all waste receptacles and remove wastepaper.
6. Dust interiors of all waste disposal cans and baskets.
7. Wash clean all water fountains and coolers.
8. Sweep all private stairways.
Lavatories:
1. Sweep and wash all floors, using proper disinfectants.
2. Wash and polish all mirrors, shelves, bright work and
enameled surfaces.
3. Wash and disinfect all basins, bowls and urinals.
4. Wash all toilet seats.
5. Hand dust and clean all partitions, tile walls, dispensers
and receptacles in lavatories and restrooms.
6. Paper towel and sanitary receptacles emptied and cleaned.
7. Fill toilet tissue holders and soap dispensers.
Weekly:
1. Dust all door louvers and other ventilating louvers within a
person's reach.
2. Wipe clean all interior metal and remove fingermarks.
Monthly:
High dust Premises completely including the following:
1. Dust all pictures, frames, charts, graphs and similar wall
hangings not reached in nightly cleaning.
EXHIBIT E
Page 1
<PAGE>
2. Dust clean all vertical surfaces, such as walls, partitions,
doors, bucks and other surfaces not reached in nightly
cleaning.
3. Dust all pipes, ventilating and air conditioning louvers,
ducts, high moldings and other high areas not reached in
nightly cleaning.
4. Dust all venetian blinds.
Four Times Per Year:
Wash all windows.
EXHIBIT E
Page 2
<PAGE>
LANDLORD'S WORK
Preparation of demised premises for Tenant's occupancy in
accordance with the layout shown on Exhibit A, and a level of finish
comparable to the premises occupied by Hunter Capital Group, LLC, on the
12th floor of the Building.
EXHIBIT F
Page 1
<PAGE>
EXHIBIT 10.15
PROMISSORY NOTE
$24,000.00 May 31, 1997
FOR VALUE RECEIVED, Princeton Venture Research, Inc., of Five Vaughn
Drive, Princeton, New Jersey, promises to pay Princeton Video Image, Inc., of 47
Hulfish Street, Suite 500, Princeton, New Jersey, the principal amount of
TWENTY-FOUR THOUSAND DOLLARS ($24,000.00) in lawful money of the United States
of America by May 31, 1998. This Note shall bear interest on the unpaid
principal balance at a rate of nine percent (9%) per annum, which interest shall
be paid simultaneously with the payment of principal.
The undersigned and all endorsers and guarantors of this Note, if any,
hereby waive presentment, demand for payment, protest and notice of dishonor of
this Note, and hereby authorize the holder, without notice to or further consent
of the undersigned or such endorsers and guarantors, to grant extensions of time
in the payment of any amounts payable under this Note and to waive compliance
with any of the provisions of this Note.
If legal action is commenced to enforce this Note, the holder shall be
entitled to recover, in addition to the amount payable hereunder, the amount of
the holder's reasonable attorneys' fees and costs incurred in connection with
such enforcement.
PRINCETON VENTURE RESEARCH, INC.
By: /s/ John B. Torkelsen
---------------------------
Name: John B. Torkelsen
-------------------------
Title: President
------------------------
<PAGE>
EXHIBIT 10.16
PROMISSORY NOTE
$80,000.00 May 31, 1997
FOR VALUE RECEIVED, John B. Torkelsen, of 240 Library Place,
Princeton, New Jersey, promises to pay Princeton Video Image, Inc., of 47
Hulfish Street, Suite 500, Princeton, New Jersey, the principal amount of EIGHTY
THOUSAND DOLLARS ($80,000.00) in lawful money of the United States of America by
May 31, 1998. This Note shall bear interest on the unpaid principal balance at
a rate of nine percent (9%) per annum, which interest shall be paid
simultaneously with the payment of principal.
The undersigned and all endorsers and guarantors of this Note, if any,
hereby waive presentment, demand for payment, protest and notice of dishonor of
this Note, and hereby authorize the holder, without notice to or further consent
of the undersigned or such endorsers and guarantors, to grant extensions of time
in the payment of any amounts payable under this Note and to waive compliance
with any of the provisions of this Note.
If legal action is commenced to enforce this Note, the holder shall be
entitled to recover, in addition to the amount payable hereunder, the amount of
the holder's reasonable attorneys' fees and costs incurred in connection with
such enforcement.
/s/ John B. Torkelsen
-----------------------
John B. Torkelsen
<PAGE>
EXHIBIT 10.17
PROMISSORY NOTE
$20,000.00 May 31, 1997
FOR VALUE RECEIVED, Pamela R. Torkelsen, of 240 Library Place,
Princeton, New Jersey, promises to pay Princeton Video Image, Inc., of 47
Hulfish Street, Suite 500, Princeton, New Jersey, the principal amount of TWENTY
THOUSAND DOLLARS ($20,000.00) in lawful money of the United States of America by
May 31, 1998. This Note shall bear interest on the unpaid principal balance at
a rate of nine percent (9%) per annum, which interest shall be paid
simultaneously with the payment of principal.
The undersigned and all endorsers and guarantors of this Note, if any,
hereby waive presentment, demand for payment, protest and notice of dishonor of
this Note, and hereby authorize the holder, without notice to or further consent
of the undersigned or such endorsers and guarantors, to grant extensions of time
in the payment of any amounts payable under this Note and to waive compliance
with any of the provisions of this Note.
If legal action is commenced to enforce this Note, the holder shall be
entitled to recover, in addition to the amount payable hereunder, the amount of
the holder's reasonable attorneys' fees and costs incurred in connection with
such enforcement.
/s/ Pamela R. Torkelsen
-------------------------
Pamela R. Torkelsen
<PAGE>
EXHIBIT 10.18
PROMISSORY NOTE
$50,542.50 July 15, 1997
FOR VALUE RECEIVED, Princeton Venture Research, Inc., of Five Vaughn
Drive, Princeton, New Jersey, promises to pay Princeton Video Image, Inc., of 47
Hulfish Street, Suite 500, Princeton, New Jersey, the principal amount of FIFTY
THOUSAND FIVE HUNDRED FORTY-TWO AND 50/100 DOLLARS ($50,542.50) in lawful money
of the United States of America by July 15, 1998. This Note shall bear interest
on the unpaid principal balance at a rate of nine percent (9%) per annum, which
interest shall be paid simultaneously with the payment of principal.
The undersigned and all endorsers and guarantors of this Note, if any,
hereby waive presentment, demand for payment, protest and notice of dishonor of
this Note, and hereby authorize the holder, without notice to or further consent
of the undersigned or such endorsers and guarantors, to grant extensions of time
in the payment of any amounts payable under this Note and to waive compliance
with any of the provisions of this Note.
If legal action is commenced to enforce this Note, the holder shall be
entitled to recover, in addition to the amount payable hereunder, the amount of
the holder's reasonable attorneys' fees and costs incurred in connection with
such enforcement.
PRINCETON VENTURE RESEARCH, INC.
By:/s/ John B. Torkelsen
---------------------------
Name: John B. Torkelsen
-------------------------
Title: President
------------------------
<PAGE>
EXHIBIT 10.19
PROMISSORY NOTE
$9,720.00 July 15, 1997
FOR VALUE RECEIVED, Pamela R. Torkelsen, of 240 Library Place,
Princeton, New Jersey, promises to pay Princeton Video Image, Inc., of 47
Hulfish Street, Suite 500, Princeton, New Jersey, the principal amount of NINE
THOUSAND SEVEN HUNDRED TWENTY DOLLARS ($9,720.00) in lawful money of the United
States of America by July 15, 1998. This Note shall bear interest on the unpaid
principal balance at a rate of nine percent (9%) per annum, which interest shall
be paid simultaneously with the payment of principal.
The undersigned and all endorsers and guarantors of this Note, if any,
hereby waive presentment, demand for payment, protest and notice of dishonor of
this Note, and hereby authorize the holder, without notice to or further consent
of the undersigned or such endorsers and guarantors, to grant extensions of time
in the payment of any amounts payable under this Note and to waive compliance
with any of the provisions of this Note.
If legal action is commenced to enforce this Note, the holder shall be
entitled to recover, in addition to the amount payable hereunder, the amount of
the holder's reasonable attorneys' fees and costs incurred in connection with
such enforcement.
/s/ Pamela R. Torkelsen
-------------------------
Pamela R. Torkelsen
<PAGE>
Exhibit 10.20
L E A S E A G R E E M E N T
BY AND BETWEEN:
PRINCETON SOUTH AT LAWRENCEVILLE ONE,
a New Jersey Limited Partnership
"Landlord"
-AND-
PRINCETON VIDEO IMAGE, INC.,
a New Jersey Corporation
"Tenant"
Premises: l5 Princess Road, Suites A-J
Lawrenceville, New Jersey
DATE: July 16, 1997
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE ONE FUNDAMENTAL LEASE PROVISIONS
AND EXHIBITS l
ARTICLE TWO DEMISED PREMISES 2
ARTICLE THREE COMPLETION OF DEMISED PREMISES 2
ARTICLE FOUR TERM 2
ARTICLE FIVE RENT 4
ARTICLE SIX CONTINGENCIES 6
ARTICLE SEVEN USE 6
ARTICLE EIGHT MAINTENANCE, REPAIRS AND
REPLACEMENTS 8
ARTICLE NINE ALTERATIONS AND IMPROVEMENTS 9
ARTICLE TEN UTILITIES 10
ARTICLE ELEVEN TAXES 11
ARTICLE TWELVE INSURANCE 13
ARTICLE THIRTEEN ASSIGNMENT AND SUBLETTING 16
ARTICLE FOURTEEN DAMAGE OR DESTRUCTION 19
ARTICLE FIFTEEN CONDEMNATION 21
ARTICLE SIXTEEN EASEMENTS 21
ARTICLE SEVENTEEN DEFAULT 22
ARTICLE EIGHTEEN SECURITY DEPOSIT 25
ARTICLE NINETEEN SUBORDINATION AND ATTORNMENT 28
ARTICLE TWENTY NOTICES 29
ARTICLE TWENTY-ONE INDUSTRIAL SITE RECOVERY ACT 29
ARTICLE TWENTY-TWO ESCROWS 30
ARTICLE TWENTY-THREE PARKING 31
ARTICLE TWENTY-FOUR MISCELLANEOUS 31
ARTICLE TWENTY-FIVE TENANT'S OPTION TO RENEW 36
ARTICLE TWENTY-SIX RIGHT OF FIRST OFFER 38
ARTICLE TWENTY-SEVEN SATELLITE DISH 39
<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT ("Lease") made as of the 16th day of
July , l997, by and between PRINCETON SOUTH AT LAWRENCEVILLE ONE,
a New Jersey Limited Partnership, ("Landlord") having its principal office at
6 Colonial Lake Drive, Lawrenceville, New Jersey 08648 and PRINCETON VIDEO
IMAGE, INC., a New Jersey Corporation, ("Tenant") having its principal office
at 47 Hulfish Street, Princeton, New Jersey 08542.
W I T N E S S E T H :
THAT FOR AND IN CONSIDERATION of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
ARTICLE ONE
FUNDAMENTAL LEASE PROVISIONS AND EXHIBITS
Section l.l. Certain Defined Terms
A. "Lease Year" means the period beginning on the commencement date
of the Term hereof and ending twelve (l2) months thereafter, and
each subsequent twelve (l2) month period throughout the Term
hereof, except that if the Term of this Lease shall commence on a
date other than the first day of a calendar month, the first
Lease year shall end twelve (l2) months from the last day of the
month during which the term hereof commences.
B. "Term" means five (5) Lease Years.
C. "Permitted Use" means office, light manufacturing and assembly of
video insertion systems units, research and development and
warehouse and for no other use.
D. "Fixed Rent" means $205,03l.25 per annum payable at the rate of
$l7,085.940 per Rental Period.
E. "Rental Period" means one (l) calendar month.
F. "Landlord" means and includes only the owner of the fee simple
title of the Demised Premises.
G. "Security Deposit" means the sum of $l02,5l5.64 pursuant to
Section l8.l.
Section l.2 Attachments.
The following documents are attached hereto, and such documents, as well
as all drawings and documents prepared pursuant thereto, shall be deemed to
be a part of this Lease:
EXHIBIT A - Plan showing the Lot and the Building being
constructed thereon.
EXHIBIT B - Plan of Leasehold Improvements.
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<PAGE>
EXHIBIT C - Exceptions to Section 24.l0, if any.
ARTICLE TWO
DEMISED PREMISES
Section 2.l Demise.
Landlord hereby leases to Tenant, and Tenant hereby takes from Landlord
that certain premises more particularly described in Exhibit A and the
"Improvements", as hereinafter defined, (together the "Demised Premises") for
the Term and upon the covenants and conditions hereinafter specified. The
Demised Premises has an area of l6,875 square feet.
ARTICLE THREE
COMPLETION OF DEMISED PREMISES
Section 3.l. Leasehold Improvements.
Landlord shall improve the Demised Premises with the Leasehold
Improvements described in Exhibit B to this Lease. The Demised Premises
shall be deemed to be ready for occupancy ("Ready for Occupancy") when the
Landlord has substantially completed construction of the Leasehold
Improvements as provided in Exhibit B and has notified Tenant thereof and a
certificate of occupancy, temporary or permanent, being issued by the
municipality. By taking possession of the Demised Premises, Tenant accepts
the Demised Premises as completed. Said Leasehold Improvements are sometimes
hereinafter referred to in this Lease as the "Improvements". Within thirty
(30) days of Tenant taking possession, Tenant shall provide Landlord with a
punch list enumerating cosmetic items requiring repairs by Landlord which
items shall be completed by Landlord as expeditiously as possible.
ARTICLE FOUR
TERM
Section 4.l. Commencement of Term.
The Term of this Lease shall commence on the date on which the Demised
Premises are Ready for Occupancy, which date shall be on or about September
l, l997. In the event Landlord is not able to deliver peaceful possession of
the Demised Premises to Tenant by October 10, 1997, then, and in such event,
Tenant may cancel the within Lease by providing Landlord with written notice
of said cancellation no later than October 13, 1997. In the event of such
cancellation, Landlord shall return any and all monies previously paid by
Tenant to Landlord and, in the event of such cancellation, Tenant shall have
no obligation to reimburse Landlord for certain pre-occupancy services,
plans, drawings and applications pursuant to a letter agreement dated June 6,
l997.
Section 4.2 Early Occupancy.
If Tenant occupies the Demised Premises prior to the commencement date of
the Term of this Lease, Tenant's occupancy of the Demised Premises shall be
subject to all of the terms, covenants and conditions of this Lease. Early
occupancy of the Demised Premises shall not advance the expiration date of
this Lease. Tenant shall pay the Fixed Rent and all other charges specified
in this Lease for the early occupancy period. Notwithstanding the foregoing,
Tenant may, with reasonable prior
-2-
<PAGE>
written notice to Landlord, enter the Demised Premises prior to the
Commencement Date of the Term hereof, during the period of time Landlord is
constructing the Leasehold Improvements, for the sole purpose of installing
Tenant's communications, security or computer systems. Said installations by
Tenant shall, in no way, interfere with Landlord's construction of the
Leasehold Improvements. The foregoing shall be subject to Tenant having paid
over to Landlord the entirety of the Security Deposit required hereunder and
Tenant having provided Landlord with evidence of insurance coverage as set
forth in Article Twelve.
Section 4.3. Termination.
This Lease shall terminate at the end of the Term without the necessity
of any notice from either Landlord or Tenant to terminate the same, and
Tenant hereby waives notice to vacate or quit the Demised Premises and agrees
that Landlord shall be entitled to the benefit of all provisions of law
respecting summary recovery of possession of the Demised Premises from a
tenant holding over to the same extent as if statutory notice had been given.
For the period of six (6) months prior to the expiration of the Term,
Landlord shall have the right to display on the exterior of the Demised
Premises the customary signs For Rent" and/or "For Sale" and during such
period Landlord may show the Demised Premises, and all parts thereof, to
prospective tenants or purchasers during normal business hours upon
reasonable notice to the Tenant.
Section 4.4 Holding Over.
A. If Tenant shall be in possession of the Demised Premises at the
end of the Term with the consent or permission of Landlord, the
tenancy under this Lease shall become month-to-month at the then
current Rent, terminable by either party on thirty (30) days'
written notice.
B. During and for any hold-over period in which Tenant occupies the
Demised Premises after expiration of the Term without Landlord's
consent, the monthly Fixed Rent shall be double the monthly Fixed
Rent for the month immediately preceding the hold-over period, and
all other responsibilities and obligations of Tenant hereunder shall
continue in full force and effect.
Section 4.5 Surrender of Demised Premises.
On the last day or sooner termination of the Term, Tenant shall quit and
surrender the Demised Premises broom-clean, in good condition and repair
(reasonable wear and tear and damage by Acts of God, fire extended coverage
and perils excepted), together with all alterations, additions and
improvements which may have been made in, on or to the Demised Premises,
except movable furniture or movable trade fixtures put in at the sole
expense of Tenant; provided, however, that Tenant shall ascertain from
Landlord at least thirty (30) days before the end of the Term, whether
Landlord desires to have the Demised Premises, or any part thereof, restored
to the condition in which it was originally delivered to Tenant and, if
Landlord shall so desire, then Tenant, at its cost and expense, on or before
the end of the Term, shall remove from the Demised Premises all of its
property, together with any alterations, additions and improvements, the
removal of which is requested by Landlord, and any or all of such property
not so removed shall, at Landlord's option, become the exclusive property of
Landlord or be disposed of by Landlord, at Tenant's sole cost and expense,
without further notice to or demand upon Tenant. If
-3-
<PAGE>
the Demised Premises be not surrendered as and when aforesaid, Tenant shall
indemnify Landlord against loss or liability resulting from the delay by
Tenant in so surrendering the Demised Premises including, without
limitation, the claims made by any succeeding occupant founded on such
delay. Tenant's obligation under this Section shall survive the expiration
or sooner termination of the Term.
ARTICLE FIVE
RENT
Section 5.l. Fixed Rent.
Tenant shall pay the Fixed Rent to Landlord on or before the first day of
each Rental Period of the Term, as defined in Section 4.l, at Landlord's
principal office or at such other place designated by Landlord in a notice to
Tenant, without any prior demand therefor and without any deduction or
set-off whatsoever. If the Term shall commence on a date other than the
first day of a Rental Period, the Fixed Rent for such fractional Rental
Period shall be prorated on a per diem basis.
Section 5.2. Additional Rent.
Tenant shall pay to Landlord as additional rent under this Lease
("Additional Rent"), prorated on a monthly basis, unless otherwise expressly
provided herein, (i) all amortization of the costs, including financing
costs, for capital expenditures required by a governmental entity for energy
conservation, life safety or other purposes, or made by Landlord to reduce
operating expenses, and (ii) all other charges required to be paid by Tenant
hereunder, including, without limitation, payments for real estate taxes,
insurance, maintenance, repairs and replacements, sewer and stand-by
sprinkler. Tenant's share of all such costs and charges constituting
Additional Rent shall be apportioned as follows: (a) with respect to any
items which pertain solely to the building in which the Demised Premises are
located, Tenant shall pay the same proportion as the number of square feet in
the Demised Premises bears to the total number of square feet in such
building, which proportion is 8l.82%, (b) with respect to all other items,
Tenant shall pay the same proportion as the number of square feet in the
Demised Premises bears to the total number of square feet in all buildings
located on the same Lot as the building in which the Demised Premises are
located, which proportion is l4.22%. At the inception of this Lease, or as
soon thereafter as may be practicable, Landlord shall estimate the amount of
Additional Rent payable by Tenant on a monthly basis and shall submit a
statement to Tenant showing such amount. Thereafter, Tenant shall pay to
Landlord such estimated monthly Additional Rent on or before the first (lst)
day of each month at the same time and in the same manner as above provided
for Fixed Rent, with a suitable proration for any fractional Rental Period.
Landlord shall, within thirty (30) days from the end of the first calendar
year, submit to Tenant a statement certified by Landlord setting forth the
actual expenditures for all items included in such Additional Rent and the
basis for apportionment of Tenant's share of such Additional Rent. If the
estimated Additional Rent paid by Tenant shall be less than Tenant's actual
share of such Additional Rent, then Tenant shall pay Landlord the difference
within thirty (30) days of receipt of such statement by Tenant; and if the
estimated Additional Rent paid by Tenant shall be greater than Tenant's
actual share of such Additional Rent, then Landlord shall credit such excess
payment against the next Additional Rent becoming due. Landlord shall
thereafter submit a similar certified statement at the end of each
-4-
<PAGE>
calendar year and shall revise the estimated Additional Rent payments to be
made in the following months as may be required. "Rent" shall mean Fixed
Rent and Additional Rent.
Notwithstanding anything above to the contrary, Tenant shall not be
required to pay the following: (a) any interest due because of late payments
made by Landlord (providing Tenant is current in all of its Rent and
Additional Rent payments); (b) any repairs or replacements to the roof or
structure, excepting if caused by the negligence of Tenant, its employees,
contractors, agents, servants or invitees; and (c) any advertising fees,
realtor commissions or other broker commissions or legal fees, excepting
legal fees and costs incurred by Landlord to enforce the within Lease
Agreement.
Tenant may, upon reasonable notice, inspect Landlord's books and records
at Landlord's principal office. In the event of any dispute between the
parties with respect to said books and records, the parties agree to submit
such dispute for arbitration in accordance with the rules of the American
Arbitration Association. The arbitration proceeding shall be held in
Lawrence Township, New Jersey.
Section 5.3 Late Charges.
Tenant's failure to pay Rent promptly may cause Landlord to incur
unanticipated costs. Such costs may include, but are not limited to,
processing and accounting charges and late charges which may be imposed on
Landlord by the holder of a mortgage encumbering the Demised Premises.
Therefore, if Landlord does not receive any payment of Rent within five (5)
business days after it becomes due, Tenant shall pay Landlord a late charge
equal to ten (l0%) percent of the overdue amount. The parties agree that
such late charge represents a fair and reasonable estimate of the costs
Landlord will incur by reason of such late payment. Acceptance of such late
charge by Landlord shall in no event constitute a waiver of Tenant's default
with respect to such overdue amount nor prevent Landlord from exercising any
of the other rights and remedies granted in this Lease with respect to Events
of Default.
Section 5.4 Interest on Past Due Rent.
Any installment of Rent owed by Tenant to Landlord which is not paid when
due shall bear interest at the rate of fifteen (l5%) percent per annum from
the date on which it is due until the date on which it is paid, it being
understood that this provision shall not relieve Tenant from payment of Rent
at the time and in the manner herein specified.
Section 5.5. Dishonored Checks.
In the event Tenant issues a check for Rent which is returned to Landlord
as unpaid for any reason, Tenant shall pay Landlord, as Additional Rent, the
sum of Twenty-five ($25.00) Dollars representing a service charge for such
occurrence.
Section 5.6. Accord and Satisfaction.
No payment by Tenant or receipt by Landlord of a lesser amount than the
Rent payment herein stipulated shall be deemed to be other than on account of
the Rent, nor shall any endorsement or statement on any check or any writing
accompanying any check or payment as Rent be deemed an accord and
satisfaction, and Landlord may accept such check or payment without prejudice
to Landlord's right to recover the balance of such Rent or pursue any other
remedy
-5-
<PAGE>
Landlord may have against Tenant.
Section 5.7. Net Rent.
It is the intent and purpose of Landlord and Tenant that the Rent shall
be absolutely net to Landlord so that this Lease shall yield, net to
Landlord, the Rent specified in this Article Five during the term of this
Lease, and that all costs, expenses and obligations of every kind and nature
whatsoever relating to the Demised Premises which may arise or become due
during the term of this Lease shall be paid by Tenant, except for such
obligations and charges as have otherwise been expressly assumed by Landlord
in accordance with the terms, covenants and conditions of the Lease. Nothing
herein shall require Tenant to undertake obligations in connection with the
sale or mortgaging of the Demised Premises, unless otherwise expressly
provided in accordance with the terms and conditions of this Lease.
ARTICLE SIX
CONTINGENCIES
Section 6.l. Conditions Precedent to Lease and Landlord's Obligations.
This Lease and Landlord's obligations hereunder are hereby made expressly
subject to all of the following:
A. The issuance of all building and occupancy permits and consents
that may be required by all boards, agencies and officials having
jurisdiction.
B. In the event that the construction or completion of the Demised
Premises has been or will be financed with the assistance of the
New Jersey Economic Development Authority or other governmental
agency performing a like function, then this Lease is subject to
the further condition that Tenant agrees to furnish such
information as may be required for approval of Tenant as occupant
of the Demised Premises upon forms and in the manner as required
by such Authority or other agency. In the event that any such
financing shall be refinanced with like assistance during the
term of this Lease, then Tenant likewise agrees to furnish such
information.
ARTICLE SEVEN
USE
Section 7.l. Permitted Use.
Tenant shall use the Demised Premises for the Permitted Use enumerated in
Section l.l only and for no other purpose whatsoever.
Section 7.2. Manner of Use, Rules and Regulations, Waste or Nuisance.
A. Tenant, in its use and occupancy of the Demised Premises, shall
not overload the floors or structure, nor subject the Demised
Premises to any use which could tend to damage any portions
thereof.
B. Tenant shall comply with all present and future laws, statutes
and ordinances and the orders, rules, regulations, directives and
requirements of all federal,
-6-
<PAGE>
state, county and municipal departments, bureaus, boards,
agencies, offices, commissions and other subdivisions thereof, or
of any official thereof, or of any governmental, public or
quasi-public authority which may be applicable to the Demised
Premises, and all reasonable Rules and Regulations of Landlord
(as long as said Rules and Regulations are uniformly enforced
throughout the Landlord's Building in which the Demised Premises
is located) pertaining to the Demised Premises, the building in
which and grounds upon which the same are located and all
facilities used in common by Tenant and other tenants of
Landlord. Landlord shall comply, solely with respect to the
repair and replacement of the roof and structural items,
excepting if caused by the negligence of Tenant, its employees,
contractors, agents, servants or invitees, with all present and
future laws, statutes and ordinances and the orders, rules,
regulations, directives and requirements of allfederal, state,
county and municipal departments, bureaus,boards, agencies,
offices, commissions and other subdivisions thereof, or of any
official thereof, or of any governmental, public or quasi-public
authority which may be applicable to the Demised Premises.
C. Tenant shall not suffer, permit or commit any waste, nor allow,
suffer or permit any odors, vapors, steam, vibrations or
undesirable effects to emanate from the Demised Premises, or
otherwise allow, suffer or permit the Demised Premises or any use
thereof to constitute a nuisance. In the event Tenant receives
any claim or notice that any of the aforesaid is occurring, it
shall immediately notify Landlord of such claim or notice. Upon
notice by Landlord to Tenant that any of the aforesaid is
occurring, Tenant agrees forthwith to cease and discontinue the
same and within ten (l0) days thereafter to make such changes in
the Demised Premises and install therein or remove therefrom such
apparatus or equipment as may reasonably be required by Landlord
for the purpose of obviating any such condition; and if any such
condition is not so remedied, Landlord may, at its option, either
(i) enter upon the Demised Premises and cure such condition in
any manner Landlord shall deem necessary and add the cost and
expense incurred by Landlord, together with all damages,
including reasonable attorneys' fees, sustained by Landlord to
the next installment of Fixed Rent due and Tenant agrees to pay
such amount, or (ii) treat such failure on the part of Tenant to
remedy such condition as a default of its obligations under this
Lease. Tenant shall indemnify and save Landlord free and
harmless of and from any and all fines, claims, demands, actions,
proceedings, judgments and damages (including reasonable
attorneys' fees) of any kind or nature by anyone whatsoever,
arising or growing out of any breach or non-performance by Tenant
of its obligations contained in this subsection.
Section 7.3. Signs and Auctions.
A. Any sign placed or erected by Tenant on the Demised Premises,
except in the interior of the Demised Premises, shall contain
only Tenant's name or the name of any affiliate of Tenant
actually occupying the Demised Premises, and no advertising
matter. No such sign shall be erected until Tenant has obtained
Landlord's written
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approval of the location, materials, size, design and
content thereof and any necessary permit therefor, except,
however, no sign shall be erected on the roof of the
Demised Premises. Tenant shall remove any sign upon termination
of this Lease and shall return the Demised Premises to its
condition prior to the placement or erection of said sign.
Tenant shall be permitted to place a sign on the exterior of the
Building, the size, location, design and content thereof shall be
approved by Landlord. No such sign shall be erected by Tenant
until Tenant has obtained Landlord's prior written approval,
which approval shall not be unreasonably withheld, delayed nor
conditioned, except for any necessary municipal approval.
B. Tenant shall not conduct or permit any auctions or sheriff's
sales in, on or at the Demised Premises.
Section 7.4. Inspection by Landlord.
Landlord, its agents and representatives shall have the right to enter
upon the Demised Premises at all reasonable hours upon reasonable notice to
Tenant (and in emergencies at all times): (i) to inspect the same, (ii) to
make repairs, additions or alterations to the Demised Premises and (iii) for
any lawful purpose. If Landlord makes or causes any repairs to be made,
Landlord shall not be responsible to Tenant for any loss or damage that may
occur to its equipment, furniture, personal property or business by reason
thereof. Landlord shall be responsible for the negligence and misconduct of
the Landlord, its employees, contractors and agents and Landlord shall use
reasonable care and efforts to minimize interference with the Tenant's
business. In no event shall Landlord be responsible under this Section or
any other Section of this Lease for any consequential, indirect or punitive
damages.
Section 7.5. Quiet Enjoyment.
Landlord covenants that so long as the Tenant complies with the terms,
covenants and conditions of this Lease, Tenant shall occupy and enjoy the
Demised Premises throughout the Term of this Lease without hindrance,
ejection or molestation by the Landlord or any person acting on behalf of the
Landlord, for the Term, subject to the terms, covenants and conditions of
this Lease.
ARTICLE EIGHT
MAINTENANCE, REPAIRS AND REPLACEMENTS
Section 8.l. Tenant's Obligations.
A. Tenant shall, at Tenant's sole cost and expense, maintain, repair
and replace each and every part of the Demised Premises and keep
and maintain the same in good condition and repair during the
Term. Tenant shall, at Tenant's sole cost and expense, maintain,
repair and replace all driveways, walkways and parking areas and
the lawn and shrubbery and shall keep the exterior of the Demised
Premises in good order, appearance and condition. Tenant shall,
at Tenant's sole cost and expense, keep all driveways, walkways,
sidewalks and parking areas free from ice and snow. All of the
foregoing items which pertain to the interior of the Demised
Premises shall be performed or contracted for by Tenant; and all
of the others of the foregoing items shall be performed or
contracted for by Landlord and apportioned and billed to
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Tenant as above provided in Section 5.2.
B. Notwithstanding the foregoing and excepting for the negligence of
Tenant, its employees, contractors, agents, licensees, servants
and invitees, Landlord shall, at Landlord's sole cost and
expense, maintain, repair and replace the roof and the structural
components of the Demised Premises.
C. Notwithstanding anything to the contrary set forth in the within
Lease Agreement and excepting for the negligence of Tenant or
Tenant's employees, contractors, agents, licensees, servants and
invitees, Landlord shall, at Landlord's sole expense, make all
necessary repairs to the HVAC systems for a period of one (l)
year from the Commencement of the Term.
D. Thereafter and excepting for the negligence of Tenant or Tenant's
employees, contractors, agents, licensees, servants and invitees,
to the extent the replacement of the HVAC systems may be
reasonably expected to have a useful life beyond the Term of this
Lease, Tenant's pro rata share of all costs and expenses of such
HVAC replacements shall include only a portion of the cost of
such replacement as determined by multiplying the cost by a
fraction, the numerator of which is the remaining period of the
leasehold and the denominator of which is the reasonably expected
useful life of the said replacement.
Section 8.2. Landlord's Obligations.
Except for the obligations of Landlord under Article Fourteen (Damage or
Destruction), it is intended by the parties to this Lease that Landlord shall
have no obligation whatsoever to replace, repair and maintain the Demised
Premises nor the equipment therein, whether structural or nonstructural, all
of which obligations are intended to be those of the Tenant under Section
8.l. Tenant expressly waives the benefit of any statute or regulation, now
or hereinafter in effect, which would afford Tenant the right to make repairs
at Landlord's expense or to terminate this Lease because of Landlord's
failure to keep the Demised Premises in good order, condition and repair.
ARTICLE NINE
ALTERATIONS AND IMPROVEMENTS
Section 9.l. Alterations by Tenant.
Tenant shall not make any alterations, renovations, improvements or
other installations ("Alterations") in, on or to the Demised Premises or
any part thereof unless and until Tenant shall have caused plans and
specifications therefor to have been prepared, at Tenant's expense, by an
architect or other duly qualified person and shall have obtained Landlord's
written approval thereof. If such approval is granted, Tenant shall cause
the work described in such plans and specifications to be performed, at its
expense, promptly, efficiently and competently by duly qualified or
licensed persons or entities. In the event that Tenant makes any
Alterations to which Landlord has not granted its approval, then, and in
such case, Tenant hereby warrants, represents and agrees that it shall
remove said Alterations at the expiration or earlier termination of the
Lease Term and restore the Premises to its condition before the unapproved
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Alterations were installed. In the event that Landlord does grant its
approval, then any and all rights with regard to removal or restoration
shall be mutually determined by the parties in conjunction with the initial
approval process.
Section 9.2. Construction Liens.
No Alterations which Landlord permits Tenant to do pursuant to this Lease
shall be deemed to be for the immediate use and benefit of Landlord so that
no construction or other lien shall be allowed against the estate of Landlord
by reason of any consent given by Landlord to Tenant to improve the Demised
Premises. Tenant shall pay promptly all persons furnishing labor or
materials with respect to any Alterations performed by Tenant or its
contractor on or about the Demised Premises. In the event any construction
or other lien or notice of unpaid balance shall at any time be filed against
the Demised Premises by reason of work, labor, services or materials
performed or furnished, or alleged to be performed or furnished, to Tenant or
to anyone holding the Demised Premises through or under Tenant, Tenant shall
forthwith cause the same to be discharged of record or bonded to the
satisfaction of Landlord. If Tenant shall fail to cause such lien or notice
forthwith to be so discharged or bonded after being notified of the filing
thereof, then, in addition to any other right or remedy of Landlord, Landlord
may discharge the same by paying the amount claimed to be due, and the amount
so paid by Landlord including reasonable attorneys' fees incurred by Landlord
in procuring the discharge of such lien or notice, together with interest at
the maximum rate permitted by law, shall be due and payable by Tenant to
Landlord as Additional Rent, upon demand.
Section 9.3. Tenant's Trade Fixtures.
All movable trade fixtures and movable furniture (as distinguished from
Leasehold Improvements) owned by Tenant and installed in the Demised Premises
shall remain the property of Tenant and shall be removable at any time,
including upon the expiration of the Term; provided Tenant shall not at such
time be in default of any terms, conditions, provisions or covenants of this
Lease, and provided further that Tenant shall repair any damage to the
Demised Premises caused by the removal of said fixtures and furniture. If
Tenant is in default, Landlord shall have the benefit of any applicable lien
on Tenant's movable trade fixures and movable furniture (as distinguished
from Leasehold Improvements or inventory, work in process, supplies, or other
goods or property) located in or on the Demised Premises as may be permitted
under any federal or state laws, and in the event such lien is asserted or
filed by Landlord in any manner or by operation of law, Tenant shall have the
responsibilities imposed upon it by any such laws, subject to Tenant's rights
thereunder (including but not limited to the right of replevin).
ARTICLE TEN
UTILITIES
Section l0.l. Landlord's Obligations.
Landlord shall, at its own cost and expense, pay for the construction and
installation of water, sewer, electric and gas to the Demised Premises.
Landlord shall not be liable to Tenant for interruption in or curtailment of
any utility service, nor shall any such interruption or curtailment
constitute a constructive eviction or grounds for rental abatement in whole
or in part hereunder.
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Section l0.2. Tenant's Obligations.
Tenant shall, at its own cost and expense, pay all meter and/or other
service charges for heating, electric and gas. Tenant shall pay as
Additional Rent Tenant's proportionate share as fixed and determined in
Section 5.2, above, of all other metered and/or service charges, including,
but not limited to, water, sewer and stand-by sprinkler charges.
ARTICLE ELEVEN
TAXES
Section ll.l. Tenant to Pay Taxes.
Tenant shall pay in each Tax Year, as defined in Section ll.3, during the
Term, as Additional Rent, its pro rata percentage of all real estate taxes,
ad valorem taxes and assessments, general and special assessments, taxes on
real estate rental receipts, taxes on Landlord's gross receipts, business use
and occupancy taxes, business operations taxes, or any other tax imposed upon
or levied against real estate or upon owners of real estate as such rather
than personalty generally, or payments made to a federal, state or local
government authority by Landlord in lieu of any such taxes or assessments,
payable with respect to or allocable to the entire tax lot of which the
Demised Premises are a part, together with the reasonable cost (including
fees of attorneys, consultants and appraisers) of any negotiation, contest or
appeal pursued by Landlord in an effort to reduce any such tax, assessment or
charge, the same being collectively referred to herein as "Taxes". For the
Tax Year in which the Term commences or terminates, Tenant's liability for
the payment of any Taxes shall be subject to a pro rata adjustment based upon
the number of days of such Tax Year falling within the Term, as set forth in
Section ll.3 below. Notwithstanding the foregoing, Tenant shall not be
responsible for paying any franchise taxes, inheritance taxes, income taxes,
capital stock taxes or interest and penalties (providing Tenant is current in
the payment of all of its Rent and Additional Rent) on any tax. In the event
Landlord receives a refund of any portion of real estate taxes that were
included in the real estate taxes paid by Tenant, then Landlord shall credit
Tenant for its pro rata share of such refunded taxes less Landlord's
reasonable fees and costs.
Section ll.2. Due Dates of Tax Payments.
Said Taxes shall be paid by Tenant, in equal monthly installments, in
such amounts as are reasonably estimated in good faith and billed for each
Tax Year by Landlord at the commencement of the Term and at the beginning of
each successive Tax Year during the Term, each such installment being due on
the first day of each calendar month. Within sixty (60) days after
Landlord's receipt of tax bills for each Tax Year, or such reasonable (in
Landlord's determination) time thereafter, Landlord will certify to Tenant
the amount of Taxes for the Tax Year in question. The Taxes paid or payable
for each Tax Year shall be adjusted between Landlord and Tenant, both
Landlord and Tenant hereby agreeing that Tenant shall pay Landlord or
Landlord shall credit to Tenant's account (or, if such adjustment is at the
end of the Term, pay Tenant), as the case may be, within thirty (30) days of
the aforesaid certification to Tenant, such amount necessary to effect such
adjustment. The failure of Landlord to provide such certification within the
time prescribed above shall not relieve Tenant of its obligations generally
or for the specific Tax Year in which any such failure occurs.
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Section ll.3. "Tax Year" Defined.
The term "Tax Year" shall mean the twelve (l2) full calendar months of
the Term commencing with January lst immediately following the first day of
the Term and shall end December 3lst of such calendar year; thereafter each
Tax Year shall consist of successive period of twelve (l2) calendar months;
provided, however, that the first Tax Year shall commence on the first day of
the Term and terminate immediately following the 3lst day of December, and
the last Tax Year shall terminate on the last day of the Term.
Section ll.4. Taxes on Personal Property.
A. Tenant shall pay or cause to be paid, prior to delinquency, any
and all taxes and assessments levied upon all trade fixtures,
inventories and other personal property placed in and upon the
Demised Premises by Tenant.
B. Should the taxing authorities include in Taxes the value of any
improvements made by Tenant, or include machinery, equipment,
fixtures, inventory or other personal property or assets of
Tenant, then Tenant shall also pay the entire amount of taxes for
such items. Tenant shall pay Landlord the amount of tax for such
items within fifteen (l5) days after Tenant receives a written
statement from Landlord for such taxes.
Section ll.5. Change in Method or Scope of Taxation.
A. If at any time following the execution of this Lease the method
or scope of taxation prevailing at the date of such execution
shall be altered, modified or enlarged so as to cause the method
of taxation to be changed, in whole or in part, so that some
other tax, levy or other imposition is substituted in whole or in
part for the real estate taxes assessed against the Demised
Premises on the date of execution of this Lease, then and in such
event, each and every substituted tax or other imposition shall
be payable and discharged by Tenant in the manner required
pursuant to the law promulgating such tax or other imposition.
If any such substitute tax or other imposition shall be in the
form of an income tax or in the form of any other tax or
imposition which the law promulgating the same shall require
Landlord to pay, then Tenant shall pay Landlord, as Additional
Rent, during the Term of this Lease such amount as shall be
equivalent to the amount by which the real estate taxes have been
decreased or diminished. Such payment shall be made by Tenant to
Landlord at such time or times as Landlord shall be required to
pay such substitute taxes in accordance with law and with the
provisions of this Lease.
B. It being Tenant's obligation to pay its pro rata share of all
real estate taxes assessed against the Demised Premises as
provided elsewhere in this Lease, the parties recognize and
acknowledge that the intent and purpose of this subsection is to
provide against and assure that Landlord does not suffer or
sustain any diminution in the Landlord's gross receipts from the
Rent of the Demised Premises resulting from any change in the
scope or form of taxation which has the effect of shifting any of
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Tenant's obligations under this Lease, or any part thereof, to
Landlord; and Tenant hereby agrees to protect Landlord against
any such diminution in gross receipts as a result thereof.
C. In the event that any dispute shall arise between the parties
with respect to any provisions contained in this Section, then
the parties agree to submit such dispute for arbitration in
accordance with the rules of the American Arbitration
Association. The arbitration proceeding shall be held in
Lawrence Township, Mercer County, New Jersey.
ARTICLE TWELVE
INSURANCE
Section l2.l. Landlord's Insurance.
Landlord shall take out and maintain during the Term the following
insurance coverages:
A. Insurance providing for payment of replacement costs against
damages by fire, extended coverage perils, and vandalism and
malicious mischief perils including, but not by way of
limitation, boiler and machinery coverage, air conditioning
system and sprinkler damage coverage, in an amount equivalent to
the full replacement value of the Demised Premises.
B. Public liability insurance covering personal injuries and
property damage and naming the Landlord as the insured in the
amount of $5,000,000.00 combined single limit.
C. Insurance payable to and insuring the interest of Landlord and
Landlord's mortgagee against abatement or loss of rent in case of
fire or other casualty required to be insured against pursuant to
Subsection A in an amount at least equal to all Rent (as defined
in Section 5.2) payments to be made by Tenant during one (l) year
next ensuing as reasonably determined by Landlord.
D. Tenant shall not do or suffer to be done, or keep or suffer to be
kept, anything in, on or about the Demised Premises which shall
contravene Landlord's policies of hazard or liability insurance
or which will prevent Landlord from procuring such policies from
companies acceptable to Landlord. If anything done, omitted to
be done or suffered by Tenant to be kept in, upon or about the
Demised Premises shall cause the rate of fire or other insurance
on the Demised Premises to be increased beyond the existing rate
from time to time applicable to the Demised Premises for the use
or uses made thereof, Tenant shall pay, as Additional Rent, the
amount of any such increase upon Landlord's demand,
notwithstanding that which is done or kept by Tenant is otherwise
permitted under this Lease.
Section l2.2. Tenant to Pay Landlord's Insurance Premiums.
Landlord shall obtain all insurance required pursuant to Section l2.l
hereof, and Tenant shall pay its pro rata share of the cost thereof
(including, if and when applicable, any deductible), upon demand, as
Additional Rent. Tenant shall be liable for the
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payment of any deductible amount under Landlord's insurance policies.
Section l2.3. Tenant's Insurance.
Tenant shall take out and maintain during the Term the following
insurance coverages:
A. Public liability insurance, including insurance against assumed
or contractual liability with respect to the Demised Premises, to
afford protection with respect to personal injury or death and
property damage in the amount of $2,000,000.00 combined single
limit for personal injury or death and $500,000.00 for property
damage.
B. All-risk casualty insurance, written at replacement cost value
and with replacement cost endorsement, covering all of Tenant's
personal property in the Demised Premises (including, without
limitation, inventory, trade fixtures, floor coverings, furniture
and other property removable by Tenant under the provisions of
this Lease) and all Leasehold Improvements installed in the
Demised Premises by Tenant.
Section l2.4. Tenant's Contractor's Insurance.
Tenant shall require any contractor of Tenant performing work on the
Demised Premises to take out and keep in force, at no expense to Landlord:
A. Comprehensive general liability insurance, including contractor's
liability coverage, contractual liability coverage, completed
operations coverage, broad form property damage endorsement and
contractor's protective liability coverage, to afford protection
with respect to personal injury or death and property damage in
the amount of $5,000,000.00 combined single limit.
B. Worker's compensation or similar insurance in form and amounts
required by law.
Section l2.5. Policy Requirements.
The company or companies writing any insurance which Tenant is required
to take out and maintain or cause to be taken out or maintained pursuant to
Sections l2.3 and l2.4 as well as the form of such insurance shall at all
times be subject to Landlord's reasonable approval and any such company or
companies shall be licensed to do business in New Jersey. Each policy
evidencing such insurance shall name Landlord and, if required by Landlord,
Landlord's mortgagee, as additional insureds and shall also contain a
provision by which the insurer agrees that such policy shall not be cancelled
or otherwise subject to modification except after ten (l0) days' prior
written notice to Landlord. Each such policy, or a certificate thereof,
shall be deposited with Landlord by Tenant promptly upon commencement of
Tenant's obligation to procure the same. If Tenant shall fail to perform any
of its obligations under Sections l2.3 and l2.4, Landlord may perform the
same and the cost of same shall be deemed Additional Rent and shall be
payable by Tenant upon demand.
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Section l2.6. Waiver of Subrogation.
Each party shall cause each insurance policy obtained by it to provide
that the insurance company waives all right of recovery by way of subrogation
against either party in connection with any damage covered by any policy. If
any insurance policy cannot be obtained with a waiver of subrogation, or is
obtainable only by the payment of an additional premium charge above that
charged by insurance companies issuing policies without waiver of
subrogation, the party undertaking to obtain the insurance shall notify the
other party of this fact. The other party shall have a period of ten (l0)
days after receiving the notice either to place the insurance with a company
that is reasonably satisfactory to the other party and that will carry the
insurance with a waiver of subrogation, or to agree to pay the additional
premium if such a policy is obtainable at additional cost. If the insurance
cannot be obtained or the party in whose favor a waiver of subrogation is
desired refuses to pay the additional premium charge, the other party is
relieved of the obligation to obtain a waiver of subrogation rights with
respect to the particular insurance involved.
Section l2.7. Indemnity by Tenant/Landlord.
A. Tenant agrees to indemnify and save Landlord and Landlord's
agents harmless of and from all losses, costs, liabilities,
claims, damages and expenses, including reasonable attorneys'
fees, penalties and fines, incurred in connection with or arising
from (i) any default by Tenant in the observance or performance
of any of the terms, covenants or conditions of this Lease on
Tenant's part to be observed or performed, or (ii) the use,
occupancy, control or management, or manner of use, occupancy,
control or management of the Demised Premises by Tenant or any
person claiming through or under Tenant, or (iii) any acts,
omissions or negligence of Tenant or contractors, agents,
servants, employees, visitors, invitees or licensees of Tenant or
any such person, in or about the Demised Premises either prior
to, during, or after the expiration of, the Term.
B. Landlord agrees to indemnify and save Tenant and Tenant's agents
harmless of and from all losses, costs, liabilities, claims,
damages and expenses, including reasonable attorneys' fees,
penalties and fines, incurred in connection with Landlord making
repairs or replacements to the roof and structural components of
the Demised Premises; however, specifically and expressly
excluded herefrom are any and all consequential, indirect or
punitive damages and any damages due to the negligence of Tenant,
its employees, contractors, agents, servants, licensees or
invitees.
C. Any party claiming indemnification must provide notice and
opportunity to defend to the indemnifying party.
Section l2.8. Indemnity Payments by Tenant.
Tenant shall pay to Landlord, as Additional Rent, within ten (l0) days
next following receipt by Tenant of bills or statements therefor, sums equal
to all losses, costs, liabilities, claims, damages and expenses referred to
in Section l2.7. Tenant's obligations under this Section shall survive the
termination of the Term.
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Section l2.9. Non-Liability of Landlord.
A. Excepting for negligence or misconduct of Landlord, its
contractors, agents and employees, it is expressly understood and
agreed by and between the parties that Tenant shall assume all
risk of damage and casualty to its property, equipment and
fixtures occurring in or about the Demised Premises, whatever the
cause of such damage or casualty. It is further understood and
agreed that, in any event, Landlord, in its capacity as Landlord
and, if applicable, as builder or general contractor of the
Demised Premises, and Landlord's agent, servants and employees
shall not be liable to Tenant, Tenant's agents, employees,
contractors, visitors, invitees, licensees or any other occupant
of the Demised Premises for any damage or injury to person or
property or for any inconvenience or annoyance to Tenant or any
other occupant of the Demised Premises or injury to or
interruption of Tenant's or such other occupant's business,
arising out of or attributable to (i) the design and construction
of the Demised Premises, (ii) any maintenance, repairs,
replacements, additions, alterations, substitutions and
installations made to the Demised Premises, (iii) the failure of
Landlord or others to perform any such maintenance or to make any
such repairs, replacements, additions, alterations, substitutions
and installations to the Demised Premises or to provide any
utilities or services, (iv) steam, electricity, gas, water,
sewerage, rain, ice or snow, or any leak or flow from or into the
Demised Premises, and (v) any other cause or happening
whatsoever.
B. Notwithstanding anything to the contrary provided in this Lease,
each and every term, covenant, condition and provision of this
Lease is hereby made specifically subject to the provisions of
this Section l2.9. It is expressly further understood and agreed
that there shall be no personal liability whatsoever on the part
of Landlord or any successor in interest of Landlord (or on the
part of the officers, directors and shareholders of any
corporation or the members of any firm, partnership or joint
venture which may be the Landlord or any successor in interest of
the Landlord at any time or from time to time) with respect to
any of the terms, covenants, conditions and provisions of this
Lease, and Tenant shall look solely to the equity of Landlord or
such successor in interest in the fee estate of Landlord in the
Demised Premises for the satisfaction of each and every remedy of
Tenant in the event of any breach by Landlord or by any successor
in interest of any of the terms, covenants, conditions and
provisions of this Lease to be performed by Landlord, such
exculpation of corporate and/or personal liability to be absolute
and without any exception whatsoever.
ARTICLE THIRTEEN
ASSIGNMENT AND SUBLETTING.
Section l3.l. Landlord's Consent Required.
A. Tenant shall not assign this Lease, in whole or in part, nor
sublet all or any part of the Demised Premises nor license
concessions or lease departments therein, without first obtaining
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the written consent of Landlord. This prohibition includes any
subletting or assignment which would otherwise occur by operation
of law, merger, consolidation, reorganization, transfer or other
change of Tenant's corporate or proprietary structure, or any
assignment, subletting to or by a receiver or trustee in any
federal or state bankruptcy, insolvency, or other proceedings.
If Tenant is a corporation or partnership (other than a
corporation, the outstanding voting stock of which is listed on a
"national securities exchange", as defined in the Securities
Exchange Act of l934) and at any time after the execution of this
Lease any part or all of the corporate or partnership shares of
interest shall be transferred by sale, assignment, bequest,
inheritance, operation of law or other disposition (including
such a transfer to or by a receiver or trustee in federal or
state bankruptcy, insolvency, or other proceedings) so as to
result in a change in the control of said corporation or
partnership by the person or persons owning a majority of said
corporate or partnership shares of interest upon the execution of
this Lease, such change in control shall constitute a prohibited
assignment for the purpose of applying the provisions of this
paragraph. Consent by Landlord to any assignment or subletting
shall not constitute a waiver of any obligation of the Tenant to
Landlord (it being understood that Tenant shall remain liable
notwithstanding any assignment or subletting) nor shall consent
by the Landlord constitute a waiver of the requirement for such
consent to any subsequent assignment or subletting.
B. If this Lease is assigned to any person or entity pursuant to the
provisions of the Bankruptcy Code, ll U. S. C. Section l0l et
seq. (the Bankruptcy Code), any and all monies or other
considerations payable or otherwise to be delivered in connection
with such assignment shall be paid or delivered to Landlord and
shall be and remain the exclusive property of Landlord or of the
estate of Landlord within the meaning of the Bankruptcy Code.
Any and all monies or other considerations constituting
Landlord's property under the preceding sentence not paid or
delivered to Landlord shall be held in trust for the benefit of
Landlord and be promptly paid or delivered to Landlord.
C. Anything contained herein to the contrary notwithstanding, Tenant
may assign this Lease (with Tenant remaining liable and there
being no change in Use of the Premises regardless of such
assignment) or sublet the Premises, or any portion thereof, with
Landlord's consent, which consent shall not be unreasonably
withheld, to any corporation which controls, is controlled by or
is under common control with Tenant, or to any corporation
resulting from a merger or consolidation with Tenant, or to any
person or entity which acquires all the assets of Tenant's
business as a going concern and further providing Tenant is not
in default of any monetary or non-monetary obligation hereunder
and any such assignee assumes all obligations in writing.
D. Notwithstanding the foregoing, Landlord shall not unreasonably
withhold its consent to an assignment
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subject to compliance with all of the conditions enumerated below:
(i) Tenant is in actual occupancy of the Demised Premises;
and
(ii) The operation being conducted in the Premises shall
remain unaffected and any such assignee or other
transferee shall use the Premises only for the
Permitted Use; and
(iii) The assignment must be all of Tenant's leasehold
interests and of the entire Demised Premises, and shall
also transfer to the assignee all of the Tenant's
rights in, and interest under, this Lease including the
security, if any, deposited hereunder; and
(iv) At the time of such assignment this Lease must be in
full force and effect without any breach or default
thereunder on the part of the Tenant; and
(v) The assignee shall assume, by written recordable
instrument, in form and content satisfactory to
Landlord, the due performance of all of Tenant's
obligations under the Lease, including any accrued
obligations at the time of the assignment; and
(vi) Any such assignee shall have had substantial and
adequate business experience and such assignee shall be
financially qualified to carry on such business in the
Premises; and
(vii) A copy of the assignment and the original assumption
agreement (both in form and content satisfactory to the
Landlord) fully executed and acknowledged by the
assignee shall be mailed to the Landlord ten (l0) days
prior to the effective date of such assignment; and
(viii) Such assignment shall be upon and subject to all the
provisions, terms, covenants and conditions of this
Lease and the Tenant (and any assignee) shall continue
to be and remain liable thereunder; and
(ix) Tenant shall reimburse Landlord for Landlord's
attorneys' fees for examination of and/or preparation
of any documents in connection with such assignment;
and
(x) Landlord shall have the right to recapture any surplus
from any assignment and as such rent comes due in
excess of the rent Tenant is obligated to pay Landlord
under this Lease, after Tenant's costs and expenses
incident to such transaction have been deducted from
the amount of such excess payable to Landlord,
including brokerage, attorney, fix-up and moving fees;
and
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(xi) Landlord shall revisit the issue of an increase in
Security Deposit and the necessity of a Guaranty(ies),
which shall be determined in Landlord's reasonable
commercial discretion; and
(xii) Any such assignment agreement shall contain an express
and specific prohibition against any additional
assignment by such assignee, except as otherwise
expressly permitted under this Lease; and
(xiii) No assignment shall be permitted which will be
violative of any exclusive or restrictive rights
granted to any present or future tenant, assignor or
subtenant; and
(xiv) Landlord shall have the option to cancel and terminate
this Lease in connection with any written requests for
an assignment of the Lease. Landlord may exercise said
option in writing within thirty (30) days after its
receipt from Tenant of such request, and such
cancellation and termination shall occur as of the date
set forth in Landlord's notice of exercise of such
option, which shall not be less than sixty (60) days
nor more than ninety (90) days following the receipt of
such notice; and
(xv) Tenant's failure to comply with all the provisions and
conditions of this Section, and all the subsections
hereof, shall, at Landlord's option, render any
purported assignment null and void and of no force and
effect.
ARTICLE FOURTEEN
DAMAGE OR DESTRUCTION
Section l4.l. Excessive Damage or Destruction.
In case of any damage to or destruction of the Demised Premises by fire
or other insured casualty which shall render the Demised Premises
substantially untenantable and unfit for occupancy and which damage cannot be
repaired within one hundred twenty (l20) days from the happening of such
casualty, then this Lease shall terminate at the option of either party by
written notice to the other; provided, however, that such written notice is
mailed within fifteen (l5) days of such fire or casualty. Landlord shall
determine whether the Demised Premises can be repaired within the one hundred
twenty (l20) day period, and Landlord's determination shall be conclusive on
Tenant. The period of time during which Landlord is prevented from
performing any act required to be performed hereunder by reason of
unavoidable delays as defined in Section 24.2l shall be added to the time for
performance of such act. In the event of such termination, Tenant shall
immediately surrender possession of the Demised Premises and shall pay Rent
only to the date of such damage or destruction; and Landlord may re-enter and
repossess the Demised Premises discharged from this Lease. If neither party
elects to terminate this Lease within such
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fifteen l5) day period, Landlord shall thereupon repair and restore the
Demised Premises with reasonable speed and dispatch. The Fixed Rent and
Additional Rent due and payable hereunder shall abate proportionately, but
only to the extent of any proceeds received by Landlord from rental abatement
insurance described in Section l2.l C, which rental abatement insurance
Landlord represents is adequate and shall, from time to time, be increased so
as to remain adequate. Such abatement shall continue for the period
commencing with such damage or destruction and ending with substantial
completion by Landlord of its repair or reconstruction work or until business
is totally or partially resumed, whichever is the earlier.
Section l4.2. Partial Damage or Destruction.
In case of any damage or destruction as described in the preceding
Subsection which shall not be tantamount to total destruction and which can
be repaired and restored within one hundred twenty (l20) days from the
happening of such casualty, then Landlord shall repair and restore the
Demised Premises with reasonable speed and dispatch. The Fixed Rent and
Additional Rent due and payable hereunder shall abate proportionately, but
only to the extent of any proceeds received by Landlord from rental abatement
insurance described in Section l2.l C. Such abatement shall continue for the
period commencing with such damage or destruction and ending with substantial
completion by Landlord of such repair or reconstruction work or until
business is totally or partially resumed, whichever is the earlier.
Section l4.3. Uninsured Casualty.
Notwithstanding anything contained herein to the contrary, in the event
of damage to or destruction of all or any portion of the Demised Premises
which is not fully covered by the insurance proceeds received by Landlord or
which has not been insured under the insurance policies required under
Section l2.l above, Landlord may terminate this Lease by written notice to
Tenant, given within thirty (30) days after the date of notice to Landlord
that said damage or destruction is not so covered. If Landlord does not
elect to terminate this Lease, this Lease shall remain in full force and
effect and the Demised Premises shall be repaired and rebuilt and the Fixed
Rent shall abate in the same manner as hereinbefore in this Article provided.
Section l4.4. Reasonable Speed and Dispatch.
For the purposes of this Article, in determining what constitutes
reasonable speed and dispatch, consideration shall be given for delays which
would be excuses for nonperformance as hereinafter provided in the Section
entitled "Effect of Unavoidable Delays".
Section l4.5. Damage Near End of Term.
Notwithstanding anything contained herein to the contrary, if the Demised
Premises are partially destroyed or damaged during the last six (6) months of
the Term of this Lease, Landlord/Tenant may, at Landlord's/Tenant's option,
cancel and terminate this Lease as of the date of occurrence of such damage
by giving written notice to Tenant/Landlord of Landlord's/Tenant's election
to do so within thirty (30) days after the date of occurrence of such damage.
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ARTICLE FIFTEEN
CONDEMNATION
Section l5.l. Total Condemnation of Demised Premises.
If the whole of the Demised Premises is acquired or condemned by eminent
domain, inversely condemned or sold in lieu of condemnation, for any public
or quasi-public use or purpose ("Condemned") then the Term shall terminate as
of the date of title vesting in such proceeding and Rent shall be adjusted to
the date of termination.
Section l5.2. Partial Condemnation.
If any part of the Demised Premises is partially Condemned, and such
partial condemnation renders the Demised Premises unusable for the business
of the Tenant, then the Term of this Lease shall terminate as of the date of
title vesting in such proceeding and Rent shall be adjusted to the date of
termination. If such condemnation is not extensive enough to render the
Demised Premises unusable for the business of Tenant, this Lease shall
continue in full force and effect except that after the date of such title
vesting the Fixed Rent and Additional Rent shall be reduced as reasonably
determined by Landlord. A determination with respect to the partial
condemnation rendering the Demised Premises unusable shall be made mutually
by Landlord and Tenant. If not, it shall be the subject of arbitration as
set forth in Section ll.5C.
Section l5.3. Landlord's Award.
If the Demised Premises are wholly or partially Condemned, then, subject
to the provisions of Section l5.4, Landlord shall be entitled to the entire
award paid for such condemnation, and Tenant waives any right or claim in any
part thereof from Landlord or the condemning authority.
Section l5.4. Tenant's Award.
Tenant shall have the right to claim and recover from the condemning
authority, but not from Landlord, such compensation as may be separately
awarded or recoverable by Tenant in Tenant's own right on account of any and
all costs or loss (including loss of business) to which Tenant might be put
in removing Tenant's merchandise, furniture, fixtures, Leasehold Improvements
and equipment to a new location.
Section l5.5. Notice and Execution.
Landlord shall, immediately upon service of process in connection with
any condemnation or potential condemnation, give Tenant notice in writing
thereof. Tenant shall immediately execute and deliver to the Landlord all
instruments that may be required to effect the provisions of this Article
Fifteen.
ARTICLE SIXTEEN
EASEMENTS
Section l6.l. Reservation of Easements to Landlord.
Landlord reserves the right, easement and privilege to enter on the
Demised Premises in order to install, at its own cost and expense, any storm
drains and sewers and/or utility lines in connection therewith as may be
required by Landlord. It is understood and agreed that if such work as may
be required requires
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an installation which may displace any paving, lawn, seeded area or shrubs,
Landlord shall, at its own cost and expense, restore said paving, lawn,
seeded area or shrubs. Landlord further reserves the right to grant
easements on the lot on which the Demised Premises are located ("Lot"), make
boundary adjustments to the Lot and dedicate for public use portions of the
Lot without Tenant's consent provided that no such grant or dedication shall
interfere with Tenant's use of the Demised Premises or otherwise cause Tenant
to incur cost or expense. From time to time upon Landlord's demand, Tenant
shall execute, acknowledge and deliver to Landlord in accordance with
Landlord's instructions, any and all documents or instruments necessary to
effect Tenant's covenants herein, provided, however, that such documents and
instruments shall not materially alter the terms and conditions of this
Lease. If such grant or dedication materially and adversely affects Tenant's
use of the Demised Premises, then the Rent and Additional Rent shall be
reduced accordingly.
ARTICLE SEVENTEEN
DEFAULT
Section l7.l. "Event of Default" Defined.
Any one or more of the following events shall constitute an "Event of
Default":
A. The sale of Tenant's interest in the Demised Premises under
attachment, execution or similar legal process.
B. The filing of any petition in bankruptcy or insolvency by Tenant,
or any guarantor of Tenant's obligations hereunder, or the
reorganization of Tenant or any such guarantor or an arrangement
by Tenant or any such guarantor with its creditors, whether
pursuant to the Federal Bankruptcy Act or any similar federal or
state proceeding, unless such petition is filed by a party other
than Tenant or any such guarantor and is withdrawn or dismissed
within thirty (30) days after the date of its filing.
C. The admission, in writing, by Tenant or any such guarantor of its
inability to pay its debts when due.
D. The appointment of a receiver or trustee for the business or
property of Tenant, or any such guarantor, unless such
appointment shall be vacated within ten (l0) days of its entry.
E. DELETED PRIOR TO EXECUTION.
F. The failure of Tenant to pay any Rent within ten (l0) days of its
due date. However, in no event, shall this relieve Tenant of its
obligations to pay late charges and interest as set forth in
Sections 5.3 and 5.4.
G. Default by Tenant in the performance or observance of any
covenant or agreement of this Lease (other than a default
involving the payment of money), which default is not cured
within thirty (30) days after the giving of notice thereof by
Landlord, unless such default is of such nature that it cannot be
cured within such thirty (30) day period, in which case no Event
of Default shall occur so long as Tenant shall commence the
curing of the default within such thirty (30) day period and shall
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shall thereafter diligently prosecute the curing of same.
Section l7.2. Remedies.
A. Upon the occurrence of an Event of Default, Landlord, without
notice to Tenant in any instance (except where expressly provided
for below) may do any one or more of the following:
(i) DELETED PRIOR TO EXECUTION.
(ii) Landlord may perform, on behalf and at the expense of
Tenant, any obligation of Tenant under this Lease which
Tenant has failed to perform and of which Landlord
shall have given Tenant notice, the cost of which
performance by Landlord, together with interest thereon
at the average of the prime rate set forth in the Wall
Street Journal during the five (5) business days
precedent Landlord's performance plus two (2%) percent,
shall be deemed Additional Rent and shall be payable by
Tenant to Landlord upon demand.
(iii) Landlord may elect to terminate this Lease and the
tenancy created hereby by giving seven (7) days' notice
of such election to Tenant, and/or may re-enter the
Demised Premises, by summary proceedings or otherwise,
and may remove Tenant and all other persons and
property from the Demised Premises, and may store such
property in a public warehouse or elsewhere at the cost
of and for the account of Tenant without resort to
legal process and without Landlord being deemed guilty
of trespass or conversion or becoming liable for any
loss or damage occasioned thereby.
(iv) If Tenant shall default (i) in the payment of any Rent,
and such default shall continue or be repeated for two
(2) consecutive months, or for a total of four (4)
months in any period of twelve (l2) months, or (ii) in
the performance of any other covenant of this Lease
more than six (6) times in the aggregate, in any period
of twelve (l2) months then, notwithstanding that such
defaults have been cured within any period after notice
if applicable, as above provided, any further similar
default shall be deemed deliberate and an immediate
Event of Default and Landlord may thereafter serve a
three (3) day notice of termination without offering
Tenant an opportunity to cure such default.
(v) Landlord may exercise any other legal or equitable
right or remedy which it may have.
B. Notwithstanding the provisions of Clause A (ii) above, and
regardless of whether an Event of Default shall have occurred,
Landlord may exercise the remedy described in Clause A (ii)
without any notice to Tenant if Landlord, in its good faith
judgment, believes it would be materially injured by failure to
take rapid action or if
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the unperformed obligation of Tenant constitutes an emergency.
Section l7.3. Bankruptcy.
A. In the event Tenant becomes the subject debtor in a case pending
under the Bankruptcy Code, or in any Bankruptcy Court of
Division, Landlord's right to terminate this Lease shall be
subject to the rights of the Trustee in Bankruptcy to assume or
assign this Lease. To the extent permitted or allowed by law,
the Trustee shall not have the right to assume or assign this
Lease until the Trustee (i) promptly cures all defaults under
this Lease, (ii) promptly compensates Landlord for monetary
damages incurred as a result of such default, and (iii) provides
"adequate assurance of future performance" which shall mean (in
addition to any other statutory requirements) that all of the
following have been satisfied: (i) in addition to the Rent
payable under the Lease, the Trustee shall establish with
Landlord a Security Deposit equal to three (3) months' Fixed
Rent, (ii) maintain said Security Deposit in said amount whenever
it is drawn upon by Landlord, (iii) Trustee must agree that
Tenant's business shall be conducted in a first class manner, and
(iv) use of the Demised Premises shall not change. If all of the
foregoing are not satisfied, Tenant shall be deemed not to have
provided Landlord with adequate assurance of future performance
of this Lease.
B. In addition, if Tenant becomes the subject debtor under the
Bankruptcy Code or in any Bankruptcy Court or Division, any
person or entity to which this Lease is assigned pursuant to the
provisions of the Bankruptcy Code, ll U.S.C. Section l0l et seq.,
shall be deemed without further act or deed to have assumed all
of the obligations arising under this Lease on and after the date
of such assignment. Any such assignee shall, upon demand,
execute and deliver to Landlord an instrument confirming such
assumption.
Section l7.4. Damages.
A. If this Lease is terminated by Landlord pursuant to Section l7.2
A (iii), Tenant, nevertheless, shall remain liable for any Rent
and damages which may be due or sustained prior to such
termination, and all reasonable costs, fees and expenses incurred
by Landlord in pursuit of its remedies hereunder, or in renting
the Demised Premises to others from time to time (all such Rent,
damages, costs, fees and expenses being referred to herein as
"Termination Damages") and additional damages (the "Liquidated
Damages") equal to the Rent which, but for the termination of
this Lease, would have become due during the remainder of the
Term, less the amount of Rent, if any, which Landlord may receive
during such period from others to whom the Demised Premises may
be rented (other than any Additional Rent received by Landlord as
a result of any failure of such other person to perform any of
its obligations to Landlord).
B. Termination Damages shall be due and payable immediately upon
demand by Landlord following any termination of this Lease
pursuant to Section l7.2 A (iii). Liquidated Damages shall be
computed and payable in monthly
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installments, in advance, on the first day of each calendar month
following the termination of the Lease and continuing until the date
on which the Term would have expired but for such termination. Any
suit or action brought to collect any Liquidated Damages for any
month shall not, in any manner, prejudice the right of Landlord to
collect any Liquidated Damages for any subsequent month by a similar
proceeding.
C. If this Lease is terminated pursuant to Section l7.2 A (iii),
Landlord may relet the Demised Premises, or any part thereof,
alone or together with other premises, for such term of terms
(which may be greater or less than the period which otherwise
would have constituted the balance of the Term) and on such terms
and conditions (which may include rent concessions, or free rent
and alterations of the Demised Premises) as Landlord, in its
absolute discretion, may determine, but Landlord shall not be
liable for, nor shall Tenant's obligations hereunder, be
diminished by reason of, any failure by Landlord to relet, or to
attempt to relet, the Demised Premises or any failure of Landlord
to collect any Rent due upon such reletting.
D. Whether or not Landlord shall have collected any monthly
deficiencies as aforesaid, Landlord shall, at its sole option, be
entitled to recover from Tenant, and Tenant shall pay Landlord,
on demand, as and for Total Liquidated and Agreed Final Damages,
a sum equal to the amount by which the Rent payable hereunder for
the period which otherwise would have constituted the unexpired
portion of the Term exceeds the then fair and reasonable rental
value of the Demised Premises for the same period, both
discounted to present worth at the rate of eight (8%) percent per
annum. If, before presentation of proof of such Total Liquidated
and Agreed Final Damages, to any court, commission or tribunal,
the Demised Premises, or any part thereof, shall have been relet
by Landlord for the period which otherwise would have constituted
the unexpired portion of the Term, or any part thereof, the
amount of Rent upon such reletting shall be deemed, prima facie,
to be the fair and reasonable rental value for the part or the
whole of the Demised Premises so relet during the term of the
reletting.
E. Landlord shall use reasonable efforts to relet the Demised
Premises and mitigate its damages. Notwithstanding the
foregoing, this does not require Landlord to give preference or
priority to the letting or reletting of the Demised Premises.
ARTICLE EIGHTEEN
SECURITY DEPOSIT
Section l8.l. Security Deposit.
A. Landlord acknowledges receipt of the Security Deposit from Tenant
as security for the performance by Tenant of all of the terms,
covenants and conditions required to be performed by Tenant under
this Lease, which sum shall be paid as follows: (i) the sum of
Fifty-One Thousand Two Hundred Fifty-Seven and 82/l00 Dollars
($5l,257.82) in
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cash upon execution of this Lease Agreement; and (ii) a Letter of
Credit ("LC"), in the principal amount of Fifty-One Thousand Two
Hundred Fifty-Seven and 82/l00 Dollars ($5l,257.82), within thirty
(30) calendar days of the execution of this Lease Agreement, time
specifically and expressly hereby being made of the essence for the
procuring and delivery of said Letter of Credit to Landlord, in lieu
of cash, for a total of One Hundred Two Thousand Five Hundred Fifteen
and 64/l00 Dollars ($l02,5l5.64) (said cash and LC collectively
referred to as the "Security Deposit"), subject to all of the following
terms and conditions:
(i) The LC shall be a one-year irrevocable, automatically
renewable and unconditional for each year during the
Term of this Lease; and
(ii) The LC shall be issued by an established and recognized
banking institution approved by Landlord and in form
reasonably acceptable to Landlord; and
(iii) Said LC shall be delivered to Landlord no later than
thirty (30) days from execution of the within Lease
Agreement, time hereby specifically and expressly being
made of the essence for the delivery of said LC to
Landlord; and
(iv) The LC shall provide that the amount for which the LC
was issued shall be paid to Landlord by the issuer no
later than five (5) business days of receipt of a
statement from Landlord, in affidavit form asserting,
the existence of a default by Tenant under this Lease.
No other action shall be required by Landlord. Tenant
shall secure an acknowledgment to this effect from the
issuer and provide Landlord with said; and
(v) The full amount of the LC, when paid to Landlord by the
issuer, as herein provided, shall thereafter be
retained by Landlord as Security Deposit, subject to
disposition in accordance with the provisions of this
Lease; and
(vi) Tenant's failure to fully, completely and punctually
comply with all of the requirements set forth in
subparagraphs (i) through (v) above, time being
specifically and expressly hereby made of the essence,
shall constitute a material and financial default of
the within Lease Agreement under the provisions of this
Lease. However, in the event Landlord receives a
Letter of Credit, which Landlord believes does not
comply with the terms of this Lease, then, and in such
case, Landlord shall give Tenant notice of such
deficienty and a reasonable period of time, not
exceeding thirty (30) calendar days, in which to cure
such deficieny, which cure shall constitute providing
either additional cash, a proper Letter of Credit or other
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collateral satisfactory to Landlord.
(vii) In the event of a transfer of the Demised Premises by
Landlord, Landlord shall receive and forward to Tenant
an acknowledgment of receipt by the transferee of the
Security Deposit.
Such sum shall be returned to Tenant after the expiration of the
Term of this Lease provided Tenant has performed all of such
terms, covenants and conditions. Prior to the time when Tenant
shall be entitled to the return of the Security Deposit, Landlord
shall be entitled to commingle such deposit with its own funds
and to use such sum for such purposes as the Landlord may
determine. Tenant shall not be entitled to any interest on the
Security Deposit.
B. In the Event of Default by Tenant in respect of any of the terms,
covenants and conditions of this Lease, including, but not
limited to, the payment of any Rent, the Landlord may use, apply
or retain all or any part of such Security Deposit for the
payment of any unpaid Rent or for any other amount which the
Landlord may be required to spend by reason of a default of
Tenant, including any damages or deficiency in the reletting of
the Demised Premises, regardless of whether the accrual of such
damages or deficiency occurs before or after an eviction or a
summary re-entry or other re-entry by Landlord.
C. Tenant agrees that in the event Landlord applies any portion of
the Security Deposit in accordance with the provisions of this
Lease, Tenant shall immediately upon demand of Landlord reimburse
or pay Landlord for the amount of the Security Deposit so applied
or, for any increase in the amount of Fixed Rent which may occur
during the Term, so that the amount constituting the Security
Deposit during the Term shall always be equal to six (6) months'
Fixed Rent.
D. In the event of a sale of the Demised Premises, Landlord shall
have the right to transfer the Security Deposit to the vendee and
Landlord shall thereupon be released by Tenant from all liability
for the return of the Security Deposit, and Tenant agrees to look
solely to the new landlord for the return of the Security Deposit
and it is agreed that the provisions hereof shall apply to every
transfer or assignment made of the Security Deposit to a new
Landlord.
E. The Security Deposit shall not be assigned or encumbered by
Tenant without the written consent of the Landlord, and any such
assignment or encumbrance without such consent shall not bind the
Landlord. Regardless of any assignment of this Lease by Tenant,
the Landlord may return the Security Deposit to the original
Tenant in the absence of evidence satisfactory to the Landlord of
an assignment of the right to receive such Security Deposit or
any part of the balance thereof.
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ARTICLE NINETEEN
SUBORDINATION AND ATTORNMENT
Section l9.l Subordination.
A. Unless a Mortgagee (as hereinafter defined) shall otherwise
elect, as provided in Section l9.2, Tenant's rights under this
Lease are and shall remain subject and subordinate to the
operation and effect of: (i) any Lease of the Lot only, or of the
Lot and Building, in a sale-leaseback transaction involving the
Demised Premises, or (ii) any mortgage or other security
instrument constituting a lien upon the Premises, whether the
same shall be in existence on the date hereof or created
hereafter, any such lease, mortgage or other security instrument
being referred to herein as a "Mortgage" and the party or parties
having the benefit of the same, whether as lessor, mortgagee or
note holder, being referred to herein as a "Mortgagee". Tenant's
knowledge of and agreement to subordination provided for in this
Section is self-operative and no further instrument of
subordination shall be required; however, Tenant shall execute
such further assurances thereof as shall be required or as may be
requested, from time to time, by Landlord or a Mortgagee.
B. Tenant agrees to give any mortgagee of Landlord, by certified
mail, return receipt requested, a copy of any notice of default
served upon Landlord, provided that prior to such notice Tenant
has been notified of the address of such mortgagee. Tenant
further agrees that if Landlord shall fail to cure such default
within the time allowed by this Lease, then such mortgagee shall
have an additional thirty (30) days within which to cure such
default (but shall in no event be obligated to cure such
default), or if such default cannot be cured within that time,
then such additional time as may be necessary if within such
thirty (30) days such mortgagee has commenced and diligently
pursued the remedies necessary to cure such default, in which
event Tenant shall continue to be bound by the terms of this
Lease while such remedies are being so diligently pursued.
Section l9.2. Mortgagee's Unilateral Subordination.
If a Mortgagee shall so elect by notice to Tenant or by the recording
of a unilateral declaration of subordination, this Lease and Tenant's
rights hereunder shall be superior and prior in right to the Mortgage of
which such Mortgagee has the benefit, with the same force and effect as if
this Lease had been executed, delivered and recorded prior to the
execution, delivery and recording of such Mortgage, subject, nevertheless,
to such conditions as may be set forth in any such notice of declaration.
Section l9.3. Attornment.
If any person shall succeed to all or part of Landlord's interest in
the Demised Premises, whether by purchase, foreclosure, deed in lieu of
foreclosure, power of sale, termination of Lease or otherwise, and if so
requested or required by such successor in interest, Tenant shall attorn to
such successor in interest and shall execute such agreement and
confirmation of such attornment as such successor in interest shall
reasonably request.
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ARTICLE TWENTY
NOTICES
Section 20.l. Sending of Notices.
Any notice, request, demand, approval or consent given, or required to
be given, under this Lease shall be in writing and shall be deemed to have
been given on the third (3rd) day following the day on which the same shall
have been mailed by United States registered or certified mail, return
receipt requested, with all postal charges prepaid, and shall be addressed,
if intended for Landlord, to Princeton South at Lawrenceville One, 6
Colonial Lake Drive, Lawrenceville, New Jersey 08648, with copy to Coleman
& Dember, l23 Franklin Corner Road, Suites l09-lll, Lawrenceville, New
Jersey 08648, or, if intended for the Tenant, to Tenant, at the Demised
Premises, with copy to Richard J. Pinto, Esquire, Smith, Stratton, Wise,
Heher & Brennan, 600 College Road East, Princeton, New Jersey 08540.
Either party may, at any time, change its address for the above purposes by
sending a notice to the other party stating the change of and setting forth
the new address.
ARTICLE TWENTY ONE
INDUSTRIAL SITE RECOVERY ACT
Section 2l.l. Tenant shall, at Tenant's own expense, comply with the
Industrial Site Recovery Act, N.J.S.A. l3:lK-6, et seq. and the regulations
promulgated thereunder ("ISRA"). Tenant shall not, however, have any
obligation or liability whatsoever in respect of any spill or discharge of
hazardous substances or wastes or any other non-compliance with ISRA which
is caused by any person other than Tenant. Tenant shall, at Tenant's own
cost and expense, make all submissions to, provide all information to, and
comply with all requirements of, the Industrial Site Evaluation Element
("The Element" of the New Jersey Department of Environmental Protection
("NJDEP"). Should the Element or any other division of NJDEP determine
that a clean up plan be prepared and that a clean up be undertaken because
of any spills or discharges of hazardous substances or wastes at the
Premises occurring or arising from Tenant's use and occupancy, then Tenant
shall, at Tenant's own expense, prepare and submit the required plans and
financial assurances, and carry out the approved plans. Tenant's
obligations under this paragraph shall arise if there is any closing,
terminating or transferring of Tenant's operation at the Premises pursuant
to ISRA or other triggering event by Tenant. At no expense to Landlord,
Tenant shall promptly provide all information reasonably requested by
Landlord for preparation of non-applicability affidavits, de minimis
quantity exemption application, or other required submissions, and shall
promptly sign such affidavits when reasonably requested by Landlord.
Tenant shall indemnify, defend and save harmless Landlord from all fines,
suits, procedures, claims and actions of any kind arising out of or in any
way connected with any spills or discharges or hazardous substances or
wastes at the Premises occurring or arising from Tenant's use and
occupancy, and from all fines, suits, procedures, claims and actions of any
kind arising out of Tenant's failure to comply with this Paragraph.
Tenant's obligations and liabilities under this Paragraph shall continue so
long as Landlord remains responsible for any spills or discharges of
hazardous substances or wastes by Tenant at the Premises occurring or
arising from Tenant's use and occupancy. Tenant's failure to abide by the
terms of this Paragraph shall be restrainable by injunction.
Section 2l.2. Landlord shall, at Landlord's own expense, comply with ISRA
in all instances beyond Tenant's responsibility as set
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forth above. To the extent the Element or any other Division of NJDEP
requires information from Landlord, Landlord shall promptly provide all
information requested. Should the Element or any other Division of NJDEP
determine that a clean up plan be prepared and that a clean up be undertaken
because of any spills or discharges of hazardous substances or waste at the
Premises, by any party other than Tenant, then and in such case, Tenant shall
not be responsible and the party who is responsible, Landlord, other tenant
or other party, shall, at its own expense prepare and submit required plans
and financial assurances and carry out the approved plans. Landlord shall
indemnify, defend and save harmless Tenant from all fines, suits, procedures,
claims and actions of any kind arising out of or any way connected with any
spillages, discharges of hazardous substances or waste or other action by
Landlord at the Premises and not occurring or arising from Tenant's use and
occupancy, and from all fines, suits, procedures, claims and actions of any
kind arising out of Landlord's failure to comply with this Paragraph.
Landlord's obligations under this Paragraph shall survive the expiration or
termination of this Lease. Landlord's failure to abide by the terms of this
Paragraph shall be restrainable by injunction.
Section 2l.3. In the event any of the foregoing has not been complied
with, then and in such event, Tenant shall be responsible to continue to
pay monthly Base Rental and all Additional Rental until said DEP approval
is delivered to Landlord, notwithstanding Tenant may not be in possession.
Section 2l.4. In the event that Landlord shall require from Tenant
information and evidence of Tenant's Standard Industrial Classification
number, the nature of Tenant's business being operated upon the Leased
Premises, the use Tenant made of the Leased Premises or like information to
be submitted to DEP or any successor governmental department or agency in
connection with a proposed sale, leasing, exchange, financing, refinancing
or other disposition of the Leased Premises, or of any part thereof, or of
the building in which or land upon which the Leased Premises is located, or
any part thereof, then Tenant shall upon written request of Landlord
furnish such information and evidence in Affidavit or other form required
by DEP without unreasonable delay.
Section 2l.5. Tenant shall commence its ISRA submission in anticipation of
the end of its Lease Term at least six (6) months prior to the expiration
of the Term.
ARTICLE TWENTY TWO
ESCROWS
Section 22.l. Escrows for Insurance Premiums and Real Property Taxes.
If requested by any mortgage lender to whom Landlord has granted a
security interest in the Demised Premises, Tenant shall pay such mortgage
lender or Landlord a sum equal to one twelfth (l/l2) of the annual real
property taxes and/or insurance premiums payable by Tenant under this
Lease, together with each payment of Fixed Rent. Such payment shall be
held by such mortgage lender or Landlord in a non-interest bearing escrow
account. The amount of real property taxes and insurance premiums when
unknown shall be reasonably estimated by Landlord. Funds held by Landlord
in the escrow account shall be applied by Landlord to the payment of real
property taxes and insurance premiums when due. Any deficiency of funds in
the escrow account shall be paid by Tenant to the mortgage
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lender or Landlord upon a written request. If Tenant commits an Event of
Default under this Lease, Landlord may apply any funds held by it in the
escrow account to any obligations then due under this Lease.
ARTICLE TWENTY THREE
PARKING
Section 23.l. General Provisions.
Tenant shall have the non-exclusive right to use sixty-four (64)
non-designated, non-exclusive, parking areas designated by Landlord in
common with other uses permitted by Landlord. All such parking shall be
done within the lines of lined parking spaces and entering and exiting from
such parking areas and the use thereof shall be in accordance with all
directions and regulations of Landlord. Such use of parking areas shall be
limited to passenger automobiles and small vans or commercial vehicles.
Section 23.2. Landlord's Option.
Landlord reserves the right to restrict such parking rights of Tenant
to such spaces and such location as Landlord shall designate by written
notice to Tenant; and upon Landlord giving Tenant such notice, Tenant's
right to use the parking areas shall be limited to the designated parking
spaces and locations.
ARTICLE TWENTY FOUR
MISCELLANEOUS
Section 24.l. Tenant's Certificate.
Tenant/Landlord shall, without charge at any time and from time to
time, within ten (l0) days after request by Landlord/Tenant, certify by
written instrument, duly executed, acknowledged and delivered, to
Landlord/Tenant and to such Mortgagee or other party as may be designated
by Landlord/Tenant: (i) that this Lease is unmodified and in full force and
effect (or, if there has been modification, that the same is in full force
and effect as modified and stating the modification); (ii) whether or not
there are then exiting any set-offs or defenses against the enforcement of
any of the agreements, terms, covenants or conditions hereof upon the part
of Tenant/Landlord to be performed or complied with (and, if so, specifying
the same); and (iii) the dates, if any, to which Rent hereunder has been
paid in advance.
Section 24.2. Lender's Requirements.
Tenant hereby agrees to make any reasonable revisions to this Lease
which may be required in good faith by a bona fide construction, interim or
permanent lender in connection with the financing of the Demised Premises,
provided, however, that such revisions do not, in Tenant's reasonable
judgment, increase the obligations of Tenant hereunder or materially affect
the leasehold interest hereby created or Tenant's use and enjoyment of the
Demised Premises.
Section 24.3. Financial Statements.
At any time during the term, Tenant shall, upon ten (l0) days' prior
written notice from Landlord, provide Landlord with a current financial
statement and financial statements for each of the two years prior to the
current financial statement year. Such statements shall be prepared in
accordance with generally accepted
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accounting principles and, if such is the normal practice of Tenant, shall be
audited by an independent certified public accountant. The foregoing shall
be required only once per Lease Year if necessary or required by any present
or future mortgagee or purchaser.
Section 24.4. Short Form Lease.
It is understood and agreed that this Lease shall not be recorded.
Either party shall, however, have the right to record a short form of this
Lease containing only such provisions as shall be necessary to give
adequate notice of the existence of the leasehold interest of Tenant in the
Demised Premises. Either party desiring to record such short form lease
shall submit the same to the other party for approval prior to record. Such
approval shall not be unreasonably withheld or delayed. Recording, filing
and like charges shall be paid by the party requesting execution of the
same.
Section 24.5. Waiver of Redemption.
Tenant expressly waives any and all rights of redemption granted by or
under any present or future laws in the event Tenant shall be evicted or
dispossessed from the premises for any cause, or if Landlord re-enters the
premises following the occurrence of an Event of Default hereunder, or if
this Lease is terminated before the expiration date originally fixed
herein.
Section 24.6. Remedies Cumulative.
No reference to any specific right or remedy shall preclude Landlord
from exercising any other right or from having any other remedy or from
maintaining any action to which it may otherwise be entitled at law or in
equity. No failure by Landlord to insist upon strict performance of any
agreement, term, covenant or condition hereof, or to exercise any right or
remedy consequent upon a breach thereof, and no acceptance of full or
partial Rent during the continuance of any such breach, shall constitute a
present or future waiver of any such breach, agreement, term, covenant or
condition. No waiver by Landlord of any breach by Tenant under this Lease
shall affect or alter this Lease in any way whatsoever, nor shall
constitute a waiver for the future of any such breach of any provision
hereof.
Section 24.7. Bind and Inure.
This Lease and the covenants and conditions herein contained shall
inure to the benefit of and be binding upon Landlord, its successors,
administrators, heirs, successors and assigns and shall inure to the
benefit of Tenant and to only such assigns of Tenant to whom the assignment
of this Lease by Tenant has been consented to by Landlord. Upon any sale
or other transfer by Landlord of its interest in the Demised Premises,
Landlord shall be relieved of all obligations under this Lease occurring
thereafter.
Section 24.8. Captions and Section Headings.
The captions, section numbers, article numbers and table of contents
appearing in this Lease are inserted only as a matter of convenience and in
no way define, limit, construe or describe the scope or intent of such
sections or articles of this Lease nor in any way affect this Lease.
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Section 24.9. Joint and Several Liability.
DELETED PRIOR TO EXECUTION
Section 24.l0. Broker.
Tenant warrants and represents that no real estate broker or other
person entitled to payment of a commission or other compensation showed the
Demised Premises to Tenant or participated in any way in the negotiation or
execution of this Lease between the parties. Tenant hereby agrees that it
will indemnify and save harmless the Landlord against and from all
liabilities, obligations, claims, costs, charges and expenses, including,
without limitation, reasonable attorneys' fees, connected in any way with
any claim by a real estate broker or other person for a commission or other
compensation for services rendered in effecting this Lease transaction on
behalf of Tenant. The provisions of this Section shall be subject to all
exceptions set forth in Exhibit C annexed hereto, if any.
Section 24.ll. Relationship of Parties.
Nothing contained in this Lease shall be construed to create the
relationship of principal and agent, partnership, joint venture or any
other relationship between the parties hereto other than the relationship
of Landlord and Tenant.
Section 24.l2. No Option.
The submission of this Lease for examination does not constitute a
reservation of or option to lease the Demised Premises, and this Lease
shall become effective only upon execution and delivery thereof by both
parties.
Section 24.l3. No Modification.
This writing is intended by the parties as a final expression of their
agreement and as a complete and exclusive statement of the terms thereof;
all negotiations, considerations and representations between the parties
have been incorporated herein. No course of prior dealings between the
parties or their officers, employees, agent or affiliates shall be relevant
or admissible to supplement, explain or vary any of the terms of this
Lease. Acceptance of, or acquiescence in, a course of performance rendered
under this or any prior agreement between the parties or their affiliates
shall not be relevant or admissible to determine the meanings of any of the
terms of this Lease. No representations, understandings or agreements have
been made or relied upon in the making of this Lease other than those
specifically set forth herein. This Lease can be modified only by a
writing signed by the party against whom the modification is enforceable.
Section 24.l4. Severability.
If any term or provision, or any portion thereof, of this Lease, or
the application thereof to any person or circumstances shall, to any
extent, be invalid or unenforceable, the remainder of this Lease, or the
application of such term or provision to persons or circumstances other
than those as to which it is held invalid or unenforceable, shall not be
affected thereby, and each term and provision of this Lease shall be valid
and be enforced to the fullest extent permitted by law.
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Section 24.l5. Third Party Beneficiary.
Nothing contained in this Lease shall be construed so as to confer
upon any other party the rights of a third party beneficiary except rights
contained herein for the benefit of a Mortgagee.
Section 24.l6. Corporate Tenants.
In the event Tenant is a corporation, the persons executing this Lease
on behalf of Tenant hereby covenant and warrant that (i) Tenant is a duly
constituted corporation qualified to do business in New Jersey and all of
Tenant's franchise and corporate taxes have been paid to date, (ii) all
future forms, reports, fees and other documents necessary for Tenant to
comply with applicable laws shall be filed when due, and (iii) such persons
are duly authorized by the Board of Directors of such corporation to
execute and deliver this Lease on behalf of this corporation.
Section 24.l7. Applicable Law.
This Lease and the rights and obligations of the parties hereunder
shall be construed in accordance with the internal laws of the State of New
Jersey applicable to leases made and to be performed in the State of New
Jersey without regard to principles of conflict of law.
Section 24.l8. Construction of Lease.
A. This Lease shall be construed without regard to any presumption
or other rules requiring construction against the party causing
this Lease to be drafted.
B. Words and phrases used in the singular shall be deemed to include
the plural and vice versa, and nouns and pronouns used in any
particular gender shall be deemed to include any other gender.
C. The rule of "ejusdem generis" shall not be applicable to limit a
general statement following or referable to any enumeration of
specific matters to matters similar to the matters specifically
mentioned.
Section 24.l9. Performance of Landlord's Obligations by Mortgagee.
Tenant shall accept performance of any of Landlord's obligations
hereunder by any Mortgagee.
Section 24.20. Security Measures.
Tenant acknowledges that Rent payable to Landlord does not include the
cost of guard services or other security measures and Landlord has no
obligation to provide such services or measures. Tenant assumes all
responsibility for security of Tenant, its agent and invitees.
Section 24.2l. Effect of Unavoidable Delays.
The provisions of this Section shall be applicable, with respect to
non-monetary occurrences, if there shall occur, during or prior to the
Term, any: (i) strikes, lockouts or labor disputes; (ii) inability to
obtain labor or materials or reasonable substitutes therefor; (iii) Acts of
God, governmental restrictions, regulations or contracts, enemy or hostile
governmental action,
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civil commotion, insurrection, revolution, sabotage or fire or other
casualty; or (iv) other conditions similar to those enumerated or which are
beyond the reasonable control of Landlord. If Landlord shall, as a result
of any such event, fail punctually to perform any lease obligation, then
such obligation shall be punctually performed as soon as practicable after
such event shall abate. If Landlord shall, as a result of any such event,
be unable to exercise any right or option within any time limit provided
therefor in this Lease, such time limit shall be deemed extended for a
period equal to the duration of such event.
Section 24.22. Landlord's Consent or Approval.
With respect to any provision of this Lease which requires Landlord's
consent or approval, Landlord shall give or withhold such consent or
approval in Landlord's sole and absolute discretion.
Section 24.23. Transfer of Title.
Upon the transfer by Landlord of the fee simple title hereunder,
Landlord shall advise Tenant in writing, by certified mail, return receipt
requested, of the name of Landlord's transferee. In such event, the then
Landlord shall be automatically freed and relieved from and after the date
of such transfer of title of all liability with respect to the performance
of any of the covenants and obligations on the part of Landlord herein
contained to be performed subsequent to the date of such transfer of title,
provided any such transfer and conveyance by the Landlord is expressly
subject to the assumption by the grantee or transferee of the obligations
of the Landlord performed pursuant to the terms and conditions of the
within Lease, including an express assumption by the said grantee or
transferee of the obligation to repay any security which has been or may be
deposited with the Landlord pursuant to the terms and conditions of the
within Lease.
Section 24.24. Payment Upon Execution of this Lease.
Tenant shall pay over and deposit with Landlord prior to or upon the
execution of this Lease the Fixed Rent for the first Rental Period and the
Security Deposit, the latter as set forth in Article Eighteen.
Section 24.25. Delivery of Possession.
DELETED PRIOR TO EXECUTION
Section 24.26. Standard Industrial Classification Number.
Tenant does hereby notify Landlord that Tenant's Standard
Industrial Classification Number ("SIC") is 7389. Tenant shall not perform
nor agree to perform any act which will cause its SIC number to fall within
an SIC number to which ISRA (as defined in Section 48 of the Lease) may be
applicable.
Section 24.27. Medical Waste.
If applicable, in addition to any other obligations imposed upon
Tenant under the provisions above, it is expressly understood and agreed that
Tenant shall comply with the provisions of the Comprehensive Regulated
Medical Waste Management Act, N.J.S.A. l3:lE-48.l, et seq., and any rules and
regulations
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promulgated thereunder, applicable to Tenant's use of the Leased Premises.
Tenant shall, in addition, comply with all other laws, statutes, rules and
regulations pertaining to medical waste which are applicable to Tenant or to
Tenant's use of the Leased Premises which may be now or hereafter enacted or
adopted. All of the foregoing shall be at Tenant's own cost and expense.
ARTICLE TWENTY FIVE
TENANT'S OPTION TO RENEW
Section 25.l Option to Renew.
A. Upon the expiration of the initial Term reserved herein, Tenant
shall have the right to renew this Lease for two additional terms
of five (5) years respectively (referred to herein as the "First
Renewal Term" and "Second Renewal Term"). Tenant's right to renew
this Lease for the period(s) referred to above shall be subject
to:
(i) Tenant being in actual possession of the Premises; and
(ii) This Lease then being in full force and effect and
Tenant's not being in default hereunder when such
option(s) to renew may be exercised and at the time of
commencement of such applicable Renewal Term; and
(iii) Tenant is current in payment of all monetary
obligations under this Lease constituting Rent and
Additional Rent; and
(iv) Tenant is not in default of any other terms,
conditions, covenants, and provisions set forth in this
Lease; and
(v) Tenant providing Landlord with prior written notice of
the intention to exercise such option. The requisite
written notice(s) to be furnished by Tenant to Landlord
shall be delivered to Landlord not later than six (6)
months prior to the respective termination of the
initial term or First Renewal Term, as applicable, time
specifically and expressly hereby being made of the
essence for such notice(s). Upon proper exercise by
Tenant of its right to First Renewal Term or Second
Renewal Term, the Term of the Lease shall be deemed
extended to include said First Renewal Term or Second
Renewal Term subject to the provisions of the Lease,
except that (a) there shall be no further option to
renew after the Second Renewal Term; (b) there shall be
no further Landlord's Work; and (c) during the First
Renewal Term or Second Renewal Term the Annual Fixed
Rent and Additional Rent shall be adjusted as set forth
below; and
(vi) Tenant's failure to comply with all of the foregoing
shall render said option(s) to renew, at Landlord's
discretion, null and void.
(vii) The Annual Fixed Rent for the First Renewal
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Term shall be the Annual Fixed Rent in effect for the Fifth
Lease Year, plus the percentage of increase, if any, in the
Consumer Price Index, computed as follows:
There shall be compared the Consumer Price Index for
All Urban Consumers, New York, N.Y. -Northeastern New
Jersey Local Area, All Items, published by the Bureau
of Labor Statistics, Revised Consumer Price Index,
effective January, l987 (l982-84 = l00) (the Index) for
the first month of the First Lease Year of the initial
term of this Lease with the first month of the First
Lease Year of the First Renewal Term. The percentage
of increase in such Index for the first month of the
First Lease Year of the First Renewal Term over the
first month of the First Lease Year of the initial Term
shall be the percentage of increase in the Index for
the purpose of determining the increase in the Fixed
Rent payable during the First Renewal Term of this
Lease. Notwithstanding the foregoing, the Annual Fixed
Rent for the First Renewal Term shall not be less than
that in effect for the Fifth Lease Year.
(viii) The Annual Fixed Rent for the Second Renewal Term shall
be determined in the same manner as that set forth in
Paragraph (vii) above for the First Renewal Term,
excepting the percentage of increase in such Index for
the first month of the First Lease Year of the Second
Renewal Term over the first month of the Fifth Lease
Year of the First Renewal Term shall be the percentage
of increase in the Index for the purpose of determining
the increase in the Fixed Rent payable during the
Second Renewal Term of this Lease. Notwithstanding the
foregoing, the Annual Fixed Rent for the Second Renewal
Term shall not be less than that in effect for the
First Renewal Term.
(ix) It is understood and agreed that in the event the Index
figure required to make the foregoing comparison shall
not be published for the particular month when the same
shall be applicable, then the like Index figure
published in any preceding month shall be used provided
such figure is published within three (3) months of the
month required in accordance with the foregoing. In
the event that the applicable Index figure is not
published within three (3) months of the required month
or if such figure or the entire index shall become
unavailable by reason of discontinuance of publication
or any other reason, then in any such event, the
parties shall agree on an equivalent and substituted
Consumer Price Index to be applied in the same manner
as herein provided.
(x) The parties covenant and agree that as soon as
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the Index figure for the first month of the First Lease
Year of the initial Term of this Lease is published
they will set forth such figure in writing signed by
both parties; and thereafter, when the figure is
published for any succeeding month to be used for
comparison as hereinabove provided, they will likewise
set forth such figure in writing signed by both
parties. The failure to set forth such figures in
writing shall not diminish Tenant's obligations
hereunder.
(xi) All conditions and provisions in this Lease applicable
to the Fixed Rent shall likewise be applicable to the
Fixed Rent as hereby increased during the First and
Second Renewal Term.
C. All covenants, terms, provisions and conditions of this Lease,
other than the provisions granting Tenant an option to renew and
the provision stating the increased amount of Fixed Rent payable
by Tenant, shall remain in full force and effect during the
Renewal Terms of this Lease unless clearly and expressly
inapplicable thereto.
ARTICLE TWENTY-SIX
RIGHT OF FIRST OFFER
Section 26.l Adjoining Space.
A. Tenant shall be granted the right of first offer for the space
adjoining the Demised Premises in the Building in which the
Demised Premises is located if any should become available, upon
the same terms and conditions of the within Lease Agreement and
Schedules, except as set forth below.
B. Said right of first offer shall be granted provided Tenant is (i)
in actual occupancy of the Demised Premises; (ii) the Lease is in
full force and effect; (iii) Tenant is not in default of any
monetary or non-monetary terms, covenants, conditions and
provisions of the this Lease Agreement both at the time such
right of first offer may be exercised and at the commencement of
the term for said adjoining space; (iv) Tenant shall execute and
deliver to Landlord a written exercise of the within right of
first offer which must be delivered to Landlord within thirty
(30) days of Landlord's notice that said space is available, time
being specifically and expressly made of the essence for said
delivery to Landlord of the written exercise, together with such
additional Security Deposit as determined by Landlord.
C. If Tenant properly exercises its right of first offer, pursuant
to the terms of subparagraph B above, then, and in such event,
the Term for said adjacent space shall commence and run
concurrent with the Term for Tenant's present Premises.
D. Tenant's failure to fully and completely comply with the
foregoing shall render said right of first offer null and
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void and of no force and effect and said right of first offer shall
be deemed waived. Furthermore, Tenant's right of first offer
specifically and expressly is subject and subordinate to any
present tenant's rights to extend its term as provided for in its
written lease.
ARTICLE TWENTY-SEVEN
SATELLITE DISH
Section 27.l Satellite Dish
Landlord hereby grants to Tenant the permission to acquire, install,
operate, maintain, repair and replace a Satellite Dish on the roof of the
Building in which the Demised Premises is located for Tenant's sole use.
Such acquisition, installation, operation, maintenance, repair and
replacement specifically are subject to and conditioned upon the following:
A. Tenant shall obtain all necessary Federal, State, County,
municipal and any other requisite governmental and regulatory
agency permits, consents, approvals, and the like, for the
acquisition, installation and operation of the said Satellite
Dish. Tenant shall provide Landlord with documentary proof of
compliance with the foregoing, and further, shall, at all times,
secure and obtain the foregoing required permits, consents,
approvals, and the like, at Tenant's sole cost and expense. Any
and all penalties or fines imposed with respect to the foregoing
shall be the sole responsibility of Tenant. Landlord shall
cooperate with Tenant and shall sign any required applications or
forms necessary for Tenant to obtain the necessary approvals; and
B. Landlord shall have no liability or responsibility whatsoever to
Tenant, or to any other persons, arising from said permission,
and Landlord and Tenant are not intending to create any
relationship of bailment, agency or the like; and
C. Tenant agrees and represents that it solely and completely shall
be responsible for the acquisition, installation, operation,
replacement, supervision, maintenance and repair of the said
Satellite Dish. Furthermore, Tenant hereby acknowledges and
accepts sole and complete responsibility and liability for any
and all direct, indirect or consequential damages or injury to
any and all persons and property (real or personal) arising from
the acquisition, installation, operation, replacement,
supervision, maintenance and repair of the said Satellite Dish.
This includes but specifically is not limited to any and all
personal injury and all damage to the Demised Premises, Building,
all parking areas, any and all adjacent, contiguous or
neighboring buildings, walkways, streets or property (real or
personal) and any and all inconvenience or interruption of
business incurred by any person or entity; and
D. Tenant further acknowledges and agrees that any efforts by
Landlord (if any at all do or shall exist) to assist Tenant with
respect to the said Satellite Dish totally shall be on a
voluntary basis by Landlord and shall not impose, either
expressly or impliedly, any responsibility upon Landlord to
undertake such efforts, to continue such efforts or any
responsibility or liability for the manner
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in which such efforts are done; and
E. Tenant further acknowledges and agrees that neither Landlord, nor
any tenants, contractors, employees, guests, business invitees
nor licensees shall have any responsibility or liability to
Tenant, or to any other party, with respect to the acquisition,
installation, operation, replacement, supervision, maintenance or
repair of the said Satellite Dish or with respect to the removal,
loss, damage or destruction of the said Satellite Dish.
Furthermore, Tenant does hereby indemnify, save, hold and keep
Landlord harmless from any and all claims, from any persons
whatsoever, arising directly, indirectly or consequentially from
the acquisition, installation, operation, replacement,
supervision, maintenance or repair of the said Satellite Dish or
with respect to any removal, loss, damage or destruction of said
Satellite Dish. This indemnification also includes any claims
made by any person against Landlord, any tenants, contractors,
employees, guests, business invitees or licensees with respect to
any such real or personal property damage or any physical or
other damage, harm or injury to any person or entity. This is
intended to be and hereby constitutes a total and complete,
unconditional and continuing indemnification, including, but not
limited to, all attorneys', accountants', appraisers', experts'
and other professional fees and costs and expenses either
incurred with or without litigation and also in connection with
the enforcement of the within terms and conditions; and
F. Tenant warrants and represents that it shall secure, with
companies and in amounts reasonably satisfactory to Landlord, all
required insurance, with waiver of subrogation by carrier, to
effectuate the within agreement so that Tenant adequately has
provided insurance coverage for all damage to the said Satellite
Dish as well as any and all other real and personal property
damage and personal injury which is the subject of Tenant's
complete indemnification as set forth above. Tenant shall, at
all times, provide Landlord, immediately upon request, with
proper documentary evidence of the payment of all insurance
policies together with copies of the policies or certified
certificates thereof with Landlord added as named insured; and
G. Tenant agrees that, at all times, the within terms and
conditions, and the permission granted hereunder, shall be
subject to the permits, consents, approvals, laws, ordinances and
regulations of all Federal, State, County and municipal bodies
and regulatory agencies, and Tenant shall move or remove, repair
or modify, all such items, if required to do so, at its sole cost
and expense; and
H. Tenant agrees that, contemporaneous with Tenant vacating the
Premises, Tenant shall remove all installations pertaining to
the Satellite Dish and the entire Building and all areas located
therein shall be restored to the original condition existing
prior to the installation of the said Satellite Dish at Tenant's
sole cost and expense; and
I. Except as may be modified herein with respect to any
non-liability and indemnification provisions, the terms,
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provisions, covenants and conditions of the said Lease Agreement shall
control and govern the rights of Landlord and the responsibilities and
obligations of Tenant; and
J. Tenant acknowledges and agrees that it shall secure the prior
written approval of Landlord with respect to the size, location
and installation of the Satellite Dish, and any replacement
thereof, which approval shall not be unreasonably withheld. As
set forth above, none of the foregoing shall impose any liability
or responsibility upon the Landlord; and
K. Tenant shall not create nor permit any security interest or lien
to attach to or remain on any portion of the Building or Demised
Premises as a result of this Lease Agreement or as a result of
the acquisition, installation, operation, maintenance or removal
of the Satellite Dish; and
L. Tenant shall comply in all respects with the requirements of
Section 7.2 and Article Twelve of the Lease Agreement.
IN WITNESS WHEREOF, the parties have executed this Lease as of the
date first above written.
PRINCETON SOUTH AT
LAWRENCEVILLE ONE, a New Jersey
Limited Partnership, LANDLORD
/s/ Eleanor Feldherr BY: /s/ Leonard P. Punia
- ------------------------- --------------------------------
Eleanor Feldherr, Witness Leonard P. Punia, Partner
of Princeton South at
Lawrenceville, General
Partner
PRINCETON VIDEO IMAGE, INC.,
a New Jersey Corporation,
TENANT
/s/ Elizabeth A. Dumont By:/s/ Sam McCleery
- ------------------------- --------------------------------
Elizabeth A. Dumont, Controller Sam McCleery, Vice President
(CORPORATE SEAL)
-41-
<PAGE>
EXHIBIT A
[FLOOR PLAN OF PREMISES]
<PAGE>
EXHIBIT B
PLAN OF LEASEHOLD IMPROVEMENTS
Plan signed by Tenant on July l5, l997 incorporated herein by
reference.
<PAGE>
EXHIBIT C
Exceptions to Section 24.l0
Tenant represents that no real estate broker or other person entitled
to payment of commission or other compensation showed the subject premises
to Tenant or participated in any way in the negotiation or execution of
this Lease between the parties excepting Keller, Dodds & Woodworth, Inc.
(Peter Dodds, Representative). Landlord shall pay the commissions of
Keller, Dodds & Woodworth, Inc. pursuant to separate agreement between
Landlord and Keller, Dodds & Woodworth, Inc.
<PAGE>
Exhibit 10.21
NONRECOURSE PROMISSORY NOTE
$475,000.00 July 31, 1997
FOR VALUE RECEIVED, the undersigned, Brown F Williams (the "Obligor"),
hereby promises to pay to the order of Princeton Video Image, Inc., a New
Jersey corporation (the "Holder"), the principal sum of Four Hundred
Seventy-Five Thousand and 00/100 Dollars ($475,000.00) payable on or before
July 31, 2002 (the "Final Payment Date"). The Obligor also promises to pay
to the Holder, or order, simple interest on the principal amount hereof at a
rate per annum of 8.50% (that is, the Wall Street Journal prime rate in
effect on the date hereof), which interest shall be payable at such time as
the principal is due hereunder. Interest shall be calculated on the basis of
a year of 365 days and for the number of days actually elapsed. Any amounts
of interest and principal not paid when due shall bear interest at the rate
equal to the lesser of twelve percent (12%) or the maximum rate of interest
allowed by applicable law. The payments of principal and interest hereunder
shall be made in coin or currency of the United States of America which at
the time of payment shall be legal tender therein for the payment of public
and private debts. This Note is secured by a Pledge Agreement (the "Pledge
Agreement") executed by the Obligor of even date herewith. The liability of
the Obligor to pay this Note is limited to the value of the collateral
pledged as security for payment of this Note, as described in this Note and
in the Pledge Agreement.
This Note shall be subject to the following additional terms and
conditions:
1. Prepayment. The Obligor shall have the right at any time to
prepay the principal hereof in whole or in part, without premium or
penalty, provided that interest on the principal hereof to be so prepaid
accrued to the date of such prepayment shall be paid concurrently with such
prepayment.
2. Offsets. If at any time the Obligor is in default with respect
to any payment of principal or interest thereon, the Holder may, in
addition to and not in derogation of any other remedies which the Holder
may have, at any time and from time to time, credit against the unpaid
principal of this Note and interest thereon any amounts due from the Holder
to the Obligor.
3. No Waiver. No failure or delay by the Holder in exercising any
right, power or privilege under this Note shall operate as a waiver thereof
nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies herein provided shall be cumulative and
not exclusive of any rights or remedies provided by law. No course of dealing
<PAGE>
between the Obligor and the Holder shall operate as a waiver of any rights by
the Holder.
4. Place of Payment. All payments of principal of this Note and
interest thereon shall be made at the office of the Holder at 47 Hulfish
Street, Suite 500, Princeton, New Jersey 08542 or at such other place as
the Holder may from time to time designate in writing.
5. Waiver of Presentment and Notice of Dishonor. The Obligor and
all endorsers, guarantors and other parties that may be liable under this
Note hereby waive presentment, notice of dishonor, protest and all other
demands and notices in connection with the delivery, acceptance,
performance or enforcement of this Note.
6. Acceleration of Payment.
(a) If and to the extent that, prior to the Final Payment Date,
as a result of a merger, consolidation, reorganization, redemption,
dividend, buy-back, exchange, distribution or other such similar event, the
Obligor receives or becomes entitled to receive cash and/or marketable
securities with respect to the Pledged Collateral (as such term is defined
in the Pledge Agreement), then the Obligor shall immediately assign such
cash and/or marketable securities to the Holder, up to the full value of
the unpaid principal and the interest accrued thereon as of the effective
date of such assignment. The proceeds of any such assignment shall be
applied first to penalties (and other such amounts payable hereunder), then
to unpaid interest, and finally to unpaid principal payable hereunder. The
Obligor hereby appoints the Holder his attorney-in-fact for purposes of the
execution of any documents or the taking of any other acts necessary to
effect such assignment.
(b) Further, upon the date one year following the date on which
all of the Pledged Shares become freely transferrable under applicable
Federal and State securities laws and under any underwriter lock-up
agreement or similar agreement restricting sale of the Pledged Shares, if
applicable, as evidenced by an opinion of counsel to the Holder (which
opinion is reasonably acceptable to the Obligor both as to the issuer and
the content thereof) the entire unpaid principal amount of this Note,
together with all accrued interest thereon, shall forthwith become and be
due and payable.
7. Events of Default. The entire unpaid principal amount of this
Note, together with all accrued interest thereon, shall, at the option of
the Holder exercised by written notice to the Obligor, forthwith become and
be due and payable if any one or more of the following events (herein
called "Events of Default") shall have occurred (for any reason whatsoever
and whether such happening
-2-
<PAGE>
shall be voluntary or involuntary or come about or be effected by operation
of law or pursuant to or in compliance with any judgment, decree or order of
any court or any order, rule or regulation of any administrative or
governmental body) and be continuing at the time of such notice:
(a) if default shall be made in the due and punctual payment of
principal of and/or interest on this Note when and as the same shall become
due and payable, whether at maturity, by acceleration or otherwise, and
such default shall have continued for a period of five days;
(b) if default shall be made in the performance or observance of
any of the covenants, agreements or conditions of the Obligor contained in
(i) this Note as such may be amended from time to time, or (ii) the Pledge
Agreement as such may be amended from time to time, and such default shall
have continued for a period of ten days after written notice to the Obligor
from the Holder;
(c) if the Obligor shall:
(i) admit in writing his inability to pay his debts
generally as they become due;
(ii) file a petition in bankruptcy or a petition to take
advantage of any insolvency act;
(iii) make an assignment for the benefit of creditors;
(iv) consent to the appointment of a receiver of the whole
or any substantial part of his property;
(v) on a petition in bankruptcy filed against him, be
adjudicated a bankrupt; or
(vi) file a petition or answer seeking reorganization or
arrangement under the Federal bankruptcy laws or any other applicable law
or statute of the United States of America or any State, district or
territory thereof;
(d) if a court of competent jurisdiction shall enter an order,
judgment, or decree appointing, without the consent of the Obligor, a
receiver of the whole or any substantial part of his property, and such
order, judgment or decree shall not be vacated or set aside or stayed
within 90 days after the date of entry thereof; or
(e) if, under the provisions of any other law for the relief or aid
of debtors, any court of competent jurisdiction shall assume custody or
control of the whole or any substantial part of his property and such custody
or control shall not be terminated or
-3-
<PAGE>
stayed within 60 days from the date of assumption of such custody or control.
8. Remedy. In case any one or more of the Events of Default specified
in Section 7 hereof shall have occurred and be continuing, the Holder's sole
remedy shall be to sell the Pledged Collateral in the manner set forth in
Section 11(a) of the Pledge Agreement and apply the proceeds from such sale
to the payment of the unpaid principal of this Note and the interest accrued
thereon. The Obligor's liability to pay this Note is limited to the value of
the Pledged Collateral. In no event shall the Obligor be personally liable
for any deficiency resulting from the sale of the Pledged Collateral, nor
shall any action or proceeding in any event be brought by the Holder against
the Obligor to recover a personal judgment against him upon this Note or upon
the Pledge Agreement. Any surplus proceeds from the sale of the Pledged
Collateral remaining after payment in full of this Note shall be paid over to
the Obligor.
9. Severability. In the event that one or more of the provisions of
this Note shall for any reason be held invalid, illegal or unenforceable in
any respect, such invalidity, illegality or unenforceability shall not affect
any other provision of this Note, but this Note shall be construed as if such
invalid, illegal or unenforceable provision had never been contained herein.
10. Governing Law. This Note and the rights and obligations of the
Obligor and the Holder shall be governed by and construed in accordance with
the laws of the State of New Jersey applicable to agreements made and to be
performed entirely within such State.
/s/ Brown F Williams
------------------------------
Brown F Williams
STATE OF NEW JERSEY )
)SS:
COUNTY OF MERCER )
I certify that on July 31, 1997, Brown F Williams personally came before
me and acknowledged under oath, to my satisfaction, that this person:
(a) is named in and personally signed this Note; and
(b) signed, sealed and delivered this Note as his act and deed.
Colleen C. Conrad
-------------------------------
Notary Public
-4-
<PAGE>
Exhibit 10.22
PLEDGE AGREEMENT
PLEDGE AGREEMENT (this "Agreement") dated July 31, 1997, made by Brown F
Williams (the "Pledgor") to Princeton Video Image, Inc., a New Jersey
corporation ("PVI" or the "Pledgee").
PRELIMINARY STATEMENTS
A. Pursuant to the exercise of a warrant dated July 31, 1992 (the
"Warrant"), the Pledgor has, as of the date hereof, purchased 95,000 shares
of common stock of PVI, all of which shares (the "Pledged Shares") are
pledged pursuant to this Agreement.
B. In connection with the exercise of the Warrant, the Pledgor has
executed a Promissory Note of even date herewith (the "Note," all defined
terms utilized herein and not otherwise defined herein having the meaning
ascribed thereto in the Note) in the principal amount of $475,000.00 payable
to the Pledgee. Under the terms of the Note and to induce the Pledgee to
extend credit to the Pledgor, the Pledgor shall have made the pledge
contemplated by this Agreement.
NOW THEREFORE, in consideration of the premises and in order to induce
the Pledgee to extend credit under the Note, the Pledgor hereby agrees with
the Pledgee as follows:
SECTION 1. Pledge. The Pledgor hereby pledges, hypothecates, assigns,
transfers and conveys to the Pledgee and grants to the Pledgee a security
interest in and to, the following (the "Pledged Collateral"):
(i) all right, title and interest in and to the Pledged Shares and
the certificates representing the Pledged Shares, and all dividends, cash,
instruments and other property from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of the
Pledged Shares; and
(ii) all right, title and interest in and to all additional shares
of stock of PVI arising out of a recapitalization or stock split relating to
the Pledged Shares and the certificates representing such additional shares,
and all dividends, cash, instruments and other property from time to time
received, receivable or otherwise distributed in respect of or in exchange
for any or all of such stock.
SECTION 2. Security for Obligations. This Agreement secures the due
and punctual payment or performance, whether at stated maturity, by
acceleration or otherwise, of all obligations of the Pledgor now or hereafter
existing under the Note and this Agreement (all such obligations of the
Pledgor or any other obligor being the "Pledge Obligations").
SECTION 3. Delivery of Pledged Collateral. All certificates or
instruments representing or evidencing the Pledged
<PAGE>
Collateral of the Pledgor have been delivered to the Pledgee and shall be in
suitable form for transfer by delivery, or shall be accompanied by duly
executed instruments of transfer or assignment in blank, all in form and
substance satisfactory to the Pledgee. The Pledgee shall have the right, at
any time in its discretion and without notice to the Pledgor, to transfer to
or to register in the name of the Pledgee or any of its nominees any or all
of the Pledged Collateral of the Pledgor. In addition, the Pledgee shall
have the right at any time to exchange certificates representing or
evidencing Pledged Collateral of the Pledgor for certificates of smaller or
larger denominations.
SECTION 4. Representations and Warranties. The Pledgor represents
and warrants as follows:
(a) The Pledgor is the legal and beneficial owner of the Pledged
Shares free and clear of any lien, security interest, option or other charge
or encumbrance except for the security interest created by this Agreement and
the agreements contemplated hereby.
(b) The Pledgor has full power and authority to make the pledge of
the Pledged Shares.
(c) This Agreement has been executed and delivered by the Pledgor
and constitutes a valid and binding agreement of the Pledgor.
(d) The pledge of the Pledged Shares pursuant to this Agreement
creates an enforceable, valid and perfected security interest in the Pledged
Collateral, securing the payment and performance of the Pledge Obligations.
(e) No authorization, approval, or other action by, and no notice
to or filing with, any governmental authority or regulatory body is required
either (i) for the pledge by the Pledgor of the Pledged Collateral pursuant
to this Agreement or for the execution, delivery or performance of this
Agreement by the Pledgor, or (ii) for the exercise by the Pledgee of the
voting or other rights provided for in this Agreement or the remedies in
respect of the Pledged Collateral pursuant to this Agreement (except as may
be required in connection with such disposition by laws affecting the
offering and sale of securities generally).
SECTION 5. Further Assurances. The Pledgor agrees that at any time
and from time to time, at the expense of the Pledgee, the Pledgor will
promptly execute and deliver all further instruments and documents, and take
all further action, that may be necessary or desirable, or that the Pledgee
may reasonably request, in order to perfect and protect any security interest
granted or purported to be granted hereby or to enable the Pledgee to
exercise and
2
<PAGE>
enforce its rights and remedies hereunder with respect to any Pledged
Collateral.
SECTION 6. Voting Rights; Distributions; Etc.
(a) So long as no Event of Default (as defined in the Note) in any
of the Pledge Obligations shall have occurred and be continuing, the Pledgor
shall be entitled to exercise any and all voting and other consensual rights
pertaining to the Pledged Collateral or any part thereof for any purpose not
inconsistent with the terms of this Agreement or the Note or any other
document or instrument relating to the transactions contemplated hereby and
thereby, and the Pledgee shall execute and deliver (or cause to be executed
and delivered) to the Pledgor all such proxies and other instruments as such
Pledgor may reasonably request for the purpose of enabling such Pledgor to
exercise the voting and other rights which he is entitled to exercise
pursuant to this Section 6(a); provided, however, that the Pledgor shall not
exercise or refrain from exercising any such right if, in the judgment of the
Pledgee, such action could have a material adverse effect on the value of the
Pledged Collateral or any part thereof; and provided, further, that the
Pledgor shall give the Pledgee at least five (5) days' written notice of the
manner in which he intends to exercise, or the reasons for refraining from
exercising, any such right.
(b) Upon the occurrence and during the continuance of any Event of
Default, all rights of the Pledgor to exercise the voting and other
consensual rights which he would otherwise be entitled to exercise pursuant
to Section 6(a) shall cease, and all such rights shall thereupon become
vested in the Pledgee, who shall thereupon have the right to exercise such
voting and other consensual rights, except to the extent the exercise of such
rights is prohibited by applicable law.
SECTION 7. Transfer and Other Liens; Additional Shares.
(a) The Pledgor agrees that he will not (i) sell or otherwise
dispose of, or grant any option with respect to, any of the Pledged
Collateral, or (ii) create or permit to exist any lien, security interest, or
other charge or encumbrance upon or with respect to any of the Pledged
Collateral, except for the security interest under this Agreement.
(b) The Pledgor agrees that he will (i) cause the issuer of the
Pledged Collateral not to issue any stock or other securities in substitution
for the Pledged Collateral issued by the issuer, except to the Pledgor and
(ii) pledge hereunder, immediately upon his acquisition (directly or
indirectly) thereof, any and all of such shares of stock or other securities.
SECTION 8. Pledgee Appointed Attorney-in-Fact. The Pledgor hereby
appoints the Pledgee the Pledgor's attorney-in-fact,
3
<PAGE>
with full authority in the place and stead of the Pledgor and in the name of
the Pledgor or otherwise, from time to time in the Pledgee's discretion to
take any action and to execute any instrument which the Pledgee may deem
necessary or advisable to accomplish the purposes of this Agreement,
including, without limitation, to receive, endorse and collect all
instruments made payable to the Pledgor representing any dividend or other
distribution in respect of the Pledged Collateral or any part thereof and to
give full discharge for the same.
SECTION 9. Pledgee May Perform. If the Pledgor fails to perform any
agreement contained herein, the Pledgee may itself perform, or cause
performance of, such agreement.
SECTION 10. Reasonable Care. The Pledgee shall be deemed to have
exercised reasonable care in the custody and preservation of the Pledged
Collateral in its possession, if any, if such Pledged Collateral is accorded
treatment substantially equal to that which the Pledgee accords its own
property, it being understood that the Pledgee shall not have responsibility
for (i) ascertaining or taking action with respect to shareholder or other
rights, including without limitation, voting rights, calls, conversions,
exchanges, tenders or other matters relative to any Pledged Collateral of the
Pledgor, whether or not the Pledgee has or is deemed to have knowledge of
such matters, or (ii) taking any necessary steps to preserve rights against
any parties with respect to any Pledged Collateral of the Pledgor.
SECTION 11. Remedy Upon Default.
(a) If any Event of Default shall have occurred and be continuing,
the Pledgee's sole remedy shall be to (i) sell, without notice except as
specified below, the Pledged Collateral or any part thereof in one or more
parcels at public or private sale, at any exchange, broker's board or
elsewhere, for cash, on credit or for future delivery, and upon such other
terms as the Pledgee, in its sole discretion, may deem commercially
reasonable, and (ii) apply the proceeds from such sale to the payment of the
unpaid principal of the Note and the interest accrued thereon. In order to
enable the Pledgee to exercise the remedy set forth in this Section 11, the
Pledgor has executed and delivered the Common Stock Power attached hereto
which the Pledgee will hold as additional Pledged Collateral. The Pledgor
agrees that, to the extent notice of sale shall be required by law, at least
twenty (20) days' notice to the Pledgor of the time and place of any public
sale or the time after which any private sale is to be made shall constitute
reasonable notification. The Pledgee shall not be obligated to make any sale
of Pledged Collateral of the Pledgor regardless of notice of sale having been
given. The Pledgee may adjourn any public or private sale from time to time
by announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was so
adjourned.
4
<PAGE>
(b) The Pledgor's liability to pay the Note is limited to the
value of the Pledged Collateral. In no event shall the Pledgor be personally
liable for any deficiency resulting from the sale of the Pledged Collateral,
nor shall any action or proceeding in any event be brought by the Pledgee
against the Pledgor to recover a personal judgment against him upon this
Agreement or upon the Note. Any surplus proceeds from the sale of the
Pledged Collateral remaining after payment in full of the Note shall be paid
over to the Pledgor.
SECTION 12. Security Interest Absolute. All rights of the Pledgee and
security interests hereunder, and all obligations of the Pledgor hereunder
shall be absolute and unconditional irrespective of:
(i) any lack of validity or enforceability of the Note or
any other agreement or instrument relating thereto;
(ii) any change in the time, manner or place of payment
of, or in any other term of, all or any of the Pledge Obligations, or any
other amendment or waiver or any consent to any departure from the Note or
any other agreement or document relating thereto; or
(iii) any exchange, release or non-perfection of any other
collateral, for all or any of the Pledge Obligations.
SECTION 13. Amendments, Etc. No amendment or waiver of any provision
of this Agreement nor consent to any departure by the Pledgor herefrom, shall
in any event be effective unless the same shall be in writing and signed by
the Pledgee, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
SECTION 14. Notices, Etc. All notices and other communications
provided for hereunder shall be in writing (including facsimile transmission
and telegraphic communication) and, if to the Pledgor, mailed, transmitted,
telegraphed or delivered to him at 127 Honeybrook Drive, Princeton, New
Jersey 08540, and if to the Pledgee, mailed, transmitted, telegraphed or
delivered to it at 47 Hulfish Street, Suite 500, Princeton, New Jersey 08542,
with a copy to Richard J. Pinto, Esquire, Smith, Stratton, Wise, Heher &
Brennan, 600 College Road East, Princeton, New Jersey 08540, or as to any
party at such other address as shall be designated by such party in a written
notice to each other party complying as to delivery with the terms of this
Section 14. All such notices and other communications shall, when mailed,
transmitted or telegraphed, be effective when deposited in the mails,
confirmed by return facsimile transmission or delivered to the telegraph
company, respectively, addressed as aforesaid.
5
<PAGE>
SECTION 15. Continuing Security Interest; Transfer of Note; Release of
Security Interest.
(a) This Agreement shall create a continuing security interest in
the Pledged Collateral of the Pledgor and shall (i) remain in full force and
effect until payment in full of the Pledge Obligations, (ii) be binding upon
the Pledgor, his successors and assigns, and (iii) inure, together with the
rights and remedies of the Pledgee, to the benefit of the Pledgee and its
respective successors, transferees and assigns. Without limiting the
generality of the foregoing clause (iii), the Pledgee may assign or otherwise
transfer the Note (or other instrument of indebtedness of the Pledgor) held
by it or any interest therein, or grant any participation in its rights or
obligations under the Note, subject to the provisions of the Note, to any
other person, and such other person shall thereupon become vested with all
the rights in respect thereof granted to the Pledgee herein or otherwise.
(b) Upon the payment in full of the Pledge Obligations, the Pledgor
shall be entitled to the return of such of the Pledged Collateral of the
Pledgor as shall not have been sold or otherwise applied pursuant to the
terms of this Agreement and the Pledgee agrees promptly to return to the
Pledgor such Pledged Collateral.
SECTION 16. Severability. If any term or provision of this Agreement
is held to be illegal, invalid or unenforceable by any court of competent
jurisdiction, then such illegal, invalid or unenforceable term or provision
shall be severed from this Agreement, and the remainder of this Agreement
shall continue in full force and effect as if such illegal, invalid or
unenforceable term or provision had never been a part hereof.
SECTION 17. Governing Law; Terms. This Agreement shall be governed
by, construed and interpreted in accordance with the laws of the State of New
Jersey, without regard to the law of conflicts.
6
<PAGE>
IN WITNESS WHEREOF, the Pledgor has duly executed and delivered this
Pledge Agreement as of the date first written above.
/s/ Brown F Williams
------------------------------
Brown F Williams
ACCEPTED AND AGREED TO
AS OF THE DATE HEREOF
PRINCETON VIDEO IMAGE, INC.
By: /s/ Douglas J. Greenlaw
---------------------------
Name: Douglas J. Greenlaw
Title: Chief Executive Officer
and President
7
<PAGE>
COMMON STOCK POWER
Brown F Williams (the "Transferor") does hereby assign and transfer
unto the following persons the number set forth opposite each person's name
of his shares of the Common Capital Stock of Princeton Video Image, Inc.,
standing in his own name on the books of said Corporation represented by
Certificate No. _____ herewith:
Assign and transfer to Number of Shares
---------------------- ----------------
Princeton Video Image, Inc. 95,000
The Transferor does hereby irrevocably constitute and appoint Smith,
Stratton, Wise, Heher & Brennan his attorney to transfer said stock on the
books of the Corporation with full power of substitution in the premises.
Dated: July 31, 1997
/s/ Brown F Williams
------------------------------
Brown F Williams
8
<PAGE>
Exhibit 10.23
NONRECOURSE PROMISSORY NOTE
$180,000.00 July 31,1997
FOR VALUE RECEIVED, the undersigned, Samuel McCleery (the "Obligor"),
hereby promises to pay to the order of Princeton Video Image, Inc., a New
Jersey corporation (the "Holder"), the principal sum of One Hundred Eighty
Thousand and 00/100 Dollars ($180,000.00) payable on or before July 31, 2002
(the "Final Payment Date"). The Obligor also promises to pay to the Holder,
or order, simple interest on the principal amount hereof at a rate per annum
of 8.50% (that is, the Wall Street Journal prime rate in effect on the date
hereof), which interest shall be payable at such time as the principal is due
hereunder. Interest shall be calculated on the basis of a year of 365 days
and for the number of days actually elapsed. Any amounts of interest and
principal not paid when due shall bear interest at the rate equal to the
lesser of twelve percent (12%) or the maximum rate of interest allowed by
applicable law. The payments of principal and interest hereunder shall be
made in coin or currency of the United States of America which at the time of
payment shall be legal tender therein for the payment of public and private
debts. This Note is secured by a Pledge Agreement (the "Pledge Agreement")
executed by the Obligor of even date herewith. The liability of the Obligor
to pay this Note is limited to the value of the collateral pledged as
security for payment of this Note, as described in this Note and in the
Pledge Agreement.
This Note shall be subject to the following additional terms and
conditions:
1. Prepayment. The Obligor shall have the right at any time to prepay
the principal hereof in whole or in part, without premium or penalty,
provided that interest on the principal hereof to be so prepaid accrued to
the date of such prepayment shall be paid concurrently with such prepayment.
2. Offsets. If at any time the Obligor is in default with respect to
any payment of principal or interest thereon, the Holder may, in addition to
and not in derogation of any other remedies which the Holder may have, at any
time and from time to time, credit against the unpaid principal of this Note
and interest thereon any amounts due from the Holder to the Obligor.
3. No Waiver. No failure or delay by the Holder in exercising any
right, power or privilege under this Note shall operate as a waiver thereof
nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies herein provided shall be cumulative and
not exclusive of any rights or remedies provided by law. No course of dealing
<PAGE>
between the Obligor and the Holder shall operate as a waiver of any rights by
the Holder.
4. Place of Payment. All payments of principal of this Note and
interest thereon shall be made at the office of the Holder at 47 Hulfish
Street, Suite 500, Princeton, New Jersey 08542 or at such other place as the
Holder may from time to time designate in writing.
5. Waiver of Presentment and Notice of Dishonor. The Obligor and all
endorsers, guarantors and other parties that may be liable under this Note
hereby waive presentment, notice of dishonor, protest and all other demands
and notices in connection with the delivery, acceptance, performance or
enforcement of this Note.
6. Acceleration of Payment.
(a) If and to the extent that, prior to the Final Payment Date, as
a result of a merger, consolidation, reorganization, redemption, dividend,
buy-back, exchange, distribution or other such similar event, the Obligor
receives or becomes entitled to receive cash and/or marketable securities
with respect to the Pledged Collateral (as such term is defined in the Pledge
Agreement), then the Obligor shall immediately assign such cash and/or
marketable securities to the Holder, up to the full value of the unpaid
principal and the interest accrued thereon as of the effective date of such
assignment. The proceeds of any such assignment shall be applied first to
penalties (and other such amounts payable hereunder), then to unpaid
interest, and finally to unpaid principal payable hereunder. The Obligor
hereby appoints the Holder his attorney-in-fact for purposes of the execution
of any documents or the taking of any other acts necessary to effect such
assignment.
(b) Further, upon the date one year following the date on which all
of the Pledged Shares become freely transferrable under applicable Federal
and State securities laws and under any underwriter lock-up agreement or
similar agreement restricting sale of the Pledged Shares, if applicable, as
evidenced by an opinion of counsel to the Holder (which opinion is reasonably
acceptable to the Obligor both as to the issuer and the content thereof) the
entire unpaid principal amount of this Note, together with all accrued
interest thereon, shall forthwith become and be due and payable.
7. Events of Default. The entire unpaid principal amount of this Note,
together with all accrued interest thereon, shall, at the option of the
Holder exercised by written notice to the Obligor, forthwith become and be
due and payable if any one or more of the following events (herein called
"Events of Default") shall have occurred (for any reason whatsoever and
whether such happening
-2-
<PAGE>
shall be voluntary or involuntary or come about or be effected by operation
of law or pursuant to or in compliance with any judgment, decree or order of
any court or any order, rule or regulation of any administrative or
governmental body) and be continuing at the time of such notice:
(a) if default shall be made in the due and punctual payment of
principal of and/or interest on this Note when and as the same shall become
due and payable, whether at maturity, by acceleration or otherwise, and such
default shall have continued for a period of five days;
(b) if default shall be made in the performance or observance of
any of the covenants, agreements or conditions of the Obligor contained in
(i) this Note as such may be amended from time to time, or (ii) the Pledge
Agreement as such may be amended from time to time, and such default shall
have continued for a period of ten days after written notice to the Obligor
from the Holder;
(c) if the Obligor shall:
(i) admit in writing his inability to pay his debts generally
as they become due;
(ii) file a petition in bankruptcy or a petition to take
advantage of any insolvency act;
(iii) make an assignment for the benefit of creditors;
(iv) consent to the appointment of a receiver of the whole or
any substantial part of his property;
(v) on a petition in bankruptcy filed against him, be
adjudicated a bankrupt; or
(vi) file a petition or answer seeking reorganization or
arrangement under the Federal bankruptcy laws or any other applicable law or
statute of the United States of America or any State, district or territory
thereof;
(d) if a court of competent jurisdiction shall enter an order,
judgment, or decree appointing, without the consent of the Obligor, a
receiver of the whole or any substantial part of his property, and such
order, judgment or decree shall not be vacated or set aside or stayed within
90 days after the date of entry thereof; or
(e) if, under the provisions of any other law for the relief or aid
of debtors, any court of competent jurisdiction shall assume custody or
control of the whole or any substantial part of his property and such custody
or control shall not be terminated or
-3-
<PAGE>
stayed within 60 days from the date of assumption of such custody or control.
8. Remedy. In case any one or more of the Events of Default specified
in Section 7 hereof shall have occurred and be continuing, the Holder's sole
remedy shall be to sell the Pledged Collateral in the manner set forth in
Section 11(a) of the Pledge Agreement and apply the proceeds from such sale
to the payment of the unpaid principal of this Note and the interest accrued
thereon. The Obligor's liability to pay this Note is limited to the value of
the Pledged Collateral. In no event shall the Obligor be personally liable
for any deficiency resulting from the sale of the Pledged Collateral, nor
shall any action or proceeding in any event be brought by the Holder against
the Obligor to recover a personal judgment against him upon this Note or upon
the Pledge Agreement. Any surplus proceeds from the sale of the Pledged
Collateral remaining after payment in full of this Note shall be paid over to
the Obligor.
9. Severability. In the event that one or more of the provisions of
this Note shall for any reason be held invalid, illegal or unenforceable in
any respect, such invalidity, illegality or unenforceability shall not affect
any other provision of this Note, but this Note shall be construed as if such
invalid, illegal or unenforceable provision had never been contained herein.
10. Governing Law. This Note and the rights and obligations of the
Obligor and the Holder shall be governed by and construed in accordance with
the laws of the State of New Jersey applicable to agreements made and to be
performed entirely within such State.
/s/ Samuel McCleery
------------------------------
Samuel McCleery
STATE OF NEW JERSEY )
)SS:
COUNTY OF MERCER )
I certify that on July 31, 1997, Samuel McCleery personally came before
me and acknowledged under oath, to my satisfaction, that this person:
(a) is named in and personally signed this Note; and
(b) signed, sealed and delivered this Note as his act and deed.
Colleen C. Conrad
------------------------------
Notary Public
-4-
<PAGE>
Exhibit 10.24
PLEDGE AGREEMENT
PLEDGE AGREEMENT (this "Agreement") dated July 31, 1997, made by
Samuel McCleery (the "Pledgor") to Princeton Video Image, Inc., a New
Jersey corporation ("PVI" or the "Pledgee").
PRELIMINARY STATEMENTS
A. Pursuant to the exercise of a warrant dated July 31, 1992 (the
"Warrant"), the Pledgor has, as of the date hereof, purchased 36,000 shares
of common stock of PVI, all of which shares (the "Pledged Shares") are
pledged pursuant to this Agreement.
B. In connection with the exercise of the Warrant, the Pledgor has
executed a Promissory Note of even date herewith (the "Note," all defined
terms utilized herein and not otherwise defined herein having the meaning
ascribed thereto in the Note) in the principal amount of $180,000.00
payable to the Pledgee. Under the terms of the Note and to induce the
Pledgee to extend credit to the Pledgor, the Pledgor shall have made the
pledge contemplated by this Agreement.
NOW THEREFORE, in consideration of the premises and in order to induce
the Pledgee to extend credit under the Note, the Pledgor hereby agrees with
the Pledgee as follows:
SECTION 1. Pledge. The Pledgor hereby pledges, hypothecates,
assigns, transfers and conveys to the Pledgee and grants to the Pledgee a
security interest in and to, the following (the "Pledged Collateral"):
(i) all right, title and interest in and to the Pledged Shares
and the certificates representing the Pledged Shares, and all dividends,
cash, instruments and other property from time to time received, receivable
or otherwise distributed in respect of or in exchange for any or all of the
Pledged Shares; and
(ii) all right, title and interest in and to all additional
shares of stock of PVI arising out of a recapitalization or stock split
relating to the Pledged Shares and the certificates representing such
additional shares, and all dividends, cash, instruments and other property
from time to time received, receivable or otherwise distributed in respect
of or in exchange for any or all of such stock.
SECTION 2. Security for Obligations. This Agreement secures the
due and punctual payment or performance, whether at stated maturity, by
acceleration or otherwise, of all obligations of the Pledgor now or
hereafter existing under the Note and this Agreement (all such obligations
of the Pledgor or any other obligor being the "Pledge Obligations").
SECTION 3. Delivery of Pledged Collateral. All certificates or
instruments representing or evidencing the Pledged
<PAGE>
Collateral of the Pledgor have been delivered to the Pledgee and shall be in
suitable form for transfer by delivery, or shall be accompanied by duly
executed instruments of transfer or assignment in blank, all in form and
substance satisfactory to the Pledgee. The Pledgee shall have the right, at
any time in its discretion and without notice to the Pledgor, to transfer to
or to register in the name of the Pledgee or any of its nominees any or all
of the Pledged Collateral of the Pledgor. In addition, the Pledgee shall
have the right at any time to exchange certificates representing or
evidencing Pledged Collateral of the Pledgor for certificates of smaller or
larger denominations.
SECTION 4. Representations and Warranties. The Pledgor represents
and warrants as follows:
(a) The Pledgor is the legal and beneficial owner of the Pledged
Shares free and clear of any lien, security interest, option or other
charge or encumbrance except for the security interest created by this
Agreement and the agreements contemplated hereby.
(b) The Pledgor has full power and authority to make the pledge
of the Pledged Shares.
(c) This Agreement has been executed and delivered by the
Pledgor and constitutes a valid and binding agreement of the Pledgor.
(d) The pledge of the Pledged Shares pursuant to this Agreement
creates an enforceable, valid and perfected security interest in the
Pledged Collateral, securing the payment and performance of the Pledge
Obligations.
(e) No authorization, approval, or other action by, and no
notice to or filing with, any governmental authority or regulatory body is
required either (i) for the pledge by the Pledgor of the Pledged Collateral
pursuant to this Agreement or for the execution, delivery or performance of
this Agreement by the Pledgor, or (ii) for the exercise by the Pledgee of
the voting or other rights provided for in this Agreement or the remedies
in respect of the Pledged Collateral pursuant to this Agreement (except as
may be required in connection with such disposition by laws affecting the
offering and sale of securities generally).
SECTION 5. Further Assurances. The Pledgor agrees that at any time
and from time to time, at the expense of the Pledgee, the Pledgor will
promptly execute and deliver all further instruments and documents, and take
all further action, that may be necessary or desirable, or that the Pledgee
may reasonably request, in order to perfect and protect any security interest
granted or purported to be granted hereby or to enable the Pledgee to
exercise and
-2-
<PAGE>
enforce its rights and remedies hereunder with respect to any Pledged
Collateral.
SECTION 6. Voting Rights; Distributions; Etc.
(a) So long as no Event of Default (as defined in the Note) in
any of the Pledge Obligations shall have occurred and be continuing, the
Pledgor shall be entitled to exercise any and all voting and other
consensual rights pertaining to the Pledged Collateral or any part thereof
for any purpose not inconsistent with the terms of this Agreement or the
Note or any other document or instrument relating to the transactions
contemplated hereby and thereby, and the Pledgee shall execute and deliver
(or cause to be executed and delivered) to the Pledgor all such proxies and
other instruments as such Pledgor may reasonably request for the purpose of
enabling such Pledgor to exercise the voting and other rights which he is
entitled to exercise pursuant to this Section 6(a); provided, however, that
the Pledgor shall not exercise or refrain from exercising any such right
if, in the judgment of the Pledgee, such action could have a material
adverse effect on the value of the Pledged Collateral or any part thereof;
and provided, further, that the Pledgor shall give the Pledgee at least
five (5) days' written notice of the manner in which he intends to
exercise, or the reasons for refraining from exercising, any such right.
(b) Upon the occurrence and during the continuance of any Event
of Default, all rights of the Pledgor to exercise the voting and other
consensual rights which he would otherwise be entitled to exercise pursuant
to Section 6(a) shall cease, and all such rights shall thereupon become
vested in the Pledgee, who shall thereupon have the right to exercise such
voting and other consensual rights, except to the extent the exercise of
such rights is prohibited by applicable law.
SECTION 7. Transfer and Other Liens; Additional Shares.
(a) The Pledgor agrees that he will not (i) sell or otherwise
dispose of, or grant any option with respect to, any of the Pledged
Collateral, or (ii) create or permit to exist any lien, security interest,
or other charge or encumbrance upon or with respect to any of the Pledged
Collateral, except for the security interest under this Agreement.
(b) The Pledgor agrees that he will (i) cause the issuer of the
Pledged Collateral not to issue any stock or other securities in
substitution for the Pledged Collateral issued by the issuer, except to the
Pledgor and (ii) pledge hereunder, immediately upon his acquisition
(directly or indirectly) thereof, any and all of such shares of stock or
other securities.
SECTION 8. Pledgee Appointed Attorney-in-Fact. The Pledgor hereby
appoints the Pledgee the Pledgor's attorney-in-fact,
-3-
<PAGE>
with full authority in the place and stead of the Pledgor and in the name of
the Pledgor or otherwise, from time to time in the Pledgee's discretion to
take any action and to execute any instrument which the Pledgee may deem
necessary or advisable to accomplish the purposes of this Agreement,
including, without limitation, to receive, endorse and collect all
instruments made payable to the Pledgor representing any dividend or other
distribution in respect of the Pledged Collateral or any part thereof and to
give full discharge for the same.
SECTION 9. Pledgee May Perform. If the Pledgor fails to perform
any agreement contained herein, the Pledgee may itself perform, or cause
performance of, such agreement.
SECTION 10. Reasonable Care. The Pledgee shall be deemed to have
exercised reasonable care in the custody and preservation of the Pledged
Collateral in its possession, if any, if such Pledged Collateral is
accorded treatment substantially equal to that which the Pledgee accords
its own property, it being understood that the Pledgee shall not have
responsibility for (i) ascertaining or taking action with respect to
shareholder or other rights, including without limitation, voting rights,
calls, conversions, exchanges, tenders or other matters relative to any
Pledged Collateral of the Pledgor, whether or not the Pledgee has or is
deemed to have knowledge of such matters, or (ii) taking any necessary
steps to preserve rights against any parties with respect to any Pledged
Collateral of the Pledgor.
SECTION 11. Remedy Upon Default.
(a) If any Event of Default shall have occurred and be
continuing, the Pledgee's sole remedy shall be to (i) sell, without notice
except as specified below, the Pledged Collateral or any part thereof in
one or more parcels at public or private sale, at any exchange, broker's
board or elsewhere, for cash, on credit or for future delivery, and upon
such other terms as the Pledgee, in its sole discretion, may deem
commercially reasonable, and (ii) apply the proceeds from such sale to the
payment of the unpaid principal of the Note and the interest accrued
thereon. In order to enable the Pledgee to exercise the remedy set forth
in this Section 11, the Pledgor has executed and delivered the Common Stock
Power attached hereto which the Pledgee will hold as additional Pledged
Collateral. The Pledgor agrees that, to the extent notice of sale shall be
required by law, at least twenty (20) days' notice to the Pledgor of the
time and place of any public sale or the time after which any private sale
is to be made shall constitute reasonable notification. The Pledgee shall
not be obligated to make any sale of Pledged Collateral of the Pledgor
regardless of notice of sale having been given. The Pledgee may adjourn
any public or private sale from time to time by announcement at the time
and place fixed therefor, and such sale may, without further notice, be
made at the time and place to which it was so adjourned.
-4-
<PAGE>
(b) The Pledgor's liability to pay the Note is limited to the
value of the Pledged Collateral. In no event shall the Pledgor be
personally liable for any deficiency resulting from the sale of the Pledged
Collateral, nor shall any action or proceeding in any event be brought by
the Pledgee against the Pledgor to recover a personal judgment against him
upon this Agreement or upon the Note. Any surplus proceeds from the sale
of the Pledged Collateral remaining after payment in full of the Note shall
be paid over to the Pledgor.
SECTION 12. Security Interest Absolute. All rights of the Pledgee
and security interests hereunder, and all obligations of the Pledgor
hereunder shall be absolute and unconditional irrespective of:
(i) any lack of validity or enforceability of the Note
or any other agreement or instrument relating thereto;
(ii) any change in the time, manner or place of payment
of, or in any other term of, all or any of the Pledge Obligations, or any
other amendment or waiver or any consent to any departure from the Note or
any other agreement or document relating thereto; or
(iii) any exchange, release or non-perfection of any
other collateral, for all or any of the Pledge Obligations.
SECTION 13. Amendments, Etc. No amendment or waiver of any
provision of this Agreement nor consent to any departure by the Pledgor
herefrom, shall in any event be effective unless the same shall be in
writing and signed by the Pledgee, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for
which given.
SECTION 14. Notices, Etc. All notices and other communications
provided for hereunder shall be in writing (including facsimile
transmission and telegraphic communication) and, if to the Pledgor, mailed,
transmitted, telegraphed or delivered to him at 222 Hopewell-Princeton
Road, Hopewell, New Jersey 08525, and if to the Pledgee, mailed,
transmitted, telegraphed or delivered to it at 47 Hulfish Street, Suite
500, Princeton, New Jersey 08542, with a copy to Richard J. Pinto, Esquire,
Smith, Stratton, Wise, Heher & Brennan, 600 College Road East, Princeton,
New Jersey 08540, or as to any party at such other address as shall be
designated by such party in a written notice to each other party complying
as to delivery with the terms of this Section 14. All such notices and
other communications shall, when mailed, transmitted or telegraphed, be
effective when deposited in the mails, confirmed by return facsimile
transmission or delivered to the telegraph company, respectively, addressed
as aforesaid.
-5-
<PAGE>
SECTION 15. Continuing Security Interest; Transfer of Note; Release
of Security Interest.
(a) This Agreement shall create a continuing security interest
in the Pledged Collateral of the Pledgor and shall (i) remain in full force
and effect until payment in full of the Pledge Obligations, (ii) be binding
upon the Pledgor, his successors and assigns, and (iii) inure, together
with the rights and remedies of the Pledgee, to the benefit of the Pledgee
and its respective successors, transferees and assigns. Without limiting
the generality of the foregoing clause (iii), the Pledgee may assign or
otherwise transfer the Note (or other instrument of indebtedness of the
Pledgor) held by it or any interest therein, or grant any participation in
its rights or obligations under the Note, subject to the provisions of the
Note, to any other person, and such other person shall thereupon become
vested with all the rights in respect thereof granted to the Pledgee herein
or otherwise.
(b) Upon the payment in full of the Pledge Obligations, the
Pledgor shall be entitled to the return of such of the Pledged Collateral
of the Pledgor as shall not have been sold or otherwise applied pursuant to
the terms of this Agreement and the Pledgee agrees promptly to return to
the Pledgor such Pledged Collateral.
SECTION 16. Severability. If any term or provision of this
Agreement is held to be illegal, invalid or unenforceable by any court of
competent jurisdiction, then such illegal, invalid or unenforceable term or
provision shall be severed from this Agreement, and the remainder of this
Agreement shall continue in full force and effect as if such illegal,
invalid or unenforceable term or provision had never been a part hereof.
SECTION 17. Governing Law; Terms. This Agreement shall be governed
by, construed and interpreted in accordance with the laws of the State of
New Jersey, without regard to the law of conflicts.
-6-
<PAGE>
IN WITNESS WHEREOF, the Pledgor has duly executed and delivered this
Pledge Agreement as of the date first written above.
/s/ Samuel McCleery
------------------------------
Samuel McCleery
ACCEPTED AND AGREED TO
AS OF THE DATE HEREOF
PRINCETON VIDEO IMAGE, INC.
By: /s/ Douglas J. Greenlaw
---------------------------
Name: Douglas J. Greenlaw
Title: Chief Executive Officer
and President
-7-
<PAGE>
COMMON STOCK POWER
Brown F Williams (the "Transferor") does hereby assign and
transfer unto the following persons the number set forth opposite each
person's name of his shares of the Common Capital Stock of Princeton Video
Image, Inc., standing in his own name on the books of said Corporation
represented by Certificate No. _____ herewith:
Assign and transfer to Number of Shares
---------------------- ----------------
Princeton Video Image, Inc. 36,000
The Transferor does hereby irrevocably constitute and appoint Smith,
Stratton, Wise, Heher & Brennan his attorney to transfer said stock on the
books of the Corporation with full power of substitution in the premises.
Dated: July 31, 1997
/s/ Samuel McCleery
------------------------------
Samuel McCleery
-8-
<PAGE>
EXHIBIT 11
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
1997 1996
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
PRIMARY FULLY DILUTED PRIMARY FULLY DILUTED
------------- ------------- ------------- -------------
Net loss applicable to common stock................... $ (5,774,711) $ (5,774,711) $ (3,954,574) $ (3,954,574)
Assumed interest income from proceeds remaining after
repurchase of maximum options/warrants allowable
under the treasury stock method of APB Opinion 15... 0 0 0 394,300
------------- ------------- ------------- -------------
Adjusted net loss applicable to common stock.......... $ (5,774,711) $ (5,774,711) $ (5,954,574) $ (3,560,274)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Weighted average number of common shares outstanding:
Weighted average number of common shares
outstanding....................................... 2,372,065 2,372,065 1,933,196 1,933,196
Incremental common shares outstanding from the
issuance of common stock within one year of the
initial public offering at a price below the
assumed initial public offering price............. 241,564 241,564 289,876 289,876
Incremental common shares outstanding from the
issuance of stock options and warrants within one
year of the initial public offering with an
exercise price below the assumed initial public
offering price.................................... 18,462 18,462 18,462 18,462
Incremental common shares outstanding from the
assumed exercise of options and warrants using the
treasury stock market of APB Opinion 15........... 0 221,177 0 1,227,040
------------- ------------- ------------- -------------
2,632,091 2,853,268 2,241,534 3,468,574
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Net loss per share applicable to common stock......... $ (2.19) $ (2.02) $ (1.76) $ (1.03)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF PRINCETON VIDEO IMAGE, INC.
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.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form SB-2 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 the third paragraph of 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
October 9, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 1997 AND 1996 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 775,693
<SECURITIES> 76,370
<RECEIVABLES> 86,993
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 976,538
<PP&E> 2,189,953
<DEPRECIATION> (923,147)
<TOTAL-ASSETS> 2,761,216
<CURRENT-LIABILITIES> 1,832,143
<BONDS> 0
903,555
0
<COMMON> 14,692
<OTHER-SE> (1,019,643)
<TOTAL-LIABILITY-AND-EQUITY> 2,761,216
<SALES> 0
<TOTAL-REVENUES> 211,634
<CGS> 0
<TOTAL-COSTS> 6,026,383
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28,606
<INCOME-PRETAX> (5,730,661)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,730,661)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,730,661)
<EPS-PRIMARY> (2.19)
<EPS-DILUTED> (2.19)
</TABLE>
