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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 17, 1998.
REGISTRATION NO. 333-37725
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PRINCETON VIDEO IMAGE, INC.
(Exact Name of Registrant as Specified in its Charter)
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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.)
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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)
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COPIES TO:
RICHARD J. PINTO, ESQ.
Smith, Stratton, Wise, Heher & Brennan
600 College Road East
Princeton, NJ 08540
(609) 924-6000
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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 this form is a post-effective amendment filed pursuant to Rule
462(d) 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. / /
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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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EXPLANATORY NOTE
This Registration Statement covered the registration of 4,600,000
shares of common stock, no par value per share (the "Common Stock"), offered by
the Company in its initial public offering of the Common Stock which was
completed in December 1997 in accord with the terms of the Underwriting
Agreement among the Company, Allen & Company Incorporated ("Allen") and
Barington Capital Group, L.P. ("Barington"), as representatives of the several
underwriters (Allen and Barington collectively, the "Representatives"). This
Registration Statement also covers the registration of (i) 300,000 shares of
Common Stock (the "Bridge Warrant Shares") issued or issuable upon exercise of
warrants (the "Bridge Warrants") issued by the Company in October 1997, (ii) the
Representatives' Warrants to purchase 400,000 shares of Common Stock issued by
the Company to the Representatives, (iii) 400,000 shares of Common Stock
issuable upon exercise of the Representatives' Warrants (the "Representatives'
Warrant Shares") and (iv) 2,000,000 shares of Common Stock and such
indeterminate number of additional shares of Common Stock (collectively, the
"Market Maker Shares") as may be sold solely in connection with the market
making activities of Allen. The Bridge Warrant Shares and the Representatives'
Warrant Shares are offered by certain holders of such securities (the "Selling
Shareholders") and not for the account of the Company. When initially effective,
this Registration Statement included a complete Prospectus relating to the
initial public offering and certain pages of the Prospectus relating solely to
the securities being offered by the Selling Shareholders and the Market Making
Shares, including alternate front and back cover pages, an alternative "The
Offering" section of the "Prospectus Summary," and sections entitled "Selling
Shareholders" and "Plan of Distribution". This Post-Effective Amendment No. 2 is
being filed to update the Prospectus relating to the securities being offered by
the Selling Shareholders and the Market Making Shares and to delete portions of
the Prospectus relevant only to the Company's initial public offering of Common
Stock.
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SUBJECT TO COMPLETION, DATED NOVEMBER 17, 1998
PROSPECTUS
2,700,000 SHARES
PRINCETON VIDEO IMAGE, INC.
COMMON STOCK
This Prospectus relates to the offering of 700,000 shares of common
stock of Princeton Video Image, Inc. by certain selling shareholders. The
selling shareholders, or their transferees, may sell such shares of common stock
from time to time on or after the date of this Prospectus, subject to certain
lock-up arrangements described in this Prospectus. This Prospectus also relates
to 2,000,000 shares of common stock and an indeterminate number of additional
shares of common stock as may be sold solely in connection with the market
making activities of Allen & Company Incorporated. The common stock is traded on
the Nasdaq National Market under the symbol "PVII."
The selling shareholders have not entered into any underwriting
arrangements. The selling shareholders may distribute their shares from time to
time in transactions on the Nasdaq National Market, in negotiated transactions,
through the writing of options on their shares, or a combination of such methods
of sale. The selling shareholders may distribute their shares 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. We will not
receive any proceeds from sales of the shares of common stock covered by this
Prospectus. See "Plan of Distribution."
INVESTING IN COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 8.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is , 1998
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TABLE OF CONTENTS
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Page
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Prospectus Summary................................................................................ 3
Risk Factors...................................................................................... 8
Use of Proceeds................................................................................... 18
Dividend Policy................................................................................... 18
Price Range of Common Stock....................................................................... 18
Capitalization.................................................................................... 19
Management's Discussion and Analysis of Financial Condition and Results of Operations............. 20
Business.......................................................................................... 25
Management........................................................................................ 37
Certain Relationships and Related Transactions.................................................... 44
Security Ownership of Certain Beneficial Owners and Management.................................... 47
Description of Securities......................................................................... 50
Shares Eligible for Future Sale................................................................... 55
Selling Shareholders.............................................................................. 57
Plan of Distribution.............................................................................. 59
Legal Matters..................................................................................... 60
Experts........................................................................................... 60
Index to Financial Statements..................................................................... 61
Princeton Video Image, Inc's Quarterly Report on Form 10-Q for the Quarter ended September 30,
1998 which is included as part of this Prospectus............................................... Following page F-29
of the Financial
Statements
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PROSPECTUS SUMMARY
This Prospectus contains forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth under "Risk Factors" and elsewhere in this Prospectus.
This summary highlights information contained elsewhere in this Prospectus. It
is not complete and may not contain all of the information that you should
consider before investing in the common stock. You should read the entire
Prospectus carefully, including the "Risk Factors" section and the financial
statements and the notes to those statements. Except as otherwise indicated, all
share information and per share amounts in this Prospectus have been adjusted to
reflect a 2-for-1 stock split effective on September 3, 1997.
L-VIS(TM) is a trademark of Princeton Video Image, Inc. We have 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.
THE COMPANY
COMPANY OVERVIEW
Princeton Video Image, Inc. developed and is marketing a real-time
video insertion system that places computer-generated electronic advertising
images into television broadcasts of sporting and other events. 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) during the broadcast of a sporting
event. These electronic images range from simple corporate names or logos to
sophisticated multi-media 3-D animated productions. We believe that our Live
Video Insertion System (the "L-VIS System"), which is an integrated hardware and
software system, can benefit advertisers, program producers, broadcasters, teams
and leagues. The L-VIS System has been used to insert advertising images into
live and pre-recorded television broadcasts, including baseball games, soccer
matches, football games, motor sports, tennis matches, telethons and
entertainment broadcasting.
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 $9.95 billion to purchase television advertising and
sponsorship rights with respect to sporting events in 1997, according to
information from industry sources. An industry source reported the 1998 network
sports advertising market in the United States to be approximately $3.4 billion
and the cable television sports advertising market in the United States to be
approximately $2.0 billion. A December 1997 industry newsletter projected that
$4.55 billion would be spent to sponsor specific teams, stadium locations and
sporting events in 1998. We estimate that approximately $11.4 billion was spent
on various forms of television sports advertising and sponsorship in 1997
outside the United States.
We believe 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. The television viewer is exposed
to the brand or message during the event by the L-VIS System. Thus, the
advertiser is "in the game." Further, the advertiser 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.
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THE L-VIS SYSTEM
The L-VIS System is a system of proprietary hardware and software that
we have designed to insert electronic images into live televised sports
broadcasts. The inserted images may be two or three dimensional, static or
animated, and opaque or semi-transparent. Further, the inserted images may be
placed so that they 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 that "passes
behind" it.
The L-VIS System is based upon patented pattern recognition technology.
The L-VIS System may be located anywhere in the television distribution chain,
including the stadium where a broadcast typically originates, the television
studio to which a broadcast is relayed and the microwave links or satellite
ground stations where the broadcast is relayed for distribution to the viewing
public.
We believe that use of the L-VIS System provides advantages when
compared to traditional 30-second advertising spots and other forms of
advertising. The L-VIS System can create, without affecting the stadium, 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. The 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," which is the broadcasting
of specific advertising to specific geographical regions. Thus, where desired,
an advertising rights holder can sell the same advertising space to different
advertisers in different markets. For instance, the L-VIS System could 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.
STRATEGY
Our objective is to become the leading provider of electronic
advertising to the sports television advertising market worldwide. The key
elements of our strategy include (i) developing relationships with rights owners
such as the National Football League, the National Basketball Association, Major
League Baseball, FIFA (soccer's international governing body), and specific
teams and 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.
We expect to generate revenues from the sharing of advertising revenue
among rights holders, broadcasters and us. We also expect to generate revenues
from the fees generated through licensing of our technology. The right to insert
electronic images for advertising purposes into a live broadcast, and thus the
right to sell advertising using the L-VIS System, is held by different groups in
different situations. For example, individual Major League Baseball teams
control the rights to the local broadcasts of their regular season games.
However, Major League Baseball controls the national broadcasts of regular
season games, playoff games and the World Series. These rights may be sold for
specific games and/or entire seasons to another party, most notably a
broadcaster. The party who buys such rights pays the rights holder an up-front
fee for the rights. In each case, we 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. Since the L-VIS
System uses the live feed from the broadcaster to insert electronic images, such
broadcaster must also approve the use of the L-VIS
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System. Accordingly, arrangements must be established with several parties
including the rights holder and the broadcaster.
Either the rights holder or the broadcaster will sell the advertising
space using the L-VIS System, depending on the specific arrangement between such
parties. The advertising revenues from such advertising will be shared among the
rights holder, the broadcaster and us. As a result, our 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 us. To gain acceptance, we have actively discussed the
benefits and unique uses of the L-VIS System with a limited number of
high-profile sporting event advertisers. We plan to expand this effort
significantly.
Our existing software modules enable the L-VIS System to be used in
live broadcasts of football, baseball, soccer, tennis and motor sports events.
We are developing, or intend to develop, software for basketball and golf. We
also intend to make the L-VIS System available for use with other events, such
as pay-per-view boxing, concerts and award shows such as the Oscars and the
Grammys.
HISTORY
We were incorporated in New Jersey on July 23, 1990 by our founders,
Brown F Williams, our Chairman of the Board, and Roy J. Rosser, Ph.D., our
Director of New Business Development. Prior to founding our 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. Our
executive offices are located at 15 Princess Road, Lawrenceville, New Jersey
08648, and our telephone number is 609-912-9400.
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THE OFFERING
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Common Stock Offered by the Selling
Shareholders (the "Selling Shareholders Shares") (1).... 700,000 shares of Common Stock
Common Stock Offered by Allen & Company Incorporated
in connection with its market making activities (the
"Market Maker Shares").................................. 2,000,000 shares of Common Stock
Common Stock Outstanding, as of
September 15, 1998 (2).................................. 8,183,552 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."
Use of Proceeds........................................... We will not receive any proceeds from the sale of the shares
of Common Stock offered hereby.
Nasdaq National Market Trading Symbol (3)................. PVII
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(1) Consists of (i) 300,000 shares of Common Stock (the "Bridge Warrant
Shares") issued or issuable upon exercise of warrants (the "Bridge
Warrants") issued by us in October 1997 and (ii) 400,000 shares of
Common Stock (the "Representatives' Warrant Shares") issuable upon
exercise of warrants (the "Representatives' Warrants") issued by us to
Allen & Company Incorporated and Barington Capital Group, L.P., the
representatives (the "Representatives") of the several underwriters
involved in our December 1997 initial public offering.
(2) Does not include (i) 777,130 shares issuable upon exercise of other
outstanding warrants to purchase shares of Common Stock and (ii)
1,560,000 shares of Common Stock reserved for issuance upon exercise of
options granted to executive officers, employees and consultants under
our Amended 1993 Stock Option Plan (the "Stock Option Plan"), including
1,317,507 shares issuable upon the exercise of outstanding options. See
"Management--Stock Option Plan," "Certain Relationships and Related
Transactions-Transactions With Management and Others" and "Description
of Securities."
(3) There can be no assurance that we will be able to maintain listing of
the Common Stock on such market. See "Risk Factors--Possibility of
Nasdaq National Market Delisting; Risks of Low-Priced Stocks."
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SUMMARY FINANCIAL INFORMATION
The summary financial data set forth below with respect to our
statements of operations for the years ended June 30, 1998 and 1997 and the
balance sheet date at June 30, 1998 have been derived from our financial
statements, included elsewhere in this Prospectus, audited by
PricewaterhouseCoopers LLP, independent accountants. 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 to those statements included
elsewhere in this Prospectus and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
See the unaudited financial statements for the three months ended
September 30, 1998 and 1997 and the unaudited balance sheet as of September 30,
1998 contained in our Quarterly Report on Form 10-Q for the Quarter ended
September 30, 1998 which is included as part of this Prospectus immediately
following page F-29 of the Financial Statements.
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Fiscal Year ended June 30,
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1998 1997
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STATEMENT OF OPERATIONS DATA:
Revenues:
License fees .............................. $ 371,223 $ 130,526
Advertising revenue ....................... 324,789 81,108
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Total revenue........................... 696,012 211,634
Costs and expenses:
L-VIS System costs ........................ 2,456,019 1,274,890
Selling, general and administrative ....... 4,652,384 3,028,895
Research and development .................. 1,719,703 1,722,598
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Total costs and expenses .............. 8,828,106 6,026,383
Operating loss ............................... (8,132,094) (5,814,749)
Interest and other income .................... 861,948 84,088
Interest and other financial expense ......... (1,814,178) --
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Net loss ..................................... (9,084,324) (5,730,661)
Accretion of preferred stock dividends ....... (44,050) (44,050)
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Net loss applicable to Common Stock .......... $(9,128,374) $(5,774,711)
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June 30, 1998
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BALANCE SHEET DATA:
Working capital............................................ $20,544,120
Total assets............................................... 25,426,365
Long term debt............................................. 0
Total redeemable preferred stock........................... 947,605
Deficit accumulated during the development stage........... (28,625,878)
Total shareholders' equity................................. 22,034,347
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RISK FACTORS
Before you invest in our Common Stock, you should be aware that there
are substantial risks, including those described below. You should purchase the
Common Stock only if you can afford to lose your entire investment. You should
carefully consider all of the information included in this Prospectus to
evaluate us and our business. You should make this evaluation before deciding
whether to purchase the Common Stock offered by this Prospectus. You should
understand that additional risks which we cannot predict at this time may have a
negative impact on us in the future. You should also understand that the risks
discussed below might affect us more than or in a different manner than we now
predict.
Some of the information in this Prospectus may contain forward-looking
statements. Such statements can be identified by the use of forward-looking
words such as "may," "will," "expect," "anticipate," "estimate," "continue" or
other similar words. These statements discuss future expectations and
projections of results of operations or of financial conditions. When
considering such forward-looking statements, you should keep in mind the risk
factors described below and other cautionary statements made in this prospectus.
These statements identify factors that may cause actual results to differ from
any projections contained in forward-looking statements. Important factors that
may cause actual results to differ from projections include, for example:
- adverse economic conditions,
- intense competition, including entry of new
competitors and products,
- adverse federal, state, local and foreign government
regulation,
- inadequate capital to operate its business,
- unexpected costs and operating deficits,
- lower revenues than forecast,
- inability to successfully market the L-VIS System to
television viewers, advertisers, broadcasters and
sporting events rights holders,
- inability of third party sales forces to sell L-VIS
System advertising,
- contractual restrictions on use of video insertion
technology,
- risks associated with doing business in international
markets,
- seasonal fluctuations based upon the game schedules
of each sport,
- manufacturing inexperience,
- challenges to our patent and proprietary technology,
- technological obsolescence of the L-VIS System,
- inability to upgrade and develop software for use of
the L-VIS Systems with new sports,
- dependence on a sole source of supply for certain
hardware components,
- the possible fluctuation and volatility of our
operating results and financial condition,
- adverse publicity and news coverage,
- loss of key employees, and
- other specific risks set forth in this Prospectus.
We do not promise to update forward-looking information or any other information
to reflect actual results or changes in assumptions or other factors that could
affect those statements.
DEVELOPMENT STAGE COMPANY
We have a limited operating history and face the risks of a relatively
new company. Our operations relate to the development, introduction and
marketing of our live video insertion system (the "L-VIS System"). Twenty-one
L-VIS System units are available for operation. We are now trying to convince
advertisers, broadcasters and sporting event rights holders of the value of the
L-VIS System. We are also trying to enter into contracts to generate enough
revenue to meet our operating expenses. If we do not generate enough revenue, we
will have to either raise additional money or substantially reduce the scale of
our operations. We may not be able to raise additional money. We also may not
succeed in reaching our business objectives. Our failure to do so would have a
material adverse
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effect on our business, financial condition and the results of our operations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business."
SUBSTANTIAL AND CONTINUING OPERATING LOSSES
We have not made a profit in any period of operations since we began
our business. We incurred net losses of $5,730,661 for the fiscal year ended
June 30, 1997, $9,084,324 for the fiscal year ended June 30, 1998, and
$1,850,837 for the three month period ended June 30, 1998. We had an accumulated
deficit of approximately $28.6 million at June 30, 1998. We have earned only a
small amount of advertising revenue from the broadcasts in which the L-VIS
System was utilized. We have earned only $415,497 in advertising revenues from
the use of the L-VIS System and $1,501,749 in licensing fees through June 30,
1998.
We expect to lose money at least through calendar year 1999 due to the
costs required to manufacture, market and enhance the L-VIS System. We may never
earn a profit. Further, we may not be able continue our operations. Our limited
operating history makes the prediction of future operating results difficult or
impossible. You should consider our prospects in light of the risks, expenses
and difficulties frequently encountered by early stage companies, particularly
companies in new or rapidly evolving markets. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
DEPENDENCE ON MARKET ACCEPTANCE
We expect to derive almost all of our revenues from the operation of
the L-VIS System. Our ability to successfully market the L-VIS System will
depend upon its acceptance by at least four groups: television viewers,
advertisers, broadcasters and sporting event rights holders. To be successful,
we must make deals with the advertisers, rights holders and broadcasters. To
date, only a few broadcasters, broadcast rights holders and advertisers have
agreed to use the L-VIS System. No data exists about television viewers'
reactions to the L-VIS System. However, some press coverage of our technology
has raised concerns about its desirability and potential misuse. For instance,
an article described inserted advertising images as subliminal advertising. The
technology has also been described as allowing unethical tampering with a
television picture. Others have complained that television viewers will see too
many advertisements. We may not be able to combat any negative publicity about
inserted advertising. We may not be able to maintain or increase our commercial
arrangements. The failure of any one or more of the four groups to accept the
L-VIS System may prevent us from successfully marketing the L-VIS System. Such a
result would have a material adverse effect on our business, financial condition
and the results of our operations. Such a result could also cause the holders of
our Common Stock to lose their entire investment. See "Business-Strategy" and
"-Sales and Marketing."
DEPENDENCE ON KEY EMPLOYEES
We depend on a number of key technical and management employees,
including:
- Brown F Williams, our Chairman of the Board;
- Samuel A. McCleery, our Vice President of Marketing and Sales;
- Lawrence L. Epstein, our Vice President of Finance, Chief
Financial Officer and Treasurer;
- Louis A. Lippincott, our Director of Hardware Development;
- Howard J. Kennedy, our Director of Software Development; and
- Roy J. Rosser, our Director of New Business Development.
If one or more of these individuals leaves us, our ability to conduct operations
may be materially and negatively affected. Our success depends on our ability to
attract and retain qualified financial, technical, marketing and other
management personnel. We face competition for such personnel. We have employment
agreements only with Messrs. Williams, McCleery and Epstein. We have obtained
key man life insurance on the life of Mr. Williams for $2 million and on the
life of Mr. McCleery for $1 million. Although our employees sign confidentiality
and
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non-competition agreements, our key personnel may leave us and work for a
competitor. We also rely on consultants to assist us in research and development
strategy. Our consultants are employed by third parties and may have commitments
to others that may limit their availability. See "Management" and
"Business-Employees."
DEPENDENCE ON THIRD PARTY SALES FORCES
Under many of our contracts, the rights holders market and sell the
L-VIS System advertising. We typically receive a percentage of the advertising
revenues earned by the rights holders. The rights holders may not be successful
in selling L-VIS System advertising. If the rights holders are unable to enter
into arrangements with a substantial number of advertisers, their failure will
have a material adverse effect on our business, financial condition and the
results of our operations. See "Business-Strategy" and "-Sales and Marketing."
RISKS ASSOCIATED WITH EXPANSION AND GROWTH
We intend to spend additional money on product development and to hire
more sales and marketing personnel. Any benefits from such expansion may take a
year or longer. We will lose more money if sales do not increase in proportion
to the increase in expenses. Our expansion will depend on, among other things,
our ability to identify markets, to manage growth, and to hire and retain
skilled personnel. As we increase our product development activities, we may
need to enter into contracts to have parties outside the company manufacture the
L-VIS System units. Any increased reliance on outside parties will require that
we devote additional resources to monitoring operations, controlling costs and
maintaining effective quality, inventory and service controls. We may not be
able to successfully expand our operations. Reliance on outside parties to
manufacture the L-VIS System units may have a material adverse effect on our
business, financial condition and the results of our operations. See
"Business-Sales and Marketing" and "-Manufacturing and Supply."
CONTRACTUAL RESTRICTIONS ON USE OF VIDEO INSERTION TECHNOLOGY
Agreements among advertisers, sponsors, syndicators, promoters,
broadcasters and cable operators may include provisions that restrict the use of
video insertion technology in television broadcasts. These restrictions may have
a material adverse effect on our business, financial condition and the results
of our operations. Businesses might not enter into amendments of such agreements
to help us. We believe that one manufacturer of scrolling billboards used in
stadiums has included such restrictions in its contracts. See
"Business-Competition."
RISKS ASSOCIATED WITH INTERNATIONAL STRATEGY
We plan to market the L-VIS System outside the United States through
agreements with others. We may not succeed in doing this. We have granted some
parties exclusive rights to territories or specific sporting events which means
that we must rely on their success in these areas. Their failure could have a
material adverse effect on our business, financial condition and the results of
our operations.
Furthermore, there are certain risks inherent in doing business in
international markets, such as:
- unexpected changes in regulatory requirements,
- tariffs and other trade barriers,
- difficulties in staffing and managing foreign operations,
- political instability,
- fluctuations in currency exchange rates,
- reduced protection for intellectual property rights,
- seasonal reductions in business activity during the summer
months, and
- adverse tax consequences.
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<PAGE> 13
Any of these risks could have a material adverse impact upon the success of our
international operations and thus could have a material adverse effect on our
business, financial condition and the results of our operations. See
"Business-International Business Strategy."
POTENTIAL SEASONALITY FLUCTUATIONS
If we are unsuccessful in expanding the market for use of the L-VIS
System beyond a limited number of sports, our 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 can only be used for certain sports under limited
circumstances. We must have the cooperation of the broadcaster in order to
obtain acceptable results. The L-VIS System has been operated mainly by our
personnel and operators trained by us. We will have to develop additional
software and hardware and train personnel in order to achieve wider use. Future
operational difficulties of the L-VIS System could increase the cost of, or
delay implementation of, our business plan which, in turn, could materially
adversely affect our success. See "Business-Research and Development."
RISKS ASSOCIATED WITH RAPIDLY-CHANGING INDUSTRY
We operate in a rapidly developing 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 of companies and changes in consumer
preferences and customs. In particular, the live video image insertion market is
new and undeveloped. We anticipate that as the market develops, it will be
affected by technological change and product improvements. Changes in industry
broadcast standards may adversely affect our competitive position. Our success
will depend in part upon our ability to develop product enhancements that keep
pace with continuing changes in technology and customer preferences. Our failure
to develop product enhancements on a timely basis would have a material adverse
effect on our business, financial condition and the results of our operations.
See "Business-Research and Development."
MANUFACTURING AND COST UNCERTAINTIES
We have limited experience in manufacturing L-VIS System units for
commercial purposes. Our current modest manufacturing facilities are designed to
meet the current demand for use of the L-VIS System. We will have to redesign
our manufacturing facilities if we are able to develop a substantially larger
market for use of the L-VIS System. We believe that the eventual manufacturing
cost of L-VIS System units will be based upon the cost of the components of the
L-VIS System units purchased from the manufacturers of such components and the
cost of the digital signal processing circuits used to perform identification,
recognition and insertion functions which we produce. Any manufacturing
difficulties and any cost increases may materially adversely affect our profit
margin, if any, on the sale, lease or use of future L-VIS System units.
Manufacturing difficulties and cost increases may also affect our ability to
develop and deliver L-VIS System units on a timely basis. See
"Business-Manufacturing and Supply."
DEPENDENCE ON SOLE SOURCE OF SUPPLY
We depend upon a single supplier, Lucent Technologies, for certain
hardware components. Although these hardware components are stock items, Lucent
may decide to stop selling them. We do not have an agreement with Lucent. If we
can not get hardware components on a timely basis or if we have to pay
substantially more for them, we will have to find other sources for similar
components. This would require a redesign of some of our systems and our
business, financial condition and the results of our operations may be
materially adversely affected. See "Business-Manufacturing and Supply."
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<PAGE> 14
COMPETITION
The market for electronic video insertion technology is new and
evolving. We are aware of three competitors with video insertion technologies
used for advertising: Symah Vision-SA, Orad Hi Tech Systems, Ltd. and Scidel
Technologies, Ltd. Orad's system is marketed by Imagine Video Systems which is
partly owned by Orad and ISL, a Swiss sports-marketing firm. We recently
expanded the services we offer to include, for a fee, the electronic insertion
of visual aids in live sporting events, such as a virtual first-down marker in
live television broadcasts of football games. We are aware that another U.S.
company, SportVision, is also in the business of inserting visual aids in live
sporting events. If the market for electronic video insertion technology grows,
we also expect substantial competition from established broadcast businesses.
These broadcast businesses have greater resources and more highly skilled
individuals than we do. Many potential competitors could gain significant market
share due to their greater name recognition and more extensive customer bases.
These competitors may be able to:
- produce a product superior to ours,
- undertake more extensive promotional activities than ours,
- offer more attractive terms to customers than we do, and
- adopt more aggressive pricing policies than we have.
Competition may have a material adverse effect on our business, financial
condition and the results of our operations.
The L-VIS System competes with advertisers' use of traditional
30-second advertising spots. These 30- second advertising spots are the standard
in the television advertising industry. The L-VIS System also competes 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. Scrolling billboards are physically
located at the site of an event and can display a series of different
advertisements during an event. Scrolling billboards can achieve an effect
similar to the L-VIS System for the television viewing audience in certain
circumstances.
We expect to 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 advertising and sponsorship market. However,
existing advertisers may be reluctant to use a new technology. Advertisers may
not believe that their sales will increase as a result of the use of our
technology. The competition is likely to be more intense where we are competing
for television advertising and sponsorship dollars that are currently spent on
traditional media, such as 30-second spots or scrolling billboards. We need the
cooperation of the advertising sales departments of team owners, other rights
holders and broadcasters. We rely on such entities for the sale of our products
to advertisers, but they may have incentives to sell alternative advertising
inventory or sponsorship rather than our services. This will have a material
adverse effect on our business, financial condition and the results of our
operations. See "Risk Factors-Dependence on Third-Party Sales Forces" and
"Business-Competition."
POSSIBLE ADVERSE REGULATIONS
We believe that no federal or state regulations directly 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. There may be regulations or restrictions in the future which
adversely affect the use of the L-VIS System. Such regulations or restrictions
could have a material adverse effect on our business, financial condition and
the results of our operations.
Regulatory agencies in foreign jurisdictions may have adopted, or may
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 our products in any country where such regulations or
restrictions are adopted. This would have a material adverse effect on our
business, financial condition and the results of our operations.
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<PAGE> 15
NEED FOR ADDITIONAL FINANCING
By the first quarter of 2000 we may need to raise money for our
operations if we do not generate enough revenues. We intend to use the net
proceeds from our December 1997 initial public offering, our cash flow from
operations and our borrowings to support operations. Our need for money may be
affected by market changes or changes in our business. We may need to raise
money earlier than expected in order to expand, develop or enhance products,
respond to competition or acquire businesses. Our need for money will also
depend on:
- the size of our research and development programs,
- the cost of our manufacturing and marketing activities,
- our ability to market products successfully,
- the length of time required to collect accounts receivable,
and
- the need to address competing technological and market
developments.
If we raise money by selling stock or convertible debt securities, shareholders
could experience substantial dilution. In addition, the securities could have
greater rights, preferences and privileges than you have as a holder of the
Common Stock. We may not be able to raise any money. If we are can not raise
money, our business, financial condition and the results of our operations will
be adversely affected. If we cannot generate sufficient revenues or raise money,
we will be 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
We must maintain the proprietary nature of our technology to compete
effectively . We have been assigned four issued United States patents and one
allowed European patent. We have licensed several other patented technologies
from third parties and we have filed applications for a number of patents in the
United States and abroad. However, the degree of protection offered by these
patents is not certain and the pending patents may not be issued. Any patents
issued to us or our licensors in a foreign country may provide less protection
than provided in the United States. Competitors may obtain patents that
interfere with our ability to make L-VIS System units and to market the L-VIS
System. Competitors may intentionally infringe our patents. Competitors or
strategic partners may copy or independently develop technologies that are the
same or similar to our technologies. See "Business-Intellectual
Property-Patents."
Our patents may be challenged in court proceedings. There has been no
court test of our patents or patent applications. We are aware of other
companies that have patents or patent applications relating to video insertion
technology. Other companies may claim that we infringe their patents or rights.
These companies may infringe our patents. If our patents or rights are brought
before a court, litigation would involve complex legal and factual issues. The
outcome would be highly uncertain. In addition, any patent litigation would cost
us considerable money. We cannot assure you that we do not or will not infringe
the patent or intellectual property rights of another company. If we lose a
patent infringement action, we may be required to pay another company a
significant amount of money or to stop selling our products. We may also need to
license disputed technology from another company, if possible. If our patents
are successfully challenged, our business, financial condition and the results
of our operations will be adversely affected.
An image inserted through the use of video insertion technology may
appear as if it is physically located at the site of a sporting event. Thus, it
may be difficult to know if video insertion technology is being used. Our
failure to detect an infringement may have a material adverse effect on our
business, financial condition and the results of our operations.
We do not believe that use of the L-VIS System would infringe the
patents of others. However, competitors may start a patent infringement action
against us. Gerencia de Medios, S.A., 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,
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<PAGE> 16
received a letter from a Symah affiliate asserting that use of the L-VIS System
in Spain would infringe one of Symah's patents. We and Gerencia de Medios, S.A.
have been advised that use of the L-VIS System would not infringe Symah's
patent. However, Symah may assert infringement claims against us or our European
licensees in the future.
One of the patents held by a third party of which the we are aware is
U.S. Patent 5,353,392. This patent and the patent asserted by the Symah
affiliate in Spain derive from the same patent application. This patent has not
been asserted against us. We believe that the L-VIS System does not infringe
this patent. However, we have not received an opinion as to the non-infringement
of this patent during the past two years. The L-VIS System could be found to
infringe this patent if there are changes in the L-VIS System, changes in
applicable patent law or rulings by the U.S. Patent and Trademark Office or the
courts. If the L-VIS System were found to infringe a patent, we may need to
modify the L-VIS System or enter into an arrangement to license the patent, if
possible. We may not be able to modify the L-VIS System or enter into a license
arrangement under such circumstances.
We also rely on unpatented trade secrets, improvements and proprietary
technology. Others may copy or independently develop similar technology or gain
access to our technology. We require our employees and certain third parties to
enter into confidentiality agreements. We also use copyright, trademark and
trade secret protection. These steps may not protect our trade secrets, know-how
or other proprietary information. See "Business-Intellectual Property."
UNCERTAINTIES RELATED TO OWNERSHIP OF VIDEO INSERTION RIGHTS
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 control the
copyrights to the broadcasts in differing circumstances (for instance, regular
season play versus playoffs). Agreements often govern permitted forms of
advertising and modifications to the broadcast. Use of live video insertion
technology is not specifically discussed under the terms of many existing
agreements. Often it is not clear whose permission must be obtained to use the
L-VIS System. If the L-VIS System is used without the permission of the
appropriate parties, the use of the L-VIS System can be challenged. The defense
and prosecution of copyright suits is both costly and time-consuming. Current
broadcast copyright holders might not agree to amend current agreements on terms
acceptable to us. See "Business-Strategy."
POSSIBILITY OF NASDAQ NATIONAL MARKET DELISTING; RISKS OF LOW-PRICED STOCKS
The Common Stock is quoted on the Nasdaq National Market. The continued
listing of the Common Stock is conditioned upon our meeting certain asset, stock
price and other criteria. If we fail any listing criteria, the Common Stock may
be delisted. The effects of delisting include limited news coverage and the
limited release of the market prices of our Common Stock. Delisting may restrict
investors' interest in the Common Stock, restrict the trading market and reduce
the price for the Common Stock. Delisting may also restrict us from issuing
additional securities or securing additional financing.
Low price stocks are subject to additional federal and state regulatory
requirements and the potential loss of effective trading markets. For instance,
if the Common Stock is delisted from the Nasdaq National Market and the trading
price of the Common Stock is less than $5.00 per share, the Common Stock could
be subject to Rule 15g-9 under the Securities Exchange Act of 1934. This rule
requires that broker-dealers satisfy special sales practice requirements prior
to any transaction, include suitability determinations and receiving any
purchaser's written consent. The additional burdens imposed upon broker-dealers
may discourage broker-dealers from effecting transactions in the Common Stock.
This would reduce the liquidity of the Common Stock. If these rules become
applicable to the Common Stock, they could 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 occurs, additional disclosure will be required in connection
with trades in the Common Stock. Such disclosure includes the delivery of a
disclosure schedule explaining the nature and risks of the
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<PAGE> 17
penny stock market. Such requirements could severely limit the liquidity of the
Common Stock and the ability of purchasers to sell their Common Stock in the
secondary market.
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
The market price of the Common Stock could drop as a result of sales of
a large number of shares of Common Stock in the market price, or the perception
that such sales could occur. These factors could also make it more difficult for
us to raise money through future offerings of securities.
8,183,552 shares of the Common Stock were outstanding on September 15,
1998. Of these shares, 4,600,000 are freely transferable under the Securities
Act of 1933, as amended (the "Securities Act"), 3,298,552 are "restricted
securities" as defined in Rule 144 under the Securities Act, and the remaining
285,000 are registered hereunder but are subject to a lock-up provision and may
not be sold for a one year period following our December 1997 initial public
offering unless permission is granted by Allen & Company Incorporated as the
representative of the underwriters involved in our initial public offering.
An additional 415,000 shares of Common Stock are issuable upon exercise
of certain warrants registered hereunder and are also subject to a lock-up
provision and may not be sold for a one year period following our December 1997
initial public offering unless permission is granted by Allen & Company
Incorporated. 777,130 shares are also issuable upon exercise of other
outstanding warrants and will be"restricted securities." Finally, the 1,560,000
shares of Common Stock which may be issued under our 1993 Amended Stock Option
Plan will be "restricted securities" unless we register such shares under the
Securities Act. Our Board of Directors has authorized an increase in the number
of shares of Common Stock which may be granted under the 1993 Stock Option Plan
to 2,160,000 shares and has recommended that our shareholders ratify the
increase at the annual meeting of shareholders in December 1998.
"Restricted securities" may be sold only in accordance with Rule 144 or
pursuant to an effective registration statement under the Securities Act or an
exemption from such registration requirement. Under Rule 144, generally, there
were 2,980,074 shares eligible for resale on September 1, 1998 and there will be
3,020,482 shares eligible for resale as of December 1, 1998. Under Rule 144(k),
there were 1,593,788 shares eligible for resale as of September 1, 1998 and
1,615,988 shares will be eligible for resale as of December 1, 1998. The holders
of outstanding Common Stock prior to our December 1997 initial public offering
are subject to a lock-up provision and may not sell their stock for a one year
period following our initial public offering unless permission is granted by
Allen & Company Incorporated. See "Shares Eligible for Future Sale-Lock-up
Agreements."
We granted certain demand and piggyback registration rights to the
holders of 3,583,652 shares of Common Stock and to the holders of warrants
exercisable for an aggregate of 1,192,130 shares of Common Stock, including the
Representatives' Warrant Shares. These registration rights require us to
register under the Securities Act those shares of Common Stock and the shares of
Common Stock 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. See "Security Ownership
of Certain Beneficial Owners and Management," "Description of Securities" and
"Shares Eligible for Future Sale."
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<PAGE> 18
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 may be highly volatile.
Factors such as announcements by us or our competitors concerning the following
matters may have a significant impact on the market price of the Common Stock
and could cause it to fluctuate substantially:
- products,
- patents and technology,
- governmental regulatory actions,
- events affecting technology companies generally, and
- general market conditions.
In addition, there are a relatively small number of shares of Common Stock
trading publicly. 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."
NO DIVIDENDS
We have not paid dividends since our inception and do not anticipate
paying any dividends in the foreseeable future. We plan to retain any earnings
to finance the development and expansion of our business. We are prohibited from
paying any dividends on the Common Stock until all accumulated dividends have
been paid on the Series A Redeemable Preferred Stock and Series B Redeemable
Preferred Stock pursuant to our Restated Certificate of Incorporation. See
"Dividend Policy."
CONTINUED CONTROL BY OFFICERS, DIRECTORS AND EXISTING 5% SHAREHOLDERS
As of September 15, 1998, our executive officers and directors,
together with entities affiliated with such individuals, and other holders of
five percent or more of our outstanding capital stock beneficially own over 30%
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
our directors, will have the voting power to approve all matters requiring
shareholder approval and will continue to have significant influence over our
affairs. This concentration of ownership could have the effect of delaying or
preventing a change in control of our company. Allen & Company Incorporated is
the beneficial owner of 12.1% of our Common Stock. Enrique F. Senior, one of our
directors, is an Executive Vice President and Managing Director of Allen &
Company Incorporated and as such may be deemed to be the beneficial owner of
12.3% of our Common Stock (which includes the shares of Common Stock
beneficially owned by Allen & Company Incorporated). These factors could lead to
conflicts of interest between us, on the one hand, and Allen & Company
Incorporated and/or Mr. Senior, on the other hand. In the event any conflict of
interest arises between us and Allen & Company Incorporated or Mr. Senior in the
future, we intend that any such issue will be resolved by a majority of
directors who do not have a personal interest in the issue.
We issued a total of 262,000 shares of Common Stock (or 3.2% of the
shares of Common Stock outstanding on June 30, 1998) to Brown F Williams and
Samuel A. McCleery pursuant to the exercise of warrants in July 1997. The total
number of shares issued to such individuals was in exchange for promissory
notes. In December 1997 we lent money to Mr. Williams and Mr. McCleery to allow
them to pay the tax liabilities they each incurred as a result of the exercise
of their warrants in July 1997. They executed additional promissory notes in
December 1997 for these loans. All of these promissory notes were outstanding as
of June 30, 1998. Mr. Williams and Mr. McCleery have significant influence over
our affairs. See "Management" and "Security Ownership of Certain Beneficial
Owners and Management." Among other effects, this control could result in a
delay of payment by Mr. Williams and Mr. McCleery to us. See "Certain
Relationships and Related Transactions-Transactions With Management and
Others-Indebtedness of Management."
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LIMITATION ON UTILIZATION OF INCOME TAX LOSS CARRYFORWARDS
As of June 30, 1998, we had net operating loss carryforwards for
federal income tax purposes of approximately $19,400,000. These net operating
loss carryforwards expire in the years 2006 through 2013. As a result of our
initial public offering of Common Stock in December 1997, we underwent 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 the ownership change, our right to use existing net operating
loss carryforwards is limited during each future year to a percentage of the
fair market value of our outstanding capital stock immediately before the
ownership change. If other ownership changes have occurred prior to this
ownership change, we may be further limited in using the losses. The timing and
manner in which we may use the net operating loss carryforwards will be severely
limited by Section 382 of the Code. See Note 8 of Notes to Financial Statements.
EFFECTS OF CERTAIN CHARTER, BYLAW AND STATE LAW PROVISIONS
Our Board of Directors may issue up to 1,000,000 shares of preferred
stock in one or more series and may determine the price, rights, preferences and
privileges of those shares without any further vote or action by our
shareholders. We may issue up to 167,000 shares of the Series A Preferred Stock
and 93,300 of the Series B Preferred Stock. 67,600 shares of Series A Preferred
Stock are outstanding and 86,041 shares of Series B Preferred Stock are
outstanding. As a holder of Common Stock, you will be subject to, and may be
negatively affected by, the rights of the holders of preferred stock. The
issuance of additional shares of preferred stock would provide flexibility in
connection with possible acquisitions and other corporate purposes. However,
preferred stock can also be used to delay, defer or prevent a change in control
of our company and, thus, entrench existing management. We are subject to the
anti-takeover provisions of the New Jersey Shareholder Protection Act. This act
restricts 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. These provisions could
adversely affect the value of the Common Stock since they delay and deter
unsolicited takeover attempts. See "Description of Securities-Preferred Stock."
YEAR 2000 RISK COMPLIANCE
Many currently installed computer systems and software products are
coded to accept only two digit entries in the date field. Beginning in the year
2000, these date code fields need to recognize four digit entries in order to
identify correctly dates in the 21st century. If not corrected, many computer
applications could fail or create erroneous results at the year 2000. To the
extent that all internal and external systems and services relating to our
operations, including, but not limited to, all computer hardware and software
systems (both those produced by us and those produced by others for our use),
the systems of our suppliers, significant third party vendors and broadcasters,
and our own internal information systems, databases and programs are not Year
2000 compliant, our planned operations could be significantly disrupted. This
could have a material adverse effect on our business, financial condition and
planned results of operations. Further, to the extent that, in connection with
becoming year 2000 compliant, there are failures by governmental agencies
causing delays in approval of new products or sales of approved products,
failures in global banking systems and capital markets, failures by public and
private utility companies supplying services to us, or failures in identifying
critical systems within our company, such failures could have material adverse
effect on our business, financial condition and planned results of operations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations-Year 2000 Risk Compliance."
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USE OF PROCEEDS
Princeton Video Image, Inc. ("PVI" or the "Company") will receive no
proceeds from the sale of the Selling Shareholders Shares by the Selling
Shareholders but will receive proceeds from the exercise of the Representatives'
Warrants and the Bridge Warrants. Proceeds from the exercise of such warrants
are expected to be used for general corporate purposes.
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, 1998, the accrued dividends with respect to the shares of Series A Preferred
Stock and Series B Preferred Stock totaled $99,250 and $113,950, 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."
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the Nasdaq National Market
under the symbol "PVII." The following table sets forth, for the calendar
periods indicated, the range of high and low sale prices for the Common Stock of
the Company on the Nasdaq National Market:
High Low
---- ---
1997
Fourth Quarter (commencing December 16, 1997).......... 9 1/2 7 1/8
1998
First Quarter.......................................... 9 1/2 6 1/4
Second Quarter ........................................ 8 3/4 4 1/4
Third Quarter.......................................... 6 2 5/16
As of September 15, 1998, there were 389 holders of record of the
Common Stock, with beneficial stockholders in excess of 400. On September 15,
1998, the last sale price reported on the Nasdaq National Market for the Common
Stock was $3.0625 per share.
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<PAGE> 21
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
June 30, 1998. See "Certain Relationships and Related Transactions-Transactions
With Management and Others," "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.
See the unaudited balance sheet as of September 30, 1998 contained in the
Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 1998
which is included as part of this Prospectus immediately following page F-29 of
the Financial Statements.
<TABLE>
<CAPTION>
JUNE 30, 1998
-------------
<S> <C>
Long term debt ........................................ $ 0
------------
Redeemable preferred stock:
Series A Redeemable Preferred Stock; $4.50 par
value, 167,000 shares authorized; 67,600
shares issued and outstanding ....................... 403,450
Series B Redeemable Preferred Stock, $5.00 par
value, 93,300 shares authorized; 86,041 shares
issued and outstanding .............................. 544,155
------------
Total redeemable preferred stock ...................... 947,605
Shareholders' equity (1)
Common Stock, no par value; $.005 stated
value; 40,000,000 shares authorized; 8,173,552
shares issued and outstanding........................ 40,867
Additional paid-in capital ............................ 51,443,856
Less: Related party notes receivable .................. (824,498)
Deficit accumulated during the development stage ...... (28,625,878)
------------
Total shareholders' equity ............................ 22,034,347
------------
Total capitalization ................................ $ 22,981,952
============
</TABLE>
- -----------
(1) Does not include (i) 25,000 shares of Common Stock issuable upon exercise
of the Bridge Warrants outstanding as of June 30, 1998; (ii) 400,000
shares of Common Stock issuable upon exercise of the Representatives'
Warrants; (iii) 777,130 shares of Common Stock issuable upon exercise of
other outstanding warrants to purchase shares of Common Stock; and (iv)
1,560,000 shares of Common Stock issuable upon exercise of options granted
under the Stock Option Plan as of June 30, 1998, including 1,317,507
shares of Common Stock issuable upon exercise of options outstanding as of
June 30, 1998. See "Management-Stock Option Plan" and "Description of
Securities."
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
audited Financial Statements and notes thereto appearing elsewhere in this
Prospectus.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" contained in the Company's Quarterly Report on Form 10-Q
for the Quarter ended September 30, 1998 which is included as part of this
Prospectus immediately following page F-29 of the Financial Statements.
OVERVIEW
Since its inception in 1990, the Company has devoted substantially all of
its sources 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. The Company has
incurred substantial operating losses since its inception. As of June 30, 1998,
the Company had an accumulated deficit of approximately $28,626,000 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 continue its efforts to enhance the L-VIS System
and develop additional software applications. In order to increase its revenue
generating user base and to expand into national and international markets, the
Company plans an increase in its sales and marketing staff during the fiscal
year ending June 1999. 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 awareness. While any
purchase of advertising will be done through the rights holder or the
broadcaster, the Company hopes 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 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.
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 revenues 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 in nature or they may cover individual major
broadcast events. 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.
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RESULTS OF OPERATIONS
COMPARISON OF FISCAL YEAR ENDED JUNE 30, 1998 AND FISCAL YEAR ENDED JUNE
30, 1997
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 the
United States. Total revenue increased 229% to $696,012 during the fiscal year
ended June 30, 1998 ("Fiscal 1998") from $211,634 for the fiscal year ended June
30, 1997 ("Fiscal 1997"). Of this total, advertising revenue increased 300% to
$324,789 in Fiscal 1998 from $81,108 in Fiscal 1997 as a result of several
factors including the use of the L-VIS System in the international broadcast of
Super Bowl XXXII, increased advertisement sales by the San Diego Padres and the
San Francisco Giants in Major League Baseball and use of the L-VIS System during
ESPN's broadcast of the domestic and international X-Games. Revenues from
license fees increased 184% to $371,223 in Fiscal 1998 from $130,526 in Fiscal
1997 as a result of the full year amortization of income from several licensing
transactions in Latin America and the recognition of $137,500 in non-recurring
revenue from the settlement of a dispute with a former licensee of the L-VIS
System.
L-VIS System Costs. L-VIS System costs include the costs associated with
the material production, depreciation and operational support of the L-VIS
System units, including training costs for operators and the shipping of L-VIS
System units to international and domestic venues. L-VIS System costs increased
93% to $2,456,019 in Fiscal 1998 from $1,274,890 in Fiscal 1997 for several
reasons, including (i) an increase in costs and supplies due to increased use of
the L-VIS System in baseball, pre-season National Football League ("NFL") games
and the international broadcast of Super Bowl XXXII, (ii) an increase in time
spent providing product support to L-VIS System units in the field, and (iii)
costs associated with the initial production run and use of the flex board
system introduced into L-VIS System units.
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
improved software programs for individual sports. Research and development
expenses decreased less than 1% to $1,719,703 in Fiscal 1998 from $1,722,598 in
Fiscal 1997 as a result of a shift in spending from the development of an
enhanced search system for the basic L-VIS System platform and other ongoing
research and development projects to product costs. This shift was due to the
December 1997 attainment of technological feasibility of the flex board based
L-VIS System, which had been under development during prior fiscal years, and
the use of such system. In addition, camera head technology was used with the
L-VIS System for the first time in the second half of Fiscal 1998, causing a
shift in the related expenses from research and development to L-VIS System
costs.
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 operating costs and legal and
accounting fees. Selling, general and administrative expenses increased 54% to
$4,652,384 in Fiscal 1998 from $3,028,895 in Fiscal 1997, as a result of
numerous factors including (i) the hiring of marketing consultants to explore
potential expansion in certain European and other international markets and the
non-cash charges incurred related to the issuance of options to these
consultants, (ii) increased expenses related to the hiring of marketing,
administrative and financial personnel to support the New York and Lawrenceville
offices, (iii) the increase in expenses related to the expansion of the
Company's headquarters and manufacturing facilities in Lawrenceville, New
Jersey, (iv) the increased expenses related to the retention of investor and
public relations firms aimed at improving investor and market communications,
(v) non-cash compensation charges associated with the granting of options and
warrants, and (vi) the fee paid to NFL International for the exclusive right to
include electronic virtual signage in the international broadcast of Super Bowl
XXXII in January 1998.
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Interest and Other Financial Expense. Interest and other financial expense
increased to $1,814,178 in Fiscal 1998 from $0 in Fiscal 1997 due to the
interest costs incurred in connection with the Company's October 1997 bridge
loan financing.
Interest and Other Income. Interest and other income increased 924% to
$861,948 in Fiscal 1998 from $84,088 in Fiscal 1997 as a result of an increase
in funds available to invest from the proceeds of the Bridge Loan in October
1997 and the initial public offering of stock in December 1997.
Net Loss. As a result of the foregoing factors, the Company's net loss
applicable to Common Stock increased 58% to $9,128,374 in Fiscal 1998 from
$5,774,711 in Fiscal 1997.
YEAR 2000 RISK COMPLIANCE
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. Beginning in the year
2000, these date code fields need to recognize four digit entries in order to
identify correctly dates in the 21st century. If not corrected, many computer
applications could fail or create erroneous results at the year 2000.
Based on a preliminary assessment, the Company believes that its current
accounting and administrative software products are Year 2000 compliant and does
not anticipate any internal Year 2000 issues arising from the use of its own
internal information systems, databases or programs. The Company is in the
process of a more detailed assessment of its internally designed software
applications, computer systems and operations in order to determine their Year
2000 readiness and signal any potential problem areas. However, based on the
preliminary assessment, future costs related to Year 2000 compliance for
internal systems are not expected to be material.
The Company's proprietary L-VIS System relies on time (i.e. hour and
minute) sensitive software coding, but is not date sensitive and is, therefore,
not believed by the management of the Company to be subject to Year 2000
problems. The manufacture and use of the L-VIS System, however, requires the
cooperation of external suppliers and outside broadcasters. The Company intends
to implement a formal review process of the Year 2000 readiness of its external
suppliers and the broadcasters whose cooperation is necessary in the use of the
L-VIS System in both live and pre-recorded events. This will involve approaching
all suppliers and broadcasters to ascertain whether their products, equipment
and services are Year 2000 compliant and, if not, what efforts they are making
in this regard.
To the extent that its suppliers and broadcasters and/or its own internal
information systems, databases and administrative software products are not Year
2000 compliant, the planned operations of the Company could be significantly
disrupted. This could have a material adverse effect of the Company's business,
financial condition and planned results of operations. Management is currently
unable to quantify the impact of this potential disruption on its future
earnings. See "Risk Factors-Year 2000 Risk Compliance."
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
Systems. As a result of operating losses, the net cash used in operating
activities increased to $8,493,778 in Fiscal 1998 from $4,095,264 in Fiscal
1997. This increase was due in large part to a $1.8 million non-recurring
interest expense, commissions, fees and other charges relating to the Company's
October 1997 bridge loan financing. In addition, in Fiscal 1998 the company
recorded non-cash compensation charges in the amount of $473,562 associated with
the granting of options and warrants.
Net cash used in investing activities increased to $2,336,324 in Fiscal
1998 from $2,313,612 in Fiscal 1997. Proceeds from the maturity of the Company's
investments provided cash of $0 and $3,000,000 in Fiscal
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1998 and Fiscal 1997, respectively, attributable to the Company's change in
investment strategy. The Company increased its purchases of property and
equipment to $2,093,702 in Fiscal 1998 from $523,221 in Fiscal 1997, primarily
as a result of building 10 additional L-VIS Systems needed to meet the demands
of an increased number of customers, both domestically and in the international
market as well as for internal development purposes.
Net cash proceeds from financing activities increased from $1,050,636 to
$31,597,036 for the years ended June 30, 1997 and 1998, respectively for several
reasons. In its efforts to raise money to meet current obligations, the Company
collected $1,264,485 of stock subscriptions receivable in July 1997. To meet the
Company's short term financing needs in advance of the initial public offering,
the Board of Directors of the Company approved a $3,000,000 Bridge financing
which closed in October 1997. As the Bridge Financing matured upon consummation
of the initial public offering in December 1997, the entire proceeds of the
Bridge Financing plus accrued interest was repaid in December 1997. The Company
completed an initial public offering of 4,000,000 shares of common stock on
December 16, 1997. The net proceeds from the sale of such shares, after
deducting underwriting discounts and commissions and estimated expenses payable
by the Company, were approximately $25,050,000. On December 31, 1997, the
Company sold 600,000 shares of common stock pursuant to the Underwriters'
exercise of an over-allotment option. The net proceeds from the sale of the
over-allotment shares, after deducting underwriting discounts and commissions
and estimated expenses payable by the Company, were approximately $3,900,000.
Since inception, the Company has financed its operations from (i) the net
proceeds of approximately $19,700,000 from private placements of Common Stock,
warrants and redeemable preferred stock, (ii) the payment of a $2,000,000
licensing fee by Presencia in consideration of the license granted by the
Company to Publicidad, (iii) the proceeds of a bridge loan financing which
closed in October 1997, (iv) the proceeds from the initial public offering of
its Common Stock which closed in December 1997, (v) revenues and license fees
relating to use of the L-VIS System, and (vi) investment income earned on cash
balances and short term investments.
The Company believes that its existing available cash, cash equivalents
and short-term investments will be sufficient to meet its capital needs for a
period of eighteen 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 ability to maintain
its customer base and attract new 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 its
competitors. 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.
As of June 30, 1998, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $19,400,000 which expire in the
years 2006 through 2013. Based upon the Company's initial public offering of
Common Stock in December 1997, the Company has undergone 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 timing and manner in
which the net operating loss carryforwards may be utilized in any year by the
Company will be severely limited by Section 382 of the Code.
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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.
PVI believes that its Live Video Insertion System (the "L-VIS(TM)
System"), which is an integrated hardware and software system, can 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 and program producers, 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.
The L-VIS System has been used to insert advertising images into live and
pre-recorded television broadcasts including baseball games, soccer matches,
football games, motor sports , tennis matches, telethons and entertainment
broadcasting.
The Company's objective is to become the leading provider of electronic
advertising to the 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 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.
The Company was incorporated in New Jersey on July 23, 1990.
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 $9.95 billion to purchase television advertising and
sponsorship rights with respect to sporting events in 1997, according to
information from the following industry sources. The 1998 network and cable
television sports advertising markets in the United States were reported by Paul
Kagan Associates, Inc. ("Kagan Associates") to be approximately $3.4 billion and
$2.0 billion, respectively. The December 1997 IEG Sponsorship Report, a sports
newsletter published biweekly by IEG, Inc., projected that $4.55 billion would
be spent to sponsor specific teams, stadium locations and sporting events in
1998. The Company estimates that approximately $11.4 billion was spent on
various forms of television sports advertising and sponsorship in 1997 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 broadcast 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 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.
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The Company 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.
The success of the L-VIS System requires satisfactory commercial
arrangements among the advertisers, rights holders, broadcasters and the
Company. To date, only a limited number of broadcasters, broadcast rights
holders and advertisers have agreed to use the L-VIS System during live sports
broadcasts. Some press coverage of the Company's technology has raised concerns
about its desirability and potential misuse relating to subliminal advertising,
television tampering, ethics, and over commercialization. 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. See "Risk
Factors-Dependence on Market Acceptance."
ABILITIES OF THE L-VIS SYSTEM
The Company believes that the L-VIS System provides 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;
- 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;
- 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;
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- 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 is a system of proprietary hardware and software which
has been designed by the Company to insert electronic 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 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 patented pattern recognition
technology. The L-VIS System may be located anywhere in the television
distribution chain, including the stadium where a broadcast typically
originates, the television studio to which a broadcast is relayed and the
microwave links or satellite ground stations where the broadcast is relayed for
distribution to the viewing public.
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 and the operator identifies the location in
the broadcast scene where the images will be inserted. The L-VIS System is
designed to recognize the broadcast scene in real time during the broadcast and
to insert the image as instructed each time the broadcast scene containing the
insert location appears. The operator controls which of several images is
selected for insertion 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, tennis and automobile racing
broadcasts. For instance, 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, a non-animated advertisement inserted
with the L-VIS System, such as an advertisement on the wall behind home plate,
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 an inserted image is not present at the actual site
of a sporting event, any distraction caused to the players by other advertising
such as scrolling billboards will not be present. 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:
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- 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 other sports governing bodies;
- Developing relationships with broadcasters. The Company 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 games, tennis matches and motor
sports events, 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 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. The NFL is under contract with ABC,
CBS, FOX and ESPN for the rights to broadcast various NFL football games during
the 1998 NFL season. Kagan Associates estimated that the national network
broadcasters holding rights to NFL games in 1997 generated an aggregate of
approximately $1.4 billion in revenues through the sale of television
advertisements with respect to their broadcast of regular season and playoff
games, including the 1997 Super Bowl on FOX.
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 1997, ABC, NBC and CBS generated
approximately $170 million, $16.8 million and $61.6 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, $303 million in 1996 and $321.9 million
in 1997. Generally, the local television rights, video insertion and sponsorship
rights to regular season baseball games are held individually by each of the 30
MLB teams. Typically, each team sells to over-the-air and cable broadcasters the
broadcast and television advertising rights to individual games or packages of
multiple games for a fixed fee and solicits potential sponsors using a media
sales group. The broadcasters earn revenues through the sale of 30-second spots
to local and national advertisers.
SALES AND MARKETING
The Company expects to generate revenues from the sharing of advertising
revenue among the Company, rights holders and broadcasters and, in certain
circumstances, through the licensing of the Company's technology. As discussed
above, the right to insert electronic images for advertising purposes into a
live broadcast, and hence the right to sell advertising using the L-VIS System,
is held by different groups depending, in most cases, on the sport involved and
the status of the game, i.e., pre-season, regular season or post-season, and
whether the game is to be
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broadcast internationally, nationally or locally. These rights may be sold for
specific games and/or entire seasons to another party, most notably a
broadcaster who pays the rights holder an up-front fee for such rights. In each
case, the Company must negotiate for the use of the L-VIS System with the rights
holder or holders, typically in exchange for a percentage of the advertising
revenue generated using the L-VIS System. Because the L-VIS System uses the live
feed from the broadcaster to insert its electronic images, such broadcaster must
also approve the use of the L-VIS System. Accordingly, arrangements with several
parties including the rights holder and the broadcaster must be established. The
L-VIS System has been used to broadcast, among other events, (i) the
international broadcast of Super Bowl XXXII in January 1998, (ii) the 1998 NFL
pre-season games of the Arizona Cardinals, Baltimore Ravens, Chicago Bears, New
York Giants and San Francisco 49ers, (iii) 1998 and 1997 MLB home games of the
San Francisco Giants and the San Diego Padres, and (iv) 1998 MLB home games of
the Philadelphia Phillies. 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. Because the right to use video insertion technology
and, thus, the right to sell advertising using the L-VIS System, is held, in
most cases, by the sports teams or their governing leagues, the Company expects
that these rights holders will be its contract partners. The Company expects to
provide the L-VIS System and support services to the rights holders and to be
paid by the rights holders a percentage of the advertising revenues derived from
use of the L-VIS System. The Company further expects that the rights holders
will enter into agreements with broadcasters to provide the services necessary
for use of the L-VIS System. The Company expects that advertising space using
the L-VIS System will be sold either by the rights owner or by the broadcaster,
depending on the specific arrangement between such parties, and that advertising
revenues will be shared among the rights owner, the broadcaster and the Company.
As a result, the Company relies, and will continue to rely, upon the marketing
and advertising staffs of the teams, leagues and broadcasters, which typically
target the manufacturers or producers of nationally distributed products. See
"Risk Factors-Dependence on Third Party Sales Forces."
In addition to relying upon the sales forces of the broadcasters and/or
the rights holders, the Company also promotes the advantages of the L-VIS System
directly to major advertisers. The Company believes that promotion is important
in influencing market acceptance of the L-VIS System among potential
advertisers. Certain press coverage of electronic image insertion technology has
raised concerns about its desirability and potential misuse. For instance, an
article has described inserted advertising as subliminal and the technology has
been described as tampering with the television picture in a manner which may
not be ethical. A danger of over commercialization has also been voiced. See
"Risk Factors-Dependence on Market Acceptance" and "Risk Factors-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 in August 1998, the L-VIS System was used in games
of the Arizona Cardinals, Baltimore Ravens, Chicago Bears, New York Giants and
San Francisco 49ers to insert promotional material and advertising in the
broadcasts. The L-VIS System was also used to insert electronic images on behalf
of The Coca-Cola Company, as the exclusive sponsor, during the international
broadcast of Super Bowl XXXII in January 1998.
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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 L-VIS System was not used during the broadcast of any 1997
college football season games.
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."
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, advertisements can be sold by the rights
holder 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 during broadcasts of their respective home games
throughout the 1997 MLB season and during the 1998 MLB season. In order to
interest more teams in the Company's technology, PVI installed a second system
in San Diego during the 1997 season for use by visiting teams in broadcasts to
their home cities. The Company entered into an agreement with the Philadelphia
Phillies pursuant to which the L-VIS System was used throughout the 1998 MLB
season with respect to the broadcast of home games. 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.
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 during live international broadcasts of the Parmalat Cup
soccer tournament in August 1995. RTBF, the French language national broadcaster
in Belgium, successfully used the L-VIS System in May 1996 to insert
three-dimensional images into the broadcast of the Belgian Cup. The Company also
used the L-VIS System to insert logos during the December 1996 World Cup
qualifying match between the Dutch and Belgian national teams and, through
Publicidad (discussed below), to insert advertisements in more than 100 soccer
matches in Mexico.
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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."
OTHER SPORTS
Kagan Associates estimated that in 1997, 22.1% and 7.8% 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. In August 1998 the L-VIS System was used for the first time
in the broadcast of a motor sport event, the Brickyard 400. The Company intends
to improve its existing software for motor sports events and to develop software
to use the L-VIS System for broadcasts of basketball and golf during 1999-2000.
ESPN used the L-VIS System in international broadcasts of the 1997 and 1998
X-Games, which were taped in San Diego. There can be no assurance that the
Company will be successful in developing software that allows use of the L-VIS
System with basketball or golf, or if successful, will be able to gain market
acceptance with respect to such sports. See "Risk Factors-Technical
Uncertainties," "Risk Factors-Risks Associated with Rapidly Changing Industry,"
and "Risk Factors-Dependance on Market Acceptance."
INTERNATIONAL BUSINESS STRATEGY
The Company's strategy with respect to sporting and other events
originating outside of the United States is to enter into joint ventures and
licensing transactions principally with foreign broadcast and sports marketing
experts. The Company expects that the largest international market for the L-VIS
System initially will be 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 200 soccer matches, plus tennis matches and bullfights
on behalf of clients of Publicidad.
RESEARCH AND DEVELOPMENT
The Company recently completed integrating the L-VIS System operating
software into a new "Flex-Card" hardware platform. This platform is more
powerful than the Company's prior platform and allows re-configuration. The
Company has designed the Flex-Card L-VIS System to provide multiple insertion
capability, multiple camera capability, an expanded zoom range and has created a
simplified graphical user-based interface. See "Risk Factors-Technical
Uncertainties" and "Risk Factors-Risks Associated with Rapidly Changing
Industry." See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Research and Development" regarding costs of research
and development in each of the last two fiscal years.
The Company is continuing to improve existing software for use of the
L-VIS System during the broadcast of football games, baseball games, soccer
games, tennis matches and motor sports. Further, the Company is developing, or
intends to develop, software to permit use of the L-VIS System during the
broadcast of basketball games 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 "Risk Factors-Risks Associated with Rapidly
Changing Industry."
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COMPETITION
PVI knows of four organizations that have developed and are continuing
to develop 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"), SciDel Technologies Ltd. ("SciDel") and SportVision.
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 PVI believes that Symah is actively marketing its system primarily
in Europe. The Company believes that Symah's system has been used primarily in
Europe during the broadcast of at least 60 sporting events. Orad was founded in
1992 as part of the ORMAT Group, an Israeli company originally established to
create alternative energy power stations. The Orad system is marketed by Imagine
Video Systems which is partly owned by Orad and ISL, a Swiss sports-marketing
firm. 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. Both the Orad and SciDel systems have been used during
live commercial broadcasts. The Company recently expanded the services it offers
to include, for a fee, the electronic insertion of visual aids in live sporting
events, such as a virtual first-down marker in live television broadcasts of
football games. The Company is aware that SportVision, a U.S. company, is also
in the business of inserting visual aids in live sporting events. The
SportVision system has been used to insert virtual first-down markers during
live television broadcasts of football games. Apart from the patents or patent
applications that the Company owns or licenses, the Company believes each of
these competitors has one or more patents or patent applications relating to
real-time video insertion. Although the Company believes that use of the L-VIS
System does not infringe the United States or other patents of third parties,
there can be no assurance that competitors will not initiate a patent
infringement action against the Company. PVI is currently evaluating whether use
of the SciDel system or use of the SportVision system infringes the Company's
patents. See "Risk Factors-Patents and Protection of Proprietary Technology" and
"Business-Intellectual Property-Patents." See the Company's Current Report on
Form 8-K filed with the Securities and Exchange Commission on November 17, 1998
which is included as part of this Prospectus immediately following the Company's
Quarterly Report on Form 10-Q for the Quarter ended September 30, 1998 (which
appears immediately following page F-29 of the Financial Statements).
In addition to these known competitors, the Company also expects
substantial competition from established broadcast business participants, if the
market for video insertion technology, including virtual advertisements, 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. There is
no assurance that the Company will be able to compete effectively with current
or future competitors. See "Risk Factors-Competition."
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 soccer fields) 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. See "Risk
Factors-Competition."
Approximately 21 MLB teams had scrolling billboards located behind home
plate in 1998. 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 one manufacturer of scrolling billboards
used in stadiums has included restraints in its contracts that inhibit or
prohibit the use of video insertion technology in television broadcasts. Other
agreements among advertisers, sponsors, syndicators, promoters, broadcasters and
cable operators may include similar provisions. These restrictions may have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Risk Factors-Contractual Restrictions on Use of
Video Insertion Technology."
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 that total advertising and sponsorship expenditures
will increase as a
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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 scrolling
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. See "Risk Factors-Competition."
MANUFACTURING AND SUPPLY
The Company has built 21 L-VIS System units (each, an "L-VIS Unit"), of
which approximately 14 are being used from time-to-time by customers, potential
customers or foreign marketing partners. An L-VIS Unit consists of standard
electronic equipment racks, containing both standard purchased components and
the Company's proprietary circuit boards, assembled and tested by Company
personnel. The Company is dependent upon a sole supplier, Lucent Technologies,
for certain of the hardware components. Although such hardware components are
stock items which are readily available to the public, there can be no assurance
that Lucent will continue to manufacture and sell the components. The Company is
not a party to any agreement with Lucent. See "Risk Factors-Risks Associated
with Expansion and Growth" and "Risk Factors-Dependence on Sole Source of
Supply."
REGULATIONS
The Company believes that no federal or state regulations currently
directly relate to or restrict the use of the L-VIS System. 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,
will adversely affect the use of the L-VIS System. Further, 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. Such regulations or restrictions could have a material adverse
effect on the Company's business, financial condition and results of operation.
See "Risk Factors-Possible Adverse Regulations."
INTELLECTUAL PROPERTY
PATENTS
The Company has been assigned four issued U.S. patents. Patent No.
5,264,933, which relates to the Company's basic pattern recognition video
insertion technology, was issued on November 23, 1993, will expire on November
23, 2010 and was assigned to the Company on January 22, 1992. Patent No.
5,543,856, which relates to the use of remote insertion of images that might be
useful in a narrow casting application, was issued on August 6, 1996, will
expire on August 6, 2013 and was assigned to the Company on October 22, 1993.
Patent No. 5,627,915, which relates to a pattern recognition system using
templates, was issued on May 6, 1997, will expire on January 31, 2015 and was
assigned to the Company on January 30, 1995. Patent No. 5,808,695, which relates
to a method of tracking scene motion for live video insertion systems, was
issued on September 15, 1998, will expire on December 29, 2015 and was assigned
to the Company on December 27, 1995. The Company owns all right, title and
interest in each of the patents.
To date, the Company has filed counterpart patent applications for the
four 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. Six new patent
applications are pending in various countries, including the United States, and
several more patent applications are in preparation.
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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.
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, 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.
Although the Company has no cause for belief that use of the L-VIS
System would infringe the United States or other patents of third parties, there
can be no assurance that competitors will not initiate a patent infringement
action against the Company. GDM, a Spanish media company that licensed the L-VIS
System for use in broadcasts in Spain and Portugal during a trial period which
ended December 1996, received a letter from a Symah affiliate asserting that use
of the L-VIS System in Spain would infringe one of Symah's patents. Although the
Company and GDM have been advised that use of the L-VIS System would not
infringe Symah's patent, there can be no assurance that Symah will not assert
infringement claims against the Company or its European licensees in the future.
One of the patents of which the Company is aware is U.S. Patent
5,353,392 (the "'392 Patent"). The '392 Patent derives from the same patent
application as does the patent asserted by the Symah affiliate against the L-VIS
System in Spain. The '392 patent has not been asserted against the Company. The
Company believes that the L-VIS System does not infringe the '392 Patent.
However, the Company has not received during the past two years an opinion as to
the non-infringement of the '392 Patent. There can be no assurance that changes
in the L-VIS System, changes in applicable patent law or rulings by the U.S.
Patent and Trademark Office or the courts would not cause the L-VIS System to be
found to infringe the '392 Patent, which could have a material adverse effect on
the Company's business, financial condition and results of operations. If the
L-VIS System were found to infringe the '392 Patent or any other patent, the
Company may be required to modify the L-VIS System or enter into an arrangement
to license such patent, if possible. There can be no assurance that the Company
would be able, under such circumstances, to modify the L-VIS System or enter
into a license arrangement.
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If the L-VIS System were found to infringe any patent, the Company may
be required to modify the L-VIS System or enter into an arrangement to license
such patent, if possible. There can be no assurance that the Company would be
able, under such circumstance, to modify the L-VIS System or enter into a
license arrangement. The Company also relies in large part on unpatented trade
secrets, improvements and proprietary technology. Despite the Company's efforts
to safeguard and maintain its proprietary rights, there can be no assurance that
it will be successful in doing so or that its competitors will not independently
develop, reverse engineer or patent technologies that are substantially
equivalent or superior to its technologies. See "Risk Factors-Patents and
Protection of Proprietary Technology."
LICENSE GRANTS
The Company has entered into the following license agreements relating
to the L-VIS System:
David Sarnoff Research Center, Inc. David Sarnoff Research Center, Inc.
("Sarnoff") has granted the Company a worldwide license to practice Sarnoff's
technology related to the electronic recognition of landmarks, including an
exclusive license covering the specific fields of television advertising and
television sports. The Company has also been granted a non-exclusive license for
use of the Sarnoff technology in all other fields relating to sports or
advertising, including video production, local video insertion, private
networks, medical and scientific applications and uses by the United States
Department of Defense or any other United States government agency. The Sarnoff
license will remain in effect until terminated by the Company, provided that the
Company remains current with respect to its royalty obligations to Sarnoff. The
Company may terminate the license at any time.
During the term of the exclusive license for television advertising and
television sports applications, the Company is obligated to pay Sarnoff
royalties based upon a percentage of the Company's gross revenues. Royalties
accrue as earned, but the Company is not required to make any royalty payments
until the earlier of the date on which its cumulative gross revenues reach $20
million or January 1, 1999. In any event, commencing on January 1, 1999, the
Company will be required to pay minimum royalties each quarter. Royalties have
begun to accrue under the Sarnoff license (less than $100,000) but have not been
paid.
General Electric Company. General Electric Company ("GE") granted the
Company a five-year non-exclusive, worldwide license relating to all GE patents
on equipment for electronic recognition of selected landmarks; altering images
in television programs for advertising purposes; or any purpose in television
programs the principal focus of which is sports, as of July 1996.
Theseus Research, Inc. Theseus Research, Inc. ("Theseus") has granted
the Company a non-exclusive, worldwide license to use and sell Theseus' patented
technology for the warping of images in real 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 September 8, 1998, the Company had 46 full-time employees, 22 of
whom were engaged in, or directly supported, the Company's hardware and software
research, development and product engineering activities, 8 of whom assembled
and operated L-VIS Systems for potential customers, 10 of whom were engaged in
marketing activities and 6 of whom were 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 Employees."
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. 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.
REPORTS TO SECURITY HOLDERS
The Company is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended, and, in accordance therewith, files reports,
proxy statements and other information with the Securities and Exchange
Commission (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.
The Company has filed with the 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. The
public may read and copy any materials the Company files with the Commission at
the Commission's Public Reference Room at 450 Fifth Street, N.W., Washington,
D.C. 20549. The public may obtain information on the operation of the Public
Reference Room by calling the Commission at 1-800-SEC-0330. The Commission
maintains an Internet site that contains reports, proxy and information
statements, registration statements and other information regarding issuers that
file electronically with the Commission. The address of the Commission's
Internet site is http://www.sec.gov.
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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....................... 57 Chairman of the Board
Douglas J. Greenlaw.................... 54 President, Chief Executive Officer and Director
Samuel A. McCleery..................... 47 Vice President of Marketing and Sales, and Assistant
Secretary
Lawrence L. Epstein.................... 44 Vice President, Finance, Chief Financial Officer and
Treasurer
Lawrence Lucchino...................... 53 Director
Jerome J. Pomerance.................... 57 Director
Enrique F. Senior...................... 55 Director
Eduardo Sitt........................... 67 Director
John B. Torkelsen...................... 53 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 and its Chairman of the
Board. 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 also served as the Treasurer of the Company prior to Mr. Lawrence L.
Epstein's election to such office in February 1998. Mr. Williams is a senior
executive with more than 25 years experience in the development of high
technology products, primarily during his 20 years with RCA Laboratories, Inc.
Until 1987, Mr. Williams was a Vice President of David Sarnoff Research Center,
Inc. with responsibility for both hardware and software contract research
businesses. Between 1987 and 1991, Mr. Williams was active in a number of
start-up companies, either as a consultant on behalf of the funding groups or as
an executive employee on behalf of the managements of such companies. Mr.
Williams has had significant experience in product development, product
introduction and licensing in Europe and Japan, as well as in the United States.
DOUGLAS J. GREENLAW joined the Company in January 1997, when he was
elected President and Chief Executive Officer. Mr. Greenlaw was elected to the
Board of Directors of the Company in October 1997. Mr. Greenlaw has advised the
Company that he will not stand for re-election to the Board of Directors at the
annual meeting of shareholders in December 1998. Mr. Greenlaw has also announced
that he plans to step down as President and Chief Executive Officer by the end
of calendar year 1998. From 1994 through 1996, Mr. Greenlaw was President and
Chief Operating Officer of Multimedia, Inc. Mr. Greenlaw also served on the
board of directors of Multimedia and was Chairman of its Executive Committee.
Before joining Multimedia, Mr. Greenlaw had been Chairman and Chief Executive
Officer of Whittle Communications' Venture Division from 1991 through 1994.
SAMUEL A. MCCLEERY has been the Company's Vice President, Marketing and
Sales, since November 1991 and its Assistant Secretary since October 1997. Prior
to November 1991, Mr. McCleery was President of his own sports marketing and
events company with clients that included the Reagan Foundation. From 1981 to
1989, Mr. McCleery served as the director of sports marketing for Prince
Manufacturing, the world's largest marketer of tennis racquets. Prior to 1981,
Mr. McCleery was a Director of New Business for Le Coq Sportif, a division of
Adidas (France).
LAWRENCE L. EPSTEIN has been the Company's Vice President, Finance,
Chief Financial Officer and Treasurer since February 1998. Prior to joining the
Company, Mr. Epstein was Chief Financial Officer and Vice
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<PAGE> 40
President of Finance and Administration for Primestar Partners, L.P., the
nation's second largest Direct Broadcast Satellite provider, where he was
responsible for overall financial management as well as strategic and long-range
planning. Prior to joining Primestar in March, 1993, Mr. Epstein held several
senior financial positions with a number of CBS, Inc. units, including the CBS
Television Network, CBS News and CBS owned-and-operated stations from 1979 to
1993.
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 and Executive Vice President of Allen &
Company Incorporated since 1973. Mr. Senior has been a director of Dick Clark
Productions, Inc., a publicly held company, for over five years and on behalf of
Allen & Company Incorporated he is, or has recently been, financial advisor to
several corporations, including The Coca-Cola Company, Tri-Star Pictures,
Columbia Pictures and QVC Network.
EDUARDO SITT has been a director of the Company since October 1993.
From 1964 until 1993, he was the principal shareholder and Chief Executive
Officer of Hilaturas de Michoacon, S.A., a Mexican textile manufacturer. Mr.
Sitt is a shareholder and, during the past five years, has served as a director
of Grupo Financiero BBV-Probursa, a publicly held financial corporation and
parent company of Mexico's fifth largest bank (Banco Bilbao Vizcaya, S.A.), a
full service stock brokerage house (Casa de Bolsa BBV-Probursa) and several
other financial firms. Mr. Sitt is the President and principal shareholder of,
and the individual designated to serve on the Board of Directors of the Company
by, Presencia en Medios, S.A. de C.V. ("Presencia"), a principal shareholder of
the Company, and is the Presidente del Consejo of Publicidad Virtual, S.A. de
C.V., a joint venture formed by the Company and Presencia.
He also serves as a director of Albatros Textil, a textile manufacturer.
JOHN B. TORKELSEN has been a director of the Company since October
1995. Since 1984, he has been President of Princeton Venture Research, Inc., an
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 has served as the President of PVR Management, Inc., an affiliate of
Princeton Venture Research, Inc., since February 1998. 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. Princeton Venture
Research, Inc. is the investment advisor to Acorn Technology Fund. Mr. Torkelsen
is currently a director of three other 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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<PAGE> 41
KEY EMPLOYEES
Other key employees of the Company are as follows:
Howard J. Kennedy, 49 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, 45 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, 45 years old, is a co-founder of PVI and currently
serves as its Director of New Business Development. 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), to
Mr. Pomerance, options to purchase 50,000 shares, to Mr. Sitt, options to
purchase 40,000 shares, to each of Messrs. Lucchino, Senior and Torkelsen,
options to purchase 30,000 shares, and to Mr. Williams, options to purchase
20,000 shares, for their participation on the Board of Directors. Such options
were originally issued at exercise prices ranging from $8.00 to $17.50 per share
and were repriced in May 1998 so that all such options have an exercise price of
$8.00. See "Management-Compensation Committees' Report on Repricing of Options."
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. The total number of shares of
Common Stock authorized for issuance under the Stock Option Plan is 1,560,000.
As of September 15, 1998, options to purchase 1,317,507 shares of Common Stock
were outstanding, of which options to purchase 913,296 shares were exercisable.
The exercise prices
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<PAGE> 42
of the outstanding options range from $2.50 to $17.50 per share. The Board of
Directors of the Company has authorized an increase in the number of shares of
Common Stock which may be granted under the Stock Option Plan to 2,160,000
shares and has recommended that the shareholders of the Company ratify the
increase at the annual meeting of shareholders in December 1998.
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 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 years ended June 30, 1998 and
1997 of the Company's chief executive officer and certain other highly
compensated executive officers of the Company who were serving as executive
officers at June 30, 1998 (collectively, the "Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION STOCK
------------------- OPTION AWARDS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY (NUMBER OF SHARES) COMPENSATION
- --------------------------- ---- ------ ------------------ ------------
<S> <C> <C> <C> <C>
Brown F Williams 1998 $225,000 (1) $261,250(2)
Chairman of the Board 1997 225,000 (1) ---
Douglas J. Greenlaw 1998 $225,000 (1) ---
President and 1997 106,725 (1) ---
Chief Executive Office
Samuel A. McCleery 1998 $150,000 (1) $ 99,000(2)
Vice President, 1997 150,000 (1) ---
Marketing and Sales
</TABLE>
(1) See "--Option Grants in Last Fiscal Year" below, including the notes
thereto.
(2) Reflects a compensation charge recorded by the Company in connection
with the exercise of warrants in July 1997. See "Certain Relationships
and Related Transactions-Transactions With Management and
Others-Indebtedness of Management."
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<PAGE> 43
The following table sets forth certain information concerning grants of
stock options(1) to the Named Officers during the fiscal year ended June 30,
1998.
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 1998 per share Expiration Date
- ---- ---------- ------------- ----------- ---------------
<S> <C> <C> <C> <C>
Brown F Williams...................... 20,000(2) 1.6% $8.00 March 2001
150,000(3) 12.4% $8.00 January 2007
Douglas J. Greenlaw.................... 120,293(4) 9.9% $8.00 February 2007
Samuel A. McCleery..................... 20,000(5) 1.6% $2.50 September 2007
50,000(6) 4.1% $8.00 March 2007
47,200(7) 100%(7) $8.00 (7)
</TABLE>
(1) Except as set forth in note (7) below with respect to the issuance of
certain contingent warrants to Mr. McCleery, the option grants set
forth in the table above, and discussed in the notes below, were issued
pursuant to the Company's Amended 1993 Stock Option Plan.
(2) On March 28, 1996, Mr. Williams was granted an option to purchase
20,000 shares of Common Stock at an exercise price of $17.50 per share
with an expiration date of March 28, 2001. On May 28, 1998 the option
was repriced to $8.00 per share. See "--Compensation Committees' Report
on Repricing of Options." 15,555 shares underlying the repriced option
were vested as of May 28, 1998 and the remaining 4,445 shares vest in 8
equal monthly installments commencing in June 1998.
(3) On January 24, 1997, Mr. Williams was granted an option to purchase
150,000 shares of Common Stock at an exercise price of $20.00 per share
with an expiration date of January 24, 2007. On May 28, 1998, such
option was repriced to $8.00 per share. See "--Compensation Committees'
Report on Repricing of Options." 66,666 shares underlying the repriced
option were vested as of May 28, 1998 and the remaining 83,334 shares
vest in 20 equal monthly installments commencing in June 1998.
(4) On February 1, 1997, Mr. Greenlaw was granted an option to purchase
210,000 shares of Common Stock at an exercise price of $20.00 per share
with an expiration date of February 1, 2007. In May 1998, in connection
with the amendment to Mr. Greenlaw's employment agreement, the option
was repriced to $8.00 per share and amended such that 70,293 shares
were deemed exercisable as of May 31, 1998 and an additional 50,000
shares vest in 30 equal monthly installments commencing in June 1998.
The right to purchase the remaining 89,707 shares was cancelled.
(5) The option, which was granted in September 1997 and vested immediately,
was 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.
(6) On March 4, 1997, Mr. McCleery was granted an option to purchase 50,000
shares of Common Stock at an exercise price of $20.00 per share with an
expiration date of March 4, 2007. On May 28, 1998 the option was
repriced to $8.00 per share. See "--Compensation Committees' Report on
Repricing of Options." 19,444 shares underlying the repriced option
were vested as of May 28, 1998 and the remaining 30,556 shares vest in
22 equal monthly installments commencing in June 1998.
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<PAGE> 44
(7) On September 15, 1993, November 3, 1993 and November 4, 1994, the
Company issued five year warrants to Mr. McCleery to purchase 20,000,
13,600 and 13,600 shares of Common Stock, respectively, at an exercise
price of $2.50 per share. As of May 28, 1998, the Company issued Mr.
McCleery contingent warrants to purchase up to 47,200 shares of Common
Stock at an exercise price of $8.00 per share, said warrants to be
exercisable for a period of five years from the respective expiration
dates of the warrants previously issued to Mr. McCleery, but only to
the extent that the previously issued warrants are not exercised. The
original warrants and the contingent warrants were issued outside of
the Company's Amended 1993 Stock Option Plan. The contingent warrants
constitute one hundred percent (100%) of the warrants issued by the
Company to employees during the fiscal year ended June 30, 1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information with respect to
exercises of options to purchase Common Stock during the fiscal year ended June
30, 1998 by the Named Officers and unexercised options to purchase Common Stock
held by the Named Officers at June 30, 1998.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT IN-THE-MONEY OPTIONS
SHARES VALUE JUNE 30, 1998 AT JUNE 30, 1998 (1)
ACQUIRED ON REALIZED --------------------- --------------------
NAME EXERCISE (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------ ------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Brown F Williams --- --- 86,943 83,057 $ 0 $ 0
Douglas J. Greenlaw --- --- 71,959 48,334 $ 0 $ 0
Samuel A. McCleery --- --- 40,833 29,167 $42,500 $ 0
</TABLE>
(1) Based on the closing price on the Nasdaq National Market on June 30,
1998 ($4.625)
COMPENSATION COMMITTEES' REPORT ON REPRICING OF OPTIONS
In May 1998 the Compensation Committee recommended and the Board of
Directors approved the repricing of certain stock options granted between July
1993 and March 1997 to various officers and directors, including stock options
to purchase 170,000 and 50,000 shares of Common Stock held by Messrs. Williams
and McCleery, respectively. The repricing was deemed desirable due to the fact
that fluctuations in the market value of the Common Stock have made the options
no longer appropriate for the purpose for which they were granted: to provide
incentives to promote the financial success and progress of the Company. At the
date of the repricing the market value of the Common Stock was $5.219 and the
exercise price under the options ranged from $12.12 to $20.00. The options were
repriced to $8.00, a price $1.00 above the Company's initial public offering
price of $7.00 per share.
EMPLOYMENT AGREEMENTS WITH EXECUTIVE OFFICERS
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
42
<PAGE> 45
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 is $225,000 per year, subject
to increases at the discretion of the Board of Directors. Mr. Greenlaw is
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, the agreement provides for a continuation of his then
current salary for a period of six months. Mr. Greenlaw has advised the Company
that he will not stand for re-election to the Board of Directors at the annual
meeting of shareholders in December 1998 and has announced that he plans to step
down as President and Chief Executive Officer by the end of calendar year 1998.
His employment agreement was amended to that effect in May 1998 (the
"Amendment"). Pursuant to the Amendment, the Company will continue to pay Mr.
Greenlaw his salary (exclusive of bonuses) through December 31, 1998 and Mr.
Greenlaw may provide consulting services to the Company at the Company's request
between the date he resigns and February 1, 2001. In addition, the Amendment
provided for amendments to the terms of Mr. Greenlaw's stock options. See
"--Executive Compensation-Option Grants in Last Fiscal Year," including Note 4
thereto.
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.
In February 1998, the Company and Mr. Epstein 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. Epstein's base salary will be $150,000 per year,
subject to increases at the discretion of the Board of Directors. Mr. Epstein is
eligible for an annual bonus based on performance measures determined by the
Compensation Committee. In the event Mr. Epstein'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 twelve months in the event his employment is
terminated in his first year of employment. In the event Mr. Epstein 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 six months or the remainder of his current term
of employment.
In addition to provisions in the above-described employment agreements
requiring each individual to maintain the confidentiality of the Company's
information and assign inventions to the Company, such executive officers have
agreed that during the terms of their employment agreements and for two years
thereafter, they will not compete with the Company by engaging in any capacity
in any business which is competitive with the business of the Company.
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<PAGE> 46
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH MANAGEMENT AND OTHERS
Consulting Agreements
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 Company's October 1997 bridge financing, the Company paid
PVR Securities, Inc., an affiliate of PVR, a fee of $70,000, or five percent of
the gross proceeds of such 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
transactions were canceled on February 1, 1998. In connection with the purchase
of Common Stock under the Company's 1997 rights offering, Mrs. Torkelsen and PVR
executed promissory notes in favor of the Company in the amounts of $9,720 and
$50,542.50, respectively. Such notes were subsequently paid in full by Mrs.
Torkelsen and PVR. Mr. Torkelsen is the Manager and a member of Acorn Technology
Partners, L.L.C., the general partner of Acorn Technology Fund, L.P., which
purchased 1.5 units in the Company's October 1997 bridge financing. Each unit
consisted of one note in the principal amount of $100,000 and a warrant 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. In January 1998, Acorn Technology
Fund L.P. exercised their warrants to purchase 15,000 shares of Common Stock.
Enrique F. Senior, a director of the Company, is a Managing Director
and Executive Vice President of Allen & Company Incorporated ("Allen"), which is
a principal shareholder of the Company, furnishes general financial advisory
services to the Company from time to time and acted as a representative of the
several underwriters in the Company's initial public offering. Except as
described herein, no fees have been paid to Allen or to Mr. Senior in connection
with such services and there are no arrangements providing for the payment of
fees for such services. Pursuant to a placement agent agreement, Allen was paid
a fee of $247,000 plus expenses, and received warrants to purchase 28,226 shares
of Common Stock at an exercise price of $19.25 per share, for raising funds for
the Company in a financing that closed in February 1996. In May 1998 the
exercise price of such warrants was reduced to $8.00 per share. See "--Warrant
Repricing" below. Allen, as a representative of the several underwriters,
received underwriting discounts and commissions in the aggregate amount of
approximately $1,306,666.67, as well as warrants initially exercisable for
380,000 shares of Common Stock at an exercise price of $8.40 per share, for
services rendered on behalf of the Company relating to its initial public
offering. See "Security Ownership of Certain Beneficial Owners and Management."
Allen may serve as a market maker for the Common Stock. See "Plan of
Distribution."
In 1993, the Company entered into a 50/50 joint venture with Presencia,
a principal shareholder of the Company, 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 Company's L-VIS System throughout Mexico, Central and
South America and the Spanish-speaking markets in the Caribbean basin. Presencia
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
expenses incurred by Presencia in connection with Publicidad. In May 1998 the
exercise price of such warrants was reduced to $8.00 per share. See "--Warrant
Repricing" below. Such warrants expire in March 2001. Presencia purchased three
units in the
44
<PAGE> 47
Company's October 1997 bridge financing. Following the closing of such bridge
financing, a bridge financing investor assigned an additional 100,000 warrants
to Presencia. In January 1998 Presencia purchased 130,000 shares of the Common
Stock of the Company upon the exercise of bridge financing warrants. Mr. Eduardo
Sitt is the President and a principal shareholder of Presencia. See
"Management-Executive Officers and Directors" and "Security Ownership of Certain
Beneficial Owners and Management."
Indebtedness of Management
Brown F Williams, Chairman of the Board 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 recorded a compensation charge of
$261,250 in the first quarter of Fiscal 1998. As of October 1, 1998, the entire
loan amount of $522,069, including accrued interest, remained outstanding.
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 non-recourse promissory note in the principal amount of
$180,000, the aggregate purchase price of such warrants. The terms of such note,
and of the pledge of such shares that secures Mr. McCleery's obligations under
the note, are identical to those of Mr. Williams' note and pledge. In connection
with the exercise of the warrant in exchange for a non-recourse note, the
Company recorded a compensation charge of $99,000 in the first quarter of Fiscal
1998. As of October 1, 1998, the entire loan amount of $197,835, including
accrued interest, remained outstanding.
The total number of shares issued to Brown F Williams and Samuel A.
McCleery in exchange for notes payable to the Company which were outstanding as
of June 30, 1998 is 262,000 shares of Common Stock (or 3.2% of the outstanding
shares of Common Stock). Specifically, Mr. Williams received 190,000 shares of
Common Stock in exchange for a note in the amount of $475,000 and Mr. McCleery
received 72,000 Shares of Common Stock in exchange for a note in the amount of
$180,000.
In December 1997, Messrs. Williams and McCleery signed non-recourse
promissory notes (the "Tax Notes") in the amounts of $122,920 and $46,580,
respectively, as consideration for money received for the express purpose of
paying the tax liabilities incurred by each of them in connection with the
exercise of their warrants. The obligations under the Tax Notes are secured by
pledge agreements pursuant to which each of Messrs. Williams and McCleery
pledged their shares of Common Stock. Each of the Tax Notes bears an annual
interest rate of 8.5%. Each of the Tax Notes becomes due and payable upon the
earlier of (i) the first anniversary of the date on which all of such officer's
pledged shares become freely transferable, and (ii) the date on which such
officer sells, assigns or otherwise disposes of, for consideration, any interest
in any share of capital stock of the Company. As of October 1, 1998, the entire
loan amounts of $130,715 and $49,536, including accrued interest, remained
outstanding under Messrs. Williams' and McCleery's Tax Notes, respectively.
Registration Rights
The Company has granted certain demand and "piggyback" registration
rights to the holders of 3,583,652 outstanding shares of Common Stock and
792,130 shares of Common Stock issuable upon the exercise of outstanding
warrants, including Allen & Company Incorporated, Presencia en Medios, S.A. de
C.V., Brown F Williams, Sandra Williams, Douglas J. Greenlaw, Samuel A.
McCleery, Jerome J. Pomerance, Pamela R. Torkelsen and Princeton Venture
Research, Inc. The Company has also granted registration rights with respect to
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<PAGE> 48
the Representatives' Warrant Shares, including 380,000 shares of Common Stock
underlying the Representative Warrant granted to Allen & Company Incorporated.
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. Commencing in December 1998, the holders of at least
200,000 shares of the Registrable Securities may request registration on Form
S-3 once during any 12-month period, if such registration is available to the
Company at the time of such request and the shares to be registered 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.
Warrant Repricing
As of May 28, 1998 the Board of Directors of the Company reduced to
$8.00 per share the exercise price of various warrants, including warrants held
by the following parties with respect to the aggregate number of shares
indicated: (i) Allen & Company Incorporated -- 478,226 shares, (ii) Princeton
Venture Research, Inc. -- 28,200, and (iii) Presencia en Medios, S.A. de C.V. --
34,932 shares. As of the date of the repricing the market value of the Common
Stock was $5.219 per share and the exercise price under the warrants ranged from
$12.50 to $19.25 per share.
Additional Transactions
Douglas J. Greenlaw, Chief Executive Officer and President of the
Company, purchased one unit in the Company's October 1997 bridge financing. Each
unit consisted of one note in the principal amount of $100,000 and a warrant to
purchase 10,000 shares of Common Stock at an exercise price of $0.01 per share.
In July 1998, Mr. Greenlaw purchased 10,000 shares of Common Stock upon the
exercise of such warrant.
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<PAGE> 49
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of September 15, 1998,
except as otherwise indicated, by (i) each person who is known to the Company to
own beneficially more than 5% of the Common Stock, (ii) each of the executive
officers and the current directors of the Company, and (iii) all of the
directors and executive officers as a group.
<TABLE>
<CAPTION>
Common Stock Beneficially
Owned (1)
-------------------------
Name of Beneficial Owner Number Percent
- ------------------------ ---------- ---------
<S> <C> <C>
Enrique F. Senior (2)......................................................... 1,114,094 12.3%
c/o Allen & Company Incorporated
711 Fifth Avenue
New York, NY 10020
Allen & Company Incorporated (3).............................................. 1,092,430 12.1%
711 Fifth Avenue
New York, NY 10020
Eduardo Sitt (4).............................................................. 645,972 7.8%
c/o Presencia en Medios, S.A. de C.V.
Paseo de las Palmas
No. 735, desp 206
11000 Mexico, DF
Presencia en Medios, S.A. de C.V. (5)......................................... 614,308 7.5%
Paseo de las Palmas
No. 735, desp 206
11000 Mexico, DF
Brown F Williams (6).......................................................... 504,792 6.1%
c/o Princeton Video Image, Inc.
15 Princess Road
Lawrenceville, NJ 08648
Jerome J. Pomerance (7)....................................................... 191,506 2.3%
Samuel A. McCleery (8)........................................................ 172,978 2.1%
John B. Torkelsen (9)......................................................... 120,514 1.5%
Lawrence Lucchino (10)........................................................ 101,664 1.2%
Douglas J. Greenlaw (11)...................................................... 102,792 1.2%
Lawrence L. Epstein (12)...................................................... 25,000 *
All directors and executive officers as a
group (9 persons) (13)........................................................ 2,979,312 30.9%
</TABLE>
- ----------------
* Less than one percent
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<PAGE> 50
(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 8,183,552 shares of
Common Stock outstanding as of September 15, 1998. Outstanding shares
of Series A and Series B Preferred Stock are not reflected above
because such Preferred Stock has no voting rights and is not
convertible. See "Description of Securities-Preferred Stock."
(2) Includes 234,204 shares of Common Stock and 478,226 shares of Common
Stock underlying warrants owned of record by Allen & Company
Incorporated ("Allen"), of which Mr. Senior is a Managing Director and
Executive Vice President. Also includes 380,000 shares of Common Stock
underlying the Representatives' Warrants received by Allen as partial
consideration for services rendered on behalf of the Company with
respect to the Company's initial public offering. See "Certain
Relationships and Related Transactions-Transactions With Management and
Others-Consulting Agreements." (See Note 3.) The Company has been
informed by Allen that the shares of Common Stock owned of record by
Allen reflect ownership of such shares on behalf of Allen and certain
of its officers, directors and employees. By virtue of his positions
with Allen, Mr. Senior may, under certain circumstances derive economic
benefit from such securities. Includes 21,664 shares of Common Stock
underlying options that were exercisable within 60 days of September
15, 1998. Does not include 6,436 shares of Common Stock held directly
by certain officers, directors or employees of Allen.
(3) Includes 478,226 shares of Common Stock underlying warrants. Also
includes 380,000 shares of Common Stock underlying the Representatives'
Warrants received by Allen as partial consideration for services
rendered on behalf of the Company with respect to the Company's initial
public offering. See "Certain Relationships and Related
Transactions-Transactions With Management and Others-Consulting
Agreements." Does not include shares of Common Stock underlying options
owned by Enrique F. Senior, a Managing Director and Executive Vice
President of Allen and a director of the Company. Does not include
6,436 shares of Common Stock held directly by certain officers,
directors or employees of Allen. (See prior footnote.)
(4) Includes 579,376 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 31,664
shares of Common Stock underlying options that were exercisable within
60 days of September 15, 1998.
(5) Includes 579,376 shares of Common Stock and 34,932 shares of Common
Stock underlying 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. (See prior
footnote.)
(6) Includes 3,266 shares of Common Stock owned by Sandra Williams, as
custodian for Bronwyn Williams, Mr. and Mrs. Williams' minor daughter,
and 3,266 shares owned by Sandra Williams, Mr. Williams' wife. Also
includes 387,706 shares of Common Stock and 110,554 shares of Common
Stock underlying options that were exercisable within 60 days of
September 15, 1998. Does not include 5,000 and 2,200 shares of Common
Stock owned by Mr. Williams' brother and a trust of which Mr. Williams'
mother is a beneficiary, respectively. Mr. Williams disclaims
beneficial ownership of the
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<PAGE> 51
shares of Common Stock that are owned by Sandra Williams, individually
and as custodian for Bronwyn Williams.
(7) Includes 20,000 shares of Common Stock owned by J.J. Pomerance & Co.,
Inc. of which Mr. Pomerance is the President. Also includes 129,842
shares of Common Stock and 41,664 shares of Common Stock underlying
options that were exercisable within 60 days of September 15, 1998.
(8) Includes 78,000 shares of Common Stock, 47,200 shares of Common Stock
underlying warrants and 47,778 shares of Common Stock underlying
options granted to Mr. McCleery that were exercisable within 60 days of
September 15, 1998.
(9) Includes 5,992 shares of Common Stock owned by Pamela R. Torkelsen, Mr.
Torkelsen's wife, and 29,658 shares of Common Stock and 48,200 shares
of Common Stock underlying warrants owned by Princeton Venture
Research, Inc., a company of which Mr. Torkelsen is the sole
shareholder. Also includes 15,000 shares of Common Stock 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 21,664 shares of Common Stock
underlying options that were exercisable within 60 days of September
15, 1998. Mr. Torkelsen disclaims beneficial ownership of the shares of
Common Stock that are owned by Mrs. Torkelsen.
(10) Includes 80,000 shares of Common Stock underlying options owned by LL
Sports Inc. that were exercisable within 60 days of September 15, 1998.
Mr. Lucchino controls LL Sports Inc. Also includes 21,664 shares of
Common Stock underlying options that were exercisable within 60 days of
September 15, 1998.
(11) Includes 12,500 shares of Common Stock and 80,292 shares of Common
Stock underlying options granted to Mr. Greenlaw that were exercisable
within 60 days of September 15, 1998. Also includes 10,000 shares
purchased by Mr. Greenlaw subsequent to September 15, 1998.
(12) Includes 25,000 shares of Common Stock underlying options granted to
Mr. Epstein that were exercisable within 60 days of September 15, 1998.
(13) Includes 988,558 shares of Common Stock underlying warrants. Includes
481,944 shares of Common Stock underlying options that were exercisable
within 60 days of September 15, 1998.
As of September 15, 1998, the only executive officer or current
director of the Company who beneficially owned shares of Series A Preferred
Stock was Brown F Williams, who held 700 shares of Series A Preferred Stock, or
1.0% of the outstanding Series A Preferred Stock. (The foregoing does not
include the holdings of a trust of which Mr. Williams' mother is a beneficiary.)
As of September 15, 1998, the only executive officers or current
directors of the Company who beneficially owned shares of Series B Preferred
Stock were John B. Torkelsen, who beneficially owned 6,200 shares of Series B
Preferred Stock (of which 1,000 shares were owned by Pamela R. Torkelsen, Mr.
Torkelsen's wife, and 5,200 shares were owned by PVR, a company of which Mr.
Torkelsen is the sole shareholder), and Eduardo Sitt, who beneficially owned
6,041 shares of Series B Preferred Stock (all of which was owned by Presencia, a
company of which Mr. Sitt is President and a principal shareholder). Mr.
Torkelsen and Mr. Sitt beneficially own 7.2% and 7.0% of the outstanding Series
B Preferred Stock, respectively, and 14.2% of the outstanding Series B Preferred
Stock, collectively.
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<PAGE> 52
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 September 15, 1998 there were 8,183,552 shares of Common Stock
issued and outstanding and held of record by 389 shareholders, plus 15,000
shares reserved for issuance upon the exercise of the outstanding Bridge
Warrants, 777,130 shares reserved for issuance upon the exercise of other
outstanding warrants and 1,560,000 shares reserved for issuance upon the
exercise of options under the Stock Option Plan, including 1,317,507 shares
reserved for issuance upon the exercise of outstanding options. In addition,
there are 400,000 shares reserved for issuance upon the exercise of the
Representatives' Warrants. See "Shares Eligible for Future Sale."
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 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.
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
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<PAGE> 53
until all cumulated dividends in respect of Series A Preferred Stock have been
paid. As of June 30, 1998, accrued dividends on the Series A Preferred Stock
totaled $99,250, or $1.47 per share, none of which has been paid. See Note 10 of
Notes 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, 1998, accrued dividends on the Series B Preferred Stock totaled
$113,950, or $1.32 per share, none of which has been paid. See Note 10 of Notes
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
The following warrants (excluding the Representatives' Warrants,
described below) to purchase an aggregate of 792,130 shares of Common Stock are
outstanding as of September 15, 1998: Bridge Warrants to purchase 15,000 shares
of Common Stock at an exercise price of $0.01 per share, which are exercisable
for a period of five years from the consummation of the Company's initial public
offering in December 1997; warrants to purchase 20,000 shares of Common Stock at
an exercise price of $8.00 per share which are currently exercisable and expire
in September 2003; warrants to purchase 13,600 shares of Common Stock at an
exercise price of $8.00 per share which are currently exercisable and expire in
November 2003; warrants to purchase 13,600 shares of Common Stock at an
exercise price of $2.50 per share which are currently exercisable and expire in
November 1999 (the holder of these warrants was issued contingent warrants to
purchase up to 13,600 shares of Common Stock at an exercise price of $8.00 per
share, said contingent warrants to be exercisable for a period of five years
from the expiration date of these warrants, but only to the extent that these
warrants are not exercised); 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 September 2000; warrants to
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<PAGE> 54
purchase 460,932 shares of Common Stock at an exercise price of $8.00 per share
which are currently exercisable and expire in April 2004; warrants to purchase
29,200 shares of Common Stock at an exercise price of $8.00 per share which are
currently exercisable and expire in February 2004; warrants to purchase 91,572
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 24,000 shares of Common Stock at an exercise price of $8.00 per
share which are currently exercisable and expire in March 2006; warrants to
purchase 6,000 shares of Common Stock at an exercise price of $8.00 per share
which are currently exercisable and expire in April 2004; warrants to purchase
28,226 shares of Common Stock at an exercise price of $8.00 per share which are
currently exercisable and expire in February 2006; 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. See "Certain Relationships and Related Transactions-Transactions
with Management and Others-Warrant Repricing."
The following discussion of the material terms and provisions of the
warrants is qualified in its entirety by reference to the detailed provisions of
the agreements relating to the issuance of the warrants and the forms of
warrants. Forms of the Bridge Warrants, the Representatives' Warrants and the
other warrants issued by the Company have been filed as exhibits to the
Registration Statement of which this Prospectus constitutes a part. The number
of shares of Common Stock issuable upon exercise of the warrants (including the
Bridge Warrants and the Representatives' Warrants) is subject to adjustment in
certain circumstances, including stock dividends, stock splits, combinations or
reclassifications involving or in respect of the Common Stock. The Bridge
Warrant Shares are registered hereunder and are subject to a 12-month lock-up
arrangement with Allen & Company Incorporated which ends in December 1998. See
"Certain Relationships and Related Transactions-Transactions With Management and
Others-Consulting Agreements" and "Shares Eligible for Future Sale."
REPRESENTATIVES' WARRANTS
The Company sold to the Representatives, or their designees, pursuant
to the Company's initial public offering of Common Stock, Representatives'
Warrants to purchase 400,000 shares of Common Stock at a price of $0.001 per
warrant. The Representatives' Warrant are exercisable for a period of five
years, which five year period commenced in December 1997, at an initial per
share exercise price equal to $8.40 per share. The Representatives' Warrants are
registered hereunder and are subject to a lock-up provision and cannot be
transferred, assigned or hypothecated for a one year period following the
Company's December 1997 initial public offering, except that they may be
assigned, in whole or in part, to any successor, officer or partner of the
Representatives (or to officers or partners of any such successor or partner).
The Representatives' Warrants may be exercised as to all or a lesser number of
shares covered by the warrants and 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."
DEBT SECURITIES
In connection with the Company's October 1997 Bridge Financing, the
Company issued 30 Bridge Units. Each Bridge Unit consisted 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 were paid in full by the Company following its
initial public offering in December 1997. The Bridge Warrants are separately
transferable, subject to certain restrictions upon transferability. As of
September 15, 1998, Bridge Warrants to purchase 15,000 shares of Common Stock
were outstanding.
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<PAGE> 55
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, Bylaw and State Law Provisions" and
"Description of Securities-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, Bylaw and
State Law Provisions."
TRANSFER AGENT AND REGISTRAR
The Company has retained American Stock Transfer & Trust Company as
transfer agent and registrar for the Common Stock and the Preferred Stock.
INDEMNIFICATION
The Company has agreed to indemnify the underwriters of its initial
public offering (including Allen & Company Incorporated, which may be deemed to
be an affiliate or control person of the Company) and each person who controls
any such underwriter (including Enrique F. Senior, a director of the Company who
is an Executive Vice President and Managing Director of Allen & Company
Incorporated) 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 such underwriters, the underwriters have been advised that, in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore
unenforceable.
The Bylaws of the Company provide that a director of the Company shall
not be personally liable to the Company or its shareholders for monetary damages
for breach of fiduciary duty as a director. However, such Bylaws do not
eliminate or limit the liability of a director: (i) for any breach of the
director's duty of loyalty to the Company or its shareholders; (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of the law; (iii) under Section 14A:6-12 of the New Jersey Business
Corporation Act; or (iv) for any transaction from which the director derived an
improper personal benefit.
The Company currently carries liability insurance for the benefit of
its directors and officers which provides coverage for losses of directors and
officers for liabilities arising out of claims against such persons acting as
directors or officers of the Company (or any subsidiary thereof) due to any
breach of duty, neglect, error, misstatement, misleading statement, omission or
act done by such directors and officers, except as prohibited by law. The
Company's current policy includes coverage for any claim made against the
directors and officers based upon (i) the purchase, sale or offer of any
security of the Company, and (ii) any claim brought by a security holder of the
Company. Such coverage includes claims which allege a violation of the
Securities Act and the Securities Exchange Act of 1934, as amended.
LOCK-UP ARRANGEMENTS
The Selling Shareholders Shares consist of 400,000 shares of Common
Stock underlying the Representatives' Warrants and 300,000 shares of Common
Stock issued or issuable upon exercise of the Bridge
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<PAGE> 56
Warrants. The Representatives' Warrants and the underlying shares of Common
Stock are subject to a lock-up provision and may not be transferred, assigned or
hypothecated for a one year period following the Company's December 1997 initial
public offering, except they may be assigned in whole or in part, to any
successor, officer or partner of Allen & Company Incorporated or Barington
Capital Group, L.P., as the case may be, or to officers or partners of any such
successor or partner. Each of the holders of Bridge Warrants 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 one year period
following the Company's December 1997 initial public offering, without the prior
written consent of Allen & Company Incorporated. At the request of The Nasdaq
National Market, Inc., Allen & Company Incorporated has agreed not to consent to
the transfer of shares of Common Stock issuable upon exercise of the Bridge
Warrants prior to the end of such one year period. See "Risk Factors--Shares
Eligible for Future Sale; Registration Rights," "Certain Relationships and
Related Transactions-Transactions With Management and Others," and "Description
of Securities."
54
<PAGE> 57
SHARES ELIGIBLE FOR FUTURE SALE
GENERAL
As of September 15, 1998, there were 8,183,552 shares of Common Stock
outstanding. Of such shares, the 4,600,000 shares sold by the Company in its
initial public offering are freely transferable (other than those purchased by
affiliates of the Company) without restriction or further registration under the
Securities Act. In addition, the 400,000 shares of Common Stock issuable upon
exercise of the Representatives' Warrants and 300,000 shares of Common Stock
issued or issuable upon exercise of the Bridge Warrants, all of which also are
registered under the Securities Act pursuant to the Registration Statement of
which this Prospectus constitutes a part, will be freely transferable under the
Securities Act without restriction or further registration, subject to the
limitation that the Representatives may not transfer, assign, or hypothecate the
Representatives' Warrants or the underlying shares of Common Stock for a one
year period following the Company's December 1997 initial public offering, with
certain limited exceptions. Further, the Company has reserved 1,560,000 shares
of Common Stock for issuance upon exercise of options granted to executive
officers, employees and consultants under the Stock Option Plan. As of September
15, 1998, options to purchase 1,317,507 shares of Common Stock were outstanding,
of which options to purchase 913,296 shares were exercisable. The exercise
prices of the outstanding options range from $2.50 to $17.50 per share. The
Board of Directors of the Company has authorized an increase in the number of
shares of Common Stock which may be granted under the Stock Option Plan to
2,160,000 shares and has recommended that the shareholders of the Company ratify
the increase at the annual meeting of shareholders in December 1998. See
"Management--Stock Option Plan."
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 agreed not to transfer or otherwise dispose of
any securities of the Company for a one year period following the Company's
December 1997 initial public offering, without the prior written consent of
Allen & Company Incorporated. At the request of The Nasdaq National Market,
Inc., Allen & Company Incorporated has agreed not to consent to the transfer of
shares of Common Stock issuable upon exercise of the Bridge Warrants prior to
the end of such one year period. See "--Lock-up Agreements" below.
Of the 8,183,552 shares of Common Stock outstanding as of September 15,
1998, 3,298,552 shares 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 addition, the 1,560,000 shares of Common Stock
which may be issued under the Stock Option Plan (or 2,160,000 shares if the
above referenced increase is approved by the shareholders of the Company) will
be "restricted securities" within the meaning of Rule 144. 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 81,836 as of September 15, 1998) 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 Securities and Exchange 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. Under Rule 144,
generally, there were 2,980,074 shares eligible for resale on September 1, 1998
and there will be 3,020,482 shares eligible for resale as of December 1, 1998.
Under Rule 144(k), there were 1,593,788 shares eligible for resale as of
September 1, 1998 and 1,615,988 shares will be eligible for resale as of
December 1, 1998.
No prediction can be made as to the effect, if any, that future sales
of shares of the Common Stock, 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
55
<PAGE> 58
prices of the Common Stock and the Company's ability to raise capital in the
future through the sale of additional securities.
Up to 400,000 additional shares of Common Stock may be purchased by the
Representatives through the exercise of the Representatives' Warrants during the
five period which commenced in December 1997. The holders of the
Representatives' Warrants will have certain demand and "piggyback" registration
rights with respect to the shares of Common Stock underlying such options. If
such shares of Common Stock issuable upon exercise of the Representatives'
Warrants are not sold pursuant to the Registration Statement of which this
Prospectus is a part, such shares may be freely tradable at a later date,
provided that the Company satisfies certain securities registration and
qualification requirements in accordance with the terms of the Representatives'
Warrants. See "Certain Relationships and Related Transactions-Transactions With
Management and Others-Registration Rights" and "--Lock-up Agreements."
Up to 777,130 shares of Common Stock may be purchased by the holders of
outstanding warrants other than the Representatives' Warrants and the Bridge
Warrants. The holders of the Bridge Warrants and certain of such other warrants
are entitled to certain demand and "piggyback" registration rights as to such
shares commencing 12 months after the Company's December 1997 initial public
offering. Such shares will be freely tradable upon such registration. See
"Certain Relationships and Related Transactions-Transactions With Management and
Others-Registration Rights" and "--Lock-up Agreements."
LOCK-UP AGREEMENTS
The Company, all of the shareholders of the Company existing prior to
the Company's initial public offering and certain of the warrantholders of the
Company, 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 one year period following the Company's December 1997 initial public offering,
without the prior written consent of Allen & Company Incorporated. At the
request of The Nasdaq National Market, Inc., Allen & Company Incorporated has
agreed not to consent to the transfer of shares of Common Stock issuable upon
exercise of the Bridge Warrants for such one-year period. Further, the
Representatives' Warrants and the underlying shares of Common Stock are subject
to a lock-up provision and may not be transferred, assigned or hypothecated for
a one year period following the Company's December 1997 initial public offering,
except they may be assigned in whole or in part, to any successor, officer or
partner of Allen & Company Incorporated or Barington Capital Group, L.P., as the
case may be, or to officers or partners of any such successor or partner.
56
<PAGE> 59
SELLING SHAREHOLDERS
The following table sets forth the name of each person who is a Selling
Shareholder, the number of shares of Common Stock beneficially owned by each
Selling Shareholder's account as of September 15, 1998, the number of Shares
being sold by such person, the number of shares of Common Stock such person will
beneficially 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 OUTSTANDING
BENEFICIALLY OWNED MAXIMUM NUMBER NUMBER OF SHARES COMMON STOCK
NAME OF PRIOR TO OF SHARES BENEFICIALLY OWNED BENEFICIALLY OWNED
SELLING SHAREHOLDER OFFERING(1)(2) BEING OFFERED(3) AFTER OFFERING(1)(2) AFTER OFFERING(1)(2)
- ------------------- ------------------ ---------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Acorn Technology Fund, L.P.(4) 15,000 15,000 0 *
Bader M. Al-Humaidhi 8,540 5,000 3,540 *
Allen & Company Incorporated(5) 1,092,430 380,000 712,430 8.3%
Al-Mal Kuwaiti Company 7,500 7,500 0 *
Fahad Al-Rajaan 8,540 5,000 3,540 *
Taleb A. Ali 10,000 10,000 0 *
Peder A. Arneson 2,500 2,500 0 *
Aus. Per. No. 1, Inc. 32,250 7,500 24,750 *
Stephen D. Baksa 8,250 1,250 7,000 *
Barington Capital Group, L.P.(6) 20,000 20,000 0 *
Leonard Barrack 21,500 21,500 0 *
C.A.L.M. Venture Partners, L.P. 6,296 2,500 3,796 *
Nicholas E. Chimicles 2,500 2,500 0 *
Patrick Coughlin 8,500 2,500 6,000 *
Jonathan W. Cuneo 1,000 1,000 0 *
Falah Partners 4,586 2,500 2,086 *
Matthew A. Gohd 3,750 3,750 0 *
Matthew A. Gohd, as Trustee
for Toricelli Trust 3,750 3,750 0 *
Gary J. and Miriam I. 6,000 2,500 3,500 *
Greenberg(7)
Douglas J. Greenlaw(8) 102,792 10,000 92,792 1.1%
Industrial Investments Company 30,000 30,000 0 *
William S. Lerach 25,000 10,000 15,000 *
Dennis Mensch 10,092 2,500 7,592 *
</TABLE>
57
<PAGE> 60
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES OUTSTANDING
BENEFICIALLY OWNED MAXIMUM NUMBER NUMBER OF SHARES COMMON STOCK
NAME OF PRIOR TO OF SHARES BENEFICIALLY OWNED BENEFICIALLY OWNED
SELLING SHAREHOLDER OFFERING(1)(2) BEING OFFERED(3) AFTER OFFERING(1)(2) AFTER OFFERING(1)(2)
- ------------------- ------------------ ---------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Presencia en Medios, S.A. de 614,308 130,000 484,308 5.6%
C.V.(9)
Richard Y. Roberts 5,000 5,000 0 *
Gerald J. Rodos 17,000 2,500 14,500 *
Paula P. Runnells 7,250 1,250 6,000 *
John T. Shea 5,582 2,500 3,082 *
The M and B Weiss Family
Limited Partnership of 1996 25,000 10,000 15,000 *
</TABLE>
- ----------------
* Less than one percent
(1) Based upon record ownership of such shares as of September 15, 1998.
(2) See Footnote 1 to "Security Ownership of Certain Beneficial Owners and
Management."
(3) See "Plan of Distribution."
(4) Mr. John B. Torkelsen, a director of the Company, is the Manager and a
member of Acorn Technology Partners, L.L.C., the general partner of
Acorn Technology Fund., L.P. See "Management-Executive Officers and
Directors," "Certain Relationships and Related
Transactions-Transactions With Management and Others-Consulting
Agreements" and "Security Ownership of Certain Beneficial Owners and
Management."
(5) Mr. Enrique F. Senior, a director of the Company, is an Executive Vice
President and Managing Director of Allen & Company Incorporated, a
principal shareholder of the Company. See "Management-Executive
Officers and Directors," "Certain Relationships and Related
Transactions-Transactions With Management and Others-Consulting
Agreements" and "Security Ownership of Certain Beneficial Owners and
Management." Allen may serve as a market maker for the Common Stock.
See "Plan of Distribution."
(6) Barington Capital Group, L.P. acted, along with Allen & Company
Incorporated, as the representatives of the several underwriters in
connection with the Company's initial public offering of Common Stock
in December 1997.
(7) Does not include (i) 100 shares of Common Stock owned by Gary J.
Greenberg, as custodian for Theresa Greenberg, (ii) 100 shares of
Common Stock owned by Gary J. Greenberg, as custodian for Carson
Kleiner, or (iii) 100 shares of Common Stock owned by Gary J.
Greenberg, as custodian for Emma Greenberg.
(8) Mr. Douglas J. Greenlaw is the President, the Chief Executive Office
and a director of the Company. See "Management-Executive Officers and
Directors," "Certain Relationships and Related Transactions-
58
<PAGE> 61
Transactions With Management and Others-Additional Transactions" and
"Security Ownership of Certain Beneficial Owners and Management."
(9) Mr. Eduardo Sitt, a director of the Company, is the President of
Presencia en Medios, S.A. de C.V., a principal shareholder of the
Company. See "Management-Executive Officers and Directors," "Certain
Relationships and Related Transactions-Transactions With Management and
Others-Consulting Agreements" and "Security Ownership of Certain
Beneficial Owners and Management."
PLAN OF DISTRIBUTION
The distribution of the Selling Shareholders Shares by the Selling
Shareholders may be effected from time to time in transactions on the Nasdaq
National Market, in negotiated transactions, through the writing of options on
the Selling Shareholders Shares, or a combination of such methods of sale, at
fixed prices that may be changed, at market prices prevailing at the time of the
sale, at prices related to such prevailing market prices or at negotiated
prices. The Selling Shareholders may effect such transactions by the sale of the
Selling Shareholders Shares to or through broker-dealers, and such
broker-dealers may receive compensation in the form of discounts, concessions or
commissions from the Selling Shareholders and/or the purchasers of the Selling
Shareholders Shares for whom such broker-dealers may act as agent or to whom
they may sell as principal, or both. Usual and customary or specifically
negotiated brokerage fees or commissions may be paid by the Selling Shareholders
in connection with sales of the Selling Shareholders Shares. The selling
shareholders have not entered into any underwriting arrangements.
The Market Maker Shares are shares of Common Stock that Allen & Company
Incorporated ("Allen"), which may be deemed to be an affiliate of the Company,
may sell from time to time solely as a market maker. Allen and certain of its
affiliates beneficially own an aggregate of 1,092,430 shares of Common Stock of
the Company. Enrique F. Senior, an Executive Vice President and Managing
Director of Allen, is a security holder of the Company and serves as a Director
of the Company. See "Security Ownership of Certain Beneficial Owners and
Management" and "Certain Relationships and Related Transactions-Transactions
With Management and Others-Consulting Agreements." For these reasons, Allen may
be deemed to have an ability to influence the policies of the Company and thus
may be deemed to be an "affiliate" of the Company under prevailing
interpretations of what constitutes an affiliate relationship. Any sales of the
Selling Shareholders Shares or the Market Maker Shares pursuant to this
Registration Statement will be made in conformity with the applicable provisions
of the rules of the National Association of Securities Dealers, Inc. The Company
will not receive any proceeds from sales of the Market Maker Shares.
The Selling Shareholders and intermediaries through whom the Selling
Shareholders Shares are sold may be deemed "underwriters" within the meaning of
the Securities 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.
59
<PAGE> 62
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.
EXPERTS
The consolidated balance sheet as of June 30, 1998 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, 1998 and for the
period July 23, 1990 to June 30, 1998, included in this Prospectus, have been
included herein in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
60
<PAGE> 63
INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants...................................... F-1
Financial Statements:
Balance Sheet....................................................... F-2
Statements of Operations............................................ F-3
Statements of Cash Flows............................................ F-4
Statements of Changes in Shareholders' (Deficit)/Equity............. F-6
Notes to Financial Statements.......................................... F-10
See the unaudited financial statements contained in the Company's
Quarterly Report on Form 10-Q for the Quarter ended September 30, 1998 which is
included as part of this Prospectus immediately following page F-29 of the
Financial Statements.
61
<PAGE> 64
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Princeton Video Image, Inc.:
In our opinion, the accompanying balance sheet 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, 1998 and for the period July 23,
1990 (date of inception) to June 30, 1998 present fairly, in all material
respects, the financial position of Princeton Video Image, Inc. at June 30,
1998, and the results of their operations and their cash flows for each of the
two years in the period ended June 30, 1998 and for the period July 23, 1990
(date of inception) to June 30, 1998 in conformity with generally accepted
accounting principles. 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 of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Princeton, New Jersey
September 2, 1998
F-1
<PAGE> 65
Princeton Video Image, Inc.
(A Development Stage Company)
Balance Sheet
<TABLE>
<CAPTION>
June 30,
1998
-----------------
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents.................................. $ 21,552,627
Restricted marketable securities held to maturity.......... 138,317
Trade accounts receivable.................................. 193,262
Other current assets....................................... 230,247
-----------------
Total current assets................................. 22,114,453
Property and equipment, net................................. 2,547,484
Intangible assets, net...................................... 493,236
Other assets................................................ 271,192
-----------------
Total assets $ 25,426,365
=================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses...................... $ 1,301,169
Unearned revenue........................................... 269,164
-----------------
Total current liabilities............................ 1,570,333
Unearned revenue............................................ 874,080
-----------------
Total liabilities.................................... 2,444,413
-----------------
Commitments and contingencies (Note 11)
Redeemable preferred stock:
Cumulative, Series A, conditionally redeemable, $4.50 par
value, authorized 167,000 shares; issued and outstanding
67,600 shares, redemption value equal to carrying value
(par plus all accrued but unpaid dividends)............... 403,450
Cumulative, Series B, conditionally redeemable, $5.00 par
value, authorized 93,300 shares; issued and outstanding
86,041 shares, redemption value equal to carrying value
(par plus all accrued but unpaid dividends)............... 544,155
-----------------
Total redeemable preferred stock..................... 947,605
Shareholders' Equity:
Common stock, no par value; $.005 stated value; authorized
40,000,000 shares; 8,173,552 shares issued and
outstanding............................................... 40,867
Additional paid-in capital................................. 51,443,856
Less: Related party notes receivable................... (824,498)
Deficit accumulated during the development stage........... (28,625,878)
-----------------
Total shareholders' equity........................... 22,034,347
-----------------
Total liabilities, redeemable preferred
stock and shareholders' equity........... $ 25,426,365
=================
See accompanying notes to financial statements
</TABLE>
F-2
<PAGE> 66
Princeton Video Image, Inc.
(A Development Stage Company)
Statement of Operations for the years ended
June 30, 1998 and 1997 and for the period
July 23, 1990 (date of inception) to June 30, 1998
<TABLE>
<CAPTION>
CUMULATIVE FROM
FOR THE YEARS ENDED JULY 23, 1990 TO
JUNE 30, JUNE 30,
-------------------------------
1998 1997 1998
---- ---- ----
<S> <C> <C> <C>
License fees $ 371,223 $ 130,526 $ 1,501,749
Advertising revenue 324,789 81,108 415,497
---------- ---------- ------------
Total revenue 696,012 211,634 1,917,246
Costs and expenses:
Selling, general and administrative 4,652,384 3,028,895 13,937,088
Research and development 1,719,703 1,722,598 11,283,644
L-VIS System costs 2,456,019 1,274,890 4,909,332
---------- ---------- ------------
Total costs and expenses 8,828,106 6,026,383 30,130,064
Operating loss (8,132,094) (5,814,749) (28,212,818)
Interest and other financial expense (1,814,178) -- (1,814,178)
Interest and other income 861,948 84,088 1,401,118
---------- ---------- ------------
Net loss (9,084,324) (5,730,661) (28,625,878)
Accretion of preferred stock
dividends (44,050) (44,050) (213,200)
---------- ---------- ------------
Net loss applicable to common stock $(9,128,374) $(5,774,711) $(28,839,078)
=========== =========== ============
Basic and diluted net loss per share
applicable to common stock $ (1.55) $ (2.52)
=========== ===========
Weighted average number of
shares of common stock
outstanding 5,890,530 2,287,884
=========== ===========
</TABLE>
See accompanying notes to financial statements
F-3
<PAGE> 67
Princeton Video Image, Inc.
(A Development Stage Company)
Statement of Cash Flows for the years ended
June 30, 1998 and 1997 and for the period
July 23, 1990 (date of inception) to June 30, 1998
<TABLE>
<CAPTION>
FOR THE YEARS ENDED CUMULATIVE FROM
JUNE 30, JULY 23, 1990 TO
---------------------------- JUNE 30,
1998 1997 1998
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................ $(9,084,324) $(5,730,661) $(28,625,878)
Adjustments to reconcile net loss to net
cash used in operating activities
Amortization of unearned income.................. (371,223) (130,526) (501,749)
Depreciation expense............................. 793,043 478,982 1,792,643
Amortization of intangibles...................... 76,143 57,490 188,490
Charges associated with option and warrant
grants and related party note receivable....... 473,562 227,262 1,531,699
Equity in net loss of affiliate -- -- 9,048
Increase (decrease) in cash resulting
from changes in:
Trade accounts receivable...................... (106,269) (78,293) (193,262)
Current assets................................. (192,715) 77,244 (230,247)
Other assets................................... (142,074) (572) (271,192)
Accounts payable and accrued expenses.......... 418,340 379,044 1,394,986
Unearned revenue............................... 53,500 391,492 1,644,992
Customer deposits.............................. (425,000) 125,000 --
Miscellaneous other............................ 23,239 108,274 142,593
----------- ----------- ------------
Net cash used in operating activities (8,483,778) (4,095,264) (23,117,877)
Cash flows from investing activities:
Purchase of held-to-maturity investments............ (61,997) (75,535) (5,351,555)
Proceeds from held-to-maturity investments.......... -- 3,000,000 5,200,000
Purchases of property and equipment................. (2,093,702) (523,221) (4,372,116)
Increase in intangible assets....................... (180,625) (87,632) (775,834)
Investments in joint venture........................ -- -- (9,048)
----------- ----------- ------------
Net cash (used in) provided by
investing activities........................ (2,336,324) 2,313,612 (5,308,553)
----------- ----------- ------------
</TABLE>
See accompanying notes to financial statements
F-4
<PAGE> 68
Princeton Video Image, Inc.
(A Development Stage Company)
Statement of Cash Flows for the years ended
June 30, 1998 and 1997 and for the period
July 23, 1990 (date of inception) to June 30, 1998
<TABLE>
<CAPTION>
FOR THE YEARS ENDED CUMULATIVE FROM
JUNE 30, JULY 23, 1990 TO
------------------------ JUNE 30,
1998 1997 1998
----------- ---------- ----------------
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds from Bridge Financing loans 1,353,000 -- 1,353,000
Repayments of Bridge Financing loans (1,353,000) -- (1,353,000)
Proceeds from sale of Bridge Financing warrants, net 1,479,822 -- 1,479,822
Proceeds from issuances of preferred stock -- -- 734,405
Proceeds from sales of common stock, net 29,022,227 1,050,636 46,669,843
Cash advanced for related party notes receivable (169,498) -- (169,498)
Collections of stock subscriptions receivable 1,264,485 -- 1,264,485
----------- ---------- -----------
Net cash provided by
financing activities 31,597,036 1,050,636 49,979,057
Net increase (decrease) in cash and
cash equivalents 20,776,934 (731,016) 21,552,627
Cash and cash equivalents at beginning of
period 775,693 1,506,709 --
=========== ========== ===========
Cash and cash equivalents at end of period $21,552,627 $ 775,693 $21,552,627
=========== ========== ===========
Supplemental cash flow information:
Interest paid in connection with Bridge
Financing loan $ 1,647,000
Fair value of warrants issued in settlement
of accrued obligation $ 97,074
Exercise of warrants in exchange for
related party note receivable $ 655,000
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE> 69
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, 1998
<TABLE>
<CAPTION>
RELATED
COMMON STOCK PARTY TREASURY STOCK
------------------- ADDITIONAL NOTE AND ----------------------
NUMBER OF PAID-IN STOCK SUBSC 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 480 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
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 in
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
<CAPTION>
DEFICIT TOTAL
ACCUM DURING SHAREHOLDERS'
UNEARNED DEVELOPMENT EQUITY
COMPENSATION STAGE (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 480 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)
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 in
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
</TABLE>
F-6
<PAGE> 70
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CHANGES IN SHAREHOLDERS' (DEFICIT)/EQUITY -- (CONTINUED)
<TABLE>
<CAPTION>
RELATED
COMMON STOCK PARTY TREASURY STOCK
------------------- ADDITIONAL NOTE AND ----------------------
NUMBER OF PAID-IN STOCK SUBSC NUMBER OF
SHARES AMOUNT CAPITAL RECEIVABLE SHARES AMOUNT
--------- ------- ----------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
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 in April 1994 at
$12.50 per share............................ 24,000 120 299,880
Issuance of common stock in June 1994 at
$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) -- --
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 in April 1995 at
$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 of
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) -- --
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 1 1,025
Issuance of common stock, October 1995,
$12.50 per share............................ 128 1 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
<CAPTION>
DEFICIT TOTAL
ACCUM DURING SHAREHOLDERS'
UNEARNED DEVELOPMENT EQUITY
COMPENSATION STAGE (DEFICIT)
------------ ------------ -------------
<S> <C> <C> <C>
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......................
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 in April 1994 at
$12.50 per share............................ 300,000
Issuance of common stock in June 1994 at
$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
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 in April 1995 at
$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 of
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...................... 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
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................... 1,026
Issuance of common stock, October 1995,
$12.50 per share............................ 1,601
Issuance of common stock and warrants to
purchase 10,932 shares of common stock at
$12.50 per share, October 1995.............. 11,100
</TABLE>
See accompanying notes to financial statements
F-7
<PAGE> 71
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CHANGES IN SHAREHOLDERS' (DEFICIT)/EQUITY -- (CONTINUED)
<TABLE>
<CAPTION>
RELATED
COMMON STOCK PARTY TREASURY STOCK
------------------- ADDITIONAL NOTE AND ----------------------
NUMBER OF PAID-IN STOCK SUBSC NUMBER OF
SHARES AMOUNT CAPITAL RECEIVABLE SHARES AMOUNT
--------- ------- ----------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Exercise of warrants at $12.50 per share in
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) -- --
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)
Receipt of proceeds from stock
subscriptions............................... 1,264,485
Exercise of warrants at $2.50 per share, July
1997........................................ 262,000 1,310 653,690 (655,000)
Compensation expense in connection with notes
receivable.................................. 360,250
Compensation expense related to issuance of
20,000 options, September 30, 1997, exercise
price of $2.50 per share.................... 80,000
Exercise of warrants at $1.13 per share, July
1997........................................ 51,062 255 57,189
Issuance of 36,970 shares with respect to
anti-dilution rights in July 1997........... 36,970 185 (185)
Issuance of 20,000 warrants for services
performed during 1997, exercise price of
$4.50 per share............................. 90,000
<CAPTION>
DEFICIT TOTAL
ACCUM DURING SHAREHOLDERS'
UNEARNED DEVELOPMENT EQUITY
COMPENSATION STAGE (DEFICIT)
------------ ------------ -------------
<S> <C> <C> <C>
Exercise of warrants at $12.50 per share in
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
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)
Receipt of proceeds from stock
subscriptions............................... 1,264,485
Exercise of warrants at $2.50 per share, July
1997........................................
Compensation expense in connection with notes
receivable.................................. 360,250
Compensation expense related to issuance of
20,000 options, September 30, 1997, exercise
price of $2.50 per share.................... 80,000
Exercise of warrants at $1.13 per share, July
1997........................................ 57,444
Issuance of 36,970 shares with respect to
anti-dilution rights in July 1997........... --
Issuance of 20,000 warrants for services
performed during 1997, exercise price of
$4.50 per share............................. 90,000
</TABLE>
See accompanying notes to financial statements
F-8
<PAGE> 72
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CHANGES IN SHAREHOLDERS' (DEFICIT)/EQUITY -- (CONTINUED)
<TABLE>
<CAPTION>
RELATED
COMMON STOCK PARTY TREASURY STOCK
------------------- ADDITIONAL NOTE AND ----------------------
NUMBER OF PAID-IN STOCK SUBSC NUMBER OF
SHARES AMOUNT CAPITAL RECEIVABLE SHARES AMOUNT
--------- ------- ----------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Issuance of 1,572 warrants for services
performed during 1997, exercise price of
$15.00 per share............................ 7,074
Exercise of warrants at $2.50 per share, July
1997........................................ 20,000 100 49,900
Issuance of 300,000 warrants in connection
with October 1997 Bridge Financing, net..... 1,479,822
Issuance of 4,600,000 shares of common stock
at $7.00 per share in connection with the
initial public offering, net of offering
costs....................................... 4,600,000 23,000 28,889,033
Cash advanced for related party note
receivable, December 1997................... (169,498)
Exercise of bridge warrants in January,
1998........................................ 275,000 1,375 1,375
Compensation expense associated with the
issuance of 9,600 options for consulting
services in January 1998.................... 33,312
Accretion of preferred stock dividends....... (44,050)
Shares reacquired in connection with related
party note receivable....................... (9,920) (50) (123,950) 124,000
Net loss.....................................
--------- ------- ----------- ----------- ---------- ---------
BALANCE AT JUNE 30, 1998..................... 8,173,552 $40,867 $51,443,856 $ (824,498) -- --
========= ======= =========== =========== ========== =========
<CAPTION>
DEFICIT TOTAL
ACCUM DURING SHAREHOLDERS'
UNEARNED DEVELOPMENT EQUITY
COMPENSATION STAGE (DEFICIT)
------------ ------------ -------------
<S> <C> <C> <C>
Issuance of 1,572 warrants for services
performed during 1997, exercise price of
$15.00 per share............................ 7,074
Exercise of warrants at $2.50 per share, July
1997........................................ 50,000
Issuance of 300,000 warrants in connection
with October 1997 Bridge Financing, net..... 1,479,822
Issuance of 4,600,000 shares of common stock
at $7.00 per share in connection with the
initial public offering, net of offering
costs....................................... 28,912,033
Cash advanced for related party note
receivable, December 1997................... (169,498)
Exercise of bridge warrants in January,
1998........................................ 2,750
Compensation expense associated with the
issuance of 9,600 options for consulting
services in January 1998.................... 33,312
Accretion of preferred stock dividends....... (44,050)
Shares reacquired in connection with related
party note receivable....................... --
Net loss..................................... (9,084,324) (9,084,324)
--------- ------------ -----------
BALANCE AT JUNE 30, 1998..................... -- $(28,625,878) $22,034,347
========= ============ ===========
</TABLE>
See accompanying notes to financial statements
F-9
<PAGE> 73
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION:
Princeton Video Image, Inc. ("the Company"), was incorporated on July 23, 1990
in the State of New Jersey. The Company has developed 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
rightsholders 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:
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.
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 and amortized using
the straight line method over an estimated useful life of 7 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.
F-10
<PAGE> 74
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
REVENUE
Non-refundable license fees are recognized as revenue when earned, which is when
all related commitments have been satisfied (see Note 5). Additionally, under
the terms of certain existing agreements, the Company retains title to the L-VIS
System and receives a non-refundable fee which reflects reimbursement for the
construction cost of the system delivered to the licensee. These fees are
recorded as license revenue on a straight-line basis over the shorter of the
license term or useful life of the equipment.
Advertising revenue is recognized when earned, which is when the respective
advertisements are inserted into a television broadcast.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred. Costs associated with
the development of the Company's proprietary computer system which are incurred
prior to technological feasibility are recorded as research and development
expenses.
PER SHARE DATA
In December 1997, the Company adopted Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" ("SFAS 128") to calculate net loss per
share applicable to common stock. All prior periods presented have been
retroactively restated to conform to the SFAS 128 requirements. SFAS 128
requires the presentation of basic and diluted per share amounts. Basic per
share amounts are computed by dividing net loss applicable to common stock by
the weighted average number of common shares outstanding during the period.
Diluted per share amounts are computed by dividing net loss applicable to common
stock by the weighted average number of common shares outstanding plus the
dilutive effect of common share equivalents.
Since the Company incurred net losses for all periods presented, both basic and
diluted per share calculations are the same. Accordingly, options and warrants
to purchase 2,519,637 and 2,321,574 shares of common stock that were outstanding
at June 30, 1998 and 1997, respectively, were not included in diluted per share
calculations, as their effect would be antidilutive.
RISKS AND UNCERTAINTIES
The Company is subject to a number of risks common to companies in similar
stages of operations including, but not limited to, the lack of assurance of the
marketability of the product, the need to raise additional funds, the risk of
technological obsolescence and the limited source of supply of certain
components of the L-VIS System. In addition, to the extent that the Company's
internally designed software applications, computer systems and operations
and/or its external suppliers and outside broadcasters are not Year 2000
compliant, the planned operations of the Company could be significantly
disrupted. This disruption could have a material adverse effect on the
Company's business, financial conditions and planned results of operations.
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.
F-11
<PAGE> 75
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NEW PRONOUNCEMENTS
The Financial Accounting Standards Board issued Financial Accounting Standard
No. 130, "Reporting Comprehensive Income" ("SFAS 130") in June 1997.
Comprehensive income represents the change in net assets of a business
enterprise as a result of nonowner transactions. Management does not believe
that the future adoption of SFAS 130 will have a material effect on the
Company's financial position and results of operations. SFAS 130 is effective
for fiscal years beginning after December 15, 1997. The Company will adopt SFAS
130 for the year ending June 30, 1999.
Also in June 1997, the Financial Accounting Standards Board issued Financial
Accounting Standard No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS 131"). SFAS 131 requires that a business enterprise
report certain information about operating segments, products and services,
geographic areas of operation, and major customers in complete sets of financial
statements and in condensed financial statements for interim periods. SFAS 131
is effective for fiscal years beginning after December 15, 1997. The Company
will adopt SFAS 131 for the year ending June 30, 1999.
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of"
("SFAS" No. 121"). SFAS No. 121, effective for the Company's fiscal year 1997,
established criteria for recognizing, measuring and disclosing impairments of
long-lived assets, including intangibles and goodwill. The adoption of SFAS No.
121 has not had a significant impact on the Company's results of operations,
financial position or cash flows.
3. RESTRICTED MARKETABLE SECURITIES HELD TO MATURITY:
At June 30, 1998, 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 two existing letters of
credit. The Company intends to hold 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 $2,334 at June 30, 1998.
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, 1998, the Company's investment in Publicidad
amounted to $0, reflecting the Company's equity in Publicidad. The Company has
not recognized losses in excess of its investment in Publicidad as it has no
commitment to fund Publicidad's operations.
Under the terms of the joint venture agreement, Presencia manages the day-to-day
operations of Publicidad and is obligated to make such loans or additional
contributions as are necessary to carry out the business. The Company has no
further obligation to the joint venture. In 1994, Publicidad, through additional
contributions made by Presencia, paid the Company $2,000,000 for an exclusive,
royalty-free license granting Publicidad the right to commercially market the
Company's technology in Latin America and the Spanish-speaking Caribbean. (See
Note 5).
F-12
<PAGE> 76
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. LICENSE FEES:
In connection with the Publicidad joint venture, 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 an
additional $100,000 of license fees as revenue in both 1997 and 1998. The
remaining $800,000 of unearned revenue, of which $100,000 is included in current
liabilities and the remainder in long-term at June 30, 1998, is being amortized
into income over a 10 year period which began on July 1, 1996.
Under the terms of certain existing agreements, the Company retains title to the
L-VIS System and receives a non-refundable fee which reflects the construction
cost of the L-VIS system delivered to the licensee. These fees are recorded as
license revenue on a straight-line basis over the shorter of the license term or
the useful life of the equipment. Amortization of license revenue related to
these agreements amounted to $271,223 and $30,526 for the years ended June 30,
1998 and 1997, respectively. The remaining unearned revenue related to these
agreements was $343,244 at June 30, 1998, of which $169,164 is current.
6. PROPERTY AND EQUIPMENT:
The costs and accumulated depreciation of property and equipment at June 30,
1998 is summarized as follows:
<TABLE>
<S> <C>
Furniture and fixtures $ 197,028
Leasehold improvements 29,053
Office equipment 1,070,274
L-VIS Systems 1,705,150
Research and development equipment and software 484,831
Spare parts 711,618
-----------
Total property and equipment 4,197,954
Less: accumulated depreciation (1,650,470)
-----------
Property and equipment, net $ 2,547,484
===========
</TABLE>
Depreciation expense amounted to $793,043 and $478,982 for the years ended June
30, 1998 and 1997, respectively.
F-13
<PAGE> 77
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. INTANGIBLE ASSETS:
The costs and accumulated amortization at June 30, 1998 is summarized as
follows:
<TABLE>
<S> <C>
Patents $ 182,358
Patent Applications in Progress 453,709
---------
Total Intangible Assets 636,067
Less: accumulated amortization (142,831)
---------
Intangible Assets, net $ 493,236
=========
</TABLE>
Amortization expense amounted to $76,143 and $57,490 for the years ended June
30, 1998 and 1997, respectively. On May 6, 1997 the Company was granted a patent
relating to a pattern recognition system to detect specific objects in a video
field.
8. INCOME TAXES:
Temporary differences which give rise to significant deferred tax assets and
liabilities at June 30, 1998 are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Capitalized start-up costs $ 423,046
Fixed assets 110,701
Deferred revenue and other 453,811
Net operating loss carryforwards 6,602,623
State taxes 1,974,890
Valuation allowance - Federal (7,426,697)
Valuation allowance - State (1,974,890)
-----------
Total deferred tax assets 163,484
Deferred tax liabilities:
Intangibles 163,484
-----------
Total deferred tax liabilities 163,484
-----------
Net deferred taxes $ 0
===========
</TABLE>
F-14
<PAGE> 78
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Due to the uncertainty of the realization of the deferred tax assets, a full
valuation allowance has been provided.
As of June 30, 1998, the Company has net operating loss carryforwards for U.S.
federal income tax purposes of approximately $19,400,000 which expire in the
years 2006 through 2013. The timing and manner in which the net operating loss
carryforwards may be utilized in any year by the Company will be severally
limited by Internal Revenue Code Section 382.
9. BRIDGE FINANCING:
In October 1997, the Company entered into a $3,000,000 Bridge Financing
arrangement whereby the Company issued 30 units, each unit consisting of i) one
promissory note payable with a principal amount of $100,000 and bearing interest
at 10% and ii) warrants with a five year term to purchase 10,000 shares of
common stock at an exercise price of $.01 per share. The promissory notes
matured and warrants became fully vested upon the consummation of the initial
public offering of the Company's common stock in December 1997. The fair value
of the warrants, which approximated $1,647,000 at the closing date, was recorded
as an increase to additional paid-in capital. Upon maturity of the promissory
notes, the Company remitted the $3,000,000 principal balance and approximately
$59,000 of accrued interest. The difference between the $3,000,000 of proceeds
received from the Bridge Financing and the $1,353,000 of the proceeds allocated
to the promissory notes was amortized to interest expense over the term of the
promissory notes. Additionally, the Company incurred approximately $270,000 of
commissions and fees in connection with the Bridge Financing which were deferred
and amortized over the term of the promissory notes.
10. COMMON AND PREFERRED STOCK:
COMMON STOCK
Pursuant to its Restated Certificate of Incorporation, the Company is prohibited
from paying any dividends on the Common Stock until all accumulated dividends in
respect of the Series A Preferred Stock and Series B Preferred Stock have been
paid.
In May 1995, certain investors in the Company, which included a member of the
Company's current Board of Directors, signed notes ("the Notes") for $124,000 in
consideration for amounts owed under a stock subscription agreement. The
underlying shares of common stock were held by the transfer agent awaiting
payment of the Note. These Notes contained no recourse provisions by which the
Company could enforce collection and, 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. The Notes were renewed in May 1997 and in March 1998, an
agreement was reached between the investors and the Company whereby the Notes
were canceled and the 9,920 underlying shares of
F-15
<PAGE> 79
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
common stock were released by the transfer agent.
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. All outstanding stock subscriptions receivable were remitted to
the Company in the first fiscal quarter of 1998.
In July 1997, certain investors in the Company, which included a member of the
Company's current Board of Directors signed notes (`the July Notes") for $60,263
in consideration for amounts owed under the Rights Offering stock subscription
agreement. The July Notes which bore an interest rate of 9% and a maturity date
of July 1997, contained no recourse provisions by which the Company could
enforce collection. However, no charge was recorded in July 1997, as the fair
value of the Company's common stock in July 1997 approximated the purchase price
of the common stock associated with the Rights Offering subscription agreement.
The July Notes plus all accrued interest were repaid in full in December 1997.
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.
On December 16, 1997, the Company completed its initial public offering of
4,000,000 shares of its common stock at a price of $7.00 per share (the
"Offering"). The net proceeds from the Offering, after deducting underwriting
discounts and commissions and estimated expenses payable by the Company were
approximately $25,050,000. Additionally, in connection with the underwriting
services provided in the Offering, the underwriters received warrants with a
five year term to purchase 400,000 shares of common stock at an exercise price
of $8.40.
On December 31, 1997, the Company issued 600,000 shares of common stock at $7.00
per share to the underwriters of the Offering pursuant to the exercise of an
over-allotment option granted in connection with the Offering. The net proceeds
from the exercise of this option, after deducting underwriting discounts and
commissions and estimated expenses payable by the Company were approximately
$3,900,000.
F-16
<PAGE> 80
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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,
Series C Preferred Stock and Common Stock, including the loss of voting control.
Other than the shares of Series A Preferred Stock and Series B Preferred Stock,
there are no shares of preferred stock currently issued and outstanding.
Series A Preferred Stock
The Company has issued a total of 67,600 shares of Series A Redeemable Preferred
Stock with a par value of $4.50 per share and a six percent per annum dividend
rate. Dividends shall be paid either in cash or common stock of the Company. The
Company has the right at any time after the date of original issuance of the
Series A Preferred Stock to redeem the Series A Preferred Stock in whole or in
part at a price of $4.50 per share plus all accrued but unpaid dividends. The
Company is required to redeem this preferred stock in cash at par plus all
accrued but unpaid dividends from thirty percent of the amount by which the
Company's annual net income after taxes exceeds $5,000,000.
Dividends on the shares of Series A Preferred Stock are cumulative and must be
paid in the event of liquidation and before any distribution to holders of
common stock. Cumulative dividends in arrears at June 30, 1998 totaled $99,250
(or $1.47 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
F-17
<PAGE> 81
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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, 1998, totaled $113,950 (or $1.32 per share).
The Series B Preferred Stock has no liquidation preference, no conversion rights
and no registration rights.
Changes in the preferred stock accounts were as follows:
<TABLE>
<CAPTION>
Series A Series B
Number of Number of
Shares Amount Shares Amount Total
------------- ------------ -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1992
Stock issued for cash, December 1992 48,000 $216,000 $216,000
Stock issued for Cash, March 1993 19,600 88,200 88,200
Accretion of preferred stock dividends 8,000 8,000
------ -------- --------
Balance at June 30, 1993 67,600 312,200 312,200
------ -------- ------- -------- --------
Stock issued for cash, February 1994 86,000 $430,000 430,000
Accretion of preferred stock dividends 18,250 10,750 29,000
------ -------- ------- -------- --------
Balance at June 30, 1994 67,600 330,450 86,000 440,750 771,200
------ -------- ------- -------- --------
Accretion of preferred stock dividends 18,250 25,800 44,050
------ -------- ------- -------- --------
Balance at June 30, 1995 67,600 348,700 86,000 466,550 815,250
------ -------- ------- -------- --------
Stock issued for cash, September 1995 41 205 205
Accretion of preferred stock dividends 18,250 25,800 44,050
------ -------- ------- -------- --------
Balance at June 30, 1996 67,600 366,950 86,041 492,555 859,505
------ -------- ------- -------- --------
Accretion of preferred stock dividends 18,250 25,800 44,050
------ -------- ------- -------- --------
Balance at June 30, 1997 67,600 385,200 86,041 518,355 903,555
------ -------- ------- -------- --------
Accretion of preferred stock dividends 18,250 25,800 44,050
------ -------- ------- -------- --------
Balance at June 30, 1998 67,600 $403,450 86,041 $544,155 $947,605
====== ======== ======= ======== ========
</TABLE>
F-18
<PAGE> 82
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
CO-INVESTMENT RIGHTS, ANTI-DILUTION RIGHTS AND RIGHT OF FIRST REFUSAL
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. 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 Presencia in July 1997 and were
accounted for as a cost of the Rights Offering. This anti-dilution right
terminated upon the initial public offering of the Company's common stock in
December 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 to certain offerings of
securities by the Company. Such rights allowed Blockbuster to purchase, on terms
at least as favorable as those on which the offered securities were to be sold,
a sufficient number of the offered securities to allow Blockbuster to maintain
its percentage ownership interest in the Company. This coinvestment right
terminated with the initial public offering of the Company's common stock in
December 1997.
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 were offered to the third party or
parties. This right did 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 terminated upon the initial public offering of the Company's
common stock in December 1997.
WARRANTS AND OPTIONS:
WARRANTS
The Company had outstanding a total of 1,202,130 warrants to purchase common
stock at June 30, 1998. The exercise prices range from $2.50 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.
F-19
<PAGE> 83
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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. 20,000 and 13,600 of these warrants expired in November
1996 and 1997, respectively.
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
10).
In July 1992, warrants with a five year term to purchase 32,000 shares of common
stock at an exercise price of $2.50 per share were issued to David Sarnoff
Research Center, Inc. The estimated fair value of the warrants of $32,000 was
recorded as research and development expense in fiscal year 1993. These warrants
expired in July 1997.
In July 1992, warrants with a five year term to purchase 20,000 shares of common
stock at an exercise price of $2.50 per share were issued to a financial advisor
in connection with the August 1992 and December 1992 equity offerings. These
warrants were exercised in July 1997.
In July 1992, warrants with a five year term to purchase 30,000 shares of common
stock at an exercise price of $1.13 per share were issued to a financial advisor
in connection with August and December 1992 equity offerings. In May 1997 and
July 1997, respectively, warrants for 14,850 and 15,150 shares of common stock
were exercised.
In connection with the August 1992 issuance of common stock, the Company issued
warrants with a five year term to purchase 206,360 shares of common stock at an
exercise price of $1.13 per share. In May 1997 and April 1996, respectively,
warrants for 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, warrants for 82,542 shares
of
F-20
<PAGE> 84
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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
Entertainment Corporation ("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 shares. These warrants
vest upon the future occurrence of any of the following events: (i) Blockbuster
provides consulting services to the Company which materially enhances the
Company's technology relating to real time insertion; (ii) Blockbuster and the
Company enter into a joint venture for the purpose of exploiting the Company's
system in the entertainment industry for non-television applications; or (iii)
the Miami Dolphins are the first National Football League team to support the
use of the Company's system in connection with broadcast of its games. These
warrants expire three years after the vesting date.
In April 1995, warrants with a five year term to purchase 29,200 shares of
common stock at an exercise price of $13.75 per share were issued to a financial
advisor in connection with the February 1994 equity offering. Additionally,
warrants with a five year term to purchase 6,000 shares of common stock at an
exercise price of $16.50 per share were issued to the same financial advisor in
connection with the April 1994 equity offering. These warrants expire five years
after the closing date of the related offering.
In October 1995, in connection with the exercise of Presencia's co-investment
rights in common stock and Series B Preferred Stock, the Company issued to
Presencia warrants with a one year term to purchase 82 shares of common stock at
an exercise price of $12.50 per share. These warrants expired in fiscal year
1996. Additionally, the Company issued to Presencia warrants with a five year
term to purchase 10,932 shares of common stock at an exercise price of $12.50
per share. These warrants expire in April 1999.
In February 1996, warrants with a five year term to purchase 28,226 shares of
common stock at an exercise price of $19.25 per share were issued to the
underwriter of 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
F-21
<PAGE> 85
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Presencia. The estimated fair value of the warrants of $120,000 was recorded as
general and administrative expenses in fiscal year 1996.
During 1997 and 1996, respectively, the Company issued warrants with a five year
term to purchase 4,206 and 15,794 shares of common stock at an exercise price of
$15.00 as consideration for consulting services provided to the Company. The
estimated fair value of the warrants of $18,927 and $71,075 was recorded as
general and administrative expense in fiscal year 1997 and 1996, respectively.
In September 1997, warrants with a five year term to purchase 1,572 shares of
common stock at an exercise price of $15.00 per share were issued in settlement
of an obligation of $7,074 accrued at June 30, 1997 relating to consulting
services provided to the Company.
In September 1997, warrants with a three year term to purchase 20,000 shares of
common stock at an exercise price of $4.50 per share were issued in settlement
of an obligation of $90,000 accrued during 1996, when the consulting services
were provided to the Company.
In October 1997, the Company issued warrants with a five year term to purchase
300,000 shares of common stock at an exercise price of $0.01 per share in
connection with a Bridge Financing (see Note 9). As of June 30, 1998, 275,000 of
these warrants had been exercised.
On May 28, 1998, the Board of Directors of the Company approved a modification
of the terms of certain outstanding warrants. The modification, which affected
approximately 548,358 warrants, reduced the exercise price of such warrants to
$8.00 per share and extended the exercise period for an additional five years.
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, 1998, 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
F-22
<PAGE> 86
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
ten years from the date of grant and generally vest ratably over a three year
period. Options are not assignable or otherwise transferable except by will or
the laws of descent and distribution.
Information with respect to options under the Plan is as follows:
<TABLE>
<CAPTION>
Weighted Weighted
Average Average
Number of Exercise Fair Value
Available Options Option Price Price per Per Option
for Grant Outstanding Range Share Granted
--------- ----------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1996 35,366 624,634 $10.00-$17.50 $13.77
------- ---------
Authorized 900,000
Granted (638,040) 638,040 $18.85 $ 16.57
Exercised -- -- --
Forfeitures 161,750 (161,750) $15.90
------- ---------
Balance at June 30, 1997 459,076 1,100,924 $10.00-$20.00 $16.38
------- ---------
Authorized
Granted (356,290) 356,290 $ 7.97 $ 3.39
Exercised -- --
Forfeitures 139,707 (139,707) $18.48
------- ---------
Balance at June 30, 1998 242,493 1,317,507 $2.50-$17.50 $ 8.35
======= =========
Exercisable at June 30, 1998 850,938 $ 8.60
Exercisable at June 30, 1997 559,788 $13.93
</TABLE>
The weighted average remaining contractual lives of outstanding options at June
30, 1998 was 6.1 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 Standards No. 123 "Accounting for Stock Based Compensation", the
Company's net loss applicable to Common Stock
F-23
<PAGE> 87
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
would have been increased to $(14,098,692) ($(2.39) per share) and $(8,018,443)
($(3.50) per share) for the years ended June 30, 1998 and June 30, 1997,
respectively.
The pro forma compensation expense of $4,970,318 and $2,243,732 for 1998 and
1997, respectively, was calculated on the fair value of each option using the
minimum value method for those options issued prior to October 17, 1997 (the
date of initial filing with the SEC) and using the Black Scholes method for
those options issued on October 17, 1997 and later. The following weighted
average assumptions were used in the calculations:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Risk free interest rate 6.10% 6.50%
Expected option lives 6.1 years 9.5 years
Expected volatility 62.0% ** 0
</TABLE>
** For options granted October 17, 1997 and later
In connection with certain options granted in February 1994 relating to a
consulting services agreement with a member of the Company's current Board of
Directors, the Company recorded unearned compensation expense in the amount of
$360,000. This unearned compensation was amortized over the 24 month vesting
period. In connection with certain options granted in June 1995 relating to a
consulting services agreement, the Company recorded unearned compensation in the
amount of $120,000, which was expensed when the service was provided in 1996.
During 1997, the Company extended the terms of certain options issued to
employees. As a result, the Company recorded a charge of $208,335, which
represents the fair value of the Company's common stock at the new measurement
date in excess of the exercise price of the underlying option.
In September 1997, the Company granted 20,000 fully vested options with an
exercise price of $2.50 per share to an employee to replace certain warrants
which had expired in 1996. As a result, the Company recorded a charge of $80,000
in September 1997 which represents the fair value of the stock in excess of the
exercise price of the option.
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, were current employees of the Company, except executive officers. The
modification, which affected approximately 320,380 options, reduced the exercise
price of such options to $8.00 per share. No compensation expense was recorded
in connection with this transaction as the exercise price of such options
exceeded the fair market value of the Company's stock on the date of this
transaction.
F-24
<PAGE> 88
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
In January 1998, the Board of Directors of the Company approved the creation of
an employee bonus pool of 100,000 incentive stock options, pursuant to the
Company's Stock Option Plan to be awarded during calendar year 1998, on a
discretionary basis, in recognition of extraordinary performance.
In January 1998, the Board of Directors of the Company approved the grant of
options with a ten year term to purchase up to 59,600 shares of common stock to
a third party consultant. Of those options granted, 9,600 were fully vested upon
grant in consideration for consulting services previously rendered. Accordingly,
the Company recorded a charge of $33,312 in the third quarter of 1998 which
represents the fair value of the vested options. The remaining 50,000 options
will vest upon the earlier of i) the consultant providing ten years of
continued consulting services or ii) the attainment of certain performance
criteria. Charges for such unvested options will be recorded in proportion to
progress made on such performance criteria. There was no charge recorded in
fiscal year 1998 for the unvested portion of this option grant.
On May 28, 1998, the Board of Directors of the Company approved a modification
of the terms of certain stock options held by individuals who, as of that date,
were current officers or directors of the Company. The modification, which
affected approximately 350,000 options, reduced the exercise price of such
options to $8.00 per share. No compensation expense was recorded in connection
with this transaction as the exercise price of such options exceeded the fair
market value of the Company's stock on the date of this transaction.
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
in November 1997 the Company negotiated a new agreement with GE. This
agreement, which is retroactive to July 1996, has a five-year term.
Under the terms of the license agreement, the Company would pay royalties to GE
based upon the Company's gross revenues. All royalties accrue as earned and are
payable semi-annually. As of July 30, 1998, 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.
F-25
<PAGE> 89
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Under terms of this agreement, the Company will pay royalties of between 3% and
5% 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. At June 30, 1998 and 1997,
respectively, the amounts accrued under this agreement were 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 of
between .05% and .20% of net sales on a quarterly basis. The agreement
terminates with the expiration of the last of the patents included in the
licensed technology. At June 30, 1998 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 sought 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 ("Syman"),
a competitor of the Company, asserting that use of the L-VIS System in Spain
would infringe one of Symah's patents. Both GDM and the Company were advised by
European patent counsel that use of the L-VIS System would not infringe Symah's
patent.
In November 1997 the Company settled its dispute with GDM concerning amounts
owed by the Company to GDM under the terms of their association agreement. GDM
returned the L-VIS system equipment to the Company in January 1998 in exchange
for a $365,000 payment to GDM from the Company. The remaining $135,000 of the
original $500,000 received from GDM was recorded as license revenue by the
Company in the second quarter 1998.
F-26
<PAGE> 90
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
D&D ENTERTAINMENT
In May 1997, the Company signed a non-binding letter of intent with D&D
Entertainment Group N.V. of Belgium ("D&D") 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 $250,000 of advanced licensing fees which
were held as customer deposits pending the decision of D&D and the Company to
enter into a definitive agreement. Between May 1997 and May 1998, D&D used the
L-VIS System on a trial marketing basis in connection with a subsidiary company
of D&D called Mobilis.
In May 1998 the Company entered into a definitive agreement with D&D under the
terms of which the Company paid D&D $250,000 held on deposit, in exchange for
the return of the L-VIS System. The Company agreed to pay an additional $50,000
as consideration for the purchase of certain assets of D&D pending a
determination of their fair market value, use of office space for a period of
six months, and the rights to hire two D&D technicians trained in the operation
of the L-VIS System.
LEASES
The Company leases its primary office space under operating leases. In July
1997, the Company entered into a three-year operating lease for office space in
New York City. In October 1997, the Company entered into a five-year operating
lease agreement for its new office headquarters in Lawrenceville, New Jersey.
Rent and equipment lease expense for the years ended July 30, 1998 and 1997 was
$395,979 and $141,415, respectively.
Future minimum rent and lease payments are as follows:
<TABLE>
<S> <C>
1999 $ 342,632
2000 342,632
2001 218,714
2002 205,032
2003 51,258
Thereafter --
==========
Total minimum lease payments $1,160,268
==========
</TABLE>
Under the terms of the three year lease signed in 1997 for the New York
facility, the Company is required to maintain an irrevocable, unconditional
$70,000 letter of credit throughout the term of the lease. Under the terms of
the five year lease signed in October 1997 for the Lawrenceville, New Jersey
headquarters, the Company is required to maintain an irrevocable, unconditional
$51,258 letter of credit throughout the term of the lease.
F-27
<PAGE> 91
\
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
RELATED PARTY TRANSACTIONS:
A member of the Board of Directors of the Company is also the President of J.J.
Pomerance & Co., Inc., a corporation that has furnished consulting services to
the Company from time to time.
A member of the Board of Directors of the Company is also a principal
shareholder and the President of the Board of Directors of Presencia, which has
made several equity investments in the Company and is the Company's joint
venture partner in Publicidad.
A member of the Board of Directors of the Company is also the sole shareholder
and President of Princeton Venture Research, Inc. ("PVR"), a shareholder of the
Company. PVR entered into an arrangement with the Company regarding the services
of a consultant that PVR provided to the Company for several months in 1995. In
connection with such arrangement, in September 1997, the Company granted PVR a
warrant to purchase 20,000 shares of common stock at an exercise price of $4.50
per share. Additionally, of the $124,000 of Notes received in consideration for
amounts owed under a stock subscription agreement (see Note 9), $80,000 relates
to the member of the Board of Directors, $20,000 relates to the wife of the
member of the Board of Directors and $24,000 relates to PVR. Commencing in July
1997, PVR furnished the Company with extensive consulting services in connection
with financial structuring, negotiations with various major shareholders and
preparation of the Bridge Financing. In connection with such services, the
Company has paid PVR a fee of $100,000. In consideration for financial advisory
services rendered to the Company in connection with the Bridge Financing, the
Company paid PVR Securities, Inc., an affiliate of PVR, a fee of $70,000, or
five percent of the gross proceeds of the Bridge Financing obtained from
investors introduced to the Company by PVR Securities, Inc. In connection with
the purchase of Common Stock under the Company's 1997 rights offering, the wife
of the member of the Board of Directors and PVR executed promissory notes in
favor of the Company in the amounts of $9,720 and $50,543, respectively. Such
notes and the related accrued interest, were repaid in full in December 1997.
The member of the Board of Directors of the Company is also the Manager and a
member of Acorn Technology Partners, L.L.C., the general partner of Acorn
Technology Fund, L.P., which purchased 1.5 units in the Bridge Financing in
October 1997. Each unit consisted 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.
A member of the Board of Directors of the Company is also a Managing Director
and Executive Vice President of Allen & Company Incorporated, 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 warrant to purchase 28,226 shares of common stock at an
exercise price of $19.25 per share. Allen, as a Representative, received
underwriting discounts and commissions, as well as Representatives' Warrants
initially exercisable for 380,000 shares of Common Stock, with respect to
services rendered on behalf of the Company with respect to the initial
F-28
<PAGE> 92
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
public offering of its Common Stock in December 1997.
A member of the Board of Directors of the Company has been retained as a
consultant to the Company.
The Chief Executive Officer and President of the Company purchased one unit in
the Bridge Financing that closed in October 1997.
In July 1997, two employees of the Company signed notes (the "Employee Notes")
for $655,000 as consideration for the exercise of warrants to purchase 262,000
shares of common stock at an exercise price of $2.50 per share. Accordingly, a
$360,250 charge to general and administrative expense was recorded in July 1997
for the excess of the fair value of the Company's stock in July 1997 over the
exercise price of the underlying warrants. In December 1997, these two employees
signed notes (the "Tax Notes") for $169,498 as consideration for funds received
for the express purpose of paying the tax liabilities incurred by each of them
in connection with the exercise of their warrants. The Employees concurrently
signed Pledge Agreements pursuant to which the 262,000 shares of common stock
purchased were pledged to the Company. Both the Employee Notes and the Tax Notes
bear interest at a rate of 8.5% and contain no recourse provisions by which the
Company can enforce collection. The Employee Notes mature in July 2002 and the
Tax Notes become due and payable upon the earlier of (i) the first anniversary
of the date on which all of the Pledged Shares become freely transferrable, and
(ii) the date on which the employee sells, assigns or otherwise disposes of, for
consideration, any interest in any share of capital stock of Company stock.
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.
SUBSEQUENT EVENTS:
On September 9, 1997, the Board of Directors of the Company passed a resolution
to amend the Corporation's Amended 1993 Stock Option Plan by increasing the
authorized number of shares which may be issued pursuant to options granted
under the Plan from 1,560,000 to 1,960,000 shares. This amendment is subject to
shareholder approval and ratification within one year of the date of the
resolution.
F-29
<PAGE> 93
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
FOR THE TRANSITION PERIOD FROM _________________ TO __________________
COMMISSION FILE NUMBER 000-23415
PRINCETON VIDEO IMAGE, INC.
(Exact name of small business issuer as specified in its charter)
New Jersey 22-3062052
(State or other jurisdiction of I.R.S. Employer Identification No.)
incorporation or organization)
15 Princess Road, Lawrenceville, New Jersey, 08648
(Address of principal executive offices)
609-912-9400
(Issuer's telephone number, including area code)
Check whether the registrant: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or such shorter period that the registrant is required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No
--- ---
The aggregate number of shares of the Issuer's common stock outstanding on
October 31, 1998 was 8,183,552.
Transitional Small Business Disclosure Format:
Yes No X
----- -----
<PAGE> 94
ITEM 1. FINANCIAL STATEMENTS
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
September 30,
1998
-------------
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 19,410,220
Restricted marketable securities held to maturity 139,909
Trade accounts receivable 363,236
Other current assets 245,711
------------
Total current assets 20,159,076
Property and equipment, net 2,454,008
Intangible assets, net 471,668
Other assets 249,523
------------
Total assets $ 23,334,275
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 1,081,861
Unearned revenue 311,897
------------
Total current liabilities 1,393,758
Unearned revenue 892,255
------------
Total liabilities 2,286,013
------------
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 September 30, 1998,
redemption value equal to carrying value
(par plus all accrued but unpaid dividends) 408,012
Cumulative, Series B, conditionally redeemable, $5.00 par value,
authorized 93,300 shares; issued and outstanding 86,041 shares at September
30, 1998, redemption value equal to carrying value
(par plus all accrued but unpaid dividends) 550,605
------------
Total redeemable preferred stock 958,617
Shareholders' Equity:
Common stock, no par value; $.005 stated value; authorized 40,000,000
shares; 8,183,552 shares issued and outstanding at September 30, 1998 40,917
Additional paid-in capital 51,432,894
Less: Related party note receivable (824,498)
Deficit accumulated during the development stage (30,559,668)
-------------
Total shareholders' equity 20,089,645
------------
Total liabilities, redeemable preferred stock and
shareholders' equity $ 23,334,275
=============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 95
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Cumulative from
For the three months ended inception to
September 30, September 30,
-------------------------------
1998 1997 1998
---- ---- ----
<S> <C> <C> <C>
License fees $ 67,292 $ 57,626 1,569,041
Advertising revenue 210,654 75,177 626,151
-------------------------------- ----------------
Total revenue 277,946 132,803 2,195,192
Costs and expenses:
Selling, general and administrative 1,163,830 1,223,811 15,100,918
Research and development 443,792 445,994 11,727,436
L-VIS System costs 882,877 416,732 5,792,209
--------------------------------- -----------------
Total costs and expenses 2,490,499 2,086,537 32,620,563
Operating loss (2,212,553) (1,953,734) (30,425,371)
Interest and other financial (expense) -- -- (1,814,178)
Interest and other income 278,763 16,372 1,679,881
--------------------------------- -----------------
Net loss (1,933,790) (1,937,362) (30,559,668)
Accretion of preferred stock
dividends (11,013) (11,012) (224,213)
--------------------------------- -----------------
Net loss applicable to common stock $(1,944,803) $(1,948,374) $(30,783,881)
================================= =================
Basic and diluted net loss per share
applicable to common stock ($ 0.24) ($ 0.61)
===============================
Weighted average number of
shares of common stock
outstanding 8,181,885 3,189,305
===============================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 96
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Cumulative from
For the three months ended inception to
September 30, September 30,
-------------------------------
1998 1997 1998
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (1,933,790) $(1,937,362) $(30,559,668)
Adjustments to reconcile net loss to net
cash used in operating activities
Amortization of unearned income (67,292) (57,626) (569,041)
Depreciation expense 294,024 146,646 2,086,667
Amortization of intangibles 21,568 16,734 210,058
Charges associated with option and warrant
grants and related party note receivable -- 440,250 1,531,699
Equity in net loss of affiliate -- -- 9,048
Increase (decrease) in cash resulting
from changes in:
Trade accounts receivable (169,974) (75,782) (363,236)
Other current assets (15,464) (23,231) (245,711)
Other assets 21,669 (36,343) (249,523)
Accounts payable and accrued expenses (221,694) (85,312) 1,173,292
Unearned revenue 128,200 -- 1,773,192
Miscellaneous other 1,465 6,821 144,058
-----------------------------------------------------
Net cash used in operating activities (1,941,288) (1,605,205) (25,059,165)
-----------------------------------------------------
Cash flows from investing activities:
Purchase of held-to-maturity investments -- (52,000) (5,351,555)
Proceeds from held-to-maturity investments -- -- 5,200,000
Purchases of property and equipment (201,219) (165,994) (4,573,335)
Increase in intangible assets -- (26,249) (775,834)
Investments in joint venture -- -- (9,048)
-----------------------------------------------------
Net cash provided by (used in)
investing activities (201,219) (244,243) (5,509,772)
-----------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
<PAGE> 97
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Cumulative from
For the three months ended inception to
September 30, September 30,
-------------------------------
1998 1997 1998
---- ---- ----
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds from Bridge Financing loans -- -- 1,353,000
Repayments of Bridge Financing loans -- -- (1,353,000)
Proceeds from sale of Bridge Financing warrants, net -- -- 1,479,822
Proceeds from sales of preferred stock -- -- 734,405
Proceeds from sales of common stock, net 100 1,304,722 46,669,943
Cash advanced for related party notes receivable -- -- (169,498)
Collections of stock subscriptions receivable -- -- 1,264,485
----------------------------------------------------
Net cash provided by
financing activities 100 1,304,722 49,979,157
----------------------------------------------------
Net increase (decrease) in cash and
cash equivalents (2,142,407) (544,726) 19,410,220
Cash and cash equivalents at beginning of
period 21,552,627 775,693 --
----------------------------------------------------
Cash and cash equivalents at end of period $19,410,220 $ 230,967 $ 19,410,220
====================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 98
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. Nature of Business and Basis of Presentation
Princeton Video Image, Inc., (the "Company"), was incorporated on July 23,
1990 in the State of New Jersey. The Company has developed and is marketing
a real-time video insertion system (the "L-VIS(TM) System") which utilizes
proprietary software and hardware to place 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. The L-VIS System has
been used to insert advertising images into live and pre-recorded
television broadcasts. The Company is also marketing its systems on a
worldwide basis through licensing agreements or the formation of joint
ventures.
The condensed financial statements presented herein have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Article
10 of Regulation S-X and are unaudited. Reference should be made to the
Company's audited financial statements for the fiscal year ended June 30,
1998 including the footnotes thereto, included in the Company's Annual
Report on Form 10-KSB for the same fiscal year end. In the opinion of
management, the financial statements reflect all adjustments (which consist
of normal recurring accruals) necessary for a fair statement of the results
of the interim periods presented.
2. Per Share Data
In December 1997, the Company adopted Statement of Financial Accounting
Standards No. 128 "Earnings Per Share" ("SFAS 128") to calculate net loss
per share applicable to common stock. All prior periods presented have been
retroactively restated to conform to the SFAS 128 requirements. SFAS 128
requires the presentation of basic and diluted per share amounts. Basic per
share amounts are computed by dividing net loss applicable to common stock
by the weighted average number of common shares outstanding during the
period. Diluted per share amounts are computed by dividing net loss
applicable to common stock by the weighted average number of common shares
outstanding plus the dilutive effect of common share equivalents.
Since the Company incurred net losses for all periods presented, both basic
and diluted per share calculations are the same. Accordingly, options and
warrants to purchase 2,509,637 and 2,001,454 shares of common stock that
were outstanding at September 30, 1998 and 1997, respectively, were not
included in diluted per share calculations, as their effect would be
antidilutive.
<PAGE> 99
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
UNAUDITED
3. Commitments and Contingencies
Lease Agreement
In October 1997, the Company entered into a five-year operating lease
agreement for its headquarters in Lawrenceville, New Jersey. Minimum annual
lease payments under the lease will be approximately $249,000 per year.
4. New Pronouncements
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130") during the quarter ended
September 30, 1998. SFAS 130 establishes standards for reporting and
display of an alternative income statement and its components (revenue,
expenses, gains and losses) in a full set of general purpose financial
statements. For the three month periods ended September 30, 1998 and 1997,
the Company had no items of other comprehensive income.
The Company adopted Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131") during the quarter ended September 30, 1998. SFAS 131 requires
that a business enterprise report certain information about operating
segments, products and services, geographic areas of operation, and major
customers in complete sets of financial statements and in condensed
financial statements for interim periods. Currently, there are no
disclosures required to be made under SFAS 131.
In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits" ("SFAS 132"). SFAS 132 changes
current financial disclosure requirements for pension and other
postretirement benefit plans. SFAS 132 does not, however, change the
measurement or recognition provisions of existing accounting standards.
Currently, there are no disclosures required to be made under SFAS 132.
5. Subsequent Events
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
total number of shares of Common Stock authorized for issuance under the
Stock Option Plan is 1,560,000. In October 1998, the Board of Directors
approved an amendment to the Stock Option Plan to increase the number of
authorized shares to 2,160,000. This amendment, subject to shareholder
approval and ratification within one year, is being voted upon at the
Annual Meeting of Shareholders to be held on December 10, 1998.
<PAGE> 100
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
Since its inception in 1990, the Company has devoted substantially all of
its resources to the development of the L-VIS(TM) System, an electronic
video insertion system that was designed to modify broadcasts to television
viewers by inserting electronic images, primarily advertisements. The
Company has incurred substantial operating losses since its inception. As
of September 30, 1998, the Company had an accumulated deficit of
approximately $30,560,000 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 continue its efforts to enhance the L-VIS System and
develop additional software applications. In order to increase its revenue
generating user base and to expand into national and international markets,
the Company plans an increase in its sales and marketing staff during the
fiscal year ending June 1999. 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
awareness. While any purchase of advertising will be done through the
rights holder or the broadcaster, the Company hopes to create advertiser
interest and demand by promoting the L-VIS System directly to potential
advertisers. Therefore, the Company expects to incur additional losses and
to experience substantial negative cash flow from operating activities
through 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.
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 revenues 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 mitigated 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 in nature or they may cover individual
major broadcast events. In the case of a territorial license, the licensee
is responsible for generating business within the
<PAGE> 101
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.
Results of Operations
QUARTER ENDED SEPTEMBER 30, 1998 COMPARED TO THE QUARTER ENDED SEPTEMBER
30, 1997
Revenue
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 the United States.
Total revenue increased 109% from $132,803 for the quarter ended September
30, 1997 to $277,946 for the quarter ended September 30, 1998 as a result
of an increase in the number of major league baseball teams using the L-VIS
System and the amount of advertising revenues produced from each team.
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 operating costs, and legal and accounting
fees. Total selling, general and administrative expenses decreased 4% to
$1,163,830 for the quarter ended September 30, 1998, from $1,223,811 for
the quarter ended September 30, 1997. This decrease resulted from charges
associated with option and warrant grants issued during the three months
ended September 30, 1997, which were not present in 1998. This decrease was
partially offset by increased personnel expenses, rent and utility costs
and fees paid to investor and public relation professionals hired to
support the Company's increased focus on the sales and marketing of 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
improved software programs for individual sports. Total research and
development expenses remained fairly constant, decreasing only marginally
to $443,792 for the quarter ended September 30, 1998 from $445,994 for the
quarter ended September 30, 1997. The Company continues to develop new
software and hardware platforms for the L-VIS System through the
integration of newly available technologies including High Definition
Television or HDTV.
L-VIS System Costs
L-VIS System costs include the costs associated with the material
production, depreciation and operational support of the L-VIS System units,
including training costs for operators and the shipping of L-VIS System
units to international and domestic
<PAGE> 102
venues. L-VIS System costs increased 112% to $882,877 for the quarter ended
September 30, 1998 from $416,732 for the quarter ended September 30, 1997.
This increase was the result of numerous factors including (i) an increase
in depreciation expense associated with the purchase of L-VIS System
components for system upgrades and newly constructed systems to be used in
football and by international licensees, (ii) an increase in personnel and
related expenses as well as higher insurance, rent and utility costs, (iii)
a shift in workload from selling, general and administrative expense to
L-VIS System costs as more time was spent building and operating the L-VIS
System, and, (iv) expenses related to the initial testing of the L-VIS
System in the broadcast of the Indianapolis Motor Speedway Corporation's
Brickyard 400 race in July 1998 and the August 1998 off-line demonstration
of the L-VIS System for cricket.
Interest and Other Income
Interest and other income increased to $278,763 from $16,372 for the
quarters ended September 30, 1998 and 1997, respectively. This increase is
due to the increase in funds available to invest from the proceeds of the
Company's initial public offering of stock in December 1997.
Net Loss
As a result of the foregoing factors, the Company's net loss decreased
slightly to $1,944,803 from $1,948,374 for the three months ended September
30, 1998 and 1997, respectively.
Year 2000 Risk Compliance
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. Beginning in the
year 2000, these date code fields need to recognize four digit entries in
order to identify correctly dates in the 21st century. If not corrected,
many computer applications could fail or create erroneous results at the
year 2000. This potential problem has been termed "Y2K".
The Company realizes that Y2K planning is essential to its continued
success. A plan has been formulated (the "Plan") to identify, correct,
implement and test all internal and external systems for full Y2K
compliance. This plan encompasses all computer hardware and software
systems, electrical and communication systems and any system or service
that may be affected by the Y2K event. In addition, the Plan covers all
external dependencies on services provided by third parties to the Company
as well as services that the Company provides to its customers.
As part of the Plan, the Company has assigned a member of the information
systems department to act as project leader, with personnel from each of
the other Company departments assisting. The Plan has been divided into the
following six phases:
1) Identification of systems and services affected by the Y2K event and
submission of such a list to the Y2K project leader. This includes
communication and satellite lines, computers manufactured by third
parties as well as specialized and embedded hardware designed by the
Company as well as all building systems (i.e. electric, heating,
telephone, and security systems). All software used by the Company
including third party operating systems, office automation software,
<PAGE> 103
accounting software, connectivity software and all software produced
by the Company both internally and for use by our customers.
2) Development of a testing, checking and certification mechanism for all
systems and services identified in phase 1 above. If testing by
Company personnel is not possible, written certification will be
requested from the manufacturer of the system or provider of the
services as to their state of readiness for the year 2000.
3) Testing of systems and services according to a time line prepared by
the project leader and documentation of the results. Any system that
is identified as being non-compliant with the Y2K event will be
earmarked for additional work.
4) Development and implementation of remedial plans for all systems
and/or services that were identified as non-compliant in phase 3
above.
5) Ongoing reporting of the progression of the Y2K compliance project
until full Y2K compliance is achieved.
6) Issuance of a final compliance report when all phases of the Plan have
been completed.
As of September 30, 1998, a preliminary list of all systems and services
affected by the Y2K event had been prepared. Testing and certification of
in-house computer systems and software has begun. The process of drafting
letters to third party providers of goods and services requesting
documentation as to their state of readiness has begun.
Based on the work that has been done to date on the initial stages of the
Plan, the Company believes that its current accounting and administrative
software products are Y2K compliant. Further, the Company does not
anticipate any internal Y2K issues arising from the use of its own internal
information systems, databases or programs. Based on the initial
identification of systems and services subject to the Y2K problem,
management of the Company has estimated that future costs related to Y2K
compliance for internal software, information systems, databases or
programs are expected to be less than $100,000.
The Company's proprietary L-VIS System relies on time (i.e. hour and
minute) sensitive software coding, but it is not date sensitive and is,
therefore, not believed by the management of the Company to be subject to
Y2K problems. The manufacture and use of the L-VIS System, however,
requires the cooperation of external suppliers and outside broadcasters.
The Company has begun a formal review process of the Y2K readiness of these
external suppliers and broadcasters as part of phase 1 listed above. To the
extent that it is determined that the Company's suppliers and broadcasters
are not Year 2000 compliant, the planned operations of the Company could be
significantly disrupted. This could have a material adverse effect on the
Company's business, financial condition and planned results of operations.
Management is currently unable to quantify the impact of this potential
disruption on its future earnings.
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 Systems. As a result of operating losses, the net cash used in
operating activities increased to $1,941,288 from $1,605,205 for the
quarters ended September 30, 1998, and 1997, respectively.
<PAGE> 104
This increase was due in large part to non-cash charges of $440,250 in 1997
associated with option and warrant grants. There were no such issuances
during the three months ended September 30, 1998.
Net cash used in investing activities decreased to $201,219 for the three
months ended September 30, 1998 from $244,243 for the three months ended
September 30, 1997 as the net result of several factors. The total spent on
the purchase of property and equipment actually increased as a result of
purchasing components to be used in the building of additional L-VIS
Systems and the continuing process of upgrading the existing systems to the
second generation flex-based L-VIS System. This upgrade, which was begun in
January 1998, was substantially completed by September 30, 1998. This
increase was offset, however, by the decrease in 1998 in purchases of
investments and intangibles by $52,000 and $26,429, respectively.
Net cash provided by financing activities for the three months ended
September 30, 1998 decreased to $100 from $1,304,722 for the year ago
period. The cash provided during the three months ended September 30, 1997
was due primarily to the receipt of stock subscriptions from a May 1997
Rights Offering. Cash provided by financing activities for the three months
ended September 30, 1998 was the result of the exercise of warrants issued
in connection with a Bridge Financing prior to the initial public offering
of the Company's Common Stock. There were no new issuances of stock or
warrants during the quarter ended September 30, 1998.
The net decrease in cash and cash equivalents increased to $2,142,407 from
$544,726 for the three months ended September 30, 1998 and 1997,
respectively as the cash proceeds from the Company's initial public
offering were used to fund operations without the offset of additional
funds being raised.
Since inception, the Company has financed its operations from (i) the net
proceeds of the approximately $19,700,000 from private placements of Common
Stock, warrants and redeemable preferred stock, (ii) the payment of a
$2,000,000 licensing fee, (iii) the proceeds of a bridge loan financing
which closed in October 1997, (iv) the proceeds from the initial public
offering of its Common Stock which closed in December 1997, (v) revenues
and license fees relating to use of the L-VIS System, and (vi) investment
income earned on cash balances and short term investments. The Company
believes that the net proceeds of its initial public offering, and the
income earned from the investment of those proceeds, will be sufficient to
meet its capital needs for approximately 18 months. Such capital
requirements will depend on a number of factors including the results of
its research and development programs, the Company's ability to maintain
its current customer base and attract new customers to use the L-VIS
System, acceptance of the L-VIS System technology by rightsholders,
technological advances and the status of its competitors, and the level of
resources the Company is able to allocate to the development of greater
marketing and sales capabilities. If the Company does not generate adequate
revenues, there is no assurance that it will be able to raise the
additional capital necessary to fund its operations. The Company would,
thus, be forced to substantially reduce the scale of its operations.
<PAGE> 105
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.
Part II
Item 2 Changes in Securities and Use of Proceeds
The Company commenced an initial public offering of its common stock, no
par value on December 16, 1997 pursuant to a registration statement on Form
SB-2 (Registration No. 333-37725) (the "Registration Statement"), which was
declared effective by the Securities and Exchange Commission on December
16, 1997. From the effective date of the Registration Statement to
September 30, 1998, the approximate amount of net offering proceeds used
was $3,210,000 for repayment of indebtedness and expenses related thereto,
$3,233,000 for the manufacture of L-VIS(TM) Systems, $1,033,000 for
research and development, $1,347,000 for sales and marketing, and
approximately $1,533,000 for working capital and general corporate
purposes.
Item 5 Other Information
In April 1998, Douglas J. Greenlaw, President and Chief Executive Officer
of the Company informed the Board of Directors that he plans to step down
as President and Chief Executive Officer of the Company by the end of 1998.
The Company continues its search for a successor to Mr. Greenlaw. Brown
Williams, Chairman and Co-Founder, will continue to co-manage the Company
with Mr. Greenlaw until a successor is found. Mr. Greenlaw has advised the
Company that he will not stand for re-election to the Board of Directors at
the Company's Annual Meeting of Shareholders scheduled for December 10,
1998.
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Restated Certificate of Incorporation (Incorporated by reference
to Exhibit 3.1 to the Company's Registration Statement on Form
SB-2 (Registration No. 333-37725 which became effective on
December 16, 1997.
3.2 Restated Bylaws, as amended (Incorporated by reference to Exhibit
3.1 to Company's Current Report on Form 8-K filed with the
Securities and Exchange Commission on February 11, 1998).
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
No current reports on Form 8-K were filed during the fiscal quarter
ended September 30, 1998.
<PAGE> 106
Signatures
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereto
duly authorized.
Princeton Video Image, Inc.
November 16, 1998 By: /s/ Brown F Williams
------------------ --------------------------
Date Brown F Williams,
Chairman
November 16, 1998 By: /s/ Lawrence L. Epstein
------------------- ----------------------------
Date Lawrence L. Epstein,
Chief Financial Officer
<PAGE> 107
[ARTICLE] 5
<TABLE>
<S> <C>
[PERIOD-TYPE] 3-MOS
[FISCAL-YEAR-END] JUN-30-1998
[PERIOD-END] SEP-30-1998
[CASH] 19,410,220
[SECURITIES] 139,909
[RECEIVABLES] 363,236
[ALLOWANCES] 0
[INVENTORY] 0
[CURRENT-ASSETS] 20,159,076
[PP&E] 4,394,105
[DEPRECIATION] 1,940,097
[TOTAL-ASSETS] 23,334,275
[CURRENT-LIABILITIES] 1,393,758
[BONDS] 0
[PREFERRED-MANDATORY] 958,617
[PREFERRED] 0
[COMMON] 40,917
[OTHER-SE] 20,048,728
[TOTAL-LIABILITY-AND-EQUITY] 23,334,275
[SALES] 0
[TOTAL-REVENUES] 277,946
[CGS] 0
[TOTAL-COSTS] 2,490,499
[OTHER-EXPENSES] 0
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 0
[INCOME-PRETAX] (1,933,790)
[INCOME-TAX] 0
[INCOME-CONTINUING] (1,933,790)
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] (1,944,803)
[EPS-PRIMARY] ($0.24)
[EPS-DILUTED] ($0.24)
</TABLE>
<PAGE> 108
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
-----------------------------
Date of report (Date of earliest event reported) November 5,1998
-----------------
PRINCETON VIDEO IMAGE, INC.
- -------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
New Jersey 000-23415 22-3062052
- -------------------------------------------------------------------------------
(State or Other Juris- (Commission (I.R.S. Employer
diction of Incorporation) File Number) Identification No.)
15 Princess Road, Lawrenceville, New Jersey 08648
- -------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (609) 912-9400
-------------
- -------------------------------------------------------------------------------
(Former Name or Former Address, If Changed Since Last Report)
<PAGE> 109
Item 5. Other Events.
On November 10, 1998 the Registrant issued the following press release
relating to an agreement with CBS Sports, a Division of CBS Broadcasting Inc.:
"CBS and Princeton Video Image Sign Deal For NFL Telecasts
NEW YORK--(BUSINESS WIRE)--Nov. 10, 1998--
- - First-Ever Use Of PVI's Live Video Imaging System In National,
Regular Season NFL Broadcasts - - Viewers Will See First Down Line
On Field During Play -
CBS Sports, a division of CBS Corporation (NYSE:CBS), and Princeton Video Image,
Inc. (PVI) (NASDAQ:PVII) have signed an agreement covering the use of PVI's
patented electronic imaging technology in national broadcasts of seven National
Football League (NFL) regular season and playoff football games.
Beginning with the Thanksgiving Day game between the Pittsburgh Steelers and
Detroit Lions, CBS sports will use PVI's Live Video Imaging System to show
viewers the location of the first down line while play is in progress. The First
Down line, will appear to TV viewers as a line on the field making the progress
of the game more clear. Use of the PVI system has been approved by the NFL.
According to officials from both companies, the agreement calls for the use of
PVI's Live Video Imaging System in the Pittsburgh Steelers-Detroit Lions game on
Thanksgiving Day, the New York Jets- Buffalo Bills game on December 19, the
Kansas City Chiefs-Oakland Raiders game on December 26 and four AFC playoff
games in January 1999, including the AFC Championship game on January 17th. Sean
McManus, President of CBS Sports, said, "The First Down line will be an exciting
addition to coverage of the NFL on CBS. CBS Sports looks forward to working with
PVI and making this technology available to viewers."
Brown Williams, Chairman of PVI, said, "After two years of using of our
technology in preseason NFL football, this new alliance with CBS for regular and
post-season NFL football is an important and logical step in the expansion of
real-time electronic imaging in sports broadcasting. We look forward to working
with CBS on other new applications in sports programming."
PVI's imaging system has been used to insert paid commercial messages in
hundreds of live and recorded events this year, including NFL preseason games,
Major League Baseball games, soccer and professional motorsports.
Princeton Video Image, Inc. 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 events as well as other
<PAGE> 110
programming. These electronic images range from simple corporate names and logos
to sophisticated 3-D images and animated effects. The company is headquartered
in Lawrenceville, New Jersey, with offices in New York City. Information about
the company is available at their website, www.pvimage.com.
Any statements contained in this press release that relate to future plans,
events or performance are forward-looking statements that involve risks and
uncertainties including, but not limited to, those relating to market
acceptance, dependence on strategic partners, contractual restraints on use of
PVI's technology, a rapidly changing technological environment, competition,
possible adverse regulations, intellectual property rights and litigation, and
other risks identified in PVI's filings with the Securities and Exchange
Commission. Actual results, events or performance may differ materially. PVI
undertakes no obligation to publicly release the result of any revisions to
these forward-looking statements that may be made to reflect events or
circumstances after the date hereof to reflect the occurrence of unanticipated
events."
###
Item 7. Financial Statements, Pro Forma Financial Information
and Exhibits
The following Exhibit is furnished in accordance with the provisions of
Item 601 of Regulation S-B.
10.1* Letter Agreement, dated February 5, 1998, between the Registrant and
CBS Sports, A Division of CBS Broadcasting Inc.
* Confidential treatment has been sought with respect to
certain portions of this document.
<PAGE> 111
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Princeton Video Image, Inc.
By: /s/ Larry Epstein
------------------------------
Larry Epstein,
Vice President of Finance
and Chief Financial Officer
Date: November 17, 1998
<PAGE> 112
EXHIBIT INDEX
Exhibit
No. Description of Exhibit
- ------- ----------------------
10.1* Letter Agreement, dated November 5, 1998, between the Registrant and
CBS Sports, A Division of CBS Broadcasting Inc.
* Confidential treatment has been sought with respect to
certain portions of this document.
<PAGE> 113
EXHIBIT 10.1
[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.]
<PAGE> 114
[CBS LOGO AND CBS SPORTS LETTERHEAD]
Mr. Lawrence L. Epstein
VP of Finance & CFO
15 Princess Road
Lawrenceville, N.J. 08648
Dear Larry: November 5, 1998
This letter will confirm the agreement of Princeton Video Image, Inc. ("PVI")
and CBS Sports, A Division of CBS Broadcasting Inc. ("CBS") with regard to PVI
providing exclusively to CBS services using the system developed by PVI ("PVI
System") for the real-time electronic insertion of images ("Electronic Images")
into live television broadcasts of NFL football games.
PVI and CBS hereby agree as follows:
1. Using its own proprietary hardware and software system, PVI
will provide the insertion of Electronic Images into the CBS
television broadcasts listed on Exhibit I attached hereto.
From the date hereof through the 1998 AFC Championship Game
PVI will not provide the PVI System and services set forth
below to any other television broadcaster for NFL football
games. It is initially contemplated that PVI will provide
inserts during all such live broadcasts in up to three (3)
camera feeds for each game and that the inserts will consist
of an indication of the location of the first down yard
marker. Such inserts will include promotional material or
advertising for CBS and others as CBS so elects.
2. To enable PVI to provide its services, CBS will provide PVI reasonable
advance access to all games, access to game television production sites
and the cooperation of those broadcasting the games. No persons other
than PVI personnel shall have access to PVI Systems without PVI's
written consent.
3. CBS will be responsible for obtaining all rights and permissions
("Required Permissions") from the NFL required to enable PVI to provide
the services contemplated hereunder. This agreement is contingent upon
CBS receiving approval from the NFL after CBS demonstrates the
technology to the NFL. CBS has obtained the required permissions and
approval from the NFL to enable PVI to provide the services hereunder.
<PAGE> 115
4. CBS and PVI will mutually agree on the services to be provided,
including image location, content and appearance of Electronic Images.
5. PVI will work cooperatively with CBS to identify sponsors for
Electronic Image advertising for use in college football game
broadcasts. To the extent that advertisers acceptable to CBS
can be identified by PVI, CBS will be solely responsible for
negotiating arrangements with such advertisers for their
participation in Electronic Image advertising utilizing the
PVI System. If CBS can reach agreements with such
advertisers, then CBS will discuss with PVI an agreement
between PVI and CBS for the inclusion of such advertisers in
Electronic Images for college football games. CBS shall be
under no obligation to use the Electronic Images in any
college game broadcasts.
6. In consideration for the services provided in paragraph 1 and for all
rights granted herein, for the games listed on Exhibit I, CBS will pay
to PVI the total aggregate sum of [CONFIDENTIAL TREATMENT REQUESTED].
7. PVI does not warrant that PVI will be able to provide
uninterrupted or error free services to CBS for any game
broadcast utilizing the PVI System; provided, however, PVI
will use its best efforts to correct the problem causing the
error as soon as practicable. If PVI is unable to provide the
PVI System for any game on Exhibit I or if during any game the
PVI System does not function properly, the total sum due
hereunder will be reduced pro rata.
8. [CONFIDENTIAL TREATMENT REQUESTED]
-2-
<PAGE> 116
9. PVI, at its sole cost expense, will obtain and maintain in
force, with an insurance carrier acceptable to CBS, insurance
coverage as follows: (i) errors and omission insurance
covering intellectual property having standard coverage,
including, but not limited to, coverage with respect to
infringement of common law or statutory copyright, patents,
trademarks, infringement of rights in material to be broadcast
or in the manner of presentation thereof and unauthorized use
of material; (ii) Commercial General Liability Insurance and
(iii) Workers Compensation Insurance. CBS will be a named
insured on all such policies.
10. [CONFIDENTIAL TREATMENT REQUESTED]
11. CBS acknowledges that it does not have nor will it gain any right,
title or other proprietary interest in any of PVI's patents, patent
rights, copyrights, trade names, service marks, trade secrets and
confidential information relating to the PVI system as a result of this
Agreement.
12. CBS will provide PVI an appropriate, in CBS's sole discretion, on
screen credit in each broadcast in which PVI provides services.
13. PVI represents and warrants that it has all necessary patent, copyright
and other intellectual property rights which are necessary to enter
into this Agreement and provide such services making use of the PVI
System.
14. The rights and obligations of CBS and PVI shall be governed by and
construed in accordance with the laws of the State of New York.
The parties intend that provisions customary in agreements of this nature
including but not limited to those covering warranties, indemnities,
assignments, force majeure and breach, shall be applicable to this Letter
Agreement. The details of such provisions shall, together with the provisions
hereof, be incorporated into a more formal agreement which when executed, shall
replace this Letter Agreement.
-3-
<PAGE> 117
If these terms are acceptable to you, please sign the enclosed copy of this
letter and return it to me.
Very truly yours,
ACCEPTED AND AGREED: CBS SPORTS
A Division of CBS Broadcasting Inc.
PRINCETON VIDEO IMAGE, INC.
By /s/Lawrence L. Epstein By /s/ Tony Petitti
---------------------- -----------------------
-4-
<PAGE> 118
EXHIBIT I
Attached hereto and made a part of the Agreement dated as of October 26, 1998,
between CBS SPORTS (herein called CBS) and PRINCETON VIDEO IMAGE, INC.
Date League Teams
- ---- ------ -----
11/26/98 NFL Pittsburgh @ Detroit
12/19/98 NFL NY Jets @ Buffalo
12/26/98 NFL Kansas City @ Oakland
1/99 NFL AFC Wildcard Game
1/99 NFL AFC Playoff #1
1/99 NFL AFC Playoff #2
1/99 NFL AFC Championship Game
-5-
<PAGE> 119
No dealer, salesperson or 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 Princeton Video Image, Inc. or any of the selling shareholder or
any other person. 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 Princeton Video Image, Inc.
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.
Until _____________ (25 days after the date hereof), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
2,700,000 SHARES
PRINCETON
VIDEO IMAGE, INC.
COMMON STOCK
-----------
PROSPECTUS
-----------
, 1998
<PAGE> 120
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
Company's current policy includes coverage for any claim made against the
directors and officers based upon (i) the purchase, sale, or offer of any
security of the Company, and (ii) any claim brought by a security holder of the
Company. Such coverage includes claims which allege a violation of the
Securities Act, and the Securities Exchange Act of 1934, as amended.
In addition, the Underwriting Agreement for the Company's initial
public offering, a 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.
<PAGE> 121
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the Registrant's costs and expenses
expected to be incurred in connection with the registration of the securities
being offered hereby. The amounts listed below are estimates:
<TABLE>
<S> <C>
Legal fees and expenses............................. $25,000
Accounting fees and expenses........................ $15,000
Printing expenses................................... $ 2,000
Miscellaneous expenses.............................. $ 2,000
-------
Total......................................... $44,000
</TABLE>
All expenses of registration incurred in connection herewith are being
borne by the Company. In addition, the Company has purchased directors and
officers liability insurance for $250,000.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
In the three years preceding the filing of this Registration Statement,
the Company has sold the following securities that were not registered under the
Securities Act. All share information and per share amounts have been adjusted
to reflect a 2-for-1 Common Stock split effective on September 3, 1997.
(1) During the period January 1, 1994 through September 15,
1998 the Company granted stock options to employees, directors and
consultants under its 1993 Amended Stock Option Plan covering an
aggregate of 1,548,214 shares of the Company's Common Stock. Of these,
options covering approximately 230,707 shares have been canceled
without being exercised. The weighted average exercise price of the
stock options outstanding as of September 15, 1998 was $8.35 per share.
During the same period, the Company did not sell any shares of its
Common Stock to employees, directors and consultants upon the exercise
of outstanding stock options.
(2) On May 31, 1995, the Company sold 105,300 shares of
Common Stock to 40 accredited investors for an aggregate purchase price
of $1,316,250 pursuant to the exercise of warrants.
(3) Between September 1995 and the date of this Registration
Statement, the Company issued warrants to purchase an aggregate of up
to 21,572 shares of Common Stock at an exercise price of $15.00 per
share to T.J. Koellhoffer & Associates in partial consideration for
services rendered to the Company.
(4) In October 1995, the Company sold 2,000 shares of Common
Stock to Sheldon S. Wilson for an aggregate purchase price of $25,000,
pursuant to the exercise of warrants.
(5) In October 1995, the Company sold to Presencia 0.041
units, each unit consisting of 2,000 shares of Common Stock, 1,000
shares of Series B Redeemable Preferred Stock and warrants to purchase
2,000 shares of Common Stock at an exercise price of $12.50 per share,
1,016 shares of Common Stock, and warrants to purchase 10,932 shares of
Common Stock at an exercise price of $12.50 per share, for an aggregate
purchase price of $13,930, pursuant to the exercise of Presencia's
right of co-investment.
(6) On February 9, 1996, the Company sold 282,266 shares of
Common Stock to 49 accredited investors for an aggregate purchase price
of $4,939,655. In addition, the Company granted Allen & Company
Incorporated warrants to purchase 28,226 shares of Common Stock at an
exercise price of $19.25 per share in consideration of placement agent
services provided by Allen & Company Incorporated in connection with
such private placement.
(7) On March 28, 1996, the Company issued warrants to
purchase up to 24,000 shares of Common Stock at an exercise price of
$15.00 per share to Presencia in consideration of its continued efforts
<PAGE> 122
and certain expenses incurred by Presencia in helping to promote use of
the L-VIS System in the Mexican market.
(8) On April 23, 1996, the Company sold 938 shares of Common
Stock to Glen S. Lewy for an aggregate purchase price of $1,055
pursuant to the exercise of warrants.
(9) On May 2, 1996, the Company sold 170,000 shares of Common
Stock to 19 accredited investors for an aggregate purchase price of
$1,062,500 pursuant to the exercise of warrants.
(10) On August 31, 1996, the Company sold 8,000 shares of
Common Stock to Richard Khaleel for an aggregate purchase price of
$20,000 pursuant to the exercise of warrants.
(11) On September 10, 1996, the Company sold 4,000 shares of
Common Stock to Richard Cheney for an aggregate purchase price of
$10,000 pursuant to the exercise of warrants.
(12) On June 15, 1997, the Company sold 295,758 shares of
Common Stock to 119 accredited shareholders and warrantholders of the
Company for an aggregate purchase price of $1,109,093, and the Company
sold 97,930 shares of Common Stock to several such warrantholders for
an aggregate purchase price of $110,171, pursuant to the exercise of
warrants. In connection with this sale, Presencia was issued 18,610
shares of Common Stock in July 1997 for no consideration pursuant to
its anti-dilution rights which terminated upon the closing of Company's
initial public offering. See Note 9 of Notes to Financial Statements.
(13) As of June 30, 1997, the Company had received
subscriptions for 291,756 shares of Common Stock from 42 accredited
shareholders of the Company for an aggregate purchase price of
$1,094,085, which shares were issued by the Company on July 15, 1997.
In connection with this sale, Presencia was issued 18,360 shares of
Common Stock in July 1997 for no consideration pursuant to its
anti-dilution rights which terminated upon the closing of the Company's
initial public offering. See Note 9 of Notes to Financial Statements.
(14) On July 31, 1997, the Company sold 48,550 shares of
Common Stock to 7 accredited warrantholders of the Company for an
aggregate purchase price of $82,119, pursuant to the exercise of
warrants.
(15) On July 31, 1997, the Company sold 190,000 shares of
Common Stock to Mr. Williams and 72,000 shares of Common Stock to Mr.
McCleery pursuant to the exercise of warrants, in exchange for Mr.
Williams' and Mr. McCleery's delivery of non-recourse promissory notes
in the principal amount of $475,000 and $180,000, respectively, the
aggregate exercise price of their respective warrants.
(16) On August 8, 1997, the Company sold 5,896 shares of
Common Stock to Richard Cheney for an aggregate purchase price of
$6,633, pursuant to the exercise of warrants.
(17) On August 25, 1997, the Company sold 15,678 shares of
Common Stock to Leigh A. Wilson for an aggregate purchase price of
$17,638 and 938 shares of Common Stock to Brown F Williams for an
aggregate purchase price of $1,055, pursuant to the exercise of
warrants.
(18) On September 3, 1997, the Company issued a warrant to
purchase up to 20,000 shares of Common Stock at an exercise price of
$4.50 per share to PVR in consideration of consulting services PVR
previously provided to the Company.
(19) On October 20, 1997, the Company issued 30 units, each
consisting of a $100,000, 10% senior secured promissory note and
warrants to purchase up to 10,000 shares of Common Stock, to 28
accredited investors for an aggregate purchase price of $3,000,000.
<PAGE> 123
(20) As of May 28, 1998, the Company issued contingent
warrants to purchase up to 47,200 shares of Common Stock at an exercise
price of $8.00 per share to Mr. McCleery, said warrants to be
exercisable for a period of five years from the respective expiration
dates of certain warrants previously issued to Mr. McCleery, but only
to the extent that the previously issued warrants are not exercised.
These previously issued warrants were each five year warrants and were
issued on the following dates and for the right to purchase the
following number of shares of Common Stock at an exercise price of
$2.50 per share: September 15, 1993 (20,000 shares), November 3, 1993
(13,600 shares) and November 4, 1994 (13,600 shares). The Company has
not sold any shares of Common Stock upon the exercise of such
contingent warrants.
The issuances of securities in the transactions described in paragraphs
(1) and (20) 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 issued either pursuant to a written compensatory benefit plan or
pursuant to a written contract relating to compensation, as provided by Rule
701, or were deemed to be exempt from registration under the Securities Act by
virtue of Section 4(2) as transactions not involving any public offering.
The sale and issuance of securities in the transaction described in
paragraphs (10), (11) and (16) above were deemed to be exempt from registration
under the Securities Act by virtue of Section 4(2) as transactions not involving
any public offering. The Company believes that each of the parties was
sophisticated within the meaning of Section 4(2) based upon his business
experience and relationship with the Company. The transactions described in
paragraphs (2) through (9), (12) through (15) and (17) through (19) were deemed
to be exempt from registration under the Securities Act by virtue of Rule 506 as
transactions not involving any public offering. The purchasers in each
transaction represented their intention to acquire the securities for investment
only and not with a view to the distribution thereof. Appropriate legends are
affixed to the stock certificates issued in such transactions. All recipients
either received adequate information about the Company or had access, through
employment or other relationships, to such information.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ----- -----------------------------------------------------------------------
1.1+ -- Form of Underwriting Agreement
3.1+ -- Restated Certificate of Incorporation
3.2 -- Restated Bylaws, as amended (Incorporated by reference to
Exhibit 3.1 to the Company's Current Report on Form 8-K filed
with the Securities and Exchange Commission on February 11,
1998)
4.1+ -- Specimen Stock Certificate
4.2+ -- Form of Warrant for purchase of 400,000 shares of Common Stock
issued to the Representatives
4.3+ -- Form of Warrant for the purchase of shares of Common Stock
issued in connection with the Company's bridge financing in
October 1997
4.4+ -- Form of Warrant for the purchase of shares of Common Stock
issued by the Company
4.5+ -- Warrant Certificate dated as of December 19, 1997 for the
purchase of 380,000 shares of Common Stock issued to Allen &
Company Incorporated
<PAGE> 124
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------
4.6+ -- Warrant Certificate dated as of December 19, 1997 for the
purchase of 20,000 shares of Common Stock issued to Barington
Capital Group, L.P.
5.1+ -- Opinion of Smith, Stratton, Wise, Heher & Brennan
10.1+ -- Amended 1993 Stock Option Plan
10.2+ -- Form of Employee Confidentiality, Invention Assignment and
Non-Compete Agreement
10.3+ -- Form of Consultant Confidentiality, Invention Assignment and
Non-Compete Agreement
10.4+* -- Research Agreement dated November 1, 1990 between the Company
and David Sarnoff Research Center, Inc., as amended by
Agreement dated August 9, 1991, letter dated July 1, 1992,
Letter Agreement dated July 9, 1992, letter dated November 30,
1992 and Agreement dated June 26, 1995 and effective as of
December 31, 1993
10.5+* -- License Agreement dated as of July 24, 1996 between the
Company and the General Electric Company
10.6+ -- Letter Agreement dated May 1, 1993 between the Company and
Grupo Sitt, as amended by Letter Agreement dated June 25, 1993
10.7+ -- License Agreement dated as of March 1, 1994 between the
Company and Publicidad Virtual, S.A. de C.V.
10.8+ -- Letter Agreement dated February 3, 1995 between the Company
and Capital Cities/ABC, Inc., as amended by Letter Agreement
dated August 29, 1996 between the Company and ESPN, Inc. and
by letter dated April 22, 1996
10.9+ -- License Agreement dated December 18, 1995 between the Company
and Theseus Research, Inc.
10.10+ -- Second Amended and Restated Registration Rights Agreement
dated as of February 2, 1996, as amended by agreement dated
October 20, 1997 and by agreement dated October 30, 1997
10.11+ -- Employment Agreement dated January 24, 1997 between the
Company and Brown F Williams
10.12+ -- Employment Agreement dated January 24, 1997 between the
Company and Douglas J. Greenlaw
10.13+ -- Employment Agreement dated March 4, 1997 between the Company
and Samuel A. McCleery
10.14+ -- Lease Agreement dated April 21, 1997 between the Company and
1325 Limited Partnership
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
<PAGE> 125
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------
10.23+ -- Nonrecourse Promissory Note dated July 31, 1997 of Samuel A.
McCleery in favor of the Company
10.25+ -- Assignment dated January 22, 1992 by Roy Jonathon Rosser and
Martin Leach to the Company regarding a patent
10.26+ -- Assignment dated October 22, 1993 by Roy Jonathon Rosser and
Brown F Williams to the Company regarding a patent
10.27+ -- Assignment dated January 30, 1995 by Roy Rosser, Subhodev Das,
Yi Tan and Peter von Kaenel to the Company regarding a patent
10.28 -- Nonrecourse Promissory Note dated December 22, 1997 of Brown F
Williams in favor of the Company
10.29 -- Pledge Agreement dated December 22, 1997 between the Company
and Brown F Williams
10.30 -- Nonrecourse Promissory Note dated December 22, 1997 of Samuel
A. McCleery in favor of the Company
10.31 -- Pledge Agreement dated December 22, 1997 between the Company
and Samuel A. McCleery
10.32 -- Employment Agreement, dated as of February 5, 1998, between
the Company and Lawrence Epstein (Incorporated by reference to
Exhibit 10.1 to the Company's Current Report on Form 8-K filed
with the Securities and Exchange Commission on February 11,
1998)
10.33 -- Letter Agreement dated May 22, 1998 between the Company and
Douglas J. Greenlaw amending Employment Agreement dated
January 24, 1997 (Incorporated by reference to Exhibit 10.24
to the Company's Annual Report on Form 10-KSB for the Fiscal
Year ending June 30, 1998 filed with the Securities and
Exchange Commission on September 28, 1998)
21.1+ -- Subsidiaries of the Registrant
23.1 -- Consent of PricewaterhouseCoopers LLP, 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)
- -----------
* Confidentiality has been granted with respect to a portion of this exhibit
+ Previously filed
FINANCIAL STATEMENT SCHEDULES
No schedules are required because the information is either not
applicable or is presented elsewhere herein.
<PAGE> 126
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 a 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.
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.
<PAGE> 127
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 Post-Effective
Amendment No. 2 to the Registration Statement to be signed on its behalf by the
undersigned, in the Township of Lawrence, State of New Jersey, on November 17,
1998.
PRINCETON VIDEO IMAGE, INC.
By: /s/ BROWN F WILLIAMS
--------------------------
Brown F Williams
Chairman of the Board
In accordance with the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 2 to the Registration Statement has been signed by
the following persons in the capacities and on the dates stated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ BROWN F WILLIAMS Chairman of the Board November 17, 1998
- -------------------------- (principal executive officer)
Brown F Williams
/s/ DOUGLAS J. GREENLAW President, Chief Executive Officer
- -------------------------- and Director November 17, 1998
Douglas J. Greenlaw
/s/ LAWRENCE L. EPSTEIN Vice President, Finance, Chief Financial November 17, 1998
Officer and Treasurer (principal
- -------------------------- accounting and financial officer)
Lawrence L. Epstein
*
- -------------------------- Director November 17, 1998
Lawrence Lucchino
*
- -------------------------- Director November 17, 1998
Jerome J. Pomerance
*
- -------------------------- Director November 17, 1998
Enrique F. Senior
*
- -------------------------- Director November 17, 1998
Eduardo Sitt
*
- -------------------------- Director November 17, 1998
John B. Torkelsen
</TABLE>
<PAGE> 128
* By his signature set forth below, the undersigned, pursuant to duly authorized
powers of attorney filed with the Securities and Exchange Commission, has signed
this Post-Effective Amendment No. 2 to the Registration Statement on behalf of
the persons indicated.
By: /s/ BROWN F WILLIAMS
------------------------
Brown F Williams
ATTORNEY-IN-FACT
<PAGE> 129
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------
1.1+ -- Form of Underwriting Agreement
3.1+ -- Restated Certificate of Incorporation
3.2 -- Restated Bylaws, as amended (Incorporated by reference to
Exhibit 3.1 to the Company's Current Report on Form 8-K filed
with the Securities and Exchange Commission on February 11,
1998)
4.1+ -- Specimen Stock Certificate
4.2+ -- Form of Warrant for purchase of 400,000 shares of Common Stock
issued to the Representatives
4.3+ -- Form of Warrant for the purchase of shares of Common Stock
issued in connection with the Company's bridge financing in
October 1997
4.4+ -- Form of Warrant for the purchase of shares of Common Stock
issued by the Company
4.5+ -- Warrant Certificate dated as of December 19, 1997 for the
purchase of 380,000 shares of Common Stock issued to Allen &
Company Incorporated
4.6+ -- Warrant Certificate dated as of December 19, 1997 for the
purchase of 20,000 shares of Common Stock issued to Barington
Capital Group, L.P.
5.1+ -- Opinion of Smith, Stratton, Wise, Heher & Brennan
10.1+ -- Amended 1993 Stock Option Plan
10.2+ -- Form of Employee Confidentiality, Invention Assignment and
Non-Compete Agreement
10.3+ -- Form of Consultant Confidentiality, Invention Assignment and
Non-Compete Agreement
10.4+* -- Research Agreement dated November 1, 1990 between the Company
and David Sarnoff Research Center, Inc., as amended by
Agreement dated August 9, 1991, letter dated July 1, 1992,
Letter Agreement dated July 9, 1992, letter dated November 30,
1992 and Agreement dated June 26, 1995 and effective as of
December 31, 1993
10.5+* -- License Agreement dated as of July 24, 1996 between the
Company and the General Electric Company
10.6+ -- Letter Agreement dated May 1, 1993 between the Company and
Grupo Sitt, as amended by Letter Agreement dated June 25, 1993
10.7+ -- License Agreement dated as of March 1, 1994 between the
Company and Publicidad Virtual, S.A. de C.V.
<PAGE> 130
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------
10.8+ -- Letter Agreement dated February 3, 1995 between the Company
and Capital Cities/ABC, Inc., as amended by Letter Agreement
dated August 29, 1996 between the Company and ESPN, Inc. and
by letter dated April 22, 1996
10.9+ -- License Agreement dated December 18, 1995 between the Company
and Theseus Research, Inc.
10.10+ -- Second Amended and Restated Registration Rights Agreement
dated as of February 2, 1996, as amended by agreement dated
October 20, 1997 and by agreement dated October 30, 1997
10.11+ -- Employment Agreement dated January 24, 1997 between the
Company and Brown F Williams
10.12+ -- Employment Agreement dated January 24, 1997 between the
Company and Douglas J. Greenlaw
10.13+ -- Employment Agreement dated March 4, 1997 between the Company
and Samuel A. McCleery
10.14+ -- Lease Agreement dated April 21, 1997 between the Company and
1325 Limited Partnership
10.20+ -- 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
10.23+ -- Nonrecourse Promissory Note dated July 31, 1997 of Samuel A.
McCleery in favor of the Company
10.25+ -- Assignment dated January 22, 1992 by Roy Jonathon Rosser and
Martin Leach to the Company regarding a patent
10.26+ -- Assignment dated October 22, 1993 by Roy Jonathon Rosser and
Brown F Williams to the Company regarding a patent
10.27+ -- Assignment dated January 30, 1995 by Roy Rosser, Subhodev Das,
Yi Tan and Peter von Kaenel to the Company regarding a patent
10.28 -- Nonrecourse Promissory Note dated December 22, 1997 of Brown F
Williams in favor of the Company
10.29 -- Pledge Agreement dated December 22, 1997 between the Company
and Brown F Williams
10.30 -- Nonrecourse Promissory Note dated December 22, 1997 of Samuel
A. McCleery in favor of the Company
10.31 -- Pledge Agreement dated December 22, 1997 between the Company
and Samuel A. McCleery
10.32 -- Employment Agreement, dated as of February 5, 1998, between
the Company and Lawrence Epstein (Incorporated by reference to
Exhibit 10.1 to the Company's Current Report on Form 8-K filed
with the Securities and Exchange Commission on February 11,
1998)
<PAGE> 131
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------
10.33 -- Letter Agreement dated May 22, 1998 between the Company and
Douglas J. Greenlaw amending Employment Agreement dated
January 24, 1997 (Incorporated by reference to Exhibit 10.24
to the Company's Annual Report on Form 10-KSB for the Fiscal
Year ending June 30, 1998 filed with the Securities and
Exchange Commission on September 28, 1998)
21.1+ -- Subsidiaries of the Registrant
23.1 -- Consent of PricewaterhouseCoopers LLP, 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)
- -----------
* Confidentiality has been granted with respect to a portion of this exhibit
+ Previously filed
<PAGE> 1
Exhibit 10.28
NONRECOURSE PROMISSORY NOTE
$122,920.00 December 22, 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 One Hundred Twenty-two Thousand
Nine Hundred Twenty and 00/100 Dollars ($122,920.00) 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 the pledge of certain shares of Common Stock (the "Pledged Shares")
issued by the Holder and held by the Obligor pursuant to 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
<PAGE> 2
of any rights or remedies provided by law. No course of dealing 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 15 Princess Road,
Lawrenceville, New Jersey 08648 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, the entire unpaid principal amount of this Note,
together with all accrued interest thereon, shall forthwith become and be due
and payable upon the earlier of: (i) the first anniversary of 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); or (ii) the date on
which the Obligor sells, assigns or otherwise disposes of, for consideration,
any interest in any share of capital stock, or any warrant, option or other
security exercisable, redeemable or otherwise convertible for or into shares of
capital stock, issued by Princeton Video Image, Inc. that is held by him.
-2-
<PAGE> 3
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 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
-3-
<PAGE> 4
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 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
-4-
<PAGE> 5
STATE OF NEW JERSEY )
)SS:
COUNTY OF MERCER )
I certify that on December 22, 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.
/s/ Colleen C. Conrad
------------------------------------
Notary Public
Colleen C. Conrad
A Notary Public of New Jersey
My Commission Expires 4/01/2001
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EXHIBIT 10.29
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (this "Agreement") dated December 22, 1997, made
by Brown F Williams (the "Pledgor") to Princeton Video Image, Inc., a New Jersey
corporation ("PVI" or the "Pledgee").
PRELIMINARY STATEMENTS
A. As of July 31, 1997, the Pledgor executed a Nonrecourse Promissory
Note (the "First Note") in the principal amount of $475,000.00 payable to the
Pledgee. The Pledgor's obligations under the First Note were secured by a Pledge
Agreement (the "Previous Pledge Agreement") executed by the Pledgor in favor of
the Pledgee as of July 31, 1997.
B. As of the date hereof, the Pledgor has executed a second Nonrecourse
Promissory Note (the "Second Note") (the First Note and the Second Note,
collectively, the "Notes") in the principal amount of $122,920.00 payable to the
Pledgee.
C. The parties wish to secure the Pledgor's obligations under both the
First Note and the Second Note by a pledge of all of the shares of Common Stock
issued by the Pledgee that are held by the Pledgor as of the date hereof and all
of the shares of Common Stock issued by the Pledgee in which the Pledgor
acquires an interest subsequent to the date hereof (all such shares
collectively, the "Pledged Shares"), upon the terms and conditions set forth in
this Agreement, and to supersede the Previous Pledge Agreement with this
Agreement.
NOW THEREFORE, in consideration of the premises and in order to induce
the Pledgee to extend credit under the Second 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.
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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
Notes and this Agreement (all such obligations of the Pledgor or any other
obligor being the "Pledge Obligations").
SECTION 3. Delivery of Pledged Collateral.
(a) All certificates or instruments representing or evidencing
the Pledged Collateral of the Pledgor in existence as of the date hereof 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.
(b) The Pledgor shall deliver to the Pledgee all certificates
or instruments representing or evidencing the Pledged Collateral of the Pledgor
in which the Pledgor acquires an interest subsequent to the date hereof promptly
following any such acquisition, and all such certificates or instruments 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.
(c) 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 in existence as of the date hereof 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
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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 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 Notes)
with respect to 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 Notes
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
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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 or other rights 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, 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.
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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 Notes 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 as Exhibit A, 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.
(b) The Pledgor's liability to pay the Notes 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 Notes. Any surplus proceeds from the sale of the Pledged Collateral
remaining after payment in full of the Notes 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 either of the
Notes 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 Notes or any other
agreement or document relating thereto; or
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(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 15 Princess Road, Lawrenceville, New Jersey 08648, 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.
SECTION 15. Continuing Security Interest; Transfer of Notes; 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 Notes
(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
Notes, subject to the provisions of the Notes, 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.
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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. 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.
SECTION 18. Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes any prior agreements or discussions between the parties with respect
to such subject matter including, without limitation, the Previous Pledge
Agreement.
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
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EXHIBIT A
COMMON STOCK POWER
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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(s) No. _________________________________ herewith:
Assign and transfer to Number of Shares
---------------------- ----------------
Princeton Video Image, Inc. ________
The Transferor does hereby irrevocably constitute and appoint any officer of
Princeton Video Image, Inc. his attorney to transfer said stock on the books of
the Corporation with full power of substitution in the premises.
Dated: __________
/s/ Brown F Williams
--------------------
Brown F Williams
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EXHIBIT 10.30
NONRECOURSE PROMISSORY NOTE
$46,580.00 December 22, 1997
FOR VALUE RECEIVED, the undersigned, Samuel A. 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 Forty-six Thousand
Five Hundred Eighty and 00/100 Dollars ($46,580.00) 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 the pledge of certain shares of Common Stock (the "Pledged Shares")
issued by the Holder and held by the Obligor pursuant to 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
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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 15 Princess Road,
Lawrenceville, New Jersey 08648 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, the entire unpaid principal amount of this Note,
together with all accrued interest thereon, shall forthwith become and be due
and payable upon the earlier of: (i) the first anniversary of 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); or (ii) the date on
which the Obligor sells, assigns or otherwise disposes of, for consideration,
any interest in any share of capital stock, or any warrant, option or other
security exercisable, redeemable or otherwise convertible for or into shares of
capital stock, issued by Princeton Video Image, Inc. that is held by him.
7. Events of Default. The entire unpaid principal amount of
this Note, together with all accrued interest thereon, shall, at
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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 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
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(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 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 A. McCleery
----------------------
Samuel A. McCleery
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STATE OF NEW JERSEY )
)SS:
COUNTY OF MERCER )
I certify that on December 22, 1997, Samuel A. 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.
/s/ Colleen C. Conrad
---------------------
Notary Public
Colleen C. Conrad
A Notary Public of New Jersey
My Commission Expires 4/01/2001
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EXHIBIT 10.31
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (this "Agreement") dated December 22, 1997, made
by Samuel A. McCleery (the "Pledgor") to Princeton Video Image, Inc., a New
Jersey corporation ("PVI" or the "Pledgee").
PRELIMINARY STATEMENTS
A. As of July 31, 1997, the Pledgor executed a Nonrecourse Promissory
Note (the "First Note") in the principal amount of $180,000.00 payable to the
Pledgee. The Pledgor's obligations under the First Note were secured by a Pledge
Agreement (the "Previous Pledge Agreement") executed by the Pledgor in favor of
the Pledgee as of July 31, 1997.
B. As of the date hereof, the Pledgor has executed a second Nonrecourse
Promissory Note (the "Second Note") (the First Note and the Second Note,
collectively, the "Notes") in the principal amount of $46,580.00 payable to the
Pledgee.
C. The parties wish to secure the Pledgor's obligations under both the
First Note and the Second Note by a pledge of all of the shares of Common Stock
issued by the Pledgee that are held by the Pledgor as of the date hereof and all
of the shares of Common Stock issued by the Pledgee in which the Pledgor
acquires an interest subsequent to the date hereof (all such shares
collectively, the "Pledged Shares"), upon the terms and conditions set forth in
this Agreement, and to supersede the Previous Pledge Agreement with this
Agreement.
NOW THEREFORE, in consideration of the premises and in order to induce
the Pledgee to extend credit under the Second 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.
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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
Notes and this Agreement (all such obligations of the Pledgor or any other
obligor being the "Pledge Obligations").
SECTION 3. Delivery of Pledged Collateral.
(a) All certificates or instruments representing or evidencing
the Pledged Collateral of the Pledgor in existence as of the date hereof 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.
(b) The Pledgor shall deliver to the Pledgee all certificates
or instruments representing or evidencing the Pledged Collateral of the Pledgor
in which the Pledgor acquires an interest subsequent to the date hereof promptly
following any such acquisition, and all such certificates or instruments 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.
(c) 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 in existence as of the date hereof 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
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<PAGE> 3
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 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 Notes)
with respect to 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 Notes
or any other document or instrument relating to the transactions contem plated
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
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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 or other rights 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, 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.
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<PAGE> 5
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 Notes 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 as Exhibit A, 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.
(b) The Pledgor's liability to pay the Notes 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 Notes. Any surplus proceeds from the sale of the Pledged Collateral
remaining after payment in full of the Notes 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 either of the
Notes 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 Notes or any other
agreement or document relating thereto; or
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<PAGE> 6
(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 15 Princess Road, Lawrenceville, New Jersey 08648, 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.
SECTION 15. Continuing Security Interest; Transfer of Notes; 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 Notes
(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
Notes, subject to the provisions of the Notes, 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.
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<PAGE> 7
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. 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.
SECTION 18. Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes any prior agreements or discussions between the parties with respect
to such subject matter including, without limitation, the Previous Pledge
Agreement.
IN WITNESS WHEREOF, the Pledgor has duly executed and delivered this
Pledge Agreement as of the date first written above.
/s/ Samuel A. McCleery
----------------------
Samuel A. 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
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<PAGE> 8
EXHIBIT A
COMMON STOCK POWER
<PAGE> 9
COMMON STOCK POWER
Samuel A. McCleery (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(s) No. _________________________________ herewith:
Assign and transfer to Number of Shares
---------------------- ----------------
Princeton Video Image, Inc. ________
The Transferor does hereby irrevocably constitute and appoint any officer of
Princeton Video Image, Inc. his attorney to transfer said stock on the books of
the Corporation with full power of substitution in the premises.
Dated: __________
/s/ Samuel A. McCleery
----------------------
Samuel A. McCleery
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form SB-2 (file
no. 333-37725) of our report, dated September 2, 1998, 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".
PricewaterhouseCoopers LLP
Princeton, New Jersey
November 17, 1998
