<PAGE> 1
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 DECEMBER 31, 1998
OR
[ ] 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)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was 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
January 31, 1999 was 8,183,552.
Transitional Small Business Disclosure Format:
Yes _____ No X
<PAGE> 2
Part I - Financial Information
Item 1. Financial Statements
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
December 31,
1998
----
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 17,493,896
Restricted marketable securities held to maturity 138,000
Trade accounts receivable 273,006
Other current assets 265,790
------------
Total current assets 18,170,692
Property and equipment, net 2,399,264
Intangible assets, net 489,833
Other assets 226,966
------------
Total assets $ 21,286,755
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 1,216,723
Unearned revenue 311,897
------------
Total current liabilities 1,528,620
Unearned revenue 814,280
------------
Total liabilities 2,342,900
------------
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 December 31, 1998,
redemption value equal to carrying value
(par plus all accrued but unpaid dividends) 412,575
Cumulative, Series B, conditionally redeemable, $5.00 par value,
authorized 93,300 shares; issued and outstanding 86,041 shares at December
31, 1998, redemption value equal to carrying value
(par plus all accrued but unpaid dividends) 557,055
------------
Total redeemable preferred stock 969,630
Shareholders' Equity:
Common stock, no par value; $.005 stated value; authorized 40,000,000
shares; 8,183,552 shares issued and outstanding at December 31, 1998 40,917
Additional paid-in capital 51,435,448
Less: Related party note receivable (824,498)
Deficit accumulated during the development stage (32,677,642)
------------
Total shareholders' equity 17,974,225
------------
Total liabilities, redeemable preferred stock and
shareholders' equity $ 21,286,755
============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 3
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Cumulative from
For the three months ended For the six months ended inception to
December 31, December 31, December 31,
1998 1997 1998 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
License fees $ 77,975 $ 195,124 $ 145,267 $ 252,751 $ 1,647,016
Advertising and production revenue 86,317 6,850 296,971 82,027 712,468
-------------------------------- -------------- --------------- ---------------
Total revenue 164,292 201,974 442,238 334,778 2,359,484
Costs and expenses:
Selling, general and administrative 1,177,926 1,005,044 2,341,756 2,229,063 16,278,844
Research and development 382,962 430,788 826,754 876,782 12,110,398
L-VIS System costs 963,473 395,683 1,846,350 812,415 6,755,682
-------------------------------- -------------- --------------- ---------------
Total costs and expenses 2,524,361 1,831,515 5,014,860 3,918,260 35,144,924
Operating loss (2,360,069) (1,629,541) (4,572,622) (3,583,482) (32,785,440)
Interest and other financial (expense) -- (1,814,178) -- (1,814,178) (1,814,178)
Interest and other income 242,095 80,697 520,858 97,070 1,921,976
-------------------------------- -------------- --------------- ---------------
Net loss (2,117,974) (3,363,022) (4,051,764) (5,300,590) (32,677,642)
Accretion of preferred stock
dividends (11,012) (11,012) (22,025) (22,024) (235,225)
-------------------------------- -------------- --------------- ---------------
Net loss applicable to common stock $(2,128,986) $(3,374,034) $(4,073,789) $(5,322,614) $(32,912,867)
================================ ============== =============== ===============
Basic and diluted net loss per share
applicable to common stock ($0.26) ($0.83) ($0.50) ($1.47)
================================ ============== ==============
Weighted average number of
shares of common stock
outstanding 8,183,552 4,075,139 8,182,719 3,632,222
================================ ============== ==============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 4
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Cumulative from
For the six months ended inception to
December 31, December 31,
1998 1997 1998
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (4,051,764) $ (5,300,590) $(32,677,642)
Adjustments to reconcile net loss to net
cash used in operating activities
Amortization of unearned income (145,267) (252,751) (647,016)
Depreciation expense 600,771 269,383 2,393,414
Amortization of intangibles 41,624 34,488 230,114
Charges associated with option and warrant
grants and related party note receivable 13,567 440,250 1,545,266
Equity in net loss of affiliate -- -- 9,048
Increase (decrease) in cash resulting
from changes in:
Trade accounts receivable (79,744) (11,757) (273,006)
Other current assets (35,543) (301,498) (265,790)
Other assets 44,238 (14,227) (226,954)
Accounts payable and accrued expenses (80,701) (87,313) 1,314,285
Unearned revenue 128,200 -- 1,773,192
Customer deposits (175,000)
Miscellaneous other (4,622) (6,480) 137,971
-------------------------------------------------------
Net cash used in operating activities (3,569,241) (5,405,495) (26,687,118)
-------------------------------------------------------
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 (451,369) (540,185) (4,823,485)
Increase in intangible assets (38,221) (83,367) (814,055)
Investments in joint venture -- -- (9,048)
-------------------------------------------------------
Net cash provided by (used in)
investing activities (489,590) (675,552) (5,798,143)
-------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
<PAGE> 5
PRINCETON VIDEO IMAGE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Cumulative from
For the six months ended inception to
December 31, December 31,
1998 1997 1998
---- ---- ----
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds from Bridge Financing promissory notes -- 1,353,000 1,353,000
Repayments of Bridge Financing promissory notes -- (1,353,000) (1,353,000)
Proceeds from sale of Bridge Financing warrants, net -- 1,479,822 1,479,822
Proceeds from sales of preferred stock -- -- 734,405
Proceeds from sales of common stock, net 100 29,061,473 46,669,943
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 100 31,636,282 49,979,157
-------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents (4,058,731) 25,555,235 17,493,896
Cash and cash equivalents at beginning of
period 21,552,627 775,693 --
-------------------------------------------------------
Cash and cash equivalents at end of period $ 17,493,896 $ 26,330,928 $ 17,493,896
=======================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 6
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 2,835,231 and 2,687,854 shares of common stock that
were outstanding at December 31, 1998 and 1997, respectively, were not
included in diluted per share calculations, as their effect would be
antidilutive.
<PAGE> 7
3. Warrants and Options
In November 1998, the Board of Directors of the Company approved the
granting of two stock options to Dennis P. Wilkinson, President and CEO.
The first such option is for 200,000 shares of Common Stock at an exercise
price of $4.563 and shall vest and become exercisable over a three-year
period. No compensation expense was recorded in connection with this
transaction as the exercise price of such option was not less than the fair
market value of the Company's stock on the date of this transaction. The
second option is for the purchase of an additional 200,000 shares of Common
Stock at an exercise price equal to $7.00 per share and will vest upon the
attainment of certain performance criteria based on the revenues from
operations during the fiscal years ending June 30, 1999 through June 30,
2002. Both option grants are for a term of 10 years.
In December 1998, the Shareholders of the Company ratified an amendment of
the Company's Amended 1993 Stock Option Plan to increase the number of
shares of Common Stock reserved for issuance upon the exercise of options
granted under the plan from 1,560,000 shares to 2,160,000 shares.
In December 1998, the Company awarded 82,000 incentive stock options to
certain of its employees from an employee bonus pool approved in January
1998. The balance of 18,000 options was added back to the total options
available for future grants.
4. 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.
5. 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 December 31, 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.
<PAGE> 8
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.
6. Subsequent Events
In January 1999 the Company signed a binding letter of intent with NFL
International to become the exclusive provider of electronic imaging
services for worldwide, non-U.S. telecasts of Super Bowl XXXIII, Super Bowl
XXXIV and international telecasts of 1999 NFL regular season and playoff
games and the 1999 NFL Europe League season from January 31, 1999 through
the conclusion of Super Bowl XXXIV in January 2000.
In January 1999 the Company entered into an exclusive licensing agreement
with Sasani Limited, one of South Africa's leading companies in the
entertainment, media and communication industries. Under the terms of the
agreement, the Company will receive an up-front, nonrefundable licensing
fee and annual royalties from Sasani Limited based on use of the L-VIS
System in South Africa. The initial term of the license is five years.
<PAGE> 9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
Since its inception in 1990, the Company has devoted substantially all of
its resources to the development and marketing 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 December 31, 1998, the Company had an accumulated
deficit of approximately $32,678,000 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. During the quarter ended December 31, 1998,
the Company expanded the services provided by the L-VIS System to include
the electronic insertion of visual aids in live sporting events, such as a
virtual first-down line in live television broadcasts of football games.
The Company expects to realize
<PAGE> 10
this type of production revenue from fees paid by the broadcasters for such
visual enhancements of sporting and other events.
In addition to production and advertising revenue, an additional 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.
Results of Operations
QUARTER ENDED DECEMBER 31, 1998 COMPARED TO THE QUARTER ENDED DECEMBER 31,
1997
Revenue
Revenues include receipts from advertising and production 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 decreased 19% to $164,292 for the quarter
ended December 31, 1998 from $201,974 for the quarter ended December 31,
1997. Total license fees for the three months ended December 31, 1997
included $137,500 recognized from the settlement of a dispute with a former
licensee of the L-VIS System. The balance of $57,624 in license fees earned
compares with $77,975 for the same three month period in 1998 reflecting a
35% increase over the period. Advertising and production revenue increased
to $86,317 from $6,850 for the quarters ended December 31, 1998 and 1997,
respectively, as a result of the initial use of the L-VIS System for the
electronic insertion of the virtual first-down marker in various National
Football League games broadcast by CBS Sports.
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 increased 17% to
$1,177,926, from $1,005,044 for the quarters ended December 31, 1998 and
1997, respectively. This increase was the result of numerous factors
including (i) hiring of executive, accounting and marketing personnel, (ii)
increased legal expenses relating to the preparation of the Company's
post-effective amendment filed with the Securities and Exchange Commission
in November 1998, and (iii) increase in insurance costs incurred to
purchase directors' and officers' liability insurance in relation to the
Company's initial public offering.
<PAGE> 11
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 decreased 11% to $382,962, for the quarter ended
December 31, 1998 from $430,788 for the quarter ended December 31, 1997 as
a result of the continued shift in spending from research and development
into product costs. This shift is due in large part to the December 1997
attainment of technological feasibility of the flex board based L-VIS
System, resulting in the capitalization of flex related expenditures during
the quarter ended December 31, 1998 compared to the expensing of flex
related items during the quarter ended December 31, 1997.
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. Total L-VIS System costs
increased 143% to $963,473 for the quarter ended December 31, 1998 from
$395,683 for the quarter ended December 31, 1997. This increase resulted
from increased costs due to the initial use of the L-VIS System for the
electronic insertion of the virtual first-down marker in various National
Football League football games broadcast by CBS Sports, increased salaries
attributable to personnel shifts from research and development into product
costs as a result of more L-VIS Systems being used in the field, and
increased depreciation.
Interest and Other Financial Expense
Interest and other financial expense decreased to $0 for the quarter ended
December 31, 1998 from $1,814,178 for the quarter ended December 31, 1997
as the interest costs incurred in connection with the bridge loan financing
were paid in full in December 1997.
Interest and Other Income
Interest and other income increased 200% to $242,095 from $80,697 for the
quarters ended December 31, 1998 and 1997, respectively. This resulted from
an increase in funds available for investment from the proceeds of the
initial public offering of the Company's common stock in December 1997.
Net Loss
As a result of the foregoing factors, the Company's net loss decreased 37%
to $2,117,974 from $3,363,022 for the three months ended December 31, 1998
and 1997, respectively.
<PAGE> 12
SIX MONTHS ENDED DECEMBER 31, 1998 COMPARED TO THE SIX MONTHS ENDED
DECEMBER 31, 1997
Revenue
The total revenue increased 32% to $442,238 for the six months ended
December 31, 1998 from $334,778 for the six months ended December 31, 1997
as a result of the increased usage of the L-VIS System in the broadcast of
various games during the 1998 Major League Baseball season, and the initial
use of the L-VIS System for the electronic insertion of the virtual
first-down marker in various National Football League football games
broadcast by CBS Sports.
Selling, General and Administrative
Selling, general and administrative expenses increased 5% to $2,341,756 for
the six months ended December 31, 1998 from $2,229,063 for the six months
ended December 31, 1997. Certain charges associated with option and warrant
grants issued during the six months ended December 31, 1997 were not
present in 1998. This decrease, however, was 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. Also contributing to the
increase in selling, general and administrative expenses were increased
legal expenses relating to the preparation of the Company's post-effective
amendment filed with the Securities and Exchange Commission in November
1998, and an increase in directors' and officers' liability insurance costs
incurred in relation to the Company's initial public offering.
Research and Development
Research and development expenses decreased 6% to $826,754 from $876,782
for the six months ended December 31, 1998 and 1997, respectively, as a
result of the continued shift in spending from research and development
into product costs. This shift is due in large part to the December 1997
attainment of technological feasibility of the flex board based L-VIS
System, resulting in the capitalization of all flex upgrade expenditures
during the quarter ended December 31, 1998 as compared with the expensing
of flex board testing and development during the quarter ended December 31,
1997. Research and development expenses for the six months ended December
31, 1998 also reflect the Company's efforts 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 increased 127% to $1,846,350 for the six months ended
December 31, 1998 from $812,415 for the six months ended December 31, 1997
as a result of numerous factors. These included (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
<PAGE> 13
System, (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, and, (v) costs associated with the initial use of
the L-VIS System for the electronic insertion of the virtual first-down
marker in various National Football League games broadcast by CBS Sports.
Interest and Other Financial Expense
Interest and other financial expense decreased to $0 for the six months
ended December 31, 1998 from $1,814,178 for the six months ended December
31, 1997 as the interest costs incurred in connection with the bridge loan
financing were paid in full in December 1997.
Interest and Other Income
Total interest and other income increased 437% to $520,858 for the six
months ended December 31, 1998 from $97,070 for the six months ended
December 31, 1997 as a result of the increase in funds available for
investment from the proceeds of the initial public offering.
Net Loss
As a result of the foregoing factors, the Company's net loss decreased 24%
to $4,051,764 from $5,300,590 for the six months ended December 31, 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
<PAGE> 14
systems (i.e. electric, heating, telephone, and security systems). All
software used by the Company including third party operating systems,
office automation software, 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 December 31, 1998, a comprehensive list of all systems and services
affected by the Y2K event had been prepared and reviewed by the project
leader and Company department heads, completing Phase 1. As part of phases
2 and 3 listed above, testing and certification of in-house computer
systems and software has begun and an evaluation of Y2K diagnostic software
is underway. This diagnostic software will be installed on all Company
systems for the purpose of analyzing and identifying hardware, applications
and data that may be affected by the Y2K issue. The project leader expects
such diagnostic software will be selected and put into use sometime in
February 1999. A draft of a standard letter intended to be sent to third
party providers of goods and services requesting documentation as to their
state of readiness is in the final stages.
Based on the work that has been done to date, numerous software packages
currently used by the Company which had been identified as Y2K
non-compliant have been upgraded and certified by their manufacturers as
being Y2K compliant. The Company believes that its current accounting and
administrative software products are Y2K compliant. Further, the Company
has not identified, nor does it anticipate, any internal Y2K issues arising
from the use of its own internal information systems, databases or
programs. Based on the work performed to date on the 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 2 listed above. To the
extent that it is determined that the Company's
<PAGE> 15
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. The net cash used in operating activities decreased to
$3,569,241 from $5,405,495 for the six months ended December 31, 1998 and
1997, respectively, mainly as a result of the lower net loss recorded for
the six months ended December 31, 1998 as compared to the same period in
1997. This resulted primarily because the interest costs incurred in
connection with the bridge loan financing were paid in full in December
1997.
Net cash used in investing activities decreased to $489,590 for the six
months ended December 31, 1998 from $675,552 for the six months ended
December 31, 1997 as the result of several factors. The total spent on the
purchase of property and equipment and the components used in the building
of additional L-VIS Systems and the upgrade of existing systems to the
second generation flex-based L-VIS System decreased to $451,369 from
$540,185 for the six months ended December 31, 1998 and December 31, 1997,
respectively. For the same six month period, the totals spent on purchases
of investments and intangibles decreased by $52,000 and $45,146,
respectively.
Net cash provided by financing activities for the six months ended December
31, 1998 decreased to $100 from $31,636,282 for the year ago period. The
cash provided during the six months ended December 31, 1997 was due to the
receipt of stock subscriptions from a May 1997 Rights Offering and the
proceeds from the Company's initial public offering of Common Stock in
December 1997. Cash provided by financing activities for the six months
ended December 31, 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.
The net decrease in cash and cash equivalents was $4,058,731 for the six
months ended December 31, 1998 compared to a net increase of $25,555,235
for the prior year period as a direct result of the receipt of proceeds
from the Company's initial public offering.
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 net proceeds of approximately
$25,050,000 from the initial public offering of its Common Stock 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
<PAGE> 16
sufficient to meet its capital requirements for at least 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 additional
capital as necessary to fund its operations. The Company would, thus, be
forced to substantially reduce the scale of its operations.
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 Other Information
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 December
31, 1998, the approximate amount of net offering proceeds used was
$3,210,000 for repayment of indebtedness and expenses related thereto,
$4,228,000 for the manufacture of L-VIS(TM) Systems, $1,368,000 for
research and development, $1,650,000 for sales and marketing, and
approximately $1,816,000 for working capital and general corporate
purposes.
Item 4 Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Shareholders (the "Annual Meeting") was
held on December 10, 1998. At the Annual Meeting, the shareholders of the
Company (i) elected each of the persons listed below to serve as a director
of the Company until the Annual Meeting of Shareholders to be held in 1999
and until their successors have been duly elected and qualified; (ii)
ratified the appointment of PricewaterhouseCoopers LLP as independent
auditors of the Company for the fiscal year ending June 30, 1999; and (iii)
ratified an amendment of the Company's Amended 1993 Stock Option Plan to
increase the number of shares of Common Stock reserved for issuance upon
the exercise of options granted under the plan from 1,560,000 to 2,160,000
shares.
As of November 6, 1998, the record date for the Annual Meeting, the Company
had a total of 8,183,552 shares of Common Stock issued and outstanding and
entitled to vote. Present at the Annual Meeting, either in person or by
proxy, were holders of 5,919,166 shares of Common Stock. The following sets
forth information regarding the results of the voting at the Annual
Meeting:
<PAGE> 17
Election of Directors:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
Voting Shares Voting Shares Voting Shares
DIRECTOR in Favor Against Withheld
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Brown F Williams 5,769,866 149,300 0
------------------------------------------------------------------------------------------------------------
Lawrence Lucchino 5,611,366 307,800 0
------------------------------------------------------------------------------------------------------------
Jerome J. Pomerance 5,911,366 7,800 0
------------------------------------------------------------------------------------------------------------
Enrique F. Senior 5,909,598 9,568 0
------------------------------------------------------------------------------------------------------------
Eduardo Sitt 5,911,366 7,800 0
------------------------------------------------------------------------------------------------------------
John B. Torkelsen 5,609,598 309,568 0
------------------------------------------------------------------------------------------------------------
</TABLE>
Ratification of Selection of Independent Accountants:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
<S> <C>
Votes in favor: 5,875,646
-------------------------------------------------------------------------------
Votes against: 38,550
-------------------------------------------------------------------------------
Abstentions: 4,970
-------------------------------------------------------------------------------
</TABLE>
Ratification of amendment of the Company's Amended 1993 Stock Option Plan
to increase the number of shares of Common Stock reserved for issuance upon
the exercise of options granted under the plan from 1,560,000 to 2,160,000
shares:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
<S> <C>
Votes in favor: 3,839,315
-------------------------------------------------------------------------------
Votes against: 734,496
-------------------------------------------------------------------------------
Abstentions: 11,560
-------------------------------------------------------------------------------
Non-Votes: 1,333,795
-------------------------------------------------------------------------------
</TABLE>
Item 5 Other Information
(a) On November 30, 1998, the Company named Dennis P. Wilkinson to
the position of President and Chief Executive Officer to
succeed Douglas J. Greenlaw who in April 1998 announced his
intention to step down as Chief Executive Officer by year-end.
At the December 10, 1998 meeting of the Board of Directors,
Mr. Wilkinson was elected as a director of the Corporation to
serve until the next annual meeting of shareholders and until
his successor is elected and qualified.
(b) On January 11, 1999, the Company issued the following press
release relating to an agreement with NFL International:
"NFL International has selected Princeton Video Image (NASDAQ: PVII,
www.pvimage.com) as the exclusive provider of electronic imaging
services for worldwide, non-U.S. telecasts of Super Bowl XXXIII on
January 31, 1999, and Super Bowl XXXIV on January 30, 2000. In
addition, PVI will be the exclusive provider of video insertion
services for international telecasts of 1999 NFL regular
<PAGE> 18
season and playoff games and the 1999 NFL Europe League season, the
first time this technology has been offered in these telecasts, NFLI
Senior Vice President Don Garber announced today. Terms of the
agreement were not disclosed.
"PVI's proprietary Live Video Insertion System (L-VIS(TM)) allows
broadcasters to place animated, computer generated ads into live
broadcasts so the ads appear as part of the live scene. Broadcasters
and advertisers can insert localized ads simultaneously in different
parts of the world, opening a variety of international and regional
sponsorship opportunities.
"'With this agreement, the NFL becomes the first U.S. sports league
to offer PVI's exclusive technology to its international broadcast
partners,' says Garber. 'We were extremely pleased with PVI's
involvement in last year's Super Bowl. Many of our broadcast partners
indicated that the best use of this technology would be to have local
advertisers sponsor local insertions. Our decision to allow the
broadcasters and advertisers to use PVI technology in their local
market will enable us to better serve our broadcasters and the NFL's
growing worldwide fan base.'
"'The scope of this agreement shows that the acceptance of image
insertion advertising continues to grow in professional sports and that
PVI is the leading international company offering this service,' said
Dennis Wilkinson, President and CEO of PVI.
"The agreement with the NFL makes Princeton Video Image the world's
only authorized service for inserting commercial signage into
international NFL game broadcasts. Mr. Wilkinson said the company would
immediately begin focusing on working with broadcasters in Canada,
Mexico, Japan, Germany, and the United Kingdom.
"Last year's Super Bowl, for which PVI also provided international
video insertion services, was televised in 187 countries and
territories, and seen by more than 670 million viewers outside the U.S.
and Canada. Coca-Cola was the global and sole sponsor of video
insertion ads during this game.
"Princeton Video Image, Inc. has developed and is marketing a
real-time video insertion system that, through patented pattern
recognition technology, places computer-generated electronic images
into television broadcasts of sporting events as well as other
programming. PVI has provided video insertion services for nearly 1,000
live telecasts worldwide, including broadcasts of Major League
Baseball, National League Football, professional soccer and motor
sports, and other live events. Its insertion technology is currently
employed by CBS Sports to generate an electronic first down line in
nationally televised NFL games and is being used in CBS's telecasts of
the four AFC playoff games."
(c) On January 26, 1999 the Company issued the following press
release relating to an agreement with Sasani Limited:
"Princeton Video Image, Inc. (Nasdaq: PVII; www.pvimage.com), the
worldwide leader in virtual advertising and imaging solutions for
television, today announced it has signed an exclusive licensing
agreement with Sasani Limited (JSE: SSA SJ), one of South Africa's
leading companies in the converging entertainment, media, and
communication industries. The agreement grants Sasani the exclusive
license to Princeton Video Image's patented proprietary Live Video
Insertion System(TM) ("L-VIS(TM)") in South Africa. Under the terms of
the
<PAGE> 19
agreement, Princeton Video Image will receive an up-front licensing
fee and annual royalties from Sasani based on use of L-VIS(TM) in South
Africa.
"Through the use of L-VIS(TM), Sasani, which is actively pursuing the
sports, entertainment, and media markets via its subsidiary Sasani
Sports, will provide advertisers with the ability to electronically
insert both static and moving images, including messages, into live and
pre-recorded programming. Sasani joins Latin America licensee,
Publicidad Virtual, as one of Princeton Video Image's international
representatives.
"Dennis Wilkinson, President and Chief Executive Officer of Princeton
Video Image, said, 'We are pleased to expand the international market
for our technology through this exclusive agreement with Sasani
Limited. With over 5 million television households and a television
advertising market estimated to exceed $600 million annually, South
Africa creates a exciting new market for PVI's insertion technology.'
"Franco Barocas, Chief Executive Officer of Sasani Sports, said,
'Sasani Limited is pleased to be selected as PVI's exclusive licensee
in South Africa. The South African advertising and sports market is
expected to grow rapidly in the coming years, and virtual advertising
can play a large role in this expansion. We look forward to a
successful alliance that allows us to present a unique medium for
sponsors to communicate their messages to South African consumers.'
"To date, Princeton Video Image's technology has been used in nearly
1,000 live broadcasts of sports events worldwide, including Major
League Baseball and National Football League team broadcasts, as well
as the international telecast of Super Bowl XXXII. The technology
allows teams, leagues, and broadcasters the ability to distribute
customized advertising images to various parts of the country or the
world simultaneously. Its insertion technology has been employed by CBS
Sports to generate an electronic first down line in nationally
televised NFL games this season, including CBS's telecasts of the four
AFC playoff games. In addition, PVI was recently selected as the
exclusive provider of virtual advertising for all international NFL
broadcasts.
"Princeton Video Image, Inc. developed and is marketing a real-time
video insertion system that, through patented pattern recognition
technology places computer-generated electronic images into television
broadcasts of sporting as well as other 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.
"Based in Highlands North, South Africa, Sasani Limited (JSE: SSA SJ)
was formed in October 1996 through the acquisitions of The Video Lab
(Pty) Ltd. and The Movie Camera Company (Pty) Ltd., securing Sasani
Limited a leading position in the media services sector of the market.
The Video Lab Group is Africa's largest film and video post-production
facility and focuses on the provision of value-added services for
companies involved in electronic media and entertainment. The Movie
Camera Company is recognized as a South African leader in the supply of
highly specialized equipment for the production of full-feature films
and television programs and commercials. Sasani Sports, a subsidiary of
Sasani Limited, is experienced in the sports industry, managing
corporate sports marketing budgets, events, and a range of other
services."
<PAGE> 20
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.
10.1 Amended 1993 Stock Option Plan.
10.2* Binding Letter of Intent between NFL International, a division
of NFL Enterprises L.P., and the Company executed on January
6, 1999.
10.3* System License Agreement dated January 19,1999 between Sasani
Limited and the Company.
27.1 Financial Data Schedule.
* Confidential treatment has been requested with respect to a
portion of this exhibit.
(b) Reports on Form 8-K
The Company filed a current report on Form 8-K dated November
5, 1998 which reported in Item 5 an agreement with CBS Sports,
a division of CBS Broadcasting, Inc., regarding the use of the
Company's technology to electronically insert a first-down
line in the broadcasts of certain National Football League
games.
The Company also filed a current report on Form 8-K dated
November 23, 1998 relating to the naming of Dennis P.
Wilkinson as the Company's President and Chief Executive
Officer.
<PAGE> 21
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.
February 12, 1999 /s/ Dennis P. Wilkinson
------------------------ ---------------------------
Date By: Dennis P. Wilkinson,
President and
Chief Executive Officer
February 12, 1999 /s/ Lawrence L. Epstein
------------------------ ---------------------------
Date By: Lawrence L. Epstein,
Chief Financial Officer
<PAGE> 22
INDEX TO EXHIBITS
Exhibit
Number Description
- ------- ----------------------------------------------------------------
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.
10.1 Amended 1993 Stock Option Plan.
10.2* Binding Letter of Intent between NFL International, a division of
NFL Enterprises L.P., and the Company, executed on January 6,
1999.
10.3* System License Agreement dated January 19, 1999 between Sasani
Limited and the Company.
27.1 Financial Data Schedule.
* Confidential treatment has been requested with respect to a portion of this
exhibit.
<PAGE> 1
Exhibit 3.2
BY-LAWS
OF
PRINCETON VIDEO IMAGE, INC.
ARTICLE I - OFFICES
The registered office of the Corporation shall be at such place in the
State of New Jersey as shall be designated by the Board of Directors
(hereinafter called the "Board").
The Corporation may also have offices at such other places within or
without the State of New Jersey as the Board may from time to time determine or
the business of the Corporation may require.
ARTICLE II - SHAREHOLDERS
1. PLACE OF MEETINGS.
Meetings of shareholders shall be held at the principal office
of the Corporation or at such place within or without the State of New Jersey as
the Board shall authorize.
2. ANNUAL MEETING.
The annual meeting of the shareholders shall be held at such
time, date and place as the Board shall determine by resolution, when the
shareholders shall elect a Board and transact such other business as may
properly come before the meeting.
3. SPECIAL MEETINGS.
Special meetings of the shareholders may be called by the
Board or by the president and shall be called by the president or the secretary
at the request in writing of a majority of the Board or at the request in
writing by any shareholder owning shares of the Corporation's capital stock.
Such request shall state the purpose or purposes of the proposed meeting.
Business transacted at a special meeting shall be confined to the purposes
stated in the notice.
4. NOTICE OF MEETINGS OF SHAREHOLDERS.
Written notice of the time, place and purpose or purposes of
every meeting of shareholders shall be given not less than 10 nor more than 60
days before the date of the meeting, either personally or by mail, to each
shareholder of record entitled to vote at the meeting.
<PAGE> 2
When a meeting is adjourned to another time or place, it shall
not be necessary, unless the by-laws otherwise provide, to give notice of the
adjourned meeting if the time and place to which the meeting is adjourned are
announced at the meeting at which the adjournment is taken and at the adjourned
meeting only such business is transacted as might have been transacted at the
original meeting. However, if after the adjournment the Board fixes a new record
date for the adjourned meeting, a notice of the adjourned meeting shall be given
to each shareholder of record on the new record date entitled to notice.
5. WAIVER OF NOTICE OR OF LAPSE OF TIME.
Notice of meeting need not be given to any shareholder who
signs a waiver of notice, in person or by proxy, whether before or after the
meeting. The attendance of any shareholder at a meeting, in person or by proxy,
without protesting prior to the conclusion of the meeting the lack of notice of
such meeting, shall constitute a waiver of notice by him.
Whenever shareholders are authorized to take any action after
the lapse of a prescribed period of time, the action may be taken without such
lapse if such requirement is waived in writing, in person or by proxy, before or
after the taking of such action, by every shareholder entitled to vote thereon
as at the date of the taking of such action.
6. ACTION BY SHAREHOLDERS WITHOUT A MEETING.
Any action required or permitted to be taken at a meeting of
shareholders by statute, the certificate of incorporation, or by-laws, other
than the annual election of directors, may be taken without a meeting upon the
written consent of shareholders who would have been entitled to cast the minimum
number of votes which would be necessary to authorize such action at a meeting
at which all shareholders entitled to vote thereon were present and voting. The
written consents of the shareholders consenting thereto shall be filed with the
minutes of proceedings of shareholders.
7. QUORUM OF SHAREHOLDERS.
Unless otherwise provided in the certificate of incorporation,
the holders of shares entitled to cast a majority of the votes at a meeting
shall constitute a quorum at such meeting. The shareholders present in person or
by proxy at a duly organized meeting may continue to do business until
adjournment, notwithstanding the withdrawal of enough shareholders to leave less
than a quorum. Less than a quorum may adjourn a meeting.
-2-
<PAGE> 3
Whenever the holders of any class or series of shares are
entitled to vote separately on a specified item of business, the provisions of
the preceding paragraph shall apply in determining the presence of a quorum of
such class or series for the transaction of such specified item of business.
ARTICLE III - DIRECTORS
1. BOARD OF DIRECTORS.
Subject to any provision in the certificate of incorporation,
the business of the Corporation shall be managed by its Board, each of whom
shall be at least 18 years of age.
2. NUMBER OF DIRECTORS.
The authorized number of the directors of the Corporation
shall be established from time to time by the Board and shall not be less than
one (1) nor more than seven (7).
3. TERM OF DIRECTORS.
The directors named in the certificate of incorporation shall
hold office until the first annual meeting of shareholders, and until their
successors shall have been elected and qualified. At the first annual meeting of
shareholders and at each annual meeting thereafter the shareholders shall elect
directors to hold office until the next succeeding annual meeting, except as
otherwise required by the certificate of incorporation or the by-laws in the
case of classification of directors. Each director shall hold office for the
term for which he is elected and until his successor shall have been elected and
qualified. A director may resign by written notice to the Corporation. The
resignation shall be effective upon receipt thereof by the Corporation or at
such subsequent time as shall be specified in the notice of resignation.
4. VACANCIES AND NEWLY CREATED DIRECTORSHIPS.
Any directorship not filled at the annual meeting and any
vacancy, however caused, occurring in the Board may be filled by the affirmative
vote of a majority of the remaining directors even though less than a quorum of
the Board, or by a sole remaining director. A director so elected by the Board
shall hold office until the next succeeding annual meeting of shareholders and
until his successor shall have been elected and qualified.
-3-
<PAGE> 4
When one or more directors shall resign from the Board
effective at a future date, a majority of the directors then in office including
those who have so resigned, shall have power to fill such vacancy or vacancies,
the vote thereon to take effect when such resignation or resignations shall
become effective, and each director so chosen shall hold office as herein
provided in the filling of other vacancies.
Any directorship to be filled by reason of an increase in the
number of directors shall be filled by election at an annual meeting or at a
special meeting of shareholders called for that purpose, unless the certificate
of incorporation or a by-law adopted by the shareholders authorizes the Board to
fill such directorship. A director elected by the Board to fill any such
directorship shall hold office until the next succeeding annual meeting of
shareholders and until his successor shall have been elected and qualified.
If by reason of death, resignation or other cause the
Corporation has no directors in office, any shareholder or the executor or
administrator of a deceased shareholder may call a special meeting of
shareholders for the election of directors and, over his own signature, shall
give notice of said meeting in accordance with the by-laws.
5. REMOVAL OF DIRECTORS.
One or more or all of the directors of the Corporation may be
removed for cause by the shareholders by the affirmative vote of the majority of
the votes cast by the holders of share entitled to vote for the election of
directors.
6. QUORUM OF BOARD OF DIRECTORS AND COMMITTEES; ACTION
OF DIRECTORS WITHOUT A MEETING.
A majority of the entire Board, or of any committee thereof,
shall constitute a quorum for the transaction of business, unless the
certificate of incorporation shall provide that a greater or lesser number shall
constitute a quorum, which in no case shall be less than the greater of two
persons or one-third of the entire Board or committee, except that when a Board
of one director is authorized, one director shall constitute a quorum. Any
action required or permitted to be taken pursuant to authorization voted at a
meeting of the Board or any committee thereof, may be taken without a meeting
if, prior or subsequent to such action, all members of the Board or of such
committee, as the case may be, consent thereto in writing and such written
consents are filed with the minutes of the proceedings of the Board or
committee. Such consent shall have the same effect as a unanimous vote of the
Board or committee for all purposes.
-4-
<PAGE> 5
7. PLACE OF BOARD MEETINGS.
Meetings of the Board may be held either within or without the
State of New Jersey.
8. REGULAR ANNUAL MEETING.
A regular annual meeting of the Board shall be held
immediately following the annual meeting of shareholders at the place of such
annual meeting of shareholders.
9. NOTICE OF MEETINGS OF THE BOARD; ADJOURNMENT.
Regular meetings of the Board may be held with or without
notice. Special meetings of the Board shall be held upon notice to the directors
and may be called by the president upon three days' notice to each director
either personally or by mail or by wire. Special meetings shall be called by the
president or by the secretary in a like manner on written request of two
directors. Notice of any meeting need not be given to any director who signs a
waiver of notice, whether before or after the meeting. The attendance of any
director at a meeting without protesting prior to the conclusion of the meeting
the lack of notice of such meeting shall constitute a waiver of notice by him.
Neither the business to be transacted at, nor the purpose of, any meeting of the
Board need be specified in the notice or waiver of notice of such meeting.
Notice of an adjourned meeting need not be given if the time and place are fixed
at the meeting adjourning and if the period of adjournment does not exceed ten
days in any one adjournment.
A majority of the directors present, whether or not a quorum
is present, may adjourn any meeting to another time and place. Notice of the
adjournment shall be given all directors who were absent at the time of the
adjournment and, unless such time and place are announced at the meeting, to the
other directors.
10. EXECUTIVE AND OTHER COMMITTEES.
The Board, by resolution adopted by a majority of the entire
Board, may designate from among its members an executive committee and other
committees, each consisting of three or more directors. Each such committee
shall serve at the pleasure of the Board.
-5-
<PAGE> 6
11. INDEMNIFICATION.
(a) A director shall not be personally liable to the
Corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director; provided that this sentence shall not eliminate or limit the
liability of a director (i) for any breach of his duty of loyalty to the
Corporation or its shareholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of the law, (iii)
under Section 14A:6-12 of the New Jersey Business Corporation Act, or (iv) for
any transaction from which the director derives an improper personal benefit.
(b) The Corporation shall indemnify its directors to the full
extent permitted by N.J.S.A. 14A:3-5 or any successor statute thereto.
(c) No amendment to or repeal of this Section Eleven shall
apply to or have any effect on the liability or alleged liability of any
director of the Corporation for or with respect to any acts or omissions of such
director occurring prior to such amendment.
12. COMPENSATION.
No compensation shall be paid to directors, as such, for their
services, but by resolution of the Board a fixed sum and expenses for actual
attendance, at each regular or special meeting of the Board may be authorized.
Nothing herein contained shall be construed to preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor.
ARTICLE IV - OFFICERS
1. OFFICES, ELECTION, TERM, SALARIES, SECURITY.
The officers of the Corporation shall be a chairman of the
Board, a chief executive officer, a chief financial officer, a chief operating
officer, a president, a secretary and a treasurer. In addition, the Board may
elect additional officers such as one or more vice presidents and such assistant
secretaries and assistant treasurers as the Board may deem proper. The officers
shall be elected or appointed by the Board.
Any two or more offices may be held by the same person.
Any officer elected or appointed as herein provided shall hold
office until the next regular meeting of the Board following the annual meeting
of shareholders or until a successor is elected
-6-
<PAGE> 7
or appointed and has qualified subject to earlier termination by removal or
resignation.
All officers of the Corporation, as between themselves and the
Corporation, shall have such authority and perform such duties in the management
of the Corporation as may be provided in the by-laws, or as may be determined by
resolution of the Board not inconsistent with the by-laws.
The salaries of all officers shall be fixed by the Board.
In case the Board shall so require, any officer or agent of
the Corporation shall execute to the Corporation a bond in such sum and with
such surety or sureties as the Board may direct, conditioned upon the faithful
performance of his duties to the Corporation and including responsibility for
negligence and for the accounting for all property, funds or securities of the
Corporation which may come into his hands.
2. DELEGATION OF DUTIES.
In case of the absence of any officer of the Corporation, or
for any other reason that may seem sufficient to the Board, the directors may,
by a majority vote of the Board, delegate the powers and duties of such officer,
for the time being, to any other officer, or to any director.
3. REMOVAL AND RESIGNATION OF OFFICERS; FILLING OF
VACANCIES.
Any officer elected or appointed by the Board may be removed
by the Board with or without cause. An officer elected by the shareholders may
be removed, with or without cause, only by vote of the shareholders but his
authority to act as an officer may be suspended by the Board for cause.
An officer may resign by written notice to the Corporation.
The resignation shall be effective upon receipt thereof by the Corporation or at
such subsequent time as shall be specified in the notice of resignation.
Any vacancy occurring among the officers, however caused, may
be filled by election or appointment by the Board for the unexpired term.
4. CHAIRMAN OF THE BOARD.
The chairman of the Board shall preside at all meetings of the
shareholders and of the Board. He shall have general and
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active management of the business of the Corporation, shall oversee the
fulfillment of the Corporation's mission, and shall see that all orders and
resolutions of the Board are carried into effect, subject, however, to the right
of the directors to delegate any specific powers, except such as may be by
statute exclusively conferred on the chairman of the Board, to any other officer
or officers of the Corporation. He shall have the authority to execute bonds,
mortgages and other contracts under the seal of the Corporation except where the
signing and execution thereof shall be expressly delegated by the Board of
Directors to some other officer or agent of the Corporation. He shall have the
general powers and duties of supervision and management usually vested in an
executive officer and the chairman of the board of a corporation. He shall
present a report of the condition of the business of the Corporation at each
annual meeting of the shareholders and the Board. He shall perform such other
duties as may from time to time be requested by the Board.
5. CHIEF EXECUTIVE OFFICER.
The chief executive officer shall, in the absence of the
chairman of the Board, preside at all meetings of the shareholders and of the
Board. Acting under the direction of the Board and the chairman of the Board, he
shall have general and active management of the business of the Corporation,
shall oversee the marketing, business and strategic development efforts of the
Corporation and shall see that all orders and resolutions of the Board are
carried into effect, subject, however, to the right of the directors to delegate
any specific powers to any other officer or officers of the Corporation. He
shall have the authority to executive bonds, mortgages and other contracts under
the seal of the Corporation except where the signing and execution thereof shall
be expressly designated by the Board to some other officer or agent of the
Corporation. He shall have the general powers and duties of supervision and
management usually vested in the chief executive officer of a corporation. He
shall perform such other duties as may from time to time be requested by the
Board or by the chairman of the Board.
6. CHIEF FINANCIAL OFFICER
A chief financial officer, if one has been appointed, shall be
vested with all of the powers, and shall be required to perform all of the
duties, as may be properly assigned by the Board, the chairman of the Board, the
chief executive officer or the president.
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7. PRESIDENT.
The president shall be vested with all of the powers, and
shall be required to perform all of the duties, as may be properly assigned by
the Board or the chairman of the Board.
8. CHIEF OPERATING OFFICER.
A chief operating officer, if one has been appointed, shall be
vested with all of the powers, and shall be required to perform all of the
duties, as may be properly assigned by the Board, the chairman of the Board, the
chief executive officer or the president.
9. VICE-PRESIDENTS.
During the absence or disability of the president, the
vice-president, or if there are more than one, the executive vice-president
shall have all the powers and functions of the president. Each vice-president
shall perform such other duties as the Board shall prescribe.
10. SECRETARY.
The secretary shall attend all meetings of the Board and of
the shareholders; record all votes and minutes of all proceedings in a book to
be kept for that purpose; give or cause to be given notice of all meetings of
shareholders and of special meetings of the Board; keep in safe custody the seal
of the Corporation and affix it to any instrument when authorized by the Board;
when required, prepare a list of shareholders or cause to be prepared and
available at each meeting of shareholders entitled to vote thereat, indicating
the number of shares of each respective class held by each; keep all the
documents and records of the Corporation as required by law or otherwise in a
proper and same manner; and perform such other duties as may be prescribed by
the Board.
11. ASSISTANT-SECRETARIES.
During the absence or disability of the secretary, the
assistant-secretary, or if there are more than one, the one so designated by the
secretary or by the Board, shall have all the powers and functions of the
secretary.
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12. TREASURER.
The treasurer shall: have the custody of the corporate funds
and securities; keep full and accurate accounts of receipts and disbursements in
the corporate books; deposit all money and other valuables in the name and to
the credit of the Corporation in such depositories as may be designated by the
Board; disburse the funds of the Corporation as may be ordered or authorized by
the Board and preserve proper vouchers for such disbursements; render to the
president and Board at the regular meetings of the Board, or whenever they
require it, an account of all his transactions as treasurer and of the financial
condition of the Corporation; render a full financial report at the annual
meeting of the shareholders if so requested; be furnished by all corporate
officers and agents at his request, with such reports and statements as he may
require as to all financial transactions of the Corporation; and perform such
other duties as are given to him by the by-laws or as from time to time are
assigned to him by the Board, the chairman of the Board, the chief executive
officer or the president.
13. ASSISTANT-TREASURER.
During the absence or disability of the treasurer, the
assistant-treasurer, or if there are more than one, the one so designated by the
secretary or by the Board, shall have all the powers and functions of the
treasurer.
14. INDEMNIFICATION.
The Corporation shall indemnify its officers to the full
extent permitted by N.J.S.A. 14A:3-5 or any successor statute thereto. No
amendment to or repeal of this Section Fourteen shall apply to or have any
effect on the liability or alleged liability of any officer of the Corporation
for or with respect to any acts or omissions of such officer occurring prior to
such amendment.
ARTICLE V - CERTIFICATES FOR SHARES AND DIVIDENDS
1. CERTIFICATES REPRESENTING SHARES.
The shares of the Corporation shall be represented by
certificates signed by, or in the name of the Corporation by, the chairman or
vice-chairman of the Board, or the president or a vice-president, and by the
treasurer or an assistant-treasurer, or the secretary or an assistant-secretary
of the Corporation and shall be sealed with the seal of the Corporation or a
facsimile thereof.
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2. LOST OR DESTROYED CERTIFICATES.
The Board may direct a new certificate or certificates to be
issued in place of any certificate or certificates theretofore issued by the
Corporation, alleged to have been lost or destroyed, upon the making of an
affidavit of that fact by the person claiming the certificate to be lost or
destroyed. When authorizing such issue of a new certificate or certificates, the
Board may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or give the Corporation a bond in such sum and with such
surety or sureties as it may direct as indemnity against any claim that may be
made against the Corporation with respect to the certificate alleged to have
been lost or destroyed.
3. TRANSFER OF SHARES.
Upon surrender to the Corporation or the transfer agent of the
Corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the Corporation to issue a new certificate to the person entitled
thereto, and cancel the old certificate. Every such transfer shall be entered on
the transfer book of the Corporation which shall be kept at its principal
office. No transfer shall be made within ten days next preceding the annual
meeting of shareholders.
The Corporation shall be entitled to treat the holder of
record of any share as the holder in fact thereof and, accordingly, shall not be
bound to recognize any equitable or other claim to or interest in such share on
the part of any other person whether or not it shall have express or other
notice thereof, except as expressly provided by New Jersey statutes.
4. CLOSING TRANSFER BOOKS.
The Board shall have the power to close the share transfer
books of the Corporation for a period of not more than ten days during the
thirty-day period immediately preceding (a) any shareholders' meeting, or (b)
any date upon which shareholders shall be called upon to or have a right to take
action without a meeting, or (c) any date fixed for the payment of a dividend or
any other form of distribution, and only those shareholders of record at the
time the transfer books are closed, shall be recognized as such for the purpose
of (a) receiving notice of or voting at such meeting, or (b) allowing them to
take appropriate action, or (c) entitling them to receive any dividend or other
form of distribution.
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5. DIVIDENDS.
Subject to the provisions of the certificate of incorporation
and to applicable law, the Corporation may, from time to time, by action of its
Board, declare and pay dividends or make other distribution on its outstanding
shares in cash or in its own shares or in its bonds or other property, including
the shares or bonds of other corporations, except when the Corporation is
insolvent or would thereby be made insolvent.
Dividends may be declared or paid and other distributions may
be made out of surplus only, except as otherwise provided by statute.
ARTICLE VI - CORPORATE SEAL
The seal of the Corporation shall be circular in form and bear
the name of the Corporation, the year of its organization and the words
"Princeton Electronic Billboard, Inc., Corporate Seal 1990 New Jersey." The seal
may be used by causing it to be impressed directly on the instrument or writing
to be sealed, or upon adhesive substance affixed thereto. The seal on the
certificates for shares or any corporate obligation for payment of money may be
a facsimile, engraved or printed.
ARTICLE VII - FISCAL YEAR
The fiscal year of the Corporation shall begin on the first
day of July of each year.
ARTICLE VIII - BY-LAW CHANGES
AMENDMENT, REPEAL, ADOPTION, ELECTION OF DIRECTORS.
Except as otherwise provided in the certificate of
incorporation, the by-laws may be amended, repealed or adopted by vote of the
holders of the shares at the time entitled to vote in the election of any
directors. By-laws may also be amended, repealed or adopted by the Board but any
by-law adopted by the Board may be amended by the shareholders entitled to vote
thereon.
If any by-law regulating an impending election of directors is
adopted, amended or repealed by the Board, there shall be set forth in the
notice of the next meeting of shareholders for the election of directors the
by-law so adopted, amended or repealed, together with a concise statement of the
changes made.
Dated: December 10, 1998
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Exhibit 10.1
PRINCETON VIDEO IMAGE, INC.
AMENDED 1993 STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this Stock Option Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants of
the Company and its Subsidiaries and to promote the success of the Company's
business. Options granted under the Plan may be incentive stock options (as
defined under Section 422 of the Code) or non-statutory stock options, as
determined by the Administrator at the time of grant of an option and subject to
the applicable provisions of Section 422 of the Code, as amended, and the
regulations promulgated thereunder.
2. Certain Definitions. As used herein, the following definitions shall
apply:
(a) "Administrator" means the Board or any of its Committees
appointed pursuant to Section 4 of the Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means the Committee appointed by the Board in
accordance with paragraph (a) of Section 4 of the Plan.
(e) "Common Stock" means the Common Stock of the Company.
(f) "Company" means Princeton Video Image, Inc., a New Jersey
corporation.
(g) "Consultant" means any person, including an advisor, who is
engaged by the Company or any Parent or Subsidiary to render services and is
compensated for such services, and any director of the Company whether
compensated for such services or not provided that if and in the event the
Company registers any class of any equity security pursuant to the Exchange Act,
the term Consultant shall thereafter not include directors who are not
compensated for their services or are paid only a director's fee by the Company.
(h) "Continuous Status as an Employee" means the absence of any
interruption or termination of the employment relationship by the Company or any
Subsidiary. Continuous Status as an Employee shall not be considered interrupted
in the case of: (i) sick leave;
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(ii) military leave; (iii) any other leave of absence approved by the Board,
provided that such leave is for a period of not more than ninety (90) days,
unless reemployment upon the expiration of such leave is guaranteed by contract
or statute, or unless provided otherwise pursuant to Company policy adopted from
time to time; or (iv) in the case of transfers between locations of the Company
or between the Company, its Subsidiaries or its successor.
(i) "Date of Grant" means the date on which an Option is granted
under this Plan pursuant to Section 13 of the Plan.
(j) "Employee" means any person, including officers and directors,
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a director's fee by the Company shall not be sufficient to constitute
"employment" by the Company.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(l) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system including without limitation the National
Market System of the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, its Fair Market Value shall be the closing sales
price for such stock (or the closing bid, if no sales were reported) as quoted
on such system or exchange for the last market trading day prior to such date as
reported in the Wall Street Journal or such other source as the Administrator
deems reliable or;
(ii) If the Common Stock is quoted on the NASDAQ System (but not
on the National Market System thereof) or regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high and low asked prices for the Common Stock for
the last market trading day prior to such date or;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(m) "Incentive Stock Option" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code.
(n) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(o) "Option" means a stock option granted pursuant to the Plan.
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(p) "Option Agreement" shall mean the agreement which must be
entered into between the Optionee and the Company upon the grant of an Option by
the Company to the Optionee as approved by the Board pursuant to Section 17 of
the Plan.
(q) "Optioned Stock" means the Common Stock subject to an Option.
(r) "Optionee" means a person who receives an Option.
(s) "Parent" means a "parent corporation", whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(t) "Plan" means this 1993 Stock Option Plan.
(u) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 12 of the Plan.
(v) "Subsidiary" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 12
of the Plan, the maximum aggregate number of shares which may be optioned and
sold under the Plan is 2,160,000 shares of Common Stock. The shares may be
authorized, but unissued, or reacquired Common Stock.
If an option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares which were subject
thereto shall, unless the Plan shall have been terminated, become available for
future grant under the Plan.
4. Administration of the Plan.
(a) Procedure.
(i) Administration With Respect to Directors and Officers. With
respect to grants of Options to Employees or Consultants who are also officers
or directors of the Company, the Plan shall be administered by (A) the Board or
(B) a Committee designated by the Board to administer the Plan, which Committee
shall be constituted in such a manner (A) as to permit transactions under the
Plan to qualify for the exemption from Section 16(b) of the Exchange Act
pursuant to Rule 16b-3 promulgated thereunder ("Rule 16b-3") and (B) to satisfy
the legal requirements relating to the administration of incentive stock option
plans, of New Jersey corporate and securities laws and of the Code (the
"Applicable Laws"). Once appointed, such Committee shall continue to serve in
its designated capacity until otherwise directed by the
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Board. From time to time the Board may increase the size of the Committee and
appoint additional members thereof, remove members (with or without cause) and
appoint new members in substitution therefor, fill vacancies, however caused,
and remove all members of the Committee and thereafter directly administer the
Plan, all to the extent permitted by the Applicable Laws and Rule 16b-3.
(ii) Multiple Administrative Bodies. If permitted by Rule 16b-3,
the Plan may be administered by different bodies with respect to directors,
non-director officers and Employees and Consultants who are neither directors
nor officers.
(iii) Administration With Respect to Consultants and Other
Employees. With respect to grants of Options to Employees or Consultants who are
neither directors nor officers of the Company, the Plan shall be administered by
(A) the Board or (B) a Committee designated by the Board, which Committee shall
be constituted in such a manner as to satisfy the Applicable Laws. Once
appointed, such Committee shall continue to serve in its designated capacity
until otherwise directed by the Board. From time to time the Board may increase
the size of the Committee and appoint additional members thereof, remove members
(with or without cause) and appoint new members in substitution therefor, fill
vacancies, however caused, and remove all members of the Committee and
thereafter directly administer the Plan, all to the extent permitted by the
Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
Plan and in the case of a Committee, the specific duties delegated by the Board
to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(l) of the Plan;
(ii) to select the Consultants and Employees to whom Options may
from time to time be granted hereunder;
(iii) to determine whether and to what extent Options are
granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each such Option granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any Option granted hereunder (including, but not
limited to, the share price and any restriction or limitation or waiver of
forfeiture restrictions regarding any Option and/or the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator shall
determine, in its sole discretion);
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(vii) to determine whether and under what circumstances an
Option may be settled in cash under subsection 9(f) instead of Common Stock;
(viii) to determine whether, to what extent and under what
circumstances Common Stock and other amounts payable with respect to an Option
under this Plan shall be deferred either automatically or at the election of the
participant (including providing for and determining the amount, if any, of any
deemed earnings on any deferred amount during any deferral period); and
(ix) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option shall have declined since the date the Option was granted.
(c) Effect of Committee's Decision. All decisions, determinations
and interpretations of the Administrator shall be final and binding on all
Optionees and any other holders of any Options.
5. Eligibility.
(a) Nonstatutory Stock Options may be granted to Employees and
Consultants and directors and officers who are not Employees or Consultants.
Incentive Stock Options may be granted only to Employees. An Employee or
Consultant who has been granted an Option may, if he is otherwise eligible, be
granted an additional Option or Options.
(b) Each Option shall be designated in the Option Agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Options designated as Incentive Stock
Options are exercisable for the first time by any optionee during any calendar
year (under all plans of the Company or any Parent or Subsidiary) exceeds
$100,000, such excess Options shall be treated as Nonstatutory Stock Options.
(c) For purposes of Section 5(b), Incentive Stock Options shall be
taken into account in the order in which they were granted, and the Fair Market
Value of the Shares shall be determined as of the time the Option with respect
to such Shares is granted.
(d) The Plan shall not confer upon any Optionee any right with
respect to continuation of employment or consulting relationship with the
Company, nor shall it interfere in any way with his right or the Company's right
to terminate his employment or consulting relationship at any time, with or
without cause.
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6. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board or its approval by the shareholders of the
Company as described in Section 18 of the Plan. It shall continue in effect for
a term of ten (10) years unless sooner terminated under Section 14 of the Plan.
7. Term of Option. The term of each Option shall be the term stated in
the Option Agreement; provided, however, that in the case of an Incentive Stock
Option, the term shall be no more than ten (10) years from the date of grant
thereof or such shorter term as may be provided in the Option Agreement.
However, in the case of an Option granted to an Optionee who, at the time the
Option is granted, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or Subsidiary,
the term of the Option shall be five (5) years from the date of grant thereof or
such shorter term as may be provided in the Option Agreement.
8. Option Exercise Price and Consideration.
(a) The per share exercise price for the Shares to be issued
pursuant to exercise of an Option shall be such price as is determined by the
Board, but shall be subject to the following: In the case of an Incentive Stock
Option (i) granted to an Employee who, at the time of the grant of such
Incentive Stock Option, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant; (ii) granted to any Employee, not
described in Section 8(a)(i), the per Share exercise price shall be no less than
100% of the Fair Market Value per Share on the date of grant.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash, (2)
check, (3) promissory note, (4) other Shares which (x) in the case of Shares
acquired upon exercise of an Option either have been owned by the Optionee for
more than six months on the date of surrender or were not acquired, directly or
indirectly, from the Company, and (y) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised, (5) authorization to the Company to retain from the
total number of Shares as to which the Option is exercised that number of Shares
having a Fair Market Value on the date of exercise equal to the exercise price
for the total number of Shares as to which the Option is exercised, (6) delivery
of a properly executed exercise
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notice together with irrevocable instructions to a broker to promptly deliver to
the Company the amount of sale or loan proceeds required to pay the exercise
price, (7) delivery of an irrevocable subscription agreement for the Shares
which irrevocably obligates the option holder to take and pay for the Shares not
more than twelve months after the date of delivery of the subscription
agreement, (8) any combination of the foregoing methods of payment, or (9) such
other consideration and method of payment for the issuance of Shares to the
extent permitted under Applicable Laws. In making its determination as to the
type of consideration to accept, the Board shall consider if acceptance of such
consideration may be reasonably expected to benefit the Company.
9. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Board and set forth in the Option Agreement, including
performance criteria with respect to the Company and/or the Optionee, and as
shall be permissible under the terms of the Plan. An Option may not be exercised
for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 8(b) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued.
Exercise of an Option in any manner shall result in a decrease
in the number of Shares which thereafter may be available, both for purposes of
the Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Employment. In the event of termination of an
Optionee's consulting relationship or Continuous Status as an Employee with the
Company (as the case may be), such Optionee may, but only within ninety (90)
days (or such other period of time as is determined by the Board, with such
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determination in the case of an Incentive Stock Option being made at the time of
grant of the Option and not exceeding ninety (90) days) after the date of such
termination (but in no event later than the expiration date of the term of such
Option as set forth in the Option Agreement), exercise his Option to the extent
that Optionee was entitled to exercise it at the date of such termination. To
the extent that Optionee was not entitled to exercise the Option at the date of
such termination, or if Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate.
(c) Disability of Optionee. Notwithstanding the provisions of
Section 9(b) above, in the event of termination of an Optionee's consulting
relationship or Continuous Status as an Employee as a result of his total and
permanent disability (as defined in Section 22(e)(3) of the Code), Optionee may,
but only within twelve (12) months from the date of such termination (but in no
event later than the expiration date of the term of such Option as set forth in
the Option Agreement), exercise the Option to the extent otherwise entitled to
exercise it at the date of such termination. To the extent that Optionee was not
entitled to exercise the Option at the date of termination, or if Optionee does
not exercise such Option to the extent so entitled within the time specified
herein, the Option shall terminate.
(d) Death of Optionee. In the event of the death of an Optionee, the
Option may be exercised, at any time within twelve (12) months following the
date of death (but in no event later than the expiration date of the term of
such Option as set forth in the Option Agreement), by the Optionee's estate or
by a person who acquired the right to exercise the Option by bequest or
inheritance, but only to the extent the Optionee was entitled to exercise the
Option at the date of death. To the extent that Optionee was not entitled to
exercise the Option at the date of termination, or if Optionee does not exercise
such Option to the extent so entitled within the time specified herein, the
Option shall terminate.
(e) Rule 16b-3. Options granted to persons subject to Section 16(b)
of the Exchange Act must comply with Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions. Shares acquired pursuant to exercise of an Option by any
person who is subject to Section 16(b) of the Exchange Act may not be sold or
otherwise disposed of for a period of six (6) months following the Date of
Grant.
(f) Buyout Provisions. The Administrator may at any time offer to
buy out for a payment in cash or Shares an Option previously granted, based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
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10. Non-Transferability of Options. The Option may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner other
than by will or by the laws of descent or distribution and may be exercised,
during the lifetime of the Optionee, only by the Optionee.
11. Stock Withholding to Satisfy Withholding Tax Obligations. At the
discretion of the Administrator, Optionees may satisfy withholding obligations
as provided in this paragraph. When an Optionee incurs tax liability in
connection with an Option, which tax liability is subject to tax withholding
under applicable tax laws, and the Optionee is obligated to pay the Company an
amount required to be withheld under applicable tax laws, the Optionee may
satisfy the withholding tax obligation by electing to have the Company withhold
from the Shares to be issued upon exercise of the Option, if any, that number of
Shares having a Fair Market Value equal to the amount required to be withheld.
The Fair Market Value of the Shares to be withheld shall be determined on the
date that the amount of tax to be withheld is to be determined (the "Tax Date").
All elections by an Optionee to have Shares withheld for this purpose
shall be made in writing in a form acceptable to the Administrator and shall be
subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax
Date;
(b) once made, the election shall be irrevocable as to the
particular Shares of the Option as to which the election is made;
(c) all elections shall be subject to the consent or disapproval of
the Administrator; and
(d) if the Optionee is subject to Rule 16b-3, the election must
comply with the applicable provisions of Rule 16b-3 and shall be subject to such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
In the event the election to have Shares withheld is made by an
Optionee and the Tax Date is deferred under Section 83 of the Code because no
election is filed under Section 83(b) of the Code, the Optionee shall receive
the full number of Shares with respect to which the Option is exercised but such
Optionee shall be unconditionally obligated to tender back to the Company the
proper number of Shares on the Tax Date.
-9-
<PAGE> 10
12. Adjustments Upon Changes in Capitalization or Merger. Subject to
any required action by the shareholders of the Company, the number of shares of
Common Stock covered by each outstanding Option, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option, as well as the price per share of
Common Stock covered by each such outstanding Option, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.
In the event of the proposed dissolution or liquidation of the Company,
the Board shall notify the Optionee at least fifteen (15) days prior to such
proposed action. To the extent it has not been previously exercised, the Option
will terminate immediately prior to the consummation of such proposed action. In
the event of a merger of the Company with or into another corporation, the
Option shall be assumed or an equivalent option shall be substituted by such
successor corporation or a Parent or Subsidiary of such successor corporation.
In the event that such successor corporation does not agree to assume the Option
or to substitute an equivalent option, the Board shall, in lieu of such
assumption or substitution, provide for the Optionee to have the right to
exercise the Option as to all of the Optioned Stock, including Shares as to
which the Option would not otherwise be exercisable. If the Board makes an
Option fully exercisable in lieu of assumption or substitution in the event of a
merger, the Board shall notify the Optionee that the Option shall be fully
exercisable for a period of fifteen (15) days from the date of such notice, and
the Option will terminate upon the expiration of such period. For the purposes
of this paragraph, the Option shall be considered assumed if, following the
merger, the Option or right confers the right to purchase, for each Share of
stock subject to the Option immediately prior to the merger, the consideration
(whether stock, cash, or other securities or property) received in the merger by
holders of Common Stock for each Share held on the effective date of the
transaction (and if holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding Shares);
provided,
-10-
<PAGE> 11
however, that if such consideration received in the merger was not solely common
stock of the successor corporation or its Parent, the Board may, with the
consent of the successor corporation and the participant, provide for the
consideration to be received upon the exercise of the Option, for each Share of
stock subject to the Option, to be solely common stock of the successor
corporation or its Parent equal in Fair Market Value to the per share
consideration received by holders of Common Stock in the merger or sale of
assets.
13. Time of Granting Options. The date of grant of an Option shall, for
all purposes, be the date on which the Administrator makes the determination
granting such Option, or such other date as is determined by the Board. Notice
of the determination shall be given to each person to whom an Option is so
granted within a reasonable time after the date of such grant.
14. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend,
alter, suspend or discontinue the Plan, but no amendment, alteration, suspension
or discontinuation shall be made which would impair the rights of any Optionee
under any grant theretofore made, without Optionee's consent. In addition, to
the extent necessary and desirable to comply with Rule 16b-3 under the Exchange
Act or with Section 422 of the Code (or any other applicable law or regulation,
including the requirements of the NASD or an established stock exchange), the
Company shall obtain shareholder approval of any Plan amendment in such a manner
and to such a degree as required.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
15. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance. As a condition to the exercise of an
Option, the Company may require the person exercising such Option to represent
and warrant at the time of any such exercise that the Shares are being purchased
only for investment and without any present
-11-
<PAGE> 12
intention to sell or distribute such Shares if, in the opinion of counsel for
the Company, such a representation is required by any of the aforementioned
relevant provisions of law.
16. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares hereunder,
shall relieve the Company of any liability in respect of the failure to issue or
sell such Shares as to which such requisite authority shall not have been
obtained.
17. Agreements. Options shall be evidenced by written agreements in
such form as the Board shall approve from time to time.
18. Shareholder Approval. Continuance of the Plan shall be subject to
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the degree and manner required under applicable state and federal law.
19. Information to Optionees. The Company shall provide to each
Optionee, during the period for which such Optionee has one or more Options
outstanding, copies of all annual reports and other information which are
provided to all shareholders of the Company. The Company shall not be required
to provide such information if the issuance of Options under the Plan is limited
to key employees whose duties in connection with the Company assure their access
to equivalent information.
* * * * *
-12-
<PAGE> 1
EXHIBIT 10.2
[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.]
Effective as of December 23, 1998
Mr. Larry Epstein
Princeton Video Image, Inc.
15 Princess Road
Lawrenceville, NJ 08648
Dear Larry:
This term sheet ("Term Sheet") sets forth the material terms of the
agreement between Princeton Video Image, Inc. ("PVI") and NFL International, a
division of NFL Enterprises L.P. ("NFL"), in connection with PVI's electronic
image insertion of advertisements into certain NFL and NFL Europe League games:
- Term: January 31, 1999 (Super Bowl XXXIII) through the conclusion of
Super Bowl XXXIV (January 2000).
[CONFIDENTIAL TREATMENT REQUESTED]
- Consideration:
[CONFIDENTIAL TREATMENT REQUESTED]
- NFL Game Rights: During the term, PVI will have the exclusive right
to use electronic insertion technology for advertisements
("Technology") in the NFL/NFLEL games set forth below, subject to the
terms and conditions set forth in this Term Sheet and as more fully
described in the definitive agreement:
- Super Bowl XXXIII and XXXIV.
<PAGE> 2
- Commercial Breaks: Similar to last year, PVI will have the
right to use the Technology in the commercial breaks
(approximately 22) of the World Feed (i.e. the feed with NFL
graphics). The parties agree that the World Feed is not
broadcast in the United States, Canada and certain other
countries that take the US feed. The insertion breaks,
graphics, advertisers, sponsors and other related elements
must be pre-approved by NFL.
- In Game: In order to use the Technology during the game,
PVI must enter into separate agreements with the
international broadcasters, which agreements shall be
subject to the pre-approval of NFL (not to be unreasonably
withheld). NFL will assist PVI in securing agreements with
such broadcasters; provided, NFL makes no
representations/warranties to PVI that such broadcasters
will enter into agreements with PVI. The parties agree that
the World Feed will carry the First Down Line contained in
the domestic broadcast (Fox for Super Bowl XXXIII and ABC
for Super Bowl XXXIV), and such other technology as may be
developed during the Term.
- 1999 NFL Season: In order to use the Technology during the game and
in other NFL produced programming (i.e. NFL Blast), PVI must enter into
separate agreements with the international broadcasters, which
agreements shall be subject to the pre-approval of NFL (not to be
unreasonably withheld). NFL will assist PVI in securing agreements with
such broadcasters; provided, NFL makes no representations/warranties to
PVI that such broadcasters will enter into agreements with PVI. The
parties agree that the game broadcasts will carry the First Down Line
contained in the domestic broadcast and such other technology as may be
developed during the Term. PVI may not make any changes to the feed
including, but not limited to, covering the logo of the US broadcaster,
without the prior written approval of NFL.
- 1999 NFL Europe League: PVI will have the exclusive right to use the
Technology in (i) the US broadcasts (i.e. Fox, Fox Sports Net and
DirecTV) of NFL Europe League games and NFL produced NFL Europe League
programming, and (iii) international broadcasts of the games and NFL
produced NFL Europe League programming, subject to PVI entering into
separate agreements with such international broadcasters, which
agreements shall be subject to the pre-approval of NFLEL (not to be
unreasonable withheld). NFLEL will assist PVI in securing agreements
with such broadcasters; provided, NFL and NFLEL make no
representations/warranties to PVI that such broadcasters will enter
into agreements with PVI. NFL will use commercially reasonable efforts
to include PVI's First Down Line (and other similar technology) in the
broadcast of NFLEL games.
<PAGE> 3
- Advertisements: The sponsors (with respective categories and
territory) set forth on Exhibit A attached hereto ("Exclusive Sponsor")
shall have exclusive category rights in such category. If an Exclusive
Sponsor elects not to advertise via the Technology, PVI and the
international broadcaster cannot sell to a competing sponsor. Other
NFL/NFLEL sponsors (attached hereto as Exhibit B) shall have a right of
first refusal, which list may be amended from time to time by the NFL.
NFL shall assist PVI in sales to such sponsors. All advertisers must be
pre-approved by NFL. PVI agrees that only NFL/NFLEL official sponsors
have rights to use the intellectual property of the respective league.
Accordingly, PVI may not insert advertisements for non-sponsors that
contain, directly or indirectly, any intellectual property of the
NFL/NFLEL.
- Approval: NFL shall have pre-approval rights over all uses of the
Technology and insertions including, but not limited to, content,
identity, duration, size, location, frequency and other related
factors.
- Costs: PVI shall be responsible for all costs and expenses in
connection with the Technology and any other related cost and expense.
- Promotion/Press Release: NFL agrees to promote PVI as the exclusive
provider of the Technology, which promotion shall be set forth under
separate cover. All press releases and announcements must be
pre-approved by the parties.
- Other: NFL agrees to provide PVI with the following if PVI is not
in breach of the agreement:
- One (1) page advertisement in the Super Bowl XXXIV game program
- Space at the NFL Experience at Super Bowl XXXIII and XXXIV
(size and location TBD by NFL)
- Promotion of PVI on the NFL International and NFL Europe League
websites
- Participation at the NFL International Broadcast Meetings
If the foregoing accurately sets forth our mutual understanding, please
countersign below and return to my attention. Upon receipt of the
fully-executed letter, we will begin drafting a definitive agreement.
Sincerely,
NFL International, a
division of NFL
Enterprises L.P.
/s/ Donald P. Garber
------------------------------
By: Donald P. Garber
Its: Senior Vice President/
Managing Director
<PAGE> 4
ACCEPTED AND AGREED:
Princeton Video Image, Inc.
/s/ Dennis P. Wilkinson
By: Dennis P. Wilkinson
Its: President & CEO
<PAGE> 1
EXHIBIT 10.3
[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> 2
PRINCETON VIDEO IMAGE, INC.
SYSTEM LICENSE AGREEMENT
DATA AND EXECUTION PAGE
This Agreement is between the parties on behalf of which this Agreement
has been executed below:
PVI hereby grants a license to Licensee, subject to all the terms and
conditions set forth in this Agreement and the Schedules attached, in the
Territory and for the Licensed Event(s) described below:
Territory: Republic of South Africa
Licensed Event(s): any commercial application (or use) consistent with Section
2.4, viable and/or feasible at present or during the term of this agreement,
through or with, the use of L-VIS(TM) System, whether such use is television
advertising (including all sorts of modifications or post productions,
commercials, infomercials, etc.) or any application in sports, intended for its
use or distribution in the Territory . For a major, internationally televised
broadcast originating outside of the Territory, Licensee is granted a right of
first refusal to work with PVI or another Third Party Licensee of PVI on such
event to provide advertising for distribution in the Territory, on terms to be
negotiated between the Licensee and PVI or another Third Party Licensee of PVI.
Term of License Grant: The Initial Term of the license is 5 years from the
Commencement Date. The Term shall be extended automatically for an additional
five year period at the end of the fifth year of the license term and at the end
of every fifth year thereafter (assuming the original license term is extended)
(i) if, during each Term, the Licensee has not been in default of any term or
provision of this Agreement or any other agreement with PVI and (ii) if Licensee
has generated, on an aggregate basis, during the then just concluded five year
period, the then applicable Minimum Revenue Split. It is also a requirement of
any renewal of this Agreement that Licensee and PVI agree to set the Minimum
Revenue Split for each extension period of this Agreement at least 60 days prior
to the end of the initial term and any subsequent extension periods.
Commencement Date: the date of execution of this Agreement.
Expiration Date: 5 years from the Commencement Date, unless extended
as above.
Minimum Revenue Split: For the one year period commencing on the Commencement
Date, the Minimum Revenue Split shall be [CONFIDENTIAL TREATMENT REQUESTED] in
the aggregate and shall be non-refundable. For the five year period commencing
on the Commencement Date, the Minimum Revenue Split shall [CONFIDENTIAL
TREATMENT REQUESTED] in the aggregate. For purposes hereof, Minimum Revenue
Split shall mean the sum of Quarterly Revenue Splits agreed to be paid by
Licensee to PVI over the applicable period.
Territory Fee: [CONFIDENTIAL TREATMENT REQUESTED] payable upon delivery and
successful completion of Initial Testing of the initial Unit ("Initial Territory
Fee"). "Initial Testing" shall mean the delivery of the Unit to the Licensee and
the first successful insertion of a graphic image into a videotape
<PAGE> 3
playback of a live sports broadcast for which the Unit's software was designed.
In addition, commencing one year after the Commencement Date and on the first
day of each month thereafter throughout the term of this Agreement, an
additional Territory Fee equal to [CONFIDENTIAL TREATMENT REQUESTED] per month
shall be payable by Licensee to PVI.
Equipment Fee: [CONFIDENTIAL TREATMENT REQUESTED], Initial Unit
No Additional Units to be leased on Commencement Date.
Estimated Delivery Date for the Initial Unit:
Revenue Split Fraction: [CONFIDENTIAL TREATMENT REQUESTED]
By having its duly authorized officer sign below, each party agrees to
the terms of this Agreement and to all the terms and conditions contained in the
attached schedules. No changes or deletions to this Agreement or any attached
schedule will be effective unless approved in writing by PVI and Licensee.
PVI:
LICENSEE:
Princeton Video Image, Inc. Sasani Limited
15 Princess Road 2 Johannesburg Road
Lawrenceville, NJ 08648 U.S.A. Highlands North Exit 6
2192 Johannesburg, South Africa
Telephone: (609) 912-9400 Telephone: (27 11) 786 2360
Fax: (609) 912-0044 Fax: (21 11) 440 5132
By: /s/ Lawrence L. Epstein By: /s/ Franco Barocas
------------------------------- --------------------------------
Name: Lawrence L. Epstein Name: Franco Baroca
Title: Vice President, Finance Title: MD - ESPN Legends and Sasani
Chief Financial Officer Sports
Date: December 18, 1998 Date: January 19, 1999
<PAGE> 4
PRINCETON VIDEO IMAGE, INC.
SYSTEM LICENSE AGREEMENT
SCHEDULE A
TERMS AND CONDITIONS
1. DEFINITIONS.
In addition to the terms defined on the Data and Execution Page and
elsewhere in this Agreement, the following terms shall have the following
meanings:
1.1_ "Additional Units" has the meaning assigned to it in Section 2.8.
1.2_ "Advertiser" means any person for or on behalf of which an
insertion of an Electronic Image is made by Licensee for consideration.
1.3_ "Documentation" means all operator and user manuals, training
materials, guides, specifications and other materials created or owned by PVI
and provided to Licensee for use with the L-VIS(TM) System.
1.4_ "Editing Agent" means any person that is responsible for actual
manipulation of the L-VIS(TM) System in order to make insertions of Electronic
Images.
1.5_ "Electronic Image" means an image that is electronically inserted
into telecasts through use of the L-VIS(TM) System.
1.6_ "Equipment" means the computer hardware and other equipment
included in the L-VIS(TM) System, all as set forth on Schedule B, annexed
hereto.
1.7_ "Equipment Fee" means the cost for each Unit. Licensee
acknowledges that PVI's Equipment Fee as of the date of this Agreement are the
amounts set forth in Exhibit C. Licensee acknowledges that PVI may revise the
Equipment Fee for Additional Units every year during the term of this Agreement.
The Equipment Fee will not increase more than 10% for a like Unit during the
year.
1.8_ "General Improvements" means all revisions, operational
enhancements, updates, upgrades and other modifications to the software included
in the L-VIS(TM) System from time to time, and the Equipment embodying same,
that PVI may make or have made, from time to time, and that PVI shall make
available to its licensees without charge (other than charges for the
Equipment).
1.9_ "Initial Unit" means the L-VIS(TM) System that PVI is licensing to
Licensee effective upon the Commencement Date, pursuant to this Agreement.
A-1
<PAGE> 5
1.10_ "Licensed Event" means any and all applications described in the
Licensing Data and Execution Page.
1.11_ "L-VIS(TM) System" means the PVI product, including the
Equipment, the Software and the Documentation, which allows real-time electronic
insertion of Electronic Images into telecasts and, as may be possible in the
future, into any other applications.
1.12_ "Revenues" means all amounts paid by Third Parties, including
Advertisers and advertising agencies, to or for the benefit of Licensee or
Licensee's affiliates and received by the Licensee or its affiliates, related to
any use of the Units licensed to Licensee hereunder, including, without
limitation, advertising fees, premiums, user charges, revenue split, up-front
payments and training fees. If advertising related to the use of the Units
licensed to Licensee hereunder is sold in combination with other advertising
services, all revenue received by Licensee or its affiliates shall be deemed to
be Revenues unless PVI approves in writing, a specific allocation or formula
which may be applied in connection therewith.
1.13_ "Software" means the computer software, in object code form,
included in the L-VIS(TM) System as of the date of the shipment of a Unit, and
all General Improvements made subsequent to the date of this Agreement, if any.
1.14_ "Term" means the period commencing on the Commencement Date and
ending upon the Expiration Date.
1.15_ "Third Party" means any person or company who or which is not a
party nor affiliate of a party to this agreement.
1.16_ "Trademarks" means all trademarks or trade names that PVI uses,
from time to time, with respect to the L-VIS(TM) System.
1.17_ "Unit" means one complete L-VIS(TM) System. "Units" means the
Initial Unit and the Additional Units (as defined herein), if any, collectively.
2. LICENSE AND LEASE GRANTS
2.1_ Grant of L-VIS(TM) System License. Subject to the terms and
conditions set forth in this Agreement, PVI hereby grants to Licensee an
exclusive, non-transferable license to use the Software and Equipment, and any
technology or know-how that is owned or controlled by PVI and is necessary or
useful for the exploitation thereof, solely for combined use as an L-VIS(TM)
System and solely in connection with any application of Licensed Events within
the Territory during the Term.
2.2_ Reservation of Rights. All rights and licenses not expressly
granted in Section 2.1 hereof are expressly reserved by PVI.
A-2
<PAGE> 6
2.3_ Restrictions on Use. In addition to other restrictions and
limitations which may be imposed by the Agreement: Licensee shall not:
(1) (i) make or distribute to others copies of the Software or
the Documentation; (ii) modify, adapt, merge, translate, decode, reverse
engineer, decompile, disassemble or create derivative works based upon the
Software, the Documentation, the Equipment or any other part of the L-VIS(TM)
System; (iii) use the L-VIS(TM) System or any part thereof in the construction,
development, maintenance, running or execution of any application other than the
Software; or (iv) market the Software, the Equipment or the L-VIS(TM) System, or
any part thereof, other than expressly in connection with the insertion of
Electronic Images into telecasts of Licensed Events.
(2) Unless agreed to in advance in writing by PVI, Licensee
shall not: (i) sublicense, lease, sell, assign, rent or otherwise transfer to
others, or otherwise dispose of, the Software, the Documentation, the Equipment
or any other part of the L-VIS(TM) System (provided however, that this shall not
restrict the right of the Licensee to facilitate the use of the L-VIS(TM) System
to its customers or any Editing Agent within the scope set forth in Section
2.5(3) of this Agreement); (ii) use the L-VIS(TM) System for any purpose other
than in connection with Licensed Events within the Territory; or (iii) transfer,
assign, relicense or otherwise dispose of any of its rights under this Agreement
(except for "Permitted Assigns", defined as corporations or partnerships which
are affiliates, controlled by or which exercise control on, the Licensee.) No
transfer, assignment, relicense or other disposition of any rights hereunder to
any Permitted Assign shall be effective or recognized unless and until such
Permitted Assign agrees to be bound by all terms and provisions of this
Agreement as if it were the original Licensee hereunder.
2.4_ Compliance with PVI's Standards.
(1) Licensee acknowledges that any use of the L-VIS(TM) System
in violation of applicable law and commonly recognized community or industry
standards would cause severe and irreparable injury to PVI's reputation and
legitimate business interests and that, as a result, PVI must exercise control
over standards and guidelines for use of the L-VIS(TM) System. Therefore,
notwithstanding anything in this Agreement to the contrary, Licensee shall not,
and it shall not allow any Editing Agent or customer to, use the L-VIS(TM)
System in any manner inconsistent with applicable law and commonly recognized
community or industry standards, or in a manner that has not been approved by
the rights holders, sponsors, advertisers and broadcasters of such Licensed
Event.
(2) In furtherance of, and not in limitation of, Licensee's
obligations under Section 7.4, during the Term and for three years thereafter,
Licensee shall maintain, at its sole cost and expense, advertising injury
insurance (or its equivalent in the Territory) with such coverage and much
limits as are customarily maintained by television advertisers in the Territory.
Such insurance shall designate PVI as an additional insured. Upon request,
Licensee shall provide PVI with copies of all such policies and amendments
thereto.
A-3
<PAGE> 7
2.5_ Obligations of Licensee.
(1) Licensee will be solely responsible for selling Electronic
Images for all Licensed Events, and during the Term, Licensee shall use all
reasonable and diligent commercial efforts to do so and to maximize the economic
return therefrom.
(2) Licensee shall be responsible for negotiating, directly or
through third parties, any arrangements with rights holders needed to enable
Licensee to use the L-VIS(TM) System as contemplated in this Agreement,
including, without limitation, obtaining any and all required rights and
permissions ("Required Permissions").
(3) It is understood that Licensee may have arrangements with
one or more Editing Agents for the Licensed Events. Notwithstanding anything to
the contrary herein, the license rights granted by PVI to Licensee to use the
L-VIS(TM) System hereunder shall be extended to such customers and/or Editing
Agents solely for their use in connection with the Licensed Events, provided
that Licensee shall first receive from each customer and/or Editing Agent a
written, enforceable undertaking by such customer and/or Editing Agent to comply
with the provisions of Sections 2.4(1) and 5 hereof. Licensee shall directly
oversee the training of all customers and/or Editing Agents, and ensure that all
such Editing agents have completed such training and are competent to operate
the L-VIS(TM) system in a workmanlike manner and in accordance with the terms
and conditions of this Agreement.
(4) Except as otherwise set forth herein, Licensee will
maintain complete editorial control over the use of the L-VIS(TM) System in
connection with the Licensed Events, including the right to determine the
location, content and appearance of Electronic Images.
2.6_ Inspection Right. PVI shall have the right to inspect, at its own
expense, all sites where the L-VIS(TM) System is being used pursuant to this
Agreement for all reasonable purposes, including, without limitation, assuring
itself of Licensee's observance and compliance with the terms hereof.
2.7_ Incidental Telecasts Outside Territory. The parties acknowledge
that television telecasts cannot be made to conform exactly to geographic
boundaries. As a result, (i) Licensee's use, in good faith, of the L-VIS(TM)
System pursuant to the license granted in Section 2.1 above may result in the
telecast in geographic areas outside, but in close proximity to, the Territory
of Electronic Images inserted in connection with such use, and (ii) use, in good
faith, of the L-VIS(TM) System pursuant to licenses granted by PVI to others
("Third Party Licensees") in geographic areas outside the Territory may result
in the telecast in the Territory of Electronic Images inserted in connection
with such use. No such incidental telecast outside the Territory pursuant to
this license shall constitute a breach of any obligation of Licensee under this
Agreement, and Licensee shall not be required to make any payment to or
otherwise compensate PVI or any Third Party Licensee on account thereof.
Likewise, no such incidental telecast in the Territory pursuant to licenses
granted to Third Party Licensees shall constitute a breach of any obligation of
PVI under this Agreement, and Licensee shall not be entitled to any payment or
other compensation from PVI or any Third Party Licensee on account thereof.
A-4
<PAGE> 8
2.8_ Lease of Equipment; Additional Units.
(1) Subject to the terms and conditions set forth in this
Agreement, PVI hereby leases to Licensee the Equipment which embodies the
Initial Unit solely for use in conjunction with its use of the L-VIS(TM) System
and solely in connection with the telecast of Licensed Events within the
Territory during the Term. The Equipment that comprises the Initial Unit will be
described and identified by serial number on Schedule B annexed hereto.
(2) During the Term and so long as Licensee is not in default
under any of the terms or conditions of this Agreement, Licensee may request,
from time to time, that PVI license to Licensee additional Units, provided that
Licensee can demonstrate a commercially reasonable need for such additional
Units. Such request shall be made in writing, shall set forth the specific
manner in which Licensee intends to use such additional Units and shall specify
the number of, and the Delivery Location for, the additional Units that Licensee
seeks to lease. To the extent that, in PVI's sole discretion, Licensee has
demonstrated a commercially reasonable need for such additional Units, PVI shall
use all reasonable efforts to provide Licensee with the number of additional
Units that Licensee requests, provided that PVI's failure to provide any or all
such additional Units shall not constitute default under this Agreement.
Promptly after receiving such a request, PVI shall provide Licensee with written
notice of the number, if any, of additional Units that PVI will deliver (such
additional Units, the "Additional Units") and the estimated date of such
delivery. Delivery of Additional Units shall be made in accordance with Section
2.9. Additional Schedules B shall be executed by the parties, from time to time,
for all Additional Units delivered to Licensee pursuant to this Section 2.8(2).
(3) Within 30 days following the end of each year during the
term of this Agreement, PVI shall establish the Equipment Fee for all Additional
Units to be leased during the then current year period.
(4) At the end of each five year period during the term of
this Agreement, PVI shall refurbish the Initial Unit then leased to Licensee at
no charge to Licensee, provided that the Term is extended as described on the
Data and Execution Page.
2.9_ Delivery of Unit(s).
(1) PVI shall use all reasonable efforts to deliver the
Initial Unit by the Estimated Delivery Date. In connection with the delivery of
any Additional Units, PVI shall provide Licensee with delivery of such Units
within 90 days of their being paid for. PVI shall deliver the Initial Unit and
any Additional Unit(s) to Licensee at the Delivery Location designated therefore
on the applicable, delivery F.O.B. PVI's facility, Lawrenceville, New Jersey,
USA. Licensee shall be responsible for all freight expenses and import and
export duties and taxes assessed relating to such shipments and shall bear all
risk of loss or damage in connection with such shipments.
(2) Upon delivery of the Initial Unit or the Additional
Unit(s), as the case may be, to Licensee, Licensee shall assume all risks of
loss, theft, destruction of, and damage to the Unit(s) so delivered. Licensee
shall, at its expense, maintain All Risk Physical Damage insurance (or its
equivalent in each country in the Territory) on the Equipment with coverage
limits of at least 125% of the Equipment Fee per Unit, and the proceeds of such
coverage, in the event of loss or damage, shall be applied, at PVI's option, to
the repair or replacement of the Equipment affected. Licensee shall provide
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evidence of such insurance to PVI from time to time as PVI may request. PVI
shall be named as an additional insured under such insurance policy(ies).
Notwithstanding the preceding sentence, Licensee shall be responsible for any
loss or damage to the Equipment from any cause whatsoever not covered by such
insurance and shall indemnify and hold PVI harmless from any such losses or
damages.
2.10_ Training.
(1) Prior to the delivery of the Initial Unit and any Additional Units,
PVI shall provide up to 10 days of training in the use and operation of the
L-VIS(TM) System for up to three members, in the case of the Initial Unit, and
one member, in the case of each Additional Unit, of Licensee's technical staff.
All such training shall be designed to assure proper operation of the L-VIS(TM)
System by Licensee. Such training shall be at dates mutually agreed upon and
provided at PVI's offices in Lawrenceville, New Jersey (unless otherwise agreed
upon). PVI shall provide such training at no additional cost to Licensee, except
that Licensee shall be responsible for all travel, meal and lodging expenses of
any Licensee personnel who travel in connection with such training.
(2) In addition, for not more than 30 days following each delivery of a
Unit, PVI shall make one of its representatives available to Licensee at a
single location to provide technical assistance in connection with the
installation and operation of such Unit. PVI shall provide such assistance at no
additional cost to Licensee, except that Licensee shall be responsible for all
expenses incurred by the PVI representative for travel, meals and lodging in
connection with providing such assistance.
2.11_ Support.
(1) Licensee, at its sole expense, shall maintain the Unit(s) in good
operating condition. PVI shall make its technical personnel available during
PVI's normal business hours for telephone consultations with Licensee's
technical staff at no charge. In the event that on-site technical support is
required by Licensee during the Term (other than the training contemplated by
Section 2.10 above), PVI shall provide such support at PVI's then current
charges for such services, and Licensee shall reimburse PVI for all expenses of
PVI's personnel for travel, meals and lodging incurred in connection with
providing such services.
(2) At Licensee's request, PVI shall use reasonable efforts to make its
technical personnel available to Licensee, at no charge to Licensee, during
non-business hours for emergency telephone consultations during any telecast of
a Licensed Event.
2.12_ Ownership.
(1) Licensee acknowledges and agrees that PVI owns the L-VIS(TM)
System, including all of the Software, Equipment and Documentation, and all
copies thereof, all updates and modifications thereto (whether made by or on
behalf of PVI or Licensee) and all right, title and interest in and to all
patents, patent rights, copyrights, Trademarks, service marks, trade secrets and
confidential or proprietary information relating thereto. Licensee acknowledges
that, by virtue of this Agreement, Licensee does not have, and will not obtain,
any right, title or other proprietary interest in or to any of the foregoing.
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(2) During the Term, if PVI supplies Licensee with labels, plates or
other markings stating that the Equipment is owned by PVI, Licensee shall affix
and keep the same affixed in a prominent place on the Equipment. Licensee shall,
at Licensee's sole cost and expense, execute and file all statements or
instruments and take all other reasonable actions required or permitted under
applicable law in the Territory (or requested by PVI) to provide public notice
of, and protect PVI's interest in, the Equipment, including, without limitation,
against the rights or claims of landlords and others. In furtherance of the
foregoing, Licensee hereby grants PVI the right to execute and file such
statements or instruments and take such other related actions, all in Licensee's
name. Licensee shall, at all times keep the Equipment free from any legal
process or encumbrance whatsoever, including, without limitation, liens,
attachments, levies and executions, and shall give PVI immediate written notice
thereof and shall indemnify PVI from any loss caused thereby.
(3) The Equipment is, and at all times be and remain, personal property
notwithstanding that the Equipment or any part thereof may now be, or hereafter
become, in any manner affixed or attached to real property or any improvements
thereon.
(4) PVI agrees that it shall not voluntarily create or allow or allow
to be created a lien or encumbrance on the Equipment unless such lienholder is
advised of the lease of the Equipment pursuant to this Agreement, and such lien
against the Equipment is subject and subordinate to the lease of the Equipment
to Licensee.
2.13_ Improvements.
(1) PVI shall list, on its secure Internet website, all General
Improvements from time to time developed with respect to the Equipment.
Thereafter, from time to time as soon as commercially available and as requested
by Licensee, PVI shall promptly deliver to Licensee, and provide one member of
Licensee's technical staff with necessary training concerning, any General
Improvements that exist during the Term. Licensee acknowledges and agrees that
PVI shall not be obligated to create any General Improvements. PVI shall provide
General Improvements to Licensee without charge, except that Licensee shall
reimburse PVI for its actual cost of the Equipment embodying such General
Improvements, if any, and for the cost of shipment of such Equipment prior to
PVI's shipment thereof. Licensee shall be responsible for any taxes or fees, if
any, associated with the import of the Equipment into the Territory.
(2) The parties shall execute and annex additional Schedule B's, if
necessary, to reflect any Equipment delivered to Licensee pursuant to this
Section 2.13.
2.14_ Grant of Trademark License.
(1) Subject to the terms and conditions set forth in this Agreement,
PVI hereby grants to Licensee an exclusive, non-transferable license to use the
Trademarks in the Territory connection with Licensee's exploitation of the
L-VIS(TM) System under the license granted hereby.
(2) Licensee shall use the Trademarks only in such form and manner as
shall be approved from time to time in writing by PVI, including, without
limitation, the identification of PVI as the owner of such Trademarks.
Notwithstanding the foregoing, Licensee shall not use the Trademarks in any
manner that may jeopardize the significance, distinctiveness or validity
thereof. All of Licensee's
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uses of the Trademark shall inure to the benefit of PVI. Licensee shall not use
the Trademarks in combination with any other trademark, trade name or logo of
its own or of any third party to create a composite trademark or logo, without
the prior written consent of PVI. If Licensee becomes aware of any infringement
of the rights of PVI in the Trademarks in the Territory, Licensee will promptly
notify PVI in writing and may (but shall not be so obligated) join and assist
PVI, at PVI's sole cost and expense if such assistance is required, in taking
steps as PVI may reasonably request for the protection of PVI's Trademark
rights.
(3) PVI makes no warranty with regard to the validity of the
Trademarks or the registration thereof.
3. TERRITORY FEE; REVENUE SPLIT; PAYMENTS
3.1_ Territory Fee. In partial consideration of the licenses and rights
granted by PVI to Licensee hereunder, Licensee shall pay PVI the Initial
Territory Fee indicated on the execution of this Agreement and at other times
specifically set forth on the Data and Execution Page of this Agreement. Payment
of the Territory Fee shall be non-refundable.
3.2_ Equipment Fee. Licensee shall pay PVI a one-time Equipment Fee
with respect to Units licensed to Licensee. The Equipment Fee for the initial
Units is indicated on the Data and Execution Page of this Agreement and is
payable upon signing of this agreement. Licensee shall pay PVI the Equipment Fee
with respect to each Additional Unit to be delivered if any, within 30 days
after receipt of invoice. Payments of Equipment Fees shall be non-refundable.
3.3_ Revenue Split. As additional consideration of the licenses and
rights granted by PVI to Licensee hereunder, Licensee shall pay to PVI a revenue
split equal to the product of (i) the Revenues multiplied by (ii) the Revenue
Split Fraction as indicated on the Data and Execution Page of this Agreement
(the result of such multiplication is defined as the "Revenue Split").
3.4_ Payments. All Revenue Split payments due hereunder shall be paid
by Licensee quarterly, within 30 days following the end of each quarter in
question. Each such payment shall be accompanied by a statement showing, for the
subject quarter, the number of sales of Electronic Images, the amount of
Revenues generated by such sales and the amount of Revenue Split due on such
Revenues. Revenue Split payments not paid when due shall bear simple interest at
the rate of one percent (1%) per month until paid. All monthly Territory Fees
due hereunder shall be paid by Licensee within 15 days after the start of the
month in which they become due. Without the prior written consent of PVI,
Licensee shall not accept or solicit any non-monetary consideration in
connection with the use of the L-VIS(TM) System other than as would be reflected
in Revenues, except for commercially reasonable use for demonstrations to
potential Advertisers.
3.5_ Mode of Payment. Licensee shall make all payments to PVI required
under this Agreement to an account maintained by PVI at Paine Webber & Company,
Incorporated, or as otherwise directed by PVI from time to time. All payments
shall be in United States Dollars. For each payment
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period and each currency, the payments due shall be calculated at the rate of
exchange published in The Wall Street Journal, Eastern U.S. Edition, for the
last business day of such payment period.
3.6_ Records Retention. During the Term and for two additional years
after each business year, Licensee shall keep complete and accurate records
pertaining to Revenues to permit PVI to confirm the accuracy of all Revenue
Split calculations hereunder.
3.7_ Audit Request. During the Term and for two additional years after
each business year, at the request of PVI, Licensee shall permit PVI or a
reputable independent certified public accountant appointed by PVI to examine
such records as may be necessary to support the correctness of any payment due
or made to PVI by Licensee hereunder. Results of such examination shall be made
available to Licensee.
3.8_ Cost of Audit. PVI shall bear the full cost of any audit
contemplated by Section 3.7 above, unless such audit discloses that payments
made hereunder by Licensee to PVI for the audit period in question were more
than 10% less than the amount of payments that should have been made. In such
case, Licensee shall bear the full cost of such audit.
3.9_ Taxes. If Licensee, in accordance with the laws of any country
included within the Territory, is required to withhold any tax with respect to
payments made or to be made by Licensee to PVI hereunder, such tax amount shall
be deducted from the Revenue Split or other payment to be made by Licensee to
PVI hereunder, and Licensee shall promptly notify and furnish PVI with copies of
any tax certificate or other documentation evidencing such withholding. Licensee
and PVI agree to cooperate with the other in claiming exemptions from deductions
or withholdings under any agreement or treaty from time to time in effect.
Licensee shall however, as a cost of business, pay or reimburse PVI for all
sales, use, value added, excise, personal property or similar taxes which may be
levied or imposed by any taxing authority in the Territory on the L-VIS(TM)
System.
4. LIMITED WARRANTY; INTELLECTUAL PROPERTY; DISCLAIMERS; EXCLUSIONS.
4.1_ Limited Warranty.
(1) PVI represents and warrants that it has all necessary
Trademarks, patent rights, copyrights and trade secrets, or has the right to
grant licenses therefor, which comprise the L-VIS(TM) System, and which are
necessary to grant the licenses for the L-VIS(TM) System as provided in this
Agreement.
(2) PVI warrants that the Units will, during the Term, be free
from defects and operate substantially in accordance with the Documentation,
when operated as a unit with the intended software on the intended hardware and
operating system environment. PVI does not warrant, however, the operation of
the Units shall be uninterrupted or error free. This warranty shall not apply if
errors or problems result from Licensee's negligence or improper use of the
Units. Licensee shall notify PVI promptly in writing of any claim for any such
failure to conform. If any Unit, or any part thereof, fails to perform in
accordance with this warranty, Licensee's exclusive remedy, and PVI's sole
obligation under
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this warranty, shall be limited to the correction or replacement, as soon as
reasonably practicable, of such Unit or part thereof, which PVI determines to be
the cause of an error.
4.2_ Limitation of Warranty. THE LIMITED WARRANTY PROVIDED IN SECTION
4.1 HEREOF IS THE ONLY WARRANTY WITH RESPECT TO THE L-VIS(TM) SYSTEM AND THE
UNITS. PVI DOES NOT MAKE, AND LICENSEE DOES NOT RECEIVE, ANY OTHER WARRANTY,
EXPRESS OR IMPLIED, AND ALL OTHER WARRANTIES OF MERCHANTABILITY AND FITNESS FOR
A PARTICULAR PURPOSE WITH RESPECT TO THE L-VIS(TM) SYSTEM OR ANY PORTION
THEREOF, THE UNITS, THE DOCUMENTATION, OR ANY SERVICES FURNISHED UNDER THIS
LICENSE AGREEMENT ARE EXPRESSLY EXCLUDED.
4.3_ Intellectual Property; Indemnification.
(1) With respect to any claims of infringement in the
Territory with respect to a patent or trade secret which embodies the L-VIS(TM)
System or any portion thereof, PVI shall have the first right, but not the duty,
to institute infringement actions against third parties. If PVI does not
institute an infringement proceeding against an offending third party, Licensee
shall have the right, but not the duty, to institute such an action, for the
account and at the expense of PVI, provided that PVI shall have the right to
assume control of any infringement proceeding instituted by Licensee by
reimbursing Licensee for all of the costs and expenses incurred by Licensee in
connection therewith.
(2) PVI shall defend, at its expense, any action brought
against Licensee to the extent that such action is based on a claim that the use
by Licensee of the L-VIS(TM) System, within the scope of this Agreement,
infringes any patent, or copyright in the Territory, other than claims arising
from Licensee's failure to obtain any Required Permissions.
(3) PVI shall indemnify Licensee from and against any costs,
damages or fees incurred and finally awarded against Licensee in any action
under this Section 4.3 which are attributable to claims that the use of the
L-VIS(TM) System, within the scope of this Agreement, infringes any patent or
copyright in the Territory, other than claims arising from Licensee's failure to
obtain any Required Permissions. Licensee shall notify PVI promptly in writing
of any such claim, and shall provide all available information, assistance and
authority to enable PVI to defend, compromise or settle such claim.
(4) Except as otherwise provided for in this Section 4.3, the
costs and expenses of any action under this Section 4.3 (including reasonable
fees of attorneys and other professionals) shall be borne by the party
instituting and maintaining, or defending, such action, as the case may be. If,
however, the parties elect to cooperate in instituting and maintaining or
defending such action, such costs and expenses shall be borne by the parties in
such proportions as they may agree in writing. Each party shall execute all
necessary and proper documents and take such actions as shall be appropriate to
allow the other party to institute and maintain, or defend, such action,
provided such other party has the right to do so under this Section 4.3. Any
award paid by third parties as a result of any such action (whether by way of
settlement or otherwise) shall be paid to the party who instituted and
maintained, or defended, such action, as the case may be. If, however, both
parties did so, then such award shall be allocated between the parties in
proportion to their respective contributions to the costs and expenses incurred
in such action, or as they may have otherwise agreed.
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(5) In the event that the L-VIS(TM) System, or any part
thereof, becomes, or in PVI's opinion is likely to become, the subject of a
claim of infringement, PVI may: (i) procure for Licensee, at no cost to
Licensee, the right to continue to use the L-VIS(TM) System, (ii) replace or
modify the L-VIS(TM) System, at no cost to Licensee, to make the L-VIS(TM)
System non-infringing, provided that the same functions are performed by the
replaced or modified system, or (iii) if the right to continue to use cannot be
reasonably procured or the L-VIS(TM) System cannot be reasonably replaced or
modified, terminate this Agreement.
(6) THIS SECTION 4.3 STATES THE ENTIRE LIABILITY OF PVI WITH
RESPECT TO INFRINGEMENT OF PATENTS, TRADE SECRETS OR COPYRIGHTS BY THE L-VIS(TM)
SYSTEM OR ANY PORTION THEREOF, AND PVI SHALL HAVE NO ADDITIONAL LIABILITY WITH
RESPECT TO ANY ALLEGED OR PROVEN INFRINGEMENT.
4.4_ Exclusion and Disclaimer of Damages. IN ANY EVENT, PVI SHALL NOT
HAVE ANY LIABILITY FOR INDIRECT, INCIDENTAL, SPECIAL, CONSEQUENTIAL, OR
EXEMPLARY DAMAGES, INCLUDING, WITHOUT LIMITATION, LOSS OF ANTICIPATED REVENUE OR
OTHER DAMAGES ARISING FROM THE LOSS OF USE OF THE L-VIS(TM) SYSTEM, EVEN IF IT
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. PVI'S TOTAL LIABILITY FOR
DAMAGES UNDER THIS AGREEMENT SHALL NOT IN ANY EVENT EXCEED THE TOTAL AMOUNT OF
PAYMENTS RECEIVED BY PVI FROM LICENSEE UNDER THIS AGREEMENT, EXCEPT THAT THE
FOREGOING SHALL NOT LIMIT PVI'S OBLIGATION TO PAY DOWN ALL COSTS INCURRED TO
DEFEND LICENSEE AS PROVIDED IN SECTION 4.3.
5. CONFIDENTIAL AND PROPRIETARY INFORMATION.
5.1_ Confidential and Proprietary Information.
(1) Licensee acknowledges and agrees that the L-VIS(TM) System
constitutes a valuable asset of PVI and that the information contained in the
L-VIS(TM) System, and any other information that PVI has disclosed or discloses
to Licensee prior to the date hereof or during the Term, as the case may be,
which PVI indicated or indicates at the time of disclosure is confidential, is
confidential and proprietary information of PVI (all such information
collectively, the "Information"). Licensee agrees that during the Term and for a
period of five years thereafter, it will not, without PVI's prior written
consent, directly or indirectly (i) reveal, report, publish, disclose or
transfer any Information to any Third Party or (ii) use any Information for any
purpose or for the benefit of any Third Party, except as expressly authorized in
this Agreement. Licensee shall make reasonable efforts to notify and inform its
agents, representatives and employees who have access to the L-VIS(TM) System or
any Information of Licensee's limitations, duties and obligations regarding
nondisclosure and use of the Information. Licensee shall not, and shall not
permit any agent, representative or employee to, remove any proprietary or other
legends or restrictive notices contained in or included in any Information.
(2) The obligations imposed upon Licensee under Section 5.1(1)
above shall not apply with respect to Information that has already been made
public without breach of any obligation of the Licensee, or is made available
generally by PVI to third parties without obligation of confidentiality or is
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independently obtained by Licensee from a Third Party without breach of the
confidentiality obligation to PVI. If information is required to be disclosed in
compliance with applicable laws or regulations or order by a court or other
regulatory body having competent jurisdiction, and if Licensee is required to
make any such disclosure of Information it will give reasonable advance notice
of such disclosure requirement to PVI and will use its best efforts to secure
confidential treatment of the Information required to be disclosed.
5.2_ Specific Performance. Licensee acknowledges that monetary damages
alone would not adequately compensate PVI in the event of a breach by Licensee
of Sections 2.3 or 5 hereof, and that, in additional to all other remedies
available to PVI at law or in equity, PVI shall be entitled to seek injunctive
relief for the enforcement of its rights and to an seek an accounting of profits
made during the period of any such breach.
6. TERMINATION.
6.1_ Expiration. Unless the Term is extended pursuant to Section 6.2
hereof, this Agreement shall terminate upon the Expiration Date set forth on the
Data and Execution Page of the Agreement, or sooner in accordance with Section
6.3 hereof.
6.2_ Extension. If this Agreement has not previously been terminated by
PVI pursuant to Section 6.3 hereof, Licensee, if it desires to extend the term
set forth in the Data and Execution Page, and provided that all Revenue Splits,
other payments and fees due and owing to PVI from Licensee hereunder have been
paid in full, shall provide written notice of same to PVI at least 180 days in
advance of the current Expiration Date. PVI and Licensee shall then agree on the
Minimum Revenue Split at least 60 days prior to the end of the Term. Following
the giving of such notice and the agreement on the Minimum revenue Split, the
then current Term shall automatically be extended for the period in duration set
forth in the Data and Execution Page and the then current Expiration Date shall
automatically be adjusted accordingly. In no event, however, shall any extension
notice given by Licensee hereunder be effective or valid if, at the time of the
giving of such notice and at the end of the then current Expiration Date,
Licensee is in default of any material obligation under this Agreement.
6.3_ Breach. Either party shall have the right to terminate this
Agreement if the other party is in default of any material obligation hereunder
and such default either is incapable of being cured or, if it can be cured, has
not been cured by the defaulting party within 30 days after receipt of notice of
such default (or, if such default cannot be cured within such 30-day period, if
the party in default does not commence and diligently continue actions to cure
such default during such 30-day period). Either party may regard the other party
as being in default under this Agreement if the other party becomes insolvent,
makes a general assignment for the benefit of creditors, suffers or permits the
appointment of a receiver for its business or assets, or becomes subject to any
proceeding under any bankruptcy or insolvency law, whether domestic or foreign,
or has wound up or otherwise liquidated.
6.4_ Effect of Termination. Upon the expiration or termination of this
Agreement for any reason, Licensee shall immediately discontinue use of the
L-VIS(TM) System and shall return all of the
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Units and all Documentation to PVI at a location designated by PVI, F.O.B.
Destination, freight prepaid, within five days after such expiration or
termination. Licensee shall assume all risks of loss or damages until delivery
at such location. Thereafter, Licensee shall retain no rights in or to the
L-VIS(TM) System or the Documentation. In the event of termination of this
Agreement for breach by any party, such termination shall be in addition to, and
not in lieu of, any other remedies, at law or in equity, available to the
non-defaulting party which are not inconsistent with the terms set forth in this
Agreement.
6.5_ Surviving Rights and Obligations. The parties' rights and
obligations regarding insurance (Sections 2.4(2) and 2.9(2)), ownership (Section
2.12), trademarks (Section 2.14), revenue split payments and records (Sections
3.2 through Sections 3.9), limitations on remedies (Section 4), confidentiality
and proprietary information (Section 5), termination (Section 6) and other
miscellaneous rights (Section 7) shall survive the termination or expiration of
this Agreement, shall be without prejudice to any rights which shall have
accrued to the benefit of either party prior to the termination or expiration of
this Agreement, and shall not relieve either party from the obligations which do
expressly survive termination or expiration of this Agreement.
7. MISCELLANEOUS.
7.1_ Relationship. This Agreement shall not be construed as creating a
partnership, joint venture, or employment relationship between the parties, and
nothing contained herein shall be construed as causing either party to be the
employee, agent or representative of the other. Neither party shall make any
warranties or representations, or incur any obligations whatsoever, on behalf of
or in the name of the other party.
7.2_ Representations and Warranties. Each party hereby represents and
warrants to the other as follows: (a) such party has the power to execute,
deliver and perform this Agreement in accordance with its terms; (b) such
party's execution, delivery, and performance of this Agreement, and the
consummation of the transactions contemplated herein, have been duly authorized
by all requisite corporate action on the part of such party and do not and will
not violate any provision of law or other agreement to which such party is
subject; (c) all governmental approvals required in connection with the
execution of this Agreement and the consummation of the transactions
contemplated hereby have been obtained; and (d) this Agreement, when executed on
behalf of such party, shall constitute the valid and legally binding obligation
of such party, enforceable in accordance with its terms.
7.3_ Non-Assignment. Except as set forth in Section 2.3, par (2),
Licensee may not grant, assign, sublicense or otherwise convey this Agreement or
any of its rights and obligations hereunder, in whole or in part, to any Third
Party. Any purported assignment, transfer, sublicense or other conveyance shall
be void.
7.4_ Indemnification by Licensee. In additional to the specific
remedies stated in this Agreement, Licensee shall indemnify and hold PVI
harmless from and against any demands, claims, damages or liabilities resulting
from or arising out of Licensee's breach of any of its obligations hereunder.
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7.5_ Force Majeure. Neither party shall be liable to the other for loss
or damages or shall have any right to terminate this Agreement for any default
or delay attributable to any act of force majeure, if the party affected shall
give prompt notice of any such cause to the other party. Notwithstanding the
foregoing, nothing in this Section 7.5 shall excuse or suspend the obligation to
make any payment due hereunder in the manner and at the time provided prior to
the act of force majeure in question.
7.6_ Notices. All notices and communications required or permitted
under this Agreement shall be in writing and delivered by any method providing
for proof of delivery. Any notice shall be deemed to have been given on the date
of receipt. Notices shall be delivered to a party at the address for such party
as set forth on the Licensing Data and Execution Page (or at such other address
for a party as shall be specified by like notice, provided that notices of a
change of address shall be effective only upon receipt thereof).
7.7_ Waiver. No provision of this Agreement shall be waived by any act,
omission or knowledge of a party or its agents or employees except by an
instrument in writing expressly waiving such provision and signed by the waiving
party. The waiver by either party of the breach of any provision of this
Agreement shall not operate or be construed as a waiver of any other or
subsequent breach thereof.
7.8_ Severability. The provisions of this Agreement are severable and
if any one or more of these provisions is held to be invalid or unenforceable,
in whole or in part, the remaining provisions and any partially enforceable
provision shall be and remain binding and enforceable.
7.9_ Further Actions. Each party agrees to execute, acknowledge and
deliver such further instruments, and to do all such other acts, as may be
necessary or appropriate in order to carry out the purposes and intent of this
Agreement.
7.10_ Alternative Dispute Resolution. Any dispute arising out of or
relating to any provisions of this Agreement shall be finally settled by
arbitration to be held in New York, New York, under the auspices and then
current Rules of Conciliation and Arbitration of the International Chamber of
Commerce. Such arbitration shall be conducted by three arbitrators appointed
according to said rules. Each party shall select one arbitrator, and these two
arbitrators shall select the third arbitrator. All arbitrators shall speak
English, and all documents and other evidence, as well as pleadings and
arguments, shall be in English. Judgment upon any award rendered may be entered
in any court having jurisdiction, or application may be made to such court for a
judicial acceptance of the award and an order of enforcement, as the case may
be.
7.11_ Governing Law. The rights and obligations of the parties hereto
shall be governed by and construed in accordance with the laws of the State of
New Jersey; provided, however, that any arbitration proceeding conducted
pursuant to Section 7.10 shall be governed by the Federal Arbitration Act, Title
9, United States Code. All suits and/or appeals permitted under this Agreement
shall be instituted and maintained only in a federal or state court located in
the State of New Jersey. The parties hereby
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irrevocably submit to the exclusive jurisdiction of any New Jersey state or
federal court sitting in the State of New Jersey for any action or proceeding
arising out of or related to this Agreement. The parties also hereby irrevocably
waive, to the fullest extent they may effectively do so, the defense of an
inconvenient forum to the maintenance of any such action or proceeding.
7.12_ Compliance with Law. Nothing in this Agreement shall be deemed to
permit Licensee to export, re-export or otherwise transfer any unit without
compliance with all applicable laws.
7.13_ Additional Terms and Conditions. All additional terms and
conditions agreed to by the parties hereto are set forth in Schedule D hereof.
7.14_ Amendment. No amendment or modification of this Agreement shall
be valid or effective unless made in writing and signed by the parties hereto.
7.15_ Descriptive Headings. The descriptive headings of this Agreement
are for convenience only, and shall be of no force or effect in construing or
interpreting any of the provisions of this Agreement.
7.16_ Counterparts. This Agreement and all of the attached Schedules
may be executed simultaneously in two counterparts, either one of which need not
contain the signature of more than one party but both such counterparts taken
together shall constitute one and the same instrument.
7.17_ Entire Agreement; English Original. This Agreement, including all
of the attached Schedules, as may be amended from time to time, constitutes the
entire agreement of the parties with respect to the subject matter hereof and
supersedes any and all prior negotiations, correspondence, understandings and
agreements, whether oral or written, between the parties respecting the subject
matter hereof. The English original of this Agreement shall prevail over any
translation hereof.
A-15
<PAGE> 19
PRINCETON VIDEO IMAGE, INC.
SYSTEM LICENSE AGREEMENT
SCHEDULE B
EQUIPMENT CERTIFICATE
FOR
INITIAL UNIT
ADDITIONAL UNIT
Delivery Location: ____________
Description:
One L-VIS(TM) System comprised of the following:
Component Serial No.
ACCEPTED AND AGREED TO ACCEPTED AND AGREED TO
AS OF ______________, 199_ AS OF ______________, 199_
PVI: LICENSEE:
By:__________________________ By:__________________________
Name:________________________ Name:________________________
Title:_______________________ Title:_______________________
Date:________________________ Date:________________________
B-1
<PAGE> 20
PRINCETON VIDEO
IMAGE, INC.
SYSTEM LICENSE AGREEMENT
SCHEDULE C
EQUIPMENT PRICING LISTING
DESCRIPTION PRICE
ACCEPTED AND AGREED TO ACCEPTED AND AGREED TO
AS OF ______________, 199_ AS OF ______________, 199_
PVI: LICENSEE:
By:__________________________ By:__________________________
Name:________________________ Name:________________________
Title:_______________________ Title:_______________________
Date:________________________ Date:________________________
C-1
<PAGE> 21
PRINCETON VIDEO
IMAGE, INC.
SYSTEM LICENSE AGREEMENT
SCHEDULE D
ADDITIONAL TERMS AND CONDITIONS
The following changes and modifications are made to the Terms and Conditions of
the System Licensing Agreement dated as of December 18, 1998 between the parties
hereto:
1. Section 1.12 Revenues is amended to exclude from the definition of
Revenues any value added tax paid to Licensee and any agency
commissions paid by Licensee to Third Parties at the prescribed market
rates.
Section 3.3 Revenue Split is amended by adding the following paragraph
to such section:
[CONFIDENTIAL TREATMENT REQUESTED]
ACCEPTED AND AGREED TO ACCEPTED AND AGREED TO
AS OF December 18, 1998 AS OF December 18, 1998
PVI: LICENSEE:
By: /s/ Lawrence L. Epstein By: /s/ Franco Barocas
------------------------------- ------------------------------
Name: Lawrence Epstein Name: Franco Barocas
----------------------------- ----------------------------
Title: VP Finance & CFO Title: MD
---------------------------- ---------------------------
D-1
<PAGE> 22
[PVI logo]
September 23, 1998
Sasani Limited
2 Johannesburg Road
Highlandds North Exit 6
2192
South Africa
Attention: Franco Barocas
Dear Franco:
As agreed, this letter will serve as clarifying attachment to the PVI Affiliate
Contract. The following points have been agreed to.
1. As part of the contract, one L-VIS System will be supplied,
Additional units will be available to Sasani at prices equal
to those given to our most favored customers for like
configurations.
2. PVI will grant Sasani a n eight month option to contract for a
second territory which will be the remainder of the African
Continent. This will represent a separate contract with the
same fee structure and terms and conditions.
3. Except as discussed in the definition of Licensed Events, PVI
will not allow other PVI Affiliates to operate in such a way
that programming with insertions appears in the Territory
either directly or through third parties.
4. In the event the Affiliate develops business opportunities not
addressed specifically by our agreement, the Affiliate may
present the opportunities to PVI on a case by case basis for
consideration. Final approval is required by PVI.
5. In the event the South African Government or the individual
television stations band together so that there is an official
statutory or official regulatory ban against the insertion of
virtual signage, the Affiliate has the right to discontinue
the [CONFIDENTIAL TREATMENT REQUESTED] per month territory
payment until the situation can be rectified or for one year,
whichever comes first.
6. Affiliate may use the names PVI South Africa and PVI Africa.
7. PVI warrants the L-VIS System will be compatible with the year
2000 date change.
8. In the event of a technical problem with the L-VIS equipment
not able to be repaired in 21 days, the Affiliate may
discontinue the monthly territory fee until the system is
repaired.
Agreed & Accepted: Date: 30/9/98
---------------------------------
/s/ Frank J. Brady /s/ Franco Barocas
- -------------------------------- --------------------------------------
Frank J. Brady Sasani Limited
President, PVI International on behalf of a subsidiary to be formed
and incorporated, to which the rights
and obligations of this agreement will
be assigned
/s/ Lawrence L. Epstein
- --------------------------------
Lawrence L. Epstein
VP/CFO, PVI
D-1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS, STATEMENTS OF OPERATIONS AND STATEMENTS OF CASH FLOW FILED AS PART OF
PRINCETON VIDEO IMAGE, INC'S QUARTERLY REPORT ON FORM 10-QSB FOR THE QUARTER
ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
QUARTERLY REPORT ON FORM 10-QSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> DEC-31-1998
<CASH> 17,493,896
<SECURITIES> 138,000
<RECEIVABLES> 273,006
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 18,170,692
<PP&E> 4,643,254
<DEPRECIATION> 2,243,990
<TOTAL-ASSETS> 21,286,755
<CURRENT-LIABILITIES> 1,528,620
<BONDS> 0
969,630
0
<COMMON> 40,917
<OTHER-SE> 17,933,308
<TOTAL-LIABILITY-AND-EQUITY> 21,286,755
<SALES> 0
<TOTAL-REVENUES> 442,238
<CGS> 0
<TOTAL-COSTS> 5,014,860
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,051,764)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,051,764)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,051,764)
<EPS-PRIMARY> (0.50)
<EPS-DILUTED> (0.50)
</TABLE>
