<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF
1934.
FOR THE TRANSITION PERIOD FROM _________________ TO __________________
COMMISSION FILE NUMBER 000-23415
PRINCETON VIDEO IMAGE, INC.
(Exact Name of Registrant 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
(Registrant's Telephone Number, Including Area Code)
Indicate by check 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 past 12 months (or for such shorter period that the registrant is required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No___
The aggregate number of shares of the Issuer's common stock outstanding on
January 20, 2000 was 9,845,329.
<PAGE> 2
PART 1-FINANCIAL INFORMATION
Item 1. Financial Statements
PRINCETON VIDEO IMAGE, INC.
BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
December 31 June 30,
1999 1999
---- ----
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 14,077,670 $ 12,494,373
Restricted marketable securities held to maturity 137,357 138,000
Trade accounts receivable 572,924 378,652
License rights 166,667 1,166,667
Other current assets 169,027 177,097
------------ ------------
Total current assets 15,123,645 14,354,789
Property and equipment, net 3,824,995 3,806,718
Intangible assets, net 599,694 547,546
Other assets 164,100 182,065
------------ ------------
Total assets $ 19,712,434 $ 18,891,118
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 2,649,957 $ 4,300,499
Unearned revenue 370,913 436,162
------------ ------------
Total current liabilities 3,020,870 4,736,661
Unearned revenue 866,302 1,019,472
Other liabilities 50,712 --
------------ ------------
Total liabilities 3,937,884 5,756,133
------------ ------------
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, 1999, redemption value equal to carrying value
(par plus all accrued but unpaid dividends) 430,825 421,700
Cumulative, Series B, conditionally redeemable, $5.00 par value,
authorized 93,300 shares; issued and outstanding 86,041 shares at
December 31, 1999, redemption value equal to carrying value
(par plus all accrued but unpaid dividends) 582,855 569,955
------------ ------------
Total redeemable preferred stock 1,013,680 991,655
Shareholders' Equity:
Common stock, no par value; $.005 stated value; authorized 40,000,000
shares; 9,829,743 shares issued and outstanding at December 31, 1999 49,147 40,996
Additional paid-in capital 60,268,701 51,535,488
Less: Related party note receivable (1,051,753) (1,153,278)
Accumulated deficit (44,505,225) (38,279,876)
------------ ------------
Total shareholders' equity 14,760,870 12,143,330
------------ ------------
Total liabilities, redeemable preferred stock and
shareholders' equity $ 19,712,434 $ 18,891,118
============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 3
PRINCETON VIDEO IMAGE, INC.
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the three months ended For the six months ended
December 31, December 31,
------------ ------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Royalties and license fees $ 265,061 $ 77,975 $ 481,733 $ 145,267
Advertising and contract revenue 306,667 86,317 597,938 296,971
----------- ----------- ----------- -----------
Total revenue 571,728 164,292 1,079,671 442,238
Costs and expenses:
Sales and marketing 1,300,908 303,370 2,234,494 777,863
Product development 624,105 382,962 1,205,648 826,754
Field operations and support 1,683,568 963,473 2,926,638 1,846,350
General and administrative 947,522 874,556 1,858,672 1,563,893
----------- ----------- ----------- ------------
Total costs and expenses 4,556,103 2,524,361 8,225,452 5,014,860
Operating loss (3,984,375) (2,360,069) (7,145,781) (4,572,622)
Interest and other income 185,627 242,095 323,434 520,858
----------- ----------- ----------- ------------
Loss before tax benefit (3,798,748) (2,117,974) (6,822,347) (4,051,764)
Tax benefit 596,998 -- 596,998 --
----------- ----------- ----------- ------------
Net loss (3,201,750) (2,117,974) (6,225,349) (4,051,764)
Accretion of preferred stock
dividends (11,012) (11,012) (22,025) (22,025)
----------- ----------- ----------- ------------
Net loss applicable to common stock $(3,212,762) $(2,128,986) $(6,247,374) $(4,073,789)
=========== =========== =========== ============
Basic and diluted net loss per share
applicable to common stock ($ 0.34) ($ 0.26) ($ 0.70) ($ 0.50)
=========== =========== =========== ============
Weighted average number of
shares of common stock
outstanding 9,556,553 8,183,552 8,885,019 8,182,719
=========== =========== =========== ============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 4
PRINCETON VIDEO IMAGE, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the six months ended
December 31
-----------
1999 1998
Cash flows from operating activities:
<S> <C> <C>
Net loss $ (6,225,349) $ (4,051,764)
Adjustments to reconcile net loss to net
cash used in operating activities
Amortization of unearned income (235,193) (145,267)
Depreciation expense 917,149 600,771
Amortization of intangibles/license rights 998,404 41,624
Charges associated with stock, warrant and option
grants and related party note receivable 500,324 13,567
Increase (decrease) in cash resulting
from changes in:
Trade accounts receivable (194,272) (79,744)
Other current assets 8,070 (35,543)
Other assets 17,965 44,238
Accounts payable and accrued expenses (498,877) (80,701)
Unearned revenue 16,775 128,200
Miscellaneous other (508) (4,622)
---------- -----------
Net cash used in operating activities (4,695,512) (3,569,241)
---------- -----------
Cash flows from investing activities:
Purchases of property and equipment (935,427) (451,369)
Purchases of license rights (1,100,000) --
Increase in intangible assets (50,354) (38,221)
---------- -----------
Net cash used in investing activities (2,085,781) (489,590)
---------- -----------
Cash flows from financing activities:
Proceeds from sales of common stock, net 8,263,065 100
Cash received from related party notes receivable 101,525
---------- -----------
Net cash provided by financing activities 8,364,590 100
---------- -----------
Net increase (decrease) in cash and cash equivalents 1,583,297 (4,058,731)
Cash and cash equivalents at beginning of
period 12,494,373 21,552,627
---------- -----------
Cash and cash equivalents at end of period $ 14,077,670 $ 17,493,896
============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 5
PRINCETON VIDEO IMAGE, INC.
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 Live Video Insertion System (the "L-VIS(TM)
System") that, through patented pattern recognition technology places
computer-generated electronic advertising images into television
broadcasts of sporting and other events. These electronic images range
from simple corporate names or logos to sophisticated multi-media 3-D
animated productions. The L-VIS System has been used to insert
advertising images into live and pre-recorded television broadcasts.
The Company is developing a series of products for the Internet and
interactive television to allow viewers to interact with live or
recorded video programming. 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-Q 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, 1999 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.
Beginning with the quarter ended September 30, 1999, the Company
changed the presentation of the revenue and expense categories on the
Statement of Operations in order to provide a better description of the
contents of each category. Selling, general and administrative ("SG&A")
expenses have been broken out into two categories: Sales and marketing
and General and administrative. Research and development has been
renamed Product development and L-VIS System costs has been renamed
Field operations and support. With the exception of the increased
detail for the SG&A expenses, the accounting for each category has not
changed.
For the six months and quarters ended December 31, 1999 and 1998 the
Company had no items of other comprehensive income.
2. Per Share Data
Statement of Financial Accounting Standards No. 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
<PAGE> 6
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 3,361,531 and 2,835,231 shares of
common stock that were outstanding at December 31, 1999 and 1998,
respectively, were not included in diluted per share calculations, as
their effect would be antidilutive.
3. New Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities"
("SFAS No. 133"). This statement establishes accounting and reporting
standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It
requires recognition of all derivatives as either assets or liabilities
on the balance sheet and measurement of those instruments at fair
value. If certain conditions are met, a derivative may be designated
specifically as: (a) a hedge of the exposure to changes in the fair
value of a recognized asset or liability or an unrecognized asset or
firm commitment (a fair value hedge); (b) a hedge of the exposure to
variable cash flows of a forecasted transaction (a cash flow hedge); or
(c) a hedge of the foreign currency exposure of net investment in a
foreign operation, an unrecognized firm commitment, an available-for-
sale security, or a foreign-currency-denominated-transaction. This
statement is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. The effect of adopting SFAS No. 133
is not expected to be material.
4. Related Party Transactions
A member of the Board of Directors of the Company is a Managing
Director and Executive Vice President of Allen & Company, Incorporated
("Allen & Co.") which is a shareholder of the Company. Allen & Co.
received commissions in the aggregate amount of approximately $438,000,
as well as warrants initially exercisable for 200,000 shares of common
stock for its services rendered on behalf of the Company with respect
to the private placement of 1.6 million shares of Common Stock in
October 1999.
5. Income Taxes
Under a plan developed by the New Jersey Economic Development Authority
("NJEDA") in 1999, the Company sold $795,997 of its total $1,812,019 of
state tax benefit of unused state Net Operating Loss carryover ("NOL")
and unused Research and Development ("R&D") Tax credits. The Company
received $596,998 in December 1999, or the 75% of the value of the tax
benefits as guaranteed under the program. This amount has been
recognized as an income tax benefit by the Company in December 1999.
The balance of the unused NOL and R&D tax credits are available for the
Company to use (or sell) in the future.
<PAGE> 7
6. Industry Segment, Geographic and Customer Information
The Company operates in one industry segment, real-time video imaging.
The Company markets its L-VIS System worldwide through licensing agreements.
One licensee, Publicidad Virtual S.A. de C.V. accounted for 32% and 33% of
net sales for the six months ended December 31, 1999 and 1998, respectively.
Geographic information is as follows:
<TABLE>
<CAPTION>
U.S. Mexico Other
---- ------ -----
<S> <C> <C> <C>
Six months ended December 31, 1999
Advertising and production revenue $ 597,938 - -
License and royalty fees 344,803 136,930
--------- --------- ---------
Total $ 597,938 344,803 136,930
========= ========= =========
Six months ended December 31, 1998
Advertising and production revenue $ 296,971 - -
License and royalty fees 145,267 -
--------- --------- ---------
Total $ 296,971 $ 145,267 -
========= ========== =========
</TABLE>
All Company assets are based in the United States with the exception of
certain L-VIS Systems which are being used by the Company's licensees in
connection with foreign operations. The approximate value of these L-VIS
Systems located in foreign countries is as follows:
<TABLE>
<CAPTION>
L-VIS Systems Mexico Other Total
-------------
<S> <C> <C> <C>
At December 31,
1999 $467,216 $255,000 $722,216
-------- -------- --------
1998 $398,502 0 $398,502
-------- -------- --------
At June 30,
1999 $620,634 $135,000 $755,634
-------- -------- --------
1998 $343,244 $ 0 $343,244
-------- -------- --------
</TABLE>
7. Subsequent Events
On January 10, 1999, the Company issued 14,286 shares of its common stock
to the Sarnoff Corporation (formerly the David Sarnoff Research Center) as
a royalty payment for the fiscal quarter ended December 31, 1999, pursuant
to the terms of a Research Agreement between the Company and the David
Sarnoff Research Center, dated June 1995, as amended.
<PAGE> 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the
Company's unaudited financial statements, the notes thereto and the
other financial information included elsewhere in this report and in
the Company's June 30, 1999 Annual Report on Form 10-KSB filed with the
Securities and Exchange Commission.
Overview
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 based on patented,
proprietary technology that was designed to modify television
broadcasts by inserting electronic imagery, including both
advertisements and program enhancements, into the original video
stream. The Company has incurred substantial operating losses since its
inception. As of December 31, 1999, the Company had an accumulated
deficit of approximately $44,505,000. This deficit is the result of
research and development expenses incurred in the development and
commercialization 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 and administrative
costs. The Company expects to incur losses during fiscal year 2000 as
it executes its business strategy of developing new products and
increasing its penetration of domestic and international markets in the
field of real-time virtual image insertion, while it builds upon and
protects its proprietary patent portfolio.
The Company intends to focus its efforts on increasing market
acceptance of the L-VIS System and developing additional software
applications. During the first half of fiscal 2000, the Company
increased in number its sales and marketing staff, which is responsible
for negotiating and entering into agreements with teams, leagues and
broadcasters, and also for promoting the L-VIS System to advertisers
and broadcasters in order to create market awareness. While we
anticipate that any purchase of advertising will be done through the
rights holder or the broadcaster, the Company is attempting to increase
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 the
L-VIS System.
The Company expects to continue generating 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 needs to enter
into agreements with rights holders. Such agreements can take various
forms, including revenue sharing, under which the Company receives a
percentage of the fee paid by the advertisers, and also contractual
arrangements whereby the Company receives an agreed upon fee for its
services. The Company realizes revenues when the advertisement runs
over the air. Due to the seasonal nature of sporting events, the
Company's revenue is subject to seasonal fluctuations.
<PAGE> 9
However, this seasonality may be mitigated by the multi-sport
capabilities of the L-VIS System and its use in non-sporting events.
In addition to revenue arising from advertising and contractual
arrangements, a second revenue source is the strategic licensing of the
L-VIS System to third parties. These licenses may be territorial in
nature, or they may cover individual major broadcast events. In the
case of a territorial license, the licensee is responsible for
generating business within the territory and the Company will share in
the business through one or more means including royalties, license
fees, and/or equity participation in the licensee. In the case of
individual events, the Company may receive a flat fee or a fee based on
revenues generated by the licensee, depending on the nature of the
license.
A third revenue source for the Company are the services provided by the
L-VIS System which support the electronic insertion of visual aids in
live sporting events, such as the virtual first-down line and animated
graphics in football games, and a virtual finish-line in horse races.
The Company also offers an advanced post-production package in which
the L-VIS System is used to place products or logos into pre-recorded
television programs, movie scenes, or live television broadcasts. The
Company realizes revenues through contractual arrangements to provide
these visual enhancement services.
Results of Operations
Quarter ended December 31, 1999 compared to the quarter ended December
31, 1998
Revenue
Revenues include receipts from advertising use of the L-VIS System,
contractual arrangements made with customers for visual aids and
program enhancements, and license and royalty fees earned from use of
the L-VIS System outside the United States. Total revenue increased
248% to $571,728 for the quarter ended December 31, 1999 from $164,292
for the quarter ended December 31, 1998. Of this total, royalty and
license fees increased 240% to $265,061 from $77,975 for the quarters
ended December 31, 1999 and 1998, respectively. This resulted primarily
from the addition of Sasani Limited as our exclusive licensee in South
Africa and Canwest Global Communications for its use of the L-VIS
technology in Canadian television broadcasts. Royalties received from
Publicidad Virtual also increased over the prior year due to the
restructuring of our licensing agreement allowing the Company to share
in revenues generated by Publicidad. Advertising and contract revenue
increased 255% to $306,667 from $86,317 for the quarters ended December
31, 1999 and 1998, respectively, primarily as a result of contractual
revenues earned from CBS Sports for the insertion of the virtual first
down line in the national broadcast of 1999-2000 NFL regular season
games and from CBS News for program enhancement services in the live
television broadcast of its CBS Early Show.
Sales and Marketing
Sales and marketing expenses include salaries and travel expenses of
sales and marketing personnel, sales commissions, public relations,
promotion, support personnel and allocated operating costs. Total sales
and marketing expenses increased 329% to $1,300,908 for the quarter
ended December 31, 1999 from
<PAGE> 10
$303,370 for the quarter ended December 31, 1998 as a result of several
factors, including (i) an increase in marketing personnel necessary to
support the Company's continued focus on the sales and marketing of the
L-VIS System, (ii) the institution of a commission program for sales
and marketing executives, (iii) license fees paid to obtain certain
international broadcast and programming rights, and (iv) non-cash
compensation charges incurred in relation to the issuance of options
for consulting services associated with promoting the use of PVI's
technology in soccer and the television production community.
Product Development
Product development expenses include the costs associated with all
Company 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, and program
enhancement services. Also included are costs related to the
development of a new series of products which will allow viewers to
interact with live or recorded video programming via the Internet or
through interactive television.
Product development expenses increased 63% to $624,105 for the quarter
ended December 31, 1999 from $382,962 for the quarter ended December
31, 1998 resulting from (i) a shift in the allocation of new and
existing engineering and management personnel to deployment of new
applications of our core technology, including our post production
product for use in entertainment programming and development work on
products for the Internet and interactive television, and (ii)
increased depreciation resulting from additional L-VIS System units
being used for in-house development.
Field Operations and Support
Field operations and support expenses include the costs associated with
the material production, depreciation and operational support of the
L-VIS System units, including training costs for operators, the
shipping of L-VIS System units to international and domestic venues and
support of the L-VIS Systems in the field. Field operations and support
expenses increased 75% to $1,683,568 for the quarter ended December 31,
1999 from $963,473 for the quarter ended December 31, 1998. This
increase was the result of several factors including (i) depreciation
expense related to the increased number of L-VIS systems used in both
domestic and international venues, (ii) costs associated with increased
activity in Europe, (iii) costs associated with program enhancement
services provided in news programming for the live television broadcast
of the CBS Early Show, and (iv) costs associated with the use of the
L-VIS System by CBS Sports for the insertion of the virtual first-down
marker in NFL regular season football games.
General and Administrative
General and administrative costs include salaries of management,
financial and support personnel, allocated rent and operating costs and
legal and accounting fees. General and administrative costs increased
8% to $947,522 for the quarter ended December 31, 1999 from $874,556
for the quarter ended December 31, 1998, primarily as a result of
professional fees associated with newly awarded patents and the defense
of the Company's existing intellectual property. Also contributing to
this
<PAGE> 11
increase were non-cash compensation charges incurred for stock options
issued to members of the Board of Directors for their services.
Interest and Other Income
Interest and other income decreased 23% to $185,627 for the quarter
ended December 31, 1999 from $242,095 for the quarter ended December
31, 1998 as a result of lower cash balances available for investment.
Tax Benefit
Tax benefit increased to $596,998 from $0 for the quarter ended
December 31, 1999 and 1998, respectively, as a result of the sale of a
portion of the Company's state NOL and R&D tax credits. The sale was
made under a plan developed by the New Jersey Economic Development
Authority in 1999 and was not available during the quarter ended
December 31, 1998.
Net Loss
As a result of the foregoing factors, the Company's net loss increased
51% to $3,201,750 for the quarter ended December 31, 1999 from
$2,117,974 for the quarter ended December 31, 1998.
Six Months ended December 31, 1999 compared to the six months ended
December 31, 1998
Revenue
Total revenue increased increased 144% to $1,079,671 for the six months
ended December 31, 1999 from $442,238 for the six months ended December
31, 1998 . Royalties and license fees increased 232% to $481,733 from
$145,267 for the six months ended December 31, 1999 and 1998,
respectively, as a result of the addition of Sasani Limited as our
exclusive licensee in South Africa and Canwest Global Communications
for its use of the L-VIS technology in Canadian television broadcasts.
Royalties received from Publicidad Virtual also increased over the
prior year due to the restructuring of our licensing agreement allowing
the Company to share in revenues generated by Publicidad. Advertising
and contract revenue increased 101% to $597,938 from $296,971 for the
six months ended December 31, 1999 and 1998, respectively, as a result
of increased use of the L-VIS System by MLB during the 1999 baseball
season, contractual revenues earned from CBS Sports for the insertion
of the virtual first down line in the national broadcast of 1999-2000
NFL regular season games, and from CBS News for program enhancement
services in the live television broadcast of its CBS Early Show.
Sales and Marketing
Total sales and marketing expenses increased 187% to $2,234,494 for the
six months ended December 31, 1999 from $777,863 for the six months
ended December 31, 1998 as a result of numerous factors, including (i)
an increase in marketing personnel and public relations activity
necessary to support the Company's continued focus on the sales and
marketing of the L-VIS System, (ii) the institution of a commission
<PAGE> 12
program for sales and marketing executives, (iii) license fees paid to
obtain certain international broadcast and programming rights, and (iv)
non-cash compensation charges incurred in relation to the issuance of
options for consulting services associated with promoting the use of
PVI's technology in soccer and the television production community.
Product Development
Product development expenses increased 46% to $1,205,648 for the six
months ended December 31, 1999 from $826,754 for the six months ended
December 31, 1998 due to (i) a shift in the allocation of new and
existing engineering and management personnel to deployment of new
applications of our core technology, including our post production
product for use in entertainment programming and development work on
products for the Internet and interactive television, and (ii)
increased depreciation resulting from additional systems being used for
in-house development.
Field Operations and Support
Field operations and support expenses increased 59% to $2,926,638 for
the six months ended December 31, 1999 from $1,846,350 for the six
months ended December 31, 1998. This increase was the result of several
factors, including (i) an increase in expenses associated with the
purchase of L-VIS System components for newly constructed Systems and a
mobile production truck, (ii) depreciation expense related to these
systems and truck, (iii) costs associated with increased activity in
Europe, (iv) costs associated with program enhancement services
provided in news programming for the live television broadcast of the
CBS Early Show as well as in auto racing, and (v) costs associated with
the use of the L-VIS System by CBS Sports for the insertion of the
virtual first-down marker in NFL regular season football games.
General and Administrative
General and administrative expenses increased 19% to $1,858,672 for the
six months ended December 31, 1999 from $1,563,893 for the six months
ended December 31, 1998 as a result of professional fees associated
with newly awarded patents and the defense of the Company's existing
intellectual property. Also contributing to the increase were non-cash
compensation charges incurred for stock options issued to members of
the Board of Directors for their services.
Interest and Other Income
Interest and other income decreased 38% to $323,434 for the six months
ended December 31, 1999 from $520,858 for the six months ended December
31, 1998 as a result of lower cash balances available for investment.
Tax Benefit
Tax benefit increased to $596,998 from $0 for the six months ended
December 31, 1999 and 1998, respectively, as a result of the sale of a
portion of the Company's state NOL and R&D tax credits. The sale was
made under a plan developed by the New Jersey Economic Development
Authority in 1999 and was not available during the six months ended
December 31, 1998.
<PAGE> 13
Net Loss
As a result of the foregoing factors, the Company's net loss increased
54% to $6,225,349 for the six months ended December 31, 1999 from
$4,051,764 for the six months ended December 31, 1998.
Year 2000 Risk Compliance
The Company completed its Y2K project plan and assessment (the
"Project") to identify, correct and test all internal and external
computer systems as well as identify potential problem areas relative
to the Y2K readiness of the Company's suppliers, vendors, customers and
business partners. The Company also addressed concerns related to leap
year calendar date calculations. As of January 31, 2000, the Company's
products, computer and communication infrastructures have operated
without Y2K related problems. The Company has not encountered serious
Y2K non-compliance problems with any of its suppliers or broadcast
partners. The Company does not anticipate any disruptions in operations
but there is no guarantee that the Company has discovered all possible
failures. The Company continues to monitor and perform quality
assurance checks on its internal systems. To date, the Company has
spent less than $100,000 on its Y2K Project.
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 (i)
start-up costs, (ii) the costs of developing, testing and building
L-VIS Systems, (iii) operating expenses relating to sales and marketing
activities of the Company, and (iv) the costs associated with the
operational support of the L-VIS Systems in both domestic and
international field operations. Since its inception, the Company has
primarily financed its operations from (i) the net proceeds of
approximately $27,900,000 from private placements of common stock,
warrants and redeemable preferred stock, including a private placement
of common stock in October 1999, (ii) the payment of a $2,000,000
licensing fee by Presencia in consideration of the license granted by
the Company to Publicidad, (iii) the proceeds of a bridge loan
financing which closed in October 1997, (iv) the proceeds from the
initial public offering of its common stock which closed in December
1997, (v) revenues and license fees relating to use of the L-VIS
System, (vi) investment income earned on cash balances and short term
investments, and (vii) the sale of a portion of the Company's state NOL
and R&D tax credits.
As of December 31, 1999, the Company's cash and cash equivalents
reflected a net increase of approximately $1.6 million to $14,077,670
from $12,494,373 at June 30, 1999 from the influx of net proceeds in
the amount of $8.2 million from the October 1999 private placement
reduced by cash used in operations.
Net cash used in operating activities increased to $4,695,512 from
$3,569,241 for the six months ended December 31, 1999 and 1998,
respectively, as a result of the increased net loss partially offset by
increases in several non-cash expenses. These expenses included
amortization, compensation charges and depreciation. Amortization of
intangibles increased to $998,404 from $41,624 for the six months ended
December 31, 1999 and 1998, respectively, due to the purchase by the
Company of certain electronic imaging license rights which are being
amortized over their term. Charges associated with option and warrant
grants increased to $500,324
<PAGE> 14
from $13,567 for the six months ended December 31, 1999 and 1998,
respectively, as a result of the Company's decision to issue stock for
royalties due under the terms of a licensing agreement with the Sarnoff
Corporation and option grants to sales and marketing consultants as
well as to members of the Board of Directors for their services.
Depreciation expense increased 53% to $917,149 from $600,771 for the
six months ended December 31, 1999 and 1998, respectively, as a direct
result of the increased number of L-VIS Systems built for both domestic
and international use.
Net cash used in investing activities increased to $2,085,781 from
$489,590 for the six months ended December 31, 1999 and 1998,
respectively. This significant use of cash was primarily the result of
increased capital expenditures for the purchase of components used in
the building of additional L-VIS Systems and a mobile production truck
in addition to payments made for certain electronic imaging license
rights.
Net cash proceeds from financing activities increased to $8,364,590
from $100 for the six months ended December 31, 1999 and 1998,
respectively as a result of the receipt of net proceeds of
approximately $8.2 million from a private equity offering of the
Company's common stock. The Company believes that its existing
available cash, cash equivalents and short-term investments, as well as
the proceeds of this private placement, will be sufficient to meet its
capital needs for a period of at least 18 months, although there can be
no assurance that the Company will not require additional funds sooner.
The Company's actual working capital requirements will depend on
numerous factors, including the progress of the Company's research and
development programs, the Company's ability to maintain its customer
base and attract new customers to use the L-VIS System, the level of
resources the Company is able to allocate to the development of greater
marketing and sales capabilities, technological advances and the status
of its competitors. The Company expects to incur costs and expenses in
excess of expected revenues through the remainder of the current fiscal
year as the Company continues to execute its business strategy by
adding to its sales and marketing management force in its efforts to
strengthen relationships with rights holders, broadcasters and
advertisers.
There is no assurance the Company will generate sufficient cash flow
from product sales to liquidate liabilities as they become due.
Accordingly, the Company may require additional funds to meet planned
obligations beyond June 30, 2001 and may seek to raise such amounts
through a variety of options. These include future cash from
operations, proceeds from equity financings, proceeds from equipment
financing lease arrangements and the potential sale of tax benefits
relating to the Company's net operating losses. In the event the
Company is unable to liquidate its liabilities, planned operations may
be scaled back. Additional funding may not be available when needed or
on terms acceptable to us, which could have a material adverse effect
on our business, financial condition and results of operations. If
adequate funds are not available we may delay or eliminate some
expenditures. The financial statements do not include any adjustments
that might result from the outcome of these uncertainties.
As of June 30, 1999, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $30,311,000 which
expire in the years 2006 through 2019. Based upon the Company's initial
public offering of Common Stock in
<PAGE> 15
December 1997, the Company has undergone an additional "ownership
change" within the meaning of Section 382 of the Internal Revenue Code
of 1986, as amended (the "Code"). Under Section 382 of the Code, upon
undergoing an ownership change, the Company's right to use its then
existing net operating loss carryforwards as of the date of the
ownership change is limited during each future year to a percentage of
the fair market value of the Company's then outstanding capital stock
immediately before the ownership change and if other ownership changes
have occurred prior to this ownership change, the utilization of such
losses may be further limited. The timing and manner in which the net
operating loss carryforwards may be utilized in any year by the Company
will be limited by Section 382 of the Code.
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.
Cautionary Statement on Forward-Looking Statements
Some of the information in this Quarterly Report, including
Management's Discussion and Analysis of Financial Condition and Results
of Operations, contain forward-looking statements. Such statements can
be identified by the use of forward-looking words such as "may,"
"will," "expect," "anticipate," "estimate," "continue" or other similar
words. These statements discuss future expectations and projections of
results of operations or of financial conditions. When considering such
forward-looking statements, you should keep in mind that certain risks
may cause actual results to differ from any projections contained in
forward-looking statements. These risks include:
- adverse economic conditions;
- intense competition, including entry of new competitors and
products;
- adverse federal, state, local and foreign government
regulation;
- inadequate capital to operate our business;
- unexpected costs and operating deficits;
- lower revenues than forecast;
- inability to successfully market the L-VIS (TM) System to
television viewers, advertisers, broadcasters and sporting
events rights holders;
- inability of third party sales forces to sell L-VIS System
advertising;
- contractual restrictions on use of video insertion technology;
- risks associated with doing business in international markets;
- seasonal fluctuations based upon the game schedules of each
sport;
- manufacturing inexperience;
- challenges to our patent and proprietary technology;
- technological obsolescence of the L-VIS System;
- inability to upgrade and develop software for use of the L-VIS
System with new sports and other new uses;
- dependence on a sole source of supply for certain hardware
components;
- the possible fluctuation and volatility of our operating
results and financial condition;
- adverse publicity and news coverage;
- loss of key employees; and
<PAGE> 16
- Year 2000 compliance problems.
Item 3 Quantitative and Qualitative Disclosures About Market Risk
The Company does not have material exposure to market risk from market
risk sensitive instruments.
Part II
Item 1 Legal Proceedings
In June 1999, the Company filed a complaint (Princeton Video Image, Inc. v
Scidel US 99-386 U.S. District Court, District of Delaware) seeking to
enjoin Scidel, a competitor who the Company believes practices pattern
recognition to accomplish virtual ad insertion, from infringing two of our
patents (US 5,264,933 and 5,892,554). The Company is seeking injunctive
relief. The Court has scheduled a trial for February 26, 2001, if the
matter is not resolved earlier through summary disposition.
In September 1999, the Company filed a request with the United States
Patent and Trademark Office ("USPTO") to correct the ownership of US Patent
5,917,553, (the "553 patent") licensed to Sportvision, Inc. The Company
believes that the basic subject matter of the 553 patent belongs to PVI.
After the Company filed this action Sportvision, Inc. filed a lawsuit
against the Company for infringement of the disputed 553 patent
(Sportvision, Inc. and Fox Sports Productions v. Princeton Video Image,
Inc. C.99-20998 PVI US District Court, Northern District of California).
Sportvision, Inc. is seeking injunctive relief and compensation including
damages. The Court has scheduled a trial for February 12, 2001, if the
matter is not resolved earlier through summary disposition. We believe that
the present use of PVI's L-VIS System does not infringe any of the claims
of the disputed 553 patent and that in any case, due to the ownership and
other issues, this patent is invalid. We have filed counterclaims to this
effect and are confident we will prevail. We plan to vigorously defend our
ownership of the patent.
Patent litigation involves complex legal and factual issues. The outcome of
such actions are highly uncertain. In addition, patent litigation involves
considerable costs. We cannot assure you that we do not or will not
infringe the patent or intellectual property rights of another company. If
we lose a patent infringement action, we may be required to pay a
significant amount of money or to stop selling our products. We may also
need to license disputed technology from another company, if possible. If
our patents are successfully challenged, our business, financial condition
and the results of our operations will be adversely affected.
Item 2 Changes in Securities and Use of Proceeds
On October 20, 1999, the Company sold 1,592,727 shares of common stock to
several accredited investors for an aggregate purchase price of $8,759,998.
The issuance of the common stock was exempt from registration under the
Securities Act of 1933, as amended, by virtue of Rule 506 under Regulation
D. Each investor represented to the Company that it was an accredited
investor (as defined under Regulation D) and that it was acquiring the
common stock for investment only and not for purposes of distribution. A
legend to such effect was affixed to the stock certificates
<PAGE> 17
issued. All of the investors received adequate information about the
Company. Allen & Company Incorporated, a shareholder of the Company,
provided placement services with respect to the offering. See Note 4 -
Related Party Transactions, of Notes to Financial Statements.
On October 18, 1999 and again on January 10, 1999, the Company issued
14,286 shares of common stock to the Sarnoff Corporation (formerly, the
David Sarnoff Research Center) as a royalty payment for each of the fiscal
quarters ended September 30, 1999 and December 31, 1999, pursuant to the
terms of a Research Agreement between the Company and the David Sarnoff
Research Center, dated June 1995, as amended. The issuance of the common
stock was exempt from registration under the Securities Act by virtue of
Section 4(2) and Regulation D as a transaction not involving a public
offering. The common stock was issued for investment only and not for
purposes of distribution. A legend to such effect was affixed to the stock
certificate issued. The Sarnoff Corporation received adequate information
about the Company.
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, 1999, the approximate amount of net offering proceeds used was
$3,210,000 for repayment of indebtedness and expenses related thereto,
$7,370,000 for the manufacture and deployment of L-VIS(TM) Systems,
$3,210,000 for research and development, $4,581,000 for sales and
marketing, $3,954,000 for capital expenditures, and approximately
$1,679,000 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 3, 1999. At the Annual Meeting, the shareholders of the
Company (i) ratified the appointment of PricewaterhouseCoopers LLP as
independent auditors of the Company for the fiscal year ending June 30,
2000, (ii) 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 2000
and until their successors have been duly elected and qualified, (iii)
ratified an amendment to Article III, Section 4 of the Bylaws of the
Company regarding vacancies and newly created directorships, and (iv)
ratified an amendment to the Company's Amended 1993 Stock Option Plan to
provide automatic stock option grants, the vesting of which is based on
attendance at meetings, to the members of the Board of Directors for their
service on the Board of Directors.
As of October 15, 1999, the record date for the Annual Meeting, the Company
had a total of 8,228,091 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 6,067,760 shares of Common Stock. The following sets
forth information regarding the results of the voting at the Annual
Meeting:
Election of Directors:
<PAGE> 18
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
Voting Shares Voting Shares Voting Shares
DIRECTOR in Favor Against Withheld
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Brown F Williams 6,036,025 31,735 0
-----------------------------------------------------------------------------------------------------
Lawrence Lucchino 6,036,025 31,735 0
-----------------------------------------------------------------------------------------------------
Dennis Wilkinson 6,036,025 31,735 0
-----------------------------------------------------------------------------------------------------
Donald P. Garber 6,036,025 31,735 0
-----------------------------------------------------------------------------------------------------
Jerome J. Pomerance 6,036,025 31,735 0
-----------------------------------------------------------------------------------------------------
Enrique F. Senior 6,036,025 31,735 0
-----------------------------------------------------------------------------------------------------
Eduardo Sitt 6,036,025 31,735 0
-----------------------------------------------------------------------------------------------------
John B. Torkelsen 6,036,025 31,735 0
-----------------------------------------------------------------------------------------------------
</TABLE>
Ratification of Selection of Independent Accountants:
<TABLE>
<S> <C>
-------------------------------------------------------------------------------
Votes in favor: 6,055,540
-------------------------------------------------------------------------------
Votes against: 7,350
-------------------------------------------------------------------------------
Abstentions: 4,870
-------------------------------------------------------------------------------
</TABLE>
Ratification of amendment to Article III, Section 4 of the Bylaws of the
Company regarding vacancies and newly created directorships:
<TABLE>
<S> <C>
-------------------------------------------------------------------------------
Votes in favor: 3,159,398
-------------------------------------------------------------------------------
Votes against: 724,140
-------------------------------------------------------------------------------
Abstentions: 44,751
-------------------------------------------------------------------------------
Non-Votes: 2,139,471
-------------------------------------------------------------------------------
</TABLE>
Ratification of amendment to the Company's Amended 1993 Stock Option Plan
to provide automatic stock option grants, the vesting of which is based on
attendance at meetings, to the members of the Board of Directors for their
service on the Board of Directors:
<TABLE>
<S> <C>
-------------------------------------------------------------------------------
Votes in favor: 5,139,118
-------------------------------------------------------------------------------
Votes against: 881,372
-------------------------------------------------------------------------------
Abstentions: 47,270
-------------------------------------------------------------------------------
</TABLE>
Item 5 Other Information
On January 31, 2000 the Company named Howard J. Kennedy Vice
President of Convergence and Gene Dwyer Vice President, Chief
Technology Officer.
Item 6 Exhibits and Reports on Form 8-K
<PAGE> 19
(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* Agreement, dated August 9, 1999, between the Company and CBS
Sports, a division of CBS Corporation (Incorporated by
reference to Exhibit 10.2 to Company's Current Report on Form
8-K filed with the Securities and Exchange Commission on
October 28, 1999).
10.2 Form of Subscription Agreement dated October 20, 1999 between
the Company and various subscribers.
10.3 Placement Agency Agreement dated October 13, 1999 between the
Company and Allen & Company Incorporated.
10.4 Warrant Certificate dated October 20, 1999 issued to Allen &
Company Incorporated.
10.5 Amended 1993 Stock Option Plan.
27.1 Financial Data Schedule
* Confidential treatment has been granted with respect to portions of this
agreement.
(b) Reports on Form 8-K.
On October 28, 1999, the Company filed a current report on Form 8-K
dated October 11, 1999 which reported a multi-year agreement with CBS
Sports, a division of CBS Corporation, regarding the use of the
Company's technology to insert a virtual first-down line in national
broadcasts of certain National Football League games.
On October 29, 1999, the Company filed a current report on Form 8-K
dated October 29, 1999 which reported the completion of a private
placement of approximately 1.6 million shares of its common stock.
<PAGE> 20
Signatures
In accordance with the requirements of the Securities and Exchange Act
of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Princeton Video Image, Inc.
February 14, 2000 By: /s/ Dennis P. Wilkinson
---------------------- -----------------------
Dennis P. Wilkinson,
President and
Chief Executive Officer
February 14, 2000 By: /s/ Lawrence L. Epstein
----------------------- -----------------------
Lawrence L. Epstein,
Chief Financial Officer
<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
<PAGE> 2
personally or by mail, to each shareholder of record entitled to vote at the
meeting.
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
-2-
<PAGE> 3
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.
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, any
vacancy, however caused, occurring in the Board, and newly created directorships
resulting from an increase in the authorized number of directors, may be filled
by the affirmative vote of a majority of the
-3-
<PAGE> 4
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
his successor shall have been elected and qualified. If, for any reason, the
Corporation shall at any time have no directors then in office, any shareholder
may call a special meeting of shareholders for the election of directors and,
over his/her signature, shall give notice of such meeting in accordance with
these Bylaws.
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.
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.
-4-
<PAGE> 5
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.
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.
-5-
<PAGE> 6
(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 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
-6-
<PAGE> 7
sum and with such surety or sureties as the Board may direct, conditioned upon
the faithful performance of his duties to the Corporation and including
responsibility for negligence and for the accounting for all property, funds or
securities of the Corporation which may come into his hands.
2. DELEGATION OF DUTIES.
In case of the absence of any officer of the Corporation, or
for any other reason that may seem sufficient to the Board, the directors may,
by a majority vote of the Board, delegate the powers and duties of such officer,
for the time being, to any other officer, or to any director.
3. REMOVAL AND RESIGNATION OF OFFICERS; FILLING OF
VACANCIES.
Any officer elected or appointed by the Board may be removed
by the Board with or without cause. An officer elected by the shareholders may
be removed, with or without cause, only by vote of the shareholders but his
authority to act as an officer may be suspended by the Board for cause.
An officer may resign by written notice to the Corporation.
The resignation shall be effective upon receipt thereof by the Corporation or at
such subsequent time as shall be specified in the notice of resignation.
Any vacancy occurring among the officers, however caused, may
be filled by election or appointment by the Board for the unexpired term.
4. CHAIRMAN OF THE BOARD.
The chairman of the Board shall preside at all meetings of the
shareholders and of the Board. He shall have general and active management of
the business of the Corporation, shall oversee the fulfillment of the
Corporation's mission, and shall see that all orders and resolutions of the
Board are carried into effect, subject, however, to the right of the directors
to delegate any specific powers, except such as may be by statute exclusively
conferred on the chairman of the Board, to any other officer or 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
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<PAGE> 8
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.
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
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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.
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
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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.
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
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<PAGE> 11
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.
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.
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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.
As Amended: December 3, 1999
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Exhibit 10.2
SUBSCRIPTION AGREEMENT
October 20, 1999
Princeton Video Image, Inc.
15 Princess Road
Lawrenceville, NJ 08648
Ladies/Gentlemen:
1. Subscription, Purchase and Closing; Purchase Price Adjustment.
1.1 The undersigned ("Subscriber"), intending to be legally
bound, hereby subscribes for and agrees to purchase the number of shares (the
"Shares") of the Common Stock, no par value per share (the "Common Stock"), of
Princeton Video Image, Inc., a New Jersey corporation (the "Company"), indicated
on the signature page hereto, at a price of $5.50 per share (the "Purchase
Price") and upon the terms and conditions set forth in this subscription
agreement (this "Agreement").
1.2 The Shares subscribed for hereby shall not be deemed owned
by Subscriber, nor shall Subscriber be deemed a holder of securities of the
Company until this subscription has been accepted by the Company and the
Purchase Price for the Shares subscribed for has been paid. Subscriber
understands and agrees that the Company reserves the right to reject this
subscription for the Shares in whole or in part, in its sole discretion, at any
time through the Closing Date (as that term is defined in Section 1.5). This
subscription is subject to allotment. If subscription for the Shares is
oversubscribed, the Company will determine which subscriptions shall be
accepted, in whole or in part.
1.3 In the event of rejection of this subscription, or in the
event the sale of the Shares is not consummated for any reason (in which event
this Agreement shall be deemed to be rejected), this Agreement shall have no
force or effect.
1.4 Subscriber hereby agrees to deliver the Purchase Price
required to purchase the number of Shares subscribed for hereunder, as that
amount may be reduced pursuant to Section 1.2 hereof, on the Closing Date set by
the Company pursuant to Section 1.5 hereof.
1.5 The closing of the transactions contemplated herein (the
"Closing") shall take place at such time as the Company and Allen & Company
Incorporated, as placement agent (the "Placement Agent"), shall determine. The
Placement Agent shall establish and inform Subscriber of the closing date for
such subscription (the "Closing Date") and the date upon which the Purchase
Price shall be delivered to the Company.
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1.6 Payment of the full Purchase Price for the Shares to be
purchased shall be made on the Closing Date by wire transfer of immediately
available funds or at such other time and by such other means as the Company
shall approve. The Company or the Placement Agent will notify Subscriber as to
payment instructions. Upon the Closing Date, certificates representing the
Shares purchased by Subscriber will be delivered by the Company to Subscriber.
2. Representations, Warranties and Agreements of Subscriber. Subscriber
hereby represents and warrants to the Company, and hereby covenants and agrees
with the Company, (such representations, warranties, covenants and agreements to
survive the Closing Date) as follows:
(a) Subscriber has full power and authority to enter
into this Agreement and to perform its obligations hereunder. All
requisite action on the part of Subscriber necessary for the
authorization, execution, delivery and performance of Subscriber's
obligations under this Agreement and for the purchase of the Shares has
been taken, and this Agreement, when executed by a duly authorized
officer of Subscriber, will be a valid and binding agreement of
Subscriber, enforceable in accordance with its terms, except as such
enforceability may be limited by (i) bankruptcy, insolvency,
reorganization or other similar laws and legal and equitable principles
limiting or affecting the rights of creditors generally and/or (ii)
general principles of equity, regardless of whether considered in a
proceeding in equity or at law, and except as rights to indemnification
hereunder may be limited by Federal or state securities laws.
(b) Subscriber has carefully read this Agreement and,
to the extent Subscriber believes necessary, has discussed with
Subscriber's counsel and other professional advisor(s) the
representations, warranties, covenants and agreements which Subscriber
makes by signing it, and any applicable limitations upon Subscriber's
transfer of the Shares issuable thereunder. Subscriber acknowledges
that Subscriber has not relied upon the legal counsel or accountants
for the Company regarding the transactions contemplated by this
Agreement, and Subscriber has been advised to engage separate legal
counsel and accountants to represent Subscriber's individual interest
and advise Subscriber regarding the structure of, and risks associated
with, such transactions.
(c) Subscriber understands that as a publicly traded
company, the Company files with the Securities and Exchange Commission
(the "SEC") various reports, including quarterly and annual financial
statements, annual reports to shareholders, and proxy statements, and
that all of such reports, statements and information are available to
the public, including Subscriber, from the SEC and directly from the
Company. Subscriber acknowledges that the Company has delivered to
Subscriber within a reasonable time prior to the execution of this
Subscription Agreement a copy of the following: (i) the Company's
Annual Report on Form 10-KSB for the fiscal year ended June 30, 1999
(without exhibits); (ii) the Company's Current Reports on Form 8-K
since June 30, 1999 (without exhibits); (iii) the Company's press
releases since June 30, 1999; (iv) certain Risk Factors relating to the
transactions contemplated hereunder which are attached hereto as
Exhibit A; and (v) such other documents, including exhibits to the
foregoing reports on Forms 10-KSB and 8-K, as Subscriber (and
Subscriber's attorney, accountant and/or other advisors) deemed
pertinent in order for Subscriber to
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<PAGE> 3
make an informed investment decision (the documents identified in
clauses (i) through (v) herein are collectively referred to herein as
the "Documents"). The Documents contain "forward-looking statements"
about business strategies, market potential, future financial
performance and other matters. These forward-looking statements are
predictions. No assurances can be given that the future results
indicated, whether expressed or implied, will be achieved.
Consequently, the inclusion of forward-looking statements in the
Documents should not be regarded as a representation by the Company or
any other person that these estimates will be realized, and actual
results may vary materially.
Subscriber further acknowledges that Subscriber is
entering into this Agreement solely on the basis of information
contained in the Documents and not on the basis of any information,
representations or agreements made by any other person, and that no
representations or warranties of any nature have been made to
Subscriber with respect to the ultimate economic consequences or tax
consequences of Subscriber's investment in the Company. Subscriber
acknowledges that any forecasted financial data which may have been
given to Subscriber is for illustration purposes only and no assurance
is given that actual results will correspond with the results
contemplated in any such data.
(d) Subscriber acknowledges that Subscriber has had
the opportunity to ask questions of, and receive answers from, or
obtain additional information from, the executive officers of the
Company concerning the financial and other affairs of the Company, and,
to the extent deemed necessary, Subscriber has asked such questions and
received satisfactory answers and desires to invest in the Company. In
evaluating the suitability of an investment in the Company, Subscriber
has not relied upon any representations or other information (whether
oral or written) other than as set forth in this Agreement or as
contained in any documents delivered or answers given in writing by the
Company to questions furnished to the Company. Subscriber has been
advised and acknowledges that no Federal or state agency has made any
finding or determination as to the fairness or merits of an investment
in the Company and that no such agency has made any recommendation or
endorsement whatsoever with respect to such an investment.
(e) Subscriber is an "accredited investor" as that
term is defined in Rule 501 of Regulation D promulgated by the
Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "Securities Act"). For this purpose,
Subscriber understands that an "accredited investor" includes:
(i) any individual who: (A) has a net worth
(with spouse) in excess of $1 million; or (B) has had an
individual income in excess of $200,000 (or joint income with
spouse in excess of $300,000) in each of the two most recent
years and who reasonably expects the same income level for the
current year; or (C) who is an executive officer or director
of the Company;
(ii) any entity in which all of the equity
owners or partners are "accredited investors"; or
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<PAGE> 4
(iii) any corporation or partnership with
total assets in excess of $5,000,000 that was not formed for
the specific purpose of purchasing the securities subscribed
hereunder.
(f) Subscriber considers himself/herself/itself to be
a sophisticated investor in companies similarly situated to the
Company, and Subscriber has substantial knowledge and experience in
financial and business matters (including knowledge of finance,
securities and investments, generally, and experience and skill in
investments based on actual participation) such that Subscriber is
capable of evaluating the merits and risks of the prospective
investment in the Company.
(g) Subscriber's current address and, if Subscriber
is an entity, Subscriber's state of incorporation or organization, are
as set forth on the signature page hereof. If Subscriber is an entity
which does not meet the classification set forth under Section
2(e)(iii) above, each of Subscriber's equity owners and/or partners has
the same state of residence as the Subscriber's state of organization
and none of Subscriber's equity owners and/or partners has any present
intention of moving from such state of residency.
(h) Subscriber has been advised and acknowledges that
the issuance of the Shares will not be registered under the Securities
Act, in reliance upon the exemption(s) from registration promulgated
thereunder, and, therefore, are "restricted securities." Subscriber
also acknowledges that the issuance of the Shares will not be
registered under the securities laws of any state. Consequently,
Subscriber agrees that the Shares cannot be resold unless they are
registered under the Securities Act and applicable state securities
laws, or unless an exemption from such registration requirements is
available. Subscriber has been advised and acknowledges that the
Company is under no obligation to take any action necessary in order to
make available any exemption for the transfer of the Shares without
registration.
(i) Subscriber is purchasing the Shares solely for
Subscriber's own account and not as nominee for, representative of, or
otherwise on behalf of, any other person. Subscriber is purchasing the
Shares with the intention of holding the Shares for investment, with no
present intention of participating directly or indirectly in a
subsequent public distribution of the Shares unless registered under
the Securities Act and applicable state securities laws, or unless an
exemption from such registration requirements is available. Subscriber
shall not make any sale, transfer or other disposition of the Shares in
violation of state or Federal law.
(j) Subscriber has been advised that there is no
assurance than an active market for the Shares will continue in the
future. Subscriber is aware that Subscriber's investment in the Company
is speculative and involves a high degree of risk of loss arising from,
among other things, substantial market, operational, competitive and
other risks, and, having made Subscriber's own evaluation of the risks
associated with this investment, including, without limitation, those
set forth on Exhibit A, Subscriber is aware and Subscriber has been
advised that Subscriber must bear the economic risks of a purchase of
the Shares indefinitely.
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<PAGE> 5
(k) Subscriber acknowledges that the Shares were not
offered to Subscriber by means of any form of general or public
solicitation or general advertising, or publicly disseminated
advertisements or sales literature, including (i) any advertisement,
article, notice or other communication published in any newspaper,
magazine or similar media, or broadcast over television or radio, or
(ii) any seminar or meeting to which Subscriber was invited by any of
the foregoing means of communication.
(l) Subscriber understands and agrees that the
Company, and all current and future stockholders of the Company, are
relying on the agreements and representations contained herein.
(m) In connection with the purchase of the Shares by
Subscriber, Subscriber has not and will not pay, and has no knowledge
of the payment of, any commission or other direct or indirect
remuneration to any person or entity for soliciting or otherwise
coordinating the purchase of the Shares, except for fees paid to the
Placement Agent.
(n) Subscriber has been advised and agrees that there
will be placed on any certificates representing the Shares, or any
substitution(s) thereof, a legend stating in substance the following
(and including any restrictions or conditions that may be required by
any applicable state law), and Subscriber has been advised and further
agrees that the Company will refuse to permit the transfer of the
Shares out of Subscriber's name in the absence of compliance with the
terms of such legend:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Act"), or under any state securities laws and may not be
sold, pledged, transferred, assigned or otherwise disposed of
except in accordance with such Act and the rules and
regulations thereunder and in accordance with applicable state
securities laws. The Company will transfer such shares only
upon receipt of evidence satisfactory to the Company, which
may include an opinion of counsel, that the registration
provisions of such Act have been compiled with or that such
registration is not required and that such transfer will not
violate any applicable state securities laws."
(o) Subscriber is aware that the Company may offer
and sell additional shares of Common Stock in the future, thereby
diluting Subscriber's percentage equity ownership of the Company.
(p) The Subscriber is familiar with Regulation M
promulgated under the Securities Exchange Act of 1934, a copy of which
is attached hereto as Exhibit B, and is in full compliance with the
provisions thereof with respect to the transactions contemplated
hereby.
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<PAGE> 6
3. Representations and Warranties of the Company. As used in this
Section 4, the following capitalized terms shall have the meanings set forth
below:
"Contract" means any agreement, indenture, lease, sublease,
license, sublicense, promissory note, evidence of indebtedness, insurance
policy, annuity, mortgage, restriction, commitment, obligation or other
contract, agreement or instrument (whether written or oral).
"GAAP" means generally accepted accounting principles in
effect in the United States of America from time to time.
"Material Adverse Change" or "Material Adverse Effect" means,
with respect to any Person, any change or effect that is or is reasonably likely
to be materially adverse to the financial condition, business, prospects or
results of operations of such Person.
"Person(s)" means any individual, sole proprietorship,
partnership, joint venture, trust, limited liability company, incorporated
organization, association, corporation, institution, public benefit corporation,
entity or government (whether Federal, state, county, city, municipal or
otherwise, including, without limitation, any instrumentality, division, agency,
body or department thereof).
Subscriber is subscribing for the Shares based upon the
following representations and warranties of the Company, which the Company
hereby confirms by accepting this subscription:
(a) Organization. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
State of New Jersey and has the corporate power to own and/or lease its
properties and to conduct its business in the places where such
properties are now owned, leased or operated or such business is
presently conducted. The Company is duly qualified and licensed as a
foreign corporation in additional jurisdictions in which it owns or
leases real property or in which its operations or activities would
otherwise require such qualification.
(b) Authorization. The execution, delivery and
performance of this Agreement by the Company has been duly and validly
authorized and approved by its Board of Directors, and this Agreement,
when executed by a duly authorized officer of this Company, will be a
valid and binding agreement of the Company, enforceable in accordance
with its terms, except as such enforceability may be limited by (i)
bankruptcy, insolvency, reorganization or other similar laws and legal
and equitable principles limiting or affecting the rights of creditors
generally and/or (ii) general principles of equity, regardless of
whether considered in a proceeding in equity or at law, and except as
rights to indemnification hereunder may be limited by Federal or state
securities laws.
(c) Capitalization. The authorized capital stock of
the Company consists of 40,000,000 shares of Common Stock, no par value
per share and 1,000,000 shares of Preferred Stock of which 167,000
shares have been designated as Series A Redeemable Preferred Stock, par
value $4.50 ("Series A Preferred Stock") and 93,300
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<PAGE> 7
shares have been designated as Series B Redeemable Preferred Stock, par
value $5.00 ("Series B Preferred Stock"). All issued and outstanding
shares of capital stock of the Company have been, and as of the Closing
Date will be, duly authorized and validly issued and are fully paid and
non-assessable. As of September 10, 1999, 8,213,805 shares of Common
Stock, 67,600 shares of Series A Preferred Stock and 86,041 shares of
Series B Preferred Stock are issued and outstanding. Since September
10, 1999, any changes in the Company's capitalization are the result of
the issuance of a de minimis number of shares of Common Stock upon the
exercise of certain options. The Company has a Stock Option Plan,
pursuant to which the Company may issue options to acquire up to an
aggregate of 2,160,000 shares of Common Stock to its directors,
officers, consultants and employees. As of September 10, 1999, options
for 1,078,931 shares of Common Stock were exercisable under this plan
and warrants for 1,122,130 shares of Common Stock were outstanding.
(d) No Violations; Defaults. The execution and
delivery of this Agreement and the consummation of the transactions
contemplated by this Agreement will not (i) violate, result (with the
lapse of time or giving of notice, or both) in a violation of, conflict
with, or constitute a default under, or permit the termination or
acceleration of the maturity of, any material indebtedness or material
obligation of the Company; (ii) violate, result (with the lapse of time
or giving of notice, or both) in a violation of, conflict with or
constitute a default under, any material term of, or permit the
termination of, any material note, mortgage, indenture, license,
agreement, contract, arrangement, understanding or other instrument to
which the Company is a party, or by which it is bound, or the Articles
of Incorporation or By-Laws of the Company; (iii) except as
contemplated by this Agreement or where the absence would not have a
material adverse effect on the Company or its subsidiaries, taken as a
whole, require consent, approval, waiver or authorization from or
registration or filing with any party, including but not limited to any
party to any material agreement to which the Company is a party or by
which it is bound or by any regulatory or governmental agency, body or
entity (except as obtained prior to the Closing); or (iv) violate any
statute, law, rule, regulation or ordinance, or any judgment, decree,
order, regulation or rule of any court, tribunal, administrative or
governmental agency, body or entity to which the Company or its
properties are subject.
(e) Validity of Securities. The Shares, when issued
in accordance with the terms and conditions hereof, will be duly
authorized, validly issued, fully paid and non-assessable, and the
delivery to Subscriber of the Shares delivered pursuant to this
Agreement shall vest in it good and marketable title thereto, free of
any and all liens, options, encumbrances, charges, third-party rights
or claims of any nature whatsoever except for restrictions on transfers
set forth herein or imposed by law.
(f) Disclosure. The Company is aware of no facts
which lead it to believe that the Documents contain any untrue
statement of a material fact or omits to state a material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(g) Material Changes. Except as set forth in the
Documents, or as otherwise contemplated herein, since June 30, 1999,
there has been no Material Adverse
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<PAGE> 8
Change in the Company, and there has not been (i) any direct or
indirect redemption, purchase or other acquisition by the Company of
any shares of the Common Stock or (ii) declaration, setting aside or
payment of any dividend or other distribution by the Company with
respect of the Common Stock.
(h) No Commissions. In connection with the purchase
of the Shares hereunder, the Company has agreed to pay the Placement
Agent a placement fee (including cash and a warrant) and certain
expenses relating to the transactions contemplated hereunder. Except
for such placement fee and expenses, the Company has not incurred any
other obligation for any finder's or broker's or agent's fees or
commissions in connection with the sale of the Shares.
(i) Consents/Approvals. No consent, approval, waiver
or other action by any Person under any Contract to which the Company
is a party, or by which any of its properties or assets are bound, is
required or necessary for the execution, delivery or performance by the
Company of this Agreement and the consummation of the transactions
contemplated hereby, except where the failure to obtain such consents,
filings, authorizations, approvals or waivers or make such filings
would not have a Material Adverse Effect on the Company.
(j) SEC Reports and Nasdaq Compliance. Since December
19, 1997, the Company has made, in a timely fashion, all filings (the
"SEC Reports") required to be made by it under the Exchange Act. The
SEC Reports, when filed, complied in all material respects with all
applicable requirements of the Securities Act and the Exchange Act and
the securities laws, rules and regulations of any state and pursuant to
any requirements of law. The SEC Reports, when filed, did not contain
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the
statements made therein, in light of the circumstances under which they
were made, not misleading. The Company will use its best efforts to
ensure its continued inclusion in, and the continued eligibility of the
Common Stock for trading on, the Nasdaq National Market under all
currently effective and currently proposed inclusion requirements prior
to and after the Closing.
(k) Financial Statements. Each of the balance sheets
included in the Documents (including any related notes and schedules)
fairly presents in all material respects the financial position of the
Company as of its date, and each of the other financial statements
included in the Documents (including any related notes and schedules)
fairly presents in all material respects the results of operations or
other information therein of the Company for the periods or as of the
dates therein set forth in accordance with GAAP consistently applied
during the periods involved (except that the interim reports are
subject to normal recording adjustments which might be required as a
result of year-end audit and except as otherwise stated therein).
The Company represents that the foregoing representations and
warranties are true and correct as of the date hereof and, unless the Company
otherwise notifies Subscriber prior to the Closing Date, shall be true and
correct as of the Closing Date. The foregoing representations and
8
<PAGE> 9
warranties shall survive the Closing Date.
4. Registration Rights.
4.1 Registration of Shares. As soon as practicable, but in any
event no later than ten business days after the Closing Date, the Company will
file a registration statement (the "Registration Statement") under the
Securities Act of 1933, as amended, with respect to all of the Shares
(collectively, the "Subject Stock"), and the Company shall use its best efforts
to cause such Registration Statement to become effective as soon as practicable
after filing. In connection therewith, each holder of Shares (each, a "Holder")
will provide in a timely manner all such information and materials pertaining to
it as may be required in order to permit the Company to comply with all
applicable requirements of the Commission and to obtain the acceleration of the
effective date of the Registration Statement. In connection with such
registration, the Company shall:
(a) keep the Registration Statement effective until
the earliest of (i) when each Holder has sold its Subject Stock, (ii)
two years following the effective date of the Registration Statement,
or (iii) the date all of the Shares may be sold under Rule 144 under
the Securities Act of 1933 without volume limitations;
(b) as expeditiously as possible furnish to each
Holder such reasonable numbers of copies of the prospectus as such
Holder may reasonably request in order to facilitate the public sale or
other disposition of the Subject Stock;
(c) as expeditiously as possible use its best efforts
to register or qualify the Subject Stock under the securities or Blue
Sky laws of such states as Subscriber shall reasonably request,
provided, however, that the Company shall not be required in connection
with this paragraph (c) to qualify as a foreign corporation or execute
a general consent to service of process in any jurisdiction;
(d) pay all costs and expenses incident to
registration hereunder, except as set forth in Section 4.2.
4.2 Holder's Fees. Each Holder shall pay any and all
underwriters' discounts, brokerage fees and transfer taxes incident to the sale
of the Subject Stock sold by such Holder pursuant to this Section and the fees
and expenses of its counsel.
5. Indemnification.
5.1 Indemnification Generally. The Company shall indemnify
Subscriber from and against any and all losses, damages, liabilities, claims,
charges, actions, proceedings, demands, judgments, settlement costs and expenses
of any nature whatsoever (including, without limitation, attorneys' fees and
expenses) or deficiencies resulting from any breach of a representation,
warranty or covenant by the Company and all claims, charges, actions or
proceedings incident to or arising out of the foregoing.
9
<PAGE> 10
5.2 Indemnification Relating to Registration Rights.
(a) With respect to any registration, qualification
or compliance effected or to be effected pursuant to Section 4 of this
Agreement, the Company shall indemnify each Holder of the Shares whose
securities are included or are to be included therein, each of such
Holder's directors and officers, each underwriter (as defined in the
Securities Act) of the securities sold by such Holder (if any), and
each Person who controls (within the meaning of the Securities Act) any
such Holder or underwriter (a "Controlling Person") from and against
all losses, damages, liabilities, claims, charges, actions,
proceedings, demands, judgments, settlement costs and expenses of any
nature whatsoever (including, without limitation, attorneys' fees and
expenses) or deficiencies of any such Holder or any such underwriter or
Controlling Person concerning:
(i) any untrue statement (or alleged untrue
statement) of a material fact contained in any prospectus,
offering circular or other document (including any related
registration statement, notification or the like) incident to
any such registration, qualification or compliance;
(ii) any omission (or alleged omission) to
state therein a material fact required to be stated therein or
necessary to make a statement therein, in the light of the
circumstances under which it was made, not misleading; or
(iii) any violation by the Company of the
Securities Act or any rule or regulation promulgated
thereunder applicable to the Company, or of any Blue Sky or
other state securities laws or any rule or regulation
promulgated thereunder applicable to the Company,
in each case, relating to any action or inaction required of the Company in
connection with any such registration, qualification or compliance, and subject
to Section 5.3 below will reimburse each such Person entitled to indemnity under
this Section for all legal and other expenses reasonably incurred in connection
with investigating or defending any such loss, damage, liability, claim, charge,
action, proceeding, demand, judgment, settlement or deficiency; provided,
however, that the foregoing indemnity and reimbursement obligation shall not be
applicable to the extent that any such matter arises out of or is based on any
untrue statement or omission made in reliance upon and in conformity with
written information furnished to the Company by or on behalf of such Holder or
by or on behalf of such an underwriter specifically for use in such prospectus,
offering circular or other document.
(b) With respect to any registration, qualification
or compliance effected or to be effected pursuant to Section 4 of this
Agreement, each Holder of the Shares whose securities are included or
are to be included therein, shall indemnify the Company and each of the
Company's directors, officers and Controlling Persons from and against
all losses, damages, liabilities, claims, charges, actions,
proceedings, demands, judgments, settlement costs and expenses of any
nature whatsoever (including, without limitation, attorneys' fees and
expenses) or deficiencies of the Company concerning:
10
<PAGE> 11
(i) any untrue statement of a material fact
contained in any prospectus, offering circular or other
document (including any related registration statement,
notification or the like) incident to any such registration,
qualification or compliance made in reliance upon and in
conformity with written information furnished to the Company
by or on behalf of such Holder specifically for use in such
prospectus, offering circular or other document;
(ii) any omission to state therein a
material fact required to be stated therein or necessary to
make the statement therein, in the light of the circumstances
under which it was made, not misleading which was occasion by
reliance upon and in conformity with written information
furnished to the Company by or on behalf of such Holder
specifically for use in such prospectus, offering circular or
other document; or
(iii) any violation by such Holder of the
Securities Act or any rule or regulation promulgated
thereunder applicable to the Company or such Holder or of any
Blue Sky or other state securities laws or any rule or
regulation promulgated thereunder applicable to such Holder,
in each case, relating to any action or inaction required of such Holder in
connection with any such registration, qualification or compliance, and subject
to Section 5.3 below will reimburse the Company for all legal and other expenses
reasonably incurred in connection with investigating or defending any such loss,
damage, liability, claim, charge, action, proceeding, demand, judgment,
settlement or deficiency; provided, however, that, the obligation of the Holder
hereunder shall be limited to an amount equal to the proceeds to the Holder of
the Shares sold as contemplated hereunder.
5.3 Indemnification Procedures. Each Person entitled to
indemnification under this Section (an "Indemnified Party") shall give notice as
promptly as reasonably practicable to each party required to provide
indemnification under this Section (an "Indemnifying Party") of any action
commenced against or by it in respect of which indemnity may be sought
hereunder, but failure to so notify an Indemnifying Party shall not relieve such
Indemnifying Party from any liability that it may have otherwise than on account
of this indemnity agreement so long as such failure shall not have materially
prejudiced the position of the Indemnifying Party. Upon such notification, the
Indemnifying Party shall assume the defense of such action if it is a claim
brought by a third party, and after such assumption the Indemnified Party shall
not be entitled to reimbursement of any expenses incurred by it in connection
with such action except as described below. In any such action, any Indemnified
Party shall have the right to retain its own counsel, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party unless (i) the
Indemnifying Party and the Indemnified Party shall have mutually agreed to the
contrary, (ii) the Indemnifying Party shall have failed to assume the defense of
such action or proceeding and employ counsel satisfactory to such Indemnified
Party in any such action or proceeding or (iii) the named parties in any such
action (including any impleaded parties) include both the Indemnifying Party and
the Indemnified Party and representation of both parties by the same counsel
would be inappropriate due to actual or potential differing or conflicting
interests between them. The Indemnifying Party shall not be liable for any
settlement of any proceeding effected without its
11
<PAGE> 12
written consent (which shall not be unreasonably withheld or delayed by such
Indemnifying Party), but if settled with such consent or if there be final
judgment for the plaintiff, the Indemnifying Party shall indemnify the
Indemnified Party from and against any loss, damage or liability by reason of
such settlement or judgment.
6. Miscellaneous.
6.1 Neither this Agreement nor any provisions hereof shall be
modified, discharged or terminated except by an instrument in writing signed by
the party against whom any such waiver, change, discharge or termination is
sought to be enforced.
6.2 Any notice, demand or other communication which any party
hereby may be required or may elect, to give to anyone interested hereunder
shall be sufficiently given if (a) deposited, postage prepaid, in a United
States mail letter box, registered or certified mail, return receipt requested,
addressed to such address as may be given herein three business days after such
deposit, or (b) delivered personally at such address. The Company's address for
notices is set forth on the first page hereof, and the Subscriber's address for
notices is set forth on the signature page.
6.3 This Agreement may be executed through the use of separate
signature pages or in any number of counterparts, and each of such counterparts
shall, for all purposes, constitute one agreement binding on all the parties,
notwithstanding that all parties are not signatories to the same counterpart.
6.4 Except as otherwise provided herein, the agreement shall
be binding upon and inure to the benefit of the parties and their successors,
legal representatives and assigns.
6.5 This Agreement (including the Exhibits attached hereto)
contains the entire agreement of the parties, and there are no representations,
covenants or other agreements except as stated or referred to herein.
6.6 This Agreement is not transferable or assignable by
Subscriber except as may be provided herein.
6.7 This Agreement shall be governed by and construed in
accordance with the law of the State of New York applicable to agreements made
and to be performed in that State.
12
<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have caused this Subscription
Agreement to be duly executed and delivered as of the date set forth below.
NAME OF SUBSCRIBER: ADDRESS FOR NOTICES (Please Print):
___________________________________ ___________________________________
___________________________________
SIGNATURE: ___________________________________
Attention:_________________________
By:________________________________ Telecopy:__________________________
Name:
Title: Tax Identification #:______________
Exact Name to appear on Stock Certificate: ___________________________________
Number of Shares Subscribed For: ___________________________________
Aggregate Purchase Price (see Section 1.1): $______________________
The Investor hereby provides the following additional information:
(a) Excluding the shares of Common Stock subscribed for above, set
forth below is the number of shares of Common Stock and options rights or
warrants of Princeton Video Image, Inc. ("Options" and together with the Common
Stock, "Securities") which Subscriber beneficially owns or of which Subscriber
is the record owner on the date hereof. Please refer to the definition of
beneficial ownership on Exhibit B attached hereto. If none, please so state.
Number of Shares: ________________ (excluding the Shares subscribed for above)
Number of Options: ________________
Number of Warrants: ________________
Please indicate by an asterisk (*) above if Subscriber disclaims "beneficial
ownership" of any of the above listed Securities, and indicate in response to
question (b) below who has beneficial ownership.
(b) If Subscriber disclaims "beneficial ownership" in question (a),
please furnish the following information with respect to the person(s) other
than Subscriber who is the beneficial owner(s) of the Securities in question. If
not applicable, please check box: ?
Name of Beneficial Owner:____________________________________
Relationship to Subscriber:__________________________________
<PAGE> 14
Number of Securities Beneficially Owned:_____________________
NAME OF SUBSCRIBER:________________
(c) Are any of the Securities listed in response to question (a) the
subject of a voting agreement, contract or other arrangement whereby others have
voting control over, or any other interest in, any of Subscriber's Securities?
[ ] Yes [ ] No
If the answer is "Yes", please give details:__________________________________.
(d) Please describe each position, office or other material
relationship which the Investor has had with the Company or any of its
affiliates, including any Subsidiary of the Company, within the past three
years. Please include a description of any loans or other indebtedness, and any
contracts or other arrangements or transactions involving a material amount,
payable by Subscriber to the Company or any of its affiliates, including its
Subsidiaries, or by the Company or any of its affiliates, including its
Subsidiaries, to Subscriber. "Affiliates" of the Company include its directors
and executive officers, and any other person controlling or controlled by the
Company. IF NONE, PLEASE SO STATE.
Answer:
(e) Please provide the name and address of other person(s), if any, to
whom any proxy statements, registration statements (including notice of
effectiveness thereof), prospectuses or similar documents and information should
be delivered by the Company on behalf of Subscriber in the future, with respect
to Subscriber's shares:
____________________________ _____________________________
____________________________ _____________________________
____________________________ _____________________________
____________________________ _____________________________
(f) Please advise of special stock certificate delivery requirements
for closing, if any:
(g) Please advise if a NASD member has placed with you the Shares being
purchased hereunder: (Name of Member:) _________________________________________
================================================================================
ACCEPTED: PRINCETON VIDEO IMAGE, INC.
By:_______________________________
Name: Brown F Williams
Title: Chairman of the Board
<PAGE> 15
EXHIBIT A
RISK FACTORS
Investment in the Company's common stock involves substantial risks,
including those described below. You should purchase our common stock only if
you can afford to lose your entire investment. You should carefully consider all
of the information included in the Documents to evaluate us and our business.
You should make this evaluation before deciding whether to purchase our common
stock. You should understand that additional risks which we cannot predict at
this time may have negative impact on us in the future. You should also
understand that the risks discussed below might affect us more than or in a
different manner than we now predict.
Some of the information in the Documents and this Exhibit A may contain
forward-looking statements. These statements can be identified by the use of
forward-looking words such as "may," "will," "expect," "anticipate," "estimate,"
"continue" or other similar words. These statements discuss future expectations
and projections of results of operations or of financial conditions. When
considering these forward-looking statements, you should keep in mind the risk
factors described below and other cautionary statements made in the Documents.
These statements identify some of the factors that may cause actual results to
differ from any projections contained in forward-looking statements. Important
factors that may cause actual results to differ from projections include, for
example:
- adverse economic conditions;
- intense competition, including entry of new competitors and
products;
- adverse federal, state, local and foreign government
regulation;
- inadequate capital to operate our business;
- unexpected costs and operating deficits;
- lower revenues than forecast;
- inability to successfully market the L-VIS(TM) System to
television viewers, advertisers, broadcasters and sporting
events rights holders;
- inability of third party sales forces to sell L-VIS System
advertising;
- contractual restrictions on use of video insertion technology;
- risks associated with doing business in international markets;
- seasonal fluctuations based upon the game schedules of each
sport;
- manufacturing inexperience;
- challenges to our patent and proprietary technology;
- technological obsolescence of the L-VIS System;
- inability to upgrade and develop software for use of the L-VIS
System with new sports and other new uses;
- dependence on a sole source of supply for some hardware
components;
- the possible fluctuation and volatility of our operating
results and financial condition;
- adverse publicity and news coverage;
- loss of key employees, and
- other specific risks shown in the Documents and this
Exhibit A.
<PAGE> 16
We do not promise to update forward-looking information or any other information
to reflect actual results or changes in assumptions or other factors that could
affect those statements.
WE MAY NOT GENERATE ENOUGH MONEY TO SUPPORT OUR BUSINESS OPERATIONS.
Our operations relate to the development, introduction and marketing
of the L-VIS System. The Company has built 37 L-VIS System units, of which
approximately 25 units are in use or available for use by customers, potential
customers or foreign marketing partners. We are now trying to convince
advertisers, broadcasters and broadcast rights holders of the value of the L-VIS
System. We are also trying to enter into contracts to generate enough revenue to
meet our operating expenses. If we do not generate enough revenue, we will have
to either raise additional money or substantially reduce the scale of our
operations. We may not be able to raise additional money. We also may not
succeed in reaching our business objectives. Our failure to do so would have a
material adverse effect on our business, financial condition and the results of
our operations.
WE HAVE A HISTORY OF OPERATING LOSSES AND EXPECT TO INCUR ADDITIONAL LOSSES.
We have not made a profit in any period of operations since we began
our business. We expect to lose money at least through calendar year 1999 due to
the costs required to manufacture, market and enhance the L-VIS System. We
incurred net losses of $5,730,661 for the fiscal year ended June 30, 1997,
$9,128,374 for the fiscal year ended June 30, 1998, and $9,698,048 for the
fiscal year ended June 30, 1999. We have earned only $1,222,213 during fiscal
year ended June 30, 1999 through receipts from advertising use of the L-VIS
System, contractual arrangements made with customers and license and royalty
fees from the use of the L-VIS System.
We may never earn a profit. Further, we may not be able to continue our
operations. Our limited operating history makes the prediction of future
operating results difficult or impossible. You should consider our prospects in
light of the risks, expenses and difficulties frequently encountered by early
stage companies, particularly companies in new or rapidly evolving markets.
WE MAY NOT BE ABLE TO SUCCESSFULLY MARKET THE L-VIS SYSTEM WHICH WILL ADVERSELY
AFFECT OUR ABILITY TO RAISE REVENUES.
We expect to derive almost all of our revenues from the operation of
the L-VIS System. We intend to spend additional money to hire more sales and
marketing personnel and on making the product more market friendly. Any benefits
from the expansion may take one year or longer. We will lose more money if sales
do not increase in proportion to the increase in expenses. Our expansion will
depend on, among other things, our ability to identify markets, to manage
growth, and to hire and retain skilled personnel. Our failure to successfully
market the L-VIS System would have a material adverse effect on our business,
financial condition and the results of our operations. Our ability to market
successfully the L-VIS System will depend upon its acceptance by at least four
groups: television viewers, advertisers, broadcasters and broadcast rights
holders. To date, only a few broadcasters, broadcast rights holders and
advertisers have agreed to use the
<PAGE> 17
L-VIS System. No data exists about television viewers' reactions to the L-VIS
System. However, some press coverage of our technology has raised concerns about
its desirability and potential misuse. For instance, one article described
inserted advertising images as subliminal advertising. The technology has also
been described as allowing unethical tampering with a television picture. Others
have complained that television viewers will see too many advertisements. We may
not be able to combat successfully any negative publicity about inserted
advertising. We may not be able to maintain or increase our commercial
arrangements. The failure of any one or more of the four groups to accept the
L-VIS System may prevent us from successfully marketing the L-VIS System. That
result could cause the holders of our common stock to lose their entire
investment.
WE MAY NOT BE ABLE TO PROTECT OUR PROPRIETARY RIGHTS AND THERE CAN BE NO
ASSURANCE THAT THESE RIGHTS ARE SUFFICIENT TO PROTECT OUR TECHNOLOGY;
INFRINGEMENT ACTIONS.
We must maintain the proprietary nature of our technology to compete
effectively. We have been assigned five issued United States patents and three
allowed European patents. We have licensed several other patented technologies
from third parties and we have filed applications for a number of patents in the
United States and abroad. However, the degree of protection offered by these
patents is not certain and the pending patents may not be issued. Any patents
issued to us or our licensors in a foreign country may provide less protection
than provided in the United States. Competitors may obtain patents that
interfere with our ability to make L-VIS System units and to market the L-VIS
System. Competitors may intentionally infringe our patents. Competitors or
strategic partners may copy or independently develop technologies that are the
same or similar to our technologies.
Our patents may be challenged in court proceedings. There has been no
court test of our patents or patent applications. We are aware of other
companies that have patents or patent applications relating to video insertion
technology. Other companies may claim that we infringe their patents or rights.
These companies may infringe our patents. In June 1999, we sued Scidel USA, Ltd.
for patent infringement. Scidel has responded by denying ours claims and
alleging that the our patents are invalid. In September 1999, we filed a request
with the United States Patent and Trademark Office to correct the ownership of
US Patent 5,917,553, licensed to Sportvision, Inc. On October 5, 1999, we were
advised that Sportvision had sued us for infringement of the same patent. While,
as of the date of preparation of the Agreement, we have not received or reviewed
the lawsuit, we believe that Sportvision has no legitimate claim.
Patent litigation involves complex legal and factual issues. The
outcome of such actions are highly uncertain. In addition, patent litigation
involves considerable costs. We cannot assure you that we do not or will not
infringe the patent or intellectual property rights of another company. If we
lose a patent infringement action, we may be required to pay a significant
amount of money or to stop selling our products. We may also need to license
disputed technology from another company, if possible. If our patents are
successfully challenged, our business, financial condition and the results of
our operations will be adversely affected.
We also rely on unpatented trade secrets, improvements and proprietary
technology. Others may copy or independently develop similar technology or gain
access to our technology. We require our employees and some third parties to
enter into confidentiality agreements. We
<PAGE> 18
also use copyright, trademark and trade secret protection. These steps may not
protect our trade secrets, know-how or other proprietary information.
WE MAY NOT BE ABLE TO RETAIN OUR KEY PERSONNEL OR HIRE ADDITIONAL PERSONNEL.
We depend on a number of key technical and management employees,
including:
- Brown F Williams, our Co-Founder and Chairman of the Board;
- Dennis P. Wilkinson, our President and Chief Executive
Officer;
- Samuel A. McCleery, our Vice President, Business Development;
- Lawrence L. Epstein, our Vice President of Finance, Chief
Financial Officer and Treasurer; and
- Paul Slagle, our Vice President of Sales and Marketing
If one or more of these individuals leaves us, our ability to conduct
operations may be materially and negatively affected. Our success depends on our
ability to attract and retain qualified financial, technical, marketing and
other management personnel. We face competition for this personnel. We have
employment agreements with Messrs. Williams, Wilkinson, McCleery, Epstein and
Slagle. We have obtained key man life insurance on the life of Mr. Williams for
$2 million and on the life of Mr. McCleery for $1 million. Although our
employees sign confidentiality and non-competition agreements, our key personnel
might leave us and work for a competitor. We also rely on consultants to assist
us in research and development strategy. Our consultants are employed by third
parties and may have commitments to others that may limit their availability.
OUR DEPENDENCE ON THIRD PARTY SALES FORCES MAY ADVERSELY AFFECT ADVERTISING
REVENUES.
Under many of our contracts, the broadcast rights holders market and
sell the L-VIS System advertising. We typically receive a percentage of the
advertising revenues earned by the broadcast rights holders. The broadcast
rights holders may not be successful in selling L-VIS System advertising. If the
broadcast rights holders are unable to enter into arrangements with a
substantial number of advertisers, their failure will have a material adverse
effect on our business, financial condition and the results of our operations.
USE OF THE L-VIS SYSTEM MAY BE RESTRICTED BY AGREEMENTS WHICH WILL AFFECT OUR
ABILITY TO EARN REVENUES.
Agreements among advertisers, sponsors, syndicators, promoters,
broadcasters and cable operators may include provisions that restrict the use of
video insertion technology in television broadcasts. These restrictions may have
a material adverse effect on our business, financial condition and the results
of our operations. Businesses might not enter into amendments of these
agreements to help us. We believe that one manufacturer of scrolling billboards
used in stadiums has included these restrictions in its contracts.
OUR INTERNATIONAL MARKETING PLANS MAY BE ADVERSELY AFFECTED BY INTERNATIONAL
BUSINESS CONDITIONS, INCLUDING FOREIGN MARKETS AND REGULATORY REQUIREMENTS.
<PAGE> 19
We plan to continue to market the L-VIS System outside the United
States through agreements with others. We may not succeed in creating a material
business internationally. We have granted some parties exclusive rights to
territories or specific sporting events which means that we must rely on their
success in these areas. Their failure could have a material adverse effect on
our business, financial condition and the results of our operations.
Furthermore, there are some risks inherent in doing business in
international markets, such as:
- unexpected changes in regulatory requirements;
- tariffs and other trade barriers;
- difficulties in staffing and managing foreign operations;
- political instability;
- fluctuations in currency exchange rates;
- reduced protection for intellectual property rights;
- seasonal reductions in business activity during the summer
months; and
- adverse tax consequences.
Any of these or other risks inherent in doing business in international markets
could have a material adverse impact upon the success of our international
operations and thus could have a material adverse effect on our business,
financial condition and the results of our operations.
THE SEASONALITY OF SPORTS MAY CAUSE FLUCTUATIONS IN OUR REVENUES.
If we are unsuccessful in expanding the market for use of the L-VIS
System beyond a limited number of sports, our revenues will fluctuate seasonally
based upon the game schedules associated with each of these sports.
TECHNICAL UNCERTAINTIES RELATING TO THE OPERATION OF THE L-VIS SYSTEM COULD
LIMIT ITS USE.
The L-VIS System can only be used for some sports under limited
circumstances. We must have the cooperation of the broadcaster to obtain
acceptable results. The L-VIS System has been operated mainly by our personnel
and operators trained by us. We will have to develop additional software and
hardware and train personnel to achieve wider use. Future operational
difficulties of the L-VIS System could increase the cost of, or delay
implementation of, our business plan which, in turn, could materially adversely
affect our success.
<PAGE> 20
OUR FAILURE TO KEEP PACE WITH TECHNOLOGICAL CHANGES AND CUSTOMER PREFERENCES
WOULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.
We operate in a rapidly developing commercial and technological
environment. Our success will depend in part upon our ability to develop product
enhancements that keep pace with continuing changes in technology and customer
preferences. Our failure to develop product enhancements on a timely basis would
have a material adverse effect on our business, financial condition and the
results of our operations. The video, electronics, data processing, broadcast
television and cable television industries are changing rapidly due to, among
other things, technological improvements, consolidations of companies and
changes in consumer preferences and customs. In particular, the live video image
insertion market is new and undeveloped. We anticipate that as the market
develops, it will be affected by technological change and product improvements.
Changes in industry broadcast standards may adversely affect our competitive
position.
WE HAVE LIMITED EXPERIENCE IN MANUFACTURING THE L-VIS SYSTEM IN COMMERCIAL
QUANTITIES.
We have limited experience in manufacturing L-VIS System units in large
quantities for commercial purposes. Our current modest manufacturing facilities
are designed to meet the current demand for use of the L-VIS System. We will
have to redesign our manufacturing facilities if we are able to develop a
substantially larger market for use of the L-VIS System. Any manufacturing
difficulties and any cost increases may materially adversely affect our profit
margin, if any, on the sale, lease or use of future L-VIS System units.
Manufacturing difficulties and cost increases may also affect our ability to
develop and deliver L-VIS System units on a timely basis. We believe that the
eventual manufacturing cost of L-VIS System units will be based upon the cost of
the components of the L-VIS System units purchased from the manufacturers of
these components and the cost of the digital signal processing circuits used to
perform identification, recognition and insertion functions which we produce. As
we increase our product development activities, we may find it desirable to
enter into contracts to have outside parties manufacture the L-VIS System units.
Any increased reliance on outside parties will require that we devote additional
resources to monitoring operations, controlling costs and maintaining effective
quality, inventory and service controls.
OUR DEPENDENCE ON A SOLE SUPPLIER OF SOME HARDWARE COMPONENTS MAY DELAY
MANUFACTURING OR REQUIRE REDESIGN OF THE L-VIS SYSTEM.
We depend upon a single supplier, Lucent Technologies, for some
hardware components. Although these hardware components are stock items, Lucent
may decide to stop selling them. We do not have an agreement with Lucent. If we
cannot get hardware components on a timely basis or if we have to pay
substantially more for them, we will have to find other sources for similar
components. This would require a redesign of some of our systems and our
business, financial condition and the results of our operations may be
materially adversely affected.
<PAGE> 21
WE FACE INTENSE COMPETITION FROM COMPANIES INVOLVED WITH VIDEO INSERTION
TECHNOLOGY AND FROM COMPANIES INVOLVED WITH TRADITIONAL ADVERTISING.
Competition may have a material adverse effect on our business,
financial condition and the results of our operations. The market for electronic
video insertion technology is new and evolving. We are aware of three
competitors with video technologies used for advertising: Symah Vision-SA, Orad
Hi Tech Systems, Ltd. and Scidel Technologies, Ltd. Orad is partly owned by ISL,
a Swiss sports-marketing firm. We recently expanded the services we offer to
include, for a fee, the electronic insertion of visual aids in live sporting
events, such as a virtual first-down marker in live television broadcasts of
football games. We are aware that another U.S. company, Sportvision, Inc., is
also in the business of inserting visual aids in live sporting events. If the
market for electronic video insertion technology grows, we also expect
substantial competition from established broadcast businesses. These broadcast
businesses have greater resources and more highly skilled individuals than we
do. Many potential competitors could gain significant market share due to their
greater name recognition and more extensive customer bases. These competitors
may be able to:
- produce a product superior to ours;
- undertake more extensive promotional activities than ours;
- offer more attractive terms to customers than we do; and
- adopt more aggressive pricing policies than we have.
The L-VIS System competes with advertisers' use of traditional
30-second advertising spots. These 30-second advertising spots are the standard
in the television advertising industry. The L-VIS System also competes with
advertisers' use of conventional billboard products, including advertising
placed on playing surfaces, such as outfield walls, football fields and ice
hockey rinks and scrolling billboards. Scrolling billboards are physically
located at the site of an event and can display a series of different
advertisements during an event. Scrolling billboards can achieve an effect
similar to the L-VIS System for the television viewing audience in some
circumstances.
We expect to generate revenue primarily by causing existing advertisers
and sponsors to use the L-VIS System and by attracting new advertisers and
sponsors to the advertising and sponsorship market. However, existing
advertisers may be reluctant to use a new technology. Advertisers may not
believe that their sales will increase as a result of the use of our technology.
The competition is likely to be more intense where we are competing for
television advertising and sponsorship dollars that are currently spent on
traditional media, such as 30-second spots or scrolling billboards. We need the
cooperation of the sponsorship advertising sales departments of team owners,
other rights holders and broadcasters. We rely on these entities for the sale of
our products to advertisers, but they may have incentives to sell alternative
advertising or sponsorship inventory rather than our services. This will have a
material adverse effect on our business, financial condition and the results of
our operations.
<PAGE> 22
DOMESTIC AND FOREIGN REGULATIONS MAY RESTRICT THE USE OF THE L-VIS SYSTEM.
We believe that no federal or state regulations directly restrict the
use of the L-VIS System. There are existing regulations imposed on broadcasters,
which may require disclosure that the L-VIS System is being used in a particular
broadcast. There may be regulations or restrictions in the future which
adversely affect the use of the L-VIS System. These regulations or restrictions
could have a material adverse effect on our business, financial condition and
the results of our operations.
Regulatory agencies in foreign jurisdictions may have adopted, or may
adopt in the future, regulations or restrictions affecting the use of the L-VIS
System. The adoption of these regulations or restrictions may reduce or
eliminate the market for our products in any country where these regulations or
restrictions are adopted. This would have a material adverse effect on our
business, financial condition and the results of our operations.
WE MAY NOT BE ABLE TO OBTAIN ADDITIONAL FINANCING THAT WE MAY NEED TO SUPPORT
OUR FUTURE OPERATIONS.
In the future we may need to raise money for our operations if we do
not generate enough revenues. We may not be able to obtain additional financing
on acceptable terms, or at all. If we cannot raise money, our business,
financial condition and the results of our operations will be adversely
affected.
We intend to use the net proceeds from this offering, our cash flow
from operations and our borrowings to support operations. Our need for money may
be affected by market changes or changes in our business. In addition, our
required payments for some electronic imaging rights total $2,000,000 for the
two fiscal years ending June 30, 2000. We may need to raise money earlier than
expected to expand, develop or enhance products, respond to competition or
acquire businesses. Our need for money will also depend on:
- the size of our research and development programs;
- the cost of our manufacturing and marketing activities;
- our ability to market products successfully;
- the length of time required to collect accounts receivable;
and
- the need to address competing technological and market
developments.
If we raise money by selling stock or convertible debt securities,
shareholders could experience substantial dilution. In addition, the securities
could have greater rights, preferences and privileges than you have as a holder
of our common stock. If we cannot generate sufficient revenues or raise money,
we will be required to reduce growth to a level that can be supported by
internally generated cash flow.
THIRD PARTY AGREEMENTS MAY PROHIBIT USE OF THE L-VIS SYSTEM.
The broadcast of a sporting event is governed by agreements among the
applicable teams, leagues, broadcasters and the sports federation, if any.
Impediments to use of the L-VIS System
<PAGE> 23
during the broadcast of the sporting events covered by any of these agreements
could have a material adverse effect on our business, financial condition and
the results of our operations. In many instances, these agreements provide that
different persons control the copyrights to the broadcasts in differing
circumstances, for instance, regular season play versus playoffs. Agreements
often govern permitted forms of advertising and modifications to the broadcast.
Use of live video insertion technology is not specifically discussed in some
existing agreements. Under these circumstances it is not clear whose permission
must be obtained to use the L-VIS System. If the L-VIS System is used without
the permission of the appropriate parties, the use of the L-VIS System can be
challenged. The defense and prosecution of copyright suits is both costly and
time-consuming. Current broadcast copyright holders might not agree to amend
current agreements on terms acceptable to us.
WE MAY BE REMOVED FROM THE NASDAQ NATIONAL MARKET IF WE FAIL TO MEET CERTAIN
MAINTENANCE CRITERIA AND THE MARKET FOR OUR COMMON STOCK COULD BE ADVERSELY
AFFECTED IF WE BECOME GOVERNED BY REGULATIONS GOVERNING LOW PRICE STOCKS.
Our common stock is quoted on the Nasdaq National Market. The continued
listing of our common stock is conditioned upon our meeting certain asset, stock
price and other criteria. If we fail any listing criteria, our common stock may
be delisted. The effects of delisting include limited news coverage and the
limited release of the market prices of our common stock. Delisting may diminish
investors' interest in our common stock, restrict the trading market and reduce
the price for our common stock. Delisting may also restrict us from issuing
additional securities or securing additional financing.
Companies with low price stocks are governed by additional federal and
state regulatory requirements and could lose an effective trading market for
their stock. For instance, if our common stock is delisted from the Nasdaq
National Market and the trading price of our common stock is less than $5.00 per
share, our common stock could be governed by Rule 15g-9 under the Securities
Exchange Act of 1934. This rule requires that broker-dealers satisfy special
sales practice requirements before any transaction, including suitability
determinations and receiving any purchaser's written consent. The additional
burdens imposed upon broker-dealers may discourage broker-dealers from effecting
transactions in our common stock. This would reduce the liquidity of our common
stock. If these rules become applicable to our common stock, they could have a
material adverse effect on the trading market for our common stock. In addition,
our common stock could be deemed "penny stock" under the Securities Enforcement
and Penny Stock Reform Act of 1990. If this occurs, additional disclosure will
be required if you wish to make a trade in our common stock. The disclosure
includes the delivery of a disclosure schedule explaining the nature and risks
of the penny stock market. These requirements could severely limit the liquidity
of our common stock and the ability of purchasers to sell their shares of our
common stock in the secondary market.
FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET COULD ADVERSELY AFFECT OUR
STOCK PRICE AND OUR ABILITY TO RAISE FUNDS IN NEW STOCK OFFERINGS.
The market price of our common stock could drop as a result of sales of
a large number of shares of our common stock in the marketplace, or the
perception that the sales could occur.
<PAGE> 24
These factors could also make it more difficult for us to raise money through
future offerings of securities.
8,213,805 shares of our common stock were outstanding on September 10,
1999. Of these shares, 4,600,000 were sold through our initial public offering
and are freely transferable under the Securities Act of 1933. An additional
415,000 shares of our common stock are issuable upon exercise of some warrants
and will be freely transferable pursuant to a registration statement on Form
S-3, filed by the Company with the SEC. which were previously registered.
777,130 shares are also issuable upon exercise of other outstanding warrants and
will be "restricted securities" as defined under Rule 144 under the Securities
Act. Finally, the 2,160,000 shares of our common stock which may be issued under
our 1993 Amended Stock Option Plan have been registered by us by filing a
registration statement on Form S-8 with the Securities and Exchange Commission.
"Restricted securities" may be sold only under Rule 144 or under an
effective registration statement under the Securities Act or an exemption from
the registration requirement. As of September 30, 1999, almost all shares of our
outstanding common stock were eligible for resale under Rule 144, including Rule
144(k).
We granted some demand and piggyback registration rights to the holders
of 3,583,652 shares of our common stock and to the holders of warrants
exercisable for an aggregate of 1,192,130 shares of our common stock, including
the 400,000 shares underlying the warrants held by the representatives of the
several underwriters of our initial public offering. These registration rights
require us to register under the Securities Act those shares of our common stock
and the shares of our common stock issuable upon exercise of the warrants. If
the holders, by exercising their registration rights, cause a large number of
shares to be registered and sold in the public market, the sales could have a
material adverse effect on the market price for our common stock.
THE PRICE OF OUR COMMON STOCK MAY BE HIGHLY VOLATILE.
The market prices of equity securities of technology companies have
experienced substantial price volatility in recent years for reasons both
related and unrelated to the individual performance of specific companies.
Accordingly, the market price of our common stock may be highly volatile.
Factors such as announcements by us or our competitors concerning the following
matters may have a significant impact on the market price of our common stock
and could cause it to fluctuate substantially:
- products;
- patents and technology;
- governmental regulatory actions;
- events affecting technology companies generally; and
- general market conditions.
<PAGE> 25
In addition, there are a relatively small number of shares of our
common stock trading publicly. Accordingly, stockholders may experience
difficulty selling or otherwise disposing of shares of our common stock at
favorable prices, or at all.
OUR OFFICERS, DIRECTORS AND EXISTING 5% SHAREHOLDERS HAVE SIGNIFICANT INFLUENCE
OVER OUR AFFAIRS AND MAY DELAY OR PREVENT A CHANGE IN CONTROL OF OUR COMPANY.
As of December 31, 1998, our executive officers and directors, together
with entities affiliated with these individuals, and other holders of five
percent or more of our outstanding capital stock beneficially owned over 30% of
our common stock, assuming the exercise of all vested stock options and
warrants. Effectively, these shareholders will be able to elect a majority of
our directors, will have the voting power to approve all matters requiring
shareholder approval and will continue to have significant influence over our
affairs. This concentration of ownership could have the effect of delaying or
preventing a change in control of our company. As of December 31, 1998, Allen &
Company Incorporated was the beneficial owner of 12.1% of our common stock.
Enrique F. Senior, one of our directors, is an Executive Vice President and
Managing Director of Allen & Company Incorporated and as such may be deemed to
be the beneficial owner of 12.3% of our common stock, which includes the shares
of our common stock beneficially owned by Allen & Company Incorporated. These
factors could lead to conflicts of interest between us, on the one hand, and
Allen & Company Incorporated and/or Mr. Senior, on the other hand. In the event
any conflict of interest arises between us and Allen & Company Incorporated or
Mr. Senior in the future, we intend that the issue will be resolved by a
majority of directors who do not have a personal interest in the issue.
We issued a total of 262,000 shares of our common stock, or 3.2% of the
shares of our common stock outstanding on December 31, 1998, to Brown F Williams
and Samuel A. McCleery as a result of the exercise of warrants in July 1997. The
total number of shares issued to these individuals was in exchange for
promissory notes. In December 1997 we lent money to Mr. Williams and Mr.
McCleery to allow them to pay the tax liabilities they each incurred as a result
of the exercise of their warrants in July 1997. They executed additional
promissory notes in December 1997 for these loans. All of these promissory notes
were outstanding as of December 31, 1998. Mr. Williams and Mr. McCleery have
significant influence over our affairs. Among other effects, this influence
could result in a delay of payment by Mr. Williams and Mr. McCleery to us.
OUR ABILITY TO UTILIZE OUR INCOME TAX LOSS CARRYFORWARDS TO OFFSET POSSIBLE
FUTURE CORPORATE INCOME WILL BE SEVERELY LIMITED BY THE INTERNAL REVENUE CODE.
As a result of our initial public offering of our common stock in
December 1997, we underwent an additional "ownership change" within the meaning
of Section 382 of the Internal Revenue Code of 1986. Under Section 382 of the
Internal Revenue Code, upon undergoing the ownership change, our right to use
existing net operating loss carryforwards is limited during each future year to
a percentage of the fair market value of our outstanding capital stock
immediately before the ownership change. If other ownership changes have
occurred before this ownership change, we may be further limited in using the
losses. As of June 30, 1999, we had net operating loss carryforwards for federal
income tax purposes of approximately $30,311,000.
<PAGE> 26
These net operating loss carryforwards expire in the years 2006 through 2019.
The timing and manner in which we may use the net operating loss carryforwards
to offset possible future corporate income will be severely limited by Section
382 of the Internal Revenue Code.
OUR ISSUANCE OF PREFERRED STOCK AND THE NEW JERSEY SHAREHOLDER PROTECTION ACT
COULD ADVERSELY AFFECT THE VALUE OF OUR COMMON STOCK.
Our board of directors may issue up to 1,000,000 shares of our
preferred stock in one or more series and may determine the price, rights,
preferences and privileges of those shares without any further vote or action by
our shareholders. We may issue up to 167,000 shares of our Series A Preferred
Stock and 93,300 shares of our Series B Preferred Stock. As of June 30, 1999,
67,600 shares of our Series A Preferred Stock were outstanding and 86,041 shares
of our Series B Preferred Stock were outstanding. As a holder of our common
stock, you may be negatively affected by the rights of the holders of our
preferred stock. The issuance of additional shares of our preferred stock would
provide flexibility for possible acquisitions and other corporate purposes.
However, our preferred stock can also be used to delay, defer or prevent a
change in control and, thus, entrench our existing management. We are governed
by the anti-takeover provisions of the New Jersey Shareholder Protection Act.
This act restricts certain business combinations with interested shareholders
for five years following the date the person becomes an interested shareholder,
unless the board of directors approves the business combination. These
provisions could adversely affect the value of our common stock since they delay
and deter unsolicited takeover attempts.
IF THE COMPUTER SYSTEMS WE RELY UPON ARE NOT YEAR 2000 COMPLIANT, OUR BUSINESS
COULD BE NEGATIVELY IMPACTED.
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 to
identify correctly dates in the 21st century. If not corrected, many computer
applications could fail or create erroneous results at the year 2000. To the
extent that all internal and external systems and services relating to our
operations, including, but not limited to, all computer hardware and software
systems, both those produced by us and those produced by others for our use, the
systems of our suppliers, significant third party vendors and broadcasters, and
our own internal information systems, databases and programs are not year 2000
compliant, our planned operations could be significantly disrupted. This could
have a material adverse effect on our business, financial condition and planned
results of operations. Further, to the extent that, while becoming year 2000
compliant, there are failures by governmental agencies causing delays in
approval of new products or sales of approved products, failures in global
banking systems and capital markets, failures by public and private utility
companies supplying services to us, or failures in identifying critical systems
within our company, these failures could have a material adverse effect on our
business, financial condition and planned results of operations.
<PAGE> 27
EXHIBIT B
Regulation M
<PAGE> 28
EXHIBIT C
Explanation of "BENEFICIAL OWNERSHIP"
Securities that are subject to a power to vote or dispose are deemed
beneficially owned by the person who holds such power, directly or indirectly.
This means that the same securities may be deemed beneficially owned by more
than one person, if such power is shared. In addition, the beneficial ownership
rules provide that shares which may be acquired upon exercise of an option or
warrant, or which may be acquired upon the termination of a trust, discretionary
account or similar arrangement, which can be effected within a period of 60 days
from the date of determination, are deemed to be "beneficially" owned.
Furthermore, shares that are subject to rights or powers even though such rights
or powers to acquire are not exercisable within the 60-day period may also be
deemed to be beneficially owned if the rights or powers were acquired "with the
purpose or effect of changing or influencing the control of the issuer or in
connection with or as a participant in any transaction having such purpose or
effect."
In determining whether securities are "beneficially owned," benefits
which are substantially equivalent to those of ownership by virtue of any
contract, understanding, relationship, agreement or other arrangement should
cause the securities to be listed as "beneficially owned."
Thus, for example, securities held for a person's benefit in the name
of others or in the name of any estate or trust in which such person may be
interested should also be listed. Securities held by a person's spouse, children
or other members of such person's family who are such person's dependents or who
live in such person's household should be listed as "beneficially owned" unless
such person does not enjoy benefits equivalent to those of ownership with
respect to such securities.
If a person has a proprietary or beneficial interest in a controlled
corporation, partnership, personal holding company, trust or estate which owns
of record or beneficially any securities, such person should state the amount of
such securities owned by such controlled corporation, partnership, personal
holding company, trust or estate in lieu of allocating such person's proprietary
interest, and by note or otherwise, please indicate that. In any case, the name
of the controlled corporation, partnership, personal holding company, or estate
must be stated.
In all cases the nature of the beneficial ownership should be stated.
<PAGE> 1
Exhibit 10.3
PRINCETON VIDEO IMAGE, INC.
PLACEMENT AGENCY AGREEMENT
October 13, 1999
Allen & Company Incorporated
711 Fifth Avenue
New York, New York 10022
Gentlemen:
Princeton Video Image, Inc., a New Jersey corporation (the
"Company") hereby confirms its agreement with you as follows:
1. The Offering. The Company is offering to persons who qualify as
"accredited investors," as that term is defined in Regulation D under the
Securities Act of 1933 as amended (the "Act"), up to 1,634,547 shares of the
Company's Common Stock (the "Shares"). The foregoing offer and sale of the
Shares is hereinafter referred to as the "Offering." The Company has the right,
in its sole discretion, to reject or cut back any subscription or any offer to
purchase shares.
2. Appointment of Placement Agent. You are hereby appointed the
exclusive placement agent of the Company (the "Placement Agent") during the
Offering Period (as defined herein) for the purpose of assisting the Company in
identifying qualified subscribers to purchase Shares (the "Subscribers"). The
"Offering Period" shall commence on the date the Offering Materials (as defined
herein) are first made available to you by the Company for delivery in
connection with the Offering and shall terminate on or before the close of
business on the earliest to occur of the closing of the sale of Shares or the
termination of this Agreement. You hereby accept such agency and agree to assist
the Company in identifying qualified Subscribers on a "best efforts" basis. Your
agency hereunder may not be terminated by the Company, except upon termination
of the Offering, upon the Placement Agent's failure to perform its obligations
hereunder in all material respects, upon the Placement Agent's material breach
of any of its representations and warranties contained in Section 7 hereof or
upon gross negligence or willful misconduct on the part of the Placement Agent.
It is understood that the offering and sale of the Shares is intended by all
parties to be exempt from the registration requirements of the Act pursuant to
Section 4(2) thereof and the rules and regulations of the Securities and
Exchange Commission thereunder, including Rule 506 of Regulation D (the "Rules
and Regulations").
3. Offering Materials. The Company has prepared and delivered to the
Placement Agent a reasonable number of copies of (i) the Company's Annual Report
on
<PAGE> 2
Form 10-KSB for the fiscal year ended June 30, 1999; (ii) the Company's Current
Reports on Form 8-K since June 30, 1999; (iii) the Company's press releases
since June 30, 1999; (iv) certain risk factors relating to the transactions
contemplated hereunder which are attached as Exhibit A to the Subscription
Agreements relating to the Shares (the "Subscription Agreements"); and (v) such
other documents, including exhibits to the foregoing reports on Forms 10-KSB and
8-K, as Subscriber (and Subscriber's attorney, accountant and/or other advisors)
deemed pertinent in order for Subscriber to make an informed investment
decision. Such documents are referred to herein as the "Offering Materials,"
except that if the Offering Materials shall be amended, the term "Offering
Materials" shall refer to the Offering Materials as so amended from and after
the time of delivery to you of such amendment. The Placement Agent shall deliver
the Offering Materials to each Subscriber prior to investment.
4. Closing; Delivery; Placement Fees.
(a) It is anticipated that the closing of the purchase and
sale of the Shares to Investors may be effected at a closing (the "Closing"),
which shall take place at the offices of Allen & Company Incorporated, 711 Fifth
Avenue, New York, New York 10022 at 10:00 a.m. on three business days' notice or
such other time, date or place as shall be agreed upon by you and the Company
(the "Closing Date").
(b) At the Closing, there shall be delivered to the Company on
behalf of each applicable Subscriber executed copies of the Subscription
Agreement to be entered into by the Company and each such Subscriber (the
"Purchasers") as of such Closing Date, and there shall also be delivered to the
Company on behalf of each applicable Purchaser the proportionate share of the
purchase price of the Shares which such Purchaser is to purchase. Upon the
Closing, the Company will deliver, or cause to be delivered, to the Purchasers
certificates representing the Shares purchased by them.
(c) Simultaneous with the Closing, as provided in paragraph
(b) above, the Company shall pay or cause to be paid to the Placement Agent a
placement fee equal to 5% of the aggregate purchase price paid for the Shares by
the Subscribers and warrants exercisable for 200,000 shares of the Company's
Common Stock on terms mutually acceptable to the Company and the Placement Agent
(the "Warrant") and shall reimburse the Placement Agent for its out-of-pocket
expenses as provided in Section 6(c) hereof, against the presentation of bills
therefor. If such bills are not available for presentation at the time of the
Closing, then the Company shall reimburse the amount of the Placement Agent's
reasonable estimate of such out-of-pocket expenses; in such event, the Placement
Agent shall promptly provide the Company with an accounting of actual expenses
when known, and the parties shall reconcile any amounts still owing among them.
5. Representations and Warranties of the Company. The Company hereby
confirms for the benefit of the Placement Agent the representations and
warranties
2
<PAGE> 3
made by it to the Subscribers in the Subscription Agreements, to the extent
applicable, and hereby further represents and warrants that this Agreement and
the Warrant have been duly authorized, executed and delivered on behalf of the
Company and constitute valid and binding agreements of the Company, enforceable
against the Company in accordance with their terms, subject to the effect of any
applicable bankruptcy, insolvency, reorganization, moratorium or similar law
affecting creditors' rights generally and to general principles of equity and
except as rights to indemnity or contribution hereunder may be limited by
Federal or state securities laws.
6. Covenants of the Company. The Company covenants and agrees with the
Placement Agent that:
(a) During the Offering Period, the Company will notify the
Placement Agent of any event of which it is aware as a result of which any of
the Offering Materials would include an untrue statement of a material fact or
omit to state any material fact necessary to make the statements therein in
light of the circumstances under which they were made not misleading; and it
will provide you with any amendment or supplement to the Offering Materials
during the Offering Period. The Company will conduct the Offering in compliance
with Section 4(2) of the Act and the Rules and Regulations and all applicable
state securities laws and regulations.
(b) If required by law, the Company will use its best efforts
to qualify the Shares for offer and sale under the Blue Sky or securities laws
of such jurisdictions as you may designate and to continue such qualifications
in effect for so long as may be required for purposes of the private placement
of the Shares, except that the Company shall not be required in connection
therewith or as a condition thereof to qualify as a foreign corporation or to
execute a general consent to service of process in any state or to subject
itself to taxation in any jurisdiction where it is not already subject to such
taxation.
(c) The Company covenants and agrees with you that it will pay
all expenses, fees and taxes in connection with (i) the preparation and delivery
of the Offering Materials and all other materials delivered to prospective
Subscribers, (ii) the furnishing of opinions of counsel for the Company and
closing documents, and (iii) the qualification of the Shares for offer or sale
under the securities laws of such jurisdictions as you may reasonably designate.
The Company also agrees that it will reimburse you for your out-of-pocket
expenses in connection with the Offering, and will pay the fees and expenses not
to exceed $50,000 in the aggregate of Heller Ehrman White & McAuliffe, special
counsel to the Placement Agent.
(d) The Company agrees to cooperate with the Placement Agent
and its special counsel with respect to their due diligence investigation.
3
<PAGE> 4
7. Representations, Warranties and Covenants of the Placement Agent.
The Placement Agent represents, warrants and covenants as follows:
(a) This Agreement has been duly authorized, executed and
delivered by the Placement Agent and constitutes a valid and binding obligation
of the Placement Agent, enforceable against it in accordance with its terms,
subject to the effect of any applicable bankruptcy, insolvency, reorganization,
moratorium or similar law affecting creditors' rights generally and to general
principles of equity and except as rights to indemnity or contribution hereunder
may be limited by Federal or state securities laws.
(b) The Placement Agent will not make an offer of Shares by
any form of general solicitation or general advertising in violation of Rule
502(c) of Regulation D under the Act, and the Placement Agent will conduct the
Offering in accordance with all Federal and state securities laws applicable to
the offering of the Shares.
(c) The Placement Agent shall not deliver to any offeree
without the consent of the Company any information concerning the Offering other
than the Offering Materials. The Placement Agent shall deliver, or cause to be
delivered, the Offering Materials to each offeree prior to the sale of any
Shares to such offeree.
(d) The Placement Agent is a registered broker dealer in good
standing in every state in which offers and sales of the Shares will be made.
(e) The Placement Agent acknowledges that the Company has the
right, in its sole discretion, to reject any Subscriber.
8. Conditions of the Company's Performance. The sale by the Company of
the Shares and the obligations of the Company as provided herein shall be
subject to the following conditions:
(a) The Company shall not have terminated the Offering, which
shall be the decision of the Company in its sole discretion;
(b) The representations and warranties of the Placement Agent
contained in Section 7 hereof are true and correct in all material respects as
of the date hereof and as of each Closing Date (as if made on and as of such
Closing Date); and
(c) The Placement Agent shall have performed its obligations
hereunder in all material respects.
9. Conditions of Placement Agent's Performance. The purchase and sale
of the Shares and the obligations of the Placement Agent as provided herein
shall be subject to the accuracy in all material respects, as of the date hereof
and each Closing
4
<PAGE> 5
Date (as if made on and as of such Closing Date), of the representations and
warranties of the Company herein, to the performance in all material respects by
the Company of its obligations hereunder, and to the following additional
conditions:
(a) You shall have received the opinion of Smith, Stratton,
Wise, Heher & Brennan, counsel to the Company, in form and substance acceptable
to your counsel; and
(b) You shall have received a certificate, dated as of each
Closing Date, of an authorized executive officer of the Company to the effect
that:
(i) The representations and warranties of the Company in this
Agreement and in the Subscription Agreements are true and correct in
all material respects as if made on and as of such Closing Date; and
the Company has complied with all the agreements and satisfied all the
conditions in all material respects on its part required by this
Agreement and the Subscription Agreements to be performed or satisfied
at or prior to such Closing Date; and
(ii) Except as set forth in the Offering Materials or in the
Subscription Agreements and subsequent to the date of the most recent
financial statements included with the Offering Materials, there has
not been any material adverse change in the condition (financial or
otherwise), business or results of operations of the Company and its
subsidiaries taken as a whole.
(c) The Company shall have furnished to you such certificates,
in addition to those specifically mentioned herein, as you or your counsel may
have reasonably requested, as to the accuracy and completeness at such Closing
Date of any statement in the Offering Materials (other than statements provided
by the Placement Agent for the Offering Materials) and as to such other matters
as you or your counsel may reasonably request.
(d) You shall have received the Warrant in form and substance
acceptable to you and your counsel.
10. Indemnification. (a) The Company will indemnify and hold harmless
the Placement Agent, the directors and officers of the Placement Agent and each
person, if any, who controls the Placement Agent within the meaning of the Act
against any losses, claims, damages or liabilities, joint or several, to which
the Placement Agent or any such directors, officers or controlling persons may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon (i) any untrue statement or alleged untrue statement of any material fact
contained in the Offering Materials, as of their respective dates, or arise out
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not
5
<PAGE> 6
misleading; or (ii) the Company's engagement of Allen & Company Incorporated as
Placement Agent or any service the Placement Agent performs for the Company or
on its behalf pursuant to this Agreement, except to the extent that any such
loss, claim, damage or liability is found by a court of competent jurisdiction
in a judgment that has become final (in that it is no longer subject to appeal
or review) to have resulted directly and primarily from such Indemnified
Person's gross negligence or willful misconduct. Subject to subsection (c)
below, the Company will reimburse the Placement Agent or any such directors,
officers or controlling persons for any legal or other expenses reasonably
incurred by the Placement Agent or any such directors, officers or controlling
persons in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Company will not be
liable in any case to the extent that any such loss, claim, damage, liability or
action arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in the Offering Materials, as of
their respective dates, in reliance upon and in conformity with written
information furnished by and with respect to the Placement Agent specifically
for use in the preparation thereof. The Company shall not be required to
indemnify the Placement Agent or any such directors, officers or controlling
persons for any payment made to any claimant in settlement of any suit or claim
unless such payment is approved by the Company, which approval shall not be
unreasonably withheld or delayed. This indemnity agreement will be in addition
to any liability which the Company may otherwise have, but in no event shall an
indemnified party receive more than the amount of his claim.
(b) The Placement Agent will indemnify and hold harmless the
Company, its officers and directors and each person, if any, who controls the
Company within the meaning of the Act against any losses, claims, damages or
liabilities, joint or several, to which the Company, or any such directors,
officers or controlling persons may be or become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Offering Materials, as of
their respective dates, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Offering Materials in
reliance upon and in conformity with written information furnished by and with
respect to the Placement Agent specifically for use in the preparation thereof;
and (subject to subsection (c) below) will reimburse the Company or any such
directors, officers or controlling persons for any legal or other expenses
reasonably incurred by the Company or any such director, officer or controlling
person in connection with investigating or defending any such loss, claim,
damage, liability or actions. The Placement Agent shall not be required to
indemnify the Company or any such directors, officers or controlling persons for
any payment made to any claimant in settlement of any suit or claim unless
payment is approved by the
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<PAGE> 7
Placement Agent, which approval shall not be unreasonably withheld or delayed.
This indemnity agreement will be in addition to any liability the Placement
Agent may otherwise have, but in no event shall an indemnified party receive
more than the amount of his claim.
(c) Promptly after receipt by an indemnified party under
subparagraphs 10(a) or (b) of notice of the commencement of any action or other
proceeding (including governmental investigations) in respect of which indemnity
may be sought, such indemnified party will, if a claim in respect thereof is to
be made against the indemnifying party under such subparagraphs, promptly notify
the indemnifying party in writing of the commencement thereof; but the omission
to so notify the indemnifying party will not relieve it from any liability which
it may have to any indemnified party otherwise than under such subparagraph. In
case any such action shall be brought against any indemnified party, and it
shall promptly notify the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, assume and control the defense thereof with counsel chosen by it
and after notice from the indemnifying party to such indemnified party of its
election so to assume and control such defense with counsel chosen by it, it
shall bear all expenses of such defense. Any such indemnified party shall have
the right to employ separate counsel in any such action and to participate in
the defense thereof, but the fees and expenses of such counsel shall be at the
expense of such indemnified party unless:
(i) the indemnifying party has agreed to pay such fees and
expenses; or
(ii) the indemnifying party shall have failed to assume the
defense of such action or proceeding and employ counsel reasonably
satisfactory to such indemnified party in any such action or
proceeding; or
(iii) the named parties to any such action or proceeding
(including any impleaded parties) include both such indemnified party
and the indemnifying party, and such indemnified party shall have been
advised by counsel that there may be one or more legal defenses
available to such party which are different from or additional to those
available to the indemnifying party (in which case, if such indemnified
party notifies the indemnifying party in writing that it elects to
employ separate counsel at the expense of the indemnifying party, the
indemnifying party shall not have the right to assume the defense of
such action or proceeding on behalf of such indemnified party).
The indemnifying party shall not, in connection with any one such
action or proceeding or separate but substantially similar or related actions or
proceedings in the same jurisdiction arising out of the same general allegations
or circumstances, be liable for the reasonable fees and expenses of more than
one separate firm of attorneys at any
7
<PAGE> 8
time for the indemnified party, which firm shall be designated in writing by the
indemnified party.
11. Contribution. In order to provide for contribution in circumstances
in which the indemnification provided for in Section 10(a) or 10(b) hereof is
for any reason held to be unavailable to any party entitled to such
indemnification, each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of losses, claims, damages and
liabilities of the nature contemplated by such indemnification provisions
(including any investigation, legal and other expenses incurred in connection
with, and amounts paid in settlement of, any action, suit or proceeding or any
claims asserted) to which the Company and the Placement Agent may be subject, in
such proportions so that the Placement Agent is responsible for that portion in
each case represented by the percentage that the respective placement fee
appearing in Section 4(c) of this Agreement bears to the offering price of the
Shares, and the Company is responsible for the remaining portion; provided,
however, that no person guilty of fraudulent misrepresentation shall be entitled
to contribution from any person who was not guilty of such fraudulent
misrepresentation. For purpose of this Section 11, each person, if any, who
controls the Placement Agent within the meaning of Section 15 of the Act shall
have the same rights to contribution as the Placement Agent, and each person, if
any, who controls the Company within the meaning of Section 15 of the Act, each
officer of the Company and each director of the Company shall have the same
right to contribution as the Company, subject in each case to the prior
sentence. Any party entitled to contribution will, promptly after receipt of
notice of commencement of any action, suit or proceeding against such party in
respect of which claim for contribution may be sought, promptly notify the other
party or parties in writing of the commencement thereof, but the omission to so
notify such party or parties shall not relieve the party or parties from whom
contribution may be sought from any other obligation it or they may have
hereunder or otherwise than under this Section 11. No party shall be liable for
contribution with respect to any action or claim settled without its consent.
12. Representations and Agreements to Survive Delivery. All
representations, warranties or agreements of the Company or of the Placement
Agent herein or in certificates delivered pursuant hereto shall remain operative
and in full force and effect regardless of any investigation made by or on
behalf of the Placement Agent or any controlling person, the Company, or any of
its officers, directors or controlling persons, and shall survive delivery of
the Shares.
13. Termination. Each of the Company's and the Placement Agent's
obligation to proceed hereunder is conditioned upon its continuing judgment that
market conditions in general, and as they relate to the Company's securities in
particular, are such as to continue to make appropriate the offering and sale of
the Shares in the manner provided for herein. Notwithstanding the foregoing,
this Agreement shall terminate if the
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<PAGE> 9
sale of all of the Shares is not completed on or before November 15, 1999,
unless extended by the mutual agreement of the Company and the Placement Agent.
Upon any termination of this Agreement whether by the Company or the Placement
Agent, the obligations of the parties set forth in Sections 6(c), 10 and 11
shall survive termination of this Agreement.
14. Notices. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and if sent to you shall be
mailed, delivered or telegraphed and confirmed to you c/o Allen & Company
Incorporated, 711 Fifth Avenue, New York, NY 10022, Attention: Enrique Senior,
with a copy to Heller Ehrman White & McAuliffe, 711 Fifth Avenue, New York, NY
10022, Attn: Guy N. Molinari, Esq., or, if sent to the Company, at 15 Princess
Road, Lawrenceville, NJ 08648, Attn: Brown Williams, with a copy to 600 College
Road East, Princeton, NJ 08540, Attn: Richard Pinto.
15. Benefits of the Agreement. This Agreement shall inure to the
benefit of and be binding upon the Company and the Placement Agent and their
respective successors and permitted assigns. This Agreement may not be assigned
by any party without the consent of the other party.
16. Applicable Law. This Agreement shall be governed by, construed and
enforced in accordance with the laws of the State of New York.
17. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
9
<PAGE> 10
Very truly yours,
PRINCETON VIDEO IMAGE, INC.
By:/s/ Lawrence L. Epstein
------------------------
Name: Lawrence L. Epstein
Title: Vice President of Finance and
Chief Financial Officer
ALLEN & COMPANY INCORPORATED
By: /s/ Kim M. Wieland
-------------------------
Name: Kim M. Wieland
Title: Managing Director and
Chief Financial Officer
10
<PAGE> 1
Exhibit 10.4
THESE SECURITIES HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR THE LAWS
OF ANY STATE. THEY MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED UNLESS THEY ARE
REGISTERED UNDER SUCH ACT AND APPLICABLE
STATE SECURITIES LAWS OR AN EXEMPTION FROM
REGISTRATION IS AVAILABLE.
200,000 Warrants
PRINCETON VIDEO IMAGE, INC.
WARRANT CERTIFICATE
This warrant certificate ("Warrant Certificate") certifies
that for value received in consideration for certain services rendered, and for
other good and valuable consideration, the sufficiency of which is hereby
acknowledged, Allen & Company Incorporated or registered permitted assigns (the
"Holder") is the owner of the number of warrants ("Warrants") specified above,
each of which entitles the Holder thereof to purchase, at any time on or before
the Expiration Date (hereinafter defined), one fully paid and non-assessable
share of Common Stock, no par value ("Common Stock"), of Princeton Video Image,
Inc., a New Jersey corporation (the "Company"), at a purchase price of $6.60 per
share of Common Stock in lawful money of the United States of America in cash or
by certified or cashier's check or a combination of cash and certified or
cashier's check (subject to adjustment as hereinafter provided).
1. Warrant; Purchase Price
Each Warrant shall entitle the Holder initially to purchase
one share of Common Stock of the Company and the purchase price payable upon
exercise of the Warrants (the "Purchase Price") shall initially be $6.60 per
share of Common Stock. The Purchase Price and number of shares of Common Stock
issuable upon exercise of each Warrant are subject to adjustment as provided in
Article 6. The shares of Common Stock issuable upon exercise of the Warrants
(and/or other shares of common stock so issuable by reason of any adjustments
pursuant to Article 6) are sometimes referred to herein as the "Warrant Shares."
2. Exercise; Expiration Date
2.1 The Warrants are exercisable, at the option of the Holder,
in whole or in part at any time and from time to time on or after the date
hereof and on or before the Expiration Date, upon surrender of this Warrant
Certificate to the Company together with a duly completed Notice of Exercise, in
the form attached hereto as Exhibit A, and payment of an amount equal to
<PAGE> 2
the Purchase Price times the number of Warrants to be exercised. In the case of
exercise of less than all the Warrants represented by this Warrant Certificate,
the Company shall cancel the Warrant Certificate upon the surrender thereof and
shall execute and deliver a new Warrant Certificate for the balance of such
Warrants.
2.2 The term "Expiration Date" shall mean 5:00 p.m. New York
time on the seventh anniversary of the date hereof, or if such day shall in the
State of New York be a holiday or a day on which banks are authorized to close,
then 5:00 p.m. New York time the next following day which in the State of New
York is not a holiday or a day on which banks are authorized to close.
3. Registration and Transfer on Company Books
3.1 The Company shall maintain books for the registration and
transfer of the Warrants and the registration and transfer of the Warrant
Shares.
3.2 Prior to due presentment for registration of transfer of
this Warrant Certificate, or the Warrant Shares, the Company may deem and treat
the registered Holder as the absolute owner thereof.
3.3 Neither this Warrant Certificate, nor the Warrants
represented hereby, may be sold, assigned or otherwise transferred voluntarily
by the Holder, other than to successors, partners, officers or directors of the
Holder (a "Permitted Transfer"), without the consent of the Company. The Company
shall register upon its books any Permitted Transfer of a Warrant Certificate,
upon surrender of same to the Company with a written instrument of transfer duly
executed by the registered Holder or by a duly authorized attorney. Upon any
such registration of Permitted Transfer, new Warrant Certificate(s) shall be
issued to the transferee(s) and the surrendered Warrant Certificate shall be
canceled by the Company. A Warrant Certificate may also be exchanged, at the
option of the Holder, for new Warrant Certificates of different denominations
representing in the aggregate the number of Warrants evidenced by the Warrant
Certificate surrendered.
4. Reservation of Shares
The Company covenants that it will at all times reserve and
keep available out of its authorized capital stock, solely for the purpose of
issue upon exercise of the Warrants, such number of shares of capital stock as
shall then be issuable upon the exercise of all outstanding Warrants. The
Company covenants that all shares of capital stock which shall be issuable upon
exercise of the Warrants shall be duly and validly issued and fully paid and
non-assessable and free from all taxes, liens and charges with respect to the
issue thereof, and that upon issuance such shares shall be listed on each
national securities exchange or automated over-the-counter trading system, if
any, on which the other shares of such outstanding capital stock of the Company
are then listed.
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5. Loss or Mutilation
Upon receipt by the Company of reasonable evidence of the
ownership of and the loss, theft, destruction or mutilation of any Warrant
Certificate and, in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to the Company, or, in the case of mutilation, upon
surrender and cancellation of the mutilated Warrant Certificate, the Company
shall execute and deliver in lieu thereof a new Warrant Certificate representing
an equal number of Warrants.
6. Adjustment of Purchase Price and Number of Shares
Deliverable
6.1 The number of Warrant Shares purchasable upon the exercise
of each Warrant and the Purchase Price with respect to the Warrant Shares shall
be subject to adjustment as follows:
(a) In case the Company shall (i) declare a dividend or make a
distribution on its Common Stock payable in shares of its capital
stock, (ii) subdivide its outstanding shares of Common Stock through
stock split or otherwise, (iii) combine its outstanding shares of
Common Stock into a smaller number of shares of Common Stock, or (iv)
issue by reclassification of its Common Stock (including any
reclassification in connection with a consolidation or merger in which
the Company is the continuing corporation) other securities of the
Company, the number and/or nature of Warrant Shares purchasable upon
exercise of each Warrant immediately prior thereto shall be adjusted so
that the Holder shall be entitled to receive the kind and number of
Warrant Shares or other securities of the Company which he would have
owned or have been entitled to receive after the happening of any of
the events described above, had such Warrant been exercised immediately
prior to the happening of such event or any record date with respect
thereto. Any adjustment made pursuant to this paragraph (a) shall
become effective retroactively as of the record date of such event.
(b) In the event of any capital reorganization or any
reclassification of the capital stock of the Company or in case of the
consolidation or merger of the Company with another corporation (other
than a consolidation or merger in which the outstanding shares of the
Company's Common Stock are not converted into or exchanged for other
rights or interests), or in the case of any sale, transfer or other
disposition to another corporation of all or substantially all the
properties and assets of the Company (any such event, a "Triggering
Event"), the Holder of each Warrant shall thereafter be entitled to
purchase (and it shall be a condition to the consummation of any such
reorganization, reclassification, consolidation, merger, sale, transfer
or other disposition that appropriate provisions shall be made so that
such Holder shall thereafter be entitled to purchase) the kind and
amount of shares of stock and other securities and property (including
cash) which the Holder would have been entitled to receive had such
Warrants been exercised immediately prior to the effective date of such
reorganization, reclassification, consolidation, merger, sale, transfer
or other disposition; and in any such case appropriate adjustments
shall be made in the application of the provisions of this Article 6
with
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<PAGE> 4
respect to rights and interest thereafter of the Holder of the Warrants
to the end that the provisions of this Article 6 shall thereafter be
applicable, as near as reasonably may be, in relation to any shares or
other property thereafter purchasable upon the exercise of the
Warrants. The provisions of this Section 6.1(b) shall similarly apply
to successive reorganizations, reclassifications, consolidations,
mergers, sales, transfers or other dispositions.
(c) Whenever the number of Warrant Shares purchasable upon the
exercise of each Warrant is adjusted, as provided in this Section 6.1,
the Purchase Price with respect to the Warrant Shares shall be adjusted
by multiplying such Purchase Price immediately prior to such adjustment
by a fraction, of which the numerator shall be the number of Warrant
Shares purchasable upon the exercise of each Warrant immediately prior
to such adjustment, and of which the denominator shall be the number of
Warrant Shares so purchasable immediately thereafter.
6.2 No adjustment in the number of Warrant Shares purchasable
under the Warrants, or in the Purchase Price with respect to the Warrant Shares,
shall be required unless such adjustment would require an increase or decrease
of at least 1% in the number of Warrant Shares issuable upon the exercise of
such Warrant, or in the Purchase Price thereof; provided, however, that any
adjustments which by reason of this Section 6.2 are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
All final results of adjustments to the number of Warrant Shares and the
Purchase Price thereof shall be rounded to the nearest one thousandth of a share
or the nearest cent, as the case may be. Anything in this Section 6 to the
contrary notwithstanding, the Company shall be entitled, but shall not be
required, to make such changes in the number of Warrant Shares purchasable upon
the exercise of each Warrant, or in the Purchase Price thereof, in addition to
those required by such Section, as it in its discretion shall determine to be
advisable in order that any dividend or distribution in shares of Common Stock,
subdivision, reclassification or combination of shares of Common Stock, issuance
of rights, warrants or options to purchase Common Stock, or distribution of
shares of stock other than Common Stock, evidences of indebtedness or assets
(other than distributions of cash out of retained earnings) or convertible or
exchangeable securities hereafter made by the Company to the holders of its
Common Stock shall not result in any tax to the holders of its Common Stock or
securities convertible into Common Stock.
6.3 Whenever the number of Warrant Shares purchasable upon the
exercise of each Warrant or the Purchase Price of such Warrant Shares is
adjusted, as herein provided, the Company shall mail to the Holder, at the
address of the Holder shown on the books of the Company, a notice of such
adjustment or adjustments, prepared and signed by the Chairman of the Board,
Chief Financial Officer or Secretary of the Company, which sets forth the number
of Warrant Shares purchasable upon the exercise of each Warrant and the Purchase
Price of such Warrant Shares after such adjustment, a brief statement of the
facts requiring such adjustment and the computation by which such adjustment was
made.
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<PAGE> 5
6.4 The Company shall give notice to the Holder by registered
mail, if at any time prior to the expiration or exercise in full of the
Warrants, any of the following events shall occur:
(a) The Company shall authorize the payment of any dividend
payable in any securities upon shares of Common Stock or authorize the making of
any distribution to the holders of shares of Common Stock;
(b) The Company shall authorize the issuance to all holders of
Common Stock of any additional shares of Common Stock or of rights, options or
warrants to subscribe for or purchase Common Stock or any of any other
subscription rights, options or warrants;
(c) A dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation, merger, or sale or conveyance of
the property of the Company as an entirety or substantially as an entirety); or
(d) A capital reorganization or reclassification of the Common
Stock (other than a subdivision or combination of the outstanding Common Stock
and other than a change in the par value of the Common Stock) or any
consolidation or merger of the Company with or into another corporation (other
than a consolidation or merger in which the Company is the continuing
corporation and that does not result in any reclassification or change of Common
Stock outstanding) or any sale or conveyance to another corporation of the
property of the Company as an entirety or substantially an entirety.
Such giving of notice shall be initiated at least 10 business days prior to the
date fixed as a record date or effective date or the date of closing of the
Company's stock transfer books for the determination of the shareholders
entitled to such dividend, distribution, or subscription rights, or for the
determination of the shareholders entitled to vote on such proposed merger,
consolidation, sale, conveyance, dissolution, liquidation or winding up. Such
notice shall specify such record date or the date of the closing of the stock
transfer books, as the case may be. Failure to provide such notice shall not
affect the validity of any action taken in connection with such dividend,
distribution or subscription rights, or proposed merger, consolidation, sale,
conveyance, dissolution, liquidation or winding up.
7. Conversion Rights
7.1 In lieu of exercise of any portion of the Warrants as
provided in Section 2.1 hereof, the Warrants represented by this Warrant
Certificate (or any portion thereof) may, at the election of the Holder, be
converted into the nearest whole number of shares of Common Stock equal to: (1)
the product of (a) the number of shares of Common Stock then issuable upon the
exercise of the Warrants to be so converted and (b) the excess, if any, of (i)
the Market Price Per Share (as determined pursuant to Section 9.2) with respect
to the date of conversion over (ii) the Purchase Price in effect on the business
day next preceding the date of conversion, divided by (2) the Market Price Per
Share with respect to the date of conversion. For example, if the Market Price
per Share on the date of conversion is $4.00 and the Purchase Price is $2.00,
then the
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<PAGE> 6
Holder would be entitled to receive 15,000 shares of Common Stock upon
conversion of 30,000 Warrants.
7.2 The conversion rights provided under this Section 7 may be
exercised in whole or in part and at any time and from time to time while any
Warrants remain outstanding. In order to exercise the conversion privilege, the
Holder shall surrender to the Company, at its offices, this Warrant Certificate
accompanied by a duly completed Notice of Conversion in the form attached hereto
as Exhibit B. The Warrants (or so much thereof as shall have been surrendered
for conversion) shall be deemed to have been converted immediately prior to the
close of business on the day of surrender of such Warrant Certificate for
conversion in accordance with the foregoing provisions. As promptly as
practicable on or after the conversion date, the Company shall issue and shall
deliver to the Holder (i) a certificate or certificates representing the number
of shares of Common Stock to which the Holder shall be entitled as a result of
the conversion, and (ii) if the Warrant Certificate is being converted in part
only, a new certificate of like tenor and date for the balance of the
unconverted portion of the Warrant Certificate.
8. Voluntary Adjustment by the Company
The Company may, at its option, at any time during the term of
the Warrants, reduce the then current Purchase Price to any amount deemed
appropriate by the Board and/or extend the date of the expiration of the
Warrants.
9. Fractional Shares and Warrants; Determination of Market
Price Per Share
9.1 Anything contained herein to the contrary notwithstanding,
the Company shall not be required to issue any fraction of a share of Common
Stock in connection with the exercise of Warrants. Warrants may not be exercised
in such number as would result (except for the provisions of this paragraph) in
the issuance of a fraction of a share of Common Stock unless the Holder is
exercising all Warrants then owned by the Holder. In such event, the Company
shall, upon the exercise of all of such Warrants, issue to the Holder the
largest aggregate whole number of shares of Common Stock called for thereby upon
receipt of the Purchase Price for all of such Warrants and pay a sum in cash
equal to the remaining fraction of a share of Common Stock, multiplied by its
Market Price Per Share (as determined pursuant to Section 9.2 below) as of the
last business day preceding the date on which the Warrants are presented for
exercise.
9.2 As used herein, the "Market Price Per Share" with respect
to any class or series of Common Stock on any date shall mean the average
closing price per share of Company's Common Stock for the 20 trading days
immediately preceding such date. The closing price for each such day shall be
the last sale price regular way or, in case no such sale takes place on such
day, the average of the closing bid and asked prices regular way, in either case
on the principal securities exchange on which the shares of such Common Stock of
the Company are listed or admitted to trading or, if applicable, the last sale
price, or in case no sale takes place on such day, the average of the closing
bid and asked prices of such Common Stock on NASDAQ or
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any comparable system, or if such Common Stock is not reported on NASDAQ, or a
comparable system, the average of the closing bid and asked prices as furnished
by two members of the National Association of Securities Dealers, Inc. selected
from time to time by the Company for that purpose. If such bid and asked prices
are not available, then "Market Price Per Share" shall be equal to the fair
market value of such Common Stock as determined in good faith by the Board.
10. Registration Rights
10.1 No sale, transfer, assignment, hypothecation or other
disposition of the Warrant Shares shall be made unless any such transfer,
assignment or other disposition will comply with the rules and statutes
administered by the Securities and Exchange Commission (the "Commission") and
(i) a registration statement under the Securities Act of 1933, as amended (the
"Act"), including such shares is currently in effect, or (ii) in the opinion of
counsel satisfactory to the Company a current registration statement is not
required for such disposition of the shares.
10.2(a) The Company agrees that the Holder shall have the
one-time right, beginning on the first anniversary of the date of this Warrant
Certificate, upon written notice to the Company, to require that the Company
prepare and promptly file a registration statement, as may be required under the
Act, in connection with the public offering, on a time-to-time basis or
otherwise, of not less than 50% of the then outstanding Warrant Shares. In
connection therewith, the Company shall be obligated to prepare and file such
registration statement within 45 days of receipt of any such initial notice and
shall be further obligated to use its reasonable best efforts, including the
filing of any amendments or supplements thereto, to have any such registration
statement declared effective under the Act and the rules and regulations
promulgated thereunder as soon as practicable after the filing date thereof. The
Company shall also use its reasonable best efforts to keep any such registration
statement, and the accompanying prospectus, effective and current under the Act
at its expense for such period of time as is not otherwise burdensome to the
Company, in no event to exceed 90 days.
(b) Notwithstanding the foregoing, the Company shall not be
required to effect any registration pursuant to paragraph (a) above (i) during
the twelve (12) consecutive months following the effective date of a
registration statement filed in connection of any previous registration pursuant
to Section 10.3 below, or (ii) at any time when another registration statement
(other than on Form S-8) of the Company (A) is reasonably foreseen by the Board
to be filed with the Commission within thirty (30) days after the request
pursuant to paragraph (a) above, (B) has been filed and not yet become
effective, or (C) has become effective less than six (6) months prior to the
date of the request for registration pursuant to paragraph (a) above.
(c) The Company may postpone for 180 days the filing of a
registration statement pursuant to paragraph (a) above if the Company has
delivered a certificate to the holders of the Warrant Shares stating that the
Board, acting in good faith, has determined that pursuance of such registration
statement would be seriously detrimental to the Company and its shareholders;
provided, however, that in the event of any such postponement the Holder(s)
shall
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<PAGE> 8
be entitled to withdraw the request for such registration and, if such request
is withdrawn, such request shall not count as exercise of the Holder's one-time
right pursuant to paragraph (a) above.
10.3 In addition to the rights of the Holder pursuant to
Section 10.2, the Company agrees that, at any time or times hereafter, as and
when it intends to register any of its securities under the Act other than
pursuant to a registration requested pursuant to Section 10.2 hereof, whether
for its own account and/or on behalf of selling stockholders (except in
connection with an offering on Form S-8 or an offering solely related to an
acquisition or exchange on a Form S-4 or any subsequent similar form) the
Company will notify the Holder of such intention and, upon request from the
Holder, will use its reasonable best efforts to cause the Warrant Shares
designated by the Holder to be registered under the Securities Act. The number
of Warrant Shares to be included in such offering may be reduced if and to the
extent that the underwriter of securities included in the registration statement
and offered by the Company shall be of the opinion that such inclusion would
adversely affect the marketing of the securities to be sold by the Company
therein; provided, however, that the percentage of the reduction of such Warrant
Shares shall be no greater than the percentage reduction of securities of other
selling stockholders, as such percentage reductions are determined in the good
faith judgment of the Company. The Company will use its reasonable best efforts
to keep each such registration statement current for such period of time as is
not otherwise burdensome to the Company, in no event to exceed 90 days.
10.4 Any registration statement referred to in subsection 10.2
or 10.3 hereof shall be prepared and processed in accordance with the following
terms and conditions:
(i) The Holder will cooperate in furnishing promptly to the
Company in writing any information requested by the Company in
connection with the preparation, filing and processing of such
registration statement.
(ii) To the extent requested by an underwriter of securities
included in a registration statement referred to in Subsection 10.3
hereof and offered by the Company, the Holder will defer the sale of
Warrant Shares for a period commencing twenty (20) days prior and
terminating one hundred twenty (120) days after the effective date of
the registration statement, provided that any principal shareholders of
the Company who also have shares included in the registration statement
will also defer their sales for a similar period.
(iii) The Company will furnish to the Holder such number of
prospectuses or other documents incident to such registration as may
from time to time be reasonably requested, and cause its shares to be
qualified under the blue-sky laws of those states reasonably requested
by the Holder.
(iv) The Company will indemnify the Holder (and any officer,
director or controlling person of the Holder) and any underwriters
acting on behalf of the Holder against all claims, losses, expenses,
damages and liabilities (or actions in respect thereof) to which they
may become subject under the Securities Act or otherwise, arising out
of or
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<PAGE> 9
based upon any untrue or alleged untrue statement of any material facts
contained in any registration statement filed pursuant hereto, or any
document relating thereto, including all amendments and supplements, or
arising out of or based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein contained not misleading, and will
reimburse the Holder (or such other aforementioned parties) or such
underwriters for any legal and all other expenses reasonably incurred
in accordance with investigating or defending any such claim, loss,
damage, liability or action; provided, however, that the Company will
not be liable where the untrue or alleged untrue statement or omission
or alleged omission is based upon information furnished in writing to
the Company by the Holder or any underwriter obtained by the Holder
expressly for use therein, or as a result of the Holder's or any such
underwriter's failure to furnish to the Company information duly
requested in writing by counsel for the Company specifically for use
therein. This indemnity agreement shall be in addition to any other
liability the Company may have. The indemnity agreement of the Company
contained in this paragraph (iv) shall remain operative and in full
force and effect regardless of any investigation made by or on behalf
of any indemnified party and shall survive the delivery of and payment
for the Warrant Shares.
(v) The Holder will indemnify the Company (and any officer,
director or controlling person of the Company) and any underwriters
acting on behalf of the Company against all claims, losses, expenses,
damages and liabilities (or actions in respect thereof) to which they
may become subject under the Securities Act or otherwise, arising out
of or based upon any untrue or alleged untrue statement filed pursuant
hereto, or any document relating thereto, including all amendments, and
supplements, or arising out of or based upon the omission or alleged
omission to state therein a material fact required to be stated therein
or necessary to make the statements therein contained not misleading,
and, will reimburse the Company (or such other aforementioned parties)
or such underwriters for any legal and other expenses reasonably
incurred in connection with investigating or defending any such claim,
loss, damage, liability, or action; provided, however, that the Holder
will be liable as aforesaid only to the extent that such untrue or
alleged untrue statement or omission or alleged omission is based upon
information furnished in writing to the Company by the Holder or any
underwriter obtained by the Holder expressly for use therein, or as a
result of its or such underwriter's failure to furnish the Company with
information duly requested in writing by counsel for the Company
specifically for use therein. This indemnity agreement contained in
this paragraph (v) shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any indemnified
party and shall survive the delivery of and payment for the Warrant
Shares.
(vi) Promptly after receipt by an indemnified party under this
subsection 10.4 of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made
against the indemnifying party, promptly notify the indemnifying party
of the commencement thereof, but the omission so to notify the
indemnifying party will not relieve it from any liability which it may
have to any indemnified party otherwise than under this subsection
10.4. In case any such action is
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<PAGE> 10
brought against any indemnified party, and it notifies the indemnifying
party of the commencement thereof, the indemnifying party will be
entitled to participate in, and, to the extent that it may wish jointly
with any other indemnifying party similarly notified, to assume the
defense thereof, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party of its
election so to assume the defense thereof, the indemnifying party will
not be liable to such indemnified party under this subsection 10.4 for
any legal or other expenses subsequently incurred by such indemnified
party in connection with the defense thereof, other than reasonable
costs of investigation or out-of-pocket expenses or losses or cost
incurred in collaborating in the defense.
(vii) Except as set forth in subsection 10.4(viii), the
Company shall bear all costs and expenses incident to any registration
pursuant to this Section 10.
(viii) The Holder shall pay any and all underwriters'
discounts, brokerage fees and transfer taxes incident to the sale of
any securities sold by such Holder pursuant to this Section 10, and
shall pay the fees and expenses of any attorneys or accountants
retained by it.
11. Governing Law
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York.
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<PAGE> 11
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed by its officers thereunto duly authorized and
its corporate seal to be affixed hereon, as of this 20th day of October, 1999.
PRINCETON VIDEO IMAGE, INC.
By: /s/ Lawrence L Epstein
------------------------------
Name: Lawrence L. Epstein
Title: Vice President and Chief
Financial Officer
[SEAL]
Attest:
ALLEN & COMPANY INCORPORATED
By: /s/ Kim M. Wieland
----------------------------
Name: Kim M. Wieland
Title: Managing Director and
Chief Financial Officer
<PAGE> 12
EXHIBIT A
NOTICE OF EXERCISE
The undersigned hereby irrevocably elects to exercise,
pursuant to Section 2 of the Warrant Certificate accompanying this Notice of
Exercise, _______ Warrants of the total number of Warrants owned by the
undersigned pursuant to the accompanying Warrant Certificate, and herewith makes
payment of the Purchase Price of such shares in full.
Name of Holder ________________________
Signature ________________________
Address: ________________________
________________________
________________________
<PAGE> 13
EXHIBIT B
NOTICE OF CONVERSION
The undersigned hereby irrevocably elects to convert, pursuant to Section 7 of
the Warrant Certificate accompanying this Notice of Conversion, _______ Warrants
of the total number of Warrants owned by the undersigned pursuant to the
accompanying Warrant Certificate into shares of the Common Stock of the Company
(the "Shares").
The number of Shares to be received by the undersigned shall be calculated in
accordance with the provisions of Section 7.1 of the accompanying Warrant
Certificate.
Name of Holder: ________________________
Signature: ________________________
Address: ________________________
________________________
________________________
<PAGE> 1
EXHIBIT 10.5
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
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<PAGE> 2
Subsidiary. Continuous Status as an Employee shall not be considered interrupted
in the case of: (i) sick leave; (ii) military leave; (iii) any other leave of
absence approved by the Board, provided that such leave is for a period of not
more than ninety (90) days, unless reemployment upon the expiration of such
leave is guaranteed by contract or statute, or unless provided otherwise
pursuant to Company policy adopted from time to time; or (iv) in the case of
transfers between locations of the Company or between the Company, its
Subsidiaries or its successor.
(i) "Date of Grant" means the date on which an Option is
granted under this Plan pursuant to Section 13 of the Plan.
(j) "Employee" means any person, including officers and
directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a director's fee by the Company shall not be sufficient to
constitute "employment" by the Company.
(k) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(l) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any
established stock exchange or a national market system including without
limitation the National Market System of the National Association of Securities
Dealers, Inc. Automated Quotation ("NASDAQ") System, its Fair Market Value shall
be the closing sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such system or exchange for the last market trading day
prior to such date as reported in the Wall Street Journal or such other source
as the Administrator deems reliable or;
(ii) If the Common Stock is quoted on the NASDAQ
System (but not on the National Market System thereof) or regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean between the high and low asked prices for the
Common Stock for the last market trading day prior to such date or;
(iii) In the absence of an established market for
the Common Stock, the Fair Market Value thereof shall be determined in good
faith by the Administrator.
(m) "Incentive Stock Option" means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code.
(n) "Non-Statutory Stock Option" means an Option not intended
to qualify as an Incentive Stock Option.
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<PAGE> 3
(o) "Option" means a stock option granted pursuant to the
Plan.
(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 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
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<PAGE> 4
securities laws and of the Code (the "Applicable Laws"). Once appointed, such
Committee shall continue to serve in its designated capacity until otherwise
directed by the Board. From time to time the Board may increase the size of the
Committee and appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution therefor, fill vacancies,
however caused, and remove all members of the Committee and thereafter directly
administer the Plan, all to the extent permitted by the Applicable Laws and Rule
16b-3.
(ii) Multiple Administrative Bodies. If permitted
by Rule 16b-3, the Plan may be administered by different bodies with respect to
directors, non-director officers and Employees and Consultants who are neither
directors nor officers.
(iii) Administration With Respect to Consultants
and Other Employees. With respect to grants of Options to Employees or
Consultants who are neither directors nor officers of the Company, the Plan
shall be administered by (A) the Board or (B) a Committee designated by the
Board, which Committee shall be constituted in such a manner as to satisfy the
Applicable Laws. Once appointed, such Committee shall continue to serve in its
designated capacity until otherwise directed by the Board. From time to time the
Board may increase the size of the Committee and appoint additional members
thereof, remove members (with or without cause) and appoint new members in
substitution therefor, fill vacancies, however caused, and remove all members of
the Committee and thereafter directly administer the Plan, all to the extent
permitted by the Applicable Laws.
(iv) Formula Awards to Directors.
(A) Each person who on October 1, 1999 was
a nominee for election as a director at the Company's 1999 annual meeting of
shareholders shall be granted a Non-Statutory Stock Option to purchase 10,000
Shares. The Date of Grant of such Option shall be October 1, 1999. Each such
Option shall vest and become exercisable in equal increments of 2,500 Shares on
the date of each Board meeting attended by such person following his election or
reelection as a director at the Company's 1999 annual meeting of shareholders,
provided that on the date of such Board meeting the director is serving as a
director of the Company. Options that have not vested on or before the day
preceding the 2000 annual meeting of shareholders of the Company following such
director's election or reelection shall expire.
(B) On the date of a director's election,
reelection or appointment to the Board, such director shall be granted a
Non-Statutory Stock Option to purchase 10,000 Shares. The Date of Grant of such
Option shall be the date of such director's election, reelection or appointment
to the Board. Each such Option shall vest and become exercisable in equal
increments of 2,500 Shares on the date of each Board meeting attended by such
director following such director's election, reelection or appointment provided
that on such date the director is serving as a director of the
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<PAGE> 5
Company. Options that have not vested on or before the day preceding the first
annual meeting of shareholders of the Company following such director's
election, reelection or appointment shall expire. Any director or nominee who
has been granted an Option pursuant to Section 4(a)(iv)(A) shall not be granted
an Option under this Section 4(a)(iv)(B) before the date of the 2000 annual
meeting of shareholders of the Company.
(C) Options granted pursuant to this
Section 4(a)(iv) shall have a per share exercise price equal to the Fair Market
Value per share on the Date of Grant and, shall, expire ten years from the Date
of Grant or on such earlier date as is provided in Section 4(a)(iv)(A),
4(a)(iv)(B) or Section 7 hereof. Once an Option granted pursuant to this
Section, or any portion thereof, has become exercisable, it shall remain
exercisable regardless of whether or not the director holding the Option later
ceases to be a director of the Company.
(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);
(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
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<PAGE> 6
(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) Non-Statutory 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 Non-Statutory 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 Non-Statutory 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.
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
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<PAGE> 7
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 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
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<PAGE> 8
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
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.
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<PAGE> 9
(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.
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;
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<PAGE> 10
(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.
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
-10-
<PAGE> 11
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,
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
-11-
<PAGE> 12
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 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-
<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-Q FOR THE QUARTER
ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
QUARTERLY REPORT ON FORM 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 14,077,670
<SECURITIES> 137,357
<RECEIVABLES> 572,924
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15,123,645
<PP&E> 7,573,045
<DEPRECIATION> 3,748,050
<TOTAL-ASSETS> 19,712,434
<CURRENT-LIABILITIES> 3,020,870
<BONDS> 0
1,013,680
0
<COMMON> 49,147
<OTHER-SE> 14,711,723
<TOTAL-LIABILITY-AND-EQUITY> 19,712,434
<SALES> 0
<TOTAL-REVENUES> 1,079,671
<CGS> 0
<TOTAL-COSTS> 8,225,452
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (6,822,347)
<INCOME-TAX> 596,998
<INCOME-CONTINUING> (6,225,349)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,225,349)
<EPS-BASIC> (0.70)
<EPS-DILUTED> (0.70)
</TABLE>
