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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 19, 1997
REGISTRATION NO. 333-33521
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
INTERVU INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
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DELAWARE 7371 33-0680870
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
201 LOMAS SANTA FE DRIVE
SOLANA BEACH, CA 92075
(619) 350-1600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
HARRY E. GRUBER
CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
INTERVU INC.
201 LOMAS SANTA FE DRIVE
SOLANA BEACH, CA 92075
(619) 350-1600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
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SCOTT N. WOLFE, ESQ. PETER LILLEVAND, ESQ.
DAVID A. HAHN, ESQ. IAIN MICKLE, ESQ.
ROBERT E. BURWELL, ESQ. BRETT E. COOPER, ESQ.
LATHAM & WATKINS ORRICK, HERRINGTON & SUTCLIFFE LLP
701 "B" STREET, SUITE 2100 OLD FEDERAL RESERVE BANK BUILDING
SAN DIEGO, CALIFORNIA 92101 400 SANSOME STREET
(619) 236-1234 SAN FRANCISCO, CALIFORNIA 94111
(415) 392-1122
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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===========================================================================================================
PROPOSED
AMOUNT MAXIMUM OFFERING PROPOSED AMOUNT OF
TITLE OF EACH CLASS OF TO BE PRICE PER MAXIMUM AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) SHARE(2) OFFERING PRICE FEE(3)
- -----------------------------------------------------------------------------------------------------------
Common Stock, $.001 par value......... 2,567,000 shares $11.00 $28,237,000 $8,557
===========================================================================================================
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(1) Includes 300,000 shares subject to the Underwriters' option to cover
over-allotments and shares to be issued in a direct offering by the Company.
(2) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457 under the Securities Act of 1933.
(3) Previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED NOVEMBER 19, 1997
PROSPECTUS
- --------------------------------------------------------------------------------
2,000,000 SHARES
[LOGO]
INTERVU INC.
COMMON STOCK
- --------------------------------------------------------------------------------
InterVU Inc. ("InterVU" or the "Company") hereby offers 2,000,000 shares of
Common Stock, $.001 par value per share (the "Common Stock"). Prior to the
offering (the "Offering"), there has been no public market for the Common Stock
and there can be no assurance that such a market will develop after completion
of the Offering or, if developed, that it will be sustained. It is presently
anticipated that the initial public offering price will be between $9.00 and
$11.00 per share. See "Underwriting" for information relating to the
determination of the initial public offering price.
NBC Multimedia, Inc., a wholly-owned subsidiary of National Broadcasting
Company, Inc., has indicated to the Company that it has an interest in
purchasing $2,000,000 of Common Stock at the initial public offering price in a
direct offering to be consummated concurrently with the Offering (the "Direct
Offering"). See "Direct Offering."
The Company has applied to have the Common Stock approved for quotation, subject
to official notice of issuance, on the Nasdaq Stock Market's National Market
System (the "Nasdaq National Market") under the symbol ITVU.
- --------------------------------------------------------------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR CERTAIN INFORMATION WHICH SHOULD BE
CAREFULLY CONSIDERED BEFORE PURCHASING SHARES OF THE COMMON STOCK OFFERED
HEREBY.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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=================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNTS(1) COMPANY(2)
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Per Share........................ $ $ $
- -------------------------------------------------------------------------------------------------
Total(3)(4)...................... $ $ $
=================================================================================================
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(1) Does not include a non-accountable expense allowance payable to Josephthal
Lyon & Ross Incorporated ("Josephthal") and Cruttenden Roth Incorporated,
representatives of the several underwriters (the "Representatives"). In
addition, see "Underwriting" for further information concerning
indemnification and contribution arrangements with, and other compensation
payable to, the Underwriters.
(2) Before deducting offering expenses estimated to be $850,000, including the
Representatives' non-accountable expense allowance.
(3) The Company has granted the Underwriters an option (the "Over-Allotment
Option"), exercisable for a period of 30 days after the date of this
Prospectus, to purchase up to an additional 300,000 shares of Common Stock
upon the same terms and conditions set forth above, solely to cover
over-allotments, if any. If the Over-Allotment Option is exercised in full,
the total Price to Public, Underwriting Discounts and Proceeds to Company
will be $ , $ and $ , respectively. See "Underwriting."
(4) Excludes $2,000,000 expected to be received by the Company from the Direct
Offering. See "Direct Offering."
- --------------------------------------------------------------------------------
The shares of Common Stock are offered by the Underwriters, subject to prior
sale, when, as and if delivered to and accepted by the Underwriters, and subject
to the approval of certain legal matters by their counsel and to certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify the
Offering without notice and to reject any order in whole or in part. It is
expected that delivery of the Common Stock offered hereby will be made against
payment therefor at the offices of Josephthal Lyon & Ross Incorporated, New
York, New York, on or about , 1997.
JOSEPHTHAL LYON & ROSS CRUTTENDEN ROTH
INCORPORATED
The date of this Prospectus is , 1997.
<PAGE> 3
[INTERVU LOGO]
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V-Banner(TM) InterVU's network approach to video delivery offers Web site owners and
Client Videos advertisers a solution to offering video on the Internet. Video messages are
Free Software hosted on the InterVU Network but accessed from customers' Web sites. Upon
the request of an end-user at a participating Web site, the InterVU Network
transmits video messages directly to the end- user. In the case of video
banner advertisements, the video is displayed automatically to end-users
with video player capability. The InterVU Network utilizes a number of
proprietary technologies, including InterVU's Smart Mirror technology, All
Eyes software, InstaVU video player and EyeQ software, which together are
designed to deliver video to the end-user from the "electronically closest"
server, provide Web site owners or advertisers with the ability to reach an
increased number of end-users with their video content and improve
end-users' video viewing experience.
[INTERVU LOGO] [MLB LOGO] [NBC LOGO]
http://www.intervu.net
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Below the MLB logo is a depiction of an Internet video player showing the
legs of a baserunner as he prepares to slide into home plate. The video player
represented contains triangular symbols representing forward and reverse, an
icon representing the presence of sound and the word "InterVU."
Below the NBC.com logo is a depiction of a video player showing a line of
people entering a building with an NBC logo over the door. The video player
represented contains triangular symbols representing the word "InterVU."
------------------------
Information contained in the Company's Web site shall not be deemed to be a
part of this Prospectus.
------------------------
InterVU(TM), InstaVU(TM), V-Banner(TM), All Eyes(TM), Fast Track(TM),
EyeQ(TM), Get Smart(TM), Smart Seek(TM), InterVU Player(TM), InstaVU Player(TM),
InterVU Network(TM), Smart Mirror(TM), SmartVU(TM), Virtual URL(TM), Virtual
Hop(TM) and the InterVU logo are trademarks of the Company. The Company has
filed applications for trademark registration on the following trademarks: All
Eyes, InstaVU, InterVU, Smart Mirror, SmartVU, Virtual Hop and Virtual URL. The
Company has applied for servicemark registration on VUTOPIA. Major League
Baseball trademarks and copyrights are used with permission of Major League
Baseball Properties, Inc. NBC and the Peacock logo are registered trademarks of
National Broadcasting Company, Inc. This Prospectus also includes trademarks of
companies other than the Company.
------------------------
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING TRANSACTIONS
OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. Investors
should carefully consider the information set forth under the heading "Risk
Factors." Except as otherwise indicated, all information in this Prospectus (i)
assumes that the Over-Allotment Option will not be exercised; (ii) assumes no
exercise of the warrants to be issued by the Company to the Representatives to
purchase up to 200,000 shares of Common Stock (the "Advisors' Warrants"); (iii)
has been adjusted to give effect to the 0.6298-for-one reverse stock split to be
effected prior to the closing of the Offering (the "Reverse Stock Split"); and
(iv) reflects the automatic conversion of all outstanding shares of the
Company's Preferred Stock (other than shares of the Company's Series G
Convertible Preferred Stock (the "Series G Preferred")) into Common Stock upon
the closing of the Offering.
THE COMPANY
InterVU Inc. is a specialized service company seeking to establish a
leadership position in the Internet video delivery market. The Company utilizes
a proprietary software system for routing and distributing high quality video
over the Internet at rapid speeds. Unlike traditional Web site based video
delivery solutions, the Company's system moves the video delivery mechanism away
from the owner's Web site and on to the Company's network of specialized video
servers strategically situated on the Internet (the "InterVU Network"). The
InterVU Network allows the Company to deliver video quickly to end-users and
allows Web site owners and advertisers to provide video on the Internet without
having to invest in costly hardware and software or to maintain a staff of
employees with video delivery expertise.
The Company's target customers are the increasing number of Web site owners
that seek a means of adding video presentations to their Web pages in an easily
implemented and cost effective manner and advertisers that wish to incorporate
video into banners and other Internet advertisements. The Company believes that
multimedia-rich Web sites, capable of delivering high quality video content
quickly to the end-user, can generate significant marketing differentiation and
"top of mind" awareness in consumer buying decisions. Web site owners that have
used the Company's services include NBC Multimedia, Inc. ("NBC Multimedia"), a
wholly-owned subsidiary of National Broadcasting Company, Inc. ("NBC"), Major
League Baseball, the Lifetime Television Network (Hearst/ABC-Viacom
Entertainment Service), Yachting Magazine (Times Mirror Magazines), Turner
Classic Movies (Turner Broadcasting System), Court TV, Speedvision Online (Cable
Network Services) and NET-Political Talk. The Company's video banner
advertisements have promoted Goldwin Golf on the Golfonline Web site, the
Columbia Pictures movie "Air Force One" and Volvo cars on the Yahoo! Web site
and Anheuser Busch on the Major League Baseball Web site.
The Internet and most Internet software, hardware and service providers
have experienced dramatic growth over the last three years. Unprecedented
commercial and end-user interest in the Internet has been spurred by the
introduction of key technologies, including Web browsers and powerful search
engines. These technologies, along with consistent usage of Universal Resource
Locators ("URLs"), have enabled end-users of the Internet to quickly and
smoothly navigate to sites around the world. International Data Corporation has
estimated that as of the end of 1996 there were approximately 35 million
end-users of the Internet and that there would be approximately 175 million
end-users by the year 2001. According to a Netcraft survey, as of July 1997
there were approximately 1.2 million Web sites.
Traditional Internet video delivery mechanisms have been adversely affected
by traffic congestion on the Internet and the limitations of video server
storage and delivery resources, desktop storage capabilities and desktop
processing power available for video decoding and playback. In addition, many
Web site owners and advertisers have been reluctant to make the significant
investments in hardware and software necessary to deliver video over the
Internet from their own sites. As a result, most Web site owners and advertisers
have been slow to utilize video on the Internet.
The Company's network solution, by contrast, provides high throughput
delivery of video messages to end-users over the Internet and allows Web site
owners and advertisers to use video on the Internet without
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incurring substantial start-up costs. Video messages are hosted on the InterVU
Network but accessed from customers' Web sites. Upon the request of an end-user
at a participating Web site, the InterVU Network transmits video messages
directly to the viewer. In the case of video banner advertisements, the video is
displayed automatically to end-users with video player capability that visit the
Web site containing the advertisement. The InterVU Network is designed to be
platform, browser and software player independent, allowing Web site owners and
advertisers to use a variety of digital video encoding formats with the
assurance that such formats will be compatible with most platforms, browsers and
software players an end-user may be utilizing. The InterVU Network utilizes a
number of proprietary technologies, including the Company's Smart Mirror
technology, All Eyes software, InstaVU video player and EyeQ software, which
together are designed to deliver video to the end-user from the "electronically
closest" server, provide Web site owners or advertisers with the ability to
reach an increased number of end-users with their video content and improve
end-users' video viewing experience.
As part of the Company's strategy to provide video delivery services to the
top tier of Internet multimedia content sites, in October 1997 the Company
entered into a strategic alliance with NBC Multimedia. Pursuant to the strategic
alliance, the Company became the exclusive provider of technology and services
for the distribution of NBC entertainment audio/video content by means of NBC
Web sites on the Internet. Pursuant to a strategic alliance agreement between
the Company and NBC Multimedia (the "Strategic Alliance Agreement"), the Company
will store NBC entertainment audio/video content on the InterVU Network and
transmit such content to end-users via the Internet at their request.
As consideration for the strategic alliance, the Company issued to NBC
approximately 10% of the capital stock of the Company in the form of Series G
Preferred, and NBC Multimedia granted the Company exclusive rights to deliver
most NBC entertainment audio/video content from NBC Web sites. The Strategic
Alliance Agreement provides for sharing of revenues from a newly created area to
be placed on the "NBC.com" Web site that will contain, among other things,
certain NBC entertainment audio/video content (the "Revenue Sharing Area") and
allocates costs between the parties. The Strategic Alliance Agreement provides
for an exclusive term of two years that will be extended to four years if
certain cost and revenue goals to be mutually agreed upon in the future are
established and met. NBC Multimedia has agreed to use commercially reasonable
efforts to promote the Company and the InterVU Network in connection with
Internet advertising promotions involving the Company's dissemination of NBC
entertainment audio/video content. In addition, NBC Multimedia has agreed to use
commercially reasonable efforts to introduce the Company to the television
stations associated with the NBC Television Network and to refer other
programming opportunities for the Internet to the Company, all to the extent
that NBC Multimedia reasonably deems appropriate. See "Risk Factors -- Risks
Associated with Strategic Alliance with NBC Multimedia" and
"Business -- Strategic Alliance with NBC Multimedia."
NBC Multimedia has further indicated that it has an interest in purchasing,
in a direct offering to be consummated concurrently with the Offering,
$2,000,000 of Common Stock at the price per share to the public in the Offering
(the "Direct Offering"). At an assumed initial offering price of $10.00 per
share, this would be 200,000 shares. After the consummation of the Offering and
the Direct Offering, NBC Multimedia and NBC will together own approximately 9.9%
of the outstanding shares of capital stock of the Company. Following
consummation of the Direct Offering, the Company will be obligated to pay NBC
Multimedia $2,000,000 in installments over three calendar quarters for the costs
of producing and operating the Revenue Sharing Area and the costs of advertising
and promotions to be placed by the Company on Web sites controlled by NBC.
NBC Multimedia may terminate the Strategic Alliance Agreement without cause
upon 90 days notice. If following the consummation of the Offering, NBC
Multimedia exercises its right to terminate the Strategic Alliance Agreement
without cause, NBC generally must return approximately one half of the shares of
Series G Preferred issued to it by the Company or the shares of Common Stock
into which they would be convertible if the termination occurs during the first
two years of the agreement.
The Company offers its services to Web site owners and advertisers for fees
based on the volume of video content delivered, for flat fees or for a
combination thereof. The Company expects to generate additional
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revenues in the future from selling advertising space on Web pages when Web site
owners offer such space on their pages in exchange for a sharing of fees or for
video encoding and delivery services performed by the Company. In addition, the
Company generally charges its customers fees for encoding analog video into
digital form for transmission over the Internet. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
InterVU was incorporated in Delaware in August 1995 and launched the
InterVU Network in December 1996. Accordingly, the Company has a limited
operating history on which to base an evaluation of its business and prospects.
The Company's principal executive offices are located at 201 Lomas Santa Fe
Drive, Solana Beach, California 92075, and its telephone number is (619)
350-1600.
THE OFFERING AND THE DIRECT OFFERING
Common Stock offered in the Offering.... 2,000,000 shares
Common Stock offered in the Direct
Offering................................ 200,000 shares (1)
Common Stock to be outstanding after the
Offering and the Direct Offering........ 9,366,870 shares(2)
Use of proceeds......................... Expansion of marketing and sales
efforts, additional research and
development expenditures, capital
expenditures, funding costs related
to its strategic alliance agreement
with NBC Multi-media and working
capital and other general corporate
purposes. See "Use of Proceeds."
Risk factors............................ The securities offered hereby are
speculative in nature and involve a
high degree of risk. The risks
faced by the Company include, among
others, its limited operating
history and anticipated losses;
unpredictability of future
revenues; unproven acceptance of
the Company's fee structure and
services; competition; and risks
associated with the Company's
strategic alliance with NBC
Multimedia. See "Risk Factors."
Proposed Nasdaq National Market
symbol.................................. ITVU
- ---------------
(1) NBC Multimedia has indicated that it has an interest in purchasing, in the
Direct Offering, $2,000,000 of Common Stock at the price per share to the
public in the Offering. At an assumed initial public offering price of
$10.00 per share, this would be 200,000 shares.
(2) Excludes 200,000 shares of Common Stock issuable upon exercise of the
Advisors' Warrants, 721,247 shares of Common Stock issuable upon exercise of
outstanding options under the 1996 Stock Plan of InterVU Inc. (the "1996
Stock Plan") and 806,144 shares issuable upon conversion of the Series G
Preferred.
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SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
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PERIOD FROM
AUGUST 2, 1995 NINE MONTHS ENDED
(INCEPTION) YEAR ENDED SEPTEMBER 30,
TO DECEMBER 31, DECEMBER 31, ---------------------
1995 1996 1996 1997
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STATEMENT OF OPERATIONS DATA:
Revenues.................................. $ -- $ -- $ -- $ 84
Operating expenses:
Research and development............... 33 1,420 967 1,301
Selling, general and administrative.... 16 910 531 2,202
---- ---------- ------- ---------
Total operating expenses.................. 49 2,330 1,498 3,503
---- ---------- ------- ---------
Loss from operations...................... (49) (2,330) (1,498) (3,419)
Interest income........................... 3 52 34 76
---- ---------- ------- ---------
Net loss.................................. $(46) $ (2,278) $(1,464) $ (3,343)
==== ========== ======= =========
Pro forma net loss per share (1).......... $ (.31) $ (.41)
========== =========
Shares used in computing pro forma net
loss per share (l)..................... 7,337,448 8,253,093
========== =========
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SEPTEMBER 30, 1997
-----------------------
ACTUAL AS ADJUSTED(2)
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BALANCE SHEET DATA:
Cash and cash equivalents............................................ $4,358 $ 24,108
Working capital...................................................... 4,142 23,892
Total assets......................................................... 5,080 24,830
Long-term liabilities................................................ 11 11
Total stockholders' equity........................................... 4,791 24,541
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(1) See Note 1 of Notes to Financial Statements for an explanation of the number
of shares used in computing pro forma net loss per share.
(2) As adjusted to reflect the sale by the Company of 2,200,000 shares of Common
Stock at an assumed initial public offering price of $10.00 per share, and
the receipt of the net proceeds therefrom. See "Use of Proceeds" and
"Capitalization."
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RISK FACTORS
An investment in the shares of Common Stock offered hereby is speculative
in nature and involves a high degree of risk. In addition to the other
information contained in this Prospectus, the following factors should be
considered carefully in evaluating the Company and its business before
purchasing the shares of Common Stock offered hereby. This Prospectus contains,
in addition to historical information, forward-looking statements that involve
risks and uncertainties. The Company's actual results could differ materially
from those discussed in the forward-looking statements as a result of certain
factors, including, but not limited to, those discussed below as well as those
discussed elsewhere in this Prospectus.
LIMITED OPERATING HISTORY; ACCUMULATED DEFICIT; ANTICIPATED LOSSES
The Company was incorporated in August 1995 and launched the InterVU
Network in December 1996. The Company has a limited operating history on which
to base an evaluation of its business and prospects and currently is considered
a development stage company. Accordingly, the Company's prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered by companies in their early stage of development, particularly
companies in new and rapidly evolving markets such as the delivery of video over
the Internet. Such risks for the Company include, but are not limited to, an
evolving and unproven business model and the management of growth. To address
these risks, the Company must, among other things, maintain and significantly
increase its customer base, implement and successfully execute its business and
marketing strategy, continue to develop and upgrade its technology, provide
superior customer service, respond to competitive developments, and attract,
retain and motivate qualified personnel. There can be no assurance that the
Company will be successful in addressing these risks, and the failure to do so
could have a material adverse effect on the Company's business, prospects,
financial condition and results of operations.
Since inception, the Company has incurred significant losses and, as of
September 30, 1997, the Company had an accumulated deficit of approximately $5.7
million. To date, the Company has not generated any significant revenues and, as
a result of the significant expenditures that the Company plans to make in sales
and marketing, research and development and general and administrative
activities over the near term, the Company expects to continue to incur
significant operating losses and negative cash flows from operations on both a
quarterly and annual basis through at least the end of fiscal 1998 and for the
foreseeable future thereafter. For these and other reasons, there can be no
assurance that the Company will ever achieve or be able to sustain
profitability. The Company had federal and California tax net operating loss
carry forwards at December 31, 1996 of approximately $2.3 million. The federal
and California tax loss carry forwards will begin to expire in 2010 and 2003,
respectively, unless previously utilized. The Company also has federal and
California research tax credit carry forwards of approximately $47,000 and
$38,000, respectively, which will begin to expire in 2010 unless previously
utilized. The utilization of these losses is contingent upon the Company's
ability to generate taxable income in the future. Because of that uncertainty,
management has recorded a full valuation allowance with respect to these
deferred tax assets. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business -- Strategy" and Note 6 of Notes
to Financial Statements.
As consideration for the strategic alliance with NBC Multimedia, the
Company issued 1,280,000 shares of Series G Preferred to NBC, and NBC Multimedia
granted the Company exclusive rights to deliver most NBC audio/video content
from NBC Web sites. NBC Multimedia may terminate the Strategic Alliance
Agreement between the Company and NBC Multimedia without cause by giving 90 days
prior written notice and, following the completion of the Offering, is required
to return (i) all shares of Series G Preferred (or the shares of Common Stock
into which such shares may in the future be converted) if termination occurs
prior to January 10, 1998 and NBC Multimedia has not, at a minimum, displayed a
button or link containing a copy of the Company's logo on the NBC Web site or
(ii) 600,000 shares of Series G Preferred (or Common Stock, as the case may be)
if the termination occurs at any other time during the first two years of the
exclusive term of the Strategic Alliance Agreement. Notwithstanding the
foregoing, NBC Multimedia is not required to return any such shares until it has
received from the Company the $2.0 million of non-refundable payments described
below under "-- Risks Associated with Strategic Alliance with NBC Multimedia."
The Company will determine the fair value of the Series G Preferred issued to
NBC on the dates the requirements that NBC
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return some or all of the shares of Series G Preferred upon termination of the
Strategic Alliance Agreement lapse. Based on these provisions, the Company
currently expects to charge the then fair value of 680,000 shares of Series G
Preferred to expense in the quarter ending March 31, 1998 and the then fair
value of the remaining 600,000 shares of Series G Preferred to expense in the
quarter ending December 31, 1999. Should the Company renegotiate or waive these
provisions, removing NBC's obligation to return shares of Series G Preferred (or
Common Stock, as the case may be), the Company would expense the fair value of
the shares at that time. The Company believes that the fair value of each share
of Series G Preferred will roughly approximate the price per share at which the
Common Stock is then trading, multiplied by the .6298 conversion ratio
applicable to the Series G Preferred. These noncash charges are likely to be
substantial and are likely to have a material adverse impact on the Company's
results of operations in the periods such expenses are recognized.
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; UNPREDICTABILITY OF
FUTURE REVENUES
The Company's quarterly operating results may fluctuate significantly in
the future as a result of a variety of factors, many of which are outside the
Company's control. Factors that may affect the Company's quarterly operating
results include the future adoption rate of video content by Web site owners;
the Company's ability to retain existing customers (including, in particular,
NBC), attract new customers at a steady rate and maintain customer satisfaction;
the level of use of the Internet and the growth of the market for video
advertising on the Internet; the amount and timing of costs and expenditures
relating to the expansion of the Company's business; the introduction or
announcement of new Internet services by the Company and its competitors; price
competition or pricing changes in the Internet, cable and telecommunications
industries; technical difficulties or network downtime; general economic
conditions; and economic conditions specific to the Internet, Internet media,
corporate intranet and cable industries. As a result of the Company's limited
operating history and the emerging nature of the markets in which it competes,
the Company is unable to accurately forecast its revenues. In addition, the
Company plans to increase operating expenses to fund additional sales and
marketing, research and development and general and administrative activities.
To the extent that these expenses are not accompanied by an increase in
revenues, the Company would have to decrease or cease such expenditures or the
Company's operating results and financial condition could be materially
adversely affected. Due to all of the foregoing factors, it is possible that the
Company's operating results in one or more future quarters will fail to meet or
exceed the expectations of securities analysts or investors. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
UNPROVEN ACCEPTANCE OF THE COMPANY'S FEE STRUCTURE
The Company's business plan calls for it to generate revenues primarily
from fees charged to customers for the volume of video content delivered. To
date, however, the Company has generated most of its revenues from flat rate
monthly fees charged to customers based upon video delivery and encoding
services. In addition, certain of the Company's Web site customers have traded
advertising space on their Web pages for video delivery services provided by the
Company. Although monthly fees charged by the Company typically are based on
estimates of the amounts such customers would pay under the pay-per-delivery
approach, flat rate billing exposes the Company to the risk that end-users will
download customers' video content at higher-than-anticipated rates, causing the
Company to incur bandwidth expenses in excess of revenues. Likewise, trading
video delivery services for advertising space exposes the Company to the risk
that it will not generate sufficient proceeds from sales of advertising to cover
its costs of supplying video delivery services. The Company does not currently
have the expertise or staffing necessary to liquidate significant amounts of
Internet advertising inventory through the direct sale of advertising to clients
or the sale of advertising space to a reseller of such space, and there can be
no assurance that the Company will develop such expertise and staffing or that
the Company will establish a strategic relationship with a company having such
capacities. There can be no assurance that the Company's pay-per-delivery fee
structure will become widely accepted by Web site owners and advertisers, and
the failure of the Company to successfully implement its pay-per-delivery fee
structure or a profitable monthly fee equivalent would have a material adverse
effect on the Company's business, prospects, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
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UNCERTAIN MARKET FOR THE COMPANY'S SPECIALIZED SERVICES
Use of the Internet by consumers is at a very early stage of development,
and market acceptance of the Internet as a medium for information,
entertainment, commerce and advertising is subject to a high level of
uncertainty. The Company's success will depend in large part on the development
and acceptance of the Internet as an advertising medium and, specifically, the
use of advertising and Web sites which incorporate video. There can be no
assurance that a market for Internet video delivery services will develop or
that any such market, if developed, will offer significant revenue opportunities
for specialized video delivery service providers such as the Company. The
Company's customers have only limited experience, if any, with the Internet as a
marketing and advertising medium, and neither its customers nor their
advertising agencies have devoted a significant portion of their advertising
budgets to Internet-based marketing and advertising activities in the past. In
order for the Company to generate revenues from Web site owners and advertising
customers, Web site owners, advertisers and advertising agencies must direct a
portion of their budgets to Internet-based marketing and advertising activities
which incorporate video. There can be no assurance that Web site owners,
advertisers or advertising agencies will be persuaded to allocate or continue to
allocate portions of their budgets to Internet-based marketing and advertising
activities or, if so persuaded, that they will incorporate video in such
marketing and advertising activities. The Company's services are highly
specialized and designed solely to meet Web site owners' and advertisers'
Internet video delivery needs. Accordingly, if Internet-based marketing and
advertising activities incorporating video are not widely accepted by
advertisers and advertising agencies, the Company's business, prospects,
financial condition and results of operations would be materially adversely
affected. See "Business -- Marketing and Sales."
The Company's ability to achieve and maintain a leadership position in the
Internet video delivery market will depend, among other things, on the Company's
success in providing high-speed, high-quality video over the Internet, the
Company's marketing efforts and the reliability of the Company's networks and
services, none of which can be assured. If Web site owners and advertisers do
not perceive the Company's services to be of high quality, or if the Company
introduces new services or enters into new business ventures that are not
favorably received, the Company's business, prospects, financial condition and
results of operations would be materially adversely affected. Moreover, even if
a significant market for video delivery services develops, there can be no
assurance that Web site owners and advertisers will retain the Company to
provide video delivery services. Because of the specialized nature of the
Company's services, the absence of a market for video delivery services, or the
Company's failure to obtain a significant share of such market if it develops,
would have a material adverse effect on the Company's business, prospects,
financial condition and results of operations.
In order to attract early customers and achieve penetration of the market
for Internet video delivery, the Company initially provided up to 90 days of
free trial service to certain customers. Of the 20 customers who received such
discounts, 12 customers have emerged from the free trial period, five customers
remain in the trial period, and three customers discontinued the Company's video
delivery service. There can be no assurance that the Company's customers will
continue to utilize the Company's services or that the Company will be able to
attract and retain new customers. The failure of the Company to retain customers
after the free trial period or the inability of the Company to attract and
retain new customers could have a material adverse effect on the Company's
business, prospects, financial condition and results of operations.
COMPETITION
The market for Internet services is highly competitive, and the Company
expects competition to increase significantly. In addition, the Company expects
the market for the delivery of video over the Internet, to the extent it
develops, to be intensely competitive. The Company faces substantial competition
from companies that provide the hardware, digital video encoding software and
know-how necessary to allow Web site owners and advertisers to utilize video in
their Internet marketing and advertising activities. Several companies offer
services that compete with those offered by the Company, including, among
others, RealNetworks, Inc. (formerly Progressive Networks, Inc.) (RealVideo),
VDOnet Corp. (VDOLive), VXtreme, Inc. (Web Theater), AudioNet Inc. (AudioNet)
and At Home Corporation (@Home Experience). In August 1997, RealNetworks and MCI
Communications Corporation ("MCI") announced a strategic alliance involving the
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introduction of a service, called "RealNetwork," that will deliver audio and
video broadcasts over the Internet. The RealNetwork will reportedly permit
end-users to simultaneously receive video broadcasts by distributing copies of
digital video programs to multiple points on MCI's Internet backbone. The
strategic alliance between RealNetworks and MCI appears to be a service-based
marketing strategy similar to that being implemented by the Company. In
addition, Microsoft Corporation ("Microsoft") has made significant investments
in Internet video delivery technologies and has disclosed a multimedia strategy
of broadening the market for video compression solutions. In August 1997,
Microsoft announced (i) the release of its NetShow 2.0 multimedia server which
incorporates technology for video and audio delivery over the Internet and
corporate intranets, (ii) an agreement with leading video compression software
companies, including RealNetworks and VDOnet Corp., to cooperate in defining
future standards based on the Microsoft Active Streaming Format and (iii) the
acquisition of VXtreme, Inc. Microsoft also holds significant equity positions
in RealNetworks and VDOnet Corp. In addition, as was the case with VXtreme,
Inc., RealNetworks and VDOnet Corp., providers of Internet delivery video
services may be acquired by, receive investments from or enter into other
commercial relationships with, larger, well-established and well-financed
companies, such as Microsoft and MCI. Greater competition resulting from such
relationships could have a material adverse effect on the Company's business,
prospects, financial condition and results of operations. Because the operations
and strategic plans of existing and future competitors are undergoing rapid
change, it is extremely difficult for the Company to anticipate which companies
are likely to offer competitive services in the future.
The bases of competition in markets for video delivery include transmission
speed, reliability of service, ease of access, price/performance, ease-of-use,
content quality, quality of presentation, timeliness of content, customer
support, brand recognition and operating experience. The Company believes that
it compares favorably with its competitors with respect to each of these
factors, except brand recognition and operating experience, both of which have
been limited as a result of the Company's early stage of development. However,
many of the Company's competitors and potential competitors have substantially
greater financial, technical, managerial and marketing resources, longer
operating histories, greater name recognition and/or more established
relationships with advertisers and content and application providers than the
Company. Such competitors may be able to undertake more extensive marketing
campaigns, adopt more aggressive pricing policies and devote substantially more
resources to developing Internet services or online content than the Company.
There can be no assurance that the Company will be able to compete successfully
against current or future competitors or that competitive pressures faced by the
Company will not materially adversely affect the Company's business, prospects,
financial condition and results of operations. Further, as a strategic response
to changes in the competitive environment, the Company may make certain pricing,
service or marketing decisions or enter into acquisitions or new ventures that
could have a material adverse effect on the Company's business, prospects,
financial condition and results of operations.
RISKS ASSOCIATED WITH STRATEGIC ALLIANCE WITH NBC MULTIMEDIA
As part of the Company's strategy to provide video delivery services to the
top tier of Internet multimedia content sites, in October 1997 the Company
entered into the Strategic Alliance Agreement with NBC Multimedia. The terms of
the Strategic Alliance Agreement subject the Company to a number of risks and
uncertainties, including the following:
Issuance of Stock. As consideration for the strategic alliance, the Company
issued 1,280,000 shares of Series G Preferred to NBC pursuant to the terms of a
Preferred Stock Purchase Agreement among the Company, NBC and NBC Multimedia
(the "Series G Purchase Agreement"). Such shares represented approximately 10%
of the Company's outstanding capital stock prior to this Offering. No cash
consideration was received by the Company for the Series G Preferred. In
addition, the Series G Purchase Agreement grants NBC Multimedia the right to
purchase $2.0 million of Common Stock at the initial public offering price. See
"Dilution," "Description of Capital Stock -- Preferred Stock" and "Direct
Offering."
InterVU Payment Obligations. If NBC Multimedia exercises its right to
purchase $2.0 million of the Company's Common Stock in the Direct Offering, then
InterVU is fully obligated to pay to NBC Multimedia a total of $2.0 million in a
series of non-refundable payments (the "Prepayments"), the first of which will
be in the amount of $750,000 and is payable immediately upon the completion of
the Direct Offering. The
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Prepayments are designed to cover certain production, operational and
promotional costs. If the Strategic Alliance Agreement is terminated for any
reason, all unpaid Prepayments become immediately due and payable to NBC. There
can be no assurance that NBC Multimedia will not terminate the Strategic
Alliance Agreement, with or without cause. The termination of the Strategic
Alliance Agreement would have a material adverse effect on the Company's
business, prospects, financial condition and results of operations. See "NBC
Multimedia's Termination Rights" below.
Broad Discretionary Powers of NBC Multimedia. The Strategic Alliance
Agreement provides NBC Multimedia with broad discretion in a number of areas,
including (i) the determination of what materials and content will be made
available for downloading through the InterVU Network, (ii) the promotional
obligations of NBC Multimedia and (iii) the obligation of NBC Multimedia to
introduce the Company to television stations associated with the NBC television
network. The failure of NBC Multimedia to make a significant amount of
compelling material available for downloading through the InterVU Network and to
promote the Company and its Internet video delivery services could have a
material adverse effect on the Company's business, prospects, financial
condition and results of operations.
Limited Nature of Exclusive Rights. The Strategic Alliance Agreement
provides that, subject to certain exceptions, during the Exclusive Term (as
defined below), NBC Multimedia will not make available for transmission over the
Internet any entertainment (i.e., excluding sports, news and other
non-entertainment programming) audio/video content in any format to users via a
Web site operated or controlled by NBC ("NBC Internet Sites") other than
pursuant to the Strategic Alliance Agreement. The Strategic Alliance Agreement
expressly excludes from this provision audio/video content of less than five
seconds in length. In addition, NBC Multimedia is not restricted from making
such audio/video content available on any Internet site that is not an NBC
Internet Site. There can be no assurance that NBC Multimedia will not make its
audio/video content available on other Internet sites. A determination by NBC
Multimedia to make its audio/video content available on other Internet sites
could have a material adverse effect on the amount of revenues generated
pursuant to the Strategic Alliance Agreement and could have a material adverse
effect on the Company's business, prospects, financial condition and results of
operations.
The Exclusive Term is defined as the period commencing on October 10, 1997
and ending on October 10, 1999; provided that if certain mutually agreed cost
and revenue goals are established and met, then the Exclusive Term shall be
automatically extended until October 10, 2001. Although the Strategic Alliance
Agreement provides that the parties shall meet and consult with one another in
good faith and shall make good faith efforts to determine such cost and revenue
goals on or before October 10, 1998, there can be no assurance that the Company
and NBC Multimedia will be able to establish such mutually agreeable cost and
revenue goals. The failure of the Company and NBC Multimedia to reach an
agreement on this issue could have a material adverse effect on the Company's
business, prospects, financial condition and results of operations.
NBC Multimedia's Termination Rights. During the Exclusive Term, NBC
Multimedia may terminate the Strategic Alliance Agreement without cause by
giving 90 days prior written notice to the Company. NBC Multimedia also has the
right to terminate the Strategic Alliance Agreement if, among other things, the
services provided by the Company pursuant to such agreement materially decline
below industry standards or fail to conform to the specifications set forth in
the Strategic Alliance Agreement and the Company is unable to cure such failure
within ten days of its receipt of notice. The Strategic Alliance Agreement
requires the Company to maintain a successful user connection rate of at least
98%. The failure to maintain such a connection rate could be deemed to be a
material breach by the Company of the Strategic Alliance Agreement, giving NBC
Multimedia the right to terminate the Strategic Alliance Agreement for cause.
Although the Company expects to maintain the required connection rate, there can
be no assurance that the Company can do so. The Company has represented to NBC
Multimedia in the Strategic Alliance Agreement that it will not use the InterVU
Network in connection with the encoding or distribution of adult video content.
Any such activity would constitute a breach of that representation and warranty
and could result in a determination by NBC Multimedia to terminate the Strategic
Alliance Agreement for cause. The termination of the Strategic Alliance
Agreement, or the announcement of an intent to terminate, would have a material
adverse effect on the Company's business, prospects, financial condition and
results of operations. Among other things, any such termination or announcement
of an intent to terminate could cause other customers of
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the Company, especially NBC television affiliates then using the Company's video
delivery services, if any, to terminate their relationship with the Company and
would also have a negative impact on the Company's reputation in the market for
Internet video delivery services, which would have a material adverse effect on
the Company's ability to market its services to Web site owners and advertisers.
If NBC Multimedia terminates the Strategic Alliance Agreement without cause
during the first two years of the Exclusive Term, then NBC or NBC Multimedia
would be required to return to the Company 600,000 shares of the Company's
Series G Preferred or the shares of Common Stock into which they would be
convertible; provided that NBC or NBC Multimedia would not be required to return
any shares until the Company had made the $2.0 million of Prepayments. NBC
Multimedia is not obligated to return any shares to the Company if the Strategic
Alliance Agreement is terminated by NBC Multimedia for cause.
Limited Nature of Revenue Sharing Rights. The Strategic Alliance Agreement
provides for the establishment of a new "area" (the "Revenue Sharing Area") to
be created and placed by NBC Multimedia on its Web site to allow, among other
things, the distribution of NBC audio/video clips and the promotion of the
business relationship between the Company and NBC Multimedia. The Company is
entitled to receive 30% of the actual NBC cash receipts, if any, from
advertising, transactions and subscriptions directly attributable to any Revenue
Sharing Area less certain costs and expenses associated with the Revenue Sharing
Area. Since no Revenue Sharing Areas have yet been established, no revenues have
been generated. There can be no assurance that any revenues will be generated by
the Revenue Sharing Area. In addition, the Strategic Alliance Agreement permits
NBC Multimedia to opt out of its 30% revenue sharing obligation by paying for
the Company's video delivery services at rates at least as favorable as the most
favorable rates offered by the Company to third parties, other than special
promotional rates. NBC Multimedia would have an incentive to exercise its right
to opt out of the revenue sharing obligation if the costs to NBC Multimedia of
sharing revenue exceed the amount that NBC Multimedia would be required to pay
the Company based on its most favorable video delivery rates. See
"Business -- Strategic Alliance with NBC Multimedia."
DEPENDENCE ON KEY PERSONNEL
The Company's future performance and development will depend, in large
part, upon the efforts and abilities of certain members of senior management,
including Harry E. Gruber, its Chief Executive Officer and Chairman of the
Board, and Brian Kenner, its Vice President and Chief Technology Officer. Dr.
Gruber is also serving as the Company's Chief Financial Officer until the
Company determines to retain an individual for that position. The loss of
service of one or more members of senior management could have a material
adverse effect on the Company's business, prospects, financial condition and
results of operations. The Company does not have employment agreements with any
of its officers or employees. The Company, however, has obtained a key man life
insurance policy on the life of Mr. Kenner in the amount of $1.0 million, of
which the Company is the sole beneficiary. The Company does not have key man
life insurance on Dr. Gruber. In addition, the Company believes that its future
success will depend upon its continuing ability to identify, attract, motivate,
train and retain other highly skilled managerial, financial, engineering, sales
and marketing and other personnel. Competition for such personnel is intense.
There can be no assurance that the Company will be successful in identifying,
attracting, motivating, training and retaining the necessary personnel, and the
failure to do so could have a material adverse effect on the Company's business,
prospects, financial condition and results of operations. See "Management."
DEPENDENCE ON INCREASED USAGE AND STABILITY OF THE INTERNET
The future of the Internet as a center for information exchange,
advertising, entertainment and commerce will depend in significant part on
continued rapid growth in the number of households and commercial, educational
and government institutions with access to the Internet, in the level of usage
by individuals and businesses, and in the number and quality of products and
services designed for use on the Internet. Because usage of the Internet as a
medium for on-line exchange of information, advertising, entertainment and
commerce is a recent phenomenon, it is difficult to predict whether the number
of users drawn to the Internet will continue to increase. There can be no
assurance that Internet usage patterns will not decline as the novelty
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of the medium recedes or that the quality of products and services offered
on-line will improve sufficiently to continue to support user interest.
Moreover, critical issues regarding the stability of the Internet's
infrastructure remain unresolved. The rapid rise in the number of Internet users
and increased transmission of audio, video, graphical and other multimedia
content over the Web has placed increasing strains on the Internet's
communications and transmission infrastructures. Continuation of such trends
could lead to significant deterioration in transmission speeds and reliability
of the Internet and could reduce the usage of the Internet by businesses and
individuals. Any failure of the Internet to support the ever-increasing number
of users due to inadequate infrastructure, or otherwise, could materially and
adversely affect the acceptance of the Company's products and services which
would, in turn, materially and adversely affect the Company's business,
prospects, financial condition and results of operations.
RISKS OF TECHNOLOGICAL CHANGE
The markets for Internet services are characterized by rapid technological
developments, frequent new product introductions and evolving industry
standards. The emerging nature of Internet products and services and their rapid
evolution will require that the Company continually improve the performance,
features and reliability of the InterVU Network and the Company's customer
service, particularly in response to competitive offerings. There can be no
assurance that the Company will be successful in responding quickly, cost
effectively and sufficiently to these developments. There can be no assurance
that the Company will be successful in achieving widespread acceptance of its
services before competitors offer products and services with speed and
performance similar to the Company's current offerings. In addition, the
widespread adoption of new Internet or telecommunications technologies or
standards could require substantial expenditures by the Company to modify or
adapt its video delivery service and could fundamentally affect the character,
viability and frequency of Internet-based advertising, either of which could
have a material adverse effect on the Company's business, prospects, financial
condition and results of operations. In addition, new services or enhancements
offered by the Company may contain design flaws or other defects that could have
a material adverse effect on the Company's business, prospects, financial
condition and results of operations. See "Business -- Technology Overview" and
"-- Customer Services."
SECURITY RISKS
Despite the implementation of security measures, the Company's networks may
be vulnerable to unauthorized access, computer viruses and other disruptive
problems. Internet Service Providers ("ISPs") and On-line Service Providers
("OSPs") have in the past experienced, and may in the future experience,
interruptions in service as a result of the accidental or intentional actions of
Internet users, current and former employees or others. Although the Company
intends to continue to implement industry-standard security measures,
industry-standard security measures have been circumvented in the past, and
there can be no assurance that measures implemented by the Company will not be
circumvented in the future. Eliminating computer viruses and alleviating other
security problems may require interruptions, delays or cessation of service to
the Company's customers and end-users, which could have a material adverse
effect on the Company's business, prospects, financial condition and results of
operations.
RISKS OF ENCODING AND DISTRIBUTING ADULT VIDEO CONTENT
While the Company does not currently provide its services to Web sites that
host adult videos, the Company may in the future provide services to such sites.
In determining whether to encode and/or deliver adult video content through the
InterVU Network, the Company intends to take into account the overall costs of
providing such services, including the potential adverse impact on its strategic
alliance with NBC Multimedia and other possible negative reaction from its
existing and potential Web site and advertising customers. The Company has
represented to NBC Multimedia in its Strategic Alliance Agreement that it will
not use the InterVU Network in connection with the encoding or distribution of
adult video content. Any such activity would constitute a breach of that
representation and warranty and could result in a determination by NBC
Multimedia to terminate the Strategic Alliance Agreement. The Company could also
be exposed to
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liability for encoding and hosting adult content deemed to be indecent or
obscene. Although the United States Supreme Court has upheld lower court
decisions declaring the anti-indecency provisions of the Telecommunications Act
of 1996 unconstitutional, the law relating to liability for transmitting obscene
or indecent material over the Internet remains unsettled.
The loss of customers as a result of the Company's becoming associated with
adult Web sites could have a material adverse effect on the Company's business,
prospects, financial condition and results of operations. Such association could
result even if the Company does not use the InterVU Network in connection with
the encoding or distribution of adult video content. For example, if an end-user
utilizing an Internet browser attempts to view an adult video and such end-user
does not have the necessary software, or "plug-in," he or she will automatically
be directed to the browser's plug-in finder page which lists the particular
plug-ins, including the InterVU Player, that can display the video. If the
InterVU Player is selected by the end-user, or if the end-user has already
installed the InterVU Player, the adult video will be presented within the
InterVU Player and with the InterVU name displayed in the manner depicted by the
graphics located on the inside front cover page of this Prospectus.
INTELLECTUAL PROPERTY
The Company regards its technology as proprietary and attempts to protect
it with copyrights, trademarks, trade secret laws, restrictions on disclosure
and other methods. In addition, the Company has filed seven United States patent
applications and one international patent application and is in the process of
preparing additional patent applications with respect to its technology. There
can be no assurance that any patent will issue from these applications or that,
if issued, any claims allowed will be sufficiently broad to protect the
Company's technology. In addition, there can be no assurance that any patents
that may be issued will not be challenged, invalidated or circumvented, or that
any rights granted thereunder would provide proprietary protection to the
Company. Failure of any patents to provide protection to the Company's
technology may make it easier for the Company's competitors to offer technology
equivalent or superior to the Company's technology. The Company also generally
enters into confidentiality and non-disclosure agreements with its employees and
consultants, and generally controls access to and distribution of its
documentation and other proprietary information. Despite these precautions, it
may be possible for a third party to copy or otherwise obtain and use the
Company's services or technology without authorization, or to develop similar
technology independently. There can be no assurance that the steps taken by the
Company will prevent misappropriation or infringement of its technology. In
addition, litigation may be necessary in the future to enforce the Company's
intellectual property rights, to protect the Company's intellectual property
rights or to determine the validity and scope of the proprietary rights of
others. Such litigation could result in substantial costs and diversion of
resources and could have a material adverse effect on the Company's business,
prospects, financial condition and results of operations. The Company believes
that, due to the rapid pace of technological innovation for Internet products
and services, the Company's ability to establish and maintain a position of
technology leadership in the industry depends more on the skills of its
development personnel than upon the legal protections afforded its existing
technology.
ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER PROVISIONS
Certain provisions of the Company's Amended and Restated Certificate of
Incorporation and Amended and Restated Bylaws could discourage potential
acquisition proposals, could delay or prevent a change in control of the Company
and could make removal of management more difficult. Such provisions could
diminish the opportunities for a stockholder to participate in tender offers,
including tender offers that are priced above the then current market value of
the Common Stock. The provisions also may inhibit increases in the market price
of the Common Stock that could result from takeover attempts. These provisions
include a Board of Directors consisting of three classes; a limitation which
permits only the Board of Directors, the Chairman or the President of the
Company to call a special meeting of stockholders; a prohibition against the
stockholders acting by written consent; and certain advance notice procedures
for nominating candidates for election to the Board of Directors and for
proposing business before a meeting of stockholders. Additionally, the Board of
Directors of the Company, without further stockholder approval, may issue up to
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3,720,000 shares of Preferred Stock, in one or more series, with such terms as
the Board of Directors may determine, including rights such as voting, dividend
and conversion rights which could adversely affect the voting power and other
rights of the holders of Common Stock. Preferred Stock may be issued quickly
with terms which delay or prevent the change in control of the Company or make
removal of management more difficult. Also, the issuance of Preferred Stock may
have the effect of decreasing the market price of the Common Stock. See
"Description of Capital Stock -- Preferred Stock" and "-- Delaware Law and
Certain Charter and Bylaw Provisions."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock in the public
market following the Offering could materially adversely affect the prevailing
market price of the Company's Common Stock. Upon completion of the Offering and
the Direct Offering, the Company will have 9,366,870 shares of Common Stock
outstanding (assuming 200,000 shares are purchased in the Direct Offering). The
2,000,000 shares offered in the Offering (plus any shares issued upon exercise
of the Over-Allotment Option) and the shares offered in the Direct Offering will
be freely tradeable under the Securities Act of 1933, as amended (the
"Securities Act"), unless held by "affiliates" of the Company as defined in Rule
144 under the Securities Act. Of the remaining 7,166,870 shares of Common Stock
(assuming 200,000 shares are purchased in the Direct Offering), all will be
eligible for sale under Rule 144 under the Securities Act, subject to certain
volume and other limitations, following expiration of the nine-month lockup
agreements with Josephthal. Josephthal may, in its sole discretion, and at any
time without notice, release all or any portion of the shares subject to such
lock-up agreements. In addition, the shares of Common Stock issuable upon
conversion of the Series G Preferred will become eligible for public sale under
Rule 144 in October 1998. The Company also intends to register on Form S-8
following the effective date of the Offering, a total of 1,889,400 shares of
Common Stock reserved for issuance or subject to outstanding options granted
under the Company's 1996 Stock Plan. The Company has agreed to sell to the
Representatives, for nominal consideration, the Advisors' Warrants to purchase
from the Company 200,000 shares of Common Stock. The Advisors' Warrants are
initially exercisable at a price per share equal to 120% of the initial public
offering price for a period of four years commencing one year after the date of
this Prospectus and are restricted from sale, transfer, assignment or
hypothecation for a period of twelve months from the date hereof, except to
officers of the Representatives. The Advisors' Warrants also provide for
adjustment in the number of shares of Common Stock issuable upon the exercise
thereof as a result of certain subdivisions and combinations of the Common
Stock. The Advisors' Warrants grant to the holders thereof certain rights of
registration for the securities issuable upon exercise of the Advisors'
Warrants. See "Management," "Description of Capital Stock," "Shares Eligible for
Future Sale" and "Underwriting."
CONTROL BY EXISTING STOCKHOLDERS
Following the completion of the Offering, members of the Board of Directors
and the executive officers of the Company, together with members of their
families and entities that may be deemed affiliates of or related to such
persons or entities, will beneficially own approximately 42.1% of the
outstanding shares of Common Stock of the Company. Accordingly, these
stockholders may be able to elect all of the Company's Board of Directors and
determine the outcome of corporate actions requiring stockholder approval, such
as mergers and acquisitions. This level of ownership may have a significant
effect in delaying, deferring or preventing a change in control of the Company
and may adversely affect the voting and other rights of other holders of the
Common Stock. See "Management -- Executive Officers and Directors" and
"Principal Stockholders."
MANAGEMENT'S DISCRETION OVER USE OF PROCEEDS OF THE OFFERING
The Company expects to use the net proceeds of the Offering for expansion
of sales and marketing efforts, additional research and development expenditures
and general corporate purposes, including working capital and capital
expenditures. In addition, the Company intends to use a portion of the net
proceeds to fund obligations under its strategic alliance agreement with NBC
Multimedia. The Company may, if an opportunity arises, use an unspecified
portion of the net proceeds to acquire or invest in complementary
15
<PAGE> 17
businesses, products and technologies. From time to time, in the ordinary course
of business, the Company expects to evaluate potential acquisitions of such
businesses, products or technologies. However, the Company has no present
understandings, commitments or agreements with respect to any material
acquisition or investment. Accordingly, management will have significant
flexibility in applying the net proceeds of the Offering. The failure of
management to apply such funds effectively could have a material adverse effect
on the Company's business, prospects, financial condition and results of
operations. See "Use of Proceeds."
GOVERNMENTAL REGULATION AND LEGAL UNCERTAINTIES
The Company is not currently subject to direct regulation by any domestic
or foreign governmental agency, other than regulations applicable to businesses
generally and laws or regulations directly applicable to the Internet. However,
due to the increasing popularity and use of the Internet, it is possible that a
number of laws and regulations may be adopted with respect to the Internet or
other online services covering issues such as user privacy, pricing, content,
copyrights, distribution and characteristics and quality of products and
services. Furthermore, the growth and development of Internet markets may prompt
calls for more stringent consumer protection laws that may impose additional
burdens on companies conducting business online. The adoption of any additional
laws or regulations may decrease the growth of Internet use, which could, in
turn, decrease the demand for the Company's services or increase the cost of
doing business, or otherwise have an adverse effect on the Company's business,
prospects, financial condition and results of operations. Moreover, the
applicability to the Internet of existing laws in various jurisdictions
governing issues such as property ownership, sales and other taxes, libel and
personal privacy is uncertain and may take years to resolve. Any such new
legislation or regulation, the application of laws and regulations from
jurisdictions whose laws do not currently apply to the Company's business, or
the application of existing laws and regulations to the Internet could have a
material adverse effect on the Company's business, prospects, financial
condition and results of operations.
REQUIREMENTS FOR ADDITIONAL CAPITAL
The Company believes that the net proceeds from the Offering, together with
existing cash, cash equivalents, short-term cash investments and capital lease
financing, will be sufficient to meet its working capital and capital
expenditure requirements through at least the end of 1998. However, the Company
may need to raise substantial additional funds if its estimates of working
capital and/or capital expenditures change or prove inaccurate or in order for
the Company to respond to unforeseen technological or marketing hurdles or to
take advantage of unanticipated opportunities. Over the longer term, it is
likely that the Company will require substantial additional funds to finance
significant capital equipment expenditures and lease commitments for additional
servers to expand the InterVU Network, as well as for product development,
marketing, sales and customer support needs. There can be no assurance that any
such funds will be available at the time or times needed, or available on terms
acceptable to the Company. If adequate funds are not available, or are not
available on acceptable terms, the Company may not be able to continue to
develop new technologies and services or otherwise respond to competitive
pressures. Such inability could have a material adverse effect on the Company's
business, prospects, financial condition and result of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
NO PRIOR TRADING MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
The trading price of the Common Stock is likely to be highly volatile and
could be subject to wide fluctuations in response to factors such as actual or
anticipated variations in quarterly operating results, announcements of
technological innovations, new sales formats or new products or services by the
Company or its competitors, changes in financial estimates by securities
analysts, conditions or trends in Internet markets, changes in the market
valuations of other Internet companies, announcements by the Company or its
competitors of significant acquisitions, strategic partnerships, joint ventures
or capital commitments, additions or departures of key personnel, sales of
Common Stock and other events or factors, many of which are beyond the Company's
control. In addition, the stock market in general, and the market for
Internet-related and technology companies in particular, has experienced extreme
price and volume fluctuations that have often
16
<PAGE> 18
been unrelated or disproportionate to the operating performance of such
companies. The trading prices of many technology companies' stocks are at or
near historical highs and reflect price earnings ratios substantially above
historical levels. There can be no assurance that these trading prices and price
earnings ratios will be sustained. These broad market and industry factors may
materially and adversely affect the market price of the Common Stock, regardless
of the Company's operating performance. In the past, following periods of
volatility in the market price of a company's securities, securities
class-action litigation has often been instituted against such company. Such
litigation, if instituted, could result in substantial costs and a diversion of
management's attention and resources, which would have a material adverse effect
on the Company's business, prospects, financial condition and results of
operations.
IMMEDIATE AND SUBSTANTIAL DILUTION
Investors participating in the Offering will incur immediate, substantial
dilution in the amount of $7.38 per share, based on an assumed initial public
offering price of $10.00 per share. To the extent that options and warrants to
purchase the Company's Common Stock are exercised, there may be further
substantial dilution. See "Dilution." In addition, the Company has issued an
aggregate of 765,830 shares of Series F Preferred Stock, all of which will be
converted into Common Stock upon consummation of the Offering. If the initial
public offering price is less than $9.53, the conversion price of the Series F
Preferred Stock will be adjusted, resulting in the issuance of additional shares
of Common Stock upon such conversion. See "Description of Capital
Stock -- Preferred Stock."
17
<PAGE> 19
USE OF PROCEEDS
The net proceeds to be received the Company from the sale of 2,000,000
shares of Common Stock offered in the Offering, assuming an initial public
offering price of $10.00 per share, are estimated to be $17,750,000 ($20,510,000
if the Over-Allotment Option is exercised in full), after deducting the
underwriting discounts, the non-accountable expense allowance and other
estimated expenses of the Offering payable by the Company. In addition, the
Company will receive $2,000,000 of additional proceeds if the Direct Offering is
consummated.
The Company intends to use the estimated net proceeds as follows: (i)
approximately $6.2 million will be used for increased marketing and sales
efforts; (ii) approximately $5.3 million will be used for additional research
and development; (iii) approximately $900,000 will be used for capital
expenditures on equipment; (iv) $2.0 million will be used to meet the Company's
installment obligations under the Strategic Alliance Agreement to pay NBC
Multimedia for the costs of producing and operating the Revenue Sharing Area and
the costs of advertising and promotions to be placed by the Company on Web sites
controlled by NBC, including an installment of $750,000 due upon completion of
the Direct Offering, and the Company anticipates incurring an additional
approximately $2.0 million of development and support costs relating to the
strategic alliance; and (v) approximately $3.3 million will be used for working
capital and other general corporate purposes. Furthermore, from time to time the
Company expects to evaluate possible acquisitions of or investments in
businesses, products and technologies that are complementary to those of the
Company, for which a portion of the net proceeds from the Offering or Direct
Offering may be used. While the Company engages from time to time in discussions
with respect to potential investments or acquisitions, the Company has no plans,
commitments, or agreements with respect to any such investments or acquisitions.
Pending such uses, the Company intends to invest the net proceeds of the
Offering and Direct Offering in short-term, investment-grade, interest-bearing
securities.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain all future earnings, if any, for
use in the operation and development of its business and, therefore, does not
expect to declare or pay any cash dividends on its Common Stock in the
foreseeable future.
18
<PAGE> 20
DILUTION
The pro forma net tangible book value of the Company as of September 30,
1997 was $4,791,000 or $.67 per share after giving effect to the Stock Splits
and the conversion of all outstanding shares of preferred stock, other than
shares of Series G Preferred, into Common Stock upon the closing of the
Offering. Pro forma net tangible book value per share represents the amount of
total tangible assets of the Company reduced by the amount of its total
liabilities, divided by the total pro forma number of shares of Common Stock
outstanding. After giving effect to the sale by the Company of 2.2 million
shares of Common Stock offered in the Offering and the Direct Offering at an
assumed initial public offering price of $10.00 per share (after deducting
estimated underwriting discounts, the non-accountable expense allowance and
other estimated expenses of the Offering), the adjusted pro forma net tangible
book value of the Company as of September 30, 1997 would have been $24,541,000,
or $2.62 per share of Common Stock. This represents an immediate increase in pro
forma net tangible book value of $1.95 per share to existing stockholders and an
immediate dilution of $7.38 per share to new investors. The following table
illustrates the per share dilution in pro forma net tangible book value to new
investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price................................ $10.00
Pro forma net tangible book value per share as of September 30,
1997............................................................ $ 0.67
Increase per share attributable to new investors................... 1.95
------
Pro forma net tangible book value per share after the Offering....... 2.62
------
Dilution per share to new investors.................................. $ 7.38
======
</TABLE>
The above table assumes that no shares of Series G Preferred are converted
into Common Stock and that no stock options are exercised. If all shares of
Series G Preferred were converted into Common Stock, there would be an immediate
increase in pro forma net tangible book value of $1.74 per share to existing
stockholders and an immediate dilution of $7.59 per share to new investors.
The following table summarizes as of September 30, 1997 on a pro forma
basis after giving effect to the Stock Splits and the conversion of all
outstanding shares of preferred stock, other than shares of Series G Preferred,
into Common Stock upon the closing of the Offering, the differences in total
consideration paid and the average price per share paid by existing stockholders
and new investors, at an assumed initial public offering price of $10.00 per
share, with respect to the number of shares of Common Stock purchased from the
Company.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ----------------------- PRICE PAID
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ----------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1).............. 7,166,870 76.5% $10,437,000 32.2% $ 1.46
New investors(2)...................... 2,200,000 23.5 22,000,000 67.8 10.00
--------- ------- ----------- -------
Total(2).................... 9,366,870 100.0% $32,437,000 100.0%
======== ===== ========== =====
</TABLE>
- ---------------
(1) The information presented with respect to existing stockholders assumes (i)
that no shares of Series G Preferred are converted into Common Stock, (ii)
no exercise of the Advisors' Warrants to purchase 200,000 shares of Common
Stock and (iii) no exercise of outstanding options to purchase 721,247
shares of Common Stock granted under the 1996 Stock Plan. The issuance of
Common Stock upon the conversion of the Series G Preferred or the exercise
of the Advisors' Warrants and options granted under the 1996 Stock Plan will
result in further dilution to new investors. See "Management" and Note 4 of
Notes to Financial Statements.
(2) If the Over-Allotment Option is exercised in full, the Company will issue an
additional 300,000 shares to new investors (3.1% of the total of 9,666,870
shares outstanding) and the total consideration from new investors will be
$25,000,000 (70.5% of the total of $35,437,000 consideration paid for all
shares outstanding) at an assumed initial public offering price of $10.00
per share.
19
<PAGE> 21
CAPITALIZATION
The following table sets forth as of September 30, 1997, (i) the actual
capitalization of the Company (as if the Reverse Stock Split had occurred prior
to September 30, 1997); (ii) the pro forma capitalization as of such date after
giving effect to the automatic conversion of all shares of Series A through
Series F Convertible Preferred Stock upon the closing of the Offering and the
issuance of 1.28 million shares of Series G Preferred to NBC in October 1997,
which will remain outstanding following the Offering and do not become
convertible until July 10, 1998; and (iii) the pro forma capitalization as
adjusted to give effect to the application of the estimated net proceeds from
the sale by the Company of 2.0 million shares of Common Stock offered in the
Offering (after deducting the underwriting discounts, the non-accountable
expense allowance and other estimated expenses of the Offering) and 200,000
shares of Common Stock in the Direct Offering (assuming an initial public
offering price of $10.00 per share). The table should be read in conjunction
with the financial statements and the related notes appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-------------------------------
(IN THOUSANDS, EXCEPT SHARE
PRO
FORMA
DATA) PRO AS
ACTUAL FORMA ADJUSTED
------- ------- -------
<S> <C> <C> <C>
Long-term capital lease obligations, less current portion..... $ 11 $ 11 $ 11
Stockholders' equity:
Preferred Stock, $.001 par value; 4,650,000 shares
authorized, 2,026,302 shares issued and outstanding,
actual; 5,000,000 shares authorized and 1,280,000 shares
outstanding, pro forma and as adjusted................... 2 1 1
Common Stock, $.001 par value;
16,000,000 shares authorized, 3,929,592 shares
issued and outstanding, actual;
16,000,000 shares authorized, 7,166,870 shares
issued and outstanding, pro forma;
20,000,000 shares authorized, 9,366,870 shares
issued and outstanding as adjusted(1).................... 4 7 9
Additional paid-in capital.................................. 11,282 11,280 31,028
Notes receivable from common stockholders................... (3) (3) (3)
Deferred compensation....................................... (827) (827) (827)
Deficit accumulated during the development stage............ (5,667) (5,667) (5,667)
------- ------- -------
Total stockholders' equity.................................... 4,791 4,791 24,541
------- ------- -------
Total capitalization................................ $ 4,802 $ 4,802 $24,552
======= ======= =======
</TABLE>
- ---------------
(1) Excludes 200,000 shares of Common Stock issuable upon exercise of the
Advisors' Warrants, 721,247 shares of Common Stock issuable upon exercise of
outstanding options under the 1996 Stock Plan and 806,144 shares of Common
Stock issuable upon conversion of the Series G Preferred.
20
<PAGE> 22
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The selected financial data set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements and Notes thereto included elsewhere in
this Prospectus. The statement of operations data for the period from the date
of August 2, 1995 (Inception) through December 31, 1995 and for the year ended
December 31, 1996 and the balance sheet data as of December 31, 1995 and 1996
are derived from the Company's financial statements audited by Ernst & Young
LLP, independent auditors, included elsewhere in this Prospectus. The statement
of operations data for the nine months ended September 30, 1996 and 1997 have
been derived from unaudited financial statements of the Company and include all
adjustments, consisting only of normal recurring adjustments, which management
considers necessary for a fair presentation of the financial data for such
periods and as of such date. The results for the nine months ended September 30,
1997 are not necessarily indicative of the results to be expected for the full
fiscal year.
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 2, 1995 NINE MONTHS ENDED
(INCEPTION) YEAR ENDED SEPTEMBER 30,
TO DECEMBER 31, DECEMBER 31, -------------------
1995 1996 1996 1997
---------------- ------------- ------- ---------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues................................ $ -- $ -- $ -- $ 84
Operating expenses:
Research and development................... 33 1,420 967 1,301
Selling, general and administrative........ 16 910 531 2,202
---- --------- ------- ---------
Total operating expenses...................... 49 2,330 1,498 3,503
---- --------- ------- ---------
Loss from operations.......................... (49) (2,330) (1,498) (3,419)
Interest income............................... 3 52 34 76
---- --------- ------- ---------
Net loss...................................... $(46) $ (2,278) $(1,464) $ (3,343)
==== ========= ======= =========
Pro forma net loss per share.................. $ (.31) $ (.41)
========= =========
Shares used in computing pro forma net loss
per share(1)............................... 7,337,448 8,253,093
========= =========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER
----------------------------- 30,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................... $509 $2,508 $4,358
Working capital..................................... 509 2,365 4,142
Total assets........................................ 521 2,776 5,080
Long-term liabilities............................... 411 27 11
Total stockholders' equity.......................... 110 2,597 4,791
</TABLE>
- ---------------
(1) See Note 1 of Notes to Financial Statements for an explanation of the number
of shares used in computing pro forma net loss per share.
21
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion contains forward-looking statements regarding the
Company, its business, prospects and results of operations that are subject to
certain risks and uncertainties posed by many factors and events that could
cause the Company's actual business, prospects and results of operations to
differ materially from those that may be expressed or implied by such
forward-looking statements. Such risks, uncertainties and other factors include,
but are not limited to, the risks detailed in the "Risk Factors" section of this
Prospectus.
OVERVIEW
The Company was incorporated in August 1995 and launched the InterVU
Network in December 1996. The Company began recognizing revenue during the first
nine months of 1997 through the delivery of video content over the InterVU
Network and the provision of related services to the Company's initial
customers.
The Company offers its services to Web site owners and advertisers for fees
based on the volume of video content delivered, for flat fees based on estimates
of video to be delivered or for a combination thereof. The Company expects to
generate additional revenues in the future from selling advertising space on Web
pages when Web site owners trade such space on their pages for video encoding
and delivery services performed by the Company. The Company also generally
charges its customers fees for encoding analog video into digital form for
transmission over the Internet. See "Risk Factors -- Unproven Acceptance of the
Company's Fee Structure."
The Company has incurred net losses in each fiscal period since its
inception and, as of September 30, 1997, had an accumulated deficit of $5.7
million. To date, the Company has not generated any significant revenues, and,
as a result of the significant expenditures that the Company plans to make in
sales and marketing, research and development and general and administrative
activities over the near term, the Company expects to continue to incur
significant operating losses and negative cash flows from operations on both a
quarterly and annual basis through at least the end of fiscal 1998 and for the
foreseeable future thereafter. The Company is in the early stages of executing
its business model, and the profit potential of the Company's fee based model
for the delivery of video content or advertising is unproven in the Internet
industry. Because its success is dependent on the growth of the video market on
the Internet, as well as the growth of the Internet industry, the Company must,
among other things, develop services that are widely accepted by Web site
owners, advertisers and end-users at prices that will yield a profit. There can
be no assurance that the Company's services will achieve broad commercial or
consumer acceptance. See "Risk Factors -- Limited Operating History; Accumulated
Deficit; Anticipated Losses," "-- Potential Fluctuations in Quarterly Operating
Results; Unpredictability of Future Revenues," "-- Unproven Acceptance of the
Company's Fee Structure" and "-- Uncertain Acceptance of the Company's
Services."
As consideration for the strategic alliance with NBC Multimedia, the
Company issued 1,280,000 shares of Series G Preferred to NBC, and NBC Multimedia
granted the Company exclusive rights to deliver most NBC audio/video content
from NBC Web sites. NBC Multimedia may terminate the Strategic Alliance
Agreement between the Company and NBC Multimedia without cause by giving 90 days
prior written notice and, following the completion of the Offering, is required
to return (i) all shares of Series G Preferred (or the shares of Common Stock
into which such shares may in the future be converted) if termination occurs
prior to January 10, 1998 and NBC Multimedia has not, at a minimum, displayed a
button or link containing a copy of the Company's logo on the NBC Web site or
(ii) 600,000 shares of Series G Preferred (or Common Stock, as the case may be)
if the termination occurs at any other time during the first two years of the
exclusive term of the Strategic Alliance Agreement. Notwithstanding the
foregoing, NBC Multimedia is not required to return any such shares until it has
received from the Company the $2.0 million of non-refundable payments described
below under "-- Liquidity and Capital Resources." The Company will determine the
fair value of the Series G Preferred issued to NBC on the dates the requirements
that NBC return some or all of the shares of Series G Preferred upon termination
of the Strategic Alliance Agreement lapse. Based on these provisions, the
Company currently expects to charge the then fair value of 680,000 shares of
Series G Preferred to
22
<PAGE> 24
expense in the quarter ending March 31, 1998 and the then fair value of the
remaining 600,000 shares of Series G Preferred to expense in the quarter ending
December 31, 1999. Should the Company renegotiate or waive these provisions,
removing NBC's obligation to return shares of Series G Preferred (or Common
Stock, as the case may be), the Company would expense the fair value of the
shares at that time. The Company believes that the fair value of each share of
Series G Preferred will roughly approximate the price per share at which the
Common Stock is then trading, multiplied by the .6298 conversion ratio
applicable to the Series G Preferred. These noncash charges are likely to be
substantial and are likely to have a material adverse impact on the Company's
results of operations in the periods such expenses are recognized.
The Company's economic model is predicated upon achieving significant
economies of scale relative to variable and, to a lesser extent, fixed
telecommunications costs. The Company has developed a series of software tools
and a software system to analyze Internet performance, specifically related to
congestion points on the Internet. The Company's operating strategy is to reduce
the number of congestion points experienced by end-users through the redirection
of an individual's request for video content to the optimal server location. To
date, the Company has contracted for telecommunications capacity and services
primarily from major Internet Service Providers ("ISPs"). It is the Company's
intention to continue to contract with selected ISPs in the future for Internet
services as well as to procure and install selected servers over a variety of
Internet backbones and regional Points of Presence ("POPs"). In addition, the
Company may incur significant capital equipment expenditures and lease
commitments for additional servers to expand the InterVU Network, although these
expenditures would be less significant than those required of ISPs. The amount
and timing of such expenditures will depend upon the level of demand for the
Company's services. The Company believes that as customer adoption rates for the
Company's service increases, the corresponding levels of video delivery volumes
will allow the Company to generate economies of scale relative to the expenses
it incurs with ISPs as well as the expenses emanating from the maintenance and
amortization of its servers. To the extent that such economies of scale are not
realized, the Company's business, prospects, financial condition and results of
operations will be materially adversely affected.
RESULTS OF OPERATIONS
The financial results for the period from August 2, 1995 (Inception) to
September 30, 1997 reflect the Company's initial organizational efforts,
research and development activities, capital raising activities and initial
deployment of the Company's video delivery service. The Company believes that
its limited operating history makes prediction of future results of operations
difficult and, accordingly, that its operating results should not be relied upon
as an indication of future performance. The Company began to recognize revenue
during the first nine months of 1997. As such, the Company believes that any
comparison of the results of operations for the period from August 2, 1995
(Inception) to December 31, 1995 with the results for the year ended December
31, 1996 or of the results for the nine months ended September 30, 1996 with the
results for the nine months ended September 30, 1997 is not meaningful.
Total revenues consist of fees for delivery of video content over the
InterVU Network and related customer services. Revenues from fees from video
delivery are recognized at the time of delivery. Revenues from related customer
services are recognized during the period in which services are provided. Total
revenues were $84,000 for the nine months ended September 30, 1997, most of
which was derived from delivery fees and customer services provided to the
Company's initial customers. In order to attract early customers and achieve
penetration of the market for Internet video delivery, the Company initially
provided up to 90 days of free trial service to certain customers. Of the 20
customers who received such discounts, 12 customers have emerged from the free
trial period, five customers remain in the trial period, and three customers
discontinued the Company's video delivery service. There can be no assurance
that the Company's customers will continue to utilize the Company's services or
that the Company will be able to attract and retain new customers. The failure
of the Company to retain customers after the free trial period or the inability
of the Company to attract and retain new customers could have a material adverse
effect on the Company's business, prospects, financial condition and results of
operations. The Company may elect to continue this or other sales practices in
the future if it determines they are warranted.
23
<PAGE> 25
Research and development expenses consist primarily of salaries and related
expenses for personnel, fees to outside contractors and consultants, the
allocated costs of facilities, and the depreciation and amortization of capital
equipment. Research and development expenses for the year ended December 31,
1996, the nine months ended September 30, 1996 and the nine months ended
September 30, 1997 were $1.4 million, $967,000 and $1.3 million, respectively.
The increase in expenses for the first nine months of 1997 over the comparable
period in 1996 was attributable to the increase in personnel and related
expenses. Research and development expenses to date have focused in three areas:
the development of software tools and enabling platforms for the distribution of
video content, the development of tools to analyze Internet performance to
subsequently redirect individual end users to optimal servers, and the
development of new media player software. Research and development expenses have
been expensed as incurred.
Selling, general and administrative expenses consist primarily of salaries,
commissions, promotional expenses, professional services and general operating
costs. Also included are costs the Company incurs for Internet access and
telecommunications transport costs ("bandwidth"). These costs have both fixed
and variable factors. The Company believes that it will be able to negotiate
lower bandwidth charges as the InterVU Network expands. The expansion of the
InterVU Network will in some cases require capital equipment expenditures, the
cost of which will be amortized over the useful life of the asset. Selling,
general and administrative expenses were $910,000, $531,000 and $2.2 million for
the year ended December 31, 1996, the nine months ended September 30, 1996 and
the nine months ended September 30, 1997, respectively. The increase in selling,
general and administrative expenses for the first nine months of 1997 over the
comparable period in 1996 was attributable primarily to an increase of
approximately $970,000 in personnel and associated costs, primarily related to
sales and marketing, an increase of approximately $200,000 for expenditures for
trade shows, an increase of approximately $165,000 for bandwidth costs, an
increase of approximately $120,000 for travel and entertainment expenses and an
increase of approximately $120,000 in amortization of deferred compensation.
Interest income was $52,000, $34,000 and $77,000 for the year ended
December 31, 1996, the nine months ended September 30, 1996 and the nine months
ended September 30, 1997, respectively. Interest income represents interest
earned by the Company on its cash and cash equivalents. The increase in interest
income for the first nine months of 1997 over the comparable period in 1996 was
the result of higher cash and cash equivalents balances resulting from sales of
equity securities.
The Company has not recorded any income tax benefit for net losses incurred
for any period from inception to September 30, 1997 due to the lack of earnings
history of the Company and the uncertainty as to the timing and amount of future
earnings, if any. See Note 6 of Notes to Financial Statements.
The Company's net loss was $2.3 million, $1.5 million and $3.3 million for
the year ended December 31, 1996, the nine months ended September 30, 1996 and
the nine months ended September 30, 1997, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily through
private sales of equity securities. Through September 30, 1997, the Company had
raised $10.3 million from the sale and issuance of preferred stock and common
stock. At September 30, 1997, the principal source of liquidity for the Company
was $4.4 million of cash and cash equivalents.
The Company has had significant negative cash flows from operating
activities since inception. Cash used in operating activities for the year ended
December 31, 1996 and the nine months ended September 30, 1997 was $2.1 million
and $3.0 million, respectively. Cash used in operating activities in each of
these periods was primarily the result of increased business activity and
related operating expenses.
Cash used in investing activities for the year ended December 31, 1996 and
the nine months ended September 30, 1997 was $305,000 and $268,000,
respectively, primarily representing capital expenditures for equipment,
software, and furniture and fixtures. Although the Company has no material
commitments for capital expenditures, the Company expects to expend significant
amounts for equipment, software and fixtures
24
<PAGE> 26
over the next 24 months to expand the InterVU Network, much of which it plans to
finance through capital leases.
Cash provided by financing activities for the year ended December 31, 1996
and the nine months ended September 30, 1997 was $4.4 million and $5.1 million,
respectively, resulting primarily from the net proceeds received by the Company
from the sale of preferred stock.
In connection with the strategic alliance with NBC entered into in October
1997, the Company is obligated to make $2.0 million in non-refundable payments
to NBC for certain production, operating and advertising costs associated with
certain Web sites including payments of (i) $750,000 due on the completion of
the Direct Offering, (ii) $500,000 due at the end of the first calendar quarter
following the Direct Offering, (iii) $500,000 due at the end of the second
calendar quarter following the Direct Offering, and (iv) $250,000 due at the end
of the third calendar quarter following the Direct Offering; provided that all
such payments will become immediately due and payable to NBC Multimedia if the
Strategic Alliance Agreement is terminated for any reason.
The Company believes that the net proceeds from the Offering and the Direct
Offering, together with existing cash and cash equivalents, will be sufficient
to meet its working capital and capital expenditure requirements through at
least the end of 1998. Thereafter, if cash generated by operations is
insufficient to satisfy the Company's liquidity requirements, the Company may
need to sell additional equity or debt securities or obtain credit facilities.
The Company currently does not have any lines of credit. The sale of additional
equity or convertible debt securities may result in additional dilution to the
Company's stockholders. There can be no assurance that the Company will be able
to raise any such capital on terms acceptable to the Company or at all. See
"Risk Factors -- Requirements for Additional Capital."
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BUSINESS
INTRODUCTION
InterVU Inc. is a specialized service company seeking to establish a
leadership position in the Internet video delivery market. The Company utilizes
a proprietary software system for routing and distributing high quality video
over the Internet at rapid speeds. Unlike traditional Web site based video
delivery solutions, the Company's system moves the video delivery mechanism away
from the owner's Web site and on to the Company's network of specialized video
servers strategically situated on the InterVU Network. The Company's proprietary
approach allows the Company to deliver video quickly to end-users and allows Web
site owners and advertisers to provide video on the Internet without having to
invest in costly hardware and software or to maintain a staff of employees with
video delivery expertise.
InterVU's technologies decrease the time required for video transmission
over the Internet. The InterVU Network is made up of specialized video servers
which have been strategically situated on the Internet and which have been
designed to deliver video quickly to the greatest number of end-users. Among
other things, InterVU's All Eyes and EyeQ technologies allow end-users to view
video in a variety of digital encoding formats regardless of the specific
hardware or software end-users might have. Other innovations, such as the
Company's InstaVU video player software, allow real-time multimedia
transmissions to end-users using 28.8 Kbps or faster modems over the Internet.
The Company believes that the long wait time traditionally associated with video
transmission over the Internet is one of the primary barriers to widespread
adoption of Internet video. As a result, the Company believes that its
technological solutions could play a significant role in increasing Internet
video use.
The Company's target customers are the increasing number of Web site owners
that seek a means of adding video presentations to their Web pages in an easily
implemented and cost effective manner and advertisers that wish to incorporate
video into banners and other Internet advertisements. The Company believes that
multimedia-rich Web sites, capable of delivering high quality video content
quickly to the end-user, can generate significant marketing differentiation and
"top of mind" awareness in consumer buying decisions. Web site owners that have
used the Company's services include NBC Multimedia, Major League Baseball, the
Lifetime Television Network (Hearst/ABC-Viacom Entertainment Service), Yachting
Magazine (Times Mirror Magazines), Turner Classic Movies (Turner Broadcasting
System), Court TV, Speedvision Online (Cable Network Services) and NET-Political
Talk. The Company's video banner advertisements have promoted Goldwin Golf on
the Golfonline Web site, the Columbia Pictures movie "Air Force One" and Volvo
cars on the Yahoo! Web site and Anheuser Busch on the Major League Baseball Web
site.
As part of the Company's strategy to provide video delivery services to the
top tier of Internet multimedia content sites, in October 1997 the Company
entered into a strategic alliance with NBC Multimedia. Pursuant to the strategic
alliance, the Company became the exclusive provider of technology and services
for the distribution of certain NBC entertainment audio/video content by means
of NBC Web sites on the Internet. Pursuant to the Strategic Alliance Agreement
between the Company and NBC Multimedia, the Company will store NBC entertainment
audio/visual content on the InterVU Network and transmit such content to
end-users via the Internet at their request.
As consideration for the strategic alliance, the Company issued to NBC
approximately 10% of the capital stock of the Company in the form of Series G
Preferred, and NBC Multimedia granted the Company exclusive rights to deliver
most NBC entertainment audio/video content from NBC web sites. The Strategic
Alliance Agreement provides for sharing of revenues from a newly created area to
be placed on the "NBC.com" Web site that will contain, among other things,
certain NBC entertainment audio/video content (the "Revenue Sharing Area") and
allocates costs between the parties. The Strategic Alliance Agreement provides
for an exclusive term of two years that will be extended to four years if
certain cost and revenue goals to be mutually agreed upon in the future are
established and met. NBC Multimedia has agreed to use commercially reasonable
efforts to promote the Company and the InterVU Network in connection with
Internet advertising promotions involving the Company's dissemination of NBC
entertainment audio/video content. In addition, NBC Multimedia has agreed to use
commercially reasonable efforts to introduce the
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Company to the television stations associated with the NBC Television Network
and to refer other programming opportunities for the Internet to the Company,
all to the extent that NBC Multimedia reasonably deems appropriate.
The Company offers its services to Web site owners and advertisers for fees
based on the volume of video content delivered, for flat fees or for a
combination thereof. The Company expects to generate additional revenues in the
future from selling advertising space on Web pages when Web site owners offer
such space on their pages in exchange for a sharing of fees or for video
encoding and delivery services performed by the Company. The Company also
generally charges its customers fees for encoding analog video into digital form
for transmission over the Internet.
The Company believes that the net proceeds from the Offering and Direct
Offering, together with existing cash and cash equivalents, will be sufficient
to meet its working capital and capital expenditure requirements through at
least the end of 1998. During this period the Company intends to continue to
make significant expenditures in sales and marketing and research and
development related to the InterVU Network, as well as expenditures for general
and administrative activities. In addition, the Company plans to make
expenditures related to its strategic alliance with NBC Multimedia. The Company
does not anticipate any material changes in the number of employees in its
various departments over the near term. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
INDUSTRY BACKGROUND
Growth of Internet Usage and Content. The Internet and many Internet
software, hardware and service providers have experienced dramatic growth over
the last three years. Unprecedented commercial and end-user interest in the
Internet has been spurred by the introduction of key technologies including Web
browsers and powerful search engines. These technologies, along with consistent
usage of URLs, have enabled end-users of the Internet to quickly and smoothly
navigate to sites around the world. Accordingly, the Internet has been widely
accepted as a communications medium. International Data Corporation has
estimated that as of the end of 1996 there were approximately 35 million
end-users of the Internet and that there would be approximately 175 million
end-users by the year 2001. According to a Netcraft survey, as of July 1997
there were approximately 1.2 million Web sites.
Existing Internet Video Technologies. Until recently, Internet video
delivery has been of low quality and slow speed due to traffic congestion on the
Internet and the limitations of video server storage and delivery resources,
desktop storage capabilities and desktop processing power available for video
decoding and playback. As a result, most commercial Web site owners have been
reluctant to employ video on their sites and most advertisers have been
reluctant to add video to their advertisements because existing technologies
have not provided sufficient quality and cost-effective results.
The primary barrier to achieving interactive video delivery over the
Internet is a function of the large size of video files relative to standard
hypertext markup language ("HTML") data files. The large size of video files
exacerbates four distinct challenges to quality, high speed delivery: (i)
transmission time delays from Web server to end-user which are due to the
Internet's infrastructure, (ii) the capacity of the end-user's modem, (iii)
logistical problems and costs attendant to maintaining video delivery at the Web
site, and (iv) the potential for overloading a Web site owner's server due to
increased video file delivery.
The primary approaches pursued to date by others to address video file
delivery challenges have focused on the ongoing development of
compression/decompression algorithms ("codecs"), and to a lesser extent, a
variety of strategies for optimizing server capacities and reducing Internet
traffic congestion such as the development of specialized transmission
protocols.
Codecs are used to compress and decompress video files, effectively
reducing the size of a video file so that it can be transmitted or downloaded
with increased speed and quality. Codecs were introduced during the evolution of
the CD-ROM market to enable dynamic video presentations. Codecs, however, have
technological limitations in that they alone cannot optimize all of the
variables required to produce high quality video.
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Although the continued development of codecs and other technologies to
improve transmission of video data over the Internet has led to significant
improvements in Internet video delivery, the Company believes that such
technologies do not address bottlenecks inherent in the Internet's
infrastructure. In fact, the Company believes that Internet technologies that
improve transmission speed and quality ultimately will increase end-user use of
the Internet, placing more stress on the most frequently used Internet
transmission channels. As a result, the Company believes that video delivered
from single sites will continue to be subject to delays associated with
transmission of such video over the Internet.
THE INTERVU SOLUTION
Unlike companies that have introduced video delivery mechanisms requiring a
Web site owner to purchase proprietary software and hardware in order to deliver
video from a single site, InterVU has moved the video delivery mechanism away
from the owner's Web site and into Company servers dedicated to video delivery.
The Company has developed a software system for routing and distributing video
on the Internet that allows the Company to link the Company's specialized video
servers to one another, to Web sites and to Internet end-users, creating the
InterVU Network. The Company has strategically placed its video servers on the
Internet to minimize the number of routers or "hops" video content must traverse
before reaching the end-user.
The InterVU Network is designed to be platform, browser and software player
independent, which allows Web site owners to use a variety of codecs with the
assurance that such codecs will be compatible with most platforms, browsers and
software players an end-user may be utilizing. The InterVU Network is also
scalable which will allow the Company to accommodate additional content from
customers as demand increases. In addition, the InterVU Network is Internet
connection independent, which allows the Company to support a variety of
telecommunication, cable, wireless and intranet solutions in order to maximize
the number of end-users who may wish to view video messages. The InterVU Network
provides high throughput delivery of video messages to end-users through the
Internet over a range of connection speeds (ranging from 28.8 Kbps modems to
cable modems).
The Company also has developed its own video player software, InstaVU, to
improve end-users' viewing experiences. Among other things, InstaVU provides
users with a preview of the full video in the form of a slide show synchronized
to real-time audio that plays during the download of the remainder of the video
file to the end-user's personal computer.
STRATEGY
The Company's objective is to leverage its technology and market focus to
become a leading Internet video delivery company. The Company's strategy
includes the following key elements:
Achieve Significant Market Penetration and Promote Market Expansion. The
Company intends to attract and retain Web site owners with significant video
delivery volume requirements in the sports, entertainment,
information/education, advertising and sales promotions and Internet video
product sales industries. By using the InterVU Network, Web site owners and
advertisers can deliver video without the start-up costs associated with
software and hardware and the recurring maintenance costs associated with
delivering video from one delivery site. As part of the Company's strategy to
provide video delivery services to the top tier of Internet multimedia content
sites, in October 1997 the Company entered into a strategic alliance with NBC
Multimedia. Pursuant to the strategic alliance, the Company became the exclusive
provider of technology and services for the distribution of most NBC
entertainment audio/video content by means of NBC Web sites on the Internet. The
Company also has begun to develop relationships with Web site developers to
increase awareness of the Company's services. Web site developers, in turn, will
be able to use the Company's video delivery technology to expand their product
offerings to Web site owners. The Company's sales force has begun to promote
V-Banners (real time audio and video in the space of an Internet advertising
banner) to advertisers and advertising agencies. The Company intends to increase
its in-house sales force and expand its marketing and sales efforts to Web site
owners, Web site developers, advertisers and advertising agencies. In addition,
the Company intends to develop strategic alliances with leading advertising
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agencies to promote video advertising over the Internet. The Company expects
demand for its services to increase as more companies learn about the Company's
video delivery services.
Maintain Technological Leadership. The Company's strategy is to continue to
develop advanced technological solutions to increase the speed and quality of
Internet video delivery. The Company continually works to develop its
proprietary InterVU Network to further reduce the number of network bottlenecks
that video content must traverse before it reaches the end-user. The Company
also seeks to refine, among other things, its Smart Mirror technology, All Eyes
software, InstaVU video player and EyeQ software, which together deliver video
to the end user from the "electronically closest" server, increase the number of
end-users a Web site owner or advertiser can reach with its video content and
improve end-users' video viewing experience. The Company intends to extend the
functionality and uses of its core video delivery technologies by continuing to
invest in research and development.
Offer Full-Service Approach to Video Delivery. The Company's strategy is to
offer Web site owners and advertisers a simple, cost-effective method of adding
video to their Internet presentations. The Company's network approach allows
customers to display video on the Internet without having to invest in hardware
and software or to hire a staff to establish and maintain a system for video
delivery. Instead, the Company offers a simple, turn-key solution for video
delivery. Customers need only send the Company video tapes containing video to
be included on their Web sites and the Company will place the video on the
InterVU Network and establish a link between the customer's Web site or
advertisement site and the InterVU Network. Upon the request of an end-user at a
participating Web site, the Company's network transmits video messages directly
to the viewer.
Maintain Internet Connection Independence. The Company's strategy is to
continue to develop and maintain Internet video delivery products and services
that support a variety of Internet connections. The Company currently supports
major telecommunication, cable, wireless and intranet connections to the
Internet. The Company intends to maintain the functionality of its video
delivery technologies as new Internet connections are developed in order to
reach the maximum number of end-users.
Build Brand Awareness. The Company's marketing strategy is to penetrate
markets for Internet video delivery services by creating awareness for the
"InterVU" brand. The Company seeks to make the "InterVU" name synonymous with
fast, high quality video on the Internet. The Company intends to promote,
advertise and increase its brand visibility through excellent service and a
variety of marketing and promotional techniques, including advertising, trade
show involvement, the InterVU Web site, various marketing and sales materials
and Internet promotions to market the Company's services.
TECHNOLOGY OVERVIEW
The Company has designed the InterVU Network to meet the needs of Web site
owners and advertisers who wish to deliver video content over the Internet. The
Company believes that the InterVU Network provides an attractive service to Web
site owners and advertisers by accelerating video transmission and reception
times and by providing a method to incorporate video presentations into Web
pages easily and in a cost-effective manner. InterVU's technology is based on a
proprietary software operating system which links a distributed network of
servers, using open communication standards and commercially available
components. The use of open standards allows the Company to accommodate a
variety of customer hardware and software configurations.
Network Solution. The InterVU Network and the Company's Virtual URL(TM)
technology allow Web site owners and advertisers to provide video content to
end-users without the costs and inconvenience usually associated with video on
the Internet. Instead of managing large video files and maintaining expensive
hardware, Web site owners and advertisers deliver video directly to the Company.
The Company then digitizes the video and places it on the InterVU Network. To an
end-user visiting a Web site, the video appears to come from the Web site
because of software code the Company places on the customer's Web site to link
the end-user to the InterVU Network. The Virtual URL technology makes such
redirection of video invisible to the end-user.
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Avoiding Transmission Bottlenecks. The Company's configuration of
distributed video servers located along the Internet provides significant
advantages in video delivery. The InterVU Network is designed to ensure that
once an end-user requests video from a Web site, the video is transmitted from
the server on the InterVU Network that can deliver the data most quickly. This
result is achieved through the use of the Company's proprietary Smart Mirror
technology. The InterVU Network helps users bypass bottlenecks on the Internet
by determining which of its servers is electronically closest to the end-user
and sending the video from that location.
Another significant component of the Company's video delivery system is the
Fast Track Network Analyzer, which allows end-users to optimize video delivery
performance. The Fast Track Analyzer "polls" selected servers on the InterVU
Network to determine which server will provide the end-user with the best
overall video performance. From information based on end-users who have
downloaded approximately 850,000 copies of InterVU's Fast Track end-user client
software through October 1997, the Company has created a model of Internet data
flow which allows the Company to accelerate video delivery over the InterVU
Network by storing video files on servers at strategically located Internet
sites. Performance data has been accumulated and analyzed for most top Internet
service providers, allowing the Company to identify and integrate the services
of six providers (UUNET, Cerfnet, DIGEX, Exodus, GlobalCenter, and SuperNet) to
offer distributed, high performance video delivery.
Optimizing and Managing the InterVU Network Servers. The servers on the
InterVU Network consist of a title manager and multiple video pumps which are
designed to optimize and manage the delivery of video over the Internet. The
video pumps are computers that have been customized to accelerate video
delivery. The title manager optimizes the amount of replication of video content
on each video pump and directs end-users' requests for video content to the
video pump capable of responding most quickly to the request.
Reaching Maximum End-Users. The Company has designed its proprietary All
Eyes software to allow its customers to reach almost all end-users, regardless
of the video player software used. All Eyes is an intelligent software
application written in the Java and JavaScript programming language that
determines the capabilities of the end-user's software and ensures that any
video sent out can be played by the end-user's video player software. Even
end-users with no multimedia capabilities will usually receive a graphic image,
instead of a broken icon signifying the presence of content that they cannot
see. By contrast, traditional methods of video delivery limit the number of
end-users able to view video content to those who have the appropriate software
for a specific encoding format. In addition, All Eyes is designed to deliver
video in the appropriate format even if the end-user has not downloaded any
InterVU software.
End-User Software Technologies. InterVU's EyeQ multimedia manager software
package includes the Company's InstaVU and MPEG video players, as well as a
software utility called Get Smart. InstaVU allows multimedia streaming on a 28.8
Kbps or faster modem. The InstaVU multimedia streaming algorithm displays a
pre-selected slide show of video frames at the same time as real-time audio
while the remainder of the video is downloaded to the end-user's computer for
subsequent viewings. Get Smart installs and manages the EyeQ multimedia software
and keeps end-users' computers current with other multimedia capabilities to
take advantage of InterVU's service. With a single mouse click, Get Smart
downloads and installs software updates to the end-user's computer from the
Internet.
CUSTOMER SERVICES
The Company employs a full service approach to providing its video delivery
services which includes (i) ease of integration of video content into Web
presentations, (ii) encoding services, (iii) network distribution, hosting and
delivery and (iv) usage reports providing delivery volume and other data.
To date, the Company has generated most of its revenues from monthly fees
charged to customers for video delivery and encoding services. Certain of the
Company's Web site customers also have traded advertising space on their pages
for video delivery services. The Company's economic model, however, calls for
the Company to generate substantially all of its revenues from charging Web site
owners and advertisers volume-based fees for video delivery services. By
providing customers with a variable cost structure which is a function only of
the amount of video content delivered, the Company plans to relieve Web site
owners of the
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challenge of generating economies of scale relative to fixed costs (bandwidth),
capital investments (hardware and software), and incremental logistical
staffing. The rate structure is variable, with the Company's customers receiving
reduced per-megabyte costs as delivery volumes surpass certain average daily
levels. Although the Company believes its rate structure offers significant
value to its customers, the Company's pay-per-delivery concept remains unproven.
See "Risk Factors -- Unproven Acceptance of the Company's Fee Structure."
To allow Web site owners and advertisers to more easily integrate video
into Web sites, InterVU has developed the V-Banner, which turns the ordinary
Internet advertising banner into a video display. With V-Banners, advertisers
can provide real time video and audio through their advertising banners instead
of just a few static pictures. The Company believes that it is currently the
only company to offer banners that include video. The Company has incorporated
its All Eyes technology into its V-Banners to make them compatible with most
video players currently used by end-users. As a result, the Company offers its
advertising customers the ability to reach a wide variety of end-users with
their video advertisements. The Company can create V-Banners using video
supplied by its customers in digital or analog format.
When using the Company's video delivery services, Web site owners may
digitize and compress video messages themselves or send analog VHS or Beta tapes
to InterVU for encoding services using a variety of different codec formats. All
major codec standards, such as MPEG, Quicktime, AVI, Vivo and RealPlayer, are
supported by InterVU. The Company also offers its InstaVU format, an advanced
digital encoding technique specifically designed for the delivery of enjoyable,
high quality audio and video messages. Customers' video files are dynamically
balanced to provide high quality video and audio, full audio/video
synchronization and flexible encoding rates to match specific requirements.
STRATEGIC ALLIANCE WITH NBC MULTIMEDIA
In October 1997 the Company entered into a strategic alliance with NBC
Multimedia. Pursuant to the strategic alliance, the Company became the exclusive
provider of technology and services for the distribution of certain NBC
entertainment audio/video content by means of NBC Web sites on the Internet.
Under the Strategic Alliance Agreement between the Company and NBC Multimedia,
the Company will store NBC entertainment audio/video content on the InterVU
Network servers and transmit this content to users via the Internet in response
to requests from end-users.
NBC Multimedia has agreed to use commercially reasonable efforts to promote
the Company and the InterVU Network in connection with Internet advertising
promotions involving the Company's dissemination of NBC entertainment
audio/video content. NBC Multimedia has reserved the right to determine, in its
reasonable discretion, when such promotion of the Company is appropriate. The
Company has agreed to include in the Company's EyeQ multimedia manager an "NBC"
icon that links end-users to the NBC Web site. The Company and NBC Multimedia
also have agreed to place links on their Web sites connecting end-users with the
other party's site. In addition, NBC Multimedia has agreed to use commercially
reasonable efforts to introduce the Company to the television stations
associated with the NBC Television Network and to refer other programming
opportunities for the Internet to the Company, all to the extent that NBC
Multimedia reasonably deems appropriate. NBC Multimedia would receive a 10%
commission for each such referral.
Under the Strategic Alliance Agreement, the Company will receive 30% of
NBC's net revenues from advertisements on a new area to be placed on the
"NBC.com" Web site that will contain, among other things, the NBC audio/video
content (the "Revenue Sharing Area"). If NBC receives advertising space or other
barter in return for placing advertisements in the Revenue Sharing Area, NBC
will allocate 30% of bartered advertising space to InterVU or make available an
equivalent amount of space on one or more Internet sites controlled by NBC. NBC
Multimedia may opt out of revenue sharing by paying for the Company's video
delivery services at rates at least as favorable as the most favorable rates
offered by the Company to third parties, other than special promotional rates.
NBC Multimedia will reimburse the Company for the costs incurred by the Company
in connection with the delivery of audio/video content, provided that NBC
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Multimedia will not reimburse the Company for any costs in excess of $10,000 per
month that it has not expressly approved.
The Strategic Alliance Agreement provides for an exclusive term of two
years that will automatically extend to four years if certain cost and revenue
goals to be mutually agreed upon in the future are established and met. The
Company's exclusive rights to deliver NBC content from NBC Web sites do not
apply to sports, news or other non-entertainment programs, nor do they apply to
video clips of less than five seconds in length. NBC Multimedia also has
reserved the right to permit other companies to distribute NBC video content
from Web sites and areas not controlled by NBC.
As consideration for the strategic alliance, the Company issued to NBC
1,280,000 shares of the Company's Series G Preferred pursuant to the Preferred
Stock Purchase Agreement (the "Purchase Agreement"). These shares represent
approximately 10% of the Company's outstanding capital stock prior to the
Offering. The Company has granted NBC rights to include shares of Common Stock
issuable upon conversion of the Series G Preferred in certain future
registrations of the Company's Common Stock, as well as the right to demand on
one occasion only that the Company register such shares of Common Stock after
the Company becomes eligible to use Form S-3 under the Act. NBC has agreed that
neither it, nor its affiliates, will acquire or seek to acquire any of the
Company's securities for a period of one year from October 10, 1997, the date of
the Purchase Agreement.
NBC Multimedia has indicated that it has an interest in purchasing, in the
Direct Offering, $2,000,000 of Common Stock at the per share price to the public
in the Offering. After the consummation of the Offering and the Direct Offering,
NBC Multimedia and NBC will together own approximately 9.9% of the outstanding
shares of capital stock of the Company.
If the Direct Offering is consummated, the Company would be obligated to
pay to NBC Multimedia a total of $2,000,000 in a series of non-refundable
payments over the three calendar quarters following the Direct Offering (the
"Prepayments") as payment for the costs of producing and operating the Revenue
Sharing Area (the "Production Costs") and the costs of advertising and
promotions to be placed by the Company on Web sites controlled by NBC ("InterVU
Advertising"). The first payment in the amount of $750,000 would be due upon the
completion of the Direct Offering. Production costs may include, but shall not
be limited to, costs related to NBC Multimedia's personnel costs, out-of-pocket
costs, costs for content needed for the Revenue Sharing Area, reasonable
allocated overhead costs and a management fee to be paid to NBC in return for
its services equal to 20% of all production and operating costs. The Company
would be charged for InterVU Advertising at NBC Multimedia's customary rates and
would be responsible for the expenses related to placing the advertising on the
designated Web site. The Company would not be permitted to post InterVU
Advertising at any time that advertising space were unavailable or if all of the
amounts paid by the Company to NBC already had been allocated to Production
Costs.
During the exclusive term, NBC Multimedia may terminate the Strategic
Alliance Agreement without cause by giving 90 days written notice to the Company
and returning (i) all of the shares of Series G Preferred if the termination
occurs prior to January 10, 1998 and NBC Multimedia has not, at a minimum,
displayed a button or link containing a copy of the Company's logo on the
"NBC.com" web site or (ii) 600,000 shares of Series G Preferred or the shares of
Common Stock into which they would be convertible if the termination occurs at
any other time during the first two years of the agreement. NBC Multimedia would
not be required to return any shares upon exercise of its early termination
right until the Company had made all of the required Prepayments described
above. Upon a material breach by NBC Multimedia, the Company would be entitled
to terminate the Strategic Alliance Agreement and NBC Multimedia would be
required to return the same portion of the shares as if NBC Multimedia had
exercised its early termination right. Upon a material breach by the Company,
NBC Multimedia could terminate the Strategic Alliance Agreement with no
obligation to return shares. In no event shall NBC Multimedia be required to
refund any of the Prepayments. See "Risk Factors -- Risks Associated With
Strategic Alliance With NBC Multimedia."
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MARKETING AND SALES
Marketing Strategy
The Company's marketing strategy is to position InterVU as a leading
Internet company providing video delivery services. The Company employs a
full-service approach to marketing which focuses on Internet video delivery from
a network rather than from one delivery site or Internet backbone. Additionally,
by offering a full-service approach, the Company presents Web site owners and
advertisers with the opportunity to not only forego their own capital and fixed
cost investments in new technologies, but to be placed in the continuum of
receiving the Company's most current enhancements as they become available. The
Company employs a mix of techniques including advertising, trade show
involvement, the InterVU Web site, various marketing and sales materials and
Internet promotions to market the Company's services. The Company has identified
five target markets for its services: (i) content providers (Web site owners),
(ii) advertisers, (iii) advertising agencies, (iv) Web site developers and (v)
Internet service providers.
Content Providers. One of the Company's primary markets is delivering video
for content providers such as Web site owners. The Company believes that video
can be successfully employed by content providers to increase Web site
promotional effectiveness to consumers. The Company's network offers content
providers the opportunity to provide such video fast enough and at high enough
quality to capture consumers' attention. In addition, the Company gives its
customers the ability to reach end-users almost without regard to the video
player software used by such end-users. The Company's All Eyes technology
intelligently determines which of a number of digital video formats will be
compatible with a particular end-user's video player software and sends the
content provider's video presentation to the end user in the appropriate format.
The Company believes its approach to video delivery appeals to content
providers because the Company eliminates the need for content providers to
purchase software servers, hardware servers or communication bandwidth. The
Company also gives Web site owners the ability to deliver video without first
acquiring digital video expertise. The Company can create a digital video
presentation from an analog video tape. In addition, the Company allows Web site
owners to experiment with using video because the Company typically charges only
for video delivered, thereby obviating the need for Web site owners to make a
commitment to delivering video before they have an opportunity to gauge end-user
response.
Advertisers. The Company believes that Internet advertisements that include
video will be entertaining to consumers and, as a result, valuable to
advertisers. The Company's V-Banners automatically display a small video
presentation in a portion of the banner when an end-user visits a Web page. The
Company believes its V-Banners will be especially appealing to advertisers
because consumers with video player capability need not take any affirmative
steps to view the video or wait for it to download. Moreover, the Company
believes that many of the advantages the Company offers to Web site owners also
apply to advertisers. Advertisers can use video on their Internet advertisements
without having to learn how to work with video delivery technologies and without
burdening their servers or those of their host Web site with video.
Advertising Agencies. The Company has begun to establish relationships with
certain major advertising agencies, including Saatchi & Saatchi, Foote Cone &
Belding and Think New Ideas, and specialized Internet advertising agencies,
which primarily provide advertising banners, in an effort to make advertisers
more aware of the services the Company offers. The Company believes that
advertising agencies will want to market themselves and the Company to
advertisers by incorporating Internet video promotions into their media
proposals to clients.
Web Site Developers. The Company's approach to video delivery allows Web
site developers to add video to Web pages without the need for extensive video
delivery expertise. The Company manages encoding, recommends codecs compatible
with customers' needs and handles distribution. As a result, Web site developers
that work with the Company can offer a broader range of services to their
customers without investing time and money into learning and applying video
delivery technologies.
Internet Service Providers. The Company established nonexclusive
promotional agreements with six Internet service providers (UUNET, Cerfnet,
DIGEX, Exodus, GlobalCenter, and SuperNet) pursuant to
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which the service providers may market their performance (as verified by the
Fast Track Network Analyzer results) and the Company's integration of their
infrastructures into the InterVU Network.
Sales Strategy
The Company's sales strategy is to attract and retain Web site owners with
significant video delivery volume requirements in the entertainment,
information/education, advertising and sales promotions and Internet video
product sales industries. The Company currently has targeted the entertainment
industry, specifically cable TV, broadcast programmers and sports leagues, as
primary customer groups. The Company believes that cable TV and broadcast
programmers in particular currently (i) have the best understanding of the
InterVU Network capability, (ii) are dedicated to achieving differentiation in
their Web site offerings by delivering video that they have developed or
otherwise possess, (iii) are in a position to quickly expand their video
delivery volumes once they are satisfied with delivery results and (iv) serve as
highly credible references for the Company. The Company's sales force also has
begun actively to promote its V-Banners to advertisers and advertising agencies.
VUTOPIA Service
Although InterVU currently provides global delivery of video messages, the
Company intends to introduce a complementary, more distributed regional service
(the "VUTOPIA Service") which the Company believes will be an attractive vehicle
for the delivery of localized content. The VUTOPIA Service will utilize the
existing InterVU Network to offer faster delivery of high quality video messages
and is designed to include a home channel specifically tailored to individual
markets which will allow Web site owners to target their video programs to
specific market areas. VUTOPIA Service will allow the Company's customers to
obtain further enhancements in video delivery speed and incur lower delivery
costs relative to global delivery rates.
The VUTOPIA Service will utilize the Company's Virtual URL technology which
re-directs each viewer's mouse click request for video messages to regionally
distributed servers which are expected to be located directly at the viewer's
dial up point or POP. By hosting content on multiple distributed servers located
at various POPs, the Company intends to deliver video messages over local access
lines, thereby eliminating Internet bandwidth charges and avoiding other
Internet congestion challenges. The Company is currently testing the VUTOPIA
Service with a cable provider and a cellular service provider.
COMPETITION
The market for Internet services is highly competitive, and the Company
expects competition to increase significantly. In addition, the Company expects
the market for the delivery of video over the Internet, to the extent it
develops, to be intensely competitive. The Company faces substantial competition
from companies that provide the hardware, digital video encoding software and
know-how necessary to allow Web site owners and advertisers to utilize video in
their Internet marketing and advertising activities. Several companies offer
services that compete with those offered by the Company, including, among
others, RealNetworks, Inc. (formerly Progressive Networks, Inc.) (RealVideo),
VDOnet Corp. (VDOLive), and VXtreme, Inc. (Web Theater), AudioNet Inc.
(AudioNet) and At Home Corporation (@Home Experience). In August 1997,
RealNetworks and MCI Communications Corporation ("MCI") announced a strategic
alliance involving the introduction of a service, called "RealNetwork," that
will deliver audio and video broadcasts over the Internet. The RealNetwork will
reportedly permit end-users to simultaneously receive video broadcasts by
distributing copies of digital video programs to multiple points on MCI's
Internet backbone. The strategic alliance between RealNetworks and MCI appears
to be a service-based marketing strategy similar to that being implemented by
the Company. In addition, Microsoft Corporation ("Microsoft") has made
significant investments in Internet video delivery technologies and has
disclosed a multimedia strategy of broadening the market for video compression
solutions. In August 1997, Microsoft announced (i) the release of its NetShow
2.0 multimedia server which incorporates technology for video and audio delivery
over the Internet and corporate intranets, (ii) an agreement with leading video
compression software companies, including Progressive Networks and VDOnet Corp.,
to cooperate in defining future standards based on the Microsoft
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Active Streaming Format and (iii) the acquisition of VXtreme, Inc. Microsoft
also holds significant equity positions in RealNetworks and VDOnet Corp. In
addition, as was the case with VXtreme, Inc., RealNetworks and VDOnet Corp.,
providers of Internet delivery video services may be acquired by, receive
investments from or enter into other commercial relationships with, larger,
well-established and well-financed companies, such as Microsoft and MCI. Greater
competition resulting from such relationships could have a material adverse
effect on the Company's business, prospects, financial condition and results of
operations. Because the operations and strategic plans of existing and future
competitors are undergoing rapid change, it is extremely difficult for the
Company to anticipate which companies are likely to offer competitive services
in the future.
The bases of competition in markets for video delivery include transmission
speed, reliability of service, ease of access, price/performance, ease-of-use,
content quality, quality of presentation, timeliness of content, customer
support, brand recognition and operating experience. The Company believes that
it compares favorably with its competitors with respect to each of these
factors, except brand recognition and operating experience, both of which have
been limited as a result of the Company's early stage of development. However,
many of the Company's competitors and potential competitors have substantially
greater financial, technical, managerial and marketing resources, longer
operating histories, greater name recognition and/or more established
relationships with advertisers and content and application providers than the
Company. Such competitors may be able to undertake more extensive marketing
campaigns, adopt more aggressive pricing policies and devote substantially more
resources to developing Internet services or online content than the Company.
There can be no assurance that the Company will be able to compete successfully
against current or future competitors or that competitive pressures faced by the
Company will not materially adversely affect the Company's business, prospects,
financial condition and results of operations. Further, as a strategic response
to changes in the competitive environment, the Company may make certain pricing,
service or marketing decisions or enter into acquisitions or new ventures that
could have a material adverse effect on the Company's business, prospects,
financial condition and results of operations.
RESEARCH AND DEVELOPMENT
The market for the Company's services is characterized by rapidly changing
technology, evolving industry standards, and frequent new product introductions.
The Company believes that it can continue to improve its existing technologies
and services as well as develop new technologies and services. The Company
develops most of its technologies in house and maintains a highly trained
research and development staff that designs and develops InterVU's new services.
The Company had research and development expenses of $33,000, $1.4 million and
$1.3 million for the period from August 2, 1995 (Inception) to December 31,
1995, the year ended December 31, 1996 and the nine months ended September 30,
1997, respectively. The Company's primary objectives are to develop and maintain
the Company's position in Internet video delivery by being at the forefront of
product and services development. Additionally, the Company seeks to incorporate
customer preferences identified by InterVU's marketing and sales groups into
development plans. The Company attempts to integrate new enhancements into the
Company's existing services. These enhancements include extending the reach of
InterVU's video delivery, reducing the cost per megabyte of video delivered,
developing new methods of scaling existing services to changing client demands,
and increasing the robustness and reliability of all software and components
created by InterVU.
INTELLECTUAL PROPERTY
The Company regards its technology as proprietary and attempts to protect
it with copyrights, trademarks, trade secret laws, restrictions on disclosure
and other methods. In addition, the Company has filed seven United States patent
applications and one international patent application and is in the process of
preparing additional patent applications with respect to its technology. There
can be no assurance that any patent will issue from these applications or that,
if issued, any claims allowed will be sufficiently broad to protect the
Company's technology. In addition, there can be no assurance that any patents
that may be issued will not be challenged, invalidated or circumvented, or that
any rights granted thereunder would provide proprietary protection to the
Company. Failure of any patents to provide protection to the Company's
technology may make it easier for the Company's competitors to offer technology
equivalent or superior to the
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Company's technology. The Company also generally enters into confidentiality and
non-disclosure agreements with its employees and consultants, and generally
controls access to and distribution of its documentation and other proprietary
information. Despite these precautions, it may be possible for a third party to
copy or otherwise obtain and use the Company's products, services or technology
without authorization, or to develop similar technology independently. There can
be no assurance that the steps taken by the Company will prevent
misappropriation or infringement of its technology. In addition, litigation may
be necessary in the future to enforce the Company's intellectual property
rights, to protect the Company's intellectual property rights or to determine
the validity and scope of the proprietary rights of others. Such litigation
could result in substantial costs and diversion of resources and could have a
material adverse effect on the Company's business, prospects, financial
condition and results of operations. The Company believes that, due to the rapid
pace of technological innovation for Internet products and services the
Company's ability to establish and maintain a position of technology leadership
in the industry depends more on the skills of its development personnel than
upon the legal protections afforded its existing technology.
EMPLOYEES
As of September 30, 1997, the Company employed 34 full-time and three
part-time people, of whom 22 were employed in research and development, eleven
were employed in sales and marketing and four were employed in administration.
None of the Company's employees is represented by a labor union, and the Company
considers its relations with its employees to be good. The Company's ability to
achieve its financial and operational objectives depends in large part upon the
continued service of its senior management and key technical personnel and its
continuing ability to attract and retain highly qualified technical and
managerial personnel. Competition for such qualified personnel in the Company's
industry is intense, particularly in software development, network engineering
and product management personnel. See "Risk Factors -- Dependence on Key
Personnel."
FACILITIES
The Company is headquartered in facilities consisting of approximately
7,800 square feet in Solana Beach, California, which the Company occupies under
two leases and one sublease. Both leases expire in 1999 and the sublease is on a
month to month basis. The Company anticipates opening a select number of
regional sales offices in the future to address the demand for its video
delivery services. Other than such regional sales offices, the Company
anticipates that the Solana Beach facilities will be adequate for the
foreseeable future.
LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
Company's executive officers and directors:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- --------------------------------------------------
<S> <C> <C>
Harry E. Gruber 45 Chairman, Chief Executive Officer and Chief
Financial Officer
J. William Grimes 56 Vice Chairman
Brian Kenner 38 Vice President and Chief Technology Officer
Douglas A. Augustine 39 Vice President, Marketing and Sales
Michael Bernstein 37 Vice President of Business Development, Media
Kenneth W. Colby 48 Vice President, Engineering
Stephen Klein 34 Vice President of Business Development, Networks
Edward David 72 Director
Mark Dowley 32 Director
Alan Z. Senter 55 Director
Isaac Willis 57 Director
</TABLE>
HARRY E. GRUBER is a founder of InterVU, and has served as Chairman and
Chief Executive Officer of the Company since July 1996. From July 1996 to July
1997, Dr. Gruber also served as the Company's President. In addition, he has
served as the Company's Chief Financial Officer since July 1997. Prior to
founding the Company, Dr. Gruber founded two start-up biotech ventures, Gensia
Inc. and Viagene Inc., which completed initial public offerings in 1990 and
1993, respectively. From July 1995 to July 1996, Dr. Gruber served as Chief
Scientific Officer of Gensia, and from 1988 to July 1995, he served as Vice
President, Research of Gensia. Dr. Gruber serves as a director of Vascular
Genomics, Inc., a privately held company, and as a director of the UCSD
Foundation and a member of the Board of Overseers for the University of
Pennsylvania College of Arts and Sciences. Dr. Gruber obtained his M.D. and B.A.
degrees from the University of Pennsylvania.
J. WILLIAM GRIMES joined the Company as a director in September 1997 and
has served as Vice Chairman of the Board since October 1997. Since July 1995,
Mr. Grimes has worked as a consultant with JWG Communications, Inc., a
communications consulting company he founded in July 1995. He also serves as a
faculty member in the Media Studies Program at the New School for Social
Research, a position he has held since September 1996. From September 1994 to
August 1996, Mr. Grimes held the position of President and Chief Executive
Officer with Zenith Media, a media buying service company. From October 1991 to
December 1993, Mr. Grimes served as President and Chief Executive Officer of
Multimedia, Inc. From November 1988 to September 1991, Mr. Grimes served as
President and Chief Executive Officer of Univision Holdings, Inc. Mr. Grimes
served as President and Chief Executive Officer of ESPN, Inc. from June 1982 to
October 1988. Prior to June 1982, Mr. Grimes held various positions with CBS,
Inc., including his final position as Executive Vice President of the CBS Radio
division. He obtained a B.A. in English from West Virginia Wesleyan College.
BRIAN KENNER is a founder of InterVU, and has served as Vice President and
Chief Technology Officer of the Company since February 1996. From 1989 to
January 1996, Mr. Kenner was a Project Engineer at Science Applications
International Corporation ("SAIC"), an advanced-technology development and
research organization. As Project Engineer, Mr. Kenner had responsibility for
products ranging from advanced hand-held instrumentation to devices which
digitize, compress, and transmit both moving and still images over public and
proprietary communications networks. Mr. Kenner obtained a B.S. in Electrical
Engineering from the University of California, San Diego.
DOUGLAS A. AUGUSTINE joined the Company in August 1996 as Director of
Corporate Development, and has served as Vice President, Marketing & Sales since
December 1996. Prior to joining the Company,
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Mr. Augustine was Chief Operating Officer for Ad:vent Strategic Event Marketing,
a division of N.W. Ayert Partners, a national advertising firm from February
1996 to August 1996. From June 1989 to July 1993 and from September 1995 to
January 1996, Mr. Augustine served as President of Arlen Marketing, a company he
founded in June 1989. Arlen Marketing served as marketing and licensing agent
for the 1992 America's Cup and later provided services to Ad:vent Strategic
Event Marketing in connection with Ad:vent's Olympics projects. From July 1993
through August 1995, Mr. Augustine served as Director of Development and
Fundraising for America(3), an America's Cup syndicate. Mr. Augustine obtained a
J.D. degree from the University of San Diego School of Law, and a B.A. degree
from the University of California, Berkeley.
MICHAEL BERNSTEIN joined the Company in October 1997 as Vice President of
Business Development, Media. From May 1991 to September 1997, Mr. Bernstein held
a number of positions with Major League Baseball Properties, including his last
position of Vice President, Business Development & New Ventures. Mr. Bernstein
obtained a B.S. in Industrial and Labor Relations from Cornell University and an
M.B.A. from Columbia University Graduate School of Business.
KENNETH W. COLBY joined the Company in July 1996 as Director of Engineering
and has served as Vice President, Engineering since March 1997. Mr. Colby has
over 20 years experience in software development and programming and was a
former Director of Research and Development at Integrated Software, a mainframe
graphics company. Mr. Colby has received patents for a variety of programs. He
also founded Sedona Software, a research and development company. Mr. Colby
obtained a B.S. in Electrical Engineering from Purdue University.
STEVE KLEIN joined the Company in May 1996 as Director of Business
Development and Sales and has served as Vice President of Business Development,
Networks since March 1997. From 1994 to 1996, he served as New Business
Development Manager for General Instrument Corporation where he was one of the
originating founders of the SURFboard Program, General Instrument's Internet
cable modem technology and product line. From 1988 to 1992, Mr. Klein held
various product management and technical management positions at General
Instrument's VideoCipher Division. Mr. Klein obtained an M.B.A. from San Diego
State University and a B.S. in Engineering from Ohio State University.
EDWARD DAVID has served as a director of the Company since its inception in
August 1995, and has served as President of Edward E. David, Inc., a
telecommunications consulting firm since 1992. In addition, since April 1996,
Dr. David has served as Vice President of Washington Advisory Group LLC. He has
been Science Advisor to the President of the United States, and Director of the
White House Office of Science and Technology. Dr. David was also President of
Exxon Research and Engineering Company and Executive Director of Bell Telephone
Laboratories. Mr. David serves as a director for Intermagnetics General
Corporation, Spacehab, Inc., and Protein Polymar Technologies, all of which are
publicly traded companies. Until recently, he served as the U.S. Representative
to the NATO Science Committee.
MARK DOWLEY joined the Company as a director in January 1997 and is the
Chief Executive Officer of Momentum IMC, an advertising agency division of
McCann-Erickson, a national advertising firm. Mr. Dowley has over ten years
experience in major event management, promotion, and sponsorship. Mr. Dowley's
past and current clients include the NBA, the PGA Tour, NCAA, The Walt Disney
Company and Universal Studios. Mr. Dowley is also a member of McCann-Erickson's
board of directors. Mr. Dowley received a B.A. degree in Economics from the
College of Wooster.
ALAN Z. SENTER joined the Company as a director in September 1997. From
September 1994 to June 1997, Mr. Senter served as Executive Vice President,
Chief Financial Officer and as a member of the Policy Council of Nynex
Corporation. From November 1993 to August 1994 and since June 1996, Mr. Senter
has served as Chairman of Senter Associates, a consulting firm founded by Mr.
Senter in November 1993. From August 1992 to November 1993, Mr. Senter served as
Executive Vice President, Chief Financial Officer and a director of GAF/ISP
Corporation. From January 1990 to July 1992, Mr. Senter served as Vice President
of Finance for Xerox Corporation. Mr. Senter serves on the Board of Directors of
XL Insurance and Advanced Radio Telecom, both publicly traded companies. Mr.
Senter obtained a B.S. in economics and political science from the University of
Rhode Island and an M.B.A. from the University of Chicago.
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ISAAC WILLIS has served as a director of the Company since November 1995.
Dr. Willis is a private investor with experience in venture financing and
banking, including the founding of Heritage Bank, Commercial Bank of Georgia and
Commercial Bank of Gwinnett. Dr. Willis has been a Professor and Director of
Dermatology Research at Morehouse School of Medicine since 1983 and was a Past
Commander of the 3297th U.S. Army Hospital. Dr. Willis obtained a M.D. from
Howard University and a B.S. in Chemistry and Mathematics from Morehouse
College.
CLASSIFIED BOARD OF DIRECTORS
Classified Board of Directors. The Company's Amended and Restated
Certificate to be adopted prior to the closing of the Offering will provide for
the Company's Board to be divided into three classes of directors, with each
class as nearly equal in number as possible, serving staggered three-year terms.
As a result, approximately one-third of the Company's Board will be elected each
year. The directors in Class I will be Mark Dowley and Isaac Willis, whose terms
will expire at the annual stockholders meeting in 1998. The directors in Class
II will be Edward David and Alan Senter, whose terms will expire at the annual
stockholders meeting in 1999. The directors in Class III will be William Grimes
and Harry Gruber, whose terms will expire at the annual stockholders meeting in
2000. The classified board provision will help to assure the continuity and
stability of the Company's Board and the business strategies and policies of the
Company as determined by the Board.
COMMITTEES OF THE BOARD OF DIRECTORS
Audit Committee. Concurrently with the closing of the Offering, the Board
of Directors will establish an audit committee (the "Audit Committee") which
will consist of Messrs. David, Senter and Willis. The Audit Committee will be
established to make recommendations concerning the engagement of independent
public accountants, review with the independent public accountants the plans and
results of the audit engagement, approve professional services provided by the
independent public accountants, review the independence of the independent
public accountants, consider the range of audit and non-audit fees and review
the adequacy of the Company's internal accounting controls.
Compensation Committee. Concurrently with the closing of the Offering, the
Board of Directors will establish a compensation committee (the "Compensation
Committee"), which will consist of Messrs. Dowley, Grimes and Senter, to
determine compensation for the Company's senior executive officers and to
administer the 1996 Stock Plan.
The Board of Directors of the Company initially will not have a nominating
committee or any other committee.
COMPENSATION OF DIRECTORS
The directors of the Company have never received any cash compensation from
the Company for services rendered as directors. Each of the non-management
directors has received compensation in the form of restricted stock awards or
non-statutory stock options to purchase up to 25,192 Common Stock shares of the
Company. Mr. Grimes received an additional option to purchase up to 25,192
shares of Common Stock for serving as Vice Chairman of the Board. Dr. Willis
received an additional option to purchase up to 25,192 shares in light of his
additional contributions made to the Company. Such stock awards and options are
subject to repurchase rights or vesting schedules.
STOCK COMMITTEE
During 1996, the Stock Committee of the Company's Board of Directors, which
administered the 1996 Stock Plan, consisted of Dr. Gruber, the Company's
President and Chief Executive Officer, and a former director of the Company. No
options were granted to Dr. Gruber or to such former director while such
individuals served on the Stock Committee. No executive officer of the Company
served on the compensation committee of another entity or on any other committee
of the board of directors of another entity performing
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<PAGE> 41
similar functions during the last fiscal year, and no executive officer of the
Company served as a director of another entity that had an executive officer
serving on the Stock Committee of the Company.
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation
for the fiscal year ended December 31, 1996 received by the Chief Executive
Officer. No other executive officer of the Company meets the definition of
"highly compensated" within the meaning of the executive compensation disclosure
rules of the Securities and Exchange Commission (the "Commission").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------------------
OTHER
NAME AND ANNUAL
PRINCIPAL POSITIONS SALARY($) BONUS($) COMPENSATION($)
- -------------------------------------------------------- --------- -------- ---------------
<S> <C> <C> <C>
Harry E. Gruber, Chief Executive Officer and
Chairman of the Board................................. $87,450 $-- $ --
</TABLE>
1996 STOCK PLAN
The Company adopted the 1996 Stock Plan in December 1996 to enable key
employees, officers and consultants of the Company to acquire a proprietary
interest in the Company, and thus to create in such persons an increased
interest in and a greater concern for the welfare of the Company. The 1996 Stock
Plan provided for aggregate option grants of up to 1,889,400 shares. As of
October 22, 1997, options to purchase an aggregate of 721,247 shares of Common
Stock at prices ranging from $.04 to $9.13 were outstanding under the 1996 Stock
Plan.
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<PAGE> 42
CERTAIN TRANSACTIONS
Upon incorporation of the Company in August 1995, the Company sold an
aggregate of 2,398,278 shares of Common Stock to various individuals for an
aggregate of $952, including 705,387 shares to Harry E. Gruber, 705,387 shares
to Brian Kenner, 599,555 shares to a predecessor of the Westchester Group LLC,
211,609 shares to Ruth Hargis and 176,340 shares to the A.B. Gruber Living Trust
(the "Initial Stockholders"). Allen B. Gruber, the settlor and trustee of the
A.B. Gruber Living Trust, is the brother of Harry E. Gruber. In connection with
such issuance, the Company entered into stock purchase agreements ("Stock
Purchase Agreements") with each of the Initial Stockholders. Each Stock Purchase
Agreement granted the Company certain repurchase rights with respect to unvested
shares and certain rights of first refusal to purchase vested shares. The Stock
Purchase Agreements (including the vesting repurchase provisions contained
therein) terminated by their terms in March 1996 when the aggregate proceeds of
the Company's equity offerings exceeded $600,000.
Each of the Initial Stockholders also entered into a Voting Trust Agreement
concurrently with execution of a Stock Purchase Agreement. Pursuant to the
Voting Trust Agreement, each Initial Stockholder transferred his or her shares
to Dr. Gruber as trustee of the Voting Trust (the "Trustee"). In exchange for
such shares, the Trustee issued Voting Trust Certificates representing the
shares transferred to the Voting Trust. The Voting Trust Agreement grants the
Trustee the right to exercise all stockholder voting rights and other rights
with respect to the shares transferred to the Voting Trust other than the right
to sell, transfer or dispose of such shares. By its terms, the Voting Trust
terminates, among other reasons, upon the successful completion of an initial
public offering of the Company's securities under the Securities Act involving a
gross offering price of at least $7,500,000.
In March 1996, the Company entered into Vesting Agreements with each of the
Initial Stockholders. Each Vesting Agreement grants to the Company the right to
repurchase at the original issue price all of an Initial Stockholder's unvested
shares upon such person's death or disability or his or her unwillingness to
provide the services requested by the Company in such Vesting Agreement. The
Vesting Agreements provide for daily vesting of restricted shares of Common
Stock over a five-year period (with no shares vesting until March 4, 1997). The
Vesting Agreements also grant the Company rights of first refusal to purchase
vested shares before such shares may be sold to third parties. In October 1997,
the Company amended the Vesting Agreements for the Initial Stockholders other
than Dr. Gruber and Mr. Kenner to provide for the termination of such Vesting
Agreements (and the vesting of all shares covered thereby) upon the completion
of an initial public offering by the Company resulting in gross proceeds of at
least $7,500,000 (a "Qualifying IPO"). The Vesting Agreements for Dr. Gruber and
Mr. Kenner survive completion of the Offering but have been amended and restated
as of October 1997 to provide for the termination, upon completion of a
Qualifying IPO, of the Company's rights of first refusal to purchase vested
shares and the Company's right to repurchase unvested shares upon the death or
disability of Dr. Gruber or Mr. Kenner, as applicable. The Company's rights to
repurchase unvested shares also would terminate upon a change of control, with
respect to Mr. Gruber, and upon a change of control followed by termination
without cause or reduction of annual cash compensation, with respect to Mr.
Kenner.
On August 30, 1995, the Company sold 172,500 shares of Series A Convertible
Preferred Stock at $1 per share to various accredited investors for total
consideration of $172,500. The Company sold 80,000 of such shares to the A.B.
Gruber Living Trust.
On February 4, 1996, the Company sold an aggregate of 339,562 shares of
Series B Convertible Preferred Stock at $1.27 per share to various accredited
investors for a total consideration of $431,244. The Company sold 50,000 of such
shares to the A.B. Gruber Living Trust, 25,000 of such shares to L. Burton
Gruber, the father of Harry Gruber, 3,000 of such shares to Hope Gruber, the
sister of Harry Gruber, and 200,000 of such shares to Isaac Willis, who has
served as a director of the Company from November 1995 to the present.
On March 5, 1996, the Company issued 302,296 shares of Common Stock to each
of Harry Gruber and Mr. Kenner and 282,166 shares to a predecessor of
Westchester Group LLC for aggregate proceeds of $1,760.
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On March 7, 1996, the Company sold 296,147 shares of Series C Convertible
Preferred Stock at $2.75 per share to various accredited investors for a total
consideration of $814,404. The Company sold 3,500 of such shares to the A.B.
Gruber Living Trust, 3,000 of such shares to L. Burton Gruber and 136,364 of
such shares to Dr. Willis.
On April 17, 1996, the Company sold 96,429 shares of Series D Convertible
Preferred Stock at $7 per share to various accredited investors for a total
consideration of $675,003. The Company sold 7,143 of such shares to Dr. Willis.
On August 9, 1996, the Company sold 154,500 shares of Series E Convertible
Preferred Stock at $10 per share to various accredited investors for a total
consideration of $1,545,000. The Company sold 10,000 of such shares to Dr.
Willis.
From November 1996 through February 1997, the Company sold 245,500
additional shares of Series E Convertible Preferred Stock at $10 per share to
various accredited investors for a total consideration of $2,455,000. The
Company sold 54,550 of such shares to Dr. Willis.
On July 16, 1997, the Company sold 677,498 shares of Series F Convertible
Preferred Stock at $6 per share to various accredited investors for a total
consideration of $4,064,988. The Company sold 290,000 of such shares to Dr.
Willis. The Company received payments for certain of the shares of Series F
Preferred Stock issued on July 16, 1997 prior to such date and accounted for
such payments as advances from stockholders.
As consideration for the establishment of a strategic alliance in October
1997, the Company issued to NBC 1,280,000 shares of Series G Preferred, and NBC
Multimedia made the Company the exclusive provider of technology and services
for the distribution of NBC's entertainment audio/visual content by means of the
Internet. There are no agreements between management and NBC with respect to
voting their respective shares of Common Stock. The Company has granted NBC
rights to include shares of Common Stock issuable upon conversion of the Series
G Preferred in certain future registrations of the Company's Common Stock, as
well as the right to demand on one occasion only that the Company register such
shares of Common Stock after the Company becomes eligible to use Form S-3 under
the Act. NBC has agreed that neither it, nor its affiliates, will acquire or
seek to acquire any of the Company's securities for a period of one year from
October 10, 1997, the date of the Purchase Agreement. See "Business--Strategic
Alliance with NBC Multimedia."
NBC Multimedia has indicated that it has an interest in purchasing, in the
Direct Offering, $2,000,000 of Common Stock at the price per share to the public
in the Offering. At an assumed offering price of $10.00 per share, this would be
200,000 shares. After the consummation of the Offering and the Direct Offering,
NBC Multimedia and NBC will together own approximately 9.9% of the outstanding
shares of capital stock of the Company. Upon consummation of the Direct
Offering, the Company will be obligated to pay NBC Multimedia $2,000,000 in
installments over three calendar quarters for the costs of producing and
operating the Revenue Sharing Area and the costs of advertising and promotions
to be placed by the Company on web sites controlled by NBC.
42
<PAGE> 44
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of October 22, 1997 and as adjusted after the
Offering and the Direct Offering by (i) each of the Company's directors, (ii)
each of the Company's executive officers, (iii) each person who is known by the
Company to own beneficially more than 5% of the Common Stock and (iv) all
directors and executive officers as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF
COMMON STOCK(3)
NUMBER OF SHARES ---------------------------------
NUMBER OF SHARES OF SERIES G BEFORE THE AFTER THE
OF COMMON STOCK PREFERRED STOCK OFFERING AND OFFERING AND
NAME AND ADDRESS(1) BENEFICIALLY OWNED(2) BENEFICIALLY OWNED DIRECT OFFERING DIRECT OFFERING
- ---------------------------------- --------------------- ------------------ --------------- ---------------
<S> <C> <C> <C> <C>
Harry Gruber(4)................... 1,007,680 -- 14.1% 10.8%
Brian Kenner(5)................... 1,007,680 -- 14.1 10.8
Allen Gruber(6)................... 512,657 -- 7.2 5.4
Isaac Willis(7)................... 1,158,573 -- 16.2 12.4
Edward David(8)................... 25,192 -- 0.4 0.3
Mark Dowley....................... -- -- -- --
J. William Grimes................. -- -- -- --
Alan Z. Senter.................... -- -- -- --
Douglas Augustine(9).............. 68,067 -- 1.0 0.7
Michael Bernstein................. -- -- -- --
Stephen Klein(10)................. 63,219 -- 0.9 0.7
Kenneth Colby(11)................. 42,096 -- 0.6 0.5
Westchester Group LLC(12)......... 881,720 -- 12.3 9.4
National Broadcasting Company,
Inc.(13)........................ -- 1,280,000 -- 2.1
All directors and executive
officers as a group (11
persons)(14).................... 3,372,507 -- 47.0% 36.0%
</TABLE>
- ---------------
(1) Except as indicated, the address of each person named in the table is c/o
InterVU Inc., 201 Lomas Santa Fe Drive, Solana Beach, CA 92075.
(2) Beneficial ownership of directors, officers and 5% or more stockholders
includes both outstanding Common Stock and shares issuable upon exercise of
options that are currently exercisable or will become exercisable within 60
days after the date of this table. Except as indicated in the footnotes to
this table and pursuant to applicable community property laws, the persons
named in the table have sole voting and investment power with respect to
all shares of Common Stock beneficially owned by them.
(3) Assumes consummation of the Direct Offering and no exercise of the
Over-Allotment Option.
(4) Includes 569,070 shares subject to the Company's repurchase right under an
Amended and Restated Vesting Agreement.
(5) Includes 569,070 shares subject to the Company's repurchase right under an
Amended and Restated Vesting Agreement.
(6) Includes 255,069 shares owned by the Gruber Family Limited Partnership, of
which Allen Gruber is a general partner, and 81,244 shares owned by the
Judith Gruber Living Trust, of which Judith Gruber, Allen Gruber's wife, is
settlor and trustee.
(7) Includes 953,867 shares owned by the Willis Family Trust, of which Mr.
Willis is settlor. Includes 14,486 shares subject to the Company's
repurchase right under a restricted stock agreement and 4,070 shares
issuable upon exercise of options that are currently exercisable or will
become exercisable within 60 days after the date of this table.
(8) Includes 14,486 shares subject to the Company's repurchase right under a
restricted stock agreement.
43
<PAGE> 45
(9) Includes 47,947 shares subject to the Company's repurchase right under a
restricted stock agreement and 5,087 shares issuable upon exercise of
options that are currently exercisable or will become exercisable within 60
days after the date of this table.
(10) Includes 45,692 shares subject to the Company's repurchase right under a
restricted stock agreement. Includes 239 shares issuable upon exercise of
options that are currently exercisable or will become exercisable within 60
days after the date of this table.
(11) Includes 25,433 shares subject to the Company's repurchase right under a
restricted stock agreement and 4,308 shares issuable upon exercise of
options that are currently exercisable or will become exercisable within 60
days after the date of this table.
(12) The membership interests of Westchester Group LLC are owned by Marcia
Berman individually, with respect to 99.5% of the interests, and as
custodian for her minor children under the New York Uniform Gifts to Minors
Act, with respect to .5% of the interests.
(13) The shares of Series G Preferred owned by NBC become convertible at the
option of the holder on July 10, 1998. The holder of each share of Series G
Preferred shall have the right to vote on an as-converted basis. With
respect to such vote, each holder of Series G Preferred will have full
voting rights and powers of the holders of Common Stock. As of the date of
this table, NBC owns 100% of the outstanding Series G Preferred. NBC
Multimedia, a wholly owned subsidiary of NBC, has indicated that it has an
interest in purchasing, in the Direct Offering, $2,000,000 of Common Stock
at the price per share to the public in the Offering. At an assumed initial
offering price of $10.00 per share, this would be 200,000 shares.
(14) See Notes (4), (5), (7), (8), (9), (10) and (11).
44
<PAGE> 46
DESCRIPTION OF CAPITAL STOCK
The following summary description of the capital stock of the Company does
not purport to be complete and is subject to the provisions of the Company's
Amended and Restated Certificate of Incorporation (the "Certificate") and
Amended and Restated Bylaws (the "Bylaws"), which are included as exhibits to
the Registration Statement of which this Prospectus forms a part, and by the
provisions of applicable law.
Upon the closing of the Offering, the authorized capital stock of the
Company will consist of 20,000,000 shares of Common Stock, par value $.001 per
share, and 5,000,000 shares of preferred stock, par value $.001 per share, after
giving effect to amendments to the Company's Certificate that have been approved
by the Company's Board of Directors and stockholders.
COMMON STOCK
As of October 15, 1997, there were 3,929,592 shares of Common Stock
outstanding held of record by 37 stockholders.
Holders of Common Stock are entitled to one vote per share on all matters
to be voted upon by the stockholders of the Company. Subject to the preferences
that may be applicable to any outstanding preferred stock, the holders of Common
Stock are entitled to a ratable distribution of any dividends that may be
declared by the Board of Directors out of funds legally available therefor. In
the event of a liquidation, dissolution or winding up of the Company, the
holders of Common Stock are entitled to share ratably in all assets remaining
after payment of liabilities, subject to the prior liquidation rights of any
outstanding preferred stock. The Common Stock has no preemptive, redemption or
conversion rights. The outstanding shares of Common Stock are, and the shares
offered by the Company in the Offering, when issued and paid for, will be, fully
paid and nonassessable. The rights, preferences and privileges of holders of
Common Stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any preferred stock which the Company may designate and
issue in the future.
PREFERRED STOCK
Upon the closing of the Offering, each outstanding share of preferred
stock, other than shares of Series G Preferred, will be converted into Common
Stock, and such shares of preferred stock will be automatically retired.
Thereafter, the Board of Directors will be authorized, without further
stockholder approval, to issue up to 3,720,000 shares of preferred stock in one
or more series and to fix the rights, preferences, privileges and restrictions
granted or imposed upon any unissued shares of preferred stock and to fix the
number of shares constituting any series and the designations of such series.
The Company has designated 1,200,000 shares of preferred stock as Series F
Preferred Stock. In July and August 1997, the Company issued an aggregate of
765,830 shares of Series F Preferred Stock to various accredited investors. Upon
consummation of the Offering, all shares of Series F Preferred Stock will be
converted into shares of Common Stock based on a conversion price of $9.53 per
share, subject to certain anti-dilution adjustments. In particular, if the
Company completes the Offering prior to February 18, 1998 and the initial public
offering price is less than $9.53 per share, the conversion price will be
reduced to the public offering price per share. As a result, the number of
shares issued upon conversion of the Series F Preferred Stock would increase.
The Board of Directors of the Company has designated 1,280,000 shares of
preferred stock as Series G Preferred Stock. The holders of Series G Preferred
are entitled to receive dividends, prior and in preference to any declaration or
payment of any dividend (payable other than in Common Stock of the Company) on
the Common Stock of the Company, at the rate of $0.64 per share per annum,
payable quarterly, when, as and if declared by the Board of Directors. In the
event of any liquidation, dissolution or winding up of the Company, the holders
of Series G Preferred will be entitled to receive, prior and in preference to
any distribution of any of the assets of the Corporation to the holders of
Common Stock, an amount equal to $8.00 per share. Each share of Series G
Preferred will be convertible, at the option of the holder thereof, at any time
nine months after the date of issuance, into .6298 shares of Common Stock,
subject to adjustments for stock splits, stock
45
<PAGE> 47
dividends or combinations of outstanding shares of Common Stock. The holder of
each share of Series G Preferred shall have the right to one vote for each share
of Common Stock into which such Series G Preferred is then convertible or into
which it would be convertible but for the nine-month restriction on conversions
described above. With respect to such vote, each holder of Series G Preferred
will have full voting rights and powers equal to the voting rights and powers of
the holders of Common Stock. The Company has granted NBC rights to include
shares of Common Stock issuable upon conversion of the Series G Preferred in
certain future registrations of the Company's Common Stock, as well as the right
to demand on one occasion only that the Company register such shares of Common
Stock after the Company becomes eligible to use Form S-3 under the Act.
Future issuances of preferred stock may have the effect of delaying or
preventing a change in control of the Company. The issuance of preferred stock
could decrease the amount of earnings and assets available for distribution to
the holders of Common Stock or could adversely affect the rights and powers,
including voting rights, of the holders of the Common Stock. In certain
circumstances, such issuance could have the effect of decreasing the market
price of the Common Stock. As of the closing of the Offering, no shares of
preferred stock will be outstanding, and the Company currently has no plans to
issue any shares of preferred stock.
DELAWARE LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
The following is a description of certain provisions of the Delaware
General Corporation Law (the "DGCL") and the Company's Certificate and Bylaws.
This summary does not purport to be complete and is qualified in its entirety by
reference to the DGCL, the Certificate and the Bylaws.
InterVU is subject to the provisions of Section 203 of the DGCL. Section
203 prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
A "business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the interested stockholder. Subject to
certain exceptions, an "interested stockholder" is a person who, together with
affiliates and associates, owns, or within the past three years did own, 15% of
the corporation's voting stock.
Certain provisions of the Certificate and the Bylaws could have
anti-takeover effects. These provisions are intended to enhance the likelihood
of continuity and stability in the composition of the policies formulated by
InterVU's Board. In addition, these provisions are intended to ensure that the
Board will have sufficient time to act in what the Board of Directors believes
to be in the best interests of the Company and its stockholders. These
provisions also are designed to reduce the vulnerability of the Company to an
unsolicited proposal for a takeover of the Company that does not contemplate the
acquisition of all of its outstanding shares or an unsolicited proposal for the
restructuring or sale of all or part of the Company. The provisions are also
intended to discourage certain tactics that may be used in proxy fights.
Classified Board of Directors. The Certificate provides for the Company's
Board to be divided into three classes of directors, with each class as nearly
equal in number as possible, serving staggered three-year terms. As a result,
approximately one-third of the Company's Board will be elected each year. The
directors in Class I will be Mark Dowley and Isaac Willis, whose term will
expire at the annual stockholders meeting in 1998. The directors in Class II
will be Edward David and Alan Senter, whose terms will expire at the annual
stockholders meeting in 1999. The directors in Class III will be William Grimes
and Harry Gruber, whose terms will expire at the annual stockholders meeting in
2000. The classified board provision will help to assure the continuity and
stability of the Company's Board and the business strategies and policies of the
Company as determined by the Board. The classified board provision could have
the effect of discouraging a third party from making a tender offer or otherwise
attempting to obtain control of the Company. In addition, the classified board
provision could delay stockholders who do not like the policies of the Company's
Board from removing a majority of the Board for two years.
No Stockholder Action by Written Consent; Special Meetings. The Certificate
provides that stockholder action can only be taken at an annual or special
meeting of stockholders and prohibits stockholder action by written consent in
lieu of a meeting. The Bylaws provide that special meetings of stockholders may
be called
46
<PAGE> 48
only by the Board, its Chairman or the President of the Company. Stockholders
are not permitted to call a special meeting of stockholders or to require that
the Board call a special meeting.
Advance Notice Requirements for Stockholder Proposals and Director
Nominees. The Bylaws establish an advance notice procedure for stockholders to
make nominations of candidates for election as directors or to bring other
business before an annual meeting of stockholders of the Company (the
"Stockholder Notice Procedure"). The Stockholder Notice Procedure provides that
only persons who are nominated by, or at the direction of, the Company's Board
or its Chairman, or by a stockholder who has given timely written notice to the
Secretary of the Company prior to the meeting at which directors are to be
elected, will be eligible for election as directors of the Company. The
Stockholder Notice Procedure also provides that at an annual meeting only such
business may be conducted as has been brought before the meeting by, or at the
direction of, the Board or its Chairman or by a stockholder who has given timely
written notice to the Secretary of the Company of such stockholder's intention
to bring such business before such meeting. Under the Stockholder Notice
Procedure, if a stockholder desires to submit a proposal or nominate persons for
election as directors at an annual meeting, the stockholder must submit written
notice to the Company not less than 60 days nor more than 90 days prior to the
first anniversary of the previous year's annual meeting (or if the date of the
annual meeting is not within 30 days before or after such anniversary date,
then, to be timely, notice must be received no later than the 10th day after
notice of the meeting was mailed or after public announcement of the date of
such meeting is first made). In addition, under the Stockholder Notice
Procedure, a stockholder's notice to the Company proposing to nominate a person
for election as a director or relating to the conduct of business other than the
nomination of directors must contain certain specified information. If the
chairman of a meeting determines that business was not properly brought before
the meeting, in accordance with the Stockholder Notice Procedure, such business
shall not be discussed or transacted.
Number of Directors; Removal; Filling Vacancies. The Bylaws provide that
the Company's Board will consist of between three and eleven members, the exact
number to be fixed from time to time by resolution adopted by the directors of
the Company. The Board currently consists of six directors. Further, subject to
the rights of the holders of any series of preferred stock then outstanding, the
Bylaws authorize the Board to fill newly created directorships. Accordingly,
this provision could prevent a stockholder from obtaining majority
representation on the Board by permitting the Board to enlarge the size of the
Board and fill the new directorships with its own nominees. A director so
elected by the Board holds office until the next election of the class for which
such director has been chosen and until his successor is elected and qualified.
Subject to the rights of the holders of any series of preferred stock then
outstanding, the Bylaws also provide that directors may be removed only for
cause and only by the affirmative vote of holders of 66% of the outstanding
shares of voting securities. The effect of these provisions is to preclude a
stockholder from removing incumbent directors without cause and simultaneously
gaining control of the Company's Board by filling the vacancies created by such
removal with its own nominees.
Indemnification. The Company has included in its Certificate and Bylaws
provisions to (i) eliminate the personal liability of its directors for monetary
damages resulting from breaches of their fiduciary duty to the extent permitted
by the DGCL and (ii) indemnify its directors and officers to the fullest extent
permitted by Section 145 of the DGCL, including circumstances in which
indemnification is otherwise discretionary. The Company believes that these
provisions are necessary to attract and retain qualified persons as directors
and officers.
Bylaws. The Certificate provides that the Bylaws are subject to adoption,
amendment, alteration, repeal or rescission either by (a) a majority of the
authorized number of directors or (b) the affirmative vote of the holders of not
less than two-thirds of the outstanding shares of voting securities. This
provision will make it more difficult for stockholders to make changes in the
Bylaws by allowing the holders of a minority of the voting securities to prevent
the holders of a majority of voting securities from amending the Bylaws.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is Norwest
Shareowner Services, Norwest Bank Minnesota N.A.
47
<PAGE> 49
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering and the Direct Offering, the Company will
have outstanding 9,366,870 shares of Common Stock. Of these shares, the
2,000,000 shares sold in the Offering (plus any shares issued upon exercise of
the Over-Allotment Option) and the shares sold in the Direct Offering will be
freely tradeable without restriction under the Securities Act, unless held by
"affiliates" of the Company as that term is defined in Rule 144 under the
Securities Act (an "Affiliate"). The shares sold in the Offering are not subject
to the lock-up agreements discussed below.
In general, under Rule 144 as currently in effect, if a period of at least
one year has elapsed since the later of the date the "restricted shares" (as
that phrase is defined in Rule 144) were acquired from the Company and the date
they were acquired from an Affiliate, then the holder of such restricted shares
(including an Affiliate) is entitled to sell a number of shares within any
three-month period that does not exceed the greater of 1% of the then
outstanding shares of the Common Stock or the average weekly reported volume of
trading of the Common Stock on the Nasdaq National Market during the four
calendar weeks preceding such sale. The holder may only sell such shares through
unsolicited brokers' transactions or directly to market makers. Sales under Rule
144 are also subject to certain requirements pertaining to the manner of such
sales, notices of such sales and the availability of current public information
concerning the Company. Affiliates may sell shares not constituting restricted
shares in accordance with the foregoing volume limitations and other
requirements but without regard to the one-year holding period.
Under Rule 144(k), if a period of at least two years has elapsed between
the later of the date restricted shares were acquired from the Company and the
date they were acquired from an Affiliate, as applicable, a holder of such
restricted shares who is not an Affiliate at the time of the sale and has not
been an Affiliate for at least three months prior to the sale would be entitled
to sell the shares immediately without regard to the volume limitations and
other conditions described above.
The Company's executive officers, directors and stockholders who
collectively own substantially all of the 7,166,870 shares of Common Stock
issued prior to the Offering have agreed that they will not directly or
indirectly, offer to sell, sell, grant an option for the sale of, assign,
transfer, pledge, hypothecate or otherwise encumber or dispose of any securities
issued by the Company, including Common Stock or securities convertible into or
exchangeable or exercisable for or evidence any right to purchase or subscribe
for any shares of Common Stock whether or not beneficially owned by them, or
dispose of any beneficial interest therein, for a period of nine months after
the date of this Prospectus, without the prior written consent of Josephthal.
Josephthal may, in its sole discretion, and at any time without notice, release
all or any portion of the shares subject to such lock-up agreements. After the
nine month period, all of the shares of Common Stock subject to the sale
restriction will be eligible for sale in the public market pursuant to Rule 144
under the Securities Act, subject to the volume limitations and other
restrictions contained in Rule 144. In addition, the shares of Common Stock
issuable upon conversion of the Series G Preferred will become eligible for
public sale under Rule 144 in October 1998.
Prior to the Offering, there has been no public market for the Common Stock
of the Company and no predictions can be made as to the effect, if any, that
sales of shares of Common Stock will have on the market price of the Common
Stock prevailing from time to time. Nevertheless, sales of significant numbers
of shares of the Common Stock in the public market, or the perception that such
sales may occur, could adversely affect the market price of the Common Stock and
could impair the Company's future ability to raise capital through an offering
of its equity securities. See "Risk Factors -- Shares Eligible for Future Sale"
and "-- No Prior Trading Market; Possible Volatility of Stock Price."
48
<PAGE> 50
UNDERWRITING
The Underwriters named below (the"Underwriters"), for whom Josephthal Lyon
& Ross Incorporated ("Josephthal") and Cruttenden Roth Incorporated are acting
as the Representatives (the "Representatives"), have severally agreed, subject
to the terms and conditions of the Underwriting Agreement (the "Underwriting
Agreement"), to purchase from the Company, and the Company has agreed to sell to
the Underwriters on a firm commitment basis, the respective number of shares of
Common Stock set forth below opposite their names:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
--------------------------------------------------------------------- ----------------
<S> <C>
Josephthal Lyon & Ross Incorporated..................................
Cruttenden Roth Incorporated.........................................
----------
Total...................................................... 2,000,000
==========
</TABLE>
The Underwriters are committed to purchase all the shares of Common Stock
offered hereby, if any of such shares are purchased. The Underwriting Agreement
provides that the obligations of the several Underwriters are subject to the
conditions precedent specified therein.
The Company has been advised by the Representatives that the Underwriters
initially propose to offer the Common Stock to the public at the initial public
offering price set forth on the cover page of this Prospectus and to certain
dealers at such price less concessions of not in excess of $ per share of
Common Stock. Such dealers may re-allow a concession not in excess of $ per
share of Common Stock to other dealers. After the commencement of the Offering,
the public offering price, concession and reallowance may be changed.
The Representatives have advised the Company that they do not anticipate
sales to discretionary accounts by the Underwriters to exceed five percent of
the total number of shares of Common Stock offered hereby.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act. The Company has
also agreed to pay the Representatives an expense allowance on a non-accountable
basis equal to one percent (1%) of the gross proceeds of the Offering.
The Underwriters have been granted an option by the Company, exercisable
within 30 days of the date of this Prospectus, to purchase up to an additional
300,000 shares of Common Stock at the initial public offering price per share of
Common Stock offered hereby, less underwriting discounts and the non-accountable
expense allowance. Such option may be exercised only for the purpose of covering
over-allotments, if any, incurred in the sale of the shares offered hereby. To
the extent such option is exercised, in whole or in part, each Underwriter will
have a firm commitment, subject to certain conditions, to purchase the number of
the additional shares of Common Stock proportionate to its initial commitment.
Holders of substantially all the shares of the Company's Common Stock,
including each officer and director, have executed agreements pursuant to which
they have agreed not to offer to sell, sell, grant an option for the sale of,
assign, transfer, pledge, hypothecate or otherwise encumber or dispose of any
securities issued by the Company, including Common Stock or securities
convertible into or exchangeable or exercisable for or evidence any right to
purchase or subscribe for any shares of Common Stock whether or not beneficially
owned by them, or dispose of any beneficial interest therein, for a period of
nine months from the date of this Prospectus without the prior written consent
of Josephthal. An appropriate legend shall be marked on the face of the
certificates representing all of such securities.
In connection with the Offering, the Company has agreed to sell to the
Representatives, for nominal consideration, the Advisors' Warrants to purchase
from the Company 200,000 shares of Common Stock. The Advisors' Warrants are
initially exercisable at a price per share equal to 120% of the initial public
offering
49
<PAGE> 51
price for a period of four years commencing one year after the date of this
Prospectus and are restricted from sale, transfer, assignment or hypothecation
for a period of twelve months from the date hereof, except to officers of
Josephthal. The Advisors' Warrants also provide for adjustment in the number of
shares of Common Stock issuable upon the exercise thereof as a result of certain
subdivisions and combinations of the Common Stock. The Advisors' Warrants grant
to the holders thereof certain rights of registration for the securities
issuable upon exercise of the Advisors' Warrants.
The Company has also agreed to pay Josephthal, effective upon the closing
of the Offering, a fee of $140,000 for financial advisory services.
Prior to the Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price for the Common Stock will
be determined by negotiations between the Company and the Representatives and
will not necessarily be related to the Company's asset value, net worth or other
established criteria of value. The factors to be considered in such
negotiations, in addition to prevailing market conditions, include the history
of and prospects for the industry in which the Company competes, an assessment
of the Company's management, the prospects of the Company, its capital structure
and certain other factors deemed relevant.
In connection with the Offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such persons may bid for or
purchase Common Stock for the purpose of stabilizing its market price. The
Underwriters also may create a short position for the account of the
Underwriters by selling more Common Stock in connection with the Offering than
they are committed to purchase from the Company, and in such case may purchase
Common Stock in the open market following completion of the Offering to cover
all or a portion of such short position. The Underwriters may also cover all or
a portion of such short position, up to 300,000 shares of Common Stock, by
exercising the Over-Allotment Option. In addition, the Representatives may
impose "penalty bids" under contractual arrangements with the Underwriters,
where they may reclaim from an Underwriter (or dealer participating in the
Offering) for the account of other Underwriters, the selling concession with
respect to Common Stock that is distributed in the Offering but subsequently
purchased for the account of the Underwriters in the open market. Any of the
transactions described in this paragraph may result in the maintenance of the
price of the Common Stock at a level above that which might otherwise prevail in
the open market. None of the transactions described in this paragraph is
required, and, if they are undertaken, they may be discontinued at any time.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to a copy
of each such agreement which are filed as exhibits to the Registration
Statement. See "Available Information."
DIRECT OFFERING
In addition to the 2,000,000 shares of Common Stock offered in the
Offering, the Company is offering $2,000,000 of Common Stock directly to NBC
Multimedia at a price per share equal to the initial public offering price set
forth on the cover of this Prospectus. Based on an assumed offering price of
$10.00 per share, the Company would offer 200,000 shares to NBC Multimedia in
the Direct Offering. If NBC Multimedia elects to purchase shares in the Direct
Offering, the Company and NBC Multimedia will enter into a purchase agreement on
customary terms. Upon consummation of the Direct Offering, the Company will be
obligated to pay NBC Multimedia for the costs of producing the Revenue Sharing
Area and the costs of advertising and promotions to be placed by the Company on
Web sites, controlled by NBC in installments totalling $2,000,000.
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<PAGE> 52
LEGAL MATTERS
The legality of the Common Stock offered hereby will be passed upon for the
Company by Latham & Watkins, San Diego, California. Certain legal matters in
connection with the Offering will be passed upon for the Underwriters by Orrick,
Herrington & Sutcliffe LLP, San Francisco, California.
EXPERTS
The financial statements of the Company as of December 31, 1995 and 1996
and for the period from August 2, 1995 (Inception) to December 31, 1995, the
year ended December 31, 1996 and the period from August 2, 1995 (Inception) to
December 31, 1996 appearing in this Prospectus and the Registration Statement
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon appearing elsewhere herein, and are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement (of
which this Prospectus is a part and which term shall encompass any amendments
thereto) on Form S-1 pursuant to the Securities Act with respect to the Common
Stock being offered in the Offering. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits thereto,
certain portions of which are omitted as permitted by the rules and regulations
of the Commission. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily complete;
with respect to any such contract, agreement or other document filed as an
exhibit to the Registration Statement, reference is made to the exhibit for a
more complete description of the matter involved, and each such statement shall
be deemed qualified in its entirety by reference to the Registration Statement
exhibits filed as a part thereof.
This Registration Statement and all other information filed by the Company
with the Commission may be inspected without charge at the principal reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's regional offices at Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661, and at 7 World Trade
Center, 13th Floor, New York, New York 10048. Copies of all or any part thereof
may be obtained upon payment of fees prescribed by the Commission from the
Public Reference Section of the Commission at its principal office in
Washington, D.C. set forth above. Such material may also be accessed
electronically by means of the Commission's home page on the Internet at
http://www.sec.gov.
51
<PAGE> 53
INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors...................................... F-2
Balance Sheets as of December 31, 1995 and 1996 and September 30, 1997 (unaudited)..... F-3
Statements of Operations for the Period from August 2, 1995 (Inception) to December 31,
1995, the Year Ended December 31, 1996, the Period from August 2, 1995 (Inception) to
December 31, 1996, the Nine Months Ended September 30, 1996 and 1997 (unaudited) and
the Period from August 2, 1995 (Inception) to September 30, 1997 (unaudited)......... F-4
Statement of Stockholders' Equity for the Period from August 2, 1995 (Inception) to
December 31, 1995, the Year Ended December 31, 1996, and the Nine Months Ended
September 30, 1997 (unaudited)....................................................... F-5
Statements of Cash Flows for the Period from August 2, 1995 (Inception) to December 31,
1995, the Year Ended December 31, 1996, the Period from August 2, 1995 (Inception) to
December 31, 1996, the Nine Months Ended September 30, 1996 and 1997 (unaudited) and
the Period from August 2, 1995 (Inception) to September 30 1997 (unaudited).......... F-6
Notes to Financial Statements.......................................................... F-7
</TABLE>
F-1
<PAGE> 54
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND STOCKHOLDERS
INTERVU INC.
We have audited the accompanying balance sheets of InterVU Inc. (a development
stage company) as of December 31, 1995 and 1996, and the related statements of
operations, stockholders' equity and cash flows for the period from August 2,
1995 (Inception) to December 31, 1995, the year ended December 31, 1996 and for
the period from August 2, 1995 (Inception) to December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of InterVU Inc. (a development
stage company) at December 31, 1995 and 1996, and the results of its operations
and its cash flows for the period from August 2, 1995 (Inception) to December
31, 1995, the year ended December 31, 1996, and for the period from August 2,
1995 (Inception) to December 31, 1996, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
San Diego, California
May 2, 1997,
except for Note 8, as to which the date is
November 17, 1997
F-2
<PAGE> 55
INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY AT
--------------------- SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1997 1997
-------- ---------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents............................................... $508,754 $2,507,822 $ 4,358,088
Accounts receivable..................................................... -- -- 50,582
Prepaid and other current assets........................................ -- 10,095 10,924
-------- ---------- ----------
Total current assets...................................................... 508,754 2,517,917 4,419,594
Property and equipment, net............................................... 12,666 252,286 430,398
Other assets.............................................................. -- 6,274 6,269
Deferred offering costs................................................... -- -- 223,869
-------- ---------- ----------
Total assets...................................................... $521,420 $2,776,477 $ 5,080,130
======== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................ $ -- $ 87,084 $ 147,503
Accrued liabilities..................................................... -- 65,970 118,682
Current portion, lease commitments...................................... -- -- 11,814
-------- ---------- ----------
Total current liabilities......................................... -- 153,054 277,999
Lease commitments......................................................... -- -- 10,974
Advances from stockholders................................................ 411,241 26,500 --
Stockholders' equity:
Preferred stock, $.001 par value: 4,650,000 shares authorized
Series A convertible preferred stock, Designated -- 250,000 shares;
Issued and outstanding -- 172,500 shares at December 31, 1995 and
1996 and September 30, 1997; Liquidation preference -- $172,500 at
December 31, 1995 and 1996 and September 30, 1997................... 173 173 173 $ --
Series B convertible preferred stock, Designated -- 400,000 shares;
Issued and outstanding -- 339,562 shares at December 31, 1996 and
September 30, 1997; Liquidation preference -- $431,243 at December
31, 1996 and September 30, 1997..................................... -- 340 340 --
Series C convertible preferred stock, Designated -- 400,000 shares;
Issued and outstanding -- 296,147 shares at December 31, 1996 and
September 30, 1997; Liquidation preference -- $814,404 at December
31, 1996 and September 30, 1997..................................... -- 296 296 --
Series D convertible preferred stock, Designated -- 200,000 shares;
Issued and outstanding -- 96,429 shares at December 31, 1996 and
September 30, 1997; Liquidation preference -- $675,003 at December
31, 1996 and September 30, 1997..................................... -- 96 96 --
Series E convertible preferred stock, Designated -- 400,000 shares;
Issued and outstanding -- 289,500 and 400,000 shares at December 31,
1996 and September 30, 1997, respectively; Liquidation
preference -- $2,895,000 at December 31, 1996 and $4,000,000 at
September 30, 1997.................................................. -- 290 400 --
Series F convertible preferred stock, Designated -- 1,200,000 shares;
Issued and outstanding -- 721,664 shares at September 30, 1997;
Liquidation preference -- $4,329,984 at September 30, 1997.......... -- -- 721 --
Series G convertible preferred stock (pro forma)
Designated -- 1,280,000 shares; Issued and outstanding -- 1,280,000
pro forma; Liquidation preference -- $10,240,000.................... -- -- -- 1,280
Common stock, $0.001 par value Authorized -- 16,000,000 shares; Issued
and outstanding -- 2,398,278 shares at December 31, 1995 and 4,006,787
shares at December 31, 1996 and 3,929,592 at September 30, 1997
(7,166,870 shares unaudited pro forma)................................ 2,398 4,007 3,929 7,167
Additional paid-in capital.............................................. 153,628 5,324,591 11,281,740 11,279,248
Notes receivable from common stockholders............................... -- (5,570) (3,117) (3,117)
Deferred compensation................................................... -- (403,202) (826,515) (826,515)
Deficit accumulated during the development stage........................ (46,020) (2,324,098) (5,666,906) (5,666,906)
-------- ---------- ---------- ----------
Total stockholders' equity........................................ 110,179 2,596,923 4,791,157 $ 4,791,157
==========
-------- ---------- ----------
Total liabilities and stockholders' equity........................ $521,420 $2,776,477 $ 5,080,130
======== ========== ==========
</TABLE>
See accompanying notes.
F-3
<PAGE> 56
INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM PERIOD FROM
AUGUST 2, 1995 AUGUST 2, 1995 NINE MONTHS AUGUST 2, 1995
(INCEPTION) TO YEAR ENDED (INCEPTION) TO ENDED SEPTEMBER 30, (INCEPTION) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, ------------------------- SEPTEMBER 30,
1995 1996 1996 1996 1997 1997
--------------- ------------- ----------------- ----------- ----------- ---------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues................. $ -- $ -- $ -- $ -- $ 84,122 $ 84,122
Operating expenses:
Research and
development......... 32,632 1,420,483 1,453,115 966,519 1,300,712 2,753,827
Selling, general and
administrative...... 16,542 910,040 926,582 531,206 2,202,747 3,129,329
-------- ----------- ----------- ----------- ----------- -----------
Total operating
expenses............... 49,174 2,330,523 2,379,697 1,497,725 3,503,459 5,883,156
-------- ----------- ----------- ----------- ----------- -----------
Loss from operations..... (49,174) (2,330,523) (2,379,697) (1,497,725) (3,419,337) (5,799,034)
Interest income.......... 3,154 52,445 55,599 33,628 76,529 132,128
-------- ----------- ----------- ----------- ----------- -----------
Net loss................. $ (46,020) $ (2,278,078) $(2,324,098) $(1,464,097) $(3,342,808) $(5,666,906)
======== =========== =========== =========== =========== ===========
Pro forma net loss per
share.................. $ (.31) $ (.41)
=========== ===========
Shares used in computing
pro forma net loss per
share.................. 7,337,448 8,253,093
=========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 57
INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NOTES
RECEIVABLE
PREFERRED STOCK COMMON STOCK ADDITIONAL FROM
------------------ ------------------- PAID-IN COMMON
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCKHOLDERS
--------- ------ --------- ------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock at $.0004 per share to
founders for cash in August 1995................... -- $ -- 2,398,278 $2,398 $ (1,446) $ --
Issuance of Series A convertible preferred stock at
$1.00 per share for cash in August 1995, net of
issuance costs of $17,253.......................... 172,500 173 -- -- 155,074 --
Net loss............................................. -- -- -- -- -- --
--------- ------ --------- ------ ----------- --------
Balance at December 31, 1995........................... 172,500 173 2,398,278 2,398 153,628 --
Issuance of common stock at $.004 per share for cash
and notes receivable in January 1996............... -- -- 147,373 147 438 (70)
Issuance of Series B convertible preferred stock at
$1.27 per share for cash in February 1996, net of
issuance costs of $12,758.......................... 339,562 340 -- -- 418,146 --
Issuance of Series C convertible preferred stock at
$2.75 per share for cash in March 1996, net of
issuance costs of $21,067.......................... 296,147 296 -- -- 793,041 --
Issuance of common stock at $.002 per share to
founders for cash in March 1996.................... -- -- 886,758 887 873 --
Issuance of Series D convertible preferred stock at
$7.00 per share for cash in April 1996, net of
issuance costs of $18,931.......................... 96,429 96 -- -- 655,976 --
Issuance of common stock at $.024 per share for cash
and notes receivable in April 1996................. -- -- 444,639 445 10,145 (1,500)
Issuance of Series E convertible preferred stock at
$10.00 per share for cash from August through
December 1996, net of issuance costs of $28,659.... 289,500 290 -- -- 2,866,051 --
Issuance of common stock at $.04 per share for cash
and notes receivable in December 1996.............. -- -- 129,739 130 5,020 (4,000)
Deferred compensation................................ -- -- -- -- 421,273 --
Amortization of deferred compensation................ -- -- -- -- -- --
Net loss............................................. -- -- -- -- -- --
--------- ------ --------- ------ ----------- --------
Balance at December 31, 1996........................... 1,194,138 1,195 4,006,787 4,007 5,324,591 (5,570)
Issuance of Series E convertible preferred stock at
$10.00 per share for cash in January 1997, net of
issuance costs of $3,967 (unaudited)............... 13,500 13 -- -- 131,020 --
Issuance of Series E convertible preferred stock at
$10.00 per share for cash in February 1997, net of
issuance cost of $24,417 (unaudited)............... 97,000 97 -- -- 945,486 --
Issuance of Series F convertible preferred stock at
$6.00 per share for cash and conversion of advances
from stockholders in July and August 1997, net of
issuance costs of $10,179 (unaudited).............. 721,664 721 -- -- 4,319,084 --
Repayments of notes receivable from common
shareholders (unaudited)........................... -- -- -- -- -- 1,065
Exercise of stock options at $0.04 per share for cash
in July 1997 (unaudited)........................... -- -- 31,490 31 1,219 --
Repurchase of restricted stock at $0.024 per share
for cash and cancellation of note receivable in
September 1997 (unaudited)......................... -- -- (108,685) (109) (2,479) 1,388
Deferred compensation (unaudited).................... -- -- -- -- 562,819 --
Amortization of deferred compensation (unaudited).... -- -- -- -- -- --
Net loss (unaudited)................................. -- -- -- -- -- --
--------- ------ --------- ------ ----------- --------
Balance at September 30, 1997 (unaudited).............. 2,026,302 $2,026 3,929,592 $3,929 $11,281,740 $ (3,117)
========= ====== ========= ====== =========== ========
<CAPTION>
DEFICIT
ACCUMULATED
DURING THE TOTAL
DEFERRED DEVELOPMENT STOCKHOLDERS'
COMPENSATION STAGE EQUITY
------------ ------------ -------------
<S> <C> <C> <C>
Issuance of common stock at $.0004 per share to
founders for cash in August 1995................... $ -- $ -- $ 952
Issuance of Series A convertible preferred stock at
$1.00 per share for cash in August 1995, net of
issuance costs of $17,253.......................... -- -- 155,247
Net loss............................................. -- (46,020) (46,020)
---------- ----------- -----------
Balance at December 31, 1995........................... -- (46,020) 110,179
Issuance of common stock at $.004 per share for cash
and notes receivable in January 1996............... -- -- 515
Issuance of Series B convertible preferred stock at
$1.27 per share for cash in February 1996, net of
issuance costs of $12,758.......................... -- -- 418,486
Issuance of Series C convertible preferred stock at
$2.75 per share for cash in March 1996, net of
issuance costs of $21,067.......................... -- -- 793,337
Issuance of common stock at $.002 per share to
founders for cash in March 1996.................... -- -- 1,760
Issuance of Series D convertible preferred stock at
$7.00 per share for cash in April 1996, net of
issuance costs of $18,931.......................... -- -- 656,072
Issuance of common stock at $.024 per share for cash
and notes receivable in April 1996................. -- -- 9,090
Issuance of Series E convertible preferred stock at
$10.00 per share for cash from August through
December 1996, net of issuance costs of $28,659.... -- -- 2,866,341
Issuance of common stock at $.04 per share for cash
and notes receivable in December 1996.............. -- -- 1,150
Deferred compensation................................ (421,273) -- --
Amortization of deferred compensation................ 18,071 -- 18,071
Net loss............................................. -- (2,278,078) (2,278,078)
---------- ----------- -----------
Balance at December 31, 1996........................... (403,202) (2,324,098) 2,596,923
Issuance of Series E convertible preferred stock at
$10.00 per share for cash in January 1997, net of
issuance costs of $3,967 (unaudited)............... -- -- 131,033
Issuance of Series E convertible preferred stock at
$10.00 per share for cash in February 1997, net of
issuance cost of $24,417 (unaudited)............... -- -- 945,583
Issuance of Series F convertible preferred stock at
$6.00 per share for cash and conversion of advances
from stockholders in July and August 1997, net of
issuance costs of $10,179 (unaudited).............. -- -- 4,319,805
Repayments of notes receivable from common
shareholders (unaudited)........................... -- -- 1,065
Exercise of stock options at $0.04 per share for cash
in July 1997 (unaudited)........................... -- -- 1,250
Repurchase of restricted stock at $0.024 per share
for cash and cancellation of note receivable in
September 1997 (unaudited)......................... -- -- (1,200)
Deferred compensation (unaudited).................... (562,819) -- --
Amortization of deferred compensation (unaudited).... 139,506 -- 139,506
Net loss (unaudited)................................. -- (3,342,808) (3,342,808)
---------- ----------- -----------
Balance at September 30, 1997 (unaudited).............. $ (826,515) $(5,666,906) $ 4,791,157
========== =========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 58
INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 2, PERIOD FROM PERIOD FROM
1995 AUGUST 2, AUGUST 2,
(INCEPTION) 1995 NINE MONTHS ENDED 1995
TO YEAR ENDED (INCEPTION) TO SEPTEMBER 30, (INCEPTION) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, ------------------------- SEPTEMBER 30,
1995 1996 1996 1996 1997 1997
------------- ----------- -------------- ----------- ----------- --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss............................ $ (46,020) $(2,278,078) $ (2,324,098) $(1,464,097) $(3,342,808) $ (5,666,906)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Amortization of deferred
compensation.................... -- 18,071 18,071 10,260 139,506 157,577
Depreciation and amortization..... 678 59,305 59,983 35,641 117,771 177,754
Changes in operating assets and
liabilities:
Accounts receivable............. -- -- -- -- (50,582) (50,582)
Prepaid and other current
assets........................ -- (10,095) (10,095) (12,244) (829) (10,924)
Accounts payable................ -- 87,084 87,084 40,103 60,419 147,503
Accrued liabilities............. -- 65,970 65,970 81,854 52,712 118,682
-------- ----------- ----------- ---------- ----------- -----------
Net cash used in operating
activities........................ (45,342) (2,057,743) (2,103,085) (1,308,483) (3,023,811) (5,126,896)
INVESTING ACTIVITIES
Purchases of property and
equipment......................... (13,344) (298,925) (312,269) (230,199) (268,397) (580,666)
Other assets........................ -- (6,274) (6,274) -- 5 (6,269)
-------- ----------- ----------- ---------- ----------- -----------
Net cash used in investing
activities........................ (13,344) (305,199) (318,543) (230,199) (268,392) (586,935)
FINANCING ACTIVITIES
Payments on capital leases.......... -- -- -- -- (4,698) (4,698)
Issuance of common stock............ 952 12,515 13,467 11,365 1,250 14,717
Issuance of preferred stock......... 155,247 2,429,124 2,584,371 1,456,654 3,359,921 5,944,292
Advances from stockholders.......... 411,241 1,920,371 2,331,612 1,901,682 2,010,000 4,341,612
Repurchase of common stock.......... -- -- -- -- (1,200) (1,200)
Repayment of stockholder notes
receivable........................ -- -- -- -- 1,065 1,065
Deferred offering costs............. -- -- -- -- (223,869) (223,869)
-------- ----------- ----------- ---------- ----------- -----------
Net cash provided by financing
activities........................ 567,440 4,362,010 4,929,450 3,369,701 5,142,469 10,071,919
Net increase in cash and cash
equivalents....................... 508,754 1,999,068 2,507,822 1,831,019 1,850,266 4,358,088
Cash and cash equivalents at
beginning of period............... -- 508,754 -- 508,754 2,507,822 --
-------- ----------- ----------- ---------- ----------- -----------
Cash and cash equivalents at end of
period............................ $ 508,754 $ 2,507,822 $ 2,507,822 $ 2,339,773 $ 4,358,088 $ 4,358,088
======== =========== =========== ========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING
ACTIVITIES:
Capital lease obligations entered
into for equipment.............. $ -- $ -- $ -- $ -- $ 27,486 $ 27,486
======== =========== =========== ========== =========== ===========
Conversion of advances from
stockholders to convertible
preferred stock................. $ -- $ 2,305,112 $ 2,305,112 $ 1,956,241 $ 2,036,500 $ 4,341,612
======== =========== =========== ========== =========== ===========
Issuance of common stock in
exchange for notes receivable... $ -- $ 5,570 $ 5,570 $ 1,570 $ -- $ 5,570
======== =========== =========== ========== =========== ===========
Cancellation of stockholder notes
receivable...................... $ -- $ -- $ -- $ -- $ 1,388 $ 1,388
======== =========== =========== ========== =========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 59
INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1996 AND 1997 IS UNAUDITED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
InterVU Inc. (the "Company") was incorporated in Delaware on August 2, 1995
to develop and market proprietary technologies and systems for delivering video
on the internet. The Company utilizes a proprietary operating system for routing
and distributing high quality video over the Internet at high speeds. The
Company has commenced planned principal operations, however, as there has been
no significant revenue therefrom, the Company is considered to be in the
development stage.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. This basis of accounting contemplates
the recovery of the Company's assets and the satisfaction of its liabilities in
the normal course of business. Since inception, the Company has been engaged in
organizational activities, including recruiting personnel, establishing office
facilities, research and development and obtaining financing. Through September
30, 1997, the Company had incurred accumulated losses of $5,666,906. Successful
completion of the Company's development program and its transition to attaining
profitable operations is dependent upon obtaining financing adequate to fulfill
its research, development and market introduction activities, and achieving a
level of revenues adequate to support the Company's cost structure. Management
believes that the funds necessary to meets its capital requirements for the next
twelve months will be raised either from the offering contemplated by this
Prospectus or by private equity or debt financing. Without the additional
financing, the Company will be required to delay, reduce the scope of or
eliminate one or more of its research and development projects or market
introduction activities and significantly reduce its expenditures on
infrastructure and product upgrade programs that enhance the InterVU network
architecture.
INTERIM FINANCIAL DATA
The financial statements for the nine months ended September 30, 1996 and
1997 and for the period from August 2, 1995 (Inception) to September 30, 1997
are unaudited. The unaudited financial statements have been prepared on the same
basis as the audited financial statements and, in the opinion of management,
include all adjustments, consisting only of normal recurring adjustments,
necessary to state fairly the financial information set forth therein, in
accordance with generally accepted accounting principles.
The results of operations for the interim period ended September 30, 1997
are not necessarily indicative of the results which may be reported for any
other interim period or for the year ended December 31, 1997.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash, money market funds, and other
highly liquid investments with maturities of three months or less when
purchased. The carrying value of these instruments approximates fair value. Such
investments are made in accordance with the Company's investment policy, which
establishes guidelines relative to diversification and maturities designed to
maintain safety and liquidity. The Company has not experienced any losses on its
cash and cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, net of accumulated depreciation
and depreciated over the estimated useful lives of the assets, ranging from
three to five years, using the straight-line method. Leasehold improvements are
stated at cost and amortized using the straight-line method over the shorter of
the estimated
F-7
<PAGE> 60
INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1996 AND 1997 IS UNAUDITED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
useful lives of the assets or the lease term. Amortization of equipment under
capital leases is reported with depreciation of property and equipment.
SOFTWARE DEVELOPMENT COSTS
Financial accounting standards provide for the capitalization of certain
software development costs after technological feasibility of the software is
attained. No such costs have been capitalized to date because costs incurred
subsequent to reaching technological feasibility have not been material.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
disclosures made in the accompanying notes to the financial statements. Actual
results could differ from those estimates.
REVENUE RECOGNITION
Revenue is generated primarily from video encoding and distribution
services. Revenue from video encoding services is recognized as the service is
provided and revenue from video distribution services is recognized at the time
of delivery.
CONCENTRATION OF CREDIT RISK
Credit is extended based on an evaluation of the customer's financial
condition and collateral is generally not required. Credit losses have been
minimal and such losses have been within management's expectations.
RESEARCH AND DEVELOPMENT COSTS
Costs incurred in connection with research and development are charged to
operations as incurred.
IMPAIRMENT OF LONG-LIVED ASSETS
In 1996, the Company adopted Statement of Financial Accounting Standard
(SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of, which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. SFAS No. 121 also addresses
the accounting for long-lived assets that are expected to be disposed of. The
adoption had no impact on the Company's financial statements.
STOCK OPTIONS
In 1996, the Company adopted SFAS No. 123, Accounting for Stock-Based
Compensation, which establishes the use of the fair value based method of
accounting for stock-based compensation arrangements, under which compensation
cost is determined using the fair value of stock-based compensation determined
as of the grant date, and is recognized over the periods in which the related
services are rendered. SFAS No. 123 also permits companies to elect to continue
using the current intrinsic value accounting method specified in Accounting
Principles Board (APB) Opinion No. 25 to account for stock-based compensation.
The Company
F-8
<PAGE> 61
INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1996 AND 1997 IS UNAUDITED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
has decided to retain the current intrinsic value based method, and has
disclosed the pro forma effect of using the fair value based method to account
for its stock-based compensation (Note 4).
PRO FORMA NET LOSS PER SHARE
The Company's pro forma net loss per share calculations are based upon the
weighted average number of shares of common stock outstanding. Pursuant to the
requirements of the Securities and Exchange Commission Staff Accounting Bulletin
No. 83, convertible preferred stock, common stock, and options to purchase
common stock issued at prices below the estimated initial public offering price
during the twelve months immediately preceding the contemplated initial filing
of the registration statement relating to the initial public offering ("IPO"),
have been included in the computation of net loss per share as if they were
outstanding for all periods presented (using the treasury method assuming
repurchase of common stock at the estimated IPO price). The pro forma
calculation also gives effect to the conversion of convertible preferred shares
not included above that will automatically convert upon completion of the
Company's IPO (using the if-converted method) from the original date of
issuance. Other shares issuable upon the exercise of stock options have been
excluded from the computation because the effect of their inclusion would be
antidilutive. Subsequent to the Company's IPO, options under the treasury stock
method will be included to the extent they are dilutive. Net loss per share
prior to 1996 has not been presented since such amounts are not deemed
meaningful due to the significant change in the Company's capital structure that
will occur in connection with the IPO.
PRO FORMA STOCKHOLDERS' EQUITY
If the offering contemplated by this Prospectus is consummated, all of the
Series A through Series F convertible preferred stock outstanding will
automatically be converted into 3,237,278 shares of common stock, based on the
shares of Series A through Series F convertible preferred stock outstanding as
of September 30, 1997 and assuming no antidilution adjustments are necessary.
The Series G convertible preferred stock will remain outstanding following the
offering and does not become convertible until July 10, 1998. Pro forma
stockholders' equity at September 30, 1997, as adjusted for the conversion of
the Series A through Series F convertible preferred stock and the issuance of
1,280,000 shares of Series G convertible preferred stock to NBC, is disclosed on
the balance sheet.
NEW ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, Earnings per Share, which is required to be adopted on December 31, 1997.
At that time, the Company will be required to change the method currently used
to compute earnings per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect of
stock options will be excluded. Application of the statement is expected to have
no impact on primary or fully diluted loss per share for the nine months ended
September 30, 1997.
F-9
<PAGE> 62
INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1996 AND 1997 IS UNAUDITED)
2. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ SEPTEMBER 30,
1995 1996 1997
------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Computers...................................... $13,344 $228,729 $ 417,907
Furniture and fixtures......................... -- 61,676 112,769
Equipment under capital lease.................. -- -- 27,486
Leasehold improvements......................... -- 11,936 24,172
Purchased software............................. -- 9,928 25,818
------- -------- ---------
13,344 312,269 608,152
Less accumulated depreciation.................. (678) (59,983) (177,754)
------- -------- ---------
$12,666 $252,286 $ 430,398
======= ======== =========
</TABLE>
3. STOCKHOLDER ADVANCES
At December 31, 1995, the Company received $411,241 in cash advances from
certain stockholders that was subsequently converted to Series B convertible
preferred stock in February 1996 at a per share price of $1.27. At December 31,
1996, the Company received $26,500 in cash advances from certain stockholders
that was subsequently converted into Series E convertible preferred stock in
January 1997 at a per share price of $10.00.
4. STOCKHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK
A summary of convertible preferred stock at September 30, 1997 is as
follows:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
PREFERENCE COMMON
SHARES SHARES ISSUED IN STOCK ISSUABLE PER SHARE
SERIES AUTHORIZED AND OUTSTANDING LIQUIDATION UPON CONVERSION DIVIDEND RATE
---------------- ---------- --------------- ---------- --------------- -------------
<S> <C> <C> <C> <C> <C>
A............... 250,000 172,500 $ 172,500 434,562 $ .08
B............... 400,000 339,562 431,243 855,421 .10
C............... 400,000 296,147 814,404 746,048 .22
D............... 200,000 96,429 675,003 242,922 .56
E............... 400,000 400,000 4,000,000 503,825 .80
F............... 1,200,000 721,664 4,329,984 454,500 .48
</TABLE>
Series A through Series F of the convertible preferred shares convert, at
the option of the holder, into common shares at a rate determined by dividing
the original issue price by the conversion price. The conversion price is
subject to adjustment for antidilution. The Series A through Series F
convertible preferred shares automatically convert to common shares on the
closing of an underwritten public offering of common stock under the Securities
Act of 1933 in which the Company receives at least $7,500,000 in gross proceeds.
In the event of a liquidation of the Company, the holders of convertible
preferred stock are entitled to a liquidation preference equal to the sum of (i)
the original issue price for each share of convertible preferred
F-10
<PAGE> 63
INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1996 AND 1997 IS UNAUDITED)
4. STOCKHOLDERS' EQUITY (CONTINUED)
stock, and (ii) an amount equal to all declared but unpaid dividends on each
such share. If upon the occurrence of such event, the assets and funds thus
distributed among the holders of the convertible preferred stock are
insufficient to permit the payment to such holders of the full aforesaid
preferential amounts, the entire assets and funds of the corporation legally
available for distribution must be distributed ratably among the holders of the
convertible preferred stock in proportion to the aggregate liquidation
preferences of the respective shares, and ratably among the holders of that
series in proportion to the amount of such stock owned by each such holder. Any
remaining assets of the Company are to be distributed to the common
stockholders.
The holders of convertible preferred stock are entitled to receive annual
noncumulative dividends, when, as and if declared by the Board of Directors,
prior to and in preference to stockholders of common stock. As of September 30,
1997, no cash dividends had been declared.
COMMON STOCK
In August 1995, 2,398,278 shares of common stock were issued to the
founders of the Company at a price of $.0004 per share under founder stock
purchase agreements. In March 1996, an additional 886,758 shares of common stock
were issued to three of the founders at a price of $.002 per share under the
founder stock purchase agreements. In January 1996, the Company issued 147,373
shares of common stock to employees at $.004 per share under restricted stock
agreements. Also, in April and December 1996, the Company issued 444,639 and
129,739 shares of common stock, respectively, to employees at $.024 and $.04 per
share, respectively, under restricted stock agreements. In connection with the
founder stock purchase agreements and the restricted stock agreements, the
Company has the option to repurchase, at the original issue price, unvested
common shares in the event of termination of employment. Shares issued under the
agreements generally vest 20% on the first anniversary of the employee's hire
date and daily thereafter for four years. At September 30, 1997, 2,536,814
shares were subject to repurchase by the Company.
In April 1996, the Board of Directors declared a two-for-one stock dividend
of the Company's common stock, effectuated as a stock split. Also, on July 16,
1997, the Company declared a two-for-one stock split of the Company's common
stock. All applicable share and stock option information have been restated to
reflect the split.
STOCK OPTIONS
The Company has established a stock option plan to grant options to
purchase common stock to consultants, employees, officers and directors of the
Company. The Company has authorized for grant under the plan stock options to
purchase up to 1,889,400 shares of its common stock.
Under the terms of the plan, non-qualified and incentive options may be
granted to consultants, employees, officers and directors at prices not less
than 100% of the fair value on the date of grant. Options generally vest 20%
after the first year of employment and daily thereafter for four years. The
options expire ten years from the date of grant.
F-11
<PAGE> 64
INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1996 AND 1997 IS UNAUDITED)
4. STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes the stock option activity for the period
from August 2, 1995 (Inception) to September 30, 1997:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
--------- ---------
<S> <C> <C>
Granted.............................................................. 156,820 $0.04
-------- ------
Balance at December 31, 1996........................................... 156,820 0.04
Granted.............................................................. 684,089 3.34
Exercised............................................................ (31,490) 0.04
Canceled............................................................. (88,172) 0.04
-------- ------
Balance at September 30, 1997.......................................... 721,247 $3.17
======== ======
</TABLE>
As of September 30, 1997, options for 21,090 common shares were
exercisable. The weighted average remaining contractual life of outstanding
options was approximately 9.5 years at September 30, 1997.
Pro forma information regarding net income or loss is required to be
disclosed in accordance with SFAS No. 123, and has been determined as if the
Company has accounted for its employee stock options under the fair value method
prescribed in that Statement. The fair value of these options was estimated at
the date of grant using the minimal value pricing model with the following
weighted average assumptions for 1995 and 1996: risk free interest rate of 6.0%;
dividend yield of 0%; and a weighted-average option life of 7 years.
The minimum value pricing model is similar to the Black-Scholes option
valuation model which was developed for use in estimating the fair value of
traded options which have no vesting restrictions and are fully transferable,
except that it excludes the factor for volatility. In addition, option valuation
models require the input of highly speculative assumptions.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting period of the related options.
The Company's pro forma net loss was $46,020 for the period from August 2, 1995
(Inception) to December 31, 1995, $2,278,002 for the year ended December 31,
1996, $2,324,022 for the period from August 2, 1995 (Inception) to December 31,
1996.
DEFERRED COMPENSATION
Through September 30, 1997, the Company recorded deferred compensation for
the difference between the price per share of restricted stock issued or the
exercise price of stock options granted and the deemed fair value for financial
statement presentation purposes of the Company's common stock at the date of
issuance or grant. The deferred compensation will be amortized over the vesting
period of the related restricted stock or options, which is generally five
years. Gross deferred compensation at December 31, 1996 and September 30, 1997
totaled $421,273 and $984,092, respectively, and related amortization expense
totaled $18,071 and $139,506 in 1996 and 1997, respectively, and $157,577 for
the period from August 2, 1995 (Inception) to September 30, 1997.
F-12
<PAGE> 65
INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1996 AND 1997 IS UNAUDITED)
4. STOCKHOLDERS' EQUITY (CONTINUED)
SHARES RESERVED FOR FUTURE ISSUANCE
At September 30, 1997, the Company had reserved approximately 5.1 million
common shares for the conversion of preferred stock, the exercise of stock
options and for stock options available for future grant.
5. COMMITMENTS
The Company leases its principal facilities under two noncancelable
operating leases which expire in 1999 with options to renew the leases for up to
two years. Total rent expense was $47,648 for the year ended December 31, 1996,
$20,722 and $93,209 for the nine months ended September 30, 1996 and 1997,
respectively, and $140,857 for the period from August 2, 1995 (Inception) to
September 30, 1997.
Future annual minimum payments under noncancelable capital and operating
leases (with initial lease terms in excess of one year) consisted of the
following at September 30, 1997:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- --------
<S> <C> <C>
1997 (three months)...................................... $ 18,193 $ 5,965
1998..................................................... 120,870 13,790
1999..................................................... 36,190 8,353
-------- --------
Total minimum lease payments............................. $ 175,253 28,108
========
Less amounts representing interest....................... (5,320)
--------
Present value of future minimum lease payments........... 22,788
Less current portion..................................... (11,814)
--------
Capital lease obligation, net of current portion......... $ 10,974
========
</TABLE>
6. INCOME TAXES
Significant components of the Company's deferred tax assets as of December
31, 1996 are shown below. A valuation allowance of $1,008,000 has been recorded
at December 31, 1996 to offset the net deferred tax assets as realization is
uncertain.
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1996
-------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................... $ 17,000 $ 920,000
Research tax credit carryforwards.................. 400 71,000
Other.............................................. 1,000 17,000
-------- -----------
Total deferred tax assets............................ 18,400 1,008,000
Valuation allowance.................................. (18,400) (1,008,000)
-------- -----------
Net deferred tax assets.............................. $ -- $ --
======== ===========
</TABLE>
The Company had federal and California tax net operating loss carryforwards
at December 31, 1996 of approximately $2.3 million. The federal and California
tax loss carryforwards will begin to expire in 2010 and 2003, respectively,
unless previously utilized. The Company also has federal and California research
tax credit
F-13
<PAGE> 66
INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1996 AND 1997 IS UNAUDITED)
6. INCOME TAXES (CONTINUED)
carryforwards of approximately $47,000 and $38,000, respectively, which will
begin to expire in 2010 unless previously utilized.
Pursuant to Internal Revenue Service Code Sections 382 and 383, use of the
Company's net operating loss carryforwards may be limited because of a
cumulative change in ownership of more than 50% which occurred during 1996.
However, the Company does not believe such limitations will have a material
impact on the Company's ability to use these carryforwards.
7. EMPLOYEE BENEFITS
In 1996, the Company established a cafeteria benefits plan whereby it
contributes for each employee an amount equal to $3,000 plus a percentage of
each employee's base salary, as approved by the Board of Directors, up to a
maximum contribution of $9,000. The employer contribution goes towards the
purchase of various benefit packages selected by the employee. The employee may
contribute additional amounts as desired. Benefit packages include health care
reimbursement, dependent care assistance, various insurance premium payments and
a 401(k) plan. Company contributions to the cafeteria benefits plan were
$101,832 for the year ended December 31, 1996, $63,258 and $154,692 for the nine
months ended September 30, 1996 and 1997, respectively, and $256,524 for the
period from August 2, 1995 (Inception) to September 30, 1997.
8. RECENT EVENTS
In August 1997, the Board of Directors authorized management of the Company
to file a registration statement with the SEC permitting the Company to sell
shares of its common stock to the public. If the initial public offering is
closed under the terms presently anticipated, all of the preferred stock
outstanding, excluding 1,280,000 shares of Series G convertible preferred stock,
will automatically convert into 3,237,278 shares of common stock.
Subject to Board of Directors and stockholder approval, the Company shall
effect a reverse stock split prior to the closing of the initial public
offering, in which .6298 shares of common stock are exchanged for one share of
common stock. All applicable share and stock option information have been
restated to reflect the split. Additionally, subject to the closing of the
public offering and Board of Directors and stockholder approval, the Company
will modify its capital structure to authorize 20,000,000 shares of common stock
($.001 par value) and 5,000,000 shares of preferred stock ($.001 par value).
Thereafter, the Board of Directors will be authorized, without further
stockholder approval, to issue up to 3,720,000 shares of preferred stock in one
or more series and to fix the rights, preferences, privileges and restrictions
granted or imposed upon any unissued shares of preferred stock and to fix the
number of shares constituting any series and the designations of such series.
On October 10, 1997, the Company entered into a strategic alliance with NBC
Multimedia, Inc. ("NBC Multimedia"), a wholly-owned subsidiary of the National
Broadcast Corporation, Inc. ("NBC") whereby the Company will become the
exclusive provider of technology and services for the distribution of most NBC
entertainment audio/visual content by means of the Internet. As consideration
for the formation of the strategic alliance, the Company issued to NBC 1,280,000
shares of Series G convertible preferred stock. The Series G convertible
preferred stock ($.001 par value) has an aggregate liquidation preference of
$10,240,000, a dividend rate of $.64 per share and a conversion rate of .6298
common share to one preferred share, subject to adjustment for dilution. The
Series G Convertible Preferred Stock is convertible at the option of the holder
commencing on July 10, 1998. The Company will be entitled to receive 30% of
certain advertising revenues
F-14
<PAGE> 67
INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1996 AND 1997 IS UNAUDITED)
8. RECENT EVENTS (CONTINUED)
generated under this alliance from NBC websites or, at a minimum, payments from
NBC Multimedia for the video delivery services at rates at least as favorable as
the most favorable rates offered by the Company to third parties. The Company is
obligated to make $2,000,000 in non-refundable payments to NBC Multimedia for
certain production, operating and advertising costs associated with certain NBC
websites including payments of (i) $750,000 due on the completion of the initial
public offering contemplated by this prospectus, (ii) $500,000 due at the end of
the first calendar quarter following the initial public offering, (iii) $500,000
due at the end of the second calendar quarter following the initial public
offering, and (iv) $250,000 due at the end of the third calendar quarter
following the initial public offering.
NBC Multimedia may terminate the agreement without cause by giving 90 days
written notice and, following the completion of the offering contemplated by the
prospectus, is required to return (i) all shares of Series G convertible
preferred stock if termination occurs prior to January 10, 1998 and NBC
Multimedia has not promoted, at a minimum, the Company's logo on the NBC Web
site or (ii) 600,000 shares of Series G convertible preferred stock if the
termination occurs at any other time during the first two years of the exclusive
term. The Company will determine the fair value of the Series G convertible
preferred stock issued to NBC on the dates the requirements that NBC return some
or all of the shares of Series G convertible preferred stock lapse. Based on
these provisions, the Company currently expects to charge the then fair value of
680,000 shares of Series G convertible preferred stock to expense in the quarter
ending March 31, 1998 and the then fair value of the remaining 600,000 shares of
Series G convertible preferred stock to expense in the quarter ending December
31, 1999. Should the Company renegotiate or waive these provisions, removing
NBC's obligation to return shares of Series G convertible preferred stock, the
Company would expense the fair value of each share at that time. The Company
believes that the fair value of the shares of Series G convertible preferred
stock will roughly approximate the price at which the stock is then trading,
multiplied by the .6298 conversion ratio applicable to the Series G convertible
preferred stock. These noncash charges are likely to be substantial and are
likely to have a material adverse impact on the Company's results of operations
in the periods such expenses are recognized.
F-15
<PAGE> 68
[INTERVU LOGO]
Two video banner advertisements are depicted. The first advertisement is a
rectangle approximately one inch high and four inches wide containing the words
"Volvo V70 and Cross Country"; "Click here for video"; and "V-Banner Delivered,
the InterVU Network." At the far right of the rectangle is a one inch by one
inch picture of a car. The second advertisement also is a one inch by four inch
rectangle that contains the words "Goldwin Golf"; "AVDP System: The Story Behind
the Technology"; and "Click Here to Play Through." At the far right of the
rectangle is a picture of the head of a golf club.
<TABLE>
<S> <C>
V-Banner(TM) InterVU's V-Banner video advertising banners, which integrate real time
Client Videos audio and video into traditional ad banners, are delivered automatically to
Free Software end-users with video player capability. V-Banners offer advertisers access
to end-users through use of InterVU's All Eyes service. All Eyes identifies
each end-user's player software and delivers the video portion of the
V-Banner in the compatible encoding format.
</TABLE>
[EYEQ LOGO]
The Company's "Fast Track Analyzer" is depicted. The graphic shows a
rectangular computer "window." On the left is a circle, inside of which is a
top-down view of the globe with sweeping radii and four points on the globe
numbered one through four. The right-hand portion of the graphic contains the
InterVU logo; alphabetical and numerical references numbered one through four;
and buttons labelled "Stop", "Settings", "Help" and "Exit." Also included are
the words "Mapping InterVU Network delivery centers"; "Please Wait"; "Video
Delivery Center Status"; "Faster"; "Emulated"; and "Inactive."
<TABLE>
<S> <C>
V-Banner(TM) InterVU's EyeQ multimedia software package, made available to InterVU
Client Videos end-users at no charge, includes InterVU's InstaVU and MPEG video players,
Free Software a software utility called Get Smart and InterVU's Fast Track Analyzer.
InstaVU allows multimedia streaming on a 28.8 Kbps or faster modem. Get
Smart installs and manages the EyeQ multimedia software and keeps
end-users' computers current with other multimedia capabilities to take
advantage of InterVU's service. The Fast Track Analyzer, pictured here,
"polls" selected servers on the InterVU Network to determine which server
will provide the end- user with the best overall video performance.
</TABLE>
<PAGE> 69
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THE OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary......................... 3
Risk Factors............................... 7
Use of Proceeds............................ 18
Dividend Policy............................ 18
Dilution................................... 19
Capitalization............................. 20
Selected Financial Data.................... 21
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 22
Business................................... 26
Management................................. 36
Certain Transactions....................... 41
Principal Stockholders..................... 43
Description of Capital Stock............... 45
Shares Eligible for Future Sale............ 48
Underwriting............................... 49
Direct Offering............................ 50
Legal Matters.............................. 51
Experts.................................... 51
Available Information...................... 51
Index to Financial Statements.............. F-1
</TABLE>
------------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF
THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
======================================================
======================================================
2,000,000 SHARES
LOGO
INTERVU INC.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
JOSEPHTHAL LYON & ROSS
CRUTTENDEN ROTH
INCORPORATED
, 1997
======================================================
<PAGE> 70
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is an itemized statement of expenses incurred in connection
with this Registration Statement. All such expenses will be paid by the Company.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............... $ 8,557
NASD filing fee................................................... 3,030
Nasdaq National Market listing fee................................ 46,000
Non-accountable expense allowance................................. 200,000
Legal fees and expenses........................................... 250,000
Accounting fees and expenses...................................... 153,000
Printing and engraving expenses................................... 125,000
Blue Sky fees and expenses........................................ 30,000
Transfer agent and registrar fees................................. 5,000
Miscellaneous..................................................... 29,413
--------
TOTAL........................................................... $850,000
========
</TABLE>
- ---------------
All of the above items are estimates, except the Securities and Exchange
Commission registration fee and the NASD filing fee.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 145 of the Delaware General Corporation Law, the Company has
broad powers to indemnify its directors and officers against liabilities they
may incur in such capacities, including liabilities under the Securities Act.
The Company's Restated Certificate and Bylaws provide that the Company will
indemnify its directors and officers to the fullest extent permitted by Delaware
law. Delaware law permits, but does not require, a corporation to indemnify
officers, directors, employees or agents and expressly provides that the
indemnification provided for under Delaware law shall not be deemed exclusive of
any indemnification right under any bylaw, vote of stockholders or disinterested
directors, or otherwise. Delaware law permits indemnification against expenses
and certain other liabilities arising out of legal actions brought or threatened
against such persons for their conduct on behalf of the Company, provided that
each such person acted in good faith and in a manner that he or she reasonably
believed was in or not opposed to the Company's best interests and in the case
of a criminal proceeding, had no reasonable cause to believe his or her conduct
was unlawful. Delaware law does not allow indemnification of directors in the
case of an action by or in the right of the Company (including stockholder
derivative suits) unless the directors successfully defend the action or
indemnification is ordered by the court.
The Company is a party to indemnification agreements with each of its
directors and officers. In addition, the form of Underwriting Agreement filed as
Exhibit 1.1 hereto provides for the indemnification of the Company and its
directors and officers against certain liabilities, including liabilities under
the Securities Act.
The Company, with the approval of its Board of Directors, has applied for,
and expects to obtain, directors' and officers' liability insurance.
II-1
<PAGE> 71
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
1. Upon incorporation of the Company on August 2, 1995, the Company sold
an aggregate of 2,398,278 shares of Common Stock for total consideration of $952
to the initial stockholders of the Company as follows: 705,387 shares to Harry
E. Gruber, 705,387 shares to Brian Kenner, 597,555 shares to a predecessor of
the Westchester Group LLC, 216,609 shares to Ruth Hargis and 176,340 shares to
the A. B. Gruber Living Trust (the "Initial Stockholders"). Each of the Initial
Stockholders was an accredited individual investor.
2. On August 30, 1995, the company sold 172,500 shares of Series A
Convertible Preferred Stock at $1 per share to various accredited individual
investors for total consideration of $172,500.
3. On February 4, 1996, the Company sold an aggregate of 339,562 shares of
Series B Convertible Preferred Stock at $1.27 per share to various accredited
individual investors for a total consideration of $431,244.
4. On March 5, 1996, the Company sold an aggregate of 886,735 shares of
Common Stock to certain of the Initial Stockholders, including 302,296 to each
of Harry Gruber and Mr. Kenner and 282,166 shares to the predecessor of the
Westchester Group LLC, for aggregate proceeds of $1,760.
5. On March 7, 1996, the Company sold 296,147 shares of Series C
Convertible Preferred Stock at $2.75 per share to various accredited individual
investors for a total consideration of $814,404.
6. On April 17, 1996, the Company sold 96,429 shares of Series D
Convertible Preferred Stock at $7 per share to various accredited individual
investors for a total consideration of $675,003.
7. On August 9, 1996, the Company sold 154,500 shares of Series E
Convertible Preferred Stock at $10 per share to various accredited individual
investors for a total consideration of $1,545,000.
8. On November 14, 1996, the Company sold 154,500 additional shares of
Series E Convertible Preferred Stock at $10 per share to various accredited
individual investors for a total consideration of $1,545,000.
9. On December 4, 1996, the Company sold an additional 20,500 shares of
Series E Convertible Preferred Stock at $10 per share to various accredited
individual investors for a total consideration of $205,000.
10. On January 24, 1997, the Company sold an additional 13,500 shares of
Series E Convertible Preferred Stock at $10 per share to various accredited
individual investors for a total consideration of $135,000.
11. On February 4, 1997, the Company sold an additional 49,650 shares of
Series E Convertible Preferred Stock at $10 per share to various accredited
individual investors for a total consideration of $496,500.
12. On February 27, 1997, the Company sold an additional 47,350 shares of
Series E Convertible Preferred Stock at $10 per share to various accredited
individual investors for a total consideration of $473,500.
13. On July 16, 1997, the Company sold an additional 677,498 shares of
Series F Convertible Preferred Stock at $6 per share to various accredited
individual investors for a total consideration of $4,064,988.
14. On August 8, 1997, the Company sold an additional 44,166 shares of
Series F Convertible Preferred Stock at $6 per share to various accredited
individual investors for a total consideration of $264,996.
15. In October 1997, the Company issued 1,280,000 shares of Series G
Convertible Preferred Stock to NBC, an accredited institutional investor, for
consideration consisting of NBC Multimedia's making the Company the exclusive
provider of technology and services for the distribution of NBC's entertainment
audio/visual content by means of the Internet.
Underwriters were not retained in connection with the sale of any of the
Company's currently outstanding securities. All sales were made in private
placements to employees or directors of the Company or to
II-2
<PAGE> 72
accredited individual investors or accredited institutional investors. The
Company relied upon an exemption from registration under Section 4(2) of the
Securities Act in connection with each of these transactions.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION OF EXHIBIT
- ------- ----------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.(2)
1.2 Form of Stock Purchase Agreement for Direct Offering.(2)
3.1 Restated Certificate of Incorporation and all amendments thereto.(1)
3.2 Certificate of Designation for Series G Convertible Preferred Stock.(1)
3.3 Form of Amended and Restated Certificate of Incorporation.(1)
3.4 Form of Amended and Restated Bylaws.(1)
4.1 Form of Common Stock Certificate.(3)
4.2 Form of Representatives' Warrant Agreement including form of Representatives'
Warrants.(2)
5.1 Opinion of Latham & Watkins.(2)
10.1 1996 Stock Plan of InterVU Inc.(1)
10.2 Form of Indemnification Agreement.(1)
10.3 Form of Restricted Stock Purchase Agreement.(1)
10.4 Form of Amended and Restated Vesting Agreement between the Company and Harry
Gruber.(1)
10.5 Form of Amended and Restated Vesting Agreement between the Company and Brian
Kenner.(1)
10.6 Strategic Alliance Agreement dated as of October 10, 1997 between the Company and
NBC Multimedia, Inc.(1)
10.7 Preferred Stock Purchase Agreement dated as of October 10, 1997 among the Company,
National Broadcasting Company, Inc. and NBC Multimedia, Inc.(1)
11.1 Statement re: computation of per share losses.(1)
23.1 Consent of Ernst & Young LLP, Independent Auditors.(2)
23.2 Consent of Latham & Watkins (to be contained in Exhibit 5.1).(2)
24.1 Power of Attorney (contained on signature page).
27.1 Financial Data Schedule.(1)
</TABLE>
- ---------------
(1) Previously filed.
(2) Filed herewith.
(3)Incorporated by reference to Exhibit 4.1 to the Company's Registration
Statement on Form 8-A filed with the Commission on November 12, 1997.
(b) Financial Statement Schedules.
All required information is set forth in the financial statements included
in the Prospectus constituting part of this Registration Statement.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public
II-3
<PAGE> 73
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the Offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 74
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 3 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of San
Diego, State of California, on November 18, 1997.
InterVU Inc.
By: /s/ HARRY E. GRUBER
------------------------------------
Harry E. Gruber
Chairman, Chief Executive Officer
and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------- ---------------------------------- ------------------
<C> <S> <C>
/s/ HARRY E. GRUBER Chairman of the Board, Chief November 18, 1997
- ---------------------------------- Executive Officer and Chief
Harry E. Gruber Financial Officer (Principal
Executive Officer, Principal
Financial Officer and Principal
Accounting Officer)
/s/ EDWARD DAVID* Director November 18, 1997
- ----------------------------------
Edward David
/s/ MARK DOWLEY* Director November 18, 1997
- ----------------------------------
Mark Dowley
/s/ ALAN Z. SENTER* Director November 18, 1997
- ----------------------------------
Alan Z. Senter
/s/ J. WILLIAM GRIMES* Vice Chairman November 18, 1997
- ----------------------------------
J. William Grimes
/s/ ISAAC WILLIS* Director November 18, 1997
- ----------------------------------
Isaac Willis
</TABLE>
*By: /s/ HARRY E. GRUBER
----------------------
Harry E. Gruber
Attorney-in-fact
II-5
<PAGE> 75
EXHIBIT INDEX
The following exhibits are filed as part of this Form S-1 Registration
Statement.
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION OF EXHIBIT
- ------- ----------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.(2)
1.2 Form of Stock Purchase Agreement for Direct Offering.(2)
3.1 Restated Certificate of Incorporation and all amendments thereto.(1)
3.2 Certificate of Designation for Series G Convertible Preferred Stock.(1)
3.3 Form of Amended and Restated Certificate of Incorporation.(1)
3.4 Form of Amended and Restated Bylaws.(1)
4.1 Form of Common Stock Certificate.(3)
4.2 Form of Representatives' Warrant Agreement including form of Representatives'
Warrants.(2)
5.1 Opinion of Latham & Watkins.(2)
10.1 1996 Stock Plan of InterVU Inc.(1)
10.2 Form of Indemnification Agreement.(1)
10.3 Form of Restricted Stock Purchase Agreement.(1)
10.4 Form of Amended and Restated Vesting Agreement between the Company and Harry
Gruber.(1)
10.5 Form of Amended and Restated Vesting Agreement between the Company and Brian
Kenner.(1)
10.6 Strategic Alliance Agreement dated as of October 10, 1997 between the Company and
NBC Multimedia, Inc.(1)
10.7 Preferred Stock Purchase Agreement dated as of October 10, 1997 among the Company,
National Broadcasting Company, Inc. and NBC Multimedia, Inc.(1)
11.1 Statement re: computation of per share losses.(1)
23.1 Consent of Ernst & Young LLP, Independent Auditors.(2)
23.2 Consent of Latham & Watkins (to be contained in Exhibit 5.1).(2)
24.1 Power of Attorney.(1)
27.1 Financial Data Schedule.(1)
</TABLE>
- ---------------
(1) Previously filed.
(2) Filed herewith.
(3)Incorporated by reference to Exhibit 4.1 to the Company's Registration
Statement on Form 8-A filed with the Commission on November 12, 1997.
<PAGE> 1
EXHIBIT 1.1
DRAFT 11/17/97
[Form of Underwriting Agreement - Subject to Additional Review]
2,000,000 SHARES OF COMMON STOCK
INTERVU INC.
UNDERWRITING AGREEMENT
November , 1997
JOSEPHTHAL LYON & ROSS INCORPORATED
CRUTTENDEN ROTH INCORPORATED
As Representatives of the
Several Underwriters listed on Schedule A hereto
c/o Josephthal Lyon & Ross Incorporated
200 Park Avenue, 25th Floor
New York, New York 10166
Ladies and Gentlemen:
InterVU Inc., a Delaware corporation (the "Company"), confirms its
agreement with Josephthal Lyon & Ross Incorporated ("Josephthal") and each of
the underwriters named in Schedule A hereto (collectively, the "Underwriters,"
which term shall also include any underwriter substituted as hereinafter
provided in Section 11), for whom Josephthal and Cruttenden Roth Incorporated
("Cruttenden") are acting as representatives (in such capacity, Josephthal and
Cruttenden shall hereinafter be referred to as "you" or the "Representatives"),
with respect to the sale by the Company and the purchase by the Underwriters,
acting severally and not jointly, of the respective numbers of shares of the
Company's common stock, $.001 par value per share ("Common Stock"), set forth in
Schedule A hereto. Such shares of Common Stock are hereinafter referred to as
the "Firm Shares."
Upon your request, as provided in Section 2(b) of this Agreement,
the Company shall also sell to the Underwriters, acting severally and not
jointly, up to an additional 300,000 shares of Common Stock for the purpose of
covering over-allotments, if any (the "Option Shares"). The Firm Shares and the
Option Shares are sometimes hereinafter referred to as the "Shares." The Company
also proposes to issue and sell to you warrants (the "Advisors' Warrants")
pursuant to the Advisors' Warrant Agreement (the "Advisors' Warrant Agreement")
for the purchase of an additional 200,000 shares of Common Stock. The shares of
Common Stock issuable upon exercise of the Advisors' Warrants are hereinafter
referred to as the "Advisors' Shares." In addition, the Company has entered into
a stock purchase agreement (the "NBC Agreement"), dated November , 1997, with
NBC Multimedia, Inc. ("NBC Multimedia"), a wholly-owned subsidiary of National
Broadcasting Company, Inc. ("NBC"). Pursuant to the
<PAGE> 2
NBC Agreement, NBC Multimedia has agreed to purchase $2,000,000 of Common Stock
at the initial public offering price in a direct offering (the "Directed
Shares") to be consummated concurrently with this offering. The Firm Shares, the
Option Shares, the Advisors' Warrants, the Advisors' Shares (collectively,
hereinafter referred to as the "Underwritten Securities") and the Directed
Shares (the Underwritten Securities and Directed Shares collectively, are
hereinafter referred to as the "Securities") are more fully described in the
Registration Statement and the Prospectus referred to below.
1. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, each of the Underwriters as of the date
hereof, and as of the Closing Date (hereinafter defined) and the Option Closing
Date (hereinafter defined), if any, as follows:
(a) The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement, and an
amendment or amendments thereto, on Form S-1 (No. 333-33521), including any
related preliminary prospectus ("Preliminary Prospectus"), for the registration
of the Firm Shares, the Option Shares and the Directed Shares under the
Securities Act of 1933, as amended (the "Act"), which registration statement and
amendment or amendments have been prepared by the Company in conformity in all
material respects with the requirements of the Act, and the rules and
regulations (the "Regulations") of the Commission under the Act. The Company
will not file any amendment thereto to which the Underwriters shall have
objected in writing after having been furnished with a copy thereof. Except as
the context may otherwise require, such registration statement, as amended, on
file with the Commission at the time the registration statement becomes
effective (including the prospectus, financial statements, exhibits and all
other documents filed as a part thereof or incorporated therein (including, but
not limited to, those documents or information incorporated by reference
therein) and all information deemed to be a part thereof as of such time
pursuant to paragraph (b) of Rule 430(A) of the Regulations), is hereinafter
called the "Registration Statement", and the form of prospectus in the form
first filed with the Commission pursuant to Rule 424(b) of the Regulations is
hereinafter called the "Prospectus." For purposes hereof, "Rules and
Regulations" mean the rules and regulations adopted by the Commission under
either the Act or the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as applicable.
(b) Neither the Commission nor, to the best of the Company's
knowledge, any state regulatory authority has issued any order preventing or
suspending the use of any Preliminary Prospectus, the Registration Statement or
Prospectus or any part of any thereof and no proceedings for a stop order
suspending the effectiveness of the Registration Statement or any of the
Company's securities have been instituted or are pending or, to the Company's
knowledge, threatened. Each of the Preliminary Prospectus, the Registration
Statement and Prospectus at the time of filing thereof conformed in all material
respects with the requirements of the Act and the Rules and Regulations, and
none of the Preliminary Prospectus, the Registration Statement or Prospectus at
the time of filing thereof contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, except that this representation and warranty does not
apply to statements contained in the paragraph relating to stabilization and
market making on the inside front cover page of the Prospectus or under the
2
<PAGE> 3
caption "Underwriting" in the Prospectus (to the extent such statements relate
to the Underwriters).
(c) When the Registration Statement becomes effective and at all
times subsequent thereto up to the Closing Date and each Option Closing Date, if
any, and during such longer period as the Prospectus may be required to be
delivered in connection with sales by the Underwriters or a dealer, the
Registration Statement and the Prospectus will contain all statements which are
required to be stated therein in accordance with the Act and the Rules and
Regulations, and will conform to the requirements of the Act and the Rules and
Regulations; neither the Registration Statement nor the Prospectus, nor any
amendment or supplement thereto, will contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, provided, however, that this
representation and warranty does not apply to statements contained in the
paragraph relating to stabilization and market making on the inside front cover
page of the Prospectus or under the caption "Underwriting" in the Prospectus (to
the extent such statements relate to the Underwriters).
(d) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware. The
Company does not own an interest in any corporation, partnership, trust, joint
venture or other business entity. The Company is duly qualified and licensed and
in good standing as a foreign corporation in each jurisdiction in which its
ownership or leasing of any properties or the character of its operations
requires such qualification or licensing, except for such jurisdictions where
the failure to so qualify would not have a material adverse effect on the
condition, financial or otherwise, or the earnings, position, prospects, value,
operation, properties, business or results of operations of the Company. The
Company has all requisite corporate power and authority, and the Company has
obtained any and all necessary authorizations, approvals, orders, licenses,
certificates, franchises and permits of and from all governmental or regulatory
officials and bodies (including, without limitation, those having jurisdiction
over environmental or similar matters), to own or lease its properties and
conduct its business as described in the Prospectus, except for such
authorizations, approvals, orders, licenses, certificates, franchises and
permits the failure to so obtain would not have a material adverse effect on the
condition, financial or otherwise, or the earnings, position, prospects, value,
operation, properties, business or results of operations of the Company; the
Company is and has been doing business in compliance with all such
authorizations, approvals, orders, licenses, certificates, franchises and
permits and all federal, state and local laws, rules and regulations, except
where the failure to so comply would not have a material adverse effect on the
condition, financial or otherwise, or the earnings, position, prospects, value,
operation, properties, business or results of operations of the Company; and the
Company has not received any notice of proceedings relating to the revocation or
modification of any such authorization, approval, order, license, certificate,
franchise, or permit which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would materially and adversely affect
the condition, financial or otherwise, or the earnings, position, prospects,
value, operation, properties, business or results of operations of the Company.
The disclosures in the Registration Statement concerning the effects of federal,
state and local laws, rules and regulations on the Company's business as
currently conducted and as contemplated are correct in all material respects and
do not omit to state a material fact necessary to make the statements contained
therein not misleading in light of the circumstances in which they were made.
3
<PAGE> 4
(e) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus under "Capitalization" and
"Description of Capital Stock" and will have the adjusted capitalization set
forth therein on the Closing Date and the Option Closing Date, if any, based
upon the assumptions set forth therein (except for subsequent issuances, if any,
pursuant to the exercise of options referred to in the Prospectus), and the
Company is not a party to or bound by any instrument, agreement or other
arrangement providing for it to issue any capital stock, rights, warrants,
options or other securities, except for this Agreement, the Advisors' Warrant
Agreement and as described in the Prospectus. The Securities and all other
securities issued or issuable by the Company conform or, when issued and paid
for, will conform, in all respects to all statements with respect thereto
contained in the Registration Statement and the Prospectus. All issued and
outstanding securities of the Company have been duly authorized and validly
issued and are fully paid and non-assessable and the holders thereof have no
rights of rescission with respect thereto, and are not subject to personal
liability by reason of being such holders; and none of such securities were
issued in violation of the preemptive rights of any holders of any security of
the Company or similar contractual rights granted by the Company. The Securities
are not and will not be subject to any preemptive or other similar rights of any
stockholder, have been duly authorized and, when issued, paid for and delivered
in accordance with the terms hereof or the NBC Agreement, as applicable, will be
validly issued, fully paid and non-assessable and will conform to the
description thereof contained in the Prospectus; the holders thereof will not be
subject to any liability solely as such holders; all corporate action required
to be taken for the authorization, issue and sale of the Securities has been
duly and validly taken; and the certificates representing the Securities will be
in due and proper form. Upon the issuance and delivery pursuant to the terms
hereof of the Underwritten Securities to be sold by the Company hereunder, the
Underwriters or the Representatives, as the case may be, will acquire good and
marketable title to such Underwritten Securities free and clear of any lien,
charge, claim, encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever, other than such as may be created
by the Underwriters and provided that the Underwriters purchase such shares in
good faith and without notice of any adverse claim.
(f) The financial statements, including the related notes thereto,
included in the Registration Statement, each Preliminary Prospectus and the
Prospectus fairly present the financial position, income, changes in cash flow,
changes in stockholders' equity, and the results of operations of the Company at
the respective dates and for the respective periods to which they apply and the
pro forma financial information included in the Registration Statement and
Prospectus presents fairly on a basis consistent with that of the audited
financial statements included therein, what the Company's pro forma
capitalization would have been for the respective periods and as of the
respective dates to which they apply after giving effect to the adjustments
described therein. Such financial statements have been prepared in conformity
with generally accepted accounting principles and the Rules and Regulations,
consistently applied throughout the periods involved. Except as described in the
Prospectus, there has been no material adverse change or development involving a
material prospective change in the condition, financial or otherwise, or in the
earnings, position, prospects, value, operation, properties, business, or
results of operations of the Company whether or not arising in the ordinary
course of business, since the date of the financial statements included in the
Registration Statement and the Prospectus and the outstanding debt, the
property, both tangible and intangible, and the business of the Company conform
in all material respects to the
4
<PAGE> 5
descriptions thereof contained in the Registration Statement and the Prospectus.
Financial information set forth in the Prospectus under the headings "Summary
Financial Data," "Selected Financial Data," "Capitalization," and "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
fairly present, on the basis stated in the Prospectus, the information set forth
therein, and have been derived from or compiled on a basis consistent with that
of the audited financial statements included in the Prospectus.
(g) The Company (i) has paid all federal, state, local, and foreign
taxes for which it is liable, including, but not limited to, withholding taxes
and amounts payable under Chapters 21 through 24 of the Internal Revenue Code of
1986 (the "Code"), and has furnished all information returns it is required to
furnish pursuant to the Code, (ii) has established adequate reserves for such
taxes which are not due and payable, and (iii) does not have any tax deficiency
or claims outstanding, proposed or assessed against it.
(h) No transfer tax, stamp duty or other similar tax is payable by
or on behalf of the Underwriters in connection with (i) the issuance by the
Company of the Securities, (ii) the purchase by the Underwriters of the Shares
from the Company and the purchase by you of the Advisors' Warrants from the
Company, (iii) the consummation by the Company of any of its obligations under
this Agreement or the Advisors' Warrant Agreement, or (iv) resales of the Shares
in connection with the distribution contemplated hereby.
(i) The Company maintains insurance policies, including, but not
limited to, general liability and property insurance, which insures the Company
and its employees, against such losses and risks generally insured against by
comparable businesses. The Company (A) has not failed to give notice or present
any insurance claim with respect to any matter, including but not limited to the
Company's business, property or employees, under the insurance policy or surety
bond in a due and timely manner, (B) does not have any disputes or claims
against any underwriter of such insurance policies or surety bonds or has not
failed to pay any premiums due and payable thereunder, and (C) has not failed to
comply with all conditions contained in such insurance policies and surety
bonds. There are no facts or circumstances under any such insurance policy or
surety bond which would relieve any insurer of its obligation to satisfy in full
any valid claim of the Company.
(j) There is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental proceeding (including, without
limitation, those having jurisdiction over environmental or similar matters),
domestic or foreign, pending or, to the best of the Company's knowledge,
threatened against (and the Company does not know any basis therefor), or
involving the properties or business of, the Company which (i) questions the
validity of the capital stock of the Company, this Agreement, the Advisors'
Warrant Agreement or the NBC Agreement or of any action taken or to be taken by
the Company pursuant to or in connection with this Agreement, the Advisors'
Warrant Agreement or the NBC Agreement, (ii) is required to be disclosed in the
Registration Statement which is not so disclosed (and such proceedings as are
summarized in the Registration Statement are accurately summarized in all
material respects), or (iii) would materially and adversely affect the
condition, financial or otherwise, or the earnings, position, prospects,
stockholders' equity, value, operation, properties, business or results of
operations of the Company.
5
<PAGE> 6
(k) The Company has full legal right, power and authority to
authorize, issue, deliver and sell the Securities, enter into this Agreement,
the Advisors' Warrant Agreement and the NBC Agreement and to consummate the
transactions provided for in such agreements; and this Agreement, the Advisors'
Warrant Agreement and the NBC Agreement have each been duly and properly
authorized, executed and delivered by the Company. Each of this Agreement, the
Advisors' Warrant Agreement and the NBC Agreement constitutes a legal, valid and
binding agreement of the Company enforceable against the Company in accordance
with its terms, except (i) as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
similar laws affecting creditors' rights generally, (ii) as enforceability of
any indemnification or contribution provisions may be limited under applicable
laws or the public policies underlying such laws and (iii) that the remedies of
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceedings may be brought. None of the Company's issue and sale of the
Securities, execution or delivery of this Agreement, the Advisors' Warrant
Agreement or the NBC Agreement, its performance hereunder and thereunder, its
consummation of the transactions contemplated herein and therein, or the conduct
of its business as described in the Registration Statement, the Prospectus, and
any amendments or supplements thereto, conflicts with or will conflict with or
results or will result in any breach or violation of any of the terms or
provisions of, or constitutes or will constitute a default under, or result in
the creation or imposition of any lien, charge, claim, encumbrance, pledge,
security interest, defect or other restriction or equity of any kind whatsoever
upon, any property or assets (tangible or intangible) of the Company pursuant to
the terms of, (i) the certificate of incorporation or by-laws of the Company,
(ii) any license, contract, indenture, mortgage, deed of trust, voting trust
agreement, stockholders agreement, note, loan or credit agreement or any other
agreement or instrument to which the Company is a party or by which it is or may
be bound or to which any of its properties or assets (tangible or intangible) is
or may be subject, or any indebtedness, or (iii) any statute, judgment, decree,
order, rule or regulation applicable to the Company of any arbitrator, court,
regulatory body or administrative agency or other governmental agency or body
(including, without limitation, those having jurisdiction over environmental or
similar matters), domestic or foreign, having jurisdiction over the Company or
any of its activities or properties, which breach, violation or default would
have a material adverse effect on the condition, financial or otherwise, or the
earnings, position, prospects, value, operation, properties, business or results
of operations of the Company.
(l) Except as described in the Prospectus, no consent, approval,
authorization or order of, and no filing with, any court, regulatory body,
government agency or other body, domestic or foreign, is required for the
issuance of the Shares pursuant to the Prospectus and the Registration
Statement, the issuance of the Advisors' Warrants, the issuance of the Directed
Shares, the performance of this Agreement, the Advisors' Warrant Agreement and
the NBC Agreement and the transactions contemplated hereby and thereby,
including without limitation, any waiver of any preemptive, first refusal or
other rights that any entity or person may have for the issue and/or sale of any
of the Shares, the Directed Shares, or the Advisors' Warrants, except such as
have been or may be obtained under the Act or may be required under state
securities or Blue Sky laws in connection with the Underwriters' purchase and
distribution of the Shares, and the Advisors' Warrants to be sold by the Company
hereunder.
6
<PAGE> 7
(m) All executed agreements, contracts or other documents or copies
of executed agreements, contracts or other documents filed as exhibits to the
Registration Statement to which the Company is a party or by which it may be
bound or to which any of its assets, properties or business may be subject have
been duly and validly authorized, executed and delivered by the Company, and
constitute the legal, valid and binding agreements of the Company, enforceable
against the Company in accordance with their respective terms. The descriptions
in the Registration Statement of agreements, contracts and other documents are
accurate in all material respects and fairly present the information required to
be shown with respect thereto by Form S-1, and there are no contracts or other
documents which are required by the Act to be described in the Registration
Statement or filed as exhibits to the Registration Statement which are not
described or filed as required, and the exhibits which have been filed are in
all material respects complete and correct copies of the documents of which they
purport to be copies.
(n) Subsequent to the respective dates as of which information is
set forth in the Registration Statement and Prospectus, and except as may
otherwise be indicated or contemplated herein or therein, the Company has not
(i) issued any securities or incurred any liability or obligation, direct or
contingent, for borrowed money, (ii) entered into any transaction other than in
the ordinary course of business, or (iii) declared or paid any dividend or made
any other distribution on or in respect of its capital stock of any class, and
there has not been any change in the capital stock, or any material change in
the debt (long or short term) or liabilities or material adverse change in or
affecting the general affairs, management, financial operations, stockholders'
equity or results of operations of the Company.
(o) No default exists in the due performance and observance of any
term, covenant or condition of any license, contract, indenture, mortgage,
installment sale agreement, lease, deed of trust, voting trust agreement,
stockholders agreement, partnership agreement, note, loan or credit agreement,
purchase order, or any other agreement or instrument evidencing an obligation
for borrowed money, or any other material agreement or instrument to which the
Company is a party or by which the Company may be bound or to which the property
or assets (tangible or intangible) of the Company is subject or affected, which
default would have a material adverse effect on the condition, financial or
otherwise, or the earnings, position, prospects, value, operation, properties,
business or results of operations of the Company.
(p) The Company has generally enjoyed a satisfactory
employer-employee relationship with its employees and is in compliance in all
material respects with all federal, state, local, and foreign laws and
regulations respecting employment and employment practices, terms and conditions
of employment and wages and hours. There are no pending investigations involving
the Company by the U.S. Department of Labor, or any other governmental agency
responsible for the enforcement of such federal, state, local, or foreign laws
and regulations. There is no unfair labor practice charge or complaint against
the Company pending before the National Labor Relations Board or any strike,
picketing, boycott, dispute, slowdown or stoppage pending or, to the best of the
Company's knowledge, threatened against or involving the Company or any
predecessor entity, and none has ever occurred. No representation question
exists respecting the employees of the Company, and no collective bargaining
agreement or modification thereof is currently being negotiated by the Company.
No grievance or arbitration proceeding is pending under any expired or existing
collective bargaining agreements of the
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<PAGE> 8
Company. No labor dispute with the employees of the Company exists, or, to the
best of the Company's knowledge, is imminent.
(q) Except as described in the Prospectus, the Company does not
maintain, sponsor or contribute to any program or arrangement that is an
"employee pension benefit plan," an "employee welfare benefit plan," or a
"multiemployer plan" as such terms are defined in Sections 3(2), 3(1) and 3(37),
respectively, of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") ("ERISA Plans"). Except as described in the Prospectus, the Company
does not maintain or contribute, now or at any time previously, to a defined
benefit plan, as defined in Section 3(35) of ERISA. No ERISA Plan (or any trust
created thereunder) has engaged in a "prohibited transaction" within the meaning
of Section 406 of ERISA or Section 4975 of the Code, which could subject the
Company to any tax penalty on prohibited transactions and which has not
adequately been corrected. Each ERISA Plan is in compliance with all material
reporting, disclosure and other requirements of the Code and ERISA as they
relate to any such ERISA Plan. Determination letters have been received from the
Internal Revenue Service with respect to each ERISA Plan which is intended to
comply with Code Section 401(a), stating that such ERISA Plan and the attendant
trust are qualified thereunder. The Company has never completely or partially
withdrawn from a "multiemployer plan."
(r) Neither the Company nor any of its employees, directors,
stockholders, partners, or affiliates (within the meaning of the Rules and
Regulations) of any of the foregoing has taken or will take, directly or
indirectly, any action designed to or which has constituted or which might be
expected to cause or result in, under the Exchange Act, or otherwise,
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Securities or otherwise.
(s) Except as otherwise disclosed in the Prospectus, none of the
patents, patent applications, trademarks, service marks, trade names and
copyrights, and licenses and rights to the foregoing presently owned or held by
the Company are in dispute or, to the best of the Company's knowledge, are in
any conflict with the right of any other person or entity. The Company (i) owns
or has the right to use, free and clear of all liens, charges, claims,
encumbrances, pledges, security interests, defects or other restrictions or
equities of any kind whatsoever, all patents, trademarks, service marks, trade
names and copyrights, technology and licenses and rights with respect to the
foregoing, used in the conduct of its business as now conducted or proposed to
be conducted without infringing upon or otherwise acting adversely to the right
or claimed right of any person, corporation or other entity under or with
respect to any of the foregoing and (ii) is not obligated or under any liability
whatsoever to make any payment by way of royalties, fees or otherwise to any
owner or licensee of, or other claimant to, any patent, trademark, service mark,
trade name, copyright, know-how, technology or other intangible asset, with
respect to the use thereof or in connection with the conduct of its business or
otherwise.
(t) There is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental or other proceeding, domestic or
foreign, pending or, to the Company's knowledge, threatened (or circumstances
that may give rise to the same) against the Company which challenges the
exclusive rights of the Company with respect to any trademarks, trade names,
service marks, service names, copyrights, patents, patent applications or
licenses or
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<PAGE> 9
rights to the foregoing used in the conduct of its business, or which challenge
the right of the Company to use any technology presently used or contemplated to
be used in the conduct of its business.
(u) The Company owns and has the unrestricted right to use all trade
secrets, know-how (including all other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures), inventions,
designs, processes, works of authorship, computer programs and technical data
and information (collectively herein "intellectual property") that are material
to the development, manufacture, operation and sale of all products and services
sold or proposed to be sold by the Company, free and clear of and without
violating any right, lien, or claim of others, including without limitation,
former employers of its employees; provided, however, that the possibility
exists that other persons or entities, completely independently of the Company,
or its employees or agents, could have developed trade secrets or items of
technical information similar or identical to those of the Company.
(v) The Company has good and marketable title to, or valid and
enforceable leasehold estates in, all items of real and personal property stated
in the Prospectus, to be owned or leased by it free and clear of all liens,
charges, claims, encumbrances, pledges, security interests, defects, or other
restrictions or equities of any kind whatsoever, other than (i) those referred
to in the Prospectus and (ii) liens for taxes not yet due and payable.
(w) Ernst & Young LLP whose report is filed with the Commission as a
part of the Registration Statement, are independent certified public accountants
as required by the Act and the Rules and Regulations.
(x) The Company has caused to be duly executed legally binding and
enforceable agreements pursuant to which NBC, NBC Multimedia and substantially
all of the other holders of the Common Stock and holders of securities
exchangeable or exercisable for or convertible into shares of Common Stock have
agreed not to, directly or indirectly, offer to sell, sell, grant any option for
the sale of, assign, transfer, pledge, hypothecate, distribute or otherwise
encumber or dispose of any shares of Common Stock or securities convertible
into, exercisable or exchangeable for or evidencing any right to purchase or
subscribe for any shares of Common Stock (either pursuant to Rule 144 of the
Rules and Regulations or otherwise) or dispose of any beneficial interest
therein for a period of not less than 9 months following the effective date of
the Registration Statement without the prior written consent of Josephthal. The
Company will cause the Transfer Agent, as defined below, to mark an appropriate
legend on the face of stock certificates representing all of such securities and
to place "stop transfer" orders on the Company's stock ledgers.
(y) Except as described in the Prospectus under "Underwriting,"
there are no claims, payments, issuances, arrangements or understandings,
whether oral or written, for services in the nature of a finder's or origination
fee with respect to the sale of the Securities hereunder or any other
arrangements, agreements, understandings, payments or issuance with respect to
the Company or any of its officers, directors, stockholders, partners, employees
or affiliates that may affect the Underwriters' compensation, as determined by
the National Association of Securities Dealers, Inc. ("NASD").
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<PAGE> 10
(z) The Common Stock has been approved for quotation on the Nasdaq
Stock Market's National Market ("Nasdaq").
(aa) Neither the Company nor any of its officers, employees, agents,
or any other person acting on behalf of the Company, has, directly or
indirectly, given or agreed to give any money, gift or similar benefit (other
than legal price concessions to customers in the ordinary course of business) to
any customer, supplier, employee or agent of a customer or supplier, or official
or employee of any governmental agency (domestic or foreign) or instrumentality
of any government (domestic or foreign) or any political party or candidate for
office (domestic or foreign) or other person who was, is, or may be in a
position to help or hinder the business of the Company (or assist the Company in
connection with any actual or proposed transaction) which (a) might subject the
Company, or any other such person to any damage or penalty in any civil,
criminal or governmental litigation or proceeding (domestic or foreign), (b) if
not given in the past, might have had a materially adverse effect on the assets,
business or operations of the Company, or (c) if not continued in the future,
might adversely affect the assets, business, operations or prospects of the
Company. The Company's internal accounting controls are sufficient to cause the
Company to comply with the Foreign Corrupt Practices Act of 1977, as amended.
(ab) Except as set forth in the Prospectus, no officer, director or
stockholder of the Company, or any "affiliate" or "associate" (as these terms
are defined in Rule 405 promulgated under the Rules and Regulations) of any of
the foregoing persons or entities has or has had, either directly or indirectly,
(i) an interest in any person or entity which (A) furnishes or sells services or
products which are furnished or sold or are proposed to be furnished or sold by
the Company, or (B) purchases from or sells or furnishes to the Company any
goods or services, or (ii) a beneficial interest in any contract or agreement to
which the Company is a party or by which it may be bound or affected. Except as
set forth in the Prospectus under "Certain Transactions," there are no existing
agreements, arrangements, understandings or transactions, or proposed
agreements, arrangements, understandings or transactions, between or among the
Company and any officer, director, or five (5) percent stockholder of the
Company or any partner, affiliate or associate of any of the foregoing persons
or entities.
(ac) Any certificate signed by any officer of the Company, and
delivered to the Underwriters or to Underwriters' Counsel (as defined herein)
shall be deemed a representation and warranty by the Company to the Underwriters
as to the matters covered thereby.
(ad) The minute books of the Company have been made available to the
Underwriters and contains a complete summary of all meetings and actions of the
directors, stockholders, audit committee, compensation committee and any other
committee of the Board of Directors of the Company, respectively, since the time
of its incorporation, and reflects all transactions referred to in such minutes
accurately in all material respects.
(ae) Except and to the extent described in the Prospectus, no
holders of any securities of the Company or of any options, warrants or other
convertible or exchangeable securities of the Company have the right to include
any securities issued by the Company in the Registration Statement or any
registration statement to be filed by the Company or to require the
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<PAGE> 11
Company to file a registration statement under the Act and no person or entity
holds any anti-dilution rights with respect to any securities of the Company.
(af) The conversion of all the outstanding shares of Preferred Stock
of the Company as set forth in the Prospectus has been duly authorized by the
Company and the shareholders of the Company in accordance with all agreements,
documents, understandings and instruments affecting the rights, duties,
responsibilities, obligations and/or privileges of holders of Preferred Stock or
to which the Company is bound, including without limitation, the Certificate of
the Designations, Powers, Preferences and Rights of the Preferred Stock, the
Company's Certificate of Incorporation and the Company's By-laws; and upon the
consummation of the Offering, without any further action of any stockholders of
the Company, all shares of Preferred Stock of the Company, other than shares of
the Company's Series G Convertible Preferred Stock, will simultaneously convert
into validly issued, fully paid and nonassessable shares of Common Stock in
accordance with the conversion provisions set forth in the Company's Amended and
Restated Certificate of Incorporation with respect to Series A and Series B
Convertible Preferred Stock and in the respective certificates of designation
with respect to Series C, Series D, Series E and Series F Convertible Preferred
Stock. Pursuant to the certificate of designation for the Series G Convertible
Preferred Stock, all of the issued and outstanding shares of the Company's
Series G Convertible Preferred Stock will become convertible at the option of
the holder on July 10, 1998 (nine (9) months from the original issuance date).
2. Purchase, Sale and Delivery of the Shares and Advisors' Warrants.
(a) On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to sell to each Underwriter, and each Underwriter,
severally and not jointly, agrees to purchase from the Company at a price of
$_______ [93% of the initial public offering price] per share of Common Stock,
that number of Firm Shares of set forth in Schedule A opposite the name of such
Underwriter, plus any additional number of Firm Shares which such Underwriter
may become obligated to purchase pursuant to the provisions of Section 11
hereof.
(b) In addition, on the basis of the representations, warranties,
covenants and agreements herein contained, but subject to the terms and
conditions herein set forth, the Company hereby grants an option to the
Underwriters, severally and not jointly, to purchase all or any part of an
additional 300,000 shares of Common Stock at a price of $ ____ [93% of the
initial public offering price] per share of Common Stock. The option granted
hereby will expire thirty (30) days after (i) the date the Registration
Statement becomes effective, if the Company has elected not to rely on Rule 430A
under the Rules and Regulations, or (ii) the date of this Agreement if the
Company has elected to rely upon Rule 430A under the Rules and Regulations, and
may be exercised in whole or in part from time to time only for the purpose of
covering over-allotments which may be made in connection with the offering and
distribution of the Firm Shares upon notice by the Representatives to the
Company setting forth the number of Option Shares as to which the several
Underwriters are then exercising the option and the time and date of payment and
delivery for any such Option Shares. Any such time and date of delivery (an
"Option Closing Date") shall be determined by the Representatives, but shall not
be later than seven full business days after the exercise of said option, nor in
any event prior to the Closing
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<PAGE> 12
Date, as hereinafter defined, unless otherwise agreed upon by the
Representatives and the Company. Nothing herein contained shall obligate the
Underwriters to make any over-allotments. No Option Shares shall be delivered
unless the Firm Shares shall be simultaneously delivered or shall theretofore
have been delivered as herein provided.
(c) Payment of the purchase price for, and delivery of certificates
for, the Firm Shares shall be made at the offices of Josephthal at 200 Park
Avenue, 25th Floor, New York, New York 10166, or at such other place as shall be
agreed upon by the Representatives and the Company. Such delivery and payment
shall be made at 10:00 a.m. (New York City time) on the third business day
following the date of this Agreement, provided, however, that if the Firm Shares
sold hereunder are priced and this Agreement is entered into after 4:30 p.m.,
(New York City time), on any business day, payment and delivery in respect of
the Firm Shares shall take place on the fourth business day following the date
of this Agreement (such time and date of payment and delivery being herein
called the "Closing Date"). In addition, in the event that any or all of the
Option Shares are purchased by the Underwriters, payment of the purchase price
for, and delivery of certificates for, such Option Shares shall be made at the
above mentioned office of Josephthal or at such other place as shall be agreed
upon by the Representatives and the Company on each Option Closing Date as
specified in the notice from the Representatives to the Company. Delivery of the
certificates for the Firm Shares and the Option Shares, if any, shall be made to
the Underwriters against payment by the Underwriters, severally and not jointly,
of the purchase price for the Firm Shares and the Option Shares, if any, to the
order of the Company for the Firm Shares and the Option Shares, if any, by New
York Clearing House funds. In the event such option is exercised, each of the
Underwriters, acting severally and not jointly, shall purchase that proportion
of the total number of Option Shares then being purchased which the number of
Firm Shares set forth in Schedule A hereto opposite the name of such Underwriter
bears to the total number of Firm Shares, subject in each case to such
adjustments as the Representatives in their discretion shall make to eliminate
any sales or purchases of fractional shares. Certificates for the Firm Shares
and the Option Shares, if any, shall be in definitive, fully registered form,
shall bear no restrictive legends and shall be in such denominations and
registered in such names as the Underwriters may request in writing at least two
(2) business days prior to the Closing Date or the relevant Option Closing Date,
as the case may be. The certificates for the Firm Shares and the Option Shares,
if any, shall be made available to the Representatives at such office or such
other place as the Representatives may designate for inspection, checking and
packaging no later than 9:30 a.m. on the last business day prior to Closing Date
or the relevant Option Closing Date, as the case may be.
(d) On the Closing Date, the Company shall issue and sell to you
Advisors' Warrants at a purchase price of $.0001 per warrant, which warrants
shall entitle the holders thereof to purchase an aggregate of 200,000 shares of
Common Stock. The Advisors' Warrants shall be exercisable for a period of
forty-eight (48) months commencing twelve (12) months from the effective date of
the Registration Statement at a price equaling one hundred twenty percent (120%)
of the initial public offering price of the shares of Common Stock. The
Advisors' Warrant Agreement and form of Warrant Certificate shall be
substantially in the form filed as Exhibit 4.2 to the Registration Statement.
Payment for the Advisors' Warrants shall be made on the Closing Date.
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<PAGE> 13
3. Public Offering of the Shares. As soon after the Registration Statement
becomes effective as the Representatives deems advisable, the Underwriters shall
make a public offering of the Shares (other than to residents of or in any
jurisdiction in which qualification of the Shares is required and has not become
effective) at the price and upon the other terms set forth in the Prospectus.
The Representatives may from time to time increase or decrease the public
offering price after distribution of the Shares has been completed to such
extent as the Representatives, in their discretion, deem advisable. The
Underwriters may enter into one of more agreements as the Underwriters, in each
of their sole discretion, deem advisable with one or more broker-dealers who
shall act as dealers in connection with such public offering.
4. Covenants and Agreements of the Company. The Company covenants and
agrees with each of the Underwriters as follows:
(a) The Company shall use its best efforts to cause the Registration
Statement and any amendments thereto to become effective as promptly as
practicable and will not at any time, whether before or after the effective date
of the Registration Statement, file any amendment to the Registration Statement
or supplement to the Prospectus or file any document under the Act or Exchange
Act before termination of the offering of the Shares by the Underwriters of
which the Representatives shall not previously have been advised and furnished
with a copy, or to which the Representatives shall have objected or which is not
in compliance with the Act, the Exchange Act or the Rules and Regulations.
(b) As soon as the Company is advised or obtains knowledge thereof,
the Company will advise the Representatives and confirm the notice in writing,
(i) when the Registration Statement, as amended, becomes effective, if the
provisions of Rule 430A promulgated under the Act will be relied upon, when the
Prospectus has been filed in accordance with said Rule 430A and when any
post-effective amendment to the Registration Statement becomes effective, (ii)
of the issuance by the Commission of any stop order or of the initiation, or the
threatening, of any proceeding, suspending the effectiveness of the Registration
Statement or any order preventing or suspending the use of the Preliminary
Prospectus or the Prospectus, or any amendment or supplement thereto, or the
institution of proceedings for that purpose, (iii) of the issuance by the
Commission or by any state securities commission of any proceedings for the
suspension of the qualification of any of the Securities for offering or sale in
any jurisdiction or of the initiation, or the threatening, of any proceeding for
that purpose, (iv) of the receipt of any comments from the Commission; and (v)
of any request by the Commission for any amendment to the Registration Statement
or any amendment or supplement to the Prospectus or for additional information.
If the Commission or any state securities commission authority shall enter a
stop order or suspend such qualification at any time, the Company will use its
best efforts to obtain promptly the lifting of such order.
(c) The Company shall file the Prospectus (in form and substance
satisfactory to the Representatives) or transmit the Prospectus by a means
reasonably calculated to result in filing with the Commission pursuant to Rule
424(b)(1) (or, if applicable and if consented to by the Representatives,
pursuant to Rule 424(b)(4)) not later than the Commission's close of business on
the earlier of (i) the second business day following the execution and delivery
of this Agreement and (ii) the fifteenth business day after the effective date
of the Registration Statement.
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<PAGE> 14
(d) The Company will give the Representatives notice of its
intention to file or prepare any amendment to the Registration Statement
(including any post-effective amendment) or any amendment or supplement to the
Prospectus (including any revised prospectus which the Company proposes for use
by the Underwriters in connection with the offering of the Shares and Directed
Shares which differs from the corresponding prospectus on file at the Commission
at the time the Registration Statement becomes effective, whether or not such
revised prospectus is required to be filed pursuant to Rule 424(b) of the Rules
and Regulations), and will furnish the Representatives with copies of any such
amendment or supplement a reasonable amount of time prior to such proposed
filing or use, as the case may be, and will not file any such prospectus to
which the Representatives or Orrick, Herrington & Sutcliffe LLP ("Underwriters'
Counsel") shall object.
(e) The Company shall endeavor in good faith, in cooperation with
the Representatives, at or prior to the time the Registration Statement becomes
effective, to qualify the Shares for offering and sale under the securities laws
of such jurisdictions as the Representatives may designate to permit the
continuance of sales and dealings therein for as long as may be necessary to
complete the distribution, and shall make such applications, file such documents
and furnish such information as may be required for such purpose; provided,
however, the Company shall not be required to qualify as a foreign corporation
or file a general or limited consent to service of process in any such
jurisdiction. In each jurisdiction where such qualification shall be effected,
the Company will, unless the Representatives agree that such action is not at
the time necessary or advisable, use all reasonable efforts to file and make
such statements or reports at such times as are or may reasonably be required by
the laws of such jurisdiction to continue such qualification.
(f) During the time when a prospectus is required to be delivered
under the Act, the Company shall use all reasonable efforts to comply with all
requirements imposed upon it by the Act and the Exchange Act, as now and
hereafter amended and by the Rules and Regulations, as from time to time in
force, so far as necessary to permit the continuance of sales of or dealings in
the Shares or Directed Shares in accordance with the provisions hereof and the
Prospectus, or any amendments or supplements thereto. If at any time when a
prospectus relating to the Shares or Directed Shares or the Advisors' Shares is
required to be delivered under the Act, any event shall have occurred as a
result of which, in the opinion of counsel for the Company or Underwriters'
Counsel, the Prospectus, as then amended or supplemented, includes an untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it is necessary
at any time to amend the Prospectus to comply with the Act, the Company will
notify the Representatives promptly and prepare and file with the Commission an
appropriate amendment or supplement in accordance with Section 10 of the Act,
each such amendment or supplement to be satisfactory to Underwriters' Counsel,
and the Company will furnish to the Underwriters copies of such amendment or
supplement as soon as available and in such quantities as the Underwriters may
request.
(g) As soon as practicable, but in any event not later than 45 days
after the end of the 12-month period beginning on the day after the end of the
fiscal quarter of the Company during which the effective date of the
Registration Statement occurs (90 days in the event that the end of such fiscal
quarter is the end of the Company's fiscal year), the Company shall make
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<PAGE> 15
generally available to its security holders, in the manner specified in Rule
158(b) of the Rules and Regulations, and to the Representatives, an earnings
statement which will be in the detail required by, and will otherwise comply
with, the provisions of Section 11(a) of the Act and Rule 158(a) of the Rules
and Regulations, which statement need not be audited unless required by the Act,
covering a period of at least 12 consecutive months after the effective date of
the Registration Statement.
(h) During a period of five (5) years after the date hereof, the
Company will furnish to its stockholders, as soon as practicable, annual reports
(including financial statements audited by independent public accountants), and
will deliver to the Representatives:
(i) concurrently with furnishing quarterly reports, if any, to
its stockholders, statements of income of the Company for each quarter in the
form furnished to the Company's stockholders and certified by the Company's
principal financial or accounting officer;
(ii) concurrently with furnishing such annual reports to its
stockholders, a balance sheet of the Company as at the end of the preceding
fiscal year, together with statements of operations, stockholders' equity, and
cash flows of the Company for such fiscal year, accompanied by a copy of the
certificate thereon of independent certified public accountants;
(iii) as soon as they are available, copies of all reports
(financial or other) mailed to stockholders;
(iv) as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, the NASD or any
securities exchange;
(v) every press release and every material news item or
article of interest to the financial community in respect of the Company, or its
affairs which was released or prepared by or on behalf of the Company; and
(vi) any additional information of a public nature concerning
the Company (and any future subsidiary) or its businesses which the
Representatives may request.
During such five-year period, if the Company has an active
subsidiary, the foregoing financial statements will be on a consolidated basis
to the extent that the accounts of the Company and its subsidiary are
consolidated, and will be accompanied by similar financial statements for any
significant subsidiary which is not so consolidated.
(i) The Company will maintain a Transfer Agent and, if necessary
under the jurisdiction of incorporation of the Company, a Registrar (which may
be the same entity as the Transfer Agent) for its Common Stock.
(j) During such period as a Prospectus is required by law to be
delivered in connection with sales by an Underwriter or dealer, the Company will
furnish to the Representatives or on the Representatives' order, without charge,
at such place as the Representatives may designate, copies of each Preliminary
Prospectus, the Registration Statement and any pre-effective or post-effective
amendments thereto (two of which copies will
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<PAGE> 16
be signed and will include all financial statements and exhibits), the
Prospectus, and all amendments and supplements thereto, including any prospectus
prepared after the effective date of the Registration Statement, in each case as
soon as available and in such quantities as the Representatives may reasonably
request.
(k) On or before the effective date of the Registration Statement,
the Company shall provide the Representatives with true copies of duly executed,
legally binding and enforceable agreements pursuant to which for a period of
nine (9) months from the effective date of the Registration Statement, NBC, NBC
Multimedia and the holders of substantially all shares of Common Stock and
holders of substantially all securities exchangeable or exercisable for or
convertible into shares of Common Stock, agree that it or he or she will not
directly or indirectly, issue, offer to sell, sell, grant an option for the sale
of, assign, transfer, pledge, hypothecate, distribute or otherwise encumber or
dispose of any shares of Common Stock or securities convertible into,
exercisable or exchangeable for or evidencing any right to purchase or subscribe
for any shares of Common Stock (either pursuant to Rule 144 of the Rules and
Regulations or otherwise) or dispose of any beneficial interest therein without
the prior written consent of the Representatives (collectively, the "Lock-up
Agreements"). During the nine (9) month period commencing with the effective
date of the Registration Statement, the Company shall not, without the prior
written consent of the Representatives, sell, contract or offer to sell, issue,
transfer, assign, pledge, hypothecate, distribute, or otherwise dispose of,
directly or indirectly, any shares of Common Stock or any options, rights or
warrants with respect to any shares of Common Stock, except for options issued
to employees, consultants or directors of the Company pursuant to an employee
benefit plan described in the Prospectus and provided that no shares of Common
Stock issued upon exercise of such options may be sold during the nine (9) month
period commencing with the effective date of the Registration Statement. On or
before the Closing Date, the Company shall deliver instructions to the Transfer
Agent authorizing it to place appropriate legends on the certificates
representing the securities subject to the Lock-up Agreements and to place
appropriate stop transfer orders on the Company's ledgers.
(l) Neither the Company, nor any of its officers, directors,
stockholders, nor any of their respective affiliates (within the meaning of the
Rules and Regulations) will take, directly or indirectly, any action designed
to, or which might in the future reasonably be expected to cause or result in,
stabilization or manipulation of the price of any securities of the Company.
(m) The Company shall apply the net proceeds from the sale of the
Securities in the manner, and subject to the conditions, set forth under "Use of
Proceeds" in the Prospectus. Except as described in the Prospectus, no portion
of the net proceeds will be used, directly or indirectly, to acquire any
securities issued by the Company.
(n) The Company shall timely file all such reports, forms or other
documents as may be required from time to time, under the Act, the Exchange Act,
and the Rules and Regulations, and all such reports, forms and documents filed
will comply as to form and substance with the applicable requirements under the
Act, the Exchange Act, and the Rules and Regulations.
(o) The Company shall furnish to the Representatives as early as
practicable prior to each of the date hereof, the Closing Date and each Option
Closing Date, if any, but no later
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than two (2) full business days prior thereto, a copy of the latest available
unaudited interim financial statements of the Company (which in no event shall
be as of a date more than thirty (30) days prior to the date of the Registration
Statement) which have been read by the Company's independent public accountants,
as stated in its letter to be furnished pursuant to Section 6(i) hereof.
(p) The Company shall cause the Common Stock to be quoted on Nasdaq
and for a period of seven (7) years from the date hereof, use its best efforts
to maintain the Nasdaq quotation of the Common Stock to the extent outstanding.
(q) For a period of five (5) years from the Closing Date, the
Company shall furnish to the Representatives at the Representatives' request and
at the Company's sole expense, (i) daily consolidated transfer sheets relating
to the Common Stock and (ii) the list of holders of all of the Company's
securities.
(r) As soon as practicable, but in no event more than 5 business
days before the effective date of the Registration Statement, file a Form 8-A
with the Commission providing for the registration under the Exchange Act of the
Shares.
(s) The Company hereby agrees that it will not for a period of nine
(9) months from the effective date of the Registration Statement (without the
prior written consent of Josephthal), adopt, propose to adopt or otherwise
permit to exist any employee, officer, director, consultant or compensation plan
or arrangement permitting the grant, issue or sale of any shares of Common Stock
or other securities of the Company (i) in an amount greater than an aggregate of
1,889,400 shares, (ii) at an exercise or sale price per share less than the
greater of (a) the initial public offering price of the Shares set forth herein
and (b) the fair market value of the Common Stock on the date of grant or sale,
and (iii) to any direct or indirect beneficial holder on the date hereof of more
than 10% of the issued and outstanding shares of Common Stock, (iv) with the
payment for such securities with any form of consideration other than cash, (v)
upon payment of less than the full purchase or exercise price for such shares of
Common Stock or other securities of the Company on the date of grant or
issuance, or (vi) the existence of stock appreciation rights, phantom options or
similar arrangements.
(t) Until the completion of the distribution of the Shares, the
Company shall not, without the prior written consent of the Representatives and
Underwriters' Counsel, issue, directly or indirectly, any press release or other
communication or hold any press conference with respect to the Company or its
activities or the offering contemplated hereby, other than trade releases issued
in the ordinary course of the Company's business consistent with past practices
with respect to the Company's operations.
(u) For a period equal to the lesser of (i) five (5) years from the
date hereof, or (ii) the sale to the public of the Advisors' Shares, the Company
will not take any action or actions which may prevent or disqualify the
Company's use of Form S-3 (or other appropriate form) for the registration under
the Act of the Advisors' Shares.
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<PAGE> 18
5. Payment of Expenses.
(a) The Company hereby agrees to pay on each of the Closing Date and
the Option Closing Date (to the extent not paid at the Closing Date) all
expenses and fees (other than fees of Underwriters' Counsel, except as provided
in (iv) below) incident to the performance of the obligations of the Company
under this Agreement and the Advisors' Warrant Agreement, including, without
limitation, (i) the fees and expenses of accountants and counsel for the
Company, (ii) all costs and expenses incurred in connection with the
preparation, duplication, printing (including mailing and handling charges),
filing, delivery and mailing (including the payment of postage with respect
thereto) of the Registration Statement and the Prospectus and any amendments and
supplements thereto and the mailing (including the payment of postage with
respect thereto) and delivery of this Agreement, the Agreement Among
Underwriters, the Selected Dealer Agreements, and related documents, including
the cost of all copies thereof and of the Preliminary Prospectuses and of the
Prospectus and any amendments thereof or supplements thereto supplied to the
Underwriters and such dealers as the Underwriters may reasonably request, in
quantities as hereinabove stated, (iii) the printing, engraving, issuance and
delivery of the Securities including, but not limited to, (x) the purchase by
the Underwriters of the Shares and the purchase by you of the Advisors' Warrants
from the Company, (y) the consummation by the Company of any of its obligations
under this Agreement and the Advisors' Warrant Agreement, and (z) resale of the
Shares by the Underwriters in connection with the distribution contemplated
hereby, (iv) the qualification of the Securities under state or foreign
securities or "Blue Sky" laws and determination of the status of such securities
under legal investment laws, including the costs of printing and mailing the
"Preliminary Blue Sky Memorandum," the "Supplemental Blue Sky Memorandum" and
"Legal Investments Survey," if any, and disbursements and fees of counsel in
connection therewith, (v) fees and expenses of the transfer agent and registrar,
(vi) the fees payable to the Commission and the NASD, and (vii) the fees and
expenses incurred in connection with the quotation of the Shares and Directed
Shares on Nasdaq and any other exchange.
(b) If this Agreement is terminated by the Underwriters in
accordance with the provisions of Section 6 or Section 12, the Company shall
reimburse and indemnify the Representatives for all of their actual
out-of-pocket expenses, including the fees and disbursements of Underwriters'
Counsel, less any amounts already paid pursuant to Section 5(c) hereof.
(c) The Company further agrees that, in addition to the expenses
payable pursuant to subsection (a) of this Section 5, it will pay to the
Representatives on the Closing Date by certified or bank cashier's check or, at
the election of the Representatives, by deduction from the proceeds of the
offering contemplated herein a non-accountable expense allowance equal to one
percent (1.0%) of the gross proceeds received by the Company from the sale of
the Firm Shares. In the event the Representatives elect to exercise the
over-allotment option described in Section 2(b) hereof, the Company agrees to
pay to the Representatives on the Option Closing Date (by certified or bank
cashier's check or, at the Representatives' election, by deduction from the
proceeds of the Option Shares) a non-accountable expense allowance equal to one
percent (1.0%) of the gross proceeds received by the Company from the sale of
the Option Shares.
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<PAGE> 19
6. Conditions of the Underwriters' Obligations. The obligations of the
Underwriters hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company herein as of the date hereof and
as of the Closing Date and each Option Closing Date, if any, with respect to the
Company as if it had been made on and as of the Closing Date or each Option
Closing Date, as the case may be; the accuracy on and as of the Closing Date or
Option Closing Date, if any, of the statements of the officers of the Company
made pursuant to the provisions hereof; and the performance by the Company on
and as of the Closing Date and each Option Closing Date, if any, of its
covenants and obligations hereunder and to the following further conditions:
(a) The Registration Statement shall have become effective not later
than 12:00 Noon, New York time, on the date of this Agreement or such later date
and time as shall be consented to in writing by the Representatives, and, at
Closing Date and each Option Closing Date, if any, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or shall be pending or
contemplated by the Commission and any request on the part of the Commission for
additional information shall have been complied with to the reasonable
satisfaction of Underwriters' Counsel. If the Company has elected to rely upon
Rule 430A of the Rules and Regulations, the price of the Shares and any
price-related information previously omitted from the effective Registration
Statement pursuant to such Rule 430A shall have been transmitted to the
Commission for filing pursuant to Rule 424(b) of the Rules and Regulations
within the prescribed time period, and prior to Closing Date the Company shall
have provided evidence satisfactory to the Representatives of such timely
filing, or a post-effective amendment providing such information shall have been
promptly filed and declared effective in accordance with the requirements of
Rule 430A of the Rules and Regulations.
(b) The Representatives shall not have been advised by the Company
that the Registration Statement, or any amendment thereto, contains an untrue
statement of fact which, in the Representatives' opinion, is material, or omits
to state a fact which, in the Representatives' opinion, is material and is
required to be stated therein or is necessary to make the statements therein not
misleading, or that the Prospectus, or any supplement thereto, contains an
untrue statement of fact which, in the Representatives' opinion, is material, or
omits to state a fact which, in the Representatives' opinion, is material and is
required to be stated therein or is necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(c) On or prior to the Closing Date, the Representatives shall have
received from Underwriters' Counsel, such opinion or opinions with respect to
the organization of the Company, the validity of the Securities, the Advisors'
Warrants, the Registration Statement, the Prospectus and other related matters
as the Representatives may request and Underwriters' Counsel shall have received
such papers and information as they request to enable them to pass upon such
matters.
(d) On the Closing Date, the Underwriters shall have received the
favorable opinion of Latham & Watkins, counsel to the Company, dated the Closing
Date, addressed to the Underwriters and in form and substance satisfactory to
Underwriters' Counsel, to the effect that:
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<PAGE> 20
(i) the Company has been duly incorporated and is validly
existing and in good standing under the laws of the State of Delaware, with
corporate power and authority to own, lease and operate its properties and to
conduct its business as described in the Registration Statement and the
Prospectus. The Company is duly qualified to do business as a foreign
corporation and is in good standing in all jurisdictions in the United States in
which the Company is required to be qualified and in which the failure so to
qualify taken in the aggregate would have a material adverse effect on the
condition, financial or otherwise, or the earnings, position, prospects, value,
operation, properties, business or results of operations of the Company.
(ii) the authorized, issued and outstanding capital stock of
the Company is as set forth in the Registration Statement and the Prospectus
under the caption "Capitalization." The issued and outstanding shares of capital
stock of the Company have been duly and validly authorized and issued, and are
fully paid and nonassessable, and to the best of such counsel's knowledge, free
of preemptive rights. Except as described in the Registration Statement and the
Prospectus, to the best of such counsel's knowledge, there is no commitment or
arrangement to issue, and there are no outstanding options, warrants or other
rights calling for the issuance of, any share of capital stock of the Company or
any security or other instrument that by its terms is convertible into,
exercisable for, or exchangeable for capital stock of the Company.
(iii) the Shares to be issued and sold by the Company pursuant
to the Underwriting Agreement have been duly authorized and, when issued to and
paid for by you and the other Underwriters in accordance with the terms of the
Underwriting Agreement, will be validly issued, fully paid and nonassessable
and, to the best of such counsel's knowledge, free of preemptive rights. The
Directed Shares to be issued and sold by the Company pursuant to the NBC
Agreement have been duly authorized and, when issued to and paid for by NBC
Multimedia in accordance with the terms of the NBC Agreement, will be validly
issued, fully paid and nonassessable and, and to the best of such counsel's
knowledge, free of preemptive rights. The Advisors' Shares have been duly
authorized and reserved for issuance and upon issuance in accordance with the
terms of the Advisors' Warrants will be validly issued, fully paid and
nonassessable, and to the best of such counsel's knowledge, free of preemptive
rights.
(iv) except as described in the Prospectus, to the best of
such counsel's knowledge, no person, corporation, trust, partnership,
association or other entity has the right to include and/or register any
securities of the Company in the Registration Statement, require the Company to
file any registration statement or, if filed, to include any security in such
registration statement.
(v) the Registration Statement has become effective under the
Act and, to the best of such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued under the Act and no
proceedings therefor have been initiated by the Commission; and any required
filing of the Prospectus pursuant to Rule 424(b) under the Act has been made in
accordance with Rule 424(b) and 430A under the Act.
(vi) the Registration Statement and the Prospectus comply as
to form in all material respects with the requirements for registration
statements on Form S-1 under the Act
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<PAGE> 21
and the Rules and Regulations; it being understood, however, that such counsel
need not express any opinion with respect to the financial statements, schedules
and other financial and statistical data included in the Registration Statement
or the Prospectus and in passing upon the compliance as to form of the
Registration Statement and the Prospectus, such counsel may assume that the
statements made therein are correct and complete.
(vii) to the best of such counsel's knowledge, there are no
statutes or legal or governmental proceedings required to be described in the
Prospectus that are not described as required, or contracts or documents of a
character required to be described in the Registration Statement or Prospectus
or to be filed as exhibits to the Registration Statement that are not described
and filed as required.
(viii) to the best of such counsel's knowledge, there are no
actions, suits, proceedings or investigations pending or threatened against the
Company before or by any court, governmental agency or arbitrator.
(ix) the Company has corporate power and authority to enter
into this Agreement, the Advisors' Warrant Agreement and the NBC Agreement, and
this Agreement, the Advisors' Warrant Agreement and the NBC Agreement have been
duly authorized, executed and delivered by, and the Advisors' Warrant Agreement
is a valid and binding agreement of, the Company, enforceable in accordance with
its terms, except as rights to indemnification thereunder may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general equitable
principles.
(x) the execution and delivery by the Company of, and the
issuance and sale of the Securities pursuant to this Agreement, the Advisors'
Warrant Agreement and the NBC Agreement do not (i) violate the Amended and
Restated Certificate of Incorporation or Bylaws of the Company, (ii) to the best
of such counsel's knowledge, breach or result in a default under, cause the time
for performance of any obligation to be accelerated under, or result in the
creation or imposition of any lien, charge or encumbrance upon any of the assets
of the Company pursuant to the terms of any document filed as an exhibit to the
Registration Statement (including any indenture mortgage, deed of trust, loan
agreement, bond, debenture, note agreement, capital lease or other evidence of
indebtedness identified to us as material to the Company by the Company), (iii)
to the best of such counsel's knowledge, breach or otherwise violate any
existing obligation of the Company under any court or administrative order,
judgment or decree, or (iv) violate applicable provisions of the General
Corporation Law of the State of Delaware or any statute or regulation of the
State of California or of the United States.
(xi) no consent, approval, authorization or order of, or any
filing or declaration with, any court or governmental agency or body is required
in connection with the authorization, issuance, transfer, sale or delivery of
the Securities by the Company, in connection with the execution, delivery and
performance of this Agreement, the Advisors' Warrant Agreement and the NBC
Agreement by the Company, except such as have been obtained under the Act and
the Exchange Act and such as may be required under state securities or Blue Sky
laws (as to which such counsel need not express any opinion) or by the bylaws
and rules of the NASD in connection with the purchase and distribution by the
Underwriters of the Shares to be sold by the Company.
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<PAGE> 22
(xii) the statements set forth in the Prospectus under the
headings "Risk Factors - Risks Associated with Strategic Alliance with NBC
Multimedia," "Business - Strategic Alliance with NBC Multimedia," "Description
of Capital Stock" and "Securities Eligible for Future Sale" insofar as such
statements constitute a summary of legal matters, are accurate in all material
respects.
(xiii) The form of certificate used to evidence the Shares is
in due and proper form and complies with all statutory requirements under the
laws of the State of Delaware.
Such counsel shall state that such counsel has participated in
conferences with officers and other representatives of the Company,
representatives of the independent public accountants for the Company, and your
representatives, at which the contents of the Registration Statement and the
Prospectus and related matters were discussed and, although such counsel is not
passing upon, and does not assume any responsibility for, the accuracy,
completeness or fairness of the statements contained in the Registration
Statement and the Prospectus and has not made any independent check or
verification thereof, during the course of such participation (relying as to
materiality to a large extent upon the statements of officers and other
representatives of the Company), no facts came to such counsel's attention that
caused such counsel to believe that the Registration Statement, at the time it
became effective, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, or that the Prospectus, as of its date or the
date hereof, contained or contains an untrue statement of a material fact or
omitted or omits to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; it being understood that such counsel need not express any belief
with respect to the financial statements, schedules and other financial and
statistical data included in the Registration Statement or the Prospectus.
Such opinion shall not state that it is to be governed or qualified
by, or that it is otherwise subject to, any treatise, written policy or other
document relating to legal opinions, including, without limitation, the Legal
Opinion Accord of the ABA Section of Business Law (1991), or any comparable
state bar accord.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws other than the laws of the United States and
jurisdictions in which they are admitted, to the extent such counsel deems
proper and to the extent specified in such opinion, if at all, upon an opinion
or opinions (in form and substance satisfactory to Underwriters' Counsel) of
other counsel acceptable to Underwriters' Counsel, familiar with the applicable
laws; (B) as to matters of fact, to the extent they deem proper, on certificates
and written statements of responsible officers of the Company, and certificates
or other written statements of officers of departments of various jurisdictions
having custody of documents respecting the corporate existence or good standing
of the Company, provided that copies of any such statements or certificates
shall be delivered to Underwriters' Counsel if requested. The opinion of such
counsel for the Company shall state that the opinion of any such other counsel
is in form satisfactory to such counsel and that the Representatives and they
are justified in relying thereon.
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(e) At each Option Closing Date, if any, the Underwriters shall have
received the favorable opinion of Latham & Watkins, counsel to the Company,
dated the Option Closing Date, addressed to the Underwriters and in form and
substance satisfactory to Underwriters' Counsel confirming as of Option Closing
Date the statements made by Latham & Watkins in its opinion delivered on the
Closing Date.
(f) On or prior to each of the Closing Date and the Option Closing
Date, if any, Underwriters' Counsel shall have been furnished such documents,
certificates and opinions as they may reasonably require for the purpose of
enabling them to review or pass upon the matters referred to in subsection (c)
of this Section 6, or in order to evidence the accuracy, completeness or
satisfaction of any of the representations, warranties or conditions of the
Company, or herein contained.
(g) Prior to each of the Closing Date and each Option Closing Date,
if any, (i) there shall have been no material adverse change nor development
involving a prospective material adverse change in the condition, financial or
otherwise, prospects, stockholders' equity or the business activities of the
Company, whether or not in the ordinary course of business, from the latest
dates as of which such condition is set forth in the Registration Statement and
Prospectus; (ii) there shall have been no transaction, not in the ordinary
course of business, entered into by the Company, from the latest date as of
which the financial condition of the Company is set forth in the Registration
Statement and Prospectus which is materially adverse to the Company; (iii) the
Company shall not be in material default under any provision of any instrument
relating to any outstanding indebtedness; (iv) the Company shall not have issued
any securities (other than the Securities); the Company shall not have declared
or paid any dividend or made any distribution in respect of its capital stock of
any class; and there has not been any change in the capital stock of the
Company, or any material change in the debt (long or short term) or liabilities
or obligations of the Company (contingent or otherwise); (v) no material amount
of the assets of the Company shall have been pledged or mortgaged, except as set
forth in the Registration Statement and Prospectus; (vi) no action, suit or
proceeding, at law or in equity, shall have been pending or threatened (or
circumstances giving rise to same) against the Company, or affecting any of its
properties or business before or by any court or federal, state or foreign
commission, board or other administrative agency wherein an unfavorable
decision, ruling or finding may adversely affect the business, operations,
prospects or financial condition or income of the Company, except as set forth
in the Registration Statement and Prospectus; and (vii) no stop order shall have
been issued under the Act and no proceedings therefor shall have been initiated,
threatened or contemplated by the Commission.
(h) At each of the Closing Date and each Option Closing Date, if
any, the Underwriters shall have received a certificate of the Company signed by
the principal executive officer and by the chief financial or chief accounting
officer of the Company, dated the Closing Date or Option Closing Date, as the
case may be, to the effect that each of such persons has carefully examined the
Registration Statement, the Prospectus and this Agreement, and that:
(i) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the Closing Date or the
Option Closing Date, as the case may be, and the Company has complied with all
agreements and covenants and
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<PAGE> 24
satisfied all conditions contained in this Agreement on its part to be performed
or satisfied at or prior to such Closing Date or Option Closing Date, as the
case may be;
(ii) No stop order suspending the effectiveness of the
Registration Statement or any part thereof has been issued, and no proceedings
for that purpose have been instituted or are pending or, to the best of each of
such person's knowledge, after due inquiry are contemplated or threatened under
the Act;
(iii) The Registration Statement and the Prospectus and, if
any, each amendment and each supplement thereto, contain all statements and
information required to be included therein, and none of the Registration
Statement, the Prospectus nor any amendment or supplement thereto includes any
untrue statement of a material fact or omits to state any material fact required
to be stated therein or necessary to make the statements therein not misleading
and neither the Preliminary Prospectus or any supplement thereto included any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading; and
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus, (a) the
Company has not incurred up to and including the Closing Date or the Option
Closing Date, as the case may be, other than in the ordinary course of its
business, any material liabilities or obligations, direct or contingent; (b) the
Company has not paid or declared any dividends or other distributions on its
capital stock; (c) the Company has not entered into any transactions not in the
ordinary course of business; (d) there has not been any change in the capital
stock of the Company or any material change in the debt (long or short-term) of
the Company; (e) the Company has not sustained any material loss or damage to
its property or assets, whether or not insured; (g) there is no litigation which
is pending or threatened (or circumstances giving rise to same) against the
Company, or any affiliated party of any of the foregoing which is required to be
set forth in an amended or supplemented Prospectus which has not been set forth;
and (h) there has occurred no event required to be set forth in an amended or
supplemented Prospectus which has not been set forth.
References to the Registration Statement and the Prospectus in this subsection
(g) are to such documents as amended and supplemented at the date of such
certificate.
(i) By the Closing Date, the Underwriters will have received
clearance from the NASD as to the amount of compensation allowable or payable to
the Underwriters, as described in the Registration Statement.
(j) At the time this Agreement is executed, the Underwriters shall
have received a letter, dated such date, addressed to the Underwriters in form
and substance satisfactory (including the non-material nature of the changes or
decreases, if any, referred to in clause (iii) below) in all respects to the
Underwriters and Underwriters' Counsel, from Ernst & Young LLP:
(i) confirming that they are independent certified public
accountants with respect to the Company within the meaning of the Act and the
applicable Rules and Regulations;
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(ii) stating that it is their opinion that the financial
statements of the Company as of December 31, 1995 and 1996 and for the years
then ended, and for the period from inception (August 2, 1995) through December
31, 1996 included in the Registration Statement comply as to form in all
material respects with the applicable accounting requirements of the Act and the
Rules and Regulations thereunder and that the Representatives may rely upon the
opinion of Ernst & Young LLP with respect to such financial statements included
in the Registration Statement;
(iii) stating that, on the basis of a limited review which
included a reading of the latest available unaudited interim financial
statements of the Company, a reading of the latest available minutes of the
stockholders and board of directors and the various committees of the boards of
directors of the Company, consultations with officers and other employees of the
Company responsible for financial and accounting matters and other specified
procedures and inquiries, nothing has come to their attention which would lead
them to believe that (A) the pro forma financial information contained in the
Registration Statement and Prospectus does not comply as to form in all material
respects with the applicable accounting requirements of the Act and the Rules
and Regulations or is not fairly presented in conformity with generally accepted
accounting principles applied on a basis consistent with that of the audited
financial statements of the Company or the unaudited pro forma financial
information included in the Registration Statement, (B) the unaudited financial
statements of the Company included in the Registration Statement do not comply
as to form in all material respects with the applicable accounting requirements
of the Act and the Rules and Regulations or are not fairly presented in
conformity with generally accepted accounting principles applied on a basis
substantially consistent with that of the audited financial statements of the
Company included in the Registration Statement, or (C) at a specified date not
more than five (5) days prior to the effective date of the Registration
Statement, there has been any change in the capital stock of the Company, any
change in the long-term debt of the Company, or any decrease in the
stockholders' equity of the Company or any decrease in the net current assets or
net assets of the Company as compared with amounts shown in the September 30,
1997 balance sheets included in the Registration Statement, other than as set
forth in or contemplated by the Registration Statement, or, if there was any
change or decrease, setting forth the amount of such change or decrease, and (D)
during the period from September 30, 1997 to a specified date not more than five
(5) days prior to the effective date of the Registration Statement, there was
any decrease in net revenues or net earnings of the Company or increase in net
loss per common share of the Company, in each case as compared with the
corresponding period beginning October 1, 1996 other than as set forth in or
contemplated by the Registration Statement, or, if there was any such decrease,
setting forth the amount of such decrease;
(iv) stating that they have compared specific dollar amounts,
numbers of shares, percentages of revenues and earnings, statements and other
financial information pertaining to the Company set forth in the Prospectus in
each case to the extent that such amounts, numbers, percentages, statements and
information may be derived from the general accounting records, including work
sheets, of the Company and excluding any questions requiring an interpretation
by legal counsel, with the results obtained from the application of specified
readings, inquiries and other appropriate procedures (which procedures do not
constitute an examination in accordance with generally accepted auditing
standards) set forth in the letter and found them to be in agreement; and
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<PAGE> 26
(v) statements as to such other matters incident to the
transaction contemplated hereby as the Representatives may request.
(k) At the Closing Date and each Option Closing Date, if any, the
Underwriters shall have received from Ernst & Young LLP a letter, dated as of
the Closing Date or the Option Closing Date, as the case may be, to the effect
that they reaffirm the statements made in the letter furnished pursuant to
subsection (j) of this Section hereof except that the specified date referred to
shall be a date not more than five days prior to the Closing Date or the Option
Closing Date, as the case may be, and, if the Company has elected to rely on
Rule 430A of the Rules and Regulations, to the further effect that they have
carried out procedures as specified in clause (v) of subsection (j) of this
Section with respect to certain amounts, percentages and financial information
as specified by the Representatives and deemed to be a part of the Registration
Statement pursuant to Rule 430A(b) and have found such amounts, percentages and
financial information to be in agreement with the records specified in such
clause (v).
(l) The Company shall have delivered to the Representatives a letter
from Ernst & Young LLP addressed to the Company stating that they have not
during the immediately preceding two year period brought to the attention of the
Company's management any "weakness" as defined in Statement of Auditing
Standards No. 60 "Communication of Internal Control Structure Related Matters
Noted in an Audit," in any of the Company's internal controls.
(m) On the Closing Date and each Option Closing Date, if any, the
Representatives shall have received the favorable opinion of Darby & Darby,
special intellectual property counsel to the Company, dated the Closing Date or
Option Closing Date, addressed to the Underwriters and in substantially the form
of Exhibit A attached hereto.
(n) On each of the Closing Date and Option Closing Date, if any,
there shall have been duly tendered to the Representatives for the several
Underwriters' accounts the appropriate number of Shares.
(o) No order suspending the sale of the Securities in any
jurisdiction designated by the Representatives pursuant to subsection (e) of
Section 4 hereof shall have been issued on either the Closing Date or the Option
Closing Date, if any, and no proceedings for that purpose shall have been
instituted or shall be contemplated.
(p) On or before the Closing Date, the Company shall have executed
and delivered to you (i) the Advisors' Warrant Agreement substantially in the
form filed as Exhibit 4.2 to the Registration Statement in final form and
substance satisfactory to the Representatives, and (ii) the Advisors' Warrants
in such denominations and to such designees as shall have been provided to the
Company.
(q) On or before the Closing Date, the Shares shall have been duly
approved for quotation on Nasdaq, subject to official notice of issuance.
(r) On or before the Closing Date, there shall have been delivered
to the Representatives the Lock-up Agreements, in form and substance
satisfactory to Underwriters' Counsel.
26
<PAGE> 27
(s) On the Closing Date, the NBC Agreement shall not have been
terminated and the sale of the Directed Shares shall be consummated concurrent
with or immediately after the sale of the Shares pursuant to this Agreement.
If any condition to the Underwriters' obligations hereunder to be
fulfilled prior to or at the Closing Date or the relevant Option Closing Date,
as the case may be, is not so fulfilled, the Representatives may terminate this
Agreement or, if the Representatives so elect, it may waive any such conditions
which have not been fulfilled or extend the time for their fulfillment.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless each of the
Underwriters (for purposes of this Section 7 "Underwriter" shall include the
officers, directors, partners, employees, agents and counsel of the Underwriter,
including specifically each person who may be substituted for an Underwriter as
provided in Section 11 hereof), and each person, if any, who controls the
Underwriter ("controlling person") within the meaning of Section 15 of the Act
or Section 20(a) of the Exchange Act, from and against any and all losses,
claims, damages, expenses or liabilities, joint or several (and actions,
proceedings, investigations, inquiries, and suits in respect thereof),
whatsoever (including but not limited to any and all costs and expenses
whatsoever reasonably incurred in investigating, preparing or defending against
such action, proceeding, investigation, inquiry or suit, commenced or
threatened, or any claim whatsoever), as such are incurred, to which the
Underwriter or such controlling person may become subject under the Act, the
Exchange Act or any other statute or at common law or otherwise or under the
laws of foreign countries, arising out of or based upon (A) any untrue statement
or alleged untrue statement of a material fact contained (i) in any Preliminary
Prospectus, the Registration Statement or the Prospectus (as from time to time
amended and supplemented); (ii) in any post-effective amendment or amendments or
any new registration statement and prospectus in which is included securities of
the Company issued or issuable upon exercise of the Securities; or (iii) in any
application or other document or written communication (in this Section 7
collectively called "application") executed by the Company or based upon written
information furnished by the Company filed, delivered or used in any
jurisdiction in order to qualify the Securities under the securities laws
thereof or filed with the Commission, any state securities commission or agency,
Nasdaq or any other securities exchange, (B) the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to make
the statements therein not misleading (in the case of the Prospectus, in the
light of the circumstances under which they were made), or (C) any breach of any
representation, warranty, covenant or agreement of the Company contained herein
or in any certificate by or on behalf of the Company or any of its officers
delivered pursuant hereto; provided, however, that such indemnity shall not
inure to the benefit of any Underwriter (or any person controlling such
Underwriter) on account of any losses, claims, damages or liabilities arising
from the sale of the Shares to any person by such Underwriter (1) if such untrue
statement or omission or alleged untrue statement or omission was made in such
Preliminary Prospectus, the Registration Statement or the Prospectus or such
amendment or supplement, and was contained in the paragraph relating to
stabilization and market making on the inside front cover page of the Prospectus
or under the caption "Underwriting" in the Prospectus (to the extent such
statements relate to the Underwriters) or (2) if the Company sustains the burden
of proving that such person was not sent or given a copy of the Prospectus (or
the Prospectus as amended or supplemented) at or prior to the written
27
<PAGE> 28
confirmation of the sale of such Securities to such person and the untrue
statement contained in or omission from such Preliminary Prospectus was
corrected in the Prospectus (or the Prospectus as amended or supplemented).
The indemnity agreement in this subsection (a) shall be in addition
to any liability which the Company may have at common law or otherwise.
(b) Each of the Underwriters agrees severally, but not jointly, to
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the Registration Statement, and each other person, if
any, who controls the Company within the meaning of the Act, to the same extent
as the foregoing indemnity from the Company to the Underwriters but only with
respect to statements or omissions, if any, made in any Preliminary Prospectus,
the Registration Statement or Prospectus or any amendment thereof or supplement
thereto or in any application made in reliance upon, and in strict conformity
with, written information furnished to the Company with respect to any
Underwriter by such Underwriter expressly for use in such Preliminary
Prospectus, the Registration Statement or Prospectus or any amendment thereof or
supplement thereto or in any such application, provided that such written
information or omissions only pertain to disclosures in the Preliminary
Prospectus, the Registration Statement or Prospectus directly relating to the
transactions effected by the Underwriters in connection with this Offering. The
Company acknowledges that the statements with respect to the public offering of
the Shares set forth under the heading "Underwriting" and the stabilization
legend in the Prospectus have been furnished by the Underwriters expressly for
use therein and constitute the only information furnished in writing by or on
behalf of the Underwriters for inclusion in the Prospectus.
The indemnity agreement in this subsection (b) shall be in addition
to any liability which the Underwriters may have at common law or otherwise.
(c) Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any action, suit or proceeding, such
indemnified party shall, if a claim in respect thereof is to be made against one
or more indemnifying parties under this Section 7, notify each party against
whom indemnification is to be sought in writing of the commencement thereof (but
the failure so to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 7 except to the extent that it
has been prejudiced in any material respect by such failure or from any
liability which it may have otherwise). In case any such action, investigation,
inquiry, suit or proceeding is brought against any indemnified party, and it
notifies an indemnifying party or parties of the commencement thereof, the
indemnifying party or parties will be entitled to participate therein, and to
the extent it may elect by written notice delivered to the indemnified party
promptly after receiving the aforesaid notice from such indemnified party, to
assume the defense thereof with counsel reasonably satisfactory to such
indemnified party. Notwithstanding the foregoing, the indemnified party or
parties shall have the right to employ its or their own counsel in any such case
but the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless (i) the employment of such counsel shall
have been authorized in writing by the indemnifying parties in connection with
the defense of such action at the expense of the indemnifying party, (ii) the
indemnifying parties shall not have employed counsel reasonably satisfactory to
such indemnified party to have charge of the defense of such action within a
reasonable time after notice of
28
<PAGE> 29
commencement of the action, or (iii) such indemnified party or parties shall
have reasonably concluded that there may be defenses available to it or them
which are different from or additional to those available to one or all of the
indemnifying parties (in which case the indemnifying parties shall not have the
right to direct the defense of such action, investigation, inquiry, suit or
proceeding on behalf of the indemnified party or parties), in any of which
events such reasonable and documented fees and expenses of one additional
counsel shall be borne by the indemnifying parties. In no event shall the
indemnifying parties be liable for fees and expenses of more than one counsel
(in addition to any local counsel) separate from their own counsel for all
indemnified parties in connection with any one action, investigation, inquiry,
suit or proceeding or separate but similar or related actions, investigations,
inquiries, suits or proceedings in the same jurisdiction arising out of the same
general allegations or circumstances. Anything in this Section 7 to the contrary
notwithstanding, an indemnifying party shall not be liable for any settlement of
any claim or action effected without its written consent; provided, however,
that such consent was not unreasonably withheld. An indemnifying party will not,
without the prior written consent of the indemnified parties, settle, compromise
or consent to the entry of any judgment with respect to any pending or
threatened claim, action, investigation, inquiry, suit or proceeding in respect
of which indemnification or contribution may be sought hereunder (whether or not
the indemnified parties are actual or potential parties to such claim or
action), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party form all liability arising out
of such claim, action, suit or proceeding and (ii) does not include a statement
as to or an admission of fault, culpability or a failure to act by or on behalf
of any indemnified party.
(d) In order to provide for just and equitable contribution in any
case in which (i) an indemnified party makes claim for indemnification pursuant
to this Section 7, but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
the express provisions of this Section 7 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party shall contribute to the amount
paid as a result of such losses, claims, damages, expenses or liabilities (or
actions, investigations, inquiries, suits or proceedings in respect thereof) (A)
in such proportion as is appropriate to reflect the relative benefits received
by each of the contributing parties, on the one hand, and the party to be
indemnified on the other hand, from the offering of the Shares and Directed
Shares or (B) if the allocation provided by clause (A) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
each of the contributing parties, on the one hand, and the party to be
indemnified on the other hand in connection with the statements or omissions
that resulted in such losses, claims, damages, expenses or liabilities, as well
as any other relevant equitable considerations. In any case where the Company is
the contributing party and the Underwriters are the indemnified party, the
relative benefits received by the Company on the one hand, and the Underwriters,
on the other, shall be deemed to be in the same proportion as the total net
proceeds from the offering of the Shares and Directed Shares (before deducting
expenses) bear to the total underwriting discounts received by the Underwriters
hereunder, in each case as set forth in the table on the cover page of the
Prospectus. Relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material
29
<PAGE> 30
fact relates to information supplied by the Company, or by the Underwriters, and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such untrue statement or omission. The amount paid or
payable by an indemnified party as a result of the losses, claims, damages,
expenses or liabilities (or actions, investigations, inquiries, suits or
proceedings in respect thereof) referred to above in this subdivision (d) shall
be deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action,
claim, investigation, inquiry, suit or proceeding. Notwithstanding the
provisions of this subdivision (d) the Underwriters shall not be required to
contribute any amount in excess of the underwriting discount applicable to the
Shares purchased by the Underwriters hereunder. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 7, each person, if any, who
controls the Company within the meaning of the Act, each officer of the Company
who has signed the Registration Statement, and each director of the Company
shall have the same rights to contribution as the Company, subject in each case
to this subparagraph (d). Any party entitled to contribution will, promptly
after receipt of notice of commencement of any action, suit, inquiry,
investigation or proceeding against such party in respect to which a claim for
contribution may be made against another party or parties under this
subparagraph (d), notify such party or parties from whom contribution may be
sought, but the omission so to notify such party or parties shall not relieve
the party or parties from whom contribution may be sought from any obligation it
or they may have hereunder or otherwise than under this subparagraph (d). The
contribution agreement set forth above shall be in addition to any liabilities
which any indemnifying party may have at common law or otherwise.
8. Representations and Agreements to Survive Delivery. All
representations, warranties and agreements contained in this Agreement or
contained in certificates of officers of the Company submitted pursuant hereto,
shall be deemed to be representations, warranties and agreements at the Closing
Date and the Option Closing Date, as the case may be, and such representations,
warranties and agreements of the Company and the indemnity agreements contained
in Section 7 hereof, shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any Underwriter, the
Company, any controlling person of any Underwriter or the Company, and shall
survive termination of this Agreement or the issuance and delivery of the
Securities to the Underwriters, the Representatives and NBC Multimedia, as the
case may be.
9. Effective Date. This Agreement shall become effective at 10:00 a.m.,
New York City time, on the next full business day following the date hereof, or
at such earlier time after the Registration Statement becomes effective as the
Representatives, in their discretion, shall release the Shares for sale to the
public; provided, however, that the provisions of Sections 5, 7 and 10 of this
Agreement shall at all times be effective. For purposes of this Section 9, the
Shares to be purchased hereunder shall be deemed to have been so released upon
the earlier of dispatch by the Representatives of telegrams to securities
dealers releasing such shares for offering or the release by the Representatives
for publication of the first newspaper advertisement which is subsequently
published relating to the Shares.
30
<PAGE> 31
10. Termination.
(a) Subject to subsection (b) of this Section 10, the
Representatives shall have the right to terminate this Agreement, after the date
hereof, (i) if any domestic or international event or act or occurrence has
materially disrupted, or in the Representatives' opinion will in the immediate
future materially adversely disrupt the financial markets; or (ii) any material
adverse change in the financial markets shall have occurred; or (iii) if trading
generally shall have been suspended or materially limited on or by, as the case
may be, any of the New York Stock Exchange, the American Stock Exchange, the
National Association of Securities Dealers, Inc., the Boston Stock Exchange, the
Chicago Board of Trade, the Chicago Board of Options Exchange, the Chicago
Mercantile Exchange, the Commission or any other government authority having
jurisdiction; or (iv) if trading of any of the securities of the Company shall
have been suspended, or any of the securities of the Company shall have been
delisted, on any exchange or in any over-the-counter market; or (v) if the
United States shall have become involved in a war or major hostilities, or if
there shall have been an escalation in an existing war or major hostilities or a
national emergency shall have been declared in the United States; or (vi) if a
banking moratorium has been declared by a state or federal authority; or (vii)
if a moratorium in foreign exchange trading has been declared; or (viii) if the
Company shall have sustained a loss material or substantial to the Company by
fire, flood, accident, hurricane, earthquake, theft, sabotage or other calamity
or malicious act which, whether or not such loss shall have been insured, will,
in the Representatives' opinion, make it inadvisable to proceed with the
delivery of the Shares; or (viii) if there shall have occurred any outbreak or
escalation of hostilities or any calamity or crisis or there shall have been
such a material adverse change in the conditions or prospects of the Company, or
such material adverse change in the general market, political or economic
conditions, in the United States or elsewhere as in the Representatives'
judgment would make it inadvisable to proceed with the offering, sale and/or
delivery of the Shares or (ix) if Harry E. Gruber or Brian Kenner shall no
longer serve the Company in his present capacity.
(b) If this Agreement is terminated by the Representatives in
accordance with the provisions of Section 10(a) the Company shall promptly
reimburse and indemnify the Representatives for all of their actual
out-of-pocket expenses, including the fees and disbursements of counsel for the
Underwriters (less amounts previously paid pursuant to Section 5(c) above).
Notwithstanding any contrary provision contained in this Agreement, if this
Agreement shall not be carried out within the time specified herein, or any
extension thereof granted to the Representatives, by reason of any failure on
the part of the Company to perform any undertaking or satisfy any condition of
this Agreement by it to be performed or satisfied (including, without
limitation, pursuant to Section 6 or Section 12) then, the Company shall
promptly reimburse and indemnify the Representatives for all of their actual
out-of-pocket expenses, including the fees and disbursements of counsel for the
Underwriters (less amounts previously paid pursuant to Section 5(c) above). In
addition, the Company shall remain liable for all Blue Sky counsel fees and
expenses and filing fees. Notwithstanding any contrary provision contained in
this Agreement, any election hereunder or any termination of this Agreement
(including, without limitation, pursuant to Sections 6, 10, 11 and 12 hereof),
and whether or not this Agreement is otherwise carried out, the provisions of
Section 5 and Section 7 shall not be in any way affected by such election or
termination or failure to carry out the terms of this Agreement or any part
hereof.
31
<PAGE> 32
11. Substitution of the Underwriters. If one or more of the Underwriters
shall fail (otherwise than for a reason sufficient to justify the termination of
this Agreement under the provisions of Section 6, Section 10 or Section 12
hereof) to purchase the Shares which it or they are obligated to purchase on
such date under this Agreement (the "Defaulted Shares"), the Representatives
shall have the right, within 24 hours thereafter, to make arrangement for one or
more of the non-defaulting Underwriters, or any other underwriters, to purchase
all, but not less than all, of the Defaulted Shares in such amounts as may be
agreed upon and upon the terms herein set forth; if, however, the
Representatives shall not have completed such arrangements within such 24-hour
period, then:
(a) if the number of Defaulted Shares does not exceed 10% of the
total number of Firm Shares to be purchased on such date, the non-defaulting
Underwriters shall be obligated to purchase the full amount thereof in the
proportions that their respective underwriting obligations hereunder bear to the
underwriting obligations of all non-defaulting Underwriters, or
(b) if the number of Defaulted Shares exceeds 10% of the total
number of Firm Shares, this Agreement shall terminate without liability on the
part of any non-defaulting Underwriters.
No action taken pursuant to this Section 11 shall relieve any
defaulting Underwriter from liability in respect of any default by such
Underwriter under this Agreement.
In the event of any such default which does not result in a
termination of this Agreement, the Representatives shall have the right to
postpone the Closing Date for a period not exceeding seven days in order to
effect any required changes in the Registration Statement or Prospectus or in
any other documents or arrangements.
12. Default by the Company. If the Company shall fail at the Closing Date
or at any Option Closing Date, as applicable, to sell and deliver the number of
Shares which it is obligated to sell hereunder on such date, then this Agreement
shall terminate (or, if such default shall occur with respect to any Option
Shares to be purchased on an Option Closing Date, the Underwriters may at the
Representatives' option, by notice from the Representatives to the Company,
terminate the Underwriters' obligation to purchase Option Shares from the
Company on such date) without any liability on the part of any non-defaulting
party other than pursuant to Section 5, Section 7 and Section 10 hereof. No
action taken pursuant to this Section shall relieve the Company from liability,
if any, in respect of such default.
13. Notices. All notices and communications hereunder, except as herein
otherwise specifically provided, shall be in writing and shall be deemed to have
been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters shall be directed to the
Representatives c/o Josephthal Lyon & Ross Incorporated, 200 Park Avenue, 25th
Floor, New York, New York 10166, Attention: Mark E. Brefka, with a copy to
Orrick, Herrington & Sutcliffe LLP, 666 Fifth Avenue, New York, New York 10103,
Attention: Lawrence B. Fisher, Esq. Notices to the Company shall be directed to
the Company at 201 Lomas Santa Fe Drive, Solana Beach, California 92075,
Attention: Harry E. Gruber, Chairman of the Board and Chief Executive Officer,
with a copy to Latham & Watkins, 701 B Street, Suite 2100, San Diego, California
92101, Attention: Scott N. Wolfe, Esq.
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<PAGE> 33
14. Parties. This Agreement shall inure solely to the benefit of and shall
be binding upon, the Underwriters, the Company and the controlling persons,
directors and officers referred to in Section 7 hereof, and their respective
successors, legal representatives and assigns, and no other person shall have or
be construed to have any legal or equitable right, remedy or claim under or in
respect of or by virtue of this Agreement or any provisions herein contained. No
purchaser of Shares from any Underwriter shall be deemed to be a successor by
reason merely of such purchase.
15. Construction. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York without giving
effect to the choice of law or conflict of laws principles.
16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall be deemed to be one and the same instrument.
17. Entire Agreement; Amendments. This Agreement and the Advisors' Warrant
Agreement constitute the entire agreement of the parties hereto and supersede
all prior written or oral agreements, understandings and negotiations with
respect to the subject matter hereof. This Agreement may not be amended except
in a writing, signed by the Representatives and the Company.
(Remainder of this page intentionally left blank)
33
<PAGE> 34
If the foregoing correctly sets forth the understanding between the
Underwriters and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement among
us.
Very truly yours,
INTERVU INC.
By:
---------------------------------------
Harry E. Gruber
Chairman of the Board,
President and Chief Executive Officer
Confirmed and accepted as of
the date first above written.
JOSEPHTHAL LYON & ROSS INCORPORATED
For itself and as Representatives of the several
Underwriters named in Schedule A hereto.
By:
------------------------------
Name:
Title:
CRUTTENDEN ROTH INCORPORATED
For itself and as Representatives of the several
Underwriters named in Schedule A hereto.
By:
------------------------------
Name:
Title:
34
<PAGE> 35
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Firm Shares
Name of Underwriters to be Purchased
- -------------------- ---------------
<S> <C>
Josephthal Lyon & Ross Incorporated......................
Cruttenden Roth Incorporated.............................
.........................................................
.........................................................
Total.............................................. 2,000,000
=========
</TABLE>
35
<PAGE> 36
EXHIBIT A
[FORM OF INTELLECTUAL PROPERTY OPINION]
November ___, 1997
JOSEPHTHAL LYON & ROSS INCORPORATED
CRUTTENDEN ROTH INCORPORATED
As Representatives of the Several Underwriters
200 Park Avenue, 25th Floor
New York, New York 10166
Re: Public Offering of InterVU Inc.
Gentlemen:
We have acted as special counsel for intellectual property matters
to InterVU, Inc., a Delaware corporation (the "Company"), in connection with the
entering into by the Company of that certain Underwriting Agreement by and
between Josephthal Lyon & Ross Incorporated ("Josephthal") and Cruttenden Roth
Incorporated, as representatives of the several underwriters named in Schedule A
thereto, and the Company, dated [November , 1997] (the "Underwriting
Agreement"). This opinion is provided to you pursuant to Section 6(m) of the
Underwriting Agreement.
For the purpose of rendering the opinions set forth below we have
reviewed the following (collectively, the "Documents"):
(i) the Underwriting Agreement;
(ii) that certain Registration Statement filed by the Company on August
13, 1997, together with all amendments thereof and exhibits thereto
(collectively, the "Registration Statement");
(iii) the Company's Prospectus dated [November , 1997], (the
"Prospectus");
(iv) a search of the United States Patent and Trademark Office records
relevant to ownership of any and all:
(a) patents and patent applications, including, without
limitation, the patents and patent applications listed on
Schedule A annexed hereto and incorporated by reference herein
(collectively, the "Patents"), and
(b) trademarks, trademark applications, service marks and service
mark applications, including, without limitation, the
trademarks listed on Schedule B annexed hereto and
incorporated by reference herein (collectively, the
"Trademarks"),
A-1
<PAGE> 37
owned or purportedly owned by the Company, including those
patents, patent applications and marks licensed to the Company
(collectively, "the Licenses"); conducted by J. F. Brown
Associates, Arlington Virginia and represented to us as true and
correct as of [November 11, 1997];
(v) a search of the United States Copyright Office records relevant to
ownership of any and all copyrighted material owned, purportedly
owned or licensed by the Company (collectively, "the Copyrights")
conducted by Thompson & Thompson, Washington, DC and represented to
us as true and correct as of [November 10, 1997];
(vi) a LitAlert intellectual property litigation search conducted by us
with respect to the Company and all Patents, Trademarks, and
Copyrights identified in paragraphs (iv) and (v) above;
(vii) a search of the Uniform Commercial Code ("UCC") recordation offices
in the jurisdictions of Delaware and California, with respect to the
following two categories of general intangibles:
(a) the intellectual property general intangibles of the Company,
including, without limitation, the Company's patents, patent
applications, inventions, know-how, trademarks, service marks,
copyrights, service and trade names, intellectual property licenses
and other rights, and
(b) the intellectual property general intangibles licensed to the
Company, including, without limitation, the patents, patent
applications, inventions, know-how, trademarks, service marks,
copyrights, service and trade names and other intellectual property
rights licensed to the Company pursuant to the Licenses,
said search conducted by Corporation Trust UCC Services, New York, New
York and represented to us as accurate and current through [November 12,
1997]; said jurisdictions being the most likely jurisdictions, if any,
apart from the records of the U.S. Patent & Trademark Office and the U.S.
Copyright Office, in which filing of UCC financing statements or other
documents may be filed to evidence a security or other interest in said
general intangibles; and
(viii) any and all records, documents, instruments and agreements in our
possession or under our control relating to the Company.
We have also examined such corporate records, documents, instruments
and agreements, and inquired into such other matters, as we have deemed
necessary or appropriate as a basis for the opinions set forth herein.
Whenever our opinion herein is qualified by the phrase "to the best
of our knowledge" or "to the best of our knowledge, after due inquiry," such
language means than,
A-2
<PAGE> 38
based upon (i) our inquiries of officers of the Company, (ii) our review of the
Documents, and (iii) our review of such other corporate records, documents,
instruments and agreements described in the first sentence of paragraph (h)
above, we believe that such opinions are factually correct.
To our best knowledge, based on this inquiry, we are not aware of
any copyright registrations owned or purported to be owned by the Company.
To the best of our knowledge, as to all matters of fact represented
to you by the Company in the documents we have reviewed, and concerning the
Company's intellectual property position, we advise you that nothing has come to
our attention that would cause us to believe that such facts are incorrect,
incomplete or misleading or that reliance thereon is not warranted under the
circumstances. We call to your attention that our opinion is limited to such
facts as they exist on the date hereof and do not take into account any change
of circumstances, fact or law subsequent thereto.
Based upon and subject to the foregoing, we are of the opinion that:
1. To the best of our knowledge, after due inquiry, except as described in
the Prospectus or Registration Statement, the Company owns or has the right to
use, free and clear of all liens, encumbrances, pledges, security interests,
defects or other restrictions or equities of any kind whatsoever,
(a) all patents and patent applications owned or purported to be
owned by the Company and used in, or required for, the conduct
of the Company's business (including, without limitation, the
Patents);
(b) all trademarks, tradenames, service marks and service names
owned or purported to be owned by the Company and used in, or
required for, the
A-3
<PAGE> 39
conduct of the Company's business (including, without
limitation, the Trademarks);
(c) all copyrights owned or purported to be owned by the Company
and used in, or required for, the conduct of the Company's
business (including, without limitation, the Copyrights); and
(d) all intellectual property licenses used in, or required for,
the conduct of the Company's business (including without
limitation the Licenses).
2. To the best of our knowledge, after due inquiry, there is no claim or
action, pending, threatened or potential, which affects or could affect the
rights of the Company with respect to any trademarks, service marks, copyrights,
service names, trade names, patents, patent applications or licenses owned or
purported to be owned by the Company and used in, or required for, the conduct
of the Company's business.
3. To the best of our knowledge, after due inquiry as specified herein,
there is no intellectual property based claim or action, pending, threatened or
potential, which affects or could affect the rights of the Company with respect
to any products, services, processes or licenses used in the conduct of the
Company's business.
4. To the best of our knowledge, after due inquiry, except as described in
the Prospectus or Registration Statement, the Company is not under any
obligation to pay royalties or fees to any third party with respect to any
material, technology or intellectual properties developed, employed, licensed or
used by the Company.
5. To the best of our knowledge, after due inquiry, the statements in the
Prospectus and Registration Statement under the headings, "Risk Factors -
Intellectual Property" and "Business - Intellectual Property" are accurate in
all material respects, fairly represent the information disclosed therein and do
not omit to state any fact necessary to make the statements
made therein complete and accurate.
6. To the best of our knowledge, after due inquiry, the statements in the
Prospectus and Registration Statement do not contain any untrue statement of a
material fact with respect to the intellectual property position of the Company,
or omit to state any material fact relating to the intellectual property
position of the Company which is necessary to make the statements therein not
misleading.
We call your attention to the fact that members of this firm are licensed
to practice law in the States of New York or California and before the United
States Patent and Trademark Office as Registered Patent Attorneys. We express no
opinion with respect to the laws, rules and regulations of any jurisdictions
other than the States of New York or California and the United States of
America.
A-4
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The opinions expressed herein are for the sole benefit of, and may be
relied upon only by, the several Underwriters named in Schedule A to the
Underwriting Agreement and Orrick, Herrington & Sutcliffe LLP.
Very truly yours,
Darby & Darby
A-5
<PAGE> 1
EXHIBIT 1.2
COMMON STOCK PURCHASE AGREEMENT
November , 1997
NBC MULTIMEDIA, INC.
30 Rockefeller Plaza
New York, NY 10112
Ladies and Gentlemen:
InterVU Inc., a Delaware corporation (the "Company"), confirms its
agreement with NBC Multimedia, Inc., a Delaware corporation ("NBC Multimedia" or
"you"), with respect to the sale by the Company and the purchase by you of the
number of shares of the Company's common stock, $.001 par value per share
("Common Stock"), equal to Two Million Dollars ($2,000,000) divided by the
initial public offering price of the Common Stock. Such shares of Common Stock
are hereinafter referred to as the "Shares."
The Company has entered into an underwriting agreement of even date
herewith (the "Underwriting Agreement") with Josephthal Lyon & Ross Incorporated
("Josephthal") and each of the underwriters named in Schedule A thereto
(collectively, the "Underwriters"), for whom Josephthal and Cruttenden Roth
Incorporated ("Cruttenden") are acting as representatives (in such capacity,
Josephthal and Cruttenden shall be referred to herein as the "Representatives").
The Underwriting Agreement provides for, among other things, the sale by the
Company and purchase by the Underwriters, acting severally and not jointly, of
the number of shares of Common Stock set forth on Schedule A thereto (the
"Underwritten Shares").
1. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, NBC Multimedia as of the date hereof, and as
of the Closing Date (hereinafter defined) as follows:
(a) The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement, and an
amendment or amendments thereto, on Form S-1 (No. 333-33521), including any
related preliminary prospectus ("Preliminary Prospectus"), for the registration
of the Shares, the Underwritten Shares and up to an additional 300,000 shares of
Common Stock that may be sold to the Underwriters for the purpose of covering
over-allotments, if any (the "Option Shares"), under the Securities Act of 1933,
as amended (the "Act"), which registration statement and amendment or amendments
have been prepared by the Company in conformity in all material respects with
the requirements of the Act, and the rules and regulations (the "Regulations")
of the Commission under the Act. The Company will not file any amendment thereto
to which NBC Multimedia shall have objected in writing after having been
furnished with a copy thereof. Except as the context may otherwise require, such
registration statement, as amended, on file with the Commission at the time the
registration statement becomes effective (including the prospectus, financial
statements, exhibits and all other documents filed as a part thereof or
incorporated therein (including, but not limited
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to, those documents or information incorporated by reference therein) and all
information deemed to be a part thereof as of such time pursuant to paragraph
(b) of Rule 430(A) of the Regulations), is hereinafter called the "Registration
Statement", and the form of prospectus in the form first filed with the
Commission pursuant to Rule 424(b) of the Regulations is hereinafter called the
"Prospectus." For purposes hereof, "Rules and Regulations" mean the rules and
regulations adopted by the Commission under either the Act or the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as applicable.
(b) Neither the Commission nor, to the best of the Company's
knowledge, any state regulatory authority has issued any order preventing or
suspending the use of any Preliminary Prospectus, the Registration Statement or
Prospectus or any part of any thereof and no proceedings for a stop order
suspending the effectiveness of the Registration Statement or any of the
Company's securities have been instituted or are pending or, to the Company's
knowledge, threatened. Each of the Preliminary Prospectus, the Registration
Statement and Prospectus at the time of filing thereof conformed in all material
respects with the requirements of the Act and the Rules and Regulations, and
none of the Preliminary Prospectus, the Registration Statement or Prospectus at
the time of filing thereof contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, except that this representation and warranty does not
apply to statements contained in the paragraph relating to stabilization and
market making on the inside front cover page of the Prospectus or under the
caption "Underwriting" in the Prospectus (to the extent such statements relate
to the Underwriters).
(c) When the Registration Statement becomes effective and at all
times subsequent thereto up to the Closing Date, the Registration Statement and
the Prospectus will contain all statements which are required to be stated
therein in accordance with the Act and the Rules and Regulations, and will
conform to the requirements of the Act and the Rules and Regulations; neither
the Registration Statement nor the Prospectus, nor any amendment or supplement
thereto, will contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, provided, however, that this representation and warranty does
not apply to statements contained in the paragraph relating to stabilization and
market making on the inside front cover page of the Prospectus or under the
caption "Underwriting" in the Prospectus (to the extent such statements relate
to the Underwriters).
(d) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware. The
Company does not own an interest in any corporation, partnership, trust, joint
venture or other business entity. The Company is duly qualified and licensed and
in good standing as a foreign corporation in each jurisdiction in which its
ownership or leasing of any properties or the character of its operations
requires such qualification or licensing, except for such jurisdictions where
the failure to so qualify would not have a material adverse effect on the
condition, financial or otherwise, or the earnings, position, prospects, value,
operation, properties, business or results of operations of the
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<PAGE> 3
Company. The Company has all requisite corporate power and authority, and the
Company has obtained any and all necessary authorizations, approvals, orders,
licenses, certificates, franchises and permits of and from all governmental or
regulatory officials and bodies (including, without limitation, those having
jurisdiction over environmental or similar matters), to own or lease its
properties and conduct its business as described in the Prospectus, except for
such authorizations, approvals, orders, licenses, certificates, franchises and
permits the failure to so obtain would not have a material adverse effect on the
condition, financial or otherwise, or the earnings, position, prospects, value,
operation, properties, business or results of operations of the Company; the
Company is and has been doing business in compliance with all such
authorizations, approvals, orders, licenses, certificates, franchises and
permits and all federal, state and local laws, rules and regulations, except
where the failure to so comply would not have a material adverse effect on the
condition, financial or otherwise, or the earnings, position, prospects, value,
operation, properties, business or results of operations of the Company; and the
Company has not received any notice of proceedings relating to the revocation or
modification of any such authorization, approval, order, license, certificate,
franchise, or permit which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would materially and adversely affect
the condition, financial or otherwise, or the earnings, position, prospects,
value, operation, properties, business or results of operations of the Company.
The disclosures in the Registration Statement concerning the effects of federal,
state and local laws, rules and regulations on the Company's business as
currently conducted and as contemplated are correct in all material respects and
do not omit to state a material fact necessary to make the statements contained
therein not misleading in light of the circumstances in which they were made.
(e) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus under "Capitalization" and
"Description of Capital Stock" and will have the adjusted capitalization set
forth therein on the Closing Date based upon the assumptions set forth therein
(except for subsequent issuances, if any, pursuant to the exercise of options
referred to in the Prospectus), and the Company is not a party to or bound by
any instrument, agreement or other arrangement providing for it to issue any
capital stock, rights, warrants, options or other securities, except as
described in the Prospectus. The Securities and all other securities issued or
issuable by the Company conform or, when issued and paid for, will conform, in
all respects to all statements with respect thereto contained in the
Registration Statement and the Prospectus. All issued and outstanding securities
of the Company have been duly authorized and validly issued and are fully paid
and non-assessable and the holders thereof have no rights of rescission with
respect thereto, and are not subject to personal liability by reason of being
such holders; and none of such securities were issued in violation of the
preemptive rights of any holders of any security of the Company or similar
contractual rights granted by the Company. The Shares are not and will not be
subject to any preemptive or other similar rights of any stockholder, have been
duly authorized and, when issued, paid for and delivered in accordance with the
terms hereof, will be validly issued, fully paid and non-assessable and will
conform to the description thereof contained in the Prospectus; the holders
thereof will not be subject to any liability solely as such holders; all
corporate action required to be taken for the authorization, issue and sale of
the Shares has been duly and validly taken; and the certificates representing
the Shares will be in due and proper form. Upon the issuance and delivery
pursuant to the terms hereof of the Shares to be sold by the Company hereunder,
you
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will acquire good and marketable title to such Shares free and clear of any
lien, charge, claim, encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever, other than such as may be created
by you and provided that you purchase such shares in good faith and without
notice of any adverse claim.
(f) The financial statements, including the related notes thereto,
included in the Registration Statement, each Preliminary Prospectus and the
Prospectus fairly present the financial position, income, changes in cash flow,
changes in stockholders' equity, and the results of operations of the Company at
the respective dates and for the respective periods to which they apply, and the
pro forma financial information included in the Registration Statement and
Prospectus presents fairly on a basis consistent with that of the audited
financial statements included therein, what the Company's pro forma
capitalization would have been for the respective periods and as of the
respective dates to which they apply after giving effect to the adjustments
described therein. Such financial statements have been prepared in conformity
with generally accepted accounting principles and the Rules and Regulations,
consistently applied throughout the periods involved. Except as described in the
Prospectus, there has been no material adverse change or development involving a
material prospective change in the condition, financial or otherwise, or in the
earnings, position, prospects, value, operation, properties, business, or
results of operations of the Company whether or not arising in the ordinary
course of business, since the date of the financial statements included in the
Registration Statement and the Prospectus and the outstanding debt, the
property, both tangible and intangible, and the business of the Company conform
in all material respects to the descriptions thereof contained in the
Registration Statement and the Prospectus. Financial information set forth in
the Prospectus under the headings "Summary Financial Data," "Selected Financial
Data," "Capitalization," and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," fairly present, on the basis stated in the
Prospectus, the information set forth therein, and have been derived from or
compiled on a basis consistent with that of the audited financial statements
included in the Prospectus.
(g) The Company (i) has paid all federal, state, local, and foreign
taxes for which it is liable, including, but not limited to, withholding taxes
and amounts payable under Chapters 21 through 24 of the Internal Revenue Code of
1986 (the "Code"), and has furnished all information returns it is required to
furnish pursuant to the Code, (ii) has established adequate reserves for such
taxes which are not due and payable, and (iii) does not have any tax deficiency
or claims outstanding, proposed or assessed against it.
(h) No transfer tax, stamp duty or other similar tax is payable by
or on behalf of NBC Multimedia in connection with (i) the issuance by the
Company of the Shares, (ii) the purchase by NBC Multimedia of the Shares from
the Company, or (iii) the consummation by the Company of any of its obligations
under this Agreement.
(i) The Company maintains insurance policies, including, but not
limited to, general liability and property insurance, which insures the Company
and its employees, against such losses and risks generally insured against by
comparable businesses. The Company (A) has not failed to give notice or present
any insurance claim with respect to any matter, including but
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<PAGE> 5
not limited to the Company's business, property or employees, under the
insurance policy or surety bond in a due and timely manner, (B) does not have
any disputes or claims against any underwriter of such insurance policies or
surety bonds or has not failed to pay any premiums due and payable thereunder,
and (C) has not failed to comply with all conditions contained in such insurance
policies and surety bonds. There are no facts or circumstances under any such
insurance policy or surety bond which would relieve any insurer of its
obligation to satisfy in full any valid claim of the Company.
(j) There is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental proceeding (including, without
limitation, those having jurisdiction over environmental or similar matters),
domestic or foreign, pending or, to the best of the Company's knowledge,
threatened against (and the Company does not know any basis therefor), or
involving the properties or business of, the Company which (i) questions the
validity of the capital stock of the Company, this Agreement or of any action
taken or to be taken by the Company pursuant to or in connection with this
Agreement, (ii) is required to be disclosed in the Registration Statement which
is not so disclosed (and such proceedings as are summarized in the Registration
Statement are accurately summarized in all material respects), or (iii) would
materially and adversely affect the condition, financial or otherwise, or the
earnings, position, prospects, stockholders' equity, value, operation,
properties, business or results of operations of the Company.
(k) The Company has full legal right, power and authority to
authorize, issue, deliver and sell the Shares, enter into this Agreement and to
consummate the transactions provided for this Agreement; and this Agreement has
been duly and properly authorized, executed and delivered by the Company. This
Agreement constitutes a legal, valid and binding agreement of the Company
enforceable against the Company in accordance with its terms, except (i) as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or similar laws affecting
creditors' rights generally, (ii) as enforceability of any indemnification or
contribution provisions may be limited under applicable laws or the public
policies underlying such laws and (iii) that the remedies of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceedings may be brought. None of the Company's issue and sale of the Shares,
its execution or delivery of this Agreement, its performance hereunder and
thereunder, its consummation of the transactions contemplated herein and
therein, or the conduct of its business as described in the Registration
Statement, the Prospectus, and any amendments or supplements thereto, conflicts
with or will conflict with or results or will result in any breach or violation
of any of the terms or provisions of, or constitutes or will constitute a
default under, or result in the creation or imposition of any lien, charge,
claim, encumbrance, pledge, security interest, defect or other restriction or
equity of any kind whatsoever upon, any property or assets (tangible or
intangible) of the Company pursuant to the terms of, (i) the certificate of
incorporation or by-laws of the Company, (ii) any license, contract, indenture,
mortgage, deed of trust, voting trust agreement, stockholders agreement, note,
loan or credit agreement or any other agreement or instrument to which the
Company is a party or by which it is or may be bound or to which any of its
properties or assets (tangible or intangible) is or may be subject, or any
indebtedness, or (iii) any statute, judgment, decree, order, rule or
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<PAGE> 6
regulation applicable to the Company of any arbitrator, court, regulatory body
or administrative agency or other governmental agency or body (including,
without limitation, those having jurisdiction over environmental or similar
matters), domestic or foreign, having jurisdiction over the Company or any of
its activities or properties, which breach, violation or default would have a
material adverse effect on the condition, financial or otherwise, or the
earnings, position, prospects, value, operation, properties, business or results
of operations of the Company.
(l) Except as described in the Prospectus, no consent, approval,
authorization or order of, and no filing with, any court, regulatory body,
government agency or other body, domestic or foreign, is required for the
issuance of the Shares pursuant to the Prospectus and the Registration
Statement, the performance of this Agreement and the transactions contemplated
hereby, including without limitation, any waiver of any preemptive, first
refusal or other rights that any entity or person may have for the issue and/or
sale of any of the Shares, except such as have been or may be obtained under the
Act or may be required under state securities or Blue Sky laws in connection
with your purchase of the Shares to be sold by the Company hereunder.
(m) All executed agreements, contracts or other documents or copies
of executed agreements, contracts or other documents filed as exhibits to the
Registration Statement to which the Company is a party or by which it may be
bound or to which any of its assets, properties or business may be subject have
been duly and validly authorized, executed and delivered by the Company, and
constitute the legal, valid and binding agreements of the Company, enforceable
against the Company in accordance with their respective terms. The descriptions
in the Registration Statement of agreements, contracts and other documents are
accurate in all material respects and fairly present the information required to
be shown with respect thereto by Form S-1, and there are no contracts or other
documents which are required by the Act to be described in the Registration
Statement or filed as exhibits to the Registration Statement which are not
described or filed as required, and the exhibits which have been filed are in
all material respects complete and correct copies of the documents of which they
purport to be copies.
(n) Subsequent to the respective dates as of which information is
set forth in the Registration Statement and Prospectus, and except as may
otherwise be indicated or contemplated herein or therein, the Company has not
(i) issued any securities or incurred any liability or obligation, direct or
contingent, for borrowed money, (ii) entered into any transaction other than in
the ordinary course of business, or (iii) declared or paid any dividend or made
any other distribution on or in respect of its capital stock of any class, and
there has not been any change in the capital stock, or any material change in
the debt (long or short term) or liabilities or material adverse change in or
affecting the general affairs, management, financial operations, stockholders'
equity or results of operations of the Company.
(o) No default exists in the due performance and observance of any
term, covenant or condition of any license, contract, indenture, mortgage,
installment sale agreement, lease, deed of trust, voting trust agreement,
stockholders agreement, partnership agreement, note, loan or credit agreement,
purchase order, or any other agreement or instrument evidencing an obligation
for borrowed money, or any other material agreement or instrument to which the
Company is a party or by which the Company may be bound or to which the property
or assets
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<PAGE> 7
(tangible or intangible) of the Company is subject or affected, which default
would have a material adverse effect on the condition, financial or otherwise,
or the earnings, position, prospects, value, operation, properties, business or
results of operations of the Company.
(p) The Company has generally enjoyed a satisfactory
employer-employee relationship with its employees and is in compliance with all
federal, state, local, and foreign laws and regulations respecting employment
and employment practices, terms and conditions of employment and wages and
hours. There are no pending investigations involving the Company by the U.S.
Department of Labor, or any other governmental agency responsible for the
enforcement of such federal, state, local, or foreign laws and regulations.
There is no unfair labor practice charge or complaint against the Company
pending before the National Labor Relations Board or any strike, picketing,
boycott, dispute, slowdown or stoppage pending or, to the best of the Company's
knowledge, threatened against or involving the Company or any predecessor
entity, and none has ever occurred. No representation question exists respecting
the employees of the Company, and no collective bargaining agreement or
modification thereof is currently being negotiated by the Company. No grievance
or arbitration proceeding is pending under any expired or existing collective
bargaining agreements of the Company. No labor dispute with the employees of the
Company exists, or, to the best of the Company's knowledge, is imminent.
(q) Except as described in the Prospectus, the Company does not
maintain, sponsor or contribute to any program or arrangement that is an
"employee pension benefit plan," an "employee welfare benefit plan," or a
"multiemployer plan" as such terms are defined in Sections 3(2), 3(1) and 3(37),
respectively, of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") ("ERISA Plans"). Except as described in the Prospectus, the Company
does not maintain or contribute, now or at any time previously, to a defined
benefit plan, as defined in Section 3(35) of ERISA. No ERISA Plan (or any trust
created thereunder) has engaged in a "prohibited transaction" within the meaning
of Section 406 of ERISA or Section 4975 of the Code, which could subject the
Company to any tax penalty on prohibited transactions and which has not
adequately been corrected. Each ERISA Plan is in compliance with all material
reporting, disclosure and other requirements of the Code and ERISA as they
relate to any such ERISA Plan. Determination letters have been received from the
Internal Revenue Service with respect to each ERISA Plan which is intended to
comply with Code Section 401(a), stating that such ERISA Plan and the attendant
trust are qualified thereunder. The Company has never completely or partially
withdrawn from a "multiemployer plan."
(r) Neither the Company nor any of its employees, directors,
stockholders, partners, or affiliates (within the meaning of the Rules and
Regulations) of any of the foregoing has taken or will take, directly or
indirectly, any action designed to or which has constituted or which might be
expected to cause or result in, under the Exchange Act, or otherwise,
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Shares or otherwise.
(s) Except as otherwise disclosed in the Prospectus, none of the
patents, patent applications, trademarks, service marks, trade names and
copyrights, and licenses and rights to
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<PAGE> 8
the foregoing presently owned or held by the Company are in dispute or, to the
best of the Company's knowledge, are in any conflict with the right of any other
person or entity. The Company (i) owns or has the right to use, free and clear
of all liens, charges, claims, encumbrances, pledges, security interests,
defects or other restrictions or equities of any kind whatsoever, all patents,
trademarks, service marks, trade names and copyrights, technology and licenses
and rights with respect to the foregoing, used in the conduct of its business as
now conducted or proposed to be conducted without infringing upon or otherwise
acting adversely to the right or claimed right of any person, corporation or
other entity under or with respect to any of the foregoing and (ii) is not
obligated or under any liability whatsoever to make any payment by way of
royalties, fees or otherwise to any owner or licensee of, or other claimant to,
any patent, trademark, service mark, trade name, copyright, know-how, technology
or other intangible asset, with respect to the use thereof or in connection with
the conduct of its business or otherwise.
(t) There is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental or other proceeding, domestic or
foreign, pending or, to the Company's knowledge, threatened (or circumstances
that may give rise to the same) against the Company which challenges the
exclusive rights of the Company with respect to any trademarks, trade names,
service marks, service names, copyrights, patents, patent applications or
licenses or rights to the foregoing used in the conduct of its business, or
which challenge the right of the Company to use any technology presently used or
contemplated to be used in the conduct of its business.
(u) The Company owns and has the unrestricted right to use all trade
secrets, know-how (including all other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures), inventions,
designs, processes, works of authorship, computer programs and technical data
and information (collectively herein "intellectual property") that are material
to the development, manufacture, operation and sale of all products and services
sold or proposed to be sold by the Company, free and clear of and without
violating any right, lien, or claim of others, including without limitation,
former employers of its employees; provided, however, that the possibility
exists that other persons or entities, completely independently of the Company,
or its employees or agents, could have developed trade secrets or items of
technical information similar or identical to those of the Company.
(v) The Company has good and marketable title to, or valid and
enforceable leasehold estates in, all items of real and personal property stated
in the Prospectus, to be owned or leased by it free and clear of all liens,
charges, claims, encumbrances, pledges, security interests, defects, or other
restrictions or equities of any kind whatsoever, other than (i) those referred
to in the Prospectus and (ii) liens for taxes not yet due and payable.
(w) Ernst & Young LLP, whose report is filed with the Commission as
a part of the Registration Statement, are independent certified public
accountants as required by the Act and the Rules and Regulations.
(x) The Common Stock has been approved for quotation on the Nasdaq
Stock
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Market's National Market ("Nasdaq").
(y) Neither the Company nor any of its officers, employees, agents,
or any other person acting on behalf of the Company, has, directly or
indirectly, given or agreed to give any money, gift or similar benefit (other
than legal price concessions to customers in the ordinary course of business) to
any customer, supplier, employee or agent of a customer or supplier, or official
or employee of any governmental agency (domestic or foreign) or instrumentality
of any government (domestic or foreign) or any political party or candidate for
office (domestic or foreign) or other person who was, is, or may be in a
position to help or hinder the business of the Company (or assist the Company in
connection with any actual or proposed transaction) which (a) might subject the
Company, or any other such person to any damage or penalty in any civil,
criminal or governmental litigation or proceeding (domestic or foreign), (b) if
not given in the past, might have had a materially adverse effect on the assets,
business or operations of the Company, or (c) if not continued in the future,
might adversely affect the assets, business, operations or prospects of the
Company. The Company's internal accounting controls are sufficient to cause the
Company to comply with the Foreign Corrupt Practices Act of 1977, as amended.
(z) Except as set forth in the Prospectus, no officer, director or
stockholder of the Company, or any "affiliate" or "associate" (as these terms
are defined in Rule 405 promulgated under the Rules and Regulations) of any of
the foregoing persons or entities has or has had, either directly or indirectly,
(i) an interest in any person or entity which (A) furnishes or sells services or
products which are furnished or sold or are proposed to be furnished or sold by
the Company, or (B) purchases from or sells or furnishes to the Company any
goods or services, or (ii) a beneficial interest in any contract or agreement to
which the Company is a party or by which it may be bound or affected. Except as
set forth in the Prospectus under "Certain Transactions," there are no existing
agreements, arrangements, understandings or transactions, or proposed
agreements, arrangements, understandings or transactions, between or among the
Company and any officer, director, or five (5) percent stockholder of the
Company or any partner, affiliate or associate of any of the foregoing persons
or entities.
(aa) Any certificate signed by any officer of the Company, and
delivered to you or to your counsel shall be deemed a representation and
warranty by the Company to you as to the matters covered thereby.
(ab) The minute books of the Company have been made available to you
and contain a complete summary of all meetings and actions of the directors,
stockholders, audit committee, compensation committee and any other committee of
the Board of Directors of the Company, respectively, since the time of its
incorporation, and reflect all transactions referred to in such minutes
accurately in all material respects.
(ac) Except and to the extent described in the Prospectus, no
holders of any securities of the Company or of any options, warrants or other
convertible or exchangeable securities of the Company have the right to include
any securities issued by the Company in the Registration Statement or any
registration statement to be filed by the Company or to require the
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<PAGE> 10
Company to file a registration statement under the Act and no person or entity
holds any anti-dilution rights with respect to any securities of the Company.
(ad) The conversion of all the outstanding shares of Preferred Stock
of the Company as set forth in the Prospectus has been duly authorized by the
Company and the shareholders of the Company in accordance with all agreements,
documents, understandings and instruments affecting the rights, duties,
responsibilities, obligations and/or privileges of holders of Preferred Stock or
to which the Company is bound, including without limitation, the Certificate of
the Designations, Powers, Preferences and Rights of the Preferred Stock, the
Company's Certificate of Incorporation and the Company's By-laws; and upon the
consummation of the public offering contemplated by the Underwriting Agreement,
without any further action of any stockholders of the Company, all shares of
Preferred Stock of the Company, other than shares of the Company's Series G
Convertible Preferred Stock, will simultaneously convert into validly issued,
fully paid and nonassessable shares of Common Stock in accordance with the
conversion provisions set forth in the Company's Amended and Restated
Certificate of Incorporation with respect to Series A and Series B Convertible
Preferred Stock and in the respective certificates of designation with respect
to Series C, Series D, Series E and Series F Convertible Preferred Stock.
Pursuant to the certificate of designation for the Series G Convertible
Preferred Stock, all of the issued and outstanding shares of the Company's
Series G Convertible Preferred Stock will become convertible at the option of
the holder on July 10, 1998 (nine (9) months from the original issuance date).
2. Purchase, Sale and Delivery of the Shares.
(a) On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to sell to NBC Multimedia, and NBC Multimedia agrees
to purchase from the Company at a price of $_______ [the initial public offering
price] per share of Common Stock, that number of Shares equal to Two Million
Dollars ($2,000,000) divided by the price per share.
(b) Payment of an amount equal to the purchase price for the Shares
minus $750,000 (which represents the amount payable at such time pursuant to
Section 4.5.1 of the Strategic Alliance Agreement dated as of October 10, 1997
between the Company and NBC Multimedia) and delivery of certificates for the
Shares shall be made at the offices of Josephthal at 200 Park Avenue, 25th
Floor, New York, New York 10166, or at such other place as shall be agreed upon
by NBC Multimedia and the Company. Such delivery and payment shall be made at
10:00 a.m. (New York City time) on the third business day following the date of
this Agreement, provided, however, that if the Shares sold hereunder are priced
and this Agreement is entered into after 4:30 p.m., (New York City time), on any
business day, payment and delivery in respect of the Shares shall take place on
the fourth business day following the date of this Agreement (such time and date
of payment and delivery being herein called the "Closing Date"). Delivery of the
certificates for the Shares shall be made to NBC Multimedia against payment by
NBC Multimedia, of the purchase price for the Shares to the order of the Company
for the Shares by New York Clearing House funds. Certificates for the Shares
shall be in definitive, fully registered form, shall bear no restrictive legends
and shall be in such denominations and
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<PAGE> 11
registered in the name of NBC Multimedia. The certificate for the Shares shall
be made available to NBC Multimedia at such office or such other place as NBC
Multimedia may designate for inspection no later than 9:30 a.m. on the last
business day prior to Closing Date.
3. Covenants and Agreements of the Company. The Company covenants and
agrees with NBC Multimedia as follows:
(a) The Company shall use its best efforts to cause the Registration
Statement and any amendments thereto to become effective as promptly as
practicable and will not at any time, before the Closing Date, file any
amendment to the Registration Statement or supplement to the Prospectus or file
any document under the Act or Exchange Act of which NBC Multimedia not
previously have been advised and furnished with a copy, or to which NBC
Multimedia shall have objected or which is not in compliance with the Act, the
Exchange Act or the Rules and Regulations.
(b) As soon as the Company is advised or obtains knowledge thereof,
the Company will advise NBC Multimedia and confirm the notice in writing, (i)
when the Registration Statement, as amended, becomes effective, if the
provisions of Rule 430A promulgated under the Act will be relied upon, when the
Prospectus has been filed in accordance with said Rule 430A and when any
post-effective amendment to the Registration Statement becomes effective, (ii)
of the issuance by the Commission of any stop order or of the initiation, or the
threatening, of any proceeding, suspending the effectiveness of the Registration
Statement or any order preventing or suspending the use of the Preliminary
Prospectus or the Prospectus, or any amendment or supplement thereto, or the
institution of proceedings for that purpose, (iii) of the receipt of any
comments from the Commission; and (iv) of any request by the Commission for any
amendment to the Registration Statement or any amendment or supplement to the
Prospectus or for additional information. If the Commission or any state
securities commission authority shall enter a stop order or suspend such
qualification at any time, the Company will use its best efforts to obtain
promptly the lifting of such order.
(c) The Company shall file the Prospectus (in form and substance
satisfactory to NBC Multimedia to the extent that such Prospectus relates to NBC
Multimedia) or transmit the Prospectus by a means reasonably calculated to
result in filing with the Commission pursuant to Rule 424(b)(1) (or, if
applicable, pursuant to Rule 424(b)(4)) not later than the Commission's close of
business on the earlier of (i) the second business day following the execution
and delivery of this Agreement and (ii) the fifteenth business day after the
effective date of the Registration Statement.
(d) The Company will give NBC Multimedia notice of its intention to
file or prepare any amendment to the Registration Statement (including any
post-effective amendment) or any amendment or supplement to the Prospectus, and
will furnish you with copies of any such amendment or supplement a reasonable
amount of time prior to such proposed filing or use, as the case may be, and
will not file any such prospectus to which you or your counsel shall object.
(e) During a period of five (5) years after the date hereof, the
Company will furnish to its stockholders, as soon as practicable, annual reports
(including financial statements
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<PAGE> 12
audited by independent public accountants).
(f) The Company will maintain a Transfer Agent and, if necessary
under the jurisdiction of incorporation of the Company, a Registrar (which may
be the same entity as the Transfer Agent) for its Common Stock.
(g) Neither the Company, nor any of its officers, directors,
stockholders, nor any of their respective affiliates (within the meaning of the
Rules and Regulations) will take, directly or indirectly, any action designed
to, or which might in the future reasonably be expected to cause or result in,
stabilization or manipulation of the price of any securities of the Company.
(h) The Company shall apply the net proceeds from the sale of the
Securities in the manner, and subject to the conditions, set forth under "Use of
Proceeds" in the Prospectus. Except as described in the Prospectus, no portion
of the net proceeds will be used, directly or indirectly, to acquire any
securities issued by the Company.
(i) The Company shall timely file all such reports, forms or other
documents as may be required from time to time, under the Act, the Exchange Act,
and the Rules and Regulations, and all such reports, forms and documents filed
will comply as to form and substance with the applicable requirements under the
Act, the Exchange Act, and the Rules and Regulations.
(j) The Company shall cause the Common Stock to be quoted on Nasdaq
and for a period of seven (7) years from the date hereof, use its best efforts
to maintain the Nasdaq quotation of the Common Stock to the extent outstanding.
(k) As soon as practicable, but in no event more than 5 business
days before the effective date of the Registration Statement, file a Form 8-A
with the Commission providing for the registration under the Exchange Act of the
Shares.
(l) Until the earlier of (i) five (5) years from the date hereof, or
(ii) the date on which all of the Purchased Shares and/or the Conversion Shares
(as such terms are defined in the Preferred Stock Purchase Agreement dated as of
October 10, 1997 among the Company, National Broadcasting Company, Inc. ("NBC")
and NBC Multimedia (the "Preferred Stock Purchase Agreement")) have been sold by
NBC, the Company will not take any action or actions which may prevent or
disqualify the Company's use of Form S-3 (or other appropriate form) for
registration under the Act of the Registrable Securities (as such term is
defined in the Preferred Stock Purchase Agreement).
4. Payment of Expenses. The Company hereby agrees to pay on the Closing
Date all expenses and fees incident to the performance of the obligations of the
Company under this Agreement, including, without limitation, (i) the fees and
expenses of accountants and counsel for the Company, (ii) all costs and expenses
incurred in connection with the preparation, duplication, printing (including
mailing and handling charges), filing, delivery and mailing (including the
payment of postage with respect thereto) of the Registration Statement and the
Prospectus and any amendments and supplements thereto, (iii) the printing,
engraving, issuance
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<PAGE> 13
and delivery of the Shares, (iv) fees and expenses of the transfer agent and
registrar, (iv) the fees payable to the Commission and the NASD, and (v) the
fees and expenses incurred in connection with the quotation of the Shares on
Nasdaq and any other exchange.
5. Conditions of NBC Multimedia's Obligations. The obligations of NBC
Multimedia hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company herein as of the date hereof and
as of the Closing Date with respect to the Company as if it had been made on and
as of the Closing Date; the accuracy on and as of the Closing Date of the
statements of the officers of the Company made pursuant to the provisions
hereof; and the performance by the Company on and as of the Closing Date of its
covenants and obligations hereunder and to the following further conditions:
(a) The Registration Statement shall have become effective not later
than 12:00 Noon, New York time, on the date of this Agreement or such later date
and time as shall be consented to in writing by NBC Multimedia, and, at the
Closing Date no stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose shall have
been instituted or shall be pending or contemplated by the Commission and any
request on the part of the Commission for additional information shall have been
complied with to the reasonable satisfaction of NBC Multimedia. If the Company
has elected to rely upon Rule 430A of the Rules and Regulations, the price of
the Shares and any price-related information previously omitted from the
effective Registration Statement pursuant to such Rule 430A shall have been
transmitted to the Commission for filing pursuant to Rule 424(b) of the Rules
and Regulations within the prescribed time period, and prior to the Closing Date
the Company shall have provided evidence satisfactory to NBC Multimedia of such
timely filing, or a post-effective amendment providing such information shall
have been promptly filed and declared effective in accordance with the
requirements of Rule 430A of the Rules and Regulations.
(b) NBC Multimedia shall not have been advised by the Company that
the Registration Statement, or any amendment thereto, contains an untrue
statement of fact which, in NBC Multimedia's opinion, is material, or omits to
state a fact which, in NBC Multimedia's opinion, is material and is required to
be stated therein or is necessary to make the statements therein not misleading,
or that the Prospectus, or any supplement thereto, contains an untrue statement
of fact which, in NBC Multimedia's opinion, is material, or omits to state a
fact which, in NBC Multimedia's opinion, is material and is required to be
stated therein or is necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(c) On the Closing Date, NBC Multimedia shall have received the
favorable opinion of Latham & Watkins, counsel to the Company, dated the Closing
Date, addressed to NBC Multimedia and in form and substance satisfactory to NBC
Multimedia's counsel, to the effect that:
(i) the Company has been duly incorporated and is validly
existing and in good standing under the laws of the State of Delaware, with
corporate power and authority
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<PAGE> 14
to own, lease and operate its properties and to conduct its business as
described in the Registration Statement and the Prospectus. Such counsel shall
confirm, based solely on certificates from public officials, that the Company is
qualified to do business in the State of California.
(ii) the authorized, issued and outstanding capital stock of
the Company is as set forth in the Registration Statement and the Prospectus
under the caption "Capitalization." The issued and outstanding shares of capital
stock of the Company have been duly and validly authorized and issued, and are
fully paid and nonassessable, and to the best of such counsel's knowledge, free
of preemptive rights. Except as described in the Registration Statement and the
Prospectus, to the best of such counsel's knowledge, there is no commitment or
arrangement to issue, and there are no outstanding options, warrants or other
rights calling for the issuance of, any share of capital stock of the Company or
any security or other instrument that by its terms is convertible into,
exercisable for, or exchangeable for capital stock of the Company.
(iii) the Shares to be issued and sold by the Company pursuant
to the Agreement have been duly authorized and, when issued to and paid for by
you in accordance with the terms of the Agreement, will be validly issued, fully
paid and nonassessable and, to the best of such counsel's knowledge, free of
preemptive rights. The Underwritten Shares and the Option Shares, if any, to be
issued and sold by the Company pursuant to the Underwriting Agreement have been
duly authorized and, when issued to and paid for by the Underwriters in
accordance with the terms of the Underwriting Agreement, will be validly issued,
fully paid and nonassessable and, to the best of such counsel's knowledge, free
of preemptive rights.
(v) the Registration Statement has become effective under the
Act and, to the best of such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued under the Act and no
proceedings therefor have been initiated by the Commission; and any required
filing of the Prospectus pursuant to Rule 424(b) under the Act has been made in
accordance with Rule 424(b) and 430A under the Act.
(vi) the Registration Statement and the Prospectus comply as
to form in all material respects with the requirements for registration
statements on Form S-1 under the Act and the Rules and Regulations; it being
understood, however, that such counsel need not express any opinion with respect
to the financial statements, schedules and other financial and statistical data
included in the Registration Statement or the Prospectus and in passing upon the
compliance as to form of the Registration Statement and the Prospectus, such
counsel may assume that the statements made therein are correct and complete.
(vii) to the best of such counsel's knowledge, there are no
statutes or legal or governmental proceedings required to be described in the
Prospectus that are not described as required, or contracts or documents of a
character required to be described in the Registration Statement or Prospectus
or to be filed as exhibits to the Registration Statement that are not described
and filed as required.
(viii) to the best of such counsel's knowledge, there are no
actions, suits,
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<PAGE> 15
proceedings or investigations pending or threatened against the Company before
or by any court, governmental agency or arbitrator.
(ix) the Company has corporate power and authority to enter
into the Agreement, and the Agreement has been duly authorized, executed and
delivered by the Company.
(x) the execution and delivery by the Company of, and the
issuance and sale of the Shares, the Underwritten Shares and the Option Shares
pursuant to, the Agreement and the Underwriting Agreement, as the case may be,
do not (i) violate the Amended and Restated Certificate of Incorporation or
Bylaws of the Company, (ii) to the best of such counsel's knowledge, breach or
result in a default under, cause the time for performance of any obligation to
be accelerated under, or result in the creation or imposition of any lien,
charge or encumbrance upon any of the assets of the Company pursuant to the
terms of any document filed as an exhibit to the Registration Statement
(including any indenture mortgage, deed of trust, loan agreement, bond,
debenture, note agreement, capital lease or other evidence of indebtedness
identified to us as material to the Company by the Company), (iii) to the best
of such counsel's knowledge, breach or otherwise violate any existing obligation
of the Company under any court or administrative order, judgment or decree, or
(iv) violate applicable provisions of the General Corporation Law of the State
of Delaware or any statute or regulation of the State of California or of the
United States.
(xi) no consent, approval, authorization or order of, or any
filing or declaration with, any court or governmental agency or body is required
in connection with the authorization, issuance, sale or delivery of the Shares
by the Company, in connection with the execution, delivery and performance of
the Agreement by the Company, except such as have been obtained under the Act
and the Exchange Act.
(xii) the statements set forth in the Prospectus under the
headings "Description of Capital Stock" and "Securities Eligible for Future
Sale" insofar as such statements constitute a summary of legal matters, are
accurate in all material respects.
(xiii) The form of certificate used to evidence the Shares is
in due and proper form and complies with all statutory requirements under the
laws of the State of Delaware.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws other than the laws of the United States and
jurisdictions in which they are admitted, to the extent such counsel deems
proper and to the extent specified in such opinion, if at all, upon an opinion
or opinions of other counsel familiar with the applicable laws; (B) as to
matters of fact, to the extent they deem proper, on certificates and written
statements of responsible officers of the Company, and certificates or other
written statements of officers of departments of various jurisdictions having
custody of documents respecting the corporate existence or good standing of the
Company, provided that copies of any such statements or certificates shall be
delivered to your counsel if requested.
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<PAGE> 16
(d) On or prior to the Closing Date, counsel to NBC Multimedia shall
have been furnished such documents, certificates and opinions as they may
reasonably require or in order to evidence the accuracy, completeness or
satisfaction of any of the representations, warranties or conditions of the
Company, or herein contained.
(e) Prior to the Closing Date, (i) there shall have been no material
adverse change nor development involving a prospective material adverse change
in the condition, financial or otherwise, prospects, stockholders' equity or the
business activities of the Company, whether or not in the ordinary course of
business, from the latest dates as of which such condition is set forth in the
Registration Statement and Prospectus; (ii) there shall have been no
transaction, not in the ordinary course of business, entered into by the
Company, from the latest date as of which the financial condition of the Company
is set forth in the Registration Statement and Prospectus which is materially
adverse to the Company; (iii) the Company shall not be in material default under
any provision of any instrument relating to any outstanding indebtedness; (iv)
the Company shall not have issued any securities (other than the Securities (as
such term is defined in the Underwriting Agreement)); the Company shall not have
declared or paid any dividend or made any distribution in respect of its capital
stock of any class; and there shall not have any change in the capital stock of
the Company, or any material change in the debt (long or short term) or
liabilities or obligations of the Company (contingent or otherwise); (v) no
material amount of the assets of the Company shall have been pledged or
mortgaged, except as set forth in the Registration Statement and Prospectus;
(vi) no action, suit or proceeding, at law or in equity, shall have been pending
or threatened (or circumstances giving rise to same) against the Company, or
affecting any of its properties or business before or by any court or federal,
state or foreign commission, board or other administrative agency wherein an
unfavorable decision, ruling or finding may adversely affect the business,
operations, prospects or financial condition or income of the Company, except as
set forth in the Registration Statement and Prospectus; and (vii) no stop order
shall have been issued under the Act and no proceedings therefor shall have been
initiated, threatened or contemplated by the Commission.
(f) At the Closing Date, NBC Multimedia shall have received a
certificate of the Company signed by the principal executive officer and by the
chief financial or chief accounting officer of the Company, dated the Closing
Date to the effect that each of such persons has carefully examined the
Registration Statement, the Prospectus and this Agreement, and that:
(i) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the Closing Date, and
the Company has complied with all agreements and covenants and satisfied all
conditions contained in this Agreement on its part to be performed or satisfied
at or prior to such Closing Date;
(ii) No stop order suspending the effectiveness of the
Registration Statement or any part thereof has been issued, and no proceedings
for that purpose have been instituted or are pending or, to the best of each of
such person's knowledge, after due inquiry are contemplated or threatened under
the Act;
(iii) The Registration Statement and the Prospectus and, if
any, each
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<PAGE> 17
amendment and each supplement thereto, contain all statements and information
required to be included therein, and none of the Registration Statement, the
Prospectus nor any amendment or supplement thereto includes any untrue statement
of a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading and neither
the Preliminary Prospectus or any supplement thereto included any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; and
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus, (a) the
Company has not incurred up to and including the Closing Date other than in the
ordinary course of its business, any material liabilities or obligations, direct
or contingent; (b) the Company has not paid or declared any dividends or other
distributions on its capital stock; (c) the Company has not entered into any
transactions not in the ordinary course of business; (d) there has not been any
change in the capital stock of the Company or any material change in the debt
(long or short-term) of the Company; (e) the Company has not sustained any
material loss or damage to its property or assets, whether or not insured; (g)
there is no litigation which is pending or threatened (or circumstances giving
rise to same) against the Company, or any affiliated party of any of the
foregoing which is required to be set forth in an amended or supplemented
Prospectus which has not been set forth; and (h) there has occurred no event
required to be set forth in an amended or supplemented Prospectus which has not
been set forth.
References to the Registration Statement and the Prospectus in this subsection
(g) are to such documents as amended and supplemented at the date of such
certificate.
(h) On the Closing Date, there shall have been duly tendered to NBC
Multimedia the appropriate number of Shares.
(i) On or before the Closing Date, the Shares shall have been duly
approved for quotation on Nasdaq, subject to official notice of issuance.
(j) On the Closing Date, the Underwriting Agreement shall not have
been terminated and the sale of the Underwritten Shares shall be consummated
concurrent with or immediately before the sale of the Shares pursuant to this
Agreement.
If any condition to NBC Multimedia's obligations hereunder to be
fulfilled prior to or at the Closing Date, is not so fulfilled, NBC Multimedia
may terminate this Agreement or, if NBC Multimedia so elects, it may waive any
such conditions which have not been fulfilled or extend the time for their
fulfillment.
6. Indemnification. The Company agrees to indemnify and hold harmless NBC
Multimedia (for purposes of this Section 6 "NBC Multimedia" shall include the
officers, directors, partners, employees, agents and counsel of NBC Multimedia),
and each person, if any, who controls NBC Multimedia ("controlling person")
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act, from and against any and all losses, claims, damages,
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<PAGE> 18
expenses or liabilities, including the fees of one counsel to NBC Multimedia,
arising out of or based upon (a) any untrue statement or alleged untrue
statement of a material fact contained in any Preliminary Prospectus, the
Registration Statement or the Prospectus (as from time to time amended and
supplemented), (b) the omission or alleged omission therefrom of a material fact
required to be stated therein or necessary to make the statements therein not
misleading (in the case of the Prospectus, in the light of the circumstances in
which they were made) or (c) any breach of any representation, warranty,
covenant or agreement of the Company contained herein or in any certificate by
or on behalf of the Company or any of its officers delivered pursuant hereto.
The indemnity agreement in this Section 6 shall be in addition to
any liability which the Company may have at common law or otherwise.
7. Representations and Agreements to Survive Delivery. All
representations, warranties and agreements contained in this Agreement or
contained in certificates of officers of the Company submitted pursuant hereto,
shall be deemed to be representations, warranties and agreements at the Closing
Date and such representations, warranties and agreements of the Company and the
indemnity agreements contained in Section 6 hereof, shall remain operative and
in full force and effect regardless of any investigation made by or on behalf of
NBC Multimedia, the Company, any controlling person of NBC Multimedia or the
Company, and shall survive termination of this Agreement or the issuance and
delivery of the Shares to NBC Multimedia.
8. Effective Date. This Agreement shall become effective at 10:00 a.m.,
New York City time, on the next full business day following the date hereof, or
at such earlier time after the Registration Statement becomes effective as the
Representatives, in their discretion, shall release the Underwritten Shares for
sale to the public in accordance with the Underwriting Agreement; provided,
however, that the provisions of Sections 4, 6 and 9 of this Agreement shall at
all times be effective.
9. Termination. NBC Multimedia shall have the right to terminate
this Agreement, after the date hereof, if the Representatives terminate the
Underwriting Agreement for any reason.
10. Default by the Company. If the Company shall fail at the Closing Date
to sell and deliver the number of Shares which it is obligated to sell hereunder
on such date, then this Agreement shall terminate without any liability on the
part of NBC Multimedia. No action taken pursuant to this Section shall relieve
the Company from liability, if any, in respect of such default and in respect of
its obligations pursuant to Section 4 and Section 6 hereof.
11. Notices. All notices and communications hereunder, except as herein
otherwise specifically provided, shall be in writing and shall be deemed to have
been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to NBC Multimedia shall be directed to 30 Rockefeller
Plaza, New York, NY 10112, Attention: Chris Glowacki, with a copy to NBC
Multimedia, Inc., 30 Rockefeller Plaza, New York, NY 10112, Attention: Legal
Department. Notices to the Company shall be directed to the Company at 201 Lomas
Santa Fe
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<PAGE> 19
Drive, Solana Beach, California 92075, Attention: Harry E. Gruber, Chairman of
the Board and Chief Executive Officer, with a copy to Latham & Watkins, 701 B
Street, Suite 2100, San Diego, California 92101, Attention: Scott N. Wolfe, Esq.
12. Parties. This Agreement shall inure solely to the benefit of and shall
be binding upon NBC Multimedia, the Company and the controlling persons,
directors and officers referred to in Section 7 hereof, and their respective
successors, legal representatives and assigns, and no other person shall have or
be construed to have any legal or equitable right, remedy or claim under or in
respect of or by virtue of this Agreement or any provisions herein contained. No
purchaser of Shares from NBC Multimedia shall be deemed to be a successor by
reason merely of such purchase.
13. Construction. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York without giving
effect to the choice of law or conflict of laws principles.
14. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall be deemed to be one and the same instrument.
15. Entire Agreement; Amendments. This Agreement constitutes the entire
agreement of the parties hereto and supersedes all prior written or oral
agreements, understandings and negotiations with respect to the subject matter
hereof. This Agreement may not be amended except in a writing, signed by NBC
Multimedia and the Company.
(Remainder of this page intentionally left blank)
19
<PAGE> 20
If the foregoing correctly sets forth the understanding between NBC
Multimedia and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement between
us.
Very truly yours,
INTERVU INC.
By:
---------------------------------------
Harry E. Gruber
Chairman of the Board,
President and Chief Executive Officer
Confirmed and accepted as of
the date first above written.
NBC MULTIMEDIA, INC.
By:
----------------------------
Name:
Title:
20
<PAGE> 1
- --------------------------------------------------------------------------------
EXHIBIT 4.2
DRAFT - 11/12/97
INTERVU INC.
AND
JOSEPHTHAL LYON & ROSS INCORPORATED
AND
CRUTTENDEN ROTH INCORPORATED
ADVISORS'
WARRANT AGREEMENT
DATED AS OF NOVEMBER __, 1997
- --------------------------------------------------------------------------------
<PAGE> 2
ADVISORS' WARRANT AGREEMENT dated as of November __, 1997 between
INTERVU INC., a Delaware corporation (the "Company"), JOSEPHTHAL LYON & ROSS
INCORPORATED and CRUTTENDEN ROTH INCORPORATED (hereinafter referred to as the
"Holders" or the "Underwriters").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to the Underwriters or
their designees warrants ("Warrants") to purchase up to an aggregate 200,000
shares of common stock of the Company ("Common Stock"); and
WHEREAS, the Underwriters have agreed pursuant to the
underwriting agreement (the "Underwriting Agreement") dated as of the date
hereof between Josephthal Lyon & Ross Incorporated and Cruttenden Roth
Incorporated as the Underwriters, and the Company to act as Underwriters in
connection with the Company's proposed public offering of up to 2,000,000 shares
of Common Stock at a public offering price of [$9.00-$11.00] per share of Common
Stock (the "Public Offering"); and
WHEREAS, the Warrants to be issued pursuant to this Agreement
will be issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to the Underwriters in consideration for, and as part
of the Underwriters' compensation in connection with, the Underwriters providing
the Company with financial advisory services;
NOW, THEREFORE, in consideration of the premises, the payment by
the Underwriters to the Company of an aggregate of twenty dollars ($20.00), the
agreements herein set forth and other good and valuable consideration, hereby
acknowledged, the parties hereto agree as follows:
1. Grant. The Underwriters are hereby granted the right to
purchase, at any time from November __, 1998, until 5:30 P.M., New York time, on
November __, 2002, up to an aggregate of 200,000 shares of Common Stock (the
"Shares") at an initial exercise price (subject to adjustment as provided in
Section 8 hereof) of $[120% of IPO Price] per share of Common Stock subject to
the terms and conditions of this Agreement. Except as set forth herein, the
Shares issuable upon exercise of the Warrants are in all respects identical to
the shares of Common Stock being purchased by the Underwriters for resale to the
public pursuant to the terms and provisions of the Underwriting Agreement.
2. Warrant Certificates. The warrant certificates (the "Warrant
Certificates") delivered and to be delivered pursuant to this Agreement shall be
in the form set forth in Exhibit A, attached hereto and made a part hereof, with
such appropriate insertions, omissions, substitutions, and other variations as
required or permitted by this Agreement.
3. Exercise of Warrant.
Section 3.1 Method of Exercise. The Warrants initially are
exercisable at an aggregate initial exercise price (subject to adjustment as
provided in Section 8 hereof) per share of Common Stock set forth in Section 6
hereof payable by certified or official bank check in New
<PAGE> 3
York Clearing House funds, subject to adjustment as provided in Section 8
hereof. Upon surrender of a Warrant Certificate with the annexed Form of
Election to Purchase duly executed, together with payment of the Exercise Price
(as hereinafter defined) for the shares of Common Stock purchased at the
Company's principal offices (presently located at 201 Lomas Santa Fe Drive,
Solana Beach, California 92075) the registered holder of a Warrant Certificate
("Holder" or "Holders") shall be entitled to receive a certificate or
certificates for the shares of Common Stock so purchased. The purchase rights
represented by each Warrant Certificate are exercisable at the option of the
Holders thereof, in whole or in part (but not as to fractional shares of the
Common Stock underlying the Warrants). Warrants may be exercised to purchase all
or part of the shares of Common Stock represented thereby. In the case of the
purchase of less than all the shares of Common Stock purchasable under any
Warrant Certificate, the Company shall cancel said Warrant Certificate upon the
surrender thereof and shall execute and deliver a new Warrant Certificate of
like tenor for the balance of the shares of Common Stock purchasable thereunder.
Section 3.2 Exercise by Surrender of Warrant. In addition to the
method of payment set forth in Section 3.1 and in lieu of any cash payment
required thereunder, the Holder(s) of the Warrants shall have the right at any
time and from time to time to exercise the Warrants in full or in part by
surrendering the Warrant Certificate in the manner specified in Section 3.1 in
exchange for the number of Shares equal to the product of (x) the number of
Shares as to which the Warrants are being exercised multiplied by (y) a
fraction, the numerator of which is the Market Price (as defined in Section 3.3
below) of the Shares less the Exercise Price and the denominator of which is
such Market Price. Solely for the purposes of this paragraph, Market Price shall
be calculated as the average of the Market Prices for each of the five trading
days preceding the date on which the form of election attached hereto is deemed
to have been sent to the Company pursuant to Section 13 hereof.
Section 3.3 Definition of Market Price. As used herein, the
phrase "Market Price" at any date shall be deemed to be the last reported sale
price, or, in case no such reported sale takes place on such day, the average of
the last reported sale prices for the last three (3) trading days, in either
case as officially reported by the principal securities exchange on which the
Common Stock is listed or admitted to trading or by the Nasdaq National Market
("NNM"), or, if the Common Stock is not listed or admitted to trading on any
national securities exchange or quoted by NNM, the average closing bid price as
furnished by the NASD through NNM or similar organization if NNM is no longer
reporting such information, or if the Common Stock is not quoted on NNM, as
determined in good faith by resolution of the Board of Directors of the Company,
based on the best information available to it.
4. Issuance of Certificates. Upon the exercise of the Warrants,
the issuance of certificates for shares of Common Stock and/or other securities,
properties or rights underlying such Warrants, shall be made forthwith (and in
any event within five (5) business days thereafter) without charge to the
Holders thereof including, without limitation, any tax which may be payable in
respect of the issuance thereof, and such certificates shall (subject to the
provisions of Sections 5 and 7 hereof) be issued in the name of, or in such
names as may be directed by, the Holders thereof; provided, however, that the
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the issuance and delivery of any such certificates in a
name other than that of the Holders, and the Company shall not be required to
issue or deliver such certificates unless or until the person or persons
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<PAGE> 4
requesting the issuance thereof shall have paid to the Company the amount of
such tax or shall have established to the satisfaction of the Company that such
tax has been paid.
The Warrant Certificates and the certificates representing the
Shares underlying the Warrants (and/or other securities, property or rights
issuable upon the exercise of the Warrants) shall be executed on behalf of the
Company by the manual or facsimile signature of the then Chairman or Vice
Chairman of the Board of Directors or President or Vice President of the
Company. Warrant Certificates shall be dated the date of execution by the
Company upon initial issuance, division, exchange, substitution or transfer.
5. Restriction On Transfer of Warrants. The Holders of a Warrant
Certificate, by its acceptance thereof, covenants and agrees that the Warrants
are being acquired as an investment and not with a view to the distribution
thereof; that the Warrants may not be sold, transferred, assigned, hypothecated
or otherwise disposed of, in whole or in part, for a period of one (1) year from
the date hereof, except to officers of the Underwriters.
6. Exercise Price.
Section 6.1 Initial and Adjusted Exercise Price. Except as
otherwise provided in Section 8 hereof, the initial exercise price of each
Warrant shall be $[120% of IPO Price] per share of Common Stock. The adjusted
exercise price shall be the price which shall result from time to time from any
and all adjustments of the initial exercise price in accordance with the
provisions of Section 8 hereof.
Section 6.2 Exercise Price. The term "Exercise Price" herein
shall mean the initial exercise price or the adjusted exercise price, depending
upon the context.
7. Registration Rights.
Section 7.1 Registration Under the Securities Act of 1933. The
Warrants and any of the other securities issuable upon exercise of the Warrants
have not been registered under the Securities Act of 1933, as amended (the
"Act"). Upon exercise, in part or in whole, of the Warrants, certificates
representing the Shares underlying the Warrants, and any of the other securities
issuable upon exercise of the Warrants (collectively, the "Warrant Securities")
shall bear the following legend:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended ("Act"),
and may not be offered or sold except pursuant to (i) an
effective registration statement under the Act, (ii) to the
extent applicable, Rule 144 under the Act (or any similar rule
under such Act relating to the disposition of securities), or
(iii) an opinion of counsel, if such opinion shall be reasonably
satisfactory to counsel to the issuer, that an exemption from
registration under such Act is available.
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<PAGE> 5
Section 7.2 Piggyback Registration. If, at any time commencing
after the date hereof and expiring six (6) years from the date hereof, the
Company proposes to register any of its securities under the Act (other than in
connection with a merger, acquisition or other business combination registered
on Form S-4 or any registration pursuant to Form S-8) it will give written
notice by registered mail, at least twenty (20) days prior to the filing of each
such registration statement, to all Holders of the Warrants and/or the Warrant
Securities of its intention to do so. If the Holders of the Warrants and/or
Warrant Securities notify the Company within twenty (20) days after receipt of
any such notice of its or their desire to include any such securities in such
proposed registration statement, the Company shall afford the Holder(s) of the
Warrants and/or Warrant Securities the opportunity to have any such Warrant
Securities registered under such registration statement (sometimes referred to
herein as the "Piggyback Registration").
Notwithstanding the provisions of this Section 7.2, the Company
shall have the right at any time after it shall have given written notice
pursuant to this Section 7.2 (irrespective of whether a written request for
inclusion of any such securities shall have been made) to elect not to file any
such proposed registration statement, or to withdraw the same after the filing
but prior to the effective date thereof.
Section 7.3 Demand Registration.
(a) At any time commencing one year after the date hereof and
expiring five (5) years from the date hereof, unless all of the Warrants issued
or issuable have been exercised and the Holders of the Warrant Shares have
received a written opinion of Company counsel, reasonably satisfactory in form
and substance to such Holders, to the effect that all of the Warrant Shares are
freely resaleable pursuant to Rule 144(k) promulgated under the Act, the Holders
of the Warrants and/or Warrant Securities representing a "Majority" (as
hereinafter defined) of such securities (assuming the exercise of all of the
Warrants) shall have the right (which right is in addition to the registration
rights under Section 7.2 hereof), exercisable by written notice to the Company,
to have the Company prepare and file with the Securities and Exchange Commission
(the "Commission"), on one occasion, a registration statement and such other
documents, including a prospectus, as may be necessary in the opinion of both
counsel for the Company and counsel for the Underwriters and Holders, in order
to comply with the provisions of the Act, so as to permit a public offering and
sale of their respective Warrant Securities for nine (9) consecutive months by
such Holders and any other Holders of the Warrants and/or Warrant Securities who
notify the Company within ten (10) days after receiving notice from the Company
of such request.
(b) The Company covenants and agrees to give written notice of
any registration request under this Section 7.3 by any Holder or Holder(s) to
all other registered Holder(s) of the Warrants and the Warrant Securities within
ten (10) days from the date of the receipt of any such registration request.
(c) In addition to the registration rights under Section 7.2 and
subsection (a) of this Section 7.3, at any time commencing after the date hereof
and expiring five (5) years after the date hereof, unless all of the Warrants
issued or issuable have been exercised and the Holders of the Warrant Shares
have received a written opinion of Company counsel, reasonably satisfactory in
form and substance to such Holders, to the effect that all of the Warrant Shares
are
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<PAGE> 6
freely resaleable pursuant to Rule 144(k) promulgated under the Act, any Holder
of Warrants and/or Warrant Securities shall have the right, exercisable by
written request to the Company, to have the Company prepare and file, on one
occasion, with the Commission a registration statement so as to permit a public
offering and sale for nine (9) consecutive months by any such Holder of its
Warrant Securities, provided, however, that the provisions of Section 7.4(b)
hereof shall not apply to any such registration request and registration and all
costs incident thereto shall be at the expense of the Holder or Holders making
such request.
(d) Notwithstanding anything to the contrary contained herein,
the Company shall have the option to repurchase any and all Warrant Securities
at the Market Price per share of Common Stock on the date of the notice sent
pursuant to Section 7.3(a) less the Exercise Price of such Warrant. Such
repurchase shall be in immediately available funds and shall close within two
(2) days after the later of (i) the expiration of the period specified in
Section 7.4(a) or (ii) the delivery of the written notice of election specified
in this Section 7.3(d).
Section 7.4 Covenants of the Company With Respect to
Registration. In connection with any registration under Section 7.2 or 7.3
hereof, the Company covenants and agrees as follows:
(a) The Company shall use its best efforts to file a registration
statement within sixty (60) days of receipt of any demand therefor, shall use
its best efforts to have any registration statements declared effective at the
earliest possible time, and shall furnish each Holder desiring to sell Warrant
Securities such number of prospectuses as shall reasonably be requested.
(b) The Company shall pay all costs (excluding fees and expenses
of Holder(s)' counsel and any underwriting or selling commissions), fees and
expenses in connection with all registration statements filed pursuant to
Sections 7.2 and 7.3(a) hereof including, without limitation, the Company's
legal and accounting fees, printing expenses, blue sky fees and expenses. The
Holder(s) will pay all costs, fees and expenses in connection with any
registration statement filed pursuant to Section 7.3(c).
(c) The Company will take all necessary action which may be
required in qualifying or registering the Warrant Securities included in a
registration statement for offering and sale under the securities or blue sky
laws of such states as reasonably are requested by the Holder(s), provided that
the Company shall not be obligated to execute or file any general consent to
service of process or to qualify as a foreign corporation to do business under
the laws of any such jurisdiction.
(d) The Company shall indemnify the Holder(s) of the Warrant
Securities to be sold pursuant to any registration statement and each person, if
any, who controls such Holders within the meaning of Section 15 of the Act or
Section 20(a) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), against all loss, claim, damage, expense or liability (including all
expenses reasonably incurred in investigating, preparing or defending against
any claim whatsoever) to which any of them may become subject under the Act, the
Exchange Act or otherwise, arising from such registration statement but only to
the same extent and with the same
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<PAGE> 7
effect as the provisions pursuant to which the Company has agreed to indemnify
each of the Underwriters contained in Section 7 of the Underwriting Agreement.
(e) The Holder(s) of the Warrant Securities to be sold pursuant
to a registration statement, and their successors and assigns, shall severally,
and not jointly, indemnify the Company, its officers and directors and each
person, if any, who controls the Company within the meaning of Section 15 of the
Act or Section 20(a) of the Exchange Act, against all loss, claim, damage or
expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which
they may become subject under the Act, the Exchange Act or otherwise, arising
from information furnished by or on behalf of such Holders, or their successors
or assigns, for specific inclusion in such registration statement to the same
extent and with the same effect as the provisions contained in Section 7 of the
Underwriting Agreement pursuant to which the Underwriters have agreed to
indemnify the Company.
(f) Nothing contained in this Agreement shall be construed as
requiring the Holder(s) to exercise their Warrants prior to the initial filing
of any registration statement or the effectiveness thereof.
(g) The Company shall not permit the inclusion of any securities
other than the Warrant Securities to be included in any registration statement
filed pursuant to Section 7.3 hereof, or permit any other registration statement
(other than a registration statement with respect to a merger, acquisition or
other business combination on Form S-4 or a registration pursuant to Form S-8)
to be or remain effective during the effectiveness of a registration statement
filed pursuant to Section 7.3 hereof, without the prior written consent of the
Holders of the Warrants and Warrant Securities representing a Majority of such
securities.
(h) The Company shall furnish to each of the Holders
participating in the offering and to each underwriter, if any, a signed
counterpart, addressed to such Holders or underwriter, of (i) an opinion of
counsel to the Company, dated the effective date of such registration statement
(and, if such registration includes an underwritten public offering, an opinion
dated the date of the closing under the underwriting agreement), and (ii) a
"cold comfort" letter dated the effective date of such registration statement
(and, if such registration includes an underwritten public offering, a letter
dated the date of the closing under the underwriting agreement) signed by the
independent public accountants who have issued a report on the Company's
financial statements included in such registration statement, in each case
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of such
accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's counsel
and in accountants' letters delivered to underwriters in underwritten public
offerings of securities.
(i) The Company shall as soon as practicable after the effective
date of the registration statement, and in any event within 15 months
thereafter, make "generally available to its security holders" (within the
meaning of Rule 158 under the Act) an earnings statement (which need not be
audited) complying with Section 11(a) of the Act and covering a period of at
least 12 consecutive months beginning after the effective date of the
registration statement.
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<PAGE> 8
(j) The Company shall deliver promptly to each Holder
participating in the offering requesting the correspondence described below and
to the managing underwriters, copies of all correspondence between the
Commission and the Company, its counsel or auditors with respect to the
registration statement and permit each Holder and underwriter to do such
investigation, upon reasonable advance notice, with respect to information
contained in or omitted from the registration statement as it deems reasonably
necessary to comply with applicable securities laws or rules of the National
Association of Securities Dealers, Inc. ("NASD"). Such investigation shall
include access to books, records and properties and opportunities to discuss the
business of the Company with its officers and independent auditors, all to such
reasonable extent and at such reasonable times and as often as any such Holder
or underwriter shall reasonably request.
(k) In connection with an underwritten offering under Section
7.3, the Company shall enter into an underwriting agreement with the managing
underwriters selected for such underwriting by Holder(s) holding a Majority of
the Warrant Securities requested to be included in such underwriting, which may
be the Underwriters, which selection shall be subject to the Company's approval,
which shall not be unreasonably withheld. Such agreement shall be satisfactory
in form and substance to the Company, each Holder and such managing
underwriter(s), and shall contain such representations, warranties and covenants
by the Company and such other terms as are customarily contained in agreements
of that type used by the managing underwriter(s). The Holders shall be parties
to any underwriting agreement relating to an underwritten sale of their Warrant
Securities and may, at their option, require that any or all the
representations, warranties and covenants of the Company to or for the benefit
of such underwriter(s) shall also be made to and for the benefit of such
Holders. Such Holders shall not be required to make any representations or
warranties to or agreements with the Company or the underwriter(s) except as are
customarily made by selling securityholders in underwritten offerings.
(l) For purposes of this Agreement, the term "Majority" in
reference to the Holder(s) of Warrants or Warrant Securities, shall mean in
excess of fifty percent (50%) of the then outstanding Warrants or Warrant
Securities that (i) are not held by the Company, an affiliate, officer,
creditor, employee or agent thereof or any of their respective affiliates,
members of their family, persons acting as nominees or in conjunction therewith
and (ii) have not been resold to the public pursuant to a registration statement
filed with the Commission under the Act.
8. Adjustments to Exercise Price and Number of Securities.
Section 8.1 Subdivision and Combination. In case the Company
shall at any time subdivide or combine the outstanding shares of Common Stock,
the Exercise Price shall forthwith be proportionately decreased in the case of
subdivision or increased in the case of combination.
Section 8.2 Stock Dividends and Distributions. In case the
Company shall pay a dividend in, or make a distribution of, shares of Common
Stock or of the Company's capital stock convertible into Common Stock, the
Exercise Price shall forthwith be proportionately
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decreased. An adjustment made pursuant to this Section 8.2 shall be made as of
the record date for the subject stock dividend or distribution.
Section 8.3 Adjustment in Number of Securities. Upon each
adjustment of the Exercise Price pursuant to the provisions of this Section 8,
the number of Warrant Securities issuable upon the exercise at the adjusted
exercise price of each Warrant shall be adjusted to the nearest whole number by
multiplying a number equal to the Exercise Price in effect immediately prior to
such adjustment by the number of Warrant Securities issuable upon exercise of
the Warrants immediately prior to such adjustment and dividing the product so
obtained by the adjusted Exercise Price.
Section 8.4 Definition of Common Stock. For the purpose of this
Agreement, the term "Common Stock" shall mean (i) the class of stock designated
as Common Stock in the Restated Certificate of Incorporation of the Company as
may be amended as of the date hereof, or (ii) any other class of stock resulting
from successive changes or reclassifications of such Common Stock consisting
solely of changes in par value, or from par value to no par value, or from no
par value to par value.
Section 8.5 Merger or Consolidation. In case of any consolidation
of the Company with, or merger of the Company with, or merger of the Company
into, another corporation (other than a consolidation or merger which does not
result in any reclassification or change of the outstanding Common Stock), the
corporation formed by such consolidation or merger shall execute and deliver to
the Holders a supplemental warrant agreement providing that the holder of each
Warrant then outstanding or to be outstanding shall have the right thereafter
(until the expiration of such Warrant) to receive, upon exercise of such
Warrant, the kind and amount of shares of stock and other securities and
property receivable upon such consolidation or merger, by a holder of the number
of shares of Common Stock of the Company for which such Warrant might have been
exercised immediately prior to such consolidation, merger, sale or transfer.
Such supplemental warrant agreement shall provide for adjustments which shall be
identical to the adjustments provided in Section 8. The above provision of this
subsection shall similarly apply to successive consolidations or mergers.
Section 8.6 No Adjustment of Exercise Price in Certain Cases. No
adjustment of the Exercise Price shall be made:
(a) Upon the issuance or sale of the Warrants or the
shares of Common Stock issuable upon the exercise of the
Warrants;
(b) If the amount of said adjustment shall be less than
two cents (2(cent)) per Warrant Security, provided, however, that
in such case any adjustment that would otherwise be required then
to be made shall be carried forward and shall be made at the time
of and together with the next subsequent adjustment which,
together with any adjustment so carried forward, shall amount to
at least two cents (2(cents)) per Warrant Security.
9. Exchange and Replacement of Warrant Certificates. Each Warrant
Certificate is exchangeable without expense, upon the surrender thereof by the
registered
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Holders at the principal executive office of the Company, for a new Warrant
Certificate of like tenor and date representing in the aggregate the right to
purchase the same number of Warrant Securities in such denominations as shall be
designated by the Holders thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory
to it of the loss, theft, destruction or mutilation of any Warrant Certificate,
and, in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
10. Elimination of Fractional Interests. The Company shall not be
required to issue certificates representing fractions of shares of Common Stock
upon the exercise of the Warrants, nor shall it be required to issue scrip or
pay cash in lieu of fractional interests, it being the intent of the parties
that all fractional interests shall be eliminated by rounding any fraction up to
the nearest whole number of shares of Common Stock or other securities,
properties or rights.
11. Reservation and Listing of Securities. The Company shall at
all times reserve and keep available out of its authorized shares of Common
Stock, solely for the purpose of issuance upon the exercise of the Warrants,
such number of shares of Common Stock or other securities, properties or rights
as shall be issuable upon the exercise thereof. The Company covenants and agrees
that, upon exercise of the Warrants and payment of the Exercise Price therefor,
all shares of Common Stock and other securities issuable upon such exercise
shall be duly and validly issued, fully paid, non-assessable and not subject to
the preemptive rights of any stockholder. As long as the Warrants shall be
outstanding, the Company shall use its best efforts to cause all shares of
Common Stock issuable upon the exercise of the Warrants to be listed (subject to
official notice of issuance) on all securities exchanges on which the Common
Stock issued to the public in connection herewith may then be listed and/or
quoted.
12. Notices to Warrant Holders. Nothing contained in this
Agreement shall be construed as conferring upon the Holders the right to vote or
to consent or to receive notice as a stockholder in respect of any meetings of
stockholders for the election of directors or any other matter, or as having any
rights whatsoever as a stockholder of the Company. If, however, at any time
prior to the expiration of the Warrants and their exercise, any of the following
events shall occur:
(a) the Company shall take a record of the holders of its
shares of Common Stock for the purpose of entitling them to
receive a dividend or distribution payable otherwise than in
cash, or a cash dividend or distribution payable otherwise than
out of current or retained earnings, as indicated by the
accounting treatment of such dividend or distribution on the
books of the Company; or
(b) the Company shall offer to all the holders of its
Common Stock any additional shares of capital stock of the
Company or securities convertible
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into or exchangeable for shares of capital stock of the Company,
or any option, right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the
Company (other than in connection with a consolidation or merger)
or a sale of all or substantially all of its property, assets and
business as an entirety shall be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least fifteen (15) days prior to the date fixed as a record
date or the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notice shall specify
such record date or the date of closing the transfer books, as the case may be.
Failure to give such notice or any defect therein shall not affect the validity
of any action taken in connection with the declaration or payment of any such
dividend, or the issuance of any convertible or exchangeable securities, or
subscription rights, options or warrants, or any proposed dissolution,
liquidation, winding up or sale.
13. Notices.
All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made and
sent when delivered, or mailed by registered or certified mail, return receipt
requested:
(a) If to the registered Holders of the Warrants, to the
address of such Holders as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section
3 hereof or to such other address as the Company may designate by
notice to the Holders.
14. Supplements and Amendments. The Company and the Underwriters
may from time to time supplement or amend this Agreement without the approval of
any Holders of Warrant Certificates (other than the Underwriters) in order to
cure any ambiguity, to correct or supplement any provision contained herein
which may be defective or inconsistent with any provisions herein, or to make
any other provisions in regard to matters or questions arising hereunder which
the Company and the Underwriters may deem necessary or desirable and which the
Company and the Underwriters deem shall not adversely affect the interests of
the Holder(s) of Warrant Certificates.
15. Successors. All the covenants and provisions of this
Agreement shall be binding upon and inure to the benefit of the Company, the
Holder(s) and their respective successors and assigns hereunder.
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16. Termination. This Agreement shall terminate at the close of
business on November __, 2004. Notwithstanding the foregoing, the
indemnification provisions of Section 7 shall survive such termination until the
close of business on November __, 2010.
17. Governing Law; Submission to Jurisdiction. This Agreement and
each Warrant Certificate issued hereunder shall be deemed to be a contract made
under the laws of the State of New York and for all purposes shall be construed
in accordance with the laws of said State without giving effect to the rules of
said State governing the conflicts of laws.
The Company, the Underwriters and the Holders hereby agree that
any action, proceeding or claim against it arising out of, or relating in any
way to, this Agreement shall be brought and enforced in the courts of the State
of New York or of the United States of America for the Southern District of New
York, and irrevocably submits to such jurisdiction, which jurisdiction shall be
exclusive. The Company, the Underwriters and the Holders hereby irrevocably
waive any objection to such exclusive jurisdiction or inconvenient forum. Any
such process or summons to be served upon any of the Company, the Underwriters
and the Holders (at the option of the party bringing such action, proceeding or
claim) may be served by transmitting a copy thereof, by registered or certified
mail, return receipt requested, postage prepaid, addressed to it at the address
set forth in Section 13 hereof. Such mailing shall be deemed personal service
and shall be legal and binding upon the party so served in any action,
proceeding or claim. The Company, the Underwriters and the Holders agree that
the prevailing party(ies) in any such action or proceeding shall be entitled to
recover from the other party(ies) all of its/their reasonable legal costs and
expenses relating to such action or proceeding and/or incurred in connection
with the preparation therefor.
18. Entire Agreement; Modification. This Agreement (including the
Underwriting Agreement to the extent portions thereof are referred to herein)
contains the entire understanding between the parties hereto with respect to the
subject matter hereof and may not be modified or amended except by a writing
duly signed by the party against whom enforcement of the modification or
amendment is sought.
19. Severability. If any provision of this Agreement shall be
held to be invalid or unenforceable, such invalidity or unenforceability shall
not affect any other provision of this Agreement.
20. Captions. The caption headings of the Sections of this
Agreement are for convenience of reference only and are not intended, nor should
they be construed as, a part of this Agreement and shall be given no substantive
effect.
21. Benefits of this Agreement. Nothing in this Agreement shall
be construed to give to any person or corporation other than the Company and the
Underwriters and any other registered Holder(s) of the Warrant Certificates or
Warrant Securities any legal or equitable right, remedy or claim under this
Agreement; and this Agreement shall be for the sole benefit of the Company and
the Underwriters and any other registered Holder(s) of Warrant Certificates or
Warrant Securities.
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22. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed, as of the day and year first above written.
INTERVU INC.
By:
-------------------------------
Name: Harry E. Gruber
Title: Chairman and Chief Executive Officer
Attest:
- -------------------------------
JOSEPHTHAL LYON & ROSS INCORPORATED
By:
-------------------------------
Name:
Title:
CRUTTENDEN ROTH INCORPORATED
By:
-------------------------------
Name:
Title:
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<PAGE> 14
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER THE ACT (OR ANY
SIMILAR RULE UNDER THE ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii)
AN OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO
COUNSEL FOR THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER THE ACT IS
AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M., NEW YORK TIME, _________ __, 2002
No. W- Warrants to Purchase
_________ Shares of Common Stock
WARRANT CERTIFICATE
This Warrant Certificate certifies that , or registered assigns,
is the registered holder of Warrants to purchase initially, at any time from
__________ __, 1998 until 5:30 p.m. New York time on _________ __, 2002
("Expiration Date"), up to __________ fully-paid and non-assessable shares of
common stock, par value $.001 per share ("Common Stock"), of INTERVU INC., a
Delaware corporation (the "Company"), (one share of Common Stock referred to
individually as a "Security" and collectively as the "Securities") at the
initial exercise price, subject to adjustment in certain events (the "Exercise
Price"), of $[120% of IPO Price] per share of Common Stock upon surrender of
this Warrant Certificate and payment of the Exercise Price at an office or
agency of the Company, but subject to the conditions set forth herein and in the
warrant agreement dated as of _________ __, 1997 among the Company, JOSEPHTHAL
LYON & ROSS INCORPORATED and CRUTTENDEN ROTH INCORPORATED (the "Warrant
Agreement"). Payment of the Exercise Price shall be made by certified or
official bank check in New York Clearing House funds payable to the order of the
Company.
No Warrant may be exercised after 5:30 p.m., New York time, on
the Expiration Date, at which time all Warrants evidenced hereby, unless
exercised prior thereto, hereby shall thereafter be void.
<PAGE> 15
The Warrants evidenced by this Warrant Certificate are part of a
duly authorized issue of Warrants issued pursuant to the Warrant Agreement,
which Warrant Agreement is hereby incorporated by reference in and made a part
of this instrument and is hereby referred to for a description of the rights,
limitation of rights, obligations, duties and immunities thereunder of the
Company and the holder(s) (the words "holder" or "holder(s)" meaning the
registered holder or registered holder(s)) of the Warrants.
The Warrant Agreement provides that upon the occurrence of
certain events the Exercise Price and the type and/or number of the Company's
securities issuable thereupon may, subject to certain conditions, be adjusted.
In such event, the Company will, at the request of the holder, issue a new
Warrant Certificate evidencing the adjustment in the Exercise Price and the
number and/or type of securities issuable upon the exercise of the Warrants;
provided, however, that the failure of the Company to issue such new Warrant
Certificates shall not in any way change, alter, or otherwise impair, the rights
of the holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement, without any charge except for any tax or other governmental charge
imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by
this Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as
the absolute owner(s) of this Warrant Certificate (notwithstanding any notation
of ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in
the Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
2
<PAGE> 16
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed under its corporate seal.
Dated as of ________ __, 1997
INTERVU INC.
[SEAL] By:
-----------------------------------
Name: Harry E. Gruber
Title: Chairman and Chief
Executive Officer
Attest:
- --------------------------
Secretary
3
<PAGE> 17
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase:
[ ] shares of Common Stock;
----------------------
and herewith tenders in payment for such securities a certified or official bank
check payable in New York Clearing House Funds to the order of InterVU Inc. in
the amount of $____, all in accordance with the terms of Section 3.1 of the
Advisors' Warrant Agreement dated as of _________ __, 1997 among InterVU Inc.,
Josephthal Lyon & Ross Incorporated and Cruttenden Roth Incorporated. The
undersigned requests that a certificate for such securities be registered in the
name of whose address is and that such Certificate be delivered to____________
whose address_____________ is .
Dated:
Signature
------------------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of the Warrant
Certificate.)
---------------------------------------------
(Insert Social Security or Other Identifying
Number of Holder)
4
<PAGE> 18
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.2]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase:
[ ] ______________________ shares of Common Stock;
and herewith tenders in payment for such securities ________ Warrants all in
accordance with the terms of Section 3.2 of the Advisors' Warrant Agreement
dated as of ________ __, 1997 among InterVU Inc., Josephthal Lyon & Ross
Incorporated and Cruttenden Roth Incorporated. The undersigned requests that a
certificate for such securities be registered in the name of____________whose
address is and that such Certificate be delivered to whose address is _________.
Dated:
Signature
------------------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of the Warrant
Certificate.)
---------------------------------------------
(Insert Social Security or Other Identifying
Number of Holder)
5
<PAGE> 19
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED __________________________ hereby sells, assigns and
transfers unto
- ------------------------------------------------------------------------------
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint Attorney, to transfer the
within Warrant Certificate on the books of the within-named Company, with full
power of substitution.
Dated:
------------------------
Signature
------------------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of the Warrant
Certificate.)
---------------------------------------------
(Insert Social Security or Other Identifying
Number of Holder)
<PAGE> 1
EXHIBIT 5.1
[LETTERHEAD]
LATHAM & WATKINS
ATTORNEYS AT LAW
November 11, 1997
InterVU Inc.
201 Lomas Santa Fe Drive
Solana Beach, CA 92075
Re: Registration Statement No. 333-33521; 2,567,000 shares
of Common Stock, par value $.001 per share
Ladies and Gentlemen:
In connection with the registration of 2,567,000 shares of common
stock of the Company, par value $.001 per share (the "Shares"), under the
Securities Act of 1933, as amended (the "Act"), by InterVU Inc., a Delaware
corporation (the "Company"), on Form S-1 filed with the Securities and Exchange
Commission (the "Commission") on August 13, 1997 (File No. 333-33521), as
amended by Amendment No. 1 filed with the Commission on October 24, 1997 and
Amendment No. 2 filed with the Commission on November 12, 1997 (collectively,
the "Registration Statement"), you have requested our opinion with respect to
the matters set forth below.
In our capacity as your counsel in connection with such
registration, we are familiar with the proceedings taken by the Company in
connection with the authorization, issuance and sale of the Shares, and for the
purposes of this opinion, have assumed such proceedings will be timely completed
in the manner presently proposed. In addition, we have made such legal and
factual examinations and inquiries, including an examination of originals or
copies certified or otherwise identified to our satisfaction of such documents,
corporate records and instruments, as we have deemed necessary or appropriate
for purposes of this opinion.
In our examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, and
the conformity to authentic original documents of all documents submitted to us
as copies.
We are opining herein as to the effect on the subject transaction
only of the General Corporation Law of the State of Delaware, and we express no
opinion with respect to the applicability
<PAGE> 2
InterVU Inc.
November 11, 1997
Page 2
thereto, or the effect thereon, of the laws of any other jurisdiction, any other
laws of then State of Delaware or any matters of municipal law or the laws of
any other local agencies within the state.
Subject to the foregoing, it is our opinion that the Shares have
been duly authorized, and, upon issuance, delivery and payment therefor in the
manner contemplated by the Registration Statement, will be validly issued, fully
paid and nonassessable.
We consent to your filing this opinion as an exhibit to the
Registration Statement and to the reference to our firm contained under the
heading "Legal Matters."
Very truly yours,
/s/ LATHAM & WATKINS
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Financial Data" and "Experts" and to the use of our report dated May 2, 1997,
except for Note 8, as to which the date is November 17, 1997, in Amendment
No. 3 to the Registration Statement (Form S-1 No. 333-33521) and related
Prospectus of InterVU Inc. (a development stage company) expected to be filed
on or about November 19, 1997.
ERNST & YOUNG LLP
November 17, 1997
San Diego, California
