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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 24, 1997
REGISTRATION NO. 333-33521
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1 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)
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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)The Company paid a filing fee of $7,667 upon the initial filing of this
Registration Statement. A fee of $890 is being paid with this filing.
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 OCTOBER 24, 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.
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[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. 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/visual 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 on both a quarterly and annual basis for the
foreseeable future. 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.
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
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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."
UNCERTAIN ACCEPTANCE OF THE COMPANY'S SERVICES
The Company's ability to achieve and maintain a leadership position in
Internet video delivery 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, there
can be no assurance that Web site owners and advertisers will retain the Company
to provide video delivery services. The absence of a market for video delivery
services 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.
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. The Company's
customers have only limited experience, if any, with the Internet as a marketing
and
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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. 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."
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
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
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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 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 Interact 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
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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 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 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."
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
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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 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
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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 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 the Netscape Navigator 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 Netscape'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.
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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
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 1,500,000 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
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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 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
15
<PAGE> 17
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 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."
16
<PAGE> 18
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.
17
<PAGE> 19
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.
18
<PAGE> 20
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.
19
<PAGE> 21
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.
20
<PAGE> 22
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 on both a quarterly and annual basis for the
foreseeable future. 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."
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
21
<PAGE> 23
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.
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.
22
<PAGE> 24
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 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."
23
<PAGE> 25
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 users
via the Internet in response to requests from end users.
As consideration for the formation of the strategic alliance, the Company
issued to NBC approximately 10% of the capital stock of the Company on a fully
diluted basis 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
24
<PAGE> 26
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.
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 formation of 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 exclusive term. 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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<PAGE> 35
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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<PAGE> 36
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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<PAGE> 37
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., California Microwave 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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<PAGE> 38
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
37
<PAGE> 39
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 1,500,000 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> 40
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.
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.
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.
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<PAGE> 41
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 64,550 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.
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<PAGE> 42
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).................... 3,885,164 -- 54.1% 41.4%
</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 13,634 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 13,634 shares subject to the Company's repurchase right under a
restricted stock agreement.
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<PAGE> 43
(9) Includes 45,819 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 43,564 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 24,155 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).
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<PAGE> 44
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 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 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.
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<PAGE> 45
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 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
44
<PAGE> 46
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.
45
<PAGE> 47
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."
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<PAGE> 48
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
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<PAGE> 49
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> 50
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.
49
<PAGE> 51
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> 52
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
October , 1997
- --------------------------------------------------------------------------------
The foregoing report is in the form that will be signed upon completion of
certain events as described in Note 8 to the financial statements.
San Diego, California
October 21, 1997
/s/ ERNST & YOUNG LLP
F-2
<PAGE> 53
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> 54
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> 55
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> 56
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> 57
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> 58
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> 59
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> 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)
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> 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)
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 1,500,000 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> 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)
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> 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)
SHARES RESERVED FOR FUTURE ISSUANCE
At September 30, 1997, the Company had reserved approximately 4.7 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> 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)
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> 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)
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 on 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 website 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. Pursuant to the
requirements of the Securities and Exchange Commission, Staff Accounting
Bulletin No. 48 the Company will record the nonmonetary assets received by the
Company in exchange for preferred stock prior to the Company's initial public
offering at its carryover basis, which is zero.
F-15
<PAGE> 66
[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> 67
======================================================
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............................ 17
Dividend Policy............................ 17
Dilution................................... 18
Capitalization............................. 19
Selected Financial Data.................... 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 21
Business................................... 24
Management................................. 35
Certain Transactions....................... 39
Principal Stockholders..................... 41
Description of Capital Stock............... 43
Shares Eligible for Future Sale............ 46
Underwriting............................... 47
Direct Offering............................ 48
Legal Matters.............................. 49
Experts.................................... 49
Available Information...................... 49
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> 68
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> 69
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> 70
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.(2)
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.(2)
10.3 Form of Restricted Stock Purchase Agreement.(2)
10.4 Amended and Restated Vesting Agreement between the Company and Harry Gruber.(2)
10.5 Amended and Restated Vesting Agreement between the Company and Brian Kenner.(2)
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.(1)
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) Filed herewith.
(2) To be filed by amendment.
(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> 71
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> 72
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 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 October 23, 1997.
InterVU Inc.
By: /s/ HARRY E. GRUBER
------------------------------------
Harry E. Gruber
Chairman, Chief Executive Officer
and Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Harry E. Gruber his true and lawful
attorney-in-fact, acting alone, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities to sign any and all amendments including post-effective amendments
and any registration statement filed pursuant to Rule 462(b) under the
Securities Act of 1933 to this registration statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorney-in-fact or his substitute, may lawfully do or cause to be done by
virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 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 October 23, 1997
- ----------------------------------- Executive Officer and Chief
Harry E. Gruber Financial Officer (Principal
Executive Officer, Principal
Financial Officer and Principal
Accounting Officer)
/s/ EDWARD DAVID* Director October 23, 1997
- -----------------------------------
Edward David
/s/ MARK DOWLEY* Director October 23, 1997
- -----------------------------------
Mark Dowley
/s/ ALAN Z. SENTER Director October 23, 1997
- -----------------------------------
Alan Z. Senter
/s/ J. WILLIAM GRIMES Vice Chairman October 23, 1997
- -----------------------------------
J. William Grimes
/s/ ISAAC WILLIS* Director October 23, 1997
- -----------------------------------
Isaac Willis
</TABLE>
*By: /s/ HARRY E. GRUBER
----------------------
Harry E. Gruber
Attorney-in-fact
II-5
<PAGE> 73
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.(2)
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.(2)
10.3 Form of Restricted Stock Purchase Agreement.(2)
10.4 Amended and Restated Vesting Agreement between the Company and Harry Gruber.(2)
10.5 Amended and Restated Vesting Agreement between the Company and Brian Kenner.(2)
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.(1)
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) Filed herewith.
(2) To be filed by amendment.
<PAGE> 1
EXHIBIT 3.1
RESTATED
CERTIFICATE OF INCORPORATION
OF
VIDEO QUEST INC.
--------
Video Quest Inc., a corporation organized and existing under the laws of
the State of Delaware, hereby certifies as follows:
1. The name of the corporation is Video Quest Inc. Video Quest
Inc. was originally incorporated under the same name, and the original
Certificate of Incorporation of the corporation was filed with the Secretary of
State of the State of Delaware on August 2, 1995.
2. Pursuant to Sections 242 and 245 of the General Corporation Law
of the State of Delaware, this Restated Certificate of Incorporation restates
and integrates and further amends the provisions of the Certificate of
Incorporation of this corporation.
3. The text of the Restated Certificate of Incorporation is hereby
restated and further amended to read in its entirety as follows:
ARTICLE FIRST
The name of the corporation is Video Quest Inc. (herein called the
"Corporation").
ARTICLE SECOND
The address of the registered office of the Corporation in the State of
Delaware is The Prentice-Hall Corporation System, Inc., 32 Loockerman Square,
Suite L-100, Dover, Delaware 19901, County of Kent. The name of the registered
agent of the Corporation at such address is The Prentice-Hall Corporation
System, Inc.
<PAGE> 2
ARTICLE THIRD
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the Delaware General
Corporation Law.
ARTICLE FOURTH
The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 11,150,000 shares, consisting of:
(a) 6,500,000 shares of Common Stock, $.001 par value (the "Common Stock"); and
(b) 4,650,000 shares of Preferred Stock, $.001 par value (the "Preferred
Stock") consisting of (i) 250,000 shares of Series A Convertible Preferred
Stock, $.001 par value (the "Series A Preferred Stock"), (ii) 400,000 shares of
Series B Convertible Preferred Stock, $.001 par value (the "Series B Preferred
Stock"), and (iii) the remaining 4,000,000 shares may be issued by the Board of
Directors of the Corporation, which is hereby granted authority and is hereby
expressly vested with the authority to issue the remaining 4,000,000 shares of
Preferred Stock at any time and from time to time, in one or more series, each
having such voting powers, preferences and relative, participating, optional or
other special rights, and the qualifications, limitations and restrictions
thereof, as shall be set forth in the resolution of the Board of Directors of
the Corporation specified in any Certificate of Designation filed at any time
and from time to time, providing for the issuance of such remaining shares of
Preferred Stock permitted by this clause (iii). Without limiting the
generality of the provisions of the immediately preceding clause (iii), the
authority of the Board of Directors with respect to each series of Preferred
Stock permitted by this clause (iii) shall include, without limitation, the
determination of any of the following matters:
(aa) the number of shares constituting such series and the
designation thereof to distinguish the shares of such series from the shares of
all other series;
(bb) the rights of holders of shares of such series to receive
dividends thereon and the dividend rates, the conditions and time of payment of
dividends, the extent to which dividends are payable in reference to, or in any
other relation to, dividends payable on any other class or series of stock, and
whether such dividends shall be cumulative or noncumulative;
(cc) the terms and provisions governing the redemption of shares of
such series, if such shares are to be redeemable;
(dd) the terms and provisions governing the operation of retirement
or sinking funds, if any;
2
<PAGE> 3
(ee) the voting power of such series, whether full, limited or
none;
(ff) the rights of holders of shares of such series upon the
liquidation, dissolution or winding up of, or upon distribution of the
assets of, the Corporation;
(gg) the rights, if any, of the holders of shares of such series
to convert into, or to exchange such shares for, any other class of
stock, or of any series thereof, and the prices or rates for such
conversions or exchanges, and any adjustments thereto; and
(hh) any other preferences and relative, participating, optional
or other special rights, qualifications, limitations or restrictions of
such series.
The designations, powers, preferences and relative, participating,
optional or other special rights, and the qualifications, limitations and
restrictions thereof, in respect of the Preferred Stock and the Common Stock are
as follows:
A. PREFERRED STOCK
1. DIVIDEND PROVISIONS. The holders of shares of Series A Preferred
Stock shall be entitled to receive dividends, out of any assets legally
available therefor, prior and in preference to any declaration or payment of
any dividend (payable other than in Common Stock of the Corporation) on the
Common Stock of the Corporation, at the rate of $.08 per share of Series A
Preferred Stock per annum, payable quarterly, when, as and if declared by the
Board of Directors. The holders of shares of Series B Preferred Stock shall be
entitled to receive dividends, out of any assets legally available therefor,
prior and in preference to any declaration or payment of any dividend (payable
other than in Common Stock of the Corporation) on the Common Stock of the
Corporation, at the rate of $.10 per share of Series B Preferred Stock per
annum, payable quarterly, when, as and if declared by the Board of Directors.
Dividends payable on the Series A Preferred Stock and the Series B Preferred
Stock and any other class or series of stock ranking on a parity as to dividends
with such Series A Preferred Stock and the Series B Preferred Stock shall be
payable on a pari passu basis in accordance with the following sentence. All
dividends declared, paid or set apart with respect to the Series A Preferred
Stock and the Series B Preferred Stock and any other class or series of stock
ranking on a parity as to dividends with such Series A Preferred Stock and
Series B Preferred Stock shall be declared, paid or set apart ratably on a
proportionate basis, based on the respective annual dividend rates fixed
therefor. All payments due under this Section A.1 shall be made to the nearest
cent. Dividends on the Series A Preferred Stock and the Series B Preferred Stock
shall not be cumulative.
3
<PAGE> 4
2. LIQUIDATION PREFERENCE
(a) In the event of any liquidation, dissolution or winding
up of the Corporation, either voluntary or involuntary (a "Liquidation Event"),
the holders of Series A Preferred Stock and Series B Preferred Stock shall 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 by reason of their
ownership thereof, an amount per share equal to the sum of (i) the Original
Issue Price (as hereinafter defined) for each outstanding share of Series A
Preferred Stock or each outstanding share of Series B Preferred Stock, as the
case may be, and (ii) an amount equal to all declared but unpaid dividends on
each such share. With respect to any Liquidation Event, the Series A Preferred
Stock and Series B Preferred Stock shall rank on a parity with each other and
shall both rank prior to the Common Stock. If upon the occurrence of a
Liquidation Event the assets and funds thus distributed among the holders of
the Series A Preferred Stock and Series B Preferred Stock shall be insufficient
to permit the payment to such holders of the full aforesaid preferential
amounts, then the entire assets and funds of the Corporation legally available
for distribution shall be distributed ratably among the holders of the Series
A Preferred Stock and Series B Preferred Stock based upon the respective
amounts which would be payable in respect of the shares held by them upon such
distribution if all amounts payable on or with respect to such shares were
paid in full. As used herein, the term "Original Issue Price" shall mean (i)
$1.00 per share for each outstanding share of Series A Preferred Stock and (ii)
$1.27 for each outstanding share of Series B Preferred Stock.
(b) After the distribution in subsection A.2(a) above has
been paid, the remaining assets of the Corporation available for distribution
to shareholders shall be distributed among the holders of Common Stock pro rata
based on the number of shares of Common Stock held by each.
3. CONVERSION. The holders of Series A Preferred Stock and Series
B Preferred Stock shall have the following conversion rights (the "Conversion
Rights"):
(a) RIGHT TO CONVERT
(i) Subject to subsection A.3(c), each share of
Series A Preferred Stock and Series B Preferred Stock shall be convertible, at
the option of the holder thereof, at any time after the date of issuance of
such share, at the office of the Corporation or any transfer agent for
the Series A Preferred Stock or Series B Preferred Stock, into such number of
fully paid and nonassessable shares of the Corporation's Common Stock as is
determined by dividing the Original Issue Price for such Series A Preferred
Stock or Series B Preferred Stock by the Series A Conversion Price, or the
Series B Conversion Price, as applicable, at the time in effect for such
series. The initial Conversion Price for the Series A Preferred Stock shall be
the Original Issue Price for the Series A Preferred Stock (the "Series A
Conversion Price") and the initial Conversion Price for the Series B Preferred
Stock shall be the Original Issue Price for the Series B Preferred Stock (the
"Series B Conversion Price");
4
<PAGE> 5
provided, however, that the Series A Conversion Price and the Series B
Conversion Price shall be subject to adjustment as set forth in subsection
A.3(c).
(ii) Each share of Series A Preferred Stock and Series
B Preferred Stock shall automatically be converted into shares of Common Stock
at the applicable Series A Conversion Price or Series B Conversion Price for
such Preferred Stock at the time in effect immediately upon the consummation of
the Corporation's sale of its Common Stock in a bona fide, firm commitment
underwriting pursuant to a registration statement under the Securities Act of
1933, as amended (the "Securities Act"), which results in gross proceeds to the
Corporation of at least $7,500,000 (an "Event of Conversion").
(b) MECHANICS OF CONVERSION. The holder of any shares of
Series A Preferred Stock or Series B Preferred Stock may exercise the
conversion right provided in subsection A.3(a)(i) as to any shares thereof by
delivering to the Corporation the certificate or certificates therefor, duly
endorsed, at the office of the Corporation, and such holder shall give written
notice to the Corporation of the election to convert the same and shall state
therein the name or names in which the certificate or certificates for shares
of Common Stock are to be issued. Conversion shall be deemed to have been
effected (i) with respect to conversion effected pursuant to subsection
A.3(a)(i), on the date when the aforesaid delivery is made and (ii) with
respect to conversion effected pursuant to subsection A.3(a)(ii), on the date
of the occurrence of an Event of Conversion automatically without the necessity
of any further action, and such date, in either case, is hereinafter referred
to as the "Conversion Date." As promptly as practicable thereafter, the
Corporation shall issue and deliver to or upon the written order of such
holder, to the place designated by such holder, a certificate or certificates
for the number of full shares of Common Stock to which such holder is entitled.
The person in whose names the certificate or certificates for Common Stock are
to be issued shall be deemed to have become a stockholder of record on the
applicable Conversion Date unless the transfer books of the Corporation are
closed on that date, in which event he shall be deemed to have become a
stockholder of record on the next succeeding date on which the transfer books
are open, but the Series A Conversion Price or the Series B Conversion Price
(as applicable) shall be that in effect on the Conversion Date. Upon conversion
of only a portion of the number of shares covered by a certificate representing
shares of Series A Preferred Stock or Series B Preferred Stock (as applicable)
surrendered for conversion, the Corporation shall issue and deliver to or upon
the written order of the holder of the certificate so surrendered for
conversion, at the expense of the Corporation, a new certificate covering the
number of shares of Series A Preferred Stock or Series B Preferred Stock
representing the unconverted portion of the certificate so surrendered, which
new certificate shall entitle the holder thereof to dividends on the shares of
Series A Preferred Stock or Series B Preferred Stock (as applicable)
represented thereby to the same extent as if the certificate theretofore
covering such unconverted shares had not been surrendered for conversion.
(c) CONVERSION PRICE ADJUSTMENTS OF PREFERRED STOCK. This
Series A Conversion Price and the Series B Conversion Price shall be subject to
adjustment from time to time as follows:
5
<PAGE> 6
(i) In the event the Corporation should at any time or
from time to time after the issuance of the Series A Preferred Stock or Series
B Preferred Stock fix a record date for the effectuation of a split or
subdivision of the outstanding shares of Common Stock or the determination of
holders of Common Stock entitled to receive a dividend or other distribution
payable in additional shares of Common Stock without payment of any
consideration by such holder for the additional shares of Common Stock, then,
as of such record date (or the date of such dividend distribution, split or
subdivision if no record date is fixed), the Series A Conversion Price and the
Series B Conversion Price, as applicable, shall be appropriately decreased so
that the number of shares of Common Stock issuable on conversion of each share
of the Series A Preferred Stock or the Series B Preferred Stock (as applicable)
shall be increased in proportion to such increase of outstanding shares.
(ii) If the number of shares of Common Stock
outstanding at any time after the issuance of the Series A Preferred Stock or
the Series B Preferred Stock (as applicable) is decreased by a combination of
the outstanding shares of Common Stock, then, following the record date of such
combination, the Series A Conversion Price or the Series B Conversion Price (as
applicable) shall be appropriately increased so that the number of shares of
Common Stock issuable on conversion of each share of such Series A Preferred
Stock or the Series B Preferred Stock (as applicable) shall be decreased in
proportion to such decrease in outstanding shares.
(d) Other Distributions. In the event the Corporation shall
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by the Corporation or other persons, or assets (excluding
cash dividends), then, in each such case for the purpose of this subsection
A.3(d), the holders of Series A Preferred Stock and Series B Preferred Stock
shall be entitled to a proportionate share of any such distribution as though
they were the holders of the number of shares of Common Stock of the
Corporation into which their shares of Series A Preferred Stock or Series B
Preferred Stock are convertible as of the record date fixed for the
determination of the holders of Common Stock of the Corporation entitled to
receive such distribution.
(e) Recapitalizations. If at any time or from time to time
there shall be a recapitalization of the Common Stock (other than a
subdivision, combination or merger or sale of assets transaction provided for
elsewhere in this Section A.3 or in Section A.4), provision shall be made so
that the holders of Series A Preferred Stock and Series B Preferred Stock shall
thereafter be entitled to receive upon conversion of their Series A Preferred
Stock or Series B Preferred Stock the number of shares of stock or other
securities or property of the Corporation or otherwise, to which a holder of
Common Stock deliverable upon conversion would have been entitled on such
recapitalization. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section A.3 with respect to the rights of
the holders of Series A Preferred Stock and Series B Preferred Stock after the
recapitalization to the end that the provisions of this Section A.3 (including
adjustment of the Series A Conversion Price and the Series B Conversion Price,
if applicable, then in effect and
6
<PAGE> 7
the number of shares purchasable upon conversion of Series A Preferred Stock or
Series B Preferred Stock) shall be applicable after that event as nearly
equivalent as may be practicable.
(f) NO IMPAIRMENT. The Corporation will not, by amendment
of its Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Corporation, but will at all times in good faith
assist in the carrying out of all the provisions of this Section A.3 and in the
taking of all such action as may be necessary or appropriate in order to
protect the Conversion Rights of the holders of the Series A Preferred Stock
and Series B Preferred Stock against impairment.
(g) NO FRACTIONAL SHARES AND CERTIFICATE AS TO
ADJUSTMENTS. (i) No fractional shares shall be issued upon conversion of the
Series A Preferred Stock or Series B Preferred Stock and the number of shares
of Common Stock to be issued shall be rounded to the nearest whole share.
Whether or not fractional shares are issuable upon such conversion shall be
determined on the basis of the total number of shares of the Series A
Preferred Stock or Series B Preferred Stock the holder is at the time
converting into Common Stock and the number of shares of Common Stock issuable
upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment of
the Series A Conversion Price or Series B Conversion Price pursuant to this
Section A.3, the Corporation, at its expense, shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and prepare and
furnish to each holder of Series A Preferred Stock and Series B Preferred Stock
a certificate setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based. The
Corporation shall, upon the written request at any time of any holder of Series
A Preferred Stock or Series B Preferred Stock, furnish or cause to be furnished
to such holder a like certificate setting forth (A) such adjustment and
readjustment, (B) the Series A Conversion Price and the Series B Conversion
Price at the time in effect, and (C) the number of shares of Common Stock and
the amount, if any, of other property which at the time would be received upon
the conversion of a share of Series A Preferred Stock and Series B Preferred
Stock.
(h) NOTICES OF RECORD DATE. In the event of any taking by
the Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, the Corporation
shall mail to each holder of Series A Preferred Stock or Series B Preferred
Stock, at least 20 days prior to the date specified therein, a notice
specifying the date on which any such record is to be taken for the purpose of
such dividend or distribution.
(i) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued
7
<PAGE> 8
shares of Common Stock solely for the purpose of effecting the conversion of the
shares of Series A Preferred Stock or Series B Preferred Stock such number of
its shares of Common Stock as shall from time to time be sufficient to effect
the conversion of all outstanding shares of Series A Preferred Stock or Series B
Preferred Stock; and if at any time the number of authorized but unissued shares
of Common Stock shall not be sufficient to effect the conversion of all then
outstanding shares of Series A Preferred Stock or Series B Preferred Stock, in
addition to such other remedies as shall be available to the holder of such
Series A Preferred Stock or Series B Preferred Stock, the Corporation will take
such corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purposes.
(j) NOTICES. Any notice required by the provisions of this
Section A.3 to be given to the holders of shares of Series A Preferred Stock or
Series B Preferred Stock shall be deemed given if deposited in the United States
mail, postage prepaid, and addressed to each holder of record at his address
appearing on the books of the Corporation.
4. MERGER, CONSOLIDATION. If at any time there is a merger or
consolidation of the Corporation with or into another corporation or other
entity or person, or any other corporate reorganization, in which the
Corporation shall not be the continuing or surviving entity of such merger,
consolidation or reorganization, or the sale of all or substantially all of the
Corporation's properties and assets to any other person, then, as a part of such
reorganization, merger, consolidation or sale, provision shall be made so that
the holders of the Series A Preferred Stock and the Series B Preferred Stock
shall be entitled to receive (on a per share basis) prior to any distribution to
holders of Common Stock, the number of shares of stock or other securities or
property to be issued to the Corporation or its shareholders resulting from such
reorganization, merger, consolidation or sale in an amount per share equal to
the applicable Original Issue Price for the Series A Preferred Stock or the
Series B Preferred Stock plus a further amount equal to any dividends declared
but unpaid on such shares.
5. VOTING RIGHTS. The holder of each share of Series A Preferred
Stock or Series B Preferred Stock shall have the right to one vote for each
share of Common Stock into which such Series A Preferred Stock or Series B
Preferred Stock could then be converted (with any fractional share determined on
an aggregate conversion basis being rounded to the nearest whole share), and
with respect to such vote, such holder shall have full voting rights and powers
equal to the voting rights and powers of the holders of Common Stock, and shall
be entitled, notwithstanding any provision hereof, to notice of any
shareholders' meeting in accordance with the Bylaws of the Corporation, and
shall be entitled to vote, together with holders of Common Stock, with respect
to any question upon which holders of Common Stock have the right to vote, in
the same manner and with the same effect as such holders of Common Stock, as one
class.
6. STATUS OF CONVERTED OR REDEEMED STOCK. In the event any shares
of Series A Preferred Stock or Series B Preferred Stock shall be converted
pursuant to Section A.3, the shares so converted shall be cancelled and shall
not be issuable by the Corporation,
8
<PAGE> 9
and the Certificate of Incorporation of the Corporation shall be appropriately
amended to effect the corresponding reduction in the Corporation's authorized
capital stock.
7. Preemptive Rights. The holders of Series A Preferred Stock and
Series B Preferred Stock shall not have any preemptive rights.
B. Common Stock.
1. Voting. Each holder of Common Stock shall be entitled to one vote
for each share of Common Stock held on all matters as to which holders of Common
Stock shall be entitled to vote.
2. Other Rights. Each share of Common Stock issued and outstanding
shall be identical in all respects one with the other, and no dividends shall be
paid on any shares of Common Stock unless the same dividend is paid on all
shares of Common Stock outstanding at the time of such payment. Except for and
subject to those rights expressly granted to the holders of the Preferred Stock
or except as may be provided by the laws of the State of Delaware, the holders
of Common Stock shall have exclusively all other rights of stockholders.
ARTICLE FIFTH
The number of directors of the Corporation shall be such as from time to
time shall be fixed in the manner provided in the Bylaws of the Corporation.
The election of directors of the Corporation need not be by ballot unless the
Bylaws so require.
ARTICLE SIXTH
A director or officer of the Corporation shall not be personally liable
to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director or officer, except for liability (i) for any breach
of the director's or the officer's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of the law, (iii) under Section
174 of the Delaware General Corporation Law, or (iv) for any transaction from
which the director or officer derived any improper personal benefit. If the
Delaware General Corporation Law is amended after the date of incorporation of
the Corporation to authorize corporate action further eliminating or limiting
the personal liability of directors or officers, then the liability of a
director or officer of the Corporation shall be eliminated or limited to the
fullest extent permitted by the Delaware General Corporation Law as so amended.
9
<PAGE> 10
Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
The Corporation shall, to the fullest extent permitted by Section 145
(or any other provision) of the Delaware General Corporation Law, as the same
may be amended and supplemented, or by any successor thereto, indemnify any and
all officers and directors of the Corporation from and against any and all of
the expenses, liabilities or other matters referred to in or covered by said
Section. Such right to indemnification provided for herein shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any Bylaw, agreement, vote of stockholders or disinterested
directors or otherwise.
ARTICLE SEVENTH
For the management of the business and for the conduct of the affairs
of the Corporation, and in further definition, limitation and regulation of the
powers of the Corporation and of its directors and stockholders, it is further
provided:
(a) In furtherance and not in limitation of the powers
conferred by the laws of the State of Delaware, the Board of Directors is
expressly authorized and empowered:
(i) to make, alter, amend or repeal the Bylaws in
any manner not inconsistent with the laws of the State of Delaware or this
Certificate of Incorporation;
(ii) to determine whether any, and if any, what part
of the net profits of the Corporation or of its surplus shall be declared in
dividends and paid to the stockholders, and to direct and determine the use and
disposition of any such net profits or such surplus; and
(iii) to fix from time to time the amount of net
profits of the Corporation or of its surplus to be reserved as working capital
or for any other lawful purpose.
In addition to the powers and authorities herein or by statute
expressly conferred upon it, the Board of Directors may exercise all such powers
and do all such acts and things as may be exercised or done by the Corporation,
subject nevertheless, to the provisions of the laws of the State of Delaware,
of this Certificate of Incorporation and of the Bylaws of the Corporation.
10
<PAGE> 11
(b) Any director or any officer elected or appointed by the
stockholders or by the Board of Directors may be removed at any time in such
manner as shall be provided in the Bylaws of the Corporation.
(c) From time to time any of the provisions of this
Certificate of Incorporation may be altered, amended or repealed, and other
provisions authorized by the laws of the State of Delaware at the time in force
may be added or inserted, in the manner and at the time prescribed by said
laws, and all rights at any time conferred upon the stockholders of the
Corporation by this Certificate of Incorporation are granted subject to the
provisions of this paragraph (c)."
4. This Restated Certificate of Incorporation was duly adopted by
(i) all of the directors of the Corporation in accordance with Section 141(f)
of the General Corporation Law of the State of Delaware and (ii) not less than
a majority in voting power of the holders of the Common Stock and the Series A
Preferred Stock, voting together as one class, in accordance with Sections 228,
242 and 245 of the General Corporation Law of the State of Delaware. This
Restated Certificate of Incorporation amends and restates the provisions of the
Certificate of Incorporation of the Corporation.
11
<PAGE> 12
IN WITNESS WHEREOF, I DO HEREBY CERTIFY, under penalties of perjury,
that the facts hereinabove stated are truly set forth and, accordingly, this
Restated Certificate of Incorporation has been signed under the seal of the
Corporation this 1st day of November, 1995.
By: /s/ JOAN CUNNINGHAM, President
------------------------------
Name: Joan Cunningham
Title: President
Attest:
By: /s/ MARCIA BERMAN
------------------
Name: Maria Berman
Title: Secretary
12
<PAGE> 13
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 01/29/1996
960026983 - 2529967
CERTIFICATE OF AMENDMENT
OF THE
RESTATED CERTIFICATE OF INCORPORATION
OF
VIDEO QUEST INC.
---------------
Video Quest Inc. (the "Corporation"), a corporation organized
and existing under and by virtue of the General Corporation Law of the State of
Delaware, DOES HEREBY CERTIFY pursuant to Section 242 of the General Corporation
Law of the State of Delaware:
FIRST: Pursuant to Section 141(f) of the General Corporation Law
of the State of Delaware, by the unanimous written consent of the Board of
Directors of the Corporation, resolutions were duly adopted setting forth an
amendment to the Restated Certificate of Incorporation of the Corporation and
declaring that said amendment be submitted to the stockholders of the
Corporation for approval. The resolution setting forth the amendment is as
follows:
RESOLVED, that the Restated Certificate of Incorporation of the
Corporation be amended by deleting Article First in its entirety and
inserting in lieu thereof the following:
"ARTICLE FIRST
-------------
The name of the corporation is InterVU Inc. (hereinafter called
the "Corporation")."
SECOND: By written consent of the Stockholders of the
Corporation in lieu of a meeting pursuant to Section 228 of the General
Corporation Law of the State of Delaware, the holders of not less than a
majority in voting power of the shares of capital stock of the Corporation
entitled to vote thereon voted in favor of the amendment.
THIRD: Said amendment has been duly adopted in accordance with
the provisions of Section 242 of the General Corporation Law of the State of
Delaware. Accordingly, Article First of the Restated Certificate of
Incorporation is hereby amended to read as set forth in Article First above.
<PAGE> 14
IN WITNESS WHEREOF, Video Quest Inc. has caused this Certificate of
Amendment to the Restated Certificate of Incorporation to be signed by Joan
Cunningham, its President, and Marcia Berman, its Secretary, this 29th day of
January, 1996.
VIDEO QUEST INC.
By: /s/ JOAN CUNNINGHAM
-----------------------
Name: Joan Cunningham
Title: President
ATTEST:
By: /s/ MARCIA BERMAN
- ---------------------
Name: Marcia Berman
Title: Secretary
2
<PAGE> 15
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
INTERVU INC.
INTERVU INC., a corporation (the "Corporation") organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said Corporation adopted the
following resolution by unanimous written consent:
"RESOLVED that the Board of Directors hereby declares it advisable and
in the best interest of the Corporation that the first paragraph (including
subparagraphs (aa) through (hh) thereof) of ARTICLE FOURTH of the Restated
Certificate of Incorporation be amended to read as follows:
ARTICLE FOURTH
The total number of shares of all classes of stock which the Corporation
shall have authority to issue is 20,650,000 shares, consisting of: (a)
16,000,000 shares of Common Stock, $.001 par value (the "Common Stock"); and (b)
4,650,000 of Preferred Stock, $.001 par value (the "Preferred Stock") consisting
of (i) 250,000 shares of Series A Convertible Preferred Stock, $.001 par value
(the "Series A Preferred Stock"), (ii) 400,000 shares of Series B Convertible
Preferred Stock, $.001 par value (the "Series B Preferred Stock"), and (iii) the
remaining 4,000,000 shares may be issued by the Board of Directors of the
Corporation, which is hereby granted authority and is hereby expressly vested
with the authority to issue the remaining 4,000,000 shares of Preferred Stock at
any time and from time to time, in one or more series, each having such voting
powers, preferences and relative, participating, optional or other special
rights, and the qualifications, limitations and restrictions thereof, as shall
be set forth in the resolution of the Board of Directors of the Corporation
specified in any Certificate of Designation filed at any time and from time to
time, providing for the issuance of such remaining shares of Preferred Stock
permitted by this clause (iii). Without limiting the generality of the
provisions of the immediately preceding clause (iii), the authority of the Board
of Directors with respect to each series of Preferred Stock permitted by this
clause (iii) shall include, without limitation, the determination of any of the
following matters:
(aa) the number of shares constituting such series and the
designation thereof to distinguish the shares of such series from the
shares of all other series;
(bb) the rights of holders of shares of such series to receive
dividends thereon and the dividend rates, the conditions and time of
payment of dividends, the extent to which dividends are payable in
reference to, or in any other relation to, dividends payable on any
other class or series of stock, and whether such dividends shall be
cumulative or noncumulative;
<PAGE> 16
(cc) the terms and provisions governing the redemption of
shares of such series, if such shares are to be redeemable;
(dd) the terms and provisions governing the operation of
retirement or sinking funds, if any;
(ee) the voting power of such series, whether full, limited
or none;
(ff) the rights of holders of shares of such series upon the
liquidation, dissolution or winding up of, or upon distribution of the
assets of, the Corporation;
(gg) the rights, if any, of the holders of shares of such
series to convert into, or to exchange such shares for, any other class
of stock, or of any series thereof, and the prices or rates for such
conversions or exchanges, and any adjustments thereto; and
(hh) any other preferences and relative, participating,
optional or other special rights, qualifications, limitations or
restrictions of such series.
RESOLVED FURTHER that ARTICLE FOURTH of the Restated Certificate of
Incorporation be further amended by adding the following paragraph to the end of
said ARTICLE FOURTH:
Upon the filing in the Office of the Secretary of State of the State of
Delaware of this Certificate of Amendment to the Restated Certificate of
Incorporation of the Corporation whereby this ARTICLE FOURTH is amended to read
as set forth herein, each issued and outstanding share of Common Stock of the
Corporation shall thereby and thereupon be split up and converted into two (2)
shares of validly issued, fully paid and nonassessable Common Stock of the
Corporation without further action on the part of any person. The par value of
the Common Stock shall remain $.001 per share."
SECOND: That the said amendment has been consented to and authorized by
the holders of a majority of the issued and outstanding stock entitled to vote
by written consent given in accordance with the provisions of Section 228 of the
General Corporation Law of the State of Delaware.
THIRD: That the aforesaid amendment was duly adopted in accordance with
the applicable provisions of Sections 242 and 228 of the General Corporation Law
of the State of Delaware.
2
<PAGE> 17
IN WITNESS WHEREOF, said Corporation has caused this Certificate to be
signed by Harry E. Gruber, its President and Chief Executive Officer, and
Marcia Berman, its Secretary this 15th day of July, 1997.
INTERVU INC.
By: /s/ HARRY E. GRUBER
-------------------
Harry E. Gruber
President and Chief Executive Officer
ATTEST:
By: /s/ MARCIA BERMAN
-----------------
Marcia Berman
Secretary
3
<PAGE> 1
EXHIBIT 3.2
CERTIFICATE OF DESIGNATION, NUMBER, POWERS, PREFERENCES
AND RELATIVE, PARTICIPATING, OPTIONAL, AND OTHER SPECIAL RIGHTS AND
THE QUALIFICATIONS, LIMITATIONS, RESTRICTIONS AND OTHER
DISTINGUISHING CHARACTERISTICS OF SERIES G CONVERTIBLE
PREFERRED STOCK
OF
INTERVU INC.
(DELAWARE)
INTERVU INC., a corporation organized and existing under the General
Corporation Law of the State of Delaware (the "General Corporation Law"), does
hereby certify as follows:
FIRST: The name of the Corporation (hereinafter called the "Corporation")
is InterVU Inc.
SECOND: The Restated Certificate of Incorporation of the Corporation (i)
authorizes the issuance of 4,650,000 shares of Preferred Stock, $.00l par value
(the "Preferred Stock"), of which 250,000 shares have been designated as Series
A Convertible Preferred Stock, $.00l par value (the "Series A Preferred Stock"),
400,000 shares have been designated as Series B Convertible Preferred Stock,
$.00l par value (the "Series B Preferred Stock"), 400,000 shares have been
designated as Series C Convertible Preferred Stock (the "Series C Preferred
Stock"), 200,000 shares have been designated as Series D Convertible Preferred
Stock (the "Series D Preferred Stock"), 400,000 shares have been designated as
Series E Convertible Preferred Stock (the "Series E Preferred Stock") and
1,200,000 shares have been designated as Series F Convertible Preferred Stock
(the "Series F Preferred Stock") and (ii) expressly vests in the Board of
Directors of the Corporation the authority provided therein to issue any or all
or the remaining shares of Preferred Stock in one or more series and to provide
by resolution(s) the designations, number, powers, voting powers, preferences
and relative, participating, optional, and other special rights and the
qualifications, limitations, restrictions, and other distinguishing
characteristics of each series to be issued.
THIRD: That pursuant to the authority conferred upon the Board of
Directors by the Restated Certificate of Incorporation of the Corporation, and
pursuant to the provisions of Section 151 of Title 8 of the General Corporation
Law, said Board of Directors, acting by unanimous written consent in lieu of a
meeting thereof dated as of July 15, 1997, duly ratified, confirmed and approved
the designation of 1,280,000 shares of Preferred Stock as Series G Convertible
Preferred
1
<PAGE> 2
Stock, $.001 par value (the "Series G Preferred Stock"), and to that end the
Board of Directors adopted a resolution providing for the designation, number,
powers, voting powers, preferences and relative, participating, optional or
other special rights, and the qualifications, limitations and restrictions of
the Series G Preferred Stock, which resolution is as follows:
"RESOLVED, that the Board of Directors, pursuant to the authority vested
in it by the provisions of the Restated Certificate of Incorporation of the
Corporation, hereby authorizes the issuance of up to 1,280,000 shares of
Preferred Stock, $.001 par value, of the Corporation, which shall be designated
as Series G Convertible Preferred Stock, $.001 par value (the "Series G
Preferred Stock"). The Series G Preferred Stock shall have such designation,
number, powers, voting powers, preferences and relative, participating, optional
and other special rights, and the qualifications, limitations and restrictions
as follows:
1. Dividend Provisions. The holders of shares of Series G Preferred
Stock shall be entitled to receive dividends, out of any assets legally
available therefor, prior and in preference to any declaration or payment of any
dividend (payable other than in Common Stock of the Corporation) on the Common
Stock of the Corporation, at the rate of $0.64 per share per annum, payable
quarterly, when, as and if declared by the Board of Directors. The Series G
Preferred Stock shall rank on a parity with the Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock and Series F Preferred Stock as to dividends. Dividends payable
on the Series G Preferred Stock and any other class or series of stock ranking
on a parity as to dividends with the Series G Preferred Stock shall be payable
on a pari passu basis in accordance with the following sentence. All dividends
declared, paid or set apart with respect to the Series G Preferred Stock and any
other class or series of stock ranking on a parity as to dividends with such
Series G Preferred Stock shall be declared, paid or set apart ratably on a
proportionate basis, based on the respective annual dividend rates fixed
therefor. All payments due under this Section 1 shall be made to the nearest
cent. Dividends on the Series G Preferred Stock shall not be cumulative.
2. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of
the Corporation, either voluntary or involuntary (a "Liquidation Event"), the
holders of Series G Preferred Stock shall be entitled to receive, on a pari
passu with the holders of the Series A Preferred Stock, the Series B Preferred
Stock, the Series C Preferred Stock, the Series D Preferred Stock, the Series E
Preferred Stock and the Series F Preferred Stock, but prior and in preference to
any distribution of any of the assets of the Corporation to the holders of
Common Stock, by reason of their ownership thereof, an amount per share equal to
the sum of (i) the Liquidation Price (as hereinafter defined) for each
outstanding share of Series G Preferred Stock, and (ii) an amount equal to all
declared but unpaid dividends on each such share. With respect to any
Liquidation Event, the Series A Preferred Stock, the Series B Preferred Stock,
the Series C Preferred Stock, the Series D Preferred Stock, the Series E
Preferred Stock, the Series F Preferred Stock and the Series G Preferred Stock
2
<PAGE> 3
shall rank on a parity with each other and shall all rank prior to the Common
Stock. If upon the occurrence of a Liquidation Event the assets and funds thus
distributed among the holders of the Series G Preferred Stock shall be
insufficient to permit the payment to such holders of the full aforesaid
preferential amounts, then the entire assets and funds of the corporation
legally available for distribution shall be distributed ratably among the
holders of the Series A Preferred Stock, the Series B Preferred Stock, the
Series C Preferred Stock, the Series D Preferred Stock, the Series E Preferred
Stock, the Series F Preferred Stock and the Series G Preferred Stock, based upon
the respective amounts which would be payable in respect of the shares held by
them upon such distribution if all amounts payable on or with respect to such
shares were paid in full. As used herein, the term "Liquidation Price" shall
mean $8.00 for each outstanding share of Series G Preferred Stock.
(b) After the distribution of all amounts due to the holders of
Series A, Series B, Series C, Series D, Series E, Series F and Series G
Preferred Stock above has been paid, the remaining assets of the Corporation
available for distribution to stockholders shall be distributed among the
holders of Common Stock pro rata based on the number of shares of Common Stock
held by each.
3. Conversion. The holders of Series G Preferred Stock shall have the
following conversion rights (the "Conversion Rights"):
(a) Right to Convert. Each share of Series G Preferred Stock shall
be convertible, at the option of the holder thereof, at any time nine months
after the date of issuance of such share, at the office of the Corporation or
any transfer agent for the Series G Preferred Stock, into one (1) share of
Common Stock, subject to adjustment as set forth in subsection 3(c).
(b) Mechanics of Conversion. The holder of any shares of Series G
Preferred Stock may exercise the conversion right provided in subsection 3(a) as
to any shares thereof by delivering to the Corporation the certificate or
certificates therefor, duly endorsed, at the office of the Corporation, and such
holder shall give written notice to the Corporation of the election to convert
the same and shall state therein the name or names in which the certificate or
certificates for shares of Common Stock are to be issued. Conversion shall be
deemed to have been effected on the date when the aforesaid delivery is made,
and such date is hereinafter referred to as the "Conversion Date." As promptly
as practicable thereafter, the Corporation shall issue and deliver to or upon
the written order of such holder, to the place designated by such holder, a
certificate or certificates for the number of full shares of Common Stock to
which such holder is entitled. The person in whose names the certificate or
certificates for Common Stock are to be issued shall be deemed to have become a
stockholder of record on the applicable Conversion Date unless the transfer
books of the Corporation are closed on that date, in which event he shall be
deemed to have become a stockholder of record on the next succeeding date on
which the transfer books are open. Upon conversion of only a portion of the
number of shares covered by a certificate representing shares of Series G
Preferred Stock surrendered for conversion, the Corporation shall
3
<PAGE> 4
issue and deliver to or upon the written order of the holder of the certificate
so surrendered for conversion, at the expense of the Corporation, a new
certificate covering the number of shares of Series G Preferred Stock
representing the unconverted portion of the certificate so surrendered, which
new certificate shall entitle the holder thereof to dividends on the shares of
Series G Preferred Stock represented thereby to the same extent as if the
certificate theretofore covering such unconverted shares had not been
surrendered for conversion.
(c) Adjustments to Conversion Ratio. The ratio for the conversion
of Series G Preferred Stock into Common Stock (the "Conversion Ratio") shall be
subject to adjustment from time to time as follows:
(i) In the event the Corporation should at any time or from
time to time after the issuance of the Series G Preferred Stock fix a record
date for the effectuation of a split or subdivision of the outstanding shares of
Common Stock or the determination of holders of Common Stock entitled to receive
a dividend or other distribution payable in additional shares of Common Stock
without payment of any consideration by such holder for the additional shares of
Common Stock, then, as of such record date (or the date of such dividend,
distribution, split or subdivision, if no record date is fixed), the Conversion
Ratio shall be appropriately adjusted so that the number of shares of Common
Stock issuable on conversion of each share of the Series G Preferred Stock shall
be increased in proportion to such increase of outstanding shares.
(ii) If the number of shares of Common Stock outstanding at
any time after the issuance of the Series G Preferred Stock is decreased by a
combination of the outstanding shares of Common Stock, then, following the
record date of such combination, the Conversion Ratio shall be appropriately
adjusted so that the number of shares of Common Stock issuable on conversion of
each share of such Series G Preferred Stock shall be decreased in proportion to
such decrease in outstanding shares.
(d) Other Distributions. In the event the Corporation shall
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by the Corporation or other persons, or assets (excluding
cash dividends), then, in each such case for the purpose of this subsection
3(d), the holder of Series G Preferred Stock shall be entitled to a
proportionate share of any such distribution as though they were the holders of
the number of shares of Common Stock of the Corporation into which their shares
of Series G Preferred Stock are convertible as of the record date fixed for the
determination of the holders of Common Stock of the Corporation entitled to
receive such distribution.
(e) Recapitalization. If, at any time or from time to time there
shall be a recapitalization of the Common Stock (other then a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
this Section 3 or in Section 4), provisions shall be made so that the holders of
Series G Preferred Stock shall thereafter be entitled to receive upon conversion
of their Preferred Stock the number of shares of stock or other securities or
property of
4
<PAGE> 5
the Corporation or otherwise, to which a holder of Common Stock deliverable upon
conversion would have been entitled on such recapitalization. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 3 with respect to the rights of the holders of Series G Preferred
Stock after the recapitalization to the end that the provisions of this Section
3 (including adjustment of the Series G Conversion Price then in effect and the
number of shares purchasable upon conversion of Series G Preferred Stock) shall
be applicable after the event as nearly equivalent as may be practicable.
(f) No Impairment. The Corporation will not, by amendment of its
Restated Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 3 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the Series G Preferred Stock against
impairment.
(g) No Fractional Shares and Certificates as to Adjustments. (i)
No fractional shares shall be issued upon conversion of the Series G Preferred
Stock and the number of shares of Common Stock to be issued shall be rounded to
the nearest whole share.
(ii) Upon the occurrence of each adjustment or readjustment
of the Conversion Ratio pursuant to this Section 3, the Corporation, at its
expense, shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and prepare and furnish to each holder of Series G
Preferred Stock a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
The Corporation shall, upon the written request at any time of any holder of
Series G Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (A) such adjustment and readjustment, (B) the
Conversion Ratio at the time in effect, and (C) the number of shares of Common
Stock and the amount, if any, of other property which at the time would be
received upon the conversion of a share of Series G Preferred Stock.
(iii) If any adjustment in the number of shares of Common
Stock into which each share of Series G Preferred Stock may be converted
required pursuant to this Section 3 would result in an increase or decrease of
less than 1% in the number of shares of Common Stock into which each share of
Series G Preferred Stock is then convertible, the amount of any such adjustment
shall be carried forward and adjustment with respect thereto shall be made at
the time of and together with any subsequent adjustment which, together with
such amount and any other amount or amounts so carried forward, shall aggregate
at least 1% of the number of shares of Common Stock into which each share of
Series G Preferred Stock is then convertible. All calculations under this
paragraph (iii) shall be made to the nearest one-hundredth of a share.
5
<PAGE> 6
(h) Notices of Record Date. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, the Corporation
shall mail to each holder of Series G Preferred Stock, at least 20 days prior to
the date specified therein, notice for specifying the date on which any such
record is to be taken for the purpose of such dividend or distribution.
(i) Reservation of Stock Issuable Upon Conversion. The Corporation
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock solely for the purpose of effecting the conversion of the
shares of Series G Preferred Stock such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of Series G Preferred Stock; and, if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all then outstanding shares of Series G Preferred
Stock, in addition to such other remedies as shall be available to the holder of
such Series G Preferred Stock, the Corporation will take such corporate action
as may, in the opinion of its counsel, be necessary to increase its authorized
but unissued shares of Common Stock to such number of shares as shall be
sufficient for such purposes.
(j) Notices. Any notice required by the provisions of this Section
3 to be given to the holders of shares of Series G Preferred Stock shall be
deemed given if deposited in the United States mail, postage prepaid, and
addressed to each holder of record at his address appearing on the books of the
Corporation.
4. Merger, Consolidation. If at any time there is a merger or
consolidation of the Corporation with or into another corporation or other
entity or person, or any other corporate reorganization, in which the
Corporation shall not be the continuing or surviving entity of such merger,
consolidation or reorganization, or the sale of all or substantially all of the
Corporation's properties and assets to any other person, then, as a part of such
reorganization, merger, consolidation or sale, provision shall be made so that
the holders of the Series G Preferred Stock shall be entitled to receive (on a
per share basis) on a pari passu basis with the holders of the Series A
Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock, the
Series D Preferred Stock, the Series E Preferred Stock and the Series F
Preferred Stock, but prior to any distribution to holders of Common Stock, the
number of shares of stock or other securities or property to be issued to the
Corporation or its stockholders resulting from such reorganization, merger,
consolidation or sale in an amount per share equal to the applicable Liquidation
Price for the Series G Preferred Stock plus a further amount equal to any
dividends declared but unpaid on such shares.
5. Voting Rights. The holder of each share of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series E Preferred Stock, Series F Preferred Stock or Series G Preferred Stock
shall have the right to one vote for each share of Common Stock into which such
Series A Preferred Stock, Series B Preferred Stock, Series C
6
<PAGE> 7
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series F
Preferred Stock or Series G Preferred Stock could then be converted (with any
fractional share determined on an aggregate conversion basis being rounded to
the nearest whole share), and with respect to such vote, such holder shall have
full voting rights and powers equal to the voting rights and powers of the
holders of Common Stock, and shall be entitled, notwithstanding any provision
hereof, to notice of any stockholders' meeting in accordance with the Bylaws of
the Corporation, and shall be entitled to vote, together with holders of Common
Stock, with respect to any question upon which holders of Common Stock, have the
right to vote, in the same manner and with the same effect as such holders of
Common Stock, as one class.
6. Status of Converted or Redeemed Stock. In the event any shares of
Series G Preferred Stock shall be converted pursuant to Section 3, the shares so
converted shall be canceled and shall not be issuable by the Corporation.
7. Preemptive Rights. The holders of Series G Preferred Stock shall not
have any preemptive rights.
FURTHER RESOLVED, that the statements contained in the foregoing
resolutions creating and designating the Series G Preferred Stock and fixing the
designation, number, powers, voting powers, preferences and relative,
participating, optional, and other special rights and the qualifications,
limitations, and restrictions thereof shall be deemed to be included in and be a
part of the Restated Certificate of Incorporation of the Corporation pursuant to
the provisions of Sections 104 and 151 of the General Corporation Law.
FOURTH: That said determination of the designation, number, powers,
voting powers, preferences and relative, participating, optional and other
special rights, and the qualifications, limitations and restrictions of the
Series G Preferred Stock was duly made by the Board of Directors pursuant to the
provisions of the Restated Certificate of Incorporation of the Corporation and
in accordance with the provisions of the General Corporate Law.
7
<PAGE> 8
IN WITNESS WHEREOF, this Certificate of Designation has been signed by the
Chief Executive Officer and the Secretary of the Corporation, as of this 10th
day of October, 1997.
INTERVU INC.
By: /s/ Harry E. Gruber
----------------------------------
Harry E. Gruber
Chief Executive Officer
Attest:
/s/ Danielle D. McGee
- ---------------------------------
Danielle D. McGee
Secretary
8
<PAGE> 1
EXHIBIT 3.3
FORM OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
INTERVU INC.
InterVU Inc., a corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware (the "Corporation"),
DOES HEREBY CERTIFY:
1. The Corporation's original Certificate of Incorporation was filed on
August 2, 1995.
2. That by action taken by unanimous written consent of the Board of
Directors on ________, 1997 resolutions were duly adopted setting forth a
proposed amendment and restatement of the Certificate of Incorporation of the
Corporation, declaring said amendment and restatement to be advisable and
directing its officers to submit said amendment and restatement to the
stockholders of the Corporation for consideration thereof. The resolution
setting forth the proposed amendment and restatement is as follows:
"THEREFORE, BE IT RESOLVED, that the Certificate of
Incorporation of the Corporation is hereby amended to read in its
entirety as follows, subject to the required consent of the sole
stockholder of the corporation:
FIRST: The name of the Corporation (hereinafter the
"Corporation") is
InterVU Inc.
SECOND: The address, including street, number, city and county,
of the registered office of the Corporation in the State of
Delaware is 32 Loockerman Square, Suite L-100, Dover, Delaware
19901, County of Kent; and the name of the Registered Agent of
the Corporation in the State of Delaware is The Prentice-Hall
Corporation System, Inc.
THIRD: The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law
of Delaware.
FOURTH: The total number of shares of stock which the
Corporation shall have authority to issue shall be twenty-five
million (25,000,000), divided as follows: (i) twenty million
(20,000,000) shares of Common Stock with a par value of $.001
per share, and (ii) five million (5,000,000) shares of Preferred
Stock with a par value of $.001 per share, of which one million
two hundred eighty thousand (1,280,000) are hereby designated
Series G Convertible Preferred Stock ("Series G Preferred
Stock").
<PAGE> 2
Shares of Preferred Stock may be issued from time to
time in one or more series, each of such series to have such
terms as stated in the resolution or resolutions providing for
the establishment of such series adopted by the Board of
Directors of the Corporation as hereinafter provided. Except
with respect to the Series G Preferred Stock which is described
below, authority is hereby expressly granted to the Board of
Directors of the Corporation to issue, from time to time, shares
of Preferred Stock in one or more series, and, in connection
with the establishment of any such series by resolution or
resolutions, to determine and fix such voting powers, full or
limited, or no voting powers, and such other powers,
designations, preferences and relative, participating, optional,
and other special rights, and the qualifications, limitations,
and restrictions thereof, if any including, without limitation,
dividend rights, conversion rights, redemption privileges and
liquidation preferences, as shall be stated in such resolution
or resolutions, all to the fullest extent permitted by the
General Corporation Law of the State of Delaware. Without
limiting the generality of the foregoing, the resolution or
resolutions providing for the establishment of any series of
Preferred Stock may, to the extent permitted by law, provide
that such series shall be superior to, rank equally with or be
junior to the Preferred Stock of any other series. Except as
otherwise expressly provided in the resolution or resolutions
providing for the establishment of any series of any series of
Preferred Stock, no vote of the holders of shares of Preferred
Stock or Common Stock shall be a prerequisite to the issuance of
any shares of any series of the Preferred Stock authorized by
and complying with the conditions of this Amended and Restated
Certificate of Incorporation. The rights, preferences,
privileges and restrictions of the Series G Preferred Stock and
the holders thereof shall be as follows:
1. Dividend Provisions. The holders of shares of Series G Preferred
Stock shall be entitled to receive dividends, out of any assets legally
available therefor, prior and in preference to any declaration or payment of any
dividend (payable other than in Common Stock of the Corporation) on the Common
Stock of the Corporation, at the rate of $0.64 per share per annum, payable
quarterly, when, as and if declared by the Board of Directors. Dividends payable
on the Series G Preferred Stock and any other class or series of stock ranking
on a parity as to dividends with the Series G Preferred Stock shall be payable
on a pari passu basis in accordance with the following sentence. All dividends
declared, paid or set apart with respect to the Series G Preferred Stock and any
other class or series of stock ranking on a parity as to dividends with such
Series G Preferred Stock shall be declared, paid or set apart ratably on a
proportionate basis, based on the respective annual dividend rates fixed
therefor. All payments due under this Section 1 shall be made to the nearest
cent. Dividends on the Series G Preferred Stock shall not be cumulative.
2. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of
the Corporation, either voluntary or involuntary (a "Liquidation Event"), the
holders of Series G Preferred Stock shall 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, by reason of their ownership thereof, an amount per
share equal to the sum of (i) the Liquidation Price (as hereinafter defined) for
each outstanding share of Series G Preferred Stock, and (ii) an amount equal to
all declared but unpaid dividends on each such share. With respect to any
Liquidation Event, the Series G Preferred Stock
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<PAGE> 3
shall rank on a parity with each other and shall all rank prior to the Common
Stock. If upon the occurrence of a Liquidation Event the assets and funds thus
distributed among the holders of the Series G Preferred Stock shall be
insufficient to permit the payment to such holders of the full aforesaid
preferential amounts, then the entire assets and funds of the corporation
legally available for distribution shall be distributed ratably among the
holders of the Series G Preferred Stock, based upon the respective amounts which
would be payable in respect of the shares held by them upon such distribution if
all amounts payable on or with respect to such shares were paid in full. As used
herein, the term "Liquidation Price" shall mean $8.00 for each outstanding share
of Series G Preferred Stock.
(b) After the distribution of all amounts due to the holders of
Series G Preferred Stock above has been paid, the remaining assets of the
Corporation available for distribution to stockholders shall be distributed
among the holders of Common Stock pro rata based on the number of shares of
Common Stock held by each.
3. Conversion. The holders of Series G Preferred Stock shall have the
following conversion rights (the "Conversion Rights"):
(a) Right to Convert. Each share of Series G Preferred Stock shall
be convertible, at the option of the holder thereof, at any time nine months
after the date of issuance of such share, at the office of the Corporation or
any transfer agent for the Series G Preferred Stock, into one (1) share of
Common Stock, subject to adjustment as set forth in subsection 3(c).
(b) Mechanics of Conversion. The holder of any shares of Series G
Preferred Stock may exercise the conversion right provided in subsection 3(a) as
to any shares thereof by delivering to the Corporation the certificate or
certificates therefor, duly endorsed, at the office of the Corporation, and such
holder shall give written notice to the Corporation of the election to convert
the same and shall state therein the name or names in which the certificate or
certificates for shares of Common Stock are to be issued. Conversion shall be
deemed to have been effected on the date when the aforesaid delivery is made,
and such date is hereinafter referred to as the "Conversion Date." As promptly
as practicable thereafter, the Corporation shall issue and deliver to or upon
the written order of such holder, to the place designated by such holder, a
certificate or certificates for the number of full shares of Common Stock to
which such holder is entitled. The person in whose names the certificate or
certificates for Common Stock are to be issued shall be deemed to have become a
stockholder of record on the applicable Conversion Date unless the transfer
books of the Corporation are closed on that date, in which event he shall be
deemed to have become a stockholder of record on the next succeeding date on
which the transfer books are open. Upon conversion of only a portion of the
number of shares covered by a certificate representing shares of Series G
Preferred Stock surrendered for conversion, the Corporation shall
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<PAGE> 4
issue and deliver to or upon the written order of the holder of the certificate
so surrendered for conversion, at the expense of the Corporation, a new
certificate covering the number of shares of Series G Preferred Stock
representing the unconverted portion of the certificate so surrendered, which
new certificate shall entitle the holder thereof to dividends on the shares of
Series G Preferred Stock represented thereby to the same extent as if the
certificate theretofore covering such unconverted shares had not been
surrendered for conversion.
(c) Adjustments to Conversion Ratio. The ratio for the conversion
of Series G Preferred Stock into Common Stock (the "Conversion Ratio") shall be
subject to adjustment from time to time as follows:
(i) In the event the Corporation should at any time or from
time to time after the issuance of the Series G Preferred Stock fix a record
date for the effectuation of a split or subdivision of the outstanding shares of
Common Stock or the determination of holders of Common Stock entitled to receive
a dividend or other distribution payable in additional shares of Common Stock
without payment of any consideration by such holder for the additional shares of
Common Stock, then, as of such record date (or the date of such dividend,
distribution, split or subdivision, if no record date is fixed), the Conversion
Ratio shall be appropriately adjusted so that the number of shares of Common
Stock issuable on conversion of each share of the Series G Preferred Stock shall
be increased in proportion to such increase of outstanding shares.
(ii) If the number of shares of Common Stock outstanding at
any time after the issuance of the Series G Preferred Stock is decreased by a
combination of the outstanding shares of Common Stock, then, following the
record date of such combination, the Conversion Ratio shall be appropriately
adjusted so that the number of shares of Common Stock issuable on conversion of
each share of such Series G Preferred Stock shall be decreased in proportion to
such decrease in outstanding shares.
(d) Other Distributions. In the event the Corporation shall
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by the Corporation or other persons, or assets (excluding
cash dividends), then, in each such case for the purpose of this subsection
3(d), the holder of Series G Preferred Stock shall be entitled to a
proportionate share of any such distribution as though they were the holders of
the number of shares of Common Stock of the Corporation into which their shares
of Series G Preferred Stock are convertible as of the record date fixed for the
determination of the holders of Common Stock of the Corporation entitled to
receive such distribution.
(e) Recapitalization. If, at any time or from time to time there
shall be a recapitalization of the Common Stock (other then a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
this Section 3 or in Section 4), provisions shall be made so that the holders of
Series G Preferred Stock shall thereafter be entitled to receive upon conversion
of their Preferred Stock the number of shares of stock or other securities or
property of
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<PAGE> 5
the Corporation or otherwise, to which a holder of Common Stock deliverable upon
conversion would have been entitled on such recapitalization. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 3 with respect to the rights of the holders of Series G Preferred
Stock after the recapitalization to the end that the provisions of this Section
3 (including adjustment of the Series G Conversion Price then in effect and the
number of shares purchasable upon conversion of Series G Preferred Stock) shall
be applicable after the event as nearly equivalent as may be practicable.
(f) No Impairment. The Corporation will not, by amendment of its
Restated Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 3 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the Series G Preferred Stock against
impairment.
(g) No Fractional Shares and Certificates as to Adjustments. (i)
No fractional shares shall be issued upon conversion of the Series G Preferred
Stock and the number of shares of Common Stock to be issued shall be rounded to
the nearest whole share.
(ii) Upon the occurrence of each adjustment or readjustment
of the Conversion Ratio pursuant to this Section 3, the Corporation, at its
expense, shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and prepare and furnish to each holder of Series G
Preferred Stock a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
The Corporation shall, upon the written request at any time of any holder of
Series G Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (A) such adjustment and readjustment, (B) the
Conversion Ratio at the time in effect, and (C) the number of shares of Common
Stock and the amount, if any, of other property which at the time would be
received upon the conversion of a share of Series G Preferred Stock.
(iii) If any adjustment in the number of shares of Common
Stock into which each share of Series G Preferred Stock may be converted
required pursuant to this Section 3 would result in an increase or decrease of
less than 1% in the number of shares of Common Stock into which each share of
Series G Preferred Stock is then convertible, the amount of any such adjustment
shall be carried forward and adjustment with respect thereto shall be made at
the time of and together with any subsequent adjustment which, together with
such amount and any other amount or amounts so carried forward, shall aggregate
at least 1% of the number of shares of Common Stock into which each share of
Series G Preferred Stock is then convertible. All calculations under this
paragraph (iii) shall be made to the nearest one-hundredth of a share.
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<PAGE> 6
(h) Notices of Record Date. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, the Corporation
shall mail to each holder of Series G Preferred Stock, at least 20 days prior to
the date specified therein, notice for specifying the date on which any such
record is to be taken for the purpose of such dividend or distribution.
(i) Reservation of Stock Issuable Upon Conversion. The Corporation
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock solely for the purpose of effecting the conversion of the
shares of Series G Preferred Stock such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of Series G Preferred Stock; and, if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all then outstanding shares of Series G Preferred
Stock, in addition to such other remedies as shall be available to the holder of
such Series G Preferred Stock, the Corporation will take such corporate action
as may, in the opinion of its counsel, be necessary to increase its authorized
but unissued shares of Common Stock to such number of shares as shall be
sufficient for such purposes.
(j) Notices. Any notice required by the provisions of this Section
3 to be given to the holders of shares of Series G Preferred Stock shall be
deemed given if deposited in the United States mail, postage prepaid, and
addressed to each holder of record at his address appearing on the books of the
Corporation.
4. Merger, Consolidation. If at any time there is a merger or
consolidation of the Corporation with or into another corporation or other
entity or person, or any other corporate reorganization, in which the
Corporation shall not be the continuing or surviving entity of such merger,
consolidation or reorganization, or the sale of all or substantially all of the
Corporation's properties and assets to any other person, then, as a part of such
reorganization, merger, consolidation or sale, provision shall be made so that
the holders of the Series G Preferred Stock shall be entitled to receive (on a
per share basis), prior to any distribution to holders of Common Stock, the
number of shares of stock or other securities or property to be issued to the
Corporation or its stockholders resulting from such reorganization, merger,
consolidation or sale in an amount per share equal to the applicable Liquidation
Price for the Series G Preferred Stock plus a further amount equal to any
dividends declared but unpaid on such shares.
5. Voting Rights. The holder of each share of Series G Preferred Stock
shall have the right to one vote for each share of Common Stock into which such
6
<PAGE> 7
Series G Preferred Stock could then be converted or could be converted without
regard to the limitation on conversions set forth at Subsection 3(a) (with any
fractional share determined on an aggregate conversion basis being rounded to
the nearest whole share), and with respect to such vote, such holder shall have
full voting rights and powers equal to the voting rights and powers of the
holders of Common Stock, and shall be entitled, notwithstanding any provision
hereof, to notice of any stockholders' meeting in accordance with the Bylaws of
the Corporation, and shall be entitled to vote, together with holders of Common
Stock, with respect to any question upon which holders of Common Stock, have the
right to vote, in the same manner and with the same effect as such holders of
Common Stock, as one class.
6. Status of Converted or Redeemed Stock. In the event any shares of
Series G Preferred Stock shall be converted pursuant to Section 3, the shares so
converted shall be canceled and shall not be issuable by the Corporation.
7. Preemptive Rights. The holders of Series G Preferred Stock shall not
have any preemptive rights.
FIFTH: (1) The business and affairs of the Corporation shall be
managed by or under the direction of a Board of Directors
consisting of not less than 3 nor more than 11 directors, the
exact number of directors to be determined from time to time
solely by resolution adopted by the affirmative vote of a
majority of the entire Board of Directors.
(2) The directors of the Corporation, other than
directors elected by one or more series of Preferred Stock,
shall be divided into three classes, designated Class I, Class
II and Class III. Each class shall consist, as nearly as may be
possible, of one-third of the total number of directors (other
than directors elected by one or more series of Preferred Stock)
constituting the entire Board of Directors. Each director (other
than directors elected by one or more series of Preferred Stock)
shall serve for a term ending on the date of the third annual
meeting of stockholders next following the annual meeting at
which such director was elected, provided that directors
initially designated as Class I directors shall serve for a term
ending on the date of the 1998 annual meeting, directors
initially designated as Class II directors shall serve for a
term ending on the date of the 1999 annual meeting, and
directors initially designated as Class III directors shall
serve for a term ending on the date of the 2000 annual meeting.
Notwithstanding the foregoing, each director shall hold office
until such director's successor shall have been duly elected and
qualified or until such director's earlier death, resignation or
removal. If the number of directors (other than directors
elected by one or more series of Preferred Stock) is changed,
any increase or decrease shall be apportioned among the classes
so as to maintain the number of directors in each class as
nearly equal as possible, but in no event will a
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<PAGE> 8
decrease in the number of directors shorten the term of any
incumbent director. Vacancies on the Board of Directors
resulting from death, resignation, removal or otherwise and
newly created directorships resulting from any increase in the
number of directors (other than directors elected by one or more
series of Preferred Stock) may be filled solely by a majority of
the directors then in office (although less than a quorum) or by
a sole remaining director, and each director so elected shall
hold office for a term that shall coincide with the remaining
term of the class to which such director shall have been
elected. Whenever the holders of one or more classes or series
of Preferred Stock shall have the right, voting separately as a
class or series, to elect directors, the nomination, election,
term of office, filling of vacancies, removal and other features
of such directorships shall not be governed by this ARTICLE
FIFTH unless otherwise provided for in the certificate of
designation for such classes or series.
(3) No director (other than directors elected by one or
more series of Preferred Stock) may be removed from office by
the stockholders except for cause and, in addition to any other
vote required by law, upon the affirmative vote of the holders
of two-thirds (66 2/3%) of all outstanding securities of the
Corporation then entitled to vote generally in the election of
directors, voting together as a single class.
SIXTH: The Corporation is to have perpetual existence.
SEVENTH: The following provisions are inserted for the
management of the business and the conduct of the affairs of the
Corporation and for the further definition of the powers of the
Corporation and its directors and stockholders:
(1) The Board of Directors shall have the power to
adopt, amend, alter, rescind or repeal the bylaws of the
Corporation.
The stockholders may adopt, amend, alter, rescind or
repeal the bylaws only with, in addition to any other vote
required by law, the affirmative vote of the holders of not less
than 66 2/3% of the total voting power of all outstanding
securities of the Corporation then entitled to vote generally in
the election of directors, voting together as a single class.
(2) Elections of directors need not be by written ballot
unless the bylaws of the Corporation so provide.
(3) Any action required or permitted to be taken at any
annual or special meeting of stockholders may be taken only upon
the vote of stockholders at an annual or special meeting duly
noticed and called in accordance with Delaware Law, and may not
be taken by written consent of stockholders without a meeting.
(4) Special meetings of stockholders may be called by
the Board of Directors, the Chairman of the Board of Directors,
the President or the Secretary of the Corporation and may not be
called by any other person. Notwithstanding the foregoing,
whenever holders of one or more classes or series of Preferred
Stock shall have the right, voting separately as a class or
series, to elect directors, such holders
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<PAGE> 9
may call special meetings of such holders pursuant to the
certificate of designation for such classes or series.
EIGHTH: A director of this corporation shall not be liable to
the Corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director, except to the extent
such exemption from liability or limitation thereof is not
permitted under the General Corporation Law of the State of
Delaware as the same exists or may hereafter be amended. The
Corporation shall indemnify its directors and officers to the
fullest extent permitted under the General Corporation Law of
the State of Delaware, including circumstances in which
indemnification is otherwise discretionary.
Any repeal or modification of the foregoing paragraph
shall not adversely affect any right or protection of a director
of the Corporation existing hereunder with respect to any act or
omission occurring prior to such repeal or modification.
3. That said Amended and Restated Certificate of Incorporation
has been consented to and authorized by the holders of a majority of the issued
and outstanding stock entitled to vote by written consent given in accordance
with the provisions of _____________ Section 228 of the General Corporation Law
of the State of Delaware.
4. That said Amended and Restated Certificate of Incorporation
was duly adopted in accordance with the applicable provisions of Sections 242
and 245 of the General Corporation Law of the State of Delaware.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 10
IN WITNESS WHEREOF, InterVU Inc. has caused this Certificate to be
signed by Harry E. Gruber, its Chief Executive Officer and Danielle D. McGee,
its Secretary, this ______ day of November, 1997.
InterVU Inc.
a Delaware corporation
By:
------------------------------------
Name: Harry E. Gruber
Title: Chief Executive Officer
ATTEST
- ---------------------------------
Name: Danielle D. McGee
Title: Secretary
5
<PAGE> 1
EXHIBIT 3.4
AMENDED AND RESTATED
BYLAWS
OF
INTERVU INC.
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C> <C>
ARTICLE I OFFICES....................................................................... 1
Section 1. REGISTERED OFFICES..................................................... 1
Section 2. OTHER OFFICES.......................................................... 1
ARTICLE II MEETINGS OF STOCKHOLDERS..................................................... 1
Section 1. PLACE OF MEETINGS...................................................... 1
Section 2. ANNUAL MEETING OF STOCKHOLDERS......................................... 1
Section 3. QUORUM; ADJOURNED MEETINGS AND NOTICE THEREOF.......................... 1
Section 4. VOTING................................................................. 2
Section 5. PROXIES................................................................ 3
Section 6. SPECIAL MEETINGS....................................................... 3
Section 7. NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS ........................ 3
Section 8. MAINTENANCE AND INSPECTION OF STOCKHOLDER LIST......................... 5
ARTICLE III DIRECTORS................................................................... 5
Section 1. THE NUMBER OF DIRECTORS................................................ 5
Section 2. VACANCIES.............................................................. 6
Section 3. REMOVAL................................................................ 6
Section 4. POWERS................................................................. 6
Section 5. PLACE OF DIRECTORS' MEETINGS........................................... 7
Section 6. REGULAR MEETINGS....................................................... 7
Section 7. SPECIAL MEETINGS....................................................... 7
Section 8. QUORUM................................................................. 7
Section 9. ACTION WITHOUT MEETING................................................. 7
Section 10. TELEPHONIC MEETINGS.................................................... 8
Section 11. COMMITTEES OF DIRECTORS................................................ 8
Section 12. MINUTES OF COMMITTEE MEETINGS.......................................... 9
Section 13. COMPENSATION OF DIRECTORS.............................................. 9
ARTICLE IV OFFICERS..................................................................... 9
Section 1. OFFICERS............................................................... 9
Section 2. ELECTION OF OFFICERS................................................... 10
Section 3. SUBORDINATE OFFICERS................................................... 10
Section 4. COMPENSATION OF OFFICERS............................................... 10
Section 5. TERM OF OFFICE; REMOVAL AND VACANCIES.................................. 10
Section 6. CHAIRMAN OF THE BOARD.................................................. 11
Section 7. PRESIDENT.............................................................. 11
Section 8. VICE PRESIDENTS........................................................ 11
Section 9. SECRETARY.............................................................. 12
Section 10. ASSISTANT SECRETARY.................................................... 12
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 11. CHIEF FINANCIAL OFFICER OR TREASURER................................... 12
Section 12. ASSISTANT CHIEF FINANCIAL OFFICER
OR TREASURER..................................................... 13
ARTICLE V INDEMNIFICATION OF DIRECTORS AND OFFICERS..................................... 13
ARTICLE VI INDEMNIFICATION OF EMPLOYEES AND AGENTS...................................... 17
ARTICLE VII CERTIFICATES OF STOCK....................................................... 18
Section 1. CERTIFICATES........................................................... 18
Section 2. SIGNATURES ON CERTIFICATES............................................. 18
Section 3. STATEMENT OF STOCK RIGHTS,
PREFERENCES, PRIVILEGES.......................................... 18
Section 4. LOST CERTIFICATES...................................................... 19
Section 5. TRANSFERS OF STOCK..................................................... 19
Section 6. FIXED RECORD DATE...................................................... 19
Section 7. REGISTERED STOCKHOLDERS................................................ 20
ARTICLE VIII GENERAL PROVISIONS......................................................... 20
Section 1. DIVIDENDS.............................................................. 20
Section 2. PAYMENT OF DIVIDENDS; DIRECTORS' DUTIES................................ 20
Section 3. CHECKS................................................................. 21
Section 4. FISCAL YEAR............................................................ 21
Section 5. CORPORATE SEAL......................................................... 21
Section 6. MANNER OF GIVING NOTICE................................................ 21
Section 7. WAIVER OF NOTICE....................................................... 21
ARTICLE IX AMENDMENTS................................................................... 22
Section 1. AMENDMENT BY DIRECTORS OR STOCKHOLDERS................................. 22
</TABLE>
ii
<PAGE> 4
FORM OF
AMENDED AND RESTATED
BYLAWS
OF
INTERVU INC.
ARTICLE I
OFFICES
Section 1. REGISTERED OFFICES. The registered office of the corporation
shall be in the City of Dover, County of Kent, State of Delaware.
Section 2. OTHER OFFICES. The corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. PLACE OF MEETINGS. Meetings of stockholders shall be held at
any place within or outside the State of Delaware designated by the Board of
Directors. In the absence of any such designation, stockholders' meetings shall
be held at the principal executive office of the corporation.
Section 2. ANNUAL MEETING OF STOCKHOLDERS. The annual meeting of
stockholders shall be held each year on a date and a time designated by the
Board of Directors.
Section 3. QUORUM; ADJOURNED MEETINGS AND NOTICE THEREOF. A majority of
the voting power of the shares of capital stock of the corporation issued and
<PAGE> 5
outstanding and entitled to vote at any meeting of stockholders, the holders of
which are present in person or represented by proxy, shall constitute a quorum
for the transaction of business except as otherwise provided by law, by the
Certificate of Incorporation, or by these Bylaws. A quorum, once established,
shall not be broken by the withdrawal of enough votes to leave less than a
quorum and the votes present may continue to transact business until
adjournment. If, however, such quorum shall not be present or represented at any
meeting of the stockholders, a majority of the voting power of the shares of
capital stock represented in person or by proxy may adjourn the meeting from
time to time, without notice other than announcement at the meeting of the time
and place of the adjourned meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally noticed. If the adjournment is for more than thirty
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote thereat.
Section 4. VOTING. When a quorum is present at any meeting, in
all matters other than the election of directors, the vote of the holders of
stock representing a majority of the voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the Certificate of
Incorporation, or these Bylaws, or any rule, regulation or statutory provision
applicable to the corporation, a different vote is required in which case such
express provision shall govern and control the decision of such question.
Directors shall be elected by a plurality of the votes of the shares present in
person or represented by proxy at the meeting and entitled to vote on the
election of directors.
<PAGE> 6
Section 5. PROXIES. At each meeting of the stockholders, each
stockholder having the right to vote may vote in person or may authorize another
person or persons to act for him by proxy appointed by an instrument in writing
subscribed by such stockholder and bearing a date not more than three years
prior to said meeting, unless said instrument provides for a longer period. All
proxies must be filed with the Secretary of the corporation at the beginning of
each meeting in order to be counted in any vote at the meeting. Each stockholder
shall have one vote for each share of stock having voting power, registered in
his name on the books of the corporation on the record date set by the Board of
Directors as provided in Article VI, Section 6 hereof.
Section 6. SPECIAL MEETINGS. Special meetings of the
stockholders, for any purpose, or purposes, unless otherwise prescribed by
statute or by the Certificate of Incorporation, may be called by the Chairman of
the Board or the President and shall be called by the President or the Secretary
at the request in writing of the Board of Directors. Business transacted at any
special meeting of stockholders shall be limited to the purposes stated in the
notice.
Section 7. NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS.
(1) Nominations of persons for election to the Board of
Directors of the corporation and the proposal of business to be considered by
the stockholders may be made at an annual meeting of stockholders (a) pursuant
to the corporation's notice of meeting, (b) by or at the direction of the Board
of Directors or (c) by any stockholder of the corporation who was a stockholder
of record at the time of giving of notice provided for in this Bylaw, who is
entitled to vote at the meeting and who complies with the notice procedures set
forth in this Bylaw.
(2) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (c) of paragraph
(1) of this By-Law, the stockholder must have given timely notice thereof in
writing to the Secretary of the corporation and such other
3
<PAGE> 7
business must otherwise be a proper matter for stockholder action. To be timely,
a stockholder's notice shall be delivered to the Secretary at the principal
executive offices of the corporation not later than the close of business on the
60th day nor earlier than the close of business on the 90th day prior to the
first anniversary of the preceding year's annual meeting; provided, however,
that in the event that the date of the annual meeting is not within 30 days
before or after such anniversary date, notice by the stockholder to be timely
must be so delivered not earlier than the close of business on the 90th day
prior to such annual meeting and not later than the close of business on the
later of the 60th day prior to such annual meeting or the 10th day following the
day on which notice of the meeting was mailed or public announcement of the date
of such meeting is first made by the corporation. In no event shall the public
announcement of an adjournment of an annual meeting commence a new time period
for the giving of a stockholder's notice as described above. Such stockholder's
notice shall set forth (a) as to each person whom the stockholder proposes to
nominate for election or re-election as a director all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors in an election contest, or is otherwise required, in each
case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and Rule 14A-11 thereunder (including such
person's written consent to being named in the proxy statement as a nominee and
to serving as a director if elected); (b) as to any other business that the
stockholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the nomination or
proposal is made and (c) as to the stockholder giving the notice and the
beneficial owner, if any, on whose behalf the nomination or proposal is made (i)
the name and address of such stockholder,
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<PAGE> 8
as they appear on the corporation's books, and of such beneficial owner and (ii)
the class and number of shares of the corporation which are owned beneficially
and or record by such stockholder and such beneficial owner.
Section 8. MAINTENANCE AND INSPECTION OF STOCKHOLDER LIST.
The officer who has charge of the stock ledger of the corporation shall prepare
and make, at least ten days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
ARTICLE III
DIRECTORS
Section 1. THE NUMBER OF DIRECTORS. The number of directors
(other than directors elected by one or more series of Preferred Stock) which
shall constitute the whole Board shall be not less than three (3) nor more than
eleven (11), the exact number of directors to be determined from time to time
solely by resolution adopted by the affirmative vote of a majority of the
directors. The directors need not be stockholders. The directors shall be
elected at the annual meeting of the stockholders, except as provided in Section
2 of this Article, and each director elected shall hold office until his
successor is duly elected and qualified.
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Section 2. VACANCIES. Vacancies on the Board of Directors by
reason of death, resignation, removal, or otherwise, and newly created
directorships resulting from any increase in the number of directors may be
filled (other than directors elected by one or more series of Preferred Stock)
solely by a majority of the directors then in office (although less than a
quorum) or by a sole remaining director. Each director so chosen shall hold
office until such director's successor shall have been duly elected and
qualified or until such director's earlier death, resignation, disqualification
or removal. If, at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole Board (as constituted immediately prior to any such increase), the
Court of Chancery may, upon application of any stockholder or stockholders
having the right to vote for such directors, summarily order an election to be
held to fill any such vacancies or newly created directorships, or to replace
the directors chosen by the directors then in office.
Section 3. REMOVAL. No director may be removed from office by the
stockholders except for cause with the affirmative vote of the holders of
two-thirds (66%) of all outstanding securities of the corporation then entitled
to vote generally in the election of directors, voting together as a single
class.
Section 4. POWERS. The property and business of the corporation
shall be managed by or under the direction of its Board of Directors. In
addition to the powers and authorities by these Bylaws expressly conferred upon
them, the Board may exercise all such powers of the corporation and do all such
lawful acts and things as are not by statute or by the Certificate of
Incorporation or by these Bylaws directed or required to be exercised or done by
the stockholders.
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Section 5. PLACE OF DIRECTORS' MEETINGS. The directors may hold
their meetings and have one or more offices, and keep the books of the
corporation outside of the State of Delaware.
Section 6. REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held without notice at such time and place as shall from time
to time be determined by the Board.
Section 7. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the Chairman of the Board or the President on
forty-eight hours' notice to each director, either personally or by mail,
telecopier, or other means of electronic transmission at the address of such
director on the books and records of the corporation; special meetings shall be
called by the President or the Secretary in like manner and on like notice on
the written request of two directors.
Section 8. QUORUM. At all meetings of the Board of Directors a
majority of the then authorized number of directors shall be necessary and
sufficient to constitute a quorum for the transaction of business, and the vote
of a majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute, by the Certificate of Incorporation or by
these Bylaws. If a quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
Section 9. ACTION WITHOUT MEETING. Unless otherwise restricted by
the Certificate of Incorporation or these Bylaws, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting,
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if all members of the Board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the Board or committee.
Section 10. TELEPHONIC MEETINGS. Unless otherwise restricted by
the Certificate of Incorporation or these Bylaws, members of the Board of
Directors, or any committee designated by the Board of Directors, may
participate in a meeting of the Board of Directors, or any committee, by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and such
participation in a meeting shall constitute presence in person at such meeting.
Section 11. COMMITTEES OF DIRECTORS. The Board of Directors may,
by resolution passed by a majority of the whole Board, designate one or more
committees, each such committee to consist of one or more of the directors of
the corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. In the absence or disqualification of a
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he/she or they constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors,
shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the corporation, and
may authorize the seal of the corporation to be affixed to all papers which may
require it; but no such committee shall have the power or authority in reference
to amending the Certificate of Incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets, recommending
to the
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stockholders a dissolution of the corporation or a revocation of a dissolution,
or amending the Bylaws of the corporation; and, unless the resolution or the
Certificate of Incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend or to authorize the issuance of
stock.
Section 12. MINUTES OF COMMITTEE MEETINGS. Each committee shall
keep regular minutes of its meetings and report the same to the Board of
Directors when required.
Section 13. COMPENSATION OF DIRECTORS. Unless otherwise
restricted by the Certificate of Incorporation or these Bylaws, the Board of
Directors shall have the authority to fix the compensation of directors. The
directors may be paid their expenses, if any, of attendance at each meeting of
the Board of Directors and may be paid a fixed sum for attendance at each
meeting of the Board of Directors or a stated salary as director. No such
payment shall preclude any director from serving the corporation in any other
capacity and receiving compensation therefor. Members of special or standing
committees may be allowed like compensation for attending committee meetings.
ARTICLE IV
OFFICERS
Section 1. OFFICERS. The officers of this corporation shall be
chosen by the Board of Directors and shall include a Chairman of the Board of
Directors or a President, or both, and a Secretary. The corporation may also
have at the discretion of the Board of Directors such other officers as are
desired, including a Vice-Chairman of the Board of Directors, a Chief Executive
Officer, a Chief Financial Officer or Treasurer, one or more Vice Presidents,
one or more Assistant Secretaries and Assistant Chief Financial Officers or
Treasurers, and such other officers as may be appointed in accordance with the
provisions of Section 3 hereof. In the event
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there are two or more Vice Presidents, then one or more may be designated as
Executive Vice President, Senior Vice President, or other similar or dissimilar
title. At the time of the election of officers, the directors may by resolution
determine the order of their rank. Any number of offices may be held by the same
person, unless the Certificate of Incorporation or these Bylaws otherwise
provide.
Section 2. ELECTION OF OFFICERS. The Board of Directors, at its
first meeting after each annual meeting of stockholders, shall choose the
officers of the corporation.
Section 3. SUBORDINATE OFFICERS. The Board of Directors may
appoint such other officers and agents as it shall deem necessary who shall hold
their offices for such terms and shall exercise such powers and perform such
duties as shall be determined from time to time by the Board.
Section 4. COMPENSATION OF OFFICERS. The salaries of all officers
and agents of the corporation shall be fixed by the Board of Directors.
Section 5. TERM OF OFFICE; REMOVAL AND VACANCIES. The officers
of the corporation shall hold office until their successors are chosen and
qualify in their stead. Any officer elected or appointed by the Board of
Directors may be removed at any time by the affirmative vote of a majority of
the members of the Board of Directors. If the office of any officer or officers
becomes vacant for any reason, the vacancy shall be filled by the Board of
Directors.
Section 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if
such an officer be elected, shall, if present, preside at all meetings of the
Board of Directors and exercise and perform such other powers and duties as may
be from time to time assigned to him/her by the Board of Directors or prescribed
by these Bylaws. If there is no President, the
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Chairman of the Board shall in addition be the Chief Executive Officer of the
corporation and shall have the powers and duties prescribed in Section 7 of this
Article IV.
Section 7. PRESIDENT. Subject to such supervisory powers, if any,
as may be given by the Board of Directors to the Chairman of the Board, if there
be such an officer, the President shall be the Chief Executive Officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
corporation. He/she shall preside at all meetings of the stockholders and, in
the absence of the Chairman of the Board, or if there be none, at all meetings
of the Board of Directors. He/she shall be an ex-officio member of all
committees and shall have the general powers and duties of management usually
vested in the office of President and Chief Executive Officer of corporations,
and shall have such other powers and duties as may be prescribed by the Board of
Directors or these Bylaws.
Section 8. VICE PRESIDENTS. In the absence or disability of the
President, the Vice Presidents in order of their rank as fixed by the Board of
Directors, or if not ranked, the Vice President designated by the Board of
Directors, shall perform all the duties of the President, and when so acting
shall have all the powers of and be subject to all the restrictions upon the
President. The Vice Presidents shall have such other duties as from time to time
may be prescribed for them, respectively, by the Board of Directors.
Section 9. SECRETARY. The Secretary shall attend all sessions of
the Board of Directors and all meetings of the stockholders and record all votes
and the minutes of all proceedings in a book to be kept for that purpose; and
shall perform like duties for the standing committees when required by the Board
of Directors. He/she shall give, or cause to be given, notice of all meetings of
the stockholders and of the Board of Directors, and shall perform such
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other duties as may be prescribed by the Board of Directors or these Bylaws.
He/she shall keep in safe custody the seal of the corporation, and when
authorized by the Board, affix the same to any instrument requiring it, and when
so affixed it shall be attested by his signature or by the signature of an
Assistant Secretary. The Board of Directors may give general authority to any
other officer to affix the seal of the corporation and to attest the affixing by
his signature.
Section 10. ASSISTANT SECRETARY. The Assistant Secretary, or if
there be more than one, the Assistant Secretaries in the order determined by the
Board of Directors, or if there be no such determination, the Assistant
Secretary designated by the Board of Directors, shall, in the absence or
disability of the Secretary, perform the duties and exercise the powers of the
Secretary and shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.
Section 11. CHIEF FINANCIAL OFFICER OR TREASURER. The Chief
Financial Officer or Treasurer shall have the custody of the corporate funds and
securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all
moneys, and other valuable effects in the name and to the credit of the
corporation, in such depositories as may be designated by the Board of
Directors. He/she shall disburse the funds of the corporation as may be ordered
by the Board of Directors, taking proper vouchers for such disbursements, and
shall render to the Board of Directors, at its regular meetings, or when the
Board of Directors so requires, an account of all his transactions as Chief
Financial Officer or Treasurer and of the financial condition of the
corporation. If required by the Board of Directors, he/she shall give the
corporation a bond, in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors, for the faithful performance of the
duties of his office and for the restoration to the corporation, in case of his
death, resignation, retirement
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or removal from office, of all books, papers, vouchers, money and other property
of whatever kind in his possession or under his control belonging to the
corporation.
Section 12. ASSISTANT CHIEF FINANCIAL OFFICER OR TREASURER. The
Assistant Chief Financial Officer or Treasurer, or if there shall be more than
one, the Assistant Chief Financial Officers or Treasurers in the order
determined by the Board of Directors, or if there be no such determination, the
Assistant Chief Financial Officer or Treasurer designated by the Board of
Directors, shall, in the absence or disability of the Chief Financial Officer or
Treasurer, perform the duties and exercise the powers of the Chief Financial
Officer or Treasurer and shall perform such other duties and have such other
powers as the Board of Directors may from time to time prescribe.
ARTICLE V
INDEMNIFICATION OF DIRECTORS AND OFFICERS
(a) The corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he/she is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action or suit or proceeding if he/she
acted in good faith and in a manner he/she reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The termination of any action, suit or
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proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which he/she reasonably
believed to be in or not opposed to the best interests of the corporation, and,
with respect to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful.
(b) The corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he/she is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he/she acted
in good faith and in a manner he/she reasonably believed in or not opposed to
the best interests of the corporation except that no such indemnification shall
be made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the extent
that the Court of Chancery of Delaware or the court in which such action or suit
was brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which such Court
of Chancery or such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of
the corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in paragraphs (a) and (b), or in defense
of any claim, issue or matter therein, he/she shall be
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indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under paragraphs (a) and (b) (unless
ordered by a court) shall be made by the corporation only as authorized in the
specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he/she has met
the applicable standard of conduct set forth in paragraphs (a) and (b). Such
determination shall be made (1) by the Board of Directors by a majority vote of
a quorum consisting of directors who were not parties to such action, suit or
proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or (3) by the stockholders.
(e) Expenses incurred by an officer or director in defending any
civil or criminal, administrative or investigative action, suit or proceeding
shall be paid by the corporation in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf of
such director or officer to repay such amount if it shall ultimately be
determined that he/she is not entitled to be indemnified by the corporation as
authorized in this Article V. Such expenses incurred by other employees and
agents may be so paid upon such terms and conditions, if any, as the Board of
Directors deems appropriate.
(f) The indemnification and advancement of expenses provided by,
or granted pursuant to, the other paragraphs of this Article V shall not be
deemed exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.
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(g) The Board of Directors may authorize, by a vote of a majority
of a quorum of the Board of Directors, the corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not the corporation would have the power to indemnify him/her
against such liability under the provisions of this Article V.
(h) For the purposes of this Article V, references to "the
corporation" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued would
have had power and authority to indemnify its directors officers and employees
or agents, so that any person who is or was a director, officer, employee or
agent of such constituent corporation, or is or was serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under the provisions of this Article with
respect to the resulting or surviving corporation as he/she would have with
respect to such constituent corporation if its separate existence had continued.
(i) For purposes of this section, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at the request of the corporation"
shall include service as a director, officer, employee or agent of the
corporation which imposes duties on, or involves services by, such director,
officer, employee or agent with respect
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to an employee benefit plan, its participants or beneficiaries; and a person who
acted in good faith and in a manner he/she reasonably believed to be in the best
interest of the participants and beneficiaries of an employee benefit plan shall
be deemed to have acted in a manner not opposed to the best interests of the
corporation" as referred to in this section.
(j) The indemnification and advancement of expenses provided by,
or granted pursuant to, this Article V shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
ARTICLE VI
INDEMNIFICATION OF EMPLOYEES AND AGENTS
The corporation may, at its option, indemnify every person who
was or is a party or is or was threatened to be made a party to any action,
suit, or proceeding, whether civil, criminal, administrative or investigative,
by reason of the fact that he/she is or was an employee or agent of the
corporation or, while an employee or agent of the corporation, is or was serving
at the request of the corporation as an employee or agent or trustee of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against expenses (including counsel fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him/her in
connection with such action, suit or proceeding, to the extent permitted by
applicable law.
ARTICLE VII
CERTIFICATES OF STOCK
Section 1. CERTIFICATES. Every holder of stock of the corporation
shall be entitled to have a certificate signed by, or in the name of the
corporation by, the Chairman or Vice
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Chairman of the Board of Directors, or the President or a Vice President, and by
the Secretary or an Assistant Secretary, or the Chief Financial Officer or
Treasurer or an Assistant Chief Financial Officer or Treasurer of the
corporation, certifying the number of shares represented by the certificate
owned by such stockholder in the corporation.
Section 2. SIGNATURES ON CERTIFICATES. Any or all of the
signatures on the certificate may be a facsimile. In case any officer, transfer
agent, or registrar who has signed or whose facsimile signature has been placed
upon a certificate shall have ceased to be such officer, transfer agent, or
registrar before such certificate is issued, it may be issued by the corporation
with the same effect as if he/she were such officer, transfer agent, or
registrar at the date of issue.
Section 3. STATEMENT OF STOCK RIGHTS, PREFERENCES, PRIVILEGES.
If the corporation shall be authorized to issue more than one class of stock or
more than one series of any class, the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights shall be set forth in full or summarized on the face
or back of the certificate which the corporation shall issue to represent such
class or series of stock, provided that, except as otherwise provided in section
202 of the General Corporation Law of the State of Delaware, in lieu of the
foregoing requirements, there may be set forth on the face or back of the
certificate which the corporation shall issue to represent such class or series
of stock, a statement that the corporation will furnish without charge to each
stockholder who so requests the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
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Section 4. LOST CERTIFICATES. The Board of Directors may direct a
new certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or to give the corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the corporation
with respect to the certificate alleged to have been lost, stolen or destroyed.
Section 5. TRANSFERS OF STOCK. Upon surrender to the corporation,
or the transfer agent of the corporation, of a certificate for shares duly
endorsed or accompanied by proper evidence of succession, assignation or
authority to transfer, it shall be the duty of the corporation to issue a new
certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its books.
Section 6. FIXED RECORD DATE. In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
the stockholders, or any adjournment thereof, or entitled to receive payment of
any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix a
record date which shall not be more than sixty nor less than ten days before the
date of such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment
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of the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
Section 7. REGISTERED STOCKHOLDERS. The corporation shall be
entitled to treat the holder of record of any share or shares of stock as the
holder in fact thereof and accordingly shall not be bound to recognize any
equitable or other claim or interest in such share on the part of any other
person, whether or not it shall have express or other notice thereof, save as
expressly provided by the laws of the State of Delaware.
ARTICLE VIII
GENERAL PROVISIONS
Section 1. DIVIDENDS. Dividends upon the capital stock of the
corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the Certificate of
Incorporation.
Section 2. PAYMENT OF DIVIDENDS; DIRECTORS' DUTIES. Before
payment of any dividend there may be set aside out of any funds of the
corporation available for dividends such sum or sums as the directors from time
to time, in their absolute discretion, think proper as a reserve fund to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the corporation, or for such other purpose as the directors shall
think conducive to the interests of the corporation, and the directors may
abolish any such reserve.
Section 3. CHECKS. All checks or demands for money and notes of
the corporation shall be signed by such officer or officers as the Board of
Directors may from time to time designate.
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Section 4. FISCAL YEAR. The fiscal year of the corporation shall
be fixed by resolution of the Board of Directors.
Section 5. CORPORATE SEAL. The corporate seal shall have
inscribed thereon the name of the corporation, the year of its organization and
the words "Corporate Seal, Delaware." Said seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
Section 6. MANNER OF GIVING NOTICE. Whenever, under the
provisions of the Certificate of Incorporation, or of these Bylaws, or any rule,
regulation or statutory provision applicable to the corporation, notice is
required to be given to any director or stockholder, it shall not be construed
to mean personal notice, but such notice may be given (unless otherwise
provided) in writing, by mail, addressed to such director or stockholder, at his
address as it appears on the records of the corporation, with postage thereon
prepaid, and such notice shall be deemed to be given at the time when the same
shall be deposited in the United States mail. Notice to directors may also be
given by mail, telecopier, or other means of electronic transmission at the
address of such director on the books and records of the corporation.
Section 7. WAIVER OF NOTICE. Whenever any notice is required to
be given under the provisions of the Certificate of Incorporation or of these
Bylaws, or any rule, regulation or statutory provision applicable to the
corporation, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
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ARTICLE IX
AMENDMENTS
Section 1. AMENDMENT BY DIRECTORS OR STOCKHOLDERS. These Bylaws
may be altered, amended or repealed or new Bylaws may be adopted by the Board of
Directors, when such power is conferred upon the Board of Directors by the
Certificate of Incorporation or by the affirmative vote of not less than 66 2/3%
of the total voting power of all outstanding securities of the Corporation then
entitled to vote generally in the election of directors, voting together as a
single class, at any regular meeting of the stockholders or of the Board of
Directors if notice of such alteration, amendment, repeal or adoption of new
Bylaws be contained in the notice of such special meeting.
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CERTIFICATE OF SECRETARY
I, the undersigned, do hereby certify:
(1) That I am the duly elected and acting Secretary of InterVU
Inc., a Delaware corporation; and
(2) That the foregoing Amended and Restated Bylaws constitute the
bylaws of said corporation as duly adopted by the unanimous written consent of
the Board of Directors of said corporation as of October _____, 1997.
IN WITNESS WHEREOF, I have hereunto subscribed my name this _____
day of October 1997.
-------------------------------
Danielle D. McGee
Secretary
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EXHIBIT 10.1
1996 STOCK PLAN OF
INTERVU INC.
(Adopted Effective December 8, 1996)
TABLE OF CONTENTS
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ARTICLE 1...........................................................INTRODUCTION 1
ARTICLE 2.........................................................ADMINISTRATION 1
2.1 Committee Composition................................................ 1
2.2 Committee Responsibilities .......................................... 1
ARTICLE 3............................................SHARES AVAILABLE FOR GRANTS 2
3.1 Basic Limitation..................................................... 2
3.2 Additional Shares.................................................... 2
ARTICLE 4............................................................ELIGIBILITY 2
4.1 General Rules........................................................ 2
4.2 Outside Directors.................................................... 2
4.3 Incentive Stock Options.............................................. 2
ARTICLE 5................................................................OPTIONS 2
5.1 Stock Option Agreement............................................... 2
5.2 Number of Shares..................................................... 3
5.3 Exercise Price....................................................... 3
5.4 Exercisability and Term.............................................. 3
5.5 Effect of Change in Control.......................................... 3
5.6 Modification or Assumption of Options................................ 3
ARTICLE 6..............................................PAYMENT FOR OPTION SHARES 4
6.1 General Rule......................................................... 4
6.2 Surrender of Stock................................................... 4
6.3 Exercise/Sale........................................................ 4
6.4 Exercise/Pledge...................................................... 4
6.5 Promissory Note...................................................... 4
6.6 Other Forms of Payment............................................... 4
ARTICLE 7......................................................RESTRICTED SHARES 4
7.1 Time, Amount and Form of Awards...................................... 4
7.2 Payment for Awards................................................... 5
7.3 Vesting Conditions................................................... 5
ARTICLE 8.............................................VOTING AND DIVIDEND RIGHTS 5
ARTICLE 9............................................PROTECTION AGAINST DILUTION 5
9.1 Adjustments.......................................................... 5
9.2 Reorganizations...................................................... 6
ARTICLE 10..............................................AWARDS UNDER OTHER PLANS 6
ARTICLE 11..............................PAYMENT OF DIRECTOR'S FEES IN SECURITIES 6
11.1 Effective Date....................................................... 6
11.2 Elections to Receive NSOs or Restricted Shares ...................... 6
11.3 Number and Terms of NSOs or Restricted Shares ....................... 6
ARTICLE 12..................................................LIMITATION ON RIGHTS 6
12.1 Retention Rights.......................................................6
12.2 Stockholders' Rights...................................................6
12.3 Regulatory Requirements................................................7
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ARTICLE 13................................................LIMITATION ON PAYMENTS 7
13.1 Basic Rule........................................................... 7
13.2 Reduction of Payments................................................ 7
13.3 Overpayments and Underpayments....................................... 8
13.4 Related Corporations................................................. 8
ARTICLE 14.....................................................WITHHOLDING TAXES 8
14.1 General.............................................................. 8
14.2 Share Withholding.................................................... 8
ARTICLE 15......................................ASSIGNMENT OR TRANSFER OF AWARDS 9
15.1 General.............................................................. 9
15.2 Trusts............................................................... 9
ARTICLE 16....................................................FUTURE OF THE PLAN 9
16.1 Term of the Plan..................................................... 9
16.2 Amendment or Termination............................................. 9
ARTICLE 17...........................................................DEFINITIONS 10
ARTICLE 18.............................................................EXECUTION 12
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1996 STOCK PLAN OF
INTERVU INC.
ARTICLE 1. INTRODUCTION.
The Plan was adopted by the Board on December 8, 1996, subject to approval
by the Company's stockholders, and shall be effective as of such date.
The purpose of the Plan is to promote the long-term success of the Company
and the creation of stockholder value by (a) encouraging Key Employees to focus
on critical long-range objectives, (b) encouraging the attraction and retention
of Key Employees with exceptional qualifications and (c) linking Key Employees
directly to stockholder interests through increased stock ownership. The Plan
seeks to achieve this purpose by providing for Awards in the form of Restricted
Shares or options (which may constitute incentive stock options or nonstatutory
stock options).
The Plan shall be governed by, and construed in accordance with, the laws
of the State of California.
ARTICLE 2. ADMINISTRATION.
2.1 Committee Composition. The Plan shall be administered by the
Committee. The Committee shall be appointed by the Board. In addition, the
composition of the Committee shall satisfy:
(a) Such requirements, if any, as the Securities and Exchange Commission
may establish for administrators acting under plans intended to qualify for
exemption under Rule 16b-3 (or its successor) under the Exchange Act; and
(b) Such requirements as the Internal Revenue Service may establish for
outside directors acting under plans intended to qualify for exemption under
section 162(m)(4)(C) of the Code.
The Board may also appoint one or more separate committees, each composed of one
or more officers of the Company who need not satisfy the foregoing requirements,
who may administer the Plan with respect to Key Employees who are not "covered
employees" under section 162(m)(3) of the Code.
2.2 Committee Responsibilities. The Committee shall (a) select the Key
Employees who are to receive Awards under the Plan, (b) determine the type,
number, vesting requirements and other features and conditions of such Awards,
(c) interpret the Plan and (d) make all other decisions relating to the
operation of the Plan. The Committee may adopt such rules or guidelines as it
deems appropriate to implement the Plan. The Committee's determinations under
the Plan shall be final and binding on all persons.
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ARTICLE 3. SHARES AVAILABLE FOR GRANTS.
3.1 Basic Limitation. Common Shares issued pursuant to the Plan may be
authorized but unissued shares or treasury shares. The aggregate number of
Common Shares available for Restricted Shares and Options awarded under the Plan
shall not exceed 500,000. Of the Common Shares available hereunder, no more than
20% in aggregate shall be available with respect to Outside Directors. The
limitation of this Section 3.1 shall be subject to adjustment pursuant to
Article 9.
3.2 Additional Shares. If Options are forfeited or if Options terminate
for any other reason before being exercised, then the corresponding Common
Shares shall again become available for Awards under the Plan. If Restricted
Shares are forfeited before any dividends have been paid with respect to such
Shares, then such Shares shall again become available for Awards under the Plan.
ARTICLE 4. ELIGIBILITY.
4.1 General Rules. Only Key Employees (including, without limitation,
independent contractors who are not members of the Board) shall be eligible for
designation as Participants by the Committee.
4.2 Outside Directors. The Committee may provide that the NSOs that
otherwise would be granted to an Outside Director under this Plan shall instead
be granted to an affiliate of such Outside Director. Such affiliate shall then
be deemed to be an Outside Director for purposes of the Plan, provided that the
service-related vesting and termination provisions pertaining to the NSOs shall
be applied with regard to the service of the Outside Director.
4.3 Incentive Stock Options. Only Key Employees who are common-law
employees of the Company, a Parent or a Subsidiary shall be eligible for the
grant of ISOs. In addition, a Key Employee who owns more than 10% of the total
combined voting power of all classes of outstanding stock of the Company or any
of its Parents or Subsidiaries shall not be eligible for the grant of an ISO
unless the requirements set forth in section 422(c)(6) of the Code are
satisfied.
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ARTICLE 5. OPTIONS.
5.1 Stock Option Agreement. Each grant of an Option under the Plan shall
be evidenced by a Stock Option Agreement between the Optionee and the Company.
Such Option shall be subject to all applicable terms of the Plan and may be
subject to any other terms that are not inconsistent with the Plan. The Stock
Option Agreement shall specify whether the Option is an ISO or an NSO. The
provisions of the various Stock Option Agreements entered into under the Plan
need not be identical. Options may be granted in consideration of a cash payment
or in consideration of a reduction in the Optionee's other compensation. A Stock
Option Agreement may provide that a new Option will be granted automatically to
the Optionee when he or she exercises a prior Option and pays the Exercise Price
in the form described in Section 6.2.
5.2 Number of Shares. Each Stock Option Agreement shall specify the
number of Common Shares subject to the Option and shall provide for the
adjustment of such number in accordance with Article 9. Options granted to any
Optionee in a single calendar year shall in no event cover more than 100,000
Common Shares, subject to adjustment in accordance with Article 9.
5.3 Exercise Price. Each Stock Option Agreement shall specify the
Exercise Price; provided that the Exercise Price under an ISO shall in no event
be less than 100% of the Fair Market Value of a Common Share on the date of
grant and the Exercise Price under an NSO shall in no event be less than the par
value of the Common Shares subject to such NSO. In the case of an NSO, a Stock
Option Agreement may specify an Exercise Price that varies in accordance with a
predetermined formula while the NSO is outstanding.
5.4 Exercisability and Term. Each Stock Option Agreement shall specify
the date when all or any installment of the option is to become exercisable. The
Stock Option Agreement shall also specify the term of the Option; provided that
the term of an ISO shall in no event exceed 10 years from the date of grant. A
Stock Option Agreement may provide for accelerated exercisability in the event
of the Optionee's death, disability or retirement or other events and may
provide for expiration prior to the end of its term in the event of the
termination of the Optionee's service. NSOs may also be awarded in combination
with Restricted Shares, and such an Award may provide that the NSOs will not be
exercisable unless the related Restricted Shares are forfeited.
5.5 Effect of Change in Control. The Committee may determine, at the
time of granting an Option or thereafter, that such option shall become fully
exercisable as to all Common Shares subject to such option in the event that a
Change in Control occurs with respect to the Company.
5.6 Modification or Assumption of Options. Within the limitations of the
Plan, the committee may modify, extend or
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assume outstanding options or may accept the cancellation of outstanding options
(whether granted by the Company or by another issuer) in return for the grant of
new options for the same or a different number of shares and at the same or a
different exercise price. The foregoing notwithstanding, no modification of an
option shall, without the consent of the Optionee, alter or impair his or her
rights or obligations under such Option.
ARTICLE 6. PAYMENT FOR OPTION SHARES.
6.1 General Rule. The entire Exercise Price of Common Shares issued upon
exercise of Options shall be payable in cash at the time when such Common Shares
are purchased, except as follows:
(a) In the case of an ISO granted under the Plan, payment shall be made
only pursuant to the express provisions of the applicable Stock Option
Agreement. The Stock Option Agreement may specify that payment may be made in
any form(s) described in this Article 6.
(b) In the case of an NSO, the Committee may at any time accept payment
in any form(s) described in this Article 6.
6.2 Surrender of Stock. To the extent that this Section 6.2 is
applicable, payment for all or any part of the Exercise Price may be made with
Common Shares to the extent permitted under applicable law. Such Common Shares
shall be valued at their Fair Market Value on the date when the new Common
Shares are purchased under the Plan.
6.3 Exercise/Sale. To the extent that this Section 6.3 is applicable,
payment may be made by the delivery (on a form prescribed by the Company) of an
irrevocable direction to a securities broker approved by the Company to sell
Common Shares and to deliver all or part of the sales proceeds to the Company in
payment of all or part of the Exercise Price and any withholding taxes.
6.4 Exercise/Pledge. To the extent that this Section 6.4 is applicable,
payment may be made by the delivery (on a form prescribed by the Company) of an
irrevocable direction to pledge Common Shares to a securities broker or lender
approved by the Company, as security for a loan, and to deliver all or part of
the loan proceeds to the Company in payment of all or part of the Exercise Price
and any withholding taxes.
6.5 Promissory Note. To the extent that this Section 6.5 is applicable,
payment may be made with a full-recourse promissory note; provided that the par
value of the Common Shares shall be paid in cash.
6.6 Other Forms of Payment. To the extent that this Section 6.6 is
applicable, payment may be made in any other form that is consistent with
applicable laws, regulations and rules.
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ARTICLE 7. RESTRICTED SHARES.
7.1 Time, Amount and Form of Awards. Awards under the Plan may be
granted in the form of Restricted Shares. Restricted Shares may also be awarded
in combination with NSOs and such an Award may provide that the Restricted
Shares will be forfeited in the event that the related NSOs are exercised.
7.2 Payment for Awards. To the extent that an Award is granted in the
form of newly issued Restricted Shares, the Award recipient, as a condition to
the grant of such Award, shall be required to pay the Company in cash an amount
at least equal to the par value of such Restricted Shares. To the extent that
an Award is granted in the form of Restricted Shares from the Company's
treasury, no cash consideration shall be required of the Award recipients unless
otherwise provided in the applicable Stock Award Agreement.
7.3 Vesting Conditions. Each Award of Restricted Shares shall become
vested, in full or in installments, upon satisfaction of the conditions
specified in the Stock Award Agreement. A Stock Award Agreement may provide for
accelerated vesting in the event of the Participant's death, disability or
retirement or other events. The Committee may determine, at the time of making
an Award or thereafter, that such Award shall become fully vested in the event
that a Change in Control occurs with respect to the Company.
ARTICLE 8. VOTING AND DIVIDEND RIGHTS.
The holders of Restricted Shares awarded under the Plan shall have the
same voting, dividend and other rights as the Company's other holders of Common
Stock. A Stock Award Agreement, however, may require that the holders of
Restricted Shares invest any cash dividends received in additional Restricted
Shares. Such additional Restricted Shares shall be subject to the same
conditions and restrictions as the Award with respect to which the dividends
were paid. Such additional Restricted Shares shall not reduce the number of
Common Shares available under Article 3.
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ARTICLE 9. PROTECTION AGAINST DILUTION.
9.1 Adjustments. In the event of a subdivision of the outstanding Common
Shares, a declaration of a dividend payable in Common Shares, a declaration of a
dividend payable in a form other than Common Shares in an amount that has a
material effect on the price of Common Shares, a combination or consolidation of
the outstanding Common Shares (by reclassification or otherwise) into a lesser
number of Common Shares, a recapitalization, a spinoff or a similar occurrence,
the Committee shall make such adjustments as it, in its sole discretion, deems
appropriate in one or more of (a) the number of Options and Restricted Shares
available for future Awards under Article 3, (b) the limitations set forth in
Section 0, (c) the number of NSOs to be granted to Outside Directors under
Section 4.2, (d) the number of Common Shares covered by each outstanding Option,
or (e) the Exercise Price under each outstanding Option. Except as provided in
this Article 9, a Participant shall have no rights by reason of any issue by the
Company of stock of any class or securities convertible into stock of any class,
any subdivision or consolidation of shares of stock of any class, the payment of
any stock dividend or any other increase or decrease in the number of shares of
stock of any class.
9.2 Reorganizations. In the event that the Company is a party to a
merger or other reorganization, outstanding Options and Restricted Shares shall
be subject to the agreement of merger or reorganization. Such agreement may
provide, without limitation, for the assumption of outstanding Awards by the
surviving corporation or its parent, for their continuation by the Company (if
the Company is a surviving corporation), for accelerated vesting and
accelerated expiration, or for settlement in cash.
ARTICLE 10. AWARDS UNDER OTHER PLANS.
The Company may grant awards under other plans or programs. Such awards
may be settled in the form of Common Shares issued under this Plan.
ARTICLE 11. PAYMENT OF DIRECTOR'S FEES IN SECURITIES.
11.1 Effective Date. No provision of this Article 11 shall be effective
unless and until the Board has determined to implement such provision.
11.2 Elections to Receive NSOs or Restricted Shares. An outside Director
may elect to receive his or her annual retainer payments and meeting fees, if
any, from the Company in the form of cash, NSOs or Restricted Shares or a
combination thereof, as determined by the Board. Such NSOs and Restricted Shares
shall be issued under the Plan. An election under this Article 0 shall be filed
with the Company on the prescribed form.
11.3 Number and Terms of NSOs or Restricted Shares. The number of NSOs or
Restricted Shares to be granted to Outside
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Directors in lieu of annual retainers and meeting fees, if any, that would
otherwise be paid in cash shall be calculated in a manner determined by the
Board. The terms of such NSOs or Restricted Shares shall also be determined by
the Board.
ARTICLE 12. LIMITATION ON RIGHTS.
12.1 Retention Rights. Neither the Plan nor any Award granted under the
Plan shall be deemed to give any individual a right to remain an employee,
consultant, advisor or director of the Company, a Parent or a Subsidiary. The
Company and its Parents and Subsidiaries reserve the right to terminate the
service of any employee, consultant, advisor or director at any time, with or
without cause, subject to applicable laws, the Company's certificate of
incorporation and by-laws and a written employment, consulting or other
applicable agreement (if any).
12.2 Stockholders' Rights. A Participant shall have no dividend rights,
voting rights or other rights as a stockholder with respect to any Common Shares
covered by his or her Award prior to the issuance of a stock certificate for
such Common Shares. No adjustment shall be made for cash dividends or other
rights for which the record date is prior to the date when such certificate is
issued, except as expressly provided in Articles 7, 8 and 9.
12.3 Regulatory Requirements. Any other provision of the Plan
notwithstanding, the obligation of the Company to issue Common Shares under the
Plan shall be subject to all applicable laws, rules and regulations and such
approval by any regulatory body as may be required. The Company reserves the
right to restrict, in whole or in part, the delivery of Common Shares pursuant
to any Award prior to the satisfaction of all legal requirements relating to the
issuance of such Common Shares, to their registration, qualification or listing
or to an exemption from registration, qualification or listing.
ARTICLE 13. LIMITATION ON PAYMENTS.
13.1 Basic Rule. Any provision of the Plan to the contrary
notwithstanding, in the event that the independent auditors most recently
selected by the Board (the "Auditors") determine that any payment or transfer by
the Company under the Plan to or for the benefit of a Participant (a "Payment")
would be nondeductible by the Company for federal income tax purposes because of
the provisions concerning "excess parachute payments" in section 280G of the
Code, then the aggregate present value of all Payments shall be reduced (but not
below zero) to the Reduced Amount; provided that the Committee, at the time of
making an Award under this Plan or at any time thereafter, may specify in
writing that such Award shall not be so reduced and shall not be subject to this
Article 0. For purposes of this Article 0, the "Reduced Amount" shall be the
amount, expressed as a present value, which maximizes the aggregate present
value of the Payments without causing any Payment to be nondeductible by the
Company because of section 28OG of the Code.
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13.2 Reduction of Payments. If the Auditors determine that any Payment
would be nondeductible by the Company because of section 280G of the Code, then
the Company shall promptly give the Participant notice to that effect and a copy
of the detailed calculation thereof and of the Reduced Amount, and the
Participant may then elect, in his or her sole discretion, which and how much of
the Payments shall be eliminated or reduced (as long as after such election the
aggregate present value of the Payments equals the Reduced Amount) and shall
advise the Company in writing of his or her election within 10 days of receipt
of notice. If no such election is made by the Participant within such 10-day
period, then the Company may elect which and how much of the Payments shall be
eliminated or reduced (as long as after such election the aggregate present
value of the Payments equals the Reduced Amount) and shall notify the
Participant promptly of such election. For purposes of this Article 0, present
value shall be determined in accordance with section 280G(d)(4) of the Code.
All determinations made by the Auditors under this Article 0 shall be binding
upon the Company and the Participant and shall be made within 60 days of the
date when a Payment becomes payable or transferable. As promptly as practicable
following such determination and the elections hereunder, the Company shall pay
or transfer to or for the benefit of the Participant such amounts as are then
due to him or her under the Plan and shall promptly pay or transfer to or for
the benefit of the Participant in the future such amounts as become due to him
or her under the Plan.
13.3 Overpayments and Underpayments. As a result of uncertainty in the
application of section 280G of the Code at the time of an initial determination
by the Auditors hereunder, it is possible that Payments will have been made by
the Company which should not have been made (an "Overpayment") or that
additional Payments which will not have been made by the Company could have been
made (an "Underpayment"), consistent in each case with the calculation of the
Reduced Amount hereunder. In the event that the Auditors, based upon the
assertion of a deficiency by the Internal Revenue Service against the Company or
the Participant which the Auditors believe has a high probability of success,
determine that an Overpayment has been made, such Overpayment shall be treated
for all purposes as a loan to the Participant which he or she shall repay to the
Company, together with interest at the applicable federal rate provided in
section 7872(f)(2) of the Code; provided, however, that no amount shall be
payable by the Participant to the Company if and to the extent that such payment
would not reduce the amount which is subject to taxation under section 4999 of
the Code. In the event that the Auditors determine that an Underpayment has
occurred, such Underpayment shall promptly be paid or transferred by the Company
to or for the benefit of the Participant, together with interest at the
applicable federal rate provided in section 7872(f)(2) of the Code.
13.4 Related Corporations. For purposes of this Article 0, the term
"Company" shall include affiliated
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corporations to the extent determined by the Auditors in accordance with section
280G(d)(5) of the Code.
ARTICLE 14. WTTHHOLDING TAXES.
14.1 General. To the extent required by applicable federal, state, local
or foreign law, a Participant or his or her successor shall make arrangements
satisfactory to the Company for the satisfaction of any withholding tax
obligations that arise in connection with the Plan. The Company shall not be
required to issue any Common Shares or make any cash payment under the Plan
until such obligations are satisfied.
14.2 Share Withholding. The Committee may permit a Participant to satisfy
all or part of his or her withholding or income tax obligations by having the
Company withhold all or a portion of any Common Shares that otherwise would be
issued to him or her or by surrendering all or a portion of any Common Shares
that he or she previously acquired. Such Common Shares shall be valued at their
Fair Market Value on the date when taxes otherwise would be withheld in cash.
Any payment of taxes by assigning Common Shares to the Company may be subject to
restrictions, including any restrictions required by rules of the Securities and
Exchange Commission.
ARTICLE 15. ASSIGNMENT OR TRANSFER OF AWARDS.
15.1 General. An Award granted under the Plan shall not be anticipated,
assigned, attached, garnished, optioned, transferred or made subject to any
creditor's process, whether voluntarily, involuntarily or by operation of law,
except as approved by the Committee. Notwithstanding the foregoing, ISOs may not
be transferable. However, this Article 0 shall not preclude a Participant from
designating a beneficiary who will receive any outstanding Awards in the event
of the Participant's death, nor shall it preclude a transfer of Awards by will
or by the laws of descent and distribution.
15.2 Trusts. Neither this Article 0 nor any other provision of the Plan
shall preclude a Participant from transferring or assigning Restricted Shares to
(a) the trustee of a trust that is revocable by such Participant alone, both at
the time of the transfer or assignment and at all times thereafter prior to such
Participant's death, or (b) the trustee of any other trust to the extent
approved in advance by the Committee in writing. A transfer or assignment of
Restricted Shares from such trustee to any person other than such Participant
shall be permitted only to the extent approved in advance by the Committee in
writing, and Restricted Shares held by such trustee shall be subject to all of
the conditions and restrictions set forth in the Plan and in the applicable
Stock Award Agreement, as if such trustee were a party to such Agreement.
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ARTICLE 16. FUTURE OF THE PLAN.
16.1 Term of the Plan. The Plan, as set forth herein, was adopted on
December 8, 1996, and shall become effective as of such date. The Plan shall
remain in effect until it is terminated under Section 0, except that no ISOs
shall be granted after December 7, 2006.
16.2 Amendment or Termination. The Board may, at any time and for any
reason, amend or terminate the Plan. An amendment of the Plan shall be subject
to the approval of the Company's stockholders only to the extent required by
applicable laws, regulations or rules. No Awards shall be granted under the Plan
after the termination thereof. The termination of the Plan, or any amendment
thereof, shall not affect any Award previously granted under the Plan.
ARTICLE 17. DEFINITIONS.
17.1 "Award" means any award of an Option or a Restricted Share under the
Plan.
17.2 "Board" means the Company's Board of Directors, as constituted from
time to time.
17.3 "Change in Control" shall be determined by the Committee. The term
"Change in Control" shall not include a transaction, the sole purpose of which
is to change the state of the Company's incorporation.
17.4 "Code" means the Internal Revenue Code of 1986, as amended.
17.5 "Committee", means a committee of the Board, as described in
Article 2.
17.6 "Common Share" means one share of the common stock of the Company.
17.7 "Company" means InterVU Inc., a Delaware corporation.
17.8 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
17.9 "Exercise Price," in the case of an Option, means the amount for
which one Common Share may be purchased upon exercise of such Option, as
specified in the applicable Stock Option Agreement.
17.10 "Fair Market Value" means the market price of Common Shares,
determined by the Committee as follows;
(a) If the Common Shares were traded over-the-counter on the date in
question but was not traded on the Nasdaq system or the Nasdaq National Market
System, then the Fair Market Value shall be equal to the mean between the last
reported repre-
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sentative bid and asked prices quoted for such date by the principal automated
inter-dealer quotation system on which the Common Shares are quoted or, if the
Common Shares are not quoted on any such system, by the "Pink Sheets" published
by the National Quotation Bureau, Inc.;
(b) If the Common Shares were traded over-the-counter on the date in
question and were traded on the Nasdaq system or the Nasdaq National Market
System, then the Fair Market Value shall be equal to the last transaction price
quoted for such date by the Nasdaq system or the Nasdaq National Market System;
(c) If the Common Shares were traded on a stock exchange on the date in
question, then the Fair Market value shall be equal to the closing price
reported by the applicable composite transactions report for such date; and
(d) If none of the foregoing provisions is applicable, then the Fair
Market value shall be determined by the Committee in good faith on such basis as
it deems appropriate.
Whenever possible, the determination of Fair Market Value by the Committee shall
be based on the prices reported in the Western Edition of The Wall Street
Journal. Such determination shall be conclusive and binding on all persons.
17.11 "ISO" means an incentive stock option described in section 422(b) of
the Code.
17.12 "Key Employee" means (a) a common law employee of the Company, a
Parent or a Subsidiary, (b) an Outside Director and (c) a consultant or adviser
who provides services to the Company, a Parent or a Subsidiary as an independent
contractor. Service as an Outside Director or as an independent contractor shall
be considered employment for all purposes of the Plan, except as provided in
Sections 4.2 and 4.3.
17.13 "NSO" means a stock option not described in sections 422 or 423 of
the Code.
17.14 "Option" means an ISO or NSO granted under the Plan and entitling
the holder to purchase one Common Share.
17.15 "Optionee" means an individual or estate who holds an Option.
17.16 "Outside Director" shall mean a member of the Board who is not a
common-law employee of the Company, a Parent or a Subsidiary.
17.17 "Parent" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain. A corporation that attains the status of a Parent on
a
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date after the adoption of the Plan shall be considered a Parent commencing as
of such date.
17.18 "Participant" means an individual or estate who holds an Award.
17.19 "Plan" means this 1996 Stock Plan of InterVU Inc., as amended from
time to time.
17.20 Restricted Share" means a Common Share awarded under the Plan.
17.21 "Stock Award Agreement" means the agreement between the Company and
the recipient of a Restricted Share which contains the terms, conditions and
restrictions pertaining to such Restricted Share.
17.22 "Stock Option Agreement" means the agreement between the Company and
an Optionee which contains the terms, conditions and restrictions pertaining to
his or her Option.
17.23 "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain. A corporation that attains
the status of a Subsidiary on a date after the adoption of the Plan shall be
considered a Subsidiary commencing as of such date.
ARTICLE 18. EXECUTION.
To record the adoption of the Plan by the Board, the Company has caused
its duly authorized officer to affix the corporate name and seal hereto.
INTERVU INC.
By__________________________________
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EXHIBIT 10.6
STRATEGIC ALLIANCE AGREEMENT
This Strategic Alliance Agreement (this "Agreement"), dated as of
October 10, 1997 (the "Effective Date"), is by and between INTERVU INC., a
Delaware corporation, ("InterVU"), and NBC MULTIMEDIA, INC., a Delaware
corporation ("NBC").
RECITALS
A. Concurrently with the execution and delivery of this Agreement, and
pursuant to the terms and conditions of that certain Stock Purchase Agreement of
even date herewith (the "Stock Purchase Agreement") by and between InterVU and
the National Broadcasting Company, Inc. ("NBCI"), which is NBC's parent company,
InterVU shall issue and NBCI shall subscribe for and purchase 1,280,000 shares
(the "Purchased Shares") of preferred stock of InterVU, Series G.
B. As a condition to such issuance of the Purchased Shares by InterVU,
and the purchase thereof by NBCI, the parties wish to enter into this Agreement
pursuant to which, and subject to the terms and conditions set forth below,
InterVU shall be the exclusive provider of technology and services for the
distribution of, and audio/visual presentation to users of, entertainment (i.e.,
excluding sports, news and other non-entertainment programming) audio/video
content (including audio only portions) by means of the Internet (as defined
below), the distribution of which audio/video content (including audio only
portions) are Controlled (as defined below) by NBC.
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein set forth, the parties hereto agree as follows:
AGREEMENT
SECTION 1 - DEFINITIONS
Certain Definitions. The following terms, as used herein, have
the following meanings:
"Adult Video Content" shall mean any audio and/or video material which
is pornographic or which contains nudity, explicit sexual material or depictions
of sexual acts any of which is beyond that normally broadcast over the NBC
Television Network.
"Common Stock" shall mean the common stock of InterVU, par value $.001
per share.
"Control" shall mean, with respect to any distribution channel or
source of any content, the ability to control, and the actual control, including
the final approval right, of the presentation of content on such distribution
channel or source.
"Initial Public Offering" shall mean the first public offering of Common
Stock to the general public which is effected pursuant to a registration
statement filed with, and declared effective by, the Securities and Exchange
Commission under the Securities Act of 1933, as amended, and the rules
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and regulations promulgated thereunder, the aggregate proceeds of which exceed
Ten Million Dollars ($10,000,000).
"Internet" shall mean (i) the distributed interactive computer network
commonly referred to as the internet, and (ii) any other interactive on-line or
distributed computer network distribution methods in their current form as of
the date hereof, including, without limitation, America Online, @Home, Road
Runner, CompuServe and Prodigy, that is supported by the InterVU Delivery
System. The term Internet shall not include any traditional analog or digital
broadcast or distribution medium (e.g., traditional analog or digital broadcast
and digital or analog cable or satellite transmission) by which television,
film, other audio/visual or textual programming is disseminated to viewers.
"InterVU Logo" shall mean that registered design trademark of InterVU
that is indicated on Exhibit A hereto or such other trademarks, service marks,
designs or logos as InterVU may designate.
"InterVU Site" shall mean, collectively, the World Wide Web site that
has as its universal resource locator (URL) "www.intervu.net" and such other
Internet sources, sites or "areas" as may be Controlled by InterVU hereafter.
"InterVU Delivery Centers" shall mean the Internet file servers
Controlled by InterVU that are used together with the InterVU Delivery System
for the distribution of audio/video content (including audio only portions) to
users over the Internet.
"InterVU Delivery System" shall mean the on-demand audio/video content
(including audio only portions) transmission and distribution network system
developed by InterVU and more fully described on Exhibit B hereto.
"MSNBC" shall mean MSNBC Interactive News L.L.C., MSNBC Cable L.L.C. or
any entity which is a successor of the business of such entities.
"NBC Internet Sites" shall mean the world wide site operated by NBC with
the URL address of www.nbc.com ("NBC.com") and those aspects of the NBC
Interactive Neighborhood syndication platform which are Controlled by NBC
("NBC-IN").
"Revenue Sharing Area" shall mean a new "area" to be created and placed
by NBC upon NBC.com in connection with this Agreement, including all pages, HTML
documents or other screens or interfaces within such "area", which will be
designed solely to allow (a) the distribution, transmission or making available
for downloading NBC Audio/Video Clips, (b) the promotion, marketing or
advertising of the availability of NBC Audio/Video Clips for distribution,
transmission or downloading, and/or (c) the promotion, marketing or advertising
of the NBC/InterVU business relationship and which will be mutually agreed upon
by the parties. In addition, if the parties are able to mutually agree upon any
additional Internet sites or "areas" which have the characteristics described in
the previous sentence, then each such new site or "area" shall also be
considered a Revenue Sharing Area for purposes hereof.
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1.1 Other definitions. The following terms shall have the meanings
defined for such terms in the Sections set forth below:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Costs 3.1.1
InterVU Advertising 5.1
Net Revenues 4.2
NBC Audio/Video Clip 2.1
Prepayment 4.4
Production Costs 4.4
Referral Fees 5.2.2
Revised Standards 2.4.2
</TABLE>
SECTION 2 - DELIVERY OF SERVICES
2.1 Preparation, Delivery of Content. NBC shall create digital versions
of all entertainment (i.e., excluding sports, news and other non-entertainment
programming) audio/video content (including audio only portions) that it desires
to make available for downloading, to distribute or to transmit via NBC Internet
Sites ("NBC Audio/Video Clip"), provided that for a period of six (6) months
following the Effective Date InterVU shall provide such digitization services
required to create digital versions of the NBC Audio/Video Clips, up to a
maximum of fifty (50) one-minute video clips per month of encoding (per format),
the expense of which shall be included as a Cost within the cost sharing
provisions of Section 3.1. NBC shall determine the data format (e.g., MPEG or
ASF ) in which the NBC Audio/Video Clip shall be transmitted and, if applicable,
the video viewing software products with which the NBC Audio/Video Clip shall be
compatible (e.g., "Real Video" or "NetShow"); provided, however, that such NBC
Audio/Video Clip shall be compatible with, and shall be capable of being
distributed from and viewed by means of, the InterVU Delivery System from
InterVU Delivery Centers as long as InterVU supports any data format and/or
video viewing software products reasonably required by NBC within a reasonable
time after new versions of such products are released, including the streaming
products of the following entities: Apple, Real Networks, Macromedia, Microsoft,
VDO, Vivo Software and VXtreme. InterVU shall provide technical assistance to
NBC in connection with the digitization of the NBC Audio/Video Clip by NBC
including without limitation providing a description of any needed technical
standards or other specifications and providing a reasonable amount of training
for the NBC personnel who will be responsible for such digitization. InterVU
agrees that it shall provide NBC with a designated InterVU employee who will be
made reasonably available to NBC's technical and other personnel in connection
with the activities described herein.
2.2 Placement of NBC Audio/Video Clips. Subject to Section 2.5, NBC may
from time to time make NBC Audio/Video Clips available to users over the
Internet from such Internet sources as NBC elects as set forth in this Section
2.2.
2.2.1 NBC shall from time to time provide copies of all NBC
Audio/Video Clips to InterVU for distribution to, and storage at, each
of the InterVU Delivery Centers. InterVU may distribute additional
copies of NBC Audio/Video Clips to, and store at, additional
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InterVU Delivery Centers as they are made available for access via the
Internet. In the event that any existing NBC Audio/Video Clip is
changed, NBC shall provided updated or replacement copies for such NBC
Audio/Video Clip, whereafter InterVU shall within a reasonably prompt
period, not to exceed thirty (30) minutes from the time of InterVU's
receipt thereof (or such later time as NBC may specify), make any and
all such updated or replacement NBC Audio/Video Clips available from all
of the then-available InterVU Delivery Centers. In addition, during the
time period when InterVU is providing digitization services pursuant to
Section 2.1, InterVU shall both digitize any updated and replacement NBC
Audio/Video Clips specifically indicated by NBC and make such updated or
replacement NBC Audio/Video Clips available from all of the
then-available InterVU Delivery Centers within a time period not to
exceed one (1) business day (or such later time as NBC may specify). NBC
shall determine, and shall provide sufficiently detailed information to
InterVU describing, the schedule of when each of such NBC Audio/Video
Clips shall be made accessible to users.
2.2.2 NBC shall, in its sole discretion but subject only to
Section 6.1, determine what materials and content shall be incorporated
into the NBC Audio/Video Clips. NBC may at any time and from time to
time, direct InterVU to remove, restrict or prevent access to any NBC
Audio/Video Clip by means of the InterVU Delivery System.
2.3 Delivery Services. InterVU shall store the NBC Audio/Video Clips at
each of the InterVU Delivery Centers as set forth above and shall transmit the
NBC Audio/Video Clips on demand to users via the Internet in response to
requests from such users. The InterVU Delivery System shall provide a successful
user connection rate of at least, or greater than, ninety-eight percent (98%),
and from time to time, InterVU shall provide verification to NBC of such rate
within a reasonable time period following a request therefor from NBC. As of the
date hereof, the InterVU Delivery System shall, in addition to any
specifications set forth within the body of this Agreement, conform to the
specifications set forth on Exhibit B hereto, provided, however, that NBC
acknowledges that such specifications shall be subject to change as long as the
overall level of quality of the services provided by InterVU hereunder,
including, but not limited to, the capacity levels and user connection success
rates, is not reduced.
2.4 Maintenance, Support.
2.4.1 InterVU Delivery Centers. Subject only to Section 3,
InterVU shall be solely responsible for the design, maintenance,
support, upkeep and administration of the InterVU Delivery Centers.
2.4.2 InterVU Delivery System. Subject only to Section 3,
InterVU shall be solely responsible for the design, maintenance,
support, upkeep and administration of the InterVU Delivery System.
InterVU may update, upgrade and/or revise the InterVU Delivery System at
any time in its sole discretion. In the event of any such update,
upgrade or revision, InterVU shall provide NBC with a description of any
needed technical standards or other specifications (the "Revised
Standards") that will thereafter be required by NBC in order to ensure
that subsequent NBC Audio/Video Clips are compatible with the InterVU
Delivery System; provided, however, that such Revised Standards must
give NBC the ability to provide NBC Audio/Video Clips using any of the
formats and/or software described in
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Section 2.1 and must retain the overall level of quality of the services
provided by InterVU hereunder, including, but not limited to, the
capacity levels and user connection success rates, and if the imposition
of such Revised Standards would require NBC to assume any additional
costs in connection with its activities described herein, the parties
shall mutually agree upon how such additional NBC costs will be shared
between the parties.
2.5 Restrictions. Without limiting any of the other terms or conditions
set forth in this Agreement, NBC shall not make, and InterVU shall not be
required to make, any NBC Audio/Video Clip stored at an InterVU Delivery Center
or utilizing the InterVU Delivery System accessible from any source or other
distribution channel other than on the Internet.
2.6 Exclusivity. Except as otherwise provided in this Agreement or
unless otherwise agreed by InterVU in writing in advance, during the Exclusive
Term (as hereinafter defined) NBC will not make available for transmission over
the Internet any entertainment (i.e., excluding sports, news and
non-entertainment programming) audio/video content (including audio only
portions), other than audio/video content, including clips and digital files, of
less than 5 seconds if measured by duration or of some other reasonably small
number of bytes if measured by file size, in any audio/visual format to users
via NBC Internet Sites unless such entertainment audio/video content is being
made available for transmission over the Internet pursuant to this Agreement;
provided, however, that the parties acknowledge that this Section 2.6 shall in
no way prevent NBC from providing NBC Audio/Video Clips or any other kind of
entertainment audio/video clips or other materials for unrestricted use on, or
distribution via, any Internet site or "area" which is not an NBC Internet Site.
If InterVU is unable to provide the services described herein to NBC for a
period of more than twenty-four (24) hours or is unable to provide the amount
and level of service required by NBC at any time, including, but not limited to,
the number of concurrent audio/video streams required by NBC, then
notwithstanding the terms hereof, NBC may obtain such services from any third
party until such time as InterVU is able to adequately provide such services
(following a reasonable transition period from the third party back to InterVU)
or NBC terminates this Agreement as provided in Section 2.8.5 below. In
addition, while NBC agrees that it will use commercially reasonable efforts to
utilize InterVU's services as described herein in connection with all of its
activities involving the transmission over the Internet of entertainment
audio/video content via NBC Internet Sites as required above, if any of the type
of distributors described in the definition of "Internet" above cannot or refuse
to permit NBC to utilize InterVU's services in connection with their particular
distribution method or InterVU is not able to provide such services in
connection with such particular distribution method at a level of quality
reasonably comparable to that of other relevant third party providers, then NBC
shall not be bound by the terms of this Section 2.6 in connection with such
distribution method.
2.7 Exclusive Term. The term of this Agreement (the "Exclusive Term")
shall be the period beginning on the Effective Date and ending on the second
anniversary of the Effective Date, provided, however that if certain mutually
agreed cost and revenue goals are established and met, then the Exclusive Term
shall be automatically extended until the fourth anniversary of the Effective
Date. 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 the first anniversary of the Effective Date.
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2.8 Early Termination.
2.8.1 Prior to an Initial Public Offering. During the Exclusive
Term and prior to the consummation of an Initial Public Offering, NBC
may terminate this Agreement without cause by giving ninety (90) days
prior written notice to InterVU. Any such notice must be accompanied by,
and actual termination of this Agreement at the end of the ninety (90)
days shall be expressly conditioned upon, NBCI's or NBC's return, for no
compensation, of the following number of Purchased Shares in the
following periods: (i) all 1,280,000 of the Purchased Shares, if notice
is given in months one (1) through six (6) of the Exclusive Term; (ii)
900,000 of the Purchased Shares, if notice is given in months seven (7)
through twelve (12) of the Exclusive Term, (iii) 380,000 of the
Purchased Shares, if notice is given in months thirteen (13) through
twenty-four (24) of the Exclusive Term and (iv) no Purchased Shares, if
notice is given after month twenty-four (24) of the Exclusive Term if
such term is extended as provided herein; provided, however, that
neither NBCI nor NBC shall be required to return any such Purchased
Shares until such date as NBC receives all of the Prepayments owed
pursuant to Sections 4.4 and 4.5.1.
2.8.2 Following an Initial Public Offering. Any time after the
date on which InterVU consummates an Initial Public Offering which is
during the Exclusive Term, NBC may terminate this Agreement without
cause by giving ninety (90) days prior written notice to InterVU. Any
such notice must be accompanied by, and actual termination of this
Agreement at the end of the ninety (90) days shall be expressly
conditioned upon, NBCI's or NBC's return, for no compensation, of either
(i) all of the shares of InterVU Common Stock held by each party, or
both parties, if such termination becomes effective prior to the date
which is three (3) months following the Effective Date and NBC has not
for at least a three (3) month period complied with the intent of this
Agreement or, at a minimum, displayed a button or link containing a copy
of the InterVU Logo somewhere on NBC.com, the location of which shall be
selected by NBC in its sole discretion, or (ii) 600,000 shares of
InterVU Common Stock if such termination becomes effective at any other
time during the first two (2) years of the Exclusive Term; provided,
however, that neither NBCI nor NBC shall be required to return any such
Common Stock until such date as NBC receives all of the Prepayments owed
pursuant to Sections 4.4 and 4.5.1.
2.8.3 Following a Material Breach by NBC. In the event that NBC
commits a material breach of this Agreement, InterVU shall provide NBC
with written notice of such breach, and if NBC fails to cure such breach
within thirty (30) days of receipt of such written notice, this
Agreement shall immediately terminate at the end of such cure period.
Upon a termination pursuant to this Section 2.8.3, NBC shall return the
Purchased Shares, if any, which it would have been otherwise required to
return pursuant to the terms of Section 2.8.1 or Section 2.8.2,
whichever is relevant. This right of termination shall be in addition to
all other rights and remedies at law or in equity.
2.8.4 Following a Material Breach by InterVU. In the event that
(i) the services provided by InterVU hereunder materially decline below
industry standards or fail to conform to the specifications in Exhibit B
hereto or any Revised Standards or (ii) InterVU provides any audio/video
material other than NBC Audio/Video Clips to NBC's users or provides any
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NBC Audio/Video Clips in a manner not approved by NBC, NBC shall notify
InterVU of such fact in writing, and if InterVU fails to cure such
problem in a manner which is reasonably satisfactory to NBC within ten
(10) business days of its receipt of such written notice and such
failure to cure is not due to circumstances beyond the Control of
InterVU, this Agreement shall immediately terminate at the end of such
cure period. In the event that InterVU commits any other material breach
of this Agreement not described above, which breach is material, NBC
shall provide InterVU with written notice of such breach, and if InterVU
fails to cure such breach within thirty (30) days of its receipt of such
written notice, this Agreement shall immediately terminate at the end of
such cure period. Upon a termination pursuant to the terms of this
Section 2.8.4, NBC shall not be required to return the Purchased Shares,
if any, which it would have been otherwise been required to return
pursuant to the terms of Section 2.8.1 or 2.8.2. This right of
termination shall be in addition to all other rights and remedies at law
or in equity.
2.9 Adult Video Content.
2.9.1 Distribution. InterVU represents and warrants that the
InterVU Delivery Centers and the InterVU Delivery System are not
currently used, and shall not be used in the future, in connection with
the encoding or distribution of Adult Video Content. If InterVU allows
the InterVU Delivery Centers and/or the InterVU Delivery System to be
used to encode and/or distribute any Adult Video Content, about which
InterVU has notice of any kind, then it shall immediately provide NBC
with written notice of such fact which notice shall be effective as of
the date described in Section 8.10. In addition, if NBC determines, in
its sole discretion, that the InterVU Delivery Centers and/or the
InterVU Delivery System are being used to encode and/or distribute Adult
Video Content, then NBC shall notify InterVU of such fact which notice
shall be effective as of the date described in Section 8.10. In either
case, InterVU shall have five business (5) days from the effective date
of such notice to discontinue such encoding and/or distribution to NBC's
satisfaction. If InterVU fails to do so within such time and if, at such
time, whether pursuant to the Stock Purchase Agreement, an effective
registration statement or Rule 144 (i) NBCI or NBC, as the case may be,
may not immediately sell all of the Purchased Shares or Conversion
Shares held by it or (ii) NBC is precluded from immediately selling all
of the Common Stock purchased by it in the Directed Offering (as all
such terms are defined in the Stock Purchase Agreement), then such
failure shall constitute a breach of this Section 2.9.1, and NBC shall
have the option of exercising the remedies set forth below in Section
2.9.2.
2.9.2 Remedies. InterVU hereby acknowledges the extreme
importance to NBC and NBCI of InterVU's agreement not to permit the
encoding or distribution of Adult Video Content as described herein.
Therefore, the parties agree that money damages, which the parties agree
would be substantial and irreparable, would not be a sufficient remedy
for any breach by InterVU of the terms of Section 2.9.1, and NBC shall
be entitled to, and InterVU shall not oppose, specific performance and
immediate injunctive relief, as well as any other appropriate equitable
relief, in connection therewith without the requirement of posting a
bond or other security. In addition to any of the applicable indemnity
obligations described in Section 7.2, InterVU agrees that it shall
reimburse NBC for any and all reasonable legal or other costs and
expenses incurred by NBC in
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connection with NBC's seeking and/or obtaining such specific performance
or injunction as described in this Section 2.9.2. The remedies described
in this Section 2.9.2 shall not be deemed to be the exclusive remedies
for a breach of Section 2.9.1 by InterVU, but shall be in addition to
all other remedies available at law or in equity to the parties hereto.
SECTION 3 - COST SHARING
3.1 Cost Sharing, Contribution.
3.1.1 Prior to an Initial Public Offering. Beginning on the
Effective Date and prior to the consummation of an Initial Public
Offering, InterVU shall bear the cost of servicing NBC as described
herein, including without limitation all out of pocket expenses and
man-hours plus an allocation of related overhead which shall be deemed
to be equal to twenty percent (20%) of the total out of pocket expenses
and man hours (the "Costs") incurred during each calendar month, up to a
maximum aggregate amount of $10,000 per month (representing, as of the
Effective Date, the approximate Cost of delivering at least 100
gigabytes). If additional delivery capacity or other InterVU services
are needed, InterVU shall notify NBC in writing, and InterVU and NBC
shall negotiate in good faith the percentage of such Costs to be paid by
each party if NBC chooses to continue to provide NBC Audio/Video Clips
during such month. InterVU may elect not to expend more than $10,000 per
month on Costs; however, upon such election, NBC shall be permitted to
use additional delivery services from third parties notwithstanding the
exclusivity provisions of Section 2.6 herein.
3.1.2 Following an Initial Public Offering. For each full
calendar month, or pro rated portion thereof, beginning on date on which
InterVU consummates an Initial Public Offering, NBC shall reimburse
InterVU for the Costs, if any, actually incurred by InterVU in
connection with the actual delivery of NBC Audio/Video Clips as
described hereunder during each calendar month; provided, however, that
NBC shall only be required to reimburse Costs in excess of $10,000 per
month in the aggregate if either (i) such Costs are approved by NBC in
writing in advance or (ii) are incurred by InterVU in connection with
projects, operations or activities that have been approved by NBC in
advance in a writing which describes the amount of additional Costs
which will be incurred in connection with such projects, operations or
activities.
3.1.3 Nature of Payments. All payments of Costs hereunder shall
be in addition to all other payment obligations between the parties.
3.2 Accounting Records.
3.2.1 Invoicing. With respect to all Costs that are to be
reimbursed by NBC pursuant to Section 3.1 or standard rates that are to
be paid by NBC pursuant to Section 4.3, InterVU shall deliver an invoice
to NBC with respect to such amounts within ten (10) days after the end
of the monthly accounting period in which such Costs were incurred or to
which such standard rates apply and NBC shall pay such invoices within
forty-five (45) days after receipt of such invoice from InterVU. Any
failure by NBC to pay the amounts set forth in an invoice shall be a
material breach of this Agreement in the event that NBC does not cure
such failure in full within thirty (30) days of receipt of written
notice of such breach.
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3.2.2 Audit. NBC shall have the right, at its expense and on
thirty (30) days written notice, to have an independent certified public
accountant audit the records of InterVU to verify the information stated
on the monthly invoice. Records subject to audit under this Section
3.2.2 shall extend no more than three (3) years prior to the request
date. If such audit indicates an overbilling by InterVU, InterVU shall
promptly reimburse NBC for the amount overbilled. If such overbillings
are greater than five percent (5%) of the total invoice amount, pursuant
to Section 3.1 above, with respect to such audited periods, InterVU
shall also reimburse NBC for the cost of the audit. NBC may exercise its
right to audit no more than once per year or once per quarter for the
four quarters following any quarter in which an audit indicated an
overbilling of greater than five percent (5%). Audit scheduling shall be
by mutual agreement (which agreement shall not be unreasonably withheld)
and must be completed within ten (10) working days. Copies of all audit
reports shall be furnished to both InterVU and NBC and shall be
considered confidential information of InterVU.
SECTION 4 - REVENUE SHARING AND ADVERTISING COSTS
4.1 Incorporation of NBC Audio/Video Clips into Sites. Subject to
Section 2.5, NBC may make the NBC Audio/Video Clips available to users over the
Internet from such Internet sources as NBC elects.
4.2 Revenue Sharing. InterVU shall be entitled to receive, and NBC shall
pay to InterVU within forty-five (45) days of the end of each quarterly
accounting period, thirty percent (30%) of the total of all actual NBC receipts
in cash from advertising, transactions and subscriptions directly attributable
to any Revenue Sharing Area less discounts, bad debts, sales taxes, actual
returns, agency commissions, and all out of pocket expenses and man-hours
directly incurred in connection with creating (other than expenses related to
the creation of any relevant web site), selling and fulfilling such advertising,
transactions and subscriptions ("Net Revenues"). In addition, if NBC receives
any barter from third parties, that is not barter that the parties reasonably
agree accrues to the benefit of the Revenue Sharing Area, in exchange for
placing advertising or promotional material in any Revenue Sharing Area ("Barter
Ads"), then NBC shall use reasonable efforts to first attempt to share thirty
percent (30%) of such Barter Ads with InterVU if permissible, and then, to the
extent that NBC cannot do so, to provide InterVU with an amount of comparable
advertising or promotion on the NBC Internet Sites or on any Internet site on
which NBC Controls the placement of advertising and makes available to InterVU
for the purposes hereof so that InterVU receives total Barter Ads equal to
thirty percent (30%) of the total amount of Barter Ads provided to third
parties.
4.3 Election to Pay Standard Rates. With regard to any Internet source,
site or "area" that would otherwise be a Revenue Sharing Area, NBC may elect, at
any time, for any such site to pay for InterVU's service at video service
delivery rates which are at least as favorable as the most favorable video
service delivery rates offered to any other third party by InterVU, other than
certain short term (i.e, no more than six (6) month) promotional video service
delivery rates offered by InterVU from time to time, and such site shall
thereafter no longer be subject to revenue sharing pursuant to Section 4.2
hereof.
4.4 Production Cost and Advertising Contribution. Upon the completion of
the events described in Section 2 of the Stock Purchase Agreement, InterVU shall
become fully obligated to
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pay to NBC a total of Two Million Dollars ($2,000,000) in a series of
non-refundable payments to NBC (the "Prepayments") as described below in Section
4.5 as payment for and prepayment of (i) the costs of producing and operating
the Revenue Sharing Area (the "Production Costs") both prior to and following
the date of the events described in Section 2 of the Stock Purchase Agreement
which Production Costs may include, but shall not be limited to, costs related
to NBC's fully-loaded 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 twenty
percent (20%) of all production and operation costs and/or (ii) the costs of
advertising and promotions, including any expenses related thereto, to be placed
by InterVU for its own use from NBC for placement on the NBC Internet Sites or
for placement on any Internet site on which NBC Controls the placement of
advertising and makes available to InterVU for the purposes hereof (the "InterVU
Advertising") over a three (3) year period following the date of payment
thereof. Placement of InterVU Advertising on NBC Internet Sites shall be subject
to the availability of inventory thereon, compliance with NBC's standard terms,
conditions and policies, a requirement that all pre-paid amounts be utilized
within a three (3) year period, and the completion of the events described in
Section 2 of the Stock Purchase Agreement, provided that NBC shall not be
required to provide any such InterVU Advertising at any particular time if NBC
has already fully earned the total amount of Prepayments actually made to NBC by
InterVU up to such time. The parties agree that the InterVU Advertising, and any
expense related thereto, shall be valued at NBC's customary rates offered to
third party advertisers as in effect at the time that such InterVU Advertising
is displayed, provided that certain short term (i.e, no more than six (6) month)
promotional rates offered by NBC from time to time shall not be considered when
determining such customary rates. InterVU's obligation to make the Prepayments,
and NBC's obligation to provide InterVU Advertising and/or incur Production
Costs up to the amount of the Prepayment shall survive the termination of this
Agreement.
4.5 Payments and Accounting Records.
4.5.1 Payment of Prepayments. InterVU shall be obligated to make
the following payments to NBC in connection with the Prepayments on the
indicated dates: Seven Hundred and Fifty Thousand Dollars ($750,000)
immediately upon the completion of a Directed Offering; Five Hundred
Thousand Dollars ($500,000) upon the end of the first calendar quarter
occurring after the successful completion of the Directed Offering
(regardless of the actual amount of time between the Directed Offering
and the end of the quarter); Five Hundred Thousand Dollars ($500,000)
upon the end of the second calendar quarter occurring after the
successful completion of the Directed Offering; and Two Hundred and
Fifty Thousand Dollars ($250,000) upon the end of the third calendar
quarter occurring after the successful completion of the Directed
Offering; provided, however that if this Agreement is terminated for any
reason all unpaid Prepayments shall become immediately due and payable
to NBC.
4.5.2 Quarterly Reports. NBC shall maintain complete and
accurate records of all information necessary to calculate the Net
Revenues, the Production Costs and the price of any InterVU Advertising
as well as the expenses related thereto run during such quarter,
including without limitation copies of all invoices, billing records and
payment records. NBC shall submit a report to InterVU containing the
above information with each quarterly
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payment, if any, to InterVU. Such report shall also reflect the amount
of the Prepayment, if any, that has been earned by NBC over such quarter
in connection with the Production Costs and the InterVU advertising.
4.5.3 Audit. InterVU shall have the right, at its expense and on
thirty (30) days written notice, to have an independent certified public
accountant audit the records of NBC to verify the information provided
in the quarterly reports. Records subject to audit under this Section
4.5.2 shall extend no more than three (3) years prior to the request
date. If such audit indicates an underpayment or overbilling by NBC, NBC
shall promptly make the necessary corrective payments. If such
underpayments or overbillings are greater than five percent (5%) of the
shared revenues or billings that were required to have been paid,
pursuant to Section 4.2 or 4.4 above, with respect to such audited
periods, NBC shall also reimburse InterVU for the cost of the audit.
InterVU may exercise its right to audit no more than once per year or
once per quarter for the four quarters following any quarter in which an
audit indicated an underpayment or overbilling of greater than five
percent (5%). Audit scheduling shall be by mutual agreement (which
agreement shall not be unreasonably withheld) and must be completed
within ten (10) working days. Copies of all audit reports shall be
furnished to both NBC and InterVU and shall be considered confidential
information of NBC.
SECTION 5 - PROMOTIONAL OBLIGATIONS
5.1 Promotional Obligations of NBC.
5.1.1 Promotion. NBC shall use commercially reasonable efforts
to promote InterVU, the InterVU Delivery Centers and the InterVU
Delivery System in conjunction with Internet advertising promotions
involving InterVU's dissemination of NBC Audio/Video Clips over the
Internet wherever NBC believes, in its reasonable discretion, that it is
appropriate. Any button or link by which an user may initiate the
downloading and viewing of an NBC Audio/Video Clips on an NBC Internet
Site shall (i) include on or nearby (i.e., on the same page) such button
or link a copy of the InterVU Logo which shall be in a form and size to
be mutually agreed upon by the parties and which shall be a link to the
InterVU Site, and (ii) conform to any reasonable technical
specifications provided by InterVU with respect to compatibility with
the InterVU Delivery System (e.g., information necessary for an user to
access the appropriate InterVU Delivery Center as determined by the
InterVU Delivery System).
5.1.2 Referral. For a period of two (2) years after the
Effective Date, NBC shall use commercially reasonable efforts to
introduce InterVU, the InterVU Delivery Centers and the InterVU Delivery
System to the television stations associated with the NBC Television
Network and to refer other programming opportunities for the Internet to
InterVU to the extent that NBC believes, in its reasonable discretion,
such introductions or referrals are appropriate. For each such referral,
NBC shall receive a commission from InterVU for a period of two (2)
years after the commencement of a service relationship between InterVU
and the company referred to InterVU by NBC, in an amount equal to ten
percent (10%) of
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InterVU's video delivery service revenue (but not production fees)
generated from such referral (the "Referral Fees").
5.2 Promotional Obligations of InterVU.
5.2.1 NBC Link. NBC authorizes InterVU to, and InterVU shall,
include on the multimedia manager of the InterVU Site an "NBC" icon
which links to the World Wide Web site that has as its universal
resource locator (URL) "www.nbc.com".
5.2.2 Advertising. For a period of four (4) years after the
Effective Date, InterVU shall use commercially reasonable efforts to
offer NBC the right to place video advertising InterVU procures for the
InterVU Site and other web sites serviced by InterVU on the NBC Internet
Sites in exchange for payments to NBC at InterVU's customary rates and
terms.
5.3 Accounting Records.
5.3.1 Quarterly Reports. InterVU shall maintain complete and
accurate records of all information necessary to calculate the Referral
Fees and any amounts owed by InterVU pursuant to Section 5.3.2,
including without limitation copies of all invoices, billing records and
payment records with respect to the service fees incurred by entities
referred to InterVU by NBC and any advertising provided by NBC for which
InterVU owes payment. InterVU shall submit a report to NBC containing
the above information with each quarterly payment to NBC.
5.3.2 Audit. NBC shall have the right, at its expense and on
thirty (30) days written notice, to have an independent certified public
accountant audit the records of InterVU to verify the information
provided in the monthly reports. Records subject to audit under this
Section 5.3.2 shall extend no more than three (3) years prior to the
request date. If such audit indicates an underpayment by InterVU,
InterVU shall promptly make the necessary corrective payments. If such
underpayments are greater than five percent (5%) of the shared revenues
that were required to have been paid, pursuant to Sections 5.2.2 or
5.3.1 above, with respect to such audited periods, InterVU shall also
reimburse NBC for the cost of the audit. NBC may exercise its right to
audit no more than once per year or once per quarter for the four
quarters following any quarter in which an audit indicated an
underpayment of greater than five percent (5%). Audit scheduling shall
be by mutual agreement (which agreement shall not be unreasonably
withheld) and must be completed within ten (10) working days. Copies of
all audit reports shall be furnished to both NBC and InterVU and shall
be considered confidential information of InterVU.
SECTION 6 - REPRESENTATIONS AND WARRANTIES; LIMITATIONS
6.1 NBC's Representation and Warranty. NBC hereby represents and
warrants to InterVU, as of Effective Date, as of each date on which NBC
continues or adds new or modified NBC Audio/Video Clips to be hosted by use of
the InterVU Delivery Centers and the InterVU Delivery System, and as of each
date on which the Exclusive Term of this Agreement is actually extended pursuant
to Section 2.7 above, that, to the best of NBC's knowledge, none of the NBC
Audio/Video Clips (i) violate any international, United States, foreign, state,
local or other applicable law,
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regulation, rule or order of any applicable regulatory authority or court of
competent jurisdiction, (ii) infringe or constitute the unauthorized use of any
patent right, copyright, trademark, service mark, trade name or other
intellectual property right of any third party, (iii) constitute, are based on
or involve the misappropriation of any trade secret or other intellectual
property right of any third party, or (iv) are used for or involve any
defamatory, threatening or obscene purpose.
6.2 InterVU's Representation and Warranty. InterVU hereby represents and
warrants to NBC, as of Effective Date, as of each date on which NBC continues or
adds new or modified NBC Audio/Video Clips to be hosted by use of the InterVU
Delivery Centers and the InterVU Delivery System, and as of each date on which
the Exclusive Term of this Agreement is actually extended pursuant to Section
2.7 above, that, to the best of InterVU's knowledge, neither the InterVU
Delivery Center nor the InterVU Delivery System (i) violate any international,
United States, foreign, state, local or other applicable law, regulation, rule
or order of any applicable regulatory authority or court of competent
jurisdiction, (ii) infringe or constitute the unauthorized use of any patent
right, copyright, trademark, service mark, trade name or other intellectual
property right of any third party, (iii) constitute, are based on or involve the
misappropriation of any trade secret or other intellectual property right of any
third party, (iv) are used for or involve any defamatory, threatening or obscene
purpose, (v) will contain computer viruses and material crash bugs in any form
or (vi) will adversely affect the operation of the NBC Internet Sites in any
material manner. In addition, InterVU also represents and warrants to NBC at all
times during the Exclusive Term of this Agreement that the InterVU Delivery
Centers and the InterVU Delivery System (i) will be operated and maintained with
professional diligence and skill and in a manner consistent with high industry
standards and (ii) will operate substantially as described in this Agreement,
including Exhibit B hereto and any Revised Standards.
6.3 LIMITATION OF LIABILITY. THE LIABILITY OF EITHER PARTY FOR ANY
BREACH OF ITS OBLIGATIONS UNDER THIS AGREEMENT OR OTHERWISE RELATING TO THIS
AGREEMENT SHALL BE LIMITED TO THE AGGREGATE AMOUNTS ACTUALLY PAID BY NBC TO
INTERVU UNDER THIS AGREEMENT EXCEPT UNDER THE INDEMNITY PROVISIONS OF SECTION
7.1 AND 7.2 BELOW. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY
FOR ANY CONSEQUENTIAL, INCIDENTAL, INDIRECT OR PUNITIVE DAMAGES ARISING OUT OF
OR IN RELATION TO THIS AGREEMENT. EXCEPT FOR THE PAYMENT OF ANY MONIES OWED
UNDER THIS AGREEMENT, NEITHER PARTY SHALL BE HELD LIABLE OR RESPONSIBLE TO THE
OTHER PARTY, NOR BE DEEMED TO HAVE DEFAULTED UNDER OR BREACHED THIS AGREEMENT,
FOR FAILURE OR DELAY IN FULFILLING OR PERFORMING ANY TERM OF THIS AGREEMENT TO
THE EXTENT, AND FOR SO LONG AS, SUCH FAILURE OR DELAY IS CAUSED BY OR RESULTS
FROM CAUSES BEYOND THE REASONABLE CONTROL OF THE AFFECTED PARTY INCLUDING BUT
NOT LIMITED TO FIRE, EARTHQUAKES, FLOODS, EMBARGOES, WAR, ACTS OF WAR (WHETHER
WAR BE DECLARED OR NOT), INSURRECTIONS, RIOTS, CIVIL COMMOTIONS, STRIKES,
LOCKOUTS, OR OTHER LABOR DISTURBANCES, ACTS OF GOD, ACTS, OMISSIONS OR DELAYS IN
ACTING BY ANY GOVERNMENTAL AUTHORITY OR THE OTHER PARTY.
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SECTION 7 - INDEMNIFICATION
7.1 Indemnity. NBC shall defend, indemnify and hold harmless InterVU and
its affiliates, directors, employees, agents, shareholders and subcontractors
against any and all claims, losses, liabilities, damages and expenses (including
reasonable attorneys' fees and costs) which it or they may suffer or incur in
connection with any actual or threatened claim, demand, action or other
proceeding by any third party (including governmental authority) arising from or
relating to (i) any misrepresentation or breach of warranty by NBC hereunder, or
(ii) the breach by NBC of any obligation hereunder.
7.2 Indemnity. InterVU shall defend, indemnify and hold harmless NBC and
its affiliates, directors, employees, agents, shareholders and subcontractors
against any and all claims, losses, liabilities, damages and expenses (including
reasonable attorneys' fees and costs) which it or they may suffer or incur in
connection with any actual or threatened claim, demand, action or other
proceeding by any third party (including governmental authority) arising from or
relating to (i) any misrepresentation or breach of warranty by InterVU
hereunder, or (ii) the breach by InterVU of any obligation hereunder.
SECTION 8 - MISCELLANEOUS
8.1 Service Usage Statistics. InterVU shall obtain the prior written
permission of NBC, which permission shall not be unreasonably withheld, in order
to distribute usage statistics of NBC Internet Sites to selected recipients, and
such permission shall be conditioned upon InterVU's agreement not to identify
NBC by name.
8.2 Use of Name. Subject to Section 8.4, InterVU shall have the right to
use the name of NBC for InterVU's own promotional use with prior written
authorization by NBC except as required by law.
8.3 No Historical Archival of Content. While InterVU backs up its server
computers as a regular part of its internal systems administration, the InterVU
Delivery Centers are for hosting and displaying of customers' audio/video
content, including NBC Audio/Video Clips. InterVU advises NBC that, except as
required to provide the services described herein, it does not provide or
guarantee any storage or backup of NBC's Audio/Video Clips after the date on
which NBC directs InterVU to cease providing such NBC Audio/Video Clips. NBC is
responsible for providing any storage, backup and archival history support with
respect to the NBC's Audio/Video Clips, whether created by NBC or for NBC by a
different party.
8.4 Intellectual Property Rights. NBC's use of the InterVU Logo and
InterVU's use of any NBC trademarks, as authorized under this Agreement, shall
be subject to review and prior written consent by InterVU and NBC, respectively.
All use by NBC of the InterVU Logo shall inure to the benefit of InterVU and NBC
shall not obtain any ownership interests in the InterVU Logo. All use by InterVU
of any NBC trademarks shall inure to the benefit of NBC and InterVU shall not
obtain any ownership interests in any NBC trademarks. Any use by one party
("Using Party") of the trademarks of the other party ("Owning Party") shall be
subject to the Owning Party's then-applicable policies that have been disclosed
to the Using Party regarding the use,
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appearance and affixation of such marks and the quality of any materials or
products to which such marks are affixed. Upon request, the Using Party shall
provide the Owning Party with representative copies of any materials or products
to which the trademarks are affixed. The Owning Party shall have the right upon
thirty (30) days' prior written notice to terminate the Using Party's rights to
use the Owning Party's trademarks in the event that any such policy regarding
the use, appearance and affixation of such marks, or the quality of any
materials or products to which such marks are affixed, is being materially
breached by the Using Party, which breach is not cured within such thirty (30)
day period. Except as provided in this Agreement, no party shall, as a result of
this Agreement, obtain any ownership interest or other right in any patents,
pending patent applications, trade secrets, copyrights, trademarks, trade names
or other intellectual property rights of the other party.
8.5 Independent Contractors. The parties acknowledge that InterVU and
NBC are independent contractors, and that nothing in this Agreement shall be
construed to create a joint venture, partnership or agency relationship between
them.
8.6 No Assignment. Neither party shall assign, transfer or otherwise
dispose of this Agreement or any interest therein, whether voluntarily, by
operation of law or otherwise, except to an entity wholly owned by or which
wholly owns such party, without the express written consent of the other party.
Each party shall give express written notice to the other party of any permitted
assignment, transfer or other disposition, and the permitted assignee or
transferee shall expressly agree in writing to be bound by the terms and
conditions hereof.
8.7 Choice of Law. This Agreement shall be governed by and construed
under the internal laws of the State of California, without reference to
principles of conflict of laws or choice of law.
8.8 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8.9 Headings. The headings and captions used in this Agreement are used
for convenience only and are not to be considered in construing or interpreting
this Agreement. All references in this Agreement to sections, paragraphs,
exhibits and schedules shall, unless otherwise provided, refer to sections and
paragraphs hereof and exhibits and schedules attached hereto, all of which
exhibits and schedules are incorporated herein by this reference.
8.10 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or
twenty-four (24) hours after delivery to a courier service or upon deposit with
the United States Post Office, by registered or certified mail, postage prepaid
and addressed to each party to be notified at the address indicated for such
party at the address specified on the signature page, or at such other address
as any party may designate by giving ten (10) days advance written notice to all
other parties.
8.11 Survival. Sections 1, 2.9, 4.4, 4.5, 6, 7 and 8 will survive the
expiration or termination of this Agreement.
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8.12 Waiver/Modification: No modification or amendment to, or waiver of,
this Agreement will be binding and valid unless it is in writing and executed by
the party against whom enforcement is sought. No waiver of a breach of any
provision of this Agreement or of any default hereunder shall be deemed a waiver
of any other breach or default of this Agreement.
8.13 Entire Agreement. This Agreement, together with all exhibits and
schedules hereto, constitutes the entire agreement and understanding of the
parties with respect to the subject matter hereof and supersedes any and all
prior negotiations, correspondence, agreements, understandings duties or
obligations between the parties with respect to the subject matter hereof other
than the Non-disclosure and Confidentiality Agreement and the Stock Purchase
Agreement.
[SIGNATURE PAGE TO FOLLOW]
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IN WITNESS WHEREOF, each party has caused this Agreement to be duly
executed on its behalf to be effective as of the date set forth above.
INTERVU INC., NBC MULTIMEDIA, INC.,
a Delaware corporation a Delaware corporation
By: /s/ Harry E. Gruber By: /s/ Edward Sonatis
---------------------------------- -------------------------------
Name: Harry E. Gruber Name: Edward Sonatis
-------------------------------- -------------------------------
Title: Chief Executive Officer Title: Vice President
------------------------------- -------------------------------
Address for Notice: Address for Notice:
201 Lomas Santa Fe Drive 30 Rockefeller Plaza
Solana Beach, CA 92075 New York, NY 10112
Attn: Harry E. Gruber Attn: Legal Department
Fax: (212) 977-7165
with a copy to:
30 Rockefeller Plaza
New York, NY 10112
Attn: Chris Glowacki
Fax: (212) 664-5561
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EXHIBIT 10.7
PREFERRED STOCK PURCHASE AGREEMENT
This PREFERRED STOCK PURCHASE AGREEMENT (this "Agreement") is made and
entered into as of October 10, 1997 by and among InterVU Inc., a Delaware
corporation (the "Company"), National Broadcasting Company, Inc., a Delaware
corporation (the "Investor") and NBC Multimedia, Inc., a Delaware corporation
and wholly owned subsidiary of the Investor ("Multimedia").
W I T N E S S E T H:
WHEREAS, the Company desires to sell to the Investor, and the Investor
desires to purchase from the Company, shares of the Company's Series G
Convertible Preferred Stock, par value $.001 per share ("Series G Preferred"),
on the terms and conditions set forth in this Agreement:
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. AGREEMENT TO PURCHASE AND SELL STOCK. The Company agrees to sell to
the Investor at the Closing, and the Investor agrees to purchase from the
Company at the Closing, 1,280,000 shares of Series G Preferred (the "Purchased
Shares") for consideration consisting of the Investor's wholly owned subsidiary,
Multimedia, granting the Company the exclusive rights to download, distribute or
transmit Investor's entertainment audio/video content by means of the Internet
pursuant to the Strategic Alliance Agreement of even date herewith between the
Company and Multimedia (the "Strategic Alliance Agreement"). The shares of
common stock of the Company, par value $.001 per share ("Common Stock"),
issuable upon the conversion of the Purchased Shares are referred to herein as
the "Conversion Shares."
2. DIRECTED OFFERING OF COMMON STOCK. Multimedia has received and
reviewed a copy of the Registration Statement on Form S-1 (the "Registration
Statement") filed by the Company on August 13, 1997 relating to the Company's
initial public offering (the "IPO") and hereby indicates to the Company that it
has an interest in purchasing in a directed offering to close concurrently with
the IPO (the "Directed Offering") that number of shares of the Company's Common
Stock which equals $2,000,000 divided by the actual price per share of the
Common Stock as sold to the public in the IPO. Upon the Registration Statement
being declared effective by the SEC, the Company will furnish Multimedia with a
definitive prospectus. Multimedia shall promptly notify the Company of its
election to proceed with the purchase of such Common Stock, subject to customary
representations, warranties, covenants and indemnification arrangements to be
contained in a Common Stock Purchase Agreement (the "Common Stock Purchase
Agreement") that would be executed by the Company and Multimedia concurrently
with the execution and delivery by the Company of an underwriting agreement
which provides for the issue and sale by the Company to the underwriters named
therein of shares of Common Stock and aggregate proceeds to the Company of at
least $10.0 million (before deduction of underwriting discounts and
commissions). The purchase and sale of the Common Stock in the Directed Offering
shall take place at the same time and place as the closing of the IPO, subject
to the closing of the IPO occuring prior to the date that is 24 months after the
date hereof and to the prior or concurrent fulfillment of all of the closing
conditions set forth in the Common Stock Purchase Agreement.
3. INVESTOR'S PUT RIGHT.
The Investor shall have the right, (A) after the first anniversary of the date
hereof, to require the Company to repurchase 250,000 shares in the aggregate of
Purchased Shares and Conversion Shares held by the Investor at a price per share
of $8.00 and (B) after the second anniversary of the date hereof, to require the
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Company to repurchase an additional 250,000 shares, in the aggregate, of
Purchased Shares and Conversion Shares held by the Investor at a price per share
of $8.00 (in addition to the Investor's right pursuant to clause (A) hereof) if
all of the following conditions are met: (i) the Company's Common Stock is not
registered under Section 12 of the Securities Exchange Act of 1934, as amended
(the "1934 Act"), on or prior to the first anniversary of the date of this
Agreement (with respect to the exercise by the Investor of its right under
clause (A) of this sentence) or on or prior to the second anniversary of the
date of this Agreement (with respect to the exercise by the Investor of its
right under clause (B) of this sentence), (ii) the Investor has not terminated
the Strategic Alliance Agreement in accordance with Section 2.8 thereof and
(iii) the Company shall not be legally prohibited from repurchasing such shares.
To exercise the put right described in this Section 3, the Investor shall give
the Company at least thirty (30) days written notice of its intent to exercise
such put right and the date on which it intends to exercise such right (each, an
"Exercise Date"). The Investor must exercise its put right, if at all, with
respect to blocks of at least 250,000 shares of Series G Preferred Stock or
Common Stock, as the case may be, which number shall be subject to adjustments
for any stock splits, stock dividends or other adjustments to the Series G
Preferred or Common Stock, as the case may be, after the date hereof. On the
Exercise Date, the Company shall deliver to the Investor a check payable to the
Investor in an amount equal to $8.00 multiplied by the number of shares of
Series G Preferred or Common Stock, as the case may be, to be repurchased by the
Company, against receipt of one or more certificates, properly endorsed,
evidencing the shares of Series G Preferred Stock or Common Stock, as the case
may be, to be repurchased by the Company.
4. CLOSING. The purchase and sale of the Purchased Shares will take
place at the offices of the Investor, 30 Rockefeller Center, New York, New York
at 10:00 a.m. Eastern Time, on October 10, 1997, or at such other time and place
on which the Company and the Investor mutually agree (which time and place are
referred to in this Agreement as the "Closing"). At the Closing, the Company
will deliver to the Investor a certificate representing the Purchased Shares
against delivery to the Company by the Investor of executed counterparts of this
Agreement and the Strategic Alliance Agreement.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to the Investor that the statements in the following
paragraphs of this Section 5 are true and correct:
5.1. Organization, Good Standing and Qualification. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all requisite corporate power and
authority to carry on its business as now conducted and as proposed to be
conducted and to enter into and perform this Agreement and the Strategic
Alliance Agreement and to carry out the transactions contemplated hereby and
thereby. The Company has furnished to counsel to the Investor true and complete
copies of its Restated Certificate of Incorporation, as amended (the "Restated
Certificate"), and Bylaws, as amended, each as amended to date and presently in
effect.
5.2. Subsidiaries. The Company does not presently own or control,
directly or indirectly, any interest in any other corporation, association, or
other business entity.
5.3. Authorization. All corporate action on the part of the
Company, its officers, directors and stockholders, necessary for the
authorization, execution and delivery of this Agreement and the Strategic
Alliance Agreement, the performance of all obligations of
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the Company hereunder and thereunder, and the issuance and delivery of the
Purchased Shares and the Conversion Shares has been taken or will be taken prior
to the Closing, and this Agreement and the Strategic Alliance Agreement have
been duly executed and delivered by the Company and constitute valid and legally
binding obligations of the Company, enforceable in accordance with their terms,
except as may be limited by (i) applicable bankruptcy, insolvency,
reorganization or other laws of general application relating to or affecting the
enforcement of creditors' rights generally and (ii) the effect of rules of law
governing the availability of equitable remedies.
5.4. Valid Issuance of Stock.
(a) The Purchased Shares have been reserved for issuance
and, when issued, sold and delivered in accordance with the terms of this
Agreement for the consideration provided for herein will be duly and validly
issued, fully paid and nonassessable. The Conversion Shares have been duly and
validly reserved for issuance and, upon issuance in accordance with the terms of
the certificate of designation with respect to the Series G Preferred (the
"Series G Certificate of Designation"), will be duly and validly issued, fully
paid and nonassessable.
(b) Based in part on the representations made by the
Investor in Section 6 hereof, the Purchased Shares and (assuming no change in
applicable law and no unlawful distribution of Purchased Shares by the Investor
or other parties) the Conversion Shares, when issued in accordance with the
Series G Certificate of Designation, will be issued in full compliance with the
registration and prospectus delivery requirements of the 1933 Act and the
registration and qualification requirements of the securities laws of the State
of California.
5.5. Capitalization. Immediately prior to the Closing the
capitalization of the Company will consist of the following:
(a) Preferred Stock. A total of 4,650,000 shares of
preferred stock, $.001 par value per share (the "Preferred Stock"), consisting
of 250,000 shares designated as Series A Convertible Preferred Stock, of which
172,500 shares are issued and outstanding; 400,000 shares designated as Series B
Preferred Stock, of which 339,562 shares are issued and outstanding; 400,000
shares designated as Series C Convertible Preferred Stock, of which 296,147
shares are issued and outstanding; 200,000 shares designated as Series D
Convertible Preferred Stock, of which 96,429 shares are issued and outstanding;
400,000 shares designated as Series E Convertible Preferred Stock, of which
400,000 shares are issued and outstanding; 1,200,000 shares designated as Series
F Convertible Preferred Stock, of which 721,664 shares are issued and
outstanding; and 1,200,000 shares designated as Series G Preferred, of which no
shares are issued and outstanding. The rights, preferences and privileges
(including conversion rights) of the Series A Convertible Preferred Stock and
Series B Convertible Preferred Stock are as stated in the Restated Certificate.
The rights, preferences and privileges (including conversion rights) of the
Series C Convertible Preferred Stock, Series D Convertible Preferred Stock,
Series E Convertible Preferred Stock and Series F Convertible Preferred Stock
are as stated in the respective certificates of designation of such series. The
rights, preferences and privileges of the Series G Preferred are as stated in
the Series G Certificate of Designation and as provided by law. All of the
outstanding shares of Preferred Stock and the Purchased Shares will convert
automatically into shares of Common Stock (in accordance with the conversion
provisions contained in the Restated Certificate and the certificates of
designation) upon the consummation of the Company's sale of Common Stock in a
bona fide, firm commitment underwriting pursuant to a registration statement
under the 1933 Act, which results in gross proceeds to the Company of at least
$7,500,000. The issued and outstanding shares of Preferred Stock are duly
authorized, validly issued, fully paid and nonassessable.
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(b) Common Stock. A total of 16,000,000 authorized
shares of Common Stock of which 6,239,470 shares will be issued and outstanding.
The issued and outstanding shares of Common Stock are duly authorized, validly
issued, fully paid and nonassessable.
(c) Options, Warrants, Reserved Shares. Except for:
(i) the conversion privileges of the Preferred Stock and (ii) the 1,500,000
shares of Common Stock reserved for issuance pursuant to Company stock option
plans or arrangements approved by the Company's Board of Directors, there are no
outstanding options, warrants, rights (including conversion or preemptive
rights) or agreements for the purchase or acquisition from the Company of any
shares of its capital stock or any securities convertible into or ultimately
exchangeable or exercisable for any shares of the Company's capital stock. Apart
from the exceptions noted in this Section 5.5(c) or on Schedule 5.5(c) hereto,
no shares of the Company's outstanding capital stock, or other stock issuable by
the Company, are subject to any rights of first refusal or other rights to
purchase such stock (whether in favor of the Company or any other person or
entity) pursuant to any agreement or commitment of the Company.
5.6. Compliance with Laws and Other Instruments. The business and
operations of the Company have been and are being conducted in accordance with
all applicable federal, state and local laws, rules and regulations, except for
any failure that would not reasonably be expected to result, either individually
or in the aggregate, in any material adverse changes in the assets, condition,
affairs or prospects of the Company, financially or otherwise, or have a
material adverse effect on the ability of the Company to perform its obligations
under this Agreement or the Strategic Alliance Agreement.
The execution, delivery and performance by the Company of this
Agreement and the Strategic Alliance Agreement and the transactions contemplated
hereby and thereby (including, without limitation, the issuance of the
Conversion Shares) and the compliance by the Company with the terms of the
Restated Certificate:
(a) will not require from the Board or stockholders of
the Company any consent or approval except such as shall have been obtained
prior to the Closing;
(b) will not require any authorization, consent, approval,
license, exemption of or filing or registration with any court or governmental
department, commission, board, bureau, agency or instrumentality of government,
except such as shall have been obtained or made prior to the Closing;
(c) will not cause the Company to violate or contravene
(i) any provision of law presently in effect, (ii) any rule or regulation
presently in effect of any agency or government, domestic or foreign, (iii) any
order, writ, judgment, injunction, decree, determination or award presently in
effect, or (iv) any provision of the Restated Certificate or Bylaws of the
Company; and
(d) will not violate or be in conflict with, result in a
breach of or constitute (with or without notice or lapse of time or both) a
default under, any material indenture, loan or credit agreement, note agreement,
deed of trust, mortgage, security agreement or other material agreement, lease,
instrument, commitment or arrangement to which the Company is a party or by
which the Company or any of its material properties, assets or rights is bound
or affected.
The Company is not in violation of, or (with or without notice or
lapse of time or both) in default under, any term or provision of its Restated
Certificate or Bylaws or of any material indenture, loan or credit agreement,
note agreement, deed of trust, mortgage, security agreement or other material
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agreement, lease, instrument, commitment or arrangement to which the Company is
a party or by which any of the Company's material properties, assets or rights
is bound or affected.
The Company is not subject to any restriction of any kind or
character which materially and adversely affects in any way its business,
properties, assets or prospects or which prohibits the Company from entering
into this Agreement or the Strategic Alliance Agreement or would prevent or make
burdensome its performance of or compliance with all or any part of this
Agreement or the Strategic Alliance Agreement or the Restated Certificate or the
consummation of the transactions contemplated hereby or thereby.
5.7. Securities Laws. The offer and sale of the Purchased Shares
are and will be exempt from the registration and prospectus delivery
requirements of the 1933 Act, and have been registered or qualified (or are
exempt from registration and qualification) under the registration or
qualification requirements of all applicable state securities laws.
5.8. Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated by this
Agreement, except for the filing pursuant to Section 25102(f) of the California
Corporate Securities Law of 1968, as amended, and the regulations thereunder,
which filing will be effected in accordance with such section.
5.9. Financial Statements. The Company has supplied to the
Investor: (a) the Company's unaudited balance sheet (the "Balance Sheet") as of
June 30, 1997 (the "Balance Sheet Date") and the unaudited statements of income,
changes in financial condition, and stockholders' equity for the six-month
period then ended and (b) the Company's audited balance sheet as of December 31,
1997 and the audited statements of income, changes in financial condition and
stockholders' equity for the period then ended, together with the related
opinion of Ernst & Young LLP, independent certified public accountants. These
financial statements (i) are in accordance with the books and records of the
Company, (ii) present fairly the financial condition of the Company at the
Balance Sheet Date and other dates therein specified and the results of its
operations for the periods therein specified, and (iii) have been prepared in
accordance with generally accepted accounting principles applied on a basis
consistent with prior accounting periods.
5.10. Litigation. There is no action, suit, proceeding,
government inquiry or investigation pending or currently threatened against the
Company that questions the validity of this Agreement or the Strategic Alliance
Agreement or the right of the Company to enter into each such agreement, or to
consummate the transactions contemplated hereby or thereby, or that might
result, either individually or in the aggregate, in any material adverse changes
in the assets, condition, affairs or prospects of the Company, financially or
otherwise or have a material adverse effect on the ability of the Company to
perform its obligations under this Agreement or the Strategic Alliance
Agreement, or any change in the current equity ownership of the Company, nor is
the Company aware that there is any basis for the foregoing. The Company is not
a party or subject to the provisions of any order, writ, injunction, judgment or
decree of any court or government agency or instrumentality. There is no action,
suit, proceeding or investigation by the Company currently pending or which the
Company intends to initiate.
5.11. Changes. Since the Balance Sheet Date, the Company has not:
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(a) discharged or satisfied any material liens other than
those securing current liabilities shown on the Balance Sheet and current
liabilities incurred since the Balance Sheet Date in the usual and ordinary
course of business;
(b) paid any material obligation or liability other than
current liabilities shown on the Balance Sheet and current liabilities incurred
since the Balance Sheet Date in the usual and ordinary course of business;
(c) mortgaged, pledged or subjected to lien any of its
material assets, tangible or intangible;
(d) sold, transferred or leased any of its material assets
except in the usual and ordinary course of business;
(e) canceled or compromised any material debt or claim, or
waived or released any material right;
(f) suffered any material physical damage, destruction or
loss (whether or not covered by insurance);
(g) entered into any material transaction other than in
the usual and ordinary course of business except for this Agreement and the
Strategic Alliance Agreement;
(h) encountered any labor difficulties or labor union
organizing activities;
(i) declared or paid any dividends on or made any other
distributions with respect to, or purchased or redeemed (other than repurchases
of restricted shares of Common Stock upon termination of certain employees), any
of its outstanding capital stock;
(j) made any change in the accounting principles, methods
or practices followed by it or depreciation or amortization policies or rates
theretofore adopted; or
(k) entered into any agreement, or otherwise obligated
itself, to do any of the foregoing.
Since the Balance Sheet Date, there has not occurred any event or events,
individually or in the aggregate, that has had or would be expected to result in
a material adverse change in the assets, condition, affairs or prospects of the
Company, financial or otherwise, or have a material adverse effect on the
ability of the Company to perform its obligations under this Agreement or the
Strategic Alliance Agreement.
5.12. Intellectual Property. The Company owns or is licensed or
otherwise has the right to use all of the patents, trademarks, service marks,
trade names, copyrights, licenses, trade secrets or other intellectual property
rights that are necessary for the operation of its business as it is presently
conducted, free and clear of all liens, except for the failure to have such
rights or such liens, which, in either such case, do not have a material adverse
effect on the assets, condition, affairs or prospects of the Company, materially
or otherwise. To the best of the Company's knowledge, the business conducted or
proposed by the Company does not and will not cause the Company to infringe or
violate any of the patents, trademarks, service marks, trade names, copyrights,
licenses, trade secrets or other intellectual property rights of any
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other person or entity and, except as set forth on Schedule 5.12, the Company
has not received any communications alleging such infringement or violation. To
the best of the Company's knowledge, no other person or entity has any right to
or interest in any inventions, improvements, discoveries or other confidential
information utilized by the Company in its business.
5.13. Material Agreements of the Company. Except as disclosed on
Schedule 5.13 hereto, the Company is not a party to any written or oral:
(a) agreement with any labor union;
(b) agreement for the purchase of material fixed assets or
for the purchase of materials, supplies or equipment in excess of normal
operating requirements;
(c) agreement for the employment of any officer,
individual employee or other person on a full time basis or any agreement with
any person for consulting services;
(d) bonus, pension, profit sharing, retirement, stock
purchase, stock option, deferred compensation, medical, hospitalization or life
insurance or similar plan, contract or understanding with respect to any or all
of the employees of the Company or any other person;
(e) material indenture, loan or credit agreement, note
agreement, deed of trust, mortgage, security agreement, promissory note or other
agreement or instrument relating to or evidencing indebtedness for borrowed
money or subjecting any material asset or property of the Company to any lien or
evidencing any material indebtedness;
(f) guaranty of any material indebtedness;
(g) lease or agreement under which the Company is lessee
of or holds or operates any property, real or personal, owned by any other
Person under which payments to such Person exceed $10,000 per annum;
(h) lease or agreement under which the Company is lessor
or permits any Person to hold or operate any material property, real or
personal, owned or controlled by the Company;
(i) agreement granting any preemptive right, right of
first refusal or similar right to any person;
(j) agreement obligating the Company to pay any royalty or
similar charge for the use or exploitation of any tangible or intangible
property;
(k) covenant not to compete or other restriction on the
Company's ability to conduct its business or engage in any other activity;
(l) material agreement or other commitment or arrangement
with any person continuing for a period of more than three months from the
Closing Date which involves an expenditure or receipt by the Company in excess
of $10,000; or
(m) other agreement not made in the ordinary course of
business that is material to the Company.
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The Company has furnished to the Investor true and complete
copies of all agreements and other documents requested by the Investor or its
authorized representative. All parties having material contractual arrangements
with the Company are in substantial compliance therewith and none are in default
in any material respect thereunder. The Company does not have outstanding any
power of attorney.
5.14. Tax Returns and Audits. All required federal, state and
local tax returns of the Company have been accurately prepared and duly and
timely filed, and all federal, state and local taxes required to be paid with
respect to the periods covered by such returns have been paid. The Company is
not and has not been delinquent in the payment of any tax, assessment or
governmental charge. The Company has never had any tax deficiency proposed or
assessed against it, there is no unassessed tax deficiency pending, proposed or
threatened against the Company, and the Company has not executed any waiver of
any statute of limitations on the assessment or collection of any tax or
governmental charge. None of the Company's federal income tax returns nor any
state income or franchise tax returns has ever been audited by governmental
authorities.
The Company has withheld or collected from each payment made to
each of its employees, the amount of all taxes (including, but not limited to,
federal income taxes, Federal Insurance Contribution Act taxes and Federal
Unemployment Tax Act taxes) required to be withheld or collected therefrom, and
has paid the same to the proper tax receiving officers or authorized
depositories.
5.15. Affiliate Transactions Except for certain Vesting
Agreements between the Company and its founders, there are no material
agreements, understandings or proposed transactions between the Company and any
of its stockholders, officers, directors, affiliates or any affiliate or
associates thereof (as such terms are defined in the rules and regulations under
the 1933 Act).
5.16. Registration Rights. Except for registration rights the
Company will grant to its lead underwriter with respect to shares of Common
Stock underlying warrants to be issued by the Company to its lead underwriter in
connection with the IPO and the registration rights granted hereby, the Company
has not granted or agreed to grant any registration rights, including piggyback
rights, to any person or entity.
5.17. Employment Benefit Plans--ERISA. Except as disclosed on
Schedule 5.17, the Company does not maintain or make contributions to any
pension, profit sharing or other employee retirement benefit plan. The Company
has no material liability with respect to any such plan (including, without
limitation, any unfunded past service or other liability or any accumulated
funding deficiency) or any material liability to the Pension Benefit Guaranty
Corporation or under Title IV of the Employee Retirement Income Security Act of
1974, as amended, with respect to a multi-employer pension benefit plan, nor
would the Company have any such liability if any such plan were terminated or if
the Company withdrew, in whole or in part, from any multi-employer plan.
5.18. Title to Property and Encumbrances. With only such
exceptions as are immaterial individually and in the aggregate, the Company has
good and marketable title to all its properties and assets, including without
limitation the properties and assets reflected in the Balance Sheet and the
properties and assets used in the conduct of its business, except for properties
disposed of in the ordinary course of business since the Balance Sheet Date and
except for properties held under valid and subsisting leases that are in full
force and effect and that are not in default.
5.19. Condition of Properties. With only such exceptions as are
immaterial individually and in the aggregate, all facilities, machinery,
equipment, fixtures, vehicles and other properties owned,
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leased or used by the Company are in good operating condition and repair and are
adequate and sufficient for the Company's business.
5.20. Insurance Coverage. There is in full force and effect one
or more policies of insurance issued by insurers of recognized responsibility,
insuring the Company and its properties and business against such losses and
risks, and in such amounts, as are customary in the case of corporations of
established reputation engaged in the same or similar business and similarly
situated.
5.21. Licenses. With only such exceptions as are immaterial
individually and in the aggregate, the Company possesses from the appropriate
agency, commission, board and governmental body and authority, whether state,
local or federal, all licenses, permits, authorizations, approvals, franchises
and rights that are necessary for the Company to engage in the business
currently conducted and proposed to be conducted by it; and all such
certificates, licenses, permits, authorizations and rights have been lawfully
and validly issued, are in full force and effect, will not be revoked, canceled,
withdrawn, terminated or suspended and have a term of perpetual existence.
5.22. Investment Company. The Company is not an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
6. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR. The Investor hereby
represents and warrants to the Company that the statements in the following
paragraphs of this Section 6 are true and correct:
6.1. Organization, Good Standing and Qualification. The Investor
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all requisite corporate power and
authority to perform this Agreement and the Strategic Alliance Agreement and to
carry out the transactions contemplated hereby and thereby.
6.2. Authorization. All corporate action on the part of the
Investor, Multimedia, their officers, directors and stockholders, necessary for
the authorization, execution and delivery of this Agreement and the Strategic
Alliance Agreement and the performance of all obligations of the Investor and
Multimedia under this Agreement and the Strategic Alliance Agreement, as
appropriate, have been taken or will be taken prior to the Closing, and this
Agreement and the Strategic Alliance Agreement have been duly executed and
delivered by the Investor and Multimedia, respectively, and each constitutes a
valid and legally binding obligation of the Investor, in the case of this
Agreement, and Multimedia, in the case of the Strategic Alliance Agreement,
enforceable in accordance with its terms, except as may be limited by (i)
applicable bankruptcy, insolvency, reorganization or other laws of general
application relating to or affecting the enforcement of creditors' rights
generally and (ii) the effect of rules of law governing the availability of
equitable remedies.
6.3. No Conflicts with Other Agreements. The execution, delivery
and performance by the Investor and Multimedia of this Agreement and by
Multimedia of the Strategic Alliance Agreement and the transactions contemplated
hereby and thereby will not violate or be in conflict with, result in a breach
of or constitute (with or without notice or lapse of time or both) a default
under, any indenture, loan or credit agreement, note agreement, deed of trust,
mortgage, security agreement or other agreement, lease, instrument, commitment
or arrangement to which the Investor or Multimedia is a party or by which the
Investor or Multimedia or any of their respective properties, assets or rights
is bound or affected, except for any such violation, conflict, breach or default
that would not reasonably be expected, either individually or
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in the aggregate, to have a material adverse effect on the ability of the
Investor or Multimedia, as the case may be, to perform its obligations under
this Agreement or the Strategic Alliance Agreement.
6.4. Purchase for Own Account. The Purchased Shares to be
purchased by the Investor hereunder will be acquired for investment for the
Investor's own account, not as a nominee or agent, and not with a view to the
public resale or distribution thereof within the meaning of the 1933 Act, and
the Investor has no present intention of selling, granting any participation in,
or otherwise distributing the same in any transaction that would be in violation
of the securities laws of the United States of America, or any state, without
prejudice, however, to the rights of such Investor at all times to sell or
otherwise dispose of all or any part of such Purchased Shares under an effective
registration statement under the Securities Act, or under an exemption from such
registration available under the Securities Act. The Investor also represents
that it has not been formed for the specific purpose of acquiring the Purchased
Shares.
6.5. Disclosure of Information. The Investor has received or has
had full access to all the information it considers necessary or appropriate to
make an informed investment decision with respect to the Purchased Shares to be
purchased by the Investor under this Agreement. The Investor further has had an
opportunity to ask questions and receive answers from the Company regarding the
terms and conditions of the offering of the Purchased Shares and to obtain
additional information (to the extent the Company possessed such information or
could acquire it without unreasonable effort or expense) necessary to verify any
information furnished to the Investor or to which it had access. The foregoing,
however, does not in any way limit or modify the representations and warranties
made by the Company in Section 5.
6.6. Investment Experience. The Investor understands that the
purchase of the Purchased Shares involves substantial risk. The Investor has
experience as an investor in securities and acknowledges that it can bear the
economic risk of its investment in the Purchased Shares and has such knowledge
and experience in financial or business matters that it is capable of evaluating
the merits and risks of this investment in the Purchased Shares and protecting
its own interests in connection with this investment.
6.7. Accredited Investor Status. The Investor is an "accredited
investor" within the meaning of Regulation D promulgated under the 1933 Act.
6.8. Restricted Securities. The Investor understands that the
Purchased Shares are characterized as "restricted securities" under the 1933 Act
inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that under the 1933 Act and applicable
regulations thereunder such securities may be resold without registration under
the 1933 Act only in certain limited circumstances. In this connection, the
Investor represents that it is familiar with Rule 144 promulgated under the 1933
Act ("Rule 144"), as such rule is presently in effect, and understands the
resale limitations imposed thereby and by the 1933 Act. The Investor understands
that the Company is under no obligation to register any of the securities sold
hereunder except as provided in Section 9 hereof. The Investor understands that
no public market now exists for any of the Purchased Shares and that it is
uncertain whether a public market will ever exist for the Purchased Shares.
6.9. Further Limitations on Disposition. Without in any way
limiting the representations set forth above, the Investor further agrees not to
make any disposition of all or any portion of the Purchased Shares unless and
until:
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(a) there is then in effect a registration statement under
the 1933 Act covering such proposed disposition and such disposition is made in
accordance with such registration statement; or
(b) (i) the Investor shall have notified the Company of
the proposed disposition and shall have furnished the Company with a statement
of the circumstances surrounding the proposed disposition, and (ii) the Investor
shall have furnished the Company at the expense of the Investor or its
transferee, with an opinion of counsel, reasonably satisfactory to the Company
that such disposition will not require registration of such securities under the
1933 Act.
Notwithstanding the provisions of paragraphs (a) and (b) above, no such
registration statement or opinion of counsel shall be required: (i) for any
transfer of any Purchased Shares in compliance with Rule 144 or (ii) for any
transfer of Purchased Shares by the Investor to an affiliate of such
corporation; provided that in the case of clause (ii) hereof the transferee
agrees in writing to be subject to the terms of this Section 6 to the same
extent as if the transferee were an original party hereunder.
6.10. Legends.(a) It is understood that the certificates
evidencing the Purchased Shares will bear the legend set forth below:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES
LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS,
PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. THE INVESTORS SHOULD BE
AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS
INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE
SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE
SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR
RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES
LAWS.
(b) It also is understood that the Purchased Shares also
will bear any legend required by the laws of the State of California, including
any legend required by the California Department of Corporations and Sections
417 and 418 of the California Corporations Code or any other state securities
laws.
(c) The legend set forth in (a) above shall be removed by
the Company from any certificate evidencing Purchased Shares (i) at such time
that a registration statement under the 1933 Act is in effect or (ii) at such
time as the holder of the Purchased Shares represented by the certificate
satisfied Rule 144(k) under the 1933 Act, provided that the Company has received
from the holder a written representation that (x) such holder is not an
affiliate of the Company and has not been an affiliate during the preceding
three months, (y) such holder has beneficially owned the shares represented by
the certificate for a period of at least two years and (z) such holder otherwise
satisfies the requirements of Rule 144(k) as then in effect with respect to such
shares.
7. CONDITIONS TO THE INVESTORS' OBLIGATIONS AT CLOSING. The obligations
of the Investor under Section 2 of this Agreement are subject to the fulfillment
or waiver, on or before the Closing, of each of the following conditions:
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7.1. Representations and Warranties True. The representations and
warranties of the Company contained in Section 5 shall be true and correct on
and as of the Closing with the same effect as though such representations and
warranties had been made on and as of the date of the Closing.
7.2. Certificates and Documents. The Company shall have
delivered to counsel to the Investor:
(a) The Restated Certificate of Incorporation of the
Company, as amended and in effect prior to the Closing Date and which shall
incorporate the Certificate of Designation relating to the Series G Preferred,
certified by the Secretary of State of Delaware;
(b) Certificates, as of the most recent practicable dates,
as to the corporate good standing of the Company issued by the Secretary of
State of Delaware;
(c) Bylaws of the Company, certified by its Secretary or
Assistant Secretary as of the Closing Date; and
(d) Resolutions of the Board of Directors of the Company,
authorizing and approving all matters in connection with this Agreement and the
transactions contemplated hereby and reserving the Conversion Shares, certified
by the Secretary or Assistant Secretary of the Company as of the Closing Date.
7.3. Strategic Alliance Agreement. The Company shall have duly
executed and delivered the Strategic Alliance Agreement.
7.4. Shares Tendered. The Company shall have delivered to the
Investor certificates representing the Purchased Shares, registered in the name
of the Investor.
7.5. Securities Exemptions. The offer and sale of the Purchased
Shares to the Investor pursuant to this Agreement shall be exempt from the
registration requirements of the 1933 Act, the qualifications requirement of the
California Corporate Securities Law of 1968 (the "Law") and the registration
and/or qualification requirements of all other applicable state securities laws.
8. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations
of the Company to the Investor under this Agreement are subject to the
fulfillment or waiver on or before the Closing of each of the following
conditions by the Investor:
8.1. Representations and Warranties. The representations and
warranties of the Investor contained in Section 6 shall be true and correct on
the date of the Closing with the same effect as though such representations and
warranties had been made on and as of the Closing.
8.2. Strategic Alliance Agreement. Multimedia shall have duly
executed and delivered the Strategic Alliance Agreement.
8.3. Securities Exemptions. The offer and sale of the Purchased
Shares to the Investor pursuant to this Agreement shall be exempt from the
registration requirements of the 1933 Act, the qualifications requirements of
the Law and the registration and/or qualification requirements of all other
applicable state securities laws.
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9. REGISTRATION RIGHTS.
9.1. Definitions. For purposes of this Section 9:
(a) Registration. The terms "register," "registered," and
"registration" refer to a registration effected by preparing and filing a
registration statement in compliance with the 1933 Act, and the declaration or
ordering of effectiveness of such registration statement.
(b) Registrable Securities. The term "Registrable
Securities" means: (1) all the shares of Common Stock of the Company issued or
issuable upon the conversion of any shares of Series G Preferred issued under
this Agreement and (2) any shares of Common Stock of the Company issued as (or
issuable upon the conversion or exercise of any warrant, right or other security
which is issued as) a dividend or other distribution with respect to, or in
exchange for or in replacement of, the Series G Preferred or all such shares of
Common Stock described in clause (1) of this subsection (b), as such shares may
be adjusted for any stock dividends, splits, reverse splits, combinations and
recapitalizations occurring after the closing; excluding in all cases, however,
any Registrable Securities sold to the public or sold pursuant to Rule 144.
(c) Registrable Securities Then Outstanding. The number of
shares of "Registrable Securities then outstanding" shall mean the number of
shares of Common Stock which are Registrable Securities and (1) are then issued
and outstanding or (2) are then issuable pursuant to the exercise or conversion
of then outstanding and then exercisable options, warrants or convertible
securities.
(d) Holder. For purposes of this Section 9, the term
"Holder" means any person owning of record Registrable Securities that have not
been sold to the public pursuant to Rule 144 or any assignee of record of such
Registrable Securities.
(e) Form S-3. The term "Form S-3" means such form under
the 1933 Act as is in effect on the date hereof or any successor registration
form under the 1933 Act subsequently adopted by the SEC which permits inclusion
or incorporation of substantial information by reference to other documents
filed by the Company with the SEC.
(f) SEC. The term "SEC" or "Commission" means the U.S.
Securities and Exchange Commission.
9.2. Piggyback Registrations. Following the completion of the
Company's IPO, the Company shall notify all Holders of Registrable Securities in
writing at least thirty (30) days prior to filing any subsequent registration
statement under the 1933 Act for purposes of effecting a public offering of
securities of the Company (including, but not limited to, registration
statements relating to secondary offerings of securities of the Company, but
excluding registration statements relating to any employee benefit plan or a
corporate reorganization) and will afford each such Holder an opportunity to
include in such registration statement all or any part of the Registrable
Securities then held by such Holder. Each Holder desiring to include in any such
registration statement all or any part of the Registrable Securities held by
such Holder shall, within twenty (20) days after receipt of the above-described
notice from the Company, so notify the Company in writing, and in such notice
shall inform the Company of the number of Registrable Securities such Holder
wishes to include in such registration statement. If a Holder decides not to
include all of its Registrable Securities in any registration statement
thereafter filed by the Company, such Holder shall nevertheless continue to have
the right to include any Registrable Securities in any
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subsequent registration statement or registration statements as may be filed by
the Company with respect to offerings of its securities, all upon the terms and
conditions set forth herein.
(a) Underwriting. If a registration statement under which
the Company gives notice under this Section 9.2 is for an underwritten offering,
then the Company shall so advise the Holders of Registrable Securities. In such
event, the right of any such Holder's Registrable Securities to be included in a
registration pursuant to this Section 9.2 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their Registrable Securities through such
underwriting shall enter into an underwriting agreement in customary form with
the managing underwriter or underwriter(s) selected for such underwriting.
Notwithstanding any other provision of this Agreement, if the managing
underwriter determine(s) in good faith that marketing factors require a
limitation of the number of shares to be underwritten, then the managing
underwriter(s) may exclude shares (including Registrable Securities) from the
registration and the underwriting, and the number of shares that may be included
in the registration and the underwriting shall be allocated, first, to the
Company, and second, to each of the Holders requesting inclusion of their
Registrable Securities in such registration statement and each other stockholder
exercising piggyback registration rights on a pro rata basis. If any Holder
disapproves of the terms of any such underwriting, such Holder may elect to
withdraw therefrom by written notice to the Company and the underwriter,
delivered at least ten (10) business days prior to the effective date of the
registration statement. Any Registrable Securities excluded or withdrawn from
such underwriting shall be excluded and withdrawn from the registration. For any
Holder which is a partnership or corporation, the partners, retired partners and
stockholders of such Holder, or the estates and family members of any such
partners and retired partners and any trusts for the benefit of any of the
foregoing persons shall be deemed to be a single "Holder," and any pro rata
reduction with respect to such "Holder" shall be based upon the aggregate amount
of shares carrying registration rights owned by all entities and individuals
included in such "Holder," as defined in this sentence.
(b) Expenses. The Company shall bear and pay all expenses
incurred in connection with any registration or qualification of Registrable
Securities pursuant to this Section 9.2 for each Holder, including all
registration and qualification fees, printers and accounting fees relating
thereto, and reasonable legal fees of one counsel to the holders, but excluding
underwriting discounts and commissions relating to the Registrable Securities.
9.3. Form S-3 Registration. In case the Company shall receive
from any Holder or Holders of Registrable Securities a written request or
requests that the Company effect a registration under the 1933 Act on Form S-3
and under the securities or "blue sky" laws of any jurisdiction by the Holder
with respect to all or a part of the Registrable Securities owned by such Holder
or Holders, then the Company will, on one occasion only:
(a) Notice. Promptly give written notice of the proposed
registration and the Holder's or Holders' request therefor, and any related
qualification or compliance, to all other Holders of Registrable Securities; and
(b) Registration. As soon as practicable, effect such
registration and all such qualifications and compliance as may be so requested
and as would permit or facilitate the sale and distribution of all or such
portion of such Holder's or Holders' Registrable Securities as are specified in
such request, together with all or such portion of the Registrable Securities of
any other Holder or Holders joining in such request as are specified in a
written request given within twenty (20) days after receipt of
14
<PAGE> 15
such written notice from the Company; provided, however, that the Company shall
not be obligated to effect any such registration, qualification or compliance
pursuant to this Section 9.3:
(1) if Form S-3 is not available for such
offering by the Holders;
(2) if the Holders, together with the holders of
any other securities of the Company entitled to inclusion in such registration,
propose to sell Registrable Securities and such other securities (if any) at an
aggregate price to the public of less than $2,000,000;
(3) if the Company shall furnish to the Holders
a certificate signed by the President or Chief Executive Officer of the Company
stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company and its stockholders
for such Form S-3 Registration to be effected at such time, in which event the
Company shall have the right to defer the filing of the Form S-3 registration
statement no more than once during any twelve month period for a period of not
more than one hundred twenty (120) days after receipt of the request of the
Holder or Holders under this Section 9.3 (and in the event of such deferral, the
requesting Holder may withdraw its request for registration and not be deemed to
have made a request under this Section 9.3); or
(4) in any particular jurisdiction in which the
Company would be required to qualify to do business or to execute a general
consent to service of process in effecting such registration, qualification or
compliance.
(c) Expenses. Subject to the foregoing, the Company shall
file a Form S-3 registration statement covering the Registrable Securities and
other securities so requested to be registered pursuant to this Section 9.3 as
soon as practicable after receipt of the request or requests of the Holders for
such registration. The Company shall bear and pay all expenses incurred in
connection with registrations requested pursuant to this Section 9.3 by each
Holder, including all filing, registration and qualification, printers' and
accounting fees and fees of counsel for the Company, but excluding legal fees of
counsel to the Holder, underwriting discounts and commissions related to the
Registrable Securities.
9.4. Obligations of the Company. Whenever required to effect the
registration of any Registrable Securities under this Agreement, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective, and, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder, keep
such registration statement effective for up to ninety (90) days.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the 1933 Act with respect to the disposition of all securities
covered by such registration statement.
(c) Furnish to the Holders such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the 1933 Act, and such other documents as they may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by them that are included in such registration.
15
<PAGE> 16
(d) If the Company has delivered preliminary or final
prospectuses to the Holders and after having done so the prospectus is amended
to comply with the requirements of the 1933 Act, the Company shall promptly
notify the Holders and, if requested, the Holders shall immediately cease making
offers of Registrable Shares and return all prospectuses to the Company. The
Company shall promptly provide the Holders with revised prospectuses and,
following receipt of the revised prospectuses, the Holders shall be free to
resume making offers of the Registrable Shares.
(e) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders, keep such registration or qualification in effect for so long as such
registration statement remains in effect, and take any other action which may be
reasonably necessary or advisable to consummate the disposition in such
jurisdictions of such securities, provided that the Company shall not be
required in connection therewith or as a condition thereto to qualify to do
business or to file a general consent to service of process in any such states
or jurisdictions.
(f) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter(s) of such offering. Each
Holder participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(g) Notify each Holder of Registrable Securities covered
by such registration statement at any time when a prospectus relating thereto is
required to be delivered under the 1933 Act of the happening of any event as a
result of which the prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing and, upon
the occurrence of any such event, prepare a supplement or post-effective
amendment to the Form S-3 Registration or related prospectus or any document
incorporated therein by reference or file any other required document so that,
as thereafter delivered to the purchasers of the securities being sold
thereunder, such prospectus will not include any untrue statement of a material
fact or omit to state any material fact necessary to make the facts therein not
misleading.
(h) Notify each Holder of Registrable Securities covered
by such registration statement at any time when a prospectus relating thereto is
required to be delivered under the 1933 Act of the issuance by the SEC of (i)
any stop order suspending the effectiveness of a registration statement or the
initiation of any proceedings for that purpose and (ii) the receipt by the
Company of any notification with respect to the suspension of the qualification
of any of such Registrable Securities for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose, and the Company
shall make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of such a registration statement or the lifting of
any suspension of the qualification of any of the Registrable Securities for
sale in any jurisdiction, at the earliest possible time.
(i) Cause all Registrable Securities covered by such
registration statement to be listed on each securities exchange, if any, on
which securities of such class are then listed.
(j) Use its reasonable efforts to take any other steps
necessary to effect the registration contemplated by Sections 9.2 and 9.3.
16
<PAGE> 17
9.5. Furnish Information. It shall be a condition precedent to
the obligations of the Company to take any action pursuant to this Section 9
that the selling Holders shall furnish to the Company such information regarding
themselves, the Registrable Securities held by them, and the intended method of
disposition of such securities as shall be required to timely effect the
registration of their Registrable Securities.
9.6. Delay of Registration. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 9.
9.7. Indemnification. In the event any Registrable Securities
are included in a registration statement under this Section 9:
(a) By the Company. To the extent permitted by law, the
Company will indemnify and hold harmless each Holder, the partners, officers and
directors of each Holder, any underwriter (as defined in the 1933 Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the 1933 Act or the 1934 Act, against any losses, claims,
damages, or liabilities (joint or several) to which they may become subject
under the 1933 Act, the l934 Act or other federal or state law, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any of the following statements, omissions or
violations (collectively a "Violation"):
(i) any untrue statement or alleged untrue
statement of a material fact contained in any registration
statement under which Registrable Securities are registered,
including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto;
(ii) the omission or alleged omission to state
therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading; or
(iii) any violation or alleged violation by the
Company of the 1933 Act, the 1934 Act, any federal or state
securities law or any rule or regulation promulgated under the
1933 Act, the 1934 Act or any federal or state securities law in
connection with the offering covered by such registration
statement;
and the Company will reimburse each such Holder, partner, officer or director,
underwriter or controlling person for any legal or other expenses reasonably
incurred by them, as incurred, in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
indemnity agreement contained in this subsection 9.7(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld), nor shall the Company be liable in any such
case for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by such Holder, partner, officer, director, underwriter
or controlling person of such Holder.
17
<PAGE> 18
(b) By Selling Holders. To the extent permitted by law,
each selling Holder will indemnify and hold harmless the Company, each of its
directors, each of its officers who have signed the registration statement, each
person, if any, who controls the Company within the meaning of the 1933 Act, any
underwriter and any other Holder selling securities under such registration
statement or any of such other Holder's partners, directors or officers or any
person who controls such Holder within the meaning of the 1933 Act or the 1934
Act, against any losses, claims, damages or liabilities (joint or several) to
which the Company or any such director, officer, controlling person, underwriter
or other such Holder, partner or director, officer or controlling person of such
other Holder may become subject under the 1933 Act, the 1934 Act or other
federal or state law, insofar as such losses, claims, damages or liabilities (or
actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Holder expressly for use in connection with such registration; and each such
Holder will reimburse any legal or other expenses reasonably incurred by the
Company or any such director, officer, controlling person, underwriter or other
Holder, partner, officer, director or controlling person of such other Holder in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity agreement contained
in this subsection 9.7(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder, which consent shall not be unreasonably
withheld; and provided further, that the total amounts payable in indemnity by a
Holder under this Section 9.7(b) in respect of any Violation shall not exceed
the net proceeds received by such Holder in the registered offering out of which
such Violation arises.
(c) Notice. Promptly after receipt by an indemnified party
under this Section 9.7 of notice of the commencement of any action (including
any governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section 9.7,
deliver to the indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential conflict of interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 9.7, but the omission so to deliver written
notice to the indemnifying party will not relieve it of any liability that it
may have to any indemnified party otherwise than under this Section 9.7.
(d) Contribution. In order to provide for just and
equitable contribution to joint liability under the 1933 Act in any case in
which either (i) any Holder exercising rights under this Agreement, or any
controlling person of any such Holder, makes a claim for indemnification
pursuant to this Section 9.7 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
this Section 9.7 provides for indemnification in such case, or (ii) contribution
under the 1933 Act may be required on the part of any such selling Holder or any
such controlling person in circumstances for which indemnification is provided
under this Section 9.7; then, and in each such case, the Company and such Holder
will contribute to the aggregate losses, claims, damages or liabilities to which
they may be subject (after
18
<PAGE> 19
contribution from others) in such proportion so that such Holder is responsible
for the portion represented by the percentage that the public offering price of
its Registrable Securities offered by and sold under the registration statement
bears to the public offering price of all securities offered by and sold under
such registration statement, and the Company and other selling Holders are
responsible for the remaining portion; provided, however, that, in any such
case, (A) no such Holder will be required to contribute any amount in excess of
the public offering price of all such Registrable Securities offered and sold by
such Holder pursuant to such registration statement; and (B) no person or entity
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the 1933 Act) will be entitled to contribution from any person or entity who was
not guilty of such fraudulent misrepresentation.
(e) Survival. The obligations of the Company and Holders
under this Section 9.7 shall survive the completion of any offering of
Registrable Securities in a registration statement, and otherwise.
9.8. "Market Stand-Off" Agreement. Each Holder hereby agrees that
it shall not, to the extent requested by the Company or an underwriter of
securities of the Company, sell or otherwise transfer or dispose of any
Registrable Securities or other shares of stock of the Company then owned by
such Holder (other than to donees, partners or affiliates of the Holder who
agree to be similarly bound) for up to two hundred seventy (270) days following
the effective date of a registration statement of the Company filed under the
1933 Act; provided, however, that:
(a) such agreement shall be applicable only to the first
such registration statement of the Company which covers securities to be sold on
its behalf to the public in an underwritten offering but not to Registrable
Securities sold pursuant to such registration statement; and
(b) all executive officers, directors and stockholders
then holding Common Stock of the Company enter into similar agreements.
In order to enforce the foregoing covenant, the Company shall
have the right to place restrictive legends on the certificates representing the
shares subject to this Section and to impose stop transfer instructions with
respect to the Registrable Securities and such other shares of stock of each
Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
9.9. Rule 144 Reporting. With a view to making available the
benefits of certain rules and regulations of the Commission which may at any
time permit the sale of the Registrable Securities to the public without
registration, after such time as a public market exists for the Common Stock of
the Company, the Company agrees to:
(a) Make and keep public information available, as those
terms are understood and defined in Rule 144, at all times after the effective
date of the first registration under the 1933 Act filed by the Company for an
offering of its securities to the general public;
(b) Use its best efforts to file with the Commission in a
timely manner all reports and other documents required of the Company under the
1933 Act and the 1934 Act (at any time after it has become subject to such
reporting requirements); and
(c) So long as a Holder owns any Registrable Securities,
to furnish to the Holder forthwith upon request a written statement by the
Company as to its compliance with the reporting
19
<PAGE> 20
requirements of said Rule 144 (at any time after ninety (90) days after the
effective date of the first registration statement filed by the Company for an
offering of its securities to the general public), and of the 1933 Act and the
1934 Act (at any time after it has become subject to the reporting requirements
of the 1934 Act), a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents of the Company as a Holder may
reasonably request in availing itself of any rule or regulation of the
Commission allowing a Holder to sell any such securities without registration
(at any time after the Company has become subject to the reporting requirements
of the 1934 Act).
9.10. Termination of the Company's Obligations. The Company shall
have no obligations pursuant to this Section 9 with respect to: (i) any request
or requests for registration made by any Holder on a date more than five (5)
years after the closing date of the Initial Public Offering; (ii) any request or
requests for registration made by any Holder after an acquisition of the Company
by a publicly traded, reporting company, pursuant to which such Holder receives
registered securities listed for trading; or (iii) any Registrable Securities
proposed to be sold by a Holder in a registration pursuant to this Section 9 if,
in the opinion of counsel to the Company, all such Registrable Securities
proposed to be sold by a Holder may be sold in a three-month period without
registration under the 1933 Act pursuant to Rule 144.
10. MISCELLANEOUS.
10.1. Survival of Warranties. The representations, warranties and
covenants of the Company and the Investor contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and the
Closing and shall in no way be affected by any investigation of the subject
matter thereof made by or on behalf of the Investor or the Company, as the case
may be.
10.2. Successors and Assigns. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties.
10.3. Governing Law. This Agreement shall be governed by and
construed under the internal laws of the State of California, without reference
to principles of conflict of laws or choice of law.
10.4. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.5. Headings. The headings and captions used in this Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement. All references in this Agreement to sections,
paragraphs, exhibits and schedules shall, unless otherwise provided, refer to
sections and paragraphs hereof and exhibits and schedules attached hereto, all
of which exhibits and schedules are incorporated herein by this reference.
10.6. Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
deposit with the United States Post Office, by registered or certified mail,
postage prepaid and addressed to the party to be notified at the address
indicated for such party at the address specified on the signature page, or at
such other address as any party or the Company may designate by giving ten (10)
days advance written notice to all other parties.
10.7. No Finder's Fees. Each party represents that it neither is
nor will be obligated for any finder's or broker's fee or commission in
connection with this transaction. The Investor agrees to indemnify and to hold
harmless the Company from any liability for any commission or compensation in
the
20
<PAGE> 21
nature of a finders' or broker's fee (and any asserted liability) for which the
Investor or any of its officers, partners, employees, or representatives is
responsible. The Company agrees to indemnify and hold harmless the Investor from
any liability for any commission or compensation in the nature of a finder's or
broker's fee (and any asserted liability) for which the Company or any of its
officers, employees or representatives is responsible.
10.8. Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived only with
the written consent of the Company and the Investor.
10.9. Expenses. The Company and the Investor shall pay their own
fees and expenses incurred in entering into this Agreement.
10.10. Severability. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, such provision(s) shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision(s) were so excluded and shall be enforceable in
accordance with its terms.
10.11. Entire Agreement. This Agreement, together with all
exhibits and schedules hereto, constitutes the entire agreement and
understanding of the parties with respect to the subject matter hereof and
supersedes any and all prior negotiations, correspondence, agreements,
understandings duties or obligations between the parties with respect to the
subject matter hereof.
10.12. Further Assurances. From and after the date of this
Agreement, upon the request of the Investor or the Company, the Company and the
Investor shall execute and deliver such instruments, documents or other writings
as may be reasonably necessary or desirable to confirm and carry out and to
effectuate fully the intent and purposes of this Agreement.
10.13. Financial Statements and Other Information. The Company
shall deliver to the Investor for so long as the Investor is a holder of the
Purchased Shares or the Conversion Shares:
(a) as soon as available, but no later than 90 days after
the end of each fiscal year of the Company, a copy of the audited consolidated
balance sheet of the Company as of the end of such year and the related
statements of operations and cash flows for such fiscal year, accompanied by the
opinion of a nationally recognized independent certified public accounting firm
which report shall state without qualification that such consolidated financial
statements present fairly the consolidated financial condition as of such date
and results of operations and cash flows for the periods indicated in conformity
with generally accepted accounting principles applied on a consistent basis.
(b) As soon as available, but in any event not later than
45 days after the end of each of the first three fiscal quarters of each fiscal
year, the unaudited consolidated balance sheet of the Company and the related
statements of operations and cash flows for such quarter and for the period
commencing on the first day of the fiscal year and ending on the last day of
such quarter, all certified by an appropriate officer of the Company as
presenting fairly the consolidated financial condition as of such date and
results of operations and cash flows for the periods indicated in conformity
with generally accepted accounting principles applied on a consistent basis
(subject to normal year-end adjustments and the absence of required footnotes).
21
<PAGE> 22
(c) Contemporaneously with delivery to holders of Common
Stock, a copy of each report of the Company delivered to holders of Common
Stock.
(d) For so long as the Investor is eligible to receive
reports under this Section 10.13, the Investor shall also have the right, at its
expense, to visit and inspect any of the properties of the Company or any of its
subsidiaries, to examine its books of account and records, and to discuss their
affairs, finances and accounts with their officers, all at such reasonable times
and as often as may be reasonably requested, provided, however, that the Company
shall not be obligated to provide any information (i) that it reasonably
considers to be a trade secret or to contain confidential information or (ii)
the disclosure of which would constitute a violation of applicable federal or
state insider trading laws.
10.14. Standstill. The Investor agrees that, except for the
shares of Series G Preferred and Common Stock to be issued to the Investor
hereunder and any shares of Common Stock that may be issued to the Investor in
the Directed Offering, neither the Investor nor its affiliates will, for a
period of 12 months after the date of this Agreement, unless specifically
invited in writing by the Board of Directors of the Company, directly or
indirectly, effect or seek, offer or propose to acquire securities (or
beneficial ownership thereof) of the Company.
10.15. Prohibition Against Encoding and Delivering Pornography.
The Company agrees that it will not encode, distribute and/or deliver Adult
Video Content (as defined in the Strategic Alliance Agreement) over the Internet
at any time, after the expiration of the grace period set forth in Section 2.9.1
of the Strategic Alliance Agreement, that (i) the Investor may not immediately
sell all of the Purchased Shares or Conversion Shares held by it (whether
pursuant to an effective registration statement or Rule 144) or (ii) Multimedia
is precluded from immediately selling all of the Common Stock purchased by it in
the Directed Offering. If at any time the Company breaches the covenant
contained in this Section 10.15 or Section 2.9.1 of the Strategic Alliance
Agreement, the Investor and Multimedia shall have the option of exercising the
remedies set forth in Section 2.9.2 of the Strategic Alliance Agreement.
10.16. Reservation of Common Stock. The Company shall at all
times reserve and keep available out of its authorized shares of Common Stock,
solely for the purpose of issue or delivery upon conversion of the Purchase
Shares as provided in the Restated Certificate, the maximum number of shares of
Common Stock that may be issuable or deliverable upon such conversion or
exchange.
22
<PAGE> 23
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
THE COMPANY: THE INVESTOR:
InterVU Inc., National Broadcasting, Inc.,
a Delaware corporation a Delaware corporation
By: /s/ Harry E. Gruber By: /s/ Thomas A. Rogers
------------------------------- --------------------------------------
Name: Harry E. Gruber Name: Thomas Rogers
----------------------------- ------------------------------------
Title: Chief Executive Officer Title: Executive Vice President
---------------------------- -----------------------------------
MULTIMEDIA:
NBC Multimedia, Inc.,
a Delaware corporation
By: /s/ Chris Glowacki
--------------------------------------
Name: Chris Glowacki
-------------------------------------
Title: Vice President
-----------------------------------
Address for Notice for the Company: Address for Notice for the Investor and
Multimedia:
201 Lomas Santa Fe Drive 30 Rockefeller Plaza
Solana Beach, CA 92075 New York, NY 10112
Attn: Harry E. Gruber Attn: Legal Department
Fax: (212) 977-7165
with a copy to:
30 Rockefeller Plaza
New York, NY 10112
Attn: Chris Glowecki
Fax: (212) 664-5561
[SIGNATURE PAGE TO PREFERRED STOCK PURCHASE AGREEMENT]
23
<PAGE> 1
EXHIBIT 11.1
InterVU Inc.
STATEMENT RE: COMPUTATION OF PER SHARE LOSSES
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, September 30,
1996 1997
------------ -----------------
<S> <C> <C>
Net loss ........................................... (2,278,078) (3,342,808)
Common stock ....................................... 3,618,096 3,864,973
Conversion of Preferred Stock into Common Stock .... 2,022,605 2,278,964
Shares related to SAB No. 83 ....................... 1,696,747 2,109,156
---------- ----------
Shares used in computing pro forma net loss
per share ........................................ 7,337,448 8,253,093
========== ==========
Pro forma net loss per share ....................... $ (.31) $ (.41)
========== ==========
</TABLE>
<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 October __, 1997, in the Registration
Statement on Form S-1 and related Prospectus of InterVU Inc. (a development
stage company) expected to be filed on or about October __, 1997.
ERNST & YOUNG LLP
October __, 1997
San Diego, California
- --------------------------------------------------------------------------------
The foregoing consent is in the form that will be signed upon completion of
certain events as described in Note 8 to the financial statements.
San Diego, California
October 21, 1997
/s/ ERNST & YOUNG LLP
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996
AND AS OF AND FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 SEP-30-1997
<CASH> 2,507,822 4,358,088
<SECURITIES> 0 0
<RECEIVABLES> 0 50,582
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 2,517,917 4,419,594
<PP&E> 312,269 608,152
<DEPRECIATION> 59,983 177,754
<TOTAL-ASSETS> 2,776,477 5,080,130
<CURRENT-LIABILITIES> 153,054 277,999
<BONDS> 0 0
0 0
1,195 2,026
<COMMON> 4,007 3,929
<OTHER-SE> 2,591,721 4,785,202
<TOTAL-LIABILITY-AND-EQUITY> 2,776,477 5,080,130
<SALES> 0 0
<TOTAL-REVENUES> 0 84,122
<CGS> 0 0
<TOTAL-COSTS> 2,330,523 3,503,459
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (2,278,078) (3,342,808)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (2,278,078) (3,342,808)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,278,078) (3,342,808)
<EPS-PRIMARY> (.31) (.41)
<EPS-DILUTED> (.31) (.41)
</TABLE>
