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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 15, 1998
REGISTRATION NO. 333-51587
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 4 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
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(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
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6815 FLANDERS DRIVE
SAN DIEGO, CA 92121
(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
INTERVU INC.
6815 FLANDERS DRIVE
SAN DIEGO, CA 92121
(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. BARBARA M. LANGE, 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 TO BE PRICE MAXIMUM AGGREGATE REGISTRATION
OF SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE FEE
- --------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.001..... 1,380,000 shares $14.10 $19,458,000 $5,740(3)
==========================================================================================================================
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(1) Includes 180,000 shares subject to the Underwriters' option to cover
over-allotments.
(2) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(c) under the Securities Act of 1933, based on the average of the
high and low sales prices of the Company's Common Stock on the Nasdaq
National Market on June 4, 1998.
(3) A fee in the amount of $11,832 was previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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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 JUNE 15, 1998
PROSPECTUS
- --------------------------------------------------------------------------------
1,200,000 SHARES
LOGO
INTERVU INC.
COMMON STOCK
- --------------------------------------------------------------------------------
InterVU Inc. ("InterVU" or the "Company") hereby offers 1,200,000 shares of
Common Stock, $.001 par value per share (the "Common Stock").
The Common Stock is quoted on the Nasdaq National Market under the trading
symbol "ITVU." On June 4, 1998, the last sale price of the Common Stock as
reported on the Nasdaq National Market was $13.75 per share. See "Price Range of
Common Stock."
Harry E. Gruber, the Company's Chief Executive Officer and Chairman of the
Board, Brian Kenner, the Company's Vice President and Chief Technology Officer,
and the Willis Family Trust, of which Isaac Willis, a director of the Company,
is the settlor, have expressed an interest in purchasing an aggregate of up to
approximately 120,000 shares of Common Stock in this offering. See
"Underwriting."
- --------------------------------------------------------------------------------
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)
- ------------------------------------------------------------------------------------------------------------------
Per Share........................... $ $ $
- ------------------------------------------------------------------------------------------------------------------
Total(3)............................ $ $ $
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(1) See "Underwriting" for information concerning indemnification and
contribution arrangements with, and other compensation payable to, the
Underwriters and certain expense reimbursements.
(2) Before deducting offering expenses estimated to be $500,000, which are
payable by the Company.
(3) The Company has granted the Underwriters an option (the "Over-Allotment
Option"), exercisable for a period of 45 days after the date of this
Prospectus, to purchase up to an additional 180,000 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."
- --------------------------------------------------------------------------------
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 & Co. Inc., New York, New York, on
or about , 1998.
JOSEPHTHAL & CO. INC. CRUTTENDEN ROTH
INCORPORATED
The date of this Prospectus is , 1998.
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[INTERVU LOGO]
V-BANNER(TM) CLIENT VIDEOS
FREE
SOFTWARE InterVU's network approach to video delivery offers
Web site owners and advertisers a solution to
offering video on the Internet. 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
end-user. In the case of video banner
advertisements, the video is displayed
automatically to end-users. The InterVU Network
utilizes a number of proprietary technologies,
including InterVU's Smart Mirror technology, All
Eyes software, VU Finder 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.
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[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 forward and reverse, an
icon representing the presence of sound and 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), Global Media Network(TM), Global Multimedia
Network(TM), Smart Seek(TM), InterVU Player(TM), InstaVU Player(TM), InterVU
Network(TM), Smart Mirror(TM), SmartVU(TM), Virtual URL(TM), Virtual Hop(TM), VU
Finder(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, Global Media Network, Global Multimedia
Network, SmartVU, Virtual Hop, Virtual URL, VBANNER and the InterVU logo. The
Company has applied for servicemark registration on VUTOPIA. Major League
Baseball trademarks and copyrights are used with permission of Major League
Baseball Properties, Inc. NBC and the Peacock logo are registered trademarks of
National Broadcasting Company, Inc. NetShow(TM) is a trademark of Microsoft
Corporation. RealMedia(TM) is a trademark of RealNetworks, Inc. This Prospectus
also includes additional 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."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON
STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M.
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 and (ii) assumes no
exercise of the warrants to be issued by the Company to Josephthal & Co. Inc.
("Josephthal") and Cruttenden Roth Incorporated to purchase up to 120,000 shares
of Common Stock (the "Advisors' Warrants").
THE COMPANY
InterVU 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 to a large number of viewers, primarily for
entertainment companies and advertisers. 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 distributed network of
specialized video servers strategically situated on multiple backbones on the
Internet (the "InterVU Network"). The InterVU Network allows the Company to
deliver large amounts of high quality 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 has designed the InterVU Network to
perform operations and distribution activities for video content and advertising
on the Internet analogous to those performed by traditional broadcast television
networks for television content and advertising.
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. 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."
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"), Intel
Corp. ("Intel"), Major League Baseball, the Lifetime Television Network
(Hearst/ABC-Viacom Entertainment Service) and Yachting Magazine (Times Mirror
Magazines). The Company's video banner advertising technology, V-Banner, has
been used to promote Intel on 21 Web sites, including the ESPN SportsZone,
RealNetworks, Lycos and AudioNet Web sites. V-Banners also have been used to
promote Goldwin Golf on the GOLFonline Web site, the Columbia Pictures movie
"Air Force One" and Volvo cars on the Yahoo! Web site, Anheuser Busch on the
Major League Baseball Web site, United Airlines on the Comedy Central Web site
and Tabasco on the E!Online Web site. The Company also has an arrangement with
CNN to provide hosting and distribution services for video content on CNN's Web
sites. The Company expects that CNN will utilize the InterVU Network on busy
news days or at other times when CNN's needs for bandwidth exceed its internal
capacity.
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
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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 distributed 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 incurring
substantial start-up costs. Video messages are hosted on the InterVU Network but
accessed seamlessly 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 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 desk-top environments. The InterVU Network utilizes
a number of proprietary technologies, including the Company's Smart Mirror
technology, All Eyes software, VU Finder and EyeQ software, which together are
designed to deliver video to the end-user from the electronically closest
server, provide Web site owners and advertisers with the ability to reach an
increased number of end-users with their video content and improve end-users'
video viewing experience. The Company's EyeQ multimedia manager, which
downloads, installs and updates end-users' multimedia player software, supports
all major video players, including Microsoft Corporation's NetShow and
RealNetworks, Inc.'s RealMedia streaming video players.
In October 1997, the Company entered into a strategic alliance with NBC
Multimedia pursuant to which 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. In addition, NBC
acquired a 10% equity stake in the Company. The strategic alliance agreement
between the Company and NBC Multimedia (the "NBC Strategic Alliance Agreement")
provides for sharing of revenues from a new Web site called VideoSeeker, a
stand-alone site (www.videoseeker.com), that will be promoted on the NBC.com Web
site. VideoSeeker offers end-users a single source for online video
entertainment and information from NBC and its partners, as well as third-party
programmers. VideoSeeker features a wide array of streaming and downloadable
video content, including monologues from "The Tonight Show with Jay Leno,"
"Access Hollywood" celebrity interviews, backstage footage with NBC celebrities
and music videos from myLAUNCH, an online music site. The Company created the
video search engine used on the VideoSeeker site, owns the proprietary software
underlying the site and will manage and distribute all video, audio and
multimedia from the site via the InterVU Network. See "Risk Factors -- Risks
Associated with Strategic Alliance with NBC Multimedia" and
"Business -- Strategic Alliances -- Strategic Alliance with NBC Multimedia."
To enhance its ability to reach large advertisers, in January 1998 the
Company and MatchLogic, Inc. ("MatchLogic") entered into a strategic alliance
agreement (the "MatchLogic Strategic Alliance Agreement"). MatchLogic is a
leading online advertising management services firm and a subsidiary of Excite,
Inc. MatchLogic supports top advertisers such as General Motors and leading
advertising agencies such as McCann-Erickson. The Company and MatchLogic have
developed trueVU, a service designed to facilitate advertisers' use of
bandwidth-intensive media and robust video advertisements on the Internet.
trueVU combines InterVU's video delivery technology with MatchLogic's targeting,
distribution, reporting and performance measurement capabilities to provide
"one-stop shopping" for Internet advertisers and advertising agencies. trueVU
allows advertisers to stage advertising campaigns across a number of Web sites
without having to confirm the compatibility of their advertisements with the
software used on those sites. In addition, trueVU offers integrated reporting of
an advertisement's performance across a number of Web sites.
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 6815 Flanders Drive,
San Diego, California 92121, and its telephone number is (619) 350-1600.
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THE OFFERING
Common Stock Offered by the
Company..................... 1,200,000 shares
Common Stock to be Outstanding
After the Offering.......... 10,580,032 shares(1)
Use of Proceeds............... Increased sales and marketing efforts;
expansion of network operations; additional
software development; and working capital and
other general corporate purposes, including
possible future strategic alliances and
acquisitions. See "Use of Proceeds."
Nasdaq National Market
Symbol........................ ITVU
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(1) As of May 31, 1998, excludes (i) 1,331,546 shares of the Company's common
stock, par value $.001 per share (the "Common Stock"), issuable upon
exercise of outstanding options under the 1996 Stock Plan of InterVU Inc.
(the "1996 Stock Plan"), (ii) 806,144 shares issuable upon conversion of
1,280,000 shares of the Company's Series G Preferred Stock (the "Series G
Preferred") issued to NBC in connection with the formation of the strategic
alliance with NBC Multimedia, (iii) 200,000 shares of Common Stock issuable
upon exercise of warrants issued to Josephthal and Cruttenden Roth
Incorporated in connection with the Company's initial public offering (the
"IPO") in November 1997 (the "IPO Warrants") and (iv) 120,000 shares of
Common Stock issuable upon exercise of the Advisors' Warrants.
RISK FACTORS
In connection with the offering (the "Offering"), prospective investors
should carefully consider the factors set forth under "Risk Factors," including:
the Company's limited operating history, accumulated deficit and anticipated
losses; the uncertain market for the Company's specialized services; business
development and expansion risks and the possible inability to manage growth;
potential fluctuations in quarterly operating results and unpredictability of
future revenues; competition; risks associated with the strategic alliance with
NBC Multimedia; dependence upon other strategic alliances; risks of system
failures and security risks; risks of acquisitions and investments; dependence
on key personnel; unproven acceptance of the Company's fee structure;
intellectual property; risks of encoding and distributing adult video content;
dependence on increased usage and stability of the Internet; risks of
technological change; government regulation and legal uncertainties; volatility
of stock price; management's discretion over the use of proceeds of the
Offering; the anti-takeover effects of certain charter provisions; shares
eligible for future sale; control by existing stockholders; and immediate and
substantial dilution.
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SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
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PERIOD FROM
AUGUST 2, 1995 YEAR ENDED THREE MONTHS ENDED
(INCEPTION) TO DECEMBER 31, MARCH 31,
DECEMBER 31, ------------------------ ------------------------
1995 1996 1997 1997 1998
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STATEMENT OF OPERATIONS
DATA:
Total revenues............. $ -- $ -- $ 144 $ 10 $ 113
Operating expenses:
Research and
development........... 33 1,420 1,703 448 599
Selling, general and
administrative........ 16 910 3,148 561 1,589
Charges associated with
the NBC Strategic
Alliance
Agreement(1).......... -- -- 750 -- 3,873
---- ---------- ---------- ---------- ----------
Total operating
expenses....... 49 2,330 5,601 1,009 6,061
---- ---------- ---------- ---------- ----------
Loss from operations....... (49) (2,330) (5,457) (999) (5,948)
Interest income............ 3 52 192 21 196
---- ---------- ---------- ---------- ----------
Net loss................... $(46) $ (2,278) $ (5,265) $ (978) $ (5,752)
==== ========== ========== ========== ==========
Basic and diluted net loss
per share(2)............. $ (.66) $ (.90) $ (.21) $ (.66)
========== ========== ========== ==========
Shares used in computing
basic and diluted net
loss per share(2)........ 3,440,931 5,822,594 4,657,815 8,694,332
========== ========== ========== ==========
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MARCH 31, 1998
----------------------
AS
ACTUAL ADJUSTED(3)
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BALANCE SHEET DATA:
Cash and cash equivalents................................. $12,060 $26,905
Short-term investments.................................... 7,026 7,026
Working capital........................................... 18,455 33,300
Total assets.............................................. 20,081 34,926
Long-term lease commitments............................... 4 4
Total stockholders' equity................................ 19,219 34,064
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(1) As consideration for the strategic alliance with NBC Multimedia, the Company
issued 1,280,000 shares of Series G Preferred to NBC. In January 1998, the
Company expensed the then-fair value of 680,000 shares of the Series G
Preferred in the amount of $3.4 million. The Company expects to expense the
then-fair value of the remaining 600,000 shares of Series G Preferred in the
three months ending December 31, 1999. The charges also include $750,000 and
$500,000 in nonrefundable cash payments due to NBC under the NBC Strategic
Alliance Agreement expensed during the three months ended December 31, 1997
and March 31, 1998, respectively. See "Business -- Strategic
Alliances -- Strategic Alliance with NBC Multimedia."
(2) See Note 1 of Notes to Financial Statements for an explanation of the number
of shares used in computing pro forma basic and diluted net loss per share.
(3) As adjusted to reflect the sale by the Company of 1,200,000 shares of Common
Stock at the assumed public offering price of $13.75 per share, and the
application of the estimated 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.
RISK FACTORS RELATED TO THE COMPANY'S OPERATIONS
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 and the
Company's prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in early stages 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
March 31, 1998, had an accumulated deficit of $13.3 million. To date, the
Company has not generated any significant revenues and, as a result of the
significant expenditures that the Company plans to make in sales and marketing,
research and development and general and administrative activities over the near
term, the Company expects to continue to incur significant operating losses and
negative cash flows from operations on both a quarterly and annual basis 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.
Moreover, the Company must expense the fair value of the shares of Series G
Preferred issued to NBC in connection with the formation of the Company's
strategic alliance with NBC Multimedia as the requirements that NBC return some
or all of the shares of Series G Preferred upon termination of the NBC Strategic
Alliance Agreement lapse. In January 1998, the Company expensed $3.4 million for
the then-fair value of 680,000 shares of Series G Preferred and expects to
expense the then-fair value of the remaining 600,000 shares of Series G
Preferred in the quarter ending December 31, 1999. Should the Company
renegotiate or waive the provisions obligating NBC to return the remaining
600,000 shares of Series G Preferred (or shares of Common Stock issuable upon
conversion thereof, as the case may be) upon a termination of the NBC Strategic
Alliance Agreement by NBC without cause, the Company would expense the fair
value of the shares at that time. The non-cash charge with respect to the
remaining 600,000 shares of Series G Preferred is likely to be substantial and
is likely to have a material adverse effect on the Company's results of
operations in the period such expense is recognized.
UNCERTAIN MARKET FOR THE COMPANY'S SPECIALIZED SERVICES
The Company's services are highly specialized and designed solely to meet
Web site owners' and advertisers' Internet video delivery needs. There can be no
assurance that a market for Internet video delivery services will develop or
that any such market, if developed, will offer significant revenue opportunities
for specialized video delivery service providers such as the Company. The
Company's customers have only limited experience, if any, with Internet video as
a marketing and advertising medium, and neither its customers nor their
advertising agencies have devoted a significant portion of their advertising
budgets to Internet video
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advertising activities. In order for the Company to generate revenues, Web site
owners, advertisers and advertising agencies must direct a portion of their
budgets to Internet-based content, marketing and advertising that incorporate
video. Accordingly, if Internet-based content, marketing and advertising
incorporating video do not become widely adopted by Web site owners, 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."
BUSINESS DEVELOPMENT AND EXPANSION RISKS; POSSIBLE INABILITY TO MANAGE GROWTH
The Company's business plan will, if successfully implemented, result in
rapid expansion of its operations. Rapid expansion of the Company's operations
may place a significant strain on the Company's management, financial and other
resources. The Company's ability to manage future growth, should it occur, will
depend upon its ability to identify, attract, motivate, train and retain highly
skilled managerial, financial, engineering, business development, sales and
marketing and other personnel. Competition for such personnel is intense.
Moreover, the Company must continue to monitor operations, control costs,
maintain effective quality controls and significantly expand the Company's
internal management, technical, information and accounting systems. There can be
no assurance that the Company will successfully implement and maintain such
operational and financial systems or that it will successfully obtain, integrate
and utilize the management, operational and financial resources necessary to
manage a developing and expanding business in an evolving competitive industry.
Any failure to expand these areas and to implement and improve such systems,
procedures and controls in an efficient manner at a pace consistent with the
growth of the Company's business could have a material adverse effect on the
Company's business, prospects, financial condition and results of operations.
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 Multimedia), attract new customers at a steady rate and maintain customer
satisfaction; changes in the status of the Company's strategic alliances; the
level of use of the Internet and the growth of the market for video on the
Internet; the amount and timing of costs and expenditures relating to the
expansion of the Company's business; the introduction or announcement of new
Internet services by the Company and its competitors; price competition or
pricing changes in the Internet, cable and telecommunications industries;
technical difficulties or network downtime; general economic conditions; and
economic conditions specific to the Internet, Internet media, corporate intranet
and cable industries. As a result of the Company's limited operating history and
the emerging nature of the markets in which it competes, the Company is unable
to accurately forecast its revenues. In addition, the Company plans to increase
operating expenses to fund additional sales and marketing, research and
development and general and administrative activities. To the extent that these
expenses are not accompanied by an increase in revenues, the Company would have
to decrease or cease such expenditures or the Company's operating results and
financial condition could be materially adversely affected. Moreover, the
Company expects to expense the then-fair value of the remaining 600,000 shares
of Series G Preferred in the quarter ending December 31, 1999. Should the
Company renegotiate or waive the provisions in the NBC Strategic Alliance
Agreement obligating NBC to return the remaining 600,000 shares of Series G
Preferred (or the shares of Common Stock issuable upon conversion thereof, as
the case may be) upon a termination of the NBC Strategic Alliance Agreement by
NBC without cause, the Company would expense the fair value of such shares at
that time. The non-cash charge with respect to the remaining 600,000 shares of
Series G Preferred is likely to be substantial and is likely to have a material
adverse effect on the Company's results of operations in the period such expense
is recognized. 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 the
expectations of securities analysts or investors. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
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COMPETITION
The market for Internet services is highly competitive, and the Company
expects competition to increase significantly. Although the Company believes it
is the only company currently utilizing a distributed, multi-backbone network
approach to delivery of video on the Internet, 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 activities. Several companies offer services
that facilitate delivery of video over the Internet, including, among others,
RealNetworks, Inc. ("RealNetworks"), VDOnet Corp., VXtreme, Inc., AudioNet Inc.
and At Home Corporation. In August 1997, RealNetworks and MCI Communications
Corporation ("MCI") announced a strategic alliance involving the introduction of
a service, called Real Broadcasting Network ("RBN"), that delivers audio and
video broadcasts over the Internet. RBN reportedly permits 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. ("VXtreme"). Microsoft also holds significant equity positions in
RealNetworks and VDOnet Corp. In addition, as was the case with VXtreme,
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, number of end-users directed to client Web sites
("traffic flow"), data reporting and operating experience. The Company believes
that it compares favorably with its competitors with respect to each of these
factors, except brand recognition, traffic flow and operating experience, all of
which have been limited as a result of the Company's early stage of development.
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 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. The Company's
ability to achieve and maintain a leadership position in the Internet video
delivery market will depend, among other things, on the Company's success in
providing high-speed, high-quality video over the Internet, the Company's
marketing efforts and the reliability of the Company's networks and services,
none of which can be assured. 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 strategic responses 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.
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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 NBC Strategic Alliance Agreement with NBC Multimedia. The terms
of the NBC Strategic Alliance Agreement subject the Company to a number of risks
and uncertainties, including the following:
Broad Discretionary Powers of NBC Multimedia. The NBC Strategic Alliance
Agreement provides NBC Multimedia with broad discretion in a number of areas,
including (i) the determination of what materials and content will be made
available for downloading through the InterVU Network, (ii) the promotional
obligations of NBC Multimedia and (iii) the obligation of NBC Multimedia to
introduce the Company to television stations associated with the NBC television
network. The failure of NBC Multimedia to make a significant amount of
compelling material available for downloading through the InterVU Network and to
promote the Company and its Internet video delivery services could have a
material adverse effect on the Company's business, prospects, financial
condition and results of operations.
Limited Nature of Exclusive Rights. The NBC 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 NBC Strategic Alliance Agreement. The NBC 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 NBC 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 NBC Strategic
Alliance Agreement provides that the parties shall meet and consult with one
another in good faith and shall make good faith efforts to determine such cost
and revenue goals on or before October 10, 1998, there can be no assurance that
the Company and NBC Multimedia will be able to establish such mutually agreeable
cost and revenue goals. The failure of the Company and NBC Multimedia to reach
an agreement on this issue could have a material adverse effect on the Company's
business, prospects, financial condition and results of operations.
NBC Multimedia's Termination Rights. During the Exclusive Term, NBC
Multimedia may terminate the NBC Strategic Alliance Agreement without cause by
giving 90 days prior written notice to the Company. NBC Multimedia also has the
right to terminate the NBC 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 NBC Strategic Alliance Agreement and the Company is unable to cure
such failure within ten days of its receipt of notice. The NBC Strategic
Alliance Agreement requires the Company to maintain a successful user connection
rate of at least 98%. The failure to maintain such a connection rate could be
deemed to be a material breach by the Company of the NBC Strategic Alliance
Agreement, giving NBC Multimedia the right to terminate the NBC Strategic
Alliance Agreement for cause. Although the Company expects to maintain the
required connection rate, there can be no assurance that the Company can do so.
The Company has represented to NBC Multimedia in the NBC 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 NBC Strategic Alliance
Agreement for cause. The termination of the NBC 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
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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 relationships 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 the NBC Strategic Alliance Agreement is terminated for any reason, the
$750,000 balance of non-refundable payments would be immediately payable by the
Company to NBC Multimedia. See "Business -- Strategic Alliances -- Strategic
Alliance with NBC Multimedia." In addition, if NBC Multimedia terminates the NBC
Strategic Alliance Agreement without cause before October 10, 1999, then NBC or
NBC Multimedia would be required to return to the Company 600,000 shares of the
Series G Preferred (or the shares of Common Stock issuable upon conversion
thereof, as the case may be); provided that NBC or NBC Multimedia would not be
required to return any of such shares until the Company had made all
nonrefundable payments described above. Neither NBC nor NBC Multimedia is
obligated to return any shares to the Company if the NBC Strategic Alliance
Agreement is terminated by NBC Multimedia for cause.
Limited Nature of Revenue Sharing Rights. The NBC Strategic Alliance
Agreement provides for sharing of revenue from a new Web site called
VideoSeeker, a stand-alone site (www.videoseeker.com), which will be promoted on
the NBC.com Web site. VideoSeeker offers end-users a single source for online
video entertainment from NBC and its partners, as well as third-party
programmers. The Company is entitled to receive 30% of the actual NBC cash
receipts, if any, from advertising, transactions and subscriptions directly
attributable to VideoSeeker, less certain associated costs and expenses.
VideoSeeker became operational in April 1998, and no significant revenues have
been generated. There can be no assurance that any significant revenues will be
generated by VideoSeeker. In addition, the NBC 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 service delivery
rates. See "Business -- Strategic Alliances -- Strategic Alliance with NBC
Multimedia."
DEPENDENCE UPON OTHER STRATEGIC ALLIANCES
In addition to its strategic alliance with NBC Multimedia, the Company
relies on its strategic alliance with MatchLogic and other strategic
relationships. Under the MatchLogic Strategic Alliance Agreement entered into in
January 1998, MatchLogic has agreed to use InterVU exclusively to provide
delivery services for online advertisements using specified technologies,
including video ("Media Rich Ads"), and the Company has obtained the exclusive
right to use MatchLogic's distribution, reporting and performance measurement
capabilities in connection with Media Rich Ads, subject to certain exceptions.
The Company also has agreed that it will not distribute Media Rich Ads for any
company, other than MatchLogic, that provides third-party advertising management
services. Notwithstanding the exclusivity provisions contained in the MatchLogic
Strategic Alliance Agreement, MatchLogic may decline to provide advertising
management services in connection with any particular Media Rich Ad project. In
such a case, the Company would be permitted to use a different advertising
management company, but there can be no assurance that the Company would be able
to locate and establish a relationship with another advertising management
company that would perform services equivalent to those performed by MatchLogic.
In addition, to the extent third parties develop new technologies for media rich
advertising and the Company declines to develop the processes required for the
distribution of advertisements using such technology, MatchLogic may use another
service provider to deliver such advertisements until such time, if ever, that
InterVU develops the necessary processes for delivering such advertisements.
MatchLogic also would be allowed to use another service provider for a project
if the Company consistently failed to meet prevailing industry standards for
performance on previous projects using the media rich technology used on the
project. Moreover, neither party is required to participate in an advertising
campaign on which it projects an actual financial loss. The MatchLogic Strategic
Alliance Agreement has a three-year term, and automatically renews for
additional one-year terms unless either party gives prior written notice of its
intent to terminate the MatchLogic Strategic Alliance
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Agreement. The MatchLogic Strategic Alliance Agreement may be terminated
immediately by either party in the event the other party breaches any material
provision of the agreement. See "Business -- Strategic Alliances -- Strategic
Alliance with MatchLogic." There can be no assurance that the Company's existing
strategic relationships, including its alliance with MatchLogic, will be
maintained through their initial terms or extended at the end of such terms or
that additional third-party alliances will be available to the Company on
acceptable commercial terms or at all. The inability to enter into new, and to
maintain any one or more of its existing, strategic alliances could have a
material adverse effect on the Company's business, prospects, financial
condition and results of operations.
RISK OF SYSTEM FAILURE; SECURITY RISKS
The Company's success in marketing its services to Web site owners and
advertisers requires the Company to provide reliable service. The Company's
networks are subject to physical damage, power loss, capacity limitations,
software defects, breaches of security and other factors which may cause
interruptions in service or reduced capacity for the Company's customers. In
particular, the Company's network may be vulnerable to unauthorized access,
computer viruses and other disruptive problems despite the Company's
implementation of security measures. 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. Interruptions in service, capacity
limitations or security breaches could have a material adverse effect on
customer acceptance and, therefore, on the Company's business. Lapses in service
or reliability also could lead to a loss of customers, which also could have a
material adverse effect on the Company's business, prospects, financial
condition and results of operations. In addition, the Company believes that in
the future its advertising customers may ask the Company to agree to indemnify
them for the costs of advertising space that goes unused as a result of a
service failure on the part of the Company. In the event of a prolonged service
failure, the Company's liability for such unused space could be significant and
could have a material adverse effect on the Company's business, prospects,
financial condition and results of operations.
RISKS OF ACQUISITIONS AND INVESTMENTS
As part of its overall strategy, the Company may acquire and develop
businesses, products, and technologies and enter into joint ventures and
strategic alliances with other companies. Any such transactions would be
accompanied by the risks commonly encountered in such transactions. In
particular, acquisitions of high-technology companies include such risks as the
difficulty of assimilating the operations and personnel of the combined
companies, the potential disruption of the Company's ongoing business, the
inability to retain key technical and managerial personnel, the inability of
management to maximize the financial and strategic position of the Company
through the successful integration of acquired businesses, the incurrence of
additional expenses associated with amortization of acquired intangible assets,
the difficulty of maintaining uniform standards, controls, procedures and
policies, the impairment of relationships with employees and customers as a
result of any integration of new personnel, as well as the diversion of
management's attention during the acquisition and integration process. The
Company does not have significant experience in the identification and
management of acquisitions, and the success of its acquisitions, if any, will
depend on the effective management of the foregoing risks. The Company may not
overcome these risks or any other problems encountered in connection with
acquisitions, investments, joint ventures and strategic alliances, which could
have a material adverse effect on the Company's business, prospects, financial
condition and results of operations.
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
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and Chairman of the Board, Brian Kenner, its Vice President and Chief Technology
Officer, and Kenneth L. Ruggiero, its Vice President and Chief Financial
Officer. 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 maintains 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 or Mr. Ruggiero.
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 for video delivery and fees for 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. The Company's
inability to adjust its fee structure in response to customers' usage levels
would have a material adverse effect on the Company's business, prospects,
financial condition and results of operations.
INTELLECTUAL PROPERTY
The Company regards its technology as proprietary and attempts to protect
it with patents, copyrights, trademarks, trade secret laws, restrictions on
disclosure and other methods. The Company has filed eight United States patent
applications and four international patent applications 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 nondisclosure 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.
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 the NBC Strategic Alliance Agreement that
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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 NBC 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 imposition upon the Company, ISPs or Web server hosts of
potential liability for materials carried on or disseminated through their
systems could require the Company to implement measures to reduce its exposure
to such liability, which may require the expenditure of substantial resources or
the discontinuation of certain product or service offerings. Further, the costs
incurred in defending against any such claims and potential adverse outcomes of
such claims could have a material adverse effect on the Company's business,
prospects, financial condition and results of operations.
The loss of customers as a result of the Company's becoming associated with
adult Web sites could have a material adverse effect on the Company's business,
prospects, financial condition and results of operations. Such association could
result even if the Company does not use the InterVU Network in connection with
the encoding or distribution of adult video content. For example, if an end-user
utilizing an Internet browser attempts to view an adult video and such end-user
does not have the necessary software, or "plug-in," he or she will automatically
be directed to the browser's plug-in finder page which lists the particular
plug-ins, including the InterVU Player, that can display the video. If the
InterVU Player is selected by the end-user, or if the end-user has already
installed the InterVU Player, the adult video will be presented within the
InterVU Player and with the InterVU name displayed in the manner depicted by the
graphics located on the inside front cover page of this Prospectus.
RISKS RELATED TO THE INTERNET INDUSTRY
DEPENDENCE ON INCREASED USAGE AND STABILITY OF THE INTERNET
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 also 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 or better than 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. See "Business -- Technology
Overview" and "-- Customer Services."
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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.
RISKS RELATED TO THE OFFERING AND THE COMMON STOCK
VOLATILITY OF STOCK PRICE
The trading price of the Common Stock has been, and is likely to continue
to be, highly volatile and in the future could be subject to wide fluctuations
in response to factors such as actual or anticipated variations in quarterly
operating results, announcements of technological innovations, changes in the
status of the Company's strategic alliances, 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 alliances, 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
valuations substantially above historical levels. There can be no assurance that
these trading prices and valuations 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. Fluctuations in
the market price of the Company's Common Stock may in turn adversely affect the
Company's ability to complete any targeted acquisitions, its access to capital
and financing and its ability to attract and retain qualified personnel.
Moreover, 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.
MANAGEMENT'S DISCRETION OVER USE OF PROCEEDS OF THE OFFERING
The Company expects to use the net proceeds of the Offering for increased
sales and marketing efforts, expansion of network operations, additional
software development and working capital and other general corporate purposes.
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 or enter into additional strategic alliances. From time to time, in
the ordinary course of business, the Company expects to evaluate potential
acquisitions of such businesses, products or technologies or investments therein
or potential alliances. However, the Company has no present understandings,
commitments or agreements with respect to any
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material acquisition, investment or strategic alliance. 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."
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, the President or the
Secretary 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, 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 could materially adversely affect the prevailing market price of the
Common Stock. Upon completion of the Offering, the Company will have 10,580,032
shares of Common Stock outstanding. The 1,200,000 shares offered in the Offering
(plus any shares issued upon exercise of the Over-Allotment Option) and the
2,000,000 shares sold in the IPO will be freely tradable 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
7,380,032 shares of Common Stock, all will be eligible for sale under Rule 144
under the Securities Act, subject to certain volume and other limitations, upon
the expiration of certain lock-up agreements. All of such shares, other than
210,526 shares of Common Stock issued to NBC Multimedia in a direct offering
concurrent with the IPO (the "Direct Offering"), are subject to lock-up
agreements expiring August 19, 1998 executed with Josephthal in connection with
the IPO. The Company expects that 4,964,625 shares (including the 210,526 shares
issued in the Direct Offering) will be subject to lock-up agreements between
Josephthal and the directors, officers and five percent stockholders of the
Company covering the 120-day period commencing on the date of this Prospectus.
Moreover, 806,144 shares of Common Stock issuable upon conversion of the Series
G Preferred will be eligible for sale under Rule 144 under the Securities Act as
of October 10, 1998. The Company expects that such shares also will be subject
to 120-day lock-up 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 the lock-up agreements. Josephthal has agreed to release a
sufficient number of shares of Common Stock from lock-up agreements executed by
Harry E. Gruber, Brian Kenner and Isaac Willis in connection with the IPO and
the Offering to permit such shares to be pledged as collateral for margin loans
that may be used to purchase shares in the Offering. See "Underwriting." The
Company also intends to register on Form S-8 following the effective date of the
Offering a total of 1,331,546 shares of Common Stock subject to outstanding
options granted under the 1996 Stock Plan. In addition, the Company intends to
register on Form S-8 2,000,000 shares of Common Stock reserved for issuance
under the 1998 Stock Option Plan of InterVU Inc. (the "1998 Stock Option Plan")
and 500,000 shares of Common Stock reserved for issuance under the Employee
Qualified Stock Purchase Plan of InterVU Inc. (the "Qualified Stock Purchase
Plan").
16
<PAGE> 18
The 1998 Stock Option Plan and the Qualified Stock Purchase Plan have been
adopted by the Board of Directors, subject to stockholder approval at the 1998
Annual Meeting of Stockholders to be held in June 1998. For more information
regarding the 1998 Stock Option Plan and the Qualified Stock Purchase Plan, see
"Management -- 1998 Stock Option Plan" and "-- Qualified Stock Purchase Plan."
If the 1998 Stock Option Plan is approved by stockholders at the 1998 Annual
Meeting, the Company will cease to reserve the 523,736 shares of Common Stock
currently reserved for issuance under the 1996 Stock Plan but not yet subject to
options. In connection with the Offering, the Company has agreed to sell to
Josephthal and Cruttenden Roth Incorporated, for nominal consideration, the
Advisors' Warrants to purchase from the Company 120,000 shares of Common Stock.
The Advisors' Warrants are initially exercisable at a price per share equal to
120% of the 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 Josephthal and Cruttenden Roth Incorporated. 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" and
"Shares Eligible for Future Sale."
CONTROL BY EXISTING STOCKHOLDERS
As of May 31, 1998, 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, beneficially owned
approximately 40.5% of the outstanding shares of Common Stock. Accordingly,
these stockholders may be able to elect all of the 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."
IMMEDIATE AND SUBSTANTIAL DILUTION
Investors participating in the Offering will incur immediate, substantial
dilution in the amount of $10.53 per share in the net tangible book value per
share of the Common Stock as of March 31, 1998, assuming a public offering price
of $13.75 per share and after deducting estimated underwriting discounts and
other estimated expenses of the Offering. To the extent that outstanding options
and warrants to purchase the Common Stock are exercised or shares of Series G
Preferred are converted, there will be further substantial dilution. See
"Dilution."
17
<PAGE> 19
USE OF PROCEEDS
The net proceeds to the Company from the sale of 1,200,000 shares of Common
Stock offered in the Offering are estimated to be $14.8 million ($17.1 million
if the Over-Allotment Option is exercised in full), after deducting the
underwriting discounts and other estimated expenses of the Offering payable by
the Company.
The Company intends to use the estimated net proceeds as follows: (i)
approximately $5.0 million for increased sales and marketing efforts; (ii)
approximately $4.7 million to expand network operations; (iii) approximately
$3.1 million for additional software development; and (iv) approximately $2.0
million for working capital and other general corporate purposes. Furthermore,
from time to time the Company expects to evaluate potential acquisitions of, or
investments in, businesses, products and technologies that are complementary to
those of the Company, and potential alliances, for which a portion of the net
proceeds from the Offering may be used. While the Company engages from time to
time in discussions with respect to potential investments, acquisitions or
strategic alliances, the Company has no plans, commitments, or agreements with
respect to any material investments, acquisitions or strategic alliances.
Pending such uses, the Company intends to invest the net proceeds of the
Offering in investment-grade, interest-bearing securities. The Company believes
that the net proceeds from the Offering, together with existing cash, cash
equivalents, short-term investments and capital lease financing, will be
sufficient to meet its working capital and capital expenditure requirements
through the end of 1999.
PRICE RANGE OF COMMON STOCK
The Company completed its initial public offering on November 23, 1997 at a
price to the public of $9.50 per share. Since November 19, 1997, the Common
Stock has been quoted on the Nasdaq National Market under the symbol "ITVU." The
following table sets forth for the periods indicated the high and low sale
prices for the Common Stock as reported on the Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1997
4th Quarter (from November 19, 1997)..................... $10.25 $ 8.13
1998
1st Quarter.............................................. 14.50 7.63
2nd Quarter (through June 4, 1998)....................... 32.38 12.75
</TABLE>
On June 4, 1998, the last sale price of the Common Stock as reported on the
Nasdaq National Market was $13.75. As of May 31, 1998, there were approximately
152 holders of record of the Common Stock.
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 the Common Stock in the
foreseeable future.
18
<PAGE> 20
DILUTION
The net tangible book value of the Company as of March 31, 1998 was $19.2
million, or $2.05 per share of Common Stock. 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 number of shares of Common
Stock outstanding. After giving effect to the sale by the Company of the
1,200,000 shares of Common Stock offered in the Offering at an assumed public
offering price of $13.75 per share (after deducting estimated underwriting
discounts and other estimated expenses of the Offering), the adjusted net
tangible book value of the Company as of March 31, 1998 would have been $34.1
million, or $3.22 per share of Common Stock. This represents an immediate
increase in net tangible book value of $1.17 per share to existing stockholders
and an immediate dilution of $10.53 per share to new investors. The following
table illustrates the per share dilution in net tangible book value to new
investors:
<TABLE>
<S> <C> <C>
Assumed public offering price per share................ $ 13.75
Net tangible book value per share as of March 31,
1998.............................................. $ 2.05
Increase per share attributable to new investors..... 1.17
--------
Net tangible book value per share after the Offering... 3.22
--------
Dilution per share to new investors.................... $ 10.53
========
</TABLE>
The following table summarizes as of March 31, 1998, on a pro forma basis,
the differences in total consideration paid and the average price per share paid
by existing stockholders and new investors 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).... 9,380,032 88.7% $31,416,000 65.6% $ 3.35
New investors(2)............ 1,200,000 11.3 16,500,000 34.4 13.75
----------- ----- ----------- -----
Total(2).................... 10,580,032 100.0% $47,916,000 100.0%
=========== ===== =========== =====
</TABLE>
- ---------------
(1) The information presented with respect to existing stockholders assumes (i)
no conversion of Series G Preferred into Common Stock, (ii) no exercise of
outstanding options to purchase 1,331,546 shares of Common Stock granted
under the 1996 Stock Plan, (iii) no exercise of the IPO Warrants to purchase
200,000 shares of Common Stock and (iv) no exercise of the Advisors'
Warrants to purchase 120,000 shares of Common Stock. The issuance of Common
Stock upon the conversion of the Series G Preferred, the exercise of the
options granted under the 1996 Stock Plan and the exercise of Advisors'
Warrants will result in further dilution to new investors. See "Management"
and Note 5 of Notes to Financial Statements.
(2) If the Over-Allotment Option is exercised in full, the Company will issue an
additional 180,000 shares of Common Stock to new investors (1.7% of the
total of 10,760,032 shares of Common Stock outstanding) and the total
consideration from new investors will be $19.0 million (37.7% of the total
of $50.4 million paid for all shares of Common Stock outstanding).
19
<PAGE> 21
CAPITALIZATION
The following table sets forth the actual capitalization of the Company as
of March 31, 1998 and as adjusted as of such date to give effect to the
application of the estimated net proceeds from the sale by the Company of
1,200,000 shares of Common Stock offered in the Offering (at an assumed public
offering price of $13.75 per share and after deducting the underwriting
discounts and other estimated expenses of the Offering). The table should be
read in conjunction with the financial statements and the related notes
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
Long-term lease commitments................................. $ 4 $ 4
Stockholders' equity:
Preferred Stock, $.001 par value; 5,000,000 shares
authorized, 1,280,000 shares issued and outstanding,
actual and as adjusted................................. 1 1
Common Stock, $.001 par value; 20,000,000 shares
authorized, 9,380,032 shares issued and outstanding,
actual; 20,000,000 shares authorized, 10,580,032 shares
issued and outstanding, as adjusted(1)................. 9 11
Additional paid-in capital................................ 33,216 48,059
Deferred compensation..................................... (666) (666)
Deficit accumulated during the development stage.......... (13,341) (13,341)
-------- --------
Total stockholders' equity.................................. 19,219 34,064
-------- --------
Total capitalization.............................. $ 19,223 $ 34,068
======== ========
</TABLE>
- ---------------
(1) Excludes 1,331,546 shares of Common Stock issuable upon exercise of
outstanding options under the 1996 Stock Plan, 806,144 shares of Common
Stock issuable upon conversion of the Series G Preferred, 200,000 shares of
Common Stock issuable upon exercise of the IPO Warrants and 120,000 shares
of Common Stock issuable upon exercise of the Advisors' Warrants.
20
<PAGE> 22
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The selected financial data set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and notes thereto included elsewhere in
this Prospectus. The statement of operations data for the period from August 2,
1995 (Inception) through December 31, 1995 and for the years ended December 31,
1996 and 1997 and the balance sheet data as of December 31, 1996 and 1997 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 three months ended March 31, 1997 and 1998 and the
balance sheet data as of March 31, 1998 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 three months ended March 31, 1998 are not necessarily indicative
of the results to be expected for the full fiscal year.
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 2, 1995 YEAR ENDED THREE MONTHS ENDED
(INCEPTION) TO DECEMBER 31, MARCH 31,
DECEMBER 31, ------------------------ ------------------------
1995 1996 1997 1997 1998
-------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................ $ -- $ -- $ 144 $ 10 $ 113
Operating expenses:
Research and development......... 33 1,420 1,703 448 599
Selling, general and
administrative................. 16 910 3,148 561 1,589
Charges associated with the NBC
Strategic Alliance
Agreement(1)................... -- -- 750 -- 3,873
---- ---------- ---------- ---------- ----------
Total operating expenses.... 49 2,330 5,601 1,009 6,061
---- ---------- ---------- ---------- ----------
Loss from operations................ (49) (2,330) (5,457) (999) (5,948)
Interest income..................... 3 52 192 21 196
---- ---------- ---------- ---------- ----------
Net loss............................ $(46) $ (2,278) $ (5,265) $ (978) $ (5,752)
==== ========== ========== ========== ==========
Basic and diluted net loss per
share(2)......................... $ (.66) $ (.90) $ (.21) $ (.66)
========== ========== ========== ==========
Shares used in computing basic and
diluted net loss per share (2)... 3,440,931 5,822,594 4,657,815 8,694,332
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- MARCH 31,
1996 1997 1998
------ ------- ---------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $2,508 $21,380 $12,060
Short-term investments...................................... -- -- 7,026
Working capital............................................. 2,365 20,947 18,455
Total assets................................................ 2,776 22,130 20,081
Long-term liabilities....................................... 27 8 4
Total stockholders' equity.................................. 2,597 21,532 19,219
</TABLE>
- ---------------
(1) As consideration for the strategic alliance with NBC Multimedia, the Company
issued 1,280,000 shares of Series G Preferred to NBC. In January 1998, the
Company expensed the then-fair value of 680,000 shares of the Series G
Preferred in the amount of $3.4 million. The Company expects to expense the
then-fair value of the remaining 600,000 shares of Series G Preferred in the
three months ending December 31, 1999. The charges also include $750,000 and
$500,000 in nonrefundable cash payments due to NBC under the NBC Strategic
Alliance Agreement expensed during the three months ended December 31, 1997
and March 31, 1998, respectively. See "Business -- Strategic
Alliances -- Strategic Alliance with NBC Multimedia."
(2) See Note 1 of Notes to Financial Statements for an explanation of the number
of shares used in computing basic and diluted net loss per share.
21
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion contains forward-looking statements regarding the
Company, its business, prospects and results of operations that are subject to
certain risks and uncertainties posed by many factors and events that could
cause the Company's actual business, prospects and results of operations to
differ materially from those that may be expressed or implied by such
forward-looking statements. Such risks, uncertainties and other factors include,
but are not limited to, the risks detailed in the "Risk Factors" section of this
Prospectus.
OVERVIEW
The Company was incorporated in August 1995 and launched the InterVU
Network in December 1996. The Company began recognizing revenue during 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 March 31, 1998, had an accumulated deficit of $13.3
million. To date, the Company has not generated any significant revenues, and,
as a result of the significant expenditures that the Company plans to make in
sales and marketing, research and development and general and administrative
activities over the near term, the Company expects to continue to incur
significant operating losses and negative cash flows from operations on both a
quarterly and annual basis 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 Market for the Company's Specialized Services."
As consideration for the strategic alliance with NBC Multimedia, the
Company issued 1,280,000 shares of Series G Preferred to NBC, and NBC Multimedia
granted the Company exclusive rights to deliver most NBC audio/video content by
means of NBC Internet Sites. NBC Multimedia may terminate the NBC Strategic
Alliance Agreement without cause by giving 90 days prior written notice and is
required to return 600,000 shares of Series G Preferred (or the shares of Common
Stock issuable upon conversion thereof, as the case may be) if the termination
occurs at any time on or before October 10, 1999. Notwithstanding the foregoing,
NBC is not required to return any such shares until it has received from the
Company the $2.0 million of nonrefundable payments described below under
"-- Liquidity and Capital Resources." In January 1998, a requirement that NBC
return 680,000 shares of Series G Preferred upon termination of the NBC
Strategic Alliance Agreement lapsed. As a result, in January 1998 the Company
expensed the then-fair value of the 680,000 shares of Series G Preferred in the
amount of $3.4 million. The Company expects to expense the then-fair value of
the remaining 600,000 shares of Series G Preferred in the three months ending
December 31, 1999. Should the Company renegotiate or waive the provisions
obligating NBC to return the remaining 600,000 shares of Series G Preferred (or
the shares of Common Stock issuable upon conversion thereof, as the case may
be), removing NBC's obligation to return the shares, the Company would expense
22
<PAGE> 24
the fair value of the shares at that time. The Company believes that the fair
value of each share of Series G Preferred will roughly approximate the price per
share at which the Common Stock is then trading, multiplied by the .6298
conversion ratio applicable to the Series G Preferred. The non-cash charge with
respect to the remaining 600,000 shares of Series G Preferred is likely to be
substantial and is likely to have a material adverse impact on the Company's
results of operations in the period such expense is recognized.
The Company's economic model is predicated upon achieving significant
economies of scale relative to variable and, to a lesser extent, fixed
telecommunications costs. The Company has developed a series of software tools
and a software system that perform various functions, including analyzing
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
ISPs. It is the Company's intention to continue to contract with selected ISPs
in the future for Internet services, as well as to continue to procure and
install selected servers over a variety of Internet backbones and selected
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 depreciation of
its servers. To the extent that such economies of scale are not realized, the
Company's business, prospects, financial condition and results of operations
will be materially adversely affected.
RESULTS OF OPERATIONS
GENERAL
The financial results for the period from August 2, 1995 (Inception) to
March 31, 1998 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
1997 and, as such, the Company believes that any comparison of the results of
operations for the three months ended March 31, 1998 and 1997 and for the twelve
months ended December 31, 1997 and 1996 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 encoding and
other customer services are recognized during the period in which services are
provided. 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. The Company terminated its free
trial service program in August 1997. The Company may elect to resume the free
trial service program 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 to date have focused in three
areas: the development of software tools and enabling platforms for the
load-balanced 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 end-user tools for displaying multimedia content
including 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
23
<PAGE> 25
Internet access and telecommunications transport costs ("bandwidth"). These
costs have both fixed and variable components. 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 depreciated over the useful life of the
asset.
Charges associated with the NBC Strategic Alliance Agreement are comprised
of a non-cash charge related to the lapse of NBC's obligations to return 680,000
shares of Series G Preferred and nonrefundable cash payments due to NBC
Multimedia under the NBC Strategic Alliance Agreement. See "Business --
Strategic Alliances -- Strategic Alliance with NBC Multimedia."
THREE MONTHS ENDED MARCH 31, 1998 COMPARED WITH THREE MONTHS ENDED MARCH
31, 1997
Total revenues for the three months ended March 31, 1998 and 1997 were
$113,000 and $10,000, respectively. During the first quarter of 1998, the
Company expanded the InterVU Network to service larger volumes of multimedia
content and, as a result, performed services with respect to Intel advertising
campaigns which accounted for $40,000 of revenues for the three months ended
March 31, 1998. The balance of the increase is comprised of revenues from video
delivery or V-Banner service to a variety of other customers and reflects
expansion of the Company's sales force from three employees at March 31, 1997 to
eight employees at March 31, 1998.
Research and development expenses for the three months ended March 31, 1998
and 1997 were $599,000 and $448,000, respectively. The increase in research and
development expenses reflects additions to the Company's research and
development staff and an increase in facilities costs.
Selling, general and administrative expenses for the three months ended
March 31, 1998 and 1997 were $1.6 million and $561,000, respectively. The
increase is primarily attributable to an increase in expenses related to the
addition of 16 sales, marketing and administrative positions and associated
recruiting costs of $382,000, an increase in expenses relating to trade shows,
advertising campaigns and other sales and marketing efforts of $350,000,
increased bandwidth and related production costs of $141,000 and an increase in
legal, accounting and other fees associated with being a publicly traded company
of $73,000.
Charges associated with the NBC alliance for the three months ended March
31, 1998 were $3.9 million. No such charges were recorded in the three months
ended March 31, 1997. The charges in the 1998 period reflected (i) a non-cash
charge of $3.4 million relating to the lapse of NBC's obligation to return
680,000 shares of Series G Preferred and (ii) a charge of $500,000 for a portion
of the remaining nonrefundable cash payments due to NBC Multimedia under the NBC
Strategic Alliance Agreement. See "Business -- Strategic Alliances -- Strategic
Alliance with NBC Multimedia."
Interest income was $196,000 and $21,000 for the three months ended March
31, 1998 and 1997, respectively. Interest income represents interest earned by
the Company on its cash, cash equivalents and short-term investments. The
increase was primarily the result of higher cash and cash equivalents and short-
term investments balances resulting from sales of equity securities.
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996
Total revenues were $144,000 for 1997, most of which was derived from
delivery fees and customer services provided to the Company's initial customers.
The Company had no revenues for 1996.
Research and development expenses for the years ended December 31, 1997 and
1996 were $1.7 million and $1.4 million, respectively. The increase in research
and development expenses was attributable to the increase in personnel and
related expenses.
Selling, general and administrative expenses were $3.1 million and $910,000
for the years ended December 31, 1997 and 1996, respectively. The increase in
1997 over 1996 was attributable primarily to an increase of $1.2 million in
personnel and associated costs, primarily related to sales and marketing, an
increase of $297,000 for expenditures for trade shows and other public relations
expenses, an increase of $237,000 in
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amortization of deferred compensation, an increase of $229,000 for bandwidth
costs and an increase of $175,000 for travel and entertainment expenses.
Charges associated with the NBC Strategic Alliance Agreement for 1997 were
$750,000. No such charges were recorded in 1996. The 1997 charges reflected the
payment of the first $750,000 of the $2.0 million of nonrefundable cash payments
due to NBC Multimedia under the NBC Strategic Alliance Agreement. See
"Business -- Strategic Alliances -- Strategic Alliance with NBC Multimedia."
Interest income was $192,000 and $52,000 for the years ended December 31,
1997 and 1996, respectively. The increase in interest income for 1997 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 and
credits incurred for any period from inception to December 31, 1997. The
utilization of these losses and credits is contingent upon the Company's ability
to generate taxable income in the future. Because of that uncertainty, the
Company has recorded a full valuation allowance with respect to these deferred
tax assets. See Note 7 of Notes to Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily through
sales of equity securities. Through March 31, 1998, the Company had raised $28.8
million from the sale and issuance of preferred stock and Common Stock. At March
31, 1998, the principal source of liquidity for the Company was $19.1 million of
cash and cash equivalents and short-term investments.
The Company has had significant negative cash flows from operating
activities since inception. Cash used in operating activities for the three
months ended March 31, 1998 and 1997 was $2.0 million and $904,000,
respectively, and for the years ended December 31, 1997 and 1996 was $4.6
million and $2.1 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 three months ended March 31, 1998
and 1997 was $7.3 million and $101,000, respectively, and for the years ended
December 31, 1997 and 1996 was $484,000 and $305,000, respectively, primarily
representing purchases of short-term investments, 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 to expand the InterVU
Network, a portion of which it may finance through capital leases.
Cash used in financing activities of $2,000 for the three months ended
March 31, 1998 represented payments on capital leases. Cash provided by
financing activities of $1.1 million in the three months ended March 31, 1997
represented proceeds from the sale of preferred stock. Cash provided by
financing activities for the years ended December 31, 1997 and 1996 was $23.9
million and $4.4 million, respectively, resulting primarily from the net
proceeds received by the Company from the sale of preferred stock and completion
of the IPO and the Direct Offering in November 1997. Net proceeds from the IPO
and the Direct Offering aggregated $18.6 million.
In connection with the strategic alliance with NBC entered into in October
1997, the Company is obligated to make $2.0 million in nonrefundable payments to
NBC Multimedia for certain production, operating and advertising costs
associated with certain NBC Web sites. Of this amount, $750,000 was paid in the
fourth quarter of 1997, $500,000 was accrued in the first quarter of 1998 and
paid in the second quarter of 1998, and the balance of $750,000 is scheduled to
be paid prior to the end of 1998. All amounts currently remaining unpaid would
become immediately due if the NBC Strategic Alliance Agreement is terminated for
any reason.
The Company believes that the net proceeds from the Offering, together with
existing cash, cash equivalents, short-term investments and capital lease
financing, will be sufficient to meet its working capital and capital
expenditure requirements through the end of 1999. Thereafter, if cash generated
by
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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.
IMPACT OF YEAR 2000
Some older computer programs were written using two digits rather than four
to define the applicable year. As a result, those computer programs have
time-sensitive software that recognizes a date using "00" as the year 1900
rather than 2000. This failure to use four digits to define the applicable year
has created what is commonly referred to as the "Year 2000 Issue" and could
cause a system failure or miscalculations causing disruption of operations,
including a temporary inability to process transactions or engage in similar
normal business activities.
The Company recognizes the need to ensure that its operations will not be
adversely impacted by the Year 2000 Issue. The Company does not believe that it
has material exposure to the Year 2000 Issue with respect to its own information
systems since its existing systems correctly define the Year 2000. Any required
expenditures will be expensed as incurred. The Company intends to assess its
position regarding the Year 2000 Issue with respect to external information
systems by the end of 1998. This process will entail communications with
significant business partners, customers, suppliers, financial institutions,
insurance companies and other parties that provide significant services to the
Company. The Company is currently unable to predict the extent the Year 2000
Issue will affect these parties or the extent to which the Company would be
vulnerable to any such party's failure to remediate any Year 2000 Issue on a
timely basis.
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BUSINESS
INTRODUCTION
The Company 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 to a large number of viewers, primarily for
entertainment companies and advertisers. Unlike traditional Web site based video
delivery solutions, the InterVU Network moves the video delivery mechanism away
from the owner's Web site and on to the Company's distributed network of
specialized video servers strategically situated on multiple backbones on the
Internet. The InterVU Network allows the Company to deliver large amounts of
high quality 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 has designed the InterVU Network to perform operations
and distribution activities for video content and advertising on the Internet
analogous to those performed by traditional broadcast television networks for
television content and advertising.
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. 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."
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, Intel, Major League
Baseball, the Lifetime Television Network (Hearst/ABC-Viacom Entertainment
Service) and Yachting Magazine (Times Mirror Magazines). The Company's video
banner advertising technology, V-Banner, has been used to promote Intel on 21
Web sites, including the ESPN SportsZone, RealNetworks, Lycos and AudioNet Web
sites. V-Banners also have been used to promote Goldwin Golf on the GOLFonline
Web site, the Columbia Pictures movie "Air Force One" and Volvo cars on the
Yahoo! Web site, Anheuser Busch on the Major League Baseball Web site, United
Airlines on the Comedy Central Web site and Tabasco on the E!Online Web site.
The Company also has an arrangement with CNN to provide hosting and distribution
services for video content on CNN's Web sites. The Company expects that CNN will
utilize the InterVU Network on busy news days or at other times when CNN's needs
for bandwidth exceed its internal capacity.
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 distributed 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 incurring
substantial start-up costs. Video messages are hosted on the InterVU Network but
accessed seamlessly 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 that visit the Web site containing the
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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 desk-top environments. The InterVU Network utilizes
a number of proprietary technologies, including the Company's Smart Mirror
technology, All Eyes software, VU Finder and EyeQ software, which together are
designed to deliver video to the end-user from the electronically closest
server, provide Web site owners and advertisers with the ability to reach an
increased number of end-users with their video content and improve end-users'
video viewing experience. The Company's EyeQ multimedia manager, which
downloads, installs and updates end-users' multimedia player software, supports
all major video players, including Microsoft's NetShow and RealNetworks'
RealMedia streaming video players.
In October 1997, the Company entered into a strategic alliance with NBC
Multimedia pursuant to which 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. In addition, NBC
acquired a 10% equity stake in the Company. The NBC Strategic Alliance Agreement
provides for sharing of revenues from a new Web site called VideoSeeker, a
stand-alone site (www.videoseeker.com) that will be promoted on the NBC.com Web
site. VideoSeeker offers end-users a single source for online video
entertainment and information from NBC and its partners, as well as third-party
programmers. VideoSeeker features a wide array of streaming and downloadable
video content, including monologues from "The Tonight Show with Jay Leno,"
"Access Hollywood" celebrity interviews, backstage footage with NBC celebrities
and music videos from myLAUNCH, an online music site. The Company created the
video search engine used on the VideoSeeker site, owns the proprietary software
underlying the site and will manage and distribute all video, audio and
multimedia from the site via the InterVU Network. See "Risk Factors -- Risks
Associated with Strategic Alliance with NBC Multimedia" and
"Business -- Strategic Alliances -- Strategic Alliance with NBC Multimedia."
To enhance its ability to reach large advertisers, in January 1998 the
Company and MatchLogic entered into the MatchLogic Strategic Alliance Agreement.
MatchLogic is a leading online advertising management services firm and a
subsidiary of Excite, Inc. MatchLogic supports top advertisers such as General
Motors and leading advertising agencies such as McCann-Erickson. The Company and
MatchLogic have developed trueVU, a service designed to facilitate advertisers'
use of bandwidth-intensive media and robust video advertisements on the
Internet. trueVU combines InterVU's video delivery technology with MatchLogic's
targeting, distribution, reporting and performance measurement capabilities to
provide "one-stop shopping" for Internet advertisers and advertising agencies.
trueVU allows advertisers to stage advertising campaigns across a number of Web
sites without having to confirm the compatibility of their advertisements with
the software used on those sites. In addition, trueVU offers integrated
reporting of an advertisement's performance across a number of Web sites.
INDUSTRY BACKGROUND
Growth of Internet Usage and Content. The Internet and many Internet
software, hardware and service providers have experienced dramatic growth in
recent 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. 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.
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 many advertisers have been
reluctant to add video to their advertisements because existing technologies
have not provided sufficient quality and cost-effective results.
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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.
Although the continued development of codecs and other technologies
designed 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. In addition, the single site
approach does not permit advertisers or content developers to post video on a
number of different sites without the costly and time consuming task of
contacting such sites and adding their video presentations to the sites' servers
or installing their own servers at such sites.
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 on to 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 encode
video in a variety of codecs with the assurance that at least one of such codecs
will be compatible with each end-user's desktop environment.
The Company has designed the InterVU Network to perform operations and
distribution activities for video content and advertising on the Internet
analogous to those performed by traditional broadcast television networks for
television content and advertising. By posting video on its own servers and
using the Company's Virtual URL technology to create transparent links to the
video from host Web sites, the Company allows content owners and advertisers to
post their video across a variety of sites quickly and efficiently. Once the
video is distributed to a number of sites, the Company's All Eyes technology
makes the video easily accessible to end-users regardless of the video player
they use, and in the case of V-Banners, plays the video automatically in the
correct format without an end-user's specific request to view it.
Since the InterVU Network is scaleable, the Company can 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
over the Internet over a range of connection speeds (ranging from 28.8 Kbps
modems to cable modems).
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\ STRATEGY
The Company's objective is to leverage its systems and process technology
and maintain market focus to become a leading Internet video delivery company,
primarily supporting entertainment companies and advertisers. As a result of the
Company's recent success in developing strategic alliances with NBC Multimedia,
MatchLogic and others and in demonstrating its ability to scale the InterVU
Network to deliver larger amounts of video content, and in light of the
continued rapid pace of Internet video industry developments, the Company
intends to accelerate the pursuit of its strategy through, among other things,
increased sales and marketing, expansion of network operations and software
development. 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 and advertisers with
significant video delivery volume requirements in the sports, entertainment,
information/education 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. The Company's sales force promotes 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. The Company also has begun to
develop relationships with Web site developers and ISP hosting companies to
increase awareness of the Company's services. Web site developers and ISP
hosting companies, in turn, will be able to use the Company's video delivery
technology to expand their product offerings to Web site owners.
Build Strategic Alliances. As part of its growth strategy, the Company
intends to continue to enter into strategic alliances with content providers,
Web site developers and advertising companies to promote use of video on the
Internet and to gain access to significant advertisers. Consistent with this
strategy, in October 1997 the Company entered into a strategic alliance with NBC
Multimedia pursuant to which the Company became the exclusive provider of
technology and services for the distribution of most NBC entertainment
audio/video content by means of NBC Internet Sites. The Company believes the
VideoSeeker site developed pursuant to the strategic alliance with NBC
Multimedia will cultivate end-user interest in viewing video content on the
Internet. To enhance its ability to reach large advertisers, in January 1998 the
Company entered into a strategic alliance with MatchLogic, a leading online
advertising management services firm. The Company believes that trueVU, which
combines InterVU's video delivery technology with MatchLogic's targeting,
distribution, reporting and performance measurement capabilities, offers
advertisers the tools necessary to create, deliver and monitor the effectiveness
of robust video advertisements on the Internet.
Maintain Technological Leadership in Systems and Process. The Company's
strategy is to continue to develop advanced technological solutions to increase
the speed and quality of Internet video delivery. The Company believes that
improving the speed and quality of Internet video will increase end-user demand
for additional video on the Internet. The Company continually works to develop
its proprietary InterVU Network to further reduce the number of Internet
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, VU Finder software 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. In addition, the
Company develops and provides authoring tools that help video content producers
and advertisers create Internet video presentations. 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 can provide video to the Company in digital or analog
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format. The Company then will encode the video, if necessary, 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 InterVU Network seamlessly transmits video messages
directly to the viewer.
Offer Live Broadcast Capabilities as Well as Video on Demand. The Company's
strategy is to offer remote video encoding and integration services for live
Internet broadcast events, while continuing to provide video on demand.
Increasing numbers of Web site owners are seeking to integrate live broadcast
video events with other Web content. The Company offers on-site encoding for
live events delivered from the InterVU Network. The Company has encoded and
delivered several live events, including the Golden Globe Awards, New Year's Eve
in Times Square and Bill Gates' Senate hearings. The Company believes that Web
site owners can attract end-users to their sites by promoting and delivering
live events and can retain such end-users by offering quality video on demand.
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 large amounts of video content to
large numbers of end-users 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
cost-effectively. InterVU's technology is based on proprietary systems and
processes that link a distributed network of servers on multiple Internet
backbones, 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
technology allow Web site owners and advertisers to provide video content to
end-users without the costs and inconvenience usually associated with
traditional Internet delivery mechanisms. Instead of managing large video files
and maintaining expensive hardware, Web site owners and advertisers deliver
video directly to the Company in either analog or digital format. The Company
then encodes the video, if necessary, and places it on the InterVU Network. In
some cases, the Company allows the customer to post video directly on to 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.
Avoiding Transmission Bottlenecks. The Company's configuration of
distributed video servers located on multiple Internet backbones 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 electronically closest server on the InterVU Network.
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.
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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 Network 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 InterVU's Fast Track Network Analyzer end-user client software, 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 integrate the services of nine providers (UUNET, Bell Technology
Group, TCG Cerfnet, DIGEX, Exodus, GTE, GlobalCenter, IXL and SuperNet) to offer
a distributed network with 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 selectively stores, allocates and replicates videos
among video pumps based on end-user demand 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 which signifies 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. 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 software players,
such as Microsoft's NetShow, RealNetworks' RealMedia, Vivo, VDO, Apple
Computer's QuickTime and VXtreme Web Theatre. 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, including remote encoding for live
events, (iii) network distribution, hosting and delivery and (iv) usage reports
providing delivery volume and other data.
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
encode and compress video messages themselves or send analog VHS or Beta tapes
to InterVU for encoding services using a variety of
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different codec formats. All major codecs, such as MPEG, Apple Computer's
Quicktime, AVI, Vivo, Microsoft's NetShow and RealNetworks' RealPlayer, are
supported by InterVU. 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.
To provide the targeting, distribution, reporting and performance tracking
elements necessary to capture advertisers' interests in using video and other
media rich advertisements, the Company established a strategic alliance with
MatchLogic. Pursuant to the strategic alliance, the Company and MatchLogic have
developed trueVU, a service designed to facilitate advertisers' use of
bandwidth-intensive media and robust video advertisements on the Internet.
trueVU combines InterVU's video delivery technology with MatchLogic's targeting,
distribution, reporting and performance measurement capabilities to provide
"one-stop shopping" for Internet advertisers and advertising agencies. In
addition to providing performance tracking which provides data regarding an
advertisement's performance, trueVU allows advertisers to stage advertising
campaigns across a number of Web sites without having to confirm the
compatibility of their advertisements with the software used on those sites.
STRATEGIC ALLIANCES
Strategic Alliance with NBC Multimedia
In October 1997, the Company entered into a strategic alliance with NBC
Multimedia, pursuant to which the Company became the exclusive provider of
technology and services for the distribution of most NBC entertainment
audio/video content by means of NBC Internet Sites. Under the NBC 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.
The NBC Strategic Alliance Agreement provides for revenue sharing from a
new Web site called VideoSeeker, a stand-alone site (www.videoseeker.com) that
offers end-users a single source for online video entertainment and information
from NBC and its partners, as well as third-party programmers. VideoSeeker
features a wide array of streaming and downloadable video content, including
monologues from "The Tonight Show with Jay Leno," "Access Hollywood" celebrity
interviews, backstage footage with NBC celebrities and music videos from
myLAUNCH, an online music site. The Company created the video search engine used
on the VideoSeeker site, owns the proprietary software underlying the site and
will manage and distribute all video, audio and multimedia from the site via the
InterVU Network. The Company is entitled to receive 30% of the actual NBC cash
receipts, if any, from advertising, transactions and subscription directly
attributable to VideoSeeker, less certain associated costs and expenses. NBC
Multimedia may 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 will reimburse the Company for certain costs
incurred by the Company in connection with the delivery of audio/video content.
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The NBC 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 by means of NBC Internet 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
to Web sites that are not NBC Internet Sites.
As consideration for the strategic alliance, the Company issued to NBC
1,280,000 shares of Series G Preferred. These shares represented approximately
10% of the Company's outstanding capital stock prior to the IPO. NBC Multimedia
also purchased 210,526 shares of Common Stock for $2.0 million in the Direct
Offering concurrently with the IPO.
The Company is obligated to pay to NBC Multimedia a total of $2.0 million
in a series of nonrefundable payments for the costs of producing and operating
VideoSeeker (the "Production Costs") and the costs of advertising and promotions
to be placed by the Company on NBC Internet Sites ("InterVU Advertising"). Of
this amount, $750,000 was paid in the fourth quarter of 1997, $500,000 was
accrued in the first quarter of 1998 and paid in the second quarter of 1998, and
the balance of $750,000 is scheduled to be paid prior to the end of 1998.
Production Costs may include, but are not limited to, costs related to NBC
Multimedia's personnel costs, out-of-pocket costs, costs for content needed for
VideoSeeker, 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 NBC Strategic
Alliance Agreement without cause by giving 90 days prior written notice to the
Company. If NBC Multimedia terminates the NBC Strategic Alliance Agreement
without cause prior to October 10, 1999, then NBC or NBC Multimedia would be
required to return to the Company 600,000 shares of Series G Preferred (or the
shares of Common Stock issuable upon conversion thereof, as the case may be).
NBC is not required to return any shares upon exercise of its early termination
right until the Company has made all of the required payments described above.
Upon a material breach by NBC Multimedia, the Company would be entitled to
terminate the NBC Strategic Alliance Agreement and NBC 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 NBC Strategic Alliance Agreement with no obligation on NBC
or NBC Multimedia to return shares. In no event is NBC Multimedia required to
refund any of the nonrefundable payments. See "Risk Factors -- Limited Operating
History; Accumulated Deficit; Anticipated Losses" and "-- Risks Associated with
Strategic Alliance with NBC Multimedia."
Strategic Alliance with MatchLogic
To enhance its ability to reach large advertisers, the Company entered into
a strategic alliance with MatchLogic in January 1998. Under the MatchLogic
Strategic Alliance Agreement, MatchLogic has agreed to use InterVU exclusively
to provide Media Rich Ads and the Company has obtained the exclusive right to
use MatchLogic's distribution, reporting and performance measurement
capabilities in connection with such Media Rich Ads, subject to certain
exceptions. The Company also has agreed that it will not distribute Media Rich
Ads for any company, other than MatchLogic, that provides third-party
advertising management services.
Notwithstanding the exclusivity provisions contained in the MatchLogic
Strategic Alliance Agreement, MatchLogic may decline to provide advertising
management services in connection with any particular Media Rich Ad. In such a
case, the Company would be permitted to use a different advertising management
company, but there can be no assurance that the Company would be able to locate
and establish a relationship with another advertising management company that
would perform services equivalent to those performed by MatchLogic. In addition,
to the extent third parties develop new technologies for media rich advertising
and
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the Company declines to develop the processes required for the distribution of
advertisements using such technology, MatchLogic may use another service
provider to deliver such advertisements until the time, if ever, that InterVU
develops the necessary processes for delivering such advertisements. MatchLogic
also would be allowed to use another service provider for a project if the
Company consistently failed to meet prevailing industry standards for
performance on previous projects using the media rich technology used on the
project. Moreover, neither party is required to participate in an advertising
campaign on which it projects an actual financial loss. See "Risk
Factors -- Dependence Upon Other Strategic Alliances."
In furtherance of the strategic alliance, the Company and MatchLogic have
developed trueVU, a service designed to facilitate advertisers' use of
bandwidth-intensive media and robust video advertisements on the Internet.
trueVU combines InterVU's video delivery technology with MatchLogic's targeting,
distribution, reporting and performance measurement capabilities to provide
"one-stop shopping" for Internet advertisers and advertising agencies. trueVU
allows advertisers to stage advertising campaigns across a number of Web sites
without having to confirm the compatibility of their advertisements with the
software used on those sites. In addition, trueVU offers integrated reporting of
an advertisement's performance across a number of Web sites. The MatchLogic
Strategic Alliance Agreement provides for sharing of trueVU revenues.
The MatchLogic Strategic Alliance Agreement requires InterVU and MatchLogic
to use reasonable commercial efforts to work together to sell and promote Media
Rich Ads and services. MatchLogic has agreed to promote InterVU's Internet video
delivery services to its clients and to attempt to generate Internet Media Rich
Ad business for InterVU.
The MatchLogic Strategic Alliance Agreement provides for an initial
three-year term and automatically renews for additional one-year terms unless
either party gives prior written notice of its intent to terminate the
MatchLogic Strategic Alliance Agreement. The MatchLogic Strategic Alliance
Agreement may be terminated immediately by either party in the event the other
party breaches any material provision of the agreement.
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 distributed 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 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.
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 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."
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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. 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 or provide remote on-site encoding
services for live broadcasts. 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 are 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.
The Company has implemented a Web site certification process to ensure the
compatibility of V-Banners with host Web sites. The certification process
typically requires five days of testing. Once a Web site has passed the
certification process, the Company can quickly and easily install V-Banners on
the site. The Company believes this certification process benefits both
advertisers and the host site. The process assures advertisers that when they
purchase space on a certified site, they will be able to post their V-Banners
promptly. In addition, owners of certified Web sites can market the sites as
"video ready" platforms for advertisements delivered over the Internet.
Advertising Agencies and Management Companies. The Company has begun to
establish relationships with certain major advertising agencies, including
Saatchi & Saatchi, McCann-Erickson, 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
Company's services. 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. Moreover, the Company's
strategic alliance with MatchLogic provides InterVU direct access to many major
advertisers and advertising agencies, such as General Motors and
McCann-Erickson, many of whom have exclusive relationships with MatchLogic. The
Company believes that its alliance with MatchLogic will promote advertisers'
interest in using video in their online advertisements and that such advertisers
will use the Company's services to incorporate video into such ads.
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 has established nonexclusive
promotional agreements with nine ISPs (UUNET, Bell Technology Group, TCG
Cerfnet, DIGEX, Exodus, GTE, GlobalCenter, IXL and SuperNet) pursuant to which
the ISPs may market their performance (as verified by the Fast Track Network
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Analyzer results) and the Company's integration of the ISPs' infrastructures
into the InterVU Network. Such ISPs also can market the Company's services to
their customers.
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,
advertising agencies and major advertisers 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. The 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 local video messages over local
access lines, thereby eliminating Internet bandwidth charges and avoiding other
Internet congestion challenges. The Company currently is testing the VUTOPIA
Service with a cable provider.
COMPETITION
The market for Internet services is highly competitive, and the Company
expects competition to increase significantly. Although the Company believes it
is the only company currently utilizing a distributed, multi-backbone network
approach to delivery of video over the Internet, 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 activities. Several companies offer services
that facilitate delivery of video on the Internet, including, among others,
RealNetworks, VDOnet Corp., VXtreme, AudioNet Inc. and At Home Corporation. In
August 1997, RealNetworks and MCI announced a strategic alliance involving the
introduction of a service, called RBN, that delivers audio and video broadcasts
over the Internet. RBN reportedly permits 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 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. Microsoft also holds significant
equity positions in RealNetworks and VDOnet Corp. In addition, as was the case
with VXtreme, RealNetworks and VDOnet Corp., providers of Internet delivery
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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, number of end-users directed to client Web sites
("traffic flow"), data reporting and operating experience. The Company believes
that it compares favorably with its competitors with respect to each of these
factors, except brand recognition, traffic flow and operating experience, all of
which have been limited as a result of the Company's early stage of development.
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 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. The Company's
ability to achieve and maintain a leadership position in the Internet video
delivery market will depend, among other things, on the Company's success in
providing high-speed, high-quality video over the Internet, the Company's
marketing efforts and the reliability of the Company's networks and services,
none of which can be assured. 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 strategic responses 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 $448,000, $599,000,
$33,000, $1.4 million and $1.7 million for three months ended March 31, 1997 and
1998, the period from August 2, 1995 (Inception) to December 31, 1995, and the
years ended December 31, 1996 and 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 patents, copyrights, trademarks, trade secret laws, restrictions on
disclosure and other methods. The Company has filed eight United States patent
applications and four international patent applications 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
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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 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 April 29, 1998, the Company employed 54 full-time people, of whom 21
were employed in research and development, 10 were employed in operations, 15
were employed in sales and marketing and eight 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 for software development, network engineering
and product management personnel. See "Risk Factors -- Business Development and
Expansion Risks; Possible Inability to Manage Growth" and "-- Dependence on Key
Personnel."
FACILITIES
The Company is headquartered in facilities consisting of approximately
23,575 square feet in San Diego, California, pursuant to a sublease expiring in
2003. Additionally, the Company maintains a regional office in New York City
consisting of approximately 520 square feet under a sublease which expires in
1999. The Company anticipates opening a select number of regional sales offices
in the future to address the demand for its video delivery services.
LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings.
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MANAGEMENT
The following table sets forth certain information with respect to the
Company's executive officers, directors and key employees:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Harry E. Gruber....................... 46 Chairman and Chief Executive Officer
J. William Grimes..................... 57 Vice Chairman
Brian Kenner.......................... 39 Vice President and Chief Technology Officer
Kenneth L. Ruggiero................... 31 Vice President and Chief Financial Officer
Edward L. Huguez...................... 40 Vice President and Chief Operating Officer
Douglas A. Augustine.................. 39 Vice President, Marketing and Sales
Edward E. David, Jr. ................. 72 Director
Mark Dowley........................... 33 Director
Alan Z. Senter........................ 56 Director
Isaac Willis.......................... 57 Director
Michael Bernstein..................... 38 Vice President of Business Development, Media
Timothy J. Carroll.................... 32 Vice President, InterVU Network
Kenneth W. Colby...................... 49 Vice President, Engineering
Jill M. Galvez........................ 30 Vice President, InterVU Network Sales
Stephen H. Klein...................... 34 Vice President of Business Development, Networks
</TABLE>
EXECUTIVE OFFICERS AND DIRECTORS
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 served as the Company's President, and from July 1997 to
February 1998, Dr. Gruber served as the Company's Chief Financial Officer. 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 is also a partner
of BG Media Investors and 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.
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KENNETH L. RUGGIERO joined the Company in February 1998 and serves as Vice
President and Chief Financial Officer. From April 1996 to February 1998, Mr.
Ruggiero was employed by NBC. From December 1996 to February 1998, he was the
Chief Financial Officer of NBC Interactive Media, NBC's Internet division. In
this capacity he performed and managed financial reporting, implemented various
policies and procedures, and structured and negotiated business development
activities. From April 1996 to December 1996, Mr. Ruggiero was a Manager in
NBC's Business Development and International Finance division. From September
1989 to April 1996, he was employed by Arthur Andersen, an independent public
accounting firm, where he held a number of positions, including most recently
Manager of Corporate Consulting. Mr. Ruggiero is a Certified Public Accountant.
He received an M.B.A. from Columbia University Graduate School of Business and a
B.A. in accounting from the University of Massachusetts, Amherst.
EDWARD L. HUGUEZ joined the Company in May 1998 and serves as Vice
President and Chief Operating Officer. From October 1992 to May 1998, Mr. Huguez
was employed by DIRECTV, a direct broadcast satellite entertainment company. Mr.
Huguez held a number of different positions at DIRECTV, most recently Vice
President, New Media and Interactive Programming and Platforms. In this
capacity, Mr. Huguez was responsible for the business unit that managed
DIRECTV's new media and interactive business. From March 1987 to September 1992,
Mr. Huguez was employed by ESPN, Inc., most recently as Director, Affiliate
Sales and Marketing, Western Division. He received an M.B.A. from the John E.
Anderson Graduate School of Management at UCLA and a B.A. in political science
from Arizona State University.
DOUGLAS A. AUGUSTINE joined the Company in August 1996 as Director of
Corporate Development, and has served as Vice President, Marketing and Sales
since December 1996. Prior to joining the Company, 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. from the
University of San Diego School of Law and a B.A. from the University of
California, Berkeley.
EDWARD E. DAVID, JR. 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. in economics from the College of
Wooster.
ALAN Z. SENTER joined the Company as a director in September 1997. From
September 1994 to May 1996, 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 Boards of Directors of Exel,
Ltd. and Advanced
41
<PAGE> 43
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.
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.
KEY EMPLOYEES
MICHAEL BERNSTEIN joined the Company in October 1997 as Vice President of
Business Development and Media. From May 1991 to September 1997, Mr. Bernstein
held a number of positions with Major League Baseball Properties, including most
recently as Vice President, Business Development and 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.
TIMOTHY J. CARROLL joined the Company in May 1998 as Vice President,
InterVU Network. From October 1996 to May 1998, Mr. Carroll held a number of
positions, including most recently as Director, Western Region, at DIGEX,
Incorporated, a national Internet carrier focused exclusively on business
customers. From February 1992 to September 1996, Mr. Carroll served as Senior
Account Manager for Compaq Computer Corporation. Mr. Carroll received a B.A. in
international relations and English from the College of William & Mary.
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 computer
programs. He also founded Sedona Software, a research and development company.
Mr. Colby obtained a B.S. in electrical engineering from Purdue University.
JILL M. GALVEZ joined the Company in May 1998 as Vice President, InterVU
Network Sales. From May 1993 to May 1998, Ms. Galvez held various positions with
AT&T Business Network Sales, most recently as Western Region Manager, Alternate
Channel Sales. In this capacity, she was responsible for sales results,
recruiting and engagement of value-added resellers for AT&T core data products.
From December 1989 to June 1992, she was employed by IBM as an Account Marketing
Representative. Ms. Galvez received a B.S. in engineering arts from Michigan
State University.
STEPHEN H. 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.
CLASSIFIED BOARD OF DIRECTORS
The Company's Amended and Restated Certificate of Incorporation (the
"Certificate") provides for the Board of Directors 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
Board of Directors will be elected each year. The directors in Class I are Mark
Dowley and Isaac Willis, whose terms will expire at the 1998 Annual Meeting of
Stockholders (although each has been nominated for election to an additional
term that will expire at the 2001 Annual Meeting of Stockholders). The directors
in Class II are Edward David and Alan Senter, whose terms will expire at the
1999 Annual Meeting of Stockholders. The directors in
42
<PAGE> 44
Class III are William Grimes and Harry Gruber, whose terms will expire at the
2000 Annual Meeting of Stockholders.
COMMITTEES OF THE BOARD OF DIRECTORS
Audit Committee. The Board of Directors has established an audit committee
(the "Audit Committee") consisting of Messrs. David, Senter and Willis. The
Audit Committee makes recommendations concerning the engagement of independent
public accountants, reviews with the independent public accountants the plans
and results of the audit engagement, approves professional services provided by
the independent public accountants, reviews the independence of the independent
public accountants, considers the range of audit and non-audit fees and reviews
the adequacy of the Company's internal accounting controls.
Compensation Committee. The Board of Directors has established a
compensation committee (the "Compensation Committee") consisting of Messrs.
Grimes, Senter and Willis. The Compensation Committee determines compensation
for the Company's senior executive officers and administers the 1996 Stock Plan
and the 1998 Stock Option Plan.
The Board of Directors does 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 30,192 shares of Common Stock. In
addition, Mr. Grimes and Dr. Willis received options to purchase up to an
additional 25,192 shares of Common Stock and Messrs. David, Dowley and Senter
received options to purchase up to an additional 10,000 shares of Common Stock.
Such stock awards and options are subject to repurchase rights or vesting
schedules. Mr. Grimes also receives a consulting fee currently amounting to
$3,000 per month pursuant to a consulting agreement with the Company.
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation
for the years ended December 31, 1996 and 1997 received by the Chief Executive
Officer and the other executive officer of the Company whose compensation
exceeded $100,000 for either of those years (the "Named Executive Officers"). 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>
LONG-TERM COMPENSATION
AWARDS
------------------------------
ANNUAL COMPENSATION NUMBER OF
---------------------------- SECURITIES
FISCAL RESTRICTED STOCK UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS AWARDS(1) OPTIONS
--------------------------- ------ -------- ------ ---------------- ----------
<S> <C> <C> <C> <C> <C>
Harry E. Gruber....................... 1997 $184,000 -- $ 6,800 --
Chairman and Chief Executive Officer 1996 91,950 -- -- --
Douglas A. Augustine.................. 1997 123,900 -- -- 31,490
Vice President, Marketing and Sales 1996 30,176 -- 117,143 --
</TABLE>
- ---------------
(1) Dollar values of restricted stock awards are based on the market price at
the time of grant. With respect to each Named Executive Officer's restricted
stock holdings, the number of shares of Common Stock and the dollar value
thereof at December 31, 1997 are as follows: 1,007,680 and $8,186,520 for
Dr. Gruber and 62,980 and $509,212 for Mr. Augustine. The value of
restricted stock holdings is based on the fair market value of the Common
Stock on December 31, 1997 ($8.125), less the purchase price paid by the
Named Executive Officer for such shares. Restricted stock awards vest daily
over a five-year period (with the first 20% of the award vesting on the
first anniversary of the date of grant).
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<PAGE> 45
STOCK OPTION GRANTS TABLE
The following table sets forth certain information with respect to options
to purchase Common Stock granted during the year ended December 31, 1997 to each
of the Named Executive Officers. The Company does not have any outstanding stock
appreciation rights.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED EXERCISE OR OPTION TERM(1)
OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION -----------------------
NAME GRANTED FISCAL YEAR PER SHARE DATE 5% 10%
---- ---------- --------------- ----------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Harry E. Gruber....... -- -- -- -- -- --
Douglas A. 31,490 3.50% $0.18 2/11/07 $88,704 $146,431
Augustine...........
</TABLE>
- ---------------
(1) The potential realizable values are based on an assumption that the stock
price of the Common Stock will appreciate at the annual rates shown
(compounded annually) from the date of grant until the end of the option
term. These values do not take into account amounts required to be paid as
income taxes under the Internal Revenue Code of 1986 (the "Code") and any
applicable state laws or option provisions providing for termination of an
option following termination of employment, non-transferability or vesting.
These amounts are calculated based on the requirements promulgated by the
Commission and do not reflect the Company's estimate of future stock price
growth of the shares of Common Stock.
OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE
The following table sets forth certain information with respect to the
exercise of options to purchase Common Stock during the year ended December 31,
1997, and the unexercised options held and the value thereof at that date, for
each of the Named Executive Officers.
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF SECURITIES UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FISCAL YEAR END FISCAL YEAR END(1)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
---- --------------- -------- ---------------------- ---------------------
<S> <C> <C> <C> <C>
Harry E. Gruber................... -- -- -/- -/-
Douglas A. Augustine.............. -- -- 5,259/26,231 $41,267/$205,835
</TABLE>
- ---------------
(1) Based on the closing sale price of the Common Stock on December 31, 1997
($8.125), as reported by the Nasdaq National Market, less the option
exercise price.
1996 STOCK PLAN
The Company adopted the 1996 Stock Plan in December 1996 to enable
directors, officers, key employees and consultants of the Company to acquire an
equity stake in the Company, and thus to create in such persons an increased
interest in and a greater concern for the welfare of the Company. The 1996 Stock
Plan provided for aggregate option grants of up to 1,889,400 shares. As of May
31, 1998, options to purchase an aggregate of 1,331,546 shares of Common Stock
at prices ranging from $.03 to $19.25 were outstanding under the 1996 Stock
Plan.
A total of 523,736 shares remain available for grant under the 1996 Stock
Plan. If the Company's stockholders approve the 1998 Stock Option Plan, the
Company will not issue additional options under the 1996 Stock Plan.
1998 STOCK OPTION PLAN
On February 25, 1998, the Board of Directors adopted the 1998 Stock Option
Plan, subject to stockholder approval at the 1998 Annual Meeting of Stockholders
to be held in June 1998. In general, the 1998 Stock
44
<PAGE> 46
Option Plan provides additional incentives to selected key employees,
independent directors and consultants of the Company. Approximately 50
directors, officers, key employees and consultants are currently eligible to
participate in the 1998 Stock Option Plan. The Board of Directors has reserved
2,000,000 shares of Common Stock for issuance upon exercise of options granted
under the 1998 Stock Option Plan. Nonqualified stock options and incentive stock
options may be granted under the 1998 Stock Option Plan.
The 1998 Stock Option Plan is administered by the Compensation Committee.
However, the Board of Directors will make most decisions regarding independent
directors under the 1998 Stock Option Plan. The Compensation Committee (or the
Board of Directors in the case of independent directors) is authorized to select
from among the eligible employees, directors and consultants the individuals to
whom options are to be granted and to determine the number of shares to be
subject thereto and the terms and conditions thereof, consistent with the 1998
Stock Option Plan. The Compensation Committee also is authorized to adopt, amend
and rescind rules relating to the administration of the 1998 Stock Option Plan.
The 1998 Stock Option Plan provides for formula grants of nonqualified stock
options to independent directors. Each independent director serving as a member
of the Board of Directors and who has been reelected to serve for an additional
term, if applicable, will be granted an option to purchase 5,000 shares of
Common Stock on the date of each annual meeting of stockholders (other than the
1998 Annual Meeting of Stockholders). In addition, each person initially elected
to the Board of Directors after the adoption of the 1998 Stock Option Plan will
be granted an option to purchase 20,000 shares of Common Stock on the date of
such election.
Nonqualified stock options granted under the 1998 Stock Option Plan will
provide for the right to purchase Common Stock at a specified price, which may
not be less than 85% of the fair market value of the Common Stock on the date of
grant and usually will become exercisable (in the discretion of the Compensation
Committee or the Board in the case of independent directors) in one or more
installments after the date of grant. Incentive stock options, if granted, will
be designed to comply with, and will be subject to restrictions contained in,
the Code, including exercise prices equal to at least 100% of fair market value
of Common Stock on the date of grant, but may be subsequently modified to
disqualify them from treatment as incentive stock options. Incentive stock
options may be granted only to employees. No option granted under the 1998 Stock
Option Plan may have a term of greater than ten years from the date of grant.
The period during which the right to exercise an option vests in the
optionee shall be set by the Compensation Committee. However, unless the
Compensation Committee states otherwise no option will be exercisable by an
optionee subject to Section 16 of the Securities Exchange Act of 1934, as
amended, within the period ending six months and one day after the date the
option is granted. In addition, options granted to independent directors will
become exercisable in annual installments of 25% on each of the first, second,
third, and fourth anniversaries of the date of grant.
QUALIFIED STOCK PURCHASE PLAN
On February 25, 1998, the Board of Directors adopted the Qualified Stock
Purchase Plan subject to stockholder approval at the 1998 Annual Meeting of
Stockholders. The Qualified Stock Purchase Plan, and the rights of participants
to make purchases thereunder, is intended to qualify under the provisions of
Sections 421 and 423 of the Code. The purpose of the Qualified Stock Purchase
Plan is to provide an incentive for employees of the Company to acquire an
interest in the Company through the purchase of Common Stock, thereby more
closely aligning the interests of the employees and the stockholders. The
Qualified Stock Purchase Plan provides that an aggregate of 500,000 shares of
the Common Stock may be issued thereunder. The Compensation Committee
administers the Qualified Stock Purchase Plan.
The Qualified Stock Purchase Plan is implemented through a series of
24-month offering periods, with a new offering period commencing on each
February 1 and August 1 during the term of the Qualified Stock Purchase Plan.
The first offering period (a 23-month period) commences on September 1, 1998.
The purchase price of the shares under the Qualified Stock Purchase Plan is
funded through payroll deductions during an offering period. Currently, the
payroll deductions may be any whole percentage amount between 1% and 15% of a
participant's base salary, wages and commissions, but excluding bonuses and
overtime pay, on each payroll date during the offering period. A participant may
discontinue his or her participation in the Qualified
45
<PAGE> 47
Stock Purchase Plan at any time during the offering period. In addition, a
participant may, no more than once during each offering period, reduce or
increase the rate of payroll deductions.
Subject to certain limitations contained in the Qualified Stock Purchase
Plan, on the first day of each offering period, each participant is granted an
option to purchase, on each exercise date during the offering period, a number
of shares of Common Stock determined by dividing the participant's contributions
to the Qualified Stock Purchase Plan by the applicable exercise price. Unless a
participant withdraws from the Qualified Stock Purchase Plan, such participant's
option to purchase shares will be exercised automatically on each exercise date
of the offering period to purchase the maximum number of full shares that may be
purchased at the exercise price with the accumulated payroll deductions in the
participant's account. The last day of each six-month period during each
offering period under the Qualified Stock Purchase Plan (i.e., each July 31 and
January 31) will be an exercise date under the Qualified Stock Purchase Plan.
Initially, the exercise price per share at which shares will be sold under
the Qualified Stock Purchase Plan will be equal to the lower of 85% of the fair
market value of the Common Stock on the date of commencement of an offering
period or 85% of the fair market value of the Common Stock on each exercise date
of the option. The Compensation Committee may change the percentage rate from
85%; however, it may never be less than 85%. The fair market value of a share of
Common Stock on a given date will be the closing price of the Common Stock on
the Nasdaq Stock Market on such date.
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 March 1996, the Company entered into vesting agreements with each of the
Initial Stockholders (the "Vesting Agreements"). Each Vesting Agreement
initially granted 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 provided 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 granted 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. The Vesting
Agreements for Dr. Gruber and Mr. Kenner survived completion of the IPO but were
amended and restated as of October 1997 to provide for the termination, upon
completion of the IPO, of the Company's rights of first refusal to purchase
vested shares and the Company's right to repurchase unvested shares upon the
death or disability of Dr. Gruber or Mr. Kenner, as applicable. The Company's
rights to repurchase unvested shares also would terminate upon a change of
control, with respect to Mr. Gruber, and upon a change of control followed by
termination without cause or reduction of annual cash compensation, with respect
to Mr. Kenner.
On August 30, 1995, the Company sold 172,500 shares of Series A Convertible
Preferred Stock at $1 per share to various accredited investors for total
consideration of $172,500. The Company sold 80,000 of such shares to the A.B.
Gruber Living Trust. Each share of Series A Convertible Preferred Stock was
converted into 2.5192 shares of Common Stock upon the closing of the IPO.
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
46
<PAGE> 48
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. Each share of Series B
Convertible Preferred Stock was converted into 2.5192 shares of Common Stock
upon the closing of the IPO.
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. Each share of Series C Convertible Preferred Stock
was converted into 2.5192 shares of Common Stock upon the closing of the IPO.
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.
Each share of Series D Convertible Preferred Stock was converted into 2.5192
shares of Common Stock upon the closing of the IPO.
On August 9, 1996, the Company sold 154,500 shares of Series E Convertible
Preferred Stock at $10 per share to various accredited investors for a total
consideration of $1,545,000. The Company sold 10,000 of such shares to Dr.
Willis. From November 1996 through February 1997, the Company sold 245,500
additional shares of Series E Convertible Preferred Stock at $10 per share to
various accredited investors for a total consideration of $2,455,000. The
Company sold 54,550 of such shares to Dr. Willis. Each share of Series E
Convertible Preferred Stock was converted into 1.2596 shares of Common Stock
upon the closing of the IPO.
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. Each share of Series F Convertible
Preferred Stock was converted into .6316 of one share of Common Stock upon the
closing of the IPO.
As consideration for the establishment of a strategic alliance in October
1997 with NBC Multimedia, the Company issued 1,280,000 shares of Series G
Preferred to NBC, and NBC Multimedia granted the Company exclusive rights to
deliver most NBC audio/visual content by means of NBC Internet Sites. The
Company has granted NBC rights to include shares of Common Stock issuable upon
conversion of Series G Preferred in certain future registrations of 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 Securities 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 Alliances -- Strategic Alliance with NBC Multimedia."
NBC Multimedia purchased 210,526 shares of Common Stock in the Direct
Offering at $9.50 per share, the price per share to the public in the IPO, and
the Company became obligated to pay NBC Multimedia $2,000,000 in nonrefundable
payments. NBC Multimedia and NBC together currently own approximately 10% of the
outstanding shares of capital stock of the Company. See "Business -- Strategic
Alliances -- Strategic Alliance with NBC Multimedia."
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<PAGE> 49
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of May 31, 1998 and as adjusted for the
Offering by (i) each of the Company's directors, (ii) each of the Company's
Named 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 ---------------------------
OF COMMON STOCK BEFORE AFTER
NAME AND ADDRESS(1) BENEFICIALLY OWNED(2) THE OFFERING THE OFFERING
------------------- --------------------- ------------ ------------
<S> <C> <C> <C>
Harry E. Gruber(4).................................... 1,007,680 10.7% 9.5%
Brian Kenner(5)....................................... 1,007,680 10.7 9.5
Allen B. Gruber(6).................................... 512,657 5.5 4.8
Isaac Willis(7)....................................... 1,162,561 12.4 11.0
Edward E. David, Jr.(8)............................... 26,202 * *
Mark Dowley(9)........................................ 8,060 * *
J. William Grimes..................................... -- -- --
Alan Z. Senter........................................ -- -- --
Douglas A. Augustine(10).............................. 71,878 * *
Kenneth L. Ruggiero................................... -- -- --
Edward L. Huguez...................................... -- -- --
Westchester Group LLC(11)............................. 881,720 9.4 8.3
National Broadcasting Company, Inc.(12)............... 1,016,670 10.0 8.9
All directors and executive officers as a group (10
persons)(13)........................................ 3,284,062 34.9 31.0
</TABLE>
- ---------------
* Less than 1%.
(1) Except as indicated, the address of each person named in the table is c/o
InterVU Inc., 6815 Flanders Drive, San Diego, California 92121.
(2) Beneficial ownership of directors, officers and 5% or more stockholders
includes shares of 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, and shares of
Common Stock issuable upon conversion of 1,280,000 shares of Series G
Preferred held by NBC which become convertible on July 10, 1998. 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 no exercise of the Over-Allotment Option. Does not reflect shares
that may be purchased in the Offering by Dr. Gruber, Mr. Kenner or the
Willis Family Trust, of which Dr. Willis is the settlor. Dr. Gruber, Mr.
Kenner and the Willis Family Trust have expressed an interest in purchasing
an aggregate of up to approximately 120,000 shares of Common Stock in the
Offering. See "Underwriting."
(4) Includes 485,379 shares subject to the Company's repurchase right under an
Amended and Restated Vesting Agreement. See Note (3).
(5) Includes 485,379 shares subject to the Company's repurchase right under an
Amended and Restated Vesting Agreement. See Note (3).
(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. The address for Mr. Gruber is P.O. Box 780367, San
Antonio, Texas 78278-0367.
(7) Includes 953,867 shares owned by the Willis Family Trust, of which Dr.
Willis is settlor. Includes 11,437 shares subject to the Company's
repurchase right under a restricted stock agreement and 7,543 shares
issuable upon exercise of options that are currently exercisable or will
become exercisable within 60 days after the date of this table. See Note
(3).
48
<PAGE> 50
(8) Includes 11,437 shares subject to the Company's repurchase right under a
restricted stock agreement and 1,010 shares issuable upon exercise of
options that are currently exercisable or will become exercisable within 60
days after the date of this table.
(9) Includes 8,060 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 40,326 shares subject to the Company's repurchase right under a
restricted stock agreement and 8,898 shares issuable upon exercise of
options that are currently exercisable or will become exercisable within 60
days after the date of this table.
(11) 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. The address for Westchester
Group LLC is c/o Duckor Spradling & Metzger, 401 West A Street, Suite 2400,
San Diego, CA 92101.
(12) The shares of Series G Preferred owned by NBC become convertible into
Common Stock at the option of the holder on July 10, 1998. The holder of
each share of Series G Preferred has 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 owned 100% of the outstanding Series G
Preferred and NBC Multimedia owned 210,526 shares of Common Stock. As the
ultimate parent of NBC, General Electric Company ("General Electric") may
be deemed to be the beneficial owner of all these shares. The address for
NBC is 30 Rockefeller Plaza, New York, New York 10112.
(13) See Notes (4), (5), (7), (8), (9) and (10).
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 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.
The authorized capital stock of the Company consists 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.
COMMON STOCK
As of May 31, 1998, there were 9,380,032 shares of Common Stock
outstanding, held of record by 152 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 Series G Preferred or any other preferred stock which the
Company may designate and issue in the future.
PREFERRED STOCK
The Certificate authorizes the Board of Directors, 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
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<PAGE> 51
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 has designated 1,280,000 shares of preferred stock
as Series G Preferred. The holders of Series G Preferred are entitled to receive
non-cumulative dividends, prior and in preference to any declaration or payment
of any dividend (payable other than in Common Stock) on the Common Stock, 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
Company to the holders of Common Stock, an amount equal to $8.00 per share (plus
all declared but unpaid dividends, if any). Each share of Series G Preferred
will be convertible, at the option of the holder thereof, at any time after July
10, 1998, 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 has 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 restriction on
conversion prior to July 10, 1998. 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 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
Securities Act.
Future issuances of preferred stock may have the effect of delaying or
preventing a change in control of the Company. The issuance of preferred stock
could decrease the amount of earnings and assets available for distribution to
the holders of Common Stock or could adversely affect the rights and powers,
including voting rights, of the holders of the Common Stock. In certain
circumstances, such issuance could have the effect of decreasing the market
price of the Common Stock. The Company currently has no plans to issue any
additional shares of preferred stock.
IPO WARRANTS
In connection with the IPO, the Company sold to Josephthal and Cruttenden
Roth Incorporated the IPO Warrants to purchase from the Company 200,000 shares
of Common Stock. The IPO Warrants are exercisable at a price per share of $11.40
for a period of four years commencing in November 1998 and are restricted from
sale, transfer, assignment or hypothecation until November 1998, except to
officers of Josephthal or Cruttenden Roth Incorporated. The IPO 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 IPO Warrants grant to the holders thereof certain rights of
registration under the Securities Act for the securities issuable upon exercise
of the IPO Warrants.
ADVISORS' WARRANTS
In connection with the Offering, the Company has agreed to sell to
Josephthal and Cruttenden Roth Incorporated, for nominal consideration, the
Advisors' Warrants to purchase from the Company 120,000 shares of Common Stock.
The Advisors' Warrants are initially exercisable at a price per share equal to
120% of the 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 Josephthal and Cruttenden Roth Incorporated. 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.
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<PAGE> 52
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 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 the
Board of Directors. In addition, these provisions are intended to ensure that
the Board of Directors 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 Board of
Directors 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 Board of Directors will be elected each
year. The directors in Class I are Mark Dowley and Isaac Willis, whose terms
will expire at the 1998 Annual Meeting of Stockholders (although each has been
nominated to an additional term that will expire at the 2001 Annual Meeting of
Stockholders). The directors in Class II are Edward David and Alan Senter, whose
terms will expire at the 1999 Annual Meeting of Stockholders. The directors in
Class III are William Grimes and Harry Gruber, whose terms will expire at the
2000 Annual Meeting of Stockholders. The classified board provision will help to
assure the continuity and stability of the Board of Directors and the business
strategies and policies of the Company as determined by the Board of Directors.
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 Board of Directors from
removing a majority of the Board of Directors 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 Certificate also provides that special meetings of
stockholders may be called only by the Board of Directors, its Chairman, the
President or the Secretary of the Company. Stockholders are not permitted to
call a special meeting of stockholders or to require that the Board of Directors
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 Board of
Directors, or by a stockholder who has given timely written notice to the
Secretary of the Company prior to the meeting at which directors are to be
elected, will be eligible for election as directors of the Company. The
Stockholder Notice Procedure also provides that at an annual meeting only such
business may be conducted as has been brought before the meeting by, or at the
direction of, the Board of Directors 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 Secretary not less than 60 days nor more than 90 days prior
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<PAGE> 53
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 submitted not more than 90 days prior
to the annual meeting and not less than the later of (i) 60 days prior to the
annual meeting and (ii) 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 Certificate provides
that the Board of Directors will consist of between three and eleven members,
the exact number to be fixed from time to time by resolution adopted by
affirmative vote of a majority of the Board of Directors. The Board of Directors
currently consists of six directors. Further, the Certificate authorizes the
Board of Directors to fill newly created directorships (other than directorships
that are to be filled by holders of preferred stock). Accordingly, this
provision could prevent a stockholder from obtaining majority representation on
the Board of Directors by permitting the Board of Directors to enlarge the size
of the Board of Directors and fill the new directorships with its own nominees.
A director so elected by the Board of Directors holds office until the next
election of the class for which such director has been chosen and until his or
her successor is elected and qualified. The Certificate also provides that
directors (other than directors that are elected by holders of preferred stock)
may be removed only for cause and only by the affirmative vote of holders of
66 2/3% of the outstanding voting securities. The effect of these provisions is
to preclude a stockholder from removing incumbent directors without cause and
simultaneously gaining control of the Board of Directors 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 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) the Board of Directors
or (b) the affirmative vote of the holders of not less than 66 2/3% of the total
voting power of all outstanding securities (voting as a single class). 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 Common Stock is Norwest Shareowner
Services, Norwest Bank Minnesota N.A.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding
10,580,032 shares of Common Stock. Of these shares, the 1,200,000 shares sold in
the Offering (plus any shares issued upon exercise of the Over-Allotment Option)
and the 2,000,000 shares sold in the IPO will be freely tradable 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").
Of the remaining 7,380,032 shares of Common Stock, all will be eligible for sale
under Rule 144 under the Securities Act, subject to certain volume and other
limitations, upon the expiration of certain lock-up agreements. All of such
shares, other than 210,526 shares of Common Stock issued to NBC Multimedia in
the Direct Offering, are subject to lock-up agreements expiring August 19, 1998
executed with Josephthal in connection with the IPO. The Company expects that
4,964,625 shares (including the 210,526 shares issued in the Direct Offering)
will be subject to lock-up agreements between Josephthal and the directors,
officers and five percent stockholders of the Company covering the 120-day
period
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<PAGE> 54
commencing on the date of this Prospectus. Moreover, 806,144 shares of Common
Stock issuable upon conversion of the Series G Preferred will be eligible for
sale under Rule 144 under the Securities Act as of October 10, 1998. The Company
expects that such shares also will be subject to 120-day lock-up 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 the lock-up agreements.
Josephthal has agreed to release a sufficient number of shares of Common Stock
from lock-up agreements executed by Harry E. Gruber, Brian Kenner and Isaac
Willis in connection with the IPO and the Offering to permit such shares to be
pledged as collateral for margin loans that may be used to purchase shares in
the Offering. See "Underwriting."
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 and its directors, officers and holders of five percent or more
of the Common Stock holding in the aggregate approximately 5,770,769 shares of
Common Stock (including the 806,144 shares of Common Stock issuable upon
conversion of the Series G Preferred) are expected to agree not to offer, sell,
grant an option for the sale of, assign, transfer, pledge, hypothecate or
otherwise encumber or dispose of any securities of the Company owned by them
prior to the expiration of 120 days from the date of this Prospectus, except (i)
for shares of Common Stock offered hereby; (ii) with the prior written consent
of Josephthal; and (iii) in the case of the Company, (A) for the issuance of
shares of Common Stock upon the exercise of options or the grant of options to
purchase shares of Common Stock or in connection with other employee incentive
compensation arrangements and (B) for the issuance of up to 500,000 shares of
Common Stock as consideration for acquisitions or strategic alliances (provided
the recipients agree not to sell or contract to sell the shares for the same
120-day period). 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. Josephthal has agreed to release a sufficient number of shares of
Common Stock from lock-up agreements executed by Harry E. Gruber, Brian Kenner
and Isaac Willis in connection with the IPO and the Offering to permit such
shares to be pledged as collateral for margin loans that may be used to purchase
shares in the Offering. See "Underwriting." After the 120-day 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.
The Company also intends to register on Form S-8 following the effective
date of the Offering a total of 1,331,546 shares of Common Stock subject to
outstanding options granted under the 1996 Stock Plan. In addition, the Company
intends to register on Form S-8 2,000,000 shares reserved for issuance under the
1998 Stock Option Plan and 500,000 shares reserved for issuance under the
Qualified Stock Purchase Plan. The 1998 Stock Option Plan and the Qualified
Stock Purchase Plan have been adopted by the Board of Directors, subject to
stockholder approval at the 1998 Annual Meeting of Stockholders to be held in
June 1998. For more information regarding the 1998 Stock Option Plan and the
Qualified Stock Purchase Plan, see "Management -- 1998 Stock Option Plan" and
"-- Qualified Stock Purchase Plan." If the 1998 Stock
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<PAGE> 55
Option Plan is approved by stockholders at the 1998 Annual Meeting of
Stockholders, the Company will no longer issue options under the 1996 Stock Plan
and will cease to reserve the 523,736 shares of Common Stock currently reserved
for issuance thereunder.
In connection with the IPO, the Company sold to Josephthal and Cruttenden
Roth Incorporated the IPO Warrants to purchase from the Company 200,000 shares
of Common Stock. The IPO Warrants are exercisable at a price per share of $11.40
for a period of four years commencing in November 1998 and are restricted as to
sale, transfer, assignment or hypothecation until November 1998, except to
officers of Josephthal and Cruttenden Roth Incorporated. The IPO 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 IPO Warrants grant to the holders thereof certain rights of
registration under the Securities Act for the securities issuable upon exercise
of the IPO Warrants.
In connection with the Offering, the Company has agreed to sell to
Josephthal and Cruttenden Roth Incorporated, for nominal consideration, the
Advisors' Warrants to purchase from the Company 120,000 shares of Common Stock.
The Advisors' Warrants are initially exercisable at a price per share equal to
120% of the 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 Josephthal and Cruttenden Roth Incorporated. 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.
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. See "Risk Factors -- Volatility of
Stock Price" and "-- Shares Eligible for Future Sale."
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<PAGE> 56
UNDERWRITING
The Underwriters named below (the "Underwriters") 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>
NUMBER
UNDERWRITER OF SHARES
----------- ----------------
<S> <C>
Josephthal & Co. Inc........................................
Cruttenden Roth Incorporated................................
---------
Total............................................. 1,200,000
=========
</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 Underwriters that they 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 Underwriters 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. It also has agreed
to reimburse $17,500 incurred by an investment banking firm no longer involved
in the transaction.
The Underwriters have been granted an option by the Company, exercisable
within 45 days of the date of this Prospectus, to purchase up to an additional
180,000 shares of Common Stock at the public offering price per share of Common
Stock offered hereby, less underwriting discounts. 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.
In connection with the Offering, the Company has agreed to sell to
Josephthal and Cruttenden Roth Incorporated, for nominal consideration, the
Advisors' Warrants to purchase from the Company 120,000 shares of Common Stock.
The Advisors' Warrants are initially exercisable at a price per share equal to
120% of the 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 Josephthal and Cruttenden Roth Incorporated. 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, its directors, officers and holders of five percent or more of
the Common Stock holding in the aggregate approximately 5,770,769 shares of
Common Stock (including the 806,144 shares of Common Stock issuable upon
conversion of the Series G Preferred) are expected to agree not to offer, sell,
grant an option for the sale of, assign, transfer, pledge, hypothecate or
otherwise encumber or dispose of any securities of the Company owned by them
prior to the expiration of 120 days from the date of this Prospectus, except (i)
for shares of Common Stock offered hereby; (ii) with the prior written consent
of Josephthal; and (iii) in the case of the Company, (A) for the issuance of
shares of Common Stock upon the exercise of options or the grant of options to
purchase shares of Common Stock or in connection with other employee incentive
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<PAGE> 57
compensation arrangements and (B) for the issuance of up to 500,000 shares of
Common Stock as consideration for acquisitions or strategic alliances (provided
the recipients agree not to sell or contract to sell the shares for the same
120-day period).
Harry E. Gruber, Brian Kenner and the Willis Family Trust, of which Isaac
Willis is the settlor, have expressed an interest in purchasing an aggregate of
up to approximately 120,000 shares of Common Stock in the Offering. To finance
the purchase of such shares, Dr. Gruber, Mr. Kenner and the Willis Family Trust
have indicated that they may obtain margin loans secured by other shares of
Common Stock owned by them. Josephthal, the managing underwriter of the IPO and
the Offering, has agreed to release a sufficient number of shares of Common
Stock from existing lock-up agreements with such individuals to permit such
shares to be pledged as collateral for the margin loans.
In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may overallot in
connection with this offering, creating a short position in the Common Stock for
their own account. In addition, to cover over-allotments or to stabilize the
price of the Common Stock, the Underwriters may bid for, and purchase, shares of
the Common Stock in the open market. The Underwriters may also reclaim selling
concessions allowed to an underwriter or a dealer for distributing the Common
Stock in transactions to cover their short positions, in stabilization
transactions or otherwise. Finally, the Underwriters may bid for, and purchase,
shares of the Common Stock in market making transactions and impose penalty
bids. These activities may stabilize or maintain the market price of the Common
Stock above market levels that may otherwise prevail. The Underwriters are not
required to engage in these activities, and may end any of these activities at
any time.
The Underwriters and dealers may engage in passive market making
transactions in the Common Stock in accordance with Rule 103 of Regulation M
promulgated by the Commission. In general, a passive market maker may not bid
for, or purchase, the Common Stock at a price that exceeds the highest
independent bid. In addition, the net daily purchases made by any passive market
maker generally may not exceed 30% of its average daily trading volume in the
Common Stock during a specified two-month prior period or 200 shares, whichever
is greater. A passive market maker must identify passive market making bids as
such on the Nasdaq electronic inter-dealer reporting system. Passive market
making may stabilize or maintain the market price of the Common Stock above
independent market levels. Underwriters and dealers are not required to engage
in passive market making and may end passive market making activities at any
time.
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, 1996 and 1997
and for the period from August 2, 1995 (Inception) to December 31, 1995 and the
years ended December 31, 1996 and 1997 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.
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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.
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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, 1996 and 1997 and March
31, 1998 (unaudited)...................................... F-3
Statements of Operations for the Period from August 2, 1995
(Inception) to December 31, 1995, the Years Ended December
31, 1996 and 1997, the Three Months Ended March 31, 1997
and 1998 (unaudited) and the Period from August 2, 1995
(Inception) to March 31, 1998 (unaudited)................. F-4
Statement of Stockholders' Equity for the Period from August
2, 1995 (Inception) to December 31, 1995, the Years Ended
December 31, 1996 and 1997, and the Three Months Ended
March 31, 1998 (unaudited)................................ F-5
Statements of Cash Flows for the Period from August 2, 1995
(Inception) to December 31, 1995, the Years Ended December
31, 1996 and 1997, the Three Months Ended March 31, 1997
and 1998 (unaudited) and the Period from August 2, 1995
(Inception) to March 31, 1998 (unaudited)................. F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 60
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, 1996 and 1997, and the related
statements of operations, stockholders' equity and cash flows for the period
from August 2, 1995 (Inception) to December 31, 1995, and for the years ended
December 31, 1996 and 1997. 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, 1996 and 1997, and the results of its operations
and its cash flows for the period from August 2, 1995 (Inception) to December
31, 1995, and for the years ended December 31, 1996 and 1997, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
San Diego, California
February 19, 1998
F-2
<PAGE> 61
INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- MARCH 31,
1996 1997 1998
----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 2,507,822 $21,379,845 $ 12,060,083
Short-term investments.................................... -- -- 7,026,065
Accounts receivable....................................... -- 88,685 156,420
Prepaid and other current assets.......................... 10,095 69,608 69,765
----------- ----------- ------------
Total current assets.................................... 2,517,917 21,538,138 19,312,333
Property and equipment, net................................. 252,286 584,601 722,190
Other assets................................................ 6,274 7,269 46,738
----------- ----------- ------------
Total assets....................................... $ 2,776,477 $22,130,008 $ 20,081,261
=========== =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 87,084 $ 437,064 $ 672,775
Accrued liabilities....................................... 65,970 142,018 172,614
Current portion, lease commitments........................ -- 11,814 12,248
----------- ----------- ------------
Total current liabilities............................... 153,054 590,896 857,637
Lease commitments........................................... -- 7,608 4,378
Advances from stockholders.................................. 26,500 -- --
Stockholders' equity:
Preferred stock, $.001 par value: 5,000,000 shares
authorized
Series A convertible preferred stock,
Designated -- 250,000 shares;
Issued and outstanding -- 172,500 shares at December
31, 1996,
Liquidation preference -- $172,500 at December 31,
1996.................................................. 173 -- --
Series B convertible preferred stock,
Designated -- 400,000 shares;
Issued and outstanding -- 339,562 shares at December
31, 1996,
Liquidation preference -- $431,243 at December 31,
1996.................................................. 340 -- --
Series C convertible preferred stock,
Designated -- 400,000 shares;
Issued and outstanding -- 296,147 shares at December
31, 1996,
Liquidation preference -- $814,404 at December 31,
1996.................................................. 296 -- --
Series D convertible preferred stock,
Designated -- 200,000 shares;
Issued and outstanding -- 96,429 shares at December
31, 1996,
Liquidation preference -- $675,003 at December 31,
1996.................................................. 96 -- --
Series E convertible preferred stock,
Designated -- 400,000 shares;
Issued and outstanding -- 289,500 shares at December
31, 1996,
Liquidation preference -- $4,000,000 at December 31,
1996.................................................. 290 -- --
Series F convertible preferred stock,
Designated -- 1,200,000 shares........................ -- -- --
Series G convertible preferred stock,
Designated -- 1,280,000 shares; Issued and
outstanding -- 1,280,000 at December 31, 1997 and
March 31, 1998, Liquidation preference -- $10,240,000
at December 31, 1997.................................. -- 1,280 1,280
Common stock, $0.001 par value; Authorized -- 20,000,000
shares; Issued and outstanding -- 4,006,787 shares at
December 31, 1996, 9,377,404 shares at December 31, 1997
and 9,380,032 at March 31, 1998......................... 4,007 9,377 9,380
Additional paid-in capital................................ 5,324,591 29,821,121 33,215,708
Notes receivable from common stockholders................. (5,570) (500) --
Deferred compensation..................................... (403,202) (710,493) (665,704)
Deficit accumulated during the development stage.......... (2,324,098) (7,589,281) (13,341,418)
----------- ----------- ------------
Total stockholders' equity.............................. 2,596,923 21,531,504 19,219,246
----------- ----------- ------------
Total liabilities and stockholders' equity......... $ 2,776,477 $22,130,008 $ 20,081,261
=========== =========== ============
</TABLE>
See accompanying notes.
F-3
<PAGE> 62
INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
AUGUST 2, 1995 THREE MONTHS AUGUST 2, 1995
(INCEPTION) TO YEAR ENDED YEAR ENDED ENDED MARCH 31, (INCEPTION) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, ----------------------- MARCH 31,
1995 1996 1997 1997 1998 1998
-------------- ------------ ------------ --------- ----------- --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues................................ $ -- $ -- $ 143,541 $ 9,907 $ 113,153 $ 256,694
Operating expenses:
Research and development.............. 32,632 1,420,483 1,703,111 448,252 599,170 3,755,396
Selling, general and administrative... 16,542 910,040 3,148,014 560,958 1,589,258 5,663,854
Charges associated with the NBC
Strategic Alliance Agreement........ -- -- 750,000 -- 3,872,580 4,622,580
-------- ----------- ----------- --------- ----------- ------------
Total operating expenses........ 49,174 2,330,523 5,601,125 1,009,210 6,061,008 14,041,830
-------- ----------- ----------- --------- ----------- ------------
Loss from operations.................... (49,174) (2,330,523) (5,457,584) (999,303) (5,947,855) (13,785,136)
Interest income......................... 3,154 52,445 192,401 21,427 195,718 443,718
-------- ----------- ----------- --------- ----------- ------------
Net loss................................ $(46,020) $(2,278,078) $(5,265,183) $(977,876) $(5,752,137) $(13,341,418)
======== =========== =========== ========= =========== ============
Basic and diluted net loss per share.... $ (.66) $ (.90) $ (.21) $ (.66)
=========== =========== ========= ===========
Shares used in computing basic and
diluted net loss per share............ 3,440,931 5,822,594 4,657,815 8,694,332
=========== =========== ========= ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 63
INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NOTES
RECEIVABLE
PREFERRED STOCK COMMON STOCK ADDITIONAL FROM
-------------------- ------------------ PAID-IN COMMON DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCKHOLDERS COMPENSATION
---------- ------- --------- ------ ----------- ------------ ------------
<S> <C> <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 -- (421,273)
Amortization of deferred
compensation.................... -- -- -- -- -- -- 18,071
Net loss........................... -- -- -- -- -- -- --
---------- ------- --------- ------ ----------- ------- ---------
Balance at December 31, 1996....... 1,194,138 1,195 4,006,787 4,007 5,324,591 (5,570) (403,202)
Issuance of Series E convertible
preferred stock at $10.00 per
share for cash in January and
February 1997, net of issuance
cost of $27,816................. 110,500 110 -- -- 1,077,074 -- --
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 $11,105....... 721,664 721 -- -- 4,318,158 -- --
Exercise of stock options at $0.04
per share for cash in July
1997............................ -- -- 31,490 31 1,219 -- --
Repurchase of restricted stock at
$0.024 per share for cash and
cancellation of note receivable
in September 1997............... -- -- (108,685) (109) (2,479) 1,388 --
Repayments of notes receivable
from common stockholders........ -- -- -- -- -- 3,682 --
Conversion of preferred stock..... (2,026,302) (2,026) 3,237,286 3,238 (1,212) -- --
Issuance of common stock in
initial public offering at $9.50
per share, net of issuance cost
of $2,431,977................... -- -- 2,210,526 2,210 18,565,813 -- --
Issuance of Series G convertible
preferred stock net of issuance
costs of $23,582................ 1,280,000 1,280 -- -- (24,862) -- --
Deferred compensation............. -- -- -- -- 562,819 -- (562,819)
Amortization of deferred
compensation.................... -- -- -- -- -- -- 255,528
Net loss.......................... -- -- -- -- -- -- --
---------- ------- --------- ------ ----------- ------- ---------
Balance at December 31, 1997....... 1,280,000 1,280 9,377,404 9,377 29,821,121 (500) (710,493)
Compensation related to stock
options (unaudited)............. -- -- 2,628 3 22,007 -- --
Recognition of lapse of NBC's
obligation to return 680,000
shares of Series G convertible
preferred stock issued under the
Strategic Alliance Agreement
(unaudited)..................... -- -- -- -- 3,372,580 -- --
Repayments of notes receivable
from common stockholders
(unaudited)..................... -- -- -- -- -- 500 --
Amortization of deferred
compensation (unaudited)........ -- -- -- -- -- -- 44,789
Net loss (unaudited).............. -- -- -- -- -- -- --
---------- ------- --------- ------ ----------- ------- ---------
Balance at March 31,1998
(unaudited)....................... 1,280,000 $1,280 9,380,032 $9,380 $33,215,708 $ -- $(665,704)
========== ======= ========= ====== =========== ======= =========
<CAPTION>
DEFICIT
ACCUMULATED
DURING THE TOTAL
DEVELOPMENT STOCKHOLDERS'
STAGE EQUITY
------------ -------------
<S> <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............. -- --
Amortization of deferred
compensation.................... -- 18,071
Net loss........................... (2,278,078) (2,278,078)
------------ -----------
Balance at December 31, 1996....... (2,324,098) 2,596,923
Issuance of Series E convertible
preferred stock at $10.00 per
share for cash in January and
February 1997, net of issuance
cost of $27,816................. -- 1,077,184
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 $11,105....... -- 4,318,879
Exercise of stock options at $0.04
per share for cash in July
1997............................ -- 1,250
Repurchase of restricted stock at
$0.024 per share for cash and
cancellation of note receivable
in September 1997............... -- (1,200)
Repayments of notes receivable
from common stockholders........ -- 3,682
Conversion of preferred stock..... -- --
Issuance of common stock in
initial public offering at $9.50
per share, net of issuance cost
of $2,431,977................... -- 18,568,023
Issuance of Series G convertible
preferred stock net of issuance
costs of $23,582................ -- (23,582)
Deferred compensation............. -- --
Amortization of deferred
compensation.................... -- 255,528
Net loss.......................... (5,265,183) (5,265,183)
------------ -----------
Balance at December 31, 1997....... (7,589,281) 21,531,504
Compensation related to stock
options (unaudited)............. -- 22,010
Recognition of lapse of NBC's
obligation to return 680,000
shares of Series G convertible
preferred stock issued under the
Strategic Alliance Agreement
(unaudited)..................... -- 3,372,580
Repayments of notes receivable
from common stockholders
(unaudited)..................... -- 500
Amortization of deferred
compensation (unaudited)........ -- 44,789
Net loss (unaudited).............. (5,752,137) (5,752,137)
------------ -----------
Balance at March 31,1998
(unaudited)....................... $(13,341,418) $19,219,246
============ ===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 64
INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
AUGUST 2, AUGUST 2,
1995 THREE MONTHS ENDED 1995
(INCEPTION) TO YEAR ENDED YEAR ENDED MARCH 31, (INCEPTION) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, ------------------------- MARCH 31,
1995 1996 1997 1997 1998 1998
-------------- ------------ ------------ ----------- ----------- --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss.............................. $(46,020) $(2,278,078) $(5,265,183) $ (977,876) $(5,752,137) $(13,341,418)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Recognition of lapse of NBC's
obligation to return 680,000
shares of Series G convertible
preferred stock issued under the
NBC Strategic Alliance
Agreement......................... -- -- -- -- 3,372,580 3,372,580
Compensation related to stock
options........................... -- -- -- -- 22,010 22,010
Amortization of deferred
compensation...................... -- 18,071 255,528 -- 44,789 318,388
Depreciation and amortization....... 678 59,305 178,544 41,123 70,373 308,900
Changes in operating assets and
liabilities:
Accounts receivable............... -- -- (88,685) (9,966) (67,735) (156,420)
Prepaid and other current
assets.......................... -- (10,095) (59,513) 1,983 (157) (69,765)
Accounts payable.................. -- 87,084 349,980 18,614 235,711 672,775
Accrued liabilities............... -- 65,970 76,048 22,571 30,596 172,614
-------- ----------- ----------- ---------- ----------- ------------
Net cash used in operating
activities.......................... (45,342) (2,057,743) (4,553,281) (903,551) (2,043,970) (8,700,336)
INVESTING ACTIVITIES:
Purchases of short term investments... -- -- -- -- (7,026,065) (7,026,065)
Purchases of property and equipment... (13,344) (298,925) (483,373) (101,431) (207,962) (1,003,604)
Other assets.......................... -- (6,274) (995) -- (39,469) (46,738)
-------- ----------- ----------- ---------- ----------- ------------
Net cash used in investing
activities.......................... (13,344) (305,199) (484,368) (101,431) (7,273,496) (8,076,407)
FINANCING ACTIVITIES:
Payments on capital leases............ -- -- (8,064) -- (2,796) (10,860)
Issuance of common stock.............. 952 12,515 18,569,273 -- 18,582,740
Issuance of preferred stock........... 155,247 2,429,124 3,335,981 1,050,684 -- 5,920,352
Advances from stockholders............ 411,241 1,920,371 2,010,000 -- -- 4,341,612
Repurchase of common stock............ -- -- (1,200) -- -- (1,200)
Repayment of stockholder notes
receivable.......................... -- -- 3,682 -- 500 4,182
-------- ----------- ----------- ---------- ----------- ------------
Net cash provided by (used in)
financing activities................ 567,440 4,362,010 23,909,672 1,050,684 (2,296) 28,836,826
Net increase in cash and cash
equivalents......................... 508,754 1,999,068 18,872,023 45,702 (9,319,762) 12,060,083
Cash and cash equivalents at beginning
of period........................... -- 508,754 2,507,822 2,507,822 21,379,845 --
-------- ----------- ----------- ---------- ----------- ------------
Cash and cash equivalents at end of
period.............................. $508,754 $ 2,507,822 $21,379,845 $2,553,524 $12,060,083 $ 12,060,083
======== =========== =========== ========== =========== ============
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 $ 2,036,500 $ 26,500 $ -- $ 4,341,612
======== =========== =========== ========== =========== ============
Issuance of common stock in exchange
for notes receivable.............. $ -- $ 5,570 $ -- $ -- $ -- $ 5,570
======== =========== =========== ========== =========== ============
Cancellation of stockholder notes
receivable........................ $ -- $ -- $ 1,388 $ -- $ -- $ 1,388
======== =========== =========== ========== =========== ============
Issuance of Series G convertible
preferred stock as consideration
for the formation of NBC Strategic
Alliance Agreement................ $ -- $ -- $ 1,280 $ -- $ -- $ 1,280
======== =========== =========== ========== =========== ============
Recognition of lapse of NBC's
obligation to return 680,000
shares of Series G convertible
preferred stock issued under the
NBC Strategic Alliance
Agreement......................... $ -- $ -- $ -- $ -- $ 3,372,580 $ 3,372,580
======== =========== =========== ========== =========== ============
Compensation related to stock
options........................... $ -- $ -- $ -- $ -- $ 22,010 $ 22,010
======== =========== =========== ========== =========== ============
</TABLE>
See accompanying notes.
F-6
<PAGE> 65
INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 AND PERTAINING TO MARCH 31, 1998
AND THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 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 March
31,1998, the Company had incurred accumulated losses of $13,341,418. 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 from a combination of equity, debt or lease
financing. Without 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 three months ended March 31, 1997 and 1998
and for the period from August 2, 1995 (Inception) to March 31, 1998 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 March 31, 1998 are
not necessarily indicative of the results which may be reported for any other
interim period or for the year ending December 31, 1998.
Cash, Cash Equivalents and Short-Term Investments
Cash and cash equivalents consist of cash, money market funds, and other
highly liquid investments with maturities of three months or less when
purchased. Such investments are made in accordance with the Company's investment
policy, which establishes guidelines relative to diversification, maturities and
credit quality designed to maintain safety and liquidity. The Company applies
Statement of Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities, to its short-term investments. Under
SFAS No. 115, the Company classifies its short-term investments as
"Available-for-Sale" and records such assets at estimated fair value in the
balance sheets with unrealized gains and losses, if any, reported in
stockholders' equity. As of March 31, 1998, the cost of short-term investments
approximated fair value. The Company has not experienced any losses on its cash,
cash equivalents, or short-term investments.
F-7
<PAGE> 66
INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 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
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of, 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. To
date, the Company has not identified any indicators of impairment nor recorded
any impairment losses.
Advertising Costs
Advertising costs are expensed as incurred. The Company incurred $382,152
in advertising costs for the three months ended March 31, 1998. Advertising
costs prior to December 31, 1997 were not significant.
F-8
<PAGE> 67
INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Stock Options
SFAS No. 123, Accounting for Stock-Based Compensation, 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 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 5).
Loss Per Share
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, Earnings per Share, which supercedes APB opinion No. 15. SFAS No. 128
replaces the presentation of primary earnings per share (EPS) with "Basic EPS,"
which includes no dilution and is based on weighted average common shares
outstanding for the period. Companies with complex capital structures, including
InterVU, will also be required to present "Diluted EPS" that reflects the
potential dilution of securities such as employee stock options and warrants to
purchase common stock. SFAS No. 128 is effective for financial statements issued
for periods ending after December 15, 1997. On February 2, 1998, the Securities
and Exchange Commission ("SEC") issued Staff Accounting Bulletin (SAB) No. 98
which revised the previous instructions for determining the dilutive effects of
earnings per share computations of common stock and common stock equivalents at
prices below the IPO price prior to the effectiveness of the IPO.
Included in the shares used in calculating basic and diluted net loss per
share for the twelve months ended December 31, 1996 and 1997 are the weighted
average effect of actual and assumed conversion of preferred stock totaling
2,052,983 and 3,199,777, respectively, and weighted average common shares
totaling 1,387,948 and 2,622,817, respectively. Included in the shares used in
calculating basic and diluted net loss per share for the three months ended
March 31, 1997 and 1998 are the weighted average effect of actual and assumed
conversion of preferred stock totaling 2,717,500 and 4,043,452, respectively,
and weighted average common shares totaling 1,940,315 and 4,650,880,
respectively. Common equivalent shares result from stock options, warrants and
unvested restricted stock of which 2,775,659 and 2,442,540 shares were excluded
from the computation of diluted earnings per share for the twelve months ended
December 31, 1996 and 1997, respectively, and 2,532,584 and 2,605,678 shares
were excluded from the computation of diluted earnings per share for the three
months ended March 31, 1997 and 1998, respectively, as their effect would be
anti-dilutive.
New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
Reporting Comprehensive Income, and SFAS No. 131, Segment Information. Both of
these standards are effective for fiscal years beginning after December 15,
1997. SFAS No. 130 requires that all components of comprehensive income,
including net income, be reported in the financial statements in the period in
which they are recognized. Comprehensive income is defined as the change in
equity during the period from transactions and other events and circumstances
from non-owner sources. Net income and other comprehensive income, including
foreign currency translation adjustments, and unrealized gains and losses on
investment shall be reported, net of their related tax effect, to arrive at
comprehensive income. The Company does not believe that comprehensive income or
loss will be materially different than net income or loss. SFAS No. 131 amends
the requirements for public enterprises to report financial and descriptive
information about their reportable operating segments. Operating segments, as
defined in SFAS No. 131, are components of an enterprise for which separate
financial information is available and is evaluated regularly by a company in
deciding how to allocate resources and in
F-9
<PAGE> 68
INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
assessing performance. The financial information is required to be reported on
the basis that is used internally for evaluating the segment performance. The
Company believes it operates in one business and operating segment and does not
believe adoption of this standard will have a material impact on the Company's
financial statements.
2. SHORT-TERM INVESTMENTS
As of March 31, 1998, all of the Company's short-term investments were in
government backed debt securities. The following is a summary of the contractual
maturities of short-term investments as of March 31, 1998:
<TABLE>
<CAPTION>
FAIR VALUE
----------
<S> <C>
Maturities:
1998................................... $ 726,065
1999................................... --
Thereafter............................. 6,300,000
----------
$7,026,065
==========
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- MARCH 31,
1996 1997 1998
-------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Equipment................................ $ -- $ 18,259 $ 18,259
Computers................................ 228,729 606,619 751,017
Furniture and fixtures................... 61,676 104,531 116,442
Equipment under capital lease............ -- 27,486 27,486
Leasehold improvements................... 11,936 24,172 24,172
Purchased software....................... 9,928 42,061 93,714
-------- --------- ----------
312,269 823,128 1,031,090
Less accumulated depreciation............ (59,983) (238,527) (308,900)
-------- --------- ----------
$252,286 $ 584,601 $ 722,190
======== ========= ==========
</TABLE>
4. 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 $10.00.
5. STOCKHOLDERS' EQUITY
Convertible Preferred Stock
Upon completion of the Company's initial public offering, the Company had
authorized 5,000,000 shares of preferred stock, of which 1,280,000 shares were
designated as Series G convertible preferred stock. The Board of Directors is
authorized, without further stockholder approval, to issue the remaining
3,720,000 shares of preferred stock in one or more series and to fix the rights,
preferences, privileges, and restrictions granted or
F-10
<PAGE> 69
INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
imposed upon any unissued shares of preferred stock and to fix the number of
shares constituting any series and the designation of such series.
In connection with the formation of a strategic alliance in October 1997,
the Company issued 1,280,000 shares of Series G convertible preferred stock. The
Series G convertible preferred stock ($.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 shares to one preferred share, subject to
adjustment for dilution. Noncumulative dividends are payable quarterly, when, as
and if declared by the Board of Directors. The shares of Series G convertible
preferred stock are convertible into common stock at the option of the holder
commencing July 10, 1998. The holder of each share of Series G convertible
preferred stock has the right to one vote for each share of common stock into
which it would convert.
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. Shares subject to repurchase by the
Company totaled 1,521,293 at December 31, 1997, and 2,065,154 and 1,488,850 at
March 31, 1997 and 1998, respectively.
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. In July 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.
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. Concurrent with the closing of the
offering, all of the preferred stock outstanding, excluding 1,280,000 shares of
Series G convertible preferred stock, automatically converted into 3,328,717
shares of common stock.
In November 1997, the Company effected a reverse stock split in which .6298
shares of common stock were exchanged for one share of common stock. All
applicable share and stock option information have been restated to reflect the
reverse stock split. Upon completion of the public offering, the Company had
authorized 20,000,000 shares of common stock.
Stock Options
The Company has established a stock option plan to grant options to
purchase common stock to consultants, employees, officers and directors of the
Company. The Company has authorized for grant under the plan stock options to
purchase up to 1,889,400 shares of its common stock.
Under the terms of the plan, non-qualified and incentive options may be
granted to consultants, employees, officers and directors at prices not less
than 100% of the fair value on the date of grant. Options generally vest 20%
after the first year of employment and daily thereafter for four years. The
options expire ten years from the date of grant.
F-11
<PAGE> 70
INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes the stock option activity for the period
from August 2, 1995 (Inception) to March 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
Granted........................................... 156,820 $0.04
------- -----
Balance at December 31, 1996........................ 156,820 0.04
Granted........................................... 710,798 3.15
Exercised......................................... (31,490) 0.03
Canceled.......................................... (91,950) 0.03
------- -----
Balance at December 31, 1997........................ 744,177 3.00
Granted (unaudited)............................... 202,189 8.76
Exercised (unaudited)............................. (2,628) .28
Canceled (unaudited).............................. (26,910) 5.41
------- -----
Balance at March 31, 1998 (unaudited)............... 916,828 $4.21
======= =====
</TABLE>
As of March 31, 1998, options for 122,716 common shares were exercisable.
Options outstanding at March 31, 1998 had exercise prices ranging from $.03 to
$13.63 and had a weighted average remaining contractual life of approximately
9.25 years. The weighted average fair value of options granted in 1996, 1997 and
the three months ended March 31, 1998 was $1.08, $1.11 and $6.47, respectively.
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. For options granted in the year ended December 31,
1996 and through November 18, 1997, the fair value for the options was estimated
at the date of grant using the "minimum value" method for option pricing with
the following weighted average assumptions: risk-free interest rate of 6%,
dividend yield of 0%, and weighted average expected life of the option of seven
years. For options granted from November 18, 1997 to December 31, 1997, the fair
value of the options was estimated at the date of grant using the
"Black-Scholes" method for option pricing with the following weighted average
assumptions: risk free interest rate of 6%, dividend yield of 0%, expected
volatility of 75% and weighted average expected life of the option of seven
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, and $2,278,002 and $5,099,562 for the years
ended December 31, 1996 and 1997, respectively. The Company's pro forma basic
and diluted net loss per share was $(.66) and $(.88) for the years ended
December 31, 1996 and 1997, respectively.
F-12
<PAGE> 71
INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Deferred Compensation
Through December 31, 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 1997 totaled
$421,273 and $984,092, respectively, and related amortization expense totaled
$18,071 and $255,528 for the years ended December 31, 1996 and 1997,
respectively, $44,789 for the three months ended March 31, 1998, and $318,388
for the period from August 2, 1995 (Inception) to March 31, 1998.
Warrants
In connection with the Company's initial public offering, the Company
issued 200,000 warrants to purchase common stock to its underwriters. Such
warrants are exercisable at $11.40 per share of common stock for a period of
four years commencing in November 1998.
Shares Reserved for Future Issuance
At March 31, 1998, the Company had reserved approximately 2,900,000 common
shares for the conversion of preferred stock, the exercise of stock options, the
exercise of warrants and for stock options available for future grant.
6. 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 and $128,795 for the year ended
December 31, 1996 and 1997, respectively, $28,990 and $39,058 for the three
months ended March 31, 1997 and 1998, respectively, and $215,501 for the period
from August 2, 1995 (inception) to March 31, 1998.
Future annual minimum payments under noncancelable capital and operating
leases (with initial lease terms in excess of one year) consisted of the
following at December 31, 1997:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- --------
<S> <C> <C>
1998................................................... $121,541 $ 13,790
1999................................................... 37,058 8,353
-------- --------
Total minimum lease payments........................... $158,599 22,143
========
Less amounts representing interest..................... (2,721)
--------
Present value of future minimum lease payments......... 19,422
Less current portion................................... (11,814)
--------
Capital lease obligation, net of current portion....... $ 7,608
========
</TABLE>
In April 1998, the Company signed a sublease agreement for 23,575 square
feet of office space in San Diego. The sublease commences May 1, 1998 and the
Company expects to relocate its principal office to the facility in June 1998.
The sublease expires in June 2003. Over the term of the sublease the Company
expects to incur approximately $1.9 million in rent expense.
The Company is currently in negotiations with the owner of its current
facility to be released from the remaining obligation under the two
noncancelable operating leases which expire in 1999.
F-13
<PAGE> 72
INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES
Significant components of the Company's deferred tax assets as of December
31, 1996 and 1997 are shown below. A valuation allowance of $3,210,000 has been
recorded at December 31, 1997 to offset the net deferred tax assets as
realization is uncertain.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................ $ 920,000 $ 2,883,000
Research tax credit carryforwards............... 71,000 233,000
Other........................................... 17,000 94,000
----------- -----------
Total deferred tax assets......................... 1,008,000 3,210,000
Valuation allowance............................... (1,008,000) (3,210,000)
----------- -----------
Net deferred tax assets........................... $ -- $ --
=========== ===========
</TABLE>
The Company had federal and California tax net operating loss carryforwards
at December 31, 1997 of approximately $7.1 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 carryforwards of approximately $171,000 and $96,000, respectively,
which will begin to expire in 2011 and 2010, respectively, unless previously
utilized.
Pursuant to Internal Revenue Service Code Sections 382 and 383, use of the
Company's net operating loss and credit 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 limitation will have a material
impact on the Company's ability to use these carryforwards.
8. 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 and $182,216 for the years ended December 31, 1996 and 1997,
respectively, $47,050 and $78,070 for the three months ended March 31, 1997 and
1998, respectively, and $362,118 for the period from August 2, 1995 (Inception)
to March 31, 1998.
9. STRATEGIC ALLIANCES
On October 10, 1997, the Company entered into a strategic alliance with NBC
Multimedia, Inc. ("NBC Multimedia"), a wholly-owned subsidiary of the National
Broadcasting Corporation, Inc. ("NBC"), whereby the Company became 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 NBC Strategic Alliance Agreement, the Company issued to NBC 1,280,000
shares of Series G convertible preferred stock. The Company is entitled to
receive 30% of certain advertising revenues 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
F-14
<PAGE> 73
INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
advertising costs associated with certain NBC websites including payments of (i)
$750,000 paid on the completion of the initial public offering completed in
November 1997, (ii) $500,000 which became due in February 1998, (iii) $500,000
due in May 1998, and (iv) $250,000 due in August 1998.
NBC Multimedia may terminate the agreement without cause by giving 90 days
written notice. NBC Multimedia was required to return all shares of Series G
convertible preferred stock if termination occurred prior to January 10, 1998
and NBC Multimedia had not promoted, at a minimum, the Company's logo on the NBC
Web site and is required to return 600,000 shares of Series G convertible
preferred stock if the termination occurs at any other time during the first two
years of the exclusive term. The Company determines the fair value of the Series
G convertible preferred stock issued to NBC on the dates the requirements that
NBC return some or all of the shares of Series G convertible preferred stock
lapse. Based on these provisions, the Company has charged $3,372,580 as the fair
value of 680,000 shares of Series G convertible preferred stock to expense in
the quarter ending March 31, 1998 and expects to charge the then fair value of
the remaining 600,000 shares of Series G convertible preferred stock to expense
in the quarter ending December 31, 1999. Should the Company renegotiate or waive
these provisions, removing NBC's obligation to return shares of Series G
convertible preferred stock, the Company would expense the fair value of each
share at that time. The Company believes that the fair value of the remaining
600,000 shares of Series G convertible preferred stock will roughly approximate
the price at which the Company's common stock is then trading, multiplied by the
number of shares into which such outstanding shares of Series G convertible
preferred stock would convert at the .6298 conversion rate. The noncash charges
are likely to be substantial and are likely to have a material adverse impact on
the Company's results of operations in the periods such expenses are recognized.
F-15
<PAGE> 74
[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 McIlhenny Co. Tabasco Brand Pepper Sauce logo and
the words "Are you one of those weirdos who gets their thrills torturing small
insects?" At the far right of the rectangle is a picture of the head of a man
wearing a satisfied grin.
<TABLE>
<S> <C>
V-Banner(TM) InterVU's V-Banner video advertising banners, which
Client Videos integrate real time audio and video into traditional ad
Free Software banners, are delivered automatically to end-users. 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>
- --------------------------------------------------------------------------------
STRATEGIC RELATIONSHIPS
[TRUEVU LOGO]
[INTERVU LOGO] (MATCHLOGIC, INC. LOGO]
The Company and MatchLogic have developed trueVU, a service designed to
facilitate advertisers' use of bandwidth-intensive media and robust video ads on
the Internet. trueVU combines InterVU's video delivery technology with
MatchLogic's targeting, distribution, reporting and performance measurement
capabilities to provide "one-stop shopping" for Internet advertisers and
advertising agencies. trueVU allows advertisers to stage advertising campaigns
across a number of Web sites without having to contact those sites individually
and confirm the compatibility of their advertisements with the software used on
those sites. In addition, trueVU offers integrated reporting of an ad's
performance across a number of Web sites.
[VIDEOSEEKER LOGO]
[INTERVU LOGO] [NBC LOGO]
NBC recently announced the creation of VideoSeeker, a Web site that offers
end-users a single source for online video entertainment from NBC and its
partners and third-party programmers. VideoSeeker features a wide array of
streaming and downloadable video content, including monologues from "The Tonight
Show with Jay Leno," "Access Hollywood" celebrity interviews, backstage footage
with NBC celebrities and music videos from myLAUNCH, an online music site. The
Company created the video search engine used on the VideoSeeker site, owns the
proprietary software underlying the site and will manage and distribute all
video, audio and multimedia from the site via the InterVU Network.
<PAGE> 75
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THE OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................... 3
Risk Factors............................... 7
Use of Proceeds............................ 18
Price Range of Common Stock................ 18
Dividend Policy............................ 18
Dilution................................... 19
Capitalization............................. 20
Selected Financial Data.................... 21
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 22
Business................................... 27
Management................................. 40
Certain Transactions....................... 46
Principal Stockholders..................... 48
Description of Capital Stock............... 49
Shares Eligible for Future Sale............ 52
Underwriting............................... 55
Legal Matters.............................. 56
Experts.................................... 56
Available Information...................... 57
Index to Financial Statements.............. F-1
</TABLE>
======================================================
======================================================
1,200,000 SHARES
LOGO
INTERVU INC.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
JOSEPHTHAL & CO. INC.
CRUTTENDEN ROTH
INCORPORATED
, 1998
======================================================
<PAGE> 76
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......... $ 11,832
NASD filing fee............................................. 4,511
Nasdaq National Market listing fee.......................... 17,500
Legal fees and expenses..................................... 150,000
Accounting fees and expenses................................ 100,000
Printing and engraving expenses............................. 150,000
Blue Sky fees and expenses.................................. 5,000
Transfer agent and registrar fees........................... 5,000
Miscellaneous............................................... 56,157
--------
TOTAL.................................................. $500,000
========
</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 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 maintains directors' and officers' liability insurance covering
its executive officers and directors. The policies have limits of up to
$5,000,000 in the aggregate, subject to retentions of up to $175,000 in the
aggregate.
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, 599,555 shares to a predecessor of the
Westchester Group LLC, 211,609 shares to Ruth Hargis and 176,340 shares to the
II-1
<PAGE> 77
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 144,500 shares of Series E
Convertible Preferred Stock at $10 per share to various accredited individual
investors for a total consideration of $1,145,000.
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 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.
II-2
<PAGE> 78
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
1.1 Form of Underwriting Agreement.(1)
3.1 Amended and Restated Certificate of Incorporation.(2)
3.2 Amended and Restated Bylaws.(2)
4.1 Form of Common Stock Certificate.(3)
4.2 Form of Advisors' Warrant Agreement including form of
Advisors' Warrants.(1)
5.1 Opinion of Latham & Watkins.(1)
10.1 1996 Stock Plan of InterVU Inc.(4)
10.2 Form of Indemnification Agreement.(5)
10.3 Form of Restricted Stock Purchase Agreement.(5)
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.(4)
10.7 Preferred Stock Purchase Agreement dated as of October 10,
1997 among the Company, National Broadcasting Company, Inc.
and NBC Multimedia, Inc.(4)
10.8 Strategic Alliance Agreement dated January 15, 1998 between
the Company and MatchLogic Inc.(2)
10.9 Consulting Agreement dated January 28, 1998 between the
Company and J. William Grimes.(6)
10.10 Sublease Agreement dated as of April 20, 1998 between the
Company and Computervision Corporation.(6)
10.11 1998 Stock Option Plan of InterVU Inc.(6)
10.12 Employee Qualified Stock Purchase Plan of InterVU Inc.(6)
23.1 Consent of Ernst & Young LLP, Independent Auditors.(1)
23.2 Consent of Latham & Watkins (contained in Exhibit 5.1).(1)
24.1 Power of Attorney.(6)
</TABLE>
- ---------------
(1) Filed herewith.
(2) Incorporated by reference to the Company's Annual Report on Form 10-K filed
with the Commission on March 31, 1998.
(3) Incorporated by reference to Exhibit 4.1 to the Company's Registration
Statement on Form 8-A filed with the Commission on November 12, 1997.
(4) Incorporated by reference to Amendment No. 1 to the Company's Registration
Statement on Form S-1 filed with the Commission on October 24, 1997.
(5) Incorporated by reference to Amendment No. 2 to the Company's Registration
Statement on Form S-1 filed with the Commission on November 12, 1997.
(6) Previously filed.
II-3
<PAGE> 79
(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
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 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> 80
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 4 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of San
Diego, State of California, on June 15, 1998.
InterVU Inc.
By: /s/ HARRY E. GRUBER
------------------------------------
Harry E. Gruber
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
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 and June 15, 1998
- -------------------------------------------------------- Chief Executive Officer
Harry E. Gruber (Principal Executive Officer)
/s/ KENNETH L. RUGGIERO* Vice President and Chief June 15, 1998
- -------------------------------------------------------- Financial Officer (Principal
Kenneth L. Ruggiero Financial Officer and
Principal Accounting Officer)
/s/ EDWARD DAVID* Director June 15, 1998
- --------------------------------------------------------
Edward David
/s/ MARK DOWLEY* Director June 15, 1998
- --------------------------------------------------------
Mark Dowley
/s/ ALAN Z. SENTER* Director June 15, 1998
- --------------------------------------------------------
Alan Z. Senter
/s/ J. WILLIAM GRIMES* Vice Chairman June 15, 1998
- --------------------------------------------------------
J. William Grimes
/s/ ISAAC WILLIS* Director June 15, 1998
- --------------------------------------------------------
Isaac Willis
</TABLE>
*By: /s/ HARRY E. GRUBER
---------------------------------
Harry E. Gruber
Attorney-in-fact
II-5
<PAGE> 81
EXHIBIT INDEX
The following exhibits are filed as part of this Form S-1 Registration
Statement.
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBERS DESCRIPTION OF EXHIBIT PAGES
------- ---------------------- ------------
<C> <S> <C>
1.1 Form of Underwriting Agreement.(1)..........................
3.1 Amended and Restated Certificate of Incorporation.(2).......
3.2 Amended and Restated Bylaws.(2).............................
4.1 Form of Common Stock Certificate.(3)........................
4.2 Form of Advisors' Warrant Agreement including form of
Advisors' Warrants.(1)......................................
5.1 Opinion of Latham & Watkins.(1).............................
10.1 1996 Stock Plan of InterVU Inc.(4)..........................
10.2 Form of Indemnification Agreement.(5).......................
10.3 Form of Restricted Stock Purchase Agreement.(5).............
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.(4).............
10.7 Preferred Stock Purchase Agreement dated as of October 10,
1997 among the Company, National Broadcasting Company, Inc.
and NBC Multimedia, Inc.(4).................................
10.8 Strategic Alliance Agreement dated January 15, 1998 between
the Company and MatchLogic Inc.(2)..........................
10.9 Consulting Agreement dated January 28, 1998 between the
Company and J. William Grimes.(6)...........................
10.10 Sublease Agreement dated as of April 20, 1998 between the
Company and Computervision Corporation.(6)..................
10.11 1998 Stock Option Plan of InterVU Inc.(6)...................
10.12 Employee Qualified Stock Purchase Plan of InterVU Inc.(6)...
23.1 Consent of Ernst & Young LLP, Independent Auditors.(1)......
23.2 Consent of Latham & Watkins (contained in Exhibit
5.1).(1)....................................................
24.1 Power of Attorney.(6).......................................
</TABLE>
- ---------------
(1) Filed herewith.
(2) Incorporated by reference to the Company's Annual Report on Form 10-K filed
with the Commission on March 31, 1998.
(3) Incorporated by reference to Exhibit 4.1 to the Company's Registration
Statement on Form 8-A filed with the Commission on November 12, 1997.
(4) Incorporated by reference to Amendment No. 1 to the Company's Registration
Statement on Form S-1 filed with the Commission on October 24, 1997.
(5) Incorporated by reference to Amendment No. 2 to the Company's Registration
Statement on Form S-1 filed with the Commission on November 12, 1997.
(6) Previously filed.
<PAGE> 1
EXHIBIT 1.1
1,200,000 SHARES OF COMMON STOCK
INTERVU INC.
UNDERWRITING AGREEMENT
June __, 1998
JOSEPHTHAL & CO. INC.
CRUTTENDEN ROTH INCORPORATED
As Representatives of the
Several Underwriters listed on Schedule A hereto
c/o Josephthal & Co. Inc.
200 Park Avenue, 25th Floor
New York, New York 10166
Ladies and Gentlemen:
InterVU Inc., a Delaware corporation (the "Company"), confirms
its agreement with Josephthal & Co. Inc. ("Josephthal") and each of the
underwriters named in Schedule A hereto (collectively, the "Underwriters," which
term shall also include any underwriter substituted as hereinafter provided in
Section 11), for whom Josephthal and Cruttenden Roth Incorporated ("Cruttenden")
are acting as representatives (in such capacity, Josephthal and Cruttenden shall
hereinafter be referred to as "you" or the "Representatives"), with respect to
the sale by the Company and the purchase by the Underwriters, acting severally
and not jointly, of the respective numbers of shares of the Company's common
stock, $.001 par value per share ("Common Stock"), set forth in Schedule A
hereto. Such shares of Common Stock are hereinafter referred to as the "Firm
Shares." If you are the only Underwriters, all references herein to the
Representatives shall be deemed to be to the Underwriters.
Upon your request, as provided in Section 2(b) of this Agreement,
the Company shall also sell to the Underwriters, acting severally and not
jointly, up to an additional 180,000 shares of Common Stock for the purpose of
covering over-allotments, if any (the "Option Shares"). The Firm Shares and the
Option Shares are sometimes hereinafter referred to as the "Shares." The Company
also proposes to issue and sell to you warrants (the "Advisors' Warrants")
pursuant to the Advisors' Warrant Agreement (the "Advisors' Warrant Agreement")
for the purchase of an additional 120,000 shares of Common Stock. The shares of
Common Stock issuable upon exercise of the Advisors' Warrants are hereinafter
referred to as the "Advisors' Shares." The Firm Shares, the Option Shares, the
Advisors' Warrants and the
1
<PAGE> 2
Advisors' Shares collectively, are hereinafter referred to as the "Securities"
and are more fully described in the Registration Statement and the Prospectus
referred to below.
1. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, each of the Underwriters as of the
date hereof, and as of the Closing Date (hereinafter defined) and the Option
Closing Date (hereinafter defined), if any, as follows:
(a) The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement, and an
amendment or amendments thereto, on Form S-1 (No. 333-51587), including any
related preliminary prospectus ("Preliminary Prospectus"), for the registration
of the Firm Shares and the Option Shares under the Securities Act of 1933, as
amended (the "Act"), which registration statement and amendment or amendments
have been prepared by the Company in conformity in all material respects with
the requirements of the Act, and the rules and regulations (the "Regulations")
of the Commission under the Act. The Company will not file any amendment thereto
to which the Underwriters shall have objected in writing after having been
furnished with a copy thereof. Except as the context may otherwise require, such
registration statement, as amended, on file with the Commission at the time the
registration statement becomes effective (including the prospectus, financial
statements, exhibits and all other documents filed as a part thereof or
incorporated therein (including, but not limited to, those documents or
information incorporated by reference therein) and all information deemed to be
a part thereof as of such time pursuant to paragraph (b) of Rule 430(A) of the
Regulations), is hereinafter called the "Registration Statement," and the form
of prospectus in the form first filed with the Commission pursuant to Rule
424(b) of the Regulations is hereinafter called the "Prospectus." For purposes
hereof, "Rules and Regulations" mean the rules and regulations adopted by the
Commission under either the Act or the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), as applicable.
(b) Neither the Commission nor, to the best of the Company's
knowledge, any state regulatory authority has issued any order preventing or
suspending the use of any Preliminary Prospectus, the Registration Statement or
Prospectus or any part of any thereof and no proceedings for a stop order
suspending the effectiveness of the Registration Statement or any of the
Company's securities have been instituted or are pending or, to the Company's
knowledge, threatened. Each of the Preliminary Prospectus, the Registration
Statement and Prospectus at the time of filing thereof conformed in all material
respects with the requirements of the Act and the Rules and Regulations, and
none of the Preliminary Prospectus, the Registration Statement or Prospectus at
the time of filing thereof contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading (in the case of the Preliminary
Prospectus and the Prospectus, in light of the circumstances under which they
were made), except that this representation and warranty does not apply to
statements contained in the paragraph relating to stabilization and market
making on the inside front cover page of the Prospectus or under the caption
"Underwriting" in the Prospectus (to the extent such statements relate to the
Underwriters).
(c) When the Registration Statement becomes effective and at
all times subsequent thereto up to the Closing Date and each Option Closing
Date, if any, and during such longer period as the Prospectus may be required to
be delivered in connection with sales by the Underwriters or a dealer, the
Registration Statement and the Prospectus will contain all
2
<PAGE> 3
statements which are required to be stated therein in accordance with the Act
and the Rules and Regulations, and will conform to the requirements of the Act
and the Rules and Regulations; neither the Registration Statement nor the
Prospectus, nor any amendment or supplement thereto, will contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading (in
the case of the Prospectus and any amendment or supplement thereto, in light of
the circumstances under which they were made), provided, however, that this
representation and warranty does not apply to statements contained in the
paragraph relating to stabilization and market making on the inside front cover
page of the Prospectus or under the caption "Underwriting" in the Prospectus (to
the extent such statements relate to the Underwriters).
(d) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the State of
Delaware. The Company does not own an interest in any corporation, partnership,
trust, joint venture or other business entity. The Company is duly qualified and
licensed and in good standing as a foreign corporation in each jurisdiction in
which its ownership or leasing of any properties or the character of its
operations requires such qualification or licensing, except for such
jurisdictions where the failure to so qualify would not have a material adverse
effect on the condition, financial or otherwise, or the earnings, position,
prospects, value, operation, properties, business or results of operations of
the Company. The Company has all requisite corporate power and authority, and
the Company has obtained any and all necessary authorizations, approvals,
orders, licenses, certificates, franchises and permits of and from all
governmental or regulatory officials and bodies (including, without limitation,
those having jurisdiction over environmental or similar matters), to own or
lease its properties and conduct its business as described in the Prospectus,
except for such authorizations, approvals, orders, licenses, certificates,
franchises and permits the failure to so obtain would not have a material
adverse effect on the condition, financial or otherwise, or the earnings,
position, prospects, value, operation, properties, business or results of
operations of the Company; the Company is and has been doing business in
compliance with all such authorizations, approvals, orders, licenses,
certificates, franchises and permits and all federal, state and local laws,
rules and regulations, except where the failure to so comply would not have a
material adverse effect on the condition, financial or otherwise, or the
earnings, position, prospects, value, operation, properties, business or results
of operations of the Company; and the Company has not received any notice of
proceedings relating to the revocation or modification of any such
authorization, approval, order, license, certificate, franchise, or permit
which, singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would materially and adversely affect the condition,
financial or otherwise, or the earnings, position, prospects, value, operation,
properties, business or results of operations of the Company. The disclosures in
the Registration Statement concerning the effects of federal, state and local
laws, rules and regulations on the Company's business as currently conducted and
as contemplated are correct in all material respects and do not omit to state a
material fact necessary to make the statements contained therein not misleading.
(e) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus under "Capitalization" and
"Description of Capital Stock" and will have the adjusted capitalization set
forth therein on the Closing Date and the Option Closing Date, if any, based
upon the assumptions set forth therein (except for subsequent issuances, if any,
pursuant to the exercise of options referred to in the Prospectus), and the
Company is not a
3
<PAGE> 4
party to or bound by any instrument, agreement or other arrangement providing
for it to issue any capital stock, rights, warrants, options or other
securities, except for this Agreement, the Advisors' Warrant Agreement and as
described in the Prospectus. The Securities and all other securities issued or
issuable by the Company conform or, when issued and paid for, will conform, in
all respects to all statements with respect thereto contained in the
Registration Statement and the Prospectus. All issued and outstanding securities
of the Company have been duly authorized and validly issued and are fully paid
and non-assessable and the holders thereof have no rights of rescission with
respect thereto, and are not subject to personal liability by reason of being
such holders; and none of such securities were issued in violation of the
preemptive rights of any holders of any security of the Company or similar
contractual rights granted by the Company. The Securities are not and will not
be subject to any preemptive or other similar rights of any stockholder, have
been duly authorized and, when issued, paid for and delivered in accordance with
the terms hereof, will be validly issued, fully paid and non-assessable and will
conform to the description thereof contained in the Prospectus; the holders
thereof will not be subject to any liability solely as such holders; all
corporate action required to be taken for the authorization, issue and sale of
the Securities has been duly and validly taken; and the certificates
representing the Securities will be in due and proper form. Upon the issuance
and delivery pursuant to the terms hereof of the Securities to be sold by the
Company hereunder, the Underwriters or the Representatives, as the case may be,
will acquire good and marketable title to such Securities free and clear of any
lien, charge, claim, encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever, other than such as may be created
by the Underwriters and provided that the Underwriters purchase such shares in
good faith and without notice of any adverse claim.
(f) The financial statements, including the related notes
thereto, included in the Registration Statement, each Preliminary Prospectus and
the Prospectus fairly present the financial position, income, changes in cash
flow, changes in stockholders' equity, and the results of operations of the
Company at the respective dates and for the respective periods to which they
apply and the pro forma financial information included in the Registration
Statement and Prospectus presents fairly on a basis consistent with that of the
audited financial statements included therein, what the Company's pro forma
capitalization would have been for the respective periods and as of the
respective dates to which they apply after giving effect to the adjustments
described therein. Such financial statements have been prepared in conformity
with generally accepted accounting principles and the Rules and Regulations,
consistently applied throughout the periods involved. Except as described in the
Prospectus, there has been no material adverse change or development involving a
material prospective change in the condition, financial or otherwise, or in the
earnings, position, prospects, value, operation, properties, business, or
results of operations of the Company whether or not arising in the ordinary
course of business, since the date of the financial statements included in the
Registration Statement and the Prospectus and the outstanding debt, the
property, both tangible and intangible, and the business of the Company conform
in all material respects to the descriptions thereof contained in the
Registration Statement and the Prospectus. Financial information set forth in
the Prospectus under the headings "Summary Financial Data," "Selected Financial
Data," "Capitalization," and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," fairly present, on the basis stated in the
Prospectus, the information set forth therein, and have been derived from or
compiled on a basis consistent with that of the audited financial statements
included in the Prospectus.
4
<PAGE> 5
(g) The Company (i) has paid all federal, state, local, and
foreign taxes for which it is liable, including, but not limited to, withholding
taxes and amounts payable under Chapters 21 through 24 of the Internal Revenue
Code of 1986 (the "Code"), and has furnished all information returns it is
required to furnish pursuant to the Code, (ii) has established adequate reserves
for such taxes which are not due and payable, and (iii) does not have any tax
deficiency or claims outstanding, proposed or assessed against it.
(h) No transfer tax, stamp duty or other similar tax is
payable by or on behalf of the Underwriters in connection with (i) the issuance
by the Company of the Securities, (ii) the purchase by the Underwriters of the
Shares from the Company and the purchase by you of the Advisors' Warrants from
the Company, (iii) the consummation by the Company of any of its obligations
under this Agreement or the Advisors' Warrant Agreement, or (iv) resales of the
Shares in connection with the distribution contemplated hereby.
(i) The Company maintains insurance policies, including, but
not limited to, general liability and property insurance, which insure the
Company and its employees, against such losses and risks generally insured
against by comparable businesses. The Company (A) has not failed to give notice
or present any insurance claim with respect to any matter, including but not
limited to the Company's business, property or employees, under the insurance
policy or surety bond in a due and timely manner, (B) does not have any disputes
or claims against any underwriter of such insurance policies or surety bonds or
has not failed to pay any premiums due and payable thereunder, and (C) has not
failed to comply with all conditions contained in such insurance policies and
surety bonds. There are no facts or circumstances under any such insurance
policy or surety bond which would relieve any insurer of its obligation to
satisfy in full any valid claim of the Company.
(j) There is no action, suit, proceeding, inquiry,
arbitration, investigation, litigation or governmental proceeding (including,
without limitation, those having jurisdiction over environmental or similar
matters), domestic or foreign, pending or, to the best of the Company's
knowledge, threatened against (and the Company does not know any basis
therefor), or involving the properties or business of, the Company which (i)
questions the validity of the capital stock of the Company, this Agreement or
the Advisors' Warrant Agreement or of any action taken or to be taken by the
Company pursuant to or in connection with this Agreement or the Advisors'
Warrant Agreement, (ii) is required to be disclosed in the Registration
Statement which is not so disclosed (and such proceedings as are summarized in
the Registration Statement are accurately summarized in all material respects),
or (iii) would materially and adversely affect the condition, financial or
otherwise, or the earnings, position, prospects, stockholders' equity, value,
operation, properties, business or results of operations of the Company.
(k) The Company has full legal right, power and authority to
authorize, issue, deliver and sell the Securities, enter into this Agreement and
the Advisors' Warrant Agreement and to consummate the transactions provided for
in such agreements; and this Agreement and the Advisors' Warrant Agreement have
each been duly and properly authorized, executed and delivered by the Company.
Each of this Agreement and the Advisors' Warrant Agreement constitutes a legal,
valid and binding agreement of the Company enforceable against the Company in
accordance with its terms, except (i) as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or similar
5
<PAGE> 6
laws affecting creditors' rights generally, (ii) as enforceability of any
indemnification or contribution provisions may be limited under applicable laws
or the public policies underlying such laws and (iii) that the remedies of
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceedings may be brought. None of the Company's issuance and sale of the
Securities, execution or delivery of this Agreement or the Advisors' Warrant
Agreement, its performance hereunder and thereunder, its consummation of the
transactions contemplated herein and therein, or the conduct of its business as
described in the Registration Statement, the Prospectus, and any amendments or
supplements thereto, conflicts with or will conflict with or results or will
result in any breach or violation of any of the terms or provisions of, or
constitutes or will constitute a default under, or result in the creation or
imposition of any lien, charge, claim, encumbrance, pledge, security interest,
defect or other restriction or equity of any kind whatsoever upon, any property
or assets (tangible or intangible) of the Company pursuant to the terms of, (i)
the certificate of incorporation or by-laws of the Company, (ii) any license,
contract, indenture, mortgage, deed of trust, voting trust agreement,
stockholders agreement, note, loan or credit agreement or any other agreement or
instrument to which the Company is a party or by which it is or may be bound or
to which any of its properties or assets (tangible or intangible) is or may be
subject, or any indebtedness, or (iii) any statute, judgment, decree, order,
rule or regulation applicable to the Company of any arbitrator, court,
regulatory body or administrative agency or other governmental agency or body
(including, without limitation, those having jurisdiction over environmental or
similar matters), domestic or foreign, having jurisdiction over the Company or
any of its activities or properties, which breach, violation or default would
have a material adverse effect on the condition, financial or otherwise, or the
earnings, position, prospects, value, operation, properties, business or results
of operations of the Company.
(l) Except as described in the Prospectus, no consent,
approval, authorization or order of, and no filing with, any court, regulatory
body, government agency or other body, domestic or foreign, is required for the
issuance of the Shares pursuant to the Prospectus and the Registration
Statement, the issuance of the Advisors' Warrants, the performance of this
Agreement and the Advisors' Warrant Agreement and the transactions contemplated
hereby and thereby, including without limitation, any waiver of any preemptive,
first refusal or other rights that any entity or person may have for the issue
and/or sale of any of the Shares or the Advisors' Warrants, except such as have
been or may be obtained under the Act or may be required under state securities
or Blue Sky laws in connection with the Underwriters' purchase and distribution
of the Shares, and the Advisors' Warrants to be sold by the Company hereunder.
(m) All executed agreements, contracts or other documents or
copies of executed agreements, contracts or other documents filed as exhibits to
the Registration Statement to which the Company is a party or by which it may be
bound or to which any of its assets, properties or business may be subject have
been duly and validly authorized, executed and delivered by the Company, and
constitute the legal, valid and binding agreements of the Company, enforceable
against the Company in accordance with their respective terms. The descriptions
in the Registration Statement of agreements, contracts and other documents are
accurate in all material respects and fairly present the information required to
be shown with respect thereto by Form S-1, and there are no contracts or other
documents which are required by the Act to be described in the Registration
Statement or filed as exhibits to the Registration Statement which are not
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described or filed as required, and the exhibits which have been filed are in
all material respects complete and correct copies of the documents of which they
purport to be copies.
(n) Subsequent to the respective dates as of which information
is set forth in the Registration Statement and Prospectus, and except as may
otherwise be indicated or contemplated herein or therein, the Company has not
(i) issued any securities or incurred any liability or obligation, direct or
contingent, for borrowed money, (ii) entered into any transaction other than in
the ordinary course of business, or (iii) declared or paid any dividend or made
any other distribution on or in respect of its capital stock of any class, and
there has not been any change in the capital stock, or any material change in
the debt (long or short term) or liabilities or material adverse change in or
affecting the general affairs, management, financial operations, stockholders'
equity or results of operations of the Company.
(o) No default exists in the due performance and observance of
any term, covenant or condition of any license, contract, indenture, mortgage,
installment sale agreement, lease, deed of trust, voting trust agreement,
stockholders agreement, partnership agreement, note, loan or credit agreement,
purchase order, or any other agreement or instrument evidencing an obligation
for borrowed money, or any other material agreement or instrument to which the
Company is a party or by which the Company may be bound or to which the property
or assets (tangible or intangible) of the Company is subject or affected, which
default would have a material adverse effect on the condition, financial or
otherwise, or the earnings, position, prospects, value, operation, properties,
business or results of operations of the Company.
(p) The Company has generally enjoyed a satisfactory
employer-employee relationship with its employees and is in compliance in all
material respects with all federal, state, local, and foreign laws and
regulations respecting employment and employment practices, terms and conditions
of employment and wages and hours. There are no pending investigations involving
the Company by the U.S. Department of Labor, or any other governmental agency
responsible for the enforcement of such federal, state, local, or foreign laws
and regulations. There is no unfair labor practice charge or complaint against
the Company pending before the National Labor Relations Board or any strike,
picketing, boycott, dispute, slowdown or stoppage pending or, to the best of the
Company's knowledge, threatened against or involving the Company or any
predecessor entity, and none has ever occurred. No representation question
exists respecting the employees of the Company, and no collective bargaining
agreement or modification thereof is currently being negotiated by the Company.
No grievance or arbitration proceeding is pending under any expired or existing
collective bargaining agreements of the Company. No labor dispute with the
employees of the Company exists, or, to the best of the Company's knowledge, is
imminent.
(q) Except as described in the Prospectus, the Company does
not maintain, sponsor or contribute to any program or arrangement that is an
"employee pension benefit plan," an "employee welfare benefit plan," or a
"multiemployer plan" as such terms are defined in Sections 3(2), 3(1) and 3(37),
respectively, of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") ("ERISA Plans"). Except as described in the Prospectus, the Company
does not maintain or contribute, now or at any time previously, to a defined
benefit plan, as defined in Section 3(35) of ERISA. No ERISA Plan (or any trust
created thereunder) has engaged in a "prohibited transaction" within the meaning
of Section 406 of ERISA or
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<PAGE> 8
Section 4975 of the Code, which could subject the Company to any tax penalty on
prohibited transactions and which has not adequately been corrected. Each ERISA
Plan is in compliance with all material reporting, disclosure and other
requirements of the Code and ERISA as they relate to any such ERISA Plan.
Determination letters have been received from the Internal Revenue Service with
respect to each ERISA Plan which is intended to comply with Code Section 401(a),
stating that such ERISA Plan and the attendant trust are qualified thereunder.
The Company has never completely or partially withdrawn from a "multiemployer
plan."
(r) Neither the Company nor any of its employees, directors,
stockholders, partners, or affiliates (within the meaning of the Rules and
Regulations) of any of the foregoing has taken or will take, directly or
indirectly, any action designed to or which has constituted or which might be
expected to cause or result in, under the Exchange Act, or otherwise,
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Securities or otherwise.
(s) Except as otherwise disclosed in the Prospectus, none of
the patents, patent applications, trademarks, service marks, trade names and
copyrights, and licenses and rights to the foregoing presently owned or held by
the Company are in dispute or, to the best of the Company's knowledge, are in
conflict with the right of any other person or entity. Except as would not
materially adversely affect the business, properties, prospects, condition
(financial or otherwise) or results of operations, the Company (i) owns or has
the right to use, free and clear of all liens, charges, claims, encumbrances,
pledges, security interests, defects or other restrictions or equities of any
kind whatsoever, all patents, trademarks, service marks, trade names and
copyrights, technology and licenses and rights with respect to the foregoing,
used in the conduct of its business as now conducted or proposed to be conducted
without infringing upon or otherwise acting adversely to the right or claimed
right of any person, corporation or other entity under or with respect to any of
the foregoing and (ii) is not obligated or under any liability whatsoever to
make any payment by way of royalties, fees or otherwise to any owner or licensee
of, or other claimant to, any patent, trademark, service mark, trade name,
copyright, know-how, technology or other intangible asset, with respect to the
use thereof or in connection with the conduct of its business or otherwise.
(t) There is no action, suit, proceeding, inquiry,
arbitration, investigation, litigation or governmental or other proceeding,
domestic or foreign, pending or, to the Company's knowledge, threatened (or
circumstances that may give rise to the same) against the Company which
challenges the exclusive rights of the Company with respect to any trademarks,
trade names, service marks, service names, copyrights, patents, patent
applications or licenses or rights to the foregoing used in the conduct of its
business, or which challenge the right of the Company to use any technology
presently used or contemplated to be used in the conduct of its business.
(u) The Company owns and has the unrestricted right to use all
trade secrets, know-how (including all other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures), inventions,
designs, processes, works of authorship, computer programs and technical data
and information (collectively herein "intellectual property") that are material
to the development, manufacture, operation and sale of all products and services
sold or proposed to be sold by the Company, free and clear of and without
violating
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<PAGE> 9
any right, lien, or claim of others, including without limitation, former
employers of its employees; provided, however, that the possibility exists that
other persons or entities, completely independently of the Company, or its
employees or agents, could have developed trade secrets or items of technical
information similar or identical to those of the Company.
(v) The Company has good and marketable title to, or valid and
enforceable leasehold estates in, all items of real and personal property stated
in the Prospectus to be owned or leased by it free and clear of all liens,
charges, claims, encumbrances, pledges, security interests, defects, or other
restrictions or equities of any kind whatsoever, other than (i) those referred
to in the Prospectus and (ii) liens for taxes not yet due and payable.
(w) Ernst & Young LLP whose report is filed with the
Commission as a part of the Registration Statement, are independent certified
public accountants as required by the Act and the Rules and Regulations.
(x) The Company has caused to be duly executed legally binding
and enforceable agreements pursuant to which all of the Company's officers,
directors and five percent or greater stockholders have agreed not to, directly
or indirectly, offer to sell, sell, grant any 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,
exchangeable or exercisable for or evidencing any right to purchase or subscribe
for any shares of Common Stock (either pursuant to Rule 144 of the Rules and
Regulations or otherwise) whether or not beneficially owned by such persons or
dispose of any beneficial interest therein for a period of not less than 120
days following the effective date of the Registration Statement without the
prior written consent of Josephthal. The Company will cause the Transfer Agent,
as defined below, to mark an appropriate legend on the face of stock
certificates representing all of such securities and to place "stop transfer"
orders on the Company's stock ledgers.
(y) Except as described in the Prospectus under
"Underwriting," there are no claims, payments, issuances, arrangements or
understandings, whether oral or written, for services in the nature of a
finder's or origination fee with respect to the sale of the Securities hereunder
or any other arrangements, agreements, understandings, payments or issuance with
respect to the Company or any of its officers, directors, stockholders,
partners, employees or affiliates that may affect the Underwriters'
compensation, as determined by the National Association of Securities Dealers,
Inc. ("NASD").
(z) The Shares have been approved for trading on the Nasdaq
Stock Market's National Market ("Nasdaq").
(aa) Neither the Company nor any of its officers, employees,
agents, or any other person acting on behalf of the Company, has, directly or
indirectly, given or agreed to give any money, gift or similar benefit (other
than legal price concessions to customers in the ordinary course of business) to
any customer, supplier, employee or agent of a customer or supplier, or official
or employee of any governmental agency (domestic or foreign) or instrumentality
of any government (domestic or foreign) or any political party or candidate for
office (domestic or foreign) or other person who was, is, or may be in a
position to help or hinder the business of the Company (or assist the Company in
connection with any actual or proposed transaction) which
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<PAGE> 10
(a) might subject the Company, or any other such person to any damage or penalty
in any civil, criminal or governmental litigation or proceeding (domestic or
foreign), (b) if not given in the past, might have had a materially adverse
effect on the assets, business or operations of the Company, or (c) if not
continued in the future, might adversely affect the assets, business, operations
or prospects of the Company. The Company's internal accounting controls are
sufficient to cause the Company to comply with the Foreign Corrupt Practices Act
of 1977, as amended.
(ab) Except as set forth in the Prospectus, no officer,
director or stockholder of the Company, or any "affiliate" or "associate" (as
these terms are defined in Rule 405 promulgated under the Rules and Regulations)
of any of the foregoing persons or entities has or has had, either directly or
indirectly, (i) an interest in any person or entity which (A) furnishes or sells
services or products which are furnished or sold or are proposed to be furnished
or sold by the Company, or (B) purchases from or sells or furnishes to the
Company any goods or services, or (ii) a beneficial interest in any contract or
agreement to which the Company is a party or by which it may be bound or
affected. Except as set forth in the Prospectus under "Certain Transactions,"
there are no existing agreements, arrangements, understandings or transactions,
or proposed agreements, arrangements, understandings or transactions, between or
among the Company and any officer, director, or five (5) percent stockholder of
the Company or any partner, affiliate or associate of any of the foregoing
persons or entities.
(ac) Any certificate signed by any officer of the Company, and
delivered to the Underwriters or to Underwriters' Counsel (as defined herein)
shall be deemed a representation and warranty by the Company to the Underwriters
as to the matters covered thereby.
(ad) The minute books of the Company have been made available
to the Underwriters and contains a complete summary of all meetings and actions
of the directors, stockholders, audit committee, compensation committee and any
other committee of the Board of Directors of the Company, respectively, since
the time of its incorporation, and reflects all transactions referred to in such
minutes accurately in all material respects.
(ae) Except and to the extent described in the Prospectus, no
holders of any securities of the Company or of any options, warrants or other
convertible or exchangeable securities of the Company have the right to include
any securities issued by the Company in the Registration Statement or any
registration statement to be filed by the Company or to require the Company to
file a registration statement under the Act and no person or entity holds any
anti-dilution rights with respect to any securities of the Company.
(af) The Company is not an "investment company" or an
"affiliated person" of, or "promoter" or "principal underwriter" for an
"investment company," as such terms are defined in the Investment Company Act of
1940, as amended.
2. Purchase, Sale and Delivery of the Shares and Advisors' Warrants.
(a) On the basis of the representations, warranties, covenants
and agreements herein contained, but subject to the terms and conditions herein
set forth, the Company agrees to sell to each Underwriter, and each Underwriter,
severally and not jointly, agrees to purchase
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<PAGE> 11
from the Company at a price of $_____ per share of Common Stock, that number of
Firm Shares of set forth in Schedule A opposite the name of such Underwriter,
plus any additional number of Firm Shares which such Underwriter may become
obligated to purchase pursuant to the provisions of Section 11 hereof.
(b) In addition, on the basis of the representations,
warranties, covenants and agreements herein contained, but subject to the terms
and conditions herein set forth, the Company hereby grants an option to the
Underwriters, severally and not jointly, to purchase all or any part of an
additional 180,000 shares of Common Stock at a price of $__________ per share of
Common Stock. The option granted hereby will expire forty-five (45) days after
(i) the date the Registration Statement becomes effective, if the Company has
elected not to rely on Rule 430A under the Rules and Regulations, or (ii) the
date of this Agreement if the Company has elected to rely upon Rule 430A under
the Rules and Regulations, and may be exercised in whole or in part from time to
time only for the purpose of covering over-allotments which may be made in
connection with the offering and distribution of the Firm Shares upon notice by
the Representatives to the Company setting forth the number of Option Shares as
to which the several Underwriters are then exercising the option and the time
and date of payment and delivery for any such Option Shares. Any such time and
date of delivery (an "Option Closing Date") shall be determined by the
Representatives, but shall not be later than seven full business days after the
exercise of said option, nor in any event prior to the Closing Date, as
hereinafter defined, unless otherwise agreed upon by the Representatives and the
Company. Nothing herein contained shall obligate the Underwriters to make any
over-allotments. No Option Shares shall be delivered unless the Firm Shares
shall be simultaneously delivered or shall theretofore have been delivered as
herein provided.
(c) Payment of the purchase price for, and delivery of
certificates for, the Firm Shares shall be made at the offices of Josephthal at
200 Park Avenue, 25th Floor, New York, New York 10166, or at such other place as
shall be agreed upon by the Representatives and the Company. Such delivery and
payment shall be made at 10:00 a.m. (New York City time) on the third business
day following the date of this Agreement, provided, however, that if the Firm
Shares sold hereunder are priced and this Agreement is entered into after 4:30
p.m., (New York City time), on any business day, payment and delivery in respect
of the Firm Shares shall take place on the fourth business day following the
date of this Agreement (such time and date of payment and delivery being herein
called the "Closing Date"). In addition, in the event that any or all of the
Option Shares are purchased by the Underwriters, payment of the purchase price
for, and delivery of certificates for, such Option Shares shall be made at the
above mentioned office of Josephthal or at such other place as shall be agreed
upon by the Representatives and the Company on each Option Closing Date as
specified in the notice from the Representatives to the Company. Delivery of the
certificates for the Firm Shares and the Option Shares, if any, shall be made to
the Underwriters against payment by the Underwriters, severally and not jointly,
of the purchase price for the Firm Shares and the Option Shares, if any, to the
order of the Company for the Firm Shares and the Option Shares, if any, by New
York Clearing House funds. In the event such option is exercised, each of the
Underwriters, acting severally and not jointly, shall purchase that proportion
of the total number of Option Shares then being purchased which the number of
Firm Shares set forth in Schedule A hereto opposite the name of such Underwriter
bears to the total number of Firm Shares, subject in each case to such
adjustments as the Representatives in their discretion shall make to eliminate
any sales or purchases of fractional
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<PAGE> 12
shares. Certificates for the Firm Shares and the Option Shares, if any, shall be
in definitive, fully registered form, shall bear no restrictive legends and
shall be in such denominations and registered in such names as the Underwriters
may request in writing at least two (2) business days prior to the Closing Date
or the relevant Option Closing Date, as the case may be. The certificates for
the Firm Shares and the Option Shares, if any, shall be made available to the
Representatives at such office or such other place as the Representatives may
designate for inspection, checking and packaging no later than 9:30 a.m. on the
last business day prior to Closing Date or the relevant Option Closing Date, as
the case may be.
(d) On the Closing Date, the Company shall issue and sell to
you Advisors' Warrants at a purchase price of $.0001 per warrant, which warrants
shall entitle the holders thereof to purchase an aggregate of 120,000 shares of
Common Stock. The Advisors' Warrants shall be exercisable for a period of
forty-eight (48) months commencing twelve (12) months from the effective date of
the Registration Statement at a price equaling one hundred twenty percent (120%)
of the initial public offering price of the shares of Common Stock. The
Advisors' Warrant Agreement and form of Warrant Certificate shall be
substantially in the form filed as Exhibit 4.2 to the Registration Statement.
Payment for the Advisors' Warrants shall be made on the Closing Date.
3. Public Offering of the Shares. As soon after the Registration
Statement becomes effective as the Representatives deems advisable, the
Underwriters shall make a public offering of the Shares (other than to residents
of or in any jurisdiction in which qualification of the Shares is required and
has not become effective) at the price and upon the other terms set forth in the
Prospectus. The Representatives may from time to time increase or decrease the
public offering price after distribution of the Shares has been completed to
such extent as the Representatives, in their discretion, deem advisable. The
Underwriters may enter into one of more agreements as the Underwriters, in each
of their sole discretion, deem advisable with one or more broker-dealers who
shall act as dealers in connection with such public offering.
4. Covenants and Agreements of the Company. The Company covenants
and agrees with each of the Underwriters as follows:
(a) The Company shall use its best efforts to cause the
Registration Statement and any amendments thereto to become effective as
promptly as practicable and will not at any time, whether before or after the
effective date of the Registration Statement, file any amendment to the
Registration Statement or supplement to the Prospectus or file any document
under the Act or Exchange Act before termination of the offering of the Shares
by the Underwriters of which the Representatives shall not previously have been
advised and furnished with a copy, or to which the Representatives shall have
objected or which is not in compliance with the Act, the Exchange Act or the
Rules and Regulations.
(b) As soon as the Company is advised or obtains knowledge
thereof, the Company will advise the Representatives and confirm the notice in
writing, (i) when the Registration Statement, as amended, becomes effective, if
the provisions of Rule 430A promulgated under the Act will be relied upon, when
the Prospectus has been filed in accordance with said Rule 430A and when any
post-effective amendment to the Registration Statement becomes effective, (ii)
of the issuance by the Commission of any stop order or of the initiation,
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<PAGE> 13
or the threatening, of any proceeding, suspending the effectiveness of the
Registration Statement or any order preventing or suspending the use of the
Preliminary Prospectus or the Prospectus, or any amendment or supplement
thereto, or the institution of proceedings for that purpose, (iii) of the
issuance by the Commission or by any state securities commission of any
proceedings for the suspension of the qualification of any of the Securities for
offering or sale in any jurisdiction or of the initiation, or the threatening,
of any proceeding for that purpose, (iv) of the receipt of any comments from the
Commission and (v) of any request by the Commission for any amendment to the
Registration Statement or any amendment or supplement to the Prospectus or for
additional information. If the Commission or any state securities commission
authority shall enter a stop order or suspend such qualification at any time,
the Company will use its best efforts to obtain promptly the lifting of such
order.
(c) The Company shall file the Prospectus (in form and
substance satisfactory to the Representatives) or transmit the Prospectus by a
means reasonably calculated to result in filing with the Commission pursuant to
Rule 424(b)(1) (or, if applicable and if consented to by the Representatives,
pursuant to Rule 424(b)(4)) not later than the Commission's close of business on
the earlier of (i) the second business day following the execution and delivery
of this Agreement and (ii) the fifteenth business day after the effective date
of the Registration Statement.
(d) The Company will give the Representatives notice of its
intention to file or prepare any amendment to the Registration Statement
(including any post-effective amendment) or any amendment or supplement to the
Prospectus (including any revised prospectus which the Company proposes for use
by the Underwriters in connection with the offering of the Shares which differs
from the corresponding prospectus on file at the Commission at the time the
Registration Statement becomes effective, whether or not such revised prospectus
is required to be filed pursuant to Rule 424(b) of the Rules and Regulations),
and will furnish the Representatives with copies of any such amendment or
supplement a reasonable amount of time prior to such proposed filing or use, as
the case may be, and will not file any such prospectus to which the
Representatives or Orrick, Herrington & Sutcliffe LLP ("Underwriters' Counsel")
shall object.
(e) The Company shall endeavor in good faith, in cooperation
with the Representatives, at or prior to the time the Registration Statement
becomes effective, to qualify the Shares for offering and sale under the
securities laws of such jurisdictions as the Representatives may designate to
permit the continuance of sales and dealings therein for as long as may be
necessary to complete the distribution, and shall make such applications, file
such documents and furnish such information as may be required for such purpose;
provided, however, the Company shall not be required to qualify as a foreign
corporation or file a general or limited consent to service of process in any
such jurisdiction. In each jurisdiction where such qualification shall be
effected, the Company will, unless the Representatives agree that such action is
not at the time necessary or advisable, use all reasonable efforts to file and
make such statements or reports at such times as are or may reasonably be
required by the laws of such jurisdiction to continue such qualification.
(f) During the time when a prospectus is required to be
delivered under the Act, the Company shall use all reasonable efforts to comply
with all requirements imposed upon it by
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<PAGE> 14
the Act and the Exchange Act, as now and hereafter amended and by the Rules and
Regulations, as from time to time in force, so far as necessary to permit the
continuance of sales of or dealings in the Shares in accordance with the
provisions hereof and the Prospectus, or any amendments or supplements thereto.
If at any time when a prospectus relating to the Shares is required to be
delivered under the Act, any event shall have occurred as a result of which, in
the opinion of counsel for the Company or Underwriters' Counsel, the Prospectus,
as then amended or supplemented, includes an untrue statement of a material fact
or omits to state any material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, or if it is necessary at any time to amend the
Prospectus to comply with the Act, the Company will notify the Representatives
promptly and prepare and file with the Commission an appropriate amendment or
supplement in accordance with Section 10 of the Act, each such amendment or
supplement to be satisfactory to Underwriters' Counsel, and the Company will
furnish to the Underwriters copies of such amendment or supplement as soon as
available and in such quantities as the Underwriters may request.
(g) As soon as practicable, but in any event not later than 45
days after the end of the 12-month period beginning on the day after the end of
the fiscal quarter of the Company during which the effective date of the
Registration Statement occurs (90 days in the event that the end of such fiscal
quarter is the end of the Company's fiscal year), the Company shall make
generally available to its security holders, in the manner specified in Rule
158(b) of the Rules and Regulations, and to the Representatives, an earnings
statement which will be in the detail required by, and will otherwise comply
with, the provisions of Section 11(a) of the Act and Rule 158(a) of the Rules
and Regulations, which statement need not be audited unless required by the Act,
covering a period of at least 12 consecutive months after the effective date of
the Registration Statement.
(h) During a period of five (5) years after the date hereof,
the Company will furnish to its stockholders, as soon as practicable, annual
reports (including financial statements audited by independent public
accountants), and will deliver to the Representatives:
(i) concurrently with furnishing quarterly reports, if
any, to its stockholders, statements of income of the Company for each quarter
in the form furnished to the Company's stockholders and certified by the
Company's principal financial or accounting officer;
(ii) concurrently with furnishing such annual reports to
its stockholders, a balance sheet of the Company as at the end of the preceding
fiscal year, together with statements of operations, stockholders' equity, and
cash flows of the Company for such fiscal year, accompanied by a copy of the
certificate thereon of independent certified public accountants;
(iii) as soon as they are available, copies of all
reports (financial or other) mailed to stockholders;
(iv) as soon as they are available, copies of all
reports and financial statements furnished to or filed with the Commission, the
NASD or any securities exchange;
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(v) every press release and every material news item or
article of interest to the financial community in respect of the Company, or its
affairs which was released or prepared by or on behalf of the Company; and
(vi) any additional information of a public nature
concerning the Company (and any future subsidiary) or its businesses which the
Representatives may request.
Such information shall be deemed to have been delivered to the
Representatives if it is readily available on the Internet with no charge to
access the information. During such five-year period, if the Company has an
active subsidiary, the foregoing financial statements will be on a consolidated
basis to the extent that the accounts of the Company and its subsidiary are
consolidated, and will be accompanied by similar financial statements for any
significant subsidiary which is not so consolidated.
(i) The Company will maintain a Transfer Agent and, if
necessary under the jurisdiction of incorporation of the Company, a Registrar
(which may be the same entity as the Transfer Agent) for its Common Stock.
(j) During such period as a Prospectus is required by law to
be delivered in connection with sales by an Underwriter or dealer, the Company
will furnish to the Representatives or on the Representatives' order, without
charge, at such place as the Representatives may designate, copies of each
Preliminary Prospectus, the Registration Statement and any pre-effective or
post-effective amendments thereto (two of which copies will be signed and will
include all financial statements and exhibits), the Prospectus, and all
amendments and supplements thereto, including any prospectus prepared after the
effective date of the Registration Statement, in each case as soon as available
and in such quantities as the Representatives may reasonably request.
(k) On or before the effective date of the Registration
Statement, the Company shall provide the Representatives with duly executed,
legally binding and enforceable agreements pursuant to which for a period of 120
days following the effective date of the Registration Statement, the officers,
directors and five percent or greater stockholders agree that it or he or she
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, exchangeable or exercisable for or evidencing any right to
purchase or subscribe for any shares of Common Stock (either pursuant to Rule
144 of the Rules and Regulations or otherwise) whether or not beneficially owned
by such person or dispose of any beneficial interest therein without the prior
written consent of Josephthal (collectively, the "Lock-up Agreements"). During
the 120-day period commencing with the effective date of the Registration
Statement, the Company shall not, without the prior written consent of
Josephthal, issue, offer to sell, sell, grant any option for the sale of,
transfer, assign, pledge, hypothecate, distribute, or otherwise dispose of,
directly or indirectly, any shares of Common Stock or any options, rights or
warrants with respect to any shares of Common Stock, except (A) for options
issued to employees, consultants or directors of the Company pursuant to an
employee benefit plan described in the Prospectus or shares issued on exercise
thereof and provided that no shares of Common Stock issued upon exercise of such
options may be sold during the 120-day period commencing with the effective date
of the
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Registration Statement and (B) for up to 500,000 shares of Common Stock issued
or contracted to be issued as consideration in respect of acquisitions by the
Company or strategic alliances so long as (i) the recipients of such shares
agree in writing to be bound by a lock-up agreement in the form of the Lock-up
Agreements and (ii) the certificates evidencing such shares bear a legend to
such effect. On or before the Closing Date, the Company shall deliver
instructions to the Transfer Agent authorizing it to place appropriate legends
on the certificates representing the securities subject to the Lock-up
Agreements and to place appropriate stop transfer orders on the Company's
ledgers.
(l) Neither the Company, nor any of its officers, directors,
stockholders, nor any of their respective affiliates (within the meaning of the
Rules and Regulations) will take, directly or indirectly, any action designed
to, or which might in the future reasonably be expected to cause or result in,
stabilization or manipulation of the price of any securities of the Company.
(m) The Company shall apply the net proceeds from the sale of
the Securities in the manner, and subject to the conditions, set forth under
"Use of Proceeds" in the Prospectus. Except as described in the Prospectus or in
connection with the repurchase of shares under the restricted stock purchase
agreements (a form of which has been incorporated by reference as an exhibit to
the Registration Statement), no portion of the net proceeds will be used,
directly or indirectly, to acquire any securities issued by the Company.
(n) The Company shall timely file all such reports, forms or
other documents as may be required from time to time, under the Act, the
Exchange Act, and the Rules and Regulations, and all such reports, forms and
documents filed will comply as to form and substance with the applicable
requirements under the Act, the Exchange Act, and the Rules and Regulations.
(o) The Company shall furnish to the Representatives as early
as practicable prior to each of the date hereof, the Closing Date and each
Option Closing Date, if any, but no later than two (2) full business days prior
thereto, a copy of the latest available unaudited interim financial statements
of the Company (which in no event shall be as of a date more than thirty (30)
days prior to the date of the Registration Statement) which have been read by
the Company's independent public accountants, as stated in its letter to be
furnished pursuant to Section 6(j) hereof.
(p) The Company shall use its best efforts to maintain the
Nasdaq quotation of the Common Stock to the extent outstanding.
(q) For a period of five (5) years from the Closing Date, the
Company shall furnish to the Representatives at the Representatives' request and
at the Company's sole expense, (i) daily consolidated transfer sheets relating
to the Common Stock and (ii) the list of holders of all of the Company's
securities.
(r) Until the completion of the distribution of the Shares,
the Company shall not, without the prior written consent of the Representatives
and Underwriters' Counsel, issue, directly or indirectly, any press release or
other communication or hold any press conference
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<PAGE> 17
with respect to the Company or its activities or the offering contemplated
hereby, other than trade releases issued in the ordinary course of the Company's
business consistent with past practices with respect to the Company's
operations.
(s) For a period equal to the lesser of (i) five (5) years
from the date hereof, or (ii) the sale to the public of the Advisors' Shares,
the Company will not take any action or actions which may prevent or disqualify
the Company's use of Form S-3 (or other appropriate form) for the registration
under the Act of the Advisors' Shares.
5. Payment of Expenses.
(a) The Company hereby agrees to pay on each of the Closing
Date and the Option Closing Date (to the extent not paid at the Closing Date)
all expenses and fees (other than fees of Underwriters' Counsel, except as
provided in (iv) below) incident to the performance of the obligations of the
Company under this Agreement and the Advisors' Warrant Agreement, including,
without limitation, (i) the fees and expenses of accountants and counsel for the
Company, (ii) all costs and expenses incurred in connection with the
preparation, duplication, printing (including mailing and handling charges),
filing, delivery and mailing (including the payment of postage with respect
thereto) of the Registration Statement and the Prospectus and any amendments and
supplements thereto and the mailing (including the payment of postage with
respect thereto) and delivery of this Agreement, the Agreement Among
Underwriters, the Selected Dealer Agreements, and related documents, including
the cost of all copies thereof and of the Preliminary Prospectuses and of the
Prospectus and any amendments thereof or supplements thereto supplied to the
Underwriters and such dealers as the Underwriters may reasonably request, in
quantities as hereinabove stated, (iii) the printing, engraving, issuance and
delivery of the Securities, (iv) the qualification of the Securities under state
or foreign securities or "Blue Sky" laws and determination of the status of such
securities under legal investment laws, including the costs of printing and
mailing the "Blue Sky Memorandum," if any, and disbursements and fees of counsel
in connection therewith, (v) fees and expenses of the transfer agent and
registrar, (vi) the fees payable to the Commission and the NASD, and (vii) the
fees and expenses incurred in connection with the trading of the Shares on
Nasdaq and any exchange.
(b) If this Agreement is terminated by the Underwriters in
accordance with the provisions of Section 6 or Section 12, the Company shall
reimburse and indemnify the Representatives for all of their actual
out-of-pocket expenses, including the fees and disbursements of Underwriters'
Counsel.
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<PAGE> 18
6. Conditions of the Underwriters' Obligations. The obligations of
the Underwriters hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company herein as of the date hereof and
as of the Closing Date and each Option Closing Date, if any, with respect to the
Company as if it had been made on and as of the Closing Date or each Option
Closing Date, as the case may be; the accuracy on and as of the Closing Date or
Option Closing Date, if any, of the statements of the officers of the Company
made pursuant to the provisions hereof; and the performance by the Company on
and as of the Closing Date and each Option Closing Date, if any, of its
covenants and obligations hereunder and to the following further conditions:
(a) The Registration Statement shall have become effective not
later than 2:00 P.M., New York time, on the date of this Agreement or such later
date and time as shall be consented to in writing by the Representatives, and,
at Closing Date and each Option Closing Date, if any, no stop order suspending
the effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or shall be pending or
contemplated by the Commission and any request on the part of the Commission for
additional information shall have been complied with to the reasonable
satisfaction of Underwriters' Counsel. If the Company has elected to rely upon
Rule 430A of the Rules and Regulations, the price of the Shares and any
price-related information previously omitted from the effective Registration
Statement pursuant to such Rule 430A shall have been transmitted to the
Commission for filing pursuant to Rule 424(b) of the Rules and Regulations
within the prescribed time period, and prior to Closing Date the Company shall
have provided evidence satisfactory to the Representatives of such timely
filing, or a post-effective amendment providing such information shall have been
promptly filed and declared effective in accordance with the requirements of
Rule 430A of the Rules and Regulations.
(b) The Representatives shall not have been advised by the
Company that the Registration Statement, or any amendment thereto, contains an
untrue statement of fact which, in the Representatives' opinion, is material, or
omits to state a fact which, in the Representatives' opinion, is material and is
required to be stated therein or is necessary to make the statements therein not
misleading, or that the Prospectus, or any supplement thereto, contains an
untrue statement of fact which, in the Representatives' opinion, is material, or
omits to state a fact which, in the Representatives' opinion, is material and is
required to be stated therein or is necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(c) On or prior to the Closing Date, the Representatives shall
have received from Underwriters' Counsel, such opinion or opinions with respect
to the organization of the Company, the validity of the Securities, the
Advisors' Warrants, the Registration Statement, the Prospectus and other related
matters as the Representatives may request and Underwriters' Counsel shall have
received such papers and information as they request to enable them to pass upon
such matters.
(d) On the Closing Date, the Underwriters shall have received
the favorable opinion of Latham & Watkins, counsel to the Company, dated the
Closing Date, addressed to the Underwriters and in form and substance
satisfactory to Underwriters' Counsel, to the effect that:
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<PAGE> 19
(i) the Company has been duly incorporated and is
validly existing and in good standing under the laws of the State of Delaware,
with corporate power and authority to own, lease and operate its properties and
to conduct its business as described in the Registration Statement and the
Prospectus. The Company is duly qualified to do business as a foreign
corporation and is in good standing in the states of California, Georgia and New
York.
(ii) the authorized, issued and outstanding capital
stock of the Company is as set forth in the Registration Statement and the
Prospectus under the caption "Capitalization." The issued and outstanding shares
of capital stock of the Company have been duly and validly authorized and
issued, and are fully paid and nonassessable, and to the best of such counsel's
knowledge, free of preemptive rights. Except as described in the Registration
Statement and the Prospectus, to the best of such counsel's knowledge, there is
no commitment or arrangement to issue, and there are no outstanding options,
warrants or other rights calling for the issuance of, any share of capital stock
of the Company or any security or other instrument that by its terms is
convertible into, exercisable for, or exchangeable for capital stock of the
Company.
(iii) the Shares to be issued and sold by the Company
pursuant to the Underwriting Agreement have been duly authorized and, when
issued to and paid for by you and the other Underwriters in accordance with the
terms of the Underwriting Agreement, will be validly issued, fully paid and
nonassessable and, to the best of such counsel's knowledge, free of preemptive
rights. The Advisors' Shares have been duly authorized and reserved for issuance
and upon issuance in accordance with the terms of the Advisors' Warrants will be
validly issued, fully paid and nonassessable, and to the best of such counsel's
knowledge, free of preemptive rights.
(iv) except as described in the Prospectus, to the best
of such counsel's knowledge, no person, corporation, trust, partnership,
association or other entity has the right to include and/or register any
securities of the Company in the Registration Statement, require the Company to
file any registration statement or, if filed, to include any security in such
registration statement.
(v) the Registration Statement has become effective
under the Act and, to the best of such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement has been issued under
the Act and no proceedings therefor have been initiated by the Commission; and
any required filing of the Prospectus pursuant to Rule 424(b) under the Act has
been made in accordance with Rule 424(b) and 430A under the Act.
(vi) the Registration Statement and the Prospectus
comply as to form in all material respects with the requirements for
registration statements on Form S-1 under the Act and the Rules and Regulations;
it being understood, however, that such counsel need not express any opinion
with respect to the financial statements, schedules and other financial and
statistical data included in the Registration Statement or the Prospectus and in
passing upon the compliance as to form of the Registration Statement and the
Prospectus, such counsel may assume that the statements made therein are correct
and complete.
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<PAGE> 20
(vii) to the best of such counsel's knowledge, there are
no statutes or legal or governmental proceedings required to be described in the
Prospectus that are not described as required, or contracts or documents of a
character required to be described in the Registration Statement or Prospectus
or to be filed as exhibits to the Registration Statement that are not described
and filed as required.
(viii) to the best of such counsel's knowledge, there are
no actions, suits, proceedings or investigations pending or threatened against
the Company before or by any court, governmental agency or arbitrator.
(ix) the Company has corporate power and authority to
enter into this Agreement and the Advisors' Warrant Agreement, and this
Agreement and the Advisors' Warrant Agreement have been duly authorized,
executed and delivered by, and the Advisors' Warrant Agreement is a valid and
binding agreement of, the Company, enforceable in accordance with its terms,
except as rights to indemnification thereunder may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable principles.
(x) the execution and delivery by the Company of, and
the issuance and sale of the Securities pursuant to this Agreement and the
Advisors' Warrant Agreement do not (i) violate the Amended and Restated
Certificate of Incorporation or Bylaws of the Company, (ii) to the best of such
counsel's knowledge, breach or result in a default under, cause the time for
performance of any obligation to be accelerated under, or result in the creation
or imposition of any lien, charge or encumbrance upon any of the assets of the
Company pursuant to the terms of any document filed as an exhibit to the
Registration Statement, (iii) to the best of such counsel's knowledge, breach or
otherwise violate any existing obligation of the Company under any court or
administrative order, judgment or decree, or (iv) violate applicable provisions
of the General Corporation Law of the State of Delaware or any statute or
regulation of the State of California or of the United States.
(xi) no consent, approval, authorization or order of, or
any filing or declaration with, any court or governmental agency or body is
required in connection with the authorization, issuance, transfer, sale or
delivery of the Securities by the Company, in connection with the execution,
delivery and performance of this Agreement and the Advisors' Warrant Agreement
by the Company, except such as have been obtained under the Act and the Exchange
Act and such as may be required under state securities or Blue Sky laws (as to
which such counsel need not express any opinion) or by the bylaws and rules of
the NASD in connection with the purchase and distribution by the Underwriters of
the Shares to be sold by the Company.
(xii) the Company is not an "investment company" as such
term is defined in the Investment Company Act of 1940, as amended.
(xiii) the form of certificate used to evidence the Shares
is in due and proper form and complies with all statutory requirements under the
laws of the State of Delaware.
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<PAGE> 21
Such counsel shall state that such counsel has participated in
conferences with officers and other representatives of the Company,
representatives of the independent public accountants for the Company, and your
representatives, at which the contents of the Registration Statement and the
Prospectus and related matters were discussed and, although such counsel is not
passing upon, and does not assume any responsibility for, the accuracy,
completeness or fairness of the statements contained in the Registration
Statement and the Prospectus and has not made any independent check or
verification thereof, during the course of such participation, no facts came to
such counsel's attention that caused such counsel to believe that the
Registration Statement, at the time it became effective, contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
that the Prospectus, as of its date or as of the Closing Date, contained an
untrue statement of a material fact or omitted to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; it being understood that such counsel need
not express any belief with respect to the financial statements, schedules and
other financial and statistical data included in, or omitted from, the
Registration Statement or the Prospectus.
Such opinion shall not state that it is to be governed or
qualified by, or that it is otherwise subject to, any treatise, written policy
or other document relating to legal opinions, including, without limitation, the
Legal Opinion Accord of the ABA Section of Business Law (1991), or any
comparable state bar accord.
In rendering such opinion, such counsel may rely (A) as to
matters involving the application of laws other than the laws of the United
States and jurisdictions in which they are admitted, to the extent such counsel
deems proper and to the extent specified in such opinion, if at all, upon an
opinion or opinions (in form and substance satisfactory to Underwriters'
Counsel) of other counsel acceptable to Underwriters' Counsel, familiar with the
applicable laws; (B) as to matters of fact, to the extent they deem proper, on
certificates and written statements of responsible officers of the Company, and
certificates or other written statements of officers of departments of various
jurisdictions having custody of documents respecting the corporate existence or
good standing of the Company, provided that copies of any such statements or
certificates shall be delivered to Underwriters' Counsel if requested. The
opinion of such counsel for the Company shall state that the opinion of any such
other counsel is in form satisfactory to such counsel and that the
Representatives and they are justified in relying thereon.
(e) At each Option Closing Date, if any, the Underwriters
shall have received the favorable opinion of Latham & Watkins, counsel to the
Company, dated the Option Closing Date, addressed to the Underwriters and in
form and substance satisfactory to Underwriters' Counsel confirming as of Option
Closing Date the statements made by Latham & Watkins in its opinion delivered on
the Closing Date.
(f) On or prior to each of the Closing Date and the Option
Closing Date, if any, Underwriters' Counsel shall have been furnished such
documents, certificates and opinions as they may reasonably require for the
purpose of enabling them to review or pass upon the matters referred to in
subsection (c) of this Section 6, or in order to evidence the accuracy,
completeness or satisfaction of any of the representations, warranties or
conditions of the Company, or herein contained.
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<PAGE> 22
(g) Prior to each of the Closing Date and each Option Closing
Date, if any, (i) there shall have been no material adverse change nor
development involving a prospective material adverse change in the condition,
financial or otherwise, prospects, stockholders' equity or the business
activities of the Company, whether or not in the ordinary course of business,
from the latest dates as of which such condition is set forth in the
Registration Statement and Prospectus; (ii) there shall have been no
transaction, not in the ordinary course of business, entered into by the
Company, from the latest date as of which the financial condition of the Company
is set forth in the Registration Statement and Prospectus which is materially
adverse to the Company; (iii) the Company shall not be in material default under
any provision of any instrument relating to any outstanding indebtedness; (iv)
the Company shall not have issued any securities (other than the Securities);
the Company shall not have declared or paid any dividend or made any
distribution in respect of its capital stock of any class; and there has not
been any change in the capital stock of the Company, or any material change in
the debt (long or short term) or liabilities or obligations of the Company
(contingent or otherwise); (v) no material amount of the assets of the Company
shall have been pledged or mortgaged, except as set forth in the Registration
Statement and Prospectus; (vi) no action, suit or proceeding, at law or in
equity, shall have been pending or threatened (or circumstances giving rise to
same) against the Company, or affecting any of its properties or business before
or by any court or federal, state or foreign commission, board or other
administrative agency wherein an unfavorable decision, ruling or finding may
adversely affect the business, operations, prospects or financial condition or
income of the Company, except as set forth in the Registration Statement and
Prospectus; and (vii) no stop order shall have been issued under the Act and no
proceedings therefor shall have been initiated, threatened or contemplated by
the Commission.
(h) At each of the Closing Date and each Option Closing Date,
if any, the Underwriters shall have received a certificate of the Company signed
by the principal executive officer and by the chief financial or chief
accounting officer of the Company, dated the Closing Date or Option Closing
Date, as the case may be, to the effect that each of such persons has carefully
examined the Registration Statement, the Prospectus and this Agreement, and
that:
(i) The representations and warranties of the Company
in this Agreement are true and correct, as if made on and as of the Closing Date
or the Option Closing Date, as the case may be, and the Company has complied
with all agreements and covenants and satisfied all conditions contained in this
Agreement on its part to be performed or satisfied at or prior to such Closing
Date or Option Closing Date, as the case may be;
(ii) No stop order suspending the effectiveness of the
Registration Statement or any part thereof has been issued, and no proceedings
for that purpose have been instituted or are pending or, to the best of each of
such person's knowledge, after due inquiry are contemplated or threatened under
the Act;
(iii) The Registration Statement and the Prospectus and,
if any, each amendment and each supplement thereto, contain all statements and
information required to be included therein, and none of the Registration
Statement, the Prospectus nor any amendment or supplement thereto includes any
untrue statement of a material fact or omits to state any material fact required
to be stated therein or necessary to make the statements therein not misleading
and neither the Preliminary Prospectus or any supplement thereto included any
untrue statement of a
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<PAGE> 23
material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; and
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus, (a) the
Company has not incurred up to and including the Closing Date or the Option
Closing Date, as the case may be, other than in the ordinary course of its
business, any material liabilities or obligations, direct or contingent; (b) the
Company has not paid or declared any dividends or other distributions on its
capital stock; (c) the Company has not entered into any transactions not in the
ordinary course of business; (d) there has not been any change in the capital
stock of the Company or any material change in the debt (long or short-term) of
the Company; (e) the Company has not sustained any material loss or damage to
its property or assets, whether or not insured; (g) there is no litigation which
is pending or threatened (or circumstances giving rise to same) against the
Company, or any affiliated party of any of the foregoing which is required to be
set forth in an amended or supplemented Prospectus which has not been set forth;
and (h) there has occurred no event required to be set forth in an amended or
supplemented Prospectus which has not been set forth.
References to the Registration Statement and the Prospectus in this subsection
(h) are to such documents as amended and supplemented at the date of such
certificate.
(i) By the Closing Date, the Underwriters will have received
clearance from the NASD as to the amount of compensation allowable or payable to
the Underwriters, as described in the Registration Statement.
(j) At the time this Agreement is executed, the Underwriters
shall have received a letter, dated such date, addressed to the Underwriters in
form and substance satisfactory (including the non-material nature of the
changes or decreases, if any, referred to in clause (iii) below) in all respects
to the Underwriters and Underwriters' Counsel, from Ernst & Young LLP:
(i) confirming that they are independent certified
public accountants with respect to the Company within the meaning of the Act and
the applicable Rules and Regulations;
(ii) stating that it is their opinion that the financial
statements of the Company as of December 31, 1996 and 1997 and for the years
then ended, and for the period from inception (August 2, 1995) through December
31, 1996 included in the Registration Statement comply as to form in all
material respects with the applicable accounting requirements of the Act and the
Rules and Regulations thereunder and that the Representatives may rely upon the
opinion of Ernst & Young LLP with respect to such financial statements included
in the Registration Statement;
(iii) stating that, on the basis of a limited review
which included a reading of the latest available unaudited interim financial
statements of the Company, a reading of the latest available minutes of the
stockholders and board of directors and the various committees of the boards of
directors of the Company, consultations with officers and other
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<PAGE> 24
employees of the Company responsible for financial and accounting matters and
other specified procedures and inquiries, nothing has come to their attention
which would lead them to believe that (A) the pro forma financial information
contained in the Registration Statement and Prospectus does not comply as to
form in all material respects with the applicable accounting requirements of the
Act and the Rules and Regulations or is not fairly presented in conformity with
generally accepted accounting principles applied on a basis consistent with that
of the audited financial statements of the Company or the unaudited pro forma
financial information included in the Registration Statement, (B) the unaudited
financial statements of the Company included in the Registration Statement do
not comply as to form in all material respects with the applicable accounting
requirements of the Act and the Rules and Regulations or are not fairly
presented in conformity with generally accepted accounting principles applied on
a basis substantially consistent with that of the audited financial statements
of the Company included in the Registration Statement, or (C) at a specified
date not more than five (5) days prior to the effective date of the Registration
Statement, there has been any change in the capital stock of the Company, any
change in the long-term debt of the Company, or any decrease in the
stockholders' equity of the Company or any decrease in the net current assets or
net assets of the Company as compared with amounts shown in the March 31, 1998
balance sheets included in the Registration Statement, other than as set forth
in or contemplated by the Registration Statement, or, if there was any change or
decrease, setting forth the amount of such change or decrease, and (D) during
the period from March 31, 1998 to a specified date not more than five (5) days
prior to the effective date of the Registration Statement, there was any
decrease in net revenues or net earnings of the Company or increase in net loss
per common share of the Company, in each case as compared with the corresponding
period beginning April 1, 1997 other than as set forth in or contemplated by the
Registration Statement, or, if there was any such decrease, setting forth the
amount of such decrease;
(iv) stating that they have compared specific dollar
amounts, numbers of shares, percentages of revenues and earnings, statements and
other financial information pertaining to the Company set forth in the
Prospectus in each case to the extent that such amounts, numbers, percentages,
statements and information may be derived from the general accounting records,
including work sheets, of the Company and excluding any questions requiring an
interpretation by legal counsel, with the results obtained from the application
of specified readings, inquiries and other appropriate procedures (which
procedures do not constitute an examination in accordance with generally
accepted auditing standards) set forth in the letter and found them to be in
agreement; and
(v) statements as to such other matters incident to the
transaction contemplated hereby as the Representatives may request.
(k) At the Closing Date and each Option Closing Date, if any,
the Underwriters shall have received from Ernst & Young LLP a letter, dated as
of the Closing Date or the Option Closing Date, as the case may be, to the
effect that they reaffirm the statements made in the letter furnished pursuant
to subsection (j) of this Section hereof except that the specified date referred
to shall be a date not more than five days prior to the Closing Date or the
Option Closing Date, as the case may be, and, if the Company has elected to rely
on Rule 430A of the Rules and Regulations, to the further effect that they have
carried out procedures as specified in clause (v) of subsection (j) of this
Section with respect to certain amounts, percentages and financial
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<PAGE> 25
information as specified by the Representatives and deemed to be a part of the
Registration Statement pursuant to Rule 430A(b) and have found such amounts,
percentages and financial information to be in agreement with the records
specified in such clause (v).
(l) The Company shall have delivered to the Representatives a
letter from Ernst & Young LLP addressed to the Company stating that they have
not during the immediately preceding two year period brought to the attention of
the Company's management any "weakness" as defined in Statement of Auditing
Standards No. 60 "Communication of Internal Control Structure Related Matters
Noted in an Audit," in any of the Company's internal controls.
(m) On the Closing Date and each Option Closing Date, if any,
the Representatives shall have received the favorable opinion of Darby & Darby,
special intellectual property counsel to the Company, dated the Closing Date or
Option Closing Date, addressed to the Underwriters and in substantially the form
of Exhibit A attached hereto.
(n) On each of the Closing Date and Option Closing Date, if
any, there shall have been duly tendered to the Representatives for the several
Underwriters' accounts the appropriate number of Shares.
(o) No order suspending the sale of the Securities in any
jurisdiction designated by the Representatives pursuant to subsection (e) of
Section 4 hereof shall have been issued on either the Closing Date or the Option
Closing Date, if any, and no proceedings for that purpose shall have been
instituted or shall be contemplated.
(p) On or before the Closing Date, the Company shall have
executed and delivered to you (i) the Advisors' Warrant Agreement substantially
in the form filed as Exhibit 4.2 to the Registration Statement in final form and
substance satisfactory to the Representatives, and (ii) the Advisors' Warrants
in such denominations and to such designees as shall have been provided to the
Company.
(q) On or before the Closing Date, the Shares shall have been
duly approved for trading on Nasdaq, subject to official notice of issuance.
(r) On or before the Closing Date, there shall have been
delivered to the Representatives the Lock-up Agreements, in form and substance
satisfactory to Underwriters' Counsel.
If any condition to the Underwriters' obligations hereunder to be
fulfilled prior to or at the Closing Date or the relevant Option Closing Date,
as the case may be, is not so fulfilled, the Representatives may terminate this
Agreement or, if the Representatives so elect, it may waive any such conditions
which have not been fulfilled or extend the time for their fulfillment.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless each of
the Underwriters (for purposes of this Section 7 "Underwriter" shall include the
officers, directors, partners, employees, agents and counsel of the Underwriter,
including specifically each person who may be substituted for an Underwriter as
provided in Section 11 hereof), and each person, if
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<PAGE> 26
any, who controls the Underwriter ("controlling person") within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act, from and against any
and all losses, claims, damages, expenses or liabilities, joint or several (and
actions, proceedings, investigations, inquiries, and suits in respect thereof),
whatsoever (including but not limited to any and all costs and expenses
whatsoever reasonably incurred in investigating, preparing or defending against
such action, proceeding, investigation, inquiry or suit, commenced or
threatened, or any claim whatsoever), as such are incurred, to which the
Underwriter or such controlling person may become subject under the Act, the
Exchange Act or any other statute or at common law or otherwise or under the
laws of foreign countries, arising out of or based upon (A) any untrue statement
or alleged untrue statement of a material fact contained (i) in any Preliminary
Prospectus, the Registration Statement or the Prospectus (as from time to time
amended and supplemented); (ii) in any post-effective amendment or amendments or
any new registration statement and prospectus in which is included securities of
the Company issued or issuable upon exercise of the Securities; or (iii) in any
application or other document or written communication (in this Section 7
collectively called "application") executed by the Company or based upon written
information furnished by the Company filed, delivered or used in any
jurisdiction in order to qualify the Securities under the securities laws
thereof or filed with the Commission, any state securities commission or agency,
Nasdaq or any other securities exchange, (B) the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to make
the statements therein not misleading (in the case of the Prospectus, in the
light of the circumstances under which they were made), or (C) any breach of any
representation, warranty, covenant or agreement of the Company contained herein
or in any certificate by or on behalf of the Company or any of its officers
delivered pursuant hereto; provided, however, that such indemnity shall not
inure to the benefit of any Underwriter (or any person controlling such
Underwriter) on account of any losses, claims, damages or liabilities arising
from the sale of the Shares to any person by such Underwriter (1) if such untrue
statement or omission or alleged untrue statement or omission was made in such
Preliminary Prospectus, the Registration Statement or the Prospectus or such
amendment or supplement, and was contained in the paragraph relating to
stabilization and market making on the inside front cover page of the Prospectus
or under the caption "Underwriting" in the Prospectus (to the extent such
statements relate to the Underwriters) or (2) if the Company sustains the burden
of proving that such person was not sent or given a copy of the Prospectus (or
the Prospectus as amended or supplemented) at or prior to the written
confirmation of the sale of such Securities to such person and the untrue
statement contained in or omission from such Preliminary Prospectus was
corrected in the Prospectus (or the Prospectus as amended or supplemented).
The indemnity agreement in this subsection (a) shall be in
addition to any liability which the Company may have at common law or otherwise.
(b) Each of the Underwriters agrees severally, but not
jointly, to indemnify and hold harmless the Company, each of its directors, each
of its officers who has signed the Registration Statement, and each other
person, if any, who controls the Company within the meaning of the Act, to the
same extent as the foregoing indemnity from the Company to the Underwriters but
only with respect to statements or omissions, if any, made in any Preliminary
Prospectus, the Registration Statement or Prospectus or any amendment thereof or
supplement thereto or in any application made in reliance upon, and in strict
conformity with, written information furnished to the Company with respect to
any Underwriter by such Underwriter
26
<PAGE> 27
expressly for use in such Preliminary Prospectus, the Registration Statement or
Prospectus or any amendment thereof or supplement thereto or in any such
application, provided that such written information or omissions only pertain to
disclosures in the Preliminary Prospectus, the Registration Statement or
Prospectus directly relating to the transactions effected by the Underwriters in
connection with this Offering. The Company acknowledges that the statements with
respect to the public offering of the Shares set forth under the heading
"Underwriting" (to the extent such statements relate to the Underwriters) and
the stabilization and market-making legends in the Prospectus have been
furnished by the Underwriters expressly for use therein and constitute the only
information furnished in writing by or on behalf of the Underwriters for
inclusion in the Prospectus.
The indemnity agreement in this subsection (b) shall be in
addition to any liability which the Underwriters may have at common law or
otherwise.
(c) Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any action, suit or proceeding, such
indemnified party shall, if a claim in respect thereof is to be made against one
or more indemnifying parties under this Section 7, notify each party against
whom indemnification is to be sought in writing of the commencement thereof (but
the failure so to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 7 except to the extent that it
has been prejudiced in any material respect by such failure or from any
liability which it may have otherwise). In case any such action, investigation,
inquiry, suit or proceeding is brought against any indemnified party, and it
notifies an indemnifying party or parties of the commencement thereof, the
indemnifying party or parties will be entitled to participate therein, and to
the extent it may elect by written notice delivered to the indemnified party
promptly after receiving the aforesaid notice from such indemnified party, to
assume the defense thereof with counsel reasonably satisfactory to such
indemnified party. Notwithstanding the foregoing, the indemnified party or
parties shall have the right to employ its or their own counsel in any such case
but the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless (i) the employment of such counsel shall
have been authorized in writing by the indemnifying parties in connection with
the defense of such action at the expense of the indemnifying party, (ii) the
indemnifying parties shall not have employed counsel reasonably satisfactory to
such indemnified party to have charge of the defense of such action within a
reasonable time after notice of commencement of the action, or (iii) such
indemnified party or parties shall have reasonably concluded (based on advice of
counsel) that there may be defenses available to it or them which are different
from or additional to those available to one or all of the indemnifying parties
(in which case the indemnifying parties shall not have the right to direct the
defense of such action, investigation, inquiry, suit or proceeding on behalf of
the indemnified party or parties), in any of which events such reasonable and
documented fees and expenses of one additional counsel shall be borne by the
indemnifying parties. In no event shall the indemnifying parties be liable for
fees and expenses of more than one counsel (in addition to any local counsel)
separate from their own counsel for all indemnified parties in connection with
any one action, investigation, inquiry, suit or proceeding or separate but
similar or related actions, investigations, inquiries, suits or proceedings in
the same jurisdiction arising out of the same general allegations or
circumstances. Anything in this Section 7 to the contrary notwithstanding, an
indemnifying party shall not be liable for any settlement of any claim or action
effected without its written consent; provided, however, that such consent was
not unreasonably withheld. An indemnifying party will not,
27
<PAGE> 28
without the prior written consent of the indemnified parties, settle, compromise
or consent to the entry of any judgment with respect to any pending or
threatened claim, action, investigation, inquiry, suit or proceeding in respect
of which indemnification or contribution may be sought hereunder (whether or not
the indemnified parties are actual or potential parties to such claim or
action), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party form all liability arising out
of such claim, action, suit or proceeding and (ii) does not include a statement
as to or an admission of fault, culpability or a failure to act by or on behalf
of any indemnified party.
(d) In order to provide for just and equitable contribution in
any case in which (i) an indemnified party makes claim for indemnification
pursuant to this Section 7, but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
the express provisions of this Section 7 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party shall contribute to the amount
paid as a result of such losses, claims, damages, expenses or liabilities (or
actions, investigations, inquiries, suits or proceedings in respect thereof) (A)
in such proportion as is appropriate to reflect the relative benefits received
by each of the contributing parties, on the one hand, and the party to be
indemnified on the other hand, from the offering of the Shares or (B) if the
allocation provided by clause (A) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of each of the
contributing parties, on the one hand, and the party to be indemnified on the
other hand in connection with the statements or omissions that resulted in such
losses, claims, damages, expenses or liabilities, as well as any other relevant
equitable considerations. In any case where the Company is the contributing
party and the Underwriters are the indemnified party, the relative benefits
received by the Company on the one hand, and the Underwriters, on the other,
shall be deemed to be in the same proportion as the total net proceeds from the
offering of the Shares (before deducting expenses) bear to the total
underwriting discounts received by the Underwriters hereunder, in each case as
set forth in the table on the cover page of the Prospectus. Relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company, or by the
Underwriters, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such untrue statement or omission. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, expenses or liabilities (or actions, investigations, inquiries,
suits or proceedings in respect thereof) referred to above in this subdivision
(d) shall be deemed to include any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any such
action, claim, investigation, inquiry, suit or proceeding. Notwithstanding the
provisions of this subdivision (d) the Underwriters shall not be required to
contribute any amount in excess of the underwriting discount applicable to the
Shares purchased by the Underwriters hereunder. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 7, each person, if any, who
controls the Company within the meaning of the Act, each officer of the Company
who has signed the Registration Statement, and each director of the Company
shall have the same rights to
28
<PAGE> 29
contribution as the Company, subject in each case to this subparagraph (d). Any
party entitled to contribution will, promptly after receipt of notice of
commencement of any action, suit, inquiry, investigation or proceeding against
such party in respect to which a claim for contribution may be made against
another party or parties under this subparagraph (d), notify such party or
parties from whom contribution may be sought, but the omission so to notify such
party or parties shall not relieve the party or parties from whom contribution
may be sought from any obligation it or they may have hereunder or otherwise
than under this subparagraph (d). The contribution agreement set forth above
shall be in addition to any liabilities which any indemnifying party may have at
common law or otherwise.
8. Representations and Agreements to Survive Delivery. All
representations, warranties and agreements contained in this Agreement or
contained in certificates of officers of the Company submitted pursuant hereto,
shall be deemed to be representations, warranties and agreements at the Closing
Date and the Option Closing Date, as the case may be, and such representations,
warranties and agreements of the Company and the indemnity agreements contained
in Section 7 hereof, shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any Underwriter, the
Company, any controlling person of any Underwriter or the Company, and shall
survive termination of this Agreement or the issuance and delivery of the
Securities to the Underwriters and the Representatives, as the case may be.
9. Effective Date. This Agreement shall become effective at 10:00
a.m., New York City time, on the next full business day following the date
hereof, or at such earlier time after the Registration Statement becomes
effective as the Representatives, in their discretion, shall release the Shares
for sale to the public; provided, however, that the provisions of Sections 5, 7
and 10 of this Agreement shall at all times be effective. For purposes of this
Section 9, the Shares to be purchased hereunder shall be deemed to have been so
released upon the earlier of dispatch by the Representatives of telegrams to
securities dealers releasing such shares for offering or the release by the
Representatives for publication of the first newspaper advertisement which is
subsequently published relating to the Shares.
10. Termination.
The Representatives shall have the right to terminate this
Agreement, after the date hereof, (i) if any domestic or international event or
act or occurrence has materially disrupted, or in the Representatives' opinion
will in the immediate future materially adversely disrupt the financial markets;
or (ii) any material adverse change in the financial markets shall have
occurred; or (iii) if trading generally shall have been suspended or materially
limited on or by, as the case may be, any of the New York Stock Exchange, the
American Stock Exchange, the NASD, the Boston Stock Exchange, the Chicago Board
of Trade, the Chicago Board of Options Exchange, the Chicago Mercantile
Exchange, the Commission or any other government authority having jurisdiction;
or (iv) if trading of any of the securities of the Company shall have been
suspended, or any of the securities of the Company shall have been delisted, on
any exchange or in any over-the-counter market; or (v) if the United States
shall have become involved in a war or major hostilities, or if there shall have
been an escalation in an existing war or major hostilities or a national
emergency shall have been declared in the United States; or (vi) if a banking
moratorium has been declared by a state or federal authority; or (vii) if a
moratorium
29
<PAGE> 30
in foreign exchange trading has been declared; or (viii) if the Company shall
have sustained a loss material or substantial to the Company by fire, flood,
accident, hurricane, earthquake, theft, sabotage or other calamity or malicious
act which, whether or not such loss shall have been insured, will, in the
Representatives' opinion, make it inadvisable to proceed with the delivery of
the Shares; or (viii) if there shall have occurred any outbreak or escalation of
hostilities or any calamity or crisis or there shall have been such a material
adverse change in the conditions or prospects of the Company, or such material
adverse change in the general market, political or economic conditions, in the
United States or elsewhere as in the Representatives' judgment would make it
inadvisable to proceed with the offering, sale and/or delivery of the Shares or
(ix) if Harry E. Gruber or Brian Kenner shall no longer serve the Company in his
present capacity.
11. Substitution of the Underwriters. If one or more of the
Underwriters shall fail (otherwise than for a reason sufficient to justify the
termination of this Agreement under the provisions of Section 6, Section 10 or
Section 12 hereof) to purchase the Shares which it or they are obligated to
purchase on such date under this Agreement (the "Defaulted Shares"), the
Representatives shall have the right, within 24 hours thereafter, to make
arrangement for one or more of the non-defaulting Underwriters, or any other
underwriters, to purchase all, but not less than all, of the Defaulted Shares in
such amounts as may be agreed upon and upon the terms herein set forth; if,
however, the Representatives shall not have completed such arrangements within
such 24-hour period, then:
(a) if the number of Defaulted Shares does not exceed 10% of
the total number of Firm Shares to be purchased on such date, the non-defaulting
Underwriters shall be obligated to purchase the full amount thereof in the
proportions that their respective underwriting obligations hereunder bear to the
underwriting obligations of all non-defaulting Underwriters, or
(b) if the number of Defaulted Shares exceeds 10% of the total
number of Firm Shares, this Agreement shall terminate without liability on the
part of any non-defaulting Underwriters.
No action taken pursuant to this Section 11 shall relieve any
defaulting Underwriter from liability in respect of any default by such
Underwriter under this Agreement.
In the event of any such default which does not result in a
termination of this Agreement, the Representatives shall have the right to
postpone the Closing Date for a period not exceeding seven days in order to
effect any required changes in the Registration Statement or Prospectus or in
any other documents or arrangements.
30
<PAGE> 31
12. Default by the Company. If the Company shall fail at the Closing
Date or at any Option Closing Date, as applicable, to sell and deliver the
number of Shares which it is obligated to sell hereunder on such date, then this
Agreement shall terminate (or, if such default shall occur with respect to any
Option Shares to be purchased on an Option Closing Date, the Underwriters may at
the Representatives' option, by notice from the Representatives to the Company,
terminate the Underwriters' obligation to purchase Option Shares from the
Company on such date) without any liability on the part of any non-defaulting
party other than pursuant to Section 5, Section 7 and Section 10 hereof. No
action taken pursuant to this Section shall relieve the Company from liability,
if any, in respect of such default.
13. Notices. All notices and communications hereunder, except as
herein otherwise specifically provided, shall be in writing and shall be deemed
to have been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters shall be directed to the
Representatives c/o Josephthal & Co. Inc., 200 Park Avenue, 25th Floor, New
York, New York 10166, Attention: Brian Carlson, with a copy to Orrick,
Herrington & Sutcliffe LLP, 666 Fifth Avenue, New York, New York 10103,
Attention: Lawrence B. Fisher, Esq. Notices to the Company shall be directed to
the Company at 6815 Flanders Drive, San Diego, California 92121, Attention:
Harry E. Gruber, Chairman of the Board and Chief Executive Officer, with a copy
to Latham & Watkins, 701 B Street, Suite 2100, San Diego, California 92101,
Attention: Scott N. Wolfe, Esq.
14. Parties. This Agreement shall inure solely to the benefit of and
shall be binding upon, the Underwriters, the Company and the controlling
persons, directors and officers referred to in Section 7 hereof, and their
respective successors, legal representatives and assigns, and no other person
shall have or be construed to have any legal or equitable right, remedy or claim
under or in respect of or by virtue of this Agreement or any provisions herein
contained. No purchaser of Shares from any Underwriter shall be deemed to be a
successor by reason merely of such purchase.
15. Construction. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of New York without giving
effect to the choice of law or conflict of laws principles.
16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall be deemed to be one and the same instrument.
17. Entire Agreement; Amendments. This Agreement and the Advisors'
Warrant Agreement constitute the entire agreement of the parties hereto and
supersede all prior written or oral agreements, understandings and negotiations
with respect to the subject matter hereof. This Agreement may not be amended
except in a writing, signed by the Representatives and the Company.
(Remainder of this page intentionally left blank)
31
<PAGE> 32
If the foregoing correctly sets forth the understanding between
the Underwriters and the Company, please so indicate in the space provided below
for that purpose, whereupon this letter shall constitute a binding agreement
among us.
Very truly yours,
INTERVU INC.
By:
-------------------------------
Harry E. Gruber
Chairman of the Board and
Chief Executive Officer
JOSEPHTHAL & CO. INC.
For itself and as Representatives
of the several Underwriters
named in Schedule A hereto,
By:
--------------------------------
Name:
Title:
CRUTTENDEN ROTH INCORPORATED
For itself and as Representatives
of the several Underwriters
named in Schedule A hereto,
By:
-------------------------------
Name:
Title:
32
<PAGE> 33
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Firm Shares
Name of Underwriters to be Purchased
- -------------------- ---------------
<S> <C>
</TABLE>
33
<PAGE> 34
Exhibit A
[FORM OF INTELLECTUAL PROPERTY OPINION]
June ___, 1998
JOSEPHTHAL & CO. INC.
CRUTTENDEN ROTH INCORPORATED
As Representatives of the Several Underwriters
200 Park Avenue, 25th Floor
New York, New York 10166
Re: Public Offering of InterVU Inc.
Gentlemen:
We have acted as special counsel for intellectual property
matters to InterVU, Inc., a Delaware corporation (the "Company"), in connection
with the entering into by the Company of that certain Underwriting Agreement by
and between Josephthal & Co., Inc. ("Josephthal") and Cruttenden Roth
Incorporated, as representatives of the several underwriters named in Schedule A
thereto, and the Company, dated June __, 1998 (the "Underwriting Agreement").
This opinion is provided to you pursuant to Section 6(m) of the Underwriting
Agreement.
For the purpose of rendering the opinions set forth below we have
reviewed the following (collectively, the "Documents"):
(i) the Underwriting Agreement;
(ii) that certain Registration Statement filed by the Company on May
1, 1998, together with all amendments thereof and exhibits
thereto (collectively, the "Registration Statement");
(iii) the Company's Prospectus dated June __, 1998, (the "Prospectus");
(iv) a search of the United States Patent and Trademark Office records
relevant to ownership of any and all:
(a) patents and patent applications, including, without
limitation, the patents and patent applications listed on
Schedule A annexed hereto and incorporated by reference
herein (collectively, the "Patents"), and
(b) trademarks, trademark applications, service marks and
service mark applications, including, without limitation,
the trademarks listed on Schedule B annexed hereto and
incorporated by reference herein (collectively, the
"Trademarks"),
34
<PAGE> 35
owned or purportedly owned by the Company, including those
patents, patent applications and marks licensed to the Company
(collectively, "the Licenses"); conducted by J. F. Brown
Associates, Arlington Virginia and represented to us as true and
correct as of June __, 1998;
(v) a search of the United States Copyright Office records relevant
to ownership of any and all copyrighted material owned,
purportedly owned or licensed by the Company (collectively, "the
Copyrights") conducted by Thompson & Thompson, Washington, DC and
represented to us as true and correct as of June __, 1998;
(vi) a LitAlert intellectual property litigation search conducted by
us with respect to the Company and all Patents, Trademarks, and
Copyrights identified in paragraphs (iv) and (v) above;
(vii) a search of the Uniform Commercial Code ("UCC") recordation
offices in the jurisdictions of Delaware and California, with
respect to the following two categories of general intangibles:
(a) the intellectual property general intangibles of the
Company, including, without limitation, the Company's patents,
patent applications, inventions, know-how, trademarks, service
marks, copyrights, service and trade names, intellectual
property licenses and other rights, and
(b) the intellectual property general intangibles licensed to
the Company, including, without limitation, the patents, patent
applications, inventions, know-how, trademarks, service marks,
copyrights, service and trade names and other intellectual
property rights licensed to the Company pursuant to the
Licenses,
said search conducted by Corporation Trust UCC Services, New York, New
York and represented to us as accurate and current through June __,
1998; said jurisdictions being the most likely jurisdictions, if any,
apart from the records of the U.S. Patent & Trademark Office and the
U.S. Copyright Office, in which filing of UCC financing statements or
other documents may be filed to evidence a security or other interest in
said general intangibles; and
(viii) any and all records, documents, instruments and agreements in our
possession or under our control relating to the Company.
We have also examined such corporate records, documents,
instruments and agreements, and inquired into such other matters, as we have
deemed necessary or appropriate as a basis for the opinions set forth herein.
Whenever our opinion herein is qualified by the phrase "to the
best of our knowledge" or "to the best of our knowledge, after due inquiry,"
such language means than, based upon (i) our inquiries of officers of the
Company, (ii) our review of the Documents, and
35
<PAGE> 36
(iii) our review of such other corporate records, documents, instruments and
agreements described in the first sentence of paragraph (h) above, we believe
that such opinions are factually correct.
To our best knowledge, based on this inquiry, we are not aware of
any copyright registrations owned or purported to be owned by the Company.
To our best knowledge, based on this inquiry, we are not aware of
any specific intellectual property rights, including specific patents,
trademarks, or copyrights, which have been licensed to the Company, or which
have been identified with sufficient particularity for a search to be conducted.
We are aware that the Company has non-exclusively purchased, leased or licensed
the use of certain hardware and software products, such as computer equipment
and widely used computer or network operating systems or database management
tools, including products of Microsoft, Inc. and Sybase, Inc. These products may
be subject to intellectual property rights of third parties. Specific patents,
trademarks and copyrights which may be owned by third parties in connection with
these products have not been identified. To our best knowledge, the Company's
intellectual property position is not dependent upon the use of these products,
nor to our best knowledge has the Company taken any exclusive license in any
intellectual property from any third-party. Thus, to our best knowledge there
are no "Licenses" as defined and intended by paragraphs (iv)(b) and (vii)(b)
above, and accordingly, we have not conducted and do not rely on any
intellectual property search as to such "Licenses," companies or products.
To the best of our knowledge, as to all matters of fact
represented to you by the Company in the documents we have reviewed, and
concerning the Company's intellectual property position, we advise you that
nothing has come to our attention that would cause us to believe that such facts
are incorrect, incomplete or misleading or that reliance thereon is not
warranted under the circumstances. We call to your attention that our opinion is
limited to such facts as they exist on the date hereof and do not take into
account any change of circumstances, fact or law subsequent thereto.
Based upon and subject to the foregoing, we are of the opinion that:
1. To the best of our knowledge, after due inquiry, except as
described in the Prospectus or Registration Statement, the Company owns or has
the right to use, free and clear of all liens, encumbrances, pledges, security
interests, defects or other restrictions or equities of any kind whatsoever,
(a) all patents and patent applications owned or purported to
be owned by the Company and used in, or required for, the
conduct of the Company's business (including, without
limitation, the Patents);
(b) all trademarks, tradenames, service marks and service
names owned or purported to be owned by the Company and
used in, or required for, the conduct of the Company's
business (including, without limitation, the Trademarks);
36
<PAGE> 37
(c) all copyrights owned or purported to be owned by the
Company and used in, or required for, the conduct of the
Company's business (including, without limitation, the
Copyrights); and
(d) all intellectual property licenses used in, or required
for, the conduct of the Company's business (including
without limitation the Licenses).
2. To the best of our knowledge, after due inquiry, there is no
claim or action, pending, threatened or potential, which affects or could affect
the rights of the Company with respect to any trademarks, service marks,
copyrights, service names, trade names, patents, patent applications or licenses
owned or purported to be owned by the Company and used in, or required for, the
conduct of the Company's business.
3. To the best of our knowledge, after due inquiry as specified
herein, there is no intellectual property based claim or action, pending,
threatened or potential, which affects or could affect the rights of the Company
with respect to any products, services, processes or licenses used in the
conduct of the Company's business.
4. To the best of our knowledge, after due inquiry, except as
described in the Prospectus or Registration Statement, the Company is not under
any obligation to pay royalties or fees to any third party with respect to any
material, technology or intellectual properties developed, employed, licensed or
used by the Company.
5. To the best of our knowledge, after due inquiry, the statements
in the Prospectus and Registration Statement under the headings, "Risk Factors -
Intellectual Property" and "Business - Intellectual Property" are accurate in
all material respects, fairly represent the information disclosed therein and do
not omit to state any fact necessary to make the statements made therein
complete and accurate.
6. To the best of our knowledge, after due inquiry, the statements
in the Prospectus and Registration Statement do not contain any untrue statement
of a material fact with respect to the intellectual property position of the
Company, or omit to state any material fact relating to the intellectual
property position of the Company which is necessary to make the statements
therein not misleading.
We call your attention to the fact that members of this firm are
licensed to practice law in the States of New York or California and before the
United States Patent and Trademark Office as Registered Patent Attorneys. We
express no opinion with respect to the laws, rules and regulations of any
jurisdictions other than the States of New York or California and the United
States of America.
37
<PAGE> 38
The opinions expressed herein are for the sole benefit of, and may be
relied upon only by, the several Underwriters named in Schedule A to the
Underwriting Agreement and Orrick, Herrington & Sutcliffe LLP.
Very truly yours,
Darby & Darby
38
<PAGE> 1
EXHIBIT 4.2
- --------------------------------------------------------------------------------
INTERVU INC.
AND
JOSEPHTHAL & CO. INC.
AND
CRUTTENDEN ROTH INCORPORATED
ADVISORS'
WARRANT AGREEMENT
DATED AS OF JUNE __, 1998
- --------------------------------------------------------------------------------
<PAGE> 2
ADVISORS' WARRANT AGREEMENT dated as of June ___, 1998 between
INTERVU INC., a Delaware corporation (the "Company"), JOSEPHTHAL & CO. INC. and
CRUTTENDEN ROTH INCORPORATED (hereinafter referred to as the "Holders" or the
"Underwriters").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to the Underwriters or
their designees warrants ("Warrants") to purchase up to an aggregate 120,000
shares of common stock of the Company ("Common Stock"); and
WHEREAS, the Underwriters have agreed pursuant to the
underwriting agreement (the "Underwriting Agreement") dated as of the date
hereof between Josephthal & Co. Inc. and Cruttenden Roth Incorporated as the
Underwriters, and the Company to act as Underwriters in connection with the
Company's proposed public offering of up to 1,200,000 shares of Common Stock at
a public offering price of $____ per share of Common Stock (the "Public
Offering"); and
WHEREAS, the Warrants to be issued pursuant to this Agreement
will be issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to the Underwriters in consideration for, and as part
of the Underwriters' compensation in connection with, the Underwriters providing
the Company with financial advisory services;
NOW, THEREFORE, in consideration of the premises, the payment by
the Underwriters to the Company of an aggregate of twelve dollars ($12.00), the
agreements herein set forth and other good and valuable consideration, hereby
acknowledged, the parties hereto agree as follows:
1. Grant. The Underwriters are hereby granted the right to purchase,
at any time from June __, 1999, until 5:30 P.M., New York time, on June __,
2003, up to an aggregate of 120,000 shares of Common Stock (the "Shares") at an
initial exercise price (subject to adjustment as provided in Section 8 hereof)
of $_____ per share of Common Stock subject to the terms and conditions of this
Agreement. Except as set forth herein, the Shares issuable upon exercise of the
Warrants are in all respects identical to the shares of Common Stock being
purchased by the Underwriters for resale to the public pursuant to the terms and
provisions of the Underwriting Agreement.
2. Warrant Certificates. The warrant certificates (the "Warrant
Certificates") delivered and to be delivered pursuant to this Agreement shall be
in the form set forth in Exhibit A, attached hereto and made a part hereof, with
such appropriate insertions, omissions, substitutions, and other variations as
required or permitted by this Agreement.
3. Exercise of Warrant.
3.1 Method of Exercise. The Warrants initially are exercisable at an
aggregate initial exercise price (subject to adjustment as provided in Section 8
hereof) per share of Common Stock set forth in Section 6 hereof payable by
certified or official bank check in New York Clearing House funds. Upon
surrender of a Warrant Certificate with the annexed Form of
<PAGE> 3
Election to Purchase duly executed, together with payment of the Exercise Price
(as hereinafter defined) for the shares of Common Stock purchased at the
Company's principal offices (presently located at 6815 Flanders Drive, San
Diego, California 92121), the registered holder of a Warrant Certificate
("Holder" or "Holders") shall be entitled to receive a certificate or
certificates for the shares of Common Stock so purchased. The purchase rights
represented by each Warrant Certificate are exercisable at the option of the
Holders thereof, in whole or in part (but not as to fractional shares of the
Common Stock underlying the Warrants). Warrants may be exercised to purchase all
or part of the shares of Common Stock represented thereby. In the case of the
purchase of less than all the shares of Common Stock purchasable under any
Warrant Certificate, the Company shall cancel said Warrant Certificate upon the
surrender thereof and shall execute and deliver a new Warrant Certificate of
like tenor for the balance of the shares of Common Stock purchasable thereunder.
3.2 Exercise by Surrender of Warrant. In addition to the method of
payment set forth in Section 3.1 and in lieu of any cash payment required
thereunder, the Holder(s) of the Warrants shall have the right at any time and
from time to time to exercise the Warrants in full or in part by surrendering
the Warrant Certificate in the manner specified in Section 3.1 in exchange for
the number of Shares equal to the product of (x) the number of Shares as to
which the Warrants are being exercised multiplied by (y) a fraction, the
numerator of which is the Market Price (as defined in Section 3.3 below) of the
Shares less the Exercise Price and the denominator of which is such Market
Price. Solely for the purposes of this paragraph, Market Price shall be
calculated as the average of the Market Prices for each of the five trading days
preceding the date on which the form of election attached hereto is deemed to
have been sent to the Company pursuant to Section 13 hereof.
3.3 Definition of Market Price. As used herein, the phrase "Market
Price" at any date shall be deemed to be the last reported sale price, or, in
case no such reported sale takes place on such day, the average of the last
reported sale prices for the last three (3) trading days, in either case as
officially reported by the principal securities exchange on which the Common
Stock is listed or admitted to trading or by the Nasdaq National Market ("NNM"),
or, if the Common Stock is not listed or admitted to trading on any national
securities exchange or quoted by NNM, the average closing bid price as furnished
by the NASD through NNM or similar organization if NNM is no longer reporting
such information, or if the Common Stock is not quoted on NNM, as determined in
good faith by resolution of the Board of Directors of the Company, based on the
best information available to it.
4. Issuance of Certificates. Upon the exercise of the Warrants, the
issuance of certificates for shares of Common Stock and/or other securities,
properties or rights underlying such Warrants, shall be made forthwith (and in
any event within five (5) business days thereafter) without charge to the
Holders thereof including, without limitation, any tax which may be payable in
respect of the issuance thereof, and such certificates shall (subject to the
provisions of Sections 5 and 7 hereof) be issued in the name of, or in such
names as may be directed by, the Holders thereof; provided, however, that the
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the issuance and delivery of any such certificates in a
name other than that of the Holders, and the Company shall not be required to
issue or deliver such certificates unless or until the person or persons
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<PAGE> 4
requesting the issuance thereof shall have paid to the Company the amount of
such tax or shall have established to the satisfaction of the Company that such
tax has been paid.
The Warrant Certificates and the certificates representing the
Shares underlying the Warrants (and/or other securities, property or rights
issuable upon the exercise of the Warrants) shall be executed on behalf of the
Company by the manual or facsimile signature of the then Chairman or Vice
Chairman of the Board of Directors or President or Vice President of the
Company. Warrant Certificates shall be dated the date of execution by the
Company upon initial issuance, division, exchange, substitution or transfer.
5. Restriction On Transfer of Warrants. The Holders of a Warrant
Certificate, by its acceptance thereof, covenants and agrees that the Warrants
are being acquired as an investment and not with a view to the distribution
thereof; that the Warrants may not be sold, transferred, assigned, hypothecated
or otherwise disposed of, in whole or in part, for a period of one (1) year from
the date hereof, except to officers of the Underwriters.
6. Exercise Price.
6.1 Initial and Adjusted Exercise Price. Except as otherwise provided
in Section 8 hereof, the initial exercise price of each Warrant shall be $_____
per share of Common Stock. The adjusted exercise price shall be the price which
shall result from time to time from any and all adjustments of the initial
exercise price in accordance with the provisions of Section 8 hereof.
6.2 Exercise Price. The term "Exercise Price" herein shall mean the
initial exercise price or the adjusted exercise price, depending upon the
context.
7. Registration Rights.
7.1 Registration Under the Securities Act of 1933. The Warrants and
any of the other securities issuable upon exercise of the Warrants have not been
registered under the Securities Act of 1933, as amended (the "Act"). Upon
exercise, in part or in whole, of the Warrants, certificates representing the
Shares underlying the Warrants, and any of the other securities issuable upon
exercise of the Warrants (collectively, the "Warrant Securities") shall bear the
following legend:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended ("Act"),
and may not be offered or sold except pursuant to (i) an
effective registration statement under the Act, (ii) to the
extent applicable, Rule 144 under the Act (or any similar rule
under such Act relating to the disposition of securities), or
(iii) an opinion of counsel, if such opinion shall be reasonably
satisfactory to counsel to the issuer, that an exemption from
registration under such Act is available.
7.2 Piggyback Registration.
(a) If, at any time commencing one year after the date hereof
and expiring six (6) years from the date hereof, the Company proposes to
register any of its securities under the
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<PAGE> 5
Act (other than in connection with a merger, acquisition or other business
combination registered on Form S-4 or any registration pursuant to Form S-8) it
will give written notice by registered mail, at least twenty (20) days prior to
the filing of each such registration statement, to all Holders of the Warrants
and/or the Warrant Securities of its intention to do so. If the Holders of the
Warrants and/or Warrant Securities notify the Company within twenty (20) days
after receipt of any such notice of its or their desire to include any such
securities in such proposed registration statement, the Company shall afford the
Holder(s) of the Warrants and/or Warrant Securities the opportunity to have any
such Warrant Securities registered under such registration statement (sometimes
referred to herein as the "Piggyback Registration").
(b) Notwithstanding the provisions of paragraph (a), the
Company shall have the right at any time after it shall have given written
notice pursuant to paragraph (a) (irrespective of whether a written request for
inclusion of any such securities shall have been made) to elect not to file any
such proposed registration statement, or to withdraw the same after the filing
but prior to the effective date thereof.
7.3 Demand Registration.
(a) At any time commencing one year after the date hereof and
expiring five (5) years from the date hereof, unless all of the Warrants issued
or issuable have been exercised and the Holders of the Warrant Shares have
received a written opinion of Company counsel, reasonably satisfactory in form
and substance to such Holders, to the effect that all of the Warrant Shares are
freely resaleable without registration under the Act, the Holders of the
Warrants and/or Warrant Securities representing a "Majority" (as hereinafter
defined) of such securities (assuming the exercise of all of the Warrants) shall
have the right (which right is in addition to the registration rights under
Section 7.2 hereof), exercisable by written notice to the Company, to have the
Company prepare and file with the Securities and Exchange Commission (the
"Commission"), on one occasion, a registration statement and such other
documents, including a prospectus, as may be necessary in the opinion of both
counsel for the Company and counsel for the Underwriters and Holders, in order
to comply with the provisions of the Act, so as to permit a public offering and
sale of their respective Warrant Securities for nine (9) consecutive months by
such Holders and any other Holders of the Warrants and/or Warrant Securities who
notify the Company within ten (10) days after receiving notice from the Company
of such request.
(b) The Company covenants and agrees to give written notice of
any registration request under this Section 7.3 by any Holder or Holder(s) to
all other registered Holder(s) of the Warrants and the Warrant Securities within
ten (10) days from the date of the receipt of any such registration request.
(c) In addition to the registration rights under Section 7.2
and subsection (a) of this Section 7.3, at any time commencing after the date
hereof and expiring five (5) years after the date hereof, unless all of the
Warrants issued or issuable have been exercised and the Holders of the Warrant
Shares have received a written opinion of Company counsel, reasonably
satisfactory in form and substance to such Holders, to the effect that all of
the Warrant Shares are freely resaleable pursuant to Rule 144(k) promulgated
under the Act, any Holder of Warrants and/or Warrant Securities shall have the
right, exercisable by written request to the Company, to
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<PAGE> 6
have the Company prepare and file, on one occasion, with the Commission a
registration statement so as to permit a public offering and sale for nine (9)
consecutive months by any such Holder of its Warrant Securities, provided,
however, that the provisions of Section 7.4(b) hereof shall not apply to any
such registration request and registration and all costs incident thereto shall
be at the expense of the Holder or Holders making such request.
(d) Notwithstanding anything to the contrary contained herein,
the Company shall have the option to repurchase any and all Warrant Securities
at the Market Price per share of Common Stock on the date of the notice sent
pursuant to Section 7.3(a) less the Exercise Price of such Warrant. Such
repurchase shall be in immediately available funds and shall close within two
(2) days after the later of (i) the expiration of the period specified in
Section 7.4(a) or (ii) the delivery of the written notice of election specified
in this Section 7.3(d).
7.4 Covenants of the Company With Respect to Registration. In
connection with any registration under Section 7.2 or 7.3 hereof, the Company
covenants and agrees as follows:
(a) The Company shall use its best efforts to file a
registration statement within sixty (60) days of receipt of any demand therefor,
shall use its best efforts to have any registration statements declared
effective at the earliest possible time, and shall furnish each Holder desiring
to sell Warrant Securities such number of prospectuses as shall reasonably be
requested.
(b) The Company shall pay all costs (excluding fees and
expenses of Holder(s)' counsel and any underwriting or selling commissions),
fees and expenses in connection with all registration statements filed pursuant
to Sections 7.2 and 7.3(a) hereof including, without limitation, the Company's
legal and accounting fees, printing expenses, blue sky fees and expenses. The
Holder(s) will pay all costs, fees and expenses in connection with any
registration statement filed pursuant to Section 7.3(c).
(c) The Company will take all necessary action which may be
required in qualifying or registering the Warrant Securities included in a
registration statement for offering and sale under the securities or blue sky
laws of such states as reasonably are requested by the Holder(s), provided that
the Company shall not be obligated to execute or file any general consent to
service of process or to qualify as a foreign corporation to do business under
the laws of any such jurisdiction.
(d) The Company shall indemnify the Holder(s) of the Warrant
Securities to be sold pursuant to any registration statement and each person, if
any, who controls such Holders within the meaning of Section 15 of the Act or
Section 20(a) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), against all loss, claim, damage, expense or liability (including all
expenses reasonably incurred in investigating, preparing or defending against
any claim whatsoever) to which any of them may become subject under the Act, the
Exchange Act or otherwise, arising from such registration statement but only to
the same extent and with the same effect as the provisions pursuant to which the
Company has agreed to indemnify each of the Underwriters contained in Section 7
of the Underwriting Agreement.
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<PAGE> 7
(e) The Holder(s) of the Warrant Securities to be sold
pursuant to a registration statement, and their successors and assigns, shall
severally, and not jointly, indemnify the Company, its officers and directors
and each person, if any, who controls the Company within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act, against all loss, claim,
damage or expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which
they may become subject under the Act, the Exchange Act or otherwise, arising
from information furnished by or on behalf of such Holders, or their successors
or assigns, for specific inclusion in such registration statement to the same
extent and with the same effect as the provisions contained in Section 7 of the
Underwriting Agreement pursuant to which the Underwriters have agreed to
indemnify the Company.
(f) Nothing contained in this Agreement shall be construed as
requiring the Holder(s) to exercise their Warrants prior to the initial filing
of any registration statement or the effectiveness thereof.
(g) The Company shall not permit the inclusion of any
securities other than the Warrant Securities to be included in any registration
statement filed pursuant to Section 7.3 hereof, or permit any other registration
statement (other than a registration statement with respect to a merger,
acquisition or other business combination on Form S-4 or a registration pursuant
to Form S-8) to be or remain effective during the effectiveness of a
registration statement filed pursuant to Section 7.3 hereof, without the prior
written consent of the Holders of the Warrants and Warrant Securities
representing a Majority of such securities.
(h) The Company shall furnish to each of the Holders
participating in the offering and to each underwriter, if any, a signed
counterpart, addressed to such Holders or underwriter, of an opinion of counsel
to the Company, dated the effective date of such registration statement (and, if
such registration includes an underwritten public offering, an opinion dated the
date of the closing under the underwriting agreement), and shall use reasonable
efforts to furnish a "cold comfort" letter dated the effective date of such
registration statement (and, if such registration includes an underwritten
public offering, a letter dated the date of the closing under the underwriting
agreement) signed by the independent public accountants who have issued a report
on the Company's financial statements included in such registration statement,
in each case covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in the case of
such accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's counsel
and in accountants' letters delivered to underwriters in underwritten public
offerings of securities (it being understood that the opinion of issuer's
counsel need not include a negative assurance statement if the registration does
not include an underwritten public offering).
(i) The Company shall as soon as practicable after the
effective date of the registration statement, and in any event within 15 months
thereafter, make "generally available to its security holders" (within the
meaning of Rule 158 under the Act) an earnings statement (which need not be
audited) complying with Section 11(a) of the Act and covering a period of at
least 12 consecutive months beginning after the effective date of the
registration statement.
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<PAGE> 8
(j) The Company shall deliver promptly to each Holder
participating in the offering requesting the correspondence described below and
to the managing underwriters, copies of all correspondence between the
Commission and the Company, its counsel or auditors with respect to the
registration statement and permit each Holder and underwriter to do such
investigation, upon reasonable advance notice, with respect to information
contained in or omitted from the registration statement as it deems reasonably
necessary to comply with applicable securities laws or rules of the National
Association of Securities Dealers, Inc. ("NASD"). Such investigation shall
include access to books, records and properties and opportunities to discuss the
business of the Company with its officers and independent auditors, all to such
reasonable extent and at such reasonable times and as often as any such Holder
or underwriter shall reasonably request.
(k) In connection with an underwritten offering under Section
7.3, the Company shall enter into an underwriting agreement with the managing
underwriters selected for such underwriting by Holder(s) holding a Majority of
the Warrant Securities requested to be included in such underwriting, which may
be the Underwriters, which selection shall be subject to the Company's approval,
which shall not be unreasonably withheld. Such agreement shall be satisfactory
in form and substance to the Company, each Holder and such managing
underwriter(s), and shall contain such representations, warranties and covenants
by the Company and such other terms as are customarily contained in agreements
of that type used by the managing underwriter(s). The Holders shall be parties
to any underwriting agreement relating to an underwritten sale of their Warrant
Securities and may, at their option, require that any or all the
representations, warranties and covenants of the Company to or for the benefit
of such underwriter(s) shall also be made to and for the benefit of such
Holders. Such Holders shall not be required to make any representations or
warranties to or agreements with the Company or the underwriter(s) except as are
customarily made by selling securityholders in underwritten offerings.
(l) For purposes of this Agreement, the term "Majority" in
reference to the Holder(s) of Warrants or Warrant Securities, shall mean in
excess of fifty percent (50%) of the then outstanding Warrants or Warrant
Securities that (i) are not held by the Company, an affiliate, officer,
creditor, employee or agent thereof or any of their respective affiliates,
members of their family, persons acting as nominees or in conjunction therewith
and (ii) have not been resold to the public pursuant to a registration statement
filed with the Commission under the Act.
8. Adjustments to Exercise Price and Number of Securities.
8.1 Subdivision and Combination. In case the Company shall at any
time subdivide or combine the outstanding shares of Common Stock, the Exercise
Price shall forthwith be proportionately decreased in the case of subdivision or
increased in the case of combination.
8.2 Stock Dividends and Distributions. In case the Company shall pay
a dividend in, or make a distribution of, shares of Common Stock or of the
Company's capital stock convertible into Common Stock, the Exercise Price shall
forthwith be proportionately decreased. An adjustment made pursuant to this
Section 8.2 shall be made as of the record date for the subject stock dividend
or distribution.
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8.3 Adjustment in Number of Securities. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Section 8, the number of
Warrant Securities issuable upon the exercise at the adjusted exercise price of
each Warrant shall be adjusted to the nearest whole number by multiplying a
number equal to the Exercise Price in effect immediately prior to such
adjustment by the number of Warrant Securities issuable upon exercise of the
Warrants immediately prior to such adjustment and dividing the product so
obtained by the adjusted Exercise Price.
8.4 Definition of Common Stock. For the purpose of this Agreement,
the term "Common Stock" shall mean (i) the class of stock designated as Common
Stock in the Restated Certificate of Incorporation of the Company as may be
amended as of the date hereof, or (ii) any other class of stock resulting from
successive changes or reclassifications of such Common Stock consisting solely
of changes in par value, or from par value to no par value, or from no par value
to par value.
8.5 Merger or Consolidation. In case of any consolidation of the
Company with, or merger of the Company with, or merger of the Company into,
another corporation (other than a consolidation or merger which does not result
in any reclassification or change of the outstanding Common Stock), the
corporation formed by such consolidation or merger shall execute and deliver to
the Holders a supplemental warrant agreement providing that the holder of each
Warrant then outstanding or to be outstanding shall have the right thereafter
(until the expiration of such Warrant) to receive, upon exercise of such
Warrant, the kind and amount of shares of stock and other securities and
property receivable upon such consolidation or merger, by a holder of the number
of shares of Common Stock of the Company for which such Warrant might have been
exercised immediately prior to such consolidation, merger, sale or transfer.
Such supplemental warrant agreement shall provide for adjustments which shall be
identical to the adjustments provided in Section 8. The above provision of this
subsection shall similarly apply to successive consolidations or mergers.
8.6 No Adjustment of Exercise Price in Certain Cases. No adjustment
of the Exercise Price shall be made:
(a) Upon the issuance or sale of the Warrants or the shares of
Common Stock issuable upon the exercise of the Warrants;
(b) If the amount of said adjustment shall be less than two
cents (2(cent)) per Warrant Security, provided, however, that in such case any
adjustment that would otherwise be required then to be made shall be carried
forward and shall be made at the time of and together with the next subsequent
adjustment which, together with any adjustment so carried forward, shall amount
to at least two cents (2(cent)) per Warrant Security.
9. Exchange and Replacement of Warrant Certificates. Each Warrant
Certificate is exchangeable without expense, upon the surrender thereof by the
registered Holders at the principal executive office of the Company, for a new
Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Warrant Securities in such denominations as
shall be designated by the Holders thereof at the time of such surrender.
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Upon receipt by the Company of evidence reasonably satisfactory
to it of the loss, theft, destruction or mutilation of any Warrant Certificate,
and, in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
10. Elimination of Fractional Interests. The Company shall not be
required to issue certificates representing fractions of shares of Common Stock
upon the exercise of the Warrants, nor shall it be required to issue scrip or
pay cash in lieu of fractional interests, it being the intent of the parties
that all fractional interests shall be eliminated by rounding any fraction up to
the nearest whole number of shares of Common Stock or other securities,
properties or rights.
11. Reservation and Listing of Securities. The Company shall at all
times reserve and keep available out of its authorized shares of Common Stock,
solely for the purpose of issuance upon the exercise of the Warrants, such
number of shares of Common Stock or other securities, properties or rights as
shall be issuable upon the exercise thereof. The Company covenants and agrees
that, upon exercise of the Warrants and payment of the Exercise Price therefor,
all shares of Common Stock and other securities issuable upon such exercise
shall be duly and validly issued, fully paid, non-assessable and not subject to
the preemptive rights of any stockholder. As long as the Warrants shall be
outstanding, the Company shall use its best efforts to cause all shares of
Common Stock issuable upon the exercise of the Warrants to be listed (subject to
official notice of issuance) on all securities exchanges on which the Common
Stock issued to the public in connection herewith may then be listed and/or
quoted.
12. Notices to Warrant Holders. Nothing contained in this Agreement
shall be construed as conferring upon the Holders the right to vote or to
consent or to receive notice as a stockholder in respect of any meetings of
stockholders for the election of directors or any other matter, or as having any
rights whatsoever as a stockholder of the Company. If, however, at any time
prior to the expiration of the Warrants and their exercise, any of the following
events shall occur:
(a) the Company shall take a record of the holders of its
shares of Common Stock for the purpose of entitling them to receive a dividend
or distribution payable otherwise than in cash, or a cash dividend or
distribution payable otherwise than out of current or retained earnings, as
indicated by the accounting treatment of such dividend or distribution on the
books of the Company; or
(b) the Company shall offer to all the holders of its Common
Stock any additional shares of capital stock of the Company or securities
convertible into or exchangeable for shares of capital stock of the Company, or
any option, right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety shall be
proposed;
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then, in any one or more of said events, the Company shall give written notice
of such event at least fifteen (15) days prior to the date fixed as a record
date or the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notice shall specify
such record date or the date of closing the transfer books, as the case may be.
Failure to give such notice or any defect therein shall not affect the validity
of any action taken in connection with the declaration or payment of any such
dividend, or the issuance of any convertible or exchangeable securities, or
subscription rights, options or warrants, or any proposed dissolution,
liquidation, winding up or sale.
13. Notices.
All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made and
sent when delivered, or mailed by registered or certified mail, return receipt
requested:
(a) If to the registered Holders of the Warrants, to the
address of such Holders as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 3
hereof or to such other address as the Company may designate by notice to the
Holders.
14. Supplements and Amendments. The Company and the Underwriters may
from time to time supplement or amend this Agreement without the approval of any
Holders of Warrant Certificates (other than the Underwriters) in order to cure
any ambiguity, to correct or supplement any provision contained herein which may
be defective or inconsistent with any provisions herein, or to make any other
provisions in regard to matters or questions arising hereunder which the Company
and the Underwriters may deem necessary or desirable and which the Company and
the Underwriters deem shall not adversely affect the interests of the Holder(s)
of Warrant Certificates.
15. Successors. All the covenants and provisions of this Agreement
shall be binding upon and inure to the benefit of the Company, the Holder(s) and
their respective successors and assigns hereunder, so long as any successor or
assignee of a Holder becomes a registered holder of a Warrant Certificate.
16. Termination. This Agreement shall terminate at the close of
business on June ___, 2005. Notwithstanding the foregoing, the indemnification
provisions of Section 7 shall survive such termination until the close of
business on June ___, 2011.
17. Governing Law; Submission to Jurisdiction. This Agreement and
each Warrant Certificate issued hereunder shall be deemed to be a contract made
under the laws of the State of New York and for all purposes shall be construed
in accordance with the laws of said State without giving effect to the rules of
said State governing the conflicts of laws.
The Company, the Underwriters and the Holders hereby agree that
any action, proceeding or claim against it arising out of, or relating in any
way to, this Agreement shall be
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brought and enforced in the courts of the State of New York or of the United
States of America for the Southern District of New York, and irrevocably submits
to such jurisdiction, which jurisdiction shall be exclusive. The Company, the
Underwriters and the Holders hereby irrevocably waive any objection to such
exclusive jurisdiction or inconvenient forum. Any such process or summons to be
served upon any of the Company, the Underwriters and the Holders (at the option
of the party bringing such action, proceeding or claim) may be served by
transmitting a copy thereof, by registered or certified mail, return receipt
requested, postage prepaid, addressed to it at the address set forth in Section
13 hereof. Such mailing shall be deemed personal service and shall be legal and
binding upon the party so served in any action, proceeding or claim. The
Company, the Underwriters and the Holders agree that the prevailing party(ies)
in any such action or proceeding shall be entitled to recover from the other
party(ies) all of its/their reasonable legal costs and expenses relating to such
action or proceeding and/or incurred in connection with the preparation
therefor.
18. Entire Agreement; Modification. This Agreement (including the
Underwriting Agreement to the extent portions thereof are referred to herein)
contains the entire understanding between the parties hereto with respect to the
subject matter hereof and may not be modified or amended except by a writing
duly signed by the party against whom enforcement of the modification or
amendment is sought.
19. Severability. If any provision of this Agreement shall be held to
be invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provision of this Agreement.
20. Captions. The caption headings of the Sections of this Agreement
are for convenience of reference only and are not intended, nor should they be
construed as, a part of this Agreement and shall be given no substantive effect.
21. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and the
Underwriters and any other registered Holder(s) of the Warrant Certificates or
Warrant Securities any legal or equitable right, remedy or claim under this
Agreement; and this Agreement shall be for the sole benefit of the Company and
the Underwriters and any other registered Holder(s) of Warrant Certificates or
Warrant Securities.
22. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed, as of the day and year first above written.
INTERVU INC.
By:___________________________________________
Name: Harry E. Gruber
Title: Chairman and Chief Executive Officer
Attest:
JOSEPHTHAL & CO. INC.
By:___________________________________________
Name:
Title:
CRUTTENDEN ROTH INCORPORATED
By:___________________________________________
Name:
Title:
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<PAGE> 14
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER THE ACT (OR ANY
SIMILAR RULE UNDER THE ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii)
AN OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO
COUNSEL FOR THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER THE ACT IS
AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M., NEW YORK TIME, JUNE __, 2003
No. W- Warrants to Purchase
_______ Shares of Common Stock
WARRANT CERTIFICATE
This Warrant Certificate certifies that ___________, or
registered assigns, is the registered holder of Warrants to purchase initially,
at any time from June __, 1999 until 5:30 p.m. New York time on June __, 2003
("Expiration Date"), up to ______________________ fully-paid and non-assessable
shares of common stock, par value $.001 per share ("Common Stock"), of INTERVU
INC., a Delaware corporation (the "Company"), (one share of Common Stock
referred to individually as a "Security" and collectively as the "Securities")
at the initial exercise price, subject to adjustment in certain events (the
"Exercise Price"), of $_____ per share of Common Stock upon surrender of this
Warrant Certificate and payment of the Exercise Price at an office or agency of
the Company, but subject to the conditions set forth herein and in the warrant
agreement dated as of June __, 1998 among the Company, JOSEPHTHAL & CO. INC. and
CRUTTENDEN ROTH INCORPORATED (the "Warrant Agreement"). Payment of the Exercise
Price shall be made by certified or official bank check in New York Clearing
House funds payable to the order of the Company.
No Warrant may be exercised after 5:30 p.m., New York time, on
the Expiration Date, at which time all Warrants evidenced hereby, unless
exercised prior thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a
duly authorized issue of Warrants issued pursuant to the Warrant Agreement,
which Warrant
<PAGE> 15
Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to for a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the Company and the
holder(s) (the words "holder" or "holder(s)" meaning the registered holder or
registered holder(s)) of the Warrants.
The Warrant Agreement provides that upon the occurrence of
certain events the Exercise Price and the type and/or number of the Company's
securities issuable thereupon may, subject to certain conditions, be adjusted.
In such event, the Company will, at the request of the holder, issue a new
Warrant Certificate evidencing the adjustment in the Exercise Price and the
number and/or type of securities issuable upon the exercise of the Warrants;
provided, however, that the failure of the Company to issue such new Warrant
Certificates shall not in any way change, alter, or otherwise impair, the rights
of the holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement, without any charge except for any tax or other governmental charge
imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by
this Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as
the absolute owner(s) of this Warrant Certificate (notwithstanding any notation
of ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in
the Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
2
<PAGE> 16
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed under its corporate seal.
Dated as of June __, 1998
INTERVU INC.
[SEAL] By:____________________________________
Name: Harry E. Gruber
Title: Chairman and Chief
Executive Officer
Attest:
________________________________
Secretary
3
<PAGE> 17
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase:
[ ] _______________ shares of Common Stock;
and herewith tenders in payment for such securities a certified or official bank
check payable in New York Clearing House Funds to the order of InterVU Inc. in
the amount of $_________, all in accordance with the terms of Section 3.1 of the
Advisors' Warrant Agreement dated as of June __, 1998 among InterVU Inc.,
Josephthal & Co. Inc. and Cruttenden Roth Incorporated. The undersigned requests
that a certificate for such securities be registered in the name of
____________________________ whose address is _______________________ and that
such Certificate be delivered to__________________ whose address is
__________________________.
Dated:
Signature___________________________________
(Signature must conform in all
respects to name of holder as
specified on the face of the Warrant
Certificate.)
____________________________________________
(Insert Social Security or Other Identifying
Number of Holder)
4
<PAGE> 18
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.2]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase:
[ ] _______________ shares of Common Stock;
and herewith tenders in payment for such securities ________________ Warrants
all in accordance with the terms of Section 3.2 of the Advisors' Warrant
Agreement dated as of June __, 1998 among InterVU Inc., Josephthal & Co. Inc.
and Cruttenden Roth Incorporated. The undersigned requests that a certificate
for such securities be registered in the name of__________________whose address
is ____________________ and that such Certificate be delivered to
________________________ whose address is _____________________________.
Dated:
Signature___________________________________
(Signature must conform in all
respects to name of holder as
specified on the face of the Warrant
Certificate.)
____________________________________________
(Insert Social Security or Other Identifying
Number of Holder)
5
<PAGE> 19
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED _____________________ hereby sells, assigns and
transfers unto
______________________________________________________________________________
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint ___________________ Attorney,
to transfer the within Warrant Certificate on the books of the within-named
Company, with full power of substitution.
Dated:_________________
Signature:__________________________________
(Signature must conform in all
respects to name of holder as
specified on the face of the Warrant
Certificate.)
____________________________________________
(Insert Social Security or Other Identifying
Number of Assignee)
6
<PAGE> 1
EXHIBIT 5.1
[LATHAM & WATKINS LETTERHEAD]
June 15, 1998
InterVU Inc.
6815 Flanders Drive
San Diego, California 92121
Re: Registration Statement on Form S-1, File No. 333-51587;
1,380,000 Shares of Common Stock, Par Value $.001 Per Share
Ladies and Gentlemen:
In connection with the registration by InterVU Inc., a Delaware
corporation (the "Company"), of 1,380,000 shares of common stock of the Company,
par value $.001 per share (the "Shares"), under the Securities Act of 1933, as
amended (the "Act"), on a Registration Statement on Form S-1 filed with the
Securities and Exchange Commission (the "Commission") on May 1, 1998 (File No.
333-51587), as amended by Amendment No. 1 filed with the Commission on May 6,
1998, Amendment No. 2 filed with the Commission on May 20, 1998, Amendment
No. 3 filed with the Commission on June 8, 1998 and Amendment No. 4 filed with
the Commission on June 15, 1998 (collectively, the "Registration Statement"),
you have requested our opinion with respect to the matters set forth below.
In our capacity as your counsel in connection with such
registration, we are familiar with the proceedings taken by the Company in
connection with the authorization, issuance and sale of the Shares, and for the
purposes of this opinion, have assumed such proceedings will be timely completed
in the manner presently proposed. In addition, we have made such legal and
factual examinations and inquiries, including an examination of originals or
copies certified or otherwise identified to our satisfaction of such documents,
corporate records and instruments, as we have deemed necessary or appropriate
for purposes of this opinion.
In our examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, and
the conformity to authentic original documents of all documents submitted to us
as copies.
<PAGE> 2
InterVU Inc.
June 15, 1998
Page 2
We are opining herein as to the effect on the subject transaction
only of the General Corporation Law of the State of Delaware, and we express no
opinion with respect to the applicability thereto, or the effect thereon, of the
laws of any other jurisdiction or any other laws, or as to any matters of
municipal law or the laws of any other local agencies within the state.
Subject to the foregoing, it is our opinion that the Shares have
been duly authorized, and, upon issuance, delivery and payment therefor in the
manner contemplated by the Registration Statement, will be validly issued, fully
paid and nonassessable.
We consent to your filing this opinion as an exhibit to the
Registration Statement and to the reference to our firm contained under the
heading "Legal Matters."
Very truly yours,
/s/ LATHAM & WATKINS
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Financial Data" and "Experts" and to the use of our report dated February 19,
1998, in Amendment No. 4 to the Registration Statement on Form S-1 (File No.
333-51587) and related Prospectus of InterVU Inc. (a development stage company)
for the registration of 1,380,000 shares of its common stock.
ERNST & YOUNG LLP
June 12, 1998
San Diego, California
