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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
COMMISSION FILE NO. 000-23361
INTERVU INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
DELAWARE 33-0680870
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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201 LOMAS SANTA FE DRIVE, SOLANA BEACH CA 92075
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (619) 350-1600
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK (PAR VALUE $.001 PER SHARE)
(TITLE OF CLASS)
Indicate by check mark whether Registrant (1) has filed all reports to be
filed by section 13 or 15(d) of the Securities Act of 1934 during the preceding
12 months ( or for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to item
405 of Regulation S-K is not contained herein, and will not be contained , to
the best of the Registrant's knowledge, in a definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this form 10-K. [X]
The aggregate market value of Common Stock held by non-affiliates of the
Registrant on February 27, 1998 was $38,199,832 based on a average of the high
and low sales for the Common Stock on such date. For purposes of this
computation, all executive officers and directors have been deemed to be
affiliates. Such determination should not be deemed to be an admission that such
executive officers and directors are, in fact, affiliates of the Registrant.
The number of shares outstanding of the Registrant's Common Stock on
February 27, 1998 was 9,377,404.
DOCUMENTS INCORPORATED BY REFERENCE
The information called for in Part III is incorporated by reference to the
definitive Proxy Statement for the Annual Meeting of Stockholders of the Company
to be held June 22, 1998, which will be filed with the Securities and Exchange
Commission not later than 120 days after January 1, 1998.
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FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains certain "forward-looking"
statements within the meaning of the Private Securities Litigation Reform Act of
1995 which provides a new "safe harbor" for these types of statements. To the
extent statements in this Annual Report involve, without limitation, the
Company's expectations for growth, estimates of future revenue, expenses,
profit, cash flow, balance sheet items or any other guidance on future periods,
these statements are forward-looking statements. These risks and uncertainties
include those identified in this Form 10-K in Item 1 - "Business - Factors That
May Affect Future Performance" and other risks identified for time to time in
the Company's filing with the Securities and Exchange Commission, press releases
and other communications. The Company assumes no obligation to update
forward-looking statements.
PART I
ITEM 1. BUSINESS
INTRODUCTION
InterVU Inc. (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. Unlike traditional Web site
based video delivery solutions, the Company's system moves the video delivery
mechanism away from the owner's Web site and on to the Company's network of
specialized video servers strategically situated on the InterVU Network(TM). The
Company's proprietary approach allows the Company to deliver video quickly to
end-users and allows Web site owners and advertisers to provide video on the
Internet without having to invest in costly hardware and software or to maintain
a staff of employees with video delivery expertise.
InterVU's technologies decrease the time required for video transmission
over the Internet. The InterVU Network is made up of specialized video servers
which have been strategically situated on the Internet and which have been
designed to deliver video quickly to the greatest number of end-users. Among
other things, InterVU's All Eyes(TM) and EyeQ(TM) technologies allow end-users
to view video in a variety of digital encoding formats regardless of the
specific hardware or software end-users might have. Other innovations, such as
the Company's InstaVU video player software, allow real-time multimedia
transmissions to end-users using 28.8 Kbps or faster modems over the Internet.
The Company believes that the long wait time traditionally associated with video
transmission over the Internet is one of the primary barriers to widespread
adoption of Internet video. As a result, the Company believes that its
technological solutions could play a significant role in increasing Internet
video use.
The Company's target customers are the increasing number of Web site owners
that seek a means of adding video presentations to their Web pages in an easily
implemented and cost effective manner and advertisers that wish to incorporate
video into banners and other Internet advertisements. The Company believes that
multimedia-rich Web sites, capable of delivering high quality video content
quickly to the end-user, can generate significant marketing differentiation and
"top of mind" awareness in consumer buying decisions. Web site owners that have
used the Company's services include NBC Multimedia, Major League Baseball, CNN,
Intel, the Lifetime Television Network (Hearst/ABC-Viacom Entertainment
Service), Yachting Magazine (Times Mirror Magazines), Turner Classic Movies
(Turner Broadcasting System), Court TV, Speedvision Online (Cable Network
Services) and NET-Political Talk. The Company's video banner advertising
technology, V-Banner(TM) has 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 IntelliTrip.com site, and Tabasco, on the E!Online site.
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As part of the Company's strategy to provide video delivery services to the
top tier of Internet multimedia content sites, in October 1997 the Company
entered into a strategic alliance with NBC Multimedia. Pursuant to the strategic
alliance, the Company became the exclusive provider of technology and services
for the distribution of certain NBC entertainment audio/video content by means
of NBC Web sites on the Internet. Pursuant to the Strategic Alliance Agreement
between the Company and NBC Multimedia, the Company will store NBC entertainment
audio/visual content on the InterVU Network and transmit such content to
end-users via the Internet at their request. See "-Strategic Alliance with NBC
Multimedia."
The Company offers its services to Web site owners and advertisers for fees
based on the volume of video content delivered, for flat fees or for a
combination thereof. The Company expects to generate additional revenues in the
future from selling advertising space on Web pages when Web site owners offer
such space on their pages in exchange for a sharing of fees or for video
encoding and delivery services performed by the Company. The Company also
generally charges its customers fees for encoding analog video into digital form
for transmission over the Internet.
INDUSTRY BACKGROUND
Growth of Internet Usage and Content. The Internet and many Internet
software, hardware and service providers have experienced dramatic growth over
the last three years. Unprecedented commercial and end-user interest in the
Internet has been spurred by the introduction of key technologies including Web
browsers and powerful search engines. These technologies, along with consistent
usage of 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.
Existing Internet Video Technologies. Until recently, Internet video
delivery has been of low quality and slow speed due to traffic congestion on the
Internet and the limitations of video server storage and delivery resources,
desktop storage capabilities and desktop processing power available for video
decoding and playback. As a result, most commercial Web site owners have been
reluctant to employ video on their sites and most advertisers have been
reluctant to add video to their advertisements because existing technologies
have not provided sufficient quality and cost-effective results.
The primary barrier to achieving interactive video delivery over the
Internet is a function of the large size of video files relative to standard
hypertext markup language ("HTML") data files. The large size of video files
exacerbates four distinct challenges to quality, high speed delivery: (i)
transmission time delays from Web server to end-user which are due to the
Internet's infrastructure, (ii) the capacity of the end-user's modem, (iii)
logistical problems and costs attendant to maintaining video delivery at the Web
site, and (iv) the potential for overloading a Web site owner's host 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 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
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believes that video delivered from single sites will continue to be subject to
delays associated with transmission of such video over the Internet.
THE INTERVU SOLUTION
Unlike companies that have introduced video delivery mechanisms requiring a
Web site owner to purchase proprietary software and hardware in order to deliver
video from a single site, InterVU has moved the video delivery mechanism away
from the owner's Web site and 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 use a variety of codecs with the
assurance that such codecs will be compatible with most platforms, browsers and
software players an end-user may be utilizing. The InterVU Network is also
scalable which will allow the Company to accommodate additional content from
customers as demand increases. In addition, the InterVU Network is Internet
connection independent, which allows the Company to support a variety of
telecommunication, cable, wireless and intranet solutions in order to maximize
the number of end-users who may wish to view video messages. The InterVU Network
provides high throughput delivery of video messages to end-users through the
Internet over a range of connection speeds (ranging from 28.8 Kbps modems to
cable modems).
The Company also has developed its own video player software, InstaVU(TM),
to improve end-users' viewing experiences. Among other things, InstaVU provides
users with a preview of the full video in the form of a slide show synchronized
to real-time audio that plays during the download of the remainder of the video
file to the end-user's personal computer.
STRATEGY
The Company's objective is to leverage its technology and market focus to
become a leading Internet video delivery company. The Company's strategy
includes the following key elements:
Achieve Significant Market Penetration and Promote Market Expansion. The
Company intends to attract and retain Web site owners with significant video
delivery volume requirements in the sports, entertainment,
information/education, advertising and sales promotions and Internet video
product sales industries. By using the InterVU Network, Web site owners and
advertisers can deliver video without the start-up costs associated with
software and hardware and the recurring maintenance costs associated with
delivering video from one delivery site. As part of the Company's strategy to
provide video delivery services to the top tier of Internet multimedia content
sites, in October 1997 the Company entered into a strategic alliance with NBC
Multimedia. Pursuant to the strategic alliance, the Company became the exclusive
provider of technology and services for the distribution of most NBC
entertainment audio/video content by means of NBC Web sites on the Internet. The
Company also has begun to develop relationships with Web site developers to
increase awareness of the Company's services. Web site developers, in turn, will
be able to use the Company's video delivery technology to expand their product
offerings to Web site owners. The Company's sales force 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. In addition,
the Company intends to develop strategic alliances with leading advertising
agencies to promote video advertising over the Internet. One such alliance was
announced in January 1998 when InterVU and MatchLogic, Inc. ("MatchLogic"), a
leading on-line advertising management company, introduced trueVU(TM), a service
which teams the speed and capacity of the InterVU Network with MatchLogic's
targeting technology to serve, monitor and measure advertising traffic.
Maintain Technological Leadership. The Company's strategy is to continue to
develop advanced technological solutions to increase the speed and quality of
Internet video delivery. The Company continually works to develop its
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proprietary InterVU Network to further reduce the number of network bottlenecks
that video content must traverse before it reaches the end-user. The Company
also seeks to refine, among other things, its Smart Mirror(TM) technology, All
Eyes software, InstaVU video player and EyeQ software, which together deliver
video to the end user from the "electronically closest" server, increase the
number of end-users a Web site owner or advertiser can reach with its video
content and improve end-users' video viewing experience. The Company intends to
extend the functionality and uses of its core video delivery technologies by
continuing to invest in research and development.
Offer Full-Service Approach to Video Delivery. The Company's strategy is to
offer Web site owners and advertisers a simple, cost-effective method of adding
video to their Internet presentations. The Company's network approach allows
customers to display video on the Internet without having to invest in hardware
and software or to hire a staff to establish and maintain a system for video
delivery. Instead, the Company offers a simple, turn-key solution for video
delivery. Customers need only send the Company video tapes containing video to
be included on their Web sites and the Company will place the video on the
InterVU Network and establish a link between the customer's Web site or
advertisement site and the InterVU Network. Upon the request of an end-user at a
participating Web site, the Company's network transmits video messages directly
to the viewer.
Live Broadcast Capabilities. The Company's strategy is to offer remote video
encoding and integration services for live Internet broadcast events. Increasing
numbers of Web-site owners are seeking to integrate live broadcast video events
with other web content. Live broadcast events require real-time encoding of
video content to be streamed to the viewer's desktop. The Company offers on-site
encoding for live events which are delivered from the InterVU Network. The
Company has encoded and delivered several live events, including the Golden
Globe Awards and New Year's Eve in Times Square.
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. In February 1998, the
Company began actively marketing a CD-Rom version of its EyeQ software for both
PC and MAC. Previously available only by download, customers may now purchase
EyeQ online for a nominal fee. The Company believes the introduction of the EyeQ
CD-Rom product will increase consumer and Web-site owner awareness of the
Company's products and services.
TECHNOLOGY OVERVIEW
The Company has designed the InterVU Network to meet the needs of Web site
owners and advertisers who wish to deliver video content over the Internet. The
Company believes that the InterVU Network provides an attractive service to Web
site owners and advertisers by accelerating video transmission and reception
times and by providing a method to incorporate video presentations into Web
pages easily and in a cost-effective manner. InterVU's technology is based on a
proprietary software operating system which links a distributed network of
servers, using open communication standards and commercially available
components. The use of open standards allows the Company to accommodate a
variety of customer hardware and software configurations.
Network Solution. The InterVU Network and the Company's Virtual URL(TM)
technology allow Web site owners and advertisers to provide video content to
end-users without the costs and inconvenience usually associated with video on
the Internet. Instead of managing large video files and maintaining expensive
hardware, Web site owners and advertisers deliver video directly to the Company.
The Company then digitizes the video and places it on the InterVU Network. To an
end-user visiting a Web site, the video appears to come from the Web site
because of
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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 along the Internet provides significant
advantages in video delivery. The InterVU Network is designed to ensure that
once an end-user requests video from a Web site, the video is transmitted from
the server on the InterVU Network that can deliver the data most quickly. This
result is achieved through the use of the Company's proprietary Smart Mirror
technology. The InterVU Network helps users bypass bottlenecks on the Internet
by determining which of its servers is electronically closest to the end-user
and sending the video from that location.
Another significant component of the Company's video delivery system is the
Fast Track Network Analyzer, which allows end-users to optimize video delivery
performance. The Fast Track Analyzer "polls" selected servers on the InterVU
Network to determine which server will provide the end-user with the best
overall video performance. From information based on end-users who have
downloaded InterVU's Fast Track 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
identify and integrate the services of nine providers (UUNET, Bell Technology
Group, TCG Cerfnet, DIGEX, Exodus, GTE, GlobalCenter, IXL and SuperNet) to offer
distributed, high performance video delivery.
Optimizing and Managing the InterVU Network Servers. The servers on the
InterVU Network consist of a title manager and multiple video pumps which are
designed to optimize and manage the delivery of video over the Internet. The
video pumps are computers that have been customized to accelerate video
delivery. The title manager optimizes the amount of replication of video content
on each video pump and directs end-users' requests for video content to the
video pump capable of responding most quickly to the request.
Reaching Maximum End-Users. The Company has designed its proprietary All
Eyes software to allow its customers to reach almost all end-users, regardless
of the video player software used. All Eyes is an intelligent software
application written in the Java and JavaScript programming language that
determines the capabilities of the end-user's software and ensures that any
video sent out can be played by the end-user's video player software. Even
end-users with no multimedia capabilities will usually receive a graphic image,
instead of a broken icon signifying the presence of content that they cannot
see. By contrast, traditional methods of video delivery limit the number of
end-users able to view video content to those who have the appropriate software
for a specific encoding format. In addition, All Eyes is designed to deliver
video in the appropriate format even if the end-user has not downloaded any
InterVU software.
End-User Software Technologies. InterVU's EyeQ multimedia manager software
package includes the Company's InstaVU and MPEG video players, as well as a
software utility called Get Smart. InstaVU allows multimedia streaming on a 28.8
Kbps or faster modem. The InstaVU multimedia streaming algorithm displays a
pre-selected slide show of video frames at the same time as real-time audio
while the remainder of the video is downloaded to the end-user's computer for
subsequent viewings. Get Smart installs and manages the EyeQ multimedia software
and keeps end-users' computers current with other multimedia software players,
such as Microsoft NetShow, Vivo, VDO, Apple QuickTime, and VXtreme Web Theatre
to take advantage of InterVU's service. With a single mouse click, Get Smart
downloads and installs software updates to the end-user's computer from the
Internet.
CUSTOMER SERVICES
The Company employs a full service approach to providing its video delivery
services which includes (i) ease of integration of video content into Web
presentations, (ii) encoding services, including remote encoding for live
events, (iii) network distribution, hosting and delivery and (iv) usage reports
providing delivery volume and other data.
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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.
To allow Web site owners and advertisers to more easily integrate video
into Web sites, InterVU has developed the V-Banner, which turns the ordinary
Internet advertising banner into a video display. With V-Banners, advertisers
can provide real time video and audio through their advertising banners instead
of just a few static pictures. The Company believes that it is currently the
only company to offer banners that include video. The Company has incorporated
its All Eyes technology into its V-Banners to make them compatible with most
video players currently used by end-users. As a result, the Company offers its
advertising customers the ability to reach a wide variety of end-users with
their video advertisements. The Company can create V-Banners using video
supplied by its customers in digital or analog format.
When using the Company's video delivery services, Web site owners may
digitize and compress video messages themselves or send analog VHS or Beta tapes
to InterVU for encoding services using a variety of different codec formats. All
major codec standards, such as MPEG, Quicktime, AVI, Vivo, RealPlayer, and
Microsoft Net Show are supported by InterVU. The Company also offers its InstaVU
format, an advanced digital encoding technique specifically designed for the
delivery of enjoyable, high quality audio and video messages. Customers' video
files are dynamically balanced to provide high quality video and audio, full
audio/video synchronization and flexible encoding rates to match specific
requirements.
STRATEGIC ALLIANCE WITH NBC MULTIMEDIA
In October 1997 the Company entered into a strategic alliance with NBC
Multimedia. Pursuant to the strategic alliance, the Company became the exclusive
provider of technology and services for the distribution of certain NBC
entertainment audio/video content by means of NBC Web sites on the Internet.
Under the Strategic Alliance Agreement between the Company and NBC Multimedia,
the Company will store NBC entertainment audio/video content on the InterVU
Network servers and transmit this content to users via the Internet in response
to requests from end-users.
NBC Multimedia has agreed to use commercially reasonable efforts to promote
the Company and the InterVU Network in connection with Internet advertising
promotions involving the Company's dissemination of NBC entertainment
audio/video content. NBC Multimedia has reserved the right to determine, in its
reasonable discretion, when such promotion of the Company is appropriate. The
Company has agreed to include in the Company's EyeQ multimedia manager an "NBC"
icon that links end-users to the NBC Web site. The Company and NBC Multimedia
also have agreed to place links on their Web sites connecting end-users with the
other party's site. In addition, NBC Multimedia has agreed to use commercially
reasonable efforts to introduce the Company to the television stations
associated with the NBC Television Network and to refer other programming
opportunities for the Internet to the Company, all to the extent that NBC
Multimedia reasonably deems appropriate. NBC Multimedia would receive a 10%
commission for each such referral.
Under the Strategic Alliance Agreement, the Company will receive 30% of
NBC's net revenues from advertisements on a new area to be placed on the
"NBC.com" Web site that will contain, among other things, the NBC audio/video
content (the "Revenue Sharing Area"). If NBC receives advertising space or other
barter in return for placing advertisements in the Revenue Sharing Area, NBC
will allocate 30% of bartered advertising space to InterVU or make available an
equivalent amount of space on one or more Internet sites controlled by NBC. NBC
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Multimedia may opt out of revenue sharing by paying for the Company's video
delivery services at rates at least as favorable as the most favorable rates
offered by the Company to third parties, other than special promotional rates.
NBC Multimedia will reimburse the Company for the costs incurred by the Company
in connection with the delivery of audio/video content, provided that NBC
Multimedia will not reimburse the Company for any costs in excess of $10,000 per
month that it has not expressly approved.
The Strategic Alliance Agreement provides for an exclusive term of two
years that will automatically extend to four years if certain cost and revenue
goals to be mutually agreed upon in the future are established and met. The
Company's exclusive rights to deliver NBC content from NBC Web sites do not
apply to sports, news or other non-entertainment programs, nor do they apply to
video clips of less than five seconds in length. NBC Multimedia also has
reserved the right to permit other companies to distribute NBC video content
from Web sites and areas not controlled by NBC.
As consideration for the strategic alliance, the Company issued to NBC
1,280,000 shares of the Company's Series G Preferred pursuant to the Preferred
Stock Purchase Agreement (the "Purchase Agreement"). These shares represented
approximately 10% of the Company's outstanding capital stock prior to the
Company's initial public offering in November 1997 (the "IPO"). The Company has
granted NBC rights to include shares of Common Stock issuable upon conversion of
the Series G Preferred in certain future registrations of the Company's Common
Stock, as well as the right to demand on one occasion only that the Company
register such shares of Common Stock after the Company becomes eligible to use
Form S-3 under the Act. NBC has agreed that neither it, nor its affiliates, will
acquire or seek to acquire any of the Company's securities for a period of one
year from October 10, 1997, the date of the Purchase Agreement.
NBC Multimedia purchased, in a direct offering concurrent with the IPO,
210,526 shares of the Company's Common Stock for $2,000,000 (the "Direct
Offering"). After the consummation of the IPO and the Direct Offering, NBC
Multimedia and NBC together own approximately 10.8% of the outstanding shares of
capital stock of the Company.
The Company is obligated to pay to NBC Multimedia a total of $2,000,000 in a
series of non-refundable payments over the three calendar quarters following the
Direct Offering (the "Prepayments") as payment for the costs of producing and
operating the Revenue Sharing Area (the "Production Costs") and the costs of
advertising and promotions to be placed by the Company on Web sites controlled
by NBC ("InterVU Advertising"). The first payment in the amount of $750,000 was
paid upon the completion of the Direct Offering. Production costs may include,
but shall not be limited to, costs related to NBC Multimedia's personnel costs,
out-of-pocket costs, costs for content needed for the Revenue Sharing Area,
reasonable allocated overhead costs and a management fee to be paid to NBC in
return for its services equal to 20% of all production and operating costs. The
Company would be charged for InterVU Advertising at NBC Multimedia's customary
rates and would be responsible for the expenses related to placing the
advertising on the designated Web site. The Company would not be permitted to
post InterVU Advertising at any time that advertising space were unavailable or
if all of the amounts paid by the Company to NBC already had been allocated to
Production Costs.
During the exclusive term, NBC Multimedia may terminate the Strategic
Alliance Agreement without cause by giving 90 days written notice to the Company
and returning 600,000 shares of Series G Preferred or the shares of Common Stock
into which they would be convertible if the termination occurs at any other time
during the first two years of the agreement. NBC Multimedia would not be
required to return any shares upon exercise of its early termination right until
the Company had made all of the required Prepayments described above. Upon a
material breach by NBC Multimedia, the Company would be entitled to terminate
the Strategic Alliance Agreement and NBC Multimedia would be required to return
the same portion of the shares as if NBC Multimedia had exercised its early
termination right. Upon a material breach by the Company, NBC Multimedia could
terminate the Strategic Alliance Agreement with no obligation to return shares.
In no event shall NBC Multimedia be required to refund any of the Prepayments.
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MARKETING AND SALES
Marketing Strategy
The Company's marketing strategy is to position InterVU as a leading
Internet company providing video delivery services. The Company employs a
full-service approach to marketing which focuses on Internet video delivery from
a network rather than from one delivery site or Internet backbone. Additionally,
by offering a full-service approach, the Company presents Web site owners and
advertisers with the opportunity to not only forego their own capital and fixed
cost investments in new technologies, but to be placed in the continuum of
receiving the Company's most current enhancements as they become available. The
Company employs a mix of techniques including advertising, trade show
involvement, the InterVU Web site, various marketing and sales materials and
Internet promotions to market the Company's services. The Company has identified
five target markets for its services: (i) content providers (Web site owners),
(ii) advertisers, (iii) advertising agencies, (iv) Web site developers and (v)
Internet service providers.
Content Providers. One of the Company's primary markets is delivering video
for content providers such as Web site owners. The Company believes that video
can be successfully employed by content providers to increase Web site
promotional effectiveness to consumers. 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.
Advertising Agencies. The Company has begun to establish relationships with
certain major advertising agencies, including Saatchi & Saatchi, Foote Cone &
Belding and Think New Ideas, and specialized Internet advertising agencies,
which primarily provide advertising banners, in an effort to make advertisers
more aware of the services the Company offers. The Company believes that
advertising agencies will want to market themselves and the Company to
advertisers by incorporating Internet video promotions into their media
proposals to clients. In January 1998, the Company entered into a three-year
strategic alliance with MatchLogic, Inc. ( the "MatchLogic Alliance"), an online
advertising management firm. The MatchLogic Alliance will combine MatchLogic's
proprietary targeting technology with InterVU's multimedia advertising
capabilities.
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.
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Internet Service Providers. The Company established nonexclusive
promotional agreements with nine Internet service providers (UUNET, Bell
Technology Group, TCG Cerfnet, DIGEX, Exodus, GTE, GlobalCenter, IXL and
SuperNet) pursuant to which the service providers may market their performance
(as verified by the Fast Track Network Analyzer results) and the Company's
integration of their infrastructures into the InterVU Network.
Sales Strategy
The Company's sales strategy is to attract and retain Web site owners with
significant video delivery volume requirements in the entertainment,
information/education, advertising and sales promotions and Internet video
product sales industries. The Company currently has targeted the entertainment
industry, specifically cable TV, broadcast programmers and sports leagues,
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. VUTOPIA Service will allow the Company's customers to
obtain further enhancements in video delivery speed and incur lower delivery
costs relative to global delivery rates.
The VUTOPIA Service will utilize the Company's Virtual URL technology which
re-directs each viewer's mouse click request for video messages to regionally
distributed servers which are expected to be located directly at the viewer's
dial up point or POP. By hosting content on multiple distributed servers located
at various POPs, the Company intends to deliver video messages over local access
lines, thereby eliminating Internet bandwidth charges and avoiding other
Internet congestion challenges. The Company is currently testing the VUTOPIA
Service with a cable provider and a cellular service provider.
COMPETITION
The market for Internet services is highly competitive, and the Company
expects competition to increase significantly. In addition, the Company expects
the market for the delivery of video over the Internet, to the extent it
develops, to be intensely competitive. The Company faces substantial competition
from companies that provide the hardware, digital video encoding software and
know-how necessary to allow Web site owners and advertisers to utilize video in
their Internet marketing and advertising activities. Several companies offer
services that compete or may compete with those offered by the Company,
including, among others, RealNetworks, Inc. (formerly Progressive Networks,
Inc.) (RealVideo), VDOnet Corp. (VDOLive), and VXtreme, Inc. (Web Theater),
AudioNet Inc. (AudioNet) and At Home Corporation (@Home Experience). In August
1997, RealNetworks and MCI Communications Corporation ("MCI") announced a
strategic alliance involving the introduction of a service, called
"RealNetwork," that will deliver audio and video broadcasts over the Internet.
The RealNetwork will reportedly permit end-users to simultaneously receive video
broadcasts by distributing copies of digital video programs to multiple points
on MCI's Internet backbone. The strategic alliance between RealNetworks and MCI
appears to be a service-based marketing strategy similar to that being
implemented by the Company. In addition, Microsoft Corporation ("Microsoft") has
made significant investments in Internet video delivery technologies and has
disclosed a multimedia strategy of broadening the market for video compression
solutions. In August 1997, Microsoft announced (i) the release of its NetShow
2.0 multimedia server which incorporates technology for video and audio
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delivery over the Internet and corporate intranets, (ii) an agreement with
leading video compression software companies, including Progressive Networks and
VDOnet Corp., to cooperate in defining future standards based on the Microsoft
Active Streaming Format and (iii) the acquisition of VXtreme, Inc. Microsoft
also holds significant equity positions in RealNetworks and VDOnet Corp. In
addition, as was the case with VXtreme, Inc., RealNetworks and VDOnet Corp.,
providers of Internet delivery video services may be acquired by, receive
investments from or enter into other commercial relationships with, larger,
well-established and well-financed companies, such as Microsoft and MCI. Greater
competition resulting from such relationships could have a material adverse
effect on the Company's business, prospects, financial condition and results of
operations. Because the operations and strategic plans of existing and future
competitors are undergoing rapid change, it is extremely difficult for the
Company to anticipate which companies are likely to offer competitive services
in the future.
The bases of competition in markets for video delivery include transmission
speed, reliability of service, ease of access, price/performance, ease-of-use,
content quality, quality of presentation, timeliness of content, customer
support, brand recognition, number of end users directed to client websites
("Traffic Flow") 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 and application providers than the Company. Such
competitors may be able to undertake more extensive marketing campaigns, adopt
more aggressive pricing policies and devote substantially more resources to
developing Internet services or online content than the Company. There can be no
assurance that the Company will be able to compete successfully against current
or future competitors or that competitive pressures faced by the Company will
not materially adversely affect the Company's business, prospects, financial
condition and results of operations. Further, as a strategic response to changes
in the competitive environment, the Company may make certain pricing, service or
marketing decisions or enter into acquisitions or new ventures that could have a
material adverse effect on the Company's business, prospects, financial
condition and results of operations.
RESEARCH AND DEVELOPMENT
The market for the Company's services is characterized by rapidly changing
technology, evolving industry standards, and frequent new product introductions.
The Company believes that it can continue to improve its existing technologies
and services as well as develop new technologies and services. The Company
develops most of its technologies in house and maintains a highly trained
research and development staff that designs and develops InterVU's new services.
The Company had research and development expenses of $33,000, $1.4 million and
$1.7 million for 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 copyrights, trademarks, trade secret laws, restrictions on disclosure
and other methods. In addition, the Company has filed seven 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
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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 February 28, 1998, the Company employed 44 full-time and three
part-time people, of whom 30 were employed in research and development, twelve
were employed in sales and marketing and five were employed in administration.
None of the Company's employees is represented by a labor union, and the Company
considers its relations with its employees to be good. The Company's ability to
achieve its financial and operational objectives depends in large part upon the
continued service of its senior management and key technical personnel and its
continuing ability to attract and retain highly qualified technical and
managerial personnel. Competition for such qualified personnel in the Company's
industry is intense, particularly in software development, network engineering
and product management personnel.
FACTORS THAT MAY AFFECT FUTURE PERFORMANCE
An investment in shares of the Company's Common Stock is speculative in
nature and involves a high degree of risk. The following factors should be
considered carefully in evaluating the Company and its business before
purchasing shares of Common Stock. The Company's actual results could differ
materially from those discussed in certain forward-looking statements made by
the Company from time to time as a result of certain factors, including, but not
limited to, those discussed below.
LIMITED OPERATING HISTORY; ACCUMULATED DEFICIT; ANTICIPATED LOSSES
The Company was incorporated in August 1995 and launched the InterVU
Network in December 1996. The Company has a limited operating history on which
to base an evaluation of its business and prospects and currently is considered
a development stage company. Accordingly, the Company's prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered by companies in their early stage of development, particularly
companies in new and rapidly evolving markets such as the delivery of video over
the Internet. Such risks for the Company include, but are not limited to, an
evolving and unproven business model and the management of growth. To address
these risks, the Company must, among other things, maintain and significantly
increase its customer base, implement and successfully execute its business and
marketing strategy, continue to develop and upgrade its technology, provide
superior customer service, respond to competitive developments, and attract,
retain and motivate qualified personnel. There can be no assurance that the
Company will be successful in addressing these risks, and the failure to do so
could have a material adverse effect on the Company's business, prospects,
financial condition and results of operations.
Since inception, the Company has incurred significant losses and, as of
December 31, 1997, the Company had an accumulated deficit of approximately $7.6
million. To date, the Company has not generated any significant revenues and, as
a result of the significant expenditures that the Company plans to make in sales
and marketing, research and development and general and administrative
activities over the near term, the Company expects to continue to incur
significant operating losses and negative cash flows from operations on both a
quarterly and annual basis through at least the end of fiscal 1998 and for the
foreseeable future thereafter. For these and other reasons, there can be no
assurance that the Company will ever achieve or be able to sustain
profitability. The
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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 carry forwards of approximately $171,000 and $96,000, respectively, which
will begin to expire in 2011 and 2010, respectively unless previously utilized.
The utilization of these losses is contingent upon the Company's ability to
generate taxable income in the future. Because of that uncertainty, management
has recorded a full valuation allowance with respect to these deferred tax
assets.
As consideration for the strategic alliance between the Company and NBC
Multimedia, Inc. ("NBC Multimedia"), a wholly owned subsidiary of National
Broadcasting Company, Inc. ("NBC"), the Company issued 1,280,000 shares of
Series G Convertible Preferred Stock ("Series G Preferred") to NBC, and NBC
Multimedia granted the Company exclusive rights to deliver most NBC audio/video
content from NBC Web sites. NBC Multimedia may terminate the Strategic Alliance
Agreement between the Company and NBC Multimedia without cause by giving 90 days
prior written notice and is required to return 600,000 shares of Series G
Preferred (or shares of Common Stock into which the such shares may in the
future be converted) if the termination occurs during the first two years of the
exclusive term of the Strategic Alliance Agreement. Notwithstanding the
foregoing, NBC Multimedia is not required to return any such shares until it has
received from the Company the $2.0 million of non-refundable payments described
below under "Risks Associated with Strategic Alliance with NBC Multimedia." The
Company will determine the fair value of the Series G Preferred issued to NBC on
the dates the requirements that NBC return some or all of the shares of Series G
Preferred upon termination of the Strategic Alliance Agreement lapse. Based on
these provisions, in January 1998, the Company charged $3,375,580 to expense for
the fair value of 680,000 shares of Series G Preferred and expects to charge the
then fair value of the remaining 600,000 shares of Series G Preferred to expense
in the quarter ending December 31, 1999. Should the Company renegotiate or waive
these provisions, removing NBC's obligation to return shares of Series G
Preferred (or Common Stock, as the case may be), the Company would expense the
fair value of the shares at that time. The Company believes that the fair value
of each share of Series G Preferred will roughly approximate the price per share
at which the Common Stock is then trading, multiplied by the .6298 conversion
ratio applicable to the Series G Preferred. These noncash charges are likely to
be substantial and are likely to have a material adverse impact on the Company's
results of operations in the periods such expenses are recognized.
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; UNPREDICTABILITY OF
FUTURE REVENUES
The Company's quarterly operating results may fluctuate significantly in
the future as a result of a variety of factors, many of which are outside the
Company's control. Factors that may affect the Company's quarterly operating
results include the future adoption rate of video content by Web site owners;
the Company's ability to retain existing customers (including, in particular,
NBC), attract new customers at a steady rate and maintain customer satisfaction;
the level of use of the Internet and the growth of the market for video
advertising on the Internet; the amount and timing of costs and expenditures
relating to the expansion of the Company's business; the introduction or
announcement of new Internet services by the Company and its competitors; price
competition or pricing changes in the Internet, cable and telecommunications
industries; technical difficulties or network downtime; general economic
conditions; and economic conditions specific to the Internet, Internet media,
corporate intranet and cable industries. As a result of the Company's limited
operating history and the emerging nature of the markets in which it competes,
the Company is unable to accurately forecast its revenues. In addition, the
Company plans to increase operating expenses to fund additional sales and
marketing, research and development and general and administrative activities.
To the extent that these expenses are not accompanied by an increase in
revenues, the Company would have to decrease or cease such expenditures or the
Company's operating results and financial condition could be materially
adversely affected. Due to all of the foregoing factors, it is possible that the
Company's operating results in one or more future quarters will fail to meet or
exceed the expectations of securities analysts or investors.
UNPROVEN ACCEPTANCE OF THE COMPANY'S FEE STRUCTURE
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The Company's business plan calls for it to generate revenues primarily
from fees charged to customers for the volume of video content delivered. To
date, however, the Company has generated most of its revenues from flat rate
monthly fees charged to customers based upon video delivery and encoding
services. In addition, certain of the Company's Web site customers have traded
advertising space on their Web pages for video delivery services provided by the
Company. Although monthly fees charged by the Company typically are based on
estimates of the amounts such customers would pay under the pay-per-delivery
approach, flat rate billing exposes the Company to the risk that end-users will
download customers' video content at higher-than-anticipated rates, causing the
Company to incur bandwidth expenses in excess of revenues. Likewise, trading
video delivery services for advertising space exposes the Company to the risk
that it will not generate sufficient proceeds from sales of advertising to cover
its costs of supplying video delivery services. The Company does not currently
have the expertise or staffing necessary to liquidate significant amounts of
Internet advertising inventory through the direct sale of advertising to clients
or the sale of advertising space to a reseller of such space, and there can be
no assurance that the Company will develop such expertise and staffing or that
the Company will establish a strategic relationship with a company having such
capacities. There can be no assurance that the Company's pay-per-delivery fee
structure will become widely accepted by Web site owners and advertisers, and
the failure of the Company to successfully implement its pay-per-delivery fee
structure or a profitable monthly fee equivalent would have a material adverse
effect on the Company's business, prospects, financial condition and results of
operations.
UNCERTAIN MARKET FOR THE COMPANY'S SPECIALIZED SERVICES
Use of the Internet by consumers is at a very early stage of development,
and market acceptance of the Internet as a medium for information,
entertainment, commerce and advertising is subject to a high level of
uncertainty. The Company's success will depend in large part on the development
and acceptance of the Internet as an advertising medium and, specifically, the
use of advertising and Web sites which incorporate video. There can be no
assurance that a market for Internet video delivery services will develop or
that any such market, if developed, will offer significant revenue opportunities
for specialized video delivery service providers such as the Company. The
Company's customers have only limited experience, if any, with the Internet as a
marketing and advertising medium, and neither its customers nor their
advertising agencies have devoted a significant portion of their advertising
budgets to Internet-based marketing and advertising activities in the past. In
order for the Company to generate revenues from Web site owners and advertising
customers, Web site owners, advertisers and advertising agencies must direct a
portion of their budgets to Internet-based marketing and advertising activities
which incorporate video. There can be no assurance that Web site owners,
advertisers or advertising agencies will be persuaded to allocate or continue to
allocate portions of their budgets to Internet-based marketing and advertising
activities or, if so persuaded, that they will incorporate video in such
marketing and advertising activities. The Company's services are highly
specialized and designed solely to meet Web site owners' and advertisers'
Internet video delivery needs. Accordingly, if Internet-based marketing and
advertising activities incorporating video are not widely accepted by
advertisers and advertising agencies, the Company's business, prospects,
financial condition and results of operations would be materially adversely
affected.
The Company's ability to achieve and maintain a leadership position in the
Internet video delivery market will depend, among other things, on the Company's
success in providing high-speed, high-quality video over the Internet, the
Company's marketing efforts and the reliability of the Company's networks and
services, none of which can be assured. If Web site owners and advertisers do
not perceive the Company's services to be of high quality, or if the Company
introduces new services or enters into new business ventures that are not
favorably received, the Company's business, prospects, financial condition and
results of operations would be materially adversely affected. Moreover, even if
a significant market for video delivery services develops, there can be no
assurance that Web site owners and advertisers will retain the Company to
provide video delivery services. Because of the specialized nature of the
Company's services, the absence of a market for video delivery services, or the
Company's failure to obtain a significant share of such market if it develops,
would have a material adverse effect on the Company's business, prospects,
financial condition and results of operations.
In order to attract early customers and achieve penetration of the market
for Internet video delivery, the Company initially provided up to 90 days of
free trial service to certain customers. Of the 20 customers who received such
discounts, all such customers have emerged from the free trial period, 16 have
continued using the
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Company's services and four customers discontinued the Company's services. There
can be no assurance that the Company's customers will continue to utilize the
Company's services or that the Company will be able to attract and retain new
customers. The failure of the Company to retain customers after the free trial
period or the inability of the Company to attract and retain new customers could
have a material adverse effect on the Company's business, prospects, financial
condition and results of operations.
RISKS ASSOCIATED WITH STRATEGIC ALLIANCE WITH NBC MULTIMEDIA
As part of the Company's strategy to provide video delivery services to the
top tier of Internet multimedia content sites, in October 1997 the Company
entered into the Strategic Alliance Agreement with NBC Multimedia. The terms of
the Strategic Alliance Agreement subject the Company to a number of risks and
uncertainties, including the following:
Issuance of Stock. As consideration for the strategic alliance, the Company
issued 1,280,000 shares of Series G Preferred to NBC pursuant to the terms of a
Preferred Stock Purchase Agreement among the Company, NBC and NBC Multimedia
(the "Series G Purchase Agreement"). No cash consideration was received by the
Company for the Series G Preferred. In addition, the Series G Purchase Agreement
granted NBC Multimedia the right to purchase $2.0 million of Common Stock at the
initial public offering price in a direct offering (the "Direct Offering"), and
NBC Multimedia exercised this right. In aggregate, NBC and NBC Multimedia hold
approximately 10.8% of the Company's Common Stock and Common Stock equivalents,
at December 31, 1997.
InterVU Payment Obligations. InterVU is fully obligated to pay to NBC
Multimedia a total of $2.0 million in a series of non-refundable payments (the
"Prepayments"), the first of which was in the amount of $750,000 and was paid
immediately upon the completion of the Direct Offering. The Prepayments are
designed to cover certain production, operational and promotional costs. If the
Strategic Alliance Agreement is terminated for any reason, all unpaid
Prepayments become immediately due and payable to NBC. There can be no assurance
that NBC Multimedia will not terminate the Strategic Alliance Agreement, with or
without cause. The termination of the Strategic Alliance Agreement would have a
material adverse effect on the Company's business, prospects, financial
condition and results of operations. See "NBC Multimedia's Termination Rights"
below.
Broad Discretionary Powers of NBC Multimedia. The Strategic Alliance
Agreement provides NBC Multimedia with broad discretion in a number of areas,
including (i) the determination of what materials and content will be made
available for downloading through the InterVU Network, (ii) the promotional
obligations of NBC Multimedia and (iii) the obligation of NBC Multimedia to
introduce the Company to television stations associated with the NBC television
network. The failure of NBC Multimedia to make a significant amount of
compelling material available for downloading through the InterVU Network and to
promote the Company and its Internet video delivery services could have a
material adverse effect on the Company's business, prospects, financial
condition and results of operations.
Limited Nature of Exclusive Rights. The Strategic Alliance Agreement
provides that, subject to certain exceptions, during the Exclusive Term (as
defined below), NBC Multimedia will not make available for transmission over the
Internet any entertainment (i.e., excluding sports, news and other
non-entertainment programming) audio/video content in any format to users via a
Web site operated or controlled by NBC ("NBC Internet Sites") other than
pursuant to the Strategic Alliance Agreement. The Strategic Alliance Agreement
expressly excludes from this provision audio/video content of less than five
seconds in length. In addition, NBC Multimedia is not restricted from making
such audio/video content available on any Internet site that is not an NBC
Internet Site. There can be no assurance that NBC Multimedia will not make its
audio/video content available on other Internet sites. A determination by NBC
Multimedia to make its audio/video content available on other Internet sites
could have a material adverse effect on the amount of revenues generated
pursuant to the Strategic Alliance Agreement and could have a material adverse
effect on the Company's business, prospects, financial condition and results of
operations.
The Exclusive Term is defined as the period commencing on October 10, 1997
and ending on October 10, 1999; provided that if certain mutually agreed cost
and revenue goals are established and met, then the Exclusive Term
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shall be automatically extended until October 10, 2001. Although the Strategic
Alliance Agreement provides that the parties shall meet and consult with one
another in good faith and shall make good faith efforts to determine such cost
and revenue goals on or before October 10, 1998, there can be no assurance that
the Company and NBC Multimedia will be able to establish such mutually agreeable
cost and revenue goals. The failure of the Company and NBC Multimedia to reach
an agreement on this issue could have a material adverse effect on the Company's
business, prospects, financial condition and results of operations.
NBC Multimedia's Termination Rights. During the Exclusive Term, NBC
Multimedia may terminate the Strategic Alliance Agreement without cause by
giving 90 days prior written notice to the Company. NBC Multimedia also has the
right to terminate the Strategic Alliance Agreement if, among other things, the
services provided by the Company pursuant to such agreement materially decline
below industry standards or fail to conform to the specifications set forth in
the Strategic Alliance Agreement and the Company is unable to cure such failure
within ten days of its receipt of notice. The Strategic Alliance Agreement
requires the Company to maintain a successful user connection rate of at least
98%. The failure to maintain such a connection rate could be deemed to be a
material breach by the Company of the Strategic Alliance Agreement, giving NBC
Multimedia the right to terminate the Strategic Alliance Agreement for cause.
Although the Company expects to maintain the required connection rate, there can
be no assurance that the Company can do so. The Company has represented to NBC
Multimedia in the Strategic Alliance Agreement that it will not use the InterVU
Network in connection with the encoding or distribution of adult video content.
Any such activity would constitute a breach of that representation and warranty
and could result in a determination by NBC Multimedia to terminate the Strategic
Alliance Agreement for cause. The termination of the Strategic Alliance
Agreement, or the announcement of an intent to terminate, would have a material
adverse effect on the Company's business, prospects, financial condition and
results of operations. Among other things, any such termination or announcement
of an intent to terminate could cause other customers of the Company, especially
NBC television affiliates then using the Company's video delivery services, if
any, to terminate their relationship with the Company and would also have a
negative impact on the Company's reputation in the market for Internet video
delivery services, which would have a material adverse effect on the Company's
ability to market its services to Web site owners and advertisers.
If NBC Multimedia terminates the Strategic Alliance Agreement without cause
during the first two years of the Exclusive Term, then NBC or NBC Multimedia
would be required to return to the Company 600,000 shares of the Company's
Series G Preferred (or the shares of Common Stock into which such shares may in
the future be converted) if the termination occurs at any time during the first
two years of the Exclusive Term; provided that NBC or NBC Multimedia would not
be required to return any shares until the Company had made the $2.0 million of
Prepayments. NBC Multimedia is not obligated to return any shares to the Company
if the Strategic Alliance Agreement is terminated by NBC Multimedia for cause.
Limited Nature of Revenue Sharing Rights. The Strategic Alliance Agreement
provides for the establishment of a new "area" (the "Revenue Sharing Area") to
be created and placed by NBC Multimedia on its Web site to allow, among other
things, the distribution of NBC audio/video clips and the promotion of the
business relationship between the Company and NBC Multimedia. The Company is
entitled to receive 30% of the actual NBC cash receipts, if any, from
advertising, transactions and subscriptions directly attributable to any Revenue
Sharing Area less certain costs and expenses associated with the Revenue Sharing
Area. Since no Revenue Sharing Areas have yet been established, no revenues have
been generated. There can be no assurance that any revenues will be generated by
the Revenue Sharing Area. In addition, the Strategic Alliance Agreement permits
NBC Multimedia to opt out of its 30% revenue sharing obligation by paying for
the Company's video delivery services at rates at least as favorable as the most
favorable rates offered by the Company to third parties, other than special
promotional rates. NBC Multimedia would have an incentive to exercise its right
to opt out of the revenue sharing obligation if the costs to NBC Multimedia of
sharing revenue exceed the amount that NBC Multimedia would be required to pay
the Company based on its most favorable video delivery rates.
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DEPENDENCE ON KEY PERSONNEL
The Company's future performance and development will depend, in large
part, upon the efforts and abilities of certain members of senior management,
including Harry E. Gruber, its Chief Executive Officer and Chairman of the
Board, and Brian Kenner, its Vice President and Chief Technology Officer. The
loss of service of one or more members of senior management could have a
material adverse effect on the Company's business, prospects, financial
condition and results of operations. The Company does not have employment
agreements with any of its officers or employees. The Company, however, has
obtained a key man life insurance policy on the life of Mr. Kenner in the amount
of $1.0 million, of which the Company is the sole beneficiary. The Company does
not have key man life insurance on Dr. Gruber. In addition, the Company believes
that its future success will depend upon its continuing ability to identify,
attract, motivate, train and retain other highly skilled managerial, financial,
engineering, sales and marketing and other personnel. Competition for such
personnel is intense. There can be no assurance that the Company will be
successful in identifying, attracting, motivating, training and retaining the
necessary personnel, and the failure to do so could have a material adverse
effect on the Company's business, prospects, financial condition and results of
operations.
DEPENDENCE ON INCREASED USAGE AND STABILITY OF THE INTERNET
The future of the Internet as a center for information exchange,
advertising, entertainment and commerce will depend in significant part on
continued rapid growth in the number of households and commercial, educational
and government institutions with access to the Internet, in the level of usage
by individuals and businesses, and in the number and quality of products and
services designed for use on the Internet. Because usage of the Internet as a
medium for on-line exchange of information, advertising, entertainment and
commerce is a recent phenomenon, it is difficult to predict whether the number
of users drawn to the Internet will continue to increase. There can be no
assurance that Internet usage patterns will not decline as the novelty of the
medium recedes or that the quality of products and services offered on-line will
improve sufficiently to continue to support user interest.
Moreover, critical issues regarding the stability of the Internet's
infrastructure remain unresolved. The rapid rise in the number of Internet users
and increased transmission of audio, video, graphical and other multimedia
content over the Web has placed increasing strains on the Internet's
communications and transmission infrastructures. Continuation of such trends
could lead to significant deterioration in transmission speeds and reliability
of the Internet and could reduce the usage of the Internet by businesses and
individuals. Any failure of the Internet to support the ever-increasing number
of users due to inadequate infrastructure, or otherwise, could materially and
adversely affect the acceptance of the Company's products and services which
would, in turn, materially and adversely affect the Company's business,
prospects, financial condition and results of operations.
RISKS OF TECHNOLOGICAL CHANGE
The markets for Internet services are characterized by rapid technological
developments, frequent new product introductions and evolving industry
standards. The emerging nature of Internet products and services and their rapid
evolution will require that the Company continually improve the performance,
features and reliability of the InterVU Network and the Company's customer
service, particularly in response to competitive offerings. There can be no
assurance that the Company will be successful in responding quickly, cost
effectively and sufficiently to these developments. There can be no assurance
that the Company will be successful in achieving widespread acceptance of its
services before competitors offer products and services with speed and
performance similar to the Company's current offerings. In addition, the
widespread adoption of new Internet or telecommunications technologies or
standards could require substantial expenditures by the Company to modify or
adapt its video delivery service and could fundamentally affect the character,
viability and frequency of Internet-based advertising, either of which could
have a material adverse effect on the Company's business, prospects, financial
condition and results of operations. In addition, new services or enhancements
offered by the Company may contain design flaws or other defects that could have
a material adverse effect on the Company's business, prospects, financial
condition and results of operations.
17
<PAGE> 18
SECURITY RISKS
Despite the implementation of security measures, the Company's networks may
be vulnerable to unauthorized access, computer viruses and other disruptive
problems. Internet Service Providers ("ISPs") and On-line Service Providers
("OSPs") have in the past experienced, and may in the future experience,
interruptions in service as a result of the accidental or intentional actions of
Internet users, current and former employees or others. Although the Company
intends to continue to implement industry-standard security measures,
industry-standard security measures have been circumvented in the past, and
there can be no assurance that measures implemented by the Company will not be
circumvented in the future. Eliminating computer viruses and alleviating other
security problems may require interruptions, delays or cessation of service to
the Company's customers and end-users, which could have a material adverse
effect on the Company's business, prospects, financial condition and results of
operations.
RISKS OF ENCODING AND DISTRIBUTING ADULT VIDEO CONTENT
While the Company does not currently provide its services to Web sites that
host adult videos, the Company may in the future provide services to such sites.
In determining whether to encode and/or deliver adult video content through the
InterVU Network, the Company intends to take into account the overall costs of
providing such services, including the potential adverse impact on its strategic
alliance with NBC Multimedia and other possible negative reaction from its
existing and potential Web site and advertising customers. The Company has
represented to NBC Multimedia in its Strategic Alliance Agreement that it will
not use the InterVU Network in connection with the encoding or distribution of
adult video content. Any such activity would constitute a breach of that
representation and warranty and could result in a determination by NBC
Multimedia to terminate the Strategic Alliance Agreement. The Company could also
be exposed to liability for encoding and hosting adult content deemed to be
indecent or obscene. Although the United States Supreme Court has upheld lower
court decisions declaring the anti-indecency provisions of the
Telecommunications Act of 1996 unconstitutional, the law relating to liability
for transmitting obscene or indecent material over the Internet remains
unsettled.
The loss of customers as a result of the Company's becoming associated with
adult Web sites could have a material adverse effect on the Company's business,
prospects, financial condition and results of operations. Such association could
result even if the Company does not use the InterVU Network in connection with
the encoding or distribution of adult video content. For example, if an end-user
utilizing an Internet browser attempts to view an adult video and such end-user
does not have the necessary software, or "plug-in," he or she will automatically
be directed to the browser's plug-in finder page which lists the particular
plug-ins, including the InterVU Player, that can display the video. If the
InterVU Player is selected by the end-user, or if the end-user has already
installed the InterVU Player, the adult video will be presented within the
InterVU Player and with the InterVU name displayed.
ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER PROVISIONS
Certain provisions of the Company's Amended and Restated Certificate of
Incorporation and Amended and Restated Bylaws could discourage potential
acquisition proposals, could delay or prevent a change in control of the Company
and could make removal of management more difficult. Such provisions could
diminish the opportunities for a stockholder to participate in tender offers,
including tender offers that are priced above the then current market value of
the Common Stock. The provisions also may inhibit increases in the market price
of the Common Stock that could result from takeover attempts. These provisions
include a Board of Directors consisting of three classes; a limitation which
permits only the Board of Directors, the Chairman or the President of the
Company to call a special meeting of stockholders; a prohibition against the
stockholders acting by written consent; and certain advance notice procedures
for nominating candidates for election to the Board of Directors and for
proposing business before a meeting of stockholders. Additionally, the Board of
Directors of the Company, without further stockholder approval, may issue up to
3,720,000 shares of Preferred Stock, in one or more series, with such terms as
the Board of Directors may determine, including rights such as voting, dividend
and conversion rights which could adversely affect the voting power and other
rights of the holders of Common Stock. Preferred Stock may be issued quickly
with terms which delay or prevent the change in control of the Company or make
removal of management more
18
<PAGE> 19
difficult. Also, the issuance of Preferred Stock may have the effect of
decreasing the market price of the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock in the public
market following the Offering could materially adversely affect the prevailing
market price of the Company's Common Stock. The Company has 9,377,404 shares of
Common Stock outstanding. The 2,000,000 shares offered in the IPO and the shares
offered in the Direct Offering are freely tradeable under the Securities Act of
1933, as amended (the "Securities Act"), unless held by "affiliates" of the
Company as defined in Rule 144 under the Securities Act. Of the remaining
7,166,878 shares of Common Stock, all will be eligible for sale under Rule 144
under the Securities Act, subject to certain volume and other limitations,
following expiration of the nine-month lockup agreements with Josephthal, Lyon &
Ross Incorporated ("Josephthal"). Josephthal may, in its sole discretion, and at
any time without notice, release all or any portion of the shares subject to
such lock-up agreements. In addition, the shares of Common Stock issuable upon
conversion of the Series G Preferred will become eligible for public sale under
Rule 144 in October 1998. The Company also intends to register on Form S-8
following the effective date of the Offering, a total of 1,889,400 shares of
Common Stock reserved for issuance or subject to outstanding options granted
under the Company's 1996 Stock Plan. The Company also sold to the Underwriters,
for nominal consideration, Advisors' Warrants to purchase from the Company
200,000 shares of Common Stock. The Advisors' Warrants are initially exercisable
at a price per share equal to 120% of the initial public offering price for a
period of four years commencing one year after the date of this Prospectus and
are restricted from sale, transfer, assignment or hypothecation for a period of
twelve months from the date hereof, except to officers of the Representatives.
The Advisors' Warrants also provide for adjustment in the number of shares of
Common Stock issuable upon the exercise thereof as a result of certain
subdivisions and combinations of the Common Stock. The Advisors' Warrants grant
to the holders thereof certain rights of registration for the securities
issuable upon exercise of the Advisors' Warrants.
CONTROL BY EXISTING STOCKHOLDERS
As of February 27, 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 or
entities, beneficially own approximately 42.1% of the outstanding shares of
Common Stock of the Company. Accordingly, these stockholders may be able to
elect all of the Company's Board of Directors and determine the outcome of
corporate actions requiring stockholder approval, such as mergers and
acquisitions. This level of ownership may have a significant effect in delaying,
deferring or preventing a change in control of the Company and may adversely
affect the voting and other rights of other holders of the Common Stock.
MANAGEMENT'S DISCRETION OVER USE OF PROCEEDS OF THE OFFERING
The Company expects to use the net proceeds of the Offering for expansion
of sales and marketing efforts, additional research and development expenditures
and general corporate purposes, including working capital and capital
expenditures. In addition, the Company intends to use a portion of the net
proceeds to fund obligations under its strategic alliance agreement with NBC
Multimedia. The Company may, if an opportunity arises, use an unspecified
portion of the net proceeds to acquire or invest in complementary businesses,
products and technologies. From time to time, in the ordinary course of
business, the Company expects to evaluate potential acquisitions of such
businesses, products or technologies. However, the Company has no present
understandings, commitments or agreements with respect to any material
acquisition or investment. Accordingly, management will have significant
flexibility in applying the net proceeds of the Offering. The failure of
management to apply such funds effectively could have a material adverse effect
on the Company's business, prospects, financial condition and results of
operations.
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.
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<PAGE> 20
However, due to the increasing popularity and use of the Internet, it is
possible that a number of laws and regulations may be adopted with respect to
the Internet or other online services covering issues such as user privacy,
pricing, content, copyrights, distribution and characteristics and quality of
products and services. Furthermore, the growth and development of Internet
markets may prompt calls for more stringent consumer protection laws that may
impose additional burdens on companies conducting business online. The adoption
of any additional laws or regulations may decrease the growth of Internet use,
which could, in turn, decrease the demand for the Company's services or increase
the cost of doing business, or otherwise have an adverse effect on the Company's
business, prospects, financial condition and results of operations. Moreover,
the applicability to the Internet of existing laws in various jurisdictions
governing issues such as property ownership, sales and other taxes, libel and
personal privacy is uncertain and may take years to resolve. Any such new
legislation or regulation, the application of laws and regulations from
jurisdictions whose laws do not currently apply to the Company's business, or
the application of existing laws and regulations to the Internet could have a
material adverse effect on the Company's business, prospects, financial
condition and results of operations.
REQUIREMENTS FOR ADDITIONAL CAPITAL
The Company believes that the net proceeds from the Offering, together with
its existing cash, cash equivalents, and capital lease financing, will be
sufficient to meet its working capital and capital expenditure requirements
through the end of 1998. However, the Company may need to raise substantial
additional funds if its estimates of working capital and/or capital expenditures
change or prove inaccurate or in order for the Company to respond to unforeseen
technological or marketing hurdles or to take advantage of unanticipated
opportunities. Over the longer term, it is likely that the Company will require
substantial additional funds to finance significant capital equipment
expenditures and lease commitments for additional servers to expand the InterVU
Network, as well as for product development, marketing, sales and customer
support needs. There can be no assurance that any such funds will be available
at the time or times needed, or available on terms acceptable to the Company. If
adequate funds are not available, or are not available on acceptable terms, the
Company may not be able to continue to develop new technologies and services or
otherwise respond to competitive pressures. Such inability could have a material
adverse effect on the Company's business, prospects, financial condition and
result of operations.
NO PRIOR TRADING MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
The trading price of the Common Stock is likely to be highly volatile and
could be subject to wide fluctuations in response to factors such as actual or
anticipated variations in quarterly operating results, announcements of
technological innovations, new sales formats or new products or services by the
Company or its competitors, changes in financial estimates by securities
analysts, conditions or trends in Internet markets, changes in the market
valuations of other Internet companies, announcements by the Company or its
competitors of significant acquisitions, strategic partnerships, joint ventures
or capital commitments, additions or departures of key personnel, sales of
Common Stock and other events or factors, many of which are beyond the Company's
control. In addition, the stock market in general, and the market for
Internet-related and technology companies in particular, has experienced extreme
price and volume fluctuations that have often been unrelated or disproportionate
to the operating performance of such companies. The trading prices of many
technology companies' stocks are at or near historical highs and reflect price
earnings ratios substantially above historical levels. There can be no assurance
that these trading prices and price earnings ratios will be sustained. These
broad market and industry factors may materially and adversely affect the market
price of the Common Stock, regardless of the Company's operating performance. In
the past, following periods of volatility in the market price of a company's
securities, securities class-action litigation has often been instituted against
such company. Such litigation, if instituted, could result in substantial costs
and a diversion of management's attention and resources, which would have a
material adverse effect on the Company's business, prospects, financial
condition and results of operations.
20
<PAGE> 21
ITEM 2. PROPERTIES
The Company is headquartered in facilities consisting of approximately 7,800
square feet in Solana Beach, California, which the Company occupies under two
leases and one sublease. Both leases expire in 1999 and the sublease is on a
month to month basis. 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 additional
regional sales offices in the future to address the demand for its video
delivery services. The Company is currently in negotiations to secure additional
office space in San Diego County of up to 25,000 square feet. If such
negotiations are successful the Company believes it will have sufficient space
to meet the Company's space requirements for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings.
ITEM 4. SUBMISSIONS OF MATTER TO A VOTE OF THE SECURITY HOLDERS
In November 1997, the Company submitted the following matters to a vote of
the stockholders by means of a written consent of stockholder to all
stockholders of record on October 31, 1997:
1. To amend the restate the Company's certificate of incorporation to effect
a reverse stock split wherein each share of Common Stock would be converted to
.6298 of one share of validly issued, fully paid and nonassessable Common Stock.
Votes were cast as follows:
In favor 5,563,874 shares (78%)
Opposed none
2. To amend and restate the Company's certificate of Incorporation to
increase the number of shares of stock authorized for issuance to twenty five
million (25,000,000), divided as follows: (i) twenty million (20,000,000) shares
of Common Stock with a par value of $.001 per share and (ii) five million
(5,000,000) shares of Preferred Stock with a par value of $.001 per share, of
which one million two hundred eighty thousand were designated Series G
Convertible Preferred Stock.
Votes were cast as follows:
In favor 5,563,874 shares (78%)
Opposed none
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<PAGE> 22
3. To amend and restate the Certificate Incorporation to provide for a
classified board of directors divided, as nearly as possible, into three equal
classes.
Votes were cast as follows:
In favor 5,563,874 shares (78%)
Opposed none
4. To approve a form of indemnification agreement to be entered into by and
among the Company and its directors and officers.
Votes were cast as follows:
In favor 5,563,874 shares (78%)
Opposed none
22
<PAGE> 23
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED MATTERS
The Company's common stock is traded on The Nasdaq Stock MarketSM under the
symbol ITVU. Trading of the Company's stock commenced on November 23, 1997. The
following table represents the quarterly high and low sales prices of shares of
common stock as reported by The Nasdaq Stock Market since the stock commenced
trading.
<TABLE>
<CAPTION>
High Low
------ -----
<S> <C> <C>
Calendar 1997
Fourth Quarter (November 23,1997 to
December 31, 1997) 10 1/4 8 1/8
</TABLE>
As of March 1, 1998, there were 127 holders of record of the Company's
common stock.
USE OF PROCEEDS
In August 1997, the Company filed a registration statement under the
Securities Act of 1993 to sell up to 2.3 million shares of Common Stock in its
IPO. The effective date of registration of the IPO was November 19, 1997, under
Commission file No. 333-33521. The offering was managed by Josephthal Lyon &
Ross and Cruttenden Roth and closed on November 23, 1997 after selling an
aggregate of 2,210,526 shares of Common Stock in the IPO and Direct Offering.
Expenses related to the IPO and Direct Offering incurred through December
31,1997 were as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Proceeds from IPO..................................... $ 19,000,000
Proceeds from Direct Offering......................... 2,000,000
-------------
TOTAL PROCEEDS........................................ 21,000,000
Underwriters' Discount................................ $1,330,000
Underwriter's advisor fee............................. 140,000
Securities and Exchange Commission registration fee... 8,557
NASD filing fee....................................... 2,625
Nasdaq National Market listing fee.................... 39,917
Non-accountable expense allowance..................... 190,000
Legal fees and expenses............................... 199,054
Accounting fees and expenses.......................... 190,800
Printing and engraving expenses....................... 168,843
Blue Sky fees and expenses............................ 12,665
Transfer agent and registrar fees..................... 3,131
Miscellaneous......................................... 146,385
----------
TOTAL OFFERING COSTS................................ 2,431,977
-------------
NET PROCEEDS.......................................... $ 18,568,023
=============
</TABLE>
23
<PAGE> 24
Since completion of the IPO and Direct Offering in November 1997, the Company
has used $1,322,062 of the proceeds in the following manner:
<TABLE>
<S> <C>
Prepayment to NBC Multimedia, an
affiliate of the Company, for production,
operating and advertising costs
associated with certain NBC
websites ..................................... $ 750,000
Purchase of equipment and property ............. 173,937
General and Administrative and
working capital .............................. 151,214
Research and Development expenditures .......... 123,972
Sales & Marketing expenditures ................. 122,939
----------
Total proceeds used through December 31, 1997 .. $1,322,062
</TABLE>
Except where noted, no proceeds were paid directly or indirectly to
directors, officers, general partners of the Company or to persons holding ten
percent or more of any class of equity security issued by the Company, or to any
other affiliate of the Company.
The Company has never declared dividends or paid any cash dividends on its
capital stock. The Company currently intends to retain all future earnings, if
any, for use in the operation and development of its business and, therefore,
does not expect to declare or pay any cash dividends on its Common Stock in the
foreseeable future.
RECENT SALES OF UNREGISTERED SECURITIES
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.
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.
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.
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.
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.
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.
24
<PAGE> 25
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data set forth below should be read in conjunction
with Item 7. "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Financial Statements and Notes in Item 8 -
Financial Statements and Supplementary Data. The statement of operations data
for the period from the date of 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, 1995, 1996 and 1997 are derived from the Company's
financial statements audited by Ernst & Young LLP, independent auditors.
IN THOUSANDS EXCEPT PER SHARE DATA
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 2, 1995 YEAR ENDED
(INCEPTION) DECEMBER 31,
TO DECEMBER 31, -------------------------------
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues ....................... $ -- $ -- $ 144
Operating expenses:
Research and development .......... 33 1,420 1,703
Selling, general and
administrative .................... 16 910 3,898
----- ------------ ------------
Total operating expenses ............. 49 2,330 5,601
----- ------------ ------------
Loss from operations ................. (49) (2,330) (5,457)
Interest income ...................... 3 52 192
----- ------------ ------------
Net loss ............................. $ (46) $ (2,278) $ (5,265)
===== ============ ============
Pro forma net loss per share ......... $ (.66) $ (.90)
============ ============
Shares used in computing pro
forma net loss per share(1) ....... 3,440,931 5,822,594
============ ============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
-------- --------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents ................ $ 2,508 $ 21,380
Working capital .......................... 2,365 20,947
Total assets ............................. 2,776 22,130
Long-term liabilities .................... 27 7
Total stockholders'equity ................ 2,597 21,532
</TABLE>
- ----------
(1) See Note 1 of Notes to Financial Statements for an explanation of the number
of shares used in computing pro forma net loss per share.
25
<PAGE> 26
ITEM 7. MANAGEMENT'S DISCUSSION & 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 under the caption "Factors that May
Affect Future Performance" Item 1. - Business.
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.
The Company has incurred net losses in each fiscal period since its
inception and, as of December 31, 1997, had an accumulated deficit of $7.6
million. To date, the Company has not generated any significant revenues, and,
as a result of the significant expenditures that the Company plans to make in
sales and marketing, research and development and general and administrative
activities over the near term, the Company expects to continue to incur
significant operating losses and negative cash flows from operations on both a
quarterly and annual basis through at least the end of fiscal 1998 and for the
foreseeable future thereafter. The Company is in the early stages of executing
its business model, and the profit potential of the Company's fee based model
for the delivery of video content or advertising is unproven in the Internet
industry. Because its success is dependent on the growth of the video market on
the Internet, as well as the growth of the Internet industry, the Company must,
among other things, develop services that are widely accepted by Web site
owners, advertisers and end-users at prices that will yield a profit. There can
be no assurance that the Company's services will achieve broad commercial or
consumer acceptance. See Item 1. - Business "Factors that May Affect Future
Performance -- 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 from NBC
Web sites. NBC Multimedia may terminate the Strategic Alliance Agreement between
the Company and NBC Multimedia without cause by giving 90 days prior written
notice and, following the completion of the Offering, is required to return (i)
all shares of Series G Preferred (or the shares of Common Stock into which such
shares may in the future be converted) if termination occurs prior to January
10, 1998 and NBC Multimedia has not, at a minimum, displayed a button or link
containing a copy of the Company's logo on the NBC Web site or (ii) 600,000
shares of Series G Preferred (or Common Stock, as the case may be) if the
termination occurs at any other time during the first two years of the exclusive
term of the Strategic Alliance Agreement. Notwithstanding the foregoing, NBC
Multimedia is not required to return any such shares until it has received from
the Company the $2.0 million of non-refundable payments described below under
"-- Liquidity and Capital Resources." The Company will determine the fair value
of the Series G Preferred issued to NBC on the dates the requirements that
26
<PAGE> 27
NBC return some or all of the shares of Series G Preferred upon termination of
the Strategic Alliance Agreement lapse. Based on these provisions, the Company
has charged to expense in January 1998 for the fair value of 680,000 shares of
Series G Preferred in the amount of $3,375,580, and expects to charge the then
fair value of the remaining 600,000 shares of Series G Preferred to expense in
the quarter ending December 31, 1999. Should the Company renegotiate or waive
these provisions, removing NBC's obligation to return shares of Series G
Preferred (or Common Stock, as the case may be), the Company would expense the
fair value of the shares at that time. The Company believes that the fair value
of each share of Series G Preferred will roughly approximate the price per share
at which the Common Stock is then trading, multiplied by the .6298 conversion
ratio applicable to the Series G Preferred. These noncash charges are likely to
be substantial and are likely to have a material adverse impact on the Company's
results of operations in the periods such expenses are recognized.
The Company's economic model is predicated upon achieving significant
economies of scale relative to variable and, to a lesser extent, fixed
telecommunications costs. The Company has developed a series of software tools
and a software system to analyze Internet performance, specifically related to
congestion points on the Internet. The Company's operating strategy is to reduce
the number of congestion points experienced by end-users through the redirection
of an individual's request for video content to the optimal server location. To
date, the Company has contracted for telecommunications capacity and services
primarily from major Internet Service Providers ("ISPs"). It is the Company's
intention to continue to contract with selected ISPs in the future for Internet
services as well as to procure and install selected servers over a variety of
Internet backbones and regional POPs. In addition, the Company may incur
significant capital equipment expenditures and lease commitments for additional
servers to expand the InterVU Network, although these expenditures would be less
significant than those required of ISPs. The amount and timing of such
expenditures will depend upon the level of demand for the Company's services.
The Company believes that as customer adoption rates for the Company's service
increases, the corresponding levels of video delivery volumes will allow the
Company to generate economies of scale relative to the expenses it incurs with
ISPs as well as the expenses emanating from the maintenance and amortization of
its servers. To the extent that such economies of scale are not realized, the
Company's business, prospects, financial condition and results of operations
will be materially adversely affected.
RESULTS OF OPERATIONS
The financial results for the period from August 2, 1995 (Inception) to
December 31, 1997 reflect the Company's initial organizational efforts, research
and development activities, capital raising activities and initial deployment of
the Company's video delivery service. The Company believes that its limited
operating history makes prediction of future results of operations difficult
and, accordingly, that its operating results should not be relied upon as an
indication of future performance. The Company began to recognize revenue during
the 1997 and as such, the Company believes that any comparison of the results of
operations for the period from August 2, 1995 (Inception) to December 31, 1995
with the results for the twelve months ended December 31, 1996 and 1997 is not
meaningful.
Total revenues consist of fees for delivery of video content over the
InterVU Network and related customer services. Revenues from fees from video
delivery are recognized at the time of delivery. Revenues from related customer
services are recognized during the period in which services are provided. Total
revenues were $143,500 for 1997, most of which was derived from delivery fees
and customer services provided to the Company's initial customers. In order to
attract early customers and achieve penetration of the market for Internet video
delivery, the Company initially provided up to 90 days of free trial service to
certain customers. Of the 20 customers who received such discounts, all such
customers have emerged from the free trial period, 16 have continued using the
Company's services and four customers discontinued the Company's services. There
can be no assurance that the Company's customers will continue to utilize the
Company's services or that the Company will be able to attract and retain new
customers. The Company is not currently offering free trial services and has
gained 20 new customers for its video hosting and V-Banner services since August
1997. The Company may elect to resume this or other sales practices in the
future if it determines they are warranted.
27
<PAGE> 28
Research and development expenses consist primarily of salaries and related
expenses for personnel, fees to outside contractors and consultants, the
allocated costs of facilities, and the depreciation and amortization of capital
equipment. Research and development expenses for the years ended December 31,
1996 and 1997 were $1.4 million, and $1.7 million, respectively. The increase in
expenses was attributable to the increase in personnel and related expenses.
Research and development expenses to date have focused in three areas: the
development of software tools and enabling platforms for the distribution of
video content, the development of tools to analyze Internet performance to
subsequently redirect individual end users to optimal servers, and the
development of new media player software. Research and development expenses have
been expensed as incurred.
Selling, general and administrative expenses consist primarily of salaries,
commissions, promotional expenses, professional services and general operating
costs. Also included are costs the Company incurs for Internet access and
telecommunications transport costs ("bandwidth"). These costs have both fixed
and variable factors. The Company believes that it will be able to negotiate
lower bandwidth charges as the InterVU Network expands. The expansion of the
InterVU Network will in some cases require capital equipment expenditures, the
cost of which will be amortized over the useful life of the asset. Selling,
general and administrative expenses were $910,000, and $3.9 million for the
years ended December 31, 1996 and 1997, respectively. The increase in selling,
general and administrative expenses incurred in 1997 over the comparable period
in 1996 was attributable primarily to an increase of approximately $1,178,000 in
personnel and associated costs, primarily related to sales and marketing,
$750,000 payment to NBC multimedia in accordance with the terms of the Direct
Offering, an increase of approximately $297,000 for expenditures for trade shows
and other public relations expenses, an increase of approximately $229,000 for
bandwidth costs , an increase of approximately $175,000 for travel and
entertainment expenses and an increase of approximately $256,000 in amortization
of deferred compensation.
Interest income was $52,000 and $192,400 for the years ended December 31,
1996 and 1997, respectively. Interest income represents interest earned by the
Company on its cash and cash equivalents. 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 due to the
lack of earnings history of the Company and the uncertainty as to the timing and
amount of future earnings, if any. See Note 6 in Item 8. Financial Statements
and Supplementary Data of Notes to Financial Statements.
The Company's net loss was $2.3 million and $5.3 million for 1996 and 1997,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily through
sales of equity securities. Through December 31, 1997, the Company had raised
$28.8 million from the sale and issuance of preferred stock and common stock. At
December 31, 1997, the principal source of liquidity for the Company was $21.4
million of cash and cash equivalents.
The Company has had significant negative cash flows from operating
activities since inception. Cash used in operating activities for the years
ended December 31, 1996 and 1997 was $2.1 million and $4.6 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 years ended December 31,1996 and
1997 was $305,000 and $484,000, respectively, primarily representing capital
expenditures for equipment, software, and furniture and fixtures. Although the
Company has no material commitments for capital expenditures, the Company
expects to expend significant amounts for equipment, software and fixtures over
the next 24 months to expand the InterVU Network, much of which it plans to
finance through capital leases.
28
<PAGE> 29
Cash provided by financing activities for years ended December 31, 1996 and
1997 was $4.4 million and $23.9 million, respectively, resulting primarily from
the net proceeds received by the Company from the sale of preferred stock and
completion of the Company's IPO and the Direct Offering to NBC in November 1997.
Net proceeds from the IPO and Direct Offering aggregated $18.6 million.
In connection with the strategic alliance with NBC entered into in October
1997, the Company became obligated to make $2,000,000 in non-refundable payments
to NBC Multimedia for certain production, operating and advertising costs
associated with certain NBC websites including payments of (i) $750,000 paid on
the completion of the initial public offering in November 1997, (ii) $500,000
due in February 1998, (iii) $500,000 due in May 1998, and (iv) $250,000 due in
August 1998; provided that all such payments will become immediately due and
payable to NBC Multimedia if the Strategic Alliance Agreement is terminated for
any reason.
The Company believes that the net proceeds from the IPO and the Direct
Offering, together with existing cash and cash equivalents, will be sufficient
to meet its working capital and capital expenditure requirements through at
least the end of 1998. Thereafter, if cash generated by operations is
insufficient to satisfy the Company's liquidity requirements, the Company may
need to sell additional equity or debt securities or obtain credit facilities.
The Company currently does not have any lines of credit. The sale of additional
equity or convertible debt securities may result in additional dilution to the
Company's stockholders. There can be no assurance that the Company will be able
to raise any such capital on terms acceptable to the Company or at all.
IMPACT OF YEAR 2000
Some older computer programs were written using two digits rather that 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 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 is completing an assessment of whether it will have to modify or
replace portions of its software so that its computer systems will function
properly with respect to dates in the year 2000 and thereafter. The total Year
2000 project cost is not expected to be material. The Year 2000 project is
expected to be completed not later than December 31,1998, which is prior to any
anticipated impact on its operating systems. The Company believes that with
modifications to existing software and conversions to new software, the Year
2000 Issue will not pose significant operational problems for its computer
systems. However, if such modifications and conversions are not made , or are
not completed timely, the Year 2000 Issue could have a material impact on the
operations of the Company.
The Company has initiated formal communications with all of its significant
suppliers to determine the extent to which the Company's interface systems are
vulnerable to those third parties' failure to remediate their own Year 2000
Issues. There is no assurance that the systems of those other companies on which
the Company's systems rely will be timely converted and would not have an
adverse effect on the Company's systems.
The costs of the project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing resources and other factors. However, there can be
no assurance that these estimates will be achieved and actual results could
differ materially from those anticipated. Specific factors that might cause such
material differences include, but are not limited to, the availability and cost
of personnel trained in this area, the ability to locate and correct all
relevant computer codes, and similar uncertainties.
29
<PAGE> 30
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors.................................................. 31
Balance Sheets as of December 31, 1996 and, 1997................................................... 32
Statements of Operations for the Period from August 2, 1995 (Inception)
to December 31, 1995, the Years Ended December 31, 1996 and 1997,
and the Period from August 2, 1995 (Inception) to December 31, 1997 ............................. 33
Statement of Stockholders' Equity for the Period from August 2, 1995 (Inception)
to December 31, 1995, and the Years Ended December 31, 1996 and 1997 ............................ 34
Statements of Cash Flows for the Period from August 2, 1995 (Inception) to
December 31, 1995, the Years Ended December 31, 1996 and 1997,
and the Period from August 2, 1995 (Inception) to December 31, 1997 ............................. 35
Notes to Financial Statements...................................................................... 36
</TABLE>
30
<PAGE> 31
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, for the years ended December 31, 1996 and
1997, and for the period from August 2, 1995 (Inception) to December 31, 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, for the years ended December 31, 1996 and 1997, and for the period
from August 2, 1995 (Inception) to December 31, 1997, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
San Diego, California
February 19, 1998
31
<PAGE> 32
INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1996 1997
------------ ------------
Current assets:
<S> <C> <C>
Cash and cash equivalents ............................................................ $ 2,507,822 $ 21,379,845
Accounts receivable .................................................................. -- 88,685
Prepaid and other current assets ..................................................... 10,095 69,608
------------ ------------
Total current assets ................................................................... 2,517,917 21,538,138
Property and equipment, net ............................................................ 252,286 584,601
Other assets ........................................................................... 6,274 7,269
------------ ------------
Total assets ................................................................... $ 2,776,477 $ 22,130,008
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ..................................................................... $ 87,084 $ 437,064
Accrued liabilities .................................................................. 65,970 142,018
Current portion, lease commitments ................................................... -- 11,814
------------ ------------
Total current liabilities ...................................................... 153,054 590,896
Lease commitments ...................................................................... -- 7,608
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 December31, 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 shares at December 31, 1997;
Liquidation preference-- $10,240,000 ............................................. -- 1,280
Common stock, $0.001 par value Authorized-- 20,000,000 shares; Issued
and outstanding 4,006,787 shares and 9,377,404 shares at
December 31, 1996 and 1997, respectively ......................................... 4,007 9,377
Additional paid-in capital ........................................................... 5,324,591 29,821,121
Notes receivable from common stockholders ............................................ (5,570) (500)
Deferred compensation ................................................................ (403,202) (710,493)
Deficit accumulated during the development stage ..................................... (2,324,098) (7,589,281)
------------ ------------
Total stockholders' equity ..................................................... 2,596,923 21,531,504
------------ ------------
Total liabilities and stockholders' equity ..................................... $ 2,776,477 $ 22,130,008
============ ============
</TABLE>
See accompanying notes.
32
<PAGE> 33
INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
AUGUST 2, 1995 YEARS ENDED AUGUST 2, 1995
(INCEPTION) TO DECEMBER 31, (INCEPTION) TO
DECEMBER 31, ------------------------------- DECEMBER 31,
1995 1996 1997 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues .................................. $ -- $ -- $ 143,541 $ 143,541
Operating expenses:
Research and development ................ 32,632 1,420,483 1,703,111 3,156,226
Selling, general and administrative ..... 16,542 910,040 3,898,014 4,824,596
------------ ------------ ------------ ------------
Total operating expenses .................. 49,174 2,330,523 5,601,125 7,980,822
------------ ------------ ------------ ------------
Loss from operations ...................... (49,174) (2,330,523) (5,457,584) (7,837,281)
Interest income ........................... 3,154 52,445 192,401 248,000
------------ ------------ ------------ ------------
Net loss .................................. $ (46,020) $ (2,278,078) $ (5,265,183) $ (7,589,281)
============ ============ ============ ============
Basic and diluted net loss per
Share ................................... $ (.66) $ (.90)
============ ============
Shares used in calculating Basic
and diluted net loss per share........... 3,440,931 5,822,594
============ ============
</TABLE>
See accompanying notes.
33
<PAGE> 34
INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Issuance of common stock at $.0004 per share to
founders for cash in August 1995 ................................... -- $ -- 2,398,278 $ 2,398
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 -- --
Net loss ............................................................. -- -- -- --
---------- ---------- ---------- ----------
Balance at December 31, 1995 ........................................... 172,500 173 2,398,278 2,398
Issuance of common stock at $.004 per share for cash
and notes receivable in January 1996 ............................... -- -- 147,373 147
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 -- --
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 -- --
Issuance of common stock at $.002 per share to
founders for cash in March 1996 .................................... -- -- 886,758 887
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 -- --
Issuance of common stock at $.024 per share for cash
and notes receivable in April 1996 ................................. -- -- 444,639 445
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 -- --
Issuance of common stock at $.04 per share for cash
and notes receivable in December 1996 .............................. -- -- 129,739 130
Deferred compensation ................................................ -- -- -- --
Amortization of deferred compensation ................................ -- -- -- --
Net loss ............................................................... -- -- -- --
---------- ---------- ---------- ----------
Balance at December 31, 1996 ........................................... 1,194,138 1,195 4,006,787 4,007
Issuance of Series E convertible preferred stock at
$10.00 per share for cash in February 1997, net of
issuance cost of $27,616 ........................................... 110,500 110 -- --
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 -- --
Exercise of stock options at $0.04 per share for cash in July 1997 ... -- -- 31,490 31
Repurchase of restricted stock at $0.024 per share
for cash and cancellation of note receivable in September 1997 ..... -- -- (108,685) (109)
Repayments of notes receivable from common
shareholders ....................................................... -- -- -- --
Conversion of preferred stock ........................................ (2,026,302) (2,026) 3,237,286 3,238
Issuance of common stock in initial public offering at $9.50 per
share, net of issuance cost of $2,421,726 ......................... -- -- 2,210,526 2,210
Issuance of Series G convertible preferred stock net of issuance
costs of $23,582 ................................................... 1,280,000 1,280 -- --
Deferred compensation ................................................ -- -- -- --
Amortization of deferred compensation ................................ -- -- -- --
Net loss ............................................................. -- -- -- --
---------- ---------- ---------- ----------
Balance at December 31, 1997 ........................................... 1,280,000 $ 1,280 9,377,404 $ 9,377
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
NOTES
RECEIVABLE
ADDITIONAL FROM
PAID-IN COMMON DEFERRED
CAPITAL STOCKHOLDERS COMPENSATION
------------ ------------ ------------
<S> <C> <C> <C>
Issuance of common stock at $.0004 per share to
founders for cash in August 1995 ....................................... $ (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 .............................................. 155,074 -- --
Net loss ................................................................. -- -- --
------------ ---------- ----------
Balance at December 31, 1995 ............................................... 153,628 -- --
Issuance of common stock at $.004 per share for cash
and notes receivable in January 1996 ................................... 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 .............................................. 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 .............................................. 793,041 -- --
Issuance of common stock at $.002 per share to
founders for cash in March 1996 ........................................ 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 .............................................. 655,976 -- --
Issuance of common stock at $.024 per share for cash
and notes receivable in April 1996 ..................................... 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 ........................ 2,866,051 -- --
Issuance of common stock at $.04 per share for cash
and notes receivable in December 1996 .................................. 5,020 (4,000) --
Deferred compensation .................................................... 421,273 -- (421,273)
Amortization of deferred compensation .................................... -- -- 18,071
Net loss ................................................................... -- -- --
------------ ---------- ----------
Balance at December 31, 1996 ............................................... 5,324,591 (5,570) (403,202)
Issuance of Series E convertible preferred stock at
$10.00 per share for cash in February 1997, net of
issuance cost of $27,616 ............................................... 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) ............................................. 4,318,158 -- --
Exercise of stock options at $0.04 per share for cash in July 1997 ....... 1,219 -- --
Repurchase of restricted stock at $0.024 per share
for cash and cancellation of note receivable in September 1997 ......... (2,479) 1,388 --
Repayments of notes receivable from common
shareholders ........................................................... -- 3,682 --
Conversion of preferred stock ............................................ (1,212) -- --
Issuance of common stock in initial public offering at $9.50 per
share, net of issuance cost of $2,421,726 ............................. 18,565,813 -- --
Issuance of Series G convertible preferred stock net of issuance
costs of $23,582 ....................................................... (24,862) -- --
Deferred compensation .................................................... 562,819 -- (562,819)
Amortization of deferred compensation .................................... -- -- 255,528
Net loss ................................................................. -- -- --
------------ ---------- ----------
Balance at December 31, 1997 ............................................... $ 29,821,121 $ (500) $ (710,493)
============ ========== ==========
</TABLE>
<TABLE>
<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 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
shareholders ................................................................... -- 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
============ ============
</TABLE>
See accompanying notes.
34
<PAGE> 35
INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
AUGUST 2, 1995 AUGUST 2, 1995
(INCEPTION) TO YEAR ENDED DECEMBER 31, (INCEPTION) TO
DECEMBER 31, ================================= DECEMBER 31,
1995 1996 1997 1997
============ ============ ============ ============
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss .................................... $ (46,020) $ (2,278,078) $ (5,265,183) $ (7,589,281)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Amortization of deferred
compensation ............................ -- 18,071 255,528 273,599
Depreciation and amortization ............. 678 59,305 178,544 238,527
Changes in operating assets and
liabilities:
Accounts receivable ..................... -- -- (88,685) (88,685)
Prepaid and other current
assets ................................ -- (10,095) (59,513) (69,608)
Accounts payable ........................ -- 87,084 349,980 437,064
Accrued liabilities ..................... -- 65,970 76,048 142,018
------------ ------------ ------------ ------------
Net cash used in operating
activities ................................ (45,342) (2,057,743) (4,553,281) (6,656,366)
INVESTING ACTIVITIES
Purchases of property and
equipment ................................. (13,344) (298,925) (483,373) (795,642)
Other assets ................................ -- (6,274) (995) (7,269)
------------ ------------ ------------ ------------
Net cash used in investing
activities ................................ (13,344) (305,199) (484,368) (802,911)
FINANCING ACTIVITIES
Payments on capital leases .................. -- -- (8,064) (8,064)
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 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 3,682
------------ ------------ ------------ ------------
Net cash provided by financing
activities ................................ 567,440 4,362,010 23,909,672 28,839,122
Net increase in cash and cash
equivalents ............................... 508,754 1,999,068 18,872,023 21,379,845
Cash and cash equivalents at
beginning of period ....................... -- 508,754 2,507,822 --
------------ ------------ ------------ ------------
Cash and cash equivalents at end of
period .................................... $ 508,754 $ 2,507,822 $ 21,379,845 $ 21,379,845
============ ============ ============ ============
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 $ 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 strategic
alliance ................................ $ -- $ -- $ 1,280 $ 1,280
============ ============ ============ ============
</TABLE>
See accompanying notes.
35
<PAGE> 36
INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
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 December
31, 1997, the Company had incurred accumulated losses of $7,589,281. 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. While
management believes the Company has funds to meet its capital requirements for
the next twelve months, without the additional financing, the Company may 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.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash, money market funds, and other
highly liquid investments with maturities of three months or less when
purchased. The carrying value of these instruments approximates fair value. Such
investments are made in accordance with the Company's investment policy, which
establishes guidelines relative to diversification and maturities designed to
maintain safety and liquidity. The Company has not experienced any losses on its
cash and cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, net of accumulated depreciation
and depreciated over the estimated useful lives of the assets, ranging from
three to five years, using the straight-line method. Leasehold improvements are
stated at cost and amortized using the straight-line method over the shorter of
the estimated 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.
36
<PAGE> 37
INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and disclosures made in
the accompanying notes to the financial statements. Actual results could differ
from those estimates.
REVENUE RECOGNITION
Revenue is generated primarily from video encoding and distribution services.
Revenue from video encoding services is recognized as the service is provided
and revenue from video distribution services is recognized at the time of
delivery.
CONCENTRATION OF CREDIT RISK
Credit is extended based on an evaluation of the customer's financial
condition and collateral is generally not required. Credit losses have been
minimal and such losses have been within management's expectations.
RESEARCH AND DEVELOPMENT COSTS
Costs incurred in connection with research and development are charged to
operations as incurred.
IMPAIRMENT OF LONG-LIVED ASSETS
In 1996, the Company adopted Statement of Financial Accounting Standard
(SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of, which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. SFAS No. 121 also addresses
the accounting for long-lived assets that are expected to be disposed of. The
adoption had no impact on the Company's financial statements.
STOCK OPTIONS
In 1996, the Company adopted SFAS No. 123, Accounting for Stock-Based
Compensation, which establishes the use of the fair value based method of
accounting for stock-based compensation arrangements, under which compensation
cost is determined using the fair value of stock-based compensation determined
as of the grant date, and is recognized over the periods in which the related
services are rendered. SFAS No. 123 also permits companies to elect to continue
using the 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 intrinsic value based method, and has disclosed the
pro forma effect of using the fair value based method to account for its
stock-based compensation (Note 4).
LOSS PER SHARE
Loss per share is computed using the weighted average number of common
shares and common equivalent shares outstanding during the periods presented.
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 in 1996 and 1997, respectively, as the
effect would be anti-dilutive. For loss periods, common equivalent shares are
excluded from the computation as their effect would be anti-dilutive, except
that the Securities and Exchange Commission (SEC) has historically required
common and common share equivalents issued during the last twelve-month period
prior to the initial filing of a proposed public offering, to be included in the
calculation as if they were outstanding for all periods presented (using the
treasury stock method and the initial public offering price).
37
<PAGE> 38
INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
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 "Basis 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 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 1996 and 1997 are the weighted-average effect of assumed conversion
of preferred shares totaling 2,052,983 and 3,199,777, respectively, and
weighted-average common shares totaling 1,387,948 and 2,622,817, respectively.
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 the 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 its 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 the Company in
deciding how to allocate resources and in 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. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1997
--------- ---------
<S> <C> <C>
Equipment .................................. $ -- $ 18,259
Computers .................................. 228,729 606,619
Furniture and fixtures ..................... 61,676 104,531
Equipment under capital lease .............. -- 27,486
Leasehold improvements ..................... 11,936 24,172
Purchased software ......................... 9,928 42,061
--------- ---------
312,269 823,128
Less accumulated depreciation .............. (59,983) (238,527)
--------- ---------
$ 252,286 $ 584,601
========= =========
</TABLE>
3. STOCKHOLDER ADVANCES
At December 31, 1995, the Company received $411,241 in cash advances from
certain stockholders that was subsequently converted to Series B convertible
preferred stock in February 1996 at a per share price of $1.27. At December 31,
1996, the Company received $26,500 in cash advances from certain stockholders
that was subsequently converted into Series E convertible preferred stock in
January 1997 at a per share price of $10.00.
38
<PAGE> 39
INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
4. STOCKHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK
Upon completion of the Company's public offering, the Company had authorized
5,000,000 shares of preferred stock of which 1,280,000 shares were designated as
Series G convertible preferred shares. The Board of Directors is authorized,
without further stockholder approval, to issue the remaining 3,720,000 shares of
preferred stock in one or more series and to fix the rights, preferences,
privileges, and restrictions granted or imposed upon any unissued shares of
preferred stock and to fix the number of shares constituting any series and the
designation of such series.
In connection with the formation of a strategic alliance in October 1997,
the Company issued 1,280,000 shares of Series G preferred stock. The Series G
convertible preferred stock ($.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 Series G convertible preferred shares
are convertible 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. At December 31, 1997, 1,521,293 shares were
subject to repurchase by the Company.
In April 1996, the Board of Directors declared a two-for-one stock dividend
of the Company's common stock, effectuated as a stock split. Also, on July 16,
1997, the Company declared a two-for-one stock split of the Company's common
stock. All applicable share and stock option information have been restated to
reflect the split.
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
On November 18, 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.
39
<PAGE> 40
INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
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.
The following table summarizes the stock option activity for the period from
August 2, 1995 (Inception) to December 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
--------- --------
<S> <C> <C>
Granted ................................. 156,820 $ 0.04
-------- --------
Balance at December 31, 1996 .............. 156,820 0.04
Granted ................................. 710,798 3.15
Exercised ............................... (31,490) 0.03
Canceled ................................ (91,950) 0.03
-------- --------
Balance at December 31, 1997 .............. 744,177 $ 3.00
======== ========
</TABLE>
As of December 31, 1997, options for 77,260 common shares were exercisable.
The weighted average remaining contractual life of outstanding options was
approximately 9.25 years at December 31, 1997.
Pro forma information regarding net income or loss is required to be
disclosed in accordance with SFAS No. 123, and has been determined as if the
Company has accounted for its employee stock options under the fair value method
prescribed in that Statement. 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, $2,278,002 and $5,099,562 for the years ended
December 31, 1996 and 1997, respectively, and , $7,377,640 for the period from
August 2, 1995 (Inception) to December 31, 1997. The Company's pro forma basic
and diluted net loss per share was $(.66) and $(0.88) for the years ended
December 31, 1996 and 1997, respectively.
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,
40
<PAGE> 41
INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
respectively, and related amortization expense totaled $18,071 and $255,528 in
1996 and 1997, respectively, and $273,599 for the period from August 2, 1995
(Inception) to December 31, 1997.
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 through November 19, 2002.
SHARES RESERVED FOR FUTURE ISSUANCE
At December 31, 1997, the Company had reserved approximately 2.9 million
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.
5. COMMITMENTS
The Company leases its principal facilities under two noncancelable operating
leases which expire in 1999 with options to renew the leases for up to two
years. Total rent expense was $47,648 and $128,795 for the year ended December
31, 1996 and 1997, and $176,443 for the period from August 2, 1995 (Inception)
to December 31, 1997.
Future annual minimum payments under noncancelable capital and operating
leases (with initial lease terms in excess of one year) consisted of the
following at December 31, 1997:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- -------
<S> <C> <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 ................ 19,422
lease payments
Less current portion ........................... (11,814)
-------
Capital lease obligation, net of current portion $ 7,608
=======
</TABLE>
\
6. 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
41
<PAGE> 42
INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
during 1996. However, the Company does not believe such limitation will have a
material impact on the Company's ability to use these carryforwards.
7. EMPLOYEE BENEFITS
In 1996, the Company established a cafeteria benefits plan whereby it
contributes for each employee an amount equal to $3,000 plus a percentage of
each employee's base salary, as approved by the Board of Directors, up to a
maximum contribution of $9,000. The employer contribution goes towards the
purchase of various benefit packages selected by the employee. The employee may
contribute additional amounts as desired. Benefit packages include health care
reimbursement, dependent care assistance, various insurance premium payments and
a 401(k) plan. Company contributions to the cafeteria benefits plan were
$101,832 and $182,216 for the years ended December 31, 1996 and 1997,
respectively, and $284,048 for the period from August 2, 1995 (Inception) to
December 31,1997.
8. 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 formation of the strategic alliance, 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 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 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 and, is required to return (i) all shares of Series G convertible
preferred stock if termination occurs prior to January 10, 1998 and NBC
Multimedia has not promoted, at a minimum, the Company's logo on the NBC Web
site or (ii) 600,000 shares of Series G convertible preferred stock if the
termination occurs at any other time during the first two years of the exclusive
term. The Company will determine the fair value of the Series G convertible
preferred stock issued to NBC on the dates the requirements that NBC return some
or all of the shares of Series G convertible preferred stock lapse. Based on
these provisions, the Company currently expects to charge the then fair value of
680,000 shares of Series G convertible preferred stock to expense in the quarter
ending March 31, 1998 and the then fair value of the remaining 600,000 shares of
Series G convertible preferred stock to expense in the quarter ending December
31, 1999. Should the Company renegotiate or waive these provisions, removing
NBC's obligation to return shares of Series G convertible preferred stock, the
Company would expense the fair value of each share at that time. The Company
believes that the fair value of the shares of Series G convertible preferred
stock will roughly approximate the price at which the Company's common stock is
then trading, multiplied by the number of common shares into which such
outstanding shares of Series G convertible preferred stock would convert at the
.6298 conversion rate. These noncash charges are likely to be substantial and
are likely to have a material adverse impact on the Company's results of
operations in the periods such expenses are recognized.
ITEM 9. CHANGES IN OR DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
42
<PAGE> 43
PART III
As indicated in the following table, the information required to be
presented in Part III of this report is hereby incorporated by reference to the
Company's definitive Proxy Statement for its 1998 Annual Meeting of Stockholders
to be prepared in accordance with Schedule 14A and filed with the Securities and
Exchange Commission within 120 days of the end of the fiscal year covered by the
report.
Material in Proxy Statement for 1998 Annual Meeting which is incorporated by
reference
<TABLE>
<CAPTION>
Item No. Item Caption Proxy Statement Caption
-------- ----------------------------------- ----------------------------
<S> <C> <C>
10 Directors and Executive Officers of "Directors and Executive
the Registrant Officers"
11 Executive Compensation "Executive Compensation"
12 Security Ownership of Certain "Security Ownership of
Beneficial Owners and Management Stockholders and Management"
13 Certain Relationships and Related "Certain Transactions"
Transactions
</TABLE>
43
<PAGE> 44
ITEM 14. EXHIBITS
EXHIBIT INDEX
The following exhibits are filed as part of this Annual Report on Form 10K.
<TABLE>
EXHIBIT
NUMBERS DESCRIPTION OF EXHIBIT
- ------- ----------------------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation.(1)
3.2 Amended and Restated Bylaws.(1)
4.1 Form of Common Stock Certificate.(2)
10.1 1996 Stock Plan of InterVU Inc.(3)
10.2 Form of Indemnification Agreement.(4)
10.3 Form of Restricted Stock Purchase Agreement.(4)
10.4 Amended and Restated Vesting Agreement between the Company and
Harry Gruber.(1)
10.5 Amended and Restated Vesting Agreement between the Company and
Brian Kenner.(1)
10.6 Strategic Alliance Agreement dated as of October 10, 1997 between
the Company and NBC Multimedia, Inc.(3)
10.7 Preferred Stock Purchase Agreement dated as of October 10, 1997
among the Company, National Broadcasting Company, Inc. and NBC
Multimedia, Inc.(3)
10.8 Strategic Alliance Agreement dated January 15, 1998 between the
Company and MatchLogic Inc.*(1)
27.1 Financial Data Schedule.(1)
</TABLE>
- ----------
* Portions of this document have been redacted pursuant to a Request for
Confidential Treatment filed concurrently herewith.
(1) Filed herewith.
(2) 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.
(3) 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.
(4) 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.
44
<PAGE> 45
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant duly causes this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
InterVU Inc.
Date: March 31, 1998 By: /s/ Harry Gruber
-------------- --------------------------------------------
Harry Gruber
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Harry Gruber Chairman of the Board and Chief Executive
- -------------------------------- Officer (Principal Executive Officer) March 31, 1998
Harry Gruber --------------
/s/ Kenneth Ruggiero Vice President and Chief Financial Officer
- -------------------------------- (Principal Financial and Accounting March 31, 1998
Kenneth Ruggiero Officer) --------------
/s/ J. William Grimes Vice Chairman of the Board March 31, 1998
- -------------------------------- --------------
J. William Grimes
/s/ Edward David Director March 31, 1998
- -------------------------------- --------------
Edward David
/s/ Mark Dowley Director March 31, 1998
- -------------------------------- --------------
Mark Dowley
Director
/s/ Alan Z. Senter March 31, 1998
- -------------------------------- --------------
Alan Z. Senter
/s/ Isaac Willis Director March 31, 1998
- -------------------------------- --------------
Isaac Willis, M.D.
</TABLE>
45
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
INTERVU INC.
InterVU Inc., a corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware (the "Corporation"),
DOES HEREBY CERTIFY:
1. The Corporation's original Certificate of Incorporation was filed on
August 2, 1995.
2. That by action taken by unanimous written consent of the Board of
Directors on NOVEMBER 5, 1997 resolutions were duly adopted setting forth a
proposed amendment and restatement of the Certificate of Incorporation of the
Corporation, declaring said amendment and restatement to be advisable and
directing its officers to submit said amendment and restatement to the
stockholders of the Corporation for consideration thereof. The resolution
setting forth the proposed amendment and restatement is as follows:
"THEREFORE, BE IT RESOLVED, that the Certificate of
Incorporation of the Corporation is hereby amended to read in its
entirety as follows, subject to the required consent of the sole
stockholder of the corporation:
FIRST: The name of the Corporation (hereinafter the
"Corporation") is
InterVU Inc.
SECOND: The address, including street, number, city and county,
of the registered office of the Corporation in the State of
Delaware is 32 Loockerman Square, Suite L-100, Dover, Delaware
19901, County of Kent; and the name of the Registered Agent of
the Corporation in the State of Delaware is The Prentice-Hall
Corporation System, Inc.
THIRD: The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law
of Delaware.
FOURTH: The total number of shares of stock which the
Corporation shall have authority to issue shall be twenty-five
million (25,000,000), divided as follows: (i) twenty million
(20,000,000) shares of Common Stock with a par value of $.001
per share, and (ii) five million (5,000,000) shares of Preferred
Stock with a par value of $.001 per share, of which one million
two hundred eighty thousand (1,280,000) are hereby designated
Series G Convertible Preferred Stock ("Series G Preferred
Stock").
<PAGE> 2
Shares of Preferred Stock may be issued from time to
time in one or more series, each of such series to have such
terms as stated in the resolution or resolutions providing for
the establishment of such series adopted by the Board of
Directors of the Corporation as hereinafter provided. Except
with respect to the Series G Preferred Stock which is described
below, authority is hereby expressly granted to the Board of
Directors of the Corporation to issue, from time to time, shares
of Preferred Stock in one or more series, and, in connection
with the establishment of any such series by resolution or
resolutions, to determine and fix such voting powers, full or
limited, or no voting powers, and such other powers,
designations, preferences and relative, participating, optional,
and other special rights, and the qualifications, limitations,
and restrictions thereof, if any including, without limitation,
dividend rights, conversion rights, redemption privileges and
liquidation preferences, as shall be stated in such resolution
or resolutions, all to the fullest extent permitted by the
General Corporation Law of the State of Delaware. Without
limiting the generality of the foregoing, the resolution or
resolutions providing for the establishment of any series of
Preferred Stock may, to the extent permitted by law, provide
that such series shall be superior to, rank equally with or be
junior to the Preferred Stock of any other series. Except as
otherwise expressly provided in the resolution or resolutions
providing for the establishment of any series of any series of
Preferred Stock, no vote of the holders of shares of Preferred
Stock or Common Stock shall be a prerequisite to the issuance of
any shares of any series of the Preferred Stock authorized by
and complying with the conditions of this Amended and Restated
Certificate of Incorporation. The rights, preferences,
privileges and restrictions of the Series G Preferred Stock and
the holders thereof shall be as follows:
1. Dividend Provisions. The holders of shares of Series G Preferred
Stock shall be entitled to receive dividends, out of any assets legally
available therefor, prior and in preference to any declaration or payment of any
dividend (payable other than in Common Stock of the Corporation) on the Common
Stock of the Corporation, at the rate of $0.64 per share per annum, payable
quarterly, when, as and if declared by the Board of Directors. Dividends payable
on the Series G Preferred Stock and any other class or series of stock ranking
on a parity as to dividends with the Series G Preferred Stock shall be payable
on a pari passu basis in accordance with the following sentence. All dividends
declared, paid or set apart with respect to the Series G Preferred Stock and any
other class or series of stock ranking on a parity as to dividends with such
Series G Preferred Stock shall be declared, paid or set apart ratably on a
proportionate basis, based on the respective annual dividend rates fixed
therefor. All payments due under this Section 1 shall be made to the nearest
cent. Dividends on the Series G Preferred Stock shall not be cumulative.
2. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of
the Corporation, either voluntary or involuntary (a "Liquidation Event"), the
holders of Series G Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets of the Corporation to the
holders of Common Stock, by reason of their ownership thereof, an amount per
share equal to the sum of (i) the Liquidation Price (as hereinafter defined) for
each outstanding share of Series G Preferred Stock, and (ii) an amount equal to
all declared but unpaid dividends on each such share. With respect to any
Liquidation Event, the Series G Preferred Stock
2
<PAGE> 3
shall rank on a parity with each other and shall all rank prior to the Common
Stock. If upon the occurrence of a Liquidation Event the assets and funds thus
distributed among the holders of the Series G Preferred Stock shall be
insufficient to permit the payment to such holders of the full aforesaid
preferential amounts, then the entire assets and funds of the corporation
legally available for distribution shall be distributed ratably among the
holders of the Series G Preferred Stock, based upon the respective amounts which
would be payable in respect of the shares held by them upon such distribution if
all amounts payable on or with respect to such shares were paid in full. As used
herein, the term "Liquidation Price" shall mean $8.00 for each outstanding share
of Series G Preferred Stock.
(b) After the distribution of all amounts due to the holders of
Series G Preferred Stock above has been paid, the remaining assets of the
Corporation available for distribution to stockholders shall be distributed
among the holders of Common Stock pro rata based on the number of shares of
Common Stock held by each.
3. Conversion. The holders of Series G Preferred Stock shall have the
following conversion rights (the "Conversion Rights"):
(a) Right to Convert. Each share of Series G Preferred Stock shall
be convertible, at the option of the holder thereof, at any time nine months
after the date of issuance of such share, at the office of the Corporation or
any transfer agent for the Series G Preferred Stock, into one (1) share of
Common Stock, subject to adjustment as set forth in subsection 3(c).
(b) Mechanics of Conversion. The holder of any shares of Series G
Preferred Stock may exercise the conversion right provided in subsection 3(a) as
to any shares thereof by delivering to the Corporation the certificate or
certificates therefor, duly endorsed, at the office of the Corporation, and such
holder shall give written notice to the Corporation of the election to convert
the same and shall state therein the name or names in which the certificate or
certificates for shares of Common Stock are to be issued. Conversion shall be
deemed to have been effected on the date when the aforesaid delivery is made,
and such date is hereinafter referred to as the "Conversion Date." As promptly
as practicable thereafter, the Corporation shall issue and deliver to or upon
the written order of such holder, to the place designated by such holder, a
certificate or certificates for the number of full shares of Common Stock to
which such holder is entitled. The person in whose names the certificate or
certificates for Common Stock are to be issued shall be deemed to have become a
stockholder of record on the applicable Conversion Date unless the transfer
books of the Corporation are closed on that date, in which event he shall be
deemed to have become a stockholder of record on the next succeeding date on
which the transfer books are open. Upon conversion of only a portion of the
number of shares covered by a certificate representing shares of Series G
Preferred Stock surrendered for conversion, the Corporation shall
3
<PAGE> 4
issue and deliver to or upon the written order of the holder of the certificate
so surrendered for conversion, at the expense of the Corporation, a new
certificate covering the number of shares of Series G Preferred Stock
representing the unconverted portion of the certificate so surrendered, which
new certificate shall entitle the holder thereof to dividends on the shares of
Series G Preferred Stock represented thereby to the same extent as if the
certificate theretofore covering such unconverted shares had not been
surrendered for conversion.
(c) Adjustments to Conversion Ratio. The ratio for the conversion
of Series G Preferred Stock into Common Stock (the "Conversion Ratio") shall be
subject to adjustment from time to time as follows:
(i) In the event the Corporation should at any time or from
time to time after the issuance of the Series G Preferred Stock fix a record
date for the effectuation of a split or subdivision of the outstanding shares of
Common Stock or the determination of holders of Common Stock entitled to receive
a dividend or other distribution payable in additional shares of Common Stock
without payment of any consideration by such holder for the additional shares of
Common Stock, then, as of such record date (or the date of such dividend,
distribution, split or subdivision, if no record date is fixed), the Conversion
Ratio shall be appropriately adjusted so that the number of shares of Common
Stock issuable on conversion of each share of the Series G Preferred Stock shall
be increased in proportion to such increase of outstanding shares.
(ii) If the number of shares of Common Stock outstanding at
any time after the issuance of the Series G Preferred Stock is decreased by a
combination of the outstanding shares of Common Stock, then, following the
record date of such combination, the Conversion Ratio shall be appropriately
adjusted so that the number of shares of Common Stock issuable on conversion of
each share of such Series G Preferred Stock shall be decreased in proportion to
such decrease in outstanding shares.
(d) Other Distributions. In the event the Corporation shall
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by the Corporation or other persons, or assets (excluding
cash dividends), then, in each such case for the purpose of this subsection
3(d), the holder of Series G Preferred Stock shall be entitled to a
proportionate share of any such distribution as though they were the holders of
the number of shares of Common Stock of the Corporation into which their shares
of Series G Preferred Stock are convertible as of the record date fixed for the
determination of the holders of Common Stock of the Corporation entitled to
receive such distribution.
(e) Recapitalization. If, at any time or from time to time there
shall be a recapitalization of the Common Stock (other then a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
this Section 3 or in Section 4), provisions shall be made so that the holders of
Series G Preferred Stock shall thereafter be entitled to receive upon conversion
of their Preferred Stock the number of shares of stock or other securities or
property of
4
<PAGE> 5
the Corporation or otherwise, to which a holder of Common Stock deliverable upon
conversion would have been entitled on such recapitalization. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 3 with respect to the rights of the holders of Series G Preferred
Stock after the recapitalization to the end that the provisions of this Section
3 (including adjustment of the Series G Conversion Price then in effect and the
number of shares purchasable upon conversion of Series G Preferred Stock) shall
be applicable after the event as nearly equivalent as may be practicable.
(f) No Impairment. The Corporation will not, by amendment of its
Restated Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 3 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the Series G Preferred Stock against
impairment.
(g) No Fractional Shares and Certificates as to Adjustments. (i)
No fractional shares shall be issued upon conversion of the Series G Preferred
Stock and the number of shares of Common Stock to be issued shall be rounded to
the nearest whole share.
(ii) Upon the occurrence of each adjustment or readjustment
of the Conversion Ratio pursuant to this Section 3, the Corporation, at its
expense, shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and prepare and furnish to each holder of Series G
Preferred Stock a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
The Corporation shall, upon the written request at any time of any holder of
Series G Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (A) such adjustment and readjustment, (B) the
Conversion Ratio at the time in effect, and (C) the number of shares of Common
Stock and the amount, if any, of other property which at the time would be
received upon the conversion of a share of Series G Preferred Stock.
(iii) If any adjustment in the number of shares of Common
Stock into which each share of Series G Preferred Stock may be converted
required pursuant to this Section 3 would result in an increase or decrease of
less than 1% in the number of shares of Common Stock into which each share of
Series G Preferred Stock is then convertible, the amount of any such adjustment
shall be carried forward and adjustment with respect thereto shall be made at
the time of and together with any subsequent adjustment which, together with
such amount and any other amount or amounts so carried forward, shall aggregate
at least 1% of the number of shares of Common Stock into which each share of
Series G Preferred Stock is then convertible. All calculations under this
paragraph (iii) shall be made to the nearest one-hundredth of a share.
5
<PAGE> 6
(h) Notices of Record Date. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, the Corporation
shall mail to each holder of Series G Preferred Stock, at least 20 days prior to
the date specified therein, notice for specifying the date on which any such
record is to be taken for the purpose of such dividend or distribution.
(i) Reservation of Stock Issuable Upon Conversion. The Corporation
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock solely for the purpose of effecting the conversion of the
shares of Series G Preferred Stock such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of Series G Preferred Stock; and, if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all then outstanding shares of Series G Preferred
Stock, in addition to such other remedies as shall be available to the holder of
such Series G Preferred Stock, the Corporation will take such corporate action
as may, in the opinion of its counsel, be necessary to increase its authorized
but unissued shares of Common Stock to such number of shares as shall be
sufficient for such purposes.
(j) Notices. Any notice required by the provisions of this Section
3 to be given to the holders of shares of Series G Preferred Stock shall be
deemed given if deposited in the United States mail, postage prepaid, and
addressed to each holder of record at his address appearing on the books of the
Corporation.
4. Merger, Consolidation. If at any time there is a merger or
consolidation of the Corporation with or into another corporation or other
entity or person, or any other corporate reorganization, in which the
Corporation shall not be the continuing or surviving entity of such merger,
consolidation or reorganization, or the sale of all or substantially all of the
Corporation's properties and assets to any other person, then, as a part of such
reorganization, merger, consolidation or sale, provision shall be made so that
the holders of the Series G Preferred Stock shall be entitled to receive (on a
per share basis), prior to any distribution to holders of Common Stock, the
number of shares of stock or other securities or property to be issued to the
Corporation or its stockholders resulting from such reorganization, merger,
consolidation or sale in an amount per share equal to the applicable Liquidation
Price for the Series G Preferred Stock plus a further amount equal to any
dividends declared but unpaid on such shares.
5. Voting Rights. The holder of each share of Series G Preferred Stock
shall have the right to one vote for each share of Common Stock into which such
6
<PAGE> 7
Series G Preferred Stock could then be converted or could be converted without
regard to the limitation on conversions set forth at Subsection 3(a) (with any
fractional share determined on an aggregate conversion basis being rounded to
the nearest whole share), and with respect to such vote, such holder shall have
full voting rights and powers equal to the voting rights and powers of the
holders of Common Stock, and shall be entitled, notwithstanding any provision
hereof, to notice of any stockholders' meeting in accordance with the Bylaws of
the Corporation, and shall be entitled to vote, together with holders of Common
Stock, with respect to any question upon which holders of Common Stock, have the
right to vote, in the same manner and with the same effect as such holders of
Common Stock, as one class.
6. Status of Converted or Redeemed Stock. In the event any shares of
Series G Preferred Stock shall be converted pursuant to Section 3, the shares so
converted shall be canceled and shall not be issuable by the Corporation.
7. Preemptive Rights. The holders of Series G Preferred Stock shall not
have any preemptive rights.
FIFTH: (1) The business and affairs of the Corporation shall be
managed by or under the direction of a Board of Directors
consisting of not less than 3 nor more than 11 directors, the
exact number of directors to be determined from time to time
solely by resolution adopted by the affirmative vote of a
majority of the entire Board of Directors.
(2) The directors of the Corporation, other than
directors elected by one or more series of Preferred Stock,
shall be divided into three classes, designated Class I, Class
II and Class III. Each class shall consist, as nearly as may be
possible, of one-third of the total number of directors (other
than directors elected by one or more series of Preferred Stock)
constituting the entire Board of Directors. Each director (other
than directors elected by one or more series of Preferred Stock)
shall serve for a term ending on the date of the third annual
meeting of stockholders next following the annual meeting at
which such director was elected, provided that directors
initially designated as Class I directors shall serve for a term
ending on the date of the 1998 annual meeting, directors
initially designated as Class II directors shall serve for a
term ending on the date of the 1999 annual meeting, and
directors initially designated as Class III directors shall
serve for a term ending on the date of the 2000 annual meeting.
Notwithstanding the foregoing, each director shall hold office
until such director's successor shall have been duly elected and
qualified or until such director's earlier death, resignation or
removal. If the number of directors (other than directors
elected by one or more series of Preferred Stock) is changed,
any increase or decrease shall be apportioned among the classes
so as to maintain the number of directors in each class as
nearly equal as possible, but in no event will a
7
<PAGE> 8
decrease in the number of directors shorten the term of any
incumbent director. Vacancies on the Board of Directors
resulting from death, resignation, removal or otherwise and
newly created directorships resulting from any increase in the
number of directors (other than directors elected by one or more
series of Preferred Stock) may be filled solely by a majority of
the directors then in office (although less than a quorum) or by
a sole remaining director, and each director so elected shall
hold office for a term that shall coincide with the remaining
term of the class to which such director shall have been
elected. Whenever the holders of one or more classes or series
of Preferred Stock shall have the right, voting separately as a
class or series, to elect directors, the nomination, election,
term of office, filling of vacancies, removal and other features
of such directorships shall not be governed by this ARTICLE
FIFTH unless otherwise provided for in the certificate of
designation for such classes or series.
(3) No director (other than directors elected by one or
more series of Preferred Stock) may be removed from office by
the stockholders except for cause and, in addition to any other
vote required by law, upon the affirmative vote of the holders
of two-thirds (66 2/3%) of all outstanding securities of the
Corporation then entitled to vote generally in the election of
directors, voting together as a single class.
SIXTH: The Corporation is to have perpetual existence.
SEVENTH: The following provisions are inserted for the
management of the business and the conduct of the affairs of the
Corporation and for the further definition of the powers of the
Corporation and its directors and stockholders:
(1) The Board of Directors shall have the power to
adopt, amend, alter, rescind or repeal the bylaws of the
Corporation.
The stockholders may adopt, amend, alter, rescind or
repeal the bylaws only with, in addition to any other vote
required by law, the affirmative vote of the holders of not less
than 66 2/3% of the total voting power of all outstanding
securities of the Corporation then entitled to vote generally in
the election of directors, voting together as a single class.
(2) Elections of directors need not be by written ballot
unless the bylaws of the Corporation so provide.
(3) Any action required or permitted to be taken at any
annual or special meeting of stockholders may be taken only upon
the vote of stockholders at an annual or special meeting duly
noticed and called in accordance with Delaware Law, and may not
be taken by written consent of stockholders without a meeting.
(4) Special meetings of stockholders may be called by
the Board of Directors, the Chairman of the Board of Directors,
the President or the Secretary of the Corporation and may not be
called by any other person. Notwithstanding the foregoing,
whenever holders of one or more classes or series of Preferred
Stock shall have the right, voting separately as a class or
series, to elect directors, such holders
3
<PAGE> 9
may call special meetings of such holders pursuant to the
certificate of designation for such classes or series.
EIGHTH: A director of this corporation shall not be liable to
the Corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director, except to the extent
such exemption from liability or limitation thereof is not
permitted under the General Corporation Law of the State of
Delaware as the same exists or may hereafter be amended. The
Corporation shall indemnify its directors and officers to the
fullest extent permitted under the General Corporation Law of
the State of Delaware, including circumstances in which
indemnification is otherwise discretionary.
Any repeal or modification of the foregoing paragraph
shall not adversely affect any right or protection of a director
of the Corporation existing hereunder with respect to any act or
omission occurring prior to such repeal or modification.
3. That said Amended and Restated Certificate of Incorporation
has been consented to and authorized by the holders of a majority of the issued
and outstanding stock entitled to vote by written consent given in accordance
with the provisions of Sections 242 and 245 Section 228 of the General
Corporation Law of the State of Delaware.
4. That said Amended and Restated Certificate of Incorporation
was duly adopted in accordance with the applicable provisions of Sections 242
and 245 of the General Corporation Law of the State of Delaware.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
4
<PAGE> 10
IN WITNESS WHEREOF, InterVU Inc. has caused this Certificate to be
signed by Harry E. Gruber, its Chief Executive Officer and Danielle D. McGee,
its Secretary, this 24th day of November, 1997.
InterVU Inc.
a Delaware corporation
By: /s/ HARRY E. GRUBER
------------------------------------
Name: Harry E. Gruber
Title: Chief Executive Officer
ATTEST
/s/ DANIELLE D. MCGEE
- ---------------------------------
Name: Danielle D. McGee
Title: Secretary
5
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
INTERVU INC.
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
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<S> <C> <C>
ARTICLE I OFFICES....................................................................... 1
Section 1. REGISTERED OFFICES..................................................... 1
Section 2. OTHER OFFICES.......................................................... 1
ARTICLE II MEETINGS OF STOCKHOLDERS..................................................... 1
Section 1. PLACE OF MEETINGS...................................................... 1
Section 2. ANNUAL MEETING OF STOCKHOLDERS......................................... 1
Section 3. QUORUM; ADJOURNED MEETINGS AND NOTICE THEREOF.......................... 1
Section 4. VOTING................................................................. 2
Section 5. PROXIES................................................................ 3
Section 6. SPECIAL MEETINGS....................................................... 3
Section 7. NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS ........................ 3
Section 8. MAINTENANCE AND INSPECTION OF STOCKHOLDER LIST......................... 5
ARTICLE III DIRECTORS................................................................... 5
Section 1. THE NUMBER OF DIRECTORS................................................ 5
Section 2. VACANCIES.............................................................. 6
Section 3. REMOVAL................................................................ 6
Section 4. POWERS................................................................. 6
Section 5. PLACE OF DIRECTORS' MEETINGS........................................... 7
Section 6. REGULAR MEETINGS....................................................... 7
Section 7. SPECIAL MEETINGS....................................................... 7
Section 8. QUORUM................................................................. 7
Section 9. ACTION WITHOUT MEETING................................................. 7
Section 10. TELEPHONIC MEETINGS.................................................... 8
Section 11. COMMITTEES OF DIRECTORS................................................ 8
Section 12. MINUTES OF COMMITTEE MEETINGS.......................................... 9
Section 13. COMPENSATION OF DIRECTORS.............................................. 9
ARTICLE IV OFFICERS..................................................................... 9
Section 1. OFFICERS............................................................... 9
Section 2. ELECTION OF OFFICERS................................................... 10
Section 3. SUBORDINATE OFFICERS................................................... 10
Section 4. COMPENSATION OF OFFICERS............................................... 10
Section 5. TERM OF OFFICE; REMOVAL AND VACANCIES.................................. 10
Section 6. CHAIRMAN OF THE BOARD.................................................. 11
Section 7. PRESIDENT.............................................................. 11
Section 8. VICE PRESIDENTS........................................................ 11
Section 9. SECRETARY.............................................................. 12
Section 10. ASSISTANT SECRETARY.................................................... 12
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
Section 11. CHIEF FINANCIAL OFFICER OR TREASURER................................... 12
Section 12. ASSISTANT CHIEF FINANCIAL OFFICER
OR TREASURER..................................................... 13
ARTICLE V INDEMNIFICATION OF DIRECTORS AND OFFICERS..................................... 13
ARTICLE VI INDEMNIFICATION OF EMPLOYEES AND AGENTS...................................... 17
ARTICLE VII CERTIFICATES OF STOCK....................................................... 18
Section 1. CERTIFICATES........................................................... 18
Section 2. SIGNATURES ON CERTIFICATES............................................. 18
Section 3. STATEMENT OF STOCK RIGHTS,
PREFERENCES, PRIVILEGES.......................................... 18
Section 4. LOST CERTIFICATES...................................................... 19
Section 5. TRANSFERS OF STOCK..................................................... 19
Section 6. FIXED RECORD DATE...................................................... 19
Section 7. REGISTERED STOCKHOLDERS................................................ 20
ARTICLE VIII GENERAL PROVISIONS......................................................... 20
Section 1. DIVIDENDS.............................................................. 20
Section 2. PAYMENT OF DIVIDENDS; DIRECTORS' DUTIES................................ 20
Section 3. CHECKS................................................................. 21
Section 4. FISCAL YEAR............................................................ 21
Section 5. CORPORATE SEAL......................................................... 21
Section 6. MANNER OF GIVING NOTICE................................................ 21
Section 7. WAIVER OF NOTICE....................................................... 21
ARTICLE IX AMENDMENTS................................................................... 22
Section 1. AMENDMENT BY DIRECTORS OR STOCKHOLDERS................................. 22
</TABLE>
ii
<PAGE> 4
FORM OF
AMENDED AND RESTATED
BYLAWS
OF
INTERVU INC.
ARTICLE I
OFFICES
Section 1. REGISTERED OFFICES. The registered office of the corporation
shall be in the City of Dover, County of Kent, State of Delaware.
Section 2. OTHER OFFICES. The corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. PLACE OF MEETINGS. Meetings of stockholders shall be held at
any place within or outside the State of Delaware designated by the Board of
Directors. In the absence of any such designation, stockholders' meetings shall
be held at the principal executive office of the corporation.
Section 2. ANNUAL MEETING OF STOCKHOLDERS. The annual meeting of
stockholders shall be held each year on a date and a time designated by the
Board of Directors.
Section 3. QUORUM; ADJOURNED MEETINGS AND NOTICE THEREOF. A majority of
the voting power of the shares of capital stock of the corporation issued and
<PAGE> 5
outstanding and entitled to vote at any meeting of stockholders, the holders of
which are present in person or represented by proxy, shall constitute a quorum
for the transaction of business except as otherwise provided by law, by the
Certificate of Incorporation, or by these Bylaws. A quorum, once established,
shall not be broken by the withdrawal of enough votes to leave less than a
quorum and the votes present may continue to transact business until
adjournment. If, however, such quorum shall not be present or represented at any
meeting of the stockholders, a majority of the voting power of the shares of
capital stock represented in person or by proxy may adjourn the meeting from
time to time, without notice other than announcement at the meeting of the time
and place of the adjourned meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally noticed. If the adjournment is for more than thirty
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote thereat.
Section 4. VOTING. When a quorum is present at any meeting, in
all matters other than the election of directors, the vote of the holders of
stock representing a majority of the voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the Certificate of
Incorporation, or these Bylaws, or any rule, regulation or statutory provision
applicable to the corporation, a different vote is required in which case such
express provision shall govern and control the decision of such question.
Directors shall be elected by a plurality of the votes of the shares present in
person or represented by proxy at the meeting and entitled to vote on the
election of directors.
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Section 5. PROXIES. At each meeting of the stockholders, each
stockholder having the right to vote may vote in person or may authorize another
person or persons to act for him by proxy appointed by an instrument in writing
subscribed by such stockholder and bearing a date not more than three years
prior to said meeting, unless said instrument provides for a longer period. All
proxies must be filed with the Secretary of the corporation at the beginning of
each meeting in order to be counted in any vote at the meeting. Each stockholder
shall have one vote for each share of stock having voting power, registered in
his name on the books of the corporation on the record date set by the Board of
Directors as provided in Article VI, Section 6 hereof.
Section 6. SPECIAL MEETINGS. Special meetings of the
stockholders, for any purpose, or purposes, unless otherwise prescribed by
statute or by the Certificate of Incorporation, may be called by the Chairman of
the Board or the President and shall be called by the President or the Secretary
at the request in writing of the Board of Directors. Business transacted at any
special meeting of stockholders shall be limited to the purposes stated in the
notice.
Section 7. NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS.
(1) Nominations of persons for election to the Board of
Directors of the corporation and the proposal of business to be considered by
the stockholders may be made at an annual meeting of stockholders (a) pursuant
to the corporation's notice of meeting, (b) by or at the direction of the Board
of Directors or (c) by any stockholder of the corporation who was a stockholder
of record at the time of giving of notice provided for in this Bylaw, who is
entitled to vote at the meeting and who complies with the notice procedures set
forth in this Bylaw.
(2) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (c) of paragraph
(1) of this By-Law, the stockholder must have given timely notice thereof in
writing to the Secretary of the corporation and such other
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business must otherwise be a proper matter for stockholder action. To be timely,
a stockholder's notice shall be delivered to the Secretary at the principal
executive offices of the corporation not later than the close of business on the
60th day nor earlier than the close of business on the 90th day prior to the
first anniversary of the preceding year's annual meeting; provided, however,
that in the event that the date of the annual meeting is not within 30 days
before or after such anniversary date, notice by the stockholder to be timely
must be so delivered not earlier than the close of business on the 90th day
prior to such annual meeting and not later than the close of business on the
later of the 60th day prior to such annual meeting or the 10th day following the
day on which notice of the meeting was mailed or public announcement of the date
of such meeting is first made by the corporation. In no event shall the public
announcement of an adjournment of an annual meeting commence a new time period
for the giving of a stockholder's notice as described above. Such stockholder's
notice shall set forth (a) as to each person whom the stockholder proposes to
nominate for election or re-election as a director all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors in an election contest, or is otherwise required, in each
case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and Rule 14A-11 thereunder (including such
person's written consent to being named in the proxy statement as a nominee and
to serving as a director if elected); (b) as to any other business that the
stockholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the nomination or
proposal is made and (c) as to the stockholder giving the notice and the
beneficial owner, if any, on whose behalf the nomination or proposal is made (i)
the name and address of such stockholder,
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as they appear on the corporation's books, and of such beneficial owner and (ii)
the class and number of shares of the corporation which are owned beneficially
and or record by such stockholder and such beneficial owner.
Section 8. MAINTENANCE AND INSPECTION OF STOCKHOLDER LIST.
The officer who has charge of the stock ledger of the corporation shall prepare
and make, at least ten days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
ARTICLE III
DIRECTORS
Section 1. THE NUMBER OF DIRECTORS. The number of directors
(other than directors elected by one or more series of Preferred Stock) which
shall constitute the whole Board shall be not less than three (3) nor more than
eleven (11), the exact number of directors to be determined from time to time
solely by resolution adopted by the affirmative vote of a majority of the
directors. The directors need not be stockholders. The directors shall be
elected at the annual meeting of the stockholders, except as provided in Section
2 of this Article, and each director elected shall hold office until his
successor is duly elected and qualified.
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Section 2. VACANCIES. Vacancies on the Board of Directors by
reason of death, resignation, removal, or otherwise, and newly created
directorships resulting from any increase in the number of directors may be
filled (other than directors elected by one or more series of Preferred Stock)
solely by a majority of the directors then in office (although less than a
quorum) or by a sole remaining director. Each director so chosen shall hold
office until such director's successor shall have been duly elected and
qualified or until such director's earlier death, resignation, disqualification
or removal. If, at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole Board (as constituted immediately prior to any such increase), the
Court of Chancery may, upon application of any stockholder or stockholders
having the right to vote for such directors, summarily order an election to be
held to fill any such vacancies or newly created directorships, or to replace
the directors chosen by the directors then in office.
Section 3. REMOVAL. No director may be removed from office by the
stockholders except for cause with the affirmative vote of the holders of
two-thirds (66%) of all outstanding securities of the corporation then entitled
to vote generally in the election of directors, voting together as a single
class.
Section 4. POWERS. The property and business of the corporation
shall be managed by or under the direction of its Board of Directors. In
addition to the powers and authorities by these Bylaws expressly conferred upon
them, the Board may exercise all such powers of the corporation and do all such
lawful acts and things as are not by statute or by the Certificate of
Incorporation or by these Bylaws directed or required to be exercised or done by
the stockholders.
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Section 5. PLACE OF DIRECTORS' MEETINGS. The directors may hold
their meetings and have one or more offices, and keep the books of the
corporation outside of the State of Delaware.
Section 6. REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held without notice at such time and place as shall from time
to time be determined by the Board.
Section 7. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the Chairman of the Board or the President on
forty-eight hours' notice to each director, either personally or by mail,
telecopier, or other means of electronic transmission at the address of such
director on the books and records of the corporation; special meetings shall be
called by the President or the Secretary in like manner and on like notice on
the written request of two directors.
Section 8. QUORUM. At all meetings of the Board of Directors a
majority of the then authorized number of directors shall be necessary and
sufficient to constitute a quorum for the transaction of business, and the vote
of a majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute, by the Certificate of Incorporation or by
these Bylaws. If a quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
Section 9. ACTION WITHOUT MEETING. Unless otherwise restricted by
the Certificate of Incorporation or these Bylaws, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting,
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if all members of the Board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the Board or committee.
Section 10. TELEPHONIC MEETINGS. Unless otherwise restricted by
the Certificate of Incorporation or these Bylaws, members of the Board of
Directors, or any committee designated by the Board of Directors, may
participate in a meeting of the Board of Directors, or any committee, by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and such
participation in a meeting shall constitute presence in person at such meeting.
Section 11. COMMITTEES OF DIRECTORS. The Board of Directors may,
by resolution passed by a majority of the whole Board, designate one or more
committees, each such committee to consist of one or more of the directors of
the corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. In the absence or disqualification of a
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he/she or they constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors,
shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the corporation, and
may authorize the seal of the corporation to be affixed to all papers which may
require it; but no such committee shall have the power or authority in reference
to amending the Certificate of Incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets, recommending
to the
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stockholders a dissolution of the corporation or a revocation of a dissolution,
or amending the Bylaws of the corporation; and, unless the resolution or the
Certificate of Incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend or to authorize the issuance of
stock.
Section 12. MINUTES OF COMMITTEE MEETINGS. Each committee shall
keep regular minutes of its meetings and report the same to the Board of
Directors when required.
Section 13. COMPENSATION OF DIRECTORS. Unless otherwise
restricted by the Certificate of Incorporation or these Bylaws, the Board of
Directors shall have the authority to fix the compensation of directors. The
directors may be paid their expenses, if any, of attendance at each meeting of
the Board of Directors and may be paid a fixed sum for attendance at each
meeting of the Board of Directors or a stated salary as director. No such
payment shall preclude any director from serving the corporation in any other
capacity and receiving compensation therefor. Members of special or standing
committees may be allowed like compensation for attending committee meetings.
ARTICLE IV
OFFICERS
Section 1. OFFICERS. The officers of this corporation shall be
chosen by the Board of Directors and shall include a Chairman of the Board of
Directors or a President, or both, and a Secretary. The corporation may also
have at the discretion of the Board of Directors such other officers as are
desired, including a Vice-Chairman of the Board of Directors, a Chief Executive
Officer, a Chief Financial Officer or Treasurer, one or more Vice Presidents,
one or more Assistant Secretaries and Assistant Chief Financial Officers or
Treasurers, and such other officers as may be appointed in accordance with the
provisions of Section 3 hereof. In the event
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there are two or more Vice Presidents, then one or more may be designated as
Executive Vice President, Senior Vice President, or other similar or dissimilar
title. At the time of the election of officers, the directors may by resolution
determine the order of their rank. Any number of offices may be held by the same
person, unless the Certificate of Incorporation or these Bylaws otherwise
provide.
Section 2. ELECTION OF OFFICERS. The Board of Directors, at its
first meeting after each annual meeting of stockholders, shall choose the
officers of the corporation.
Section 3. SUBORDINATE OFFICERS. The Board of Directors may
appoint such other officers and agents as it shall deem necessary who shall hold
their offices for such terms and shall exercise such powers and perform such
duties as shall be determined from time to time by the Board.
Section 4. COMPENSATION OF OFFICERS. The salaries of all officers
and agents of the corporation shall be fixed by the Board of Directors.
Section 5. TERM OF OFFICE; REMOVAL AND VACANCIES. The officers
of the corporation shall hold office until their successors are chosen and
qualify in their stead. Any officer elected or appointed by the Board of
Directors may be removed at any time by the affirmative vote of a majority of
the members of the Board of Directors. If the office of any officer or officers
becomes vacant for any reason, the vacancy shall be filled by the Board of
Directors.
Section 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if
such an officer be elected, shall, if present, preside at all meetings of the
Board of Directors and exercise and perform such other powers and duties as may
be from time to time assigned to him/her by the Board of Directors or prescribed
by these Bylaws. If there is no President, the
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Chairman of the Board shall in addition be the Chief Executive Officer of the
corporation and shall have the powers and duties prescribed in Section 7 of this
Article IV.
Section 7. PRESIDENT. Subject to such supervisory powers, if any,
as may be given by the Board of Directors to the Chairman of the Board, if there
be such an officer, the President shall be the Chief Executive Officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
corporation. He/she shall preside at all meetings of the stockholders and, in
the absence of the Chairman of the Board, or if there be none, at all meetings
of the Board of Directors. He/she shall be an ex-officio member of all
committees and shall have the general powers and duties of management usually
vested in the office of President and Chief Executive Officer of corporations,
and shall have such other powers and duties as may be prescribed by the Board of
Directors or these Bylaws.
Section 8. VICE PRESIDENTS. In the absence or disability of the
President, the Vice Presidents in order of their rank as fixed by the Board of
Directors, or if not ranked, the Vice President designated by the Board of
Directors, shall perform all the duties of the President, and when so acting
shall have all the powers of and be subject to all the restrictions upon the
President. The Vice Presidents shall have such other duties as from time to time
may be prescribed for them, respectively, by the Board of Directors.
Section 9. SECRETARY. The Secretary shall attend all sessions of
the Board of Directors and all meetings of the stockholders and record all votes
and the minutes of all proceedings in a book to be kept for that purpose; and
shall perform like duties for the standing committees when required by the Board
of Directors. He/she shall give, or cause to be given, notice of all meetings of
the stockholders and of the Board of Directors, and shall perform such
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other duties as may be prescribed by the Board of Directors or these Bylaws.
He/she shall keep in safe custody the seal of the corporation, and when
authorized by the Board, affix the same to any instrument requiring it, and when
so affixed it shall be attested by his signature or by the signature of an
Assistant Secretary. The Board of Directors may give general authority to any
other officer to affix the seal of the corporation and to attest the affixing by
his signature.
Section 10. ASSISTANT SECRETARY. The Assistant Secretary, or if
there be more than one, the Assistant Secretaries in the order determined by the
Board of Directors, or if there be no such determination, the Assistant
Secretary designated by the Board of Directors, shall, in the absence or
disability of the Secretary, perform the duties and exercise the powers of the
Secretary and shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.
Section 11. CHIEF FINANCIAL OFFICER OR TREASURER. The Chief
Financial Officer or Treasurer shall have the custody of the corporate funds and
securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all
moneys, and other valuable effects in the name and to the credit of the
corporation, in such depositories as may be designated by the Board of
Directors. He/she shall disburse the funds of the corporation as may be ordered
by the Board of Directors, taking proper vouchers for such disbursements, and
shall render to the Board of Directors, at its regular meetings, or when the
Board of Directors so requires, an account of all his transactions as Chief
Financial Officer or Treasurer and of the financial condition of the
corporation. If required by the Board of Directors, he/she shall give the
corporation a bond, in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors, for the faithful performance of the
duties of his office and for the restoration to the corporation, in case of his
death, resignation, retirement
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or removal from office, of all books, papers, vouchers, money and other property
of whatever kind in his possession or under his control belonging to the
corporation.
Section 12. ASSISTANT CHIEF FINANCIAL OFFICER OR TREASURER. The
Assistant Chief Financial Officer or Treasurer, or if there shall be more than
one, the Assistant Chief Financial Officers or Treasurers in the order
determined by the Board of Directors, or if there be no such determination, the
Assistant Chief Financial Officer or Treasurer designated by the Board of
Directors, shall, in the absence or disability of the Chief Financial Officer or
Treasurer, perform the duties and exercise the powers of the Chief Financial
Officer or Treasurer and shall perform such other duties and have such other
powers as the Board of Directors may from time to time prescribe.
ARTICLE V
INDEMNIFICATION OF DIRECTORS AND OFFICERS
(a) The corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he/she is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action or suit or proceeding if he/she
acted in good faith and in a manner he/she reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The termination of any action, suit or
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proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which he/she reasonably
believed to be in or not opposed to the best interests of the corporation, and,
with respect to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful.
(b) The corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he/she is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he/she acted
in good faith and in a manner he/she reasonably believed in or not opposed to
the best interests of the corporation except that no such indemnification shall
be made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the extent
that the Court of Chancery of Delaware or the court in which such action or suit
was brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which such Court
of Chancery or such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of
the corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in paragraphs (a) and (b), or in defense
of any claim, issue or matter therein, he/she shall be
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indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under paragraphs (a) and (b) (unless
ordered by a court) shall be made by the corporation only as authorized in the
specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he/she has met
the applicable standard of conduct set forth in paragraphs (a) and (b). Such
determination shall be made (1) by the Board of Directors by a majority vote of
a quorum consisting of directors who were not parties to such action, suit or
proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or (3) by the stockholders.
(e) Expenses incurred by an officer or director in defending any
civil or criminal, administrative or investigative action, suit or proceeding
shall be paid by the corporation in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf of
such director or officer to repay such amount if it shall ultimately be
determined that he/she is not entitled to be indemnified by the corporation as
authorized in this Article V. Such expenses incurred by other employees and
agents may be so paid upon such terms and conditions, if any, as the Board of
Directors deems appropriate.
(f) The indemnification and advancement of expenses provided by,
or granted pursuant to, the other paragraphs of this Article V shall not be
deemed exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.
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(g) The Board of Directors may authorize, by a vote of a majority
of a quorum of the Board of Directors, the corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not the corporation would have the power to indemnify him/her
against such liability under the provisions of this Article V.
(h) For the purposes of this Article V, references to "the
corporation" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued would
have had power and authority to indemnify its directors officers and employees
or agents, so that any person who is or was a director, officer, employee or
agent of such constituent corporation, or is or was serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under the provisions of this Article with
respect to the resulting or surviving corporation as he/she would have with
respect to such constituent corporation if its separate existence had continued.
(i) For purposes of this section, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at the request of the corporation"
shall include service as a director, officer, employee or agent of the
corporation which imposes duties on, or involves services by, such director,
officer, employee or agent with respect
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to an employee benefit plan, its participants or beneficiaries; and a person who
acted in good faith and in a manner he/she reasonably believed to be in the best
interest of the participants and beneficiaries of an employee benefit plan shall
be deemed to have acted in a manner not opposed to the best interests of the
corporation" as referred to in this section.
(j) The indemnification and advancement of expenses provided by,
or granted pursuant to, this Article V shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
ARTICLE VI
INDEMNIFICATION OF EMPLOYEES AND AGENTS
The corporation may, at its option, indemnify every person who
was or is a party or is or was threatened to be made a party to any action,
suit, or proceeding, whether civil, criminal, administrative or investigative,
by reason of the fact that he/she is or was an employee or agent of the
corporation or, while an employee or agent of the corporation, is or was serving
at the request of the corporation as an employee or agent or trustee of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against expenses (including counsel fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him/her in
connection with such action, suit or proceeding, to the extent permitted by
applicable law.
ARTICLE VII
CERTIFICATES OF STOCK
Section 1. CERTIFICATES. Every holder of stock of the corporation
shall be entitled to have a certificate signed by, or in the name of the
corporation by, the Chairman or Vice
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Chairman of the Board of Directors, or the President or a Vice President, and by
the Secretary or an Assistant Secretary, or the Chief Financial Officer or
Treasurer or an Assistant Chief Financial Officer or Treasurer of the
corporation, certifying the number of shares represented by the certificate
owned by such stockholder in the corporation.
Section 2. SIGNATURES ON CERTIFICATES. Any or all of the
signatures on the certificate may be a facsimile. In case any officer, transfer
agent, or registrar who has signed or whose facsimile signature has been placed
upon a certificate shall have ceased to be such officer, transfer agent, or
registrar before such certificate is issued, it may be issued by the corporation
with the same effect as if he/she were such officer, transfer agent, or
registrar at the date of issue.
Section 3. STATEMENT OF STOCK RIGHTS, PREFERENCES, PRIVILEGES.
If the corporation shall be authorized to issue more than one class of stock or
more than one series of any class, the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights shall be set forth in full or summarized on the face
or back of the certificate which the corporation shall issue to represent such
class or series of stock, provided that, except as otherwise provided in section
202 of the General Corporation Law of the State of Delaware, in lieu of the
foregoing requirements, there may be set forth on the face or back of the
certificate which the corporation shall issue to represent such class or series
of stock, a statement that the corporation will furnish without charge to each
stockholder who so requests the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
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Section 4. LOST CERTIFICATES. The Board of Directors may direct a
new certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or to give the corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the corporation
with respect to the certificate alleged to have been lost, stolen or destroyed.
Section 5. TRANSFERS OF STOCK. Upon surrender to the corporation,
or the transfer agent of the corporation, of a certificate for shares duly
endorsed or accompanied by proper evidence of succession, assignation or
authority to transfer, it shall be the duty of the corporation to issue a new
certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its books.
Section 6. FIXED RECORD DATE. In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
the stockholders, or any adjournment thereof, or entitled to receive payment of
any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix a
record date which shall not be more than sixty nor less than ten days before the
date of such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment
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of the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
Section 7. REGISTERED STOCKHOLDERS. The corporation shall be
entitled to treat the holder of record of any share or shares of stock as the
holder in fact thereof and accordingly shall not be bound to recognize any
equitable or other claim or interest in such share on the part of any other
person, whether or not it shall have express or other notice thereof, save as
expressly provided by the laws of the State of Delaware.
ARTICLE VIII
GENERAL PROVISIONS
Section 1. DIVIDENDS. Dividends upon the capital stock of the
corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the Certificate of
Incorporation.
Section 2. PAYMENT OF DIVIDENDS; DIRECTORS' DUTIES. Before
payment of any dividend there may be set aside out of any funds of the
corporation available for dividends such sum or sums as the directors from time
to time, in their absolute discretion, think proper as a reserve fund to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the corporation, or for such other purpose as the directors shall
think conducive to the interests of the corporation, and the directors may
abolish any such reserve.
Section 3. CHECKS. All checks or demands for money and notes of
the corporation shall be signed by such officer or officers as the Board of
Directors may from time to time designate.
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Section 4. FISCAL YEAR. The fiscal year of the corporation shall
be fixed by resolution of the Board of Directors.
Section 5. CORPORATE SEAL. The corporate seal shall have
inscribed thereon the name of the corporation, the year of its organization and
the words "Corporate Seal, Delaware." Said seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
Section 6. MANNER OF GIVING NOTICE. Whenever, under the
provisions of the Certificate of Incorporation, or of these Bylaws, or any rule,
regulation or statutory provision applicable to the corporation, notice is
required to be given to any director or stockholder, it shall not be construed
to mean personal notice, but such notice may be given (unless otherwise
provided) in writing, by mail, addressed to such director or stockholder, at his
address as it appears on the records of the corporation, with postage thereon
prepaid, and such notice shall be deemed to be given at the time when the same
shall be deposited in the United States mail. Notice to directors may also be
given by mail, telecopier, or other means of electronic transmission at the
address of such director on the books and records of the corporation.
Section 7. WAIVER OF NOTICE. Whenever any notice is required to
be given under the provisions of the Certificate of Incorporation or of these
Bylaws, or any rule, regulation or statutory provision applicable to the
corporation, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
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ARTICLE IX
AMENDMENTS
Section 1. AMENDMENT BY DIRECTORS OR STOCKHOLDERS. These Bylaws
may be altered, amended or repealed or new Bylaws may be adopted by the Board of
Directors, when such power is conferred upon the Board of Directors by the
Certificate of Incorporation or by the affirmative vote of not less than 66 2/3%
of the total voting power of all outstanding securities of the Corporation then
entitled to vote generally in the election of directors, voting together as a
single class, at any regular meeting of the stockholders or of the Board of
Directors if notice of such alteration, amendment, repeal or adoption of new
Bylaws be contained in the notice of such special meeting.
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INTERVU INC.
SECRETARY'S CERTIFICATE
I, Dani McGee, Secretary of INTERVU INC., a Delaware corporation (the
"Corporation"), do hereby certify as follows:
1. Attached hereto as Exhibit A is a true and complete copy of the
Corporation's Amended and Restated Certificate of Incorporation as in effect as
of the date hereof.
2. Attached hereto as Exhibit B is a true and complete copy of the
Corporation's Amended and Restated By-laws as in effect as of the date hereof.
IN WITNESS WHEREOF, the undersigned has executed this Certificate as of
this 16th day of December, 1997.
/s/ D. MCGEE
-------------------------------
Dani McGee
Secretary
23
<PAGE> 1
EXHIBIT 10.4
AMENDED AND RESTATED VESTING AGREEMENT
This Amended and Restated Vesting Agreement (the "Agreement") is
dated as of October 24, 1997, between INTERVU INC., a Delaware corporation (the
"Corporation" or the "Company"), and Harry E. Gruber (an "Initial
Stockholder").
The Initial Stockholder owns shares of Common Stock, $.001 par
value, of the Corporation (the "Common Stock"). This Agreement is an amendment
and restatement of one of the Vesting Agreements executed and delivered by the
Corporation and each of the initial stockholders of the Corporation (the
"Initial Stockholders") as of March 4, 1996 (the "Vesting Agreements").
The Initial Stockholder is a party to the Voting Trust Agreement
dated as of August 28, 1995 (the "Voting Trust") among Harry Gruber, as Trustee
(the "Trustee"), the Corporation, and each of the Initial Stockholders.
NOW, THEREFORE, for good and valuable consideration, the receipt
of which is hereby acknowledged, the parties hereto hereby agree as follows:
1. Definitions. As used herein, the following terms shall have
the following respective meanings:
(a) "Disability" shall, with respect to the Initial
Stockholder, mean the written certification by an independent medical doctor
(selected by the Corporation) that the Initial Stockholder has, for 180 days,
consecutive or non-consecutive, in any twelve (12) month period, been disabled
in a manner which renders the Initial Stockholder incapable of contributing any
time or effort on behalf of the Corporation.
(b) "Group" shall mean (i) the Initial Stockholder; (ii)
the spouse, parents, siblings and lineal descendants of the Initial
Stockholder; (iii) a trust for the benefit of any of the foregoing; (iv) any
distributee, legatee or devisee of the Initial Stockholder or anyone described
in the preceding clause (ii); and (v) an entity in which the persons described
in clauses (i) through (iv) own at least 90 percent of the voting and economic
interests; in each case who agrees in writing with the Corporation to be bound
by and to comply with this Agreement to the same extent as the Initial
Stockholder.
(c) "Repurchase Event" shall, with respect to the Initial
Stockholder, mean (i) the death of the Initial Stockholder, (ii) the Disability
of the Initial Stockholder, or (iii) the date upon which the Initial
Stockholder shall no longer be willing to voluntarily contribute any time or
effort on behalf of the Corporation if the Corporation shall reasonably request
such time or effort upon prior reasonable notice, it being understood that, at
a minimum, the Initial Stockholder shall agree to serve as a member of the
Board of Directors of the Corporation if nominated; provided, that the Initial
Stockholder shall have thirty (30) days to cure any failure to contribute such
Initial Stockholder's time or effort pursuant to the immediately preceding
clause (iii).
(d) "Restricted Stock" shall mean 934,250 shares of
Common Stock, which number reflects stock splits affected through the date
hereof.
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<PAGE> 2
(e) "Sell" shall, as to any Securities (as hereinafter
defined) mean to sell, or in any other way directly or indirectly transfer,
assign, distribute, encumber, pledge, hypothecate or otherwise dispose of such
Securities, either voluntarily or involuntarily; provided, however, that the
Initial Stockholder and any member of the Group of the Initial Stockholder shall
not be deemed to Sell the Securities if such securities are transferred to a
member of the Group of the Initial Stockholder and such person agrees with the
Corporation and the Trustee in writing to be bound by the terms of this
Agreement and the Voting Trust to the same extent as the Initial Stockholder;
and provided, further, that the Initial Stockholder shall not Sell any
Securities which constitute Restricted Stock so long as the Voting Trust shall
remain in effect.
(f) "Securities" shall mean (i) the Restricted Stock, (ii)
any other shares of Common Stock issued to the Initial Stockholder prior to the
date hereof (the "Other Shares"), (iii) any other shares of Common Stock
acquired by the Initial Stockholder in respect of the Restricted Stock or the
Other Shares in connection with a stock dividend, distribution or
recapitalization for which no consideration was paid by the Initial Stockholder,
(iii) the Voting Trust Certificate held by the Initial Stockholder on the date
hereof, and (iv) any other Voting Trust Certificate acquired by the Initial
Stockholder in respect of the Voting Trust Certificate held by the Initial
Stockholder on the date hereof in connection with a stock dividend, distribution
or recapitalization for which no consideration was paid by the Initial
Stockholder.
(g) "Selling Group" shall mean the Group of the Initial
Stockholder proposing to Sell any of the Securities, or which has delivered a
notice of intention to Sell, pursuant to Section 3 hereof.
(h) "Voting Trust Certificate" shall mean any voting trust
certificate issued to the Initial Stockholder pursuant to the Voting Trust.
2. Repurchase of Restricted Stock.
(a) On and after the occurrence of a Repurchase Event,
the Corporation shall have the right to purchase from the Initial Stockholder
and any member of the Group of the Initial Stockholder, and the Initial
Stockholder and any member of the Group of the Initial Stockholder shall sell
to the Corporation upon the exercise of such right, at a purchase price per
share of $.005, up to the number of shares of Restricted Stock less the number
of Vested Shares (as hereinafter defined). As used herein:
(i) "Vested Shares" shall mean and be equal to
the product of (A) the number of shares of Restricted Stock and (B) the ratio
of Elapsed Days (as hereinafter defined) to Total Days (as hereinafter
defined).
(ii) "Elapsed Days" shall mean the number of
calendar days which have elapsed from March 4, 1996 until the date of a
Repurchase Event.
(iii) "Total Days" shall mean and be equal to
1,826.
The number of shares of Restricted Stock subject to repurchase at the time of
any stock dividend or other distribution made on or in respect of the
Restricted Stock or any subdivision, combination, redemption or
reclassification of the outstanding capital stock of the Corporation or
received in exchange for the
2
<PAGE> 3
Restricted Stock or any part thereof, shall be adjusted to give effect to such
stock dividend, other distribution, subdivision, combination, redemption or
reclassification.
(b) In order to exercise the option to purchase
Restricted Stock under this Section 2, the Corporation shall deliver a written
notice to the Initial Stockholder within 20 days after the Repurchase Event
indicating its election to purchase such Restricted Stock and specifying the
number of shares of Restricted Stock which it elects to purchase and the
purchase price therefore. The repurchase of the Restricted Stock hereunder
shall be made on a date within 60 days of the Repurchase Event, by delivery of
a check payable to the order of the Initial Stockholder, against receipt of one
or more certificates, properly endorsed, evidencing the shares of the
Restricted Stock to be so repurchased.
(c) Notwithstanding the provisions of this Section 2, if
the Corporation is legally prohibited from or legally unable to repurchase the
Restricted Stock during the 60-day period referred to above, such 60-day period
shall be suspended until such date on which the Corporation is legally
permitted or legally able to repurchase the Restricted Stock, whereupon the
Corporation shall have the right to exercise its repurchase option within 60
days after such legal prohibition or inability no longer exists.
3. Procedures on Sale of Securities to Third Parties. Except as
otherwise expressly provided herein, the Initial Stockholder hereby agrees, and
each member of the Group to which the Initial Stockholder belongs shall be
deemed to agree, that he or it shall not Sell any Securities except in
accordance with the following procedures:
(a) If the Selling Group shall desire to sell Vested
Shares, Other Shares or Voting Trust Certificates, the Selling Group shall
first deliver to the Corporation a written notice, which shall be irrevocable
for a period of 30 days after delivery thereof, offering (the "Offer") all of
the Vested Shares, Other Shares or Voting Trust Certificates owned by the
Selling Group which the Selling Group desires to Sell (the "Offered
Securities") to a third party at the purchase price and on the terms specified
in the offer to Sell to such third party, whereupon the Corporation (or its
designee) shall have the right and option to purchase any or all of the Offered
Securities so offered at the purchase price and on the terms stated in the
Offer (such acceptance by the Corporation to be made by the delivery of a
written notice to the Selling Group within the 30-day period after delivery of
the aforesaid notice of intention to Sell).
(b) Sales of Offered Securities under the terms of
Section 3(a) hereof shall be made at the offices of the Corporation on a
mutually satisfactory business day within 15 days after the expiration of the
aforesaid periods. Delivery of certificates or other instruments evidencing
such Offered Securities, duly endorsed for transfer shall be made on such date
against payment of the purchase price therefore by certified or bank checks
drawn or by wire transfer.
(c) If effective acceptance shall not be received
pursuant to Section 3(a) hereof with respect to the Offered Securities, then
the Selling Group may Sell all or any part of the remaining Offered Securities
so offered for sale at price not less than the price, and on terms not more
favorable to the purchaser thereof than the terms, stated in the Offer, at any
time within 120 days after the expiration of the Offer made pursuant to Section
3(a) hereof. In the event the remaining shares of such Offered Securities are
not sold by the Selling Group during such 120-day period, the right of the
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<PAGE> 4
Selling Group to sell such remaining Securities shall expire and the
obligations of this Section 3 shall be reinstated; provided, however, that in
the event the Selling Group determines, at any time during such 120-day period,
that the sale of all or any part of the remaining Offered Securities so offered
on the terms set forth in the offer is impractical, the Selling Group can
terminate the offer and reinstate the procedure provided in this Section 3
without waiting for the expiration of such 120-day period.
(d) The Selling Group may specify in an Offer pursuant to
Section 3(a) hereof with respect to Securities that are Restricted Stock that
all shares mentioned therein must be sold, in which case acceptance received
pursuant to Section 3(a) hereof shall be deemed conditioned upon (i) receipt of
a written notice of acceptance with respect to all Securities mentioned in such
Offer and/or (ii) the sale of the remaining such Securities, if any, pursuant
to Section 3(c) hereof.
(e) Anything contained herein to the contrary
notwithstanding: (i) the Initial Stockholder shall not sell any Restricted
Stock and Other Shares so long as the Voting Trust shall remain in effect; (ii)
an offer pertaining to a Voting Trust Certificate owned by the Selling Group
pursuant to Section 3(a) hereof must be with respect to the entire Voting Trust
Certificate, and not less than the entire Voting Trust Certificate; and (iii)
any purchaser of Offered Securities shall agree in writing in advance of any
purchase of Offered Securities hereunder that it, she or he, as the case may
be, shall be bound by and comply with the terms and provisions of this Section
3 and the Voting Trust as if such purchaser were the "Initial Stockholder"
hereunder, and the Offered Securities so purchased shall continue to be subject
to repurchase as herein provided in this Section 3 and the Voting Trust.
4. Legends. All certificates representing Securities issued to
the Initial Stockholder shall have affixed thereto a legend substantially in
the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE PLEDGED,
HYPOTHECATED, SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER SUCH ACT OR AN OPINION
OF COUNSEL TO ISSUER THAT REGISTRATION IS NOT REQUIRED UNDER THE ACT.
ADDITIONALLY, THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE RESTRICTED PURSUANT TO THE PROVISIONS SPECIFIED IN THE
AMENDED AND RESTATED VESTING AGREEMENT DATED AS OF OCTOBER 24, 1997
BETWEEN INTERVU INC. AND HARRY E. GRUBER, AND NO TRANSFER OF THESE
SECURITIES SHALL BE VALID OR EFFECTIVE UNTIL SUCH CONDITIONS HAVE BEEN
FULFILLED. COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY
WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE
SECRETARY OF INTERVU INC."
5. Modification of Restrictions. In connection with any
subsequent debt or equity financings of the Corporation, the Initial
Stockholder shall be bound by such restrictions with respect to the Securities
(including, without limitation, lock-up provisions in connection with any
public offering of securities by the Company registered under the Securities
Act of 1933, as amended, such
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<PAGE> 5
modifications to the provisions contained in this Agreement as shall be made
pursuant to this Section 5, or any other restrictions determined pursuant to
this Section 5), as shall be determined by: (i) Harry Gruber in his sole
discretion, except as otherwise provided in the immediately following clause
(ii); or (ii) in the event of the death, Disability or mental incapacity of
Harry Gruber, by the Initial Stockholders holding a majority in interest of all
Securities owned by the Initial Stockholders who are parties to the Vesting
Agreements; provided, however, that Other Shares and shares of Restricted Stock
which have become Vested Shares hereunder shall not be subject to forfeiture,
or to a call right (it being understood and agreed that a right of first offer
or a right of first refusal shall not be considered a call right for purposes
of this Agreement) in favor of the Corporation, pursuant to any restrictions
that are determined in accordance with this Section 5.
6. Voting Trust Agreement.
(a) Each of the parties hereto hereby agrees that Section
17 of the Voting Trust is hereby amended to read in its entirety as follows:
"17. Vesting Agreements. (a) The parties hereto
acknowledge and agree that certain of the shares of Common
Stock of the Company deposited with the Trustee hereunder by
each Shareholder are subject to the Amended and Restated
Vesting Agreement dated as of October 24, 1997 of such
Shareholder with the Company. The Trustee agrees to comply
with Section 2 of the Vesting Agreement of each Shareholder
with respect to the repurchase of a Shareholder's Common
Stock, as if the Trustee were the Shareholder party to such
Vesting Agreement. Anything contained herein to the contrary
notwithstanding, if any shares of Common Stock of a
Shareholder held by the Trustee hereunder are purchased by the
Company pursuant to Section 2 of the Vesting Agreement of such
Shareholder, the Trustee shall distribute the proceeds
received in respect of such shares to the Shareholder, and the
Shareholder shall deliver its voting trust certificate to the
Trustee, and the Trustee shall cancel such certificate and
issue a new voting trust certificate for the remaining shares
of Common Stock held in trust for such Shareholder.
(b) Each of the parties hereto agrees that a
Vesting Agreement (or any successor agreement or agreements
thereto entered into pursuant to Section 5 of a Vesting
Agreement) between the Company and a Shareholder shall only be
amended, changed or modified by a written agreement between
the Company and such Shareholder; provided, that any amendment
to a Vesting Agreement (or any successor agreement or
agreements thereto entered into pursuant to Section 5 of a
Vesting Agreement) which would amend, change or modify any
provision relating to the vesting, sale, transfer, or other
disposition of the securities purchased thereunder or subject
thereto (including, without limitation, Section 2 or 3 of a
Vesting Agreement) shall require: (i) the written consent of
Harry Gruber, in his sole discretion except as otherwise
provided in the immediately following clause (ii); (ii) in the
event of the death, Disability (as defined in the Vesting
Agreement of Harry Gruber) or mental incapacity of Harry
Gruber, the written consent of the Shareholders (including,
without limitation, the Shareholder whose Vesting Agreement,
or successor agreement or agreements thereto entered into
pursuant to Section 5 of such Vesting Agreement, is to be
amended, changed or modified)."
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<PAGE> 6
(b) All references in the Voting Trust to the "Stock
Purchase Agreement" of the Initial Stockholder are hereby amended to be
references to this Agreement.
(c) Section 2(a) of the Voting Trust is hereby amended in
its entirety to read as follows:
"2. Transfer of Shares to Trustee. (a) Each Shareholder,
upon execution of this Agreement, hereby assigns and transfers
to the Trustee and deposits with the Trustee all the
certificates for such Shareholder's share of Common Stock, as
set forth opposite such Shareholder's signature to this
Agreement, and such additional shares of Common Stock as may
be set forth in any additional document or instrument in which
a Shareholder agrees to make such additional shares of Common
Stock subject to this Agreement (all of such shares being
hereinafter collectively referred to as the "Shares") for the
purpose of vesting in the Trustee, as Trustee of an active
trust, the right to vote and act and to exercise other rights
pertaining to such shares, as and to the extent and upon the
terms and conditions and for the period set forth in this
Agreement. No shares shall be deposited hereunder except
shares having general voting powers, as provided in the
Certificate of Incorporation of the Company. All such share
certificates shall be endorsed, or accompanied by such
instruments of transfer, as to enable the Trustee to cause
such certificates to be transferred into the name of the
Trustee, as hereinafter provided. On receipt by the Trustee
of the certificates for any such shares and the transfer of
the same into the name of the Trustee, the Trustee shall issue
and deliver to each Shareholder voting trust certificates for
the shares so deposited. Shares so deposited with the Trustee
will be held by the Company at its principal office in
safekeeping for the Trustee."
(d) Anything contained herein to the contrary
notwithstanding, the parties hereto hereby acknowledge and agree that: (a) the
Restricted Stock held by the Initial Stockholder hereunder has been deposited
with the Trustee pursuant to the terms and provisions of the Voting Trust; (b)
the Initial Stockholder and Corporation shall be bound by, and shall comply
with, all terms of the Voting Trust; (c) the Trustee shall be authorized to
comply with the provisions of Section 2 of this Agreement; and (d) this
Agreement is subject to the Voting Trust, and in the event of any conflict
between this Agreement and the Voting Trust, the Voting Trust shall control.
7. Effects of Completion of Qualifying IPO. Notwithstanding any
provision contained herein, in that certain Restricted Stock Purchase Agreement
dated as of March 5, 1997 between the Corporation and the Initial Stockholder
or elsewhere, upon the successful completion of an initial public offering of
the Company's securities registered under the Securities Act of 1933, as
amended (the "Act"), which results in gross proceeds to the Company (before
deduction of underwriting discounts or commissions) of at least $7,500,000 (a
"Qualifying IPO"), Sections 3 and 5 hereof shall terminate automatically and
have no further force or effect. In addition, upon completion of a Qualifying
IPO, clauses (i) and (ii) of Section 1(c) hereof shall be deemed to be deleted
and shall have no further force or effect. In the event of the occurrence,
following a Qualifying IPO, of a merger or acquisition in which the Corporation
is not the surviving entity, the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation or any reverse merger in
which the Corporation is the surviving entity but in which fifty percent (50%)
or more of the Company's outstanding voting stock is transferred to holders
different from those who held the stock immediately
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<PAGE> 7
prior to such merger, Section 2 hereof shall terminate, with all shares of
Restricted Stock immediately fully vesting and being no longer subject to
repurchase by the Company. Initial Stockholder further agrees, subject to
successful completion of a Qualifying IPO, that in connection with a subsequent
underwritten public offering of Common Stock or other securities of the Company
to be registered on a registration statement filed under the Act, he will enter
into an agreement (to the extent requested by the Company and the Company's
underwriter) to the effect that he will not sell or otherwise transfer or
dispose of shares of Common Stock or other securities of the Company during the
period specified by the Company and such underwriter; provided however that (i)
such period shall not exceed 90 days; (ii) all of the directors and executive
officers of the Company and all of the Initial Stockholders enter into similar
agreements; and (iii) the covenant set forth in this sentence shall only remain
in effect for the three-year period immediately following the closing date of a
Qualifying IPO and shall thereafter terminate and have no force or effect.
8. Notices. All notices or other communications which are
required or permitted hereunder shall be deemed to be sufficient if contained
in a written instrument given by personal delivery, telex, facsimile (with a
confirmation copy sent by first class certified or registered United States
mail), telegram, air courier, or first class certified or registered United
States mail, postage prepaid, return receipt requested, addressed to such party
at the address set forth below or such other address as may thereafter be
designated in writing by the addressee to the addressor listing all parties:
if to Corporation, to:
InterVU Inc.
201 Lomas Santa Fe Drive
Solana Beach, California 92075
Attention: President
if to Initial Stockholder, to:
Harry E. Gruber
InterVU Inc.
201 Lomas Santa Fe Drive
Solana Beach, CA 92075
All such notices, advices and communications shall be deemed to have been
delivered and received (a) in the case of personal delivery, telex, facsimile
(with a confirmation copy sent by first class certified or registered United
States mail) or telegram on the date of such delivery, (b) in the case of air
courier on the business day after the date when sent, and (c) in the case of
mailing, on the third business day following the date of such mailing.
9. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware applicable to
agreements made and to be performed wholly therein.
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<PAGE> 8
10. Entire Agreement. This Agreement contains the entire
agreement between the parties hereto with respect to the transactions
contemplated herein and supersedes all previously written or oral negotiations,
commitments, representations and agreements.
11. Execution in Counterpart. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same instrument.
12. Amendments and Modifications. This Agreement shall only be
amended, changed or modified as specified in Section 17 of the Voting Trust.
13. Successors and Assigns. The Agreement shall be binding upon
the successors and assigns of the parties; provided, however, that this
Agreement shall not be assignable by the Initial Stockholder except to the
extent permitted herein.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered as of the date first above written.
INTERVU INC.
By: /s/ HARRY E. GRUBER
------------------------------------
Name:
Title:
INITIAL STOCKHOLDER:
/s/ HARRY E. GRUBER
---------------------------------------
Harry E. Gruber
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<PAGE> 9
INITIAL STOCKHOLDER'S SPOUSE:
The undersigned hereby accepts and agrees to all of the terms and conditions of
this Agreement to the extent the undersigned has, or may have, any ownership or
other interest in the Securities:
/s/ JOAN CUNNINGHAM
- ----------------------------------
Name:________________________
Address: P.O. Box 675272
--------------------------
Rancho Santa Fe, CA 92067
--------------------------
HARRY GRUBER, AS TRUSTEE, PURSUANT TO THE VOTING TRUST AGREEMENT DATED AS OF
AUGUST 28, 1995:
/s/ HARRY GRUBER
- ----------------------------------
Harry Gruber
9
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EXHIBIT 10.5
AMENDED AND RESTATED VESTING AGREEMENT
This Amended and Restated Vesting Agreement (the "Agreement") is
dated as of October 24, 1997, between INTERVU INC., a Delaware corporation (the
"Corporation" or the "Company"), and Brian Kenner (an "Initial Stockholder").
The Initial Stockholder owns shares of Common Stock, $.001 par
value, of the Corporation (the "Common Stock"). This Agreement is an amendment
and restatement of one of the Vesting Agreements executed and delivered by the
Corporation and each of the initial stockholders of the Corporation (the
"Initial Stockholders") as of March 4, 1996 (the "Vesting Agreements").
The Initial Stockholder is a party to the Voting Trust Agreement
dated as of August 28, 1995 (the "Voting Trust") among Harry Gruber, as Trustee
(the "Trustee"), the Corporation, and each of the Initial Stockholders.
NOW, THEREFORE, for good and valuable consideration, the receipt
of which is hereby acknowledged, the parties hereto hereby agree as follows:
1. Definitions. As used herein, the following terms shall have
the following respective meanings:
(a) "Disability" shall, with respect to the Initial
Stockholder, mean the written certification by an independent medical doctor
(selected by the Corporation) that the Initial Stockholder has, for 180 days,
consecutive or non-consecutive, in any twelve (12) month period, been disabled
in a manner which renders the Initial Stockholder incapable of contributing any
time or effort on behalf of the Corporation.
(b) "Group" shall mean (i) the Initial Stockholder; (ii)
the spouse, parents, siblings and lineal descendants of the Initial
Stockholder; (iii) a trust for the benefit of any of the foregoing; (iv) any
distributee, legatee or devisee of the Initial Stockholder or anyone described
in the preceding clause (ii); and (v) an entity in which the persons described
in clauses (i) through (iv) own at least 90 percent of the voting and economic
interests; in each case who agrees in writing with the Corporation to be bound
by and to comply with this Agreement to the same extent as the Initial
Stockholder.
(c) "Repurchase Event" shall, with respect to the Initial
Stockholder, mean (i) the death of the Initial Stockholder, (ii) the Disability
of the Initial Stockholder, or (iii) the date upon which the Initial
Stockholder shall no longer be employed by the Corporation for any reason.
(d) "Restricted Stock" shall mean 934,250 shares of Common
Stock, which number reflects stock splits affected through the date hereof.
(e) "Sell" shall, as to any Securities (as hereinafter
defined) mean to sell, or in any other way directly or indirectly transfer,
assign, distribute, encumber, pledge, hypothecate or otherwise dispose of such
Securities, either voluntarily or involuntarily; provided, however, that the
Initial Stockholder and any member of the Group of the Initial Stockholder
shall not be deemed to Sell the Securities if such securities are transferred
to a member of the Group of the Initial Stockholder and
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such person agrees with the Corporation and the Trustee in writing to be bound
by the terms of this Agreement and the Voting Trust to the same extent as the
Initial Stockholder; and provided, further, that the Initial Stockholder shall
not Sell any Securities which constitute Restricted Stock so long as the Voting
Trust shall remain in effect.
(f) "Securities" shall mean (i) the Restricted Stock, (ii)
any other shares of Common Stock issued to the Initial Stockholder prior to the
date hereof (the "Other Shares"), (iii) any other shares of Common Stock
acquired by the Initial Stockholder in respect of the Restricted Stock or the
Other Shares in connection with a stock dividend, distribution or
recapitalization for which no consideration was paid by the Initial
Stockholder, (iii) the Voting Trust Certificate held by the Initial Stockholder
on the date hereof, and (iv) any other Voting Trust Certificate acquired by the
Initial Stockholder in respect of the Voting Trust Certificate held by the
Initial Stockholder on the date hereof in connection with a stock dividend,
distribution or recapitalization for which no consideration was paid by the
Initial Stockholder.
(g) "Selling Group" shall mean the Group of the Initial
Stockholder proposing to Sell any of the Securities, or which has delivered a
notice of intention to Sell, pursuant to Section 3 hereof.
(h) "Voting Trust Certificate" shall mean any voting trust
certificate issued to the Initial Stockholder pursuant to the Voting Trust.
2. Repurchase of Restricted Stock.
(a) On and after the occurrence of a Repurchase Event,
the Corporation shall have the right to purchase from the Initial Stockholder
and any member of the Group of the Initial Stockholder, and the Initial
Stockholder and any member of the Group of the Initial Stockholder shall sell
to the Corporation upon the exercise of such right, at a purchase price per
share of $.005, up to the number of shares of Restricted Stock less the number
of Vested Shares (as hereinafter defined). As used herein:
(i) "Vested Shares" shall mean and be equal to
the product of (A) the number of shares of Restricted Stock and (B) the ratio
of Elapsed Days (as hereinafter defined) to Total Days (as hereinafter
defined).
(ii) "Elapsed Days" shall mean the number of
calendar days which have elapsed from March 4, 1996 until the date of a
Repurchase Event.
(iii) "Total Days" shall mean and be equal to
1,826.
The number of shares of Restricted Stock subject to repurchase at the
time of any stock dividend or other distribution made on or in respect of the
Restricted Stock or any subdivision, combination, redemption or
reclassification of the outstanding capital stock of the Corporation or
received in exchange for the Restricted Stock or any part thereof, shall be
adjusted to give effect to such stock dividend, other distribution,
subdivision, combination, redemption or reclassification.
(b) In order to exercise the option to purchase
Restricted Stock under this Section 2, the Corporation shall deliver a written
notice to the Initial Stockholder within 20 days after the Repurchase Event
indicating its election to purchase such Restricted Stock and specifying the
number
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<PAGE> 3
of shares of Restricted Stock which it elects to purchase and the purchase
price therefore. The repurchase of the Restricted Stock hereunder shall be
made on a date within 60 days of the Repurchase Event, by delivery of a check
payable to the order of the Initial Stockholder, against receipt of one or more
certificates, properly endorsed, evidencing the shares of the Restricted Stock
to be so repurchased.
(c) Notwithstanding the provisions of this Section 2, if
the Corporation is legally prohibited from or legally unable to repurchase the
Restricted Stock during the 60-day period referred to above, such 60-day period
shall be suspended until such date on which the Corporation is legally
permitted or legally able to repurchase the Restricted Stock, whereupon the
Corporation shall have the right to exercise its repurchase option within 60
days after such legal prohibition or inability no longer exists.
3. Procedures on Sale of Securities to Third Parties. Except as
otherwise expressly provided herein, the Initial Stockholder hereby agrees, and
each member of the Group to which the Initial Stockholder belongs shall be
deemed to agree, that he or it shall not Sell any Securities except in
accordance with the following procedures:
(a) If the Selling Group shall desire to sell Vested
Shares, Other Shares or Voting Trust Certificates, the Selling Group shall
first deliver to the Corporation a written notice, which shall be irrevocable
for a period of 30 days after delivery thereof, offering (the "Offer") all of
the Vested Shares, Other Shares or Voting Trust Certificates owned by the
Selling Group which the Selling Group desires to Sell (the "Offered
Securities") to a third party at the purchase price and on the terms specified
in the offer to Sell to such third party, whereupon the Corporation (or its
designee) shall have the right and option to purchase any or all of the Offered
Securities so offered at the purchase price and on the terms stated in the
Offer (such acceptance by the Corporation to be made by the delivery of a
written notice to the Selling Group within the 30-day period after delivery of
the aforesaid notice of intention to Sell).
(b) Sales of Offered Securities under the terms of
Section 3(a) hereof shall be made at the offices of the Corporation on a
mutually satisfactory business day within 15 days after the expiration of the
aforesaid periods. Delivery of certificates or other instruments evidencing
such Offered Securities, duly endorsed for transfer shall be made on such date
against payment of the purchase price therefore by certified or bank checks
drawn or by wire transfer.
(c) If effective acceptance shall not be received
pursuant to Section 3(a) hereof with respect to the Offered Securities, then
the Selling Group may Sell all or any part of the remaining Offered Securities
so offered for sale at price not less than the price, and on terms not more
favorable to the purchaser thereof than the terms, stated in the Offer, at any
time within 120 days after the expiration of the Offer made pursuant to Section
3(a) hereof. In the event the remaining shares of such Offered Securities are
not sold by the Selling Group during such 120-day period, the right of the
Selling Group to sell such remaining Securities shall expire and the
obligations of this Section 3 shall be reinstated; provided, however, that in
the event the Selling Group determines, at any time during such 120-day period,
that the sale of all or any part of the remaining Offered Securities so offered
on the terms set forth in the offer is impractical, the Selling Group can
terminate the offer and reinstate the procedure provided in this Section 3
without waiting for the expiration of such 120-day period.
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(d) The Selling Group may specify in an Offer pursuant to
Section 3(a) hereof with respect to Securities that are Restricted Stock that
all shares mentioned therein must be sold, in which case acceptance received
pursuant to Section 3(a) hereof shall be deemed conditioned upon (i) receipt of
a written notice of acceptance with respect to all Securities mentioned in such
Offer and/or (ii) the sale of the remaining such Securities, if any, pursuant
to Section 3(c) hereof.
(e) Anything contained herein to the contrary
notwithstanding: (i) the Initial Stockholder shall not sell any Restricted
Stock and Other Shares so long as the Voting Trust shall remain in effect; (ii)
an offer pertaining to a Voting Trust Certificate owned by the Selling Group
pursuant to Section 3(a) hereof must be with respect to the entire Voting Trust
Certificate, and not less than the entire Voting Trust Certificate; and (iii)
any purchaser of Offered Securities shall agree in writing in advance of any
purchase of Offered Securities hereunder that it, she or he, as the case may
be, shall be bound by and comply with the terms and provisions of this Section
3 and the Voting Trust as if such purchaser were the "Initial Stockholder"
hereunder, and the Offered Securities so purchased shall continue to be subject
to repurchase as herein provided in this Section 3 and the Voting Trust.
4. Legends. All certificates representing Securities issued to
the Initial Stockholder shall have affixed thereto a legend substantially in
the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE PLEDGED, HYPOTHECATED, SOLD OR
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL TO ISSUER THAT
REGISTRATION IS NOT REQUIRED UNDER THE ACT. ADDITIONALLY, THE TRANSFER
OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE RESTRICTED
PURSUANT TO THE PROVISIONS SPECIFIED IN THE AMENDED AND RESTATED
VESTING AGREEMENT DATED AS OF OCTOBER 24, 1997 BETWEEN INTERVU INC.
AND BRIAN KENNER, AND NO TRANSFER OF THESE SECURITIES SHALL BE VALID OR
EFFECTIVE UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED. COPIES OF SUCH
AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE
HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF INTERVU INC.
5. Modification of Restrictions. In connection with any
subsequent debt or equity financings of the Corporation, the Initial
Stockholder shall be bound by such restrictions with respect to the Securities
(including, without limitation, lock-up provisions in connection with any
public offering of securities by the Company registered under the Securities
Act of 1933, as amended, such modifications to the provisions contained in this
Agreement as shall be made pursuant to this Section 5, or any other
restrictions determined pursuant to this Section 5), as shall be determined by:
(i) Harry Gruber in his sole discretion, except as otherwise provided in the
immediately following clause (ii); or (ii) in the event of the death,
Disability or mental incapacity of Harry Gruber, by the Initial Stockholders
holding a majority in interest of all Securities owned by the Initial
Stockholders who are parties to the Vesting Agreements; provided, however, that
Other Shares and shares of Restricted
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Stock which have become Vested Shares hereunder shall not be subject to
forfeiture, or to a call right (it being understood and agreed that a right of
first offer or a right of first refusal shall not be considered a call right
for purposes of this Agreement) in favor of the Corporation, pursuant to any
restrictions that are determined in accordance with this Section 5.
6. Voting Trust Agreement.
(a) Each of the parties hereto hereby agrees that Section
17 of the Voting Trust is hereby amended to read in its entirety as follows:
"17. Vesting Agreements. (a) The parties hereto
acknowledge and agree that certain of the shares of Common
Stock of the Company deposited with the Trustee hereunder by
each Shareholder are subject to the Amended and Restated
Vesting Agreement dated as of October 24, 1997 of such
Shareholder with the Company. The Trustee agrees to comply
with Section 2 of the Vesting Agreement of each Shareholder
with respect to the repurchase of a Shareholder's Common
Stock, as if the Trustee were the Shareholder party to such
Vesting Agreement. Anything contained herein to the contrary
notwithstanding, if any shares of Common Stock of a
Shareholder held by the Trustee hereunder are purchased by the
Company pursuant to Section 2 of the Vesting Agreement of such
Shareholder, the Trustee shall distribute the proceeds
received in respect of such shares to the Shareholder, and the
Shareholder shall deliver its voting trust certificate to the
Trustee, and the Trustee shall cancel such certificate and
issue a new voting trust certificate for the remaining shares
of Common Stock held in trust for such Shareholder.
(b) Each of the parties hereto agrees that a
Vesting Agreement (or any successor agreement or agreements
thereto entered into pursuant to Section 5 of a Vesting
Agreement) between the Company and a Shareholder shall only be
amended, changed or modified by a written agreement between
the Company and such Shareholder; provided, that any amendment
to a Vesting Agreement (or any successor agreement or
agreements thereto entered into pursuant to Section 5 of a
Vesting Agreement) which would amend, change or modify any
provision relating to the vesting, sale, transfer, or other
disposition of the securities purchased thereunder or subject
thereto (including, without limitation, Section 2 or 3 of a
Vesting Agreement) shall require: (i) the written consent of
Harry Gruber, in his sole discretion except as otherwise
provided in the immediately following clause (ii); (ii) in the
event of the death, Disability (as defined in the Vesting
Agreement of Harry Gruber) or mental incapacity of Harry
Gruber, the written consent of the Shareholders (including,
without limitation, the Shareholder whose Vesting Agreement,
or successor agreement or agreements thereto entered into
pursuant to Section 5 of such Vesting Agreement, is to be
amended, changed or modified)."
(b) All references in the Voting Trust to the "Stock
Purchase Agreement" of the Initial Stockholder are hereby amended to be
references to this Agreement.
(c) Section 2(a) of the Voting Trust is hereby amended in
its entirety to read as follows:
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"2. Transfer of Shares to Trustee. (a) Each Shareholder,
upon execution of this Agreement, hereby assigns and transfers
to the Trustee and deposits with the Trustee all the
certificates for such Shareholder's share of Common Stock, as
set forth opposite such Shareholder's signature to this
Agreement, and such additional shares of Common Stock as may
be set forth in any additional document or instrument in which
a Shareholder agrees to make such additional shares of Common
Stock subject to this Agreement (all of such shares being
hereinafter collectively referred to as the "Shares") for the
purpose of vesting in the
Trustee, as Trustee of an active trust, the right to vote and
act and to exercise other rights pertaining to such shares, as
and to the extent and upon the terms and conditions and for
the period set forth in this Agreement. No shares shall be
deposited hereunder except shares having general voting
powers, as provided in the Certificate of Incorporation of the
Company. All such share certificates shall be endorsed, or
accompanied by such instruments of transfer, as to enable the
Trustee to cause such certificates to be transferred into the
name of the Trustee, as hereinafter provided. On receipt by
the Trustee of the certificates for any such shares and the
transfer of the same into the name of the Trustee, the Trustee
shall issue and deliver to each Shareholder voting trust
certificates for the shares so deposited. Shares so deposited
with the Trustee will be held by the Company at its principal
office in safekeeping for the Trustee."
(d) Anything contained herein to the contrary
notwithstanding, the parties hereto hereby acknowledge and agree that: (a) the
Restricted Stock held by the Initial Stockholder hereunder has been deposited
with the Trustee pursuant to the terms and provisions of the Voting Trust; (b)
the Initial Stockholder and Corporation shall be bound by, and shall comply
with, all terms of the Voting Trust; (c) the Trustee shall be authorized to
comply with the provisions of Section 2 of this Agreement; and (d) this
Agreement is subject to the Voting Trust, and in the event of any conflict
between this Agreement and the Voting Trust, the Voting Trust shall control.
7. Effects of Completion of Qualifying IPO. Notwithstanding
anything contained herein, in that certain Restricted Stock Purchase Agreement
dated as of March 5, 1996 between the Corporation and the Initial Stockholder
or elsewhere, upon the successful completion of an initial public offering of
the Company's securities registered under the Securities Act of 1933, as
amended (the "Act"), which results in gross proceeds to the Company (before
deduction of underwriting discounts or commissions) of at least $7,500,000 (a
"Qualifying IPO"), Sections 3 and 5 hereof shall terminate automatically and
have no further force or effect. In addition, upon completion of a Qualifying
IPO, clauses (i) and (ii) of Section 1(c) hereof shall be deemed to be deleted
and shall have no further force or effect. In the event of the occurrence,
following a Qualifying IPO, of (i) a merger or acquisition in which the
Corporation is not the surviving entity, the sale, transfer or other
disposition of all or substantially all of the assets of the Corporation or any
reverse merger in which the Corporation is the surviving entity but in which
fifty percent (50%) or more of the Company's outstanding voting stock is
transferred to holders different from those who held the stock immediately
prior to such merger and (ii) within one (1) following any transaction
contemplated by the preceding clause (i), the Initial Stockholder is terminated
without cause or his annual cash compensation is reduced, Section 2 hereof
shall terminate, with all shares of Restricted Stock immediately fully vesting
and being no longer subject to repurchase by the Company. Initial Stockholder
further agrees, subject to successful completion of a Qualifying IPO, that in
connection with a subsequent underwritten public offering of Common Stock or
other securities of the Company to be registered on a registration statement
filed under the Act, he will enter into an agreement (to the extent requested
by the Company
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and the Company's underwriter) to the effect that he will not sell or otherwise
transfer or dispose of shares of Common Stock or other securities of the
Company during the period specified by the Company and such underwriter;
provided however that (i) such period shall not exceed 90 days; (ii) all of the
directors and executive officers of the Company and all of the Initial
Stockholders enter into similar agreements; and (iii) the covenant set forth in
this sentence shall only remain in effect for the three-year period immediately
following the closing date of a Qualifying IPO and shall thereafter terminate
and have no force or effect.
8. Notices. All notices or other communications which are
required or permitted hereunder shall be deemed to be sufficient if contained
in a written instrument given by personal delivery, telex, facsimile (with a
confirmation copy sent by first class certified or registered United States
mail), telegram, air courier, or first class certified or registered United
States mail, postage prepaid, return receipt requested, addressed to such party
at the address set forth below or such other address as may thereafter be
designated in writing by the addressee to the addressor listing all parties:
if to Corporation, to:
InterVU Inc.
201 Lomas Santa Fe Drive
Solana Beach, California 92075
Attention: President
if to Initial Stockholder, to:
Brian Kenner
1403 Walnut Creek Drive
Encinitas, California 92024
All such notices, advices and communications shall be deemed to have been
delivered and received (a) in the case of personal delivery, telex, facsimile
(with a confirmation copy sent by first class certified or registered United
States mail) or telegram on the date of such delivery, (b) in the case of air
courier on the business day after the date when sent, and (c) in the case of
mailing, on the third business day following the date of such mailing.
9. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware applicable to
agreements made and to be performed wholly therein.
10. Entire Agreement. This Agreement contains the entire
agreement between the parties hereto with respect to the transactions
contemplated herein and supersedes all previously written or oral negotiations,
commitments, representations and agreements.
11. Execution in Counterpart. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same instrument.
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12. Amendments and Modifications. This Agreement shall only be
amended, changed or modified as specified in Section 17 of the Voting Trust.
13. Successors and Assigns. The Agreement shall be binding upon
the successors and assigns of the parties; provided, however, that this
Agreement shall not be assignable by the Initial Stockholder except to the
extent permitted herein.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered as of the date first above written.
INTERVU INC.
By: /s/ HARRY GRUBER
------------------------------------
Name:
Title: Chief Executive Officer
INITIAL STOCKHOLDER:
/s/ BRIAN KENNER
---------------------------------------
Brian Kenner
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INITIAL STOCKHOLDER'S SPOUSE:
The undersigned hereby accepts and agrees to all of the terms and conditions of
this Agreement to the extent the undersigned has, or may have, any ownership or
other interest in the Securities:
/s/ KATHLEEN KENNER
- -----------------------------------
Name:______________________________
Address: __________________________
__________________________
HARRY GRUBER, AS TRUSTEE, PURSUANT TO THE VOTING TRUST AGREEMENT DATED AS OF
AUGUST 28, 1995:
/s/ HARRY GRUBER
- -----------------------------------
Harry Gruber
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EXHIBIT 10.8
STRATEGIC ALLIANCE AGREEMENT
This Strategic Alliance Agreement (the "Agreement") is entered into as of
January 15, 1998 by and between InterVU Inc., a Delaware corporation
("InterVU"), and MatchLogic, Inc., a Delaware corporation ("MatchLogic").
InterVU and MatchLogic are hereinafter referred to as the "Parties."
NOW, THEREFORE, for good and valuable consideration, the receipt of which
is hereby acknowledged, the Parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 "Ad Management Services Company" means a company, or a division of a
company, including without limitation Focalink and Imgis, that provides third
party advertising management services to Clients. If a company, such as
DoubleClick, or a division of such company provides services solely to websites
and not Clients, such company or division shall not be considered an Ad
Management Services Company.
1.2 "Client" means an advertiser, whether acting directly or through an
advertising agency or other similar agent such as a media buyer.
1.3 "CPM" means the price charged (on a cost-per-thousand basis) to
Clients with respect to Media Rich Ads.
1.4 "Disclosing Party" means the Party disclosing its Proprietary
Information to the other Party.
1.5 "Media Rich Ad" means a website advertisement utilizing Media Rich
Technology.
1.6 "Media Rich Services" means, as to InterVU, the serving up of Media
Rich Ads to Internet websites and, as to MatchLogic, both the serving up of
Media Rich Ads to Internet websites and the provision of administrative services
(including site setups, testing, report setups, central ad control and online
reporting of impression counts and click-through counts and percentages) for
Media Rich Ads.
1.7 "Media Rich Technology" means * and other existing or future
multimedia advertising solutions as agreed from time to time.
1.8 "Net Revenues" means all gross revenues received by the Parties with
regard to
* The material indicated herein by asterisks has been omitted from this
document pursuant to a request for confidential treatment.
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Media Rich Services, less actual refunds to Clients, commissions paid to
advertising agencies and consideration, royalties and fees paid to licensors or
vendors of Media Rich Technology.
1.9 "Primary Party" means the Party who successfully solicits the Client
for a particular project. A Primary Party, in its sole discretion, may offer to
turn the billing and collection responsibilities over to the other Party and
become a Secondary Party on that account for such project. Generally the Primary
Party would formally be a prime contractor to the Client and the Secondary Party
would be a subcontractor to the Primary Party.
1.10 "Proprietary Information" means confidential and proprietary
information of a Party, or of a third person who has entrusted it to the Party.
1.11 "Receiving Party" means the Party receiving Proprietary Information
from the other Party.
1.12 "Secondary Party" means, for each Client project, the Party that is
not the Primary Party.
1.13 "Service Provider" means either Party as it provides its Media Rich
Services to the other Party on behalf of Clients.
1.14 "Up-Sell" means any services other than standard Media Rich Services
offered by the Party and other than evolutionary (not revolutionary) or
quantitative (not qualitative) improvements or upgrades thereof. Without
limitation, InterVU's * and * are Up-Sells and Matchlogic's * and * are
Up-Sells.
ARTICLE II
THE ALLIANCE
The Parties agree to collaborate exclusively with each other (except as
expressly excepted in this Agreement) in the provision of Media Rich Services on
behalf of Clients.
2.1 Services and Exclusivity. InterVU and MatchLogic agree to be each
other's sole Service Provider in the provision of Media Rich Services on behalf
of Clients in the following manner:
(a) (i) InterVU agrees to use its knowledge, technology and
personnel to assist MatchLogic in serving up all of MatchLogic's and InterVU's
Clients' Media Rich Ads to Internet websites, subject to Section 2.2.
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(ii) During the term of this Agreement, except as allowed by
Section 2.2, InterVU will not distribute any Media Rich Ads for any Ad
Management Services Companies other than MatchLogic.
(iii) Notwithstanding the foregoing, neither Party shall be
obligated to enter into any campaign on which it projects an actual financial
loss.
(b) During the term of this Agreement, subject to Section 2.2,
MatchLogic agrees to provide its Media Rich Services to all of MatchLogic's and
InterVU's Clients' Media Rich Ad projects, and agrees to use InterVU as its
exclusive Service Provider on every matter where MatchLogic provides its own
Media Rich Services.
2.2 Exceptions.
(a) Neither InterVU nor MatchLogic will be required to use the other
Party's Media Rich Services as to a particular project if (i) the other Party
has consistently failed to meet prevailing industry standards for performance on
previous projects using the Media Rich Technology to be used on the new project,
unless the other Party demonstrates it has modified or improved its technology
or processes sufficiently to enable it to meet such standards for the new
project, (ii) * (iii) * (iv) the other Party exercises its Decline Right
according to Section 2.3 with application to such project or the Media Rich
Technology to be used on such project.
(b) If a Client discloses to a Party an intention or inclination to
refuse to use the Media Rich Services of the other Party or to designate a
different Service Provider to perform such Media Rich Services, the first Party
(i) shall (unless the first Party is allowed by Section 2.2(a) not to use the
other Party's Media Rich Services as to the particular project) inform the
Client that it will not provide the Media Rich Services without the other Party,
(ii) shall, if not contractually prohibited, promptly advise the other Party of
the ongoing negotiations with the Client and the Client's intention/inclination
to refuse to use the Media Rich Services of the other Party or to designate a
different Service Provider to perform such Media Rich Services and (iii) shall
not provide (unless the first Party is allowed by Section 2.2(a) not to use the
other Party's Media Rich Services as to the particular project) Media Rich
Services to this Client as to the particular project, unless otherwise agreed to
in writing by the other Party.
(c) In addition, InterVU need not use MatchLogic as the Ad
Management Services Company from and after *, for Media Rich Ads using
V-Banner.
2.3 Decline Right.
(a) As new Media Rich Technology is developed by third parties to be
used in Media Rich Ads, MatchLogic may request InterVU to provide Media Rich
Services for Media
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Rich Ads containing such new Media Rich Technology. InterVU has the right, and
at its sole discretion, to decline to develop the processes required for the
distribution of such particular new Media Rich Technology. InterVU may withdraw
this declination at any time; provided that such withdrawal of the declination
shall not apply to the extent MatchLogic has entered into a contract for a
particular campaign with any third party regarding the new Media Rich
Technology. For the duration of this exercise of InterVU's Decline Right,
MatchLogic may utilize any other Service Provider and/or means to serve up such
particular new Media Rich Technology.
(b) MatchLogic has the right, with regard to any Media Rich Ad
project, to decline to provide the ad management services. Upon the exercise of
MatchLogic's Decline Right, InterVU may then utilize any other Ad Management
Services Company and/or means to provide the ad management services for such
project.
2.4 Revenue Sharing. Unless otherwise agreed to by the parties in writing,
with regard to all their Net Revenues received by either Party with regard to
Media Rich Services provided by either Party to Clients (other than with regard
to projects on which, under Section 2.2, the other Party could be and was
excluded from participation), InterVU and MatchLogic agree (in consideration of
this Agreement and of their collaboration on many projects) to share the Net
Revenues according to the Standard Revenue Sharing Table and Rules for
Variations on the attached Schedule 2.4, and to provide accountings and payments
to each other at least monthly (by the 15th day of each calendar month). A Party
receiving a prepayment from a Client shall, however, immediately send * percent
(*%) of such prepayment (net of commissions paid to the advertising agency from
the prepayment) to the other Party. The Primary Party shall in any event be
obligated to pay the Secondary Party at least *% of its share of Net Revenue
within 60 days of the end of the month in which the Secondary Party's services
were performed. No repayment is required even if the Client pays no Net Revenue
(i.e., to the extent of such assured *% only the Primary Party bears the credit
risk).
(a) The Parties agree to, at the end of each calendar quarter,
confer to determine whether any changes to Schedule 2.4 are appropriate in view
of, among other things, InterVU's verifiable bandwidth costs. The Parties agree
that Schedule 2.4 should be revised from time to time upon written consent of
the parties, even if not revised in any other way, to adjust the * and split of
* to enable InterVU to maintain a reasonable gross profit margin for 25KB file
size products on all prospective Media Rich Ads with requirements greater than
25KB. The Parties agree that the * split of Base Net is not subject to revision.
(b) The Primary Party for a Client will be responsible for billing
and collecting fees for both Parties' Media Rich Services for such Client. The
Secondary Party need not reimburse the Primary Party for any of the associated
expense.
(c) InterVU will be responsible for negotiating and contracting with
licensors of future-developed Media Rich Technology. MatchLogic need not
reimburse for any of the associated expense unless the parties agree.
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2.5 Fair Allocation. It is understood that either Party may already be
providing, or may provide in the future, to any Client services (including,
without limitation, Up-Sells) in addition to Media Rich Services (the "Other
Services"). For purposes of this Section 2.5, a Party's Media Rich Services on
projects on which, under Section 2.2, the other Party could be and was excluded
from participation shall be considered Other Services instead of Media Rich
Services. To preserve the integrity of the Section 2.4 allocation of Net
Revenues, such Party shall charge a fair market price to the Client for the
Media Rich Services and for the Other Services. Prices charged (on a relative
basis) as of the date of this Agreement shall be presumed to be the fair market
prices, so the burden shall be on the performing Party to prove the
justifiability (based on pricing for similar customers for similar services
within the prior three months) of any deviation unfavorable to the Media Rich
Services. Any "package discount" (other than volume discounts pertaining solely
to the volume of Other Services) or other special consideration from or to the
Client shall be allocated pro rata (by revenues) between the Media Rich Services
versus the Other Services.
2.6 Liability Protection. Each Party shall provide to the Client liability
protection against failure to provide its Media Rich Services at least as
favorable to the Client as the Party's standard liability protection against
failure to provide its Media Rich Services, or as set out in a mutually
acceptable campaign liability agreement provided by both Parties to the Client
for individual campaigns. The Primary Party shall provide such protection (as it
elects to provide) directly to the Client. The Secondary Party shall provide
such protection (as it elects to provide) directly to the Primary Party, which
shall pass it through to the Client.
2.7 Audits. Each Party shall keep and maintain for no less than two years
detailed and accurate books and records with regard to Net Revenues, Section 2.4
allocations, the amount and fairness of pricing of Other Services for Clients,
payments to Media Rich Technology licensors and the calculation thereof. The
Secondary Party shall be entitled to review and audit such books and records
from time to time during normal business hours upon reasonable notice to the
Primary Party and at the Secondary Party's expense; provided that the Primary
Party will bear any such expense if the review or audit shows an underpayment of
more than five percent (5%) for the applicable period.
2.8 Client Identification. Once the Primary Party has established a Client
relationship (as evidenced by a signed contract between the Primary Party and
the Client), the Secondary Party agrees it will not call upon that Client to
independently sell Media Rich Services in an effort to displace the Primary
Party and secure Primary Party status for itself.
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<PAGE> 6
ARTICLE III
JOINT EFFORT PROJECTS
InterVU and MatchLogic agree to use their reasonable commercial efforts to
work jointly together in the following matters, with regard to each of which
each Party shall bear its own expenses:
3.1 Joint Sales and Promotion Efforts.
(a) To sell and promote (in all venues and media) joint Media Rich
Services for Media Rich Ads in each Party's individual sales and promotional
efforts, and to cooperate on joint sales and promotion efforts of joint Media
Rich Services. InterVU agrees not to joint market or promote Media Rich Ad
services with any other Ad Management Services Company.
(b) MatchLogic will use best efforts to promote Media Rich Ad
projects and InterVU to its Clients and to generate Media Rich Ad business for
InterVU. InterVU will use best efforts to promote the services of an Ad
Management Services Company (namely, MatchLogic) to its Clients and to generate
Ad Management Services Company business for MatchLogic.
(c) The Parties shall develop a trade name, service mark, trademark,
logo and/or similar intellectual property (collectively, the "Marks") to refer
to their collaborative provision of Media Rich Services. The Marks shall be
jointly owned and each Party agrees that it shall not, either during or after
the term of this Agreement, license-out any Marks or use any of the Marks except
to refer to collaborative provision of Media Rich Services by the two Parties
together, and only with the prior written approval of the other Party.
(d) The Parties agree to charge each other reduced rates (adjusted
every third month) for any Media Rich Services used by either Party for internal
(consumer) promotional campaigns. InterVU agrees to provide MatchLogic a
promotional * rate for standard Media Rich Technology (25KB V-Banner size) and a
mutually-agreed-upon charge for other formats offered by InterVU if promotional
text and a link to the EyeQ download site is placed on the sweepstakes offer
webpage for such promotion.
3.2 Data Exchange.
(a) Throughout the term of this Agreement, InterVU shall provide
database information on user connectivity levels to MatchLogic and (except to
the extent InterVU is contractually precluded from doing so) shall permit
MatchLogic to set its "cookie" for each registration.
(b) InterVU agrees to provide MatchLogic with a copy of its current
database of e-mail addresses and associated data collected during registration
of InterVU registrants. However, MatchLogic agrees that MatchLogic's first
contact with such registrants must (i) be
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<PAGE> 7
expressly approved by InterVU and (ii) identify InterVU as the sender of the
message; and MatchLogic further agrees that MatchLogic will send no additional
e-mail to a registrant unless and until the registrant affirmatively agrees that
MatchLogic may do so.
(c) MatchLogic agrees to provide instructions related to adding the
relevant questions for the purpose of gathering new data from InterVU
registrations. Until April 13, 1998, InterVU shall not unreasonably decline to
include such questions and (except to the extent InterVU is contractually
precluded from doing so) InterVU shall provide a copy of the registration data
from such registrations to MatchLogic. Such data gathering shall comply with all
third-party data gathering policies and standards set forth by TrusteE.
(d) If the Parties have not entered into a definitive data sharing
agreement by April 13, 1998, MatchLogic shall (i) provide InterVU with any
MatchLogic enhancements of data from the "old" InterVU database, (ii) provide
InterVU with a copy of the new data gathered from InterVU registrations and
(iii) pay InterVU * for joint title to each completed registration gathered
between January 13 and April 13, 1998.
(e) In consideration of this Section 3.2, MatchLogic agrees that it
shall not in any event before * use any MatchLogic or InterVU data for any push
video e-mail services or video syndication services that InterVU is not
delivering, or use data with any website owned by a company involved in video
production or distribution.
3.3 Technical Architecture. To notify each other on technical architecture
matters including expansion plans related to Media Rich Services provided under
this Agreement.
3.4 Intel Proposal. To create and present a joint proposal to Intel
forthwith.
3.5 Press Releases. To jointly develop and approve press releases and
other public releases announcing the formation of this strategic alliance and
any other newsworthy event or fact pertaining to the strategic alliance. Neither
Party shall issue any such press release or other public release without the
other's prior approval (which shall not be unreasonably withheld), unless
disclosure is required by law or by stock exchange or Nasdaq rule. If InterVU
obtains confidential treatment from the Securities and Exchange Commission for
any portion of this Agreement, MatchLogic shall seek confidential treatment for
such portion in any of its filings with the Securities and Exchange Commission.
3.6 Joint Developments.
(a) To attempt, when both parties wish under a business plan to be
agreed upon (which shall include specific intellectual property allocations), to
jointly develop new technologies and services related to the management and
distribution of Media Rich Ads.
(b) To work exclusively with each other for the development and
provision of push video e-mail services; provided, that if the Parties have not
agreed on a definitive e-mail
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agreement by March 31, 1998, this Section 3.6(b) shall become void; and provided
further, that such exclusivity shall not apply as to a particular project if the
database owner refuses to use the Media Rich Services of the other Party or
designates a different Service Provider to perform such Media Rich Services. The
Parties will work together to develop requirements and create a workable
business plan for consideration by the Parties. In the event both Parties
endorse the business plan, the Parties will share equitably in the mutually
approved expenses to bring the new service to market and to support the new
service.
In support of InterVU customers that wish push video e-mail
services or traditional e-mail services, MatchLogic will provide all necessary
e-mail management, delivery, tracking and reporting services (not including any
cost related to list rental or hygiene, which cost comes off the top) in return
for *% of the "Net Revenues", based on a mutually established price.
If MatchLogic customers wish to upgrade their existing
MatchLogic e-mail campaigns to add video capability, then in return for
providing video e-mail delivery services, InterVU is entitled to *% of the
additional "Net Revenues" earned by MatchLogic for the additional video service.
MatchLogic will offer InterVU a promotional rate for
traditional e-mail services that are used for InterVU's own promotional
purposes, rather than for direct revenue generation.
3.7 Co-Location.
(a) If, as and when feasible (and allowed by the applicable Internet
service provider ("ISP")), InterVU will permit MatchLogic to put its
distribution equipment into InterVU's server racks located at InterVU delivery
centers *. MatchLogic shall not use such equipment to serve up Media Rich Ads.
Such equipment shall remain MatchLogic's property at all times. MatchLogic shall
remove such equipment upon expiration or termination of this Agreement or when
required by InterVU's agreement with the ISP.
(b) To explore (above and beyond Section 3.7(a)) co-location of
servers to reduce bandwidth costs.
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ARTICLE IV
TECHNOLOGY LICENSES
4.1 Licenses to MatchLogic. InterVU hereby grants MatchLogic a
non-exclusive, non-sublicenseable, non-transferable license and right to use
InterVU's bandwidth optimization, EyeQ and AllEyes technology on projects for
which Net Revenues are shared pursuant to Section 2.4.
4.2 Licenses to InterVU. MatchLogic hereby grants InterVU a non-exclusive,
non-sublicenseable, non-transferable license and right to use MatchLogic's
technology related to cache management and TrueCount technology on projects for
which Net Revenues are shared pursuant to Section 2.4.
4.3 Termination. These licenses shall expire upon the termination or
expiration of this Agreement. No other license is granted by either Party of any
Proprietary Information, technology or intellectual property. No license of any
trade name, trademark or servicemark of either Party is granted under this
Agreement.
ARTICLE V
CONFIDENTIALITY
5.1 Non-disclosure and Non-use. Each Party recognizes the importance to
the other of the other's Proprietary Information. Accordingly, each Party as
Receiving Party agrees as follows: (a) to hold the Disclosing Party's
Proprietary Information in confidence as a fiduciary and to take all reasonable
precautions to protect such Proprietary Information (including, without
limitation, all precautions the Receiving Party employs with respect to its
confidential materials), (b) not to divulge any such Proprietary Information or
any information derived therefrom to any third person and (c) not to make any
use whatsoever at any time of such Proprietary Information except as expressly
authorized in this Agreement. Any employee given access to any such Proprietary
Information must have a legitimate "need to know" and shall be similarly bound
in writing to confidentiality and non-use under such Party's standard employee
confidentiality and non-use agreement.
5.2 Exceptions. Notwithstanding anything in this Agreement to the
contrary, Proprietary Information of a Party need not be treated as such by the
other Party if it is or has become:
(a) published or otherwise available to the public other than
by a breach of this Agreement;
(b) rightfully received by the Receiving Party from a third party
not obligated under this Agreement and without confidential limitation;
(c) approved in writing for public release by the Disclosing Party;
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<PAGE> 10
(d) demonstrated by written records to be known to the Receiving
Party prior to its first receipt of the same from the Disclosing Party;
(e) demonstrated by written records to be independently developed by
the Receiving Party; or
(f) required by law to be disclosed to a governmental agency or
court.
5.3 Return of Proprietary Information. Upon termination or expiration of
this Agreement, each Party shall (a) return to the other Party the original and
all copies of any Proprietary Information provided by such other Party and any
derivatives, reflections, summaries or analyses thereof or studies or notes
thereon, and (b) at the other Party's request, have one of its officers certify
in writing that it shall not make any further use of such Proprietary
Information.
ARTICLE VI
TERM AND TERMINATION
6.1 Term. The initial term of this Agreement shall commence on the date
first set forth above and remain in full force and effect for three (3) years
(the "Initial Term"). This Agreement shall automatically renew for additional
one (1) year periods (each an "Extension Period") unless, prior to ninety (90)
days before the end of the Initial Term or the Extension Period, as the case may
be, either Party gives written notice to the other that it chooses not to extend
the Agreement. In this manner the term of the Agreement may, so long as neither
Party gives notice that it chooses not to extend the Agreement, be extended
indefinitely. However, either Party may at any time terminate this Agreement for
breach pursuant to this Article VI.
6.2 MatchLogic's Option to Terminate. MatchLogic may, at its sole option
and discretion, terminate this Agreement if InterVU fails, within 7 days of the
date set forth above, to provide written proof of an executed Royalty Agreement
with Narrative Communications Corporation. In the event that InterVU provides
written notice of its failure to enter into the Royalty Agreement with Narrative
Communications Corporation, MatchLogic's option to terminate under this Section
6.2 shall expire 3 days after MatchLogic is provided with such written notice.
In the event that MatchLogic exercises its termination rights under this Section
6.2, only the provisions of Article V shall survive such termination unless
there is a dispute under Article V, in which case, Sections 7.2, 7.3, 7.14, 7.15
and 7.16 shall survive only as they relate to an Article V dispute.
6.3 Termination with Cause. This Agreement may be terminated immediately
by: (a) either Party in the event the other Party breaches any material
provision of this Agreement and does not remedy such breach within thirty (30)
days following notice (detailing such breach) from the non-breaching Party; or
(b) either Party in the event an involuntary petition is filed
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<PAGE> 11
against the other Party under any bankruptcy, reorganization, insolvency or
moratorium law, or any other law or laws for the relief of, or relating to,
debtors unless such petition shall be dismissed or vacated within sixty (60)
days of the date thereof.
6.4 No Election. Termination of this Agreement shall not serve to limit
the terminating Party's rights and remedies under applicable law arising from
any prior breach, or otherwise under the terms of the Agreement.
6.5 Survival. Except for termination pursuant to Section 6.2, the
provisions of Article V and Sections 2.7, 7.2, 7.3, 7.14, 7.15 and 7.16 shall
survive any termination or expiration of this Agreement.
ARTICLE VII
MISCELLANEOUS
7.1 Force Majeure. Neither Party to this Agreement will be liable for
failure to perform any of its obligations hereunder during any period in which
such performance is delayed by fire, flood, war, riot, embargo, organized labor
stoppage, earthquake, Internet outage, acts of civil and military authorities,
or any other acts beyond its reasonable control, provided that the Party
suffering such delay promptly notifies the other Party of the delay.
7.2 Arbitration.
(a) Any controversy, claim or dispute between the Parties to this
Agreement arising out of, in connection with, or in relation to the
interpretation, validity, performance or breach of this Agreement (other than
one relating to Article V or to the ownership, improper use or unauthorized use
of any technology or intellectual property) shall, at the request of either
Party, be resolved to the exclusion of a court of law by binding arbitration in
San Diego, California, in accordance with the Arbitration Procedures attached
hereto as Schedule 7.2.
(b) The arbitrator(s) shall be empowered to award relief which is
legal and/or equitable in nature, as appropriate.
(c) Except to the extent expressly contradicted by this Agreement,
the arbitration provisions of Section 1280 et seq. (Part 3, Title 9) (with the
exception of Section 1283.05) of the California Code of Civil Procedure shall be
fully applicable to this Agreement.
(d) Except for applications or other procedures to obtain
provisional relief from a court as contemplated by California Code of Civil
Procedure Section 1281.8 or any equivalent statute, if any controversy, claim or
dispute between the Parties to this Agreement arising out of, in connection
with, or in relation to the interpretation, validity, performance or breach of
this Agreement becomes the subject of a judicial action and, despite the other
Party's request for arbitration, for any reason remains the subject of a
judicial action, all decisions of fact
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and law shall be determined by reference pursuant to Section 638 et seq.
(Part 2, Title 8, Chapter 6) of the California Code of Civil Procedure. The
Parties shall designate to the court as referees three persons determined by the
Parties in accordance with the provisions established for the selection of an
arbitration panel pursuant to this Agreement; but if arbitrator(s) are already
selected pursuant to this Agreement the reference shall be to such
arbitrator(s).
7.3 Controlling Law and Venue. This Agreement and the performance of the
Parties hereunder shall be construed in accordance with and governed by the laws
of the State of California, U.S.A. as applied to agreements between California
residents to be performed entirely within California. Subject to Section 7.2,
the Superior Court of San Diego County and/or the United States District Court
for the Southern District of California shall have exclusive jurisdiction and
venue over all controversies in connection herewith, and each Party hereby
consents to such exclusive and personal jurisdiction and venue.
7.4 Severability. If any provisions of this Agreement, or application
thereof to any person, place or circumstance, shall be held by a court of
competent jurisdiction to be to any extent invalid, unenforceable or void, the
remainder of this Agreement and such provisions as applied to other persons,
places and circumstances shall remain in full force.
7.5 Entire Agreement. This Agreement and any exhibits or attachments
hereto, all of which are incorporated by this reference, constitute the entire
agreement and understanding between the Parties with respect to its subject
matter and supersede any prior or contemporaneous oral or written negotiations,
understandings or agreements. However, any previous non-disclosure/non-use
agreement is expressly not superseded.
7.6 Amendment. This Agreement may be amended or supplemented only by a
writing that refers specifically to this Agreement and is signed by duly
authorized representatives of both Parties.
7.7 Waiver. Except as otherwise provided in this Agreement, any failure of
any of the Parties to comply with any obligation, covenant, agreement or
condition herein may be waived by the Party entitled to the benefit thereof only
by a written instrument signed by the Party granting such waiver, but such
waiver or failure to insist upon strict compliance with such obligation,
representation, warranty, covenant, agreement or condition shall not operate as
a waiver of, or estoppel with respect to, any subsequent or other failure.
7.8 Limitation of Liability. EXCEPT FOR SECTION 2.6 OR A BREACH BY A PARTY
OF ARTICLE V, NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY FOR ANY LOST
PROFITS OR ANY SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, EVEN IF THE PARTY
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. THE PRECEDING SENTENCE'S
LIMITATION OF LIABILITY SHALL NOT APPLY TO ANY (PRE-TERMINATION OR
POST-TERMINATION) BREACH AFTER THE OTHER PARTY HAS TERMINATED THIS AGREEMENT
UNDER SECTION 6.3(a). EXCEPT FOR SECTION 2.6 OR A BREACH BY A PARTY OF ARTICLE
V, IN NO EVENT
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<PAGE> 13
SHALL EITHER PARTY'S LIABILITY UNDER THIS AGREEMENT EXCEED THE GREATER OF *.
EACH PARTY DISCLAIMS ALL WARRANTIES WITH REGARD TO ITS TECHNOLOGY, CAPABILITIES
AND SERVICES, INCLUDING ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE OR N0N-INFRINGEMENT.
7.9 Notices. All notices required to be sent by either Party under this
Agreement must be in writing and shall be deemed given at the earliest of (a)
when actually received, (b) when sent by confirmed telecopy, (c) one business
day after being sent by commercial overnight courier with written verification
of receipt or (d) three business days after being mailed postage prepaid by
certified or registered mail, return receipt requested, to the Party to be
notified, at the respective addresses set forth below, or at such other address
which may hereinafter be designated in writing in accordance with this Section:
InterVU:
201 Lomas Santa Fe Drive
Solana Beach, CA 92075
Attention: Chief Executive Officer
Fax: (619) 793-2525
MatchLogic:
400 South McCaslin Blvd.
Louisville, CO 80027
Attention: Chief Financial Officer
Fax: (303) 665-0827
7.10 Independent Contractors. Nothing contained in this Agreement is
intended or is to be construed to constitute InterVU or MatchLogic as partners
or joint venturers or either Party as an employee of the other Party. Except as
expressly provided herein, neither Party hereto shall have any express or
implied right or authority to assume or create any obligations on behalf of or
in the name of the other Party or to bind the other Party to any contract,
agreement or undertaking with any third party. Each agrees not to purport to do
so.
7.11 Successors and Assigns. This Agreement and the rights and obligations
arising hereunder shall be binding upon and inure to the benefit of the Parties
and to their respective successors and permitted assigns. Subject to the
following sentence, neither Party may assign any of its rights or obligations
hereunder without the prior written consent of the other Party (which shall not
be unreasonably withheld or delayed). Notwithstanding the foregoing, either
Party may assign this Agreement and its rights and obligations hereunder, as an
entirety, as a part
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<PAGE> 14
of an acquisition of the Party by merger or an acquisition of all or
substantially all of the Party's assets. *
7.12 Headings. The article and section headings contained in this
Agreement are for reference purposes only and will not affect in any way the
meaning or interpretation of this Agreement.
7.13 Counterparts. This Agreement may be executed in one or more
counterparts, each of which when executed shall be deemed to be an original, but
all of which taken together shall constitute one and the same instrument. This
Agreement may be executed via facsimile signature.
7.14 Attorneys' Fees. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing Party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such Party may be entitled.
7.15 Equitable Remedies. Subject to Section 7.2, each Party acknowledges
and agrees that the legal remedies available to the other Party in the event the
first Party violates the covenants and agreements made in this Agreement would
be inadequate and that the other Party shall be entitled, without posting any
bond or other security, to temporary, preliminary and permanent injunctive
relief, specific performance and other equitable remedies in the event of such a
violation, in addition to any other remedies which the other Party may have at
law or in equity.
7.16 Indemnification. Each Party agrees to indemnify, defend and hold
harmless the other Party and such other Party's directors, officers, employees,
agents, consultants, shareholders and subsidiaries (the "Indemnitees") from all
expenses, costs, losses and damages that a court finally awards or amounts
actually paid in settlement by the Indemnitees as a result of any claim, action
or suit by a third party, arising from the first Party's acts or omission in
providing Media Rich Services under this Agreement, plus reasonable defense
attorney fees, costs and expenses.
If any lawsuit or enforcement action is filed against any Indemnitee,
written notice thereof shall be given to the first Party as promptly as
practicable; provided that the failure of any Indemnitee to give timely notice
shall not affect rights to indemnification hereunder except to the extent that
the first Party demonstrates actual damage caused by such failure. After such
notice, if the first Party shall acknowledge in writing to such Indemnitee that
the first Party shall be
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<PAGE> 15
obligated under the terms of its indemnity hereunder in connection with such
lawsuit or action, then the first Party shall be entitled, if it so elects, to
take control of the defense and investigation of such lawsuit or action and to
employ and engage attorneys of its own choice (subject to the approval (for
competence, experience, independence and absence of conflict of interest) of the
Indemnitee) to handle and defend the same, at the first Party's cost, risk and
expense; and such Indemnitee shall thereafter cooperate in all reasonable
respects with the first Party and such attorneys in the investigation, trial and
defense of such lawsuit or action and any appeal arising therefrom. The fees of
such attorneys, and all amounts payable by the first Party under this Section,
shall be payable as incurred and on demand. The Indemnitee may also, through
independent counsel and at its own cost, participate in such investigation,
trial and defense of such lawsuit or action and any appeal arising therefrom.
No settlement calling for anything on the part of an Indemnitee other than
the payment of money may be effected by the first Party without the prior
written approval of the Indemnitee. No Indemnitee shall enter into a settlement
calling for the payment of money (under this Section or otherwise), or for any
other thing, by the first Party without the prior written approval of the first
Party.
[Remainder of This Page Intentionally Left Blank]
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IN WITNESS HEREOF, the Parties have entered into this Agreement as of the
date first written above.
INTERVU INC.
By: /s/ Harry Gruber
------------------------------------
Title: Chief Executive Officer
MATCHLOGIC, INC.
By: /s/ Steve Harris
------------------------------------
Title: Executive Vice President
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SCHEDULE 2.4
Standard Revenue Sharing Table
<TABLE>
<CAPTION>
File Size
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<S> <C>
< 25 KB
25.1 - 49.9 KB
50 - 74.9 KB
75 - 99.9 KB
100 - 124.9 KB
125 - 149.9 KB
150 - 174.9 KB
175 - 200 KB
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*
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SCHEDULE 7.2
ARBITRATION PROCEDURES
ESTABLISHMENT OF FORUM
Arbitration shall be initiated by one Party sending to the other a Notice
of Arbitration, by first class United States mail, which notice must contain a
description of the dispute, the amount involved, and the remedy sought. Unless
the Parties agree on one arbitrator within ten days thereafter, each Party
shall, within 20 days after the mailing of the initiating notice, choose one
arbitrator, and the two arbitrators chosen shall, within 30 days after the
mailing of the initiating notice, select a third arbitrator. A person shall be
ineligible to be an arbitrator if he/she (or any of his/her affiliates) is an
affiliate of, vendor or service provider to, or customer of, any Party or any of
any Party's affiliates. The arbitration shall be held within 90 days after the
mailing of the initiating notice, at a date, time and place determined (subject
to this Agreement) by majority vote of the arbitrators.
PRE-HEARING CONFERENCE
The arbitrator(s) shall schedule a pre-hearing conference to reach
agreement on procedural matters, arrange for the exchange of information, obtain
stipulations, and attempt to narrow the issues.
DISCOVERY
The Parties agree to expedite the arbitration proceedings by placing the
following limitations on discovery:
a. Each Party may propound only one interrogatory, which shall be
limited to requesting the names and addresses of the witnesses to be called at
the arbitration hearing.
b. On a date to be determined at the pre-hearing conference, each
Party may serve one request for the production of documents. The documents are
to be exchanged two weeks later.
c. Each Party may depose five witnesses. Each deposition must be
concluded within four hours and all depositions must be taken within thirty (30)
days of the pre-hearing conference. Any Party deposing an opponent's expert must
pay the expert's fee for attending the deposition.
THE HEARING
I. The Parties must file briefs with the arbitrator(s) at least three (3)
days before the hearing, specifying the facts each intends to prove and
analyzing the applicable law.
II. The Parties have the right to representation by legal counsel
throughout the arbitration proceedings.
III. Judicial rules of evidence and procedure relating to the conduct at
the hearing, examination of witnesses, and presentation of evidence do not
apply. Any relevant evidence, including hearsay, shall be admitted by the
arbitrator if it is the sort of evidence on which responsible persons are
accustomed to rely on in the conduct of serious affairs, regardless of the
admissibility of such evidence in a court of law.
IV. Within reasonable limitations, both sides at the hearing may call and
examine witnesses for relevant testimony, introduce relevant exhibits or other
documents, cross-examine or impeach witnesses who shall have testified orally on
any matter relevant to the issues, and otherwise rebut evidence, as long as
these rights are exercised in an efficient and expeditious manner.
V. Any Party desiring a stenographic record may secure a court reporter to
attend the proceedings. The requesting Party must notify the other Party of the
arrangements in advance of the hearing and must pay for the cost incurred.
VI. Any Party may request the oral evidence to be given under oath.
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<PAGE> 19
THE AWARD
I. The decision shall be based on the evidence introduced at the hearing,
including all logical and reasonable inferences therefrom. The arbitrator(s) may
grant any remedy or relief which is just and equitable.
II. The award must be made in writing and signed by either the arbitrator
or a majority of the arbitrators if a panel is used. It shall contain a concise
statement of the reasons in support of the decision.
III. The award must be mailed promptly to the Parties, but no later than
thirty (30) days from the closing of the hearing.
IV. The decision of a majority of the arbitrators shall be final and
binding upon the Parties and their respective successors and assigns.
FEES AND EXPENSES
The arbitrator(s) must award attorney fees, witness fees and other costs
and expenses of the arbitration to the prevailing Party.
19
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 21,379,845
<SECURITIES> 0
<RECEIVABLES> 93,225
<ALLOWANCES> 4,290
<INVENTORY> 0
<CURRENT-ASSETS> 21,538,138
<PP&E> 823,128
<DEPRECIATION> (238,527)
<TOTAL-ASSETS> 22,130,008
<CURRENT-LIABILITIES> 590,896
<BONDS> 7,608
0
1,280
<COMMON> 9,377
<OTHER-SE> 21,520,847
<TOTAL-LIABILITY-AND-EQUITY> 21,531,504
<SALES> 0
<TOTAL-REVENUES> 143,541
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,601,125
<LOSS-PROVISION> 4,290
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,265,183)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,265,183)
<EPS-PRIMARY> (0.90)
<EPS-DILUTED> (0.90)
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