<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 20, 1998
REGISTRATION NO. 333-51587
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
INTERVU INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 7371 33-0680870
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(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
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201 LOMAS SANTA FE DRIVE
SOLANA BEACH, CA 92075
(619) 350-1600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
HARRY E. GRUBER
CHIEF EXECUTIVE OFFICER
INTERVU INC.
201 LOMAS SANTA FE DRIVE
SOLANA BEACH, CA 92075
(619) 350-1600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
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SCOTT N. WOLFE, ESQ. PETER LILLEVAND, ESQ.
DAVID A. HAHN, ESQ. IAIN MICKLE, ESQ.
ROBERT E. BURWELL, ESQ. BARBARA M. LANGE, ESQ.
LATHAM & WATKINS ORRICK, HERRINGTON & SUTCLIFFE LLP
701 "B" STREET, SUITE 2100 OLD FEDERAL RESERVE BANK BUILDING
SAN DIEGO, CALIFORNIA 92101 400 SANSOME STREET
(619) 236-1234 SAN FRANCISCO, CALIFORNIA 94111
(415) 392-1122
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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==========================================================================================================================
PROPOSED
AMOUNT MAXIMUM OFFERING PROPOSED AMOUNT OF
TITLE OF EACH CLASS TO BE PRICE MAXIMUM AGGREGATE REGISTRATION
OF SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE FEE
- --------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.001..... 2,300,000 shares $17.438 $40,107,400 $11,832(3)
==========================================================================================================================
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(1) Includes 300,000 shares subject to the Underwriters' option to cover
over-allotments.
(2) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(c) under the Securities Act of 1933, based on the average of the
high and low sales prices of the Company's Common Stock on the Nasdaq
National Market on April 27, 1998.
(3) Previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MAY 20, 1998
2,000,000 SHARES
LOGO
INTERVU INC.
COMMON STOCK
------------------------
All of the 2,000,000 shares of Common Stock offered hereby are being sold
by InterVU Inc. ("InterVU" or the "Company").
The Common Stock is quoted on the Nasdaq National Market under the trading
symbol "ITVU." On May 4, 1998, the last sale price of the Common Stock as
reported on the Nasdaq National Market was $16.75 per share. See "Price Range of
Common Stock."
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 7 OF THIS PROSPECTUS FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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==================================================================================================================
Underwriting
Price to Discounts and Proceeds to
Public Commissions Company(1)
- ------------------------------------------------------------------------------------------------------------------
Per Share........................... $ $ $
- ------------------------------------------------------------------------------------------------------------------
Total............................... $ $ $
- ------------------------------------------------------------------------------------------------------------------
Total Assuming Full Exercise of
Over-Allotment Option (2)......... $ $ $
==================================================================================================================
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(1) Before deducting expenses estimated at $500,000, which are payable by the
Company.
(2) Assuming exercise in full of the 45-day option granted by the Company to the
Underwriters to purchase up to 300,000 additional shares, on the same terms,
solely to cover over-allotments. See "Underwriting."
------------------------
The shares of Common Stock are offered by the Underwriters, subject to
prior sale, when, as and if delivered to and accepted by the Underwriters, and
subject to their right to reject orders in whole or in part. It is expected that
delivery of the shares of Common Stock will be made in New York City on or about
, 1998.
------------------------
PAINEWEBBER INCORPORATED
JOSEPHTHAL & CO. INC.
CRUTTENDEN ROTH INCORPORATED
------------------------
THE DATE OF THIS PROSPECTUS IS , 1998.
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[INTERVU LOGO]
V-BANNER(TM) CLIENT VIDEOS
FREE
SOFTWARE InterVU's network approach to video delivery offers
Web site owners and advertisers a solution to
offering video on the Internet. Video messages are
hosted on the InterVU Network but accessed from
customers' Web sites. Upon the request of an
end-user at a participating Web site, the InterVU
Network transmits video messages directly to the
end-user. In the case of video banner
advertisements, the video is displayed
automatically to end-users. The InterVU Network
utilizes a number of proprietary technologies,
including InterVU's Smart Mirror technology, All
Eyes software, VU Finder and EyeQ software, which
together are designed to deliver video to the
end-user from the electronically closest server,
provide Web site owners or advertisers with the
ability to reach an increased number of end-users
with their video content and improve end-users'
video viewing experience.
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[INTERVU LOGO] [MLB LOGO] [NBC LOGO]
http://www.intervu.net
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Below the MLB logo is a depiction of an Internet video player showing the
legs of a baserunner as he prepares to slide into home plate. The video player
represented contains triangular symbols representing forward and reverse, an
icon representing the presence of sound and the word "InterVU."
Below the NBC.com logo is a depiction of a video player showing a line of
people entering a building with an NBC logo over the door. The video player
represented contains triangular symbols representing forward and reverse, an
icon representing the presence of sound and the word "InterVU."
------------------------
Information contained in the Company's Web site shall not be deemed to be a
part of this Prospectus.
------------------------
InterVU(TM), InstaVU(TM), V-Banner(TM), All Eyes(TM), Fast Track(TM),
EyeQ(TM), Get Smart(TM), Global Media Network(TM), Global Multimedia
Network(TM), Smart Seek(TM), InterVU Player(TM), InstaVU Player(TM), InterVU
Network(TM), Smart Mirror(TM), SmartVU(TM), Virtual URL(TM), Virtual Hop(TM), VU
Finder(TM) and the InterVU logo are trademarks of the Company. The Company has
filed applications for trademark registration on the following trademarks: All
Eyes, InstaVU, InterVU, Smart Mirror, Global Media Network, Global Multimedia
Network, SmartVU, Virtual Hop, Virtual URL, VBANNER and the InterVU logo. The
Company has applied for servicemark registration on VUTOPIA. Major League
Baseball trademarks and copyrights are used with permission of Major League
Baseball Properties, Inc. NBC and the Peacock logo are registered trademarks of
National Broadcasting Company, Inc. NetShow(TM) is a trademark of Microsoft
Corporation. RealMedia(TM) is a trademark of RealNetworks, Inc. This Prospectus
also includes additional trademarks of companies other than the Company.
------------------------
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING TRANSACTIONS
OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON
STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M.
SEE "UNDERWRITING."
2
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. Investors
should carefully consider the information set forth under the heading "Risk
Factors." Except as otherwise indicated, all information in this Prospectus
assumes that the Underwriters' over-allotment option will not be exercised.
THE COMPANY
InterVU is a specialized service company seeking to establish a leadership
position in the Internet video delivery market. The Company utilizes a
proprietary software system for routing and distributing high quality video over
the Internet at rapid speeds to a large number of viewers, primarily for
entertainment companies and advertisers. Unlike traditional Web site based video
delivery solutions, the Company's system moves the video delivery mechanism away
from the owner's Web site and on to the Company's distributed network of
specialized video servers strategically situated on multiple backbones on the
Internet (the "InterVU Network"). The InterVU Network allows the Company to
deliver large amounts of high quality video quickly to end-users and allows Web
site owners and advertisers to provide video on the Internet without having to
invest in costly hardware and software or to maintain a staff of employees with
video delivery expertise. The Company has designed the InterVU Network to
perform operations and distribution activities for video content and advertising
on the Internet analogous to those performed by traditional broadcast television
networks for television content and advertising.
The Company offers its services to Web site owners and advertisers for fees
based on the volume of video content delivered, for flat fees based on estimates
of video to be delivered or for a combination thereof. The Company expects to
generate additional revenues in the future from selling advertising space on Web
pages when Web site owners trade such space on their pages for video encoding
and delivery services performed by the Company. In addition, the Company
generally charges its customers fees for encoding analog video into digital form
for transmission over the Internet. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
The Company's target customers are the increasing number of Web site owners
that seek a means of adding video presentations to their Web pages in an easily
implemented and cost-effective manner and advertisers that wish to incorporate
video into banners and other Internet advertisements. The Company believes that
multimedia-rich Web sites, capable of delivering high quality video content
quickly to the end-user, can generate significant marketing differentiation and
"top of mind" awareness in consumer buying decisions. Web site owners that have
used the Company's services include NBC Multimedia, Inc. ("NBC Multimedia"), a
wholly owned subsidiary of National Broadcasting Company, Inc. ("NBC"), Intel
Corp. ("Intel"), Major League Baseball, the Lifetime Television Network
(Hearst/ABC-Viacom Entertainment Service) and Yachting Magazine (Times Mirror
Magazines). The Company's video banner advertising technology, V-Banner, has
been used to promote Intel on 21 Web sites, including the ESPN SportsZone,
RealNetworks, Lycos and AudioNet Web sites. V-Banners also have been used to
promote Goldwin Golf on the GOLFonline Web site, the Columbia Pictures movie
"Air Force One" and Volvo cars on the Yahoo! Web site, Anheuser Busch on the
Major League Baseball Web site, United Airlines on the Comedy Central Web site
and Tabasco on the E!Online Web site. The Company also has an arrangement with
CNN to provide hosting and distribution services for video content on CNN's Web
sites. The Company expects that CNN will utilize the InterVU Network on busy
news days or at other times when CNN's needs for bandwidth exceed its internal
capacity.
Traditional Internet video delivery mechanisms have been adversely affected
by traffic congestion on the Internet and the limitations of video server
storage and delivery resources, desktop storage capabilities and desktop
processing power available for video decoding and playback. In addition, many
Web site owners and advertisers have been reluctant to make the significant
investments in hardware and software necessary to deliver video over the
Internet from their own sites. As a result, most Web site owners and advertisers
have been slow to utilize video on the Internet.
3
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The Company's distributed network solution, by contrast, provides high
throughput delivery of video messages to end-users over the Internet and allows
Web site owners and advertisers to use video on the Internet without incurring
substantial start-up costs. Video messages are hosted on the InterVU Network but
accessed seamlessly from customers' Web sites. Upon the request of an end-user
at a participating Web site, the InterVU Network transmits video messages
directly to the viewer. In the case of video banner advertisements, the video is
displayed automatically to end-users that visit the Web site containing the
advertisement. The InterVU Network is designed to be platform, browser and
software player independent, allowing Web site owners and advertisers to use a
variety of digital video encoding formats with the assurance that such formats
will be compatible with most desk-top environments. The InterVU Network utilizes
a number of proprietary technologies, including the Company's Smart Mirror
technology, All Eyes software, VU Finder and EyeQ software, which together are
designed to deliver video to the end-user from the electronically closest
server, provide Web site owners and advertisers with the ability to reach an
increased number of end-users with their video content and improve end-users'
video viewing experience. The Company's EyeQ multimedia manager, which
downloads, installs and updates end-users' multimedia player software, supports
all major video players, including Microsoft Corporation's NetShow and
RealNetworks, Inc.'s RealMedia streaming video players.
In October 1997, the Company entered into a strategic alliance with NBC
Multimedia pursuant to which the Company became the exclusive provider of
technology and services for the distribution of most NBC entertainment
audio/video content by means of NBC Web sites on the Internet. In addition, NBC
acquired a 10% equity stake in the Company. The strategic alliance agreement
between the Company and NBC Multimedia (the "NBC Strategic Alliance Agreement")
provides for sharing of revenues from a new Web site called VideoSeeker, a
stand-alone site (www.videoseeker.com), that will be promoted on the NBC.com Web
site. VideoSeeker offers end-users a single source for online video
entertainment and information from NBC and its partners, as well as third-party
programmers. VideoSeeker features a wide array of streaming and downloadable
video content, including monologues from "The Tonight Show with Jay Leno,"
"Access Hollywood" celebrity interviews, backstage footage with NBC celebrities
and music videos from myLAUNCH, an online music site. The Company created the
video search engine used on the VideoSeeker site, owns the proprietary software
underlying the site and will manage and distribute all video, audio and
multimedia from the site via the InterVU Network. See "Risk Factors -- Risks
Associated with Strategic Alliance with NBC Multimedia" and
"Business -- Strategic Alliances -- Strategic Alliance with NBC Multimedia."
To enhance its ability to reach large advertisers, in January 1998 the
Company and MatchLogic, Inc. ("MatchLogic") entered into a strategic alliance
agreement (the "MatchLogic Strategic Alliance Agreement"). MatchLogic is a
leading online advertising management services firm and a subsidiary of Excite,
Inc. MatchLogic supports top advertisers such as General Motors and leading
advertising agencies such as McCann-Erickson. The Company and MatchLogic have
developed trueVU, a service designed to facilitate advertisers' use of
bandwidth-intensive media and robust video advertisements on the Internet.
trueVU combines InterVU's video delivery technology with MatchLogic's targeting,
distribution, reporting and performance measurement capabilities to provide
"one-stop shopping" for Internet advertisers and advertising agencies. trueVU
allows advertisers to stage advertising campaigns across a number of Web sites
without having to confirm the compatibility of their advertisements with the
software used on those sites. In addition, trueVU offers integrated reporting of
an advertisement's performance across a number of Web sites.
InterVU was incorporated in Delaware in August 1995 and launched the
InterVU Network in December 1996. Accordingly, the Company has a limited
operating history on which to base an evaluation of its business and prospects.
The Company's principal executive offices are located at 201 Lomas Santa Fe
Drive, Solana Beach, California 92075, and its telephone number is (619)
350-1600.
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THE OFFERING
COMMON STOCK OFFERED BY THE
COMPANY..................... 2,000,000 shares
COMMON STOCK TO BE OUTSTANDING
AFTER THE OFFERING.......... 11,380,032 shares(1)
USE OF PROCEEDS............... Increased sales and marketing efforts;
expansion of network operations; additional
software development; and working capital and
other general corporate purposes, including
possible future strategic alliances and
acquisitions. See "Use of Proceeds."
NASDAQ NATIONAL MARKET
SYMBOL........................ ITVU
- ---------------
(1) As of April 29, 1998, excludes (i) 1,059,328 shares of the Company's common
stock, par value $.001 per share (the "Common Stock"), issuable upon
exercise of outstanding options under the 1996 Stock Plan of InterVU Inc.
(the "1996 Stock Plan"), (ii) 806,144 shares issuable upon conversion of
1,280,000 shares of the Company's Series G Preferred Stock (the "Series G
Preferred") issued to NBC in connection with the formation of the strategic
alliance with NBC Multimedia and (iii) 200,000 shares of Common Stock
issuable upon exercise of warrants issued to Josephthal & Co. Inc.
("Josephthal") and Cruttenden Roth Incorporated in connection with the
Company's initial public offering (the "IPO") in November 1997 (the
"Advisors' Warrants").
RISK FACTORS
In connection with this offering (the "Offering"), prospective investors
should carefully consider the factors set forth under "Risk Factors," including:
the Company's limited operating history, accumulated deficit and anticipated
losses; the uncertain market for the Company's specialized services; business
development and expansion risks and the possible inability to manage growth;
potential fluctuations in quarterly operating results and unpredictability of
future revenues; competition; risks associated with the strategic alliance with
NBC Multimedia; dependence upon other strategic alliances; risks of system
failures and security risks; risks of acquisitions and investments; dependence
on key personnel; unproven acceptance of the Company's fee structure;
intellectual property; risks of encoding and distributing adult video content;
dependence on increased usage and stability of the Internet; risks of
technological change; government regulation and legal uncertainties; volatility
of stock price; management's discretion over the use of proceeds of the
Offering; the anti-takeover effects of certain charter provisions; shares
eligible for future sale; control by existing stockholders; and immediate and
substantial dilution.
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SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
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PERIOD FROM
AUGUST 2, 1995 YEAR ENDED THREE MONTHS ENDED
(INCEPTION) TO DECEMBER 31, MARCH 31,
DECEMBER 31, ------------------------ ------------------------
1995 1996 1997 1997 1998
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STATEMENT OF OPERATIONS
DATA:
Total revenues............. $ -- $ -- $ 144 $ 10 $ 113
Operating expenses:
Research and
development........... 33 1,420 1,703 448 599
Selling, general and
administrative........ 16 910 3,148 561 1,589
Charges associated with
the NBC Strategic
Alliance
Agreement(1).......... -- -- 750 -- 3,873
---- ---------- ---------- ---------- ----------
Total operating
expenses....... 49 2,330 5,601 1,009 6,061
---- ---------- ---------- ---------- ----------
Loss from operations....... (49) (2,330) (5,457) (999) (5,948)
Interest income............ 3 52 192 21 196
---- ---------- ---------- ---------- ----------
Net loss................... $(46) $ (2,278) $ (5,265) $ (978) $ (5,752)
==== ========== ========== ========== ==========
Basic and diluted net loss
per share(2)............. $ (.66) $ (.90) $ (.21) $ (.66)
========== ========== ========== ==========
Shares used in computing
basic and diluted net
loss per share(2)........ 3,440,931 5,822,594 4,657,815 8,694,332
========== ========== ========== ==========
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MARCH 31, 1998
----------------------
AS
ACTUAL ADJUSTED(3)
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BALANCE SHEET DATA:
Cash and cash equivalents................................. $12,060 $42,715
Short-term investments.................................... 7,026 7,026
Working capital........................................... 18,455 49,110
Total assets.............................................. 20,081 50,736
Long-term lease commitments............................... 4 4
Total stockholders' equity................................ 19,219 49,874
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(1) As consideration for the strategic alliance with NBC Multimedia, the Company
issued 1,280,000 shares of Series G Preferred to NBC. In January 1998, the
Company expensed the then-fair value of 680,000 shares of the Series G
Preferred in the amount of $3.4 million. The Company expects to expense the
then-fair value of the remaining 600,000 shares of Series G Preferred in the
three months ending December 31, 1999. The charges also include $750,000 and
$500,000 in nonrefundable cash payments due to NBC under the NBC Strategic
Alliance Agreement expensed during the three months ended December 31, 1997
and March 31, 1998, respectively. See "Business -- Strategic
Alliances -- Strategic Alliance with NBC Multimedia."
(2) See Note 1 of Notes to Financial Statements for an explanation of the number
of shares used in computing pro forma basic and diluted net loss per share.
(3) As adjusted to reflect the sale by the Company of 2,000,000 shares of Common
Stock at the assumed public offering price of $16.75 per share, and the
application of the estimated net proceeds therefrom. See "Use of Proceeds"
and "Capitalization."
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RISK FACTORS
An investment in the shares of Common Stock offered hereby is speculative
in nature and involves a high degree of risk. In addition to the other
information contained in this Prospectus, the following factors should be
considered carefully in evaluating the Company and its business before
purchasing the shares of Common Stock offered hereby. This Prospectus contains,
in addition to historical information, forward-looking statements that involve
risks and uncertainties. The Company's actual results could differ materially
from those discussed in the forward-looking statements as a result of certain
factors, including, but not limited to, those discussed below as well as those
discussed elsewhere in this Prospectus.
RISK FACTORS RELATED TO THE COMPANY'S OPERATIONS
LIMITED OPERATING HISTORY; ACCUMULATED DEFICIT; ANTICIPATED LOSSES
The Company was incorporated in August 1995 and launched the InterVU
Network in December 1996. The Company has a limited operating history and the
Company's prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in early stages of development,
particularly companies in new and rapidly evolving markets such as the delivery
of video over the Internet. Such risks for the Company include, but are not
limited to, an evolving and unproven business model and the management of
growth. To address these risks, the Company must, among other things, maintain
and significantly increase its customer base, implement and successfully execute
its business and marketing strategy, continue to develop and upgrade its
technology, provide superior customer service, respond to competitive
developments, and attract, retain and motivate qualified personnel. There can be
no assurance that the Company will be successful in addressing these risks, and
the failure to do so could have a material adverse effect on the Company's
business, prospects, financial condition and results of operations.
Since inception, the Company has incurred significant losses and, as of
March 31, 1998, had an accumulated deficit of $13.3 million. To date, the
Company has not generated any significant revenues and, as a result of the
significant expenditures that the Company plans to make in sales and marketing,
research and development and general and administrative activities over the near
term, the Company expects to continue to incur significant operating losses and
negative cash flows from operations on both a quarterly and annual basis for the
foreseeable future. For these and other reasons, there can be no assurance that
the Company will ever achieve or be able to sustain profitability.
Moreover, the Company must expense the fair value of the shares of Series G
Preferred issued to NBC in connection with the formation of the Company's
strategic alliance with NBC Multimedia as the requirements that NBC return some
or all of the shares of Series G Preferred upon termination of the NBC Strategic
Alliance Agreement lapse. In January 1998, the Company expensed $3.4 million for
the then-fair value of 680,000 shares of Series G Preferred and expects to
expense the then-fair value of the remaining 600,000 shares of Series G
Preferred in the quarter ending December 31, 1999. Should the Company
renegotiate or waive the provisions obligating NBC to return the remaining
600,000 shares of Series G Preferred (or shares of Common Stock issuable upon
conversion thereof, as the case may be) upon a termination of the NBC Strategic
Alliance Agreement by NBC without cause, the Company would expense the fair
value of the shares at that time. The non-cash charge with respect to the
remaining 600,000 shares of Series G Preferred is likely to be substantial and
is likely to have a material adverse effect on the Company's results of
operations in the period such expense is recognized.
UNCERTAIN MARKET FOR THE COMPANY'S SPECIALIZED SERVICES
The Company's services are highly specialized and designed solely to meet
Web site owners' and advertisers' Internet video delivery needs. There can be no
assurance that a market for Internet video delivery services will develop or
that any such market, if developed, will offer significant revenue opportunities
for specialized video delivery service providers such as the Company. The
Company's customers have only limited experience, if any, with Internet video as
a marketing and advertising medium, and neither its customers nor their
advertising agencies have devoted a significant portion of their advertising
budgets to Internet video
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advertising activities. In order for the Company to generate revenues, Web site
owners, advertisers and advertising agencies must direct a portion of their
budgets to Internet-based content, marketing and advertising that incorporate
video. Accordingly, if Internet-based content, marketing and advertising
incorporating video do not become widely adopted by Web site owners, advertisers
and advertising agencies, the Company's business, prospects, financial condition
and results of operations would be materially adversely affected. See
"Business -- Marketing and Sales."
BUSINESS DEVELOPMENT AND EXPANSION RISKS; POSSIBLE INABILITY TO MANAGE GROWTH
The Company's business plan will, if successfully implemented, result in
rapid expansion of its operations. Rapid expansion of the Company's operations
may place a significant strain on the Company's management, financial and other
resources. The Company's ability to manage future growth, should it occur, will
depend upon its ability to identify, attract, motivate, train and retain highly
skilled managerial, financial, engineering, business development, sales and
marketing and other personnel. Competition for such personnel is intense.
Moreover, the Company must continue to monitor operations, control costs,
maintain effective quality controls and significantly expand the Company's
internal management, technical, information and accounting systems. There can be
no assurance that the Company will successfully implement and maintain such
operational and financial systems or that it will successfully obtain, integrate
and utilize the management, operational and financial resources necessary to
manage a developing and expanding business in an evolving competitive industry.
Any failure to expand these areas and to implement and improve such systems,
procedures and controls in an efficient manner at a pace consistent with the
growth of the Company's business could have a material adverse effect on the
Company's business, prospects, financial condition and results of operations.
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; UNPREDICTABILITY OF
FUTURE REVENUES
The Company's quarterly operating results may fluctuate significantly in
the future as a result of a variety of factors, many of which are outside the
Company's control. Factors that may affect the Company's quarterly operating
results include: the future adoption rate of video content by Web site owners;
the Company's ability to retain existing customers (including, in particular,
NBC Multimedia), attract new customers at a steady rate and maintain customer
satisfaction; changes in the status of the Company's strategic alliances; the
level of use of the Internet and the growth of the market for video on the
Internet; the amount and timing of costs and expenditures relating to the
expansion of the Company's business; the introduction or announcement of new
Internet services by the Company and its competitors; price competition or
pricing changes in the Internet, cable and telecommunications industries;
technical difficulties or network downtime; general economic conditions; and
economic conditions specific to the Internet, Internet media, corporate intranet
and cable industries. As a result of the Company's limited operating history and
the emerging nature of the markets in which it competes, the Company is unable
to accurately forecast its revenues. In addition, the Company plans to increase
operating expenses to fund additional sales and marketing, research and
development and general and administrative activities. To the extent that these
expenses are not accompanied by an increase in revenues, the Company would have
to decrease or cease such expenditures or the Company's operating results and
financial condition could be materially adversely affected. Moreover, the
Company expects to expense the then-fair value of the remaining 600,000 shares
of Series G Preferred in the quarter ending December 31, 1999. Should the
Company renegotiate or waive the provisions in the NBC Strategic Alliance
Agreement obligating NBC to return the remaining 600,000 shares of Series G
Preferred (or the shares of Common Stock issuable upon conversion thereof, as
the case may be) upon a termination of the NBC Strategic Alliance Agreement by
NBC without cause, the Company would expense the fair value of such shares at
that time. The non-cash charge with respect to the remaining 600,000 shares of
Series G Preferred is likely to be substantial and is likely to have a material
adverse effect on the Company's results of operations in the period such expense
is recognized. Due to all of the foregoing factors, it is possible that the
Company's operating results in one or more future quarters will fail to meet the
expectations of securities analysts or investors. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
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COMPETITION
The market for Internet services is highly competitive, and the Company
expects competition to increase significantly. Although the Company believes it
is the only company currently utilizing a distributed, multi-backbone network
approach to delivery of video on the Internet, the Company faces substantial
competition from companies that provide the hardware, digital video encoding
software and know-how necessary to allow Web site owners and advertisers to
utilize video in their Internet activities. Several companies offer services
that facilitate delivery of video over the Internet, including, among others,
RealNetworks, Inc. ("RealNetworks"), VDOnet Corp., VXtreme, Inc., AudioNet Inc.
and At Home Corporation. In August 1997, RealNetworks and MCI Communications
Corporation ("MCI") announced a strategic alliance involving the introduction of
a service, called Real Broadcasting Network ("RBN"), that delivers audio and
video broadcasts over the Internet. RBN reportedly permits end-users to
simultaneously receive video broadcasts by distributing copies of digital video
programs to multiple points on MCI's Internet backbone. The strategic alliance
between RealNetworks and MCI appears to be a service-based marketing strategy
similar to that being implemented by the Company. In addition, Microsoft
Corporation ("Microsoft") has made significant investments in Internet video
delivery technologies and has disclosed a multimedia strategy of broadening the
market for video compression solutions. In August 1997, Microsoft announced (i)
the release of its NetShow 2.0 multimedia server which incorporates technology
for video and audio delivery over the Internet and corporate intranets, (ii) an
agreement with leading video compression software companies, including
RealNetworks and VDOnet Corp., to cooperate in defining future standards based
on the Microsoft Active Streaming Format and (iii) the acquisition of VXtreme,
Inc. ("VXtreme"). Microsoft also holds significant equity positions in
RealNetworks and VDOnet Corp. In addition, as was the case with VXtreme,
RealNetworks and VDOnet Corp., providers of Internet delivery video services may
be acquired by, receive investments from or enter into other commercial
relationships with, larger, well-established and well-financed companies, such
as Microsoft and MCI. Greater competition resulting from such relationships
could have a material adverse effect on the Company's business, prospects,
financial condition and results of operations. Because the operations and
strategic plans of existing and future competitors are undergoing rapid change,
it is extremely difficult for the Company to anticipate which companies are
likely to offer competitive services in the future.
The bases of competition in markets for video delivery include transmission
speed, reliability of service, ease of access, price/performance, ease-of-use,
content quality, quality of presentation, timeliness of content, customer
support, brand recognition, number of end-users directed to client Web sites
("traffic flow"), data reporting and operating experience. The Company believes
that it compares favorably with its competitors with respect to each of these
factors, except brand recognition, traffic flow and operating experience, all of
which have been limited as a result of the Company's early stage of development.
Many of the Company's competitors and potential competitors have substantially
greater financial, technical, managerial and marketing resources, longer
operating histories, greater name recognition and/or more established
relationships with advertisers and content providers than the Company. Such
competitors may be able to undertake more extensive marketing campaigns, adopt
more aggressive pricing policies and devote substantially more resources to
developing Internet services or online content than the Company. The Company's
ability to achieve and maintain a leadership position in the Internet video
delivery market will depend, among other things, on the Company's success in
providing high-speed, high-quality video over the Internet, the Company's
marketing efforts and the reliability of the Company's networks and services,
none of which can be assured. There can be no assurance that the Company will be
able to compete successfully against current or future competitors or that
competitive pressures faced by the Company will not materially adversely affect
the Company's business, prospects, financial condition and results of
operations. Further, as strategic responses to changes in the competitive
environment, the Company may make certain pricing, service or marketing
decisions or enter into acquisitions or new ventures that could have a material
adverse effect on the Company's business, prospects, financial condition and
results of operations.
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RISKS ASSOCIATED WITH STRATEGIC ALLIANCE WITH NBC MULTIMEDIA
As part of the Company's strategy to provide video delivery services to the
top tier of Internet multimedia content sites, in October 1997 the Company
entered into the NBC Strategic Alliance Agreement with NBC Multimedia. The terms
of the NBC Strategic Alliance Agreement subject the Company to a number of risks
and uncertainties, including the following:
Broad Discretionary Powers of NBC Multimedia. The NBC Strategic Alliance
Agreement provides NBC Multimedia with broad discretion in a number of areas,
including (i) the determination of what materials and content will be made
available for downloading through the InterVU Network, (ii) the promotional
obligations of NBC Multimedia and (iii) the obligation of NBC Multimedia to
introduce the Company to television stations associated with the NBC television
network. The failure of NBC Multimedia to make a significant amount of
compelling material available for downloading through the InterVU Network and to
promote the Company and its Internet video delivery services could have a
material adverse effect on the Company's business, prospects, financial
condition and results of operations.
Limited Nature of Exclusive Rights. The NBC Strategic Alliance Agreement
provides that, subject to certain exceptions, during the Exclusive Term (as
defined below), NBC Multimedia will not make available for transmission over the
Internet any entertainment (i.e., excluding sports, news and other
non-entertainment programming) audio/video content in any format to users via a
Web site operated or controlled by NBC ("NBC Internet Sites") other than
pursuant to the NBC Strategic Alliance Agreement. The NBC Strategic Alliance
Agreement expressly excludes from this provision audio/video content of less
than five seconds in length. In addition, NBC Multimedia is not restricted from
making such audio/video content available on any Internet site that is not an
NBC Internet Site. There can be no assurance that NBC Multimedia will not make
its audio/video content available on other Internet sites. A determination by
NBC Multimedia to make its audio/video content available on other Internet sites
could have a material adverse effect on the amount of revenues generated
pursuant to the NBC Strategic Alliance Agreement and could have a material
adverse effect on the Company's business, prospects, financial condition and
results of operations.
The Exclusive Term is defined as the period commencing on October 10, 1997
and ending on October 10, 1999; provided that if certain mutually agreed cost
and revenue goals are established and met, then the Exclusive Term shall be
automatically extended until October 10, 2001. Although the NBC Strategic
Alliance Agreement provides that the parties shall meet and consult with one
another in good faith and shall make good faith efforts to determine such cost
and revenue goals on or before October 10, 1998, there can be no assurance that
the Company and NBC Multimedia will be able to establish such mutually agreeable
cost and revenue goals. The failure of the Company and NBC Multimedia to reach
an agreement on this issue could have a material adverse effect on the Company's
business, prospects, financial condition and results of operations.
NBC Multimedia's Termination Rights. During the Exclusive Term, NBC
Multimedia may terminate the NBC Strategic Alliance Agreement without cause by
giving 90 days prior written notice to the Company. NBC Multimedia also has the
right to terminate the NBC Strategic Alliance Agreement if, among other things,
the services provided by the Company pursuant to such agreement materially
decline below industry standards or fail to conform to the specifications set
forth in the NBC Strategic Alliance Agreement and the Company is unable to cure
such failure within ten days of its receipt of notice. The NBC Strategic
Alliance Agreement requires the Company to maintain a successful user connection
rate of at least 98%. The failure to maintain such a connection rate could be
deemed to be a material breach by the Company of the NBC Strategic Alliance
Agreement, giving NBC Multimedia the right to terminate the NBC Strategic
Alliance Agreement for cause. Although the Company expects to maintain the
required connection rate, there can be no assurance that the Company can do so.
The Company has represented to NBC Multimedia in the NBC Strategic Alliance
Agreement that it will not use the InterVU Network in connection with the
encoding or distribution of adult video content. Any such activity would
constitute a breach of that representation and warranty and could result in a
determination by NBC Multimedia to terminate the NBC Strategic Alliance
Agreement for cause. The termination of the NBC Strategic Alliance Agreement, or
the announcement of an intent to terminate, would have a material adverse effect
on the Company's business, prospects, financial condition and results of
operations. Among other things, any such termination or announcement of an
intent to
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terminate could cause other customers of the Company, especially NBC television
affiliates then using the Company's video delivery services, if any, to
terminate their relationships with the Company and would also have a negative
impact on the Company's reputation in the market for Internet video delivery
services, which would have a material adverse effect on the Company's ability to
market its services to Web site owners and advertisers.
If the NBC Strategic Alliance Agreement is terminated for any reason, the
$750,000 balance of non-refundable payments would be immediately payable by the
Company to NBC Multimedia. See "Business -- Strategic Alliances -- Strategic
Alliance with NBC Multimedia." In addition, if NBC Multimedia terminates the NBC
Strategic Alliance Agreement without cause before October 10, 1999, then NBC or
NBC Multimedia would be required to return to the Company 600,000 shares of the
Series G Preferred (or the shares of Common Stock issuable upon conversion
thereof, as the case may be); provided that NBC or NBC Multimedia would not be
required to return any of such shares until the Company had made all
nonrefundable payments described above. Neither NBC nor NBC Multimedia is
obligated to return any shares to the Company if the NBC Strategic Alliance
Agreement is terminated by NBC Multimedia for cause.
Limited Nature of Revenue Sharing Rights. The NBC Strategic Alliance
Agreement provides for sharing of revenue from a new Web site called
VideoSeeker, a stand-alone site (www.videoseeker.com), which will be promoted on
the NBC.com Web site. VideoSeeker offers end-users a single source for online
video entertainment from NBC and its partners, as well as third-party
programmers. The Company is entitled to receive 30% of the actual NBC cash
receipts, if any, from advertising, transactions and subscriptions directly
attributable to VideoSeeker, less certain associated costs and expenses.
VideoSeeker became operational in April 1998, and no significant revenues have
been generated. There can be no assurance that any significant revenues will be
generated by VideoSeeker. In addition, the NBC Strategic Alliance Agreement
permits NBC Multimedia to opt out of its 30% revenue sharing obligation by
paying for the Company's video delivery services at rates at least as favorable
as the most favorable rates offered by the Company to third parties, other than
special promotional rates. NBC Multimedia would have an incentive to exercise
its right to opt out of the revenue sharing obligation if the costs to NBC
Multimedia of sharing revenue exceed the amount that NBC Multimedia would be
required to pay the Company based on its most favorable video service delivery
rates. See "Business -- Strategic Alliances -- Strategic Alliance with NBC
Multimedia."
DEPENDENCE UPON OTHER STRATEGIC ALLIANCES
In addition to its strategic alliance with NBC Multimedia, the Company
relies on its strategic alliance with MatchLogic and other strategic
relationships. Under the MatchLogic Strategic Alliance Agreement entered into in
January 1998, MatchLogic has agreed to use InterVU exclusively to provide
delivery services for online advertisements using specified technologies,
including video ("Media Rich Ads"), and the Company has obtained the exclusive
right to use MatchLogic's distribution, reporting and performance measurement
capabilities in connection with Media Rich Ads, subject to certain exceptions.
The Company also has agreed that it will not distribute Media Rich Ads for any
company, other than MatchLogic, that provides third-party advertising management
services. Notwithstanding the exclusivity provisions contained in the MatchLogic
Strategic Alliance Agreement, MatchLogic may decline to provide advertising
management services in connection with any particular Media Rich Ad project. In
such a case, the Company would be permitted to use a different advertising
management company, but there can be no assurance that the Company would be able
to locate and establish a relationship with another advertising management
company that would perform services equivalent to those performed by MatchLogic.
In addition, to the extent third parties develop new technologies for media rich
advertising and the Company declines to develop the processes required for the
distribution of advertisements using such technology, MatchLogic may use another
service provider to deliver such advertisements until such time, if ever, that
InterVU develops the necessary processes for delivering such advertisements.
MatchLogic also would be allowed to use another service provider for a project
if the Company consistently failed to meet prevailing industry standards for
performance on previous projects using the media rich technology used on the
project. Moreover, neither party is required to participate in an advertising
campaign on which it projects an actual financial loss. The MatchLogic Strategic
Alliance Agreement has a three-year term, and automatically renews for
additional one-year terms unless either party gives prior written notice of its
intent to terminate the MatchLogic Strategic Alliance
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Agreement. The MatchLogic Strategic Alliance Agreement may be terminated
immediately by either party in the event the other party breaches any material
provision of the agreement. See "Business -- Strategic Alliances -- Strategic
Alliance with MatchLogic." There can be no assurance that the Company's existing
strategic relationships, including its alliance with MatchLogic, will be
maintained through their initial terms or extended at the end of such terms or
that additional third-party alliances will be available to the Company on
acceptable commercial terms or at all. The inability to enter into new, and to
maintain any one or more of its existing, strategic alliances could have a
material adverse effect on the Company's business, prospects, financial
condition and results of operations.
RISK OF SYSTEM FAILURE; SECURITY RISKS
The Company's success in marketing its services to Web site owners and
advertisers requires the Company to provide reliable service. The Company's
networks are subject to physical damage, power loss, capacity limitations,
software defects, breaches of security and other factors which may cause
interruptions in service or reduced capacity for the Company's customers. In
particular, the Company's network may be vulnerable to unauthorized access,
computer viruses and other disruptive problems despite the Company's
implementation of security measures. Internet Service Providers ("ISPs") and
On-line Service Providers ("OSPs") have in the past experienced, and may in the
future experience, interruptions in service as a result of the accidental or
intentional actions of Internet users, current and former employees or others.
Although the Company intends to continue to implement industry-standard security
measures, industry-standard security measures have been circumvented in the
past, and there can be no assurance that measures implemented by the Company
will not be circumvented in the future. Interruptions in service, capacity
limitations or security breaches could have a material adverse effect on
customer acceptance and, therefore, on the Company's business. Lapses in service
or reliability also could lead to a loss of customers, which also could have a
material adverse effect on the Company's business, prospects, financial
condition and results of operations. In addition, the Company believes that in
the future its advertising customers may ask the Company to agree to indemnify
them for the costs of advertising space that goes unused as a result of a
service failure on the part of the Company. In the event of a prolonged service
failure, the Company's liability for such unused space could be significant and
could have a material adverse effect on the Company's business, prospects,
financial condition and results of operations.
RISKS OF ACQUISITIONS AND INVESTMENTS
As part of its overall strategy, the Company may acquire and develop
businesses, products, and technologies and enter into joint ventures and
strategic alliances with other companies. Any such transactions would be
accompanied by the risks commonly encountered in such transactions. In
particular, acquisitions of high-technology companies include such risks as the
difficulty of assimilating the operations and personnel of the combined
companies, the potential disruption of the Company's ongoing business, the
inability to retain key technical and managerial personnel, the inability of
management to maximize the financial and strategic position of the Company
through the successful integration of acquired businesses, the incurrence of
additional expenses associated with amortization of acquired intangible assets,
the difficulty of maintaining uniform standards, controls, procedures and
policies, the impairment of relationships with employees and customers as a
result of any integration of new personnel, as well as the diversion of
management's attention during the acquisition and integration process. The
Company does not have significant experience in the identification and
management of acquisitions, and the success of its acquisitions, if any, will
depend on the effective management of the foregoing risks. The Company may not
overcome these risks or any other problems encountered in connection with
acquisitions, investments, joint ventures and strategic alliances, which could
have a material adverse effect on the Company's business, prospects, financial
condition and results of operations.
DEPENDENCE ON KEY PERSONNEL
The Company's future performance and development will depend, in large
part, upon the efforts and abilities of certain members of senior management,
including Harry E. Gruber, its Chief Executive Officer
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and Chairman of the Board, Brian Kenner, its Vice President and Chief Technology
Officer, and Kenneth L. Ruggiero, its Vice President and Chief Financial
Officer. The loss of service of one or more members of senior management could
have a material adverse effect on the Company's business, prospects, financial
condition and results of operations. The Company does not have employment
agreements with any of its officers or employees. The Company maintains a key
man life insurance policy on the life of Mr. Kenner in the amount of $1.0
million, of which the Company is the sole beneficiary. The Company does not have
key man life insurance on Dr. Gruber or Mr. Ruggiero.
UNPROVEN ACCEPTANCE OF THE COMPANY'S FEE STRUCTURE
The Company's business plan calls for it to generate revenues primarily
from fees charged to customers for the volume of video content delivered. To
date, however, the Company has generated most of its revenues from flat rate
monthly fees charged to customers for video delivery and fees for encoding
services. In addition, certain of the Company's Web site customers have traded
advertising space on their Web pages for video delivery services provided by the
Company. Although monthly fees charged by the Company typically are based on
estimates of the amounts such customers would pay under the pay-per-delivery
approach, flat rate billing exposes the Company to the risk that end-users will
download customers' video content at higher-than-anticipated rates, causing the
Company to incur bandwidth expenses in excess of revenues. The Company's
inability to adjust its fee structure in response to customers' usage levels
would have a material adverse effect on the Company's business, prospects,
financial condition and results of operation.
INTELLECTUAL PROPERTY
The Company regards its technology as proprietary and attempts to protect
it with patents, copyrights, trademarks, trade secret laws, restrictions on
disclosure and other methods. The Company has filed eight United States patent
applications and four international patent applications and is in the process of
preparing additional patent applications with respect to its technology. There
can be no assurance that any patent will issue from these applications or that,
if issued, any claims allowed will be sufficiently broad to protect the
Company's technology. In addition, there can be no assurance that any patents
that may be issued will not be challenged, invalidated or circumvented, or that
any rights granted thereunder would provide proprietary protection to the
Company. Failure of any patents to provide protection to the Company's
technology may make it easier for the Company's competitors to offer technology
equivalent or superior to the Company's technology. The Company also generally
enters into confidentiality and nondisclosure agreements with its employees and
consultants, and generally controls access to and distribution of its
documentation and other proprietary information. Despite these precautions, it
may be possible for a third party to copy or otherwise obtain and use the
Company's products, services or technology without authorization, or to develop
similar technology independently. There can be no assurance that the steps taken
by the Company will prevent misappropriation or infringement of its technology.
In addition, litigation may be necessary in the future to enforce the Company's
intellectual property rights, to protect the Company's intellectual property
rights or to determine the validity and scope of the proprietary rights of
others. Such litigation could result in substantial costs and diversion of
resources and could have a material adverse effect on the Company's business,
prospects, financial condition and results of operations. The Company believes
that, due to the rapid pace of technological innovation for Internet products
and services, the Company's ability to establish and maintain a position of
technology leadership in the industry depends more on the skills of its
development personnel than upon the legal protections afforded its existing
technology.
RISKS OF ENCODING AND DISTRIBUTING ADULT VIDEO CONTENT
While the Company does not currently provide its services to Web sites that
host adult videos, the Company may in the future provide services to such sites.
In determining whether to encode and/or deliver adult video content through the
InterVU Network, the Company intends to take into account the overall costs of
providing such services, including the potential adverse impact on its strategic
alliance with NBC Multimedia and other possible negative reaction from its
existing and potential Web site and advertising customers. The Company has
represented to NBC Multimedia in the NBC Strategic Alliance Agreement that
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it will not use the InterVU Network in connection with the encoding or
distribution of adult video content. Any such activity would constitute a breach
of that representation and warranty and could result in a determination by NBC
Multimedia to terminate the NBC Strategic Alliance Agreement. The Company could
also be exposed to liability for encoding and hosting adult content deemed to be
indecent or obscene. Although the United States Supreme Court has upheld lower
court decisions declaring the anti-indecency provisions of the
Telecommunications Act of 1996 unconstitutional, the law relating to liability
for transmitting obscene or indecent material over the Internet remains
unsettled. The imposition upon the Company, ISPs or Web server hosts of
potential liability for materials carried on or disseminated through their
systems could require the Company to implement measures to reduce its exposure
to such liability, which may require the expenditure of substantial resources or
the discontinuation of certain product or service offerings. Further, the costs
incurred in defending against any such claims and potential adverse outcomes of
such claims could have a material adverse effect on the Company's business,
prospects, financial condition and results of operations.
The loss of customers as a result of the Company's becoming associated with
adult Web sites could have a material adverse effect on the Company's business,
prospects, financial condition and results of operations. Such association could
result even if the Company does not use the InterVU Network in connection with
the encoding or distribution of adult video content. For example, if an end-user
utilizing an Internet browser attempts to view an adult video and such end-user
does not have the necessary software, or "plug-in," he or she will automatically
be directed to the browser's plug-in finder page which lists the particular
plug-ins, including the InterVU Player, that can display the video. If the
InterVU Player is selected by the end-user, or if the end-user has already
installed the InterVU Player, the adult video will be presented within the
InterVU Player and with the InterVU name displayed in the manner depicted by the
graphics located on the inside front cover page of this Prospectus.
RISKS RELATED TO THE INTERNET INDUSTRY
DEPENDENCE ON INCREASED USAGE AND STABILITY OF THE INTERNET
Critical issues regarding the stability of the Internet's infrastructure
remain unresolved. The rapid rise in the number of Internet users and increased
transmission of audio, video, graphical and other multimedia content over the
Web has placed increasing strains on the Internet's communications and
transmission infrastructures. Continuation of such trends could lead to
significant deterioration in transmission speeds and reliability of the Internet
and could reduce the usage of the Internet by businesses and individuals. Any
failure of the Internet to support the ever-increasing number of users due to
inadequate infrastructure, or otherwise, could materially and adversely affect
the acceptance of the Company's products and services which would, in turn,
materially and adversely affect the Company's business, prospects, financial
condition and results of operations.
RISKS OF TECHNOLOGICAL CHANGE
The markets for Internet services are characterized by rapid technological
developments, frequent new product introductions and evolving industry
standards. The emerging nature of Internet products and services and their rapid
evolution will require that the Company continually improve the performance,
features and reliability of the InterVU Network and the Company's customer
service, particularly in response to competitive offerings. There can be no
assurance that the Company will be successful in responding quickly,
cost-effectively and sufficiently to these developments. There also can be no
assurance that the Company will be successful in achieving widespread acceptance
of its services before competitors offer products and services with speed and
performance similar to or better than the Company's current offerings. In
addition, the widespread adoption of new Internet or telecommunications
technologies or standards could require substantial expenditures by the Company
to modify or adapt its video delivery service and could fundamentally affect the
character, viability and frequency of Internet-based advertising, either of
which could have a material adverse effect on the Company's business, prospects,
financial condition and results of operations. See "Business -- Technology
Overview" and "-- Customer Services."
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GOVERNMENTAL REGULATION AND LEGAL UNCERTAINTIES
The Company is not currently subject to direct regulation by any domestic
or foreign governmental agency, other than regulations applicable to businesses
generally and laws or regulations directly applicable to the Internet. However,
due to the increasing popularity and use of the Internet, it is possible that a
number of laws and regulations may be adopted with respect to the Internet or
other online services covering issues such as user privacy, pricing, content,
copyrights, distribution and characteristics and quality of products and
services. Furthermore, the growth and development of Internet markets may prompt
calls for more stringent consumer protection laws that may impose additional
burdens on companies conducting business online. The adoption of any additional
laws or regulations may decrease the growth of Internet use, which could, in
turn, decrease the demand for the Company's services or increase the cost of
doing business, or otherwise have an adverse effect on the Company's business,
prospects, financial condition and results of operations. Moreover, the
applicability to the Internet of existing laws in various jurisdictions
governing issues such as property ownership, sales and other taxes, libel and
personal privacy is uncertain and may take years to resolve. Any such new
legislation or regulation, the application of laws and regulations from
jurisdictions whose laws do not currently apply to the Company's business or the
application of existing laws and regulations to the Internet could have a
material adverse effect on the Company's business, prospects, financial
condition and results of operations.
RISKS RELATED TO THE OFFERING AND THE COMMON STOCK
VOLATILITY OF STOCK PRICE
The trading price of the Common Stock has been, and is likely to continue
to be, highly volatile and in the future could be subject to wide fluctuations
in response to factors such as actual or anticipated variations in quarterly
operating results, announcements of technological innovations, changes in the
status of the Company's strategic alliances, new sales formats or new products
or services by the Company or its competitors, changes in financial estimates by
securities analysts, conditions or trends in Internet markets, changes in the
market valuations of other Internet companies, announcements by the Company or
its competitors of significant acquisitions, strategic alliances, joint ventures
or capital commitments, additions or departures of key personnel, sales of
Common Stock and other events or factors, many of which are beyond the Company's
control. In addition, the stock market in general, and the market for
Internet-related and technology companies in particular, has experienced extreme
price and volume fluctuations that have often been unrelated or disproportionate
to the operating performance of such companies. The trading prices of many
technology companies' stocks are at or near historical highs and reflect
valuations substantially above historical levels. There can be no assurance that
these trading prices and valuations will be sustained. These broad market and
industry factors may materially and adversely affect the market price of the
Common Stock, regardless of the Company's operating performance. Fluctuations in
the market price of the Company's Common Stock may in turn adversely affect the
Company's ability to complete any targeted acquisitions, its access to capital
and financing and its ability to attract and retain qualified personnel.
Moreover, following periods of volatility in the market price of a company's
securities, securities class-action litigation has often been instituted against
such company. Such litigation, if instituted, could result in substantial costs
and a diversion of management's attention and resources, which would have a
material adverse effect on the Company's business, prospects, financial
condition and results of operations.
MANAGEMENT'S DISCRETION OVER USE OF PROCEEDS OF THE OFFERING
The Company expects to use the net proceeds of the Offering for increased
sales and marketing efforts, expansion of network operations, additional
software development and working capital and other general corporate purposes.
The Company may, if an opportunity arises, use an unspecified portion of the net
proceeds to acquire or invest in complementary businesses, products and
technologies or enter into additional strategic alliances. From time to time, in
the ordinary course of business, the Company expects to evaluate potential
acquisitions of such businesses, products or technologies or investments therein
or potential alliances. However, the Company has no present understandings,
commitments or agreements with respect to any
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material acquisition, investment or strategic alliance. Accordingly, management
will have significant flexibility in applying the net proceeds of the Offering.
The failure of management to apply such funds effectively could have a material
adverse effect on the Company's business, prospects, financial condition and
results of operations. See "Use of Proceeds."
ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER PROVISIONS
Certain provisions of the Company's Amended and Restated Certificate of
Incorporation and Amended and Restated Bylaws could discourage potential
acquisition proposals, could delay or prevent a change in control of the Company
and could make removal of management more difficult. Such provisions could
diminish the opportunities for a stockholder to participate in tender offers,
including tender offers that are priced above the then-current market value of
the Common Stock. The provisions also may inhibit increases in the market price
of the Common Stock that could result from takeover attempts. These provisions
include a Board of Directors consisting of three classes; a limitation which
permits only the Board of Directors, the Chairman, the President or the
Secretary of the Company to call a special meeting of stockholders; a
prohibition against the stockholders' acting by written consent; and certain
advance notice procedures for nominating candidates for election to the Board of
Directors and for proposing business before a meeting of stockholders.
Additionally, the Board of Directors, without further stockholder approval, may
issue up to 3,720,000 shares of preferred stock, in one or more series, with
such terms as the Board of Directors may determine, including rights such as
voting, dividend and conversion rights which could adversely affect the voting
power and other rights of the holders of Common Stock. Preferred stock may be
issued quickly with terms which delay or prevent the change in control of the
Company or make removal of management more difficult. Also, the issuance of
preferred stock may have the effect of decreasing the market price of the Common
Stock. See "Description of Capital Stock -- Preferred Stock" and " -- Delaware
Law and Certain Charter and Bylaw Provisions."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock in the public
market could materially adversely affect the prevailing market price of the
Common Stock. Upon completion of the Offering, the Company will have 11,380,032
shares of Common Stock outstanding. The 2,000,000 shares offered in the Offering
(plus any shares issued upon exercise of the Underwriters' over-allotment
option) and the 2,000,000 shares sold in the IPO will be freely tradable under
the Securities Act of 1933, as amended (the "Securities Act"), unless held by
"affiliates" of the Company as defined in Rule 144 under the Securities Act. Of
the remaining 7,380,032 shares of Common Stock, all will be eligible for sale
under Rule 144 under the Securities Act, subject to certain volume and other
limitations, upon the expiration of certain lock-up agreements. All of such
shares, other than 210,526 shares of Common Stock issued to NBC Multimedia in a
direct offering concurrent with the IPO (the "Direct Offering"), are subject to
lock-up agreements expiring August 19, 1998 with Josephthal, the managing
underwriter of the IPO. In addition, 4,964,525 of such shares (including the
210,526 shares issued in the Direct Offering) are subject to lock-up agreements
between PaineWebber Incorporated and the directors, officers and five percent
stockholders of the Company covering the 120-day period commencing on the date
of this Propectus. Moreover, 806,144 shares of Common Stock issuable upon
conversion of the Series G Preferred will be eligible for sale under Rule 144
under the Securities Act as of October 10, 1998. Such shares are subject to
lock-up agreements with both Josephthal and PaineWebber Incorporated.
PaineWebber Incorporated or Josephthal may at any time without notice release
all or any portion of the shares subject to the lock-up agreements to which it
is a party; provided that Josephthal may not release any such shares, or
otherwise modify the terms of its lock-up agreements, without the prior written
consent of PaineWebber Incorporated. The Company also intends to register on
Form S-8 following the effective date of the Offering a total of 1,093,446
shares of Common Stock subject to outstanding options or issued upon exercise of
options granted under the 1996 Stock Plan. In addition, the Company intends to
register on Form S-8 2,000,000 shares of Common Stock reserved for issuance
under the 1998 Stock Option Plan of InterVU Inc. (the "1998 Stock Option Plan")
and 500,000 shares of Common Stock reserved for issuance under the Employee
Qualified Stock Purchase Plan of InterVU Inc. (the "Qualified Stock Purchase
Plan"). The 1998 Stock Option Plan and the Qualified Stock Purchase Plan have
been adopted by the Board of
16
<PAGE> 18
Directors, subject to stockholder approval at the 1998 Annual Meeting of
Stockholders to be held in June 1998. For more information regarding the 1998
Stock Option Plan and the Qualified Stock Purchase Plan, see "Management -- 1998
Stock Option Plan" and "-- Qualified Stock Purchase Plan." If the 1998 Stock
Option Plan is approved by stockholders at the 1998 Annual Meeting, the Company
will cease to reserve the 795,954 shares of Common Stock currently reserved for
issuance under the 1996 Stock Plan but not yet subject to options. See
"Management," "Description of Capital Stock" and "Shares Eligible for Future
Sale."
CONTROL BY EXISTING STOCKHOLDERS
As of April 29, 1998, members of the Board of Directors and the executive
officers of the Company, together with members of their families and entities
that may be deemed affiliates of or related to such persons, beneficially owned
approximately 40.5% of the outstanding shares of Common Stock. Accordingly,
these stockholders may be able to elect all of the Board of Directors and
determine the outcome of corporate actions requiring stockholder approval, such
as mergers and acquisitions. This level of ownership may have a significant
effect in delaying, deferring or preventing a change in control of the Company
and may adversely affect the voting and other rights of other holders of the
Common Stock. See "Management -- Executive Officers and Directors" and
"Principal Stockholders."
IMMEDIATE AND SUBSTANTIAL DILUTION
Investors participating in the Offering will incur immediate, substantial
dilution in the amount of $12.37 per share in the net tangible book value per
share of the Common Stock as of March 31, 1998, assuming a public offering price
of $16.75 per share and after deducting estimated underwriting discounts and
other estimated expenses of the Offering. To the extent that outstanding options
and warrants to purchase the Common Stock are exercised or shares of Series G
Preferred are converted, there will be further substantial dilution. See
"Dilution."
17
<PAGE> 19
USE OF PROCEEDS
The net proceeds to the Company from the sale of 2,000,000 shares of Common
Stock offered in the Offering are estimated to be $30.7 million ($35.3 million
if the Underwriters' over-allotment option is exercised in full), after
deducting the underwriting discounts and other estimated expenses of the
Offering payable by the Company.
The Company intends to use the estimated net proceeds as follows: (i)
approximately $10.0 million for increased sales and marketing efforts; (ii)
approximately $7.6 million to expand network operations; (iii) approximately
$5.0 million for additional software development; and (iv) approximately $8.1
million for working capital and other general corporate purposes. Furthermore,
from time to time the Company expects to evaluate potential acquisitions of, or
investments in, businesses, products and technologies that are complementary to
those of the Company, and potential alliances, for which a portion of the net
proceeds from the Offering may be used. While the Company engages from time to
time in discussions with respect to potential investments, acquisitions or
strategic alliances, the Company has no plans, commitments, or agreements with
respect to any material investments, acquisitions or strategic alliances.
Pending such uses, the Company intends to invest the net proceeds of the
Offering in investment-grade, interest-bearing securities. The Company believes
that the net proceeds from the Offering, together with existing cash, cash
equivalents, short-term investments and capital lease financing, will be
sufficient to meet its working capital and capital expenditure requirements
through at least the end of 1999.
PRICE RANGE OF COMMON STOCK
The Company completed its initial public offering on November 23, 1997 at a
price to the public of $9.50 per share. Since November 19, 1997, the Common
Stock has been quoted on the Nasdaq National Market under the symbol "ITVU." The
following table sets forth for the periods indicated the high and low sale
prices for the Common Stock as reported on the Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1997
4th Quarter (from November 19, 1997)..................... $10.25 $ 8.13
1998
1st Quarter.............................................. 14.50 7.63
2nd Quarter (through May 4, 1998)........................ 32.38 12.75
</TABLE>
On May 4, 1998, the last sale price of the Common Stock as reported on the
Nasdaq National Market was $16.75. As of April 29, 1998, there were
approximately 149 holders of record of the Common Stock.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain all future earnings, if any, for
use in the operation and development of its business and, therefore, does not
expect to declare or pay any cash dividends on the Common Stock in the
foreseeable future.
18
<PAGE> 20
DILUTION
The net tangible book value of the Company as of March 31, 1998 was $19.2
million, or $2.05 per share of Common Stock. Net tangible book value per share
represents the amount of total tangible assets of the Company reduced by the
amount of its total liabilities, divided by the total number of shares of Common
Stock outstanding. After giving effect to the sale by the Company of the
2,000,000 shares of Common Stock offered in the Offering at an assumed public
offering price of $16.75 per share (after deducting estimated underwriting
discounts and other estimated expenses of the Offering), the adjusted net
tangible book value of the Company as of March 31, 1998 would have been $49.9
million, or $4.38 per share of Common Stock. This represents an immediate
increase in net tangible book value of $2.33 per share to existing stockholders
and an immediate dilution of $12.37 per share to new investors. The following
table illustrates the per share dilution in net tangible book value to new
investors:
<TABLE>
<S> <C> <C>
Assumed public offering price per share................ $ 16.75
Net tangible book value per share as of March 31,
1998.............................................. $ 2.05
Increase per share attributable to new investors..... 2.33
--------
Net tangible book value per share after the Offering... 4.38
--------
Dilution per share to new investors.................... $ 12.37
========
</TABLE>
The following table summarizes as of March 31, 1998, on a pro forma basis,
the differences in total consideration paid and the average price per share paid
by existing stockholders and new investors with respect to the number of shares
of Common Stock purchased from the Company.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
---------------------- ---------------------- PRICE PAID
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ------- ----------- ------- ----------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1).... 9,380,032 82.4% $31,416,000 48.4% $ 3.35
New investors(2)............ 2,000,000 17.6 33,500,000 51.6 16.75
----------- ----- ----------- -----
Total(2).................... 11,380,032 100.0% $64,916,000 100.0%
=========== ===== =========== =====
</TABLE>
- ---------------
(1) The information presented with respect to existing stockholders assumes (i)
no conversion of Series G Preferred into Common Stock, (ii) no exercise of
outstanding options to purchase 1,059,328 shares of Common Stock granted
under the 1996 Stock Plan and (iii) no exercise of the Advisors' Warrants to
purchase 200,000 shares of Common Stock. The issuance of Common Stock upon
the conversion of the Series G Preferred, the exercise of the options
granted under the 1996 Stock Plan and the exercise of Advisors' Warrants
will result in further dilution to new investors. See "Management" and Note
5 of Notes to Financial Statements.
(2) If the Underwriters' over-allotment option is exercised in full, the Company
will issue an additional 300,000 shares of Common Stock to new investors
(2.6% of the total of 11,680,032 shares of Common Stock outstanding) and the
total consideration from new investors will be $38.5 million (55.1% of the
total of $69.9 million paid for all shares of Common Stock outstanding).
19
<PAGE> 21
CAPITALIZATION
The following table sets forth the actual capitalization of the Company as
of March 31, 1998 and as adjusted as of such date to give effect to the
application of the estimated net proceeds from the sale by the Company of
2,000,000 shares of Common Stock offered in the Offering (at an assumed public
offering price of $16.75 per share and after deducting the underwriting
discounts and other estimated expenses of the Offering). The table should be
read in conjunction with the financial statements and the related notes
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
Long-term lease commitments................................. $ 4 $ 4
Stockholders' equity:
Preferred Stock, $.001 par value; 5,000,000 shares
authorized, 1,280,000 shares issued and outstanding,
actual and as adjusted................................. 1 1
Common Stock, $.001 par value; 20,000,000 shares
authorized, 9,380,032 shares issued and outstanding,
actual; 20,000,000 shares authorized, 11,380,032 shares
issued and outstanding, as adjusted(1)................. 9 11
Additional paid-in capital................................ 33,216 63,869
Deferred compensation..................................... (666) (666)
Deficit accumulated during the development stage.......... (13,341) (13,341)
-------- --------
Total stockholders' equity.................................. 19,219 49,874
-------- --------
Total capitalization.............................. $ 19,223 $ 49,878
======== ========
</TABLE>
- ---------------
(1) Excludes 1,059,328 shares of Common Stock issuable upon exercise of
outstanding options under the 1996 Stock Plan, 806,144 shares of Common
Stock issuable upon conversion of the Series G Preferred and 200,000 shares
of Common Stock issuable upon exercise of the Advisors' Warrants.
20
<PAGE> 22
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The selected financial data set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and notes thereto included elsewhere in
this Prospectus. The statement of operations data for the period from August 2,
1995 (Inception) through December 31, 1995 and for the years ended December 31,
1996 and 1997 and the balance sheet data as of December 31, 1996 and 1997 are
derived from the Company's financial statements audited by Ernst & Young LLP,
independent auditors, included elsewhere in this Prospectus. The statement of
operations data for the three months ended March 31, 1997 and 1998 and the
balance sheet data as of March 31, 1998 have been derived from unaudited
financial statements of the Company and include all adjustments, consisting only
of normal recurring adjustments, which management considers necessary for a fair
presentation of the financial data for such periods and as of such date. The
results for the three months ended March 31, 1998 are not necessarily indicative
of the results to be expected for the full fiscal year.
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 2, 1995 YEAR ENDED THREE MONTHS ENDED
(INCEPTION) TO DECEMBER 31, MARCH 31,
DECEMBER 31, ------------------------ ------------------------
1995 1996 1997 1997 1998
-------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................ $ -- $ -- $ 144 $ 10 $ 113
Operating expenses:
Research and development......... 33 1,420 1,703 448 599
Selling, general and
administrative................. 16 910 3,148 561 1,589
Charges associated with the NBC
Strategic Alliance
Agreement(1)................... -- -- 750 -- 3,873
---- ---------- ---------- ---------- ----------
Total operating expenses.... 49 2,330 5,601 1,009 6,061
---- ---------- ---------- ---------- ----------
Loss from operations................ (49) (2,330) (5,457) (999) (5,948)
Interest income..................... 3 52 192 21 196
---- ---------- ---------- ---------- ----------
Net loss............................ $(46) $ (2,278) $ (5,265) $ (978) $ (5,752)
==== ========== ========== ========== ==========
Basic and diluted net loss per
share(2)......................... $ (.66) $ (.90) $ (.21) $ (.66)
========== ========== ========== ==========
Shares used in computing basic and
diluted net loss per share (2)... 3,440,931 5,822,594 4,657,815 8,694,332
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- MARCH 31,
1996 1997 1998
------ ------- ---------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $2,508 $21,380 $12,060
Short-term investments...................................... -- -- 7,026
Working capital............................................. 2,365 20,947 18,455
Total assets................................................ 2,776 22,130 20,081
Long-term liabilities....................................... 27 8 4
Total stockholders' equity.................................. 2,597 21,532 19,219
</TABLE>
- ---------------
(1) As consideration for the strategic alliance with NBC Multimedia, the Company
issued 1,280,000 shares of Series G Preferred to NBC. In January 1998, the
Company expensed the then-fair value of 680,000 shares of the Series G
Preferred in the amount of $3.4 million. The Company expects to expense the
then-fair value of the remaining 600,000 shares of Series G Preferred in the
three months ending December 31, 1999. The charges also include $750,000 and
$500,000 in nonrefundable cash payments due to NBC under the NBC Strategic
Alliance Agreement expensed during the three months ended December 31, 1997
and March 31, 1998, respectively. See "Business -- Strategic
Alliances -- Strategic Alliance with NBC Multimedia."
(2) See Note 1 of Notes to Financial Statements for an explanation of the number
of shares used in computing basic and diluted net loss per share.
21
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion contains forward-looking statements regarding the
Company, its business, prospects and results of operations that are subject to
certain risks and uncertainties posed by many factors and events that could
cause the Company's actual business, prospects and results of operations to
differ materially from those that may be expressed or implied by such
forward-looking statements. Such risks, uncertainties and other factors include,
but are not limited to, the risks detailed in the "Risk Factors" section of this
Prospectus.
OVERVIEW
The Company was incorporated in August 1995 and launched the InterVU
Network in December 1996. The Company began recognizing revenue during 1997
through the delivery of video content over the InterVU Network and the provision
of related services to the Company's initial customers.
The Company offers its services to Web site owners and advertisers for fees
based on the volume of video content delivered, for flat fees based on estimates
of video to be delivered or for a combination thereof. The Company expects to
generate additional revenues in the future from selling advertising space on Web
pages when Web site owners trade such space on their pages for video encoding
and delivery services performed by the Company. The Company also generally
charges its customers fees for encoding analog video into digital form for
transmission over the Internet. See "Risk Factors -- Unproven Acceptance of the
Company's Fee Structure."
The Company has incurred net losses in each fiscal period since its
inception and, as of March 31, 1998, had an accumulated deficit of $13.3
million. To date, the Company has not generated any significant revenues, and,
as a result of the significant expenditures that the Company plans to make in
sales and marketing, research and development and general and administrative
activities over the near term, the Company expects to continue to incur
significant operating losses and negative cash flows from operations on both a
quarterly and annual basis for the foreseeable future. The Company is in the
early stages of executing its business model, and the profit potential of the
Company's fee based model for the delivery of video content or advertising is
unproven in the Internet industry. Because its success is dependent on the
growth of the video market on the Internet, as well as the growth of the
Internet industry, the Company must, among other things, develop services that
are widely accepted by Web site owners, advertisers and end-users at prices that
will yield a profit. There can be no assurance that the Company's services will
achieve broad commercial or consumer acceptance. See "Risk Factors -- Limited
Operating History; Accumulated Deficit; Anticipated Losses," "-- Potential
Fluctuations in Quarterly Operating Results; Unpredictability of Future
Revenues," "-- Unproven Acceptance of the Company's Fee Structure" and "--
Uncertain Market for the Company's Specialized Services."
As consideration for the strategic alliance with NBC Multimedia, the
Company issued 1,280,000 shares of Series G Preferred to NBC, and NBC Multimedia
granted the Company exclusive rights to deliver most NBC audio/video content by
means of NBC Internet Sites. NBC Multimedia may terminate the NBC Strategic
Alliance Agreement without cause by giving 90 days prior written notice and is
required to return 600,000 shares of Series G Preferred (or the shares of Common
Stock issuable upon conversion thereof, as the case may be) if the termination
occurs at any time on or before October 10, 1999. Notwithstanding the foregoing,
NBC is not required to return any such shares until it has received from the
Company the $2.0 million of nonrefundable payments described below under
"-- Liquidity and Capital Resources." In January 1998, a requirement that NBC
return 680,000 shares of Series G Preferred upon termination of the NBC
Strategic Alliance Agreement lapsed. As a result, in January 1998 the Company
expensed the then-fair value of the 680,000 shares of Series G Preferred in the
amount of $3.4 million. The Company expects to expense the then-fair value of
the remaining 600,000 shares of Series G Preferred in the three months ending
December 31, 1999. Should the Company renegotiate or waive the provisions
obligating NBC to return the remaining 600,000 shares of Series G Preferred (or
the shares of Common Stock issuable upon conversion thereof, as the case may
be), removing NBC's obligation to return the shares, the Company would expense
22
<PAGE> 24
the fair value of the shares at that time. The Company believes that the fair
value of each share of Series G Preferred will roughly approximate the price per
share at which the Common Stock is then trading, multiplied by the .6298
conversion ratio applicable to the Series G Preferred. The non-cash charge with
respect to the remaining 600,000 shares of Series G Preferred is likely to be
substantial and is likely to have a material adverse impact on the Company's
results of operations in the period such expense is recognized.
The Company's economic model is predicated upon achieving significant
economies of scale relative to variable and, to a lesser extent, fixed
telecommunications costs. The Company has developed a series of software tools
and a software system that perform various functions, including analyzing
Internet performance, specifically related to congestion points on the Internet.
The Company's operating strategy is to reduce the number of congestion points
experienced by end-users through the redirection of an individual's request for
video content to the optimal server location. To date, the Company has
contracted for telecommunications capacity and services primarily from major
ISPs. It is the Company's intention to continue to contract with selected ISPs
in the future for Internet services, as well as to continue to procure and
install selected servers over a variety of Internet backbones and selected
regional Points of Presence ("POPs"). In addition, the Company may incur
significant capital equipment expenditures and lease commitments for additional
servers to expand the InterVU Network, although these expenditures would be less
significant than those required of ISPs. The amount and timing of such
expenditures will depend upon the level of demand for the Company's services.
The Company believes that as customer adoption rates for the Company's service
increases, the corresponding levels of video delivery volumes will allow the
Company to generate economies of scale relative to the expenses it incurs with
ISPs, as well as the expenses emanating from the maintenance and depreciation of
its servers. To the extent that such economies of scale are not realized, the
Company's business, prospects, financial condition and results of operations
will be materially adversely affected.
RESULTS OF OPERATIONS
GENERAL
The financial results for the period from August 2, 1995 (Inception) to
March 31, 1998 reflect the Company's initial organizational efforts, research
and development activities, capital raising activities and initial deployment of
the Company's video delivery service. The Company believes that its limited
operating history makes prediction of future results of operations difficult
and, accordingly, that its operating results should not be relied upon as an
indication of future performance. The Company began to recognize revenue during
1997 and, as such, the Company believes that any comparison of the results of
operations for the three months ended March 31, 1998 and 1997 and for the twelve
months ended December 31, 1997 and 1996 is not meaningful.
Total revenues consist of fees for delivery of video content over the
InterVU Network and related customer services. Revenues from fees from video
delivery are recognized at the time of delivery. Revenues from encoding and
other customer services are recognized during the period in which services are
provided. In order to attract early customers and achieve penetration of the
market for Internet video delivery, the Company initially provided up to 90 days
of free trial service to certain customers. The Company terminated its free
trial service program in August 1997. The Company may elect to resume the free
trial service program or other sales practices in the future if it determines
they are warranted.
Research and development expenses consist primarily of salaries and related
expenses for personnel, fees to outside contractors and consultants, the
allocated costs of facilities, and the depreciation and amortization of capital
equipment. Research and development expenses to date have focused in three
areas: the development of software tools and enabling platforms for the
load-balanced distribution of video content; the development of tools to analyze
Internet performance to subsequently redirect individual end-users to optimal
servers; and the development of end-user tools for displaying multimedia content
including new media player software. Research and development expenses have been
expensed as incurred.
Selling, general and administrative expenses consist primarily of salaries,
commissions, promotional expenses, professional services and general operating
costs. Also included are costs the Company incurs for
23
<PAGE> 25
Internet access and telecommunications transport costs ("bandwidth"). These
costs have both fixed and variable components. The Company believes that it will
be able to negotiate lower bandwidth charges as the InterVU Network expands. The
expansion of the InterVU Network will in some cases require capital equipment
expenditures, the cost of which will be depreciated over the useful life of the
asset.
Charges associated with the NBC Strategic Alliance Agreement are comprised
of a non-cash charge related to the lapse of NBC's obligations to return 680,000
shares of Series G Preferred and nonrefundable cash payments due to NBC
Multimedia under the NBC Strategic Alliance Agreement. See "Business --
Strategic Alliances -- Strategic Alliance with NBC Multimedia."
THREE MONTHS ENDED MARCH 31, 1998 COMPARED WITH THREE MONTHS ENDED MARCH
31, 1997
Total revenues for the three months ended March 31, 1998 and 1997 were
$113,000 and $10,000, respectively. During the first quarter of 1998, the
Company expanded the InterVU Network to service larger volumes of multimedia
content and, as a result, performed services with respect to Intel advertising
campaigns which accounted for $40,000 of revenues for the three months ended
March 31, 1998. The balance of the increase is comprised of revenues from video
delivery or V-Banner service to a variety of other customers and reflects
expansion of the Company's sales force from three employees at March 31, 1997 to
eight employees at March 31, 1998.
Research and development expenses for the three months ended March 31, 1998
and 1997 were $599,000 and $448,000, respectively. The increase in research and
development expenses reflects additions to the Company's research and
development staff and an increase in facilities costs.
Selling, general and administrative expenses for the three months ended
March 31, 1998 and 1997 were $1.6 million and $561,000, respectively. The
increase is primarily attributable to an increase in expenses related to the
addition of 16 sales, marketing and administrative positions and associated
recruiting costs of $382,000, an increase in expenses relating to trade shows,
advertising campaigns and other sales and marketing efforts of $350,000,
increased bandwidth and related production costs of $141,000 and an increase in
legal, accounting and other fees associated with being a publicly traded company
of $73,000.
Charges associated with the NBC alliance for the three months ended March
31, 1998 were $3.9 million. No such charges were recorded in the three months
ended March 31, 1997. The charges in the 1998 period reflected (i) a non-cash
charge of $3.4 million relating to the lapse of NBC's obligation to return
680,000 shares of Series G Preferred and (ii) a charge of $500,000 for a portion
of the remaining nonrefundable cash payments due to NBC Multimedia under the NBC
Strategic Alliance Agreement. See "Business -- Strategic Alliances -- Strategic
Alliance with NBC Multimedia."
Interest income was $196,000 and $21,000 for the three months ended March
31, 1998 and 1997, respectively. Interest income represents interest earned by
the Company on its cash, cash equivalents and short-term investments. The
increase was primarily the result of higher cash and cash equivalents and short-
term investments balances resulting from sales of equity securities.
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996
Total revenues were $144,000 for 1997, most of which was derived from
delivery fees and customer services provided to the Company's initial customers.
The Company had no revenues for 1996.
Research and development expenses for the years ended December 31, 1997 and
1996 were $1.7 million and $1.4 million, respectively. The increase in research
and development expenses was attributable to the increase in personnel and
related expenses.
Selling, general and administrative expenses were $3.1 million and $910,000
for the years ended December 31, 1997 and 1996, respectively. The increase in
1997 over 1996 was attributable primarily to an increase of $1.2 million in
personnel and associated costs, primarily related to sales and marketing, an
increase of $297,000 for expenditures for trade shows and other public relations
expenses, an increase of $237,000 in
24
<PAGE> 26
amortization of deferred compensation, an increase of $229,000 for bandwidth
costs and an increase of $175,000 for travel and entertainment expenses.
Charges associated with the NBC Strategic Alliance Agreement for 1997 were
$750,000. No such charges were recorded in 1996. The 1997 charges reflected the
payment of the first $750,000 of the $2.0 million of nonrefundable cash payments
due to NBC Multimedia under the NBC Strategic Alliance Agreement. See
"Business -- Strategic Alliances -- Strategic Alliance with NBC Multimedia."
Interest income was $192,000 and $52,000 for the years ended December 31,
1997 and 1996, respectively. The increase in interest income for 1997 was the
result of higher cash and cash equivalents balances resulting from sales of
equity securities.
The Company has not recorded any income tax benefit for net losses and
credits incurred for any period from inception to December 31, 1997. The
utilization of these losses and credits is contingent upon the Company's ability
to generate taxable income in the future. Because of that uncertainty, the
Company has recorded a full valuation allowance with respect to these deferred
tax assets. See Note 7 of Notes to Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily through
sales of equity securities. Through March 31, 1998, the Company had raised $28.8
million from the sale and issuance of preferred stock and Common Stock. At March
31, 1998, the principal source of liquidity for the Company was $19.1 million of
cash and cash equivalents and short-term investments.
The Company has had significant negative cash flows from operating
activities since inception. Cash used in operating activities for the three
months ended March 31, 1998 and 1997 was $2.0 million and $904,000,
respectively, and for the years ended December 31, 1997 and 1996 was $4.6
million and $2.1 million, respectively. Cash used in operating activities in
each of these periods was primarily the result of increased business activity
and related operating expenses.
Cash used in investing activities for the three months ended March 31, 1998
and 1997 was $7.3 million and $101,000, respectively, and for the years ended
December 31, 1997 and 1996 was $484,000 and $305,000, respectively, primarily
representing purchases of short-term investments, capital expenditures for
equipment, software, and furniture and fixtures. Although the Company has no
material commitments for capital expenditures, the Company expects to expend
significant amounts for equipment, software and fixtures to expand the InterVU
Network, a portion of which it may finance through capital leases.
Cash used in financing activities of $2,000 for the three months ended
March 31, 1998 represented payments on capital leases. Cash provided by
financing activities of $1.1 million in the three months ended March 31, 1997
represented proceeds from the sale of preferred stock. Cash provided by
financing activities for the years ended December 31, 1997 and 1996 was $23.9
million and $4.4 million, respectively, resulting primarily from the net
proceeds received by the Company from the sale of preferred stock and completion
of the IPO and the Direct Offering in November 1997. Net proceeds from the IPO
and the Direct Offering aggregated $18.6 million.
In connection with the strategic alliance with NBC entered into in October
1997, the Company is obligated to make $2.0 million in nonrefundable payments to
NBC Multimedia for certain production, operating and advertising costs
associated with certain NBC Web sites. Of this amount, $750,000 was paid in the
fourth quarter of 1997, $500,000 was accrued in the first quarter of 1998 and
paid in the second quarter of 1998, and the balance of $750,000 is scheduled to
be paid prior to the end of 1998. All amounts currently remaining unpaid would
become immediately due if the NBC Strategic Alliance Agreement is terminated for
any reason.
The Company believes that the net proceeds from the Offering, together with
existing cash, cash equivalents, short-term investments and capital lease
financing, will be sufficient to meet its working capital and capital
expenditure requirements through at least the end of 1999. Thereafter, if cash
generated by
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operations is insufficient to satisfy the Company's liquidity requirements, the
Company may need to sell additional equity or debt securities or obtain credit
facilities. The Company currently does not have any lines of credit. The sale of
additional equity or convertible debt securities may result in additional
dilution to the Company's stockholders. There can be no assurance that the
Company will be able to raise any such capital on terms acceptable to the
Company or at all.
IMPACT OF YEAR 2000
Some older computer programs were written using two digits rather than four
to define the applicable year. As a result, those computer programs have
time-sensitive software that recognizes a date using "00" as the year 1900
rather than 2000. This failure to use four digits to define the applicable year
has created what is commonly referred to as the "Year 2000 Issue" and could
cause a system failure or miscalculations causing disruption of operations,
including a temporary inability to process transactions or engage in similar
normal business activities.
The Company recognizes the need to ensure that its operations will not be
adversely impacted by the Year 2000 Issue. The Company does not believe that it
has material exposure to the Year 2000 Issue with respect to its own information
systems since its existing systems correctly define the Year 2000. Any required
expenditures will be expensed as incurred. The Company intends to assess its
position regarding the Year 2000 Issue with respect to external information
systems by the end of 1998. This process will entail communications with
significant business partners, customers, suppliers, financial institutions,
insurance companies and other parties that provide significant services to the
Company. The Company is currently unable to predict the extent the Year 2000
Issue will affect these parties or the extent to which the Company would be
vulnerable to any such party's failure to remediate any Year 2000 Issue on a
timely basis.
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BUSINESS
INTRODUCTION
The Company is a specialized service company seeking to establish a
leadership position in the Internet video delivery market. The Company utilizes
a proprietary software system for routing and distributing high quality video
over the Internet at rapid speeds to a large number of viewers, primarily for
entertainment companies and advertisers. Unlike traditional Web site based video
delivery solutions, the InterVU Network moves the video delivery mechanism away
from the owner's Web site and on to the Company's distributed network of
specialized video servers strategically situated on multiple backbones on the
Internet. The InterVU Network allows the Company to deliver large amounts of
high quality video quickly to end-users and allows Web site owners and
advertisers to provide video on the Internet without having to invest in costly
hardware and software or to maintain a staff of employees with video delivery
expertise. The Company has designed the InterVU Network to perform operations
and distribution activities for video content and advertising on the Internet
analogous to those performed by traditional broadcast television networks for
television content and advertising.
The Company offers its services to Web site owners and advertisers for fees
based on the volume of video content delivered, for flat fees based on estimates
of video to be delivered or for a combination thereof. The Company expects to
generate additional revenues in the future from selling advertising space on Web
pages when Web site owners trade such space on their pages for video encoding
and delivery services performed by the Company. In addition, the Company
generally charges its customers fees for encoding analog video into digital form
for transmission over the Internet. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
The Company's target customers are the increasing number of Web site owners
that seek a means of adding video presentations to their Web pages in an easily
implemented and cost-effective manner and advertisers that wish to incorporate
video into banners and other Internet advertisements. The Company believes that
multimedia-rich Web sites, capable of delivering high quality video content
quickly to the end-user, can generate significant marketing differentiation and
"top of mind" awareness in consumer buying decisions. Web site owners that have
used the Company's services include NBC Multimedia, Intel, Major League
Baseball, the Lifetime Television Network (Hearst/ABC-Viacom Entertainment
Service) and Yachting Magazine (Times Mirror Magazines). The Company's video
banner advertising technology, V-Banner, has been used to promote Intel on 21
Web sites, including the ESPN SportsZone, RealNetworks, Lycos and AudioNet Web
sites. V-Banners also have been used to promote Goldwin Golf on the GOLFonline
Web site, the Columbia Pictures movie "Air Force One" and Volvo cars on the
Yahoo! Web site, Anheuser Busch on the Major League Baseball Web site, United
Airlines on the Comedy Central Web site and Tabasco on the E!Online Web site.
The Company also has an arrangement with CNN to provide hosting and distribution
services for video content on CNN's Web sites. The Company expects that CNN will
utilize the InterVU Network on busy news days or at other times when CNN's needs
for bandwidth exceed its internal capacity.
Traditional Internet video delivery mechanisms have been adversely affected
by traffic congestion on the Internet and the limitations of video server
storage and delivery resources, desktop storage capabilities and desktop
processing power available for video decoding and playback. In addition, many
Web site owners and advertisers have been reluctant to make the significant
investments in hardware and software necessary to deliver video over the
Internet from their own sites. As a result, most Web site owners and advertisers
have been slow to utilize video on the Internet.
The Company's distributed network solution, by contrast, provides high
throughput delivery of video messages to end-users over the Internet and allows
Web site owners and advertisers to use video on the Internet without incurring
substantial start-up costs. Video messages are hosted on the InterVU Network but
accessed seamlessly from customers' Web sites. Upon the request of an end-user
at a participating Web site, the InterVU Network transmits video messages
directly to the viewer. In the case of video banner advertisements, the video is
displayed automatically to end-users that visit the Web site containing the
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advertisement. The InterVU Network is designed to be platform, browser and
software player independent, allowing Web site owners and advertisers to use a
variety of digital video encoding formats with the assurance that such formats
will be compatible with most desk-top environments. The InterVU Network utilizes
a number of proprietary technologies, including the Company's Smart Mirror
technology, All Eyes software, VU Finder and EyeQ software, which together are
designed to deliver video to the end-user from the electronically closest
server, provide Web site owners and advertisers with the ability to reach an
increased number of end-users with their video content and improve end-users'
video viewing experience. The Company's EyeQ multimedia manager, which
downloads, installs and updates end-users' multimedia player software, supports
all major video players, including Microsoft's NetShow and RealNetworks'
RealMedia streaming video players.
In October 1997, the Company entered into a strategic alliance with NBC
Multimedia pursuant to which the Company became the exclusive provider of
technology and services for the distribution of most NBC entertainment
audio/video content by means of NBC Web sites on the Internet. In addition, NBC
acquired a 10% equity stake in the Company. The NBC Strategic Alliance Agreement
provides for sharing of revenues from a new Web site called VideoSeeker, a
stand-alone site (www.videoseeker.com) that will be promoted on the NBC.com Web
site. VideoSeeker offers end-users a single source for online video
entertainment and information from NBC and its partners, as well as third-party
programmers. VideoSeeker features a wide array of streaming and downloadable
video content, including monologues from "The Tonight Show with Jay Leno,"
"Access Hollywood" celebrity interviews, backstage footage with NBC celebrities
and music videos from myLAUNCH, an online music site. The Company created the
video search engine used on the VideoSeeker site, owns the proprietary software
underlying the site and will manage and distribute all video, audio and
multimedia from the site via the InterVU Network. See "Risk Factors -- Risks
Associated with Strategic Alliance with NBC Multimedia" and
"Business -- Strategic Alliances -- Strategic Alliance with NBC Multimedia."
To enhance its ability to reach large advertisers, in January 1998 the
Company and MatchLogic entered into the MatchLogic Strategic Alliance Agreement.
MatchLogic is a leading online advertising management services firm and a
subsidiary of Excite, Inc. MatchLogic supports top advertisers such as General
Motors and leading advertising agencies such as McCann-Erickson. The Company and
MatchLogic have developed trueVU, a service designed to facilitate advertisers'
use of bandwidth-intensive media and robust video advertisements on the
Internet. trueVU combines InterVU's video delivery technology with MatchLogic's
targeting, distribution, reporting and performance measurement capabilities to
provide "one-stop shopping" for Internet advertisers and advertising agencies.
trueVU allows advertisers to stage advertising campaigns across a number of Web
sites without having to confirm the compatibility of their advertisements with
the software used on those sites. In addition, trueVU offers integrated
reporting of an advertisement's performance across a number of Web sites.
INDUSTRY BACKGROUND
Growth of Internet Usage and Content. The Internet and many Internet
software, hardware and service providers have experienced dramatic growth in
recent years. Unprecedented commercial and end-user interest in the Internet has
been spurred by the introduction of key technologies, including Web browsers and
powerful search engines. These technologies, along with consistent usage of
Universal Resource Locators ("URLs"), have enabled end-users of the Internet to
quickly and smoothly navigate to sites around the world. Accordingly, the
Internet has been widely accepted as a communications medium. International Data
Corporation has estimated that as of the end of 1996 there were approximately 35
million end-users of the Internet and that there would be approximately 175
million end-users by the year 2001.
Existing Internet Video Technologies. Until recently, Internet video
delivery has been of low quality and slow speed due to traffic congestion on the
Internet and the limitations of video server storage and delivery resources,
desktop storage capabilities and desktop processing power available for video
decoding and playback. As a result, most commercial Web site owners have been
reluctant to employ video on their sites and many advertisers have been
reluctant to add video to their advertisements because existing technologies
have not provided sufficient quality and cost-effective results.
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The primary barrier to achieving interactive video delivery over the
Internet is a function of the large size of video files relative to standard
hypertext markup language ("HTML") data files. The large size of video files
exacerbates four distinct challenges to quality, high speed delivery: (i)
transmission time delays from Web server to end-user which are due to the
Internet's infrastructure, (ii) the capacity of the end-user's modem, (iii)
logistical problems and costs attendant to maintaining video delivery at the Web
site and (iv) the potential for overloading a Web site owner's server due to
increased video file delivery.
The primary approaches pursued to date by others to address video file
delivery challenges have focused on the ongoing development of
compression/decompression algorithms ("codecs") and, to a lesser extent, a
variety of strategies for optimizing server capacities and reducing Internet
traffic congestion, such as the development of specialized transmission
protocols.
Codecs are used to compress and decompress video files, effectively
reducing the size of a video file so that it can be transmitted or downloaded
with increased speed and quality. Codecs were introduced during the evolution of
the CD-Rom market to enable dynamic video presentations. Codecs, however, have
technological limitations in that they alone cannot optimize all of the
variables required to produce high quality video.
Although the continued development of codecs and other technologies
designed to improve transmission of video data over the Internet has led to
significant improvements in Internet video delivery, the Company believes that
such technologies do not address bottlenecks inherent in the Internet's
infrastructure. In fact, the Company believes that Internet technologies that
improve transmission speed and quality ultimately will increase end-user use of
the Internet, placing more stress on the most frequently used Internet
transmission channels. As a result, the Company believes that video delivered
from single sites will continue to be subject to delays associated with
transmission of such video over the Internet. In addition, the single site
approach does not permit advertisers or content developers to post video on a
number of different sites without the costly and time consuming task of
contacting such sites and adding their video presentations to the sites' servers
or installing their own servers at such sites.
THE INTERVU SOLUTION
Unlike companies that have introduced video delivery mechanisms requiring a
Web site owner to purchase proprietary software and hardware in order to deliver
video from a single site, InterVU has moved the video delivery mechanism away
from the owner's Web site and on to Company servers dedicated to video delivery.
The Company has developed a software system for routing and distributing video
on the Internet that allows the Company to link the Company's specialized video
servers to one another, to Web sites and to Internet end-users, creating the
InterVU Network. The Company has strategically placed its video servers on the
Internet to minimize the number of routers or "hops" video content must traverse
before reaching the end-user. The InterVU Network is designed to be platform,
browser and software player independent, which allows Web site owners to encode
video in a variety of codecs with the assurance that at least one of such codecs
will be compatible with each end-user's desktop environment.
The Company has designed the InterVU Network to perform operations and
distribution activities for video content and advertising on the Internet
analogous to those performed by traditional broadcast television networks for
television content and advertising. By posting video on its own servers and
using the Company's Virtual URL technology to create transparent links to the
video from host Web sites, the Company allows content owners and advertisers to
post their video across a variety of sites quickly and efficiently. Once the
video is distributed to a number of sites, the Company's All Eyes technology
makes the video easily accessible to end-users regardless of the video player
they use, and in the case of V-Banners, plays the video automatically in the
correct format without an end-user's specific request to view it.
Since the InterVU Network is scaleable, the Company can accommodate
additional content from customers as demand increases. In addition, the InterVU
Network is Internet connection independent, which allows the Company to support
a variety of telecommunication, cable, wireless and intranet solutions in order
to maximize the number of end-users who may wish to view video messages. The
InterVU Network provides high throughput delivery of video messages to end-users
over the Internet over a range of connection speeds (ranging from 28.8 Kbps
modems to cable modems).
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\STRATEGY
The Company's objective is to leverage its systems and process technology
and maintain market focus to become a leading Internet video delivery company,
primarily supporting entertainment companies and advertisers. As a result of the
Company's recent success in developing strategic alliances with NBC Multimedia,
MatchLogic and others and in demonstrating its ability to scale the InterVU
Network to deliver larger amounts of video content, and in light of the
continued rapid pace of Internet video industry developments, the Company
intends to accelerate the pursuit of its strategy through, among other things,
increased sales and marketing, expansion of network operations and software
development. The Company's strategy includes the following key elements:
Achieve Significant Market Penetration and Promote Market Expansion. The
Company intends to attract and retain Web site owners and advertisers with
significant video delivery volume requirements in the sports, entertainment,
information/education and sales promotions and Internet video product sales
industries. By using the InterVU Network, Web site owners and advertisers can
deliver video without the start-up costs associated with software and hardware
and the recurring maintenance costs associated with delivering video from one
delivery site. The Company's sales force promotes V-Banners (real time audio and
video in the space of an Internet advertising banner) to advertisers and
advertising agencies. The Company intends to increase its in-house sales force
and expand its marketing and sales efforts to Web site owners, Web site
developers, advertisers and advertising agencies. The Company also has begun to
develop relationships with Web site developers and ISP hosting companies to
increase awareness of the Company's services. Web site developers and ISP
hosting companies, in turn, will be able to use the Company's video delivery
technology to expand their product offerings to Web site owners.
Build Strategic Alliances. As part of its growth strategy, the Company
intends to continue to enter into strategic alliances with content providers,
Web site developers and advertising companies to promote use of video on the
Internet and to gain access to significant advertisers. Consistent with this
strategy, in October 1997 the Company entered into a strategic alliance with NBC
Multimedia pursuant to which the Company became the exclusive provider of
technology and services for the distribution of most NBC entertainment
audio/video content by means of NBC Internet Sites. The Company believes the
VideoSeeker site developed pursuant to the strategic alliance with NBC
Multimedia will cultivate end-user interest in viewing video content on the
Internet. To enhance its ability to reach large advertisers, in January 1998 the
Company entered into a strategic alliance with MatchLogic, a leading online
advertising management services firm. The Company believes that trueVU, which
combines InterVU's video delivery technology with MatchLogic's targeting,
distribution, reporting and performance measurement capabilities, offers
advertisers the tools necessary to create, deliver and monitor the effectiveness
of robust video advertisements on the Internet.
Maintain Technological Leadership in Systems and Process. The Company's
strategy is to continue to develop advanced technological solutions to increase
the speed and quality of Internet video delivery. The Company believes that
improving the speed and quality of Internet video will increase end-user demand
for additional video on the Internet. The Company continually works to develop
its proprietary InterVU Network to further reduce the number of Internet
bottlenecks that video content must traverse before it reaches the end-user. The
Company also seeks to refine, among other things, its Smart Mirror technology,
All Eyes software, VU Finder software and EyeQ software, which together deliver
video to the end-user from the electronically closest server, increase the
number of end-users a Web site owner or advertiser can reach with its video
content and improve end-users' video viewing experience. In addition, the
Company develops and provides authoring tools that help video content producers
and advertisers create Internet video presentations. The Company intends to
extend the functionality and uses of its core video delivery technologies by
continuing to invest in research and development.
Offer Full-Service Approach to Video Delivery. The Company's strategy is to
offer Web site owners and advertisers a simple, cost-effective method of adding
video to their Internet presentations. The Company's network approach allows
customers to display video on the Internet without having to invest in hardware
and software or to hire a staff to establish and maintain a system for video
delivery. Instead, the Company offers a simple, turn-key solution for video
delivery. Customers can provide video to the Company in digital or analog
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format. The Company then will encode the video, if necessary, place the video on
the InterVU Network and establish a link between the customer's Web site or
advertisement site and the InterVU Network. Upon the request of an end-user at a
participating Web site, the InterVU Network seamlessly transmits video messages
directly to the viewer.
Offer Live Broadcast Capabilities as Well as Video on Demand. The Company's
strategy is to offer remote video encoding and integration services for live
Internet broadcast events, while continuing to provide video on demand.
Increasing numbers of Web site owners are seeking to integrate live broadcast
video events with other Web content. The Company offers on-site encoding for
live events delivered from the InterVU Network. The Company has encoded and
delivered several live events, including the Golden Globe Awards, New Year's Eve
in Times Square and Bill Gates' Senate hearings. The Company believes that Web
site owners can attract end-users to their sites by promoting and delivering
live events and can retain such end-users by offering quality video on demand.
Maintain Internet Connection Independence. The Company's strategy is to
continue to develop and maintain Internet video delivery products and services
that support a variety of Internet connections. The Company currently supports
major telecommunication, cable, wireless and intranet connections to the
Internet. The Company intends to maintain the functionality of its video
delivery technologies as new Internet connections are developed in order to
reach the maximum number of end-users.
Build Brand Awareness. The Company's marketing strategy is to penetrate
markets for Internet video delivery services by creating awareness for the
InterVU brand. The Company seeks to make the InterVU name synonymous with fast,
high quality video on the Internet. The Company intends to promote, advertise
and increase its brand visibility through excellent service and a variety of
marketing and promotional techniques, including advertising, trade show
involvement, the InterVU Web site, various marketing and sales materials and
Internet promotions to market the Company's services.
TECHNOLOGY OVERVIEW
The Company has designed the InterVU Network to meet the needs of Web site
owners and advertisers who wish to deliver large amounts of video content to
large numbers of end-users over the Internet. The Company believes that the
InterVU Network provides an attractive service to Web site owners and
advertisers by accelerating video transmission and reception times and by
providing a method to incorporate video presentations into Web pages easily and
cost-effectively. InterVU's technology is based on proprietary systems and
processes that link a distributed network of servers on multiple Internet
backbones, using open communication standards and commercially available
components. The use of open standards allows the Company to accommodate a
variety of customer hardware and software configurations.
Network Solution. The InterVU Network and the Company's Virtual URL
technology allow Web site owners and advertisers to provide video content to
end-users without the costs and inconvenience usually associated with
traditional Internet delivery mechanisms. Instead of managing large video files
and maintaining expensive hardware, Web site owners and advertisers deliver
video directly to the Company in either analog or digital format. The Company
then encodes the video, if necessary, and places it on the InterVU Network. In
some cases, the Company allows the customer to post video directly on to the
InterVU Network. To an end-user visiting a Web site, the video appears to come
from the Web site because of software code the Company places on the customer's
Web site to link the end-user to the InterVU Network. The Virtual URL technology
makes such redirection of video invisible to the end-user.
Avoiding Transmission Bottlenecks. The Company's configuration of
distributed video servers located on multiple Internet backbones provides
significant advantages in video delivery. The InterVU Network is designed to
ensure that once an end-user requests video from a Web site, the video is
transmitted from the electronically closest server on the InterVU Network.
Through the use of the Company's proprietary Smart Mirror technology, the
InterVU Network helps users bypass bottlenecks on the Internet by determining
which of its servers is electronically closest to the end-user and sending the
video from that location.
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Another significant component of the Company's video delivery system is the
Fast Track Network Analyzer, which allows end-users to optimize video delivery
performance. The Fast Track Network Analyzer "polls" selected servers on the
InterVU Network to determine which server will provide the end-user with the
best overall video performance. From information based on end-users who have
downloaded InterVU's Fast Track Network Analyzer end-user client software, the
Company has created a model of Internet data flow which allows the Company to
accelerate video delivery over the InterVU Network by storing video files on
servers at strategically located Internet sites. Performance data has been
accumulated and analyzed for most top Internet service providers, allowing the
Company to integrate the services of nine providers (UUNET, Bell Technology
Group, TCG Cerfnet, DIGEX, Exodus, GTE, GlobalCenter, IXL and SuperNet) to offer
a distributed network with high performance video delivery.
Optimizing and Managing the InterVU Network Servers. The servers on the
InterVU Network consist of a title manager and multiple video pumps which are
designed to optimize and manage the delivery of video over the Internet. The
video pumps are computers that have been customized to accelerate video
delivery. The title manager selectively stores, allocates and replicates videos
among video pumps based on end-user demand and directs end-users' requests for
video content to the video pump capable of responding most quickly to the
request.
Reaching Maximum End-Users. The Company has designed its proprietary All
Eyes software to allow its customers to reach almost all end-users, regardless
of the video player software used. All Eyes is an intelligent software
application written in the Java and JavaScript programming language that
determines the capabilities of the end-user's software and ensures that any
video sent out can be played by the end-user's video player software. Even
end-users with no multimedia capabilities will usually receive a graphic image,
instead of a broken icon which signifies the presence of content that they
cannot see. By contrast, traditional methods of video delivery limit the number
of end-users able to view video content to those who have the appropriate
software for a specific encoding format. All Eyes is designed to deliver video
in the appropriate format even if the end-user has not downloaded any InterVU
software.
End-User Software Technologies. InterVU's EyeQ multimedia manager software
package includes the Company's InstaVU and MPEG video players, as well as a
software utility called Get Smart. InstaVU allows multimedia streaming on a 28.8
Kbps or faster modem. The InstaVU multimedia streaming algorithm displays a
pre-selected slide show of video frames at the same time as real-time audio
while the remainder of the video is downloaded to the end-user's computer for
subsequent viewings. Get Smart installs and manages the EyeQ multimedia software
and keeps end-users' computers current with other multimedia software players,
such as Microsoft's NetShow, RealNetworks' RealMedia, Vivo, VDO, Apple
Computer's QuickTime and VXtreme Web Theatre. With a single mouse click, Get
Smart downloads and installs software updates to the end-user's computer from
the Internet.
CUSTOMER SERVICES
The Company employs a full service approach to providing its video delivery
services which includes (i) ease of integration of video content into Web
presentations, (ii) encoding services, including remote encoding for live
events, (iii) network distribution, hosting and delivery and (iv) usage reports
providing delivery volume and other data.
To allow Web site owners and advertisers to more easily integrate video
into Web sites, InterVU has developed the V-Banner, which turns the ordinary
Internet advertising banner into a video display. With V-Banners, advertisers
can provide real time video and audio through their advertising banners instead
of just a few static pictures. The Company believes that it is currently the
only company to offer banners that include video. The Company has incorporated
its All Eyes technology into its V-Banners to make them compatible with most
video players currently used by end-users. As a result, the Company offers its
advertising customers the ability to reach a wide variety of end-users with
their video advertisements. The Company can create V-Banners using video
supplied by its customers in digital or analog format.
When using the Company's video delivery services, Web site owners may
encode and compress video messages themselves or send analog VHS or Beta tapes
to InterVU for encoding services using a variety of
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different codec formats. All major codecs, such as MPEG, Apple Computer's
Quicktime, AVI, Vivo, Microsoft's NetShow and RealNetworks' RealPlayer, are
supported by InterVU. Customers' video files are dynamically balanced to provide
high quality video and audio, full audio/video synchronization and flexible
encoding rates to match specific requirements.
To provide the targeting, distribution, reporting and performance tracking
elements necessary to capture advertisers' interests in using video and other
media rich advertisements, the Company established a strategic alliance with
MatchLogic. Pursuant to the strategic alliance, the Company and MatchLogic have
developed trueVU, a service designed to facilitate advertisers' use of
bandwidth-intensive media and robust video advertisements on the Internet.
trueVU combines InterVU's video delivery technology with MatchLogic's targeting,
distribution, reporting and performance measurement capabilities to provide
"one-stop shopping" for Internet advertisers and advertising agencies. In
addition to providing performance tracking which provides data regarding an
advertisement's performance, trueVU allows advertisers to stage advertising
campaigns across a number of Web sites without having to confirm the
compatibility of their advertisements with the software used on those sites.
STRATEGIC ALLIANCES
Strategic Alliance with NBC Multimedia
In October 1997, the Company entered into a strategic alliance with NBC
Multimedia, pursuant to which the Company became the exclusive provider of
technology and services for the distribution of most NBC entertainment
audio/video content by means of NBC Internet Sites. Under the NBC Strategic
Alliance Agreement between the Company and NBC Multimedia, the Company will
store NBC entertainment audio/video content on the InterVU Network servers and
transmit this content to users via the Internet in response to requests from
end-users.
NBC Multimedia has agreed to use commercially reasonable efforts to promote
the Company and the InterVU Network in connection with Internet advertising
promotions involving the Company's dissemination of NBC entertainment
audio/video content. NBC Multimedia has reserved the right to determine, in its
reasonable discretion, when such promotion of the Company is appropriate. The
Company has agreed to include in the Company's EyeQ multimedia manager an "NBC"
icon that links end-users to the NBC Web site. The Company and NBC Multimedia
also have agreed to place links on their Web sites connecting end-users with the
other party's site. In addition, NBC Multimedia has agreed to use commercially
reasonable efforts to introduce the Company to the television stations
associated with the NBC Television Network and to refer other programming
opportunities for the Internet to the Company, all to the extent that NBC
Multimedia reasonably deems appropriate. NBC Multimedia would receive a 10%
commission for each such referral.
The NBC Strategic Alliance Agreement provides for revenue sharing from a
new Web site called VideoSeeker, a stand-alone site (www.videoseeker.com) that
offers end-users a single source for online video entertainment and information
from NBC and its partners, as well as third-party programmers. VideoSeeker
features a wide array of streaming and downloadable video content, including
monologues from "The Tonight Show with Jay Leno," "Access Hollywood" celebrity
interviews, backstage footage with NBC celebrities and music videos from
myLAUNCH, an online music site. The Company created the video search engine used
on the VideoSeeker site, owns the proprietary software underlying the site and
will manage and distribute all video, audio and multimedia from the site via the
InterVU Network. The Company is entitled to receive 30% of the actual NBC cash
receipts, if any, from advertising, transactions and subscription directly
attributable to VideoSeeker, less certain associated costs and expenses. NBC
Multimedia may opt out of its 30% revenue sharing obligation by paying for the
Company's video delivery services at rates at least as favorable as the most
favorable rates offered by the Company to third parties, other than special
promotional rates. NBC Multimedia will reimburse the Company for certain costs
incurred by the Company in connection with the delivery of audio/video content.
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The NBC Strategic Alliance Agreement provides for an exclusive term of two
years that will automatically extend to four years if certain cost and revenue
goals to be mutually agreed upon in the future are established and met. The
Company's exclusive rights to deliver NBC content by means of NBC Internet Sites
do not apply to sports, news or other non-entertainment programs, nor do they
apply to video clips of less than five seconds in length. NBC Multimedia also
has reserved the right to permit other companies to distribute NBC video content
to Web sites that are not NBC Internet Sites.
As consideration for the strategic alliance, the Company issued to NBC
1,280,000 shares of Series G Preferred. These shares represented approximately
10% of the Company's outstanding capital stock prior to the IPO. NBC Multimedia
also purchased 210,526 shares of Common Stock for $2.0 million in the Direct
Offering concurrently with the IPO.
The Company is obligated to pay to NBC Multimedia a total of $2.0 million
in a series of nonrefundable payments for the costs of producing and operating
VideoSeeker (the "Production Costs") and the costs of advertising and promotions
to be placed by the Company on NBC Internet Sites ("InterVU Advertising"). Of
this amount, $750,000 was paid in the fourth quarter of 1997, $500,000 was
accrued in the first quarter of 1998 and paid in the second quarter of 1998, and
the balance of $750,000 is scheduled to be paid prior to the end of 1998.
Production Costs may include, but are not limited to, costs related to NBC
Multimedia's personnel costs, out-of-pocket costs, costs for content needed for
VideoSeeker, reasonable allocated overhead costs and a management fee to be paid
to NBC in return for its services equal to 20% of all production and operating
costs. The Company would be charged for InterVU Advertising at NBC Multimedia's
customary rates and would be responsible for the expenses related to placing the
advertising on the designated Web site. The Company would not be permitted to
post InterVU Advertising at any time that advertising space were unavailable or
if all of the amounts paid by the Company to NBC already had been allocated to
Production Costs.
During the Exclusive Term, NBC Multimedia may terminate the NBC Strategic
Alliance Agreement without cause by giving 90 days prior written notice to the
Company. If NBC Multimedia terminates the NBC Strategic Alliance Agreement
without cause prior to October 10, 1999, then NBC or NBC Multimedia would be
required to return to the Company 600,000 shares of Series G Preferred (or the
shares of Common Stock issuable upon conversion thereof, as the case may be).
NBC is not required to return any shares upon exercise of its early termination
right until the Company has made all of the required payments described above.
Upon a material breach by NBC Multimedia, the Company would be entitled to
terminate the NBC Strategic Alliance Agreement and NBC would be required to
return the same portion of the shares as if NBC Multimedia had exercised its
early termination right. Upon a material breach by the Company, NBC Multimedia
could terminate the NBC Strategic Alliance Agreement with no obligation on NBC
or NBC Multimedia to return shares. In no event is NBC Multimedia required to
refund any of the nonrefundable payments. See "Risk Factors -- Limited Operating
History; Accumulated Deficit; Anticipated Losses" and "-- Risks Associated with
Strategic Alliance with NBC Multimedia."
Strategic Alliance with MatchLogic
To enhance its ability to reach large advertisers, the Company entered into
a strategic alliance with MatchLogic in January 1998. Under the MatchLogic
Strategic Alliance Agreement, MatchLogic has agreed to use InterVU exclusively
to provide Media Rich Ads and the Company has obtained the exclusive right to
use MatchLogic's distribution, reporting and performance measurement
capabilities in connection with such Media Rich Ads, subject to certain
exceptions. The Company also has agreed that it will not distribute Media Rich
Ads for any company, other than MatchLogic, that provides third-party
advertising management services.
Notwithstanding the exclusivity provisions contained in the MatchLogic
Strategic Alliance Agreement, MatchLogic may decline to provide advertising
management services in connection with any particular Media Rich Ad. In such a
case, the Company would be permitted to use a different advertising management
company, but there can be no assurance that the Company would be able to locate
and establish a relationship with another advertising management company that
would perform services equivalent to those performed by
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MatchLogic. In addition, to the extent third parties develop new technologies
for media rich advertising and the Company declines to develop the processes
required for the distribution of advertisements using such technology,
MatchLogic may use another service provider to deliver such advertisements until
the time, if ever, that InterVU develops the necessary processes for delivering
such advertisements. MatchLogic also would be allowed to use another service
provider for a project if the Company consistently failed to meet prevailing
industry standards for performance on previous projects using the media rich
technology used on the project. Moreover, neither party is required to
participate in an advertising campaign on which it projects an actual financial
loss. See "Risk Factors -- Dependence Upon Other Strategic Alliances."
In furtherance of the strategic alliance, the Company and MatchLogic have
developed trueVU, a service designed to facilitate advertisers' use of
bandwidth-intensive media and robust video advertisements on the Internet.
trueVU combines InterVU's video delivery technology with MatchLogic's targeting,
distribution, reporting and performance measurement capabilities to provide
"one-stop shopping" for Internet advertisers and advertising agencies. trueVU
allows advertisers to stage advertising campaigns across a number of Web sites
without having to confirm the compatibility of their advertisements with the
software used on those sites. In addition, trueVU offers integrated reporting of
an advertisement's performance across a number of Web sites. The MatchLogic
Strategic Alliance Agreement provides for sharing of trueVU revenues.
The MatchLogic Strategic Alliance Agreement requires InterVU and MatchLogic
to use reasonable commercial efforts to work together to sell and promote Media
Rich Ads and services. MatchLogic has agreed to promote InterVU's Internet video
delivery services to its clients and to attempt to generate Internet Media Rich
Ad business for InterVU.
The MatchLogic Strategic Alliance Agreement provides for an initial
three-year term and automatically renews for additional one-year terms unless
either party gives prior written notice of its intent to terminate the
MatchLogic Strategic Alliance Agreement. The MatchLogic Strategic Alliance
Agreement may be terminated immediately by either party in the event the other
party breaches any material provision of the agreement.
MARKETING AND SALES
Marketing Strategy
The Company's marketing strategy is to position InterVU as a leading
Internet company providing video delivery services. The Company employs a
full-service approach to marketing which focuses on Internet video delivery from
a distributed network rather than from one delivery site or Internet backbone.
Additionally, by offering a full-service approach, the Company presents Web site
owners and advertisers with the opportunity to not only forego capital and fixed
cost investments in new technologies, but to be placed in the continuum of
receiving the Company's most current enhancements as they become available. The
Company employs a mix of techniques including advertising, trade show
involvement, the InterVU Web site, various marketing and sales materials and
Internet promotions to market the Company's services. The Company has identified
five target markets for its services: (i) content providers (Web site owners),
(ii) advertisers, (iii) advertising agencies, (iv) Web site developers and (v)
Internet service providers.
To date, the Company has generated most of its revenues from monthly fees
charged to customers for video delivery and encoding services. Certain of the
Company's Web site customers also have traded advertising space on their pages
for video delivery services. The Company's economic model, however, calls for
the Company to generate substantially all of its revenues from charging Web site
owners and advertisers volume-based fees for video delivery services. By
providing customers with a variable cost structure which is a function only of
the amount of video content delivered, the Company plans to relieve Web site
owners of the challenge of generating economies of scale relative to fixed costs
(bandwidth), capital investments (hardware and software) and incremental
logistical staffing. The rate structure is variable, with the Company's
customers receiving reduced per-megabyte costs as delivery volumes surpass
certain average daily levels. Although the Company believes its rate structure
offers significant value to its customers, the Company's pay-per-delivery
concept remains unproven. See "Risk Factors -- Unproven Acceptance of the
Company's Fee Structure."
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Content Providers. One of the Company's primary markets is delivering video
for content providers such as Web site owners. The Company believes that video
can be successfully employed by content providers to increase Web site
promotional effectiveness to consumers. In addition, the Company gives its
customers the ability to reach end-users almost without regard to the video
player software used by such end-users. The Company's All Eyes technology
intelligently determines which of a number of digital video formats will be
compatible with a particular end-user's video player software and sends the
content provider's video presentation to the end-user in the appropriate format.
The Company believes its approach to video delivery appeals to content
providers because the Company eliminates the need for content providers to
purchase software servers, hardware servers or communication bandwidth. The
Company also gives Web site owners the ability to deliver video without first
acquiring digital video expertise. The Company can create a digital video
presentation from an analog video tape or provide remote on-site encoding
services for live broadcasts. In addition, the Company allows Web site owners to
experiment with using video because the Company typically charges only for video
delivered, thereby obviating the need for Web site owners to make a commitment
to delivering video before they have an opportunity to gauge end-user response.
Advertisers. The Company believes that Internet advertisements that include
video will be entertaining to consumers and, as a result, valuable to
advertisers. The Company's V-Banners automatically display a small video
presentation in a portion of the banner when an end-user visits a Web page. The
Company believes its V-Banners are especially appealing to advertisers because
consumers with video player capability need not take any affirmative steps to
view the video or wait for it to download. Moreover, the Company believes that
many of the advantages the Company offers to Web site owners also apply to
advertisers. Advertisers can use video on their Internet advertisements without
having to learn how to work with video delivery technologies and without
burdening their servers or those of their host Web site with video.
The Company has implemented a Web site certification process to ensure the
compatibility of V-Banners with host Web sites. The certification process
typically requires five days of testing. Once a Web site has passed the
certification process, the Company can quickly and easily install V-Banners on
the site. The Company believes this certification process benefits both
advertisers and the host site. The process assures advertisers that when they
purchase space on a certified site, they will be able to post their V-Banners
promptly. In addition, owners of certified Web sites can market the sites as
"video ready" platforms for advertisements delivered over the Internet.
Advertising Agencies and Management Companies. The Company has begun to
establish relationships with certain major advertising agencies, including
Saatchi & Saatchi, McCann-Erickson, Foote Cone & Belding and Think New Ideas,
and specialized Internet advertising agencies, which primarily provide
advertising banners, in an effort to make advertisers more aware of the
Company's services. The Company believes that advertising agencies will want to
market themselves and the Company to advertisers by incorporating Internet video
promotions into their media proposals to clients. Moreover, the Company's
strategic alliance with MatchLogic provides InterVU direct access to many major
advertisers and advertising agencies, such as General Motors and
McCann-Erickson, many of whom have exclusive relationships with MatchLogic. The
Company believes that its alliance with MatchLogic will promote advertisers'
interest in using video in their online advertisements and that such advertisers
will use the Company's services to incorporate video into such ads.
Web Site Developers. The Company's approach to video delivery allows Web
site developers to add video to Web pages without the need for extensive video
delivery expertise. The Company manages encoding, recommends codecs compatible
with customers' needs and handles distribution. As a result, Web site developers
that work with the Company can offer a broader range of services to their
customers without investing time and money into learning and applying video
delivery technologies.
Internet Service Providers. The Company has established nonexclusive
promotional agreements with nine ISPs (UUNET, Bell Technology Group, TCG
Cerfnet, DIGEX, Exodus, GTE, GlobalCenter, IXL and SuperNet) pursuant to which
the ISPs may market their performance (as verified by the Fast Track Network
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Analyzer results) and the Company's integration of the ISPs' infrastructures
into the InterVU Network. Such ISPs also can market the Company's services to
their customers.
Sales Strategy
The Company's sales strategy is to attract and retain Web site owners with
significant video delivery volume requirements in the entertainment,
information/education, advertising and sales promotions and Internet video
product sales industries. The Company currently has targeted the entertainment
industry, specifically cable TV, broadcast programmers and sports leagues,
advertising agencies and major advertisers as primary customer groups. The
Company believes that cable TV and broadcast programmers in particular currently
(i) have the best understanding of the InterVU Network capability, (ii) are
dedicated to achieving differentiation in their Web site offerings by delivering
video that they have developed or otherwise possess, (iii) are in a position to
quickly expand their video delivery volumes once they are satisfied with
delivery results and (iv) serve as highly credible references for the Company.
The Company's sales force also has begun actively to promote its V-Banners to
advertisers and advertising agencies.
VUTOPIA Service
Although InterVU currently provides global delivery of video messages, the
Company intends to introduce a complementary, more distributed regional service
(the "VUTOPIA Service") which the Company believes will be an attractive vehicle
for the delivery of localized content. The VUTOPIA Service will utilize the
existing InterVU Network to offer faster delivery of high quality video messages
and is designed to include a home channel specifically tailored to individual
markets which will allow Web site owners to target their video programs to
specific market areas. The VUTOPIA Service will allow the Company's customers to
obtain further enhancements in video delivery speed and incur lower delivery
costs relative to global delivery rates.
The VUTOPIA Service will utilize the Company's Virtual URL technology which
re-directs each viewer's mouse click request for video messages to regionally
distributed servers which are expected to be located directly at the viewer's
dial up point or POP. By hosting content on multiple distributed servers located
at various POPs, the Company intends to deliver local video messages over local
access lines, thereby eliminating Internet bandwidth charges and avoiding other
Internet congestion challenges. The Company currently is testing the VUTOPIA
Service with a cable provider.
COMPETITION
The market for Internet services is highly competitive, and the Company
expects competition to increase significantly. Although the Company believes it
is the only company currently utilizing a distributed, multi-backbone network
approach to delivery of video over the Internet, the Company faces substantial
competition from companies that provide the hardware, digital video encoding
software and know-how necessary to allow Web site owners and advertisers to
utilize video in their Internet activities. Several companies offer services
that facilitate delivery of video on the Internet, including, among others,
RealNetworks, VDOnet Corp., VXtreme, AudioNet Inc. and At Home Corporation. In
August 1997, RealNetworks and MCI announced a strategic alliance involving the
introduction of a service, called RBN, that delivers audio and video broadcasts
over the Internet. RBN reportedly permits end-users to simultaneously receive
video broadcasts by distributing copies of digital video programs to multiple
points on MCI's Internet backbone. The strategic alliance between RealNetworks
and MCI appears to be a service-based marketing strategy similar to that being
implemented by the Company. In addition, Microsoft has made significant
investments in Internet video delivery technologies and has disclosed a
multimedia strategy of broadening the market for video compression solutions. In
August 1997, Microsoft announced (i) the release of its NetShow 2.0 multimedia
server which incorporates technology for video and audio delivery over the
Internet and corporate intranets, (ii) an agreement with leading video
compression software companies, including RealNetworks and VDOnet Corp., to
cooperate in defining future standards based on the Microsoft Active Streaming
Format and (iii) the acquisition of VXtreme. Microsoft also holds significant
equity positions in RealNetworks and VDOnet Corp. In addition, as was the case
with VXtreme, RealNetworks and VDOnet Corp., providers of Internet delivery
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video services may be acquired by, receive investments from or enter into other
commercial relationships with, larger, well-established and well-financed
companies, such as Microsoft and MCI. Greater competition resulting from such
relationships could have a material adverse effect on the Company's business,
prospects, financial condition and results of operations. Because the operations
and strategic plans of existing and future competitors are undergoing rapid
change, it is extremely difficult for the Company to anticipate which companies
are likely to offer competitive services in the future.
The bases of competition in markets for video delivery include transmission
speed, reliability of service, ease of access, price/performance, ease-of-use,
content quality, quality of presentation, timeliness of content, customer
support, brand recognition, number of end-users directed to client Web sites
("traffic flow"), data reporting and operating experience. The Company believes
that it compares favorably with its competitors with respect to each of these
factors, except brand recognition, traffic flow and operating experience, all of
which have been limited as a result of the Company's early stage of development.
Many of the Company's competitors and potential competitors have substantially
greater financial, technical, managerial and marketing resources, longer
operating histories, greater name recognition and/or more established
relationships with advertisers and content providers than the Company. Such
competitors may be able to undertake more extensive marketing campaigns, adopt
more aggressive pricing policies and devote substantially more resources to
developing Internet services or online content than the Company. The Company's
ability to achieve and maintain a leadership position in the Internet video
delivery market will depend, among other things, on the Company's success in
providing high-speed, high-quality video over the Internet, the Company's
marketing efforts and the reliability of the Company's networks and services,
none of which can be assured. There can be no assurance that the Company will be
able to compete successfully against current or future competitors or that
competitive pressures faced by the Company will not materially adversely affect
the Company's business, prospects, financial condition and results of
operations. Further, as strategic responses to changes in the competitive
environment, the Company may make certain pricing, service or marketing
decisions or enter into acquisitions or new ventures that could have a material
adverse effect on the Company's business, prospects, financial condition and
results of operations.
RESEARCH AND DEVELOPMENT
The market for the Company's services is characterized by rapidly changing
technology, evolving industry standards, and frequent new product introductions.
The Company believes that it can continue to improve its existing technologies
and services as well as develop new technologies and services. The Company
develops most of its technologies in house and maintains a highly trained
research and development staff that designs and develops InterVU's new services.
The Company had research and development expenses of $448,000, $599,000,
$33,000, $1.4 million and $1.7 million for three months ended March 31, 1997 and
1998, the period from August 2, 1995 (Inception) to December 31, 1995, and the
years ended December 31, 1996 and 1997, respectively. The Company's primary
objectives are to develop and maintain the Company's position in Internet video
delivery by being at the forefront of product and services development.
Additionally, the Company seeks to incorporate customer preferences identified
by InterVU's marketing and sales groups into development plans. The Company
attempts to integrate new enhancements into the Company's existing services.
These enhancements include extending the reach of InterVU's video delivery,
reducing the cost per megabyte of video delivered, developing new methods of
scaling existing services to changing client demands, and increasing the
robustness and reliability of all software and components created by InterVU.
INTELLECTUAL PROPERTY
The Company regards its technology as proprietary and attempts to protect
it with patents, copyrights, trademarks, trade secret laws, restrictions on
disclosure and other methods. The Company has filed eight United States patent
applications and four international patent applications and is in the process of
preparing additional patent applications with respect to its technology. There
can be no assurance that any patent will issue from these applications or that,
if issued, any claims allowed will be sufficiently broad to protect the
Company's technology. In addition, there can be no assurance that any patents
that may be issued will not be challenged, invalidated or circumvented, or that
any rights granted thereunder would provide proprietary protection to the
Company. Failure of any patents to provide protection to the Company's
technology may
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make it easier for the Company's competitors to offer technology equivalent or
superior to the Company's technology. The Company also generally enters into
confidentiality and non-disclosure agreements with its employees and
consultants, and generally controls access to and distribution of its
documentation and other proprietary information. Despite these precautions, it
may be possible for a third party to copy or otherwise obtain and use the
Company's products, services or technology without authorization, or to develop
similar technology independently. There can be no assurance that the steps taken
by the Company will prevent misappropriation or infringement of its technology.
In addition, litigation may be necessary in the future to enforce the Company's
intellectual property rights, to protect the Company's intellectual property
rights or to determine the validity and scope of the proprietary rights of
others. Such litigation could result in substantial costs and diversion of
resources and could have a material adverse effect on the Company's business,
prospects, financial condition and results of operations. The Company believes
that, due to the rapid pace of technological innovation for Internet products
and services, the Company's ability to establish and maintain a position of
technology leadership in the industry depends more on the skills of its
development personnel than upon the legal protections afforded its existing
technology.
EMPLOYEES
As of April 29, 1998, the Company employed 54 full-time people, of whom 21
were employed in research and development, 10 were employed in operations, 15
were employed in sales and marketing and eight were employed in administration.
None of the Company's employees is represented by a labor union, and the Company
considers its relations with its employees to be good. The Company's ability to
achieve its financial and operational objectives depends in large part upon the
continued service of its senior management and key technical personnel and its
continuing ability to attract and retain highly qualified technical and
managerial personnel. Competition for such qualified personnel in the Company's
industry is intense, particularly for software development, network engineering
and product management personnel. See "Risk Factors -- Business Development and
Expansion Risks; Possible Inability to Manage Growth" and "-- Dependence on Key
Personnel."
FACILITIES
The Company is headquartered in facilities consisting of approximately
7,800 square feet in Solana Beach, California, which the Company occupies under
two leases and one sublease. Both leases expire in 1999 and the sublease is on a
month-to-month basis. The Company recently entered into a sublease for an
additional 23,575 square feet in San Diego, California, near its current
headquarters. This new sublease expires in 2003. The Company anticipates that it
will move its current headquarters to the San Diego, California location in June
1998. Additionally, the Company maintains a regional office in New York City
consisting of approximately 520 square feet under a sublease which expires in
1999. The Company anticipates opening a select number of regional sales offices
in the future to address the demand for its video delivery services.
LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings.
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MANAGEMENT
The following table sets forth certain information with respect to the
Company's executive officers, directors and key employees:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Harry E. Gruber....................... 46 Chairman and Chief Executive Officer
J. William Grimes..................... 57 Vice Chairman
Brian Kenner.......................... 39 Vice President and Chief Technology Officer
Kenneth L. Ruggiero................... 31 Vice President and Chief Financial Officer
Edward L. Huguez...................... 40 Vice President and Chief Operating Officer
Douglas A. Augustine.................. 39 Vice President, Marketing and Sales
Edward E. David, Jr. ................. 72 Director
Mark Dowley........................... 33 Director
Alan Z. Senter........................ 56 Director
Isaac Willis.......................... 57 Director
Michael Bernstein..................... 38 Vice President of Business Development, Media
Kenneth W. Colby...................... 49 Vice President, Engineering
Stephen H. Klein...................... 34 Vice President of Business Development, Networks
</TABLE>
EXECUTIVE OFFICERS AND DIRECTORS
HARRY E. GRUBER is a founder of InterVU and has served as Chairman and
Chief Executive Officer of the Company since July 1996. From July 1996 to July
1997, Dr. Gruber served as the Company's President, and from July 1997 to
February 1998, Dr. Gruber served as the Company's Chief Financial Officer. Prior
to founding the Company, Dr. Gruber founded two start-up biotech ventures,
Gensia Inc. and Viagene Inc., which completed initial public offerings in 1990
and 1993, respectively. From July 1995 to July 1996, Dr. Gruber served as Chief
Scientific Officer of Gensia, and from 1988 to July 1995, he served as Vice
President, Research of Gensia. Dr. Gruber serves as a director of Vascular
Genomics, Inc., a privately held company, and as a director of the UCSD
Foundation and a member of the Board of Overseers for the University of
Pennsylvania College of Arts and Sciences. Dr. Gruber obtained his M.D. and B.A.
degrees from the University of Pennsylvania.
J. WILLIAM GRIMES joined the Company as a director in September 1997 and
has served as Vice Chairman of the Board since October 1997. Since July 1995,
Mr. Grimes has worked as a consultant with JWG Communications, Inc., a
communications consulting company he founded in July 1995. He is also a partner
of BG Media Investors and serves as a faculty member in the Media Studies
Program at the New School for Social Research, a position he has held since
September 1996. From September 1994 to August 1996, Mr. Grimes held the position
of President and Chief Executive Officer with Zenith Media, a media buying
service company. From October 1991 to December 1993, Mr. Grimes served as
President and Chief Executive Officer of Multimedia, Inc. From November 1988 to
September 1991, Mr. Grimes served as President and Chief Executive Officer of
Univision Holdings, Inc. Mr. Grimes served as President and Chief Executive
Officer of ESPN, Inc. from June 1982 to October 1988. Prior to June 1982, Mr.
Grimes held various positions with CBS, Inc., including his final position as
Executive Vice President of the CBS Radio division. He obtained a B.A. in
English from West Virginia Wesleyan College.
BRIAN KENNER is a founder of InterVU and has served as Vice President and
Chief Technology Officer of the Company since February 1996. From 1989 to
January 1996, Mr. Kenner was a Project Engineer at Science Applications
International Corporation ("SAIC"), an advanced-technology development and
research organization. As Project Engineer, Mr. Kenner had responsibility for
products ranging from advanced hand-held instrumentation to devices which
digitize, compress, and transmit both moving and still images over public and
proprietary communications networks. Mr. Kenner obtained a B.S. in electrical
engineering from the University of California, San Diego.
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KENNETH L. RUGGIERO joined the Company in February 1998 and serves as Vice
President and Chief Financial Officer. From April 1996 to February 1998, Mr.
Ruggiero was employed by NBC. From December 1996 to February 1998, he was the
Chief Financial Officer of NBC Interactive Media, NBC's Internet division. In
this capacity he performed and managed financial reporting, implemented various
policies and procedures, and structured and negotiated business development
activities. From April 1996 to December 1996, Mr. Ruggiero was a Manager in
NBC's Business Development and International Finance division. From September
1989 to April 1996, he was employed by Arthur Andersen, an independent public
accounting firm, where he held a number of positions, including most recently
Manager of Corporate Consulting. Mr. Ruggiero is a Certified Public Accountant.
He received an M.B.A. from Columbia University Graduate School of Business and a
B.A. in accounting from the University of Massachusetts, Amherst.
EDWARD L. HUGUEZ joined the Company in May 1998 and serves as Vice
President and Chief Operating Officer. From October 1992 to May 1998, Mr. Huguez
was employed by DIRECTV, a direct broadcast satellite entertainment company. Mr.
Huguez held a number of different positions at DIRECTV, most recently Vice
President, New Media and Interactive Programming and Platforms. In this
capacity, Mr. Huguez was responsible for the business unit that managed
DIRECTV's new media and interactive business. From March 1987 to September 1992,
Mr. Huguez was employed by ESPN, Inc., most recently as Director, Affiliate
Sales and Marketing, Western Division. He received an M.B.A. from the John E.
Anderson Graduate School of Management at UCLA and a B.A. in political science
from Arizona State University.
DOUGLAS A. AUGUSTINE joined the Company in August 1996 as Director of
Corporate Development, and has served as Vice President, Marketing and Sales
since December 1996. Prior to joining the Company, Mr. Augustine was Chief
Operating Officer for Ad:vent Strategic Event Marketing, a division of N.W.
Ayert Partners, a national advertising firm, from February 1996 to August 1996.
From June 1989 to July 1993 and from September 1995 to January 1996, Mr.
Augustine served as President of Arlen Marketing, a company he founded in June
1989. Arlen Marketing served as marketing and licensing agent for the 1992
America's Cup and later provided services to Ad:vent Strategic Event Marketing
in connection with Ad:vent's Olympics projects. From July 1993 through August
1995, Mr. Augustine served as Director of Development and Fundraising for
America(3), an America's Cup syndicate. Mr. Augustine obtained a J.D. from the
University of San Diego School of Law and a B.A. from the University of
California, Berkeley.
EDWARD E. DAVID, JR. has served as a director of the Company since its
inception in August 1995, and has served as President of Edward E. David, Inc.,
a telecommunications consulting firm since 1992. In addition, since April 1996,
Dr. David has served as Vice President of Washington Advisory Group LLC. He has
been Science Advisor to the President of the United States, and Director of the
White House Office of Science and Technology. Dr. David was also President of
Exxon Research and Engineering Company and Executive Director of Bell Telephone
Laboratories. Mr. David serves as a director for Intermagnetics General
Corporation, Spacehab, Inc., California Microwave and Protein Polymar
Technologies, all of which are publicly traded companies. Until recently, he
served as the U.S. Representative to the NATO Science Committee.
MARK DOWLEY joined the Company as a director in January 1997 and is the
Chief Executive Officer of Momentum IMC, an advertising agency division of
McCann-Erickson, a national advertising firm. Mr. Dowley has over ten years
experience in major event management, promotion, and sponsorship. Mr. Dowley's
past and current clients include the NBA, the PGA Tour, NCAA, The Walt Disney
Company and Universal Studios. Mr. Dowley is also a member of McCann-Erickson's
board of directors. Mr. Dowley received a B.A. in economics from the College of
Wooster.
ALAN Z. SENTER joined the Company as a director in September 1997. From
September 1994 to May 1996, Mr. Senter served as Executive Vice President, Chief
Financial Officer and as a member of the Policy Council of Nynex Corporation.
From November 1993 to August 1994 and since June 1996, Mr. Senter has served as
Chairman of Senter Associates, a consulting firm founded by Mr. Senter in
November 1993. From August 1992 to November 1993, Mr. Senter served as Executive
Vice President, Chief Financial Officer and a director of GAF/ISP Corporation.
From January 1990 to July 1992, Mr. Senter served as Vice President of
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Finance for Xerox Corporation. Mr. Senter serves on the Boards of Directors of
Exel, Ltd. and Advanced Radio Telecom, both publicly traded companies. Mr.
Senter obtained a B.S. in economics and political science from the University of
Rhode Island and an M.B.A. from the University of Chicago.
ISAAC WILLIS has served as a director of the Company since November 1995.
Dr. Willis is a private investor with experience in venture financing and
banking, including the founding of Heritage Bank, Commercial Bank of Georgia and
Commercial Bank of Gwinnett. Dr. Willis has been a Professor and Director of
Dermatology Research at Morehouse School of Medicine since 1983 and was a Past
Commander of the 3297th U.S. Army Hospital. Dr. Willis obtained a M.D. from
Howard University and a B.S. in chemistry and mathematics from Morehouse
College.
KEY EMPLOYEES
MICHAEL BERNSTEIN joined the Company in October 1997 as Vice President of
Business Development and Media. From May 1991 to September 1997, Mr. Bernstein
held a number of positions with Major League Baseball Properties, including most
recently as Vice President, Business Development and New Ventures. Mr. Bernstein
obtained a B.S. in industrial and labor relations from Cornell University and an
M.B.A. from Columbia University Graduate School of Business.
KENNETH W. COLBY joined the Company in July 1996 as Director of Engineering
and has served as Vice President, Engineering since March 1997. Mr. Colby has
over 20 years experience in software development and programming and was a
former Director of Research and Development at Integrated Software, a mainframe
graphics company. Mr. Colby has received patents for a variety of computer
programs. He also founded Sedona Software, a research and development company.
Mr. Colby obtained a B.S. in electrical engineering from Purdue University.
STEPHEN H. KLEIN joined the Company in May 1996 as Director of Business
Development and Sales and has served as Vice President of Business Development,
Networks since March 1997. From 1994 to 1996, he served as New Business
Development Manager for General Instrument Corporation where he was one of the
originating founders of the SURFboard Program, General Instrument's Internet
cable modem technology and product line. From 1988 to 1992, Mr. Klein held
various product management and technical management positions at General
Instrument's VideoCipher Division. Mr. Klein obtained an M.B.A. from San Diego
State University and a B.S. in engineering from Ohio State University.
CLASSIFIED BOARD OF DIRECTORS
The Company's Amended and Restated Certificate of Incorporation (the
"Certificate") provides for the Board of Directors to be divided into three
classes of directors, with each class as nearly equal in number as possible,
serving staggered three-year terms. As a result, approximately one-third of the
Board of Directors will be elected each year. The directors in Class I are Mark
Dowley and Isaac Willis, whose terms will expire at the 1998 Annual Meeting of
Stockholders (although each has been nominated for election to an additional
term that will expire at the 2001 Annual Meeting of Stockholders). The directors
in Class II are Edward David and Alan Senter, whose terms will expire at the
1999 Annual Meeting of Stockholders. The directors in Class III are William
Grimes and Harry Gruber, whose terms will expire at the 2000 Annual Meeting of
Stockholders.
COMMITTEES OF THE BOARD OF DIRECTORS
Audit Committee. The Board of Directors has established an audit committee
(the "Audit Committee") consisting of Messrs. David, Senter and Willis. The
Audit Committee makes recommendations concerning the engagement of independent
public accountants, reviews with the independent public accountants the plans
and results of the audit engagement, approves professional services provided by
the independent public accountants, reviews the independence of the independent
public accountants, considers the range of audit and non-audit fees and reviews
the adequacy of the Company's internal accounting controls.
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<PAGE> 44
Compensation Committee. The Board of Directors has established a
compensation committee (the "Compensation Committee") consisting of Messrs.
Grimes, Senter and Willis. The Compensation Committee determines compensation
for the Company's senior executive officers and administers the 1996 Stock Plan
and the 1998 Stock Option Plan.
The Board of Directors does not have a nominating committee or any other
committee.
COMPENSATION OF DIRECTORS
The directors of the Company have never received any cash compensation from
the Company for services rendered as directors. Each of the non-management
directors has received compensation in the form of restricted stock awards or
non-statutory stock options to purchase up to 30,192 shares of Common Stock. In
addition, Mr. Grimes and Dr. Willis received options to purchase up to an
additional 25,192 shares of Common Stock and Messrs. David, Dowley and Senter
received options to purchase up to an additional 10,000 shares of Common Stock.
Such stock awards and options are subject to repurchase rights or vesting
schedules. Mr. Grimes also receives a consulting fee currently amounting to
$3,000 per month pursuant to a consulting agreement with the Company.
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation
for the years ended December 31, 1996 and 1997 received by the Chief Executive
Officer and the other executive officer of the Company whose compensation
exceeded $100,000 for either of those years (the "Named Executive Officers"). No
other executive officer of the Company meets the definition of "highly
compensated" within the meaning of the executive compensation disclosure rules
of the Securities and Exchange Commission (the "Commission").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
AWARDS
------------------------------
ANNUAL COMPENSATION NUMBER OF
---------------------------- SECURITIES
FISCAL RESTRICTED STOCK UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS AWARDS(1) OPTIONS
--------------------------- ------ -------- ------ ---------------- ----------
<S> <C> <C> <C> <C> <C>
Harry E. Gruber....................... 1997 $184,000 -- $ 6,800 --
Chairman and Chief Executive Officer 1996 91,950 -- -- --
Douglas A. Augustine.................. 1997 123,900 -- -- 31,490
Vice President, Marketing and Sales 1996 30,176 -- 117,143 --
</TABLE>
- ---------------
(1) Dollar values of restricted stock awards are based on the market price at
the time of grant. With respect to each Named Executive Officer's restricted
stock holdings, the number of shares of Common Stock and the dollar value
thereof at December 31, 1997 are as follows: 1,007,680 and $8,186,520 for
Dr. Gruber and 62,980 and $509,212 for Mr. Augustine. The value of
restricted stock holdings is based on the fair market value of the Common
Stock on December 31, 1997 ($8.125), less the purchase price paid by the
Named Executive Officer for such shares. Restricted stock awards vest daily
over a five-year period (with the first 20% of the award vesting on the
first anniversary of the date of grant).
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<PAGE> 45
STOCK OPTION GRANTS TABLE
The following table sets forth certain information with respect to options
to purchase Common Stock granted during the year ended December 31, 1997 to each
of the Named Executive Officers. The Company does not have any outstanding stock
appreciation rights.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED EXERCISE OR OPTION TERM(1)
OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION -----------------------
NAME GRANTED FISCAL YEAR PER SHARE DATE 5% 10%
---- ---------- --------------- ----------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Harry E. Gruber....... -- -- -- -- -- --
Douglas A. 31,490 3.50% $0.18 2/11/07 $88,704 $146,431
Augustine...........
</TABLE>
- ---------------
(1) The potential realizable values are based on an assumption that the stock
price of the Common Stock will appreciate at the annual rates shown
(compounded annually) from the date of grant until the end of the option
term. These values do not take into account amounts required to be paid as
income taxes under the Internal Revenue Code of 1986 (the "Code") and any
applicable state laws or option provisions providing for termination of an
option following termination of employment, non-transferability or vesting.
These amounts are calculated based on the requirements promulgated by the
Commission and do not reflect the Company's estimate of future stock price
growth of the shares of Common Stock.
OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE
The following table sets forth certain information with respect to the
exercise of options to purchase Common Stock during the year ended December 31,
1997, and the unexercised options held and the value thereof at that date, for
each of the Named Executive Officers.
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF SECURITIES UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FISCAL YEAR END FISCAL YEAR END(1)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
---- --------------- -------- ---------------------- ---------------------
<S> <C> <C> <C> <C>
Harry E. Gruber................... -- -- -/- -/-
Douglas A. Augustine.............. -- -- 5,259/26,231 $41,267/$205,835
</TABLE>
- ---------------
(1) Based on the closing sale price of the Common Stock on December 31, 1997
($8.125), as reported by the Nasdaq National Market, less the option
exercise price.
1996 STOCK PLAN
The Company adopted the 1996 Stock Plan in December 1996 to enable
directors, officers, key employees and consultants of the Company to acquire an
equity stake in the Company, and thus to create in such persons an increased
interest in and a greater concern for the welfare of the Company. The 1996 Stock
Plan provided for aggregate option grants of up to 1,889,400 shares. As of April
29, 1998, options to purchase an aggregate of 1,059,328 shares of Common Stock
at prices ranging from $.03 to $15.125 were outstanding under the 1996 Stock
Plan.
A total of 795,954 shares remain available for grant under the 1996 Stock
Plan. If the Company's stockholders approve the 1998 Stock Option Plan, the
Company will not issue additional options under the 1996 Stock Plan.
1998 STOCK OPTION PLAN
On February 25, 1998, the Board of Directors adopted the 1998 Stock Option
Plan, subject to stockholder approval at the 1998 Annual Meeting of Stockholders
to be held in June 1998. In general, the 1998 Stock
44
<PAGE> 46
Option Plan provides additional incentives to selected key employees,
independent directors and consultants of the Company. Approximately 50
directors, officers, key employees and consultants are currently eligible to
participate in the 1998 Stock Option Plan. The Board of Directors has reserved
2,000,000 shares of Common Stock for issuance upon exercise of options granted
under the 1998 Stock Option Plan. Nonqualified stock options and incentive stock
options may be granted under the 1998 Stock Option Plan.
The 1998 Stock Option Plan is administered by the Compensation Committee.
However, the Board of Directors will make most decisions regarding independent
directors under the 1998 Stock Option Plan. The Compensation Committee (or the
Board of Directors in the case of independent directors) is authorized to select
from among the eligible employees, directors and consultants the individuals to
whom options are to be granted and to determine the number of shares to be
subject thereto and the terms and conditions thereof, consistent with the 1998
Stock Option Plan. The Compensation Committee also is authorized to adopt, amend
and rescind rules relating to the administration of the 1998 Stock Option Plan.
The 1998 Stock Option Plan provides for formula grants of nonqualified stock
options to independent directors. Each independent director serving as a member
of the Board of Directors and who has been reelected to serve for an additional
term, if applicable, will be granted an option to purchase 5,000 shares of
Common Stock on the date of each annual meeting of stockholders (other than the
1998 Annual Meeting of Stockholders). In addition, each person initially elected
to the Board of Directors after the adoption of the 1998 Stock Option Plan will
be granted an option to purchase 20,000 shares of Common Stock on the date of
such election.
Nonqualified stock options granted under the 1998 Stock Option Plan will
provide for the right to purchase Common Stock at a specified price, which may
not be less than 85% of the fair market value of the Common Stock on the date of
grant and usually will become exercisable (in the discretion of the Compensation
Committee or the Board in the case of independent directors) in one or more
installments after the date of grant. Incentive stock options, if granted, will
be designed to comply with, and will be subject to restrictions contained in,
the Code, including exercise prices equal to at least 100% of fair market value
of Common Stock on the date of grant, but may be subsequently modified to
disqualify them from treatment as incentive stock options. Incentive stock
options may be granted only to employees. No option granted under the 1998 Stock
Option Plan may have a term of greater than ten years from the date of grant.
The period during which the right to exercise an option vests in the
optionee shall be set by the Compensation Committee. However, unless the
Compensation Committee states otherwise no option will be exercisable by an
optionee subject to Section 16 of the Securities Exchange Act of 1934, as
amended, within the period ending six months and one day after the date the
option is granted. In addition, options granted to independent directors will
become exercisable in annual installments of 25% on each of the first, second,
third, and fourth anniversaries of the date of grant.
QUALIFIED STOCK PURCHASE PLAN
On February 25, 1998, the Board of Directors adopted the Qualified Stock
Purchase Plan subject to stockholder approval at the 1998 Annual Meeting of
Stockholders. The Qualified Stock Purchase Plan, and the rights of participants
to make purchases thereunder, is intended to qualify under the provisions of
Sections 421 and 423 of the Code. The purpose of the Qualified Stock Purchase
Plan is to provide an incentive for employees of the Company to acquire an
interest in the Company through the purchase of Common Stock, thereby more
closely aligning the interests of the employees and the stockholders. The
Qualified Stock Purchase Plan provides that an aggregate of 500,000 shares of
the Common Stock may be issued thereunder. The Compensation Committee
administers the Qualified Stock Purchase Plan.
The Qualified Stock Purchase Plan is implemented through a series of
24-month offering periods, with a new offering period commencing on each
February 1 and August 1 during the term of the Qualified Stock Purchase Plan.
The first offering period (a 23-month period) commences on September 1, 1998.
The purchase price of the shares under the Qualified Stock Purchase Plan is
funded through payroll deductions during an offering period. Currently, the
payroll deductions may be any whole percentage amount between 1% and 15% of a
participant's base salary, wages and commissions, but excluding bonuses and
overtime pay, on each payroll date during the offering period. A participant may
discontinue his or her participation in the Qualified
45
<PAGE> 47
Stock Purchase Plan at any time during the offering period. In addition, a
participant may, no more than once during each offering period, reduce or
increase the rate of payroll deductions.
Subject to certain limitations contained in the Qualified Stock Purchase
Plan, on the first day of each offering period, each participant is granted an
option to purchase, on each exercise date during the offering period, a number
of shares of Common Stock determined by dividing the participant's contributions
to the Qualified Stock Purchase Plan by the applicable exercise price. Unless a
participant withdraws from the Qualified Stock Purchase Plan, such participant's
option to purchase shares will be exercised automatically on each exercise date
of the offering period to purchase the maximum number of full shares that may be
purchased at the exercise price with the accumulated payroll deductions in the
participant's account. The last day of each six-month period during each
offering period under the Qualified Stock Purchase Plan (i.e., each July 31 and
January 31) will be an exercise date under the Qualified Stock Purchase Plan.
Initially, the exercise price per share at which shares will be sold under
the Qualified Stock Purchase Plan will be equal to the lower of 85% of the fair
market value of the Common Stock on the date of commencement of an offering
period or 85% of the fair market value of the Common Stock on each exercise date
of the option. The Compensation Committee may change the percentage rate from
85%; however, it may never be less than 85%. The fair market value of a share of
Common Stock on a given date will be the closing price of the Common Stock on
the Nasdaq Stock Market on such date.
CERTAIN TRANSACTIONS
Upon incorporation of the Company in August 1995, the Company sold an
aggregate of 2,398,278 shares of Common Stock to various individuals for an
aggregate of $952, including 705,387 shares to Harry E. Gruber, 705,387 shares
to Brian Kenner, 599,555 shares to a predecessor of the Westchester Group LLC,
211,609 shares to Ruth Hargis and 176,340 shares to the A.B. Gruber Living Trust
(the "Initial Stockholders"). Allen B. Gruber, the settlor and trustee of the
A.B. Gruber Living Trust, is the brother of Harry E. Gruber.
In March 1996, the Company entered into vesting agreements with each of the
Initial Stockholders (the "Vesting Agreements"). Each Vesting Agreement
initially granted the Company the right to repurchase at the original issue
price all of an Initial Stockholder's unvested shares upon such person's death
or disability or his or her unwillingness to provide the services requested by
the Company in such Vesting Agreement. The Vesting Agreements provided for daily
vesting of restricted shares of Common Stock over a five-year period (with no
shares vesting until March 4, 1997). The Vesting Agreements also granted the
Company rights of first refusal to purchase vested shares before such shares may
be sold to third parties. In October 1997, the Company amended the Vesting
Agreements for the Initial Stockholders other than Dr. Gruber and Mr. Kenner to
provide for the termination of such Vesting Agreements (and the vesting of all
shares covered thereby) upon the completion of an initial public offering by the
Company resulting in gross proceeds of at least $7,500,000. The Vesting
Agreements for Dr. Gruber and Mr. Kenner survived completion of the IPO but were
amended and restated as of October 1997 to provide for the termination, upon
completion of the IPO, of the Company's rights of first refusal to purchase
vested shares and the Company's right to repurchase unvested shares upon the
death or disability of Dr. Gruber or Mr. Kenner, as applicable. The Company's
rights to repurchase unvested shares also would terminate upon a change of
control, with respect to Mr. Gruber, and upon a change of control followed by
termination without cause or reduction of annual cash compensation, with respect
to Mr. Kenner.
On August 30, 1995, the Company sold 172,500 shares of Series A Convertible
Preferred Stock at $1 per share to various accredited investors for total
consideration of $172,500. The Company sold 80,000 of such shares to the A.B.
Gruber Living Trust. Each share of Series A Convertible Preferred Stock was
converted into 2.5192 shares of Common Stock upon the closing of the IPO.
On February 4, 1996, the Company sold an aggregate of 339,562 shares of
Series B Convertible Preferred Stock at $1.27 per share to various accredited
investors for a total consideration of $431,244. The Company sold 50,000 of such
shares to the A.B. Gruber Living Trust, 25,000 of such shares to L. Burton
Gruber, the
46
<PAGE> 48
father of Harry Gruber, 3,000 of such shares to Hope Gruber, the sister of Harry
Gruber, and 200,000 of such shares to Isaac Willis, who has served as a director
of the Company from November 1995 to the present. Each share of Series B
Convertible Preferred Stock was converted into 2.5192 shares of Common Stock
upon the closing of the IPO.
On March 5, 1996, the Company issued 302,296 shares of Common Stock to each
of Harry Gruber and Mr. Kenner and 282,166 shares to a predecessor of
Westchester Group LLC for aggregate proceeds of $1,760.
On March 7, 1996, the Company sold 296,147 shares of Series C Convertible
Preferred Stock at $2.75 per share to various accredited investors for a total
consideration of $814,404. The Company sold 3,500 of such shares to the A.B.
Gruber Living Trust, 3,000 of such shares to L. Burton Gruber and 136,364 of
such shares to Dr. Willis. Each share of Series C Convertible Preferred Stock
was converted into 2.5192 shares of Common Stock upon the closing of the IPO.
On April 17, 1996, the Company sold 96,429 shares of Series D Convertible
Preferred Stock at $7 per share to various accredited investors for a total
consideration of $675,003. The Company sold 7,143 of such shares to Dr. Willis.
Each share of Series D Convertible Preferred Stock was converted into 2.5192
shares of Common Stock upon the closing of the IPO.
On August 9, 1996, the Company sold 154,500 shares of Series E Convertible
Preferred Stock at $10 per share to various accredited investors for a total
consideration of $1,545,000. The Company sold 10,000 of such shares to Dr.
Willis. From November 1996 through February 1997, the Company sold 245,500
additional shares of Series E Convertible Preferred Stock at $10 per share to
various accredited investors for a total consideration of $2,455,000. The
Company sold 54,550 of such shares to Dr. Willis. Each share of Series E
Convertible Preferred Stock was converted into 1.2596 shares of Common Stock
upon the closing of the IPO.
On July 16, 1997, the Company sold 677,498 shares of Series F Convertible
Preferred Stock at $6 per share to various accredited investors for a total
consideration of $4,064,988. The Company sold 290,000 of such shares to Dr.
Willis. The Company received payments for certain of the shares of Series F
Preferred Stock issued on July 16, 1997 prior to such date and accounted for
such payments as advances from stockholders. Each share of Series F Convertible
Preferred Stock was converted into .6316 of one share of Common Stock upon the
closing of the IPO.
As consideration for the establishment of a strategic alliance in October
1997 with NBC Multimedia, the Company issued 1,280,000 shares of Series G
Preferred to NBC, and NBC Multimedia granted the Company exclusive rights to
deliver most NBC audio/visual content by means of NBC Internet Sites. The
Company has granted NBC rights to include shares of Common Stock issuable upon
conversion of Series G Preferred in certain future registrations of Common
Stock, as well as the right to demand on one occasion only that the Company
register such shares of Common Stock after the Company becomes eligible to use
Form S-3 under the Securities Act. NBC has agreed that neither it, nor its
affiliates, will acquire or seek to acquire any of the Company's securities for
a period of one year from October 10, 1997, the date of the Purchase Agreement.
See "Business -- Strategic Alliances -- Strategic Alliance with NBC Multimedia."
NBC Multimedia purchased 210,526 shares of Common Stock in the Direct
Offering at $9.50 per share, the price per share to the public in the IPO, and
the Company became obligated to pay NBC Multimedia $2,000,000 in nonrefundable
payments. NBC Multimedia and NBC together currently own approximately 10% of the
outstanding shares of capital stock of the Company. See "Business -- Strategic
Alliances -- Strategic Alliance with NBC Multimedia."
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<PAGE> 49
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of April 29, 1998 and as adjusted for the
Offering by (i) each of the Company's directors, (ii) each of the Company's
Named Executive Officers, (iii) each person who is known by the Company to own
beneficially more than 5% of the Common Stock and (iv) all directors and
executive officers as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF
COMMON STOCK(3)
NUMBER OF SHARES ---------------------------
OF COMMON STOCK BEFORE AFTER
NAME AND ADDRESS(1) BENEFICIALLY OWNED(2) THE OFFERING THE OFFERING
------------------- --------------------- ------------ ------------
<S> <C> <C> <C>
Harry E. Gruber(4).................................... 1,007,680 10.7% 8.9%
Brian Kenner(5)....................................... 1,007,680 10.7 8.9
Allen B. Gruber(6).................................... 512,657 5.5 4.5
Isaac Willis(7)....................................... 1,162,336 12.4 10.2
Edward E. David, Jr.(8)............................... 25,940 * *
Mark Dowley(9)........................................ 7,356 * *
J. William Grimes..................................... -- -- --
Alan Z. Senter........................................ -- -- --
Douglas A. Augustine(10).............................. 71,327 * *
Kenneth L. Ruggiero................................... -- -- --
Edward L. Huguez...................................... -- -- --
Westchester Group LLC(11)............................. 881,720 9.4 7.8
National Broadcasting Company, Inc.(12)............... 1,016,670 10.0 8.3
All directors and executive officers as a group (10
persons)(13)........................................ 3,282,319 34.9 28.8
</TABLE>
- ---------------
* Less than 1%.
(1) Except as indicated, the address of each person named in the table is c/o
InterVU Inc., 201 Lomas Santa Fe Drive, Solana Beach, California 92075.
(2) Beneficial ownership of directors, officers and 5% or more stockholders
includes shares of outstanding Common Stock and shares issuable upon
exercise of options that are currently exercisable or will become
exercisable within 60 days after the date of this table, and shares of
Common Stock issuable upon conversion of 1,280,000 shares of Series G
Preferred held by NBC which become convertible on July 10, 1998. Except as
indicated in the footnotes to this table and pursuant to applicable
community property laws, the persons named in the table have sole voting
and investment power with respect to all shares of Common Stock
beneficially owned by them.
(3) Assumes no exercise of the Underwriters' over-allotment option.
(4) Includes 501,751 shares subject to the Company's repurchase right under an
Amended and Restated Vesting Agreement.
(5) Includes 501,751 shares subject to the Company's repurchase right under an
Amended and Restated Vesting Agreement.
(6) Includes 255,069 shares owned by the Gruber Family Limited Partnership, of
which Allen Gruber is a general partner, and 81,244 shares owned by the
Judith Gruber Living Trust, of which Judith Gruber, Allen Gruber's wife, is
settlor and trustee. The address for Mr. Gruber is 419 Happy Trail, San
Antonio, Texas 78231.
(7) Includes 953,867 shares owned by the Willis Family Trust, of which Dr.
Willis is settlor. Includes 11,878 shares subject to the Company's
repurchase right under a restricted stock agreement and 7,014 shares
issuable upon exercise of options that are currently exercisable or will
become exercisable within 60 days after the date of this table.
(8) Includes 11,878 shares subject to the Company's repurchase right under a
restricted stock agreement and 748 shares issuable upon exercise of options
that are currently exercisable or will become exercisable within 60 days
after the date of this table.
48
<PAGE> 50
(9) Includes 7,356 shares issuable upon exercise of options that are currently
exercisable or will become exercisable within 60 days after the date of
this table.
(10) Includes 41,429 shares subject to the Company's repurchase right under a
restricted stock agreement and 8,347 shares issuable upon exercise of
options that are currently exercisable or will become exercisable within 60
days after the date of this table.
(11) The membership interests of Westchester Group LLC are owned by Marcia
Berman individually, with respect to 99.5% of the interests, and as
custodian for her minor children under the New York Uniform Gifts to Minors
Act, with respect to .5% of the interests. The address for Westchester
Group LLC is c/o Kevin M. Bagley, Esq., Dysart Dubick & Bagley, LLP, 701 B
St., Ste. 1525, San Diego, CA 92101.
(12) The shares of Series G Preferred owned by NBC become convertible into
Common Stock at the option of the holder on July 10, 1998. The holder of
each share of Series G Preferred has the right to vote on an as-converted
basis. With respect to such vote, each holder of Series G Preferred will
have full voting rights and powers of the holders of Common Stock. As of
the date of this table, NBC owned 100% of the outstanding Series G
Preferred and NBC Multimedia owned 210,526 shares of Common Stock. As the
ultimate parent of NBC, General Electric Company ("General Electric") may
be deemed to be the beneficial owner of all these shares. The address for
NBC is 30 Rockefeller Plaza, New York, New York 10112.
(13) See Notes (4), (5), (7), (8), (9) and (10).
DESCRIPTION OF CAPITAL STOCK
The following summary description of the capital stock of the Company does
not purport to be complete and is subject to the provisions of the Certificate
and Amended and Restated Bylaws (the "Bylaws"), which are included as exhibits
to the Registration Statement of which this Prospectus forms a part, and by the
provisions of applicable law.
The authorized capital stock of the Company consists of 20,000,000 shares
of Common Stock, par value $.001 per share, and 5,000,000 shares of preferred
stock, par value $.001 per share.
COMMON STOCK
As of April 29, 1998, there were 9,380,032 shares of Common Stock
outstanding, held of record by 149 stockholders.
Holders of Common Stock are entitled to one vote per share on all matters
to be voted upon by the stockholders of the Company. Subject to the preferences
that may be applicable to any outstanding preferred stock, the holders of Common
Stock are entitled to a ratable distribution of any dividends that may be
declared by the Board of Directors out of funds legally available therefor. In
the event of a liquidation, dissolution or winding up of the Company, the
holders of Common Stock are entitled to share ratably in all assets remaining
after payment of liabilities, subject to the prior liquidation rights of any
outstanding preferred stock. The Common Stock has no preemptive, redemption or
conversion rights. The outstanding shares of Common Stock are, and the shares
offered by the Company in the Offering, when issued and paid for, will be, fully
paid and nonassessable. The rights, preferences and privileges of holders of
Common Stock are subject to, and may be adversely affected by, the rights of the
holders of shares of Series G Preferred or any other preferred stock which the
Company may designate and issue in the future.
PREFERRED STOCK
The Certificate authorizes the Board of Directors, without further
stockholder approval, to issue up to 3,720,000 shares of preferred stock in one
or more series and to fix the rights, preferences, privileges and restrictions
granted or imposed upon any unissued shares of preferred stock and to fix the
number of shares constituting any series and the designations of such series.
49
<PAGE> 51
The Board of Directors has designated 1,280,000 shares of preferred stock
as Series G Preferred. The holders of Series G Preferred are entitled to receive
non-cumulative dividends, prior and in preference to any declaration or payment
of any dividend (payable other than in Common Stock) on the Common Stock, at the
rate of $0.64 per share per annum, payable quarterly, when, as and if declared
by the Board of Directors. In the event of any liquidation, dissolution or
winding up of the Company, the holders of Series G Preferred will be entitled to
receive, prior and in preference to any distribution of any of the assets of the
Company to the holders of Common Stock, an amount equal to $8.00 per share (plus
all declared but unpaid dividends, if any). Each share of Series G Preferred
will be convertible, at the option of the holder thereof, at any time after July
10, 1998, into .6298 shares of Common Stock, subject to adjustments for stock
splits, stock dividends or combinations of outstanding shares of Common Stock.
The holder of each share of Series G Preferred has the right to one vote for
each share of Common Stock into which such Series G Preferred is then
convertible or into which it would be convertible but for the restriction on
conversion prior to July 10, 1998. With respect to such vote, each holder of
Series G Preferred will have full voting rights and powers equal to the voting
rights and powers of the holders of Common Stock. The Company has granted NBC
rights to include shares of Common Stock issuable upon conversion of the Series
G Preferred in certain future registrations of the Common Stock, as well as the
right to demand on one occasion only that the Company register such shares of
Common Stock after the Company becomes eligible to use Form S-3 under the
Securities Act.
Future issuances of preferred stock may have the effect of delaying or
preventing a change in control of the Company. The issuance of preferred stock
could decrease the amount of earnings and assets available for distribution to
the holders of Common Stock or could adversely affect the rights and powers,
including voting rights, of the holders of the Common Stock. In certain
circumstances, such issuance could have the effect of decreasing the market
price of the Common Stock. The Company currently has no plans to issue any
additional shares of preferred stock.
ADVISORS' WARRANTS
In connection with the IPO, the Company sold to Josephthal and Cruttenden
Roth Incorporated the Advisors' Warrants to purchase from the Company 200,000
shares of Common Stock. The Advisors' Warrants are exercisable at a price per
share of $11.40 for a period of four years commencing in November 1998 and are
restricted from sale, transfer, assignment or hypothecation until November 1998,
except to officers of Josephthal or Cruttenden Roth Incorporated. The 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 under the Securities Act for the
securities issuable upon exercise of the Advisors' Warrants.
DELAWARE LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
The following is a description of certain provisions of the Delaware
General Corporation Law (the "DGCL") and the Certificate and Bylaws. This
summary does not purport to be complete and is qualified in its entirety by
reference to the DGCL, the Certificate and the Bylaws.
InterVU is subject to the provisions of Section 203 of the DGCL. Section
203 prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
A "business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the interested stockholder. Subject to
certain exceptions, an "interested stockholder" is a person who, together with
affiliates and associates, owns, or within the past three years did own, 15% of
the corporation's voting stock.
Certain provisions of the Certificate and the Bylaws could have
anti-takeover effects. These provisions are intended to enhance the likelihood
of continuity and stability in the composition of the policies formulated by the
Board of Directors. In addition, these provisions are intended to ensure that
the Board of Directors will have sufficient time to act in what the Board of
Directors believes to be in the best interests of the Company and its
stockholders. These provisions also are designed to reduce the vulnerability of
the Company to an
50
<PAGE> 52
unsolicited proposal for a takeover of the Company that does not contemplate the
acquisition of all of its outstanding shares or an unsolicited proposal for the
restructuring or sale of all or part of the Company. The provisions are also
intended to discourage certain tactics that may be used in proxy fights.
Classified Board of Directors. The Certificate provides for the Board of
Directors to be divided into three classes of directors, with each class as
nearly equal in number as possible, serving staggered three-year terms. As a
result, approximately one-third of the Board of Directors will be elected each
year. The directors in Class I are Mark Dowley and Isaac Willis, whose terms
will expire at the 1998 Annual Meeting of Stockholders (although each has been
nominated to an additional term that will expire at the 2001 Annual Meeting of
Stockholders). The directors in Class II are Edward David and Alan Senter, whose
terms will expire at the 1999 Annual Meeting of Stockholders. The directors in
Class III are William Grimes and Harry Gruber, whose terms will expire at the
2000 Annual Meeting of Stockholders. The classified board provision will help to
assure the continuity and stability of the Board of Directors and the business
strategies and policies of the Company as determined by the Board of Directors.
The classified board provision could have the effect of discouraging a third
party from making a tender offer or otherwise attempting to obtain control of
the Company. In addition, the classified board provision could delay
stockholders who do not like the policies of the Board of Directors from
removing a majority of the Board of Directors for two years.
No Stockholder Action by Written Consent; Special Meetings. The Certificate
provides that stockholder action can only be taken at an annual or special
meeting of stockholders and prohibits stockholder action by written consent in
lieu of a meeting. The Certificate also provides that special meetings of
stockholders may be called only by the Board of Directors, its Chairman, the
President or the Secretary of the Company. Stockholders are not permitted to
call a special meeting of stockholders or to require that the Board of Directors
call a special meeting.
Advance Notice Requirements for Stockholder Proposals and Director
Nominees. The Bylaws establish an advance notice procedure for stockholders to
make nominations of candidates for election as directors or to bring other
business before an annual meeting of stockholders of the Company (the
"Stockholder Notice Procedure"). The Stockholder Notice Procedure provides that
only persons who are nominated by, or at the direction of, the Board of
Directors, or by a stockholder who has given timely written notice to the
Secretary of the Company prior to the meeting at which directors are to be
elected, will be eligible for election as directors of the Company. The
Stockholder Notice Procedure also provides that at an annual meeting only such
business may be conducted as has been brought before the meeting by, or at the
direction of, the Board of Directors or by a stockholder who has given timely
written notice to the Secretary of the Company of such stockholder's intention
to bring such business before such meeting. Under the Stockholder Notice
Procedure, if a stockholder desires to submit a proposal or nominate persons for
election as directors at an annual meeting, the stockholder must submit written
notice to the Secretary not less than 60 days nor more than 90 days prior to the
first anniversary of the previous year's annual meeting (or if the date of the
annual meeting is not within 30 days before or after such anniversary date,
then, to be timely, notice must be submitted not more than 90 days prior to the
annual meeting and not less than the later of (i) 60 days prior to the annual
meeting and (ii) the 10th day after notice of the meeting was mailed or after
public announcement of the date of such meeting is first made). In addition,
under the Stockholder Notice Procedure, a stockholder's notice to the Company
proposing to nominate a person for election as a director or relating to the
conduct of business other than the nomination of directors must contain certain
specified information. If the chairman of a meeting determines that business was
not properly brought before the meeting, in accordance with the Stockholder
Notice Procedure, such business shall not be discussed or transacted.
Number of Directors; Removal; Filling Vacancies. The Certificate provides
that the Board of Directors will consist of between three and eleven members,
the exact number to be fixed from time to time by resolution adopted by
affirmative vote of a majority of the Board of Directors. The Board of Directors
currently consists of six directors. Further, the Certificate authorizes the
Board of Directors to fill newly created directorships (other than directorships
that are to be filled by holders of preferred stock). Accordingly, this
provision could prevent a stockholder from obtaining majority representation on
the Board of Directors by permitting the Board of Directors to enlarge the size
of the Board of Directors and fill the new directorships with its own nominees.
A director so elected by the Board of Directors holds office until the next
election of
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<PAGE> 53
the class for which such director has been chosen and until his or her successor
is elected and qualified. The Certificate also provides that directors (other
than directors that are elected by holders of preferred stock) may be removed
only for cause and only by the affirmative vote of holders of 66 2/3% of the
outstanding voting securities. The effect of these provisions is to preclude a
stockholder from removing incumbent directors without cause and simultaneously
gaining control of the Board of Directors by filling the vacancies created by
such removal with its own nominees.
Indemnification. The Company has included in its Certificate and Bylaws
provisions to (i) eliminate the personal liability of its directors for monetary
damages resulting from breaches of their fiduciary duty to the extent permitted
by the DGCL and (ii) indemnify its directors and officers to the fullest extent
permitted by the DGCL, including circumstances in which indemnification is
otherwise discretionary. The Company believes that these provisions are
necessary to attract and retain qualified persons as directors and officers.
Bylaws. The Certificate provides that the Bylaws are subject to adoption,
amendment, alteration, repeal or rescission either by (a) the Board of Directors
or (b) the affirmative vote of the holders of not less than 66 2/3% of the total
voting power of all outstanding securities (voting as a single class). This
provision will make it more difficult for stockholders to make changes in the
Bylaws by allowing the holders of a minority of the voting securities to prevent
the holders of a majority of voting securities from amending the Bylaws.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Norwest Shareowner
Services, Norwest Bank Minnesota N.A.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding
11,380,032 shares of Common Stock. Of these shares, the 2,000,000 shares sold in
the Offering (plus any shares issued upon exercise of the Underwriters'
over-allotment option) and the 2,000,000 shares sold in the IPO will be freely
tradable without restriction under the Securities Act, unless held by
"affiliates" of the Company as that term is defined in Rule 144 under the
Securities Act (an "Affiliate"). Of the remaining 7,380,032 shares of Common
Stock, all will be eligible for sale under Rule 144 under the Securities Act,
subject to certain volume and other limitations, upon the expiration of certain
lock-up agreements. All of such shares, other than 210,526 shares of Common
Stock issued to NBC Multimedia in the Direct Offering, are subject to lock-up
agreements expiring August 19, 1998 with Josephthal, the managing underwriter of
the IPO. In addition, 4,964,525 of such shares (including the 210,526 shares
issued in the Direct Offering) are subject to lock-up agreements between
PaineWebber Incorporated and the directors, officers and five percent
stockholders of the Company covering the 120-day period commencing on the date
of this Prospectus. Moreover, 806,144 shares of Common Stock issuable upon
conversion of the Series G Preferred will be eligible for sale under Rule 144
under the Securities Act as of October 10, 1998. Such shares are subject to
lock-up agreements with both Josephthal and PaineWebber Incorporated.
PaineWebber Incorporated or Josephthal may at any time without notice release
all or any portion of the shares subject to the lock-up agreements to which it
is a party; provided that Josephthal may not release any such shares, or
otherwise modify the terms of its lock-up agreements, without the prior written
consent of PaineWebber Incorporated.
In general, under Rule 144 as currently in effect, if a period of at least
one year has elapsed since the later of the date the "restricted shares" (as
that phrase is defined in Rule 144) were acquired from the Company and the date
they were acquired from an Affiliate, then the holder of such restricted shares
(including an Affiliate) is entitled to sell a number of shares within any
three-month period that does not exceed the greater of 1% of the then
outstanding shares of the Common Stock or the average weekly reported volume of
trading of the Common Stock on the Nasdaq National Market during the four
calendar weeks preceding such sale. The holder may only sell such shares through
unsolicited brokers' transactions or directly to market makers. Sales under Rule
144 are also subject to certain requirements pertaining to the manner of such
sales, notices of such sales and the availability of current public information
concerning the Company. Affiliates may sell
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<PAGE> 54
shares not constituting restricted shares in accordance with the foregoing
volume limitations and other requirements but without regard to the one-year
holding period.
Under Rule 144(k), if a period of at least two years has elapsed between
the later of the date restricted shares were acquired from the Company and the
date they were acquired from an Affiliate, as applicable, a holder of such
restricted shares who is not an Affiliate at the time of the sale and has not
been an Affiliate for at least three months prior to the sale would be entitled
to sell the shares immediately without regard to the volume limitations and
other conditions described above.
The Company and its directors, executive officers, holders of five percent
or more of the Common Stock and certain other stockholders holding in the
aggregate approximately 5,770,669 shares of Common Stock (including the 806,144
shares of Common Stock issuable upon conversion of the Series G Preferred) have
agreed not to offer, sell, contract to sell or grant any option to purchase or
otherwise dispose of any shares of Common Stock owned by them prior to the
expiration of 120 days from the date of this Prospectus, except (i) for shares
of Common Stock offered hereby; (ii) with the prior written consent of
PaineWebber Incorporated; and (iii) in the case of the Company, for the issuance
of shares of Common Stock upon the exercise of options or the grant of options
to purchase shares of Common Stock. PaineWebber Incorporated may, in its sole
discretion, and at any time without notice, release all or any portion of the
shares subject to such lock-up agreements. After the 120-day period, all of the
shares of Common Stock subject to the sale restriction will be eligible for sale
in the public market pursuant to Rule 144 under the Securities Act, subject to
the volume limitations and other restrictions contained in Rule 144. In
addition, the shares of Common Stock issuable upon conversion of the Series G
Preferred will become eligible for public sale under Rule 144 in October 1998.
The Company also intends to register on Form S-8 following the effective
date of the Offering a total of 1,093,446 shares of Common Stock subject to
outstanding options or issued upon exercise of options granted under the 1996
Stock Plan. In addition, the Company intends to register on Form S-8 2,000,000
shares reserved for issuance under the 1998 Stock Option Plan and 500,000 shares
reserved for issuance under the Qualified Stock Purchase Plan. The 1998 Stock
Option Plan and the Qualified Stock Purchase Plan have been adopted by the Board
of Directors, subject to stockholder approval at the 1998 Annual Meeting of
Stockholders to be held in June 1998. For more information regarding the 1998
Stock Option Plan and the Qualified Stock Purchase Plan, see "Management -- 1998
Stock Option Plan" and "-- Qualified Stock Purchase Plan." If the 1998 Stock
Option Plan is approved by stockholders at the 1998 Annual Meeting of
Stockholders, the Company will no longer issue options under the 1996 Stock Plan
and will cease to reserve the 795,954 shares of Common Stock currently reserved
for issuance thereunder.
In connection with the IPO, the Company sold to Josephthal and Cruttenden
Roth Incorporated the Advisors' Warrants to purchase from the Company 200,000
shares of Common Stock. The Advisors' Warrants are exercisable at a price per
share of $11.40 for a period of four years commencing in November 1998 and are
restricted as to sale, transfer, assignment or hypothecation until November
1998, except to officers of Josephthal and Cruttenden Roth Incorporated. The
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 under the Securities Act for the
securities issuable upon exercise of the Advisors' Warrants.
No predictions can be made as to the effect, if any, that sales of shares
of Common Stock will have on the market price of the Common Stock prevailing
from time to time. Nevertheless, sales of significant numbers of shares of the
Common Stock in the public market, or the perception that such sales may occur,
could adversely affect the market price of the Common Stock and could impair the
Company's future ability to raise capital. See "Risk Factors -- Volatility of
Stock Price" and "-- Shares Eligible for Future Sale."
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<PAGE> 55
UNDERWRITING
The Underwriters named below, acting through PaineWebber Incorporated,
Josephthal & Co. Inc. and Cruttenden Roth Incorporated (the "Representatives"),
have severally agreed, subject to the terms and conditions set forth in the
Underwriting Agreement by and among the Company and the Representatives (the
"Underwriting Agreement"), to purchase from the Company, and the Company has
agreed to sell to the Underwriters, the number of shares of Common Stock set
forth opposite the names of such Underwriters below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ----------------
<S> <C>
PaineWebber Incorporated....................................
Josephthal & Co. Inc........................................
Cruttenden Roth Incorporated................................
---------
Total............................................. 2,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters to purchase the shares of Common Stock are subject to certain
conditions. The Underwriters are committed to purchase, and the Company is
obligated to sell, all of the shares of Common Stock offered by this Prospectus,
if any of the shares of Common Stock being sold pursuant to the Underwriting
Agreement are purchased.
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public at the public offering
price set forth on the cover page of this Prospectus, and to certain securities
dealers at such price less a concession not in excess of $ per share. The
Underwriters may allow, and such dealers may reallow, a discount not in excess
of $ per share. After the public offering, the public offering price and the
concessions and discounts may be changed by the Representatives.
The Company has granted an option to the Underwriters, exercisable during
the 45-day period after the date of this Prospectus, to purchase up to 300,000
additional shares of Common Stock at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. The Underwriters may exercise such option only to cover
over-allotments in the sale of the shares that the Underwriters have agreed to
purchase. To the extent that the Underwriters exercise such option, each of the
Underwriters will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares as is approximately
the percentage of shares of Common Stock that it is obligated to purchase of the
total number of the shares under the Underwriting Agreement as shown in the
table set forth above.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act or to contribute
payments that the Underwriters may be required to make in respect thereof.
The Company, its directors, executive officers, holders of five percent or
more of the Common Stock and certain other stockholders holding in the aggregate
approximately 5,770,669 shares of Common Stock (including the 806,144 shares of
Common Stock issuable upon conversion of the Series G Preferred) have agreed not
to offer, sell, contract to sell or grant any option to purchase or otherwise
dispose of any shares of Common Stock owned by them prior to the expiration of
120 days from the date of this Prospectus, except (i) for shares of Common Stock
offered hereby; (ii) with the prior written consent of PaineWebber Incorporated;
and (iii) in the case of the Company, (A) for the issuance of shares of Common
Stock upon the
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<PAGE> 56
exercise of options or the grant of options to purchase shares of Common Stock
or in connection with other employee incentive compensation arrangements and (B)
for the issuance of up to 500,000 shares of Common Stock as consideration for
acquisitions or strategic alliances (provided the recipients agree not to sell
or contract to sell the shares for the same 120-day period).
In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may overallot in
connection with this offering, creating a short position in the Common Stock for
their own account. In addition, to cover over-allotments or to stabilize the
price of the Common Stock, the Underwriters may bid for, and purchase, shares of
the Common Stock in the open market. The Underwriters may also reclaim selling
concessions allowed to an underwriter or a dealer for distributing the Common
Stock in transactions to cover their short positions, in stabilization
transactions or otherwise. Finally, the Underwriters may bid for, and purchase,
shares of the Common Stock in market making transactions and impose penalty
bids. These activities may stabilize or maintain the market price of the Common
Stock above market levels that may otherwise prevail. The Underwriters are not
required to engage in these activities, and may end any of these activities at
any time.
The Underwriters and dealers may engage in passive market making
transactions in the Common Stock in accordance with Rule 103 of Regulation M
promulgated by the Commission. In general, a passive market maker may not bid
for, or purchase, the Common Stock at a price that exceeds the highest
independent bid. In addition, the net daily purchases made by any passive market
maker generally may not exceed 30% of its average daily trading volume in the
Common Stock during a specified two-month prior period or 200 shares, whichever
is greater. A passive market maker must identify passive market making bids as
such on the Nasdaq electronic inter-dealer reporting system. Passive market
making may stabilize or maintain the market price of the Common Stock above
independent market levels. Underwriters and dealers are not required to engage
in passive market making and may end passive market making activities at any
time.
General Electric, which beneficially owns 10% of the Common Stock of the
Company, also beneficially owns more than 10% of the common stock of PaineWebber
Incorporated. Consequently, the Offering will be conducted in accordance with
the applicable provisions of Rule 2720 of the Rules of the National Association
of Securities Dealers, Inc. In accordance with those provisions, Josephthal has
served (for no additional compensation) as a "qualified independent
underwriter." Josephthal has performed due diligence with respect to the
information contained herein and has participated in the preparation of the
Registration Statement of which this Prospectus is a part. The price of the
shares of Common Stock to be offered hereby will not be higher than the maximum
public offering price recommended by Josephthal.
LEGAL MATTERS
The legality of the Common Stock offered hereby will be passed upon for the
Company by Latham & Watkins, San Diego, California. Certain legal matters in
connection with the Offering will be passed upon for the Underwriters by Orrick,
Herrington & Sutcliffe LLP, San Francisco, California.
EXPERTS
The financial statements of the Company as of December 31, 1996 and 1997
and for the period from August 2, 1995 (Inception) to December 31, 1995 and the
years ended December 31, 1996 and 1997 appearing in this Prospectus and the
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement (of
which this Prospectus is a part and which term shall encompass any amendments
thereto) on Form S-1 pursuant to the Securities Act with
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<PAGE> 57
respect to the Common Stock being offered in the Offering. This Prospectus does
not contain all of the information set forth in the Registration Statement and
the exhibits thereto, certain portions of which are omitted as permitted by the
rules and regulations of the Commission. Statements made in this Prospectus as
to the contents of any contract, agreement or other document referred to are not
necessarily complete; with respect to any such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made to
the exhibit for a more complete description of the matter involved, and each
such statement shall be deemed qualified in its entirety by reference to the
Registration Statement exhibits filed as a part thereof.
This Registration Statement and all other information filed by the Company
with the Commission may be inspected without charge at the principal reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's regional offices at Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661, and at 7 World Trade
Center, 13th Floor, New York, New York 10048. Copies of all or any part thereof
may be obtained upon payment of fees prescribed by the Commission from the
Public Reference Section of the Commission at its principal office in
Washington, D.C. set forth above. Such material may also be accessed
electronically by means of the Commission's home page on the Internet at
http://www.sec.gov.
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<PAGE> 58
INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Balance Sheets as of December 31, 1996 and 1997 and March
31, 1998 (unaudited)...................................... F-3
Statements of Operations for the Period from August 2, 1995
(Inception) to December 31, 1995, the Years Ended December
31, 1996 and 1997, the Three Months Ended March 31, 1997
and 1998 (unaudited) and the Period from August 2, 1995
(Inception) to March 31, 1998 (unaudited)................. F-4
Statement of Stockholders' Equity for the Period from August
2, 1995 (Inception) to December 31, 1995, the Years Ended
December 31, 1996 and 1997, and the Three Months Ended
March 31, 1998 (unaudited)................................ F-5
Statements of Cash Flows for the Period from August 2, 1995
(Inception) to December 31, 1995, the Years Ended December
31, 1996 and 1997, the Three Months Ended March 31, 1997
and 1998 (unaudited) and the Period from August 2, 1995
(Inception) to March 31, 1998 (unaudited)................. F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 59
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
InterVU Inc.
We have audited the accompanying balance sheets of InterVU Inc. (a
development stage company) as of December 31, 1996 and 1997, and the related
statements of operations, stockholders' equity and cash flows for the period
from August 2, 1995 (Inception) to December 31, 1995, and for the years ended
December 31, 1996 and 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of InterVU Inc. (a development
stage company) at December 31, 1996 and 1997, and the results of its operations
and its cash flows for the period from August 2, 1995 (Inception) to December
31, 1995, and for the years ended December 31, 1996 and 1997, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
San Diego, California
February 19, 1998
F-2
<PAGE> 60
INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- MARCH 31,
1996 1997 1998
----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 2,507,822 $21,379,845 $ 12,060,083
Short-term investments.................................... -- -- 7,026,065
Accounts receivable....................................... -- 88,685 156,420
Prepaid and other current assets.......................... 10,095 69,608 69,765
----------- ----------- ------------
Total current assets.................................... 2,517,917 21,538,138 19,312,333
Property and equipment, net................................. 252,286 584,601 722,190
Other assets................................................ 6,274 7,269 46,738
----------- ----------- ------------
Total assets....................................... $ 2,776,477 $22,130,008 $ 20,081,261
=========== =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 87,084 $ 437,064 $ 672,775
Accrued liabilities....................................... 65,970 142,018 172,614
Current portion, lease commitments........................ -- 11,814 12,248
----------- ----------- ------------
Total current liabilities............................... 153,054 590,896 857,637
Lease commitments........................................... -- 7,608 4,378
Advances from stockholders.................................. 26,500 -- --
Stockholders' equity:
Preferred stock, $.001 par value: 5,000,000 shares
authorized
Series A convertible preferred stock,
Designated -- 250,000 shares;
Issued and outstanding -- 172,500 shares at December
31, 1996,
Liquidation preference -- $172,500 at December 31,
1996.................................................. 173 -- --
Series B convertible preferred stock,
Designated -- 400,000 shares;
Issued and outstanding -- 339,562 shares at December
31, 1996,
Liquidation preference -- $431,243 at December 31,
1996.................................................. 340 -- --
Series C convertible preferred stock,
Designated -- 400,000 shares;
Issued and outstanding -- 296,147 shares at December
31, 1996,
Liquidation preference -- $814,404 at December 31,
1996.................................................. 296 -- --
Series D convertible preferred stock,
Designated -- 200,000 shares;
Issued and outstanding -- 96,429 shares at December
31, 1996,
Liquidation preference -- $675,003 at December 31,
1996.................................................. 96 -- --
Series E convertible preferred stock,
Designated -- 400,000 shares;
Issued and outstanding -- 289,500 shares at December
31, 1996,
Liquidation preference -- $4,000,000 at December 31,
1996.................................................. 290 -- --
Series F convertible preferred stock,
Designated -- 1,200,000 shares........................ -- -- --
Series G convertible preferred stock,
Designated -- 1,280,000 shares; Issued and
outstanding -- 1,280,000 at December 31, 1997 and
March 31, 1998, Liquidation preference -- $10,240,000
at December 31, 1997.................................. -- 1,280 1,280
Common stock, $0.001 par value; Authorized -- 20,000,000
shares; Issued and outstanding -- 4,006,787 shares at
December 31, 1996, 9,377,404 shares at December 31, 1997
and 9,380,032 at March 31, 1998......................... 4,007 9,377 9,380
Additional paid-in capital................................ 5,324,591 29,821,121 33,215,708
Notes receivable from common stockholders................. (5,570) (500) --
Deferred compensation..................................... (403,202) (710,493) (665,704)
Deficit accumulated during the development stage.......... (2,324,098) (7,589,281) (13,341,418)
----------- ----------- ------------
Total stockholders' equity.............................. 2,596,923 21,531,504 19,219,246
----------- ----------- ------------
Total liabilities and stockholders' equity......... $ 2,776,477 $22,130,008 $ 20,081,261
=========== =========== ============
</TABLE>
See accompanying notes.
F-3
<PAGE> 61
INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
AUGUST 2, 1995 THREE MONTHS AUGUST 2, 1995
(INCEPTION) TO YEAR ENDED YEAR ENDED ENDED MARCH 31, (INCEPTION) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, ----------------------- MARCH 31,
1995 1996 1997 1997 1998 1998
-------------- ------------ ------------ --------- ----------- --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues................................ $ -- $ -- $ 143,541 $ 9,907 $ 113,153 $ 256,694
Operating expenses:
Research and development.............. 32,632 1,420,483 1,703,111 448,252 599,170 3,755,396
Selling, general and administrative... 16,542 910,040 3,148,014 560,958 1,589,258 5,663,854
Charges associated with the NBC
Strategic Alliance Agreement........ -- -- 750,000 -- 3,872,580 4,622,580
-------- ----------- ----------- --------- ----------- ------------
Total operating expenses........ 49,174 2,330,523 5,601,125 1,009,210 6,061,008 14,041,830
-------- ----------- ----------- --------- ----------- ------------
Loss from operations.................... (49,174) (2,330,523) (5,457,584) (999,303) (5,947,855) (13,785,136)
Interest income......................... 3,154 52,445 192,401 21,427 195,718 443,718
-------- ----------- ----------- --------- ----------- ------------
Net loss................................ $(46,020) $(2,278,078) $(5,265,183) $(977,876) $(5,752,137) $(13,341,418)
======== =========== =========== ========= =========== ============
Basic and diluted net loss per share.... $ (.66) $ (.90) $ (.21) $ (.66)
=========== =========== ========= ===========
Shares used in computing basic and
diluted net loss per share............ 3,440,931 5,822,594 4,657,815 8,694,332
=========== =========== ========= ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 62
INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NOTES
RECEIVABLE
PREFERRED STOCK COMMON STOCK ADDITIONAL FROM
-------------------- ------------------ PAID-IN COMMON DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCKHOLDERS COMPENSATION
---------- ------- --------- ------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock at $.0004
per share to founders for cash
in August 1995.................. -- $ -- 2,398,278 $2,398 $ (1,446) $ -- $ --
Issuance of Series A convertible
preferred stock at $1.00 per
share for cash in August 1995,
net of issuance costs of
$17,253......................... 172,500 173 -- -- 155,074 -- --
Net loss.......................... -- -- -- -- -- -- --
---------- ------- --------- ------ ----------- ------- ---------
Balance at December 31, 1995....... 172,500 173 2,398,278 2,398 153,628 -- --
Issuance of common stock at $.004
per share for cash and notes
receivable in January 1996...... -- -- 147,373 147 438 (70) --
Issuance of Series B convertible
preferred stock at $1.27 per
share for cash in February 1996,
net of issuance costs of
$12,758......................... 339,562 340 -- -- 418,146 -- --
Issuance of Series C convertible
preferred stock at $2.75 per
share for cash in March 1996,
net of issuance costs of
$21,067......................... 296,147 296 -- -- 793,041 -- --
Issuance of common stock at $.002
per share to founders for cash
in March 1996................... -- -- 886,758 887 873 -- --
Issuance of Series D convertible
preferred stock at $7.00 per
share for cash in April 1996,
net of issuance costs of
$18,931......................... 96,429 96 -- -- 655,976 -- --
Issuance of common stock at $.024
per share for cash and notes
receivable in April 1996........ -- -- 444,639 445 10,145 (1,500) --
Issuance of Series E convertible
preferred stock at $10.00 per
share for cash from August
through December 1996, net of
issuance costs of $28,659....... 289,500 290 -- -- 2,866,051 -- --
Issuance of common stock at $.04
per share for cash and notes
receivable in December 1996..... -- -- 129,739 130 5,020 (4,000) --
Deferred compensation............. -- -- -- -- 421,273 -- (421,273)
Amortization of deferred
compensation.................... -- -- -- -- -- -- 18,071
Net loss........................... -- -- -- -- -- -- --
---------- ------- --------- ------ ----------- ------- ---------
Balance at December 31, 1996....... 1,194,138 1,195 4,006,787 4,007 5,324,591 (5,570) (403,202)
Issuance of Series E convertible
preferred stock at $10.00 per
share for cash in January and
February 1997, net of issuance
cost of $27,816................. 110,500 110 -- -- 1,077,074 -- --
Issuance of Series F convertible
preferred stock at $6.00 per
share for cash and conversion of
advances from stockholders in
July and August 1997, net of
issuance costs of $11,105....... 721,664 721 -- -- 4,318,158 -- --
Exercise of stock options at $0.04
per share for cash in July
1997............................ -- -- 31,490 31 1,219 -- --
Repurchase of restricted stock at
$0.024 per share for cash and
cancellation of note receivable
in September 1997............... -- -- (108,685) (109) (2,479) 1,388 --
Repayments of notes receivable
from common stockholders........ -- -- -- -- -- 3,682 --
Conversion of preferred stock..... (2,026,302) (2,026) 3,237,286 3,238 (1,212) -- --
Issuance of common stock in
initial public offering at $9.50
per share, net of issuance cost
of $2,431,977................... -- -- 2,210,526 2,210 18,565,813 -- --
Issuance of Series G convertible
preferred stock net of issuance
costs of $23,582................ 1,280,000 1,280 -- -- (24,862) -- --
Deferred compensation............. -- -- -- -- 562,819 -- (562,819)
Amortization of deferred
compensation.................... -- -- -- -- -- -- 255,528
Net loss.......................... -- -- -- -- -- -- --
---------- ------- --------- ------ ----------- ------- ---------
Balance at December 31, 1997....... 1,280,000 1,280 9,377,404 9,377 29,821,121 (500) (710,493)
Compensation related to stock
options (unaudited)............. -- -- 2,628 3 22,007 -- --
Recognition of lapse of NBC's
obligation to return 680,000
shares of Series G convertible
preferred stock issued under the
Strategic Alliance Agreement
(unaudited)..................... -- -- -- -- 3,372,580 -- --
Repayments of notes receivable
from common stockholders
(unaudited)..................... -- -- -- -- -- 500 --
Amortization of deferred
compensation (unaudited)........ -- -- -- -- -- -- 44,789
Net loss (unaudited).............. -- -- -- -- -- -- --
---------- ------- --------- ------ ----------- ------- ---------
Balance at March 31,1998
(unaudited)....................... 1,280,000 $1,280 9,380,032 $9,380 $33,215,708 $ -- $(665,704)
========== ======= ========= ====== =========== ======= =========
<CAPTION>
DEFICIT
ACCUMULATED
DURING THE TOTAL
DEVELOPMENT STOCKHOLDERS'
STAGE EQUITY
------------ -------------
<S> <C> <C>
Issuance of common stock at $.0004
per share to founders for cash
in August 1995.................. $ -- $ 952
Issuance of Series A convertible
preferred stock at $1.00 per
share for cash in August 1995,
net of issuance costs of
$17,253......................... -- 155,247
Net loss.......................... (46,020) (46,020)
------------ -----------
Balance at December 31, 1995....... (46,020) 110,179
Issuance of common stock at $.004
per share for cash and notes
receivable in January 1996...... -- 515
Issuance of Series B convertible
preferred stock at $1.27 per
share for cash in February 1996,
net of issuance costs of
$12,758......................... -- 418,486
Issuance of Series C convertible
preferred stock at $2.75 per
share for cash in March 1996,
net of issuance costs of
$21,067......................... -- 793,337
Issuance of common stock at $.002
per share to founders for cash
in March 1996................... -- 1,760
Issuance of Series D convertible
preferred stock at $7.00 per
share for cash in April 1996,
net of issuance costs of
$18,931......................... -- 656,072
Issuance of common stock at $.024
per share for cash and notes
receivable in April 1996........ -- 9,090
Issuance of Series E convertible
preferred stock at $10.00 per
share for cash from August
through December 1996, net of
issuance costs of $28,659....... -- 2,866,341
Issuance of common stock at $.04
per share for cash and notes
receivable in December 1996..... -- 1,150
Deferred compensation............. -- --
Amortization of deferred
compensation.................... -- 18,071
Net loss........................... (2,278,078) (2,278,078)
------------ -----------
Balance at December 31, 1996....... (2,324,098) 2,596,923
Issuance of Series E convertible
preferred stock at $10.00 per
share for cash in January and
February 1997, net of issuance
cost of $27,816................. -- 1,077,184
Issuance of Series F convertible
preferred stock at $6.00 per
share for cash and conversion of
advances from stockholders in
July and August 1997, net of
issuance costs of $11,105....... -- 4,318,879
Exercise of stock options at $0.04
per share for cash in July
1997............................ -- 1,250
Repurchase of restricted stock at
$0.024 per share for cash and
cancellation of note receivable
in September 1997............... -- (1,200)
Repayments of notes receivable
from common stockholders........ -- 3,682
Conversion of preferred stock..... -- --
Issuance of common stock in
initial public offering at $9.50
per share, net of issuance cost
of $2,431,977................... -- 18,568,023
Issuance of Series G convertible
preferred stock net of issuance
costs of $23,582................ -- (23,582)
Deferred compensation............. -- --
Amortization of deferred
compensation.................... -- 255,528
Net loss.......................... (5,265,183) (5,265,183)
------------ -----------
Balance at December 31, 1997....... (7,589,281) 21,531,504
Compensation related to stock
options (unaudited)............. -- 22,010
Recognition of lapse of NBC's
obligation to return 680,000
shares of Series G convertible
preferred stock issued under the
Strategic Alliance Agreement
(unaudited)..................... -- 3,372,580
Repayments of notes receivable
from common stockholders
(unaudited)..................... -- 500
Amortization of deferred
compensation (unaudited)........ -- 44,789
Net loss (unaudited).............. (5,752,137) (5,752,137)
------------ -----------
Balance at March 31,1998
(unaudited)....................... $(13,341,418) $19,219,246
============ ===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 63
INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
AUGUST 2, AUGUST 2,
1995 THREE MONTHS ENDED 1995
(INCEPTION) TO YEAR ENDED YEAR ENDED MARCH 31, (INCEPTION) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, ------------------------- MARCH 31,
1995 1996 1997 1997 1998 1998
-------------- ------------ ------------ ----------- ----------- --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss.............................. $(46,020) $(2,278,078) $(5,265,183) $ (977,876) $(5,752,137) $(13,341,418)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Recognition of lapse of NBC's
obligation to return 680,000
shares of Series G convertible
preferred stock issued under the
NBC Strategic Alliance
Agreement......................... -- -- -- -- 3,372,580 3,372,580
Compensation related to stock
options........................... -- -- -- -- 22,010 22,010
Amortization of deferred
compensation...................... -- 18,071 255,528 -- 44,789 318,388
Depreciation and amortization....... 678 59,305 178,544 41,123 70,373 308,900
Changes in operating assets and
liabilities:
Accounts receivable............... -- -- (88,685) (9,966) (67,735) (156,420)
Prepaid and other current
assets.......................... -- (10,095) (59,513) 1,983 (157) (69,765)
Accounts payable.................. -- 87,084 349,980 18,614 235,711 672,775
Accrued liabilities............... -- 65,970 76,048 22,571 30,596 172,614
-------- ----------- ----------- ---------- ----------- ------------
Net cash used in operating
activities.......................... (45,342) (2,057,743) (4,553,281) (903,551) (2,043,970) (8,700,336)
INVESTING ACTIVITIES:
Purchases of short term investments... -- -- -- -- (7,026,065) (7,026,065)
Purchases of property and equipment... (13,344) (298,925) (483,373) (101,431) (207,962) (1,003,604)
Other assets.......................... -- (6,274) (995) -- (39,469) (46,738)
-------- ----------- ----------- ---------- ----------- ------------
Net cash used in investing
activities.......................... (13,344) (305,199) (484,368) (101,431) (7,273,496) (8,076,407)
FINANCING ACTIVITIES:
Payments on capital leases............ -- -- (8,064) -- (2,796) (10,860)
Issuance of common stock.............. 952 12,515 18,569,273 -- 18,582,740
Issuance of preferred stock........... 155,247 2,429,124 3,335,981 1,050,684 -- 5,920,352
Advances from stockholders............ 411,241 1,920,371 2,010,000 -- -- 4,341,612
Repurchase of common stock............ -- -- (1,200) -- -- (1,200)
Repayment of stockholder notes
receivable.......................... -- -- 3,682 -- 500 4,182
-------- ----------- ----------- ---------- ----------- ------------
Net cash provided by (used in)
financing activities................ 567,440 4,362,010 23,909,672 1,050,684 (2,296) 28,836,826
Net increase in cash and cash
equivalents......................... 508,754 1,999,068 18,872,023 45,702 (9,319,762) 12,060,083
Cash and cash equivalents at beginning
of period........................... -- 508,754 2,507,822 2,507,822 21,379,845 --
-------- ----------- ----------- ---------- ----------- ------------
Cash and cash equivalents at end of
period.............................. $508,754 $ 2,507,822 $21,379,845 $2,553,524 $12,060,083 $ 12,060,083
======== =========== =========== ========== =========== ============
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Capital lease obligations entered
into for equipment................ $ -- $ -- $ 27,486 $ -- $ -- $ 27,486
======== =========== =========== ========== =========== ============
Conversion of advances from
stockholders to convertible
preferred stock................... $ -- $ 2,305,112 $ 2,036,500 $ 26,500 $ -- $ 4,341,612
======== =========== =========== ========== =========== ============
Issuance of common stock in exchange
for notes receivable.............. $ -- $ 5,570 $ -- $ -- $ -- $ 5,570
======== =========== =========== ========== =========== ============
Cancellation of stockholder notes
receivable........................ $ -- $ -- $ 1,388 $ -- $ -- $ 1,388
======== =========== =========== ========== =========== ============
Issuance of Series G convertible
preferred stock as consideration
for the formation of NBC Strategic
Alliance Agreement................ $ -- $ -- $ 1,280 $ -- $ -- $ 1,280
======== =========== =========== ========== =========== ============
Recognition of lapse of NBC's
obligation to return 680,000
shares of Series G convertible
preferred stock issued under the
NBC Strategic Alliance
Agreement......................... $ -- $ -- $ -- $ -- $ 3,372,580 $ 3,372,580
======== =========== =========== ========== =========== ============
Compensation related to stock
options........................... $ -- $ -- $ -- $ -- $ 22,010 $ 22,010
======== =========== =========== ========== =========== ============
</TABLE>
See accompanying notes.
F-6
<PAGE> 64
INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 AND PERTAINING TO MARCH 31, 1998
AND THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
InterVU Inc. (the "Company") was incorporated in Delaware on August 2, 1995
to develop and market proprietary technologies and systems for delivering video
on the internet. The Company utilizes a proprietary operating system for routing
and distributing high quality video over the Internet at high speeds. The
Company has commenced planned principal operations, however, as there has been
no significant revenue therefrom, the Company is considered to be in the
development stage.
Basis of Presentation
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. This basis of accounting contemplates
the recovery of the Company's assets and the satisfaction of its liabilities in
the normal course of business. Since inception, the Company has been engaged in
organizational activities, including recruiting personnel, establishing office
facilities, research and development and obtaining financing. Through March
31,1998, the Company had incurred accumulated losses of $13,341,418. Successful
completion of the Company's development program and its transition to attaining
profitable operations is dependent upon obtaining financing adequate to fulfill
its research, development and market introduction activities, and achieving a
level of revenues adequate to support the Company's cost structure. Management
believes that the funds necessary to meets its capital requirements for the next
twelve months will be raised from a combination of equity, debt or lease
financing. Without additional financing, the Company will be required to delay,
reduce the scope of or eliminate one or more of its research and development
projects or market introduction activities and significantly reduce its
expenditures on infrastructure and product upgrade programs that enhance the
InterVU network architecture.
Interim Financial Data
The financial statements for the three months ended March 31, 1997 and 1998
and for the period from August 2, 1995 (Inception) to March 31, 1998 are
unaudited. The unaudited financial statements have been prepared on the same
basis as the audited financial statements and, in the opinion of management,
include all adjustments, consisting only of normal recurring adjustments,
necessary to state fairly the financial information set forth therein, in
accordance with generally accepted accounting principles.
The results of operations for the interim period ended March 31, 1998 are
not necessarily indicative of the results which may be reported for any other
interim period or for the year ending December 31, 1998.
Cash, Cash Equivalents and Short-Term Investments
Cash and cash equivalents consist of cash, money market funds, and other
highly liquid investments with maturities of three months or less when
purchased. Such investments are made in accordance with the Company's investment
policy, which establishes guidelines relative to diversification, maturities and
credit quality designed to maintain safety and liquidity. The Company applies
Statement of Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities, to its short-term investments. Under
SFAS No. 115, the Company classifies its short-term investments as
"Available-for-Sale" and records such assets at estimated fair value in the
balance sheets with unrealized gains and losses, if any, reported in
stockholders' equity. As of March 31, 1998, the cost of short-term investments
approximated fair value. The Company has not experienced any losses on its cash,
cash equivalents, or short-term investments.
F-7
<PAGE> 65
INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation
and depreciated over the estimated useful lives of the assets, ranging from
three to five years, using the straight-line method. Leasehold improvements are
stated at cost and amortized using the straight-line method over the shorter of
the estimated useful lives of the assets or the lease term. Amortization of
equipment under capital leases is reported with depreciation of property and
equipment.
Software Development Costs
Financial accounting standards provide for the capitalization of certain
software development costs after technological feasibility of the software is
attained. No such costs have been capitalized to date because costs incurred
subsequent to reaching technological feasibility have not been material.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
disclosures made in the accompanying notes to the financial statements. Actual
results could differ from those estimates.
Revenue Recognition
Revenue is generated primarily from video encoding and distribution
services. Revenue from video encoding services is recognized as the service is
provided and revenue from video distribution services is recognized at the time
of delivery.
Concentration of Credit Risk
Credit is extended based on an evaluation of the customer's financial
condition and collateral is generally not required. Credit losses have been
minimal and such losses have been within management's expectations.
Research and Development Costs
Costs incurred in connection with research and development are charged to
operations as incurred.
Impairment of Long-Lived Assets
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of, requires impairment losses to be recorded
on long-lived assets used in operations when indicators of impairment are
present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. SFAS No. 121 also addresses
the accounting for long-lived assets that are expected to be disposed of. To
date, the Company has not identified any indicators of impairment nor recorded
any impairment losses.
Advertising Costs
Advertising costs are expensed as incurred. The Company incurred $382,152
in advertising costs for the three months ended March 31, 1998. Advertising
costs prior to December 31, 1997 were not significant.
F-8
<PAGE> 66
INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Stock Options
SFAS No. 123, Accounting for Stock-Based Compensation, establishes the use
of the fair value based method of accounting for stock-based compensation
arrangements, under which compensation cost is determined using the fair value
of stock-based compensation determined as of the grant date, and is recognized
over the periods in which the related services are rendered. SFAS No. 123 also
permits companies to elect to continue using the current intrinsic value
accounting method specified in Accounting Principles Board (APB) Opinion No. 25
to account for stock-based compensation. The Company has decided to retain the
current intrinsic value based method, and has disclosed the pro forma effect of
using the fair value based method to account for its stock-based compensation
(Note 5).
Loss Per Share
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, Earnings per Share, which supercedes APB opinion No. 15. SFAS No. 128
replaces the presentation of primary earnings per share (EPS) with "Basic EPS,"
which includes no dilution and is based on weighted average common shares
outstanding for the period. Companies with complex capital structures, including
InterVU, will also be required to present "Diluted EPS" that reflects the
potential dilution of securities such as employee stock options and warrants to
purchase common stock. SFAS No. 128 is effective for financial statements issued
for periods ending after December 15, 1997. On February 2, 1998, the Securities
and Exchange Commission ("SEC") issued Staff Accounting Bulletin (SAB) No. 98
which revised the previous instructions for determining the dilutive effects of
earnings per share computations of common stock and common stock equivalents at
prices below the IPO price prior to the effectiveness of the IPO.
Included in the shares used in calculating basic and diluted net loss per
share for the twelve months ended December 31, 1996 and 1997 are the weighted
average effect of actual and assumed conversion of preferred stock totaling
2,052,983 and 3,199,777, respectively, and weighted average common shares
totaling 1,387,948 and 2,622,817, respectively. Included in the shares used in
calculating basic and diluted net loss per share for the three months ended
March 31, 1997 and 1998 are the weighted average effect of actual and assumed
conversion of preferred stock totaling 2,717,500 and 4,043,452, respectively,
and weighted average common shares totaling 1,940,315 and 4,650,880,
respectively. Common equivalent shares result from stock options, warrants and
unvested restricted stock of which 2,775,659 and 2,442,540 shares were excluded
from the computation of diluted earnings per share for the twelve months ended
December 31, 1996 and 1997, respectively, and 2,532,584 and 2,605,678 shares
were excluded from the computation of diluted earnings per share for the three
months ended March 31, 1997 and 1998, respectively, as their effect would be
anti-dilutive.
New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
Reporting Comprehensive Income, and SFAS No. 131, Segment Information. Both of
these standards are effective for fiscal years beginning after December 15,
1997. SFAS No. 130 requires that all components of comprehensive income,
including net income, be reported in the financial statements in the period in
which they are recognized. Comprehensive income is defined as the change in
equity during the period from transactions and other events and circumstances
from non-owner sources. Net income and other comprehensive income, including
foreign currency translation adjustments, and unrealized gains and losses on
investment shall be reported, net of their related tax effect, to arrive at
comprehensive income. The Company does not believe that comprehensive income or
loss will be materially different than net income or loss. SFAS No. 131 amends
the requirements for public enterprises to report financial and descriptive
information about their reportable operating segments. Operating segments, as
defined in SFAS No. 131, are components of an enterprise for which separate
financial information is available and is evaluated regularly by a company in
deciding how to allocate resources and in
F-9
<PAGE> 67
INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
assessing performance. The financial information is required to be reported on
the basis that is used internally for evaluating the segment performance. The
Company believes it operates in one business and operating segment and does not
believe adoption of this standard will have a material impact on the Company's
financial statements.
2. SHORT-TERM INVESTMENTS
As of March 31, 1998, all of the Company's short-term investments were in
government backed debt securities. The following is a summary of the contractual
maturities of short-term investments as of March 31, 1998:
<TABLE>
<CAPTION>
FAIR VALUE
----------
<S> <C>
Maturities:
1998................................... $ 726,065
1999................................... --
Thereafter............................. 6,300,000
----------
$7,026,065
==========
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- MARCH 31,
1996 1997 1998
-------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Equipment................................ $ -- $ 18,259 $ 18,259
Computers................................ 228,729 606,619 751,017
Furniture and fixtures................... 61,676 104,531 116,442
Equipment under capital lease............ -- 27,486 27,486
Leasehold improvements................... 11,936 24,172 24,172
Purchased software....................... 9,928 42,061 93,714
-------- --------- ----------
312,269 823,128 1,031,090
Less accumulated depreciation............ (59,983) (238,527) (308,900)
-------- --------- ----------
$252,286 $ 584,601 $ 722,190
======== ========= ==========
</TABLE>
4. STOCKHOLDER ADVANCES
At December 31, 1995, the Company received $411,241 in cash advances from
certain stockholders that was subsequently converted to Series B convertible
preferred stock in February 1996 at a per share price of $1.27. At December 31,
1996, the Company received $26,500 in cash advances from certain stockholders
that was subsequently converted into Series E convertible preferred stock in
January 1997 at a per share price of $10.00.
5. STOCKHOLDERS' EQUITY
Convertible Preferred Stock
Upon completion of the Company's initial public offering, the Company had
authorized 5,000,000 shares of preferred stock, of which 1,280,000 shares were
designated as Series G convertible preferred stock. The Board of Directors is
authorized, without further stockholder approval, to issue the remaining
3,720,000 shares of preferred stock in one or more series and to fix the rights,
preferences, privileges, and restrictions granted or
F-10
<PAGE> 68
INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
imposed upon any unissued shares of preferred stock and to fix the number of
shares constituting any series and the designation of such series.
In connection with the formation of a strategic alliance in October 1997,
the Company issued 1,280,000 shares of Series G convertible preferred stock. The
Series G convertible preferred stock ($.001 par value) has an aggregate
liquidation preference of $10,240,000, a dividend rate of $.64 per share and a
conversion rate of .6298 common shares to one preferred share, subject to
adjustment for dilution. Noncumulative dividends are payable quarterly, when, as
and if declared by the Board of Directors. The shares of Series G convertible
preferred stock are convertible into common stock at the option of the holder
commencing July 10, 1998. The holder of each share of Series G convertible
preferred stock has the right to one vote for each share of common stock into
which it would convert.
Common Stock
In August 1995, 2,398,278 shares of common stock were issued to the
founders of the Company at a price of $.0004 per share under founder stock
purchase agreements. In March 1996, an additional 886,758 shares of common stock
were issued to three of the founders at a price of $.002 per share under the
founder stock purchase agreements. In January 1996, the Company issued 147,373
shares of common stock to employees at $.004 per share under restricted stock
agreements. Also, in April and December 1996, the Company issued 444,639 and
129,739 shares of common stock, respectively, to employees at $.024 and $.04 per
share, respectively, under restricted stock agreements. In connection with the
founder stock purchase agreements and the restricted stock agreements, the
Company has the option to repurchase, at the original issue price, unvested
common shares in the event of termination of employment. Shares issued under the
agreements generally vest 20% on the first anniversary of the employee's hire
date and daily thereafter for four years. Shares subject to repurchase by the
Company totaled 1,521,293 at December 31, 1997, and 2,065,154 and 1,488,850 at
March 31, 1997 and 1998, respectively.
In April 1996, the Board of Directors declared a two-for-one stock dividend
of the Company's common stock, effectuated as a stock split. In July 1997, the
Company declared a two-for-one stock split of the Company's common stock. All
applicable share and stock option information have been restated to reflect the
split.
In August 1997, the Board of Directors authorized management of the Company
to file a registration statement with the SEC permitting the Company to sell
shares of its common stock to the public. Concurrent with the closing of the
offering, all of the preferred stock outstanding, excluding 1,280,000 shares of
Series G convertible preferred stock, automatically converted into 3,328,717
shares of common stock.
In November 1997, the Company effected a reverse stock split in which .6298
shares of common stock were exchanged for one share of common stock. All
applicable share and stock option information have been restated to reflect the
reverse stock split. Upon completion of the public offering, the Company had
authorized 20,000,000 shares of common stock.
Stock Options
The Company has established a stock option plan to grant options to
purchase common stock to consultants, employees, officers and directors of the
Company. The Company has authorized for grant under the plan stock options to
purchase up to 1,889,400 shares of its common stock.
Under the terms of the plan, non-qualified and incentive options may be
granted to consultants, employees, officers and directors at prices not less
than 100% of the fair value on the date of grant. Options generally vest 20%
after the first year of employment and daily thereafter for four years. The
options expire ten years from the date of grant.
F-11
<PAGE> 69
INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes the stock option activity for the period
from August 2, 1995 (Inception) to March 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
Granted........................................... 156,820 $0.04
------- -----
Balance at December 31, 1996........................ 156,820 0.04
Granted........................................... 710,798 3.15
Exercised......................................... (31,490) 0.03
Canceled.......................................... (91,950) 0.03
------- -----
Balance at December 31, 1997........................ 744,177 3.00
Granted (unaudited)............................... 202,189 8.76
Exercised (unaudited)............................. (2,628) .28
Canceled (unaudited).............................. (26,910) 5.41
------- -----
Balance at March 31, 1998 (unaudited)............... 916,828 $4.21
======= =====
</TABLE>
As of March 31, 1998, options for 122,716 common shares were exercisable.
Options outstanding at March 31, 1998 had exercise prices ranging from $.03 to
$13.63 and had a weighted average remaining contractual life of approximately
9.25 years. The weighted average fair value of options granted in 1996, 1997 and
the three months ended March 31, 1998 was $1.08, $1.11 and $6.47, respectively.
Pro forma information regarding net income or loss is required to be
disclosed in accordance with SFAS No. 123, and has been determined as if the
Company has accounted for its employee stock options under the fair value method
prescribed in that Statement. For options granted in the year ended December 31,
1996 and through November 18, 1997, the fair value for the options was estimated
at the date of grant using the "minimum value" method for option pricing with
the following weighted average assumptions: risk-free interest rate of 6%,
dividend yield of 0%, and weighted average expected life of the option of seven
years. For options granted from November 18, 1997 to December 31, 1997, the fair
value of the options was estimated at the date of grant using the
"Black-Scholes" method for option pricing with the following weighted average
assumptions: risk free interest rate of 6%, dividend yield of 0%, expected
volatility of 75% and weighted average expected life of the option of seven
years.
The minimum value pricing model is similar to the Black-Scholes option
valuation model which was developed for use in estimating the fair value of
traded options which have no vesting restrictions and are fully transferable,
except that it excludes the factor for volatility. In addition, option valuation
models require the input of highly speculative assumptions.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting period of the related options.
The Company's pro forma net loss was $46,020 for the period from August 2, 1995
(Inception) to December 31, 1995, and $2,278,002 and $5,099,562 for the years
ended December 31, 1996 and 1997, respectively. The Company's pro forma basic
and diluted net loss per share was $(.66) and $(.88) for the years ended
December 31, 1996 and 1997, respectively.
F-12
<PAGE> 70
INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Deferred Compensation
Through December 31, 1997, the Company recorded deferred compensation for
the difference between the price per share of restricted stock issued or the
exercise price of stock options granted and the deemed fair value for financial
statement presentation purposes of the Company's common stock at the date of
issuance or grant. The deferred compensation will be amortized over the vesting
period of the related restricted stock or options, which is generally five
years. Gross deferred compensation at December 31, 1996 and 1997 totaled
$421,273 and $984,092, respectively, and related amortization expense totaled
$18,071 and $255,528 for the years ended December 31, 1996 and 1997,
respectively, $44,789 for the three months ended March 31, 1998, and $318,388
for the period from August 2, 1995 (Inception) to March 31, 1998.
Warrants
In connection with the Company's initial public offering, the Company
issued 200,000 warrants to purchase common stock to its underwriters. Such
warrants are exercisable at $11.40 per share of common stock for a period of
four years commencing in November 1998.
Shares Reserved for Future Issuance
At March 31, 1998, the Company had reserved approximately 2,900,000 common
shares for the conversion of preferred stock, the exercise of stock options, the
exercise of warrants and for stock options available for future grant.
6. COMMITMENTS
The Company leases its principal facilities under two noncancelable
operating leases which expire in 1999 with options to renew the leases for up to
two years. Total rent expense was $47,648 and $128,795 for the year ended
December 31, 1996 and 1997, respectively, $28,990 and $39,058 for the three
months ended March 31, 1997 and 1998, respectively, and $215,501 for the period
from August 2, 1995 (inception) to March 31, 1998.
Future annual minimum payments under noncancelable capital and operating
leases (with initial lease terms in excess of one year) consisted of the
following at December 31, 1997:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- --------
<S> <C> <C>
1998................................................... $121,541 $ 13,790
1999................................................... 37,058 8,353
-------- --------
Total minimum lease payments........................... $158,599 22,143
========
Less amounts representing interest..................... (2,721)
--------
Present value of future minimum lease payments......... 19,422
Less current portion................................... (11,814)
--------
Capital lease obligation, net of current portion....... $ 7,608
========
</TABLE>
In April 1998, the Company signed a sublease agreement for 23,575 square
feet of office space in San Diego. The sublease commences May 1, 1998 and the
Company expects to relocate its principal office to the facility in June 1998.
The sublease expires in June 2003. Over the term of the sublease the Company
expects to incur approximately $1.9 million in rent expense.
The Company is currently in negotiations with the owner of its current
facility to be released from the remaining obligation under the two
noncancelable operating leases which expire in 1999.
F-13
<PAGE> 71
INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES
Significant components of the Company's deferred tax assets as of December
31, 1996 and 1997 are shown below. A valuation allowance of $3,210,000 has been
recorded at December 31, 1997 to offset the net deferred tax assets as
realization is uncertain.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................ $ 920,000 $ 2,883,000
Research tax credit carryforwards............... 71,000 233,000
Other........................................... 17,000 94,000
----------- -----------
Total deferred tax assets......................... 1,008,000 3,210,000
Valuation allowance............................... (1,008,000) (3,210,000)
----------- -----------
Net deferred tax assets........................... $ -- $ --
=========== ===========
</TABLE>
The Company had federal and California tax net operating loss carryforwards
at December 31, 1997 of approximately $7.1 million. The federal and California
tax loss carryforwards will begin to expire in 2010 and 2003, respectively,
unless previously utilized. The Company also has federal and California research
tax credit carryforwards of approximately $171,000 and $96,000, respectively,
which will begin to expire in 2011 and 2010, respectively, unless previously
utilized.
Pursuant to Internal Revenue Service Code Sections 382 and 383, use of the
Company's net operating loss and credit carryforwards may be limited because of
a cumulative change in ownership of more than 50% which occurred during 1996.
However, the Company does not believe such limitation will have a material
impact on the Company's ability to use these carryforwards.
8. EMPLOYEE BENEFITS
In 1996, the Company established a cafeteria benefits plan whereby it
contributes for each employee an amount equal to $3,000 plus a percentage of
each employee's base salary, as approved by the Board of Directors, up to a
maximum contribution of $9,000. The employer contribution goes towards the
purchase of various benefit packages selected by the employee. The employee may
contribute additional amounts as desired. Benefit packages include health care
reimbursement, dependent care assistance, various insurance premium payments and
a 401(k) plan. Company contributions to the cafeteria benefits plan were
$101,832 and $182,216 for the years ended December 31, 1996 and 1997,
respectively, $47,050 and $78,070 for the three months ended March 31, 1997 and
1998, respectively, and $362,118 for the period from August 2, 1995 (Inception)
to March 31, 1998.
9. STRATEGIC ALLIANCES
On October 10, 1997, the Company entered into a strategic alliance with NBC
Multimedia, Inc. ("NBC Multimedia"), a wholly-owned subsidiary of the National
Broadcasting Corporation, Inc. ("NBC"), whereby the Company became the exclusive
provider of technology and services for the distribution of most NBC
entertainment audio/visual content by means of the Internet. As consideration
for the NBC Strategic Alliance Agreement, the Company issued to NBC 1,280,000
shares of Series G convertible preferred stock. The Company is entitled to
receive 30% of certain advertising revenues generated under this alliance from
NBC websites or, at a minimum, payments from NBC Multimedia for the video
delivery services at rates at least as favorable as the most favorable rates
offered by the Company to third parties. The Company is obligated to make
$2,000,000 in non-refundable payments to NBC Multimedia for certain production,
operating and
F-14
<PAGE> 72
INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
advertising costs associated with certain NBC websites including payments of (i)
$750,000 paid on the completion of the initial public offering completed in
November 1997, (ii) $500,000 which became due in February 1998, (iii) $500,000
due in May 1998, and (iv) $250,000 due in August 1998.
NBC Multimedia may terminate the agreement without cause by giving 90 days
written notice. NBC Multimedia was required to return all shares of Series G
convertible preferred stock if termination occurred prior to January 10, 1998
and NBC Multimedia had not promoted, at a minimum, the Company's logo on the NBC
Web site and is required to return 600,000 shares of Series G convertible
preferred stock if the termination occurs at any other time during the first two
years of the exclusive term. The Company determines the fair value of the Series
G convertible preferred stock issued to NBC on the dates the requirements that
NBC return some or all of the shares of Series G convertible preferred stock
lapse. Based on these provisions, the Company has charged $3,372,580 as the fair
value of 680,000 shares of Series G convertible preferred stock to expense in
the quarter ending March 31, 1998 and expects to charge the then fair value of
the remaining 600,000 shares of Series G convertible preferred stock to expense
in the quarter ending December 31, 1999. Should the Company renegotiate or waive
these provisions, removing NBC's obligation to return shares of Series G
convertible preferred stock, the Company would expense the fair value of each
share at that time. The Company believes that the fair value of the remaining
600,000 shares of Series G convertible preferred stock will roughly approximate
the price at which the Company's common stock is then trading, multiplied by the
number of shares into which such outstanding shares of Series G convertible
preferred stock would convert at the .6298 conversion rate. The noncash charges
are likely to be substantial and are likely to have a material adverse impact on
the Company's results of operations in the periods such expenses are recognized.
F-15
<PAGE> 73
[INTERVU LOGO]
Two video banner advertisements are depicted. The first advertisement is a
rectangle approximately one inch high and four inches wide containing the words
"Volvo V70 and Cross Country;" "Click here for video;" and "V-Banner Delivered,
the InterVU Network." At the far right of the rectangle is a one inch by one
inch picture of a car. The second advertisement also is a one inch by four inch
rectangle that contains the McIlhenny Co. Tabasco Brand Pepper Sauce logo and
the words "Are you one of those weirdos who gets their thrills torturing small
insects?" At the far right of the rectangle is a picture of the head of a man
wearing a satisfied grin.
<TABLE>
<S> <C>
V-Banner(TM) InterVU's V-Banner video advertising banners, which
Client Videos integrate real time audio and video into traditional ad
Free Software banners, are delivered automatically to end-users. V-Banners
offer advertisers access to end-users through use of
InterVU's All Eyes service. All Eyes identifies each
end-user's player software and delivers the video portion of
the V-Banner in the compatible encoding format.
</TABLE>
- --------------------------------------------------------------------------------
STRATEGIC RELATIONSHIPS
[TRUEVU LOGO]
[INTERVU LOGO] (MATCHLOGIC, INC. LOGO]
The Company and MatchLogic have developed trueVU, a service designed to
facilitate advertisers' use of bandwidth-intensive media and robust video ads on
the Internet. trueVU combines InterVU's video delivery technology with
MatchLogic's targeting, distribution, reporting and performance measurement
capabilities to provide "one-stop shopping" for Internet advertisers and
advertising agencies. trueVU allows advertisers to stage advertising campaigns
across a number of Web sites without having to contact those sites individually
and confirm the compatibility of their advertisements with the software used on
those sites. In addition, trueVU offers integrated reporting of an ad's
performance across a number of Web sites.
[VIDEOSEEKER LOGO]
[INTERVU LOGO] [NBC LOGO]
NBC recently announced the creation of VideoSeeker, a Web site that offers
end-users a single source for online video entertainment from NBC and its
partners and third-party programmers. VideoSeeker features a wide array of
streaming and downloadable video content, including monologues from "The Tonight
Show with Jay Leno," "Access Hollywood" celebrity interviews, backstage footage
with NBC celebrities and music videos from myLAUNCH, an online music site. The
Company created the video search engine used on the VideoSeeker site, owns the
proprietary software underlying the site and will manage and distribute all
video, audio and multimedia from the site via the InterVU Network.
<PAGE> 74
======================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE UNDERWRITERS OR ANY OTHER PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO ITS DATE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
REGISTERED SECURITIES TO WHICH IT RELATES. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY
CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................... 3
Risk Factors......................... 7
Use of Proceeds...................... 18
Price Range of Common Stock.......... 18
Dividend Policy...................... 18
Dilution............................. 19
Capitalization....................... 20
Selected Financial Data.............. 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 22
Business............................. 27
Management........................... 40
Certain Transactions................. 46
Principal Stockholders............... 48
Description of Capital Stock......... 49
Shares Eligible for Future Sale...... 52
Underwriting......................... 54
Legal Matters........................ 55
Experts.............................. 55
Available Information................ 55
Index to Financial Statements........ F-1
</TABLE>
======================================================
======================================================
2,000,000 SHARES
LOGO
INTERVU INC.
COMMON STOCK
------------------------
PROSPECTUS
------------------------
PAINEWEBBER INCORPORATED
JOSEPHTHAL & CO. INC.
CRUTTENDEN ROTH
INCORPORATED
------------------------
, 1998
======================================================
<PAGE> 75
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemized statement of expenses incurred in connection
with this Registration Statement. All such expenses will be paid by the Company.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 11,832
NASD filing fee............................................. 4,511
Nasdaq National Market listing fee.......................... 17,500
Legal fees and expenses..................................... 150,000
Accounting fees and expenses................................ 100,000
Printing and engraving expenses............................. 150,000
Blue Sky fees and expenses.................................. 5,000
Transfer agent and registrar fees........................... 5,000
Miscellaneous............................................... 56,157
--------
TOTAL.................................................. $500,000
========
</TABLE>
- ---------------
All of the above items are estimates, except the Securities and Exchange
Commission registration fee and the NASD filing fee.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the Delaware General Corporation Law, the Company has
broad powers to indemnify its directors and officers against liabilities they
may incur in such capacities, including liabilities under the Securities Act.
The Company's Certificate and Bylaws provide that the Company will
indemnify its directors and officers to the fullest extent permitted by Delaware
law. Delaware law permits, but does not require, a corporation to indemnify
officers, directors, employees or agents and expressly provides that the
indemnification provided for under Delaware law shall not be deemed exclusive of
any indemnification right under any bylaw, vote of stockholders or disinterested
directors, or otherwise. Delaware law permits indemnification against expenses
and certain other liabilities arising out of legal actions brought or threatened
against such persons for their conduct on behalf of the Company, provided that
each such person acted in good faith and in a manner that he or she reasonably
believed was in or not opposed to the Company's best interests and in the case
of a criminal proceeding, had no reasonable cause to believe his or her conduct
was unlawful. Delaware law does not allow indemnification of directors in the
case of an action by or in the right of the Company (including stockholder
derivative suits) unless the directors successfully defend the action or
indemnification is ordered by the court.
The Company is a party to indemnification agreements with each of its
directors and officers. In addition, the form of Underwriting Agreement filed as
Exhibit 1.1 hereto provides for the indemnification of the Company and its
directors and officers against certain liabilities, including liabilities under
the Securities Act.
The Company maintains directors' and officers' liability insurance covering
its executive officers and directors. The policies have limits of up to
$5,000,000 in the aggregate, subject to retentions of up to $175,000 in the
aggregate.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
1. Upon incorporation of the Company on August 2, 1995, the Company sold an
aggregate of 2,398,278 shares of Common Stock for total consideration of $952 to
the initial stockholders of the Company as follows: 705,387 shares to Harry E.
Gruber, 705,387 shares to Brian Kenner, 599,555 shares to a predecessor of the
Westchester Group LLC, 211,609 shares to Ruth Hargis and 176,340 shares to the
II-1
<PAGE> 76
A. B. Gruber Living Trust (the "Initial Stockholders"). Each of the Initial
Stockholders was an accredited individual investor.
2. On August 30, 1995, the company sold 172,500 shares of Series A
Convertible Preferred Stock at $1 per share to various accredited individual
investors for total consideration of $172,500.
3. On February 4, 1996, the Company sold an aggregate of 339,562 shares of
Series B Convertible Preferred Stock at $1.27 per share to various accredited
individual investors for a total consideration of $431,244.
4. On March 5, 1996, the Company sold an aggregate of 886,735 shares of
Common Stock to certain of the Initial Stockholders, including 302,296 to each
of Harry Gruber and Mr. Kenner and 282,166 shares to the predecessor of the
Westchester Group LLC, for aggregate proceeds of $1,760.
5. On March 7, 1996, the Company sold 296,147 shares of Series C
Convertible Preferred Stock at $2.75 per share to various accredited individual
investors for a total consideration of $814,404.
6. On April 17, 1996, the Company sold 96,429 shares of Series D
Convertible Preferred Stock at $7 per share to various accredited individual
investors for a total consideration of $675,003.
7. On August 9, 1996, the Company sold 144,500 shares of Series E
Convertible Preferred Stock at $10 per share to various accredited individual
investors for a total consideration of $1,145,000.
8. On November 14, 1996, the Company sold 154,500 additional shares of
Series E Convertible Preferred Stock at $10 per share to various accredited
individual investors for a total consideration of $1,545,000.
9. On December 4, 1996, the Company sold an additional 20,500 shares of
Series E Convertible Preferred Stock at $10 per share to various accredited
individual investors for a total consideration of $205,000.
10. On January 24, 1997, the Company sold an additional 13,500 shares of
Series E Convertible Preferred Stock at $10 per share to various accredited
individual investors for a total consideration of $135,000.
11. On February 4, 1997, the Company sold an additional 49,650 shares of
Series E Convertible Preferred Stock at $10 per share to various accredited
individual investors for a total consideration of $496,500.
12. On February 27, 1997, the Company sold an additional 47,350 shares of
Series E Convertible Preferred Stock at $10 per share to various accredited
individual investors for a total consideration of $473,500.
13. On July 16, 1997, the Company sold an additional 677,498 shares of
Series F Convertible Preferred Stock at $6 per share to various accredited
individual investors for a total consideration of $4,064,988.
14. On August 8, 1997, the Company sold an additional 44,166 shares of
Series F Convertible Preferred Stock at $6 per share to various accredited
individual investors for a total consideration of $264,996.
15. In October 1997, the Company issued 1,280,000 shares of Series G
Convertible Preferred Stock to NBC, an accredited institutional investor, for
consideration consisting of NBC Multimedia's making the Company the exclusive
provider of technology and services for the distribution of NBC's entertainment
audio/visual content by means of the Internet.
Underwriters were not retained in connection with the sale of any of the
Company's currently outstanding securities. All sales were made in private
placements to employees or directors of the Company or to accredited individual
investors or accredited institutional investors. The Company relied upon an
exemption from registration under Section 4(2) of the Securities Act in
connection with each of these transactions.
II-2
<PAGE> 77
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
1.1 Form of Underwriting Agreement.(1)
3.1 Amended and Restated Certificate of Incorporation.(2)
3.2 Amended and Restated Bylaws.(2)
4.1 Form of Common Stock Certificate.(3)
4.2 IPO Underwriters' Warrant Agreement including form of IPO
Underwriters' Warrants.(4)
4.3 Certificate of Designation for Series G Convertible
Preferred Stock.(4)
5.1 Opinion of Latham & Watkins.(1)
10.1 1996 Stock Plan of InterVU Inc.(4)
10.2 Form of Indemnification Agreement.(5)
10.3 Form of Restricted Stock Purchase Agreement.(5)
10.4 Amended and Restated Vesting Agreement between the Company
and Harry Gruber.(2)
10.5 Amended and Restated Vesting Agreement between the Company
and Brian Kenner.(2)
10.6 Strategic Alliance Agreement dated as of October 10, 1997
between the Company and NBC Multimedia, Inc.(4)
10.7 Preferred Stock Purchase Agreement dated as of October 10,
1997 among the Company, National Broadcasting Company, Inc.
and NBC Multimedia, Inc.(4)
10.8 Strategic Alliance Agreement dated January 15, 1998 between
the Company and MatchLogic Inc.(2)
10.9 Consulting Agreement dated January 28, 1998 between the
Company and J. William Grimes.(1)
10.10 Sublease Agreement dated as of April 20, 1998 between the
Company and Computervision Corporation.(1)
10.11 1998 Stock Option Plan of InterVU Inc.(1)
10.12 Employee Qualified Stock Purchase Plan of InterVU Inc.(1)
23.1 Consent of Ernst & Young LLP, Independent Auditors.(1)
23.2 Consent of Latham & Watkins (contained in Exhibit 5.1).(1)
24.1 Power of Attorney.(6)
</TABLE>
- ---------------
(1) Filed herewith.
(2) Incorporated by reference to the Company's Annual Report on Form 10-K filed
with the Commission on March 31, 1998.
(3) Incorporated by reference to Exhibit 4.1 to the Company's Registration
Statement on Form 8-A filed with the Commission on November 12, 1997.
(4) Incorporated by reference to Amendment No. 1 to the Company's Registration
Statement on Form S-1 filed with the Commission on October 24, 1997.
(5) Incorporated by reference to Amendment No. 2 to the Company's Registration
Statement on Form S-1 filed with the Commission on November 12, 1997.
(6) Previously filed.
II-3
<PAGE> 78
(b) FINANCIAL STATEMENT SCHEDULES
All required information is set forth in the financial statements included
in the Prospectus constituting part of this Registration Statement.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the Offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 79
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of San
Diego, State of California, on May 19, 1998.
InterVU Inc.
By: /s/ HARRY E. GRUBER
------------------------------------
Harry E. Gruber
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ HARRY E. GRUBER Chairman of the Board and May 19, 1998
- -------------------------------------------------------- Chief Executive Officer
Harry E. Gruber (Principal Executive Officer)
/s/ KENNETH L. RUGGIERO* Vice President and Chief May 19, 1998
- -------------------------------------------------------- Financial Officer (Principal
Kenneth L. Ruggiero Financial Officer and
Principal Accounting Officer)
/s/ EDWARD DAVID* Director May 19, 1998
- --------------------------------------------------------
Edward David
/s/ MARK DOWLEY* Director May 19, 1998
- --------------------------------------------------------
Mark Dowley
/s/ ALAN Z. SENTER* Director May 19, 1998
- --------------------------------------------------------
Alan Z. Senter
/s/ J. WILLIAM GRIMES* Vice Chairman May 19, 1998
- --------------------------------------------------------
J. William Grimes
/s/ ISAAC WILLIS* Director May 19, 1998
- --------------------------------------------------------
Isaac Willis
</TABLE>
*By: /s/ HARRY E. GRUBER
---------------------------------
Harry E. Gruber
Attorney-in-fact
II-5
<PAGE> 80
EXHIBIT INDEX
The following exhibits are filed as part of this Form S-1 Registration
Statement.
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBERS DESCRIPTION OF EXHIBIT PAGES
------- ---------------------- ------------
<C> <S> <C>
1.1 Form of Underwriting Agreement.(1)..........................
3.1 Amended and Restated Certificate of Incorporation.(2).......
3.2 Amended and Restated Bylaws.(2).............................
4.1 Form of Common Stock Certificate.(3)........................
4.2 Form of Underwriters' Warrant Agreement including form of
Underwriters' Warrants.(4)..................................
4.3 Certificate of Designation for Series G Convertible
Preferred Stock.(4).........................................
5.1 Opinion of Latham & Watkins.(1).............................
10.1 1996 Stock Plan of InterVU Inc.(4)..........................
10.2 Form of Indemnification Agreement.(5).......................
10.3 Form of Restricted Stock Purchase Agreement.(5).............
10.4 Amended and Restated Vesting Agreement between the Company
and Harry Gruber.(2)........................................
10.5 Amended and Restated Vesting Agreement between the Company
and Brian Kenner.(2)........................................
10.6 Strategic Alliance Agreement dated as of October 10, 1997
between the Company and NBC Multimedia, Inc.(4).............
10.7 Preferred Stock Purchase Agreement dated as of October 10,
1997 among the Company, National Broadcasting Company, Inc.
and NBC Multimedia, Inc.(4).................................
10.8 Strategic Alliance Agreement dated January 15, 1998 between
the Company and MatchLogic Inc.(2)..........................
10.9 Consulting Agreement dated January 28, 1998 between the
Company and J. William Grimes.(1)...........................
10.10 Sublease Agreement dated as of April 20, 1998 between the
Company and Computervision Corporation.(1)
10.11 1998 Stock Option Plan of InterVU Inc.(1)...................
10.12 Employee Qualified Stock Purchase Plan of InterVU Inc.(1)...
23.1 Consent of Ernst & Young LLP, Independent Auditors.(1)......
23.2 Consent of Latham & Watkins (contained in Exhibit
5.1).(1)....................................................
24.1 Power of Attorney.(6).......................................
</TABLE>
- ---------------
(1) Filed herewith.
(2) Incorporated by reference to the Company's Annual Report on Form 10-K filed
with the Commission on March 31, 1998.
(3) Incorporated by reference to Exhibit 4.1 to the Company's Registration
Statement on Form 8-A filed with the Commission on November 12, 1997.
(4) Incorporated by reference to Amendment No. 1 to the Company's Registration
Statement on Form S-1 filed with the Commission on October 24, 1997.
(5) Incorporated by reference to Amendment No. 2 to the Company's Registration
Statement on Form S-1 filed with the Commission on November 12, 1997.
(6) Previously filed.
<PAGE> 1
EXHIBIT 1.1
UNDERWRITING AGREEMENT
2,000,000 SHARES
INTERVU INC.
COMMON STOCK
May __, 1998
PAINEWEBBER INCORPORATED
JOSEPHTHAL & CO. INC.
CRUTTENDEN ROTH INCORPORATED
As Representatives of the
several Underwriters
c/o PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019
Ladies and Gentlemen:
InterVU Inc., a Delaware corporation (the "Company"), proposes to sell
an aggregate of 2,000,000 shares (the "Firm Shares") of the Company's Common
Stock, $0.001 par value per share (the "Common Stock"), to you and to the other
underwriters named in Schedule I (collectively, the "Underwriters"), for whom
you are acting as representatives (the "Representatives"). The Company has also
agreed to grant to you and the other Underwriters an option (the "Option") to
purchase up to an additional 300,000 shares of Common Stock (the "Option
Shares") on the terms and for the purposes set forth in Section 1(b). The Firm
Shares and the Option Shares are hereinafter collectively referred to as the
"Shares."
The initial public offering price per share for the Shares and the
purchase price per share for the Shares to be paid by the several Underwriters
shall be agreed upon by the Company and the Representatives, acting on behalf of
the several Underwriters, and such agreement shall be set forth in a separate
written instrument substantially in the form of Exhibit A hereto (the "Price
Determination Agreement"). The Price Determination Agreement may take the form
of an exchange of any standard form of written telecommunication among the
Company and the Representatives and shall specify such applicable information as
is indicated in Exhibit A hereto. The offering of the Shares will be governed by
this Agreement, as supplemented by the Price Determination Agreement. From and
after the date of the execution and delivery of the Price Determination
Agreement, this Agreement shall be deemed to incorporate, and, unless the
<PAGE> 2
context otherwise indicates, all references contained herein to "this Agreement"
and to the phrase "herein" shall be deemed to include, the Price Determination
Agreement.
The Company confirms as follows its agreements with the Representatives
and the several other Underwriters.
1. Agreement to Sell and Purchase.
(a) On the basis of the representations, warranties and
agreements of the Company herein contained and subject to all the terms and
conditions of this Agreement, the Company agrees to sell to each Underwriter
named below, and each Underwriter, severally and not jointly, agrees to purchase
from the Company at the purchase price per share for the Firm Shares to be
agreed upon by the Representatives and the Company in accordance with Section
1(c) or 1(d) hereof (which purchase price shall not be higher than the maximum
price recommended by Josephthal & Co. Inc. acting as "qualified independent
underwriter" within the meaning of Rule 2720 (formerly Schedule E) to the
By-Laws of the National Association of Securities Dealers, Inc.) and set forth
in the Price Determination Agreement, the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule I, plus such additional number
of Firm Shares which such Underwriter may become obligated to purchase pursuant
to Section 8 hereof. Schedule I may be attached to the Price Determination
Agreement.
(b) Subject to all the terms and conditions of this
Agreement, the Company grants the Option to the several Underwriters to
purchase, severally and not jointly, up to 300,000 Option Shares from the
Company at the same price per share as the Underwriters shall pay for the Firm
Shares. The Option may be exercised only to cover over-allotments in the sale of
the Firm Shares by the Underwriters and may be exercised in whole or in part at
any time (but not more than once) on or before the 45th day after the date of
this Agreement (or, if the Company has elected to rely on Rule 430A, on or
before the 45th day after the date of the Price Determination Agreement), upon
written or telegraphic notice (the "Option Shares Notice") by the
Representatives to the Company no later than 12:00 noon, New York City time, at
least two and no more than five business days before the date specified for
closing in the Option Shares Notice (the "Option Closing Date") setting forth
the aggregate number of Option Shares to be purchased and the time and date for
such purchase. On the Option Closing Date, the Company will issue and sell to
the Underwriters the number of Option Shares set forth in the Option Shares
Notice, and each Underwriter will purchase such percentage of the Option Shares
as is equal to the percentage of Firm Shares that such Underwriter is
purchasing, as adjusted by the Representatives in such manner as they deem
advisable to avoid fractional shares.
(c) The initial public offering price per share for the Firm
Shares and the purchase price per share for the Firm Shares to be paid by the
several Underwriters shall be agreed upon and set forth in the Price
Determination Agreement, if the Company has elected to rely on Rule 430A. In the
event such price has not been agreed upon and the Price Determination Agreement
has not been executed by the close of business on the fourteenth business day
following the date on which the Registration Statement (as hereinafter defined)
becomes effective, this Agreement shall terminate forthwith, without liability
of any party to any other party except that Section 6 shall remain in effect.
2
<PAGE> 3
(d) If the Company has elected not to rely on Rule 430A, the
initial public offering price per share for the Firm Shares and the purchase
price per share for the Firm Shares to be paid by the several Underwriters shall
be agreed upon and set forth in the Price Determination Agreement, which shall
be dated the date hereof, and an amendment to the Registration Statement
containing such per share price information shall be filed before the
Registration Statement becomes effective.
2. Delivery and Payment. Delivery of the Firm Shares shall be made
to the Representatives for the accounts of the Underwriters at the office of
PaineWebber Incorporated, 1285 Avenue of the Americas, New York, New York 10019
against payment of the purchase price by wire transfer of Federal Funds or
similar same day funds to an account designated in writing by the Company to
PaineWebber Incorporated at least one business day prior to the Closing Date (as
hereinafter defined). Such payment shall be made at 10:00 a.m., New York City
time, on the third business day (or fourth business day, if the Price
Determination Agreement is executed after 4:30 p.m.) after the date on which the
first bona fide offering of the Shares to the public is made by the Underwriters
or at such time on such other date, not later than ten business days after such
date, as may be agreed upon by the Company and the Representatives (such date is
hereinafter referred to as the "Closing Date").
To the extent the Option is exercised, delivery of the Option Shares
against payment by the Underwriters (in the manner specified above) will take
place at the offices specified above for the Closing Date at the time and date
(which may be the Closing Date) specified in the Option Shares Notice.
Certificates evidencing the Shares shall be in definitive form and
shall be registered in such names and in such denominations as the
Representatives shall request at least two business days prior to the Closing
Date or the Option Closing Date, as the case may be, by written notice to the
Company. For the purpose of expediting the checking and packaging of
certificates for the Shares, the Company agrees to make such certificates
available for inspection at least 24 hours prior to the Closing Date or the
Option Closing Date, as the case may be.
The cost of original issue tax stamps, if any, in connection with the
issuance and delivery of the Firm Shares and Option Shares by the Company to the
respective Underwriters shall be borne by the Company. The Company will pay and
save each Underwriter and any subsequent holder of the Shares harmless from any
and all liabilities with respect to or resulting from any failure or delay in
paying Federal and state stamp and other transfer taxes, if any, which may be
payable or determined to be payable in connection with the original issuance or
sale to such Underwriter of the Firm Shares and Option Shares.
3. Representations and Warranties of the Company. The Company
represents, warrants and covenants to each Underwriter that:
(a) A registration statement (Registration No.
333-___________) on Form S-1 relating to the Shares, including a preliminary
prospectus and such amendments to such registration statement as may have been
required to the date of this Agreement, has been prepared by the Company under
the provisions of the Securities Act of 1933, as amended (the "Act"), and the
rules and regulations (collectively referred to as the "Rules and Regulations")
of
3
<PAGE> 4
the Securities and Exchange Commission (the "Commission") thereunder, and has
been filed with the Commission. The term "preliminary prospectus" as used herein
means a preliminary prospectus as contemplated by Rule 430 or Rule 430A ("Rule
430A") of the Rules and Regulations included at any time as part of the
registration statement. Copies of such registration statement and amendments and
of each related preliminary prospectus have been delivered to the
Representatives. The term "Registration Statement" means the registration
statement as amended at the time it becomes or became effective (the "Effective
Date"), including financial statements and all exhibits and any information
deemed to be included by Rule 430A or Rule 434 of the Rules and Regulations. If
the Company files a registration statement to register a portion of the Shares
and relies on Rule 462(b) of the Rules and Regulations for such registration
statement to become effective upon filing with the Commission (the "Rule 462
Registration Statement"), then any reference to the "Registration Statement"
shall be deemed to include the Rule 462 Registration Statement, as amended from
time to time. The term "Prospectus" means the prospectus as first filed with the
Commission pursuant to Rule 424(b) of the Rules and Regulations or, if no such
filing is required, the form of final prospectus included in the Registration
Statement at the Effective Date.
(b) On the Effective Date, the date the Prospectus is first
filed with the Commission pursuant to Rule 424(b) (if required), at all times
subsequent to and including the Closing Date and, if later, the Option Closing
Date and when any post-effective amendment to the Registration Statement becomes
effective or any amendment or supplement to the Prospectus is filed with the
Commission, the Registration Statement and the Prospectus (as amended or as
supplemented if the Company shall have filed with the Commission any amendment
or supplement thereto), including the financial statements included in the
Prospectus, did or will comply with all applicable provisions of the Act and the
Rules and Regulations and will contain all statements required to be stated
therein in accordance with the Act and the Rules and Regulations. On the
Effective Date and when any post-effective amendment to the Registration
Statement becomes effective, no part of the Registration Statement or any such
amendment did or will contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements therein not misleading. At the Effective Date, the date the
Prospectus or any amendment or supplement to the Prospectus is filed with the
Commission and at the Closing Date and, if later, the Option Closing Date, the
Prospectus did not or will not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading. The
foregoing representations and warranties in this Section 3(b) do not apply to
any statements or omissions made in reliance on and in conformity with
information relating to any Underwriter furnished in writing to the Company by
the Representatives specifically for inclusion in the Registration Statement or
Prospectus or any amendment or supplement thereto. For all purposes of this
Agreement, the amounts of the selling concession and reallowance set forth in
the Prospectus constitute the only information relating to any Underwriter
furnished in writing to the Company by the Representatives specifically for
inclusion in the Registration Statement, the preliminary prospectus or the
Prospectus. The Company has not distributed any offering material in connection
with the offering or sale of the Shares other than the Registration Statement,
the preliminary prospectus, the Prospectus or any other materials, if any,
permitted by the Act.
4
<PAGE> 5
(c) The Company is, and at the Closing Date will be, a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation. The Company has, and at the Closing Date
will have, full power and authority to conduct all the activities conducted by
it, to own or lease all the assets owned or leased by it and to conduct its
business as described in the Registration Statement and the Prospectus. The
Company is, and at the Closing Date will be, duly licensed or qualified to do
business and in good standing as a foreign corporation in all jurisdictions in
which the nature of the activities conducted by it or the character of the
assets owned or leased by it makes such licensing or qualification necessary.
The Company does not own, and at the Closing Date will not own, directly or
indirectly, any shares of stock or any other equity or long-term debt securities
of any corporation or have any equity interest in any firm, partnership, joint
venture, association or other entity. Complete and correct copies of the
certificate of incorporation and of the by-laws of the Company and all
amendments thereto have been delivered to the Representatives, and no changes
therein will be made subsequent to the date hereof and prior to the Closing Date
or, if later, the Option Closing Date.
(d) The outstanding shares of Common Stock have been, and
the Shares to be issued and sold by the Company upon such issuance will be, duly
authorized, validly issued, fully paid and nonassessable and will not be subject
to any preemptive or similar right. The description of the Common Stock in the
Registration Statement and the Prospectus is, and at the Closing Date will be,
complete and accurate in all respects. Except as set forth in the Prospectus,
the Company does not have outstanding, and at the Closing Date will not have
outstanding, any options to purchase, or any rights or warrants to subscribe
for, or any securities or obligations convertible into, or any contracts or
commitments to issue or sell, any shares of Common Stock, or any such warrants,
convertible securities or obligations.
(e) The financial statements included in the Registration
Statement or the Prospectus present fairly the financial condition of the
Company as of the respective dates thereof and the results of operations and
cash flows of the Company for the respective periods covered thereby, all in
conformity with generally accepted accounting principles applied on a consistent
basis throughout the entire period involved, except as otherwise disclosed in
the Prospectus. The pro forma financial statements and other pro forma financial
information included in the Registration Statement or the Prospectus (i) present
fairly in all material respects the information shown therein, (ii) have been
prepared in accordance with the Commission's rules and guidelines with respect
to pro forma financial statements and (iii) have been properly computed on the
bases described therein. The assumptions used in the preparation of the pro
forma financial statements and other pro forma financial information included in
the Registration Statement or the Prospectus are reasonable and the adjustments
used therein are appropriate to give effect to the transactions or circumstances
referred to therein. No other financial statements or schedules of the Company
are required by the Act or the Rules and Regulations to be included in the
Registration Statement or the Prospectus. Ernst & Young LLP (the "Accountants"),
who have reported on such financial statements, are independent accountants with
respect to the Company as required by the Act and the Rules and Regulations. The
statements included in the Registration Statement with respect to the
Accountants pursuant to Rule 509 of Regulation S-K of the Rules and Regulations
are true and correct in all material respects.
5
<PAGE> 6
(f) The Company maintains a system of internal accountings
control sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(g) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus and prior
to the Closing Date, except as set forth in or contemplated by the Registration
Statement and the Prospectus, (i) there has not been and will not have been any
change in the capitalization of the Company, or in the business, properties,
business prospects, condition (financial or otherwise) or results of operations
of the Company, arising for any reason whatsoever, (ii) the Company has not
incurred nor will it incur any material liabilities or obligations, direct or
contingent, nor has it entered into nor will it enter into any material
transactions other than pursuant to this Agreement and the transactions referred
to herein and (iii) the Company has not and will not have paid or declared any
dividends or other distributions of any kind on any class of its capital stock.
(h) The Company is not an "investment company" or an
"affiliated person" of, or "promoter" or "principal underwriter" for, an
"investment company," as such terms are defined in the Investment Company Act of
1940, as amended.
(i) Except as set forth in the Registration Statement and
the Prospectus, there are no actions, suits or proceedings pending or threatened
against or affecting the Company or any of its officers in their capacity as
such, before or by any Federal or state court, commission, regulatory body,
administrative agency or other governmental body, domestic or foreign, wherein
an unfavorable ruling, decision or finding might materially and adversely affect
the Company or its business, properties, business prospects, condition
(financial or otherwise) or results of operations.
(j) The Company has, and at the Closing Date will have, (i)
all governmental licenses, permits, consents, orders, approvals and other
authorizations necessary to carry on its business as contemplated in the
Prospectus, (ii) complied in all respects with all laws, regulations and orders
applicable to it or its business and (iii) performed all its obligations
required to be performed by it, and is not, and at the Closing Date will not be,
in default, under any indenture, mortgage, deed of trust, voting trust
agreement, loan agreement, bond, debenture, note agreement, lease, contract or
other agreement or instrument (collectively, a "contract or other agreement") to
which it is a party or by which its property is bound or affected. To the best
knowledge of the Company, no other party under any contract or other agreement
to which it is a party is in default in any respect thereunder. The Company is
not now, and at the Closing Date it will not be, in violation of any provision
of its certificate of incorporation or by-laws.
(k) No consent, approval, authorization or order of, or any
filing or declaration with, any court or governmental agency or body is required
in connection with the authorization, issuance, transfer, sale or delivery of
the Shares by the Company, in connection
6
<PAGE> 7
with the execution, delivery and performance of this Agreement by the Company or
in connection with the taking by the Company of any action contemplated hereby,
except such as have been obtained under the Act or the Rules and Regulations and
such as may be required under state securities or Blue Sky laws or the by-laws
and rules of the National Association of Securities Dealers, Inc. (the "NASD")
in connection with the purchase and distribution by the Underwriters of the
Shares.
(l) The Company has full corporate power and authority to
enter into this Agreement. This Agreement has been duly authorized, executed and
delivered by the Company and constitutes a valid and binding agreement of the
Company and is enforceable against the Company in accordance with the terms
hereof. The performance of this Agreement and the consummation of the
transactions contemplated hereby and the application of the net proceeds from
the offering and sale of the Shares in the manner set forth in the Prospectus
under "Use of Proceeds" will not result in the creation or imposition of any
lien, charge or encumbrance upon any of the assets of the Company pursuant to
the terms or provisions of, or result in a breach or violation of any of the
terms or provisions of, or constitute a default under, or give any other party a
right to terminate any of its obligations under, or result in the acceleration
of any obligation under, the certificate of incorporation or by-laws of the
Company, any contract or other agreement to which the Company is a party or by
which the Company or any of its properties is bound or affected, or violate or
conflict with any judgment, ruling, decree, order, statute, rule or regulation
of any court or other governmental agency or body applicable to the business or
properties of the Company.
(m) The Company has good and marketable title to all
properties and assets described in the Prospectus as owned by it, free and clear
of all liens, charges, encumbrances or restrictions, except such as are
described in the Prospectus or are not material to the business of the Company.
The Company has valid, subsisting and enforceable leases for the properties
described in the Prospectus as leased by it, with such exceptions as are not
material and do not materially interfere with the use made and proposed to be
made of such properties by the Company.
(n) There is no document or contract of a character required
to be described in the Registration Statement or the Prospectus or to be filed
as an exhibit to the Registration Statement which is not described or filed as
required. All such contracts to which the Company is a party have been duly
authorized, executed and delivered by the Company, constitute valid and binding
agreements of the Company and are enforceable against the Company in accordance
with the terms thereof.
(o) No statement, representation, warranty or covenant made
by the Company in this Agreement or made in any certificate or document required
by this Agreement to be delivered to the Representatives was or will be, when
made, inaccurate, untrue or incorrect.
(p) Neither the Company nor any of its directors, officers
or controlling persons has taken, directly or indirectly, any action intended,
or which might reasonably be expected, to cause or result, under the Act or
otherwise, in, or which has constituted, stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the
Shares.
7
<PAGE> 8
(q) No holder of securities of the Company has rights to the
registration of any securities of the Company because of the filing of the
Registration Statement.
(r) The Shares have been approved for quotation on the
Nasdaq Stock Market's National Market ("Nasdaq").
(s) The Company is in compliance with all federal, state and
local employment and labor laws, including, but not limited to, laws relating to
non-discrimination in hiring, promotion and pay of employees; no labor dispute
with the employees of the Company exists or, to the knowledge of the Company, is
imminent or threatened; and the Company is not aware of any existing, imminent
or threatened labor disturbance by the employees of any of its principal
suppliers, manufacturers or contractors that could result in a material adverse
effect on the condition (financial or otherwise) or on the earnings, business,
properties, business prospects or operations of the Company.
(t) The Company owns, or is licensed or otherwise has the
full exclusive right to use, the material patents, patent rights, licenses,
inventions, copyrights, know-how (including trade secrets and other unpatented
and/or unpatentable proprietary or confidential information, systems or
procedures), trademarks, services marks and trade names (collectively, "patent
and proprietary rights") presently employed by it or which are necessary in
connection with the conduct of the business now operated by it, and the Company
has not received any written notice or otherwise has actual knowledge of any
infringement of or conflict with asserted rights of others or any other claims
with respect to any patent or proprietary rights, or of any basis for rendering
any patent and proprietary rights invalid or inadequate to protect the interest
of the Company.
(u) Neither the Company nor, to the Company's knowledge, any
employee or agent of the Company has made any payment of funds of the Company or
received or retained any funds in violation of any law, rule or regulation or of
a character required to be disclosed in the Prospectus.
(v) The Company has complied, and until the completion of
the distribution of the Shares will comply, with all of the provisions of
(including, without limitation, filing all forms required by) Section 517.075 of
the Florida Securities and Investor Protection Act and Regulation 3E-900.001
issued thereunder with respect to the offering and sale of the Shares.
(w) The Company (i) is in compliance with any and all
applicable foreign, federal, state and local laws and regulations relating to
the protection of human health and safety, the environment or imposing liability
or standards of conduct concerning any Hazardous Material (as hereinafter
defined) ("Environmental Laws"), (ii) has received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) is in compliance with all terms and
conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required permits,
licenses or other approvals or failure to comply with the terms and conditions
of such permits, licenses or approvals would not, individually or in the
aggregate, result in a material adverse effect on the condition (financial or
otherwise) or on the earnings,
8
<PAGE> 9
business, properties, business prospects or operations of the Company. The term
"Hazardous Material" means (A) any "hazardous substance" as defined by the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, (B) any "hazardous waste" as defined by the Resource Conservation and
Recovery Act, as amended, (C) any petroleum or petroleum product, (D) any
polychlorinated biphenyl and (E) any pollutant or contaminant or hazardous,
dangerous, or toxic chemical, material, waste or substance regulated under or
within the meaning of any other Environmental Law.
(x) In the ordinary course of its business, the Company
conducts a periodic review of the effect of Environmental Laws on the business,
operations and properties of the Company, in the course of which it identifies
and evaluates associated costs and liabilities (including, without limitation,
any capital or operating expenditures required for clean-up, closure of
properties or compliance with Environmental Laws or any permit, license or
approval, any related constraints on operating activities and any potential
liabilities to third parties). Except as set forth in the Registration Statement
and the Prospectus there are no costs and liabilities associated with or arising
in connection with Environmental Laws as currently in effect (including, without
limitation, costs of compliance therewith) which would, singly or in the
aggregate, have a material adverse effect on the condition (financial or
otherwise) or on the earnings, business, properties, business prospects or
operations of the Company.
(y) The Company maintains insurance with respect to its
properties and business of the types and in amounts generally deemed adequate
for its business and consistent with insurance coverage maintained by similar
companies and businesses, all of which insurance is in full force and effect.
(z) The Company has filed all material federal, state and
foreign income and franchise tax returns and has paid all taxes shown as due
thereon, other than taxes which are being contested in good faith and for which
adequate reserves have been established in accordance with generally accepted
accounting principles ("GAAP"); and the Company has no knowledge of any tax
deficiency which has been or might be asserted or threatened against the
Company. There are no tax returns of the Company that are currently being
audited by state, local or federal taxing authorities or agencies (and with
respect to which the Company has received notice), where the findings of such
audit, if adversely determined, would result in a material adverse effect on the
condition (financial or otherwise) or on the earnings, business, properties,
business prospects or operations of the Company.
(aa) With respect to each employee benefit plan, program and
arrangement (including, without limitation, any "employee benefit plan" as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")) maintained or contributed to by the Company, or with
respect to which the Company could incur any liability under ERISA
(collectively, the "Benefit Plans"), no event has occurred and, to the best
knowledge of the Company, there exists no condition or set of circumstances, in
connection with which the Company could be subject to any liability under the
terms of such Benefit Plan, applicable law (including, without limitation, ERISA
and the Internal Revenue Code of 1986, as amended) or any applicable agreement
that could materially adversely affect the business, properties, business
prospects, condition (financial or otherwise) or results of operations of the
Company.
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<PAGE> 10
4. Agreements of the Company. The Company agrees with the several
Underwriters as follows:
(a) The Company will not, either prior to the Effective Date
or thereafter during such period as the Prospectus is required by law to be
delivered in connection with sales of the Shares by an Underwriter or dealer,
file any amendment or supplement to the Registration Statement or the
Prospectus, unless a copy thereof shall first have been submitted to the
Representatives within a reasonable period of time prior to the filing thereof
and the Representatives shall not have objected thereto in good faith.
(b) The Company will use its best efforts to cause the
Registration Statement to become effective, and will notify the Representatives
promptly, and will confirm such advice in writing, (1) when the Registration
Statement has become effective and when any post-effective amendment thereto
becomes effective, (2) of any request by the Commission for amendments or
supplements to the Registration Statement or the Prospectus or for additional
information, (3) of the issuance by the Commission of any stop order suspending
the effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose or the threat thereof, (4) of the happening of any
event during the period mentioned in the second sentence of Section 4(e) that in
the judgment of the Company makes any statement made in the Registration
Statement or the Prospectus untrue or that requires the making of any changes in
the Registration Statement or the Prospectus in order to make the statements
therein, in light of the circumstances in which they are made, not misleading
and (5) of receipt by the Company or any representative or attorney of the
Company of any other communication from the Commission relating to the Company,
the Registration Statement, any preliminary prospectus or the Prospectus. If at
any time the Commission shall issue any order suspending the effectiveness of
the Registration Statement, the Company will make every reasonable effort to
obtain the withdrawal of such order at the earliest possible moment. The Company
will use its best efforts to comply with the provisions of and make all
requisite filings with the Commission pursuant to Rule 430A and to notify the
Representatives promptly of all such filings.
(c) The Company will furnish to the Representatives, without
charge, two signed copies of the Registration Statement and of any
post-effective amendment thereto, including financial statements and schedules,
and all exhibits thereto and will furnish to the Representatives, without
charge, for transmittal to each of the other Underwriters, a copy of the
Registration Statement and any post-effective amendment thereto, including
financial statements but without exhibits.
(d) The Company will comply with all the provisions of any
undertakings contained in the Registration Statement.
(e) On the Effective Date, and thereafter from time to time,
the Company will deliver to each of the Underwriters, without charge, as many
copies of the Prospectus or any amendment or supplement thereto as the
Representatives may reasonably request. The Company consents to the use of the
Prospectus or any amendment or supplement thereto by the several Underwriters
and by all dealers to whom the Shares may be sold, both in connection with the
offering or sale of the Shares and for any period of time thereafter during
which the Prospectus is required by law to be delivered in connection therewith.
If during such
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<PAGE> 11
period of time any event shall occur which in the judgment of the Company or
counsel to the Underwriters should be set forth in the Prospectus in order to
make any statement therein, in the light of the circumstances under which it was
made, not misleading, or if it is necessary to supplement or amend the
Prospectus to comply with law, the Company will forthwith prepare and duly file
with the Commission an appropriate supplement or amendment thereto, and will
deliver to each of the Underwriters, without charge, such number of copies
thereof as the Representatives may reasonably request.
(f) Prior to any public offering of the Shares by the
Underwriters, the Company will cooperate with the Representatives and counsel to
the Underwriters in connection with the registration or qualification of the
Shares for offer and sale under the securities or Blue Sky laws of such
jurisdictions as the Representatives may request; provided, that in no event
shall the Company be obligated to qualify to do business in any jurisdiction
where it is not now so qualified or to take any action which would subject it to
general service of process in any jurisdiction where it is not now so subject.
(g) During the period of five years commencing on the
Effective Date, the Company will furnish to the Representatives and each other
Underwriter who may so request copies of such financial statements and other
periodic and special reports as the Company may from time to time distribute
generally to the holders of any class of its capital stock, and will furnish to
the Representatives and each other Underwriter who may so request a copy of each
annual or other report it shall be required to file with the Commission.
(h) The Company will make generally available to holders of
its securities as soon as may be practicable but in no event later than the last
day of the fifteenth full calendar month following the calendar quarter in which
the Effective Date falls, an earnings statement (which need not be audited but
shall be in reasonable detail) for a period of 12 months ended commencing after
the Effective Date, and satisfying the provisions of Section 11(a) of the Act
(including Rule 158 of the Rules and Regulations).
(i) Whether or not the transactions contemplated by this
Agreement are consummated or this Agreement is terminated, the Company will pay,
or reimburse if paid by the Representatives, all costs and expenses incident to
the performance of the obligations of the Company under this Agreement,
including but not limited to costs and expenses of or relating to (1) the
preparation, printing and filing of the Registration Statement and exhibits to
it, each preliminary prospectus, the Prospectus and any amendment or supplement
to the Registration Statement or the Prospectus, (2) the preparation and
delivery of certificates representing the Shares, (3) the word processing,
printing and reproduction of this Agreement, the Agreement Among Underwriters,
any Dealer Agreements and any Underwriters' Questionnaire, (4) furnishing
(including costs of shipping, mailing and courier) such copies of the
Registration Statement, the Prospectus and any preliminary prospectus, and all
amendments and supplements thereto, as may be requested for use in connection
with the offering and sale of the Shares by the Underwriters or by dealers to
whom Shares may be sold, (5) the quotation of the Shares on Nasdaq, (6) any
filings required to be made by the Underwriters with the NASD, and the fees,
disbursements and other charges of counsel for the Underwriters in connection
therewith, (7) the registration or qualification of the Shares for offer and
sale under the securities or Blue Sky laws of such jurisdictions designated
pursuant to Section 4(f), including the fees, disbursements and
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<PAGE> 12
other charges of counsel to the Underwriters in connection therewith, and the
preparation and printing of preliminary, supplemental and final Blue Sky
memoranda, (8) counsel to the Company, (9) the transfer agent for the Shares and
(10) the Accountants.
(j) If this Agreement shall be terminated by the Company
pursuant to any of the provisions hereof (otherwise than pursuant to Section 8)
or if for any reason the Company shall be unable to perform its obligations
hereunder, the Company will reimburse the several Underwriters for all
out-of-pocket expenses (including the fees, disbursements and other charges of
counsel to the Underwriters) reasonably incurred by them in connection herewith.
(k) The Company will not at any time, directly or
indirectly, take any action intended, or which might reasonably be expected, to
cause or result in, or which will constitute, stabilization of the price of the
shares of Common Stock to facilitate the sale or resale of any of the Shares.
(l) The Company will apply the net proceeds from the
offering and sale of the Shares to be sold by the Company in the manner set
forth in the Prospectus under "Use of Proceeds."
(m) During the period of 120 days commencing at the Closing
Date, the Company will not, without the prior written consent of PaineWebber
Incorporated, directly or indirectly, sell, offer to sell, grant any option for
the sale of, or otherwise dispose of, any Common Stock or securities convertible
into Common Stock, other than to the Underwriters pursuant to this Agreement and
other than pursuant to employee benefit plans.
(n) The Company will not, and will cause each of its
executive officers, directors and each beneficial owner of more than 5% of the
outstanding shares of Common Stock to enter into agreements with the
Representatives in the form set forth in Exhibit B to the effect that they will
not, for a period of 120 days after the commencement of the public offering of
the Shares, without the prior written consent of PaineWebber Incorporated, sell,
contract to sell or otherwise dispose of any shares of Common Stock or rights to
acquire such shares (other than pursuant to employee stock option plans or in
connection with other employee incentive compensation arrangements).
5. Conditions of the Obligations of the Underwriters. In addition
to the execution and delivery of the Price Determination Agreement, the
obligations of each Underwriter hereunder are subject to the following
conditions:
(a) Notification that the Registration Statement has become
effective shall be received by the Representatives not later than 5:00 p.m., New
York City time, on the date of this Agreement or at such later date and time as
shall be consented to in writing by the Representatives and all filings required
by Rule 424 of the Rules and Regulations and Rule 430A shall have been made.
(b) (i) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall be pending or threatened by the Commission, (ii) no order
suspending the effectiveness of the Registration Statement or the qualification
or registration of the Shares under the securities or Blue Sky laws
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<PAGE> 13
of any jurisdiction shall be in effect and no proceeding for such purpose shall
be pending before or threatened or contemplated by the Commission or the
authorities of any such jurisdiction, (iii) any request for additional
information on the part of the staff of the Commission or any such authorities
shall have been complied with to the satisfaction of the staff of the Commission
or such authorities and (iv) after the date hereof no amendment or supplement to
the Registration Statement or the Prospectus shall have been filed unless a copy
thereof was first submitted to the Representatives and the Representatives did
not object thereto in good faith, and the Representatives shall have received
certificates, dated the Closing Date and the Option Closing Date and signed by
the Chief Executive Officer or the Chairman of the Board of Directors of the
Company and the Chief Financial Officer of the Company (who may, as to
proceedings threatened, rely upon the best of their information and belief), to
the effect of clauses (i), (ii) and (iii).
(c) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, (i) there shall not have
been, and no development shall have occurred which could reasonably be expected
to result in, a material adverse change in the general affairs, business,
business prospects, properties, management, condition (financial or otherwise)
or results of operations of the Company, whether or not arising from
transactions in the ordinary course of business, in each case other than as set
forth in or contemplated by the Registration Statement and the Prospectus and
(ii) the Company shall not have sustained any material loss or interference with
its business or properties from fire, explosion, flood or other casualty,
whether or not covered by insurance, or from any labor dispute or any court or
legislative or other governmental action, order or decree, which is not set
forth in the Registration Statement and the Prospectus, if in the judgment of
the Representatives any such development makes it impracticable or inadvisable
to consummate the sale and delivery of the Shares by the Underwriters at the
initial public offering price.
(d) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there shall have been no
litigation or other proceeding instituted against the Company or any of its
officers or directors in their capacities as such, before or by any Federal,
state or local court, commission, regulatory body, administrative agency or
other governmental body, domestic or foreign, in which litigation or proceeding
an unfavorable ruling, decision or finding would materially and adversely affect
the business, properties, business prospects, condition (financial or otherwise)
or results of operations of the Company.
(e) Each of the representations and warranties of the
Company contained herein shall be true and correct in all material respects at
the Closing Date and, with respect to the Option Shares, at the Option Closing
Date, as if made at the Closing Date and, with respect to the Option Shares, at
the Option Closing Date, and all covenants and agreements herein contained to be
performed on the part of the Company and all conditions herein contained to be
fulfilled or complied with by the Company at or prior to the Closing Date and,
with respect to the Option Shares, at or prior to the Option Closing Date, shall
have been duly performed, fulfilled or complied with.
(f) The Representatives shall have received an opinion,
dated the Closing Date and, with respect to the Option Shares, the Option
Closing Date, and satisfactory in
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<PAGE> 14
form and substance to counsel for the Underwriters, from Latham & Watkins,
counsel to the Company, to the effect set forth in Exhibit C.
(g) The Representatives shall have received an opinion,
dated the Closing Date and, with respect to the Option Shares, the Option
Closing Date, and satisfactory in form and substance to counsel for the
Underwriters, from Darby & Darby, special intellectual property counsel to the
Company, to the effect set forth in Exhibit D.
(h) The Representatives shall have received an opinion,
dated the Closing Date and, with respect to the Option Shares, the Option
Closing Date, from Orrick, Herrington & Sutcliffe LLP, counsel to the
Underwriters, with respect to the Registration Statement, the Prospectus and
this Agreement, which opinion shall be satisfactory in all respects to the
Representatives.
(i) On the date of the Prospectus, the Accountants shall
have furnished to the Representatives a letter, dated the date of its delivery,
addressed to the Representatives and in form and substance satisfactory to the
Representatives, confirming that they are independent accountants with respect
to the Company as required by the Act and the Rules and Regulations and with
respect to the financial and other statistical and numerical information
contained in the Registration Statement. At the Closing Date and, as to the
Option Shares, the Option Closing Date, the Accountants shall have furnished to
the Representatives a letter, dated the date of its delivery, which shall
confirm, on the basis of a review in accordance with the procedures set forth in
the letter from the Accountants, that nothing has come to their attention during
the period from the date of the letter referred to in the prior sentence to a
date (specified in the letter) not more than five days prior to the Closing Date
and the Option Closing Date which would require any change in their letter dated
the date of the Prospectus, if it were required to be dated and delivered at the
Closing Date and the Option Closing Date.
(j) At the Closing Date and, as to the Option Shares, the
Option Closing Date, there shall be furnished to the Representatives an accurate
certificate, dated the date of its delivery, signed by each of the Chief
Executive Officer and the Chief Financial Officer of the Company, in form and
substance satisfactory to the Representatives, to the effect that:
(i) Each signer of such certificate has carefully
examined the Registration Statement and the Prospectus and (A) as of the
date of such certificate, such documents are true and correct in all
material respects and do not omit to state a material fact required to
be stated therein or necessary in order to make the statements therein
not untrue or misleading and (B) since the Effective Date, no event has
occurred as a result of which it is necessary to amend or supplement the
Prospectus in order to make the statements therein not untrue or
misleading in any material respect;
(ii) Each of the representations and warranties of
the Company contained in this Agreement were, when originally made, and
are, at the time such certificate is delivered, true and correct in all
material respects;
(iii) Each of the covenants required herein to be
performed by the Company on or prior to the delivery of such certificate
has been duly, timely and fully
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<PAGE> 15
performed and each condition herein required to be complied with by the
Company on or prior to the date of such certificate has been duly,
timely and fully complied with; and
(iv) Since the respective dates as of which
information is given in the Registration Statement and the Prospectus,
(A) there has not been, and no development has occurred which could
reasonably be expected to result in, a material adverse change in the
general affairs, business, business prospects, properties, management,
condition (financial or otherwise) or results of operations of the
Company whether or not arising from transactions in the ordinary course
of business, in each case other than as set forth in or contemplated by
the Registration Statement and the Prospectus and (B) the Company has
not sustained any material loss or interference with its business or
properties from fire, explosion, flood or other casualty, whether or not
covered by insurance, or from any labor dispute or any court or
legislative or other governmental action, order or decree, which is not
set forth in the Registration Statement and the Prospectus,
and such other matters as the Representatives may reasonably request.
(k) On or prior to the Closing Date, the Representatives
shall have received the executed agreements referred to in Section 4(n).
(l) The Shares shall be qualified for sale in such states as
the Representatives may reasonably request, each such qualification shall be in
effect and not subject to any stop order or other proceeding on the Closing Date
and the Option Closing Date.
(m) Prior to the Closing Date, the Shares shall have been
duly authorized for quotation on Nasdaq upon official notice of issuance.
(n) The NASD shall have approved the underwriting terms and
arrangements and such approval shall not have been withdrawn or limited.
(o) The Company shall have furnished to the Representatives
such certificates, in addition to those specifically mentioned herein, as the
Representatives may have reasonably requested as to the accuracy and
completeness at the Closing Date and the Option Closing Date of any statement in
the Registration Statement or the Prospectus as to the accuracy at the Closing
Date and the Option Closing Date of the representations and warranties of the
Company herein, as to the performance by the Company of its obligations
hereunder, or as to the fulfillment of the conditions concurrent and precedent
to the obligations hereunder of the Representatives.
6. Indemnification.
(a) The Company will indemnify and hold harmless each
Underwriter, the directors, officers, employees and agents of each Underwriter
and each person, if any, who controls each Underwriter within the meaning of
Section 15 of the Act or Section 20 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), from and against any and all losses, claims,
liabilities, expenses and damages (including, but not limited to, any and all
investigative, legal and other expenses reasonably incurred in connection with,
and any and all
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<PAGE> 16
amounts paid in settlement of, any action, suit or proceeding between any of the
indemnified parties and any indemnifying parties or between any indemnified
party and any third party, or otherwise, or any claim asserted), as and when
incurred, to which any Underwriter, or any such person, may become subject under
the Act, the Exchange Act or other Federal or state statutory law or regulation,
at common law or otherwise, insofar as such losses, claims, liabilities,
expenses or damages arise out of or are based on (i) any untrue statement or
alleged untrue statement of a material fact contained in any preliminary
prospectus, the Registration Statement or the Prospectus or any amendment or
supplement to the Registration Statement or the Prospectus or in any application
or other document executed by or on behalf of the Company or based on written
information furnished by or on behalf of the Company filed in any jurisdiction
in order to qualify the Shares under the securities laws thereof or filed with
the Commission, (ii) the omission or alleged omission to state in such document
a material fact required to be stated in it or necessary to make the statements
in it not misleading or (iii) any act or failure to act or any alleged act or
failure to act by any Underwriter in connection with, or relating in any manner
to, the Shares or the offering contemplated hereby, and which is included as
part of or referred to in any loss, claim, liability, expense or damage arising
out of or based upon matters covered by clause (i) or (ii) above (provided that
the Company shall not be liable under this clause (iii) to the extent it is
finally judicially determined by a court of competent jurisdiction that such
loss, claim, liability, expense or damage resulted directly from any such acts
or failures to act undertaken or omitted to be taken by such underwriter through
its gross negligence or willful misconduct); provided that the Company will not
be liable to the extent that such loss, claim, liability, expense or damage
arises from the sale of the Shares in the public offering to any person by an
Underwriter and is based on an untrue statement or omission or alleged untrue
statement or omission made in reliance on and in conformity with information
relating to any Underwriter furnished in writing to the Company by the
Representatives on behalf of any Underwriter expressly for inclusion in the
Registration Statement, any preliminary prospectus or the Prospectus. This
indemnity agreement will be in addition to any liability that the Company might
otherwise have.
(b) The Company will also indemnify and hold harmless
Josephthal & Co. Inc., acting "as qualified independent underwriter" within the
meaning of Rules 2720(b)(15)(A) through (b)(15)(G) of the Conduct Rules of the
National Association of Securities Dealers, Inc. (the "QIU"), the directors,
officers, employees, and agents and each person, if any, who controls the QIU
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act,
against any losses, claims, liabilities, expenses and damages (including, but
not limited to, any and all investigative, legal and other expenses reasonably
incurred in connection with, and any and all amounts paid in settlement of, any
action, suit or proceeding between any of the indemnified parties and any
indemnifying parties or between any indemnified parties and any third party, or
otherwise, or any claim asserted), as and when incurred, as a result of the
QIU's participation as a "qualified independent underwriter" in connection with
the offering of the Common Stock, except for any losses, claims liabilities,
expenses, damages and judgments resulting from the QIU's or such controlling
person's willful misconduct or gross negligence.
(c) Each Underwriter will indemnify and hold harmless the
Company, each person, if any, who controls the Company within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act, each director of the
Company and each officer of the Company
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<PAGE> 17
who signs the Registration Statement to the same extent as the foregoing
indemnity from the Company to each Underwriter, but only insofar as losses,
claims, liabilities, expenses or damages arise out of or are based on any untrue
statement or omission or alleged untrue statement or omission made in reliance
on and in conformity with information relating to any Underwriter furnished in
writing to the Company by the Representatives on behalf of such Underwriter
expressly for use in the Registration Statement, the Preliminary Prospectus or
the Prospectus. This indemnity will be in addition to any liability that each
Underwriter might otherwise have; provided, however, that in no case shall any
Underwriter be liable or responsible for any amount in excess of the
underwriting discounts and commissions received by such Underwriter.
(d) Any party that proposes to assert the right to be
indemnified under this Section 6 will, promptly after receipt of notice of
commencement of any action against such party in respect of which a claim is to
be made against an indemnifying party or parties under this Section 6, notify
each such indemnifying party of the commencement of such action, enclosing a
copy of all papers served, but the omission so to notify such indemnifying party
will not relieve it from any liability that it may have to any indemnified party
under the foregoing provisions of this Section 6 unless, and only to the extent
that, such omission results in the forfeiture of substantive rights or defenses
by the indemnifying party. If any such action is brought against any indemnified
party and it notifies the indemnifying party of its commencement, the
indemnifying party will be entitled to participate in and, to the extent that it
elects by delivering written notice to the indemnified party promptly after
receiving notice of the commencement of the action from the indemnified party,
jointly with any other indemnifying party similarly notified, to assume the
defense of the action, with counsel satisfactory to the indemnified party, and
after notice from the indemnifying party to the indemnified party of its
election to assume the defense, the indemnifying party will not be liable to the
indemnified party for any legal or other expenses except as provided below and
except for the reasonable costs of investigation subsequently incurred by the
indemnified party in connection with the defense. The indemnified party will
have the right to employ its own counsel in any such action, but the fees,
expenses and other charges of such counsel will be at the expense of such
indemnified party unless (1) the employment of counsel by the indemnified party
has been authorized in writing by the indemnifying party, (2) the indemnified
party has reasonably concluded (based on advice of counsel) that there may be
legal defenses available to it or other indemnified parties that are different
from or in addition to those available to the indemnifying party, (3) a conflict
or potential conflict exists (based on advice of counsel to the indemnified
party) between the indemnified party and the indemnifying party (in which case
the indemnifying party will not have the right to direct the defense of such
action on behalf of the indemnified party) or (4) the indemnifying party has not
in fact employed counsel to assume the defense of such action within a
reasonable time after receiving notice of the commencement of the action, in
each of which cases the reasonable fees, disbursements and other charges of
counsel will be at the expense of the indemnifying party or parties. It is
understood that the indemnifying party or parties shall not, in connection with
any proceeding or related proceedings in the same jurisdiction, be liable for
the reasonable fees, disbursements and other charges of more than one separate
firm admitted to practice in such jurisdiction at any one time for all such
indemnified party or parties. All such fees, disbursements and other charges
will be reimbursed by the indemnifying party promptly as they are incurred. An
indemnifying party will not be liable for any settlement of any action or claim
effected without its written consent (which consent will not be unreasonably
withheld). No indemnifying party shall, without the prior written consent of
each indemnified party, settle
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<PAGE> 18
or compromise or consent to the entry of any judgment in any pending or
threatened claim, action or proceeding relating to the matters contemplated by
this Section 6 (whether or not any indemnified party is a party thereto), unless
such settlement, compromise or consent includes an unconditional release of each
indemnified party from all liability arising or that may arise out of such
claim, action or proceeding. Notwithstanding any other provision of this Section
6(d), if at any time an indemnified party shall have requested an indemnifying
party to reimburse the indemnified party for fees and expenses of counsel, such
indemnifying party agrees that it shall be liable for any settlement effected
without its written consent if (i) such settlement is entered into more than 45
days after receipt by such indemnifying party of the aforesaid request, (ii)
such indemnifying party shall have received notice of the terms of such
settlement at least 30 days prior to such settlement being entered into and
(iii) such indemnifying party shall not have reimbursed such indemnified party
in accordance with such request prior to the date of such settlement.
(e) In order to provide for just and equitable contribution
in circumstances in which the indemnification provided for in the foregoing
paragraphs of this Section 6 is applicable in accordance with its terms but for
any reason is held to be unavailable from the Company or the Underwriters, the
Company and the Underwriters will contribute to the total losses, claims,
liabilities, expenses and damages (including any investigative, legal and other
expenses reasonably incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claim asserted, but after
deducting any contribution received by the Company from persons other than the
Underwriters, such as persons who control the Company within the meaning of the
Act, officers of the Company who signed the Registration Statement and directors
of the Company, who also may be liable for contribution) to which the Company
and any one or more of the Underwriters may be subject in such proportion as
shall be appropriate to reflect the relative benefits received by the Company on
the one hand and the Underwriters on the other. The relative benefits received
by the Company on the one hand and the Underwriters on the other shall be deemed
to be in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company bear to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the Prospectus. If, but only if, the
allocation provided by the foregoing sentence is not permitted by applicable
law, the allocation of contribution shall be made in such proportion as is
appropriate to reflect not only the relative benefits referred to in the
foregoing sentence but also the relative fault of the Company, on the one hand,
and the Underwriters, on the other, with respect to the statements or omissions
which resulted in such loss, claim, liability, expense or damage, or action in
respect thereof, as well as any other relevant equitable considerations with
respect to such offering. Such relative fault shall be determined by reference
to whether the untrue or alleged untrue statement of a material fact or omission
or alleged omission to state a material fact relates to information supplied by
the Company or the Representatives on behalf of the Underwriters, the intent of
the parties and their relative knowledge, access to information and opportunity
to correct or prevent such statement or omission. The Company and the
Underwriters agree that Josephthal & Co. Inc. will not receive any additional
benefits hereunder for serving as the QIU in connection with the offering. The
Company and the Underwriters agree that it would not be just and equitable if
contributions pursuant to this Section 6(e) were to be determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take into account
the equitable considerations referred to herein. The amount
18
<PAGE> 19
paid or payable by an indemnified party as a result of the loss, claim,
liability, expense or damage, or action in respect thereof, referred to above in
this Section 6(e) shall be deemed to include, for purpose of this Section 6(e),
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 6(e), no Underwriter shall be
required to contribute any amount in excess of the underwriting discounts and
commissions received by it and no person found guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) will be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute as provided in
this Section 6(e) are several in proportion to their respective underwriting
obligations and not joint. For purposes of this Section 6(e), any person who
controls a party to this Agreement within the meaning of the Act will have the
same rights to contribution as that party, and each officer of the Company who
signed the Registration Statement will have the same rights to contribution as
the Company, subject in each case to the provisions hereof. Any party entitled
to contribution, promptly after receipt of notice of commencement of any action
against such party in respect of which a claim for contribution may be made
under this Section 6(e), will notify any such party or parties from whom
contribution may be sought, but the omission so to notify will not relieve the
party or parties from whom contribution may be sought from any other obligation
it or they may have under this Section 6(e). Except for a settlement entered
into pursuant to the last sentence of Section 6(d) hereof, no party will be
liable for contribution with respect to any action or claim settled without its
written consent (which consent will not be unreasonably withheld).
(f) The indemnity and contribution agreements contained in
this Section 6 and the representations and warranties of the Company contained
in this Agreement shall remain operative and in full force and effect regardless
of (i) any investigation made by or on behalf of the Underwriters, (ii)
acceptance of the Shares and payment therefore or (iii) any termination of this
Agreement.
7. Termination. The obligations of the several Underwriters under
this Agreement may be terminated at any time on or prior to the Closing Date
(or, with respect to the Option Shares, on or prior to the Option Closing Date)
by notice to the Company from the Representatives, without liability on the part
of any Underwriter to the Company, if, prior to delivery and payment for the
Shares (or the Option Shares, as the case may be), in the sole judgment of the
Representatives, (i) there has been, since the respective dates as of which
information is given in the Registration Statement, any material adverse change
in the Company's business, properties, business prospects, condition (financial
or otherwise) or results of operations, (ii) trading in any of the equity
securities of the Company shall have been suspended by the Commission, the NASD
or by Nasdaq, (iii) trading in securities generally on the New York Stock
Exchange or Nasdaq shall have been suspended or limited or minimum or maximum
prices shall have been generally established on such exchange or over the
counter market, or additional material governmental restrictions, not in force
on the date of this Agreement, shall have been imposed upon trading in
securities generally by such exchange or by order of the Commission or the NASD
or any court or other governmental authority, (iv) a general banking moratorium
shall have been declared by either Federal or New York State authorities or (v)
any material adverse change in the financial or securities markets in the United
States or in political, financial or economic conditions in the United States or
any outbreak or material escalation of hostilities or declaration by the United
States of a national emergency or
19
<PAGE> 20
war or other calamity or crisis shall have occurred the effect of any of which
is such as to make it, in the sole judgment of the Representatives,
impracticable or inadvisable to market the Shares on the terms and in the manner
contemplated by the Prospectus.
8. Substitution of Underwriters. If any one or more of the
Underwriters shall fail or refuse to purchase any of the Firm Shares which it or
they have agreed to purchase hereunder, and the aggregate number of Firm Shares
which such defaulting Underwriter or Underwriters agreed but failed or refused
to purchase is not more than one-tenth of the aggregate number of Firm Shares,
the other Underwriters shall be obligated, severally, to purchase the Firm
Shares which such defaulting Underwriter or Underwriters agreed but failed or
refused to purchase, in the proportions which the number of Firm Shares which
they have respectively agreed to purchase pursuant to Section 1 bears to the
aggregate number of Firm Shares which all such non-defaulting Underwriters have
so agreed to purchase, or in such other proportions as the Representatives may
specify; provided that in no event shall the maximum number of Firm Shares which
any Underwriter has become obligated to purchase pursuant to Section 1 be
increased pursuant to this Section 8 by more than one-ninth of the number of
Firm Shares agreed to be purchased by such Underwriter without the prior written
consent of such Underwriter. If any Underwriter or Underwriters shall fail or
refuse to purchase any Firm Shares and the aggregate number of Firm Shares which
such defaulting Underwriter or Underwriters agreed but failed or refused to
purchase exceeds one-tenth of the aggregate number of the Firm Shares and
arrangements satisfactory to the Representatives and the Company for the
purchase of such Firm Shares are not made within 48 hours after such default,
this Agreement will terminate without liability on the part of any
non-defaulting Underwriter or the Company for the purchase or sale of any Shares
under this Agreement. In any such, case either the Representatives or the
Company shall have the right to postpone the Closing Date, but in no event for
longer than seven days, in order that the required changes, if any, in the
Registration Statement and in the Prospectus or in any other documents or
arrangements may be effected. Any action taken pursuant to this Section 8 shall
not relieve any defaulting Underwriter from liability in respect of any default
of such Underwriter under this Agreement.
9. Miscellaneous. Notice given pursuant to any of the provisions of
this Agreement shall be in writing and, unless otherwise specified, shall be
mailed or delivered (a) if to the Company, at the office of the Company, 201
Lomas Santa Fe Drive, Solana Beach, California 92075, Attention: Harry E.
Gruber, Chairman of the Board and Chief Executive Officer, or (b) if to the
Underwriters, to the Representatives at the offices of PaineWebber Incorporated,
1285 Avenue of the Americas, New York, New York 10019, Attention: Corporate
Finance Department. Any such notice shall be effective only upon receipt. Any
notice under Section 7 or 8 may be made by telex or telephone, but if so made
shall be subsequently confirmed in writing.
This Agreement has been and is made solely for the benefit of the
several Underwriters and the Company and of the controlling persons, directors
and officers referred to in Section 6, and their respective successors and
assigns, and no other person shall acquire or have any right under or by virtue
of this Agreement. The term "successors and assigns" as used in this Agreement
shall not include a purchaser, as such purchaser, of Shares from any of the
several Underwriters.
20
<PAGE> 21
All representations, warranties and agreements of the Company contained
herein or in certificates or other instruments delivered pursuant hereto, shall
remain operative and in full force and effect regardless of any investigation
made by or on behalf of any Underwriter or any of its controlling persons and
shall survive delivery of and payment for the Shares hereunder.
Any action required or permitted to be taken by the Representatives
under this Agreement may be taken by them jointly or by PaineWebber
Incorporated.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICT OF LAWS PRINCIPLES
OF SUCH STATE.
This Agreement may be signed in two or more counterparts with the same
effect as if the signatures thereto and hereto were upon the same instrument.
In case any provision in this Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
The Company and the Underwriters each hereby irrevocably waive any right
they may have to a trial by jury in respect of any claim based upon or arising
out of this Agreement or the transactions contemplated hereby.
This Agreement may not be amended or otherwise modified or any provision
hereof waived except by an instrument in writing signed by the Representatives
and the Company.
Please confirm that the foregoing correctly sets forth the agreement
among the Company and the several Underwriters.
21
<PAGE> 22
Very truly yours,
INTERVU INC.
By:______________________________________
Title:
Confirmed as of the date first above mentioned:
PAINEWEBBER INCORPORATED
JOSEPHTHAL & CO. INC.
CRUTTENDEN ROTH INCORPORATED
Acting on behalf of
themselves and as the
Representatives of the
other several Underwriters
named in Schedule I hereof.
By: PAINEWEBBER INCORPORATED
By: ____________________________
Title:
22
<PAGE> 23
SCHEDULE I
UNDERWRITERS
<TABLE>
<CAPTION>
Number of
Firm Shares
Underwriter to be Purchased
- ----------- ---------------
<S> <C>
PaineWebber Incorporated...............................................
Josephthal & Co. Inc...................................................
Cruttenden Roth Incorporated...........................................
Total ................................................................... _______________
2,000,000
===============
</TABLE>
<PAGE> 24
EXHIBIT A
INTERVU INC.
---------------------
PRICE DETERMINATION AGREEMENT
May __, 1998
PAINEWEBBER INCORPORATED
JOSEPHTHAL & CO. INC.
CRUTTENDEN ROTH INCORPORATED
As Representatives of the several Underwriters
c/o PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019
Dear Sirs:
Reference is made to the Underwriting Agreement, dated May __, 1998 (the
"Underwriting Agreement"), among InterVU Inc., a Delaware corporation (the
"Company"), and the several Underwriters named in Schedule I thereto or hereto
(the "Underwriters"), for whom PaineWebber Incorporated, Josephthal & Co. Inc.
and Cruttenden Roth Incorporated are acting as representatives (the
"Representatives"). The Underwriting Agreement provides for the purchase by the
Underwriters from the Company, subject to the terms and conditions set forth
therein, of an aggregate of 2,000,000 shares (the "Firm Shares") of the
Company's common stock, par value $0.001 per share. This Agreement is the Price
Determination Agreement referred to in the Underwriting Agreement.
Pursuant to Section 1 of the Underwriting Agreement, the undersigned
agree with the Representatives as follows:
The initial public offering price per share for the Firm Shares shall be
$_______.
The purchase price per share for the Firm Shares to be paid by the
several Underwriters shall be $_______, representing an amount equal to the
initial public offering price set forth above less $______ per share.
The Company represents and warrants to each of the Underwriters that the
representations and warranties of the Company set forth in Section 3 of the
Underwriting Agreement are accurate as though expressly made at and as of the
date hereof.
A-1
<PAGE> 25
As contemplated by the Underwriting Agreement, attached as Schedule I is
a complete list of the several Underwriters, which list shall be a part of this
Agreement and the Underwriting Agreement.
THIS AGREEMENT SHALL BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK
WITHOUT REGARD TO THE CONFLICT OF LAWS PRINCIPLES OF SUCH STATE.
If the foregoing is in accordance with your understanding of the
agreement among the Underwriters and the Company, please sign and return to the
Company a counterpart hereof, whereupon this instrument along with all
counterparts and together with the Underwriting Agreement shall be a binding
agreement among the Underwriters and the Company in accordance with its terms
and the terms of the Underwriting Agreement.
Very truly yours,
INTERVU INC.
By:_________________________
Title:
Confirmed as of the date first above mentioned:
PAINEWEBBER INCORPORATED
JOSEPHTHAL & CO. INC.
CRUTTENDEN ROTH INCORPORATED
Acting on behalf of themselves
and as the Representatives
of the other several Underwriters
named in Schedule I hereof.
By: PAINEWEBBER INCORPORATED
By: ________________________
Title:
A-2
<PAGE> 26
EXHIBIT B
April 30, 1998
PAINEWEBBER INCORPORATED
JOSEPHTHAL & CO. INC.
CRUTTENDEN ROTH INCORPORATED
As Representatives of the
several Underwriters
c/o PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019
Dear Sirs:
In consideration of the agreement of the several Underwriters, for which
PaineWebber Incorporated, Josephthal & Co. Inc. and Cruttenden Roth Incorporated
(the "Representatives") intend to act as Representatives, to underwrite a
proposed public offering (the "Offering") of 2,000,000 shares of Common Stock,
par value $0.001 per share (the "Common Stock"), of InterVU Inc., a Delaware
corporation, as contemplated by a registration statement with respect to such
shares filed with the Securities and Exchange Commission on Form S-1
(Registration No. _________), the undersigned hereby agrees that the undersigned
will not, for a period of 120 days after the commencement of the public offering
of such shares, without the prior written consent of PaineWebber Incorporated,
offer to sell, sell, contract to sell, grant any option to sell, or otherwise
dispose of, or require the Company to file with the Securities and Exchange
Commission a registration statement under the Securities Act of 1933 to register
any shares of Common Stock or securities convertible into or exchangeable for
Common Stock or warrants or other rights to acquire shares of Common Stock of
which the undersigned is now, or may in the future become, the beneficial owner
within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934.
Very truly yours,
By:________________________
Print Name:________________________
B-1
<PAGE> 27
EXHIBIT C
Form of Opinion of
Counsel to the Company
1. The Company is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation and
has full corporate power and authority to conduct all the activities conducted
by it, to own or lease all the assets owned or leased by it and to conduct its
business as described in the Registration Statement and the Prospectus. To our
knowledge, the Company has no subsidiaries.
2. All of the outstanding shares of Common Stock have been, and the
Shares, when paid for by the Underwriters in accordance with the terms of the
Underwriting Agreement, will be, duly authorized, validly issued, fully paid and
nonassessable and will not be subject to any preemptive or similar right under
(i) the statutes, judicial and administrative decisions, and the rules and
regulations of the governmental agencies of the State of Delaware, (ii) the
Company's certificate of incorporation or by-laws or (iii) any instrument,
document, contract or other agreement referred to in the Registration Statement
or any instrument, document, contract or agreement filed as an exhibit to the
Registration Statement. Except as described in the Registration Statement or the
Prospectus, to the best of our knowledge, there is no commitment or arrangement
to issue, and there are no outstanding options, warrants or other rights calling
for the issuance of, any shares of capital stock of the Company to any person or
any security or other instrument that by its terms is convertible into,
exercisable for or exchangeable for capital stock of the Company.
3. No consent, approval, authorization or order of, or any filing
or declaration with, any court or governmental agency or body is required in
connection with the authorization, issuance, transfer, sale or delivery of the
Shares by the Company, in connection with the execution, delivery and
performance of the Underwriting Agreement by the Company or in connection with
the taking by the Company of any action contemplated thereby, except such as
have been obtained under the Act and the Rules and Regulations and such as may
be required under state securities or "Blue Sky" laws or by the by-laws and
rules of the NASD in connection with the purchase and distribution by the
Underwriters of the Shares to be sold by the Company. All references in this
opinion to the Underwriting Agreement shall include the Price Determination
Agreement.
4. The authorized, issued and outstanding capital stock of the
Company is as set forth in the Registration Statement and the Prospectus under
the caption "Capitalization." The description of the Common Stock contained in
the Prospectus is complete and accurate in all material respects. The form of
certificate used to evidence the Common Stock is in due and proper form and
complies with all applicable statutory requirements.
C-1
<PAGE> 28
5. The Registration Statement and the Prospectus comply in all
material respects as to form with the requirements of the Act and the Rules and
Regulations (except that we express no opinion as to financial statements and
other financial data contained in the Registration Statement or the Prospectus).
6. To the best of our knowledge, any instrument, document, lease,
license, contract or other agreement (collectively, "Documents") required to be
described or referred to in the Registration Statement or the Prospectus has
been properly described or referred to therein and any Document required to be
filed as an exhibit to the Registration Statement has been filed as an exhibit
thereto; and no default exists in the due performance or observance of any
material obligation, agreement, covenant or condition contained in any Document
filed or required to be filed as an exhibit to the Registration Statement.
7. To the best of our knowledge, except as disclosed in the
Registration Statement or the Prospectus, no person or entity has the right to
require the registration under the Act of shares of Common Stock or other
securities of the Company by reason of the filing or effectiveness of the
Registration Statement.
8. To the best of our knowledge, the Company is not in violation
of, or in default with respect to, any law, rule, regulation, order, judgment or
decree, except as may be described in the Prospectus or such as in the aggregate
do not now have and will not in the future have a material adverse effect upon
the operations, business or assets of the Company.
9. All descriptions in the Prospectus of statutes, regulations or
legal or governmental proceedings are accurate and fairly present the
information required to be shown.
10. The Company has full corporate power and authority to enter into
the Underwriting Agreement, and the Underwriting Agreement has been duly
authorized, executed and delivered by the Company, is a valid and binding
agreement of the Company and, except for the indemnification and contribution
provisions thereof, as to which we express no opinion, is enforceable against
the Company in accordance with the terms thereof.
11. The execution and delivery by the Company of, and the
performance by the Company of its agreements in, the Underwriting Agreement do
not and will not (i) violate the certificate of incorporation or by-laws of the
Company, (ii) breach or result in a default under, cause the time for
performance of any obligation to be accelerated under, or result in the creation
or imposition of any lien, charge or encumbrance upon any of the assets of the
Company pursuant to the terms of, (x) any indenture, mortgage, deed of trust,
loan agreement, bond, debenture, note agreement, capital lease or other evidence
of indebtedness of which we have knowledge, (y) any voting trust arrangement or
any contract or other agreement to which the Company is a party that restricts
the ability of the Company to issue securities and of which we have knowledge or
(z) any Document filed as an exhibit to the Registration Statement, (iii) breach
or otherwise violate any existing obligation of the Company under any court or
administrative order, judgment or decree of which we have knowledge or (iv)
violate applicable provisions of any statute or regulation in the States of
California, Delaware, Georgia and New York or of the United States.
C-2
<PAGE> 29
12. Delivery of certificates for the Shares will transfer valid and
marketable title thereto to each Underwriter that has purchased such Shares in
good faith and without notice of any adverse claim with respect thereto.
13. The Company is not an "investment company" or an "affiliated
person" of, or "promoter" or "principal underwriter" for, an "investment
company," as such terms are defined in the Investment Company Act of 1940, as
amended.
14. The Shares have been duly authorized for quotation on Nasdaq
upon official notice of issuance.
15. We hereby confirm to you that we have been advised by the
Commission that the Registration Statement has become effective under the Act
and that no order suspending the effectiveness of the Registration Statement has
been issued and no proceeding for that purpose has been instituted or is
pending, threatened or contemplated.
16. We hereby further confirm to you that there are no actions,
suits, proceedings or investigations pending or, to our knowledge, overtly
threatened in writing against the Company, or any of its officers or directors
in their capacities as such, before or by any court, governmental agency or
arbitrator which (i) seek to challenge the legality or enforceability of the
Underwriting Agreement, (ii) seek to challenge the legality or enforceability of
any of the Documents filed, or required to be filed, as exhibits to the
Registration Statement, (iii) seek damages or other remedies with respect to any
of the Documents filed, or required to be filed, as exhibits to the Registration
Statement, (iv) except as set forth in or contemplated by the Registration
Statement and the Prospectus, seek money damages in excess of $50,000 or seek to
impose criminal penalties upon the Company or any of its respective officers or
directors in their capacities as such and of which we have knowledge or (v) seek
to enjoin any of the business activities of the Company or the transactions
described in the Prospectus and of which we have knowledge.
We have participated in the preparation of the Registration Statement
and the Prospectus and, without assuming any responsibility for the accuracy,
completeness or fairness of the statements contained in the Registration
Statement or the Prospectus or in any amendment or supplement thereto nothing
has come to our attention that causes us to believe that, both as of the
Effective Date and as of the Closing Date and the Option Closing Date, the
Registration Statement or any amendment thereto contained or contains any untrue
statement of a material fact or omitted or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading or that any Prospectus or any amendment or supplement thereto at the
time such Prospectus was issued, at the time any such amended or supplemented
Prospectus was issued, at the Closing Date and the Option Closing Date,
contained or contains any untrue statement of a material fact or omitted or
omits to state a material fact necessary in order to make the statements
therein, in the light of the circumstances in which they were made, not
misleading (except that we express no opinion as to financial statements and
other financial data contained in the Registration Statement or the Prospectus.
The foregoing opinion is subject to the qualification that the
enforceability of the Underwriting Agreement may be: (i) subject to bankruptcy,
insolvency, reorganization,
C-3
<PAGE> 30
moratorium or similar laws affecting creditors' rights generally; and (ii)
subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding at law or in equity) including
principles of commercial reasonableness or conscionability and an implied
covenant of good faith and fair dealing.
This letter is furnished by us solely for your benefit in connection
with the transactions referred to in the Underwriting Agreement and may not be
circulated to, or relied upon by, any other person, except that this letter may
be relied upon by your counsel in connection with the opinion letter to be
delivered to you pursuant to Section 5(h) of the Underwriting Agreement.
In rendering the foregoing opinion, counsel may rely, to the extent they
deem such reliance proper, on the opinions (in form and substance reasonably
satisfactory to Underwriters' counsel) of other counsel reasonably acceptable to
Underwriters' counsel as to matters governed by the laws of jurisdictions other
than the United States and the State of California and as to matters of fact,
upon certificates of officers of the Company and of government officials;
provided that such counsel shall state that the opinion of any other counsel is
in form satisfactory to such counsel. Copies of all such opinions and
certificates shall be furnished to counsel to the Underwriters on the Closing
Date.
C-4
<PAGE> 31
EXHIBIT D
Form of Opinion Of Special
Intellectual Property Counsel To The Company
May __, 1998
PAINEWEBBER INCORPORATED
JOSEPHTHAL & CO. INC.
CRUTTENDEN ROTH INCORPORATED
As Representatives of the Several Underwriters
c/o PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019
Re: Public Offering of InterVU Inc.
Gentlemen:
We have acted as special counsel for intellectual property
matters to InterVU Inc., a Delaware corporation (the "Company"), in connection
with the transactions contemplated by the Underwriting Agreement, dated May __,
1998, by and among PaineWebber Incorporated, Josephthal & Co. Inc. and
Cruttenden Roth Incorporated, as representatives of the several underwriters
named in Schedule I thereto, and the Company (the "Underwriting Agreement").
This opinion is provided to you pursuant to Section 5(g) of the Underwriting
Agreement.
For the purpose of rendering the opinions set forth below we
have reviewed the following (collectively, the "Documents"):
(i) the Underwriting Agreement;
(ii) that certain Registration Statement filed by the Company on
April __, 1998, together with all amendments thereto and
exhibits thereto (collectively, the "Registration Statement");
(iii) the Company's Prospectus dated May __, 1998 (the "Prospectus");
(iv) a search of the United States Patent and Trademark Office
records relevant to ownership of any and all:
D-1
<PAGE> 32
(a) patents and patent applications, including, without
limitation, the patents and patent applications listed
on Schedule A annexed hereto and incorporated by
reference herein (collectively, the "Patents"), and
(b) trademarks, trademark applications, service marks and
service mark applications, including, without
limitation, the trademarks listed on Schedule B annexed
hereto and incorporated by reference herein
(collectively, the "Trademarks"),
owned or purportedly owned by the Company, including those
patents, patent applications and marks licensed to the Company
(collectively, the "Licenses"); conducted by J. F. Brown
Associates, Arlington Virginia and represented to us as true and
correct as of May __, 1998;
(v) a search of the United States Copyright Office records relevant
to ownership of any and all copyrighted material owned,
purportedly owned or licensed by the Company (collectively, the
"Copyrights") conducted by Thompson & Thompson, Washington, D.C.
and represented to us as true and correct as of May __, 1998;
(vi) a LitAlert intellectual property litigation search conducted by
us with respect to the Company and all Patents, Trademarks and
Copyrights identified in paragraphs (iv) and (v) above;
(vii) a search of the Uniform Commercial Code ("UCC") recordation
offices in the jurisdictions of Delaware and California, with
respect to the following two categories of general intangibles:
(a) the intellectual property general intangibles of the
Company, including, without limitation, the Company's patents,
patent applications, inventions, know-how, trademarks, service
marks, copyrights, service and trade names, intellectual
property licenses and other rights, and
(b) the intellectual property general intangibles licensed
to the Company, including, without limitation, the patents,
patent applications, inventions, know-how, trademarks, service
marks, copyrights, service and trade names and other
intellectual property rights licensed to the Company pursuant to
the Licenses,
said search conducted by Corporation Trust UCC Services, New York, New
York and represented to us as accurate and current through May __, 1998;
said jurisdictions being the most likely jurisdictions, if any, apart
from the records of the U.S. Patent & Trademark Office and the U.S.
Copyright Office, in which filing of UCC financing statements or other
documents may be filed to evidence a security or other interest in said
general intangibles; and
(viii) any and all records, documents, instruments and agreements in
our possession or under our control relating to the Company.
D-2
<PAGE> 33
We have also examined such corporate records, documents, instruments and
agreements, and inquired into such other matters, as we have deemed necessary or
appropriate as a basis for the opinions set forth herein.
Whenever our opinion herein is qualified by the phrase "to the best of
our knowledge" or "to the best of our knowledge, after due inquiry," such
language means that, based upon (i) our inquiries of officers of the Company,
(ii) our review of the Documents, and (iii) our review of such other corporate
records, documents, instruments and agreements described in the first sentence
of paragraph (h) above, we believe that such opinions are factually correct.
To our best knowledge, based on this inquiry, we are not aware of any
copyright registrations owned or purported to be owned by the Company.
To our best knowledge, based on this inquiry, we are not aware of any
specific intellectual property rights, including specific patents, trademarks,
or copyrights, which have been licensed to the Company, or which have been
identified with sufficient particularity for a search to be conducted. We are
aware that the Company has non-exclusively purchased, leased or licensed the use
of certain hardware and software products, such as computer equipment and widely
used computer or network operating systems or database management tools,
including products of Microsoft, Inc. and Sybase, Inc. These products may be
subject to intellectual property rights of third parties. Specific patents,
trademarks and copyrights which may be owned by third parties in connection with
these products have not been identified. To our best knowledge, the Company's
intellectual property position is not dependent upon the use of these products,
nor to our best knowledge has the Company taken any exclusive license in any
intellectual property from any third-party. Thus, to our best knowledge there
are no "Licenses" as defined and intended by paragraphs (iv)(b) and (vii)(b)
above, and accordingly, we have not conducted and do not rely on any
intellectual property search as to such "Licenses," companies or products.
To the best of our knowledge, as to all matters of fact represented to
you by the Company in the documents we have reviewed, and concerning the
Company's intellectual property position, we advise you that nothing has come to
our attention that would cause us to believe that such facts are incorrect,
incomplete or misleading or that reliance thereon is not warranted under the
circumstances. We call to your attention that our opinion is limited to such
facts as they exist on the date hereof and do not take into account any change
of circumstances, fact or law subsequent thereto.
Based upon and subject to the foregoing, we are of the opinion that:
1. To the best of our knowledge, after due inquiry, except as
described in the Prospectus or Registration Statement, the Company owns or has
the right to use, free and clear of all liens, encumbrances, pledges, security
interests, defects or other restrictions or equities of any kind whatsoever,
D-3
<PAGE> 34
(a) all patents and patent applications owned or purported
to be owned by the Company and used in, or required for,
the conduct of the Company's business (including,
without limitation, the Patents);
(b) all trademarks, tradenames, service marks and service
names owned or purported to be owned by the Company and
used in, or required for, the conduct of the Company's
business (including, without limitation, the
Trademarks);
(c) all copyrights owned or purported to be owned by the
Company and used in, or required for, the conduct of the
Company's business (including, without limitation, the
Copyrights); and
(d) all intellectual property licenses used in, or required
for, the conduct of the Company's business (including,
without limitation, the Licenses).
2. To the best of our knowledge, after due inquiry, there is no
claim or action, pending, threatened or potential, which affects or could affect
the rights of the Company with respect to any trademarks, service marks,
copyrights, service names, trade names, patents, patent applications or licenses
owned or purported to be owned by the Company and used in, or required for, the
conduct of the Company's business.
3. To the best of our knowledge, after due inquiry as specified
herein, there is no intellectual property based claim or action, pending,
threatened or potential, which affects or could affect the rights of the Company
with respect to any products, services, processes or licenses used in the
conduct of the Company's business.
4. To the best of our knowledge, after due inquiry, except as
described in the Prospectus or Registration Statement, the Company is not under
any obligation to pay royalties or fees to any third party with respect to any
material, technology or intellectual properties developed, employed, licensed or
used by the Company.
5. To the best of our knowledge, after due inquiry, the statements
in the Prospectus and Registration Statement under the headings "Risk Factors -
Intellectual Property" and "Business - Intellectual Property" are accurate in
all material respects, fairly represent the information disclosed therein and do
not omit to state any fact necessary to make the statements made therein
complete and accurate.
6. To the best of our knowledge, after due inquiry, the statements
in the Prospectus and Registration Statement do not contain any untrue statement
of a material fact with respect to the intellectual property position of the
Company, or omit to state any material fact relating to the intellectual
property position of the Company which is necessary to make the statements
therein not misleading.
We call your attention to the fact that members of this firm are
licensed to practice law in the States of New York or California and before the
United States Patent and Trademark Office
D-4
<PAGE> 35
as Registered Patent Attorneys. We express no opinion with respect to the laws,
rules and regulations of any jurisdictions other than the States of New York or
California and the United States of America.
The opinions expressed herein are for the sole benefit of, and may be
relied upon only by, the several Underwriters named in Schedule I to the
Underwriting Agreement and Orrick, Herrington & Sutcliffe LLP.
Very truly yours,
Darby & Darby
D-5
<PAGE> 1
EXHIBIT 5.1
[LATHAM & WATKINS LETTERHEAD]
May 19, 1998
InterVU Inc.
201 Lomas Santa Fe Drive
Solana Beach, California 92075
Re: Registration Statement on Form S-1, File No. 333-51587;
2,300,000 Shares of Common Stock, Par Value $.001 Per Share
Ladies and Gentlemen:
In connection with the registration by InterVU Inc., a Delaware
corporation (the "Company"), of 2,300,000 shares of common stock of the Company,
par value $.001 per share (the "Shares"), under the Securities Act of 1933, as
amended (the "Act"), on a Registration Statement on Form S-1 filed with the
Securities and Exchange Commission (the "Commission") on May 1, 1998 (File No.
333-51587), as amended by Amendment No. 1 filed with the Commission on May 6,
1998 and Amendment No. 2 filed with the Commission on May 19, 1998
(collectively, the "Registration Statement"), you have requested our opinion
with respect to the matters set forth below.
In our capacity as your counsel in connection with such
registration, we are familiar with the proceedings taken by the Company in
connection with the authorization, issuance and sale of the Shares, and for the
purposes of this opinion, have assumed such proceedings will be timely completed
in the manner presently proposed. In addition, we have made such legal and
factual examinations and inquiries, including an examination of originals or
copies certified or otherwise identified to our satisfaction of such documents,
corporate records and instruments, as we have deemed necessary or appropriate
for purposes of this opinion.
In our examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, and
the conformity to authentic original documents of all documents submitted to us
as copies.
<PAGE> 2
InterVU Inc.
May 19, 1998
Page 2
We are opining herein as to the effect on the subject transaction
only of the General Corporation Law of the State of Delaware, and we express no
opinion with respect to the applicability thereto, or the effect thereon, of the
laws of any other jurisdiction or any other laws, or as to any matters of
municipal law or the laws of any other local agencies within the state.
Subject to the foregoing, it is our opinion that the Shares have
been duly authorized, and, upon issuance, delivery and payment therefor in the
manner contemplated by the Registration Statement, will be validly issued, fully
paid and nonassessable.
We consent to your filing this opinion as an exhibit to the
Registration Statement and to the reference to our firm contained under the
heading "Legal Matters."
Very truly yours,
/s/ LATHAM & WATKINS
<PAGE> 1
EXHIBIT 10.9
CONSULTING AGREEMENT INTERVU INC. / J. WILLIAM GRIMES
- --------------------------------------------------------------------------------
This CONSULTING AGREEMENT (the "Agreement"), made and entered into this 28th Day
of January 1998, by and between J. William Grimes, (hereinafter "CONSULTANT"),
and InterVU Inc., a Delaware corporation, having a principal place of business
at Solana Beach, California (hereinafter "CLIENT").
ARTICLE 1
TERM AND TERMINATION
1.1 TERM. This Agreement will become effective on the date
first shown above and will continue in effect through the
completion of each Work Order (as described in Section 3.1
hereof). The initial Work Order is attached as Supplement
1.
1.2 TERMINATION. Client may, at its sole option, terminate
any Work Order, or any portion thereof, upon seven (7)
days' advance written notice. Upon receipt of such notice,
Consultant shall advise Client of the extent to which work
has been performed and completed through such date, and
collect and deliver to Client whatever work product then
exists in the manner requested by Client. Consultant shall
be paid for all work performed through the date of
termination.
1.3 SURVIVAL. In the event of any termination of this
Agreement, Articles 5, 6, and 7 hereof shall survive and
continue in effect.
ARTICLE 2
INDEPENDENT CONTRACTOR STATUS
2.1 INTENTION OF PARTIES. It is the intention of the
parties that Consultant be an independent contractor and
not an employee, agent, joint venture, or partner of
Client. Nothing in this Agreement shall be interpreted or
construed as creating or establishing the relationship of
employer and employee between Client and either Consultant
or any employee or agent of Consultant.
2.2 NONEXCLUSIVE. Consultant shall retain the right to
perform work for others during the terms of this Agreement.
Client shall retain the right to cause work of the same or
a different kind to be performed by its own personnel or
other contractors during the term of this Agreement.
ARTICLE 3
SERVICES TO BE PERFORMED BY CONSULTANT
3.1 WORK PLAN. All work performed by Consultant shall be
documented in a Work Order signed by authorized
representatives of both parties. Each Work Order shall set
forth, at a minimum, the work to be done, the number of
Consultant's personnel to be assigned to Client's work, the
estimated duration of each assignment, and the fees for the
work to be performed. Consultant shall have the right to
accept or decline any proposed Work Order.
- --------------------------------------------------------------------------------
PAGE 1
CONFIDENTIAL MATERIALS - NOT FOR DISCLOSURE
<PAGE> 2
CONSULTING AGREEMENT INTERVU INC. / J. WILLIAM GRIMES
3.2 METHOD OF PERFORMING SERVICES. Consultant, in
conjunction with its personnel, will determine the method,
details, and means of performing the work to be carried out
for Client. Client shall have no right to, and shall not,
control the manner or determine the method of accomplishing
such work. Client may, however, require Consultant's
personnel to observe at all times the security and safety
policies of Client. In addition, Client shall be entitled
to exercise a broad general power of supervision and
control over the results of work performed by Consultant to
ensure satisfactory performance. This power of supervision
shall include the right to inspect, stop work, make
suggestions or recommendations as to the details of the
work, and request modifications to the scope of the Work
Order.
3.3 SCHEDULING. Consultant will try to accommodate work
schedule request of Client to the fullest extent possible.
Should any personnel of Consultant be unable to perform
scheduled services because of illness, resignation, or
other causes beyond Consultant's reasonable control,
Consultant will attempt to replace such personnel within a
reasonable time, but Consultant shall not be liable for
failure if it is unable to do so, giving due regard to its
other commitments and priorities.
3.4 REPORTING. Client will advise Consultant of the
individuals to whom Consultant's manager will report
progress on day-to-day work. Client and Consultant shall
develop appropriate administrative procedures for
performance of work at Client's site.
3.5 PLACE OF WORK. Consultant's personnel will perform all
work for Client primarily at Client's premises except when
such projects or tasks may, as mutually determined, be
performed off-site. Client agrees to provide working space
and facilities, and any other services and materials
Consultant may reasonably request in order to perform their
work. Client recognizes that there may be a need to train
Consultant in the unique procedures used at Client's
location. When Client determines that such training is
necessary, Client shall, unless otherwise agreed in
writing, pay Consultant for its personnel's training time.
ARTICLE 4
COMPENSATION
4.1 RATES. The current schedule of fees for work performed
by Consultant shall be set forth as part of each Work
Order. Unless otherwise stated, Consultant reserves the
right to change such schedule for any Work Order upon at
least sixty (60) day's advance notice or at any time for
any new Work Order or modified portion of an existing Work
Order.
4.2 ESTIMATES. Estimates of total fees for projects may be
provided in a Work Order, but Consultant does not guarantee
such estimates. Consultant will, however, notify Client as
soon as possible if it will exceed the estimate, and Client
may then terminate the project and pay only for services
actually rendered if Client so chooses.
- --------------------------------------------------------------------------------
PAGE 2
CONFIDENTIAL MATERIALS - NOT FOR DISCLOSURE
<PAGE> 3
CONSULTING AGREEMENT INTERVU INC. / J. WILLIAM GRIMES
4.4 INVOICES. Consultant shall submit invoices to Client
monthly for the services furnished and other expenses
incurred hereunder. Each invoice will provide a breakdown
of work performed and the related expense items.
4.5 DATE FOR PAYMENT OF COMPENSATION. Client shall pay each
invoice in full within fifteen (15) days after receipt.
4.6 EXPENSES. Except as otherwise agreed in this Agreement
for the applicable Work Order, Client shall be responsible
for all costs and expenses incident to the performance of
services for Client.
ARTICLE 5
TREATMENT OF CONSULTANT'S PERSONNEL
5.1 COMPENSATION OF CONSULTANT'S PERSONNEL. Consultant
shall bear sole responsibility for payment of compensation
to its personnel. Consultant shall pay and report, for all
personnel assigned to Client's work, federal and state
income tax withholding, social security taxes, Medicare
taxes, and unemployment insurance applicable to such
personnel as employees of Consultant. Consultant shall bear
sole responsibility for any health or disability insurance,
retirement benefits, or other welfare or pension benefits,
if any, to which such personnel may be entitled. Consultant
agrees to defend, indemnify, and hold harmless Client,
Client's officers, directors, employees and agents, and the
administrators of Client's benefit plans, from and against
any claims, liabilities, or expenses relating to such
compensation, tax, insurance, or benefit matters; provided
that Client shall (1) promptly notify Consultant of each
such claim when and as it comes to Client's attention; (2)
cooperate with consultant in the defense resolution of such
claim; and (3) not settle or otherwise dispose of such
claim without Consultant's prior written consent, such
consent not to be unreasonably withheld.
5.2 WORKERS' COMPENSATION. Notwithstanding any other
workers' compensation or insurance policies maintained by
Client, Consultant shall procure and maintain workers'
compensation coverage sufficient to meet the statutory
requirements of every state in which Consultant is engaged
in Client's work.
5.3 CONSULTANT'S AGREEMENTS WITH PERSONNEL. Consultant
shall obtain and maintain in effect written agreements with
each of its personnel who participate in any of Client's
work under any Work Order. Such agreements shall contain
terms sufficient for Consultant to comply with all
provisions of this Agreement, and shall confirm that such
personnel shall have no status as employees of Client and
no claim under any Client benefit plan.
5.4 STATE AND FEDERAL TAXES. As neither Consultant nor its
personnel are Client's employees, Client shall not take any
action or provide Consultant's personnel with any benefits
or commitments inconsistent with any of such undertakings
by Consultant. In particular:
o Client will not withhold FICA (Social Security)
from Consultant's payments.
- --------------------------------------------------------------------------------
PAGE 3
CONFIDENTIAL MATERIALS - NOT FOR DISCLOSURE
<PAGE> 4
CONSULTING AGREEMENT INTERVU INC. / J. WILLIAM GRIMES
o Client will not withhold Medicare from
Consultant's payments.
o Client will not make state or federal
unemployment insurance contributions on behalf
of Consultant.
o Client will not withhold state or federal income
tax from payments to Consultant.
o Client will not make disability insurance
contributions on behalf of Consultant.
o Client will not obtain workers' compensation
insurance on behalf of Consultant or its
personnel.
ARTICLE 6
INTELLECTUAL PROPERTY RIGHTS
6.1 CONFIDENTIALITY. Consultant shall maintain in strict
confidence, and shall use and disclose only as authorized
by Client, all information of a competitively sensitive or
proprietary nature that it receives in connection with the
work performed for Client pursuant to each Work Order.
Consultant shall require its personnel to agree to do
likewise. Client shall take reasonable steps to identify
for the benefit of Consultant and its personnel any
information of a competitively sensitive or proprietary
nature, including the use of confidentiality notices in
written material where appropriate. These restrictions
shall not be construed to apply to (1) information
generally available to the public; (2) information released
by Client generally without restriction; (3) information
independently developed or acquired by Consultant or its
personnel without reliance in any way on other protected
information of Client; or (4) information approved for the
use and disclosure of Consultant or its personnel without
restriction. Notwithstanding the foregoing restrictions,
Consultant and its personnel may use and disclose any
information (1) to the extent required by an order of any
court or other governmental authority or (2) as necessary
to protect their interest in this Agreement, but in each
case only after Client has been so notified and has had the
opportunity, if possible, to obtain reasonable protection
for such information in connection with such disclosure.
6.2 OWNERSHIP OF WORK PRODUCT. All copyrights, patents,
trade secrets, or other intellectual property rights
associated with any ideas, concepts, techniques, inventors,
processes, or works of authorship developed or created by
Consultant during the course of performing Client's work
(Collectively, the "Work Product") shall belong exclusively
to Client.
6.3 RESIDUAL RIGHTS OF PERSONNEL. Notwithstanding anything
to the contrary herein, Consultant shall be free to use and
employ their general skills, know-how, and expertise, and
to use, disclose, and employ any generalized ideas,
concepts, know-how, methods, techniques, or skills gained
or learned during the course of any assignment, so long as
it or they acquire and apply such information without
disclosure of any confidential or proprietary information
of Client and without any unauthorized use or disclosure of
Work Product.
- --------------------------------------------------------------------------------
PAGE 4
CONFIDENTIAL MATERIALS - NOT FOR DISCLOSURE
<PAGE> 5
CONSULTING AGREEMENT INTERVU INC. / J. WILLIAM GRIMES
ARTICLE 7
LIMITATIONS
7.1 DISCLAIMER. CONSULTANT DOES NOT MAKE ANY WARRANTY,
EXPRESS OR IMPLIED, WITH RESPECT TO THE SERVICES RENDERED,
OR THE RESULTS OBTAINED FROM THEIR WORK, INCLUDING, WITHOUT
LIMITATION, ANY IMPLIED WARRANTY OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE. IN NO EVENT SHALL
CONSULTANT BE LIABLE FOR CONSEQUENTIAL, INCIDENTAL,
SPECIAL, OR INDIRECT DAMAGES, OR FOR ACTS OF NEGLIGENCE
THAT ARE NOT INTENTIONAL OR RECKLESS IN NATURE, REGARDLESS
OF WHETHER IT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES.
7.2 TOTAL LIABILITY. Client agrees that Consultant's
liability hereunder for damages, regardless of the form of
action, shall not exceed the total amount paid for services
under the applicable estimate or in the authorization for
the particular service if no estimate is provided.
7.3 FORCE MAJEURE. Consultant shall not be liable to Client
for any failure or delay caused by events beyond
Consultant's control, including, without limitation,
Client's failure to furnish necessary information,
sabotage, failures or delays in transportation or
communications, failures or substitutions of equipment,
labor disputes, accidents, shortages of labor, fuel, raw
materials, or equipment, or technical failures.
ARTICLE 8
GENERAL PROVISIONS
8.1 NOTICES. Any notices to be given hereunder by either
party to the other may be effected either by personal
delivery in writing or by mail, registered or certified,
postage prepaid with return receipt requested. Mailed
notices shall be addressed to the parties at the addresses
appearing in the introductory paragraph of this Agreement,
but each party may change such address by written notice in
accordance with this paragraph. Notices delivered
personally will be deemed communicated as of actual
receipt. Mailed notices will be deemed communicated as of
two days after mailing.
8.2 NO DISCRIMINATION. Consultant agrees that in the
performance of this Agreement it will not discriminate or
permit discrimination against any person or group of
persons on the grounds of sex, race, color, religion, or
natural origin in any manner prohibited by the laws of the
United States.
8.3 INSURANCE. To the extent that Consultant may perform
work at Client's premises, Client shall maintain
comprehensive general liability insurance including broad
form property damage coverage, with limits of at least $1
million combined single limit for personal injury and
property damage for each occurrence.
- --------------------------------------------------------------------------------
PAGE 5
CONFIDENTIAL MATERIALS - NOT FOR DISCLOSURE
<PAGE> 6
CONSULTING AGREEMENT INTERVU INC. / J. WILLIAM GRIMES
8.4 ENTIRE AGREEMENT OF THE PARTIES. This Agreement
supersedes any and all agreements, either oral or written,
between the parties hereto with respect to the rendering of
services by Consultant for Client and contains all the
covenants and agreements between the parties with respect
to the rendering of such services in any manner whatsoever.
Each party to this agreement acknowledges that no
representations, inducements, promises, or agreements,
orally or otherwise, have been made by any party, or anyone
acting on behalf of any party, that are not embodied
herein, and that no other agreement, statement, or promise
not contained in this agreement shall be valid or binding.
Any modification of this agreement will be effective only
if it is in writing signed by authorized personnel of both
parties.
8.5 PARTIAL INVALIDITY. If any provision in this agreement
is held by a court of competent jurisdiction to be invalid,
void, or unenforceable, the remaining provisions will
nevertheless continue in full force without being impaired
or invalidated in any way.
8.6 GOVERNING LAW. This Agreement will be governed by and
construed in accordance with the laws of the State of
Delaware.
8.7 SUCCESSORS. This Agreement shall inure to the benefit
of, and be binding upon, Consultant and Client, their
successors and assigns.
CLIENT CONSULTANT
InterVU Inc.
/s/ HARRY E. GRUBER /s/ J. WILLIAM GRIMES
- ------------------------------- ----------------------------------
BY: Harry E. Gruber BY: J. William Grimes
---------------------------- -------------------------------
TITLE: CEO TITLE:
------------------------- ----------------------------
DATE: DATE:
------------------------- ----------------------------
- --------------------------------------------------------------------------------
PAGE 6
CONFIDENTIAL MATERIALS - NOT FOR DISCLOSURE
<PAGE> 7
CONSULTING AGREEMENT INTERVU INC. / J. WILLIAM GRIMES
SUPPLEMENT 1
This SUPPLEMENT 1 (Work Order) is hereby incorporated as an addition to the
Consulting Agreement (the "Agreement"), dated January 28, 1998, made between
CONSULTANT (hereinafter "Consultant") and InterVU Inc. (hereinafter "Client").
WORK ASSIGNMENT:
Assist and advise management team members in the areas of sales, marketing and
business development.
LENGTH OF ENGAGEMENT:
Not to exceed twelve months.
ESTIMATED NUMBER OF WORKING DAYS:
As needed.
COMPENSATION FOR SERVICES:
Consultant shall be paid a monthly rate of Three Thousand dollars per month
($3,000) .
Agreed:
/s/ HARRY GRUBER /s/ J. WILLIAM GRIMES
- ------------------------------ -----------------------------
Harry Gruber (date) J. William Grimes (date)
Union Club
101 E. 69th St.
New York, NY 10021
- --------------------------------------------------------------------------------
PAGE 7
CONFIDENTIAL MATERIALS - NOT FOR DISCLOSURE
<PAGE> 1
EXHIBIT 10.10
SUBLEASE AGREEMENT
SUBLEASE dated as of the ______ day of April, 1998, between
Computervision Corporation, a Delaware corporation having an office at 100
Crosby Drive, Bedford, Massachusetts 01730 ("Sublessor"), and InterVU, Inc., a
Delaware corporation having an office located at 201 Lomas Santa Fe Drive,
Solano Beach, California ("Sublessee").
1. Demise and Term: Conditions of Sublease: Parking. Sublessor hereby
leases to Sublessee, and Sublessee hereby hires from Sublessor, that certain
real property, consisting of approximately 23,575 square feet of space, and
containing the entire second floor, in the premises located it 6815 Flanders
Drive, San Diego, California, as more particularly described in Exhibit A
annexed hereto and made a part hereof (the "Subleased Premises"), together with
all appurtenances, rights, privileges and easements pertaining to the Subleased
Premises and any and all existing fixtures and improvements contained therein as
of the date of this Agreement. The Subleased Premises are a portion of the
premises leased to Sublessor under the Main Lease (as defined in Section 2,
herein) The term of this Sublease shall, commence on the later of (i) the day
which is thirty (30) days after the Agreed Approvals, as defined below, are
obtained, or (ii) May 1, 1998, (the "Commencement Date") and shall end on June
19, 2003. If, the Commencement Date is delayed for more than thirty (30) days
after May 1, 1998, due to: 1) Lessor's' failure to consent to this Lease
Agreement or 2) Sublessor's actions, Sublessee may, at its option, by notice in
writing to Sublessor, cancel this Sublease, in which event the parties shall be
discharged from all obligations hereunder, except that Sublessor shall refund
all prepaid Rent and the entire Security Deposit received by Sublessor. As part
of Lessor's consent to this Sublease, which Sublessor shall act diligently to
obtain from Lessor by written request made to Lessor no later than seven (7)
days after the mutual execution of this Agreement.
As used herein, "Agreed Approvals" shall mean the following: (a)
Sublessor has received the consent of Lessor (as defined in the Main Lease) for
this Sublease and (b) the consent of Lessor to building plans for any Sublessee
Improvements, including Sublessee's proposed signage. Sublessee shall submit to
Sublessor, no later than March 31, 1998, plans and specifications (the "Plans")
for Sublessee's proposed Improvements and signage as defined herein.
The Sublessor shall provide ninety-four (94) parking spaces for
Sublessee's use in the parking lot for the Complex. All parking shall be
provided at no cost to the Sublessee, during the Term. Such parking rights shall
include the non-exclusive use of visitor reserved parking for Sublessee's
visitors and shall be subject to the Lessor's "Parking Rules" in the Main Lease.
2. Subordinate to Main Lease; Quiet Enjoyment. This Sublease is subject
and subordinate to (a) the lease (the "Lease") dated August 29, 1996, between
Mission West Properties, as Lessor, and Computervision Corporation, as Lessee,
as amended by that certain Amendment to the standard office Lease Agreement (the
"First Amendment") dated December
<PAGE> 2
23, 1996, (the Lease and First Amendment are together referred to herein as the
"Main Lease"), and (b) the matters to which the Main Lease is or shall be
subject and subordinate. A true and complete copy of the Main Lease is annexed
hereto as Exhibit B and made a part hereof. Sublessee's share of Operating
Expense Increase under Paragraph 4.2 of the Main Lease shall be 52.28%.
Subject to the matters set forth above, upon Sublessee's faithfully
performing the terms, conditions, and covenants hereof, Sublessee may quietly
and peacefully enjoy the Subleased Premised during the term hereof. Sublessor
hereby warrants that (i) the Main Lease attached hereto as Exhibit B is complete
and in full force and effect, and (except as set forth herein) has not been
amended or terminated, (ii) the current Lessor under the Main Lease is Mission
West Properties, whose address for notice is 6815 Flanders Drive, Suite 250, San
Diego, CA, (iii) the Main Lease constitutes the entire agreement between Lessor
and Sublessor concerning the Premises, and Sublessor is not in default
thereunder, and (iv) the Subleased Premises have not been previously assigned or
subleased by Sublessor.
3. Incorporation by Reference.
A. The terms, covenants and conditions of the Main Lease are
incorporated herein by reference so that, and except to the extent that such
incorporated provisions are inapplicable to or modified by the provisions of
this Sublease, all of the terms, covenants and conditions of the Main Lease
which bind or inure to the benefit of the Lessor thereunder shall with respect
to the Subleased Premises hereunder, in respect of this Sublease, bind or inure
to the benefit of Sublessor, and all of the terms, covenants and conditions of
the Main Lease which bind or inure to the benefit of the Lessee thereunder, in
respect of this Sublease, bind or insure to the benefit of Sublessee, with the
same force and effect as if such incorporated terms, covenants and conditions
were completely set forth in this Sublease, and as if the words "Lessor" and
"Lessee" or words of similar import, wherever the same appear in the Main Lease,
were construed to mean, respectively, "Sublessor" and "Sublessee" in this
Sublease, and as if the words "premises" and "demised premises" or words of
similar import, wherever the same appear in the Main Lease, were construed to
mean "Subleased Premises" in this Sublease, and as if the word "lease" or words
of similar import, wherever the same appear in the Main Lease, were construed to
mean this "Sublease." Notwithstanding the foregoing, any time limits not
specifically set forth in this sublease, and contained in the Main Lease for the
giving of notices, making of demands or performing of any act, condition or
covenant on the part of the tenant thereunder, or for the exercise by the tenant
thereunder of any right or remedy, are changed for the purposes of incorporation
therein by reference by shortening the same in each instance by five (5) days,
so that in each instance Sublessee shall have five days less time to observe or
perform hereunder than Sublessor, has as the tenant under the Main Lease, but in
no event less than five (5) days. Sublessor shall promptly provide Sublessee
with a true copy of any notice or request sent by Sublessor to Lessor pertaining
to the Subleased Premises and Sublessor shall promptly notify Sublessee of any
event that comes to Sublessor's attention that may adversely affect or may
reasonably be anticipated to adversely
- 2 -
<PAGE> 3
affect Sublessee's tenancy or rights under the Sublease or Sublessee's use and
occupancy of the Subleased Premises.
B. Notwithstanding any provision of the Main Lease, it is the
intention of the parties hereto that under no circumstances should Sublessee
have any right to renew or extend the term of this Sublease or to sublet any
portion of the Subleased Premises or to assign this Sublease by operation of law
or otherwise, except as set forth herein.
4. Performance by Sublessor: Signage Undertakings. Any obligation of
Sublessor which is contained in this Sublease by incorporating the provisions of
the Main Lease may be observed or performed by Sublessor using reasonable
efforts to cause the landlord under the Main Lease to observe and/or perform the
same, and Sublessor shall have a reasonable time to enforce its rights to cause
such observance or performance. In the event Lessor, after notice and efforts by
Sublessor hereunder, does not perform a material obligation and such failure of
Lessor hereunder has a material adverse effect on the use and enjoyment of the
Subleased Premises, Sublessor agrees at Sublessee's request, to commence legal
action (the "Lessor Litigation") against Lessor seeking to cause such
performance and obtain legal damages for Sublessee's benefit. If such failure
affects only the Subleased Premises, Sublessee agrees to pay all reasonable
costs and expenses associated with such legal action to Sublessor within ten
(10) days of receipt of an invoice therefor. Otherwise, Sublessor shall share
such costs and expenses in proportion to their proportionate square footage in
the building. Sublessor promises to pay and perform all of its obligations under
the Main Lease, and Sublessor shall not exercise any right that may reasonably
be anticipated to adversely affect Sublessee's tenancy or rights under this
Sublease without Sublessee's prior written consent, provided, however, that
Sublessor shall have no liability to Sublessee for the Lessor's failure to
perform any of Lessor's obligation, except that Sublessor shall be obligated to
use reasonable efforts, upon receipt of written request of Sublessee, to cause
the Lessor under the Main Lease to observe and/or perform its obligations under
the Main Lease and to commence and pursue the Lessor Litigation, as set forth
above. Sublessee shall not in any event have any rights in respect of the
Subleased Premises greater than Sublessor's rights under the Main Lease. Except
as specifically excluded herein, and subject to the terms of the Main Lease and
the rights of the Lessor thereunder, Sublessee shall benefit from all the rights
and privileges existing under the Main Lease in favor of "Lessee" to the extent
such rights and privileges are applicable to the Subleased Premises, and
Sublessor agrees to use its reasonable efforts to enforce such rights and
privileges for the benefit of Sublessee. Sublessor shall not be responsible for
any failure or interruption; for any reason whatsoever (other than solely by
reason of Sublessor's preference), of the services or facilities that are
appurtenant to, or supplied at or to, the Subleased Premises, including, without
limitation, electricity, heat, air conditioning, water, elevator service and
cleaning service, if any; and no failure to furnish, or interruption of, any
such services or facilities shall give rise to any (a) abatement or reduction of
Sublessee's obligations under this Sublease, (b) constructive eviction, whether
in whole or in part, or (c) liability on the part of Sublessor, unless such
failure or interruption is caused solely by Sublessor's negligence or a breach
or default by Sublessor under the Main Lease,
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which adversely affects the Subleased Premises. Sublessor shall offer Sublessee
a right of first refusal on space adjacent to the Subleased Premises which
becomes available for sublease on the same terms as any offer made for such
space by a third party by giving Sublessee written notice thereof, and Sublessee
shall respond to such offer indicating its acceptance or rejection thereof
within ten (10) days of such written notification.
Sublessor represents that to its knowledge, without specific
investigation or inquiry, the heating, ventilating, and air-conditioning system
serving the Subleased Premises "HVAC System") is in good working order.
Sublessor agrees upon written notice from Sublessee to promptly bring to the
attention of the Lessor any defect, interruption in service, or other failure of
the HVAC System and to use diligent efforts to cause Lessor to honor its
obligations as to such HVAC System under the Main Lease.
Subject to the terms, conditions and consents of the Main Lease and
Lessor's expressed written consent, Sublessee, at Sublessee's sole cost, shall
have the right to install and maintain; one (1) eight foot (8') satellite dish
in a location which is deemed acceptable to the Lessor and all applicable
government agencies.
Sublessor agrees to use all diligent efforts to cause Lessor to provide
graphics and signage space for Sublessee, on both the first and second floor
lobbies, and on the "tombstone" sign in front of the building, subject to
Lessor's approval and existing building standards for such signage.
5. No Breach of Main Lease. Sublessee and Sublessor shall not do or
permit to be done any act or thing which will constitute a breach or violation
of any term, covenant or condition of the Main Lease by the Sublessor
thereunder, whether or not such act or thing is permitted under the provisions
of this Sublease. However, Sublessor and Sublessee shall have the right to cure
such violation within the applicable time period set forth in Paragraph 13.1 of
the Main Lease.
6. No Privity of Estate. Nothing contained in this Sublease shall be
construed to create privity of estate or of contract between Sublessee and the
Lessor under the Main Lease.
7 . Indemnity. Sublessee and Sublessor shall each indemnify and hold the
other party harmless from and against all claims, actions, losses, costs,
damages, expenses and liabilities, which the other may incur by reason of (a)
any accidents, damages or injuries to persons or property occurring in, on or
about the Subleased Premises due to the other party's operations, (b) any breach
or default hereunder or under the Main Lease by the indemnifying party or its
agents, employees, Directors, Officers or invitees, including any breach or
default of the Main Lease by the Sublessor prior to the date of this Sublease
Agreement, (c) any work done in or to the Subleased Premises by the indemnifying
party or its agents, employees, Directors, Officers or invitees, or (d) any act,
omission or negligence by the indemnifying party or its agents, employees,
Directors, Officers or invitees.
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<PAGE> 5
8. Releases. Sublessee hereby releases the Lessor under the Main Lease
or anyone claiming through or under the Lessor under the Main Lease by way of
subrogation or otherwise, to the extent that Sublessor released the Lessor under
the Main Lease and/or the landlord under the Main Lease was relieved of
liability or responsibility pursuant to the provisions of the Main Lease.
9. Rent.
Sublessee shall pay to Sublessor rent ("Fixed Rent") in the amounts
listed on Exhibit C attached hereto. However, Sublessee shall phase into the
Premises, effective May 1, 1998, on a stepped basis such that the Sublessee
shall only pay Fixed Rent for 15,000 rentable square feet during the first five
(5) months of the Term, and pay Fixed Rent for 20,000 rentable square feet
during months six (6) through eight (8) of the Sublease Term. Sublessee, shall
pay Rent for the entire Premises (23,575 rentable square feet) beginning on
January 1, 1999. Fixed Rent shall be paid monthly in advance on the first day of
each month during the term of this Sublease. Fixed Rent, Sublessee's share of
the Operating Expenses, as defined in Section 4.2 of the Main Lease, and all
other amounts ("Additional Charges") payable by Sublessee to Sublessor under the
provisions of this Sublease or the provisions of the Main Lease shall be paid
promptly when due, without notice or demand therefor (unless Sublessor receives
notice or demand therefor from the Lessor under the Main Lease), and without
deduction, abatement, counterclaim or setoff of any amount for any reason
whatsoever. Rent for any partial month of the Sublease Term shall be prorated in
the proportion that the number of days this Sublease is in effect during such
month bears to the actual number of days in such month. If, based upon Lessor's
statement of actual expenses or an audit performed pursuant to Paragraph 4.2(g)
of the Main Lease (which audit Sublessor agrees to have performed, at
Sublessee's expense, if requested by Sublessee in writing), Sublessee has
underpaid or overpaid the amount of Rent owing pursuant to the Master Lease (as
incorporated into this Sublease), Sublessee shall (as applicable) pay to
Sublessor the amount of such underpayment or, Sublessor shall pay to Sublessee
the amount of such overpayment. If Sublessor shall be responsible for any
Additional Charges due under the Main Lease which is not attributable to
Sublessee's use or occupancy of the Premises, no such Additional Charges shall
be payable by Sublessee, including, without limitation, Additional Charges
incurred as a result of Sublessor's failure to provide Lessor with timely
payment of Rent.
All Rent payments, Operating Expenses and Additional Charges shall be
made payable to Sublessor at the address set forth in Section 26 of this
Sublease Agreement, or at such place as may be designated by Sublessor.
Fixed Rent and Additional Charges shall be paid to Sublessor in lawful
money of the United States at the address of Sublessor set forth in Section 26
of this Agreement, or to such other person and/or at such other address as
Sublessor may from time to time designate by written notice to Sublessee. No
payment by Sublessee or receipt by Sublessor of any lesser amount than the
amount stipulated to be paid hereunder shall be deemed other than on account
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<PAGE> 6
of the earliest stipulated Fixed Rent or Additional Charges; nor shall any
endorsement or statement on any check or letter be deemed an accord and
satisfaction, and Sublessor may accept any check or payment without prejudice to
Sublessor's right to recover the balance due or to pursue any other remedy
available to Sublessor.
In the event that Sublessee chooses to arrange for a separately metered
electrical installation, Sublessee's electricity charges, shall be payable by
Sublessee to the utility provider. Any cost necessary for separate meter
installation shall be born by Sublessee. In the event that Sublessee chooses not
to obtain a separately metered electrical installation, Sublessee acknowledges
that in addition to Fixed Rent, Sublessee is responsible to pay its prorated
share of electricity changes, payable to Sublessor. The Fixed Rent shall begin
at $1.25 per rentable square foot, which shall be paid in equal monthly
installments, as set forth in Exhibit C to this Agreement and the Main Lease.
Said Fixed Rent shall increase by $.05 per square foot on each annual
anniversary of the Sublease Commencement Date. Sublessee shall pay its
proportionate share of the Operating Expenses associated with the Premises above
the 1998 base year. Sublessee's share of the Base Year Operating Expenses and
any Operating Expense increase shall be based on the building being ninety-five
percent (95%) occupied and one hundred percent (100%) assessed for real estate
taxes.
If Sublessee fails to pay any Fixed Rent or Additional Charges within
three (3) days of the date due, Sublessee shall pay a late fee of six percent
(6%) of the amount overdue, as provided in Section 13.4 of the Main Lease. Such
late fee shall be payable on the first day of the following month, and in
default of payment if any such late fee, Sublessor shall have (in addition to
all other rights and remedies) the same rights and remedies as Sublessor has for
the nonpayment of Fixed Rent. Nothing contained herein shall be deemed to extend
the date on which Fixed Rent Additional Charges are due.
10. Utilities and Other Charges.
A. At the present time Lessor supplies utilities to the Subleased
Premises. Sublessee shall be responsible for the prompt payment when due for
electricity and such other utility service required by Sublessee which are in
addition to utilities now serving the Subleased Premises and not separately
metered. Any utilities which may be shared between the Subleased Premises and
the remainder of the Main Premises shall be prorated based on square footage;
provided that Sublessee shall be responsible for the cost of after-hours HVAC
only to the extent such services are activated by Sublessee or its agents,
Directors, officers, employees or invitees.
B. Subject to the terms of this Agreement, other charges payable
by Sublessor under any provision of the Main Lease which is incorporated by
reference in this Sublease shall be paid pro-rata by Sublessee in accordance
with the provisions of the Main Lease.
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<PAGE> 7
11. Security Deposit. The Sublessee shall pay to the Sublessor herewith
a security deposit, by check subject to collection, in the amount equal to
$29,468.75. The Sublessor may commingle such deposit with its other funds and
may apply such deposit upon default of the Sublessee hereunder. Provided the
Sublessee is not then in default hereunder, the Sublessor shall return the then
remaining portion of the security deposit to the Sublessee within thirty (30)
days after the expiration of this Sublease. In the event the Sublessor applies
such funds, the Sublessee shall pay to the Sublessor as additional rent within
ten (10) days after invoice therefor, the amount of the security deposit applied
by the Sublessor, such that the balance of the security deposit shall be
restored to its original amount.
12. Use. Sublessee shall use and occupy the Subleased Premises only for
the purposes that are expressly set forth in the Main Lease. Sublessee must
obtain the prior written consent of the Lessor and Sublessor for any change in
the Sublessee's use of the Subleased Premises. Sublessee shall comply with (a)
the Main Lease, (b) any certificate of occupancy relating to the Subleased
Premises, (c) all present and future laws, statutes, ordinances, orders, rules,
regulations and requirements of all Federal, state and municipal governments
asserting jurisdiction over the Subleased Premises and (d) all requirements
applicable to the Subleased Premises of the board of fire underwriters and/or
the fire insurance rating or similar organization performing the same or similar
functions, except as provided herein.
13. Condition of Subleased Premises. As further consideration for this
Sublease, Sublessor shall assign to Sublessee lien free rights to all existing
furniture, security systems, telephone systems and equipment, network cabling
and computer-room equipment and back-up power systems in the Subleased Premises,
at no cost to Sublessee.
Sublessor shall be responsible for patching any and all damaged walls,
including touching up paint, within the Subleased Premises. Notwithstanding
Sublessor's responsibility to paint and patch damaged walls within the Subleased
Premises, Sublessor shall have no obligation to furnish, render or supply any
work, labor, services fixtures, equipment, decorations or other items to make
the Subleased Premises ready or suitable for Sublessee's occupancy. In making
and executing this Sublease, Sublessee has relied solely on such investigations,
examinations and inspections as Sublessee has chosen to make or have made.
Sublessee acknowledges that Sublessor has approved Sublessee the opportunity for
full and complete investigations, examinations and inspections. Without limiting
the foregoing, Sublessee agrees to obtain approval of final plans for
construction from the Sublessor, which approval by Sublessor will not be
unreasonably withheld or delayed. All construction undertaken shall be subject
to the terms of, and in accordance with the provisions of, the Main Lease, as
well as of this Sublease.
Notwithstanding anything set forth in this Sublease, Sublessee accepts
the Subleased Premises in an "AS IS" condition as of the date of this Sublease.
In the event, that Sublessee intends to perform certain construction in the
Subleased Premises (the "Sublessee
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<PAGE> 8
Improvements"), Sublessee shall be responsible for any costs associated with
such construction of Sublessee Improvements.
14, Consents and Approvals. In any instance when Sublessor's consent or
approval is required under this Sublease, Sublessor's refusal to consent to or
approve any matter or thing shall be deemed reasonable if such consent or
approval has not been obtained from the Lessor under the Main Lease. If
Sublessee shall seek the approval or consent of Sublessor and Sublessor shall
fail or refuse to give such consent or approval, Sublessee shall not be entitled
to any damages for any withholding or delay of such approval or consent by
Sublessor, it being intended that Sublessee's sole remedy shall be an action for
an injunction or specific performance and that such remedy shall be available
only in those instances where Sublessor shall have expressly agreed in writing
not to withhold or delay its consent unreasonably.
15. Termination of Main Lease. If for a reason specified in the Main
Lease (including, without limitation, the exercise by Sublessor of its right to
terminate the Main Lease pursuant to any provision of the Main Lease), the term
of the Main Lease shall terminate prior to the expiration of this Sublease, this
Sublease shall thereupon be terminated and Sublessor shall not be liable to
Sublessee by reason thereof. Provided Sublessee is not then in default,
Sublessor shall refund to Sublessee any prepaid rent prorated to the date of
termination, and any security held by Sublessor due to Sublessee.
Notwithstanding the foregoing, Sublessor agrees not to voluntarily terminate the
Main Lease during the term of this Sublease. So long as Sublessee is not in
default under this Sublease beyond the applicable notice and cure period for
such default on the date of such damage or destruction, Sublessee shall have the
same rights of termination under this Sublease as Sublessor may have to
terminate the Main Lease upon an event of damage or destruction under the Main
Lease, and Sublessor shall not exercise any such rights of termination without
the prior written consent of Sublessee. If this Sublease is not terminated
following any damage or destruction as provided above, (i) Sublessor shall act
with reasonable diligence to enforce any obligation of Master Lessor to rebuild
the Premises in accordance with the master Lease, if such rebuilding is
authorized under the Main Lease, (ii) Sublessor shall make available to
Sublessee any insurance proceeds Sublessor receives as a result of such damage
or destruction which is directly applicable to the Subleased Premises, and (iii)
Sublessee shall be entitled to abatement of Rent under this Sublease to the
extent that Sublessor's Rent is abated under the Main Lease.
16. Assignment and Subletting. Sublessee shall not, by the sale of all
or substantially all of its assets, operation of law or otherwise, assign, sell,
mortgage, pledge or in any other manner transfer or encumber this Sublease or
any interest therein, or sublet the Subleased Premises or any part or parts
thereof, or grant any concession or license or otherwise permit occupancy of all
or any part of the Subleased Premises by any person, without the prior written
consent of Sublessor, which will not be unreasonably withheld or delayed.
Neither the consent of transfer, concession, license or use, nor any references
in this Sublease to assignees, sublessees, mortgagees, pledges, transferees,
concessionaires, licensees, or users, shall in any way be construed to relieve
Sublessee of the requirement of obtaining the
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<PAGE> 9
prior written consent of Sublessor to any further assignment, subletting or use
or to the making of any assignment, subletting, mortgage, pledge, transfer,
concession or license with respect to this Sublease or all or any part of the
Subleased Premises. If Sublessor consents to any assignment of this Sublease,
the assignee shall execute and deliver to Sublessor an agreement in form and
substance satisfactory to Sublessor whereby the assignee shall assume all of
Sublessee's obligations under this Sublease. Notwithstanding any assignment,
subletting or transfer, including, without limitation, any assignment,
subletting, transfer or use permitted or consented to by Sublessor, the original
Sublessee named herein and any other person who at any time was Sublessee and
any guarantor of Sublessee's obligations shall remain fully liable under this
Sublease. Any provision of this Sublease to the contrary notwithstanding,
Sublessor's consent shall not be required for an assignment of the Lease or a
sublease of the Subleased Premises (i) to any person (or entity) who (or which)
controls, is controlled by or is under common control with the original named
Sublessee, or (ii) to any corporation or other entity succeeding to
substantially all of the assets of the original named Sublessee as a result of a
consolidation or merger, or (iii) to a corporation or other entity to which all
or substantially all of the assets of the original named Sublessee have been
sold; provided that (a) the proposed assignee or sublessee shall assume in
writing the obligations of Sublessee under this Sublease, (b) Sublessor shall be
given prior written notice of such assignment and assumption and copies of all
documents required to substantiate compliance with this Section 16, (c) the net
worth of any assignee or sublessee to which the Sublease is assigned or the
Subleased Premises is sublet is substantially equal to or greater than the net
worth of Sublessee as of the date of this Sublease (provided, however, that this
provision (c) shall not apply to an assignment or sublease pursuant to
provisions (i) and (ii) of this Sentence, if the original named Sublessee will
continue in existence as an operating business after such assignment or
sublease), and (d) use of the Subleased Premises by the assignee or sublessee
shall not violate the Main Lease or this Sublease. For purposes of this Section
16, the term "control" means possession, directly or indirectly, of the power to
direct or cause the direction of the management, affairs and policies of
anyone, whether through the ownership of voting securities, by contract or
otherwise.
17. Alterations. Notwithstanding any provision of this Sublease or the
Main Lease to the contrary, Sublessee shall not make, cause, suffer or permit
the making of any alteration, change, replacement, installation or addition in
or to the Subleased Premises which affects any structural component or central
building systems or which is contrary to Section 7.3 of the Main Lease without
obtaining the prior written consent of Sublessor to which Sublessor shall be
reasonable in each instance.
18. Commission Fees. Sublessor shall pay a leasing commission to CB
Commercial and The Irving Hughes Group, Inc., in connection with this Sublease.
Sublessee warrants and represents that it has dealt with no real estate broker
or person entitled to or claiming a fee in connection with this Sublease other
than CB Commercial and The Irving Hughes Group, Inc. In the event any claim
shall be made against Sublessor or the Subleased Premises, predicated on a fee
or commission payable to any other party in connection with this sublease on
account of
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such dealing by Sublessee with any other party, Sublessee agrees to defend the
same and indemnify Sublessor against such claim.
19. Surrender. Sublessee shall, on the expiration or earlier termination
of this Sublease, surrender the Subleased Premises to the Sublessor. Sublessee
agrees to repair any damage to the Subleased Premises caused by Sublessee during
the term of this Agreement, ordinary wear and tear and damage from the elements
excepted. Upon such expiration or earlier termination, all of the obligations of
the Sublease shall cease and be of no further force and effect.
20. No Waiver. Sublessor's receipt and acceptance of Fixed Rent or
Additional Charges, or Sublessor's acceptance of performance of any other
obligation by Sublessee, with knowledge of Sublessee's breach of any provision
of this Sublease, shall not be deemed a waiver of such breach. No waiver by
Sublessor of any term, covenant or condition of this Sublease shall be deemed to
have been made unless expressed in writing and signed by Sublessor.
21. Successors and Assigns. The provisions of this Sublease, except as
herein otherwise specifically provided, shall extend to, bind and inure to the
benefit of the parties hereto and their respective legal representatives, heirs,
successors and permitted assigns.
22. Liability of Sublessor. Sublessor's officers, directors and
shareholders, disclosed and undisclosed, shall have no personal liability under
this Sublease.
23. Interpretation. Irrespective of the place of execution or
performance, this Sublease shall be governed by and construed in accordance with
the laws of the State of California. The captions, headings and titles, if any,
in this Sublease are solely for convenience of reference and shall not affect
its interpretation. This Sublease shall be construed without regard to any
presumption or other rule requiring construction against the party causing this
Sublease to be drafted. Each covenant, agreement, obligation or other provision
of this Sublease binding upon Sublessee shall be deemed and construed as a
separate and independent covenant of Sublessee, not dependent on any other
provision of this Sublease unless otherwise expressly provided. All terms and
words used in this Sublease, regardless of the number or gender in which they
are used, shall be deemed to include any other number and any other gender as
the context may require. The word "person" as used in this Sublease shall mean a
natural person or persons, as partnership, a corporation or any other form of
business or legal association or entity.
24. Consent of Lessor Under Main Lease. This Sublease shall have no
effect until (i) the landlord under the Main Lease shall have given its written
consent hereto in accordance with the terms of the Main Lease. If the Lessor
under the Main Lease does not give its consent to this Sublease, (a) Sublessor
shall not be obligated to take any action to obtain such consent, (b) this
Sublease shall be deemed voidable by Sublessor or Sublessee and of no effect,
and (c) if Sublessee is then in possession of all or any part of the Subleased
Premises, Sublessee shall immediately quit and surrender to Sublessor the
Subleased Premises shall
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<PAGE> 11
remove all of its property and repair all damage caused by such removal and
restore the Subleased Premises to the condition in which it was prior to such
occupancy. Sublessor agrees to use its reasonable and diligent efforts to obtain
the consent of the Lessor to this sublease.
25. Memorandum of Agreement. Sublessee may file a Memorandum of Sublease
Agreement in the form attached hereto as Exhibit D in the county office where
the Property is located. Neither party may record this Agreement.
26. Notices. Unless otherwise provided herein, any notice of demand
required to be given herein shall be given by certified or registered mail,
return receipt requested or reliable overnight courier to the following
addresses of the Sublessor and Sublessee:
Sublessor: Computervision Corporation
c/o Parametric Technology Corporation
Attention: Director of Real Estate
128 Technology Drive
Waltham, MA 02154
Sublessee:
After Commencement Date: Before Commencement Date:
------------------------ -------------------------
Attn: Chief Financial Officer Attn: Chief Financial Officer
InterVU, Inc. 201 Lomas Santa Fe Drive
6815 Flanders Drive Solano Beach, CA 92075
San Diego, CA 92121 (619) 350-1600
27. Authority. Each person executing this Sublease on behalf of a party
hereto represents and warrants that he or she is authorized and empowered to do
so and to thereby bind the party on whose behalf he or she is signing.
28. Attorneys' Fees. If there is any civil legal action or proceeding
between Sublessor and Sublessee to enforce or interpret any provision of this
Sublease or to protect or establish any right or remedy of either Sublessor or
Sublessee hereunder, the non-prevailing party to such action or proceeding will
pay to the prevailing party all costs and expenses, including reasonable
attorneys' fees incurred by such prevailing party in such action or proceeding
and in any appearance in connection therewith, and if the prevailing party
recovers a judgment, or obtains favorable declaratory relief, in any such
action, proceeding or appeal, such reasonable costs, expenses and attorney's
fees will be determined by the court handling the proceeding and will be
included in and as part of the judgment or declaration.
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<PAGE> 12
IN WITNESS WHEREOF, Sublessor and Sublessee have executed this Sublease
as of the day and year first above written.
WITNESS: COMPUTERVISION CORPORATION
By: /s/ MARTHA L. DURCAN
- ----------------------------- -----------------------------------------
Authorized Officer: Martha L. Durcan
Print Name and
Title: Secretary
WITNESS: InterVU, Inc.
By: /s/ HARRY GRUBER
- ----------------------------- -----------------------------------------
Authorized Officer: Harry Gruber
Title: Chief Executive Officer
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<PAGE> 13
EXHIBIT B
MAIN LEASE AND AMENDMENTS
[SEE EXHIBIT B-1 ATTACHED HERETO]
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<PAGE> 14
STANDARD OFFICE LEASE - GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
[LOGO]
1. Basic Lease Provisions ("Basic Lease Provisions")
1.1 Parties: This Lease, dated, for reference purposes only, August
29, 1996, is made by and between Mission West Properties, a California
corporation, (herein called "Lessor") and Computervision, a Delaware
corporation, doing business under the name of same, (herein called "Lessee").
1.2 Premises: Suite Number(s) 150 & 200 on the 1st & 2nd floors,
consisting of approximately 29,550 rentable feet, 26,267 useable feet, more or
less, as defined in paragraph 2 and as shown on Exhibit "A" hereto (the
"Premises").
1.3 Building: Commonly described as being located at 6815 Flanders
Drive, in the City of San Diego, County of San Diego, State of California
92121-2905, as more particularly described in Exhibit "A" hereto, and as defined
in paragraph 2.
1.4: Use: General office, Software Research and Development, subject
to paragraph 6.
1.5 Term: Seventy-eight (78) months commencing January 1, 1997
("Commencement Date") and ending June 30, 2003 See Paragraph 1.5 (continued) of
Addendum, as defined in paragraph 3.
1.6 Base Rent: $38,710.50 per month, payable on the first day of each
month, per paragraph 4.1.
1.7 Base Rent Increase: On See Paragraph 1.6 (continued) of Addendum
the monthly Base Rent payable under paragraph 1.6 above shall be adjusted as
provided in paragraph 4.3 below.
1.8 Rent Paid Upon Execution: $38,710.50 for the first month of
occupancy.
1.9 Security Deposit: $38,710.50.
1.10 Lessee's Share of Operating Expense Increase: 65.53% as defined
in paragraph 4.2. See Paragraph 1.10 (continued) of Addendum
2. Premises, Parking and Common Areas.
2.1 Premises: The Premises are a portion of a building, herein
sometimes referred to as the "Building" identified in paragraph 1.3 of the Basic
Lease Provisions. "Building" shall include adjacent parking structures used in
connection therewith. The Premises, the Building, the Common Areas, the land
upon which the same are located, along with all other buildings and improvements
thereon or thereunder, are herein collectively referred to as the "Office
Building Project". Lessor hereby leases to Lessee and Lessee leases from Lessor
for the term, at the rental, and upon all of the conditions set forth herein,
the real property referred to in the Basic Lease Provisions, paragraph 1.2, as
the "Premises," including rights to the Common Areas as hereinafter specified.
2.2 Vehicle Parking: So long as Lessee is not in default and subject
to the rules and regulations attached hereto, and as established by Lessor from
time to time, Lessee shall be entitled to rent and use 105 parking spaces in the
Office Building Project at the monthly rate applicable from time to time for
monthly parking as set by Lessor and/or it licensee.
2.2.1 If Lessee commits, permits or allows any of the prohibited
activities described in the Lease or the rules then in effect, then Lessor shall
have the right, without notice, in addition to such other rights and remedies
that it may have, to remove or tow away the vehicle involved and charge the cost
to Lessee, which cost shall be immediately payable upon demand by Lessor.
2.2.2 The monthly parking rate per parking space will be $0 per
month at the commencement of the term of this Lease, and is subject to change
upon five (5) days prior written notice to Lessee. Monthly parking fees shall be
payable one month in advance prior to the first day of each calendar month.
2.3 Common Areas - Definition. The term "Common Areas" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Office Building Project that are provided and designated by the Lessor
from time to time for the general non-exclusive use of Lessor, Lessee and of
other lessees of the Office Building Project and their respective employees,
suppliers, shippers, customers and invitees, including but not limited to common
entrances, lobbies, corridors, stairways and stairwells, public restrooms,
elevators, escalators, parking areas to the extent not otherwise prohibited by
this Lease, loading and unloading areas, trash areas, roadways, sidewalks,
walkways, parkways, ramps, driveways, landscaped areas and decorative walls.
2.4 Common Areas - Rules and Regulations. Lessee agrees to abide by and
conform to the rules and regulations attached hereto as Exhibit B with respect
to the Office Building Project and Common Areas, and to cause its employees,
suppliers, shippers, customers, and invitees to so abide and conform. Lessor or
such other person(s) as Lessor may appoint shall have the exclusive control and
management of the Common Areas and shall have the right, from time to time, to
modify, amend and enforce said rules and regulations. Lessor shall not be
responsible to Lessee for the non-compliance with said rules and regulations by
other lessees, their agents, employees and invitees of the Office Building
Project, See Paragraph 2.4 (continued) of Addendum
2.5 Common Areas - Changes. Lessor shall have the right, in Lessor's sole
discretion, from time to time:
(a) To make changes to the Building interior and exterior and Common
Areas, including, without limitation, changes in the location, size, shape,
number, and appearance thereof, including but not limited to the lobbies,
windows, stairways, air shafts, elevators, escalators, restrooms, driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, decorative walls, landscaped areas and walkways;
provided, however, Lessor shall at all times provide the parking facilities
required by applicable law;
(b) To close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available;
(c) To designate other land and improvements outside the boundaries
of the Office Building Project to be a part of the Common Areas, provided that
such other land and improvements have a reasonable and functional relationship
to the Office Building Project;
(d) To add additional buildings and improvements to the Common Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Office Building Project, or any
portion thereof;
(f) To do and perform such other acts and make such other changes in,
to or with respect to the Common Areas and Office Building Project as Lessor
may, in the exercise of sound business judgement deem to be appropriate.
3. Term.
3.1 Term. The term and Commencement Date of this Lease shall be as
specified in paragraph 1.5 of the Basic Lease Provisions.
3.2 Delay in Possession. Notwithstanding said Commencement Date, if for
any reason Lessor cannot deliver possession of the Premises to Lessee on said
date and subject to paragraph 3.2.2, Lessor shall not be subject to any
liability therefor, nor shall such failure affect the validity of this Lease or
the obligations of Lessee hereunder or extend the term hereof; but, in such
case, Lessee shall not be obligated to pay rent or perform any other obligation
of Lessee under the terms of this Lease, except as may be otherwise provided in
this Lease, until possession of the Premises within sixty (60) days following
said Commencement Date, as the same may be extended under the terms of a Work
Letter executed by Lessor and Lessee, Lessee may, at Lessee's
<PAGE> 15
option, by notice in writing to Lessor within ten (10) days thereafter, cancel
this Lease, in which event the parties shall be discharged from all obligations
hereunder; provided, however, that, as to Lessee's obligations, Lessee first
reimburses Lessor for all costs incurred for Non-Standard improvements and, as
to Lessor's obligations, Lessor shall return any money previously deposited by
Lessee (less any offsets due Lessor for Non-Standard improvement(s); and
provided further, that if such written notice by Lessee is not received by
Lessor within said ten (10) day period, Lessee's right to cancel this Lease
hereunder shall terminate and be of no further force or effect. Upon the mutual
execution of this lease Lessor shall submit to Lessee a tenant improvement
schedule identifying the estimated occupancy date of Lessee.
3.2.1 Possession Tendered--Defined. Possession of the Premises
shall be deemed tendered to Lessee ("Tender of Possession") when (1) the
improvements to be provided by Lessor under this Lease are substantially
completed, (2) the Building utilities are ready for use in the Premises, (3)
Lessee has reasonable access to the Premises, and (4) written notice is given to
Lessee of the occurrence of the matters described in (1), (2) and (3), above of
this paragraph 3.2.1.
3.2.2 Delays Caused by Lessee. There shall be no abatement of
rent, and the sixty (60) day period following the Commencement Date before which
Lessee's right to cancel this Lease accrues under paragraph 3.2, shall be deemed
extended to the extent of any delays caused by acts or omissions of Lessee,
Lessee's agents, employees and contractors.
3.3 Early Possession. If Lessee occupies the Premises prior to said
Commencement Date, such occupancy shall be subject to all provisions of this
Lease, such occupancy shall not change the termination date, and Lessee shall
pay rent for such occupancy.
3.4 Uncertain Commencement. In the event commencement of the Lease term
is defined as the completion of the improvements, Lessee and Lessor shall
execute an amendment to this Lease establishing the date of Tender of
Possession (as defined in paragraph 3.2.1) or the actual taking of possession
by Lessee, whichever first occurs, as the Commencement Date.
4. Rent
4.1 Base Rent. Subject to adjustment as hereinafter provided in paragraph
4.3, and except as may be otherwise expressly provided in this Lease, Lessee
shall pay to Lessor the Base Rent for the Premises set forth in paragraph 1.6
of the Basic Lease Provisions, without offset or deduction. Lessee shall pay
Lessor upon execution hereof the advance Base Rent described in paragraph 1.8
of the Basic Lease provisions. Rent for any period except the first month
during the term hereof which is for less than one month shall be prorated based
upon the actual number of days of the calendar month involved. Rent shall be
payable in lawful money of the United States to Lessor at the address stated
herein or to such other persons or at such other places as Lessor may
designate in writing.
4.2 Operating Expense Increase. Lessee shall pay to Lessor during the term
hereof, in addition to the Base Rent, Lessee's Share, as hereinafter defined, of
the amount by which all Operating Expenses, as hereinafter defined, for each
Comparison Year exceeds the amount of all Operating Expenses for the Base Year,
such excess being hereinafter referred to as the "Operating Expense Increase,"
in accordance with the following provisions:
(a) "Lessee's Share" is defined, for purposes of this Lease, as the
percentage set forth in paragraph 1.10 of the Basic Lease Provisions, which
percentage has been determined by dividing the approximate rentable square
footage of the Premises by the total approximate square footage of the rentable
space contained in the Office Building Project. It is understood and agreed
that the square footage fixtures set forth in the Basic Lease Provisions are
approximations which Lessor and Lessee agree are reasonable and shall not be
subject to revision except in connection with an actual change in the size of
the Premises or a change in the space available for lease in the Office
Building Project. See Paragraph 4.2(a) (continued) of Addendum
(b) "Base Year" is defined as the 1997 calendar year in which the
Lease term commences.
(c) "Comparison Year" is defined as each calendar year during the
term of this Lease subsequent to the Base Year; provided, however, Lessee shall
have no obligation to pay a share of the Operating Expense Increase applicable
to the first twelve (12) months of the Lease Term (other than such as are
mandated by a governmental authority, as to which government mandated expenses
Lessee shall pay Lessee's Share, notwithstanding they occur during the first
twelve (12) months). Lessee's share of the Operating Expense Increase for the
first and last Comparison Years of the Lease Term shall be prorated according to
that portion of such Comparison Year as to which Lessee is responsible for a
share of such increase.
(d) "Operating Expenses" is defined, for purposes of this Lease, to
include all costs, if any, incurred by Lessor in the exercise of its reasonable
discretion for:
(i) The operation, repair, maintenance, and replacement, in
neat, clean, safe, good order and condition, of the Office Building Project,
including but not limited to, the following:
(aa) The Common Areas, including their surfaces,
coverings, decorative items, carpets, drapes and window coverings, and including
parking areas, loading and unloading areas, trash areas, roadways, sidewalks,
walkways, stairways, parkways, driveways, landscaped areas, striping, bumpers,
irrigation systems, Common Area lighting facilities, building exteriors and
roofs, fences and gates;
(bb) All heating, air conditioning, plumbing, electrical
systems, life safety equipment, telecommunication and other equipment used in
common by, or for the benefit of, lessees or occupants of the Office Building
Project, including elevators and escalators, tenant directories, fire detection
systems including sprinkler system maintenance and repair.
(ii) Trash disposal, janitorial and security services;
(iii) Any other service to be provided by Lessor that is
elsewhere in this Lease stated to be an ""Operating Expense";
(iv) The cost of the premiums for the liability and property
and any other insurance policies to be maintained by Lessor under paragraph 8
hereof;
(v) The amount of the real property taxes to be paid by
Lessor under paragraph 10.1 hereof;
(vi) The cost of water, sewer, gas, electricity, and other
publicly mandated services to the Office Building Project;
(vii) Labor, salaries and applicable fringe benefits and costs,
materials, supplies and tools, used in maintaining and/or cleaning the Office
Building Project and accounting and a management fee attributable to the
operation of the Office Building Project;
(viii) Replacing and/or adding improvements mandated by any
governmental agency and any repairs or removals necessitated thereby amortized
over its useful life according to Federal Income tax regulations or guidelines
for depreciation thereof (including interest on the unamortized balance as is
then reasonable in the judgment of Lessor's accountants);
(ix) Replacements of equipment or improvements that have a
useful life for depreciation purposes according to Federal Income tax guidelines
of five (5) years or less, as amortized over such life. See Paragraph 4.2(d)(x)
of Addendum
(e) Operating Expenses shall not include the costs of replacements
of equipment or improvements that have a useful life for Federal Income Tax
purposes in excess of five (5) years unless it is of the type described in
paragraph 4.2(d)(viii), in which case their cost shall be included as above
provided.
(f) Operating Expenses shall not include any expenses paid by any
lessee directly to third parties, or as to which Lessor is otherwise reimbursed
by any third party, other tenant, or by insurance proceeds. See Paragraph
4.2(f)) (continued) of Addendum
(g) Lessee's Share of Operating Expense Increase shall be payable by
Lessee within ten (10) days after a reasonably detailed statement of actual
expenses is presented to Lessee by Lessor. At Lessor's option, however, an
amount may be estimated by Lessor from time to time in advance of Lessee's Share
of the Operating Expense Increase for any Comparison Year, and the same shall be
payable monthly or quarterly, as Lessor shall designate, during each Comparison
Year of the Lease term, on the same day as the Base Rent is due hereunder. In
the event that Lessee pays Lessor's estimate of Lessee's Share of Operating
Expense Increase as aforesaid, Lessor shall deliver to Lessee within sixty (60)
days after the expiration of each Comparison Year a reasonably detailed
statement showing Lessee's share of the actual Operating Expense increase
incurred during such year. If Lessee's payments under this paragraph 4.2(g)
during said Comparison Year exceed Lessee's Share as indicated on said
statement, Lessee shall be entitled to credit the amount of such overpayment
against Lessee's Share of Operating Expense Increase next falling due. If
Lessee's payments under this paragraph during said Comparison Year were less
than Lessee's Share as indicated on said statement, Lessee shall pay to Lessor
the amount of the deficiency within ten (10) days after delivery by Lessor to
Lessee of said statement. Lessor and Lessee shall forthwith adjust between them
by expense increases, notwithstanding that the Lease term may have been
terminated before the end of such Comparison Year. See Paragraph 4.2(y)
(continued) of Addendum
4.3 Rent increase.
4.3.1 At the times set forth in paragraph 1.7 of the Basic Lease
Provisions, the monthly Base Rent payable under paragraph 4.1 of this Lease
shall be adjusted by the increase, if any, in the Consumer Price Index of the
Bureau of Labor Statistics of the Department of Labor for All Urban Consumers,
(1982-84=100), "All Items," for Los Angeles-Anaheim-Riverside, herein referred
to as "C.P.I.," since the date of this Lease.
4.3.2 The monthly Base Rent payable pursuant to paragraph 4.3.1
shall be calculated as follows: the Base Rent payable for the first month of
the term of this Lease, as set forth in paragraph 4.1 of this Lease, shall be
multiplied by a fraction the numerator of which shall be the C.P.I. of the third
calendar month immediately preceding the month during which the adjustment is to
take effect, and denominator of which shall be the C.P.I. for the third calendar
month preceding the month in which the original Lease term commences. The sum so
calculated shall constitute the new monthly Base Rent hereunder, but, in no
event, shall such new monthly Base Rent be less than the Base Rent payable for
the month immediately preceding the date for the rent adjustment.
4.3.3 In the event the compilation and/or publication of the
C.P.I. shall be transferred to any other governmental department or bureau or
<PAGE> 16
agency or shall be discontinued, then the index most nearly the same as the
C.P.I. shall be used to make such calculations. In the event that Lessor and
Lessee cannot agree on such alternative index, then the matter shall be
submitted for decision to the American Arbitration Association in the County in
which the Premises are located, in accordance with the then rules of said
association and the decision of the arbitrators shall be binding upon the
parties, notwithstanding one party failing to appear after due notice of the
proceeding. The cost of said Arbitrators shall be paid equally by Lessor and
Lessee.
4.3.4 Lessee shall continue to pay the rent at the rate previously in
effect until the increase, if any, is determined. Within five (5) days following
the date on which the increase is determined, Lessee shall make such payment to
Lessor as will bring the increased rental current, commencing with the effective
date of such increase through the date of any rental instalments then due.
Thereafter the rental shall be paid at the increased rate.
4.3.5 At such time as the amount of any change in rental required by this
Lease is known or determined, Lessor and Lessee shall execute an amendment to
this Lease setting forth such change.
5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof
the security deposit set forth in paragraph 1.9 of the Basic Lease Provisions as
security for Lessee's faithful performance of Lessee's obligations hereunder. If
Lessee fails to pay rent or other charges due hereunder, or otherwise defaults
with respect to any provision of this Lease, Lessor may use, apply or retain all
or any portion of said deposit for the payment of any rent or other charge in
default for the payment of any other sum to which Lessor may become obligated by
reason of Lessee's default, or to compensate Lessor for any loss or damage which
Lessor may suffer thereby. If Lessor so uses or applies all or any portion of
said deposit, Lessee shall within ten (10) days after written demand therefor
deposit cash with Lessor in an amount sufficient to restore said deposit to the
full amount then required of Lessee. If the monthly Base Rent shall, from time
to time, increase during the term of this Lease, Lessee shall, at the time of
such increase, deposit with Lessor additional money as a security deposit so
that the total amount of the security deposit held by Lessor shall at all times
bear the same proportion to the then current Base Rent as the initial security
deposit bears to the initial Base Rent set forth in paragraph 1.G of the Basic
Lease Provisions. Lessor shall not be required to keep said security deposit
separate from its general accounts. If Lessee performs all of Lessee's
obligations hereunder, said deposit, or so much thereof as has not heretofore
been applied by Lessor, shall be returned, without payment of interest or other
increment for its use, to Lessee (or, at Lessor's option, to the last assignee,
if any, of Lessee's interest hereunder) at the expiration of the term hereof,
and after Lessee has vacated the Premises. No trust relationship is created
herein between Lessor and Lessee with respect to said Security Deposit.
6. Use.
6.1 Use. The Premises shall be used and occupied only for the purpose set
forth in paragraph 1.4 of the Basic Lease Provisions and for no other purpose.
See Paragraph 6.1 (continued) of Addendum
6.2 Compliance with Law.
(a) Lessor warrants to Lessee that the Premises, in the state existing
on the date that the Lease term commences, but without regard to alterations or
improvements made by Lessee or the use for which Lessee will occupy the
Premises, does not violate any covenants or restrictions of record, or any
applicable building code, regulation or ordinance in effect on such Lease term
Commencement Date. In the event it is determined that this warranty has been
violated, then it shall be the obligation of the Lessor, after written notice
from Lessee, to promptly, at Lessor's sole cost and expense, rectify any such
violation.
(b) Except as provided in paragraph 6.2(a) Lessee shall, at Lessee's
expense, promptly comply with all applicable statutes, ordinances, rules,
regulations, orders, covenants and restrictions of record, and requirements of
any fire insurance underwriters or rating bureaus, now in effect or which may
hereafter come into effect, whether or not they reflect a change in policy from
that now existing, during the term or any part of the term hereof, relating in
any manner to the Premises and the occupation and use by Lessee of the Premises.
Lessee shall conduct its business in a lawful manner and shall not use or permit
the use of the Premises or the Common Areas in any manner that will tend to
create waste or a nuisance or shall tend to disturb other occupants of the
Office Building Project. See Paragraph 6.2(b)(continued) of Addendum
6.3 Condition of Premises.
(a) Lessor shall deliver the Premises to Lessee in a clean condition
on the Lease Commencement Date (unless Lessee is already in possession) and
Lessor warrants to Lessee that the plumbing, lighting, air conditioning, and
heating system in the Premises shall be in good operating condition. In the
event that it is determined that this warranty has been violated, then it shall
be the obligation of Lessor, after receipt of written notice from Lessee setting
forth with specificity the nature of the violation, to promptly, at Lessor's
sole cost, rectify such violation.
(b) Except as otherwise provided in this Lease, Lessee hereby accepts
the Premises and the Office Building Project in their condition existing as of
the Lease Commencement Date or the date that Lessee takes possession of the
Premises, whichever is earlier, subject to all applicable zoning, municipal,
county and state laws, ordinances and regulations governing and regulating the
use of the Premises, and any easements, covenants or restrictions of record, and
accepts this Lease subject thereto and to all matters disclosed thereby and by
any exhibits attached hereto. Lessee acknowledges that it has satisfied itself
by its own independent investigation that the Premises are suitable for its
intended use, and that neither Lessor nor Lessor's agent or agents has made any
representation or warranty as to the present or future suitability of the
Premises, Common Areas, or Office Building Project for the conduct of Lessee's
business.
7. Maintenance, Repairs, Alterations and Common Area Services.
7.1 Lessor's Obligations. Lessor shall keep the Office Building Project,
including the Premises, interior and exterior walls, roof, and common areas, and
the equipment whether used exclusively for the Premises or in common with other
premises, in good condition and repair; provided, however, Lessor shall not be
obligated to paint, repair or replace wall coverings, or to repair or replace
any improvements that are not ordinarily a part of the Building or are above
then Building standards. Except as provided in paragraph 9.5, there shall be no
abatement of rent or liability of Lessee on account of any injury or
interference with Lessee's business with respect to any improvements,
alterations or repairs made by Lessor to the Office Building Project or any part
thereof. Lessee expressly waives the benefits of any statute now or hereafter in
effect which would otherwise afford Lessee the right to make repairs at Lessor's
expense or to terminate this Lease because of Lessor's failure to keep the
Premises in good order, condition and repair. See Paragraph 7.1 (continued) of
Addendum
7.2 Lessee's Obligations.
(a) Notwithstanding Lessor's obligation to keep the Premises in good
condition and repair, Lessee shall be responsible for payment of the cost
thereof to Lessor as additional rent for that portion of the cost of any
maintenance and repair of the Premises, or any equipment (wherever located) that
serves only Lessee or the Premises, to the extent such cost is attributable to
causes beyond normal wear and tear. Lessee shall be responsible for the cost of
painting, repairing or replacing wall coverings, and to repair or replace any
Premises improvements that are ordinarily a part of the Building or that are
above then Building standards. Lessor may, at its option, upon reasonable
notice, elect to have Lessee perform any particular such maintenance or repairs
the cost of which is otherwise Lessee's responsibility hereunder.
(b) On the last day of the term hereof, or on any sooner termination,
Lessee shall surrender the Premises to Lessor in the same condition as received
on the commencement date of the lease, ordinary wear and tear excepted, clean
and free of debris. Any damage or deterioration of the Premises shall not be
deemed ordinary wear and tear if the same could have been prevented by good
maintenance practices by Lessee. Lessee shall repair any damage to the Premises
occasioned by the installation or removal of Lessee's trade fixtures,
alterations, furnishings and equipment. Except as otherwise stated in this
Lease, Lessee shall leave the air lines, power panels, electrical distribution
systems, lighting fixtures, air conditioning, window coverings, wall coverings,
carpets, wall panelling, ceilings and plumbing on the Premises and in good
operating condition. See Paragraph 7.2(c) of Addendum
7.3 Alterations and Additions.
(a) Lease shall not, without Lessor's prior written consent which shall not
be unreasonably withheld, delayed, or conditioned make any alterations,
improvements, additions, Utility Installations or repairs in, on or about the
Premises, or the Office Building Project. As used in this paragraph 7.3 the term
"Utility Installation" shall mean carpeting, window and wall coverings, power
panels, electrical distribution systems, lighting fixtures, air conditioning,
plumbing, and telephone and telecommunication wiring and equipment. At the
expiration of the term, Lessor may require the removal of any or all of said
alterations, improvements, additions or Utility Installations, and the
restoration of the Premises and the Office Building Project to their prior
condition, at Lessee's expense. Should Lessee permit Lessee to make its own
alterations, improvements, additions or Utility Installations, Lessee shall use
only such contractor as has been expressly approved by Lessor, and Lessor may
require Lessee to provide Lessor, at Lessee's sole cost and expense, a lien and
completion bond in an amount equal to one and one-half times the estimated cost
of such improvements, to insure Lessor against any liability for mechanic's and
materialmen's liens and to insure completion of the work. Should Lessee make any
alterations, improvements, additions or Utility Installations without the prior
approval of Lessor, or use a contractor not expressly approved by Lessor, Lessor
may, at any time during the term of this Lease, require that Lessee remove any
part or all of the same.
(b) Any alterations, improvements, additions or Utility Installations in
or about the Premises or the Office Building Project that Lessee shall desire
to make shall be presented to Lessor in written form, with proposed detailed
plans. If Lessor shall give its consent to Lessee's making such alteration,
improvement, addition or Utility Installation, the consent shall be deemed
conditioned upon Lessee acquiring a permit to do so from the conditions of said
permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Lessee at or for use in
the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises, the Building or the Office Building
Project, or any interest therein.
(d) Lessee shall give Lessor not less than ten (10) days' notice to the
commencement of any work in the Premises by Lessee, and Lessor shall have the
right to post notices of non-responsibility in or on the Premises or the
Building as provided by law. If Lessee shall, in good faith, contest the
validity of any such lien, claim or demand, then Lessee shall, at its sole
expense defend itself and Lessor against the same and shall pay and satisfy
<PAGE> 17
any such adverse judgment that may be rendered thereon before the enforcement
thereof against the Lessor or the Premises, the Building or the Office Building
Project, upon the condition that if Lessor shall require, Lessee shall furnish
to Lessor a surety bond satisfactory to Lessor in an amount equal to such
contested lien claim or demand indemnifying Lessor against liability for the
same and holding the Premises, the Building, and the Office Building Project
free from the effect of such lien or claim. In addition, Lessor may require
Lessee to pay Lessor's reasonable attorneys' fees and costs in participating in
such action if Lessor shall decide it is to Lessor's best interest so to do.
(e) All alterations, improvements, additions and Utility
Installations (whether or not such Utility Installations constitute trade
fixtures of Lessee), which may be made to the Premises by Lessee, including but
not limited to, floor coverings, panelings, doors, drapes, built-ins, moldings,
sound attenuation, and lighting and telephone or communication systems, conduit,
wiring and outlets, shall be made and done in a good and workmanlike manner and
of good and sufficient quality and materials and shall be the property of Lessor
and remain upon and be surrendered with the Premises at the expiration of the
Lease term, unless Lessor requires their removal pursuant to paragraph 7.3(a).
Provided Lessee is not in default, notwithstanding the provisions of this
paragraph 7.3(a), Lessee's personal property and equipment, other than that
which is affixed to the Premises so that it cannot be removed without material
damage to the Premises or the Building, and other than Utility Installations,
shall remain the property of Lessee and may be removed by Lessee subject to the
provisions of paragraph 7.2
(f) Lessee shall provide Lessor with as-built plans and
specifications for any alterations, improvements, additions or Utility
Installations.
7.4 Utility Additions. Lessor reserves the right to install new or
additional utility facilities throughout the Office Building Project for the
benefit of Lessor or Lessee, or any other lessee of the Office Building
Project, including, but not by way of limitation, such utilities as a plumbing,
electrical systems, communication systems, and fire protection and detection
systems, so long as such installations do not unreasonably interfere with
Lessee's use of the Premises.
8. Insurance; Indemnity.
8.1(a) Liability Insurance -- Lessee. Lessee shall, at Lessee's expense
obtain and keep in force during the term of this Lease a policy of Comprehensive
General Liability Insurance utilizing an Insurance Services Office standard form
with Broad Form General Liability Endorsement (GL0404), or equivalent, in an
amount of not less than $1,000,000 per occurrence of bodily injury and property
damage combined or in a greater amount as reasonably determined by Lessor and
shall insure Lessee with Lessor as an additional insured against liability
arising out of the use, occupancy or maintenance of the Premises. Compliance
with the above requirement shall not, however, limit the liability of Lessee
hereunder. See Addendum for Paragraph 8.1(b).
8.2 Liability Insurance -- Lessor. Lessor shall obtain and keep in force
during the term of this Lease a policy of Combined Single Limit Bodily Injury
and Broad Form Property Damage Insurance, plus coverage against such other
risks Lessor deems advisable from time to time, insuring Lessor, but not
Lessee, against liability arising out of the ownership, use, occupancy or
maintenance of the Office Building Project in an amount not less than
$5,000,000.00 per occurrence.
8.3 Property Insurance -- Lessee. Lessee shall, at Lessee's expense,
obtain and keep in force during the term of this Lease for the benefit of
Lessee, replacement cost fire and extended coverage insurance, with vandalism
and malicious mischief, sprinkler leakage and earthquake sprinkler leakage
endorsements, in an amount sufficient to cover not less than 100% of the full
replacement cost, as the same may exist from time to time, of all of Lessee's
personal property, fixtures, equipment and tenant improvements.
8.4 Property Insurance -- Lessor. Lessor shall obtain and keep in force
during the term of this Lease, a policy or policies of insurance covering loss
or damage to the Office Building Project Improvements, but not Lessee's
personal property, fixtures, equipment or tenant improvements in the amount of
the full replacement cost thereof, as the same may exist from time to time,
utilizing Insurance Services Office standard form or equivalent, providing
protection against all perils including within the classification of fire,
extended coverage, vandalism, malicious mischief, plate glass, and such other
perils as Lessor deems advisable or may be required by a lender having a lien
on the Office Building Project. In addition, Lessor shall obtain and keep in
force, during the term of this Lease, a policy of rental value insurance
covering a period of one year, with loss payable to Lessor which insurance
shall also cover all Operating Expenses for said period. Lessee will not be
named in any such policies carried by Lessor and shall have no right to any
proceeds therefrom. The policies required by these paragraphs 8.2 and 8.4 shall
contain such deductibles as Lessor or the aforesaid lender may determine. In
the event that the Premises shall suffer an insured loss as defined in
paragraph 9.1(l) hereof, the deductible amounts under the applicable insurance
policies shall be deemed an Operating Expense. Lessee shall not do or permit to
be done anything which shall invalidate the insurance policies carried by
Lessor. Lessee shall pay the entirety of any increase in the property insurance
premium for the Office Building Project over what it was immediately prior to
the commencement of the term of this Lease if the increase is specified by
Lessor's insurance carrier as being caused by the nature of Lessee's occupancy
or any act or omission of Lessee.
8.5 Insurance Policies. Lessee shall deliver to Lessor copies of liability
insurance policies required under paragraph 8.1 or certificates evidencing the
existence and amounts of such insurance within seven (7) days after the
Commencement Date of this Lease. No such policy shall be cancellable or subject
to reduction of coverage or other modification except after thirty (30) days
prior written notice to Lessor. Lessee shall, at least thirty (30) days prior to
the expiration of such policies, furnish Lessor with renewals thereof.
8.6 Waiver of Subrogation. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of recovery against the other,
for direct or consequential loss or damage arising out of or incident to the
perils covered by property insurance carried by such party, whether due to
the negligence of Lessor or Lessee or their agents, employees, contractors
and/or invitees. If necessary all property insurance policies required under
this Lease shall be endorsed to so provide.
8.7 Indemnity. Unless such damage or injury was caused by the gross
negligence or willful misconduct of Lessor, Lessee shall indemnify and hold
harmless Lessor and its agents, Lessor's master or ground lessor, partners and
lenders, from and against any and all claims for damage to the person or
property of anyone or any entity arising from Lessee's use of the Office
Building Project, or from the conduct of Lessee's business or from any activity,
work or things done, permitted or suffered by Lessee in or about the Premises or
elsewhere and shall further indemnify and hold harmless Lessor from and against
any and all claims, costs and expenses arising from any breach or default in the
performance of any obligation on Lessee's part to be performed under the terms
of this Lease, or arising from any act or omission of Lessee, or any of Lessee's
agents, contractors, employees, or invitees, and from and against all costs,
attorney's fees, expenses and liabilities incurred by Lessor as the result of
any such use, conduct, activity, work, things done, permitted or suffered,
breach, default or negligence, and in dealing reasonably therewith, including
but not limited to the defense or pursuit of any claim or any action or
proceeding involved therein; and in case any action or proceeding be brought
against Lessor by reason of any such matter, Lessee upon notice from Lessor
shall defend the same at Lessee's expense by counsel reasonably satisfactory to
Lessor and Lessor shall reasonably cooperate with Lessee in such defense. Lessor
need not have first paid any such claim in order to be so indemnified. Lessee,
as a material part of the consideration to Lessor, hereby assumes all risk of
damage to property of Lessee or injury to persons, in, upon or about the Office
Building Project arising from any cause and Lessee hereby waives all claims in
respect thereof against Lessor. See Paragraph 8.7 (continued) of Addendum.
8.8 Exemption of Lessor from Liability. Unless such damage or injury was
caused by gross negligence or misconduct of Lessor, Lessee hereby agrees that
Lessor shall not be liable for injury to Lessee's business or any loss of income
therefrom or for loss of or damage to the goods, wares, merchandise or other
property of Lessee, Lessee's employees, invitees, customers, or any other person
in or about the Premises or the Office Building Project, nor shall Lessor be
liable for injury to the person of Lessee, Lessee's employees, agents or
contractors, whether such damage or injury is caused by or results from theft,
fire, steam, electricity, gas, water or rain, or from the breakage, leakage,
obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing,
air conditioning or lighting fixtures, or from any other cause, whether said
damage or injury results from conditions arising upon the Premises or upon other
portions of the Office Building Project, or from other sources or places, or
from new construction or the repair, alteration or improvement of any part of
the Office Building Project, or of the equipment, fixtures or appurtenances
applicable thereto, and regardless of whether the cause of such damage or injury
or the means of repairing the same is inaccessible, Lessor shall not be liable
for any damages arising from any act or neglect of any other lessee, occupant or
user of the Office Building Project nor from the failure of Lessor to enforce
the provisions of any other lease of any other lessee of the Office Building
Project, or the Rules and Regulations of the Office Building Project. See
Paragraph 8.8 (continued) of Addendum.
8.9 No Representation of Adequate Coverage. Lessor makes no
representation that the limits or forms of coverage of insurance specified in
this paragraph 8 are adequate to cover Lessee's property or obligations under
this Lease.
9. Damage or Destruction.
9.1 Definitions.
(a) "Premises Damage" shall mean if the Premises are damaged or
destroyed to any extent.
(b) "Premises Building Partial Damage" shall mean if the Building of
which the Premises are a part is damaged or destroyed to the extent that the
cost to repair is less than fifty percent (50%) of the then Replacement Cost of
the building.
(c) "Premises Building Total Destruction" shall mean if the Building
of which the Premises are a part is damaged or destroyed to the extent that the
cost to repair is fifty percent (50%) or more of the then Replacement Cost of
the Building.
(d) "Office Building Project Buildings" shall mean all of the
buildings on the Office Building Project site.
(e) "Office Building Project Buildings Total Destruction" shall mean
if the Office Building Project Buildings are damaged or destroyed to the extent
that the cost of repair is fifty percent (50%) or more of the then Replacement
Cost of the Office Building Project Buildings.
(f) "Insured Loss" shall mean damage or destruction which was caused
by an event required to be covered by the insurance described in paragraph 8.
The fact that an Insured Loss has a deductible amount shall not make the loss
an uninsured loss.
(g) "Replacement Cost" shall mean the amount of money necessary to
be spent in order to repair or rebuild the damaged area to the condition that
existed immediately prior to the damage occurring, excluding all improvements
made by lessees, other than those installed by Lessor at Lessee's expense.
<PAGE> 18
9.2 Premises Damage; Premises Building Partial Damage.
(a) Insured Loss: Subject to the provisions of paragraphs 9.4 and 9.5,
if at any time during the term of this Lease there is damage which is an
Insured Loss and which falls into the classification of Premises Damage and
Premises Building Partial Damage, then Lessor shall, as soon as reasonably
possible and to the extent the required materials and labor are readily
available through usual commercial channels, at Lessor's expense, repair such
damage (but not Lessee's fixtures, equipment or tenant improvements originally
paid for by Lessee) to its condition existing at the time of the damage, and
this Lease shall continue in full force and effect.
(b) Uninsured Loss: Subject to the provisions of paragraphs 9.4 and
9.5, if at any time during the term of this Lease there is damage which is not
an Insured Loss and which falls within the classification of Premises Damage or
Premises Building Partial Damage, unless caused by a negligent or willful act
of Lessee (in which event Lessee shall make the repairs at Lessee's expense),
which damage prevents Lessee from making any substantial use of the Premises,
Lessor may at Lessor's option either (i) repair such damage as soon as
reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) give written notice to Lessee within
thirty (30) days after the date of the occurrence of such damage of Lessor's
intention to cancel and terminate this Lease as of the date of the occurrence
of such damage, in which event this Lease shall terminate as of the date of the
occurrence of such damage.
9.3 Premises Building Total Destruction; Office Building Project Total
Destruction. Subject to the provisions of paragraphs 9.4 and 9.5, if at any
time during the term of this Lease there is damage, whether or not it is an
Insured Loss, which falls into the classification of either (i) Premises
Building Total Destruction, or (ii) Office Building Project Total Destruction,
then Lessor may at Lessor's option either (i) repair such damage or destruction
as soon as reasonably possible at Lessor's expense (to the extent the required
materials are readily available through usual commercial channels) to its
condition existing at the time of the damage, but not Lessee's fixtures,
equipment or tenant improvements, and this Lease shall continue in full force
and effect, or (ii) give written notice to Lessee within thirty (30) days after
the date of occurrence of such damage of Lessor's intention to cancel and
terminate this Lease, in which case this Lease shall terminate as of the date
of the occurrence of such damage.
9.4 Damage Near End of Term.
(a) Subject to paragraph 9.4(b), if at any time during the last twelve
(12) months of the term of this Lease there is substantial damage to the
Premises, either Lessor or Lessee may cancel and terminate this Lease as of the
date of occurrence of such damage by giving written notice to the other party
of its election to do so within 30 days after the date of occurrence of such
damage. See Paragraph 9.4(a)(continued) of Addendum.
(b) Notwithstanding paragraph 9.4(a), in the event that Lessee has an
option to extend or renew this Lease, and the time within which said options
may be exercised has not yet expired, Lessee shall exercise such option, if it
is to be exercised at all, no later than twenty (20) days after the occurrence
of an Insured Loss falling within the classification of Premises Damage during
the last twelve (12) months of the term of this Lease. If Lessee duly exercises
such option during said twenty (20) day period, Lessor shall, at Lessor's
expense, repair such damage, but not Lessee's fixtures, equipment or tenant
improvements, as soon as reasonably possible and this Lease shall continue in
full force and effect. If Lessee fails to exercise such option during said
twenty (20) day period, then Lessor may at Lessor's option terminate and cancel
this Lease as of the expiration of said twenty (20) day period by giving
written notice to Lessee of Lessor's election to do so within ten (10) days
after the expiration of said twenty (20) day period, notwithstanding any term
or provision in the grant of option to the contrary.
9.5 Abatement of Rent; Lessee's Remedies.
(a) In the event Lessor repairs or restores the Building or Premises
pursuant to the provisions of this paragraph 9, and any part of the Premises
are not usable (including loss of use due to loss of access or essential
services), the rent payable hereunder (including Lessee's Share of Operating
Expense increase) for the period during which such damage, repair or
restoration continues shall be abated, provided (1) the damage was not the
result of the negligence of Lessee, and (2) such abatement shall only be to the
extent the operation and profitability of Lessee's business as operated from
the Premises is adversely affected. Except for said abatement of rent, if any,
Lessee shall have no claim against Lessor for any damage suffered by reason of
any such damage, destruction, repair or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises or
the Building under the provisions of this Paragraph 9 and shall not commence
such repair or restoration within ninety (90) days after such occurrence, or if
Lessor shall not complete the restoration and repair within six (6) months
after such occurrence, Lessee may at Lessee's option cancel and terminate this
Lease by giving Lessor written notice of Lessee's election to do so at any time
prior to the commencement or completion, respectively, of such repair or
restoration. In such event this Lease shall terminate as of the date of such
notice.
(c) Lessee agrees to cooperate with Lessor in connection with any such
restoration and repair, including but not limited to the approval and/or
execution of plans and specifications required.
9.6 Termination -- Advance Payments. Upon termination of this Lease pursuant
to this paragraph 9, an equitable adjustment shall be made concerning advance
rent and any advance payments made by Lessee to Lessor. Lessor shall, in
addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.
9.7 Waiver. Lessor and Lessee waive the provisions of any statute which
relate to termination of leases when leased property is destroyed and agree
that such event shall be governed by the terms of this Lease.
10. Real Property Taxes.
10.1 Payment of Taxes. Lessor shall pay the real property tax, as defined in
paragraph 10.3, applicable to the Office Building Party subject to
reimbursement by Lessee of Lessee's Share of such taxes in accordance with the
provisions of paragraph 4.2, except as otherwise provided in paragraph 10.2.
10.2 Additional Improvements. Lessee shall not be responsible for paying any
increase in real property tax specified in the tax assessor's records and work
sheets being caused by additional improvements placed upon the Office Building
Project by other lessees or by Lessor for the exclusive enjoyment of any
leases. Lessee shall, however, pay to Lessor at the time that Operating
Expenses are payable under paragraph 4.2(c) the entirety of any increase in
real property tax if assessed solely by reason of additional improvements
placed upon the Premises by Lessee or at Lessee's request.
10.3 Definition of "Real Property Tax." As used herein, the term "real
property tax" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed on the Office Building Project or any portion thereof
by any authority having the direct or indirect power to tax, including any
city, county, state or federal government, or any school, agricultural,
sanitary, fire, street, drainage or other improvement district thereof, as
against any legal or equitable interest of Lessor in the Office Building
Project or in any portion thereof, as against Lessor's right to rent or other
income therefrom, and as against Lessor's business of leasing the Office
Building Project. The term "real property tax" shall also include any tax, fee,
levy, assessment or charge (i) in substitution of, partially or totally, any
tax, fee, levy, assessment or charge hereinabove included within the definition
of "real property tax," or (ii) the nature of which was hereinbefore included
within the definition of "real property tax," or (iii) which is imposed for a
service or right not charged prior to June 1, 1978, or, if previously charged,
has been increased since June 1, 1978, or (iv) which is imposed as a result of
change in ownership, as defined by applicable local statutes for property tax
purposes, of the Office Building Project or which is added to a tax or charge
hereinbefore included within the definition of real property tax by reason of
such change of ownership, or (v) which is imposed by reason of this
transaction, and modifications or changes hereto, or any transfers hereof.
10.4 Joint Assessment. If the Improvements or property, the taxes for which
are to be paid separately by Lessee under paragraph 10.2 or 10.5 are not
separately assessed, Lessee's portion of that tax shall be equitably determined
by Lessor from the respective valuations assigned in the assessor's work sheets
or such other information (which may include the cost of construction) as may
be reasonably available. Lessor's reasonable determination thereof, in good
faith, shall be conclusive.
10.5 Personal Property Taxes.
(a) Lessee shall pay prior to delinquency all taxes assessed against
and levied upon trade fixtures, furnishings, equipment and all other personal
property of Lessee contained in the Premises or elsewhere.
(b) If any of Lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall pay to Lessor the taxes attributable to
Lessee within ten (10) days after receipt of a written statement setting forth
the taxes applicable to Lessee's property.
11. Utilities.
11.1 Services Provided by Lessor. Lessor shall provide heating,
ventilation, air conditioning, and janitorial service as reasonably required,
reasonable amounts of electricity for normal lighting and office machines,
water for reasonable and normal drinking and lavatory use, and replacement
light bulbs and/or fluorescent tubes and ballasts for standard overhead
fixtures. See Paragraph 11.1 (continued) of Addendum.
11.2 Services Exclusive to Lessee. Lessee shall pay for all water,
gas, heat, light, power, telephone and other utilities and services specially
or exclusively supplied and/or metered exclusively to the Premises or to
Lessee, together with any taxes thereon. If any services are not separately
metered to the Premises, Lessee shall pay at Lessor's option, either Lessee's
Share or a reasonable proportion to be determined by Lessor of all charges
jointly metered with other promises in the Building, or the Office Building
Project.
11.3 Hours of Service. Sold services and utilities shall be provided
during generally accepted business days and hours or such other days or hours
as may hereafter be set forth. Utilities and services required at other time
shall be subject to advance request and reimbursed by Lessee to Lessor of the
cost thereof. See Addendum for Paragraph 11.3 continued.
<PAGE> 19
11.4 Excess Usage by Lessee. Lessee shall not make connection to the
utilities except by or through existing outlets and shall not install or use
machinery or equipment in or about the Premises that uses excess water,
lighting or power, or suffer or permit any act that causes extra burden upon
the utilities or services, including but not limited to security services, over
standard office usage office usage for the Office Building Project. Lessor
shall require Lessee to reimburse Lessor for any excess expenses or costs that
may arise out of a breach of this subparagraph by Lessee. Lessor may, in its
solo discretion, install at Lessee's expense supplemental equipment and/or
separate metering applicable to Lessee's excess usage or loading. See Paragraph
11.4 (continued) of Addendum
11.5 Interruptions. There shall be no abatement of rent and Lessor shall
not be liable in any respect whatsoever for the inadequacy, stoppage,
interruption or discontinuance of any utility or service due to riot, strike,
labor dispute, breakdown, accident, repair or other cause beyond Lessor's
reasonable control or in cooperation with governmental request or directions.
12.1 Assignment and Subletting.
12.1 Lessor's Consent Required. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in the Lease or in the Premises,
without Lessor's prior written consent, which Lessor shall not unreasonably
withhold. Lessor shall respond to Lessee's request for consent hereunder in a
timely manner and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void, and shall constitute a material
default and breach of this Lease without the need for notice to Lessee under
paragraph 13.1. "Transfer" within the meaning of this paragraph 12 shall
include the transfer or transfers aggregating: (a) if Lessee is a corporation,
more than a block of twenty-five percent (25%) of the outstanding voting stock
of such corporation, or (b) if Lessee is a partnership, more than twenty-five
percent (25%) of the profit and loss participation in such partnership.
12.2 Lessee Affiliate. Notwithstanding the provisions of paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by
or is under common control with Lessee, or to any corporation resulting from
the merger or consolidation with Lessee, or to any person or entity which
acquires all the assets of Lessee as a going concern of the business that is
being conducted on the Premises, all of which are referred to as "Lessee
Affiliate"; provided that before such assignment shall be effective, (a) said
assignee shall assume, in full, the obligations of Lessee under this Lease and
(b) Lessor shall be given written notice of such assignment and assumption. Any
such assignment shall not, in any way, affect or limit the liability of Lessee
under the terms of this Lease even if after such assignment or subletting the
terms of this Lease are materially changed or altered without the consent of
Lessee, the consent of whom shall not be necessary.
12.3 Terms and Conditions Applicable to Assignment and Subletting.
(a) Regardless of Lessor's consent, no assignment or subletting shall
release Lessee of Lessee's obligations hereunder or alter the primary liability
of Lessee to pay the rent and other sums due Lessor hereunder including
Lessee's Share of Operating Expense Increase, and to perform all other
obligations to be performed by Lessee hereunder.
(b) Lessor may accept rent from any person other than Lessee pending
approval or disapproved of such assignment.
(c) Neither a delay in the approval or disapproval of such assignment
or subletting, nor the acceptance of rent, shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the breach of any of
the terms or conditions of this paragraph 12 or this Lease.
(d) If Lessee's obligations under this Lease have been guaranteed by
third parties, then an assignment or sublease, and Lessor's consent thereto,
shall not be effective unless said guarantors give their written consent to
such sublease and the terms thereof.
(e) The consent by Lessor to any assignment or subletting shall not
constitute to any subsequent assignment or subletting by Lessee or to any
subsequent or successive assignment or subletting by the sublessee. However,
Lessor may consent to subsequent sublettings and assignments of the sublease or
any amendments or modifications thereto without notifying Lessee or anyone else
liable on the Lease or sublease and without obtaining their consent and such
action shall not relieve such persons from liability under this Lease or said
sublease; however, such persons shall not be responsible to the extent any such
amendment or modification enlarges or increases the obligations of the Lessee
or sublessee under this Lease or such sublease.
(f) In the event of any default under this Lease, Lessor may proceed
directly against Lessee, any guarantors or any one else responsible for the
performance of this Lease, including the sublessee, without first exhausting
Lessor's remedies against any other person or entity responsible therefor to
Lessor, or any security held by Lessor or Lessee.
(g) Lessor's written consent to any assignment or subletting of the
Premises by Lessee shall not constitute an acknowledgement that no default then
exists under this Lease of the obligations to be performed by Lessee nor shall
such consent be deemed a waiver of any then existing default, except as may be
otherwise stated by Lessor at the time.
(h) The discovery of the fact that any financial statement relied
upon by Lessor in giving its consent to an assignment or subletting was
materially false shall, at Lessor's election, render Lessor's said consent null
and void.
12.4 Additional Terms and Conditions Applicable to Subletting. Regardless
of Lessor's consent, the following terms and conditions shall apply to any
subletting by Lessee of all or any part of the Premises and shall be deemed
included in all subleases under this Lease whether or not expressly
incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease heretofore or
hereafter made by Lessee, and Lessor may collect such rent and income and apply
same toward Lessee's obligations under this Lease; provided, however, that
subject to 12.4(f) until a default shall occur in the performance of Lessee's
obligations under this lease, Lessee may receive, collect and enjoy the rents
accruing under such sublease. Lessor shall not, by reason of this or any other
assignment of such sublease to Lessor nor by reason of the collection of the
rents from a sublessee, be deemed liable to the sublessee for any failure of
Lessee to perform and comply with any of Lessee's obligations to such sublessee
under such sublease. Lessee hereby irrevocably authorizes and directs any such
sublessee, upon receipt of a written notice from Lessor stating that a default
exists in the performance of Lessee's obligations under this Lease, to pay to
Lessor the rents due and to become due under the sublease. Lessee agrees that
such sublessee shall have the right to rely upon any such statement and request
from Lessor, and that such sublessee shall pay such rents to Lessor without any
obligation or right to inquire as to whether such default exists and
notwithstanding any notice from or claim from Lessee to the contrary. Lessee
shall have no right or claim against said sublessee or Lessor for any such
rents so paid by said sublessee to Lessor.
(b) No sublease entered into by Lessee shall be effective unless and
until it has been approved in writing by Lessor. In entering into any sublease,
Lessee shall use only such form of sublessee as is satisfactory to Lessor, and
once approved by Lessor, such sublease shall not be changed or modified without
Lessor's prior written consent. Any sublease shall, by reason of entering into
a sublease under this Lease, be deemed, for the benefit of Lessor, to have
assumed and agreed to conform and comply with each and every obligation therein
to be performed by Lessee other than such obligations as are contrary to or
inconsistent with provisions contained in a sublease to which Lessor has
expressly consented in writing.
(c) In the event Lessee shall default in the performance of its
obligations under this Lease, Lessor at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of Lessee under such sublease from the time of
the exercise of said option to the termination of such sublease; provided,
however, Lessor shall not be liable for any prepaid rents or security deposit
paid by such sublessee to Lessee or for any other prior defaults of Lessee
under such sublease.
(d) No sublessee shall further assign or sublet all or any part of
the Premises without Lessor's prior written consent.
(e) With respect to any subletting to which Lessor has consented,
Lessor agrees to deliver a copy of any notice of default by Lessee to the
sublessee. Such sublessee shall have the right to cure a default of Lessee
within three the (3) days after service of said notice of default upon such
sublessee, and the sublessee shall have a right of reimbursement and offset from
and against Lessee for any such defaults cured by the sublessee. See Addendum
for Paragraph 12.4(f).
12.5 Lessor's Expenses. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or if
Lessee shall request the consent of Lessor for any act Lessee proposes to do
then Lessee shall pay Lessor's reasonable costs and expenses incurred in
connection therewith, including attorneys', architects', engineers' or other
consultants' fees.
12.6 Conditions to Consent. Lessor reserves the right to condition any
approval to assign or sublet upon Lessor's determination that (a) the proposed
assignee or sublessee shall conduct a business on the Premises of a quality
substantially equal to that of Lessee and consistent with the general character
of the other occupants of the Office Building Project and not in violation of
any exclusives or rights then held by other tenants, and (b) the proposed
assignee or sublessee be at least as financially responsible as Lessee was
expected to be at the time of the execution of this Lease or of such assignment
or subletting, whichever is greater. See Addendum for Paragraph 12.7.
13.1 Default. The occurrence of any one or more of the following events
shall constitute a material default of this Lease by Lessee:
(a) The vacation or abandonment of the Premises by Lessee. Vacation of
the Premises shall include the failure to occupy the Premises for a continuous
period of sixty (60) days or more, whether or not the rent is paid.
(b) The breach by Lessee of any of the covenants, conditions or
provisions of paragraphs 7.3(a), (b) or (d) (alterations), 12.1 (assignment or
subletting), 13.1(a) (vacation or abandonment), 13.1(e) (insolvency), 13.1(f)
(false statement), 16(a) (estoppel certificate), 30(b) (subordination), 33
(auctions), or 41.1 (easements), all of which are hereby deemed to be material,
non-curable defaults without the necessity of any notice by Lessor to Lessee
thereof.
(c) The failure by Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder, as and when due, where such
failure shall continue for a period of three (3) days after written notice
thereof from Lessor to Lessee. In the event that Lessor serves Lessee with a
Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes
such Notice to Pay Rent or Quit shall also constitute the notice required by
this subparagraph.
<PAGE> 20
(d) The failure by Lessee to observe or perform any of the covenants,
conditions, or provisions of this Lease to be observed or performed by Lessee
other than those referenced in subparagraphs (b) and (c), above, where such
failure shall continue for a period of thirty (30) days after written notice
thereof from Lessor to Lessee; provided, however, that if the nature of Lessee's
noncompliance is such that more than thirty (30) days are reasonably required
for its cure, than Lessee shall not be deemed to be in default if Lessee
commenced such cure within said thirty (30) day period and thereunder diligently
pursues such cure to completion. To the extent permitted by law, such thirty
(30) day notice shall constitute the sole and exclusive notice required to be
given to Lessee under applicable Unlawful Detainer statutes.
(e)(i) The making by Lessee of any general arrangement or general
assignment for the benefit of creditors; (ii) Lessee becoming a "debtor" as
defined in 11 U.S.C. Section 101 or any successor statute thereto (unless, in
the case of a petition filed against Lessee, the same is dismissed within sixty
(60) days; (iii) the appointment of a trustee or receiver to take possession of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where possession is not restored to Lessee within thirty
(30) days; or (iv) the attachment, execution or other judicial seizure of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where such seizure is not discharged within thirty (30)
days. In the event that any provision of this paragraph 13.1(e) is contrary to
any applicable law, such provision shall be of no force or effect.
(f) The discovery by Lessor that any financial statement given to Lessor
by Lessee, or its successor in interest or by any guarantor or Lessee's
obligation hereunder, was materially false.
13.2 Remedies. In the event of any material default or breach of this Lease by
Lessee, Lessor may at any time thereafter, with or without notice or demand and
without limiting Lessor in the exercise of any right or remedy which Lessor may
have by reason of such default;
(a) Terminate Lessee's right to possession of the Premises by any lawful
means, in which case this Lease and the term hereof shall terminate and Lessee
shall immediately surrender possession of the Premises to Lessor. In such event
Lessor shall be entitled to recover from Lessee all damages incurred by Lessor
by reason of the Lessee's default including, but not limited to, the cost of
recovering possession of the Premises; expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorneys'
fees, and any real estate commission actually paid; the worth at the time of
award by the court having jurisdiction thereof of the amount by which the
unpaid rent for the balance of the term after the time of such award exceeds
the amount of such rental loss for the same period that Lessee proves could be
reasonably avoided; that portion of the leasing commission paid by Lessor
pursuant to paragraph 15 applicable to the unexpired term of this Lease.
(b) Maintain Lessee's right to possession in which case this Lease shall
continue in effect whether or not Lessee shall have vacated or abandoned the
Premises. In such event Lessor shall be entitled to enforce all of Lessor's
rights and remedies under this Lease, including the right to recover the rent
as it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to Lessor under the
laws or judicial decisions of the state wherein the Premises are located.
Unpaid installments of rent and other unpaid monetary obligations of Lessee
under the terms of this Lease shall bear interest from the date due at the
maximum rate then allowable by law.
13.3 Default by Lessor. Lessor shall not be in default unless Lessor fails to
perform obligations required of Lessor within a reasonable time, but in no event
later than thirty (30) days after written notice by Lessee to Lessor and to the
holder of any first mortgage or deed of trust covering the Premises whose name
and address shall have theretofore been furnished to Lessee in writing,
specifying wherein Lessor has failed to perform such obligation; provided,
however, that if the nature of Lessor's obligation is such that more than thirty
(30) days are required for performance then Lessor shall not be in default if
Lessor commences performance within such 30-day period and thereafter diligently
pursues the same to completion.
13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee to
Lessor of Base Rent, Lessee's Share of Operating Expense increase or other sums
due hereunder will cause Lessor to incur costs not contemplated by this Lease,
the exact amount of which will be extremely difficult to ascertain. Such costs
include, but are not limited to, processing and accounting charges, and late
charges which may be imposed on Lessor by the terms of any mortgage or trust
deed covering the Office Building Project. Accordingly, if any installment of
Base Rent, Operating Expenses Increase, or any other sum due from Lessee shall
not be received by Lessor or Lessor's designee within ten (10) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to 6% of such overdue amount. The
parties hereby agree that such late charge represents a fair and reasonable
estimate of the costs Lessor will incur by reason of late payment by Lessee.
Acceptance of such late charge by Lessor shall in no event constitute a waiver
of Lessee's default with respect to such overdue amount, nor prevent Lessor from
exercising any of the other rights and remedies granted hereunder.
14. Condemnation. If the Premises or any portion or the Office Building Project
are taken under the power of eminent domain, or sold under the threat of the
exercise of said power (all of which are herein called "condemnation"), this
Lease shall terminate as to the part so taken as of the date the condemning
authority takes title or possession, whichever first occurs; provided that if
so much of the Premises or the Office Building Project are taken by such
condemnation as would substantially and adversely affect the operating and
profitability of Lessee's business conducted from the Premises, Lessee shall
have the option, to be exercised only in writing within thirty (30) days after
Lessor shall have given Lessee written notice of such taking (or in the absence
of such notice, within thirty (30) days after the condemning authority shall
have taken possession), to terminate this Lease as of the date the condemning
authority takes such possession. If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect
as to the portion of the Premises remaining, except that the rent and Lessee's
Share of Operating Expenses Increase shall be reduced in the proportion that the
floor area of the Premises taken bears to the total floor area of the Premises.
Common Areas taken shall be excluded from the Common Areas usable by Lessee and
no reduction of rent shall occur with respect thereto or by reason thereof.
Lessor shall have the option in its sole discretion to terminate this Lease as
of the taking of possession by the condemning authority, by giving written
notice to Lessee of such election within thirty (30) days after receipt of
notice of a taking by condemnation of any part of the Premises or the Office
Building Project. Any award for the taking of all or any part of the Premises or
the Office Building Project under the power of eminent domain or any payment
under threat of the exercise of such power shall be the property of Lessor,
whether such award shall be made as compensation for diminution in value of the
leasehold or for the taking of the fee, or as severance damages; provided,
however, that Lessee shall be entitled to any separate award for loss of or
damage to Lessee's trade fixtures, removable personal property and unamortized
tenant improvements that have been paid for by Lessee. For that purpose the cost
of such improvements shall be amortized over the original term of this Lease
excluding any options. In the event that this Lease is not terminated by reason
of such condemnation, Lessor shall to the extent of severance damages received
by Lessor in connection with such condemnation, repair any damage to the
Premises caused by such condemnation except to the extent that Lessee has been
reimbursed therefor by the condemning authority. Lessee shall pay any amount in
excess of such severance damages required to complete such repair.
15. Broker's Fee.
(a) The brokers involved in this transaction are Colliers Iliff Thorn as
"listing broker" and CB Commercial Real Estate as "cooperating broker,"
licensed real estate broker(s). A "cooperating broker" is defined as any broker
other than the listing broker entitled to a share of any commission arising
under this Lease. Upon execution of this Lease by both parties, Lessor shall
pay to said brokers jointly, or in such separate shares as they may mutually
designate in writing, a fee as set forth in a separate agreement between Lessor
and said broker(s), or in the event there is no separate agreement between
Lessor and said broker(s), the sum of $__________________________, for
brokerage services rendered by said broker(s) to Lessor in this transaction.
(d) Lessee and Lessor each represent and warrant to the other that neither
has had any dealings with any person, firm, broker or finder (other than the
person(s), if any, whose names are set forth in paragraph 15(a), above) in
connection with the negotiation of this Lease and/or the consummation of the
transaction contemplated hereby, and no other broker or other person, firm or
entity is entitled to any commission or finder's fee in connection with said
transaction and Lessee and Lessor do each hereby indemnify and hold the other
harmless from and against any costs, expenses, attorney's fees or liability for
compensation or charges which may be claimed by any such unnamed broker, finder
or other similar party by reason of any dealings or actions of the indemnifying
party.
16. Estoppel Certificate.
(a) Each party (as "responding party") shall at any time upon not less than
ten (10) days' prior written notice from the other party ("requesting party")
execute, acknowledge and deliver to the requesting party a statement in writing
(i) certifying that this Lease is unmodified and in full force and effect (or,
if modified, stating the nature of such modification and certifying this Lease,
as so modified, is in full force effect) and the date
<PAGE> 21
to which the rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to the responding party's knowledge, any
uncured defaults on the part of the requesting party, or specifying such
defaults if any are claimed. Any such statement may be conclusively relied upon
by any prospective purchaser or encumbrancer of the Office Building Project or
of the business of Lessee.
(b) At the requesting party's option, the failure to deliver such
statement within such time shall be a material default of this Lease by the
party who is to respond, without any further notice to such party, or it shall
be conclusive upon such party that (i) this Lease is in full force and effect,
without modification except as may be represented by the requesting party, (ii)
there are no uncured defaults in the requesting party's performance, and (iii)
if Lessor is the requesting party, not more than one month's rent has been paid
in advance.
(c) If Lessor desires to finance, refinance, or sell the Office Building
Project, or any part thereof, Lessee hereby agrees to deliver to any lender or
purchaser designated by Lessor such financial statements of Lessee as may be
reasonably required by such lender or purchaser. Such statements shall include
the past three (3) years' financial statements of Lessee. All such financial
statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean only the
owner or owners, at the time in question, of the fee title or a lessee's
interest in a ground lease of the Office Building Project, and except as
expressly provided in paragraph 15, in the event of any transfer of such title
or interest, Lessor herein named (and in case of any subsequent transfers then
the grantor) shall be relieved from and after the date of such transfer of all
liability as respects Lessor's obligations thereafter to be performed, provided
that any funds in the hands of Lessor or the then grantor at the time of such
transfer in which Lessee has an interest, shall be delivered to the grantee.
The obligations contained in this Lease to be performed by Lessor shall, subject
as aforesaid, be binding on Lessor's successors and assigns, only during their
respective periods of ownership.
18. SEVERABILITY. The invalidity of any provision of this Lease as determined
by a court of competent jurisdiction shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein provided, any
amount due to lessor not paid when due shall bear interest at the maximum rate
then allowable by law or judgments from the date due. Payment of such interest
shall not excuse or cure any default by Lessee under this Lease; provided,
however, that interest shall not be payable on late charges incurred by Lessee
nor on any amounts upon which late charges are paid by Lessee.
20. TIME OF ESSENCE. Time is of the essence with respect to the obligations to
be performed under this Lease.
21. ADDITIONAL RENT. All monetary obligations of Lessee to Lessor under the
terms of this Lease, including but not limited to Lessee's Share of Operating
Expense increase and any other expenses payable by Lessor hereunder shall be
deemed to be rent.
22. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
or contemporaneous agreement or understanding pertaining to any such matter
shall be effective. This Lease may be modified in writing only, signed by the
parties in interest at the time of the modification. Except as otherwise stated
in this Lease, Lessee hereby acknowledges that neither the real estate broker
listed in paragraph 15 hereof nor any cooperating broker on this transaction
nor the Lessor or any employee or agents of any of said persons has made
any oral or written warranties or representations to Lessee relative to the
condition or use by Lessee of the Premises or the Office Building Project and
Lessee acknowledges that Lessee assumes all responsibility regarding the
Occupational Safety Health Act, the legal use and adaptability of the Premises
and the compliance thereof with all applicable laws and regulations in effect
during the term of this Lease.
23. NOTICES. Any notice required or permitted to be given hereunder shall be
in writing and may be given by personal delivery or by certified or registered
mail, and shall be deemed sufficiently given if delivered or addressed to
Lessee or to Lessor at the address noted below or adjacent to the signature of
the respective parties, as the case may be. Mailed notices shall be deemed
given upon actual receipt at the address required, or forty-eight hours
following deposit in the mail, postage prepaid, whichever first occurs. Either
party may by notice to the other specify a different address for notice
purposes except that upon Lessee's taking possession of the Premises, the
Premises shall constitute Lessee's address for notice purposes. A copy of all
notices required or permitted to be given to Lessor hereunder shall be
concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by notice to Lessee. See Paragraph 23
(continued) of Addendum.
24. WAIVERS. No waiver by Lessor of any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval of, any act
shall not be deemed to render unnecessary the obtaining of Lessor's consent to
or approval of any subsequent act by Lessee. The acceptance of rent hereunder
by Lessor shall not be a waiver of any preceding breach by Lessee of any
provision hereof, other than the failure of Lessee to pay the particular rent
so accepted, regardless of Lessor's knowledge of such preceding breach at the
time of acceptance of such rent.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a "short form" memorandum of this
Lease for recording purposes. See Addendum for Paragraph 25 (continued).
26. HOLDING OVER. If Lessee, with Lessor's consent, remains in possession of
the Premises or any part thereof after the expiration of the term hereof, such
occupancy shall be a tenancy from month to month upon all the provisions of
this Lease pertaining to the obligations of Lessee, except that the rent
payable shall be one hundred fifty percent (150%) of the rent payable
immediately preceding the termination date of this Lease, and all Options, if
any, granted under the terms of this Lease shall be deemed terminated and be
of no further effect during said month to month tenancy.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies
at law or in equity.
28. COVENANTS AND CONDITIONS. Each provision of this Lease performable by
Lessee shall be deemed both a covenant and a condition.
29. BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof
restricting assignment of subletting by Lessee and subject to the provisions of
paragraph 17, this Lease shall bind the parties, their personal
representatives, successors and assigns. This Lease shall be governed by the
laws of the State where the Office Building Project is located and any
litigation concerning this Lease between the parties hereto shall be initiated
in the county in which the Office Building Project is located.
30. SUBORDINATION.
(a) This Lease, and any Option or right of first refusal granted hereby,
at Lessor's option, shall be subordinate to any ground lease, mortgage, deed
of trust, or any other hypothecation or security now or hereafter placed upon
the Office Building Project and to any and all advances made on the security
thereof and to all renewals, modifications, consolidations, replacements and
extensions thereof. Notwithstanding such subordination, Lessee's right to quiet
possession of the Premises shall not be disturbed if Lessee is not in default
and so long as Lessee shall pay the rent and observe and perform all of the
provisions of this Lease, unless this Lease is otherwise terminated pursuant to
its terms. If any mortgagee, trustee or ground lessor shall elect to have this
Lease and any Options granted hereby prior to the lien of its mortgage, deed of
trust or ground lease, and shall give written notice thereof to Lessee, this
Lease and such Options shall be deemed prior to such mortgage, deed of trust or
ground lease, whether this Lease or such Options are dated prior or subsequent
to the date of said mortgage, deed of trust or ground lease or the date of
recording thereof. See Paragraph 30(a) (continued) of Addendum.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination, or to make this Lease or any Option granted herein
prior to the lien of any mortgage, deed of trust or ground lease, as the case
may be, Lessee's failure to execute such documents within ten (10) days after
written demand shall constitute a material default by Lessee hereunder without
further notice to Lessee or, at Lessor's option, Lessor shall execute such
documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee does hereby
make, constitute and irrevocably appoint Lessor as Lessee's attorney-in-fact
and in Lessee's name, place and stead, to execute such documents in accordance
with this paragraph 30(b).
31. ATTORNEYS' FEES.
31.1 If either party named herein brings an action to enforce the terms
hereof or declare rights hereunder, the prevailing party in any such action,
trial or appeal thereon, shall be entitled to his reasonable attorneys' fees to
be paid by the losing party as fixed by the court in the same or a separate
suit, and whether or not such action is pursued to decision or judgment.
31.2 The attorneys' fee award shall not be computed in accordance with any
court fee schedule, but shall be such as to fully reimburse all attorneys' fees
reasonably incurred in good faith.
31.3 Lessor shall be entitled to reasonable attorneys' fees and all other
costs and expenses incurred in the preparation and service of notice of default
and consultations in connection therewith, whether or not a legal transaction is
subsequently commenced in connection with such default.
32. LESSOR'S ACCESS.
32.1 Lessor and Lessor's agents shall have the right to enter the Premises
at reasonable times for the purpose of inspecting the same, performing any
services required of Lessor, showing the same to prospective purchasers,
lenders, or lessees, taking such safety measures, erecting such scaffolding or
other necessary structures, making such alterations, repairs, improvements or
additions to the Premises or to the Office Building Project as Lessor may
reasonably deem necessary or desirable and the erecting, using and maintaining
of utilities, services, pipes and conduits through the Premises and/or other
premises as long as there is no material adverse effect to Lessee's use of the
Premises. Lessor may at any time place on or about the Premises or the Building
any ordinary "For Sale" signs and Lessor may at any time during the last 120
days of the term hereof place on or about the Premises any ordinary, "For
Lease" signs.
32.2 All activities of Lessor pursuant to this paragraph shall be without
abatement of rent, nor shall Lessor have any liability to Lessee for the same.
<PAGE> 22
32.3 Lessor shall have the right to retain keys to the Premises and to
unlock all doors in or upon the Premises other than to files, vaults and safes,
and in the case of emergency to enter the Premises by any reasonably
appropriate means, and any such entry shall not be deemed a forceable or
unlawful entry or detainer of the Premises or an eviction. Lessee waives any
charges for damages or injuries or interference with Lessee's property or
business in connection therewith.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises or the Common Areas
without first having obtained Lessor's prior written consent. Notwithstanding
anything to the contrary in this Lease, Lessor shall not be obligated to
exercise any standard or reasonableness in determining whether to grant such
consent. The holding of any auction on the Premises or Common Areas in
violation of this paragraph shall constitute a material default of this Lease.
34. Signs. Lessee shall not place any sign upon the Promises or the Office
Building Project without Lessor's prior written consent. Under no circumstances
shall Lessee place a sign on any roof of the Office Building Project. See
Paragraph 34 (continued) of Addendum.
35. Merger. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to
Lessor of any or all of such subtenancies.
36. Consents. Except for paragraphs 33 (auctions) and 34 (signs) hereof,
wherever in this Lease the consent of one party is required to an act of the
other party such consent shall not be unreasonably withheld or delayed.
37. Guarantor. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. Quiet Possession. Upon Lessee paying the rent for the Premises and
observing and performing all of the covenants, conditions and provisions on
Lessee's part to be observed and performed hereunder, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease. The individuals executing this Lease on behalf of
Lessor represent and warrant to Lessee that they are fully authorized and
legally capable of executing this Lease on behalf of Lessor and that such
execution is binding upon all parties holding an ownership interest in the
Office Building Project.
39. Options.
39.1 Definition. As used in this paragraph the word "Option" has the
following meaning: (1) the right or option to extend the term of this Lease or
to renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (2) the option of right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of first
refusal to lease other space within the Office Building Project or other
property of Lessor or the right of first offer to lease other space within the
Office Building Project or other property of Lessor; (3) the right or option to
purchase the Premises or the Office Building Project, or the right of first
refusal to purchase the Premises or the Office Building Project or the right of
first offer to purchase other property of Lessor or the right of first offer to
purchase other property of Lessor.
39.2 Options Personal. Each Option granted to Lessee in this Lease is
personal to the original Lessee and may be exercised only by the original Lessee
while occupying the Premises who does so without the intent of thereafter
assigning this Lease or subletting the Premises or any portion thereof, and may
not be exercised or be assigned, voluntarily or involuntarily, by or to any
person or entity other than Lessee; provided, however, that an Option may be
exercised by or assigned to any Lessee Affiliate as defined in paragraph 12.2 of
this Lease. The Options, if any, herein granted to Lessee are not assignable
separate and apart from this Lease, nor may any Option be separated from this
Lease in any manner, either by reservation or otherwise.
39.3 Multiple Options. In the event that Lessee has any multiple options
to extend or renew this Lease a later option cannot be exercised unless the
prior option to extend or renew this Lease has been so exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary, (i) during the time
commencing from the date Lessor gives to Lessee a notice of default pursuant to
paragraph 13.1(c) or 13.1(d) and continuing until the noncompliance alleged in
said notice of default is cured, or (ii) during the period of time commencing
on the day after a monetary obligation to Lessor is due from Lessee and unpaid
(without any necessity for notice thereof to Lessee) and continuing until the
obligation is paid, or (iii) in the event that Lessor has given to Lessee three
or more notices of default under paragraph 13.1(c), or paragraph 13.1(d),
whether or not the defaults are cured, during the 12 month period of time
immediately prior to the time that Lessee attempts to exercise the subject
Option, (iv) if Lessee has committed any non-curable breach, including without
limitation those described in paragraph 13.1(b), or is otherwise in default of
any of the terms, covenants or conditions of this Lease.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due
and timely exercise of the Option. If, after such exercise and during the term
of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of
Lessee for a period of thirty (30) days after such obligation becomes due
(without any necessity of Lessor to give notice thereof to Lessee), or (ii)
Lessee fails to commence to cure a default specified in paragraph 13.1(d)
within thirty (30) days after the date that Lessor gives notice to Lessee of
such default and/or Lessee fails thereafter to diligently prosecute said cure
to completion, or (iii) Lessor gives to Lessee three or more notices of default
under paragraph 13.1(c), or paragraph 13.1(d), whether or not the defaults are
cured, or (iv) if Lessee has committed any non-curable breach, including
without limitation those described in paragraph 13.1(b), or is otherwise in
default of any of the terms, covenants and conditions of this Lease.
40. Security Measures -- Lessor's Reservations.
40.1 Lessee hereby acknowledges that Lessor shall have no obligation
whatsoever to provide guard service or other security measures for the benefit
of the Premises or the Office Building Project. Lessee assumes all
responsibility for the protection of Lessee, its agents, and invitees, and the
property of Lessee and of Lessee's agents and invitees from acts of third
parties. Nothing herein contained shall prevent Lessor, at Lessor's sole
option, from providing security protection for the Office Building Project or
any part thereof, in which event the cost thereof shall be included within the
definition of Operating Expenses, as set forth in paragraph 4.2(b) See
Paragraph 40.1 (continued) of Addendum
40.2 Lessor shall have the following rights:
(a) To change the name, address or title of the Office Building
Project or building in which the Premises are located upon not less than 90
days prior written notice;
(b) To, at Lessee's expense, provide and install Building standard
graphics on the door of the Premises and such portions of the Common Areas as
Lessor shall reasonably deem appropriate;
(c) To permit any lessee the exclusive right to conduct any business
as long as such exclusive does not conflict with any rights expressly given
herein;
(d) To place such signs, notices or displays as Lessor reasonably
deems necessary or advisable upon the roof, exterior of the buildings or the
Office Building Project or on pole signs in the Common Areas;
40.3 Lessee shall not:
(a) Use a representation (photographic or otherwise) of the Building
or the Office Building Project or their name(s) in connection with Lessee's
business;
(b) Suffer or permit anyone, except in emergency, to go upon the roof
of the Building;
41. Easements.
41.1 Lessor reserves to itself the right, from time to time, to grant such
easements, rights and dedications that Lessor deems necessary or desirable, and
to cause the recordation of Parcel Maps and restrictions, so long as such
easements, rights, dedications, Maps and restrictions do not unreasonably
interfere with the use of the Premises by Lessee. Lessee shall sign any of the
aforementioned documents upon request of Lessor and failure to do so shall
constitute a material default of this Lease without the need for further notice
to Lessee.
41.2 The obstruction of Lessee's view, air, or light by any structure
erected in the vicinity of the Building, whether by Lessor or third parties,
shall in no way affect this Lease or impose any liability upon Lessor.
42. Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the
provisions hereof, the party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such payment
shall not be regarded as a voluntary payment, and there shall survive the right
on the part of said party to institute suit for recovery of such sum. If it
shall be adjudged that there was no legal obligation on the part of said party
to pay such sum or any part thereof, said party shall be entitled to recover
such sum or so much thereof as it was not legally required to pay under the
provisions of this Lease.
<PAGE> 23
43. Authority. If Lessee is a corporation, trust, or general or limited
partnership, Lessee, and each individual executing this Lease on behalf of such
entity represent and warrant that such individual is duly authorized to execute
and deliver this Lease on behalf of said entity. If Lessee is a corporation,
trust or partnership, Lessee shall, within thirty (30) days after execution of
this Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
44. Conflict. Any conflict between the printed provisions, Exhibits or Addenda
of this Lease and the typewritten or handwritten provisions, if any, shall be
controlled by the typewritten or handwritten provisions.
45. No Offer. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to the Lessee shall not be deemed an offer to Lessee to
lease. This Lease shall become binding upon Lessor and Lessee only when fully
executed by both parties.
46. Lender Modification. Lessee agrees to make such reasonable modifications
to this Lease as may be reasonably required by an institutional lender in
connection with the obtaining of normal financing or refinancing of the Office
Building Project.
47. Multiple Parties. If more than one person or entity is named as either
Lessor or Lessee herein, except as otherwise provided herein, the obligations
of the Lessor or Lessee herein shall be the joint and several responsibility of
all persons or entities named herein as such Lessor or Lessee, respectively.
4.9 Attachments. Attached hereto are the following documents which constitute
a part of this Lease: Addendum containing the following paragraphs:
1.5 (continued). 52.
1.6 (continued). 53.
1.10 (continued). 54.
2.4 (continued). Rider No. 1
4.2(a) (continued). and Exhibits "A" through "E"
4.2(d)(x).
4.2(f) (continued).
4.2(g) (continued).
6.1 (continued).
6.2(b) (continued).
7.1 (continued).
7.2(c).
8.1(b).
8.7 (continued).
8.8 (continued).
9.4(a) (continued).
11.1 (continued).
11.3 (continued).
11.4 (continued).
12.4(f).
12.7
23 (continued).
25 (continued).
30(a) (continued).
34 (continued).
40.1 (continued).
50.
51.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO, THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILED IN IT HAS BEEN PREPARED FOR SUBMISSION TO YOUR
ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE BY
THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE
BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL
EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION RELATING
THERETO; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN LEGAL
COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
<TABLE>
<S> <C>
Mission West Properties, Computervision, a Delaware corporation
a California corporation
COMPUTERVISION CORPORATION
- --------------------------------------- --------------------------------------------
By /s/ HARVE FILUK By /s/ ANTHONY N. FIOKA JR.
------------------------------------- -----------------------------------------
Harve Filuk Anthony N. Fioka Jr.
Its Vice President Its Vice President, General Counsel
---------------------------------- -------------------------------------
By
------------------------------------- By -----------------------------------------
Its Its
---------------------------------- ----------------------------------------
Executed at 6815 Flanders Drive, Executed at 100 Crosby Drive
Suite 250 Bedford, MA 01730
San Diego, CA 92121 --------------------------------
---------------------------
on 10/14/96 on 10 October 1996
------------------------------------- ------------------------------------------
</TABLE>
<PAGE> 24
ADDENDUM TO STANDARD OFFICE LEASE - GROSS
1.5(continued): Definition of Commencement Date. The Commencement Date
of this Lease as defined in Paragraph 1.5 of the Lease is January 1, 1997. In
the event the tenant improvements are not completed by January 1, 1997, the
Commencement Date is defined as the earlier of the dates (i) Lessee initially
occupies the Premises, or (ii) the general contractor supervising the tenant
improvements receives a final approval from the building inspector that the
tenant improvements for the Premises are complete.
1.6(continued). The monthly Base Rent for the seventy-eight (78) month
term of the Lease will be as follows:
Months 1-12 $1.31 per rentable square foot
Months 13-24 $1.36 per rentable square foot
Months 25-36 $1.41 per rentable square foot
Months 37-48 $1.47 per rentable square foot
Months 49-60 $1.52 per rentable square foot
Months 61-72 $1.58 per rentable square foot
Months 73-78 $1.64 per rentable square foot
Lessee shall be responsible for its use of electricity to the Premises.
1.10(continued). Lessee's proportionate share of the Office Building
operating expense increase as defined in paragraph 1.10 (65.53%) is derived from
dividing the rentable square footage of the Premises (29,550) by the total
rentable square footage of the Office Building (45,097).
2.4(continued). In the event Lessor desires to modify or change the
decor of the Common Areas such changes shall be consistent with the current
environment and image of the Common Areas and the Office Building. Lessor shall
use its best efforts not to interfere with Lessee's use or right to the quiet
enjoyment of the Premises during any modifications or changes in the Common
Areas.
4.2(a)(continued). Lessee's share of the Base Year Operating Expenses
and any Operating Expense Increase shall be based on a building being
ninety-five percent (95%) occupied and fully assessed for real estate taxes.
4.2(d)(x). The costs of any capital improvements made to the Office
Building or the parking facilities appurtenant to the Office Building which are
incurred by Lessor to reduce the Operating Expenses of the Office Building. In
no event shall Lessee's proportionate share of the costs of the capital
improvements to be paid by Lessee under this article exceed the proportionate
share of the reduction in the Operating Expenses that resulted from the capital
improvements.
4.2(f)(continued): Exclusions from Operating Costs. The following
additional items shall be excluded from the Operating Expenses;
(i) the initial cost of any construction of the Office Building Project
or any part thereof;
(ii) salary, fringe benefits and payroll taxes for off-site, executive
or managerial personnel;
(iii) broker fees and commissions for the sale or leasing of space in
the Office Building Project;
(iv) the cost of performing additions, alterations, improvements or
individual services for other tenants or vacant space;
(v) any payments required in connection with any debt or ground lease
encumbering the Office Building Project;
Page 1 of 6
<PAGE> 25
(vi) no contingency, reserve or sinking funds that are not used for the
future maintenance of the Common Areas of the Office Building Project;
(vii) costs and provisions against other tenants in the Office Building
Project;
(viii) expenses resulting form a violation by Lessor of the terms of any
lease of space in the Office Building Project or of any ground lease or mortgage
to which this Lease is subordinate;
(ix) the repair of any part of the Common Area that was inadequately
designed or defectively constructed, and;
(x) all costs associated with the removal and cleanup of hazardous
wastes and toxic substances.
The amount of any charges for any services provided by affiliates, related or
designated parties of Lessor which are included in the Operating Expenses shall
be reasonable, customary and competitive with charges for similar services of
independent contractors in the area where the Office Building Project is
located.
4.2(g)(continued). Lessee shall have the right to audit Lessor's books
with respect to Operating Expenses and shall recover audit expenses in the event
Lessor shall have overcharged by an amount exceeding five percent (5%) of the
total amount of Lessee's share of the Operating Expenses for the Operating
Expense year that is being audited.
6.1(continued). Lessor shall not lease to a governmental agency that
would require above normal public access use of the Office Building. However,
Lessor shall retain its right to lease to a governmental agency that uses the
Office Building for non-public access use such as administrative offices.
6.2(b)(continued). Lessee's obligation to comply with all applicable
statutes, ordinances, rules, regulations, orders, covenants and restrictions of
record should not require Lessee to make any structural improvements to the
Office Building or Common Areas.
7.1(continued). In the event Lessor does not make repairs as provided in
this lease within a reasonable time, Lessee shall not lose the benefit of any
statute now or hereafter in effect which would allow Lessee to make the repairs
at Lessor's expense.
7.2(c). Lessee shall remove any and all improvements made by Lessee
after the Commencement Date of this Lease if requested by Lessor in writing
ninety (90) days prior to the termination date of this Lease.
8.1(b). Increases in Insurance. Not more frequently than each three
years, if, in the opinion of Lessor's lender or of an insurance broker retained
by Lessor, the amount of public liability insurance coverage at that time is not
adequate, Lessee shall increase the insurance coverage as required by either
Lessor's lender or Lessor's insurance broker within ten (10) days after receipt
of Lessor's written. request that Lessee do so.
8.7(continued). Unless such damage or injury was caused by the gross
negligence or willful misconduct of Lessee, Lessor shall indemnify and hold
harmless Lessee from and against any and all claims for damage to the person or
property of anyone or any entity arising from any activity, work or things done,
permitted or suffered by Lessor in or about the Office Building Project, or
elsewhere and shall further indemnify and hold harmless Lessee from and against
any and all claims, costs and expenses arising from any act or omission of
Lessor, or any of Lessor's agents, contractors, employees, or invitees, and from
and against all costs, attorney's fees, expenses and liabilities incurred by
Lessee as the result of any such use, conduct, activity, work, things done,
permitted or suffered, breach, default or negligence, and in dealing reasonably
therewith, including but not limited to the defense or pursuit of any claim or
any action or proceeding involved therein; and in case any action or proceeding
be brought against Lessee by reason of any such matter, Lessor upon such notice
from Lessee shall defend the same at Lessor's expense by counsel reasonably
satisfactory to Lessee and Lessee shall reasonably cooperate with Lessor in such
defense.
Page 2 of 6
<PAGE> 26
Lessee need not have first paid any such claim in order to be so indemnified.
Lessor, as a material part of the consideration to Lessee, hereby assumes all
risk of damage to property of Lessor or injury to persons, in, upon or about the
Office Building Project arising from any cause and Lessor hereby waives all
claims in respect thereof against Lessee.
8.8(continued). Unless such damage or injury was caused by the gross
negligence or willful misconduct of Lessee, Lessor hereby agrees that Lessee
shall not be liable for loss or damage to the goods, wares, merchandise or other
property of Lessor, Lessor's employees, invitees, customers, or any other person
in or about the Office Building Project, nor shall Lessee be liable for injury
to the person of Lessor, Lessor's employees agents or contractors, whether such
damage or injury is caused by or results from theft, fire, steam, electricity,
gas, water, or rain, or from the breakage, leakage, obstruction or other defects
of pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting
fixtures, or from any other cause, whether said damage or injury results from
conditions arising upon the Premises or upon other portions of the Office
Building Project, or of the equipment, fixtures or appurtenances applicable
thereto, and damage arising from any act or neglect of any other lessee,
occupant, or user of the Office Building Project.
9.4.(a)(continued). Lessor's election to terminate this lease as
provided in this paragraph shall Occur if Lessor terminates the leases of the
other tenants in the Office Building which are adjacent to Lessee's Premises.
11.1(continued). Lessor's utility charges for heating, ventilation, and
air conditioning shall not exceed the charge which Lessee would pay if the
Lessee were to purchase such utility charges directly from the applicable
public utility company servicing the Office Building.
11.3(continued). In the event Lessee activates a heating, ventilating
and air conditioning heat pump in the Premises after normal business hours as
such hours are reasonably established by Lessor (presently 7:00 a.m. to 7:00
p.m. Monday through Friday except holidays and 7:00 a.m. to 12:00 noon
Saturdays), an amount equal to $12.00 per hour per heat pump activated shall be
charged. The hourly charge may be reasonably increased by Lessor from time to
time to reflect its costs, but in no case may the charge be increased more
frequently than once a year.
11.4(continued). Any additional power required by Lessee in excess of
the standard office power usage shall be mutually agreed to by Lessor and
Lessee. Any and all costs associated with adding power to the building or
Lessee's Premises, as required by Lessee, shall be at the sole cost and expense
of Lessee.
12.4(f). With respect to any sublease entered into by Lessee with
Lessor's consent as herein provided, if the rent paid by the subtenant to Lessee
for each square foot leased by such subtenant exceeds the rent being paid by
Lessee to Lessor for each such square foot, then Lessor shall be entitled to 75%
of such excess rent net of any normal costs to sublease the Premises (i.e., the
amount of which the rent under such sublease exceeds the rent under this Lease
for each square foot leased by such subtenant); and Lessee shall pay Lessor's
said percentage share of such excess with respect to rent payable under the
sublease to Lessor within ten (10) days after receipt by Lessee of the same.
12.7. During the Term, Lessee shall not enter into any proposed contract
for the assignment or transfer of any interest herein or for the subletting of
the Premises or any part thereof unless it first delivers to Lessor a written
offer of assignment or transfer or of subletting (as the case may be) at the
same price and upon the same terms as are contained in said proposed contract.
If Lessor delivers to Lessee written unequivocal acceptance of said offer within
ten (10) days after delivery thereof to Lessor, Lessee and Lessor shall
consummate the proposed transaction at the price and upon the terms set forth in
said offer. If Lessor fails to deliver to Lessee such writing within ten (10)
days after delivery to Lessor of the aforesaid offer, Lessee may then enter into
and consummate said proposed contract at the price and upon the terms' contained
therein, subject, however, to Lessee's obligation to obtain the prior written
consent thereto of Lessor pursuant to this paragraph.
Page 3 of 6
<PAGE> 27
23(continued). All notices shall be sent to:
Computervision Corporation
Attention Corporate Real Estate
100 Crosby Drive, MS 21-52
Bedford, MA 01730-1480
25(continued). Upon expiration or earlier termination of this Lease,
Lessee, without necessity of any demand, shall execute and deliver to Lessor, a
quitclaim deed in recordable form and acceptable to Lessor, declaring that its
purpose is to extinguish all right, title and interest of Lessee under this
Lease.
30.(a)(continued). Lessor covenants and represents that it has good and
marketable title to the Premises, free and clear of all ground leases, liens and
mortgages or deeds of trust affecting Lessee's possession of the Premises,
Lessee's use of the Premises, or the rights granted to Lessee hereunder, except
a mortgage/deed of trust dated the 13th day of August, 1990 and amended the 27th
day of September, 1993, and further amended the 13th day of September 1995, from
Landlord, as mortgagor, and Union Bank, as mortgagee/beneficiary of deed of
trust.
34.(continued). Lessor and Lessee shall mutually agree upon monument
signage which shall be subject to all City of San Diego signage guidelines. The
cost of all signage shall be at the sole cost and expense of Lessee.
40.1(continued). The Office Building Project has a twenty-four (24)
hour, seven (7) day per week, card key access system to tile front lobby doors
of the building.
50. Lessee agrees to abide by and to conform to the rules, regulations,
and restrictions as outlined in Exhibit "C" of this Lease.
51. Nondisturbance Clause. If the holder of any mortgage, indenture,
deed of trust or other similar instrument succeeds to Lessor's interest in the
Premises, Lessee will pay to it all rents subsequently payable under this Lease.
Lessee will, upon request of first mortgagee, automatically become the tenant
of, and attorn to, the first mortgagee, without change in this Lease. Within
twenty (20) days of receipt of notice from first mortgagee, Lessee will execute,
acknowledge and deliver documents confirming the attornment. The document of
attornment will also provide that the successor will not disturb Lessee in its
use of the Premises in accordance with this Lease.
52. Lessor shall agree to a tenant improvement allowance for building
standard tenant improvements based upon a mutually agreeable building floor
plan. Lessor shall provide to Lessee, Lessor's written acceptance of Lessee's
tenant improvement floor plan prior to the commencement of the construction of
the tenant improvements. The tenant improvement allowance shall consist of the
Lessor contributing up to $22.00 per useable square foot (17,689 usf) on the
shell space and up to $10.00 per useable square foot (8,587 usf) on the
currently improved space. Any and all costs and fees related to architectural
drawings and City of San Diego Permits shall be included in the tenant
improvement allowance. Building standard improvements specifically exclude
systems furniture, phones, data communication lines, trunk lines, or fixtures
which are related to Lessee's business. In the event Lessee desires Lessor to
install building standard tenant improvements in excess of $22.00 per useable
square foot on the shell space or $10.00 per useable square foot on the
currently improved space, Lessee shall pay to Lessor, prior to commencement of
construction of the tenant improvements fifty percent (50%) of any and all costs
in excess of the tenant improvement allowance. Lessee shall pay the remaining
fifty percent (50%) upon the commencement date of this lease.
Any and all change orders shall be approved by Lessor and Lessee. The cost of
any changes orders requested by Lessee that shall increase the cost of the
tenant improvements shall be paid for by Lessee; fifty percent (50%) upon the
execution of the change order by Lessee, and the remaining fifty percent (50%)
upon the commencement date of the Lease.
Page 4 of 6
<PAGE> 28
53. Hazardous Materials and Air Pollution Control. Upon execution of
this Lease, Lessee shall complete and submit to Lessor a County of San Diego
Hazardous Materials Questionnaire and a San Diego Air Pollution Control District
Air Pollution Control Questionnaire in the forms attached hereto as Exhibits D
and E. Lessee shall be responsible for all costs incurred, and any delay in
occupancy which may occur as a result of processing the applications or of
complying with the requirements relating to these questionnaires which arise as
a result of Lessee's actual or intended use of the Premises. Lessor shall
reasonably cooperate with Lessee to avoid or minimize such costs or delay in
occupancy, provided such cooperation can be given without Lessor incurring any
cost or obligation. If required by the County of San Diego, Lessee shall keep
the two Questionnaires updated and current at all times during the term of this
Lease.
54. Hazardous Materials. Lessee shall be entitled to use and store
everyday business products which may somehow qualify as hazardous substances,
subject to Lessee's obligation to comply with any and all laws regarding their
use. Lessee hereby makes the following covenants regarding hazardous materials:
(a) Lessee shall at all times and in all respects comply with all
federal, state and local laws, ordinances and regulations, including, but not
limited to, the Federal Water Pollution Control Act (33 U.S.C. Section 1251, et
seq.), Resource Conservation & Recovery Act (42 U.S.C. Section 6901, et seq.),
Safe Drinking Water Act (42 U.S.C Section 3000f, et seq.), Toxic Substance
Control Act 15 U.S.C. Section 2601, et seq.), the Clean Air Act (42 U.S.C.
Section 7401 et seq.), Comprehensive Environmental Response of Compensation and
Liability Act (42 U.S.C. Section 9601, et seq.), California Health & Safety Code
(Section 25100, et seq.; Section 39000, et seq.), California Safe Drinking Water
& Toxic Enforcement Act of 1986 (California Health & Safety Code Section
25249.5, et seq.), California Water Code (Section 13000, et seq.), and other
comparable state laws ("Hazardous Materials Laws"), relating to industrial
hygiene, environmental protection or the use, analysis, generation, manufacture,
storage, disposal or transportation of any oil, flammable explosives, asbestos,
urea formaldehyde, radioactive materials or waste, or other hazardous, toxic,
contaminated or polluting materials, substances or wastes, including, without
limitation, any "hazardous substances," "hazardous wastes," "hazardous
materials" or "toxic substances" under any such laws, ordinances or regulations
(collectively, "Hazardous Materials")
(b) Lessee shall, at its own expense, procure, maintain in effect
and comply with all conditions of any and all permits, licenses, and other
governmental and regulatory approvals required for Lessee's use of the Premises,
including, without limitation, discharge of (appropriately treated) materials or
wastes into or through any sanitary sewer serving the Premises. Except as
discharged into the sanitary sewer in strict accordance and conformity with all
applicable Hazardous Materials Laws, Lessee shall cause any and all Hazardous
Materials removed from the Premises to be removed and transported solely by duly
licensed haulers to duly licensed facilities for final disposal of such material
and wastes. Lessee shall in all respects handle, treat, deal with and manage any
and all Hazardous Materials in, on, under or about the Premises in total
conformity with all applicable Hazardous Material Laws and prudent industry
practices regarding management of such Hazardous Materials. Upon expiration or
earlier termination of the lease term, Lessee shall cause all Hazardous
Materials to be removed from the Premises and transported for use, storage or
disposal in accordance with and compliance with all applicable Hazardous
Materials Laws. Lessee shall not take any remedial action in response to the
presence of any Hazardous Materials in or about the Premises or any building,
nor enter into any settlement agreement, consent decree or other compromise in
respect to any claims relating to any Hazardous Materials in any way connected
with the Premises or any building, without first notifying Lessor of Lessee's
intention to do so and affording Lessor ample opportunity to appear, intervene
or otherwise appropriately assert and protect Lessor's interest with respect
thereto.
(c) Lessee still immediately notify Lessor in writing of: (i) any
enforcement, cleanup, removal or other governmental or regulatory action
instituted, completed or threatened pursuant to any Hazardous Material Laws;
(ii) any claim made or threatened by any person against Lessee, the Premises or
any building related to damage, contribution, cost, recovery, compensation, loss
or injury resulting from or claimed to result from any Hazardous Materials, and
(iii) any reports made to any environmental agency arising out of or in
connection with any Hazardous Materials in or removed from the
Page 5 of 6
<PAGE> 29
Premises or any building, including any complaints, notices, warnings or
asserted violations in connection therewith. Lessee shall also supply to Lessor
as promptly as possible, and in any event within (5) business days after Lessee
first receives or sends the same with copies of all claims, reports, complaints,
notices, warnings or asserted violations, relating in any way to the Premises,
any building or Lessee's use thereof. Lessee shall promptly deliver to Lessor
copies of hazardous waste manifests reflecting the legal and proper disposal of
all Hazardous Materials removed from the Premises.
(d) Lessor represents and warrants that to the best of Lessor's
knowledge there are currently no environmental conditions on, in or affecting
the Property and/or the Building which violate any federal, state, or local law.
Lessor represents and warrants that it shall hold harmless and indemnify and
defend Lessee, except due to Lessee's own act, fault, or negligence, from all
liabilities, damages, claims or costs of any kind or nature (including
reasonable attorney's fees) resulting or arising from the presence of suspected
hazardous or toxic wastes, substances or emissions in the Building and/or on the
Property.
Page 6 of 6
<PAGE> 30
RIDER NO. 1
Option to Extend the Lease.
1. Extension. Subject to Paragraph 39 of the Lease Agreement, Lessee at
Lessee's option may extend the term of this lease for one (1) additional five
(5) year term(s). The rent for the extension term shall be at the then fair
market rent.
2. Calculation of Fair Market Rent. The "fair market rent of the
Premises" shall mean the average rent being paid by tenants for space of a
quality similar to that of the Premises and other comparable buildings in the
area at the time the renewal term commences as determined by mutual agreement of
Lessor and Lessee. If Lessor and Lessee are unable to agree on the fair market
rent, the fair market rent of the Premises shall be determined by an appraiser
("the Appraiser") selected as provided in this paragraph. The Appraiser must be
a member of the American Institute of Real Estate Appraisers (MAI). The
Appraiser will be selected as follows: Lessor and Lessee will, within 15 days
following Lessee's exercise of its option of renewal, each select an MAI
appraiser and notify the other party in writing of its selection; and such two
MAI appraisers will within 30 days following their selection by the parties,
jointly select a third MAI appraiser as the Appraiser who will be instructed by
Lessor and Lessee to determine in writing, within 30 days, the fair market rent
of the Premises. Once the Appraiser has determined the fair market rent of the
Premises, such determination will be binding upon Lessor and Lessee.
3. Appraiser Fees. Each party will pay the fees of the MAI appraiser
which it has selected; the fees of the Appraiser will be borne equally by the
parties.
4. Notice Provision. Lessee shall give written notice of its exercise of
its option of renewal no later than six (6) months prior to the expiration of
the initial term of this Lease. In the event Lessee does not exercise its option
to extend the lease, and does not notify Lessor per the terms of this provision,
then Lessee's option to extend this lease shall expire.
This Lease Rider is attached to and forms a part of that Office Lease, dated
August 29, 1996, by and between Mission West Properties, a California
corporation ("Lessor") Computervision, a Delaware corporation ("Lessee"). To the
extent that the provisions of this Lease Rider are in conflict with the terms
and provisions of this Lease, the terms and provisions of this Lease Rider shall
govern and prevail.
<PAGE> 31
EXHIBIT C
SCHEDULE OF RENT PAYMENTS
Anything set forth in Section 9 of the Sublease Agreement to the contrary
notwithstanding, commencing on the Commencement Date, Sublessee shall make
monthly rental payments to Sublessor in accordance with the following schedule:
<TABLE>
<CAPTION>
Period Rent/SF Square Feet # Months Monthly Fixed Rent Total Fixed Rent
- ------ ------- ----------- -------- ------------------ ----------------
<S> <C> <C> <C> <C> <C>
5/98-9/98 $1.25 15,000 5 $18,750.00 $ 93,750.00
10/98-12/98 $1.25 20,000 3 $25,000.00 $ 75,000.00
1/99-4/99 $1.25 23,575 4 $29,468.75 $117,875.00
5/99-4/00 $1.30 23,575 12 $30,647.50 $367,770.00
5/00-4/01 $1.35 23,575 12 $31,826.25 $381,915.00
5/01-4/02 $1.40 23,575 12 $33,005.00 $396,060.00
5/02-4/03 $1.45 23,575 12 $34,183.75 $410,205.00
5/03-6/19/2003 $1.50 23,575 1.66 $35,362.50 $ 58,701.75
-----------
TOTALS $1,901,276.75
</TABLE>
<PAGE> 1
EXHIBIT 10.11
THE 1998 STOCK OPTION PLAN
OF
INTERVU INC.
InterVU Inc., a Delaware corporation (the "Company"), has adopted The 1998
Stock Option Plan of InterVU Inc. (the "Plan"), effective February 25, 1998, for
the benefit of its eligible employees, consultants and directors. The Plan
consists of two plans, one for the benefit of key Employees (as such term is
defined below) and consultants and one for the benefit of Independent Directors
(as such term is defined below).
The purposes of this Plan are as follows:
(1) To provide an additional incentive for directors, key Employees
and consultants to further the growth, development and financial success
of the Company by personally benefiting through the ownership of Company
stock which recognizes such growth, development and financial success.
(2) To enable the Company to obtain and retain the services of
directors, key Employees and consultants considered essential to the long
range success of the Company by offering them an opportunity to own stock
in the Company which will reflect the growth, development and financial
success of the Company.
ARTICLE I.
DEFINITIONS
1.1. General. Wherever the following terms are used in this Plan they
shall have the meanings specified below, unless the context clearly indicates
otherwise.
1.2. Award Limit. "Award Limit" shall mean 100,000 shares of Common Stock,
as adjusted pursuant to Section 8.3.
1.3. Board. "Board" shall mean the Board of Directors of the Company.
1.4. Code. "Code" shall mean the Internal Revenue Code of 1986, as
amended.
1.5. Committee. "Committee" shall mean the Compensation Committee of the
Board, or another committee of the Board, appointed as provided in Section 7.1.
1.6. Common Stock. "Common Stock" shall mean the common stock of the
Company, $.001 par value per share, and any equity security of the Company
issued or authorized to be issued in the future, but excluding any preferred
stock and any warrants, options or other rights to purchase Common Stock. Debt
securities of the Company convertible into Common Stock shall be deemed equity
securities of the Company.
1.7. Company. "Company" shall mean InterVU Inc., a Delaware corporation.
1.8. Corporate Transaction. "Corporate Transaction" shall mean any of the
following stockholder-approved transactions to which the Company is a party:
(a) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction the principal purpose of which
is to change the State in which the Company is incorporated, to form a
holding company or to effect a similar reorganization as to form whereupon
this Plan and all Options are assumed by the successor entity;
(b) the sale, transfer, exchange or other disposition of all or
substantially all of the assets of the Company, in complete liquidation or
dissolution of the Company in a transaction not covered by the exceptions
to clause (a) above; or
(c) any reverse merger in which the Company is the surviving entity
but in which securities possessing more than fifty percent (50%) of the
total combined voting power of the Company's
<PAGE> 2
outstanding securities are transferred or issued to a person or persons
different from those who held such securities immediately prior to such
merger.
1.9. Director. "Director" shall mean a member of the Board.
1.10. Disability. "Disability" shall mean, with respect to any Optionee,
(i) the suffering of any mental or physical illness, disability or incapacity
that shall in all material aspects preclude such Optionee from performing his or
her directorial, employment or consultant duties, or (ii) the absence of such
Optionee from his or her directorial, employment or consultant duties by reason
of any mental or physical illness, disability or incapacity for a period of six
(6) months during any twelve (12) month period; provided, however, in either
case, that such illness, disability or incapacity shall be reasonably determined
to be of a permanent nature by the Committee (or the Board in the case of
Options granted to Independent Directors).
1.11. Employee. "Employee" shall mean any officer or other employee (as
defined in accordance with Section 3401(c) of the Code) of the Company, or of
any corporation which is a Subsidiary.
1.12. Exchange Act. "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended.
1.13. Fair Market Value. "Fair Market Value" of a share of Common Stock as
of a given date shall be: (i) the closing sale price of a share of Common Stock
on the principal exchange on which the Common Stock is then trading, if any, on
such date, or, if shares were not traded on such date, then on the next
preceding trading day during which a sale occurred; (ii) if the Common Stock is
not traded on an exchange but is quoted on Nasdaq or a successor quotation
system, (1) the last sales price (if the Common Stock is then quoted on the
Nasdaq National Market or the Nasdaq SmallCap Market) or (2) the mean between
the closing representative bid and asked prices (in all other cases) for a share
of the Common Stock on such date, or, if shares were not traded on such date,
then on the next preceding trading day during which a sale occurred, as reported
by Nasdaq or such successor quotation system; (iii) if the Common Stock is not
publicly traded on an exchange and not quoted on Nasdaq or a successor quotation
system, the mean between the closing bid and asked prices for a share of Common
Stock on such date, or, if shares were not traded on such date, then on the next
preceding trading day during which a sale occurred, as determined in good faith
by the Committee; or (iv) if the Common Stock is not publicly traded, the fair
market value of a share of Common Stock established by the Committee (or Board
in the case of Options granted to Independent Directors) acting in good faith.
1.14. Incentive Stock Option. "Incentive Stock Option" shall mean an option
which conforms to the applicable provisions of Section 422 of the Code and which
is designated as an Incentive Stock Option by the Committee.
1.15. Independent Director. "Independent Director" shall mean a member of
the Board who is not an Employee of the Company.
1.16. Non-Qualified Stock Option. "Non-Qualified Stock Option" shall mean
an Option which is not designated as an Incentive Stock Option by the Committee.
1.17. Option. "Option" shall mean a stock option granted under Article III
of this Plan. An Option granted under this Plan shall, as determined by the
Committee, be either a Non-Qualified Stock Option or an Incentive Stock Option;
provided, however that Options granted to Independent Directors and consultants
shall be Non-Qualified Stock Options.
1.18. Option Shares. "Option Shares" shall mean shares of Common Stock
acquired by Optionees through the exercise of Options under this Plan.
1.19. Optionee. "Optionee" shall mean an Employee, consultant or
Independent Director granted an Option under this Plan.
1.20. Person. "Person" shall mean a corporation, an association, a
partnership, a trust, a limited liability company, an organization, a business
or an individual.
1.21. Plan. "Plan" shall mean The 1998 Stock Option Plan of InterVU Inc.
<PAGE> 3
1.22. QDRO. "QDRO" shall mean a qualified domestic relations order as
defined by the Code or Title I of the Employee Retirement Income Security Act of
1974, as amended, or the rules thereunder.
1.23. Rule 16b-3.5 "Rule 16b-3" shall mean that certain Rule 16b-3 under
the Exchange Act, as such Rule may be amended from time to time.
1.24. Securities Act. "Securities Act" shall mean the Securities Act of
1933, as amended.
1.25. Subsidiary. "Subsidiary" shall mean any corporation in an unbroken
chain of corporations beginning with the Company if each of the corporations
other than the last corporation in the unbroken chain then owns stock possessing
fifty percent (50%) or more of the total combined voting power of all classes of
stock in one (1) of the other corporations in such chain.
1.26. Termination of Consultancy. "Termination of Consultancy" shall mean
the time when the engagement of an Optionee as a consultant to the Company or a
Subsidiary is terminated for any reason, with or without cause, including, but
not by way of limitation, by resignation, discharge, death, Disability or
retirement; but excluding terminations where there is a simultaneous
commencement of employment with the Company or any Subsidiary. The Committee, in
its absolute discretion, shall determine the effect of all matters and questions
relating to Termination of Consultancy, including, but not by way of limitation,
the question of whether a Termination of Consultancy resulted from a discharge
for good cause, and all questions of whether particular leaves of absence
constitute Terminations of Consultancy. Notwithstanding any other provision of
this Plan, the Company or any Subsidiary has an absolute and unrestricted right
to terminate a consultant's service at any time for any reason whatsoever, with
or without cause, except to the extent expressly provided otherwise in writing.
1.27. Termination of Directorship. "Termination of Directorship" shall mean
the time when an Optionee who is an Independent Director ceases to be a Director
for any reason, including, but not by way of limitation, a termination by
resignation, failure to be elected, death, Disability or retirement. The Board,
in its sole and absolute discretion, shall determine the effect of all matters
and questions relating to Termination of Directorship with respect to
Independent Directors.
1.28. Termination of Employment. "Termination of Employment" shall mean the
time when the employee-employer relationship between an Optionee and the Company
or any Subsidiary is terminated for any reason, with or without cause,
including, but not by way of limitation, a termination by resignation,
discharge, death, Disability or retirement; but excluding (i) terminations where
there is a simultaneous reemployment or continuing employment of an Optionee by
the Company or any Subsidiary, (ii) at the discretion of the Committee,
terminations which result in a temporary severance of the employee-employer
relationship, and (iii) at the discretion of the Committee, terminations which
are followed by the simultaneous establishment of a consulting relationship by
the Company or a Subsidiary with the former employee. The Committee, in its
absolute discretion, shall determine the effect of all matters and questions
relating to Termination of Employment, including, but not by way of limitation,
the question of whether a Termination of Employment resulted from a discharge
for good cause, and all questions of whether particular leaves of absence
constitute Terminations of Employment; provided, however, that, unless otherwise
determined by the Committee in its discretion, a leave of absence, change in
status from an employee to an independent contractor or other change in the
employee-employer relationship shall constitute a Termination of Employment if,
and to the extent that, such leave of absence, change in status or other change
interrupts employment for the purposes of Section 422(a)(2) of the Code and the
then applicable regulations and revenue rulings under said Section.
Notwithstanding any other provision of this Plan, the Company or any Subsidiary
has an absolute and unrestricted right to terminate an Employee's employment at
any time for any reason whatsoever, with or without cause, except to the extent
expressly provided otherwise in writing.
1.29. Termination for Cause. "Termination for Cause" shall mean the time
when the Independent Director-employer, employee-employer or consultant-employer
relationship between an Optionee and the Company or any Subsidiary is terminated
for cause, as termination for cause is defined in the Optionee's directorial,
employment or consultancy agreement; provided however, that if termination for
cause is not
<PAGE> 4
therein defined, it shall have such meaning, in conformance with applicable law,
as the Committee (or the Board in the case of termination for cause of an
Independent Director) shall determine is appropriate.
ARTICLE II.
SHARES SUBJECT TO PLAN
2.1. Shares Subject to Plan.
(a) The shares of stock subject to Options shall be Common Stock. The
aggregate number of such shares which may be issued upon exercise of such
options under the Plan shall be 2,000,000. The shares of Common Stock of the
Company issuable upon exercise of such options may be either previously
authorized but unissued shares or treasury shares.
(b) The maximum number of shares which may be subject to Options granted
under the Plan to any individual in any fiscal year of the Company shall not
exceed the Award Limit. To the extent required by Section 162(m) of the Code,
shares subject to Options which are canceled continue to be counted against the
Award Limit and if, after grant of an Option, the price of shares subject to
such Option is reduced, the transaction is treated as a cancellation of the
Option and a grant of a new Option and both the Option deemed to be canceled and
the Option deemed to be granted are counted against the Award Limit.
2.2. Add-back of Options. If any Option to acquire shares of Common Stock
under this Plan expires or is canceled without having been fully exercised, the
number of shares subject to such Option but as to which such Option was not
exercised prior to its expiration, cancellation or exercise may again be
available for the granting of Options hereunder, subject to the limitations of
Section 2.1. Furthermore, any shares subject to Options which are adjusted
pursuant to Section 8.3 and become exercisable with respect to shares of stock
of another corporation shall be considered cancelled and may again be available
for the granting of Options hereunder, subject to the limitations of Section
2.1. Shares of Common Stock which are delivered by the Optionee or withheld by
the Company upon the exercise of any Option under this Plan, in payment of the
exercise price thereof, may again be available for the granting of Options
hereunder, subject to the limitations of Section 2.1. Notwithstanding the
provisions of this Section 2.2, no shares of Common Stock may again be available
for the granting of Options if such action would cause an Incentive Stock Option
to fail to qualify as an incentive stock option under Section 422 of the Code.
ARTICLE III.
GRANTING OF OPTIONS
3.1. Eligibility. Any Independent Director, Employee or consultant selected
by the Committee (or the Board in the case of Options granted to Independent
Directors) pursuant to Section 3.4(a)(i) shall be eligible to be granted an
Option.
3.2. Disqualification for Stock Ownership. No person may be granted an
Incentive Stock Option under this Plan if such person, at the time the Incentive
Stock Option is granted, owns stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or any
then existing Subsidiary unless such Incentive Stock Option conforms to the
applicable provisions of Section 422 of the Code.
3.3. Qualification of Incentive Stock Options. No Incentive Stock Option
shall be granted to any person who is not an Employee.
3.4. Granting of Options.
(a) The Committee (or the Board in the case of Options granted to
Independent Directors) shall from time to time, in its absolute discretion, and
subject to applicable limitations of this Plan:
(i) Determine which Employees are key Employees and select from among
the Independent Directors, key Employees and consultants (including
Independent Directors, Employees and consultants
<PAGE> 5
who have previously received Options or other awards under this Plan) such
of them as in its opinion should be granted Options;
(ii) Subject to the Award Limit, determine the number of shares to be
subject to such Options granted to the selected Independent Directors, key
Employees and consultants;
(iii) Subject to Section 3.3, determine whether such Options are to be
Incentive Stock Options or Non-Qualified Stock Options and whether such
Options are to qualify as performance-based compensation as described in
Section 162(m)(4)(C) of the Code; and
(iv) Determine the terms and conditions of such Options, consistent
with this Plan; provided, however, that the terms and conditions of Options
intended to qualify as performance-based compensation as described in
Section 162(m)(4)(C) of the Code shall include, but not be limited to, such
terms and conditions as may be necessary to meet the applicable provisions
of Section 162(m) of the Code.
(b) Upon the selection of an Independent Director, key Employee or
consultant to be granted an Option, the Committee (or the Board in the case of
Options granted to Independent Directors) shall instruct the Secretary of the
Company to issue the Option and may impose such conditions on the grant of the
Option as it deems appropriate. Without limiting the generality of the preceding
sentence, the Committee (or the Board in the case of Options granted to
Independent Directors) may, in its discretion and on such terms as it deems
appropriate, require as a condition on the grant of an Option to an Independent
Director, Employee or consultant that such Independent Director, Employee or
consultant surrender for cancellation some or all of the unexercised Options or
other rights which have been previously granted to such Independent Director,
Employee or consultant under this Plan or otherwise. An Option, the grant of
which is conditioned upon such surrender, may have an option price lower (or
higher) than the exercise price of such surrendered Option or other award, may
cover the same (or a lesser or greater) number of shares as such surrendered
Option or other award, may contain such other terms as the Committee (or the
Board in the case of Options granted to Independent Directors) deems
appropriate, and shall be exercisable in accordance with its terms, without
regard to the number of shares, price, exercise period or any other term or
condition of such surrendered Option or other award.
(c) Any Incentive Stock Option granted under this Plan may be modified by
the Committee to disqualify such option from treatment as an "incentive stock
option" under Section 422 of the Code.
(d) During the term of the Plan, each person who is an Independent Director
shall be granted an Option to purchase five thousand (5,000) shares of Common
Stock (subject to adjustment as provided in Section 8.3) on the date of each
annual meeting of stockholders (other than the 1998 Annual Meeting of
Stockholders); provided that such Independent Director is then serving as a
member of the Board and, if applicable, has been reelected to serve for an
additional term as a member of the Board. During the term of the Plan, a person
who is initially elected to the Board after the adoption of the Plan by the
Board and who is an Independent Director at the time of such initial election
automatically shall be granted (i) an Option to purchase twenty thousand
(20,000) shares of Common Stock (subject to adjustment as provided in Section
10.3) on the date of such initial election and (ii) an Option to purchase five
thousand (5,000) shares of Common Stock (subject to adjustment as provided in
Section 8.3) on the date of each annual meeting of stockholders; provided that
such Independent Director is then serving as a member of the Board and, if
applicable, has been reelected to serve for an additional term as a member of
the Board. Members of the Board who are employees of the Company who
subsequently retire from the Company and remain on the Board will not receive an
initial Option grant pursuant to clause (i) of the preceding sentence, but to
the extent that they are otherwise eligible, will receive, after retirement from
employment with the Company, Options as described in clause (ii) of the
preceding sentence. All the foregoing Option grants authorized by this Section
3.4(d) are subject to stockholder approval of the Plan.
<PAGE> 6
ARTICLE IV.
TERMS OF OPTIONS
4.1. Option Agreement. Each Option shall be evidenced by a written Stock
Option Agreement, which shall be executed by the Optionee and an authorized
officer of the Company and which shall contain such terms and conditions as the
Committee (or the Board in the case of Options granted to Independent Directors)
shall determine, consistent with this Plan. Stock Option Agreements evidencing
Options intended to qualify as performance-based compensation as described in
Section 162(m)(4)(C) of the Code shall contain such terms and conditions as may
be necessary to meet the applicable provisions of Section 162(m) of the Code.
Stock Option Agreements evidencing Incentive Stock Options shall contain such
terms and conditions as may be necessary to meet the applicable provisions of
Section 422 of the Code.
4.2. Option Price. The price per share of the shares subject to each
Option shall be set by the Committee (or the Board in the case of Options
granted to Independent Directors); provided, however, that:
(a) Unless otherwise permitted by applicable securities laws, such
price shall be not less than eighty-five percent (85%) of the Fair Market
Value of the stock at the time the option is granted, except that the price
shall be one hundred and ten percent (110%) of the Fair Market Value of the
stock in the case of any person possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or
its Subsidiary;
(b) In the case of Incentive Stock Options and Options intended to
qualify as performance-based compensation as described in Section
162(m)(4)(C) of the Code, such price shall not be less than one hundred
percent (100%) of the Fair Market Value of a share of Common Stock on the
date the Option is granted; and
(c) In the case of Incentive Stock Options granted to an individual
then owning (within the meaning of Section 424(d) of the Code) more than
ten percent (10%) of the total combined voting power of all classes of
stock of the Company or any Subsidiary such price shall not be less than
one hundred and ten percent (110%) of the Fair Market Value of a share of
Common Stock on the date the Option is granted.
4.3. Option Term. The term of an Option shall be set by the Committee (or
the Board in the case of Options granted to Independent Directors) in its
discretion; provided, however, that:
(a) No Option may have a term that extends beyond the expiration of
ten (10) years from the date the Option was granted;
(b) In the case of Incentive Stock Options, the term shall not be more
than ten (10) years from the date the Incentive Stock Option is granted, or
five (5) years from such date if the Incentive Stock Option is granted to
an individual then owning (within the meaning of Section 424(d) of the
Code) more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or any Subsidiary;
(c) Except as limited by requirements of Section 422 of the Code and
regulations and rulings thereunder applicable to Incentive Stock Options,
the Committee (or the Board in the case of Options granted to Independent
Directors) may extend the term of any outstanding Option in connection with
any Termination of Directorship, Termination of Employment or Termination
of Consultancy of the Optionee, or amend any other term or condition of
such Option relating to such a termination.
4.4. Option Vesting.
(a) The period during which the right to exercise an Option in whole or in
part vests in the Optionee shall be set by the Committee (or the Board in the
case of Options granted to Independent Directors) and the Committee (or the
Board in the case of Options granted to Independent Directors) may determine
that an Option may not be exercised in whole or in part for a specified period
after it is granted; provided, however, that, unless the Committee otherwise
provides in the terms of the Option or otherwise, no Option shall be exercisable
by any Optionee who is then subject to Section 16 of the Exchange Act within the
period ending
<PAGE> 7
six (6) months and one day after the date the Option is granted; and provided,
further, that Options granted to Independent Directors shall become exercisable
in cumulative annual installments of 25% on each of the first, second, third,
and fourth anniversaries of the date of the Option grant, without variation or
acceleration hereunder except as provided in section 8.3. At any time after the
grant of an Option, the Committee may, in its sole and absolute discretion and
subject to whatever terms and conditions it selects, accelerate the period
during which an Option (except an Option granted to an Independent Director)
vests.
(b) No portion of an Option which is unexercisable at Termination of
Directorship, Termination of Employment or Termination of Consultancy shall
thereafter become exercisable, except as may be otherwise provided by the
Committee (or the Board in the case of Options granted to Independent Directors)
either in the Stock Option Agreement or by action of the Committee (or the Board
in the case of Options granted to Independent Directors) following the grant of
the Option.
(c) To the extent that the aggregate Fair Market Value of stock with
respect to which "incentive stock options" (within the meaning of Section 422 of
the Code, but without regard to Section 422(d) of the Code) are exercisable for
the first time by an Optionee during any calendar year (under the Plan and all
other incentive stock option plans of the Company and any Subsidiary) exceeds
$100,000, such Options shall be treated as Non-Qualified Options to the extent
required by Section 422 of the Code. The rule set forth in the preceding
sentence shall be applied by taking Options into account in the order in which
they were granted. For purposes of this Section 4.4(c), the Fair Market Value of
stock shall be determined as of the time the Option with respect to such stock
is granted.
4.5. Consideration. In consideration of the granting of an Option, the
Optionee shall agree, in the written Stock Option Agreement, to remain in the
employ (or to consult for or serve as an Independent Director, as applicable) of
the Company or any Subsidiary for a period of at least one (1) year (or such
shorter period as may be fixed in the Stock Option Agreement or by action of the
Committee (or the Board in the case of Options granted to Independent Directors)
following grant of the Option) after the Option is granted (or, in the case of
an Independent Director, until the next annual meeting of the stockholders of
the Company). Nothing in this Plan or in any Stock Option Agreement hereunder
shall confer upon any Optionee any right to continue in the employ (or to
consult for or serve as an Independent Director, as applicable) of the Company
or any Subsidiary or shall interfere with or restrict in any way the rights of
the Company or any Subsidiary, which are hereby expressly reserved, to discharge
any Optionee at any time for any reason whatsoever, with or without good cause.
ARTICLE V.
EXERCISE OF OPTIONS
5.1. Partial Exercise. An exercisable Option may be exercised in whole or
in part. However, an Option shall not be exercisable with respect to fractional
shares, and the Committee (or the Board in the case of Options granted to
Independent Directors) may require that, by the terms of the Option, a partial
exercise be with respect to a minimum number of shares.
5.2. Manner of Exercise. All or a portion of an exercisable Option shall be
deemed exercised upon delivery of all of the following to the Secretary of the
Company or such Secretary's office:
(a) A written notice complying with the applicable rules established
by the Committee (or the Board in the case of Options granted to
Independent Directors) stating that the Option, or a portion thereof, is
exercised. The notice shall be signed by the Optionee or other person then
entitled to exercise the Option or such portion;
(b) Such representations and documents as the Committee (or the Board
in the case of Options granted to Independent Directors), in its absolute
discretion, deems necessary or advisable to effect compliance with all
applicable provisions of the Securities Act and any other federal or state
securities laws or regulations. The Committee (or the Board in the case of
Options granted to Independent Directors) may, in its absolute discretion,
also take whatever additional actions it deems appropriate to
<PAGE> 8
effect such compliance including, without limitation, placing legends on
share certificates and issuing stop-transfer notices to agents and
registrars;
(c) In the event that the Option shall be exercised pursuant to
Section 8.1 by any person or persons other than the Optionee, appropriate
proof of the right of such person or persons to exercise the Option; and
(d) Full cash payment to the Secretary of the Company for the shares
and for payment of any applicable withholding or other applicable
employment taxes with respect to which the Option, or portion thereof, is
exercised. However, the Committee (or the Board in the case of Options
granted to Independent Directors), may in its discretion (i) allow a delay
in payment up to thirty (30) days from the date the Option, or portion
thereof, is exercised; (ii) allow payment, in whole or in part, through the
delivery of shares of Common Stock owned by the Optionee, duly endorsed for
transfer to the Company with a Fair Market Value on the date of delivery
equal to the aggregate exercise price of the Option or exercised portion
thereof; (iii) allow payment, in whole or in part, through the surrender of
shares of Common Stock then issuable upon exercise of the Option having a
Fair Market Value on the date of Option exercise equal to the aggregate
exercise price of the Option or exercised portion thereof; (iv) allow
payment, in whole or in part, through the delivery of property of any kind
which constitutes good and valuable consideration; (v) allow payment, in
whole or in part, through the delivery of a full recourse promissory note
bearing interest (at no less than such rate as shall then preclude the
imputation of interest under the Code) and payable upon such terms as may
be prescribed by the Committee (or the Board in the case of Options granted
to Independent Directors); (vi) allow payment, in whole or in part, through
the delivery of a notice that the Optionee has placed a market sell order
with a broker with respect to shares of Common Stock then issuable upon
exercise of the Option, and that the broker has been directed to pay a
sufficient portion of the net proceeds of the sale to the Company in
satisfaction of the Option exercise price and any applicable withholding or
other employment taxes; or (vii) allow payment through any combination of
the consideration provided in the foregoing subparagraphs (ii), (iii),
(iv), (v) and (vi). In the case of a promissory note, the Committee (or the
Board in the case of Options granted to Independent Directors) may also
prescribe the form of such note and the security to be given for such note.
The Option may not be exercised, however, by delivery of a promissory note
or by a loan from the Company when or where such loan or other extension of
credit is prohibited by law.
5.3. Conditions to Issuance of Stock Certificates. The Company shall not be
required to issue or deliver any certificate or certificates for shares of stock
purchased upon the exercise of any Option or portion thereof prior to
fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock exchanges, if
any, on which such class of stock is then listed;
(b) The completion of any registration or other qualification of such
shares under any state or federal law, or under the rulings or regulations
of the Securities and Exchange Commission or any other governmental
regulatory body which the Committee or the Board shall, in its absolute
discretion, deem necessary or advisable;
(c) The obtaining of any approval or other clearance from any state or
federal governmental agency which the Committee or the Board shall, in its
absolute discretion, determine to be necessary or advisable;
(d) The lapse of such reasonable period of time following the exercise
of the Option as the Committee or the Board may establish from time to time
for reasons of administrative convenience; and
(e) The receipt by the Company of full payment for such shares,
including payment of any applicable withholding tax.
<PAGE> 9
5.4. Rights as Stockholders. The holders of Options shall not be, nor have
any of the rights or privileges of, stockholders of the Company in respect of
any shares purchasable upon the exercise of any part of an Option unless and
until certificates representing such shares have been issued by the Company to
such holders.
ARTICLE VI.
RIGHTS AND RESTRICTIONS WITH RESPECT TO OPTION SHARES
6.1. Ownership and Transfer Restrictions. The Committee (or Board, in the
case of Options granted to Independent Directors), in its absolute discretion,
may impose such restrictions on the ownership and transferability of the shares
purchasable upon the exercise of an Option as it deems appropriate. Any such
restriction shall be set forth in the respective Stock Option Agreement and may
be referred to on the certificates evidencing such shares. The Committee may
require the Employee to give the Company prompt notice of any disposition of
shares of Common Stock acquired by exercise of an Incentive Stock Option within
(i) two (2) years from the date of granting such Option to such Employee or (ii)
one year after the transfer of such shares to such Employee. The Committee may
direct that the certificates evidencing shares acquired by exercise of an Option
refer to such requirement to give prompt notice of disposition.
6.2. Limitation on Exercise of Options Granted to Independent Directors. No
Option granted to an Independent Director may be exercised to any extent by
anyone after the first to occur of the following events:
(a) The expiration of twelve (12) months from the date of the
Optionee's death;
(b) The expiration of twelve (12) months from the date of the
Optionee's Termination of Directorship by reason of his permanent and total
disability (within the meaning of section 22(e)(3) of the Code);
(c) The expiration of three (3) months from the date of the Optionee's
Termination of Directorship for any reason other than such Optionee's death
or his permanent and total disability, unless the Optionee dies within said
three month period; or
(d) The expiration of ten (10) years from the date the Option was
granted.
ARTICLE VII.
ADMINISTRATION
7.1. Compensation Committee. The Compensation Committee (or another
committee of the Board assuming the functions of the Committee under this Plan)
shall consist solely of two or more Independent Directors appointed by and
holding office at the pleasure of the Board, each of whom is both a
"non-employee director" as defined by Rule 16b-3 and an "outside director" for
purposes of Section 162(m) of the Code. Appointment of Committee members shall
be effective upon acceptance of appointment. Committee members may resign at any
time by delivering written notice to the Board. Vacancies in the Committee may
be filled by the Board.
7.2. Duties and Powers of Committee. It shall be the duty of the Committee
to conduct the general administration of this Plan in accordance with its
provisions. The Committee shall have the power to interpret this Plan and the
agreements pursuant to which Options are granted or awarded, and to adopt such
rules for the administration, interpretation, and application of this Plan as
are consistent therewith and to interpret, amend or revoke any such rules.
Notwithstanding the foregoing, the full Board, acting by a majority of its
members in office, shall conduct the general administration of the Plan with
respect to Options granted to Independent Directors. Any such grant or award
under this Plan need not be the same with respect to each Optionee. Any such
interpretations and rules with respect to Incentive Stock Options shall be
consistent with the provisions of Section 422 of the Code. In its absolute
discretion, the Board may at any time and from time to time exercise any and all
rights and duties of the Committee under this Plan except with respect to
matters which under Rule 16b-3 or Section 162(m) of the Code, or any regulations
or rules issued thereunder, are required to be determined in the sole discretion
of the Committee.
<PAGE> 10
7.3. Majority Rule; Unanimous Written Consent. The Committee shall act by a
majority of its members in attendance at a meeting at which a quorum is present
or by a memorandum or other written instrument signed by all members of the
Committee.
7.4. Compensation; Professional Assistance; Good Faith Actions. Members of
the Committee shall receive such compensation for their services as members as
may be determined by the Board. All expenses and liabilities which members of
the Committee incur in connection with the administration of this Plan shall be
borne by the Company. The Committee may, with the approval of the Board, employ
attorneys, consultants, accountants, appraisers, brokers, or other persons. The
Committee, the Company and the Company's officers and Directors shall be
entitled to rely upon the advice, opinions or valuations of any such persons.
All actions taken and all interpretations and determinations made by the
Committee or the Board in good faith shall be final and binding upon all
Optionees, the Company and all other interested persons. No members of the
Committee or Board shall be personally liable for any action, determination or
interpretation made in good faith with respect to this Plan or Options, and all
members of the Committee and the Board shall be fully protected by the Company
in respect of any such action, determination or interpretation.
ARTICLE VIII.
MISCELLANEOUS PROVISIONS
8.1. Not Transferable. Options under this Plan may not be sold, pledged,
assigned, or transferred in any manner other than by will or the laws of descent
and distribution or pursuant to a QDRO, unless and until such options have been
exercised, or the shares underlying such Options have been issued, and all
restrictions applicable to such shares have lapsed. No Option or interest or
right therein shall be liable for the debts, contracts or engagements of the
Optionee or the Optionee's successors in interest or shall be subject to
disposition by transfer, alienation, anticipation, pledge, encumbrance,
assignment or any other means whether such disposition be voluntary or
involuntary or by operation of law by judgment, levy, attachment, garnishment or
any other legal or equitable proceedings (including bankruptcy), and any
attempted disposition thereof shall be null and void and of no effect, except to
the extent that such disposition is permitted by the preceding sentence.
During the lifetime of the Optionee, only such Optionee may exercise an
Option (or any portion thereof) granted to such Optionee under the Plan, unless
the Option has been disposed of pursuant to a QDRO. After the death of the
Optionee, any exercisable portion of an Option may, prior to the time when such
portion becomes unexercisable under the Plan or the applicable Stock Option
Agreement or other agreement, be exercised by the Optionee's personal
representative or by any person empowered to do so under the deceased Optionee's
will or under the then applicable laws of descent and distribution.
8.2. Amendment, Suspension or Termination of this Plan. Except as
otherwise provided in this Section 8.2, this Plan may be wholly or partially
amended or otherwise modified, suspended or terminated at any time or from time
to time by the Board or the Committee. However, without approval of the
Company's stockholders given within twelve months before or after the action by
the Board or the Committee, no action of the Board or the Committee may, except
as provided in Section 8.3, increase the limits imposed in Section 2.1 on the
maximum number of shares which may be issued under this Plan or modify the Award
Limit, and no action of the Board or the Committee may be taken that would
otherwise require stockholder approval as a matter of applicable law, regulation
or rule. No amendment, suspension or termination of this Plan shall, without the
consent of the holder of Options, alter or impair any rights or obligations
under any Options theretofore granted or awarded, unless the award itself
otherwise expressly so provides. No Options may be granted or awarded during any
period of suspension or after termination of this Plan, and in no event may any
Incentive Stock Option be granted under this Plan after the first to occur of
the following events:
(a) The expiration of ten (10) years from the date the Plan is adopted
by the Board; or
(b) The expiration of ten (10) years from the date the Plan is
approved by the Company's stockholders under Section 8.4.
<PAGE> 11
8.3. Changes in Common Stock or Assets of the Company, Acquisition or
Liquidation of the Company and Other Corporate Events.
(a) Subject to Section 8.3(d), in the event that the Committee (or the
Board in the case of Options granted to Independent Directors) determines that
any dividend or other distribution (whether in the form of cash, Common Stock,
other securities, or other property), recapitalization, reclassification,
reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, liquidation, dissolution, or sale, transfer, exchange or other
disposition of all or substantially all of the assets of the Company (including,
but not limited to, a Corporate Transaction), or exchange of Common Stock or
other securities of the Company, issuance of warrants or other rights to
purchase Common Stock or other securities of the Company, or other similar
corporate transaction or event, in the Committee's sole discretion (or, in the
case of Options granted to Independent Directors, the Board's sole discretion),
affects the Common Stock such that an adjustment is determined by the Committee
(or the Board in the case of Options granted to Independent Directors) to be
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan or with respect
to an Option, then the Committee (or the Board in the case of Options granted to
Independent Directors) shall, in such manner as it may deem equitable, adjust
any or all of:
(i) the number and kind of shares of Common Stock (or other securities
or property) with respect to which Options may be granted under the Plan,
(including, but not limited to, adjustments of the limitations in Section
2.1 on the maximum number and kind of shares which may be issued and
adjustments of the Award Limit),
(ii) the number and kind of shares of Common Stock (or other
securities or property) subject to outstanding Options, and
(iii) the grant or exercise price with respect to any Option.
(b) Subject to Sections 8.3(b)(vi) and 8.3(d), in the event of any
Corporate Transaction or other transaction or event described in Section 8.3(a)
or any unusual or nonrecurring transactions or events affecting the Company, any
affiliate of the Company, or the financial statements of the Company or any
affiliate, or of changes in applicable laws, regulations, or accounting
principles, the Committee (or the Board in the case of Options granted to
Independent Directors) in its discretion is hereby authorized to take any one
(1) or more of the following actions whenever the Committee (or the Board in the
case of Options granted to Independent Directors) determines that such action is
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan or with respect
to any option under this Plan, to facilitate such transactions or events or to
give effect to such changes in laws, regulations or principles:
(i) In its sole and absolute discretion, and on such terms and
conditions as it deems appropriate, the Committee (or the Board in the case
of Options granted to Independent Directors) may provide, either by the
terms of the agreement or by action taken prior to the occurrence of such
transaction or event and either automatically or upon the Optionee's
request, for either the purchase of any such Option for an amount of cash
equal to the amount that could have been attained upon the exercise of such
Option, or realization of the Optionee's rights had such Option been
currently exercisable or payable or fully vested or the replacement of such
Option with other rights or property selected by the Committee (or the
Board in the case of Options granted to Independent Directors) in its sole
discretion;
(ii) In its sole and absolute discretion, the Committee (or the Board
in the case of Options granted to Independent Directors) may provide,
either by the terms of such Option or by action taken prior to the
occurrence of such transaction or event that it cannot be exercised after
such event;
(iii) In its sole and absolute discretion, and on such terms and
conditions as it deems appropriate, the Committee (or the Board in the case
of Options granted to Independent Directors) may provide, either by the
terms of such Option or by action taken prior to the occurrence of such
transaction or event, that for a specified period of time prior to such
transaction or event, such Option shall be exercisable as to
<PAGE> 12
all shares covered thereby, notwithstanding anything to the contrary in (i)
Section 4.4 or (ii) the provisions of such Option;
(iv) In its sole and absolute discretion, and on such terms and
conditions as it deems appropriate, the Committee (or the Board in the case
of Options granted to Independent Directors) may provide, either by the
terms of such Option or by action taken prior to the occurrence of such
transaction or event, that upon such event, such Option be assumed by the
successor or survivor corporation, or a parent or subsidiary thereof, or
shall be substituted for by similar options covering the stock of the
successor or survivor corporation, or a parent or subsidiary thereof, with
appropriate adjustments as to the number and kind of shares and prices;
(v) In its sole and absolute discretion, and on such terms and
conditions as it deems appropriate, the Committee (or the Board in the case
of Options granted to Independent Directors) may make adjustments in the
number and type of shares of Common Stock (or other securities or property)
subject to outstanding Options and/or in the terms and conditions of
(including the grant or exercise price), and the criteria included in,
outstanding Options and Options which may be granted in the future; and
(vi) None of the foregoing discretionary actions taken under this
Section 8.3(b) shall be permitted with respect to Options granted to
Independent Directors to the extent that such discretion would be
inconsistent with the applicable exemptive conditions of Rule 16b-3. In the
event of a Corporate Transaction, to the extent that the Board does not
have the ability under Rule 16b-3 to take or to refrain from taking the
discretionary actions set forth in Section 8.3(b)(iii) above, each Option
granted to an Independent Director shall be exercisable as to all shares
covered thereby during the five days immediately preceding the consummation
of such Corporate Transaction and subject to such consummation,
notwithstanding anything to the contrary in Section 4.4 or the vesting
schedule of such Options. In the event of a Corporate Transaction, to the
extent that the Board does not have the ability under Rule 16b-3 to take or
to refrain from taking the discretionary actions set forth in Section
8.3(b)(ii) above, no Option granted to an Independent Director may be
exercised following such Corporate Transaction unless such Option is, in
connection with such Corporate Transaction, either assumed by the successor
or survivor corporation (or parent or subsidiary thereof) or replaced with
a comparable right with respect to shares of the capital stock of the
successor or survivor corporation (or parent or subsidiary thereof).
(c) Subject to Section 8.3(d) and 8.8, the Committee (or the Board in the
case of Options granted to Independent Directors) may, in its discretion,
include such further provisions and limitations in any Option as it may deem
equitable and in the best interests of the Company.
(d) With respect to Incentive Stock Options and Options intended to qualify
as performance-based compensation under Section 162(m), no adjustment or action
described in this Section 8.3 or in any other provision of the Plan shall be
authorized to the extent that such adjustment or action would cause the Plan to
violate Section 422(b)(1) of the Code or would cause such option to fail to so
qualify under Section 162(m), as the case may be, or any successor provisions
thereto. Furthermore, no such adjustment or action shall be authorized to the
extent such adjustment or action would result in short-swing profits liability
under Section 16 or violate the exemptive conditions of Rule 16b-3 unless the
Committee (or the Board in the case of Options granted to Independent Directors)
determines that the Option is not to comply with such exemptive conditions. The
number of shares of Common Stock subject to any Option shall always be rounded
to the next whole number.
8.4. Approval of Plan by Stockholders. This Plan will be submitted for the
approval of the Company's stockholders within twelve months after the date of
the Board's initial adoption of this Plan. Options may be granted prior to such
stockholder approval, provided that such Options shall not be exercisable prior
to the time when this Plan is approved by the stockholders, and provided further
that if such approval has not been obtained at the end of said twelve-month
period, all Options previously granted under this Plan shall thereupon be
canceled and become null and void.
<PAGE> 13
8.5. Tax Withholding. The Company shall be entitled to require payment in
cash or deduction from other compensation payable to each Optionee of any sums
required by federal, state or local tax law to be withheld with respect to the
issuance, vesting or exercise of any Option. The Committee (or the Board in the
case of Options granted to Independent Directors) may in its discretion and in
satisfaction of the foregoing requirement allow such Optionee to elect to have
the Company withhold shares of Common Stock otherwise issuable under such Option
(or allow the return of shares of Common Stock) having a Fair Market Value equal
to the sums required to be withheld.
8.6. Loans. The Committee may, in its discretion, extend one (1) or more
loans to key Employees in connection with the exercise or receipt of an Option
granted under this Plan. The terms and conditions of any such loan shall be set
by the Committee.
8.7. Forfeiture Provisions. Pursuant to its general authority to determine
the terms and conditions applicable to awards under the Plan, the Committee (or
the Board in the case of Options granted to Independent Directors) shall have
the right (to the extent consistent with the applicable exemptive conditions of
Rule 16b-3 and to the extent permitted under applicable state law) to provide,
in the terms of Options made under the Plan, or to require the recipient to
agree by separate written instrument, that (i) any proceeds, gains or other
economic benefit actually or constructively received by the recipient upon any
receipt or exercise of an Option, or upon the receipt or resale of any Common
Stock underlying such Option, must be paid to the Company, and (ii) the Option
shall terminate and any unexercised portion of such Option (whether or not
vested) shall be forfeited, if (a) a Termination of Directorship, Termination of
Employment or Termination of Consultancy occurs prior to a specified date, or
within a specified time period following receipt or exercise of the Option, or
(b) the recipient at any time, or during a specified time period, engages in any
activity in competition with the Company, or which is inimical, contrary or
harmful to the interests of the Company, as further defined by the Committee (or
the Board, as applicable).
8.8. Limitations Applicable to Section 16 Persons and Performance-Based
Compensation. Notwithstanding any other provision of this Plan, this Plan, and
any Option granted to any individual who is then subject to Section 16 of the
Exchange Act, shall be subject to any additional limitations set forth in any
applicable exemptive rule under Section 16 of the Exchange Act (including any
amendment to Rule 16b-3 of the Exchange Act) that are requirements for the
application of such exemptive rule. To the extent permitted by applicable law,
the Plan and Options granted or awarded hereunder shall be deemed amended to the
extent necessary to conform to such applicable exemptive rule. Furthermore,
notwithstanding any other provision of this Plan, any Option intended to qualify
as performance-based compensation as described in Section 162(m)(4)(C) of the
Code shall be subject to any additional limitations set forth in Section 162(m)
of the Code (including any amendment to Section 162(m) of the Code) or any
regulations or rulings issued thereunder that are requirements for qualification
as performance-based compensation as described in Section 162(m)(4)(C) of the
Code, and this Plan shall be deemed amended to the extent necessary to conform
to such requirements.
8.9. Effect of Plan Upon Options and Compensation Plans. The adoption of
this Plan shall not affect any other compensation or incentive plans in effect
for the Company or any Subsidiary. Nothing in this Plan shall be construed to
limit the right of the Company (i) to establish any other forms of incentives or
compensation for Employees, directors or consultants of the Company or any
Subsidiary or (ii) to grant or assume options or other rights otherwise than
under this Plan in connection with any proper corporate purpose including but
not by way of limitation, the grant or assumption of options in connection with
the acquisition by purchase, lease, merger, consolidation or otherwise, of the
business, stock or assets of any corporation, partnership, limited liability
company, firm or association.
8.10. Compliance with Laws. This Plan, the granting and vesting of Options
under this Plan and the issuance and delivery of shares of Common Stock and the
payment of money under this Plan or under Options granted hereunder are subject
to compliance with all applicable federal and state laws, rules and regulations
(including but not limited to state and federal securities law and federal
margin requirements) and to such approvals by any listing, regulatory or
governmental authority as may, in the opinion of counsel for the Company, be
necessary or advisable in connection therewith. Any securities delivered under
this Plan shall be
<PAGE> 14
subject to such restrictions, and the person acquiring such securities shall, if
requested by the Company, provide such assurances and representations to the
Company as the Company may deem necessary or desirable to assure compliance with
all applicable legal requirements. To the extent permitted by applicable law,
the Plan and Options granted or awarded hereunder shall be deemed amended to the
extent necessary to conform to such laws, rules and regulations.
8.11. Titles. Titles are provided herein for convenience only and are not
to serve as a basis for interpretation or construction of this Plan.
8.12. Governing Law. This Plan and any agreements hereunder shall be
administered, interpreted and enforced under the internal laws of the State of
Delaware without regard to conflicts of laws thereof.
<PAGE> 1
EXHIBIT 10.12
EMPLOYEE QUALIFIED STOCK PURCHASE PLAN OF INTERVU INC.
The Employee Qualified Stock Purchase Plan of InterVU, Inc. (the "Plan")
shall be established and operated in accordance with the following terms and
provisions.
1. DEFINITIONS
As used in the Plan the following terms shall have the meanings set forth
below:
"APPLICABLE PERCENTAGE" means the percentage used to determine the
Exercise Price of shares with respect to a given Offering Period as
determined by the Committee pursuant to Section 9 below.
"BOARD" means the Board of Directors of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the committee appointed by the Board to administer
the Plan as described in Section 4 below.
"COMMON STOCK" means the Common Stock, $0.001 par value, of the
Company.
"COMPANY" means InterVU Inc., a Delaware corporation.
"CONTINUOUS EMPLOYMENT" means the absence of any interruption or
termination of service as an Employee with the Company and/or its
Participating Subsidiaries. Continuous Employment shall not be considered
interrupted in the case of a leave of absence agreed to in writing by the
Company, provided that such leave is for a period of not more than ninety
(90) days or reemployment upon the expiration of such leave is guaranteed
by contract or statute.
"ELIGIBLE EMPLOYEE" means, subject to limitations imposed by Section
423(b) of the Code, any Employee who is Continuously Employed by the
Company or a Participating Subsidiary during the six (6) month period
ending on a Grant Date. Each Employee who is an Eligible Employee as of a
Grant Date shall be eligible to participate in the Plan for the Offering
Period beginning on that Grant Date.
"ELIGIBLE REGULAR COMPENSATION" means, with respect to each
Participant for each pay period, the full base salary, wages and
commissions paid to such Participant by the Company or a Participating
Subsidiary. Except as otherwise determined by the Committee, "Eligible
Regular Compensation" does not include:
(i) bonuses, overtime pay or shift premiums,
(ii) any amounts contributed by the Company or a Participating
Subsidiary to any pension plan or plan of deferred compensation,
(iii) any automobile or relocation allowances (or reimbursement for
any such expenses),
(iv) any amounts paid as a starting bonus or finder's fee,
(v) any amounts realized from the exercise of qualified or
non-qualified stock options,
(vi) any amounts paid by the Company or a Participating Subsidiary
for other fringe benefits, such as health and welfare, hospitalization
and group life insurance benefits, or perquisites, or paid in lieu of
such benefits, such as cash-out of credits generated under a plan
qualified tinder Code Section 125, or
(vii) other similar forms of extraordinary compensation.
"EMPLOYEE" means any person, including an officer, who is customarily
employed for at least twenty (20) hours per week and more than five (5)
months in a calendar year by the Company or one of its Participating
Subsidiaries.
1
<PAGE> 2
"EXERCISE DATE" means each July 31 and January 31 during each Offering
Period.
"EXERCISE PERIOD" means a period commencing on February 1 and
terminating on the following July 31, or commencing on August 1 and
terminating on the following January 31; provided, however, that
notwithstanding anything to the contrary in this Plan, the first Exercise
Period under this Plan shall be the period commencing on September 1, 1998
and ending on January 31, 1999.
"EXERCISE PRICE" means the price per share of shares offered in a
given Offering Period determined as provided in Section 9 below.
"FAIR MARKET VALUE" means, with respect to a share of Common Stock as
of any Grant Date or Exercise Date, the closing price of such Common Stock
on the Nasdaq Stock Market on such date, as reported in the Wall Street
Journal. In the event that such a closing price is not available for a
Grant Date or an Exercise Date, the Fair Market Value of a share of Common
Stock on such date shall be the closing price of a share of the Common
Stock on the Nasdaq Stock Market on the last business day prior to such
date or such other amount as may be determined by the Committee by any fair
and reasonable means.
"GRANT DATE" means the first date of each Offering Period.
"OFFERING PERIOD" means a period of twenty-four (24) months during
which an option granted pursuant to the Plan may be exercised; provided,
however, that notwithstanding anything to the contrary in this Plan, the
first Offering Period under this Plan shall be the twenty-three (23) month
period beginning on September 1, 1998 and ending on July 31, 2000. A new
Offering Period shall begin on each February 1 and August 1.
"PARTICIPANT" means an Eligible Employee who has elected to
participate in the Plan by filing an enrollment agreement with the Company
as provided in Section 6 below.
"PARTICIPATING SUBSIDIARY" means any Subsidiary other than a
Subsidiary excluded from participation in the Plan by the Committee, in its
sole discretion.
"PLAN" means this Employee Qualified Stock Purchase Plan of InterVU
Inc.
"PLAN CONTRIBUTIONS" means, with respect to each Participant, the
payroll deductions withheld from the Eligible Regular Compensation of such
Participant and contributed to the Plan for such Participant as provided in
Section 7 of the Plan, and any other amounts contributed to the Plan for
such Participant in accordance with the terms of the Plan.
"SUBSIDIARY" means any corporation, domestic or foreign, of which the
Company owns, directly or indirectly, not less than 50% of the total
combined voting power of all classes of stock or other equity interests and
that otherwise qualifies as a "subsidiary corporation" within the meaning
of Section 424(f) of the Code or any successor thereto.
2. PURPOSE OF THE PLAN
The purpose of the Plan is to maintain a competitive equity compensation
program to attract, motivate, retain and compensate present and future employees
of the Company and its Participating Subsidiaries and to provide incentive for
such employees to acquire a proprietary interest (or increase an existing
proprietary interest) in the Company through the purchase of Common Stock, and
therefore more closely align the interests of the employees and the
stockholders. It is the intention of the Company that the Plan qualify as an
"employee stock purchase plan" under Section 423 of the Code. Accordingly, the
provisions of the Plan shall be administered, interpreted and construed in a
manner consistent with the requirements of that Section of the Code.
3. SHARES RESERVED FOR THE PLAN
There shall be reserved for issuance and purchase by Employees under the
Plan an aggregate of 500,000 shares of Common Stock, subject to adjustment as
provided in Section 14 below. Shares of Common Stock
2
<PAGE> 3
subject to the Plan may be newly issued shares or shares reacquired in private
transactions or open market purchases. If and to the extent that any right to
purchase reserved shares shall not be exercised by any Employee for any reason
or if such right to purchase shall terminate as provided herein, shares that
have not been so purchased hereunder shall again become available for the
purposes of the Plan unless the Plan shall have been terminated, but all shares
sold under the Plan, regardless of source, shall be counted against the
limitation set forth above.
4. ADMINISTRATION OF THE PLAN
(a) The Plan shall be administered by a Committee appointed by, and which
shall serve at the pleasure of, the Board. The Committee shall consist of not
less than three (3) members of the Board who are not officers or employees of
the Company or of any of its Subsidiaries and who are non-employee directors
within the terms of Rule l6b-3 promulgated under the Securities Exchange Act of
1934. The Committee shall have authority to interpret the Plan, to prescribe,
amend and rescind rules and regulations relating to the Plan, and to make all
other determinations necessary or advisable for the administration of the Plan,
all of which actions and determinations shall be final, conclusive and binding
on all persons.
(b) The Committee may request advice or assistance or employ such other
persons as it in its absolute discretion deems necessary or appropriate for the
proper administration of the Plan, including, but not limited to employing a
brokerage firm, bank or other financial institution to assist in the purchase of
shares, delivery of reports or other administrative aspects of the Plan.
5. OFFERING PERIODS
The Plan shall be implemented by consecutive Offering Periods. The
Committee shall have the power to change the duration of Offering Periods with
respect to future offerings without stockholder approval if such change is
announced at least fifteen (15) days prior to the scheduled beginning of the
first Offering Period to be affected.
6. ELECTION TO PARTICIPATE IN THE PLAN
(a) Each Eligible Employee may elect to participate in an Offering Period
under the Plan by completing an enrollment agreement in the form provided by the
Company and filing such enrollment agreement with the Company prior to the
applicable Grant Date of such Offering Period, unless another time for filing
the enrollment form is set by the Committee for all Eligible Employees with
respect to a given Offering Period. An Eligible Employee may participate in an
Offering Period only if, as of the Grant Date of such Offering Period, such
Employee is not participating in any prior Offering Period which is continuing
at the time of such proposed enrollment.
(b) Except as otherwise determined by the Committee under rules applicable
to all Eligible Employees, payroll deductions for a Participant shall commence
on the first payroll date following the Grant Date and shall end on the last
payroll date in the Offering Period to which such authorization is applicable,
unless sooner terminated by the Participant as provided in Section 11.
(c) Unless a Participant elects otherwise prior to the Grant Date of the
immediately succeeding Offering Period, an Eligible Employee who is
participating in an Offering Period as of the last Exercise Date of such
Offering Period (the "Prior Offering Period") shall be deemed (i) to have
elected to participate in the immediately succeeding Offering Period and (ii) to
have authorized the same payroll deduction for such immediately succeeding
Offering Period as was in effect for such Participant immediately prior to the
expiration or termination of the Prior Offering Period.
(d) The Committee, in its discretion, may terminate the participation of
all Participants in any Offering Period as of the last day of any Exercise
Period (a "Termination Date") and enroll such Participants in the new Offering
Period commencing immediately following such Termination Date if the Exercise
Price determined as of the Grant Date for such new Offering Period is lower than
the Exercise Price determined as of the Grant Date of the Offering Period for
which the Participants' participation is being terminated. In such
3
<PAGE> 4
event, each of such Participants shall be deemed for purposes of this Plan (i)
to have elected to participate in such new Offering Period and (ii) to have
authorized the same payroll deduction for such new Offering Period as would have
been in effect for the terminated Offering Period had it not been terminated.
7. PAYROLL DEDUCTIONS
(a) Except as otherwise provided in Section 7(c) below or as authorized by
the Committee pursuant to Section 7(d) below, all Participant contributions to
the Plan shall be made only by payroll deductions. At the time a Participant
files the enrollment agreement with respect to an Offering Period, the
Participant may authorize payroll deductions to be made on each payroll date
during the Offering Period in an amount of from 1% to 15% of the Eligible
Regular Compensation which the Participant receives on each payroll date during
such Offering Period. The amount of such payroll deductions shall be a whole
percentage (i.e., 1%, 2%, 3%, etc.) of the Participant's Eligible Regular
Compensation.
(b) A Participant may as of the beginning of any Exercise Period reduce or
increase (subject to the limitations of Section 7(a) above) the rate of his or
her payroll deductions by completing and filing with the Company prior to the
first day of such Exercise Period a change notice in the form provided by the
Company. In addition, a Participant may at any time during an Offering Period
(but no more than once during each Exercise Period) reduce the rate of his or
her payroll deductions by completing and filing with the Company a change notice
in the form provided by the Company. Any such reduction in the rate of a
Participant's payroll deductions shall be effective as of the pay period
specified by the Participant in the Participant's change notice, but in no event
sooner than as may practicably be implemented by the Company. Any increase in
the rate of a Participant's payroll deductions and, except as expressly provided
above in this Section 7(b), any reduction in the rate of a Participant's payroll
deductions shall be effective only as of the first day of an Exercise Period.
(c) Notwithstanding anything to the contrary in the foregoing, the
Committee may permit Participants to make additional contributions to the Plan
subject to such terms and conditions as the Committee may in its discretion
determine. All such additional contributions shall be made in a manner
consistent with the provisions of Section 423 of the Code or any successor
thereto, and shall be held in Participants' accounts and applied to the purchase
of shares of Common Stock pursuant to options granted under this Plan in the
same manner as payroll deductions contributed to the Plan as provided above.
(d) All Plan Contributions made for a Participant shall be deposited in the
Company's general corporate account and shall be credited to the Participant's
account under the Plan. No interest shall accrue or be credited with respect to
a Participant's Plan Contributions. All Plan Contributions received or held by
the Company may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such Plan Contributions from any
other corporate funds.
8. GRANT OF OPTIONS
(a) On the Grant Date of each Offering Period, subject to the limitations
set forth in Sections 3 and 8(b) hereof, each Eligible Employee shall be granted
an option to purchase on each Exercise Date during such Offering Period (at the
Exercise Price determined as provided in Section 9 below) a number of shares of
the Company's Common Stock determined by dividing such Eligible Employee's Plan
Contributions accumulated prior to such Exercise Date and retained in his or her
account as of the Exercise Date by the Exercise Price determined as provided in
Section 9 below.
(b) Notwithstanding any provision of the Plan to the contrary, no Employee
shall be granted an option under the Plan (i) if, immediately after the grant,
such Employee (or any other person whose stock would be attributed to such
Employee pursuant to Section 424(d) of the Code) would own stock and/or hold
outstanding options to purchase stock possessing 5% or more of the total
combined voting power or value of all classes of stock of the Company or of any
Subsidiary of the Company, or (ii) which permits such Employee's rights to
purchase stock under all employee stock purchase plans of the Company and its
Subsidiaries to accrue at a rate which exceeds $25,000 of fair market value of
such stock (determined at the time such option is granted) for each calendar
year in which such option is outstanding at any time.
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<PAGE> 5
9. EXERCISE PRICE
The Exercise Price of each of the shares offered in a given Offering Period
shall be the lower of: (i) the Applicable Percentage of the Fair Market Value of
a share of Common Stock on the Grant Date or (ii) the Applicable Percentage of
the Fair Market Value of a share of Common Stock on the Exercise Date. The
Applicable Percentage with respect to the first Offering Period under the Plan
(i.e., the Offering Period beginning September 1, 1998, and ending August 30,
2000) shall be 85%. Thereafter, the Applicable Percentage with respect to each
Offering Period shall be 100% reduced by such number of percentage points (if
any), not in excess of fifteen (15), as the Committee shall determine. For
example, if the Committee determines to allow the maximum reduction of fifteen
(15) percentage points with respect to an Offering Period, the Applicable
Percentage with respect to such Offering Period will be 85%. The Committee shall
establish the Applicable Percentage with respect to a given Offering Period not
less than fifteen (15) days prior to the Grant Date with respect to such
Offering Period; provided, however, that in the event that the Committee does
not so establish the Applicable Percentage with respect to an Offering Period,
the Applicable Percentage with respect to such Offering Period shall be the same
Applicable Percentage as was in effect with respect to the immediately preceding
Offering Period.
10. EXERCISE OF OPTIONS
Unless the Participant withdraws from the Plan as provided in Section 11
below, the Participant's option for the purchase of shares will be exercised
automatically on each Exercise Date, and the maximum number of shares subject to
option will be purchased for the Participant at the applicable Exercise Price
with the accumulated Plan Contributions credited to the Participant's account
under this Plan. Certificates representing fractional shares will not be issued.
Any amount remaining in the Participant's account after such purchase shall be
applied toward the purchase of whole shares of Common Stock pursuant to the
option, if any, granted to such participant for the next following Offering
Period.
11. WITHDRAWAL; TERMINATION OF EMPLOYMENT
(a) A Participant may withdraw all but not less than all of the Plan
Contributions credited to the Participant's account under the Plan at any time
by giving written notice to the Company. All of the Participant's Plan
Contributions credited to the Participant's account will be paid to him or her
as soon as administratively practical after receipt of the Participant's notice
of withdrawal, the Participant's participation in the Plan will be automatically
terminated, and no further payroll deductions for the purchase of shares will be
made. Payroll deductions will not resume on behalf of a Participant who has
withdrawn from the Plan (a "Former Participant") unless the Former Participant
enrolls in a subsequent Offering Period in accordance with Section 6(a) hereof.
(b) Upon termination of a Participant's employment with the Company and/or
its Participating Subsidiaries prior to the Exercise Date of an Offering Period
for any reason, including retirement or death, the Plan Contributions credited
to the Participant's account will be returned to the Participant or, in the case
of death, to the Participant's estate, as soon as administratively practical,
and the Participant's options to purchase shares under the Plan will be
automatically terminated.
(c) In the event a Participant fails to maintain his or her status as an
Employee during an Offering Period, the Participant will be deemed to have
elected to withdraw from the Plan, the Plan Contributions credited to the
Participant's account will be returned to the Participant as soon as
administratively practical, and the Participant's options to purchase shares
under the Plan will be terminated.
(d) A Participant's withdrawal from an Offering Period will not have any
effect upon the Participant's eligibility to participate in any succeeding
Offering Periods or in any similar plan which may hereafter be adopted by the
Company.
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<PAGE> 6
12. TRANSFERABILITY
Options to purchase Common Stock granted under the Plan are not
transferable by a Participant and are exercisable during a Participant's
lifetime only by the Participant.
13. REPORTS
Individual accounts will be maintained for each Participant in the Plan.
Statements of account will be given to Participants semi-annually in due course
following each Exercise Date, which statements will set forth the amounts of
payroll deductions, the per share purchase price, the number of shares purchased
and the remaining cash balance, if any.
14. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
(a) If the outstanding shares of Common Stock of the Company are changed
into or are exchanged for a different number or kind of shares, as a result of
one or more reorganizations, restructurings, recapitalizations,
reclassifications, stock splits, reverse stock splits, stock dividends or the
like, upon authorization of the committee, appropriate adjustments shall be made
in the number and/or kind of shares, and the per-share option price thereof,
which may be issued in the aggregate and to any Participant upon exercise of
options granted under the Plan.
(b) In the event of the sale, merger, dissolution or liquidation of the
Company, the Offering Period will terminate immediately prior to the
consummation of such proposed action, unless otherwise provided by the
Committee.
(c) In all cases, the Committee shall have full discretion to exercise any
of the powers and authority provided under this Section 14, and the Committee's
actions hereunder shall be final and binding on all Participants. No fractional
shares of stock shall be issued under the Plan pursuant to any adjustment
authorized under the provisions of this Section 14.
15. AMENDMENT OF THE PLAN
The Board may at any time, or from time to time, amend the Plan in any
respect; provided, however, that the Plan may not be amended in any way that
will cause rights issued under the Plan to fail to meet the requirements for
employee stock purchase plans as defined in Section 423 of the Code or any
successor thereto, including, without limitation, stockholder approval if
required.
16. TERMINATION OF THE PLAN
The Plan and all rights of Employees hereunder shall terminate on the
earlier of:
(a) the Exercise Date that Participants become entitled to purchase a
number of shares greater than the number of reserved shares remaining
available for purchase under the Plan;
(b) such date as is determined by the Board in its discretion; or
(c) February 28, 2008.
In the event that the Plan terminates under circumstances described in
Section 16(a) above, reserved shares remaining as of the termination date shall
be sold to Participants on a pro rata basis.
17. NOTICES
All notices or other communications by a Participant to the Company under
or in connection with the Plan shall be deemed to have been duly given when
received in the form specified by the Company at the location, or by the person,
designated by the Company for the receipt thereof.
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18. STOCKHOLDER APPROVAL
The Plan shall become effective on September 1, 1998. The Plan shall be
subject to approval by the stockholders of the Company within twelve months
before or after the date the Plan is adopted by the Board. If such stockholder
approval is obtained at a duly held stockholders' meeting, it may be obtained by
the affirmative vote of the holders of a majority of the outstanding shares of
the Company present or represented and entitled to vote thereon. If such
stockholder approval is not obtained, the Plan and all rights to the Common
Stock purchased under the Plan shall be null and void and shall have no effect.
19. CONDITIONS UPON ISSUANCE OF SHARES
(a) The Plan, the grant and exercise of options to purchase shares of
Common Stock under the Plan, and the Company's obligation to sell and deliver
shares upon the exercise of options to purchase shares shall be subject to all
applicable federal, state and foreign laws, rules and regulations, and to such
approvals by any regulatory or governmental agency as may, in the opinion of
counsel for the Company, be required.
(b) The Company may make such provisions as it deems appropriate for
withholding by the Company pursuant to federal or state income tax laws of such
amounts as the Company determines it is required to withhold in connection with
the purchase or sale by a Participant of any Common Stock acquired pursuant to
the Plan. The Company may require a Participant to satisfy any relevant tax
requirements before authorizing any issuance of Common Stock to such
Participant.
20. EXPENSES OF THE PLAN
All costs and expenses incurred in administering the Plan shall be paid by
the Company, except that any stamp duties or transfer taxes applicable to
participation in the Plan may be charged to the account of such Participant by
the Company. Any brokerage fees for the purchase of shares by a Participant
shall be paid by the Company, but any brokerage fees for the sale of shares by a
Participant shall be borne by the Participant.
21. NO EMPLOYMENT RIGHTS
The Plan does not, directly or indirectly, create any right for the benefit
of any employee or class of employees to purchase any shares under the Plan, or
create in any employee or class of employees any right with respect to
continuation of employment by the Company, and it shall not be deemed to
interfere in any way with the Company's right to terminate, or otherwise modify,
an employee's employment at any time.
22. APPLICABLE LAW
The laws of the State of Delaware shall govern all matters relating to this
Plan except to the extent (if any) superseded by the laws of the United States.
23. HEADINGS
Headings are provided herein for convenience only and are not to serve as a
basis for interpretation or construction of the Plan.
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EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Financial Data" and "Experts" and to the use of our report dated February 19,
1998, in Amendment No. 2 to the Registration Statement on Form S-1 (File No.
333-51587) and related Prospectus of InterVU Inc. (a development stage company)
for the registration of 2,300,000 shares of its common stock.
ERNST & YOUNG LLP
May 19, 1998
San Diego, California
