<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 30, 1999
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
INTERVU INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7371 33-0680870
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
6815 FLANDERS DRIVE
SAN DIEGO, CA 92121
(619) 623-8400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
HARRY E. GRUBER
CHIEF EXECUTIVE OFFICER
INTERVU INC.
6815 FLANDERS DRIVE
SAN DIEGO, CA 92121
(619) 623-8400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
SCOTT N. WOLFE, ESQ. MICHAEL R. LITTENBERG, ESQ.
DAVID A. HAHN, ESQ. SCHULTE ROTH & ZABEL LLP
ROBERT E. BURWELL, ESQ. 900 THIRD AVENUE
LATHAM & WATKINS NEW YORK, NEW YORK 10022
701 "B" STREET, SUITE 2100 (212) 756-2000
SAN DIEGO, CALIFORNIA 92101
(619) 236-1234
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
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, other than securities offered only in connection with dividend or interest
reinvestment plans, 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, 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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<S> <C> <C> <C> <C>
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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
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Common Stock, par value $.001........... 2,875,000 $40.6875 $116,976,563 $32,520
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</TABLE>
(1) Includes 375,000 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 common stock on the Nasdaq National Market
on March 24, 1999.
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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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. INTERVU
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION -- MARCH 30, 1999
PROSPECTUS
- --------------------------------------------------------------------------------
2,500,000 Shares
[INTERVU LOGO]
INTERVU INC.
Common Stock
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INTERVU Inc. is offering 2,500,000 shares of its common stock. The shares of
INTERVU are quoted in the Nasdaq National Market under the symbol "ITVU." On
March 29, 1999, the last reported sale price in the Nasdaq National Market was
$45.25 per share.
INTERVU provides Web site owners and content publishers feature-rich,
cost-effective services for the delivery or "streaming" of live and on-demand
video and audio content over the Internet.
<TABLE>
<CAPTION>
Per Share Total
<S> <C> <C>
Public offering price................................ $ $
Underwriting discounts and commissions............... $ $
Proceeds, before expenses, to INTERVU................ $ $
</TABLE>
SEE "RISK FACTORS" ON PAGES 5 TO 10 FOR FACTORS THAT SHOULD BE CONSIDERED BEFORE
INVESTING IN THE SHARES OF INTERVU.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
- --------------------------------------------------------------------------------
The underwriters may, under some circumstances, purchase up to 375,000
additional shares from INTERVU at the public offering price, less underwriting
discounts and commissions. Delivery and payment for the shares will be on
, 1999.
PRUDENTIAL SECURITIES
ING BARING FURMAN SELZ
SG COWEN
CRUTTENDEN ROTH INCORPORATED RYAN, BECK & CO.
, 1999
<PAGE> 3
TABLE OF CONTENTS
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PAGE
----
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 5
Use of Proceeds....................... 11
Price Range of Common Stock........... 11
Dividend Policy....................... 11
Dilution.............................. 12
Capitalization........................ 13
Selected Financial Data............... 14
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 15
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Business.............................. 20
Management............................ 28
Principal Stockholders................ 31
Description of Capital Stock.......... 33
Underwriting.......................... 37
Legal Matters......................... 38
Experts............................... 38
Additional Information................ 39
Index to Financial Statements......... F-1
</TABLE>
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INTERVU's Internet address is www.intervu.net. Information contained on
INTERVU's Web site is not part of this prospectus.
The terms "INTERVU," the "Company," "we," "our" and "us" refer to INTERVU Inc.
unless the context suggests otherwise. The term "you" refers to a prospective
investor.
INTERVU(TM), INTERVU AUDIENCE(TM), INTERVU Presents(TM), V-Banner(TM), All
Eyes(R), EyeQ(TM), Get Smart(TM), INTERVU Player(TM), INTERVU Network(TM), Smart
Mirror(TM), Virtual URL(TM) and the INTERVU logo are trademarks of INTERVU.
INTERVU has filed applications for trademark registration on the following
trademarks, among others: INTERVU, Smart Mirror, Virtual URL, V-Banner, INTERVU
AUDIENCE and the INTERVU logo. NBC and the Peacock logo are registered
trademarks of National Broadcasting Company, Inc. MediaPlayer(TM) is a trademark
of Microsoft Corporation. G2 Player(TM) is a trademark of RealNetworks, Inc.
This prospectus also includes additional trademarks of companies other than
INTERVU.
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FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. We have based these forward-looking statements largely on
our current expectations and projections about future events and financial
trends affecting the financial condition of our business. These forward-looking
statements are subject to a number of risks, uncertainties and assumptions about
INTERVU, including, among other things:
- Our successful implementation of our growth strategy,
- Competition, including the introduction of new products or services by
our competitors,
- Anticipated trends in our business,
- Technological innovations,
- Fluctuations in our operating results,
- Future regulations affecting our business,
- Additions or departures of key personnel,
- General economic and business conditions, nationally, in our markets and
in our industry and
- Other risk factors set forth under "Risk Factors" in this prospectus.
In addition, in this prospectus, the words "believe," "may," "will,"
"estimate," "continue," "anticipate," "intend," "expect" and similar
expressions, as they relate to INTERVU, our business or our management, are
intended to identify forward-looking statements.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks and uncertainties, the forward-looking events and
circumstances discussed in this prospectus may not occur and actual results
could differ materially from those anticipated or implied in the forward-looking
statements.
- --------------------------------------------------------------------------------
You should rely only on information contained or incorporated by reference
in this prospectus. We have not authorized anyone to provide you with different
information. We are not making an offer of these securities in any jurisdiction
where the offer or sale is not permitted. You should not assume that the
information contained in this prospectus is accurate as of any date other than
the date on the front cover of this prospectus.
<PAGE> 4
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and may not contain all of the information that you
should consider before investing in the common stock of INTERVU. You should read
the entire prospectus carefully.
THE COMPANY
We provide Web site owners and content publishers with feature-rich,
cost-effective solutions for the delivery or "streaming" of live and on-demand
video and audio content over the Internet. Our customers use our video and audio
distribution services to transmit entertainment, sports, news, business to
business, advertising and distance learning content. Our current customers
include Bloomberg, CNN, House of Blues, Intel, Microsoft, MovieFone, MSNBC, NBC,
OnRadio, RadioWave.com, Saatchi and Saatchi and Turner Broadcasting.
Our streaming media services allow Internet users to, among other things:
- view news, sports and other events from around the world,
- listen to live radio broadcasts,
- watch and listen to specialized content not widely available on
television or radio,
- hear a company's quarterly earnings report live, accompanied by a
graphical presentation,
- view a movie trailer before purchasing a movie ticket, videotape or DVD
and
- watch music videos or listen to songs on demand.
Market Opportunity
The Internet and many Internet software, hardware and service providers
have experienced dramatic growth in recent years. International Data Corporation
(IDC) estimates that the number of Web users worldwide will increase from
approximately 97 million at the end of 1998 to approximately 320 million by the
end of 2000, representing an average annual growth rate of 35%. The development
of video and audio delivery solutions has contributed to the transition of the
Internet from a static environment of text-orientated Web pages to a more
attractive and dynamic environment. We believe that as the Internet continues to
evolve as a mass communication medium, end-users will spend an increasing
percentage of their time online visiting sites that offer high-quality video and
audio content. As companies seek more effective methods for reaching these
end-users with advertising and e-commerce messages, we believe that the use of
streaming media solutions will expand rapidly.
The INTERVU Solution
We have developed a suite of services that automate the publishing,
distribution and programming of video and audio content. Web site owners and
content publishers use our automated solutions to: (1) more quickly and
efficiently add video and audio content to Web sites, (2) avoid purchasing or
developing costly software and hardware and hiring employees with video and
audio expertise and (3) benefit from the economies of scale we can generate by
buying Internet bandwidth in bulk. We also use our patent-pending distributed
network to accelerate the speed and improve the quality of video and audio
delivery. In addition, we offer advanced data management services that enable
our customers to manage video and audio files and better tailor content to meet
end-user demand.
Services
We provide live Webcasting and video and audio on-demand services. Live
Webcasting includes both live events and 24-hour per day streaming services such
as continuous radio broadcasts. On-demand services allow our customers to store
video and audio clips on the INTERVU Network and to make them available to end-
1
<PAGE> 5
users through their Web sites. We are a full-service provider, offering all of
the services necessary for both live Webcasting and video and audio on-demand,
including production, encoding, uplinking, Web site integration, distribution,
audience building, reporting and archiving. We typically charge our customers
monthly fees based on the particular bundle of services to be provided and
agreed upon amounts of video content to be stored and delivered.
The INTERVU Network
The cornerstone of our service strategy is a scaleable, patent-pending
distribution network. The INTERVU Network uses servers strategically located in
major Internet hosting centers. Our dispersed network architecture enables us to
deliver streaming content to larger numbers of simultaneous end-users than other
service providers can achieve with centrally located servers. The INTERVU
Network also allows customers to make large numbers of video and audio files
available for on-demand viewing and listening. We believe that our proprietary
software for managing and distributing video and audio content and our use of
multiple delivery centers significantly improve the quality, speed and
reliability of delivery.
Key Working Relationships
We seek to leverage our relationships with key customers to support the
development of our automated delivery solutions and build our brand identity.
For example, we have a strategic relationship with NBC that makes us the
exclusive distributor of most NBC entertainment content over NBC Internet sites,
including the VideoSeeker Web site. We also provide all of CNN.com's live
Internet broadcasts. In addition, we have developed a private network service
for BMG which archives recordings of over 8,000 CDs, allowing retailers to
preview music CDs and packaging before placing orders. We also have established
relationships with RadioWave.com and OnRadio, both of which use our services to
put radio stations online.
Strategy
Our objective is to establish ourselves as the leading service provider for
Internet video and audio distribution solutions. Our strategy for achieving this
goal includes:
- Targeting leading Web sites and content publishers to expand our customer
base and build awareness of the INTERVU brand,
- Designing our service solutions to drive traffic to our customers' Web
sites and maximize awareness for our customers' brands,
- Developing further automated delivery solutions,
- Providing full-service video and audio delivery solutions, including all
of the services necessary for both live Webcasting and video and audio
on-demand and
- Expanding the INTERVU Network to further improve the speed, quality and
reliability of streaming video and audio.
We were incorporated in Delaware in August 1995 and launched the INTERVU
Network in December 1996. Accordingly, we have a limited operating history on
which to base an evaluation of our business and prospects. Our principal
executive offices are located at 6815 Flanders Drive, San Diego, California
92121. Our telephone number is (619) 623-8400.
2
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THE OFFERING
Shares offered by INTERVU................. 2,500,000 shares
Total shares outstanding after this
offering.................................. 13,440,529 shares
Use of proceeds........................... Increased sales and marketing
efforts; additional software
development; capital expenditures;
and working capital and other
general corporate purposes,
including possible future
strategic alliances and
acquisitions.
Nasdaq National Market symbol............. ITVU
The information above is stated as of March 15, 1999. You should be aware
that the aggregate number of shares of common stock that will be outstanding
after the offering does not include:
- 2,013,789 shares subject to outstanding options with a weighted average
exercise price of $11.28 per share,
- 218,000 shares subject to outstanding warrants with a weighted average
exercise price of $14.08 per share,
- 806,144 shares issuable upon conversion of 1,280,000 shares of Series G
Preferred Stock held by National Broadcasting Company, Inc. (NBC),
- 978,875 shares reserved for issuance under options that we may grant
under our 1998 Stock Option Plan,
- 494,844 shares reserved for issuance under our Qualified Stock Purchase
Plan and
- 375,000 shares issuable upon exercise of the underwriters' over-allotment
option.
RISK FACTORS
You should consider the risks of investing in our common stock and the
impact from various events which could adversely affect our business. See "Risk
Factors" for a more detailed discussion of these risks.
3
<PAGE> 7
SUMMARY FINANCIAL DATA
The summary 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 included elsewhere in this
prospectus. INTERVU did not emerge from the development stage until 1998. As a
result, we believe that any comparison of our results of operations is not
meaningful.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
PERIOD FROM ------------------------------------
AUGUST 2, 1995
(INCEPTION) TO
DECEMBER 31,
1995 1996 1997 1998
-------------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................... $ -- $ -- $ 144 $ 1,712
Operating expenses:
Research and development................. 33 1,420 1,703 3,154
Selling, general and administrative...... 16 910 3,148 10,892
Charges associated with the NBC Strategic
Alliance Agreement..................... -- -- 750 4,622
---- ---------- ---------- ----------
Total operating expenses.................... 49 2,330 5,601 18,668
---- ---------- ---------- ----------
Loss from operations........................ (49) (2,330) (5,457) (16,956)
Interest income............................. 3 52 192 1,246
---- ---------- ---------- ----------
Net loss.................................... $(46) $ (2,278) $ (5,265) $ (15,710)
==== ========== ========== ==========
Basic and diluted net loss per share........ $ (0.66) $ (0.95) $ (1.73)
========== ========== ==========
Shares used in computing basic and diluted
net loss per share....................... 3,441,000 5,571,000 9,074,000
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
------------------------
ACTUAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........................... $ 27,046 $132,884
Working capital........................................................... 24,799 130,637
Total assets.............................................................. 30,364 136,202
Long-term liabilities..................................................... -- --
Total stockholders' equity................................................ 27,313 133,151
</TABLE>
4
<PAGE> 8
RISK FACTORS
You should carefully consider the following risk factors, in addition to
the other information set forth in this prospectus, before purchasing shares of
common stock of INTERVU. Each of these risks could adversely affect our
business, operating results and financial condition, as well as adversely affect
the value of an investment in our common stock.
WE HAVE A LIMITED OPERATING HISTORY. INTERVU was incorporated in August
1995 and launched the INTERVU Network in December 1996. INTERVU did not emerge
from the development stage until 1998. Accordingly, we have a limited operating
history on which to base an evaluation of our business and prospects. You must
consider our prospects in light of the risks and uncertainties encountered by
companies in the early stages of development, particularly companies in new and
rapidly evolving markets such as the delivery of video and audio over the
Internet. Our success will depend on many factors, including, but not limited
to, the following:
- the growth of the market for streaming media content on the Internet,
- our ability to implement our growth strategy, especially our sales and
marketing efforts,
- our ability to retain existing customers and attract a significant number
of new ones,
- the introduction of new technologies and Internet services by us and our
competitors,
- price competition,
- market acceptance of our pricing structure,
- our ability to attract, retain and motivate qualified personnel and
- general economic conditions.
We may not successfully implement our growth strategies or successfully
address these risks and uncertainties. If we fail to do so, it could materially
harm our business and impair the price of our common stock. Even if we
accomplish these objectives, we may not generate positive cash flow or profits
in the future. Moreover, variations in these factors also may cause our
quarterly operating results to fluctuate significantly in the future. As a
result, our operating results in one or more future quarters may fail to meet
the expectations of securities analysts or investors. Failure to meet these
expectations could impair the price of our common stock.
WE HAVE A HISTORY OF LOSSES AND ANTICIPATE FUTURE LOSSES. Since the
formation of our company, we have incurred substantial net losses. As of
December 31, 1998, we had an accumulated deficit of $23.3 million. As we
continue to implement our growth strategy, we intend to spend significant
amounts on sales and marketing, research and development and general and
administrative activities. We expect that we generally will incur these costs in
advance of anticipated related revenues, which may further increase operating
losses in certain periods. As a result of our expansion, we expect to continue
to incur significant operating losses and negative cash flows from operations
for the foreseeable future. It is possible that we may never achieve favorable
operating results or profitability.
In addition, under the terms of our strategic alliance agreement with NBC,
NBC acquired shares of our Series G Preferred Stock, which, under some
circumstances must be returned to us. As the requirement to return shares to us
lapses, we must incur a non-cash charge for the fair value of those shares of
Series G Preferred Stock for which this requirement has lapsed. In January 1998,
we expensed $3.4 million for the then fair value of 680,000 shares of Series G
Preferred Stock and expect to expense the then fair value of the remaining
600,000 shares of Series G Preferred Stock during the fourth quarter of 1999.
Should INTERVU breach, renegotiate or waive this requirement, removing NBC's
obligation to return the shares of Series G Preferred Stock, INTERVU would
expense the fair value at that time. This non-cash charge is expected to
materially adversely affect our results of operations in the period we recognize
the expense, which could impair the price of our common stock.
5
<PAGE> 9
WE FACE MARKET ACCEPTANCE RISKS. Our services are highly specialized and
are designed solely to meet Web site owners' Internet video and audio delivery
needs. The market for streaming media content on the Internet has only recently
developed, is rapidly evolving and thus far has been limited. Demand for
streaming media content on the Internet must develop further in order to offer
significant revenue opportunities for video and audio distribution service
providers such as INTERVU. If Internet-based content incorporating streaming
media technology does not become widely adopted by Web site owners, it would
materially harm our business, which would impair the price of our common stock.
Many of our customers may cease using our services either without notice or
upon short notice, including customers with which we have contracts. For
example, NBC may terminate its strategic alliance agreement with us for any
reason upon 90 days prior notice. If we were to lose certain customers that are
well known in their industry, it could adversely affect our ability to retain
customers and attract new ones.
WE FACE CHALLENGES MANAGING OUR GROWTH. We have rapidly expanded our
operations since INTERVU was founded in August 1995. In connection with the
expansion of our operations, we have grown from 34 employees on October 15, 1997
to 120 employees on March 15, 1999. We also plan to significantly expand our
sales and marketing and research and development activities, hire a significant
number of additional employees, expand our internal management, technical,
information, accounting and billing systems and establish additional sales
offices. In addition, we plan to expand the infrastructure of the INTERVU
Network by investing in additional software and hardware consisting primarily of
additional servers. This rapid expansion may place increasing strains on our
ability to manage our growth, including our ability to monitor operations, bill
customers, control costs and maintain effective quality controls. In order to
successfully manage our growth we must identify, attract, motivate, train and
retain highly skilled managerial, financial, engineering, business development,
sales and marketing and other personnel. Competition for this type of personnel
is intense. If we fail to manage our growth effectively, it could materially
harm our business and impair the price of our common stock.
WE MUST KEEP PACE WITH RAPIDLY CHANGING TECHNOLOGIES. The markets for
Internet services are characterized by:
- rapidly changing technologies,
- changing customer demands,
- frequent new product introductions and
- evolving industry standards.
The emerging nature of Internet products and services and their rapid
evolution will require that we continually improve the performance, features and
reliability of our services and the INTERVU Network. We may not successfully
respond quickly or cost-effectively to these developments. We also may not
achieve widespread acceptance of our services before our competitors offer
products and services with speed, performance, features and quality similar to
or better than ours or that are more cost-effective than our services. In
addition, the widespread adoption of new technologies could require substantial
expenditures by us to modify or adapt our technology. Furthermore, new or
emerging technologies such as satellite transmission of content may reduce
demand for our services.
WE FACE SIGNIFICANT COMPETITION. The market for Internet-based services is
relatively new, rapidly evolving and highly competitive. We expect that
competition will continue to intensify. The streaming media industry is
characterized by rapidly changing technology, evolving industry standards and
frequent new product and service introductions. We face substantial competition
from a number of companies. These companies include: (1) Internet service
providers, (2) Web sites and content publishers, (3) hardware and system vendors
and (4) companies that utilize other streaming technologies. We currently
compete to a large extent with Web site operators and content publishers that
employ in-house technical personnel to develop streaming media technology and
manage their streaming media. We expect competition from other types of
competitors to increase significantly. Our competitors also include the service
divisions of Broadcast.com and RealNetworks.
6
<PAGE> 10
Competitive factors include:
- the quality and reliability of services,
- ease of use and compatibility with existing network components and
software systems,
- content quality,
- transmission speed,
- ability to expand capacity,
- traffic flow directed to Web sites,
- price of services,
- the level of customer support offered and
- brand recognition.
Since our business is dependent on the overall success of the Internet as a
communication medium, we also compete with traditional media such as radio and
television. Many of our competitors and potential competitors have substantially
greater financial, technical, managerial and marketing resources, longer
operating histories, greater name recognition and more established relationships
with content providers than INTERVU.
WE RUN THE RISK OF SYSTEM FAILURE AND FACE SECURITY RISKS. Our success in
marketing our services requires us to provide reliable service. Our operations
depend on our ability to protect our networks from physical damage, power loss,
capacity limitations, software defects and other factors, many of which are
beyond our control. Our ability to provide reliable services also depends on the
reliability of Internet service providers and online service providers, which
have in the past had periodic operational problems or experienced outages. We
expect these problems and outages to continue to occur periodically. Any of the
foregoing could impair our customer satisfaction, lead to a loss of customers or
increase our costs, which could materially harm our business and impair the
price of our common stock.
The INTERVU Network may be vulnerable to unauthorized access, computer
viruses and other disruptive problems despite our implementation of security
measures. Computer viruses or problems caused by third parties, such as hackers,
could lead to interruptions, delays or termination of service to our customers.
To alleviate problems caused by computer viruses or security breaches, we may
have to interrupt, delay or cease service to our customers, which could
materially harm our business. Security breaches or problems caused by computer
viruses also could materially impair customer acceptance of our services.
THE INTERNET MAY FAIL TO SUPPORT AN INCREASING NUMBER OF USERS. The
wide-spread commercial use of the Internet is a relatively new development.
Critical issues regarding the stability of the Internet's infrastructure remain
unresolved. For example, the rapid rise in the number of Internet users and
increased transmission of multimedia content over the Web continues to place
increasing strains on the Internet's communications and transmission
infrastructures. If these trends continue it could lead to significant declines
in transmission speeds and reliability of the Internet, reducing the usage of
the Internet by businesses and individuals. The failure of the Internet to
support an increasing numbers of users could materially harm our business and
impair the price of our common stock.
WE FACE RISKS RELATING TO FUTURE ACQUISITIONS AND INVESTMENTS. As part of
our growth strategy, we may acquire businesses, products and technologies and
enter into joint ventures and strategic relationships with other companies. Any
of these transactions would expose us to additional risks. In particular, risks
associated with the acquisition of high-technology companies include:
- the difficulty of assimilating and integrating the operations and
personnel of the combined companies,
- the potential disruption of our ongoing business,
- our inability to retain key technical, managerial and sales personnel,
7
<PAGE> 11
- the potential additional expenses associated with amortization of
acquired intangible assets, integration costs and unanticipated
liabilities or contingencies and
- the diversion of management's attention during the acquisition and
integration process.
We do not have significant experience in the identification and management
of acquisitions. If we are unable to successfully address any of the foregoing
risks, it could materially harm our business and impair the price of our common
stock.
WE DEPEND ON KEY PERSONNEL. Given our company's early stage of development,
we depend on the performance and efforts of our senior management team and other
key employees. Our senior management includes Harry E. Gruber, our Chief
Executive Officer and Chairman of the Board, Brian Kenner, our Vice President
and Chief Technology Officer, Kenneth L. Ruggiero, our Vice President and Chief
Financial Officer, and Edward L. Huguez, our Vice President and Chief Operating
Officer. If we lost the service of any of our senior management or other key
employees it could materially harm our business and impair the price of our
common stock. We do not have employment agreements with any of our officers or
employees.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES COULD AFFECT OUR BUSINESS. We
are not currently required to comply with 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 of the Internet, it is possible that laws may
be adopted regarding the Internet, any of which could materially harm our
business. These laws may relate to issues such as user privacy, pricing,
content, copyrights, distribution of products, characteristics of products and
quality of products and services. Furthermore, the growth and development of
Internet commerce may lead to more stringent consumer protection laws that may
impose additional burdens on companies conducting business online. The adoption
of any additional laws may decrease the growth of Internet use, which could lead
to a decrease in the demand for our services or increase the cost of doing
business. Also, the applicability to the Internet of existing laws in various
jurisdictions governing issues like property ownership, sales and other taxes,
libel and personal privacy is ambiguous and may take years to resolve.
Although we do not actively program or edit the content on our network, we
could be held liable if customers use our network to distribute content deemed
to be indecent or obscene. While we do not actively market our services to sites
that host adult video content, one or more of our customers may in the future
use our services to transmit this type of content. Even though 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 of potential liability for materials
distributed through the Internet could require us to implement measures to
reduce our exposure to this liability. These measures may require the
expenditure of substantial resources or the discontinuation of some services,
which could materially harm our business and impair the price of our common
stock.
WE FACE RISKS RELATING TO INTELLECTUAL PROPERTY RIGHTS. Our success depends
on our internally developed technologies and other intellectual property. We
regard our technology as proprietary and attempt to protect it with patents,
copyrights, trade secret laws, restrictions on disclosure and other methods. The
U.S. Patent & Trademark Office has issued notices of allowance on three of our
patent applications, which cover the management, distribution and delivery of
video and audio content over the Internet as well as the architecture of the
INTERVU Network. Some or all of these patents may not be issued. Even if they
are issued, they may not sufficiently protect our technology. If any patents are
not issued or if they fail to provide protection to our technology, it may make
it easier for our competitors to offer technology equivalent or superior to
ours. In addition, we have nine United States patent applications and four
international patent applications pending. We are also in the process of
preparing additional patent applications for our technology. We cannot assure
you that any patent will issue from these applications.
We commonly enter into confidentiality agreements with our employees and
consultants, and generally control access to and distribution of our proprietary
information. Despite these precautions, it may be possible
8
<PAGE> 12
for a third party to obtain and use our services or technology without
authorization. Third parties may also develop similar technology independently.
We have applied for registration of a number of key trademarks and service
marks such as "INTERVU," "INTERVU AUDIENCE," "V-Banner," "Smart Mirror,"
"Virtual URL" and the INTERVU logo. We also intend to introduce new trademarks
and service marks. We may not be successful in obtaining registration for one or
more of these trademarks. Furthermore, we cannot assure you that any trademark
or service mark obtained will sufficiently protect our rights.
We may need to resort to litigation in the future to enforce or to protect
our intellectual property rights, including our patent and trademark rights.
Moreover, our technologies and trademarks may be claimed to conflict with or
infringe upon the patent, trademark or other proprietary rights of third
parties. If any of these claims, conflicts or infringements should arise, we
would have to defend ourselves against the challenge. This type of litigation
could result in substantial costs and the diversion of resources. We also may
have to obtain a license to use those proprietary rights or possibly cease using
those rights altogether. Any of these events could materially harm our business
and impair the price of our common stock.
YEAR 2000 ISSUES COULD AFFECT OUR BUSINESS. We face risks arising from Year
2000 issues. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Impact of Year 2000" for discussion of these risks.
WE EXPECT TO EXPERIENCE VOLATILITY IN OUR STOCK PRICE. The market price of
our common stock has fluctuated in the past and is likely to continue to
fluctuate in the future. In addition, the market prices of securities of other
technology companies, particularly Internet-related companies, currently are
highly volatile. Factors that may have a significant effect on the market price
of our common stock, many of which are beyond our control, include:
- fluctuations in our operating results,
- announcements of technological innovations,
- new products or services offered by our competitors,
- analysts' reports and projections,
- changes in the market valuations of other Internet companies,
- announcements by us or our competitors relating to significant
acquisitions, strategic relationships, joint ventures, capital
commitments or customer relationships,
- our ability or failure to implement our growth strategy,
- stock market price and volume fluctuations generally,
- regulatory developments,
- additions or departures of key personnel and
- sales of our common stock by us or our stockholders.
Fluctuations in the market price of our common stock may in turn adversely
affect (1) our ability to complete any targeted acquisitions, (2) our access to
capital and financing and (3) our ability to attract and retain qualified
personnel. In the past, following periods of volatility in the market price of a
particular company's securities, securities class action litigation against that
company often results. We may become involved in this type of litigation in the
future. Litigation is often expensive and diverts management's attention and
resources, which could materially harm our business.
WE WILL HAVE SUBSTANTIAL DISCRETION OVER THE USE OF THE NET PROCEEDS OF THE
OFFERING. Management will have significant flexibility in applying the net
proceeds of this offering and may apply the proceeds in ways with which you do
not agree. The failure of management to apply these funds effectively could
materially
9
<PAGE> 13
harm our business. See "Use of Proceeds" for a discussion of our intended uses
of the net proceeds of this offering.
WE HAVE IMPLEMENTED CERTAIN ANTI-TAKEOVER PROVISIONS. Some of the
provisions of our Amended and Restated Certificate of Incorporation and Amended
and Restated Bylaws could discourage, delay or prevent an acquisition of our
company at a premium price. These provisions:
- permit the Board of Directors to increase its own size and fill the
resulting vacancies,
- provide for a staggered board,
- authorize the issuance of "blank check" preferred stock,
- limit the removal of directors by the stockholders to removal for cause,
- require a supermajority stockholder vote to effect some amendments to our
Certificate of Incorporation and Bylaws,
- limit the persons who may call special meetings of stockholders,
- prohibit stockholder action by written consent and
- establish advance notice requirements for nominations for election to the
Board of Directors or for proposing matters that can be acted on by
stockholders at stockholder meetings.
In addition, Section 203 of the Delaware General Corporation Law also imposes
restrictions on mergers and other business combinations between us and any
holder of 15% or more of our common stock. See "Description of Capital
Stock -- Preferred Stock" and "-- Delaware Law and Certain Charter and Bylaw
Provisions" for a more detailed discussion of these anti-takeover provisions.
SALES OF SHARES ELIGIBLE FOR FUTURE SALE COULD IMPAIR OUR STOCK PRICE. The
market price of our common stock could drop due to sales of a large number of
shares of our common stock or the perception that such sales could occur. These
factors could also make it more difficult to raise funds through future
offerings of common stock.
After this offering, 13,440,529 of our shares of common stock will be
outstanding (13,815,529 shares if the underwriters' over-allotment option is
exercised in full). Of these shares, the 2,500,000 shares sold in this offering
(2,875,000 shares if the underwriters' over-allotment option is exercised in
full) will be freely tradeable without restrictions under the Securities Act,
except for any shares purchased by our "affiliates" (as defined in Rule 144
under the Securities Act) and 10,940,529 shares will otherwise be eligible for
sale in the public market, which includes shares of restricted stock that have
not yet vested but will be eligible for sale upon vesting. Our officers and
directors and certain stockholders, subject to certain exceptions, have entered
into lock-up agreements pursuant to which they have agreed not to offer or sell
any shares of common stock for a period of 120 days from the date of this
prospectus without the prior written consent of Prudential Securities, on behalf
of the underwriters. Prudential Securities may, at any time and without notice,
waive the terms of these lock-up agreements. Also, 806,144 shares of our common
stock issuable upon conversion of the Series G Preferred Stock are eligible for
sale under Rule 144 under the Securities Act of 1933. An additional 2,231,789
shares of common stock are issuable upon the exercise of options and warrants,
although a substantial number of our options currently are subject to vesting.
EXISTING STOCKHOLDERS WILL MAINTAIN SIGNIFICANT INFLUENCE. Our present
executive officers and directors and their affiliates will beneficially own
approximately 26.4% of our outstanding common stock upon completion of this
offering. As a result, these stockholders will continue to significantly
influence our management and affairs and all matters requiring stockholder
approval, including the election of directors and approval of significant
corporate transactions, such as a merger, consolidation or sale of substantially
all of our assets.
YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION. You will experience an
immediate and substantial dilution of $35.31 per share in the net tangible book
value per share of common stock from the public offering price, assuming a
public offering price of $45.25 per share. In addition, the exercise of options
and warrants currently outstanding could cause additional substantial dilution
to you. See "Dilution" for more detailed information regarding the potential
dilution you may incur.
10
<PAGE> 14
USE OF PROCEEDS
The net proceeds to INTERVU from the sale of the common stock in this
offering, assuming a public offering price of $45.25 per share, are estimated to
be $105.8 million ($121.8 million if the underwriters exercise their
over-allotment option in full) after deducting underwriting discounts and
commissions and estimated offering expenses of $500,000. INTERVU intends to use
these net proceeds for (1) sales and marketing, including hiring additional
sales personnel and opening new sales offices, (2) additional software
development, (3) capital expenditures, consisting primarily of servers to expand
the INTERVU Network, and (4) working capital and other general corporate
purposes.
A portion of the net proceeds may also be used to acquire or invest in
complementary businesses or to obtain the right to use complementary
technologies, including through strategic alliances. Although INTERVU from time
to time evaluates potential acquisitions of businesses, products and
technologies, it has no present understandings, commitments or agreements
regarding any acquisition.
Pending these uses, INTERVU may invest the net proceeds temporarily in
short-term, investment-grade, interest-bearing securities or guaranteed
obligations of the U.S. government.
PRICE RANGE OF COMMON STOCK
INTERVU completed its initial public offering on November 20, 1997. Since
November 20, 1997, INTERVU's common stock has been quoted in the Nasdaq National
Market. The following table provides the high and low sales prices of the common
stock as reported by the Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1997
4th Quarter (from November 20, 1997)................... $10.25 $ 8.13
1998
1st Quarter............................................ 14.50 7.63
2nd Quarter............................................ 32.38 12.63
3rd Quarter............................................ 21.50 5.13
4th Quarter............................................ 19.50 6.00
1999
1st Quarter (through March 29, 1999)................... 54.50 12.75
</TABLE>
On March 29, 1999, the last reported sale price of INTERVU's common stock
in the Nasdaq National Market was $45.25 per share. As of March 15, 1999, there
were 124 holders of record of INTERVU's common stock.
DIVIDEND POLICY
INTERVU has not declared or paid and does not anticipate declaring or
paying any dividends on its common stock in the foreseeable future. Any future
determination as to the declaration and payment of dividends will be at the
discretion of INTERVU's Board of Directors and will depend on then existing
conditions, including INTERVU's financial condition, results of operations,
contractual restrictions, capital requirements and business prospects and any
other factors INTERVU's Board of Directors deems relevant.
11
<PAGE> 15
DILUTION
Purchasers of the common stock in this offering will experience immediate
and substantial dilution in the net tangible book value of the common stock from
this offering. Net tangible book value per share represents the amount of
INTERVU's total tangible assets less its total liabilities, divided by the total
number of shares of common stock outstanding. At December 31, 1998, INTERVU had
net tangible book value of $27.3 million or $2.51 per share of common stock.
After giving effect to the sale of 2,500,000 shares of common stock offered by
INTERVU at an assumed public offering price of $45.25 per share and after the
deduction of underwriting discounts and commissions and estimated offering
expenses, INTERVU's pro forma net tangible book value at December 31, 1998 would
have been $133.2 million or $9.94 per share. This represents an immediate
increase in the pro forma net tangible book value of $7.43 per share to existing
stockholders and an immediate and substantial dilution of $35.31 per share to
new investors purchasing common stock in this offering. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price............................... $45.25
Net tangible book value as of December 31, 1998........... $2.51
Increase attributable to new investors.................... $7.43
Pro forma net tangible book value after this offering....... 9.94
------
Dilution to new investors................................... $35.31
======
</TABLE>
The following table summarizes the differences between existing
stockholders and new investors in this offering with respect to the number of
shares of common stock purchased from INTERVU, the total consideration paid to
INTERVU and the average consideration paid per share. The following table
excludes the deduction of underwriting discounts and commissions and estimated
offering expenses payable by INTERVU. In addition, the following table assumes a
public offering price of $45.25 per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing Stockholders................ 10,894,487 81.3% $ 51,328,000 31.2% $ 4.71
New Investors........................ 2,500,000 18.7% 113,125,000 68.8% 45.25
---------- ----- ------------ -----
Total...................... 13,394,487 100% $164,453,000 100%
========== ===== ============ =====
</TABLE>
The information presented in the table above with respect to existing
stockholders assumes (1) no conversion of Series G Preferred Stock into common
stock, (2) no exercise of outstanding options to purchase 1,822,000 shares of
common stock granted under the 1996 Stock Plan and the 1998 Stock Option Plan
and (3) no exercise of warrants to purchase 330,000 shares of common stock.
If the underwriters' over-allotment option is exercised in full, INTERVU
will issue an additional 375,000 shares of common stock to new investors
representing 2.7% of the total of 13,769,487 shares of its common stock
outstanding and the total consideration from new investors will be $130.1
million, which is 71.7% of the total of $181.4 million paid for all shares of
common stock outstanding. The issuance of additional common stock by INTERVU
will result in further dilution to you.
12
<PAGE> 16
CAPITALIZATION
The following table sets forth, as of December 31, 1998: (1) the actual
capitalization of INTERVU and (2) the capitalization of INTERVU as adjusted to
reflect this offering. The information set forth in the following table below
assumes a public offering price of $45.25 per share. The following table should
be read in conjunction with the financial statements and the related notes
appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-------------------------
ACTUAL AS ADJUSTED(1)
-------- --------------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Long-term lease commitments................................. $ -- $ --
Stockholders' equity........................................
Preferred stock, par value $0.001 per share; 5,000,000
shares authorized, 1,280,000 shares issued and
outstanding, actual and as adjusted.................... 1 1
Common stock, par value $0.001 per share; 20,000,000
shares authorized, 10,894,487 shares issued and
outstanding, actual; 20,000,000 shares authorized,
13,394,487 shares issued and outstanding, as
adjusted(2)............................................ 11 13
Additional paid-in capital................................ 51,346 157,182
Deferred compensation..................................... (746) (746)
Accumulated deficit....................................... (23,299) (23,299)
-------- --------
Total stockholders' equity.................................. 27,313 133,151
-------- --------
Total capitalization........................................ $ 27,313 $133,151
======== ========
</TABLE>
(1) Assumes no exercise of the underwriters' over-allotment option.
(2) Excludes an aggregate of 1,822,000 shares of common stock issuable upon
exercise of outstanding options under the 1996 Stock Plan and the 1998 Stock
Option Plan, 806,144 shares of common stock issuable upon conversion of the
Series G Preferred Stock and 330,000 shares of common stock issuable upon
the exercise of warrants.
13
<PAGE> 17
SELECTED FINANCIAL 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 included elsewhere in this
prospectus. These financial statements have been audited by Ernst & Young LLP,
independent auditors. INTERVU did not emerge from the development stage until
1998. As a result, INTERVU believes that any comparison of its results of
operations is not meaningful.
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 2, 1995
(INCEPTION) TO
DECEMBER 31, YEAR ENDED DECEMBER 31,
-------------- ------------------------------------
1995 1996 1997 1998
-------------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................... $ -- $ -- $ 144 $ 1,712
Operating expenses:
Research and development................. 33 1,420 1,703 3,154
Selling, general and administrative...... 16 910 3,148 10,892
Charges associated with the NBC Strategic
Alliance Agreement(1).................. -- -- 750 4,622
---- ---------- ---------- ----------
Total operating expenses.................... 49 2,330 5,601 18,668
---- ---------- ---------- ----------
Loss from operations........................ (49) (2,330) (5,457) (16,956)
Interest income............................. 3 52 192 1,246
---- ---------- ---------- ----------
Net loss.................................... $(46) $ (2,278) $ (5,265) $ (15,710)
==== ========== ========== ==========
Basic and diluted net loss per share(2)..... $ (0.66) $ (0.95) $ (1.73)
========== ========== ==========
Shares used in computing basic and diluted
net loss per share(2).................... 3,441,000 5,571,000 9,074,000
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1997 1998
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........ $ 2,508 $21,380 $27,046
Working capital.......................................... 2,365 20,947 24,799
Total assets............................................. 2,776 22,130 30,364
Long-term liabilities.................................... 27 7 --
Total stockholders' equity............................... 2,597 21,532 27,313
</TABLE>
- ---------------
(1) In January 1998, INTERVU expensed the then fair value of 680,000 shares of
the Series G Preferred Stock in the amount of $3.4 million. INTERVU expects
to expense the then fair value of the remaining 600,000 shares of Series G
Preferred Stock during the fourth quarter of 1999. The charges also include
$750,000 and $1,250,000 in nonrefundable cash payments due to NBC under the
strategic alliance agreement expensed during the fourth quarter of 1997 and
during 1998, respectively.
(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.
14
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion contains forward-looking statements regarding
INTERVU, its business, prospects and results of operations that are subject to
risks, uncertainties and assumptions that could cause INTERVU'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 assumptions include, but are not limited to, those detailed in
the sections of this prospectus entitled "Forward-Looking Statements" and "Risk
Factors."
OVERVIEW
INTERVU provides Web site owners and content publishers with services for
the delivery or "streaming" of live and on-demand video and audio content over
the Internet. INTERVU's customers use its video and audio distribution services
to transmit entertainment, sports, news, business to business, advertising and
distance learning content. INTERVU's services automate the publishing,
distribution and programming of video and audio content.
Revenues
INTERVU derives revenues from delivering live and on-demand video and audio
content over the Internet and providing related services, including production,
encoding, uplinking, Web site integration, distribution, audience building,
reporting and archiving. INTERVU typically charges its customers fees with fixed
and variable components. The fixed component consists of a monthly fee based on
the particular bundle of services provided and an agreed upon amount of content
to be stored and streams to be delivered. To the extent that a customer exceeds
agreed upon storage and delivery amounts, INTERVU typically charges variable
fees based on the amount by which content delivered exceeds the agreed upon
amount. For customers for which INTERVU performs specific projects, it charges a
combination of fixed and variable fees, depending on the project. INTERVU also
derives revenues from consulting services relating to streaming media
technologies, although this is not expected to constitute a material portion of
INTERVU's revenues.
Expenses
INTERVU's expenses consist of research and development expenses and
selling, general and administrative expenses. Research and development expenses
consist primarily of salaries and related expenses for personnel, fees to
outside contractors and consultants, allocated costs of facilities and
depreciation and amortization of capital equipment. Research and development
expenses to date have been focused in three areas: (1) development of software
to improve the INTERVU Network's ability to deliver video and audio content, (2)
development of software to analyze Internet performance and redirect individual
end-users to optimal servers and (3) development of software to help Web sites
publish and promote their events.
Selling, general and administrative expenses consist primarily of salaries,
commissions, promotional expenses, professional services and general operating
costs. Also included are the costs INTERVU incurs for bandwidth. INTERVU expects
that as it adds additional customers, the corresponding increase in video
delivery volumes will allow INTERVU to generate economies of scale relative to
its bandwidth costs because it will be able to obtain larger volume discounts.
To the extent that INTERVU does not realize such economies of scale, INTERVU's
business will be adversely affected.
As INTERVU expands its business in 1999 and beyond, its research and
development and selling, general and administrative expenses will increase
substantially. Research and development expenses will increase as INTERVU adds
engineers to its in-house software development team.
INTERVU also expects to expand the INTERVU Network by adding servers in
additional Internet hosting centers. INTERVU will depreciate equipment added to
the INTERVU Network over the useful life of the asset and include this expense
in selling, general and administrative expense.
15
<PAGE> 19
NBC Strategic Alliance
In connection with entering into a strategic alliance with NBC Multimedia,
Inc., INTERVU issued 1,280,000 shares of its Series G Convertible Preferred
Stock to NBC. INTERVU charged $3.4 million to expense in January 1998,
representing the fair value of 680,000 shares of Series G Preferred Stock at the
time NBC's obligation to return those shares lapsed. INTERVU expects to charge
the then fair value of the remaining 600,000 shares of Series G Preferred Stock
to expense during the fourth quarter of 1999 when NBC's obligation to return
those shares is expected to lapse, although if INTERVU breaches, renegotiates or
removes the provision of the NBC strategic alliance agreement relating to this
obligation, it may need to expense the charge at that time. INTERVU believes
that the fair value of each share of Series G Preferred Stock will roughly
approximate the price per share at which INTERVU's common stock is then trading,
multiplied by the 0.6298 conversion ratio applicable to the Series G Preferred
Stock. The non-cash charge with respect to the remaining 600,000 shares of
Series G Preferred Stock is expected to be substantial and to materially impact
INTERVU's results of operations in the period the expense is recognized. NBC
Multimedia is not required to return any shares upon termination until it
receives $2.0 million of non-refundable payments from INTERVU.
RESULTS OF OPERATIONS
INTERVU has incurred net losses in each fiscal period since its inception
and, as of December 31, 1998, had an accumulated deficit of $23.3 million. To
date, INTERVU has not generated any significant revenues, and, as a result of
the significant expenditures INTERVU plans to make as described above, INTERVU
expects to continue to incur significant operating losses and negative cash
flows from operations for the foreseeable future.
1998 Compared to 1997
Total revenue for 1998 increased to $1.7 million from $144,000 in the prior
year. The increase in revenues reflects the expansion of INTERVU's streaming
media services. INTERVU also generated additional revenue from its services to
NBC's VideoSeeker Web site and from consulting and seminar management services.
Research and development expenses for 1998 increased to $3.2 million from
$1.7 million in the prior year. The increase in research and development
expenses was attributable to the increase in personnel and related expenses.
Selling, general and administrative expenses for 1998 increased to $10.9
million from $3.1 million in the prior year. The increase was attributable
primarily to an increase of $4.3 million in personnel and associated costs, an
increase of $1.3 million in expenditures for trade shows and other marketing
efforts, an increase of $529,000 in consulting fees, an increase of $554,000 for
bandwidth costs and an increase of $382,000 for travel and entertainment
expenses.
Charges associated with the NBC strategic alliance agreement for the year
ended December 31, 1998 increased to $4.6 million from $750,000 in the prior
year. The charges in the 1998 period reflected (1) 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 Stock to INTERVU and (2) a charge of $1.3 million relating to
nonrefundable cash payments due to NBC Multimedia under the strategic alliance
agreement for the costs of producing and operating NBC's VideoSeeker Web site
and the costs of advertising and promotions to be placed by INTERVU on NBC
Internet sites. The 1997 charges reflected the payment of $750,000 of
nonrefundable cash payments to NBC Multimedia under the strategic alliance
agreement.
Interest income for 1998 increased to $1.2 million from $192,000 in the
prior year. Interest income represents interest earned by INTERVU on its cash,
cash equivalents and short-term investments. The increase in interest income
over the comparable period in 1997 was the result of higher cash, cash
equivalents and short-term investments balances INTERVU obtained from sales of
equity securities.
INTERVU's net loss for 1998 increased to $15.7 million from $5.3 million
for the prior year.
16
<PAGE> 20
INTERVU has not recorded any income tax benefit for net losses and credits
incurred for any period from inception to December 31, 1998. The utilization of
these losses and credits is contingent upon INTERVU's ability to generate
taxable income in the future. Because of that uncertainty, INTERVU has recorded
a full valuation allowance with respect to these deferred tax assets. See Note 7
of Notes to Financial Statements for further discussion of these deferred tax
assets.
1997 Compared to 1996
Total revenues were $144,000 for 1997, most of which was derived from
delivery fees and customer services provided to INTERVU's initial customers.
INTERVU had no revenues for 1996.
Research and development expenses for 1997 increased to $1.7 million from
$1.4 million in the prior year. The increase in research and development
expenses was attributable to the increase in personnel and related expenses.
Selling, general and administrative expenses for 1997 increased to $3.1
million from $910,000 in the prior year. 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 in expenditures for trade shows and other public relations expenses, an
increase of $237,000 in 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 strategic alliance agreement with NBC for 1997
were $750,000. No such charges were recorded in 1996. The 1997 charges reflected
the payment of $750,000 of nonrefundable cash payments to NBC Multimedia under
the strategic alliance agreement.
Interest income for 1997 increased to $192,000 from $52,000 in the prior
year. The increase in interest income for 1997 was the result of higher cash and
cash equivalents balances resulting from sales of equity securities.
INTERVU's net loss for 1997 increased to $5.3 million from $2.3 million in
the prior year.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, INTERVU has financed its operations primarily through
sales of stock. Through December 31, 1998, INTERVU had raised $46.8 million from
the sale of preferred stock and common stock. At December 31, 1998, the
principal source of liquidity for INTERVU was $27.0 million of cash, cash
equivalents and short-term investments.
INTERVU has had significant negative cash flows from operating activities
since inception. Cash used in operating activities was $9.8 million for 1998,
$4.6 million for 1997 and $2.1 million for 1996. 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 was $20.1 million for 1998, primarily
representing purchases of short-term investments and capital expenditures for
equipment, software and furniture and fixtures. Cash used in investing
activities was $485,000 for 1997 and $305,000 for 1996, primarily representing
capital expenditures for equipment, software and furniture and fixtures. As of
December 31, 1998, INTERVU has no material commitments for capital expenditures.
However, in March 1999, INTERVU financed $1.1 million of equipment under a
three-year non-cancelable leaseline with an interest rate of 7.75%.
Additionally, INTERVU expects to expend significant amounts for equipment,
software and fixtures over the next 24 months to expand the INTERVU Network, a
portion of which it plans to finance through capital leases.
Cash provided by financing activities was $17.9 million for 1998, $23.9
million for 1997 and $4.4 million for 1996. In 1998, the cash provided by
financing activities was primarily from the $17.8 million in net proceeds from
the sale of common stock in a public offering completed in June 1998. Cash
provided in 1997, was primarily due to net proceeds received by INTERVU from the
sale of preferred stock and completion of
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INTERVU's initial public offering and direct offering to NBC in November 1997.
Net proceeds from INTERVU's initial public offering and direct offering to NBC
in 1997 aggregated $18.6 million.
In connection with the strategic alliance agreement INTERVU entered into
with NBC in October 1997, INTERVU became obligated to make $2,000,000 in
non-refundable payments to NBC Multimedia for certain production, operating and
advertising costs associated with some of NBC's Web sites, including payments of
(1) $750,000 paid on the completion of the initial public offering in November
1997, (2) $500,000 paid in April 1998, (3) $500,000 due in May 1998 and (4)
$250,000 due in August 1998. Through December 31, 1998, INTERVU has made a total
of approximately $1.3 million in payments to NBC Multimedia and $750,000 is
currently payable.
In June 1998, INTERVU relocated its headquarters to office space subleased
in San Diego, California. The sublease commenced in May 1998 and will expire in
June 2003. Over the term of the lease INTERVU will pay total rents of
approximately $1.9 million.
INTERVU believes that the net proceeds from this offering, together with
existing cash and cash equivalents, will be sufficient to meet its working
capital and capital expenditure requirements for the foreseeable future.
However, if cash generated by operations is insufficient to satisfy INTERVU's
liquidity requirements, INTERVU may need to sell additional equity or debt
securities or obtain credit facilities. INTERVU currently does not have any
lines of credit.
INTEREST RATE RISK
INTERVU is exposed to changes in interest rates primarily from its
investments in certain available for sale securities. Under its current
policies, INTERVU does not use interest rate derivative instruments to manage
exposure to interest rate changes. A hypothetical 100 basis point adverse move
in interest rates along the entire interest rate yield curve would not
materially effect the fair value of interest sensitive financial instruments at
December 31, 1998.
IMPACT OF YEAR 2000
Many computer systems and software products are coded to accept only
two-digit entries in date code fields. Beginning the year 2000, these date code
fields will need to distinguish 21st century dates from 20th century dates. As a
result, computer systems and/or software used by many companies may need to be
upgraded to comply with "Year 2000" requirements. Although INTERVU believes that
the INTERVU Network is Year 2000 compliant, INTERVU may discover coding errors
or other defects in the future. INTERVU has appointed a Year 2000 Task Force to
assess the scope of its risks and bring its applications into compliance. This
Task Force is undertaking its assessment of INTERVU's compliance and has begun
testing its corporate business and information systems. To date, INTERVU has
discovered few problems during its Year 2000 testing, and INTERVU has fixed
those identified in its day to day operating environment. INTERVU intends to
complete the compliance testing in September 1999. To date, INTERVU has incurred
minimal expenses related to Year 2000 compliance. It expects to incur
approximately $50,000 of expenses in 1999 related to Year 2000 compliance.
INTERVU has not adopted a contingency plan to address possible risks to its
systems.
INTERVU relies on a number of software and systems provided by third
parties to operate the INTERVU Network, any of which could contain coding which
is not Year 2000 compliant. These systems include server software used to
operate the network servers, software controlled routers, switches and other
components of the data network, firewall, security, monitoring and back-up
software used by INTERVU, as well as desktop PC applications software. In each
case, INTERVU employs widely available software applications from leading
third-party vendors and expects that such vendors will provide any required
upgrades or modifications in a timely fashion. However, if any third party
software suppliers fail to provide Year 2000 compliant versions of the software,
INTERVU's operations, including the INTERVU Network, could be disrupted.
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Year 2000 compliance problems also could undermine the general
infrastructure necessary to support INTERVU's operations. For instance, INTERVU
depends on third-party Internet service providers (known as "ISPs") or hosting
centers to provide connections to the Internet and to customer information
systems. Any interruption of service from ISPs or hosting centers could result
in a temporary interruption of the INTERVU Network and other services. INTERVU
has attempted to address this risk by obtaining the same service capacity from
multiple ISPs. Any interruption in the security, access, monitoring or power
systems at the ISPs or hosting centers could result in an interruption of
services. Moreover, it is difficult to predict what effects Year 2000 compliance
problems will have on the integrity and stability of the Internet. If businesses
and consumers are not able to reliably access the Internet, the demand for
INTERVU's services could decline, resulting in an adverse impact to INTERVU's
business, financial condition and results of operations.
INTERVU's operations also could be adversely affected if its customers fail
to ensure that their software systems are Year 2000 compliant. INTERVU cannot
assess or control the degree of Year 2000 compliance in its customers'
information systems. Disruptions in the information systems of customers could
temporarily prevent such customers from accessing or using the INTERVU Network,
which could materially affect INTERVU's business, financial condition and
results of operations. The spending patterns of current or potential customers
may be affected by Year 2000 issues as companies expend significant resources to
correct or update their systems for Year 2000 compliance. Because of these
expenditures, INTERVU's customers may have less money available to pay for
services, which could have a material adverse affect on INTERVU's business,
financial condition and results of operations.
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BUSINESS
INTERVU provides Web site owners and content publishers with feature-rich,
cost-effective services for the delivery or "streaming" of live and on-demand
video and audio content over the Internet. INTERVU's customers use its video and
audio distribution services to transmit entertainment, sports, news, business to
business, advertising and distance learning content. INTERVU's current customers
include Bloomberg, CNN, House of Blues, Intel, Microsoft, MovieFone, MSNBC, NBC,
OnRadio, RadioWave.com, Saatchi and Saatchi and Turner Broadcasting.
INTERVU's streaming media services allow Internet users to, among other
things:
- view news, sports and other events from around the world,
- listen to live radio broadcasts,
- watch and listen to specialized content not widely available on
television or radio,
- hear a company's quarterly earnings report live, accompanied by a
graphical presentation,
- view a movie trailer before purchasing a movie ticket, videotape or DVD
and
- watch music videos or listen to songs on demand.
INTERVU has developed a suite of services that automate the publishing,
distribution and programming of video and audio content. Web site owners and
content publishers use INTERVU's automated solutions to: (1) more quickly and
efficiently add video and audio content to Web sites, (2) avoid purchasing or
developing costly software and hardware and hiring employees with video and
audio expertise and (3) benefit from the economies of scale INTERVU can generate
by buying Internet bandwidth in bulk. INTERVU typically charges its customers
monthly fees based on the particular bundle of services to be provided and
agreed upon amounts of video content to be stored and delivered.
The cornerstone of INTERVU's service strategy is a scaleable,
patent-pending distribution network. The INTERVU Network uses servers
strategically located in major Internet hosting centers. INTERVU's dispersed
network architecture enables it to deliver streaming content to larger numbers
of simultaneous end-users than other service providers can achieve from
centrally located servers. The INTERVU Network also allows customers to make
large numbers of video and audio files available for on-demand viewing and
listening. INTERVU believes that its proprietary software for managing and
distributing video and audio content and its use of multiple delivery centers
significantly improve the quality, speed and reliability of delivery.
INDUSTRY BACKGROUND
The Internet and many Internet software, hardware and service providers
have experienced dramatic growth in recent years. The development of improved
search engines and Web browsers has led to substantial end-user interest in the
Internet. A 1998 study completed by the Georgia Institute of Technology
estimates that approximately 32% of Internet users spend 20 or more hours using
a Web browser each week.
The development of video and audio delivery solutions has contributed to
the transition of the Internet from a static environment of text-oriented Web
pages to a more attractive and dynamic environment. International Data
Corporation (IDC) estimates that the number of Web users will increase from
approximately 97 million at the end of 1998 to approximately 320 million by the
end of 2002, representing an average annual growth rate of 35%. INTERVU believes
that as the Internet continues to evolve as a mass communication medium, end
users will spend an increasing percentage of their time online visiting sites
that offer high-quality video and audio content.
The rising popularity of the Internet also has spurred the development of
commercial applications, including online commerce and advertising. IDC
estimates that the total purchases made over the Internet will grow from $32.4
billion in 1998 to $425.7 billion by 2002. Industry observers also expect that
as the number of Internet users grows, advertisers will devote increasing
portions of their budgets to Internet
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advertising. INTERVU believes that growth in commercial applications on the
Internet will increase demand for streaming media services as companies seek to
increase the effectiveness of their Web sites and Internet advertising.
The delivery of streaming content over the Internet can present numerous
challenges. Web site owners that want to stream video and audio can either do so
from their own servers or through third-party service providers. Many Web site
owners begin to encounter capacity and technological limitations as they seek to
deliver video to large numbers of end-users. Similarly, third-party service
providers that offer streaming media solutions from centrally located servers
face increased reliability problems because these servers are more likely to
become overloaded during peak usage periods than distributed servers.
THE INTERVU SOLUTION
INTERVU's services allow Web site owners and content publishers to transmit
streaming content more quickly and cost-effectively. Specifically, INTERVU
provides its customers with the following service features:
Automation of the Publishing Process
INTERVU has developed services that automate the process of publishing
video and audio to the Internet, making this process less expensive and
labor-intensive. For example, INTERVU Workbench contains an automated video
search engine that generates a directory function. The INTERVU AUDIENCE service
includes an automated e-mail ticketing function and desktop reminder before the
requested event. INTERVU AUDIENCE also simplifies the posting of multimedia
content on the Internet by combining publishing features with automated file
labeling, which allows end-users to quickly find video and audio through a
directory function.
Automated, Cost-Effective and Scaleable Distribution
INTERVU's distributed network allows it to deliver video and audio more
cost effectively and with better quality than Web site owners can achieve from a
single location. The INTERVU Network manages bandwidth limitations and
automatically directs end-users' requests for video and audio to the delivery
center that can provide the content most quickly and efficiently. The INTERVU
Network also allows Web site operators to deliver video and audio without
incurring start-up costs associated with purchasing the hardware and software
required to stream multimedia content, maintenance costs and fixed bandwidth
costs. INTERVU's proprietary software allows INTERVU to expand the capacity of
its network by installing additional servers at Internet hosting centers.
Advanced Data Management Services
INTERVU provides Web site owners and content publishers with demographic
data, user preferences and other information. INTERVU continues to add features
to its data management services, including data capture, which provides
information about the technical attributes of video and audio files and streams,
and data reporting, which aggregates end-user data from multiple sources. Data
reporting enables INTERVU customers to better market their Web events and tailor
their content to meet end-user demand. INTERVU believes that its ability to
provide meaningful data will be an important factor in its ability to attract
and retain customers.
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STRATEGY
INTERVU's objective is to establish itself as the leading service provider
for Internet video and audio distribution solutions. INTERVU's strategy for
achieving this goal includes the following key components:
Target Leading Web Sites and Content Publishers
INTERVU targets its sales and marketing efforts at Web site owners and
content publishers with significant video and audio volume and quality
requirements, primarily in the areas of entertainment, news and sports. INTERVU
targets leading Web sites in part to create brand awareness. During 1999,
INTERVU intends to expand both its sales force and the geographic areas in which
INTERVU maintains a sales presence.
Drive Traffic to Customers' Web Sites and Maximize Customer Brand Awareness
Web site owners devote substantial resources to establishing online brand
recognition and building traffic. INTERVU does not compete with its customers
for Web site traffic or brand awareness because it does not maintain a Web site
that end-users must visit to access its customers' video and audio content.
End-users visiting an INTERVU customer's Web site receive video and audio
directly through that site without knowing that it is coming from the INTERVU
Network.
Further Develop Automated Delivery Solutions
INTERVU intends to further develop automated delivery solutions to attract
new customers and remain a technology leader. INTERVU recently introduced the
INTERVU AUDIENCE, INTERVU Workbench and INTERVU Presents delivery solutions,
which automate the publishing, delivery and programming processes. INTERVU
AUDIENCE, for example, includes automated ticketing and messaging services to
bring viewers to live events and helps INTERVU's customers develop ongoing
relationships with a community of end-users. INTERVU plans to expand the
features of its automated solutions while also developing new, innovative
solutions.
Provide Full-Service Solutions
INTERVU is a full-service provider, offering its customers production
services, software solutions, content distribution and storage. INTERVU tailors
its services to each customer's needs and provides ongoing 24-hour customer
support. INTERVU believes that its customized full-service approach increases
customer satisfaction, facilitates the sale of additional services to its
existing customers and significantly enhances its ability to increase its
customer base.
Expand the INTERVU Network
INTERVU intends to expand the INTERVU Network by installing additional
delivery centers in Internet hosting centers and at Internet points of presence
(POPs). INTERVU believes it can further improve the speed, quality and
reliability of streaming video and audio by reducing the number of Internet
connections that content must traverse before its reaches the end-user. INTERVU
plans to locate network resources in POPs with broadband technologies, such as
Digital Subscriber Line (DSL) or cable modem technology, to facilitate faster
transmission to end-users. Expansion of the network also will allow INTERVU to
store and deliver larger numbers of video and audio files and to increase the
number of simultaneous streams it can deliver.
MARKETING AND SALES
INTERVU employs a variety of marketing methods, including advertising,
trade show and conference participation, the INTERVU Web site, sales literature,
Internet promotions and placement of its name and logo on customers' Web sites.
A key element of INTERVU's marketing strategy is to continue to heighten
awareness for the "INTERVU" brand as it expands its sales and marketing
activities.
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INTERVU has identified five principal target customer categories:
-- Entertainment and Sports. INTERVU's largest target market is
entertainment providers, especially providers of music, movies and
sports. INTERVU believes that entertainment content has the greatest
end-user demand and therefore targets providers of this content.
INTERVU's entertainment and sports customers include AIME (ComedyNet),
House of Blues, MovieFone, MUSICVIDEOS.COM, N2K, NBC, New England
Patriots, RadioWave.com, Showtime, Turner Broadcasting, Universal
Studios and Warner Brothers.
-- News and Information. News and information providers increasingly are
using the Internet as a distribution channel. End-users also are
accessing the Internet as a source for news and information with
increasing frequency. INTERVU's current customers in the news market
include Bloomberg, CNN, MSNBC and APB Online (police scanners in
multiple cities). CNN.com and INTERVU recently entered into an
agreement for INTERVU to provide all of CNN.com's live Internet video
broadcasts.
-- Business to Business. INTERVU believes there is a growing market for
video and audio used in business to business communications on the
Internet. The business to business market consists of investor
relations, internal corporate communications, business training,
online sales, conferences and tradeshows and government. For example,
INTERVU provides a virtual private network that allows Saatchi and
Saatchi to share work in progress with customers and employees.
INTERVU provides a similar service to BMG which archives recordings of
over 8,000 CDs, allowing retailers to preview music CDs and packaging
before placing orders.
-- Advertising. INTERVU believes that Internet advertisements will move
increasingly toward ads that include video and audio streams because
these ads are more engaging to consumers than static advertisements.
INTERVU believes advertisements containing video also increase "click
through" from the host Web site to the advertiser's own site. INTERVU
provides a variety of multimedia formats to meet the needs of
advertisers, including Macromedia Shockwave, Macromedia Flash and
V-Banners, the last of which is INTERVU's own video banner advertising
technology.
-- Distance Learning. The distance learning market is growing each year
as more higher education institutions put courses online to reach
students who otherwise would be unable to attend because of access
limitations or lack of institutions in students' home towns. INTERVU
believes that its presentation broadcasting service, INTERVU Presents,
is well suited to meet the needs of distance learning providers.
INTERVU also is seeking to develop relationships with companies that
provide distance learning products, which will resell INTERVU's
services to their customers.
INTERVU employs a dedicated sales force of 30 sales professionals to sell
its audio and video distribution services. INTERVU plans to significantly expand
its sales force during 1999 both in its current geographic markets and new
markets. INTERVU divides its sales representatives into groups, with each group
selling services to only one of INTERVU's target customer categories. INTERVU
believes that it can more effectively sell its services by using sales
professionals who specialize in a single target customer category. INTERVU has a
sales office or presence in San Diego, San Francisco, New York, Chicago, Los
Angeles, Atlanta and Detroit and plans to add a sales presence in Seattle,
Denver and the Mid-Atlantic region in 1999. INTERVU also seeks to leverage its
relationships with other Internet companies that resell INTERVU's delivery
services.
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INTERVU SERVICE SOLUTIONS
INTERVU provides live Webcasting and video and audio on-demand. Live
Webcasting includes both live events and 24-hour per day streaming services such
as continuous radio broadcasts. On-demand services allow INTERVU customers to
store video and audio clips on the INTERVU Network and to make them available to
end-users through their Web sites. INTERVU is a full-service provider, offering
all of the services necessary for both live Webcasting and video and audio
on-demand, including production, encoding, uplinking, Web site integration,
distribution, audience building, reporting and archiving. INTERVU supports and
enhances these services with the following software solutions and other
services:
INTERVU Workbench
INTERVU Workbench allows customers with large amounts of content to publish
video and audio clips to their Web pages, rapidly generate new pages that offer
end-user access to the clips, link the clips to files containing searchable
identifying information about the clip and collect usage data on a clip by clip
basis. INTERVU currently provides these services to NBC's VideoSeeker Web site.
INTERVU is marketing a version of this publishing and reporting solution to
other customers.
INTERVU AUDIENCE
INTERVU AUDIENCE, an Internet audience management system, provides Web site
owners with an easy to use, comprehensive solution for bringing people to live
events. INTERVU AUDIENCE includes an automated e-mail ticketing function and
generates a desktop reminder before the requested event. INTERVU AUDIENCE then
launches the end-user's browser, takes the end-user to the Web page with the
video or audio content, launches the appropriate streaming media player and
starts the audio or video stream. INTERVU AUDIENCE also simplifies the posting
of multimedia content on the Internet by combining publishing features with
automated labeling of the files, which allows end-users to quickly find video
and audio through a directory function. INTERVU AUDIENCE also incorporates the
processor serial number feature of Intel's Pentium III processor, designed to
provide INTERVU customers with the ability to limit access to certain events and
on-demand clips to recognized serial numbers. INTERVU AUDIENCE also allows Web
site owners to:
- customize the presentation of content on their Web sites,
- program and schedule events on their Web sites,
- conduct pay-per-view events and
- track content usage, which enables Web site owners to make more effective
programming decisions.
INTERVU Presents
INTERVU Presents enables Web site owners to distribute video and audio
presentations with synchronized Microsoft PowerPoint slides over the Internet.
This service is intended primarily for businesses and educational institutions.
INTERVU Presents includes a fully automated registration process to manage
end-user access to the content. In addition, INTERVU Presents interfaces with
the processor serial number feature of Intel's Pentium III processor, enabling
Web site owners to limit end-user access to confidential presentations. Among
other things, this security feature is designed to allow businesses to conduct
confidential sales training, business meetings and investor roadshows and
presentations.
V-Banner
V-Banners enable Web site owners and advertisers to more easily integrate
video into Web sites by turning an ordinary Internet advertising banner into a
video display. INTERVU's V-Banners are compatible with most video players
currently used by end-users. This enables INTERVU's advertising customers to
reach most end-users with their video advertisements.
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Production Services
INTERVU provides production services for Web site owners that deliver
content through INTERVU. These production services include filming and producing
live events that Web site owners broadcast over the Internet. INTERVU's
customers have used its production services to broadcast events such as NASA's
coverage of the John Glenn Space Shuttle Discovery Launch, the X-Files movie
premier, the National Association of Television Program Executives' (NATPE)
conference and various Turner Broadcasting productions.
Encoding Services
INTERVU offers encoding and compression services to its customers through
its internal staff and through a subcontracting relationship with Encoding.com.
INTERVU offers encoding in a number of digital formats, including MPEG,
Quicktime, AVI, Vivo, Microsoft's Media Player and RealNetworks' G2 Player.
INTERVU NETWORK
INTERVU uses the INTERVU Network as the cornerstone for providing video and
audio distribution solutions to INTERVU customers. The INTERVU Network uses
proprietary software, systems and processes to manage large amounts of content
stored on more than 100 servers in Internet hosting centers. The INTERVU
Network's dispersed network architecture enables INTERVU to deliver streaming
content to larger numbers of simultaneous end-users than other service providers
can achieve from centrally located servers. Our dispersed network architecture
is designed to more evenly distribute streaming media traffic across the
Internet infrastructure. INTERVU has received three notices of allowance on
patents that cover the design and operation of INTERVU's dispersed network and
the method by which video files are indexed and retrieved.
The INTERVU Network enables Web site owners to provide video and audio to
end-users more cost-effectively and conveniently than through traditional
Internet distribution mechanisms. Customers deliver video and audio to the
INTERVU Network instead of managing large video and audio files and maintaining
expensive hardware. To an end-user visiting an INTERVU customer's Web site, the
content appears to come directly from that site, rather than from INTERVU.
INTERVU provides software for the customer's Web site that links end-users to
the INTERVU Network.
Reduces Transmission Time and Improves Quality
INTERVU's use of delivery centers in multiple Internet hosting centers
provides significant advantages in multimedia delivery. Through the use of
INTERVU's 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. The electronically closest server is the one that provides the best
combination of delivery time and quality.
Scaleable Network
The delivery 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 and audio over the Internet. The title manager contains INTERVU's patent
pending software and acts as the "brain" of the network. The video pumps are
computers that have been customized to accelerate video and audio delivery. The
title manager selectively stores, allocates and replicates video and audio
content among the pumps based on end-user demand and directs end-users' requests
for multimedia content to the video pump capable of responding most quickly to
the request. Because the delivery centers use off-the-shelf hardware and INTERVU
software, INTERVU can add additional centers to the network quickly and
cost-effectively. This enables INTERVU to deploy network resources as additional
scale becomes necessary.
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Fully Compatible With Leading Multimedia Players
INTERVU's All Eyes software allows its customers to reach nearly all
end-users, regardless of the multimedia player software used. All Eyes software
determines the capabilities of the end-user's software and ensures that any
video and audio requested can be played by the end-user's multimedia player even
if the end-user has not downloaded All Eyes software. By contrast, traditional
methods of Internet video and audio distribution limit the number of end-users
able to view multimedia content to those who have the appropriate software for a
specific encoding format.
End-User Software Technologies
In conjunction with its automated delivery solutions, INTERVU provides its
EyeQ Multimedia Manager software package. This package includes MPEG video
players, as well as INTERVU's Get Smart technology. Get Smart installs and
manages the EyeQ multimedia software and keeps end-users' computers current with
other multimedia software players, such as Microsoft's MediaPlayer,
RealNetworks' G2 Player, Vivo, VDO and Apple Computer's QuickTime. With a single
mouse click, Get Smart downloads and installs software updates to the end-user's
computer from the Internet. Both the EyeQ Multimedia Manager and Get Smart are
available via INTERVU's Web site or its customers' Web sites.
KEY WORKING RELATIONSHIPS
INTERVU seeks to leverage its relationships with key customers to support
the development of its automated delivery solutions and build INTERVU's brand
identity.
In October 1997, INTERVU entered into a strategic alliance with NBC
Multimedia and became the exclusive distributor of most NBC entertainment
multimedia content over NBC Internet sites. The NBC strategic alliance agreement
provides for revenue sharing from the VideoSeeker Web site, which offers end-
users a single source for online multimedia entertainment and information.
INTERVU created the automated video search engine and directory functions used
on the VideoSeeker site and developed the proprietary software underlying the
site. A major benefit to INTERVU of the strategic relationship with NBC is the
opportunity VideoSeeker provides INTERVU to develop and test new solutions for
multimedia publishing and delivery.
INTERVU also has worked with Intel and Microsoft to integrate their
products into INTERVU's delivery solutions. For example, INTERVU has integrated
the security features of Intel's Pentium III Processor into INTERVU AUDIENCE and
INTERVU Presents to limit end-user access to certain events, on-demand clips and
presentations. INTERVU also has incorporated the features of Microsoft's
PowerPoint presentation software into INTERVU Presents to allow Web site owners
to integrate PowerPoint slides into streaming video presentations.
Moreover, INTERVU has established co-marketing arrangements with key
customers that provide INTERVU with the opportunity to promote its brand
identity by placing its logo on the customer's Web site next to the video being
delivered. For example, as part of INTERVU's agreement to provide video services
for CNN.com's live news coverage, CNN has agreed that INTERVU's banners will
appear on CNN.com/videoselect and in CNN's live video pop-up windows.
COMPETITION
The market for Internet services is relatively new, rapidly evolving and
highly competitive. INTERVU expects that competition will continue to intensify.
The streaming media distribution industry is characterized by rapidly changing
technology, evolving industry standards and frequent new product and service
introductions. Although INTERVU believes it is the only company utilizing a
dispersed network supported by automated software solutions to deliver
multimedia content over the Internet, INTERVU faces substantial competition from
a number of companies. These competitors include: (1) Internet service
providers, (2) Web sites and content publishers, (3) hardware and system vendors
and (4) companies that utilize other streaming technologies. INTERVU currently
competes to a large extent with Web site owners and content publishers
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that employ in-house technical personnel to develop streaming media technology
and to manage their streaming media. INTERVU's competitors also include the
service divisions of Broadcast.com and RealNetworks. However, unlike these
competitors, INTERVU does not compete with its customers for Web site traffic or
sell software. Competitive factors in the Internet streaming media distribution
market include the quality and reliability of service, price, customer support,
brand recognition and traffic flow directed to Web sites. See "Risk
Factors -- We Face Significant Competition" for further discussion of the
competitive conditions facing INTERVU.
SOFTWARE DEVELOPMENT; INTELLECTUAL PROPERTY
INTERVU develops most of its technologies in house and maintains a software
development staff of 32 people that designs and develops INTERVU's new services.
INTERVU had research and development expenses of approximately $1.4 million in
1996, $1.7 million in 1997 and $3.2 million in 1998. INTERVU believes that by
performing most of its software development in house it can more quickly and
cost-effectively develop new and innovative technologies and services. As a
result, INTERVU believes it is better equipped to incorporate customer
preferences identified by INTERVU's marketing and sales groups into development
plans.
INTERVU regards its technology as proprietary and attempts to protect it
with patents, copyrights, trade secret laws, restrictions on disclosure and
other methods. The U.S. Patent & Trademark Office has issued to INTERVU notices
of allowance for three patents covering the management, distribution and
delivery of multimedia content over the Internet as well as the architecture of
the INTERVU Network. INTERVU has nine United States patent applications and four
international patent applications pending. INTERVU also is in the process of
preparing additional patent applications for its technology.
INTERVU pursues registration of its trademarks and service marks in the
U.S. as well as other countries, although it has not secured registration of all
of its marks. As of March 29, 1999, INTERVU had one registered U.S. trademark
and had applications pending for an additional 14 U.S. trademarks.
LEGAL PROCEEDINGS
From time to time, INTERVU may be involved in litigation arising in the
ordinary course of its business. INTERVU is not presently a party to any
material legal proceedings.
EMPLOYEES
As of March 15, 1999, INTERVU had 120 full-time employees, of whom 32 were
in software development, 42 in operations, 34 in sales and marketing and 12 in
administration. None of INTERVU's employees is represented by a labor union, and
INTERVU considers its relations with its employees to be good.
FACILITIES
INTERVU is headquartered in facilities consisting of approximately 23,575
square feet in San Diego, California, under a sublease expiring in 2003.
Additionally, INTERVU maintains offices in New York City, San Francisco and
Chicago. INTERVU anticipates opening additional regional sales offices in 1999
and beyond as it increases the size of its sales force and expands its sales and
marketing initiatives.
27
<PAGE> 31
MANAGEMENT
The following table sets forth the age and position of each of INTERVU's
executive officers, directors and key employees:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Harry E. Gruber........................ 46 Chairman and Chief Executive Officer
Brian Kenner........................... 39 Vice President and Chief Technology Officer
Kenneth L. Ruggiero.................... 32 Vice President and Chief Financial Officer
Edward L. Huguez....................... 41 Vice President and Chief Operating Officer
Stephen H. Klein....................... 35 Vice President of Business Development, Networks
Larry Behmer........................... 51 Vice President, Engineering
Charles Bragg.......................... 47 Vice President and General Manager, Sales
Stephen Condon......................... 35 Vice President, Marketing
Scott Crowder.......................... 36 Vice President, Operations
J. William Grimes...................... 58 Vice Chairman
Edward E. David, Jr.................... 74 Director
Mark Dowley............................ 34 Director
Alan Z. Senter......................... 57 Director
Isaac Willis........................... 58 Director
</TABLE>
EXECUTIVE OFFICERS AND DIRECTORS
Harry E. Gruber is a founder of INTERVU and has served as Chairman and
Chief Executive Officer of INTERVU since July 1996. From July 1996 to July 1997,
Dr. Gruber served as INTERVU's President, and from July 1997 to February 1998,
Dr. Gruber served as INTERVU's Chief Financial Officer. Prior to founding
INTERVU, 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.
Brian Kenner is a founder of INTERVU and has served as Vice President and
Chief Technology Officer of INTERVU since February 1996. From 1989 to January
1996, Mr. Kenner was a Project Engineer at Science Applications International
Corporation, 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.
Kenneth L. Ruggiero joined INTERVU 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.
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<PAGE> 32
Edward L. Huguez joined INTERVU 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.
Stephen H. Klein joined INTERVU 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.
Larry Behmer joined INTERVU in November 1998 as Vice President of
Engineering. Prior to joining INTERVU, Mr. Behmer was employed with U.S. West
from July 1987 to November 1998, including most recently as Executive Director
of Engineering. From May 1970 to July 1987, Mr. Behmer held various positions at
Bell Labs and Northern Telecom. Mr. Behmer earned a M.S. in computer science
from Northwestern University and a B.S. in computer science from University of
Dayton.
Charles Bragg joined INTERVU in September 1998 and serves as Vice President
and General Sales Manager. From June 1996 to September 1998, Mr. Bragg held a
number of management positions at Cybergold, an online marketing and incentives
company, including most recently Vice President of Sales. While at Cybergold,
Mr. Bragg was responsible for managing new business development and advertising
sales. Mr. Bragg's previous management experience includes developing
advertising sales operations for both cable television and Internet Web site
marketing venues. From 1985 to 1996, Mr. Bragg held various senior management
positions at Bigbook, Katz Media Corporation and Cable Adnet. He received a B.A.
in psychology from the University of North Carolina.
Stephen Condon joined INTERVU in September 1998 as Vice President of
Marketing from DIRECTV, where he most recently held the position of Senior
Marketing Director. While at DIRECTV, from January 1996 to August 1998, he was
responsible for such activities as national promotions, launching subscriber
marketing programs, developing partnership programs and customer communications.
From February 1993 to January 1996, Mr. Condon also held various positions with
Campbell-Ewald Advertising, Chiat/Day, and J. Walter Thompson Pty. Ltd. Mr.
Condon earned an undergraduate degree from Kuring-gai College of Advanced
Education, Sydney, Australia.
Scott Crowder joined INTERVU in June 1998 as Vice President of Operations.
From July 1985 through May 1998, Mr. Crowder held a number of positions at
Sprint Long Distance, including most recently Director-Advanced Product Support.
Mr. Crowder has more than 16 years of industry and experience and held various
management roles at Sprint in the areas of switch data services, ISDN, video
conferencing, and drums multimedia collaboration solutions.
J. William Grimes joined INTERVU as a director in September 1997 and has
served as Vice Chairman of the Board since October 1997. Since July 1995, Mr.
Grimes has worked as a consultant with JWG Communications, Inc., a
communications consulting company he founded in July 1995. He also is 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
29
<PAGE> 33
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.
Edward E. David, Jr. has served as a director of INTERVU 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 and Principal of Washington Advisory
Group, LLC. He has been Science Advisor to the President of the United States
and Director of the White House Office of Science and Technology. Dr. David was
also President of Exxon Research and Engineering Company and Executive Director
of Bell Telephone Laboratories. Mr. David serves as a director for
Intermagnetics General Corporation, Spacehab, Inc. and Protein Polymar
Technologies, all of which are publicly traded companies. Until recently, he
served as the U.S. Representative to the NATO Science Committee.
Mark Dowley joined INTERVU 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 received a B.A. in economics from the
College of Wooster.
Alan Z. Senter joined INTERVU as a director in September 1997. From
September 1994 to May 1996, Mr. Senter served as Executive Vice President, Chief
Financial Officer and as a member of the Policy Council of Nynex Corporation.
From November 1993 to August 1994 and since June 1996, Mr. Senter has served as
Chairman of Senter Associates, a consulting firm founded by Mr. Senter in
November 1993. From August 1992 to November 1993, Mr. Senter served as Executive
Vice President, Chief Financial Officer and a director of GAF/ISP Corporation.
From January 1990 to July 1992, Mr. Senter served as Vice President of Finance
for Xerox Corporation. Mr. Senter serves on the Boards of Directors of Exel,
Ltd. and Advanced 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 INTERVU 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.
30
<PAGE> 34
PRINCIPAL STOCKHOLDERS
The following table provides information regarding the beneficial ownership
of INTERVU's common stock as of March 15, 1999, and as adjusted for this
offering, by:
- INTERVU's directors and executive officers,
- each person who is known by INTERVU to own beneficially more than 5% of
INTERVU's common stock and
- all directors and executive officers as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF
COMMON STOCK
NUMBER OF SHARES -------------------------------
OF COMMON STOCK BEFORE AFTER
NAME AND ADDRESS(1) BENEFICIALLY OWNED(2) THE OFFERING THE OFFERING(3)
------------------- --------------------- ------------ ---------------
<S> <C> <C> <C>
Harry E. Gruber(4)............................. 1,037,852 9.5% 7.7%
Brian Kenner(5)................................ 1,041,752 9.5 7.8
Isaac Willis(6)................................ 1,259,249 11.5 9.4
Stephen H. Klein(7)............................ 67,260 * *
Edward E. David, Jr.(8)........................ 35,781 * *
Kenneth L. Ruggiero(9)......................... 24,899 * *
Edward L. Huguez(10)........................... 40,109 * *
J. William Grimes(11).......................... 17,930 * *
Mark Dowley(12)................................ 16,474 * *
Alan Z. Senter(13)............................. 11,937 * *
All directors and executive officers as a
group (10 persons)(14)....................... 3,553,243 32.5 26.4
Douglas A. Augustine(15)....................... 28,812 * *
National Broadcasting Company, Inc.(16)........ 1,016,670 9.3 7.6
Westchester Group LLC(17)...................... 800,000 7.3 6.0
</TABLE>
- ---------------
* Less than 1%.
(1) Except as indicated, the address of each person named in the table is c/o
INTERVU Inc., 6815 Flanders Drive, San Diego, California 92121.
(2) Beneficial ownership includes shares of outstanding common stock and shares
of common stock that any person has the right to acquire within 60 days
after the date of this table. Except as indicated in the footnotes to this
table and pursuant to applicable community property laws, the persons named
in the table have sole voting and investment power with respect to all
shares of common stock beneficially owned by them.
(3) Assumes no exercise of the underwriters' over-allotment option.
(4) Includes 368,725 shares subject to INTERVU's repurchase right under an
amended and restated vesting agreement and 1,037,852 shares held in a
family trust.
(5) Includes 368,725 shares subject to INTERVU's repurchase right under an
amended and restated vesting agreement.
(6) Includes 1,036,938 shares owned by the Willis Family Trust, of which Dr.
Willis is settlor. Includes 3,904 shares subject to INTERVU's repurchase
right under a restricted stock agreement and 21,231 shares issuable upon
exercise of options that are currently exercisable or that will become
exercisable within 60 days after the date of this table. Includes 17,994
shares held in an Individual Retirement Account.
(7) Includes 21,699 shares subject to INTERVU's repurchase right under a
restricted stock agreement and 3,104 shares issuable upon exercise of
options that are currently exercisable or that will become exercisable
within 60 days after the date of this table.
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<PAGE> 35
(8) Includes 3,817 shares subject to INTERVU's repurchase right under a
restricted stock agreement and 10,859 shares issuable upon exercise of
options that are currently exercisable or that will become exercisable
within 60 days after the date of this table.
(9) Includes 24,709 shares issuable upon exercise of options that are currently
exercisable or that will become exercisable within 60 days after the date
of this table.
(10) Consists of 40,109 shares issuable upon exercise of options that are
currently exercisable or that will become exercisable within 60 days after
the date of this table.
(11) Consists of 17,930 shares issuable upon exercise of options that are
currently exercisable or that will become exercisable within 60 days after
the date of this table.
(12) Consists of 16,474 shares issuable upon exercise of options that are
currently exercisable or that will become exercisable within 60 days after
the date of this table.
(13) Consists of 11,937 shares issuable upon exercise of options that are
currently exercisable or that will become exercisable within 60 days after
the date of this table.
(14) See Notes (4) - (13).
(15) Mr. Augustine resigned as INTERVU's Vice President, Marketing and Sales on
November 20, 1998.
(16) Includes shares of Series G Preferred Stock owned by NBC that are
convertible into common stock at the option of the holder and 210,526
shares of common stock owned by NBC Multimedia. The holder of each share of
Series G Preferred Stock has the right to vote on an as-converted basis
with the common stock. As the ultimate parent of NBC, General Electric
Company 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.
(17) The membership interests of Westchester Group LLC are owned by Marcia
Berman individually, with respect to 99.4% of the interests, and as
custodian for her minor children under the New York Uniform Gifts to Minors
Act, with respect to 0.6% of the interests. The address for Westchester
Group LLC is c/o Duckor Spradling & Metzger, 401 West A Street, Suite 2400,
San Diego, CA 92101.
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<PAGE> 36
DESCRIPTION OF CAPITAL STOCK
The following summary description of the capital stock of INTERVU is not
intended to be complete. Since the terms of INTERVU's capital stock must comply
with the provisions of its Charter and Bylaws, which are included as exhibits to
the registration statement, and the Delaware General Corporation Law, you should
read each of these documents very carefully. See "-- Delaware Law and Certain
Charter and Bylaw Provisions" for a discussion of the provisions of INTERVU's
Charter and Bylaws and the Delaware General Corporation Law.
INTERVU has the authority to issue up to 20,000,000 shares of common stock,
par value $0.001 per share, and 5,000,000 shares of preferred stock, par value
$0.001 per share.
COMMON STOCK
As of March 15, 1999, there were 10,940,529 shares of common stock
outstanding, held of record by 124 stockholders.
Holders of common stock are entitled to one vote per share on all matters
to be voted on by the stockholders of INTERVU. Subject to the preferences of the
preferred stock, the holders of common stock are entitled to a proportional
distribution of any dividends that may be declared by the Board of Directors. In
the event of a liquidation or dissolution of INTERVU, the holders of common
stock are entitled to share equally in all assets remaining after payment of
liabilities and any payments due to holders of preferred stock. INTERVU's common
stock has no preemptive, redemption or conversion rights. The outstanding shares
of common stock are, and the shares offered by INTERVU in the offering when
issued and paid for will be, fully paid and nonassessable. The rights 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 Stock or any other preferred stock
which INTERVU may designate and issue in the future.
PREFERRED STOCK
The Charter authorizes the Board of Directors to issue up to 3,720,000
shares of preferred stock in one or more series without additional stockholder
approval. INTERVU's Board of Directors may also fix the rights of any unissued
shares of preferred stock and fix the number of shares of any series and the
designations of the series.
The Board of Directors has previously designated 1,280,000 shares of
preferred stock as Series G Preferred Stock. The holders of Series G Preferred
Stock are entitled to receive non-cumulative dividends, prior to any payment of
any dividend, other than in common stock, on INTERVU's common stock, at the rate
of $0.64 per share per year, payable quarterly, when, as and if declared by the
Board of Directors. In the event of any liquidation, dissolution or winding up
of INTERVU, the holders of Series G Preferred Stock will be entitled to receive,
prior to any distribution of any of the assets of INTERVU 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 Stock is convertible into
0.6298 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 Stock has the right to one vote for each share
of common stock into which the Series G Preferred Stock is convertible. With
respect to this vote, each holder of Series G Preferred Stock will have full
voting rights and powers equal to those of the holders of common stock. INTERVU
has granted NBC rights to include shares of common stock issuable upon
conversion of the Series G Preferred Stock in certain future registrations of
common stock, as well as the right to one demand that INTERVU register such
shares of common stock after INTERVU becomes eligible to use Form S-3 under the
Securities Act of 1933.
Future issuances of preferred stock may have the effect of delaying or
preventing a change in control of INTERVU. 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 INTERVU's common stock. In some
circumstances, the issuance of preferred stock could have the effect of
decreasing the market price of INTERVU's common stock.
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<PAGE> 37
WARRANTS
In connection with INTERVU's initial public offering, INTERVU issued to
Josephthal & Co. Inc. and Cruttenden Roth Incorporated warrants to purchase from
INTERVU 200,000 shares of common stock. These warrants are exercisable at a
price per share of $11.40 for a period of four years commencing in November
1998.
In connection with a subsequent offering, INTERVU sold to Josephthal & Co.
Inc. and Cruttenden Roth Incorporated, for nominal consideration, warrants to
purchase from INTERVU 130,000 shares of common stock. These warrants are
initially exercisable at a price per share equal to $15.90 for a period of four
years commencing June 1999 and are restricted from sale, transfer, assignment or
hypothecation until June 1999, except to officers of Josephthal & Co. Inc. and
Cruttenden Roth Incorporated.
Each of INTERVU's warrants provide for adjustment in the number of shares
of common stock issuable upon the exercise of the warrant as a result of certain
subdivisions and combinations of INTERVU's common stock. In addition, INTERVU's
warrants grant registration rights for the common stock issuable upon exercise
of the warrants.
DELAWARE LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
The following is a description of provisions of the Delaware General
Corporation Law and INTERVU's Charter and Bylaws. This summary does not intend
to be complete. You should carefully read the Delaware General Corporation Law
and INTERVU's Charter and Bylaws.
INTERVU must comply with the provisions of Section 203 of the Delaware
General Corporation Law. 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. An "interested stockholder" is generally
a person who, together with affiliates and associates, owns, or within the past
three years did own, 15% of the corporation's voting stock.
The provisions of the Charter and the Bylaws could also have anti-takeover
effects. See "Risk Factors -- We Have Implemented Certain Anti-Takeover
Provisions." 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 it believes to
be in the best interests of INTERVU and its stockholders. These provisions also
are designed to reduce the vulnerability of INTERVU to an unsolicited proposal
for a takeover of INTERVU 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 INTERVU. The provisions are also intended to discourage some
tactics that may be used in proxy fights.
Classified Board of Directors
The Charter 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 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 INTERVU 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 INTERVU.
In addition, the classified board provision could delay stockholders who do not
agree with the policies of the Board of Directors from removing a majority of
the Board of Directors for two years.
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<PAGE> 38
No Stockholder Action by Written Consent; Special Meetings
The Charter 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 Charter also provides that special meetings of
stockholders may be called only by the Board of Directors, its Chairman, the
President or the Secretary of INTERVU. 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 INTERVU. INTERVU's advance notice
procedure for stockholders provides that only persons who are nominated by, or
at the direction of, the Board of Directors, or by a stockholder prior to the
meeting at which directors are to be elected, will be eligible for election as
directors of INTERVU. INTERVU's advance notice procedure for stockholders also
provides that at an annual meeting the only business that may be conducted is
that 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 INTERVU of the stockholder's intention to bring such business
before the meeting. Under INTERVU's advance notice procedure for stockholders,
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. However, if the date of the
annual meeting is not within 30 days before or after this 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 (1) 60 days prior to the annual
meeting and (2) 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 INTERVU's advance notice procedure for stockholders, a stockholder's
notice to INTERVU 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 specified information. If the chairman of a meeting determines that
business was not properly brought before the meeting, in accordance with
INTERVU's advance notice procedure for stockholders, the business will not be
discussed or transacted.
Number of Directors; Removal; Filling Vacancies
The Charter provides that the Board of Directors will consist of between
three and eleven members, the exact number to be fixed 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 Charter authorizes the Board
of Directors to fill newly created directorships other than directorships that
are to be filled by holders of preferred stock. Accordingly, this provision
could prevent a stockholder from obtaining majority representation on the Board
of Directors by permitting the Board of Directors to enlarge the size of the
Board of Directors and fill the new directorships with its own nominees. A
director so elected by the Board of Directors holds office until the next
election of the class for which the director has been chosen and until his or
her successor is elected and qualified. The Charter 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
INTERVU has included in its Charter and Bylaws provisions to (1) eliminate
the personal liability of its directors for monetary damages resulting from
breaches of their fiduciary duty to the extent permitted by the Delaware General
Corporation Law and (2) indemnify its directors and officers to the fullest
extent permitted by the Delaware General Corporation Law, including
circumstances in which indemnification is discretionary.
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<PAGE> 39
INTERVU believes that these provisions are necessary to attract and retain
qualified persons as directors and officers.
Bylaws
The Charter provides that the Bylaws are subject to adoption or amendment
either by (a) the Board of Directors or (b) the affirmative vote of the holders
of at least 66 2/3% of the total voting power of all outstanding securities
voting together 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 INTERVU's common stock is Norwest
Shareowner Services, Norwest Bank Minnesota N.A.
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<PAGE> 40
UNDERWRITING
We have entered into an underwriting agreement with the underwriters named
below, for whom Prudential Securities Incorporated, ING Baring Furman Selz LLC,
SG Cowen Securities Corporation, Cruttenden Roth Incorporated and Ryan, Beck &
Co. are acting as representatives. We are obligated to sell, and the
underwriters are obligated to purchase, all of the shares offered on the cover
page of this prospectus, if any are purchased. Subject to certain conditions of
the underwriting agreement, each underwriter has severally agreed to purchase
the shares indicated opposite its name:
<TABLE>
<CAPTION>
NUMBER
OF SHARES
UNDERWRITERS ---------
<S> <C>
Prudential Securities Incorporated..........................
ING Baring Furman Selz LLC..................................
SG Cowen Securities Corporation.............................
Cruttenden Roth Incorporated................................
Ryan, Beck & Co. ...........................................
------
Total..................................................
======
</TABLE>
The underwriters may sell more shares than the total number of shares
offered on the cover page of this prospectus and they have, for a period of 30
days from the date of this prospectus, an over-allotment option to purchase up
to 375,000 additional shares from INTERVU. If any additional shares are
purchased, the underwriters will severally purchase the shares in the same
proportion as per the table above.
The representatives of the underwriters have advised us that the shares
will be offered to the public at the offering price indicated on the cover page
of this prospectus. The underwriters may allow to selected dealers a concession
not in excess of $ per share and such dealers may reallow a concession not
in excess of $ per share to certain other dealers. After the shares are
released for sale to the public, the representatives may change the offering
price and the concessions.
We have agreed to pay the underwriters the following fees, assuming both no
exercise and full exercise of the underwriters' over-allotment option to
purchase additional shares.
<TABLE>
<CAPTION>
TOTAL FEES
---------------------------------------------
FEE WITHOUT EXERCISE OF FULL EXERCISE OF
PER SHARE OVER-ALLOTMENT OPTION OVER-ALLOTMENT OPTION
--------- --------------------- ---------------------
<S> <C> <C> <C>
Fees paid by INTERVU........................... $ $ $
</TABLE>
In addition, we estimate that we will spend approximately $500,000 in
expenses for this offering. We will indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act, or contribute to
payments that the underwriters may make in respect of these liabilities.
We, our officers and directors, and certain stockholders, subject to
certain exceptions, have entered into lock-up agreements pursuant to which we
and they have agreed not to offer or sell any shares of common stock or
securities convertible into or exchangeable or exercisable for shares of common
stock for a period of 120 days from the date of this prospectus without the
prior written consent of Prudential Securities, on behalf of the underwriters.
Prudential Securities may, at any time and without notice, waive the terms of
these lock-up agreements specified in the underwriting agreement.
Prudential Securities, on behalf of the underwriters, may engage in the
following activities in accordance with applicable securities rules:
- Over-allotments involving sales in excess of the offering size, creating
a short position. Prudential Securities may elect to reduce this short
position by exercising the over-allotment option.
- Stabilizing and short covering; stabilizing bids to purchase the shares
are permitted if they do not exceed a specified maximum price. After the
distribution of shares has been completed, short covering
37
<PAGE> 41
purchases in the open market may also reduce the short position. These
activities may cause the price of the shares to be higher than would
otherwise exist in the open market.
- Penalty bids permitting the representatives to reclaim concessions from a
syndicate member for the shares purchased in the stabilizing or short
covering transactions.
Such activities, which may be commenced and discontinued at any time, may
be effected on the Nasdaq National Market, in the over-the-counter market or
otherwise. Also and prior to the pricing of the shares, and until the time when
a stabilizing bid may have been made, some or all of the underwriters who are
market makers in the shares may make bids for or purchases of shares subject to
restrictions, known as passive market making activities.
Each underwriter has represented that it has complied and will comply with
all applicable laws and regulations in connections with the offer, sale or
delivery of the shares and related offering materials in the United Kingdom,
including:
- the Public Offers of Securities Regulations 1995,
- the Financial Services Act 1986, and
- the Financial Services Act 1986, (Investment Advertisement) (Exemptions)
order 1996
(as amended).
LEGAL MATTERS
The legality of INTERVU's common stock offered by this prospectus will be
passed upon for INTERVU by Latham & Watkins, San Diego, California. Certain
legal matters in connection with the offering will be passed upon for the
underwriters by Schulte Roth & Zabel LLP, New York, New York.
EXPERTS
Ernst & Young LLP, independent auditors, have audited INTERVU's financial
statements at December 31, 1998 and 1997, and for each of the three years in the
period ended December 31, 1998, as set forth in their report. INTERVU has
included its financial statements in this prospectus and elsewhere in the
registration statement in reliance on Ernst & Young LLP's report, given on their
authority as experts in accounting and auditing.
38
<PAGE> 42
ADDITIONAL INFORMATION
INTERVU files annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission. You may read and
copy any document INTERVU files at the Securities and Exchange Commission's
public reference rooms in Washington, D.C., New York, New York and Chicago,
Illinois. Please call the Securities and Exchange Commission at 1-800-SEC-0330
for further information on the operation of its public reference room. INTERVU's
Securities and Exchange Commission filings also are available to the public on
the Securities and Exchange Commission's Internet site at http://www.sec.gov.
Information concerning INTERVU is also available for inspection at the offices
of The Nasdaq Stock Market, 1735 K Street, Washington, D.C. 20006, upon which
INTERVU's common stock is traded. In addition, you may obtain a copy of
INTERVU's Securities and Exchange Commission filings at no cost by writing or
telephoning INTERVU's Secretary at:
INTERVU Inc.
6815 Flanders Road
San Diego, California 92121
(619) 623-8400
The Securities and Exchange Commission allows INTERVU to "incorporate by
reference" in this prospectus information it files with the Securities and
Exchange Commission, which means that it may disclose important information in
this prospectus by referring the reader to the document that contains the
information. The information incorporated by reference is considered to be a
part of this prospectus, and information filed later with the Securities and
Exchange Commission will update and supersede this information. INTERVU
incorporates by reference the document listed below and any future filings it
makes with the Securities and Exchange Commission under Section 13(a), 13(c), 14
or 15(d) of the Securities Exchange Act of 1934, until the offering of
securities covered by this prospectus is completed:
- The Annual Report on Form 10-K of INTERVU for the fiscal year ended
December 31, 1998.
This prospectus is part of a registration statement INTERVU filed with the
Securities and Exchange Commission, but does not contain all of the information
in the registration statement. You should only rely on the information provided
or incorporated by reference in this prospectus or in the applicable supplement
to this prospectus. You should not assume that the information in this
prospectus and the applicable supplement is accurate as of any date other than
the date on the front cover of this document.
39
<PAGE> 43
INTERVU INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Balance Sheets as of December 31, 1998 and 1997............. F-3
Statements of Operations for the Years Ended December 31,
1998, 1997 and 1996....................................... F-4
Statement of Stockholders' Equity for the Years Ended
December 31, 1998, 1997 and 1996.......................... F-5
Statements of Cash Flows for the Years Ended December 31,
1998, 1997 and 1996....................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 44
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. as of
December 31, 1998 and 1997, and the related statements of operations,
stockholders' equity and cash flows for each of the three years ended December
31, 1998. 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. at December 31,
1998 and 1997, and the results of its operations and its cash flows for each of
the three years ended December 31, 1998, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
San Diego, California
February 12, 1999
except for the last paragraph of
Note 6, as to which the date is
March 19, 1999
F-2
<PAGE> 45
INTERVU INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 9,346 $21,380
Short-term investments.................................... 17,700 --
Accounts receivable, net of $122,000 and $4,000 allowance,
respectively........................................... 729 88
Prepaid and other current assets.......................... 75 70
------- -------
Total current assets........................................ 27,850 21,538
Property and equipment, net................................. 2,469 585
Other assets................................................ 45 7
------- -------
Total assets...................................... $30,364 $22,130
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,334 $ 437
Accrued liabilities....................................... 299 10
Payable to NBC Multimedia................................. 750 --
Accrued payroll and related............................... 661 132
Current portion, lease commitments........................ 7 12
------- -------
Total current liabilities......................... 3,051 591
Lease commitments........................................... -- 7
Stockholders' equity:
Preferred stock, $0.001 par value: 5,000,000 shares
authorized
Series G convertible preferred stock,
Designated -- 1,280,000 shares;
Issued and outstanding -- 1,280,000 shares at
December 31, 1998 and 1997, respectively............. 1 1
Common stock, $0.001 par value: Authorized -- 20,000,000
shares;
Issued and outstanding 10,894,487 shares and 9,377,404
shares at December 31, 1998 and 1997, respectively..... 11 9
Additional paid-in capital................................ 51,346 29,821
Deferred compensation..................................... (746) (710)
Accumulated deficit....................................... (23,299) (7,589)
------- -------
Total stockholders' equity........................ 27,313 21,532
------- -------
Total liabilities and stockholders' equity........ $30,364 $22,130
======= =======
</TABLE>
See accompanying notes.
F-3
<PAGE> 46
INTERVU INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenues............................................... $ 1,712 $ 144 $ --
Operating expenses:
Research and development............................. 3,154 1,703 1,420
Selling, general and administrative.................. 10,892 3,148 910
Charges associated with the NBC
Strategic Alliance Agreement...................... 4,622 750 --
---------- ---------- ----------
Total operating expenses............................... 18,668 5,601 2,330
---------- ---------- ----------
Loss from operations................................... (16,956) (5,457) (2,330)
Interest income........................................ 1,246 192 52
---------- ---------- ----------
Net loss............................................... $ (15,710) $ (5,265) $ (2,278)
========== ========== ==========
Basic and diluted net loss per
share................................................ $ (1.73) $ (0.95) $ (0.66)
========== ========== ==========
Shares used in calculating basic
and diluted net loss per share....................... 9,073,876 5,570,609 3,440,931
========== ========== ==========
</TABLE>
See accompanying notes.
F-4
<PAGE> 47
INTERVU INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARES)
<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>
Balance at December 31, 1995....... 172,500 $-- 2,398,278 $ 2 $ 154 $-- $ --
Issuance of common stock......... -- -- 1,608,509 2 17 (6) --
Issuance of convertible preferred
stock, net of issuance costs of
$81............................ 1,021,638 1 -- -- 4,733 -- --
Deferred compensation............ -- -- -- -- 421 -- (421)
Amortization of deferred
compensation................... -- -- -- -- -- -- 18
Net loss......................... -- -- -- -- -- -- --
---------- -- ---------- --- ------- -- -----
Balance at December 31, 1996....... 1,194,138 1 4,006,787 4 5,325 (6) (403)
Issuance of common stock in
initial public offering, net of
issuance costs of $2,432....... -- -- 2,210,526 2 18,566 -- --
Issuance of convertible preferred
stock, net of issuance costs of
$39............................ 832,164 1 -- -- 5,395 -- --
Conversion of preferred stock.... (2,026,302) (2) 3,237,286 3 (1) -- --
Issuance of Series G convertible
preferred stock, net of
issuance costs of $24.......... 1,280,000 1 -- -- (25) -- --
Repayments of notes receivable
from common shareholders....... -- -- -- -- -- 4 --
Repurchase of restricted stock... -- -- (108,685) -- (3) 2 --
Issuance of shares for exercise
of stock options............... -- -- 31,490 -- 1 -- --
Deferred compensation............ -- -- -- -- 563 -- (563)
Amortization of deferred
compensation................... -- -- -- -- -- -- 256
Net loss......................... -- -- -- -- -- -- --
---------- -- ---------- --- ------- -- -----
Balance at December 31, 1997....... 1,280,000 1 9,377,404 9 29,821 -- (710)
Recognition of lapse of NBC's
obligation to return 680,000
shares of Series G convertible
preferred stock issued under
The Strategic Alliance
Agreement...................... -- -- -- -- 3,373 -- --
Issuance of Common Stock in
connection with a public
offering net of issuance costs
of $1,973...................... -- -- 1,495,000 2 17,834 -- --
Repurchase of restricted stock... -- -- (28,334) -- (1) -- --
Issuance of common stock for
services....................... -- -- 2,628 -- 22 -- --
Issuance of shares for exercise
of stock options............... -- -- 47,789 -- 80 -- --
Deferred compensation............ -- -- -- -- 217 -- (217)
Amortization of deferred
compensation................... -- -- -- -- -- -- 181
Net loss......................... -- -- -- -- -- -- --
---------- -- ---------- --- ------- -- -----
Balance at December 31, 1998....... 1,280,000 $1 10,894,487 $11 $51,346 $-- $(746)
========== == ========== === ======= == =====
<CAPTION>
TOTAL
ACCUMULATED STOCKHOLDERS'
DEFICIT EQUITY
----------- -------------
<S> <C> <C>
Balance at December 31, 1995....... $ (46) $ 110
Issuance of common stock......... -- 13
Issuance of convertible preferred
stock, net of issuance costs of
$81............................ -- 4,734
Deferred compensation............ -- --
Amortization of deferred
compensation................... -- 18
Net loss......................... (2,278) (2,278)
-------- --------
Balance at December 31, 1996....... (2,324) 2,597
Issuance of common stock in
initial public offering, net of
issuance costs of $2,432....... -- 18,568
Issuance of convertible preferred
stock, net of issuance costs of
$39............................ -- 5,396
Conversion of preferred stock.... -- --
Issuance of Series G convertible
preferred stock, net of
issuance costs of $24.......... -- (24)
Repayments of notes receivable
from common shareholders....... -- 4
Repurchase of restricted stock... -- (1)
Issuance of shares for exercise
of stock options............... -- 1
Deferred compensation............ -- --
Amortization of deferred
compensation................... -- 256
Net loss......................... (5,265) (5,265)
-------- --------
Balance at December 31, 1997....... (7,589) 21,532
Recognition of lapse of NBC's
obligation to return 680,000
shares of Series G convertible
preferred stock issued under
The Strategic Alliance
Agreement...................... -- 3,373
Issuance of Common Stock in
connection with a public
offering net of issuance costs
of $1,973...................... -- 17,836
Repurchase of restricted stock... -- (1)
Issuance of common stock for
services....................... -- 22
Issuance of shares for exercise
of stock options............... -- 80
Deferred compensation............ -- --
Amortization of deferred
compensation................... -- 181
Net loss......................... (15,710) (15,710)
-------- --------
Balance at December 31, 1998....... $(23,299) $ 27,313
======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 48
INTERVU INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1998 1997 1996
-------- ------- -------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $(15,710) $(5,265) $(2,278)
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............. 3,373 -- --
Issuance of common stock for services..................... 22 -- --
Amortization of deferred compensation..................... 181 256 18
Depreciation and amortization............................. 495 178 59
Changes in operating assets and liabilities:
Accounts receivable.................................... (641) (89) --
Prepaid and other current assets....................... (5) (59) (10)
Accounts payable....................................... 897 350 87
Accrued liabilities.................................... 289 -- 10
Payable to NBC Multimedia.............................. 750 -- --
Accrued payroll and related............................ 529 76 56
-------- ------- -------
Net cash used in operating activities....................... (9,820) (4,553) (2,058)
INVESTING ACTIVITIES
Purchase of short-term investments.......................... (42,232) -- --
Proceeds from sale of short-term investments................ 24,532 -- --
Purchases of property and equipment......................... (2,390) (484) (299)
Loss on disposal of property and equipment.................. 11 -- --
Other assets................................................ (38) (1) (6)
-------- ------- -------
Net cash used in investing activities....................... (20,117) (485) (305)
FINANCING ACTIVITIES
Payments on capital leases.................................. (12) (8) --
Issuance of common stock.................................... 17,916 18,569 13
Issuance of preferred stock................................. -- 3,336 2,429
Advances from stockholders.................................. -- 2,010 1,920
Repurchase of common stock.................................. (1) (1) --
Repayment of stockholder notes receivable................... -- 4 --
-------- ------- -------
Net cash provided by financing activities................... 17,903 23,910 4,362
Net increase (decrease) in cash and cash equivalents........ (12,034) 18,872 1,999
Cash and cash equivalents at beginning of year.............. 21,380 2,508 509
-------- ------- -------
Cash and cash equivalents at end of year.................... $ 9,346 $21,380 $ 2,508
======== ======= =======
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Capital lease obligations entered into for equipment........ $ -- $ 27 $ --
-------- ------- -------
Conversion of advances from stockholders to convertible
preferred stock........................................... $ -- $ 2,036 $ 2,305
-------- ------- -------
Issuance of common stock in exchange for notes receivable... $ -- $ -- $ 6
-------- ------- -------
Cancellation of stockholder notes receivable................ $ -- $ 1 $ --
-------- ------- -------
Issuance of Series G convertible preferred stock as
consideration for the formation of NBC Strategic Alliance
Agreement................................................. $ -- $ 1 $ --
-------- ------- -------
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................ $ 3,373 $ -- $ --
-------- ------- -------
Expense related to issuance of common stock................. $ 22 $ -- $ --
-------- ------- -------
</TABLE>
See accompanying notes.
F-6
<PAGE> 49
INTERVU INC.
NOTES TO FINANCIAL STATEMENTS
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
InterVU Inc. (the "Company" or "INTERVU") was incorporated in Delaware on
August 2, 1995 to provide services for the delivery or "streaming" of live and
on-demand video and audio content over the Internet. The Company utilizes a
distributed network to accelerate the speed and improve the quality of video and
audio delivery. In 1998, INTERVU emerged from the development stage.
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 relating 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 (SFAS No. 115), 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 December 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.
Fair Value of Financial Instruments
The carrying value of cash, cash equivalents, short-term investments,
accounts receivable, accounts payable, accrued liabilities, payable to NBC
Multimedia, accrued payroll and related and lease commitments approximates fair
value.
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
SFAS No. 86, Accounting for Costs of Computer Software to be Sold, Leased
or Otherwise Marketed, provides 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.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use (SOP 98-1). This standard requires
companies to capitalize qualifying computer software costs incurred during the
application development stage and amortize them over the software's useful life.
In 1998, the Company capitalized $872,000 of development costs related to
internal use software. Such costs will be amortized once the software is placed
in service over the software's useful life, three years, and the amortization
will be reported with depreciation of property and equipment.
F-7
<PAGE> 50
INTERVU INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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. The Company also performs services on development contracts and
recognizes related revenues on a percentage-of-completion method as services are
performed. Substantially all revenue is generated from domestic customers.
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. Revenue from
two customers accounted for 26% and 13%, respectively, of the Company's total
revenue for the year ended December 31, 1998, the largest of which is from NBC
Multimedia. The Company had significant accounts receivable balances due from
three customers individually representing 38%, 15% and 12% of total accounts
receivable at December 31, 1998.
The Company from time to time maintains a substantial portion of its cash
and cash equivalents in money market accounts with one financial institution.
The Company invests its excess cash in debt instruments of governmental
agencies. The Company has established guidelines relative to diversification and
maturities that attempt to maintain safety and liquidity.
Research and Development Costs
Costs incurred in connection with research and development are charged to
operations as incurred.
Long-Lived Assets
The Company assesses potential impairments to its long-lived assets when
there is evidence that events or changes in circumstances have made recovery of
the asset's carrying value unlikely. An impairment loss would be recognized when
the sum of the expected future undiscounted net cash flows is less than the
carrying amount of the asset. The Company has identified no such impairment
losses. Substantially all of the Company's long-lived assets are located in the
United States.
Advertising Costs
Advertising costs are expensed as incurred. The Company incurred $1.0
million in advertising costs for the year ended December 31, 1998. Advertising
costs prior to December 31, 1997 were not significant.
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 intrinsic value accounting
method specified in Accounting Principles Board
F-8
<PAGE> 51
INTERVU INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(APB) Opinion No. 25 to account for stock-based compensation. The Company has
decided to retain the intrinsic value based method, and has disclosed the pro
forma effect of using the fair value based method to account for its stock-based
compensation (Note 5). Options or stock awards issued to non-employees are
valued using the fair value method and expensed over the period services are
provided.
Loss Per Share
Historical basic and diluted net loss per share has been computed in
accordance with SFAS No. 128. Earnings Per Share, using the weighted-average
number of shares of common stock outstanding during the period. Options,
warrants, common shares issuable on conversion of Series G preferred stock were
not included in the computation of diluted net loss per share because the effect
would be anti-dilutive.
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 98, common shares issued in each of the periods presented for normal
consideration, if any, would be included in the per share calculations as if
they were outstanding for all periods presented. No such shares have been
issued.
Recent interpretations by the Securities and Exchange Commission have
altered the treatment of preferred stock previously included in computing
certain loss per share data. The Company previously considered preferred stock
as outstanding in pre-IPO periods from the date of original issuance on an "as
converted" basis in computing loss per share. To conform with the recent
interpretations, the Company has revised its calculation of loss per share for
all pre-IPO periods to exclude the impact of preferred shares.
Included in the shares used in calculating basic and diluted net loss per
share for the twelve months ended December 31, 1998 and 1997 are the weighted
average effect of actual conversion of preferred stock totaling 0 and 2,947,792,
respectively, and weighted average common shares totaling 9,073,876 and
2,622,817, respectively. Common equivalent shares result from Series G Preferred
Stock, stock options, warrants and unvested restricted stock of which 4,065,391
and 3,365,614 shares were excluded from the computation of diluted earnings per
share for the twelve months ended December 31, 1998 and 1997, respectively, as
their effect would be anti-dilutive.
New Accounting Standards
In 1998, the Company adopted SFAS No. 130, Reporting Comprehensive Income,
and SFAS No. 131, Segment Information. 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 investments shall be reported, net of their
related tax effect, to arrive at comprehensive income. Comprehensive loss was
not materially different than net 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 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 adoption of this standard did not have a material impact on the
Company's financial statements.
Reclassifications
Certain prior period amounts have been classified to conform to current
year presentation.
F-9
<PAGE> 52
INTERVU INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHORT-TERM INVESTMENTS
As of December 31, 1998, all of the Company's short-term investments were
in government backed debt securities. As of December 31, 1998, the cost of
short-term investments approximated fair value. Substantially all short-term
investments held at December 31, 1998 have contractual maturities in excess of
10 years.
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1998 1997
------ -----
(IN THOUSANDS)
<S> <C> <C>
Equipment.................................................. $ 81 $ 18
Computers.................................................. 1,908 607
Furniture and fixtures..................................... 125 105
Equipment under capital lease.............................. 27 27
Leasehold improvements..................................... 21 24
Internally developed software.............................. 872 --
Purchased software......................................... 152 42
------ -----
3,186 823
Less accumulated depreciation.............................. (717) (238)
------ -----
$2,469 $ 585
====== =====
</TABLE>
4. STOCKHOLDER ADVANCES
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 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 ($0.001 par value) has an aggregate
liquidation preference of $10,240,000, a dividend rate of $0.64 per share and a
conversion rate of 0.6298 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.
F-10
<PAGE> 53
INTERVU INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Common Stock
In August 1995, 2,398,278 shares of common stock were issued to the
founders of the Company at a price of $0.0004 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 $0.002 per share under the
founder stock purchase agreements. In January 1996, the Company issued 147,373
shares of common stock to employees at $0.004 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 $0.024 and $0.04
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 1,107,247 and 1,615,470 at December 31, 1998 and 1997,
respectively. In 1998 and 1997, the Company repurchased a total of 28,334 shares
for $1,000 and 108,685 shares for $1,000, respectively, pursuant to the
agreements.
In April 1996, the Board of Directors declared a two-for-one stock dividend
of the Company's common stock, effectuated as a stock split. Also, 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
0.6298 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 stock option plans to grant options to purchase
common stock to consultants, employees, officers and directors of the Company.
The Company has authorized for grant under the plans stock options to purchase
up to 3,037,975 shares of its common stock.
Under the terms of the plans, 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> 54
INTERVU INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes the stock option activity under the plans:
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER AVERAGE
OF EXERCISE
SHARES PRICE
--------- --------------
<S> <C> <C>
Granted................................................... 157,000 $ 0.04
---------
Balance at December 31, 1996................................ 157,000 0.04
Granted................................................... 711,000 3.15
Exercised................................................. (32,000) 0.03
Canceled.................................................. (92,000) 0.03
---------
Balance at December 31, 1997................................ 744,000 3.00
Granted................................................... 1,491,000 12.66
Exercised................................................. (50,000) 1.77
Canceled.................................................. (363,000) 9.70
---------
Balance at December 31, 1998................................ 1,822,000 $ 9.60
=========
</TABLE>
Options exercisable as of December 31, 1998 and 1997 were 234,000 and
77,000, respectively and approximately 1.2 million shares are available for
future grant under the Company's stock option plans. Additional information
regarding stock options outstanding at December 31, 1998 is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
- ------------------------------------------------------------------------------------ OPTIONS EXERCISABLE
WEIGHTED-AVERAGE -------------------
WEIGHTED- REMAINING WEIGHTED-
AVERAGE CONTRACTUAL AVERAGE
RANGE OF EXERCISE PRICES SHARES PRICE LIFE (IN YEARS) SHARES PRICE
------------------------ --------- --------- --------------------- ------- ---------
<S> <C> <C> <C> <C> <C>
$0.04 to $0.28....................... 288,000 $ 0.25 3.54 111,000 $0.25
$1.98 to $5.25....................... 183,000 3.40 7.92 57,000 2.58
$6.50 to $9.13....................... 550,000 7,98 9.16 52,000 9.10
$9.81 to $14.13...................... 315,000 13.10 9.61 14,000 14.13
$14.88 to $19.25..................... 486,000 17.03 9.49 -- --
--------- -------
$0.04 to $19.25...................... 1,822,000 9.60 8.32 234,000 3.60
========= =======
</TABLE>
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. For options granted in 1998, the fair value of the options was estimated
at the date of the grant using the following assumptions: risk free interest
rate of 6%, dividend yield of 0%, expected volatility of 108% and
weighted-average expected life 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.
F-12
<PAGE> 55
INTERVU INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 related options. The
Company's net loss would have been affected by the pro forma amounts as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNT)
-------------------------------
1998 1997 1996
--------- -------- --------
<S> <C> <C> <C>
Net loss
As reported.......................................... $(15,710) $(5,265) $(2,278)
Pro forma............................................ $(17,141) $(5,100) $(2,278)
Basic and diluted loss per share
As reported.......................................... $ (1.73) $ (0.95) $ (0.66)
Pro forma............................................ $ (1.89) $ (0.92) $ (0.66)
Weighted-average fair value of options granted......... $ 10.63 $ 1.11 $ 1.08
</TABLE>
Qualified Stock Purchase Plan
The Qualified Stock Purchase Plan was adopted by the Board of Directors and
stockholders on June 22, 1998 and became effective September 1, 1998. A total of
500,000 shares of Common Stock have been authorized for issuance under the
Qualified Stock Purchase Plan. The Qualified Stock Purchase Plan permits
eligible employees of the Company to purchase shares of Common Stock through
periodic payroll deductions. Payroll deductions may not exceed 15% of the
participant's base salary, and the purchase price will not be less than 85% of
the lower of the fair market value of the stock at either the beginning or the
end of the offering period.
Deferred Compensation
Through December 31, 1998, 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 is amortized over the vesting
period of the related restricted stock or options, which is generally five
years. Through December 31, 1998, the Company recorded gross deferred
compensation totaling $1,201,000 and related amortization expense totaled
$181,000, $256,000, and $18,000 for the years ended 1998, 1997 and 1996,
respectively.
Warrants
In connection with the Company's initial public offering in November 1997,
the Company issued 200,000 warrants to purchase common stock to its
underwriters. Such warrants are exercisable at $11.40 per share of common stock
through November 2002. In connection with the Company's public offering in June
1998, the Company issued 130,000 warrants to purchase common stock to its
underwriters. These warrants are exercisable at $15.90 commencing June 1999 and
expire in June 2003.
F-13
<PAGE> 56
INTERVU INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Shares Reserved for Future Issuance
At December 31, 1998, the Company had reserved approximately 4.2 million
common shares for the conversion of preferred stock, the exercise of outstanding
stock options, the exercise of outstanding warrants and for stock options
available for future grant.
6. COMMITMENTS
The Company leases its principal facilities under a sublease that commenced
on May 1, 1998 and expires in 2003. Additionally, the Company maintains a
regional office in New York City under a sublease which expires in 1999. In
October 1998, the Company opened a regional office in San Francisco under a
lease which expires in 2003. Total rent expense was $267,000, $129,000 and
$48,000 for years ended December 31, 1998, 1997 and 1996, respectively.
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, 1998:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- -------
<S> <C> <C>
1999........................................................ $ 404 $ 7
2000........................................................ 418 1
2001........................................................ 434 --
2002........................................................ 449 --
2003........................................................ 229 --
------ ---
Total minimum lease payments................................ $1,934 8
------ ---
Less amounts representing interest.......................... (1)
---
Present value of future minimum lease payments.............. 7
Less current portion........................................ (7)
---
Capital lease obligation, net of current portion............ $--
---
</TABLE>
In March 1999, the Company financed $1.1 million of equipment under a three
year non-cancelable lease with an interest rate of 7.75%.
7. INCOME TAXES
Significant components of the Company's deferred tax assets as of December
31, 1998 and 1997 are shown below. A valuation allowance of $9,305,000 has been
recorded at December 31, 1998 to offset the net deferred tax assets because
realization is uncertain.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $ 8,397 $ 2,883
Research tax credit carryforwards......................... 517 233
Other..................................................... 391 94
------- -------
Total deferred tax assets......................... 9,305 3,210
Valuation allowance......................................... (9,305) (3,210)
------- -------
Net deferred tax assets..................................... $ -- $ --
======= =======
</TABLE>
F-14
<PAGE> 57
INTERVU INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Company had federal and California tax net operating loss carryforwards
at December 31, 1998 of approximately $21.6 million and $14.5 million,
respectively. The difference between the federal and California tax loss
carryforwards is attributable to the 50% limitation on California loss
carryforwards for 1998. 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 $380,000 and $211,000, respectively, which will begin to expire in
2011 and 2010, respectively, unless previously utilized.
Pursuant to Internal Revenue 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
$418,000, $182,000 and $102,000 for the years ended December 31, 1998, 1997, and
1996, respectively.
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 formation of the strategic alliance, the Company issued to NBC 1,280,000
shares of Series G convertible preferred stock. The Company is entitled to
receive 30% of certain advertising revenues generated under this alliance from
NBC Web sites 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 was obligated to make
$2,000,000 in non-refundable payments to NBC Multimedia for certain production,
operating and advertising costs associated with certain NBC Web sites including
payments of (i) $750,000 paid on the completion of the initial public offering
completed in November 1997, (ii) $500,000 due in February 1998, (iii) $500,000
due in May 1998, and (iv) $250,000 due in August 1998. Through December 31,
1998, the Company has made a total of $1,250,000 in payments to NBC Multimedia
under the agreement.
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 $3,373,000 as the fair
value of 680,000 shares of Series G convertible preferred stock to expense in
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 breach, 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
F-15
<PAGE> 58
INTERVU INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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
0.6298 conversion rate. The noncash charge 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.
10. CONTINGENCIES
The Company is party to certain claims and legal actions arising in the
normal course of business. Although the ultimate outcome of these matters is not
presently determinable, management believes that the resolution of all such
pending matters will not have a material adverse affect on the Company's
financial position or liquidity; however, there can be no assurance that the
ultimate resolution of these matters will not have a material impact on the
Company's results of operations in any period.
F-16
<PAGE> 59
- --------------------------------------------------------------------------------
[INTERVU LOGO]
INTERVU INC.
PRUDENTIAL SECURITIES
ING BARING FURMAN SELZ
SG COWEN
CRUTTENDEN ROTH INCORPORATED
RYAN, BECK & CO.
- --------------------------------------------------------------------------------
<PAGE> 60
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. 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 INTERVU.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 32,520
NASD filing fee............................................. 12,198
Nasdaq National Market listing fee.......................... 17,500
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Printing and engraving expenses............................. *
Blue Sky fees and expenses.................................. *
Transfer agent and registrar fees........................... *
Miscellaneous............................................... *
TOTAL............................................. $500,000
</TABLE>
- ---------------
* To be filed by amendment.
All of the above items are estimates, except the Securities and Exchange
Commission registration fee, the Nasdaq National Market listing fee and the NASD
filing fee.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the Delaware General Corporation Law, INTERVU has
broad powers to indemnify its directors and officers against liabilities they
may incur in such capacities, including liabilities under the Securities Act.
INTERVU's Charter and Bylaws provide that INTERVU 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 INTERVU, 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 INTERVU'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 INTERVU (including stockholder derivative
suits) unless the directors successfully defend the action or indemnification is
ordered by the court.
INTERVU is a party to indemnification agreements with each of its directors
and officers. In addition, the form of Underwriting Agreement provides for the
indemnification of INTERVU and its directors and officers against certain
liabilities, including liabilities under the Securities Act.
INTERVU 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.
II-1
<PAGE> 61
ITEM 16. EXHIBITS
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
1.1 Form of Underwriting Agreement.(7)
3.1 Amended and Restated Certificate of Incorporation.(1)
3.2 Amended and Restated Bylaws.(1)
4.1 Form of Common Stock Certificate.(2)
4.2 Form of Advisors' Warrant Agreement including form of
Advisors' Warrants.(6)
5.1 Opinion of Latham & Watkins.(7)
10.1 1996 Stock Plan of INTERVU Inc.(3)
10.2 Form of Indemnification Agreement.(4)
10.3 Form of Restricted Stock Purchase Agreement.(4)
10.4 Amended and Restated Vesting Agreement between INTERVU and
Harry Gruber.(1)
10.5 Amended and Restated Vesting Agreement between INTERVU and
Brian Kenner.(1)
10.6 Strategic Alliance Agreement dated as of October 10, 1997
between INTERVU and NBC Multimedia, Inc.(3)
10.7 Preferred Stock Purchase Agreement dated as of October 10,
1997 among INTERVU, National Broadcasting Company, Inc. and
NBC Multimedia, Inc.(3)
10.8 Strategic Alliance Agreement dated January 15, 1998 between
INTERVU and MatchLogic Inc.(1)
10.9 Consulting Agreement dated January 28, 1998 between INTERVU
and J. William Grimes.(5)
10.10 Sublease Agreement dated as of April 20, 1998 between
INTERVU and Computervision Corporation.(5)
10.11 1998 Stock Option Plan of INTERVU Inc.(5)
10.12 Employee Qualified Stock Purchase Plan of INTERVU Inc.(5)
23.1* Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Latham & Watkins (contained in Exhibit 5.1).(7)
24.1* Power of Attorney (included on signature page of
Registration Statement).
</TABLE>
- ---------------
* Filed herewith.
(1) Incorporated by reference to INTERVU's Annual Report on Form 10-K filed with
the Securities and Exchange Commission on March 31, 1998.
(2) Incorporated by reference to Exhibit 4.1 to INTERVU's Registration Statement
on Form 8-A filed with the Securities and Exchange Commission on November
12, 1997.
(3) Incorporated by reference to Amendment No. 1 to INTERVU's Registration
Statement on Form S-1 filed with the Securities and Exchange Commission on
October 24, 1997.
(4) Incorporated by reference to Amendment No. 2 to INTERVU's Registration
Statement on Form S-1 filed with the Securities and Exchange Commission on
November 12, 1997.
(5) Incorporated by reference to Amendment No. 2 to INTERVU's Registration
Statement on Form S-1 filed with the Securities and Exchange Commission on
May 20, 1998.
(6) Incorporated by reference to Amendment No. 4 to INTERVU's Registration
Statement on Form S-1 filed with the Securities and Exchange Commission on
June 15, 1998.
(7) To be filed by amendment.
II-2
<PAGE> 62
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant under provisions described in Item 15 or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. If 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 of 1933 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
of 1933, 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 of 1933 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 of 1933, 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-3
<PAGE> 63
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3, and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in San Diego, California on March 29, 1999.
INTERVU Inc.
By: /s/ HARRY E. GRUBER
------------------------------------
Harry E. Gruber
Chairman and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below hereby constitutes and appoints Harry E. Gruber his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or either of them, or his or
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following officers and
directors of the Registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ HARRY E. GRUBER Chairman of the Board and Chief March 29, 1999
- --------------------------------------------------- Executive Officer (Principal
Harry E. Gruber Executive Officer)
/s/ KENNETH L. RUGGIERO Vice President and Chief March 29, 1999
- --------------------------------------------------- Financial Officer (Principal
Kenneth L. Ruggiero Financial Officer and Principal
Accounting Officer)
/s/ EDWARD DAVID Director March 29, 1999
- ---------------------------------------------------
Edward David
Director March 29, 1999
- ---------------------------------------------------
Mark Dowley
/s/ ALAN Z. SENTER Director March 29, 1999
- ---------------------------------------------------
Alan Z. Senter
/s/ J. WILLIAM GRIMES Vice Chairman March 29, 1999
- ---------------------------------------------------
J. William Grimes
/s/ ISAAC WILLIS Director March 29, 1999
- ---------------------------------------------------
Isaac Willis
</TABLE>
II-4
<PAGE> 64
EXHIBIT INDEX
The following exhibits are filed as part of this Form S-3 Registration
Statement.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<S> <C>
1.1 Form of Underwriting Agreement.(7)
3.1 Amended and Restated Certificate of Incorporation.(1)
3.2 Amended and Restated Bylaws.(1)
4.1 Form of Common Stock Certificate.(2)
4.2 Form of Advisors' Warrant Agreement including form of
Advisors' Warrants.(6)
5.1 Opinion of Latham & Watkins.(7)
10.1 1996 Stock Plan of INTERVU Inc.(3)
10.2 Form of Indemnification Agreement.(4)
10.3 Form of Restricted Stock Purchase Agreement.(4)
10.4 Amended and Restated Vesting Agreement between INTERVU and
Harry Gruber.(1)
10.5 Amended and Restated Vesting Agreement between INTERVU and
Brian Kenner.(1)
10.6 Strategic Alliance Agreement dated as of October 10, 1997
between INTERVU and NBC Multimedia, Inc.(3)
10.7 Preferred Stock Purchase Agreement dated as of October 10,
1997 among INTERVU, National Broadcasting Company, Inc. and
NBC Multimedia, Inc.(3)
10.8 Strategic Alliance Agreement dated January 15, 1998 between
INTERVU and MatchLogic Inc.(1)
10.9 Consulting Agreement dated January 28, 1998 between INTERVU
and J. William Grimes.(5)
10.10 Sublease Agreement dated as of April 20, 1998 between
INTERVU and Computervision Corporation.(5)
10.11 1998 Stock Option Plan of INTERVU Inc.(5)
10.12 Employee Qualified Stock Purchase Plan of INTERVU Inc.(5)
23.1* Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Latham & Watkins (contained in Exhibit 5.1).(7)
24.1* Power of Attorney (included on signature page of
Registration Statement).
</TABLE>
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* Filed herewith.
(1) Incorporated by reference to INTERVU's Annual Report on Form 10-K filed with
the Securities and Exchange Commission on March 31, 1998.
(2) Incorporated by reference to Exhibit 4.1 to INTERVU's Registration Statement
on Form 8-A filed with the Securities and Exchange Commission on November
12, 1997.
(3) Incorporated by reference to Amendment No. 1 to INTERVU's Registration
Statement on Form S-1 filed with the Securities and Exchange Commission on
October 24, 1997.
(4) Incorporated by reference to Amendment No. 2 to INTERVU's Registration
Statement on Form S-1 filed with the Securities and Exchange Commission on
November 12, 1997.
(5) Incorporated by reference to Amendment No. 2 to INTERVU's Registration
Statement on Form S-1 filed with the Securities and Exchange Commission on
May 20, 1998.
(6) Incorporated by reference to Amendment No. 4 to INTERVU's Registration
Statement on Form S-1 filed with the Securities and Exchange Commission on
June 15, 1998.
(7) To be file by amendment.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Financial Data" and "Experts" and to the use of our report dated February 12,
1999 (except for the last paragraph of Note 6, as to which the date is March 19,
1999), in the Registration Statement on Form S-3 and related Prospectus of
INTERVU, Inc. expected to be filed on or about March 30, 1999.
We also consent to the incorporation by reference therein of our report
dated February 12, 1999, with respect to the financial statement schedule of
INTERVU, Inc. for each of the three years in the period ended December 31, 1998
included in the Annual Report (Form 10-K) for 1998 filed with the Securities and
Exchange Commission.
ERNST & YOUNG LLP
March 30, 1999
San Diego, California
