<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 16, 1999
REGISTRATION NO. 333-75283
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1 TO
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
- ----------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.001........... 2,875,000 $40.6875 $116,976,563 $32,520(3)
- ----------------------------------------------------------------------------------------------------------------------------
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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.
(3) Previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<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 -- APRIL 16, 1999
PROSPECTUS
- --------------------------------------------------------------------------------
2,500,000 Shares
INTERVU INC.
Common Stock
[INTERVU LOGO]
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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
April 15, 1999, the last reported sale price in the Nasdaq National Market was
$55.75 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 11 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 JOSEPHTHAL & CO. INC. RYAN, BECK & CO.
INCORPORATED
, 1999
<PAGE> 3
FRONT COVER:
[The front cover has a dark background border with integrated designs and
images.]
[INTERVU Logo]
INSIDE FRONT COVER:
[The inside front cover has a dark background with integrated designs and images
and text is printed in white.]
WHERE
IS THE
WEB
MOVING?
INSIDE SPREAD:
[The two-page spread has a dark background with various integrated designs and
text.]
<TABLE>
<CAPTION>
[A column of the following text
appears on the left side of the [The following fifteen Internet
inside spread.] screen shots appear on the inside spread.]
<S> <C> <C> <C> <C> <C>
NEWS AND INFORMATION [Screen shot] [Screen shot] [Screen shot] [Screen shot] [Screen shot]
To maintain their leadership, CNN.com: NBC: Saturday NBC: MSNBC: Live Saatchi &
premier news organizations Live event Night Live Homicide event coverage Saatchi:
turn to INTERVU to get their coverage Multimedia
online video events moving. agency-client
communications
SPORTS
What are sports without
motion? INTERVU has the
infrastructure and services to [Screen shot] [Screen shot] [Screen shot] [Screen shot] [Screen shot]
make online sports events DVD EXPRESS: Onradio.com: NBC: New England APB Online:
move. Movie trailers Internet Videoseeker Patriots: Live police
strategies for Postgame scanners
radio shows
ENTERTAINMENT
From rock stars to film stars,
the best entertainment moves.
INTERVU provides leaders in
entertainment with the
impact of audio.
BUSINESS TO BUSINESS [Screen shot] [Screen shot] [Screen shot] [Screen shot] [Screen shot]
Enhancing communications Earnings NATPE: MUSIC- Bloomberg RadioWave.com:
for the business world and Announcements: Convention VIDEOS.COM: Television: Visually
education, INTERVU provides With INTERVU Webcasting High bandwidth Business and interactive radio
cost-effective solutions that Presents music videos financial news
are moving with high-quality
video.
</TABLE>
[INTERVU LOGO] WHERE THE WEB IS MOVING
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 5
Use of Proceeds....................... 12
Price Range of Common Stock........... 12
Dividend Policy....................... 12
Dilution.............................. 13
Capitalization........................ 14
Selected Financial Data............... 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 16
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Business.............................. 21
Management............................ 29
Principal Stockholders................ 32
Description of Capital Stock.......... 34
Underwriting.......................... 38
Legal Matters......................... 39
Experts............................... 39
Additional Information................ 40
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. RealPlayer G2(TM) is a trademark of RealNetworks, Inc.
This prospectus also includes additional trademarks of companies other than
INTERVU. The photo contained in the screen view of CNN.com on the inside cover
of this prospectus is provided with the courtesy of Cable News Network, a Time
Warner Company. All rights reserved.
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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 described 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> 5
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 continuous 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
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 software solutions that automate the publishing,
distribution and programming of video and audio content. 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. These solutions allow Web
site owners and content publishers 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
transmission capacity or "bandwidth" in bulk.
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-
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 the
amount of video and audio content to be stored and delivered.
1
<PAGE> 6
The INTERVU Network
The cornerstone of our video and audio delivery solutions is our scalable,
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 services to CNN.com for its
live Internet broadcasts. In addition, we have developed a private network
service for BMG that archives recordings of over 8,000 CDs and allows 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 stream radio stations' on-air broadcasts over the Internet.
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 additional 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
<PAGE> 7
THE OFFERING
Shares offered by INTERVU................. 2,500,000 shares
Total shares outstanding after this
offering.................................. 13,446,622 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 31, 1999. You should be aware
that the aggregate number of shares of common stock that will be outstanding
after the offering does not include:
- 2,206,052 shares subject to outstanding options with a weighted average
exercise price of $13.88 per share,
- 209,000 shares subject to outstanding warrants with a weighted average
exercise price of $14.20 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),
- 787,175 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> 8
SUMMARY FINANCIAL DATA
The following tables summarize the financial data for our business and
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. The As Adjusted column in the Balance
Sheet Data table below reflects our receipt of the estimated net proceeds of
$130.5 million from our sale of common stock in this offering at an assumed
public offering price of $55.75 per share.
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 2, 1995
(INCEPTION) TO YEAR ENDED DECEMBER 31,
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 $157,559
Working capital........................................................... 24,799 155,312
Total assets.............................................................. 30,364 160,877
Long-term liabilities..................................................... -- --
Total stockholders' equity................................................ 27,313 157,826
</TABLE>
4
<PAGE> 9
RISK FACTORS
You should carefully consider the following risk factors, in addition to
the other information included 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 ON WHICH TO BASE AN EVALUATION OF OUR
BUSINESS AND PROSPECTS
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 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 some 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.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview; NBC Strategic Alliance" for a more detailed discussion
of expenses relating to our strategic alliance with NBC Multimedia. 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> 10
OUR SPECIALIZED SERVICES MAY NOT BE WIDELY ADOPTED BY CUSTOMERS
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 historically 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 and 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 customers that are well
known in their industry, it could impair our ability to retain customers and
attract new ones.
ANY FAILURE BY US TO MANAGE OUR GROWTH COULD ADVERSELY AFFECT OUR BUSINESS
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 124 employees on March 31, 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 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 MAY FAIL TO 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 us to 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
6
<PAGE> 11
manage their streaming media. Our competitors also currently include
Broadcast.com, which recently entered into an agreement to be acquired by
Yahoo!, and RealNetworks. We expect competition from other types of competitors
to increase significantly.
Competitive factors in the streaming media industry 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 we do.
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 operational problems and
experienced outages. We expect these problems and outages to continue to occur
periodically. Any failure to provide reliable service 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.
7
<PAGE> 12
WE MAY EXPERIENCE DIFFICULTIES IN INTEGRATING BUSINESSES, PRODUCTS AND
TECHNOLOGIES WE MAY ACQUIRE INTO OUR BUSINESS
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,
- 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.
THE LOSS OF KEY PERSONNEL COULD HARM OUR BUSINESS
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 members 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.
THE ENACTMENT OF NEW LAWS OR CHANGES IN GOVERNMENT REGULATIONS COULD ADVERSELY
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 additional 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.
8
<PAGE> 13
OUR INABILITY TO OBTAIN PATENT PROTECTION FOR OUR TECHNOLOGY OR MISAPPROPRIATION
OF OUR INTELLECTUAL PROPERTY COULD IMPAIR OUR COMPETITIVE POSITION
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. In addition, we
have ten United States patent applications and six international patent
applications pending. We are also in the process of preparing additional patent
applications for our technology. 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.
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 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 PROBLEMS COULD DISRUPT OUR BUSINESS
During the next year, many software programs may not recognize calendar
dates beginning in the Year 2000. This problem could force computers or machines
which utilize date dependent software to either shut down or provide incorrect
information. To address this problem, we have examined our computer and
information systems, contacted our software and hardware providers, and, where
necessary, made upgrades to our systems.
Although we believe that the INTERVU Network and our software solutions are
Year 2000 compliant, undetected errors or defects may remain. Disruptions to our
business or unexpected costs may arise because of undetected errors or defects
in the technology and software we use to provide video and audio delivery
services to our customers and in our internal information systems. Disruptions
also may arise as a result of third parties not being Year 2000 compliant. If
we, or any of our key suppliers, customers or bandwidth providers, fail to
mitigate internal and external Year 2000 risks, we may temporarily be unable to
provide services or engage in other business activities, including billing,
which could have a material adverse effect on our business. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Impact of Year 2000" for a more extensive 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-
9
<PAGE> 14
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.
OUR MANAGEMENT WILL HAVE SUBSTANTIAL DISCRETION OVER THE USE OF PROCEEDS OF THIS
OFFERING AND MAY NOT APPLY THEM EFFECTIVELY
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 harm
our business. See "Use of Proceeds" for a discussion of our intended uses of the
net proceeds of this offering.
OUR EXECUTIVE OFFICERS AND DIRECTORS HAVE SUBSTANTIAL CONTROL OVER OUR VOTING
STOCK AND CAN MAKE DECISIONS THAT COULD ADVERSELY AFFECT OUR STOCK PRICE
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.
WE HAVE IMPLEMENTED ANTI-TAKEOVER PROVISIONS THAT COULD PREVENT AN ACQUISITION
OF OUR COMPANY AT A PREMIUM PRICE
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,
10
<PAGE> 15
- 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 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 these sales could
occur. These factors could also make it more difficult to raise funds through
future offerings of common stock.
After this offering, 13,446,622 of our shares of common stock will be
outstanding (13,821,622 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). In addition, 10,946,622 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 under 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
2,415,052 shares of common stock are issuable upon the exercise of options and
warrants, although a substantial number of our options currently are not
exercisable.
YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION
You will experience an immediate and substantial dilution of $43.97 per
share in the net tangible book value per share of common stock from the public
offering price, assuming a public offering price of $55.75 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.
11
<PAGE> 16
USE OF PROCEEDS
The net proceeds to INTERVU from the sale of the common stock in this
offering at an assumed public offering price of $55.75 per share are estimated
to be $130.5 million ($150.2 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 25, 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 for INTERVU's
common stock during the periods indicated.
<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............................................ 54.50 12.75
2nd Quarter (through April 15, 1999)................... 82.00 49.00
</TABLE>
On April 15, 1999, the last reported sale price of INTERVU's common stock
in the Nasdaq National Market was $55.75 per share. As of March 31, 1999, there
were 125 holders of record of INTERVU's common stock.
DIVIDEND POLICY
INTERVU has never paid and does not anticipate paying any dividends on its
common stock in the foreseeable future. Any future determination regarding the
payment of dividends will be made by 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.
12
<PAGE> 17
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 $55.75 per share and after
deducting underwriting discounts and commissions and estimated offering
expenses, INTERVU's pro forma net tangible book value at December 31, 1998 would
have been $157.8 million or $11.78 per share. This represents an immediate
increase in the pro forma net tangible book value of $9.27 per share to existing
stockholders and an immediate and substantial dilution of $43.97 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............................... $55.75
Net tangible book value as of December 31, 1998........... $ 2.51
Increase attributable to new investors.................... $ 9.27
Pro forma net tangible book value after this offering....... 11.78
------
Dilution to new investors................................... $43.97
======
</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 $55.75 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 26.9% $ 4.71
New Investors........................ 2,500,000 18.7% 139,375,000 73.1% 55.75
---------- ----- ------------ -----
Total...................... 13,394,487 100.0% $190,703,000 100.0%
========== ===== ============ =====
</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. In addition, the total consideration from new investors will be
$160.3 million, which is 75.7% of the total of $211.6 million paid for all
shares of common stock outstanding. The issuance of additional common stock by
INTERVU will result in further dilution to you.
13
<PAGE> 18
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 the receipt of the estimated net proceeds of this offering at an assumed
public offering price of $55.75 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................................ 51,346 181,857
Deferred compensation..................................... (746) (746)
Accumulated deficit....................................... (23,299) (23,299)
-------- --------
Total stockholders' equity.................................. 27,313 157,826
-------- --------
Total capitalization........................................ $ 27,313 $157,826
======== ========
</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.
14
<PAGE> 19
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. 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.
15
<PAGE> 20
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 these forward-looking statements. These 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 continuous 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 in the future.
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 and
audio 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 these 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. Selling, general and
administrative expenses will also increase as INTERVU increases its sales
personnel and sales and marketing efforts.
16
<PAGE> 21
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.
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. However, 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
relating 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.
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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
stock.
INTERVU's net loss for 1998 increased to $15.7 million from $5.3 million
for the prior year.
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 depends on 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. None of these 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 stock.
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 had 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 spend 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.
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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 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 production, operating and
advertising costs associated with some of NBC's Web sites. These payments
include (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 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 software used by many companies may need to be
upgraded to comply with "Year 2000" requirements. Although INTERVU believes that
the INTERVU Network and related software are 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 recently began 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 these vendors will provide any required
upgrades or modifications in a timely fashion. However, if any third party
software suppliers fail to provide
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Year 2000 compliant versions of the software, INTERVU's operations, including
the INTERVU Network, could be disrupted.
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 those 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 spend 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 continuous 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:
- 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 software solutions that automate the publishing,
distribution and programming of video and audio content. INTERVU is a
full-service provider, offering all of the services necessary for delivery of
both live Webcasting and video and audio on-demand, including production,
encoding, uplinking, Web site integration, distribution, reporting and
archiving. Web site owners and content publishers use INTERVU's 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 the amount of video content to be stored and delivered.
The cornerstone of INTERVU's service strategy is a scalable, 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. 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%. 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. 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.
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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 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 less
labor-intensive. For example, INTERVU Workbench allows Web site owners with
large amounts of content to publish video and audio clips to their Web sites,
dynamically generate new Web pages containing their clips and link the clips to
files with searchable identifying information about the clip. The INTERVU
AUDIENCE service includes an automated e-mail ticketing function for live events
and automatically provides desktop reminders to end-users before requested
events. 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 Scalable 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
also targets leading Web sites in part to create awareness for the "INTERVU"
brand. INTERVU has established relationships 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. 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 increasing 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
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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.
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),
DVD EXPRESS, House of Blues, MovieFone, MUSICVIDEOS.COM, CDNow, 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, MSNBC and APB Online (police scanners in multiple
cities). We also provide services to CNN.com for its live Internet
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 that archives recordings of
over 8,000 CDs and allows retailers to preview music CDs and packaging
before placing orders.
-- Advertising. INTERVU believes that Internet advertisements will move
increasingly toward ads that include video 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 31 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, dynamically 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
automatically 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 specific 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' RealPlayer G2.
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. INTERVU's 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 and audio files are indexed and retrieved.
The INTERVU Network enables Web site owners to provide video and audio
content to end-users more cost-effectively and conveniently than through
traditional Internet distribution mechanisms. Customers can 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 slow
transmission points on the Internet by determining which of its servers is
"electronically closest" to the end-user and sending the video and audio content
from that location. The electronically closest server is the one that provides
the best combination of delivery time and quality.
Scalable 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 delivering the highest
quality content and 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 by the end-user.
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' Real Player G2, 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 and
technology leaders 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, programming 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 specific 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 architecture 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
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and content publishers that employ in-house technical personnel to develop
streaming media technology and to manage their streaming media. INTERVU's
competitors also currently include Broadcast.com, which recently entered into an
agreement to be acquired by Yahoo!, 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 itself 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 itself 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 ten United States patent applications and six
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 31, 1999, INTERVU had 124 full-time employees, of whom 32 were
in software development, 45 in operations, 35 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.
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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> 34
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 national promotions, launching subscriber marketing programs,
developing partnership programs and customer communications. From February 1983
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
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<PAGE> 35
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.
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<PAGE> 36
PRINCIPAL STOCKHOLDERS
The following table provides information regarding the beneficial ownership
of INTERVU's common stock as of March 31, 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 7.7
Isaac Willis(6)................................ 1,257,211 11.5 9.3
Stephen H. Klein(7)............................ 67,370 * *
Edward E. David, Jr.(8)........................ 28,700 * *
Kenneth L. Ruggiero(9)......................... 25,775 * *
Edward L. Huguez(10)........................... 41,861 * *
J. William Grimes(11).......................... 18,011 * *
Mark Dowley(12)................................ 15,871 * *
Alan Z. Senter(13)............................. 11,885 * *
All directors and executive officers as a
group (10 persons)(14)....................... 3,546,288 32.4 26.4
Douglas A. Augustine(15)....................... * *
National Broadcasting Company, Inc.(16)........ 1,016,670 9.3 7.6
Westchester Group LLC(17)...................... 800,000 7.3 5.9
</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 329,841 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 329,841 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 7,243 shares subject to INTERVU's repurchase
right under a restricted stock agreement and 19,193 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 27,586 shares subject to INTERVU's repurchase right under a
restricted stock agreement and 3,214 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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(8) Includes 7,174 shares subject to INTERVU's repurchase right under a
restricted stock agreement and 3,508 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 25,585 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 41,861 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 18,011 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 15,871 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 11,885 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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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 Certificate of Incorporation or "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 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 31, 1999, there were 10,946,622 shares of common stock
outstanding, held of record by 125 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 5,000,000
shares of preferred stock in one or more series. The Board of Directors
previously designated 1,280,000 shares of preferred stock as Series G Preferred
Stock, all of which were issued to NBC. The Board of Directors of INTERVU may
issue up to 3,720,000 additional shares of preferred stock 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 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, before 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. This
conversion rate may be adjusted 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 future registrations of common stock. NBC also has
the right to one demand that INTERVU register these 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
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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.
WARRANTS
In connection with INTERVU's initial public offering, INTERVU issued to
Josephthal & Co. Inc. and Cruttenden Roth Incorporated warrants to purchase from
INTERVU a total of 200,000 shares of common stock. These warrants are
exercisable at a price per share of $11.40 for four years commencing in November
1998.
In connection with a subsequent offering, INTERVU issued to Josephthal &
Co. Inc. and Cruttenden Roth Incorporated warrants to purchase from INTERVU a
total of 130,000 shares of common stock. These warrants are initially
exercisable at a price per share equal to $15.90 for 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
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 CHARTER AND BYLAW PROVISIONS
The following summary description of provisions of the Delaware General
Corporation Law and INTERVU's Charter and Bylaws is not intended to be complete.
You should read each of these documents carefully.
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 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 Anti-Takeover Provisions that
Could Prevent an Acquisition of Our Company at a Premium Price" for a further
discussion of these anti-takeover effects. These provisions are intended to
enhance the likelihood of continuity and stability in the composition of the
policies formulated by the Board of Directors. In addition, these provisions are
intended to ensure that the Board of Directors will have sufficient time to act
in what 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
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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.
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
nominate 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 the Board of
Directors or by a stockholder before 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 the only business that may
be conducted at an annual meeting is business that has been brought before the
meeting by the Board of Directors or by a stockholder who has given timely
written notice to the Secretary of INTERVU. 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 before the annual meeting and not less than the later of (1) 60
days before the annual meeting and (2) the 10th day after notice of the meeting
was mailed or after public announcement of the date of the 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 information specified by the Bylaws. 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
two-thirds 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 the 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
36
<PAGE> 41
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.
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 two-thirds 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.
37
<PAGE> 42
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, Josephthal & Co.
Inc. 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................................
Josephthal & Co. Inc. ......................................
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.
38
<PAGE> 43
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 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.
39
<PAGE> 44
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 rooms.
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. 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.
40
<PAGE> 45
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> 46
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> 47
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> 48
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> 49
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> 50
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> 51
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> 52
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> 53
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> 54
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> 55
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> 56
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> 57
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> 58
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> 59
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> 60
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> 61
INSIDE BACK COVER:
THE INTERVU NETWORK
Quality and Scale through Intelligent Distribution
1. VIDEO SIGNAL [Depiction of video camera and microphone] AUDIO SIGNAL
2. [Depictions of satellite, broadcast antenna, telephone line, computer, cable
line and, telephone handset]
SATELLITE OFF AIR T1 ISDN CABLE ANALOG
3. [Map of the continental United States, containing 17 depictions of Media
Delivery Centers, multiple head and shoulder silhouettes depicting
end-users and criss-crossing lines representing the Internet]
AND
EUROPE
[Depiction of arrow
pointing to the right]
Legend
<TABLE>
<CAPTION>
[Depiction of Media Delivery [Human silhouette] [Criss-crossing lines]
Center]
<S> <C> <C>
MEDIA END- THE
DELIVERY USERS INTERNET
CENTERS
</TABLE>
INTERVU provides scalable, reliable solutions for delivering audio and video on
the Internet. Because of the INTERVU Network's patent-pending, dispersed
architecture, there is no single point of failure in the delivery system.
<TABLE>
<S> <C> <C>
1. INTERVU acquires video or 2. The acquired signal is sent to the 3. Upon request from an end-user, the
audio signal (digital or closest of INTERVU's multiple encoders and electronically closest INTERVU Media
analog) via satellite or recasters. Then multiple copies of the video Delivery Center chooses the best server
other means. stream are distributed across the INTERVU to handle the request, balancing the load
Network, which has Media Delivery Centers and delivering the video or audio stream
nationwide and in Europe. efficiently and reliably to the end-user.
</TABLE>
[INTERVU LOGO]
INTERVU
Where the Web is moving
BACK COVER:
[The back cover has a dark background with integrated designs.]
[INTERVU LOGO]
[The following text is printed in white.]
WHERE THE WEB
IS MOVING
[The following text is printed in black within a square design.]
<PAGE> 62
PRUDENTIAL SECURITIES
ING BARING FURMAN SELZ
SG COWEN
CRUTTENDEN ROTH INCORPORATED
JOSEPHTHAL & CO. INC.
RYAN, BECK & CO.
<PAGE> 63
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.................................. 5,000
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> 64
ITEM 16. EXHIBITS
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
1.1* Form of Underwriting Agreement.
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.(8)
</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> 65
(8) Previously filed.
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> 66
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 Amendment No. 1 to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized in San Diego, California on April 15, 1999.
INTERVU Inc.
By: /s/ HARRY E. GRUBER
------------------------------------
Harry E. Gruber
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, 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 April 15, 1999
- --------------------------------------------------- Executive Officer (Principal
Harry E. Gruber Executive Officer)
/s/ KENNETH L. RUGGIERO* Vice President and Chief April 15, 1999
- --------------------------------------------------- Financial Officer (Principal
Kenneth L. Ruggiero Financial Officer and Principal
Accounting Officer)
/s/ EDWARD DAVID* Director April 15, 1999
- ---------------------------------------------------
Edward David
Director April 15, 1999
- ---------------------------------------------------
Mark Dowley
/s/ ALAN Z. SENTER* Director April 15, 1999
- ---------------------------------------------------
Alan Z. Senter
/s/ J. WILLIAM GRIMES* Vice Chairman April 15, 1999
- ---------------------------------------------------
J. William Grimes
/s/ ISAAC WILLIS* Director April 15, 1999
- ---------------------------------------------------
Isaac Willis
*By /s/ HARRY E. GRUBER
---------------------------------------------
Harry E. Gruber
Attorney-in-fact
</TABLE>
II-4
<PAGE> 67
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.
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.(8)
</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.
(8) Previously filed.
<PAGE> 1
EXHIBIT 1.1
INTERVU INC.
2,500,000 Shares(1)
Common Stock
UNDERWRITING AGREEMENT
April __, 1999
PRUDENTIAL SECURITIES INCORPORATED
ING BARING FURMAN SELZ LLC
SG COWEN SECURITIES CORPORATION
CRUTTENDEN ROTH INCORPORATED
JOESPHTHAL & CO. INC.
RYAN, BECK & CO.
As Representatives of the several Underwriters
c/o Prudential Securities Incorporated
One New York Plaza
New York, New York 10292
Dear Sirs:
InterVU Inc., a Delaware corporation (the "Company"), hereby
confirms its agreement with the several underwriters named in Schedule I hereto
(the "Underwriters"), for whom you have been duly authorized to act as
representatives (in such capacities, the "Representatives"), as set forth below.
If you are the only Underwriters, all references herein to the Representatives
shall be deemed to be to the Underwriters.
1. Securities. Subject to the terms and conditions herein contained, the
Company proposes to issue and sell to the several Underwriters an aggregate of
2,500,000 shares (the "Firm Securities") of the Company's Common Stock, par
value $0.001 per share ("Common Stock"). The Company also proposes to issue and
sell to the several Underwriters not more than 375,000 additional shares of
Common Stock if requested by the Representatives as provided in Section 3 of
this Agreement. Any and all shares of Common Stock to be purchased by the
Underwriters pursuant to such option are referred to herein as the "Option
Securities", and the Firm Securities and any Option Securities are collectively
referred to herein as the "Securities".
2. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, each of the several Underwriters that:
- ---------
1 Plus an option purchase from InterVU Inc. up to 375,000 additional shares
to cover over-allotments.
<PAGE> 2
(a) The Company meets the requirements for use of Form S-3 under the
Securities Act of 1933, as amended (the "Act"). A registration statement on such
Form (File No. 333-75283) with respect to the Securities, including a prospectus
subject to completion, has been filed by the Company with the Securities and
Exchange Commission (the "Commission") under the Act, and one or more amendments
to such registration statement may have been so filed. After the execution of
this Agreement, the Company will file with the Commission either (i) if such
registration statement, as it may have been amended, has been declared by the
Commission to be effective under the Act, either (A) if the Company relies on
Rule 434 under the Act, a Term Sheet (as hereinafter defined) relating to the
Securities, that shall identify the Preliminary Prospectus (as hereinafter
defined) that it supplements and, if required to be filed pursuant to Rules
434(c)(2) and 424(b), an Integrated Prospectus (as hereinafter defined), in
either case, containing such information as is required or permitted by Rule
434, 430A and 424(b) under the Act or (B) if the Company does not rely on Rule
434 under the Act, a prospectus in the form most recently included in an
amendment to such registration statement (or, if no such amendment shall have
been filed, in such registration statement), with such changes or insertions as
are required by Rule 430A under the Act or permitted by Rule 424(b) under the
Act, and in the case of clause (i)(A) or (i)(B) of this sentence as have been
provided to and approved by the Representatives prior to the execution of this
Agreement, or (ii) if such registration statement, as it may have been amended,
has not been declared by the Commission to be effective under the Act, an
amendment to such registration statement, including a form of prospectus, a copy
of which amendment has been furnished to and approved by the Representatives
prior to the execution of this Agreement. The Company may also file a related
registration statement with the Commission pursuant to Rule 462(b) under the Act
for the purpose of registering certain additional Securities, which registration
shall be effective upon filing with the Commission. As used in this Agreement,
the term "Original Registration Statement" means the registration statement
initially filed relating to the Securities, as amended at the time when it was
or is declared effective, including (A) all financial schedules and exhibits
thereto, (B) all documents incorporated by reference therein filed under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and (C) any
information omitted therefrom pursuant to Rule 430A under the Act and included
in the Prospectus (as hereinafter defined) or, if required to be filed pursuant
to Rule 434(c)(2) and 424(b), in the Integrated Prospectus; the term "Rule
462(b) Registration Statement" means any registration statement filed with the
Commission pursuant to Rule 462(b) under the Act (including the Registration
Statement and any Preliminary Prospectus or Prospectus incorporated therein at
the time such Registration Statement becomes effective); the term "Registration
Statement" includes both the Original Registration Statement and any Rule 462(b)
Registration Statement; the term "Preliminary Prospectus" means each prospectus
subject to completion filed with such registration statement or any amendment
thereto (including the prospectus subject to completion, if any, included in the
Registration Statement or any amendment thereto at the time it was or is
declared effective), including all documents incorporated by reference therein
filed under the Exchange Act; the term "Prospectus" means:
(A) if the Company relies on Rule 434 under the Act, the Term Sheet
relating to the Securities that is first filed pursuant to Rule
424(b)(7) under the Act, together with the preliminary Prospectus
identified therein that such Term Sheet supplements:
-2-
<PAGE> 3
(B) if the Company does not rely on Rule 434 under the Act, the
prospectus first filed with the Commission pursuant to Rule 424(b) under
the Act; or
(C) if the Company does not rely on Rule 434 under the Act and if no
prospectus is required to be filed pursuant to Rule 424(b) under the
Act, the prospectus included in the Registration Statement,
including, in the case of clauses (A), (B) or (C) of this sentence, all
documents incorporated by reference therein filed under the Exchange
Act;
the term "Integrated Prospectus" means a prospectus first filed with the
Commission pursuant to Rules 434(c)(2) and 424(b) under the Act; and the Term
"Term Sheet" means any abbreviated term sheet that satisfies the requirements of
Rule 434 under the Act. Any reference in this Agreement to an "amendment or
supplement" to any Preliminary Prospectus, Prospectus or any Integrated
Prospectus or an "amendment" to any registration statement (including the
Registration Statement) shall be deemed to include any document incorporated by
reference therein that is filed with the Commission under the Exchange Act after
the date of such Preliminary Prospectus, Prospectus, Integrated Prospectus or
registration statement, as the case may be; any reference herein to the "date"
of a Prospectus that includes a Term Sheet shall mean the date of such Term
Sheet. For purposes of the preceding sentence, any reference to the "effective
date" of an amendment to a registration statement shall, if such amendment is
effected by means of the filing with the Commission under the Exchange Act of a
document incorporated by reference in such registration statement, be deemed to
refer to the date on which such document was so filed with the Commission.
(b) The Commission has not issued any order preventing or suspending the
use of any Preliminary Prospectus. When any Preliminary Prospectus and any
amendment or supplement thereto was filed with the Commission, it (i) contained
all statements required to be stated therein in accordance with, and complied in
all material respects with the requirements of, the Act, the Exchange Act and
the respective rules and regulations of the Commission thereunder, and (ii) did
not include any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. When the
Registration Statement or any amendment thereto was or is declared effective, it
(i) contained or will contain all statements required to be stated therein in
accordance with, and complied or will comply in all material respects with the
requirements of, the Act, the Exchange Act and the respective rules and
regulations of the Commission thereunder and (ii) did not or will not include
any untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading. When the Prospectus or
any Term Sheet that is a part thereof or any Integrated Prospectus or any
amendment or supplement thereto is filed with the Commission pursuant to Rule
424(b) (or, if the Prospectus or part thereof or such amendment or supplement is
not required to be so filed, when the Registration Statement or the amendment
thereto containing such amendment or supplement to the Prospectus was or is
declared effective), on the date when the Prospectus is otherwise amended or
supplemented and on the Firm Closing Date and any Option Closing Date (both as
hereinafter defined), each of the Prospectus, and, if required to be filed
pursuant to Rules 434(c)(2) and 424(b) under the Act, the Integrated
-3-
<PAGE> 4
Prospectus as amended or supplemented at any such time, (i) contained or will
contain all statements required to be stated therein in accordance with, and
complied or will comply in all material respects with the requirements of, the
Act, the Exchange Act and the respective rules and regulations of the Commission
thereunder and (ii) did not or will not include any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. The foregoing provisions of this paragraph (b) do not
apply to statements or omissions made in any Preliminary Prospectus or any
amendment or supplement thereto, or, if required to be filed pursuant to Rules
434(c)(2) and 424(b) under the Act, the Integrated Prospectus or any amendment
or supplement thereto in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through the
Representatives specifically for use therein.
(c) If the Company has elected to rely on Rule 462(b) and the Rule
462(b) Registration has not been declared effective (i) the Company has filed a
Rule 462(b) Registration Statement in compliance with and that is effective upon
filing pursuant to Rule 462(b) and has received confirmation of its receipt and
(ii) the Company has given irrevocable instructions for transmission of the
applicable filing fee in connection with the filing of the Rule 462(b)
Registration Statement, in compliance with Rule 111 promulgated under the Act or
the Commission has received payment of such filing fee.
(d) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware and is duly
qualified to transact business as a foreign corporation and is in good standing
under the laws of all other jurisdictions where the ownership or leasing of its
properties or the conduct of its business requires such qualification, except
where the failure to be so qualified does not amount to a material liability or
disability to the Company. The Company does not have any subsidiaries.
(e) The Company has full power (corporate and other) to own or lease its
properties and conduct its business as described in the Registration Statement,
the Prospectus and any Integrated Prospectus or, if the Prospectus and any
required Integrated Prospectus are not in existence, the most recent Preliminary
Prospectus; and the Company has full power (corporate and other) to enter into
this Agreement and to carry out all the terms and provisions hereof to be
carried out by it.
(f) The Company has an authorized, issued and outstanding capitalization
as set forth in each of the Prospectus and any Integrated Prospectus or, if the
Prospectus and any required Integrated Prospectus are not in existence, the most
recent Preliminary Prospectus. All of the issued shares of capital stock of the
Company have been duly authorized and validly issued and are fully paid and
nonassessable. The Firm Securities and the Option Securities have been duly
authorized and at the Firm Closing Date or the related Option Closing Date (as
the case may be), after payment therefor in accordance herewith, will be validly
issued, fully paid and nonassessable. No holders of outstanding shares of
capital stock of the Company are entitled as such to any preemptive or other
rights to subscribe for any of the Securities, and no holder of securities of
the Company has any right which has not been fully exercised or waived to
require the Company to register the offer or sale of any securities owned by
such holder under the Act in the public offering contemplated by this agreement.
-4-
<PAGE> 5
(g) The capital stock of the Company conforms to the description thereof
contained in each of the Prospectus and any Integrated Prospectus or, if the
Prospectus and any required Integrated Prospectus are not in existence, the most
recent Preliminary Prospectus.
(h) Except as disclosed in each of the Prospectus and any Integrated
Prospectus (or, if the Prospectus and any required Integrated Prospectus are not
in existence, the most recent Preliminary Prospectus), there are not outstanding
(A) securities or obligations of the Company convertible into or exchangeable
for any capital stock of the Company, (B) warrants, rights or options to
subscribe for or purchase from the Company any such capital stock or any such
convertible or exchangeable securities or obligations, or (C) obligations of the
Company to issue any shares of capital stock, any such convertible or
exchangeable securities or obligations, or any such warrants, rights or options.
(i) The financial statements and schedules of the Company included in
the Registration Statement and each of the Prospectus and any Integrated
Prospectus (or, if the Prospectus and any required Integrated Prospectus are not
in existence, the most recent Preliminary Prospectus) fairly present the
financial position of the Company and the results of operations and changes in
financial condition as of the dates and periods therein specified. Such
financial statements and schedules have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods involved (except as otherwise noted therein). The selected financial
data set forth under the caption "Selected Financial Data" in each of the
Prospectus and any Integrated Prospectus (or, if the Prospectus and any required
Integrated Prospectus are not in existence, the most recent Preliminary
Prospectus) and in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998, fairly present, on the basis stated in each of the
Prospectus and any Integrated Prospectus (or such Preliminary Prospectus) and
such Annual Report, the information included therein.
(j) Ernst & Young, who have certified certain financial statements of
the Company and delivered their report with respect to the audited financial
statements and schedules included in the Registration Statement, the Prospectus
and any Integrated Prospectus (or, if the Prospectus and any required Integrated
Prospectus are not in existence, the most recent Preliminary Prospectus), are
independent public accountants as required by the Act, the Exchange Act and the
related published rules and regulations thereunder.
(k) The execution and delivery of this Agreement have been duly
authorized by the Company and this Agreement has been duly executed and
delivered by the Company, and is the valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms.
(l) No legal or governmental proceedings are pending to which the
Company is a party or to which the property of the Company is subject that is
required to be described in the Registration Statement, the Prospectus and any
Integrated Prospectus (or, if the Prospectus and any required Integrated
Prospectus are not in existence, the most recent Preliminary Prospectus), and no
such proceedings have been threatened against the Company or with respect to any
of its properties; and no contract or other document is required to be described
in the Registration Statement, the
-5-
<PAGE> 6
Prospectus or any Integrated Prospectus or to be filed as an exhibit to the
Registration Statement that is not described therein (or, if the Prospectus and
any required Integrated Prospectus are not in existence, the most recent
Preliminary Prospectus) or filed as required.
(m) The issuance, offering and sale of the Securities to the
Underwriters by the Company pursuant to this Agreement, the compliance by the
Company with the other provisions of this Agreement and the consummation of the
other transactions herein contemplated do not (i) require the consent, approval,
authorization, registration or qualification of or with any governmental
authority, except such as have been obtained, such as may be required under
state securities or blue sky laws and, if the registration statement filed with
respect to the Securities (as amended) is not effective under the Act as of the
time of execution hereof, such as may be required (and shall be obtained as
provided in this Agreement) under the Act, or (ii) conflict with or result in a
breach or violation of any of the terms and provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, lease or other agreement
or instrument to which the Company is a party or by which the Company or any of
its properties are bound, or the charter documents or by-laws of the Company, or
any statute or any judgment, decree, order, rule or regulation of any court or
other governmental authority or any arbitrator applicable to the Company.
(n) Subsequent to the respective dates as of which information is given
in the Registration Statement, the Prospectus or any Integrated Prospectus or,
if the Prospectus and any required Integrated Prospectus are not in existence,
the most recent Preliminary Prospectus, the Company has not sustained any
material loss or interference with its business or properties from fire, flood,
hurricane, accident or other calamity, whether or not covered by insurance, or
from any labor dispute or any legal or governmental proceeding and there has not
been any material adverse change, or any development involving a prospective
material adverse change, in the condition (financial or otherwise), management,
business prospects, net worth, or results of operations of the Company (a
"Material Adverse Effect"), except in each case as described in or contemplated
by the Prospectus and any Integrated Prospectus or, if the Prospectus and any
required Integrated Prospectus are not in existence, the most recent Preliminary
Prospectus.
(o) The Company has not, directly or indirectly, (i) taken any action
designed to cause or to result in, or that has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the
Securities or (ii) since the filing of the Registration Statement (A) sold, bid
for, purchased, or paid anyone any compensation for soliciting purchases of, the
Securities or (B) paid or agreed to pay to any person any compensation for
soliciting another to purchase any other securities of the Company.
(p) The Company has not distributed and, prior to the later of (i) the
Closing Date and (ii) the completion of the distribution of the Securities, will
not distribute any offering material in connection with the offering and sale of
the Securities other than the Registration Statement or any amendment thereto,
any Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto, or other materials, if any permitted by the Act.
-6-
<PAGE> 7
(q) Subsequent to the respective dates as of which information is given
in the Registration Statement, the Prospectus and any Integrated Prospectus (or,
if the Prospectus and any required Integrated Prospectus are not in existence,
the most recent Preliminary Prospectus), (1) the Company has not incurred any
material liability or obligation, direct or contingent, nor entered into any
material transaction not in the ordinary course of business; (2) the Company has
not purchased any of its outstanding capital stock, nor declared, paid or
otherwise made any dividend or distribution of any kind on its capital stock;
and (3) there has not been any material change in the capital stock, short-term
debt or long-term debt of the Company, except in each case as described in or
contemplated by the Prospectus and any Integrated Prospectus (or, if the
Prospectus and any required Integrated Prospectus are not in existence, the most
recent Preliminary Prospectus).
(r) The Company has good and marketable title in fee simple to all items
of real property and marketable title to all personal property owned by it, in
each case free and clear of any security interests, liens, encumbrances,
equities, claims and other defects, except such as do not materially and
adversely affect the value of such property and do not interfere with the use
made or proposed to be made of such property by the Company, and any real
property and buildings held under lease by the Company are held under valid,
subsisting and enforceable leases, with such exceptions as are not material and
do not interfere with the use made or proposed to be made of such property and
buildings by the Company, in each case except as described in or contemplated by
the Prospectus and any Integrated Prospectus (or, if the Prospectus and any
required Integrated are not in existence, the most recent Preliminary
Prospectus).
(s) No labor dispute with the employees of the Company exists or is
threatened or imminent that could have a Material Adverse Effect, except as
described in or contemplated by the Prospectus and any Integrated Prospectus
(or, if the Prospectus and any required Integrated Prospectus are not in
existence, the most recent Preliminary Prospectus).
(t) The Company owns and has the unrestricted right to use all material
patents, patent applications, trademarks, service marks, trade names, licenses,
copyrights, trade secrets, know-how (including all other unpatented and/or
unpatentable proprietary or conditional information, systems or procedures),
inventions, designs, processes, works of authorship, computer programs and
technical data and information (collectively herein "intellectual property")
that are material to the development, manufacture, operation, sale or use of
products or services sold or provided or proposed to be sold or provided by the
Company, free and clear of and without violating any right, lien, or claim of
others, including without limitation, former employers of its employees, and the
Company has not received any notice of infringement of or conflict with asserted
rights of any third party with respect to any of the foregoing which, singly or
in the aggregate, if the subject of an unfavorable decision, ruling or finding,
would have a Material Adverse Effect, except as described in or contemplated by
the Prospectus and any Integrated Prospectus (or, if the Prospectus and any
required Integrated Prospectus are not in existence, the most recent Preliminary
Prospectus).
(u) The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the businesses in which they are engaged; the Company has not
been refused any insurance coverage sought or applied for;
-7-
<PAGE> 8
and the Company has no reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a Material Adverse Effect, except as
described in or contemplated by the Prospectus and any Integrated Prospectus
(or, if the Prospectus and any required Integrated Prospectus are not in
existence, the most recent Preliminary Prospectus).
(v) The Company possesses all certificates, authorizations and permits
issued by the appropriate federal, state or foreign regulatory authorities
necessary to conduct its business, and the Company has not received any notice
of proceedings relating to the revocation or modification of any such
certificate, authorization or permit which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would have a Material
Adverse Effect, except as described in or contemplated by the Prospectus and any
Integrated Prospectus (or, if the Prospectus and any required Integrated
Prospectus are not in existence, the most recent Preliminary Prospectus).
(w) The Company is not an "investment company" as such term is defined
in the Investment Company Act of 1940, as amended, and this transaction will not
cause the Company to become an investment company subject to registration under
such Act.
(x) The Company has filed all foreign, federal, state and local tax
returns that are required to be filed or has requested extensions thereof
(except in any case in which the failure to so file would not have a Material
Adverse Effect) and has paid all taxes required to be paid by it and any other
assessment, fine or penalty levied against it, to the extent that any of the
foregoing is due and payable, except for any such assessment, fine or penalty
that is currently being contested in good faith or as described in or
contemplated by the Prospectus and any Integrated Prospectus (or, if the
Prospectus and any required Integrated Prospectus are not in existence, the most
recent Preliminary Prospectus).
(y) The Company does not own any shares of stock or any other equity
securities of any corporation or have any equity interest in any firm,
partnership, association or other entity, except as described in or contemplated
by the Prospectus and any Integrated Prospectus (or, if the Prospectus and any
Integrated prospectus are not in existence, the most recent Preliminary
Prospectus).
(z) No default exists, and no event has occurred which, with notice or
lapse of time or both, would constitute a default in the due performance and
observance of any term, covenant or condition of any indenture, mortgage, deed
of trust, lease or other agreement or instrument to which the Company is a party
or by which the Company or any of its respective properties is bound or may be
affected in any material adverse respect with regard to property, business or
operations of the Company.
(aa) The Common Stock is registered pursuant to Section 12(b) or 12(g)
of the Exchange Act and is listed on the Nasdaq Stock Market's National Market
(the "Nasdaq National Market"), and the Company has taken no action designed to,
or likely to have the effect of, terminating the registration of the Common
Stock under the Exchange Act or delisting the Common Stock from the Nasdaq
National Market.
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<PAGE> 9
(bb) Each certificate signed by any officer of the Company and delivered
to the Representatives or counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company to each Underwriter as to the matters
covered thereby.
3. Purchase, Sale and Delivery of the Securities. (a) On the basis of
the representations, warranties, agreements and covenants herein contained and
subject to the terms and conditions herein set forth, the Company agrees to
issue and sell to each of the Underwriters, and each of the Underwriters,
severally and not jointly, agrees to purchase from the Company, at a purchase
price of $_______ per share, the number of Firm Securities set forth opposite
the name of such Underwriter in Schedule 1 hereto. One or more certificates in
definitive form for the Firm Securities that the several Underwriters have
agreed to purchase hereunder, and in such denomination or denominations and
registered in such name or names as the Representatives request upon notice to
the Company at least 48 hours prior to the Firm Closing Date, shall be delivered
by or on behalf of the Company to the Representatives for the respective
accounts of the Underwriters, against payment by or on behalf of the
Underwriters of the purchase price therefor by wire transfer in same-day funds
(the "Wired Funds") to the account of the Company. Such delivery of and payment
for the Firm Securities shall be made at the offices of Schulte Roth & Zabel
LLP, 900 Third Avenue, New York, New York 10022, at 9:30 A.M., New York time, on
, 1999, or at such other place, time or date as the Representatives and
the Company may agree upon or as the Representatives may determine pursuant to
Section 9 hereof, such time and date of delivery against payment being herein
referred to as the "Firm Closing Date". The Company will make such certificate
or certificates for the Firm Securities available for checking and packaging by
the Representatives at the offices in New York, New York of the Company's
transfer agent or registrar or of Prudential Securities Incorporated at least 24
hours prior to the Firm Closing Date.
(b) For the purpose of covering any over-allotments in connection with
the distribution and sale of the Firm Securities as contemplated by the
Prospectus, the Company hereby grants to the several Underwriters an option to
purchase, severally and not jointly, the Option Securities. The purchase price
to be paid for any Option Securities shall be the same price per share as the
price per share for the Firm Securities set forth above in paragraph (a) of this
Section 3. The option granted hereby may be exercised as to all or any part of
the Option Securities from time to time within thirty days after the date of the
Prospectus (or, if such 30th day shall be a Saturday or Sunday or a holiday, on
the next business day thereafter when the New York Stock Exchange is open for
trading). The Underwriters shall not be under any obligation to purchase any of
the Option Securities prior to the exercise of such option. The Representatives
may from time to time exercise the option granted hereby by giving notice in
writing or by telephone (confirmed in writing) to the Company setting forth the
aggregate principal amount of Option Securities as to which the several
Underwriters are then exercising the option and the date and time for delivery
of and payment for such Option Securities. Any such date of delivery shall be
determined by the Representatives but shall not be earlier than two business
days or later than five business days after such exercise of the option and, in
any event, shall not be earlier than the Firm Closing Date. The time and date
set forth in such notice, or such other time on such other date as the
Representatives and the Company may agree upon or as the Representatives may
determine pursuant to Section 9 hereof, is herein called the "Option Closing
Date" with respect to such Option Securities. Upon exercise of the option as
provided herein, the Company shall become obligated to sell to each of the
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<PAGE> 10
several Underwriters, and, subject to the terms and conditions herein set forth,
each of the Underwriters (severally and not jointly) shall become obligated to
purchase from the Company, the same percentage of the total number of the Option
Securities as to which the several Underwriters are then exercising the option
as such Underwriter is obligated to purchase of the aggregate number of Firm
Securities, as adjusted by the Representatives in such manner as they deem
advisable to avoid fractional Shares. If the option is exercised as to all or
any portion of the Option Securities, one or more certificates in definitive
form for such Option Securities, and payment therefor, shall be delivered on the
related Option Closing Date in the manner, and upon the terms and conditions,
set forth in paragraph (a) of this Section 3, except that reference therein to
the Firm Securities and the Firm Closing Date shall be deemed, for purposes of
this paragraph (b), to refer to such Option Securities and Option Closing Date,
respectively.
(c) The Company hereby acknowledges that the wire transfer by or on
behalf of the Underwriters of the purchase price for any Shares does not
constitute closing of a purchase and sale of the Shares. Only execution and
delivery of a receipt for Shares by the Underwriters indicates completion of the
closing of a purchase of the Shares from the Company. Furthermore, in the event
that the Underwriters wire funds to the Company prior to the completion of the
closing of a purchase of Shares, the Company hereby acknowledges that until the
Underwriters execute and deliver a receipt for the Shares, by facsimile or
otherwise, the Company will not be entitled to the Wired Funds and shall return
the Wired Funds to the Underwriters as soon as practicable (by wire transfer of
same-day funds) upon demand. In the event that the closing of a purchase of
Shares is not completed and the Wired Funds are not returned by the Company to
the Underwriters on the same day the Wired Funds were received by the Company,
the Company agrees to pay to the Underwriters in respect of each day the Wired
Funds are not returned by it, in same-day funds, interest on the amount of such
Wired Funds in an amount representing the Underwriters' cost of financing as
reasonably determined by Prudential Securities Incorporated.
(d) It is understood that any of you, individually and not as one of the
Representatives, may (but shall not be obligated to) make payment on behalf of
any Underwriter or Underwriters for any of the Securities to be purchased by
such Underwriter or Underwriters. No such payment shall relieve such Underwriter
or Underwriters from any of its or their obligations hereunder.
4. Offering by the Underwriters. Upon your authorization of the release
of the Firm Securities, the several Underwriters propose to offer the Firm
Securities for sale to the public upon the terms set forth in the Prospectus.
5. Covenants of the Company. The Company covenants and agrees with each
of the Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement, if not effective at the time of execution of this Agreement, and any
amendments thereto to become effective as promptly as possible. If required, the
Company will file each of the Prospectus and any Integrated Prospectus or any
Term Sheet that constitutes a part thereof and any amendment or supplement
thereto with the Commission in the manner and within the time period required by
Rule 434 and 424(b) under the Act. During any time when a prospectus relating to
the Securities is
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<PAGE> 11
required to be delivered under the Act, the Company (i) will comply with all
requirements imposed upon it by the Act, the Exchange Act and the Trust
Indenture Act and the respective rules and regulations of the Commission
thereunder to the extent necessary to permit the continuance of sales of or
dealings in the Securities in accordance with the provisions hereof and of the
Prospectus and any Integrated Prospectus, as then amended or supplemented, and
(ii) will not file with the Commission the prospectus or the amendment referred
to in the third sentence of Section 2(a) hereof, any amendment or supplement to
such prospectus or any amendment to the Registration Statement or any Rule
462(b) Registration Statement of which the Representatives shall not previously
have been advised and furnished with a copy for a reasonable period of time
prior to the proposed filing and as to which filing the Representatives shall
not have given their consent. The Company will prepare and file with the
Commission, in accordance with the rules and regulations of the Commission,
promptly upon request by the Representatives or counsel for the Underwriters,
any amendments to the Registration Statement or amendments or supplements to the
Prospectus and any Integrated Prospectus that may be necessary or advisable in
connection with the distribution of the Securities by the several Underwriters,
and will use its best efforts to cause any such amendment to the Registration
Statement to be declared effective by the Commission as promptly as possible.
The Company will advise the Representatives, promptly after receiving notice
thereof, of the time when the Registration Statement or any amendment thereto
has been filed or declared effective or the Prospectus and any Integrated
Prospectus or any amendment or supplement thereto has been filed and will
provide evidence satisfactory to the Representatives of each such filing or
effectiveness.
(b) The Company will advise the Representatives, promptly after
receiving notice or obtaining knowledge thereof, of (i) the issuance by the
Commission of any stop order suspending the effectiveness of the Original
Registration Statement or any Rule 462(b) Registration Statement or any
post-effective amendment thereto or any order directed at any document
incorporated by reference in the Registration Statement or any order preventing
or suspending the use of any Preliminary Prospectus, the Prospectus and any
Integrated Prospectus or any amendment or supplement thereto, (ii) the
suspension of the qualification of the Securities for offering or sale in any
jurisdiction, (iii) the institution, threatening or contemplation of any
proceeding for any such purpose or (iv) any request made by the Commission for
amending the Original Registration Statement or any Rule 462(b) Registration
Statement, for amending or supplementing any Preliminary Prospectus, the
Prospectus and any Integrated Prospectus or for additional information. The
Company will use its best efforts to prevent the issuance of any such stop order
and, if any such stop order is issued, to obtain the withdrawal thereof as
promptly as possible.
(c) The Company will arrange for the qualification of the Securities for
offering and sale under the securities or blue sky laws of such jurisdictions as
the Representatives may designate and will continue such qualifications in
effect for as long as may be necessary to complete the distribution of the
Securities, provided, however, that in connection therewith the Company shall
not be required to qualify as a foreign corporation or to execute a general
consent to service of process in any jurisdiction.
(d) If, at any time prior to the later of (i) the final date when a
prospectus relating to the Securities is required to be delivered under the Act
or (ii) the Option Closing Date, any event
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<PAGE> 12
occurs as a result of which the Prospectus or any Integrated Prospectus, as then
amended or supplemented, would include any untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, or if for any other reason it is necessary at any time to amend or
supplement the Prospectus or any Integrated Prospectus to comply with the Act,
the Exchange Act or the respective rules or regulations of the Commission
thereunder, the Company will promptly notify the Representatives thereof and,
subject to Section 5(a) hereof, will prepare and file with the Commission, at
the Company's expense, an amendment to the Registration Statement or an
amendment or supplement to the Prospectus or any Integrated Prospectus that
corrects such statement or omission or effects such compliance.
(e) The Company will, without charge, provide (i) to the Representatives
and to counsel for the Underwriters a signed copy of the registration statement
originally filed with respect to the Securities and each amendment thereto (in
each case including exhibits thereto) or any Rule 462(b) Registration Statement,
certified by the Secretary or an Assistant Secretary of the Company to be true
and complete copies thereof as filed with the Commission by electronic
transmission, (ii) to each other Underwriter, a conformed copy of such
registration statement or any Rule 462(b) Registration Statement and each
amendment thereto (in each case without exhibits thereto) and (iii) so long as a
prospectus relating to the Securities is required to be delivered under the Act,
as many copies of each Preliminary Prospectus, the Prospectus and any Integrated
Prospectus or any amendment or supplement thereto as the Representatives may
reasonably request; without limiting the application of clause (iii) of this
sentence, the Company, not later than (A) 6:00 PM, New York City time, on the
date of determination of the public offering price, if such determination
occurred at or prior to 10:00 AM, New York City time on such date or (B) 2:00
PM, New York City time, on the business day following the date of determination
of the public offering price, if such determination occurred after 10:00 AM, New
York City time, on such date, will deliver to the Underwriters, without charge,
as many copies of the Prospectus and any amendment or supplement thereto as the
Representatives may reasonably request for purposes of confirming orders that
are expected to settle on the Firm Closing Date.
(f) The Company, as soon as practicable, will make generally available
to its securityholders and to the Representatives an earnings statement of the
Company that satisfies the provisions of Section 11(a) of the Act and Rule 158
thereunder.
(g) The Company will apply the net proceeds from the sale of the
Securities as set forth under "Use of Proceeds" in the Prospectus or any
Integrated Prospectus.
(h) The Company will not, directly or indirectly, without the prior
written consent of Prudential Securities Incorporated, on behalf of the
Underwriters, offer, sell, offer to sell, contract to sell, pledge, grant any
option to purchase or otherwise sell or dispose (or announce any offer, sale,
offer of sale, contract of sale, pledge, grant of any option to purchase or
other sale or disposition) of any shares of Common Stock or any securities
convertible into, or exchangeable or exercisable for, shares of Common Stock for
a period of 180 days after the date hereof, except pursuant to this Agreement
and except for issuances pursuant to the exercise of employee stock
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<PAGE> 13
options outstanding on the date hereof, pursuant to the Company's dividend
reinvestment plan or pursuant to the terms of convertible securities of the
Company outstanding on the date hereof.
(i) The Company will not, directly or indirectly, (i) take any action
designed to cause or to result in, or that has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the
Securities or (ii) (A) sell, bid for, purchase, or pay anyone any compensation
for soliciting purchases of, the Securities or (B) pay or agree to pay to any
person any compensation for soliciting another to purchase any other securities
of the Company.
(j) The Company will obtain the agreements described in Section 7(f)
hereof prior to the Firm Closing Date.
(k) If at any time during the 25 day period after the Registration
Statement becomes effective or the period prior to the Option Closing Date, any
rumor, publication or event relating to or affecting the Company shall occur as
a result of which in your opinion the market price of the Common Stock has been
or is likely to be materially affected (regardless of whether such rumor,
publication or event necessitates a supplement to or amendment of the Prospectus
and any Integrated Prospectus), the Company will, after notice from you advising
the Company to the effect set forth above, forthwith prepare, consult with you
concerning the substance of, and disseminate a press release or other public
statement, reasonably satisfactory to you, responding to or commenting on such
rumor, publication or event.
(l) If the Company elects to rely on Rule 462(b), the Company shall both
file a Rule 462(b) Registration Statement with the Commission in compliance with
Rule 462(b) and pay the applicable fees in accordance with Rule 111 promulgated
under the Act by the earlier of (i) 10:00 P.M. Eastern time on the date of this
Agreement and (ii) the time confirmations are sent or given, as specified by
Rule 462(b)(2).
(m) The Company will cause the Securities to be duly included for
quotation on the Nasdaq National Market prior to the Firm Closing Date. The
Company will ensure that the Securities remain included for quotation on the
Nasdaq National Market following the Firm Closing Date.
6. Expenses. The Company will pay all costs and expenses incident to the
performance of its obligations under this Agreement, whether or not the
transactions contemplated herein are consummated or this Agreement is terminated
pursuant to Section 11 hereof, including all costs and expenses incident to (i)
the printing or other production of documents with respect to the transactions,
including any costs of printing the registration statement originally filed with
respect to the Securities and any amendment thereto, any Rule 462(b)
Registration Statement, any Preliminary Prospectus, the Prospectus and any
Integrated Prospectus and any amendment or supplement thereto, this Agreement
and any blue sky memoranda, (ii) all arrangements relating to the delivery to
the Underwriters of copies of the foregoing documents, (iii) the fees and
disbursements of the counsel, accountants and any other experts or advisors
retained by the Company, (iv) preparation, issuance and delivery to the
Underwriters of any certificates evidencing the Securities, including transfer
agent's and registrar's fees, (v) the qualification of the Securities
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<PAGE> 14
under state securities and blue sky laws, including filing fees and fees and
disbursements of counsel for the Underwriters relating thereto, (vi) the filing
fees of the Commission and the National Association of Securities Dealers, Inc.
relating to the Securities, (vii) the quotation of the Securities on the Nasdaq
National Market, (viii) meetings with prospective investors in the Securities
(other than shall have been specifically approved by the Representatives to be
paid for by the Underwriters) and (ix) advertising relating to the offering of
the Securities (other than shall have been specifically approved by the
Representatives to be paid for by the Underwriters). If the sale of the
Securities provided for herein is not consummated because any condition to the
obligations of the Underwriters set forth in Section 7 hereof is not satisfied,
because this Agreement is terminated pursuant to Section 11 hereof or because of
any failure, refusal or inability on the part of the Company to perform all
obligations and satisfy all conditions on its part to be performed or satisfied
hereunder other than by reason of a default by any of the Underwriters, the
Company will reimburse the Underwriters severally upon demand for all
out-of-pocket expenses (including fees and disbursements of counsel) that shall
have been incurred by them in connection with the proposed purchase and sale of
the Securities. The Company shall not in any event be liable to any of the
Underwriters for the loss of anticipated profits from the transactions covered
by this Agreement.
7. Conditions of the Underwriters' Obligations. The obligations of the
several Underwriters to purchase and pay for the Firm Securities shall be
subject, in the Representatives' sole discretion, to the accuracy of the
representations and warranties of the Company contained herein as of the date
hereof and as of the Firm Closing Date, as if made on and as of the Firm Closing
Date, to the accuracy of the statements of the Company's officers made pursuant
to the provisions hereof, to the performance by the Company of its covenants and
agreements hereunder and to the following additional conditions:
(a) If the Original Registration Statement or any amendment thereto
filed prior to the Firm Closing Date has not been declared effective as of the
time of execution hereof, Original Registration Statement or such amendment and,
if the Company has elected to rely upon Rule 462(b), the Rule 462(b)
Registration Statement shall have been declared effective not later than the
earlier of (i) 11:00 A.M., New York time, on the date on which the amendment to
the registration statement originally filed with respect to the Securities or to
the Registration Statement, as the case may be, containing information regarding
the initial public offering price of the Securities has been filed with the
Commission and (ii) the time confirmations are sent or given as specified by
Rule 462(b)(2), or with respect to the Original Registration Statement, or such
later time and date as shall have been consented to by the Representatives; if
required, the Prospectus or any Term Sheet that constitutes a part thereof and
any Integrated Prospectus and any amendment or supplement thereto shall have
been filed with the Commission in the manner and within the time period required
by Rule 434 and 424(b) under the Act; no stop order suspending the effectiveness
of the Registration Statement or any post-effective amendment thereto and no
order directed at any document incorporated by reference in the Registration
Statement, the Prospectus or any Integrated Prospectus or any amendment or
supplement thereto shall have been issued and no proceedings for that purpose
shall have been instituted or threatened or, to the knowledge of the Company or
the Representatives, shall be contemplated by the Commission; and the Company
shall have complied
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<PAGE> 15
with any request of the Commission for additional information (to be included in
the Registration Statement, the Prospectus or any Integrated Prospectus or
otherwise).
(b) The Representatives shall have received an opinion, dated the Firm
Closing Date, of Latham & Watkins, counsel for the Company, to the effect that:
(i) the Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware and
is duly qualified to transact business as a foreign corporation and is
in good standing under the laws of all other jurisdictions where the
ownership or leasing of its properties or the conduct of its business
requires such qualification, except where the failure to be so qualified
does not amount to a material liability or disability to the Company,
taken as a whole;
(ii) the Company has corporate power to own or lease its properties and
conduct its business as described in the Registration Statement and the
Prospectus or any Integrated Prospectus, and the Company has corporate
power to enter into this Agreement and to carry out all the terms and
provisions hereof and thereof to be carried out by it;
(iii) the Company has an authorized, issued and outstanding
capitalization as set forth in each of the Prospectus and any Integrated
Prospectus; all of the issued shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid and
nonassessable, have been issued in compliance with all applicable
federal and state securities laws and were not issued in violation of or
subject to any preemptive rights or other rights to subscribe for or
purchase securities; the Firm Securities have been duly authorized by
all necessary corporate action of the Company and, when issued and
delivered to and paid for by the Underwriters pursuant to this
Agreement, will be validly issued, fully paid and nonassessable; the
Securities have been duly included for trading on the Nasdaq National
Market; no holders of outstanding shares of capital stock of the Company
are entitled as such to any preemptive or other rights to subscribe for
any of the Securities; and no holders of securities of the Company are
entitled to have such securities registered under the Registration
Statement;
(iv) the statements set forth under the heading "Description of Capital
Stock" in each of the Prospectus and any Integrated Prospectus, insofar
as such statements purport to summarize certain provisions of the
capital stock of the Company, provide a fair summary of such provisions;
and the statements set forth under the headings "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results
of Operations," "Business," "Principal Stockholders," "Legal Matters,"
"Executive Compensation" and "Certain Relationships and Related
Transactions" in each of the Prospectus and any Integrated Prospectus,
insofar as such statements constitute a summary of the legal matters,
documents or proceedings referred to therein, provide a fair summary of
such legal matters, documents and proceedings;
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<PAGE> 16
(v) the execution and delivery of this Agreement have been duly
authorized by all necessary corporate action of the Company and this
Agreement has been duly executed and delivered by the Company;
(vi) no legal or governmental proceedings are pending to which the
Company is a party or to which the property of the Company is subject
that are required to be described in the Registration Statement, the
Prospectus and any Integrated Prospectus and are not described therein,
and, to the best knowledge of such counsel, no such proceedings have
been threatened against the Company or with respect to any of its
properties; and no contract or other document is required to be
described in the Registration Statement, the Prospectus and any
Integrated Prospectus or to be filed as an exhibit to the Registration
Statement that is not described therein or filed as required;
(vii) the issuance, offering and sale of the Securities to the
Underwriters by the Company pursuant to this Agreement, the compliance
by the Company with the other provisions of this Agreement and the
consummation of the other transactions herein contemplated do not (A)
require the consent, approval, authorization, registration or
qualification of or with any governmental authority, except such as have
been obtained and such as may be required under state securities or blue
sky laws, or (B) conflict with or result in a breach or violation of any
of the terms and provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, lease or other agreement or
instrument, known to such counsel, to which the Company is a party or by
which the Company or any of its properties are bound, or the charter
documents or by-laws of the Company, or any statute or any judgment,
decree, order, rule or regulation of any court or other governmental
authority or any arbitrator known to such counsel and applicable to the
Company;
(viii) the Registration Statement is effective under the Act; any
required filing of the Prospectus, or any Term Sheet that constitutes a
part thereof, and any Integrated Prospectus pursuant to Rules 434 and
424(b) has been made in the manner and within the time period required
by Rules 434 and 424(b); and no stop order suspending the effectiveness
of the Registration Statement or any post-effective amendment thereto
and no order directed at any document incorporated by reference in the
Registration Statement, the Prospectus and any Integrated Prospectus or
any amendment or supplement thereto has been issued, and no proceedings
for that purpose have been instituted or threatened or, to the best
knowledge of such counsel, are contemplated by the Commission;
(ix) the Registration Statement originally filed with respect to the
Securities and each amendment thereto and any Rule 462(b) Registration
Statement, the Prospectus and any Integrated Prospectus (in each case,
including the documents incorporated by reference therein but not
including the financial statements and other financial information
contained therein, as to which such counsel need express no opinion)
comply as to form in all material respects with the applicable
requirements of the Act,
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<PAGE> 17
the Exchange Act and the respective rules and regulations of the
Commission thereunder;
(x) If the Company elects to rely on Rule 434, the Prospectus is not
"materially different", as such term is used in Rule 434, from the
prospectus included in the Registration Statement at the time of its
effectiveness or any effective post-effective amendment thereto
(including such information that is permitted to be omitted pursuant to
Rule 430A); and
(xi) The Company is not an investment company, as such term is defined
in the Investment Company Act of 1940, as amended, and this transaction
will not cause the Company to become an investment company subject to
registration under such Act.
Such counsel shall also state that they have no reason to believe that the
Registration Statement, as of its effective date, contained any untrue statement
of a material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading or that the
Prospectus and any Integrated Prospectus, as of its date or the date of such
opinion, included or includes any untrue statement of a material fact or omitted
or omits to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deems proper, on certificates of responsible
officers of the Company and public officials.
References to the Registration Statement, the Prospectus and any
Integrated Prospectus in this paragraph (b) shall include any amendment or
supplement thereto at the date of such opinion.
(c) The Representatives shall have received an opinion, dated the Firm
Closing Date, of Schulte Roth & Zabel LLP, 900 Third Avenue, New York, New York
10022, counsel for the Underwriters, with respect to the issuance and sale of
the Firm Securities, the Registration Statement, the Prospectus and any
Integrated Prospectus, and such other related matters as the Representatives may
reasonably require, and the Company shall have furnished to such counsel such
documents as they may reasonably request for the purpose of enabling them to
pass upon such matters.
(d) The Representatives shall have received an opinion, dated the Firm
Closing Date, of Darby & Darby, special intellectual property counsel to the
Company, covering such intellectual property matters as the Representatives may
reasonably require, and otherwise in form and substance reasonably satisfactory
to the Representatives.
(e) The Representatives shall have received from Ernst & Young LLP a
letter or letters dated, respectively, the date hereof and the Firm Closing
Date, in form and substance satisfactory to the Representatives, to the effect
that:
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<PAGE> 18
(i) they are independent accountants with respect to the Company within
the meaning of the Act, the Exchange Act and the applicable rules and
regulations thereunder;
(ii) in their opinion, the audited financial statements and schedules
examined by them and included in the Registration Statement, the
Prospectus and any Integrated Prospectus comply in form in all material
respects with the applicable accounting requirements of the Act, the
Exchange Act and the related published rules and regulations thereunder;
(iii) on the basis of carrying out certain specified procedures (which
do not constitute an examination made in accordance with generally
accepted auditing standards), a reading of the minute books of the
shareholders, the board of directors and any committees thereof of the
Company and inquiries of certain officials of the Company who have
responsibility for financial and accounting matters, nothing came to
their attention that caused them to believe that at a specific date not
more than five business days prior to the date of such letter, there was
any change in the capital stock, increase in long-term debt or decrease
in net current assets or stockholders' equity of the Company, in each
case compared with amounts shown on the December 31, 1998 balance sheet
included in the Registration Statement, the Prospectus and any
Integrated Prospectus, or for the period from January 1, 1999 to such
specified date there were any decreases, as compared with the
corresponding period in the preceding year in revenues, net income
before income taxes or total or per share amounts of net income of the
Company, or increases in net loss, except in all instances for changes,
decreases or increases set forth in such letter; and
(iv) they have carried out certain specified procedures, not
constituting an audit, with respect to certain amounts, percentages and
financial information that are derived from the general accounting
records of the Company and are included in the Registration Statement,
the Prospectus and any Integrated Prospectus under the captions
"Prospectus Summary," "Risk Factors," "Use of Proceeds," "Dilution,"
"Capitalization," "Selected Financial Data," "Management's Discussion
and Analysis of Financial Condition and Results of Operations,"
"Business," "Management" and "Principal Stockholders" and under Items 1,
5, 6, 7, 11, 12 and 13 of the Company's 10-K for the year ended December
31, 1998, incorporated by reference in the Registration Statement, the
Prospectus and any Integrated Prospectus, and have compared such
amounts, percentages and financial information with such records of the
Company and its consolidated subsidiaries and with information derived
from such records and have found them to be in agreement, excluding any
questions of legal interpretation.
In the event that the letters referred to above set forth any such
changes, decreases or increases, it shall be a further condition to the
obligations of the Underwriters that (A) such letters shall be accompanied by a
written explanation of the Company as to the significance thereof, unless the
Representatives deem such explanation unnecessary, and (B) such changes,
decreases or
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<PAGE> 19
increases do not, in the sole judgment of the Representatives, make it
impractical or inadvisable to proceed with the purchase and delivery of the
Securities as contemplated by the Registration Statement, as amended as of the
date hereof.
References to the Registration Statement, the Prospectus and any
Integrated Prospectus in this paragraph (d) with respect to either letter
referred to above shall include any amendment or supplement thereto at the date
of such letter.
(f) The Representatives shall have received a certificate, dated the
Firm Closing Date, of Harry E. Gruber and Kenneth L. Ruggiero of the Company to
the effect that:
(i) the representations and warranties of the Company in this Agreement
are true and correct as if made on and as of the Firm Closing Date; the
Registration Statement, as amended as of the Firm Closing Date, does not
include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein not misleading,
and the Prospectus and any Integrated Prospectus, as amended or
supplemented as of the Firm Closing Date, does not include any untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and the
Company has performed all covenants and agreements and satisfied all
conditions on its part to be performed or satisfied at or prior to the
Firm Closing Date;
(ii) no stop order suspending the effectiveness of the Registration
Statement or any post-effective amendment thereto and no order directed
at any document incorporated by reference in the Registration Statement
or the Prospectus or any amendment or supplement thereto has been
issued, and no proceedings for that purpose have been instituted or
threatened or, to the best of the Company's knowledge, are contemplated
by the Commission; and
(iii) subsequent to the respective dates as of which information is
given in the Registration Statement, the Prospectus and any Integrated
Prospectus, the Company has not sustained any material loss or
interference with its business or properties from fire, flood,
hurricane, accident or other calamity, whether or not covered by
insurance, or from any labor dispute or any legal or governmental
proceeding, and there has not been any Material Adverse Effect, except
in each case as described in or contemplated by the Prospectus and any
Integrated Prospectus.
(g) The Representatives shall have received from each person who is a
director or officer of the Company or, to the extent so requested, who owns
shares of Common Stock, an agreement to the effect that such person will not,
directly or indirectly, without the prior written consent of Prudential
Securities Incorporated, on behalf of the Underwriters, offer, sell, offer to
sell, contract to sell, pledge, grant any option to purchase or otherwise sell
or dispose (or announce any offer, sale, offer of sale, contract of sale,
pledge, grant of an option to purchase or other sale or disposition) of any
shares of Common Stock or any securities
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<PAGE> 20
convertible into, or exchangeable or exercisable for, shares of Common Stock for
a period of __ days after the date of this Agreement.
(h) On or before the Firm Closing Date, the Representatives and counsel
for the Underwriters shall have received such further certificates, documents or
other information as they may have reasonably requested from the Company.
(i) Prior to the commencement of the offering of the Securities, the
Securities shall have been included for trading on the Nasdaq National Market.
All opinions, certificates, letters and documents delivered pursuant to
this Agreement will comply with the provisions hereof only if they are
reasonably satisfactory in all material respects to the Representatives and
counsel for the Underwriters. The Company shall furnish to the Representatives
such conformed copies of such opinions, certificates, letters and documents in
such quantities as the Representatives and counsel for the Underwriters shall
reasonably request.
The respective obligations of the several Underwriters to purchase and
pay for any Option Securities shall be subject, in their discretion, to each of
the foregoing conditions to purchase the Firm Securities, except that all
references to the Firm Securities and the Firm Closing Date shall be deemed to
refer to such Option Securities and the related Option Closing Date,
respectively.
8. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless each Underwriter
and each person, if any, who controls any Underwriter within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act against any losses,
claims, damages or liabilities, joint or several, to which such Underwriter or
such controlling person may become subject under the Act, the Exchange Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon:
(i) any untrue statement or alleged untrue statement made by the Company
in Section 2 of this Agreement,
(ii) any untrue statement or alleged untrue statement of any material
fact contained in (A) the Registration Statement or any amendment
thereto, any Preliminary Prospectus, the Prospectus and any Integrated
Prospectus or any amendment or supplement thereto or (B) any application
or other document, or any amendment or supplement thereto, executed by
the Company or based upon written information furnished by or on behalf
of the Company filed in any jurisdiction in order to qualify the
Securities under the securities or blue sky laws thereof or filed with
the Commission or any securities association or securities exchange
(each an "Application"),
(iii) the omission or alleged omission to state in the Registration
Statement or any amendment thereto, any Preliminary Prospectus, the
Prospectus and any Integrated Prospectus or any amendment or supplement
thereto, or any Application a material
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<PAGE> 21
fact required to be stated therein or necessary to make the statements
therein not misleading or
(iv) any untrue statement or alleged untrue statement of any material
fact contained in any audio or visual materials used in connection with
the marketing of the Securities, including without limitation, slides,
videos, films, tape recordings,
and will reimburse, as incurred, each Underwriter and each such
controlling person for any legal or other expenses reasonably incurred
by such Underwriter or such controlling person in connection with
investigating, defending against or appearing as a third-party witness
in connection with any such loss, claim, damage, liability or action;
provided, however, that the Company will not be liable in any such case
to the extent that any such loss, claim, damage or liability arises out
of or is based upon any untrue statement or alleged untrue statement or
omission or alleged omission made in such registration statement or any
amendment thereto, any Preliminary Prospectus, the Prospectus and any
Integrated Prospectus or any amendment or supplement thereto, or any
Application in reliance upon and in conformity with written information
furnished to the Company by such Underwriter through the Representatives
specifically for use therein; and provided, further, that the Company
will not be liable to any Underwriter or any person controlling such
Underwriter with respect to any such untrue statement or omission made
in any Preliminary Prospectus that is corrected in the Prospectus (or
any amendment or supplement thereto) if the person asserting any such
loss, claim, damage or liability purchased Securities from such
Underwriter but was not sent or given a copy of the Prospectus (as
amended or supplemented), other than the documents incorporated by
reference therein, at or prior to the written confirmation of the sale
of such Securities to such person in any case where such delivery of the
Prospectus (as amended or supplemented) is required by the Act, unless
such failure to deliver the Prospectus (as amended or supplemented) was
a result of noncompliance by the Company with Section 5(d) and (a) of
this Agreement). This indemnity agreement will be in addition to any
liability which the Company may otherwise have. The Company will not,
without the prior written consent of the Underwriter or Underwriters
purchasing, in the aggregate, more than fifty percent (50%) of the
Securities, settle or compromise or consent to the entry of any judgment
in any pending or threatened claim, action, suit or proceeding in
respect of which indemnification may be sought hereunder (whether or not
any such Underwriter or any person who controls any such Underwriter
within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act is a party to such claim, action, suit or proceeding),
unless such settlement, compromise or consent includes an unconditional
release of all of the Underwriters and such controlling persons from all
liability arising out of such claim, action, suit or proceeding.
(b) Each Underwriter, severally and not jointly, will indemnity and hold
harmless the Company, each of its directors, each of its officers who signed the
Registration Statement and each person, it any, who controls the Company within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act against
any losses, claims, damages or liabilities to which the Company or any such
director, officer or controlling person may become subject under the Act, the
Exchange Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof)
-21-
<PAGE> 22
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement or any
amendment thereto, any Preliminary Prospectus, the Prospectus or any Integrated
Prospectus or any amendment or supplement thereto, or any Application or (ii)
the omission or the alleged omission to state therein a material fact required
to be stated in the Registration Statement or any amendment thereto, any
Preliminary Prospectus, the Prospectus or any Integrated Prospectus or any
amendment or supplement thereto, or any Application or necessary to make the
statements therein not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company by such Underwriter through the
Representatives specifically for use therein; and, subject to the limitation set
forth immediately preceding this clause, will reimburse, as incurred, any legal
or other expenses reasonably incurred by the Company or any such director,
officer or controlling person in connection with investigating or defending any
such loss, claim, damage, liability or any action in respect thereof. This
indemnity agreement will be in addition to any liability which such Underwriter
may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section 8
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 8, notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Section 8. In case any such action is brought against any indemnified party, and
it notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate therein and, to the extent that it may
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel satisfactory to such indemnified party;
provided, however, that if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be one or more legal defenses available
to it and/or other indemnified parties which are different from or additional to
those available to the indemnifying party, the indemnifying party shall not have
the right to direct the defense of such action on behalf of such indemnified
party or parties and such indemnified party or parties shall have the right to
select separate counsel to defend such action on behalf of such indemnified
party or parties. After notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof and approval by such
indemnified party of counsel appointed to defend such action, the indemnifying
party will not be liable to such indemnified party under this Section 8 for any
legal or other expenses, other than reasonable costs of investigation,
subsequently incurred by such indemnified party in connection with the defense
thereof, unless (i) the indemnified party shall have employed separate counsel
in accordance with the proviso to the next preceding sentence (it being
understood, however, that in connection with such action the indemnifying party
shall not be liable for the expenses of more than one separate counsel (in
addition to local counsel) in any one action or separate but substantially
similar actions in the same jurisdiction arising out of the same general
allegations or circumstances, designated by the Representatives in the case of
paragraph (a) of this Section 8, representing the indemnified parties under such
paragraph (a) who are parties to such action or actions) or (ii) the
indemnifying party does not promptly retain counsel satisfactory to the
indemnified party or (iii) the indemnifying party has authorized the employment
of counsel for the indemnified party at the
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<PAGE> 23
expense of the indemnifying party. After such notice from the indemnifying party
to such indemnified party, the indemnifying party will not be liable for the
costs and expenses of any settlement of such action effected by such indemnified
party without the consent of the indemnifying party.
(d) In circumstances in which the indemnity agreement provided for in
the preceding paragraphs of this Section 8 is unavailable or insufficient, for
any reason, to hold harmless an indemnified party in respect of any losses,
claims, damages or liabilities (or actions in respect thereof), each
indemnifying party, in order to provide for just and equitable contribution,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities (or actions in respect
thereof) in such proportion as is appropriate to reflect (i) the relative
benefits received by the indemnifying party or parties on the one hand and the
indemnified party on the other from the offering of the Securities or (ii) if
the allocation provided by the foregoing clause (i) is not permitted by
applicable law, not only such relative benefits but also the relative fault of
the indemnifying party or parties on the one hand and the indemnified party on
the other in connection with the statements or omissions or alleged statements
or omissions that resulted in such losses, claims, damages or liabilities (or
actions in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the Underwriters on the other shall be deemed to be in the same proportion
as the total proceeds from the offering (before deducting expenses) received by
the Company bear to the total underwriting discounts and commissions received by
the Underwriters. The relative fault of the parties shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or the Underwriters, the parties'
relative intents, knowledge, access to information and opportunity to correct or
prevent such statement or omission, and any other equitable considerations
appropriate in the circumstances. The Company and the Underwriters agree that it
would not be equitable if the amount of such contribution were determined by pro
rate or per capita allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation that does not take
into account the equitable considerations referred to above in this paragraph
(d). Notwithstanding any other provision of this paragraph (d), no Underwriter
shall be obligated to make contributions hereunder that in the aggregate exceed
the total public offering price of the Securities purchased by such Underwriter
under this Agreement, less the aggregate amount of any damages that such
Underwriter has otherwise been required to pay in respect of the same or any
substantially similar claim, and no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute hereunder are
several in proportion to their respective underwriting obligations and not
joint, and contributions among Underwriters shall be governed by the provisions
of the Prudential Securities Incorporated Master Agreement Among Underwriters.
For purposes of this paragraph (d), each person, if any, who controls an
Underwriter within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act shall have the same rights to contribution as such Underwriter, and
each director of the Company, each officer of the Company who signed the
Registration Statement and each person, if any, who controls the Company within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act, shall
have the same rights to contribution as the Company.
-23-
<PAGE> 24
9. Default of Underwriters. If one or more Underwriters default in their
obligations to purchase Firm Securities or Option Securities hereunder and the
aggregate number of such Securities that such defaulting Underwriter or
Underwriters agreed but failed to purchase is ten percent or less of the
aggregate number of Firm Securities or Option Securities to be purchased by all
of the Underwriters at such time hereunder, the other Underwriters may make
arrangements satisfactory to the Representatives for the purchase of such
Securities by other persons (who may include one or more of the non-defaulting
Underwriters, including the Representatives), but if no such arrangements are
made by the Firm Closing Date or the related Option Closing Date, as the case
may be, the other Underwriters shall be obligated severally in proportion to
their respective commitments hereunder to purchase the Firm Securities or Option
Securities that such defaulting Underwriter or Underwriters agreed but failed to
purchase. If one or more Underwriters so default with respect to an aggregate
number of Securities that is more than ten percent of the aggregate number of
Firm Securities or Option Securities, as the case may be, to be purchased by all
of the Underwriters at such time hereunder, and if arrangements satisfactory to
the Representatives are not made within 36 hours after such default for the
purchase by other persons (who may include one or more of the non-defaulting
Underwriters, including the Representatives) of the Securities with respect to
which such default occurs, this Agreement will terminate without liability on
the part of any non-defaulting Underwriter or the Company other than as provided
in Section 10 hereof. In the event of any default by one or more Underwriters as
described in this Section 9, the Representatives shall have the right to
postpone the Firm Closing Date or the Option Closing Date, as the case may be,
established as provided in Section 3 hereof for not more than seven business
days in order that any necessary changes may be made in the arrangements or
documents for the purchase and delivery of the Firm Securities or Option
Securities, as the case may be. As used in this Agreement, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section 9. Nothing herein shall relieve any defaulting Underwriter from
liability for its default.
10. Survival. The respective representations, warranties, agreements,
covenants, indemnities and other statements of the Company, its officers and the
several Underwriters set forth in this Agreement or made by or on behalf of
them, respectively, pursuant to this Agreement shall remain in full force and
effect, regardless of (i) any investigation made by or on behalf of the Company,
any of its officers or directors, any Underwriter or any controlling person
referred to in Section 8 hereof and (ii) delivery of and payment for the
Securities. The respective agreements, covenants, indemnities and other
statements set forth in Sections 6 and 8 hereof shall remain in full force and
effect, regardless of any termination or cancellation of this Agreement.
11. Termination. (a) This Agreement may be terminated with respect to
the Firm Securities or any Option Securities in the sole discretion of the
Representatives by notice to the Company given prior to the Firm Closing Date or
the related Option Closing Date, respectively, in the event that the Company
shall have failed, refused or been unable to perform all obligations and satisfy
all conditions on its part to be performed or satisfied hereunder at or prior
thereto or, if at or prior to the Firm Closing Date or such Option Closing Date,
respectively,
(i) the Company shall have, in the sole judgment of the Representatives,
sustained any material loss or interference with its business or
properties from fire, flood, hurricane, accident or other calamity,
whether or not covered by insurance, or
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<PAGE> 25
from any labor dispute or any legal or governmental proceeding or there
shall have been any Material Adverse Effect, except in each case as
described in or contemplated by the Prospectus or any Integrated
Prospectus (exclusive of any amendment or supplement thereto);
(ii) trading in the Common Stock shall have been suspended by the
Commission or the Nasdaq National Market or trading in securities
generally on the New York Stock Exchange or the Nasdaq National Market
shall have been suspended or minimum or maximum prices shall have been
established on either such exchange or (market) system,
(iii) a banking moratorium shall have been declared by New York,
California or United States authorities; or
(iv) there shall have been (A) an outbreak or escalation of hostilities
between the United States and any foreign power, (B) an outbreak or
escalation of any other insurrection or armed conflict involving the
United States or (C) any other calamity or crisis or material adverse
change in general economic, political or financial conditions having an
effect on the U. S. financial markets that, in the sole judgment of the
Representatives, makes it impractical or inadvisable to proceed with the
public offering or the delivery of the Securities as contemplated by the
Registration Statement, as amended as of the date hereof.
(b) Termination of this Agreement pursuant to this Section 11 shall be
without liability of any party to any other party except as provided in Section
10 hereof.
12. Information Supplied by Underwriters. The statements set forth under
the heading "Underwriting" in any Preliminary Prospectus, the Prospectus or any
Integrated Prospectus (to the extent such statements relate to the Underwriters)
constitute the only information furnished by any Underwriter through the
Representatives to the Company for the purposes of Sections 2(b) and 8 hereof.
The Underwriters confirm that such statements (to such extent) are correct.
13. Notices. All communications hereunder shall be in writing and, if
sent to any of the Underwriters, shall be delivered or sent by mail, telex or
facsimile transmission and confirmed in writing to Prudential Securities
Incorporated, One New York Plaza, New York, New York 10292, Attention: Equity
Transactions Group; and if sent to the Company, shall be delivered or sent by
mail, telex or facsimile transmission and confirmed in writing to the Company at
InterVU Inc., 6815 Flanders Drive, San Diego, California 92121, Attention:
Kenneth L. Ruggiero.
14. Successors. This Agreement shall inure to the benefit of and shall
be binding upon the several Underwriters, the Company and their respective
successors and legal representatives, and nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any other person any legal
or equitable right, remedy or claim under or in respect of this Agreement, or
any provisions herein contained, this Agreement and all conditions and
provisions hereof being intended to be and being for the sole and exclusive
benefit of such persons and for the benefit of no other person except that (i)
the indemnities of the Company contained in Section 8 of this
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<PAGE> 26
Agreement shall also be for the benefit of any person or persons who control any
Underwriter within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act and (ii) the indemnities of the Underwriters contained in Section 8
of this Agreement shall also be for the benefit of the directors of the Company,
the officers of the Company who have signed the Registration Statement and any
person or persons who control the Company within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act. No purchaser of Securities from any
Underwriter shall be deemed a successor because of such purchase.
15. Applicable Law. The validity and interpretation of this Agreement,
and the terms and conditions set forth herein, shall be governed by and
construed in accordance with the laws of the State of New York, without giving
effect to any provisions relating to conflicts of laws.
16. Consent to Jurisdiction and Service of Process. All judicial
proceedings arising out of or relating to this Agreement may be brought in any
state or federal court of competent jurisdiction in the State of New York, and
by execution and delivery of this Agreement, the Company accepts for itself and
in connection with its properties, generally and unconditionally, the
nonexclusive jurisdiction of the aforesaid courts and waives any defense of
forum non conveniens and irrevocably agrees to be bound by any judgment rendered
thereby in connection with this Agreement. The Company designates and appoints
_____________, and such other persons as may hereafter be selected by the
Company irrevocable agreeing in writing to so serve, as its agent to receive on
its behalf service of all process in any such proceedings in any such court,
such service being hereby acknowledged by the Company to be effective and
binding service in every respect. A copy of any such process so served shall be
mailed by registered mail to the Company at its address provided in Section 13
hereof; provided, however, that, unless otherwise provided by applicable law,
any failure to mail such copy shall not affect the validity of service of such
process. If any agent appointed by the Company refuses to accept service, the
Company hereby agrees that service of process sufficient for personal
jurisdiction in any action against the Company in the State of New York may be
made by registered or certified mail, return receipt requested, to the Company
at its address provided in Section 13 hereof, and the Company hereby
acknowledges that such service shall be effective and binding in every respect.
Nothing herein shall affect the right to serve process in any other manner
permitted by law or shall limit the right of any Underwriter to bring
proceedings against the Company in the courts of any other jurisdiction.
17. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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<PAGE> 27
If the foregoing correctly sets forth our understanding, please indicate
your acceptance thereof in the space provided below for that purpose, whereupon
this letter shall constitute an agreement binding the Company and each of the
several Underwriters.
Very truly yours,
INTERVU INC.
By ____________________________
Harry E. Gruber
Chief Executive Officer
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
PRUDENTIAL SECURITIES INCORPORATED
ING BARING FURMAN SELZ LLC
SG COWEN SECURITIES CORPORATION
CRUTTENDEN ROTH INCORPORATED
JOESPHTAHAL & CO. INC.
RYAN, BECK & CO.
By PRUDENTIAL SECURITIES INCORPORATED
By ______________________________________
Jean-Claude Canfin
Managing Director
For itself and on behalf of the Representatives.
-27-
<PAGE> 28
SCHEDULE 1
UNDERWRITERS
<TABLE>
<CAPTION>
Number of Firm
Securities to
Underwriter be Purchased
- ----------- ------------
<S> <C>
Prudential Securities Incorporated
ING Baring Furman Selz LLC
SG Cowen Securities Corporation
Cruttenden Roth Incorporated
Joesphthal & Co. Inc.
Ryan, Beck & Co.
Total ................. ____________
</TABLE>
-28-
<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 Amendment No. 1 to Form S-3
(No. 333-75283) and related Prospectus of InterVU, Inc.
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
San Diego, California
April 15, 1999
