<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 1, 1996
REGISTRATION NO. 333-10447
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------
ALLIN COMMUNICATIONS CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 7389 25-1795265
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification No.)
incorporation or Code Number)
organization)
300 GREENTREE COMMONS
381 MANSFIELD AVENUE
PITTSBURGH, PENNSYLVANIA 15220
(412) 928-8800
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------
RICHARD W. TALARICO
CHIEF EXECUTIVE OFFICER
ALLIN COMMUNICATIONS CORPORATION
300 GREENTREE COMMONS
381 MANSFIELD AVENUE
PITTSBURGH, PENNSYLVANIA 15220
(412) 928-8800
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------
COPIES TO:
BRYAN D. ROSENBERGER, ESQ. PETER J. ROMEO, ESQ.
ECKERT SEAMANS CHERIN & MELLOTT HOGAN & HARTSON L.L.P.
42ND FLOOR, 600 GRANT STREET 555 13TH STREET, N.W.
PITTSBURGH, PA 15219 WASHINGTON, D.C. 20004
(412) 566-6000 (202) 637-5600
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, 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. [_]
------------
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, AS AMENDED, 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>
PROSPECTUS
2,000,000 SHARES
[Logo of Allin Communications Corporation]
ALLIN COMMUNICATIONS CORPORATION
COMMON STOCK
All of the shares of Common Stock, par value $.01 per share ("Common
Stock"), offered hereby are being offered by Allin Communications Corporation
(the "Company"). Prior to this offering (the "Offering"), there has been no
public market for the Common Stock. The Common Stock has been approved for
quotation on the NASDAQ Stock Market's National Market under the symbol
"ALLN."
--------------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 10.
--------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
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<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNTS(1) COMPANY(2)
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share........................... $15.00 $1.05 $13.95
- ------------------------------------------------------------------------------
Total(3)............................ $30,000,000 $2,100,000 $27,900,000
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</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities. See "Underwriting."
(2) Before deducting estimated expenses of $1,200,000 payable by the Company.
(3) The Company has granted to the Underwriters a 30-day over-allotment option
to purchase up to 300,000 additional shares of Common Stock on the same
terms and conditions as set forth above. If all such shares are purchased
by the Underwriters, the total Price to Public, Underwriting Discount and
Proceeds to the Company will be $34,500,000, $2,415,000 and $32,085,000,
respectively. See "Underwriting."
The shares of Common Stock are offered by the Underwriters, subject to prior
sale, when, as and if delivered to and accepted by the Underwriters, and
subject to their right to withdraw, modify, correct and reject orders in whole
or in part. It is expected that delivery of the certificates representing the
shares of Common Stock will be made against payment therefor at the offices of
Friedman, Billings, Ramsey & Co., Inc., Arlington, Virginia, or in book entry
form through the book entry facilities of the Depository Trust Company, on or
about November 6, 1996.
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
THE DATE OF THIS PROSPECTUS IS NOVEMBER 1, 1996.
<PAGE>
[LOGO OF ALLIN COMMUNICATIONS]
ALLIN COMMUNICATIONS CORPORATION PROVIDES CUSTOMIZED INTERACTIVE
TELEVISION, DIGITAL IMAGING AND OTHER COMMUNICATIONS AND MEDIA SERVICES TO USERS
IN THE TRAVEL AND LEISURE, SPORTS MARKETING AND PROMOTION, COMMERCIAL
PHOTOGRAPHY AND OTHER INDUSTRIES.
SEAVISION/R/
- --------------------------------------------------------------------------------
WORLDWIDE INTERACTIVE TELEVISION SERVICES
SEAVISION IS A FULL SERVICE MEDIA COMPANY OFFERING A VARIETY OF SERVICES TO
CUSTOMERS IN THE TRAVEL AND LEISURE INDUSTRY THROUGH ITS PROPRIETARY INTERACTIVE
TELEVISION ("ITV") SYSTEM. CRUISE LINES, HOTELS AND RESORTS CAN USE SEAVISION'S
ITV SYSTEM TO GENERATE INCREMENTAL REVENUE, IMPROVE CUSTOMER SERVICE AND
INCREASE EMPLOYEE PRODUCTIVITY.
PHOTOWAVE/SM/
- --------------------------------------------------------------------------------
DIGITAL PHOTOGRAPHIC NETWORK
PHOTOWAVE'S SERVICES WILL COMBINE DIGITAL IMAGING TECHNOLOGY, INCLUDING IMAGE
ARCHIVAL AND TRANSMISSION, WITH CREATIVE GRAPHIC ENHANCEMENT IN A TURNKEY
PACKAGE WHICH CAN BE MARKETED FOR COMMERCIAL USE.
SPORTSWAVE/SM/
- --------------------------------------------------------------------------------
INTERACTIVE SPORTS MARKETING EVENTS
SPORTSWAVE WILL COMBINE INTERACTIVE TECHNOLOGY, DIGITAL IMAGING AND TRADITIONAL
SPORTS MARKETING TO CREATE UNIQUE PROMOTIONAL OPPORTUNITIES FOR ADVERTISERS AND
CORPORATE SPONSORS OF SPORTING EVENTS.
<PAGE>
[PHOTO APPEARS HERE]
[LOGO OF SEAVISION]
This image presents features of
SeaVision's interactive
television (ITV) installations,
including its shipboard ITV
control center and ITV
screen and menu.
[PHOTO APPEARS HERE]
[LOGO OF PHOTOWAVE]
This image presents features of
PhotoWave's mobile event imaging
service, including digital
imaging equipment.
[PHOTO APPEARS HERE]
[LOGO OF SPORTSWAVE]
This image presents various
sporting events, facilities and
figures, a prototype of
SportsWave's wireless
interactive terminal and a
representation of the types
of equipment SportsWave
intends to use for its mobile
media centers at such events.
<PAGE>
[GRAPHICS]
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMPANY'S
COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN
THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by reference
to, and should be read in conjunction with, the more detailed information and
financial statements and notes thereto appearing elsewhere in this Prospectus.
Prospective investors should carefully consider all of the information in this
Prospectus. The Company was formed to act as a holding company for four
operating subsidiaries: SeaVision, Inc., PhotoWave, Inc., SportsWave, Inc. and
Kent Consulting Group, Inc. See "Background." Simultaneously with the closing
of the Offering, the Company will acquire the sports marketing business of
International Sports Marketing, Inc., a Pennsylvania corporation ("ISM"), in
exchange for cash and certain future contingent payments (the "ISM
Acquisition"), and will change the name of ISM to SportsWave, Inc.
Simultaneously with the closing of the Offering, the Company will also acquire
the software design and network solutions business of Kent Consulting Group,
Inc., a California corporation ("KCG"), in exchange for cash, shares of Common
Stock and certain future contingent payments (the "KCG Acquisition"). See
"Background--The Acquisitions." Unless the context otherwise requires, all
references herein to the "Company" mean Allin Communications Corporation, a
Delaware corporation, and its subsidiaries. Unless otherwise indicated, all
information in this Prospectus assumes that the over-allotment option granted
to the Underwriters will not be exercised.
THE COMPANY
Allin Communications Corporation (the "Company") provides customized
interactive television ("ITV"), digital imaging and other communications and
media services to users in the travel and leisure, sports marketing and
promotion and other industries. These services are provided principally through
the use of the Company's proprietary interactive communications platform which
was created to run on the Microsoft Windows NT operating system. The platform
includes a multimedia digital file server and Windows-based software
applications, and features high resolution and animated graphics, compressed
full motion video, superior quality audio and flexible input capacity. Unlike
many other ITV platforms, the Company's platform features rapid response and
real time interfacing with a variety of third party systems permitting the
immediate execution and confirmation of transactions. The platform, which
received an applications development award from Microsoft in 1995, can provide
its media and imaging services over a variety of network architectures,
including the Internet, telephone and cable television systems, and other
public and private communications networks. The Company maintains a constant
focus on creating ITV design features that emphasize ease of use and eye-
catching graphics.
THE INTERACTIVE TELEVISION SYSTEM
The Company's ITV system offers customers a variety of interactive services
through 18 separate system modules. Among the pay services that can be offered
are video-on-demand, music-on-demand, shopping, games of chance, event
ticketing and customized photographs using digital imaging technology. Free-to-
user services include informational messages, account review and room service.
While free services do not currently provide revenue, they enhance the
usefulness of the system, afford the Company a competitive advantage in
marketing its system, attract users to other services offered on the Company's
system and provide potential sources of additional revenue from sponsorship of
various services by advertisers and from transaction fees. The ITV system can
also serve as a response-based marketing vehicle that can target specific
audiences for potential advertisers and can make available to service providers
a variety of other services, including activity reports and market research.
The Company's ITV system permits a user to access the transactional and other
services offered on the system by using a handheld television remote control to
make selections from easy-to-use menus on a television
3
<PAGE>
screen that may be located in a user's cruise ship cabin, hotel room or other
individual station, or in a centrally located kiosk. Users can limit access to
various pay services by utilizing lock out codes and password procedures. The
system currently operates in six languages: English, Spanish, French, Italian,
German and Portuguese.
MARKETS AND APPLICATIONS
Revenue from the domestic ITV service and advertising market increased from
approximately $252 million in 1992 to $866 million in 1995. This revenue
resulted primarily from the delivery of a limited number of interactive
services, predominantly on-demand movies. The Company believes that it is one
of the first to market a fully operational ITV system which is capable of
providing multiple interactive services. While the Company's ITV service and
advertising market share is currently insubstantial (less than one percent),
the Company believes that the capabilities of its ITV system, the existing
contracts for the installation and operation of its ITV system and the proceeds
to be realized from the Offering position the Company to increase its share of
the market for ITV services and advertising.
The Company initially marketed its ITV system to the travel and leisure
industry, principally the international cruise ship industry, which the Company
believes provides a substantial market opportunity for its ITV system and
related services. Through its wholly owned subsidiary, SeaVision, Inc.
("SeaVision"), the Company has installed and operates its ITV system on three
cruise ships operated by Celebrity Cruises Inc. ("Celebrity"), Carnival Cruise
Lines ("Carnival") and Norwegian Cruise Lines ("NCL"), respectively. As of
September 30, 1996, SeaVision had entered into contracts to install and operate
its system on five additional Celebrity cruise ships, one additional NCL ship
and two ships operated by Royal Caribbean Cruise Line ("RCCL"), and Carnival
had exercised an option to have the Company's system installed on one
additional ship. Based on its historical and projected installation schedules,
the Company anticipates completion of six of these installations by December
31, 1996, which will result in the ITV system being operational on nine ships
with approximately 8,200 cabins. The Company's contracts with Carnival, NCL and
RCCL provide Carnival, NCL and RCCL with the option of having SeaVision install
and operate its ITV system on up to eleven, four and two additional cruise
ships, respectively, and the Company is currently pursuing negotiations with
various other cruise lines to install its system on up to 26 additional
vessels. Based on its historical and projected installation schedules, the
Company believes that if it obtains firm contracts for 13 additional
installations, either through the exercise of cruise line options or through
the acquisition of additional contracts, the Company would have its systems
installed and operational on 25 ships by December 31, 1997. There can be no
assurance, however, that any option will be exercised or that any additional
contracts will be acquired or, if additional firm contracts are secured, that
unforeseen delays in installation will not occur.
SeaVision's in-cabin ITV system provides cruise passengers with a variety of
services, including casino video gaming, on-demand pay-per-view movies,
shopping, shore excursion ticket purchasing and room service ordering. The
system also can be used by passengers to preview and purchase photographs taken
by the ship's photographers during their voyage, and to customize photos with
special graphic overlays, borders and backgrounds. SeaVision and Eastman Kodak
Company ("Kodak") have entered into a market trial agreement for the operation
of this service on three ships fitted with SeaVision's ITV system. As of August
1, 1996, SeaVision's ITV system had been utilized on over 366,000 occasions, or
an average of 5,000 sessions per week per ship, by passengers on board the
three ships currently equipped with the system, resulting in what the Company
believes represents a multiple service application of interactive television
larger than any in the United States. SeaVision's system can also be utilized
for advertising on behalf of retailers, corporate sponsors and other third
parties and for gathering data and disseminating information by cruise
operators.
The Company is actively seeking to market its services in other industries
and niche markets in which its technology may afford a competitive advantage.
Through SeaVision, the Company has begun to offer additional services to the
cruise industry and is currently providing shipboard systems integration
services aboard the Queen
4
<PAGE>
Elizabeth 2 ("QE2") operated by Cunard Line Limited ("Cunard") and is also
pursuing other shipboard systems integration contracts. SeaVision is also
marketing to the hotel and resort industry an ITV system offering guest
services that include not only on-demand pay-per-view movies but also other
services not typically provided, including high-speed Internet access through
the hotel's television system. Through its wholly owned subsidiary, PhotoWave,
Inc. ("PhotoWave"), the Company intends to market a turnkey package of digital
imaging services to industries dependent on conventional "wet" photography,
including the real estate, insurance and commercial photography industries. The
Company and District Photo, Inc. ("District Photo"), a major mail order photo
finisher, have agreed in principle to certain cooperative arrangements with
respect to the Company's digital imaging technology. The Company's wholly owned
subsidiary, SportsWave, Inc. ("SportsWave"), intends to use the platform to
expand the existing sports marketing capabilities of ISM, which has exclusive
worldwide marketing rights with the Major League Baseball Players Alumni
Association ("MLBPAA") and significant relationships with former athletes in
other professional sports. The Company also intends to continue to operate
KCG's software design and network solutions business.
STRATEGY
To achieve its goal of becoming a leader in the processing and distribution
of ITV and digital imaging services, the Company's strategy is (i) to expand
its presence in the travel and leisure industry by (a) completing the
installation of ITV systems on ships for which the Company has firm contracts,
(b) seeking additional commitments from cruise line operators for the
installation and operation of ITV systems, (c) adding new applications to its
platform to maintain its competitive position within the cruise industry, (d)
expanding its shipboard systems integration business and (e) extending the use
of its platform to other segments of the travel and leisure industry, including
hotels and resorts; (ii) to develop its digital imaging business by marketing,
through PhotoWave, digital imaging services to niche markets currently
dependent on conventional photography; (iii) to expand the sports marketing
business of ISM by marketing, through SportsWave, new applications for the
Company's platform directed at promoters of sporting events and corporate
sponsors and spectators at such events; (iv) to utilize KCG's technical and
creative expertise to further develop the Company's digital platform and to
provide third party software design and network solutions; (v) to engage from
time to time in acquisitions of businesses and the development of joint venture
relationships that offer opportunities to complement or expand the Company's
ITV and other capabilities and the marketing of such capabilities; and (vi) to
supply specialized software and creative program enhancements to mass market
providers of interactive communications and digital imaging services, such as
cable television and telephone companies.
BACKGROUND
The Company was formed in July 1996 to act as a holding company for four
operating subsidiaries: SeaVision, PhotoWave, SportsWave and KCG. The Company's
principal offices are located at 300 Greentree Commons, 381 Mansfield Avenue,
Pittsburgh, Pennsylvania 15220, and its telephone number is (412) 928-8800.
SEAVISION
SeaVision was formed in June 1994 to focus on the development of an
interactive digital platform and the installation and operation of interactive
television systems in the travel and leisure industry.
Henry Posner, Jr. and Thomas D. Wright, who currently own more than ten
percent of the outstanding Common Stock, Richard W. Talarico, a director and
executive officer of the Company, and James C. Roddey, a director of the
Company, were among the founding stockholders of SeaVision and are stockholders
of the Company. They are affiliated with The Hawthorne Group, a private
investment and management company whose principals have had investments in
diversified media and communications businesses, including television and radio
broadcasting, cable, outdoor advertising, paging and video production.
5
<PAGE>
Certain stockholders of SeaVision and an entity affiliated with such
stockholders contributed to SeaVision certain intellectual property rights
relating to the technology utilized by SeaVision. In addition, the founders of
SeaVision were reimbursed for expenses incurred by them in forming and
organizing SeaVision. See "Certain Transactions--Transactions Relating to the
Formation and Organization of SeaVision." In August 1996, SeaVision became a
subsidiary of the Company by merging into SeaVision Acquisition Corporation, a
newly formed subsidiary of the Company which changed its name to SeaVision,
Inc. See "Certain Transactions--Transactions Relating to the Formation and
Organization of the Company."
PHOTOWAVE
In August 1996, PhotoWave was formed as a subsidiary of the Company to
continue the development and marketing of the Company's digital imaging
business.
THE ACQUISITIONS
Simultaneously with, and conditioned upon, the closing of the Offering, the
Company will acquire the sports marketing business of ISM, which has been in
operation since 1989 and which will change its name to SportsWave, Inc.
following the acquisition, and the software design and network solutions
business of KCG, which, including a predecessor business, has been in operation
since 1983. ISM and SeaVision have been exploring and continue to explore
applications of SeaVision's ITV system and interactive platform for the sports
marketing and promotions industry and have cooperated in various sports
marketing ventures. Since 1994, KCG has assisted SeaVision with many aspects of
the development of its ITV system. The acquisitions of ISM and KCG by the
Company present opportunities for these companies to combine their resources,
talents and capabilities.
ISM Acquisition
The ISM Acquisition is being made pursuant to a stock purchase agreement (the
"ISM Stock Purchase Agreement") providing for the acquisition by the Company of
all of the issued and outstanding shares of capital stock of ISM. The ISM Stock
Purchase Agreement provides for the payment of up to $4.8 million by the
Company to the ISM stockholders, consisting of $2.4 million in cash at the time
of closing of the ISM Acquisition and up to $2.4 million in contingent payments
based on the operating income of ISM for the years 1997, 1998 and 1999,
calculated as set forth in the ISM Stock Purchase Agreement, and paid pursuant
to a formula more fully described under "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
At the closing of the ISM Acquisition, Henry Posner, Jr., Thomas D. Wright,
Richard W. Talarico and James C. Roddey, each a stockholder of ISM as well as a
stockholder, officer and/or director of the Company, will receive cash payments
in amounts of approximately $1,273,000, $791,000, $48,000 and $120,000,
respectively, and will be entitled to receive contingent payments up to the
same approximate amounts (not including interest payable on any promissory note
delivered in respect of the contingent payments). See "Certain Transactions,"
"Management" and "Principal Stockholders."
KCG Acquisition
The KCG Acquisition is being made pursuant to an agreement and plan of merger
(the "KCG Merger Agreement") providing for the merger of KCG with and into a
wholly owned subsidiary of the Company. The KCG Merger Agreement provides for
consideration to Les Kent, the sole stockholder of KCG, of up to $8.0 million,
consisting of $2.0 million in cash at the time of closing of the KCG
Acquisition, $3.2 million in Common Stock valued at the initial public offering
price in the Offering and up to $2.8 million in contingent
6
<PAGE>
payments, the amount of which would be based on the operating income of KCG for
the years 1997, 1998 and 1999, calculated as set forth in the KCG Merger
Agreement, and paid in the manner more fully described under "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources." Additionally, certain restricted stock grants
totaling $400,000, which will not vest until the third anniversary of the KCG
Acquisition, will be made to various employees of KCG. The sole stockholder
will have certain registration rights with respect to the shares of Common
Stock issued in the merger. See "Certain Transactions--Registration Rights."
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered Hereby(1)............. 2,000,000 shares.
Common Stock Currently Outstanding......... 2,400,000 shares.
Common Stock to be Outstanding After
this Offering(1)(2)....................... 4,884,065 shares.
Use of Net Proceeds........................ To repay accrued interest on indebtedness, to acquire
ISM and KCG and for capital expenditures. See "Use
of Proceeds."
NASDAQ Stock Market National Market symbol. "ALLN."
</TABLE>
- --------
(1) Excludes 300,000 shares of Common Stock that may be issued pursuant to the
Underwriters' over-allotment option. See "Underwriting."
(2) Includes 213,333 shares to be issued as a portion of the consideration in
the KCG Acquisition, 26,666 shares to be issued as restricted stock under
the Company's 1996 Stock Plan (the "1996 Stock Plan") in connection with
the KCG Acquisition (the "Restricted Grant Shares") and 244,066 shares to
be issued in exchange for the extinguishment of certain loans by
stockholders (the "Stockholder Loans"), but excludes 203,385 shares
issuable on conversion of the Company's Series A Convertible Redeemable
Preferred Stock, par value $.01 per share (the "Convertible Preferred
Stock"), and the remaining 239,334 shares issuable under the 1996 Stock
Plan. See "Background--The Acquisitions--KCG Acquisition," "Certain
Transactions--Stockholder Loans," "Certain Transactions--Sale of
Convertible Preferred Stock" and "Management--1996 Stock Plan."
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Such risks include the Company's limited operating history,
history of net losses, accumulated deficit and dependence on its proprietary
technology and the risks inherent in development of new products and markets.
See "Risk Factors" for a discussion of these and other risks attendant to an
investment in the Common Stock. Purchasers of shares of Common Stock in the
Offering will also experience immediate and substantial dilution. See
"Dilution."
7
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
The historical financial data for each of the periods ended December 31, 1994
and 1995 and June 30, 1996 presented below have been derived from the audited
consolidated financial statements of the Company. The pro forma consolidated
financial data for each of the periods ended December 31, 1995 and June 30,
1996 have been derived from the unaudited pro forma condensed consolidated
financial statements. The summary financial data should be read in conjunction
with the Consolidated Financial Statements of the Company, Pro Forma Condensed
Consolidated Financial Statements and Notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
included elsewhere in this Prospectus. The historical financial data for the
interim period ended June 30, 1995 are unaudited but, in the opinion of
management, include all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the results of such period.
The pro forma consolidated financial data are provided for comparative
purposes only and are not necessarily indicative of future results or the
results that would be achieved if the transactions reflected therein had
occurred at the beginning of the period. The pro forma consolidated statement
of operations data and pro forma per share data give effect to (i) the
acquisitions of ISM and KCG, (ii) the issuance of the Convertible Preferred
Stock and (iii) the Offering and the application of the net proceeds therefrom,
as if each had occurred as of January 1, 1995. The pro forma consolidated
balance sheet data give effect to the transactions described above as if each
had occurred as of June 30, 1996.
For all periods presented, SeaVision, Inc. elected to be treated as an S
Corporation and, as a result, the taxable loss has been reflected on the
federal and state tax returns of the shareholders rather than the corporate
returns. The pro forma loss before nonrecurring charges and pro forma loss
before nonrecurring charges per share do not reflect any tax benefit, due to
the uncertainty of realization.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
-------------------------- ------------------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
------------- AS ADJUSTED --------------- AS ADJUSTED
1994 1995 1995 (2) 1995 1996 1996 (3)
----- ------ ----------- ------ ------- -------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue................ $ -- $ 44 $ 6,212 $ -- $ 163 $ 3,287
Operating loss......... (588) (1,799) (3,172) (767) (2,044) (2,772)
Interest (income) ex- 24 369 (33) 105 468 4
pense, net............
Loss before nonrecur- (612) (2,168) (3,139) (872) (2,512) (2,776)
ring charges..........
Net loss............... (612) (2,168) (872) (2,512)
Pro forma loss before
nonrecurring charges
per common share (1).. $(0.62) $(0.55)
========= ==========
Weighted average number
of common shares out-
standing (1).......... 5,087,450 5,087,450
========= ==========
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
---------------------------------
PRO FORMA
CONSOLIDATED PRO FORMA
FOR AS
HISTORICAL ACQUISITIONS ADJUSTED
---------- ------------ ---------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................ $(4,843) $(6,746) $19,147
Total assets............................... 4,147 11,393 37,286
Total liabilities.......................... 9,437 11,033 7,226
Convertible, redeemable preferred stock.... -- 2,450 2,450(4)
Stockholders' equity....................... (5,290) (2,090) 27,610(5)
</TABLE>
- --------
[footnotes appear on next page]
8
<PAGE>
(1) The weighted average number of shares of Common Stock used to calculate pro
forma loss before nonrecurring charges per common share includes the
assumed conversion of the Convertible Preferred Stock. The pro forma loss
before nonrecurring charges for the year ended December 31, 1995 used to
compute pro forma loss before nonrecurring charges per common share does
not include the charges related to the conversion of the Convertible
Preferred Stock of $551,000, accretion of $50,000 to stated value of the
Convertible Preferred Stock and the charge of $661,000 related to the
induced conversion of the Stockholder Loans. These charges are nonrecurring
and directly attributable to the Offering and, therefore, are not reflected
in the pro forma loss before nonrecurring charges available to common
stockholders.
(2) Includes (a) elimination of intercompany profit of $253,000 capitalized as
software development costs, (b) compensation expense of $134,000 related to
the issuance of the Restricted Grant Shares to certain employees of KCG,
(c) amortization of intangible assets of $1,764,000, (d) reduction of
interest charges on the Stockholder Loans of $369,000 and (e) reduction of
tax provision of $57,000.
(3) Includes (a) elimination of intercompany profit of $40,000 capitalized as
software development costs and $30,000 capitalized as equipment, (b)
compensation expense of $66,000 related to the issuance of the Restricted
Grant Shares to certain employees of KCG, (c) amortization of intangible
assets of $882,000, (d) reduction of interest charges on the Stockholder
Loans of $468,000 and (e) reduction of tax provision of $167,000.
(4) Conversion of the Convertible Preferred Stock at $12.29 per share will
result in a charge to accumulated deficit of $551,000.
(5) Includes a charge of $661,000 related to the induced conversion of the
Stockholder Loans into 244,066 shares of Common Stock.
9
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Prospective investors should carefully consider the following
risk factors in evaluating an investment in the Company. Additionally, this
Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from the
results discussed in the forward-looking statements.
LIMITED OPERATING HISTORY
The Company was not organized until July 1996 and will not, until the
Offering is consummated, conduct any operations as a combined entity
consisting of the businesses of SeaVision, ISM and KCG. Furthermore, SeaVision
has been in operation only since 1994 and has concentrated on developing its
digital platform and ITV system and on securing contracts to install and
operate the ITV system on cruise ships. To date, SeaVision is operating its
ITV system in only three installations, and as a result, revenue generated by
the ITV system has not been significant. See "Selected Consolidated Financial
Data" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations." Although SeaVision, ISM and KCG have had prior
relationships, and SeaVision and ISM have certain common owners, there can be
no assurance that the Company will be able to integrate the businesses
successfully. Because SeaVision has only a limited operating history and the
Company has no operating history as a combined entity, there can be no
assurance that the Company will succeed in implementing its strategy for
development and growth or that it will obtain financial returns sufficient to
justify its investment in the markets in which it participates. See
"Business--Operating and Growth Strategy."
RECENT NET LOSSES AND ACCUMULATED DEFICIT
On a pro forma basis, the Company has sustained substantial net losses
during the year ended December 31, 1995 and during the six months ended June
30, 1996 and, as of June 30, 1996, had an accumulated deficit of $5.0 million.
SeaVision has recognized net losses since inception in 1994 primarily because
of the limited revenue generated during its start-up phase, which have also
impacted the pro forma net losses noted above. During the start-up phase, the
Company has researched, developed and installed the only ITV system presently
in use in the cruise industry, and has incurred substantial costs in doing so.
The Company anticipates that it will continue to incur losses at least through
1996, and there can be no assurance that it will be able to achieve revenue
growth or profitability on an ongoing basis in the future. See "Selected
Financial Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
RISKS INHERENT IN DEVELOPMENT OF NEW PRODUCTS AND MARKETS
The Company's strategy includes developing new applications for its
interactive entertainment and information technologies and entering new
markets. This strategy presents risks inherent in assessing the value of
development opportunities, in committing capital in unproven markets and in
integrating and managing new technologies and applications. Within these new
markets, the Company will encounter competition from a variety of sources. It
is also possible that the Company will experience unexpected delays or
setbacks in developing new applications of its technology. There can be no
assurance that the Company's new products and applications will generate
additional revenue for the Company or that the Company will successfully
penetrate these additional markets. See "Business--Operating and Growth
Strategy."
DEPENDENCE ON PROPRIETARY TECHNOLOGY; ABSENCE OF PATENTS
The Company's success is highly dependent upon its proprietary technology.
The Company does not have patents on any of its technology and relies on a
combination of copyright and trade secret laws and contractual restrictions to
protect its technology. It is the Company's policy to require employees,
consultants and clients to execute nondisclosure agreements upon commencement
of a relationship with the Company, and to limit access
10
<PAGE>
to and distribution of its software, documentation and other proprietary
information. Nonetheless, it may be possible for third parties to
misappropriate the Company's technology and proprietary information or
independently to develop similar or superior technology. There can be no
assurance that the legal protections afforded to the Company and the measures
taken by the Company will be adequate to protect its technology. Any
misappropriation of the Company's technology or proprietary information could
have a material adverse effect on the Company's business, financial condition
and results of operations.
There can be no assurance that other parties will not assert technology
infringement claims against the Company, or that, if asserted, such claims
will not prevail. In such event, the Company may be required to engage in
protracted and costly litigation, regardless of the merits of such claims;
discontinue the use of certain software codes or processes; develop non-
infringing technology; or enter into license arrangements with respect to the
disputed intellectual property. There can be no assurance that the Company
would be able to develop alternative technology or that any necessary licenses
would be available or that, if available, such licenses could be obtained on
commercially reasonable terms. Responding to and defending against any of
these claims could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business--Technology and
Licensing."
RISK OF TECHNOLOGICAL OBSOLESCENCE
The ability of the Company to maintain a standard of technological
competitiveness is a significant factor in the Company's strategy to maintain
and expand its customer base, enter new markets and generate revenue. The
Company's continued success will depend in part upon its ability to identify
promising emerging technologies and to develop, refine and introduce high
quality services in a timely manner and on competitive terms. There can be no
assurance that future technological advances by direct competitors or other
providers will not result in improved equipment or software systems that could
adversely affect the Company's business, financial condition and results of
operations. See "Business--Competition."
NEED FOR MANAGEMENT OF GROWTH
The Company's growth strategy will require its management to conduct
operations and respond to changes in technology and the market, while
substantially expanding operations and personnel. If the Company's management
is unable to manage growth effectively, its business, financial condition and
results of operations will be materially adversely affected. See "Business--
Operating and Growth Strategy."
DEPENDENCE ON KEY PERSONNEL
The Company's success is dependent on a number of key management, research
and operational personnel for the management of operations, development of new
products and timely installation of its systems. The loss of one or more of
these individuals could have an adverse effect on the Company's business and
results of operations. The Company has in place key person life insurance
policies on certain of its key employees. The Company depends on its continued
ability to attract and retain highly skilled and qualified personnel and to
engage nonemployee consultants. There can be no assurance that the Company
will be successful in attracting and retaining such personnel or contracting
with such nonemployee consultants. See "Business--Technology and Licensing"
and "Management."
DEPENDENCE ON CRUISE INDUSTRY AND CONTINUED OPERATION OF CRUISE LINE CUSTOMERS
A substantial portion of the Company's revenue is expected to be generated
in the near term from its cruise industry operations, thereby making the
Company's business dependent upon the cruise industry in general and the
continued operations of the Company's current cruise line customers. A
significant reduction in the operations of any of these customers could,
depending on the extent of the reduction and the ships involved, have a
material adverse effect on the Company. See "Business--Travel and Leisure
Industry--International Cruise Industry."
11
<PAGE>
CRUISE LINES' RIGHTS TO TERMINATE OR BUY OUT CONTRACTS WITH THE COMPANY
Each of the Company's ITV system contracts with the cruise lines is subject
to renewal by mutual consent of the parties at the expiration of the initial
term. A decision by one or more of the cruise lines to discontinue its
agreement with the Company at the contractual expiration date could have a
material adverse effect on the Company.
Under certain circumstances, following termination of the Company's ITV
system contract with three of its cruise lines customers, the cruise line will
have the right to purchase the hardware installed by the Company and to obtain
a nontransferable license to use the software installed by the Company.
Additionally, one cruise line will have the right to purchase such hardware
and license such software from the Company, for a one-year period following
such termination, to enable it to install the Company's system on other ships
for an agreed upon aggregate purchase and license price. Any such purchase
would eliminate the Company's ability to share in revenue produced by the
purchased system. The loss or elimination of the Company's right to share in
revenue produced by its systems resulting from any of the foregoing events
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--Travel and Leisure
Industry--International Cruise Industry--Customer Contracts."
DEPENDENCE ON MAJOR LEAGUE SPORTS
The Company's sports marketing and promotion business conducted through ISM
is dependent on the success and continued popularity of major league sports.
Factors which adversely affect major league sports could also adversely affect
the Company's business and results of operations. For example, ISM's business
was adversely impacted by the players' strike and owners' lockout during the
1994 and 1995 Major League Baseball seasons. There can be no assurance that
there will be no strike or other event with a similar adverse impact in the
future involving one or more of Major League Baseball, the National Football
League, the National Basketball Association or the National Hockey League. See
"Business--Sports Marketing Industry."
FLUCTUATIONS IN OPERATING RESULTS
The Company expects to experience significant fluctuations in its future
quarterly operating results that may be caused by many factors, including the
seasonal aspects of ISM's business. Accordingly, quarterly revenues and
operating results will be difficult to forecast, and the Company believes that
period-to-period comparisons of its operating results will not necessarily be
meaningful and should not be relied upon as an indication of future
performance. See "Management's Discussions and Analysis of Financial Condition
and Results of Operations."
POTENTIAL IMPACT OF PRIVACY CONCERNS
One of the features of the Company's ITV system is the ability to develop
and maintain information regarding usage of the system by cruise ship
passengers and other parties. The perception by the users of substantial
security and privacy concerns, whether or not valid, may cause users to resist
providing the personal information that might be useful for demographic
purposes and may inhibit market acceptance and usage of the Company's video
systems. In the event such concerns are not adequately addressed, the
Company's business, financial condition and results of operations could be
materially adversely affected. See "Business--Travel and Leisure Industry."
COMPETITIVE MARKET CONDITIONS
The market for interactive communications and digital imaging is new,
rapidly evolving and highly competitive. Many of the Company's current and
potential competitors have longer operating histories and significantly
greater financial, technical, marketing and other resources than the Company
and therefore may be able to respond more quickly to new or changing
opportunities, technologies and customer requirements. There
12
<PAGE>
can be no assurance that the Company will be able to compete effectively with
current or future competitors or that the competitive pressures faced by the
Company will not have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business--Operating and
Growth Strategy" and "-- Competition."
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER AND BYLAW PROVISIONS
The Company's Certificate of Incorporation and Bylaws contain a number of
provisions that could inhibit a change in control of the Company by means of a
tender offer, merger, proxy contest or otherwise, including advance notice
provisions and provisions that enable the Board of Directors to issue "blank
check" preferred stock. These provisions and the future issuance of shares of
such preferred stock could adversely impact prevailing market prices for the
Common Stock and could result in the Common Stock holders having to forego a
transaction in which they may have received a substantial premium for their
shares over then-current market prices. See "Description of Capital Stock--
Certain Anti-Takeover Effects of Certificate and Bylaws Provisions."
LIMITATIONS ON DIRECTOR LIABILITY; INDEMNIFICATION
As permitted by Delaware law, the Certificate of Incorporation of the
Company contains provisions eliminating or limiting director liability to the
Company and its stockholders for monetary damages arising from acts or
omissions in the director's capacity as a director, subject to certain
exceptions provided by law. As a result of these provisions, the directors
generally will not be liable to the stockholders for negligence or even gross
negligence in the performance of their duties as directors. The Certificate of
Incorporation and By-Laws of the Company also provide that all directors and
officers and certain other persons shall be indemnified to the fullest extent
permitted by law in connection with each such person's service to the Company,
with certain limited exceptions. See "Description of Capital Stock--
Limitations on Liability and Indemnification of Directors and Officers."
ABSENCE OF TRADING MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common Stock,
and there can be no assurance that an active trading market will develop or be
sustained. The initial offering price for the Common Stock offered hereby will
be determined by negotiation between the Company and the representative of the
Underwriters and may not be indicative of the market price for the Common
Stock after the Offering. After the Offering, the market price of the Common
Stock could be subject to significant fluctuations in response to variations
in results of operations, changes in earnings estimates by securities
analysts, general economic and market conditions and other factors. See
"Underwriting."
ABSENCE OF DIVIDENDS
The Company has not paid any dividends to its stockholders since its
inception and does not anticipate paying any dividends on the Common Stock or
the Convertible Preferred Stock in the foreseeable future. The Company intends
to reinvest earnings, if any, in the development and expansion of its
business. See "Dividend Policy."
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of the shares of Common Stock in the Offering will experience
immediate and substantial dilution in net tangible book value per share of
Common Stock from the initial public offering price. See "Dilution."
13
<PAGE>
POSSIBLE ADVERSE MARKET IMPACT OF FUTURE SALES OF COMMON STOCK
Sales of substantial amounts of Common Stock into the public market
following the Offering, or the perception that such sales might occur, could
adversely impact prevailing market prices for the Common Stock and the ability
of the Company to raise equity capital. A substantial number of shares of
Common Stock outstanding or issuable in the future pursuant to existing
Company commitments could become eligible for future sale in the public market
at varying times following the Offering. Included among these shares are
239,999 shares issuable upon the closing of the KCG Acquisition (including the
26,666 Restricted Grant Shares), 244,066 shares issuable upon the closing of
the Offering in exchange for the extinguishment of the Stockholder Loans, the
remaining 239,334 shares issuable under the 1996 Stock Plan, and 203,385
shares issuable upon conversion of the Convertible Preferred Stock. Holders of
these shares of Common Stock which will be outstanding upon closing of the
Offering (other than the Restricted Grant Shares) or issued upon conversion of
the Convertible Preferred Stock have agreed or will agree not to sell their
shares for twelve months following the closing of the Offering. See "Shares
Eligible for Future Sale."
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
The Company is subject, both directly or indirectly, to various laws and
governmental regulations relating to its business. As a result of rapid
technology growth and other related factors, laws and regulations may be
adopted which significantly impact the Company's business. See "Business--
Government Regulation."
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the Offering are estimated to be
approximately $26.7 million ($30.9 million if the Underwriters' over-allotment
option is exercised in full), after deducting underwriting discounts and
commissions and estimated offering expenses. The Company intends to use the
net proceeds of the Offering as follows: (i) $2.4 million to pay the cash
portion of the consideration due at the closing of the ISM Acquisition; (ii)
$2.0 million to pay the cash portion of the consideration due at the closing
of the KCG Acquisition, (iii) approximately $1.0 million to pay the accrued
interest on the Stockholder Loans; and (iv) the remainder (approximately $21.3
million if the Underwriters' overallotment option is not exercised) for
planned capital expenditures through 1997. Pending such uses, the Company
intends to invest the net proceeds in short-term, investment grade, interest-
bearing securities (which will be held by a subsidiary of the Company formed
to hold its investments) and, consistent with prudent cash management
procedures, may repay all or a portion of outstanding balances under the
Company's line of credit with National City Bank, subject to reborrowing as
appropriate investments are identified. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources" for a discussion of the terms of the Company's line of
credit. Planned capital expenditures through 1997 include approximately $13.3
million for equipment to be used for installations by SeaVision of ITV systems
on cruise ships, approximately $3.7 million for equipment to be used for
installations by SeaVision of ITV systems in hotels, approximately $1.3
million for equipment to be used for continued development of PhotoWave's data
processing and image archival center and approximately $3.0 million for
equipment to be used by SportsWave for construction of mobile media centers
and development of interactive services for sports arenas and stadiums.
The Stockholder Loans were made during the years 1994, 1995 and 1996 by
Henry Posner, Jr., Thomas D. Wright, Terence M. Graunke, James C. Roddey and
Richard W. Talarico (the "Funding Stockholders"), stockholders of SeaVision,
in the aggregate principal amount of $6.6 million to permit development and
operation of SeaVision's business. All of the Funding Stockholders are
stockholders, officers and/or directors of the Company. Currently, the
principal amount outstanding is $3.0 million. The entire principal amount
outstanding at the closing of the Offering will be extinguished at the closing
in exchange for 244,066 shares of Common Stock. The accrued interest of
approximately $1.0 million will be paid in cash at the closing of the
Offering. See "Certain Transactions."
DIVIDEND POLICY
The Company has no dividend history and presently intends to retain earnings
to finance the expansion of its business. Payment of future dividends, if any,
on the Common Stock will be at the discretion of the Company's Board of
Directors, after taking into account various factors, including the Company's
earnings, capital requirements, financial position and other relevant business
conditions, and there can be no assurance that dividends will be paid.
Dividends on the Convertible Preferred Stock will be paid when and as declared
by the Company's Board of Directors. See "Description of Capital Stock--Series
A Convertible Redeemable Preferred Stock." The Company currently intends to
defer payment of dividends on the Convertible Preferred Stock.
15
<PAGE>
DILUTION
The pro forma deficit in net tangible book value of the Company at June 30,
1996 was $(6,873,000) or $(2.38) per share of Common Stock, based upon
2,884,065 shares of Common Stock outstanding. Pro forma net tangible book
value per share represents the amount of total tangible assets less total
liabilities of the Company, divided by the number of shares of Common Stock
outstanding. After giving effect to the sale of the 2,000,000 shares of Common
Stock offered by the Company hereby and after deduction of the underwriting
discounts and commissions and estimated offering expenses, the pro forma net
tangible book value of the Company at June 30, 1996 would have been
$19,827,000 or $4.06 per share. This represents an immediate increase in such
net tangible book value of $6.44 per share to existing stockholders and an
immediate dilution of $10.94 per share to new investors purchasing the shares
in the Offering. Net tangible book value dilution per share represents the
difference between the amount per share paid by new investors purchasing
shares of Common Stock in the Offering and the pro forma net tangible book
value per share of Common Stock immediately after completion of the Offering.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price....................................... $15.00
Net tangible book value before the Offering(1)(2).......... $(2.38)
Increase attributable to new investors..................... 6.44
Pro forma net tangible book value after the Offering................ 4.06
Dilution to new investors........................................... $10.94
------
</TABLE>
The following table summarizes, on a pro forma basis as of June 30, 1996,
the differences between existing stockholders and new investors with respect
to the number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company, and the average consideration paid per
share before deduction of the underwriting discounts and commissions and
estimated offering expenses payable by the Company:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------- ------------------- AVERAGE
NUMBER PERCENT AMOUNT PERCENT PRICE
--------- ------- ----------- ------- -------
<S> <C> <C> <C> <C> <C>
Current Stockholders(1)(2)........ 2,884,065 59.1 $ 6,227,000 17.2 $ 2.16
New Investors..................... 2,000,000 40.9 30,000,000 82.8 15.00
--------- ----- ----------- -----
Total........................... 4,884,065 100.0 $36,227,000 100.0
========= ===== =========== =====
</TABLE>
- --------
(1) Includes (i) 244,066 shares issued in connection with the conversion of
the Stockholder Loans, (ii) 213,333 shares issued as a portion of the
consideration in the KCG Acquisition and (iii) 26,666 Restricted Grant
Shares granted to certain employees of KCG under the 1996 Stock Plan.
(2) Does not include (i) 25,000 shares of Convertible Preferred Stock, which
are convertible into 203,385 shares of Common Stock six months after the
closing of the Offering, and (ii) the remaining 239,334 shares of Common
Stock reserved for awards under the 1996 Stock Plan.
16
<PAGE>
CAPITALIZATION
The following table sets forth, as of June 30, 1996, (a) the Company's
actual capitalization, (b) the pro forma capitalization giving effect to the
issuance of the Convertible Preferred Stock and the borrowings under the
Company's senior revolving credit facility and (c) the pro forma
capitalization adjusted to give effect to (i) the Offering and (ii) the
application by the Company of the estimated net proceeds from the Offering to
the Company as described under "Use of Proceeds." This table should be read in
conjunction with the Consolidated Financial Statements of the Company and the
Notes thereto and other information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1996
(IN THOUSANDS)
--------------------
PRO FORMA
ACTUAL AS ADJUSTED
------- -----------
<S> <C> <C>
Cash and cash equivalents............................... $ 572 $24,770
======= =======
Senior revolving credit facility........................ $ 4,850 $ 5,000(1)
Stockholder notes payable............................... 3,000 0
Preferred stock, par value $.01 per share, 100,000
shares authorized, 25,000 shares of Series A
Convertible Redeemable Preferred Stock issued and
outstanding............................................ 0 2,450
Stockholders' equity:
Common Stock, par value $.01 per share, 20,000,000
shares authorized, 2,400,000 shares issued and
outstanding (4,884,065 shares as adjusted) (2)......... 24 49
Additional paid in capital.............................. 3 33,939
Deferred compensation (4)............................... -- (400)
Retained deficit........................................ (5,317) (5,978)(3)
------- -------
(5,290) 27,610
------- -------
Total Capitalization.................................... $2,560 $35,060
======= =======
</TABLE>
- --------
(1) If prudent cash management procedures so dictate, the Company may
temporarily repay all or a portion of this line of credit with the
proceeds of the Offering, subject to later reborrowing if appropriate
investments are identified pending permanent application of the proceeds
as described under "Use of Proceeds."
(2) Includes the 26,666 Restricted Grant Shares granted to certain employees
of KCG under the 1996 Stock Plan, but does not include the remaining
239,334 shares of Common Stock reserved for issuance under the 1996 Stock
Plan, under which options to purchase a total of 219,000 shares at the
initial public offering price will be granted upon the effective date of
the Offering. See "Management--1996 Stock Plan."
(3) Includes charges of $661,000 to be incurred upon the conversion of the
Stockholder Loans into 244,066 shares of Common Stock.
(4) Represents future compensation expense related to the issuance of the
Restricted Grant Shares to certain employees of KCG to be incurred ratably
over a 36-month period.
17
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
The historical financial data for each of the periods ended December 31,
1994 and 1995 and June 30, 1996 presented below have been derived from the
audited consolidated financial statements of the Company. The pro forma
consolidated financial data for each of the periods ended December 31, 1995
and June 30, 1996 have been derived from the unaudited pro forma condensed
consolidated financial statements. The selected financial data should be read
in conjunction with the Consolidated Financial Statements of the Company, Pro
Forma Condensed Consolidated Financial Statements and Notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," included elsewhere in this Prospectus. The historical financial
data for the interim period ended June 30, 1995 are unaudited but, in the
opinion of management, include all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the results of
such period.
The pro forma consolidated financial data are provided for comparative
purposes only and are not necessarily indicative of future results or the
results that would be achieved if the transactions reflected therein had
occurred at the beginning of the period. The pro forma consolidated statement
of operations data and pro forma per share data give effect to (i) the
acquisitions of ISM and KCG, (ii) the issuance of the Convertible Preferred
Stock and (iii) the Offering and the application of the net proceeds
therefrom, as if each had occurred as of January 1, 1995. The pro forma
consolidated balance sheet data give effect to the transactions described
above as if each had occurred as of June 30, 1996.
For all periods presented, SeaVision, Inc. elected to be treated as an S
Corporation and, as a result, the taxable loss has been reflected on the
federal and state tax returns of the shareholders rather than the corporate
returns. The pro forma loss before nonrecurring charges and pro forma loss
before nonrecurring charges per share do not reflect any tax benefit, due to
the uncertainty of realization.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------- ---------------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
-------------- AS ADJUSTED -------------- AS ADJUSTED
1994 1995 1995 (2) 1995 1996 1996 (3)
----- ------- ----------- ----- ------- -----------
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C> <C>
Revenue................. $ -- $ 44 $ 6,212 $ -- $ 163 $ 3,287
Cost of sales........... -- 10 3,408 -- 40 1,828
----- ------- --------- ----- ------- ---------
Gross profit............ -- 34 2,804 -- 123 1,459
Depreciation & amortiza-
tion................... 6 288 2,130 70 350 1,298
Selling, general & ad-
ministrative........... 582 1,545 3,846 697 1,817 2,933
----- ------- --------- ----- ------- ---------
Operating loss.......... (588) (1,799) (3,172) (767) (2,044) (2,772)
Interest (income) ex-
pense, net............. 24 369 (33) 105 468 4
----- ------- --------- ----- ------- ---------
Loss before nonrecurring
charges................ (612) (2,168) $ (3,139) (872) (2,512) $ (2,776)
========= =========
Nonrecurring charges.... -- -- -- --
----- ------- ----- -------
Net loss................ $(612) $(2,168) $(872) $(2,512)
===== ======= ===== =======
Pro forma loss before
nonrecurring charges
per common share (1)... $ (0.62) $ (0.55)
========= =========
Weighted average number
of common shares out-
standing (1)........... 5,087,450 5,087,450
========= =========
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30, 1996
-------------------- -----------------------------------
HISTORICAL PRO FORMA
-------------------- CONSOLIDATED
FOR PRO FORMA
1994 1995 HISTORICAL ACQUISITIONS AS ADJUSTED
--------- ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital....... $ 57 $(1,493) $(4,843) $(6,746) $19,147
Total assets.......... 146 2,353 4,147 11,393 37,286
Total liabilities..... 756 5,130 9,437 11,033 7,226
Convertible,
redeemable preferred
stock................ -- -- -- 2,450 2,450(4)
Stockholders' equity.. (610) (2,777) (5,290) (2,090) 27,610(5)
</TABLE>
- --------
(1) The weighted average number of shares of Common Stock used to calculate
pro forma loss before nonrecurring charges per common share includes the
assumed conversion of the Convertible Preferred Stock. The pro forma loss
before nonrecurring charges for the year ended December 31, 1995 used to
compute pro forma loss before nonrecurring charges per common share does
not include the charges related to the conversion of the Convertible
Preferred Stock of $551,000, accretion of $50,000 to stated value of the
Convertible Preferred Stock and the charge of $661,000 related to the
induced conversion of the Stockholder Loans. These charges are
nonrecurring and directly attributable to the Offering and, therefore, are
not reflected in the pro forma net loss available to common stockholders.
(2) Includes (a) elimination of intercompany profit of $253,000 capitalized as
software development costs, (b) compensation expense of $134,000 related
to the issuance of the Restricted Grant Shares to certain employees of
KCG, (c) amortization of intangible assets of $1,764,000, (d) reduction of
interest charges on the Stockholder Loans of $369,000 and (e) reduction of
tax provision of $57,000.
(3) Includes (a) elimination of intercompany profit of $40,000 capitalized as
software development costs and $30,000 capitalized as equipment, (b)
compensation expense of $66,000 related to the issuance of the Restricted
Grant Shares to certain employees of KCG, (c) amortization of intangible
assets of $882,000, (d) reduction of interest charges on the Stockholder
Loans of $468,000 and (e) reduction of tax provision of $167,000.
(4) Conversion of the Convertible Preferred Stock at $12.29 per share will
result in a charge to accumulated deficit of $551,000.
(5) Includes a charge of $661,000 related to the induced conversion of the
Stockholder Loans into 244,066 shares of Common Stock.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the information
contained in Selected Financial Data and the Consolidated Financial Statements
of the Company and the Financial Statements of ISM and KCG and the other
financial information appearing elsewhere in this Prospectus.
OVERVIEW
The Company was formed in July 1996 to act as a holding company for four
operating subsidiaries: SeaVision, Inc., PhotoWave, Inc., SportsWave, Inc. and
Kent Consulting Group, Inc. Each of these subsidiaries will focus on a
particular aspect of the Company's business plan.
SeaVision was formed in June 1994 and focuses on the travel and leisure
industry. Its operations to date have involved the development of an
interactive digital platform and the installation and operation of ITV systems
in the international cruise industry. In addition, SeaVision is providing
shipboard systems integration services under an agreement to install and
operate a new television distribution and broadcast system aboard the QE2. It
seeks to expand its business in the international cruise industry and to
extend the use of its platform to other segments of the travel and leisure
industry, including hotels and resorts. See "Business--Travel and Leisure
Industry." SeaVision became a subsidiary of the Company in August 1996 through
a merger. See "Certain Transactions--Transactions Relating to Formation and
Organization of the Company."
PhotoWave was formed as a subsidiary of the Company in August 1996 to
continue the development and marketing of the Company's digital imaging
business. See "Business--Digital Imaging Industry."
Concurrently with the closing of this Offering, the Company will acquire all
of the capital stock of ISM, and the name of ISM will be changed to
SportsWave, Inc. The Company, through SportsWave, will continue to operate
ISM's traditional sports marketing business and intends to expand that
business by marketing ITV systems to sports arenas and stadiums and applying
interactive technology and digital imaging to corporate hospitality and
promotions. See "Business--Sports Marketing Industry."
Concurrently with the closing of this Offering, through a merger, KCG will
become a wholly owned subsidiary of the Company. KCG, which has assisted the
Company in the development of the Company's digital platform, will support the
further development of the platform and will also continue to provide third
party clients with software design and network solutions services. See
"Business--Software Design and Network Solutions."
The Company's historical results of operations (see "--Historical Results of
Operations") reflect the operations of SeaVision since inception. The pro
forma results of operations of the Company as a consolidated entity consisting
of SeaVision, ISM and KCG for the year ended December 31, 1995 and the six
months ended June 30, 1996 are discussed under "--Pro Forma Results of
Operations."
REVENUE
SeaVision
SeaVision was organized in June 1994, and until August 1995 its activities
were limited to start-up operations, including developing its ITV system,
recruiting key operating personnel and procuring contracts for the
installation of the system. As a result, revenue generated by SeaVision to
date has been limited.
The Company currently operates three ITV systems that SeaVision installed on
cruise ships in August 1995, December 1995 and July 1996, respectively.
SeaVision currently generates revenue primarily through the use by cruise ship
passengers of various "passenger pay" modules of the Company's ITV system.
SeaVision's revenue
20
<PAGE>
from the video wagering module is based upon the aggregate amount of net
"drop" or loss by passengers playing video games of chance on SeaVision's
system. SeaVision's revenue from video-on-demand consists of its share of the
prices paid by passengers to view movies, and it is anticipated that revenue
from music-on-demand and video games would be derived in a similar fashion.
With respect to SeaVision's shopping module, SeaVision acts as either the
retailer earning a markup on the wholesale cost of the goods sold through its
ITV system or a distributor earning a portion of the retail price of the goods
sold through its ITV system. SeaVision also anticipates generating revenue
from the sale of advertising to retailers, corporate sponsors and other third
parties. The Company is currently pursuing negotiations with various
advertisers, but there can be no assurance that any contract will result from
such negotiations.
SeaVision has installed the PhotoPlace(SM) digital imaging module of its
system on one cruise ship. Under that contract, SeaVision is to receive the
excess of the amount received by the cruise operator from the sales to
passengers through the PhotoPlace(SM) module over the operator's historical net
revenue from traditional shipboard photography sales. In the digital imaging
area, SeaVision is prepared to work with the cruise line photography
concessionaire, act as a supplier to a cruise line if it operates this
function in-house or provide turnkey photographic concessionaire services to
its cruise line clients.
In addition, the Company has recently commenced providing shipboard systems
integration services under an agreement calling for contract payments to
SeaVision of $1.24 million to install and operate a new television
distribution and broadcast system aboard Cunard's QE2. The Company anticipates
generating additional revenue from systems integration services, including the
installation of shipboard media centers. The Company is currently pursuing
negotiations with other cruise lines to act as a systems integrator, but there
can be no assurance that any contract will result from such negotiations.
SeaVision also anticipates generating revenue from the use of its system in
the hotel and resort industry. The Company is currently pursuing negotiations
with a resort operator to install its system, but there can be no assurance
that any contract will result from such negotiations. The Company presently
contemplates that contracts it might enter into with hotels and resorts would,
like the Company's current cruise line contracts, provide for an arrangement
whereby the Company shares with the operator a portion of the revenue from the
sale to users of various pay services, as well as a portion of the revenue
from the sale of advertising. The Company is also willing to offer other
arrangements to cruise operators and hotels and resorts, such as the sale of
the system coupled with an operation and maintenance contract. See "Business--
Travel and Leisure Industry."
PhotoWave
PhotoWave has had no significant operations to date, although the Company
has developed digital imaging applications for use in the international cruise
industry and is establishing digital imaging pilot sites which will serve to
test the market for the services to be offered by PhotoWave to various
industry segments. The Company anticipates that PhotoWave will generate
revenue from user fees and transaction fees charged to businesses utilizing
the Company's package of digital imaging services. See "Business--Digital
Imaging Industry."
SportsWave
ISM currently generates revenue from payments under its contracts for the
coordination of various events, including sports-themed premiums, promotions,
sales incentives, games, clinics and personal appearances by athletes. The
Company anticipates that SportsWave will continue to generate revenue from
ISM's traditional sports marketing business.
SportsWave also anticipates generating revenue from the installation and
operation in sports arenas and stadiums of ITV systems using the Company's
digital platform, and the Company has recently commenced marketing its system
to these potential customers. In addition, SportsWave anticipates generating
revenue from fees charged to corporate sponsors in connection with the mobile
media center which the Company and Wolf Coach, Inc., ("Wolf Coach") a
developer of truck or trailer mounted satellite communications and production
centers, are currently developing. There can be no assurance, however, that
such marketing and development efforts will result in the execution of
contracts with customers or the generation of revenue for the Company. See
"Business--Sports Marketing Industry."
21
<PAGE>
KCG
KCG currently generates revenue from fees under its contracts for software
design and network solutions services. The Company anticipates that KCG will
continue to generate revenue from providing such services to third party
clients in addition to providing technical and creative support in the further
development of the Company's digital platform. See "Business--Software Design
and Network Solutions."
EXPENSES
The expenses associated directly with the revenue described above include
(i) the cost of the goods or services provided through the Company's ITV
system; (ii) the cost of administering and storing digital images at the
Company's site on the Internet in connection with PhotoWave's package of
digital imaging services; (iii) the cost of sports marketing events
coordinated by SportsWave; (iv) staffing and other direct costs related to
mobile media centers; (v) direct labor, costs of materials and travel
associated with shipboard system integration contracts; and (vi) compensation
costs directly related to KCG's revenue generation.
Direct costs associated with the Company's ITV system include a percentage
of the revenue generated from the sale of pay-per-view movies which is payable
to the movie distributor, the cost of goods sold through the video shopping
module and any commissions paid on advertising revenue realized through the
system. The costs directly attributable to the sports marketing revenue
include event costs, such as leasing a location, costs of promotional items,
travel and meal expenses, licensing fees payable to the MLBPAA and appearance
fees paid to retired professional athletes.
Selling, general and administrative expenses include (i) compensation and
related benefits; (ii) selling and marketing costs; (iii) rent; (iv)
professional services and general overhead expenses; (v) contract payments
made to customers (such as cruise line operators) with whom the Company has
contracted to install and operate its ITV system; and (vi) costs incurred in
operating the Company's ITV system, such as the cost of transporting supplies
to the ship, travel expenses, credit card processing fees and the cost of
promotions to increase awareness and usage of the system.
Depreciation expense relates primarily to the cost of installation of the
Company's ITV system on cruise ships to the extent borne by the Company under
a particular contract, which are capitalized when incurred, and the cost of
computers and other equipment. Amortization expense relates primarily to other
intangible assets including trademarks, licensing fees paid for certain
software rights, research and development costs, formation expenses of the
Company and its subsidiaries, costs associated with this Offering and portions
of the purchase prices of the ISM Acquisition and the KCG Acquisition.
HISTORICAL RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
SIX MONTHS
PERIOD ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------- -------------------
1994 1995 1995 1996
------------ ------------- ----------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenue....................... $ -- $ 44 $ -- $ 163
Direct expenses............... -- 10 -- 40
----------- ------------- ----- -------
Gross profit.................. -- 34 -- 123
Selling, general &
administrative................ 582 1,545 697 1,817
Depreciation & amortization... 6 288 70 350
----------- ------------- ----- -------
Operating loss................ (588) (1,799) (767) (2,044)
Interest expense.............. 24 369 105 468
----------- ------------- ----- -------
Net loss...................... $(612) $(2,168) $(872) $(2,512)
=========== ============= ===== =======
</TABLE>
22
<PAGE>
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
As of June 30, 1996, SeaVision had installed its ITV system on two cruise
ships with an annual passenger capacity of 155,272, based on their itineraries
and passenger configurations at that time. SeaVision did not complete
installation of its first system on a ship until August 1995 and thus did not
record revenue or direct expenses for the six months ended June 30, 1995.
Accordingly, a comparison of revenue and direct expenses for the six-month
periods ended June 30, 1995 and June 30, 1996 is not meaningful.
Revenue for the six months ended June 30, 1996 was $163,000, including
$86,000 for pay-per-view movies and $75,000 for games of chance. Direct costs
for the six months ended June 30, 1996 were $40,000 and related primarily to
cost of sales for the video-on-demand module. Selling, general and
administrative expenses during the six months ended June 30, 1996 increased to
$1.8 million from $697,000 for the corresponding period in 1995. This increase
is attributable primarily to the costs of additional personnel that were hired
as the Company moved from the developmental stage to the implementation stage
of its ITV system. Depreciation and amortization expense increased to $350,000
during the six months ended June 30, 1996 as compared to $70,000 in the
corresponding period in 1995 because the Company had not completed
installation of ITV systems during the earlier period.
The Company's operating loss increased to $2.0 million for the six months
ended June 30, 1996, from $767,000 for the six months ended June 30, 1995.
This increase resulted from the continued growth of SeaVision's staff and
operations as SeaVision moved from the developmental stage to the
implementation stage of its ITV system. As SeaVision's installed base of ITV
systems increases, the Company anticipates revenue growth from the systems
will substantially outpace the growth of expenses. Interest expense increased
from $105,000 to $468,000 for the periods ended June 30, 1995 and June 30,
1996, respectively. Most of the interest expense was accrued but unpaid during
the period, and the increase reflected continued funding of the Company's
operating losses by certain of its stockholders in the form of loans, and with
respect to the six months ended June 30, 1996, one month of interest expense
and guarantee fees relating to the borrowings under its line of credit with
Integra Bank (now National City Bank). See "Certain Transactions--Stockholder
Loans." The Company sustained a net loss of $2.5 million during the six months
ended June 30, 1996, compared to a net loss of $872,000 for the six months
ended June 30, 1995, as a result of the increased operating losses and
interest expense discussed above.
Subsequent to the original issuance of the unaudited interim financial
statements for the six-month period ended June 30, 1996, the Company
identified certain additional expenses associated with this period. These
additional costs relate to the installations of on-board equipment, guarantee
fees and software development costs incurred subsequent to market
introduction. Accordingly, the accompanying audited interim financial
statements for the six-month period ended June 30, 1996 include adjustments to
recognize such additional expenses. The effect of these adjustments was to
increase the previously reported net loss by approximately $323,000 or $.12
per share.
The Company has since strengthened its accounting staff by hiring a Chief
Financial Officer and extending an offer of employment to a Controller, both
with extensive experience. Additionally, specified transaction processing and
analytical procedures have been implemented to enhance the closing process.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO INCEPTION THROUGH DECEMBER 31, 1994
During the period from inception through December 31, 1994, SeaVision was in
the development phase of its first ITV implementation. Because SeaVision did
not complete installation of its first system on a ship until August 1995, it
did not record revenue or direct expenses for the year ended December 31,
1994. Accordingly, a comparison of revenue and direct expenses for the year
ended December 31, 1995 and the period ended December 31, 1994 is not
meaningful.
Revenue for the year ended December 31, 1995 was $44,000, primarily from
pay-per-view movies and games of chance. Direct expenses for the year ended
December 31, 1995 were $10,000, primarily representing costs of sales for pay-
per-view movies. Selling, general and administrative expenses for the year
ended December 31, 1995 increased to $1.5 million from $582,000 during the
period ended December 31, 1994 as a result of
23
<PAGE>
additions to the staff and increased travel and other expenses as SeaVision
entered the implementation phase for its ITV system. Depreciation and
amortization expense increased to $288,000 during the year ended December 31,
1995 as compared to $6,000 for the period ended December 31, 1994 because the
Company had not completed installation of ITV systems during the earlier
period.
The Company incurred an operating loss in the amount of $1.8 million for the
year ended December 31, 1995, compared to an operating loss of $588,000 during
the period ended December 31, 1994. Interest expense increased from $24,000 to
$369,000 for the periods ended December 31, 1994 and 1995, respectively. All
of the interest expense was accrued but unpaid during the period and the
increase reflected continued funding of the Company's operating losses by
certain of its stockholders in the form of loans. See "Certain Transactions--
Stockholder Loans." The Company sustained a net loss of $2.2 million during
the year ended December 31, 1995, compared to a net loss of $612,000 for the
period ended December 31, 1994, as a result of the increased operating losses
and interest expense discussed above.
PRO FORMA RESULTS OF OPERATIONS
The following table sets forth certain pro forma consolidated financial data
of the Company, expressed as a percentage of total consolidated revenue for
the Company, for the year ended December 31, 1995 and the six months ended
June 30, 1996, as if the Offering and the ISM Acquisition and the KCG
Acquisition had been consummated as of January 1, 1995. The pro forma
financial data may not be indicative of the results that would have been
achieved if the transactions reflected herein had occurred at the beginning of
the period for which the pro forma data is presented or of future results.
<TABLE>
<CAPTION>
PRO FORMA AS ADJUSTED
CONSOLIDATED FINANCIAL DATA
----------------------------------------
(UNAUDITED)
(IN THOUSANDS)
----------------------------------------
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1995 JUNE 30, 1996
------------------- -------------------
<S> <C> <C> <C> <C>
REVENUE
SeaVision............................ $ 44 0.7% $ 163 5.0%
SportsWave (ISM)..................... 4,878 78.5 1,793 54.5
KCG.................................. 1,995 32.1 1,792 54.5
Less: Intercompany eliminations..... (705) (11.3) (461) (14.0)
--------- ------- --------- -------
TOTAL REVENUE......................... 6,212 100.0 3,287 100.0
Direct costs.......................... 3,408 54.9 1,828 55.6
--------- ------- --------- -------
Gross margin.......................... 2,804 45.1 1,459 44.4
Selling, general & administrative..... 3,846 61.9 2,933 89.2
Depreciation & amortization........... 2,130 34.3 1,298 39.5
--------- ------- --------- -------
Operating loss........................ (3,172) (51.1) (2,772) (84.3)
Interest income (expense)............. 33 0.5 (4) (.1)
--------- ------- --------- -------
Loss before nonrecurring charges...... $(3,139) (50.6)% $(2,776) (84.4)%
========= ======= ========= =======
</TABLE>
PRO FORMA RESULTS FOR THE YEAR ENDED DECEMBER 31, 1995 AND THESIX MONTHS ENDED
JUNE 30, 1996
On a pro forma consolidated basis, the Company recognizes revenue from three
sources: SeaVision's ITV system, sports marketing revenue generated by ISM and
software design and network solutions fees generated by KCG. The Company, ISM
and KCG have had various business relationships during the periods covered by
this discussion. For the purposes of the consolidated pro forma numbers
presented above and the following discussion, all such intercompany
transactions have been eliminated.
24
<PAGE>
Revenue
Revenue, net of intercompany eliminations, for the year ended December 31,
1995 totaled $6.2 million, with 0.7% being generated by SeaVision, 78.5% by
ISM and 20.8% by KCG. Revenue for the six months ended June 30, 1996 totaled
$3.3 million, with 5.0% being generated by SeaVision, 54.5% by ISM and 40.5%
by KCG.
SeaVision completed the installation of its system on its first ship in
August 1995 and on its second ship in December 1995, and therefore reported
only $44,000 of revenue for the year ended December 31, 1995 and $163,000 of
revenue for the six months ended June 30, 1996. SeaVision completed the
installation of its ITV system on its third ship in July 1996 and holds firm
contracts for the installation of its system on nine additional ships, six of
which it expects to complete by December 31, 1996. Accordingly, SeaVision
anticipates a significant increase in revenue from its ITV system as these
installations are completed. SeaVision also holds contracts under which cruise
lines have the option to request SeaVision to install its system on an
aggregate of 17 additional vessels. In addition, SeaVision is pursuing
negotiations with various other cruise lines to install its system on up to 26
additional vessels. The Company believes, based on its historical
installations and its projections of installations for which it has firm
contracts, that, if the Company receives firm contracts for 13 additional
installations (either through the exercise of cruise line options or through
the execution of additional contracts), the Company could complete such
installations and, accordingly, have its ITV system in operation on a total of
25 ships by December 31, 1997. The Company believes that the installations
which might result from exercise of the cruise line options and from these
negotiations represent a significant market opportunity for the installation
and operation of numerous additional systems. There can be no assurance,
however, that any option will be exercised or that any additional contracts
will result from the current negotiations or, if additional firm contracts are
secured, that unforeseen delays in installation will not occur.
Subsequent to June 30, 1996, SeaVision has added an Onboard Promotions
Manager to its staff, added a blackjack game to its video games of chance
module and continues to add content to the video shopping module to broaden
the selections available to users. The Company expects that these additions
will have a positive impact on the revenue derived from the ships on which the
Company's ITV system is installed. In addition, in September 1996, SeaVision
entered into its first shipboard systems integration contract pursuant to
which it is installing and will operate a new television distribution and
broadcast system aboard Cunard's QE2. This contract calls for payments of
$1.24 million to the Company. Installation is expected to be completed during
November 1996.
ISM reported revenue of $4.9 million for the year ended December 31, 1995
and $1.8 million for the six months ended June 30, 1996. Revenue is generated
by contract payments as sports-themed events occur. For the year ended
December 31, 1995, ISM's revenue was negatively affected because publicity
resulting from a 232-day baseball players' strike and owners' lockout between
Major League Baseball and its players union caused certain key customers to
cancel their promotions with ISM and the MLBPAA. ISM has established
relationships with retired pro football, basketball and hockey players to
minimize its reliance on any one sport in the future.
SportsWave is projecting a decline in revenue for the year ending December
31, 1996 compared to the same period of the prior year because management
believes that ISM's traditional customers utilized a substantial portion of
their sports marketing budgets on the summer Olympic games held in the United
States. Based on firm contracts and discussions with current and past
customers, management expects that revenue for ISM for the year ending
December 31, 1997 will increase compared to the year ending December 31, 1996.
KCG reported revenue of $2.0 million for the year ended December 31, 1995
and $1.8 million for the six months ended June 30, 1996. Revenue for the
period ended June 30, 1996 increased 134.3% compared to the same period of the
prior year. KCG's software design work on SeaVision's ITV platform was
recognized when the platform received an applications development award from
Microsoft in 1995. Successful marketing efforts associated with this award
plus the addition of a number of new clients were primarily responsible for
the substantial increase in revenue recognized during this period.
Expenses
Direct costs were $3.4 million and $1.8 million for the periods ended
December 31, 1995 and June 30, 1996, respectively.
25
<PAGE>
SeaVision's direct costs for the year ended December 31, 1995 and the six
months ended June 30, 1996 are discussed above under "--Historical Results of
Operations."
ISM's direct costs were $2.7 million for the year ended December 31, 1995
and $1.1 million for the six months ended June 30, 1996. Gross margin realized
by ISM traditionally ranges from 42.5% to 43.8%. Gross margin for the year
ended December 31, 1995 was 43.7%. Gross margin for the six months ended June
30, 1996, at 39.2%, was below this range because of the replacement of several
higher margin contracts with contracts at lower margin.
KCG's direct costs were $989,000 for the year ended December 31, 1995 and
$937,000 for the six months ended June 30, 1996. Gross margin for KCG was
50.4% for the year ended December 31, 1995 and 47.7% for the six months ended
June 30, 1996.
Selling, general and administrative expenses of $3.8 million and $2.9
million for the periods ended December 31, 1995 and June 30, 1996,
respectively, were equal to 61.9% and 89.2% expressed as a percentage of total
revenue. The increase in selling, general and administrative expenses as a
percentage of sales resulted from additions to SeaVision's staff, the seasonal
nature of ISM's revenue base and the decline in revenue discussed above.
Depreciation and amortization expense for the year ended December 31, 1995
and the six months ended June 30, 1996 were $2.1 million and $1.3 million,
respectively. The increases in depreciation and amortization expense have
resulted almost entirely from the continued installation of SeaVision's ITV
system.
The Company realized operating losses of $3.2 million and $2.8 million for
the year ended December 31, 1995 and the six months ended June 30, 1996,
respectively. The operating losses were primarily attributable to losses
incurred by the Company relating to the growth of SeaVision's staff and
operations and the decrease in ISM's revenue, both of which are described
above.
Interest income for the year ended December 31, 1995 was $33,000, and
interest expense was $4,000 for the period ended June 30, 1996. Interest
expense of $369,000 and $468,000 for the periods ended December 31, 1995 and
June 30, 1996, respectively, was eliminated because, on a pro forma basis, the
obligations on which such interest accrued are treated as having been
extinguished in connection with the Offering.
The Company incurred losses before nonrecurring charges of $3.1 million and
$2.8 million for the periods ended December 31, 1995 and June 30, 1996,
respectively, for the reasons discussed above.
Based on scheduled installations for ITV systems by SeaVision, firm
contracts for ISM's services and trends in KCG's revenue, management expects
that the Company's combined revenue will increase after the acquisition of
these entities and as the Company develops.
LIQUIDITY AND CAPITAL RESOURCES
From its organization in June 1994 through May 31, 1996, the working capital
needs of SeaVision were funded through stockholder loans. See "Certain
Transactions--Stockholder Loans." On May 31, 1996, SeaVision entered into a
line of credit with Integra Bank (now National City Bank). The maximum amount
of borrowing initially allowed under the line of credit was $5 million, all of
which was outstanding as of August 1, 1996. On October 28, 1996, the maximum
amount of borrowing allowed under the Line of Credit was increased to $7.5
million, $6 million of which was outstanding as of October 29, 1996. The
initial funding under the line of credit occurred May 31, 1996 and was in the
amount of $4.3 million, $3.6 million of which was used to repay a portion of
the principal amount of the Stockholder Loans. The Company may choose between
two rates of interest at each funding date, the Prime Rate or the Euro-Rate
(as defined in the Amended and Restated Line of Credit Note dated October 28,
1996) plus one and one-half percent. The remaining amounts funded under the
line of credit have been used as general working capital in the operation of
the Company. The line of credit expires on May 31, 1997 and is guaranteed by
certain stockholders of the Company. The guarantors are entitled to a
guarantee fee from the Company equal to the difference between 15% per annum
and the rate which the Company is charged under the terms of the line of
credit.
26
<PAGE>
On August 16, 1996 the Company issued an aggregate of 25,000 shares of
Convertible Preferred Stock to Henry Posner, Jr., Thomas D. Wright, Richard W.
Talarico, James C. Roddey, William C. Kavan and Mark Kottler, each of whom is
also an officer, director and/or holder of Common Stock of the Company. The
Company intends to use the $2,450,000 net proceeds from the sale of the
Convertible Preferred Stock for general working capital purposes. The holders
of Convertible Preferred Stock are entitled to receive, when and as declared
by the Company's Board of Directors, cumulative compounded quarterly dividends
at the rate of eight percent of the liquidation value thereof per annum. If
the Company has not consummated an initial public offering of Common Stock on
or before December 31, 1996, the dividend rate will increase to 12% of the
liquidation value thereof per annum from and after such date. For a limited
period beginning six months after the Offering, each holder of Convertible
Preferred Stock will have the right to convert all, but not less than all, of
the Convertible Preferred Stock then owned by such holder into shares of
Common Stock at the rate of approximately 8.1 shares of Common Stock for each
share of Convertible Preferred Stock. Shares of Convertible Preferred Stock
not converted into Common Stock will remain outstanding until the earlier of
the time such shares are redeemed by the Company or June 30, 2006. For
additional information concerning the Convertible Preferred Stock, see
"Certain Transactions--Sale of Convertible Preferred Stock" and "Description
of Capital Stock--Series A Convertible Redeemable Preferred Stock."
The Company recognized an operating loss for the year ended December 31,
1995, and the Company's business will require substantial capital investment
on an ongoing basis to finance its expansion in the travel and leisure
industry and for the implementation of its business plans for PhotoWave and
SportsWave. Capital expenditures were $1.6 million during the year ended
December 31, 1995 and $1.6 million for the six months ended June 30, 1996. The
Company expects to incur capital expenditures of approximately $6.4 million
during the full year ended December 31, 1996 and approximately $16.5 million
for the year ending December 31, 1997. The actual amount and timing of the
Company's capital expenditures will vary (and such variations could be
material) depending primarily upon the number of new contracts for
installation of its ITV systems and shipboard systems integration entered into
by the Company, the costs of the installations and the rate of implementation
of the PhotoWave and SportsWave business plans.
The Company may also become obligated to make up to $2.4 million and $2.8
million, respectively, in contingent payments pursuant to the ISM Stock
Purchase Agreement and the KCG Merger Agreement. Under the ISM Stock Purchase
Agreement, an interim contingent payment must be made in an amount (the "ISM
Interim Earn-Out Amount") equal to the amount by which six times the sum of
operating income of ISM for 1997 and 1998 divided by three exceeds $2.4
million. A final payment must be made in an amount equal to the amount by
which six times the sum of operating income of ISM for 1997, 1998 and 1999
divided by three exceeds the sum of $2.4 million plus the ISM Interim Earn-Out
Amount. One-half of such contingent payments, if any, will consist of
promissory notes bearing interest at seven percent per annum. In connection
with the contingent payments under the KCG Merger Agreement, at the closing of
the KCG Acquisition, the sole stockholder of KCG will receive a $2.8 million
contingent promissory note (the "KCG Note") of the surviving corporation in
the merger. If KCG's average annual operating income for the years 1997, 1998
and 1999 ("Average KCG Operating Income") exceeds $1.862 million, the entire
$2.8 million principal amount of the KCG Note will be payable. If the Average
KCG Operating Income is less than $1.862 million, the principal amount of the
KCG Note will be reduced according to a scale whereby the amount of reduction
increases as the Average KCG Operating Income decreases. The entire KCG Note
will be cancelled if Average KCG Operating Income is less than or equal to
$1.4 million. The principal amount of the KCG Note (as adjusted) plus interest
at a rate of 7% per annum on such principal amount (as adjusted) will be
payable in two installments, the first of which will be paid 15 days after the
date of determination of the Average KCG Operating Income and the second of
which will be paid six months after such date of determination.
The Company believes that the net proceeds from this Offering, together with
available funds and cash flows expected to be generated by operations, will be
sufficient to meet its anticipated cash needs for working capital and capital
expenditures for at least the next 24 months. If cash generated by operations,
together with the net proceeds of the Offering, were insufficient to satisfy
the Company's cash requirements, the Company would be required to consider
other financing alternatives, such as selling additional equity or debt
securities or obtaining
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long or short-term credit facilities, although no assurance can be given that
the Company could obtain such financing. Any sale of additional equity or
convertible debt securities would result in additional dilution to the
Company's shareholders.
EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS
Financial Accounting Standards Board Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of"
(SFAS No. 121), was issued in March 1995 and is effective for fiscal years
beginning after December 15, 1995. This statement will be applied prospectively
and requires that impairment losses on long-lived assets be recognized when the
book value of the asset exceeds its expected undiscounted cash flows. The
Company adopted SFAS No. 121 on January 1, 1996, and adoption at that time did
not have a material impact on the Company's financial position or results of
operations.
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BUSINESS
The Company provides customized ITV, digital imaging and other
communications and media services to users in the travel and leisure, sports
marketing and promotion and other industries. The Company initially marketed
its ITV system to the travel and leisure industry, principally international
cruise lines, and expects to expand its presence in the cruise industry. The
Company anticipates installing ITV systems in hotels and resorts and intends
to adapt its system to other industries and niche markets in which its
technology may afford a competitive advantage, including the commercial
photography and sports marketing and promotion industries. The Company also
will operate KCG's software design and network solutions business to support
the Company's other businesses and to serve third party clients.
OPERATING AND GROWTH STRATEGY
The Company's goal is to become a leader in the processing and distribution
of interactive television and digital imaging services. To achieve this goal,
the Company's strategy is:
. To expand the Company's presence in the travel and leisure industry by (i)
completing the installation of ITV systems on ships for which the Company
has firm contracts, (ii) seeking additional commitments from cruise line
operators for the installation and operation of ITV systems, (iii) adding
new applications to its platform to maintain its competitive position
within the cruise industry, (iv) expanding its shipboard systems
integration business and (v) extending the use of its platform to other
segments of the travel and leisure industry, including hotels and resorts;
. To develop the Company's digital imaging business by marketing, through
PhotoWave, a turnkey package of digital imaging services to niche markets
currently dependent on conventional photography;
. To expand the sports marketing business of ISM by marketing, through
SportsWave, new applications for the Company's platform directed at
promoters of sporting events and spectators and corporate sponsors at such
events;
. To utilize KCG's software design and creative expertise to further develop
the Company's digital platform and continue KCG's third party software
design and network solutions business;
. To engage from time to time in acquisitions of businesses and the
development of joint venture relationships that offer opportunities to
complement or expand the Company's ITV and other capabilities and the
marketing of such capabilities; and
. To supply specialized software and creative program enhancements to mass
market providers of interactive communications and digital imaging
services, such as cable television and telephone companies.
Expand Presence in the Travel and Leisure Industry
The Company intends to expand its presence in the travel and leisure
industry through a number of initiatives. In addition to completing the
installation of ITV systems in ships for which it has firm contracts, it is
seeking additional commitments for the installation and operation of its ITV
system on cruise ships. Three of SeaVision's ITV system contracts give the
cruise operators the option to have SeaVision's system installed on an
aggregate of 17 additional ships. Additionally, during the term of its
contract with NCL, the Company has the right to be afforded the opportunity to
match any third-party offer that NCL may receive with respect to the provision
of on-board ITV and video entertainment services. The Company is currently
negotiating with various other cruise lines regarding contracts to install its
system on up to 26 additional ships. There can be no assurance, however, that
any option will be exercised or that any additional contracts will result from
the current negotiations.
The Company also intends to continue to develop new applications for
SeaVision's ITV system for the purpose of enhancing the system's appeal to
cruise operators. For example, the Company, working with Kodak,
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recently developed a cost-effective digital imaging application that the
Company believes will significantly improve the delivery of photography
services on cruise ships by providing passengers with the ability to preview,
customize and purchase photos on the ITV system. The Company also is seeking
to utilize its platform as a media center for various shipboard systems,
including the ship's information systems, broadcast studio, print shop and
photography department. In addition, the Company has commenced providing
shipboard integration services pursuant to a contract under which it is
installing and will operate a new television distribution and broadcast system
aboard Cunard's QE2 and is pursuing additional contractual arrangements under
which the Company would act as a systems integrator for ships that are under
construction or being retrofitted.
In the hotel market, the Company is currently marketing an ITV system to
hotels and resorts that would make available to guests not only on-demand pay-
per-view movies, but also other services that most current hotel movie
operators do not provide, such as high speed Internet access, e-mail access
and direct airline ticketing and rental car reservations.
Develop the Digital Imaging Business
Through PhotoWave, the Company plans to market a turnkey package of digital
imaging services to businesses currently dependent on conventional "wet"
photography. The Company's services include a data processing and image
archival center that permits storage and transmission of digital images at the
Company's site on the Internet and other private networks and feature high-end
content and graphics, photo enhancement tools and customized business
management reporting tools to support users. The Company and District Photo
have agreed in principle to certain cooperative arrangements with respect to
the Company's digital imaging technology. The Company believes that its
digital imaging applications will make digital imaging technology available on
a cost effective basis to users with only minimal training, which may provide
the basis for broad acceptance of the Company's services by current users of
conventional photography.
Expand ISM's Sports Marketing Business
Through SportsWave, the Company is adapting its platform to offer
interactive services for use in sports arenas and stadiums to enhance the
impact of advertising messages. This program envisions equipping arenas and
stadiums with interactive capabilities which can be accessed through a
handheld device or through terminals located at a patron's seat, in luxury
boxes or at central locations, which would enable patrons to retrieve sports
data, purchase team logo and other concession items and view advertisements
and special offers. The Company also intends to support ISM's core business of
corporate hospitality and event promotion by providing innovative digital
imaging products to ISM's clients and expanding upon the services currently
being offered by ISM. The Company is developing a mobile media center that
could be made available to corporate sponsors for promotional purposes and
corporate incentives. Among other things, the center could be used to deliver
prints of pictures taken with major sports figures and to supply promoters of
sporting events with on-site office services, such as copying, information
processing and communications.
Utilize KCG's Technical and Creative Expertise
The Company intends to utilize KCG, which was responsible for much of the
software design and programming for the Company's proprietary digital
platform, to strengthen the creative and technical foundation for the further
development of the platform and its adaptation to new markets. The Company,
through KCG, also intends to continue to provide software design and network
solutions services to third parties.
Acquire Complementary Businesses and Develop Joint Venture Relationships
The Company intends to continue to identify businesses which are available
for acquisition and which offer opportunities to complement and expand the
Company's ITV and other capabilities and the marketing of such capabilities.
The Company will also seek to develop joint venture relationships with other
businesses in order to further the marketing of the Company's system for
existing or additional applications. In addition, if and as new
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applications for the Company's system are identified, the Company may find it
desirable to seek acquisitions of technologies which could enhance the
capabilities of its system in respect of such applications. There can be no
assurance, however, that the Company will be able to identify suitable and
available acquisition or joint venture opportunities or that it will be able
to reach agreement with any identified candidate.
Supply Specialized Software and Creative Program Enhancements to Mass Market
Providers
The Company believes that the activities of SeaVision, PhotoWave and
SportsWave, as well as the expertise and industry relationships provided by
KCG, will provide a basis for establishing relationships with mass market
providers of interactive communications and digital imaging services that
could lead to the Company becoming a supplier of specialized software to such
providers. The Company plans to offer specialized software from the Company's
platform, such as software permitting immediate processing of transactions, to
these providers for use in other system architectures. The Company also
intends to provide creative program enhancements to telephone and cable
companies that are developing pilot programs to provide interactive services
to households. The Company is pursuing discussions with a telephone company
regarding the possible use of the Company's digital file server and software
for a mass market ITV trial.
TRAVEL AND LEISURE INDUSTRY
The Company's initial development and marketing efforts for its ITV system
have been directed at the international cruise industry. The Company is
seeking additional contracts for the installation and operation of its system
on cruise ships and intends to add new applications to its platform for cruise
operators. The Company also intends to extend the use of its platform to other
segments of the travel and leisure industry, including hotels and resorts.
International Cruise Industry
Industry Overview. From its inception in 1994, SeaVision identified the
cruise industry as an ideal initial market for its interactive communications
platform. The cruise industry is the fastest growing segment of the worldwide
travel business. An industry trade group, using information as of December 31,
1995, has indicated that approximately 120 cruise ships with a capacity of
more than 100,000 berths serve the North American market. The industry has
experienced rapid growth, with passenger volume increasing from 500,000 North
American passengers in 1970 to approximately 4.4 million passengers per year
in each of 1993, 1994 and 1995. An industry trade group has estimated that
annual passenger volume may reach as high as 7.0 million in 2000. An industry
trade group has estimated that the market for the cruise industry will grow to
more than $50 billion over the next five years. The increasing popularity of
cruise excursions in both the United States and abroad, combined with the high
level of customer satisfaction, is expected to foster continued growth in the
industry. To meet this anticipated demand, the cruise lines are investing in
new ships, with 20 new luxury liners set to enter service from 1997 through
1999. According to an industry trade group, the average cruise passenger in
the past five years was approximately 50 years old and had a household income
of approximately $63,000. Approximately eleven percent of such cruise
passengers had an annual household income of $100,000 or more. The Company
believes that it is the only company to date that has successfully operated
digital ITV systems on cruise ships.
Use of the Company's ITV System in the Cruise Industry. The Company's cruise
industry business began in March 1995 with a single contract to install its
ITV system on NCL's m/s Dreamward. The Company has now installed its ITV
system on two additional cruise ships, one owned and operated by each of
Celebrity and Carnival, and provides service to approximately 2,500 cabins.
Recently, the Company's contract with Celebrity was expanded to provide for
the installation and operation of the Company's system on board the five
additional ships in Celebrity's fleet, the Company's contract with NCL was
expanded to provide for the installation and operation of the Company's system
on board one additional ship in NCL's fleet and the Company entered into a
contract with RCCL to provide for the installation and operation of the
Company's system on board two ships in RCCL's fleet. In addition, Carnival has
exercised an option to have the Company's system installed on its new ship,
the m/s Destiny, which will be the largest cruise ship in the world upon its
launch scheduled in 1996.
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Upon completion of these nine additional installations, SeaVision's ITV system
will be operational in 12 ships with a total of approximately 10,600 cabins
and a total estimated annual passenger carry of approximately 1.0 million.
These twelve installations will represent approximately 10% of all existing
cruise ships, 21% of total cabins in the industry and 20% of total passenger
carry in 1995.
Part of the Company's strategy in expanding its presence in the cruise
industry involves the development of new features which the Company believes
will enhance the value of the system to cruise operators. As a part of this
strategy, SeaVision has developed PhotoPlace(SM), an on-board digital
photography service which the Company is marketing as a cost-effective
alternative to shipboard photography which presently relies on conventional
photography. See "--Services for Passengers--Shipboard Photography." SeaVision
has also recently begun installation of a new television distribution and
broadcast system aboard Cunard's QE2 under SeaVision's first shipboard systems
integration contract and is pursuing negotiations for additional systems
integration contracts. The Company is also developing a media center which
will use the Company's platform to support various shipboard systems. See "--
Services for Cruise Operators."
Services for Passengers. The Company's ITV system offers various services to
passengers, some of which currently generate revenue to the Company and some
of which are currently offered free to passengers.
Passenger Pay Services. SeaVision's revenue from its cruise ship
operations is derived primarily from fees paid by passengers for in-cabin
ITV services.
Video Wagering. On cruise ships, the Company's ITV system allows
passengers, from their cabins, to play games of chance, presently
including video slots, video poker and blackjack, using credits charged
to their cabin accounts. The Company's video wagering module provides
photo quality, high resolution graphics, unlike video games of chance
offered in casinos, but still has the speed of play of casino games.
The Company intends to add more modules to the three modules currently
available for gaming purposes, including one providing a sports book
whereby passengers can place wagers on major sporting events.
Video-On-Demand. Through the Company's ITV system, a passenger can
choose from a large number of movie selections and individually start
the selected film at the passenger's convenience. In contrast to other
video-on-demand providers, the Company's system allows on-demand
selection and viewing of full motion previews of movies offered on the
system. SeaVision is the only company providing the cruise industry
with digitally formatted pay-per-view movies from Walt Disney Pictures
and Metro-Goldwyn-Mayer. The Company currently offers on-demand movies
on a pay-per-view basis at prices established by the Company ranging
from $5.95 to $9.95.
Shipboard Photography. The Company, working with Kodak, has developed
PhotoPlace(SM) which offers on-board digital photography services to
cruise passengers through a digital imaging system tied to the
Company's ITV system. Currently, the on-board photography market is
serviced by concessionaires utilizing conventional "wet" photography,
which requires the processing and developing of all photographs taken
(regardless of the number of photographs sold) and generally limits the
passenger's choice of size and number of prints. With PhotoPlaceSM,
shipboard photographers using digital cameras take passenger photos and
upload the images for viewing on the Company's ITV system. Guests are
able to preview, customize and purchase their photographs through their
cabin television. The Company believes that this convenience will
result in additional sales of photographs. In addition, since
photographs are processed in accordance with passenger purchases, there
is a substantial reduction in the number of photographs processed.
While the per unit cost of processing is higher for digital images than
for conventional photographs, the Company believes that the
PhotoPlace(SM) system will be cost-effective as a result of the reduction
in the number of photographs processed. Consequently, the Company
believes that PhotoPlace(SM) should gain wide acceptance in the travel
and leisure industry, and that it could become a significant source of
revenue. The Company has installed PhotoPlaceSM on NCL's Dreamward, and
will begin installing it on two other ships in the fall of 1996.
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Management believes that the Company should be able to develop
improved capabilities for storing, displaying and distributing digital
images. The Company is already actively working on applying its
existing digital imaging capabilities elsewhere in the operation of
cruise ships, including the printing of crew identification badges and
passenger identification cards, the publishing of the ship's daily
newspaper in four-color output, the printing of daily menus and
television programming guides and the reproduction of on-board
promotional materials. There can be no assurance that the Company will
be able to apply its existing digital imaging capabilities as
anticipated or develop improved digital imaging capabilities as quickly
as expected.
Shopping. The Company's shopping service provides passengers with the
ability to preview and purchase products through their cabin ITV
system. The Company acts as either the retailer earning a markup on the
wholesale cost of the goods sold or a distributor earning a portion of
the retail price of the goods sold. The Company presently offers for
sale items from such vendors as Bobby Jones Sportswear, Wenger Swiss
Army Brand and The Nature Company. The Company is currently negotiating
contracts with a number of other high quality, name-brand manufacturers
and retailers and anticipates that revenue from in-cabin shopping will
increase as more vendors are added.
Additional Passenger Services. The Company's ITV system also includes
various services for which the Company does not currently receive direct
revenue but which enhance the usefulness of the system to customers, afford
the Company a competitive advantage in marketing its system, attract users
to other services offered on the Company's system and provide a potential
source of additional revenue. The Company anticipates that these services
will represent a source of future revenue through the use, for example, of
corporate sponsorships of particular modules and transaction fees paid
either by the cruise operator or the passenger using the service.
Shore Excursion Preview and Ordering. The Company's ITV system
includes what the Company believes to be the world's first interactive
shore excursion preview and ordering system which features on-demand
full-motion videos illustrating the entertainment options available in
each port-of-call. The Company's shore excursion system can interface
with the ship's excursion inventory control system and also makes
available to cruise operators SEROS (Shore Excursion Reservation and
Ordering System)(TM), a proprietary inventory control system. This
module increases shipboard productivity by reducing the need for staff
to market and answer questions about shore tours and by automating the
inventory control system and ticket sales. The shore excursion service
has been well-received by passengers as evidenced by its extensive
usage. As of August 1, 1996, passengers on Celebrity's m/v Century had
used it on more than 33,500 occasions, or an average of approximately
1,340 occasions per cruise, and passengers on NCL's m/s Dreamward had
used it on more than 54,500 occasions, or an average of approximately
1,185 occasions per cruise.
Wine Ordering; Room Service. Through the Company's ITV system, a
passenger can review the ship's wine menu, order wine for dinner, pay
for it and have it waiting upon arrival in the restaurant. The Company
is currently pursuing discussions with advertisers to sponsor a full
motion informational interactive video using a sponsor's wines to
explain the appropriate wine selections for various meals. A passenger
can also order room service through a series of easy-to-use menus,
avoiding the need, for example, for ship personnel to collect and
process breakfast orders manually.
Personal Account Review; Free Television. The Company's ITV system
permits a passenger to view the status of his account and also provides
access to free television programs on closed-loop channels and through
satellite-received cable programming.
Other Services Under Development. The Company is developing modules
to make other services available to passengers, such as a module that
will interface with a ship's Global Positioning System, allowing
passengers to follow their itinerary and receive current weather
information.
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Services for Cruise Operators. The Company makes several kinds of services
available to cruise operators.
Management Information. The Company's digital platform provides various
management information services. The system can generate detailed activity
reports and reports on usage of the system. Cruise operators can also use
the system for various types of surveys, from user satisfaction
questionnaires to sophisticated market research.
Systems Integration--Media Centers. In September 1996 the Company entered
into a contract with Cunard pursuant to which the Company is installing and
will operate a new television distribution and broadcast system aboard the
QE2, which is currently being retrofitted. Installation is expected to be
completed in November 1996. The Company is also pursuing negotiations with
other cruise lines to act as the systems integrator for ships that are
under construction or being retrofitted.
The Company's shipboard media center is being jointly developed with Wolf
Coach, a developer of truck or trailer mounted satellite communications and
production centers. The integrated shipboard media center would use the
Company's digital platform to support various shipboard systems, such as
shipboard information systems, the broadcast studio, the print shop and the
photography department. The Company believes that no other company has gone
beyond integration of components within a department to integrating these
shipboard systems. Although the Company anticipates that its media center
design and software will be available for installation on cruise ships
prior to the end of 1996, there can be no assurance that the Company will
be successful with efforts to obtain media center contracts or additional
systems integration contracts.
Crew Entertainment. To assist in maintaining crew morale, the Company's
system offers a product marketed as Backstage Pass(SM) which provides a
number of staff entertainment options, including foreign language
programming.
Advertising and Marketing. The demographic profile of cruise passengers,
including their age and high average income, make them desirable to
advertisers. Before the Company's ITV system, vehicles to access this audience
were limited. The Company's system offers advertisers and merchandisers a
broad range of options for reaching this audience including a flexible system
able to handle a variety of interactive applications to entertain, inform and
gather data; placement of corporate logos on individual interactive screens;
sponsorship of free programming; interactive commercials of interest to a
particular audience; and special event marketing. Furthermore, the Company's
system may be used as a test platform for advertisers interested in obtaining
invaluable knowledge and experience with interactive television now, before
such systems are generally available ashore. The Company's ITV system allows
advertisers and merchandisers to design a wide variety of applications,
experiment with them in a number of ways and analyze the results of their
efforts. Following installation of the Company's system on all ships for which
it currently has firm contracts, the Company's system will be operational on
12 ships having an estimated annual passenger carry of approximately 1.0
million. The Company believes the revenue potential from advertisers and
merchandisers to be substantial, and the Company is actively pursuing
discussions with advertisers, although the Company has only one advertising
contract at the present time. The Company believes that a recent demonstration
of its shopping module at a Microsoft-sponsored symposium for on-line
merchandising will assist it in attracting advertisers.
Customer Contracts. As of September 30, 1996, the Company had entered into
contractual arrangements with each of Celebrity, Carnival, NCL and RCCL
relating to the installation and operation of the Company's ITV system on
board certain of each cruise line's ships, as indicated in the following
table:
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<TABLE>
<CAPTION>
SHIPS ON WHICH
SHIPS ON WHICH SHIPS UNDER FIRM CRUISE OPERATOR
SYSTEMS ARE IN CONTRACT FOR CAN ELECT TO HAVE
CRUISE LINE OPERATION SYSTEM INSTALLATION SYSTEMS INSTALLED
- ------------ -------------- -------------------- ------------------
<S> <C> <C> <C>
Celebrity................ 1 5 --
Carnival................. 1 1 11
NCL...................... 1 1 4
RCCL..................... -- 2 2
--- --- ---
Total.................. 3 9 17
</TABLE>
All of the Company's current ITV system contracts with cruise lines involve
an arrangement under which the Company installs its ITV system on board and
operates the system as a concessionaire, bearing most of the costs of
installation and operation. Under certain of the contracts, the cruise line
has agreed to purchase certain hardware components used in the ITV system.
Under all of its ITV system contracts with cruise lines, the Company, which
retains ownership of the system (other than components purchased by a cruise
line), shares with the host cruise line a portion of the revenue the system
generates from the sale to passengers of various pay services, as well as a
portion of the revenue from the sale of advertising to retailers, corporate
sponsors and other third parties. The terms of the revenue-sharing provisions
were negotiated individually with each cruise line and vary from contract to
contract based upon a number of factors, including the level of contribution
of the cruise line to initial and ongoing equipment costs, the number of ships
covered by the contract, whether the contract provides for exclusivity and the
level of services to be provided by the Company. Such formulas provide for the
Company to receive a greater portion of revenue until an amount attributed to
the Company's installation costs has been recovered, after which point the
cruise line is entitled to receive an increased share.
Each of the Company's ITV system contracts with the cruise lines is subject
to renewal by mutual consent of the parties at the expiration of the initial
term. A decision by one or more of the cruise lines to discontinue its
agreement with the Company at the contractual expiration date could have a
material adverse effect on the Company. The Company's agreement with Celebrity
provides for certain target dates for completion of installation and for the
payment of specified damages by the Company if such targets are not met (other
than as a result of events beyond the Company's reasonable control or delays
caused by Celebrity). No such damages have accrued, and the Company does not
expect to incur such damages. Three of the Company's existing ITV system
cruise line contracts grant to the cruise line the right, under certain
circumstances, following termination of its agreement with the Company, to
purchase the hardware installed by the Company on the subject ship and to
obtain a nontransferable license to use the software installed by the Company
on the subject ship. One contract grants the cruise line the right to purchase
such hardware and license such software from the Company, for a one-year
period thereafter, to enable the operator to install the Company's system on
other ships in its fleet.
In September 1996, the Company entered into a shipboard systems integration
contract with Cunard providing for the Company to install and operate a
television distribution and broadcast system aboard the QE2. This contract
calls for payments to the Company of $1.24 million relating to installation of
the system and monthly payments for operation of the system. Upon completion
of installation, Cunard will obtain title to the system.
Hotels and Resorts
Industry Overview. In 1995, the lodging market in the United States
consisted of over 3.4 million hotel rooms, of which approximately 1.9 million
were in hotels containing 100 or more rooms. Guest pay services were
introduced in the lodging market in the early 1970's and have since become a
standard amenity offered by many hotels to their guests. Virtually all hotels
offer free-to-guest services as well. In 1986 certain hotels began offering
their guests limited interactive services, and in 1991 on-demand movies became
available. Guest pay services are attractive to hotel operators because they
provide an additional amenity for their guests, as well as incremental revenue
to their establishments. The Company's strategy is to pursue contracts for the
installation and operation of its ITV system in hotels and resort properties
with more than 100 rooms.
Use of the Company's ITV System in the Hotel and Resort Industry. The
Company believes that the ITV system which the Company uses in cruise industry
applications can be used in essentially its present form to
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provide digital interactive services to the hotel and resort industry. Given
the nature and configuration of the Company's platform, the Company will be
able to offer services not generally available to hotels and resorts at the
present time, such as in-room Internet access at speeds much faster than the
typical home computer and a ticket purchasing system which permits guests to
reserve and purchase theater and event tickets on the system. The Company
intends to focus its hotel services on the needs of the business traveler and
plans to offer airline ticketing and rental car reservations, as well as e-mail
access. For resorts, the Company intends to offer video games for children and
instructional videos for adults on subjects such as golf and tennis.
In addition to the services described above, the Company intends to offer
similar entertainment options to hotel and resort guests as it does to cruise
passengers, including video-on-demand and shopping, at prices comparable to
those charged in the cruise industry. Games of chance cannot be offered in any
United States hotel rooms at this time. The Company is also exploring other
forms of revenue-generating entertainment.
The Company is currently negotiating with a resort operator to install and
operate its system. There can be no assurance, however, that these negotiations
will result in a firm contract.
Advertising and Marketing. The Company's advertising strategy for hotels and
resorts will focus on both local advertisers who wish to make guests aware of
their presence and large national campaigns that recognize the value of
reaching these guests beyond in-room magazines and traditional television
commercials. To reach local advertisers in a cost-effective manner, the Company
anticipates developing revenue-sharing relationships with other local media
such as in-room hotel magazines. Several of such companies have expressed an
interest in working with the Company to expand their media offerings. While
management believes that such relationships would provide a low-cost stream of
revenue for the Company, no definitive arrangements have been entered into, and
there can be no assurance that such relationships will materialize.
DIGITAL IMAGING INDUSTRY
Industry Overview
Digital imaging involves the capture of images in or conversion of images to
a digital format, the storage of images in a computer and the transmission of
the images over electronic networks. Digital imaging equipment such as cameras
and scanners has been developed which permits the capture of digital images
instantly without the need for film or the chemical development process. The
camera records the image on magnetic memory cards which can be removed and
inserted in any computer equipped with a standard slot for such cards.
Alternatively, digital imaging equipment can be connected directly to computers
through standard industry interfaces. Once an image is stored in a computer,
software can be used to manipulate and enhance the image in various ways such
as changing the size, rotating it or adding color.
Use of the Company's Platform in the Digital Imaging Industry
Through PhotoWave, the Company intends to market a turnkey package of digital
imaging services to commercial markets that currently depend on conventional
photography. The Company's digital imaging services, which can be used with
minimal training, include storage and transmission of digital images at the
Company's site on the Internet and other private networks, high-end content and
graphics, photo enhancement tools and customized business management reporting
tools.
The Company intends initially to market its digital imaging services to real
estate, school portrait and insurance companies. These companies are ideal
candidates for digital imaging technology because of their need to transmit and
store a large number of images. The Company is pursuing discussions with a
large photography company to jointly establish an independent dealer network
using digital imaging technology and the Company's package of digital imaging
storage, retrieval, transmission and processing services. The Company also
intends to use PhotoWave's digital imaging applications to support its other
businesses, such as sports marketing. See "Sports Marketing Industry--Corporate
Promotion and Hospitality."
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The Company and District Photo, a major mail order photo finisher, have
agreed in principle to cooperative arrangements whereby District Photo would
fill third party orders for prints of digital photographs taken by PhotoWave
and would scan third party images to be stored on PhotoWave's archive service.
The Company also established digital imaging pilot sites in Lisbon, Ohio in
May 1996 and in Pittsburgh, Pennsylvania in September 1996 which make the
Company's package of digital imaging services available to independent business
owners in those areas. The Company believes that these pilot sites will serve
as the basis for a program to offer businesses such as local commercial
photographers the ability to offer digital imaging services to other local
businesses.
Potential Commercial Applications
The Company intends to commence marketing of digital imaging services in the
markets described below.
Independent Businesses. The Company's strategic plan includes the aggressive
implementation of a digital imaging program to enable independent business
owners to offer digital imaging services to businesses within a given
geographic territory. These local independent business owners could provide
digital imaging services to youth and school athletic programs, promoters of
community and civic events and other local businesses for use, for example, for
corporate identification badges and restaurant menus. The Company's digital
imaging data center would support this network by providing high-end creative
and graphic content services through high-speed digital phone circuits over the
Internet. The Company has launched digital imaging test sites which would serve
as pilots in developing products and services of interest to the local customer
base.
Real Estate. Photographs play a significant role in the marketing of real
estate. It has been estimated by Concord Consulting Group ("Concord"), a
consultant retained by the Company, that over 50 million photographs were taken
in the real estate industry in the United States in 1995. Such estimate was
derived from the number of real estate brokers and offices in the United State
provided by a realtor trade group and a model developed by Concord through
interviews with real estate brokers, office managers and multiple listing
services. Real estate companies were among the first to use the Internet to
disseminate information and photographs to potential customers. However, the
existing limited capacity to store such information and images in a standard
format and centralized location has limited the expansion of such application.
Using its proprietary central file server platform, the Company plans to make
available to real estate companies a central hub for data and image storing.
Insurance. It has been estimated by Concord that over 27 million photographs
were taken in the insurance industry in the United States in 1995. Such
estimate was derived from the number of insurance adjusters, appraisers and
investigators provided by the Bureau of Labor Statistics of the United States
Department of Labor and a model developed by Concord through interviews with
such persons and management executives in the insurance industry. Accessible
digital imaging would provide the insurance industry with the ability to
process claims more efficiently. Digital imaging equipment would enable an
insurance adjuster to capture the image at a claim site to determine the extent
of the insurance company's obligation to pay the claim. The insurance adjuster
could transmit the image on the Company's network and store it on the Company's
file server. The claims examiner could then download the image and the
accompanying report.
School Photographs. School photography represents a major portion of the
commercial photography industry. Based on industry survey data and the
application of business models developed by Concord through interviews with
practicing photographers, Concord estimates that school photographs of over 46
million students were taken in the United States in 1995. School photography
companies must take, archive, store and have ready access to a large number of
photographs. Additionally, the product offering is rather narrow and the costs
are substantial as photographs must be processed into proofs for customers to
view and purchase. A combination of digital imaging and the Company's
transmission and storage capabilities would enable the photographer to offer a
wider variety of products, enhance or alter images and archive and instantly
retrieve images. Customers would also be able to view the images on a high
resolution screen, thereby eliminating the need to actually print the
photograph in all cases unless the customer decides to purchase it. The Company
anticipates offering this service to commercial photographers for an annual
membership fee plus additional fees for individual services such as archiving
software, storage and image enhancement tools.
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SPORTS MARKETING INDUSTRY
Industry Overview
According to the 1996 Sports Almanac, Major League Baseball, the National
Football League, the National Basketball Association and the National Hockey
League play in approximately 93 arenas and stadiums in the United States and
Canada. The current seating capacity of such arenas and stadiums has been
estimated at approximately 3.7 million, and it has been estimated that as much
as $7 billion has been spent or committed over the past three years to
construct or renovate 30 major sports facilities in the United States and that
such expenditures are likely to increase in the future. The Company believes
that the demand for interactive technology in sports venues to enhance the
impact of advertising at sporting events will grow substantially in the next
decade and will present substantial opportunities for sports marketing
services. The Company plans to begin marketing prior to the end of 1996 an ITV
system tailored to operate in sports venues.
Event marketing, often centering on a sports event, is a growing sector of
the worldwide advertising industry. The Company intends to take advantage of
this market by continuing the corporate promotion and hospitality business of
ISM and by expanding that business through the use of the Company's digital
platform in sports marketing applications.
ISM's Activities
SportsWave was formed to develop and market applications of the Company's
digital platform in the sports industry and to operate the existing business of
ISM, which is to be acquired by the Company concurrently with the closing of
the Offering.
ISM, which was formed in 1989, offers a full range of sports marketing and
promotion services. The principal focus of ISM's operations has traditionally
been in the areas of promotions and premiums, corporate incentive programs,
event marketing and licensing. Since 1989, ISM has held a worldwide license
with Major League Alumni Marketing, Inc., with certain exclusive rights, to use
the name "Major League Baseball Players Alumni Association" ("MLBPAA") and
certain related logotypes and trademarks and the name "Major League Alumni
Marketing" in connection with certain marketing, merchandising and promotional
activities. The MLBPAA is a nonprofit organization, currently comprised of over
3,000 former players, that was founded to, among other things, promote and
encourage the sport of baseball and to assist in charitable work. Management
believes its relationship with MLBPAA to be good.
The activities covered by the Company's license include (i) sponsorships and
events with former players, such as tours, exhibition games and autograph and
photograph sessions, (ii) creating and supplying products autographed by former
players and (iii) corporate and sales incentive programs including fantasy
camps and spring training trips. ISM pays royalties for the use of such rights,
and, subject to certain limitations, ISM is permitted to sublicense such
rights. The Company believes that this license from the MLBPAA is important to
its sports marketing and promotion business. The Company's license currently
expires on December 31, 1998 and automatically renews for successive two-year
terms unless either party gives notice of its election not to renew at least
one year prior to expiration of the then-current term.
ISM has contracted with numerous corporate clients in the past several years
to provide or sublicense former players and baseball memorabilia for varied
events. ISM has contracted to provide similar services in 1996 to corporate
clients such as American Airlines, MCI Telecommunications Corporation, Nabisco
Biscuit Company, Campbell Soup Company and Pennzoil Products Company.
The traditional sports marketing aspect of ISM's business has historically
been seasonal, with the largest number of events and promotions being staged
during the Major League Baseball season. However, ISM also contracts with
former professional football, basketball and hockey players to participate in
events, promotions and incentive programs for ISM clients, which reduces ISM's
reliance on events held during the Major League Baseball season.
Potential Commercial Applications
Advertising Enhancements at Sporting Events. Arena owners and operators have
begun experimenting with new media technology in an effort to enhance
advertising at sporting events. An example is the Rose
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Garden, the home arena of the Portland Trailblazers franchise of the National
Basketball Association, which is equipped with acoustic clouds and wired with
miles of fiber optic cable capable of delivering advertising and other
information instantly to over 750 television monitors throughout the arena.
The Company plans to begin marketing prior to the end of 1996 a system which
includes a central interactive digital file server which can be accessed
through a handheld device or through terminals located at a patron's seat, in
luxury boxes or at central locations. Such a system could be configured to
permit attendees at sports events to watch instant replays during the game and
order team merchandise and other stadium products. The system could also be
used for a number of advertising applications, including enhancing ad messages
through fan interaction with promotion campaigns seen on scoreboard video
screens during the event. The actual services offered would be determined by
the arena owner or operator in conjunction with the Company and its clients.
The Company does not currently have any contractual arrangement with respect to
placement of an interactive system in any sports venue.
Corporate Promotion and Hospitality. The existing business of ISM is expected
to be a key component in the Company's development of corporate promotion and
hospitality programs. In addition to the current services provided by ISM, the
Company intends to expand its sports promotion and hospitality offerings by
developing new applications of its digital platform, such as the development of
a mobile media center. The Company and Wolf Coach are working to use the
Company's digital platform as a base to develop such a mobile media center for
use at sporting events and by event managers and corporate sponsors. The mobile
media center would contain an office suite and a multimedia customer area which
could be deployed on behalf of clients to their sports-related hospitality
events. The center could be fitted with necessary office services (such as
copying, information processing and communications) and a variety of
interactive and digital imaging applications tailored to the needs of the
client, including quick and economical delivery of prints of pictures taken
with a major sports figure for a corporate sponsor's customers and sales
personnel. The Company intends to commence marketing of the mobile media center
prior to the end of 1996. Currently, no contractual arrangements exist with
respect to building a mobile media center.
Customer Contracts
ISM's business generally results from large contracts relating to a
particular event, series of events or promotion. Although a significant portion
of ISM's revenue in any particular year is often attributable to a small number
of customers, such customers differ from year to year.
SOFTWARE DESIGN AND NETWORK SOLUTIONS
Industry Overview
As information technology has become increasingly complex and important,
businesses have used third party specialists to provide various services in the
design and implementation of electronic solutions. The worldwide outsourcing
market in 1995 has been estimated at over $18 billion, of which more than 40%
relates to market segments in which KCG does business, that is, providing
services in the development of applications software and solutions for the
desktop and distributed environments and networking. An industry analyst has
projected that the outsourcing market will increase substantially in the next
five years and that the market segments in which KCG does business will
increase as a percentage of the total outsourcing market.
KCG's Activities
The Company intends to acquire the existing business of KCG concurrently with
the closing of the Offering. The KCG Acquisition is expected to strengthen the
technical and creative foundation for the continued evolution of the Company's
proprietary digital platform and to enable the Company to provide third party
clients with software design and network solutions services.
KCG was formed in 1994, but has been operating through a predecessor entity
since 1983. KCG provides varied software design and network solutions services
to businesses ranging from startup companies to Fortune 500 companies, such as
Chevron, Clorox, Intuit, National Semiconductor, Pacific Bell, Pacific Telesis,
VISA and Wells Fargo Bank. KCG has also provided software design services to
the Company in the development of the
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proprietary software for the Company's digital platform. KCG is authorized as
a Microsoft Solutions Provider Partner and is also authorized as a service
provider for Pacific Bell, Lotus, IBM and Novell. KCG's areas of expertise
include ITV platforms, Internet applications (including specialization in
improving connectivity and access), groupware and e-mail applications,
networking products and database applications. Its services include design of
system architecture, installation and configuration of software and hardware,
custom software development, training, systems management support and trouble-
shooting. KCG enables its customers to tie new applications and new
technologies into existing information systems quickly and with minimal
disruption. It has been on the leading edge in developing structures for
multi-site computing to enhance the productivity of travelers, workers in
remote and field offices and the growing number of telecommuters.
During the year ended December 31, 1995 and the six months ended June 30,
1996, SeaVision accounted for 35% and 26%, respectively, of KCG's revenue.
Other significant customers during the year ended December 31, 1995 were Read-
Rite Corporation and Watkins-Jonson International which accounted for 15% and
10%, respectively, of KCG's revenue. After the KCG Acquisition, KCG will
continue to provide technical and creative support in the further development
of the Company's digital platform and third party services. Historically, KCG
has served customers primarily in the San Francisco Bay area. The Company may
seek to expand its operations into other geographic areas in which the Company
does business and expects that KCG's software design and network solutions
business will benefit from referrals from the Company's other businesses. The
Company also expects to benefit from KCG's relationships with major computer
software and hardware companies.
SUPPLIERS
The Company does not manufacture the hardware components it uses, but has
one or more sources of supply for all such components. The Company purchases
components through purchase orders and does not have long term supply
contracts. The Company believes that reasonable alternative sources of supply
exist for all components.
The Company has entered into agreements with distributors of motion pictures
for nontheatrical viewing under which the distributor licenses to the Company
the right to make pay-per-view movies available on the Company's ITV system.
Payment to the distributor is based on revenue derived from the sale of such
movies on the Company's ITV system. The distributor pays the associated
royalties to the motion picture studios and other third parties. Although a
specific title may be available from a single source, the Company does not
anticipate that it will experience difficulty in obtaining these products.
The retail offerings of merchandise on the Company's ITV system are made
pursuant to various electronic retail sales agreements between the Company and
individual vendors. The Company has also entered into a consulting agreement
with a third party for the provision of consulting services related to retail
marketing and assistance in contracting with vendors for the sale of
merchandise on the Company's system. The Company pays such consultant a fixed
consulting fee and, after recapturing such fee, a portion of the revenue
generated from the sale of merchandise by a vendor introduced to the Company
by the consultant or with which the consultant assisted in contracting. The
Company presently offers for sale items from such vendors as Bobby Jones
Sportswear, Wenger Swiss Army Brand and The Nature Company. The Company is
seeking other vendors in order to expand its shopping service; it does not
anticipate any difficulty in contracting with vendors to offer and sell retail
products on the Company's system.
The Company currently plans to offer user-pay video games and music-on-
demand on its ITV system; however, it has not entered into any contract with a
distributor or other source of supply of the product for such services.
Although there can be no assurance, management does not anticipate any
difficulty in securing such sources of video games and music-on-demand
product.
MARKETING AND SALES
The Company's marketing and sales efforts are directed toward several
distinct groups: customers (such as cruise and hotel operators) that will
contract for the installation and operation, or the sale, of the Company's
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digital platform and ITV system; advertisers and merchandisers who will
utilize the ITV system to deliver promotional messages of various kinds to
system users; retailers who will sell products on the Company's ITV shopping
service; and end users of the system (such as cruise passengers and hotel
guests) who utilize pay services that generate revenue for the Company.
The Company has a 15 person sales and marketing staff. Three members of this
staff currently focus on the travel and leisure industry, ten focus on the
Company's sports marketing business and two focus on software design and
network solutions. The Company, however, intends to emphasize the marketing of
an integrated package of its services in order to provide effective marketing
solutions to its clients. The Company also markets its products and services
and seeks advertisers and retailers through independent sales agencies.
The Company's shipboard representatives also market its services to end
users of its ITV system. Responsibilities of the shipboard representative
include implementing company-wide programs and policies to enhance revenue
from each service offered by the system. The Company may offer price
reductions for pay-per-view movies or merchandise, and free credits, prizes
and sweepstakes for video gaming.
The Company intends to pursue contractual arrangements with national
advertisers seeking to reach specific targeted audiences. The Company's ITV
system has significant capability to report response and use frequency.
COMPETITION
The interactive services industry is in the early stages of its development.
The Company competes with numerous other companies utilizing various
technologies and marketing approaches, and the Company anticipates that
additional competition will develop in all of the markets that the Company is
targeting. A number of these companies are larger than the Company and have
greater financial and other resources. The Company is unable to predict the
level of competition that will actually develop and the time frame in which it
will develop.
In the cruise line market, although cruise operators have received many
proposals to develop and install ITV systems, to the Company's knowledge, no
system with features comparable to the Company's has been installed on a
cruise ship. The Company believes that the architecture of the Company's
platform and its adaptation to the cruise environment will be difficult to
duplicate and that its successful implementation of its system gives it a
competitive advantage. However, there can be no assurance that competitors,
some of which may have greater financial resources than the Company, will not
enter the field.
Two companies are the dominant providers of interactive and cable television
services to the lodging industry. These competitors are larger and have
greater resources than the Company. There are also a number of small regional
providers and a number of potential competitors such as cable companies,
telecommunications companies and direct-to-home and direct broadcast satellite
companies that could provide in-room entertainment to the lodging industry.
Although the Company believes that its ITV system includes features that are
not currently available to the lodging industry, there can be no assurance
that the Company will be able to penetrate this market.
The sports marketing and software design and network solutions services
industries are fragmented and highly competitive. A number of the companies
and sales agencies that provide such services are larger than the Company and
have greater resources, both financial and otherwise. ISM generally competes
based on its specialized promotional and event marketing capabilities. The
business of ISM could be adversely affected if one or more large competitors
decide to directly focus their resources on providing the same services in the
same markets as ISM.
The digital imaging market is new and rapidly evolving. The Company expects
that a highly competitive market will develop and that many of the competitors
may have longer operating histories and greater resources than the Company.
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TECHNOLOGY AND LICENSING
In the initial development of its system, the Company acquired a software
license from a developer of a hotel ITV system. The Company has made major
modifications to its system and its software since that time and now uses only
certain communications software from the licensed package. The Company intends
to develop communications software which does not make use of the licensed
rights. The Company also licenses from a software developer certain of the
software utilized in connection with the printing of digital images on cruise
ships.
The Company has used the services of third party software and graphics
designers in the development of its digital platform and ITV system. All
proprietary rights to the platform and system belong to the Company. KCG was
the principal software designer involved in software development for the
platform. While third party graphics designers have been important in
developing the visual amenities of the Company's system, if the Company should
no longer have access to their services, the Company believes that its in-
house personnel are capable of performing these functions or, if necessary,
that it will be able to engage third party graphics designers and personnel
capable of doing so. See "Risk Factors--Dependence on Key Personnel."
The ability of the Company to maintain a standard of technological
competitiveness is a significant factor in the Company's strategy to maintain
and expand its customer base, enter new markets and generate revenue. There
can be no assurance that future technological advances by direct competitors
or other providers will not result in improved equipment or software systems
that could adversely affect the Company's business. Also, the Company does not
have patents on any of its technology and relies on a combination of copyright
and trade secret laws and contractual restrictions to protect its technology.
There can be no assurance that the legal protections afforded to the Company
and the measures taken by it will be adequate to protect its technology.
GOVERNMENT REGULATION
The Company's ITV system currently offers games of chance to cruise ship
passengers while operating in international waters. However, such gaming
cannot be offered while the ship is in any United States port and it cannot be
offered in any United States hotel room at this time. Such service is
discontinued while a cruise ship is in port and will not be offered to hotels.
LEGAL PROCEEDINGS
The Company from time to time is involved in litigation incidental to the
conduct of its business. There are no pending legal proceedings to which the
Company or any of its subsidiaries is a party, or to which any of their
respective properties is subject.
EMPLOYEES
As of July 31, 1996, the Company had 57 employees. None of these employees
is covered by a collective bargaining agreement. The Company has never
experienced a strike or work stoppage and believes its relationship with its
employees to be good.
PROPERTIES
The Company's executive offices are located in leased premises in
Pittsburgh, Pennsylvania. The Company also leases premises for the operations
of SeaVision in Lisbon, Ohio, for the operations of ISM in Pittsburgh and for
the operations of KCG in Oakland, California and sales and marketing offices
for SeaVision and ISM in Miami, Florida and New York City, respectively. The
Company believes that its properties are adequate for its operations.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning each of the
directors and executive officers of the Company. Ages are given as of August
1, 1996.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ---- --- --------------------------------------
<S> <C> <C>
Richard W. Talarico.................. 41 Chairman of the Board and Chief
Executive Officer
R. Daniel Foreman.................... 33 President and Director
Brian K. Blair....................... 34 Chief Operating Officer, Secretary and
Director
Jon E. VanAmringe.................... 47 Chief Financial Officer and Treasurer
William C. Kavan(1)(2)............... 45 Director
James C. Roddey(1)................... 63 Director
Richard S. Trutanic(1)............... 44 Director
</TABLE>
- --------
(1) Member of Compensation Committee. Richard S. Trutanic, who will become a
director of the Company after the closing of the Offering, will also serve
as a member of the Compensation Committee.
(2) Member of Audit Committee. It is contemplated that at least one additional
independent director will be appointed to serve on the Audit Committee
following the Offering.
Richard W. Talarico became Chairman of the Board and Chief Executive Officer
of the Company in July 1996. He has served as a director of SeaVision since
October 1994 and as Chairman of the Board and Chief Executive Officer of
SeaVision since June 1996. Mr. Talarico has served SeaVision in various other
capacities, including Vice President of Finance from October 1994 to October
1995, President from October 1995 to June 1996 and Chief Financial Officer,
Secretary and Treasurer from October 1994 to June 1996. Since 1991, Mr.
Talarico has been a partner in The Hawthorne Group ("THG"), where he has been
involved in numerous business ventures and has served in various financial and
operating capacities. THG is a private investment and management company which
invests through affiliates primarily in media and communications companies.
R. Daniel Foreman became a director and President of the Company in July
1996. He has served as a director of SeaVision since October 1994 and as
President since June 1996. Mr. Foreman also served as Vice President of
Technology of SeaVision from October 1994 to June 1996. Since May 1989, Mr.
Foreman has served as Executive Vice President of Blair Haven Entertainment,
Inc., which operates under the name Commercial Downlink ("Commercial
Downlink"), a company founded to serve the needs of the satellite
communications industry, where he has been responsible for technology
development and implementation. Since 1992, Mr. Foreman has been Executive
Vice President of ComTek Printing & Graphics Inc. ("ComTek"), a commercial
printing company. He also serves as President of Digital Media Corp., a
company which provides closed-circuit video to racetracks. Since the formation
of SeaVision in June 1994, Mr. Foreman has devoted substantially all of his
time to its operations.
Brian K. Blair became a director, Chief Operating Officer and Secretary of
the Company in July 1996. Mr. Blair has served as a director of SeaVision
since October 1994. Mr. Blair also served as Vice President of Administration
and Operations of SeaVision from October 1994 until June 1996. Since May 1989,
Mr. Blair has been President of Commercial Downlink where he is responsible
for the day-to-day activity of such company. Mr. Blair also serves as
Secretary and Treasurer of Digital Media Corp. Since the formation of
SeaVision in June 1994, Mr. Blair has devoted substantially all of his time to
its operations.
Jon E. VanAmringe joined the Company as Chief Financial Officer and
Treasurer in September 1996. From November 1995 until joining the Company, he
served as Vice President of MED3000 Group, Inc., a physician practice
management company involved in the development and management of integrated
health care delivery systems. From 1993 to 1995 he served as Vice President
and Chief Financial Officer of Strategic Advisory
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Group, Inc., a firm involved in providing consulting and management services
to physician groups and others in the healthcare industry which later merged
into MED3000 Group, Inc., and as President of Strategic Capital Group, a firm
which provided financial and management services. Mr. VanAmringe served as
Managing Director of Corporate Finance of Mid Atlantic Capital Group from 1989
to 1993 and was employed by Spectrum Control, Inc., a publicly traded
electronic component manufacturer, from 1982 to 1989, most recently as Senior
Vice President and Chief Financial Officer.
William C. Kavan became a director of the Company in July 1996 and has
served as a director of SeaVision since October 1994. Since 1980, Mr. Kavan
has been president of Berkely-Arm, Inc. ("Berkely"), the largest provider of
revenue generating passenger insurance programs for the cruise industry.
Berkely serves twenty-five cruise line clients, including Carnival, Costa,
Cunard, Epirotiki, NCL, P&O, Princess, Radisson and Royal Caribbean.
James C. Roddey became a director of the Company in July 1996 and has served
as a director of SeaVision since October 1994. Mr. Roddey served as President
of ISM from 1992 to 1996 and currently serves as Chairman and a director of
ISM. He has served as Chairman or as President of various other entities
affiliated with THG, including President of Star Cable Associates, a cable
television operator in various states, since 1991. He served as President of
Turner Communications Corporation from 1968 to 1971, and as President of
Rollins Communications Corporation from 1971 to 1979. Mr. Roddey currently
serves as a Trustee of the University of Pittsburgh.
Richard S. Trutanic will become a director of the Company after the closing
of the Offering as discussed in "Underwriting." He has been President and
Managing Director of The Somerset Group, a financial advisory firm, since 1990
and senior advisor to Friedman, Billings, Ramsey & Co., Inc., an investment
banking firm, since 1993. Mr. Trutanic was, from 1985 to 1990, a director and
member of the Executive Committee of Telecom U.S.A. (formerly SouthernNet,
Inc.), a telecommunications company. He is a Trustee of the New York Life
Mainstay Funds and a director of several private companies.
COMPENSATION OF DIRECTORS
Pursuant to the 1996 Stock Plan, the non-employee directors of the Company
will be entitled, following the Offering, to receive at the conclusion of each
year of service, an automatic grant of an immediately exercisable option to
acquire 5,000 shares of Common Stock at an exercise price per share equal to
the closing price of the Common Stock as reported by NASDAQ for the date on
which the option is granted. Non-employee directors of the Company will also
be entitled to receive $2,500 for each Board of Directors meeting attended and
$500 for each separate committee meeting attended on a date on which no full
board meeting is held. Directors of the Company who are also employees will
not receive additional compensation for attendance at Board and committee
meetings, except that all directors will be reimbursed for out-of-pocket
expenses in connection with attendance at Board and committee meetings. For
additional information concerning the 1996 Stock Plan, see "-- 1996 Stock
Plan."
COMPENSATION OF EXECUTIVE OFFICERS
During the year ended December 31, 1995, Richard W. Talarico, Chief
Executive Officer of the Company, was employed by The Hawthorne Group, Inc.
("Hawthorne") which received payments from SeaVision under a consulting
agreement. See "Certain Transactions." No separate allocation of the
compensation paid to Mr. Talarico by Hawthorne was made for services performed
by Mr. Talarico on behalf of SeaVision during 1995. Under employment
agreements with the Company, Mr. Talarico, R. Daniel Foreman, President of the
Company, and Brian K. Blair, Chief Operating Officer of the Company, will earn
salaries of $62,500 each during 1996 and Jon E. VanAmringe, Chief Financial
Officer of the Company, will earn a salary of $40,833 during 1996. See "--
Employment Agreements" for additional information regarding these employment
arrangements.
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EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Richard W. Talarico,
R. Daniel Foreman, Brian K. Blair and Jon E. VanAmringe. Each such employment
agreement contains restrictive covenants prohibiting such officer from
competing with the Company for a period of three years after the end of the
employment term in the case of Messrs. Talarico, Foreman and Blair, and for a
period of two years after the end of the employment term in the case of Mr.
VanAmringe. The terms of the employment agreements with Messrs. Talarico,
Foreman and Blair commenced as of August 1, 1996 and will continue through
December 31, 1999. The term of the employment agreement with Mr. VanAmringe
commenced as of September 16, 1996 and will continue through December 31,
1998. The annual salaries as set forth in the employment agreements are
$150,000 for each of Messrs. Talarico, Foreman and Blair and $140,000 for Mr.
VanAmringe.
Pursuant to the employment agreements, options to acquire shares of Common
Stock granted to Messrs. Talarico, Foreman, Blair and VanAmringe under the
1996 Stock Plan will, if not already vested, vest on the date of a change in
control of the Company, defined as a sale of all or substantially all of the
Company's assets, a merger in which the Company is not the surviving
corporation or when a person or group, other than the stockholders of
SeaVision as of August 1, 1996, owns 50% or more of the outstanding Common
Stock. The employment agreements also provide that each of Messrs. Talarico,
Foreman, Blair and VanAmringe will be entitled to receive for one year
following such person's termination of employment by the Company without cause
or contemporaneously with the occurrence of a change in control, semi-monthly
severance payments equal to the semi-monthly base salary payment which such
person was receiving immediately prior to such termination. Mr. VanAmringe
will be entitled to receive such payments for only six months if a termination
without cause, other than by change of control, occurs after December 31,
1997. If Mr. VanAmringe voluntarily resigns prior to December 31, 1997, he
will be entitled to receive semi-monthly payments equal to the semi-monthly
base salary payment he was receiving immediately prior to his resignation for
six months or, if earlier, until such time that he begins other full-time
employment.
1996 STOCK PLAN
Immediately prior to the effectiveness of the Registration Statement of
which this Prospectus is a part, the Board of Directors will adopt the 1996
Stock Plan. The 1996 Stock Plan provides for awards of stock options, stock
appreciation rights, restricted shares and restricted units to officers and
other executive employees of the Company and to consultants and advisors
(including non-employee directors) of the Company. An aggregate of 266,000
shares of Common Stock has been reserved for issuance under the 1996 Stock
Plan.
The 1996 Stock Plan will be administered by the Board of Directors which has
broad discretion to determine the individuals entitled to participate in the
1996 Stock Plan and to prescribe conditions (such as the completion of a
period of employment with the Company following an award) that must be
satisfied before awards vest. Awards under the 1996 Stock Plan may be made in
the form of incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), and options that are
non-qualified for federal income tax purposes. Participants in the 1996 Stock
Plan may also receive stock appreciation rights ("SARs"), which may be awarded
separately from or in tandem with any option granted under the 1996 Stock
Plan. In addition, the Board of Directors may, in its discretion, award
restricted shares or restricted units under the 1996 Stock Plan.
Effective upon the closing of the Offering, the Board of Directors will
award options to purchase an aggregate of 219,000 shares of Common Stock at
the initial public offering price. Of this amount, Richard W. Talarico and all
executive officers as a group will receive options to purchase 21,000 and
77,000 shares, respectively, of Common Stock and Richard S. Trutanic will
receive an immediately exercisable option to purchase 21,000 shares of Common
Stock. There will be a five-year vesting period for grantees who are employees
of the Company. All of these options will be non-qualified options for federal
income tax purposes. Effective upon the closing of the KCG Acquisition, the
Board of Directors will grant 26,666 shares of restricted stock under the 1996
Stock Plan to various employees of KCG.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as to the ownership of
Common Stock as of the effective date of the Registration Statement, and after
giving effect to the sale of the shares of Common Stock offered hereby by (i)
each person who is known to the Company to own beneficially more than five
percent of the outstanding shares of Common Stock, (ii) each director and
(iii) all executive officers and directors as a group. Except as indicated
below, the persons named have sole voting and investment power with respect to
all shares shown as being beneficially owned by them.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK PERCENT OF
BENEFICIALLY OWNED COMMON STOCK
-------------------- -----------------
BEFORE AFTER BEFORE AFTER
NAME OFFERING OFFERING OFFERING OFFERING
- ---- --------- ---------- -------- --------
<S> <C> <C> <C> <C>
Henry Posner, Jr. (1)................... 964,800 1,111,240 40.2% 22.7%
500 Greentree Commons
381 Mansfield Avenue
Pittsburgh, PA 15220
Thomas D. Wright (1).................... 241,200 277,810 10.1% 5.7%
500 Greentree Commons
381 Mansfield Avenue
Pittsburgh, PA 15220
Terence M. Graunke (1).................. 241,200 277,810 10.1% 5.7%
400 West Erie
Suite 504
Chicago, IL 60610
Richard W. Talarico (1)................. 80,400 92,603 3.4% 1.9%
R. Daniel Foreman....................... 198,000 198,000 8.3% 4.1%
Brian K. Blair.......................... 198,000 198,000 8.3% 4.1%
William C. Kavan (1).................... 100,800 100,800 4.2% 2.1%
James C. Roddey......................... 80,400 92,603 3.4% 1.9%
Richard S. Trutanic (1)(2).............. -0- 21,000 -0- *
All executive officers and directors as
a group (6 persons) (1)................ 657,600 682,006 27.4% 14.0%
</TABLE>
- --------
* Less than one percent.
(1) Ownership of shares following the Offering for Messrs. Posner, Wright,
Graunke, Talarico and Roddey and for all executive officers and directors
as a group include the shares of Common Stock to be issued upon conversion
of the Stockholder Loans into Common Stock. See "Certain Transactions--
Stockholder Loans." Ownership of shares for Messrs. Posner, Wright,
Talarico, Kavan and Roddey and for all executive officers and directors as
a group does not include the shares of Common Stock that may be issued
upon conversion of the shares of Convertible Preferred Stock owned by such
persons. See "Certain Transactions--Sale of Convertible Preferred Stock."
All executive officers and directors as a group does not include Richard
S. Trutanic who will become a director of the Company after the closing of
the Offering as discussed in "Underwriting."
(2) Includes 21,000 shares issuable upon exercise of an immediately
exercisable option to be granted upon the closing of the Offering.
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CERTAIN TRANSACTIONS
CONSULTING AGREEMENTS
SeaVision and Berkely were parties to a Consulting Agreement, entered into
in June 1994 and terminated as of June 30, 1996, which required Berkely to
provide certain marketing, sales and consulting services to SeaVision,
including the design and development of marketing strategies for the cruise
ship industry. William C. Kavan, a principal of Berkely, is a director of the
Company. The consulting agreement provided for the payment of a consulting fee
of $10,000 per month to Berkely, which was reduced to $2,000 per month in
January 1996. SeaVision was also obligated to pay $200 per hour for services
rendered by certain professional personnel of Berkely. During the fiscal years
ended December 31, 1994 and 1995, SeaVision paid $97,229 and $181,228,
respectively, and as of June 30, 1996 SeaVision was obligated to pay $12,000,
to Berkely under the consulting agreement, including out-of-pocket expenses.
SeaVision and Hawthorne were parties to a Consulting Agreement, entered into
in June 1994 and terminated as of June 30, 1996, which required Hawthorne to
provide SeaVision certain accounting and financial services, including the
preparation of financial models and plans, the design and implementation of
accounting systems and controls and assistance in acquiring third party
financing. Henry Posner, Jr. and Thomas D. Wright, each of whom owns more than
ten percent of the outstanding Common Stock, and two of Mr. Posner's sons are
shareholders of Hawthorne, and Messrs. Posner and Wright and Richard W.
Talarico, a director and executive officer of the Company, and James C.
Roddey, a director of the Company, were shareholders of Hawthorne Media Group,
Inc. ("HMG"), the original party to the agreement which assigned its rights
and obligations thereunder to Hawthorne. The consulting agreement provided for
the payment of a consulting fee of $18,000 per month. During the fiscal years
ended December 31, 1994 and 1995, SeaVision paid an aggregate of $149,437 and
$205,252, respectively, and as of June 30, 1996, SeaVision was obligated to
pay $143,138, to Hawthorne and HMG under the consulting agreement, including
out-of-pocket expenses.
AGREEMENTS WITH COMMERCIAL DOWNLINK AND AFFILIATE
SeaVision and Commercial Downlink were parties to an agreement entered into
in June 1994 and terminated as of July 31, 1996, which required Commercial
Downlink to act as a general contractor for the installation of ITV systems on
cruise ships, and to devote its full-time efforts to the business of
SeaVision. Brian K. Blair and R. Daniel Foreman, principals of Commercial
Downlink, are executive officers and directors of the Company and currently
own more than five percent of the outstanding Common Stock. SeaVision
reimbursed Commercial Downlink, at cost, for construction services and
materials provided in connection with the installation of SeaVision systems on
cruise ships. SeaVision also paid Commercial Downlink a monthly management
fee. During the fiscal years ended December 31, 1994 and 1995 and the six
months ended June 30, 1996, SeaVision paid $147,000, $322,000 and $91,600,
respectively, to Commercial Downlink under the consulting agreement in
addition to reimbursing Commercial Downlink for construction services and
materials provided in connection with the installation of ITV systems on
cruise ships.
As of August 1, 1996, SeaVision and Commercial Downlink entered into a
sublease agreement relating to facilities in Lisbon, Ohio owned by Comtek, a
majority owned subsidiary of Commercial Downlink, and including provisions
pursuant to which Commercial Downlink will provide certain administrative
services for an aggregate monthly payment of $3,700. Such agreement is
terminable on 30 days' prior notice by either party. The Company believes that
such payments are on terms as favorable to the Company as could be obtained
from an unaffiliated party.
During the fiscal years ended December 31, 1994 and 1995 and the six months
ended June 30, 1996, SeaVision made payments to ComTek in the amounts of
approximately $7,000, $25,000 and $40,000, respectively, for commercial
printing services. The Company believes that such payments were on terms as
favorable to the Company as could have been obtained from an unaffiliated
third party. The Company expects to continue to conduct business with ComTek
in the future.
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<PAGE>
In 1996, SeaVision made advances in the aggregate amount of $53,730 to
Commercial Downlink. These advances have been repaid.
TRANSACTIONS RELATING TO FORMATION AND ORGANIZATION OF SEAVISION
Brian K. Blair and R. Daniel Foreman (the "Commercial Downlink
Shareholders"), Henry Posner, Jr., Thomas D. Wright, Terence M. Graunke, James
C. Roddey and Richard W. Talarico (the "Hawthorne Shareholders"), and William
C. Kavan, Mark Kottler and David F. Gould (the "Kavan Shareholders") were the
founders of SeaVision. Each group of founders received from SeaVision the
amount of expenses incurred by it in forming and organizing SeaVision in 1994.
The Hawthorne Shareholders received reimbursement of expenses in the amount of
$21,437, the Commercial Downlink Shareholders received reimbursement of
expenses in the amount of $109,083, and the Kavan Shareholders received
reimbursement of expenses in the amount of $17,871.
Pursuant to an Assignment of Intellectual Property Rights dated October 3,
1994, Commercial Downlink, Brian K. Blair and R. Daniel Foreman contributed to
SeaVision, intellectual property rights relating to the technology utilized by
SeaVision.
TRANSACTIONS RELATING TO FORMATION AND ORGANIZATION OF THE COMPANY
In August 1996, a merger (the "Formation Merger") occurred in which
SeaVision, Inc., a Delaware corporation ("Old SeaVision"), merged with and
into SeaVision Acquisition Corporation, a Delaware corporation and wholly
owned subsidiary of the Company, with SeaVision Acquisition Corporation
surviving the Formation Merger and changing its name to SeaVision, Inc. In the
Formation Merger, each share of common stock of Old SeaVision was converted
into one share of Common Stock. All shares of Common Stock currently
outstanding were issued in the Formation Merger. In connection with the
Formation Merger, the holders of shares of Common Stock of the Company were
granted certain registration rights. See "--Registration Rights".
STOCKHOLDER LOANS
In each of fiscal years 1994, 1995 and 1996, the Funding Stockholders made
various Stockholder Loans to SeaVision. Each Stockholder Loan, represented by
a promissory note which requires the principal amount outstanding under the
note to be paid in full on the third anniversary of the date of the note,
bears interest at a rate of 15% per annum, compounded quarterly. Stockholder
Loans were made in the following aggregate principal amounts: Mr. Posner--
$4,166,014; Mr. Wright--$1,041,506; Mr. Graunke--$718,800; Mr. Roddey--
$347,165; and Mr. Talarico--$347,165. Mr. Graunke owns more than ten percent
of the outstanding Common Stock. Stockholder Loans in an aggregate amount up
to $1.5 million are guaranteed by each of Brian K. Blair, R. Daniel Foreman
and William C. Kavan. Such guarantees are secured by a pledge of the shares of
Common Stock owned by Messrs. Blair, Foreman and Kavan.
On May 31, 1996, the Company used $3.6 million of the $5.0 million then
available under its line of credit from Integra Bank (now National City Bank)
(the "Integra Loan") to repay a portion of the principal amount of the
Stockholder Loans, leaving Stockholder Loans in the following aggregate
principal amounts outstanding: Mr. Posner--$1,800,000; Mr. Wright--$450,000;
Mr. Graunke--$450,000; Mr. Roddey--$150,000; and Mr. Talarico $150,000. The
Company intends to use approximately $1.0 million of the net proceeds of the
Offering to pay the accrued interest on the Stockholder Loans. See "Use of
Proceeds." The Funding Stockholders have agreed, contingent upon the
completion of the Offering, to convert the remaining principal balance of the
Stockholder Loans into shares of Common Stock at a rate of approximately 8.1
shares of Common Stock for each $100 principal amount outstanding, or
approximately $12.29 per share. The conversion rate was determined after
consultation with the Underwriters and is based upon an assumed value of the
Company without giving effect to the Offering. Cash payments will be made in
lieu of the issuance of fractional shares of Common Stock upon such
conversion. The Funding Stockholders will receive the following number of
shares of Common Stock upon conversion of the Stockholder Loans: Mr. Posner--
146,440 shares; Mr. Wright--36,610 shares; Mr. Graunke--36,610 shares; Mr.
Roddey--12,203 shares and Mr. Talarico--12,203 shares. The holders of these
shares will have certain registration rights with respect to these shares. See
"--Registration Rights."
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<PAGE>
On July 19, 1996, William C. Kavan made a loan in the amount of $1.0 million
to SeaVision at the interest rate of 8% per annum. Such loan was converted
into 10,000 shares of Convertible Preferred Stock following the Formation
Merger.
INTEGRA LOAN GUARANTEE
The availability under the Integra Loan was increased to $7.5 million on
October 28, 1996. The Integra Loan is personally guaranteed by each of Messrs.
Posner, Wright, Roddey and Talarico and by Lyndhurst Associates, a
Pennsylvania limited partnership ("Lyndhurst"), for which such guarantors
receive a guarantee fee from time to time based on a percentage of the
outstanding principal balance of the Integra Loan. Such percentage is the
difference between 15%, the interest rate on the Stockholder Loans, and the
interest rate on the Integra Loan. Mr. Posner is the Managing General Partner
of Lyndhurst.
LEGAL SERVICES
During each of the fiscal years ended December 31, 1995 and 1994, SeaVision
retained the law firm of Eckert Seamans Cherin & Mellott ("Eckert Seamans") to
represent SeaVision on various matters. During each of the fiscal years ended
December 31, 1995, 1994 and 1993, ISM retained Eckert Seamans to represent ISM
on various matters. Thomas D. Wright is a partner and chairman of the
Operations Committee of Eckert Seamans.
SALE OF CONVERTIBLE PREFERRED STOCK
On August 16, 1996, the Company issued 10,000 shares of Convertible
Preferred Stock to William C. Kavan in exchange for the extinguishment of a
$1.0 million loan to SeaVision. Additionally, on August 16, 1996, the Company
sold approximately 7,059, 1,765, 588 and 588 shares of Convertible Preferred
Stock to Henry Posner, Jr., Thomas D. Wright, Richard W. Talarico and James C.
Roddey, respectively, for an aggregate purchase price of $1.0 million. During
the seven-month period beginning six months after the closing of the Offering
(the "Conversion Period"), each holder of Convertible Preferred Stock will
have the right to convert all, but not less than all, of the Convertible
Preferred Stock then owned by such holder into shares of Common Stock at the
rate of approximately 8.1 shares of Common Stock for each share of Convertible
Preferred Stock, or approximately $12.29 per share (as adjusted for stock
dividends, stock splits, reverse stock splits and any other stock combination
or division). Cash payments will be made in lieu of the issuance of any
fractional shares of Common Stock upon any such conversion. If all of the
shares of Convertible Preferred Stock held by Messrs. Posner, Wright,
Talarico, Roddey and Kavan are converted into Common Stock during the
Conversion Period, Messrs. Posner, Wright, Talarico, Roddey and Kavan will
receive 57,427, 14,365, 4,785, 4,785 and 81,355 shares, respectively, of
Common Stock. See "Description of Capital Stock--Series A Convertible
Redeemable Preferred Stock." The holders of these shares will have certain
registration rights with respect to these shares. See "-- Registration
Rights."
REGISTRATION RIGHTS
If the Company issues shares of Common Stock upon conversion of the
Convertible Preferred Stock (the "Conversion Shares"), the holders of
Conversion Shares will have certain rights to require the Company to register
the Conversion Shares under the Securities Act. Under the terms of the
registration rights agreement relating to the Conversion Shares, the holders
of Conversion Shares and their transferees holding at least the number of
Conversion Shares into which 5,000 shares of Convertible Preferred Stock have
been converted will have the right, until the third anniversary of the last
date on which the Convertible Preferred Stock may be converted into Common
Stock (the "Commencement Date"), to require the Company, on one occasion, to
register the Conversion Shares for public offering and sale on Form S-3 in a
"shelf" registration pursuant to Rule 415 under the Securities Act. If any
holder requests a shelf registration, all Conversion Shares will be registered
thereunder unless a holder requests that all or a portion of his Conversion
Shares be excluded. Holders of a majority of the Conversion Shares will also
have the right on one occasion to elect to have their Conversion Shares which
are registered on the shelf registration statement sold in an underwritten
offering. In addition, the holders of Conversion Shares and their transferees
will have the right to participate in any registration of
49
<PAGE>
Common Stock for an underwritten offering initiated by the Company or any
other stockholder of the Company prior to the third anniversary of the
Commencement Date, subject to certain limitations. The Company will pay all
out-of-pocket expenses of any such registrations, including fees and expenses
of one counsel for the holders of Conversion Shares and their transferees, but
not including underwriting discounts and commissions, and will indemnify the
holders of Conversion Shares and their transferees against certain liabilities
under the federal securities laws, in connection therewith.
The current holders of Common Stock will also have certain rights under a
registration rights agreement to require the Company to register under the
Securities Act such shares and the shares of Common Stock to be issued upon
conversion of the Stockholder Loans. Such rights are substantially similar to
the rights granted to holders of Conversion Shares. However, holders of such
shares and their transferees holding at least ten percent of the shares
covered are required to cause the Company to register the shares for public
offering and sale on Form S-3 in a shelf registration pursuant to Rule 415
under the Securities Act. The sole stockholder of KCG will have the right,
subject to certain limitations, to have the shares of Common Stock that he
receives upon consummation of the KCG Acquisition included in any registration
statement that includes shares to be registered at the request of the current
stockholders under such registration rights agreement.
The holders of Convertible Preferred Stock, the existing stockholders and
the individual receiving Common Stock in connection with the KCG Acquisition
have agreed, or will agree, not to sell any Conversion Shares or other shares
of Common Stock owned by them and subject to the registration rights
agreements described above for a period of twelve months following the closing
of the Offering. See "Shares Eligible for Future Sale."
VIDEO PRODUCTION PAYMENTS
During the fiscal years ended December 31, 1994 and 1995 and the six months
ended June 30, 1996, SeaVision made payments to Production Masters, Inc.
("PMI") in the amounts of approximately $10,000, $137,000 and $118,000,
respectively, for the production of videos and other visual media for use with
the Company's ITV system. Messrs. Posner, Wright, Roddey and Talarico are
shareholders of PMI. The Company believes that such payments were on terms as
favorable to the Company as could have been obtained from an unaffiliated
party. The Company expects to continue to conduct business with PMI in the
future.
ARRANGEMENTS INVOLVING ISM
The Company, ISM and the ISM stockholders have entered into the ISM Stock
Purchase Agreement pursuant to which the Company will acquire all of the
issued and outstanding shares of capital stock of ISM from the ISM
stockholders promptly following, and conditioned upon, the closing of the
Offering. See "Background--The Acquisitions--ISM Acquisition." The aggregate
purchase price to be paid to the ISM stockholders by the Company in the ISM
Acquisition is a maximum of $4.8 million, consisting of $2.4 million in cash
at the time of closing of the Acquisition and up to $2.4 million in contingent
payments. One-half of the contingent payments, if any, is to be paid by
delivery to the ISM stockholders of promissory notes bearing interest at seven
percent per annum.
Henry Posner, Jr., Thomas D. Wright, Richard W. Talarico and James C. Roddey
are ISM stockholders. At the closing of the ISM Acquisition, Messrs. Posner,
Wright, Talarico and Roddey will receive cash payments in the amounts of
approximately $1,273,000, $791,000, $48,000 and $120,000, respectively, and
will be entitled to receive contingent payments up to the same approximate
amounts (not including interest payable on any promissory note delivered in
respect of the contingent payments).
ISM and Hawthorne are parties to an oral management arrangement pursuant to
which Hawthorne provides general, administrative, accounting and tax planning
and preparation services to ISM for an aggregate of $5,000 per month. During
the fiscal years ended December 31, 1993, 1994 and 1995 and the six months
ended June 30, 1996, ISM made payments in the aggregate amounts of $60,000,
$60,000, $60,000 and $30,000, respectively, to Hawthorne under this agreement.
The Company intends to terminate this arrangement within 90 days of the
closing of this Offering.
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<PAGE>
JOINT PROMOTIONAL ACTIVITIES
SeaVision, ISM, PMI and other entities affiliated with THG have engaged in
various joint promotional marketing activities and have shared the revenue and
expenses of such activities. Examples of such activity in 1996 are ISM sports
marketing events at which SeaVision supplied digital imaging services. The
Company believes that such activities involving SeaVision or ISM have been
conducted on terms as favorable to SeaVision and ISM as could have been
obtained from an unaffiliated party.
LEASES
During the fiscal years ended December 31, 1993, 1994 and 1995 and the six
months ended June 30, 1996, ISM made payments pursuant to a lease agreement in
the amount of $39,524, $53,777, $76,774 and $39,832, respectively, to
Executive Office Associates ("EOA") for the lease of office space. Henry
Posner, Jr., Thomas D. Wright and two of Mr. Posner's sons and his spouse each
own an indirect equity interest in EOA. The Company believes that such
payments were on terms as favorable to the Company as could have been obtained
from an unaffiliated third party. The Company anticipates that it will
maintain this lease.
As of each of May 1, 1996 and September 1, 1996, the Company entered into a
four-month lease for office space with EOA. The aggregate rental payment under
these leases is $68,508. The Company believes that such payment is on terms as
favorable to the Company as could have been obtained from an unaffiliated
third party. The Company intends to continue to lease office space from EOA.
KCG TRANSACTIONS
During the year ended March 31, 1994, and the nine months ended December 31,
1994, KCG's predecessor ("Predecessor") leased a building from its principal
shareholders. Rental payments made in accordance with the lease agreement were
approximately $102,000 and $76,000, respectively. During the year ended
December 31, 1995 and the six months ended June 30, 1996, KCG leased office
and other space and an automobile from its shareholder. Rental payments made
under these arrangements were approximately $69,000 and $40,000, respectively.
The Company intends to continue leasing such space and automobile on a month-
to-month basis for an aggregate of $5,600 per month. The Company believes that
such payments are on terms as favorable to the Company as could be obtained
from an unaffiliated party.
KCG had a marketing commission agreement with Predecessor under which
commissions of $100,000 were paid during the year ended December 31, 1995.
This agreement provided for certain rights of Predecessor to be used by KCG,
including customer lists and employment agreements with employees. This
agreement was terminated and the related rights were acquired by KCG,
effective November 1, 1995, for $150,000, of which $65,000 was paid during the
year ended December 31, 1995. The remaining $85,000 was in the form of a bank
loan assumption. Additionally, approximately $88,000 under a separate bank
loan was assumed in exchange for certain tangible assets.
KCG had notes receivable from Predecessor and another affiliated entity of
approximately $25,000 and $18,000 as of December 31, 1995. KCG had a
shareholder note payable of $79,964 as of December 31, 1995. Predecessor had a
note receivable from one of its principal shareholders of approximately
$14,000 as of December 31, 1994.
During the year ended December 31, 1995 and the six months ended June 30,
1996, KCG purchased equipment for approximately $50,000 and $122,000,
respectively, from affiliated entities. The Company believes that such
payments were on terms as favorable to the Company as could be obtained from
an unaffiliated party.
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DESCRIPTION OF CAPITAL STOCK
The following is a description of certain provisions of the Company's
Certificate of Incorporation (the "Certificate"), Certificate of Designation
relating to the Convertible Preferred Stock (the "Designation") and By-Laws
(the "By-Laws)." See "Additional Information" as to how to obtain a copy of
these documents.
GENERAL
The Company is authorized to issue up to 20,000,000 shares of Common Stock,
par value $0.01 per share, and 100,000 shares of preferred stock, par value
$.01 per share (the "Preferred Stock"). The Designation provides that 40,000
shares of the authorized Preferred Stock have been designated, and may be
issued as, Series A Convertible Redeemable Preferred Stock, par value $.01 per
share. Following the Offering, there will be 4,884,065 shares of Common Stock
issued and outstanding and 25,000 shares of Series A Convertible Redeemable
Preferred Stock having a liquidation value of $100 per share issued and
outstanding.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held of
record on all matters to be submitted to a vote of the stockholders. The
Certificate does not provide for cumulative voting for the election of
directors. Subject to preferences that may be applicable to any outstanding
shares of Preferred Stock, holders of Common Stock are entitled to receive
ratably such dividends, if any, as may be declared from time to time by the
Board of Directors of the Company out of funds legally available therefor. See
"Dividend Policy." The holders of Common Stock have no preemptive or other
subscription rights, and there are no conversion rights or redemption or
sinking fund provisions with respect to the Common Stock. All outstanding
shares of Common Stock are, and the Common Stock to be sold in the Offering,
when issued and paid for, will be, fully paid and nonassessable. In the event
of any liquidation, dissolution or winding-up of the affairs of the Company,
holders of Common Stock will be entitled to share ratably in the assets of the
Company remaining after payment or provision for payment of all of the
Company's debts and obligations and liquidation payments to holders of
outstanding shares of Preferred Stock.
UNDESIGNATED PREFERRED STOCK
The Board of Directors of the Company is authorized, without further action
of the stockholders, to issue up to 100,000 shares of Preferred Stock in one
or more classes or series and to fix the designations, powers, preferences and
the relative participating, optional or other special rights of the shares of
each series and any qualifications, limitations and restrictions thereon. Of
such authorized shares, 40,000 shares have been designated as Convertible
Preferred Stock. Any Preferred Stock issued by the Company may rank prior to
the Common Stock as to dividend rights, liquidation preference or both, may
have full or limited voting rights and may be convertible into shares of
Common Stock.
The issuance of Preferred Stock could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
acquiring or seeking to acquire, a significant portion of the outstanding
Common Stock.
SERIES A CONVERTIBLE REDEEMABLE PREFERRED STOCK
The holders of Convertible Preferred Stock are entitled to receive, when and
as declared by the Company's Board of Directors, cumulative compounded
quarterly dividends at the rate of eight percent of the liquidation value
thereof per annum. If the Company has not consummated an initial public
offering of Common Stock on or before December 31, 1996, the dividend rate
will increase to 12% of the liquidation value thereof per annum from and after
such date. The holders of Convertible Preferred Stock have no voting rights
except as provided by the Delaware General Corporation Law (the "DGCL") and
except with respect to actions which affect adversely the rights and
preferences of the Convertible Preferred Stock set forth in the Designation.
The Convertible Preferred Stock is senior in right of payment and on
liquidation to the Common Stock.
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During the seven-month period beginning six months after the closing of the
Offering (the "Conversion Period"), each holder of Convertible Preferred Stock
will have the right to convert all, but not less than all, of the Convertible
Preferred Stock then owned by such holder into shares of Common Stock at the
rate of approximately 8.1 shares of Common Stock for each share of Convertible
Preferred Stock, or approximately $12.29 per share (as adjusted for stock
dividends, stock splits, reverse stock splits and any other stock combination
or division). Cash payments will be made in lieu of the issuance of any
fractional shares of Common Stock upon any such conversion. In connection
with, and upon such conversion, the holders of Convertible Common Stock will
have no right to receive any accrued and unpaid dividends. Shares of
Convertible Preferred Stock which are not converted to Common Stock during the
Conversion Period will remain outstanding until the earlier of the time such
shares are redeemed by the Company or June 30, 2006.
If the Company, prior to the end of the Conversion Period, issues Common
Stock or warrants or options exercisable for Common Stock (other than pursuant
to any employee stock option plan or director stock plan approved by the Board
of Directors of the Company), and the price per share at which such shares,
warrants or options are issued (the "New Share Price") multiplied by the
aggregate number of issued and outstanding shares of Common Stock (determined
on a fully diluted basis, but excluding shares then being issued or which are
issuable pursuant to warrants or options then being issued) is less than $35.0
million, then the outstanding shares of Convertible Preferred Stock will
become convertible into such additional number of shares of Common Stock equal
to a fraction, the numerator of which is the number of outstanding shares of
Convertible Preferred Stock multiplied by 100 and the denominator of which is
the New Share Price.
The Company has the right at any time after the Conversion Period but prior
to maturity, to redeem the outstanding shares of Convertible Preferred Stock
at $100 per share, plus accrued and unpaid dividends, if any. Unless earlier
redeemed or converted into Common Stock, the outstanding shares of Convertible
Preferred Stock are to be redeemed by the Company at $100 per share, plus
accrued and unpaid dividends, if any, on June 30, 2006.
CERTAIN ANTI-TAKEOVER EFFECTS OF CERTIFICATE AND BY-LAWS PROVISIONS
Certain provisions of the Certificate and By-Laws summarized in the
following paragraphs may be deemed to have anti-takeover effects. These
provisions may have the effect of discouraging a future takeover attempt which
is not approved by the Board of Directors but which individual Company
stockholders may deem to be in their best interests or in which stockholders
may receive a substantial premium for their shares over then-current market
prices. As a result, stockholders who might desire to participate in such a
transaction may not have an opportunity to do so. Such provisions will also
render the removal of the current Board of Directors more difficult.
Number of Directors; Removal; Filling Vacancies
The Certificate and By-Laws provide that the number of directors will be
fixed from time to time with the consent of two-thirds of the Board of
Directors. Moreover, the Certificate provides that directors may only be
removed with cause by the affirmative vote of the holders of at least a
majority of the outstanding shares of capital stock of the Company then
entitled to vote at an election of directors. This provision prevents
stockholders from removing any incumbent director without cause and allows
two-thirds of the incumbent directors to add additional directors without
approval of stockholders until the next annual meeting of stockholders at
which directors are elected.
Advance Notice of Nominations and Stockholder Proposals
The By-Laws contain a provision requiring at least 60 but no more than 90
days' advance notice by a stockholder of a proposal or director nomination
that such stockholder desires to present at any annual or special meeting of
stockholders, which would prevent a stockholder from making a proposal or a
director nomination at a stockholder meeting without the Company having
advance notice of the proposal or director nomination. This provision could
make a change in control more difficult by providing the directors of the
Company with more time to prepare an opposition to a proposed change in
control.
53
<PAGE>
Vote Requirement for Calling Special Meeting
The By-Laws also contain a provision requiring the vote of the holders of
two-thirds of the outstanding Common Stock in order to call a special meeting
of stockholders. This provision would prevent a stockholder with less than a
two-thirds interest from calling a special meeting to consider a merger unless
such stockholder had first obtained adequate support from a sufficient number
of other stockholders.
Statutory Business Combination Provision.
Upon completion of the Offering, the Company will be subject to the
provisions of Section 203 ("Section 203") of the DGCL. Section 203 provides,
with certain exceptions, that a Delaware corporation may not engage in any of
a broad range of business combinations with a person, or an affiliate or
associate of such person, who is an "interested stockholder" for a period of
three years from the date that such person became an interested stockholder
unless: (i) the transaction resulting in a person becoming an interested
stockholder, or the business combination, is approved by the board of
directors of the corporation before the person becomes an interested
stockholder; (ii) the interested stockholder acquired 85% or more of the
outstanding voting stock of the corporation in the same transaction that makes
it an interested stockholder (excluding shares owned by persons who are both
officers and directors of the corporation, and shares held by certain employee
stock ownership plans); or (iii) on or after the date the person becomes an
interested stockholder, the business combination is approved by the
corporation's board of directors and by the holders of at least 66 2/3% of the
corporation's outstanding voting stock at an annual or special meeting,
excluding shares owned by the interested stockholder. Under Section 203, an
"interested stockholder" is defined (with certain limited exceptions) as any
person that is (i) the owner of 15% or more of the outstanding voting stock of
the corporation or (ii) an affiliate or associate of the corporation and was
the owner of 15% or more of the outstanding voting stock of the corporation at
any time within the three-year period immediately prior to the date on which
it is sought to be determined whether such person is an interested
stockholder.
A corporation may, at its option, exclude itself from the coverage of
Section 203 by amending its certificate of incorporation or by-laws by action
of its stockholders to exempt itself from coverage, provided that such by-law
or charter amendment does not become effective until 12 months after the date
it is adopted. Neither the Certificate nor the By-Laws contains any such
exclusion.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
Limitations on Liabilities
Consistent with the DGCL, the Certificate contains a provision eliminating
or limiting liability of directors to the Company and its stockholders for
monetary damages arising from acts or omissions in the director's capacity as
a director. The provision does not, however, eliminate or limit the personal
liability of a director (i) for any breach of such director's duty of loyalty
to the Company or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) for unlawful dividends or unlawful stock purchases or redemptions as
provided in Section 174 of the DGCL or (iv) for any transaction from which the
director derived an improper personal benefit. This provision offers persons
who serve on the Board of Directors of the Company protection against awards
of monetary damages resulting from breaches of their duty of care, except as
indicated above. As a result of this provision, the ability of the Company or
a stockholder thereof to successfully prosecute an action against a director
for a breach of his duty of care is limited. However, the provision does not
affect the availability of equitable remedies such as an injunction or
rescission based upon a director's breach of his duty of care. The Securities
and Exchange Commission has taken the position that the provision will have no
effect on claims arising under the federal securities laws.
Indemnification
The Certificate and By-Laws provide for mandatory indemnification rights to
the maximum extent permitted by applicable law, subject to limited exceptions,
to any director or officer of the Company who, by reason of the
54
<PAGE>
fact that he is a director or officer of the Company, is involved in a legal
proceeding of any nature. Such indemnification rights include reimbursement
for expenses incurred by such director or officer in advance of the final
disposition of such proceeding in accordance with the applicable provisions of
the DGCL. The Company may also maintain directors' and officers' liability
insurance.
TRANSFER AGENT AND REGISTRAR
The Company has selected National City Bank as the transfer agent and
registrar for the Common Stock.
55
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no public market for the Common Stock.
Sales of substantial amounts of Common Stock into the public market after the
Offering, or the perception that such sales could occur, could adversely
affect the prevailing market price for the Common Stock and the ability of the
Company to raise equity capital. The Company can make no prediction as to the
effect, if any, that the sale or availability for future sale of shares of
additional Common Stock will have on the market price of the Common Stock
prevailing from time to time.
Upon completion of the Offering, the Company will have 4,884,065 shares of
Common Stock outstanding (assuming no exercise of options). These shares will
consist of 2,400,000 shares of Common Stock currently issued and outstanding
and held by the existing stockholders of the Company, 2,000,000 shares of
Common Stock sold in the Offering, 244,066 shares of Common Stock to be issued
upon conversion of the Stockholder Loans and 239,999 shares to be issued upon
consummation of the KCG Acquisition (including the 26,666 Restricted Grant
Shares). See "Certain Transactions--Stockholder Loans."
The 2,000,000 shares of Common Stock sold in the Offering will immediately
be freely tradable, except that any shares purchased by "affiliates" of the
Company, as that term is defined in Rule 144 under the Securities Act of 1933,
as amended ("Affiliates"), may generally only be sold in compliance with the
limitations of Rule 144 ("Rule 144") under the Securities Act, as described
below.
The 2,400,000 shares of Common Stock held by the existing stockholders, the
244,066 shares of Common Stock to be issued upon conversion of the Stockholder
Loans and the 239,999 shares of Common Stock to be issued upon consummation of
the KCG Acquisition (including the 26,666 Restricted Grant Shares) have not
been registered under the Securities Act, and, accordingly, such shares may
not be sold except in transactions registered under the Securities Act or
pursuant to an exemption from registration. In addition, the existing
stockholders and the persons receiving Common Stock in connection with the KCG
Acquisition have agreed, or will agree, not to sell any shares of Common Stock
owned by them for a period of twelve months following the closing of the
Offering. After the expiration of such twelve-month period, all of such
shares, other than the 26,666 Restricted Grant Shares, may be sold in
accordance with Rule 144, subject to the applicable volume, holding period and
other limitations of Rule 144 as described below. In addition, the holders of
these shares, other than the 26,666 Restricted Grant Shares, will have certain
rights to require the Company to register such shares under the Securities Act
for public offering and sale. See "Certain Transactions--Registration Rights."
Up to 203,385 additional shares could be issued upon conversion of the
Convertible Preferred Stock, which become convertible into shares of Common
Stock 180 days after the closing of the Offering. These Conversion Shares will
not be registered under the Securities Act, and, accordingly, such shares may
not be sold except in transactions registered under the Securities Act or
pursuant to an exemption from registration. In addition, the holders of
Convertible Preferred Stock have agreed not to sell any Conversion Shares
owned by them for a period of twelve months following the closing of the
Offering. After the expiration of such twelve-month period, all of such shares
may be sold in accordance with Rule 144, subject to the applicable volume,
holding period and other limitations of Rule 144 as described below. In
addition, the holders of Conversion Shares will have certain rights to require
the Company to register such Conversion Shares under the Securities Act for
public offering and sale. See "Certain Transactions--Registration Rights."
In addition to the shares described above, 239,334 additional shares of
Common Stock have been reserved for issuance as restricted stock or upon
exercise of options that may be granted under the Company's 1996 Stock Plan.
As of the closing of the Offering and the KCG Acquisition, an aggregate of
26,666 shares of restricted stock granted under 1996 Stock Plan and options
granted under the 1996 Stock Plan to acquire an aggregate of 219,000 shares of
Common Stock will be outstanding. The Company intends to file one or more
registration statements on Form S-8 under the Securities Act to register all
of these shares of Common Stock, which registration statements will become
effective immediately upon filing. Shares covered by these registration
statements will be eligible for sale in the public markets upon the
effectiveness of such registration statements (unless such shares are held by
an Affiliate).
56
<PAGE>
Any shares of Common Stock that have not been registered under the
Securities Act could be sold under Rule 144. In general, under Rule 144 as
currently in effect, beginning 90 days after the Offering, a person (or
persons whose shares are aggregated) who has beneficially owned restricted
shares for at least two years, including a person who may be deemed an
Affiliate, is entitled to sell within any three-month period a number of
shares of Common Stock that does not exceed the greater of one percent of the
then-outstanding shares of Common Stock or the average weekly reported trading
volume of the Common Stock during the four calendar weeks preceding such sale.
Sales under Rule 144 are subject to certain restrictions relating to manner of
sale, notice, and the availability of current public information about the
Company. A person who is not an Affiliate at any time during the three months
preceding a sale, and who has beneficially owned shares for at least three
years, would be entitled to sell such shares immediately following the
Offering without regard to the volume limitations, manner of sale provisions,
or notice or other requirements of Rule 144.
The Securities and Exchange Commission has published a notice of proposed
rulemaking that, if adopted as proposed, would shorten the applicable holding
periods under Rule 144(d) and Rule 144(k) to one and two years, respectively
(from the current two- and three-year periods). The Company cannot predict
whether such amendments will be adopted or the effect thereof on the trading
market for its Common Stock.
57
<PAGE>
UNDERWRITING
The Underwriters named below, represented by Friedman, Billings, Ramsey &
Co., Inc. (the "Representative"), have severally agreed to purchase, subject
to the terms and conditions of the underwriting agreement (the "Underwriting
Agreement"), and the Company has agreed to sell, the number of shares of
Common Stock set forth opposite the name of each Underwriter.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
------------ ----------------
<S> <C>
Friedman, Billings, Ramsey & Co., Inc.......................... 1,640,000
Advest, Inc.................................................... 40,000
Cruttenden Roth, Inc........................................... 40,000
Equitable Securities Corporation............................... 40,000
Janney Montgomery Scott Inc.................................... 40,000
Legg Mason Wood Walker Incorporated............................ 40,000
Parker Hunter Incorporated..................................... 40,000
Punk, Ziegel & Knoell.......................................... 40,000
Sutro & Co. Incorporated....................................... 40,000
Unterberg Harris............................................... 40,000
---------
Total........................................................ 2,000,000
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will be
obligated to purchase all of the shares of Common Stock if any shares are
purchased.
The Representative has advised the Company that the Underwriters propose
initially to offer the shares of Common Stock to the public on the terms set
forth on the cover page of this Prospectus and to certain dealers at such
price less a concession not in excess of $0.63 per share. The Underwriters may
allow, and such dealers may reallow, a concession not in excess of $0.10 per
share to other dealers. After the initial offering, the public offering price
and such concessions may be changed. The Common Stock is offered subject to
receipt and acceptance by the Underwriters, and to certain other conditions,
including the right to reject orders in whole or in part. The Representative
has informed the Company that the Underwriters do not intend to confirm sales
to accounts over which they exercise discretionary authority in excess of five
percent of the number of shares of Common Stock offered hereby.
The Company has granted the Underwriters an option, exercisable not later
than 30 days after the date of this Prospectus, to purchase up to an aggregate
of 300,000 additional shares of Common Stock at the public offering price less
the underwriting discount shown on the cover of this Prospectus. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of the 2,000,000 shares of Common Stock offered
hereby. If purchased, the Underwriters will offer such additional shares on
the same terms as those on which the 2,000,000 shares of Common Stock are
being offered.
Prior to the Offering, there has been no public market for the Common Stock.
The offering price has been determined by negotiation among the Company and
the Representative. In determining such price, consideration was given to the
financial and operating history and trends of the Company, the experience of
its management, the position of the Company in its industry, the Company's
prospects and the Company's financial results. Additionally, consideration has
been given to the status of the securities markets, market conditions for new
offerings of securities and the prices of similar securities of comparable
companies. The Common Stock has been approved for quotation on the NASDAQ
Stock Market's National Market under the symbol "ALLN."
The Company, its directors, executive officers and certain other
stockholders who, immediately following the Offering, will hold 2,857,399
shares have agreed not to offer, sell or otherwise dispose of any such shares
of Common Stock or any Conversion Shares for a period of one year after the
closing of the Offering without the prior written consent of the
Representative. See "Shares Eligible for Future Sale."
The Company has agreed to indemnify the Underwriters against certain civil
liabilities, including liabilities under the Securities Act, or to contribute
to payments that the Underwriters may be required to make in respect
58
<PAGE>
thereof. The Company also has agreed to reimburse the Representative for its
actual out-of-pocket legal expenses incurred in connection with the offering of
the Common Stock.
The Company has also given the Representative the right to act as the
exclusive financial advisor, placement agent and underwriter to the Company in
connection with certain financings, sales, transfers, mergers, consolidations
or other similar transactions involving the Company during the period ending 18
months after the closing of the Offering. The Representative has agreed to
provide such services to the Company on terms and conditions as are customary
and competitive. The Representative will also have a right to 7.0% of the
proceeds from any sale by the Company of securities within 12 months after
closing of the Offering to an individual identified to the Company by the
Representative prior to closing.
The Company has agreed that Richard Trutanic will serve on the Board of
Directors after closing of the Offering.
LEGAL MATTERS
Certain legal matters with respect to the validity of the shares of Common
Stock offered hereby will be passed upon for the Company by Eckert Seamans
Cherin & Mellott, Pittsburgh, Pennsylvania. Thomas D. Wright, a partner and
chairman of the Operations Committee of such firm, currently owns more than ten
percent of the outstanding Common Stock of the Company. Certain legal matters
related to the Offering will be passed upon for the Underwriters by Hogan &
Hartson L.L.P., Washington, D.C.
EXPERTS
The consolidated financial statements and schedule of Allin Communications
Corporation as of December 31, 1994 and 1995 and June 30, 1996, for the period
from June 8, 1994 to December 31, 1994, the year ended December 31, 1995 and
the six-month period ended June 30, 1996; the financial statements of
International Sports Marketing, Inc. as of December 31, 1994 and 1995 and June
30, 1996, for the three years ended December 31, 1995 and the six-month period
ended June 30, 1996; and the financial statements of Kent Consulting Group,
Inc. as of December 31, 1994 and 1995 and June 30, 1996, for the year ended
March 31, 1994, the nine months ended December 31, 1994, the year ended
December 31, 1995 and the six-month period ended June 30, 1996 included in this
Prospectus and elsewhere in the Registration Statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm in accounting and auditing in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form S-1 under the Securities Act with respect to the
Common Stock offered hereby. As permitted by the rules and regulations of the
Commission, this Prospectus does not contain all the information set forth in
the Registration Statement and in the exhibits and schedules thereto. For
further information concerning the Company and the Common Stock offered hereby,
reference is made to the Registration Statement and to the exhibits and
schedules filed therewith. The Registration Statement, including the exhibits
and schedules thereto, may be inspected, without charge, at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549; 7 World Trade Center, 13th Floor, New York, New York
10048; and Citicorp Center, Suite 1400, 500 West Madison Street, Chicago,
Illinois 60661. Copies of each such document may be obtained at prescribed
rates from the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549. The Commission also maintains a web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file such materials electronically
with the Commission.
The Company intends to distribute to its stockholders annual reports
containing audited financial statements and quarterly reports containing
unaudited financial information for each of the first three quarters of its
fiscal year.
59
<PAGE>
INDEX TO FINANCIAL STATEMENTS
----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Introduction.............................................................. F-2
Pro Forma Condensed Consolidated Balance Sheet as of June 30, 1996
(unaudited).............................................................. F-3
Pro Forma Condensed Consolidated Statement of Operations for the year
ended December 31, 1995 (unaudited)...................................... F-4
Pro Forma Condensed Consolidated Statement of Operations for the six
months ended June 30, 1996 (unaudited)................................... F-5
Notes to Pro Forma Condensed Consolidated Financial Statements
(unaudited).............................................................. F-6
ALLIN COMMUNICATIONS CORPORATION CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants.................................. F-8
Consolidated Balance Sheets as of December 31, 1994 and 1995 and June 30,
1996..................................................................... F-9
Consolidated Statements of Operations for the period from June 8, 1994
(date of inception) to
December 31, 1994, for the year ended December 31, 1995 and for the six
months
ended June 30, 1995 (unaudited) and 1996................................. F-10
Consolidated Statements of Shareholders' Equity for the period from June
8, 1994 (date of inception) to December 31, 1994, for the year ended
December 31, 1995 and for the six months ended
June 30, 1996............................................................ F-11
Consolidated Statements of Cash Flows for the period from June 8, 1994
(date of inception) to December 31, 1994, for the year ended December 31,
1995 and for the six months ended
June 30, 1995 (unaudited) and 1996....................................... F-12
Notes to Consolidated Financial Statements................................ F-13
INTERNATIONAL SPORTS MARKETING, INC. FINANCIAL STATEMENTS
Report of Independent Public Accountants.................................. F-18
Balance Sheets as of December 31, 1994 and 1995 and June 30, 1996......... F-19
Statements of Operations for the years ended December 31, 1993, 1994 and
1995 and the six months ended June 30, 1995 (unaudited) and 1996......... F-20
Statements of Shareholders' Equity for the years ended December 31, 1993,
1994 and 1995 and
the six months ended June 30, 1996....................................... F-21
Statements of Cash Flows for the years ended December 31, 1993, 1994 and
1995 and the six months ended June 30, 1995 (unaudited) and 1996......... F-22
Notes to Financial Statements............................................. F-23
KENT CONSULTING GROUP, INC. FINANCIAL STATEMENTS
Report of Independent Public Accountants.................................. F-27
Balance Sheets as of December 31, 1994 and 1995 and June 30, 1996......... F-28
Statements of Operations for the year ended March 31, 1994, the nine
months ended December 31, 1994, the year ended December 31, 1995 and the
six months ended June 30, 1995 (unaudited)
and 1996 ................................................................ F-29
Statements of Shareholders' Equity for the year ended March 31, 1994, the
nine months ended December 31, 1994, the year ended December 31, 1995 and
the six months ended June 30, 1996 ...................................... F-30
Statements of Cash Flows for the year ended March 31, 1994, the nine
months ended December 31, 1994, the year ended December 31, 1995 and the
six months ended June 30, 1995 (unaudited)
and 1996 ................................................................ F-31
Notes to Financial Statements............................................. F-33
</TABLE>
F-1
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following Pro Forma Condensed Consolidated Financial Statements of Allin
Communications Corporation (the Company) are based on the historical financial
statements of SeaVision, Inc. (SeaVision), International Sports Marketing,
Inc. (ISM) and Kent Consulting Group, Inc. (KCG), adjusted to give effect to
the acquisitions of ISM and KCG by the Company. The Pro Forma Condensed
Consolidated Statement of Operations for the year ended December 31, 1995 and
for the six months ended June 30, 1996 assumes that such acquisitions, the
issuance of Convertible Preferred Stock and the offering of Common Stock by
the Company pursuant to the Prospectus of which the following Pro Forma
Condensed Consolidated Financial Statements are part (the "Offering") had
occurred on January 1, 1995.
The pro forma condensed consolidated financial information reflects the
purchase method of accounting for the acquisitions of ISM and KCG, and
accordingly is based on estimated purchase accounting adjustments that are
subject to further revision depending upon completion of any appraisals or
other studies of the fair value of assets and liabilities. Final purchase
accounting adjustments will differ from the pro forma adjustments presented
herein and described in the accompanying notes due to the results of
operations of ISM and KCG from June 30, 1996 to the date of closing. The final
purchase accounting adjustments are not expected to differ significantly from
the estimates used herein.
The pro forma condensed consolidated financial information reflects certain
assumptions described above and in Notes to Pro Forma Condensed Consolidated
Statement of Operations below. The pro forma financial information does not
purport to present what the Company's results of operations would actually
have been if the acquisitions of ISM and KCG, the issuance of Convertible
Preferred Stock and the Offering had occurred on the assumed dates, as
specified above, or to project the Company's financial condition or results of
operations for any future period.
F-2
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
INTERNATIONAL
SPORTS KENT OFFERING PRO
SEAVISION, MARKETING, CONSULTING PRO FORMA PRO FORMA FORMA PRO FORMA
INC. INC. GROUP, INC. ADJUSTMENTS CONSOLIDATED ADJUSTMENTS AS ADJUSTED
---------- ------------- ----------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Current Assets:
Cash................... $ 572 $ 63 $ 42 $(1,800)(1)(2) $(1,123) $25,893 (3) $24,770
Investments............ -- 420 -- 420 420
Accounts receivable.... 90 113 646 849 849
Prepaid expenses and
other current assets.. 125 203 6 334 334
------- ---- ---- ------- -------
Total current assets.. 787 799 694 480 26,373
Property and equipment,
net.................... 2,665 116 174 2,955 2,955
Other Assets............ 695 28 97 7,138 (1) 7,958 7,958
------- ---- ---- ------- -------
$ 4,147 $943 $965 $11,393 $37,286
======= ==== ==== ======= =======
LIABILITIES AND
SHAREHOLDERS' EQUITY:
Current liabilities.... $ 5,630 $812 $634 $ 150 (1) $ 7,226 $ 7,226
Long-term debt......... 3,807 -- -- 3,807 (3,807)(3)(4) --
Redeemable preferred
stock................. -- -- -- 2,450 (2) 2,450 2,450
Shareholders' equity .. (5,290) 131 331 2,738 (1) (2,090) 29,700 (3)(4) 27,610
------- ---- ---- ------- -------
$ 4,147 $943 $965 $11,393 $37,286
======= ==== ==== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED
DECEMBER 31, 1995
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
INTERNATIONAL
SPORTS KENT OFFERING PRO
SEAVISION, MARKETING, CONSULTING PRO FORMA PRO FORMA FORMA PRO FORMA
INC. INC. GROUP, INC. ADJUSTMENTS CONSOLIDATED ADJUSTMENTS AS ADJUSTED
---------- ------------- ----------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue................. $ 44 $4,878 $1,995 $(705)(5) $ 6,212 $ 6,212
Cost and expenses:
Cost of revenue........ 10 2,747 989 (338)(5) 3,408 3,408
Selling, general and
administrative........ 1,833 1,647 712 1,784 (5)(6)(7) 5,976 5,976
Interest expense, net.. 369 (37) 4 336 (369)(8) (33)
--------- ------ ------ ------- ---------
Total cost and
expenses............. 2,212 4,357 1,705 9,720 9,351
--------- ------ ------ ------- ---------
Income (loss) before
taxes.................. (2,168) 521 290 (3,508) (3,139)
Provision for income
taxes.................. -- -- 57 (57)(9) -- --
--------- ------ ------ ------- ---------
Income (loss) before
nonrecurring charges
(10)................... $ (2,168) $ 521 $ 233 $(3,508) $ (3,139)
========= ====== ====== ======= =========
Loss before nonrecurring
charges per common
share (11)............. $ (0.83) $ (0.62)
========= =========
Weighted average number
of common shares
outstanding (11)....... 2,603,385 5,087,450
--------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS
ENDED JUNE 30, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
INTERNATIONAL
SPORTS KENT OFFERING PRO
SEAVISION, MARKETING, CONSULTING PRO FORMA PRO FORMA FORMA PRO FORMA
INC. INC. GROUP, INC. ADJUSTMENTS CONSOLIDATED ADJUSTMENTS AS ADJUSTED
---------- ------------- ----------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue................. $ 163 $1,793 $1,792 $(461)(5) $ 3,287 $ 3,287
Cost and expenses:
Cost of revenue........ 40 1,091 937 (240)(5) 1,828 1,828
Selling, general and
administrative........ 2,167 830 437 797 (5)(7) 4,231 4,231
Interest expense, net.. 468 1 3 472 (468)(8) 4
--------- ------ ------ ------- ---------
Total cost and
expenses............. 2,675 1,922 1,377 6,531 6,063
--------- ------ ------ ------- ---------
Income (loss) before
taxes.................. (2,512) (129) 415 (3,244) (2,776)
Provision for income
taxes ................. -- -- 167 (167)(9) -- --
--------- ------ ------ ------- ---------
Net income (loss)....... $ (2,512) $ (129) $ 248 $(3,244) $ (2,776)
========= ====== ====== ======= =========
Net loss per common
share.................. $ (0.96) $ (0.55)
========= =========
Weighted average number
of common shares
outstanding............ 2,603,385 5,087,450
--------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The pro forma adjustments to the condensed consolidated balance sheet are as
follows:
(1) To record the acquisitions of ISM and KCG, for which the estimated
excess purchase price of approximately $7,138 has been assigned to
intangible assets. Along with these acquisitions, the remaining
available borrowings of $150 under the line of credit have been
reflected. The intangible assets identified, based upon an independent
appraisal, along with the assigned values and the estimated useful
lives, are as follows:
<TABLE>
<CAPTION>
ESTIMATED
ASSIGNED USEFUL LIVES
ASSETS VALUES IN YEARS
------ -------- ------------
<S> <C> <C>
Employment agreement............................... $2,680 2
Customer lists..................................... 195 5
Assembled work force............................... 113 7
Goodwill........................................... 3,768 7-20
Marketing agreement................................ 125 20
Trade names........................................ 257 40
------
$7,138
======
</TABLE>
The agreements which provide for these acquisitions include provisions
for contingent payments of up to $2,400 and $2,800, respectively, based
upon future operating income of ISM and KCG for the years 1997, 1998
and 1999. Future contingent payments, if any, made to the selling
shareholders of ISM and KCG will be reflected as additional cost of the
acquired entities. These additional costs of the affected assets will
be capitalized and amortized over the remaining life of the assets.
(2) To record the net proceeds of $2,450 from the issuance of 25,000 shares
of Series A Convertible Redeemable Preferred Stock with a par value of
$100 per share.
(3) To record the receipt of the net proceeds of the Offering of $26,700
and the application of these proceeds, primarily for the payment of
accrued interest on shareholder notes of $807 and the acquisitions of
ISM and KCG.
(4) To record the conversion of $3,000 of shareholder loans to 244,066
shares of common stock.
The pro forma adjustments to the condensed consolidated statements of
operations are as follows:
(5) To eliminate the effects of transactions between the companies
including intercompany profit capitalized as software development costs
of $253 for the year ended December 31, 1995, and $40 as software
development costs and $30 as onboard equipment for the six-month period
ended June 30, 1996.
(6) To record compensation expense related to the issuance of the
Restricted Grant Shares to certain employees of KCG of $134 for the
year ended December 31, 1995 and $66 for the six-month period ended
June 30, 1996.
F-6
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)--CONTINUED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(7) To record amortization of excess purchase price of $1,764 for the year
ended December 31, 1995 and $882 for the six-month period ended June
30, 1996.
(8) To reduce interest expense on borrowings of $369 for the year ended
December 31, 1995 and $468 for the six-month period ended June 30,
1996. The interest accrued during these respective periods was based
upon the outstanding borrowings under the shareholder loans (15%), the
line of credit (7%) and the guarantee fee due certain shareholders
based upon borrowing under the line of credit (8%). The weighted
average borrowing under the shareholder loans was approximately $2,464
and $5,577 for the year ended December 31, 1995 and the six-month
period ended June 30, 1996, respectively. The weighted average
borrowings under the line of credit was approximately $738 for the six-
month period ended June 30, 1996.
(9) To reduce the tax provision recorded by KCG of $57 for the year ended
December 31, 1995 and $167 for the six-month period ended June 30,
1996.
(10) A charge of $661 related to the induced conversion of the shareholder
loans is nonrecurring and directly attributable to the Offering and,
therefore, not reflected in the accompanying pro forma statement of
operations for the year ended December 31, 1995. This charge will be
recognized in the fiscal quarter in which the Offering is consummated.
The Convertible Preferred Stock is assumed to be converted during the
seven-month period beginning six months after the closing of the
Offering due to the inducement feature whereby the holders of such
preferred stock will receive common shares with a value of $3,051 in
return for such preferred stock with a stated value of $2,500. This
transaction will be treated in a manner similar to the treatment of
dividends paid to holders of the preferred stock. Accordingly, the
conversion premium of $551 and accretion of $50 from the net proceeds
from the issuance of Convertible Preferred Stock to stated value will
increase the loss attributable to common shareholders. The conversion
premium and accretion are nonrecurring and directly attributable to the
Offering and, therefore, not reflected in the accompanying pro forma
statement of operations for the year ended December 31, 1995.
(11) The weighted average number of shares of common stock used to
calculate pro forma loss before nonrecurring charges per share
includes the shares to be issued in connection with the Offering, the
acquisition of KCG, the conversion of the shareholder loans, and the
assumed conversion of the Convertible Preferred Stock and the
Restricted Grant Shares. The stock options issued at the time of
consummation of the Offering are not included with the weighted
average outstanding number of common shares, as the effect is
antidilutive.
F-7
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Allin Communications Corporation:
We have audited the accompanying consolidated balance sheets of Allin
Communications Corporation (a Delaware corporation) as of December 31, 1994
and 1995 and June 30, 1996, and the related consolidated statements of
operations, shareholders' equity and cash flows for the period from June 8,
1994 (date of inception), to December 31, 1994, the year ended December 31,
1995 and the six-month period ended June 30, 1996. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Allin
Communications Corporation as of December 31, 1994 and 1995 and June 30, 1996,
and the results of its operations and its cash flows for the period from June
8, 1994 (date of inception), to December 31, 1994, the year ended December 31,
1995 and the six-month period ended June 30, 1996, in conformity with
generally accepted accounting principles.
Arthur Andersen LLP
Pittsburgh, Pennsylvania,
October 2, 1996 (except with
respect to the matter discussed
in Note 7 (iv) as to which the
date is October 29, 1996)
F-8
<PAGE>
ALLIN COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1994 1995 1996
-------- ---------- ----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................... $ 32,852 $ 192,995 $ 571,961
Accounts receivable......................... -- 42,692 79,730
Related party receivable.................... -- -- 10,000
Prepaid expenses............................ 25,668 8,765 124,646
-------- ---------- ----------
Total current assets....................... 58,520 244,452 786,337
-------- ---------- ----------
Property and equipment, at cost:
Leasehold improvements...................... -- 42,450 47,836
Furniture and equipment..................... 16,404 188,897 337,587
On-board equipment.......................... -- 1,313,206 1,540,837
Construction-in-progress.................... -- -- 1,090,464
-------- ---------- ----------
16,404 1,544,553 3,016,724
Less--accumulated depreciation.............. (1,093) (153,648) (351,483)
-------- ---------- ----------
15,311 1,390,905 2,665,241
Other assets, net of accumulated
amortization of $5,295, $141,052 and
$293,379, respectively..................... 72,238 717,375 695,110
-------- ---------- ----------
$146,069 $2,352,732 $4,146,688
======== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit.............................. $ -- $ -- $4,850,000
Shareholder notes payable................... -- 1,493,000 --
Accounts payable............................ 1,600 151,436 553,269
Accrued liabilities:
Management fees............................ -- 45,000 84,000
Guarantee fees............................. -- -- 30,000
Other...................................... -- 47,849 111,989
-------- ---------- ----------
Total current liabilities................. 1,600 1,737,285 5,629,258
-------- ---------- ----------
Long-term liabilities:
Accrued interest............................ 24,080 393,138 807,284
Shareholder notes payable................... 730,000 3,000,000 3,000,000
-------- ---------- ----------
754,080 3,393,138 3,807,284
-------- ---------- ----------
Shareholders' equity (Notes 1 and 7):
Preferred stock, authorized 100,000 shares.. -- -- --
Common stock, par value $.01 per share-
authorized, 20,000,000 shares; issued and
outstanding, 2,400,000 shares.............. 10 10 24,000
Additional paid-in capital.................. 1,990 1,990 3,000
Retained deficit............................ (611,611) (2,779,691) (5,316,854)
-------- ---------- ----------
Total shareholders' equity................. (609,611) (2,777,691) (5,289,854)
-------- ---------- ----------
$146,069 $2,352,732 $4,146,688
======== ========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-9
<PAGE>
ALLIN COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED SIX MONTHS ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, ----------------------------
1994 1995 1995 1996
------------ ------------ ----------------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenue................. $ -- $ 44,413 $ -- $ 163,000
Cost of sales........... -- 10,000 -- 40,045
--------- ----------- ----------- -------------
Gross profit............ -- 34,413 -- 122,955
Selling, general &
administrative......... 587,531 1,833,435 766,603 2,167,456
--------- ----------- ----------- -------------
Loss from operations.... (587,531) (1,799,022) (766,603) (2,044,501)
Interest expense, net... 24,080 369,058 105,311 467,662
--------- ----------- ----------- -------------
Net loss................ $(611,611) $(2,168,080) $ (871,914) $ (2,512,163)
========= =========== =========== =============
PRO FORMA INFORMATION--
UNAUDITED (NOTE 8):
Net loss............... $(2,168,080) $ (871,914) $ (2,512,163)
Pro forma income taxes. -- -- --
----------- ----------- -------------
Pro forma net loss..... $(2,168,080) $ (871,914) $ (2,512,163)
=========== =========== =============
Pro forma net loss per
common share.......... $ (0.83) $ (0.33) $ (0.96)
=========== =========== =============
Weighted average common
shares outstanding
during
the period............. 2,603,385 2,603,385 2,603,385
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-10
<PAGE>
ALLIN COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------- PAID-IN SHAREHOLDERS'
SHARES PAR VALUE CAPITAL RETAINED DEFICIT EQUITY
--------- --------- ---------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, June 8, 1994... $ -- $ -- $ -- $ -- $ --
Issuance of common
stock................. 2,400,000 10 1,990 -- 2,000
Net loss............... -- -- -- (611,611) (611,611)
--------- ------- ------ ----------- -----------
Balance, December 31,
1994................... 2,400,000 10 1,990 (611,611) (609,611)
Net loss............... -- -- -- (2,168,080) (2,168,080)
--------- ------- ------ ----------- -----------
Balance, December 31,
1995................... 2,400,000 10 1,990 (2,779,691) (2,777,691)
Initial capitalization
(Note 1).............. -- 23,990 1,010 (25,000) --
Net loss............... -- -- -- (2,512,163) (2,512,163)
--------- ------- ------ ----------- -----------
June 30, 1996........... 2,400,000 $24,000 $3,000 $(5,316,854) $(5,289,854)
========= ======= ====== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-11
<PAGE>
ALLIN COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
PERIOD ENDED YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, -----------------------
1994 1995 1995 1996
------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss................... $(611,611) $(2,168,080) $(871,914) $(2,512,163)
Adjustments to reconcile
net loss to net cash flows
from operating activities:
Depreciation and
amortization............. 6,388 288,312 69,780 350,162
Accrued interest on
shareholder notes
payable.................. 24,080 369,058 104,162 414,146
Changes in certain assets
and liabilities:
Accounts receivable....... -- (42,692) -- (37,038)
Related party receivable.. -- -- -- (10,000)
Prepaid expenses.......... (25,668) 16,903 19,303 (115,881)
Software development
costs.................... - (753,252) (355,629) (130,062)
Other assets.............. (77,533) (27,642) (26,597) --
Accounts payable.......... 1,600 149,836 366,455 401,833
Accrued liabilities....... -- 92,849 -- 133,140
--------- ----------- --------- -----------
Net cash flows from
operating activities..... (682,744) (2,074,708) (694,440) (1,505,863)
--------- ----------- --------- -----------
Cash flows from investing
activities:
Capital expenditures....... (16,404) (1,528,149) (709,857) (1,472,171)
--------- ----------- --------- -----------
Cash flows from financing
activities:
Proceeds from shareholder
loans..................... 730,000 3,763,000 1,607,950 2,127,650
Proceeds from line of
credit.................... -- -- -- 4,850,000
Payments on shareholder
loans..................... -- -- -- (3,620,650)
Issuance of common stock... 2,000 -- -- --
--------- ----------- --------- -----------
Net cash flows from
financing activities..... 732,000 3,763,000 1,607,950 3,357,000
--------- ----------- --------- -----------
Net change in cash and cash
equivalents................. 32,852 160,143 203,653 378,966
Cash and cash equivalents,
beginning of period......... -- 32,852 32,852 192,995
--------- ----------- --------- -----------
Cash and cash equivalents,
end of period............... $ 32,852 $ 192,995 $ 236,505 $ 571,961
========= =========== ========= ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-12
<PAGE>
ALLIN COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF OPERATIONS:
Allin Communications Corporation (the Company) was formed as a wholly owned
subsidiary of SeaVision, Inc. (SeaVision) on July 23, 1996. Effective August
16, 1996, the Company consummated a transaction pursuant to an agreement
whereby SeaVision became a wholly owned subsidiary of the Company. Prior to
this date, the Company had no operations. SeaVision was formed on June 8, 1994
for the purpose of designing, developing, selling and installing interactive
entertainment and communications systems for cruise ships. Revenues are
derived from passengers aboard the cruise ships through usage of pay-per-view,
gaming and video shopping services. During 1995, SeaVision completed
installation of two interactive systems on cruise ships.
The discussion under the heading "Risk Factors" contained in this
Registration Statement is incorporated herein by reference.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of the significant accounting policies affecting
the consolidated financial statements of the Company.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all certificates of deposit with an original maturity
of three months or less to be cash equivalents.
Accounts Receivable and Revenue Recognition
Revenue and related costs are recognized when the services are rendered. The
Company's revenue and receivables result from contracts with cruise lines. As
of June 30, 1996, two cruise lines account for all of the Company's revenue
and the resulting receivables.
Property and Equipment
The Company provides for depreciation on the straight-line method over the
estimated useful lives of the assets. In the year of acquisition, the Company
takes a full year of depreciation if the asset was purchased in the first six
months, and half a year of depreciation if the asset was purchased in the last
six months of the year. The estimated useful lives of property and equipment
range from three to five years. Expenditures for ordinary maintenance and
repairs which do not extend the lives of the applicable assets are charged to
expense as incurred, while renewals and betterments that materially extend the
lives of the applicable assets are capitalized and depreciated.
Other Assets
Certain expenditures related to the organization and start-up of SeaVision
have been capitalized in the accompanying consolidated financial statements.
Organizational and start-up costs included in this balance are being amortized
over a five-year period.
F-13
<PAGE>
ALLIN COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Costs of software development are capitalized and amortized subsequent to
the project achieving technological feasibility and prior to market
introduction. Prior to the project achieving technological feasibility and
after market introduction, development costs are expensed as incurred.
Amortization of capitalized software costs, for both internally developed and
purchased software products, is computed on a product-by-product basis over a
three-year period. Software development expense, net of amortization of
capitalized costs, was approximately $173,000, $216,000 and $387,000 for the
periods ended December 31, 1994 and 1995, and June 30, 1996 respectively.
Advertising and Promotional
Expenditures for advertising and promotions are expensed as incurred due to
the short duration of the periods benefited.
Income Taxes
The shareholders of SeaVision had elected to file under Subchapter S for
both state and federal income tax purposes. Accordingly, no provision for
income taxes has been reflected in the financial statements as the taxable
income or loss is reflected on the individual income tax returns of the
shareholders. Certain events, including the transactions described in Notes 1
and 7, will automatically terminate the S corporation status of SeaVision,
thereby subjecting future income to federal and state income taxes at the
corporate level. See Note 8 for information concerning certain pro forma
adjustments for income taxes.
Financial Instruments
It was not practicable to estimate the fair value of the shareholder notes
payable. These notes are reflected at their outstanding face value, excluding
unpaid interest accrued at 15% annually. As no ready market exists for these
instruments, comparable instruments available from outside the Company are not
available. Based upon the closely held nature of these instruments and the
Company itself, it is not practicable to estimate the fair value of these
notes.
All other financial instruments are classified as current and will be
utilized within the next operating cycle.
Recently Issued Accounting Standards
Financial Accounting Standards Board Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of"
(SFAS No. 121), was issued in March 1995 and is effective for fiscal years
beginning after December 15, 1995. This statement will be applied
prospectively and requires that impairment losses on long-lived assets be
recognized when the book value of the asset exceeds its expected undiscounted
cash flows. The Company adopted SFAS No. 121 on January 1, 1996, and adoption
at that time did not have a material impact on the Company's financial
position or results of operations.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation," (SFAS
No. 123) in October 1995. This statement establishes a "fair value based
method" of financial accounting and related reporting standards for stock-
based employee compensation plans, such as the plans that will be established,
subsequent to June 30, 1996 (see Note 7). SFAS No. 123 becomes effective in
1996 and provides for adoption in the income statement or through disclosure
only. The Company anticipates accounting for any adopted plan under APB
Opinion No. 25, "Accounting for Stock Issued to Employees," as permitted by
SFAS No. 123, but will provide the disclosure in the notes to the 1996
financial statements.
F-14
<PAGE>
ALLIN COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Unaudited Interim Financial Statements
The consolidated statements of operations and cash flows for the six-month
period ended June 30, 1995, are unaudited and are not covered by the report of
independent public accountants. However, in the opinion of management, these
interim financial statements include all adjustments (which consist only of
normal recurring adjustments) necessary to present fairly the results of
operations and cash flows of the Company for the interim period and are
prepared on the same basis as the audited financial statements.
Correction of Previously Issued Interim Financial Statements
Subsequent to the original issuance of the unaudited interim financial
statements for the six-month period ended June 30, 1996, the Company
identified certain additional expenses associated with this period. These
additional costs relate to the installations of on-board equipment, guarantee
fees and software development costs incurred subsequent to market
introduction. Accordingly, the accompanying audited interim financial
statements for the six-month period ended June 30, 1996 include adjustments to
recognize such additional expenses. The effect of these adjustments was to
increase the previously reported net loss by approximately $323,000 or $.12
per share.
Supplemental Disclosure of Cash Flow Information
There were no cash payments for income taxes during the periods presented.
Cash payments for interest were approximately $23,000 during the six months
ended June 30, 1996.
3. RELATED PARTY TRANSACTIONS:
The following summarizes related party information. The discussion under the
heading "Certain Transactions" contained in this Registration Statement is
incorporated herein by reference.
Shareholder Notes Payable
These obligations represent numerous individual notes due to certain
shareholders, each with a three-year maturity. These notes bear interest at
15%, payable at maturity, and mature at various dates from July 1997 through
December 1998. That portion of the notes paid in connection with the Company's
line of credit entered into on May 31, 1996 (Note 4) has been included with
current liabilities in the accompanying consolidated balance sheets as of
December 31, 1995. The remaining outstanding balance of $3.0 million will be
converted into 244,066 shares of Common Stock, effective upon the closing of
the initial public offering (Note 7).
Management Services
Certain shareholders of the Company own interests in three separate entities
which perform installation, marketing, consulting and administrative services
and made purchases for the Company. Fees related to these services and
reimbursements for expenditures incurred on behalf of the Company were
approximately as follows:
<TABLE>
<CAPTION>
PERIOD ENDED FEES REIMBURSEMENTS
------------ -------- --------------
<S> <C> <C>
December 31, 1994 $343,000 $ 287,000
December 31, 1995 644,000 1,668,000
June 30, 1996 230,000 213,000
</TABLE>
During 1996, the Company hired a management team that reduced its need for
the services provided by these entities. Accordingly, the fees and
reimbursements paid under these arrangements have declined. Management
agreements with two of the entities were terminated in July 1996. The third
management agreement
F-15
<PAGE>
ALLIN COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
has been converted to a lease agreement effective August 1, 1996. The lease
agreement includes the rental of office space and certain administrative
services to be provided to the Company. This agreement provides for monthly
fees of $3,700 and can be terminated by either party upon 30 days
notification.
In addition, the Company leases office space from an entity in which certain
shareholders have an ownership interest. Rental expense under this arrangement
was approximately $21,000 for the six months ended June 30, 1996. The future
commitment under this arrangement is approximately $21,000.
Professional Services
A shareholder of the Company is a partner in an entity which performs legal
services for the Company. Fees for these services were approximately $25,000,
$71,000 and $41,000 for the periods ended December 31, 1994 and 1995, and June
30, 1996, respectively.
Other Services
Certain shareholders of the Company have an equity interest in an entity
which performs services for the Company related to visual media. Charges for
these services were approximately $10,000, $137,000 and $118,000 for the
periods ended December 31, 1994 and 1995, and June 30, 1996, respectively.
Another entity in which certain shareholders of the Company have an equity
interest performed commercial printing services for the Company. Charges for
these services were approximately $7,000, $25,000 and $40,000 for the periods
ended December 31, 1994 and 1995, and June 30, 1996, respectively.
Related Party Receivable
This balance represents noninterest-bearing advances made to an entity in
which certain shareholders of the Company own an interest.
4. LINE OF CREDIT:
The Company entered into a financing agreement which provides for a line of
credit that permits maximum allowable borrowings of $5 million. Borrowings
bear interest at either prime or Euro-rate plus 1-1/2% and are payable upon
demand. The maturity date is May 31, 1997, and borrowings are guaranteed by
certain shareholders of the Company, for which they will receive a guarantee
fee. This fee will be equal to the difference between the 15% accrued under
the shareholder notes payable and the rate accrued on borrowings under the
line of credit. As of July 17, 1996, $5 million has been borrowed under this
agreement.
5. OTHER ASSETS:
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- JUNE 30,
1994 1995 1996
------- -------- --------
<S> <C> <C> <C>
Software development costs, net of accumulated
amortization of $-0-, $125,542 and $272,761....... $ -- $627,710 $610,553
Organizational and start-up costs, net of
accumulated amortization of $5,171, $14,976 and
$19,879........................................... 43,855 34,050 29,147
Other assets, net of accumulated amortization of
$124, $534 and $739............................... 28,383 55,615 55,410
------- -------- --------
$72,238 $717,375 $695,110
======= ======== ========
</TABLE>
F-16
<PAGE>
ALLIN COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. COMMITMENTS:
License Agreement
The Company has an agreement with a vendor which provides for a software
license fee of $25,000 per installation and includes specified prices for
various hardware components. This agreement expires October 1999, and payments
for license fees under this arrangement were $25,000 and $75,000 for the
periods ended December 31, 1994 and 1995, respectively. These fees are
included with on-board equipment upon installation of the interactive systems.
Royalty Agreements
The contracts with the cruise lines provide for specified royalty payments
based upon adjusted gross revenue, as defined in the respective agreements.
These royalty payments are adjusted upon reaching specified milestones for
cumulative revenue generated by the interactive systems installations. Royalty
payments of approximately $2,000 and $6,000 are included with selling, general
and administrative expenses in the accompanying consolidated statements of
operations for the periods ended December 31, 1995, and June 30, 1996,
respectively.
7. SUBSEQUENT EVENTS:
In connection with the proposed initial public offering (the Offering) by
the Company, subsequent to June 30, 1996, the following transactions have
occurred or are anticipated to occur:
(i) Designation of 40,000 shares of authorized preferred stock as Series A
Convertible Redeemable Preferred Stock with a par value of $.01 per
share.
(ii) Receipt of $1.5 million in the form of loans from two shareholders.
These loans bear interest at 8%, increasing to 12% if the Offering is
not consummated on or before December 31, 1996, and are convertible
into an aggregate 15,000 shares of Convertible Redeemable Preferred
Stock of the Company.
(iii) Conversion of the shareholder loans referred to above into 15,000
shares of Convertible Redeemable Preferred Stock and the issuance of
an additional 10,000 shares of Convertible Redeemable Preferred
Stock. These shares are entitled to cumulative compounded quarterly
dividends, when and as declared by the Board of Directors, of 8%,
increasing to 12% if the Offering is not consummated on or before
December 31, 1996. Additionally, the 25,000 shares issued are
convertible into 203,385 common shares, at the option of the holder,
not earlier than six months after the date of the Offering.
(iv) A stock split of 2,400 common shares for each common share outstanding
prior to the Offering. This split has been reflected retroactively in
the accompanying financial statements.
(v) Entry into an agreement for the acquisition of all issued and
outstanding shares of International Sports Marketing, Inc. (ISM), an
entity in which certain shareholders of the Company have an ownership
interest. This acquisition is conditioned upon the closing of the
Offering and provides for cash payments of $2.4 million upon closing
and contingent payments up to $2.4 million based upon future operating
income.
(vi) Entry into an agreement for the merger of Kent Consulting Group, Inc.
(KCG) into a wholly owned subsidiary of the Company. This merger is
conditioned upon the closing of the Offering. The
F-17
<PAGE>
ALLIN COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
consideration includes $2.0 million in cash and $3.2 million in common
stock valued at the Offering price at the closing and contingent
payments up to $2.8 million based upon future operating income.
(vii) Creation of the 1996 Stock Plan which provides up to 266,000 shares
for Common Stock to be awarded as stock options, stock appreciation
rights, restricted shares and restricted units to officers, other
executive employees, consultants and advisors (including non-employee
directors) of the Company. As of the closing of the Offering, 26,666
shares of common stock were granted in connection with the
acquisition of KCG. Additionally, options to purchase 219,000 shares
of common stock at the offering price were granted.
8. PRO FORMA INFORMATION (UNAUDITED):
The pro forma adjustments for income taxes included in the accompanying
statements of operations are based upon statutory rates in effect for C
corporations during the periods presented. Due to uncertainty as to the
realizability of the tax benefit attributable to the net operating losses, a
valuation allowance has been established that offsets this benefit.
The weighted average outstanding shares used to calculate the pro forma
earnings per share reflect the capital structure of the Company and give effect
to the stock split and the assumed conversion of the Convertible Preferred
Stock issued within one year of the Offering as discussed in Note 7.
F-18
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To International Sports Marketing, Inc.:
We have audited the accompanying balance sheets of International Sports
Marketing, Inc. (a Pennsylvania corporation) as of December 31, 1994 and 1995
and June 30, 1996, and the related statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1995 and the six-month period ended June 30, 1996. 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 International Sports
Marketing, Inc. as of December 31, 1994 and 1995 and June 30, 1996, and the
results of its operations and its cash flows for each of the three years in
the period ended December 31, 1995 and the six-month period ended June 30,
1996, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Pittsburgh, Pennsylvania,
October 2, 1996
F-19
<PAGE>
INTERNATIONAL SPORTS MARKETING, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ JUNE 30,
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash............................................ $436,859 $ 70,636 $ 62,767
Investments..................................... -- 395,022 420,426
Accounts receivable............................. 74,448 116,850 112,780
Prepaid expenses................................ 57,424 212,496 202,805
-------- -------- --------
Total current assets........................... 568,731 795,004 798,778
-------- -------- --------
Equipment, at cost............................... 107,505 159,494 170,114
Less--Accumulated depreciation.................. (21,679) (41,844) (54,032)
-------- -------- --------
85,826 117,650 116,082
Long-term receivable............................. 6,145 12,038 27,673
Intangible assets, net of accumulated
amortization of
$184,412, $275,716 and $309,955, respectively... 125,543 34,239 --
-------- -------- --------
$786,245 $958,931 $942,533
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities........ $276,283 $ 88,233 $162,338
Deferred revenues............................... 189,224 408,250 649,625
-------- -------- --------
Total current liabilities...................... 465,507 496,483 811,963
-------- -------- --------
Shareholders' equity:
Common stock, par value $1 per share--
Authorized, 1,000 shares;
issued and outstanding, 100 and 105 shares,
respectively................................... 100 105 105
Additional paid-in capital...................... 99,900 99,900 99,900
Retained earnings............................... 220,738 357,587 28,873
Net unrealized gains on investments............. -- 4,856 1,692
-------- -------- --------
Total shareholders' equity..................... 320,738 462,448 130,570
-------- -------- --------
$786,245 $958,931 $942,533
======== ======== ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
financial statements.
F-20
<PAGE>
INTERNATIONAL SPORTS MARKETING, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------------------- ----------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Events................. $2,770,993 $5,671,042 $4,807,763 $3,213,640 $1,603,537
Appearances............ 121,942 135,150 46,850 16,500 82,240
Licensing.............. 91,618 135,855 22,902 17,234 107,417
---------- ---------- ---------- ---------- ----------
2,984,553 5,942,047 4,877,515 3,247,374 1,793,194
Cost of sales:
Event costs............ 1,566,702 3,288,230 2,714,516 1,726,881 1,058,085
Appearance fees........ 96,536 63,800 25,450 8,900 32,267
Licensing costs and
expenses.............. 11,267 68,480 6,536 4,724 474
---------- ---------- ---------- ---------- ----------
Gross profit.......... 1,310,048 2,521,537 2,131,013 1,506,869 702,368
Operating expenses:
Payroll and benefit
costs................. 451,290 630,439 711,518 393,950 407,108
General and
administrative........ 214,237 287,766 338,935 130,791 146,040
Royalty fee............ 132,383 295,250 165,948 116,064 60,000
Rent................... 39,524 69,217 99,485 46,002 55,010
Airfare, lodging and
meals................. 73,412 73,096 91,404 36,510 48,629
Advertising and
promotional........... 82,563 67,409 68,493 20,371 37,392
Administrative service
fee................... 60,000 60,000 60,000 30,000 30,000
Depreciation and
amortization.......... 97,313 103,932 111,469 53,810 46,427
---------- ---------- ---------- ---------- ----------
Operating income
(loss)............... 159,326 934,428 483,761 679,371 (128,238)
Net investment income
(expense).............. 23,507 13,564 28,791 9,795 (496)
Other nonoperating
income................. -- 7,584 8,299 2,399 20
---------- ---------- ---------- ---------- ----------
Net income (loss)....... $ 182,833 $ 955,576 $ 520,851 $ 691,565 $ (128,714)
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-21
<PAGE>
INTERNATIONAL SPORTS MARKETING, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL NET UNREALIZED
---------------- PAID-IN RETAINED GAINS ON
SHARES PAR VALUE CAPITAL EARNINGS INVESTMENTS
------ --------- ---------- --------- --------------
<S> <C> <C> <C> <C> <C>
December 31, 1992........ 100 $100 $99,900 $(189,723) $ --
Net income.............. -- -- -- 182,833 --
--- ---- ------- --------- ------
December 31, 1993........ 100 100 99,900 (6,890) --
Distributions to
shareholders........... -- -- -- (727,948) --
Net income.............. -- -- -- 955,576 --
--- ---- ------- --------- ------
December 31, 1994........ 100 100 99,900 220,738 --
Exercise of options..... 5 5 -- -- --
Unrealized gains on
investments............ -- -- -- -- 4,856
Distributions to
shareholders........... -- -- -- (384,002) --
Net income.............. -- -- -- 520,851 --
--- ---- ------- --------- ------
December 31, 1995........ 105 105 99,900 357,587 4,856
Unrealized losses on
investments............ -- -- -- -- (3,164)
Distributions to
shareholders........... -- -- -- (200,000) --
Net loss................ -- -- -- (128,714) --
--- ---- ------- --------- ------
June 30, 1996............ 105 $105 $99,900 $ 28,873 $1,692
=== ==== ======= ========= ======
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-22
<PAGE>
INTERNATIONAL SPORTS MARKETING, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------- ---------------------------
1993 1994 1995 1995 1996
--------- --------- --------- ---------------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income (loss)...... $ 182,833 $ 955,576 $ 520,851 $ 691,565 $ (128,714)
Adjustments to
reconcile net income
(loss) to net cash
flows from operating
activities:
Depreciation and
amortization......... 97,313 103,932 111,469 53,810 46,427
Assumption of Major
League Alumni
Marketing Program's
net liabilities...... (308,150) -- -- -- --
Changes in certain
assets and
liabilities:
Accounts receivable... 115,434 (2,398) (42,402) (594,665) 4,070
Prepaid expenses...... (29,415) (28,009) (155,072) (19,793) 9,691
Long-term receivable.. -- (6,145) (5,893) (5,893) (15,635)
Accounts payable and
accrued liabilities.. (97,360) 178,302 (188,050) 89,875 74,105
Deferred revenues..... 131,518 57,706 219,026 (210,407) 241,375
--------- --------- --------- ------------ ------------
Net cash flows from
operating activities. 92,173 1,258,964 459,929 4,492 231,319
--------- --------- --------- ------------ ------------
Cash flows from
investing activities:
Capital expenditures... (28,655) (54,817) (51,989) (22,754) (10,620)
Investments............ -- -- (390,166) -- (28,568)
--------- --------- --------- ------------ ------------
Net cash flows from
investing activities. (28,655) (54,817) (442,155) (22,754) (39,188)
--------- --------- --------- ------------ ------------
Cash flows from
financing activities:
Distribution paid to
shareholders.......... -- (727,948) (384,002) -- (200,000)
Exercise of options.... -- -- 5 -- --
Repayment of
shareholder loans
payable............... (113,648) (222,052) -- -- --
--------- --------- --------- ------------ ------------
Net cash flows from
financing activities. (113,648) (950,000) (383,997) -- (200,000)
--------- --------- --------- ------------ ------------
Net change in cash...... (50,130) 254,147 (366,223) (18,262) (7,869)
Cash, beginning of
period................. 232,842 182,712 436,859 436,859 70,636
--------- --------- --------- ------------ ------------
Cash, end of period..... $ 182,712 $ 436,859 $ 70,636 $ 418,597 $ 62,767
========= ========= ========= ============ ============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-23
<PAGE>
INTERNATIONAL SPORTS MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF OPERATIONS:
International Sports Marketing, Inc. (ISM) was organized for the purpose of
marketing, licensing and operating sports-related promotions and rights. ISM
has arrangements with various organizations that represent former professional
athletes. ISM's revenue results primarily from the coordination of various
events, including the production of sports-themed premiums and promotions,
sales incentives, licensing, games, clinics and personal appearances.
The discussion under the heading "Risk Factors" contained in this
Registration Statement is incorporated herein by reference.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of the significant accounting policies affecting
the financial statements of ISM:
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Accounts Receivable
ISM grants credit to customers based upon management's assessment of their
creditworthiness. Sales to sponsors account for virtually all of ISM's
receivables as of December 31, 1994 and 1995 and June 30, 1996.
Two significant customers individually accounted for 51% and 15% of 1993
sales and 42% and 19% of 1994 sales. One other significant customer accounted
for 17% of 1995 sales. Four significant customers accounted for 15%, 12%, 12%
and 11% of sales for the six-month period ended June 30, 1996.
Depreciation
Depreciation is provided using the straight-line method which allocates the
cost of equipment over estimated useful lives ranging from five to ten years.
Long-Term Receivable
This represents premiums paid under a split-dollar life insurance policy
arrangement with a key employee of ISM. This balance is repayable upon
termination of the employee or from the proceeds of the insurance policy.
Deferred Revenue
Revenue received in advance, such as deposits on events and appearances, is
deferred and recognized as revenue during the period earned.
Stock Options
In accordance with an employment agreement, a key employee of ISM exercised
options to purchase approximately five shares of common stock. The exercise
price was $1.00 per share which was deemed to
F-24
<PAGE>
INTERNATIONAL SPORTS MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
approximate fair value as of the date of grant. Accordingly, no compensation
expense has been recognized in connection with this transaction.
Income Taxes
The shareholders of ISM have elected to file under Subchapter S for both
state and federal income tax purposes. No provision for income taxes has been
reflected in the financial statements as the taxable income or loss is
reflected on the individual income tax returns of the shareholders. Upon
completion of the transaction discussed in Note 6, ISM's S Corporation status
will automatically terminate.
Recently Issued Accounting Standards
Financial Accounting Standards Board Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of"
(SFAS No. 121), was issued in March 1995 and is effective for fiscal years
beginning after December 15, 1995. This statement will be applied
prospectively and requires that impairment losses on long-lived assets be
recognized when the book value of the asset exceeds its expected undiscounted
cash flows. ISM adopted SFAS No. 121 on January 1, 1996, and adoption at that
time did not have a material impact on ISM's financial position or results of
operations.
Unaudited Interim Financial Statements
The statements of operations and cash flows for the six-month period ended
June 30, 1995 are unaudited and are not covered by the report of independent
public accountants. However, in the opinion of management, these interim
financial statements include all adjustments (which consist only of normal
recurring adjustments) necessary to present fairly the results of operations
and cash flows of ISM for the interim period and are prepared on the same
basis as the audited financial statements.
Supplemental Disclosure of Cash Flow Information
There were no cash payments for interest or taxes during the periods
presented.
Reclassifications
Certain prior year balances have been reclassified to conform to the current
year presentation.
3. LICENSE AGREEMENT:
ISM has a license agreement with Major League Alumni Marketing, Inc. (MLAM,
Inc.), a wholly owned subsidiary of the Major League Baseball Players Alumni
Association (the Agreement) dated December 1, 1993, effective January 1, 1993.
The Agreement supersedes the Management Agreement dated May 15, 1989, between
ISM and MLAM, Inc. Pursuant to the Agreement, the Major League Alumni
Marketing Program, a project formed between ISM and MLAM, Inc., was terminated
and ISM assumed all of the assets and liabilities of the project. The excess
of liabilities over assets assumed is reflected as an intangible asset in the
accompanying balance sheets and is being amortized over the initial term of
the Agreement on the straight-line basis.
This Agreement provides ISM with certain exclusive rights and provides for,
among other things, the following:
F-25
<PAGE>
INTERNATIONAL SPORTS MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Royalty Payment
ISM is required to make a royalty payment to MLAM, Inc. based upon a
specified percentage of its Annual Gross Revenues, as defined, related to the
use, exploitation and sublicensing of the rights acquired from MLAM, Inc. As
of June 30, 1996, the future minimum commitment under the Agreement is
$300,000. Royalties paid to MLAM, Inc. were $132,383, $295,250 and $165,948
for the years ended December 31, 1993, 1994 and 1995, and $60,000 for the six-
month period ended June 30, 1996, respectively.
Term of the Agreement
The Agreement provides for an initial term of 40.5 months and contains
automatic renewal options for successive two-year periods until termination.
ISM or MLAM, Inc. may terminate the Agreement with a written notification to
the other party at least one year prior to the expiration of the then current
term. As neither party elected to terminate this Agreement within the
notification period, the Agreement has automatically been extended effective
May 15, 1996, through December 31, 1998. The Agreement may also be terminated
by either party if a material breach of the Agreement occurs which remains
unresolved for 60 days following a written notification of the breach to the
other party.
4. INVESTMENTS:
ISM's investments represent securities classified as available for sale and
are stated at market value. These investments consist primarily of debt
securities which are actively traded on open markets. Unrealized gains or
losses are recorded in shareholders' equity. Realized gains and losses on
dispositions are computed by the specific identification method and are
included in the accompanying statements of operations.
The cost and estimated market value of investments in securities available
for sale are summarized below:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
------------ --------
<S> <C> <C>
Debt securities available for sale, at cost........... $390,166 $418,734
Gross unrealized gains................................ 4,856 1,692
-------- --------
Estimated market value................................ $395,022 $420,426
======== ========
</TABLE>
5. RELATED PARTY TRANSACTIONS:
The following summarizes related party information. The discussion under the
heading "Certain Transactions" contained in this Registration Statement is
incorporated herein by reference.
Administrative Service Fee
Certain shareholders of ISM own an interest in the entity which performs
general, administrative and accounting services for ISM. Fees related to these
services were $60,000 for each of the years ended December 31, 1993, 1994 and
1995, and $30,000 for the six-month period ended June 30, 1996.
Lease Expense
ISM leases office space from an entity in which certain shareholders own an
indirect interest. Lease expense related to this office space was $39,524,
$53,777 and $76,774 for the years ended December 31, 1993, 1994 and 1995, and
$39,832 for the six-month period ended June 30, 1996, respectively.
Professional Services
A shareholder of ISM is a partner in the entity which performs legal
services for ISM. These fees amounted to $45,078, $97,831 and $20,499 for the
years ended December 31, 1993, 1994 and 1995, and $12,190 for the six-month
period ended June 30, 1996, respectively.
F-26
<PAGE>
INTERNATIONAL SPORTS MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. SUBSEQUENT EVENT:
Effective August 14, 1996, the shareholders of ISM entered into an agreement
with Allin Communications Corporation to sell all of the outstanding shares of
the Company. The sales price is approximately $2.4 million. The agreement
includes a provision whereby the price will be increased in accordance with a
specified formula based upon average earnings over a three-year period, as
defined. The maximum additional payment would be approximately $2.4 million
payable over a three-year period. This sale is conditioned upon the closing of
an initial public offering being undertaken by Allin Communications
Corporation.
F-27
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Kent Consulting Group, Inc.:
We have audited the accompanying balance sheets of Kent Consulting Group,
Inc. (a California corporation) as of December 31, 1994 and 1995 and June 30,
1996, and the related statements of operations, shareholders' equity and cash
flows for the year ended March 31, 1994, the nine months ended December 31,
1994, the year ended December 31, 1995 and the six months ended June 30, 1996.
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 Kent Consulting Group,
Inc. as of December 31, 1994 and 1995 and June 30, 1996, and the results of
its operations and its cash flows for the year ended March 31, 1994, the nine
months ended December 31, 1994, the year ended December 31, 1995 and the six
months ended June 30, 1996, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Pittsburgh, Pennsylvania,
October 2, 1996
F-28
<PAGE>
KENT CONSULTING GROUP, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ JUNE 30,
1994 1995 1996
-------- -------- --------
ASSETS
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents..................... $ 3,613 $ 904 $ 42,303
Accounts receivable........................... 222,630 341,678 645,846
Notes receivable.............................. 14,332 42,720 --
Inventory..................................... 20,761 -- --
Deferred income taxes......................... 7,000 -- --
Other assets.................................. 1,149 3,757 6,065
-------- -------- --------
Total current assets......................... 269,485 389,059 694,214
Property and equipment, net.................... 131,708 73,786 174,133
Note receivable................................ -- -- 43,300
Shareholder receivable......................... 20,759 -- --
Deferred income taxes.......................... -- 56,000 54,000
-------- -------- --------
$421,952 $518,845 $965,647
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of notes payable........... $108,983 $ 50,417 $ 40,000
Line of credit................................ 165,000 -- --
Shareholder note payable...................... -- 79,964 --
Accounts payable.............................. 131,442 60,805 128,730
Accrued liabilities:
Payroll related.............................. 10,241 95,628 171,984
Income taxes................................. -- 42,000 158,000
Other........................................ 6,086 1,637 15,527
Deferred income taxes......................... -- 71,000 120,000
-------- -------- --------
Total current liabilities.................... 421,752 401,451 634,241
Notes payable.................................. -- 34,583 --
Shareholders' equity:
Common stock, no par value per share--
Authorized, 1,500 shares; issued and
outstanding, 1,000 shares................... 1,000 1,000 1,000
Retained earnings............................. (800) 81,811 330,406
-------- -------- --------
Total shareholders' equity................... 200 82,811 331,406
-------- -------- --------
$421,952 $518,845 $965,647
======== ======== ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-29
<PAGE>
KENT CONSULTING GROUP, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS SIX MONTHS ENDED
YEAR ENDED ENDED YEAR ENDED JUNE 30,
MARCH 31, DECEMBER 31, DECEMBER 31, ----------------------
1994 1994 1995 1995 1996
---------- ------------ ------------ ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue................. $1,945,818 $1,467,975 $1,994,791 $764,922 $1,791,886
Cost of revenue......... 1,328,830 831,401 989,279 354,032 936,834
---------- ---------- ---------- -------- ----------
Gross profit.......... 616,988 636,574 1,005,512 410,890 855,052
Selling, general and
administrative......... 901,202 472,688 712,069 210,341 436,851
---------- ---------- ---------- -------- ----------
(Loss) income from
operations............. (284,214) 163,886 293,443 200,549 418,201
Interest expense, net... 26,897 24,531 3,832 3,219 2,606
---------- ---------- ---------- -------- ----------
(Loss) income before
income taxes........... (311,111) 139,355 289,611 197,330 415,595
Income taxes............ (74,495) 56,000 57,000 80,000 167,000
---------- ---------- ---------- -------- ----------
Net (loss) income....... $ (236,616) $ 83,355 $ 232,611 $117,330 $ 248,595
========== ========== ========== ======== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-30
<PAGE>
KENT CONSULTING GROUP, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
RETAINED TOTAL
COMMON EARNINGS SHAREHOLDERS'
STOCK (DEFICIT) EQUITY
-------- --------- -------------
<S> <C> <C> <C>
March 31, 1993............................... $123,041 $ 21,427 $144,468
Net loss.................................... -- (236,616) (236,616)
-------- -------- --------
March 31, 1994............................... 123,041 (215,189) (92,148)
Acquisition and retirement of shares........ (12,766) -- (12,766)
Net income.................................. -- 83,355 83,355
Capital contribution........................ (109,275) 131,034 21,759
-------- -------- --------
December 31, 1994............................ 1,000 (800) 200
Net income.................................. -- 232,611 232,611
Distribution to shareholders................ -- (150,000) (150,000)
-------- -------- --------
December 31, 1995............................ 1,000 81,811 82,811
Net income.................................. -- 248,595 248,595
-------- -------- --------
June 30, 1996................................ $ 1,000 $330,406 $331,406
======== ======== ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-31
<PAGE>
KENT CONSULTING GROUP, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS SIX MONTHS ENDED
YEAR ENDED ENDED YEAR ENDED JUNE 30,
MARCH 31, DECEMBER 31, DECEMBER 31, --------------------
1994 1994 1995 1995 1996
---------- ------------ ------------ ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net (loss) income..... $(236,616) $ 83,355 $232,611 $117,330 $248,595
Adjustments to
reconcile net (loss)
income to net cash
flows from operating
activities:
Depreciation and
amortization....... 22,168 12,000 18,417 9,000 27,530
Deferred income
taxes.............. (74,495) 56,000 15,000 61,000 51,000
Changes in certain
assets and
liabilities--
Accounts receivable.. 237,232 41,975 (285,966) (177,087) (304,168)
Notes receivable..... 203,757 (14,332) (42,720) (18,172) (580)
Shareholder
receivable.......... -- (20,759) -- -- --
Inventory............ 54,154 23,923 -- -- --
Other assets......... 1,882 325 (3,478) (2,748) (2,308)
Accounts payable..... (76,336) (105,216) 60,805 31,352 67,925
Accrued liabilities.. (82,432) 2,105 139,116 70,575 206,246
--------- -------- -------- -------- --------
Net cash flows from
operating
activities........ 49,314 79,376 133,785 91,250 294,240
--------- -------- -------- -------- --------
Cash flows from
investing activities:
Capital expenditures,
net.................. (2,692) (33,330) (60,069) (31,884) (127,877)
--------- -------- -------- -------- --------
Cash flows from
financing activities:
Proceeds from notes
payable.............. 187,000 -- 164,732 84,768 --
Principal payments on
notes payable........ (226,575) (58,550) (172,544) (104,943) (124,964)
Acquisition and
retirement of shares. -- (12,766) -- -- --
Distribution to
shareholders......... -- -- (65,000) -- --
Capital contribution.. -- 21,759 -- -- --
--------- -------- -------- -------- --------
Net cash flows from
financing
activities........ (39,575) (49,557) (72,812) (20,175) (124,964)
--------- -------- -------- -------- --------
Net change in cash and
cash equivalents 7,047 (3,511) 904 39,191 41,399
Cash and cash
equivalents, beginning
of period............. 77 7,124 -- -- 904
--------- -------- -------- -------- --------
Cash and cash
equivalents, end of
period................ $ 7,124 $ 3,613 $ 904 $ 39,191 $ 42,303
========= ======== ======== ======== ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-32
<PAGE>
KENT CONSULTING GROUP, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS SIX MONTHS ENDED
YEAR ENDED ENDED YEAR ENDED JUNE 30,
MARCH 31, DECEMBER 31, DECEMBER 31, ------------------
1994 1994 1995 1995 1996
---------- ------------ ------------ ----------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Supplemental disclosure
of cash flow
information:
Cash paid for--
Interest............. $32,000 $24,000 $6,000 $4,000 $6,000
======= ======= ====== ====== ======
Income taxes......... $18,000 $ -- $1,000 $ -- $1,000
======= ======= ====== ====== ======
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING AND INVESTING ACTIVITIES:
The net liabilities of Vision Network Systems, Inc., the Predecessor, as of
December 31, 1994 (reflected as a shareholder receivable on the balance sheet)
consist of the following (see Note 2):
<TABLE>
<S> <C>
Cash.......................................................... $ 3,613
Accounts receivable........................................... 222,630
Notes receivable.............................................. 14,332
Inventory..................................................... 20,761
Other assets.................................................. 800
Deferred tax asset............................................ 7,000
Property and equipment, net................................... 131,708
Accounts payable.............................................. (131,442)
Accrued liabilities........................................... (16,178)
Notes payable/line of credit.................................. (273,983)
---------
$ (20,759)
=========
</TABLE>
During the year ended December 31, 1995, the Company assumed $172,776 of
long-term debt from Vision Network Systems, Inc., the Predecessor, and
received in exchange the following (see Note 4):
<TABLE>
<S> <C>
Accounts receivable............................................ $ 55,712
Computer equipment............................................. 32,064
Buyout of marketing agreement.................................. 85,000
--------
$172,776
========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-33
<PAGE>
KENT CONSULTING GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF OPERATIONS:
Kent Consulting Group, Inc. (KCG) is engaged in the performance of
professional services related to the design and operation of custom business
network systems for microcomputers. KCG was incorporated on November 23, 1994,
and commenced operations on January 1, 1995. Prior to December 31, 1994,
Vision Network Systems, Inc. (VNS or the Predecessor) was engaged in the same
business. KCG and VNS are deemed to be entities under common control as the
sole shareholder of KCG and his spouse own 96% of VNS. KCG was formed to
acquire substantially all of the assets of VNS. KCG provides the same services
to the same customers with the same employees as VNS had previously.
Therefore, due to factors described above, VNS is deemed to be a predecessor.
VNS is currently involved with litigation arising from the conduct of its
business. This liability was not assumed by KCG. In the opinion of management,
based upon its discussion with counsel, any liability associated with these
matters would be the obligation of VNS.
The matters affecting the Predecessor relate to an alleged usurpation of a
division of VNS's business by a former employee. VNS has filed a lawsuit
against the former employee who, in turn, has cross-complained against VNS for
damages to his reputation. The Predecessor is represented by its insurance
carrier in defense of the cross-complaint.
Also related to the matter described above, two claims against VNS remain
outstanding which were filed by former vendors for amounts due. VNS contends
these balances relate to purchases made by the former employee in a capacity
where he was not authorized to do so. Accordingly, these claims should be
directed to this individual.
As a result of the matters discussed above, KCG was formed to continue the
business. Subsequent to January 1, 1995, VNS's operations have been limited to
completion of projects previously commenced as well as efforts to resolve the
outstanding matters.
The discussion under the heading "Risk Factors" contained in this
Registration Statement is incorporated herein by reference.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of the significant accounting policies affecting
the financial statements of KCG and the Predecessor.
Basis of Presentation
As KCG and VNS represent entities under common control, the accompanying
financial statements present the financial position and results of operations
and cash flows of KCG and VNS as if they were combined from inception in a
manner similar to a pooling of interests. The financial position, results of
operations and related disclosures as of and prior to December 31, 1994,
represent that of the Predecessor. This information is provided due to the
similarities in ownership and operations. The accompanying statements of
shareholders' equity reflect the net liabilities of VNS as of December 31,
1994, and the initial capitalization of KCG as a contribution of capital.
Comparable information for VNS subsequent to January 1, 1995, has not been
provided as that portion of the business was not acquired by the Company and
is not included as part of the transaction discussed in Note 9.
VNS used a fiscal year-end of March 31. The results of operations for the
nine-month period ended December 31, 1994, are provided for comparability.
F-34
<PAGE>
KENT CONSULTING GROUP, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Certain assets and liabilities of VNS were acquired and assumed by KCG. The
purchase method of accounting was not used as KCG and the Predecessor
represent entities under common control. VNS's cost basis in the assets
acquired and liabilities assumed has been reflected in the accompanying 1995
financial statements. Therefore, the purchase price in excess of the
Predecessor's cost basis has been reflected as a distribution to shareholders
in the accompanying statement of shareholders' equity (Note 4).
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Cash Equivalents
KCG considers all highly liquid investments with a maturity of three months
or less when acquired to be cash equivalents.
Accounts Receivable
KCG grants credit to customers based upon management's assessment of their
creditworthiness. Three significant customers accounted for approximately 35%,
15% and 10% of 1995 sales, respectively. One customer accounted for
approximately 26% of sales for the six months ended June 30, 1996. Trade
accounts receivable are due from approximately 30 customers located primarily
in the greater San Francisco Bay area.
Property and Equipment
KCG provides for depreciation on its property and equipment using
accelerated methods over estimated useful lives of 5 years. The Predecessor
provided for depreciation on its property and equipment using straight-line
and accelerated methods over useful lives ranging from 5 to 31.5 years.
Expenditures for ordinary maintenance and repairs which do not extend the
lives of the applicable assets are charged to expense as incurred, while
renewals and betterments that materially extend the lives of the applicable
assets are capitalized and depreciated.
Financial Instruments
Notes payable are reflected at their outstanding face value, excluding
unpaid interest. As no ready market exists for these instruments, comparable
instruments available from outside KCG are not available. Based upon the
nature of these instruments and KCG itself, it is not practicable to estimate
the fair value of these notes.
All other financial instruments are classified as current and will be
utilized within the next operating cycle.
Recently Issued Accounting Standards
Financial Accounting Standards Board Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of"
(SFAS No. 121), was issued in March 1995 and is effective for fiscal years
beginning after December 15, 1995. This statement will be applied
prospectively and requires that impairment losses on long-lived assets be
recognized when the book value of the asset exceeds its expected undiscounted
cash flows. KCG adopted SFAS No. 121 on January 1, 1996, and adoption at that
time did not have a material impact on KCG's financial position or results of
operations.
F-35
<PAGE>
KENT CONSULTING GROUP, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Unaudited Interim Financial Statements
The statements of operations and cash flows for the six-month period ended
June 30, 1995 are unaudited and are not covered by the report of independent
public accountants. However, in the opinion of management, these interim
financial statements include all adjustments (which consist only of normal
recurring adjustments) necessary to present fairly the results of operations
and cash flows of KCG for the interim period and are prepared on the same
basis as the audited financial statements.
3. PROPERTY AND EQUIPMENT:
Property and equipment is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1995 JUNE 30, 1996
----------------- ----------------- -------------
<S> <C> <C> <C>
Furniture, fixtures and
equipment................... $126,815 $ 92,133 $220,010
Automobile................... 37,556 -- --
Leasehold improvements....... 52,731 -- --
-------- -------- --------
217,102 92,133 220,010
Accumulated depreciation..... (85,394) (18,347) (45,877)
-------- -------- --------
$131,708 $ 73,786 $174,133
======== ======== ========
</TABLE>
4. RELATED PARTY TRANSACTIONS:
The following summarizes related party information. The discussion under the
heading "Certain Transactions" contained in this Registration Statement is
incorporated herein by reference.
During the year ended December 31, 1995 and the six months ended June 30,
1996, KCG leased certain space and an automobile from its shareholder under
three agreements. These rental agreements expire at various times through May
1997. Rental payments made under these arrangements were approximately $69,000
and $40,000. The future minimum commitment under these agreements is
approximately $58,000 as of June 30, 1996.
KCG had a marketing commission agreement with VNS under which commissions of
$100,000 were paid during the year ended December 31, 1995. This agreement
provided for certain rights of VNS to be used by KCG, including customer lists
and employment agreements with employees. This agreement was terminated and
the related rights were acquired by KCG, effective November 1, 1995, for
$150,000, of which $65,000 was paid during the year ended December 31, 1995.
The remaining $85,000 in consideration was in the form of a bank loan
assumption.
Additionally, approximately $88,000 under a separate bank loan was assumed
in exchange for certain tangible assets. The assumption of these obligations
has been reflected as noncash investing and financing activities in the
accompanying statement of cash flows.
KCG purchased equipment of approximately $50,000 and $122,000 from
affiliated entities during the year ended December 31, 1995 and the six months
ended June 30, 1996.
KCG had notes receivable from VNS and another affiliated entity of
approximately $25,000 and $18,000 as of December 31, 1995.
KCG had a shareholder note payable of $79,964 as of December 31, 1995. This
note bears interest at prime plus 4%, with monthly principal payments of
$6,664 plus interest. This note is secured by the Company's accounts
receivable and fixed assets.
F-36
<PAGE>
KENT CONSULTING GROUP, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
During the year ended March 31, 1994, and the nine months ended December 31,
1994, VNS leased a building from its principal shareholders. Rental payments
made in accordance with the lease agreement were approximately $102,000 and
$76,000, respectively.
VNS had a note receivable from one of its principal shareholders of
approximately $14,000 as of December 31, 1994. This note bears interest at 8%.
5. LINE OF CREDIT:
VNS had an agreement with a bank which provided for a $175,000 revolving
line of credit. Borrowings under this agreement accrued interest at 4% over
the bank's prime rate. These borrowings were secured by substantially all of
the assets of VNS, and were personally guaranteed by VNS's principal
shareholders. The amount outstanding under this line was $165,000 as of
December 31, 1994.
6. NOTES PAYABLE:
KCG and VNS had the following long-term debt obligations outstanding:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996
------------ ------------ --------
<S> <C> <C> <C>
Note payable to a bank, interest at prime
plus 4%, monthly principal payments of
$4,583 plus interest, maturity August
1997, secured by accounts receivable and
general intangibles and guaranteed by
KCG's shareholders....................... $ -- $ 85,000 $ 40,000
Note payable to a bank, interest at 10.5%,
monthly principal and interest payments
of $4,026, maturity June 1997, secured by
personal residences of the principal
shareholders of VNS...................... 90,961 -- --
Note payable to a bank, interest at 9.25%,
monthly principal and interest payments
of $575, maturity December 1997, secured
by automobile............................ 18,022 -- --
-------- -------- --------
108,983 85,000 40,000
Less current maturities................... (108,983) (50,417) (40,000)
-------- -------- --------
$ -- $ 34,583 $ --
======== ======== ========
</TABLE>
7. EMPLOYEE BENEFIT PLANS:
KCG provides a 401(k) plan for its employees. The terms of the plan provide
for KCG to assume the cost of plan administration. No contributions by KCG are
required or have been made to date.
8. INCOME TAXES:
Deferred income taxes are provided on all significant temporary differences
between tax and financial reporting based on enacted tax laws and rates
applicable to the periods in which the differences are expected to affect
taxable income. The provision for income taxes represents the tax payable or
refundable for the period plus or minus the change during the period in
deferred tax assets and liabilities.
F-37
<PAGE>
KENT CONSULTING GROUP, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The provision for income taxes includes the following components:
<TABLE>
<CAPTION>
NINE MONTHS SIX MONTHS
YEAR ENDED ENDED YEAR ENDED ENDED
MARCH 31, DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1994 1995 1996
---------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
Current taxes--
Federal........................ $ -- $ -- $35,700 $100,300
State.......................... -- -- 6,300 17,700
-------- ------- ------- --------
-- -- 42,000 118,000
-------- ------- ------- --------
Deferred taxes--
Federal........................ (63,500) 47,600 12,750 41,650
State.......................... (10,995) 8,400 2,250 7,350
-------- ------- ------- --------
(74,495) 56,000 15,000 49,000
-------- ------- ------- --------
Total........................... $(74,495) $56,000 $57,000 $167,000
======== ======= ======= ========
</TABLE>
The effective tax rate for the year ended December 31, 1995, differs from
the statutory rates due to the deductibility of the amortization of the
intangible assets purchased from VNS. The accompanying financial statements
reflect this transaction as a distribution to shareholders.
KCG's deferred tax liability results primarily from differences arising from
the use of the cash method of accounting for federal and state income tax
purposes. Deferred income taxes are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996
------------ ------------ ---------
<S> <C> <C> <C>
Deferred tax assets:
Accruals................................. $ -- $ 63,000 $ 136,000
Net operating loss carryforward.......... 67,000 -- --
Intangible asset......................... -- 60,000 58,000
Deferred tax liabilities:
Accounts receivable...................... -- (137,000) (258,000)
Other.................................... -- (1,000) (2,000)
Valuation allowance....................... (60,000) -- --
-------- --------- ---------
Net asset (liability)..................... $ 7,000 $ (15,000) $ (66,000)
======== ========= =========
</TABLE>
VNS recorded a valuation allowance against a portion of the net deferred tax
asset. The benefit of the deferred tax asset will be recognized in the years
in which it is realized.
9. SUBSEQUENT EVENTS:
Effective August 16, 1996, KCG and its shareholder entered into an agreement
providing for a merger into a wholly owned subsidiary of Allin Communications
Corporation (Allin). Consideration related to this transaction is
approximately $5.2 million, consisting of $2.0 million in cash and $3.2
million in common stock of Allin. The agreement includes provisions whereby
the purchase price will be increased in accordance with a specified formula
based upon average earnings over a three-year period, as defined. The maximum
additional payment would be approximately $2.8 million. The agreement also
provides for grants of $400,000 in common stock of Allin to be made to certain
employees of KCG. This merger is conditioned upon the closing of an initial
public offering being undertaken by Allin.
F-38
<PAGE>
[LOGO OF ALLIN COMMUNICATIONS]
[PHOTO APPEARS HERE]
[LOGO OF SEAVISION]
Sample of Seavision's ITV screen graphics
presently in use in the
cruise industry.
[PHOTO APPEARS HERE]
[LOGO OF PHOTOWAVE]
Sample of PhotoWave's
digital imaging products.
[PHOTO APPEARS HERE]
[LOGO OF SPORTSWAVE]
Representation of sporting
events and sporting
memorabilia and of various
logos owned or licensed
by SportsWave.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. NEITHER THE DE-
LIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL, UNDER ANY CIRCUMSTANC-
ES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES TO ANY PERSON IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO,
OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................................................... 3
Risk Factors............................................................... 10
Use of Proceeds............................................................ 15
Dividend Policy............................................................ 15
Dilution................................................................... 16
Capitalization............................................................. 17
Selected Financial Data.................................................... 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations............................................................. 20
Business................................................................... 29
Management................................................................. 43
Principal Stockholders..................................................... 46
Certain Transactions....................................................... 47
Description of Capital Stock............................................... 52
Shares Eligible for Future Sale............................................ 56
Underwriting............................................................... 58
Legal Matters.............................................................. 59
Experts.................................................................... 59
Additional Information..................................................... 59
Index to Financial Statements.............................................. F-1
</TABLE>
------------
UNTIL NOVEMBER 26, 1996 (THE 25TH DAY AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPAT-
ING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,000,000 SHARES
ALLIN COMMUNICATIONS
CORPORATION
COMMON STOCK
------------
PROSPECTUS
NOVEMBER 1, 1996
------------
FRIEDMAN, BILLINGS, RAMSEY
& CO., INC.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
Securities and Exchange Commission filing fee................. $ 12,690
National Association of Securities Dealers, Inc. filing fee... 29,420*
Printing expenses............................................. 120,000*
Accounting fees and expenses.................................. 265,000*
Legal fees and expenses....................................... 550,000*
Blue Sky fees and expenses.................................... 30,000*
Transfer agent fees........................................... 2,000*
Miscellaneous................................................. 190,890*
----------
TOTAL..................................................... 1,200,000*
==========
</TABLE>
- --------
*Estimate.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "DGCL") empowers a
corporation to indemnify any person who was or is a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
the corporation), by reason of the fact that he is or was a director, officer,
employee or agent of the corporation or is or was serving at the request of
the corporation as a director, officer, employee or agent of another
corporation or enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in, or not opposed
to, the best interests of the corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful.
Section 145 of the DGCL also empowers a corporation to indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that such person acted
in any of the capacities set forth above, against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with
the defense or settlement of such action or suit if he acted under similar
standards, except that no indemnification may be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be liable
to the corporation unless, and only to the extent that, the Court of Chancery
or the court in which such action was brought shall determine that despite the
adjudication of liability such person is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper.
Section 145 of the DGCL further provides that, to the extent that a director
or officer of a corporation has been successful in the defense of any action,
suit or proceeding referred to above or in the defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith; that
indemnification provided for by Section 145 of the DGCL shall not be deemed
exclusive of any other rights to which the indemnified party may be entitled;
and that the corporation is empowered to purchase and maintain insurance on
behalf of a director or officer of the corporation against any liability
asserted against him and incurred by him in any such capacity, or arising out
of his status as such, whether or not the corporation would have the power to
indemnify him against such liabilities under Section 145 of the DGCL.
Consistent with the DGCL, the Registrant's Certificate of Incorporation
contains a provision eliminating or limiting liability of directors to the
Registrant and its stockholders for monetary damages arising from acts or
II-1
<PAGE>
omissions in the director's capacity as a director. The provision does not,
however, eliminate or limit the personal liability of a director (i) for any
breach of such director's duty of loyalty to the Registrant or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for unlawful
dividends or unlawful stock purchases or redemptions as provided in Section
174 of the DGCL or (iv) for any transaction from which the director derived an
improper personal benefit. This provision offers persons who serve on the
Board of Directors of the Registrant protection against awards of monetary
damages resulting from breaches of their duty of care, except as indicated
above. The Securities and Exchange Commission has taken the position that the
provision will have no effect on claims arising under the federal securities
laws.
The Registrant's Certificate of Incorporation and By-Laws provide for
mandatory indemnification rights to the maximum extent permitted by applicable
law, subject to limited exceptions, to any director or officer of the
Registrant who, by reason of the fact that he is a director or officer of the
Registrant, is involved in a legal proceeding of any nature. Such
indemnification rights include reimbursement for expenses incurred by such
director or officer in advance of the final disposition of such proceeding in
accordance with the applicable provisions of the DGCL.
The Registrant intends to purchase and maintain insurance to protect persons
entitled to indemnification pursuant to the Registrant's Certificate of
Incorporation and By-laws and the DGCL against expenses, judgments, fines and
amounts paid in settlement, to the fullest extent permitted by the DGCL.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On August 16, 1996, in connection with the merger of SeaVision, Inc. with
and into a wholly owned subsidiary of the Registrant, the Registrant issued an
aggregate of 1,000 shares of its Common Stock. As no public offering was
involved, the issuance of such shares was exempt from registration under
Section 4(2) of the Securities Act.
On August 16, 1996, the Registrant issued 25,000 shares of its Series A
Convertible Redeemable Preferred Stock that is not convertible into Common
Stock until at least six months have elapsed from the closing of the Offering.
The aggregate consideration paid for such shares was $1,000,000 in cash and
the extinguishment of loans in the amount of $1,500,000. As no public offering
was involved, the issuance of such shares was exempt from registration under
Section 4(2) of the Securities Act.
Concurrently with or immediately following the closing of the Offering, in
connection with the closing of the KCG Acquisition, the Registrant will issue
to the sole shareholder of KCG $3.2 million in Common Stock valued at the
initial public offering price in the Offering. As no public offering is
involved, the issuance of such shares will be exempt from registration under
Section 4(2) of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
1 Form of Underwriting Agreement.
2.1 Stock Purchase Agreement dated August 14, 1996 by and among
International Sports Marketing, Inc., Henry Posner, Jr., Thomas D.
Wright, Michael J. Fetchko, James C. Roddey, Richard W. Talarico,
John F. Hensler and the Registrant.*
2.2 Agreement and Plan of Merger dated August 16, 1996 by and among
Kent Consulting Group, Inc., Les Kent and the Registrant.*
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
3(i)(a) Certificate of Incorporation of the Registrant, as amended.
3(i)(b) Certificate of Designation of the Registrant relating to Series A
Convertible Redeemable Preferred Stock.*
3(i)(c) Certificate of Amendment to Certificate of Designation of the
Registrant relating to the Series A Convertible Redeemable
Preferred Stock.*
3(ii) Amended and Restated By-laws of the Registrant.
4 Certificate of Designation of the Registrant relating to Series A
Convertible Redeemable Preferred Stock and Certificate of Amendment
relating thereto (filed as Exhibits (3)(i)(b) and 3(i)(c)).*
5 Opinion of Eckert Seamans Cherin & Mellott.*
10.1 Sublease Agreement dated August 1, 1996 between SeaVision, Inc. and
Blair Haven Entertainment, Inc.*
10.2 Assignment of Intellectual Property Rights dated October 3, 1994 by
Brian K. Blair and
R. Daniel Foreman in favor of SeaVision, Inc.*
10.3 Registration Rights Agreement dated July 23, 1996 by and among the
Registrant and certain of its stockholders.*
10.4 Registration Rights Agreement dated July 23, 1996 by and among the
Registrant and certain of its stockholders.*
10.5 Note Conversion Agreement dated July 23, 1996 by and among the
Registrant, Henry Posner, Jr., Thomas D. Wright, Terence M.
Graunke, James C. Roddey and Richard W. Talarico.*
10.6 License Agreement dated December 1, 1993 between Major League
Alumni Marketing, Inc. and Hawthorne Sports Marketing, Inc.*
10.7 Amended and Restated Line of Credit Note, dated October 28, 1996,
made by SeaVision, Inc. in favor of Integra Bank.
10.8 Form of 1996 Stock Plan of the Registrant.*
10.9 Employment Agreement dated August 1, 1996 by and between the
Registrant and Richard W. Talarico.*
10.10 Employment Agreement dated August 1, 1996 by and between the
Registrant and R. Daniel Foreman.*
10.11 Employment Agreement dated August 1, 1996 by and between the
Registrant and Brian K. Blair.*
10.12 First Amended and Restated Agreement dated June 1, 1996 between
SeaVision, Inc. and Celebrity Cruises Inc. (subject to request for
confidential treatment).
10.13 Agreement dated February 6, 1996 between SeaVision, Inc. and
Carnival Corporation (subject to request for confidential
treatment).
10.14 Agreement dated August 8, 1996 by and between SeaVision, Inc. and
Norwegian Cruise Line Limited (subject to request for confidential
treatment).
10.15 Installation Agreement dated September 9, 1996 by and between
SeaVision, Inc. and Cunard Line Limited (subject to request for
confidential treatment).
10.16 Concession Agreement dated September 17, 1996 by and between
SeaVision, Inc. and Royal Caribbean Cruise Line (subject to request
for confidential treatment).
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.17 Employment Agreement dated as of September 16, 1996 by and between
the Registrant and Jon E. VanAmringe.*
11 Computation of Earnings per Share.
21 Subsidiaries of the Registrant.
23.1 Consent of Eckert Seamans Cherin & Mellott (included in its opinion
filed herewith as
Exhibit 5).*
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Richard S. Trutanic.*
23.4 Consent of Concord Consulting Group
24 Power of Attorney (included in the Signature Page).*
27 Financial Data Schedule.
</TABLE>
- --------
* Previously filed.
(b) Financial Statement Schedules.
The following financial statement schedule is included in Part II of this
Registration Statement and should be read in conjunction with the Financial
Statements and notes thereto included elsewhere herein.
II. Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling person of the
registrant pursuant to the foregoing provisions, 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 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registration of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue. The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment no. 4 to registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Pittsburgh, Commonwealth of Pennsylvania on November 1, 1996.
ALLIN COMMUNICATIONS CORPORATION
By: /s/ Richard W. Talarico
------------------------
Richard W. Talarico
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment
no. 4 to registration statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Richard W. Talarico Chairman of the Board and
- ------------------------ Chief Executive Officer
Richard W. Talarico (principal executive officer)
November 1, 1996
/s/ Jon E. VanAmringe Chief Financial Officer and
- ------------------------- Treasurer (principal financial
Jon E. VanAmringe and accounting officer)
November 1, 1996
* Director
- ------------------------- November 1, 1996
R. Daniel Foreman
* Director
- ------------------------- November 1, 1996
Brian K. Blair
* Director
- ------------------------- November 1, 1996
William C. Kavan
* Director
- ------------------------- November 1, 1996
James C. Roddey
</TABLE>
*By: /s/ Richard W. Talarico
------------------------
Richard W. Talarico
Attorney-in-Fact
II-5
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Allin Communications Corporation:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements of Allin Communications Corporation (a
Delaware corporation) and subsidiaries, included in this registration
statement and have issued our report thereon dated October 2, 1996. Our audits
were made for the purpose of forming an opinion on the basic consolidated
financial statements taken as a whole. Schedule II, which is the
responsibility of the Company's management, is presented for the purpose of
complying with the Securities and Exchange Commission's rules and is not part
of the basic consolidated financial statements. This schedule has been
subjected to the auditing procedures applied in the audit of the basic
consolidated financial statements and, in our opinion, fairly states in all
material aspects the financial data required to be set forth in relation to
the basic consolidated financial statements taken as a whole.
Arthur Andersen LLP
Pittsburgh, Pennsylvania
October 2, 1996
S-1
<PAGE>
SCHEDULE II
ALLIN COMMUNICATIONS CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE ADDITIONS BALANCE
AT CHARGED AT END
BEGINNING TO OF
OF PERIOD EXPENSES DEDUCTIONS PERIOD
--------- --------- ---------- -------
<S> <C> <C> <C> <C>
KENT CONSULTING GROUP, INC.
Deferred tax asset valuation
Year Ended March 31, 1994................ $ -- $60,000 $ -- $60,000
Period Ended December 31, 1994........... 60,000 -- -- 60,000
Year Ended December 31, 1995............. 60,000 -- 60,000 --
Six Months Ended June 30, 1996........... -- -- -- --
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
1 Form of Underwriting Agreement.
2.1 Stock Purchase Agreement dated August 14, 1996 by and among
International Sports Marketing, Inc., Henry Posner, Jr., Thomas D.
Wright, Michael J. Fetchko, James C. Roddey, Richard W. Talarico,
John F. Hensler and the Registrant.*
2.2 Agreement and Plan of Merger dated August 16, 1996 by and among
Kent Consulting Group, Inc., Les Kent and Allin Communications
Corporation.*
3(i)(a) Certificate of Incorporation of the Registrant, as amended.
3(i)(b) Certificate of Designation of the Registrant relating to Series A
Convertible Redeemable Preferred Stock.*
3(i)(c) Certificate of Amendment to Certificate of Designation relating to
the Series A Convertible Redeemable Preferred Stock.*
3(ii) Amended and Restated By-laws of the Registrant.
4 Certificate of Designation of the Registrant relating to Series A
Convertible Redeemable Preferred Stock and Certificate of Amendment
relating thereto (filed as Exhibits (3)(i)(b) and 3(i)(c)).*
5 Opinion of Eckert Seamans Cherin & Mellott.*
10.1 Sublease Agreement dated August 1, 1996 between SeaVision, Inc. and
Blair Haven Entertainment, Inc.*
10.2 Assignment of Intellectual Property Rights dated October 3, 1994 by
Brian K. Blair and R. Daniel Foreman in favor of SeaVision, Inc.*
10.3 Registration Rights Agreement dated July 23, 1996 by and among the
Registrant and certain of its stockholders.*
10.4 Registration Rights Agreement dated July 23, 1996 by and among the
Registrant and certain of its stockholders.*
10.5 Note Conversion Agreement dated July 23, 1996 by and among the
Registrant, Henry Posner, Jr., Thomas D. Wright, Terence M.
Graunke, James C. Roddey and Richard W. Talarico.*
10.6 License Agreement dated December 1, 1993 between Major League
Alumni Marketing, Inc. and Hawthorne Sports Marketing, Inc.*
10.7 Amended and Restated Line of Credit Note, dated October 28, 1996,
made by SeaVision, Inc. in favor of Integra Bank.
10.8 Form of 1996 Stock Plan of the Registrant.*
10.9 Employment Agreement dated August 1, 1996 by and between the
Registrant and Richard W. Talarico.*
10.10 Employment Agreement dated August 1, 1996 by and between the
Registrant and R. Daniel Foreman.*
10.11 Employment Agreement dated August 1, 1996 by and between the
Registrant and Brian K. Blair.*
10.12 First Amended and Restated Agreement dated June 1, 1996 between
SeaVision, Inc. and Celebrity Cruises Inc. (subject to request for
confidential treatment).
10.13 Agreement dated February 6, 1996 between SeaVision, Inc. and
Carnival Corporation (subject to request for confidential
treatment).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
10.14 Agreement dated August 8, 1996 by and between SeaVision, Inc. and
Norwegian Cruise Line Limited (subject to request for confidential
treatment).
10.15 Installation Agreement dated September 9, 1996 by and between
SeaVision, Inc. and Cunard Line Limited (subject to request for
confidential treatment).
10.16 Concession Agreement dated September 17, 1996 by and between
SeaVision, Inc. and Royal Caribbean Cruise Line (subject to request
for confidential treatment).
10.17 Employment Agreement dated as of September 16, 1996 by and between
the Registrant and Jon E. VanAmringe.*
11 Computation of Earnings per Share.
21 Subsidiaries of the Registrant.
23.1 Consent of Eckert Seamans Cherin & Mellott (included in its opinion
filed herewith as Exhibit 5).*
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Richard S. Trutanic.*
23.4 Consent of Concord Consulting Group
24 Power of Attorney (included in the Signature Page).*
27 Financial Data Schedule.
</TABLE>
- --------
* Previously filed.
<PAGE>
Exhibit 1
ALLIN COMMUNICATIONS CORPORATION
(a Delaware corporation)
2,300,000 Shares of Common Stock
(Par Value $.01 Per Share)
FORM OF UNDERWRITING AGREEMENT
------------------------------
__________________, 1996
FRIEDMAN, BILLINGS, RAMSEY & COMPANY, INC.
as Representatives of the several Underwriters
Potomac Tower
1001 Nineteenth Street North
Arlington, Virginia 22209
Dear Sirs:
Allin Communications Corporation, a corporation organized and existing
under the laws of Delaware (the "Company"), proposes, subject to the terms and
conditions stated herein, to issue and sell to the several underwriters named in
Schedule A hereto (the "Underwriters") an aggregate of 2,000,000 shares (the
"Firm Shares") of its common stock, par value $.01 per share (the "Common
Stock") and, for the sole purpose of covering over-allotments in connection with
the sale of the Firm Shares, at the option of the Underwriters, up to an
additional 300,000 shares (the "Option Shares") of Common Stock. The Firm
Shares and any Option Shares purchased by the Underwriters are referred to
herein as the "Shares". The Shares are more fully described in the Registration
Statement referred to below.
-1-
<PAGE>
The proceeds to the Company from the sale to the Underwriters of the Firm
Shares will be used in part to fund the cash consideration payable in connection
with the acquisition of International Sports Marketing, Inc. ("ISM") and Kent
Consulting Group, Inc. ("KCG") (each, an "Acquisition Company" and collectively,
the "Acquisition Companies"). The acquisition of an Acquisition Company is
hereinafter referred to as an "Acquisition" and the acquisition of the
Acquisition Companies is hereinafter referred to as the "Acquisitions." Each
Acquisition will be effected pursuant to a Transfer Agreement or similar
agreement by and among the Company, the Acquisition Company, the owners of the
Acquisition Company, and/or a wholly owned subsidiary of the Company, and the
exhibits, agreements, documents and schedules entered into or delivered in
connection therewith (each, a "Transfer Agreement" and, collectively, the
"Transfer Agreements"). As used herein, "you" and "your," unless the context
otherwise requires, shall mean the parties to whom this Purchase Agreement (the
Agreement" is addressed.
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
1. Representations and Warranties of the Company. The Company
---------------------------------------------
represents and warrants to, and agrees with, the Underwriters that:
(a) The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement and amendments thereto,
on Form S-1 (No. 333-10447), for the registration of the Shares under the
Securities Act of 1933, as amended (the "1933 Act"). Such registration
statement, including the prospectus, financial statements and schedules,
exhibits and all other documents filed as a part thereof, as amended at the time
of effectiveness of the registration statement, including any information deemed
to be a part thereof as of the time of effectiveness pursuant to paragraph (b)
of Rule 430A of the Rules and Regulations of the Commission under the Act (the
"Regulations"), is herein called the "Registration Statement" and the
prospectus, in the form first filed with the Commission pursuant to Rule 424(b)
of the Regulations or filed as part of the Registration Statement at the time of
effectiveness if no Rule 424(b) filing is required, is herein called the
"Prospectus". The term "preliminary prospectus" as used herein means a
preliminary prospectus as described in Rule 430 of the Regulations.
(b) At the time of the effectiveness of the Registration
Statement or the effectiveness of any post-effective amendment to the
Registration Statement, when the Prospectus is first filed with the Commission
pursuant to Rule 424(b) of the Regulations, when any supplement to or amendment
of the Prospectus is filed with the Commission and at the Closing Date and the
Option Closing Date, if any (as hereinafter respectively defined), the
Registration Statement and the Prospectus and any amendments thereof and
supplements thereto complied or will comply in all material respects with the
applicable provisions of the Act and the Regulations and does not or will not
contain an untrue statement of a material fact and does not or will not
-2-
<PAGE>
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein (i) in the case of the Registration
Statement, not misleading and (ii) in the case of the Prospectus, in light of
the circumstances under which they were made, not misleading. When any related
preliminary prospectus was first filed with the Commission (whether filed as
part of the Registration Statement for the registration of the Shares or any
amendment thereto or pursuant to Rule 424(a) of the Regulations) and when any
amendment thereof or supplement thereto was first filed with the Commission,
such preliminary prospectus and any amendments thereof and supplements thereto
complied in all material respects with the applicable provisions of the Act and
the Regulations and did not contain an untrue statement of a material fact and
did not omit to state any material fact required to be stated therein or
necessary in order to make the statements therein in light of the circumstances
under which they were made not misleading. No representation and warranty is
made in this subsection (b), however, with respect to any information contained
in or omitted from the Registration Statement or the Prospectus or any related
preliminary prospectus or any amendment thereof or supplement thereto in
reliance upon and in conformity with information furnished in writing to the
Company by or on behalf of any Underwriter through you as herein stated
expressly for use in connection with the preparation thereof.
(c) The Commission has not issued an order preventing or
suspending the use of the Registration Statement or any Prospectus relating to
the proposed offering of the Shares.
(d) Each preliminary prospectus and the Prospectus as originally
filed or as part of any amendment to the Registration Statement, or filed
pursuant to Rule 424 under the 1933 Act, delivered to you for use in connection
with this offering (the "Offering") was identical to the electronically
transmitted copies thereof filed with the Commission pursuant to EDGAR, except
to the extent permitted by Regulation S-T.
(e) Arthur Andersen LLP, who have certified the financial
statements and supporting schedule included in the Registration Statement,
including the historical financial statements of the Acquisition Companies, are
independent public accountants as required by the Act and the Regulations.
(f) Since the respective dates as of which information is given
in the Registration Statement and the Prospectus, except as otherwise set forth
therein, (i) there has been no material adverse change or any development
involving a prospective material adverse change in the business, prospects,
properties, operations, condition (financial or other) or results
-3-
<PAGE>
of operations of the Company and its subsidiaries taken as a whole, whether or
not arising from transactions in the ordinary course of business, (ii) since the
date of the latest balance sheet presented in the Registration Statement and the
Prospectus, neither the Company nor any of its subsidiaries has incurred or
undertaken any liabilities or obligations, direct or contingent, which are
material to the Company and its subsidiaries taken as a whole, except for
liabilities or obligations which are reflected in the Registration Statement and
the Prospectus and (iii) there has been no dividend or distribution of any kind
declared, paid or made by the Company on any class of its capital stock.
(g) This Agreement and the transactions contemplated herein have
been duly and validly authorized by the Company and this Agreement has been duly
and validly executed and delivered by the Company.
(h) The execution, delivery, and performance of this Agreement
and the consummation of the transactions contemplated hereby do not and will not
(i) conflict with or result in a breach of any of the terms and provisions of,
or constitute a default (or an event which with notice or lapse of time, or
both, would constitute a default) under, or result in the creation or imposition
of any lien, charge or encumbrance upon any property or assets of the Company or
any of its subsidiaries pursuant to, any agreement, instrument, franchise,
license or permit to which the Company or any of its subsidiaries is a party or
by which any of such corporations or their respective properties or assets may
be bound or (ii) violate or conflict with any provision of the certificate of
incorporation or by-laws of the Company or any of its subsidiaries or any
judgment, decree, order, statute, rule or regulation of any court or any public,
governmental or regulatory agency or body having jurisdiction over the Company
or any of its subsidiaries or any of their respective properties or assets. No
consent, approval, authorization, order, registration, filing, qualification,
license or permit of or with any court or any public, governmental or regulatory
agency or body having jurisdiction over the Company or any of its subsidiaries
or any of their respective properties or assets is required for the execution,
delivery and performance of this Agreement or the consummation of the
transactions contemplated hereby, including the issuance, sale and delivery of
the Shares to be issued, sold and delivered by the Company hereunder, except the
registration under the Act of the Shares and such consents, approvals,
authorizations, orders, registrations, filings, qualifications, licenses and
permits as may be required under state and foreign securities or Blue Sky laws
in connection with the purchase and distribution of the Shares by the
Underwriters.
(i) All of the outstanding shares of Common Stock are duly and
validly authorized and issued, fully paid and nonassessable and were not issued
and are not now in violation of or subject to any preemptive rights. The
Shares, when issued, delivered and sold in accordance with this Agreement, will
be duly and validly issued and outstanding, fully paid and nonassessable, and
will not have been issued in violation of or be subject to any preemptive
rights. The Company had, at __________________, 1996, an authorized and
outstanding capitalization
-4-
<PAGE>
as set forth in the Registration Statement and the Prospectus. The Common Stock,
the Firm Shares and the Option Shares conform to the statements concerning them
set forth in the Registration Statement and the Prospectus.
(j) All of the Company's current subsidiaries are listed on
Exhibit 21 to the Registration Statement. All the entities that will be
subsidiaries of the Company after giving effect to the Acquisitions are listed
on Schedule B. The subsidiaries listed on Exhibit 21 to the Registration
Statement and the subsidiaries listed on Schedule B are hereinafter collectively
referred to as the "Subsidiaries." Each Subsidiary has been and, after giving
effect to the Acquisitions, will have been duly incorporated, and is and, after
giving effect to the Acquisitions, will be validly existing as a corporation in
good standing under the laws of the jurisdiction of its incorporation, with
power and authority to own or lease its properties and conduct its business as
described in the Registration Statement. Each Subsidiary is and, after giving
effect to the Acquisitions, will be duly qualified to transact business in all
jurisdictions in which the conduct of its business requires such qualification,
except for those failures to be so qualified or in good standing which will not
in the aggregate have a material adverse effect on the financial condition,
results of operations or business of the Subsidiary. The outstanding shares of
capital stock of each of the Subsidiaries have and, after giving effect to the
Acquisitions, will have been duly authorized and validly issued, are and, after
giving effect to the Acquisitions, will be fully paid and non-assessable. Such
shares of capital stock in each Subsidiary are and, after giving effect to the
Acquisitions, will be wholly owned by the Company free and clear of all liens,
encumbrances and security interests. No options, warrants or other rights to
purchase, agreements or other obligations to issue or other rights to convert
any obligations into shares of capital stock or ownership interests in the
Subsidiaries are and, after giving effect to the Acquisitions, will be
outstanding, except to the extent set forth in the Registration Statement,
including the exhibits thereto.
(k) The Company has been duly organized and is, and after giving
effect to the Acquisitions, will be validly existing as a corporation in good
standing under the laws of the State of Delaware. The Company is, and after
giving effect to the Acquisitions, will be duly qualified and in good standing
as a foreign corporation in each jurisdiction in which the character or location
of its properties (owned, leased or licensed) or the nature or conduct of its
business makes such qualification necessary, except for those failures to be so
qualified or in good standing which will not in the aggregate have a material
adverse effect on the financial condition, results of operations or business of
the Company and the Subsidiaries taken as a whole. The Company has all
requisite power and authority, and all necessary consents, approvals,
authorizations, orders, registrations, qualifications, licenses and permits of
and from
-5-
<PAGE>
all public, regulatory or governmental agencies and bodies, to own, lease and
operate its properties and conduct its business as now being conducted and as
described in the Registration Statement and the Prospectus, and no such consent,
approval, authorization, order, registration, qualification, license or permit
contains a materially burdensome restriction not adequately disclosed in the
Registration Statement and the Prospectus.
(l) Except as described in the Prospectus, there is no litigation
or governmental proceeding to which the Company or the Subsidiaries is a party
or to which any property of the Company or any of the Subsidiaries is subject or
which is pending or, to the knowledge of the Company, contemplated against the
Company or any of the Subsidiaries which might result in any material adverse
change or any development involving a material adverse change in the business,
prospects, properties, operations, condition (financial or other) or results of
operations of the Company and the Subsidiaries taken as a whole or which is
required to be disclosed in the Registration Statement and the Prospectus.
(m) Neither the Company nor any of the Subsidiaries nor any of
their respective directors, officers or controlling persons has taken or will
take, directly or indirectly, any action designed to cause or result in, or
which constitutes or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of the shares of Common Stock to
facilitate the sale or resale of the Shares.
(n) The historical financial statements of the Company, ISM and
KCG, including the notes thereto, and supporting schedule included in the
Registration Statement and the Prospectus present fairly the financial position
of the Company, its consolidated subsidiaries, ISM and KCG as of the dates
indicated and the results of its operations, stockholders' equity and cash flows
of the Company, its consolidated subsidiaries, ISM and KCG for the periods
specified; said financial statements have been prepared in conformity with
generally accepted accounting principles applied on a consistent basis; and the
supporting schedule included in the Registration Statement presents fairly the
information required to be stated therein. The pro forma condensed consolidated
financial information and the related notes thereto included in the Registration
Statement and the Prospectus present fairly the information required to be
presented therein, have been prepared in accordance with the Commission's rules
and guidelines with respect to pro forma condensed consolidated financial
information and have been properly compiled on the bases described therein, and
the assumptions used therein are appropriate to give effect to the transactions
and circumstances referred to therein. No other financial statements or
schedules of the Company, ISM and KCG are required by the Act or the Rules and
Regulations to be included in the Registration Statement or the Prospectus. The
summary financial data and selected financial data included in the Registration
Statement presents fairly in all material respects the information shown therein
and has been compiled on a basis consistent with the financial statements
presented therein.
-6-
<PAGE>
(o) Except as disclosed in the Prospectus, no person or entity
holds a right to require or participate in the registration under the Act of
shares of Common Stock of the Company or any preemptive or other right of
participation or first refusal with respect to any of the Shares or the issue or
sale thereof by the Company.
(p) There are no contracts or documents which are required to be
described in the Registration Statement or the Prospectus or to be filed as
exhibits thereto which have not been so described and filed as required.
(q) The Company and the Subsidiaries own or possess, or can
acquire on reasonable terms, adequate patents, patent rights, licenses,
inventions, copyrights, know-how (including trade secrets and other unpatented
and/or unpatentable proprietary or confidential information, systems or
procedures), trademarks, service marks, trade names or other intellectual
property (collectively, "Intellectual Property") necessary to carry on the
business now operated by them, and there is no infringement of or conflict with
asserted rights of others with respect to any Intellectual Property and neither
the Company nor any of the Subsidiaries has received notice of or is otherwise
aware of any facts or circumstances which would render any Intellectual Property
invalid or inadequate to protect the interest of the Company or any of its
subsidiaries therein, and which infringement or conflict (if the subject of any
unfavorable decision, ruling or finding) or invalidity or inadequacy, singly or
in the aggregate, would result in a material adverse effect.
(r) The Company and the Subsidiaries have and, after giving
effect to the Acquisitions will have good title to all property owned by the
Company and the Subsidiaries, in each case, free and clear of all mortgages,
pledges, liens, security interests, claims, restrictions or encumbrances of any
kind except such as (a) are described in the Prospectus or (b) do not, singly or
in the aggregate, materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company or any of the Subsidiaries; and all of the leases and subleases material
to the business of the Company and its subsidiaries, considered as one
enterprise, and under which the Company or any of its subsidiaries holds
properties described in the Prospectus, are and, after giving effect to the
Acquisitions, will be in full force and effect, and neither the Company nor any
of the Subsidiaries has any notice of any material claim of any sort that has
been asserted by anyone adverse to the rights of the Company or any of the
Subsidiaries under any of the leases or subleases mentioned above, or affecting
or questioning the rights of the Company or the Subsidiaries to the continued
possession of the leased or subleased premises under any such lease or sublease.
-7-
<PAGE>
(s) The Company and the Subsidiaries have and, after giving
effect to the Acquisitions, will have filed all federal, state and foreign
income tax returns which have been required to be filed and have paid all taxes
indicated by said returns and all assessments received by them or any of them to
the extent that such taxes have become due, except where the failure to do so
would not have a material adverse effect on the Company and its Subsidiaries
taken as a whole.
(t) Neither the Company nor any of the Subsidiaries is, and upon
consummation of the transactions contemplated hereby will be, subject to
registration as an "investment company" under the Investment Company Act of
1940, as amended.
(u) Neither the Company nor any of the Subsidiaries is and, after
giving effect to the Acquisitions, will be, or with the giving of notice or
lapse of time or both, will be, in violation of or in default under its Articles
of Incorporation or Bylaws or under any agreement, lease, contract, indenture or
other instrument or obligation to which it is a party or by which it or any of
its properties is bound except for such defaults as do not have a material
adverse effect on the business or financial condition of the Company and the
Subsidiaries taken as a whole. The consummation of the transactions
contemplated herein and in the Transfer Agreements and the fulfillment of the
terms hereof and thereof will not conflict with or result in a breach of any of
the terms or provisions of, or constitute a default under, (A) any indenture,
mortgage, deed of trust or other agreement or instrument to which the Company or
any Subsidiary is a party, except for any such breach or default which would not
have a material adverse effect on the Company and the Subsidiaries taken as a
whole, or (B) the Articles of Incorporation or Bylaws of the Company or any
Subsidiary or any order, rule or regulation applicable to the Company or any
Subsidiary of any court or of any regulatory body or administrative agency or
other governmental body having jurisdiction over the Company or any Subsidiary
or any of their respective properties or assets.
(v) The Company and the Subsidiaries have complied with, and are
and will be in compliance with, the provisions of that certain Florida act
relating to disclosure of doing business with Cuba, codified as Section 517.075
of the Florida statutes, and the rules and regulations thereunder (collectively,
the "Cuba Act") or are exempt therefrom.
(w) Except as disclosed in the Prospectus, there are no business
relationships or related party transactions required to be disclosed therein by
Item 404 of Regulation S-K of the Regulations.
(x) Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body necessary in connection with the execution and delivery by the
Company of this Agreement and each of the Transfer Agreements and the
consummation of the transactions contemplated herein and therein, including, but
not limited to, the filing, in connection with the acquisition of KCG, of a
certificate of merger (the "Merger Certificate") (except (i) such additional
steps as may be required by the National
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Association of Securities Dealers, Inc. (the "NASD") or may be necessary to
qualify the Shares for public offering by the Underwriters under state
securities or Blue Sky laws or the securities laws of the United Kingdom,
France, Italy, Switzerland, Germany or ___________ and (ii) such approvals,
consents, orders, authorizations, designations, declarations and filings the
absence of which does not and will not have a material adverse effect on the
business or financial condition of the Company and the Subsidiaries taken as a
whole) has been or will be obtained or made as of the Closing Date and is or
will be in full force and effect as of the Closing Date. All consents and
waivers from all other persons required in connection with the execution and
delivery by the Company of this Agreement and the Transfer Agreements and the
consummation of the transactions contemplated herein and therein have been
obtained or made and are in full force and effect as of the Closing Date (except
such consents and waivers the absence of which do not and will not have a
material adverse effect on the business or financial condition of the Company
and the Subsidiaries taken as a whole).
(y) The Company and each of the Subsidiaries is and, after giving
effect to the Acquisitions, will be 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; neither the Company
nor any Subsidiary has been refused any insurance coverage sought or applied
for; and neither the Company nor any Subsidiary has any 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 materially and
adversely change or affect the condition, financial or otherwise, of the Company
and the Subsidiaries taken as a whole.
(z) No Subsidiary of the Company is currently prohibited,
directly or indirectly and, after giving effect to the Acquisitions, no
Subsidiary will be prohibited, directly or indirectly, from paying any dividends
to the Company, from making any other distribution on such Subsidiary's capital
stock, from repaying to the Company any loans or advances to such Subsidiary
from the Company or from transferring any of such Subsidiary's property or
assets to the Company or any other Subsidiary of the Company.
(aa) Each of the Transfer Agreements and the transactions
contemplated therein has been duly and validly authorized by the Company and
each of ISM and KCG, and each of the Transfer Agreements has been duly and
validly executed and delivered by the parties thereto, constitutes the valid and
binding obligation of such parties, and there are no (i) statutory dissenters'
rights or (ii) any other contractual rights giving any of the owners of ISM and
KCG
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rights of acquisition, first offer or first refusal with respect to any of the
Acquisitions which, in any case, have not been waived or expired by their terms.
(bb) The Company has obtained from each of the persons listed on
Schedule B their agreement that for a period of 360 days from the date of this
Agreement they will not, without the prior consent of the Representatives,
offer, sell or dispose of any shares of Common Stock of the Company, or any
securities convertible into, exercisable for, or exchangeable for any shares of
Common Stock or derivative therefrom owned by them.
(cc) The Company has delivered to the Representatives true and
correct copies of each of the executed Transfer Agreements and there have been
no amendments, alterations, modifications or waivers thereto or in the exhibits
or schedules thereto other than those as to which you shall previously have been
advised and shall not have reasonably objected by written notice to the Company
after being furnished a copy thereof. The representations and warranties of the
Company (including any subsidiary of the Company created to enable the Company
to consummate the transactions contemplated by each of the Transfer Agreements)
set forth in the Transfer Agreements, are true and correct as of the date
hereof, and will be true and correct as of the Closing Date, except to the
extent any such representation or warranty was expressly made as of any other
date, in which case such representation and warranty was true and correct as of
such date. The Transfer Agreements conform in all material respects to the
descriptions thereof contained in the Prospectus.
(dd) All offers and sales of shares of the Company's capital stock
(including securities convertible into, or exercisable or exchangeable for,
shares of the Company's capital stock) prior to the date hereof were at all
relevant times exempt from the registration requirements of the Act, and were
the subject of an available exemption from the requirements of all applicable
state securities or Blue Sky laws.
2. Purchase, Sale and Delivery of the Shares.
-----------------------------------------
(a) On the basis of the representations, warranties, covenants
and agreements herein contained, but subject to the terms and conditions herein
set forth, the Company agrees to sell to the Underwriters and the Underwriters,
severally and not jointly, agree to purchase from the Company, at a purchase
price per share of $_______, the number of Firm Shares set forth opposite the
respective names of the Underwriters in Schedule A hereto plus any additional
number of Shares which such Underwriter may become obligated to purchase
pursuant to the provisions of Section 9 hereof.
(b) Payment of the purchase price for, and delivery of
certificates for, the Shares shall be made at the offices of Friedman, Billings,
Ramsey & Co., Inc., Potomac Tower, 1001 19th Street North, 18th Floor,
Arlington, Virginia 22209, or at such other place as shall
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be agreed upon by you and the Company, at 10:00 A.M. on the third business day
(unless postponed in accordance with the provisions of Section 9 hereof)
following the date of the effectiveness of the Registration Statement (or, if
the Company has elected to rely upon Rule 430A of the Regulations, the third
business day after the determination of the initial public offering price of the
Shares), or such other time not later than ten business days after such date as
shall be agreed upon by you and the Company (such time and date of payment and
delivery being herein called the "Closing Date"). Payment shall be made to the
Company by certified or official bank check or checks drawn in New York Clearing
House funds or similar next day funds payable to the order of the Company,
against delivery to you for the respective accounts of the Underwriters of
certificates for the Shares to be purchased by them. Certificates for the Shares
shall be registered in such name or names and in such authorized denominations
as you may request in writing at least two full business days prior to the
Closing Date. The Company will permit you to examine and package such
certificates for delivery at least one full business day prior to the Closing
Date.
(c) In addition, on the basis of the representations and warranties
herein contained, and subject to the terms and conditions herein set forth, the
Company hereby grants to the Underwriters the option to purchase up to 300,000
Option Shares at the same purchase price per share to be paid by the
Underwriters to the Company for the Firm Shares as set forth in this Section 2,
for the sole purpose of covering over-allotments in the sale of Firm Shares by
the Underwriters. This option may be exercised at any time, in whole or in
part, on or before the thirtieth day following the date of the Prospectus, by
written notice by you to the Company. Such notice shall set forth the aggregate
number of Option Shares as to which the option is being exercised and the date
and time, as reasonably determined by you, when the Option Shares are to be
delivered (such date and time being herein sometimes referred to as the "Option
Closing Date"); provided, however, that the Option Closing Date shall not be
-------- -------
earlier than the Closing Date or earlier than the second full business day after
the date on which the option shall have been exercised nor later than the eighth
full business day after the date on which the option shall have been exercised
(unless such time and date are postponed in accordance with the provisions of
Section 9 hereof). Certificates for the Option Shares shall be registered in
such name or names and in such authorized denominations as you may request in
writing at least two full business days prior to the Option Closing Date. The
Company will permit you to examine and package such certificates for delivery at
least one full business day prior to the Option Closing Date.
The number of Option Shares to be sold to each Underwriter shall be
the number which bears the same ratio to the aggregate number of Option Shares
being purchased
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<PAGE>
as the number of Firm Shares set forth opposite the name of such Underwriter in
Schedule A hereto (or such number increased as set forth in Section 9 hereof)
bears to 2,000,000, subject, however, to such adjustments to eliminate any
fractional shares as you in your sole discretion shall make.
Payment for the Option Shares shall be made by certified or official
bank check or checks, in New York Clearing House or similar next day funds,
payable to the order of the Company at the offices of Friedman, Billings, Ramsey
& Co., Inc., Potomac Tower, 1001 19th Street North, Arlington, Virginia 22209,
or such other location as may be mutually acceptable, upon delivery of the
certificates for the Option Shares to you for the respective accounts of the
Underwriters.
3. Offering. Upon your authorization of the release of the Firm
--------
Shares, the Underwriters propose to offer the Shares for sale to the public upon
the terms set forth in the Prospectus.
4. Covenants of the Company. The Company covenants and agrees
------------------------
with the Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement and any amendments thereto to become effective as promptly as
possible, and if Rule 430A is used or the filing of the Prospectus is otherwise
required under Rule 424(b), the Company will file the Prospectus (properly
completed if Rule 430A has been used) pursuant to Rule 424(b) within the
prescribed time period and will provide evidence satisfactory to you of such
timely filing.
The Company will notify you immediately (and, if requested by you,
will confirm such notice in writing) (i) when the Registration Statement and any
amendments thereto become effective, (ii) of any request by the Commission for
any amendment of or supplement to the Registration Statement or the Prospectus
or for any additional information, (iii) of the mailing or the delivery to the
Commission for filing of any amendment of or supplement to the Registration
Statement or the Prospectus, (iv) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or any post-
effective amendment thereto or of the initiation, or the threatening, of any
proceedings therefor, (v) of the receipt of any comments from the Commission,
and (vi) of the receipt by the Company of any notification with respect to the
suspension of the qualification of the Shares for sale in any jurisdiction or
the initiation or threatening of any proceeding for that purpose. If the
Commission shall propose or enter a stop order at any time, the Company will
make every reasonable effort to prevent the issuance of any such stop order and,
if issued, to obtain the lifting of such order as soon as possible. The Company
will not file any amendment to the Registration Statement or any amendment of or
supplement to the Prospectus (including the prospectus required to be filed
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<PAGE>
pursuant to Rule 424(b)) that differs from the prospectus on file at the time of
the effectiveness of the Registration Statement before or after the effective
date of the Registration Statement to which you shall reasonably object in
writing after being timely furnished in advance a copy thereof.
(b) If at any time when a prospectus relating to the Shares is
required to be delivered under the Act any event shall have occurred as a result
of which the Prospectus as then amended or supplemented includes an untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it shall be
necessary at any time to amend or supplement the Prospectus or Registration
Statement to comply with the Act or the Regulations, the Company will notify you
promptly and prepare and file with the Commission an appropriate amendment or
supplement (in form and substance satisfactory to you) which will correct such
statement or omission and will use its best efforts to have any amendment to the
Registration Statement declared effective as soon as possible.
(c) The Company will promptly deliver to you and your counsel signed
copies of the Registration Statement, including exhibits and all amendments
thereto, and the Company will promptly deliver to each of the Underwriters such
number of copies of any preliminary prospectus, the Prospectus, the Registration
Statement, and all amendments of and supplements to such documents, if any, as
you may reasonably request. The copies of the Registration Statement, the
Prospectus and each amendment thereto furnished to you will be identical to the
electronically transmitted copies thereof filed with the Commission pursuant to
EDGAR except to the extent permitted by Regulation S-T.
(d) The Company will endeavor in good faith, in cooperation with you,
at or prior to the time of effectiveness of the Registration Statement, to
qualify the Shares for offering and sale under the securities laws relating to
the offering or sale of the Shares of such jurisdictions as you may designate
and to maintain such qualification in effect for so long as required for the
distribution thereof; except that in no event shall the Company be obligated in
connection therewith to qualify as a foreign corporation or to execute a general
consent to service of process.
(e) The Company will timely file such reports pursuant to the
Securities Exchange Act of 1934 as are necessary in order to make generally
available (within the meaning of Section 11(a) of the Act) to its security
holders and to you as soon as practicable, but not later than 45 days after the
end of its fiscal quarter in which the first anniversary date of the effective
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<PAGE>
date of the Registration Statement occurs, an earnings statement (in form
complying with the provisions of Rule 158 of the Regulations) covering a period
of at least twelve consecutive months beginning after the effective date of the
Registration Statement.
(f) During the period of 360 days from the date of the Prospectus,
the Company will not, without your prior written consent, issue, sell, offer or
agree to sell, grant any option for the sale of, or otherwise dispose of,
directly or indirectly, any Common Stock (or any securities convertible into,
exercisable for or exchangeable for Common Stock), and the Company will obtain
the undertaking of each of its officers and directors and such of its
shareholders as have been heretofore designated by you and listed on Schedule C
attached hereto not to engage in any of the aforementioned transactions on their
own behalf, other than the Company's sale of Shares hereunder and the Company's
grant of options and issuance of Common Stock upon the exercise of presently
outstanding stock options issued pursuant to the 1996 Stock Plan as in effect on
the date hereof.
(g) The Company will comply with the Act and the Regulations and the
1934 Act and the regulations promulgated under the 1934 Act (the "1934 Act
Regulations") so as to permit the completion of the distribution of the
Securities as contemplated in this Agreement and in the Prospectus. If at any
time when a prospectus is required by the Act to be delivered in connection with
sales of the Securities, any event shall occur or condition shall exist as a
result of which it is necessary, in the opinion of counsel for the Underwriters
or for the Company, to amend the Registration Statement or amend or supplement
the Prospectus in order that the Prospectus will not include any untrue
statements of a material fact or omit to state a material fact necessary in
order to make the statements therein not misleading in the light of the
circumstances existing at the time it is delivered to a purchaser, or if it
shall be necessary, in the opinion of such counsel, at any time to amend the
Registration Statement or amend or supplement the Prospectus in order to comply
with the requirements of the Act or the Regulations, the Company will promptly
prepare and file with the Commission, subject to Section 3(b), such amendment or
supplement as may be necessary to correct such statement or omission or to make
the Registration Statement or the Prospectus comply with such requirements, and
the Company will furnish to the Underwriters such number of copies of such
amendment or supplement as the Underwriters may reasonably request.
(h) The Company, during the period when the prospectus is required to
be delivered under the Act or the 1934 Act, will file all documents required to
be filed with the Commission pursuant to the 1934 Act within the time periods
required by the 1934 Act and the 1934 Act Regulations.
(i) During a period of three years from the effective date of the
Registration Statement, the Company will furnish to you copies of (i) all
reports to its
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shareholders and (ii) all reports, financial statements and proxy or information
statements filed by the Company with the Commission or any national securities
exchange.
(j) The Company will apply the proceeds from the sale of the Shares
as set forth under "Use of Proceeds" in the Prospectus.
(k) The Company will use its best efforts to cause the Shares to be
authorized for quotation on the Nasdaq Stock Market's National Market (the
"Nasdaq National Market").
(l) The Company will file with the Commission such reports on Form SR
as may be required pursuant to Rule 463 of the Regulations.
(m) Friedman, Billings, Ramsey & Co. Inc. ("FBR") shall have the
right to act as the exclusive financial advisor, placement agent and underwriter
to the Company in connection with any debt (other than bank debt) or equity
financings and any sale, transfer, merger, consolidation or other similar
transaction (a "Sale Transaction") involving all or a substantial portion of the
Company during the period ending 18 months after the Closing Date. Any services
provided by FBR to the Company pursuant to the foregoing shall be on terms and
conditions, and for fees, as are customary and competitive for FBR's provision
of those services.
(n) If any investor identified to the Company by FBR during the
Engagement Period (as defined below) purchases any additional securities of the
Company or an affiliate within 12 months following the Closing Date or pursuant
to a commitment during the Engagement Period (other than a transaction in which
FBR is entitled to a fee as placement agent), the Company shall pay FBR a fee of
7.0% of the aggregate gross proceeds from the sale of such securities. The
Engagement Period shall be the period commencing on May 10, 1996 and ending on
the earliest to occur of the following: (i) completion of the sale of the
Shares or a Sale Transaction in lieu thereof, or (ii) termination of this
Agreement by FBR or the Company pursuant to Section 10.
(o) If a Sale Transaction is consummated in lieu of the sale of
Shares, in consideration of FBR's services on behalf of the Company pursuant to
this Agreement, the Company agrees to pay FBR a transaction fee equal to 2.5% of
the total consideration (the "Total Consideration") paid or payable in such Sale
Transaction. Total Consideration shall mean the aggregate value, whether in
cash, securities, assumption of (or purchase subject to)
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<PAGE>
debt or liabilities or other property, obligations or services, paid or
otherwise assumed in connection with the Sale Transaction.
(p) In the event that this Agreement expires or is terminated (other
than a termination by FBR pursuant to Section ____ without the agreement of the
Company), without the Offering or a Sale transaction being consummated, and the
Company (or an entity organized or sponsored by the Company), within 12 months
after the date of such termination, (i) consummates a sale of securities
substantially similar to the Offering as contemplated hereunder, the Company
shall pay to FBR a fee in cash equal to 3.5% of the gross proceeds raised by the
Company (or such entity) from the sale of any securities sold by the Company (or
such entity), concurrently with the closing of any such sale, or (ii)
consummates a Sale Transaction, the Company shall pay to FBR a fee in cash equal
to 1.0% of the Total Consideration paid or payable in connection with such Sale
Transaction.
(q) Richard Trutanic, Senior Advisor of FBR, will serve on the
Board of Directors after the Closing Date.
5. Payment of Expenses. Whether or not the transactions contemplated
-------------------
in this Agreement are consummated or this Agreement is terminated, the Company
hereby agrees to pay all costs and expenses incident to the performance of the
obligations of the Company hereunder, including those in connection with (i)
preparing, printing, duplicating, filing and distributing the Registration
Statement, as originally filed and all amendments thereof (including all
exhibits thereto), any preliminary prospectus, the Prospectus and any amendments
or supplements thereto (including, without limitation, fees and expenses of the
Company's accountants and counsel), the underwriting documents (including this
Agreement and the agreement among underwriters and all other documents related
to the public offering of the Shares (including those supplied to the
Underwriters in quantities as hereinabove stated), (ii) the issuance, transfer
and delivery of the Shares to the Underwriters, including any transfer or other
taxes payable thereon, (iii) the qualification of the Shares under state or
foreign securities or Blue Sky laws, including the costs of printing and mailing
a preliminary and final "Blue Sky Survey" and the fees of counsel for the
Underwriters and such counsel's disbursements in relation thereto, (iv)
quotation of the Shares on the Nasdaq National Market, (v) filing fees of the
Commission and the National Association of Securities Dealers, Inc., (vi) the
cost of printing certificates representing the Shares and (vii) the cost and
charges of any transfer agent or registrar.
6. Conditions of Underwriters' Obligations. The obligations of the
---------------------------------------
Underwriters to purchase and pay for the Firm Shares and the Option Shares, as
provided herein, are subject to the accuracy of the representations and
warranties of the Company herein contained, as of the date hereof and as of the
Closing Date (for purposes of this Section 6 "Closing Date" shall refer to the
Closing Date for the Firm Shares and the "Option Closing
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<PAGE>
Date" shall refer to the closing date for the Option Shares), to the absence
from any certificates, opinions, written statements or letters furnished to you
or to Hogan & Hartson L.L.P. ("Underwriters' Counsel") pursuant to this Section
6 of any misstatement or omission, to the performance by the Company of its
obligations hereunder, and to the following additional conditions:
(a) The Registration Statement shall have become effective not later
than [5:30 P.M., New York time, on the date of this Agreement] [12:00 P.M., New
York time on the date an amendment to the Registration Statement containing the
public offering price has been filed with the Commission], or at such later time
and date as shall have been consented to in writing by you; if the Company shall
have elected to rely upon Rule 430A of the Regulations, the Prospectus shall
have been filed with the Commission in a timely fashion in accordance with
Section 4(a) hereof; and, at or prior to the Closing Date no stop order
suspending the effectiveness of the Registration Statement or any post-effective
amendment thereof shall have been issued and no proceedings therefor shall have
been initiated or threatened by the Commission.
(b) At the Closing Date you shall have received the opinion of Eckert
Seamans Cherin & Mellott, counsel for the Company, dated the Closing Date,
addressed to the Underwriters and in form and substance satisfactory to
Underwriters' Counsel, to the effect that:
(i) Each of the Company and the Subsidiaries has been duly
organized and is and, after giving effect to the Acquisitions, will be
validly existing as a corporation in good standing under the laws of the
State of Delaware or, with respect to any of the Subsidiaries, under the
laws of its jurisdiction of incorporation. Each of the Company and the
Subsidiaries is duly qualified and in good standing as a foreign
corporation in each jurisdiction in which the character or location of its
properties (owned, leased or licensed) or the nature or conduct of its
business makes such qualification necessary, except for those failures to
be so qualified or in good standing which will not in the aggregate have a
material adverse effect on the Company and the Subsidiaries taken as a
whole. Each of the Company and the Subsidiaries has all requisite
corporate authority to own, lease and license its properties and conduct
its business as now being conducted and as described in the Registration
Statement and the Prospectus.
(ii) The Company has an authorized capital stock as set forth
under "Capitalization" in the Registration Statement and the Prospectus.
All of the outstanding
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shares of Common Stock are duly and validly authorized and issued, are
fully paid and nonassessable and were not issued in violation of or subject
to any preemptive rights. The Shares to be delivered on the Closing Date
have been duly and validly authorized and, when delivered by the Company in
accordance with this Agreement, will be duly and validly issued, fully paid
and nonassessable and will not have been issued in violation of or subject
to any preemptive rights. The Common Stock, the Firm Shares and the Option
Shares conform to the descriptions thereof contained in the Registration
Statement and the Prospectus.
(iii) The outstanding shares of capital stock of each of the
Subsidiaries, after giving effect to the Acquisitions, will be wholly owned
by the Company free and clear of all liens, encumbrances and security
interests, and to the best of such counsel's knowledge, no options,
warrants or other rights to purchase, agreements or other obligations to
issue or other rights to convert any obligations into any shares of capital
stock of the Subsidiaries are and, after giving effect to the Acquisitions,
will be outstanding.
(iv) The Shares to be sold under this Agreement to the
Underwriters are duly authorized for quotation on the Nasdaq National
Market.
(v) This Agreement has been duly and validly authorized,
executed and delivered by the Company. Each Transfer Agreement has been
duly and validly authorized, executed and delivered by the Company, and
constitutes the valid and binding obligation of the Company enforceable in
accordance with its terms.
(vi) To the best of such counsel's knowledge, there is no
litigation or governmental or other action, suit, proceeding or
investigation before any court or before or by any public, regulatory or
governmental agency or body pending or, to the best of such counsel's
knowledge, threatened against, or involving the properties or business of,
the Company or any of the Subsidiaries, which is of a character required to
be disclosed in the Registration Statement and the Prospectus which has not
been properly disclosed therein.
(vii) All offers and sales of shares of the Company's capital
stock (including securities convertible into, or exchangeable or
exercisable for, shares of the Company's capital stock) prior to the date
of this Agreement were at all relevant times exempt from the registration
requirements of the Act, and were the subject of an available exemption
from the requirements of all applicable state securities or Blue Sky laws.
(viii) Except as described in the Prospectus, to the best of
such counsel's knowledge, there are no outstanding securities of the
Company convertible or exchangeable into or evidencing the right to
purchase or subscribe for any shares of capital
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stock of the Company and there are no outstanding or authorized options,
warrants or rights of any character obligating the Company to issue any
shares of its capital stock or any securities convertible or exchangeable
into or evidencing the right to purchase or subscribe for any shares of
such stock; and except as described in the Prospectus, to the best
knowledge of such counsel, there is no holder of any securities of the
Company or any other person who has the right, contractual or otherwise, to
cause the Company to sell or otherwise issue to them, or to permit them to
underwrite the sale of, any of the Shares or the right to have any Common
Stock or other securities of the Company included in the Registration
Statement or the right, as a result of the filing of the Registration
Statement, to require registration under the Act of any Common Stock or
other securities of the Company.
(ix) The execution, delivery, and performance of this Agreement
and the consummation of the transactions contemplated hereby by the Company
do not and will not (A) conflict with or result in a breach of any of the
terms and provisions of, or constitute a default (or an event which with
notice or lapse of time, or both, would constitute a default) under, or
result in the creation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company or any of its subsidiaries
pursuant to, any agreement, instrument, franchise, license or permit known
to such counsel to which the Company or any of its subsidiaries is a party
or by which any of such corporations or their respective properties or
assets may be bound or (B) violate or conflict with any provision of the
certificate of incorporation or by-laws of the Company or any of its
subsidiaries, or, to the best knowledge of such counsel, any judgment,
decree, order, statute, rule or regulation of any court or any public,
governmental or regulatory agency or body having jurisdiction over the
Company or any of its subsidiaries or any of their respective properties or
assets. No consent, approval, authorization, order, registration, filing,
qualification, license or permit of or with any court or any public,
governmental, or regulatory agency or body having jurisdiction over the
Company or any of its subsidiaries or any of their respective properties or
assets is required for the execution, delivery and performance of this
Agreement or the consummation of the transactions contemplated hereby,
except for (1) such as may be required under state or foreign securities or
Blue Sky laws in connection with the purchase and distribution of the
Shares by the Underwriters (as to which such counsel need express no
opinion) and (2) such as have been made or obtained under the Act.
(x) The Registration Statement and the Prospectus and any
amendments thereof or supplements thereto (other than the financial
statements and schedules and other financial data included or incorporated
by reference therein, as to
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which no opinion need be rendered) comply as to form in all material
respects with the requirements of the Act and the Regulations.
(xi) To the best of such counsel's knowledge, there is no
infringement of or conflict with asserted rights of others with respect to
any Intellectual Property and there are no facts or circumstances which
would render any Intellectual Property invalid or inadequate to protect the
interest of the Company or any of its Subsidiaries therein, and which
infringement or conflict (if the subject of any unfavorable decision,
ruling or finding) or invalidity or inadequacy, singly or in aggregate,
would result in a material adverse effect.
(xii) The statements under the captions ["Risk Factors,"
"Business -- Regulation," "Business -- Legal Proceedings," "Certain
Transactions," "Description of Capital Stock," "Underwriting" and "Shares
Eligible for Future Sale"] in the Prospectus, and Items 14 and 15 of Part
II of the Registration Statement, insofar as such statements constitute a
summary of legal matters, documents or proceedings referred to therein,
fairly present the information called for with respect to such legal
matters, documents and proceedings.
(xiii) The Registration Statement is effective under the Act and
no stop order suspending the effectiveness of the Registration Statement or
any post-effective amendment thereof has been issued and no proceedings
therefor have been initiated or threatened by the Commission and all
filings required by Rule 424(b) of the Regulations have been made.
(xiv) Delivery of certificates for the Shares will be sufficient
to transfer valid and marketable title thereto to each Underwriter that has
purchased such Shares in good faith and such counsel is not aware, after
due inquiry, of any adverse claim with respect thereto, and, to the best of
such counsel's knowledge, such Shares are free and clear of all liens,
encumbrances and claims.
(xv) Such counsel has reviewed all contracts, instruments or
other documents referred to in the Registration Statement and the
Prospectus and such contracts or other documents are fairly described
therein, and filed as exhibits thereto as required, and, after due inquiry,
such counsel does not know of any documents or contracts of a character
required to be so described or filed which have not been so described or
filed.
(xvi) To the best knowledge of such counsel, after due inquiry,
except as described in the Registration Statement and Prospectus, no holder
of any
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security of the Company has or will have any right to require
registration of any security of the Company by virtue of the transactions
contemplated by this Agreement.
(xvii) Neither the Company nor any of the Subsidiaries is and,
upon consummation of the transactions contemplated hereby, will be subject
to registration as an "investment company" under the Investment Company Act
of 1940, as amended.
(xviii) In addition, such opinion shall also contain a statement
that such counsel has participated in conferences with officers and
representatives of the Company, representatives of the independent public
aaccountants for the Company and the Underwriters at which the contents and
the Prospectus and related matters were discussed and, no facts have come
to the attention of such counsel which would lead such counsel to believe
that either the Registration Statement at the time it became effective
(including the information deemed to be part of the Registration Statement
at the time of effectiveness pursuant to Rule 430A(b), if applicable), or
any amendment thereof made prior to the Closing Date as of the date of such
amendment, contained an 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 as of its date
(or any amendment thereof or supplement thereto made prior to the Closing
Date as of the date of such amendment or supplement) and as of the Closing
Date contained or contains an untrue statement of a material fact or
omitted or omits to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading (it being understood that such
counsel need express no belief or opinion with respect to the financial
statements and schedules and other financial data included or incorporated
by reference therein).
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws other than the laws of the United States and
jurisdictions in which they are admitted, to the extent such counsel deems
proper and to the extent specified in such opinion, if at all, upon an opinion
or opinions (in form and substance reasonably satisfactory to Underwriters'
Counsel) of other counsel reasonably acceptable to Underwriters' Counsel,
familiar with the applicable laws; (B) as to matters of fact, to the extent they
deem proper, on certificates of responsible officers of the Company and
certificates or other written statements of officers of departments of various
jurisdictions having custody of documents respecting the corporate existence or
good standing of the Company and its subsidiaries, provided that copies of any
such statements or certificates shall be delivered to Underwriters' Counsel.
The opinion
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<PAGE>
of such counsel for the Company shall state that the opinion of any
such other counsel is in form satisfactory to such counsel and, in their
opinion, you and they are justified in relying thereon.
(c) All proceedings taken in connection with the sale of the Firm
Shares and the Option Shares as herein contemplated shall be satisfactory in
form and substance to you and to Underwriters' Counsel, and the Underwriters
shall have received from said Underwriters' Counsel a favorable opinion, dated
as of the Closing Date with respect to the issuance and sale of the Shares, the
Registration Statement and the Prospectus and such other related matters as you
may reasonably require, and the Company shall have furnished to Underwriters'
Counsel such documents as they request for the purpose of enabling them to pass
upon such matters.
(d) At the Closing Date you shall have received a certificate of
the Chief Executive Officer and Chief Financial Officer of the Company, dated
the Closing Date to the effect that (i) the condition set forth in subsection
(a) of this Section 6 has been satisfied, (ii) as of the date hereof and as of
the Closing Date the representations and warranties of the Company set forth in
Section 1 hereof are accurate, (iii) as of the Closing Date the obligations of
the Company to be performed hereunder on or prior thereto have been duly
performed and (iv) subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, the Company and the
Subsidiaries have not sustained any material loss or interference with their
respective businesses 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 material adverse change, in the
business prospects, properties, operations, condition (financial or otherwise),
or results of operations of the Company and the Subsidiaries taken as a whole,
except in each case as described in the Prospectus.
(e) At the time this Agreement is executed and at the Closing Date,
you shall have received a letter, from Arthur Andersen LLP, independent public
accountants for the Company, dated, respectively, as of the date of this
Agreement and as of the Closing Date addressed to the Underwriters and in form
and substance satisfactory to you, to the effect that: (i) they are independent
public accountants with respect to the Company within the meaning of the Act and
the [applicable published rules and] Regulations and stating that the answer to
Item 10 of the Registration Statement is correct insofar as it relates to them;
(ii) stating that, in their opinion, the financial statements and schedules and
notes thereto, included in the Registration Statement and the Prospectus and
covered by their opinions therein comply as to form in all material respects
with the applicable accounting requirements of the Act and the applicable
published rules and regulations of the Commission thereunder; (iii) on the basis
of procedures consisting of a reading of the latest available unaudited interim
financial statements of the Company and its Subsidiaries, a reading of the
minutes of meetings and consents of the shareholders and boards of directors of
the Company and its subsidiaries and the committees of such boards subsequent to
June 30, 1996, inquiries of officers and other employees of the
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Company and its subsidiaries who have responsibility for financial and
accounting matters of the Company and its subsidiaries with respect to
transactions and events subsequent to June 30, 1996 and other specified
procedures and inquiries to a date not more than five days prior to the date of
such letter, nothing has come to their attention that would cause them to
believe that: (A) the unaudited financial statements and schedules presented in
the Registration Statement and the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of the Act and the
applicable published rules and regulations of the Commission thereunder or that
such unaudited financial statements are not fairly presented in conformity with
generally accepted accounting principles applied on a basis substantially
consistent with that of the audited financial statements included in the
Registration Statement and the Prospectus; (B) with respect to the period
subsequent to June 30, 1996, there were, as of the date of the most recent
available monthly combined financial statements of the Company and its
subsidiaries, if any, and as of a specified date not more than five days prior
to the date of such letter, any changes in the capital stock or long-term
indebtedness of the Company or any decrease in the net current assets or
stockholders' equity of the Company, in each case as compared with the amounts
shown in the most recent balance sheet presented in the Registration Statement
and the Prospectus, except for changes or decreases which the Registration
Statement and the Prospectus disclose have occurred or may occur or which are
set forth in such letter; or (C) that during the period from June 30, 1996 to
the date of the most recent available monthly combined financial statements of
the Company, its subsidiaries and ISM and KCG, if any, and to a specified date
not more than five days prior to the date of such letter, there was any
decrease, as compared with the corresponding period in the prior fiscal year, in
total revenues, or total or per share net income, except for decreases which the
Registration Statement and the Prospectus disclose have occurred or may occur or
which are set forth in such letter; (iv) stating that they have compared
specific dollar amounts, numbers of shares, percentages of revenues and
earnings, and other financial information pertaining to the Company, its
subsidiaries and ISM and KCG set forth in the Registration Statement and the
Prospectus, which have been specified by you prior to the date of this
Agreement, to the extent that such amounts, numbers, percentages, and
information may be derived from the general accounting and financial records of
the Company, its subsidiaries and ISM and KCG or from schedules furnished by the
Company, and excluding any questions requiring an interpretation by legal
counsel, with the results obtained from the application of specified readings,
inquiries, and other appropriate procedures specified by you set forth in such
letter, and found them to be in agreement; and (v) on the basis of a reading of
the pro forma combined financial information included in the Registration
Statement and the Prospectus, carrying out certain specified procedures that
would not necessarily reveal matters of significance with respect to the
comments set forth in this clause (v), inquiries of certain officials of the
Company who have responsibility for financial and
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<PAGE>
accounting matters and proving the arithmetic accuracy of the application of the
pro forma adjustments to the historical amounts in the pro forma condensed
consolidated financial information, nothing came to their attention that caused
them to believe that the pro forma condensed consolidated financial information
does not comply in form in all material respects with the applicable accounting
requirements of Rule 11-02 of Regulation S-X or that the pro forma adjustments
have not been properly applied to the historical amounts in the compilation of
such statements.
(f) Prior to the Closing Date the Company shall have furnished to
you such further information, certificates and documents as you may reasonably
request.
(g) You shall have received from each person who is a director or
officer of the Company or such shareholder as have been heretofore designated by
you and listed on Schedule B hereto an agreement to the effect that such person
will not, directly or indirectly, without your prior written consent, offer,
sell, agree to sell, grant any option to purchase or otherwise dispose (or
announce any offer, sale, grant of an option to purchase or other disposition)
of any shares of Common Stock (or any securities convertible into, exercisable
for or exchangeable or exercisable for shares of Common Stock) for a period of
360 days after the date of the Prospectus.
(h) At the Closing Date, the Shares shall have been approved for
quotation on the Nasdaq National Market.
If any of the conditions specified in this Section 6 shall not have
been fulfilled when and as required by this Agreement, or if any of the
certificates, opinions, written statements or letters furnished to you or to
Underwriters' Counsel pursuant to this Section 6 shall not be in all material
respects reasonably satisfactory in form and substance to you and to
Underwriters' Counsel, all obligations of the Underwriters hereunder may be
canceled by you at, or at any time prior to, the Closing Date and the
obligations of the Underwriters to purchase the Additional Shares may be
canceled by you at, or at any time prior to, the Closing Date. Notice of such
cancellation shall be given to the Company in writing, or by telephone, telex or
telegraph, confirmed in writing.
7. Indemnification.
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(a) The Company will indemnify and hold harmless each Underwriter and
each person, if any, who controls any Underwriter within the meaning of Section
15 of the 1933 Act, against any losses, claims, damages, or liabilities to which
any Underwriter or such controlling person may become subject, under the 1933
Act or otherwise, insofar as such losses, claims, damages, or liabilities (or
actions in respect thereof) arise out of or are based upon an untrue statement
or alleged untrue statement of a material fact contained in any
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<PAGE>
preliminary prospectus, the Registration Statement, or the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, (provided,
however, that the Company will not be liable in any such case to the extent but
only to the extent that any such loss, liability, claim, damage or expense
arises out of or is based upon any such untrue statement or alleged untrue
statement or omission or alleged omission made therein in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
any Underwriter through you expressly for use therein) and will reimburse the
Underwriters and such controlling persons for any legal or other expenses
reasonably incurred by the Underwriters or such controlling persons in
connection with investigating or defending any such action or claim as such
expenses are incurred. The indemnification obligations of the Company hereunder
shall be in addition to any liability which the Company may otherwise have.
(b) Each Underwriter severally agrees to indemnify and hold harmless
the Company and each of the Company's directors, each officer of the Company who
signed the Registration Statement, and each other person who controls the
Company within the meaning of the 1933 Act, against any losses, claims, damages,
or liabilities to which the Company or each such other person may become
subject, under the 1933 Act or otherwise, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based upon an untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus, the Registration Statement, or the
Prospectus, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein 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 the
Underwriters expressly for use in the Registration Statement.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party hereunder, notify the indemnifying party in writing of the
commencement thereof; but the failure to so notify the indemnifying party shall
not relieve such indemnifying party from any liability which it may have to any
indemnified party otherwise than on account of this indemnity agreement. In
case any such action shall be brought against any indemnified party and it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate therein and, to the extent that it shall
wish, jointly with any other indemnifying
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<PAGE>
party similarly notified, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party (who shall not, except with the consent
of the indemnified party, be counsel to the indemnifying party), and, after
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party shall not be liable to
such indemnified party under such subsection for any legal expenses of other
counsel or any other expenses, in each case subsequently incurred by such
indemnified party, in connection with the defense thereof other than reasonable
costs of investigation, unless such indemnified party reasonably objects to such
assumption on the ground that the named parties to any such action (including
any impleaded parties) include both such indemnified party and an indemnifying
party and such indemnified party reasonably believes that there may be legal
defenses available to it that are different from or in addition to those
available to such indemnifying party. In no event shall the indemnifying parties
be liable for fees and expenses of more than one counsel (in addition to local
counsel) separate from their own counsel for all indemnified parties in
connection with any one action or separate but similar related actions in the
same jurisdiction arising out of the same general allegations or circumstances.
(d) If the indemnification provided for in this Section 7 is
unavailable to, or insufficient to hold harmless, an indemnified party under
subsection 7(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party 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 the
relative benefits received by the Company on the one hand and the Underwriters
on the other from the offering of the Shares. If, however, the allocation
provided by the immediately preceding sentence is not permitted by applicable
law or if the indemnified party failed to give the notice required under
subsection 6(c) above, then each indemnifying party shall contribute to such
amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company, on the one hand and the Underwriters on the other in
connection with the statements or omissions which 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 net proceeds from the offering of the Shares
purchased under this Agreement (before deducting expenses) received by the
Company, bear to the total underwriting discounts and commissions received by
the Underwriters with respect to the Shares purchased under this Agreement, in
each case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company, on the one hand or the Underwriters on the other and the parties'
relative intent, knowledge, access to
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information and opportunity to correct or prevent such statement or omission.
The Company and the Underwriters agree that it would not be just and equitable
if contributions pursuant to this subsection 7(d) were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this subsection 7(d). The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions in respect thereof) referred to above in this
subsection 7(d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
subsection 7(d), the Underwriters shall not be required to contribute any amount
in excess of the amount by which the total price at which the Shares
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages which the Underwriters has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent misrepresentation.
7(e) The obligations of the Company under this Section 7 shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls the
Underwriters within the meaning of the 1933 Act; and the obligations of the
Underwriters under this Section 7 shall be in addition to any liability which
the Underwriters may otherwise have and shall extend, upon the same terms and
conditions, to each officer and director of the Company (including any person
who, with his or her consent, is named in the Registration Statement as about to
become a director of the Company) and to each person, if any, who controls the
Company within the meaning of the 1933 Act.
7(f) The provisions of this Section 7 shall supersede the
indemnification provisions included in the letter agreement dated May 10, 1996
among FBR, on the one hand, and the Company, on the other hand, as amended on
August 16, 1996 (the "Engagement Letter"), insofar, but only insofar, as such
indemnification provisions relate to any such loss, claim, damage or liability
that arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in any preliminary prospectus,
the Registration Statement or the Prospectus or any amendment or supplement
thereto. In all other respects, the provisions of the Engagement Letter shall
remain in full force and effect.
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8. Default by an Underwriter.
-------------------------
(a) If any Underwriter or Underwriters shall default in
its or their obligation to purchase Firm Shares or Option Shares hereunder, and
if the Firm Shares or Option Shares with respect to which such default relates
do not (after giving effect to arrangements, if any, made by you pursuant to
subsection (b) below) exceed in the aggregate 10% of the number of Firm Shares
or Option Shares, to which the default relates shall be purchased by the
non-defaulting Underwriters in proportion to the respective proportions which
the numbers of Firm Shares set forth opposite their respective names in Schedule
A hereto bear to the aggregate number of Firm Shares set forth opposite the
names of the non-defaulting Underwriters.
(b) In the event that such default relates to more than
10% of the Firm Shares or Option Shares, as the case may be, you may in your
discretion arrange for yourself or for another party or parties (including any
non-defaulting Underwriter or Underwriters who so agree) to purchase such Firm
Shares or Option Shares, as the case may be, to which such default relates on
the terms contained herein. In the event that within 5 calendar days after such
a default you do not arrange for the purchase of the Firm Shares or Option
Shares, as the case may be, to which such default relates as provided in this
Section 8, this Agreement or, in the case of a default with respect to the
Option Shares, the obligations of the Underwriters to purchase and of the
Company to sell the Additional Shares shall thereupon terminate, without
liability on the part of the Company with respect thereto (except in each case
as provided in Section 5, 7(a) and 8 hereof) or the Underwriters, but nothing in
this Agreement shall relieve a defaulting Underwriter or Underwriters of its or
their liability, if any, to the other Underwriters and the Company for damages
occasioned by its or their default hereunder.
(c) In the event that the Firm Shares or Option Shares to
which the default relates are to be purchased by the non-defaulting
Underwriters, or are to be purchased by another party or parties as aforesaid,
you or the Company shall have the right to postpone the Closing Date or Option
Closing Date, as the case may be for a period, not exceeding five business days,
in order to effect whatever changes may thereby be made necessary in the
Registration Statement or the Prospectus or in any other documents and
arrangements, and the Company agrees to file promptly any amendment or
supplement to the Registration Statement or the Prospectus which, in the opinion
of Underwriters' Counsel, may thereby be made necessary or advisable. The term
"Underwriter" as used in this Agreement shall include any party substituted
under this Section 8 with like effect as if it had originally been a party to
this Agreement with respect to such Firm Shares and Option Shares.
9. Survival of Representations and Agreements. All
------------------------------------------
representations and warranties, covenants and agreements of the Underwriters and
the Company contained in this Agreement, including the agreements contained in
Section 5, and the indemnity and contribution
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agreements contained in Section 7, shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any Underwriter
or any controlling person thereof or by or on behalf of the Company, any of its
officers and directors or any controlling person thereof, and shall survive
delivery of and payment for the Shares to and by the Underwriters. The
representations contained in Section 1 and the agreements contained in Sections
5, 7 and 9(d) hereof shall survive the termination of this Agreement, including
termination pursuant to Section 8 or 10 hereof.
10. Effective Date of Agreement; Termination.
----------------------------------------
(a) This Agreement shall become effective, upon the later
of when (i) you and the Company shall have received notification of the
effectiveness of the Registration Statement or (ii) the execution of this
Agreement. If either the initial public offering price or the purchase price per
Share has not been agreed upon prior to 5:00 P.M., Eastern time, on the [third]
full business day after the Registration Statement shall have become effective,
this Agreement shall thereupon terminate without liability to the Company or the
Underwriters except as herein expressly provided. Until this Agreement becomes
effective as aforesaid, it may be terminated by the Company by notifying you or
by you notifying the Company. Notwithstanding the foregoing, the provisions of
this Section 10 and of Sections 1, 5, 7 and 8 hereof shall at all times be in
full force and effect.
(b) You shall have the right to terminate this Agreement
at any time prior to the Closing Date or the obligations of the Underwriters to
purchase the Option Shares at any time prior to the Option Closing Date, as the
case may be, if (A) any domestic or international event or act or occurrence has
materially disrupted, or in your opinion will in the immediate future materially
disrupt, the market for the Company's securities or securities in general; or
(B) if trading on the New York or American Stock Exchanges shall have been
suspended, or minimum or maximum prices for trading shall have been fixed, or
maximum ranges for prices for securities shall have been required, on the New
York or American Stock Exchanges by the New York or American Stock Exchanges or
by order of the Commission or any other governmental authority having
jurisdiction; or (C) if a banking moratorium has been declared by a state or
federal authority or if any new restriction materially adversely affecting the
distribution of the Firm Shares or the Option Shares, as the case may be, shall
have become effective; or (D) (i) if the United States becomes engaged in
hostilities or there is an escalation of hostilities involving the United States
or there is a declaration of a national emergency or war by the United States or
(ii) if there shall have been such change in political, financial or economic
conditions if the effect of any such event in clause (b)(D)(i) or (b)(D)(ii) as
in your
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<PAGE>
judgment makes it impracticable or inadvisable to proceed with the offering,
sale and delivery of the Firm Shares or the Option Shares, as the case may be,
on the terms contemplated by the Prospectus.
(c) Any notice of termination pursuant to this Section 10
shall be by telephone, telex, or telegraph, confirmed in writing by letter.
(d) If this Agreement shall be terminated pursuant to any
of the provisions hereof (otherwise than pursuant to (i) notification by you as
provided in Section 10(a) hereof or (ii) Section 8(b) or 10(b) hereof), or if
the sale of the Shares provided for herein is not consummated because any
condition to the obligations of the Underwriters set forth herein is not
satisfied or because of any refusal, inability or failure on the part of the
Company to perform any agreement herein or comply with any provision hereof, the
Company will, subject to demand by you, reimburse the Underwriters for all out-
of-pocket expenses (including the fees and expenses of their counsel), incurred
by the Underwriters in connection herewith.
11. Notice. All communications hereunder, except as may be
------
otherwise specifically provided herein, shall be in writing and , if sent to any
Underwriter, shall be mailed, delivered, or telexed or telegraphed and confirmed
in writing, to such Underwriter c/o Friedman, Billings, Ramsey & Co., Inc.,
Potomac Tower, 1001 19th Street North, 18th Floor, Arlington, Virginia 22209,
Attention: Joe Nardini; if sent to the Company, shall be mailed, delivered, or
telegraphed and confirmed in writing to the Company, 300 Greentree Commons, 381
Mansfield Ave., Pittsburgh, Pennsylvania 15220, Attention: Richard Talarico.
12. Parties. This Agreement shall inure solely to the benefit
-------
of, and shall be binding upon, the Underwriters and the Company and the
controlling persons, directors, officers, employees and agents referred to in
Section 7, and their respective successors and assigns, and no other person
shall have or be construed to have any legal or equitable right, remedy or claim
under or in respect of or by virtue of this Agreement or any provision herein
contained. The term "successors and assigns" shall not include a purchaser, in
its capacity as such, of Shares from any of the Underwriters.
13. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Virginia but without
regard to principles of conflicts of law.
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<PAGE>
If the foregoing correctly sets forth the understanding between
you and the Company, please so indicate in the space provided below for that
purpose, whereupon this letter shall constitute a binding agreement among us.
Very truly yours,
ALLIN COMMUNICATIONS
CORPORATION
By:
-------------------------------
Name:
Title:
Accepted as of the date first above written
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
By:
----------------------------------
Name:
Title:
On behalf of themselves and the other
Underwriters named in Schedule A hereto.
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Exhibit 3(i)(a)
CERTIFICATE OF INCORPORATION
OF
ALLIN COMMUNICATIONS CORPORATION
AS AMENDED
The undersigned, a natural person, for the purpose of organizing a
corporation for conducting the business and promoting the purposes hereinafter
stated, under the provisions and subject to the requirements of the laws of the
State of Delaware (particularly Chapter 1, Title 8 of the Delaware Code and the
acts amendatory thereof and supplemental thereto, and known, identified, and
referred to as the "Delaware General Corporation Law"), hereby certifies that:
ARTICLE I
Name
The name of the corporation is Allin Communications Corporation (the
"Company").
ARTICLE II
Address of Registered Office;
Name of Registered Agent
The address of the registered office of the Company in the State of
Delaware is 1013 Centre Road, City of Wilmington, Delaware 19805, County of New
Castle. The name of the registered agent at that address is Corporation Service
Company.
ARTICLE III
Purpose and Powers
The purpose of the Company is to engage in any lawful act or activity for
which a corporation may now or hereafter be organized under the Delaware General
Corporation Law. It shall have all powers that may now or hereafter be lawful
for a corporation to exercise under the Delaware General Corporation Law.
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ARTICLE IV
Capital Stock
Section 4.1. Total Number of Shares of Stock. The total number of shares
of stock of all classes that the Company shall have authority to issue is
20,100,000. The authorized capital stock is divided into 100,000 shares of
Preferred Stock, $.01 par value per share (the "Preferred Stock"), and
20,000,000 shares of Common Stock, $.01 par value per share (the "Common
Stock").
Each share of Common Stock previously authorized (such Common Stock being
hereinafter referred to in this paragraph as "old Common Stock") shall, at the
close of business on the date this amendment becomes effective, be changed,
reclassified and split into 2,400 shares of Common Stock. Of the 20,000,000
shares of Common Stock authorized, a sufficient number shall be reserved for
issuance to the holders of old Common Stock of record at the close of business
on the date this amendment becomes effective to effectuate the 2,400-for-one
stock split of the old Common Stock, and the remaining shares of Common Stock
shall be regarded as authorized but unissued and unreserved shares of Common
Stock.
Section 4.2 Preferred Stock.
(a) The shares of Preferred Stock of the Company may be issued from time to
time in one or more classes or series thereof, the shares of each class or
series thereof to have such voting powers, full or limited, or no voting powers,
and such designations, preferences and relative, participating, optional or
other special rights, and qualifications, limitations or restrictions thereof,
as are stated and expressed herein or in the resolution or resolutions providing
for the issuance of such class or series, adopted by the Board of Directors as
hereinafter provided. All shares of the same class and series of Preferred
Stock will be identical, but shares of different classes or series of Preferred
Stock need not be identical or rank equally except as provided by law or herein.
(b) Authority is hereby expressly granted to the Board of Directors of the
Company, subject to the provisions of this Article IV and to the limitations
prescribed by the Delaware General Corporation Law, to authorize the issue of
one or more classes, or series thereof, of Preferred Stock and with respect to
each such class or series to fix by the resolution or resolutions providing for
the issue of such class or series the voting powers, full or limited, if any, of
the shares of such class or series and the designations, preferences and
relative, participating, optional or other special rights, and qualifications,
limitations or restrictions thereof. The authority of the Board of Directors
with respect to each class or series thereof shall include, but not be limited
to, the determination or fixing of the following:
(i) the maximum number of shares to constitute such class or series,
which may subsequently be increased or decreased (but not below the number of
shares of that class or series then outstanding) by resolution of the Board of
Directors, the distinctive designation thereof and the stated value thereof if
different than the par value thereof;
(ii) the dividend rate of such class or series, the conditions and
dates upon which such dividends shall be payable, the relation which such
dividends shall bear to the dividends payable on any other class or classes of
stock or any other series of any class of stock of the Company, and whether such
dividends shall be cumulative or noncumulative;
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(iii) whether the shares of such class or series shall
be subject to redemption by the Company and, if made subject to such redemption,
the times, prices and other terms and conditions of such redemption;
(iv) the terms and amount of any sinking fund established for the
purchase or redemption of the shares of such class or series;
(v) whether or not the shares of such class or series shall be
convertible into or exchangeable for shares of any other class or classes of any
stock or any other series of any class of stock of the Company, and, if
provision is made for conversion or exchange, the times, prices, rates,
adjustments, and other terms and conditions of such conversion or exchange;
(vi) the extent, if any, to which the holders of shares of such class
or series shall be entitled to vote with respect to the election of directors or
otherwise;
(vii) the restrictions, if any, on the issue or reissue of any
additional shares of Preferred Stock;
(viii) whether or not the issue of any additional shares of any such
class or series or of any other class or series in addition to such class or
series shall be subject to restrictions in addition to the restrictions, if any,
on the issue of additional shares imposed in the resolution or resolutions
fixing the terms of any outstanding class or series of Preferred Stock
theretofore issued pursuant to this Section 4.2 and, if subject to additional
restrictions, the extent of such additional restrictions; and
(ix) the rights of the holders of the shares of such class or series
upon the dissolution, liquidation or winding up of, or upon the distribution of
assets of, the Company.
For purposes of this Section 4.2, the voluntary sale, conveyance, lease,
exchange or transfer of all or substantially all the property or assets of the
Company or a consolidation or merger of the Company with one or more other
corporations (whether or not the Company is the corporation surviving such
consolidation or merger) shall not be deemed to be a liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary.
The Board of Directors of the Company is further expressly vested with the
authority to make the voting powers, designations, preferences, rights and
qualifications, limitations or restrictions of any class or series of Preferred
Stock dependent upon facts ascertainable outside this Certificate of
Incorporation or of any amendment hereto, or outside the resolutions or
resolutions providing for the issuance of such stock adopted by the Board of
Directors, provided that the manner in which such facts shall operate upon the
voting powers, designations, preferences, rights and qualifications, limitations
or restrictions of such class or series of Preferred Stock is clearly and
expressly set forth in the resolution or
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resolutions providing for the issue of such stock adopted by the Board of
Directors of the Company.
Any specification for a class or series of Preferred Stock of designations,
preferences and relative, participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, pursuant to this Section
4.2 shall be defined in this Certificate of Incorporation as a "Preferred Stock
Designation."
(c) Before any dividends shall be declared or paid or any distribution
ordered or made upon the Common Stock (other than a dividend payable in Common
Stock), the Company shall comply with the dividend and sinking fund provisions,
if any, of any resolution or resolutions providing for the issuance of any class
or series of Preferred Stock any shares of which shall at the time be
outstanding. Subject to the foregoing sentence, the holders of Common Stock
shall be entitled, to the exclusion of the holders of Preferred Stock of any and
all classes and series, to receive such dividends as from time to time may be
declared by the Board of Directors of the Company.
Section 4.3 Common Stock. Except as otherwise provided in this
Certificate of Incorporation, holders of Common Stock shall be entitled to one
vote for each share of Common Stock held by them on each matter on which they
are entitled to vote. The holders of Common Stock shall be entitled to
participate share for share in any cash dividend which may be declared from time
to time on the Common Stock of the Company by the Board of Directors and to
receive pro rata the net assets of the Company on dissolution, liquidation or
winding up of the Company, in both cases subject to all amounts to which the
holders of Preferred Stock are entitled to receive or have set aside.
ARTICLE V
Incorporator
The name and the mailing address of the incorporator are as follows:
Name Mailing Address
---- ---------------
Eileen R. Sisca c/o Eckert Seamans Cherin & Mellott
600 Grant St., 42nd Floor
Pittsburgh, PA 15219
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ARTICLE VI
Term of Existence Perpetual
The Company is to have perpetual existence.
ARTICLE VII
Board of Directors
Section 7.1 Powers of the Board of Directors. The business and affairs of
the Company shall be managed by or under the direction of its Board of
Directors. In furtherance, and not in limitation, of the powers conferred by
the laws of the State of Delaware, the Board of Directors is expressly
authorized to:
(a) adopt, amend, alter, change or repeal the Bylaws of the Company, by the
affirmative vote of a majority of the whole Board of Directors; provided,
--------
however, that the stockholders entitled to vote may prescribe that any Bylaw
- -------
adopted by the stockholders may not be amended, altered, changed or repealed by
the Board of Directors; and provided, further, that no Bylaws hereafter adopted
-------- -------
shall invalidate any prior act of the directors that would have been valid if
such new Bylaws had not been adopted;
(b) determine the rights, powers, duties, rules and procedures that affect
the power of the Board of Directors to manage and direct the business and
affairs of the Company, including the power to designate and empower committees
of the Board of Directors, to elect, appoint and empower the officers and other
agents of the Company, and to determine the time and place of, and the notice
requirements for, Board meetings, as well as quorum and voting requirements for,
and the manner of taking, Board action; and
(c) exercise all such powers and do all such acts as may be exercised or
done by the Company, subject to the provisions of the laws of the State of
Delaware, this Certificate of Incorporation, and the Bylaws of the Company.
Section 7.2 Number of Directors. The number of directors of the Company
shall be not less than five (5) or more than twelve (12). The exact number of
directors shall be determined within such minimum and maximum by resolution
adopted by the directors.
Section 7.3 Term. Each director shall serve until his or her successor is
elected and qualified or until his or her earlier resignation, retirement,
disqualification, removal from office or death.
Section 7.4 Removal. The entire Board or any individual director may be
removed from office only for cause by the affirmative vote of the holders of a
majority of the
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outstanding shares of capital stock of the Company then entitled to vote at an
election of directors. Removal action may be taken at any stockholders' meeting
with respect to which notice of such purpose has been given, and a removed
director's successor may be elected at the same meeting to serve the unexpired
term.
Section 7.5 Vacancies. A vacancy occurring on the board, however
occurring, whether by increase in the number of directors, death, resignation,
retirement, disqualification, removal from office or otherwise, may be filled,
until the next election of directors by the stockholders, by the affirmative
vote of at least two-third (2/3) of the total number of directors then remaining
in office, though they may constitute less than a quorum of the Board.
Section 7.6 Election of Directors by Holders of Preferred Stock. Whenever
the holders of any one or more classes of Preferred Stock or series thereof
issued by the Company shall have the right, voting separately by class or
series, to elect directors at an annual or special meeting of stockholders, the
number of such directors, and the election, term of office, filling of vacancies
and other features of each such directorship, shall be governed by the terms of
this Certificate of Incorporation and any Preferred Stock Designation applicable
thereto.
ARTICLE VIII
Indemnification
Section 8.1 Right to Indemnification. Each person who was or is made a
party or is threatened to be made a party to or is otherwise involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact:
(a) that he or she is or was a director or officer of the Company, or
(b) that he or she, being at the time a director or officer of the Company,
is or was serving at the request of the Company as a director, trustee, officer,
employee or agent of another corporation or of a partnership, joint venture,
trust or other enterprise, including service with respect to an employee benefit
plan (collectively, "another enterprise" or "other enterprise"),
whether either in case (a) or in case (b) the basis of such proceeding is
alleged action or inaction (x) in an official capacity as a director or officer
of the Company, or as a director, trustee, officer, employee or agent of such
other enterprise, or (y) in any other capacity related to the Company or such
other enterprise while so serving as a director, trustee, officer, employee or
agent, shall be indemnified and held harmless by the Company to the
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fullest extent not prohibited by Section 145 of the Delaware General Corporation
Law (or any successor provision or provisions) as the same exists or may
hereafter be amended (but, in the case of any such amendment, with respect to
alleged action or inaction occurring prior to such amendment, only to the extent
that such amendment permits the Company to provide broader indemnification
rights than permitted prior thereto), against any expense, liability or loss
(including without limitation attorneys' fees and expenses, judgments, fines,
ERISA excise taxes or penalties and amounts paid in settlement) reasonably
incurred or suffered by such person in connection therewith. The persons
indemnified by this Article VIII are hereinafter referred to as "indemnitees."
Such indemnification as to such alleged action or inaction shall continue as to
an indemnitee who has after such alleged action or inaction ceased to be a
director or officer of the Company, or director, officer, employee or agent of
such other enterprise, and shall inure to the benefit of the indemnitee's heirs,
executors and administrators. Notwithstanding the foregoing, except as may be
provided in the Bylaws of the Company or by the Board, the Company shall not
indemnify any such indemnitee in connection with a proceeding (or portion
thereof) initiated by such indemnitee (but this prohibition shall not apply to a
counterclaim, cross-claim or third-party claim brought by the indemnitee in any
proceeding) unless such proceeding (or portion thereof) was authorized by the
Board. The right to indemnification conferred in this Article VIII: (1) shall
be a contract right; (ii) shall not be changed by any amendment of this
Certificate of Incorporation to adversely affect any indemnitee with respect to
any alleged action or inaction occurring prior to such amendment; and (iii)
shall, subject to any requirements imposed by law and the Bylaws of the Company,
include the right to be paid by the Company the expenses incurred in defending
any such proceeding in advance of its final disposition.
Section 8.2 Relationship to Other Rights and Provisions Concerning
Indemnification. The rights to indemnification and to the advancement of
expenses conferred in this Article VIII shall not be exclusive of any other
right which any person may have or hereafter acquire under this Certificate of
Incorporation, or any statute, bylaw, agreement, vote of stockholders or
disinterested directors or otherwise. The Bylaws of the Company may contain
such other provisions concerning indemnification, including provisions
specifying reasonable procedures relating to and conditions to the receipt by
indemnitees of indemnification, provided that such provisions are not
inconsistent with the provisions of this Article VIII.
Section 8.3 Agents and Employees. The Company may, to the extent
authorized from time to time by the Board, grant rights to indemnification, and
to the advancement of expenses, to any employee or agent of the Company (or any
person serving at the Company's request as a director, trustee, officer,
employee or agent of another enterprise) or to any person who is or was a
director, officer, employee or agent of any of the Company's affiliates,
predecessor or subsidiary corporations or a constituent corporation absorbed by
the Company in a consolidation or merger or who is or was serving at the request
of such affiliate, predecessor or subsidiary corporation or of such constituent
corporation as a director, officer, employee or agent of another enterprise, in
each case as determined by the Board to the fullest extent of the provisions of
this Article VIII in cases of the
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indemnification and advancement of expenses of directors and officers of the
Company, or to any lesser extent (or greater extent, if permitted by law)
determined by the Board.
ARTICLE IX
Limitation on Liability of Directors
No person shall be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director, provided however,
-------- -------
that the foregoing shall not eliminate or limit the liability of a director (1)
for any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the Delaware General Corporation Law, or (iv) for any transaction from which the
director derived an improper personal benefit. If the Delaware General
Corporation Law is amended hereafter to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of a director of the Company shall be eliminated or limited to the fullest
extent permitted by the Delaware General Corporation Law, as so amended. Any
amendment, repeal or modification of this Article IX shall not adversely affect
any right or protection of a director of the Company existing hereunder with
respect to any act or omission occurring prior to such amendment, repeal or
modification.
ARTICLE X
Compromise
Whenever a compromise or arrangement is proposed between this Company and
its creditors or any class of them and/or this Company and its stockholders or
any class of them, any court of equitable jurisdiction within the State of
Delaware may, on the application in a summary way of this Company or of any
creditor or stockholder thereof or on the application of any receiver or
receivers appointed for this Company under the provisions of Section 291 of
Title 8 of the Delaware Code or on the application of trustees in dissolution or
of any receiver or receivers appointed for this Company under the provisions of
Section 279 of Title 8 of the Delaware Code, order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of this
Company, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Company, as the case may be, agree to any compromise or
arrangement and to any reorganization of this Company as a consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the
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creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this Company, as the case may be, and also on this Company.
ARTICLE XI
Amendment of Certificate of Incorporation
The Company hereby reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by the Delaware General Corporation Law, and all rights
conferred upon stockholders herein are granted subject to this reservation.
ARTICLE XII
Severability
In the event that any of the provisions of this Certificate of
Incorporation (including any provision within a single Article, Section,
paragraph or sentence) is held by a court of competent jurisdiction to be
invalid, void or otherwise unenforceable, the remaining provisions are severable
and shall remain enforceable to the full extent permitted by law.
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Exhibit 3(ii)
AMENDED AND RESTATED BYLAWS OF
ALLIN COMMUNICATIONS CORPORATION
SECTION I
Capital Stock
Section 1.1. Certificates. Every holder of stock in the Corporation shall
be entitled to have a certificate signed in the name of the Corporation by such
person or persons authorized by the General Corporation Law of the State of
Delaware to so sign such a certificate certifying the number of shares in the
Corporation owned by such holder. If such certificate is countersigned (a) by a
transfer agent other than the Corporation or its employee, or, (b) by a
registrar other than the Corporation or its employee, any other signature on the
certificate may be a facsimile. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent, or registrar
before such certificate is issued, it may be issued by the Corporation, with the
same effect as if such person were such officer, transfer agent, or registrar at
the date of issue.
Section 1.2. Record Ownership. A record of the name and address of the
holder of each certificate, the number of shares represented thereby and the
date of issue thereof shall be made on the Corporation's books. The Corporation
shall be entitled to treat the holder of record of any share of stock as the
holder in fact thereof, and accordingly shall not be bound to recognize any
equitable or other claim to or interest in any share on the part of any other
person, whether or not it shall have express or other notice thereof, except as
required by the laws of the State of Delaware.
Section 1.3. Transfer of Record Ownership. Transfers of stock shall be
made on the books of the Corporation only by direction of the holder of record
or such person's attorney, lawfully constituted in writing, and only upon the
surrender of the certificate therefor and a written assignment of the shares
evidenced thereby, which certificate shall be canceled before the new
certificate is issued.
Section 1.4. Lost Certificates. Any person claiming a stock certificate
in lieu of one lost, stolen or destroyed shall give the Corporation an affidavit
as to such person's ownership of the certificate and of the facts which go to
prove its loss, theft or destruction. Such person shall also, if required by
policies adopted by the Board of Directors, give the Corporation a bond, in such
form as may be approved by the Corporation, sufficient to indemnify the
Corporation against any claim that may be made against it on account of the
alleged loss of the certificate or the issuance of a new certificate.
Section 1.5. Transfer Agents; Registrars; Rules Respecting Certificates.
The Board of Directors may appoint, or authorize any officer or officers to
appoint one or more transfer agents and one or more registrars. The Board of
Directors may make such further rules and
<PAGE>
regulations as it may deem expedient concerning the issue, transfer and
registration of stock certificates of the Corporation.
Section 1.6. Record Date. The Board of Directors may fix in advance a
future date, not exceeding 60 days (nor, in the case of a stockholders' meeting,
less than ten days) preceding the date of any meeting of stockholders, payment
of dividend or other distribution, allotment of rights, or change, conversion or
exchange of capital stock or for the purpose of any other lawful action, as the
record date for determination of the stockholders entitled to notice of and to
vote at any such meeting and any adjournment thereof, or to receive any such
dividend or other distribution or allotment of rights, or to exercise the rights
in respect of any such change, conversion or exchange of capital stock, or to
participate in any such other lawful action, and in such case such stockholders
and only such stockholders as shall be stockholders of record on the date so
fixed shall be entitled to such notice of and to vote at such meeting and any
adjournment thereof, or to receive such dividend or other distribution or
allotment of rights, or to exercise such rights, or to participate in any such
other lawful action, as the case may be, notwithstanding any transfer of any
stock on the books of the Corporation after any such record date fixed as
aforesaid.
SECTION II
Meetings of Stockholders
Section 2.1. Annual. The annual meeting of stockholders for the election
of directors and the transaction of such other proper business shall be held
within or without the State of Delaware on such date and at such time as shall
be designated by the Board of Directors.
Section 2.2. Special. Special meetings of stockholders for any purpose or
purposes may be called by the Board of Directors, or by the holders of not less
than two-thirds of all shares entitled to vote at the meeting. Special meetings
may be held at any place, within or without the State of Delaware, as determined
by the Board of Directors. The only business which may be conducted at such a
meeting, other than procedural matters and matters relating to the conduct of
the meeting, shall be the matter or matters described in the notice of the
meeting.
Section 2.3. Notice. Written notice of each meeting of stockholders,
stating the date, time, place and, in the case of a special meeting, the purpose
thereof, shall be given as provided by law by the Secretary or an Assistant
Secretary of the Corporation not less than ten days nor more than 60 days before
such meeting (unless a different time is specified by law) to every stockholder
entitled by law to notice of such meeting.
Section 2.4. List of Stockholders. A complete list of stockholders
entitled to vote at any meeting of stockholders, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder, shall be
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prepared by the Secretary and shall be open to the examination of any
stockholder, for any purpose germane to meeting of stockholders, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified at the place
where the meeting is to be held, for at least ten days before the meeting and at
the place of the meeting during the whole time of the meeting.
Section 2.5. Quorum. The holders of shares of stock entitled to cast a
majority of the votes on the matters at issue at a meeting of stockholders,
present in person or represented by proxy, shall constitute a quorum, except as
otherwise required by the Delaware General Corporation Law. In the event of a
lack of a quorum, the chairman of the meeting or a majority in interest of the
stockholders present in person or represented by proxy may adjourn the meeting
from time to time without notice other than announcement at the meeting, until a
quorum shall be obtained. At any such adjourned meeting at which there is a
quorum, any business may be transacted that might have been transacted at the
meeting originally called.
Section 2.6. Organization and Procedure.
(a) The Chairman of the Board, or, in the absence of the Chairman of the
Board, the Vice Chairman of the Board, or any other person designated by the
Board of Directors, shall preside at meetings of stockholders. The Secretary of
the Corporation shall act as secretary, but in the absence of the Secretary, the
presiding officer may appoint a secretary.
(b) At each meeting of stockholders, the chairman of the meeting shall fix
and announce the date and time of the opening and the closing of the polls for
each matter upon which the stockholders will vote at the meeting and shall
determine the order of business and all other matters of procedure. Except to
the extent inconsistent with any such rules and regulations as adopted by the
Board of Directors, the chairman of the meeting may establish rules, which need
not be in writing, to maintain order for the conduct of the meeting, including,
without limitation, restricting attendance to bona fide stockholders of record
and their proxies and other persons in attendance at the invitation of the
chairman and making rules governing speeches and debates. The chairman of the
meeting acts in his or her absolute discretion and his or her rulings are not
subject to appeal.
Section 2.7. Voting. Unless otherwise provided by the Delaware General
Corporation Law, each stockholder shall be entitled to one vote, in person or by
written proxy, for each share held of record by such stockholder who is entitled
to vote generally in the election of directors. All elections for the Board of
Directors shall be decided by a plurality of the votes cast and all other
questions shall be decided by a majority of the votes cast, except as otherwise
required by the Delaware General Corporation Law or as provided for in the
Certificate of Incorporation or these Bylaws.
Section 2.8. Inspectors. The Board of Directors by resolution shall, in
advance of any meeting of stockholders, appoint one or more inspectors, which
inspector or inspectors may include individuals who serve the Corporation in
other capacities, including, without limitation,
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as officers, employees, agents or representatives of the Corporation, to act at
the meeting and make a written report thereof. One or more persons may be
designated by the Board of Directors as alternate inspectors to replace any
inspector who fails to act. If no inspector or alternate is able to act at a
meeting of stockholders, the chairman of the meeting shall appoint one or more
inspectors to act at the meeting. Each inspector, before discharging his or her
duties, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of his or her
ability. The inspector(s) shall have the duties prescribed by the Delaware
General Corporation Law.
Section 2.9. Nominations of Directors. Nominations of candidates for
election as directors at any annual meeting of stockholders may be made (i) by,
or at the direction of, a majority of the Board of Directors or (ii) by any
stockholder of record entitled to vote at such annual meeting. Only persons
nominated in accordance with procedures set forth in this Section 2.9 shall be
eligible for election as a director at an annual meeting.
Nominations, other than those made by, or at the direction of, a majority
of the Board of Directors, shall be made pursuant to timely notice in writing to
the Secretary of the Corporation as set forth in this Section 2.9. To be
timely, a stockholder's notice shall be delivered to, or mailed and received at,
the principal executive offices of the Corporation not less than sixty (60) days
nor more than ninety (90) days prior to the date of the scheduled annual
meeting, regardless of postponements, deferrals or adjournments of that meeting
to a later date; provided, however, that if less than seventy (70) days' notice
or prior public disclosure of the date of the scheduled annual meeting is given
or made, notice by the stockholder to be timely must be so delivered or received
no later than the close of business on the tenth (10th) day following the
earlier of the date on which such notice of the date of the scheduled annual
meeting was mailed or the day on which such public disclosure was made. Such
stockholder's notice shall be set forth (i) as to each person whom the
stockholder proposes to nominate as a director (a) the name, age, business
address and residence address of such person, (b) the principal occupation or
employment of such person, (c) the class and number of shares of the
Corporation's equity securities which are Beneficially Owned (as defined below)
by such person on the date of such stockholder notice and (d) and any other
information relating to such person that would be required to be disclosed
pursuant to Regulation 13D under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), in connection with the acquisition of shares, and pursuant
to Regulation 14A under the Exchange Act, in connection with the solicitation of
proxies with respect to nominees for election as directors, regardless of
whether such person is subject to the provisions of such regulations, including,
but not limited to, information required to be disclosed by Items 4(b) and 6 of
Schedule A of Regulation 14A and information which would be required to be filed
on Schedule B of Regulation 14A with the Securities and Exchange Commission (as
such Items and Schedules are in effect on the date hereof and such additional
information as may be required by those provisions or successor provisions
adopted after the date thereof); and (ii) as to the stockholder giving the
notice (a) the name and address, as they appear on the Corporation's books, of
such stockholder and any other stockholder who is a record or Beneficial Owner
of any equity securities of the Corporation and who is known by such stockholder
to be supporting such nominee(s) and (b) the class and number of shares of the
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Corporation's equity securities which are Beneficially Owned and owned of record
by such stockholder on the date of such stockholder notice and the number of
shares of the Corporation's equity securities Beneficially Owned and owned of
record by any Person known by such stockholder to be supporting such nominee(s)
on the date of such stockholder notice. At the request of a majority of the
Board of Directors any person nominated by, or at the direction of, the Board of
Directors for election as a director at an annual meeting shall furnish to the
Secretary of the Corporation that information required to be set forth in a
stockholder's notice of nomination which pertains to the nominee. Ballots
bearing the names of all the persons who have been nominated for election as
directors at an annual meeting in accordance with procedures set forth in this
Section 2.9 shall be provided for use at the annual meeting.
A majority of the directors may reject any nomination by a stockholder not
timely made in accordance with the requirements of this Section 2.9. If a
majority of the directors determines that the information provided in a
stockholder's notice does not satisfy the informational requirements of this
Section 2.9 in any material respect, the Secretary of the Corporation shall
promptly notify such stockholder of the deficiency in the notice. The
stockholder shall have an opportunity to cure the deficiency by providing
additional information to the Secretary within such period of time, not to
exceed five (5) days, from the date such deficiency notice is given to the
stockholder, as a majority of the directors shall reasonably determine. If the
deficiency is not cured within such period, or if a majority of the directors
reasonably determine that the additional information provided by the
stockholder, together with the information previously provided, does not satisfy
the requirements of this Section 2.9 in any material respect, then a majority of
the directors may reject such stockholder's nomination. The Secretary of the
Corporation shall notify a stockholder in writing whether his nomination has
been made in accordance with the time and informational requirements of this
Section 2.9. Notwithstanding the procedure set forth in this Section 2.9, if
the majority of the directors does not make a determination as to the validity
of any nominations by a stockholder, the presiding officer of the annual meeting
shall determine and declare at the annual meeting whether a nomination was not
made in accordance with the terms of this Section 2.9. If the presiding officer
determines that a nomination was not made in accordance with the terms of this
Section 2.9, he shall so declare at the annual meeting and the defective
nomination shall be disregarded.
For the purposes of this Section 2.9 and Section 2.10, a person shall be
considered the "Beneficial Owner" of any security (whether or not owned of
record):
(a) with respect to which such person or any affiliate or associate (as
those terms are defined under Rule 12b-2 of the General Rules and Regulations
under the Exchange Act) of such person directly or indirectly has or shares (i)
voting power, including the power to vote or to direct the voting of such
securities and/or (ii) investment power, including the power to dispose of or to
direct the disposition of such security;
(b) which such person or any affiliate or associate of such person has (i)
the right or obligation to acquire (whether such right or obligation is
exercisable immediately or only after the passage of time) pursuant to any
agreement, arrangement or understanding (whether or not
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in writing) or upon the exercise of conversion rights, exchange rights, warrants
or options, or otherwise, and/or (ii) the right to vote pursuant to any
agreement, arrangement or understanding (whether or not in writing and whether
or not such right is exercisable immediately or only after the passage of time);
or
(c) which is Beneficially Owned within the meaning of (a) or (b) of this
paragraph by any other person with which such first-mentioned person or any of
its affiliates or associates has any agreement, arrangement or understanding
(whether or not in writing), with respect to (x) acquiring, holding, voting or
disposing of such security or any security convertible into or exchangeable or
exercisable for such security, or (y) acquiring, holding or disposing of all or
substantially all of the assets or businesses of the Corporation or a subsidiary
of the Corporation.
Section 2.10. New Business. At the annual meeting of stockholders, only
such new business shall be conducted, and only such proposals shall be acted
upon, as shall have been brought before the annual meeting (a) by, or at the
direction of, the majority of the Board of Directors or (b) by any stockholder
of the Corporation who complies with the notice procedures set forth in this
Section 2.10. For the proposal to be properly brought before an annual meeting
by a stockholder, the stockholder must have given timely notice thereof in
writing to the Secretary of the Corporation. To be timely, a stockholder's
notice must be delivered to, or mailed and received at, the principal executive
offices of the Corporation not less than sixty (60) days nor more than ninety
(90) days prior to the scheduled annual meeting, regardless of any postponement,
deferrals or adjournments of that meeting to a later date, provided however,
that if less than seventy (70) days' notice or prior public disclosure of the
date of the scheduled annual meeting is given or made, notice by the
stockholder, to be timely, must be so delivered or received not later than the
close of business on the tenth (10th) day following the earlier of the day on
which such notice of the date of the scheduled annual meeting was mailed or the
day on which such public disclosure was made. A stockholder's notice to the
Secretary shall set forth as to each matter the stockholder proposes to bring
before the annual meeting (a) a brief description of the proposal desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (b) the name and address, as they appear on the
Corporation's books, of the stockholder proposing such business and any other
stockholder who is the record or Beneficial Owner of any equity security of the
Corporation known by such stockholder to be supporting such proposal, (c) the
class and number of shares of the Corporation's equity securities which are
Beneficially Owned and owned of record by the stockholder giving the notice on
the date of such stockholder notice and by any other record or Beneficial Owners
of the Corporation's equity securities known by such stockholder to be
supporting such proposal on the date of such stockholder notice, and (d) any
financial or other interest of the stockholder in such proposal.
A majority of the directors may reject any stockholder proposal not timely
made in accordance with the terms of this Section 2.10. If a majority of the
directors determine that the information provided in a stockholder's notice does
not satisfy the informational requirements of this Section 2.10 in any material
respect, the Secretary of the Corporation shall promptly notify such stockholder
of the deficiency in the notice. The stockholder shall have an
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opportunity to cure the deficiency by providing additional information to the
Secretary within such period of time, not to exceed five (5) days from the date
such deficiency notice is given to the stockholder, as the majority of the
directors shall reasonably determine. If the deficiency is not cured within
such period, or if the majority of the directors determines that the additional
information provided by the stockholder, together with information previously
provided, does not satisfy the requirements of this Section 2.10 in any material
respect, then a majority of the directors may reject such stockholder's
proposal. The Secretary of the Corporation shall notify a stockholder in
writing whether his or her proposal has been made in accordance with the time
and information requirements of this Section 2.10. Notwithstanding the
procedures set forth in this paragraph, if a majority of the directors does not
make a determination as to the validity of any stockholder proposal, the
presiding officer of the annual meeting shall determine and declare at the
annual meeting whether the stockholder proposal was made in accordance with the
terms of this Section 2.10. If the presiding officer determines that a
stockholder proposal was not made in accordance with the terms of this Section
2.10, he or she shall so declare at the annual meeting and any such proposal
shall not be acted upon at the annual meeting.
Section 2.11. Action by Shareholders Without a Meeting. Any action
required or permitted to be taken at any meeting of the Shareholders, may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing. Action
taken pursuant to this paragraph shall be subject to the provisions of Section
228 of the Delaware General Corporation Law.
SECTION III
Board of Directors
Section 3.1. Number and Qualifications. The business and affairs of the
Corporation shall be managed by or under the direction of its Board of
Directors. Except as otherwise required by the Certificate of Incorporation,
the number of directors constituting the Board of Directors shall be as
authorized from time to time exclusively by resolution of the Board of
Directors.
Section 3.2. Resignation. A director may resign at any time by giving
written notice to the Chairman of the Board, to the Chief Executive Officer, or
to the Secretary. Unless otherwise stated in such notice of resignation, the
acceptance thereof shall not be necessary to make it effective; and such
resignation shall take effect at the time specified therein or, in the absence
of such specification, it shall take effect upon the receipt thereof.
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Section 3.3. Regular Meetings. Regular meetings of the Board of Directors
may be held without further notice at such time as shall from time to time be
determined by the Board of Directors. A meeting of the Board of Directors for
the election of officers and the transaction of such other business as may come
before it may be held without notice immediately following the annual meeting of
stockholders.
Section 3.4. Special Meetings. Special meetings of the Board of Directors
may be called by the Chairman of the Board or the Chief Executive Officer, or at
the request in writing of one-third of the members of the Board of Directors
then in office.
Section 3.5. Notice of Special Meetings. Notice of the date, time and
place of each special meeting shall be mailed by regular mail to each director
at his or her designated address at least six days before the meeting; or sent
by overnight courier to each director at his or her designated address at least
two days before the meeting (with delivery scheduled to occur no later than the
day before the meeting); or given orally by telephone or other means, or by
telegraph or telecopy, or by any other means comparable to any of the foregoing,
to each director at his designated address at least 24 hours before the meeting;
provided, however, that if less than five days' notice is provided and one-third
- -------- -------
of the members of the Board of Directors then in office object in writing prior
to or at the commencement of the meeting, such meeting shall be postponed until
five days after such notice was given pursuant to this sentence (or such shorter
period to which a majority of those who objected in writing agree), provided
that notice of such postponed meeting shall be given in accordance with this
Section 3.5. The notice of the special meeting shall state the general purpose
of the meeting, but other routine business may be conducted at the special
meeting without such matter being stated in the notice.
Section 3.6. Place of Meetings. The Board of Directors may hold their
meetings and have an office or offices inside or outside of the State of
Delaware.
Section 3.7. Telephone Meeting and Participation. Any or all of the
directors may participate in a meeting of the Board of Directors or any
committee thereof by conference telephone or similar communications equipment by
means of which all persons participating in the meeting can hear each other, and
such participation shall constitute presence in person at the meeting.
Section 3.8. Action by Directors Without a Meeting. Any action required
or permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting if all members of the Board of
Directors or of such committee, as the case may be, consent thereto in writing,
and the writing or writings are filed with the minutes of proceedings of the
Board of Directors or committee.
Section 3.9. Quorum and Adjournment. A majority of the directors then
holding office shall constitute a quorum. The vote of the majority of the
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors. Whether or not a quorum is present to conduct a
meeting, any meeting of the Board of Directors (including an
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adjourned meeting) may be adjourned by a majority of the directors present, to
reconvene at a specific time and place. It shall not be necessary to give to
the directors present at the adjourned meeting notice of the reconvened meeting
or of the business to be transacted, other than by announcement at the meeting
that was adjourned; provided, however, notice of such reconvened meeting,
-------- -------
stating the date, time and place of the reconvened meeting, shall be given to
the directors not present at the adjourned meeting in accordance with the
requirements of Section 3.5 hereof.
Section 3.10. Organization. The Chairman of the Board, or in the absence
of the Chairman of the Board, the Vice Chairman of the Board, shall preside at
meetings of the Board of Directors; provided that if the Vice Chairman of the
Board is also absent, a member of the Board of Directors selected by the members
present shall preside at such meetings. The Secretary of the Corporation shall
act as secretary, but in the absence of the Secretary, the presiding officer may
appoint a secretary.
Section 3.11. Compensation of Directors. Directors shall receive such
compensation for their services as the Board of Directors may determine. Any
director may serve the Corporation in any other capacity and receive
compensation therefor.
Section 3.12. Presumption of Assent. A director of the Corporation who is
present at a meeting of the Board of Directors when a vote on any matter is
taken is deemed to have assented to the action taken unless he or she votes
against or abstains from the action taken, or unless at the beginning of the
meeting or promptly upon arrival the director objects to the holding of the
meeting or transacting specified business at the meeting. Any such dissenting
votes, abstentions or objections shall be entered in the minutes of the meeting.
Section 3.13. Chairman of the Board of Directors and Vice Chairman of the
Board of Directors. The Chairman of the Board of Directors shall preside at all
meetings of the Board of Directors and the stockholders. The Chairman of the
Board of Directors shall perform such other duties and have such other authority
and powers as the Board of Directors may from time to time prescribe. In the
absence of the Chairman of the Board of Directors, the Vice Chairman of the
Board of Directors shall perform the duties and exercise the powers of the
Chairman of the Board of Directors. Neither the Chairman of the Board of
Directors nor the Vice Chairman of the Board of Directors shall, solely by
virtue of holding such titles, be officers of the Company. The Chairman of the
Board of Directors and Vice Chairman of the Board of Directors shall be
appointed by the Board of Directors and serve at the pleasure of the Board of
Directors.
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SECTION IV
Committees
Section 4.1. Committees. The Board of Directors may, by resolutions
passed by a majority of the members of the Board of Directors, designate members
of the Board of Directors to constitute committees which shall in each case
consist of such number of directors, and shall have and may execute such powers
as may be determined and specified in the respective resolutions appointing
them. Any such committee may fix its rules of procedure, determine its manner
of acting and the time and place, whether within or without the State of
Delaware, of its meetings and specify what notice thereof, if any, shall be
given, unless the Board of Directors shall otherwise by resolution provide.
Unless otherwise provided by the Board of Directors or such committee, the
quorum, voting and other procedures shall be the same as those applicable to
actions taken by the Board of Directors. A majority of the members of the Board
of Directors then in office shall have the power to change the membership of any
such committee at any time to fill vacancies therein and to discharge any such
committee or to remove any member thereof, either with or without cause, at any
time.
SECTION V
Officers
Section 5.1. Designation. The officers of the Corporation shall be a
Chief Executive Officer, a President, a Treasurer and a Secretary, and the Board
of Directors may elect or appoint, or provide for the appointment of, one or
more Assistant Secretaries and Assistant Treasurers. The Board of Directors may
elect or appoint, or provide for the appointment of, such other officers,
including one or more Vice Presidents in such gradation as the Board of
Directors may determine, or agents as may from time to time appear necessary or
advisable in the conduct of the business and affairs of the Corporation. Any
number of offices may be held by the same person.
Section 5.2. Election Term. At its first meeting after each annual
meeting of stockholders, the Board of Directors shall elect the officers or
provide for the appointment thereof. Subject to Sections 5.3 and 5.4 hereof,
the term of each officer elected by the Board of Directors shall be until the
first meeting of the Board of Directors following the next annual meeting of
stockholders and until such officer's successor is chosen and qualified.
Section 5.3. Resignation. Any officer may resign at any time by giving
written notice to the Chief Executive Officer or the Secretary. Unless
otherwise stated in such notice of resignation, the acceptance thereof shall not
be necessary to make it effective; and such resignation shall take effect at the
time specified therein or, in the absence of such specification, it shall take
effect upon the receipt thereof.
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Section 5.4. Removal. Any officer may be removed at any time with or
without cause by the affirmative vote of a majority of the members of the Board
of Directors then in office. Any officer appointed by another officer may be
removed with or without cause by such officer or the Chief Executive Officer.
Section 5.5. Vacancies. A vacancy in any office may be filled for the
unexpired portion of the term by the Board of Directors or, in the case of
offices held by officers who may be appointed by other officers, by any officer
authorized to appoint such officer.
Section 5.6. Chief Executive Officer. The Chief Executive Officer shall
be the chief executive officer of the Corporation and, subject to the control of
the Board of Directors, shall in general supervise and control all of the
business and affairs of the Corporation. He shall have authority, subject to
such rules as may be prescribed by the Board of Directors, to appoint agents and
employees of the Corporation as he shall deem necessary, to prescribe their
powers, duties and compensation, and to delegate authority to them. Such agents
and employees shall hold office at the discretion of the Chief Executive
Officer. He shall have authority to sign, execute and acknowledge, on behalf of
the Corporation, all deeds, mortgages, bonds, stock certificates, contracts,
leases, reports and all other documents or instruments necessary or proper to be
executed in the course of the Corporation's regular business or which shall be
authorized by resolution of the Board of Directors; and except as otherwise
provided by law or the Board of Directors, he may authorize the President or any
Vice President or other officer or agent of the Corporation to sign, execute and
acknowledge such documents or instruments in his place and stead. In general he
shall perform all duties incident to the office of chief executive officer and
such other duties as may be prescribed by the Board of Directors from time to
time.
Section 5.7. President. The President shall be the chief operating
officer of the Corporation and shall be responsible for supervising and
directing the operation of the Corporation's business, subject to the direction
of the Chief Executive Officer and the Board of Directors. He shall have such
other duties and powers as may be assigned to or vested in him from time to time
by the Board of Directors or Chief Executive Officer. In the absence of the
Chief Executive Officer or his inability to act, the President shall perform the
duties and exercise the authority of the Chief Executive Officer.
Section 5.8. Vice President. Each Vice President shall have such powers
and perform such duties as may be provided for herein and as may be assigned by
the Chief Executive Officer, the President or the Board of Directors.
Section 5.9. Treasurer. The Treasurer shall have charge of all funds of
the Corporation and shall perform all acts incident to the position of
Treasurer, subject to the control of the Board of Directors.
Section 5.10. Secretary. The Secretary shall keep the minutes, and give
notices, of all meetings of stockholders and directors and of such committees as
directed by the Board of Directors. The Secretary shall have charge of such
books and papers as the Board of Directors
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may require. The Secretary or any Assistant Secretary is authorized to certify
copies of extracts from minutes and of documents in the Secretary's charge and
anyone may rely on such certified copies to the same effect as if such copies
were originals and may rely upon any statement of fact concerning the
Corporation certified by the Secretary or any Assistant Secretary. The
Secretary shall perform all acts incident to the office of Secretary, subject to
the control of the Board of Directors.
Section 5.11. Assistant Secretaries and Assistant Treasurers. Assistant
Secretaries and Assistant Treasurers shall have such powers and perform such
duties as usually pertain to their respective offices and as may be assigned by
the Board of Directors or an officer designated by the Board of Directors.
Section 5.12. Compensation of Officers. The officers of the Corporation
shall receive such compensation for their services as the Board of Directors may
determine. The Board of Directors may delegate its authority to determine
compensation to designated officers of the Corporation.
Section 5.13. Execution of Instruments. Checks, notes, drafts, other
commercial instruments, assignments, guarantees of signatures and contracts
(except as otherwise provided herein or by law) shall be executed by the Chief
Executive Officer, the President, any Vice President or such officers or
employees or agents as the Board of Directors or any of such designated officers
may direct.
Section 5.14. Mechanical Endorsements. The Chief Executive Officer, the
President, any Vice President or the Secretary may authorize any endorsement on
behalf of the Corporation to be made by such mechanical means or stamps as any
of such officers may deem appropriate.
SECTION VI
Indemnification
Section 6.1. Indemnification Provisions in Certificate of Incorporation.
The provisions of this Section VI are intended to supplement Article VI of the
Certificate of Incorporation pursuant to Sections 6.2 and 6.3 thereof. To the
extent that this Section VI contains any provisions inconsistent with said
Article VI, the provisions of the Certificate of Incorporation shall govern.
Terms defined in such Article VI shall have the same meaning in this Section VI.
Section 6.2. Indemnification of Employees. The Corporation may by
resolution of its Board of Directors indemnify and advance expenses to its
employees to the same extent as to its directors and officers, as set forth in
the Certificate of Incorporation and in this Section VI of the Bylaws of the
Corporation.
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Section 6.3. Undertakings for Advances of Expenses. If and to the extent
the Delaware General Corporation Law requires, an advancement by the Corporation
of expenses incurred by a indemnitee pursuant to clause (iii) of the last
sentence of Section 6.1 of the Certificate of Incorporation (hereinafter an
"advancement of expenses") shall be made only upon delivery to the Corporation
of an undertaking (hereinafter an "undertaking"), by or on behalf of such
indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right to
appeal (hereinafter a "final adjudication") that such indemnitee is not entitled
to be indemnified for such expenses under Article VI of the Certificate of
Incorporation or otherwise.
Section 6.4. Claims for Indemnification. If a claim for indemnification
under Section 6.1 of the Certificate of Incorporation is not paid in full by the
Corporation within 60 days after it has been received in writing by the
Corporation, except in the case of a claim for an advancement of expenses, in
which case the applicable period shall be 20 days, the indemnitee may at any
time thereafter bring suit against the Corporation to recover the unpaid amount
of the claim. If successful in whole or in part in any such suit, or in a suit
brought by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the indemnitee shall be entitled to be paid also the
expense of prosecuting or defending such suit. In any suit brought by the
indemnitee to enforce a right to indemnification hereunder (but not in a suit
brought by the indemnitee to enforce a right to an advancement of expenses) it
shall be a defense that, and in any suit by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking the Corporation
shall be entitled to recover such expenses only upon a final adjudication that,
the indemnitee has not met the applicable standard of conduct set forth in
Section 145 of the Delaware General Corporation Law (or any successor provision
or provisions). Neither the failure of the Corporation (including the Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such suit that indemnification of the
indemnitee is proper in the circumstances because the indemnitee has met the
applicable standard of conduct set forth in Section 145 of the Delaware General
Corporation Law (or any successor provision or provisions), nor an actual
determination by the Corporation (including the Board of Directors, independent
legal counsel, or its stockholders) that the indemnitee has not met such
applicable standard of conduct, shall create a presumption that the indemnitee
has not met the applicable standard of conduct, or, in the case of such a suit
brought by the indemnitee, be a defense to such suit. In any suit brought by
the indemnitee to enforce a right to indemnification or to an advancement of
expenses hereunder, or by the Corporation to recover an advancement of expenses
pursuant to the terms of an undertaking, the burden of proving that the
indemnitee is not entitled to be indemnified, or to have or retain such
advancement of expenses, under Article VI of the Certificate of Incorporation or
this Section VI or otherwise, shall be on the Corporation.
Section 6.5. Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any director, trustee, officer, employee or agent
of the Corporation or another enterprise against any expense, liability or loss,
whether or not the Corporation would have the
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power to indemnify such person against such expense, liability or loss under the
Delaware General Corporation Law.
Section 6.6. Severability. In the event that any of the provisions of
this Section VI (including any provision within a single section, paragraph or
sentence) is held by a court of competent jurisdiction to be invalid, void or
otherwise unenforceable, the remaining provisions are severable and shall remain
enforceable to the fullest extent permitted by law.
SECTION VII
Miscellaneous
Section 7.1. Seal. The Corporation shall have a suitable seal, containing
the name of the Corporation. The Secretary shall be in charge of the seal and
may authorize one or more duplicate seals to be kept and used by any other
officer or person.
Section 7.2. Waiver of Notice. Whenever any notice is required to be
given, a waiver thereof in writing, signed by the person or persons entitled to
the notice, whether before or after the time stated therein shall be deemed
equivalent thereto. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
Section 7.3. Voting of Stock Owned by the Corporation. Powers of
attorney, proxies, waivers of notice of meeting, consents and other instruments
relating to securities owned by the Corporation may be executed in the name of
and on behalf of the Corporation by the Chief Executive Officer, the President,
any Vice President or such officers or employees or agents as the Board of
Directors or any of such designated officers may direct. Any such officer may,
in the name of and on behalf of the Corporation, take all such action as any
such officer may deem advisable to vote in person or by proxy at any meeting of
security holders of any corporation in which the Corporation may own securities
and at any such meeting shall possess any may exercise any and all rights and
powers incident to the ownership of such securities and which, as the owner
thereof, the Corporation might have exercised and possessed if present. The
Board of Directors may from time to time confer like powers upon any other
person or persons.
Section 7.4. Fiscal Year. The fiscal year of the Corporation shall be
fixed, and shall be subject to change, by the Board of Directors.
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SECTION VIII
Amendment of Bylaws
The Board of Directors, by the affirmative vote of a majority of the
whole Board of Directors, shall have power to amend, alter, change, adopt or
repeal the Bylaws of the Corporation at any regular or special meeting;
provided, however, that the stockholders entitled to vote may prescribe that any
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Bylaw adopted by the stockholders may not be amended, altered, changed, or
repealed by the Board of Directors. The stockholders entitled to vote also
shall have the power to amend, alter, change, adopt or repeal the Bylaws of the
Corporation at any annual or special meeting subject to the requirements of the
Certificate of Incorporation.
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Exhibit 10.7
AMENDED AND RESTATED
LINE OF CREDIT NOTE
-------------------
$7,500,000.00 Pittsburgh, Pennsylvania
October 28, 1996
FOR VALUE RECEIVED, the undersigned, SEAVISION, INC., a Delaware
corporation ("Maker"), having an office at 500 Greentree Commons, 381 Mansfield
Avenue, Pittsburgh, Pennsylvania 15220, promises to pay to the order of NATIONAL
CITY BANK OF PENNSYLVANIA, a national banking association ("Lender"), on May 31,
1997, in immediately available funds at the Pittsburgh, Pennsylvania office of
Lender at National City Center, 20 Stanwix Street, Pittsburgh, Pennsylvania,
15222, or at such other location as the holder hereof may designate from time to
time, the lesser of (i) the principal sum of SEVEN MILLION FIVE HUNDRED THOUSAND
AND 00/100 DOLLARS ($7,500,000.00) or (ii) the aggregate unpaid principal amount
of all line of credit loans (each a "Loan" and collectively, the "Loans") made
by Lender to Maker pursuant to a line of credit established for the benefit of
Maker. Maker may request a line of credit loan at any time during the period
from the date hereof through December 31, 1996, by giving the Lender the notice
required as set forth under Section 1.2 [Loan Requests]. The Lender may make
the Loan or Loans requested by the Maker in the Lender's sole discretion.
Subject to Section 1.6 [Interest After Default], interest on the Loans shall
accrue and be payable by the Maker in accordance with Sections 1.4 [Interest
Rate Options] and 1.9 [Payment of Interest]. This Amended and Restated Line of
Credit Note amends and restates that certain Line of Credit Note dated May 31,
1996, in the stated principal amount of $5,000,000 issued by the Maker and
payable to the Lender, as successor-in-interest to Integra Bank, a Pennsylvania-
chartered bank. All loans outstanding under the Line of Credit Note dated May
31, 1996, and all accrued and unpaid interest thereon shall as of the date of
hereof be evidenced by this Amended and Restated Note.
1.1 Definitions. When used herein, the following terms shall have the
-----------
following meanings:
Authorized Persons shall mean collectively and Authorized Person shall
------------------- ------------------
mean separately an officer of the Borrower or an agent of the Borrower who is
authorized to borrow hereunder and/or convert Loans from one Interest Rate
Option to another Interest Rate Option, which authority shall be set forth in a
writing delivered to the Lender on behalf of the board of directors of the
Borrower and upon which authority the Lender may conclusively rely until it is
amended or canceled by written notice to the Lender from the Borrower.
<PAGE>
Borrowing Tranche shall mean specified portions of the Loans
-----------------
outstanding as follows: (i) any Loans to which either a Euro-Rate Option applies
which become subject to the same Interest Rate Option and which have the same
Interest Period shall constitute one Borrowing Tranche, and (ii) all Loans to
which a Prime Rate Option applies shall constitute one Borrowing Tranche.
Business Day shall mean a day on which Lender's offices in Pittsburgh,
------------
Pennsylvania are open for business.
Default Rate shall mean the rate or rates determined from time to time
------------
pursuant to Section 1.6.
Dollars and the symbol $ shall mean lawful money of the United States
------------------------
of America.
Euro-Rate shall mean, with respect to any Loan comprising any
---------
Borrowing Tranche to which a Euro-Rate Option applies for any Interest Period,
the interest rate per annum determined by the Lender by dividing (the resulting
quotient rounded upward to the nearest 1/16th of 1% per annum) (i) the rate of
interest determined by the Lender in accordance with its usual procedures (which
determination shall be conclusive absent manifest error) to be the eurodollar
rate two (2) Business Days prior to the first day of such Interest Period for an
amount comparable to such Loan and having a borrowing date and a maturity
comparable to such Interest Period by (ii) a number equal to 1.00 minus the
Euro-Rate Reserve Percentage. The Euro-Rate shall be adjusted with respect to
any Euro-Rate Option outstanding on the effective date of any change in the
Euro-Rate Reserve Percentage as of such effective date. The Lender shall give
prompt notice to the Maker of the Euro-Rate as determined or adjusted in
accordance herewith, which determination shall be conclusive absent manifest
error.
Euro-Rate Option shall mean the option of the Maker to have Loans bear
----------------
interest at the rate and under the terms and conditions set forth in Section 1.4
(a)(ii).
Euro-Rate Reserve Percentage shall mean the maximum percentage
----------------------------
(expressed as a decimal rounded upward to the nearest 1/100 of 1%) as determined
by the Lender which is in effect during any relevant period, as prescribed by
the Board of Governors of the Federal Reserve System (or any successor) for
determining the reserve requirements (including supplemental, marginal and
emergency reserve requirements) with respect to eurocurrency funding (currently
referred to as "Eurocurrency Liabilities") of a member bank in such System.
Event of Default shall mean any of the Events of Default described in
----------------
Section 1.14.
-2-
<PAGE>
Guarantees shall mean the Guaranty and Suretyship Agreements given by
----------
each of the Guarantors in favor of the Lender with respect to the Loans.
Guarantors shall mean Henry Posner, Jr., Thomas D. Wright, Richard W.
----------
Talarico, James C. Roddey and Lyndhurst Associates, a Pennsylvania limited
partnership.
Indebtedness shall mean all of the Maker's liabilities, obligations
------------
and indebtedness of any and every kind and nature, including, without
limitation, obligations for borrowed money and to trade creditors, whether
heretofore, now or hereafter owing, due or payable from Maker to any person and
howsoever evidenced, created, incurred, acquired or owing, whether primary,
secondary, direct, contingent, fixed, matured, liquidated or otherwise. Without
in any way limiting the generality of the foregoing, Indebtedness specifically
includes (i) all indebtedness guaranteed, directly or indirectly, in any manner,
or endorsed (other than for collection or deposit in the ordinary course of
business) or discounted with recourse; (ii) all obligations or liabilities of
any person that are secured by any lien upon property owned by a Maker, even
though Maker has not assumed or become liable for the payment thereof; (iii) all
obligations or liabilities created or arising under any lease of real or
personal property or conditional sale or other title retention agreement with
respect to property used or acquired by Maker, even though the rights and
remedies of the lessor, seller or lender thereunder are limited to repossession
of such property; (iv) all unfunded pension fund obligations and liabilities;
and (v) deferred taxes.
Interest Payment Date shall mean each date specified for the payment
--------------------
of interest in Section 1.9.
Interest Period shall have the meaning assigned to such term in
---------------
Section 1.5.
Interest Rate Option shall mean any Euro-Rate Option or the Prime Rate
--------------------
Option.
Law shall mean any law (including common law), constitution, statute,
---
treaty, regulation, rule, ordinance, opinion, release, ruling, order,
injunction, writ, decree or award of any national, federal, state, local or
other government or political subdivision or any agency, authority, bureau,
central bank, commission, department or instrumentality of either, or any court,
tribunal, grand jury or arbitrator, in each case whether foreign or domestic.
Loans shall mean collectively and Loan shall mean separately the line
----- ----
of credit loans made by the Lender to the Maker and evidenced by this Note.
Loan Request shall mean a request for Loans made in accordance with
------------
Section 1.2 or a request to select, convert to or renew a Euro-Rate Option in
accordance with Section 1.5.
-3-
<PAGE>
Material Adverse Change shall mean any set of circumstances or events
-----------------------
which (a) has or could reasonably be expected to have any material adverse
effect whatsoever upon the validity or enforceability of this Note or any
Guaranty, (b) is or could reasonably be expected to be material and adverse to
the condition (financial or otherwise) or business operations of the Maker or to
the prospects of the Maker, (c) impairs materially or could reasonably be
expected to impair materially the ability of the Maker to duly and punctually
pay or perform its obligations under this Note, or (d) materially impairs or
could reasonably be expected to materially impair the ability of the Lender to
enforce its legal remedies pursuant to this Agreement or any Guaranty.
Month, with respect to an Interest Period under the Euro-Rate Option,
-----
shall mean the interval between the days in consecutive calendar months
numerically corresponding to the first day of such Interest Period. If any
Euro-Rate Interest Period begins on a day of a calendar month for which there is
no numerically corresponding day in the month in which such Interest Period is
to end, the final month of such Interest Period shall be deemed to end on the
last Business Day of such final month.
Note shall mean this Amended and Restated Line of Credit Note and all
----
amendments, modifications, extensions, renewals and replacements thereof.
Person shall mean any individual, sole proprietorship, partnership,
------
joint venture, trust, unincorporated organization, association, corporation,
institution, entity, party or government (whether national, federal, state,
county, city, municipal or otherwise, including, without limitation, any
instrumentality, division, agency, body or department thereof).
Prime Rate shall mean the interest rate per annum announced from time
----------
to time by the Lender at its principal office in Pittsburgh, Pennsylvania as its
then prime rate, which rate may not be the lowest rate then being charged
commercial borrowers by the Lender.
Prime Rate Option shall mean either the option of the Maker to have
-----------------
Loans bear interest at the Prime Rate under the terms and conditions set forth
in Section 1.4 (a)(i).
Scheduled Maturity Date shall mean May 31, 1997.
----------------------
-4-
<PAGE>
1.2 Loan Requests.
-------------
The Maker may from time to time through one or more of its Authorized
Persons (a) prior to December 31, 1996, request the Lender to make a Loan to the
Maker, and (b) prior to May 31, 1997 request the Lender to renew or convert the
Interest Rate Option applicable to an existing Loan pursuant to Section 1.4
[Interest Rate Options] and Section 1.5 [Interest Periods], in the case of each
of (a) and (b), by delivering to the Lender, not later than 10:00 A.M.
Pittsburgh time (i) two (2) Business Days prior to the proposed borrowing date
with respect to the making of a Loan to which the Euro-Rate Option applies or
the conversion to or the renewal of the Euro-Rate Option for any Loan; and (ii)
one (1) Business Day prior to either the proposed borrowing date with respect to
the making of a Loan to which the Prime Rate Option applies or the last day of
the preceding Interest Period with respect to the conversion to the Prime Rate
Option for any Loan, of a duly completed request therefor substantially in the
form of Exhibit A or a request by telephone immediately confirmed in writing by
---------
letter, facsimile or telex in such form (each, a "Loan Request"), it being
understood that the Lender may rely on the authority of any individual making
such a telephonic request without the necessity of receipt of such written
confirmation. Each such Loan Request shall be irrevocable and shall specify (i)
the proposed borrowing date; (ii) the aggregate amount of the proposed Loan
which shall be in integral multiples of One Hundred Thousand ($100,000.00) and
not less than Three Hundred Thousand Dollars ($300,000.00) for each Loan to
which the Euro-Rate Option applies and not less than the lesser of One Hundred
Thousand ($100,000.00) or the maximum amount available for the Loan to which the
Prime Rate Option applies; (iii) whether the Euro-Rate Option or Prime Rate
Option shall apply to the proposed Loan, and (iv) in the case of a Loan to which
the Euro-Rate Option applies, an appropriate Interest Period, the last day of
which shall be a date which precedes Scheduled Maturity Date. Lender shall have
no obligation to make a new loan to the Maker hereunder. Provided no Event of
Default has occurred and subject to Section 1.7 [Euro-Rate Unascertainable] and
the other provisions of this Note, the Lender shall convert the Loans as between
the Prime Rate Option and Euro-Rate Option pursuant to the Loan Requests
submitted by the Maker.
-5-
<PAGE>
1.3 Conditions to Loans.
--------------------
Notwithstanding the discretionary nature of the Loans and without
affecting in any manner the rights of the Lender under this Agreement, it is
understood and agreed that the Lender shall not make any Loans until the Lender
shall have received the following documents:
(a) this Note, duly executed and delivered;
(b) the Guarantees, duly executed and delivered;
(c) a certificate of the Maker dated the date of this Note and signed
by the secretary or an assistant secretary of the Maker,
certifying as to (a) the Maker's certificate of incorporation,
and (b) certified copies of corporate resolutions authorizing the
execution and delivery of this Note;
(d) a certificate of Lyndhurst Associates dated the date of this Note
and signed by the general partner of such Guarantor, certifying
as to (a) Lyndhurst Associates' organizational documents
including its certificate of limited partnership and partnership
agreement and good standing in the state in which it is
organized, and (b) certified copies of partnership resolutions
authorizing the execution and delivery of its Guarantee;
(e) opinion of Eckert Seamans Cherin & Mellott, counsel for the Maker
and Lyndhurst Associates, dated the date of this Note, in form
and substance satisfactory to the Lender and as to such other
legal matters relevant to the transactions contemplated hereby as
the Lender may reasonably request; and
(f) such other documents and certificates as to the transactions
contemplated by this Note and the Guarantees as the Lender may
reasonably request.
1.4 Interest Rate Options.
---------------------
Maker shall pay interest in respect of the aggregate outstanding
unpaid principal amount of the Loans as selected by it from the Prime Rate
Option or the Euro-Rate Option set forth below applicable to the Loans, it being
understood that, subject to the provisions of this Agreement, including without
limitation Section 1.2 [Loan Requests], the Maker may select different Interest
Rate Options and different Interest Periods to apply
-6-
<PAGE>
simultaneously to the Loans and may convert to or renew one or more Interest
Rate Options with respect to all or any portion of the Loans, provided that
--------
there shall not be at any one time outstanding more than three (3) Borrowing
Tranches in the aggregate among all the Loans. If at any time the designated
rate applicable to any Loan made by the Lender exceeds the Lender's highest
lawful rate, the rate of interest on the Loan shall be limited to the Lender's
highest lawful rate.
(a) The Maker shall have the right to select from the following
Interest Rate Options applicable to the Loans:
(i) a fluctuating rate per annum (computed on the basis of a year of
365 or 366 days, as the case may be, and actual days elapsed) equal to the
Prime Rate, such interest rate to change automatically from time to time
effective as of the effective date of each change in the Prime Rate; or
(ii) a rate per annum (computed on the basis of a year of 360 days and
actual days elapsed) equal to the Euro-Rate plus one and one-half percent
(1-1/2%).
(b) The Maker may call the Lender on or before the date on which a
Loan Request is to be delivered to receive an indication of the
rates then in effect, but it is acknowledged that such indication
shall not be binding on the Lender nor affect the rate of
interest which thereafter is actually in effect when the election
is made.
1.5 Interest Periods.
----------------
At any time when the Maker shall select, convert to or renew a Euro-
Rate Option, the Maker shall notify the Lender thereof at least two (2) Business
Days prior to the effective date of such Euro-Rate Option by delivering a Loan
Request. In the case of the Euro-Rate Option, such notice shall specify an
interest period (the "Interest Period") during which such Interest Rate Option
shall apply, such Interest Period to be one, two, three, four, five or six
Months, provided, that:
--------
(a) Any Interest Period which would otherwise end on a date which is
not a Business Day shall be extended to the next succeeding
Business Day unless such Business Day falls in the next calendar
month, in which case such Interest Period shall end on the next
preceding Business Day;
(b) Any Interest Period selected to apply to any Loan shall end
before the Scheduled Maturity Date;
-7-
<PAGE>
(c) Each Loan with respect to which the Euro-Rate Option applies
shall be in integral multiples of One Hundred Thousand
($100,000.00) and not less than Three Hundred Thousand Dollars
($300,000.00); and
(d) In the case of the renewal of a Euro-Rate Option at the end of an
Interest Period, the first day of the new Interest Period shall
be the last day of the preceding Interest Period, without
duplication in payment of interest for such day.
1.6 Interest After Default.
----------------------
To the extent permitted by Law, upon the occurrence of an Event of
Default and until such time such Event of Default shall have been cured, all
amounts payable by the Maker hereunder, including without limitation principal,
interest and the costs and expenses of the Lender required to be reimbursed by
the Maker, if not paid when due shall bear interest at a rate per annum equal to
the sum of the Prime Rate plus two (2%) per annum (the "Default Rate") from the
------------
time such obligations become due and payable and until paid in full. The Maker
acknowledges that such increased rates reflect, among other things, the fact
that such Loans or other amounts have become a substantially greater risk given
their default status and that the Lender is entitled to additional compensation
for such risk; and, all such interest shall be payable by the Maker upon demand
by the Lender.
1.7 Euro-Rate Unascertainable; Illegality; Increased Costs; etc.
-----------------------------------------------------------
(a) If on any date on which a Euro-Rate would otherwise be
determined, the Lender shall have determined that (i) adequate
and reasonable means do not exist for ascertaining such Euro-
Rate, or (ii) a contingency has occurred which materially and
adversely affects the secondary market for the London interbank
eurodollar market relating to the Euro-Rate, the Lender shall
have the rights specified in Subsection (c) below.
(b) If at any time the Lender shall have determined that (i) the
making, maintenance or funding of any Loan to which a Euro-Rate
Option applies has been made impracticable or unlawful by
compliance by the Lender in good faith with any Law or any
interpretation or application thereof by any governmental
authority or with any request or directive of any such
governmental authority (whether or not having the force of Law),
(ii) such Euro-Rate Option will not adequately and fairly reflect
the cost to the Lender of the establishment or maintenance of any
such Loan, or (iii) after making all reasonable efforts, deposits
of the relevant amount in Dollars for the relevant Interest
Period for a
-8-
<PAGE>
Loan to which a Euro-Rate Option applies are not available to the
Lender in the London interbank market, then the Lender shall have
the rights specified in Subsection(c) below.
(c) In the case of any event specified in subsection (a) or (b) of
this Section 1.7, the Lender shall promptly so notify the Maker.
Upon such date as shall be specified in such notice (which shall
not be earlier than the date such notice is given) the obligation
of the Lender to make available the Euro-Rate Option on the Loans
shall be suspended until the Lender shall have later notified the
Maker of the Lender's determination that the circumstances giving
rise to such previous determination no longer exist. If at any
time the Lender makes a determination under subsection (a) or (b)
and the Maker has previously notified the Lender of its selection
of, conversion to or renewal of a Euro-Rate Option and such
Interest Rate Option has not yet gone into effect, such
notification shall be deemed to provide for selection of,
conversion to or renewal of the Prime Rate Option otherwise
available with respect to such Loans.
1.8 Selection of Interest Rate Options.
----------------------------------
If the Maker fails to select a new Interest Period to apply to any
Loans as to which the Euro-Rate Option applies at the expiration of an existing
Interest Period applicable to such Loans in accordance with the provisions of
Section 1.5 [Interest Periods], the Maker shall be deemed to have converted such
Loan to the Prime Rate Option commencing upon the last day of the existing
Interest Period.
1.9 Payment of Interest.
-------------------
The Maker shall pay all interest accrued on the Loans on December 31,
1996, and March 31, 1997, with all accrued interest, if not sooner paid, due and
payable on the Scheduled Maturity Date. The interest rates provided for in
Sections 1.4 [Interest Rate Options] and 1.6 [Interest After Default] shall
continue to apply whether or not judgment shall be entered on this Note.
1.10 Indemnification For Prepayment.
------------------------------
The Maker shall indemnify the Lender against all liabilities, losses
or expenses, including loss of margin, any loss or expense incurred in
liquidation or employing deposits from third parties and any loss or expense
incurred in connection with funds acquired by the Lender to fund or maintain the
Loans subject to the Euro-Rate Option, which the Lender sustains or incurs as a
consequence of the payment, prepayment,
-9-
<PAGE>
conversion or renewal of any of the Loans to which the Euro-Rate Option applies
on a day other than the last day of the corresponding Interest Period (whether
or not such payment or prepayment is mandatory, voluntary or automatic and
whether or not such payment or prepayment is then due.).
1.11 Increased Cost Provisions.
-------------------------
(a) If, after the date of execution and delivery of this Note, any
enactment, promulgation or adoption of, or change in, any
applicable Law or in the interpretation or administration thereof
by any court, administrative or governmental authority, central
bank or comparable agency charged with the interpretation or
administration thereof, or compliance by the Lender or any
affiliate of the Lender with any request or directive issued
after the date hereof (whether or not having the force of law) of
any such authority, central bank or comparable agency, shall
either:
(i) impose, modify or deem applicable any reserve, special
deposit or similar requirement (including, without limitation, a
request or requirement which affects the manner in which the Lender or
any affiliate of the Lender allocates capital resources to the
Lender's or any affiliate of the Lender's commitments) affecting or
concerning the Lender's obligations under this Note,
(ii) subject the Lender or any affiliate of the Lender to any tax
or change the Lender's or any affiliate of the Lender's basis of
taxation (other than a change in a rate of tax based on the Lender's
overall net income) as a result of or in connection with this Note, or
(iii) impose on the Lender or any affiliate of the Lender any
other condition regarding this Note, and the result of any event
referred to in clause (i), (ii) or (iii) of this sentence shall be to
increase the direct or indirect cost to the Lender or to reduce the
amounts receivable by the Lender hereunder with respect to this Note
(which increase in cost or reduction in amounts receivable shall be
determined by the Lender's reasonable allocation of such cost increase
or reduction in amounts receivable resulting from such event), then
within ten (10) Business Days after demand by the Lender, the Maker
shall pay to the Lender, from time to time as specified by the Lender,
additional amounts that in the aggregate shall be sufficient to
compensate the Lender on an after-tax basis for such increased cost or
reduction in amounts receivable. A certificate as to such increased
cost or reduction in amounts receivable by the
-10-
<PAGE>
Lender as a result of any event mentioned in clause (i), (ii) or (iii)
of the immediately preceding sentence submitted by the Lender to the
Maker shall, in absence of manifest error, be conclusive and binding
for all purposes.
(b) If (i) any adoption of or any change in the interpretation or
administration of any Law, or (ii) compliance with any rule,
regulation, guideline, request or directive of any central bank
or other governmental authority or quasi-governmental authority
exercising control over banks or financial institutions generally
or any court (whether or not having the force of law), or (iii)
any change in the force or effectiveness of any of the
regulations set forth at 12 C.F.R. Part 208 (Appendix A) and 12
C.F.R. Part 225 (Appendix A) is determined by the Lender to
require that the commitments of the Lender hereunder (including,
without limitation, commitments and obligations in respect of
Liabilities permitted hereunder) be treated as an asset or
otherwise be included for purposes of calculating the appropriate
amount of capital to be maintained by the Lender or any
corporation controlling the Lender (a "Change in Law"), the
-------------
result of which is to reduce the rate of return on the Lender's
capital as a consequence of such commitments to a level below
that which the Lender could have achieved but for such Change in
Law, taking into consideration the Lender's policies with respect
to capital adequacy and reserves, by an amount which the Lender
deems to be material, the Lender shall deliver to the Maker a
statement of the amount necessary to compensate the Lender for
the reduction in the rate of return on its capital attributable
to such commitments (the "Capital Compensation Amount"). The
---------------------------
Lender shall determine the Capital Compensation Amount in good
faith, using reasonable attribution and averaging methods. The
Lender shall from time to time notify the Makers of the amounts
so determined. Such amount shall be due and payable by the Maker
to the Lender ten (10) Business Days after such notice is given.
As soon as practicable after any Change in Law, the Lender shall
submit to the Maker estimates of the Capital Compensation Amounts
that would be payable as a function of the Lender's commitments
hereunder.
(c) All amounts payable pursuant to Sections (a) and (b) of this
Section 1.11 shall be additional liabilities hereunder. Any such
amount not paid when due shall bear interest from the date due
until paid at the Default Rate
-11-
<PAGE>
1.12 Reporting Requirements.
----------------------
The Maker shall deliver and cause to be delivered to the Lender the
following reports until such time as all Indebtedness of the Maker evidenced by
this Note is indefeasibly paid in full: (i) the financial statements of the
Maker prepared by the Maker's certified public accountants acceptable to the
Lender and provided on or before June 30 of each year; (ii) the financial
statements of Lyndhurst Associates and Henry Posner, Jr. prepared on a tax basis
by said Guarantors' certified public accountants acceptable to the Lender and
provided on or before June 30 of each year; and (iii) the personal financial
statement of the Guarantors other than Lyndhurst Associates and Henry Posner,
Jr. on or before June 30 of each year.
1.13 Maker Representations; Financial Covenant.
-----------------------------------------
(a) The Maker represents that it has the power and has been duly
authorized by all requisite action to execute and deliver this Note and to
perform its obligations hereunder. This Note and the Guarantees have been duly
executed and delivered by the Maker and each Guarantor, respectively, and
constitutes the legal, valid and binding obligations of the Maker and each
Guarantor, enforceable against the Maker and each Guarantor in accordance with
their respective terms, except to the extent that enforceability of any of the
terms may be limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforceability of creditors' rights generally
or limiting the right of specific performance. Neither this Note nor the
consummation of the transactions contemplated herein nor the performance by the
Maker or the Guarantors of their obligations hereunder or under the Guarantees
will (i) violate any Law to which any such party is subject; (ii) conflict with
or result in a breach of the Maker's certificate of incorporation or bylaws or
Lyndhurst Associates' partnership agreement or certificate of limited
partnership or any agreement or instrument to which the Maker or any Guarantor
is subject or by which its or his respective properties are bound or (iii)
result in the creation or imposition of any lien, security interest or
encumbrance on any property of the Maker, or any Guarantor, whether now owned or
hereafter acquired.
(b) The Maker shall not permit its Adjusted Net Worth (as hereinafter
defined) to be less One Dollar ($1.00) from and after December 31, 1996.
"Adjusted Net Worth" shall mean the Borrower's stockholders' equity (as
determined in accordance with generally accepted accounting principles) plus all
liabilities of the Borrower subordinated to the Indebtedness evidenced by this
Note pursuant to subordination agreements with terms satisfactory to the Lender
in its sole discretion.
-12-
<PAGE>
1.14 Events of Default.
-----------------
Maker shall be in default under this Note upon the happening of any of
the following Events of Default:
(a) default in the payment when due of any installment of interest or
other payment required under this Note;
(b) any warranty, representation or statement made herein or
furnished to Lender by or on behalf of the Maker or a Guarantor
proves to have been false or misleading in any material respect
when made or furnished;
(c) any material default in the performance by the Maker of any
condition or covenant contained in this Note or by a Guarantor of
any condition or covenant contained in its or his respective
Guarantee;
(d) the occurrence of a Material Adverse Change;
(e) any default in the payment of or event which results in the
acceleration of Indebtedness in excess of $500,000 owed to any
Person under any note, indenture, contract or undertaking by the
Maker or any Guarantor;
(f) a judgment shall be entered against the Maker or any Guarantor by
a court having jurisdiction of the premises in any amount in
excess of $500,000;
(g) a proceeding shall have been instituted in a court having
jurisdiction in the premises seeking a decree or order for relief
in respect of Maker or any Guarantor in an involuntary case under
any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or for the appointment of a receiver,
liquidator, assignee, custodian trustee, sequestrator (or similar
official) of Maker or any Guarantor or for any substantial part
of its or his property, or for the winding-up or liquidation of
its or his affairs, and such proceeding shall remain undismissed
or unstayed and in effect for a period of 60 consecutive days or
such court shall enter a decree or order granting any of the
relief sought in such proceeding; or
(h) the Maker or any Guarantor shall commence a voluntary case under
any applicable bankruptcy, insolvency or similar law now or
hereafter
-13-
<PAGE>
in effect, shall consent to the entry of an order for relief in
an involuntary case under any such law, or shall consent to the
appointment of any of the aforesaid parties of itself or himself
or for any substantial part of its or his property, or shall make
a general assignment for the benefit of creditors or shall fail
generally to pay its or his debts as they become due or shall
take any action in furtherance of the foregoing.
Upon the occurrence of any of the Events of Default mentioned in
clauses (a) through (f) hereof and at any time thereafter as long as any such
Event of Default is continuing, Lender may declare all liabilities and
obligations of Maker to Lender, including those evidenced by this Note,
immediately due and payable and the same shall thereupon become immediately due
and payable without any further action on part of Lender, and upon the
occurrence of any Event of Default mentioned in clauses (g) or (h) hereof all
liabilities and obligations of Maker to Lender, including those evidenced by
this Note, shall immediately become due and payable without any action upon the
part of Lender.
Any notice or other written communication required hereunder shall be
in writing, and shall be deemed to have been validly served, given or delivered
(i) upon deposit in the United States mail, with proper postage prepaid, (ii) by
hand delivery, (iii) by overnight express mail courier, or (iv) by telecopier,
and addressed to the party to be notified at the address set forth below or to
such other address as each party may designate for itself in writing by like
notice.
To the Lender:
National City Bank of Pennsylvania
National City Center
20 Stanwix Street
Pittsburgh, Pennsylvania 15222
Attn: Paul A. Sakalik
Corporate Banking
Telecopier: (412) 471-4883
with a copy to:
Buchanan Ingersoll Professional Corporation
301 Grant Street, 20th Floor
Pittsburgh, Pennsylvania 15219
Attn: Thomas S. Galey, Esquire
Telecopier: (412) 562-1041
-14-
<PAGE>
To the Borrower:
SeaVision, Inc.
500 Greentree Commons
381 Mansfield Avenue
Pittsburgh, Pennsylvania 15220
Attn: Richard W. Talarico
Telecopier: (412) 928-0887
with a copy to:
The Hawthorne Group
500 Greentree Commons
381 Mansfield Avenue
Pittsburgh, Pennsylvania 15220
Attention: Fred W. Schwarz
Telecopier: (412) 928-7715
and
Eckert Seamans Cherin & Mellott
600 Grant Street, 42nd Floor
Pittsburgh, Pennsylvania 15219
Attn: Louis J. Moraytis, Esquire
Telecopier: (412) 566-6099
Maker hereby waives presentment, demand, protest or notice of any kind
in connection with this Note.
Maker shall pay Lender on demand any reasonable out-of-pocket expenses
(including reasonable legal fees) arising out of or in connection with any
action or proceeding (including any action or proceeding arising in or related
to any insolvency, bankruptcy or reorganization involving or affecting Maker)
taken to protect, enforce, determine or assert any right or remedy under this
Note and any mortgage or security agreement, including the collateral covered
thereby, securing the same. Any attorneys' fees to which the holder hereof may
be entitled pursuant to the "confession of judgment" clause below shall be
offset by the aggregate amount of the legal fees to which such holder is
entitled under the immediately preceding sentence.
This Note shall bind Maker and the successors and assigns of Maker,
and the benefits hereof shall inure to the benefit of Lender and its successors
and assigns. All references herein to "Maker" shall be deemed to apply to Maker
and the successors and
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<PAGE>
assigns of Maker and all references herein to "Lender" shall be deemed to apply
to Lender and its successors and assigns.
This Note and any other documents delivered in connection herewith and
the rights and obligations of the parties hereto and thereto shall for all
purposes be governed by and construed and enforced in accordance with the
substantive law of the Commonwealth of Pennsylvania without giving effect to the
principles of conflict of laws.
THE MAKER ACKNOWLEDGES THAT (i) IT HAS READ AND UNDERSTANDS, AFTER
CONSULTATION WITH ITS COUNSEL, THAT THE PROVISIONS OF THE FOLLOWING PARAGRAPH
COULD ENABLE THE LENDER TO OBTAIN A JUDGMENT AGAINST THE MAKER AND COMMENCE
EXECUTION PROCEEDINGS THAT RESULT IN THE SEIZURE OF ASSETS OF THE MAKER IN
EITHER CASE, WITHOUT THE MAKER HAVING THE BENEFIT OF PRIOR NOTICE OR A PRIOR
HEARING; AND (ii) THE MAKER NEVERTHELESS KNOWINGLY AND VOLUNTARILY AGREES TO
SUCH POSSIBLE CONSEQUENCES AND THE PROVISIONS OF THE FOLLOWING PARAGRAPH.
MAKER DOES HEREBY EMPOWER THE PROTHONOTARY OR ANY ATTORNEY OF ANY
COURT OF RECORD WITHIN THE COMMONWEALTH OF PENNSYLVANIA TO APPEAR FOR MAKER AND,
WITH OR WITHOUT ONE OR MORE COMPLAINTS FILED, CONFESS JUDGMENT OR JUDGMENTS
AGAINST MAKER IN ANY COURT OF RECORD WITHIN THE COMMONWEALTH OF PENNSYLVANIA AT
ANY TIME ON OR AFTER THE OCCURRENCE OF AN EVENT OF DEFAULT IN FAVOR OF LENDER,
ITS SUCCESSORS AND ASSIGNS, FOR THE UNPAID PRINCIPAL BALANCE OF THIS NOTE AND
ALL INTEREST ACCRUED HEREON, TOGETHER WITH COSTS OF SUIT AND AN ATTORNEY'S
COMMISSION OF FIVE PERCENT (5%) FOR COLLECTION OF SUCH SUMS, AND MAKER HEREBY
FOREVER WAIVES AND RELEASES ANY AND ALL ERRORS IN SAID PROCEEDINGS AND WAIVES
STAY OF EXECUTION AND STAY, CONTINUANCE OR ADJOURNMENT OF SALE ON EXECUTION.
THE AUTHORITY AND POWER TO APPEAR FOR AND ENTER JUDGMENT AGAINST MAKER SHALL NOT
BE EXHAUSTED BY ONE OR MORE EXERCISES THEREOF, AND MAY BE EXERCISED FROM TIME TO
TIME AND AS OFTEN AS LENDER OR ITS SUCCESSORS AND ASSIGNS SHALL DEEM NECESSARY
OR DESIRABLE.
[SIGNATURES APPEAR ON NEXT PAGE]
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IN WITNESS WHEREOF, Maker, intending to be legally bound, has executed
this Note on the day and year first above written with the intention that this
Note shall constitute a sealed instrument.
ATTEST: SEAVISION, INC.
By (SEAL)
- -------------------------------- ----------------------------------
Richard W. Talarico
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Exhibit 10.12
THE MARKED PORTIONS OF THIS AGREEMENT
HAVE BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT.
FIRST AMENDED AND RESTATED AGREEMENT
THIS FIRST AMENDED AND RESTATED AGREEMENT (this "Agreement"), is made and
entered into as of the 1st day of June, 1996, but is effective as of
September 1, 1995 (the "Effective Date"), by and between SEAVISION, INC., a
Delaware corporation (hereinafter referred to as "SeaVision"), and CELEBRITY
CRUISES INC., a Liberian corporation (hereinafter referred to as "Celebrity").
WHEREAS, Celebrity is in the business of offering cruise vacations to its
passengers; and
WHEREAS, Celebrity desires that its passengers have access to interactive
television services on board its vessels; and
WHEREAS, Celebrity wishes to earn incremental revenue from such interactive
television services; and
WHEREAS, the parties previously agreed, pursuant to that certain Agreement
dated as of September 1, 1995 (the "Original Agreement"), that SeaVision would
provide the aforementioned interactive television services for installation and
use aboard the ship m.v. Century (the "Initial Ship") operated by Celebrity; and
WHEREAS, since the parties entered into the Original Agreement, SeaVision
has installed and commenced operation of the interactive television services on
the Initial Ship; and
WHEREAS, Celebrity has requested that SeaVision install and operate the
interactive television services onboard the ships m.v. Galaxy, m.v. Mercury,
m.v. Horizon and m.v. Zenith (collectively, the "Additional Ships"); and
WHEREAS, the parties now desire to amend and restate the Original Agreement
to provide for their agreements with respect to the Additional Ships; and
WHEREAS, for purposes of this Agreement, the Initial Ship and the
Additional Ships are sometimes referred to hereinafter collectively as the
"Ships" and individually as a "Ship".
<PAGE>
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, intending to be
legally bound hereby, agree as follows:
1. Responsibilities.
----------------
(a) Subject to the terms and conditions hereof, SeaVision hereby agrees
to:
(i) Provide and, in the case of the Additional Ships, install, at no
charge to Celebrity except as otherwise expressly provided in
this Agreement, an interactive television system (the "System")
on each of the Ships and, in connection therewith, provide the
services (the "Services") set forth on Exhibit A attached hereto.
SeaVision shall install the System on the Additional Ships
pursuant to the implementation schedule set forth on Exhibit B
attached hereto. The System installed on the Initial Ship and to
be installed by SeaVision on the Additional Ships shall consist
of such hardware and software (a listing of which hardware and
software shall also be included on Exhibit C attached hereto) as
shall be determined and mutually agreed upon by the parties. The
applications displays on the television screens will have a
unique design available only on Systems provided to Celebrity,
and the television screens will be subject to Celebrity's
approval which shall not unreasonably be withheld, delayed or
conditioned. Except as otherwise expressly provided in this
Agreement, SeaVision shall at all times retain title to all
components of the System, including all hardware and software
installed or to be installed by SeaVision on any of the Ships
hereunder, unless and until, in respect of any Ship, Celebrity
purchases the System pursuant to Section 5 of this Agreement.
Notwithstanding the foregoing, (i) Celebrity shall, at its own
cost and expense, purchase the components listed on Exhibit D for
the Ships m.v. Galaxy and m.v. Mercury; and (ii) upon SeaVision's
provision of the components listed on Exhibit D for the Ships
m.v. Horizon and m.v. Zenith, Celebrity shall either (A)
reimburse SeaVision for the cost of such components (which cost
hereby is agreed to be [Redacted - confidential treatment
requested] per Ship) or (B) provide SeaVision with transferable
cruise credits in an aggregate amount such that, upon SeaVision's
transfer of such cruise credits to third parties approved by
Celebrity, SeaVision shall receive funds in the aggregate amount
of [Redacted - confidential treatment requested] per Ship, with
the choice of subclause (A) or (B) to be at Celebrity's option.
Exhibit H outlines the terms under which Celebrity has agreed to
transfer such cruise credits. All such components listed on
Exhibit D shall be the property of Celebrity. In connection with
SeaVision's performance under this Subsection 1(a)(i), SeaVision
shall provide to Celebrity weekly progress reports relating to
the
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delivery of hardware to be provided by SeaVision and, if
applicable, the development of System screens. In connection
with Celebrity's performance under this Subsection 1(a)(i),
Celebrity shall provide to SeaVision weekly progress reports
relating to hardware to be provided by Celebrity. The parties
hereby agree that, if SeaVision fails to complete the
implementation of the System on any Additional Ship on or before
the applicable completion date therefor (as set forth hereinbelow
or, in respect of the m.v. Meridian, as may hereafter be mutually
agreed by the parties), and during the period between the date
hereof and such completion date, fails to diligently and
consistently prosecute such implementation, then SeaVision shall
pay to Celebrity in respect of that Additional Ship, as
Celebrity's sole and exclusive remedy therefor, an amount equal
to [Redacted - confidential treatment requested] per week for
each week after the applicable completion date and until such
implementation is complete; provided that SeaVision's maximum
aggregate liability hereunder shall be [Redacted - confidential
treatment requested] per Ship, and SeaVision shall not incur
liability hereunder for any installation delays caused by events
or circumstances beyond the reasonable control of SeaVision or
resulting from Celebrity's failure to timely deliver hardware or
other support services or systems to be delivered by Celebrity.
For purposes hereof, the following are the applicable completion
dates for the Additional Ships:
m.v. Horizon - September 10, 1996
m.v. Galaxy - October 30, 1996
m.v. Zenith - November 30, 1996
m.v. Mercury - September 15, 1997
(ii) Provide all personnel reasonably necessary and appropriate to
install and operate the System and provide the Services onboard
the Ships. One (1) SeaVision technician (the "Operator") shall
be posted to each Ship following such installation on that Ship
to run the System on an on-going basis for so long as this
Agreement shall be in effect in respect of that Ship. SeaVision
hereby acknowledges that the Operators shall at all times be
employees of SeaVision, and Celebrity shall serve as SeaVision's
paying agent for payment of all salary, payroll taxes and fringe
benefits costs in connection with the Operators, and SeaVision
shall promptly reimburse Celebrity for all such costs incurred by
Celebrity in respect of the Operators; provided, however, that
(i) SeaVision shall not be obligated hereunder to reimburse
Celebrity for the cost of protection and indemnity insurance
provided by Celebrity pursuant to Section 10 of this Agreement
and (ii) SeaVision shall [Redacted - confidential treatment
requested]. SeaVision understands that, while on board any
Ship, its personnel will be
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subject to the authority of the Master of that Ship and the
officer(s) designated thereon to oversee the installation and
operation of the System and the Services. SeaVision shall use
its best efforts to ensure that the Operators will at all times
while on board any Ship comply with the operations manual of
Celebrity, a copy of which is attached hereto as Exhibit E.
(iii) Upgrade the hardware and/or software used in the System, at no
cost to Celebrity, at such times and in such manner as is
reasonably necessary or appropriate to maintain the System on the
Ships and to achieve the mutually agreed technical performance
standards set forth on Exhibit F attached hereto; provided,
however, that any such upgrade shall be subject to Celebrity's
prior approval, which approval shall not unreasonably be
withheld, delayed or conditioned by Celebrity. Furthermore,
Celebrity shall be entitled from time to time to request upgrades
to the hardware and/or software used in the System in respect of
any Ship in order to keep the System "state-of-the-art"
throughout the Operating Term applicable to that Ship. In
respect of any such requested upgrade, SeaVision shall be
obligated to undertake such requested upgrade only if and to the
extent SeaVision and Celebrity agree such requested upgrade, and
the terms upon which it is to be undertaken by SeaVision, are
technologically and economically feasible for SeaVision.
(iv) Furnish certain entertainment programming for passengers' viewing
on "free" entertainment channels on and through the System on
each Ship for which passengers shall not be charged, all as more
fully set forth on Exhibit A attached hereto.
(v) Allow Celebrity programming control of twenty (20) free
television and music channels provided by Celebrity to passengers
and crew on each Ship.
(vi) Operate the System on each Additional Ship for a period of at
least 120 days from the date of the commencement of the initial
voyage of that Additional Ship with passengers following the
completion of the installation of the System thereon. For
purposes of this Agreement, such 120-day period in respect of any
Additional Ship is sometimes referred to as the "Initial 120-Day
Period".
(b) Subject to the terms and conditions hereof, Celebrity hereby agrees
to:
(i) Grant SeaVision the exclusive right, for so long as this
Agreement is in effect, to develop, install, operate, maintain
and improve interactive
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television services similar in nature or intent to the System and
Services located or installed anywhere on any Ship.
(ii) Make available (v) each Ship to SeaVision personnel for
SeaVision's installation and operation of the System thereon,
including but not limited to granting SeaVision personnel (A)
unlimited access to the television studio and radio frequency
distribution system installed or to be installed by Celebrity on
board that Ship which television studio and radio frequency
distribution system shall include the "central studio equipment,"
the "distribution plant" and a portion of the "head-end",
designated as such in Exhibit G attached hereto and (B) limited
access to passenger cabins, (w) all storage and work space
necessary on board each Ship for the installation and operation
of the System, (x) such personnel as are reasonably necessary or
appropriate to assist in the successful installation and
operation of the System, including but not limited to appropriate
on-board support for and oversight of the installation and
operation of the System by a designated officer on each Ship, (y)
all necessary systems integration support to allow the System to
communicate with other on-board systems, and (z) when any Ship is
not under construction, appropriate accommodations on board that
Ship for SeaVision personnel who are engaged in installing and/or
operating the System on that Ship. It is understood that
SeaVision personnel occupying such accommodations will, at all
times while on board that Ship, be subject to Celebrity's
policies regarding on-board contractors, including those
concerning dress, decorum and personal behavior.
(iii) Provide SeaVision with copies of the detailed plans,
specifications, blueprints and designs which relate to the
television studio, video distribution system, radio frequency
plant, shipboard information systems and passenger cabin
television on each Ship.
(iv) Furnish accommodations on board each Ship and otherwise respond
favorably to reasonable requests by SeaVision's management for
accommodations on board each Ship, on mutually-agreeable dates,
for the purpose of evaluating the System and its performance
during a "start-up" period of not less than 120 days and not more
than 180 days from the date of the commencement of the initial
voyage of the Ship with passengers after the installation thereon
of the System. Thereafter, in respect of each Ship, Celebrity
shall provide SeaVision management with accommodations aboard
that Ship, on mutually-agreeable dates, to allow SeaVision senior
personnel to monitor the on-going performance of the System and
SeaVision's personnel, for the purpose of determining whether
such enhancements and improvements to the System should be
recommended as
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they shall, in their sole discretion, deem appropriate. Requests
for such accommodations shall not exceed one (1) cabin/voyage per
month per Ship once the aforementioned "start-up" period has
passed. Celebrity will endeavor to provide to each Operator
accommodations comparable to those provided by Celebrity to its
employees of similar rank, such as Celebrity's MIS director and
Celebrity's shore excursion managers. Celebrity will provide each
Operator with all other on-board privileges that it provides to
its employees of similar rank.
(v) Provide any and all reasonable marketing support for the System
on-board each Ship. Such marketing support shall include but not
be limited to in-cabin collateral material, mention by the Cruise
Director during his introductory remarks to passengers on that
Ship, prominent coverage in the daily program circulated on that
Ship, insertion of promotional materials in passenger
documentation, and such other activities of a supporting nature
as are acceptable to both parties to this Agreement. All such
marketing support activities and material shall be subject to
Celebrity's prior approval which shall not unreasonably be
withheld, delayed or conditioned. To the extent such marketing
materials are produced by Celebrity and do not result in
additional cost to Celebrity, there shall be no cost or charge to
SeaVision in respect of such marketing materials. Any other
marketing materials produced shall be subject to SeaVision's
prior written approval, which shall not unreasonably be withheld,
delayed or conditioned, and the cost thereof shall be for the
account of SeaVision.
(vi) Work with SeaVision's marketing personnel to develop appropriate
and effective means acceptable to Celebrity for testing and
gauging passenger reaction to the System on a regular basis
during and after the installation of the System on any Ship.
Such means shall include but not be limited to on-board
questionnaires, on-board focus groups, one-on-one passenger
interviews and post-cruise questionnaires. Such activities will
be conducted by individuals mutually acceptable to Celebrity and
SeaVision, and the results of all such activities shall be made
available to Celebrity and SeaVision. The results of all such
activities shall constitute Celebrity's proprietary information
for purposes of this Agreement.
(vii) Use its best efforts in respect of each Ship to cause its on-
board concessionaires to work with SeaVision to develop mutually
beneficial applications for the System.
(viii) Consider requests by SeaVision to provide access to any Ship
when that Ship is in port for SeaVision personnel to demonstrate
the System to potential advertisers, marketers and clients. In
connection with making
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such demonstrations, SeaVision shall conform to Celebrity's
procedures for approving on-board visitors, including but not
limited to making advance requests for boarding passes.
(ix) Provide each Operator with the following data in electronic form
(i.e., diskettes, tapes, or other similar means) with respect to
each passenger on-board the applicable Ship, either directly or
through that Ship's property management system: name, age, cabin
assignment, dining assignment, and on-board account number. In
addition thereto, Celebrity shall provide such Operator with the
home address and telephone number of each passenger who requests
that SeaVision make or arrange for the delivery of any item to
that passenger's home. In respect of dining assignment
information, the parties understand that such information, as
provided by Celebrity to SeaVision, may not be completely
accurate, but that SeaVision will be entitled to rely on such
information, as provided by Celebrity, in connection with
SeaVision's operation of the System. If such data cannot be
available prior to the time of departure of each cruise,
Celebrity and SeaVision agree to jointly develop an efficient and
effective method for collecting such information in the manner
prescribed. Such data is only to be used for such purposes and
activities as are expressly authorized by Celebrity.
(x) Collect all monies paid by passengers in respect of Services
provided on or through the System and charged to the respective
on-board account of such passengers.
(c) Celebrity also has requested that SeaVision install and operate the
System on-board the m.v. Meridian. However, because of the advanced
age of that ship, the parties have agreed to further evaluate the
economic feasibility of that proposed installation and operation.
Accordingly, the parties, by mutual agreement, may add the m.v.
Meridian to this Agreement as an Additional Ship, whereupon SeaVision
shall install and operate the System on-board the m.v. Meridian
pursuant to an implementation schedule mutually agreeable to the
parties. If the parties mutually agree to add the m.v. Meridian to
this Agreement, the m.v. Meridian shall thereafter be an "Additional
Ship" for purposes of this Agreement, and, upon SeaVision's provision
therefor of the components listed on Exhibit D, Celebrity shall either
(A) reimburse SeaVision for the cost of such components (which cost
hereby is agreed to be [Redacted - confidential treatment requested]
or (B) provide SeaVision with transferable cruise credits in an
aggregate amount such that, upon SeaVision's transfer of such cruise
credits to third parties approved by Celebrity, SeaVision shall
receive funds in the aggregate amount of [Redacted -confidential
treatment requested]. Exhibit H outlines the terms under which
Celebrity has agreed to transfer such cruise credits.
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2. Operating Term/Renewal/Option. Unless sooner terminated in accordance
-----------------------------
with the terms of this Agreement, the term of this Agreement in
respect of any Ship (the "Operating Term") shall commence on the date
first written above and expire on the fifth anniversary of the
installation of the System on-board that Ship (in respect of any Ship,
the "Expiration Date"). In the event SeaVision desires to renew this
Agreement in respect of the applicable Ship upon any Expiration Date
or upon the expiration of any subsequent renewal term, if any,
SeaVision will notify Celebrity in writing no less than one hundred
twenty (120) days prior to the Expiration Date or the expiration of
such subsequent renewal term, as the case may be, of the terms and
conditions which it proposes for the subsequent renewal term.
Celebrity may, within sixty (60) days after its receipt of the
proposed terms and conditions, accept the proposal by notifying
SeaVision in writing of Celebrity's intention to renew this Agreement
in respect of the applicable Ship for a subsequent renewal term upon
the terms and conditions proposed by SeaVision. In the event
Celebrity agrees to any such renewal proposal, each successive renewal
term shall be designed as a "Renewal Term" and shall become a part of
the Operating Term in respect of the applicable Ship, each such
Renewal Term shall be for a period of two (2) calendar years, and the
"Expiration Date" in respect of the applicable Ship shall thereafter
be the date upon which such Renewal Term expires. In the event
Celebrity does not agree to any such renewal proposal, this Agreement
shall terminate in respect of the applicable Ship on the Expiration
Date or at the end of the then-current Renewal Term, as the case may
be.
3. Revenue-Sharing and Payment Terms.
---------------------------------
(a) For each calendar month of any Operating Term of this Agreement, the
Adjusted Gross Revenues (as defined below) for all cruises completed
during that calendar month will be allocated between Celebrity and
SeaVision as follows:
(i) If the aggregate of all of the Adjusted Gross Revenues generated
by all of the Systems then or theretofore installed on-board the
Ships, from the Effective Date of this Agreement, is less than
the Investment Recovery (as hereinafter defined), then Celebrity
shall be entitled to retain [Redacted - confidential treatment
requested] of the Adjusted Gross Revenues for cruises completed
during that calendar month and shall promptly remit the remaining
[Redacted - confidential treatment requested] of such Adjusted
Gross Revenues to SeaVision in accordance with this Section 3; or
(ii) If the aggregate of all of the Adjusted Gross Revenues generated
by all of the Systems then or theretofore installed on-board the
Ships, from the Effective Date, equals or exceeds the Investment
Recovery but is less than the Revenue Allocation Shift Amount (as
hereinafter defined) applicable at
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the beginning of the then-current annual period commencing on the
later of the Effective Date or the most recent anniversary
thereof, then Celebrity shall be entitled to retain [Redacted -
confidential treatment requested] of the Adjusted Gross Revenues
for cruises completed during that calendar month and shall
promptly remit the remaining [Redacted - confidential treatment
requested] of such Adjusted Gross Revenues to SeaVision in
accordance with this Section 3; or
(iii) If the aggregate of all of the Adjusted Gross Revenues
generated by all of the Systems then or theretofore installed on-
board the Ships, from the Effective Date, equals or exceeds the
Investment Recovery and is equal to or exceeds the Revenue
Allocation Shift Amount applicable at the beginning of the then-
current annual period commencing on the later of the Effective
Date or the most recent anniversary thereof, then Celebrity shall
be entitled to retain [Redacted - confidential treatment
requested] of the Adjusted Gross Revenues for cruises completed
during that calendar month and shall promptly remit the remaining
[Redacted - confidential treatment requested] of such Adjusted
Gross Revenues to SeaVision in accordance with this Section 3.
(b) "Investment Recovery", for purposes of this Agreement, shall mean the
aggregate of SeaVision's cost of all hardware and software components
of the System ordered for or installed on-board any Ship, SeaVision's
costs to install the System on-board the Ships and SeaVision's cost of
System video production, which aggregate amount shall in no event
exceed [Redacted -confidential treatment requested] per Ship, and
which aggregate amount shall not include more than the aggregate of
[Redacted - confidential treatment requested] for the development of
screens. For purposes of this Agreement, Investment Recovery costs
shall be supported by invoices and other documentation delivered by
SeaVision to Celebrity.
(c) "Revenue Allocation Shift Amount", for purposes of this Agreement,
shall be an amount equal to the total number of passenger cabin rooms
on all of the Ships on which the System is then installed, multiplied
by [Redacted -confidential treatment requested].
(d) "Adjusted Gross Revenues", for purposes of this Agreement, shall mean
the aggregate of (i) all monies paid to Celebrity in connection with
passengers' use of the Services provided by or on the System on-board
the Ships and charged to such passengers' respective on-board accounts
by Celebrity, other than monies paid or payable in respect of shore
excursions, room service orders and wine orders purchased or made on
the System, the revenues from which shall be retained exclusively by
Celebrity, and (ii) certain other revenues as described in Exhibit A
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attached hereto, whether collected by Celebrity or SeaVision, less, in
respect of each Ship, (A) the cost to SeaVision of goods sold in the
case of products and services sold on the System, (B) the cost to
SeaVision of pay-per-view programming provided on the System, (C) the
commissions paid by SeaVision for advertising sold on the System, and
(D) the cost to SeaVision of marketing support materials produced for
the account of SeaVision pursuant to the terms of Subsection 1(b)(v)
hereof, the aggregate amount of which Celebrity shall pay over to
SeaVision, and less credits paid by Celebrity to passengers in the
case of gaming on the System and [Redacted - confidential treatment
requested] in respect of transactions on the System.
(e) On or before the twenty-first day of each calendar month during any
Operating Term of this Agreement, SeaVision shall provide Celebrity
with a written report (the form of which shall be mutually agreed upon
by the parties) detailing the Adjusted Gross Revenues generated by the
System on each Ship on which the System is then installed from cruises
completed during the prior calendar month. This report shall govern
the determination of fees to be retained by Celebrity and the revenues
to be remitted by Celebrity to SeaVision under the terms of this
Agreement. SeaVision shall provide any and all hardware and/or
software reasonably necessary or appropriate to interface SeaVision's
accounting software with the applicable Ship's property management
system in order for SeaVision to obtain accurate accounting
information for such reports.
(f) Celebrity shall remit to SeaVision all Adjusted Gross Revenues
generated by the System less Celebrity's share of such Adjusted Gross
Revenues as provided in Section 3(a) of this Agreement, and all other
amounts due SeaVision as provided in Section 3(d) of this Agreement no
more than fifteen (15) days following its receipt of the applicable
monthly report from SeaVision.
(g) Celebrity shall promptly notify SeaVision of any changes, adjustments
or chargebacks (relative to the Adjusted Gross Revenues in respect of
any calendar month) of which Celebrity receives notice after it has
made a remittance to SeaVision in respect of such calendar month, and
together therewith, provide to SeaVision appropriate documentation
supporting all such changes, adjustments or chargebacks. In the event
properly-supported changes, adjustments or chargebacks result in a
reduction of the Adjusted Gross Revenues generated in respect of such
calendar month, SeaVision shall, within thirty (30) days of its
receipt of the applicable notice and supporting documentation, refund
to Celebrity SeaVision's percentage of the aggregate of such changes,
adjustments or chargebacks.
(h) All advertising and promotional revenues generated by the System on-
board any Ship and received by SeaVision, less any amounts payable by
SeaVision to any
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third party in respect thereof, shall be allocated between SeaVision
and Celebrity in the same manner and on the same percentages as the
Adjusted Gross Revenues are then being allocated between them pursuant
to the terms of Section 3(a) of this Agreement. SeaVision shall remit
to Celebrity Celebrity's portion of such net advertising and
promotional revenues on a calendar month basis not more than fifteen
(15) days following the end of each calendar month.
4. Termination.
-----------
(a) Celebrity shall have the right to terminate this Agreement in respect
of any Ship prior to the Expiration Date applicable to that Ship in
the event the System on-board that Ship fails to achieve the technical
performance standards set forth in Exhibit F attached hereto.
Celebrity may not exercise this right (i) if such technical failure
occurs as a result of Celebrity's failure to perform any or all of its
obligations under the terms of this Agreement in respect of that Ship;
(ii) if such failure is a result of problems encountered with systems
and/or operations on-board that Ship other than the System; (iii)
prior to the expiration of the applicable Initial 120-Day Period (in
respect of any Additional Ship); and (iv) without written notice to
SeaVision of its intention to do so and prior to a period of 90 days
following such notice in which SeaVision may effect a cure of such
failure. Notwithstanding the provisions of the preceding clause (iv),
Celebrity shall not be obligated to provide the cure period provided
therein more than twice for separate occurrences of the same failure
by the System on-board that Ship. In any event in which SeaVision is
entitled to or is otherwise granted the cure period provided for in
the preceding clause (iv), Seavision shall, within fifteen (15) days
following Celebrity's written notice to SeaVision under such clause
(iv), provide to Celebrity SeaVision's written response regarding such
failure, which response shall set forth SeaVision's assessment of the
cause of such failure and SeaVision's plan to rectify such failure.
In any event, SeaVision shall make a good faith effort to rectify such
failure as promptly as is reasonable under the circumstances and,
where appropriate, will implement temporary "work around" solutions
until a permanent solution can be implemented.
(b) SeaVision shall have the right to terminate this Agreement in respect
of any Ship prior to the Expiration Date applicable to that Ship in
the event the System fails to achieve the technical performance
standards set forth in Exhibit F attached hereto and such failure is
the result of problems encountered with systems and/or operations on-
board that Ship other than the System or is the result of Celebrity's
addition to or replacement of systems and/or operations (whether
software, hardware or both) on-board that Ship other than the System
and/or the System on-board that Ship fails to achieve the financial
performance standards that SeaVision in its sole and absolute
discretion shall determine are necessary to warrant its investment in,
and its continued operation of, the System on-board that Ship. In
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the event SeaVision intends to terminate this Agreement in respect of
any Ship pursuant to this subsection 4(b), it shall do so in writing
to Celebrity no less than thirty (30) days prior to ceasing operations
hereunder, which termination notice shall set forth in reasonable
detail the reason for SeaVision's election to terminate this Agreement
in respect of that Ship. Representatives of SeaVision shall offer to
meet with representatives of Celebrity prior to the effectiveness of
any such termination.
(c) Either party hereto shall have the right to terminate this Agreement,
immediately upon written notice to the other party, upon such party
being declared insolvent or bankrupt, or making an assignment for the
benefit of creditors, or in the event that a receiver is appointed, or
any proceeding for appointment of a receiver or to adjudge such party
a bankrupt, or to take advantage of the insolvency laws is demanded
by, for, or against such party under any provision under the laws of
any state or country.
(d) Celebrity shall have the right to terminate this Agreement in the
event SeaVision defaults in the performance of any material covenant,
warranty or agreement made herein (except a failure by the System to
achieve certain technical performance standards which is governed by
Section 4(a) herein), and such default has not been cured within sixty
(60) days after receipt of written notice thereof given by Celebrity
to SeaVision.
(e) SeaVision shall have the right to terminate this Agreement in the
event Celebrity defaults in the performance of any material covenant,
warranty or agreement made herein and such default has not been cured
within sixty (60) days after receipt of written notice thereof given
by SeaVision to Celebrity.
(f) Notwithstanding the termination or expiration of this Agreement as
provided for in this Section 4 and elsewhere in this Agreement,
Celebrity shall continue to owe, and shall promptly pay to SeaVision
in accordance with the terms of Section 3 hereof, all amounts set
forth in Section 3 that shall have accrued on and prior to the date of
such termination or expiration.
(g) Subject to the provisions of Section 5, as soon as is practicable
after the expiration of this Agreement or any termination of this
Agreement in respect of any Ship, SeaVision shall remove the System,
including all related hardware and software, and all on-board
SeaVision personnel, including without limitation the Operator, from
the Ship or Ships affected by the expiration or termination. The
parties hereby agree and acknowledge that in accordance with Section 1
hereof, SeaVision will retain title to all components of the System,
including all hardware and software installed on board the Ships by
SeaVision at any time while this Agreement is in effect, except as
otherwise expressly provided in Section 1 hereof. In the event of any
such removal, SeaVision shall assure that the television system
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on the applicable Ship is in operable condition, normal wear and tear
of the components thereof excepted. For purposes of the immediately
foregoing sentence, SeaVision's obligations are limited to the RF
plant, the television sets and the broadcast center of or on the
applicable Ship.
5. Celebrity's Right to Purchase.
-----------------------------
(a) Anything herein to the contrary notwithstanding, in the event
SeaVision elects to terminate this Agreement in respect of any Ship pursuant to
Section 4(b), Celebrity shall purchase the hardware furnished by SeaVision for
the System on-board that Ship and a non-transferrable license to use the
software components of the System (but only on-board that Ship) for an amount
equal to the lesser of (i) [Redacted - confidential treatment requested] and
(ii) the portion of the Investment Recovery applicable to that Ship less the
aggregate of all Adjusted Gross Revenues theretofore paid to SeaVision pursuant
to the terms of Section 3(a) hereof in respect of that Ship and less the
aggregate of net advertising and promotional revenues allocated to SeaVision
pursuant to the terms of Section 3(d) hereof in respect of that Ship. SeaVision
will provide support services for such hardware and software upon terms and
conditions to be mutually agreed by the parties. Notwithstanding the foregoing,
Celebrity's obligations under this Section 5(a) shall be conditioned upon the
System then being operational on-board the applicable Ship.
(b) At the relevant Expiration Date, Celebrity shall have the right in
respect of each Ship to purchase the hardware furnished by SeaVision for the
System on-board that Ship and a non-transferrable license to use the software
components of the System (but only on-board that Ship) for an amount then
mutually agreeable to the parties. Celebrity acknowledges and agrees that its
rights under this Section 5(b) shall not be exercisable if, prior to the
relevant Expiration Date, SeaVision shall have notified Celebrity of proposed
terms for a renewal or extension of this Agreement in respect of such Ship and
the parties shall have subsequently been unable to agree on terms for such
renewal or extension.
6. Sale or Disposal of the Ship. In the event that Celebrity elects to
----------------------------
sell or otherwise dispose of any Ship, Celebrity promptly shall notify SeaVision
in writing of its decision. Upon the sale of any Ship, the new owner shall have
the option of assuming this Agreement in respect of that Ship. If the new owner
of the Ship elects not to assume this Agreement or in the event Celebrity is
disposing of the Ship other than through a sale or transfer (i.e.,
decommissioning), SeaVision promptly shall remove the System from that Ship, and
Celebrity shall pay SeaVision in respect of that Ship an amount equal to the
lesser of (i) the depreciated value of the System in respect of such Ship at
such time and (ii) the amount of [Redacted - confidential treatment requested],
plus the aggregate of the cost of all new hardware and software theretofore
added to the System annually on-board that Ship, less the aggregate of all
Adjusted Gross Revenues theretofore paid to SeaVision pursuant to the terms of
Section 3(a) hereof in respect of that Ship and less the aggregate of net
advertising and promotional revenues allocated to SeaVision pursuant to the
terms of Section 3(d) hereof in respect of that Ship. For purposes of
determining
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the depreciated value of the System for clause (i) above, the initial value of
the System on-board any Ship shall be [Redacted - confidential treatment
requested], which value shall reduce to zero ratably over [Redacted -
confidential treatment requested] following the installation thereof on-board
that Ship, and to which shall be added the cost of new hardware and software
theretofore added to the System annually on-board that Ship, which new
additional amounts also shall reduce to zero over a [Redacted - confidential
treatment requested] period from the date of each such addition thereof to the
System. In the event of any such removal, SeaVision shall assure that the
television system on the applicable Ship is in operable condition, normal wear
and tear of the components thereof excepted. For purposes of the immediately
foregoing sentence, SeaVision's obligations are limited to the RF plant, the
television sets and the broadcast center of or on the applicable Ship.
7. Confidentiality.
---------------
(a) Celebrity acknowledges that the System represents and will continue to
represent the valuable, confidential and proprietary property of
SeaVision. SeaVision is not by this Agreement conveying to Celebrity
any exclusive proprietary or other rights in the System, including,
but not limited to, any patent, copyright, trademark, service mark,
trade secret, trade name or other intellectual property rights, except
that Celebrity will have the limited rights expressly set forth in
this Agreement. Accordingly, Celebrity acknowledges that, except as
expressly provided for in this Agreement, Celebrity possesses no title
or ownership of any System or any portion thereof. Celebrity will
keep the System free and clear of all claims, liens and encumbrances.
(b) Each party agrees, during the term of this Agreement and thereafter,
to maintain the confidential nature of the terms and conditions of
this Agreement and of any proprietary information shared with it by
the other party. The proprietary information shared with Celebrity by
SeaVision shall include, but is not limited to (a) any knowledge
gained by Celebrity of the System, including but not limited to
knowledge of the type, identity, operation or other characteristics of
the System's hardware, operating system software and applications
software; (b) SeaVision's marketing and sales strategy; (c) the format
and context of any and all SeaVision reports, including those for data
management, revenue remittance and marketing surveys; and (d)
SeaVision's marketing and advertising client list. Celebrity agrees
that it will not create or attempt to create, or permit any third
party to create or attempt to create, by reverse engineering or
otherwise, the source code for the System(s) or any portion thereof.
The provisions of this Section 7 apply to the System as delivered to
Celebrity by SeaVision for any Ship or as modified or otherwise
enhanced by SeaVision and to any proprietary material and information
regarding the System that is given to Celebrity prior to, on or after
the date of this Agreement. The proprietary information shared with
SeaVision by Celebrity shall include, but is not limited to (a) any
knowledge gained by SeaVision of Celebrity's
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<PAGE>
other information systems or operating strategies in respect of any
Ship; (b) Celebrity's marketing and sales strategy; (c) Celebrity's
marketing and advertising client list, including but not limited to
the information provided to SeaVision by Celebrity pursuant to the
terms of Subsection 1(b)(ix) hereof; and (d) the results of the
activities contemplated in Subsection 1(b)(vi) hereof. Notwithstanding
the foregoing, each party may use the other's proprietary information
in the internal conduct of its business, subject always to the
prohibition herein of disclosure. For example (but not in limitation
of the foregoing), (i) Celebrity may hereafter work with a third party
to design screens and reports functionally similar to the screens and
reports included in the System so long as Celebrity does not copy such
System screens or reports or disclose such System screens or reports
to any third party, and (ii) SeaVision may use the information it
gains regarding Celebrity's operations in connection with the
enhancement and marketing of SeaVision's products so long as SeaVision
does not disclose such information to any third party. Notwithstanding
anything contained in this Agreement to the contrary, the terms of
this Section 7(b) shall survive the expiration or termination of this
Agreement and remain in full force and effect for a period of one (1)
year following such expiration or termination.
(c) Each party acknowledges that its violation of its confidentiality or
non-disclosure obligations under this Agreement may cause irreparable
damage to the other that cannot be fully remedied by money damages.
Accordingly, in the event of any such violation or threatened
violation, the injured party will be entitled, in addition to pursuing
any other remedy available to it under this Agreement or at law, to
obtain injunctive or other equitable relief from any court of
competent jurisdiction as may be necessary or appropriate to prevent
any further violations thereof.
(d) During any Operating Term and for a period of three (3) years
thereafter, neither party shall induce or attempt to induce any
employee or consultant of the other to terminate his or her employment
or consulting relationship with such other party and shall not solicit
any such employee or consultant for employment or consulting services.
Notwithstanding anything contained in this
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Agreement to the contrary, the terms of this Section 7(d) shall
survive the expiration or termination of this Agreement and remain in
full force and effect for a period of three (3) years following such
expiration or termination.
(e) Each party agrees to notify the other immediately upon the notifying
party's becoming aware of or reasonably suspecting the possession, use
or knowledge of all or part of any of the other party's proprietary
information by any person or entity not authorized by this Agreement
to have such possession, use or knowledge. The notifying party will
promptly furnish the other party with details of such possession, use
or knowledge, will assist in preventing a recurrence thereof and will
cooperate with the other party in protecting the other party's rights
in the other party's proprietary information. A party's compliance
with the terms of this Section 7 will not be construed as any waiver
of the other party's right to recover damages or obtain other relief
against the notifying party for the notifying party's breach of its
confidentiality or non-disclosure obligations under this Agreement or
the negligent or intentional harm to the other party's proprietary
rights.
8. Right to Inspect Books and Records. SeaVision and Celebrity shall
----------------------------------
keep full and accurate accounts, records, books, journals, ledgers and data
(collectively, "Records") with respect to the business done by each party
respectively under this Agreement, which Records shall at all times show
truthfully, accurately and fully the compliance by each party with its
respective obligations under this Agreement. Each party shall have the right,
through its designated representatives, at all reasonable times, upon reasonable
advance notice, to inspect the Records of the other as necessary to verify the
sales, revenues generated and fees collected pursuant to this Agreement. The
parties shall retain all Records at all times during any Operating Term of this
Agreement, and for at least three (3) years thereafter, and shall make the
Records available to the other party during regular business hours, wherever the
Records are maintained, within ten (10) days after receipt of demand for
inspection from such other party. Both parties shall maintain the confidential
nature of any Records so inspected pursuant to and in accordance with the
provisions of Section 7 hereof.
9. Insurance/Waiver of Subrogation.
-------------------------------
(a) Celebrity hereby warrants, represents and covenants that it has, and
shall maintain for the Operating Term of this Agreement, at its sole
expense, all insurance coverages necessary and appropriate to fully
and adequately insure the System on-board each Ship for one hundred
percent (100%) of the insurable value of that System against any loss
or damage whatsoever which may occur while that System is present
and/or installed on that Ship. The insurance policy(ies) with respect
to such coverage shall each name SeaVision as an additional insured,
as its interests may appear. SeaVision shall, from time to time at
the request of Celebrity or on SeaVision's own initiative, provide to
Celebrity then current replacement cost information for insurable
components of the System. Celebrity shall not be in
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<PAGE>
breach of this Section 9(a) so long as, within thirty (30) days after
the delivery of any such cost information, the insurance then
maintained by Celebrity is consistent with such cost information. In
the event that SeaVision receives the proceeds of any such insurance
as a result of a casualty affecting the System or any portion thereof
on-board any Ship, SeaVision shall apply such proceeds to the repair
and restoration of the System on-board that Ship to its pre-casualty
functionality; provided, however, that SeaVision shall not be
obligated to so apply such proceeds or to repair and restore the
System if (i) such proceeds cannot reasonably be expected to fund the
full and complete repair and restoration of the System on-board that
Ship and Celebrity does not agree to fund the shortfall or (ii) the
affected Ship suffers damage as a result of the casualty and Celebrity
does not, at the request of SeaVision, deliver to SeaVision
Celebrity's written assurance that that Ship likewise will be fully
repaired and restored and used to provide passenger service
substantially equivalent to the service being provided immediately
prior to the casualty. The limitations on SeaVision's liability set
forth in Section 13 herein shall not apply to a breach by SeaVision of
its obligations hereunder to apply insurance proceeds to the repair
and restoration of the System.
(b) So long as their respective insurers so permit, neither party hereto
shall be liable to the other, or to the insurer of the other, claiming
by way of subrogation through or under such other party with respect
to any loss or damage, in whole or in part, to the System, to the
extent that such other party shall be reimbursed out of that party's
insurance coverage carried for such other party's protection with
respect to such loss or damage. If so permitted, the parties shall
each obtain any special endorsements required by their respective
insurance carriers to evidence compliance with the waiver and release
set forth herein and shall provide a copy thereof to the other party.
10. Protection and Indemnity Cover. Each Operator and each member of
------------------------------
SeaVision's System installation crews shall be included as crewmembers on
Celebrity's protection and indemnity cover for such periods of time as the
Operator or crewmember, as the case may be, is posted to a Ship. For the sole
purpose of establishing liability for any sickness, personal injury or death
incurred or suffered by any Operator or any such crewmember which engaged on, or
in the service of any Ship Celebrity shall be considered the employer of that
Operator or crewmember.
11. Interruption in Performance. Neither Celebrity nor SeaVision shall be
---------------------------
liable to the other for any loss, damage or loss of profits arising out of any
interruption or cessation of the Services to be provided hereunder when such
interruption or cessation is caused by any circumstance beyond the reasonable
control of such party.
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12. Indemnification.
---------------
(a) SeaVision shall indemnify, defend and hold harmless Celebrity and its
successors and assigns from and against any and all liabilities,
claims, suits, damages, judgments, awards, penalties, losses and other
liabilities (including all related reasonable attorneys' fees, costs
and expenses in connection therewith) (collectively referred to
hereinafter as "Losses") suffered or incurred by Celebrity by reason
of, arising out of or in connection with (x) any negligent, willful or
intentional act or omission of SeaVision (or an employee, agent or
representative of SeaVision) committed or omitted, as the case may be,
in the course of SeaVision's performance of the terms of this
Agreement or (y) SeaVision's failure to fully perform the terms of
this Agreement.
(b) At Celebrity's request, SeaVision will defend, at its own expense, any
action brought against Celebrity to the extent that such action is
based solely on a claim that the System on-board any Ship infringes
any patent or copyright or the trade secret or other proprietary right
of a third party ("Infringement"), and SeaVision will hold Celebrity
harmless from any resulting losses, liabilities, damages, costs and
expenses, including, without limitation, reasonable attorneys' fees,
provided that Celebrity provides SeaVision with prompt written notice
of such actions and SeaVision is given an opportunity to defend and/or
settle such action. If an infringement covered by the indemnity
provisions set forth herein is established by a court of competent
jurisdiction in a final decision from which no appeal is or can be
taken or if, in the opinion of SeaVision, any such System or any
portion thereof is likely to become the subject of such an
infringement claim, then SeaVision, at its option, may:
(i) modify the infringing or potentially infringing System to
make that System noninfringing while maintaining, in
SeaVision's reasonable opinion, the equivalent or better
functionality;
(ii) obtain, on Celebrity's behalf, the right for Celebrity to
continue to use the infringing System in accordance with the
terms of this Agreement; or
(iii) terminate this Agreement in respect of the infringing
System(s).
(c) Celebrity shall indemnify, defend and hold harmless SeaVision and its
successors and assigns from and against any and all Losses suffered or
incurred by SeaVision by reason of, arising out of or in connection
with (x) any negligent, willful or intentional act or omission of
Celebrity (or an employee, agent or representative of Celebrity)
committed or omitted, as the case may be, in the course of Celebrity's
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performance of the terms of this Agreement or (y) Celebrity's failure
to fully perform the terms of this Agreement.
13. Limitation of Liability. THE WARRANTIES AND REMEDIES EXPRESSLY SET
-----------------------
FORTH IN THIS AGREEMENT ARE EXCLUSIVE AND ARE IN LIEU OF ALL OTHER WARRANTIES
AND REMEDIES, ORAL OR WRITTEN, EXPRESS OR IMPLIED, INCLUDING, WITHOUT
LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE OR ANY IMPLIED WARRANTIES ARISING FROM COURSE OF PERFORMANCE,
COURSE OF DEALING OR USAGE OF TRADE. EXCEPT AS EXPRESSLY PROVIDED HEREIN OR
ELSEWHERE IN THIS AGREEMENT, IN NO EVENT WILL SEAVISION BE LIABLE FOR ANY
DIRECT, INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF
CELEBRITY'S USE OF OR INABILITY TO USE THE SYSTEM ON-BOARD ANY SHIP OR ANY
PORTION THEREOF OR FROM ANY DELAY IN THE SYSTEM ON-BOARD ANY SHIP ACHIEVING THE
TECHNICAL PERFORMANCE STANDARDS SET FORTH ON EXHIBIT F ATTACHED HERETO OR FROM
ANY DELAY IN THE SYSTEM ON-BOARD ANY SHIP MEETING, OR ANY INABILITY OF THE
SYSTEM ON-BOARD ANY SHIP TO MEET, CELEBRITY'S EXPECTATIONS WITH RESPECT TO
OPERATIONS OR PERFORMANCE, EVEN IF SEAVISION IS ADVISED OF THE POSSIBILITY OF
SUCH DAMAGES. IN PARTICULAR, SEAVISION IS NOT RESPONSIBLE FOR ANY COSTS
INCLUDING, BUT NOT LIMITED TO, THOSE INCURRED AS A RESULT OF LOST PROFITS OR
REVENUE, LOSS OF USE OF THE SYSTEM, LOSS OF DATA, THE COST OF RECOVERING ANY
DATA, THE COST OF SUBSTITUTE SOFTWARE, OR CLAIMS BY THIRD PARTIES. IF CELEBRITY
TERMINATES THIS AGREEMENT PURSUANT TO THE TERMS OF SECTION 4(A) OR SECTION 4(D)
HEREIN, SEAVISION SHALL NOT BE LIABLE FOR ANY OF CELEBRITY'S INDIRECT, SPECIAL,
INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING THEREFROM, BUT SHALL BE LIABLE FOR
CELEBRITY'S DIRECT DAMAGES ARISING THEREFROM; PROVIDED HOWEVER, THAT SEAVISION'S
LIABILITY FOR SUCH DIRECT DAMAGES SHALL BE LIMITED TO THE AGGREGATE OF (i) THREE
HUNDRED THOUSAND UNITED STATES DOLLARS (US$300,000) IN RESPECT OF EACH SHIP THAT
IS THEN THREE (3) YEARS OLD OR LESS AND (ii) TWO HUNDRED THOUSAND UNITED STATES
DOLLARS (US$200,000) IN RESPECT OF EACH SHIP THAT IS THEN MORE THAN THREE (3)
YEARS OLD. NOTWITHSTANDING THE FOREGOING, UPON THE FIRST SUCH TERMINATION BY
CELEBRITY, SEAVISION SHALL BE LIABLE FOR THE GREATER OF (i) CELEBRITY'S DIRECT
DAMAGES RESULTING THEREFROM, SUBJECT TO THE FOREGOING LIMITATION THEREON, OR
(ii) AS CELEBRITY'S SOLE AND EXCLUSIVE REMEDY THEREFOR, THE SUM OF THREE HUNDRED
THOUSAND UNITED STATES DOLLARS (US $300,000), REDUCED BY THE AGGREGATE OF ANY
PAYMENTS THERETOFORE PAID BY SEAVISION TO CELEBRITY UNDER SECTION 1(a)(i)
HEREIN.
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14. Further Assurances of SeaVision's Title.
---------------------------------------
(a) Celebrity hereby agrees to execute and deliver to SeaVision, prior to
the date that installation of any System on any Ship commences, such
UCC-1 financing statements and other documents as SeaVision shall
reasonably require for the purpose of evidencing to Celebrity and any
third party SeaVision's continued ownership of all components
(hardware and software) of the System (such financing statements and
other documents to describe all such components).
(b) SeaVision shall affix permanent (to the degree reasonably possible),
legible and visible labels on each component of the System (hardware
only), to the extent that doing so is reasonably possible or
practicable, prior to the date that installation of the System on-
board the applicable Ship commences. Each such label shall clearly
indicate that SeaVision holds title to the component to which that
label is affixed.
15. No Grant of Intellectual Property Rights. This Agreement does not and
----------------------------------------
shall not grant to Celebrity any patent, copyright, trademark, trade secret or,
except as expressly provided in this Agreement, other intellectual property
right or license, express or implied.
16. Public Announcements. The parties shall consult with each other and
--------------------
issue a public statement with respect to this Agreement and the System as soon
as is practical after the date hereof. During any Operating Term, Celebrity
shall include a reference to SeaVision in any and all public announcements or
marketing materials referring to interactive television or video entertainment
services on-board any Ship.
17. Arbitration. In the event of any dispute or controversy arising out
-----------
of or related to this Agreement, the parties will seek to resolve any such
controversy first by negotiating with each other in good faith in face-to-face
negotiations between the respective principals of each. In the event a
resolution is not reached in such manner within thirty (30) days after such
negotiations, if any, commence, any remaining dispute or controversy shall be
submitted to and settled by arbitration as hereinafter provided. Such
arbitration shall be conducted in London in accordance with the Arbitration Acts
1950 and 1989 or any re-enactment or statutory modification thereof then in
effect. The party desiring such arbitration shall serve upon the other party
written notice of its desire, specifying the issues to be arbitrated and the
name of the arbitrator whom it appoints. Within fourteen (14) days after notice
of such demand for arbitration, the other party shall in turn appoint an
arbitrator and give notice in writing of such appointment to the party demanding
arbitration. The two arbitrators so appointed shall select a third arbitrator,
or if the two arbitrators are unable to agree upon the third arbitrator within
fourteen (14) days after the appointment of the second arbitrator, either of the
said two arbitrators may apply to the President of the London Maritime
Arbitrators Association to appoint the third arbitrator, and the three
arbitrators shall constitute the Arbitration Tribunal. If a party fails to
appoint an arbitrator as aforementioned within fourteen (14) days following
notice of demand for arbitration by the other party, the party failing to
appoint an arbitrator shall be deemed to have
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accepted as its own arbitrator the arbitrator appointed by the party demanding
arbitration and the arbitration shall proceed before this sole arbitrator who
alone in such event shall constitute the Arbitration Tribunal. The decision
rendered by the Arbitration Tribunal shall be final and binding and the appeal
by either party to a court in respect of the arbitration award shall be
excluded. The arbitration award shall include which party shall bear the
expenses of the arbitration or the proportion of such expenses each party shall
bear.
18. Right to Make Agreement. Each of the parties hereto represents and
-----------------------
warrants to the other that it has all necessary and appropriate power and
authority to execute, deliver and carry out the terms and provisions hereof.
19. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall constitute an original and all of which
together shall constitute but one and the same original document.
20. Assignment. Except as set forth herein, either party hereto may
----------
assign this Agreement and its respective rights, interests and obligations
hereunder to any third party without the consent of the other party hereto;
provided, however, that no such assignment by a party shall relieve that party
from any of its liabilities or obligations hereunder. It is expressly
understood and agreed that this Agreement and all of SeaVision's interests and
rights herein and hereunder may be assigned, pledged, mortgaged and/or
hypothecated by SeaVision at its exclusive discretion; provided, however, that
in no event will the rights hereunder of any pledgee or mortgagee of SeaVision
be any greater than the rights of SeaVision hereunder.
21. Successors. This Agreement shall inure to the benefit of, and be
----------
binding upon, the respective successors and assigns of the parties hereto upon
its execution by SeaVision and Celebrity, which execution, for purposes of
determining the effectiveness of this Agreement, may be evidenced by facsimile
transmission of the signature page of this Agreement.
22. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of England.
23. Severability. If any Section or provision of this Agreement, or any
------------
portion of any Section or provision thereof, shall for any reason be held to be
void, illegal or otherwise unenforceable, all other Sections and portions of
this Agreement shall nevertheless remain in full force and effect as if such
void, illegal or unenforceable portion had never been included herein.
24. Notices. All notices and other communications required or otherwise
-------
provided for in this Agreement shall be in writing and sent by registered or
certified mail to:
If to SeaVision: SeaVision, Inc.
13320 State Route 7
Lisbon, Ohio 44432
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Attn: Brian K. Blair
If to Celebrity: Celebrity Cruises Inc.
c/o Jos. L. Meyer GmbH & Co.
Industriegebiet Sud
26871 Papenburg, Germany
or to such other place as SeaVision or Celebrity, as the case may be, may from
time to time designate in accordance herewith.
25. Entire Agreement; Modification. This Agreement, including the
------------------------------
Exhibits attached hereto, contains the entire agreement of the parties on the
subject matter hereof, and supersedes any and all prior agreements, including,
without limitation, the Original Agreement, with respect to such subject matter.
This Agreement may not be changed, modified or supplemented except by the
written agreement of the parties.
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto as of the date first above written.
ATTEST: SEAVISION, INC.
By:
- ------------------------ --------------------------------------
Its: Its:
-------------------- -------------------------------------
ATTEST: CELEBRITY CRUISES INC.
By:
- ------------------------ --------------------------------------
Its: Its:
-------------------- -------------------------------------
[Signature page to First Amended and Restated Agreement by and between
SeaVision, Inc. and Celebrity Cruises, Inc. dated as of
June 1, 1996, but effective as of September 1, 1995]
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EXHIBIT A
Entertainment and Interactive Services to be Provided by SeaVision
------------------------------------------------------------------
"Basic" SeaVision Package: Services Provided at No Charge
- ---------------------------------------------------------
. In-Cabin Room Service Ordering: Passengers will be able to order
Celebrity's full or partial room service menu, including beverages
charged to their cabin account, through the System. Orders will be
printed out in appropriate pantries and/or galleys for delivery by
Celebrity personnel. SeaVision shall provide, as part of the System,
printers and/or monitors to be used in such pantries and/or galleys
for such purpose.
. Shore Excursion Ordering: Passengers will be able to watch a preview
video of shore excursions and purchase tickets for shore excursions on
and through the System by using their television remote-control.
Orders will be printed out in the Shore Excursion Office of the Ship,
with tickets in respect thereof to be delivered by Celebrity
personnel. The System will provide appropriate inventory control.
Celebrity shall be responsible for providing all ticket stock and
videos in respect of such shore excursions. Celebrity may choose, at
its option, to produce its own videos, retain SeaVision for this
purpose and reimburse SeaVision for all its costs incurred in
connection with producing the same, or contract with a third party to
produce such videos, provided, however, that any videos produced by
any such third party shall in all ways meet SeaVision's technical
standards for use on the System. Should Celebrity elect to have
SeaVision produce the shore excursion videos, SeaVision shall provide
Celebrity with detailed cost estimates prior to the initiation of
video production. Such estimates will include the cost of pre-
production scripting and preparation and the cost of sending crews
aboard Celebrity's Ships for taping and post-production editing.
. Wine Ordering: Passengers will be able to view a video on the
System of all wines in inventory and order their selections with their
television remote-controls. Orders will be printed out in the Wine
Steward's office or wine cellar, for delivery by Celebrity personnel
at the designated meal or to the designated cabin. The video review
will include the Chef's or Wine Steward's "Tip of the Day." Cabin
accounts will be charged accordingly.
. Interface with Celebrity's Property Management System: The System
will interface with the Ship's property management system to enable
appropriate charges to be applied to passenger accounts.
A-1
<PAGE>
. Access Control: The System will be designed to provide access via
the use of a PIN based upon Celebrity's passenger tracking system.
Passengers will be able to limit access to various services, such as
gaming and adult programming, by enabling lock-out codes and using
password procedures.
. Report Generation: The System will generate detailed activity
reports, which will be made available to Celebrity for the purposes of
revenue payments to SeaVision. SeaVision shall also provide, at
Celebrity's request, reports pertaining to passenger usage of the
System.
. Emergency Broadcast System: In the event of an emergency, the System
can be directly controlled either by the Master or the Operator to
notify passengers and to provide them with instructions.
. Passenger Folio Review - Onboard Account: Each passenger will be able
to use the System to review a summary of his onboard account.
. Spa Service Ordering: Passengers will be able to view a video for the
on-board spa services, obtain information with respect to the hours of
operation of the spa and make reservations for spa usage.
. Language Options: The various preview, ordering and information
services provided on the System will be available in English, French,
Spanish, Italian and German.
. Passenger Questionnaires: Passengers will be able to access an
interactive passenger questionnaire on the System to provide input and
reactions to the System.
. Television Programming: At a time to be mutually agreed upon by
SeaVision and Celebrity, but after the maiden voyage of the Ship,
SeaVision will provide Celebrity two (2) channels of programming on
and through the System for which Celebrity and its passengers will not
be charged. SeaVision will provide two (2) channels of programming on
and through the System for the crew of the Ship at no charge to
Celebrity or the crew. The content of these channels shall be by
mutual agreement, but they may include movies, documentaries, original
programming and selections from leading cable television vendors.
SeaVision reserves the right to market high-quality advertisements,
program-length product videos and corporate endorsements on these
channels, subject to mutual agreement with Celebrity. A portion of
the Adjusted Gross Revenues generated from any such advertisements,
program-length product videos and corporate endorsements will be paid
to Celebrity pursuant to and in accordance with the terms of Section 3
of the Agreement.
A-2
<PAGE>
Revenue-Generating and Pay-Per-View Entertainment
- -------------------------------------------------
NOTE: Celebrity will be entitled to a portion of the Adjusted Gross Revenues
generated by the following services, pursuant to and in accordance with the
terms of Section 3 of the Agreement.
. Video-on-Demand: Passengers will be able to purchase movies and other
entertainment options such as taped concerts, on demand, using the
System and their television remote-control. SeaVision shall determine
the fee that will be levied for each such order and charged to such
passengers' respective cabin accounts. Subject to Celebrity's
approval, adult programming may be offered.
. Gaming Options: Passengers will be able to view a casino channel
which will promote the on-board casino operations and provide
instructions for various casino games and the hours of operation for
the on-board casino, as well as the opportunity to play video
blackjack and poker on the System. Video slots may be offered on the
System at a later date. Any additional games that SeaVision may desire
to provide on the System shall be subject to the parties' mutual
agreement. SeaVision will determine the value of each individual
credit that passengers may purchase and charge to their cabin
accounts. A limit of $200.00 per passenger will be imposed unless the
passenger requests an additional credit line. Credits may be redeemed
at a location designated by Celebrity. SeaVision shall establish and
maintain an on-board cash account on the Ship in an amount up to, but
not to exceed, $5,000, such amount to be used for the purpose of
allowing passengers to redeem gaming credits they may have. The gaming
options will be activated only with the prior approval of Celebrity
and subject to reasonable terms and conditions set forth by Celebrity.
SeaVision will cooperate with Celebrity to conduct limited tests of
the gaming options so long as Celebrity reimburses SeaVision for the
costs of any modifications which may result from such tests, provided
that SeaVision provides written estimates for the costs of any such
modifications for Celebrity's prior approval.
. Shopping: SeaVision will offer passengers shopping videos and
interactive video shopping on and through the System for SeaVision
exclusive stores, Celebrity Logo shop and other shopping vendors and
suppliers; provided, however, that (i) without Celebrity's consent,
SeaVision cannot offer for sale on any Ship any item in a product
category then being offered for sale on that Ship by the gift shop
concessionaire or any other concessionaire thereon and (ii) SeaVision
and Celebrity will work together in good faith to provide to the gift
shop concessionaire or any other concessionaire thereon an appropriate
amount of advertising on the System upon terms mutually acceptable to
the parties. Celebrity will retain the right to approve the items
offered for sale and the vendors providing those items, such approval
not to be unreasonably withheld. In the event Celebrity
A-3
<PAGE>
elects to offer its own items for sale on and through the System,
SeaVision will be entitled to a share of the Adjusted Gross Revenues
generated therefrom pursuant to and in accordance with the terms of
Section 3 of the Agreement. Celebrity will be entitled to a portion of
the Adjusted Gross Revenues generated by any fees paid by such
purveyors, pursuant to and in accordance with the terms of Section 3
of the Agreement. SeaVision will provide fulfillment services for
products sold through the System which are not offered by Celebrity or
concessionaires on board the Ship. The shopping options will be
activated only with the prior approval of Celebrity and subject to
reasonable terms and conditions set forth by Celebrity. SeaVision will
cooperate with Celebrity to conduct limited tests of the shopping
options so long as Celebrity reimburses SeaVision for the costs of any
modifications which may result from such tests, provided that
SeaVision provides written estimates for the costs of any such
modifications for Celebrity's prior approval.
. Advertising and Promotions: SeaVision shall have the exclusive
right to provide access to the System to third parties for the
purposes of advertising, promotions and marketing of their companies,
products or services which are suitable and consistent with
Celebrity's image. However, SeaVision agrees to work with Celebrity
and within existing agreements and SeaVision will not provide such
access to island vendors unless such advertising is first requested by
Celebrity or an on-board concessionaire on the Ship. Celebrity will
have the right to review and approve all such advertising and
promotional programs in advance.
Additional Services (to be provided after the initial implementation of the
- -------------------
System on the Ship and upon the mutual agreement of the parties)
. Live Cable Television Programming: SeaVision will use its best
efforts to provide Celebrity, if Celebrity so elects, live cable
television programming such as CNN and ESPN, at Celebrity's expense.
. Video-on-Demand to Crew: SeaVision shall have the option to offer to
the crew the same video-on-demand services which are offered to the
passengers on the same terms and conditions set forth in the Agreement
for such services to passengers or on such other terms and conditions
as are mutually agreed to by the parties.
. Ship Location Data: Passengers will be able to access a passive
application (to be provided by others) which will provide a graphic
display of the global position of the Ship, its speed, distance
traveled, time remaining to next destination, wind speed, water
temperature, time of day, etc. SeaVision will consult with Celebrity
A-4
<PAGE>
regarding the integration of this passive application with the ship's
navigational instruments and television distribution system.
. Kiosks: SeaVision will cooperate with third party vendors to
integrate the System and its applications into on-board common area
touch screen kiosks.
. Shipboard Directions Module: Passengers will be able to access an
interactive application provided by SeaVision which will provide
passengers with directions how to locate and move from one shipboard
location to another.
. Other Options: The parties will work together to develop and make
available other potential revenue-generating services and options on
the System.
. Additional Non-revenue-Generating Services: To the extent that
channels on the System are not then being utilized by SeaVision,
Celebrity may use such channels to provide additional non-revenue-
generating services to its passengers and/or crew; provided, however,
in each instance:
(i) such services are approved to SeaVision, which approval shall
not unreasonably be withheld, delayed or conditioned;
(ii) such services are terminable at any time that SeaVision may
elect to utilize the applicable channel in connection with its
operation of the System;
(iii) Celebrity shall provide an operator and any hardware, software
and operations staff required for such services; and
(iv) Celebrity shall reimburse SeaVision for any additional cost to
SeaVision as a result of such services.
In addition thereto, the parties will consider the implementation on
the System of services providing daily activities information, cabin
maintenance and menu viewing.
. Additional Language Modules: SeaVision will develop and install
additional language modules for German, French, Spanish and Italian.
A-5
<PAGE>
EXHIBIT B
Implementation Schedule
-----------------------
The following is subject to and conditioned upon (i) a definitive Agreement
being executed and delivered by SeaVision and Celebrity no later than May
29, 1996, (ii) the availability of Celebrity personnel to review and
approve certain content for the navigation screens and video shopping
modules in a timely fashion and (iii) delivery of all Celebrity supplied
equipment in a timely fashion.
<TABLE>
<CAPTION>
Task Horizon Galaxy Zenith Mercury
<S> <C> <C> <C> <C>
Content - revise existing Celebrity 6/12/96 7/31/96 8/30/96 6/16/97
navigation documents for all modules, ITV
screens, voice prompting, motion video and
animation production.
Hardware - engineer, procure, assemble,
test and integrate.
Interfaces - design interfaces for reservation
system, transaction posting via PMS and
POS systems.
Operations - integrate all ITV related
transactions and activities into existing
shipboard departmental and operating
procedures.
Deliver by SeaVision of final content for all 7/31/96 9/18/96 10/18/96 8/4/97
ITV services.
Delivery by SeaVision of ITV hardware
components on-board the Ship.
Complete installation and testing of ITV 8/20/96 10/9/96 11/8/96 8/25/97
server, applications and system interfaces.
Complete secondary language module 8/27/96 10/16/96 11/15/96 9/1/97
installation.
Complete orientation of on board staff and 9/10/96 10/30/96 11/30/96 9/15/97
crew and complete integration of ITV
operating and fulfillment procedures with on
board departmental procedures.
</TABLE>
B-1
<PAGE>
EXHIBIT C
Hardware and Software Components of the System to be provided by SeaVision
--------------------------------------------------------------------------
Primary Components:
. Digital File Server - Pentium based server machine [Redacted -
confidential treatment requested].
. SeaVision Interactive Allocator - Version 1.0 software for [Redacted -
confidential treatment requested].
. SeaVision ISP Session - Version 1.0 software for [Redacted -
confidential treatment requested].
. SeaVision Database Engine - Version 1.0 software [Redacted -
confidential treatment requested].
. SeaVision CCP Interface - Version 1.0 software for [Redacted -
confidential treatment requested].
Support
. SeaVision PMS Protocol - A network interface specification to enable
third party PMS vendors to interface with the SeaVision ITV server.
. Ancillary Components - Keyboards, monitors, switches, cabling, network
hubs for the installation of the ITV server in the ships broadcast
control center.
. Uninterruptible Power Supply - For emergency backup power and line
conditioning to the SeaVision digital file server.
C-1
<PAGE>
EXHIBIT D
m.v. Galaxy and m.v. Mercury
----------------------------
television control modules
necessary modifications of in-cabin televisions (if any)
two-way radio frequency distribution plant
equipment racks
communication control processor (CCP) [Redacted - confidential treatment
requested]
[Redacted - confidential treatment requested] video cassette players
[Redacted - confidential treatment requested] random dynamic modulators
m.v. Horizon and m.v. Zenith
----------------------------
in-cabin televisions
television control modules
necessary modifications of in-cabin televisions (if any)
two-way radio frequency distribution plant
equipment racks
communication control processor (CCP) [Redacted - confidential treatment
requested]
[Redacted - confidential treatment requested] video cassette players
[Redacted - confidential treatment requested] random dynamic modulators
D-1
<PAGE>
EXHIBIT E
---------
Operations Manual of Celebrity
------------------------------
Confidential treatment requested
E-1
<PAGE>
EXHIBIT F
Technical Performance Standards for the System
----------------------------------------------
RF System
. The SeaVision RF mixing network located in the BCC will support the
ships existing Free to Guest channels. A total of twenty channels
will be allocated for this purpose. The SeaVision RF mixing network
will act as the final launch point for input the ships RF plant.
. The final output of the mixed signals will be +15dBmV flat +/-3dB.
. The ships existing launch amplifier will be set in accordance to the
ships RF design specification but shall not exceed a +45 dBmV output
level. The maximum tilt shall not exceed 6 dB across the amplifiers
entire bandwidth.
. The minimum Carrier to Noise ratio at the end of any RF trunk in the
ships RF plant shall be 41 dB or better.
. Adjacent channel visual carriers shall not differ more than 3 dB.
. All passive devices will have a minimum port to port isolation of 20
dB.
. An RF return module will be added to the ships RF amplifiers, if the
amplifiers will support the device. If the amplifier will not support
the RF return module then the entire amplifier modules will be
removed. Depending on availability, the new amplifiers will be of the
same manufacturer and model series in order to utilize the existing
housings and plant connections.
Response Time
. The average user response time shall not exceed [Redacted -
confidential treatment requested].
. The maximum response time shall not exceed [Redacted - confidential
treatment requested].
F-1
<PAGE>
EXHIBIT G
Installations to be Provided by Celebrity
-----------------------------------------
Distribution Plant
------------------
. 2-way RF distribution system as specified under the ship building
contract for the Ship, [Redacted - confidential treatment requested]
that originate from the TV broadcast center
. installation of all necessary network cabling at designated remote
peripheral locations
. AC power at all necessary locations including the peripherals, the
main ITV server and cabin TCM's
. cabin televisions including installed Guest Serve television control
modules and infra-red remote controls with batteries
. a spare inventory equal to seven percent (7%) of the infrared remotes
and batteries in use
Head-End Equipment
------------------
. a maximum of four (4) 22" equipment racks and three (3) 19" equipment
racks, one of which will be shared with SONY for UPS Power Systems
. one (1) Guestserve server PC with RF cards for communication with
cabin TCM's
. [Redacted - confidential treatment requested] ITV RF modulators
G-1
<PAGE>
EXHIBIT H
Cruise Credit Barter Guidelines
-------------------------------
1. Cost of Cruises will be based on our preferred pricing sheets (Our
C.P.A. Rates/Five Star Rates) by the Category selected.
2. Port Taxes always paid in cash (Not barter).
3. Cabins on space available basis with confirmation 30 days in advance.
4. Holidays and February, July, August voyages excluded.
5. Barter cannot be sold to general public or Travel Agents.
6. Barter cannot be advertised.
7. Barter credit valid for two years.
8. Celebrity reserves the right to approve any transfer of barter credit
to third parties.
9. 70% of barter available for: Horizon/Zenith/Meridian
30% of barter available for: Century/Galaxy
10. No more than 10 cabins on any one voyage.
(Exceptions will be evaluated on an individual request basis)
H-1
<PAGE>
Exhibit 10.13
THE MARKED PORTIONS OF THIS AGREEMENT
HAVE BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT.
AGREEMENT
This Agreement, dated as of February 6, 1996, is made by and between
SEAVISION, INC., a Delaware corporation (hereinafter referred to as
"SeaVision"), and CARNIVAL CORPORATION, a Panamanian corporation (hereinafter
referred to as "Carnival").
WHEREAS, Carnival is in the business of offering cruise vacations to its
passengers; and
WHEREAS, Carnival desires that its passengers have access to interactive
television services on board its vessels; and
WHEREAS, Carnival wishes to provide passenger services via, and to earn
incremental revenue from, such interactive television services; and
WHEREAS, SeaVision desires to provide to Carnival, and Carnival desires to
obtain from SeaVision, the aforementioned interactive television services for
use aboard M/S Imagination (the "Initial Ship") and such other Carnival Cruise
Line-brand cruise vessels owned or operated by Carnival or Carnival-owned or
Carnival-managed companies as, from time to time, may be designated by Carnival
(all such cruise vessels, collectively, the "Ships" and individually, a "Ship").
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, intending to be
legally bound hereby, agree as follows:
1. Responsibilities.
----------------
(a) Subject to the terms and conditions hereof, SeaVision hereby agrees
to:
(i) Provide, for each Ship designated by Carnival (including without
limitation the Initial Ship) at no charge to Carnival, an
interactive television system (the "System") consisting of the
hardware and software described or listed
<PAGE>
on Exhibit A attached hereto (collectively, the "System Hardware
and Software") and, in connection therewith, provide the services
(the "Services") set forth on Exhibit B attached hereto.
Notwithstanding anything to the contrary elsewhere in this
Agreement, if Carnival requests customized applications displays
on the television screens, all such displays must be compatible
with the then existing technical standards of the System, and
Carnival shall bear the cost of the development of such screens,
which costs will be in accordance with Exhibit C attached hereto.
The installation of the System on the Initial Ship will be in
accordance with the implementation schedule attached hereto as
Exhibit D (the "Implementation Schedule"). Except as expressly
provided otherwise in this Agreement, SeaVision shall at all
times retain title to all components of the System, including all
System Hardware and Software hereafter installed on any Ship
hereunder and any non-customized applications screens.
(ii) Provide all personnel reasonably necessary and appropriate to
operate the System and provide the Services. One (1) SeaVision
technician (the "Operator") will remain on-board each Ship on
which the System is then installed and operating to operate the
System on an on-going basis for so long as this Agreement shall
be in effect with respect to that Ship. SeaVision hereby
acknowledges that the Operator shall at all times be an employee
of SeaVision. Carnival hereby agrees to serve as SeaVision's
paying agent for payment, at the direction of SeaVision, of all
salary, payroll taxes and fringe benefits costs in connection
with the Operator; provided that SeaVision promptly reimburses
Carnival for all such costs incurred by Carnival. SeaVision
understands that, while on board any Ship, its personnel will be
subject to the authority of the Master of that Ship and the
officer(s) designated to oversee the operation of the System and
the Services. SeaVision shall use its best efforts to ensure
that the Operator will at all times while on board any Ship
comply with the operations manual of Carnival, in the form then
in effect.
(iii) Maintain and upgrade the hardware and/or software used in the
System, at no cost to Carnival, at such times and in such manner
as is reasonably necessary or appropriate, in SeaVision's sole
opinion, to maintain the functionality of the System; provided,
however, that such upgrades will require Carnival's consent if
such upgrades will require significant modifications to
Carnival's on-board hardware or software. The implementation
schedule for all SeaVision and Carnival upgrades will be subject
to the mutual agreement of the parties.
(b) Subject to the terms and conditions hereof, Carnival hereby agrees to:
-2-
<PAGE>
(i) Make available to SeaVision on any Ship upon which the System is
installed or is then to be installed, (A) all reasonably
necessary storage and workspace for SeaVision's installation,
operation and maintenance of the System, including but not
limited to granting SeaVision personnel reasonable access to the
television studio and video distribution system and limited
access to passenger cabins on-board such Ship, (B) such
personnel as are reasonably necessary or appropriate to assist
in the successful installation, operation and maintenance of the
System, including but not limited to appropriate on-board
support for, and oversight of, the installation, operation and
maintenance of the System by a designated officer on such Ship,
(C) all necessary Systems integration support to allow the
System to communicate with Carnival's on-board systems, and (D)
appropriate accommodations on-board such Ship, if necessary, for
SeaVision personnel who are engaged in installing, operating or
maintaining the System on such Ship; provided, however, that
none of the foregoing activities of SeaVision shall unreasonably
interfere with the normal functions of such Ship. It is
understood that SeaVision personnel occupying such
accommodations will, at all times while on-board such Ship, be
subject to Carnival's policies regarding on-board contractors,
including those concerning dress, decorum and personal behavior.
(ii) Furnish crew accommodations on-board each Ship upon which the
System is then installed on mutually-agreeable dates, to allow
SeaVision senior personnel to monitor the on-going performance
of the System and SeaVision's personnel and for the purpose of
determining whether enhancements and improvements to the System
should be recommended.
(iii) Furnish crew accommodations to the Operator on board any Ship,
which accommodations shall be comparable to those provided by
Carnival to its crew staff of similar rank on that Ship.
SeaVision understands and agrees that such accommodations may
consist of a double cabin which the Operator may be required to
share with Carnival personnel. Carnival shall also provide the
Operator with meals and all other perquisites that it provides
to its employees of similar rank.
(iv) Provide reasonable marketing support for the System on board
each Ship on which the System is then installed. Such marketing
support shall include but not be limited to in-cabin collateral
material, mention by the Cruise Director during his or her
introductory remarks to passengers on the Ship, coverage in the
daily program circulated on the Ship and such other activities
of a supporting nature as are agreed to by both parties to this
Agreement, including, if so agreed, insertion of promotional
materials in passenger documentation.
-3-
<PAGE>
(v) Work with SeaVision's marketing personnel to develop
appropriate, effective and non-intrusive means for testing and
gauging passenger reaction to the System on a regular basis.
Such means may include but not be limited to on-board
questionnaires, on-board focus groups, one-on-one passenger
interviews and post-cruise questionnaires.
(vi) Provide reasonable access to each Ship on which the System is
then installed, when such Ship is in port, for SeaVision
personnel to demonstrate the System to potential advertisers,
marketers and clients. In connection with making such
demonstrations, SeaVision shall conform to Carnival's
procedures for approving on-board visitors, including but not
limited to making advance requests for boarding passes.
(vii) Use commercially reasonable efforts to cause its on-board
concessionaires to work with SeaVision to develop mutually
beneficial applications for the System.
(viii) Provide the Operator with the following data, if available, in
electronic form (i.e., diskettes, tapes or other similar means)
with respect to each passenger on-board any Ship on which the
System is then installed: name, home address and telephone
number, age, cabin assignment, dining assignment and on-board
account number.
(ix) Use its best efforts to collect all monies paid or payable by
passengers in respect of Services provided on or through the
System and charged to the respective on-board account of such
passengers.
2. Initial Term/Renewal/Extension to Other Ships.
---------------------------------------------
(a) Unless sooner terminated in accordance with the terms of this
Agreement, the initial term of this Agreement (the "Initial Term")
shall commence on the date first written above and shall expire on the
first anniversary of such date. If neither party theretofore exercises
its respective rights under Section 5 herein to terminate this
Agreement upon or prior to the expiration of the Initial Term, the
term of this Agreement shall automatically renew on the expiration of
the Initial Term for an additional period of five (5) years. If, prior
to the expiration of the Initial Term or such five (5) year renewal
term, Carnival designates a fourth Ship upon which SeaVision is to
install the System (counting the Initial Ship as the first such
designated Ship), then upon such designation by Carnival, the
remaining term of this Agreement shall be lengthened or shortened, as
the case may be, such that the remaining term of this Agreement shall
be three (3) years from the date of such designation by Carnival.
Thereafter, unless terminated by either party in accordance with the
terms of Section 5 herein, on each occurrence of a date that is
-4-
<PAGE>
two (2) years prior to the then effective expiration date of the term
of this Agreement, the term of this Agreement automatically will be
extended for one (1) additional year until either party delivers
written notice to the other stating that the term of this Agreement
will not be further extended.
(b) Carnival hereby grants to SeaVision the exclusive right, for the term
of this Agreement (subject always to Carnival's rights to terminate
this Agreement in accordance with its terms) to install, operate and
maintain interactive television systems on the Initial Ship. If
Carnival elects from time to time for SeaVision to install, operate
and maintain any such additional System(s) in accordance herewith,
SeaVision and Carnival shall establish a timetable for the related
installation(s). All of the terms and conditions of this Agreement
shall apply to the parties' respective rights and obligations in
respect of such other Ships and Systems installed thereon. Subject to
the foregoing proviso, in the event the parties agree that SeaVision
will install, operate and maintain any such additional System(s) on
one or more Ship(s), the references herein made to a or any Ship
and/or the System shall be deemed to include such other Ship(s) and
the System(s) installed thereon, with such modifications as are
reasonably necessary and appropriate to reflect the individualized
System(s) installed on each such Ship.
(c) During the six (6) month period commencing on the date hereof,
Carnival shall not enter into any agreement with a third party for the
installation, operation or maintenance of an interactive television
system on board any Carnival Cruise Line-brand cruise vessel.
3. Revenue-Sharing and Payment Terms.
---------------------------------
(a) For each calendar month of the term of this Agreement, the Adjusted
Net Revenues (as defined below) for all cruises completed during that
calendar month will be allocated between Carnival and SeaVision as
follows:
(i) If the aggregate of all of the Adjusted Net Revenues generated by
all of the Systems then or theretofore installed on-board the
Ships, from the commencement of this Agreement, is less than the
product (hereinafter referred to as "Investment Recovery")
obtained by multiplying the number of Ships on which a System is
then installed by [Redacted -confidential treatment requested]
then Carnival shall be entitled to retain [Redacted -
confidential treatment requested] of the Adjusted Net Revenues
for cruises completed during that calendar month and shall
promptly remit the remaining [Redacted -confidential treatment
requested] of such Adjusted Net Revenues to SeaVision in
accordance with this Section 3; or
-5-
<PAGE>
(ii) If the aggregate of all of the Adjusted Net Revenues generated
by all of the Systems then or theretofore installed on-board the
Ships, from the commencement of this Agreement, equals or
exceeds the Investment Recovery and if the number of Ships is
then [Redacted - confidential treatment requested] or less, then
Carnival shall be entitled to retain [Redacted - confidential
treatment requested] of the Adjusted Net Revenues for cruised
completed during that calendar month and shall promptly remit
the remaining [Redacted - confidential treatment requested] of
such Adjusted Net Revenues to SeaVision in accordance with this
Section 3; or
(iii) If the aggregate of all of the Adjusted Net Revenues generated
by all of the Systems then or theretofore installed on-board the
Ships, from the commencement of this Agreement, equals or
exceeds the Investment Recovery and if the number of Ships is
then [Redacted - confidential treatment requested] or more, then
Carnival shall be entitled to retain [Redacted - confidential
treatment requested] of the Adjusted Net Revenues derived from
video-on-demand and gaming services and [Redacted - confidential
treatment requested] of the Adjusted Net Revenues otherwise
derived from services listed on Exhibit B (unless otherwise
specified on Exhibit B) for cruises completed during that
calendar month and shall promptly remit the remaining [Redacted
- confidential treatment requested] and [Redacted - confidential
treatment requested] respectively of such Adjusted Net Revenues
to SeaVision in accordance with this Section 3.
(iv) Notwithstanding the foregoing, any Adjusted Net Revenue-showing
percentages set forth on Exhibit B for services mutually agreed
upon by the parties after the date hereof shall take precedence
over the foregoing percentages.
(b) "Adjusted Net Revenues", for purposes of this Agreement, shall mean
the aggregate of all monies paid to Carnival in connection with
passengers' use of the revenue-generating and pay-per-view
entertainment Services described on Exhibit B hereto and charged to
such passengers' respective on-board accounts by Carnival (monies paid
or payable in respect of shore excursions, room service orders and
wine orders purchased or made on the System shall be retained
exclusively by Carnival), less (i) the cost to SeaVision of goods sold
in the case of products and services sold on the System, (ii) the cost
to SeaVision of pay-per-view programming provided on the System, (iii)
the commissions paid by SeaVision for advertising sold on the System,
(iv) if the aggregate of all of the Adjusted Net Revenues generated by
all of the Systems then or theretofore installed on-board the Ships,
from the commencement of this Agreement, equals or exceeds the
-6-
<PAGE>
Investment Recovery, all costs of the Operator and any other costs
incurred by SeaVision for the operation, maintenance and enhancement
of any System (excluding any such enhancement costs incurred by
SeaVision pursuant to its obligations under subsection 1(a)(iii)
herein for the enhancement of the System generally and that are not
attributable to any specific Ship or any specific installed System)
which are approved by Carnival in writing, (v) [Redacted -
confidential treatment requested] and (vi) credits paid by Carnival to
passengers in the case of gaming on the System. Any costs and
expenses set forth in the foregoing clauses (i), (ii) and (iii)
payable by SeaVision to any persons affiliated with SeaVision or its
principals shall not be deductible unless approved in writing by
Carnival, which approval shall not unreasonably be withheld, delayed
or conditioned. The aggregate amount of any costs and expenses set
forth in the foregoing clauses (i) through (iv), inclusive, shall be
paid over by Carnival to SeaVision, and Carnival shall be entitled to
retain the aggregate amount of any costs and expenses set forth in the
foregoing clauses (v) and (vi), all to the extent of monies paid to
Carnival in connection with passengers' use of the revenue-generating
and pay-per-view entertainment Services described on Exhibit B hereto
and charged to such passengers' respective on-board accounts by
Carnival, with any shortfall being carried over to succeeding months.
(c) On or before the twenty-first day of each calendar month during the
term of this Agreement, SeaVision shall provide Carnival with a
written report (the form of which shall be mutually agreed upon by the
parties) detailing the Adjusted Net Revenues (and the related
deductions from gross revenues) generated by the System on each Ship
on which the System is then installed from cruises completed during
the prior calendar month. This report shall govern the determination
of fees to be retained by Carnival and the revenues to be remitted by
Carnival to SeaVision under the terms of this Agreement. SeaVision
shall provide any and all hardware and/or software reasonably
necessary or appropriate to interface SeaVision's accounting software
with the applicable Ship's property management system in order for
SeaVision to obtain accurate accounting information for such reports.
(d) Within thirty (30) days after Carnival's receipt of any monthly report
delivered to Carnival by SeaVision pursuant to the terms of subsection
3(c) herein, Carnival shall remit to SeaVision all Adjusted Net
Revenues generated by the System on each Ship during the calendar
month applicable to such report, less its share of such Adjusted Net
Revenues as provided in this Section 3.
(e) Carnival shall promptly notify SeaVision of any changes, adjustments
or chargebacks (relative to the Adjusted Net Revenues in respect of
any calendar month) of which Carnival receives notice after it has
made a remittance to SeaVision in respect of such calendar month, and
together therewith, provide to
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<PAGE>
SeaVision appropriate documentation supporting all such changes,
adjustments or chargebacks. In the event properly-supported changes,
adjustments or chargebacks result in a reduction of the Adjusted Net
Revenues generated in respect of such calendar month, SeaVision shall,
within thirty (30) days after its receipt of the applicable notice and
supporting documentation, refund to Carnival SeaVision's percentage of
the aggregate of such changes, adjustments or chargebacks.
(f) All advertising and promotional revenues generated by any System and
received by SeaVision, less any commissions and fees payable by
SeaVision to any third party in respect thereof (subject to Carnival's
approval thereof in accordance with the terms of section 3(b) in the
case of persons affiliated with SeaVision or its principals), shall be
allocated between SeaVision and Carnival in the same manner and on the
same percentages as the Adjusted Net Revenues are then being allocated
between them pursuant to the terms of subsection 3(a) of this
Agreement. SeaVision shall detail such gross revenues and expenses on
the applicable monthly report provided to Carnival pursuant to the
terms of subsection 3(c) of this Agreement and shall retain its own
portion of such net revenues together with Carnival's portion of such
retained net revenues to the extent of, and as a credit against,
Carnival's payment obligations pursuant to the terms of subsection
3(d) of this Agreement for the applicable calendar month.
4. Confidentiality.
---------------
(a) Carnival acknowledges that the System represents and will continue to
represent the valuable, confidential and proprietary property of
SeaVision. SeaVision is not by this Agreement conveying to Carnival
any exclusive proprietary or ownership rights in the System,
including, but not limited to, any patent, copyright, trademark,
service mark, trade secret, trade name or other intellectual property
rights, except that Carnival will have the limited rights expressly
set forth in this Agreement. Accordingly, Carnival acknowledges that,
except as expressly provided for in this Agreement, Carnival possesses
no title or ownership of any System or any portion thereof. Carnival
will keep the System free and clear of all claims, liens and
encumbrances by or through Carnival.
(b) Each party agrees, during the term of this Agreement and thereafter,
to maintain the confidential nature of the terms and conditions of
this Agreement and of any proprietary information shared with it by
the other party or
obtained by a party from the other party's books, records or computer
systems. The proprietary information shared with Carnival by
SeaVision shall include, but is not limited to (i) any knowledge
gained by Carnival of the System, including but not limited to
knowledge of the type, identity, operation or other characteristics of
the System's hardware, operating system software and applications
software; (ii) SeaVision's
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<PAGE>
marketing and sales materials; (iii) the content of any and all
SeaVision reports, including those for data management, revenue
remittance and marketing surveys; and (iv) SeaVision's marketing and
advertising client list. The proprietary information shared with
SeaVision by Carnival shall include, but not be limited to, Carnival's
customer lists and passenger information, on-board revenue and expense
data, the content of any Carnival reports, and Carnival's business
arrangements with concessionaires. Carnival agrees that it will not
create or attempt to create, or permit any third party to create or
attempt to create, by reverse engineering or otherwise, the source
code for the System(s) or any portion thereof. The provisions of this
Section 4 apply to the System as delivered to Carnival by SeaVision or
as modified or otherwise enhanced by SeaVision and to any proprietary
material and information regarding the System that is given to
Carnival prior to, on or after the date of this Agreement.
Notwithstanding the foregoing, each party may use the other's
proprietary information in the internal conduct of its business,
subject always to the prohibition herein of disclosure.
Notwithstanding anything contained in this Agreement to the contrary,
the terms of this subsection 4(b) shall survive the expiration or
termination of this Agreement.
(c) Each party acknowledges that its violation of its confidentiality or
non-disclosure obligations under this Agreement may cause irreparable
damage to the other that cannot be fully remedied by money damages.
Accordingly, in the event of any such violation or threatened
violation, the injured party will be entitled, in addition to pursuing
any other remedy available to it under this Agreement or at law, to
obtain injunctive or other equitable relief from any court of
competent jurisdiction as may be necessary or appropriate to prevent
any further violations thereof.
(d) During the Initial Term, any extensions thereof, and for a period of
three (3) years after the expiration or any termination of this
Agreement, neither party shall induce or attempt to induce any
employee or consultant of the other to terminate his or her employment
or consulting relationship with such other party and shall not solicit
any such employee or consultant for employment or consulting services.
(e) Each party agrees to notify the other immediately upon the notifying
party's becoming aware of or reasonably suspecting the possession, use
or knowledge of all or part of any of the other party's proprietary
information by any person or entity not authorized by this Agreement
to have such possession, use or knowledge. The notifying party will
promptly furnish the other party with details of such possession, use
or knowledge, will assist in preventing a recurrence thereof and will
cooperate with the other party in protecting the other party's rights
in the other party's proprietary information. A party's compliance
with the terms of this Section 4 will not be construed as any waiver
of the other party's right to recover damages or obtain other relief
against the notifying party for the notifying party's
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<PAGE>
breach of its confidentiality or non-disclosure obligations under this
Agreement or the negligent or intentional harm to the other party's
proprietary rights.
5. Termination.
-----------
(a) Carnival shall have the right to terminate this Agreement, in its sole
discretion, at the expiration of the Initial Term upon thirty (30)
days' prior written notice to SeaVision, such termination to be
without any penalty or other charges whatsoever and each party shall
thereupon be released from its respective obligations hereunder,
except for those obligations which expressly survive the termination
of this Agreement.
(b) If the term of this Agreement is renewed for an additional period of
five (5) years pursuant to the terms of subsection 2(a) herein, then
unless Carnival requests that SeaVision install the System on a fourth
Ship, Carnival shall have the right in its sole discretion to
terminate this Agreement in its sole discretion upon six (6) calendar
months' prior written notice thereof to SeaVision, such termination to
be without any penalty or other charges whatsoever and each party
shall thereupon be released from its respective obligations hereunder,
except for those obligations which expressly survive the termination
of this Agreement.
(c) SeaVision shall have the right to terminate this Agreement in whole or
with respect to any individual Ships prior to the then effective
expiration date of the term hereof in the event any System installed
by SeaVision aboard any such Ship fails to achieve the financial
performance standards that SeaVision shall determine are necessary to
warrant its investment in that System. Such determination and
termination may occur in respect of all Systems and Ships or on a
Ship-by-Ship basis. In the event SeaVision intends to terminate this
Agreement pursuant to this subsection 5(c), in whole or in respect of
individual Ships and Systems, it shall do so in writing to Carnival no
less than six (6) calendar months prior to ceasing operations
hereunder or thereon, as the case may be.
(d) Either party hereto shall have the right to terminate this Agreement
immediately upon written notice to the other party upon such party
being declared insolvent or bankrupt, or making an assignment for the
benefit of creditors, or in the event that a receiver is appointed, or
any proceeding for appointment of a receiver or to adjudge such party
a bankrupt, or to take advantage of the insolvency laws is demanded
by, for, or against such party under any provision under the laws of
any state or country.
(e) Carnival shall have the right to terminate this Agreement prior to the
then effective expiration date of the term hereof in the event
SeaVision defaults in the performance of any covenant, warranty or
agreement made herein or if any System
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<PAGE>
fails to achieve the technical performance standards set forth in
Exhibit E attached hereto (the "Technical Performance Standards") and
such default or failure has not been cured within ninety (90) days
after receipt of written notice thereof given by Carnival to SeaVision
(except that the foregoing cure period shall not be applicable if
SeaVision fails to install the System on the Initial Ship in
accordance with the Implementation Schedule).
(f) SeaVision shall have the right to terminate this Agreement prior to
the then effective expiration date of the term hereof in the event
Carnival defaults in the performance of any covenant, warranty or
agreement made herein and such default has not been cured within
ninety (90) days after receipt of written notice thereof given by
SeaVision to Carnival.
(g) Notwithstanding the termination or expiration of this Agreement as
provided for in this Section 5 and elsewhere in this Agreement, each
party shall continue to owe, and shall promptly pay to the other in
accordance with the terms of Section 3 hereof, all amounts set forth
in Section 3 that shall have accrued on and prior to the date of such
termination or expiration.
(h) As soon as is practicable after the expiration or any whole or partial
termination of this Agreement, but in any event within thirty (30)
days thereafter, SeaVision shall, without unduly interfering with the
normal functions of any of the Ships, remove from all Ships affected
by such expiration or termination, all Systems, including all System
Hardware and Software (as the same may have been replaced or
supplemented since the date hereof), and all on-board SeaVision
personnel. The parties hereby agree and acknowledge that in accordance
with Section 1 hereof, SeaVision will retain title to any and all such
System Hardware and Software installed on board any Ship by SeaVision
(x) at all times while this Agreement is in effect as well as (y) in
the event SeaVision chooses not to continue operating the System
installed thereon. Notwithstanding the foregoing, if SeaVision elects
to terminate this Agreement in respect of any Ship pursuant to the
terms of subsection 5(c) above or if SeaVision defaults under this
Agreement and Carnival exercises its resulting rights under subsection
5(e) herein, Carnival shall have the right to purchase all SeaVision
hardware installed by SeaVision on that Ship and to obtain a
nontransferable license to use (but only on that Ship) the SeaVision
software installed by SeaVision on that Ship at an aggregate
purchase and license price equal to [Redacted -confidential treatment
requested] less the aggregate amount of all Adjusted Net Receipts paid
over to SeaVision under Section 3 herein in respect of that Ship. If
SeaVision elects to terminate this Agreement in whole pursuant to the
terms of subsection 5(c) above, Carnival shall have the right, in
addition to the foregoing purchase and license rights, to purchase
such hardware and license such software from SeaVision, for a period
of one (1) year thereafter, to enable Carnival to install the System
on other Ships, all for an aggregate
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<PAGE>
purchase and license price of [Redacted - confidential treatment
requested] per Ship. At Carnival's request, SeaVision shall provide
support services for such purchased hardware and licensed software
upon reasonable terms and conditions to be mutually agreed upon by the
parties.
6. Right to Inspect Books & Records. SeaVision and Carnival shall keep
--------------------------------
full and accurate accounts, records, books, journals, ledgers and data
(collectively, "Records") with respect to the business done by each party
respectively under this Agreement, which Records shall at all times show
truthfully, accurately and fully the compliance by each party with its
respective obligations under this Agreement. Each party shall have the right,
through its designated representatives, at all reasonable times, upon reasonable
advance notice, to inspect the Records of the other as necessary to verify the
sales, revenues generated, third party payments and fees collected pursuant to
this Agreement. The parties shall retain all Records at all times during the
term of this Agreement and any and all extensions or renewals thereof, and for
at least three (3) years thereafter, and shall make the Records available to the
other party during regular business hours, wherever the Records are maintained,
within ten (10) days after receipt of demand for inspection from such other
party. Both parties shall maintain the confidential nature of any Records so
inspected pursuant to and in accordance with the provisions of Section 4 hereof.
7. Insurance/Waiver of Subrogation.
-------------------------------
(a) Carnival hereby warrants, represents and covenants that it has, and
shall maintain for the term of this Agreement and any successive
operating term or renewal hereof, at its sole expense, hull and
machinery insurance in accordance with American Institute Hull Clauses
(June 2, 1977) to cover the System for the value of [Redacted -
confidential treatment requested] against any loss or damage
whatsoever which may occur while that System is present and/or
installed on that Ship. The insurance policy(ies) with respect to
such coverage shall each name SeaVision as an additional insured, as
its interests may appear and contain a waiver of subrogation against
SeaVision.
(b) [Intentionally left blank]
(c) Hull and Machinery Insurance.
----------------------------
(i) In the event that SeaVision or its personnel cause any loss or
damage covered by this insurance, or which would have been
covered by this insurance but for a commercially reasonable
deductible (not to exceed $500,000) in the insurance policy,
SeaVision agrees to reimburse Carnival for the amount of the
deductible applicable in such loss or damage.
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<PAGE>
(ii) Neither Carnival, the owner of the Ship, nor the underwriters of
the insurance shall have any further right of recovery or
subrogation in excess of said deductible against SeaVision on
account of loss or damage to the extent covered by such
insurance, and the policies of insurance shall be endorsed to
reflect this limitation and waiver.
(d) Protection And Indemnity Insurance. SeaVision agrees to obtain and
----------------------------------
maintain, at its own expense, insurance to defend and cover its
liability, if any, for:
(i) Maintenance and cure as well as personal injury or death claims
asserted by SeaVision's employees or their estates;
(ii) Claims of passengers or other third parties arising out of or in
connection with SeaVision's operations or the actions of
SeaVision's employees; and
(iii) Repatriation, loss of personal effects and other costs to
employees (including, without limitation, burial costs) in the
event of death, casualty or termination of a voyage.
Such insurance shall be in form, in amounts, with carriers and on terms
reasonably satisfactory to Carnival's Manager of Insurance; shall name
Carnival as an additional insured subject to the misdirected arrow clause.
SeaVision shall provide Carnival's Manager of Insurance with a Certificate
of Insurance evidencing such coverage.
(e) Certificates. On or before the commencement of the term of this
------------
Agreement, Carnival shall, upon SeaVision's written request, provide
to SeaVision certificates of insurance evidencing the coverages
required pursuant to Sections 7(a), 7(b) and 7(c), and SeaVision
shall, upon Carnival's written request, provide to Carnival
certificates of insurance evidencing the coverages required pursuant
to Section 7(d).
8. Interruption in Performance. Neither Carnival nor SeaVision shall be
---------------------------
liable to the other for any loss, damage or loss of profits arising out of any
interruption or cessation of the Services to be provided hereunder when such
interruption or cessation is caused by a force majeure. For purposes of this
Agreement, force majeure shall be any event caused by acts of God, fire, storm
or other natural catastrophe, war, labor disruption, change in governmental laws
or regulations, and other causes that are unavoidable or beyond the affected
party's control.
9. Trademarks.
----------
(a) Nonexclusive License. Carnival hereby represents that it is the owner
--------------------
of the trademarks, service marks, tradenames, logos, design marks,
names, and designs described on Exhibit F attached hereto, as may be
amended in writing by Carnival
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<PAGE>
from time to time hereafter, and such other logos and marks as may be
utilized by Carnival anywhere in the world of which SeaVision shall
hereafter have received written notice from Carnival (collectively,
the "Carnival Marks"). Carnival hereby grants to SeaVision, and
SeaVision hereby accepts, for the term of this Agreement, a limited,
nonexclusive worldwide license to use the Carnival Marks on and in
connection with the design, production and display of video screens
for use on the System and the manufacture, promotion and sale of the
merchandise (other than perfumes) to be sold via interactive shopping
on and through the System (the "Merchandise") in respect to
SeaVision's performance hereunder.
(b) Restrictions on Assignment of License. SeaVision shall not sell,
-------------------------------------
assign or transfer the license granted hereunder without Carnival's
express written consent authorized by a duly elected corporate officer
of Carnival.
(c) Submission of Newly Designed Marks.
----------------------------------
(i) SeaVision shall submit to Carnival (as set forth in subsection
9(c)(ii) of this Agreement) for approval prior to use, all
artwork or photostats of artwork, indicating colors and
processes of manufacture, of newly designed and not previously
approved uses of the Carnival Marks. Carnival shall have the
right, in its sole and absolute discretion, to forbid the use
thereof. Samples of literature, advertising, catalogs and
packaging relating to the souvenirs will be provided on a timely
basis by SeaVision to Carnival following printing or production.
When using the Carnival Marks, SeaVision agrees to undertake to
comply with the requirements of all laws pertaining to
trademarks, including marking requirements. Before using any of
the Carnival Marks, SeaVision shall inform Carnival of the
nature and quality of the souvenirs and shall thereafter
promptly furnish samples thereof to Carnival.
(ii) Prior to placing any orders for the manufacture of Merchandise
on which newly designed and not previously approved uses of the
Carnival Mark(s) are intended to be imprinted, SeaVision shall
submit for approval the name, address, phone number and telefax
number of each manufacturer therefor and, if the manufacturer is
satisfactory to Carnival, SeaVision shall subsequently submit to
Carnival the artwork, styles, designs, contents, workmanship and
quality of such merchandise, in the form requested by Carnival,
to the attention of Peter DeMilio or his or her designee in
Carnival's Marketing Department, 3655 N.W. 87 Avenue, Miami,
Florida 33178.
(iii) All materials and information submitted pursuant to this
Section 9(c) shall be deemed automatically approved if
notification of rejection is not
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<PAGE>
received by SeaVision within forty-five (45) days after
Carnival's receipt of such materials and/or information.
(d) Purchase Orders. SeaVision shall ensure that all orders it places
---------------
with Manufacturers for Merchandise be imprinted with the Carnival
Mark(s) have been approved by Carnival as provided in Section 9(c),
are paid and delivered to, or otherwise obtained by, SeaVision on a
timely basis; and shall use its reasonable best efforts to ensure that
the following language is inserted into or delivered for signature
with all purchase orders and/or agreements for the manufacture of
merchandise to be imprinted with the Carnival Mark(s):
Manufacturer agrees to notify Carnival Corporation ("Carnival"),
attention Legal Department, 3655 N.W. 87 Avenue, Miami, Florida 33178
(Telefax: 305- 471-4758), by telefax and by certified mail, return
receipt requested, in the event SeaVision, Inc. fails to pay for
and/or take delivery of any goods and/or merchandise imprinted with
the trademarks, service marks, design logos and/or artwork of Carnival
(the "Carnival Marks") within forty-five (45) days after receipt of
invoice for same; and Carnival shall have the right of first refusal
to purchase such merchandise upon the terms thereof. Any merchandise
which is not in compliance with the quality and graphics standards
issued by Carnival regarding the Carnival Marks of which manufacturer
has been informed in writing prior to manufacture shall, wherever
possible, be corrected by manufacturer to the specifications of such
standards or, if not possible, shall be offered to Carnival at the
direct cost of production.
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<PAGE>
(e) Use of Marks, Etc.
------------------
(i) SeaVision shall cause to appear with each use of the Carnival
Mark(s) such trademark notice symbols and/or copyright and
trade dress notices as shall be instructed in writing by
Carnival. Upon receipt of any such instruction by SeaVision,
SeaVision agrees to follow Carnival's written policy, as may be
amended from time to time, regarding the proper usage of the
Carnival Marks on printed material and on goods and
merchandise.
(ii) SeaVision will in no way represent that it has any right, title
and/or interest in and to the Carnival Marks, except as
expressly granted under the terms of this Agreement, nor shall
SeaVision contest Carnival's title register and the
registrations of the Carnival Marks, nor shall SeaVision
acquire any rights in the Carnival Marks by virtue of any use
it may make thereof.
(iii) SeaVision agrees that Carnival is and will be the owner of all
goodwill that may in the future attach to the Carnival Marks as
a result of SeaVision's use thereof.
(iv) SeaVision further agrees that it shall not at any time register
or apply to register the Carnival Mark(s) or any trademark,
logo, slogan or design confusingly similar thereto anywhere in
the world. Upon termination of this Agreement, SeaVision agrees
to cease all use of the Carnival Marks or any confusingly
similar trademarks or trade names; and SeaVision shall at no
time adopt for use any trademarks or trade names confusingly
similar to any of the Carnival Marks.
(f) Infringements. Carnival shall have the sole right to determine
-------------
whether or not any action shall be taken on account of any
infringement or imitation of any Carnival Mark; and SeaVision shall
reasonably cooperate with Carnival and at Carnival's cost and expense
in protecting and defending the Carnival Marks and the Merchandise
bearing the Carnival Marks. With respect to infringements of the
Carnival Marks, Carnival shall be entitled to receive and retain all
amounts awarded as damages, profits or otherwise in connection with
such suits.
(g) Termination of License. The license in the Carnival Marks granted
----------------------
hereunder shall terminate upon the expiration, suspension or the
termination of this Agreement by either party and in accordance with
the provisions herein, provided, however, that SeaVision shall
thereafter be entitled to sell any inventory of Merchandise on hand or
theretofore ordered by SeaVision.
(h) Merchandise Bearing the Carnival Marks. Articles of merchandise
--------------------------------------
bearing the Carnival Mark(s) may become available to Carnival from
time to time from other
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<PAGE>
licensees and sublicensees of Carnival. Carnival may advise SeaVision
of such situations, and SeaVision will consider whether or not to
purchase, supply and sell such articles of merchandise in its
inventory of stock to be sold on the System under the terms and
conditions of this Agreement.
10. Matters Relating to SeaVision Employees.
---------------------------------------
(a) SeaVision's Obligations.
-----------------------
(i) SeaVision's status under this Agreement is solely that of a
independent contractor, and SeaVision at all times has the
obligation and right to control all of the employees engaged by
SeaVision to perform its obligations hereunder, and such persons
are solely the responsibility of SeaVision. As between any such
employee and SeaVision, SeaVision hereby acknowledges that it is
solely responsible for the payment of all wages, vacation pay,
benefits and repatriation expenses to each of its employees.
(ii) SeaVision may in its sole discretion, at its own expense and
without interfering with Carnival's operations, replace its
employees or transfer them between the Ships.
(b) Responsibility for Payment of Certain Expenses. Except as otherwise
----------------------------------------------
expressly provided in this Agreement (including, without limitation,
in subsection 7(c) herein), SeaVision is solely responsible for the
payment of any medical and subsistence expenses or damages to
SeaVision's employees arising from accident or illness. Except as
provided in subsection 10(g)(ii), SeaVision shall indemnify Carnival
for any such expenses or damages incurred by Carnival.
(c) No Maritime Liens. SeaVision's employees do not have maritime liens
-----------------
on a Ship for any payments due to them in connection with their
services for SeaVision.
(d) Jones Act. SeaVision's employees are not entitled to assert claims
---------
against Carnival under Jones Act, 46 U.S.C. 688.
(e) Employee Contracts. In each of its written contracts with its
------------------
employees who will serve on any Ship, SeaVision will insert the
following notice:
"Your employer is a concessionaire of Carnival
Corporation, the owner of the Ship. You are
subject to the control of your employer. You
are also subject to the authority of the Master
for purposes of health, safety and discipline.
In your dealings
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<PAGE>
with passengers you will refer to yourself as a
member of the interactive television system team.
However, your employer is solely responsible for
you, and neither the Ship nor Carnival Corporation,
is obligated to you for any payments. You are
required to comply with the terms of any agreement
and/or policy now existing, or hereafter entered into
or adopted by Carnival Corporation, with respect to
the carrying on board the Ship and/or use on board
the Ship of any narcotics or other controlled
substances that Carnival Corporation may deem necessary
or desirable in view of the laws, regulations and
policies of any governmental jurisdiction including,
without limitation, the zero tolerance policy of the
government of the United States of America."
(f) Ship's Articles.
---------------
(i) SeaVision irrevocably appoints the Master of a Ship as its agent
with the power of overall supervision of SeaVision's employees on
board the Ship for purposes of health, safety, and discipline.
The Master may delegate this supervisory power to the Ship's
Staff, Captain and/or Purser.
(ii) Only for purposes of health, safety and discipline and to
facilitate compliance with the immigration laws applicable in a
Ship's base port and other ports of call, SeaVision's employees
will sign on ship's articles; but such adherence to ship's
articles will not in any way detract from or modify the
SeaVision's status as an independent contractor, and its
relationship or its right and obligation to control its
employees, as described in Sections 10(a) through 10(d), above.
Carnival agrees to make all arrangements for SeaVision's
employees to sign on and off ship's articles.
(g) Health and Documentation.
------------------------
(i) SeaVision will employ on-board the Ship only persons who are of
good moral character as well as good health, who hold valid
passports, visas, and all other permit required by any
governmental authority having jurisdiction, in order that they
may enter and leave the base port and other ports where the Ship
may call. Carnival agrees to arrange for all on-board immigration
formalities and to accept responsibility for safekeeping of all
passports or other immigration documents turned over to it by
SeaVision's employees.
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<PAGE>
(ii) SeaVision will at its own expense arrange for each of its
employees to receive and pass a complete medical examination
including a chest x-ray and blood test, immediately prior to
serving on-board a Ship and periodically thereafter. The report
of such examination shall be forwarded to the Ship's doctor
indicating that the employee is medically fit for service on-
board the Ship in accordance with standards established by
Carnival and applicable to its own crew.
(h) Grooming. SeaVision's employees will at all times keep themselves
--------
neatly groomed, well spoken, and suitably attired in SeaVision
uniforms.
(i) Removal. In his/her discretion, the Master of a Ship may require,
-------
when he/she determines it necessary in his/her sole discretion to
preserve health, safety or discipline on board the Ship, that any
employee of SeaVision remove himself/herself and his/her belongings
from a Ship at any time when the Ship is in port, and all repatriation
expenses, if any, will be for SeaVision's account. SeaVision shall be
entitled to appeal such removal by referring the matter to Carnival
for final determination, which determination shall be made in good
faith.
(j) Medical Care. At SeaVision's request, and except as otherwise
------------
provided in Section 10(g)(ii), Carnival will furnish without charge,
regular and reasonable on-board medical care by a Ship's doctor, as
well as medicines, for illness and injury suffered by SeaVision's
personnel while aboard the Ship.
(k) Prohibited Items. SeaVision's personnel are not permitted:
----------------
(a) To carry or consume aboard a Ship any firearms or weapons,
narcotics, or other drugs which are prohibited in the Ship's
ports, except pursuant to a program of medical care under the
direct supervision of the Ship's doctor;
(b) To consume alcoholic beverages aboard a Ship to the point of
intoxication or to the point where, during the subsequent
performance of their duties, such consumption could become
apparent to the passengers;
(c) To board a Ship in an intoxicated state without the consent of
the Master;
(d) To engage in gambling aboard a Ship in the Ship's casino or
amongst themselves, or engage in any other illegal activity;
(e) To sell any merchandise to passengers (except in the course of
their duties), or to purchase merchandise from the interactive
system for resale.
11. SeaVision's Other General Obligations.
-------------------------------------
-19-
<PAGE>
(a) Safe Stowage. Subject to the approval of the Master of the Ship,
------------
which approval shall not be unreasonably withheld or delayed,
SeaVision will safely stow for sea and will maintain such safe stowage
for sea of all of the System Hardware and Software and its other
property, as well as all property belonging to Carnival which
SeaVision uses to perform its obligations hereunder.
(b) Unseaworthiness. SeaVision will not knowingly or recklessly create an
---------------
unseaworthy condition in the performance of its obligations hereunder.
(c) Careful Operations. SeaVision will care for the property of a Ship
------------------
utilized by SeaVision in performance of its obligations hereunder in a
careful, efficient and businesslike manner.
(d) Compliance with Laws. SeaVision will comply with all laws and
--------------------
regulations (including but not limited to tax laws and regulations) of
all governmental authorities having jurisdiction, relating to
gambling, immigration, repatriation and its operations hereunder.
Carnival shall likewise reasonably assist and fully cooperate with
SeaVision so as to enable SeaVision to comply with such laws and
regulations and shall assist SeaVision to obtain any required
licenses, permits, approvals and consents.
(e) Damaged Property. Each party will, at its own expense, repair or
----------------
replace the other party's property which is damaged by the negligent
acts of such other party's employees, over and above normal wear and
tear.
12. Cruise Scheduling. Sailing and other cruise periods shall be
-----------------
scheduled at the sole discretion of Carnival, who will promptly
furnish SeaVision with an initial cruise and overhaul schedule of the
Ships as well as all changes to a previously delivered schedule within
ten (10) days after such schedule is established or changed. If
notice as required herein is given by Carnival to SeaVision, then
SeaVision shall have no claim against Carnival for any loss or damage
arising from delay, lay up or schedule change of a Ship.
13. Photographs. SeaVision shall not circulate any photographs of its
-----------
operations aboard a Ship for promotional purposes without the prior
written consent of the persons who are the subject of the photographs
and the prior written or oral consent of Carnival, which consent shall
not be unreasonably withheld or delayed.
14. Change of Status.
----------------
(a) Sale or Charter of Ship.
-----------------------
-20-
<PAGE>
(i) Carnival may sell or charter a Ship during the term of this
Agreement to bona fide third parties not affiliated with
Carnival. Upon ninety (90) days prior written notice to
SeaVision of the anticipated closing date, the concession granted
hereunder in respect of such Ship shall terminate.
(ii) Upon sixty (60) days prior written notice to SeaVision, Carnival
may sell or charter a Ship during the term of this Agreement to a
corporation which controls, is controlled by or is under common
control with Carnival ("Carnival Affiliate"), provided that
Carnival Affiliate (i) has the authority to operate such vessel
and (ii) assumes, in full, immediately following the closing
date, the obligations of Carnival under this Agreement in respect
of such Ship and fully recognizes SeaVision's rights thereunder.
15. General Average and Salvage.
---------------------------
(a) General Average. General Average shall be adjusted at New York
---------------
according to York-Antwerp Rules 1974, and as to matters not therein
contained, according to the law and usages of the Port of New York.
In case a general average statement be required, the same shall be
adjusted by an Adjuster to be selected and appointed by Carnival and
said Adjuster shall attend to the settlement and collection of the
average, subject to the customary charges. Notwithstanding anything
herein to the contrary, the property of SeaVision shall not be
required to contribute to general average adjustment and shall not be
subject to any lien for general average adjustment.
(b) Salvage. In the event of accident, danger, casualty, damage or
-------
disaster before or after commencement of a voyage resulting from any
cause whatsoever, whether due to negligence or not, for which, or for
the consequences of which, the Ship is not responsible, by statute or
contract or otherwise, SeaVision shall only be required to contribute
with the Ship to pay salvage in respect to SeaVision's property; and
SeaVision shall not be required to contribute to pay salvage awarded
with respect to any other property.
(c) Earned Salvage. SeaVision shall not be entitled to participate in
--------------
earned salvage.
16. Both to Blame Collision Clause. If a Ship comes into collision with
------------------------------
another ship as a result of the negligence of the other ship, and
consequences of which Carnival is not responsible to SeaVision, by
statute or contract or otherwise, SeaVision shall indemnify Carnival
against all loss or liability of the other ship or her owners insofar
as such loss or liability represents loss of or damage to or any claim
whatsoever of SeaVision, paid or payable by the other ship or her
owners to SeaVision and set off, recouped or recovered by the other
ship or her owners as part of their claim against the Ship or
Carnival. The foregoing provisions shall also
-21-
<PAGE>
apply where the owners, operators or those in charge of any ship or
ships or objects other than or in addition to, the colliding ships or
objects are at fault in respect of collision or contact.
17. Termination by Withdrawal or Requisition.
----------------------------------------
(a) Withdrawal of a Ship From Trade. Upon at least 90 days prior written
-------------------------------
notice to SeaVision (advising SeaVision of the effective date of the
withdrawal and the expected period of the withdrawal), Carnival may in
its sole discretion withdraw a Ship from the cruise trade
("Withdrawal") and, upon Withdrawal, this Agreement shall terminate as
to such Ship; provided, however, as to Withdrawals for a duration that
will not extend beyond the term of this Agreement, SeaVision shall
have the right to cause this Agreement to merely be suspended as to
such Ship for the duration of the Withdrawal, rather than terminated,
upon written notice to Carnival.
(b) Requisition of a Ship. If any Ship is requisitioned by any government
---------------------
(including, but not limited to, the United States of America) for
title or use and the requisition remains in effect for thirty (30)
calendar days, then this Agreement shall be suspended, but not
terminated for the duration of any such requisition. Carnival shall
have no liability to SeaVision in regards to the requisition.
18. Indemnification.
---------------
(a) SeaVision shall indemnify, defend and hold harmless Carnival and its
successors and assigns from and against any and all liabilities,
claims, suits, damages, judgments, awards, penalties, losses and other
liabilities (including all related reasonable attorneys' fees, costs
and expenses in connection therewith) (collectively referred to
hereinafter as "Losses") suffered or incurred by Carnival by reason
of, arising out of or in connection with (x) any grossly negligent,
willful or intentional act or omission of SeaVision (or an employee,
agent or representative of SeaVision) committed or omitted, as the
case may be, in the course of SeaVision's performance of the terms of
this Agreement, (y) SeaVision's failure to fully perform the terms of
this Agreement or (z) any infringement or alleged infringement of the
Carnival Marks by reason of the sale or delivery by the manufacturer
(used by SeaVision) of the merchandise on which the Carnival Marks
have been imprinted due to SeaVision's negligent failure to comply
with Section 9(d) above, or SeaVision's negligence to use its best
efforts to ensure and accept delivery of merchandise ordered by
SeaVision on which the Carnival Mark(s) have been imprinted, except as
otherwise provided herein.
(b) Carnival shall indemnify, defend and hold harmless SeaVision and its
successors and assigns from and against any and all Losses suffered or
incurred by SeaVision
-22-
<PAGE>
by reason of, arising out of or in connection with (x) any grossly
negligent, willful or intentional act or omission of Carnival (or an
employee, agent or representative of Carnival) committed or omitted,
as the case may be, in the course of Carnival's performance of the
terms of this Agreement, (y) Carnival's failure to fully perform the
terms of this Agreement or (z) SeaVision's use of the Carnival Marks
or any of them in accordance with the terms of this Agreement.
19. Limitation of Liability. THE WARRANTIES AND REMEDIES EXPRESSLY SET
-----------------------
FORTH IN THIS AGREEMENT ARE EXCLUSIVE AND ARE IN LIEU OF ALL OTHER WARRANTIES
AND REMEDIES, ORAL OR WRITTEN, EXPRESS OR IMPLIED, INCLUDING, WITHOUT
LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE OR ANY IMPLIED WARRANTIES ARISING FROM COURSE OF PERFORMANCE,
COURSE OF DEALING OR USAGE OF TRADE. EXCEPT AS EXPRESSLY PROVIDED HEREIN OR
ELSEWHERE IN THIS AGREEMENT, IN NO EVENT WILL SEAVISION BE LIABLE FOR ANY
INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF CARNIVAL'S
USE OF OR INABILITY TO USE THE SYSTEM OR ANY PORTION THEREOF OR FROM ANY DELAY
IN THE SYSTEM ACHIEVING THE TECHNICAL PERFORMANCE STANDARDS OR FROM ANY DELAY IN
THE SYSTEM MEETING, OR ANY INABILITY OF THE SYSTEM TO MEET, CARNIVAL'S
EXPECTATIONS WITH RESPECT TO OPERATIONS OR PERFORMANCE, EVEN IF SEAVISION IS
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. IN ADDITION THERETO, SEAVISIONS'
LIABILITY FOR DIRECT DAMAGES OF CARNIVAL ARISING OUT OF ANY OF THE FOREGOING
SHALL IN NO EVENT EXCEED THE AMOUNT OF TWO HUNDRED FIFTY THOUSAND DOLLARS
($250,000) IN RESPECT OF ANY SHIP OR THE AMOUNT OF FIVE HUNDRED THOUSAND DOLLARS
($500,000) IN THE AGGREGATE. IN PARTICULAR, SEAVISION IS NOT RESPONSIBLE FOR ANY
COSTS INCLUDING, BUT NOT LIMITED TO, THOSE INCURRED AS A RESULT OF LOST PROFITS
OR REVENUE, LOSS OF USE OF THE SYSTEM, LOSS OF DATA, THE COST OF RECOVERING ANY
DATA, THE COST OF SUBSTITUTE SOFTWARE, OR CLAIMS BY THIRD PARTIES.
20. Escrow Agreement. At the request of Carnival, SeaVision shall enter
----------------
into an escrow agreement providing for SeaVision's escrow of the source code for
the System upon terms mutually agreeable to SeaVision and Carnival (including,
without limitation, the release of the source code to Carnival if SeaVision
becomes insolvent or if SeaVision fails to provide support services under
subsection 5(h) herein) and with an escrow agent mutually acceptable to
SeaVision and Carnival.
21. Further Assurances of SeaVision's Title.
---------------------------------------
(a) Carnival hereby agrees to execute and deliver to SeaVision, upon the
reasonable request of SeaVision from time to time, such UCC-1
financing statements and
-23-
<PAGE>
other documents as SeaVision shall reasonably require for the purpose
of evidencing to Carnival and any third party SeaVision's continued
ownership of all components (hardware and software) of any System
(such financing statements and other documents to describe all such
components and to be in the form required by applicable law).
(b) SeaVision may affix permanent (to the degree reasonably possible),
legible and visible labels on each component of the System (hardware
only), to the extent that doing so is reasonably possible or
practicable. Each such label may clearly indicate that SeaVision
holds title to the component to which that label is affixed.
22. No Grant of Intellectual Property Rights. Except as expressly set
----------------------------------------
forth herein, this Agreement does not and shall not grant to Carnival any
patent, copyright, trademark, trade secret or other intellectual property right
or license, express or implied.
23. Public Announcements. The parties shall consult with each other and
--------------------
issue a public statement with respect to this Agreement as soon as is practical
after the date hereof. During the term of this Agreement, Carnival shall
include a reference to SeaVision in any and all public announcements or
marketing materials referring to interactive television services on-board the
Ships.
24. Arbitration. In the event of any dispute or controversy arising out
-----------
of or related to this Agreement, the parties will seek to resolve any such
controversy first by negotiating with each other in good faith in face-to-face
negotiations between the respective principals of each. In the event a
resolution is not reached in such manner within thirty (30) days after such
negotiations, if any, commence, any remaining dispute or controversy shall
be submitted to binding arbitration under the auspices of and in accordance with
the then-prevailing Commercial Arbitration Rules of the American Arbitration
Association, and any such arbitration shall be conducted in Miami, Florida. The
costs and expenses of arbitration, including, without limitation, attorneys'
fees, shall be borne ultimately as the arbitrator(s) direct. The parties hereby
consent to the jurisdiction of any arbitration held in said locale in accordance
and in connection herewith and hereby consent to comply with the decision and
any award therein made. The arbitration award may be enforced by any court of
competent authority in the same manner as a judgment by a court of law and/or
equity.
25. Right to Make Agreement. Each of the parties hereto represents and
-----------------------
warrants to the other that it has all necessary and appropriate power and
authority to execute, deliver and carry out the terms and provisions hereof and
that its execution, delivery and performance thereof will not constitute a
default by it under any other agreement to which it is a party.
26. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall constitute an original and all of which
together shall constitute but one and the same original document.
-24-
<PAGE>
27. Assignment. Either party hereto may assign this Agreement and its
----------
respective rights, interests and obligations hereunder to any third party
without the consent of the other party hereto; provided, however, that (i) no
such assignment by a party shall relieve that party of any of its liabilities or
obligations hereunder and (ii) SeaVision may not assign this Agreement or any of
its rights or obligations hereunder to any cruise line competitor of Carnival.
It is expressly understood and agreed that, except as provided to the contrary
in the preceding sentence, this Agreement and all of SeaVision's interests and
rights herein and hereunder may be assigned, pledged, mortgaged and/or
hypothecated by SeaVision at its exclusive discretion.
28. Successors. This Agreement shall inure to the benefit of, and be
----------
binding upon, the respective successors and assigns of the parties hereto.
29. Effectiveness. This Agreement shall be effective upon its execution
-------------
by an authorized representative of each party hereto, which execution may for
all purposes be evidenced by facsimile transmission of a counterpart signature
page of this Agreement.
30. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Florida, without regard to its
principles of conflicts of laws.
31. Severability. If any Section or provision of this Agreement, or any
------------
portion of any Section or provision thereof, shall for any reason be held to be
void, illegal or otherwise unenforceable, all other Sections and portions of
this Agreement shall nevertheless remain in full force and effect as if such
void, illegal or unenforceable portion had never been included herein.
32. Notices. All notices and other communications required or otherwise
-------
provided for in this Agreement shall be in writing and sent by registered or
certified mail to:
If to SeaVision: SeaVision, Inc.
13320 State Route 7
Lisbon, Ohio 44432
Attn: Brian K. Blair
If to Carnival: Carnival Corporation
Carnival Place
3655 N.W. 87th Avenue
Miami, FL 33178
Attn: Brendan Corrigan
or to such other place as SeaVision or Carnival, as the case may be, may from
time to time designate in accordance herewith.
-25-
<PAGE>
33. Entire Agreement; Modification. This Agreement, including the
------------------------------
Exhibits attached hereto, contains the entire agreement of the parties on the
subject matter hereof, and supersedes any and all prior agreements, if any, with
respect to such subject matter. This Agreement may not be changed, modified or
supplemented except by the written agreement of the parties.
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto as of the date first above written.
ATTEST: SEAVISION, INC.
By:
- -------------------------- -----------------------
Its: Its:
---------------------- -----------------------
ATTEST/WITNESS: CARNIVAL CORPORATION
By:
- -------------------------- -----------------------
Its: Its:
---------------------- -----------------------
-26-
<PAGE>
EXHIBIT A
Primary Hardware and Software Components of
the System to be provided by SeaVision
--------------------------------------
Components:
. Digital File Server - Pentium based server machine [Redacted -
confidential treatment requested]
. Communications Control Processor - Pentium based server with [Redacted -
confidential treatment requested]
. SeaVision Interactive Allocator - Version 1.2 software for [Redacted -
confidential treatment requested]
. SeaVision ISP Session - Version 1.2 software for [Redacted -
confidential treatment requested]
. SeaVision Database Engine - Version 1.2 software for [Redacted -
confidential treatment requested]
. SeaVision CCP Interface - Version 1.2 software for [Redacted -
confidential treatment requested]
. SeaVision SPMS Protocol - Network interface specification to enable
development of custom interface to property management system.
<PAGE>
EXHIBIT B
I. Entertainment and Interactive Services to be Provided by SeaVision
------------------------------------------------------------------
"Basic" SeaVision Package: Services Provided at No Charge
- ---------------------------------------------------------
. Language Options: The various preview, ordering and information
services provided on the System will be available in English, French,
Spanish, Italian, Portuguese and German.
. In-Cabin Room Service Ordering: Passengers will be able to order
Carnival's standard room service menu, including beverages charged to
their cabin account, through the System. Orders will be printed out
in appropriate pantries and/or galleys for delivery by Carnival
personnel. SeaVision shall provide, as part of the System, printers
and/or monitors to be used in such pantries and/or galleys for such
purpose.
. Shore Excursion Ordering: Passengers will be able to watch videos of
shore excursions and purchase tickets for shore excursions on and
through the System by using their television remote-control. Orders
will be printed out in the Shore Excursion Office of the applicable
Ship, with tickets in respect thereof to be delivered by Carnival
personnel. The System will provide appropriate inventory control or
will interface with Carnival's inventory control system.
. Wine Ordering: Passengers will be able to view a wine menu on the
System and order their selection with their television remote-
controls. Orders will be printed out in the Wine Steward's office or
wine cellar, for delivery by Carnival personnel at the designated
meal. Cabin accounts will be charged accordingly.
. Passenger Folio Review: Each passenger will be able to use the System
to review a summary of their on-board account.
Carnival shall be responsible for providing all ticket stock, videos
and photographs for shore excursions and wine ordering. Carnival may
choose, at its option, to produce its own videos and photographs,
retain SeaVision for this purpose and reimburse SeaVision for all its
costs incurred in connection with producing the same, or contract with
a third party to produce such videos and/or photographs, provided,
however, that any videos and photographs produced by any such third
party shall in all ways meet SeaVision's technical standards for use
on the System. If Carnival elects to have SeaVision produce any such
videos or photographs, SeaVision shall provide Carnival with detailed
cost estimates prior to the initiation of video and photograph
production, and such estimates shall be subject to Carnival's written
approval. Such estimates will include the cost of pre-production
<PAGE>
scripting and preparation and the cost of sending crews aboard
Carnival's Ships for taping, photographing and post-production
editing. Carnival shall pay these costs directly to SeaVision as a
vendor. Notwithstanding the foregoing, the parties have agreed, in
respect of the Initial Ship, to [Redacted - confidential treatment
requested] the cost of producing shore excursion videos not available
as of this date in SeaVision's library, which videos will then be
available to both parties for their use. Carnival shall make its
library of videos and photographs for shore excursions used in
connection with the Initial Ship available to SeaVision for
SeaVision's use in connection with the conduct of its business.
SeaVision shall make its library of videos and photographs for shore
excursions available to Carnival for Carnival's use on the System in
connection with the conduct of its business.
. Interface with Carnival's Property Management System: Each System will
interface with the applicable Ship's property management system to
enable appropriate charges to be applied to passenger accounts.
Carnival shall undertake at its own cost any programming necessary to
allow the applicable Ship's property management system to effectively
interface with the System.
. Access Control: The System will be designed to limit access to only
those persons who are adult passengers or who are minors under adult
supervision. Passengers will be able to limit access to various
services, such as gaming and adult programming, by enabling lock-out
codes and using password procedures, all of which shall be subject to
Carnival's approval which shall not unreasonably be withheld, delayed
or conditioned.
. Report Generation: The System will generate detailed activity reports,
which will be made available to Carnival for the purposes of revenue
payments to SeaVision. The format of the reports shall be mutually
agreed upon by Carnival and SeaVision. SeaVision shall also provide,
at Carnival's request, reports pertaining to passenger usage of the
System.
Services to be Provided at No Charge, but Contingent Upon Carnival Providing the
- --------------------------------------------------------------------------------
Appropriate Content
- -------------------
. Ports of Call and Shopping Information: Passengers will be able to use
the System to obtain information regarding on-board shopping, ports of
call and shopping at ports of call.
. Cruise Information: Passengers will be able to use the System to view
cruise information about Carnival cruises and to request additional
on-board cruise information.
<PAGE>
. Gaming Tutorial: Passengers will be able to use the System to view
in-cabin gaming and casino video tutorials.
. Ship Position and Weather Information: Passengers will be able to use
the System to obtain information regarding the Ship's position
throughout the cruise and to obtain weather information.
. Safety Instructions: Passengers will be able to view general safety
instruction videos on the System.
. Emergency Broadcast Messages: Designated members of the Ship's crew
will be able to use the System to deliver emergency broadcast messages
to all televisions connected to the System.
. Passenger Evaluations: Designated members of the Ship's crew will be
able to use the System to collect information from passengers
regarding passenger evaluation of various activities and services.
. CARNIVAL CAPERS: Passengers will be able to view CARNIVAL CAPERS from
any television connected to the System, with dynamic updating of
CARNIVAL CAPERS by the Ship's staff at any time.
Revenue-Generating and Pay-Per-View Entertainment
- -------------------------------------------------
NOTE: Carnival will be entitled to a portion of the Adjusted Gross Revenues
generated by the following services, pursuant to and in accordance with the
terms of Section 3 of the Agreement.
. Video-on-Demand: Passengers will be able to purchase movies and other
entertainment options such as taped concerts, on demand, using the
System and their television remote-control. SeaVision shall determine
the fee (subject to Carnival's consent not to unreasonably be
withheld) that will be levied for each such order and charged to such
passengers' respective cabin accounts. Subject to Carnival's
approval, adult programming may be offered.
. Gaming Options: Passengers will be able to play video slots, poker and
blackjack on the System, when permissible under applicable laws. The
payoff percentages shall be the same as those paid by Carnival in its
on-board casinos. Any additional games that SeaVision may desire to
provide on the System, or changes to the rules of existing games,
shall be subject to the parties' mutual agreement. Any changes to the
rules of existing games must be approved by Carnival. SeaVision will
determine the value of each individual credit that passengers may
purchase and charge to their cabin accounts. Credits may be redeemed
at a location designated by Carnival.
<PAGE>
. Shopping: SeaVision will offer passengers shopping videos and
interactive video shopping on and through the System. Carnival will
retain the right to approve the items offered for sale and the vendors
providing those items. In the event Carnival elects to offer its own
items for sale on and through the System, Carnival shall pay all
related production costs incurred by SeaVision directly to SeaVision
as a vendor and SeaVision will be entitled to a share of the Adjusted
Net Revenues generated therefrom (net of the costs to Carnival of the
goods sold) pursuant to and in accordance with the terms of Section 3
of the Agreement (except that Carnival shall be entitled to retain
[Redacted -confidential treatment requested] of such Adjusted Net
Revenue). Access to the System by concessionaires on board the
applicable Ship, including but not limited to the on-board shops,
casino, beauty salon and spa, and photographer, will be by agreement
between SeaVision, Carnival and those vendors. Carnival will be
entitled to [Redacted - confidential treatment requested] of the
Adjusted Net Revenues generated by any fees paid by such purveyors,
pursuant to and in accordance with the terms of Section 3 of the
Agreement.
. Advertising and Promotions: SeaVision shall have the exclusive right
to provide access to the System to third parties for the purposes of
advertising, promotions and marketing of their companies, products or
services.
Carnival shall retain the right to approve such third party
advertisers as will be given access to the System and the manner in
which any such advertising is presented. Carnival shall designate the
individual responsible for granting such approvals on its behalf, and
such individual shall provide SeaVision with general guidelines for
advertising and marketing activities and the procedure SeaVision shall
follow in submitting advertising and marketing proposals for
Carnival's consideration. Carnival shall notify SeaVision of its
approval or denial of an advertising or marketing proposal within 30
days after SeaVision's written submission thereof. In the event
Carnival fails to notify SeaVision of its decision within that period,
it shall be deemed to have approved that written submission. Carnival
will be entitled to a portion of the Adjusted Gross Revenues generated
by such advertising and marketing promotions on the System, pursuant
to and in accordance with the terms of Section 3 of the Agreement.
Miscellaneous Optional Services (To be offered
- ----------------------------------------------
only upon the mutual agreement of the parties)
- ----------------------------------------------
. Digital Photography: Passengers will be able to view in their cabins
personal photographs taken by the on-board photo concessionaire. The
System will display the photographs allowing the passengers to
purchase a variety of sizes and poses. This service can include,
subject to Carnival approval, kiosk-based applications which will
provide an entertaining and easy-to-use graphical, touch screen
interface to purchase "instant" photographs with a wide variety of
backgrounds
<PAGE>
and in various sizes. Allocation of the digital photography revenues,
less cost of materials, will be determined by the mutual agreement of
the parties as a condition to this service being provided.
. Services Reservations: Passengers will be able to place reservations
for on-board personal services and functions.
. Electronic Messenger: Electronic messages will be able to be sent to
individual passengers or to designated groups of passengers.
. Tutorial Video: Passengers will be able to view a System tutorial
video.
. Cabin Maintenance: The crew of the Ship will be able to centrally log
cabin maintenance requirements.
. Kiosks: Upon terms and subject to conditions to be agreed upon by the
parties.
<PAGE>
EXHIBIT C
SeaVision Production Services Charges
-------------------------------------
Field Production Video
<TABLE>
<S> <C> <C>
. Shore Excursions **
Gaming Demonstrations **
Health Spa Promotional Piece **
Shopping Items (shooting in studio) **
. Passenger Questionnaire Intro by CEO **
Post Production Video
. Editing **
MPEG Process **
**
Tape Stock/Beta SP **
Post Production Audio
. Studio Time **
. Voice Over Talent for Shopping, Shore Ex. **
Editing **
Music Background **
Copywriting **
WAV Formatting **
MPEG Audio Formatting **
**
Tape Stock/DAT **
Screen Production
. Static Screen
Animation Screen
Foreign Language Translation
. Language Translations **
Voice Over Talent **
Studio Time **
Screen Translations
** [Redacted - confidential treatment requested]
</TABLE>
<PAGE>
Such charges may be adjusted from time to time by SeaVision, but,
throughout the term of this Agreement, SeaVision shall not offer more
favorable rates than those then in effect hereunder to any of its other
customers.
<PAGE>
EXHIBIT D
Preliminary ITV Deployment Schedule
for Carnival Cruise Lines
-------------------------
<TABLE>
<CAPTION>
Task Date
================================================================================================================
<S> <C>
Formalize Operating Agreement or Date of Designation 2/15/96
Provide Carnival Cruise Lines (CCL) with phased deployment strategy document. This 3 days
document will serve as the primary reference for all technical and operational issues
relative to the installation and operation of the ITV system. All SeaVision and CCL staff
that are actively participating in the coordination of the ITV system installation will receive
a copy of this document. The document will be updated and redistributed on a weekly
basis to reflect new discovery and operating decisions that are made through out the initial
development period.
----------------------------------------------------------------------------------------------------------------
Facility assessment document delivered to CCL. This document will aid CCL in preparing 4 days
for a ship board survey of the ships RF distribution system, broadcast control center,
property management system, and other related facilities. The document will request items
like copies of the ships RF distribution design drawings, floor plans for the broadcast
center, and information on the make and model of the cabin televisions.
- ----------------------------------------------------------------------------------------------------------------
Initial strategy meeting takes place at CCL's Miami office to discuss each ITV application week 1
module in detail. This meeting will involve department heads from the following areas:
Food and Beverage, Casino, Shore Excursion, Hotel operations, MIS, Reservations, and
Entertainment. The basic functionality of each ITV module will be discussed and adjusted
based upon the capabilities of the respective ship board system or service that it will be
associated with. Installation timetables are reviewed and finalized. A review of all
content to be provided by CCL is completed, turn around times are agreed upon. Content
to be provided by CCL includes items like shore excursion videos, wine labels and room
service menus. CCL will also be requested to provide certain props to aid in the screen
production. For example, CCL casino chips for the gaming module.
----------------------------------------------------------------------------------------------------------------
Two person team arrives on the ship to perform a thorough survey of the ships facilities. week 2
While on board, the survey team will complete a test of the integrity of the existing RF
plant and complete an engineering design for upgrade of the plant to a bandwidth of 750
MHz with and two way data path. Select a primary and secondary location for placement
of the ITV server and subsystem racks. Meet with Chief Engineer and agree on a final
location and specify power requirements for operation of the system. Qualify locations for
remote peripheral devices. For example, pantry printers.
- ----------------------------------------------------------------------------------------------------------------
Network engineer meets with CCL PMS manager to specify interface protocol and week 2
development schedule.
----------------------------------------------------------------------------------------------------------------
SeaVision marketing and operations staff to meet with ships Hotel Director while ship is in week 2
port. Hotel Director is debriefed as to how the system will integrate with the day to day
operations of the vessel. Subsequent orientation meetings are scheduled with the Chief
Steward, Food and Beverage Manager, Shore Excursion Manager, and Cruise Director.
- ----------------------------------------------------------------------------------------------------------------
Progress meeting in Ohio with CCL management team to review and sign off initial screen week 3
designs, story boards, and voice prompts.
- ----------------------------------------------------------------------------------------------------------------
Engineering and design of the cabin TV interface. week 4
----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------------------
Progress meeting in Ohio with CCL management team to complete final review of all week 5
content production.
- ----------------------------------------------------------------------------------------------------------------
Begin testing of PMS interface via ISDN Internet connection between CCL Miami office week 6
and SeaVision Oakland office.
- ----------------------------------------------------------------------------------------------------------------
Six person installation team arrives on board the ship. Four installer technicians begin TV week 6
modification and cabin terminal control module installation at the rate twelve per day per
person. Two RF engineers begin upgrade and of distribution system.
----------------------------------------------------------------------------------------------------------------
CCL ship board personnel complete necessary AC power circuits for ITV racks. week 6
- ----------------------------------------------------------------------------------------------------------------
Two hardware engineers arrive on board to begin rack placement, wiring and testing. week 8
----------------------------------------------------------------------------------------------------------------
All SeaVision and CCL provided content production is complete. week 8
----------------------------------------------------------------------------------------------------------------
Six person installation team completes all cabin TV's and terminal installations. Final week 9
testing of RF system is complete. Addendum's are added to the ship board RF
engineering drawings to reflect the work performed by SeaVision. Team departs ship.
----------------------------------------------------------------------------------------------------------------
Two hardware engineers complete component installation and system power up. Depart week 10
ship.
- ----------------------------------------------------------------------------------------------------------------
Two systems engineers arrive on board to begin software uploads and PMS interface week 10
testing.
----------------------------------------------------------------------------------------------------------------
SeaVision System Manager arrives on board for orientation of ships systems and to begin week 10
configuration of the ITV system.
----------------------------------------------------------------------------------------------------------------
Dry run testing of system begins in designated passenger cabins occupied by SeaVision or week 11
Carnival personnel.
- ----------------------------------------------------------------------------------------------------------------
Activation of SeaVision Interactive Services for Carnival Cruise Line passengers. Systems week 13
engineers depart ship. System manager assumes day to day operation of the ITV system.
================================================================================================================
</TABLE>
<PAGE>
EXHIBIT E
Technical Performance Standards of the System
---------------------------------------------
Server Capacity
. The system will be sized according to actual usage demand of the ship.
Demand levels change throughout the term of the Agreement. Some of
the factors that effect sizing of the system include the following:
[Redacted - confidential treatment requested]
. During routine operation of the system will meet [Redacted -
confidential treatment requested] of the load demand [Redacted -
confidential treatment requested] of the time. As usage statistics
from the system change, SeaVision will make periodic sizing
adjustments to ensure the capacity of the system supports this load
demand.
. Average wait time for logging onto the system should be no longer than
[Redacted - confidential treatment requested] Once on the system
switching between services should be no longer than [Redacted -
confidential treatment requested] including trace time, as if you were
viewing the television at home.
RF System
. The SeaVision RF mixing network located in the BCC will support the
ships existing Free to Guest channels. A total of twelve channels
will be allocated for this purpose. The SeaVision RF mixing network
will act as the final launch point for input the ships RF plant.
. The final output of the mixed signals will be +15dBmV flat +/-3dB.
. The ships existing launch amplifier will be set in accordance to the
ships RF design specification but shall not exceed a +45 dBmV output
level. The maximum tilt shall not exceed 6 dB across the amplifiers
entire bandwidth.
. The minimum Carrier to Noise ratio at the end of any RF trunk in the
ships RF plant shall be 41 dB or better.
. Adjacent channel visual carriers shall not differ more than 3 dB.
. All passive devices will have a minimum port to port isolation of 20
dB.
<PAGE>
. An RF return module will be added to the ships RF amplifiers, if the
amplifiers will support the device. If the amplifier will not support
the RF return module then the entire amplifier modules will be
removed. Depending on availability, the new amplifiers will be of the
same manufacturer and model series in order to utilize the existing
housings and plant connections.
<PAGE>
EXHIBIT F
Carnival Marks
--------------
1. Carnival Marks
- -- --------------
<TABLE>
<CAPTION>
Mark Class Protection Status of U.S. Rights
- ---------------------------- ----------------------------- -------------------------------------------
<S> <C> <C>
Camp Carnival + design 39, 41, 42 registered under #1853842 on 9/13/94
Carnival 39, 41, 42 registered under #1495405 on 7/5/88
Carnival 41 (at sea) registered under #1489673 on 5/24/88
Carnival 41 (land-based) registered under #1591384 on 4/10/90
Carnival 39 (airline) registered under #1592400 on 4/17/90
Carnival 39, 42 (travel agency svcs.) filed 8/30/95-Ser. #75/724, 010
Carnival Cruise Lines 39, 25 registered under #1489408 on 5/24/88
Carnival Destiny 39, 41, 42 filed 4/5/95-Ser. #74/656,424
Carnival's Cruise Vacation
Protection Plan common law rights
Carnival's Got the Fun! 39, 41, 42 registered under #1487129 on 5/3/88
Celebration 39, 41, 42 registered under #1614283 on 9/18/90
Reverse-C logo 39, 41, 42 registered under #1434247 on 3/24/87
Reverse-C logo 39 registered under #1594583 on 5/1/90
Ecstasy 39, 41, 42 registed under #1746109 on 1/12/93
Fantasy use by agreement with Chandris Fantasy Line
Fascination 39, 41, 42 filed 1/31/94-Ser. #74/485,088
Fly Aweigh 39 registered under #1089880 on 4/18/78
The Fun Ships 39 registered under #1112889 on 2/6/79
The Fun Ships 41, 42 registered under #1451397 on 8/14/87
The Fun Ships 39 (airline) registered under #1593456 on 4/24/90
Holiday 39, 41 registered under #1655789 on 9/3/91
Imagination 39, 41, 42 filed 1/31/94-Ser. #74/485,086
Inspiration 39, 41, 42 filed 1/31/94-Ser. #74/503,432
Jubilee 39, 41, 42 registered under #1656449 on 9/10/91
*Most Popular Cruise Line
in the World 39 registered under #1630363 on 1/1/91
Sensation 39, 41, 42 registered under #1,937,420 on 11/21/95
Ship funnel (wing design) 39, 41 registered under #1,814,770 on 11/30/93
Tropicale 39, 41, 42 registered under #1666109 on 11/26/91
Vacation People (The) 39, 41, 42 registered under #1748912 on 1/26/93
We've Got the Fun! 39 registered under #1368211 on 10/29/85
We've Got the Fun! 41, 42 registered under #1443595 on 6/16/87
What's Your Idea of Fun? 39, 41, 42 filed 11/3/95-Ser. #75/014,930
**Your Kind of Fun 39, 41, 42 registered under #1918884 on 10/10/95
</TABLE>
* Official translation in the following languages:
French: La Ligne de Croisiere la Plus Populaire du Monde!
German: Die Beliebteste Kreuzfahrtlinie der Welt!
Dutch: De Meest Populaire Cruisemaatschappij ter Wereld
Hebrew: [written in Hebrew]
Spanish: La Linea de Cruceros Mas Conocida Del Mundo
Italian: Con La Compagnia di Navegazione Piu Famosa Nel Mondo
Portugese: A Companhia de Cruzeiros Mais Popular Do Mundo
** Official Translation in the following languages:
German: Das richtige Vergnugen fur Sie
<PAGE>
Portugese: Onde voce se diverte como gosta
Dutch: Het plezier waar u naar zoekt
Italian: Scegli Il Tuo Divertimento!
French: A chacun son bonheur
Hebrew: (written in modern Hebrew)
Spanish: Tu Estilo de Diversion
2. Marks and slogans developed or to be developed by Carnival or SeaVision for
use on the System on board Carnival Vessels.
3. Nautica Spa & Seahorse Design is the property of Nautica Apparel, Inc. and
may only be used on the System on board Carnival Vessels in order to
identify the services offered by the Nautica Spa and bathrobe sold therein.
4. Any and all published or nonpublished material, marks, slogans, designs and
photography in which Carnival has acquired intellectual property rights,
including without limitation the names of casino games developed by or for
the benefit of Carnival, the names of dining areas, lounges, bars, grills,
casinos, discos, libraries and other locations on board Carnival Vessels.
<PAGE>
Exhibit 10.14
THE MARKED PORTIONS OF THIS AGREEMENT
HAVE BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT.
AGREEMENT
This Agreement, dated as of August 12, 1996, is made by and between
SEAVISION, INC., a Delaware corporation (hereinafter referred to as
"SeaVision"), and NORWEGIAN CRUISE LINE LIMITED, a Bermuda corporation
(hereinafter referred to as "NCL").
WHEREAS, NCL is in the business of offering cruise vacations to its
passengers; and
WHEREAS, NCL desires that its passengers have access to interactive
television and video entertainment services on board its vessels; and
WHEREAS, NCL wishes to earn incremental revenue from such interactive
television and video entertainment services; and
WHEREAS, SeaVision desires to provide to NCL, and NCL desires to obtain
from SeaVision, the aforementioned interactive television and video
entertainment services for use aboard the ship M/S Dreamward (the "Initial
Ship") and such other cruise vessels owned or operated by NCL as, from time to
time, may be designated by NCL (all such cruise vessels, collectively, the
"Ships" and, individually, a "Ship"); and
WHEREAS, NCL has requested that SeaVision provide such interactive
television services onboard the Ship S/S Norway; and
WHEREAS, SeaVision heretofore has installed on the Initial Ship the
hardware and software described or listed on Exhibit A attached hereto
(collectively, the "Installed Hardware and Software");
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, intending to be
legally bound hereby, agree as follows:
<PAGE>
1. Responsibilities.
----------------
(a) Subject to the terms and conditions hereof, SeaVision hereby agrees
to:
(i) Provide, for each Ship designated by NCL (including without
limitation the Initial Ship) at no charge to NCL, an
interactive television system (the "System") consisting of the
hardware and software described or listed on Exhibit A attached
hereto (collectively, the "System Hardware and Software") and,
in connection therewith, provide the services (the "Services")
set forth on Exhibit B attached hereto. In addition thereto,
SeaVision shall provide for, and install on, the S/S Norway new
in-cabin televisions which the parties acknowledge will cost
SeaVision approximately [Redacted - confidential treatment
requested] including installation costs. Until such time as
SeaVision shall have received the aggregate amount of
[Redacted -confidential treatment requested] under subsection
3(a) herein, SeaVision shall retain title to all such
televisions. Upon SeaVision's receipt of such aggregate amount
thereunder, title to such televisions shall transfer to and
vest in NCL, free and clear of any liens, claims or
encumbrances arising by or through SeaVision. NCL hereby
acknowledges and agrees that the System Hardware and certain of
the interactive modules of the Software are installed on the
Initial Ship and, as of the date of this Agreement, the
Hardware and such installed modules of the Software are
performing satisfactorily. Notwithstanding anything contained
herein or in any other provision of this Agreement that might
be construed to the contrary (except for the foregoing
provisions regarding ownership of televisions on the S/S
Norway), SeaVision shall at all times retain title to all
components of the System, including all System Hardware and
Software or other hardware or software hereafter installed by
Sea Vision on any Ship hereunder.
(ii) Provide all personnel reasonably necessary and appropriate to
operate the System and provide the Services. One (1) SeaVision
technician (the "Manager") will remain on-board each Ship on
which the System is then installed and operating to operate the
System on an on-going basis and to fulfill the responsibilities
of the on-board television coordinator (as described on Exhibit
C attached hereto) for so long as this Agreement shall be in
effect with respect to that Ship. SeaVision hereby acknowledges
that the Manager shall at all times be an employee of
SeaVision. NCL hereby agrees to serve as SeaVision's paying
agent for payment, at the direction of SeaVision, of all
salary, payroll taxes and fringe benefits costs in connection
with the Manager; provided that SeaVision promptly reimburses
NCL for all such costs
-2-
<PAGE>
incurred by NCL. SeaVision understands that, while on-board any
Ship, its personnel will be subject to the authority of the
Master of that Ship and the officer(s) designated to oversee
the operation of the System and the Services. SeaVision agrees
that its employees will be considered seamen and will attend
and participate in boat drills held onboard each of the
respective Ships as requested by the Ship's master and
officers. All such employees shall attend Coast Guard
inspections and, if required by NCL, will earn life boat
efficiency certificates. SeaVision shall employ onboard the
Ships only those persons medically fit for service onboard the
vessels in accordance with standards established by NCL and who
have agreed to abide by the orders of the masters and officers
for service onboard the Ships. It shall be the sole
responsibility of SeaVision to absorb and pay the costs of pre-
employment physical examinations and to employ persons who have
valid passports, visas and all other permits required by any
governmental authority in order that they might enter and leave
the ports of call of the Ship on which they are employed.
Annual physicals shall be required of SeaVision's shipboard
employees.
(iii) Upgrade the hardware and/or software used in the System, at no
cost to NCL, at such times and in such manner as is reasonably
necessary or appropriate, to maintain the System on the Ship,
subject always, in the case of hardware upgrades only, to the
consent of NCL, which consent shall not unreasonably be
withheld, and to the constraints placed thereon by the space
available on-board any Ship for the installation of such
hardware.
(b) Subject to the terms and conditions hereof, NCL hereby agrees to:
(i) Make available to SeaVision in respect of any Ship upon which
the System is then installed or is then to be installed (a)
that Ship to the extent necessary for SeaVision's operation and
maintenance of the System, including but not limited to
granting SeaVision personnel unlimited access to the television
studio and video distribution system on board that Ship, (b)
such personnel as are reasonably necessary or appropriate to
support SeaVision's successful operation and maintenance of the
System, including but not limited to appropriate on-board
support for and oversight of the operation and maintenance of
the System by a designated officer on that Ship, provided,
however, that (i) SeaVision shall at all times be primarily
responsible for the operation and maintenance of the System,
and (ii) NCL shall not be obligated hereunder to make available
NCL's personnel if and to the extent that the result thereof
would be the interference with that personnel's ability to
perform his or her other employment duties owing to NCL, (c)
all necessary systems integration support to allow the System
to communicate with NCL's on-board systems, and (d) appropriate
-3-
<PAGE>
accommodations on-board that Ship for SeaVision personnel who
are engaged in operating or maintaining the System on the Ship,
which accommodations shall be comparable to those
accommodations provided by NCL to its cruise staff of similar
rank, such as the Ship's systems manager, casino manager or
shore excursion manager. It is understood that SeaVision
personnel occupying such accommodations will, at all times
while on-board such Ship, be subject to NCL's policies
regarding on-board contractors, including those concerning
dress, decorum and personal behavior.
(ii) Furnish accommodations on-board each Ship upon which the System
is then installed and otherwise respond favorably to reasonable
requests by SeaVision's management for accommodations on-board
such Ship, on mutually-agreeable dates and subject to
availability, to allow SeaVision senior personnel to monitor
the on-going performance of the System and SeaVision's
personnel and for the purpose of determining whether
enhancements and improvements to the System should be
recommended. Requests for such accommodations shall not exceed
one (1) cabin/voyage per month per Ship. NCL shall also provide
the Manager with all other perquisites that it provides to its
employees of similar rank.
(iii) Provide marketing support for the System on-board each Ship on
which the System is then installed, which support shall be
consistent with the type and level of such support being
provided by NCL as of the date hereof on-board the Initial
Ship. In addition thereto, the parties shall engage in such
other activities of a supporting nature as are acceptable to
both parties to this Agreement, and upon terms acceptable to
both parties to this Agreement.
(iv) Work with SeaVision's marketing personnel to develop
appropriate and effective means for testing and gauging
passenger reaction to the System on a regular basis. Such means
shall include but not be limited to on-board questionnaires,
on-board focus groups, one-on-one passenger interviews and
post-cruise questionnaires. SeaVision shall retain the right to
designate the individuals who will conduct these activities,
subject to the approval of such individuals by NCL. If
SeaVision marketing personnel are not available (or cannot
reasonably be accommodated) on a Ship, the Manager on that Ship
may assume these responsibilities.
(v) Provide access to each Ship when such Ship is in port, for
SeaVision personnel to demonstrate the System to potential
advertisers, marketers and clients. In connection with making
such demonstrations, SeaVision
-4-
<PAGE>
shall conform to NCL's procedures for approving on-board
visitors, including but not limited to making advance requests
for boarding passes.
(vi) Use commercially reasonable efforts to cause its on-board
concessionaires to work with SeaVision to develop mutually
beneficial applications for the System.
(vii) Provide the Manager with the following data, if available, in
electronic form (i.e., diskettes, tapes or other similar means)
with respect to each passenger on-board any Ship on which the
System is then installed: name, home address and telephone
number, age, cabin assignment, dining assignment and on-board
account number.
(viii) Collect all monies paid or payable by passengers in respect of
Services provided on or through the System and charged to the
respective on-board account of such passengers.
(ix) Provide without change limited and reasonable on-board medical
care as needed for minor illnesses and injuries to the extent
such treatment can be provided on-board the Ship. NCL shall not
be responsible hereunder for on-shore continuing or follow-up
treatment.
2. Term/Extension to Other Ships.
-----------------------------
(a) Unless sooner terminated in accordance with the terms of this
Agreement, the term of this Agreement (the "Term") shall commence on
the date first written above and shall expire on the fifth anniversary
thereof (the "Expiration Date").
(b) NCL hereby grants to SeaVision the exclusive right, for the Term of
this Agreement, to install, operate and maintain all in-cabin
interactive television systems and any kiosk-based interactive
television systems connected to such in-cabin systems on the M/S
Dreamward and the S/S Norway.
(c) (i) If, during the term of this Agreement, NCL wishes to install or
have installed interactive television and video entertainment
services on-board any ship owned or operated by NCL other than
the M/S Dreamward and the S/S Norway, NCL shall, in each such
instance, have the right to solicit third-party offers to
provide such services, but shall be required, in each instance,
to first notify SeaVision, in writing, of its intent to do so.
(ii) If, in respect of any ship, NCL receives from any third-party
an offer to provide onboard that ship interactive television
and video entertainment services during the term of this
Agreement, NCL shall promptly notify
-5-
<PAGE>
SeaVision thereof and shall disclose to SeaVision the terms of
such third-party offer. SeaVision shall thereafter have a
period of thirty (30) days to match such third party offer with
its own offer to provide the System on such ship. If SeaVision
matches such third party offer under substantially the same
terms and conditions and in all material respects, NCL shall
thereafter be precluded from accepting such third party offer.
If SeaVision fails to match such third party offer as provided
herein, NCL may, in sole discretion, accept such third party
offer.
(iii) NCL and SeaVision each understands and agrees that the other
party is not required hereunder to agree to any particular
contractual arrangement or proposal regarding the installation
of the System on any additional ship, including without
limitation any such proposal that is similar or identical to
the arrangement hereunder in respect of the M/S Dreamward or
the S/S Norway. Subject to the foregoing provisions of this
Section 2(c), in the event the parties agree that SeaVision
will install, operate and maintain the System on any additional
Ship(s), the references herein made to a or any Ship and/or the
System shall be deemed to include such other Ship(s) and the
System(s) installed thereon, which such modifications as are
reasonably necessary and appropriate to reflect the
individualized System(s) installed on each such Ship and are
consistent with the agreement of the parties in respect
thereto.
3. Revenue-Sharing and Payment Terms.
---------------------------------
(a) In consideration of SeaVision's agreement to provide televisions on
the S/S Norway, SeaVision shall be entitled to receive [Redacted -
confidential treatment requested] of the first [Redacted -
confidential treatment requested] of the Adjusted Gross Revenues (as
defined below) generated by all of the Systems installed onboard the
Ships. If SeaVision has not received under this subsection 3(a) the
aggregate amount of [Redacted - confidential treatment requested] on
or before the second anniversary of the date of this Agreement, NCL
shall pay to SeaVision on such second anniversary date an amount equal
to [Redacted - confidential treatment requested] less the aggregate
amount theretofore received by SeaVision under this section 3(a),
whereupon SeaVision shall not be entitled to receive any further funds
under this subsection 3(a).
(b) If the aggregate of all of the Adjusted Gross Revenues generated by
all of the Systems installed on-board the Ships, from the commencement
of this Agreement, is less than the amount (hereinafter referred to as
the "Investment Recovery") obtained by multiplying the number of Ships
on which a System is then installed by [Redacted - confidential
treatment requested], then NCL shall be entitled to retain [Redacted -
confidential treatment requested] of the Adjusted Gross
-6-
<PAGE>
Revenues for the applicable calendar month, as indicated on the
applicable report provided to NCL by SeaVision pursuant to the terms
of subsection 3(e) below, and shall promptly remit the remaining
[Redacted -confidential treatment requested] of such Adjusted Gross
Revenues to SeaVision in accordance with this Section 3. (For purposes
of this subsection 3(b), the relevant Adjusted Gross Revenues are the
cumulative Adjusted Gross Revenues from the date of this Agreement to
the relevant month-ending date of such calculation; such Adjusted
Gross Revenue calculation is not performed on an annual basis.)
---
(c) If the aggregate of all of the Adjusted Gross Revenues generated by
all the Systems on board the Ships, from the commencement of this
Agreement, equals or exceeds the Investment Recovery, then, for the
twelve month period commencing on the date Investment Recovery is most
recently achieved and for each succeeding twelve month period (subject
always to any reversion to the allocation set forth in subsection 3(b)
caused by the installation of the System on an additional Ship) the
Adjusted Gross Revenues generated by all of the Systems installed
onboard the Ships shall be allocated between the parties as follows:
(i) NCL shall be entitled to retain [Redacted - confidential
treatment requested] of, and shall pay over to SeaVision the
remaining [Redacted - confidential treatment requested] of the
first [Redacted -confidential treatment requested] of such
Adjusted Gross Revenues;
(ii) NCL shall be entitled to retain [Redacted - confidential
treatment requested] of, and shall pay over to SeaVision the
remaining [Redacted - confidential treatment requested] of,
such Adjusted Gross Revenues from [Redacted - confidential
treatment requested] through [Redacted - confidential treatment
requested]; and
(iii) NCL shall be entitled to retain [Redacted - confidential
treatment requested] of, and shall pay over to SeaVision the
remaining [Redacted - confidential treatment requested] of,
such Adjusted Gross Revenues in excess of [Redacted -
confidential treatment requested].
(d) "Adjusted Gross Revenues", for purposes of this Agreement, shall mean
the aggregate of all amounts paid to NCL in connection with
passengers' use of the Services provided by or on the System and
charged to such passengers' respective on-board accounts by NCL, other
than amounts paid or payable in respect of shore excursions, room
service orders and wine orders purchased or made on the System, the
revenues from which shall be retained exclusively by NCL, less (i)(A)
the cost to SeaVision of goods sold in the case of products and
services sold on the System, (B) the cost to SeaVision of pay-per-view
programming provided on the System, and (C) the commissions paid by
SeaVision to third parties for
-7-
<PAGE>
advertising sold on the System, the aggregate amount of which NCL
shall pay over to SeaVision, and (ii) credits paid by NCL to
passengers in the case of gaming on the System.
(e) On or before the twenty-first day of each calendar month during the
Term of this Agreement, SeaVision shall provide NCL with a written
report detailing the Adjusted Gross Revenues generated by the System
on each Ship on which the System is then installed from cruises
completed during the prior calendar month. This report shall govern
the determination of fees to be retained by NCL and the revenues to be
remitted by NCL to SeaVision under the terms of this Agreement.
SeaVision shall provide any and all hardware and/or software
reasonably necessary or appropriate to interface SeaVision's
accounting software with the Ship's property management system in
order for SeaVision to obtain accurate accounting information for such
reports.
(f) Within ten (10) days after NCL's receipt of any monthly report
delivered to NCL by SeaVision pursuant to the terms of subsection 3(e)
herein, NCL shall remit to SeaVision all Adjusted Gross Revenues
generated by the System on the Ship during the calendar month
applicable to such report, less its share of such Adjusted Gross
Revenues as provided in this Section 3.
(g) NCL shall promptly notify SeaVision of any changes, adjustments or
chargebacks (relative to the Adjusted Gross Revenues in respect of any
calendar month) of which NCL receives notice after it has made a
remittance to SeaVision in respect of such calendar month, and
together therewith, provide to SeaVision appropriate documentation
supporting all such changes, adjustments or chargebacks. In the event
properly-supported changes, adjustments or chargebacks result in a
reduction of the Adjusted Gross Revenues generated in respect of such
calendar month, SeaVision shall, within thirty (30) days after its
receipt of the applicable notice and supporting documentation, refund
to NCL SeaVision's percentage of the aggregate of such changes,
adjustments or chargebacks.
4. Confidentiality.
---------------
(a) NCL acknowledges that the System represents and will continue to
represent the valuable, confidential and proprietary property of
SeaVision. SeaVision is not by this Agreement conveying to NCL any
exclusive proprietary or ownership rights in the System, including,
but not limited, to any patent, copyright, trademark, service mark,
trade secret, trade name or other intellectual property rights, except
that NCL will have the limited rights expressly set forth in this
Agreement. Accordingly, NCL acknowledges that, except as expressly
provided for in this Agreement, NCL possesses no title to or ownership
of any System or any portion
-8-
<PAGE>
thereof. NCL will keep the System free and clear of all claims, liens
and encumbrances resulting from actions or omissions of NCL.
(b) Each party agrees, during the Term of this Agreement and thereafter,
to maintain the confidential nature of the terms and conditions of
this Agreement and of any proprietary information shared by the other
with it. In the case of SeaVision's proprietary information, such
proprietary information shall include, but is not limited to (i) any
knowledge gained by NCL of SeaVision's proprietary application
software or the configuration of the System; (ii) SeaVision's
marketing and sales materials; (iii) the format of any and all
SeaVision reports, including those for data management, revenue
remittance and marketing surveys, to the extent protected by copyright
law; and (iv) SeaVision's marketing and advertising client list. In
the case of NCL's proprietary information, such proprietary
information shall include, but is not limited to, the data provided by
NCL to SeaVision pursuant to the terms of subsection 1(b)(vii) hereof,
except for any such data in respect of; any passenger who purchases
merchandise from SeaVision through the System, which data shall not be
NCL's proprietary information. Notwithstanding anything contained in
this Agreement to the contrary, the terms of this Section 4(b) shall
survive the expiration or termination of this Agreement.
(c) Each party acknowledges that its violation of its confidentiality or
non-disclosure obligations under this Agreement may cause irreparable
damage to the other that cannot be fully remedied by money damages.
Accordingly, in the event of any such violation or threatened
violation, the injured party will be entitled, in addition to pursuing
any other remedy available to it under this Agreement or at law, to
obtain injunctive or other equitable relief from any court of
competent jurisdiction as may be necessary or appropriate to prevent
any further violations thereof.
(d) Each party agrees to notify the other immediately upon the notifying
party's becoming aware of or reasonably suspecting the possession, use
or knowledge of all or part of any of the other party's proprietary
information by any person or entity not authorized by this Agreement
to have such possession, use or knowledge. The notifying party will
promptly furnish the other party with details of such possession, use
or knowledge, will assist in preventing a recurrence thereof and will
cooperate with the other party in protecting the other party's rights
in the other party's proprietary information. A party's compliance
with the terms of this Section 4 will not be construed as any waiver
of the other party's right to recover damages or obtain other relief
against the notifying party for the notifying party's breach of its
confidentiality or non-disclosure obligations under this Agreement or
the negligent or intentional harm to the other party's proprietary
rights.
5. Termination.
-----------
-9-
<PAGE>
(a) NCL shall have the right to terminate this Agreement prior to the
Expiration Date in the event the System fails to achieve the technical
performance standards set forth in Exhibit D attached hereto. NCL may
not exercise this right (i) if such technical failure occurs as a
result of NCL's failure to perform any or all of its obligations under
the terms of this Agreement; and (ii) without written notice to
SeaVision of its intention to do so and prior to a period of 90 days
following such notice in which SeaVision may effect a cure of such
failure. In respect of any notice hereunder by NCL of its intention
to terminate this Agreement as a result of any System deficiency which
served as the basis for any prior such termination notice, NCL shall
be obligated, in the case of the second such notice, to extend to
SeaVision a thirty-day cure period rather than a ninety-day cure
period and NCL shall not be obligated, in the case of the third or any
subsequent notice, to extend to SeaVision any cure period whatsoever.
SeaVision shall, within fifteen (15) days following NCL's written
notice to SeaVision under such clause (iii), above, provide to NCL
SeaVision's written response regarding such failure, which response
shall set forth SeaVision's assessment of the cause of such failure
and SeaVision's plan to rectify such failure. In any event, SeaVision
shall make a good faith effort to rectify such failure as promptly as
is reasonable under the circumstances and, where appropriate, will
implement temporary "work around" solutions until a permanent solution
can be implemented.
(b) SeaVision shall have the right to terminate this Agreement in whole or
in part prior to the Expiration Date in the event the System fails to
achieve the financial performance standards that SeaVision shall
determine are necessary to warrant its investment in the System. In
the event SeaVision intends to terminate this Agreement pursuant to
this subsection 5(b), it shall do so in writing to NCL no less than
one hundred twenty (120) days prior to ceasing operations hereunder or
thereon, as the case may be.
(c) Either party hereto shall have the right to terminate this Agreement
immediately upon written notice to the other party upon such party
being declared insolvent or bankrupt, or making an assignment for the
benefit of creditors, or in the event that a receiver is appointed, or
any proceeding for appointment of a receiver or to adjudge such party
a bankrupt, or to take advantage of the insolvency laws is demanded
by, for, or against such party under any provision under the laws of
any state or country.
(d) NCL shall have the right to terminate this Agreement prior to the
Expiration Date in the event SeaVision defaults in the performance of
any covenant, warranty or agreement made herein (except a failure by
the System to achieve certain technical performance standards which is
governed by subsection 5(a) herein), and such default has not been
cured within thirty (30) days after receipt of written notice thereof
given by NCL to SeaVision.
-10-
<PAGE>
(e) SeaVision shall have the right to terminate this Agreement prior to
the Expiration Date in the event NCL defaults in the performance of
any covenant, warranty or agreement made herein and such default has
not been cured within thirty (30) days after receipt of written notice
thereof given by SeaVision to NCL.
(f) Notwithstanding the termination or expiration of this Agreement as
provided for in this Section 5 and elsewhere in this Agreement, NCL
shall continue to owe, and shall promptly pay to SeaVision in
accordance with the terms of Section 3 hereof, all amounts set forth
in Section 3 that shall have accrued on and prior to the date of such
termination or expiration.
(g) As soon as is practicable after the expiration or any termination of
all or part of this Agreement or any renewal operating term thereof,
SeaVision shall remove the System, including all hardware and
software, and all on-board SeaVision personnel from the Ship. The
parties hereby agree and acknowledge that in accordance with Section 1
hereof, SeaVision will retain title to any and all hardware and
software installed on board the Ship by SeaVision (x) at all times
while this Agreement or any renewal operating term thereof is in
effect as well as (y) in the event SeaVision chooses not to continue
operating the System installed thereon. Notwithstanding the
foregoing, if SeaVision elects to terminate this Agreement for any of
the reasons set forth above, NCL shall have the right to (i) purchase
all SeaVision hardware (but not software) installed by SeaVision on
any Ship, including but not limited to televisions at an aggregate
purchase price equal to the greater of (A) [Redacted - confidential
treatment requested] less the aggregate Adjusted Gross Revenues
theretofore paid to SeaVision in accordance with Section 3 herein in
respect of that Ship and (B) SeaVision's then unamortized cost for
such hardware and (ii) obtain a nontransferable license to use (but
only on the applicable Ship) the SeaVision software installed by
SeaVision on that Ship for an annual license fee of [Redacted -
confidential treatment requested] which annual fee shall include
routine software maintenance provided by SeaVision.
6. Right to Inspect Books & Records. SeaVision and NCL shall keep full
--------------------------------
and accurate accounts, records, books, journals, ledgers and data (collectively,
"Records") with respect to the business done by each party respectively under
this Agreement, which Records shall at all times show truthfully, accurately and
fully the compliance by each party with its respective obligations under this
Agreement. Each party shall have the right, through its designated
representatives, at all reasonable times, upon reasonable advance notice, to
inspect the Records of the other as necessary to verify the sales, revenues
generated and fees collected pursuant to this Agreement. The parties shall
retain all Records at all times during the Term of this Agreement and any and
all extensions or renewals thereof, and for at least three (3) years thereafter,
and shall make the Records available to the other party during regular business
hours, wherever the Records are maintained, within ten (10) days after receipt
of demand for inspection from such
-11-
<PAGE>
other party. Both parties shall maintain the confidential nature of any Records
so inspected pursuant to and in accordance with the provisions of Section 4
hereof.
7. Insurance/Waiver of Subrogation.
-------------------------------
(a) So long as their respective insurers so permit, neither party hereto
shall be liable to the other, or to the insurer of the other, claiming
by way of subrogation through or under such other party with respect
to any loss or damage, in whole or in part, to the System on any Ship,
to the extent that such other party shall be reimbursed out of that
party's insurance coverage carried for such other party's protection
with respect to such loss or damage. If so permitted, the parties
shall each obtain any special endorsements required by their
respective insurance carriers to evidence compliance with the waiver
and release set forth herein and shall provide a copy thereof to the
other party.
(b) SeaVision hereby warrants, represents and covenants that, consistently
during the Term and at its sole expense, each Manager and each member
of SeaVision's System installation crews shall be included on
SeaVision's protection and indemnity cover and shall be covered by
general medical insurance maintained by SeaVision, in each case for
such periods of time as the Manager or such crew member is posted to a
Ship.
8. Interruption in Performance. Neither NCL nor SeaVision shall be
---------------------------
liable to the other for any loss, damage or loss of profits arising out of any
interruption or cessation of the Services to be provided hereunder when such
interruption or cessation is caused by any circumstance beyond the reasonable
control of such party.
9. Indemnification.
---------------
(a) SeaVision shall indemnify, defend and hold harmless NCL and its
successors and assigns from and against any and all liabilities,
claims, suits, damages, judgments, awards, penalties, losses and other
liabilities (including all related reasonable attorneys' fees, costs
and expenses in connection therewith) (collectively referred to
hereinafter as "Losses") suffered or incurred by NCL by reason of,
arising out of or in connection with (i) any negligent, willful or
intentional act or omission of SeaVision (or an employee, agent or
representative of SeaVision) committed or omitted, as the case may be,
in the course of SeaVision's performance of the terms of this
Agreement or (ii) SeaVision's failure to fully perform the terms of
this Agreement.
(b) NCL shall indemnify, defend and hold harmless SeaVision and its
successors and assigns from and against any and all Losses suffered or
incurred by SeaVision by reason of, arising out of or in connection
with (i) any negligent, willful or
-12-
<PAGE>
intentional act or omission of NCL (or an employee, agent or
representative of NCL) committed or omitted, as the case may be, in
the course of NCL's performance of the terms of this Agreement or (ii)
NCL's failure to fully perform the terms of this Agreement.
10. Further Assurances of SeaVision's Title.
---------------------------------------
(a) NCL hereby agrees to execute and deliver to SeaVision, upon the
request of SeaVision from time to time, such UCC-1 financing
statements and other documents as SeaVision shall reasonably require
for the purpose of evidencing to NCL and any third party SeaVision's
continued ownership of all components (hardware and software) of the
System (such financing statements and other documents to describe all
such components and to be in the form required by applicable law).
(b) SeaVision may affix permanent (to the degree reasonably possible),
legible and visible labels on each component of the System (hardware
only), to the extent that doing so is reasonably possible or
practicable. Each such label may clearly indicate that SeaVision
holds title to the component to which that label is affixed.
11. Limitation of Liability. THE WARRANTIES AND REMEDIES EXPRESSLY SET
-----------------------
FORTH IN THIS AGREEMENT ARE EXCLUSIVE AND ARE IN LIEU OF ALL OTHER WARRANTIES
AND REMEDIES, ORAL OR WRITTEN, EXPRESS OR IMPLIED, INCLUDING, WITHOUT
LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE OR ANY IMPLIED WARRANTIES ARISING FROM COURSE OF PERFORMANCE,
COURSE OF DEALING OR USAGE OF TRADE. EXCEPT AS EXPRESSLY PROVIDED HEREIN OR
ELSEWHERE IN THIS AGREEMENT, IN NO EVENT WILL EITHER PARTY BE LIABLE FOR ANY
INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF NCL'S USE
OF OR INABILITY TO USE THE SYSTEM OR ANY PORTION THEREOF OR FROM ANY DELAY IN
THE SYSTEM ACHIEVING THE TECHNICAL PERFORMANCE STANDARDS OR FROM ANY DELAY IN
THE SYSTEM MEETING, OR ANY INABILITY OF THE SYSTEM TO MEET, EITHER PARTY'S
EXPECTATIONS WITH RESPECT TO OPERATIONS OR PERFORMANCE, EVEN IF SUCH PARTY IS
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. IN ADDITION THERETO, SEAVISIONS'
LIABILITY FOR DIRECT DAMAGES OF NCL ARISING OUT OF ANY OF THE FOREGOING SHALL IN
NO EVENT EXCEED THE AMOUNT OF TWO HUNDRED FIFTY THOUSAND DOLLARS ($250,000) IN
THE AGGREGATE; PROVIDED, HOWEVER, THAT THE FOREGOING LIMITATION SHALL NOT BE
APPLICABLE TO DAMAGES RESULTING FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT
OF SEAVISION OR ITS EMPLOYEES. IN PARTICULAR, SEAVISION IS NOT RESPONSIBLE FOR
ANY COSTS INCLUDING, BUT NOT LIMITED TO, THOSE INCURRED AS A RESULT OF LOST
PROFITS OR REVENUE, LOSS OF USE OF THE
-13-
<PAGE>
SYSTEM, LOSS OF DATA, THE COST OF RECOVERING ANY DATA, THE COST OF SUBSTITUTE
SOFTWARE, OR CLAIMS BY THIRD PARTIES.
12. Sale or Disposal of a Ship. In the event that NCL elects to sell or
--------------------------
otherwise dispose of any Ship upon which the System is then installed, NCL
promptly shall notify SeaVision in writing of its decision. Upon the sale of
any such Ship, the new owner shall have the option of assuming this Agreement
with respect to that Ship. If the new owner of such Ship elects not to assume
this Agreement in respect of that Ship or in the event NCL is disposing of such
Ship other than through a sale or transfer (i.e., decommissioning), SeaVision
promptly shall remove the System therefrom, and NCL shall pay SeaVision an
amount equal to the lesser of (i) the depreciated value of the System at such
time and (ii) the amount of [Redacted - confidential treatment requested] in the
case of the S/S Norway), plus the aggregate of the cost of all new hardware and
software theretofore added to the System by SeaVision pursuant to the terms of
subsection 1(a)(iii), less the aggregate of all Adjusted Gross Revenues
theretofore paid to SeaVision in respect of that Ship pursuant to the terms of
section 3 hereof. For purposes of determining the depreciated value of a System
for clause (i) above, the initial value of the System shall be [Redacted -
confidential treatment requested] in the case of the S/S Norway), which value
shall reduce to zero ratably over [Redacted - confidential treatment requested]
and to which shall be added the cost of new hardware and software theretofore
added to the System annually, which new additional amounts also reduce to zero
ratably over a [Redacted - confidential treatment requested] year period from
the date of each addition thereof to the System.
13. Public Announcements. The parties shall consult with each other and
--------------------
issue a public statement with respect to this Agreement as soon as is practical
after the date hereof. During the term of this Agreement, NCL shall include a
reference to SeaVision in any and all public announcements or marketing
materials referring to interactive television services on-board the Ships.
14. Right to Make Agreement. Each of the parties hereto represents and
-----------------------
warrants to the other that it has all necessary and appropriate power and
authority to execute, deliver and carry out the terms and provisions hereof.
15. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall constitute an original and all of which
together shall constitute but one and the same original document.
16. Assignment. Either party hereto may assign this Agreement and its
----------
respective rights, interests and obligations hereunder to any third party
without the consent of the other party hereto; provided, however, that no such
assignment by a party shall relieve that party of any of its liabilities or
obligations hereunder. It is expressly understood and agreed that this
Agreement and all of SeaVision's interests and rights herein and hereunder may
be assigned, pledged, mortgaged and/or hypothecated by SeaVision at its
exclusive discretion to any third party purchasing all or
-14-
<PAGE>
substantially all of SeaVision's assets, provided that such assignee agrees in
writing to assume all of SeaVision's obligations under this Agreement.
17. Successors. This Agreement shall inure to the benefit of, and be
----------
binding upon, the respective successors and assigns of the parties hereto.
18. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Florida, without regard to its
principles of conflicts of laws.
19. Severability. If any Section or provision of this Agreement, or any
------------
portion of any Section or provision thereof, shall for any reason be held to be
void, illegal or otherwise unenforceable, all other Sections and portions of
this Agreement shall nevertheless remain in full force and effect as if such
void, illegal or unenforceable portion had never been included herein.
20. Notices. All notices and other communications required or otherwise
-------
provided for in this Agreement shall be in writing and sent by registered or
certified mail to:
If to SeaVision: SeaVision, Inc.
200 Greentree Commons
381 Mansfield Avenue
Pittsburgh, PA 15220
Attn: Brian K. Blair
-15-
<PAGE>
If to NCL: Norwegian Cruise Line Limited
2 Alhambra Plaza
Coral Gables, Florida 33134
Attn: Robert Walters
or to such other place as SeaVision or NCL, as the case may be, may from time to
time designate in accordance herewith.
21. Entire Agreement; Modification. This Agreement, including the
------------------------------
Exhibits attached hereto, contains the entire agreement of the parties on the
subject matter hereof, and supersedes any and all prior agreements, if any, with
respect to such subject matter. This Agreement may not be changed, modified or
supplemented except by the written agreement of the parties.
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto as of the date first above written.
ATTEST: SEAVISION, INC.
By:
- -------------------- -------------------------------
Its: Its:
---------------- ------------------------------
ATTEST/WITNESS: NORWEGIAN CRUISE LINE LIMITED
By:
- -------------------- -------------------------------
Its: Its:
---------------- ------------------------------
[Signature page to Agreement dated as of August 12, 1996 by and between
SeaVision, Inc. and Norwegian Cruise Line Limited]
-16-
<PAGE>
EXHIBIT A
Primary Hardware and Software Components of the System
------------------------------------------------------
to be provided by SeaVision
---------------------------
Components:
. Master Control Processor (MCP) - Pentium based server machine [Redacted
-confidential treatment requested]
. Communications Control Processor (CCP) - [Redacted - confidential
treatment requested]
. Interactive Session Processors (ISPs) - Pentium based computers
controlling [Redacted - confidential treatment requested]
. Video Cassette Players (VCPs) - Standard VCR tape players to play movies
selected on interactive system, available only on VCR tape. Most
first run movies are currently available only in VCR format. Power
and AC requirements are 0.65amps and 225 BTUs for each VCP.
. SeaVision Interactive Allocator - Software for [Redacted - confidential
treatment requested]
. SeaVision Database Engine - Software for [Redacted - confidential
treatment requested]
. Seavision CCP Interface - CCP based software to control the [Redacted -
confidential treatment requested]
. SeaVision SPMS Protocol - Network interface specification to enable
development of the custom interface to the shipboard property
management system.
. [Redacted - confidential treatment requested]
Notes:
. All software will be the latest product version available at time of
installation.
. Software updates will be received by the shipboard operator on 4mm DAT
tape. Updates will be delivered on a periodic basis as problem fixes
and module enhancement are made available.
<PAGE>
EXHIBIT B
I. Entertainment and Interactive Services to be Provided by SeaVision
------------------------------------------------------------------
"Basic" SeaVision Package: Services Provided at No Charge
- ---------------------------------------------------------
. In-Cabin Room Service Ordering: Passengers will be able to order NCL's
standard room service menu, including beverages charged to their cabin
account, through the System. Orders will be printed out in
appropriate pantries and/or galleys for delivery by NCL personnel.
SeaVision shall provide, as part of the System, printers and/or
monitors to be used in such pantries and/or galleys for such purpose.
. Shore Excursion Ordering: Passengers will be able to watch videos of
shore excursions and purchase tickets for shore excursions on and
through the System by using their television remote-control. Orders
will be printed out in the Shore Excursion Office of the Ship, with
tickets in respect thereof to be delivered by NCL personnel. The
System will provide appropriate inventory control.
. Wine Ordering: Passengers will be able to view a wine menu on the
System and order their selection with their television remote-
controls. Orders will be printed out in the Wine Steward's office or
wine cellar, for delivery by NCL personnel at the designated meal.
Cabin accounts will be charged accordingly.
NCL shall be responsible for providing all ticket stock, videos and
photographs for shore excursions and wine ordering. NCL may choose,
at its option, to produce its own videos and photographs, retain
SeaVision for this purpose and reimburse SeaVision for all its costs
incurred in connection with producing the same, or contract with a
third party to produce such videos and/or photographs, provided,
however, that any videos and photographs produced by any such third
party shall in all ways meet SeaVision's technical standards for use
on the System. If NCL elects to have SeaVision produce any such
videos or photographs, SeaVision shall provide NCL with detailed cost
estimates prior to the initiation of video and photograph production.
Such estimates will include the cost of pre-production scripting and
preparation and the cost of sending crews aboard NCL's Ships for
taping, photographing and post-production editing. NCL shall pay
these costs directly to SeaVision as a vendor. Each party shall make
its library of videos and photographs for shore excursions available
to the other for the other's use in connection with the conduct of its
business.
. Interface with NCL's Property Management System: The System will
interface with the Ship's property management system to enable
appropriate charges to be applied to passenger accounts.
<PAGE>
. Access Control: The System will be designed to limit access to only
those persons who are adult passengers or who are minors under adult
supervision. Passengers will be able to limit access to various
services, such as gaming and adult programming, by enabling lock-out
codes and using password procedures.
. Report Generation: The System will generate detailed activity reports,
which will be made available to NCL for the purposes of revenue
payments to SeaVision. SeaVision shall also provide, at NCL's
request, reports pertaining to passenger usage of the System.
. Passenger Folio Review-On-board Account: Each passenger will be able
to use the System to review a summary of his or her account.
SeaVision shall provide the interfaces to NCL's on-board systems
necessary to provide such review; provided that NCL shall reasonably
cooperate with the development of such interfaces.
. Transaction Fee: In consideration of SeaVision's provisions of certain
services on the System at no charge, NCL agrees to consider the
implementation of a transaction fee of not more than $1.00 per
transaction initially for passengers utilizing the System for shore
excursions, room service, wine ordering and other non-revenue
generating passenger services. Any such transaction fees will be
included in the Adjusted Gross Revenue generated by the System.
Revenue-Generating and Pay-Per-View Entertainment
- -------------------------------------------------
NOTE: NCL will be entitled to a portion of the Adjusted Gross Revenues generated
by the following services, pursuant to and in accordance with the terms of
Section 3 of the Agreement.
. Video-on-Demand: Passengers will be able to purchase movies and other
entertainment options such as taped concerts, on demand, using the
System and their television remote-control. SeaVision shall determine
the fee that will be levied for each such order and charged to such
passengers' respective cabin accounts. Subject to NCL's approval,
adult programming may be offered.
. Gaming Options: Passengers will be able to play video slots, poker and
blackjack on the System. Any additional games that SeaVision may
desire to provide on the System shall be subject to the parties'
mutual agreement. SeaVision will determine the value of each
individual credit that passengers may purchase and charge to their
cabin accounts. Credits may be redeemed at a location designated by
NCL.
. Shopping: SeaVision will offer passengers shopping videos and
interactive video shopping on and through the System. NCL will retain
the right to approve the items offered for sale and the vendors
providing those items. In the event NCL elects to offer its own items
for sale on and through the System, NCL shall pay all related
production costs incurred by SeaVision directly to SeaVision as a
vendor
<PAGE>
and SeaVision will be entitled to a share of the Adjusted Gross
Revenues generated therefrom pursuant to and in accordance with the
terms of Section 3 of the Agreement. Access to the System by
concessionaires on board the Ship, including but not limited to the
on-board shops, casino, beauty salon and spa, and photographer, will
be by mutual agreement between SeaVision and those vendors. NCL will
be entitled to a portion of the Adjusted Gross Revenues generated by
any fees paid by such purveyors, pursuant to and in accordance with
the terms of Section 3 of the Agreement.
. Advertising and Promotions: SeaVision shall have the exclusive right to
provide access to the System to third parties for the purposes of
advertising, promotions and marketing of their companies, products or
services.
NCL shall retain the right to approve such third party advertisers as
will be given access to the System and the manner in which any such
advertising is presented. NCL shall designate the individual
responsible for granting such approvals on its behalf, and such
individual shall provide SeaVision with general guidelines for
advertising and marketing activities and the procedure SeaVision shall
follow in submitting advertising and marketing proposals for NCL's
consideration. NCL shall not unreasonably withhold its approval of
advertising and marketing proposals with respect to the System. NCL
shall notify SeaVision of its approval or denial of an advertising or
marketing proposal within 14 days after SeaVision's written submission
thereof. In the event NCL fails to notify SeaVision of its decision
within that period, it shall be deemed to have approved that written
submission. NCL will be entitled to a portion of the Adjusted Gross
Revenues generated by such advertising and marketing promotions on the
System, pursuant to and in accordance with the terms of Section 3 of
the Agreement.
Miscellaneous Optional Services (to be offered only upon mutual agreement of the
- -------------------------------
parties)
. Digital Photography: Passengers will be able to view in their cabins
personal photographs taken by the on-board photo concessionaire. The
system will display the photographs allowing the passengers to
purchase a variety of sizes and poses. This service can include,
subject to NCL approval, kiosk-based
applications which will provide an entertaining and easy-to-use
graphical, touch screen interface to purchase "instant" photographs
with a wide variety of backgrounds and in various sizes. Revenues
from photographs purchased over the System, less cost of materials,
will be included in Adjusted Gross Revenues.
<PAGE>
EXHIBIT C
On-board Television Coordinator Responsibilities
------------------------------------------------
[to be provided by NCL]
<PAGE>
EXHIBIT D
Technical Performance Standards of the System
---------------------------------------------
Server Capacity
- ---------------
. The system will be sized according to actual usage demand of the ship.
Demand levels change throughout the term of the Agreement. Some of
the factors that effect sizing of the system include the following:
[Redacted - confidential treatment requested]
. During routine operation of the system, the system will meet [Redacted -
confidential treatment requested] of the load demand [Redacted -
confidential treatment requested] of the time. As usage statistics
from the system change, SeaVision will make periodic sizing
adjustments to ensure the capacity of the system supports this load
demand.
RF System
. The SeaVision RF mixing network located in the BCC will support the
ships existing Free to Guest channels. A total of twelve channels
will be allocated for this purpose. The SeaVision RF mixing network
will act as the final launch point for input the ships RF plant.
. The final output of the mixed signals will be +15dBmV flat +/-3dB.
. The ships existing launch amplifier will be set in accordance to the
ships RF design specification but shall not exceed a +45 dBmV output
level. The maximum tilt shall not exceed 6 dB across the amplifiers
entire bandwidth.
. The minimum Carrier to Noise ratio at the end of any RF trunk in the
ships RF plant shall be 41 dB or better.
. Adjacent channel visual carriers shall not differ more than 3 dB.
. All passive devices will have a minimum port to port isolation of 20 dB.
. An RF return module will be added to the ships RF amplifiers, if the
amplifiers will support the device. If the amplifier will not support
the RF return module then the entire amplifier modules will be
removed. Depending on availability, the new
<PAGE>
amplifiers will be of the same manufacturer and model series in order to
utilize the existing housings and plant connections.
<PAGE>
Exhibit 10.15
THE MARKED PORTIONS OF THIS AGREEMENT
HAVE BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT.
INSTALLATION AGREEMENT
THIS INSTALLATION AGREEMENT (this "Agreement") is made and entered into as
of the 9th day of September, 1996, by and between CUNARD LINE LIMITED, an
English corporation with its registered office located at 52 Berkeley Street,
London W1X 5FP England ("Cunard"), and SEAVISION, INC., a Delaware corporation
having offices located at 300 Greentree Commons, 381 Mansfield Avenue,
Pittsburgh, PA 15220 ("SeaVision").
RECITALS:
A. Cunard has requested that SeaVision replace the existing television
distribution and broadcast system onboard the Queen Elizabeth 2, a ship owned
and operated by Cunard (the "QE2").
B. Cunard has also requested that, during such replacement, SeaVision
operate and maintain the television distribution and broadcast system onboard
the QE2.
C. SeaVision has agreed to provide such requested services upon the terms
and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, the parties, intending to be legally bound hereby, agree as
follows:
1. Replacement of Existing Television Distribution and Broadcast System.
--------------------------------------------------------------------
SeaVision agrees to replace the existing television distribution and
broadcast system onboard the QE2 as of the date hereof with a new television
distribution and broadcast system comprised of the hardware components listed on
Exhibit A attached hereto (collectively, the "Hardware"). The installation of
the replacement system will be undertaken and completed for the fixed price set
forth in Section 5(a) in accordance with the installation schedule attached
hereto as Exhibit B (the "Installation Schedule"). TIME IS OF
THE ESSENCE OF THIS AGREEMENT. Cunard acknowledges that the QE2 contains
asbestos in certain of its
<PAGE>
structural components, and agrees that Cunard is responsible, at its own cost
and expense, for undertaking all asbestos abatement and removal occasioned by
SeaVision's installation of the replacement system, which abatement and removal
will be undertaken in accordance with all applicable laws, rules and regulations
and on a schedule that will permit SeaVision to perform its obligations
hereunder in a timely manner. If SeaVision is delayed in its performance of its
installation obligations under this Section 1 as a result of any delay by Cunard
in the abatement or removal of asbestos onboard the QE2, SeaVision's obligations
under the Installation Schedule shall likewise be delayed.
2. Scope of Operation and Maintenance Services to be Provided by
-------------------------------------------------------------
SeaVision.
- ---------
(a) Commencing on October 20, 1996 and continuing for the balance of
the term of this Agreement, and in accordance with the terms of this Agreement,
SeaVision shall operate the television distribution and broadcast system onboard
the QE2, as those activities are described in Exhibit C attached hereto, and
shall provide such maintenance services as are required to keep the related
broadcast equipment in good operating order and repair. Such operation will
initially involve the existing television distribution and broadcast system
onboard the QE2 and will involve the new television distribution and broadcast
system as the same is installed onboard the QE2. In connection with SeaVision's
performance of the foregoing operation and maintenance obligations, SeaVision
shall provide all personnel reasonably necessary to fulfill such operation and
maintenance obligations, including one broadcast control manager (the "Manager")
who will remain onboard the QE2 on an on-going basis for so long as this
Agreement is in effect. SeaVision acknowledges that the Manager and any other of
its personnel from time to time onboard the QE2 shall at all times be employees
of SeaVision. SeaVision understands and agrees that, while onboard the QE2, its
personnel will be subject to the authority of the Master of the QE2 and the
officer(s) designated to oversee the operation of the broadcast activities.
SeaVision shall use its best efforts to ensure that its personnel will at all
times while onboard the QE2 comply with the operations manual of Cunard, in the
form then in effect.
(b) SeaVision's personnel serving onboard the QE2 shall promptly be
removed from such service, upon Cunard's request to SeaVision, in the event of:
(i) intoxication while onboard the QE2;
(ii) failure to comply with standards of professional and
personal conduct expected by Cunard of its own employees and the employees of
concessionaires onboard the QE2; and
(iii) failure to abide by safety rules and regulations
applicable to persons onboard the QE2.
3. Cunard Support.
--------------
-2-
<PAGE>
So long as SeaVision is providing the foregoing services to Cunard,
Cunard shall:
(a) Make available to SeaVision:
(i) the QE2 to the extent necessary for SeaVision's
installation of the replacement distribution and broadcast television system and
for SeaVision's operation and maintenance of the then-existing system in
operation onboard the QE2, including but not limited to granting SeaVision
personnel unlimited access to the television studio and video distribution
system on board the QE2;
(ii) such personnel as are reasonably necessary or appropriate
to assist SeaVision in the successful installation of such replacement system
and the successful operation and maintenance of such existing system;
(iii) all necessary storage and work space onboard the QE2 for
SeaVision's performance of its obligations hereunder; and
(iv) appropriate single-cabin accommodations onboard the QE2
for SeaVision personnel who are engaged in such installation, operation and
maintenance activities. The grade of such accommodations shall be at Cunard's
discretion. It is understood that SeaVision personnel occupying such
accommodations will, at all times while onboard the QE2, be subject to Cunard's
policies regarding onboard contractors, including those concerning dress,
decorum and personal behavior; and
(b) Furnish accommodations onboard the QE2 on mutually-agreeable
dates, to allow SeaVision senior personnel to monitor the on-going installation
of such replacement system onboard the QE2, the on-going operation and
maintenance of the then-existing system onboard the QE2 and the performance of
SeaVision's personnel. Cunard shall also provide the Manager with all other
perquisites that it provides to its employees of similar rank.
4. Term.
----
The initial term of this Agreement shall commence on the date hereof
and shall expire on December 13, 1996. Thereafter, the term of this Agreement
shall continue indefinitely, unless and until either party shall, at any time
and for any reason, provide sixty (60) days' prior written notice to the other
of the termination hereof. Notwithstanding the foregoing, Cunard may, at any
time after SeaVision's completion of the installation of the Hardware onboard
the QE2, terminate this Agreement upon fourteen (14) days' prior notice in the
event QE2 is sold, bareboat chartered or time chartered to any third party for a
period longer than one (1) month.
5. Payments.
--------
-3-
<PAGE>
In consideration of SeaVision's performance under this Agreement,
Cunard agrees to pay to SeaVision the following amounts:
(a) for SeaVision's provision and installation of the replacement
television distribution and broadcast system, Cunard shall pay to SeaVision the
aggregate amount of One Million Two Hundred Forty Thousand U.S. Dollars (U.S.
$1,240,000.00) (the "Purchase Price"), which amount shall be payable in
accordance with the installation payment schedule attached hereto as Exhibit D.
(b) for SeaVision's operation and maintenance of the then existing
television distribution and broadcast system onboard the QE2, Cunard shall:
(i) pay to SeaVision, commencing on October 20, 1996, the
monthly amount of [Redacted - confidential treatment requested] (prorated for
any partial month) for any period in which the QE2 is being used to perform
passenger service, which monthly amounts shall be paid in arrears on or before
the fifth day of each calendar month for the previous calendar month (no such
monthly payment being due for any month in which the QE2 is out of service); and
(ii) pay to Seavision an amount equal to [Redacted -
confidential treatment requested] of the cost incurred by SeaVision for parts,
and supplies purchased by SeaVision, and third party repair charges incurred by
SeaVision, in connection with its operation, maintenance and repair of the then
existing television distribution and broadcast system onboard the QE2, which
incurred costs shall exclude the cost of any warranty repair work performed by
SeaVision in connection with its warranty of the system under section 11 herein
and which costs shall be supported by SeaVision's delivery to Cunard of receipts
therefor. Cunard shall pay all amounts due under this clause (ii) monthly
concurrently with Cunard's payments under clause (i) herein.
(c) Notwithstanding the foregoing, SeaVision understands and agrees
that all payments made under this Agreement are conditioned upon timely progress
and completion of the work in accordance with the Installation Schedule set
forth in Exhibit B. In addition the final payment scheduled to be made on
November 10, 1996 shall be conditioned upon prior completion of the installation
and ensuring that the system is fully operational and in good working order.
Should the contract work not be progressed or completed in a timely manner,
Cunard shall have the right to withhold payment for all incomplete contract work
always provided that Cunard shall submit to SeaVision within five (5) days after
payment is otherwise due, a written notification specifying the cause for
withholding payment. Should the parties fail to reach agreement on the manner in
which the specified issues are to be resolved, then such dispute shall be
resolved in accordance with Section 15.
6. [Intentionally Omitted]
-4-
<PAGE>
7. Insurance/Waiver of Subrogation.
-------------------------------
(a) Cunard hereby warrants, represents and covenants that it has, and
shall maintain for the term of this Agreement, at its sole expense, its normal
insurance coverages for the QE2 and the equipment thereon.
(b) So long as their respective insurers so permit, neither party
hereto shall be liable to the other, or to the insurer of the other, claiming by
way of subrogation through or under such other party with respect to any loss or
damage, in whole or in part, to the extent that such other party shall be
reimbursed out of that party's insurance coverage carried for such other party's
protection with respect to such loss or damage. If so permitted, the parties
shall each obtain any special endorsements required by their respective
insurance carriers to evidence compliance with the waiver and release set forth
herein and shall provide a copy thereof to the other party.
(c) Cunard agrees to provide, at its own cost and expense, its normal
maritime protection and indemnity insurance ("P&I") for the Manager and for each
member of SeaVision's system installation crew for such periods of time as the
Manager or crewmember, as the case may be, is employed by SeaVision and posted
to the QE2, but only to the extent of Cunard's P&I coverage existing at the time
of any claim.
8. Medical Care.
------------
At SeaVision's request, Cunard will furnish without charge, necessary
onboard medical care by QE2's medical staff, as well as medicines, for illness
and injury suffered by SeaVision's personnel while aboard the QE2. SeaVision is
solely responsible for providing its personnel with any shoreside medical and/or
dental care at its sole cost and expense.
9. Title.
-----
Cunard acknowledges that unless and until it pays to SeaVision the
Purchase Price in accordance with the terms of this Agreement, SeaVision shall
retain exclusive ownership of the Hardware and Cunard shall have no right, title
or interest therein. Upon Cunard's payment of each of the 2nd, 3rd and 4th
Payments described on the installation payment schedule. SeaVision promptly
shall convey to Cunard good and marketable title to approximately fourteen
percent (14%) of the Hardware (based upon the value of the Hardware), free and
clear of any liens, claims or other encumbrances. Upon Cunard's payment of the
balance of the full amount of the Purchase Price to SeaVision, SeaVision
promptly shall convey to Cunard good and marketable title to the balance of the
Hardware (approximately 58%), free and clear of any liens, claims or other
encumbrances.
10. Warranty.
--------
-5-
<PAGE>
SeaVision hereby warrants its workmanship in connection with the
installation of the replacement television distribution and broadcast system for
a period of one (1) year after the completion of such installation. Any and all
claims under the foregoing warranty must be delivered to SeaVision, in writing,
within seven (7) days after the expiration of the warranty period. Cunard
acknowledges that SeaVision is not the manufacturer of the Hardware and that
warranties regarding the performance of the Hardware, if any, are provided
solely by the respective manufacturers thereof, and not by SeaVision. SeaVision
shall deliver to Cunard, upon completion of the installation of the replacement
television distribution and broadcast system onboard the QE2, all information
and documentation regarding such warranties as is then in SeaVision's possession
or under its control. SeaVision shall assist Cunard in securing the benefits of
any such warranties, but shall in no event be obligated under any such
warranties.
11. Limitation of Liability.
-----------------------
THE WARRANTIES AND REMEDIES EXPRESSLY SET FORTH IN THIS AGREEMENT ARE
EXCLUSIVE AND ARE IN LIEU OF ALL OTHER WARRANTIES AND REMEDIES, ORAL OR WRITTEN,
EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE OR ANY IMPLIED WARRANTIES
ARISING FROM COURSE OF PERFORMANCE, COURSE OF DEALING OR USAGE OF TRADE. EXCEPT
AS EXPRESSLY PROVIDED HEREIN OR ELSEWHERE IN THIS AGREEMENT, IN NO EVENT WILL
EITHER PARTY BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL
DAMAGES, INCLUDING WITHOUT LIMITATION, IN THE CASE OF SEAVISION, ANY SUCH
DAMAGES ARISING OUT OF CUNARD'S USE OF OR INABILITY TO USE THE TELEVISION
DISTRIBUTION AND BROADCAST SYSTEM ONBOARD THE QE2 OR ANY PORTION THEREOF, EVEN
IF SEAVISION IS ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. IN PARTICULAR,
SEAVISION IS NOT RESPONSIBLE FOR ANY COSTS INCLUDING, BUT NOT LIMITED TO, THOSE
INCURRED AS A RESULT OF LOST PROFITS OR REVENUE, LOSS OF USE OF THE TELEVISION
DISTRIBUTION AND BROADCAST SYSTEM, OR CLAIMS BY THIRD PARTIES. IN ADDITION
THERETO, NEITHER PARTY'S LIABILITY FOR DIRECT DAMAGES OF THE OTHER ARISING OUT
OF ANY OF THE FOREGOING OR UNDER SECTION 13 OF THIS AGREEMENT SHALL IN NO EVENT
EXCEED THE AMOUNT OF ONE HUNDRED THOUSAND DOLLARS ($100,000) IN THE AGGREGATE.
12. Confidentiality.
---------------
(a) Each party agrees, during the term of this Agreement and
thereafter, to maintain the confidential nature of the terms and conditions of
this Agreement and of any proprietary information shared by the other with it.
For purposes of this Section 12(a), the term "proprietary information" excludes
any information then in the public domain and any information that is
independently, legally and without the breach of any agreement obtained from
-6-
<PAGE>
any third party. Notwithstanding anything contained in this Agreement to the
contrary, the terms of this Section 12(a) shall survive the expiration or
termination of this Agreement.
(b) Each party acknowledges that its violation of its confidentiality
or non-disclosure obligations under this Agreement may cause irreparable damage
to the other that cannot be fully remedied by money damages. Accordingly, in the
event of any such violation or threatened violation, the injured party will be
entitled, in addition to pursuing any other remedy available to it under this
Agreement or at law, to obtain injunctive or other equitable relief from any
court of competent jurisdiction as may be necessary or appropriate to prevent
any further violations thereof.
(c) During the term of this Agreement (including any extensions
thereof), and for a period of one (1) year thereafter, neither party shall
induce or attempt to induce any employee or consultant of the other to terminate
his or her employment or consulting relationship with such other party and shall
not solicit any such employee or consultant for employment or consulting
services.
(d) Each party agrees to notify the other immediately upon the
notifying party's becoming aware of or reasonably suspecting the possession, use
or knowledge of all or part of any of the other party's proprietary information
by any person or entity not authorized by this Agreement to have such
possession, use or knowledge. The notifying party will promptly furnish the
other party with details of such possession, use or knowledge, will assist in
preventing a recurrence thereof and will cooperate with the other party in
protecting the other party's rights in the other party's proprietary
information. A party's compliance with the terms of this section 12 will not be
construed as any waiver of the other party's right to recover damages or obtain
other relief against the notifying party for the notifying party's breach of its
confidentiality or non-disclosure obligations under this Agreement or the
negligent or intentional harm to the other party's proprietary rights.
13. Indemnification.
---------------
(a) SeaVision shall indemnify, defend and hold harmless Cunard and
its successors and assigns from and against any and all liabilities, claims,
suits, damages, judgments, awards, penalties, losses and other liabilities
(including all related reasonable attorneys' fees, costs and expenses in
connection therewith) (collectively referred to hereinafter as "Losses")
suffered or incurred by Cunard by reason of, arising out of or in connection
with:
(i) any negligent act or omission of SeaVision (or an
employee, agent or representative of SeaVision) committed or omitted, as the
case may be, in the course of SeaVision's performance of the terms of this
Agreement; or
(ii) SeaVision's failure to fully perform the terms of this
Agreement.
-7-
<PAGE>
(b) Cunard shall indemnify, defend and hold harmless SeaVision and
its successors and assigns from and against any and all Losses suffered or
incurred by SeaVision by reason of, arising out of or in connection with:
(i) any liability arising from or out of asbestos onboard the
QE2, unless such liability arises as a result of SeaVision's negligence, willful
misconduct or failure to observe Cunard's instructions relating to such
asbestos;
(ii) any negligent act or omission of Cunard (or an employee,
agent or representative of Cunard) committed or omitted, as the case may be, in
the course of Cunard's performance of the terms of this Agreement or its
operation of the QE2; or
(iii) Cunard's failure to fully perform the terms of this
Agreement.
(c) The terms of this Section 13 shall survive the expiration or
termination of this Agreement.
14. Interruption in Performance.
---------------------------
Neither Cunard nor SeaVision shall be liable to the other for any
loss, damage or loss of profits arising out of any interruption or cessation of
performance hereunder when such interruption or cessation is caused by any
circumstance beyond the reasonable control of such party.
15. Arbitration.
-----------
In the event of any dispute or controversy arising out of or related
to this Agreement, the parties will seek to resolve any such controversy first
by negotiating with each other in good faith in face-to-face negotiations
between the respective principals of each. In the event a resolution is not
reached in such manner, any remaining dispute or controversy shall be submitted
for resolution by either party to any court of competent jurisdiction in City of
New York, New York County, New York.
-8-
<PAGE>
16. Public Announcements.
--------------------
The parties shall consult with each other and issue a public statement
with respect to this Agreement as soon as is practical after the date hereof.
17. Right to Make Agreement.
-----------------------
Each of the parties hereto represents and warrants to the other that
it has all necessary and appropriate power and authority to execute, deliver and
carry out the terms and provisions hereof and that its execution, delivery and
performance thereof will not constitute a default by it under any other
agreement to which it is a party.
18. Counterparts.
------------
This Agreement may be executed in any number of counterparts, each of
which shall constitute an original and all of which together shall constitute
but one and the same original document.
19. Assignment.
----------
Either party hereto may assign this Agreement and its respective
rights, interests and obligations hereunder to any third party without the
consent of the other party hereto; provided, however, that no such assignment by
a party shall relieve that party of any of its liabilities or obligations
hereunder. It is expressly understood and agreed that, except as provided to the
contrary in the preceding sentence, this Agreement and all of SeaVision's
interests and rights herein and hereunder may be assigned, pledged, mortgaged
and/or hypothecated by SeaVision in connection with the sale or transfer of all
or substantially all of its assets or a change in the ownership of a controlling
interest in SeaVision's capital stock.
20. Successors.
----------
This Agreement shall inure to the benefit of, and be binding upon, the
respective successors and assigns of the parties hereto.
21. Effectiveness.
-------------
This Agreement shall be effective upon its execution by an authorized
representative of each party hereto, which execution may for all purposes be
evidenced by facsimile transmission of a counterpart signature page of this
Agreement.
22. Governing Law.
-------------
-9-
<PAGE>
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York, without regard to its principles of conflicts
of laws.
23. Severability.
------------
If any Section or provision of this Agreement, or any portion of any
section or provision thereof, shall for any reason be held to be void, illegal
or otherwise unenforceable, all other sections and portions of this Agreement
shall nevertheless remain in full force and effect as if such void, illegal or
unenforceable portion had never been included herein.
24. Notices.
-------
All notices and other communications required or otherwise provided
for in this Agreement shall be in writing and sent by registered or certified
mail to:
If to SeaVision: SeaVision, Inc.
300 Greentree Commons
381 Mansfield Avenue
Pittsburgh, PA 15220
Attn: Brian K. Blair
Telecopier: 412/928-0887
If to Cunard: Cunard Line Limited
555 Fifth Avenue
New York, New York 10017
Attn: Robert Parry
Telecopier: 212/949-0915
or to such other place as SeaVision or Cunard, as the case may be, may from time
to time designate in accordance herewith.
25. Entire Agreement; Modification.
------------------------------
This Agreement, including the Exhibits attached hereto, contains the
entire agreement of the parties on the subject matter hereof, and supersedes any
and all prior agreements, if any, with respect to such subject matter. This
Agreement may not be changed, modified or supplemented except by the written
agreement of the parties.
26. Default.
-------
(a) The following shall constitute "Events of Default" under this
Agreement:
-10-
<PAGE>
(i) The failure of either party in any respect to perform
any of the covenants, agreements or undertakings on its part to be
performed under this Agreement, provided, the other party shall have
given written notice to the defaulting party as to such failure, and
such defaulting party shall not, within thirty (30) days time after
being so notified, have shown it has taken sufficient steps to correct
such failure.
(ii) A general assignment made by either party for the benefit
of its creditors, the filing by either party of a petition in
voluntary bankruptcy or of a petition for reorganization or for other
relief under any bankruptcy or insolvency law, the filing of a
petition by either party at common law or in equity for the
appointment of a receiver in any court, or the filing against either
party by one or more of its creditors of a petition seeking the
appointment of a receiver of such party's assets, whether temporary or
permanent, or a petition seeking relief under any bankruptcy or
insolvency law, which petition shall not have been dissolved within
sixty (60) days from the date of the filing of the petition in that
court.
(b) If an Event of Default occurs, the non-defaulting party may
terminate this Agreement by giving written notice thereof to the defaulting
party, whereupon the non-defaulting party shall have the right to withhold its
future performance under this Agreement without, in any way, releasing the
defaulting party from any of its obligations under this Agreement.
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto as of the date first above written.
ATTEST: SEAVISION, INC.
By:
- -------------------- -------------------------------
Its: Its:
---------------- ------------------------------
ATTEST/WITNESS: CUNARD LINE LIMITED
By:
- -------------------- -------------------------------
Its: Its:
---------------- ------------------------------
-11-
<PAGE>
EXHIBIT A
HARDWARE COMPONENTS OF REPLACEMENT SYSTEM
Bill of Materials Queen Elizabeth 2 - Hardware Components
. RF System
<TABLE>
<CAPTION>
=======================================
MATERIAL AMOUNT BRAND
- ---------------------------------------
<S> <C> <C>
RG-11 CABLE *
RG-59 CABLE *
Amps *
Taps *
Cabin Taps *
Line Splitters *
RG-11 Connectors *
RG-59 Connectors *
Norsats * MC-62
19" TV's * Phillips
13" TV's * Phillips
Adapter Plates *
Engineering
Misc. RF
=======================================
</TABLE>
* Confidential Treatment Requested
<PAGE>
. Broadcast Center
<TABLE>
<CAPTION>
========================================================================
MATERIAL AMOUNT BRAND
- ------------------------------------------------------------------------
<S> <C> <C>
S-VHS machines * Goldstar 210
Multi-Standard * Panasonic wv-1
Video DA's * GVC 8800 tray w/8805 da's
Audio DA's * GVC 8550 tray w/8555 da's
Video Patchbay's * ADC ppi-1224rs-75n
Audio Patchbay's * Bjf303-4mkiino
RF Meter * Windowlite plus
Vectorscope/waveform * Tektronix 1750
Audio Meters * Ward-Beck 755
Audio Amp * Crown D-75
Control Room Speakers * JBL control-5
10x1 Video Router * GVG tenXL
PC based Character gen. * PC w/Crystal fonts
Test Signal Generator * Textronix TSG-200
TV Demodulators * Sony ST-92T
Monitors * JVC TM-2084
Equipment Racks * SF10f2007030
Video Cable * Belden RG-58
Audio Cable * Belden 8271
Rack Slides for Equipment *
Engineering
Misc. Hardware
========================================================================
</TABLE>
* Confidential Treatment Requested
<PAGE>
. Broadcast Center (continued)
<TABLE>
<CAPTION>
============================================================
MATERIAL AMOUNT BRAND
- ------------------------------------------------------------
<S> <C> <C>
Cameras * Panasonic AG-D800
Tape Machine * JVC-BRS622dxu
Editor/Remote Control * Panasonic Postbox
Video Switcher * GVG 100
Audio Board * Mackie
Light Package * Century Stand
Audio Package * ECM 55's, EV-635, cables
Tripods * Satchler Vision
Monitors * Panasonic PVM-300
Speakers * JBL Control-5
Audio Amp * Crown D-75
Patch Bays * ADC Same as above
Racks * ADC Same as above
Standards Converter * dvt-87h
Satellite Receiver * Omni Vu
ISP's * SeaVision Model ISP
Video Server * SeaVision Video Server
Optivision Decoder * Ptivision 4Ch Decoder
Master Controller * SeaVision MCX
CD-Player * Pioneer CDx-77
Router * GvG Horizon
Charcter Generator * Presto 100
Carpentry Customized Operator Console
============================================================
</TABLE>
* Confidential Treatment Requested
<PAGE>
EXHIBIT B
BROADCAST STUDIO AND TELEVISION REFIT INSTALLATION SCHEDULE
<TABLE>
<CAPTION>
=========================================================================================
Task Date
- -----------------------------------------------------------------------------------------
<S> <C>
SeaVision team arrives on the ship to perform a thorough survey of the Completed
ships facilities. Survey team will complete a test of the integrity of the
existing RF system. Select a location for racks and specify power and
cooling requirements for the Broadcast Control Center (BCC).
- -----------------------------------------------------------------------------------------
Penetration drawings sent to QE2 to facilitate penetrations during SOLAS Completed
work.
- -----------------------------------------------------------------------------------------
Project manager to review all outstanding issues (TV stands, penthouse By 08/09
TV's, Public area TV's, and programming) with Cunard Management.
- -----------------------------------------------------------------------------------------
Eight person RF team arrives to begin installation of new RF trunkline to 09/23
carry NTSC signal. Team to work section by section closing up as they
install new trunk to cause minimal passenger disturbance.
- -----------------------------------------------------------------------------------------
Move all necessary equipment from broadcast center to temporary 10/13
location in cabin next to BCC. Broadcast signal from temporary studio in
NTSC and PAL format. Both systems broadcasting identical
programming.
- -----------------------------------------------------------------------------------------
Begin changing all televisions in passenger cabins from PAL to NTSC. 10/19
As television is changed, drop lines will be switched from PAL trunkline
to NTSC trunk. TCM's installed on all televisions.
- -----------------------------------------------------------------------------------------
Remodeling studio to accommodated new equipment, racks, and 10/19
television studio. Install new NTSC equipment in BCC. Test all newly
installed equipment.
- -----------------------------------------------------------------------------------------
SeaVision operator to arrive on QE2. SeaVision operator to coordinate 10/20
with Hotel Director and Cruise Director to increase programming and
decide activities to film. SeaVision operator to provide Hotel Director a
new schedule of all programming.
- -----------------------------------------------------------------------------------------
Transfer signal from temporary broadcast center to permanent studio. 11/03
Removal of all equipment from temporary studio.
- -----------------------------------------------------------------------------------------
All cabins switched to NTSC signal. Broadcast center now sending only 11/10
NTSC signal. Television system completed, work begins on ITV.
=========================================================================================
</TABLE>
<PAGE>
EXHIBIT C
TV STATION MANAGER - QUEEN ELIZABETH 2
Reports to: Deputy Cruise Director
General Duties: Operates, maintains and plans schedules for a television
and radio broadcasting service.
Specific Duties: Plans a daily schedule of TV programmes on eight
channels, six of which are running 24 hours per day. This
includes a regularly changed selection of children's
programmes, documentaries, feature films, music videos,
opera, and a daily theme channel.
Ensures that all broadcasts commence promptly at the
advertised time (some of this work is delegated to the
A.V.O. operator). Operates all T.V. Station equipment
(multi-system VCR machines, laser disc machines, vision
mixer, time-base corrector, cameras, lights, audio mixers,
monitors, etc.). Submits accurate daily schedules to the
print shop for advertising purposes.
Facilitates the recording and production of special onboard
programmes (interviews, magazine-style programmes,
introductions to featured programmes and Tour Office
promotions).
Supervises a daily radio show (presented by the Disc
Jockey).
Skills Necessary: Experience in communications.
Preferably some experience in broadcasting.
A good speaking voice.
A detailed knowledge of feature films, directors and actors
that can be utilized in effective programming, especially of
themed presentations.
Good knowledge of all types of music.
Some technical knowledge relating to required areas of
operation.
Creative camera skills for use with both studio and location
work.
Neat appearance.
<PAGE>
EXHIBIT D
INSTALLATION PAYMENT SCHEDULE
Total Installation Price $1,240,000.00
1st Payment - Due upon contract signing [Redacted - confidential
treatment requested]
2nd Payment - September 18, 1996 [Redacted - confidential treatment
requested]
3rd Payment - October 09, 1996 [Redacted - confidential
treatment requested]
4th Payment - October 30, 1996 [Redacted - confidential
treatment requested]
Final Payment - Upon completion of installation
and system is operational [Redacted - confidential
treatment requested]
Bank Wire Instructions
[Redacted - confidential
treatment requested]
<PAGE>
Exhibit 10.16
THE MARKED PORTIONS OF THIS AGREEMENT
HAVE BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT.
CONCESSION AGREEMENT
--------------------
THIS CONCESSION AGREEMENT ("Agreement") is made and executed this 17th day
of September, 1996 by and between SEAVISION INC., a Delaware corporation
("SEAVISION") and ROYAL CARIBBEAN CRUISES LTD., a Liberian corporation ("RCCL").
W I T N E S S E T H:
--------------------
RCCL operates the vessels MAJESTY OF THE SEAS and RHAPSODY OF THE SEAS
(which vessel is currently under construction and scheduled to be delivered in
April 1997) (collectively the "Vessel" or "Vessels");
SEAVISION has the expertise in providing interactive television and video
entertainment systems; and
RCCL desires to grant to SEAVISION a concession on the Vessels as described
herein and SEAVISION desires to accept the concession, on the terms set forth
herein:
1. Concession. RCCL hereby grants to SEAVISION and SEAVISION hereby accepts
the concession for providing an interactive television and video
entertainment system to RCCL, and passengers on each Vessel on the terms
and conditions set forth herein.
2. SEAVISION's Responsibilities.
----------------------------
a) Services. SEAVISION hereby agrees to provide, at no charge to RCCL, an
--------
interactive television and video entertainment system (the "System")
consisting of the hardware and software described or listed on Exhibit
A attached hereto, and to provide the services (the "Services") set
forth on Exhibit B attached hereto. The System shall conform to the
technical performance standards set forth on Exhibit C and the
specifications set forth on Exhibit D attached hereto. RCCL may elect
to use customized graphic displays ("look and feel") for the System on
the television screens, which displays must be compatible with the
then existing technical standards of the System, provided that if RCCL
so elects, RCCL shall bear the cost of development of such graphics.
SEAVISION agrees that there shall be no charge where RCCL uses
<PAGE>
existing language and merely changes the logo on a screen or similar
minor changes. If RCCL elects to use such customized graphics displays,
RCCL may either (i) develop such customized graphics itself or contract
for such development through a third party, in which event SEAVISION
will reasonably cooperate with RCCL or such third-party, or (ii)
request SEAVISION to develop such customized graphics, in which event
SEAVISION will undertake such development on terms mutually agreeable
to the parties. SEAVISION agrees that the cost for such customization
shall not exceed [Redacted - confidential treatment requested]. This
amount includes the "look and feel" changes required by RCCL; all
screen productions; four language variations (including English); all
audio voice-overs; and all video digitalization (MPEG) processes on
Beta SP masters supplied by RCCL. The MPEG process will be provided for
the first four RCCL Vessels at no additional cost. On any additional
vessels, the MPEG process shall be charged at the rate of [Redacted -
confidential treatment requested]. SEAVISION shall be responsible for
providing any additional hardware for the System, except the in-cabin
television sets and control modules.
b) Upgrades. SEAVISION agrees to provide upgrades to the hardware and/or
--------
software used in the System, at no cost to RCCL, at such times and in
such manner as is reasonably necessary or appropriate, in SEAVISION's
sole opinion, to maintain the System. RCCL shall have the right to
review and approve any such upgrade prior to its installation on any
Vessel, which approval shall not be unreasonably withheld or delayed
by RCCL.
c) Installation. The System shall be installed and fully functional
------------
onboard the MAJESTY OF THE SEAS on or before December 10, 1996. The
installation on RHAPSODY OF THE SEAS shall be completed and the System
fully operational prior to April 25, 1997.
d) Maintenance. SEAVISION shall be responsible for ensuring that the
-----------
System is in good, proper working order at all times during the Term
of this Agreement. The System shall at all times meet the technical
specifications set out in Exhibit C to this Agreement. SEAVISION
shall coordinate all work on the System with each Vessel's Chief
Engineer and/or Chief Electrician.
e) Comment Cards. SEAVISION acknowledges that RCCL distributes to and
-------------
collects from passengers comment cards requesting satisfaction ratings
of on-board services. SEAVISION agrees to address any issues raised
by such comment cards and to use reasonable efforts to comply with
RCCL requests to make changes to the System to correct deficiencies
noted in the System which are identified in the comment cards.
-2-
<PAGE>
3. RCCL's Responsibilities.
-----------------------
a) Access to Vessel. RCCL hereby agrees to make available to SEAVISION in
----------------
respect to each Vessel (a) the Vessel to the extent necessary for
SEAVISION's installation, operation and maintenance of the System,
including but not limited to granting SEAVISION personnel reasonable
access to the television studio and video distribution system, (b)
such personnel as are reasonably necessary or appropriate to assist in
the successful installation, operation and maintenance of the System,
including but not limited to appropriate on-board support for, and
oversight of, the installation, operation and maintenance of the
System by a designated officer on that Vessel (provided however,
primary responsibility for maintenance and upkeep shall be the
responsibility of SEAVISION), (c) all reasonably necessary systems
integration support to allow the System to communicate with RCCL's on-
board systems, and (d) appropriate accommodations on-board the Vessel
for the SEAVISION personnel who are engaged in installing, operating
or maintaining the System on the Vessel.
b) Executive Personnel. With the prior approval of RCCL, SEAVISION's
-------------------
executive personnel may travel from time to time on the Vessels as
needed to insure the performance by SEAVISION of its obligations
hereunder. In such cases, RCCL will make available, at no charge
(except for port charges, gratuities and personal items), passenger-
type accommodations for such executive personnel, unless all passenger
facilities have been utilized by paying passengers. Such executive
personnel shall travel alone on a space available basis and not with
their families or other guests and shall be bound by and subject to
all the terms and conditions of RCCL's passenger ticket contract.
c) Marketing. RCCL hereby agrees to provide reasonable marketing support
---------
for the System on-board the Vessels. Such marketing support shall
include, but not be limited to in-cabin collateral material, coverage
in the Cruise Compass and daily television guide (if any), mention by
the Cruise Director during his or her introductory remarks to
passengers on the Ship, and such other activities of a supporting
nature as are acceptable to both parties to this Agreement. RCCL
hereby agrees to work with SEAVISION's marketing personnel to develop
appropriate and effective means for testing and gauging passenger
reaction to the System on a regular basis. RCCL shall from time to
time, provide access to the Vessels while in their home port for
SEAVISION personnel and guests to demonstrate the System to potential
advertisers, marketers and clients. Such visits shall be requested in
advance and RCCL reserves the right to refuse to allow such visitors
onboard the Vessels on certain days. In addition, access to various
parts of the Vessel may be restricted.
d) Data. RCCL hereby agrees to provide the SEAVISION onboard manager with
----
the following data in electronic form (i.e., diskettes, tapes or
similar means) with respect to each passenger onboard the Vessel:
name, cabin assignment, dining assignment and
-3-
<PAGE>
folio number. In the event SEAVISION acquires any additional passenger
information such as addresses and phone numbers as a result of the
passenger's use of the System (e.g. through the purchase of items to be
mailed to the passenger's home), SEAVISION agrees to keep such
information in confidence and not to sell, exchange or otherwise
provide such information to any other party without the prior written
consent of RCCL. Without limiting the foregoing, SEAVISION shall not
sell any lists of RCCL passenger names or use such names in any manner
other than as may be required to fulfill its obligations under this
Agreement. In the event SEAVISION is required to provide the
information to a fulfillment house to process orders, SEAVISION shall
use commercially reasonable efforts to ensure that such information is
kept confidential by such fulfillment house.
e) Collection of funds. RCCL hereby agrees to collect all monies paid or
-------------------
payable by passengers in respect of Services provided on or through
the System and charged to the respective on-board account of such
passengers, except as set forth in Section 6 of this Agreement.
f) Equipment. RCCL hereby agrees to provide all in-cabin televisions and
---------
television control modules; provided however, the maximum cost to RCCL
for such television control modules shall be [Redacted - confidential
treatment requested] per Vessel and SEAVISION shall be responsible for
any cost in excess of the [Redacted - confidential treatment
requested]. SEAVISION shall identify the specifications and
requirements for such television control modules. RCCL shall have the
option of purchasing such control modules from SEAVISION at cost.
RCCL shall retain title to all television sets and control modules.
4. Regular Television. RCCL shall retain all rights to use and control the
------------------
contents of all television channels which are not specifically designated
and utilized on a continuous basis as SEAVISION interactive channels. RCCL
shall have the right to operate a minimum of 20 "Regular Television"
channels through the SEAVISION System. RCCL's programming on such channels
may include, but is not limited to, advertising and promotion of RCCL's
products, concessionaires, shore excursions and other vendors under
contract with RCCL.
5. Revenue-Sharing. For each Vessel under this Agreement, the following
---------------
revenue sharing shall apply:
a) SEAVISION shall be entitled to retain [Redacted - confidential
treatment requested] of the first [Redacted - confidential treatment
requested] of the Adjusted Gross Revenue.
b) Once the aggregate of the Adjusted Gross Revenue equals or exceeds
[Redacted - confidential treatment requested] (the "Revenue Sharing
Date") then:
-4-
<PAGE>
i) RCCL shall be entitled to retain [Redacted - confidential
treatment requested] of the first [Redacted - confidential
treatment requested] of the Adjusted Gross Revenues during the
twelve (12) months immediately following the Revenue Sharing Date
and each twelve (12) month period thereafter during the term of
this Agreement; and
ii) RCCL shall be entitled to retain [Redacted - confidential
treatment requested] of the Adjusted Gross Revenue between
[Redacted -confidential treatment requested] and [Redacted -
confidential treatment requested] during the twelve (12) months
immediately following the Revenue Sharing Date and each twelve
(12) month period thereafter during the term of this Agreement;
and
iii) RCCL shall be entitled to retain [Redacted - confidential
treatment requested] of all Adjusted Gross Revenues exceeding
[Redacted -confidential treatment requested] during the twelve
(12) months immediately following the Revenue Sharing Date and
each twelve (12) month period thereafter during the term of this
Agreement.
c) "Adjusted Gross Revenue" for purposes of this Agreement, shall mean the
aggregate of all amounts paid to RCCL by passengers in connection with
use of the Revenue Generating and Pay-Per-View Services provided by
the System and charged to such passengers' respective onboard accounts
by RCCL on each Vessel less the cost of goods set forth in Exhibit E.
6. Payment Terms.
-------------
a) Reports. On or before the twenty-first day of each calendar month
-------
during the Term of this Agreement, SEAVISION shall provide RCCL with a
written report detailing the Adjusted Gross Revenue from cruises
completed during the prior calendar month (any cruise commencing
before last day of month will be considered completed in that current
month). The report shall separately identify the Adjusted Gross
Revenue for each module and the cost of goods and shall be in the form
attached as Exhibit F. This report shall govern the determination of
fees to be retained by RCCL and the revenues to be remitted by RCCL to
SEAVISION under the terms of this Agreement. In addition, SEAVISION
shall provide the reports listed on Exhibit G, samples of which
reports are attached as part of Exhibit G. SEAVISION shall provide
any and all hardware and/or software reasonably necessary or
appropriate to interface SEAVISION's accounting software with the
Vessel's property management system in order for SEAVISION to obtain
accurate accounting information for such reports, as further discussed
in Section 3a)(c) above.
-5-
<PAGE>
b) Settlement. Within thirty (30) days after RCCL's receipt of the
----------
monthly report delivered to RCCL by SEAVISION pursuant to the terms of
subsection a) above, RCCL shall remit to SEAVISION the Adjusted Gross
Revenue during the calendar month applicable to such report, less
RCCL's share of such Adjusted Gross Revenue as provided in Section 5.
SEAVISION shall pay to RCCL its portion of the Adjusted Gross Revenue
associated with the advertising within thirty (30) days of the close
of each month.
c) Refunds. SEAVISION shall be liable for any refunds, chargebacks,
-------
adjustments or uncollectible accounts (collectively the "Refunds")
attributable to the Services hereunder. Such Refund shall be made by
RCCL on the passenger's credit card (if applicable) and RCCL shall be
entitled to offset the full amount of any Refund (less any amounts
previously paid to RCCL under Section 5 relating to such Refund)
against future amounts to be paid SEAVISION as its portion of the
Adjusted Gross Revenue. All communications regarding Refunds should
be made to RCCL's Accounting Department, attention Supervisor,
Collections. SEAVISION agrees to cooperate and promptly respond to
requests for information regarding any Refund. SEAVISION shall not
make any Refunds directly to the passenger, unless the purchase was
made on a separate credit card processed by SEAVISION. RCCL shall be
entitled to retain funds, in the amount of 15% of the Adjusted Gross
Revenue for the last three months of the Agreement, in escrow for one
(1) year following termination of this Agreement in order to pay for
any Refunds. SEAVISION shall remain responsible for any Refunds
incurred within one year after termination of the Agreement.
d) Credit Cards. RCCL, in its sole option, has the right to require
------------
SEAVISION to have all purchases made under the shopping module charged
to a credit card in a separate transaction which SEAVISION would be
responsible for processing and credit card commission. In such event,
SEAVISION shall pay RCCL its portion of the Adjusted Gross Revenue
attributable to such purchases within thirty (30) days of the close of
each month.
7. Term. This Agreement shall be effective as the date of execution hereof
----
and shall continue for a period of four (4) years thereafter. Either party
may cancel this Agreement, without cause, upon six (6) months prior written
notice to the other party; provided, however, such notice cannot be given
-------- -------
until at least one (1) year after execution of this Agreement. The
Agreement is-cancelable for cause in accordance with the provisions set
forth in Section 17 of this Agreement.
-6-
<PAGE>
8. Additional Vessels.
------------------
a) Grandeur and Enchantment. RCCL has the option to add its vessels,
------------------------
GRANDEUR OF THE SEAS (delivery scheduled for December 1996) and
ENCHANTMENT OF THE SEAS (delivery scheduled for July 4, 1997), or
either one of them, as additional vessels under this Agreement. Such
additional vessels shall be governed by the same terms and conditions
contained in this Agreement and, if added, shall be considered a
"Vessel" as said term is defined in this Agreement. Either party may
cancel this Agreement, without cause, as to those additional vessels
upon six (6) months prior written notice to the other party; provided,
--------
however, such notice cannot be given as to such vessels until at least
-------
one (1) year after installation of the System on the vessel. RCCL
shall give SEAVISION notice of its desire to add the System on these
vessels at least fourteen (14) weeks in advance of the required
installation date.
b) Other Vessels. In the event RCCL desires to add other vessels to this
-------------
Agreement, the terms and conditions governing such vessels shall be
subject to the mutual agreement of the parties. SEAVISION
acknowledges that in the event RCCL significantly increases the number
of vessels on which the system is installed, or if RCCL grants
SEAVISION an exclusive right to provide interactive television on
RCCL's vessels, that RCCL shall have the right to re-negotiate the
terms and conditions governing such additional vessels, including but
not limited to the revenue Sharing provisions set forth in Section 5.
c) Freeze Period. RCCL agrees that during the period between execution of
-------------
this Agreement and August 31,1997, RCCL shall not enter into a
contract with any party other than SEAVISION to provide interactive
television on any RCCL vessel.
9. Facilities and Equipment.
------------------------
a) "As is". SEAVISION accepts "as is" the existing facilities and
-----
fixtures on the Vessels for the Concession. SEAVISION accepts "as is"
the existing storage facilities and all water, electricity, television
cabling and air conditioning systems incident to SEAVISION's
operations on the Vessel with consideration given to the fact that the
Vessel's storage facilities are limited. SEAVISION shall have the
opportunity of making a detailed site inspection of the facilities
prior to installation of the System. SEAVISION has provided RCCL with
specifications regarding HVAC and electrical requirements, which
specifications are attached hereto as Exhibit H. RCCL agrees that it
shall be RCCL's obligation to ensure that the HVAC and electrical
specifications are met.
b) Damage. SEAVISION shall give RCCL prompt written notice of any damage
------
to or defective condition in any part of the plumbing, electrical,
heating, air conditioning, television cabling or other system
serving, located in, or passing through the areas in
-7-
<PAGE>
which the Concession is operating. Except as otherwise provided
herein, SEAVISION shall, at its own expense, keep the facilities under
its control in good order and condition during the term of this
Agreement. SEAVISION shall not make any alterations or additions to
the such facilities without the prior written consent of RCCL. Upon
the termination of this Agreement, RCCL shall have the option of
requiring SEAVISION to remove any such improvements at SEAVISION's
cost and expense.
c) Storage. Subject to the provisions of subsection f) below, SEAVISION
-------
shall be solely responsible for its storage areas and facilities and
will bear the risk of loss caused by SEAVISION's breach of any
governmental regulation or for SEAVISION's failure to comply with
requirements relative for the manifesting of goods for customs
purposes and for loading or off-loading on Landed Goods Advice (LGAs).
d) Locks and Security. RCCL will provide normal locks, seals and security
------------------
for storage areas and RCCL will cooperate in all efforts to provide
security for the property of SEAVISION, including all reasonable
efforts to see that said areas are not invaded or otherwise entered.
RCCL acknowledges that SEAVISION has no enforcement or disciplinary
power as to personnel other than SEAVISION's employees on board the
Vessel and RCCL agrees that the Vessel, through its Master, will
cooperate with SEAVISION to enforce security of SEAVISION's property
through such disciplinary measures or procedures as are reasonably
necessary and required.
e) Safe Storage. Subject to the approval of the Master, SEAVISION shall
------------
safely stow for sea, and will maintain such safe stowage for sea, all
stores and other of its property, as well as all equipment, furniture,
or other items and any other property belonging to RCCL which
SEAVISION may use to perform its obligations hereunder, or which
otherwise may be in SEAVISION's control.
f) Unseaworthy Condition. SEAVISION shall not knowingly create an
---------------------
unseaworthy condition in the performance of its obligations hereunder.
SEAVISION shall operate the Concession in a safe, careful and
businesslike manner.
g) Carrier's Release. Upon expiration or termination of this Agreement
-----------------
for whatever reason, RCCL agrees to provide SEAVISION with a carrier's
release releasing all of SEAVISION's goods, equipment and wares for
off-loading, at the regularly scheduled port or port(s), as SEAVISION
may select, and that it will, in no way, inhibit or hamper SEAVISION's
right to take possession of the goods, equipment and wares and remove
the same from the Vessel, provided that all sums due RCCL or the
Vessel have been paid or placed in escrow or a bond for said amount is
purchased by SEAVISION. Notwithstanding anything to the contrary
herein, SEAVISION shall at all times retain title to all components
of the System which are provided by SEAVISION.
-8-
<PAGE>
10. On-Board Personnel.
------------------
a) Training. SEAVISION will engage in its service aboard the Vessel one
--------
(1) employee sufficiently trained and licensed in his/her duties who
will perform SEAVISION's obligations hereunder and in accordance with
the terms of this Agreement in a courteous and efficient manner so as
to meet high standards of operation ("SEAVISION's Operator(s)"). RCCL
shall have the option of replacing SEAVISION's Operator(s) with its
own personnel, at RCCL's expense, and SEAVISION agrees to provide
training for such RCCL personnel. RCCL agrees that such RCCL
personnel shall have the appropriate background and training to
oversee the operation of the System. Such RCCL personnel shall be
bound by the confidentiality provisions of this Agreement.
b) Rooms. SEAVISION's Operator shall be berthed in a semi-private (double
-----
occupancy) staff room which shall be assigned at RCCL's sole
discretion. The Operator shall be considered the equivalent of an
officer with two stripes and shall have the rights and privileges (as
generally set out on Exhibit I.) associated with that level of
individual onboard the Vessel.
c) Meals. SEAVISION's Operator shall eat staff food in the appropriate
-----
staff dining areas.
d) Appearance. SEAVISION's Operator shall, at all times, keep
----------
himself/herself neatly groomed, well spoken and suitably attired in
compliance with Master's Standards.
e) Control. Subject to the provisions of Section 12, SEAVISION, at all
-------
times, has the obligation and right to control all of the personnel
engaged by SEAVISION to perform its obligations hereunder.
11. Experience. SEAVISION represents that it is an experienced concessionaire
----------
fully qualified to supervise and operate the Concession. SEAVISION shall
obtain and maintain in full force and effect throughout the term of this
Agreement, any and all permits or licenses necessary to operate the
Concession, including but not limited to trademark and copyright licenses.
12. Certain Obligations
-------------------
a) Health and Moral Character. SEAVISION shall only employ persons who
--------------------------
are in good health, sober and of good moral character. Each of
SEAVISION's Operators must hold a doctor's health report on a form
approved by RCCL indicating that the employee is medically fit for
service on board the Vessel in accordance with standards established by
RCCL and which are the same as for RCCL's own employees. It shall be
SEAVISION's sole responsibility to employ persons who have valid
passports, visas and all other permits required by any governmental
authority whether United
-9-
<PAGE>
States or foreign in order that they might enter and leave the ports
of call of the Vessel.
b) SEAVISION Employees. SEAVISION's Operators are solely the employees of
-------------------
SEAVISION and shall, under no circumstances, be deemed employees of
RCCL. SEAVISION is solely responsible for the payment of all wages,
vacation pay, commissions, benefits and repatriation expenses of each
of its employees. SEAVISION shall comply with all applicable laws,
governmental regulations or other governmental requirements relating
to wages, tax withholding and benefits paid to employees and governing
SEAVISION's conduct in connection therewith.
c) Independent Contractor and Waiver of Maritime Lien. SEAVISION
--------------------------------------------------
understands that it is not the agent of RCCL but is an independent
contractor and has no right to pledge the credit of RCCL or any Vessel
in any manner or sum whatsoever. SEAVISION shall not contract with
any supplier of merchandise unless the supplier executes a purchase
order containing a conspicuous notice to the effect that SEAVISION has
no right or authority to bind any Vessel or create a lien upon them
and that by acceptance of such purchase order, the supplier
acknowledges that he/she looks solely to SEAVISION and not the Vessel
for payment of goods ordered. Neither SEAVISION nor SEAVISION's
Operator shall have the right to assert maritime liens on any Vessel
for any payments due to them and SEAVISION, on behalf of itself and
its employees, hereby waives any rights that SEAVISION or its
employees may have to assert claims against RCCL under the Jones Act,
U.S. Code Section 688 et seq, or any other applicable law. In the
event that a lien is placed on any Vessel in contradiction of the
terms hereof or as a result of any act, omission or neglect by
SEAVISION or its employees, SEAVISION shall remove immediately, by
bond or otherwise, any such lien or reimburse RCCL for the cost
incurred by RCCL in obtaining its removal. Neither this Concession
Agreement nor the relationship of the parties hereby created
constitutes a partnership or a joint venture.
d) Picket Lines. SEAVISION shall immediately take all lawful action, at
------------
its sole expense, to effect removal of any picket line or other
impediment to a Vessel's sailing resulting from any labor dispute
between SEAVISION and its employees or subcontractors.
e) Agent. SEAVISION irrevocably appoints the Master and Vessel's Hotel
-----
Manager as its agent, with the power of overall supervision of
SEAVISION's Operator for purposes of health, safety and discipline of
each Vessel. For this purpose, SEAVISION's Operator will sign on Ship's
Articles and obey the Master's Rules and Regulations. The foregoing
will not in any way detract from modify SEAVISION's status as an
independent contractor or its employer-employee relationship with its
personnel, and its right to control its employees as described herein.
-10-
<PAGE>
f) Repatriation. In the Master's discretion, and for purposes of health,
------------
safety and discipline, the Master of any Vessel may require any
employee of SEAVISION to be removed with the employee's belongings from
the Vessel at any time when the Vessel is in port. If for any reason
any of SEAVISION's Operator is unable to be on board a Vessel upon its
scheduled departure from any port, SEAVISION shall be responsible for
the repatriation of said party, and SEAVISION shall be fully
responsible for any and all fines, penalties, and assessments levied by
any third party in connection with any violation of the immigration
laws of any government, nation, or country.
g) Prohibited Acts. SEAVISION's Operator are not permitted:
---------------
i) To carry or consume on board any Vessel any narcotic or other
drug which is prohibited, or for which a doctor's prescription
would be required, except pursuant to a program of medical care
under the direct supervision of the Vessel's doctor;
ii) To board the Vessel in an intoxicated state or to consume
alcoholic beverages aboard the Vessel to the point of
intoxication or to the point where during the subsequent
performance of their duties such consumption could become
apparent to the passengers;
iii) To engage in any form of gambling aboard the Vessel; and
iv) To sell any merchandise to passengers or crew members except in
the course of their duties and only during the agreed hours of
operation of SEAVISION's Concession thereunder.
13. Insurance.
---------
a) Marine Hull and Machinery. RCCL agrees that the Vessel's owners shall,
-------------------------
at their own expense, provide and maintain marine hull and machinery
and war risk hull and machinery insurance covering the Vessel, with
first class marine underwriters, which insurance shall be endorsed to
designate the owners as the sole loss payee. In the event that
SEAVISION or its employees cause any loss or damage covered by this
insurance, or which would have been covered by this insurance but for
any deductible, SEAVISION agrees to reimburse owners for the
deductible applicable to such loss or damage; provided however,
SEAVISION's obligation to reimburse shall not exceed $500,000. While
SEAVISION will not be named in this insurance as an additional
assured, neither the owners nor the underwriters shall have any
further right of recovery or subrogation in excess of said deductible
against SEAVISION on account of any loss or any damage covered by
such insurance.
-11-
<PAGE>
b) Protection and Indemnity. RCCL shall, at its own expense, obtain and
------------------------
maintain protection and indemnity insurance with first-class Marine
Underwriters which shall provide coverage to RCCL and SEAVISION. In
the event that SEAVISION or its employees cause any loss or damage
covered by this insurance, or which would have been covered by this
insurance but for any deductible, SEAVISION agrees to reimburse owners
for the deductible applicable to such loss or damage; provided however
such reimbursement shall not exceed $500,000.
c) Medical. RCCL shall provide, at no charge to SEAVISION, the use of its
-------
shipboard medical facilities for employees of SEAVISION while working
on the vessel. In addition, RCCL will permit SEAVISION to use the
shoreside medical facilities with which RCCL has provider agreements
for medical care for SEAVISION's employees who are working on RCCL's
vessels; provided, however, if SEAVISION elects to use such shoreside
facilities, SEAVISION shall reimburse RCCL for all expenses associated
with such medical care.
d) SEAVISION's Insurance. SEAVISION shall maintain general liability
---------------------
insurance, in form and content acceptable to RCCL. Such insurance
shall name RCCL as an additional named insured and shall provide that
the insurance may not be canceled or modified without at least thirty
(30) days prior written notice to RCCL. In addition, SEAVISION shall
be responsible for obtaining insurance for its equipment on the Vessel
against any and all damage.
e) Limitation of Liability. Except as expressly provided elsewhere in
-----------------------
this Agreement, no party shall be liable for any indirect, special or
consequential damages arising out of this Agreement. SEAVISION's
liability shall not exceed $500,000 in the aggregate, provided
however, that the foregoing limitations shall not apply to damages
resulting from the gross negligence or willful misconduct or
SEAVISION, its employees or agents. The warranties expressly set out
in this Agreement are exclusive and are in lieu of all other
warranties, express or implied, including without limitation the
implied warranty of merchantability and fitness for a particular
purpose or any implied warranties arising from course of performance,
course of dealing or usage of trade.
14. Itinerary Changes, Sale of Vessel etc.. RCCL, in its sole discretion and
--------------------------------------
without liability to SEAVISION, may change the itineraries of the Vessels.
RCCL may sell or charter any Vessel to bona fide unaffiliated third
parties, or otherwise remove any Vessel from the cruise trade, in which
case the Concession granted with respect to such Vessel shall
terminate without any further right or liability hereunder upon forty-five
(45) days written notice to SEAVISION. In the event RCCL sells or removes
a Vessel from the cruise trade during the first [Redacted - confidential
treatment requested] months of the Term of this Agreement, RCCL agrees to
do one (1) of the following (RCCL may elect which option it wishes to
undertake):
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<PAGE>
a) Assign RCCL's contract rights and obligations on the Vessel being sold
to the new owner of the Vessel;
b) Install the System on a different RCCL vessel, which vessel shall be
subject to SEAVISION's approval, which shall not be unreasonably
withheld; or
c) Pay SEAVISION the amount set forth below to compensate SEAVISION for
non-recoverable losses resulting from the installation and dismantling
of the System on the Vessel:
Number of Months after Installation Compensation
----------------------------------- ------------
[Redacted - confidential treatment requested]
In the event RCCL selects either option a) or b) above, no
compensation shall be due SEAVISION. Notwithstanding anything to the
contrary, this Section 14 does not apply in the event RCCL terminates
this entire Agreement pursuant to Section 7.
15. Force Majeure. RCCL shall not be liable to SEAVISION for any cruise
-------------
delays, cancellations or deviations, or any loss or damage to SEAVISION's
property, caused by acts outside the reasonable control of RCCL, including
Acts of God, acts of war, public enemies, government restrictions, perils
of the sea, mechanical difficulties, seizure or arrest of the Vessel, or
acts of passengers or other third parties.
16. Indemnification.
---------------
a) SEAVISION. SEAVISION shall indemnify and hold harmless RCCL, the
---------
Vessels' owners, the successors and assigns of the foregoing, and
their respective officers, directors, employees and agents from and
against all damages, liabilities, claims and expenses (including
attorneys' fees and payments for deductibles under any insurance
policies) arising from or based upon SEAVISION's operations, or any
act, omission or neglect by SEAVISION or its employees or agents.
b) RCCL. RCCL shall indemnify and hold harmless SEAVISION, its successors
----
and permitted assigns, and their respective officers, directors,
employees and agents from and against all damages, liabilities, claims
and expenses (including attorneys' fees and payments for deductibles
under any insurance policies) arising from or based upon RCCL's
operations or any act, omission or neglect by RCCL or its employees
or agents.
17. Default.
-------
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<PAGE>
a) Termination Upon Default. Either party may terminate this
------------------------
Agreement immediately upon the occurrence of an event of default
by the other party. The following shall constitute events of
default under this Agreement:
i) Breach by either party of its obligations under this
Agreement, which such breach shall not be remedied within
thirty (30) days after receipt by the breaching party of
written notice thereof from the other party; provided
however, if such breach is as a result of software errors or
malfunctions, the cure period shall be sixty (60) days from
receipt of written notice and SEAVISION shall provide RCCL
with a written plan and timetable to remedy such software
problem within fifteen (15) days of receipt of written
notice of such breach; or
ii) The making by either party of any statement, representation
or warranty in this Agreement or in any document furnished
or to be furnished to the other party in connection herewith
which shall prove to be knowingly or recklessly untrue or
incorrect in any material respect, when made; or
iii) Either party (A) applying for or consenting to the
appointment of a receiver, trustee or liquidator of all or a
substantial part of its assets; (B) being unable or failing
to pay or admitting in writing its inability or failure to
pay its debts as they mature; (C) making a general
assignment for the benefit of creditors; (D) being
adjudicated a bankrupt or insolvent or being dissolved; (E)
filing a petition in bankruptcy or for reorganization or for
an arrangement pursuant to a bankruptcy act or any
insolvency law; or (F) filing an answer admitting the
material allegation of, or consenting to, or defaulting in
answering a petition filed against it, in any bankruptcy,
reorganization or insolvency proceeding.
b) Rights and Remedies. Termination of this Agreement upon an event
of default shall be without prejudice to any other rights and
remedies available to the terminating party.
18. Applicable Law. This Agreement shall be governed by and interpreted in
--------------
accordance with the laws of Florida to the exclusion of all choice-of-law
rules which might otherwise be applicable except to the extent that
circumstances would reasonably require application of the admiralty and
maritime laws of the United States or the maritime laws of some other
jurisdiction to resolve specific issues pertaining solely to health and
safety or to mandatory requirements imposed by the laws of the state of
the Vessel's registry. Venue for all matters hereunder shall be in the
courts in Miami, Florida.
-14-
<PAGE>
19. Confidentiality. Except as permission may be specifically granted to
---------------
SEAVISION in writing and in accordance with RCCL's rules, SEAVISION agrees
to hold in confidence and not disclose to any third party, except to
authorized persons in the course of its work for RCCL, any and all
information or data of a confidential nature not generally available to the
public that is delivered to SEAVISION, or that SEAVISION obtains, in the
course of its work for RCCL, relating to the business or operations of RCCL
or its associated companies, including, but not limited to, financial
information, marketing plans, passenger names, personal data and addresses,
designs, processes and agreements. SEAVISION further agrees to comply with
all confidentiality agreements between RCCL and third parties (to the
extent SEAVISION is notified of such agreements) and understands that its
obligations under this confidentiality provision shall continue after the
expiration of this Agreement and until RCCL specifically releases such
obligations in writing.
Except as permission may be specifically granted to RCCL in writing and in
accordance with SEAVISION's rules, RCCL agrees to hold in confidence and
not disclose to any third party, except to authorized persons in the course
of its work, any and all information of a confidential nature not generally
available to the public that is delivered to RCCL, or that RCCL obtains, in
the course of its work with SEAVISION, or as a result of SEAVISION's
performance of its obligations under this Agreement, relating to the
business or operations of SEAVISION or its associated companies, including,
but not limited to, (i) any knowledge gained by RCCL of SEAVISION's
proprietary application software or the configuration of the System; (ii)
SEAVISION's marketing and sales materials; (iii) the format of SEAVISION's
reports, including those for data management, revenue remittance and
marketing surveys; and (iv) SEAVISION's marketing and financial
information. RCCL further agrees to comply with all confidentiality
agreements between SEAVISION and third parties (to the extent RCCL is
notified of such agreements) and understands that its obligations under
this confidentiality provision shall continue after the expiration of this
Agreement and until SEAVISION specifically releases such obligations in
writing.
RCCL acknowledges that the System represents and will continue to represent
the valuable, confidential and proprietary property of SEAVISION. SEAVISION
is not by this Agreement conveying to RCCL any exclusive proprietary or
ownership rights in the System, including, but not limited, to any patent,
copyright, trademark, service mark, trade secret, trade name or other
intellectual property rights, except that RCCL will have the limited rights
expressly set forth in this Agreement. Accordingly, RCCL acknowledges that,
except as expressly provided for in this Agreement, RCCL possesses no title
to or ownership of any System or any portion thereof. RCCL will keep the
System free and clear of all claims, liens and encumbrances resulting from
actions or omissions of RCCL.
Each party agrees, during the Term of this Agreement and thereafter, to
maintain the confidential nature of the terms and conditions of this
Agreement.
-15-
<PAGE>
Each party acknowledges that its violation of its confidentiality or non-
disclosure obligations under this Agreement may cause irreparable damage to
the other that cannot be fully remedied by money damages. Accordingly, in
the event of any such violation or threatened violation, the injured party
will be entitled, in addition to pursuing any other remedy available to it
under this Agreement or at law, to obtain injunctive or other equitable
relief from any court of competent jurisdiction as may be necessary or
appropriate to prevent any further violations thereof.
20. Miscellaneous.
-------------
a) Entire Agreement. This Agreement shall constitute the entire
----------------
agreement between the parties relative to concessions on the Vessels
and all prior negotiations, agreements and communications shall be
merged herein and superseded hereby.
b) Amendments. The terms of this Agreement may not be waived, altered,
----------
modified, amended or supplemented in any manner whatsoever except by a
written document duly executed by both parties hereto.
c) Assignments. Neither party may assign this Agreement, in whole or in
-----------
part, without the prior written consent of the other party.
The foregoing is not intended to apply to a sale of the stock of
either company or a merger or consolidation which results in a change
of ownership of the company.
d) Press Releases. The parties shall consult with each other and issue a
--------------
press release with respect to this Agreement as soon as practical
after the execution hereof. During the term of this Agreement, RCCL
agrees to use best efforts to include a reference to SEAVISION in any
press releases relating to any vessels on which the System is
installed (or is planned to be installed) and in which interactive
television services are discussed.
e) Waivers. No waiver by any party of any inaccuracy of representation,
-------
breach or rights or remedies provided hereunder and no course of
dealing shall be deemed a continuing waiver of the same inaccuracy,
breach or any other right or remedy, unless such waiver is in writing
and is signed by the party sought to be bound. The failure of a party
to exercise any right or remedy shall not be deemed a waiver of such
right or remedy in the future.
f) Modification and Severability. If a court of competent jurisdiction
-----------------------------
declares that any provision of this Agreement is illegal, invalid or
unenforceable, then such provision shall be modified automatically to
the extent necessary to make such provision fully legal, valid or
enforceable, and this Agreement otherwise shall remain in full force
and effect.
-16-
<PAGE>
g) Enforceability. This Agreement shall be enforceable by and against
--------------
RCCL and SEAVISION and their respective successors and permitted
assignees.
h) Books and Records. SEAVISION shall at all times keep complete and
-----------------
accurate books, records and accounts pertinent to this Agreement.
Said books, records and accounts shall be retained for a period of at
least three (3) years after the expiration or other termination of
this Agreement and shall, at all reasonable times, be accessible to
and open for inspection, examination, audit and copying by RCCL.
i) Notices. All notices, demands, requests and other communications
-------
required or permitted to be given to any party hereto in connection
herewith (1) must be in writing and (2) may be served either by (A)
depositing the same in the mail, full postage prepaid, certified or
registered with return receipt requested, (B) delivering the same by
an internationally recognized air courier service, full delivery cost
paid, (C) delivering the same in person, or (D) sending a telecopy of
same, confirming with a copy thereof delivered either by mail or air
courier service. Any notice, demand, request or other communication
served in the foregoing manner shall be deemed given upon delivery in
person, three business days after mailing, two business days after
sending by air courier, or on the first business day after sending by
telecopy. For the purposes hereof, the addresses and telecopier
numbers of the parties hereto are as follows:
If to RCCL: Royal Caribbean Cruises Ltd.
1050 Caribbean Way
Miami, Florida 33132
Attn: Executive VP, Operations
Telecopier Number (305) 372-0441
cc: Legal Department
If to SEAVISION: SeaVision Inc.
381 Mansfield Avenue
Pittsburgh, PA 15220
Attn: Brian Blair, Chief Operating Officer
Telecopier Number (305) 377-2221
-17-
<PAGE>
Any party hereto may change its address for the purposes hereof by giving notice
of such change of address to the other party in the manner provided herein.
IN WITNESS WHEREOF, RCCL and SEAVISION have executed this Agreement the
dates set forth below.
SEAVISION INC.,
a Delaware Corporation
By:
--------------------------------
Name: Brian Blair
Title: Chief Operating Officer
Dated: September 17, 1996
Royal Caribbean Cruises Ltd.,
a Liberian corporation
By: By:
------------------------------ ------------------------------
Name: Peter G. Whelpton Name: G. Edward Bollinger
Title: Executive Vice President, Title: Vice President, Purchasing
Operations Properties & Logistics
Dated: September 17, 1996 Dated: September 17, 1996
-18-
<PAGE>
Exhibit A: Description of System (hardware and software components)
Exhibit B: Description of Services
Annex 1: Gaming Guidelines
Exhibit C: Technical Performance Standards
Exhibit D: Specifications
Exhibit E: Cost of Goods
Exhibit F: Settlement Form
Exhibit G: List of Reporting Requirements
Exhibit H: HVAC Specifications
Exhibit I: Privileges
-19-
<PAGE>
EXHIBIT A
Primary Hardware and Software Components of the
System to be provided by SeaVision
----------------------------------
Components:
. 1 Master Control Processor (MCP) - Pentium based server machine controlling
[Redacted - confidential treatment requested]
. 1 Communications Control Processor (CCP) - [Redacted - confidential
treatment requested]
. [Redacted - confidential treatment requested] Interactive Session
Processors (ISPs) -Pentium based computers [Redacted - confidential
treatment requested]
. [Redacted - confidential treatment requested] Video Cassette Players (VCPs)
-Standard VCR tape players to play movies on interactive system, available
only on VCR tape. Most first run movies are currently available only in
VCR format. Power and AC requirements are 0.65 amps and 225 BTUs for each
VCP.
. SeaVision Interactive Allocator - Software for [Redacted - confidential
treatment requested]
. SeaVision Database Engine - Software for [Redacted - confidential treatment
requested]
. SeaVision CCP Interface - CCP based software to control the interface
[Redacted -confidential treatment requested]
. SeaVision SPMS Protocol - Network interface specification to enable
development of the custom interface to the shipboard property management
system.
. Peripheral Printers (quantity to be determined once remote printer
locations have been identified, not to exceed five locations).
Notes:
. All software will be the latest product version available at time of
installation.
. Software updates will be received by the shipboard operator on 4mm DAT
tape. Updates will bc delivered on a periodic basis as problem fixes and
module enhancements are made available.
<PAGE>
EXHIBIT B
Entertainment and Interactive Services to be Provided by SEAVISION
------------------------------------------------------------------
"Basic" SEAVISION Package: Services Provided at No Charge
- ---------------------------------------------------------
. In-Cabin Room Service Ordering: Passengers will be able to order RCCL's
standard room service menu, including beverages charged to their cabin
account, through the System. Orders will be printed out in appropriate
pantries and/or galleys for delivery by RCCL personnel. SEAVISION shall
provide, as part of the System, printers and/or monitors to be used in such
pantries and/or galleys for such purpose.
. Shore Excursion Ordering: Passengers will be able to watch videos of shore
excursions and purchase tickets for shore excursions on and through the
System by using their television remote-control. Orders will be printed
out in the appropriate shore excursion office of RCCL, with tickets in
respect thereof to be delivered by RCCL personnel. The System, at RCCL's
option, will provide appropriate inventory control. SEAVISION will assist
with the development of the interface with RCCL's shore excursion system.
. Guest Survey: The System shall include guest satisfaction and guest
information surveys the forms of which are to be agreed upon by RCCL. RCCL
may periodically adjust or revise such questions.
. Cruise Compass: The System shall include the daily Cruise Compass.
. Wine Ordering: Passengers will be able to view a wine menu on the System
and order their selection with their television remote-controls. Orders
will be printed out in the Wine Steward's office or wine cellar, for
delivery by RCCL personnel at the designated meal.
. Interface with RCCL's Property Management System: The System will
interface with the Vessel's property management system to enable
appropriate charges to be applied to passenger accounts.
. Interface with RCCL's Shore Excursion System: The System will interface
with the Vessel shore excursion system to enable shore excursion tickets to
be ordered and appropriate charges to be applied to passenger accounts.
. Passenger Folio Review: Each passenger will be able to use the System to
review a summary of their on-board account.
. Access Control: The System will be designed to limit access to only those
persons who are adult passengers or who are minors under adult supervision.
Passengers will be able to limit access to various services, such as gaming
and adult programming, by enabling lock-out codes and using password
procedures.
<PAGE>
. Report Generation: The System will generate detailed activity reports,
which will be made available to RCCL for the purposes of revenue payments
to SEAVISION. SEAVISION shall also provide, at RCCL's request, reports
pertaining to passenger usage of the System.
. Language Options: The System will have the modules available in various
languages, to be mutually agreed upon between RCCL and SEAVISION.
. Future Cruise Module: RCCL will be able to feature information on other
cruises and itineraries through the System.
. Gaming Tutorials: The system shall provide on demand access to various
gaming tutorials.
. Safety Instructions: The System shall provide on demand access to safety
information regarding the Vessel.
RCCL shall be responsible for providing all ticket stock, videos and
photographs for shore excursions, wine ordering, gaming tutorials, future
cruise modules and safety instructions. RCCL shall retain control over all
materials included in such programs. RCCL may choose, at its option, to
produce its own videos and photographs, retain SEAVISION for this purpose
and reimburse SEAVISION for all its costs incurred in connection with
producing the same, or contract with a third party to produce such videos
and/or photographs, provided, however, that any videos and photographs
produced by any such third party shall in all ways meet SEAVISION's
technical standards for use on the System. If RCCL elects to have SEAVISION
produce any such videos or photographs, SEAVISION shall provide RCCL with
detailed cost estimates prior to the initiation of video and photograph
production. Such estimates will include the cost of preproduction
scripting and preparation and the cost of sending crews aboard RCCL's
Vessels for taping, photographing and post-production editing. RCCL shall
pay these costs directly to SEAVISION as a supplier.
In the event RCCL selects to use any shore excursion videos in SEAVISION's
library at no charge, RCCL agrees to permit SEAVISION to use any generic
shore excursion videos prepared by RCCL to be used by SEAVISION on other
cruise vessels on which SEAVISION has installed the System. RCCL shall
have no obligation to use SEAVISION's videos for shore excursions and in
the event RCCL selects to solely use RCCL's videos or to pay for the use of
SEAVISION's videos, then RCCL shall not be required to allow SEAVISION to
use the RCCL videos.
-2-
<PAGE>
Revenue-Generating and Pay-Per-View Entertainment Services
- -----------------------------------------------------------
RCCL will be entitled to a portion of the Adjusted Gross Revenues generated by
the following revenue services, pursuant to and in accordance with the terms of
Section 5 of the Agreement.
RCCL may terminate any individual revenue service on any Vessel without cause
upon ninety (90) days prior written notice to SEAVISION; provided the following
conditions are met:
(i) In the event of termination of any individual revenue service, the
revenue sharing arrangement set forth in Section 5 of the Agreement
may be subject to renegotiation;
(ii) No revenue service may be terminated during the first six (6) months
of the Term of the Agreement;
(iii) RCCL may not terminate more than one (1) revenue service during any
six (6) month period; and
(iv) RCCL shall pay SEAVISION monthly an amount equal to SEAVISION'S
portion of the Adjusted Gross Revenue which would have been generated
by such terminated revenue service. Such payment shall be based upon
the average historical Adjusted Gross Revenue generated by such
service for the six (6) months immediately preceding the termination
and shall take into account the revenue sharing arrangements set out
in Section 5 of the Agreement; provided however, such payment shall
cease upon the occurrence of the earlier of either of the following
events:
(a) Termination of the Agreement; or
(b) The Revenue Sharing Date is reached as set out in Section 5.b) of
the Agreement.
Revenue Services:
. Video-on-Demand: Passengers will be able to purchase movies and other
entertainment options such as taped concerts, on demand, using the System
and their television remote-control. SEAVISION shall determine the fee that
will be levied for each such order and charged to such passengers'
respective onboard accounts. Such fee shall be subject to RCCL's prior
approval, which shall not be unreasonably withheld, and in any event shall
be consistent with the fees charged for similar services on comparable
cruise lines and luxury hotels. Subject to RCCL's approval, adult
programming may be offered. SEAVISION shall be responsible for all
licenses, including but not limited to copyright licenses, which are needed
in order to show such entertainment.
. Gaming Options: Passengers will be able to play video slots, blackjack and
poker on the System. Any additional games that SEAVISION may desire to
provide on the System shall be subject to the parties' mutual agreement.
RCCL will determine the
-3-
<PAGE>
value of each individual credit that passengers may purchase and charge
to their cabin accounts and any other applicable limits. Specific
requirements and guidelines regarding the Gaming Options are defined Annex 1
to this Exhibit.
. Shopping: SEAVISION will offer passengers interactive video shopping on the
System.
Third Party Vendors. RCCL will retain the right to approve and
disapprove the items offered for sale and the third party suppliers
providing those items. RCCL has the right to require any items to be
deleted upon fourteen (14) days notice. All such suppliers shall offer
a minimum of a thirty (30) day money back guarantee on all items sold
via this service. All third party suppliers shall promptly and
professionally respond to complaints regarding such items and shall
maintain a toll-free number to expeditiously handle such complaints.
All items shall be delivered to the passenger's selected address within
two weeks of ordering. SEAVISION shall obtain a signature of any
passenger ordering items through the System. SEAVISION will provide
fulfillment services for products sold through the System which are not
offered by RCCL or RCCL's concessionaires on board the Vessel.
RCCL shall have the right to offer its own items for sale on the
System. In the event RCCL elects to offer its own items on the System,
RCCL shall pay SEAVISION [Redacted - confidential treatment requested]
of the adjusted gross revenue of the sales of such RCCL goods and
products. SEAVISION shall not be entitled to any other portion of the
revenues generated by the sale of such RCCL goods. SEAVISION shall not
charge RCCL for the production costs for implementing the sale of such
goods on the System; provided such costs are in line with the normal
and customary shopping provided on the System (e.g. the format
currently used by The Nature Company or the Thornberry Collection). In
the event RCCL wishes to present its goods in a manner which is
different than such goods on the System, RCCL shall be responsible for
any additional production costs.
. Advertising and Promotion: SEAVISION shall have the exclusive right to sell
advertising on the System (excluding Regular Television) to third parties
for the purposes of advertising, promotions and marketing of their
companies, products or services. SEAVISION does not have the right to sell
any advertising which is port-specific (i.e. which identifies a particular
store, vendor or service provider located in a port of call to which the
Vessel calls), unless RCCL expressly approves such advertising in writing in
advance.
RCCL shall retain the right to approve such third party advertisers and
the manner in which any such advertising is presented. RCCL shall
designate the individual responsible for granting such approvals on its
behalf, and such individual shall provide SEAVISION with general
guidelines for advertising and marketing activities and the procedure
which SEAVISION shall follow in submitting advertising and marketing
proposals for RCCL's consideration. At the time of the request for
approval, SEAVISION shall identify the length of
-4-
<PAGE>
time of the advertising commitment, which in no event shall be longer
than twelve (12) months. RCCL shall notify SEAVISION of its approval or
denial of any advertising proposal within 15 business days after
SEAVISION's written submission thereof. In the event RCCL fails to
notify SEAVISION of its decision within that period, it shall be deemed
to have disapproved that submission.
Interactive advertising on the System by concessionaires on board the
Vessel, including but not limited to the beauty salon and spa and
photographer will be by mutual agreement between SEAVISION and those
suppliers. RCCL will be entitled to a portion of the Adjusted Gross
Revenues generated by any fees paid by such concessionaires, pursuant
to and in accordance with the terms of Section 5 of the Agreement.
Notwithstanding the foregoing, nothing herein or in the Agreement is
intended to prevent RCCL from undertaking advertising and promotions on
the "Regular Television" portion of the System, including but not
limited to, advertising and promotion of the beauty salons,
photographers, port lecturers and port shopping, casinos, gift shops,
shore excursions, suppliers and similar such activities. SEAVISION
shall not be entitled to any fees or any portion of any revenues
generated by such advertising or promotion.
In addition, SEAVISION acknowledges and agrees that the promotion of
RCCL's services and suppliers on the System (e.g. the display of third
party logos together with the promotion or description of goods being
offered on the Vessel as described in the Basic SeaVision package for
the Vessel) shall not constitute advertising and shall not violate the
exclusivity given to SEAVISION. By way of example, the use of a
vineyard's logo by the products on the wine ordering services module,
the display of a beverage supplier's logo near the beverages on the
room service menu, or the featuring of a particular shore excursion,
shall not constitute advertising.
. Digital Photography: RCCL at its option, may select as an additional
feature for the System to provide digital photography. If selected,
passengers will be able to view in their cabins personal photographs taken
by the on-board photo concessionaire. The system will display the
photographs allowing the passengers to purchase a variety of sizes and
poses. This services can include, subject to RCCL approval, kiosk based
applications which will provide an entertaining and easy-to-use graphical,
touch screen interface to purchase "instant" photographs with a wide variety
of backgrounds and in various sizes. In the event RCCL selects to offer
such service, the terms of the service shall be set forth in an addendum to
this Agreement.
. Crew Amenities: RCCL, at its option, may elect to have additional services
provided to its crew on the Vessels, subject to the prior mutual agreement
of the parties.
-5-
<PAGE>
Annex 1:
Gaming Options - Requirements and guidelines
RCCL shall have control over all game rules, denomination, theoretical hold
percentage and award structure (including all jackpots). The payout percentages
shall be comparable to those set in RCCL's own casinos.
RCCL has the right to independently verify all meter readings for the video
gaming.
RCCL will set the hours of operation for the video gaming; which hours shall be
set taking into account applicable laws, rules and regulations and which shall
be consistent with the hours set for RCCL's own casino.
RCCL shall have the right to approve in advance any program changes affecting
the video gaming. All such changes shall be made in the presence of an approved
RCCL employee (e.g., slot technician).
SEAVISION shall ensure that all video gaming complies with any and applicable
rules, regulations and laws, including but not limited to the regulations of the
Nevada Gaming Control Board.
-6-
<PAGE>
EXHIBIT C
Technical Performance Standards for the System
Server Capacity
. The system will be sized according to actual usage demand of the ship.
Demand levels may change throughout the term of the Agreement. Factors
which affect sizing of the system include the following:
[Redacted - confidential treatment requested]
. During routine operation of the system, the system will be designed to
process [Redacted - confidential treatment requested] of system inquiries
utilizing a dedicated Interactive Session Processor (ISP) without a delay
greater than [Redacted - confidential treatment requested] to each inquiry.
Routine operation of the system shall be defined as all itv functions after
leaving the Barker Channel. The system shall be designed to transfer from
the Barker Channel to a [Redacted - confidential treatment requested] within
[Redacted - confidential treatment requested] of the time. Should this
specification not be attained by the system, SeaVision agrees to improve
system performance to acceptable levels within [Redacted - confidential
treatment requested] This improvement may include, but is not limited to,
the addition of processing equipment. RCCL shall be required to provide
space, air conditioning and power to facilitate the installation of such
additional processing equipment.
RF System
. The SeaVision Radio Frequency (RF) mixing network located in the Broadcast
Center will support the ship's existing Free to Guest channels. A total of
twenty (20) channels will be allocated for Free to Guest channels. The
SeaVision RF mixing network will act as the final launch point for input to
the ship's RF plant. In the event that the SeaVision system is not
operational, Free to Guest channels will remain unaffected.
. The final output of the mixed signals will be +15Bm V flat +/-3dB.
. The ship's existing distribution amplifier settings shall remain as in
accordance to the ship's RF design specification. The maximum tilt shall
not exceed 6 dB across the amplifier's entire bandwidth.
. The minimum Carrier to Noise ratio at the end of any RF trunk in the ship's
RF plant shall be 41 dB or better.
<PAGE>
. Adjacent channel visual carriers shall not differ more than 3 dB.
. All passive devices will have a minimum port to port isolation of 20dB.
. An RF return module will be added to the ship's RF amplifiers, if the
amplifiers will support the device. If the amplifier will not support the
RF return module, then the entire amplifier modules will be removed.
Depending on availability, the new amplifiers will be of the same
manufacturer and model series in order to utilize the existing housing and
plant connections.
-2-
9/17/96
<PAGE>
Exhibit D
Specifications
To be completed within thirty (30) days of execution of the Agreement.
<PAGE>
Exhibit E
"Adjusted Gross Revenues" - Cost of Goods
. Cost of Goods in the case of products and services sold through the system.
- Current Retailers and Products offered (Retailers, Products and Cost
Pricing subject to change)
1) The Thornberry Collection - [Redacted - confidential treatment
requested]
2) All Stuffed Up - [Redacted - confidential treatment
requested]
3) Wenger Swiss Army - [Redacted - confidential treatment
requested]
4) Perry Ellis - [Redacted - confidential treatment
requested]
5) Bobby Jones Sportswear - [Redacted - confidential treatment
requested]
6) The Nature Company - [Redacted - confidential treatment
requested]
7) The Sharper Image - [Redacted - confidential treatment
requested]
8) Lenox China - [Redacted - confidential treatment
requested]
. The Cost to SeaVision for Pay-Per-View Programming.
- Current Distributors (Cost Basis subject to change)
1) Swank Motion Pictures (General Audience) - [Redacted - confidential
treatment requested]
2) Media Licensing, Inc. (Mature Content) - [Redacted - confidential
treatment requested]
. The commissions paid by SeaVision to* third parties for advertising sold on
the system. The commissions shall not exceed [Redacted - confidential
treatment requested]
. Credits paid by RCCL to passengers in the case of gaming on the system.
*bona fide, arm's length
<PAGE>
EXHIBIT F
12-Aug-96
SEAVISION, INC.
detailed Income Statement By Period
Period Ending 06/30/96
ROYAL CARIBBEAN CRUISE LINES
----------------------------
<TABLE>
<CAPTION>
Current Year Totals
Period to Date to Date
------- ------- -------
<S> <C> <C> <C>
REVENUE:
Revenue - Advertising $0.00 $0.00 $0.00
Revenue - Gaming $0.00 $0.00 $0.00
Revenue - Movies $0.00 $0.00 $0.00
Revenue - Shopping $0.00 $0.00 $0.00
----- ----- -----
Total Revenue $0.00 $0.00 $0.00
----- ----- -----
COST OF GOODS:
Shopping Products $0.00 $0.00 $0.00
Pay Per View Fees:
Swank Motion Pictures $0.00 $0.00 $0.00
Graff, Inc. $0.00 $0.00 $0.00
Advertising Commissions $0.00 $0.00 $0.00
----- ----- -----
Total Costs of Goods $0.00 $0.00 $0.00
----- ----- -----
Adjusted Gross Revenues $0.00 $0.00 $0.00
===== ===== =====
REVENUE SHARE $0.00 $0.00 $0.00
===== ===== =====
DUE TO SEAVISION $0.00 $0.00 $0.00
===== ===== =====
</TABLE>
Page 1
<PAGE>
Exhibit F
<PAGE>
MOVIES - Pay per view
Swank Motion Pictures
-----------------------
<TABLE>
<CAPTION>
Date Voyage No. Revenues No. Revenues
<S> <C> <C> <C> <C> <C>
06/01/96 08960525 0 $0.00 0 $0.00
06/08/96 08960601 0 $0.00 0 $0.00
06/15/96 08960608 0 $0.00 0 $0.00
06/22/96 08960615 0 $0.00 0 $0.00
06/29/96 08960622 0 $0.00 0 $0.00
-----------------------------
Totals 0 $0.00 0 $0.00
-----------------------------
Accumulated Totals 0 $0.00
-------------------------------------
DUE TO SWANK $0.00
</TABLE>
Page 3
Exhibit F
<PAGE>
MOVIES - Pay per view
Graff, Inc.
-----------
<TABLE>
<CAPTION>
Date Voyage No. Revenue
<S> <C> <C> <C>
06/01/96 08960525 0 $0.00
06/08/96 08960601 0 $0.00
06/15/96 08960608 0 $0.00
06/22/96 08960615 0 $0.00
06/29/96 08960622 0 $0.00
----------------
Accumulated Totals 0 $0.00
----------------
DUE TO GRAFF $0.00
=====
</TABLE>
Page 4
Exhibit F
<PAGE>
SHOPPING VENDORS:
<TABLE>
<CAPTION>
Thornberry
--------
<S> <C> <C> <C> <C>
Date Voyage # Retail Shipping Revenues
06/01/96 08960525 $0.00 $0.00 $0.00
06/08/96 08960601 $0.00 $0.00 $0.00
06/15/96 08960608 $0.00 $0.00 $0.00
06/22/96 08960615 $0.00 $0.00 $0.00
06/29/96 08960622 $0.00 $0.00 $0.00
-------------------------
Totals $0.00 $0.00 $0.00
-------------------------
Accumulated Totals $0.00 $0.00 $0.00
-------------------------
</TABLE>
<TABLE>
<S> <C>
THORNBERRY
[Redacted - confidential
treatment requested] $0.00
(SEAVISION [Redacted -
confidential treatment requested]
SHIPPING $0.00
-----
DUE TO THORNBERRY $0.00
-----
</TABLE>
Page 5
Exhibit F
<PAGE>
EXHIBIT G
The following are accounting related internal control and revenue reports
required from the SeaVision system.
Casino
- -------
1. Report of "Handle" by game type, by day, and voyage to date.
2. Report of "Win" by game type, by day and voyage to date.
3. Actual Theoretical win % variance report by game type, by date and voyage to
date.
4. Revenue Summary by day and voyage to date.
5. Transaction Detail Report by game type, folio, cabin by day and voyage to
date.
6. Interface posting report to Back Office system by folio, cabin, day, time and
amount by date and voyage to date.
7. Manual post report by date, folio, cabin, amount, name, type, by day, voyage
to date and voyage.
8. Transaction detail report on Edit Postings/Corrections made by the System
Manager (SeaVision personnel) by date, folio, name, cabin, type, amount,
reason code, and user code, by day and voyage to date.
Other Casino Considerations
- ----------------------------
1. System should have control capability for limiting access to gaming by
"minors".
2. The System will record and track all credits, postings and cash-outs.
3. EPROM change and maintenance to be dual controlled by personnel from
SeaVision and RCCL.
4. The system must only allow guests to purchase gaming credits by posting a
charge against the appropriate folio.
Shore Excursion, Movies, Shopper, Other Revenue areas
- -----------------------------------------------------
1. Transaction detail by PLU (tour code, movie name, etc.), description, folio,
cabin, name, amount, number of tickets, date, time, by day, voyage to date
and voyage.
2. Interface posting report to shore excursion POS by folio, cabin, name,
amount, date, time voyage to date and voyage.
Exhbit G, page 1 8/22/96
<PAGE>
3. Manual posting report by folio, cabin, name, amount, date, time, by day,
voyage to date and voyage.
4. Transaction detail report on Edit Postings/Corrections made by the System
Manager (SeaVision personnel) by date, folio, name, cabin, type, amount,
reason code, user code, by day, voyage to date and voyage.
5. Sales Summary report by day, type, tender, voyage to date.
6. Sales detail report by day, type, tender, voyage to date.
7. Report of all "Retail" type transactions defined as transactions not folio
related. Credit Card transactions would be considered retail and require the
following reporting: Credit Card listing by date, credit card number,
expiration date, name, cabin, date, amount, type, by day, voyage to date and
voyage.
Other Considerations
- --------------------
1. Price table maintenance to be dual control by SeaVision and RCCL personnel.
2. System to have ability for flexible length of voyage definition.
3. System Security into folio maintenance, account adjustments, corrections,
should be dual controlled.
4. Folio validation process.
All month to date, year to date and life to date reports derived from the
SeaVision system shall be the responsibility of RCCL. SeaVision shall promptly
supply all data required for the above mentioned reports via 4mm DAT tape and a
Microsoft Access template required for compilation of said data. All daily,
voyage to date and voyage reports will be printed onboard as per schedule to be
determined on a ship by ship basis.
The system shall be designed to recognize a minor "flag" associated with a folio
that may in the future be utilized by RCCI. This flag could be used to restrict
access to certain ITV modules, and/or restrict charges made via the system.
RCCL will provide a list of reports to be printed on a daily basis for
accounting purposes. The time that these reports are printed will be chosen on
a ship by ship basis and may, at the discretion of shipboard management, by
changed at any time. The approximate time of printing for these reports is
expected to be 0400 hrs.
Exhibit G, page 2 8/22/96
<PAGE>
EXHIBIT H
Electrical and HTAC Specifications
- ----------------------------------
Specifications if SeaVision has access to the back of the 2 VCP racks:
<TABLE>
<CAPTION>
================================================================
Quantity Amps VA Watts BTU
- ----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------
ISP'S 8 136 20944 14960 46272
- ----------------------------------------------------------------
Support 2 75 11550 8250 25800
- ----------------------------------------------------------------
VCP 2 80 12320 8800 27000
- ----------------------------------------------------------------
TOTALS 12 291 44814 32010 99072
================================================================
</TABLE>
Specifications if SeaVision does not have access to the back of the 2 VCP
racks:
<TABLE>
<CAPTION>
================================================================
Quantity Amps VA Watts BTU
- ----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ISP'S 8 136 20944 14960 46272
- ----------------------------------------------------------------
Support 2 75 11550 8250 25800
- ----------------------------------------------------------------
VCP 4 80 12320 8800 27000
- ----------------------------------------------------------------
TOTALS 14 291 44814 32010 99072
================================================================
</TABLE>
Rack sizes:
<TABLE>
<CAPTION>
================================================================
Height Width Depth
- ----------------------------------------------------------------
<S> <C> <C> <C>
ISP'S 78 1/2 inches 27 inches 30 3/4 inches
- ----------------------------------------------------------------
SUPPORT 78 1/2 inches 23 inches 30 3/4 inches
- ----------------------------------------------------------------
VCP 78 1/2 inches 27 inches 30 3/4 inches
================================================================
</TABLE>
Base Sizes:
<TABLE>
<CAPTION>
================================================================
Height Width Depth
- ----------------------------------------------------------------
<S> <C> <C> <C>
RACK BASE 3 inches 27 inches 30 3/4 inches
- ----------------------------------------------------------------
RACK BASE 3 inches 23 inches 30 3/4 inches
================================================================
</TABLE>
<PAGE>
EXHIBIT I
---------
The following is a list of 2-stripe privileges SeaVision personnel assigned as
crew to the vessel are entitled to:
. Public Areas. Access to ship's public areas to include the Night Club
------------
(subject to vessels' curfew); access to public areas is subject also to
certain designated areas, i.e., designated areas to sunbathe, times to use
guest Spa facilities, etc.
. Dining. All meals will be taken in the StaffMess. Use of the Windjammer Cafe
------
is prohibited. Mid-night Buffet use is permitted only if on-duty.
. Bar Privileges. 50% on all bar charges to be paid each pay period.
--------------
. Gift Shop. 20% on purchases. No crew are permitted to purchase alcohol by
---------
bottles.
. Out-Island Privileges. Access to Out Islands is permitted. Guests have
---------------------
priority on use of all Out Island facilities. Meal service permitted in last
1/2 hour of service period.
. Boat Drill. Mandatory attendance at crew boat drill.
----------
. Dress Code. SeaVision personnel must adhere to the dress of the day while in
----------
public areas.
<PAGE>
Exhibit 11
ALLIN COMMUNICATIONS CORPORATION
Calculation of Net Loss Per Common Share
(In thousands, except per share data)
<TABLE>
<CAPTION>
Six months
Period ended December 31, ended
---------------------------- June 30,
1994 1995 1996
----------- ------------- -------------
<S> <C> <C> <C>
Net loss $ (612) $ (2,168) $ (2,512)
=========== ============= =============
Net loss per common share $ (0.23) $ (0.83) $ (0.96)
=========== ============= =============
Weighted average common shares
outstanding during the period (1) 2,603 2,603 2,603
</TABLE>
(1) The weighted average common shares outstanding has been retroactively
restated for the effect of the 2,400 for 1 stock split and includes the
assumed conversion of the Convertible Preferred Stock issued within one
year of the Offering.
<PAGE>
Exhibit 2.1
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered into
this 14th day of August 1996, by and among INTERNATIONAL SPORTS MARKETING, INC.,
a Pennsylvania corporation ("ISM"), HENRY POSNER, JR., THOMAS D. WRIGHT, MICHAEL
J. FETCHKO, JAMES C. RODDEY, RICHARD W. TALARICO and JOHN F. HENSLER (each a
"Stockholder" and collectively, the "Stockholders"), who are all of the
stockholders of ISM, and ALLIN COMMUNICATIONS CORPORATION, a Delaware
corporation ("Buyer").
RECITALS
A. The Stockholders own all of the issued and outstanding shares of
capital stock of ISM (the "Shares").
B. The Stockholders desire to sell, transfer and assign to Buyer, and
Buyer desires to purchase from the Stockholders, all of the Shares, on the terms
and conditions hereinafter set forth.
COVENANTS
In consideration of the mutual representations, warranties and covenants
and subject to the conditions herein contained, the parties hereto, intending to
be legally bound hereby, agree as follows:
ARTICLE I
PURCHASE AND SALE OF SHARES
1.1 Shares. At the Closing (as defined in Section 3.1), each Stockholder
shall sell, convey, transfer, assign and deliver to Buyer and Buyer shall
purchase from each Stockholder, free and clear of all liens, mortgages, pledges,
security interests, claims, assessments, restrictions, encumbrances and charges
of every kind (collectively, "Liens"), on the terms and subject to the
conditions set forth in this Agreement, the number of Shares set forth opposite
the name of such Stockholder on Schedule 4.3.
ARTICLE II
PURCHASE PRICE
2.1 Purchase Price. As consideration for the Shares, Buyer shall, subject
to and upon the terms and conditions set forth in this Agreement, make the
following payments.
2.1.1 Cash Payment to be Made at Closing. Buyer shall pay for the Shares
for a cash purchase price of Twenty Two Thousand Eight Hundred Dollars ($22,800)
per
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
Registration Statement.
/s/ Arthur Andersen LLP
-----------------------
Pittsburgh, Pennsylvania
November 1, 1996
<PAGE>
Exhibit 23.4
Consent of Concord Consulting Group
The Concord Consulting Group hereby consents to the inclusion in the
section titled "Potential Commercial Applications," in the Registration
Statement (Form S-1, file no. 333-10447) of Allin Communications Corporation,
the related Prospectus and any amendments thereto of data compiled by us and
delivered to Allin Communications or its subsidiaries. We also consent to the
identification of the Concord Consulting Group as the source of these estimates,
either by name or as "a consultant retained by the Company."
For the Concord Consulting Group
/s/ Lawrence Lorah
Lawrence Lorah
Principal
Concord, Massachusetts
October 28, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
DATA FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1995 AND 1996 AND THE PERIODS
ENDED DECEMBER 31, 1994 AND 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMEMTS.
</LEGEND>
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS 7-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996 DEC-31-1994 DEC-31-1995
<PERIOD-START> JAN-01-1995 JAN-01-1996 JUN-08-1994 JAN-01-1995
<PERIOD-END> JUN-30-1995 JUN-30-1996 DEC-31-1994 DEC-31-1995
<CASH> 0 571,961 32,852 192,995
<SECURITIES> 0 0 0 0
<RECEIVABLES> 0 79,730 0 42,692
<ALLOWANCES> 0 0 0 0
<INVENTORY> 0 0 0 0
<CURRENT-ASSETS> 0 786,337 58,520 244,452
<PP&E> 0 3,016,724 16,404 1,544,553
<DEPRECIATION> 0 351,483 1,093 153,648
<TOTAL-ASSETS> 0 4,146,688 146,069 2,352,732
<CURRENT-LIABILITIES> 0 5,629,258 1,600 1,737,285
<BONDS> 0 0 0 0
0 0 0 0
0 0 0 0
<COMMON> 0 27,000 2,000 2,000
<OTHER-SE> 0 (5,316,854) (611,611) (2,779,691)
<TOTAL-LIABILITY-AND-EQUITY> 0 4,146,688 146,069 2,352,732
<SALES> 0 163,000 0 44,413
<TOTAL-REVENUES> 0 163,000 0 44,413
<CGS> 0 40,045 0 10,000
<TOTAL-COSTS> 766,603 2,207,501 587,531 1,843,435
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 105,311 467,662 24,080 369,058
<INCOME-PRETAX> (871,914) (2,512,163) (611,611) (2,168,080)
<INCOME-TAX> 0 0 0 0
<INCOME-CONTINUING> (871,914) (2,512,163) (611,611) (2,168,080)
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> (871,914) (2,512,163) (611,611) (2,168,080)
<EPS-PRIMARY> (.33) (.96) (.23) (.83)
<EPS-DILUTED> (.33) (.96) (.23) (.83)
</TABLE>
