<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 21, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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INTERACTIVE PICTURES CORPORATION
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
TENNESSEE 7372 62-1275544
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
1009 COMMERCE PARK DRIVE
OAK RIDGE, TENNESSEE 37830
(423) 482-3000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
JAMES M. PHILLIPS
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
INTERACTIVE PICTURES CORPORATION
1009 COMMERCE PARK DRIVE
OAK RIDGE, TENNESSEE 37830
(423) 482-3000
(Name and address, including zip code, and telephone number, including area
code, of registrant's agent for service)
COPIES TO:
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<S> <C>
MATTHEW S. HEITER, ESQ. GERALD S. TANENBAUM, ESQ.
ROGER D. BAILEY, ESQ. CAHILL GORDON & REINDEL
SYLVIA M. REED, ESQ. EIGHTY PINE STREET
BAKER, DONELSON, BEARMAN & CALDWELL NEW YORK, NEW YORK 10005
165 MADISON AVENUE, SUITE 2000 (212) 701-3000 TELEPHONE
MEMPHIS, TENNESSEE 38103 (212) 269-5420 FACSIMILE
(901) 577-8117 TELEPHONE
(901) 577-2303 FACSIMILE
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
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, 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 this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ------------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE(1) REGISTRATION FEE
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<S> <C> <C>
Common Stock, $.001 par value per share.................... $57,500,000 $16,000
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act of 1933.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES, AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS
SUBJECT TO COMPLETION
DATED MAY 21, 1999
Shares
(IPIX LOGO Interactive Pictures Corporation)
Common Stock
Interactive Pictures Corporation is offering shares of its common
stock. This is our initial public offering. We estimate that the initial public
offering price will be between $ and $ per share.
We intend to apply to have our common stock listed on the Nasdaq National Market
under the symbol "IPIX."
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 4.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
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PROCEEDS TO
INTERACTIVE
PRICE TO UNDERWRITING PICTURES
PUBLIC DISCOUNT CORPORATION
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<S> <C> <C> <C>
Per Share $ $ $
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Total $ $ $
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</TABLE>
We and two of our shareholders have granted the underwriters a 30-day option to
purchase up to an additional and shares of common stock,
respectively, to cover over-allotments.
J.P. MORGAN & CO.
HAMBRECHT & QUIST
MORGAN KEEGAN & COMPANY, INC.
STEPHENS INC.
, 1999
<PAGE> 3
[INSIDE FRONT COVER]
THE WORLD IS ROUND. WHY ARE YOUR PICTURES STILL FLAT?
[PICTURES]
TECHNOLOGY AND CONTENT PARTNERS
[NAMES AND LOGOS OF PARTNERS]
[PAGE]
E-PUBLISHING
[PICTURES OF WEB SITES]
EDUCATION/ENTERTAINMENT
[PICTURES OF WEB SITES]
[PAGE]
REAL ESTATE
[PICTURES OF WEB SITES]
CORPORATE AND E-COMMERCE
[PICTURES OF WEB SITES]
[PAGE]
<PAGE> 4
We have not authorized anyone to give you any information that differs from the
information in this prospectus. If you receive any different information, you
should not rely on it. We are offering to sell, and seeking offers to buy,
shares of our common stock only in jurisdictions where offers and sales are
permitted.
TABLE OF CONTENTS
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PAGE
<S> <C>
Prospectus Summary.................. 1
Risk Factors........................ 4
Forward-looking Statements.......... 11
Use of Proceeds..................... 11
Dividend Policy..................... 11
Capitalization...................... 12
Dilution............................ 13
Selected Financial Information...... 14
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 15
</TABLE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
Business............................ 23
Management.......................... 34
Principal Shareholders.............. 41
Certain Transactions................ 43
Description of Capital Stock........ 44
Shares Eligible For Future Sale..... 48
Underwriting........................ 50
Legal Matters....................... 52
Experts............................. 52
Available Information............... 52
Index to Consolidated Financial
Statements........................ F-1
</TABLE>
-------------------------------------
Until , 1999, all dealers that buy, sell or trade the common stock,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealer's obligation to deliver a
prospectus when acting as an underwriter and with respect to their unsold
allotments or subscriptions.
We intend to furnish our shareholders annual reports containing audited
consolidated financial statements and quarterly reports containing unaudited
interim financial information for the first three quarters of each fiscal year.
-------------------------------------
We own or have rights to various trademarks and trade names used in our
business. These include the IPIX(TM) logo, IPIX(TM), GET THE WHOLE PICTURE(TM),
IPIX On Location(TM), IPIX Teleporter(TM), IPIX LOCATION ON DEMAND-WEBCAM(TM),
OMNIVIEW(TM), THE VIRTUAL EYE(R), V360(TM), IPIX: THE EYES OF THE INTERNET(TM),
IPIX WEBCAM: THE EYES OF THE INTERNET(TM), INTERACTV(TM) and STEP INSIDE THE
PICTURE(TM). This prospectus also includes trademarks, service marks and trade
names of other companies which are the property of their respective owners.
-i-
<PAGE> 5
PROSPECTUS SUMMARY
This summary highlights the information contained elsewhere in this prospectus.
This summary is not complete and does not contain all of the information that
you should consider before investing in the common stock. To understand this
offering fully, you should read the entire prospectus carefully, including the
risk factors and the financial statements and notes.
Except as otherwise indicated, the share information in this prospectus assumes
that the underwriters do not exercise the option granted by us to purchase
additional shares in this offering and assumes, upon consummation of this
offering, the conversion of all of our preferred stock into common stock,
including preferred stock issuable upon the net exercise of all outstanding
preferred stock warrants, and the net exercise of all outstanding common stock
warrants into common stock.
INTERACTIVE PICTURES CORPORATION
As a leader in interactive photography and immersive imaging for the Internet,
our IPIX images allow viewers to "Step Inside the Picture." Our patented
technology changes the way people create and view images, immersing them in a
360(degree) by 360(degree) spherical environment. We believe IPIX images enhance
the key elements of a photograph: memory, information and entertainment. IPIX
images capture the world as we see it, providing a complete field of
view -- from ground to sky, floor to ceiling and horizon to horizon. Viewers can
easily navigate the image on a personal computer screen by moving a cursor
inside the image. In order to accelerate the adoption and enhancement of IPIX
images, we have established strategic relationships with leading camera
manufacturers such as Kodak, Nikon and Olympus as well as technology companies
such as IBM, Intel and RealNetworks. We estimate that over 3,000 commercial Web
sites are utilizing IPIX images.
Leading companies use our technology to create virtual tours and multimedia
content to attract and retain visitors on their Web sites, which enhances their
marketing and e-commerce initiatives. We have targeted the following domestic
and international commercial markets: real estate, travel and hospitality,
electronic publishing, corporate and e-commerce and education and entertainment.
Our customers include Coldwell Banker, Rent.Net, Carnival Cruise Lines,
Swissotel, CNN, Microsoft, Intel, Ticketmaster and Disney. In addition, we have
entered into strategic relationships with leading customers in our commercial
markets such as Homes.com and Microsoft CarPoint to promote the use of IPIX
images to members of our targeted commercial markets.
Our business model benefits from the convergence of several broad industry
trends, including:
- growth of the Internet and e-commerce;
- demand for effective on-line content;
- emergence of broadband capability;
- growth in the use of digital imaging; and
- lack of interactivity and realism with existing digital imaging
technology.
THE IPIX SOLUTION
The key benefits of our immersive imaging solution are as follows:
- IPIX images provide a more powerful viewing experience by creating a 3608
by 3608 immersive viewing environment;
- our technology is easy to use, portable and cost-effective; and
- our technology is compatible with commercially available digital cameras
and different computer platforms and has low bandwidth requirements.
IPIX images enhance the photo viewing experience by permitting a person to view
locations from ground to sky, floor to ceiling and horizon to horizon. We
believe IPIX images, alone or combined with other multimedia such as audio,
video and automation, can provide businesses with more compelling content to
attract and retain visitors to their Web sites and promote e-commerce.
1
<PAGE> 6
Our technology is easy to use, portable and cost-effective. Our Wizard software
easily and quickly combines two 1858 photographs taken with a standard digital
camera into one immersive image. After using an IPIX key, a user can post the
IPIX image to a Web site, view it on a personal computer or e-mail it with the
click of a button. IPIX images can be viewed and navigated with the IPIX viewer
or with a viewer using JAVA. We price our IPIX keys to meet the cost
requirements and anticipated use of the IPIX image by the end user, making it a
cost effective alternative to other immersive imaging technologies.
Because our technology can be used with commercially available digital cameras,
IPIX images can be captured in almost any environment. Our technology is
compatible with most major operating systems and Internet browsers. The IPIX
image file size is small (50 to 250 Kbs), which results in quick delivery and
short download on low bandwidth systems. Our technology is also taking advantage
of the pending availability of broadband networks and higher resolution digital
cameras. We currently have in development our IPIX Webcam and steerable video
technology, V360.
OUR GROWTH STRATEGY
Our objective is to become a world leader in interactive photography and
immersive imaging for the Internet. We believe we can achieve this objective by
leveraging our leading position in immersive imaging technology. Our key
strategies to achieve this objective include:
- build awareness of the IPIX brand and experience;
- target commercial markets that can best capitalize on our technology;
- develop approaches to penetrate consumer markets;
- leverage our technology to enhance existing products and create new
product offerings;
- expand strategic relationships; and
- expand internationally.
We were incorporated in 1986 in Tennessee. Our primary business address is 1009
Commerce Park Drive, Oak Ridge, Tennessee, 37830, and our telephone number is
(423) 482-3000. We can be found on the Internet at www.ipix.com. Information on
our Web site is not a part of this prospectus.
THE OFFERING
COMMON STOCK OFFERED.......... shares
COMMON STOCK OUTSTANDING AFTER
THE OFFERING................ shares
USE OF PROCEEDS............... We intend to use the net proceeds we receive
from this offering for general corporate
purposes, including expansion of sales and
marketing activities, enhancement of research
and development activities, possible strategic
acquisitions or investments and working capital
requirements.
PROPOSED NASDAQ NATIONAL
MARKET SYMBOL............... "IPIX"
DIVIDEND POLICY............... We do not anticipate paying any cash dividends
in the foreseeable future.
The table above excludes 7,354,632 shares of common stock issuable upon the
exercise of outstanding stock options, including options outstanding under our
1997 Equity Compensation Plan, of which options to purchase 3,706,387 shares are
currently exercisable and options to purchase 547,917 shares will become
exercisable upon the consummation of this offering. The table also excludes
2,027,893 shares of common stock reserved for future grant or award under our
1997 Equity Compensation Plan.
All references to shares of common stock presented in this prospectus do not
reflect a for reverse stock split which will become effective prior to
the consummation of this offering.
2
<PAGE> 7
SUMMARY FINANCIAL INFORMATION
The following table contains our summary financial data which you should read
together with our consolidated financial statements and related notes,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and other information found elsewhere in this prospectus. See Note 2
of notes to consolidated financial statements for an explanation of the
determination of the number of shares used in per share calculations. The pro
forma as adjusted consolidated balance sheet data presented below assumes the
conversion of all of our preferred stock into common stock, including preferred
stock issuable upon the net exercise of all outstanding preferred stock
warrants, and the net exercise of all outstanding common stock warrants into
common stock and gives effect to the issuance of shares of common stock
upon the consummation of this offering.
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THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------- -----------------
1996 1997 1998 1998 1999
In thousands, except per share data ------- ------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues
Product......................................... $ 1,337 $ 2,128 $ 2,712 $ 319 $ 1,229
Service......................................... 208 318 329 98 --
------- ------- -------- ------- -------
1,545 2,446 3,041 417 1,229
Cost of revenues
Product......................................... 543 446 1,207 72 587
Service......................................... 108 316 241 32 --
------- ------- -------- ------- -------
651 762 1,448 104 587
------- ------- -------- ------- -------
Gross profit...................................... 894 1,684 1,593 313 642
Operating expenses
Sales and marketing............................. 908 2,829 8,387 1,550 2,812
Research and development........................ 389 1,171 2,668 493 736
General and administrative...................... 921 2,598 3,864 887 828
Amortization of product development and patent
costs........................................ 71 858 -- -- --
------- ------- -------- ------- -------
Total operating expenses................ 2,289 7,456 14,919 2,930 4,376
------- ------- -------- ------- -------
Interest and other income (expense), net.......... 201 194 101 (37) 22
------- ------- -------- ------- -------
Net loss................................ $(1,194) $(5,578) $(13,225) $(2,654) $(3,712)
======= ======= ======== ======= =======
Basic and diluted loss per common share........... $ (0.07) $ (0.30) $ (0.96) $ (0.14) $ (0.31)
======= ======= ======== ======= =======
Pro forma basic and diluted loss per common
share........................................... $ $
======== =======
</TABLE>
<TABLE>
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AS OF MARCH 31, 1999
AS OF ---------------------
DECEMBER 31, PRO FORMA
1998 ACTUAL AS ADJUSTED
----------------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and securities
available-for-sale................................... $1,064 $23,799
Working capital........................................ (635) 22,650
Total assets........................................... 3,989 27,369
Long-term debt......................................... 21 19
Total shareholders' equity............................. 793 24,205
</TABLE>
3
<PAGE> 8
RISK FACTORS
You should carefully consider the risks and uncertainties described below and
all of the other information contained in this prospectus before deciding to
purchase shares of our common stock.
RISKS PARTICULAR TO INTERACTIVE PICTURES CORPORATION
WE HAVE A LIMITED OPERATING HISTORY AND A HISTORY OF LOSSES, AND WE MAY CONTINUE
TO REALIZE LOSSES IN THE FUTURE
While we began operations in 1986, we did not obtain the first domestic license
of our software until the second quarter of 1997. Thus, we have only a limited
operating history upon which you can evaluate us and our future potential. Our
prospects must be considered in light of the risks, expenses and difficulties
frequently encountered by companies in an early stage of development,
particularly companies such as ours that operate in new and rapidly evolving
industries. To address these risks and achieve profitability and increased sales
levels, we must, among other things:
- establish widespread market acceptance of our products;
- expand sales and marketing operations;
- introduce new and enhanced products on a timely basis; and
- successfully market and support our products.
As of March 31, 1999, we had an accumulated deficit of $27.7 million. We expect
to continue to incur substantial losses for the foreseeable future as we
significantly expand our sales and marketing efforts, increase the number of our
employees and invest in product development. We cannot assure you that we will
achieve significant revenues or profitability or, if we do, that they can be
sustained or increased on a quarterly or annual basis.
As a result of our limited operating history, we have limited meaningful
historical financial data upon which to base planned operating expenses.
Accordingly, our expense levels are based in part on our expectations as to
future revenues. We cannot assure you that we will be able to accurately predict
our revenues, particularly in light of our limited operating history. Our
failure to accurately make such predictions would have a material adverse effect
on our business, results of operations and financial condition.
OUR QUARTERLY RESULTS MAY FLUCTUATE WHICH COULD CAUSE THE PRICE OF OUR COMMON
STOCK TO DECLINE SIGNIFICANTLY
We believe that our quarterly operating results could vary significantly in the
future, and that quarter-to-quarter comparisons should not be relied upon as
indications of future performance. It is therefore likely that in some future
periods our operating results may fall below the expectations of securities
analysts and investors, which could have a material adverse effect on the
trading price of our common stock. Among the factors that may influence our
operating results are:
- the introduction of new or enhanced products and services by us or our
competitors;
- the timing of our new personnel growth and its rate of expansion;
- the amount and timing of capital expenditures and other costs relating to
the expansion of our operations;
- changes in our pricing policy or those of our competitors;
- incurrence of costs relating to any potential future acquisitions; and
- economic conditions specific to the Internet or all or a portion of the
technology sector.
4
<PAGE> 9
THE USE OF DIGITAL CAMERAS AND FISHEYE LENSES IS NOT YET WIDESPREAD, AND THE
ADOPTION OF IMMERSIVE IMAGING IS UNCERTAIN
A large part of our future success is dependent upon the prevalent use of
digital photography and fisheye lenses. Generally, digital cameras are more
expensive than film cameras, and digital imaging does not offer the same clarity
and pixel resolution that film-based photographs offer. Although the cost of
digital cameras is declining and picture quality is improving, there can be no
assurance that digital photography will be as widely accepted as film-based
photography.
In addition, immersive imaging is a new concept that may not be accepted by
businesses or consumers. In particular, there can be no assurance that our
concept of immersive imaging will be adopted over other types of immersive
imaging offered by our competition. Further, our future growth will be based
upon both the business and consumer markets adopting our technology, and we can
give no assurance that such adoption will occur. The failure of either the
business or consumer markets to adopt our technology would have a material
adverse effect on our business, results of operations and financial condition.
WE DEPEND ON PROPRIETARY RIGHTS TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS
We rely on a combination of patent, trademark and trade secret laws,
non-disclosure agreements and other contractual provisions to protect our
intellectual property rights. Our success is heavily dependent upon recognition
and enforcement of these rights. We cannot assure you that any of our patents or
trademarks will not be challenged and invalidated or circumvented, or that any
patents will issue as a result of our pending or future patent applications. We
have been involved in litigation relating to the protection of our intellectual
property rights and could be involved in future litigation as third parties
develop products that we believe infringe on our patent and other intellectual
property rights. Also, we cannot assure you that any claims and issued patents
or pending patent applications will be of sufficient scope or strength. Further,
we cannot assure you that any claims, patents or patent applications will be
issued in all countries where our products can be sold or where our technologies
can be licensed to provide meaningful protection against any commercial damage
to us. In particular, we are exposed to patent infringement in foreign markets
because our patents are protected under United States patent laws that may not
extend to foreign uses.
Despite our efforts to protect our proprietary rights, unauthorized parties may
attempt to copy or otherwise use aspects of our processes and devices that we
regard as proprietary. A party who is able to copy or gain unauthorized use of
our processes and devices could misappropriate proprietary information or
circumvent the use of IPIX keys. We have experienced attempts to misappropriate
our technology, and we expect that those attempts may continue. We may be
required to expend significant capital and resources to prevent any further
attempts. Policing unauthorized use of our proprietary information is difficult,
and we cannot assure you that the steps we take will prevent misappropriation of
our technologies. In the event that we are unable to protect our intellectual
property rights, we could face increased competition in the market for our
products and technologies. Any increased competition could have a material
adverse effect on our business, results of operations and financial condition.
WE DEPEND ON A LIMITED NUMBER OF COMMERCIAL MARKETS FOR OUR BUSINESS
Currently, a significant portion of our revenues is derived from businesses in
the real estate and corporate and e-commerce commercial markets. Customers from
these markets represented 62% and 75% of our total revenues for 1998 and the
first quarter of 1999, respectively. In addition, 13% of our total revenues for
1998 were derived from sales of products to Sumitomo Corporation, our Japanese
distributor. Our inability to continue to sell our products to customers in
these commercial markets could result in a significant reduction in our total
revenues and have a material adverse effect on our business, results of
operations and financial condition. The volume of products that we sell to
customers within these and other commercial markets is likely to vary from year
to year.
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<PAGE> 10
WE MAY ENCOUNTER RISKS ASSOCIATED WITH NEW PRODUCT DEVELOPMENT, AND CONSUMERS
MAY NOT ADOPT OUR PRODUCTS
The markets for our products have only recently begun to develop and are rapidly
changing. In addition, our products are new and based on evolving technologies.
We are also dependent upon the continued use of our products by the business
market and the acceptance of our products by the individual consumer. We have
not yet made any sales to individual consumers and cannot assure you that they
will be willing to purchase and use our products. Thus, both the timing and
growth of market acceptance for our products are subject to a high level of
uncertainty. Acceptance of our products will be highly dependent on a number of
factors, including:
- competing products;
- the development of technologies that will facilitate the use of our
products by businesses and consumers;
- the ease-of-use and performance of our products; and
- the success of our marketing efforts.
We cannot assure you that we will be successful in obtaining market acceptance
of our products. Failure to gain market acceptance of our products would have a
material adverse effect on our business, results of operations and financial
condition.
WE MAINTAIN MANY STRATEGIC RELATIONSHIPS THAT ARE NOT SUBJECT TO WRITTEN
AGREEMENTS AND MAY BE TERMINATED AT ANY TIME
Many of our strategic relationships are not governed by written or other formal
agreements and are subject to termination at any time. These relationships
include those with companies that have agreed to manufacture IPIX compatible
digital cameras, technology companies and industry leaders who use our
technology on their Web sites. If any of our strategic relationships are
terminated for any reason, it could have a material adverse effect on our
business, results of operations and financial condition.
OUR FAILURE TO INCREASE THE DISTRIBUTION OF OUR IPIX VIEWER COULD DELAY OR
HINDER OUR FUTURE GROWTH
IPIX images can be viewed and navigated with an IPIX viewer or with a viewer
using JAVA. The IPIX viewer is available as a plug-in for free, but must be
downloaded from our Web site or other participating Web sites. The IPIX viewer
provides greater picture resolution and navigational controls than viewing the
image using JAVA. Although we are working with some of our strategic partners to
develop alternative methods to view an IPIX image without a viewer, we are still
substantially dependent upon the viewer for a competitive advantage.
Often, a Web site visitor is unwilling to, or incapable of, downloading the
viewer and thus does not experience the best available IPIX image. We must
increase the download rates for our viewer, particularly with individual
consumers, or include the viewer with other software or as part of a personal
computer's operating system. If we do not significantly increase distribution of
our viewer, our business, results of operations and financial condition could be
materially adversely affected and our growth could be hindered or delayed.
WE HAVE MANY COMPETITORS, SOME OF WHICH HAVE GREATER FINANCIAL OR TECHNICAL
RESOURCES THAN US
Our primary competitors are Apple Computer, Inc., Bamboo.com, Inc., Be Here
Corporation, Black Diamond, Inc., Cyclovision, Inc., Infinite Pictures
Corporation and Live Picture Corporation. Each of these companies develops and
markets imaging products and services that provide a panoramic image experience.
We compete with these companies on the basis of price, ease of use and picture
resolution. Some of our competitors offer their products at lower prices and
with greater picture resolution than us.
We cannot assure you that others will not develop technologies that are similar
or superior to our technologies, duplicate our technologies or design around our
patents. To compete effectively, we must, among other things:
- establish favorable brand name recognition for our products;
- introduce new versions of and enhancements to our products;
- price our products at appropriate and competitive levels; and
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<PAGE> 11
- provide strong marketing support to promote our products.
Some of our competitors have greater financial, marketing, distribution and
technical resources than us. In addition, we compete with other companies in the
traditional two-dimensional photography industry. Traditional photographs have
significant and established customer acceptance. Our success will be dependent
on our ability to compete with companies offering similar immersive imaging
products and with companies in the traditional photography industry.
IF WE FAIL TO EFFECTIVELY MANAGE OUR GROWTH, THE PRICE OF OUR COMMON STOCK MAY
DECLINE SIGNIFICANTLY
Due to our recent growth, the number of our employees has grown from 17 as of
December 31, 1995, to 136 as of April 30, 1999. This growth has placed a
significant strain on our management and resources. To manage our growth
successfully, we must:
- manage multiple relationships among various customers, suppliers and
strategic partners;
- expand, train and manage our employees;
- maintain our research and development activities; and
- continue to improve our operational and financial systems.
We cannot assure you that we will be able to manage our growth successfully, and
our failure to do so would have a material adverse effect on our business,
future results of operations and financial condition.
OUR SUCCESS IS DEPENDENT ON THE CONTINUED SERVICE OF OUR KEY EMPLOYEES AND OUR
ABILITY TO ATTRACT AND RETAIN ADDITIONAL QUALIFIED PERSONNEL
Our future success depends on our ability to attract and retain key management,
scientific, technical and other personnel. In addition, we must recruit
additional qualified management, scientific, technical, marketing and sales and
support personnel for our operations. Competition for such personnel is intense,
and we cannot assure you that we will be successful in attracting or retaining
such personnel. The loss of the services of one or more members of our
management group or our inability to hire additional qualified personnel as
needed may have a material adverse effect on our business, results of operations
and financial condition.
OUR GROWTH STRATEGY OF DEVELOPING AND INCREASING PUBLIC RECOGNITION OF OUR BRAND
AND ATTEMPTING TO INCREASE SALES OF OUR PRODUCTS THROUGH INCREASED SALES AND
MARKETING EFFORTS MAY BE UNSUCCESSFUL
We believe that establishing and maintaining the IPIX brand is important to our
efforts to increase our customer base. We intend to make significant
expenditures in creating and maintaining distinct brand loyalty through
traditional media advertising campaigns such as print, billboards and
television. In addition, we are considering establishing a new Web site through
which we would sell IPIX-compatible digital cameras in an attempt to enhance
IPIX key sales. Establishment of this new Web site could involve significant
expenditures on our part. If customers do not perceive our existing products to
be of high quality, or if we introduce new products or enter into new business
ventures that are not favorably received or ultimately successful, the value of
our brand could be diluted, thereby decreasing the attractiveness of our
products. If we fail to increase our revenue as a result of our branding efforts
or otherwise fail to promote our brand successfully, or if we incur excessive
expenses in an attempt to promote and maintain our brand without a corresponding
increase in sales, our business, results of operations and financial condition
could be materially adversely affected.
WE FACE DIFFERENT RISKS ASSOCIATED WITH OUR INTERNATIONAL OPERATIONS THAN WITH
OUR DOMESTIC OPERATIONS
A part of our strategy is to distribute our products in international markets.
We cannot assure you that our products will become widely accepted in any
international markets. We may experience difficulty in managing
7
<PAGE> 12
international operations as a result of competition, technical problems,
distance, language or cultural differences, and we cannot assure you that we
will be able to successfully market our products in foreign markets.
Certain risks inherent in doing business on an international level include:
- unexpected changes in regulatory requirements;
- trade barriers;
- difficulties in staffing and managing foreign operations;
- fluctuations in currency exchange rates;
- slower payment and collection of accounts receivable than in our domestic
market;
- difficulty in enforcing contracts;
- political and economic instability;
- seasonal reductions in business activity; and
- potentially adverse tax consequences.
We cannot assure you that we will be successful in our international expansion
or that one or more of the above factors will not have a material adverse effect
on our future international operations and, consequently, on our business,
results of operations and financial condition.
INDUSTRY RISKS
ADOPTION OF THE INTERNET AS A COMMERCIAL MEDIUM IS UNCERTAIN, ESPECIALLY DUE TO
SECURITY CONCERNS
Our future success substantially depends on the continued growth in the use of
the Internet for commercial purposes. Continued growth of the Internet could be
slowed by:
- inadequate infrastructure;
- lack of availability of cost-effective, high-speed systems and service;
- failure to develop a reliable network system;
- delays in developing or adopting new standards and protocols to handle
increased levels of Internet activity; or
- government regulation.
If any one of these factors limits the growth of the Internet as a viable
information medium or commercial marketplace, or if the use of and interest in
the Internet does not continue to grow, our business, results of operations and
financial condition could be materially adversely affected.
Concerns over the security of Internet transactions and user privacy may also
inhibit the growth of the Internet, particularly as a means of conducting
commercial transactions. Since we conduct business over the Internet through our
Web site, security breaches could expose us to a risk of loss or litigation and
possible liability. We cannot assure you that contractual provisions attempting
to limit our liability in such areas will be successful or enforceable, or that
other parties will accept such contractual provisions as part of our agreements,
which could have a material adverse effect on our business, results of
operations and financial condition.
GOVERNMENT REGULATION OF THE INTERNET, AS WELL AS OTHER LEGAL UNCERTAINTIES, MAY
DIMINISH OUR GROWTH
We are not currently subject to direct regulation by any government agency,
other than regulations applicable to businesses generally, and there are
currently few laws or regulations directly applicable to access to or commerce
on the Internet. However, due to the increasing popularity and use of the
Internet, a number of
8
<PAGE> 13
legislative and regulatory proposals are under consideration by various
governmental organizations. It is possible that a number of laws or regulations
may be adopted to govern the Internet relating to user privacy, taxation,
pricing and the quality of products and services. The adoption of any such laws
or regulations may slow the growth in Internet use, which could in turn decrease
the demand for our product, increase our cost of doing business or otherwise
have a material adverse effect on our business, results of operations and
financial condition.
Moreover, existing laws governing property ownership, copyright, trademark,
trade secret, obscenity, libel and personal privacy may be applied to the
Internet in the future. Any new legislation or regulation, or application or
interpretation of existing laws, could have a material adverse effect on our
business, results of operations and financial condition.
OUR SYSTEMS AND THOSE OF OUR CUSTOMERS OR VENDORS MAY NOT BE YEAR 2000 COMPLIANT
We are reliant on e-commerce transaction systems for the sale of our products
over the Internet. If these systems fail due to Year 2000 problems, our ability
to conduct these transactions may be severely impacted.
The most reasonably likely worst-case scenario is a failure related to one or
several of our external service providers including telecommunications
providers, utilities or Internet commerce systems which we rely upon on a daily
basis. Such failure or failures could cause any of the following:
- protracted interruption of electrical power to our operations and
Internet host servers which could materially adversely impact our ability
to enable online transactions and other services;
- significant or widespread failure of software products and services
provided to us by third-parties; or
- significant or widespread failure of third-party computer systems with
which our systems interface.
We cannot assure you that we will not suffer any losses relating to these or
other Year 2000 problems. Any Year 2000 compliance problems that either we, our
customers or our vendors experience could have a material adverse effect on our
business, results of operations and financial condition.
OUR SUCCESS IS DEPENDENT ON OUR ABILITY TO ADAPT TO TECHNOLOGICAL CHANGES AND,
IF WE FAIL TO ADAPT TO THOSE CHANGES, OUR PRODUCTS MAY BECOME OBSOLETE
We compete in a market characterized by rapidly changing technology, evolving
industry standards, frequent new service and product announcements,
introductions and enhancements and changing customer demands. These market
characteristics are intensified by the emerging nature of the Internet and the
multitude of companies offering Internet-based products and services.
Accordingly, our success depends on our ability to adapt to rapidly changing
technologies, to adapt our products to evolving industry standards and to
continually improve the performance, features and reliability of our products in
response to competitive products and shifting demands of the marketplace. In
addition, the widespread adoption of Internet, networking or telecommunications
technologies or other technological changes could require substantial
expenditures to modify our products or infrastructure. Our failure to adapt to
new technology in any of these areas could have a material adverse effect on our
business, results of operations and financial condition.
RISKS RELATING TO THE OFFERING
WE HAVE BROAD DISCRETION IN THE USE OF THE NET PROCEEDS FROM THIS OFFERING
As of the date of this prospectus, we cannot specify with certainty the
particular uses for the net proceeds we will receive from this offering.
Accordingly, our management will have broad discretion in the application of the
net proceeds. The failure by our management to apply these funds effectively
could have a material adverse effect on our business, results of operations and
financial condition.
9
<PAGE> 14
OUR MANAGEMENT, EXISTING SHAREHOLDERS AND AFFILIATED ENTITIES WILL CONTINUE TO
OWN A SIGNIFICANT PORTION OF OUR COMMON STOCK
Upon completion of this offering, our present directors and executive officers
and their affiliates will, in the aggregate, beneficially own approximately
% of our common stock. As a result, these shareholders, acting
together, will have the ability to direct our business affairs, control the
election of our board of directors and approve of significant change-in-control
transactions.
THE MARKET PRICE OF OUR COMMON STOCK COULD BE AFFECTED BY THE SUBSTANTIAL NUMBER
OF SHARES THAT ARE ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of common stock into the public market
after this offering, or the perception that such sales could occur, could
materially and adversely affect our stock price or could impair our ability to
obtain capital through an offering of equity securities. After this offering, we
will have outstanding shares of common stock, or shares if
the underwriters fully exercise their over-allotment option. In addition,
7,354,632 shares of common stock are issuable upon the exercise of outstanding
stock options, including options outstanding under our 1997 Equity Compensation
Plan, of which options to purchase 3,706,387 shares are currently exercisable
and options to purchase 547,917 shares will become exercisable at the
consummation of this offering, and 2,027,893 shares of common stock are reserved
for future grant or award under our 1997 Equity Compensation Plan. We intend to
register for resale the shares of common stock reserved for issuance under this
plan as soon as practicable following the consummation of this offering.
In addition, our officers, directors and some of our shareholders and option
holders have agreed that, for a period of 180 days from the date of this
prospectus, they will not sell their shares. Accordingly, upon the expiration of
the 180 day lock-up period, shares of our common stock held by those
shareholders will be available for immediate resale (subject to certain volume
restrictions imposed by the securities laws).
We have entered into registration rights agreements with some of our
shareholders. Under circumstances described in the registration rights
agreements, these shareholders can demand that we register their shares for
sales to the public market. In addition, we may be required to include a portion
of their shares if we register additional shares for sale to the public market.
YOU WILL EXPERIENCE AN IMMEDIATE AND SUBSTANTIAL DILUTION IF YOU PURCHASE COMMON
STOCK IN THIS OFFERING
The initial public offering price is substantially higher than the net tangible
book value per share of the outstanding common stock will be immediately after
the offering. Any common stock you purchase in this offering will have a
post-offering net tangible book value per share of $ less than the
initial public offering price, assuming an initial public offering price of
$ per share, which is the mid-point of the range set forth on the cover
page of this prospectus.
OUR COMMON STOCK HAS NEVER BEEN PUBLICLY TRADED, AND OUR STOCK PRICE COULD BE
VOLATILE
Our common stock price is likely to be highly volatile. The stock market in
general has experienced extreme volatility that often has been unrelated to the
operating performance of many technology, emerging growth and developing
companies. These broad market and industry fluctuations may adversely affect the
trading price of our common stock, regardless of our actual operating
performance. Since we may be viewed as one of these types of companies, market
fluctuations may adversely affect the market price of our common stock.
OUR CHARTER AND BYLAWS CONTAIN ANTI-TAKEOVER PROVISIONS THAT MAY MAKE IT MORE
DIFFICULT OR EXPENSIVE TO ACQUIRE US IN THE FUTURE
Our amended and restated charter and bylaws and applicable provisions of
Tennessee law contain several provisions that may make it more difficult for a
third party to acquire control of us without the approval of our board of
directors. In addition, the Tennessee Business Combination Act contains various
other anti-takeover provisions that apply to us even though those provisions
will not be in our charter. These provisions of our
10
<PAGE> 15
charter and bylaws and the Tennessee Business Combination Act may make it more
difficult or expensive for a third party to acquire a majority of our
outstanding voting common stock or delay, prevent or deter a merger,
acquisition, tender offer or proxy contest, which may negatively effect our
stock price.
FORWARD-LOOKING STATEMENTS
This prospectus contains statements about future events and expectations which
are characterized as "forward-looking statements." Forward-looking statements
are based on our management's beliefs, assumptions and expectations of our
future economic performance, taking into account the information currently
available to them. These statements are not statements of historical fact.
Forward-looking statements involve risks and uncertainties that may cause our
actual results, performance or financial condition to be materially different
from the expectations of future results, performance or financial condition we
express or imply in any forward-looking statements. Factors that could
contribute to such differences include, but are not limited to, those discussed
in "Risk Factors" and elsewhere in this prospectus.
The words "believe," "may," "will," "should," "anticipate," "estimate,"
"expect," "intends," "objective" or similar words or the negatives of these
words are intended to identify forward-looking statements. We qualify any such
forward-looking statements entirely by these cautionary factors.
USE OF PROCEEDS
Based on an assumed initial public offering price of $ per share, the
mid-point of the range set forth on the cover page of this prospectus, we
estimate our net proceeds will be approximately $ million from the sale
of shares of common stock in this offering, or approximately $ million if
the underwriters' over-allotment option is exercised in full, after deducting
underwriting discounts and estimated offering expenses payable by us.
We intend to use the net proceeds we receive from this offering for general
corporate purposes, including expansion of sales and marketing activities,
enhancement of research and development activities, possible strategic
acquisitions or investments and working capital requirements. Although we have
not identified any specific businesses, products or technologies that we may
acquire and have not entered into any current agreements with respect to any
such transactions, we from time to time evaluate such opportunities. Pending
such uses, the net proceeds will be invested in government securities and other
short-term, investment-grade securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock and do
not intend to pay any cash dividends on our common stock for the foreseeable
future. Future dividends, if any, will be determined by the board of directors.
We may incur indebtedness in the future which may prohibit or restrict the
payment of dividends.
11
<PAGE> 16
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999, on an
actual basis and on a pro forma as adjusted basis after giving effect to (1) the
issuance of shares of common stock, comprised of (a) 24,133,297
shares of common stock issuable upon the conversion of all of our outstanding
preferred stock, (b) shares of common stock issuable upon the net
exercise and conversion into common stock of all outstanding preferred stock
warrants, and (c) shares of common stock issuable upon the net
exercise of all outstanding common stock warrants into common stock, and (2) the
sale of shares of common stock in this offering at an assumed initial
public offering price of $ per share, the mid-point of the range set
forth on the cover page of this prospectus, after the deduction of underwriting
discounts and estimated offering expenses. The table does not give effect to a
class of preferred stock that will be authorized under our charter prior to the
consummation of this offering.
<TABLE>
<CAPTION>
----------------------
AS OF MARCH 31, 1999
----------------------
PRO FORMA
ACTUAL AS ADJUSTED
-------- -----------
<S> <C> <C>
Dollars in thousands
Long-term portion of promissory note........................ $ 19 $
Shareholders' equity:
Convertible preferred stock
Series A, 4,836,416 shares authorized, issued and
outstanding, actual................................... 5
Series B, 1,547,648 shares authorized, issued and
outstanding, actual................................... 2
Series C, 9,267,297 shares authorized; 7,443,889 shares
issued and outstanding, actual........................ 7
Series D, 10,955,344 shares authorized; 10,305,344
shares issued and outstanding, actual................. 10
Common Stock, 100,000,000 shares authorized; 12,637,540
shares issued and outstanding, actual; shares
issued and outstanding, pro forma as adjusted.......... 12
Additional paid-in capital................................ 51,904
Accumulated deficit....................................... (27,735)
-------- -------
Total shareholders' equity............................. 24,205
-------- -------
Total capitalization................................... $ 24,224 $
======== =======
</TABLE>
The table above excludes 5,135,965 shares of common stock issuable upon the
exercise of outstanding stock options as of March 31, 1999, including options
outstanding under our 1997 Equity Compensation Plan, of which options to
purchase 3,599,055 shares were currently exercisable and options to purchase
591,916 shares will become exercisable upon the consummation of this offering.
The table also excludes 4,246,560 shares of common stock reserved for future
grant or award under our 1997 Equity Compensation Plan.
12
<PAGE> 17
DILUTION
Our pro forma net tangible book value as of March 31, 1999 was $ , or
$ per share of common stock, and assumes the conversion of all of our
preferred stock into common stock, including preferred stock issuable upon the
net exercise of all outstanding preferred stock warrants, and the net exercise
of all outstanding common stock warrants into common stock. Pro forma net
tangible book value per share is determined by dividing our net tangible book
value (total tangible assets less total liabilities) by the total number of
shares of common stock outstanding after giving effect to the transactions
described in the previous sentence. After giving effect to the sale of
shares of common stock offered by us at an assumed initial public
offering price of $ per share, the mid-point of the range set forth on the
cover page of this prospectus, and after deducting estimated underwriting
discounts and offering expenses, our adjusted pro forma net tangible book value
as of March 31, 1999 would have been $ , or $ per share. This
represents an immediate increase in the pro forma net tangible book value of
$ per share to existing shareholders and an immediate dilution of $ per
share to new investors. The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
---------------
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share as of March
31, 1999............................................... $
Increase to present shareholders attributable to new
investors.............................................. $
------
Adjusted pro forma net tangible book value per share after
this offering............................................. $
------
Dilution per share to new investors......................... $
======
</TABLE>
The following table summarizes, as of March 31, 1999, the difference between the
number of shares of common stock purchased from us, the total consideration paid
to us and the average price per share paid by the existing shareholders and by
the new investors, at an assumed initial public offering price of $ per
share, the mid-point of the range set forth on the cover page of this
prospectus, before deduction of estimated underwriting discounts and offering
expenses:
<TABLE>
<CAPTION>
-----------------------------------------------------
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------ -------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
-------- ------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Existing Shareholders........................... % $ % $
New investors................................... $
-------- ---- -------- ----
Total................................. % $ %
======== ==== ======== ====
</TABLE>
The tables above assume no exercise of stock options outstanding as of March 31,
1999. If any of these options are exercised, there will be further dilution to
new investors.
13
<PAGE> 18
SELECTED FINANCIAL INFORMATION
The tables that follow present portions of our consolidated financial statements
and are not complete. You should read the following selected consolidated
financial data in conjunction with our consolidated financial statements and
related notes to those statements and with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere in this
prospectus. The statements of operations data set forth below for the years
ended December 31, 1996, 1997 and 1998 and the balance sheet data at December
31, 1997 and 1998, are derived from consolidated financial statements audited by
PricewaterhouseCoopers LLP, independent accountants, that are included in this
prospectus. The statements of operations data for the year ended December 31,
1994 and 1995 and the balance sheet data as of December 31, 1994, 1995 and 1996
are derived from audited consolidated financial statements that are not included
in this prospectus. The statements of operations data set forth below for the
three months ended March 31, 1998 and 1999 and the balance sheet data as of
March 31, 1999 are derived from unaudited consolidated financial statements that
are included in this prospectus. The unaudited consolidated financial statements
include all adjustments, consisting of normal recurring accruals, which we
consider necessary for a fair presentation. The pro forma as adjusted
consolidated balance sheet data presented below assumes the conversion of all of
our preferred stock into common stock, including preferred stock issuable upon
the net exercise of all outstanding preferred stock warrants, and the net
exercise of all outstanding common stock warrants into common stock and gives
effect to the issuance of shares of common stock upon the consummation
of this offering.
<TABLE>
<CAPTION>
--------------------------------------------------------------------
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------------ -----------------
1994 1995 1996 1997 1998 1998 1999
In thousands, except per share data ------- ------- ------- ------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues
Product................................... $ 393 $ 699 $ 1,337 $ 2,128 $ 2,712 $ 319 $ 1,229
Service................................... 492 578 208 318 329 98 --
------- ------- ------- ------- -------- ------- -------
885 1,277 1,545 2,446 3,041 417 1,229
Cost of revenues
Product................................... 246 312 543 446 1,207 72 587
Service................................... 475 347 108 316 241 32 --
------- ------- ------- ------- -------- ------- -------
721 659 651 762 1,448 104 587
------- ------- ------- ------- -------- ------- -------
Gross profit................................ 164 618 894 1,684 1,593 313 642
Operating expenses
Sales and marketing....................... 283 528 908 2,829 8,387 1,550 2,812
Research and development.................. 531 568 389 1,171 2,668 493 736
General and administrative................ 549 1,476 921 2,598 3,864 887 828
Amortization of product development and
patent costs............................ -- -- 71 858 -- -- --
------- ------- ------- ------- -------- ------- -------
Total operating expenses.............. 1,363 2,572 2,289 7,456 14,919 2,930 4,376
------- ------- ------- ------- -------- ------- -------
Interest and other income (expense), net.... 175 189 201 194 101 (37) 22
Income tax benefit.......................... 10 -- -- -- -- -- --
------- ------- ------- ------- -------- ------- -------
Net loss.............................. $(1,014) $(1,765) $(1,194) $(5,578) $(13,225) $(2,654) $(3,712)
======= ======= ======= ======= ======== ======= =======
Basic and diluted loss per common share..... $ (0.06) $ (0.11) $ (0.07) $ (0.30) $ (0.96) $ (0.14) $ (0.31)
======= ======= ======= ======= ======== ======= =======
Pro forma basic and diluted loss per common
share..................................... $ $
======== =======
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------
AS OF
MARCH 31, 1999
AS OF DECEMBER 31, ---------------------
------------------------------------------ PRO FORMA
1994 1995 1996 1997 1998 ACTUAL AS ADJUSTED
------ ------ ------ ------ ------ ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and securities
available-for-sale........................ $3,592 $3,105 $5,107 $2,826 $1,064 $23,799
Working capital............................. 3,396 2,819 4,944 (71) (635) 22,650
Total assets................................ 5,628 3,918 6,780 4,574 3,989 27,369
Long-term debt.............................. -- -- -- 29 21 19
Total shareholders' equity.................. 5,103 3,407 6,160 582 793 24,205
</TABLE>
14
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated
financial statements and related notes included elsewhere in this prospectus.
This discussion contains forward-looking statements that involve risks and
uncertainties. Our actual results may differ materially from those anticipated
in these forward-looking statements as a result of certain factors, including,
but not limited to, those set forth under "Risk Factors" and elsewhere in this
prospectus.
OVERVIEW
As a leader in interactive photography and immersive imaging for the Internet,
our IPIX images allow viewers to "Step Inside the Picture." Our patented
technology changes the way people create and view images, immersing them in a
360(degree) by 360(degree) spherical environment. IPIX images capture the world
as we see it, providing a complete field of view -- from ground to sky, floor to
ceiling, horizon to horizon. Viewers can easily navigate the image on a personal
computer screen by moving a cursor inside the image.
We were founded in 1986 at the Oak Ridge National Laboratory in Tennessee to
develop remote robotic systems for the United States Department of Defense, the
Department of Energy, NASA and others. Our efforts in this field led us to the
invention of technology which removes the distortion inherent in fisheye
photographic images and corrects the viewing perspective. We obtained a patent
for this technology in 1991 and continued to improve upon it through special
projects for third parties. In 1994, Motorola, Inc. provided equity capital
which permitted us to further refine our technology. In 1996, Motorola and
Discovery Communications, Inc. provided additional equity capital to enable us
to explore potential commercial application of our technology. James M.
Phillips, our Chairman and Chief Executive Officer, joined us in the spring of
1997 to commence commercialization of our technology. Over the next two years,
we obtained additional equity capital, which we used to build an experienced
management team to implement our business model. Since the latter part of 1998,
we have continued to seek new commercial applications for our products by
positioning ourselves to take advantage of the acceleration in the availability
of digital cameras and significant growth in the popularity of the Internet. We
have targeted the following domestic and international commercial markets: real
estate, travel and hospitality, electronic publishing, corporate and e-commerce
and education and entertainment. We have also entered into strategic
relationships with digital camera manufacturers Kodak, Nikon and Olympus and
received favorable outcomes in legal proceedings relating to our patents.
Product revenues are generated by the sale of IPIX keys, IPIX kits and studio
work and the license of archived IPIX images. These revenues are recognized upon
the shipment or delivery of products to our customers. Service revenues
historically were generated by research and development projects, although we
have de-emphasized this business and are currently not engaged in any of these
projects. We intend to focus our initial efforts on establishing an installed
base of IPIX kits as well as building brand recognition through our studio work.
We intend to leverage this installed base to sell IPIX keys and generate
recurring revenue. For the three months ended March 31, 1999, we sold 26,668
keys as compared to 40,902 keys in all of 1998. We continue to examine and
refine our business model and commercial applications to reflect a constantly
changing business environment which includes improving digital cameras, growing
use of the Internet and new product offerings by our competitors.
We sell our IPIX keys at different prices based on the potential number of
viewers, useful life and utility of the IPIX image. For example, an IPIX image
that is likely to be viewed by a large audience, has a lengthy useful life and
contributes significantly to the overall experience, commands a higher price. In
addition, we can further refine our IPIX key pricing through several
modifications. IPIX keys can be modified so that the IPIX image may be displayed
only in a particular file format or resolution, may be incorporated into
multimedia presentations, has a limited creation and viewing lifetime and may be
posted to a specific Web site or distributed via e-mail. For example, an IPIX
key that creates a high resolution IPIX image to be utilized on a widely-viewed
CD-ROM encyclopedia with an unlimited life will command a higher price than an
IPIX key that creates an IPIX image to be posted on a used-auto Web site, where
the IPIX image's lifetime is limited and will
15
<PAGE> 20
be viewed only by a select and small audience. We will continue to examine our
pricing strategy for IPIX keys to meet current and changing market conditions.
International sales accounted for 26%, 25% and 21% of our total revenues for
fiscal 1996, 1997 and 1998, respectively, and 36% and 20% for the quarters ended
March 31, 1999 and 1998, respectively. We anticipate that international sales
may continue to account for a significant portion of our revenue in the
foreseeable future. A substantial portion of our international sales are
denominated in U.S. dollars. As a result, changes in the values of foreign
currencies relative to the value of the U.S. dollar can render our products
comparatively more expensive. Although we have not been negatively impacted in
the past by foreign currency changes, such conditions could negatively impact
our international sales in future periods.
In the second half of 1998, we introduced digital camera kits, which resulted in
an increase in our relative cost of revenues. In addition, we made a significant
investment to expand our marketing, distribution and brand awareness in 1998.
Our distribution system includes a direct sales force, a telemarketing group and
an online order fulfillment system. Research and development expenses have also
increased as we continue to enhance our existing products and develop future
applications of our technology, such as our IPIX Webcam and steerable video
product offering, V360. We expect these investments and costs to continue as we
develop additional product offerings and explore new commercial applications.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percent
relationship to total revenues of certain items in our statements of operations.
<TABLE>
<CAPTION>
---------------------------------------------
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------- ----------------
1996 1997 1998 1998 1999
----- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Revenues
Product........................................ 86.5% 87.0% 89.2% 76.5% 100.0%
Service........................................ 13.5 13.0 10.8 23.5 --
----- ------ ------ ------ ------
100.0 100.0 100.0 100.0 100.0
Cost of revenues
Product........................................ 35.1 18.2 39.7 17.2 47.8
Service........................................ 7.0 12.9 7.9 7.7 --
----- ------ ------ ------ ------
42.1 31.1 47.6 24.9 47.8
----- ------ ------ ------ ------
Operating expenses
Sales and marketing............................ 58.8 115.7 275.8 371.7 228.8
Research and development....................... 25.2 47.9 87.7 118.2 59.9
General and administrative..................... 59.6 106.2 127.1 212.7 67.4
Amortization of product development and patent
costs....................................... 4.6 35.1 -- -- --
----- ------ ------ ------ ------
Total operating expenses.................... 148.2 304.9 490.6 702.6 356.1
----- ------ ------ ------ ------
Interest and other income (expense), net......... 13.0 7.9 3.3 (8.9) 1.8
----- ------ ------ ------ ------
Net loss.................................... (77.3)% (228.1)% (434.9)% (636.4)% (302.1)%
===== ====== ====== ====== ======
</TABLE>
Quarter Ended March 31, 1999 Compared to the Quarter Ended March 31, 1998
Revenues. Total revenues increased to $1,229,000 in the first quarter of 1999,
compared to $417,000 in the first quarter of 1998, an increase of $812,000, or
194.7%. Product revenues increased to $1,229,000 from $319,000, an increase of
$910,000. This increase was due primarily to an increase in sales of IPIX keys
and IPIX kits to customers in the corporate and e-commerce and real estate
markets and, to a lesser extent, an increase in international sales. We sold
26,668 IPIX keys in the first quarter of 1999, compared to 3,321 keys in the
first quarter of 1998, an increase of 23,347 keys. We did not have service
revenues in the first quarter of
16
<PAGE> 21
1999, compared to $98,000 in the first quarter of 1998. We have de-emphasized
our services business and are not currently performing any research and
development projects for others.
Cost of Revenues. Cost of product revenues consists primarily of the costs of
the studio and the digital camera and related hardware included in our IPIX
kits. Cost of product revenues increased to $587,000 in the first quarter of
1999, compared to $72,000 in the first quarter of 1998, an increase of $515,000.
Cost of product revenues as a percentage of product revenues increased from
22.6% in the first quarter of 1998 to 47.8% in the first quarter of 1999. This
increase was due primarily to the costs of the digital camera and related
hardware included in our kits which were not available in the first half of
1998. Cost of service revenues consists primarily of labor costs associated with
research and development work. In the first quarter of 1998, cost of service
revenues was $32,000, or 32.7% of service revenues. We did not incur any cost of
service revenues in the first quarter of 1999.
Sales and Marketing. Sales and marketing expenses consist primarily of salaries
and commissions paid to our direct sales, marketing and telemarketing groups,
expenses relating to advertising and public relations and studio expenses
incurred for production of demonstration products. Sales and marketing expenses
increased to $2,812,000 in the first quarter of 1999, compared to $1,550,000 in
the first quarter of 1998, an increase of $1,262,000, or 81.4%. This increase
was due primarily to a significant increase in our sales force.
Research and Development. Research and development expenses consist primarily
of compensation and other expenses related to the ongoing support of existing
product lines and development costs associated with future product
introductions. Research and development expenses increased to $736,000 in the
first quarter of 1999, compared to $493,000 in the first quarter of 1998, an
increase of $243,000, or 49.3%. This increase was due primarily to increased
staffing and associated costs in our research and development department.
General and Administrative Expenses. General and administrative expenses
consist primarily of salaries and related costs of the executive, finance and
human resource departments and outside professional services fees. General and
administrative expenses decreased to $828,000 in the first quarter of 1999,
compared to $887,000 in the first quarter of 1998, a decrease of $59,000, or
6.7%. This decrease was due primarily to a decrease in legal fees associated
with litigation relating to our patents, which was offset by an increase in
additional salary and related costs.
Interest and Other Income (Expense). Interest and other income (expense)
consists primarily of interest earned on our investments of cash, net of
interest paid on borrowed funds. Net interest and other income increased to
$22,000 in the first quarter of 1999, compared to $(37,000) in the first quarter
of 1998, a change of $59,000. This change was due primarily to increased
earnings on our cash investments and a reduction in the amount of our
indebtedness.
Year Ended December 31, 1998 Compared to the Year Ended December 31, 1997
Revenues. Total revenues increased to $3,041,000 in 1998, compared to
$2,446,000 in 1997, an increase of $595,000, or 24.3%. Product revenues
increased to $2,712,000 in 1998, compared to $2,128,000 in 1997, an increase of
$584,000, or 27.4%. The increase in total revenues and product revenues was due
primarily to an increase in the sale of IPIX keys, IPIX kits and studio work to
an expanded base of corporate and e-commerce customers. Service revenues
remained essentially unchanged, increasing to $329,000 in 1998, from $318,000 in
1997.
Cost of Revenues. Cost of product revenues increased to $1,207,000 in 1998,
compared to $446,000 in 1997, an increase of $761,000, or 170.6%. This increase
was due primarily to costs associated with the digital camera and related
hardware included in our kits, which were not introduced until the second half
of 1998, and an increase in sales. Cost of product revenues for 1998 also
included a write-down of obsolete product inventory in the amount of $220,000.
Cost of service revenues decreased to $241,000 in 1998 compared to $316,000 in
1997. This decrease was due primarily to a 1997 contract for which project costs
exceeded associated revenue.
Sales and Marketing. Sales and marketing expenses increased to $8,387,000 in
1998, compared to $2,829,000 in 1997, an increase of $5,558,000, or 196.5%. This
growth principally reflected an increase in salary and
17
<PAGE> 22
related expenses directly attributable to the establishment of a direct sales
force and an increase in advertising and public relations expense.
Research and Development. Research and development expenses increased to
$2,668,000 in 1998, compared to $1,171,000 in 1997, an increase of $1,497,000,
or 127.8%. This increase was due primarily to increased staffing and associated
costs relating to the introduction of JAVA based applications in support of the
continued development of new product offerings, including V360 and IPIX Webcam
products.
General and Administrative Expenses. General and administrative expenses
increased to $3,864,000 in 1998, compared to $2,598,000 in 1997, an increase of
$1,266,000, or 48.7%. This increase was due primarily to legal fees associated
with litigation relating to protecting our patents and an increase in salaries
and other expenses as a result of an increase in employees.
Amortization of Product Development and Patent Costs. During 1997, we revised
the estimated economic lives of capitalized product development costs and patent
costs from five years and seventeen years, respectively to one and three years,
respectively. This change resulted in additional amortization expense of
$755,000 in 1997. In 1998, product development and patent costs were
insignificant, and therefore, we did not capitalize such costs.
Interest and Other Income (Expense). Net interest and other income (expense) in
1998 was $101,000, compared to $194,000 in 1997, a decrease of $93,000 or 47.9%.
This decrease was primarily due to increased interest incurred on indebtedness
issued in the fourth quarter of 1997, which more than offset an increase in
interest income.
Year Ended December 31, 1997 Compared to the Year Ended December 31, 1996
Revenues. Total revenues increased to $2,446,000 in 1997, compared to
$1,545,000 in 1996, an increase of $901,000, or 58.3%. Product revenues
increased to $2,128,000 in 1997, compared to $1,337,000 in 1996, an increase of
$791,000, or 59.2%. This increase resulted primarily from increased sales of
IPIX kits, IPIX keys and studio work in the real estate and international
markets. Service revenues increased to $318,000 in 1997, compared to $208,000 in
1996, an increase of $110,000, or 52.9%. This increase was primarily due to an
increase in research and development services provided to the Department of
Defense.
Cost of Revenues. Cost of product revenues decreased to $446,000 in 1997,
compared to $543,000 in 1996, a decrease of $97,000, or 17.9%. This decrease was
due primarily to a shift in product mix to higher margin IPIX keys and license
revenue. Cost of service revenues increased to $316,000 in 1997, compared to
$109,000 in 1996, an increase of $207,000, or 189.9%. This increase was due
primarily to a 1997 contract for which project costs exceeded associated revenue
and an increase in research and development services provided to the Department
of Defense.
Sales and Marketing. Sales and marketing expenses increased to $2,829,000 in
1997, compared to $908,000 in 1996, an increase of $1,921,000. The increase was
due primarily to increased advertising expenses and salaries and related
expenses resulting from an increase in personnel in the sales and studio
departments.
Research and Development. Research and development expenses increased to
$1,171,000 in 1997, compared to $389,000 in 1996, an increase of $782,000. This
increase was due primarily to salaries and related expenses resulting from an
increase in personnel conducting research and development projects.
General and Administrative Expenses. General and administrative expenses
increased to $2,598,000 in 1997, compared to $921,000 in 1996, an increase of
$1,677,000, or 182.1%. The increase was due primarily to legal fees related to
litigation concerning our patents, an increase in personnel and associated
relocation expense and an increase in our bad debt provisions.
Amortization of Product Development and Patent Costs. The amortization of
product development and patent costs increased to $858,000 in 1997, compared to
$71,000 in 1996, an increase of $787,000. This increase was due primarily to the
change in 1997 of the estimated economic lives of capitalized product
development costs and patent costs from five years and seventeen years,
respectively, to one and three years, respectively.
Interest and Other Income (Expense). Net interest and other income (expense)
decreased to $194,000 in 1997, compared to $201,000 in 1996, a decrease of
$7,000, or 3.5%.
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<PAGE> 23
SELECTED QUARTERLY RESULTS OF OPERATIONS
The following tables represent unaudited quarterly consolidated statements of
operations data for each of the nine quarters in the period ended March 31,
1999, as well as such data expressed as a percentage of revenues. In the opinion
of management, this information has been prepared substantially on the same
basis as the consolidated financial statements appearing elsewhere in this
prospectus, and all necessary adjustments, consisting only of normal recurring
adjustments, have been included in the amounts stated below to present fairly
the unaudited quarterly results. The quarterly information should be read in
conjunction with our consolidated financial statements and the notes thereto
appearing elsewhere in the prospectus. The quarterly information has not been
reviewed by our auditors. The operating results for any quarter are not
necessarily indicative of the operating results for any future period.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
THREE MONTHS ENDED
---------------------------------------------------------------------------------------
1997 1998 1999
------------------------------------- ------------------------------------- -------
MAR. 31 JUN. 30 SEP. 30 DEC. 31 MAR. 31 JUN. 30 SEP. 30 DEC. 31 MAR. 31
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
In thousands
Revenues..................... $ 418 $ 772 $ 528 $ 728 $ 417 $ 788 $ 783 $ 1,053 $ 1,229
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit................. 303 585 293 503 313 643 399 238 642
Operating expenses
Sales and marketing........ 344 540 859 1,086 1,550 1,837 2,238 2,762 2,812
Research and development... 92 98 530 450 493 655 780 740 736
General and
administrative........... 624 580 506 889 887 845 558 1,574 828
Amortization of product
development and patent
costs.................... 286 286 286 -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses............... 1,346 1,504 2,181 2,425 2,930 3,337 3,576 5,076 4,376
------- ------- ------- ------- ------- ------- ------- ------- -------
Interest and other income
(expense), net............. 43 65 24 63 (37) 75 56 7 22
------- ------- ------- ------- ------- ------- ------- ------- -------
Net loss................. $(1,000) $ (854) $(1,864) $(1,859) $(2,654) $(2,619) $(3,121) $(4,831) $(3,712)
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
THREE MONTHS ENDED
---------------------------------------------------------------------------------------
1997 1998 1999
------------------------------------- ------------------------------------- -------
MAR. 31 JUN. 30 SEP. 30 DEC. 31 MAR. 31 JUN. 30 SEP. 30 DEC. 31 MAR. 31
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Percentage of revenues
Revenues..................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit................. 72.5 75.8 55.5 69.1 75.1 81.6 51.0 22.6 52.2
Operating expenses
Sales and marketing........ 82.3 70.0 162.7 149.2 371.7 233.1 285.8 262.3 228.8
Research and development... 22.0 12.7 100.4 61.8 118.2 83.1 99.6 70.3 59.9
General and
administrative........... 149.3 75.1 95.8 122.1 212.7 107.2 71.3 149.5 67.4
Amortization of product
development and patent
costs.................... 68.4 37.0 54.2 -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses............... 322.0 194.8 413.1 333.1 702.6 423.4 456.7 482.1 356.1
------- ------- ------- ------- ------- ------- ------- ------- -------
Interest and other income
(expense), net............. 10.3 8.4 4.5 8.6 (8.9) 9.5 7.2 0.7 1.8
------- ------- ------- ------- ------- ------- ------- ------- -------
Net loss................. (239.2)% (110.6)% (353.1)% (255.4)% (636.4)% (332.3)% (398.5)% (458.8)% (302.1)%
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
In the second half of 1998, we introduced digital camera kits, which resulted in
an increase in our relative cost of revenues. As a result of the cost of the
digital camera and related hardware included in our IPIX kits, our gross margins
decreased. In the fourth quarter of 1998, we wrote off $220,000 of obsolete
product inventory, which also impacted gross margins.
Our operating results have varied on a quarterly basis during our operating
history and may fluctuate in the future as a result of a variety of factors,
many of which are outside our control. Additionally, as a result of our limited
operating history and the emerging nature of the immersive imaging market in
which we compete, it is
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<PAGE> 24
difficult for us to forecast our revenues or earnings accurately. Our expense
levels are largely based on investment plans and future revenue expectations.
Such expenses are fixed, particularly in the short term, and we may be unable to
adjust spending in a timely manner to compensate for any unexpected revenue
shortfall. Accordingly, any significant shortfall in relation to our
expectations could cause significant declines in our quarterly operating
results. Thus, our quarterly revenues and operating results are difficult to
forecast. We believe that our quarterly operating results could vary
significantly in the future, and that quarter-to-quarter comparisons should not
be relied upon as indications of future performance. It is therefore likely that
in some future periods our operating results may fall below the expectations of
securities analysts and investors. In that event, the trading price of our
common stock would likely decline.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily through the private
placements of capital stock and a convertible debenture. In the first quarter of
1999, we raised $27,000,000 through the sale of our Series D preferred stock. At
March 31, 1999, we had $7,150,000 of cash and cash equivalents and $16,649,000
in securities available-for-sale.
Net cash used in operating activities in the years ended December 31, 1996, 1997
and 1998 and the three months ended March 31, 1998 and 1999 was $1,189,000,
$4,825,000, $12,444,000, $2,191,000 and $4,135,000, respectively. Net cash used
for operating activities in each of these periods is primarily a result of net
losses.
Net cash provided by (used in) investment activities in the years ended December
31, 1996, 1997 and 1998, and the three months ended March 31, 1998 and 1999 was
$1,159,000, $(952,000), $253,000, $914,000 and $(16,846,000), respectively. Net
cash provided by (used in) investing activities was related to the acquisition
of computer software and hardware and other equipment, the purchase of
short-term investments and the maturity of acquired investment securities.
Net cash provided by (used in) financing activities in the years ended December
31, 1996, 1997 and 1998 and the three months ended March 31, 1998 and 1999 was
$3,976,000, $2,997,000, $11,428,000, $(2,000) and $27,068,000, respectively. The
net cash provided by (used in) financing activities for these periods was due
primarily to the sale of shares of our common and preferred stock. Net cash also
was provided by the issuance of a $3,000,000 8% convertible debenture in 1997,
$1,000,000 of which was repaid and $2,000,000 of which was converted to
preferred stock.
Although we have no material commitments for capital expenditures, we anticipate
an increase in the rate of capital expenditures and other expenses consistent
with our anticipated growth in personnel, operations and marketing activities.
We anticipate utilizing a portion of the net proceeds of this offering to expand
our sales and marketing activities and enhance our research and development
through the next twelve months. We also may use cash to acquire or license
technology, products or business related to our current business. We anticipate
that our operating expenses will continue to grow in the foreseeable future and
will be a material use of our cash resources.
We believe that the net proceeds from this offering, together with existing cash
and cash equivalents, will be sufficient to meet our anticipated cash needs for
working capital and capital expenditures for at least the next twelve months.
However, we may seek to raise additional capital during that period. The sale of
additional equity or other securities could result in additional dilution to our
shareholders. There can be no assurance that such capital will be available in
amounts or on terms acceptable to us, if at all.
YEAR 2000 READINESS, COSTS OF COMPLIANCE AND EFFECT ON OPERATIONS
We are aware of the issues associated with the programming code in existing
computer systems as the year 2000 approaches. The Year 2000 problem is pervasive
and complex as virtually every computer operation will be affected in some way
by the rollover of the two digit year value of 00. The issue is whether computer
systems will properly recognize date-sensitive information when the year changes
to 2000. Systems that do not properly recognize such information could generate
erroneous data or fail.
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<PAGE> 25
State of Readiness
We have completed our Year 2000 compliance assessment plan. Our compliance
assessment plan included testing all of our information and non-information
technology as well as our internally developed studio and operation systems.
Based on our testing and assessment, we believe that our information and
non-information technology, as well as internally developed systems, are Year
2000 compliant.
In addition, we are in the process of seeking verification from our key
suppliers and distributors that they are Year 2000 compliant or, if they are not
presently compliant, to provide a description of their remedial plans. We have
obtained information from various other third-party providers regarding the Year
2000 readiness of their systems and we are continuing to review this
information.
Costs
Our cost of upgrading our systems to become Year 2000 compliant was
approximately $40,000.
Risks
If we fail to solve a Year 2000 compliance problem with one of our systems, the
result could be a failure or interruption of normal business operations.
Although we believe that the potential for significant interruptions to normal
operations should be minimal due to the relative newness of our systems, our
business is exposed to risks associated with the Year 2000 problem.
Our primary risks of Year 2000 failures are those related to external service
providers including telecommunications, electrical power and Internet commerce
systems that we rely upon daily. The most reasonably likely worst-case scenario
is a failure related to one or several of our external service providers
referenced above. Such failure or failures could cause any of the following:
- protracted interruption of electrical power to our operations and
Internet host servers which could materially and adversely impact our
ability to enable online transactions and other services:
- significant or widespread failure of software products and services
provided to us by third parties; or
- significant or widespread failure of third party computer systems with
which our systems interface.
Contingency Plans
We have not established a contingency plan to mitigate the risks associated with
any inaccuracies to our Year 2000 assessment. Although we have found no material
Year 2000 problems with our internal systems, and despite our expectation that
Year 2000 compliance efforts will result in Year 2000 compliant services, there
can be no assurance that our compliance efforts will be successful. Further,
there is no assurance that the various telecommunications and power delivery
systems we rely upon will be Year 2000 compliant or that any contingency plans
they have made will be successful. A failure of any of these systems would have
a material adverse effect on our business, results of operations and financial
condition.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS No.
133). SFAS No. 133 is effective for fiscal years beginning after June 15, 2000.
SFAS No. 133 requires that all derivative instruments be recorded on the balance
sheet at their fair value. Changes in the fair value of derivatives are recorded
each period in current earnings or other comprehensive income, depending on
whether a derivative is designed as part of a hedge transaction and, if so, the
type of hedge transaction. We do not expect that the adoption of SFAS No. 133
will have a material impact on our reported results of operations, financial
position or cash flows.
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants (AICPA) issued Statement of Position
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" (SOP 98-1). SOP 98-1 requires all costs related to the development
of
21
<PAGE> 26
internal use software other than those incurred during the application
development stage to be expensed as incurred. Costs incurred during the
application development stage are required to be capitalized and amortized over
the estimated useful life of the software. SOP 98-1 is effective for our fiscal
year ending December 31, 1999. We do not expect its adoption to have a material
impact on our reported results of operations, financial position or cash flows.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-Up
Activities" (SOP 98-5), which is effective for fiscal years beginning after
December 15, 1998. SOP 98-5 provides guidance on the financial reporting of
start-up costs and organization costs. It requires costs of start-up activities
and organization costs to be expensed as incurred. We do not expect its adoption
to have a material impact on our reported results of operations, financial
position or cash flows.
In December 1998, the AICPA issued Statement of Position 98-9, "Modification of
SOP 97-2, Software Revenue Recognition, with Respect to Certain Transactions"
(SOP 98-9). SOP 98-9 amends certain elements of SOP 97-2, and provides
additional authoritative guidance on software revenue recognition. SOP 97-2 is
effective for fiscal years beginning after March 15, 1999. We do not expect its
adoption to have a material impact on our reported results of operations,
financial position or cash flows.
INFLATION
Inflation has not had a significant impact on our operations to date.
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<PAGE> 27
BUSINESS
OVERVIEW
As a leader in interactive photography and immersive imaging for the Internet,
our IPIX images allow viewers to "Step Inside the Picture." Our patented
technology changes the way people create and view images, immersing them in a
360(degree) by 360(degree) spherical environment. We believe IPIX images enhance
the key elements of a photograph: memory, information and entertainment. IPIX
images capture the world as we see it, providing a complete field of
view -- from ground to sky, floor to ceiling, horizon to horizon. Viewers can
easily navigate the image on a personal computer screen by moving a cursor
inside the image. In order to accelerate the adoption and enhancement of IPIX
images, we have established strategic relationships with leading camera
manufacturers such as Kodak, Nikon and Olympus as well as technology companies
such as IBM, Intel and RealNetworks. We estimate that over 3,000 commercial Web
sites are utilizing IPIX images.
Our patented technology creates IPIX images by combining two film or digital
photographs taken with a fisheye lens into one 360(degree) by 360(degree)
spherical image. Our Wizard software corrects the distortion inherent in such
photographs. A person may view the resulting image in any direction, and, if
desired, save the image utilizing an IPIX key for posting to a Web site,
transmitting via e-mail or saving to a disk. The following diagram demonstrates
the steps to create an IPIX image. IPIX images can be downloaded rapidly and can
be viewed and navigated with the IPIX plug-in or a viewer using JAVA. We are
utilizing our patented technology to develop other immersive imaging products,
such as steerable video and an IPIX-compatible digital camera for the consumer
market.
Leading companies use our technology to create virtual tours and multimedia
content to attract and retain visitors on their Web sites, which enhances their
marketing and e-commerce initiatives. We have targeted the following domestic
and international commercial markets: real estate, travel and hospitality,
electronic publishing, corporate and e-commerce and education and entertainment.
Our customers include Coldwell Banker, Rent.Net, Carnival Cruise Lines,
Swissotel, CNN, Microsoft, Intel, Ticketmaster and Disney. In addition, we have
entered into strategic relationships with leading customers in our commercial
markets such as Homes.com and Microsoft CarPoint to promote the use of IPIX
images to members of our targeted commercial markets.
INDUSTRY BACKGROUND
Growth of the Internet and e-commerce
The Internet has emerged as a global interactive medium enabling millions of
people worldwide to share information, communicate and conduct business
electronically. The Internet differs from traditional media by its lack of
geographic limitations and its ability to provide instantaneous data
communication. International Data Corporation, or IDC, estimates that the number
of Web users will grow from approximately 69 million worldwide in 1997 to
approximately 320 million worldwide by the end of 2002. Growing usage of the
Internet has been driven primarily by the rapid proliferation of personal
computers, easier, faster and affordable access to the Internet, increasingly
robust network architectures and the emergence of compelling content and
applications.
The emergence of the Internet and secure transaction networks has generated
significant opportunities for businesses to conduct electronic commerce. IDC
estimates e-commerce revenues will grow from approximately $12.4 billion
worldwide in 1997 to $237 billion worldwide by 2001. According to Forrester
Research, on-line leisure travel reservations will grow from 1.3 million trips
in 1997 to 65.5 million trips by 2003. With respect to real estate, Yankee Group
reports that the percentage of homebuyers using the Internet to shop for a home
will increase from 4% in 1997, to over 30% in the year 2000. Additionally,
Forrester Research estimates that on-line classified advertising will grow from
$185 million in 1998 to $2.9 billion in 2003. This widespread deployment and
acceptance of the Internet has introduced rapid changes in the way information
is produced, distributed and consumed.
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Demand for effective on-line content
The popularity of the Internet has resulted in substantial growth in the number
and types of Web sites. According to IDC, the number of Web sites is estimated
to grow from 829.4 million in 1998 to 2.7 billion in 2000. New technologies are
allowing Web site operators and advertisers to measure a site's traffic, average
time spent on a site and visit-to-purchase ratios. Advertisers are utilizing
this data to measure the effectiveness of Internet advertisements and to set
advertising rates.
This data is causing businesses to demand content and features that will allow
them to attract visitors, increase the amount of time spent on their Web sites
and promote e-commerce. According to a Forrester Research survey of online
consumers, 75% of those surveyed stated that content was the most important
factor in attracting and retaining visitors to Web sites.
Emergence of broadband capability
The transmission of data intensive content over the Internet has been limited
due to historical bandwidth constraints. Increasing availability of improved
delivery systems, such as digital cable modems, satellite delivery systems and
DSL networks are enabling the use of more feature-rich multimedia content.
Forrester Research predicts that approximately 16 million U.S. households will
have broadband connection by the end of 2002, representing approximately 25% of
the homes connected to the Internet.
Growth in the use of digital imaging
Fundamental changes are occurring in the photography industry with the
introduction of the digital camera. The digital camera allows the user to take
pictures and display them digitally, either on a personal computer or over the
Internet, without the need for traditional film development. Because digital
cameras were initially expensive, early adopters of this technology were
professionals and hobbyists. Recently, sales of digital cameras have grown
substantially due to improved performance and lower unit prices. IDC forecasts
that worldwide digital camera shipments will grow from 2.7 million units in 1997
to 29.5 million units in 2002.
Lack of interactivity and realism with existing digital imaging technology
Companies are increasingly using digital imaging to promote their products and
present information on their Web sites. Digital imaging provides businesses with
a powerful, cost-effective medium to maximize the impact of their Web sites.
However, most of the images remain flat two-dimensional images offering a
limited field of view. Technological innovations that enhance realism and
interactivity and contribute to a viewer's retention to that Web site will
facilitate the success of e-commerce by potentially leading to increased sales
and advertising rates. Webcams and streaming video are some of the technological
innovations businesses are using to attract and retain visitors to their Web
sites.
Specifically, immersive imaging, or the ability to create the viewing
perspective of being inside the image, is becoming increasingly popular with
many Web sites. However, image creation with many of the existing immersive
technologies is labor intensive and requires proprietary hardware. Conditions
such as inadequate lighting, subject motion or lack of portability reduce the
effectiveness of the image. As a result, market acceptance of these technologies
has been limited.
In order for widespread adoption of immersive imaging by businesses and
consumers to occur, new immersive technologies must offer the following
benefits:
- ease of creating and viewing an image;
- ease of distributing and sharing the image;
- portability of the capture device;
- cost effectiveness;
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- use of standardized technology; and
- platform independence.
THE IPIX SOLUTION
We believe that our 3608 by 3608 immersive imaging solution enhances the key
elements of a photograph: memory, information and entertainment. An IPIX image
provides more than just a picture. The key benefits of our immersive imaging
solution are as follows:
- IPIX images provide a more powerful viewing experience by creating a 3608
by 3608 immersive viewing environment;
- our technology is easy to use, portable and cost-effective; and
- our technology is compatible with commercially available digital cameras
and different computer platforms and has low bandwidth requirements.
IPIX images enhance the photo viewing experience by permitting a person to view
locations from ground to sky, floor to ceiling and horizon to horizon. A person
can navigate the image on a personal computer screen by moving the cursor within
the image. We believe IPIX images, alone or combined with other multimedia such
as audio, video and automation, can provide businesses with more compelling
content to attract and retain visitors to their Web sites and promote
e-commerce.
Our technology is easy to use, portable and cost-effective. Our Wizard software
easily and quickly combines two 1858 photographs taken with a standard digital
camera into one immersive image. After using an IPIX key, a user can post the
IPIX image to a Web site, view it on a personal computer or e-mail it with the
click of a button. IPIX images can be viewed and navigated with the IPIX viewer
or with a viewer using JAVA. We price our IPIX keys to meet the cost
requirements and anticipated use of the IPIX image by the end user, making it a
cost effective alternative to other immersive imaging technologies.
Because our technology can be used with commercially available digital cameras,
IPIX images can be captured in almost any environment. Our technology is
compatible with most major operating systems and Internet browsers. The IPIX
image file size is small (50 to 250 Kbs), which results in quick delivery and
short download on low bandwidth systems. Our technology is also taking advantage
of the pending availability of broadband networks and higher resolution digital
cameras. We currently have in development our IPIX Webcam and steerable video
technology, V360.
OUR GROWTH STRATEGY
Our objective is to become a world leader in interactive photography and
immersive imaging for the Internet. We believe we can achieve this objective by
leveraging our leading position in immersive imaging technology. Our key
strategies to achieve this objective include:
Build awareness of the IPIX brand and experience
We have begun to create awareness of the IPIX brand name and experience through
a variety of activities. We are focusing our direct sales and advertising
initiatives on our targeted commercial markets. We have entered into
co-marketing relationships with camera manufacturers, such as Kodak, Nikon and
Olympus, and commercial market leaders such as American Express, CNN and General
Electric. We also participate in industry specific trade shows. In order to
increase our presence on the Internet, we target high-profile, high-traffic Web
sites to use our technology. For example, we provided IPIX images of the space
shuttle to CNN that were used in its special broadcast of John Glenn's return to
space. We intend to use portions of the net proceeds of this offering to expand
our sales and marketing programs and increase our brand awareness.
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Target commercial markets that can best capitalize on our technology
We believe that applications within targeted commercial markets provide the most
immediate revenue opportunities for IPIX images. These markets are characterized
by the need for high visual content in advertising, product information and
entertainment. We initially have targeted the following commercial markets: real
estate, travel and hospitality, electronic publishing, corporate and e-commerce
and education and entertainment. We actively seek customers that are leaders in
each of these markets. For example, we have entered into an agreement with
Cendant Corporation and are the preferred provider of immersive imaging to its
real estate subsidiaries, Coldwell Banker, Century 21 and ERA. We organize our
sales force and customize our product offering to each commercial market to
satisfy the needs of the particular market and customer. In addition, we believe
that opportunities exist for our technology in other commercial markets such as
security, child care, government agencies and architecture.
Develop approaches to penetrate consumer markets
With the availability of IPIX images on retail products such as CD-ROM
encyclopedias and increased usage of IPIX images on Web sites, we believe that
consumers are becoming familiar with immersive imaging and will begin to require
the same immersive imaging technology for their personal use.
By taking advantage of the increasing use and decreasing cost of digital
cameras, we currently are pursuing a number of different product approaches for
the consumer market. The first of these, a personal edition digital camera kit,
is targeted towards the early adopter, as well as the photo enthusiast. We also
seek to partner with leading camera manufacturers to develop a single use "point
and shoot" film camera kit that will create an immersive panoramic image and be
targeted to a broader use market. We believe the consumer will utilize the
services of a third party to process and deliver the IPIX images on a CD-ROM or
via the Internet.
Leverage our technology to enhance existing products and create new product
offerings
We continue research and development efforts to expand the features and
capabilities of our products and services and to develop new product offerings.
In particular, we are pursuing products compatible with the pending availability
of broadband networks and higher resolution digital cameras.
One product in beta test phase is the IPIX Webcam, which we call "the eyes of
the Internet." This technology would permit the remote capture, creation and
transmission of hemispherical IPIX images over the Internet. The IPIX image is
continuously updated and can be viewed on a personal computer or other
Internet-enabled device. In addition to our current targeted commercial markets,
child care, security and entertainment industries are possible commercial market
applications.
Another new product development is our steerable video technology, V360. When
fully developed, V360 will enable multiple viewers to simultaneously and
independently select their own field of view by navigating within a spherical or
hemispherical video image transmitted from a stationary camera. Possible
applications for this technology include the sports broadcasting, tourism and
motion picture industries. V360 research is ongoing with working prototypes
developed in conjunction with Discovery, MediaOne and Motorola currently under
evaluation.
Expand strategic relationships
We have developed strategic relationships with camera manufacturers, technology
companies and content providers. We have established strategic relationships
with leading camera manufacturers such as Kodak, Nikon and Olympus as well as
technology companies such as IBM, Intel and RealNetworks. We believe these
relationships will enable us to achieve rapid adoption of our technology and
penetrate markets quickly. In addition, they will help us to facilitate the
development of compelling content and to expand the range of applications for
IPIX images. We also plan to continue to capitalize on synergies with software
and hardware vendors and distributors possessing complementary technologies. We
plan to expand these relationships and seek additional partners with market and
technology leaders.
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Expand internationally
We intend to increase our presence throughout the world by developing
relationships with strategic partners in select international markets. Through
these relationships, we intend to sell to our targeted commercial markets
internationally. We have established an operating subsidiary in the United
Kingdom to target market opportunities in Europe and have entered into
distributorship arrangements with strategic partners in Japan and Australia. In
Japan, Sumitomo Corporation currently distributes IPIX keys and IPIX kits under
a distribution agreement. We intend to continue to seek new strategic
relationships and organize additional operating subsidiaries as we expand into
new global markets.
PRODUCTS AND SERVICES
Our patented software technology creates IPIX images by combining two film or
digital photographs taken with a fisheye lens into one 360(degree) by
360(degree) spherical image. Our Wizard software corrects the distortion
inherent in such photographs. The resulting image can be viewed in any
direction, up-down, left-right, and horizon to horizon. The user may then view
the IPIX image and, if desired, save the image utilizing an IPIX key for posting
to a Web site, transmitting via e-mail or saving to a disk. The following
demonstrates the steps to create an IPIX image.
[SERIES OF FOUR PICTURES DESCRIBING STEPS TO CREATE AN IPIX IMAGE]
We sell IPIX keys, kits and studio work, license archived IPIX images and
conduct special research and development projects.
Products
IPIX Keys. An IPIX key is an encryption tool that enables the user to save and
distribute an IPIX image and is our digital equivalent to standard film. One
IPIX key enables the saving and distribution of one IPIX image, just as one film
negative enables the creation of one film photograph. We provide an initial
bundle of IPIX keys in our IPIX kits. IPIX kit owners can purchase additional
keys from us through our Web site or through our toll-free order system. We
price IPIX keys based on the potential number of viewers, useful life and
utility of the IPIX image. For example, IPIX images used in a CD-ROM
encyclopedia are viewed by a large audience, have a long life and contribute
significantly to the viewing experience and can command higher prices. In
addition, we offer enhancements to our IPIX keys. IPIX keys can be modified so
that the IPIX image may be displayed only in a particular file format or
resolution, may be incorporated into multimedia presentations, has limited
creation and viewing lifetime and may be posted to a specific Web site or
distributed via e-mail.
IPIX Kits. Our IPIX kit contains all the necessary items to create an IPIX
image, including a digital camera, fisheye lens, rotator, tripod, Wizard
software and an initial amount of IPIX keys. Kit sales are intended primarily to
increase the number of capture devices in the market and to stimulate repeat
purchases of IPIX keys and are not intended to be a significant source of our
future profits. We have established strategic relationships with leading digital
camera manufacturers such as Kodak, Nikon and Olympus in order to increase the
number of IPIX enabled digital cameras in the market. We sell our IPIX kits
through our direct sales force, from an on-line store maintained on our Web site
and through our toll-free telephone order system. We are considering
establishing a new Web site, "eCamera.com," where we would sell a full line of
IPIX enabled digital cameras to also enhance IPIX key sales.
In-house Studio. We maintain an in-house studio capable of creating
high-quality, multimedia-rich IPIX images for our customers. Our in-house studio
serves to introduce our technology to customers and stimulate additional sales.
We provide our studio customers with a complete turnkey solution where we take
the photographs, create the IPIX images and transmit the images to the customer
or directly to their Web site. Prices charged for studio work vary depending on
the number of desired images, type of photograph requested (i.e. film or
digital) and nature of added enhancements.
IPIX Stockhouse. We maintain a growing archive of over 3,300 select IPIX images
from around the world, such as the Grand Canyon, the Great Wall of China and the
Eiffel Tower, which we license to others for a fee.
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These images are submitted by company and freelance photographers. Customers who
license IPIX images from our IPIX Stockhouse include online publishers, CD-ROM
producers, travel companies, multimedia designers and other content creators.
Licensing fees for using our stock IPIX images are determined based on quality,
content, usage and time frame. We intend to expand this business by partnering
with other image stockhouses to provide additional distribution channels for our
archived IPIX images.
Services
Research and Development Projects. We conduct special research and development
projects acting as a subcontractor for the customer who owns the final product.
However, we maintain ownership of our technology incorporated into the project,
including any improvements and enhancements. For example, we are developing an
in-flight entertainment system for a customer which will permit each individual
passenger on an airplane to view live scenes outside the aircraft on their
in-seat video monitor. Our participation in this project has contributed to the
development of our technology.
Multimedia Enhancements
We can add the following multimedia capabilities to an IPIX image with minimal
incremental file size:
Multimedia Software. Our multimedia software can link a series of IPIX images
together and include other multimedia content, such as video, audio and text.
The user can combine the finished product with other digital multimedia features
such as Macromedia Director to provide an attractive interactive product. For
example, in November 1998, PBS and Intel used our multimedia software to
incorporate and link IPIX images into its digital television broadcast of the
Ken Burns documentary on Frank Lloyd Wright.
IPIX-TV. Our multimedia software can create an IPIX image to include automated
viewing and background audio. By adding autoplay with either music or narration,
the user can provide a video-like viewing experience of a still image. For
example, Swissotel used an IPIX image of the exterior of a hotel, with automated
motion and accompanied by background street noise, to make the viewer feel as if
he were watching a video of the front of the hotel. Jupiter Communications, an
Internet marketing research firm, selected IPIX-TV as one of the top five
technologies to watch in 1999.
New Products
We continually make enhancements and improvements to our technology and take
advantage of innovations in image compression and cross platform software
development languages. We believe these efforts have enabled us to explore new
applications for our technology. Described below are several products currently
under development:
V360. Our patented technology has the potential to generate full-motion
steerable video. When fully developed, V360 will enable multiple viewers to
simultaneously and independently select their own field of view within a
spherical video image from a fixed camera source. For example, an IPIX-enabled
V360 video feed from a sporting event would allow viewers to choose their own
camera angle, just as if they were actually in the stadium. V360 was featured at
IDC's Demo '99 conference as one of the forty most innovative technologies of
1999. We are exploring additional potential commercial applications of V360 such
as the security, teleconference and surveillance industries.
We believe V360 will benefit from the deployment of high-speed digital networks.
Multiple V360 streams could be delivered to the home via a digital cable
network, satellite or broadband. We have developed working prototypes in
conjunction with industry leaders such as MediaOne and Motorola. Our goal is to
become the leader in the field of full-motion steerable video by aggressively
pursuing and developing commercial applications for V360.
IPIX Webcam. According to InfoTrends, the number of Webcams in service will
grow from 1.2 million in 1998 to 12 million by 2002. Existing Webcam technology
continuously captures and transmits two-dimensional digital images over the
Internet. We have developed a Webcam which will permit the remote capture,
creation and transmission of 1808 navigable hemispherical IPIX images over the
Internet. The IPIX image is continuously
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updated and viewed on a personal computer or other Internet-enabled device such
as Web-TV. The IPIX Webcam will enable an unlimited number of viewers to view
the IPIX image and independently control their viewpoint. We are currently
engaged in a beta test with some of our customers to further refine this
technology. Potential commercial applications include entertainment, child care
and security industries.
IPIX On-Location. We are developing a "blue screen" application to our
technology in which an IPIX image can be used as a virtual set background. Blue
screens are used to create entire production studios from graphically rendered
images. We believe that our application of this technology, when fully
developed, will provide a cost-effective interactive solution for these virtual
studios.
IPIX Touch Screen. We have incorporated the ability to view an IPIX image with
a touch screen monitor. Viewers may navigate within the IPIX image by touching
the screen in the direction in which they wish to view. This innovation provides
an easy to use method of viewing an IPIX image. Potential opportunities for our
touch screen technology include kiosk manufacturers and airport and tourist
information exhibitors who wish to incorporate IPIX images into their product
offerings.
CUSTOMERS
We have directed our initial sales efforts to industry leaders within targeted
commercial markets. We believe that adoption of our technology by these leaders
will encourage other members of these markets to use IPIX images in order to
stay competitive. The following is a description of our targeted commercial
markets and our representative customers within these segments.
<TABLE>
<CAPTION>
TARGETED COMMERCIAL MARKET REPRESENTATIVE CUSTOMERS
- -------------------------- ---------------------------------------------
<S> <C>
Real estate.................................. Century 21, Coldwell Banker, ERA, Prudential,
Rent.Net, Rubloff, Winkworth (London)
Travel and hospitality....................... Carnival Cruise Lines, Disney Vacation Club,
Hilton Hotels, Holiday Inn, Hyatt Hotels,
Marriott, Starwood, Swissotel, Travelocity
Electronic publishing........................ Associated Press, CNN, Chicago Tribune,
CitySearch, Knight-Ridder, New York Times,
Reuters, The Washington Post, The Weather
Channel
Corporate and e-commerce..................... AutoVantage, Bell South, Cablevision, General
Motors, HGTV, Intel, Kodak, MCI Worldcom,
Microsoft CarPoint, Road Runner, Saab,
Ticketmaster, Toyota
Education and entertainment.................. ABC, Discovery Channel, Dreamworks SKG, Duke
University, E! Online, Fox, IBM Worldbook,
MGM, MTV, NBA, NBC, NFL, National Geographic,
PBS, Paramount Parks, The Walt Disney
Company, Warner Brothers
</TABLE>
Real Estate
Residential and commercial real estate brokers and agents use IPIX images on
their Web sites to provide online virtual tours of featured properties. This
capability allows brokers to differentiate themselves and gain new listings. In
addition, IPIX images allow brokers to cost-effectively showcase properties to
the widest possible audience as well as allow prospective buyers to quickly
target properties that match their criteria while expending minimal time and
money. We are the preferred provider of virtual tours and immersive imaging to
Cendant Corporation's family of real estate brokers which include Coldwell
Banker, ERA and Century 21. We have entered into an exclusive arrangement with
Rent.Net, an on-line apartment locator service, to provide immersive images of
rental apartments. We have strategic relationships with several real estate
portals, including Homes.com and Microsoft HomeAdvisor, to further penetrate
this market.
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We offer a virtual tour package which includes four IPIX images of a home taken
by an approved photographer for a suggested retail price of $99.95. Our real
estate customers who own their own IPIX kits may create their own four-room
virtual tour for a retail price of $49.95.
Travel and Hospitality
Hotel chains, vacation resorts, cruise lines, theme parks, major tourist
attractions and tourism bureaus use IPIX images to influence travel plans to
targeted destinations, transportation modes and lodging. IPIX images provide a
prospective visitor the opportunity to take virtual tours of rooms, amenities
and attractions prior to making final travel plans.
The majority of our travel and hospitality clients utilize our studio for a
complete turnkey solution. On average, prices for our studio work range from
$2,000 to $4,000 per property.
Electronic Publishing
Broadcasters and publishers incorporate IPIX images on their Web sites to
enhance their reporting and coverage of major news events. Also, local city
guides and online classified advertisers are beginning to use IPIX images to
enhance the information on their Web sites and enhance online advertising. These
companies typically own their own digital cameras and purchase IPIX keys on a
per-key basis. We are exploring the adoption of a subscription service whereby a
customer in this industry can purchase a specific or unlimited number of IPIX
keys for one monthly charge.
Corporate and E-Commerce
Companies utilize IPIX images to advertise their product and service offerings
or provide virtual tours of their corporate facilities. For example, when
Ticketmaster launched the My Ticketmaster Web site, they used IPIX images of
stadium and concert venues to allow customers to view their seat location prior
to purchasing a ticket online. Our corporate and e-commerce customers either
purchase kits to create their own IPIX images or utilize our in-house studio to
create IPIX images for them.
Education and Entertainment
Leaders in the education and entertainment industries use IPIX images to enhance
the appeal and functionality of their products and Web sites. In particular,
these customers provide significant exposure for our brand and products. For
example, IBM features IPIX images in their 1998 IBM Worldbook electronic
encyclopedia. Also, an IPIX virtual tour of the set of the movie "Episode I: The
Phantom Menace" posted on the starwars.com Web site helped promote the film's
release. Our education and entertainment clients request studio work and
purchase kits and keys to create their own IPIX images.
INTERNATIONAL
Through our operating subsidiary in the United Kingdom and our strategic
relationships with distributors in Japan and Australia, we market our technology
to international customers. For example, in Japan, Sumitomo Corporation
currently distributes IPIX keys and IPIX kits under a distribution agreement. We
believe that our strategy of targeting commercial markets can be applied on a
global scale as usage of the Internet grows internationally. We intend to
continue to seek new strategic relationships and organize additional operating
subsidiaries as we expand into new global markets.
STRATEGIC RELATIONSHIPS
We are establishing strategic relationships with leading companies to integrate
our technology with other hardware, software and Internet applications, to
continue the development of IPIX enabled digital cameras and to promote and
distribute our products and services to existing and emerging customer bases.
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Technology Relationships
We are working with leading technology companies to increase the multimedia
features of IPIX images and to increase the applications available for viewing
IPIX images. We have entered into an agreement with RealNetworks and have
licensed our viewer software for incorporation into its RealPlayer. Through this
agreement, we intend to integrate our technology into their streaming audio and
video platform, RealPlayer, enabling users to view IPIX images, along with other
multimedia content. We also have entered into an agreement with IBM to
incorporate our technology in IBM's HotMedia software. HotMedia is a JAVA based
software which allows web developers to incorporate multimedia content into
e-commerce applications. One development that may arise out of this relationship
is the ability to include IPIX images within Internet banner ads. We are an
Intel MMX and Pentium technology development partner, and Intel has featured
IPIX images in demonstrations of the capabilities of its multimedia
microprocessor technology.
Digital Camera Manufacturers
We have relationships with leading manufacturers of digital cameras such as
Kodak, Nikon and Olympus. These manufacturers have developed several models of
IPIX-compatible digital cameras. Recently, sales of digital cameras have grown
substantially. IDC forecasts that shipments of digital cameras will grow from
2.7 million units in 1997 to 29.5 million in 2002, although only a small number
of digital cameras currently in circulation are IPIX compatible. We intend to
continue to work with these manufacturers to enhance the IPIX related features
and increase the availability of these cameras. We intend to enhance these
relationships to include joint product development, manufacture of fisheye
lenses that are easily adaptable to the digital camera, co-marketing
arrangements and distribution of our products through the manufacturer's
distribution channels.
Promotion and Distribution Relationships
We have established relationships with companies that provide technology to our
targeted commercial markets in order to accelerate awareness and adoption of our
technology. These companies market IPIX images with their own technology
offerings to members of commercial markets. For example, we have entered into an
agreement with Microsoft HomeAdvisor, a leading real estate portal site, to
promote IPIX virtual tours on its Web site. We have also established
relationships with companies to distribute our products internationally.
Sumitomo Corporation, our distributor in Japan, sells kits and IPIX keys to
businesses and features our company and technology on their Web site. Sales of
products to Sumitomo Corporation represented 13% of total revenues in 1998.
SALES AND MARKETING
Our marketing efforts focus on increasing brand awareness and supporting our
product offerings. Using this strategy, we intend to acquire new customers,
increase repeat purchases of IPIX keys and develop new sales opportunities. Our
marketing efforts include print and Internet advertising, direct mailings,
participation in trade shows, co-marketing with strategic partners and public
relations campaigns. We intend to utilize a portion of the net proceeds of this
offering to expand our sales and marketing organization and efforts. Our sales
and marketing team focuses on commercial markets and targets industry leaders.
In addition, we continue to explore other commercial markets for our technology,
such as government agencies, and we have sold IPIX products to TVA, the General
Services Administration and the Tennessee Department of Education. As of April
30, 1999, our direct sales group consisted of 36 employees who operate out of
our Oak Ridge office and our multiple national and international sales offices.
We also have established a telesales group that targets Web developers and other
potential users of our technology outside of our targeted commercial markets.
Our telesales team also provides support for the direct sales teams and fields
inquiries from our Web site and our toll-free customer service number. As of
April 30, 1999 we had eight employees on our telesales team which is based in
our Oak Ridge office.
We maintain a customer relations department with seven employees as of April 30,
1999. Our customer relations personnel answer telephone and e-mail inquiries
regarding our products and respond to technical questions. Our service personnel
also perform quality assurance checks on each item of equipment included in
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our kits prior to shipment and process customer service inquiries concerning
order status, shipping information, returns and exchanges.
RESEARCH AND PRODUCT DEVELOPMENT
We have made substantial investments in research and product development. We
continue to develop enhancements to our technology and pursue new product
offerings. In particular, we are pursuing products compatible with the pending
availability of broadband networks and higher resolution cameras. One product in
beta test phase is the IPIX Webcam, which we call "the eyes of the Internet."
This technology will permit the remote capture, creation and transmission of
1808 navigable hemispherical IPIX images over the Internet. Another new product
development is our steerable video technology, V360. When fully developed, V360
will enable multiple viewers to independently select their own field of view by
navigating within a spherical video image transmitted by a stationary camera. As
of April 30, 1999, we employed 17 engineers dedicated to research and product
development.
COMPETITION
We compete with companies that offer immersive imaging products and companies
that offer traditional two-dimensional photography. We compete with these
companies on the basis of price, ease of use, picture resolution and end user
experience. Our primary competitors are Apple Computer, Inc., Bamboo.com, Be
Here Corporation, Black Diamond, Inc., Cyclovision, Inc., Infinite Pictures
Corporation, and Live Picture Corporation in the immersive imaging market and
photography development companies in the traditional two-dimensional film
market. Some of our competitors may have greater financial, marketing,
distribution and technical resources than us. Our success will be dependent on
our ability to compete with these competitors on both a quality and
cost-effective basis, and there is no assurance that we will be successful in
that competition.
INTELLECTUAL PROPERTY
We rely on a combination of patent, trade secret and trademark laws and
contractual restrictions to establish and protect proprietary rights in our
products. Our patents are intended to protect and support current and future
development of our technology. In the United States, we have seven issued
patents and 13 patent applications pending. We have 16 international patent
applications pending. In addition, we license related patents and their
associated international filings from Motorola, pursuant to a non-royalty
bearing license agreement. Motorola has a limited right to license our patents,
and Motorola's consent must be obtained prior to any grant of an exclusive
license to our patents in excess of one year.
We believe that the ownership of patents is presently a significant factor in
our business. However, our success depends primarily on the innovative skills,
technical competence and marketing abilities of our personnel. In addition,
there can be no assurance that our current and future patent applications will
be granted, or, if granted, that the claims covered by the patents will not be
reduced from those included in our applications. We have entered into
confidentiality and invention assignment agreements with our employees and
entered into non-disclosure agreements with our suppliers, distributors and
appropriate customers so as to limit access to and disclosure of our proprietary
information. We must also guard against the unauthorized use or misappropriation
of our technology by third parties. We have experienced wrongful use in the
past, and although we have taken steps to stop that use, we expect to experience
more attempts in the future. There can be no assurance that the statutory and
contractual arrangements will provide sufficient protection to prevent
misappropriation of our technology or deter independent third-party development
of competing technologies.
We pursue the protection of our trademarks in the United States and, based upon
anticipated use, internationally. The laws of some foreign countries might not
protect our products or intellectual property rights to the same extent as the
laws of the United States. Effective patent, trade secret and trademark
protection may not be available in every country in which we market or license
our products.
Claims by third parties that our current or future products infringe upon their
intellectual property rights may have a material adverse effect on us.
Intellectual property litigation is complex and expensive, and the outcome of
such litigation is difficult to predict. We have been involved in litigation
relating to the protection of our
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intellectual property rights. Any future litigation, regardless of outcome, may
result in substantial expense to us and significant diversion of our management
and technical personnel. An adverse determination in any such litigation may
subject us to significant liabilities to third parties, require us to license
disputed rights from other parties, if licenses to such rights could be
obtained, or require us to cease using such technology.
LITIGATION
On October 28, 1998, Minds-Eye-View, Inc. and Mr. Ford Oxaal filed a lawsuit
against us in the United States District Court for the Northern District of New
York. Minds-Eye alleges in its lawsuit that we breached a duty of confidence to
them, made misrepresentations and misappropriated trade secrets. The plaintiffs
allege that our technology wrongfully incorporates trade secrets and other
know-how gained from them in breach of various duties. The lawsuit seeks, among
other things, compensatory damages and a disgorgement of profits. We have
removed this action to arbitration to be held in Knoxville, Tennessee, which is
scheduled to be heard by an arbitrator in the fall of 1999.
We deny all of the allegations of wrongdoing in the complaint and intend to
vigorously defend ourselves against these claims. The ultimate outcome of these
legal proceedings is not presently determinable.
We are not currently a party to any other legal proceedings the adverse outcome
of which, individually or in the aggregate, we believe could have a material
adverse effect on our business, financial condition or results of operations.
EMPLOYEES
As of April 30, 1999, we employed 136 full-time employees. Our employees are not
covered by any collective bargaining agreements. We believe that our employee
relations are good. There is significant competition for employees with the
managerial, technical, marketing, sales and other skills required to operate our
business. Our success will depend upon our ability to attract, retain and
motivate employees.
FACILITIES
We lease approximately 31,250 square feet of space in Oak Ridge, Tennessee for
our corporate office and operations. The current lease expires October 8, 2002.
We also lease space in Japan, the United Kingdom, New York, Chicago, San Jose
and Fort Lauderdale for sales offices.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following sets forth information with respect to our directors and executive
officers as of April 30, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
James M. Phillips............ 47 Chairman of the Board of Directors and Chief Executive
Officer
Jeffrey D. Peters............ 47 President and Chief Operating Officer
John J. Kalec................ 48 Vice President and Chief Financial Officer
John M. Murphy............... 44 Vice President and General Manager, Sales
Steven D. Zimmermann......... 40 Vice President and Corporate Fellow
Joseph M. Viglione........... 55 Vice President, Administration
Edmond B. Lewis.............. 29 Vice President, Marketing and Secretary
Michael J. Tourville......... 39 Vice President, Product Engineering
Randall Battat............... 39 Director
John S. Hendricks............ 47 Director
Doug Holmes.................. 38 Director
Laban P. Jackson, Jr......... 55 Director
Tony Pantuso................. 36 Director
</TABLE>
- ---------------
JAMES M. PHILLIPS has served as our Chairman and Chief Executive Officer since
March 1997 and has been a member of our board of directors since 1995. From June
1995 to March 1997, Mr. Phillips was Corporate Vice President of Motorola,
Inc.'s Multimedia Markets Division, a division that manufactures, markets and
sells cable modems and other advanced telecommunications products and systems.
From June 1994 to June 1995, Mr. Phillips was Vice President and General Manager
for Motorola's Personal Communication Systems Division, a division that designs,
manufactures, markets and distributes PCS subscriber and infrastructure systems
and equipment and other intelligent devices. Mr. Phillips also serves on the
Fogelman School of Business Board of Advisors at the University of Memphis and
on the Chancellor's Advisory Council for Enhancement, and as a director of
Tennessee Technology, Inc. and the East Tennessee Economic Council. Mr. Phillips
holds a Bachelor's degree and an MBA from the University of Memphis.
JEFFREY D. PETERS joined our company in August 1998 and serves as our President
and Chief Operating Officer. From February 1996 to August 1998, Mr. Peters was
Vice President/General Manager of Eastman Kodak Company's Digital Imaging Group.
From September 1991 to February 1996, Mr. Peters was Vice President and General
Manager of the Semiconductor Sector of Harris Corporation. Mr. Peters holds a
Bachelor's degree from the University of Michigan and an MBA from the Florida
Institute of Technology.
JOHN J. KALEC joined our company in August 1998 and serves as Vice President and
Chief Financial Officer. From August 1996 to August 1998, Mr. Kalec was Chief
Financial Officer of Clayton Homes, Inc., a company specializing in manufactured
housing headquartered in Knoxville, Tennessee. From January 1996 to August 1996,
Mr. Kalec served as Senior Vice President of Philips Lighting Americas. From
July 1992 to December 1995, he served as Managing Director, Finance and
Accounting for Philips Components International B.V., located in Eindhoven, the
Netherlands. Mr. Kalec holds a Bachelor's degree in Business Administration from
Lewis University and a Master's degree in Accountancy from DePaul University.
Mr. Kalec is a director of Clayton Homes, Inc.
JOHN M. MURPHY joined our company as Vice President and General Manager, Sales
in July 1997. From June 1995 to June 1997, Mr. Murphy was President of
Coryphaeus Software, Inc., a real time 3-D simulation graphics company. From
March 1993 to June 1995, he was Vice President of Sales and Marketing at Orchid
Technology, Inc., a multimedia graphics company. Mr. Murphy holds a Bachelor's
degree from the University of Oregon.
34
<PAGE> 39
STEVEN D. ZIMMERMANN rejoined our company in July 1997 and serves as our
Corporate Fellow and a Vice President. From December 1996 to July 1997, Mr.
Zimmermann served as Senior Engineer of Motorola, Inc. Mr. Zimmermann was an
independent consultant from August 1993 to November 1996 and assisted technology
companies in consumer product development. From June 1988 to August 1993, he was
an engineer and an officer with our company and co-developed the technology on
which our software is based. Mr. Zimmermann holds Bachelor of Science and Master
of Science degrees in Electrical Engineering from The University of Tennessee.
JOSEPH M. VIGLIONE joined our company in May 1998 and serves as our Vice
President, Administration. From January 1992 to May 1998, Mr. Viglione was
Senior Vice President, Human Resources and Total Quality at Anchor Advanced
Products, a manufacturer of injection molded products headquartered in
Knoxville, Tennessee. Mr. Viglione holds a Bachelor's degree and an MBA from
Drexel University.
EDMOND B. LEWIS joined our company in April 1997 as Vice President, Marketing.
Mr. Lewis became Secretary in June 1997. From August 1994 to April 1997, Mr.
Lewis served as Senior Manager of Business Development and Marketing for
Motorola, Inc. From September 1993 to August 1994, he served as Manager of
Corporate Development of Telular Corporation. Mr. Lewis holds a Bachelor's
degree and an MBA from The University of Iowa.
MICHAEL J. TOURVILLE joined our company in September 1993 as a Senior Engineer
and was promoted to Vice President, Product Engineering in December of 1997. Mr.
Tourville holds a Bachelor's degree in Electrical Engineering from Auburn
University.
RANDALL BATTAT was elected a director in January 1999. Since July 1998, Mr.
Battat has served as Senior Vice President and General Manager of Motorola's
Internet and Networking Group. From January 1997 to July 1998, he was Corporate
Vice President and General Manager of the Information Systems Group of Motorola.
From January 1994 to January 1997, Mr. Battat served as Corporate Vice President
and General Manager of the Wireless Data Group, part of Motorola, Inc.'s
Messaging, Information and Media Sector. From January 1993 to January 1994, he
was Vice President of the Macintosh Desktop and Powerbook Division of Apple
Computer, Inc. Mr. Battat holds a Bachelor's degree in Electrical Engineering
from Stanford University. Mr. Battat serves as a director at the designation of
Motorola, Inc.
JOHN S. HENDRICKS has been a director of our company since January 1997. Since
1982, Mr. Hendricks has been Chairman and Chief Executive Officer of Discovery
Communications, Inc., a television broadcasting company. He is also a member of
the boards of directors of Excalibur Technologies Corporation, the National
Museum of Natural History, Smithsonian Institution, the James Madison Council,
the Library of Congress, the National Cable Television Association and the
Academy of Television Arts and Sciences. Mr. Hendricks is also a member of the
advisory board of the Lowell Observatory, Chairman of the Board of Trustees of
the Walter Kaitz Foundation and Co-Chair for the CEO Forum on Education and
Technology. Mr. Hendricks holds a Bachelor's degree and an Honorary Doctorate
from the University of Alabama. Mr. Hendricks serves as a director at the
designation of Discovery Communications, Inc.
DOUG HOLMES has been a director of our company since April 1998. Since May 1998,
Mr. Holmes has served as Executive Vice President-Strategy and Business
Development for MediaOne Group, Inc. From January 1997 to May 1998, he was
Executive Vice President-Finance, Strategy & Business Development for MediaOne.
From January 1995 to January 1997, Mr. Holmes was Vice President and Chief
Financial Officer of US WEST Media Group. From January 1994 to January 1995, Mr.
Holmes was Executive Director-Investor Relations of US WEST. Mr. Holmes is also
a director of Time Warner Telecom, Inc. Mr. Holmes holds a Bachelor's degree and
an MBA from Brigham Young University. Mr. Holmes serves as a director at the
designation of MediaOne Interactive Services, Inc.
LABAN P. JACKSON, JR. has been a director of our company since 1989. Since
January 1989, Mr. Jackson has served as Chairman of Clear Creek Properties, a
real estate development company. Mr. Jackson is a director of BankOne
Corporation, TBN Holdings, Inc. and Gulf Stream Home and Garden, Inc. Mr.
Jackson is a graduate of the United States Military Academy.
35
<PAGE> 40
TONY PANTUSO was elected a director in April 1999. Since September 1997, Mr.
Pantuso has served as Senior Vice President for GE Capital Equity Investments,
Inc., a division of General Electric Capital Corporation. From October 1996 to
September 1997, Mr. Pantuso was the Director of Business Development for
MediaOne Communications. From October 1995 to October 1996, Mr. Pantuso served
as Operations Manager for US WEST Export Yellow Pages. Mr. Pantuso is a
Certified Public Accountant and a Certified Financial Planner. Mr. Pantuso holds
a Bachelor's degree in Accounting and Finance from Colorado State University.
Mr. Pantuso serves as a director at the designation of GE Capital Equity
Investments, Inc.
BOARD OF DIRECTORS
Observers
Representatives of Advance Publications, Inc. and Liberty IP, Inc. serve as
observers to our board of directors. Observers are given notice of all board of
directors meetings and copies of materials provided in connection with each
meeting. Observers do not have voting rights. Currently, Steven Newhouse,
President of Advance Publications, represents Advance Publications as an
observer. Mr. Newhouse previously served as a member of our board of directors
and is a director of Third Age Media. In addition, Lee Masters, President and
Chief Executive Officer of Liberty Digital, a wholly owned subsidiary of Liberty
Media Corporation, represents Liberty IP as an observer. Liberty IP is a
subsidiary of Liberty Digital, which primarily invests in new media and music
businesses which emphasize the development of interactive content for broadband
networks. Our observers participate in discussions and matters brought before
the board of directors and provide business and Internet media experience.
Classification of Directors
The board of directors will be divided into three classes under our amended and
restated charter. Class I will consist of two directors who will stand for
election at the annual meeting of shareholders to be held in 1999. Class II will
consist of two directors who will stand for election at the annual meeting of
shareholders to be held in 2000. Class III will consist of two directors who
will stand for election at the annual meeting of shareholders to be held in
2001. After their initial term following this offering, directors in each class
will serve for a term of three years. The charter will provide that directors
can be removed only for cause by a majority of the shareholders or by a majority
of the other directors. Officers are chosen by and serve at the discretion of
the board of directors.
Board Committees
The audit committee has the responsibility to review our audited consolidated
financial statements and accounting practices, and to consider and recommend the
employment of, and approve the fee arrangements with, independent accountants
for both audit functions and for advisory and other consulting services. The
audit committee is currently comprised of Messrs. Jackson, Battat and Holmes.
The compensation committee reviews and approves the compensation and benefits
for our key executive officers, administers our employee benefit plans and makes
recommendations to our board of directors regarding such matters. The
compensation committee is currently comprised of Messrs. Jackson, Hendricks and
Phillips.
Director Compensation
Directors do not receive any cash compensation for their service as members of
the board of directors; however, they are reimbursed for reasonable out-of
pocket expenses incurred in connection with their attendance at meetings of the
board of directors and committee meetings. In March 1998, we adopted our
Non-Employee Stock Option Policy, or the Policy. Under the Policy, non-employee
directors, during their first year of service, receive options to purchase
50,000 shares of common stock and are eligible for additional options annually,
as determined by the compensation committee. Options are granted under our 1997
Equity Compensation Plan and become fully vested in the event of a change of
control, unless the compensation committee determines otherwise. The exercise
price for options granted under the Policy is the fair market value of our
common stock
36
<PAGE> 41
on the date of grant, with fair market value to be determined by the
compensation committee. All options granted under the Policy expire 10 years
from the date of the option grant.
Technology Advisory Board
We have established a Technology Advisory Board whose membership includes
leaders in basic fields of science and technology which are relevant to our
future products, as well as other persons experienced in business and
photography. The members of the Technology Advisory Board are: John Battin, who
previously served on our board of directors and was Senior Vice President of
Motorola's Multimedia Division; Dr. Alvin Trivelpiece, Director of the Oak Ridge
National Laboratory and President of Lockhead-Martin Energy Research; Dr.
Deborah Rieman, executive director of CheckPoint Software Technologies, Inc., a
leading provider of secure enterprise networking solutions; Senator Howard H.
Baker, Jr., the former Majority Leader of the Senate and a publisher of a
collection of photographs of the Big South Fork region of Tennessee; and Dr. H.
Lee Martin, a co-founder of our company and the executive director of the
Tennessee Technology Development Corporation. The Technology Advisory Board is
expected to meet with our management and key research and development personnel
at least semi-annually and will provide advice regarding future trends in
business, photography, technology and basic sciences. In consideration of this
service, we granted to each of Messrs. Battin and Baker and Drs. Trivelpiece and
Rieman stock options to purchase 35,000 shares of our common stock pursuant to
the Policy. The option to purchase 15,000 of these shares vested on the date of
the grant, with an additional 10,000 shares vesting on the first and second
anniversary of the date of the grant. Dr. Martin receives a stipend of $2,000
per month for his service on the Technology Advisory Board.
EXECUTIVE COMPENSATION
Summary Compensation Table
The table below sets forth information concerning the total compensation
received for services rendered to us during 1998 by our chief executive officer
and our four other highest paid executive officers who are referred to as the
Named Officers.
<TABLE>
<CAPTION>
----------------------------------
ANNUAL COMPENSATION
----------------------------------
OTHER ANNUAL
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION
- --------------------------- -------- ------- ------------
<S> <C> <C> <C>
James M. Phillips.......................................... $383,438 $ -- $214,989(3)
Chairman and Chief Executive Officer
Jeffrey D. Peters.......................................... 112,692(1) -- 25,000(4)
President and Chief Operating Officer
John J. Kalec.............................................. 62,372(2) -- --
Vice President and Chief Financial Officer
John M. Murphy............................................. 162,700 10,000 --
Vice President and General Manager, Sales
Steven D. Zimmermann....................................... 101,500 16,682 --
Vice President and Corporate Fellow
</TABLE>
- ---------------
(1) Annualized salary for 1998 was $300,000.
(2) Annualized salary for 1998 was $175,000.
(3) This amount represents a relocation expense of $190,794 and life insurance
premiums of $24,195 we paid on behalf of Mr. Phillips.
(4) This amount represents a relocation expense for Mr. Peters.
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<PAGE> 42
Option Grants in Last Fiscal Year
The following table sets forth certain information concerning stock options
granted to each of the Named Officers during 1998. We did not grant stock
options to Mr. Phillips or Mr. Zimmermann in 1998. We have never granted stock
appreciation rights.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
INDIVIDUAL GRANTS
----------------------------------------------- POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(1)
OPTIONS EMPLOYEES PRICE PER EXPIRATION ---------------------
NAME GRANTED IN 1998 SHARE DATE 5% 10%
- ---- ---------- ---------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey D. Peters.................. 300,000 19.0% $2.02 (2) $ $
John J. Kalec...................... 125,000 7.9 2.02 (3)
John M. Murphy..................... 50,000 3.2 2.02 03/03/08
</TABLE>
- ---------------
(1) Assumes increases in the fair market value of the common stock of 5% and 10%
per year from $ (the mid-point of the range set forth on the cover of
this prospectus) over the ten-year option period as mandated by the rules and
regulations of the Securities and Exchange Commission, and does not represent
our estimate or projection of the future value of the common stock. The actual
value realized may be greater or less than the potential realizable values set
forth in the table.
(2) Mr. Peters' stock options vest in equal amounts over a three year period and
expire in equal amounts on August 17, 2004, 2005 and 2006.
(3) Mr. Kalec's stock options vest in equal amounts over a three year period and
expire in equal amounts on August 24, 2004, 2005 and 2006.
Fiscal Year-End Option Values
The following table sets forth certain information concerning stock option
holdings held by the Named Officers at December 31, 1998.
<TABLE>
<CAPTION>
---------------------------------------------------------
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1998 DECEMBER 31, 1998
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
James M. Phillips............................ 1,702,537 567,512 $ $
Jeffrey D. Peters............................ -- 300,000
John J. Kalec................................ -- 125,000
John M. Murphy............................... 58,333 166,667
</TABLE>
Employment Agreements
We have entered into employment agreements with the following named officers:
Mr. Phillips. Mr. Phillips' employment agreement expires on December 31,
2001 and is renewable automatically for one year periods unless terminated
by us or Mr. Phillips. Mr. Phillips receives an annual salary of $386,250
and is eligible for a performance based bonus. We may terminate Mr.
Phillips' employment agreement with or without cause; however, if we
terminate the agreement without cause, Mr. Phillips is entitled to a
severance payment of $500,000, which increases to $1,000,000 upon the
consummation of this offering.
Mr. Peters. Mr. Peters' employment agreement continues indefinitely unless
terminated by us or Mr. Peters. Mr. Peters receives an annual salary of
$300,000 and is eligible for a performance based annual bonus. We may
terminate Mr. Peters' employment agreement with or without cause; however,
if we
38
<PAGE> 43
terminate the agreement without cause, Mr. Peters is entitled to a
severance payment equal to one year's salary.
Mr. Kalec. Mr. Kalec's employment agreement continues indefinitely unless
terminated by us or Mr. Kalec. Mr. Kalec receives an annual salary of
$175,000 and is eligible for a performance based annual bonus. We may
terminate Mr. Kalec's employment agreement with or without cause; however
if we terminate the agreement without cause prior to August 24, 2000, Mr.
Kalec is entitled to a severance payment of $175,000.
Mr. Murphy. Mr. Murphy's employment agreement continues indefinitely
unless terminated by us or Mr. Murphy. Mr. Murphy receives an annual salary
of $163,600 and is eligible for a performance based annual bonus. We may
terminate Mr. Murphy's employment agreement with or without cause; however,
if we terminate the agreement without cause before the end of the term, Mr.
Murphy is entitled to a severance payment equal to two months' salary.
Mr. Zimmermann. Mr. Zimmermann's employment agreement expires on June 23,
2000. Mr. Zimmermann receives an annual salary of $127,000. We may
terminate Mr. Zimmermann's employment agreement with or without cause;
however, if we terminate the agreement without cause before the end of the
term, Mr. Zimmermann is entitled to a severance payment of equal to one
year's salary.
1997 EQUITY COMPENSATION PLAN
Our 1997 Equity Compensation Plan, or the Plan, was adopted by the board of
directors in November 1997 and approved by the shareholders on December 8, 1997.
The Plan provides for grants of stock options to selected employees, officers,
directors, consultants and advisors. By encouraging stock ownership, we seek to
attract, retain and motivate these persons and to encourage them to devote their
best efforts to our business and financial success.
The Plan authorizes the granting of options to purchase up to 5,876,560 shares
of our common stock (subject to adjustment in certain circumstances). Options to
purchase 3,848,667 shares of common stock had been granted under the Plan.
Considering all options to purchase shares, options to purchase 3,706,387 shares
are currently exercisable and 547,917 shares will be exercisable at the
consummation of this offering. If options expire or are terminated for any
reason without being exercised, the shares of common stock subject to such
options again will be available for grant.
The Plan may be administered by the board of directors or by a committee of the
board of directors. Grants under the Plan may consist of options intended to
qualify as incentive stock options, or ISOs, within the meaning of Section 422
of the Code, or non-qualified stock options, or NQSOs, that are not intended so
to qualify. During any calendar year, a grantee may not receive options to
purchase common stock for more than 25% of the total number of shares of common
stock reserved under the Plan.
The option price of any ISO granted under the Plan will not be less than the
fair market value of the underlying shares of common stock on the date of grant.
The option price of a NQSO will be determined by the committee, in its sole
discretion, and may be greater than, equal to or less than the fair market value
of the underlying shares of common stock on the date of grant. The committee
will determine the term of each option; provided that the exercise period may
not exceed ten years from the date of grant. The price of an ISO granted to a
person who owns more than 10% of our stock must be at least equal to 110% of the
fair market value of common stock on the date of grant, and the ISO's term may
not exceed five years. A grantee may pay the exercise price in cash, by
delivering shares of common stock already owned by the grantee and having a fair
market value on the date of exercise equal to the option price, or by such other
method as the committee may approve. The committee may impose such vesting and
other conditions on options as the committee deems appropriate. Options may be
exercised while the grantee is an employee, officer, director, consultant or
advisor or within a specified period after termination of the grantee's
employment or services.
In the event of a change of control, all outstanding options shall become fully
exercisable, unless the committee determines otherwise. Except as provided
below, unless the committee determines otherwise, in the event of a merger where
we are not the surviving corporation, all outstanding options shall be assumed
by or replaced with
39
<PAGE> 44
comparable options by the surviving corporation. The committee may require that
grantees surrender their outstanding options in the event of a change of control
and receive a payment in cash or common stock equal to the amount by which the
fair market value of the shares of common stock subject to the options exceeds
the exercise price of the options.
401(K) PLAN
We have a 401(k) profit sharing plan which is intended to qualify under Sections
401(a) and 401(k) of the Code. Generally, all employees are eligible to
participate in the 401(k) plan after they have completed six months of service
and are fully vested three years from the date of their eligibility.
Eligible employees electing to participate in the 401(k) plan may defer a
portion of their compensation, on a pre-tax basis, by making a contribution to
the 401(k) plan. The maximum contribution is fixed in Section 401(k) of the
Code. The contribution limit for calendar year 1998 was $10,000. We may
contribute an annual discretionary matching contribution equal to 65% of each
participant's deferred compensation. Our matching contribution may not exceed
6.15% of the employee's annual compensation. We contributed to the 401(k) plan
an aggregate of $33,432 in fiscal year 1996, $43,803 in fiscal year 1997 and
$116,071 in fiscal year 1998.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The compensation committee during the year ended December 31, 1998 consisted of
Messrs. Jackson, Hendricks, Newhouse and Phillips. Mr. Phillips is our Chairman
and Chief Executive Officer. None of our executive officers has served as a
director or member of the compensation committee of any other entity whose
executive officers served on our board of directors or compensation committee.
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<PAGE> 45
PRINCIPAL SHAREHOLDERS
The following table sets forth information regarding the beneficial ownership of
the common stock as of May 17, 1999, by (1) each person who beneficially owns
more than 5% of our common stock; (2) each of our directors and Named Officers;
and (3) all current executive officers and directors as a group. The table
includes all shares of common stock issuable within 60 days of May 17, 1999 upon
the exercise of options and other rights beneficially owned by the indicated
stockholders on that date. Beneficial ownership is determined in accordance with
the rules of the Securities and Exchange Commission and includes voting and
investment power with respect to shares. To our knowledge, except under
applicable community property laws or as otherwise indicated, the persons named
in the table have sole voting and sole investment control with respect to all
shares beneficially owned. The applicable percent ownership for each shareholder
is based on 36,770,837 shares of common stock outstanding as of May 17, 1999
(which includes 24,133,297 shares of common stock issuable upon the conversion
of all of our outstanding shares of preferred stock), together with applicable
warrants and options for that shareholder. Shares of common stock issuable upon
exercise of warrants and options which are exercisable within 60 days of May 17,
1999 are deemed outstanding for the purpose of computing the percent ownership
of the person holding those warrants and options but are not deemed outstanding
for computing the percent ownership of any other person.
<TABLE>
<CAPTION>
----------------------------------------------
PERCENT
BENEFICIALLY OWNED
NUMBER OF SHARES -------------------------
NAME AND ADDRESS OF BENEFICIALLY BEFORE
PRINCIPAL SHAREHOLDERS(1) OWNED OFFERING AFTER OFFERING
------------------------- ---------------- -------- --------------
<S> <C> <C> <C>
Dr. H. Lee Martin..................................... 7,519,120(2) 20.4% %
11615 S. Monticello Drive
Knoxville, TN 37922
Motorola, Inc......................................... 6,114,445(3) 16.6
1303 East Algonquin Rd.
Schamburg, IL 60196
MediaOne Interactive Services, Inc.................... 4,492,225(4) 11.9
188 Inverness Drive West
Englewood, CO 80112
GE Capital Equity Investments, Inc.................... 3,512,595(5) 9.4
120 Long Ridge Road
Stamford, CT 06927
Advance Publications, Inc............................. 3,094,060(6) 8.3
30 Journal Square
Jersey City, NJ 07306
Liberty IP, Inc....................................... 1,908,397(7) 5.2
8101 East Prentice Avenue
Englewood, CO 80111
James M. Phillips..................................... 2,270,049(8) 5.8
Jeffrey D. Peters..................................... 175,000(9) *
John J. Kalec......................................... 175,000(10) *
John M. Murphy........................................ 191,667(11) *
Steven D. Zimmermann.................................. 1,160,680 3.2
John S. Hendricks..................................... 1,258,113(12) 3.4
Laban P. Jackson, Jr.................................. 451,839(13) 1.2
All directors and executive officers as a group....... 5,974,015(14) 15.1%
</TABLE>
- ---------------
* Less than one percent
41
<PAGE> 46
(1) Except as otherwise indicated below, the address for each executive officer
and director is 1009 Commerce Park Drive, Oak Ridge, Tennessee, 37830.
(2) Includes 386,100 shares owned by the H. Lee Martin Irrevocable Trust No. 2.
(3) Includes 6,097,778 shares issuable upon the conversion of outstanding shares
of preferred stock and 16,667 shares of common stock issuable upon the exercise
of stock options.
(4) Includes 3,580,446 shares issuable upon the conversion of outstanding shares
of preferred stock and 895,112 and 16,667 shares of common stock issuable upon
the exercise of warrants and stock options, respectively.
(5) Includes 2,862,595 shares issuable upon the conversion of outstanding shares
of preferred stock and 650,000 shares of common stock issuable upon the exercise
of warrants.
(6) Includes 2,475,248 shares issuable upon the conversion of outstanding shares
of preferred stock and 618,812 shares of common stock issuable upon the exercise
of warrants.
(7) Includes 1,908,397 shares issuable upon the conversion of outstanding shares
of preferred stock.
(8) Includes 2,270,049 shares of common stock issuable upon the exercise of
stock options.
(9) Includes 150,000 shares of common stock issuable upon the exercise of stock
options.
(10) Includes 125,000 shares of common stock issuable upon the exercise of stock
options.
(11) Includes 191,667 shares of common stock issuable upon the exercise of stock
options.
(12) Includes 16,667 shares of common stock issuable upon the exercise of stock
options. Also includes 219,182 shares of common stock and 30,940 shares of
common stock issuable upon the conversion of outstanding shares of preferred
stock and the exercise of warrants, respectively, held by Hendricks Family
Investments, LLC. Also includes 991,324 shares of preferred stock of Discovery
Communications, Inc., of which Mr. Hendricks is Chairman and Chief Executive
Officer, to which he disclaims all beneficial ownership.
(13) Includes 422,672 shares issuable upon the conversion of outstanding shares
of preferred stock and 12,500 and 16,667 shares of common stock issuable upon
the exercise of warrants and stock options.
(14) Includes 641,854 shares issuable upon the conversion of outstanding shares
of preferred stock and 43,440 and 2,871,717 shares of common stock issuable upon
the exercise of warrants and stock options and 991,324 shares of preferred stock
of Discovery.
Dr. H. Lee Martin has granted to the underwriters an option to purchase up to
shares of common stock to cover over-allotments. If the underwriters
exercise the over-allotment option in full, Dr. Martin will beneficially own
shares of common stock, or %, of our common stock outstanding
after this option. In addition, Daniel P. Kuban, one of our shareholders, has
granted to the underwriters an option to purchase up to shares of
common stock to cover over-allotments. If the underwriters exercise the
over-allotment option in full, Mr. Kuban will beneficially own
shares of common stock, or %, of our common stock outstanding
after this offering.
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<PAGE> 47
CERTAIN TRANSACTIONS
In December 1996, we issued to each of Motorola, Inc. and Discovery
Communications, Inc., 991,324 shares of common stock for an aggregate purchase
price of $2.0 million each. John S. Hendricks, one of our directors, is the
Chairman and Chief Executive Officer of Discovery. Each of Motorola and
Discovery are entitled to demand and piggyback registration rights with respect
to these shares. In April 1998, Motorola and Discovery exchanged their shares of
common stock for a like number of shares of Series B preferred stock.
We license from Motorola certain patent and patent applications related to our
technology pursuant to a patent license agreement dated January 17, 1997. These
licenses have been granted for the lives of the underlying Motorola patents on a
worldwide, royalty-free, non-exclusive, non-transferrable basis with the right
to sublicense. We may not grant third parties exclusive licenses for our
technology for a term exceeding one year without the prior written consent of
Motorola.
In January 1997, we granted Discovery a world-wide, exclusive license to utilize
our technology in connection with the development of 15 destination-specific
CD-ROM titles. The term of the Discovery license will expire on the expiration
date of the last underlying patent.
In July 1998, we purchased 500,000 shares of stock from Dr. H. Lee Martin, our
founder and beneficial owner of greater than 5% of our common stock, for an
aggregate purchase price of $500,000.
In August 1998, we purchased 435,000 shares of Series B preferred stock from
Motorola for an aggregate purchase price of $878,700.
From April to July 1998, we sold an aggregate of 6,435,643 shares of Series C
preferred stock to a group of private investors for an aggregate purchase price
of $13.0 million. We also issued warrants to these investors to purchase an
aggregate of 1,608,911 shares of Series C preferred stock at an exercise price
of $2.02 per share. Purchasers of our Series C preferred stock included the
following related parties:
<TABLE>
<CAPTION>
---------------------------------------------------
AGGREGATE NUMBER OF WARRANT
NAME NUMBER OF SHARES PURCHASE PRICE SHARES
- ---- ---------------- -------------- -----------------
<S> <C> <C> <C>
MediaOne Interactive Services, Inc.......... 3,580,446 $7,233,000 895,112
Advance Publications, Inc................... 2,475,248 5,000,000 618,812
John S. Hendricks........................... 123,762 250,000 30,940
Laban P. Jackson, Jr........................ 50,000 101,000 12,500
</TABLE>
From January to March 1999, we sold an aggregate of 10,305,344 shares of Series
D preferred stock to a group of private investors for an aggregate purchase
price of $27.0 million. Purchasers of our Series D preferred stock included the
following related parties:
<TABLE>
<CAPTION>
--------------------------------
AGGREGATE
NAME NUMBER OF SHARES PURCHASE PRICE
- ---- ---------------- --------------
<S> <C> <C>
GE Capital Equity Investments, Inc.......................... 2,862,595 $7,500,000
Liberty IP, Inc............................................. 1,908,397 5,000,000
Motorola, Inc............................................... 1,145,038 3,000,000
Laban P. Jackson, Jr........................................ 152,672 400,000
John S. Hendricks........................................... 95,420 250,000
</TABLE>
All of our shares of preferred stock will automatically convert into common
stock upon completion of this offering. Each of the purchasers of the Series C
preferred stock and the Series D preferred stock are entitled to demand and
piggyback registration rights with respect to their respective shares of
preferred stock.
In connection with the issuance of the Series D preferred stock to GE Capital,
we entered into a marketing agreement pursuant to which GE Capital will provide
us assistance in developing and implementing a marketing program and an
advertising allowance of $500,000. In addition, we issued a warrant to GE
Capital to purchase 650,000 shares of our Series D preferred stock at an
exercise price of $3.14 per share.
43
<PAGE> 48
DESCRIPTION OF CAPITAL STOCK
Our amended and restated charter, which will become effective upon the closing
of this offering, authorizes the issuance of up to 100,000,000 shares of common
stock, and shares of preferred stock, the rights and preferences of
which may be established from time to time by our board of directors. As of May
17, 1999, 12,637,540 shares of common stock were outstanding and 24,133,297
shares of preferred stock convertible into 24,133,297 shares of common stock
upon the completion of this offering were issued and outstanding. As of May 17,
1999, we had 77 shareholders.
COMMON STOCK
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of shareholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of common stock are entitled to receive ratably
any dividends that may be declared by the board of directors out of funds
legally available therefor, subject to any preferential dividend rights of
outstanding preferred stock. Upon our liquidation, dissolution or winding up,
the holders of common stock are entitled to receive ratably the net assets
available after the payment of all debts and other liabilities, subject to the
prior rights of any outstanding preferred stock. Holders of common stock have no
preemptive, subscription, redemption or conversion rights. All of the issued and
outstanding shares of common stock will be fully paid and non-assessable. The
rights, preferences and privileges of the holders of common stock are subject
to, and may be adversely affected by, the rights of the holders of shares of any
series of preferred stock that we may designate and issue in the future.
PREFERRED STOCK
Under the charter, the board of directors will be authorized, subject to certain
limitations prescribed by law, without further shareholder approval, from time
to time to issue up to an aggregate of shares of preferred stock
in one or more series and to fix or alter the designations, preferences and
rights, and any qualifications, limitations or restrictions, of the shares of
each such series, including the number of shares constituting any such series
and the dividend rights, dividend rates, conversion rights, voting rights, terms
of reduction (including sinking fund provisions, if any), redemption price or
prices and liquidation preferences. The issuance of preferred stock may have the
effect of delaying, deferring or preventing a change of control. We have no
present plans to issue any shares of preferred stock.
REGISTRATION RIGHTS
We have granted registration rights to a number of our preferred shareholders
whose shares will convert into restricted shares of our common stock upon
consummation of this offering. If we propose to register for sale additional
shares of our common stock under the Securities Act after this offering, these
shareholders will be entitled to notice of the registration and inclusion of
their shares in the registration process. The registration rights are not
applicable to registration of securities in connection with employee benefit
plans. In addition, these shareholders may demand that we file a registration
statement for the sale of their shares. In either event, the underwriters for
the proposed offering will have the right to limit the number of shares included
in the registration. Also, these shareholders are entitled, subject to some
limitations, to require us to register their shares on Form S-3 when we are
eligible to use a short form. We have agreed to bear all of the expenses of any
such registration.
TENNESSEE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS; ANTI-TAKEOVER EFFECTS
The directors comprising the board of directors will be divided into three
classes. Two directors will constitute Class I and will stand for election at
the annual meeting of shareholders to be held in 1999. Two directors will
constitute Class II and will stand for election at the annual meeting of
shareholders to be held in 2000. Two directors will constitute Class III and
will stand for election at the annual meeting of shareholders to be held in
2001. After their initial term following the offering, directors in each class
will serve for a term of three years.
44
<PAGE> 49
The charter will provide that directors can be removed only for cause by a
majority of the shareholders and only by a majority of the other directors.
Officers are chosen by and serve at the discretion of the board of directors.
The charter will provide that shareholders may not take action by written
consent, but only at duly called annual or special meetings of shareholders. The
charter will also provide that special meetings of shareholders may be called
only by the chairman of the board of directors or by a majority of the board of
directors.
Our bylaws will provide that shareholders must provide timely notice in writing
to bring business before an annual meeting of shareholders or to nominate
candidates for election as directors at an annual meeting of shareholders. To be
timely notice for an annual meeting, a shareholders's notice must be delivered
to or mailed and received at our principal executive offices at least 120 days
before the first anniversary of the date our notice of annual meeting was
provided for the previous year's annual meeting of shareholders. If no annual
meeting of shareholders was held in the previous year or the date of the annual
meeting of shareholders has been changed to be more than 30 calendar days
earlier than or 60 calendar days after that anniversary, notice by the
shareholder, to be timely, must be received at least 60 days but no more than 90
days before the annual meeting of shareholders or the close of business on the
10th day following the date on which notice of the date of the meeting is given
to shareholders or made public, whichever first occurs. To be timely notice for
a special meeting, a shareholder's notice must be delivered to us by the close
of business 10 days after notice of the meeting is given to shareholders. The
bylaws also specify requirements as to the form and content of a shareholders'
notice. These provisions may prevent shareholders from bringing matters before
an annual meeting of shareholders or from making nominations for directors at an
annual meeting of shareholders.
We are subject to anti-takeover provisions provided under Tennessee law,
including the following:
Business Combination Statute. The Tennessee Business Combination Act, or TBCA,
provides that a party owning 10% or more of stock in a "resident domestic
corporation" (such party is called an "interested shareholder") cannot engage in
a business combination with the resident domestic corporation unless the
combination (1) takes place at least five years after the interested shareholder
first acquired 10% or more of the resident domestic corporation, and (2) either
(A) is approved by at least two-thirds of the non-interested voting shares of
the resident domestic corporation or (B) satisfies certain fairness conditions
specified in the TBCA.
A business combination with an entity can proceed without delay when approved by
the target corporation's board of directors before that entity becomes an
interested shareholder. TBCA does not apply when the resident corporation has
enacted a charter amendment or bylaw removing itself entirely from coverage
under TBCA. Such charter amendment or bylaw must be approved by a majority of
the shareholders who have held shares for more than one year prior to the vote
and may not take effect for at least two years after the vote. We have not
adopted a charter or bylaw amendment removing us from coverage under TBCA.
Under TBCA, officers and directors of resident domestic corporations who do not
approve either (1) proposed business combinations or (2) charter amendments and
bylaws removing their corporations from TBCA's coverage cannot be held liable
for such action as long as they acted in "good faith belief " that the proposed
business combination would adversely affect their corporation's employees,
customers, suppliers, or the communities in which their corporation operates and
such factors are permitted to be considered by the board of directors under the
charter.
Control Share Acquisition Act. The Tennessee Control Share Acquisition Act, or
TCSAA, strips an acquiror's shares of voting rights any time an acquisition of
shares in a covered Tennessee corporation brings such acquiror's voting power to
certain prescribed maximum levels. Under TCSAA, such acquiror's voting rights
can be established only by a majority vote of the other shareholders. Such
acquiror may, upon submitting a control share acquisition statement, demand a
meeting of shareholders to conduct such a vote. Such acquiror can demand such a
meeting before acquiring a control share only if it holds at least 10% of
outstanding shares and announces a good faith intention to make the control
share acquisition. Under TCSAA, a target corporation has the option of redeeming
an acquiror's shares if such shares are denied voting rights.
Investor Protection Act. Tennessee's Investor Protection Act, or TIPA applies
to tender offers directed at corporations (called "offeree companies") that have
"substantial assets" in Tennessee and that are either incorporated in or have a
principal office in Tennessee. TIPA requires an offeror making a tender offer
for an
45
<PAGE> 50
offeree company to file with the Commissioner of Commerce and Insurance (the
"Commissioner") a registration statement. When the offeror intends to gain
control of the offeree company, the registration statement must indicate any
plans the offeror has for the offeree (among other required information). The
Commissioner may require additional information material to the takeover offer
and may call for hearings. TIPA does not apply to an offer that the offeree
company's board of directors has recommended to its shareholders.
In addition to requiring the offeror to file a registration statement with the
Commissioner, TIPA requires the offeror and the offeree company to deliver to
the Commissioner all solicitation materials used in connection with the tender
offer. TIPA prohibits "fraudulent, deceptive, or manipulative acts or practices"
by either side, and gives the Commissioner standing to apply for equitable
relief to the Chancery Court of Davidson County, Tennessee, or to any other
chancery court having jurisdiction whenever it appears to the Commissioner that
the offeror, the offeree company, or any of its respective affiliates has
engaged in or is about to engage in a violation of TIPA. Upon proper showing,
the Chancery Court may grant injunctive relief. TIPA further provides civil and
criminal penalties for violations.
Greenmail Act. The Tennessee Greenmail Act, or TGA, applies to any corporation
chartered under the laws of Tennessee which has a class of voting stock
registered or traded on a national securities exchange or registered with the
Securities and Exchange Commission pursuant to Section 12(g) of the Exchange
Act. TGA provides that it is unlawful for any corporation to purchase any of its
shares at a price above the market value, as defined in TGA, from any person who
holds more than 3% of such class of securities if such person has held such
shares for less than two years, unless either (1) the purchase is first approved
by the affirmative vote of a majority of the outstanding shares of each class of
voting stock issued or (2) the corporation makes an equivalent offer, on a value
per share basis, to all holders of shares of such class.
LIMITATION OF LIABILITY AND INDEMNIFICATION
As permitted by Tennessee law, our amended charter will provide that our
directors shall not be personally liable to us or our shareholders for monetary
damages for breach of fiduciary duty as a director, except for liability:
- for any breach of the director's duty of loyalty to us or our
shareholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law; or
- for any transaction from which the director derives an improper personal
benefit.
As a result of this provision, we and our shareholders may be unable to obtain
monetary damages from a director for breach of his or her duty of care.
Our charter and bylaws will provide for the indemnification of our directors and
officers to the fullest extent authorized by Tennessee law, except that we will
indemnify a director or officer in connection with an action initiated by that
person only if the action was authorized by our board of directors. The
indemnification provided under our charter and bylaws will include the right to
be paid expenses in advance of any proceeding for which indemnification may be
had, provided that the payment of these expenses incurred by a director or
officer in advance of the final disposition of a proceeding may be made only
upon delivery to us of an undertaking by or on behalf of the director or officer
to repay all amounts paid in advance if it is ultimately determined that the
director or officer is not entitled to be indemnified. Under our bylaws, if we
do not pay a claim for indemnification within 60 days after we have received a
written claim, the director or officer may bring an action to recover the unpaid
amount of the claim and, if successful, the director or officer also will be
entitled to be paid the expense of prosecuting the action to recover these
unpaid amounts.
Under our charter and bylaws, we will have the power to purchase and maintain
insurance on behalf of any person who is or was one of our directors, officers,
employees or agents, or is or was serving at our request as a director, officer,
employee, partner or agent of another corporation or of a partnership, joint
venture, limited liability company, trust or other enterprise, against any
liability asserted against the person or incurred by the person in any of these
capacities, or arising out of the person's fulfilling one of these capacities.
The insurance
46
<PAGE> 51
will also cover any expenses related to the liability. The insurance coverage is
available to these persons whether or not we would have the power to indemnify
the person against the claim under the provisions of Tennessee law. We have
purchased director and officer liability insurance on behalf of our directors
and officers.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the common stock is .
LISTING
We intend to apply to have the shares of common stock listed on the Nasdaq
National Market under the symbol "IPIX."
47
<PAGE> 52
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have shares of common stock
outstanding (assuming no exercise of the underwriters' over-allotment option and
no exercise of outstanding options under the Plan). The number of shares of
common stock outstanding is also based on the conversion of all of our preferred
stock, including the net exercise of all preferred stock purchase warrants, to
common stock. Of such shares, the shares sold in this offering will be
freely transferable without restriction or further registration under the
Securities Act, except for any shares held by an existing "affiliate" of ours,
as that term is defined by the Securities Act. Any shares held by one of our
affiliates will be subject to the resale limitations of restricted stock as
defined in Rule 144 under the Securities Act. Of such shares, and without
consideration of the contractual restrictions described below, shares
would be available for immediate sale in the public market without restriction
pursuant to Rule 144(k). Beginning 90 days after the date of this prospectus,
and without consideration of the contractual restrictions described below,
shares will become eligible for sale in reliance upon Rule 144 and
shares will become eligible for sale in reliance upon Rule 701
promulgated under the Securities Act.
In general, under Rule 144 as currently in effect, beginning 90 days after this
offering, a person (or persons whose shares are aggregated) who owns shares that
were purchased from us or any Affiliate at least one year previously, including
a person who may be deemed an Affiliate of ours, is entitled to sell within any
three-month period a number of shares that does not exceed the greater of (i) 1%
of the then outstanding shares of the common stock or (ii) the average weekly
trading volume of the common stock on the Nasdaq National Market during the four
calendar weeks preceding the date on which notice of the sale is filed with the
Securities and Exchange Commission. Sales under Rule 144 are also subject to
certain manner of sale provisions, notice requirements and the availability of
current public information about us. Any person (or persons whose shares are
aggregated) who is not deemed to have been an Affiliate of ours at any time
during the 90 days preceding a sale, and who owns shares within the definition
of "restricted securities" under Rule 144 under the Securities Act that were
purchased from us (or any Affiliate) at least two years previously, would be
entitled to sell such shares under Rule 144(k) without regard to the volume
limitations, manner of sale provisions, public information requirements or
notice requirements.
Subject to certain limitations on the aggregate offering price of a transaction
and other conditions, Rule 701 may be relied upon with respect to the resale of
securities originally purchased from us by our employees, directors, officers,
consultants or advisors prior to the date the issuer becomes subject to the
reporting requirements of the Exchange Act, pursuant to written compensatory
benefit plans or written contracts relating to compensation of such persons. In
addition, the Commission has indicated that Rule 701 will apply to the typical
stock options granted by an issuer before it becomes subject to the reporting
requirements of the Exchange Act, along with the shares acquired upon exercise
of such options (including exercises after the date of this prospectus).
Securities issued in reliance on Rule 701 are restricted securities and, subject
to the contractual restrictions described above, beginning 90 days after the
date of this prospectus, may be sold (1) by persons other than Affiliates,
subject only to the manner of sale provisions of Rule 144, and (2) by Affiliates
under Rule 144 without compliance with its one-year holding period requirement.
All of our officers and directors and many of our shareholders have agreed not
to sell any shares of common stock for 180 days after the date of this
prospectus without the prior written consent of J.P. Morgan Securities Inc. As a
result of these contractual restrictions and subject to the provisions of Rules
144 and 701, as applicable, shares subject to restriction will be
eligible for sale upon expiration of these agreements. See "Underwriting."
We have agreed not to offer, sell or otherwise dispose of any shares of common
stock or any securities convertible into or exercisable or exchangeable for
common stock or any rights to acquire common stock for a period of 180 days
after the date of this prospectus, without the prior written consent of J.P.
Morgan Securities Inc., subject to certain limited exceptions. See
"Underwriting."
We intend to file one or more registration statements under the Securities Act
to register all shares of common stock issued, issuable or reserved for issuance
under the Plan. See "Management -- 1997 Equity Compensation
48
<PAGE> 53
Plan." Such registration statements are expected to be filed as soon as
practicable after the date of this prospectus and will automatically become
effective upon filing. Following such filing, shares registered under such
registration statements will, subject to the 180-day lock-up agreements
described above and Rule 144 volume limitations applicable to Affiliates be
available for sale in the open market.
49
<PAGE> 54
UNDERWRITING
Interactive Pictures Corporation, the selling shareholders and the underwriters
named below have entered into an underwriting agreement covering the common
stock to be offered in this offering. J.P. Morgan Securities Inc., Hambrecht &
Quist LLC, Morgan Keegan & Company, Inc. and Stephens Inc. are acting as
representatives of the underwriters. Each underwriter has agreed to purchase the
number of shares of common stock set forth opposite its name below.
<TABLE>
<CAPTION>
----------------
UNDERWRITERS NUMBER OF SHARES
- ------------ ----------------
<S> <C>
J.P. Morgan Securities Inc..................................
Hambrecht & Quist, LLC......................................
Morgan Keegan & Company, Inc................................
Stephens Inc................................................
--------
Total.............................................
========
</TABLE>
The underwriting agreement provides that if the underwriters take any of the
shares set forth in the table above, then they must take all of these shares. No
underwriter is obligated to take any shares allocated to a defaulting
underwriter except under limited circumstances.
The underwriters are offering the shares of common stock, subject to the prior
sale of shares, and when, as and if such shares are delivered to and accepted by
them. The underwriters will initially offer to sell shares to the public at the
initial public offering price set forth on the cover page of this prospectus.
The underwriters may sell shares to securities dealers at a discount of up to
$ per share from the initial public offering price. Any such securities
dealers may resell shares to certain other brokers or dealers at a discount of
up to $ per share from the initial public offering price. After the
initial public offering, the underwriters may vary the public offering price and
other selling terms.
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have the option to buy up to an additional
shares of common stock from Interactive Pictures Corporation and
shares from the selling shareholders to cover such sales. They may exercise this
option during the 30-day period from the date of this prospectus. If any shares
are purchased with this option, the underwriters will purchase shares in
approximately the same proportion as set forth in the table above.
The following table shows the per share and total underwriting discounts that
Interactive Pictures Corporation and the selling shareholders will pay to the
underwriters. These amounts are shown assuming both no exercise and full
exercise of the underwriters' option to purchase additional shares.
<TABLE>
<CAPTION>
-----------------------------
PAID BY INTERACTIVE PICTURES
CORPORATION
-----------------------------
NO EXERCISE FULL EXERCISE
------------ --------------
<S> <C> <C>
Per share................................................... $ $
-------- --------
Total............................................. $ $
======== ========
</TABLE>
<TABLE>
<CAPTION>
----------------------------
PAID BY SELLING SHAREHOLDERS
----------------------------
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per share................................................... -- $
--------
Total............................................. -- $
========
</TABLE>
50
<PAGE> 55
The underwriters may purchase and sell shares of common stock in the open market
in connection with this offering. These transactions may include short shares,
stabilizing transactions and purchases to cover positions created by short
sales. Short sales involve the sale by the underwriters of a greater number of
shares than they are required to purchase in the offering. Stabilizing
transactions consist of certain bids or purchases made for the purpose of
preventing or slowing a decline in the market price of the common stock while
the offering is in progress. The underwriters may also impose a penalty bid,
which means that an underwriter must repay to the other underwriters a portion
of the underwriting discount received by it. An underwriter may be subject to a
penalty bid if the representatives of the underwriters, while engaging in
stabilizing or short covering transactions, repurchase shares sold by or for the
account of that underwriter. These activities may stabilize, maintain or
otherwise affect the market price of the common stock. As a result, the price of
the common stock may be higher than the price that otherwise might exist in the
open market. If the underwriters commence these activities, they may discontinue
them at any time. The underwriters may carry out these transactions on the
Nasdaq National Market, in the over-the-counter market or otherwise.
Interactive Pictures Corporation estimates that the total expenses of this
offering, excluding underwriting discounts and commissions, will be $ .
Interactive Pictures Corporation and the selling shareholders have agreed to
indemnify the underwriters against certain liabilities, including liabilities
under the Securities Act of 1933. Interactive Pictures Corporation and its
directors, officers and several of its shareholders, including the selling
shareholders, have agreed with the underwriters not to transfer, dispose of or
hedge any of their common stock, or securities convertible into or exchangeable
for shares of common stock, for a period of 180 days after the date of this
prospectus, except with the prior written consent of J.P. Morgan Securities Inc.
This agreement does not apply to any of our employee benefit plans existing on
the date of this prospectus.
At our request, the underwriters have reserved shares of common stock for sale
to our directors, officers, employees and retirees who have expressed an
interest in participating in this offering. Interactive Pictures Corporation
expects these persons to purchase no more than % of the common stock
offered in this offering. The number of shares available for sale to the general
public will be reduced to the extent such persons purchase such reserved shares.
Interactive Pictures Corporation intends to apply to have the common stock
listed on the Nasdaq National Market under the symbol "IPIX."
It is expected that delivery of the shares will be made to investors on or about
, 1999.
There has been no public market for the common stock prior to this offering.
Interactive Pictures Corporation and the underwriters will negotiate the initial
offering price. In determining the price, Interactive Pictures Corporation and
the underwriters expect to consider a number of factors in addition to
prevailing market conditions, including:
- the history of and prospects for the industry and for Internet companies
generally;
- an assessment of Interactive Pictures Corporation's management;
- Interactive Pictures Corporation's present operations;
- Interactive Pictures Corporation's historical results of operations;
- the trend of Interactive Pictures Corporation's revenues and earnings;
and
- Interactive Pictures Corporation's earnings prospects.
Interactive Pictures Corporation and the underwriters will consider these and
other relevant factors in relation to the price of similar securities of
generally comparable companies. Neither Interactive Pictures Corporation nor the
underwriters can assure investors that an active trading market will develop for
the common stock, or that the common stock will trade in the public market at or
above the initial offering price.
From time to time in the ordinary course of their respective businesses, certain
of the underwriters and their affiliates have engaged in and may in the future
engage in commercial banking and/or investment banking
51
<PAGE> 56
transactions with Interactive Pictures Corporation and its affiliates. J.P.
Morgan Securities Inc. acted as private placement agent in connection with
Interactive Pictures Corporation's Series D preferred stock offering which was
completed in March 1999, for which it received 309,160 shares of common stock as
a portion of its compensation. In connection with the Series D preferred stock
offering, an affiliate of J.P. Morgan Securities Inc. purchased 1,145,038 shares
of Series D preferred stock and an affiliate of Stephens Inc. purchased 381,679
shares of Series D preferred stock. In addition, Morgan Keegan & Company, Inc.
acted as private placement agent in connection with Interactive Pictures
Corporation's Series C preferred stock offering which was completed in July 1998
and a private common stock offering which was completed in August 1998, for
which it received warrants to purchase 183,144 shares of Series C preferred
stock and a warrant to purchase 67,500 shares of common stock, respectively.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us by
Baker, Donelson, Bearman & Caldwell, a professional corporation, Memphis,
Tennessee. Members of Baker, Donelson, Bearman & Caldwell, in the aggregate,
beneficially own more than $50,000 of our common stock. Certain legal matters in
connection with this offering will be passed upon for the underwriters by Cahill
Gordon & Reindel, a partnership including a professional corporation, New York,
New York.
EXPERTS
The financial statements as of December 31, 1998 and 1997 and for each of the
three years in the period ended December 31, 1998 included in this Prospectus
have been so included in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
AVAILABLE INFORMATION
We have filed with the Commission a registration statement on Form S-1 with
respect to the common stock being offered by this prospectus. This prospectus
does not contain all of the information set forth in the registration statement.
For further information about us and the common stock, reference is made to the
registration statement and its exhibits. Descriptions in this prospectus of any
contract or other document are not necessarily complete and, where the contract
or document is an exhibit to the registration statement, any such description is
qualified in all respects by the exhibit. Copies of the registration statement,
including exhibits, may be examined without charge in the Public Reference
Section of the Securities and Exchange Commission, 450 Fifth Street, N.W. Room
1024, Washington, DC 20549, and the Securities and Exchange Commission's
Regional Offices located at 500 West Madison Street, Suite 1400, Chicago, IL
60601, and Seven World Trade Center, 13th Floor, New York, NY 10048, or on the
Internet at http://www.sec.gov. Information about the operation of the Public
Reference Room may be obtained by calling the Commission at 1-800-SEC-0300.
Copies of all or a portion of the registration statement can be obtained from
the Public Reference Section of the Commission upon payment of prescribed fees.
As a result of this offering, we will become subject to the information and
reporting requirements of the Exchange Act and, in accordance therewith, will
file periodic reports, proxy statements and other information with the
Commission. Upon approval of the common stock for quotation on the Nasdaq
National Market, such reports, proxy statements and other information may also
be inspected at the offices of Nasdaq Operations, 1735 K Street, N.W.,
Washington, DC 20006.
52
<PAGE> 57
INTERACTIVE PICTURES CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Changes in Shareholders'
Equity.................................................... F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-8
</TABLE>
F-1
<PAGE> 58
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Interactive Pictures Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, changes in shareholders' equity, and of
cash flows present fairly, in all material respects, the financial position of
Interactive Pictures Corporation and its subsidiary (the "Company") at December
31, 1997 and 1998, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
January 29, 1999, except as to Notes 5 and 6
for which the date is April 12, 1999
F-2
<PAGE> 59
INTERACTIVE PICTURES CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
---------------------------------------------------------
MARCH 31,
1999
PRO FORMA
DECEMBER 31, SHAREHOLDERS'
------------------------- MARCH 31, EQUITY
1997 1998 1999 (NOTE 2)
---------- ------------ ------------ --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................... $1,825,744 $ 1,063,618 $ 7,150,171
Securities available-for-sale............................... 1,000,000 -- 16,648,861
Accounts receivable, less allowance for doubtful accounts of
$190,000 at December 31, 1997 and $170,000 at both
December 31, 1998 and March 31, 1999 (unaudited).......... 538,304 842,585 1,174,572
Inventory, less reserve for obsolescence of $100,000 at both
December 31, 1998 and March 31, 1999 (unaudited).......... 231,774 328,161 437,525
Costs and estimated earnings in excess of billings on
uncompleted contracts..................................... 64,458 -- --
Prepaid expenses and other current assets................... 231,398 305,030 383,317
---------- ------------ ------------
Total current assets................................ 3,891,678 2,539,394 25,794,446
---------- ------------ ------------
PROPERTY AND EQUIPMENT:
Furniture and equipment..................................... 771,582 1,666,642 1,854,617
Leasehold improvements...................................... 35,393 53,470 80,416
---------- ------------ ------------
806,975 1,720,112 1,935,033
Less accumulated depreciation and amortization.............. (144,008) (367,570) (444,570)
---------- ------------ ------------
Property and equipment, net............................. 662,967 1,352,542 1,490,463
---------- ------------ ------------
Other assets................................................ 19,273 96,858 83,903
---------- ------------ ------------
Total assets........................................ $4,573,918 $ 3,988,794 $ 27,368,812
========== ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Convertible debenture....................................... $3,000,000 $ 1,000,000 $ --
Current portion of promissory note.......................... 8,000 8,000 8,000
Accounts payable............................................ 325,302 400,762 265,012
Accrued expenses............................................ 567,036 1,598,214 1,743,295
Accrued placement fees and related expenses................. -- 50,000 981,862
Deferred revenue............................................ 62,700 117,681 146,418
---------- ------------ ------------
Total current liabilities........................... 3,963,038 3,174,657 3,144,587
---------- ------------ ------------
Long-term portion of promissory note........................ 28,667 21,334 19,334
Commitments and contingencies (Note 11)
SHAREHOLDERS' EQUITY:
Convertible preferred stock:
Series A $0.001 par value; 4,836,416 shares authorized,
issued and outstanding at December 31, 1998 and March
31, 1999 (unaudited) ($6,572,689 aggregate liquidation
value at December 31, 1998 and March 31, 1999
(unaudited)); no shares issued and outstanding, pro
forma................................................... -- 4,836 4,836 $
Series B $0.001 par value; 1,982,648 and 1,547,648 shares
authorized at December 31, 1998 and March 31, 1999,
respectively; 1,547,648 shares issued and outstanding at
December 31, 1998 and March 31, 1999 (unaudited),
respectively ($3,124,701 aggregate liquidation value at
December 31, 1998 and March 31, 1999 (unaudited)); no
shares issued and outstanding, pro forma................ -- 1,548 1,548
Series C $0.001 par value; 13,180,936 and 9,267,297 shares
authorized at December 31, 1998 and March 31, 1999,
respectively; 6,930,688 and 7,443,889 shares issued and
outstanding at December 31, 1998 and March 31, 1999
(unaudited), respectively ($13,993,059 and $15,036,656
aggregate liquidation value at December 31, 1998 and
March 31, 1999 (unaudited), respectively); no shares
issued and outstanding, pro forma....................... -- 6,930 7,443
Series D $0.001 par value; 10,955,344 authorized;
10,305,344 shares issued and outstanding at March 31,
1999 ($27,000,000 aggregate liquidation value
(unaudited)) no shares issued and outstanding, pro
forma................................................... -- -- 10,305
Common stock, $0.001 par value, 50,000,000 and 100,000,000
shares authorized at December 31, 1998 and March 31, 1999,
respectively; 18,485,004 and 12,060,940 shares issued and
outstanding at December 31, 1997 and 1998, respectively;
12,637,540 shares issued and outstanding at March 31, 1999
(unaudited); 36,770,837 shares issued and outstanding, pro
forma..................................................... 18,485 12,061 12,638
Additional paid-in capital.................................. 9,969,474 24,791,316 51,903,963
Accumulated deficit......................................... (9,405,746) (24,023,888) (27,735,842)
---------- ------------ ------------ ------------
Total shareholders' equity.......................... 582,213 792,803 24,204,891 $
---------- ------------ ------------ ============
Total liabilities and shareholders' equity.......... $4,573,918 $ 3,988,794 $ 27,368,812
========== ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 60
INTERACTIVE PICTURES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
--------------------------------------------------------------------
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ----------- ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Products......................... $ 1,336,686 $ 2,127,872 $ 2,711,947 $ 319,494 $ 1,228,621
Services......................... 208,167 317,898 329,008 97,700 --
----------- ----------- ------------ ----------- -----------
1,544,853 2,445,770 3,040,955 417,194 1,228,621
----------- ----------- ------------ ----------- -----------
COST OF REVENUES:
Products......................... 542,604 445,936 1,207,221 72,250 586,811
Services......................... 108,674 316,034 240,684 31,650 --
----------- ----------- ------------ ----------- -----------
651,278 761,970 1,447,905 103,900 586,811
----------- ----------- ------------ ----------- -----------
Gross profit..................... 893,575 1,683,800 1,593,050 313,294 641,810
----------- ----------- ------------ ----------- -----------
OPERATING EXPENSES:
Sales and marketing.............. 908,383 2,828,876 8,387,401 1,549,846 2,811,595
Research and development......... 388,885 1,170,710 2,668,328 493,070 736,149
General and administrative....... 920,838 2,598,526 3,863,534 886,692 828,383
Amortization of product
development and patent costs... 71,040 857,899 -- -- --
----------- ----------- ------------ ----------- -----------
Total operating
expenses............. 2,289,146 7,456,011 14,919,263 2,929,608 4,376,127
----------- ----------- ------------ ----------- -----------
Interest income.................. 110,760 181,396 276,681 23,114 30,607
Interest expense................. -- (42,667) (202,333) (60,001) (11,667)
Other income (expense), net...... 90,311 55,453 27,029 -- 2,923
----------- ----------- ------------ ----------- -----------
Net loss............... $(1,194,500) $(5,578,029) $(13,224,836) $(2,653,201) $(3,712,454)
=========== =========== ============ =========== ===========
Basic and diluted loss per common
share (Note 2)................. $ (0.07) $ (0.30) $ (0.96) $ (0.14) $ (0.31)
Pro forma basic and diluted loss
per share (Note 2)............. $ $
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 61
INTERACTIVE PICTURES CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
NET
UNREALIZED
GAIN (LOSS)
ON
PREFERRED PREFERRED PREFERRED PREFERRED ADDITIONAL AVAILABLE-FOR-
COMMON STOCK STOCK STOCK STOCK PAID-IN SALE
STOCK SERIES A SERIES B SERIES C SERIES D CAPITAL SECURITIES
------- --------- --------- --------- --------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1996............ $16,423 $ -- $ -- $ -- $ -- $ 5,995,992 $ 27,334
Proceeds from issuance of 1,982,648
common shares, net of related
costs............................ 1,982 -- -- -- -- 3,972,562 --
Issuance of 80,000 common shares
upon exercise of options......... 80 -- -- -- -- 920 --
Change in net unrealized gain on
securities available-for-sale.... -- -- -- -- -- -- (27,334)
Net loss........................... -- -- -- -- -- -- --
------- ------ ------ ------ ------- ----------- --------
Balances, December 31, 1996.......... 18,485 -- -- -- -- 9,969,474 --
Net loss........................... -- -- -- -- -- -- --
------- ------ ------ ------ ------- ----------- --------
Balances, December 31, 1997.......... 18,485 -- -- -- -- 9,969,474 --
Issuance of 220,000 common shares
upon exercise of options......... 220 -- -- -- -- 2,780 --
Conversion of 6,819,064 shares of
common stock into Series A and B
preferred stock.................. (6,819) 4,836 1,983 -- -- 15,041 --
Proceeds from issuance of 6,435,643
shares of Series C preferred
stock and warrants, net of
related costs.................... -- -- -- 6,435 -- 12,523,001 --
Conversion of $1,000,000 debenture
into 495,049 shares of Series C
preferred stock.................. -- -- -- 495 -- 999,505 --
Proceeds from issuance of 675,000
shares of common stock and
warrants, net of related costs... 675 -- -- -- -- 1,281,015 --
Exchange of common for preferred
shares and related repurchase and
retirement of 500,000 shares of
Series C preferred stock......... (500) -- -- -- -- -- --
Repurchase and retirement of
435,000 shares of Series B
preferred stock.................. -- -- (435) -- -- -- --
Net loss............................. -- -- -- -- -- -- --
------- ------ ------ ------ ------- ----------- --------
Balances, December 31, 1998.......... 12,061 4,836 1,548 6,930 -- 24,790,816 --
Proceeds from issuance of
10,305,344 shares of Series D
preferred stock and warrants, net
of related costs (unaudited)..... -- -- -- -- 10,305 25,140,897 --
Issuance of 267,440 common shares
upon exercise of options
(unaudited)...................... 268 -- -- -- -- 126,406 --
Issuance of 309,160 shares to
placement agent upon closing of
private placement (unaudited).... 309 -- -- -- -- 809,691 --
Conversion of $1,000,000 debenture
and interest into 513,201 shares
of Series C preferred stock
(unaudited)...................... -- -- -- 513 -- 1,036,153 --
Net loss (unaudited)............... -- -- -- -- -- -- --
------- ------ ------ ------ ------- ----------- --------
Balances, March 31, 1999
(unaudited)........................ $12,638 $4,836 $1,548 $7,443 $10,305 $51,903,963 $ --
======= ====== ====== ====== ======= =========== ========
<CAPTION>
------------
ACCUMULATED
DEFICIT
------------
<S> <C>
Balances, January 1, 1996............ $ (2,633,217)
Proceeds from issuance of 1,982,648
common shares, net of related
costs............................ --
Issuance of 80,000 common shares
upon exercise of options......... --
Change in net unrealized gain on
securities available-for-sale.... --
Net loss........................... (1,194,500)
------------
Balances, December 31, 1996.......... (3,827,717)
Net loss........................... (5,578,029)
------------
Balances, December 31, 1997.......... (9,405,746)
Issuance of 220,000 common shares
upon exercise of options......... --
Conversion of 6,819,064 shares of
common stock into Series A and B
preferred stock.................. (15,041)
Proceeds from issuance of 6,435,643
shares of Series C preferred
stock and warrants, net of
related costs.................... --
Conversion of $1,000,000 debenture
into 495,049 shares of Series C
preferred stock.................. --
Proceeds from issuance of 675,000
shares of common stock and
warrants, net of related costs... --
Exchange of common for preferred
shares and related repurchase and
retirement of 500,000 shares of
Series C preferred stock......... (499,500)
Repurchase and retirement of
435,000 shares of Series B
preferred stock.................. (878,265)
Net loss............................. (13,224,836)
------------
Balances, December 31, 1998.......... (24,023,388)
Proceeds from issuance of
10,305,344 shares of Series D
preferred stock and warrants, net
of related costs (unaudited)..... --
Issuance of 267,440 common shares
upon exercise of options
(unaudited)...................... --
Issuance of 309,160 shares to
placement agent upon closing of
private placement (unaudited).... --
Conversion of $1,000,000 debenture
and interest into 513,201 shares
of Series C preferred stock
(unaudited)...................... --
Net loss (unaudited)............... (3,712,454)
------------
Balances, March 31, 1999
(unaudited)........................ $(27,735,842)
============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 62
INTERACTIVE PICTURES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
--------------------------------------------------------------------
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ----------- ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.............................. $(1,194,500) $(5,578,029) $(13,224,836) $(2,653,201) $(3,712,454)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation........................ 107,605 132,069 223,562 38,911 77,000
Provision for doubtful accounts
receivable........................ -- 190,000 (20,000) -- --
Loss (gain) on disposal of fixed
assets............................ -- 87,871 -- -- (6,098)
Amortization of product development
and patent costs.................. 71,040 857,899 -- -- --
Accretion of securities
available-for-sale discounts...... (49,816) (51,479) (166,515) -- (11,276)
Provision for inventory
obsolescence...................... 43,533 (43,533) 100,000 -- --
Changes in operating assets and
liabilities:
Accounts receivable............... (147,846) (444,717) (284,281) 180,588 (331,987)
Inventory......................... (59,686) (120,021) (196,387) (74,007) (109,364)
Prepaid expenses.................. (55,416) 6,873 (171,864) (40,669) (142,286)
Other assets...................... (16,356) (161,932) 20,647 (2,367) 76,953
Accounts payable.................. 169,356 (84,750) 75,460 (168,297) (135,750)
Accrued expenses.................. (43,010) 519,605 1,081,178 517,423 131,748
Costs and estimated earnings in
excess of billings on
uncompleted contracts.......... 3,912 (34,922) 64,458 -- --
Deferred revenue.................. (17,502) (99,798) 54,981 10,275 28,737
----------- ----------- ------------ ----------- -----------
Net cash used in operating
activities................... (1,188,686) (4,824,864) (12,443,597) (2,191,344) (4,134,777)
----------- ----------- ------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of furniture and
equipment........................... (129,462) (504,331) (913,137) (86,231) (250,764)
Purchases of securities
available-for-sale.................. (3,174,300) (3,932,596) (7,831,124) -- (16,637,585)
Maturities of securities
available-for-sale.................. 5,141,125 3,484,845 8,997,639 1,000,000 --
Proceeds from disposal of equipment... -- -- -- -- 41,941
Patent and product development
costs............................... (677,883) -- -- -- --
----------- ----------- ------------ ----------- -----------
Net cash provided by (used in)
investing activities......... 1,159,480 (952,082) 253,378 913,769 (16,846,408)
----------- ----------- ------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common
stock............................... 3,975,544 -- 1,284,690 -- 126,674
Net proceeds from issuance of
preferred stock..................... -- -- 12,529,436 -- 26,943,064
Repurchase of preferred and common
stock............................... -- -- (1,378,700) -- --
Issuance (repayment) of convertible
debenture........................... -- 3,000,000 (1,000,000) -- --
Repayments of promissory note......... -- (3,333) (7,333) (2,000) (2,000)
----------- ----------- ------------ ----------- -----------
Net cash provided by (used in)
financing activities......... 3,975,544 2,996,667 11,428,093 (2,000) 27,067,738
----------- ----------- ------------ ----------- -----------
Net increase (decrease) in cash and
cash equivalents.................... 3,946,338 (2,780,279) (762,126) (1,279,575) 6,086,553
Cash and cash equivalents, beginning
of year............................. 659,685 4,606,023 1,825,744 1,825,744 1,063,618
----------- ----------- ------------ ----------- -----------
Cash and cash equivalents, end of
year................................ $ 4,606,023 $ 1,825,744 $ 1,063,618 $ 546,169 $ 7,150,171
=========== =========== ============ =========== ===========
</TABLE>
F-6
<PAGE> 63
- ---------------
No income taxes were paid in any period presented. Interest payments totaled $0,
$0 and $202, $333 in the years ended December 31, 1996, 1997 and 1998,
respectively, and $0 in both of the three month periods ended March 31, 1998 and
1999 (unaudited), respectively.
Noncash investing and financing activities:
The Company acquired furniture and equipment of $40,000 in 1997 through the
issuance of a promissory note.
During 1998, a $1,000,000 convertible debenture was converted into 495,049
shares of Series C preferred stock. In addition, 6,819,064 shares of common
stock were exchanged for 4,836,416 shares of Series A preferred stock and
1,982,648 shares of Series B preferred stock.
During March 1999, a $1,000,000 convertible debenture and accrued interest was
converted into 513,201 shares of Series C preferred stock.
At March 31, 1999, offering costs of $981,862 related to the first quarter
private placement had not yet been paid by the Company (unaudited).
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 64
INTERACTIVE PICTURES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
Interactive Pictures Corporation ("IPIX" or the "Company") is engaged in the
design and sale of electronic digital imaging products related to IPIX images.
The Company's patented technology allows viewers to Step Inside the Picture with
IPIX images and changes the way people create and view images, immersing them in
a 360 degrees X 360 degrees spherical environment. IPIX images provide a
complete field of view in a window, which can be navigated by moving a cursor
inside the image.
Using the Company's technology, clients can create virtual tours and multimedia
content to enhance marketing and accelerate electronic commerce over the
Internet. The Company's customers are primarily in the real estate, publishing
and corporate and e-commerce industries. Customers in the real estate and the
corporate and e-commerce markets represented an aggregate of 63%, 57% and 62% of
total revenues for 1996, 1997 and 1998.
The Company performs research and development to enhance its own products, as
well as for other entities with whom the Company has entered into contracts. The
Company also performs content development services for itself and others with
whom the Company has entered into contracts.
The Company is currently preparing a registration statement on Form S-1.
Management anticipates that the registration statement will be filed with the
Securities and Exchange Commission ("SEC") in May 1999.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL STATEMENTS. Information in the accompanying financial
statements and notes to the financial statements for the interim period as of
March 31, 1999, and for the three-month periods ended March 31, 1998 and 1999,
is unaudited. The accompanying unaudited financial statements have been prepared
in accordance with generally accepted accounting principles and Regulation S-X.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three month period ended March 31, 1999, are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1999.
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements of the
Company include the accounts of Interactive Pictures Corporation and its
wholly-owned subsidiary, Interactive Pictures UK Limited, a United Kingdom
company formed in 1998. All significant intercompany balances and transactions
have been eliminated. The subsidiary's functional currency is the British Pound.
The cumulative translation adjustment account as of December 31, 1998 and March
31, 1999, was insignificant.
CASH AND CASH EQUIVALENTS. The Company considers all highly liquid debt
instruments with a maturity of three months or less when purchased to be cash
equivalents.
SECURITIES AVAILABLE-FOR-SALE. Securities available-for-sale represent those
securities intended to be held for an indefinite period of time. Securities
available-for-sale are recorded at fair value based on prices obtained from
commercial pricing services.
Unrealized gains and losses are excluded from earnings and reported in other
comprehensive income in shareholders' equity. Interest income includes interest,
amortization of purchase premiums and discounts, and realized gains and losses
on sales of securities. The cost of securities sold is based on the specific
identification method. The securities portfolio at December 31, 1997, consisted
entirely of U.S. government obligations with maturities of less than one year.
Amortized costs approximated fair values and unrealized gains and losses were
insignificant.
CONCENTRATIONS OF CREDIT RISK. Financial instruments that potentially subject
the Company to a concentration of credit risk consist of cash and cash
equivalents, and accounts receivable. Cash and cash
F-8
<PAGE> 65
INTERACTIVE PICTURES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
equivalents are deposited with high credit quality financial institutions. The
Company's accounts receivable are derived from revenue earned from clients
located in the U.S. and abroad. The Company performs ongoing credit evaluations
of its clients' financial condition and generally requires no collateral from
its clients. To date, the Company has not experienced any material losses.
The following table summarizes the revenue from product customers in excess of
10% of total revenues:
<TABLE>
<CAPTION>
------------
1996 1998
---- ----
<S> <C> <C>
Customer A.................................................. 0% 13%
Customer B.................................................. 12 0
Customer C.................................................. 16 0
</TABLE>
At December 31, 1998, Customer A accounted for 16% of accounts receivable. One
additional customer also represented 16% of accounts' receivable at December 31,
1998. Four customers represented 10%, 10%, 11%, and 28%, respectively, of
accounts' receivable at December 31, 1997. However, no customer represented in
excess of 10% of the Company's revenues in 1997, or in the three-month periods
ended March 31, 1998 and 1999 (unaudited).
INVENTORY. Inventory, which consists primarily of digital cameras and related
hardware, is stated at the lower of cost or market, with cost determined using
standard costs (which approximate first-in, first-out costs). The Company
records a provision for obsolete inventory whenever such an impairment has been
identified.
PROPERTY AND EQUIPMENT. Property and equipment consist primarily of computer
equipment and office furnishings, which are stated at cost. Routine maintenance
and repair costs are expensed as incurred. The costs of major additions,
replacements, and improvements are capitalized. Gains and losses from disposals
are included in operations upon disposal. To date, disposals of property and
equipment have been insignificant. Fixed assets are depreciated primarily using
the straight-line method over estimated useful lives, which range from three to
ten years. Leasehold improvements are amortized over the term of the lease, or
estimated useful life whichever is shorter.
PATENTS AND PRODUCT DEVELOPMENT COSTS. External legal costs incurred to
maintain the Company's intellectual property position are capitalized and
amortized over the estimated useful life of the related patents.
The Company also capitalizes eligible software costs incurred after
technological feasibility of the product has been established by a working
model. Capitalized software costs are amortized over the estimated useful life
of the product on a straight-line basis.
During 1997, the Company revised the estimated economic lives of both
capitalized product development costs and patent costs from five years and
seventeen years, respectively, to one year and three years, respectively. The
effect of the change was to increase amortization expense by approximately
$755,000. Qualifying costs in 1997 and 1998, were insignificant and, therefore,
the Company did not capitalize such costs.
LONG-LIVED ASSETS. The carrying value of intangible assets, property and
equipment, and other long-lived assets is reviewed on a regular basis for the
existence of facts or circumstances, both internally and externally, that may
suggest impairment. To date no such impairment has been indicated.
INCOME TAXES. The Company uses the asset and liability method of accounting for
income taxes, which requires the recognition of deferred tax liabilities and
assets for expected future tax consequences of temporary differences between the
carrying amounts and the tax basis of assets and liabilities. A valuation
allowance against deferred tax assets is recorded if, based upon available
evidence, it is more likely than not that some or all of the deferred tax assets
will not be realized. Tax credits are accounted for as a reduction of tax
expense in the year in which the credits reduce taxes payable.
F-9
<PAGE> 66
INTERACTIVE PICTURES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company does not recognize deferred income taxes for temporary differences
associated with its investment in the foreign subsidiary because the differences
are essentially permanent in duration.
Interactive Pictures UK Limited is not included in the tax filing of its parent,
Interactive Pictures Corporation. As a result, Interactive Pictures UK Limited
files a separate return with the United Kingdom jurisdiction governing the
subsidiary.
REVENUE RECOGNITION. Product revenue is recognized upon shipment or delivery
provided there are no uncertainties surrounding product acceptance, there are no
significant vendor obligations, the fees are fixed and determinable, and
collection is considered probable. Payments received in advance are initially
recorded as deferred revenue and recognized ratably as obligations are
fulfilled.
The Company derives service revenues from research and development activities
performed under fixed-price contracts with certain U.S. government agencies and
other third parties. Such revenues are recognized using the
percentage-of-completion method of accounting (based on the ratio of costs
incurred to total estimated costs, or as certain targets in the development
process are met, as appropriate under the contract). Provisions for estimated
losses on uncompleted contracts are made on a contract-by-contract basis and are
recognized in the period in which such losses become probable and can be
reasonably estimated. To date, such losses have been insignificant. Unbilled
fees and services on contracts are comprised of costs plus estimated earnings on
certain contracts in excess of contractual billings on such contracts. Advanced
billings and billings in excess of costs plus estimated earnings are classified
as deferred revenue.
RESEARCH AND DEVELOPMENT COSTS. Research and development expenditures are
expensed as incurred. Costs incurred under contracts to perform research and
development for others, excluding contracts with government agencies, are
accounted for under Statement of Financial Accounting Standards (SFAS) No. 68,
Research and Development Arrangements (Note 12).
ADVERTISING EXPENSES. All advertising expenditures are expensed as incurred.
Advertising expenses for 1996, 1997 and 1998, were $0, $391,800 and $1,087,000,
respectively.
ACCOUNTING FOR STOCK-BASED COMPENSATION. The Company has elected to continue
following Accounting Principles Board Opinion No. 25 ("APB 25"), Accounting for
Stock Issued to Employees, and related Interpretations in accounting for stock
options granted to employees rather than the alternative fair value accounting
provided for under SFAS No. 123, Accounting for Stock-Based Compensation
("Statement 123").
FOREIGN CURRENCY TRANSACTIONS. Substantially all historical sales have been
denominated in U.S. dollars. All transaction gains and losses are included in
operations. Such amounts have been insignificant to date.
ESTIMATES. 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. Examples of
items affected by certain significant estimates made by management are
long-lived assets, including patents and product development costs, certain
accruals, receivables and inventory.
SEGMENT REPORTING. In 1998, the Company adopted Statement of Financial
Accounting Standards 131 ("SFAS 131"), Disclosure About Segments of an
Enterprise and Related Information. SFAS 131 requires use of the "management"
approach which designates the internal organization that is used by management
for making operating decisions and assessing performance as the source of the
Company's reportable segments. SFAS 131 also requires disclosures about products
and services, geographic areas, and major customers. The adoption of SFAS 131
did not affect results of operations or financial position.
PRO FORMA SHAREHOLDERS' EQUITY (UNAUDITED). The accompanying pro forma
shareholders' equity at March 31, 1999 reflects (i) the conversion of all
outstanding shares of preferred stock into an aggregate of
F-10
<PAGE> 67
INTERACTIVE PICTURES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
24,133,297 shares of common stock and (ii) the "cashless exercise" of all
outstanding common and preferred stock warrants calculated using an assumed
initial public offering price of $ and the conversion of the preferred
shares issued upon the exercise of the preferred stock warrants into common
shares, resulting in the issuance of shares of common stock.
NET LOSS PER SHARE. The Company computes net loss per share in accordance with
SFAS No. 128, Earnings Per Share, and SEC Staff Accounting Bulletin No. 98 ("SAB
98"). Under the provisions of SFAS No. 128 and SAB 98, basic and diluted net
loss per share is computed by dividing the net loss available to common
shareholders for the period by the weighted average number of shares of common
stock outstanding during the period. The calculation of diluted net loss per
share excludes potential common shares if the effect is antidilutive. Potential
common shares are composed of incremental shares of common stock issuable upon
the exercise of potentially dilutive stock options and warrants and upon
conversion of the Company's preferred stock and convertible debenture.
The following table sets forth the computation of basic and dilutive net loss
per share for the periods indicated:
<TABLE>
<CAPTION>
--------------------------------------------------------------------
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
NUMERATOR:
Net loss....................... $(1,194,500) $(5,578,029) $(13,224,836) $(2,653,201) $(3,712,454)
DENOMINATOR:
Weighted average shares........ 16,574,029 18,485,004 13,704,574 18,485,004 12,162,816
NET LOSS PER SHARE:
Basic and diluted.............. $ (0.07) $ (0.30) $ (0.96) $ (0.14) $ (0.31)
</TABLE>
The following table sets forth common stock equivalents that are not included in
the diluted net income per share calculation above because to do so would be
antidilutive for the periods indicated:
<TABLE>
<CAPTION>
--------------------------------------------------------------
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
----------------------------------- ------------------------
1996 1997 1998 1998 1999
-------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Weighted average effect of common
stock equivalents
Preferred Stocks:
Series A.......................... -- -- 3,519,836 -- 4,836,416
Series B.......................... -- -- 1,278,594 -- 1,547,648
Series C.......................... -- -- 4,443,013 -- 6,982,008
Series D.......................... -- -- -- -- 1,882,952
Employee stock options.............. 596,955 2,050,167 1,944,222 2,099,610 2,567,872
Convertible debenture............... -- 255,776 1,298,130 1,485,149 445,544
-------- ---------- ----------- ---------- -----------
596,955 2,305,943 12,483,795 3,584,759 18,262,440
======== ========== =========== ========== ===========
</TABLE>
PRO FORMA NET LOSS PER SHARE (UNAUDITED). Pro forma net loss per share for the
year ended December 31, 1998 and for three months ended March 31, 1999, is
computed using the weighted-average number of common shares outstanding,
including (i) the conversion of all outstanding shares of the Company's
preferred stock into an aggregate of 24,133,297 shares of the Company's common
stock, and (ii) the "cashless exercise" of all outstanding common and preferred
stock warrants calculated using an assumed initial public offering price of
$ and the conversion of the preferred shares issued upon exercise of
the preferred stock warrants into common shares, resulting in the issuance of
shares of common stock, as if such
F-11
<PAGE> 68
INTERACTIVE PICTURES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
transactions occurred at the beginning of the respective period, or at the date
of original issuance, if later. The resulting pro forma adjustment includes an
increase in the weighted average shares used to compute basic and diluted net
loss per share of for the year ended December 31, 1998 and
for the three months ended March 31, 1999. The calculation of diluted net loss
per share excludes other potential common shares described above as the effect
would be antidilutive.
RECLASSIFICATIONS. Certain reclassifications have been made to certain
previously reported 1996 and 1997 amounts to conform with the 1998 presentation.
RECENT ACCOUNTING PRONOUNCEMENTS. In June 1998, the FASB issued SFAS No. 133,
Accounting for Derivatives and Hedging Activities ("SFAS 133"). SFAS 133
establishes accounting and reporting standards of derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. SFAS 133 is effective for fiscal years beginning after June
15, 2000. The adoption of SFAS 133 is not expected to have a material impact on
the Company's reported results of operations, financial position or cash flows.
In March 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position 98-1, Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use ("SOP 98-1"). SOP 98-1 is effective for
financial statements for the years beginning after December 15, 1998. SOP 98-1
provides guidance over accounting for computer software developed or obtained
for internal use including the requirement to capitalize specified costs and
amortization of such costs. The Company will adopt the provisions of SOP 98-1 in
its fiscal year ending December 31, 1999, and does not expect such adoption to
have a material effect on the Company's reported results of operations,
financial position, or cash flows.
In March 1998, AICPA issued Statement of Position 98-4, Deferral of the
Effective Date of a Provision of SOP 97-2 ("SOP 98-4"). SOP 98-4 defers for one
year the application of certain provisions of Statement of Position 97-2,
Software Revenue Recognition ("SOP 97-2"). Different informal and
nonauthoritative interpretations of certain provisions of SOP 97-2 have arisen
and, as a result, the AICPA issued SOP 98-9 in December 1998, which is effective
for periods beginning after March 15, 1999. SOP 98-9 extends the effective date
of SOP 98-4 and provides additional interpretive guidance. The adoption of SOP
97-2, SOP 98-4 and SOP 98-9 have not had and are not expected to have a material
impact on the Company's reported results of operations, financial position or
cash flows.
In April 1998, the AICPA issued SOP 98-5, Reporting on the Costs of Start-Up
Activities ("SOP 98-5"), which is effective for fiscal years beginning after
December 15, 1998, provides guidance on the financial reporting of start-up
costs and organization costs. It requires costs of start-up activities and
organization costs to be expensed as incurred. The adoption of this standard is
not expected to have a material impact on the Company's reported results of
operations, financial position or cash flows.
3. ACCRUED LIABILITIES
Accrued liabilities consist of the following as of December 31:
<TABLE>
<CAPTION>
---------------------
1997 1998
-------- ----------
<S> <C> <C>
Accrued legal fees.......................................... $210,000 $ 451,000
Accrued vacation............................................ 55,176 137,498
Accrued relocation expenses................................. -- 461,235
Other liabilities........................................... 301,860 598,481
-------- ----------
$567,036 $1,648,214
======== ==========
</TABLE>
F-12
<PAGE> 69
INTERACTIVE PICTURES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. INCOME TAXES
The components of the Company's net deferred tax asset (liability) as of
December 31, 1997 and 1998, is as follows:
<TABLE>
<CAPTION>
-------------------------
1997 1998
----------- -----------
<S> <C> <C>
DEFERRED TAX ASSETS (LIABILITIES):
Financial reserves.......................................... $ 72,000 $ 103,000
Accrued expenses and deferred revenue....................... 91,000 255,000
----------- -----------
163,000 358,000
Valuation allowance......................................... (163,000) (358,000)
----------- -----------
Net current deferred tax asset (liability)........ $ -- $ --
=========== ===========
LONG-TERM:
Net operating loss carryforwards............................ $ 3,121,000 $ 7,911,000
Research and development credits............................ 45,000 45,000
Intangible assets........................................... 259,000 239,000
----------- -----------
3,425,000 8,195,000
Valuation allowance......................................... (3,425,000) (8,195,000)
----------- -----------
Net long-term deferred tax asset (liability)...... $ -- $ --
=========== ===========
</TABLE>
At December 31, 1998, the Company has available net operating loss carryforwards
of approximately $21,000,000, which it may use to offset future federal taxable
income. The net operating loss carryforwards, if not utilized, will begin to
expire in 2009. The Company has available research and development credits of
approximately $45,000 that will expire in 2010.
Income tax benefits have not been recorded since the Company has fully reserved
the tax benefit of temporary differences, operating losses and tax credit
carryforwards based on management's evaluation of the positive and negative
evidence impacting the realizability of the assets, consisting principally of
net operating loss carryforwards. Management has considered the Company's
history of losses and concluded that as of December 31, 1997 and 1998, the
deferred tax assets should be fully reserved.
The Company's 1996, 1997 and 1998 income tax provision differs from that
obtained by using the statutory rate of 34% due to the following:
<TABLE>
<CAPTION>
-------------------------------------
1996 1997 1998
--------- ----------- -----------
<S> <C> <C> <C>
Computed "expected" tax benefit............................ $(406,000) $(1,897,000) $(4,496,000)
State income taxes, net of federal income tax benefit...... (48,000) (223,000) (524,000)
Change in valuation allowance.............................. 451,000 2,105,000 4,965,000
Permanent differences...................................... 3,000 15,000 55,000
--------- ----------- -----------
$ -- $ -- $ --
========= =========== ===========
</TABLE>
5. DEBT
On October 29, 1997, the Company issued a $3,000,000, 8% convertible debenture
due September 30, 1998 (the Debenture). The debenture was convertible into
1,485,149 shares of Series C preferred stock. Effective October 23, 1998,
$1,000,000 of the Debenture was assigned by the investor to a group of private
investors who converted such portion of the Debenture into 495,049 shares of
Series C preferred stock. The Company paid off
F-13
<PAGE> 70
INTERACTIVE PICTURES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$1,000,000 of the Debenture in October 1998, and converted the remaining
$1,000,000 into 513,201 shares of Series C preferred stock in March 1999.
The Company entered into a $40,000 noninterest bearing promissory note payable
during August 1997; due in monthly installments of $667, including principal and
imputed interest, through August 2002. The note is collateralized by certain
furniture and equipment of the Company.
6. SHAREHOLDERS' EQUITY
As of December 31, 1997, the Company's outstanding capital stock consisted
solely of common stock. The investment agreements among the Company and certain
corporate investors provide certain rights and obligations to the parties,
including but not limited to board representation, the issuance of equity
securities, and public registration and antidilution rights.
During April 1998, the Company authorized and issued to new corporate investors
6,435,643 shares of Series C preferred stock, as well as warrants to purchase an
additional 1,792,055 shares of Series C preferred stock, at a for net proceeds
of $12,529,436. The warrants expire five years from the issuance or upon
consummation of a "qualified public offering," as defined in the warrant
agreements. The warrant exercise price for 1,608,911 shares is $2.42 and $2.02
for the remaining shares under these warrants.
In connection with the Series C transaction, the Company exchanged, on a
one-for-one basis, an aggregate of 6,819,064 shares of common stock for
4,836,416 shares of Series A preferred stock and 1,982,648 shares of Series B
preferred stock.
During August 1998, the Company issued warrants to purchase 67,500 shares of
common stock. These warrants have an exercise price of $2.42 per share and
expire three years from the issuance or upon consummation of a "qualified public
offering," as defined in the warrant agreement.
On March 19 and April 12, 1999, the Company amended its Charter to (i) increase
the number of common shares authorized to 100,000,000 shares; (ii) change the
authorized number of shares of Series B and C preferred stock to 1,547,648 and
9,267,297, respectively; and (iii) change the par value of its common stock to
$0.001. All amounts included in the accompanying financial statements have been
restated to retroactively reflect the change in par value.
Subsequent to the year ended December 31, 1998, the Company issued an aggregate
of 10,305,344 shares of Series D preferred stock for gross proceeds of
$27,000,000, of which approximately $16,600,000 was invested in commercial paper
with maturities of less than one year. These obligations are reported at
amortized cost, which approximates fair value.
In connection with the Series D issuance, warrants to purchase 650,000 shares of
Series D preferred stock were issued. The warrants have an exercise price of
$3.14 and expire three years from issuance or upon consummation of a "qualified
public offering," as defined in the warrant agreement.
The Company's amended Charter provides the following rights and preferences to
the holders of Series A, B, C and D preferred stock:
VOTING
Each share of all series of preferred stock has voting rights equal to an
equivalent number of shares of common stock into which it is convertible
and votes together as one class with the common stock.
The consent of the holders of greater than 70% of the outstanding shares of
Series A, B and C preferred stock will be necessary to effect certain
changes to the Company's Charter that would adversely affect the powers,
preferences and other rights of the preferred stock.
F-14
<PAGE> 71
INTERACTIVE PICTURES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The consent of the holders of greater than a majority of the outstanding
shares of Series D preferred stock will be necessary to effect certain
changes to the Company's Charter.
The holders of Series A and B preferred stock shall each be entitled to
elect one director at each annual meeting of the stockholders. The holders
of Series C and D preferred stock shall be entitled to elect two directors
at each meeting.
LIQUIDATION
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, holders of Series A, B and C preferred stock are
entitled to receive an amount of $1.36, $2.02 and $2.02 per share,
respectively, prior to and in preference to any distribution to the holders
of common stock.
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, holders of Series D preferred stock are entitled
to receive an amount of $2.62 per share prior to and in preference to any
distribution to the holders of common stock and all other classes of
preferred stock.
CONVERSION
Each share of all series of outstanding preferred stock is convertible, at
the option of the holder, according to a conversion ratio which is subject
to adjustment for dilution. In the event that the per share offering price
of proceeds from a "qualified public offering," as defined in the Company's
charter, exceed certain thresholds, each share of all series of outstanding
preferred stock automatically converts on a one-for-one basis to common
stock.
DIVIDENDS
Holders of preferred stock are entitled to receive noncumulative dividends
when and if declared by the Board of Directors. No dividends have been
declared through December 31, 1998.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair values of financial instruments have been estimated using data which the
Company considered the best available. The following estimation methodologies
were used:
CASH AND CASH EQUIVALENTS. Cash and cash equivalents are reflected at
carrying value, which is considered fair value due to the short-term nature
of these instruments.
ACCOUNTS RECEIVABLE. Accounts receivable consists primarily of trade
receivables. The Company has estimated their fair value to be the carrying
value.
SECURITIES AVAILABLE-FOR-SALE. The estimated fair value of securities
available-for-sale is based on the quoted market prices for those or
similar investments. Amortized costs approximate fair value.
CONVERTIBLE DEBENTURE AND PROMISSORY NOTE. Fair values are based on quoted
market prices for the same or similar issues, or the carrying value is used
where a market price is unavailable. The carrying value is assumed to be
the fair value for these liabilities as no market price for a comparable
instrument was available.
8. EMPLOYEE STOCK AND BENEFIT PLANS
STOCK OPTION PLAN
The Company has authorized the 1997 Equity Compensation Plan (the Plan), under
which 5,876,560 shares of common stock are authorized and reserved for issuance
to selected employees, officers, directors, consultants
F-15
<PAGE> 72
INTERACTIVE PICTURES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and advisors. The Company has reserved a sufficient number of shares of common
stock for issuance pursuant to the authorized options. As of December 31, 1998,
1,611,250 options had been granted under this Plan. In addition, the Company has
granted certain options to purchase shares of the Company's common stock to
employees not under the Plan; these options were primarily granted prior to the
authorization of the 1997 plan. The exercise price of all options granted is the
fair value of the Company's common stock at the date of grant as estimated by
common stock and convertible preferred stock transactions with third parties at
or near grant dates. The options generally vest over one to three-year periods
and expire five years after the respective vesting dates.
A summary of the Company's stock option activity is as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE STOCK AVERAGE
OF EXERCISE GRANT DATE OPTIONS EXERCISE
SHARES PRICES FAIR VALUE EXERCISABLE PRICE
------ ----------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
Under option at January 1, 1996..... 1,527,440
Options granted in 1996............. 412,000 $1.25 $0.33
Options exercised in 1996........... (80,000) 0.01
Options cancelled in 1996........... (120,000) 1.25
---------
Under option at December 31, 1996... 1,739,440 1,311,440 $0.19
Options granted in 1997............. 2,622,049 1.38 0.33
Options cancelled in 1997........... (316,000) 1.25
---------
Under option at December 31, 1997... 4,045,489 1,990,952 0.55
Options granted in 1998............. 1,576,250 2.04 0.41
Options exercised in 1998........... (220,000) 0.01
Options cancelled in 1998........... (33,334) 2.20
---------
Under option at December 31, 1998... 5,368,405 2,455,797 0.84
=========
</TABLE>
The following table summarizes information about stock options at December 31,
1998:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------- ------------------------------
NUMBER NUMBER
OUTSTANDING WEIGHTED-AVERAGE EXERCISABLE
RANGE OF AT REMAINING WEIGHTED-AVERAGE AT WEIGHTED-AVERAGE
EXERCISE PRICE 12/31/98 CONTRACTUAL LIFE EXERCISE PRICE 12/31/98 EXERCISE PRICE
- -------------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$0.01 907,440 0.7 years $0.01 907,440 $0.01
$1.25 2,566,049 2.7 years $1.25 1,431,024 $1.25
$2.02 - $2.20 1,894,916 8.9 years $2.06 117,333 $2.18
</TABLE>
ACCOUNTING FOR STOCK-BASED COMPENSATION
Under APB 25, because the exercise price of the Company's stock options equals
the deemed fair value of the underlying stock on the date of the grant, no
compensation cost has been recognized in the accompanying financial statements.
Pro forma information regarding net loss is required by Statement 123, and has
been determined as if the Company had accounted for its stock options under the
fair value method of Statement 123. The Company has determined that the
difference between historical results and such pro forma information would have
been to increase the net loss by $133,037, $311,129 and $300,876 in 1996, 1997
and 1998, respectively, and to increase the net loss per share to $(0.08),
$(0.32), and $(0.99) in 1996, 1997 and 1998, respectively.
F-16
<PAGE> 73
INTERACTIVE PICTURES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The minimum fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants: expected lives of five years, risk free interest
rate of 6.21% in 1996, 5.71% in 1997, 4.59% in 1998, and expected dividends and
volatility of zero in 1996, 1997 and 1998. Because the determination of fair
value of all options granted after such time as the Company becomes a public
entity would include an expected volatility factor in addition to the factors
described in this paragraph, these results may not be representative of future
periods.
401(K) PLAN
The Company has a 401(k) profit sharing plan which is available to all full-time
employees after six months of service and those part-time employees who have
completed one thousand hours of employment during twelve consecutive months. The
Company will match sixty-five cents per dollar up to 6.15% of the employee's
annual salary. The Company made contributions of $33,432, $43,803 and $116,071
in 1996, 1997 and 1998, respectively.
9. COMPREHENSIVE INCOME
On January 1, 1998, the Company adopted SFAS No. 130, Reporting Comprehensive
Income, which establishes new requirements for reporting and displaying
comprehensive income (loss) and its components. The adoption of SFAS No. 130 has
no impact on the Company's net loss or total stockholders' equity. This new
accounting standard requires net unrealized gains or losses on the Company's
available-for-sale securities to be reported as accumulated other comprehensive
income (loss).
The following reclassification adjustments are required to avoid double-counting
net realized gains on sales of securities that were previously included in
comprehensive income prior to the sales of the securities:
<TABLE>
<CAPTION>
--------
1996
--------
<S> <C>
Net gains on sales of securities included in interest
income.................................................... $ 27,334
Other comprehensive income reclassification adjustment...... (27,334)
--------
Net unrealized gain (loss) reported in other comprehensive
income................................................. $ --
========
</TABLE>
10. SEGMENT INFORMATION
The Company has two reportable segments: 1) IPIX products, and 2) research and
development services for others. The accounting policies of the segments are the
same as those of the Company. The Company evaluates the performance of its
segments and allocates resources to them based solely on evaluation of gross
profit. There are no inter-segment revenues. The Company does not make
allocations of corporate costs to the individual segments and does not identify
separate assets of the segments in making decisions regarding performance or
allocation of resources to them. Management believes the Company's future growth
will occur in the IPIX products segment.
F-17
<PAGE> 74
INTERACTIVE PICTURES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information about reported segments for the years ended December 31, 1996, 1997
and 1998, and the three-month periods ended March 31, 1998 and 1999, is as
follows:
<TABLE>
<CAPTION>
--------------------------------------
RESEARCH AND
DEVELOPMENT
IPIX SERVICES
PRODUCTS FOR OTHERS TOTAL
---------- ------------ ----------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31:
1996
Revenues................................................. $1,336,686 $208,167 $1,544,853
Gross profit............................................. $ 794,082 $ 99,493 $ 893,575
1997
Revenues................................................. $2,127,872 $317,898 $2,445,770
Gross profit............................................. $1,681,936 $ 1,864 $1,683,800
1998
Revenues................................................. $2,711,947 $329,008 $3,040,955
Gross profit............................................. $1,504,726 $ 88,324 $1,593,050
THREE-MONTH PERIODS ENDED MARCH 31:
1998 (UNAUDITED)
Revenues................................................. $ 319,494 $ 97,700 $ 417,194
Gross profit............................................. $ 247,244 $ 66,050 $ 313,294
1999 (UNAUDITED)
Revenues................................................. $1,228,621 $ -- $1,228,621
Gross profit............................................. $ 641,810 $ -- $ 641,810
</TABLE>
Revenue and long-lived asset information by geographic area as of and for the
years ended December 31, 1996, 1997 and 1998 and the three-month periods ended
March 31, 1998 and 1999, is as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------
THREE-MONTH PERIODS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------ ---------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- -------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
United States......................... $1,147,845 $1,833,851 $2,403,793 $268,227 $ 978,899
Japan................................. 138,000 273,093 352,330 82,650 4,825
Singapore............................. 259,008 143,364 13,000 -- 1,695
United Kingdom........................ -- 21,537 40,979 48,395 194,619
Other foreign countries............... -- 173,925 230,853 17,922 48,583
---------- ---------- ---------- -------- ----------
$1,544,853 $2,445,770 $3,040,955 $417,194 $1,228,621
========== ========== ========== ======== ==========
LONG-LIVED ASSETS:
Foreign............................... $ -- $ 14,962 $ 23,006
United States......................... 662,967 1,337,580 1,467,457
---------- ---------- ----------
$ 662,967 $1,352,542 $1,490,463
========== ========== ==========
</TABLE>
F-18
<PAGE> 75
INTERACTIVE PICTURES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Foreign revenues include all sales made to customers outside the United States,
including those generated by the UK subsidiary.
11. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases certain office space under noncancelable operating leases.
Future minimum lease payments with remaining terms in excess of one year are as
follows:
<TABLE>
<S> <C>
----------
1999........................................................ $ 536,567
2000........................................................ 419,488
2001........................................................ 376,143
2002........................................................ 328,968
2003........................................................ 55,530
----------
$1,716,696
==========
</TABLE>
Rental expense for operating leases was $46,378, $152,120 and $430,010 for 1996,
1997 and 1998, respectively.
The Company is subject to claims in the ordinary course of business. Management
believes the ultimate resolution of these matters will have no material impact
on the financial condition, results of operations or cash flows of the Company.
12. RESEARCH AND DEVELOPMENT ARRANGEMENTS
The Company performs certain research and development activities under various
third party contracts under which the Company receives payments upon achieving
certain targets in the development process.
Total revenue earned and costs incurred under third party research and
development contracts, excluding contracts with government agencies, at December
31, is as follows:
<TABLE>
<CAPTION>
----------------------------
1996 1997 1998
------- -------- -------
<S> <C> <C> <C>
Revenue earned.............................................. $79,750 $104,500 $62,700
Cost incurred............................................... 44,693 208,168 --
</TABLE>
13. SUBSEQUENT EVENT (UNAUDITED)
In April 1999, the Compensation Committee of the Company's Board of Directors
approved the issuance of 2,252,000 options to purchase common stock at an
exercise price of $2.62 per share.
F-19
<PAGE> 76
(LOGO IPIX INTERACTIVE PICTURES CORPORATION)
<PAGE> 77
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Expenses of the Registrant in connection with the issuance and distribution of
the securities being registered, other than the underwriting discount, are
estimated as follows:
<TABLE>
<S> <C>
SEC Registration Fee........................................ $16,000
NASD Fees................................................... 6,250
NASDAQ Listing Fees......................................... *
Printing and Engraving Expenses............................. *
Legal Fees and Expenses..................................... *
Accountants' Fees and Expenses.............................. *
Expenses of Qualification Under State Securities Laws....... *
Transfer Agent and Registrar's Fees......................... *
Miscellaneous Costs......................................... *
-------
Total............................................. $ *
=======
</TABLE>
- ---------------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES
The Tennessee Business Corporation Act ("TBCA") provides that a corporation may
indemnify any director or officer against liability incurred in connection with
a proceeding if (i) the director or officer acted in good faith, (ii) the
director or officer reasonably believed, in the case of conduct in his or her
official capacity with the corporation, that such conduct was in the
corporation's best interests, and, in all other cases, that his or her conduct
was not opposed to the best interests of the corporation, and (iii) the director
or officer in connection with any criminal proceeding had no reasonable cause to
believe that his or her conduct was unlawful. In actions brought by or in the
right of the corporation, however, the TBCA provides that no indemnification may
be made if the director or officer is adjudged liable to the corporation.
Similarly, the TBCA prohibits indemnification in connection with any proceeding
charging improper personal benefit to a director or officer, if such director or
officer is adjudged liable on the basis that a personal benefit was improperly
received. In cases where the director or officer is wholly successful, on the
merits or otherwise, in the defense of any proceeding instigated because of his
or her status as a director or officer of a corporation, the TBCA mandates that
the corporation indemnify the director or officer against reasonable expenses
incurred in the proceeding. Notwithstanding the foregoing, the TBCA provides
that a court of competent jurisdiction, upon application, may order that a
director or officer be indemnified for reasonable expense if, in consideration
of all relevant circumstances, the court determines that such individual is
fairly and reasonably entitled to indemnification, whether or not the standard
of conduct set forth above was met.
Our amended and restated charter and bylaws will provide that we will indemnify
from liability, and advance expenses to, any present or former director or
officer to the fullest extent allowed by the TBCA, as amended from time to time,
or any subsequent law, rule, or regulation adopted in lieu thereof.
Additionally, our charter will provide that no director will be personally
liable to us or any of our shareholders for monetary damages for breach of any
fiduciary duty except for liability arising from (i) any breach of a director's
duty of loyalty to us or our shareholders, (ii) acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law, or
(iii) any unlawful distributions.
The proposed form of the Underwriting Agreement filed as Exhibit 1.1 to this
Registration Statement contains certain provisions relating to our
indemnification and our controlling persons by the Underwriters and relating to
the indemnification of the Underwriters by us, our controlling persons and the
selling shareholders.
II-1
<PAGE> 78
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following is a summary of the transactions by the Registrant during the past
three years involving sales of the Registrant's securities that were not
registered under the Securities Act.
Within the past three years, the Registrant has issued options to purchase
6,485,299 shares of its common stock to various employees, officers, directors,
consultants and advisors with exercise prices ranging from $.01 to $2.62 per
share. Within the past three years, we have issued 707,440 shares of common
stock pursuant to stock option exercises for an aggregate consideration of
$132,674, at an average exercise price of $.19 per share.
In December 1996, the Registrant issued to each of Motorola, Inc. and Discovery
Communications, Inc. an aggregate of 1,982,648 shares of common stock for an
aggregate purchase price of $4,000,000.
In October 1997, the Registrant issued to a private investor a $3,000,000
aggregate principal amount, 8% convertible debenture.
On April 9, 1998, the Registrant issued to Motorola 4,396,416 shares of Series A
preferred stock and 991,324 shares of Series B preferred stock in exchange for
5,387,740 shares of common stock of the Registrant. No cash consideration was
paid in connection with this exchange.
On April 9, 1998, the Registrant issued to Discovery 991,324 shares of Series B
preferred stock in exchange for a like number of shares of common stock of the
Registrant. No cash consideration was paid in connection with this exchange.
From April to July 1998, the Registrant issued to eight private investors an
aggregate of 6,435,643 shares of Series C preferred stock for an aggregate
purchase price of $13,000,000. In connection with such sale, the Registrant
issued to these investors warrants to purchase an aggregate of 1,608,911 shares
of Series C preferred stock at an exercise price of $2.02 per share. Morgan
Keegan & Company, Inc. acted as the Registrant's placement agent in this
transaction and received cash commissions of $265,450 and warrants to purchase
183,144 shares of Series C preferred stock for an exercise price of $2.42 per
share.
In May 1998, the Registrant issued to two shareholders an aggregate of 440,000
shares of Series A preferred stock in exchange for a like number of shares of
common stock of the Registrant. No cash consideration was paid in connection
with this exchange.
In August 1998, the Registrant issued to 17 private investors an aggregate of
675,000 shares of common stock of the Registrant for an aggregate consideration
of $1,363,500. Morgan Keegan acted as the Registrant's placement agent for this
transaction and received cash commissions of $81,810 and a warrant to purchase
67,500 shares of common stock at an exercise price of $2.42 per share.
From January to March 1999, the Registrant issued to 16 private investors an
aggregate of 10,305,344 shares of Series D preferred stock for an aggregate
purchase price of $27,000,000. In connection with this transaction, the
Registrant issued to one of the investors a warrant to purchase an aggregate of
650,000 shares of Series D preferred stock at an exercise price of $3.14 per
share. J.P. Morgan & Co. acted as placement agent for the Registrant to this
transaction and received a commission of $1,620,000, half of which was paid in
cash and the remainder with 309,160 shares of common stock.
The issuance of securities described in Item 15 were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act as transactions by an issuer not involving a public offering. The
issuance of securities described under the first paragraph of Item 15 was deemed
to be exempt from registration under the Securities Act in reliance on Section
4(2) or Rule 701 promulgated thereunder as transactions pursuant to compensatory
benefit plans and contracts relating to compensation. The recipients of
securities in each such transaction represented their intention to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the share
certificates and other instruments issued in such transactions. All recipients
either received adequate information about the Registrant or had access, through
employment or other relationships, to such information.
II-2
<PAGE> 79
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S> <C>
1.1* -- Form of the Underwriting Agreement among Interactive
Pictures Corporation, the selling shareholders and the
underwriters
3.1* -- Form of Amended and Restated Charter of Interactive Pictures
Corporation
3.2* -- Form of Amended and Restated Bylaws of Interactive Pictures
Corporation
4.1* -- Form of certificate representing the common stock, $.001 par
value per share of Interactive Pictures Corporation
4.2 -- Amended and Restated Registration Rights Agreement dated
December 23, 1996, between Interactive Pictures Corporation,
Motorola, Inc. and Discovery Communications, Inc.
4.3 -- Rights Agreement dated April 9, 1998, between Interactive
Pictures Corporation and purchasers of Series C Preferred
Stock
4.4 -- Amended and Restated Rights Agreement dated March 22, 1999,
between Interactive Pictures Corporation and purchasers of
Series D Preferred Stock
5.1* -- Opinion of Baker, Donelson, Bearman and Caldwell as to the
legality of the common stock being offered
10.1 -- Executive Employment Agreement dated January 24, 1997,
between Interactive Pictures Corporation and James M.
Phillips, as amended
10.2 -- Employment and Noncompetition Agreement dated June 20, 1997,
between Interactive Pictures Corporation and John M. Murphy
10.3 -- Employment and Noncompetition Agreement dated August 17,
1998, between Interactive Pictures Corporation and Jeffrey
D. Peters
10.4 -- Employment and Noncompetition Agreement dated August 24,
1998, between Interactive Pictures Corporation and John J.
Kalec
10.5 -- Employment Agreement dated June 23, 1997, between
Interactive Pictures Corporation and Steven D. Zimmermann
10.6 -- License Agreement dated January 17, 1997, between
Interactive Pictures Corporation and Discovery
Communications, Inc.
10.7 -- Patent License Agreement dated January 17, 1997, between
Interactive Pictures Corporation and Motorola, Inc.
10.8 -- 1997 Equity Compensation Plan
10.9 -- Marketing Agreement dated March 22, 1999, between
Interactive Pictures Corporation and GE Capital Equity
Investments, Inc.
10.10 -- Warrant Agreement dated March 22, 1999, between Interactive
Pictures Corporation and GE Capital Equity Investments, Inc.
23.1 -- Consent of PricewaterhouseCoopers LLP
23.2* -- Consent of Baker, Donelson, Bearman & Caldwell (included in
opinion filed as Exhibit 5.1)
24.1 -- Power of Attorney (included on page II-5)
27.1 -- Financial Data Schedule (for SEC use only)
</TABLE>
- ---------------
* To be filed by amendment
II-3
<PAGE> 80
Schedules
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
All schedules have been omitted because either they are not required, or not
applicable or the information is otherwise set forth in the consolidated
financial statements and notes thereto.
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes:
(1) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel, the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(2) To provide the underwriter at the closing specified in the underwriting
agreement certificates in such denominations and registered in such names
as required by the underwriter to permit prompt delivery to each purchaser.
(3) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4), or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(4) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 81
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Interactive Pictures Corporation, has duly caused this registration statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Oak Ridge, State of Tennessee, on this 20th day of May, 1999.
INTERACTIVE PICTURES CORPORATION
By: /s/ JAMES M. PHILLIPS
----------------------------------------
James M. Phillips
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints James M. Phillips,
Jeffrey D. Peters and John J. Kalec, each of them severally, as such person's
true and lawful attorney-in-fact, with full power of substitution or
resubstitution, for such person and in such person's name, place and stead, in
any and all capacities, to sign on such person's behalf, individually and in
each capacity stated below, any and all amendments, including post-effective
amendments to this Registration Statement, and to sign any and all additional
registration statements relating to the same offering of securities of the
Registration Statement that are filed pursuant to Rule 462(b) of the Securities
Act of 1933, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact, full power and authority to do and perform
each and every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as such person might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact, or
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
II-5
<PAGE> 82
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND
ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
Chairman of the Board of Directors May 20, 1999
/s/ JAMES M. PHILLIPS and Chief Executive Officer
- ---------------------------------------------------
James M. Phillips
President and Chief Operating May 20, 1999
/s/ JEFFREY D. PETERS Officer
- ---------------------------------------------------
Jeffrey D. Peters
Vice President and Chief Financial May 20, 1999
/s/ JOHN J. KALEC Officer
- ---------------------------------------------------
John J. Kalec
Director May 20, 1999
/s/ JOHN S. HENDRICKS
- ---------------------------------------------------
John S. Hendricks
Director May 20, 1999
/s/ DOUG HOLMES
- ---------------------------------------------------
Doug Holmes
Director May 20, 1999
/s/ LABAN P. JACKSON, JR.
- ---------------------------------------------------
Laban P. Jackson, Jr.
Director May 20, 1999
/s/ RANDALL BATTAT
- ---------------------------------------------------
Randall Battat
Director May 20, 1999
/s/ TONY PANTUSO
- ---------------------------------------------------
Tony Pantuso
</TABLE>
II-6
<PAGE> 83
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S> <C>
1.1* -- Form of the Underwriting Agreement among Interactive
Pictures Corporation, the selling shareholders and the
underwriters
3.1* -- Form of Amended and Restated Charter of Interactive Pictures
Corporation
3.2* -- Form of Amended and Restated Bylaws of Interactive Pictures
Corporation
4.1* -- Form of certificate representing the common stock, $.001 par
value per share of Interactive Pictures Corporation
4.2 -- Amended and Restated Registration Rights Agreement dated
December 23, 1996, between Interactive Pictures Corporation,
Motorola, Inc. and Discovery Communications, Inc.
4.3 -- Rights Agreement dated April 9, 1998, between Interactive
Pictures Corporation and purchasers of Series C Preferred
Stock
4.4 -- Amended and Restated Rights Agreement dated March 22, 1999,
between Interactive Pictures Corporation and purchasers of
Series D Preferred Stock
5.1* -- Opinion of Baker, Donelson, Bearman and Caldwell as to the
legality of the common stock being offered
10.1 -- Executive Employment Agreement dated January 24, 1997,
between Interactive Pictures Corporation and James M.
Phillips, as amended
10.2 -- Employment and Noncompetition Agreement dated June 20, 1997,
between Interactive Pictures Corporation and John M. Murphy
10.3 -- Employment and Noncompetition Agreement dated August 17,
1998, between Interactive Pictures Corporation and Jeffrey
D. Peters
10.4 -- Employment and Noncompetition Agreement dated August 24,
1998, between Interactive Pictures Corporation and John J.
Kalec
10.5 -- Employment Agreement dated June 23, 1997, between
Interactive Pictures Corporation and Steven D. Zimmermann
10.6 -- License Agreement dated January 17, 1997, between
Interactive Pictures Corporation and Discovery
Communications, Inc.
10.7 -- Patent License Agreement dated January 17, 1997, between
Interactive Pictures Corporation and Motorola, Inc.
10.8 -- 1997 Equity Compensation Plan
10.9 -- Marketing Agreement dated March 22, 1999, between
Interactive Pictures Corporation and GE Capital Equity
Investments, Inc.
10.10 -- Warrant Agreement dated March 22, 1999, between Interactive
Pictures Corporation and GE Capital Equity Investments, Inc.
23.1 -- Consent of PricewaterhouseCoopers LLP
23.2* -- Consent of Baker, Donelson, Bearman & Caldwell (included in
opinion filed as Exhibit 5.1)
24.1 -- Power of Attorney (included on page II-5)
27.1 -- Financial Data Schedule (for SEC use only)
</TABLE>
- ---------------
* To be filed by amendment
<PAGE> 1
Exhibit 4.2
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
THIS AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (this
"Agreement") is made and entered into this 23rd day of December, 1996 by and
among OMNIVIEW, INC., a Tennessee corporation (the "Company"), MOTOROLA, INC., a
Delaware corporation ("Motorola"), and DISCOVERY COMMUNICATIONS, INC., a
Delaware corporation ("DCI");
W I T N E S S E T H:
THAT WHEREAS, Omniview and Motorola are parties to a Registration
Rights Agreement dated February 4, 1994 (the "Original Agreement"); and
WHEREAS, the parties wish DCI to become a party to the Original
Agreement and wish to amend and restate the Original Agreement on the terms set
forth below;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Omniview, Motorola and DCI agree
as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms
shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"DCI Registrable Securities" shall mean the shares of Common Stock of
the Company to be purchased by DCI under the Amended and Restated Stock Purchase
Agreement, dated as of the date hereof (the "Stock Purchase Agreement"), and any
other shares of Common Stock or other securities of the Company which DCI
hereafter acquires; provided, however, that shares of Common Stock of the
Company which are DCI Registrable Securities shall cease to be DCI Registrable
Securities upon any sale or transfer in any manner to any person or entity,
including, but not limited to, sales pursuant to a registration statement, Rule
144 sales or otherwise, but excluding any sale or transfer in connection with
which the rights of DCI hereunder are assignable pursuant to Section 9.
"Motorola Registrable Securities" shall mean the 1,099,104 shares of
Common Stock of the Company owned by Motorola on the date hereof, the shares of
Common Stock of the Company to be purchased by Motorola under the Stock Purchase
Agreement and any other shares of Common Stock or other securities of the
Company which Motorola hereafter acquires; provided, however, that shares of
Common Stock of the Company which are Motorola Registrable Securities shall
cease to be Motorola Registrable Securities upon any sale or transfer in any
manner to any person or entity, including, but not limited to, sales pursuant to
a registration statement, Rule 144 sales or otherwise, but excluding any sale or
transfer in connection with which the rights of Motorola hereunder are
assignable pursuant to Section 9.
<PAGE> 2
"Person" shall mean any individual, partnership, corporation, trust,
unincorporated organization or government or department or agency thereof.
The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"Registration expenses" shall mean all expenses, other than Selling
Expenses (as defined below), incurred by the Company in complying with this
Agreement, including, without limitation, all registration, qualification and
filing fees, printing expenses, escrow fees, fees and disbursements of counsel
for the Company, blue sky fees and expenses and the expense of any special
audits incident to or required by any such registration.
"Registrable securities" shall mean, collectively, the DCI Registrable
Securities and the Motorola Registrable Securities.
"Securities act" shall mean the Securities Act of 1933, as amended, or
any similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling expenses" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered by
DCI or Motorola and, except as set forth in this Agreement, all fees and
disbursements of counsel for DCI or Motorola.
2. REQUESTED REGISTRATION.
(a) Request for Registration. In case the Company shall receive
(i) from Motorola a written request that the Company effect any registration,
qualification or compliance with respect to at least 50% of the Motorola
Registrable Securities then held by Motorola, (ii) from DCI a written request
that the Company effect any registration, qualification or compliance with
respect to at least 50% of the DCI Registrable Securities then held by DCI, or
(iii) from Motorola and DCI a joint written request that the Company effect any
registration, qualification or compliance with respect to at least 50% of the
Registrable Securities then held by Motorola and DCI, the Company will, as soon
as practicable, use its best efforts to effect such registration, qualification
or compliance (including, without limitation, appropriate qualification under
applicable blue sky or other state securities laws and appropriate compliance
with applicable regulations issued under the Securities Act and any other
governmental requirements or regulations) as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of such
Registrable Securities as are specified in such request; provided, however, that
the Company shall not be obligated to take any action to effect any such
registration, qualification or compliance pursuant to this Section 2:
(A) In any particular jurisdiction in which the Company would
be required to execute a general consent to service of process in
effecting such registration, qualification or
- 2 -
<PAGE> 3
compliance unless the Company is already subject to service in such
jurisdiction and except as may be required by the Securities Act, nor
in any jurisdiction in which the Company would be required to subject
itself to taxation by such act or to conform the composition of its
assets at the time to the securities or "blue sky" laws of any
jurisdiction;
(B) Prior to July 1, 1997 with respect to any DCI Registrable
Securities;
(C) During the period starting with the date sixty (60) days
prior to the Company's estimated date of filing of, and ending on the
date six (6) months immediately following the effective date of, any
registration statement (or ending on the date three (3) months
immediately following the effective date, in the event the Company
shall then be eligible to effect a registration statement, for shares
to be sold generally to the public, on Form S-3 or any successor form)
pertaining to securities of the Company (other than a registration of
securities in a Rule 145 transaction or with respect to an employee
benefit plan), provided that the Company is actively employing in good
faith all reasonable efforts to cause such registration statement to
become effective (and provided, further, that the Company cannot
pursuant to this Section 2(a)(C) delay implementation of a demand for
registration more than once in any 12-month period);
(D) With respect to any DCI Registrable Securities, after the
Company has effected a total of (i) two such registrations of DCI
Registrable Securities under the Securities Act on Form S-3 or any
similar short form registration statement and (ii) two other
registrations of DCI Registrable Securities pursuant to this Section
2(a) (with it being understood that these numbers are subject to
adjustment under Sections 2 and 3), and such registrations have been
declared or ordered effective;
(E) With respect to any Motorola Registrable Securities, after
the Company has effected a total of (i) two such registrations of
Motorola Registrable Securities under the Securities Act on Form S-3 or
any similar short form registration statement and (ii) two other
registrations of Motorola Registrable Securities pursuant to this
Section 2(a) (with it being understood that these numbers are subject
to adjustment under Sections 2 and 3), and such registrations have been
declared or ordered effective;
(F) If the Company shall furnish to the party or parties (as
the case may be) requesting registration a certificate signed by the
President of the Company stating that in the good faith judgment of the
Board of Directors it would be seriously detrimental to the Company or
its shareholders for a registration statement to be filed in the near
future, then the Company's obligation to use its best lawful efforts to
register, qualify or comply under this Section 2(a) shall be deferred
for a period not to exceed 120 days from the date of the Company's
receipt of such written request for registration; provided, however,
that the Company may exercise such right to defer only once with
respect to each of Motorola and DCI (i.e., either (x) once with respect
to a registration requested under Section 2(a)(i) of this Agreement and
once with respect to a registration requested under Section 2(a)(ii) of
this
- 3 -
<PAGE> 4
Agreement or (y) once with respect to a joint request under Section
2(a)(iii) of this Agreement); or
(G) If the Registrable Securities proposed to be registered by
Motorola and/or DCI are expected to have an aggregate offering value of
less than one million dollars ($1,000,000) (other than any registration
effected under the Securities Act on Form S-3 or any similar short form
registration statement where the securities proposed to be registered
are expected to have an aggregate offering value of at least five
hundred thousand dollars ($500,000)).
Subject to the foregoing clauses (A) through (G), the Company
shall give prompt written notice (the "Notice of Demand Request") of
Motorola's or DCI's request to all holders who hold of record any
securities which are registrable and, thereupon, the Company shall, as
expeditiously as possible, use its best efforts to effect the
registration under the Securities Act of (i) the Registrable Securities
which the Company has been so requested to register in the registration
request, for disposition in accordance with the intended method of
disposition stated in the registration statement, and (ii) all other
registrable securities the holders of which shall have made a written
request to the Company for registration thereof within 30 days after
the giving of the Notice of Demand Request, all to the extent necessary
to permit the sale or other disposition by the holders of the
securities to be registered. If, however, not all of the Registrable
Securities are included in the registration, then (x) space available
in the registration will be allocated between DCI and Motorola pro
rata, based upon the percentage interest of each in the Company's
capital stock requested to be registered, and (y) whichever of DCI or
Motorola did not have the opportunity to register all of the
Registrable Securities it desired to register will receive an
additional registration right under Section 2(a)(D).
(b) Underwriting. In the event that a registration pursuant to
Section 2 is for a registered public offering involving an underwriting, the
Company shall enter into an underwriting agreement in customary form with the
managing underwriter selected for such underwriting by Motorola and/or DCI, as
the case may be, but subject to the Company's reasonable approval.
3. COMPANY REGISTRATION.
(a) Notice of Registration. If at any time or from time to time
the Company shall determine to register any of its securities, either for its
own account or the account of a security holder or holders, other than (i) a
registration relating solely to employee benefit plans, or (ii) a registration
relating solely to a Commission Rule 145 transaction, the Company will:
(A) promptly give to Motorola and DCI written notice thereof;
and
(B) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any
underwriting involved therein, all the Registrable Securities
specified in a written request or requests, made within 15 days after
receipt of such written notice from the Company, by Motorola or DCI,
provided, however, if any registration
- 4 -
<PAGE> 5
pursuant to this Section 3 involves an underwritten offering and the
managing underwriter shall advise the Company that, in its view, the
number of securities requested to be included in such registration
exceeds the number (the "Section 3 Sale Number") that can be sold in
an orderly manner in such offering within a price range acceptable to
the Company, the Company shall include in such offering (i) all the
securities the Company proposes to register for its own account, and
(ii) to the extent that the Registrable Securities to be included by
the Company are less than the Section 3 Sale Number, all Registrable
Securities requested to be included. If the Registrable Securities
requested to be included, when added to the Company securities to be
registered, exceed the Section 3 Sale Number, then the Registrable
Securities to be included in the Section 3 Sale Number shall be
allocated pro rata between DCI and Motorola, based upon the percentage
interest of each in the Company's capital stock which Motorola and DCI
have requested to be registered.
(b) Right to Terminate Registration. The Company shall have the right
to terminate or withdraw any registration initiated by it under this Section 3
prior to the effectiveness of such registration whether or not Motorola or DCI
has elected to include securities in such registration. Each holder of
securities of the Company ("Holder" or "Holders") included in the registration
agrees that, upon receipt of notice from the Company that the Company has
determined to withdraw any registration statement pursuant to this subsection,
such Holder will discontinue its disposition of securities pursuant to such
registration statement and, if so directed by the Company, will deliver to the
Company (at the Company's expense) all copies, other than permanent file copies,
then in such Holder's possession of the prospectus covering securities which was
in effect at the time of such notice.
4. LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after the
Closing Date (as defined in the Stock Purchase Agreement), the Company shall not
enter into any agreement granting any holder or prospective holder of any
securities of the Company registration rights with respect to such securities
which are more beneficial to said holder or prospective holder than the
registration rights granted Motorola and DCI hereunder.
5. EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with all registrations shall be borne by the Company, except to the
extent that (i) Motorola or DCI alone, but not the Company or any other
stockholder, requests that a registration be withdrawn prior to its initial
effectiveness, and (ii) if Motorola or DCI elects not to have such registration
counted as a registration requested under Section 2. All Selling Expenses
relating to securities registered on behalf of Motorola shall be borne by
Motorola. All Selling Expenses relating to securities registered on behalf of
DCI shall be borne by DCI.
6. REGISTRATION PROCEDURES. In the case of each registration,
qualification or compliance effected by the Company pursuant to this Agreement,
the Company will keep Motorola and DCI advised in writing as to the initiation
of each registration, qualification and compliance and as to the completion
thereof. The Company will:
- 5 -
<PAGE> 6
(a) use its best efforts to effect the registration and the sale of
such Registrable Securities in accordance with the intended method of
disposition thereof (including the registration of shares held by a holder of
Registrable Securities requesting registration as to which the Company has
received reasonable assurances that only Registrable Securities will be
distributed to the public); and pursuant thereto the Company will as
expeditiously as possible:
(b) prepare and file with the Commission a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective (provided that before filing a
registration statement or prospectus or any amendments or supplements thereto,
the Company will furnish to the counsel selected by the holders of a majority of
the Registrable Securities covered by such registration statement copies of all
such documents proposed to be filed);
(c) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
a period of not less than 120 days and comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement during such period in accordance with the intended
methods of disposition by the sellers thereof set forth in such registration
statement;
(d) during the period in which the Company is required under the
provisions hereof to keep a registration statement effective, furnish to the
seller of Registrable Securities such number of copies of such registration
statement, each amendment and supplement thereto, the prospectus included in
such registration statement (including each preliminary prospectus) and such
other documents as such seller may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by such seller;
(e) use its best efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such jurisdictions as
any seller reasonably requests and do any and all other acts and things which
may be reasonably necessary or advisable to enable such seller to consummate the
disposition in such jurisdictions of the Registrable Securities owned by such
seller (provided that the Company will not be required to (i) qualify generally
to do business in any jurisdiction where it would not otherwise be required to
qualify but for this subparagraph, (ii) subject itself to taxation in any such
jurisdiction or (iii) consent to general service of process in any such
jurisdiction);
(f) notify the seller of such Registrable Securities, at any time when
a prospectus relating thereto is required to be delivered under the Securities
Act, of the happening of any event as a result of which the prospectus included
in such registration statement contains an untrue statement of a material fact
or omits any fact necessary to make the statements therein not misleading, and,
at the request of such seller, the Company will prepare a supplement or
amendment to such prospectus so that, as thereafter delivered to the purchasers
of such Registrable Securities, such prospectus will not
- 6 -
<PAGE> 7
contain an untrue statement of a material fact or omit to state any fact
necessary to make the statements therein not misleading;
(g) use its best efforts to cause all such Registrable Securities to be
listed on each securities exchange on which similar securities issued by the
Company are then listed and, if not so listed, to be listed on the NASD
automated quotation system and, if listed on the NASD automated quotation
system, use its best efforts to secure designation of all such Registrable
Securities covered by such registration statement as a NASDAQ "national market
system security" within the meaning of Rule 11Aa2-1 of the Securities and
Exchange Commission or, failing that, to secure NASDAQ authorization for such
Registrable Securities and, without limiting the generality of the foregoing, to
arrange for at least two market makers to register as such with respect to such
Registrable Securities with the NASD;
(h) provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such registration statement;
(i) enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the holders of
a majority of the Registrable Securities being sold or the underwriters, if any,
reasonably request in order to expedite or facilitate the disposition of such
Registrable Securities (including, without limitation, effecting a stock split
or a combination of shares), provided that such underwriting agreement shall be
reasonably satisfactory to the Company;
(j) upon receipt and execution of such confidentiality agreements as
the Company may reasonably request from parties who are not otherwise subject to
confidentiality obligations because of the nature of their profession (e.g.,
underwriters, attorneys and accountants), make available for inspection by each
seller of Registrable Securities, any underwriter participating in any
disposition pursuant to such registration statement and any attorney, accountant
or other agent retained by any such seller or underwriter, all financial and
other records, pertinent corporate documents and properties of the Company, and
cause the Company's officers, directors, employees and independent accountants
to supply all information reasonably requested by any such seller, underwriter,
attorney, accountant or agent in connection with such registration statement;
(k) otherwise use its best efforts to comply with all applicable rules
and regulations of the Commission, and make available to its security holders,
as soon as reasonably practicable, an earnings statement covering the period of
at least twelve months beginning with the first day of the Company's first full
calendar quarter after the effective date of the registration statement, which
earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 thereunder;
(l) if any such registration or comparable statement refers to any
holder by name or otherwise as the holder of any securities of the Company and
if in its sole and exclusive judgment, such holder is or might be deemed to be a
controlling person of the Company, such holder shall have the right to require
(i) the insertion therein of language, in form and substance satisfactory to
such
- 7 -
<PAGE> 8
holder and presented to the Company in writing, to the effect that the holding
by such holder of such securities is not to be construed as a recommendation by
such holder of the investment quality of the Company's securities covered
thereby and that such holding does not imply that such holder will assist in
meeting any future financial requirements of the Company, or (ii) in the event
that such reference to such holder by name or otherwise is not required by the
Securities Act or any similar federal statute then in force, the deletion of the
reference to such holder; provided that with respect to this clause (ii) such
holder shall furnish to the Company an opinion of counsel to such effect, which
opinion and counsel shall be reasonably satisfactory to the Company; and
(m) in the event of the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any common stock included in such registration statement for sale in any
jurisdiction, the Company will use its reasonable best efforts promptly to
obtain the withdrawal of such order
7. INDEMNIFICATION.
(a) The Company agrees to indemnify, to the extent permitted by law,
each holder of Registrable Securities, such holder's officers and directors and
each Person who controls such holder (within the meaning of the Securities Act)
against all losses, claims, damages, liabilities and expenses caused by any
untrue or alleged untrue statement of material fact contained in any
registration statement, prospectus or preliminary prospectus or any amendment
thereof or supplement thereto or any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
not misleading, except insofar as the same are caused by or contained in any
written information or affidavits relating to such holder's ownership of
Registrable Securities or as otherwise required under the Securities Act
furnished by such holder expressly for use in such registration statement or by
such holder's failure to deliver a copy of the registration statement or
prospectus or any amendments or supplements thereto after the Company has
furnished such holder with a sufficient number of copies of the same. In
connection with an underwritten offering, the Company will indemnify such
underwriters, their officers and directors and each Person who controls such
underwriters (within the meaning of the Securities Act) to the same extent as
provided above with respect to the indemnification of the holders of Registrable
Securities.
(b) In connection with any registration statement in which a holder of
Registrable Securities is participating, each such holder will furnish to the
Company in writing such information and affidavits relating to such holder's
ownership of Registrable Securities or as otherwise required under the
Securities Act as the Company reasonably requests for use in connection with any
such registration statement or prospectus and, to the extent permitted by law,
will indemnify the Company, its directors and officers and each Person who
controls the Company (within the meaning of the Securities Act) against any
losses, claims, damages, liabilities and expenses resulting from any untrue or
alleged untrue statement of material fact contained in the registration
statement, prospectus or preliminary prospectus or any amendment thereof or
supplement thereto or any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein
- 8 -
<PAGE> 9
not misleading, but only to the extent that such untrue statement or omission is
contained in any information or affidavit so furnished in writing by such holder
which was expressly provided for use in such registration statement and was
included in such registration statement in reliance on and in conformity with
such written information or affidavit;
(c) Any Person entitled to indemnification hereunder will (i) give
prompt written notice to the indemnifying party of any claim with respect to
which it seeks indemnification and (ii) unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. If such defense is assumed, the
indemnifying party will not be subject to any liability for any settlement made
by the indemnified party without its consent (but such consent will not be
unreasonably withheld). An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim will not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim.
(d) The indemnification provided for under this Agreement will remain
in full force and effect regardless of any investigation made by or on behalf of
the indemnified party or any officer, director or controlling Person of such
indemnified party and will survive the transfer of securities. The Company also
agrees to make such provisions, as are reasonably requested by any indemnified
party, for contribution to such party in the event the Company's indemnification
is unavailable for any reason.
8. RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the Commission which may at any time permit the
sale of the Registrable Securities to the public without registration, after
such time as a public market exists for the Common Stock of the Company, the
Company agrees to use its best lawful efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times after
the effective date that the Company becomes subject to the reporting
requirements of the Securities Act or the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
(b) File with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act
(at any time after it has become subject to such reporting requirements);
(c) So long as Motorola or DCI owns any Registrable Securities to
furnish to it forthwith upon request a written statement by the Company as to
its compliance with the reporting requirements of Rule 144 (at any time after 90
days after the effective date of the first registration statement filed by the
Company for an offering of its securities to the general public) and of the
- 9 -
<PAGE> 10
Securities Act and the Exchange Act (at any time after it has become subject to
such reporting requirements) a copy of the most recent annual or quarterly
report of the Company, and such other reports and documents of the Company and
other information in the possession of or reasonably obtainable by the Company
as Motorola or DCI may reasonably request in availing itself of any rule or
regulation of the Commission allowing Motorola or DCI to sell any such
securities without registration.
9. TRANSFER OF REGISTRATION RIGHTS. The rights granted to Motorola and
DCI hereunder may be assigned to a transferee or assignee in connection with any
transfer or assignment of Registrable Securities by Motorola or DCI provided
that (i) such transfer may otherwise be effected in accordance with applicable
securities laws, (ii) such assignee or transferee acquires at least (x) 500,000
shares of Registrable Securities (subject to appropriate adjustment for stock
splits, dividends, subdivisions, combinations, recapitalizations and the like)
or (y) the entire then remaining equity interest in the Company of either
Motorola or DCI and (iii) Motorola or DCI notifies the Company in writing of the
transfer or assignment and the assignee or transferee agrees in writing to be
bound by the provisions of this Agreement.
10. TERMINATION OF REGISTRATION RIGHTS. The Company's obligations
pursuant to Sections 2, 3 and 4 shall expire when all Registrable Securities
held by Motorola, DCI or any assignee have been sold pursuant to Rule 144 or any
successor rule.
11. STAND-OFF AGREEMENT. Each stockholder, including Motorola and DCI,
if requested by the Company and an underwriter of Common Stock or other
securities of the Company, shall agree not to sell or otherwise transfer or
dispose of any Registrable Securities or other securities of the Company (except
as otherwise permitted by agreements) held by such stockholder for a period of
time commencing on the effective date of a registration statement and ending no
more than 120 days after the effective date of such registration statement;
provided, that such agreement shall only apply to the first such registration
statement covering Common Stock of the Company to be sold on its behalf to the
public in an underwritten offering; and that such agreement shall be in a form
satisfactory to the Company and such underwriter. The Company may impose
stop-transfer instructions with respect to the Registrable Securities or other
securities subject to the foregoing restriction until the end of the stand-off
period. The Company agrees (i) not to effect any public sale or distribution of
its equity securities, or any securities convertible into or exchangeable or
exercisable for such securities, during the seven days prior to and during the
120-day period beginning on the effective date of any underwritten registration
(except as part of such underwritten registration or pursuant to registrations
on Form S-8 or any successor form), unless the underwriters managing the
registered public offering otherwise agree, and (ii) to cause each holder of its
Common Stock, or any securities convertible into or exchangeable or exercisable
for Common Stock, purchased from the Company at any time after the date of this
Agreement (other than in a registered public offering) to agree not to effect
any public sale or distribution (including sales pursuant to Rule 144) of any
such securities during such period (except as part of such underwritten
registration, if otherwise permitted), unless the underwriters managing the
registered public offering otherwise agree. Any
- 10 -
<PAGE> 11
restrictions placed on sales pursuant to clause (i) or (ii) of the preceding
sentence shall apply equally to sales by the Company, DCI and Motorola.
12. CONFIDENTIALITY. Each of Motorola and DCI agrees that it will keep
confidential and not disclose or divulge any confidential, proprietary or secret
information which it may obtain from the Company pursuant to the financial
statements, reports and other materials submitted by the Company to Motorola or
DCI solely pursuant to this Agreement, or pursuant to any visitation or
inspection rights granted in this Agreement, unless such information is known or
independently developed, received from a third party not subject to a
confidentiality agreement, or until such information becomes known to the
public.
13. MISCELLANEOUS.
13.1 Governing Law. This Agreement shall be governed in all respects
by the internal substantive laws of the State of Delaware.
13.2 Survival. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by Motorola or DCI
and the closing of the transactions contemplated hereby.
13.3 Successors and Assigns. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, permitted assigns, heirs, executors and administrators of the
parties hereto.
13.4 Entire Agreement: Amendment. This Agreement, its attachments and
the other documents delivered pursuant hereto at the Closing constitute the full
and entire understanding and agreement between the parties with regard to the
subjects hereof and thereof. Except as expressly provided herein, neither this
Agreement nor any term hereof may be amended, waived, discharged or terminated
other than by a written instrument signed by the party against whom enforcement
of any such amendment, waiver, discharge or termination is sought. This
Agreement supersedes the Original Agreement in its entirety effective as of the
date hereof.
13.5 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
13.6 Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that no such severability shall be effective if
it materially changes the economic benefit of this Agreement to any party.
13.7 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not considered in construing or
interpreting this Agreement.
- 11 -
<PAGE> 12
13.8 Adjustments Affecting Registrable Securities. The Company will not
take any action, or permit any change to come, with respect to its securities
which would materially and adversely affect the ability of the holders of the
Registrable Securities to include such Registrable Securities in a registration
undertaken pursuant to this Agreement or which would materially and adversely
affect the marketability of said Registrable Securities in any such registration
(including, without limitation, effecting a stock split or combination of
shares).
[THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
- 12 -
<PAGE> 13
IN WITNESS WHEREOF, the parties below have executed this Agreement all
as of the date first written above.
MOTOROLA, INC. OMNIVIEW, INC.
/s/ John W. Battin /s/ H. Lee Martin
- ---------------------------------- ---------------------------------------
By: John W. Battin By: H. Lee Martin
------------------------------- ------------------------------------
Title: Senior VP & General Manager Title: President
Multimedia Group ---------------------------------
----------------------------
DISCOVERY COMMUNICATIONS, INC.
/s/ C. Richard Allen
- ----------------------------------
By: C. Richard Allen
-------------------------------
Title: Senior Vice President
----------------------------
- 13 -
<PAGE> 1
Exhibit 4.3
INTERACTIVE PICTURES CORPORATION
RIGHTS AGREEMENT
April 9, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 1
Restrictions on Transferability; Registration Rights...........................1
1.1 Certain Definitions..........................................1
1.2 Restrictions.................................................2
1.3 Restrictive Legend...........................................2
1.4 Notice of Proposed Transfers.................................3
1.5 Requested Registration.......................................3
1.6 Company Registration.........................................5
1.7 Registration on Form S-3.....................................6
1.8 Limitations on Subsequent Registration Rights................7
1.9 Expenses of Registration.....................................7
1.10 Registration Procedures......................................8
1.11 Indemnification..............................................8
1.12 Information by Holder.......................................10
1.13 Rule 144 Reporting..........................................10
1.14 Transfer of Registration Rights.............................10
1.15 Standoff Agreement..........................................11
1.16 Termination of Rights.......................................11
SECTION 2
Maintenance of Equity Position................................................11
2.1 Notice of Transactions......................................11
2.2 Right to Purchase Allotment.................................12
2.3 Purchase Price..............................................12
2.4 Purchase at Closing.........................................12
2.5 Exceptions..................................................12
2.6 Termination of Rights.......................................12
SECTION 3
Miscellaneous.................................................................13
3.1 Assignment..................................................13
3.2 Third Parties...............................................13
3.3 Governing Law...............................................13
3.4 Counterparts................................................13
3.5 Notices.....................................................13
3.6 Severability................................................13
3.7 Amendment and Waiver........................................13
3.8 Effect of Amendment or Waiver...............................14
3.9 Rights of Holders...........................................14
3.10 Delays or Omissions.........................................14
</TABLE>
i
<PAGE> 3
RIGHTS AGREEMENT
This RIGHTS AGREEMENT (this "Agreement") is made as of April 9, 1998 by
and among Interactive Pictures Corporation, a Tennessee corporation (the
"Company"), U S West Interactive Services, Inc. (to be renamed MediaOne
Interactive Services, Inc.), a Colorado corporation ("ISG"), Advance
Publications, Inc., a New York corporation ("Advance"), and such other persons
that may become parties to this Agreement from time to time (such other persons,
ISG and Advance are collectively referred to herein as the "Purchasers").
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the parties agree as follows:
SECTION 1
Restrictions on Transferability;
Registration Rights
1.1 Certain Definitions. As used in this Agreement, the following
terms shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"Conversion Shares" shall mean the shares of Common Stock of the
Company issued or issuable upon conversion of the Preferred Shares.
"Holder" shall mean any Purchaser holding Registrable Securities and
any person holding Registrable Securities to whom the rights under this
Agreement have been transferred in accordance with Section 1.14 hereof.
"Initiating Holders" shall mean Holders in the aggregate of not less
than thirty percent (30%) of the Registrable Securities as defined for purposes
of that particular section.
"Preferred Shares" shall mean the Series C Preferred Stock of the
Company.
The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses incurred by the Company
in complying with Sections 1.5, 1.6 and 1.7 of this Agreement, including,
without limitation, all registration, qualification and filing fees, printing
expenses, escrow fees, fees and disbursements of counsel for the Company, blue
sky fees and expenses, and the expense of any special audits incident to or
required by any such registration (but excluding the compensation of regular
employees of the Company which shall be paid in any event by the Company).
<PAGE> 4
"Registrable Securities" means the Preferred Shares and the Conversion
Shares.
"Restricted Securities" shall mean the securities of the Company
required to bear the legend set forth in Section 1.3 of this Agreement.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered by
the Holders and all fees and disbursements of counsel for the Holders (except as
provided by Section 1.9).
1.2 Restrictions. The Preferred Shares shall not be sold, assigned,
transferred or pledged except upon the conditions specified in this Agreement,
which conditions are intended to ensure compliance with the provisions of the
Securities Act. The Purchasers will cause any proposed purchaser, assignee,
transferee or pledgee of the Preferred Shares to agree to take and hold such
securities subject to the provisions and upon the conditions specified in this
Agreement.
1.3 Restrictive Legend. Each certificate representing the Preferred
Shares and any other securities issued in respect of the Preferred Shares, upon
any stock split, stock dividend, recapitalization, merger, consolidation or
similar event, shall (unless otherwise permitted by the provisions of Section
1.4 below) be stamped or otherwise imprinted with legends in the following form
(in addition to any legend required under applicable state securities laws):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. SUCH SHARES MAY NOT BE SOLD, TRANSFERRED OR PLEDGED IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS THE COMPANY RECEIVES AN OPINION
OF COUNSEL (WHICH MAY BE COUNSEL FOR THE COMPANY) REASONABLY ACCEPTABLE
TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT."
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN
ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE
STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE
COMPANY."
Each Purchaser and Holder consents to the Company making a notation on
its records and giving instructions to any transfer agent of the Restricted
Securities in order to implement the restrictions on transfer established in
this Section 1.
1.4 Notice of Proposed Transfers. The holder of each certificate
representing Restricted Securities, by acceptance thereof, agrees to comply in
all respects with the provisions of this Section 1. Prior to any proposed sale,
assignment, transfer or pledge of any Restricted Securities, unless there is in
effect a registration statement under the Securities Act covering the proposed
2
<PAGE> 5
transfer, the holder thereof shall give written notice to the Company of such
holder's intention to effect such transfer, sale, assignment or pledge. Each
such notice shall describe the manner and circumstances of the proposed
transfer, sale, assignment or pledge in sufficient detail, and shall be
accompanied at such holder's expense by either (i) an unqualified written
opinion of legal counsel who shall, and whose legal opinion shall be, reasonably
satisfactory to the Company, addressed to the Company, to the effect that the
proposed transfer of the Restricted Securities may be effected without
registration under the Securities Act, or (ii) a "no action" letter from the
Commission to the effect that the transfer of such securities without
registration will not result in a recommendation by the staff of the Commission
that action be taken with respect thereto, whereupon the holder of such
Restricted Securities shall be entitled to transfer such Restricted Securities
in accordance with the terms of the notice delivered by the holder to the
Company. The Company will not require such a legal opinion or "no action" letter
(a) in any transaction in compliance with Rule 144, (b) in any transaction in
which a Purchaser which is a corporation distributes Restricted Securities after
six (6) months after the purchase thereof solely to its majority-owned
subsidiaries or affiliates for no consideration, or (c) in any transaction in
which a Purchaser which is a partnership distributes Restricted Securities after
six (6) months after the purchase thereof solely to partners thereof for no
consideration, provided that each transferee agrees in writing to be subject to
the terms of this Section 1.4. Each certificate evidencing the Restricted
Securities transferred as above provided shall bear, except if such transfer is
made pursuant to Rule 144, the appropriate restrictive legend set forth in
Section 1.3 above, except that such certificate shall not bear such restrictive
legend if, in the opinion of counsel for such holder and the Company, such
legend is not required in order to establish compliance with any provisions of
the Securities Act.
1.5 Requested Registration.
(a) Request for Registration. In case the Company shall receive from
Initiating Holders a written request that the Company effect any qualification,
compliance or registration, the Company shall:
(i) promptly give written notice of the proposed registration,
qualification or compliance to all other Holders; and
(ii) use its best efforts to effect such registration,
qualification or compliance (including, without limitation, the execution of an
undertaking to file post-effective amendments, appropriate qualification under
applicable blue sky or other state securities laws and appropriate compliance
with applicable regulations issued under the Securities Act and any other
governmental requirements or regulations) as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of such
Registrable Securities as are specified in such request, together with all or
such portion of the Registrable Securities of any Holder or Holders joining in
such request as are specified in a written request received by the Company
within twenty (20) days after receipt of such written notice from the Company;
provided, however, that the Company shall not be obligated to take any action to
effect any such registration, qualification or compliance pursuant to this
Section 1.5:
(1) In any particular jurisdiction in which the Company would be
required to execute a general consent to service of process in effecting such
registration, qualification or compliance
3
<PAGE> 6
unless the Company is already subject to service in such jurisdiction and except
as may be required by the Securities Act;
(2) Prior to the earlier of (i) six (6) months following the
Company's initial public offering or (ii) March 1, 2001;
(3) During the period ending on the date three (3) months
immediately following the effective date of, any registration statement
pertaining to securities of the Company (other than a registration of securities
in a Rule 145 transaction or with respect to an employee benefit plan);
(4) After the Company has effected two (2) such registrations
pursuant to this subparagraph 1.5(a), such registrations have been declared or
ordered effective and the securities offered pursuant to such registrations have
been sold; or
(5) If the Company shall furnish to such Holders a certificate,
signed by the President of the Company, stating that in the good faith judgment
of the Board of Directors it would be seriously detrimental to the Company or
its shareholders for a registration statement to be filed in the near future,
then the Company's obligation to use its best efforts to register, qualify or
comply under this Section 1.5 shall be deferred for a single period not to
exceed one hundred-twenty (120) days from the date of receipt of written request
from the Initiating Holders.
Subject to the foregoing clauses (1) through (5), the Company shall
file a registration statement covering the Registrable Securities so requested
to be registered as soon as practicable after receipt of the request or requests
of the Initiating Holders, and in any case, not later than seventy-five (75)
days thereafter.
(b) Underwriting. In the event that a registration pursuant to Section
1.5 is for a registered public offering involving an underwriting, the Company
shall so advise the Holders as part of the notice given pursuant to Section
1.5(a)(i). The right of any Holder to registration pursuant to Section 1.5 shall
be conditioned upon such Holder's participation in the underwriting arrangements
required by this Section 1.5 and the inclusion of such Holder's Registrable
Securities in the underwriting, to the extent requested, to the extent provided
in this Agreement.
The Company shall (together with all Holders proposing to distribute
their securities through such underwriting) enter into an underwriting agreement
in customary form with the managing underwriter selected for such underwriting
by a majority in interest of the Initiating Holders (which managing underwriter
shall be reasonably acceptable to the Company). Notwithstanding any other
provision of this Section 1.5, if the managing underwriter advises the
Initiating Holders in writing that marketing factors require a limitation of the
number of shares to be underwritten, then the Company shall so advise all
Holders of Registrable Securities and the number of shares of Registrable
Securities that may be included in the registration and underwriting shall be
allocated among all Holders thereof in proportion, as nearly as practicable, to
the respective amounts of Registrable Securities held by such Holders at the
time of filing the registration statement. No Registrable Securities excluded
from the underwriting by reason of the underwriter's marketing limitation shall
be included in such registration. To facilitate the allocation of shares in
accordance with the above provisions, the
4
<PAGE> 7
Company or the underwriters may round the number of shares allocated to any
Holder to the nearest 100 shares.
If any Holder of Registrable Securities disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice to
the Company, the managing underwriter and the Initiating Holders. The
Registrable Securities and/or other securities so withdrawn shall also be
withdrawn from registration, and such Registrable Securities shall not be
transferred in a public distribution prior to one hundred eighty (180) days
after the effective date of such registration.
1.6 Company Registration.
(a) Notice of Registration. If at any time or from time to time, the
Company shall determine to register any of its securities, either for its own
account or the account of a security holder or holders other than (i) a
registration relating solely to employee benefit plans, or (ii) a registration
relating solely to a Commission Rule 145 transaction, the Company will:
(i) promptly give to each Holder written notice thereof, and
(ii) include in such registration (and any related qualification
under blue sky laws or other compliance), and in any underwriting involved in
such registration, all the Registrable Securities specified in a written request
or requests received within twenty (20) days after receipt of such written
notice from the Company by any Holder, but only to the extent that such
inclusion will not diminish the number of securities included by the Company or
by holders of the Company's securities who have demanded such registration.
(b) Underwriting. If the registration of which the Company gives notice
is for a registered public offering involving an underwriting, the Company shall
so advise the Holders as a part of the written notice given pursuant to Section
1.6(a)(i). In such event, the right of any Holder to registration pursuant to
Section 1.6 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of Registrable Securities in the underwriting to
the extent provided herein. All Holders proposing to distribute their securities
through such underwriting shall (together with the Company and the other holders
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the managing underwriter selected
for such underwriting by the Company (or by the holders who have demanded such
registration). Notwithstanding any other provision of this Section 1.6, if the
managing underwriter determines that marketing factors require a limitation of
the number of shares to be underwritten, the managing underwriter may limit the
Registrable Securities to be included in such registration to a minimum of 30%
of the total shares to be included in such underwriting or exclude them entirely
in the case of the Company's initial public offering. The Company shall so
advise all Holders and the other holders distributing their securities through
such underwriting pursuant to piggyback registration rights similar to this
Section 1.6, and the number of shares of Registrable Securities and other
securities that may be included in the registration and underwriting shall be
first allocated among all Purchasers in proportion, as nearly as practicable, to
the respective amounts of Registrable Securities held by such Purchasers at the
time of filing the registration statement, and after satisfaction of the
requirements of the Purchasers, the remaining shares that may be included in the
registration and underwriting shall
5
<PAGE> 8
be allocated among the remaining Holders in proportion, as nearly as
practicable, to the respective amounts of Registrable Securities held by such
Holders at the time of filing of the registration statement. To facilitate the
allocation of shares in accordance with the above provisions, the Company or the
underwriters may round the number of shares allocated to any Holder or other
holder to the nearest 100 shares. If any Holder or other holder disapproves of
the terms of any such underwriting, he or she may elect to withdraw therefrom by
written notice to the Company and the managing underwriter. Any securities
excluded or withdrawn from such underwriting shall be withdrawn from such
registration, and shall not be transferred in a public distribution prior to one
hundred eighty (180) days after the effective date of the registration statement
relating thereto (the "Lock-Up Period"); provided, however, that if such
registration is not the Company's initial public offering such Lock-Up Period
shall be one hundred twenty (120) days unless the managing underwriter
determines that marketing factors require a longer period in which case the
Lock-Up period shall be specified by the managing underwriter but shall not
exceed one hundred eighty (180) days.
(c) Right to Terminate Registration. The Company shall have the right
to terminate or withdraw any registration initiated by it under this Section 1.6
prior to the effectiveness of such registration, whether or not any Holder has
elected to include securities in such registration.
1.7 Registration on Form S-3.
(a) If a Purchaser requests in writing that the Company file a
registration statement on Form S-3 (or any successor form to Form S-3) for a
public offering of shares of the Registrable Securities, the reasonably
anticipated aggregate price to the public of which, net of underwriting
discounts and commissions, would exceed $1,000,000, and the Company is a
registrant entitled to use Form S-3 to register the Registrable Securities for
such an offering, the Company shall use its best efforts to cause such
Registrable Securities to be registered for the offering on such form; provided,
however, that the Company shall not be required to effect more than two (2)
registrations pursuant to this Section 1.7 in any twelve (12) month period. The
Company will (i) promptly give written notice of the proposed registration to
all other Holders, and (ii) as soon as practicable, use its best efforts to
effect such registration (including, without limitation, the execution of an
undertaking to file post-effective amendments, appropriate qualification under
applicable blue sky or other state securities laws and appropriate compliance
with applicable regulations issued under the Securities Act and any other
governmental requirements or regulations) as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of such
Registrable Securities as are specified in such request, together with all or
such portion of the Registrable Securities of any Holder or Holders joining in
such request as are specified in a written request received by the Company
within twenty (20) days after receipt of such written notice from the Company.
The substantive provisions of Section 1.5(b) shall be applicable to each
registration initiated under this Section 1.7.
(b) Notwithstanding the foregoing, the Company shall not be obligated
to take any action pursuant to this Section 1.7: (i) in any particular
jurisdiction in which the Company would be required to execute a general consent
to service of process in effecting such registration, qualification or
compliance unless the Company is already subject to service in such jurisdiction
and except as may be required by the Securities Act, (ii) during the period
ending on a date three (3) months following
6
<PAGE> 9
the effective date of, a registration statement (other than with respect to a
registration statement relating to a Rule 145 transaction, an offering solely to
employees or any other registration which is not appropriate for the
registration of Registrable Securities), or (iii) if the Company shall furnish
to such Holder a certificate signed by the President of the Company stating
that, in the good faith judgment of the Board of Directors, it would be
seriously detrimental to the Company or its shareholders for registration
statements to be filed in the near future, then the Company's obligation to use
its best efforts to file a registration statement shall be deferred for a single
period not to exceed one hundred twenty (120) days from the receipt of the
request to file such registration by such Holder or Holders.
1.8 Limitations on Subsequent Registration Rights.
(a) From and after the date of this Agreement, the Company shall not
enter into any agreement granting any holder or prospective holder of any
securities of the Company registration rights with respect to such securities
without the prior written consent of a majority of the Registrable Securities
then outstanding (on a Common Stock equivalent basis) unless (1) such new
registration rights, including standoff obligations, are on a pari passu basis
with those rights of the Holders hereunder, or (2) such new registration rights,
including standoff obligations, are subordi nate to the registration rights
granted the Holders hereunder; provided, that the inclusion of such holder's
securities shall not reduce the amount of Registrable Securities which are
included in any registration for which the Holders hold registration rights
pursuant to this Agreement.
(b) Where the Company determines to grant any holder or prospective
holder of any securities of the Company registration rights that are on a pari
passu basis with those rights of the Holders hereunder and determines that the
grant of such rights shall be made pursuant to this Agreement, then such grant
shall be evidenced by the execution of an additional signature page to this
Agreement by the Company and such holder, without any requirement on the part of
the Company to seek the consent or approval of the Holders.
1.9 Expenses of Registration. All Registration Expenses incurred in
connection with any registration pursuant to Sections 1.5, 1.6 or 1.7 and the
reasonable cost of one special legal counsel to represent all of the Holders
together in any such registration shall be borne by the Company, provided that
the Company shall not be required to pay the Registration Expenses of any
registration proceeding begun pursuant to Section 1.5, the request of which has
been subsequently withdrawn by the Initiating Holders. In such case, the Holders
of Registrable Securities to have been registered shall bear all such
Registration Expenses pro rata on the basis of the number of shares to have been
registered unless the Holders of a majority of the Registrable Securities agree
to forfeit their right to one demand registration pursuant to Section 1.5.
Notwithstanding the foregoing, however, if at the time of the withdrawal, the
Holders have learned of a material adverse change in the condition, business or
prospects of the Company from that known to the Holders at the time of their
request, of which the Company had knowledge at the time of the request, then the
Holders shall not be required to pay any of said Registration Expenses or to
forfeit the right to one demand registration.
1.10 Registration Procedures. In the case of each registration,
qualification or compliance effected by the Company pursuant to this Section 1,
the Company will keep each Holder advised in
7
<PAGE> 10
writing as to the initiation of each registration, qualification and compliance
and as to the completion thereof. At its expense the Company will:
(a) Prepare and file with the Commission a registration statement with
respect to such securities and use its best efforts to cause such registration
statement to become and remain effective for at least ninety (90) days or until
the distribution described in the registration statement has been completed; and
(b) Furnish to the Holders participating in such registration and to
the underwriters of the securities being registered such reasonable number of
copies of the registration statement, preliminary prospectus, final prospectus
and such other documents as such underwriters may reasonably request in order to
facilitate the public offering of such securities.
1.11 Indemnification.
(a) The Company will indemnify each Holder, each of its officers and
directors and partners, and each person controlling such Holder within the
meaning of Section 15 of the Securities Act, with respect to which registration,
qualification or compliance has been effected pursuant to this Section 1, and
each underwriter, if any, and each person who controls any underwriter within
the meaning of Section 15 of the Securities Act, against all expenses, claims,
losses, damages or liabilities (or actions in respect thereof), including any of
the foregoing incurred in settlement of any litigation, commenced or threatened,
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any registration statement, prospectus, offering
circular or other document, or any amendment or supplement thereto, incident to
any such registration, qualification or compliance, or based on any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading, or any violation by the Company of any
rule or regulation promulgated under the Securities Act applicable to the
Company in connection with any such registration, qualification or compliance,
and the Company will reimburse each such Holder, each of its officers and
directors, and each person controlling such Holder, each such underwriter and
each person who controls any such underwriter, for any legal and any other
expenses reasonably incurred in connection with investigating, preparing or
defending any such claim, loss, damage, liability or action, provided that the
Company will not be liable in any such case to the extent that any such claim,
loss, damage, liability or expense arises out of or is based on any untrue
statement or omission or alleged untrue statement or omission, made in reliance
upon and in conformity with written information furnished to the Company by an
instrument duly executed by such Holder, controlling person or underwriter and
stated to be specifically for use therein; and provided, further, that the
Company will not be liable to any such person or entity with respect to any such
untrue statement or omission or alleged untrue statement or omission made in any
preliminary prospectus that is corrected in the final prospectus filed with the
Commission pursu ant to Rule 424(b) promulgated under the Securities Act (or any
amendment or supplement to such prospectus) if the person asserting any such
loss, claim, damage or liability purchased securities but was not sent or given
a copy of the prospectus (as amended or supplemented) at or prior to the written
confirmation of the sale of such securities to such person in any case where
such delivery of the prospectus (as amended or supplemented) is required by the
Securities Act, unless such failure to deliver the prospectus (as amended or
8
<PAGE> 11
supplemented) was a result of the Company's failure to provide such prospectus
(as amended or supplemented).
(b) Each Holder will, if Registrable Securities held by such Holder are
included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors and
officers, each underwriter, if any, of the Company's securities covered by such
a registration statement, each person who controls the Company or such
underwriter within the meaning of Section 15 of the Securities Act, and each
other such Holder, each of its officers and directors and each person
controlling such Holder within the meaning of Section 15 of the Securities Act,
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus, offering circular or other document, or any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the
Company, such Holders, such directors, officers, persons, underwriters or
control persons for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, in each case to the extent, but only to the extent, that
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by an instrument duly executed by such Holder and
stated to be specifically for use therein; provided, however, that the liability
of a Holder for indemnification under this Section 1.11(b) shall not exceed the
gross proceeds from the offering received by such Holder.
(c) Each party entitled to indemnification under this Section 1.11 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
party's expense, and provided further that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this Section 1 unless the failure to give such notice is
materially prejudicial to an Indemnifying Party's ability to defend such action.
No Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect to such claim or litigation.
1.12 Information by Holder. The Holder or Holders of Registrable
Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders, the Registrable Securities held by
them and the distribution proposed by such Holder or Holders as the Company may
request in writing and as shall be required in connection with any registration,
qualification or compliance referred to in this Section 1.
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<PAGE> 12
1.13 Rule 144 Reporting. With a view to making available the benefits
of certain rules and regulations of the Commission which may at any time permit
the sale of the Restricted Securities to the public without registration, after
such time as a public market exists for the Common Stock of the Company, the
Company agrees to use its best efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times after
the effective date that the Company becomes subject to the reporting
requirements of the Securities Act or the Securities Exchange Act of 1934, as
amended (the "Exchange Act");
(b) File with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act
(at any time after it has become subject to such reporting requirements); and
(c) So long as a Purchaser owns any Restricted Securities, to furnish
to the Purchaser forth with upon request a written statement by the Company as
to its compliance with the reporting requirements of said Rule 144 (at any time
after ninety (90) days after the effective date of the first registration
statement filed by the Company for an offering of its securities to the general
public), and of the Securities Act and the Exchange Act (at any time after it
has become subject to such reporting requirements), a copy of the most recent
annual or quarterly report of the Company, and such other reports and documents
of the Company and other information in the possession of or reasonably
obtainable by the Company as a Purchaser may reasonably request in availing
itself of any rule or regulation of the Commission allowing a Purchaser to sell
any such securities without registration.
1.14 Transfer of Registration Rights. The rights to cause the Company
to register securities granted Purchasers under Sections 1.5, 1.6 and 1.7 may be
assigned to a transferee or assignee reasonably acceptable to the Company in
connection with any transfer or assignment of Registrable Securities by a
Purchaser (together with any affiliate); provided that (a) such transfer may
otherwise be effected in accordance with applicable securities laws, (b) notice
of such assignment is given to the Company, and (c) such transferee or assignee
(i) is a wholly-owned subsidiary or constituent partner (including limited
partners) of such Purchaser, or (ii) acquires from such Purchaser the lesser of
(a) 500,000 or more shares of Registrable Securities (as appropriately adjusted
for stock splits and the like) or (b) one-half (1/2) of the Registrable
Securities then owned by such Purchaser.
1.15 Standoff Agreement. Each Holder agrees in connection with the
initial registration of the Company's securities that, upon request of the
Company or the underwriters managing any underwritten initial public offering of
the Company's securities, not to sell, make any short sale of, loan, grant any
option for the purchase of, or otherwise dispose of any Registrable Securities
(other than those included in the registration) without the prior written
consent of the Company or such underwriters, as the case may be, for such period
of time (not to exceed one hundred eighty (180) days from the effective date of
such registration) as may be requested by the Company or such managing
underwriters; provided, however, that the officers and directors of the Company
who own stock of the Company also agree to such restrictions.
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<PAGE> 13
1.16 Termination of Rights. No Holder shall be entitled to exercise any
right provided for in this Section 1:
(a) after five (5) years following the consummation of the sale of
securities pursuant to a registration statement filed by the Company under the
Act in connection with the initial firm commitment underwritten offering of its
securities to the general public, or
(b) on or after the closing of a public offering of the Common Stock of
the Company, initiated by the Company, when all shares of the Holder's
Registrable Securities may be sold under Rule 144 during any 90-day period;
provided, however, that the provisions of this subsection (b) shall not apply
where the Holder owns more than one percent (1%) of the Company's outstanding
stock until such time as such Holder owns less than one percent (1%) of the
outstanding stock.
SECTION 2
Maintenance of Equity Position
It is the intent of the Company to provide each Purchaser with an
ongoing right to maintain each Purchaser's initial equity interest in the
Company as follows:
2.1 Notice of Transactions. The Company shall notify Purchaser of (i)
the commencement of bona fide negotiations regarding any agreement providing for
the issuance (contingent or otherwise) of (A) any equity securities or (B) any
notes or debt securities containing equity features (including, without
limitation, any notes or debt securities convertible into or exchangeable or
exercisable for equity securities, issued in connection with the issuance of
such features), or any securities convertible into, or exchangeable or
exercisable for, any equity securities (including, without limitation, employee
stock options and warrants) (collectively, "Convertible Securities"), or (ii)
the issuance of shares upon the exercise of any Convertible Securities. Upon the
execution of definitive agreements regarding such issuances, or, in the case of
Convertible Securities upon issuance of securities related thereto, the Company
shall deliver written notice (the "Equity Notice") of such agreement or
issuance, as the case may be, promptly, but in any event, not less than thirty
(30) days prior to the closing of any such transaction or, if later, the
issuance of any securities related thereto (the "Issued Securities"). The Equity
Notice shall set forth the terms and conditions of such agreement and will be
deemed to be an offer to Purchaser to purchase its Allotment (as defined in
Section 2.2) of the securities described in the Equity Notice (the "Offer"), at
the purchase price set forth in subparagraph (c) below and with the same rights,
privileges and preferences as the Issued Securities, and on the same terms and
conditions as those set forth or referenced, as the case may be, in the Equity
Notice.
2.2 Right to Purchase Allotment. Purchaser shall be entitled to
purchase up to the amount of the securities described in the Equity Notice which
shall be equal to the product of (i) the number that results from dividing the
number of shares of Preferred Stock and Conversion Shares held by Purchaser
immediately prior to the issuance of the Issued Securities by the number of
shares of the Company's Common Stock outstanding on a fully-diluted basis
immediately prior to such issuance, and (ii) the number of Issued Securities
(its "Allotment").
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2.3 Purchase Price. The Purchase Price of securities described in an
Equity Notice shall be the agreed upon price set forth in the Equity Notice.
2.4 Purchase at Closing. Purchaser may purchase its Allotment
contemporaneously with the closing of the transaction giving rise to the right
to acquire the Allotment; provided that Purchaser has notified the Company, in
writing, of its intent to make such a purchase, not less than fifteen (15) days
prior to date of closing set forth in the Equity Notice.
2.5 Exceptions. The provisions of this Section 2 shall not apply with
respect to (i) the sale of additional shares of Series C Preferred Stock and
Warrants to purchase Series C Preferred Stock pursuant to, and in accordance
with, the Series C Preferred Stock Purchase Agreement dated April 9, 1998
between the Company and the purchasers listed therein, or (ii) the issuance of
shares of Common Stock (as proportionally adjusted for any split, stock dividend
or recapitalization affecting the Common Stock), including options or warrants
to acquire Common Stock, in connection with conversion of any shares of Series A
Preferred Stock, Series B Preferred Stock, or Series C Preferred Stock
outstanding as of the date hereof or any employee stock option or stock
ownership plan, any consulting agreement or arrangement or any restricted stock
agreement providing for the issuance of Common Stock to an employee or employees
of the Company, in existence as of the date hereof or entered into following the
date of this Agreement.
2.6 Termination of Rights. The rights provided in this Section 2 shall
terminate upon the consummation of the Company's sale of its Common Stock in an
underwritten public offering pursuant to an effective registration statement
filed under the Securities Act.
SECTION 3
Miscellaneous
3.1 Assignment. Except as otherwise provided in this Agreement, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties to this
Agreement.
3.2 Third Parties. Nothing in this Agreement, express or implied, is
intended to confer upon any party, other than the parties to this Agreement, and
their respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
3.3 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of Tennessee in the United States of America without
giving effect to the conflicts of laws principles thereof.
3.4 Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
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<PAGE> 15
3.5 Notices. All notices and other communications required or permitted
under this Agree ment shall be mailed by registered or certified mail, postage
prepaid, or otherwise delivered by hand or by messenger, addressed (a) if to a
Purchaser, at such Purchaser's address set forth on Exhibit A, or, at such other
address as such Purchaser shall have furnished to the Company in writing, or (b)
if to any other holder of any Shares, at such address as such holder shall have
furnished the Company in writing, or, until any such holder so furnishes an
address to the Company, then to and at the address of the last holder of such
Shares who has so furnished an address to the Company, or (c) if to the Company,
one copy should be sent to its offices and addressed to the attention of the
President, or at such other address as the Company shall have furnished to the
Purchaser.
Each such notice or other communication shall for all purposes of this
Agreement be treated as effective or having been given when delivered if
delivered personally, or, if sent by mail, at the earlier of its receipt or 72
hours after the same has been deposited in a regularly maintained receptacle for
the deposit of the United States mail, addressed and postage prepaid as
aforesaid.
3.6 Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, portions of such provisions, or such
provisions in their entirety, to the extent necessary, shall be severed from
this Agreement, and the balance of this Agreement shall be enforceable in
accordance with its terms.
3.7 Amendment and Waiver. Any provision of this Agreement may be
amended or waived with the written consent of the Company and the Holders of at
least a majority of the outstanding shares of the Registrable Securities, so
long as the effect is to treat all Holders equally, provided, however, that the
consent of both ISG and Advance is required for any such amendment or waiver,
which consent shall not be unreasonably withheld. Any amendment or waiver of
this Agreement shall require the written consent of any Holder who is
disproportionately adversely affected by such amendment or waiver. Any amendment
or waiver effected in accordance with this paragraph shall be binding upon each
Holder of Registrable Securities and the Company. In addition, the Company may
waive performance of any obligation owing to it, as to some or all of the
Holders of Registrable Securities, or agree to accept alternatives to such
performance, without obtaining the consent of any Holder of Registrable
Securities. In the event that an underwriting agreement is entered into between
the Company and any Holder, and such underwriting agreement contains terms
differing from this Agreement, as to any such Holder the terms of such
underwriting agreement shall govern.
3.8 Effect of Amendment or Waiver. The Purchasers and their successors
and assigns acknowledge that by the operation of Section 3.7 of this Agreement
the holders of a majority of the outstanding Registrable Securities, acting in
conjunction with the Company, will have the right and power to diminish or
eliminate any or all rights or increase any or all obligations pursuant to this
Agreement.
3.9 Rights of Holders. Each holder of Registrable Securities shall have
the absolute right to exercise or refrain from exercising any right or rights
that such holder may have by reason of this Agreement, including, without
limitation, the right to consent to the waiver or modification of any obligation
under this Agreement, and such holder shall not incur any liability to any other
holder of
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<PAGE> 16
any securities of the Company as a result of exercising or refraining from
exercising any such right or rights.
3.10 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to any party to this Agreement, upon any breach or
default of the other party, shall impair any such right, power or remedy of such
non-breaching party nor shall it be construed to be a waiver of any such breach
or default, or an acquiescence therein, or of or in any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any party of any breach or default under this
Agreement, or any waiver on the part of any party of any provisions or
conditions of this Agreement, must be made in writing and shall be effective
only to the extent specifically set forth in such writing. All remedies, either
under this Agreement, or by law or otherwise afforded to any holder, shall be
cumulative and not alternative.
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<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
COMPANY:
INTERACTIVE PICTURES CORPORATION,
a Tennessee corporation
By: /s/ James M. Phillips
----------------------------------
Name: James M. Phillips
--------------------------------
Title: CEO & President
-------------------------------
PURCHASERS:
ADVANCE PUBLICATIONS, INC.,
a New York corporation
By: /s/ S.I. Newhouse, Jr.
----------------------------------
Name: S.I. Newhouse, Jr.
--------------------------------
Title: Chairman/Vice President
-------------------------------
U S WEST INTERACTIVE SERVICES, INC.,
(to be renamed MediaOne Group Interactive
Services, Inc.)
a Colorado corporation
By: /s/ Thomas A. Cullen
----------------------------------
Name: Thomas A. Cullen
--------------------------------
Title: President
-------------------------------
15
<PAGE> 18
/s/ Robert C. Hawk
--------------------------------------
ROBERT C. HAWK
/s/ James Kennedy
---------------------------------------
JAMES KENNEDY
/s/ John S. Hendricks
---------------------------------------
JOHN S. HENDRICKS
BANNER & WITCOFF, LTD.
a Illinois professional service corporation
By: /s/ Joseph M. Skerpon
--------------------------------------
Its: President
-------------------------------------
/s/ Laban P. Jackson, Jr.
-----------------------------------------
LABAN P. JACKSON, JR.
/s/ Gib Vestal
-----------------------------------------
GIB VESTAL
16
<PAGE> 19
EXHIBIT A
US WEST Interactive Services, Inc.
9000 E. Nichols Avenue, Suite 100
Englewood, Colorado 80112
Advance Publications, Inc.
30 Journal Square
Jersey City, New Jersey 07306
<PAGE> 1
Exhibit 4.4
INTERACTIVE PICTURES CORPORATION
AMENDED AND RESTATED RIGHTS AGREEMENT
March 22, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
SECTION 1 Restrictions on Transferability; Registration Rights................1
1.1 Certain Definitions.................................................1
1.2 Restrictions........................................................2
1.3 Restrictive Legend..................................................2
1.4 Notice of Proposed Transfers........................................4
1.5 Requested Registration..............................................4
1.6 Company Registration................................................6
1.7 Registration on Form S-3............................................7
1.8 Limitations on Subsequent Registration Rights.......................8
1.9 Expenses of Registration............................................8
1.10 Registration Procedures.............................................9
1.11 Indemnification.....................................................9
1.12 Information by Holder..............................................12
1.13 Rule 144 Reporting.................................................12
1.14 Transfer of Registration Rights....................................12
1.15 Standoff Agreement.................................................13
1.16 Termination of Rights..............................................13
1.17 Assumption of Obligations..........................................13
SECTION 2 Maintenance of Equity Position.....................................13
2.1 Notice of Transactions.............................................13
2.2 Right to Purchase Allotment........................................14
2.3 Purchase Price.....................................................14
2.4 Purchase at Closing................................................14
2.5 Exceptions.........................................................14
2.6 Termination of Rights..............................................15
SECTION 3 Miscellaneous......................................................15
3.1 Assignment.........................................................15
3.2 Third Parties......................................................15
3.3 Governing Law; Waiver of Jury Trial................................15
3.4 Counterparts.......................................................16
3.5 Notices............................................................16
3.6 Severability.......................................................16
3.7 Amendment and Waiver...............................................16
3.8 Effect of Amendment or Waiver......................................16
3.9 Rights of Holders..................................................17
3.10 Delays or Omissions................................................17
</TABLE>
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<PAGE> 3
AMENDED AND RESTATED RIGHTS AGREEMENT
This AMENDED AND RESTATED RIGHTS AGREEMENT (this "Agreement") is made
as of March 22, 1999 by and among INTERACTIVE PICTURES CORPORATION, a Tennessee
corporation (the "Company"), J.P. MORGAN VENTURES CORP., a Delaware corporation
("J.P. Morgan"), GE CAPITAL EQUITY INVESTMENTS, INC., a Delaware corporation
("GE Capital") and the persons set forth on Exhibit "A" attached hereto
(collectively, along with J.P. Morgan and GE Capital, the "Purchasers", and
individually a "Purchaser").
WHEREAS, the Company and J.P. Morgan are parties to a Rights Agreement
dated January 14, 1999 (the "Original Agreement");
WHEREAS, the Company and J.P. Morgan entered into the Original
Agreement in contemplation of subsequent sales of the Series D Preferred Stock
of the Company. The Company now desires to sell additional shares of its Series
D Preferred Stock; and
WHEREAS, the parties intend for the other Purchasers to become a party
to the Original Agreement and desire to amend and restate the Original
Agreement, all upon the terms and conditions set forth below:
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the parties agree as follows:
SECTION 1
RESTRICTIONS ON TRANSFERABILITY;
REGISTRATION RIGHTS
1.1 CERTAIN DEFINITIONS. As used in this Agreement, the following
terms shall have the following respective meanings:
"Closing Price" shall mean, with respect to the Common Stock on any
Trading Day, the average of the reported closing bid and asked prices on the
NASDAQ National Market or, if the Common Stock is not listed or admitted to
trading on the NASDAQ National Market, the last reported sales price regular way
on the New York Stock Exchange or the American Stock Exchange or, if the Common
Stock is not listed or admitted to trading on the NASDAQ National Market, the
New York Stock Exchange or the American Stock Exchange, the average of the
closing bid and asked prices in the over-the-counter market as furnished by any
New York Stock Exchange member firm selected from time to time by the Company
for that purpose.
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"Common Stock" shall mean the shares of Common Stock of the Company,
with a par value of one-tenth of one cent ($.001) per share.
<PAGE> 4
"Conversion Shares" shall mean the shares of Common Stock of the
Company issued or issuable upon conversion of the Preferred Shares.
"Current Market Price" shall mean the current market price per share of
Common Stock. This figure shall be the average of the daily Closing Price for
the 20 Trading Days ending on the date in question.
"Holder" shall mean any Purchaser holding Registrable Securities and
any person holding Registrable Securities to whom the rights under this
Agreement have been transferred in accordance with Section 1.14 hereof.
"Initiating Holders" shall mean Holders in the aggregate of not less
than thirty percent (33%) of the Registrable Securities as defined for purposes
of that particular section.
"Preferred Shares" shall mean the Series D Preferred Stock of the
Company.
The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses incurred by the Company
in connection with any registration pursuant to Sections 1.5, 1.6 and 1.7 of
this Agreement, including, without limitation, all registration, qualification
and filing fees, printing expenses, escrow fees, fees and disbursements of
counsel for the Company, blue sky fees and expenses, and the expense of any
special audits incident to or required by any such registration (but excluding
the compensation of regular employees of the Company which shall be paid in any
event by the Company).
"Registrable Securities" means (i) the Preferred Shares and the
Conversion Shares; (ii) any shares of Common Stock, Preferred Shares or other
securities issued as (or issuable upon the conversion or exercise of any
warrant, right or other security which is issued as ) a dividend or other
distribution with respect to, or in exchange for or in replacement of the shares
referenced in clause (i); and (iii) any securities issued in exchange for Common
Stock or Preferred Shares in any merger or reorganization of the Company
excluding in all cases, however, any Registrable Securities sold or transferred
by a person in a transaction in which rights are not assigned under Section
1.14.
"Restricted Securities" shall mean the securities of the Company
required to bear the legend set forth in Section 1.3 of this Agreement.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered by
the Holders and all fees and disbursements of counsel for the Holders (except as
provided by Section 1.9).
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<PAGE> 5
"Trading Day" shall mean each Monday, Tuesday, Wednesday, Thursday and
Friday, other than any day on which securities are generally not traded on the
applicable securities exchange or in the applicable securities market.
1.2 RESTRICTIONS. The Preferred Shares shall not be sold, assigned,
transferred or pledged except upon the conditions specified in this Agreement,
which conditions are intended to ensure compliance with the provisions of the
Securities Act. Each Purchaser will cause any proposed purchaser, assignee,
transferee or pledgee of its Preferred Shares to agree to take and hold such
securities subject to the provisions and upon the conditions specified in this
Agreement.
1.3 RESTRICTIVE LEGEND. Each certificate representing the Preferred
Shares and any other securities issued in respect of the Preferred Shares, upon
any stock split, stock dividend, recapitalization, merger, consolidation or
similar event, shall (unless otherwise permitted by the provisions of Section
1.4 below) be stamped or otherwise imprinted with legends in the following form
(in addition to any legend required under applicable state securities laws):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE BEEN ISSUED IN A TRANSACTION EXEMPT FROM
REGISTRATION UNDER THE SECURITIES ACT, AND THE SHARES MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION, PURSUANT TO RULE 144, IN COMPLIANCE WITH REGULATION S
UNDER THE SECURITIES ACT, OR ANOTHER AVAILABLE EXEMPTION UNDER THE
SECURITIES ACT."
"THE PURCHASER OF THE SHARES AGREES FOR THE BENEFIT OF THE
COMPANY THAT (A) THE SHARES WILL BE OFFERED, RESOLD, OR OTHERWISE
TRANSFERRED (I) ONLY OUTSIDE THE UNITED STATES IN AN OFFSHORE
TRANSACTION IN ACCORDANCE WITH RULES 904 AND 905 UNDER THE SECURITIES
ACT, (II) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER OR ANOTHER AVAILABLE
EXEMPTION THEREUNDER OR (III) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT, AND, IN EACH OF CASES (I) THROUGH
(III), IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE
OF THE UNITED STATES, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT
HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THE RESALE RESTRICTIONS
REFERRED TO IN (A) ABOVE."
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED
ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY
AND THE STOCKHOLDER, AND IS SUBJECT TO THE TERMS OF A VOTING AGREEMENT,
COPIES OF WHICH ARE ON FILE WITH THE SECRETARY OF THE COMPANY."
3
<PAGE> 6
IF THE PURCHASER IS A FOREIGN INVESTOR, HIS, HER OR ITS
CERTIFICATE REPRESENTING THE PREFERRED SHARES WILL ALSO INCLUDE THE
FOLLOWING LANGUAGE IN ITS LEGEND:
"THE PURCHASER OF THE SHARES AGREES NOT TO ENGAGE IN HEDGING
TRANSACTIONS INVOLVING THE SHARES UNLESS IN ACCORDANCE WITH THE
SECURITIES ACT."
Each Purchaser and Holder consents to the Company making a notation on
its records and giving instructions to any transfer agent of the Restricted
Securities in order to implement the restrictions on transfer established in
this Section 1.
1.4 NOTICE OF PROPOSED TRANSFERS. The holder of each certificate
representing Restricted Securities, by acceptance thereof, agrees to comply in
all respects with the provisions of this Section 1. Prior to any proposed sale,
assignment, transfer or pledge of any Restricted Securities, unless there is in
effect a registration statement under the Securities Act covering the proposed
transfer, the holder thereof shall give written notice to the Company of such
holder's intention to effect such transfer, sale, assignment or pledge. Each
such notice shall describe the manner and circumstances of the proposed
transfer, sale, assignment or pledge in sufficient detail, and shall be
accompanied at such holder's expense by either (i) a written opinion of legal
counsel who shall, and whose legal opinion shall be, reasonably satisfactory to
the Company, addressed to the Company, to the effect that the proposed transfer
of the Restricted Securities may be effected without registration under the
Securities Act, or (ii) a "no action" letter from the Commission to the effect
that the transfer of such securities without registration will not result in a
recommendation by the staff of the Commission that action be taken with respect
thereto, whereupon the holder of such Restricted Securities shall be entitled to
transfer such Restricted Securities in accordance with the terms of the notice
delivered by the holder to the Company. The Company will not require such a
legal opinion or "no action" letter (a) in any transaction in compliance with
Rule 144 or Regulation S, (b) in any transaction in which a Purchaser which is a
corporation distributes Restricted Securities after six (6) months after the
purchase thereof solely to its majority-owned subsidiaries or affiliates for no
consideration, or (c) in any transaction in which a Purchaser which is a
partnership distributes Restricted Securities after six (6) months after the
purchase thereof solely to partners thereof for no consideration, provided that
each transferee agrees in writing to be subject to the terms of this Section
1.4. Each certificate evidencing the Restricted Securities transferred as above
provided shall bear, except if such transfer is made pursuant to Rule 144, the
appropriate restrictive legend set forth in Section 1.3 above, except that such
certificate shall not bear such restrictive legend if, in the opinion of counsel
for such holder and the Company, such legend is not required in order to
establish compliance with any provisions of the Securities Act.
1.5 REQUESTED REGISTRATION.
(a) Request for Registration. In case the Company shall receive from
Initiating Holders a written request that the Company effect any qualification,
compliance or registration of Registrable Securities with an aggregate value of
at least $10.0 million, the Company shall:
4
<PAGE> 7
(i) promptly give written notice of the proposed registration,
qualification or compliance to all other Holders; and
(ii) use its best efforts to effect such registration,
qualification or compliance (including, without limitation, the execution of an
undertaking to file post-effective amendments, appropriate qualification under
applicable blue sky or other state securities laws and appropriate compliance
with applicable regulations issued under the Securities Act and any other
governmental requirements or regulations) as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of such
Registrable Securities as are specified in such request, together with all or
such portion of the Registrable Securities of any Holder or Holders joining in
such request as are specified in a written request received by the Company
within twenty (20) days after receipt of such written notice from the Company;
provided, however, that the Company shall not be obligated to take any action to
effect any such registration, qualification or compliance pursuant to this
Section 1.5:
(1) In any particular jurisdiction in which the Company would be
required to execute a general consent to service of process in
effecting such registration, qualification or compliance unless the
Company is already subject to service in such jurisdiction and except
as may be required by the Securities Act;
(2) Prior to the earlier of (i) six (6) months following the
Company's initial public offering or (ii) January 1, 2002;
(3) During the period ending on the date three (3) months
immediately following the effective date of, any registration statement
pertaining to securities of the Company (other than a registration of
securities in a Rule 145 transaction or with respect to an employee
benefit plan);
(4) After the Company has effected two (2) such registrations
pursuant to this subparagraph 1.5(a), such registrations have been
declared or ordered effective and the securities offered pursuant to
such registrations have been sold; or
(5) If the Company shall furnish to such Holders a certificate,
signed by an executive officer of the Company, stating that in the good
faith judgment of the Board of Directors it would be seriously
detrimental to the Company or its shareholders for a registration
statement to be filed in the near future, then the Company's obligation
to use its best efforts to register, qualify or comply under this
Section 1.5 shall be deferred for a single period not to exceed one
hundred-twenty (120) days from the date of receipt of written request
from the Initiating Holders.
Subject to the foregoing clauses (1) through (5), the Company shall
file a registration statement covering the Registrable Securities so requested
to be registered as soon as practicable after receipt of the request or requests
of the Initiating Holders, and in any case, not later than seventy-five (75)
days thereafter.
5
<PAGE> 8
(b) Valuation. The $10.0 million referred to in Section 1.5(a) above
shall be computed as follows:
(i) if the Common Stock of the Company is listed on the New York Stock
Exchange, the American Stock Exchange or the NASDAQ National Market, then the
$10.0 million is measured as the product of the Current Market Price on such
date of determination times the number of shares of Common Stock and securities
convertible into or exchangeable or exercisable for Common Stock of the Holders
(in the aggregate) outstanding on such date.
(ii) if the Common Stock of the Company is not listed on the New York
Stock Exchange, the American Stock Exchange or the NASDAQ National market, then
the $10.0 million is measured as the aggregate offering price of the Registrable
Securities at the date request is made.
(c) Underwriting. In the event that a registration pursuant to Section
1.5 is for a registered public offering involving an underwriting, the Company
shall so advise the Holders as part of the notice given pursuant to Section
1.5(a)(i). The right of any Holder to registration pursuant to Section 1.5 shall
be conditioned upon such Holder's participation in the underwriting arrangements
required by this Section 1.5 and the inclusion of such Holder's Registrable
Securities in the underwriting, to the extent requested, to the extent provided
in this Agreement.
The Company shall (together with all Holders proposing to distribute
their securities through such underwriting) enter into an underwriting agreement
in customary form with the managing underwriter selected for such underwriting
by a majority in interest of the Initiating Holders (which managing underwriter
shall be reasonably acceptable to the Company). Notwithstanding any other
provision of this Section 1.5, if the managing underwriter advises the
Initiating Holders in writing that marketing factors require a limitation of the
number of shares to be underwritten, then the Company shall so advise all
Holders of Registrable Securities and the number of shares of Registrable
Securities that may be included in the registration and underwriting shall be
allocated among all Holders thereof in proportion, as nearly as practicable, to
the respective amounts of Registrable Securities held by such Holders at the
time of filing the registration statement. No Registrable Securities excluded
from the underwriting by reason of the underwriter's marketing limitation shall
be included in such registration. To facilitate the allocation of shares in
accordance with the above provisions, the Company or the underwriters may round
the number of shares allocated to any Holder to the nearest 100 shares.
If any Holder of Registrable Securities disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice to
the Company, the managing underwriter and the Initiating Holders. The
Registrable Securities and/or other securities so withdrawn shall also be
withdrawn from registration, and such Registrable Securities shall not be
transferred in a public distribution prior to one hundred eighty (180) days
after the effective date of such registration.
1.6 COMPANY REGISTRATION.
(a) Notice of Registration. If at any time or from time to time, the
Company shall determine to register any of its securities, either for its own
account or the account of a security holder or
6
<PAGE> 9
holders other than (i) a registration relating solely to employee benefit plans,
or (ii) a registration relating solely to a Commission Rule 145 transaction, the
Company will:
(i) promptly give to each Holder written notice thereof, and
(ii) include in such registration (and any related qualification
under blue sky laws or other compliance), and in any underwriting involved in
such registration, all the Registrable Securities specified in a written request
or requests received within twenty (20) days after receipt of such written
notice from the Company by any Holder, but only to the extent that such
inclusion will not diminish the number of securities included by the Company or
by holders of the Company's securities who have demanded such registration
pursuant to Section 1.5 hereof.
(b) Underwriting. If the registration of which the Company gives notice
is for a registered public offering involving an underwriting, the Company shall
so advise the Holders as a part of the written notice given pursuant to Section
1.6(a)(i). In such event, the right of any Holder to registration pursuant to
Section 1.6 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of Registrable Securities in the underwriting to
the extent provided herein. All Holders proposing to distribute their securities
through such underwriting shall (together with the Company and the other holders
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the managing underwriter selected
for such underwriting by the Company (or by the holders who have demanded such
registration). Notwithstanding any other provision of this Section 1.6, if the
managing underwriter determines that marketing factors require a limitation of
the number of shares to be underwritten, the managing underwriter, with the
Company's permission, may reduce the Registrable Securities to be included in
such registration, pro rata among the Holders; provided, however, that the
Company's shares shall be given priority. The Company shall so advise all
Holders and the other holders distributing their securities through such
underwriting pursuant to piggyback registration rights similar to this Section
1.6, and the number of shares of Registrable Securities and other securities
that may be included in the registration and underwriting shall be first
allocated among all Purchasers in proportion, as nearly as practicable, to the
respective amounts of Registrable Securities held by such Purchasers at the time
of filing the registration statement, and after satisfaction of the requirements
of the Purchasers, the remaining shares that may be included in the registration
and underwriting shall be allocated among the remaining Holders in proportion,
as nearly as practicable, to the respective amounts of Registrable Securities
held by such Holders at the time of filing of the registration statement. To
facilitate the allocation of shares in accordance with the above provisions, the
Company or the underwriters may round the number of shares allocated to any
Holder or other holder to the nearest 100 shares. If any Holder or other holder
disapproves of the terms of any such underwriting, he or she may elect to
withdraw therefrom by written notice to the Company and the managing
underwriter. Any securities excluded or withdrawn from such underwriting shall
be withdrawn from such registration, and shall not be transferred in a public
distribution prior to one hundred eighty (180) days after the effective date of
the registration statement relating thereto (the "Lock-Up Period"); provided,
however, that if such registration is not the Company's initial public offering
such Lock-Up Period shall be one hundred twenty (120) days unless the managing
underwriter determines that marketing factors require a longer period in which
case the Lock-Up
7
<PAGE> 10
period shall be specified by the managing underwriter but shall not exceed one
hundred eighty (180) days. Affiliates of the Purchasers shall be deemed to be
Purchasers for purposes of this provision.
(c) Right to Terminate Registration. The Company shall have the right
to terminate or withdraw any registration initiated by it under this Section 1.6
prior to the effectiveness of such registration, whether or not any Holder has
elected to include securities in such registration.
1.7 REGISTRATION ON FORM S-3.
(a) If a Purchaser requests in writing that the Company file a
registration statement on Form S-3 (or any successor form to Form S-3) for a
public offering of shares of the Registrable Securities, the reasonably
anticipated aggregate price to the public of which, net of underwriting
discounts and commissions, would exceed $1,000,000, and the Company is a
registrant entitled to use Form S-3 to register the Registrable Securities for
such an offering, the Company shall use its best efforts to cause such
Registrable Securities to be registered for the offering on such form; provided,
however, that the Company shall not be required to effect more than two (2)
registrations pursuant to this Section 1.7 in any twelve (12) month period. The
Company will (i) promptly give written notice of the proposed registration to
all other Holders, and (ii) as soon as practicable, use its best efforts to
effect such registration (including, without limitation, the execution of an
undertaking to file post-effective amendments, appropriate qualification under
applicable blue sky or other state securities laws and appropriate compliance
with applicable regulations issued under the Securities Act and any other
governmental requirements or regulations) as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of such
Registrable Securities as are specified in such request, together with all or
such portion of the Registrable Securities of any Holder or Holders joining in
such request as are specified in a written request received by the Company
within twenty (20) days after receipt of such written notice from the Company.
The substantive provisions of Section 1.5(c) shall be applicable to each
registration initiated under this Section 1.7.
(b) Notwithstanding the foregoing, the Company shall not be obligated
to take any action pursuant to this Section 1.7: (i) in any particular
jurisdiction in which the Company would be required to execute a general consent
to service of process in effecting such registration, qualification or
compliance unless the Company is already subject to service in such jurisdiction
and except as may be required by the Securities Act, (ii) during the period
ending on a date three (3) months following the effective date of, a
registration statement (other than with respect to a registration statement
relating to a Rule 145 transaction, an offering solely to employees or any other
registration which is not appropriate for the registration of Registrable
Securities), or (iii) if the Company shall furnish to such Holder a certificate
signed by the President of the Company stating that, in the good faith judgment
of the Board of Directors, it would be seriously detrimental to the Company or
its shareholders for registration statements to be filed in the near future,
then the Company's obligation to use its best efforts to file a registration
statement shall be deferred for a single period not to exceed one hundred twenty
(120) days from the receipt of the request to file such registration by such
Holder or Holders.
8
<PAGE> 11
1.8 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS.
(a) From and after the date of this Agreement, the Company shall not
enter into any agreement granting any holder or prospective holder of any
securities of the Company registration rights with respect to such securities
without the prior written consent of a majority of the Registrable Securities
then outstanding (on a Common Stock equivalent basis) unless (1) such new
registration rights, including standoff obligations, are on a pari passu basis
with those rights of the Holders hereunder, or (2) such new registration rights,
including standoff obligations, are subordinate to the registration rights
granted the Holders hereunder; provided, that the inclusion of such holder's
securities shall not reduce the amount of Registrable Securities which are
included in any registration for which the Holders hold registration rights
pursuant to this Agreement.
(b) Where the Company determines to grant any holder or prospective
holder of any securities of the Company registration rights that are on a pari
passu basis with those rights of the Holders hereunder and determines that the
grant of such rights shall be made pursuant to this Agreement, then such grant
shall be evidenced by the execution of an additional signature page to this
Agreement by the Company and such holder, without any requirement on the part of
the Company to seek the consent or approval of the Holders.
1.9 EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any registration pursuant to Sections 1.5 and 1.6 and with up to
four registrations pursuant to Section 1.7 and the reasonable cost of one
special legal counsel to represent all of the Holders together in any such
registration shall be borne by the Company, provided that the Company shall not
be required to pay the Registration Expenses of any registration proceeding
begun pursuant to Section 1.5, the request of which has been subsequently
withdrawn by the Initiating Holders. In such case, the Holders of Registrable
Securities to have been registered shall bear all such Registration Expenses pro
rata on the basis of the number of shares to have been registered unless the
Holders of a majority of the Registrable Securities agree to forfeit their right
to one demand registration pursuant to Section 1.5. Notwithstanding the
foregoing, however, if at the time of the withdrawal, the Holders have learned
of a material adverse change in the condition, business or prospects of the
Company from that known to the Holders at the time of their request, then the
Holders shall not be required to pay any of said Registration Expenses or to
forfeit the right to one demand registration.
1.10 REGISTRATION PROCEDURES. In the case of each registration,
qualification or compliance effected by the Company pursuant to this Section 1,
the Company will keep each Holder advised in writing as to the initiation of
each registration, qualification and compliance and as to the completion
thereof. At its expense the Company will:
(a) Prepare and file with the Commission a registration statement with
respect to such securities and use its best efforts to cause such registration
statement to become and remain effective for at least ninety (90) days or until
the distribution described in the registration statement has been completed; and
(b) Furnish to the Holders participating in such registration and to
the underwriters of the securities being registered such reasonable number of
copies of the registration statement, preliminary
9
<PAGE> 12
prospectus, final prospectus and such other documents as such underwriters may
reasonably request in order to facilitate the public offering of such
securities.
1.11 INDEMNIFICATION.
(a) The Company will indemnify each Holder, each of its officers and
directors and partners, and each person controlling such Holder within the
meaning of Section 15 of the Securities Act, with respect to which registration,
qualification or compliance has been effected pursuant to this Section 1, and
each underwriter, if any, and each person who controls any underwriter within
the meaning of Section 15 of the Securities Act, against all expenses, claims,
losses, damages or liabilities (or actions in respect thereof), including any of
the foregoing incurred in settlement of any litigation, commenced or threatened,
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any registration statement, prospectus, offering
circular or other document, or any amendment or supplement thereto, incident to
any such registration, qualification or compliance, on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading, or any violation by the Company of any rule or
regulation promulgated under the Securities Act applicable to the Company in
connection with any such registration, qualification or compliance, and the
Company will reimburse each such Holder, each of its officers and directors, and
each person controlling such Holder, each such underwriter and each person who
controls any such underwriter, for any legal and any other expenses reasonably
incurred in connection with investigating, preparing or defending any such
claim, loss, damage, liability or action, provided that the Company will not be
liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission or alleged untrue statement or omission, made in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by such Holder, controlling person or underwriter and stated to be
specifically for use therein; and provided, further, that the Company will not
be liable to any such person or entity with respect to any such untrue statement
or omission or alleged untrue statement or omission made in any preliminary
prospectus that is corrected in the final prospectus filed with the Commission
pursuant to Rule 424(b) promulgated under the Securities Act (or any amendment
or supplement to such prospectus) if the person asserting any such loss, claim,
damage or liability purchased securities but was not sent or given a copy of the
prospectus (as amended or supplemented) at or prior to the written confirmation
of the sale of such securities to such person in any case where such delivery of
the prospectus (as amended or supplemented) is required by the Securities Act,
unless such failure to deliver the prospectus (as amended or supplemented) was a
result of the Company's failure to provide such prospectus (as amended or
supplemented).
(b) Each Holder will, if Registrable Securities held by such Holder are
included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors and
officers, each underwriter, if any, of the Company's securities covered by such
a registration statement, each person who controls the Company or such
underwriter within the meaning of Section 15 of the Securities Act, and each
other such Holder, each of its officers and directors and each person
controlling such Holder within the meaning of Section 15 of the Securities Act,
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact
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<PAGE> 13
contained in any such registration statement, prospectus, offering circular or
other document, or any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse the Company, such Holders, such
directors, officers, persons, underwriters or control persons for any legal or
any other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action, in each case to the
extent, but only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon and
in conformity with written information furnished to the Company by an instrument
duly executed by such Holder and stated to be specifically for use therein;
provided, however, that the liability of a Holder for indemnification under this
Section 1.11(b) shall not exceed the net proceeds from the offering received by
such Holder.
(c) Each party entitled to indemnification under this Section 1.11 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
party's expense, and provided further that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this Section 1 unless the failure to give such notice is
materially prejudicial to an Indemnifying Party's ability to defend such action.
No Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect to such claim or litigation.
(d) If the indemnification provided for in this Section 1.11 is held by
a court of competent jurisdiction to be unavailable to an indemnified party with
respect to any loss, liability, claim, damage, or expense referred to therein or
if the indemnification provided for in this Section 1.11 is insufficient to hold
harmless an indemnified party, then the indemnifying party, in lieu of, or in
addition to, indemnifying such indemnified party hereunder, shall contribute to
the amount paid or payable by such indemnified party as a result of such loss,
liability, claim, damage or expense in such proportion as is appropriate to
reflect the relative fault of the indemnifying party on the one hand and of the
indemnified party on the other in connection with the statements or omissions
that resulted in such loss, liability, claim, damage or expense as well as any
other relevant equitable considerations. The relative fault of the indemnifying
party and of the indemnified party shall be determined by reference to, among
other things, whether any indemnifiable act has been committed by, or relates to
information supplied by, the indemnifying party or by the indemnified party and
the parties' relative intent, knowledge, access to information, and opportunity
to correct or prevent such indemnifiable act. The amount paid or payable by a
party as a result of the losses, claims, damages, liabilities and expenses
referred to above shall be deemed to include, subject to the limitations set
forth in this Section 1.11, any legal or other fees or expenses reasonably
incurred by such party in connection with any investigation or proceeding. The
parties hereto agree that it would not be just and equitable if
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<PAGE> 14
contribution pursuant to this Section 1.11(d) were determined by pro rata
allocation or by any other method of allocation which does not take into account
the equitable considerations referred to in the first sentence of this Section
1.11(d). No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
(e) If indemnification is available under this Section 1.11, the
indemnifying parties shall indemnify each indemnified party to the full extent
provided in this Section 1.11 without regard to the relative fault of such
indemnifying party or indemnified party or any other equitable consideration
referred to in Section 1.11(d) hereof.
(f) The obligations of the Company and selling Holders under this
Section 1.11 shall be in addition to any other rights to indemnification or
contribution which any indemnified party may have pursuant to law or contract
and shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 1, and otherwise.
(g) The indemnification and contribution required by this Section 1.11
shall be made by periodic payments of the amount thereof during the course of
the investigation or defense, as and when bills are received or expense, loss,
damage or liability is incurred.
1.12 INFORMATION BY HOLDER. The Holder or Holders of Registrable
Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders, the Registrable Securities held by
them and the distribution proposed by such Holder or Holders as the Company may
request in writing and as shall be required in connection with any registration,
qualification or compliance referred to in this Section 1.
1.13 RULE 144 REPORTING. With a view to making available the benefits
of certain rules and regulations of the Commission which may at any time permit
the sale of the Restricted Securities to the public without registration, after
such time as a public market exists for the Common Stock of the Company, the
Company agrees to use its best efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times after
the effective date that the Company becomes subject to the reporting
requirements of the Securities Act or the Securities Exchange Act of 1934, as
amended (the "Exchange Act");
(b) File with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act
(at any time after it has become subject to such reporting requirements); and
(c) So long as a Purchaser owns any Restricted Securities, to furnish
to the Purchaser forthwith upon request a written statement by the Company as
to its compliance with the reporting requirements of said Rule 144 (at any time
after ninety (90) days after the effective date of the first registration
statement filed by the Company for an offering of its securities to the general
public), and of the Securities Act and the Exchange Act (at any time after it
has become subject to such reporting
12
<PAGE> 15
requirements), a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents of the Company and other
information in the possession of or reasonably obtainable by the Company as a
Purchaser may reasonably request in availing itself of any rule or regulation of
the Commission allowing a Purchaser to sell any such securities without
registration.
1.14 TRANSFER OF REGISTRATION RIGHTS. The rights to cause the Company
to register securities granted Purchasers under Sections 1.5, 1.6 and 1.7 may be
assigned to a transferee or assignee in connection with any transfer or
assignment of Registrable Securities by a Purchaser (together with any
affiliate); provided that (a) such transfer may otherwise be effected in
accordance with applicable securities laws, (b) notice of such assignment is
given to the Company, and (c) such transferee or assignee (i) is a wholly-owned
subsidiary or constituent partner (including limited partners) of such
Purchaser, or (ii) acquires from such Purchaser the lesser of (a) 500,000 or
more shares of Registrable Securities (as appropriately adjusted for stock
splits and the like) or (b) one-half (1/2) of the Registrable Securities then
owned by such Purchaser. In the event of a proposed transfer by a Holder to any
person whom the Company deems, in its reasonable discretion, to be a competitor
of the Company, such transfer shall not be made without the prior written
consent of the Company; provided, however, that the foregoing shall not apply to
a transfer by GE Capital to any of its affiliates, if such transfer is made
solely for tax or related purposes.
1.15 STANDOFF AGREEMENT. Each Holder agrees in connection with the
initial registration of the Company's securities that, upon request of the
Company or the underwriters managing any underwritten initial public offering of
the Company's securities, not to sell, make any short sale of, loan, grant any
option for the purchase of, or otherwise dispose of any Registrable Securities
(other than those included in the registration) without the prior written
consent of the Company or such underwriters, as the case may be, for such period
of time (not to exceed one hundred eighty (180) days from the effective date of
such registration) as may be requested by the Company or such managing
underwriters; provided, however, that the officers and directors of the Company
who own stock of the Company also agree to such restrictions.
1.16 TERMINATION OF RIGHTS. No Holder shall be entitled to exercise any
right provided for in this Section 1:
(a) after five (5) years following the consummation of the sale of
securities pursuant to a registration statement filed by the Company under the
Act in connection with the initial firm commitment underwritten offering of its
securities to the general public, or
(b) on or after the closing of a public offering of the Common Stock of
the Company, initiated by the Company, when all shares of the Holder's
Registrable Securities may be sold under Rule 144 during any 90-day period;
provided, however, that the provisions of this subsection (b) shall not apply
where the Holder owns more than one percent (1%) of the Company's outstanding
stock until such time as such Holder owns less than one percent (1%) of the
outstanding stock.
1.17 ASSUMPTION OF OBLIGATIONS. The Company shall not, directly or
indirectly, (x) enter into any merger, consolidation or reorganization in which
the Company shall not be the surviving corporation, unless prior to such merger,
consolidation, or reorganization, the surviving corporation
13
<PAGE> 16
shall have agreed in writing to assume the obligations of the Company under this
Agreement, and for that purpose references hereunder to "Registrable Securities"
shall be deemed to include the securities which the Holders of Registrable
Securities would be entitled to receive in exchange for Registrable Securities
pursuant to any such merger, consolidation or reorganization.
SECTION 2
MAINTENANCE OF EQUITY POSITION
It is the intent of the Company to provide each Purchaser with an
ongoing right to maintain each Purchaser's initial equity interest in the
Company as follows:
2.1 NOTICE OF TRANSACTIONS. The Company shall notify each Purchaser of
its bona fide intention to issue (A) any equity securities or (B) any notes or
debt securities containing equity features (including, without limitation, any
notes or debt securities convertible into or exchangeable or exercisable for
equity securities, issued in connection with the issuance of such features), or
any securities convertible into, or exchangeable or exercisable for, any equity
securities (collectively, "Convertible Securities"). The Company shall deliver
written notice (the "Equity Notice") of its intention to issue any of the
securities described above (the "Issued Securities"). The Equity Notice will be
deemed to be an offer to each Purchaser to purchase its Allotment (as defined in
Section 2.2) of the securities described in the Equity Notice (the "Offer"), at
the purchase price set forth below and with the same rights, privileges and
preferences as the Issued Securities, and on the same terms and conditions as
those set forth or referenced, as the case may be, in the Equity Notice.
2.2 RIGHT TO PURCHASE ALLOTMENT.
(a) Each Purchaser shall be entitled to purchase up to that number of
securities described in the Equity Notice such that (x) the percentage of the
outstanding shares of Series D Preferred Stock owned by such Purchaser and its
affiliates after the issuance of the Issued Securities on an as converted basis
(assuming full conversion of all convertible securities) equals (y) the
percentage of the outstanding shares of Series D Preferred Stock owned by such
Purchaser and its affiliates prior to the issuance of the Issued Securities on
an as converted basis (assuming full conversion of all convertible securities)
("Allotment").
(b) If all securities referred to in the Equity Notice which the
Purchasers are entitled to purchase pursuant to subsection (a) are not elected
to be purchased as provided in subsection (a), the Company may, during the sixty
(60) day period following the expiration of the anticipated closing date set
forth in the Equity Notice, offer the remaining unsubscribed portion of such
securities to any person or persons at a price not less than the Purchase Price
set forth in the Equity Notice, and upon terms no more favorable to the offeree
than those specified in the Equity Notice. If the Company does not enter into an
agreement for the sale of such securities within such sixty (60) day period, or
if such agreement is not consummated within thirty (30) days of the execution of
the agreement, the right provided thereunder shall be deemed to be revived and
such securities shall not be offered unless first reoffered in accordance with
this Section.
14
<PAGE> 17
2.3 PURCHASE PRICE. The Purchase Price of securities described in an
Equity Notice shall be the agreed upon price set forth in the Equity Notice.
2.4 PURCHASE AT CLOSING. Purchaser may purchase its Allotment
contemporaneously with the closing of the transaction giving rise to the right
to acquire the Allotment; provided that Purchaser has notified the Company, in
writing, of its intent to make such a purchase, not less than fifteen (15) days
prior to the anticipated closing date set forth in the Equity Notice.
2.5 EXCEPTIONS. The provisions of this Section 2 shall not apply with
respect to (i) the sale of additional shares of Series D Preferred Stock and
warrants to purchase Series D Preferred Stock pursuant to, and in accordance
with, the Preferred Stock Purchase Warrant dated March 22, 1999 between the
Company and GE Capital, (ii) the issuance of shares of Common Stock pursuant to
approval of the Board of Directors of the Company (as proportionally adjusted
for any split, stock dividend or recapitalization affecting the Common Stock),
including options or warrants to acquire Common Stock, in connection with any
employee stock option or stock ownership plan, any consulting agreement or
arrangement, any restricted stock agreement providing for the issuance of Common
Stock to an employee or employees of the Company or any shares granted or
options granted to directors or advisory board members of the Company, in
existence as of the date hereof or entered into following the date of this
Agreement, or (iii) the issuance of shares in connection with the acquisition of
or merger with other companies which have been approved by the Board of
Directors of the Company.
2.6 TERMINATION OF RIGHTS The rights provided in this Section 2 shall
terminate upon the consummation of the Company's sale of its Common Stock in an
underwritten public offering pursuant to an effective registration statement
filed under the Securities Act.
SECTION 3
MISCELLANEOUS
3.1 ASSIGNMENT. Except as otherwise provided in this Agreement, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties to this
Agreement.
3.2 THIRD PARTIES. Nothing in this Agreement, express or implied, is
intended to confer upon any party, other than the parties to this Agreement, and
their respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
3.3 GOVERNING LAW; WAIVER OF JURY TRIAL. This Agreement shall be
governed by and construed under the laws of the State of New York and the United
States of America without giving effect to the conflicts of laws principles
thereof. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY
CONSENTS TO SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF
NEW YORK AND OF THE UNITED STATES OF AMERICA, IN EACH CASE LOCATED IN THE COUNTY
OF NEW YORK, FOR
15
<PAGE> 18
ANY ACTION, PROCEEDING OR INVESTIGATION IN ANY COURT OR BEFORE ANY GOVERNMENTAL
AUTHORITY ("LITIGATION") ARISING OUT OF OR RELATING TO THIS AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED HEREBY (AND AGREES NOT TO COMMENCE ANY LITIGATION
RELATING THERETO EXCEPT IN SUCH COURTS), AND FURTHER AGREES THAT SERVICE OF ANY
PROCESS, SUMMONS, NOTICE OR DOCUMENT BY U.S. REGISTERED MAIL TO ITS RESPECTIVE
ADDRESS SET FORTH IN THIS AGREEMENT SHALL BE EFFECTIVE SERVICE OF PROCESS FOR
ANY LITIGATION BROUGHT AGAINST IT IN ANY SUCH COURT. EACH OF THE PARTIES HERETO
HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY OBJECTION TO THE LAYING OF
VENUE OF ANY LITIGATION ARISING OUT OF THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY IN THE COURTS OF THE STATE OF NEW YORK OR THE UNITED STATES
OF AMERICA, IN EACH CASE LOCATED IN THE COUNTY OF NEW YORK, AND HEREBY FURTHER
IRREVOCABLY AND UNCONDITIONALLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY
SUCH COURT THAT ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT
IN ANY INCONVENIENT FORUM.
TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW THAT CANNOT BE WAIVED,
EACH OF THE COMPANY AND THE PURCHASERS WAIVES, AND COVENANTS THAT IT WILL NOT
ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY
JURY IN ANY FORM IN RESPECT OF ANY ISSUE, CLAIM OR PROCEEDING ARISING OUT OF
THIS AGREEMENT OR ANY OTHER AGREEMENT RELATED THERETO OR THE SUBJECT MATTER
HEREOF OR THEREOF, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING AND
WHETHER IN CONTRACT, TORT OR OTHERWISE.
3.4 COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
3.5 NOTICES. All notices and other communications required or permitted
under this Agreement shall be mailed by registered or certified mail, postage
prepaid, or otherwise delivered by hand or by messenger, addressed (a) if to a
Purchaser, at such Purchaser's address set forth on Exhibit A, or, at such other
address as such Purchaser shall have furnished to the Company in writing, or (b)
if to any other holder of any Shares, at such address as such holder shall have
furnished the Company in writing, or, until any such holder so furnishes an
address to the Company, then to and at the address of the last holder of such
Shares who has so furnished an address to the Company, or (c) if to the Company,
one copy should be sent to its offices and addressed to the attention of the
President, or at such other address as the Company shall have furnished to the
Purchaser.
Each such notice or other communication shall for all purposes of this
Agreement be treated as effective or having been given when delivered if
delivered personally, or, if sent by mail, at the earlier of its receipt or 72
hours after the same has been deposited in a regularly maintained receptacle for
the deposit of the United States mail, addressed and postage prepaid as
aforesaid.
16
<PAGE> 19
3.6 SEVERABILITY. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, portions of such provisions, or such
provisions in their entirety, to the extent necessary, shall be severed from
this Agreement, and the balance of this Agreement shall be enforceable in
accordance with its terms.
3.7 AMENDMENT AND WAIVER. Any provision of this Agreement may be
amended or waived with the written consent of the Company and the Holders of at
least a majority of the outstanding shares of the Registrable Securities, so
long as the effect is to treat all Holders equally, which consent shall not be
unreasonably withheld. Any amendment or waiver of this Agreement shall require
the written consent of any Holder who is disproportionately adversely affected
by such amendment or waiver. Any amendment or waiver effected in accordance with
this paragraph shall be binding upon each Holder of Registrable Securities and
the Company. In addition, the Company may waive performance of any obligation
owing to it, as to some or all of the Holders of Registrable Securities, or
agree to accept alternatives to such performance, without obtaining the consent
of any Holder of Registrable Securities. In the event that an underwriting
agreement is entered into between the Company and any Holder, and such
underwriting agreement contains terms differing from this Agreement, as to any
such Holder the terms of such underwriting agreement shall govern.
3.8 EFFECT OF AMENDMENT OR WAIVER. The Purchasers and their successors
and assigns acknowledge that by the operation of Section 3.7 of this Agreement
the holders of a majority of the outstanding Registrable Securities, acting in
conjunction with the Company, will have the right and power to diminish or
eliminate any or all rights or increase any or all obligations pursuant to this
Agreement.
3.9 RIGHTS OF HOLDERS. Each holder of Registrable Securities shall have
the absolute right to exercise or refrain from exercising any right or rights
that such holder may have by reason of this Agreement, including, without
limitation, the right to consent to the waiver or modification of any obligation
under this Agreement, and such holder shall not incur any liability to any other
holder of any securities of the Company as a result of exercising or refraining
from exercising any such right or rights.
3.10 DELAYS OR OMISSIONS. No delay or omission to exercise any right,
power or remedy accruing to any party to this Agreement, upon any breach or
default of the other party, shall impair any such right, power or remedy of such
non-breaching party nor shall it be construed to be a waiver of any such breach
or default, or an acquiescence therein, or of or in any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any party of any breach or default under this
Agreement, or any waiver on the part of any party of any provisions or
conditions of this Agreement, must be made in writing and shall be effective
only to the extent specifically set forth in such writing. All remedies, either
under this Agreement, or by law or otherwise afforded to any holder, shall be
cumulative and not alternative.
17
<PAGE> 20
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
COMPANY:
INTERACTIVE PICTURES CORPORATION,
a Tennessee corporation
By: /s/ John J. Kalec
----------------------------------
Name: John J. Kalec
--------------------------------
Title: Vice President and Chief
Financial Officer
-------------------------------
PURCHASERS:
J.P. MORGAN VENTURES CORP. EDEN CAPITAL LIMITED
By: /s/ Simon Davidson By: /s/ Thomas Henderson
---------------------------------- ----------------------------------
Name: Simon Davidson Name: Thomas Henderson
-------------------------------- --------------------------------
Title: Vice President Title: Chairman
------------------------------- -------------------------------
GE CAPITAL EQUITY INVESTMENTS, INC. ONEIDA & WESTERN LLC
By: /s/ James Brown By: /s/ B. Ray Thompson, Jr.
---------------------------------- ----------------------------------
Name: James Brown Name: B. Ray Thompson, Jr.
-------------------------------- --------------------------------
Title: Department Operations Manager Title: Authorized Member
------------------------------- -------------------------------
AMERICAN EXPRESS TRAVEL
RELATED SERVICES COMPANY, INC. INVISION AG
By: /s/ Lawrence M. Kutscher By: /s/ Dr. Stefan Ulrich
---------------------------------- ----------------------------------
Name: Lawrence M. Kutscher Name: Dr. Stefan Ulrich
-------------------------------- --------------------------------
Title: Vice President, Relationship
Services Title: Sole Director
------------------------------- -------------------------------
STEPHENS HOLDING COMPANY THC CENTURY AG
By: /s/ C. Ray Gash By: /s/ Georg Steiger
---------------------------------- ----------------------------------
Name: C. Ray Gash Name: Georg Steiger
-------------------------------- --------------------------------
Title: Vice President
-------------------------------
/s/ Laban P. Jackson, Jr.
LIBERTY IP, INC. -------------------------------------
LABAN P. JACKSON, JR.
By: /s/ Charles Y. Tanabe /s/ John S. Hendricks
---------------------------------- -------------------------------------
Name: Charles Y. Tanabe JOHN S. HENDRICKS
--------------------------------
Title: Senior Vice President
------------------------------- /s/ Robert C. Hawk
-------------------------------------
ROBERT C. HAWK
/s/ Kevin Clayton
-------------------------------------
KEVIN CLAYTON
18
<PAGE> 21
/s/ ROBERT E. STALEY
- --------------------------------------------
ROBERT E. STALEY
/s/ EDWARD McCRADY
- --------------------------------------------
EDWARD McCRADY
/s/ GREG GREENBERG
- --------------------------------------------
GREG GREENBERG
19
<PAGE> 22
EXHIBIT A
SCHEDULE OF PURCHASERS
GE Capital Equity Investments, Inc.
c/o General Electric Capital Corporation
120 Long Ridge Road
Stamford, CT 06927
Attn: Interactive Pictures Corporation
Account Manager
and to:
General Electric Capital Corporation
10 South LaSalle
Suite 2700
Chicago, IL 60603
Attn: Interactive Pictures Corporation
Account Manager
Liberty IP, Inc.
8101 East Prentice Avenue
Suite 500
Englewood, CO 80111
J.P. Morgan Ventures Corp.
60 Wall Street
New York, NY 10260-0060
Motorola, Inc.
20 Cabot Road
Mansfield, MA 02049
American Express Travel Related Services
Company, Inc.
World Financial Center
200 Vesey Street
31st Floor
New York, NY 10285
Invision AG
Neuhofstrasse 4
Ch-6341
Baar, Switzerland
THC Century AG
Austrasse 27
Postfach 183
Fuerstentum Liechtenstein
Vaduz 9490
Oneida & Western, LLC
4624 Chamblis Avenue
Knoxville, TN 37919
A-1
<PAGE> 23
Eden Capital Limited
18 Upper Brook Street
London W1Y1PD
Stephens Holding Company
920 East Paces Ferry Road
Suite 3120
Atlanta, GA 30326
Laban Jackson
2365 Harrodsburg Road
Suite B230
Lexington, KY 40504
John Hendricks
Discovery Communications, Inc.
7700 Wisconsin Avenue
Bethesda, MD 20814
Kevin Clayton
Clayton Homes
5000 Clayton Road
Maryville, TN 37802
Robert Staley
7120 Manor Woods Court
Germantown, TN 38138
Robert C. Hawk, Jr.
7585 S. Biscay Street
Aurora, CO 80016
Edward D. McCrady
The Robinson-Humphrey Company
3333 Peachtree Road, N.E.
Atlanta, GA 30326
Greg Greenberg
10704 DeAndra Drive
Zionsville, IN 46077
A-2
<PAGE> 1
Exhibit 10.1
EXECUTIVE EMPLOYMENT AGREEMENT
JAMES M. PHILLIPS
THIS EMPLOYMENT AGREEMENT is made this 24th day of January, 1997 by and
between OMNIVIEW, INC., a Tennessee corporation (the "Company") and JAMES M.
PHILLIPS (the "Executive") (the "Employment Agreement");
W I T N E S S E T H:
WHEREAS, the Company is principally engaged in the business of
developing and designing applications and implementations of/for new
technologies (the "Business"); and
WHEREAS, Executive possesses certain skills, expertise and contacts
related to the Business; and
WHEREAS, because of such skills, expertise and contacts, the Company
desires to employ Executive, and Executive desires to accept employment with the
Company on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the covenants and mutual agreements
set forth herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties do hereby agrees as
follows:
1. EMPLOYMENT. The Company hereby employs Executive to perform the
duties described herein, and Executive hereby accepts such employment, on the
terms and conditions set forth herein.
2. TERM OF EMPLOYMENT. Subject to the provisions for termination set
forth in Paragraph 11 of this Employment Agreement, the term of Executive's
employment hereunder shall commence on the date hereof and shall expire at the
close of business on December 31, 1999 (the "Term"); provided, however, the Term
of such employment shall automatically renew for a one year period on December
31, 1999 and on each December 31 thereafter unless the Company shall have given
(3) months prior notice of termination to Executive.
3. DUTIES OF EXECUTIVE. Throughout the Term of his employment by the
Company under this Employment Agreement, Executive shall serve as a member of
the board of directors of the Company, President and Chief Executive Officer of
the Company and shall devote his full business time and talents to such services
for the Company as shall be designated from time to time by the Board of
Directors of the Company and shall have general and active day-to-day management
authority for the operation of the Business and affairs of the Company. As part
of such duties, Executive shall have the authority to employ and to terminate
the employment of all other persons employed in any capacity by the Company
subject to any contractual obligations that Company may have to any employee and
as Executive may deem necessary for the efficient operation of the Company's
activities. All employment agreements for executive level employees shall be
subject to the approval of the Board of Directors.
<PAGE> 2
Executive shall perform his duties from the offices of the Company and
from such other locations as he deemed to be in the best interest of the
Company, but Executive shall not be required to move his residence or principal
office from the Knoxville, Tennessee vicinity.
4. BASE COMPENSATION. Throughout the Term, the Company shall compensate
Executive for all services to be rendered by him hereunder at the annual rate of
Three Hundred Seventy Five Thousand Dollars ($375,000), subject to all
applicable income tax withholding and other payroll taxes. Such compensation
shall be payable monthly.
5. ANNUAL BONUS PAYMENT. Within 45 days following each fiscal year of
the Company covered by the Term hereof, and in addition to his Base
Compensation, Executive shall be paid an annual bonus equal to five percent (5%)
of the total income after taxes earned by the Company for such calendar year
(without reduction for the amount of the Bonus). For the purposes of this
Employment Agreement "income after taxes" shall mean net income after taxes as
computed in accordance with generally accepted accounting principles
consistently applied (without reduction for the amount of the bonus). Executive
shall cease to receive such bonus after the completion of an initial public
offering. However, Company will prorate the bonus amount due through the date of
the initial public offering and pay Executive such amount so determined. For
example, if an initial public offering is completed on February 28, 1998, the
Company's total income before taxes for the calendar year through such date
shall be determined and the Company shall pay 5% of such amount to Executive
upon completion of the initial public offering.
6. STOCK OPTION. Effective on the date hereof, Executive is granted an
option to purchase 412,559 shares of the capital stock of the Company issued as
an Incentive Stock Option and meeting the requirements of Section 442(b) of the
Internal Revenue Code of 1986 as amended. Executive may exercise this option at
a price of $5.00/share. The option shall be vested and exercisable as follows:
(a) 25% upon execution of this Employment Agreement;
(b) 25% twelve months from the date hereof;
(c) the remainder twenty-four months from the date hereof.
Notwithstanding the foregoing, the option shall become immediately and fully
vested upon an initial public offering of the capital stock of the Company
and/or upon a change in the present control of the Company which is defined as a
single sale of more than 50% of the outstanding stock of the Company or in the
event of a termination under 11b or 11c.
In the event of Executive's death during the Term hereof, the Company
shall have the option to buy back the appreciated value of unexercised vested
options and repurchase applicable stock of the Company owned by Executive from
Executive's estate. The Company shall exercise such option only if Company has
purchased a sufficient amount of life insurance on Executive's life to fund 100%
of the purchase price of the options and stock, subject to Executive's
insurability at standard risk assessments for persons of Executive's age.
Company's option to repurchase unexercised vested options and capital stock
owned by the Executive at death will expire upon the completion of an
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<PAGE> 3
initial public offering. The terms and price shall be as determined in the
Motorola/DCI Agreements hereinafter defined. All Company stock issued to
Executive shall be restricted by the Motorola/DCI Agreements.
7. BENEFITS. Throughout the Term, Executive shall be entitled to
participate in those benefit plans and insurance programs that are customarily
provided by the Company to its executive employees subject to the eligibility
requirements of such plans and programs. In addition, Executive shall receive:
(a) life insurance throughout the Term equal to three (3)
times his Base Compensation, subject to Executive's insurability at
standard risk assessments for persons of Executive's age;
(b) a dislocation payment in the amount of Twenty Five
Thousand Dollars ($25,000);
(c) the cost of moving Executive's household effects to
Knoxville, and for house hunting trips which amounts should be paid
directly by the Company;
(d) reimbursement for up to six (6) months of Executive's
mortgage payments which shall not exceed $8,500 per month on
Executive's home in Illinois incurred after Executive relocates to
Knoxville, Tennessee, to be paid upon the due date of each mortgage
payment; and
(e) in the event of a loss on the sale of Executive's home in
Illinois, 50% of such loss and Executive's sales commission fees up to
an aggregate maximum for both such items of $150,000 based upon actual
receipts and closing statements.
8. ATTORNEYS' FEES. The Company will pay Executive's attorneys
for services rendered by them in connection with the preparation of this
Employment Agreement and for counseling and other services rendered to Executive
in connection with his affiliation with the Company. The amount of such
attorneys' fees to be paid by the Company shall not exceed eight thousand
dollars ($8,000).
9. VACATION. Executive shall be entitled to four (4) paid weeks
of vacation each year.
10. REIMBURSEMENT OF EXPENSES. The Company shall pay or reimburse
Executive for all legal, appropriate and reasonable travel, communications,
entertainment and other expenses incurred by Executive in performing his
obligations under this Employment Agreement.
11. TERMINATION.
(a) During the Term hereof, the Company shall have the right
to terminate Executive's employment with the Company for Cause. For
the purpose of this Employment Agreement, a termination for Cause
shall be a bona fide termination of Executive for egregious acts of
dereliction of duty on his part. Prior to any termination for Cause,
however,
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<PAGE> 4
Executive must be provided a written explanation of the concerns felt
by the Company and provided a reasonable opportunity to cure or
mitigate such concerns. Further, any termination for Cause must be in
writing, approved by the Board of Directors of the Company excluding
Executive and must state the bona fide reasons therefor. No
termination for Cause shall affect in any manner Executive's right to
receive or exercise the options which have vested as of the date of
such termination.
(b) In the event the Company elects to terminate Executive
prior to the expiration of the Term or any renewal term for reasons
that do not constitute a termination for Cause, in the event the
Company changes Executive's responsibilities or job title(s) without
his prior written consent, or in the event the Company fails to honor
the terms of this Employment Agreement, then Executive is free to
obtain other employment and the Company shall immediately pay Executive
a lump sum Severance Payment in the amount of $500,000. After
completion of an Initial Public Offering, the amount of such Severance
Payment shall increase to $1,000,000.
(c) Executive's obligations and Executive's employment
hereunder shall terminate immediately without further notice or action
if any of the following events shall occur:
(i) the Term or any renewal term shall expire without
renewal;
(ii) Executive shall die while employed during the
Term or any renewal term; or
(iii) Executive shall be unable while employed during
the Term or any renewal term to perform the normal duties of
his employment for a period of 180 days as a result of illness
or injury.
In such event as is described in this Paragraph 11.c, Employee shall
not be entitled to further Base Compensation or the Severance Payment
referenced in Paragraph 11.b above, but shall be entitled to receive
the prorated amount of any Annual Bonus determined as of the
termination date as set forth in Paragraph 5 hereof.
12. MISCELLANEOUS.
(a) Written Agreement to Govern. This Employment Agreement
sets forth the entire understanding of the parties with respect to the
subject matter hereof, and supersedes all prior discussions,
negotiations, understandings or written agreements among the parties
hereto relating to the subject matter contained herein, and merges all
prior and contemporaneous discussions among them.
(b) Severability. The parties hereto expressly agree that it
is not the intention of any party hereto to violate any public policy,
statutory or common law rules, regulations, treaties or decisions of
any government or agency thereof. If any provision of this Employment
Agreement is judicially or administratively interpreted or construed as
being in violation of any such provision, such articles, sections,
sentences, words, clauses or
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<PAGE> 5
combinations thereof shall be inoperative, and the remainder of this
Employment Agreement shall remain binding upon the parties hereto.
(c) Notices and Other Communications. Every notice or other
communication required, contemplated or permitted by this Employment
Agreement by any party shall be in writing and shall be delivered
either by personal delivery, telegram, private courier service, or by
certified or registered mail, postage prepaid, return receipt
requested, addressed to the party to whom intended at the following
address:
If to the Company: Omniview, Inc.
7325 Oak Ridge Highway
Knoxville, TN 37931
Attn: H. Lee Martin
with a copy to: Mark K. Williams, Esq.
McCampbell & Young
P.O. Box 550
Knoxville, TN 37901-0550
If to Executive: Mr. James M. Phillips
c/o Omniview, Inc.
7325 Oak Ridge Highway
Knoxville, TN 37931
with a copy to: Shepherd D. Tate, Esq.
Martin, Tate, Morrow & Marston, P.C.
22 N. Front Street, 11th Floor
Memphis, TN 38103
or at such other address as the intended recipient shall from time to
time designate by written notice delivered in accordance herewith.
Notice by courier or certified or registered mail shall be effective on
the date it is officially recorded as delivered to the intended
recipient by return receipt or the date of attempted delivery where
delivery is refused by the intended recipient.
(d) Law to Govern. The validity, construction and
enforceability of this Employment Agreement shall be governed in all
respects by the laws of the State of Tennessee, without regard to its
conflict of laws rules.
(e) Successors and Assigns. This Employment Agreement shall be
binding upon and shall insure to the benefit of the Company and its
successors and assigns. Upon his death, Executive's rights hereunder
shall inure to the benefit of his estate.
(f) Waiver of Provisions. The terms and conditions of this
Employment Agreement may be waived only by a written instrument
executed by the party waiving compliance. The failure of any party at
any time to require performance of any provision hereof shall in no
manner affect the right at a later date to enforce the same.
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<PAGE> 6
(g) Motorola, Inc. and Discovery Communications, Inc.
Consents. This Employment Agreement is subject to the consents of
Motorola, Inc. ("Motorola") and Discovery Communications, Inc. ("DCI")
as described in the Stock Purchase Agreement dated December 20, 1996
Section 5(p)6. Executive acknowledges that the Company and Motorola and
DCI have entered into a Stock Purchase Agreement dated December 20,
1996, including a Stock Option and Voting Agreement and a Voting Trust
Agreement of even date therewith (the "Motorola/DCI Agreements") which
restrict the ability of the Company to take certain actions. Executive
agrees that any provisions of this Employment Agreement which are
determined by Motorola or DCI to be prohibited by the Motorola/DCI
Agreements shall be stricken from this Employment Agreement and shall
be unenforceable by either party. Executive shall execute any
agreements required by Motorola or DCI as well as the Company's
nondisclosure and noncompetition agreement which is required to be
executed by all Company employees and otherwise comply with all
Motorola/DCI Agreements. Executive shall not take any action which
would cause the Company to breach the Motorola/DCI Agreements.
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement as of the date first above written.
COMPANY:
OMNIVIEW, INC.
By: /s/ H. Lee Martin
-----------------------------------
Its: President
-----------------------------------
EXECUTIVE:
/s/ James M. Phillips
---------------------------------------
JAMES M. PHILLIPS
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<PAGE> 7
AMENDMENT NUMBER 1 TO
EXECUTIVE EMPLOYMENT AGREEMENT
This Amendment Number 1 is effective as of November 21, 1997, by and
between INTERACTIVE PICTURES CORPORATION, a Tennessee corporation (the
"Company") and JAMES M. PHILLIPS (the "Executive) (the "Amendment").
W I T N E S S E T H:
WHEREAS, the Company and the Executive entered into an Executive
Employment Agreement dated January 24, 1997 (the "Employment Agreement"); and
WHEREAS, it was, at that time, the intent of the parties to grant the
Executive a stock option to purchase an amount of shares equal to ten percent
(10%) of the total issued and outstanding shares of common stock of the Company;
and
WHEREAS, there is an error in Section 6 of the Employment Agreement
that sets forth the number of shares of Common Stock issuable pursuant to the
Stock Option; and
WHEREAS, the parties desire to amend the Employment Agreement to
correct the error and recognize the four-for-one stock split effected by the
Company in March, 1997.
NOW, THEREFORE, consideration of the covenants and mutual agreements
set forth herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties do hereby agree as
follows:
1. Section 6 of the Employment Agreement is hereby amended by deleting
the number "412,559" and inserting in its place "2,270,049".
2. All other terms of the Employment Agreement not otherwise amended
hereby shall continue to be in full force and effect.
3. This Amendment may be executed in counterparts, with each such
counterpart being deemed an original.
IN WITNESS WHEREOF, the parties have executed this Amendment Number 1
as the date first above written.
COMPANY:
INTERACTIVE PICTURES CORPORATION
By: /s/ Edmond Lewis
-----------------------------------
Its: Corporate Secretary
-----------------------------------
EXECUTIVE:
/s/ James M. Phillips
---------------------------------------
JAMES M. PHILLIPS
<PAGE> 8
AMENDMENT NUMBER 2 TO
EXECUTIVE EMPLOYMENT AGREEMENT
This Amendment Number 2 is effective as of January 20, 1999, by and
between INTERACTIVE PICTURES CORPORATION, a Tennessee corporation (the
"Company") and JAMES M. PHILLIPS (the "Executive") (the "Amendment").
W I T N E S S E T H:
WHEREAS, the Company and the Executive entered into an Executive
Employment Agreement dated January 24, 1997, as amended by Amendment No. 1 dated
November 21, 1997 (as amended, the "Employment Agreement"); and
WHEREAS, the parties desire to amend the Employment Agreement to extend
the term of the Agreement.
NOW, THEREFORE, consideration of the covenants and mutual agreements
set forth herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties do hereby agree as
follows:
1. Section 2 of the Employment Agreement is hereby amended by deleting
the date December 31, 1999" in both places where said date appears and inserting
in its place "December 31, 2001".
2. All other terms of the Employment Agreement not otherwise amended
hereby shall continue to be in full force and effect.
3. This Amendment may be executed in counterparts, with each such
counterpart being deemed an original.
IN WITNESS WHEREOF, the parties have executed this Amendment Number 2
as of the date first above written.
COMPANY:
INTERACTIVE PICTURES CORPORATION
By: /s/ Jeffrey D. Peters
-----------------------------------
Its: President
-----------------------------------
EXECUTIVE:
/s/ James M. Phillips
----------------------------------------
JAMES M. PHILLIPS
<PAGE> 1
Exhibit 10.2
EMPLOYMENT AND NON COMPETITION AGREEMENT
THIS AGREEMENT is made and entered into this 20th day of June, 1997, by
and between Interactive Pictures Corp. (IPIX) having its principal place of
business at 7325 Oak Ridge Highway, Knoxville, Tennessee 37931, hereinafter
referred to as the "Employer", and John Murphy whose present address is 11892
DePaul Circle, San Martin, California 95046, hereinafter referred to as the
"Employee".
1. EMPLOYMENT. The Employer hereby agrees to employ the Employee and
Employee hereby accepts employment with Employer in the capacity of Vice
President and General Manager--Sales, upon the terms and conditions set out
herein.
2. TERM. The term of this Agreement shall begin on July 1, 1997, and
shall continue indefinitely unless notification of either party of a change in
the employment status under the guidelines of paragraph 12 or 13.
3. COMPENSATION. The Employer shall pay the Employee, as compensation
for the services rendered by the Employee, a starting salary of Thirteen
Thousand Three Hundred Thirty-three and 33/100 Dollars ($13,333.33) per month,
payable monthly on the 25th. Salary payments shall be subject to withholding and
other applicable taxes. Compensation will be reviewed on a regular basis per
corporate policies. Expectation is for a 40 hour work week with vacation and
holidays described by the benefits plan.
4. DUTIES. The Employee shall perform for the Employer, the duties set
out in the attached Exhibit "A."
5. EXTENT OF SERVICES. The Employee shall devote his entire time,
attention, and energies to the Employer's business and shall not, during the
term of this Agreement, be engaged in any other business activity, whether or
not such business activity is pursued for gain, profit, or other pecuniary
advantage without written approval of the Employer. The Employee further agrees
that he will perform all of the duties assigned to him to the best of his
ability and in the manner satisfactory to the Employer, that he will truthfully
and accurately maintain all records, preserve all such records, and make all
such reports as the Employer may require; that he will fully account for all
money and all of the property of the Employer of which he may have custody and
will pay over and deliver the same whenever and however he may be directed to do
so. Services will be appraised on an annual basis through a corporate employee
appraisal system.
6. DISCLOSURE OF INFORMATION. The Employee agrees not to disclose to
anyone, either during or for a period of three years after his employment, any
confidential information obtained by him as a result of his employment by the
Employer without the consent of the Employer in writing. He further agrees that,
on leaving his employment, he will not take with him, without permission of the
Employer in writing, any drawing, blueprint, or other reproduction, customer
names, price list, plans, names of operation processes, nor any material of any
kind including, but not limited to, software and electronic designs. Unless
specifically prohibited by statutory law, the Employee agrees
<PAGE> 2
that, in the event of a breach or threatened breach by the Employee of the
provisions of this paragraph, the Employer shall be entitled to a temporary
restraining order and a preliminary injunction restraining the Employee from
disclosing, in whole or in part, the list of the Employer's customers, or from
rendering any services to any person, firm, corporation, association or other
entity to whom such list, in whole or in part, has been disclosed or is
threatened to be disclosed. Nothing herein shall be construed as prohibiting the
Employer from pursuing any other remedies available to the Employer for such
breach or threatened breach, including recovery of damages from the Employee.
7. COVENANT NOT TO COMPETE. In recognition of Employee's
acknowledgment that his services to be rendered to Employer are of a special and
unusual character which have a unique value to Employer, the loss of which
cannot adequately be compensated by damages in action at law; in view of (1) the
unique value to Employer of the services of Employee for which Employer has
employed Employee; and (2) the confidential information to be obtained by or
disclosed to Employee as an employee of Employer; and as a material inducement
to Employer to employ Employee and to pay to Employee the compensation for such
services to be rendered to Employer by Employee (it being understood and agreed
by the parties hereto that such compensation shall also be paid and received in
consideration hereof), Employee covenants and agrees as follows:
(i) PERIOD OF COVENANT. The period of this
non-competition covenant shall begin on the date hereof and shall
terminate on the second anniversary following the termination of
Employee's employment (whether or not such employment is pursuant to
this Agreement) with Employer for any reason (the "Non-competition
Period").
(ii) NATURE AND AREA OF COMPETITION. Employee agrees that
for the Non-competition Period through the world, he shall not,
directly or indirectly, as owner or operator of any corporation,
partnership, association or agency or as employee, agent, consultant
or independent contractor, engage in the business of designing or
selling video image processing or telerobotic devices ("Competitive
Business"). Employee hereby warrants that the execution of this
Agreement shall not violate any other agreements previously entered
into by Employee.
(iii) SOLICITATION. Employee agrees that during the
Non-competition Period he will not directly or indirectly, on behalf of
himself or on behalf of any person, firm, partnership, corporation,
association, or entity,
(1) Call upon any of the customers of Employer who
are such at the time of Employee's termination for the purpose
of soliciting or providing any Competitive Business;
(2) Call upon any of the other employees or
representatives of Employer who are such at the time of
Employee's termination for the purpose of soliciting or
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<PAGE> 3
inducing such employees or representatives to discontinue
their relationship with Employer or to establish a
relationship with Employee;
(3) Call upon any providers of data to the Company's
database for the purpose of obtaining data for any Competitive
Business; or
(4) Solicit, divert or take away or attempt to
solicit, divert or take away any of the customers, clients,
business or patrons of Employer or the other employees or
representatives maintaining a relationship with Employer who
are such at the time of Employee's termination.
(iv) ACCOUNTING FOR PROFITS. Employee covenants and agrees
that, if he shall violate any of his covenants or agreements under this
Section 1, Employer shall be entitled to an accounting and repayment of
all profits, compensation, commissions, remunerations or benefits which
Employee directly or indirectly has realized and/or may realize as a
result of, growing out of or in connection with any such violation;
such remedy shall be in addition to and not in limitation of any
injunctive relief or other rights or remedies to which Employer is or
may be entitled at law or in equity or under this Agreement.
(v) REASONABLENESS OF RESTRICTIONS. Employee has carefully
read and considered the provision of this Section 7 and, having done
so, agrees that the restrictions set forth in such Section (including,
but not limited to, the time period or restriction and the geographical
areas of restriction set forth in this Section 7) are fair and
reasonable and are reasonably required for the protection of the
interests of Employer, its officers, directors and other employees.
In the event that, notwithstanding the foregoing, any part of
the covenants set forth in this Section 7 shall be held to be invalid
or unenforceable, the remaining parts thereof shall nevertheless
continue to be valid and enforceable as though the invalid or
unenforceable parts had not been included therein. In the event that
any provision of this Section 7 relating to time period and/or areas of
restriction shall be declared by a court of competent jurisdiction to
exceed the maximum time period and/or areas such court deems reasonable
and enforceable, said time period and/or areas of restriction shall be
deemed to become and thereafter be the maximum time period and/or areas
which such court deems reasonable and enforceable.
(vi) INJUNCTION. In the event of a breach or threatened breach
by Employee of the provisions of this Agreement, Employer shall, in
addition to any other rights and remedies available to it, at law or
otherwise, be entitled to an injunction to be issued by any court of
competent jurisdiction enjoining and restraining Employee from
committing any violation of this Agreement.
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<PAGE> 4
(vii) COSTS. Should it become necessary for Employer to file
suit to enforce the covenants contained herein, the prevailing party
shall be entitled to cover, in addition to all other damages provided
for herein, the costs incurred in conducting the suit including a
reasonable attorney's fee.
8. EXPENSES. The Employer agrees to defray 100% of the moving
expenses of the Employee and his family from his residence, provided said
amounts are reasonable and proper and the Company's expense share does not
exceed the amount of Six Thousand Dollars ($6,000).
9. NOTICES. Any notice required or desired to be given under this
Agreement shall be given in writing, sent by certified mail, return receipt
requested, to his residence in the case of the Employee, or to its principal
place of business, in the case of the Employer.
10. WAIVER OF BREACH. The waiver by the Employer of a breach of
any provision of this Agreement by the Employee shall not operate or be
construed as a waiver of any subsequent breach by the Employee. No waiver shall
be valid unless in writing and signed by the Employer.
11. ASSIGNMENT. The Employee acknowledges that the services to be
rendered by him are unique and personal. Accordingly, the Employee may not
assign any of his rights or delegate any of his duties or obligations under this
Agreement. The rights and obligations of the Employer under this Agreement shall
inure to the benefit of and shall be binding upon the successors and assigns of
the Employer.
12. TERMINATION UPON SALE OF BUSINESS. Notwithstanding anything to
the contrary, the Employer may terminate this Agreement upon sixty (60) days
notice to the Employee upon the happening of any of the following events:
(a) The sale of the Employer's business or substantially all
of its assets to a single purchaser or to a group of associated
purchasers;
(b) The sale, exchange, or other disposition, in one
transaction, of at least a fifty (50%) percent interest in the
Employer's business;
(c) The merger or consolidation of the Employer's business in
a transaction in which the owners of the business receive less than a
fifty (50%) percent interest in the new or continuing operation.
13. TERMINATION WITHOUT CAUSE. The Employer may terminate this
Agreement without cause at any time upon fourteen (14) days written notice to
the Employee. In such event, the Employee, if requested by the Employer, shall
continue to render his services, and shall be paid his regular compensation and
earned vacation up and to the date of termination and, in addition, there shall
be paid to the Employee, on the date of termination, a severance allowance equal
to sixty (60) days compensation. The Employee may terminate this Agreement
without cause upon fourteen (14)
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<PAGE> 5
days written notice to the Employer. The Employee shall continue to render his
services and shall be paid his regular compensation and earned vacation days up
to the date of termination.
14. TERMINATION WITH CAUSE. Employment terminated for cause - as
used herein, "for cause" shall mean dishonesty, fraud, gross neglect or gross
malperformance of duty, intentional damage to substantial property of Employer,
conviction of a crime involving moral turpitude or the performance of any act
materially detrimental to the interest of Employer which was intended by the
Employee to have such affect. In such event, no severance allowance shall be
paid to the Employee; but the Employee shall continue to render services and
shall be paid his regular compensation and earned vacation days up to the date
of termination.
15. ENTIRE AGREEMENT. This Agreement contains the entire
understanding of the parties. It may be changed only by an Agreement in writing,
signed by the parties hereto.
16. GOVERNING LAW. This agreement, and all transactions
contemplated hereby, shall be governed by, construed and enforced in accordance
with the laws of the State of Tennessee. The parties herein waive trial by jury
and agree to submit to the personal jurisdiction and venue of a court of subject
matter jurisdiction located in Knox county, State of Tennessee. In the event
that litigation results from or arises out of this Agreement or the performance
thereof, the parties agree to reimburse the prevailing party's reasonable
attorney's fees, court costs, and all other expenses, whether or not taxable by
the court as costs, in addition to any other relief to which the prevailing
party may be entitled. In such event, no action shall be entertained by said
court or any court of competent jurisdiction if filed more than one year
subsequent to the date the cause (s) of action actually accrued regardless of
whether damages were otherwise as of said time calculable.
17. INDEMNITY. The Employer shall indemnify the Employee and hold
him harmless for any acts or decisions made by him in good faith while
performing services for the Employer and will use its best efforts to obtain
coverage for the Employee under any insurance policy now in force or hereinafter
obtained during the term of this Agreement covering the other officers, and/or
employees of the Employer against lawsuits.
18. WORKING FACILITIES. The Employee shall be provided such other
facilities and services as are suitable to his position and appropriate for the
performance of his duties.
19. CONTRACTUAL PROCEDURES. Unless specifically disallowed by law,
should litigation arise hereunder, service of process, therefore, may be
obtained through certified mail, return receipt requested; the parties hereto
waiving any and all rights they may have to object to the method by which
service was perfected.
20. BENEFITS. The Company provides extensive benefits in
accordance with the policies established by the Board of Directors. These
benefits are reviewed annually by the Board of Directors and may be changed
without breaching this contract. Exhibit "B" gives the present benefits program
in effect at the time of employment.
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<PAGE> 6
21. MISCELLANEOUS
In consideration of my employment by IPIX and the wages, salaries and
other benefits which I will acquire, I agree:
(a) To assign and transfer to IPIX all right, title and
interest to all inventions, discoveries or improvements, patentable or
unpatentable, conceived or made by me, either alone or with others,
during the period of my employment which fall within or arise out of
the nature of my employment, arise as a result of my employment or fall
within or arise out of the fields of business, work or investigation of
IPIX and to make and maintain adequate and current written records of
all of the foregoing, and
(b) To execute any and all instruments and do all things which
IPIX deems necessary to vest and maintain and protect and enforce in
IPIX the entire right, title and interest to all such inventions,
discoveries and improvements in any and all countries at IPIX's request
and without additional remuneration to me.
This Agreement shall be subject to and governed by the laws of the
state of Tennessee, County of Knox.
Failure to insist upon strict compliance with any provision hereof
shall not be deemed a waiver of such provision or any other provision hereof.
This Agreement may not be modified except by an agreement in writing
executed by the parties hereto.
The invalidity or unenforceability of any provision hereof shall not
affect the validity or enforceability of any other provision.
Any controversy or claim arising out of or relating to this Agreement,
other than a claim that would entitle Employer to injunctive relief pursuant to
Section 7 (vi) hereof, shall be settled by arbitration in Knox county, Tennessee
in accordance with the rules of the American Arbitration Association.
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<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
this 25th day of June, 1997.
Signed, sealed and delivered in the presence of:
"EMPLOYER":
Interactive Pictures Corp., Inc.
By: /s/ James M. Phillips
-------------------------------------
"EMPLOYEE":
/s/ John Murphy
----------------------------------------
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<PAGE> 8
EXHIBIT "A"
You will be responsible for developing the company's sales presence in the
United States. You will be expected to travel in support of the company's sales
efforts including participation at trade shows, public relations efforts, and
attendance at regular meetings at our headquarters in Knoxville, Tennessee. You
will also be expected to monitor the nature of the visual computing industry and
suggest products and strategies to increase the company's market presence. Tasks
and responsibilities are subject to change at the discretion of the company.
A - 1
<PAGE> 9
EXHIBIT "B"
MAJOR MEDICAL INSURANCE
IPIX provides insurance through Guardian Life Insurance Company, which covers
80% of the costs after a $200 deductible. IPIX covers the total cost of the
associates and 75% of the dependents coverage. The remaining 25% of dependent
coverage is paid through payroll deduction.
DENTAL ASSISTANCE
IPIX will reimburse up to $200 total per year for actual dental expense for each
associate and immediate family.
DISABILITY INSURANCE
IPIX provides long term disability insurance that takes effect after 90 calendar
days of disability. It pays 60% of salary up to $4000 per month until age 70.
BASIC GROUP LIFE INSURANCE
Presently with Guardian Life Insurance Company, $25,000 coverage.
UNEMPLOYMENT INSURANCE
IPIX provides unemployment insurance in compliance with the laws of the State of
Tennessee.
PAID LEAVE
Nine Corporate holidays are observed during the year. Vacation is earned at a
rate of I day per month for the first 4 years, from 5-9 years of service at a
rate of 1.25 days per month, and in the 10th year of service at a rate of 1.5
days per month. Vacations greater than one week duration must have prior
approval. Unused vacation will be reimbursed at the current salary when an
associate terminates in good standing. Snow days will follow the announced
policy of Lockheed-Martin Energy Systems.
UNPAID LEAVE
Associates may arrange for planned unpaid leave with prior approval.
SICK LEAVE
Three days paid sick leave each year are provided, with no accrual. Management
will oversee extended sick leave on a case by case basis.
WORK WEEK
The standard work week is a minimum of 40 hours per week consisting of five 8
hours days. IPIX allows associates to reschedule, with prior approval, up to 4
hours of their work week for personal activities, provided the minimum hours are
worked each week. Attendance is expected at the scheduled weekly staff meeting.
B - 1
<PAGE> 10
PENSION PLAN
IPIX provides a 401(k) plan for associates who have been with IPIX 6 months or
longer. IPIX currently matches $.65 per dollar up to 4% of the associates'
salary. The match amount is reviewed each year by the board of directors.
EDUCATION BENEFITS
IPIX accrues annually $1000, up to $5,000 total, for associates educational
expenses (tuition, fees, and books) for job related technical education upon
satisfactory completion of the course. This benefit also applies to direct
dependents. The accrued value extinguishes upon termination.
PROFESSIONAL SOCIETY MEMBERSHIP
IPIX encourages active participation in professional societies and will fund 50%
of the membership fees in any related professional society. This benefit does
not extend to union dues.
PROFIT SHARING
Associates will be provided annual bonuses set by the Board of Directors and
administered by the President based on corporate profitability, team
achievements, and individual contributions.
SEVERANCE PAY
In the event IPIX terminates an associate due to lack of available work, IPIX
will pay a severance equal to 1% of the present annual base pay for each full
year of company service, after 5 years of company service. This payment is not
paid for voluntary termination (associate voluntarily resigns) or termination
with cause (illegal activities, unsatisfactory performance, etc.).
B - 2
<PAGE> 1
Exhibit 10.3
EMPLOYMENT AND NON COMPETITION AGREEMENT
THIS AGREEMENT is made and entered into this 17th day of August, 1998,
by and between Interactive Pictures Corp. (IPIX) having its principal place of
business at 1009 Commerce Park Drive, Oak Ridge, TN 37931, hereinafter referred
to as the "Employer", and JEFFREY D. PETERS whose present address is, 30
Merryhill Lane, Pittsford, NY 14534 hereinafter referred to as the "Employee".
1. EMPLOYMENT. The Employer hereby agrees to employ the Employee
and Employee hereby accepts employment with Employer in the capacity of
PRESIDENT AND CHIEF OPERATING OFFICER, upon the terms and conditions set out
herein.
2. TERM. The term of this Agreement shall begin on AUGUST 17,
1998, and shall continue indefinitely unless notification of either party of a
change in the employment status under the guidelines of paragraph 12 or 13.
3. COMPENSATION. The Employer shall pay the Employee, as
compensation for the services rendered by the Employee, a starting salary of
TWENTY-FIVE THOUSAND DOLLARS ($25,000) per month, payable monthly on the 25th.
Salary payments shall be subject to withholding and other applicable taxes.
Compensation will be reviewed on a regular basis per corporate policies.
Expectation is for a 40 hour work week with vacation and holidays described by
the benefits plan.
4. DUTIES. The Employee shall perform for the Employer, the
duties set out in the attached Exhibit "A".
5. EXTENT OF SERVICES. The Employee shall devote his entire time,
attention, and energies to the Employer's business and shall not, during the
term of this Agreement, be engaged in any other business activity, whether or
not such business activity is pursued for gain, profit, or other pecuniary
advantage without written approval of the Employer. The Employee further agrees
that he will perform all of the duties assigned to him to the best of his
ability and in the manner satisfactory to the Employer, that he will truthfully
and accurately maintain all records, preserve all such records, and make all
such reports as the Employer may require; that he will fully account for all
money and all of the property of the Employer of which he may have custody and
will pay over and deliver the same whenever and however he may be directed to do
so. Services will be appraised on an annual basis through a corporate employee
appraisal system.
6. DISCLOSURE OF INFORMATION. The Employee agrees not to disclose
to anyone, either during or for a period of three years after his employment,
any confidential information obtained by him as a result of his employment by
the Employer without the consent of the Employer in writing. He further agrees
that, on leaving his employment, he will not take with him, without permission
of the Employer in writing, any drawing, blueprint, or other reproduction,
customer names, price list, plans, names of operation processes, nor any
material of any kind including, but not limited to, software and electronic
designs. Unless specifically prohibited by statutory law, the Employee agrees
that, in the event of a breach or threatened breach by the Employee of the
provisions of this
<PAGE> 2
paragraph, the Employer shall be entitled to a temporary restraining order and a
preliminary injunction restraining the Employee from disclosing, in whole or in
part, the list of the Employer's customers, or from rendering any services to
any person, firm, corporation, association or other entity to whom such list, in
whole or in part, has been disclosed or is threatened to be disclosed. Nothing
herein shall be construed as prohibiting the Employer from pursuing any other
remedies available to the Employer for such breach or threatened breach,
including recovery of damages from the Employee.
7. COVENANT NOT TO COMPETE. In recognition of Employee's
acknowledgment that his services to be rendered to Employer are of a special and
unusual character which have a unique value to Employer, the loss of which
cannot adequately be compensated by damages in action at law; in view of (1) the
unique value to Employer of the services of Employee for which Employer has
employed Employee; and (2) the confidential information to be obtained by or
disclosed to Employee as an employee of Employer; and as a material inducement
to Employer to employ Employee and to pay to Employee the compensation for such
services to be rendered to Employer by Employee (it being understood and agreed
by the parties hereto that such compensation shall also be paid and received in
consideration hereof), Employee covenants and agrees as follows:
(i) PERIOD OF COVENANT. The period of this
non-competition covenant shall begin on the date hereof and shall
terminate on the second anniversary following the termination of
Employee's employment (whether or not such employment is pursuant to
this Agreement) with Employer for any reason (the "Non-competition
Period").
(ii) NATURE AND AREA OF COMPETITION. Employee agrees that
for the Non-competition Period throughout the world, he shall not,
directly or indirectly, as owner or operator of any corporation,
partnership, association or agency or as employee, agent, consultant
or independent contractor, engage in the business of designing or
selling video image processing or telerobotic devices ("Competitive
Business"). Employee hereby warrants that the execution of this
Agreement shall not violate any other agreements previously entered
into by Employee.
(iii) SOLICITATION. Employee agrees that during the
Non-competition Period he will not directly or indirectly, on behalf of
himself or on behalf of any person, firm, partnership, corporation,
association, or entity,
(1) Call upon any of the customers of Employer who
are such at the time of Employee's termination for the purpose
of soliciting or providing any Competitive Business;
(2) Call upon any of the other employees or
representatives of Employer who are such at the time of
Employee's termination for the purpose of soliciting or
inducing such employees or representatives to discontinue
their relationship with Employer or to establish a
relationship with Employee;
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<PAGE> 3
(3) Call upon any providers of data to the Company's
database for the purpose of obtaining data for any Competitive
Business; or
(4) Solicit, divert or take away or attempt to
solicit, divert or take away any of the customers, clients,
business or patrons of Employer or the other employees or
representatives maintaining a relationship with Employer who
are such at the time of Employee's termination.
(iv) ACCOUNTING FOR PROFITS. Employee covenants and agrees
that, if he shall violate any of his covenants or agreements under this
Section 1, Employer shall be entitled to an accounting and repayment of
all profits, compensation, commissions, remunerations or benefits which
Employee directly or indirectly has realized and/or may realize as a
result of, growing out of or in connection with any such violation;
such remedy shall be in addition to and not in limitation of any
injunctive relief or other rights or remedies to which Employer is or
may be entitled at law or in equity or under this Agreement.
(v) REASONABLENESS OF RESTRICTIONS. Employee has
carefully read and considered the provision of this Section 7 and,
having done so, agrees that the restrictions set forth in such Section
(including, but not limited to, the time period or restriction and the
geographical areas of restriction set forth in this Section 7) are fair
and reasonable and are reasonably required for the protection of the
interests of Employer, its officers, directors and other employees.
In the event that, notwithstanding the foregoing, any part of
the covenants set forth in this Section 7 shall be held to be invalid
or unenforceable, the remaining parts thereof shall nevertheless
continue to be valid and enforceable as though the invalid or
unenforceable parts had not been included therein. In the event that
any provision of this Section 7 relating to time period and/or areas of
restriction shall be declared by a court of competent jurisdiction to
exceed the maximum time period and/or areas such court deems reasonable
and enforceable, said time period and/or areas of restriction shall be
deemed to become and thereafter be the maximum time period and/or areas
which such court deems reasonable and enforceable.
(vi) INJUNCTION. In the event of a breach or threatened
breach by Employee of the provisions of this Agreement, Employer shall,
in addition to any other rights and remedies available to it, at law or
otherwise, be entitled to an injunction to be issued by any court of
competent jurisdiction enjoining and restraining Employee from
committing any violation of this Agreement.
(vii) COSTS. Should it become necessary for Employer to
file suit to enforce the covenants contained herein, the prevailing
party shall be entitled to cover, in addition to all other damages
provided for herein, the costs incurred in conducting the suit
including a reasonable attorney's fee.
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<PAGE> 4
8. EXPENSES. The Employer agrees to defray moving expenses as
stated in the offer letter extended to you on July 25, 1998 which has been
amended to state that closing costs in Knoxville will be defrayed 100% and 50%
of the real estate commission in Pittsford will be defrayed. The closing costs
on your home in Pittsford are excluded.
9. NOTICES. Any notice required or desired to be given under this
Agreement shall be given in writing, sent by certified mail, return receipt
requested, to his residence in the case of the Employee, or to its principal
place of business, in the case of the Employer.
10. WAIVER OF BREACH. The waiver by the Employer of a breach of
any provision of this Agreement by the Employee shall not operate or be
construed as a waiver of any subsequent breach by the Employee. No waiver shall
be valid unless in writing and signed by the Employer.
11. ASSIGNMENT. The Employee acknowledges that the services to be
rendered by him are unique and personal. Accordingly, the Employee may not
assign any of his rights or delegate any of his duties or obligations under this
Agreement. The rights and obligations of the Employer under this Agreement shall
inure to the benefit of and shall be binding upon the successors and assigns of
the Employer.
12. TERMINATION UPON SALE OF BUSINESS. Notwithstanding anything to
the contrary, the Employer may terminate this Agreement upon twenty-one (21)
days notice to the Employee upon the happening of any of the following events:
(a) The sale of the Employer's business or substantially all
of its assets to a single purchaser or to a group of associated
purchasers;
(b) The sale, exchange, or other disposition, in one
transaction, of at least a fifty (50%) percent interest in the
Employer's business;
(c) The merger or consolidation of the Employer's business in
a transaction in which the owners of the business receive less than a
fifty (50%) percent interest in the new or continuing operation.
13. TERMINATION WITHOUT CAUSE. The Employer may terminate this
Agreement without cause at any time upon fourteen (14) days written notice to
the Employee. In such event, the Employee, if requested by the Employer, shall
continue to render his services, and shall be paid his regular compensation and
earned vacation up and to the date of termination and, in addition, there shall
be paid to the Employee, on the date of termination, a severance allowance equal
to one year's salary. The Employee may terminate this Agreement without cause
upon fourteen (14) days written notice to the Employer. The Employee shall
continue to render his services and shall be paid his regular compensation and
earned vacation days up to the date of termination.
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<PAGE> 5
14. TERMINATION WITH CAUSE. Employment terminated for cause - as
used herein, "for cause" shall mean dishonesty, fraud, gross neglect or gross
malperformance of duty, intentional damage to substantial property of Employer,
conviction of a crime involving moral turpitude or the performance of any act
materially detrimental to the interest of Employer which was intended by the
Employee to have such affect. In such event, no severance allowance shall be
paid to the Employee; but the Employee shall continue to render services and
shall be paid his regular compensation and earned vacation days up to the date
of termination.
15. ENTIRE AGREEMENT. This Agreement contains the entire
understanding of the parties. It may be changed only by an Agreement in writing,
signed by the parties hereto.
16. GOVERNING LAW. This agreement, and all transactions
contemplated hereby, shall be governed by, construed and enforced in accordance
with the laws of the State of Tennessee. The parties herein waive trial by jury
and agree to submit to the personal jurisdiction and venue of a court of subject
matter jurisdiction located in Knox county, State of Tennessee. In the event
that litigation results from or arises out of this Agreement or the performance
thereof, the parties agree to reimburse the prevailing party's reasonable
attorney's fees, court costs, and all other expenses, whether or not taxable by
the court as costs, in addition to any other relief to which the prevailing
party may be entitled. In such event, no action shall be entertained by said
court or any court of competent jurisdiction if filed more than one year
subsequent to the date the cause (s) of action actually accrued regardless of
whether damages were otherwise as of said time calculable.
17. INDEMNITY. The Employer shall indemnify the Employee and hold
him harmless for any acts or decisions made by him in good faith while
performing services for the Employer and will use its best efforts to obtain
coverage for the Employee under any insurance policy now in force or hereinafter
obtained during the term of this Agreement covering the other officers, and/or
employees of the Employer against lawsuits.
18. WORKING FACILITIES. The Employee shall be provided such other
facilities and services as are suitable to his position and appropriate for the
performance of his duties.
19. CONTRACTUAL PROCEDURES. Unless specifically disallowed by law,
should litigation arise hereunder, service of process, therefore, may be
obtained through certified mail, return receipt requested; the parties hereto
waiving any and all rights they may have to object to the method by which
service was perfected.
20. BENEFITS. The Company provides extensive benefits in accordance
with the policies established by the Board of Directors. These benefits are
reviewed annually by the Board of Directors and may be changed without breaching
this contract. Exhibit "B" gives the present benefits program in effect at the
time of employment.
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<PAGE> 6
21. MISCELLANEOUS
In consideration of my employment by IPIX and the wages, salaries and
other benefits which I will acquire, I agree:
(a) To assign and transfer to IPIX all right, title and
interest to all inventions, discoveries or improvements, patentable or
unpatentable, conceived or made by me, either alone or with others,
during the period of my employment which fall within or arise out of
the nature of my employment, arise as a result of my employment or fall
within or arise out of the fields of business, work or investigation of
IPIX and to make and maintain adequate and current written records of
all of the foregoing, and
(b) To execute any and all instruments and do all things which
IPIX deems necessary to vest and maintain and protect and enforce in
IPIX the entire right, title and interest to all such inventions,
discoveries and improvements in any and all countries at IPIX's request
and without additional remuneration to me.
This Agreement shall be subject to and governed by the laws of the
state of Tennessee, County of Knox.
Failure to insist upon strict compliance with any provision hereof
shall not be deemed a waiver of such provision or any other provision hereof.
This Agreement may not be modified except by an agreement in writing
executed by the parties hereto.
The invalidity or unenforceability of any provision hereof shall not
affect the validity or enforceability of any other provision.
Any controversy or claim arising out of or relating to this Agreement,
other than a claim that would entitle Employer to injunctive relief pursuant to
Section 7 (vi) hereof, shall be settled by arbitration in Knox county, Tennessee
in accordance with the rules of the American Arbitration Association.
- 6 -
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
this 17th day of August, 1998.
"EMPLOYER":
Interactive Pictures Corp., Inc.
By:
/s/ Joseph M. Viglione
----------------------------------------
"EMPLOYEE":
/s/ Jeffrey D. Peters
----------------------------------------
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<PAGE> 8
EXHIBIT "A"
JOB DESCRIPTION: PRESIDENT AND CHIEF OPERATING OFFICER
A - 1
<PAGE> 9
EXHIBIT "B"
MAJOR MEDICAL INSURANCE
IPIX provides insurance through FORTIS. Physician services require a $15 co-pay
within the network. A $500 deductible (3 x family) applies to hospital, 100%
coverage after deductible is met. IPIX covers the total cost for the employee
and their dependents.
DENTAL/VISION INSURANCE
IPIX provides dental and vision insurance through The Guardian Insurance
Company. IPIX covers the total cost for the employee and their dependents.
DISABILITY INSURANCE
IPIX provides long term disability insurance that takes effect after 90 calendar
days of disability. It pays 60% of salary up to $5,000 per month until age 70.
BASIC GROUP LIFE INSURANCE
Presently with FORTIS, 2 x base salary, IPIX covers the total cost.
UNEMPLOYMENT INSURANCE
IPIX provides unemployment insurance in compliance with the laws of the State of
Tennessee.
PAID LEAVE
Nine Corporate holidays are observed during the year. Vacation is earned at a
rate of 1 day per month for the first 4 years, from 5-9 years of service at a
rate of 1.25 days per month, and in the 10th year of service at a rate of 1.5
days per month. Vacations greater than one week duration must have prior
approval. Unused vacation will be reimbursed at the current salary when an
associate terminates in good standing. Snow days will follow the announced
policy of Lockheed-Martin Energy Systems.
UNPAID LEAVE
Associates may arrange for planned unpaid leave with prior approval.
SICK LEAVE
Three days paid sick leave each year are provided, with no accrual. Management
will oversee extended sick leave on a case by case basis.
WORK WEEK
The standard work week is a minimum of 40 hours per week consisting of five 8
hours days. IPIX allows associates to reschedule, with prior approval, up to 4
hours of their work week for personal activities, provided the minimum hours are
worked each week. Attendance is expected at the scheduled weekly staff meeting.
B - 1
<PAGE> 10
PENSION PLAN
IPIX provides a 401(k) plan for associates who have been with IPIX 6 months or
longer. IPIX currently matches $.65 per dollar up to 4% of the associates'
salary. The match amount is reviewed each year by the board of directors.
EDUCATION BENEFITS
IPIX accrues annually $1,000, up to $5,000 total, for associates educational
expenses (tuition, fees, and books) for job related technical education upon
satisfactory completion of the course. This benefit also applies to direct
dependents. The accrued value extinguishes upon termination.
PROFESSIONAL SOCIETY MEMBERSHIP
IPIX encourages active participation in professional societies and will fund 50%
of the membership fees in any related professional society. This benefit does
not extend to union dues.
PROFIT SHARING
Associates will be provided annual bonuses set by the Board of Directors and
administered by the President based on corporate profitability, team
achievements, and individual contributions.
SEVERANCE PAY
In the event IPIX terminates an associate due to lack of available work, IPIX
will pay a severance equal to 1% of the present annual base pay for each full
year of company service, after 5 years of company service. This payment is not
paid for voluntary termination (associate voluntarily resigns) or termination
with cause (illegal activities, unsatisfactory performance, etc.).
B - 2
<PAGE> 1
Exhibit 10.4
EMPLOYMENT AND NON COMPETITION AGREEMENT
THIS AGREEMENT is made and entered into this 24th day of August, 1998,
by and between INTERACTIVE PICTURES CORPORATION (IPIX) having its principal
place of business at 1009 Commerce Park Drive, Oak Ridge, Tennessee 37931,
hereinafter referred to as the "Employer", and JOHN J. KALEC whose present
address is 7220 Westhampton Place, Knoxville, Tennessee 37919, hereinafter
referred to as the "Employee".
1. EMPLOYMENT. The Employer hereby agrees to employ the Employee
and Employee hereby accepts employment with Employer in the capacity of VICE
PRESIDENT AND CHIEF FINANCIAL OFFICER, upon the terms and conditions set out
herein.
2. TERM. The term of this Agreement shall begin on AUGUST 24,
1998, and shall continue indefinitely unless notification of either party of a
change in the employment status under the guidelines of paragraph 12 or 13.
3. COMPENSATION. The Employer shall pay the Employee, as
compensation for the services rendered by the Employee, a starting salary of
FOURTEEN THOUSAND FIVE HUNDRED EIGHTY-THREE DOLLARS AND THIRTY-THREE CENTS
($14,583.33) per month, payable monthly on the 25th. Salary payments shall be
subject to withholding and other applicable taxes. Compensation will be reviewed
on a regular basis per corporate policies. Expectation is for a 40 hour work
week with vacation and holidays described by the benefits plan.
4. DUTIES. The Employee shall perform for the Employer, the
duties set out in the attached Exhibit "A".
5. EXTENT OF SERVICES. The Employee shall devote his entire time,
attention, and energies to the Employer's business and shall not, during the
term of this Agreement, be engaged in any other business activity, whether or
not such business activity is pursued for gain, profit, or other pecuniary
advantage without written approval of the Employer. The Employee further agrees
that he will perform all of the duties assigned to him to the best of his
ability and in the manner satisfactory to the Employer, that he will truthfully
and accurately maintain all records, preserve all such records, and make all
such reports as the Employer may require; that he will fully account for all
money and all of the property of the Employer of which he may have custody and
will pay over and deliver the same whenever and however he may be directed to do
so. Services will be appraised on an annual basis through a corporate employee
appraisal system.
6. DISCLOSURE OF INFORMATION. The Employee agrees not to disclose
to anyone, either during or for a period of three years after his employment,
any confidential information obtained by him as a result of his employment by
the Employer without the consent of the Employer in writing. He further agrees
that, on leaving his employment, he will not take with him, without permission
of the Employer in writing, any drawing, blueprint, or other reproduction,
customer names, price list, plans, names of operating processes, nor any
material of any kind including, but not limited to, software and electronic
designs. Unless specifically prohibited by statutory law, the Employee
<PAGE> 2
agrees that, in the event of a breach or threatened breach by the Employee of
the provisions of this paragraph, the Employer shall be entitled to a temporary
restraining order and a preliminary injunction restraining the Employee from
disclosing, in whole or in part, the list of the Employer's customers, or from
rendering any services to any person, firm, corporation, association or other
entity to whom such list, in whole or in part, has been disclosed or is
threatened to be disclosed. Nothing here shall be construed as prohibiting the
Employer from pursuing any other remedies available to the Employer for such
breach or threatened breach, including recovery of damages from the Employee.
7. COVENANT NOT TO COMPETE. In recognition of Employee's
acknowledgment that his services to be rendered to Employer are of a special and
unusual character which have a unique value to Employer, the loss of which
cannot adequately be compensated by damages in action at law; in view of (1) the
unique value to Employer of the services of Employee for which Employer has
employed Employee; and (2) the confidential information to be obtained by or
disclosed to Employee as an employee of Employer; and as a material inducement
to Employer to employ Employee and to pay to Employee the compensation for such
services to be rendered to Employer by Employee (it being understood and agreed
by the parties hereto that such compensation shall also be paid and received in
consideration hereof), Employee covenants and agrees as follows:
(i) PERIOD OF COVENANT. The period of this non-competition
covenant shall begin on the date hereof and shall terminate on
the second anniversary following the termination of Employee's
employment (whether or not such employment is pursuant to this
Agreement) with Employer for any reason (the "Non-competition
Period").
(ii) NATURE AND AREA OF COMPETITION. Employee agrees that for
the Non-competition Period, through the world, he shall not,
directly or indirectly, as owner or operator of any
corporation, partnership, association or agency or as
employee, agent, consultant or independent contractor, engage
in the business of designing or selling video image processing
or telerobotic devices ("Competitive Business"). Employee
hereby warrants that the execution of this Agreement shall not
violate any other agreements previously entered into by
Employee.
(iii) SOLICITATION. Employee agrees that during the
Non-competition Period he will not directly or indirectly, on
behalf of himself or on behalf of any person, firm,
partnership, corporation, association or entity.
(1) Call upon any of the customers of Employer who
are such at the time of Employee's termination for the
purpose of soliciting or providing any Competitive
Business;
(2) Call upon any of the other employees or
representatives of Employer who are such at the time
of Employee's termination for the purpose
- 2 -
<PAGE> 3
of soliciting or inducing such employees or
representatives to discontinue their relationship with
Employer or to establish a relationship with Employee;
(3) Call upon any providers of data to the
Company's database for the purpose of obtaining data
for any Competitive Business; or
(4) Solicit, divert or take away or attempt to
solicit, divert or take away any of the customers,
clients, business or patrons of Employer or the other
employees or representatives maintaining a relationship
with Employer who are such at the time of Employee's
termination.
(iv) ACCOUNTING FOR PROFITS. Employee covenants and agrees
that, if he shall violate any of his covenants or agreements
under this Section 1, Employer shall be entitled to an
accounting and repayment of all profits, compensation,
commissions, remunerations or benefits which Employee directly
or indirectly has realized and/or may realize as a result of,
growing out of or in connection with any such violation; such
remedy shall be in addition to and not in limitation of any
injunctive relief or other rights or remedies to which
Employer is or may be entitled at law or in equity or under
this Agreement.
(v) REASONABLENESS OF RESTRICTIONS. Employee has carefully
read and considered the provision of this Section 7 and,
having done so, agrees that the restrictions set forth in
such Section (including, but not limited to, the time period
or restriction and the geographical areas of restriction set
forth in this Section 7) are fair and reasonable and are
reasonably required for the protection of the interests of
Employer, its officers, directors and other employees.
In the event that, notwithstanding the foregoing, any
part of the covenants set forth in this Section 7 shall be
held to be invalid or unenforceable, the remaining parts
hereof shall nevertheless continue to be valid and enforceable
as though the invalid or unenforceable parts had not been
included therein. In the event that any provision of this
Section 7 relating to time period and/or areas of restriction
shall be declared by a court of competent jurisdiction to
exceed the maximum time period and/or areas such court deems
reasonable and enforceable, said time period and/or areas of
restriction shall be deemed to become and thereafter be the
maximum time period and/or areas which such court deems
reasonable and enforceable.
(vi) INJUNCTION. In the event of a breach or threatened
breach by Employee of the provisions of this Agreement,
Employer shall, in addition to any other rights and remedies
available to it, at law or otherwise, be entitled to an
injunction to be issued by any court of competent jurisdiction
enjoining and restraining Employee from committing any
violation of this Agreement.
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<PAGE> 4
(vii) COSTS. Should it become necessary for Employer to file
suit to enforce the covenants contained herein, the prevailing
party shall be entitled to cover, in addition to all other
damages provided for herein, the costs incurred in conducting
the suit including a reasonable attorney's fee.
8. EXPENSES. N/A
9. NOTICES. Any notice required or desired to be given under this
Agreement shall be given in writing, sent by certified mail, return receipt
requested, to his residence in the case of the Employee, or to its principal
place of business, in the case of the Employer.
10. WAIVER OF BREACH. The waiver by the Employer of a breach of
any provision of this Agreement by the Employee shall not operate or be
construed as a waiver of any subsequent breach by the Employee. No waiver shall
be valid unless in writing and signed by the Employer.
11. ASSIGNMENT. The Employee acknowledges that the services to be
rendered by him are unique and personal. Accordingly, the Employee may not
assign any of his rights or delegate any of his duties or obligations under this
Agreement. The rights and obligations of the Employer under this Agreement shall
inure to the benefit of and shall be binding upon the successors and assigns of
the Employer.
12. TERMINATION UPON SALE OF BUSINESS. Notwithstanding anything to
the contrary, the Employer may terminate this Agreement upon twenty-one (21)
days notice to the Employee upon the happening of any of the following events:
(a) The sale of the Employer's business or substantially all
of its assets to a single purchaser or to a group of associated
purchasers;
(b) The sale, exchange, or other disposition, in one
transaction, of at least a fifty (50%) percent interest in the
Employer's business;
(c) The merger or consolidation of the Employer's business in
a transaction in which the owners of the business receive less than a
fifty (50%) percent interest in the new or continuing operation.
13. TERMINATION WITHOUT CAUSE. The Employer may terminate this
Agreement without cause at any time upon fourteen (14) days written notice to
the Employee. In such event, the Employee, if requested by the Employer, shall
continue to render his services, and shall be paid his regular compensation and
earned vacation up and to the date of termination and, in addition, there shall
be paid to the Employee, on the date of termination, a severance allowance equal
to one week's compensation for each full year of employment after the third
year. The Employee may terminate this Agreement without cause upon fourteen (14)
days written notice to the Employer. The Employee shall continue to render his
services and shall be paid his regular compensation and earned
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<PAGE> 5
vacation days up to the date of termination. If the employee is terminated
without cause prior to August 24, 2000, the employee shall receive a lump sum
severance payment from the company in an amount equal to $175,000.
14. TERMINATION WITH CAUSE. Employment terminated for cause -- as
used herein, "for cause" shall mean dishonesty, fraud, gross neglect or gross
malperformance of duty, intentional damage to substantial property of Employer,
conviction of a crime involving moral turpitude or the performance of any act
materially detrimental to the interest of Employer which was intended by the
Employee to have such affect. In such event, no severance allowance shall be
paid to the Employee; but the Employee shall continue to render services and
shall be paid his regular compensation and earned vacation days up to the date
of termination.
15. ENTIRE AGREEMENT. This Agreement contains the entire
understanding of the parties. It may be changed only by an Agreement in writing,
signed by the parties hereto.
16. GOVERNING LAW. This agreement, and all transactions
contemplated hereby, shall be governed by, construed and enforced in accordance
with the laws of the State of Tennessee. The parties herein waive trial by jury
and agree to submit to the personal jurisdiction and venue of a court of subject
matter jurisdiction located in Knox County, State of Tennessee. In the event
that litigation results from or arises out of this Agreement or the performance
thereof, the parties agree to reimburse the prevailing party's reasonable
attorney's fees, court costs, and all other expenses, whether or not taxable by
the court as costs, in addition to any other relief to which the prevailing
party may be entitled. In such event, no action shall be entertained by said
court or any court of competent jurisdiction if filed more than one year
subsequent to the date the cause(s) of action actually accrued regardless of
whether damages were otherwise as of said time calculable.
17. INDEMNITY. The Employer shall indemnify the Employee and hold
him harmless for any acts or decisions made by him in good faith while
performing services for the Employer and will use its best efforts to obtain
coverage for the Employee under any insurance policy now in force or hereinafter
obtained during the term of this Agreement covering the other officers, and/or
employees of the Employer against lawsuits.
18. WORKING FACILITIES. The Employee shall be provided such other
facilities and services as are suitable to his position and appropriate for the
performance of his duties.
19. CONTRACTUAL PROCEDURES. Unless specifically disallowed by law,
should litigation arise hereunder, service of process, therefore, may be
obtained through certified mail, return receipt requested; the parties hereto
waiving any and all rights they may have to object to the method by which
service was perfected.
20. BENEFITS. The Company provides extensive benefits in
accordance with the policies established by the Board of Directors. These
benefits are reviewed annually by the Board of
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<PAGE> 6
Directors and may be changed without breaching this contract. Exhibit "B" gives
the present benefits program in effect at the time of employment.
21. MISCELLANEOUS
In consideration of my employment by IPIX and the wages, salaries and
other benefits which I will acquire, I agree:
(a) To assign and transfer to IPIX all right, title and
interest to all inventions, discoveries or improvements, patentable or
unpatentable, conceived or made by me, either alone or with others,
during the period of my employment which fall within or arise out of
the nature of my employment, arise as a result of my employment or fall
within or arise out of the fields of business, work or investigation of
IPIX and to make and maintain adequate and current written records of
all of the foregoing, and
(b) To execute any and all instruments and do all things which
IPIX deems necessary to vest and maintain and protect and enforce in
IPIX the entire right, title and interest to all such inventions,
discoveries and improvements in any and all countries at IPIX's request
and without additional remuneration to me.
This Agreement shall be subject to and governed by the laws of the
State of Tennessee, County of Knox.
Failure to insist upon strict compliance with any provision hereof
shall not be deemed a waiver of such provision or any other provision hereof.
This Agreement may not be modified except by an agreement in writing
executed by the parties hereto.
The invalidity or unenforceability of any provision hereof shall not
affect the validity or enforceability of any other provision.
Any controversy or claim arising out of or relating to this Agreement,
other than a claim which would entitle Employer to injunctive relief pursuant to
Section 7(vi) hereof, shall be settled by arbitration in Knox County, Tennessee
in accordance with the rules of the American Arbitration Association.
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<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
this 7th day of August, 1998.
"EMPLOYER":
Interactive Pictures Corp., Inc.
By:
/s/ Joseph M. Viglione
-----------------------------------------
"EMPLOYEE":
/s/ John J. Kalec
-----------------------------------------
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<PAGE> 8
Exhibit A
JOB DESCRIPTION: VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
You will be responsible for all financial functions, including an annual audit,
accounting and investment banker relations. You will be expected to travel in
support of the company's sales efforts including participation at trade shows,
public relations efforts, and attendance at regular meetings at our corporate
headquarters in Knoxville, Tennessee. You will also be a member of the executive
staff and attend and contribute to the effectiveness of the executive staff
meetings.
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<PAGE> 9
EXHIBIT B
MAJOR MEDICAL INSURANCE
IPIX provides insurance through FORTIS. Physician services require a $15 co-pay
within the network. A $500 deductible (3 x family) applies to hospital, 100%
coverage after deductible is met. IPIX covers the total cost for the employee
and their dependents.
DENTAL/VISION INSURANCE
IPIX provides dental and vision insurance through The Guardian Insurance
Company. IPIX covers the total cost for the employee and their dependents.
DISABILITY INSURANCE
IPIX provides long term disability insurance that takes effect after 90 calendar
days of disability. It pays 60% of salary up to $5,000 per month until age 70.
BASIC GROUP LIFE INSURANCE
Presently with FORTIS, 2 x base salary, IPIX covers the total cost.
UNEMPLOYMENT INSURANCE
IPIX provides unemployment insurance in compliance with the laws of the State of
Tennessee.
PAID LEAVE
Nine Corporate holidays are observed during the year. Vacation is earned at a
rate of 1 day per month for the first 4 years, from 5-9 years of service at a
rate of 1.25 days per month, and in the 10th year of service at a rate of 1.5
days per month. Vacations greater than one week duration must have prior
approval. Unused vacation will be reimbursed at the current salary when an
associate terminates in good standing. Snow days will follow the announced
policy of Lockheed-Martin Energy Systems.
UNPAID LEAVE
Associates may arrange for planned unpaid leave with prior approval.
SICK LEAVE
Three days paid sick leave each year are provided, with no accrual. Management
will oversee extended sick leave on a case by case basis.
WORK WEEK
The standard work week is a minimum of 40 hours per week consisting of five 8
hour days. IPIX allows associates to reschedule, with prior approval, up to 4
hours of their work week for personal activities, provided the minimum hours are
worked each week. Attendance is expected at the scheduled weekly staff meeting.
PENSION PLAN
IPIX provides a 401(k) plan for associates who have been with IPIX 6 months or
longer. IPIX currently matches $.65 per dollar up to 4% of the associates'
salary. The match amount is reviewed each year by the board of directors.
EDUCATION BENEFITS
IPIX accrues annually $1,000, up to $5,000 total, for associates educational
expenses (tuition, fees, and books) for job related technical education upon
satisfactory completion of the course. This benefit also applies to direct
dependents. The accrued value extinguishes upon termination.
PROFESSIONAL SOCIETY MEMBERSHIP
IPIX encourages active participation in professional societies and will fund 50%
of the membership fees in any related professional society. This benefit does
not extend to union dues.
PROFIT SHARING
Associates will be provided annual bonuses set by the Board of Directors and
administered by the President based on corporate profitability, team
achievements, and individual contributions.
SEVERANCE PAY
In the event IPIX terminates an associate due to lack of available work, IPIX
will pay a severance equal to 1% of the present annual base pay for each full
year of company service, after 5 years of company service. This payment is not
paid for voluntary termination (associate voluntarily resigns) or termination
with cause (illegal activities, unsatisfactory performance, etc.).
<PAGE> 1
EXHIBIT 10.5
JAMES M. PHILLIPS
Chairman, President and CEO
I P I X
Mr. Steve Zimmermann
11330 Gates Mill Drive
Knoxville, Tennessee 37922
Re: Employment with Interactive Pictures Corporation
Dear Steve:
The purpose of this letter is to offer you a position with Interactive Pictures
Corporation ("IPIX"). IPIX is offering to employ you in the position of
"Corporate Fellow" for a term of three years. During the term of your
employment, your monthly compensation would equal $8,333.00 per month. You would
be entitled to participate in all benefit plans that other employees of IPIX are
entitled to participate in subject to the same eligibility requirements and
other terms and conditions as other employees.
Your position would involve providing advice and guidance and consultation to
IPIX on technical, engineering and other matters as assigned to you. IPIX may
terminate your employment prior to the end of your three year employment term
without good cause (as defined below) provided it pays you a lump sum severance
payment equal to 12 months salary ($100,000.00). You would not be entitled to
any other payments or benefits in the event of such termination. During the term
of your employment, IPIX may terminate your employment immediately for good
cause and you would not be entitled to any payment of any kind or any severance
payment. As used in this letter, the term "good cause" means acts by you of an
egregious nature which are harmful or detrimental to IPIX, its business or
operations.
I hope that you will find this offer acceptable and agree to become an employee
of IPIX in accordance with the terms described herein. If you wish to accept the
terms of this offer of employment, please so indicate by executing a copy of
this letter where indicated below and returning it to me. We can then move
forward to expand and grow IPIX in a manner which will be beneficial to us all.
If you have any questions, please do not hesitate to contact me. Offer expires
July 1st, 1997, if not countersigned.
Very truly yours,
INTERACTIVE PICTURES CORPORATION
By: Agreed to and accepted:
/s/ James M. Phillips /s/ Steve Zimmermann
- -------------------------------- ---------------------------
James M. Phillips - President Steve Zimmermann
INTERACTIVE PICTURES CORPORATION
7325 OAK RIDGE HIGHWAY, KNOXVILLE, TN 37931-3476
PHONE: 423-690-5600 WEBSITE: HTTP:/WWW.IPIX.COM
<PAGE> 1
Exhibit 10.6
LICENSE AGREEMENT
This License Agreement is entered into this 17th day of January, 1997,
(the "Effective Date") by and between Discovery Communications, Inc., a
corporation organized and existing under the laws of Delaware with its principal
place of business at 7700 Wisconsin Avenue, Bethesda, Maryland 20814-3579
("DISCOVERY") and Omniview, Inc., a corporation organized and existing under the
laws of Tennessee with its principal place of business at 7325 Oak Ridge
Highway, Knoxville, TN 37931 ("OMNIVIEW").
WHEREAS, OMNIVIEW has developed, manufactured and marketed, and owns
worldwide rights to products and processes for making, linking, and viewing
photobubbles;
WHEREAS, OMNIVIEW is the owner or licensee of photobubble technology
and intellectual property rights therein (hereinafter defined) covering
photobubbles and photobubble viewing and processes for making various
photobubbles, and is willing to grant to DISCOVERY exclusive and nonexclusive
worldwide rights and licenses under such technology in the fields and on the
terms and conditions herein set forth;
WHEREAS, MOTOROLA owns or may own certain patent rights to photobubble
technology and related or complementary technology, which MOTOROLA has licensed
to OMNIVIEW in an agreement between MOTOROLA and OMNIVIEW executed on January
17, 1997 and wherein OMNIVIEW was granted certain rights to sublicense the
technology;
WHEREAS, DISCOVERY is desirous of acquiring exclusive and nonexclusive
rights and licenses under the OMNIVIEW photobubble technology and the MOTOROLA
photobubble technology to make, use and sell products incorporating the
photobubble technology worldwide, in the fields defined herein and under the
terms and conditions of this Agreement;
WHEREAS, DISCOVERY desires to make, have made, use and sell products
and processes containing a plurality of relationally, intelligently and
sequentially linked audio-visual presentations for use and sale, in the retail
and educational markets, and wherein the audio-visual presentations are
relationally linked by topic and one or more of the linked audio-visual
presentations is a photobubble for purposes of presenting a story or narrative
about a theme, culture, historical event, expedition, place or individual;
WHEREAS, OMNIVIEW desires to develop five destination based travel
media using linked photobubble technology;
WHEREAS, DISCOVERY desires or may in the future wish to fund
development of products by OMNIVIEW and distribute such developed products
through DISCOVERY's distribution channels.
<PAGE> 2
NOW, THEREFORE, for and in consideration of the mutual promises and
undertakings and the payment of royalties herein contained, the parties hereto
have agreed and do hereby agree as follows:
1. DEFINITIONS.
1.1 "Photobubble" means an audio-visual presentation element,
specifically, a whole, half, third, quarter, sixth, or any other portion of a
spherical view, image or photograph or portion thereof including views, images,
or photographs constructed from one or more views, images, or photographs and
the presentation of all or a portion thereof in a manner wherein the user may
move within one of the defined views, images, or photographs and obtain a
perspective corrected view.
1.2 "Topic Linked Photobubbles" means photobubbles which are
relationally linked to audio-visual presentation elements based on a topical
relationship, including but not limited to the topics of theme, destination,
location, culture and history, and the creation thereof. Linking may be through
hot buttons, locations on a visual display, or other means of linking.
1.3 "Photobubble Technology" means all inventions, discoveries,
information, trade secrets, disclosures, publications, software, and other
intellectual property in existence or hereafter created, relating in any manner
to Photobubbles and Topic Linked Photobubbles including the creation and viewing
thereof.
1.4 "Licensed Patents" mean all of OMNIVIEW's United States and foreign
patents relating to or covering photobubble technology, now issued or issued
during the term of this Agreement together with all divisions, reissues,
reexaminations, continuations, renewals, and continuations in part, including
but not limited to those listed in Appendix A.
1.5 "Licensed Product(s)" means products which, in the course of
manufacture, use or sale would, in the absence of this Agreement, infringe one
or more claims of the Licensed Patents or the MOTOROLA Licensed Patents, or
products made, at least in part, by a Licensed Process (defined below), or
products made, at least in part, using OMNIVIEW's Technology, and including but
not limited to those products listed in Appendix B. Licensed Products include
relationally linked audio-visual presentations containing photobubbles.
1.6 "Licensed Process(es)" means processes which, in the course of
manufacture, use or sale would, in the absence of this Agreement, infringe one
or more claims of the Licensed Patents. Licensed Processes include the processes
for creating a photobubble, for creating links between photobubbles, and for
viewing photobubbles.
1.7 "OMNIVIEW Technology" means unpublished research and development
information, unpatented inventions, software, know-how related to making
photobubbles, trade secret formulas or information for creating or viewing
photobubbles, and technical data in the possession of OMNIVIEW at the effective
date of this Agreement or during the term of this
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<PAGE> 3
Agreement which are incorporated into, arising from, or in any way related to,
the Licensed Products and photobubble technology. The OMNIVIEW Technology shall
include the technical information in all current and future patent applications,
manuals, formulas, specifications, drawings, designs, and all other information
actually communicated by OMNIVIEW to DISCOVERY during the term of this Agreement
in any form.
1.8 "MOTOROLA Licensed Patents" mean all MOTOROLA United States
patents, and all corresponding foreign patents now issued or issued during the
term of this Agreement together with all divisions, reissues, continuations,
renewals, and continuations in part, which relate to or cover the Licensed
Products, Licensed Processes, Photobubble Technology, OMNIVIEW Technology or
DISCOVERY Products (including but not limited to those patents and applications
listed in Appendix C), that are now or are in the future licensed to OMNIVIEW
(including those patents that are licensed from MOTOROLA to OMNIVIEW in that
certain Patent License Agreement between MOTOROLA and OMNIVIEW executed on the
same date herewith).
1.9 "Third Party Technology" means third party (including MOTOROLA)
unpublished research and development information, unpatented inventions,
software, know-how related to making photobubbles, trade secret formulas or
information for creating or viewing photobubbles, and technical data which
OMNIVIEW has a right to obtain or is in the possession of OMNIVIEW at the
effective date of this Agreement or during the term of this Agreement, which are
incorporated into, arising from, or in any way related to, the Licensed Products
and photobubble technology. Third Party Technology shall include the technical
information in all current and future patent applications, manuals, formulas,
specifications, drawings, designs, and all other information actually
communicated by any third party to OMNIVIEW before and during the term of this
Agreement in any form.
1.10 "Improvements" means any improved process or products, hardware or
software, whether or not patentable, relating to and within the scope of the
Photobubble Technology and which has been conceived and reduced to practice by
OMNIVIEW during the term of this Agreement, and which OMNIVIEW is lawfully
entitled to communicate to DISCOVERY for its use without breaching any
restrictions on use or disclosure owed to third parties.
1.11 "DISCOVERY Field" means Topic Linked Photobubbles, including
multimedia presentations used in a public or commercial location, where
photobubbles are relationally, intelligently or sequentially linked with other
photobubbles or media for purposes of presenting a story or narrative, whether
theme-based or detailing a specific destination, about a particular setting.
1.12 "Affiliates" means any entity the voting-stock of which is at
least 50% controlled by or under common control with a party to this Agreement.
1.13 "DISCOVERY Selected Destinations" means specific settings, places,
locations, destinations or the like selected by DISCOVERY for use in the
DISCOVERY Field, such as CD-ROM's depicting a city, village, building, monument,
structure, ship, museum, or the like.
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<PAGE> 4
1.14 "R&D Titles" means multimedia presentations using Topic Linked
Photobubbles developed under a Research and Development Contract depicting
specific settings, places, locations, destinations or the like selected by
OMNIVIEW for development and to be used in the DISCOVERY Field, such as CD ROM's
depicting a city, village, building, monument, structure, ship, museum, or the
like.
1.15 "Stock Purchase Agreement" that certain Amended and Restated Stock
Purchase Agreement between MOTOROLA, OMNIVIEW, and DISCOVERY executed on
December 20, 1996.
2. GRANT OF PATENT AND TECHNOLOGY LICENSE, OTHER GRANTS.
2.1 (a) Grant of Initial Option for Exclusive License to OMNIVIEW
Patents and OMNIVIEW Technology in the DISCOVERY Field. From the Effective Date
of this Agreement until the grant of the exclusive license of Section 2.1(b),
unless DISCOVERY elects not to proceed with the Research and Development
Contract of Section 6.3, OMNIVIEW hereby grants to DISCOVERY an option to obtain
a worldwide exclusive license under the Licensed Patents and to the OMNIVIEW
Technology to make, have made, use, have used, sell and have sold Licensed
Products and Licensed Processes for Discovery Selected Destinations (to be
determined in accordance with Section 3.1). During the term of the option of
this section, Section 2.1(a), OMNIVIEW shall not license any destinations in the
Discovery Field without DISCOVERY's prior written approval.
(b) Grant of Renewable Exclusive License to OMNIVIEW Patents and
OMNIVIEW Technology. In exchange for the consideration set forth in
Section 6.3, and commencing 180 days from the date of this Agreement
and extending for two years, OMNIVIEW hereby grants to DISCOVERY a
renewable worldwide exclusive license under the Licensed Patents and to
the OMNIVIEW Technology to make, have made, use, have used and sell and
have sold the Licensed Products and Licensed Processes for DISCOVERY
Selected Destinations (to be determined in accordance with Section
3.1). At DISCOVERY's option, and in exchange for the consideration set
forth in Section 6.4, the exclusive license of Section 2.1(b) shall be
renewable for one year periods.
2.2 Grant of Nonexclusive License to OMNIVIEW Patents and OMNIVIEW
Technology. OMNIVIEW hereby grants to DISCOVERY a worldwide nonexclusive license
under the Licensed Patents and to the OMNIVIEW Technology to make, have made,
use, have used, sell and have sold the Licensed Products and Licensed Processes
in all fields including the DISCOVERY Field. Payment for such nonexclusive
license shall be in accordance with Section 6.1. Notwithstanding the foregoing,
OMNIVIEW may withhold such non-exclusive license to DISCOVERY on any product or
process that (i) is not made available by license to any other third party;
provided that OMNIVIEW shall provide to DISCOVERY any services offered with, or
using, the withheld product or process on a most favored licensee basis and at a
quality level that is at least
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<PAGE> 5
equal to the quality of OMNIVIEW's own output, services, or products; or (ii) is
made available to a third party on an exclusive basis subject to the
notification and matching provisions of Section 8.2.
2.3 (a) Grant of Initial Option for a Sole Sublicense Under MOTOROLA
Licensed Patents and Third Party Technology in the DISCOVERY Field. From the
Effective Date of this Agreement until the grant of the exclusive license of
Section 2.1(b), unless DISCOVERY elects not to proceed with the Research and
Development Contract of Section 6.3, OMNIVIEW hereby agrees to grant solely to
DISCOVERY an option to obtain a worldwide sublicense under the MOTOROLA Licensed
Patents and to the Third Party Technology (to the extent Omniview has a right to
sublicense the Third Party Technology) to make, have make, use, have used, sell
and have sold the Licensed Products and Licensed Processes for Discovery
Selected Destinations (to be determined in accordance with Section 3.1) in the
DISCOVERY Field. During the term of the option of this section, section 2.3(a),
OMNIVIEW shall not sublicense any destinations in the Discovery Field.
(b) Grant of Renewable Sole Sublicense Under MOTOROLA Licensed Patents
and Third Party Technology. In exchange for the consideration set forth in
Section 6.3, and commencing 180 days from the date of this Agreement, and
extending for two years, OMNIVIEW hereby grants solely to DISCOVERY a renewable
worldwide sublicense under the MOTOROLA Licensed Patents and to the Third Party
Technology (to the extent Omniview has a right to sublicense the Third Party
Technology) to make, have made, use, have used, sell and have sold the Licensed
Products and Licensed Processes for Selected Destinations in the DISCOVERY
field. At DISCOVERY's option, and in exchange for the consideration set forth in
Section 6.4, the sole sublicense of Section 2.3(b) shall be renewable for one
year periods.
2.4 Grant of Nonexclusive Sublicense Under MOTOROLA Licensed Patents
and Third Party Technology. OMNIVIEW hereby grants to DISCOVERY a worldwide
nonexclusive sublicense under the MOTOROLA Licensed Patents and to the Third
Party Technology (to the extent Omniview has a right to sublicense the Third
Party Technology) to make, have made, use, have used, sell and have sold the
Licensed Products and Licensed Processes in all fields including the DISCOVERY
Field. Payment for such nonexclusive sublicense shall be in accordance with
Section 6.1.
2.5 Grant of Subsequent Options for Exclusive Licenses in Discovery
Field. Upon termination of the Initial Option of Sections 2.1(a) and 2.3(a),
OMNIVIEW hereby grants to DISCOVERY an option to obtain exclusive licenses
and/or sole sublicenses within the DISCOVERY Field of uses that OMNIVIEW has
offered a nonexclusive license to a third party. OMNIVIEW shall provide
DISCOVERY written notice in accordance with Section 8.2 of any such offer. If
DISCOVERY wishes to exercise its option to obtain an exclusive license and/or
sole sublicenses covering the use, DISCOVERY shall notify OMNIVIEW of its
intention within seven (7) days of receipt of such written notice and OMNIVIEW
shall negotiate in good faith to reach agreement on an exclusive license and/or
sole sublicense.
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<PAGE> 6
2.6 Right to Sublicense Patents and Technology. The options and
licenses granted in paragraphs 2.1, 2.2, 2.3, 2.4 and 2.5 hereof expressly
include the right to grant worldwide sublicenses to Affiliates of DISCOVERY
under the same terms and conditions as set forth in this Agreement. Any such
sublicenses granted hereunder shall not continue beyond the term of this
Agreement.
2.7 OMNIVIEW, MOTOROLA, OMNIVIEW Licensee or Other Party is First to
Market. OMNIVIEW shall provide thirty (30) day prior written notice to DISCOVERY
of the wholesale or commercial release of any OMNIVIEW products which use
OMNIVIEW Technology. Also, OMNIVIEW shall provide thirty (30) day prior written
notice of any wholesale or commercial releases of Licensed Products by MOTOROLA,
licensees, or third parties of which it is aware. The notices of Section 2.7
shall be Confidential Information in accordance with Section 7 of this
Agreement.
2.8 Licensing of DISCOVERY Competitors. During those time periods in
which DISCOVERY is a shareholder of OMNIVIEW (provided there has been no Initial
Public Offering ("IPO") of OMNIVIEW shares or DISCOVERY has not sold at least
one-half of shares acquired under the Stock Purchase Agreement for a price per
share equal to or greater than the price Discovery paid under the Stock Purchase
Agreement), a licensee of OMNIVIEW, or both and for one (1) year thereafter,
OMNIVIEW shall not sell for use or license the photobubble technology or any
part thereof to the following companies: Arts & Entertainment Network (A&E),
Nickelodeon, National Geographic, Turner Broadcasting, the TerraQuest on-line
website, The Walt Disney Company (Disney) (except that OMNIVIEW shall be able to
sell for use or license the photobubble technology or any part thereof to The
Walt Disney Company only for use in animation or in connection with Disney-owned
theme parks), or their successors. This Section, Section 2.8, shall survive
termination of this Agreement and the terms of this section shall be
Confidential Information in accordance with Section 7 of the Agreement.
3. SELECTION AND DEVELOPMENT OF PRODUCTS FOR SELECTED DESTINATIONS.
3.1 Selection of Selected Destinations. If DISCOVERY elects to proceed
with the Research and Development Contract of Section 6.3, it shall have until
180 days from the date of this Agreement to select up to twelve (12)
destinations, the DISCOVERY Selected Destinations, and reserve exclusive rights
to these destinations in accordance with Section 2.1(b).
3.2 Development of Selected Destination Products. OMNIVIEW agrees that
it will use its best efforts to work with DISCOVERY, provide assistance and
training as required, provide timely processing, developing, linking and other
development and creation work necessary to complete Selected Destination
products for market in accordance with a Deliverables Schedule to be agreed
upon by the parties. OMNIVIEW shall provide any information needed by DISCOVERY
employees to design, create and assemble Selected Destination products for
market.
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<PAGE> 7
3.3 Designated Key Person. Prior to selection of the DISCOVERY Selected
Destinations under Section 3.1, OMNIVIEW shall designate in a notice to
DISCOVERY a key person knowledgeable about photobubbles and linking of
photobubbles to provide assistance and be a single point of contact for
DISCOVERY employees.
3.4 Ownership of Selected Destination Products. All rights, title and
interest including Copyright of the Selected Destination products, shall be
owned solely by DISCOVERY. In connection therewith:
(a) Any and all literary, artistic, pictorial, graphic,
audiovisual, or other works of authorship that DISCOVERY furnishes to
OMNIVIEW, or that may have been developed with OMNIVIEW's cooperation
or contribution in the course of the performance of OMNIVIEW's tasks,
shall remain DISCOVERY's sole property; and OMNIVIEW promises it shall
not make any claims with respect thereto.
(b) OMNIVIEW agrees and acknowledges that, for purposes of
ownership pursuant to Section 201 of the U.S. Copyright Act (but not
for tax or any other purpose), that all the results and proceeds of
OMNIVIEW's services hereunder, including the copyrights in all works of
authorship in the Selected Destination products, shall be deemed works
made for hire for DISCOVERY, and that DISCOVERY or its assigns shall be
deemed the author of such results and proceeds and works made for hire.
(c) In the event the results and proceeds identified in the
preceding paragraph are found not to be works for hire, then OMNIVIEW
agrees to assign and hereby assigns and transfers all right, title and
interest in them throughout the world, including the copyrights in all
works of authorship, to DISCOVERY for good and valuable consideration,
receipt of which OMNIVIEW hereby acknowledges. To effectuate such
assignment, OMNIVIEW hereby grants DISCOVERY a limited irrevocable
power of attorney to execute any necessary documents to evidence the
assignment. When requested, OMNIVIEW agrees to cooperate with DISCOVERY
in preparing Certificates of Originality in a form satisfactory to
DISCOVERY and DISCOVERY's legal counsel for works of authorship
including computer code (not including any previously existing computer
code) or computer images acquired, developed or compiled by OMNIVIEW
services under this agreement.
3.5 Training. OMNIVIEW shall train such employees of DISCOVERY as
DISCOVERY deems necessary in the OMNIVIEW patents, OMNIVIEW Technology, the
MOTOROLA Licensed Patents and the Third Party Technology and the use thereof to
take spherical pictures and capture spherical images used in photobubbles, and
to design photobubble products. OMNIVIEW shall provide the first 16 hours of
such training to DISCOVERY at no expense. DISCOVERY shall pay for any additional
training at reasonable hourly rates on a most favored nation basis.
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3.6 Software Tool Box. If at any time during the term of this
Agreement, OMNIVIEW shall distribute one or more software tools, software
developer's kits, or tool boxes permitting others to create or use Photobubble
Technology including the processing, creating, linking or viewing of
photobubbles, DISCOVERY shall be immediately granted the same rights and
permitted to purchase, use or license such tool box(es) at the lowest cost and
on the same terms as offered to any other OMNIVIEW customer. DISCOVERY shall be
permitted to use any such tools, kits, or boxes in the development of the
Selected Destination products.
4. IMPROVEMENTS.
4.1 OMNIVIEW Improvements. OMNIVIEW shall, during the term of this
Agreement and for a period of two (2) years thereafter, promptly and fully
disclose to DISCOVERY all Improvements which have been conceived and reduced to
practice by OMNIVIEW relating in any manner to the Photobubble Technology. Any
and all such Improvements shall be and remain the property of OMNIVIEW, but
shall be included in the OMNIVIEW Technology. Any patents obtained by OMNIVIEW
on Improvements made by OMNIVIEW shall be included in the Licensed Patents.
4.2 DISCOVERY Requests for Improvements. If DISCOVERY requests OMNIVIEW
in writing to develop an improvement in photobubble technology, OMNIVIEW shall
use its best efforts to develop such improvement. DISCOVERY shall reimburse
OMNIVIEW for all reasonable costs incurred in developing such improvements.
5. TRANSFER OF OMNIVIEW TECHNOLOGY AND MOTOROLA LICENSED PATENTS AND THIRD
PARTY TECHNOLOGY.
5.1 Deliveries of OMNIVIEW Technology. In the event that under Section
3.2 of this Agreement OMNIVIEW is unable to provide services or meet the
delivery terms in the Deliverables Schedule, subject to the terms and conditions
of this Agreement, OMNIVIEW shall, within sixty (60) days after receiving notice
from DISCOVERY, commence disclosure to DISCOVERY of the OMNIVIEW Technology
related to the Discovery Field and for use only in connection therewith (all
rights, title and interest to remain with OMNIVIEW), by delivering to DISCOVERY
copies of all necessary documents and information enabling DISCOVERY to practice
the OMNIVIEW Technology including, but not limited to: object code, photobubble
processing software, software tools, software developer's kits, tool boxes, the
OMNIVIEW Technology documents, specifications, and drawings in OMNIVIEW's
possession. In the event that disclosure occurs under this Section 5.1, OMNIVIEW
shall escrow its source code with a third party of OMNIVIEW's choosing and
provide evidence of such escrow to DISCOVERY. In the event that disclosure under
this Section 5.1 occurs and even with the disclosure DISCOVERY in its opinion is
unable to practice the OMNIVIEW Technology related to the Discovery Field,
OMNIVIEW shall either perform the services requested by DISCOVERY or a service
provider selected by OMNIVIEW will perform the services requested by DISCOVERY
at OMNIVIEW's expense. If in the opinion of the selected service provider access
to OMNIVIEW's source code is necessary to complete the services requested
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by DISCOVERY, OMNIVIEW shall provide the selected service provider access to
OMNIVIEW's source code.
5.2 Deliveries of MOTOROLA Licensed Patents and Third Party Technology.
In the event that under Section 3.2 of this Agreement OMNIVIEW is unable to
provide services or meet the delivery terms in the Deliverables Schedule,
subject to the terms and conditions of this Agreement, OMNIVIEW shall, within
sixty (60) days after receiving notice from DISCOVERY, commence disclosure to
DISCOVERY of the MOTOROLA Licensed Patents and Third Party Technology (to the
extent that Omniview may disclose Third Party Technology without breaching a
written agreement), by delivering to DISCOVERY copies of all necessary documents
and information enabling DISCOVERY to practice the MOTOROLA Licensed Patents and
Third Party Technology, including, but not limited to, algorithms, logarithms,
source code, object code, Third Party Technology documents, and all disclosure
documents, all pending applications and all related patent applications for the
MOTOROLA Licensed Patents, and drawings in OMNIVIEW's possession. In the event
that disclosure occurs under this Section 5.2, OMNIVIEW shall escrow any Third
Party Technology source code that may be needed by DISCOVERY, for the purpose of
meeting the delivery terms in the Delivery Schedule, with an escrow agent of
OMNIVIEW's choosing and provide evidence of such escrow to DISCOVERY. In the
event that disclosure under this Section 5.2 occurs, and even with the
disclosure, DISCOVERY in its opinion is unable to practice the MOTOROLA Licensed
Patents and Third Party Technology related to the Discovery Field, OMNIVIEW
shall either perform the services requested by DISCOVERY or a service provider
selected by OMNIVIEW will perform the services requested by DISCOVERY at
OMNIVIEW's expense. If in the opinion of the selected service provider access to
Third Party Technology source code is necessary to complete the services
requested by DISCOVERY, OMNIVIEW shall provide the selected service provider
access to Third Party Technology source code.
6. COMPENSATION, REVENUE SHARING AND PAYMENTS.
6.1 Payment. Except for the R&D Titles, for each Licensed Product
including the Selected Destination products, that DISCOVERY intends to use,
sell, or otherwise dispose of, DISCOVERY shall pay to OMNIVIEW either a one time
photobubble processing fee or a one time license fee on a per-photobubble basis
for a paid-up license under the Licensed OMNIVIEW and MOTOROLA Patents and
Licensed OMNIVIEW Technology and Third Party Technology rights granted under
Section 2. Such one time fees shall be at the lowest cost and on the most
favorable terms offered to any other OMNIVIEW customer.
6.2 Revenue Sharing. The wholesale revenue from (wholesale) sale of
each R&D Title developed under the Research and Development Contract of Section
6.3 shall be distributed in the following manner, first, from the wholesale
revenue of each good sold, the cost of each good shall be paid to the party
which bore the cost for the production of the good including insurance,
shipping, and foreign exchange costs and the like, second, the remaining revenue
for each good or net receipts
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shall be shared equally between DISCOVERY and OMNIVIEW. An R&D Title shall be
designated as being sold on the date the invoice therefor is paid.
6.3 Consideration for Exclusivity. To acquire the exclusive licenses
set forth in paragraphs 2.1(b) and 2.3(b), DISCOVERY shall offer OMNIVIEW a
Research and Development Contract in accordance with the terms set forth in this
section, Section 6.3. DISCOVERY shall have until 90 days from the date of this
Agreement to notify OMNIVIEW of an offer to OMNIVIEW of a Research and
Development Contract with a contract price of two-hundred thousand dollars
($250,000) to acquire the exclusivity of the licenses. In the event DISCOVERY
offers the Research and Development Contract, OMNIVIEW may select up to five (5)
destinations in the field of destination-based travel for the R&D Titles. If
OMNIVIEW selects any destinations which DISCOVERY provides notice of objection
to, because the destination is the same as or similar to one of DISCOVERY's
Selected Destinations, then OMNIVIEW shall select another destination. Such
Research and Development Contract shall have performance payments of no more
than fifty thousand dollars ($50,000) up to a total of no more than $250,000
over a performance period of up to two years based on the achievement of
mutually agreed upon performance requirements. Such agreement shall provide that
OMNIVIEW will develop at least five R&D Titles in the field of destination-based
Travel. DISCOVERY shall provide creative guidance on the content for the
development of the R&D Titles, and DISCOVERY shall use its business judgment to
distribute the R&D Titles. Upon each of the R&D Titles meeting the performance
requirements, DISCOVERY shall make the earned performance payment of up to fifty
thousand dollars ($50,000) and shall have, subject to the revenue sharing
provisions of Section 6.2, a paid-up license and own all right, title and
interest including copyright to the R&D Titles. Subject to the marking
provisions of this Agreement, DISCOVERY shall have the full and unfettered right
to label or brand the R&D Titles as it chooses. Continuation of the Research and
Development Contract shall be at the sole option of DISCOVERY. DISCOVERY shall
be permitted, at any time and for any reason, or no reason, to terminate all
obligations under the Research and Development Contract. Ninety (90) days after
such termination, the exclusive licenses of Sections 2.1(b) and 2.3(b) shall
terminate, provided however, DISCOVERY shall have the further option of
maintaining exclusive license rights to the DISCOVERY Selected Destinations by
paying the balance of the performance payments up to a cumulative total of
two-hundred-fifty thousand dollars ($250,000). If no such performance payments
are made, all licenses under Sections 2 shall remain non-exclusive. DISCOVERY
and OMNIVIEW will use their best efforts to negotiate in good faith the
remaining terms of such Research and Development Contract. If DISCOVERY fails to
offer to OMNIVIEW a Research and Development Contract, the exclusive sections of
this license agreement shall become nonexclusive until such a contract is
offered or full payment is made without such a contract.
6.4 Consideration for Renewal of Exclusive Licenses. If DISCOVERY
requests renewal of the exclusive licenses granted hereunder or additional
exclusive licenses for DISCOVERY Selected Destinations, OMNIVIEW and DISCOVERY
shall in good faith negotiate the terms for such renewal.
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7. CONFIDENTIALITY.
7.1 Confidentiality. The term "Confidential Information" means any
information from OMNIVIEW, OMNIVIEW Information, or information from DISCOVERY,
DISCOVERY Information, including trade secrets on photobubbles, know-how
relating to making and using photobubbles, and the information listed in
Appendix D, which is furnished by a disclosing party in connection with the
purpose of this Agreement, which is considered proprietary and maintained in
confidence by the disclosing party, and is furnished by the disclosing party to
the receiving party hereunder in written or other tangible form and is clearly
marked as being confidential or, if disclosed in an intangible form, summarized
in writing, marked confidential, and sent to the receiving party within sixty
(60) days after such disclosure. Confidential Information shall expressly
include any analysis, compilations, studies or other documents or records which
are generated or derived from the foregoing Confidential Information. Any report
or other documents resulting from this Agreement, including the substance of
this Agreement, shall be deemed Confidential Information. It is understood that
the parties do not desire to receive any other confidential information from the
other party and accordingly, with respect to any other information provided, no
party shall have any confidential obligation unless, prior to disclosure, such
information is added to Appendix D and initialed by authorized representatives
of the receiving party.
7.2 Nondisclosure. For a period of five (5) years from the Effective
Date of this Agreement, each party shall keep the Confidential Information in
strict confidence and shall not disclose it to unrelated third parties or to any
of its employees except those employees of the receiving party, employees of
related or affiliated companies, agents or representatives who have a need to
know the Confidential Information for the purpose of this Agreement and who
agree to keep such information confidential. Each party agrees to be responsible
for any breach of this Section 7.2 by its representatives and agents. Each party
further agrees to exercise the same degree of care the receiving party uses to
protect its own confidential information of a similar nature and take reasonable
steps to prevent disclosure of the Confidential Information to prevent it from
falling into the public domain or the possession of unauthorized persons. Each
party shall advise the other party in writing of any misappropriation or misuse
of the other party's Confidential Information of which the notifying party may
become aware.
7.3 Exceptions. Whether or not listed on Appendix D, this Agreement
shall impose no obligation upon the receiving party with respect to any
information, technical data or know-how of the furnishing party which (i) is now
or which subsequently becomes generally known or available; (ii) is known to the
receiving party at the time of receipt of same from the furnishing party; (iii)
is provided by the furnishing party to a third party without restriction on
disclosure; (iv) is subsequently rightfully provided to the receiving party by a
third party without restriction on disclosure; (v) is independently developed by
or for the receiving party provided the person or persons developing same for
the receiving party have not had access to the Confidential Information of the
furnishing party; (vi) is approved for release by written authorization of the
furnishing party; (vii) is disclosed through supply or sale of products or the
licensed or authorized use of products incorporating the Confidential
Information, where the disclosure does not otherwise constitute a
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breach of this Agreement by a receiving party under this Agreement; or (viii) is
disclosed pursuant to the requirement or request of a governmental agency or
disclosure is required by operation of law, provided the furnishing party is
given reasonable advance notice of such requirement or required disclosure if
possible.
7.4 OMNIVIEW Information. Any and all written or other information
disclosed to DISCOVERY by OMNIVIEW, including OMNIVIEW Technology information,
shall be and remain the property of OMNIVIEW and DISCOVERY agrees to promptly
return all such information including any copies thereof or other documents
including any such information as a part thereof, to OMNIVIEW upon termination
of this Agreement.
7.5 Confidentiality Obligations. Each party shall comply with each of
the provisions of confidentiality in paragraphs 7.1 through 7.4 in connection
with any disclosures of confidential information made hereunder.
7.6 Independent Creation. Nothing in this Agreement shall prevent the
receiving party from licensing or purchasing hardware or software from any other
third party or independently creating and developing hardware or software, and
the receiving party may develop, procure, market and distribute products or
services at any time which may be competitive with the disclosing party's
products or services provided such technology or activity does not infringe upon
the disclosing party's intellectual property rights including DISCOVERY's
exclusive license rights herein.
8. REPORTS AND MOST FAVORED LICENSE.
8.1 Most Favored License. If OMNIVIEW grants another license for the
Licensed Patents, MOTOROLA Patents, OMNIVIEW Technology, Third Party Technology
or any other rights granted under this Agreement or related to rights granted or
denied under this Agreement, which specifically includes payment provisions more
favorable than the payment provisions of this Agreement, then OMNIVIEW shall
promptly notify DISCOVERY of such license, DISCOVERY shall have thirty (30) days
to notify OMNIVIEW whether DISCOVERY desires to have the most favored payment
provisions for similar photobubble creation or application.
8.2 Reports on Licenses to Third Parties. OMNIVIEW shall provide
DISCOVERY with a monthly report setting forth all ongoing negotiations for
exclusive and non-exclusive Licenses, including a description of the proposed
terms of such licenses. DISCOVERY may, within five (5) days of receiving such
report, reserve the right to match any offer outside the DISCOVERY field, such
right to match to be exercised within ten (10) days of notice of a bona fide
offer. For any exclusive license in the Discovery Field, Discovery shall have
the additional right to match (such terms as are susceptible to matching) such
license within 30 days of notice of a bona fide offer. In addition, under no
circumstances shall OMNIVIEW enter into any license without giving DISCOVERY at
least five (5) days prior written notice.
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9. TERM AND TERMINATION.
9.1 Term. The term of this Agreement shall begin on the Effective Date
and shall end upon the expiration date of the last Licensed Patent to expire,
subject to earlier termination in accordance with paragraph 9.2. Upon the
expiration date of the last Licensed Patent to expire, DISCOVERY's duty to
continue paying sums under paragraph 6.2 shall prospectively cease with respect
to any Sales occurring on or after the expiration date of the last Licensed
Patent. The following sections of this Agreement shall survive expiration or any
termination of this Agreement: 2.8, 7, 9.3, 11 and 13.
9.2 Termination. This Agreement shall continue in force unless
terminated under any applicable section of this Agreement. In the event of a
material breach of this Agreement by DISCOVERY, OMNIVIEW may cancel this
Agreement by giving thirty (30) days prior written notice thereof; provided that
this Agreement shall not terminate if DISCOVERY has cured the breach of which it
has been notified prior to the expiration of the thirty (30) days. DISCOVERY
shall have the right to terminate this Agreement without cause for any reason,
or for no reason, upon thirty (30) days advance written notice.
9.3 Effect of Termination. In the event of any termination under
Section 9.2, DISCOVERY shall promptly discontinue all making, using or selling
of Licensed Products and discontinue all use and disclosure of the OMNIVIEW
Technology and Improvements except for manufacture of supplies for, and
uncompleted inventory of, the Licensed Products on hand as ordered, pursuant to
bona fide orders, prior to the date of notice of termination, provided DISCOVERY
shall duly remit payments to OMNIVIEW in accordance with Section 6 with respect
to any resulting Licensed Products sold after termination. DISCOVERY shall not
further use or copy any Confidential Information contained in the OMNIVIEW
Technology and shall promptly return all OMNIVIEW Technology to OMNIVIEW.
10. INFRINGEMENT ACTIONS.
10.1 Notice. If any third party shall, in the reasonable opinion of
either party, misappropriate any trade secret, or infringe any of the Licensed
Patents or other proprietary rights relating to the OMNIVIEW Technology or
Improvements, such party shall promptly notify the other party.
10.2 Infringement. If any third party, without a license or right under
the Licensed Patents or OMNIVIEW Technology, shall produce products or use
processes coming within the definition of the Licensed Products or OMNIVIEW
Technology and if:
(i) DISCOVERY shall give the OMNIVIEW written notice as required
under paragraph 10.1; and
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(ii) DISCOVERY requests that suit be brought against such third party
because of such infringement or misappropriation; and
(iii) DISCOVERY supplies OMNIVIEW an opinion from a qualified law firm
that such third party is infringing a Licensed Patent or misappropriating
OMNIVIEW Technology; and
(iv) OMNIVIEW fails to bring such suit or obtain discontinuance of such
infringement or misappropriation; and
(v) Sales of said third party products is of such volume as to produce,
if licensed, royalties of at least ten thousand dollars ($10,000) per year;
then, in such case DISCOVERY shall be permanently relieved of the payment of
royalties on a per bubble or per unit basis (i.e. bubbles shall be sold at cost
without a one-time royalty payment included or built-in to the price of the
bubble) that would otherwise accrue from the time conditions (i) through (vi)
are all satisfied until the day OMNIVIEW shall bring suit against an infringer
or shall obtain discontinuance of said infringement, with respect only as to the
Licensed Patents or OMNIVIEW Technology said to be infringed or misappropriated,
respectively.
10.3 Enforcement by DISCOVERY. OMNIVIEW fails to bring suit or obtain
discontinuance of an infringement or misappropriation, nothing in Section 10.2
shall prevent DISCOVERY from bringing suit or obtaining discontinuance of such
infringement or misappropriation or otherwise enforcing the Licensed Patents and
OMNIVIEW Technology. In the event DISCOVERY chooses to undertake such suit or
enforcement, DISCOVERY shall retain any recovery, damages or royalties
therefrom. In any infringement suit arising hereunder, the party not initiating
such suit shall, at the request of the other party, provide all reasonable
cooperation.
11. INDEMNIFICATION.
11.1 Indemnification. OMNIVIEW shall indemnify and hold harmless
DISCOVERY, its subsidiaries, distributors, Affiliates, and their stockholders,
directors, officers, employees, agents and assignees, manufacturers, suppliers,
and customers from any loss, claim, liability, costs or expenses (including
attorneys' fees) or damage arising from or as a result of Licensed Products or
Licensed Processes (except to the extent DISCOVERY alters, modifies, changes or
adds to the Licensed Products or Licensed Processes) made, used, offered for
sale, or sold under DISCOVERY's exercise of the rights granted to it by this
Agreement. This indemnity survives any termination of this Agreement.
11.2 Defense of Suits. OMNIVIEW shall, at its own expense, defend any
suit instituted against DISCOVERY, its subsidiaries, Affiliates, distributors,
or their stockholders, directors, officers, employees, agents or assignees,
manufacturers, suppliers, or customers which is based on
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an allegation that Licensed Products or Licensed Processes made, used, or sold
by DISCOVERY infringe any patent or other intellectual property right of any
third party, and OMNIVIEW shall indemnify, hold harmless and defend against a
judgment of any court if it is determined therein that any such Licensed Product
constitutes an infringement of any patent or other intellectual property right
of any third party. OMNIVIEW shall be permitted to control the defense of such
suit and has the affirmative obligation to diligently and effectively defend any
claim. If OMNIVIEW fails to diligently and effectively defend against any such
suit, at its option, DISCOVERY may defend and control the defense of such suit,
at OMNIVIEW's expense. Each party agrees to advise the other of claims of
infringement, which may come to its attention, which are based on allegations
that Licensed Products or Licensed Processes infringe.
12. GOVERNMENT AUTHORIZATION.
12.1 Export Authorization. OMNIVIEW agrees to obtain all necessary
export licenses and authorizations, if any, for use of the OMNIVIEW Technology
worldwide.
12.2 Other Authorization. OMNIVIEW agrees to obtain all governmental
authorizations which may or shall be required for use of the OMNIVIEW Technology
in the United States and worldwide.
13. WARRANTY.
13.1 OMNIVIEW warrants that it is the sole, exclusive, and absolute
owner of all the right, title and interest in and to the OMNIVIEW Licensed
Patents and OMNIVIEW Technology. OMNIVIEW warrants that it has obtained all
required consents and assignments and has full right, power and authority to
license the Licensed Patents and OMNIVIEW Technology and MOTOROLA Licensed
Patents to DISCOVERY according to the terms of this Agreement.
13.2 OMNIVIEW warrants and represents that the Licensed Patents were
not fraudulently procured from the Patent and Trademark Office and that OMNIVIEW
has no knowledge of any circumstances that render any of the Licensed Patents
invalid.
13.3 OMNIVIEW represents that, to the best of its knowledge, the
OMNIVIEW Technology does not infringe upon the patent, copyright, trademark,
ownership or other proprietary rights of any individual, partnership,
corporation or other entity.
13.4 OMNIVIEW represents that it is not aware of any asserted or
unasserted claim or demand against the Licensed Patents or OMNIVIEW Technology
or any licenses granted herein, or that could or would in anyway impede or
interfere with the license granted herein or DISCOVERY's research, development,
use, manufacture or marketing of the Licensed Product or Licensed Processes.
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13.5 OMNIVIEW warrants and represents that it has entered into a valid
license Agreement with MOTOROLA under any and all of MOTOROLA's patents relating
to the Licensed Products and has the right to grant sublicenses to DISCOVERY
under such MOTOROLA patents. OMNIVIEW warrants and represents that its agreement
with MOTOROLA does not prevent OMNIVIEW from granting DISCOVERY the rights
granted by this Agreement, subject to compliance with Section 5(p)(8) of the
Stock Purchase Agreement.
13.6 OMNIVIEW warrants and represents that it is not aware of any
patents which would be infringed in carrying out the terms of this Agreement.
OMNIVIEW represents that is not aware of any third party which has rights to
intellectual property which could prevent DISCOVERY from making, using, or
selling the Licensed Products and Licensed Processes. In particular, OMNIVIEW is
not aware of any rights owned by a third party which could or might be asserted
to exclude or prevent DISCOVERY from exploiting the Licensed Patents or Licensed
Processes in the DISCOVERY Field of use or from using hot buttons or other
links.
13.7 OMNIVIEW warrants and represents that is not aware of any
intellectual property or development of intellectual property or any activity of
others which might or could be asserted to prevent DISCOVERY from making, using,
or selling the Licensed Products or Licensed Processes.
14. PATENT PROSECUTION, MAINTENANCE, AND INTERFERENCE.
14.1 Prosecution. OMNIVIEW shall continue the prosecution of all
pending applications for patents, both in the United States and foreign
countries, to appeal or issuance, and shall notify DISCOVERY of any actual
change in the status or any decision to change the status thereof prior to any
decision to change the status.
14.2 Maintenance. OMNIVIEW shall timely make all maintenance fee and
annuity payments on all Licensed Patents and shall maintain such patents in good
standing.
14.3 Interference. If an OMNIVIEW Patent is called into question in an
interference proceeding with a third party (including MOTOROLA), OMNIVIEW shall
not conclude any agreement for settling such interference proceeding with such
third party on terms which would not permit licensing or sublicensing the same
rights on the same terms under any patent issued to such third party to
DISCOVERY.
15. GENERAL.
15.1 Status of Parties. OMNIVIEW is and shall at all times be an
independent contractor and shall not be deemed an employee or agent of
DISCOVERY. Nothing in this Agreement shall be deemed to create a partnership or
joint venture between the parties.
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15.2 Complete Agreement. This Agreement contains the complete agreement
between the parties and shall, as of the effective date hereof, supersede all
other agreements, if any, between the parties relating to the Licensed Products.
The parties stipulate that neither of them hath made any representation with
respect to the subject matter of this Agreement or the execution and delivery
hereof except such representation as are specifically set forth herein. Each of
the party hereto acknowledges that they have relied on their own judgment in
entering into this Agreement.
15.3 Modifications. No modification, amendment, supplement to or waiver
of this Agreement shall be binding upon the parties hereto unless made in
writing and duly signed by both parties.
15.4 Waiver. A failure of either party to exercise any right provided
for herein shall not be deemed a waiver of any right under this Agreement.
15.5 Assignment. This Agreement shall inure to the benefit of and be
binding upon the successors and permitted assigns of the respective parties.
Neither party shall assign this Agreement in whole or in part without the prior
written consent of the other party and any such attempted assignment shall be
null and void except that, DISCOVERY shall have the right to assign this
Agreement without the consent of OMNIVIEW to an affiliate, subsidiary, or to a
purchaser of all or substantially all of DISCOVERY's assets.
15.6 Severability. If any one or more of the provisions of this
Agreement is unenforceable, the enforceability of the remaining provisions shall
be unimpaired.
15.7 Force Majeure. Neither OMNIVIEW nor DISCOVERY shall be held
responsible for any delay or failure in the performance of this Agreement to the
extent such delay or failure is caused by fire, flood, explosions, war, embargo,
governmental action or failure to act, the act of any civil or military
authority, acts of God, inability to secure transportation facilities, acts or
missions of carriers, power outages, or by any other causes beyond its control
whether or not similar to the foregoing, provided that the hindered Party (a)
notifies the other party of such cause, (b) exercises reasonable effort to cure
such delay or failure and resume performance, and (c) excuses performance by the
other party during the period of such delay or failure.
15.8 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Tennessee.
15.9 Marking. DISCOVERY agrees to mark all Licensed Products sold or
otherwise disposed of by it under the patent license granted in this Agreement
with the word "Patent(s)" and the number(s) of the Licensed Patent(s) applicable
thereto, and with any Copyright and Trademark notices applicable thereto. With
respect to Licensed Products made using a Licensed Process, DISCOVERY agrees to
respond to any request for disclosure under 35 U.S.C. ss. 287 (4)(B) by
notifying OMNIVIEW of the request for disclosure.
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15.10 Cooperation. Each party shall execute any instruments reasonably
believed by the other party to be necessary to implement the provisions of this
Agreement.
15.11 Notices. Any notice which either party desires or is obligated to
give to the other party hereunder shall be in writing and delivered personally
or sent by air mail, postage prepaid and addressed to the last known address of
the party which the notice is intended. As of the date hereof, any notice to be
given to OMNIVIEW shall be addressed to:
OMNIVIEW INC.
7325 Oak Ridge Highway
Knoxville, TN 37931
Attention: Paul Martin
As of the date hereof, any notice to be given to DISCOVERY shall be addressed
to:
DISCOVERY COMMUNICATIONS, INC.
7700 Wisconsin Avenue
Bethesda, Maryland 20814-3522
Attention: General Counsel
IN WITNESS WHEREOF, each party hereto has caused this Agreement to be
executed in duplicate, to be effective as of the date first written above, by
its duly authorized representative.
OMNIVIEW DISCOVERY
Omniview, Inc. Discovery Communications, Inc.
By: /s/ H. Lee Martin By: /s/ C. Richard Allen
--------------------------------- ---------------------------------
Name: H. Lee Martin Name: C. Richard Allen
------------------------------- -------------------------------
Title: President Title: Senior Vice President
------------------------------ ------------------------------
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APPENDIX A
OMNIVIEW PATENTS AND PATENT APPLICATIONS
Patents:
1. U.S. Patent No. 5,185,667
2. U.S. Patent No. 5,313,306
3. U.S. Patent No. 5,359,363
4. U.S. Patent No. 5,384,588
Pending Patent Applications:
1. 08/339,663 filed November 14, 1994 - entitled "System for Omnidirectional
Image Viewing at a Remote Location Without the Transmission of Control Signals
to Select Viewing Parameters."
2. 08/373,446 filed January 17, 1995 - entitled "Method for Directly Scanning an
Imaging Element Using a Non-linear Scan."
3. 08/373,434 filed January 17, 1995 - entitled "Method for Eliminating Temporal
and Spacial Distortion from Interlaced Video Signals."
4. 08/386,912 filed February 8, 1995 - entitled "Omniview Motionless Camera
Orientation System."
5. 08/494,599 filed June 23, 1995 - entitled "Method and Apparatus for
Simultaneous Capture of a Spherical Image."
6. 08/516,629 filed August 18, 1995 - entitled "Method and Apparatus for the
Interactive Display of any Portion of a Spherical Image."
7. Serial No. not assigned, filed December 17, 1996, Docket No. 01096.57548 -
entitled "Method and Mechanism for Automatic Opposing Alignment of Photographic
Image Capture."
8. (Reissue) 08/662,410 filed July 12, 1996 - entitled "Omniview Motionless
Camera Orientation System."
9. 60/021,644 filed July 12,1996 - entitled "Broadcast Data Retrieval System
with Data Filters and Browser" (this is a provisional application).
Appendix A - 1
<PAGE> 20
10. Serial No. not assigned, filed October 31, 1996, Docket No.01096-57674 -
entitled "Method and Apparatus for Providing Perceived Video Viewing Experiences
Using Still Images," and for its corresponding provisional filed application,
Serial No. 60/012,033, filed February 21, 1996.
11. Serial No. not assigned, filed December 9, 1996, Docket No. 01096-02449 -
entitled "Omniview Motionless Camera Orientation System Distortion Correcting
Sensing Element."
12. (Japan) 511159/92 filed January 13, 1993 - entitled "Omniview Motionless
Camera Orientation System."
13. (Europe) 92911877.06 filed January 12, 1993 - entitled "Omniview Motionless
Camera Orientation System."
14. (Europe) 94101834.3 filed July 2, 1994 - entitled "Omniview Motionless
Camera Surveillance System."
15. (Japan) 047651/94 filed _____________- entitled "Omniview Motionless Camera
Surveillance System."
16. (PCT) PCT/US96/10484 filed June 21, 1996 - entitled "Method and Apparatus
for Creating Spherical Images."
Appendix A - 2
<PAGE> 21
APPENDIX B
LICENSED PRODUCTS
DISCOVERY Selected Destinations
Appendix B - 1
<PAGE> 22
APPENDIX C
MOTOROLA PATENTS
1. U.S. Patent No. 5,489,940, Feb. 6, 1996, entitled - An Electronic Image
System And Sensor for Use Therefor
2. WO 96/08105, filed July 31, 1995, entitled - Method For Creating Image
Data
3. WO 96/26610, filed Jan. 16, 1996, entitled - Broadcasting Pural Wide
Angle Images
4. WO 96/26611, filed Jan. 16, 1996, entitled - Wide Angle Interactive
Viewing Of Broadcast Program
5. WO 96/18262, filed Oct. 27, 1995, entitled - An Electronic Image System
And Sensor For Use Therefor
6. U.S. Patent Application Ser. No. 08/431,185, filed (not available)
entitled - Method and System For Providing An Animated Image Sequence
Using Wide-Angle Images
7. U.S. Patent Application Ser. No. 08/303,927, filed (not available)
entitled - Method For Creating Image Data
8. U.S. Patent Application Ser. No. 08/392,705, filed Feb. 23, 1995,
entitled - Methods and System For Interactively Viewing A Broadcast
Program
9. U.S. Patent Application Ser. No. 08/741,008, filed (not available)
entitled - Interactive Image Display System
10. U.S. Patent Application Ser. No. 08/440,015, filed (not available)
entitled - Interactive Image Display System
11. U.S. Patent Application Ser. No. 08/392,593, filed Feb. 23, 1995,
entitled - Method and System For Broadcasting An Interactively Viewable
Program
12. U.S. Patent Application Ser. No. 08/640,637, filed (not available)
entitled - Geographical Exploitation System and Method
13. U.S. Patent Application Ser. No. 08/652,251, (file wrapper continuation
from abandoned U.S. Patent Application Ser. No. 08/303,927
14. U.S. Patent Application Ser. No. 08/512,876, filed Aug. 9, 1995, which
is a continuation application claiming priority from U.S. Patent No.
5,489,940
Appendix C - 1
<PAGE> 1
EXHIBIT 10.7
PATENT LICENSE AGREEMENT
THIS AGREEMENT is effective as of the 17th day of January, 1997, by and between
Motorola, Inc., a Delaware corporation having an office at 1303 East Algonquin
Road, Schaumburg, IL 60196 U.S.A., (hereinafter called "MOTOROLA"), and
Omniview, Inc., a corporation having an office at 7325 Oak Ridge Highway,
Knoxville, TN 37931-3476 (hereinafter called "OMNIVIEW").
WHEREAS, OMNIVIEW owns and has or may have or acquire intellectual property
rights including, but not limited to, U.S. Patent No. 5,185,667; and
WHEREAS, MOTOROLA owns and has or may have or acquire intellectual property
rights relating to improvements to U.S. Patent No. 5,185,667 under which
OMNIVIEW desires to acquire licenses as hereinafter provided; and
WHEREAS, the parties are willing to exchange certain licenses and give mutual
assertions as provided herein;
NOW, THEREFORE, in consideration of the mutual covenants and undertakings set
out herein and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
Section 1 - DEFINITIONS
1.1 "SUBSIDIARY(IES)" means any legal entity, more than fifty percent (50%)
of whose outstanding shares or securities representing the right to vote for the
election of directors or other managing authority are, or more than fifty
percent (50%) of whose equity interest is, now or hereafter, owned or
controlled, directly or indirectly by that party (but only so long as such
ownership or control or equity interest exists).
1.2 "SUCCESSORS" means any legal entity that obtains 100% of the
outstanding capital stock or securities of a party.
1.3 "OMNIVIEW PATENTS" means U.S. Patent Nos. 5,185,667, 5,313,306,
5,359,363, 5,384,588, and U.S. Patent Application Nos. 08/373,434, 08/373,446,
08/386/912, 08/516,629, 08/494,599, 08/339,663, 08/662,410, 60/021,644,
08/742,684, 60/012,033 and attorney docket numbers 1096.57548, 01096-57674, and
1096.02449, including all continuations, continuations-in-part, reissues,
renewals, and extensions thereof, and any counterparts and international
applications claiming priority from any of the foregoing. OMNIVIEW represents
that the above listing is all known OMNIVIEW patent prosecution activities in
fields relating to PHOTOBUBBLES or ELECTRONIC P-T-R-M as of the EFFECTIVE DATE
of this Agreement.
1.4 "FUTURE OMNIVIEW PATENTS" means all patents, licensable patent
applications (including all world-wide: divisions, continuations,
continuations-in-part,
<PAGE> 2
reissues, renewals, and extensions thereof, any counterparts claiming priority
therefrom or the benefit of the filing date thereto, utility models, patents of
importation/confirmation, and certificates of invention) and like statutory
rights (other than design patents, registerable industrial designs and like
rights involving trade identify) owned, controlled, or sublicensable by OMNIVIEW
or its Subsidiary(ies) which relate to the fields of PHOTOBUBBLES or ELECTRONIC
P-T-R-M during the term hereof, other than OMNIVIEW PATENTS.
1.5 "MOTOROLA PATENTS" means U.S. Patent No. 5,489,940 and U.S. Patent
Application Nos. 08/512,876, 08/440,015, 08/741,008, 08/392,593, 08/392,705,
08/652,251, 08/431,185, and 08/640,637 including all divisions, continuations,
continuations-in-part, re-issues, renewals, and extensions thereof, and any
counterparts and international applications claiming priority from any of the
foregoing. MOTOROLA represents that the above list is all known patent
prosecution activities in fields of PHOTOBUBBLES or ELECTRONIC P-T-R-M by the
New Enterprise and MultiMedia organizations of MOTOROLA as of the EFFECTIVE DATE
of this Agreement.
1.6 "OMNIVIEW SOFTWARE" means a collection of instructions or data created,
used, or distributed by OMNIVIEW that, when execution by general purpose
processors, semiconductor devices, or other circuitry, are covered by the
MOTOROLA PATENTS.
1.7 "LENS DISTORTED" means distortion of an image caused as light passes
through a transmissive lens to a sensor or viewing media.
1.8 "PHOTOBUBBLES" means the creation, storage or linking for transmission,
reception, display or viewing of a hemispherical or spherical image in analog or
digital form in an appropriate medium of expression including but not limited to
print media, compact disc read only memories, holograms and television or
computer displays, such hemispherical or spherical image formed from one or more
images or portions thereof captured using a fisheye lens and: (i) a conventional
camera and film, or (ii) an equivalent digital or electronic camera, or (iii) a
video camera.
1.9 "ELECTRONIC P-T-R-M" means, individually, in combination or
collectively, apparatus, equipment, solid state devices, and/or software while
operating to perform: (i) electronic pan and tilt; or (ii) electronic pan, tilt
and magnification or (iii) electronic pan, tilt, magnification and rotation, of
LENS DISTORTED images.
1.10 "OMNIVIEW LICENSED FIELDS" means individually or in combination: (i)
the fields of PHOTOBUBBLES and ELECTRONIC P-T-R-M and (ii) a field covered by at
least one claim of OMNIVIEW PATENTS or FUTURE OMNIVIEW PATENTS issued in any of
the following countries: United States, Germany, United Kingdom, Japan, Canada,
or in the European Patent Organization.
-2-
<PAGE> 3
1.11 "LICENSED OMNIVIEW PRODUCTS" means any device, apparatus, product
and/or OMNIVIEW SOFTWARE that are made, used, or distributed by OMNIVIEW and are
covered by the MOTOROLA PATENTS.
1.12 "EFFECTIVE DATE" shall mean the date of the last necessary signature
hereto as entered on the first page hereof.
Section 2 - RELEASE
2.1 OMNIVIEW and its Subsidiary(ies) hereby release, acquit and forever
discharge MOTOROLA (and those Subsidiary(ies) affiliated with MOTOROLA on the
EFFECTIVE DATE of this Agreement) and their respective distributors, dealers,
customers and users from any and all claims or liability from MOTOROLA's use of
the services of Mr. Zimmerman and/or hiring Mr. Zimmerman, and agrees not to
bring any action or suit based upon improvements related to or advances in
OMNIVIEW technology made by MOTOROLA (and those Subsidiary(ies) affiliated with
MOTOROLA on the EFFECTIVE DATE of this Agreement) prior to the EFFECTIVE DATE.
Section 3 - GRANT
3.1 MOTOROLA and its Subsidiary(ies) hereby grant to OMNIVIEW for the lives
of the MOTOROLA PATENTS, a world-wide, royalty-free, non-exclusive,
non-transferable (except as provided in Section 6) license under the MOTOROLA
PATENTS, with the right to sub-license:
3.1.1 to make and to have made (or to write or have written) LICENSED
OMNIVIEW PRODUCTS in OMNIVIEW LICENSED FIELDS, and
3.1.2 with respect to LICENSED OMNIVIEW PRODUCTS so made (or so written), to
use, import, lease, sell, offer for sale, or otherwise dispose of such LICENSED
OMNIVIEW PRODUCTS in OMNIVIEW LICENSED FIELDS under any trade identity.
Section 4 - MOST FAVORED NATIONS - LIMITED ABILITY TO BLOCK
4.1 If, at any time during the term of this Agreement, OMNIVIEW enters into
another agreement granting:
4.1.1 an exclusive license to another party under the OMNIVIEW PATENTS and/or
FUTURE OMNIVIEW PATENTS, then MOTOROLA shall have a right to receive a
non-exclusive license upon expiration of the exclusive period under terms and
conditions at least as favorable as the most favored terms and conditions
granted to any other party; or
4.1.2 a non-exclusive license to another party under the OMNIVIEW PATENTS
and/or FUTURE OMNIVIEW PATENTS, then MOTOROLA shall have a right to receive a
-3-
<PAGE> 4
non-exclusive license under terms and conditions at least as favorable as the
most favored terms and conditions granted to any other party.
4.2 For any product or service that OMNIVIEW itself provides and does not
make available by license to a third party, MOTOROLA agrees that OMNIVIEW will
not have an obligation under this Agreement to grant to MOTOROLA an exclusive or
non-exclusive license for that same product or service, provided that OMNIVIEW
shall provide to MOTOROLA that same product or service on a most favored nations
basis and at a quality level that is at least equal to the quality level of
products or services provided by OMNIVIEW to others.
4.3 OMNIVIEW may enter into third parties exclusive service relationships
in which OMNIVIEW provides PHOTOBUBBLES in particular limited fields to such
third parties. OMNIVIEW agrees to notify MOTOROLA of all such third party
exclusive service relationships after the execution of such and identify the
exclusive field of service. After the term of exclusivity, OMNIVIEW agrees not
to enter into any further exclusive service relationships for that same
particular limited field without the prior written consent of MOTOROLA.
4.4 OMNIVIEW agrees that all exclusive service relationships entered into
by OMNIVIEW and its Subsidiary(ies) to third parties after the EFFECTIVE DATE of
this Agreement:
4.4.1 will be for a total term of exclusivity of two years or less from the
EFFECTIVE DATE thereof: and
4.4.2 will not have an option permitting renewal of exclusivity unless agreed
in writing by MOTOROLA on a case-by-case basis.
4.5 OMNIVIEW may grant to third parties one-time exclusive licenses for any
equipment and/or software product. OMNIVIEW agrees to notify MOTOROLA of all
third party exclusive licenses after the execution of such and identify the
exclusively licensed equipment and/or software product. Thereafter, OMNIVIEW
agrees not to grant any further exclusive licenses for that same equipment
and/or software product to any other party affiliated with a prior exclusively
licensed party without MOTOROLA's prior written consent.
4.6 OMNIVIEW agrees that all exclusive licenses granted by OMNIVIEW and its
Subsidiary(ies) to third parties for any equipment and/or software products
after the EFFECTIVE DATE of this Agreement:
4.6.1 will be for a total term of exclusivity of one year or less from the
EFFECTIVE DATE thereof; and
-4-
<PAGE> 5
4.6.2 will not have an option permitting renewal of exclusivity unless agreed
in writing by MOTOROLA on a case-by-case basis.
4.7 MOTOROLA acknowledges that OMNIVIEW has granted or committed to grant
prior to the EFFECTIVE DATE of this Agreement, certain exclusive licenses listed
in Exhibit 1 under the OMNIVIEW PATENTS, and that such licenses are governed by
Paragraphs 4.5 and 4.6, but are not governed by Paragraphs 4.3 and 4.4,
provided, however, that the exclusive license to Discovery Communications set
forth in Exhibit 1 shall not be governed by Paragraphs 4.5 and 4.6.
4.8 Consent required from MOTOROLA under this Section 4, shall not be
unreasonably withheld and such consent shall be deemed to have been given if
MOTOROLA does not refuse to give consent within thirty (30) days from receipt of
OMNIVIEW's written notice for request for such consent in accordance with
Section 9.14.
Section 5 - REPORTS AND NOTICE OF LICENSING ACTIVITY
5.1 OMNIVIEW shall provide MOTOROLA with a monthly report setting forth all
ongoing negotiations for exclusive and non-exclusive licenses, identifying the
party and including a description of the proposed terms of such licenses for the
products, software, or services under discussion.
5.2 OMNIVIEW shall provide notice to MOTOROLA of any wholesale or
commercial release of third party products licensed by OMNIVIEW of which
OMNIVIEW is or becomes aware.
Section 6 - TERM, TERMINATION AND ASSIGNABILITY
6.1 The term of this Agreement shall be from the EFFECTIVE DATE through the
entire unexpired term of the MOTOROLA PATENTS licensed herein unless otherwise
terminated as provided herein.
6.2 In the event of any material breach of this Agreement by either party
hereto, if such breach is not corrected within thirty (30) days after written
notice of intent to terminate for breach to the breaching party describing such
breach, this Agreement may be terminated forthwith by further written notice to
that effect from the party noticing the breach. In the event of termination of
this Agreement by one party pursuant to this Section 6.3, the licenses and
rights granted to or for the benefit of that one party hereto, depending upon
which party is doing the terminating, shall survive such termination and shall
extend for the full term of this Agreement, but the licenses and rights granted
to or for the benefit of the breaching party shall terminate as of the date
termination takes effect. Except for sublicenses under the MOTOROLA PATENTS
granted to OMNIVIEW and its Subsidiary(ies), termination of this Agreement shall
not affect any rights of sublicenses granted prior to the notice of intent to
terminate.
-5-
<PAGE> 6
6.3 SUCCESSORS shall be entitled to assume all rights, benefits,
responsibilities and obligations of this Agreement by sending written notice to
the other party, and this Agreement shall thereafter be interpreted by replacing
the SUCCESSORS name for the name of the acquired party.
6.4 SUBSIDIARY(IES) shall be entitled to receive all rights and benefits of
this Agreement by sending written notice to the other party, and this Agreement
shall thereafter be interpreted by including the name of such SUBSIDIARY(IES)
with the name of the party with which the SUBSIDIARY(IES) are affiliated. Each
party shall remain directly responsible for the performance by SUBSIDIARY(IES)
of the responsibilities and obligations of this Agreement.
6.5 OMNIVIEW may exercise its right to sublicense a third party by sending
written notice to MOTOROLA of the name, address, and other relevant contact
information for the third party sublicensee.
6.6 Except as provided in Paragraphs 6.3 through 6.5, neither this
Agreement nor any of its benefits, rights, privileges, or obligations hereunder
shall be directly or indirectly assigned, transferred, divided, shared or
sublicensed by either party to or with any individual, firm, corporation or
association whatsoever without the prior written consent of the other party and
with the authorization or approval of any governmental authority as then may be
required.
Section 7 - PUBLICITY
7.1 Nothing in this Agreement shall be construed as conferring upon either
party the right to include in advertising, packaging or other commercial
activity and reference to the other party, its trademarks, trade names, service
marks, or other trade identity in a manner likely to cause confusion.
7.2 Either party may disclose the existence of this Agreement, but shall
otherwise keep the terms of this Agreement confidential and shall not now or
hereafter divulge any part thereof to any third party except:
7.2.1 with the prior written consent of the other party; or
7.2.2 to any governmental body having jurisdiction to request and to read the
same; or
7.2.3 as otherwise may be required by law or legal processes; or
7.2.4 to legal counsel representing either party; or
7.2.5 to SUBSIDIARY(IES) and potential SUCCESSORS provided that, in case of
any divulgence pursuant to this Section 7.2.5, to the extent permissible by law,
such
-6-
<PAGE> 7
divulging party shall impose equivalent confidentiality obligations on the
recipient in writing prior to such divulgence; or
7.2.6 to potential investors provided that, in case of any divulgence
pursuant to this Section 7.2.6, to the extent permissible by law, such divulging
party shall impose equivalent confidentiality obligations on the recipient in
writing prior to such divulgence; or
7.2.7 to actual or potential third party licensees or sublicensees, provided
that, in case of any divulgence pursuant to this Section 7.2.7, to the extent
permissible by law, such divulging party shall impose equivalent confidentiality
obligations on the recipient in writing prior to such divulgence.
7.3 The parties agree that any press release concerning this Agreement
shall be mutually agreed and jointly made.
Section 8 - WARRANTIES
8.1 Each party warrants that it has the requisite authority to convey the
rights granted herein.
8.2 OMNIVIEW warrants that there are no exclusive licenses or rights to
obtain exclusive licenses other than those listed in Exhibit 1.
8.3 MOTOROLA represents that, as of the EFFECTIVE DATE of this Agreement,
it has no present intention to assign its employees Mr. Denis Colomb or Mr.
Steven Zimmerman to work for MOTOROLA in the LICENSED OMNIVIEW FIELDS.
Section 9 - MISCELLANEOUS PROVISIONS
9.1 Nothing contained in this Agreement shall be construed as :
9.1.1 restricting the right of either party or any of its SUBSIDIARY(IES) to
make, use, sell, lease or otherwise dispose of any particular product or
products not herein licensed;
9.1.2 CONFERRING ANY LICENSE OR OTHER RIGHT, BY IMPLICATION, ESTOPPEL OR
OTHERWISE, UNDER ANY PATENT, PATENT APPLICATION, PATENT RIGHT OR TECHNOLOGY,
EXCEPT AS HEREIN EXPRESSLY GRANTED UNDER THIS AGREEMENT;
9.1.3 conferring any license or right with respect to any trademark, trade or
brand name, a corporate name of either party or any of their respective
SUBSIDIARY(IES), or any other name or mark, or contraction, abbreviation or
simulation thereof;
-7-
<PAGE> 8
9.1.4 imposing on either party any obligation to institute any suit or action
for infringement of any patents licensed hereunder, or to defend any suit or
action brought by a third party which challenges or concerns the validity of any
patents licensed under this Agreement;
9.1.5 a warranty or representation by either party that any manufacture, use,
sale, lease or other disposition of any product or service offered by it will be
free from infringement of any patent other than the patents licensed to it
herein;
9.1.6 imposing on either party any obligation to file any patent application
or to secure any patent or maintain any patent in force;
9.1.7 an obligation on either party to furnish any manufacturing or technical
information under this Agreement except as the same is specifically provided for
herein.
9.2 No express or implied waiver by either of the parties to this Agreement
of any breach of any term, condition or obligation of this Agreement by the
other party shall be construed as a waiver of any subsequent breach of that
term, condition or obligation or of any other term, condition or obligation of
this Agreement of the same or of a different nature.
9.3 Anything contained in this Agreement to the contrary notwithstanding,
the obligations of the parties hereto shall be subject to all laws, both present
and future, of any Government having jurisdiction over either party hereto, and
to orders or regulations of any such Government, or any department, agency, or
court thereof, and acts of war, acts of public enemies, strikes, or other labor
disturbances, fires, floods, acts of God, or any causes of like or different
kind beyond the control of the parties, and the parties hereto shall be excused
from any failure to perform any obligation hereunder to the extent such failure
is caused by any such law, order, regulation, or contingency but only so long as
said law, order, regulation or contingency continues.
9.4 Either party may make improvements on the other party's technology or
make inventions in the other party's area of present, prospective, or
anticipated business, and may file patent applications on such improvement or
inventions as set forth in this Section 9 so long as any such patent
applications do not disclose any confidential information of the other party.
Unless otherwise already granted by this Agreement, neither party shall have an
obligation to license any patent, patent application, or like right related to
such improvement or invention to the other party and no such license or other
right shall be conferred by implication, estoppel or otherwise.
9.5 This Agreement is the result of negotiation between the parties and,
accordingly, shall not be construed for or against either party regardless of
which party drafted this Agreement or any portion thereof.
-8-
<PAGE> 9
9.6 Section 1, 2, 7, 8, and 9 shall survive termination of this Agreement
for any cause.
9.7 Nothing in this Agreement shall be construed as creating a partnership,
joint venture, or other formal business organization of any kind.
9.8 IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY BY REASON
OF THIS AGREEMENT OR ANY BREACH OR TERMINATION OF THIS AGREEMENT FOR ANY LOSS OF
PROSPECTIVE PROFITS OR INCIDENTAL OR SPECIAL OR CONSEQUENTIAL DAMAGES.
9.9 The captions used in this Agreement are for convenience only, and are
not to be used in interpreting the obligations of the parties under this
Agreement.
9.10 This Agreement and the performance of the parties hereunder shall be
construed in accordance with and governed by the laws of the State of Tennessee,
United States of America.
9.11 If any term, clause, or provision of this Agreement shall be judged to
be invalid, the validity of any other term, clause, or provision shall not be
affected; and such invalid term, clause, or provision shall be deemed deleted
from this Agreement.
9.12 MOTOROLA and OMNIVIEW will attempt to settle any claim or controversy
arising out of this Agreement through negotiation or a form of non-binding
mediation prior to commencement of court proceedings. Any dispute which cannot
be resolved between MOTOROLA and OMNIVIEW through negotiation or mediation
within two (2) months of the date of the initial demand for it by either
MOTOROLA and OMNIVIEW may then be submitted to any court having proper
jurisdiction over the matter and the parties.
9.13 This Agreement sets forth the entire Agreement and understanding
between the parties as to the subject matter hereof and merges all prior
discussions between them, and neither of the parties shall be bound by any
conditions, definitions, warranties, understanding or representations with
respect to such subject matter other that as expressly provided herein or as
duly set forth on or subsequent to the date hereof in writing and signed by a
proper and duly authorized official of the party to be bound thereby.
9.14 All notices required or permitted to be given hereunder shall be in
writing and shall be valid and sufficient if dispatched by registered mail,
postage prepaid, in any post office in the United States, addressed as follows:
-9-
<PAGE> 10
9.14.1 If to MOTOROLA:
Motorola Inc.
1303 East Algonquin Road
Schaumburg, Illinois 60196
Attention: Vice President for
Patents, Trademarks & Licensing
RE: MultiMedia Group
9.14.2 If to OMNIVIEW:
Omniview, Inc.
7325 Oak Ridge Highway
Knoxville, TN 37931-3476
Attention: Chief Executive Officer
9.14.3 The date of receipt of such a notice shall be the date for the
commencement of the running of the period provided for in such notice, or the
date at which such notice takes effect, as the case may be.
9.15 No amendment or modification of this Agreement shall be valid or
binding upon the parties unless signed by their respective, duly authorized
officers. In the case of MOTOROLA, a duly authorized officer is a Board elected
(Corporate) Vice President or superior officer having obtained any requisite
Technology Transfer Review Board or other Corporate approvals. In the case of
OMNIVIEW, a duly authorized officer is the President.
IN WITNESS WHEREOF, each party hereto has caused this Agreement to be executed
in duplicate by its duly authorized representative(s):
Motorola, Inc. Omniview, Inc.
By: /s/ John W. Battin By: /s/ H. Lee Martin
------------------------------- -----------------------------
Title: Senior Vice President and Title: President
---------------------------- --------------------------
General Manager, MultiMedia
Group
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<PAGE> 11
EXHIBIT 1
CURRENT EXCLUSIVE LICENSED FIELDS
<TABLE>
<CAPTION>
EXCLUSIVE RENEWABLE
FIELD OF USE EXPIRES TERM
------------ --------- ---------
<S> <C> <C> <C>
1. Discovery (as defined in January 17, 1997 draft license).
Communications "Topic
Linked PhotoBubbles" as
defined in January 17,
1997 draft license.
2. Resort Condominiums 11/97 11/98
International, Inc.
"Timeshare
PhotoBubbles"
</TABLE>
<PAGE> 12
SIDE LETTER TO
MOTOROLA/OMNIVIEW
PATENT LICENSE AGREEMENT
As acknowledged by the signatures of the duly authorized representatives of the
parties hereinbelow, the terms and conditions of this side letter are agreed
upon in consideration of and in furtherance of the above-referenced agreement
between MOTOROLA and OMNIVIEW.
1. Terms appearing in all capital letters in the text of this Side Letter
shall have the meaning as set forth in above-referenced agreement.
2. That certain license agreement effective as of February 4, 1994,
between MOTOROLA and OMNIVIEW is agreed to be terminated without breach by
either party as of the EFFECTIVE DATE of the above-reference agreement.
3. MOTOROLA, after due investigation, believes that Dr. H. Lee Martin to
be a prior inventor to claims 1, 2, 7-14, 19, and 20 of MOTOROLA's U.S. Patent
No. 5,489,940, and accordingly, on or before February 3, 1997, MOTOROLA will
file in the United States Patent & Trademark Office a written disclaimer of
claims 1, 2, 7-14, 19, and 20 of U.S. Patent No. 5,489,940.
4. MOTOROLA agrees to place in the file folders of the MOTOROLA PATENTS
pending as of the EFFECTIVE DATE, a legend requesting notification to OMNIVIEW
prior to the complete abandonment thereof (i.e., for which a continuing
application is not filed), and the opening of good faith discussions to transfer
to OMNIVIEW the abandoned application, however, MOTOROLA shall have no liability
whatsoever should the notification or discussions not take place for any reason.
5. This Side Letter will survive the termination or expiration of the
above-referenced agreement for any cause.
In Witness Whereof, each party hereto has caused this Side Letter to be executed
by its duly authorized representative:
OMNIVIEW
By: /s/ H. Lee Martin
--------------------------------
Typed Name: H. Lee Martin
Title: President
Date: Jan. 17, 1997
MOTOROLA
By: /s/ John W. Battin
--------------------------------
Typed Name: John W. Battin
Title: Senior Vice President and General Manager, Multi-Media Group
Date: Jan. 17, 1997
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EXHIBIT 10.8
INTERACTIVE PICTURES CORPORATION
1997 EQUITY COMPENSATION PLAN
The purpose of the Interactive Pictures Corporation 1997 Equity
Compensation Plan (the "Plan") is to provide (i) designated employees (including
employees who are also officers or directors) of Interactive Pictures
Corporation (the "Company") and its subsidiaries, (ii) certain consultants and
advisors to the Company or its subsidiaries and (iii) non-employee members of
the Board of Directors of the Company (the "Board") with the opportunity to
receive grants of incentive stock options and nonqualified stock options
("Options"). The Company believes that the Plan will encourage the participants
to contribute materially to the growth of the Company, thereby benefitting the
Company's shareholders, and will align the economic interests of the
participants with those of the shareholders.
1. Administration
(a) The Plan may be administered by the Board or by a committee
(the "Committee") or two or more directors appointed by the Board. If no
administrative committee is appointed, all references in the Plan to the
"Committee" shall be deemed to refer to the Board. All actions of the Committee
shall be subject to ratification by the Board.
(b) The Committee shall have the sole authority to (i) determine
the individuals to whom Options shall be granted under the Plan, (ii) determine
the type, size and terms of the Options to be granted to each such individual,
(iii) determine the time when the Options will be granted and the duration of
any applicable exercise period, including the criteria for exercisability and
the acceleration of exercisability and (iv) deal with any other matters arising
under the Plan.
(c) The Committee shall have full power and authority to
administer and interpret the Plan, to make factual determinations and to adopt
or amend such rules, regulations, agreements and instruments for implementing
the Plan and for the conduct of its business as it deems necessary or advisable,
in its sole discretion. The Committee's interpretations of the Plan and all
determinations made by the Committee pursuant to the powers vested in it
hereunder shall be conclusive and binding on all persons having any interest in
the Plan or in any awards granted hereunder. All powers of the Committee shall
be executed in its sole discretion, in the best interest of the Company, not as
a fiduciary, and in keeping with the objectives of the Plan and need not be
uniform as to similarly situated individuals.
2. Options
Options granted under the Plan may be incentive stock options
("Incentive Stock Options") or nonqualified stock options ("Nonqualified Stock
Options") as described in Section 5. All Options shall be subject to the terms
and conditions set forth herein and to such other terms and conditions
consistent with the Plan as the Committee deems appropriate and as are specified
in writing by the
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Committee to the individual in a grant instrument (the "Grant Instrument") or an
amendment to the Grant Instrument. The Committee shall approve the form and
provisions of each Grant Instrument.
3. Shares Subject to the Plan
(a) Subject to the adjustment specified below, the aggregate
number of shares of common stock of the Company ("Company Stock") that may be
issued under the Plan is 5,876,560 shares. The shares may be authorized but
unissued shares of Company Stock or reacquired shares of Company Stock,
including shares purchased by the Company on the open market for purposes of the
Plan. If and to the extent Options granted under the Plan terminate, expire, or
are canceled, forfeited, exchanged or surrendered without having been exercised,
the shares subject to such Options shall again be available for purposes of the
Plan.
(b) If there is any change in the number or kind of shares of
Company Stock outstanding (i) by reason of a stock dividend, spin off,
recapitalization, stock split, or combination or exchange of shares, (ii) by
reason of a merger, reorganization or consolidation in which the Company is the
surviving corporation, (iii) by reason of a reclassification or change in par
value, or (iv) by reason of any other extraordinary or unusual event affecting
the outstanding Company Stock as a class without the Company's receipt of
consideration, or if the value of outstanding shares of Company Stock is
substantially reduced as a result of a spinoff or the Company's payment of an
extraordinary dividend or distribution, the maximum number of shares of Company
Stock available for Options, the maximum number of shares of Company Stock for
which any individual participating in the Plan may receive Options in any year,
the number of shares covered by outstanding Options, the kind of shares issued
under the Plan, and the price per share of such Options shall be appropriately
adjusted by the Committee to reflect any increase or decrease in the number of,
or change in the kind or value of, issued shares of Company Stock to preclude,
to the extent practicable, the enlargement or dilution of rights and benefits
under such Options; provided, however, that any fractional shares resulting from
such adjustment shall be eliminated. Any adjustments determined by the Committee
shall be final, binding and conclusive.
4. Eligibility for Participation
(a) All employees of the Company and its subsidiaries
("Employees"), including Employees who are officers or members of the Board, and
members of the Board who are not Employees ("Non-Employee Directors") shall be
eligible to participate in the Plan. Consultants and advisors who perform
services to the Company or any of its subsidiaries ("Key Advisors") shall be
eligible to participate in the Plan if the Key Advisors render bona fide
services and such services are not in connection with the offer or sale of
securities in a capital-raising transaction.
(b) The Committee shall select the Employees, Non-Employee
Directors and Key Advisors to receive Options and shall determine the number of
shares of Company Stock subject to a particular grant in such manner as the
Committee determines. The Board must approve the grant and terms of any Options
granted to Non-Employee Directors and to any other directors who are
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members of the Committee. Employees, Key Advisors and Non-Employee Directors who
receive Options under this Plan shall hereinafter be referred to as "Grantees".
5. Granting of Options
(a) Number of Shares. The Committee shall determine the number of
shares of Company Stock that will be subject to each grant of Options to
Employees, Non-Employee Directors and Key Advisors, subject to approval of the
Board with respect to Options granted to Non-Employee Directors or members of
the Committee.
(b) Type of Option and Price.
(i) The Committee may grant Incentive Stock Options that
are intended to qualify as "incentive stock options" within the meaning of
section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
Nonqualified Stock Options that are not intended so to qualify, or any
combination of Incentive Stock Options and Nonqualified Stock Options, all in
accordance with the terms and conditions set forth herein. Incentive Stock
Options may be granted only to Employees. Nonqualified Stock Options may be
granted to Employees, Non-Employee Directors and Key Advisors.
(ii) The purchase price (the "Exercise Price") of Company
Stock subject to an Option shall be determined by the Committee and may be equal
to, greater than, or less than the Fair Market Value (as defined below) of a
share of such Stock on the date the Option is granted; provided, however, that
(x) the Exercise Price of an Incentive Stock Option shall be equal to, or
greater than, the Fair Market Value of a share of Company Stock on the date the
Incentive Stock Option is granted, (y) an Incentive Stock Option may not be
granted to an Employee who, at the time of grant, owns stock possessing more
than 10 percent of the total combined voting power of all classes of stock of
the Company or any parent or subsidiary of the Company, unless the Exercise
Price per share is not less than 110% of the Fair Market Value of Company Stock
on the date of grant and (z) in no circumstances will the Exercise Price be less
than 90% of the per share price of a share of Company Stock established in the
stock placement transaction immediately preceding such determination.
(iii) If Company Stock is publicly traded, then the Fair
Market Value per share shall be determined as follows: (x) if the principal
trading market for the Company Stock is a national securities exchange or the
Nasdaq National Market, the last reported sale price thereof on the relevant
date or, if there were no trades on that date, the latest preceding date upon
which a sale was reported, or (y) if the Company Stock is not principally traded
on such exchange or market, the mean between the last reported "bid" and "asked"
prices of Company Stock on the relevant date, as reported on Nasdaq or, if not
so reported, as reported by the National Daily Quotation Bureau, Inc. or as
reported in a customary financial reporting service, as applicable and as the
Committee determines. If the Company Stock is not publicly traded or, if
publicly traded, not subject to reported
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transactions or "bid" or "asked" quotations as set forth above, the Fair Market
Value per share shall be as determined by the Committee.
(c) Option Term. The Committee shall determine the term of each
Option, subject to approval of the Board with respect to Options granted to
Non-Employee Directors or members of the Committee. The term of any Option shall
not exceed ten years from the date of grant. However, an Incentive Stock Option
that is granted to an Employee who, at the time of grant, owns stock possessing
more than 10 percent of the total combined voting power of all classes of stock
of the Company, or any parent or subsidiary of the Company, may not have a term
that exceeds five years from the date of grant.
(d) Exercisability of Options. Options shall become exercisable in
accordance with such terms and conditions, consistent with the Plan, as may be
determined by the Committee and specified in the Grant Instrument or an
amendment to the Grant Instrument, subject to approval of the Board with respect
to Options granted to Non-Employee Directors or members of the Committee. The
Committee may accelerate the exercisability of any or all outstanding Options at
any time for any reason.
(e) Termination of Employment, Disability or Death.
(i) Except as provided below, an Option may only be
exercised while the Grantee is employed by, or providing service to, the Company
as an Employee, Key Advisor or member of the Board. In the event that a Grantee
ceases to be employed by, or provide service to, the Company for any reason
other than "disability", death, or "termination for cause", any Option which is
otherwise exercisable by the Grantee shall terminate unless exercised within 90
days of the date on which the Grantee ceases to be employed by, or provide
service to, the Company (or within such other period of time as may be specified
by the Committee), but in any event no later than the date of expiration of the
Option term. Unless otherwise specified by the Committee, any of the Grantee's
Options that are not otherwise exercisable as of the date on which the Grantee
ceases to be employed by the Company shall terminate as of such date.
(ii) In the event the Grantee ceases to be employed by, or
provide service to, the Company on account of a "termination for cause" by the
Company, any Option held by the Grantee shall terminate as of the date the
Grantee ceases to be employed by, or provide service to, the Company.
(iii) In the event the Grantee ceases to be employed by, or
provide service to, the Company because the Grantee is "disabled", any Option
which is otherwise exercisable by the Grantee shall terminate unless exercised
within one year after the date on which the Grantee ceases to be employed by, or
provide service to, the Company (or within such other period of time as may be
specified by the Committee), but in any event no later than the date of
expiration of the Option term. Any of the Grantee's Options which are not
otherwise exercisable as of the date on which the
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Grantee ceases to be employed by, or provide service to, the Company shall
terminate as of such date.
(iv) If the Grantee dies while employed by, or providing
service to, the Company or within 90 days after the date on which the Grantee
ceases to be employed, or provide service, on account of a termination of
employment or service specified in Section 5(e)(i) above (or within such other
period of time as may be specified by the Committee), any Option that is
otherwise exercisable by the Grantee shall terminate unless exercised within one
year after the date on which the Grantee ceases to be employed by, or provide
service to, the Company (or within such other period of time as may be specified
by the Committee), but in any event no later than the date of expiration of the
Option term. Any of the Grantee's Options that are not otherwise exercisable as
of the date on which the Grantee ceases to be employed by, or provide service
to, the Company shall terminate as of such date.
(v) For purposes of this Section 5(e):
(A) The term "Company" shall mean the Company
and its parent and subsidiary corporations.
(B) "Employed by, or providing service to, the
Company" shall mean employment as an Employee or the provision of
services to the Company as a Key Advisor or member of the Board (so
that, for purposes of exercising Options, a Grantee shall not be
considered to have terminated employment or ceased to provide services
until the Grantee ceases to be an Employee, Key Advisor and member of
the Board).
(C) "Disability" shall mean a Grantee's becoming
disabled within the meaning of section 22(e)(3) of the Code.
(D) "Termination for cause" shall mean a finding
by the Committee that the Grantee has breached his or her employment or
service contract with the Company, or has been engaged in disloyalty to
the Company, including, without limitation, fraud, embezzlement, theft,
commission of a felony or proven dishonesty in the course of his or her
employment or service, or has disclosed trade secrets or confidential
information of the Company to persons not entitled to receive such
information. In the event a Grantee's employment or service is
terminated for cause, in addition to the immediate termination of all
Options, the Grantee shall automatically forfeit all shares underlying
any exercised portion of an Option for which the Company has not yet
delivered the share certificates, upon refund by the Company of the
Exercise Price paid by the Grantee for such shares.
(f) Exercise of Options. A Grantee may exercise an Option that has
become exercisable, in whole or in part, by delivering a notice of exercise to
the Company with payment of the Exercise Price. The Grantee shall pay the
Exercise Price for an Option (i) in cash, (ii) by delivering shares of Company
Stock owned by the Grantee (including Company Stock acquired in connection with
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the exercise of an Option, subject to such restrictions as the Committee deems
appropriate) and having a Fair Market Value on the date of exercise equal to the
Exercise Price or (iii) by such other method as the Committee may approve,
including payment through a broker in accordance with procedures permitted by
Regulation T of the Federal Reserve Board. Shares of Company Stock used to
exercise an Option shall have been held by the Grantee for the requisite period
of time to avoid adverse accounting consequences to the Company with respect to
the Option. The Grantee shall pay the Exercise Price and the amount of any
withholding tax due (pursuant to Section 6) at the time of exercise. Shares of
Company Stock shall not be issued upon exercise of an Option until the Exercise
Price is fully paid and any required withholding is made.
(g) Limits on Incentive Stock Options. Each Incentive Stock Option
shall provide that, if the aggregate Fair Market Value of the stock on the date
of the grant with respect to which Incentive Stock Options are exercisable for
the first time by a Grantee during any calendar year, under the Plan or any
other stock option plan of the Company or a parent or subsidiary, exceeds
$100,000, then the option, as to the excess, shall be treated as a Nonqualified
Stock Option. An Incentive Stock Option shall not be granted to any person who
is not an Employee of the Company or a parent or subsidiary (within the meaning
of section 424(f) of the Code). If and to the extent that an Option designated
as an Incentive Stock Option fails so to qualify under the Code, the Option
shall remain outstanding according to its terms as a Nonqualified Stock Option.
6. Withholding of Taxes
(a) Required Withholding. All Options under the Plan shall be
granted subject to any applicable federal (including FICA), state and local tax
withholding requirements. The Company shall have the right to deduct from wages
paid to the Grantee any federal, state or local taxes required by law to be
withheld with respect to Options, or the Company may require the Grantee or
other person receiving such shares to pay to the Company the amount of any such
taxes that the Company is required to withhold.
(b) Election to Withhold Shares. If the Committee so permits, a
Grantee may elect to satisfy the Company's income tax withholding obligation
with respect to an Option by having shares withheld up to an amount that does
not exceed the Grantee's maximum marginal tax rate for federal (including FICA),
state and local tax liabilities. The election must be in a form and manner
prescribed by the Committee and shall be subject to the prior approval of the
Committee.
7. Transferability of Options
(a) Except as provided below, only the Grantee or his or her
authorized representative may exercise rights under an Option. A Grantee may not
transfer those rights except by will or by the laws of descent and distribution
or, with respect to Nonqualified Options, if permitted in any specific case by
the Committee in its sole discretion, pursuant to a qualified domestic relations
order (as defined under the Code or Title I of the Employee Retirement Income
Security Act of 1974, as amended, or the rules thereunder). When a Grantee dies,
the representative or other person entitled
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to succeed to the rights of the Grantee ("Successor Grantee") may exercise such
rights. A Successor Grantee must furnish proof satisfactory to the Company of
his or her right to receive the Grant under the Grantee's will or under the
applicable laws of descent and distribution.
(b) Notwithstanding the foregoing, the Committee may provide, in a
Grant Instrument, that a Grantee may transfer Nonqualified Stock Options to
family members or other persons or entities according to such terms as the
Committee may determine.
8. Change of Control of the Company
As used herein, a "Change of Control" shall be deemed to have occurred
if:
(a) After the effective date of the Plan, any "person" (as such
term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes a
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing 35% or more of the
voting power of the then outstanding securities of the Company, except where the
acquisition is approved by the Board;
(b) The shareholders of the Company approve (or, if shareholder
approval is not required, the Board approves) an agreement providing for (i) the
merger or consolidation of the Company with another corporation where the
shareholders of the Company, immediately prior to the merger or consolidation,
will not beneficially own, immediately after the merger or consolidation, shares
entitling such shareholders to a majority of all votes to which all shareholders
of the surviving corporation would be entitled in the election of directors, or
where the members of the Board, immediately prior to the merger or
consolidation, would not, immediately after the merger or consolidation,
constitute a majority of the board of directors of the surviving corporation,
(ii) a sale or other disposition of all or substantially all of the assets of
the Company, or (iii) a liquidation or dissolution of the Company;
(c) Any person has commenced a tender offer or exchange offer for
35% or more of the voting power of the then outstanding shares of the Company;
or
(d) After this Plan is approved by the shareholders of the
Company, directors are elected such that a majority of the members of the Board
shall have been members of the Board for less than two years, unless the
election or nomination for election of each new director who was not a director
at the beginning of such two-year period was approved by a vote of at least
two-thirds of the directors then still in office who were directors at the
beginning of such period.
9. Consequences of a Change of Control
(a) Upon a Change of Control, unless the Committee determines
otherwise, (i) the Company shall provide each Grantee with outstanding Options
written notice of such Change of Control and (ii) all outstanding Options shall
automatically accelerate and become fully exercisable.
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(b) In addition, upon a Change of Control described in
Section 8(b)(i) where the Company is not the surviving corporation (or survives
only as a subsidiary of another corporation), unless the Committee determines
otherwise, all outstanding Options that are not exercised shall be assumed by,
or replaced with comparable options by, the surviving corporation. Any
replacement options shall entitle the Grantee to receive the same amount and
type of securities as the Grantee would have received as a result of the Change
of Control had the Grantee exercised the Options immediately prior to the Change
of Control.
(c) Notwithstanding the foregoing, in the event of a Change of
Control, the Committee may require that Grantees surrender their outstanding
Options in exchange for a payment by the Company, in cash or Company Stock as
determined by the Committee, in an amount equal to the amount by which the then
Fair Market Value of the shares of Company Stock subject to the Grantee's
outstanding Options exceeds the Exercise Price of the Options.
(d) Notwithstanding anything in the Plan to the contrary, in the
event of a Change of Control, the Committee shall not have the right to take any
actions described in the Plan (including without limitation actions described in
Subsection (c) above) that would make the Change of Control ineligible for
pooling of interest accounting treatment or that would make the Change of
Control ineligible for desired tax treatment if, in the absence of such right,
the Change of Control would qualify for such treatment and the Company intends
to use such treatment with respect to the Change of Control.
10. Amendment and Termination of the Plan
(a) Amendment. The Board may amend or terminate the Plan at any
time; provided, however, that if the Company Stock becomes publicly traded, the
Board shall not amend the Plan without shareholder approval if such approval is
required by Section 162(m) of the Code and if Section 162(m) is applicable to
the Plan; and provided further that the Board cannot increase the number of
shares that may be issued under the Plan without the approval of the
shareholders.
(b) Termination of Plan. The Plan shall terminate on the day
immediately preceding the tenth anniversary of its effective date unless
terminated earlier by the Board or unless extended by the Board with the
approval of the shareholders.
(c) Termination and Amendment of Outstanding Options. A
termination or amendment of the Plan that occurs after an Option is granted
shall not materially impair the rights of a Grantee unless the Grantee consents
or unless the Committee acts under Section 17(b). The termination of the Plan
shall not impair the power and authority of the Committee with respect to an
outstanding Option. Whether or not the Plan has terminated, an outstanding
Option may be terminated or modified under Sections 9 and 17(b) or may be
amended by agreement of the Company and the Grantee consistent with the Plan.
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(d) Governing Document. The Plan shall be the controlling
document. No other statements, representations, explanatory materials or
examples, oral or written, may amend the Plan in any manner. The Plan shall be
binding upon and enforceable against the Company and its successors and assigns.
11. Funding of the Plan
This Plan shall be unfunded. The Company shall not be required to
establish any special or separate fund or to make any other segregation of
assets to assure the payment of any Options under this Plan. In no event shall
interest be paid or accrued on any Options.
12. Rights of Participants
Nothing in this Plan shall entitle any Employee, Key Advisor or other
person to any claim or right to be granted an Option under this Plan. Neither
this Plan nor any action taken hereunder shall be construed as giving any
individual any rights to be retained by or in the employ of the Company or any
other employment rights.
13. No Fractional Shares
No fractional shares of Company Stock shall be issued or delivered
pursuant to the Plan or any Option. The Committee shall determine whether cash,
other awards or other property shall be issued or paid in lieu of such
fractional shares or whether such fractional shares or any rights thereto shall
be forfeited or otherwise eliminated.
14. Requirements for Issuance of Shares
No Company Stock shall be issued or transferred in connection with any
Option hereunder unless and until all legal requirements applicable to the
issuance or transfer of such Company Stock have been complied with to the
satisfaction of the Committee. The Committee shall have the right to condition
any Option granted to any Grantee hereunder on such Grantee's undertaking in
writing to comply with such restrictions on his or her subsequent disposition of
such shares of Company Stock as the Committee shall deem necessary or advisable
as a result of any applicable law, regulation or official interpretation thereof
and certificates representing such shares may be legended to reflect any such
restrictions. Certificates representing shares of Company Stock issued under the
Plan will be subject to such stop-transfer orders and other restrictions as may
be applicable under such laws, regulations and interpretations, including any
requirement that a legend or legends be placed thereon.
15. Headings
Section headings are for reference only. In the event of a conflict
between a title and the content of a Section, the content of the Section shall
control.
16. Effective Date of the Plan.
Subject to the approval of the Company's shareholders, this Plan shall
be effective on November 21, 1997.
17. Miscellaneous
(a) Options in Connection with Corporate Transactions and
Otherwise. Nothing contained in this Plan shall be construed to (i) limit the
right of the Committee to grant Options under this Plan in connection with the
acquisition, by purchase, lease, merger, consolidation or otherwise, of the
business or assets of any corporation, firm or association, including options
granted to employees thereof who become Employees of the Company, or for other
proper corporate purpose, or (ii) limit the right of the Company to grant stock
options or make other awards outside of this Plan. Without limiting the
foregoing, the Committee may grant Options to an employee of another corporation
who becomes an Employee by reason of a corporate merger, consolidation,
acquisition of stock or property, reorganization or liquidation involving the
Company or any of its
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subsidiaries in substitution for a stock option or restricted stock grant made
by such corporation. The Committee shall prescribe the provisions of the
substitute Options.
(b) Compliance with Law. The Plan, the grant and exercise of
Options, and the obligations of the Company to issue or transfer shares of
Company Stock under Options shall be subject to all applicable laws and to
approvals by any governmental or regulatory agency as may be required. The
Committee may revoke any Grant if it is contrary to law or modify a Grant to
bring it into compliance with any valid and mandatory government regulation. The
Committee may also adopt rules regarding the withholding of taxes on payments to
Grantees. The Committee may, in its sole discretion, agree to limit its
authority under this Section.
(c) Ownership of Stock. A Grantee or Successor Grantee shall have
no rights as a shareholder with respect to any shares of Company Stock covered
by an Option until the shares are issued or transferred to the Grantee or
Successor Grantee on the stock transfer records of the Company.
(d) Governing Law. The validity, construction, interpretation and
effect of the Plan and Grant Instruments issued under the Plan shall exclusively
be governed by and determined in accordance with the law of the State of
Tennessee.
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EXHIBIT 10.9
MARKETING AGREEMENT
This Marketing Agreement (hereinafter referred to as the "Agreement")
is effective as of the 22nd day of March, 1999, (the "Effective Date") by and
between INTERACTIVE PICTURES CORPORATION, a Tennessee corporation, (hereinafter
referred to as the "Company") and GE CAPITAL EQUITY INVESTMENTS, INC., a
Delaware corporation, (hereinafter referred to as "GE Capital").
RECITALS
WHEREAS, the Company engages in the business of designing, developing
and selling software, hardware systems and related products that create
interactive immersive images that provide users a complete field of view (the
"Products");
WHEREAS, the Company desires wide distribution of its Products;
WHEREAS, GE Capital and the Company desire to enter into this Agreement
in which GE Capital will provide the Company assistance in developing and
implementing a marketing plan (the "Marketing Program");
WHEREAS, GE Capital will pay up to $500,000 pursuant to the terms of
this Agreement; and
WHEREAS, simultaneously herewith, the Company is issuing to GE Capital
warrants to purchase 650,000 shares of the Company's Series D Preferred Stock,
such warrants to be exercisable upon Development Completion and Execution
Completion (as such terms are defined below) of the Marketing Program and
otherwise as more fully described herein.
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. MARKETING PROGRAM.
(a) GE Capital and the Company shall work together in
good faith to develop, within six (6) months from the date hereof, a marketing
program consisting of newspaper, internet and/or magazine advertisements
featuring the Company and/or its Products and co-branded with the name and/or
logo of GE Capital or its ultimate parent company (the "Marketing Program"). The
execution of the Marketing Program shall be as mutually agreed by the parties,
and no materials shall be produced or released pursuant thereto without the
prior approval of both parties. The Company acknowledges that approval by GE
Capital shall include and require approval from the management of both GE
Capital and its ultimate parent company. The Company further acknowledges that,
prior to permitting use of the name or logo of GE Capital or any of its
affiliates in any publicly available
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material, GE Capital may require the Company to prepare and deliver additional
agreements or documents necessary or appropriate to protect GE Capital's rights
with respect thereto.
(b) The Company consents to the publication by GE Capital
of a "tombstone" or similar advertising material relating to the financial
transaction contemplated in that certain Amended and Restated Series D Stock
Purchase Agreement, dated the date hereof, which may include the Company's name
and business description as well as the size of GE Capital's investment. In
addition, the Company agrees that GE Capital may use the Company's name and logo
on GE Capital's intranet and extranet websites among its list of representative
and portfolio investments and may provide the Company's name and appropriate
individual contacts to certain of GE Capital's portfolio companies for the
purpose of securing supplier discounts or other similar benefits for the
Company. For purposes of this paragraph, GE Capital shall include GE Capital's
ultimate parent company and affiliates.
(c) The warrants to be issued in connection with this
Agreement and the Marketing Program shall become exercisable as follows: (i)
one-half upon the parties completing the development of the Marketing Program
whereby the parties will have agreed to the method by which the Marketing
Program will be executed ("Development Completion") and (ii) one-half upon
committing to place or run the last advertisement of the agreed upon Marketing
Program ("Execution Completion").
2. ADVERTISING ALLOWANCE. GE Capital agrees to fund up to
$500,000 in expenses for execution of the Marketing Program. Such amounts shall
be paid directly by GE Capital to vendors, and GE Capital shall have no
obligations to (i) reimburse the Company for any amount attributable to the
Marketing Program or (ii) pay any third-party vendors any amount with respect to
the Marketing Program except to the extent that the terms of such reimbursement
and payment have been approved in advance by GE Capital. To the extent the
parties are unable to reach Development Completion or Execution Completion of
the Marketing Program within the time period provided by this Agreement (or as
extended by mutual agreement of the parties), any and all costs and expenses
attributable to the Marketing Program shall be borne by the Company, and the
Company shall reimburse GE Capital for any such costs and expenses.
3. COMPENSATION. As compensation for its efforts hereunder, the
Company is issuing to GE Capital warrants to purchase shares of Series D
Preferred Stock in the form of EXHIBIT A attached hereto.
4. CONFIDENTIAL INFORMATION. If any confidential information is
to be exchanged in connection with the marketing activities contemplated by this
Agreement, such information will be exchanged pursuant to, and be subject to the
terms and conditions of, that certain Confidentiality Agreement dated February
11, 1999 between GE Capital and the Company (the "Confidentiality Agreement").
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5. TERM. This Agreement shall commence on the Effective Date and,
unless modified by mutual agreement of the parties, shall terminate on the date
that is (i) one (1) year from the Effective Date of the Agreement or (ii) the
date on which the Marketing Program has been completed, whichever first shall
occur.
6. INDEMNIFICATION.
(a) The Company agrees to indemnify and save harmless GE
Capital and its officers, directors, partners, employees, trustees and agents,
and each person who controls GE Capital within the meaning of the Securities Act
of 1933, as amended or the Securities Exchange Act of 1934, as amended (each, an
"indemnified party"), from and against any and all costs, expenses, damages or
other liabilities resulting from any claim, action, suit or other proceeding
arising out of the transactions contemplated hereby or by the Marketing Program
(other than such costs, expenses, damages or other liabilities resulting,
directly or indirectly, (i) from the breach by GE Capital of any of its
agreements contained herein, (ii) from the gross negligence or willful
misconduct of GE Capital or any of its officers, directors, partners, employees
or agents, or any person who controls GE Capital within the meaning of the
Securities Act or the Exchange Act or (iii) from claims by a third party that
use by the Company of any trademark, logo or trade name of GE Capital or its
ultimate parent company breaches, violates or infringes upon any intellectual
property rights of such third party). So long as the Company has complied with
any instruction, provided by GE Capital regarding the use of such trademark,
logo or trade name; provided, however, that, if and to the extent that such
indemnification is unenforceable for any reason, the Company shall make the
maximum contribution to the payment and satisfaction of such indemnified
liability which shall be permissible under applicable laws.
(b) In order to assert a claim for indemnification
against the Company, the indemnified party shall promptly notify the Company of
such claim in writing. In the case of any third party claim, the indemnified
party under this Section will, promptly after the receipt of notice of the
assertion of any claim or the commencement of any action, suit or proceeding
against such indemnified party in respect of which indemnity may be sought from
the Company on account of an indemnity agreement contained in this Section,
notify the Company in writing of the commencement thereof. The omission of any
indemnified party to so notify the Company of any such breach or claim, action,
suit or proceeding shall not relieve the Company from any liability which it may
have to such indemnified party except to the extent the Company shall have been
prejudiced by the omission of such indemnified party so to notify the Company,
pursuant to this Section. In case any such action, suit or proceeding shall be
brought against any indemnified party and it shall notify the Company of the
commencement thereof, the Company shall be entitled to participate therein and,
to the extent that they may wish, to assume the defense thereof, with counsel
reasonably satisfactory to such indemnified party, and after notice from the
Company to such indemnified party of their election so to assume the defense
thereof, the Company will not be liable to such indemnified party under this
Section for any legal or other expense subsequently incurred by such indemnified
party in connection with the defense thereof nor for any settlement thereof
entered into without the consent of the Company; provided, however, that (i) if
the Company shall
-3-
<PAGE> 4
elect not to assume the defense of such claim or action or (ii) if the
indemnified party reasonably determines (x) that there may be a conflict between
the positions of the Company and of the indemnified party in defending such
claim or action or (y) that there may be legal defenses available to such
indemnified party different from or in addition to those available to the
Company, then separate counsel for the indemnified party shall be entitled to
participate in and conduct the defense, in the case of (i) and (ii)(x), or such
different defenses, in the case of (ii)(y), and the Company shall be liable for
any reasonable legal or other expenses incurred by the indemnified party in
connection with the defense.
7. SCOPE OF RELATIONSHIP. This Agreement is intended solely as a
marketing agreement, and no partnership, joint venture, employment, franchise or
other relationship is created hereby.
8. SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall
inure to the benefit of, and be binding upon, the successors and assigns of the
parties to this Agreement. No party may assign its rights or obligations under
this Agreement without the prior written consent of the other party.
9. GOVERNING LAW; WAIVER OF JURY TRIAL. This Agreement shall be
governed in all respects by the laws of the State of New York in the United
States of America without giving effect to the conflicts of laws principles
thereof. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY
CONSENTS TO SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF
NEW YORK AND OF THE UNITED STATES OF AMERICA, IN EACH CASE LOCATED IN THE COUNTY
OF NEW YORK, FOR ANY ACTION, PROCEEDING OR INVESTIGATION IN ANY COURT OR BEFORE
ANY GOVERNMENTAL AUTHORITY ("LITIGATION") ARISING OUT OF OR RELATING TO THIS
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY (AND AGREES NOT TO COMMENCE
ANY LITIGATION RELATING THERETO EXCEPT IN SUCH COURTS), AND FURTHER AGREES THAT
SERVICE OF ANY PROCESS, SUMMONS, NOTICE OR DOCUMENT BY U.S. REGISTERED MAIL TO
ITS RESPECTIVE ADDRESS SET FORTH IN THIS AGREEMENT SHALL BE EFFECTIVE SERVICE OF
PROCESS FOR ANY LITIGATION BROUGHT AGAINST IT IN ANY SUCH COURT. EACH OF THE
PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY OBJECTION TO
THE LAYING OF VENUE OF ANY LITIGATION ARISING OUT OF THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY IN THE COURTS OF THE STATE OF NEW YORK OR THE
UNITED STATES OF AMERICA, IN EACH CASE LOCATED IN THE COUNTY OF NEW YORK, AND
HEREBY FURTHER IRREVOCABLY AND UNCONDITIONALLY WAIVES AND AGREES NOT TO PLEAD OR
CLAIM IN ANY SUCH COURT THAT ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT NOT PROHIBITED BY
APPLICABLE LAW THAT CANNOT BE WAIVED, EACH OF THE COMPANY AND GE CAPITAL WAIVES,
AND COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR
OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORM IN RESPECT OF ANY ISSUE,
CLAIM OR PROCEEDING ARISING OUT OF THIS
-4-
<PAGE> 5
AGREEMENT OR ANY OTHER AGREEMENT RELATED THERETO OR THE SUBJECT MATTER HEREOF OR
THEREOF, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING AND WHETHER IN
CONTRACT, TORT OR OTHERWISE.
10. ENTIRE AGREEMENT. This Agreement and the Confidentiality
Agreement sets forth the entire agreement between the Company and GE Capital
concerning the subject matter hereof and supersedes all other agreements,
arrangements and understandings, written or oral, concerning such subject
matter. No amendment or modification of this Agreement or any provision hereof
shall be binding upon any party hereto unless such amendment or modification
shall be in writing and signed by each party to this Agreement.
11. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
12. SEVERABILITY. In the event that any provision of this
Agreement becomes or is declared in a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision; provided that no such severability shall be
effective if it materially changes the economic benefit of this Agreement to any
party.
13. TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not considered in construing or
interpreting this Agreement.
-5-
<PAGE> 6
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
INTERACTIVE PICTURES CORPORATION
By: /s/ John J. Kalec
--------------------------------------
Title: Vice President and Chief Financial
Officer
-----------------------------------
GE CAPITAL EQUITY INVESTMENTS, INC.
By: /s/ James Brown
--------------------------------------
Title: Department Operations Manager
-----------------------------------
-6-
<PAGE> 7
EXHIBIT A TO MARKETING AGREEMENT
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"). NO SALE OR DISPOSITION MAY BE EFFECTED WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMPANY OR WITHOUT AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN OPINION OF COUNSEL FOR THE HOLDER, REASONABLY SATISFACTORY
TO COUNSEL TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT
OR RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION.
Date: March 22, 1999
INTERACTIVE PICTURES CORPORATION
a Tennessee corporation
PREFERRED STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, GE CAPITAL EQUITY INVESTMENTS,
INC., a Delaware corporation (hereinafter together with its successors and
assigns, the "Holder"), is entitled, upon the terms and subject to the
conditions hereinafter set forth, to purchase from Interactive Pictures
Corporation, a Tennessee corporation (the "Company"), that number of fully paid
and nonassessable shares of the Company's Series D Preferred Stock at the
purchase price per share as set forth in Section 1 below.
This Warrant is issued in connection with the Marketing Agreement
between the Holder and the Company dated as of the date hereof (the "Marketing
Agreement").
TERMS AND CONDITIONS OF WARRANT
1. Number of Shares; Exercise Price; Term.
(a) The Holder shall be entitled to subscribe for and
purchase 650,000 shares (the "Shares") of the fully paid and nonassessable
Series D Preferred Stock, par value $0.001 per share ("Preferred Stock"), of the
Company at an exercise price of $3.14 per share (the "Exercise Price"). The
number of Shares issuable upon exercise of this Warrant and the Exercise Price
shall be subject to adjustment as hereinafter set forth.
(b) The Holder may exercise one-half of this Warrant
immediately upon Development Completion of the Marketing Program and one-half
immediately upon Execution Completion of the Marketing Program (as each term is
defined in the Marketing Agreement) and at any time thereafter from time to time
prior to the date that is three (3) years after Execution Completion of the
Marketing Program (the "Expiration Date"). GE Capital and the Company shall
<PAGE> 8
execute and deliver a writing upon Execution Completion of the Marketing Program
setting forth the Expiration Date. This Warrant shall expire and cease to be
exercisable after the Expiration Date. Notwithstanding the foregoing, this
Warrant shall expire upon and cease to be exercisable upon the consummation of
the Company's initial public offering registered on Form S-1 (or substitute or
successor form) at a public offering price (prior to underwriter commissions and
expenses) equal to or exceeding $5.00 per share of Common Stock (as adjusted for
any stock dividends, combinations or splits with respect to such shares
occurring after the date of filing of the Articles of Amendment to the Charter
of the Corporation), and the aggregate proceeds to the Corporation (before
deduction for underwriter commissions and expenses relating to the issuance,
including without limitation fees of the Corporation's counsel) of which equal
or exceed $20,000,000 (a "Qualified Public Offering"), but only if the Company
has provided the Holder with at least thirty (30) days' prior written notice of
the expected expiration hereof. In the event the Company shall consummate a
Qualified Public Offering during the term of the Marketing Program and prior to
its Development Completion or Execution Completion, then this Warrant shall
become exercisable in full on the date immediately prior to consummation of the
Qualified Public Offering.
2. Exercise of Warrant.
(a) This Warrant may be exercised by the Holder upon
surrender of this Warrant to the Company at its principal executive office
together with the Notice of Exercise and Investment Representation Statement
annexed hereto as Exhibit A duly completed and executed by the Holder, and
payment to the Company of the aggregate Exercise Price for the Shares to be
purchased. The Holder shall pay the Exercise Price for the Shares (i) in cash or
(ii) by "cashless exercise", that is, the automatic application of shares of
Preferred Stock received upon exercise of a portion of this Warrant (valued, for
purposes of a cashless exercise, at Fair Market Value (defined in Section 2(d)
below)) to satisfy the Exercise Price for additional portions of this Warrant so
exercised. Certificates for the Shares so purchased shall be delivered to the
Holder promptly after exercise of the stock purchase rights represented by this
Warrant. The exercise of this Warrant shall be deemed to have been effected on
the day on which the Holder surrenders this Warrant to the Company and satisfies
all of the requirements of this Section 2. Upon such exercise, the Holder will
be deemed a shareholder of record of those Shares for which the warrant has been
exercised with all rights of a shareholder (including, without limitation, all
voting rights with respect to such Shares and all rights to receive any
dividends with respect to such Shares). If this Warrant is to be exercised in
respect of less than all of the Shares covered hereby, the Holder shall be
entitled to receive a new warrant covering the number of Shares in respect of
which this Warrant shall not have been exercised and for which it remains
subject to exercise. Such new warrant shall be in all other respects identical
to this Warrant.
(b) The issuance of any shares or other securities upon
the exercise of this Warrant, and the delivery of certificates or other
instruments representing such shares or other securities, shall be made without
charge to the Holder for any tax or other charge in respect of such issuance.
The Company shall not, however, be required to pay any tax which may be payable
in respect of any transfer involved in the issue and delivery of any certificate
in a name other than that of the Holder and the Company shall not be required to
issue or deliver any such certificate unless and until the person or persons
requesting the issue thereof shall have paid to the Company the
2
<PAGE> 9
amount of such tax or shall have established to the satisfaction of the Company
that such tax has been paid.
(c) Notwithstanding, and in addition to, the payment
provisions set forth in Section 2(a) above, the Holder may elect to receive
Shares equal to the value of this Warrant (or of any portion thereof remaining
unexercised) by surrender of this Warrant at the principal office of the Company
together with notice of such election, in which event the Company shall issue to
the Holder that number of Shares computed using the following formula:
<TABLE>
<S> <C> <C> <C>
X = Y(A-B)
------
A
Where: X = the number of Shares to be issued to the Holder;
Y = the number of Shares purchasable under
this Warrant (at the date of such
calculation);
A = the Fair Market Value of one Share; and
B = the Exercise Price (at the date of such calculation).
</TABLE>
(d) For purposes of Section 2(a) and 2(c) above, the Fair
Market Value of one Share shall mean that amount determined by the Board of
Directors of the Company, acting in good faith, taking into consideration all
factors it deems appropriate including, without limitation, recent sale and
offer prices of the Capital Stock of the Company in private transactions
negotiated at arm's length.
3. Covenants of the Company. The Company covenants and agrees
that all equity securities which may be issued upon the exercise of the rights
represented by this Warrant, upon issuance and payment therefor in accordance
herewith, will be duly authorized, validly issued, fully paid, and nonassessable
shares of capital stock of the Company. The Company further covenants and agrees
that, during the period within which the stock purchase rights represented by
this Warrant may be exercised, the Company will at all times have duly
authorized and duly reserved for issuance upon the exercise of the purchase
rights evidenced by this Warrant a number of shares of its Capital Stock for
which this Warrant is exercisable sufficient for such issuance.
4. Transfer, Exchange, or Loss of Warrant.
(a) This Warrant may be exchanged, at the option of the
Holder thereof, for another Warrant, or other Warrants of different
denominations, of like tenor and representing in the aggregate the right to
purchase a like number of Shares (or portions thereof), upon surrender to the
Company or its duly authorized agent. This Warrant may not be assigned or
transferred except as provided in this Section 4 and in accordance with and
subject to the provisions of the Securities Act of 1933, as amended, and the
Rules and Regulations promulgated thereunder (collectively, the "Securities
Act"). Any purported transfer or assignment made other than in accordance with
this Section 4 shall be null and void and of no force or effect.
3
<PAGE> 10
(b) Prior to any transfer of this Warrant, other than in
an offering registered under the Securities Act, the Holder shall notify the
Company of its intention to effect such transfer, indicating the circumstances
of the proposed transfer and, upon request, furnish the Company with either an
opinion of its counsel, in form and substance reasonably satisfactory to counsel
for the Company, to the effect that the proposed transfer may be made without
registration under the Securities Act or qualification under any applicable
state securities laws or a "No Action" Letter from the Securities and Exchange
Commission. The Company will promptly notify the Holder if the opinion of
counsel furnished to the Company is reasonably satisfactory to counsel for the
Company. Unless the Company notifies the Holder within ten (10) days after its
receipt of such opinion that such opinion is not satisfactory to counsel for the
Company, the Holder may proceed to effect the transfer. Notwithstanding the
foregoing, the Holder may transfer this Warrant to any affiliate without being
required to comply with the provisions of this paragraph (b).
(c) Unless a registration statement under the Securities
Act is effective with respect to the Shares or any other security issued upon
exercise of this Warrant, the certificate representing such Shares or other
securities shall bear the following legend, in addition to any legend imposed by
applicable state securities laws:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE BEEN ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER
THE SECURITIES ACT, AND THE SHARES MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION, PURSUANT TO RULE 144, IN
COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, OR ANOTHER AVAILABLE
EXEMPTION UNDER THE SECURITIES ACT."
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN
ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE
STOCKHOLDER AND IS SUBJECT TO THE TERMS OF A VOTING AGREEMENT, COPIES OF WHICH
ARE ON FILE WITH THE SECRETARY OF THE COMPANY."
(d) Upon receipt by the Company of satisfactory evidence
of loss, theft, destruction, or mutilation of this Warrant and of indemnity
satisfactory to the Company, and upon surrender and cancellation of this
Warrant, if mutilated, the Company will execute and deliver a new Warrant of
like tenor and date and any such lost, stolen, destroyed or mutilated Warrant
shall thereupon become void. Any such new Warrant executed and delivered shall
constitute an additional contractual obligation on the part of the Company,
whether or not the Warrant so lost, stolen, destroyed, or mutilated shall be at
any time enforceable by anyone.
5. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. In lieu of any fractional share to which such holder would otherwise be
entitled, such holder shall be entitled, at its option, to receive either (i) a
cash payment equal to the excess of the Fair Market Value for such fractional
share above the
4
<PAGE> 11
Exercise Price for such fractional share (as mutually determined by the Company
and the Holder), or (ii) a whole share if the Holder tenders the Exercise Price
for one whole share.
6. No Rights as Shareholders. This Warrant does not entitle the
holder hereof to any voting rights, dividend rights, or other rights as a
shareholder of the Company prior to the exercise hereof.
7. Saturdays, Sundays, Holidays, etc. If the last or appointed
day for the taking of any action or the expiration of any right required or
granted herein shall be a Saturday or a Sunday or shall be a legal holiday, then
such action may be taken or such right may be exercised on the next succeeding
day not a Saturday or a Sunday or a legal holiday.
8. Adjustments. The Exercise Price per Share and the number of
Shares purchasable hereunder shall be subject to adjustment from time to time as
follows:
(a) Merger. If at any time there shall be a merger or
consolidation of the Company with or into another corporation when the Company
is not the surviving corporation, then, as a part of such merger or
consolidation, lawful provision shall be made so that the holder of this Warrant
shall thereafter be entitled to receive upon exercise of this Warrant, during
the period specified herein and upon payment of the aggregate Exercise Price
then in effect, the same number and class of shares of stock or other securities
or property of the successor corporation resulting from such merger or
consolidation, to which a holder of the securities deliverable upon exercise of
this Warrant would have been entitled in such merger or consolidation if this
Warrant had been exercised immediately before such merger or consolidation. In
any such case, appropriate adjustment shall be made in the application of the
provisions of this Warrant with respect to the rights and interests of the
Holder after the merger or consolidation.
(b) Reclassification, etc. If the Company shall, at any
time, by subdivision, combination, or reclassification of securities or
otherwise, change any of the securities as to which purchase rights under this
Warrant exist into the same or a different number of securities of any other
class or classes, the Exercise Price shall be appropriately adjusted and this
Warrant shall thereafter represent the right to acquire such number and kind of
securities as would have been issuable as the result of such change with respect
to the securities which were subject to the purchase rights under this Warrant
immediately prior to such subdivision, combination, reclassification or other
change.
(c) Split, Subdivision or Combination of Shares. If the
Company at any time while this Warrant remains outstanding and unexpired shall
split, subdivide or combine the securities as to which purchase rights under
this Warrant exist, the Exercise Price shall be proportionately decreased in the
case of a split or subdivision or proportionately increased in the case of a
combination, and the number of shares of Preferred Stock or other securities
issuable upon exercise of this Warrant shall also be proportionately adjusted so
that the Holder shall be entitled to receive upon exercise of this Warrant the
aggregate number and kind of shares which, if this Warrant had been exercised
immediately prior to such event, he would have owned upon such exercise and been
entitled to receive by virtue of such event.
5
<PAGE> 12
9. Notice of Adjustments; Notices. Whenever the Exercise Price or
number of Shares issuable upon exercise hereof shall be adjusted pursuant to
Section 8 hereof, or whenever the Company shall propose to pay any dividend or
make any distribution on shares of Preferred Stock in shares of Preferred Stock
or make any other distribution to all holders of Preferred Stock, to issue any
rights, warrants, or other securities to all holders of Preferred Stock
entitling them to purchase any additional shares of Preferred Stock or any other
rights, warrants, or other securities, to effect any liquidation, dissolution,
or winding-up of the Company, or to take any other action which would cause an
adjustment to the Exercise Price, the Company shall issue a written notice
setting forth, in reasonable detail, the event requiring the adjustment, the
amount of the adjustment, the method by which such adjustment was calculated and
the Exercise Price and number of Shares purchasable hereunder after giving
effect to such adjustment, and shall cause a copy of such notice to be mailed to
the holder of this Warrant.
10. Miscellaneous.
(a) Successors and Assigns. This Warrant shall be binding
upon any successors or assigns of the Company.
(b) Governing Law; Waiver of Jury Trial. This Warrant
shall be governed in all respects by the laws of the State of New York in the
United States of America without giving effect to the conflicts of laws
principles thereof. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND
UNCONDITIONALLY CONSENTS TO SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE COURTS
OF THE STATE OF NEW YORK AND OF THE UNITED STATES OF AMERICA, IN EACH CASE
LOCATED IN THE COUNTY OF NEW YORK, FOR ANY ACTION, PROCEEDING OR INVESTIGATION
IN ANY COURT OR BEFORE ANY GOVERNMENTAL AUTHORITY ("LITIGATION") ARISING OUT OF
OR RELATING TO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY (AND
AGREES NOT TO COMMENCE ANY LITIGATION RELATING THERETO EXCEPT IN SUCH COURTS),
AND FURTHER AGREES THAT SERVICE OF ANY PROCESS, SUMMONS, NOTICE OR DOCUMENT BY
U.S. REGISTERED MAIL TO ITS RESPECTIVE ADDRESS SET FORTH IN THIS AGREEMENT SHALL
BE EFFECTIVE SERVICE OF PROCESS FOR ANY LITIGATION BROUGHT AGAINST IT IN ANY
SUCH COURT. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVES ANY OBJECTION TO THE LAYING OF VENUE OF ANY LITIGATION ARISING OUT OF
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY IN THE COURTS OF THE
STATE OF NEW YORK OR THE UNITED STATES OF AMERICA, IN EACH CASE LOCATED IN THE
COUNTY OF NEW YORK, AND HEREBY FURTHER IRREVOCABLY AND UNCONDITIONALLY WAIVES
AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH LITIGATION
BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE
EXTENT NOT PROHIBITED BY APPLICABLE LAW THAT CANNOT BE WAIVED, EACH OF THE
COMPANY AND THE HOLDER WAIVES, AND COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS
PLAINTIFF, DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORM IN
RESPECT OF ANY ISSUE, CLAIM OR PROCEEDING ARISING OUT OF THIS AGREEMENT OR ANY
OTHER AGREEMENT RELATED THERETO OR THE SUBJECT
6
<PAGE> 13
MATTER HEREOF OR THEREOF, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING
AND WHETHER IN CONTRACT, TORT OR OTHERWISE.
(c) Attorneys' Fees. In any litigation, arbitration, or
court proceeding between the Company and the holder relating hereto, the
prevailing party shall be entitled to reasonable attorneys' fees and expenses
incurred in enforcing this Warrant.
(d) Amendments. This Warrant may be amended and the
observance of any term of this Warrant may be waived only with the written
consent of the Company and the Holder.
(e) Notice. Any notice, request, or other communication
required or permitted hereunder shall be in writing and shall be given by
personal delivery, sent by facsimile, or mailed by registered or certified mail,
postage prepaid, or by recognized overnight courier addressed (a) if to the
Holder, at such Holder's address set forth in the Schedule of Purchasers to the
Amended and Restated Stock Purchase Agreement, or (b) as to any subsequent
Holder, the address of such Holder contained in the Company's Warrant Register,
or (c) if to the Company, one copy should be sent to its offices and addressed
to the attention of the President, or at such other address as the Company shall
have furnished to the Holder.
(f) Investor Rights. All Shares issuable upon exercise of
this Warrant are subject to the registration rights provisions of the Amended
and Restated Rights Agreement dated March 22, 1999 (the "Rights Agreement"), as
such agreement may be amended from time to time.
IN WITNESS WHEREOF, the Company has caused this Preferred Stock
Purchase Warrant to be executed by its officer thereunto duly authorized as of
the date first above written.
INTERACTIVE PICTURES CORPORATION
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
7
<PAGE> 14
EXHIBIT A
Notice of Exercise and Investment Representation Statement
NOTICE OF EXERCISE AND
INVESTMENT REPRESENTATION STATEMENT
PREFERRED STOCK PURCHASE WARRANT
To: Interactive Pictures Corporation
1. The undersigned hereby elects to purchase ______________
shares of Series D Preferred Stock ("Stock") of Interactive Pictures Corporation
(the "Company") pursuant to the terms of the attached Warrant, and tenders
herewith payment of the aggregate exercise price therefor and any transfer taxes
payable pursuant to the terms of the Warrant, together with this executed Notice
of Exercise and Investment Representation Statement in form and substance
reasonably satisfactory to legal counsel to the Company.
2. (a) The undersigned is sufficiently aware of the
Company's business affairs and financial condition to reach an informed and
knowledgeable decision to acquire the Stock. The shares of Stock to be received
by the undersigned upon exercise of the Warrant are being acquired for its own
account, not as a nominee or agent, and not with a view to resale or
distribution of any part thereof, and the undersigned has no present intention
of selling, granting any participation in, or otherwise distributing the same.
The undersigned further represents that it does not have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participation to such person or to any third person, with respect to the Stock.
The undersigned believes it has received all the information it considers
necessary or appropriate for deciding whether to purchase the Stock.
(b) The undersigned understands that the Stock has not
been registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of its investment intent as expressed herein. In this connection, the
undersigned understands that, in the view of the Securities and Exchange
Commission (the "SEC"), the statutory basis for such exemption may be
unavailable if its representation was predicated solely upon a present intention
to hold the Stock for the minimum capital gains period specified under tax
statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Stock, or for a period of one year or any other fixed period
in the future.
(c) The undersigned further understands that the Stock
must be held indefinitely unless subsequently registered under the Securities
Act or unless an exemption from registration is otherwise available (such as
Rule 144 under the Securities Act). In addition, the undersigned understands
that the certificate evidencing the Stock may be imprinted with a legend which
prohibits
A-1
<PAGE> 15
the transfer of the Stock unless it is registered or such registration is not
required in the opinion of counsel to the undersigned reasonably satisfactory to
counsel for the Company.
(d) The undersigned is familiar with the provisions of
Rule 144, promulgated under the Securities Act, which, in substance, permits
limited public resale of "restricted securities" acquired, directly or
indirectly, from the issuer thereof (or from an affiliate of such issuer), in a
non-public offering subject to the satisfaction of certain conditions,
including, among other things: (1) The availability of certain public
information about the Company; (2) the resale occurring not less than one year
after the party has purchased, and made full payment for, within the meaning of
Rule 144, the securities to be sold; and, in the case of an affiliate, or of a
non-affiliate who has held the securities less than two years; (3) the sale
being made through a broker in an unsolicited "broker's transaction" or in
transactions directly with a market maker, as said term is defined under the
Securities Exchange Act of 1934 (the "Exchange Act") and the amount of
securities being sold during any three month period not exceeding the specified
limitations stated therein, if applicable. There can be no assurances that the
requirements of Rule 144 will be met, or that the Stock will ever be saleable.
(e) The undersigned further understands that at the time
the undersigned wishes to sell the Stock there may be no public market upon
which to make such a sale, and that, even if such a public market then exists,
the Company may not be satisfying the current public information requirements of
Rule 144, and that, in such event, the undersigned would be precluded from
selling the Stock under Rule 144 even if the one-year minimum holding period had
been satisfied.
(f) The undersigned further understands that in the event
all of the applicable requirements of Rule 144 are not satisfied registration
under the Securities Act, compliance with Regulation A, compliance with some
other registration exemption or the notification to the Company of the proposed
disposition by it and the furnishing to the Company of (i) detailed information
regarding the disposition, and (ii) and opinion of its counsel to the effect
that such disposition will not require registration (the undersigned understands
such counsel's opinion shall concur with the opinion by counsel for the Company
and the undersigned shall have been informed of such compliance) will be
required and that, notwithstanding the fact that Rule 144 is not exclusive, the
Staff of the SEC has expressed its opinion that persons proposing to sell
private placement securities other than in a registered offering and otherwise
than pursuant to Rule 144 will have a substantial burden of proof in
establishing that an exemption from registration is available for such offers or
sales, and that such persons and their respective brokers who participate in
such transactions do so at their own risk.
3. Please issue a certificate or certificates representing said
shares of Stock in the name of the undersigned:
Name:
--------------------------------------
Address:
--------------------------------------
--------------------------------------
--------------------------------------
A-2
<PAGE> 16
IN WITNESS WHEREOF, the Warrant Holder has executed this Notice of
Exercise effective this _______ day of ___________, ____.
WARRANT HOLDER
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
A-3
<PAGE> 1
EXHIBIT 10.10
WARRANT AGREEMENT
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"). NO SALE OR DISPOSITION MAY BE EFFECTED WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMPANY OR WITHOUT AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN OPINION OF COUNSEL FOR THE HOLDER, REASONABLY SATISFACTORY
TO COUNSEL TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT
OR RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION.
Date: March 22, 1999
INTERACTIVE PICTURES CORPORATION
a Tennessee corporation
PREFERRED STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, GE CAPITAL EQUITY INVESTMENTS,
INC., a Delaware corporation (hereinafter together with its successors and
assigns, the "Holder"), is entitled, upon the terms and subject to the
conditions hereinafter set forth, to purchase from Interactive Pictures
Corporation, a Tennessee corporation (the "Company"), that number of fully paid
and nonassessable shares of the Company's Series D Preferred Stock at the
purchase price per share as set forth in Section 1 below.
This Warrant is issued in connection with the Marketing Agreement
between the Holder and the Company dated as of the date hereof (the "Marketing
Agreement").
TERMS AND CONDITIONS OF WARRANT
1. Number of Shares; Exercise Price; Term.
(a) The Holder shall be entitled to subscribe for and
purchase 650,000 shares (the "Shares") of the fully paid and nonassessable
Series D Preferred Stock, par value $0.001 per share ("Preferred Stock"), of the
Company at an exercise price of $3.14 per share (the "Exercise Price"). The
number of Shares issuable upon exercise of this Warrant and the Exercise Price
shall be subject to adjustment as hereinafter set forth.
(b) The Holder may exercise one-half of this Warrant
immediately upon Development Completion of the Marketing Program and one-half
immediately upon Execution Completion of the Marketing Program (as each term is
defined in the Marketing Agreement) and at any time thereafter from time to time
prior to the date that is three (3) years after Execution Completion of the
Marketing Program (the "Expiration Date"). GE Capital and the Company shall
<PAGE> 2
execute and deliver a writing upon Execution Completion of the Marketing Program
setting forth the Expiration Date. This Warrant shall expire and cease to be
exercisable after the Expiration Date. Notwithstanding the foregoing, this
Warrant shall expire upon and cease to be exercisable upon the consummation of
the Company's initial public offering registered on Form S-1 (or substitute or
successor form) at a public offering price (prior to underwriter commissions and
expenses) equal to or exceeding $5.00 per share of Common Stock (as adjusted for
any stock dividends, combinations or splits with respect to such shares
occurring after the date of filing of the Articles of Amendment to the Charter
of the Corporation), and the aggregate proceeds to the Corporation (before
deduction for underwriter commissions and expenses relating to the issuance,
including without limitation fees of the Corporation's counsel) of which equal
or exceed $20,000,000 (a "Qualified Public Offering"), but only if the Company
has provided the Holder with at least thirty (30) days' prior written notice of
the expected expiration hereof. In the event the Company shall consummate a
Qualified Public Offering during the term of the Marketing Program and prior to
its Development Completion or Execution Completion, then this Warrant shall
become exercisable in full on the date immediately prior to consummation of the
Qualified Public Offering.
2. Exercise of Warrant.
(a) This Warrant may be exercised by the Holder upon
surrender of this Warrant to the Company at its principal executive office
together with the Notice of Exercise and Investment Representation Statement
annexed hereto as Exhibit A duly completed and executed by the Holder, and
payment to the Company of the aggregate Exercise Price for the Shares to be
purchased. The Holder shall pay the Exercise Price for the Shares (i) in cash or
(ii) by "cashless exercise", that is, the automatic application of shares of
Preferred Stock received upon exercise of a portion of this Warrant (valued, for
purposes of a cashless exercise, at Fair Market Value (defined in Section 2(d)
below)) to satisfy the Exercise Price for additional portions of this Warrant so
exercised. Certificates for the Shares so purchased shall be delivered to the
Holder promptly after exercise of the stock purchase rights represented by this
Warrant. The exercise of this Warrant shall be deemed to have been effected on
the day on which the Holder surrenders this Warrant to the Company and satisfies
all of the requirements of this Section 2. Upon such exercise, the Holder will
be deemed a shareholder of record of those Shares for which the warrant has been
exercised with all rights of a shareholder (including, without limitation, all
voting rights with respect to such Shares and all rights to receive any
dividends with respect to such Shares). If this Warrant is to be exercised in
respect of less than all of the Shares covered hereby, the Holder shall be
entitled to receive a new warrant covering the number of Shares in respect of
which this Warrant shall not have been exercised and for which it remains
subject to exercise. Such new warrant shall be in all other respects identical
to this Warrant.
(b) The issuance of any shares or other securities upon
the exercise of this Warrant, and the delivery of certificates or other
instruments representing such shares or other securities, shall be made without
charge to the Holder for any tax or other charge in respect of such issuance.
The Company shall not, however, be required to pay any tax which may be payable
in respect of any transfer involved in the issue and delivery of any certificate
in a name other than that of the Holder and the Company shall not be required to
issue or deliver any such certificate unless and until the person or persons
requesting the issue thereof shall have paid to the Company the
2
<PAGE> 3
amount of such tax or shall have established to the satisfaction of the Company
that such tax has been paid.
(c) Notwithstanding, and in addition to, the payment
provisions set forth in Section 2(a) above, the Holder may elect to receive
Shares equal to the value of this Warrant (or of any portion thereof remaining
unexercised) by surrender of this Warrant at the principal office of the Company
together with notice of such election, in which event the Company shall issue to
the Holder that number of Shares computed using the following formula:
<TABLE>
<S> <C> <C> <C>
X = Y(A-B)
------
A
Where: X = the number of Shares to be issued to the Holder;
Y = the number of Shares purchasable under this Warrant (at the
date of such calculation);
A = the Fair Market Value of one Share; and
B = the Exercise Price (at the date of such calculation).
</TABLE>
(d) For purposes of Section 2(a) and 2(c) above, the Fair
Market Value of one Share shall mean that amount determined by the Board of
Directors of the Company, acting in good faith, taking into consideration all
factors it deems appropriate including, without limitation, recent sale and
offer prices of the Capital Stock of the Company in private transactions
negotiated at arm's length.
3. Covenants of the Company. The Company covenants and agrees
that all equity securities which may be issued upon the exercise of the rights
represented by this Warrant, upon issuance and payment therefor in accordance
herewith, will be duly authorized, validly issued, fully paid, and nonassessable
shares of capital stock of the Company. The Company further covenants and agrees
that, during the period within which the stock purchase rights represented by
this Warrant may be exercised, the Company will at all times have duly
authorized and duly reserved for issuance upon the exercise of the purchase
rights evidenced by this Warrant a number of shares of its Capital Stock for
which this Warrant is exercisable sufficient for such issuance.
4. Transfer, Exchange, or Loss of Warrant.
(a) This Warrant may be exchanged, at the option of the
Holder thereof, for another Warrant, or other Warrants of different
denominations, of like tenor and representing in the aggregate the right to
purchase a like number of Shares (or portions thereof), upon surrender to the
Company or its duly authorized agent. This Warrant may not be assigned or
transferred except as provided in this Section 4 and in accordance with and
subject to the provisions of the Securities Act of 1933, as amended, and the
Rules and Regulations promulgated thereunder (collectively, the "Securities
Act"). Any purported transfer or assignment made other than in accordance with
this Section 4 shall be null and void and of no force or effect.
3
<PAGE> 4
(b) Prior to any transfer of this Warrant, other than in
an offering registered under the Securities Act, the Holder shall notify the
Company of its intention to effect such transfer, indicating the circumstances
of the proposed transfer and, upon request, furnish the Company with either an
opinion of its counsel, in form and substance reasonably satisfactory to counsel
for the Company, to the effect that the proposed transfer may be made without
registration under the Securities Act or qualification under any applicable
state securities laws or a "No Action" Letter from the Securities and Exchange
Commission. The Company will promptly notify the Holder if the opinion of
counsel furnished to the Company is reasonably satisfactory to counsel for the
Company. Unless the Company notifies the Holder within ten (10) days after its
receipt of such opinion that such opinion is not satisfactory to counsel for the
Company, the Holder may proceed to effect the transfer. Notwithstanding the
foregoing, the Holder may transfer this Warrant to any affiliate without being
required to comply with the provisions of this paragraph (b).
(c) Unless a registration statement under the Securities
Act is effective with respect to the Shares or any other security issued upon
exercise of this Warrant, the certificate representing such Shares or other
securities shall bear the following legend, in addition to any legend imposed by
applicable state securities laws:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE BEEN ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER
THE SECURITIES ACT, AND THE SHARES MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION, PURSUANT TO RULE 144, IN
COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, OR ANOTHER AVAILABLE
EXEMPTION UNDER THE SECURITIES ACT."
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN
ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE
STOCKHOLDER AND IS SUBJECT TO THE TERMS OF A VOTING AGREEMENT, COPIES OF WHICH
ARE ON FILE WITH THE SECRETARY OF THE COMPANY."
(d) Upon receipt by the Company of satisfactory evidence
of loss, theft, destruction, or mutilation of this Warrant and of indemnity
satisfactory to the Company, and upon surrender and cancellation of this
Warrant, if mutilated, the Company will execute and deliver a new Warrant of
like tenor and date and any such lost, stolen, destroyed or mutilated Warrant
shall thereupon become void. Any such new Warrant executed and delivered shall
constitute an additional contractual obligation on the part of the Company,
whether or not the Warrant so lost, stolen, destroyed, or mutilated shall be at
any time enforceable by anyone.
5. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. In lieu of any fractional share to which such holder would otherwise be
entitled, such holder shall be entitled, at its option, to receive either (i) a
cash payment equal to the excess of the Fair Market Value for such fractional
share above the
4
<PAGE> 5
Exercise Price for such fractional share (as mutually determined by the Company
and the Holder), or (ii) a whole share if the Holder tenders the Exercise Price
for one whole share.
6. No Rights as Shareholders. This Warrant does not entitle the
holder hereof to any voting rights, dividend rights, or other rights as a
shareholder of the Company prior to the exercise hereof.
7. Saturdays, Sundays, Holidays, etc. If the last or appointed
day for the taking of any action or the expiration of any right required or
granted herein shall be a Saturday or a Sunday or shall be a legal holiday, then
such action may be taken or such right may be exercised on the next succeeding
day not a Saturday or a Sunday or a legal holiday.
8. Adjustments. The Exercise Price per Share and the number of
Shares purchasable hereunder shall be subject to adjustment from time to time as
follows:
(a) Merger. If at any time there shall be a merger or
consolidation of the Company with or into another corporation when the Company
is not the surviving corporation, then, as a part of such merger or
consolidation, lawful provision shall be made so that the holder of this Warrant
shall thereafter be entitled to receive upon exercise of this Warrant, during
the period specified herein and upon payment of the aggregate Exercise Price
then in effect, the same number and class of shares of stock or other securities
or property of the successor corporation resulting from such merger or
consolidation, to which a holder of the securities deliverable upon exercise of
this Warrant would have been entitled in such merger or consolidation if this
Warrant had been exercised immediately before such merger or consolidation. In
any such case, appropriate adjustment shall be made in the application of the
provisions of this Warrant with respect to the rights and interests of the
Holder after the merger or consolidation.
(b) Reclassification, etc. If the Company shall, at any
time, by subdivision, combination, or reclassification of securities or
otherwise, change any of the securities as to which purchase rights under this
Warrant exist into the same or a different number of securities of any other
class or classes, the Exercise Price shall be appropriately adjusted and this
Warrant shall thereafter represent the right to acquire such number and kind of
securities as would have been issuable as the result of such change with respect
to the securities which were subject to the purchase rights under this Warrant
immediately prior to such subdivision, combination, reclassification or other
change.
(c) Split, Subdivision or Combination of Shares. If the
Company at any time while this Warrant remains outstanding and unexpired shall
split, subdivide or combine the securities as to which purchase rights under
this Warrant exist, the Exercise Price shall be proportionately decreased in the
case of a split or subdivision or proportionately increased in the case of a
combination, and the number of shares of Preferred Stock or other securities
issuable upon exercise of this Warrant shall also be proportionately adjusted so
that the Holder shall be entitled to receive upon exercise of this Warrant the
aggregate number and kind of shares which, if this Warrant had been exercised
immediately prior to such event, he would have owned upon such exercise and been
entitled to receive by virtue of such event.
5
<PAGE> 6
9. Notice of Adjustments; Notices. Whenever the Exercise Price or
number of Shares issuable upon exercise hereof shall be adjusted pursuant to
Section 8 hereof, or whenever the Company shall propose to pay any dividend or
make any distribution on shares of Preferred Stock in shares of Preferred Stock
or make any other distribution to all holders of Preferred Stock, to issue any
rights, warrants, or other securities to all holders of Preferred Stock
entitling them to purchase any additional shares of Preferred Stock or any other
rights, warrants, or other securities, to effect any liquidation, dissolution,
or winding-up of the Company, or to take any other action which would cause an
adjustment to the Exercise Price, the Company shall issue a written notice
setting forth, in reasonable detail, the event requiring the adjustment, the
amount of the adjustment, the method by which such adjustment was calculated and
the Exercise Price and number of Shares purchasable hereunder after giving
effect to such adjustment, and shall cause a copy of such notice to be mailed to
the holder of this Warrant.
10. Miscellaneous.
(a) Successors and Assigns. This Warrant shall be binding
upon any successors or assigns of the Company.
(b) Governing Law; Waiver of Jury Trial. This Warrant
shall be governed in all respects by the laws of the State of New York in the
United States of America without giving effect to the conflicts of laws
principles thereof. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND
UNCONDITIONALLY CONSENTS TO SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE COURTS
OF THE STATE OF NEW YORK AND OF THE UNITED STATES OF AMERICA, IN EACH CASE
LOCATED IN THE COUNTY OF NEW YORK, FOR ANY ACTION, PROCEEDING OR INVESTIGATION
IN ANY COURT OR BEFORE ANY GOVERNMENTAL AUTHORITY ("LITIGATION") ARISING OUT OF
OR RELATING TO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY (AND
AGREES NOT TO COMMENCE ANY LITIGATION RELATING THERETO EXCEPT IN SUCH COURTS),
AND FURTHER AGREES THAT SERVICE OF ANY PROCESS, SUMMONS, NOTICE OR DOCUMENT BY
U.S. REGISTERED MAIL TO ITS RESPECTIVE ADDRESS SET FORTH IN THIS AGREEMENT SHALL
BE EFFECTIVE SERVICE OF PROCESS FOR ANY LITIGATION BROUGHT AGAINST IT IN ANY
SUCH COURT. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVES ANY OBJECTION TO THE LAYING OF VENUE OF ANY LITIGATION ARISING OUT OF
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY IN THE COURTS OF THE
STATE OF NEW YORK OR THE UNITED STATES OF AMERICA, IN EACH CASE LOCATED IN THE
COUNTY OF NEW YORK, AND HEREBY FURTHER IRREVOCABLY AND UNCONDITIONALLY WAIVES
AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH LITIGATION
BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE
EXTENT NOT PROHIBITED BY APPLICABLE LAW THAT CANNOT BE WAIVED, EACH OF THE
COMPANY AND THE HOLDER WAIVES, AND COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS
PLAINTIFF, DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORM IN
RESPECT OF ANY ISSUE, CLAIM OR PROCEEDING ARISING OUT OF THIS AGREEMENT OR ANY
OTHER AGREEMENT RELATED THERETO OR THE SUBJECT
6
<PAGE> 7
MATTER HEREOF OR THEREOF, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING
AND WHETHER IN CONTRACT, TORT OR OTHERWISE.
(c) Attorneys' Fees. In any litigation, arbitration, or
court proceeding between the Company and the holder relating hereto, the
prevailing party shall be entitled to reasonable attorneys' fees and expenses
incurred in enforcing this Warrant.
(d) Amendments. This Warrant may be amended and the
observance of any term of this Warrant may be waived only with the written
consent of the Company and the Holder.
(e) Notice. Any notice, request, or other communication
required or permitted hereunder shall be in writing and shall be given by
personal delivery, sent by facsimile, or mailed by registered or certified mail,
postage prepaid, or by recognized overnight courier addressed (a) if to the
Holder, at such Holder's address set forth in the Schedule of Purchasers to the
Amended and Restated Stock Purchase Agreement, or (b) as to any subsequent
Holder, the address of such Holder contained in the Company's Warrant Register,
or (c) if to the Company, one copy should be sent to its offices and addressed
to the attention of the President, or at such other address as the Company shall
have furnished to the Holder.
(f) Investor Rights. All Shares issuable upon exercise of
this Warrant are subject to the registration rights provisions of the Amended
and Restated Rights Agreement dated March 22, 1999 (the "Rights Agreement"), as
such agreement may be amended from time to time.
IN WITNESS WHEREOF, the Company has caused this Preferred Stock
Purchase Warrant to be executed by its officer thereunto duly authorized as of
the date first above written.
INTERACTIVE PICTURES CORPORATION
By: /s/ John J. Kalec
----------------------------------------------
Name: John J. Kalec
--------------------------------------------
Title: Vice President and Chief Financial Officer
-------------------------------------------
7
<PAGE> 8
EXHIBIT A
Notice of Exercise and Investment Representation Statement
NOTICE OF EXERCISE AND
INVESTMENT REPRESENTATION STATEMENT
PREFERRED STOCK PURCHASE WARRANT
To: Interactive Pictures Corporation
1. The undersigned hereby elects to purchase ______________
shares of Series D Preferred Stock ("Stock") of Interactive Pictures Corporation
(the "Company") pursuant to the terms of the attached Warrant, and tenders
herewith payment of the aggregate exercise price therefor and any transfer taxes
payable pursuant to the terms of the Warrant, together with this executed Notice
of Exercise and Investment Representation Statement in form and substance
reasonably satisfactory to legal counsel to the Company.
2. (a) The undersigned is sufficiently aware of the
Company's business affairs and financial condition to reach an informed and
knowledgeable decision to acquire the Stock. The shares of Stock to be received
by the undersigned upon exercise of the Warrant are being acquired for its own
account, not as a nominee or agent, and not with a view to resale or
distribution of any part thereof, and the undersigned has no present intention
of selling, granting any participation in, or otherwise distributing the same.
The undersigned further represents that it does not have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participation to such person or to any third person, with respect to the Stock.
The undersigned believes it has received all the information it considers
necessary or appropriate for deciding whether to purchase the Stock.
(b) The undersigned understands that the Stock has not
been registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of its investment intent as expressed herein. In this connection, the
undersigned understands that, in the view of the Securities and Exchange
Commission (the "SEC"), the statutory basis for such exemption may be
unavailable if its representation was predicated solely upon a present intention
to hold the Stock for the minimum capital gains period specified under tax
statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Stock, or for a period of one year or any other fixed period
in the future.
(c) The undersigned further understands that the Stock
must be held indefinitely unless subsequently registered under the Securities
Act or unless an exemption from registration is otherwise available (such as
Rule 144 under the Securities Act). In addition, the undersigned understands
that the certificate evidencing the Stock may be imprinted with a legend which
prohibits
A-1
<PAGE> 9
the transfer of the Stock unless it is registered or such registration is not
required in the opinion of counsel to the undersigned reasonably satisfactory to
counsel for the Company.
(d) The undersigned is familiar with the provisions of
Rule 144, promulgated under the Securities Act, which, in substance, permits
limited public resale of "restricted securities" acquired, directly or
indirectly, from the issuer thereof (or from an affiliate of such issuer), in a
non-public offering subject to the satisfaction of certain conditions,
including, among other things: (1) The availability of certain public
information about the Company; (2) the resale occurring not less than one year
after the party has purchased, and made full payment for, within the meaning of
Rule 144, the securities to be sold; and, in the case of an affiliate, or of a
non-affiliate who has held the securities less than two years; (3) the sale
being made through a broker in an unsolicited "broker's transaction" or in
transactions directly with a market maker, as said term is defined under the
Securities Exchange Act of 1934 (the "Exchange Act") and the amount of
securities being sold during any three month period not exceeding the specified
limitations stated therein, if applicable. There can be no assurances that the
requirements of Rule 144 will be met, or that the Stock will ever be saleable.
(e) The undersigned further understands that at the time
the undersigned wishes to sell the Stock there may be no public market upon
which to make such a sale, and that, even if such a public market then exists,
the Company may not be satisfying the current public information requirements of
Rule 144, and that, in such event, the undersigned would be precluded from
selling the Stock under Rule 144 even if the one-year minimum holding period had
been satisfied.
(f) The undersigned further understands that in the event
all of the applicable requirements of Rule 144 are not satisfied registration
under the Securities Act, compliance with Regulation A, compliance with some
other registration exemption or the notification to the Company of the proposed
disposition by it and the furnishing to the Company of (i) detailed information
regarding the disposition, and (ii) and opinion of its counsel to the effect
that such disposition will not require registration (the undersigned understands
such counsel's opinion shall concur with the opinion by counsel for the Company
and the undersigned shall have been informed of such compliance) will be
required and that, notwithstanding the fact that Rule 144 is not exclusive, the
Staff of the SEC has expressed its opinion that persons proposing to sell
private placement securities other than in a registered offering and otherwise
than pursuant to Rule 144 will have a substantial burden of proof in
establishing that an exemption from registration is available for such offers or
sales, and that such persons and their respective brokers who participate in
such transactions do so at their own risk.
3. Please issue a certificate or certificates representing said
shares of Stock in the name of the undersigned:
Name:
----------------------------------
Address:
----------------------------------
----------------------------------
----------------------------------
A-2
<PAGE> 10
IN WITNESS WHEREOF, the Warrant Holder has executed this Notice of
Exercise effective this _______ day of ___________, ____.
WARRANT HOLDER
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
A-3
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated January 29, 1999, except as to Notes 5 and 6 for which the date is
April 12, 1999, relating to the financial statements of Interactive Pictures
Corporation, which appear in such Registration Statement. We also consent to
the references to us under the headings "Experts" and "Selected Financial
Information" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Knoxville, Tennessee
May 20, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 7,150
<SECURITIES> 16,649
<RECEIVABLES> 1,345
<ALLOWANCES> 170
<INVENTORY> 438
<CURRENT-ASSETS> 25,794
<PP&E> 1,935
<DEPRECIATION> 445
<TOTAL-ASSETS> 27,369
<CURRENT-LIABILITIES> 3,145
<BONDS> 19
0
24
<COMMON> 12
<OTHER-SE> 24,168
<TOTAL-LIABILITY-AND-EQUITY> 27,369
<SALES> 1,229
<TOTAL-REVENUES> 1,229
<CGS> 587
<TOTAL-COSTS> 587
<OTHER-EXPENSES> 4,376
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12
<INCOME-PRETAX> (3,712)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,712)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,712)
<EPS-PRIMARY> (0.31)
<EPS-DILUTED> (0.31)
</TABLE>
