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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] Annual report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 1996 or
[ ] Transition report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period
from to
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COMMISSION FILE NUMBER: 000-19828
SPATIALIGHT, INC.
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(Name of Small Business Issuer in its Charter)
NEW YORK 16-1363082
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
8-C Commercial Blvd., Novato, California 94949-5759
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(Address of principal executive offices)
415-883-1693
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(Issuer's telephone number)
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act:
Common Stock $.01 par value
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(Title of Class)
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days:
Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [X]
Issuer's revenues for the year ended December 31, 1996 aggregated $176,100.
The aggregate market value for the Issuer's voting stock held by
non-affiliates of the Issuer based upon the $1.0938 per share closing sale
price of the Common Stock on March 21, 1997 as reported on the NASDAQ
SmallCap Market, was approximately $4,354,693.43. Shares of Common Stock
held by each officer and director and by each person who owns 5% or more of
the outstanding Common Stock have been excluded in that such persons may be
deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
As of March 5, 1997, Registrant had 8,533,191 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the Proxy Statement for registrant's Annual Meeting of
Stockholders to be held May 23, 1997 are incorporated by reference to Part
III of this Form 10-KSB report.
Transitional Small Business Disclosure Format (check one):
Yes No X
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SPATIALIGHT, INC.
FORM 10-K SB ANNUAL REPORT
TABLE OF CONTENTS
Page
PART I
ITEM 1 Description of Business 3
ITEM 2 Description of Property 8
ITEM 3 Legal Proceedings 8
ITEM 4 Submission of Matters to a Vote
of Security Holders 9
PART II
ITEM 5 Market for Common Equity and
Related Stockholder Matters 9
ITEM 6 Management's Discussion and Analysis
or Plan of Operation 10
ITEM 7 Financial Statements 14
ITEM 8 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 27
PART III
ITEM 9 Directors, Executive Officers, Promoters and
Control Persons; Compliance with Section 16(a)
of the Exchange Act 27
ITEM 10 Executive Compensation 27
ITEM 11 Security Ownership of Certain Beneficial
Owners and Management 27
ITEM 12 Certain Relationships and Related
Transactions 27
ITEM 13 Exhibits and Reports on Form 8-K 28
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ITEM 1. DESCRIPTION OF BUSINESS
INTRODUCTION
Spatialight, Inc. ("Spatialight" or the "Company") is in the business of
designing, producing and commercializing miniature, high-resolution active
matrix liquid crystal displays ("LCDs"), also known as spatial light
modulators ("SLMs") for computer and video display applications. SLMs are
designed in a manner that can potentially provide high quality images at a
significant reduction in costs over other types of computer and video
displays currently available in the market. The SLMs are designed to be
capable of handling computer and video output at very high speeds, clarity
and contrast. The Company's first SLM product is a .75" diagonal, 704 x 512
pixel, two-dimensional array on 20 micron centers which is manufactured
domestically in very limited quantities. To date, the Company has sold only
small volumes of its first SLM product to customers involved in the research
and development of applications for this technology, including computer
monitors, head-mounted displays, optical computing and other projection
applications.
The Company has identified a number of potential applications and markets
for products based on its SLM technology, including light-weight computer
projection systems, large computer monitors and head-mounted displays for use
in defense and aerospace applications and for computer training and gaming
devices. In addition, the Company believes that its SLM products may have
application in optical computing systems and in high-speed, large-capacity
optical data storage systems and holographic imaging systems.
The address and telephone number of the Company's principal executive
offices are 8-C Commercial Boulevard, Novato, California 94949; (415)
883-1693. The Company was organized under the laws of the State of New York
in 1989 under the name of "Sayett Acquisition Company, Inc."; it subsequently
changed its name to Sayett Group, Inc. and, in June 1996, changed its name
again to Spatialight, Inc. Spatialight, Inc. holds 80% of the outstanding
stock of Spatialight of California. Prior to 1996, Spatialight, Inc.
operated subsidiaries that were in the businesses of manufacturing populated
circuit boards and manufacturing LCD projection equipment. Both of these
businesses were sold in 1995 and are accounted for as discontinued
operations. See "Management's Discussion and Analysis" and Notes to
Consolidated Financial Statements -- Note 5. Unless the context
requires otherwise, all references herein to Spatialight or the Company refer
collectively to Spatialight, Inc., Spatialight of California and their wholly
owned subsidiaries.
TECHNOLOGY AND PRODUCTS UNDER DEVELOPMENT
The Company's only currently available product is a .75" diagonal, 704 x
512 pixel, two-dimensional array on 20 micron centers. This product is
manufactured in very small quantities domestically. The Company currently
has under development a 1024 x 768 pixel SLM product, which it anticipates
will be commercially available in limited quantities for evaluation and
development uses in mid 1997. The Company's SLMs are based on an advanced,
proprietary technology for using liquid crystal directly over the surface of
a silicon chip to convert reflected external light into high-resolution
images.
The technology underlying the Company's SLM products relies on the
manipulation of liquid crystal. A liquid crystal display ("LCD")
consists of liquid crystal material between two pieces of glass, and
associated polarizers. Rotating the polarization of the molecules in the
liquid crystal changes the liquid crystal medium from opaque to
transparent and can thereby control the transmission of light. The
liquid crystal material has long tubular molecules with a natural twist.
The molecules untwist in response to an applied electric field. As the
molecules untwist, light can pass through the liquid crystal and its
glass encasement. Commonly available projection panels generally use
super-twisted nematic ("STN") LCDs. Molecules in STN LCDs have a high
degree of twist and are very
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responsive to an applied electric field. The Company's SLMs are designed to
use the STN molecules by encasing them directly at the surface of an
integrated circuit on a silicon chip. The chip generates the polarizing
electric fields which can be controlled by and therefore display a signal
from a computer, cable television, a video cassette recorder or other type of
high information content source. The chip has a substrate manufactured with
complimentary metal oxide semiconductor .8 micron processes that enables
high-speed processing of computer and video output with high contrast and
resolution. Display glass is applied to the surface of the silicon chip with
a "spin on" technology to improve flatness. Improved flatness should enhance
display quality and increase display size capability by reducing defects that
would otherwise be magnified, and help maintain light efficiency to reduce
power use.
The Company's SLMs are being designed to compete with other technologies
that produce color LCDs. Additive color techniques require each dot or
picture element ("pixel") on the display screen to be divided into three
sub-pixels. A color filter is applied to each sub-pixel, causing each
subpixel to transmit red, green or blue light. The viewer's eye combines the
colored light from the three sub-pixels to create the perception of the full
spectrum of colors. Additive technologies, also referred to as "color
filtered" technologies, include both passive and active matrix approaches.
To date, active matrix has been most commonly accomplished through the use of
thin film transistor technology ("TFT"), in which a transistor is placed on
the glass substrate at each sub-pixel location and is used to control that
sub-pixel. TFT displays are currently manufactured in commercial quantities by
Japanese manufacturers and are relatively expensive. Further, TFT technology
relies on the display being relatively small, because manufacturing costs and
the costs of applying the display increase dramatically with size.
The Company believes that the technology underlying its SLM products may
provide certain advantages over TFT or other display products or
technologies. The Company's 704 x 512 product offers gray scaling at 256
levels per pixel. The Company's SLMs are expected to ultimately cost less to
manufacture than comparable TFT displays because of the fundamental chip
technology and the placement of the pixel format directly onto a silicon
wafer. Further, Company testing indicates that its SLMs are capable of being
approximately 100 times as light efficient as currently available TFT
displays. The Company's 1024 x 768 product under development has a 90% fill
factor with 20 micron pixel pitch.
Although the Company has demonstrated SLM devices based on its
core technology, and recently entered into a contract to produce an
engineering prototype of a consumer product for mass production, the
Company has not yet produced any prototype SLM products with quality and
resolution sufficient to satisfy commercial end-use applications. Delays
in development may result in the Company's introduction of its products
later than anticipated, which may have an adverse effect on both the
Company's financial and competitive position. Moreover, there can be no
assurance that the Company will ever be successful in developing or
manufacturing a commercially viable SLM device or any of its proposed
display products. In addition, there is no assurance that an SLM device
or any of the Company's display products will be technically or
commercially successful or that the Company will be able to manufacture
or obtain a supplier for adequate quantities of its SLM devices or any of
its display products at commercially acceptable cost levels or on a
timely basis.
The electronic imaging display industry has undergone rapid and significant
technological change. The Company expects the technology to continue to develop
rapidly, and the Company's success will depend significantly on its ability to
attain and maintain a
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competitive position. Rapid technological development may result in actual
and proposed products or processes becoming obsolete before the Company
recoups a significant portion of related research and development,
acquisition and commercialization costs. If the Company is successful in the
development of a commercially viable SLM device, the Company's ability to
compete will depend in part upon the consistency of product quality and
delivery, as well as pricing, technical capability and servicing, in addition
to factors within and outside its control, including the success and timing
of product introductions by the Company and its competitors, product
performance and price, product distribution and customer support. There can
be no assurance that the Company's competitors will not succeed in developing
technologies and products that are equally or more effective than any which
are being developed by the Company or that will render the Company's
technology, SLM devices or display and other products obsolete and
non-competitive.
APPLICATIONS AND MARKETS
The Company believes that current and future SLM products may be
incorporated into a wide variety of monitors, projectors and other light
engines. The Company also believes that suppliers and manufacturers of
display products may desire to license the Company's technology for use in
such end products. The Company does not plan, nor does it have the financial
resources, to develop or market any end products itself. Therefore, the
Company will be completely dependent upon independent third parties for the
development, manufacturing and marketing of such products. No such products
exist today, and the Company does not have commitments from any third party
for such development, manufacturing or marketing. There can be no assurance
that any third party will develop or market a product incorporating the
Company's SLM's. If not, there will be no market for the Company's SLM's.
However, the Company has entered into a development project with Packard Bell
Electronics with the goal of incorporating the Company's SLMs into Packard
Bell's monitor products in the future. The Company has also established
informal arrangements with suppliers of light engine components, including
lamps, screen materials and lenses. The Company believes these relationships
are important to its ability to succeed because they can enable the Company
to demonstrate potential application solutions to customers. The failure to
establish relationships with suppliers of light engine components and other
manufacturers could make it more difficult for the Company to gain market
acceptance for its products. To encourage manufacturers to design products
that integrate the Company's SLMs, the Company intends to offer prototypes at
low cost for evaluation and design into products. However, because many
manufacturers are unfamiliar with reflective technology displays, and because
of their limited supply, the Company may experience difficulty in convincing
manufacturers to use its SLMs.
MARKETING, SALES AND DISTRIBUTION
The Company's SLMs are available directly from the Company or through the
Company's principal distributor, Meadowlark Optics. The Company has a
non-exclusive distribution agreement with Meadowlark to market the Company's
SLMs in low volumes primarily to large corporate research departments and
university research labs. Currently available SLMs, including necessary
electronics, have a per unit retail list price of $20,000.
The Company currently employs no full-time sales or marketing specialists.
The Company intends to form alliances with corporate partners for the marketing
and distribution of certain of its anticipated display products. There can be
no assurance that the Company will be successful in forming and maintaining such
alliances or that the Company's partners will devote
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adequate resources to successfully market and distribute these anticipated
products. There can be no assurance that the Company will be able to attract
and retain qualified marketing and sales personnel, that the Company will be
able to enter into satisfactory agreements with marketing partners, or that
the Company or its marketing partners will be successful in gaining market
acceptance for its anticipated products.
MANUFACTURING AND SUPPLY
The Company currently engages outside manufacturers to produce its SLM
devices, and the Company has no experience manufacturing SLM devices or
display products. The Company's facility is designed principally for
research and development and small-scale assembly and inventory storage.
Final assembly and testing of the SLM product is conducted by Company
personnel prior to shipment. The Company has established supplier
relationships with both a low volume and a high volume LCD filling processor.
The Company does not have a written contract with either such supplier, and
accordingly, either of them may discontinue providing LCD components to the
Company at any time. Any such termination of supply could have a material
adverse effect on the Company's ability to meet its commitments to customers
while the Company identified and qualified a replacement supplier. The
Company is negotiating with several manufacturers for establishment of
full-scale integrated manufacturing capacity for its SLM devices and has
reached an agreement with one manufacturer for fabrication of silicon wafers.
However, no decision has been made by any such manufacturer to establish
such a capability and there can be no assurance that any of them will do so.
In the event any such manufacturer establishes a full-scale integrated
manufacturing capability, the Company could become dependent on such
manufacturer for the manufacture of SLM devices. The termination or
cancellation of the Company's agreement with the manufacturer could adversely
affect the Company's ability to manufacture its products. In such event, the
Company could be required to establish an alternative manufacturing
relationship or establish its own manufacturing capability. There can be no
assurance that the Company would be able to establish such a relationship on
acceptable terms or develop its own manufacturing capability. In any event
the time required to establish such a substitute relationship or capability
could substantially delay the commercialization of the Company's SLM devices
and display products, which, in turn, could have a substantial adverse impact
on the Company's results of operations and financial condition.
COMPETITION
The active matrix LCD market has been dominated by Japanese manufacturers
such as Sharp, Hitachi, Seiko-Epson, Sanyo and Toshiba (in partnership with
IBM). These manufacturers, however, have concentrated on larger format,
eight to ten inch displays used in portable computers. Other companies such
as Kopin Corporation, OIS Ovonics, Texas Instruments and Motif (a Motorola
and InFocus Systems joint venture) have attempted to design and produce small
format LCDs and SLMs with comparable functionality to that of the Company's
SLMs. No attempts at commercialization of the small format display devices
have been successful to date.
The electronic imaging display industry has been characterized by rapid
and significant technological advances. There can be no assurance that the
Company's SLM devices and display products will be reflective of such
advances or that the Company will have sufficient funds to invest in new
technologies or products or processes. A number of companies in the United
States assemble workstation monitors using LCDs and cathode-ray tubes
("CRTs") purchased from Japan. A number of Japanese companies build monitors
around their LCDs and CRTs.
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Korean companies are also entering the LCD and CRT monitor market.
Development of improved high-definition LCDs and CRTs continues to receive
significant attention by these and other companies. Although the Company
believes that its SLM products have the capability to improve LCD performance
beyond that of commercially available LCD- and CRT-based display products,
there is no assurance that manufacturers of LCDs or CRTs will not develop
further improvements of LCD or CRT technology that would eliminate or
diminish the Company's anticipated advantage. In addition, numerous
competitors have substantially greater financial, technical and other
resources than the Company. The Company may face an aggressive, well financed
competitive response that may include misappropriation of the Company's
intellectual property or predatory pricing.
PATENTS AND INTELLECTUAL PROPERTY
The Company's ability to compete effectively with other companies will
depend, in part, on the ability of the Company to maintain the proprietary
nature of its technologies. Although the Company has been awarded or has
filed applications for several patents in the United States, there can be no
assurance as to the degree of protection offered by these patents, or as to
the likelihood that pending patents will be issued. Furthermore, the Company
has not yet applied for or obtained any foreign patents. There can be no
assurance that competitors, in both the United States and foreign countries,
many of which have substantially greater resources and have made substantial
investments in competing technologies, will not seek to apply for and obtain
patents that will prevent, limit or interfere with the Company's ability to
make and sell its products or intentionally infringe the Company's patents.
The defense and prosecution of patent suits is both costly and
time-consuming, even if the outcome is favorable to the Company. This is
particularly true in foreign countries. In addition, there is an inherent
unpredictability regarding obtaining and enforcing patents in foreign
countries. An adverse outcome in the defense of a patent suit could subject
the Company to significant liabilities to third parties, require disputed
rights to be licensed from third parties, or require the Company to cease
selling its products. The Company also relies on unpatented proprietary
technology and there can be no assurance that others may not independently
develop the same or similar technology or otherwise obtain access to the
Company's proprietary technology. To protect its rights in these areas, the
Company requires all employees and most consultants, advisors and
collaborators to enter into confidentiality agreements. There can be no
assurance, however, that these agreements will provide meaningful protection
for the Company's trade secrets, know-how or other proprietary information in
the event of any unauthorized use, misappropriation or disclosure of such
trade secrets, know-how or other proprietary information. To date, the
Company has no experience in enforcing its confidentiality agreements.
RESEARCH AND DEVELOPMENT
The Company incurred research and development expenses of approximately
$265,000 in 1996 and $509,766 in 1995. Research and development expenses
represent costs incurred, primarily personnel related, for the design and
development of new products and the redesign of existing products. The
Company believes that the development of new products will be required to
allow it to compete effectively and to achieve future revenues. The Company
currently has 11 full time employees whose duties include research and
development. The Company intends to continue its product enhancement and
development programs, focusing on increasing the display size and finalizing
field sequential color capabilities and liquid crystal filling manufacturing
processes. The
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Company believes that such enhancements and new products will be required to
exploit future markets for large screen monitors, high definition television
and head mount displays.
EMPLOYEES
As of December 31, 1996, the Company had 11 full-time and 4 part-time
employees. Employment is divided amount two functional areas with 12 in
engineering and 3 in finance and administration. Employees are not
represented by any collective bargaining organizations. The Company
considers its relations with its employees to be good.
The Company is dependent upon its key scientific and management
personnel, including its Chief Executive Officer, William Hollis, and its
Vice President, Dean Irwin. The Company does not maintain key-man life
insurance on Messrs. Hollis or Irwin. In 1996, the Company entered into a
three-year employment agreement with Mr. Hollis and a two-year employment
agreement with Mr. Irwin. Both agreements are terminable by the
Company for cause. The loss of the services of one or more key individuals
may have a material adverse impact on the Company. The Company's success
will also depend on its ability to attract and retain other highly qualified
scientific, marketing, manufacturing and other key management personnel. The
Company faces competition for such personnel and there can be no assurance
that the Company will be able to attract or retain such personnel.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's headquarters are located at 8-C Commercial Drive, Novato,
California. Approximately 4,000 square feet of office space is leased
through April 1997. The Company anticipates that this lease will be extended
for another 12 months. The Company believes that its current facilities will
be sufficient for its needs for at least the next year.
ITEM 3. LEGAL PROCEEDINGS.
By letter dated January 13, 1997, counsel for Jalcanto, Ltd. and
Sabotini, Ltd. (the "Investors") notified the Company that these Investors
were electing to rescind the Share Purchase Agreements dated July 10, 1996,
as amended (the "Purchase Agreements"), under which the Investors purchased a
total of 2,135,000 shares of common stock in the Company, and were demanding
a refund by January 17, 1997 of the purchase price of such shares, or
$1,783,125, plus interest. The alleged ground for rescission is the fact that
the Company's registration statement on Form S-3 pertaining to the resale of
such shares was not declared effective by the SEC on or before December 31,
1996. Subsequently, by letter dated February 3, 1997, counsel for the
Investors notified the Company that Jalcanto, Ltd. had retracted its demand
for rescission, with reservation of all rights. The letter reiterated the
rescission demand on behalf of Sabotini, Ltd., and the request that the
Company return $891,563.
On February 5, 1997, the Company was served notice that it has been sued
by each of the Investors in the Superior Court of the State of California for
the County of Marin. Each Investor filed a complaint for breach of contract,
specific performance and indemnification relating to the alleged failure to
timely complete the contractually required registration statement. In
addition, each complaint requests that the court issue a preliminary and
permanent injunction against future issuances of shares of the Company's
common stock or securities convertible into common stock without the
Investor's consent. The complaint filed by Sabotini Ltd. also requests
rescission and the return of
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the full purchase price of its shares (approximately $892,000). On February
26, 1997, a hearing was held with respect to Sabotini's application for a
writ to attach the Company's funds in the amount of $920,000 to ensure
enforceability of any eventual judgment in Sabotini's favor. By order dated
February 28, 1997, the court denied the application for the writ without
prejudice.
The Company intends to defend itself vigorously in both actions and
believes that it is not probable that Sabotini will prevail in
rescinding its Purchase Agreement. The Company may be required to expend
substantial funds and management resources in connection with the defense and
any settlement or judgment; accordingly, the ultimate resolution of this
litigation may have a material adverse effect on the Company's business and
financial condition taken as a whole.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the security holders during the
Company's fourth quarter.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Common Stock of the Company has been traded in the over-the-counter
market since the Company's initial public offering on February 5, 1992. The
Common Stock is listed on the NASDAQ SmallCap Market under the symbol "SLHT".
To remain listed, the Company must maintain certain maintenance standards,
including: two market makers; bid price of $1.00; public float of 100,000
shares; the market value of public float of $250,000; total assets of
$2,000,000; capital and surplus of $1,000,000. NASD has delivered notice to
the Company that it is scheduled for potential delisting from the Nasdaq
SmallCap Market because the Company does not meet the $2,000,000 minimum
total asset requirement for continued listing. On February 27, 1997, a
hearing was held before a panel authorized by the NASD to determine whether
the Company should be delisted from the Nasdaq SmallCap Market. No
determination of that panel has yet been rendered. The Company presented a
plan for compliance to the panel, but there can be no assurance that the
Company will not be delisted when the panel renders its decision. If the
Company were delisted from the Nasdaq SmallCap Market, trading, if any, in
the Company's Common Stock would thereafter be conducted in the over-the-
counter market in the so-called "pink sheets" or the NASD's "Electronic
Bulletin Board". Consequently, the liquidity of the Company's securities
could be impaired, not only in the numbers of securities which could be
bought and sold, but also through delays in the timing of transactions,
reduction in security analysts' and news media coverage of the Company, and
lower prices for the Company's securities than might otherwise be obtained.
The following table sets forth, for the calendar quarters indicated, the
range of high and low quotations for the Common Stock, as reported by the
National Association of Securities Dealers Automated Quotation System.
SLHT - COMMON STOCK 1996 1995
High Bid Low Bid High Bid Low Bid
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First Quarter (January - March) 1 1/2 7/32 3 1/4 1 3/8
Second Quarter (April - June) 1 5/8 5/8 2 1 1/4
Third Quarter (July - September) 1 1/4 11/16 1 7/8 1 1/4
Fourth Quarter (October - December) 7/8 13/32 1 9/16
For a recent reported quotation for the Company's Common Stock, see the
cover page of this Form 10-KSB. The quotations listed above reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may
not represent actual transactions.
As of March 21, 1997, there were approximately 2,900 holders of record
of the Common Shares of the Company. The Common Stock represents the only
class of securities outstanding as of this filing.
To date, the Company has not paid a dividend on its Common Stock. The
payment of future dividends is subject to the Company's earnings and
financial position and such other
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factors, including contractual restrictions, as the Board of Directors may
deem relevant and it is unlikely that dividends will be paid in the
foreseeable future.
During 1996, the Company sold securities in private placement
transactions as follows. On July 11, 1996 the Company sold 1,585,000 shares
of its common stock at a price of $1.125 per share in cash, and concurrently
issued warrants to purchase an additional 1,585,000 shares of the Company's
common stock (the "Warrants"). The shares sold and the Warrants were acquired
on identical terms and in identical amounts by Sabotini, Ltd. and Jalcanto,
Ltd., each of which are Isle of Man corporations (the "Investors"). The
Warrants are exercisable at any time prior to July 15, 2001, at an exercise
price of $1.00 per share before July 15, 1997, $1.25 per share though July
1999 and $1.50 per share thereafter. On November 11, 1996, the Investors
approved certain amendments to the Company's covenants under their original
share purchase agreements, and the Company agreed to reprice the July 11,
1996 sale of common stock from $1.125 per share to $0.8352 per share. As
a result, the Company issued an additional 550,000 shares of its common
stock, evenly divided between the two Investors.
No underwriter took part in the sale of stock to the Investors, and
there were no underwriting discounts or commissions; however the Company paid
certain finders fees in connection with the transaction. Net proceeds
received by the Company relating to the placement were $1,525,237. In making
this private placement of securities, the Company claimed the exemption from
registration under Section 4(2) of the Securities Act of 1933, as amended,
pertaining to transactions not involving a public offering. In claiming this
exemption, the Company relied upon factual information provided in
representations by each Investor concerning its financial position,
sophistication and suitability as a participant in such an exempt transaction.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The statements in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" that relate to future plans, events
or performance are forward-looking statements which involve risks and
uncertainties. Actual results, events or performance may differ
materially from those anticipated in these forward-looking statements as
a result of a variety of factors, including those discussed throughout
"Item 1 - Description of Business" and elsewhere in this Annual Report on
Form 10-KSB. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The
Company undertakes no obligation to publicly release the result of any
revisions to these forward-looking statements that may be needed to
reflect events or circumstances after the date hereof or to reflect the
occurance of unanticipated events.
NET SALES. The Company's net sales were $176,100 and $95,857 in 1996
and 1995 respectively. These amounts are comprised of sales of a small
number of units of the Company's initial SLM device.
OPERATING EXPENSES. Operating expenses during 1996 and 1995 were
$1,170,007 and $2,522,457, respectively. The substantial decrease in
operating expenses from 1995 to 1996 was principally due to the write off
of goodwill in 1995.
Costs of sales represent product costs associated with the production of
prototype SLMs. Costs of sale were $141,290 and $32,786 in 1996 and 1995,
respectively. The increase was due to the higher volume of SLM sales and
high costs associated with the production of prototype units during 1996.
Selling, general and administrative costs were $763,575and $503,940 in
1996 and 1995, respectively. The increase of 52% from 1995 levels reflects
the Company's initial investment in marketing the SLMs as it continued the
transition from research and development company to an operating company.
Also as a result of this transition, research and development expenses in the
year ended December 31, 1996 were $265,142, which represents a 48% decrease
from research and development expenses of $509,766 in the year ended December
31, 1996.
The 1995 goodwill write-off resulted from the impairment of goodwill
associated with the purchase of a majority interest in Spatialight of
California during the first quarter of 1995. At the time of purchase, it was
anticipated that the sales of SLMs from Spatialight of California would
continue to increase during the remainder of 1995 as production processes and
component specifications were finalized for commercialization. While the
sales performance of Spatialight of California showed substantial improvement
during the second and third quarters of 1995, the Company was unable to
continue selling its products to one of its major customers. As a result,
the sales performance of Spatialight of California declined to zero in the
fourth quarter of 1995. This decline, coupled with the sale of Sayett
Technology, a subsidiary of the Company focused on manufacturing LCD
projection equipment, and the resultant diminished prospects that vertical
integration would be available for Spatialight of California within the group
of companies controlled by the Company led the Company to conclude that such
goodwill was substantially impaired.
10
<PAGE>
OTHER INCOME (EXPENSES) Losses in investee companies was $424,714 in
1995. The losses in 1995 resulted from the write-off of the Company's entire
investment in InterVision Systems, Inc. The Company purchased a 40% interest
in InterVision, a producer of head-mounted displays utilizing a wearable
computer, in 1994. Due to losses incurred by InterVision through the period
ended December 31, 1995, the Company's investment was totally impaired.
Although InterVision continues to operate, funded principally by a government
grant, the Company does not anticipate that its investment will be recovered.
Interest income was $63,776 and $63,427 in 1996 and 1995, respectively.
Interest income in 1996 was principally due to interest on the proceeds of a
private placement of the Company's Common Stock in July 1996.
Other expenses were $13,252 and $2,705 in 1996 and 1995, respectively.
The increase from 1995 resulted principally from expenses incurred in moving
the Company's headquarters to California.
On December 29, 1995 the Company sold Sayett Technology, Inc. (STI), a
wholly owned subsidiary, to former management members of the Company for
$300,000 in the form of a note receivable. In 1996, the Company received
$51,526 in cash and $15,069 in furniture and fixtures toward payment of this
note receivable. In the third quarter of 1996 the Company wrote down the note
by $121,702 based on their assessment of collectability. Based on events in
the fourth quarter of 1996, the Company wrote off the remaining balance of
$111,703. The total write-off of $233,405 has been shown as a bad debt
write-off.
LOSS FROM CONTINUING OPERATIONS. Losses from continuing operations were
$1,178,738 and $2,791,990 in 1996 and 1995, respectively. The Company
anticipates that losses from continuing operations will increase during 1997.
DISCONTINUED OPERATIONS. Total losses from discontinued operations were
$1,863,393 in 1995. During 1995, the Company sold Surmotech, Inc., a wholly
owned subsidiary which focused on manufacturing populated circuit boards, for
$188,000 in cash. During 1995, the Company also sold Sayett Technology,
Inc., a wholly owned subsidiary which focused on developing and manufacturing
electronic presentation systems, for a $300,000 note receivable.
The consistent, recurring losses sustained by both companies prompted the
Company to make the sales. The operating results of the two entities have
been combined and reported as "losses from discontinued operations, net of
income tax." Net sales from the discontinued operations in the year ended
December 31, 1995 were approximately $5,462,000.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1996, the Company had $1,324,398 in cash and cash
equivalents. Accounts receivable at December 31, 1996 totaled $40,201 and
represented primarily amounts due on SLMs shipped in the fourth quarter. The
Company's net working capital at December 31, 1996 was approximately
$1,249,000.
Net cash used by operating activities totaled $904,354 and $36,252 in
1996 and 1995, respectively. Net cash provided by investing and financing
activities in 1996 was approximately $1,550,000, principally resulting from a
private placement of the Company's Common Stock. Net cash used by investing
and financing activities in 1995 was approximately $423,000,
11
<PAGE>
principally resulting from capital expenditures and purchase of an equity
investment in InterVision Systems, Inc.
As of December 31, 1996, the Company had an accumulated deficit of
$7,464,081. The Company has realized significant losses in the past and
expects that these losses will continue at least through 1997. It is likely
that the Company will have quarterly and annual losses in 1997 and beyond.
The Company has generated limited revenues and no profits from operations.
The development, commercialization and marketing of the Company's products
will require substantial expenditures for the foreseeable future.
Consequently, the Company may continue to operate at a loss for the
foreseeable future and there can be no assurance that the Company's business
will operate on a profitable basis.
The Company is experiencing negative cash flow from operations resulting
in the need to fund ongoing operations from financing activities. The future
existence and profitability of the Company is dependent upon its ability to
obtain additional funds to finance operations and expand operations in an
effort to achieve profitability from operations. No assurance can be given
that the Company's business will ultimately generate sufficient revenue to
fund the Company's operations on a continuing basis. The matters discussed
above, among others, may indicate that the Company will be unable to continue
as a going concern for a reasonable period of time.
Most of the Company's revenue to date has been derived from research and
development contracts and limited sales of its SLM devices. Although the
Company has demonstrated SLM devices based on its core technology, the
Company has not yet produced any prototype SLM products with quality and
resolution sufficient to satisfy commercial end-use applications. The
Company recently entered into a contract to produce an engineering prototype
of a consumer product for mass production. However, further development and
testing will be necessary before this product or the Company's other proposed
products will be available for commercial end-use applications. Delays in
development may result in the Company's introduction of its products later
than anticipated, which may have an adverse effect on both the Company's
financial and competitive position. Moreover, there can be no assurance that
the Company will ever be successful in developing or manufacturing a
commercially viable SLM device or any of its proposed display products. In
addition, there is no assurance that an SLM device or any of the Company's
display products will be technically or commercially successful or that the
Company will be able to manufacturer adequate quantities of its SLM devices
or any of its display products at commercially acceptable cost levels or on a
timely basis.
By letter dated January 13, 1997, counsel for Jalcanto, Ltd. and Sabotini,
Ltd. (the "Investors") notified the Company that these Investors were electing
to rescind the Share Purchase Agreements dated July 10, 1996, as amended (the
"Purchase Agreements"), under which on July 11, 1996 the Investors purchased a
total of 2,135,000 shares of common stock in the Company, and were demanding a
refund by January 17, 1997 of the purchase price of such shares, or $1,783,125,
plus interest. The alleged ground for rescission is the fact that the Company's
registration statement on Form S-3 pertaining to the resale of such shares was
not declared effective by the SEC on or before December 31, 1996. Subsequently,
by letter dated February 3, 1997, counsel for the Investors notified the Company
that Jalcanto, Ltd. had retracted
12
<PAGE>
its demand for rescission, with reservation of all rights. The letter
reiterated the rescission demand on behalf of Sabotini, Ltd., and the request
that the Company return $891,563.
On February 5, 1997, the Company was served notice that it has been sued
by each of the Investors in the Superior Court of the State of California for
the County of Marin. Each Investor filed a complaint for breach of contract,
specific performance and indemnification relating to the alleged failure to
timely complete the contractually required registration statement. In
addition, each complaint requests that the court issue a preliminary and
permanent injunction against future issuances of shares of the Company's
common stock or securities convertible into common stock without the
Investor's consent. The complaint filed by Sabotini Ltd. also requests
rescission and the return of the full purchase price of its shares
(approximately $892,000). On February 26, 1997, a hearing was held with
respect to Sabotini's application for a writ to attach the Company's funds in
the amount of $920,000 to ensure enforceability of any eventual judgment in
Sabotini's favor. By order dated February 28, 1997, the court denied the
application for the writ without prejudice.
The Company intends to defend itself vigorously in both actions and
believes that it is not probable that Sabotini will prevail in
rescinding its Purchase Agreement. The Company may be required to expend
substantial funds and management resources in connection with the defense and
any settlement or judgment; accordingly, the ultimate resolution of this
litigation may have a material adverse effect on the Company's business and
financial condition taken as a whole.
13
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Spatialight, Inc. and Subsidiary:
We have audited the accompanying consolidated balance sheets of Spatialight,
Inc. and subsidiary (the "Company") as of December 31, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Spatialight, Inc. and subsidiary
as of December 31, 1996 and 1995, and the results of their operations and
their cash flows for the years then ended in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
Note 2 to the consolidated financial statements, successful completion of the
Company's development program and ultimately, the attainment of profitable
operations, is dependent on future events including obtaining adequate
financing to fulfill its development activities, successful launching of the
commercial production and distribution of its products and achieving a level
of sales adequate to support the Company's cost structure. As discussed in
Note 4, to the consolidated financial statements, the Company is the
defendant in litigation brought by shareholders who purchased common stock in
1996. As further discussed in Note 2 to the consolidated financial
statements, the Company's recurring operating losses and its accumulated
deficit raise substantial doubt about its ability to continue as a going
concern. Management's plans concerning these matters are also described in
Note 2. The consolidated financial statements do not include any adjustments
that might result from the outcome of these uncertainties.
Deloitte & Touche LLP
San Francisco, California
March 21, 1997
14
<PAGE>
SPATIALIGHT, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------
1996 1995
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $1,324,398 $ 678,300
Accounts receivable 40,021 --
Note receivable, net -- 81,451
Inventories 75,401 --
Prepaid expenses and other 11,911 5,804
------------ ------------
Total current assets 1,451,731 765,555
------------ ------------
Property and equipment, net 68,817 51,795
Other assets 12,877 --
Note receivable - noncurrent -- 218,549
TOTAL ASSETS $1,533,425 $1,035,899
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accrued expenses and other current liabilities $ 108,581 $ 52,108
Accounts payable 94,554 --
------------ ------------
Total current liabilities 203,135 52,108
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value:
20,000,000 shares authorized; issued and
outstanding 8,533,191 shares in 1996 and
6,398,191 shares in 1995 79,832 63,532
Additional paid-in capital 8,714,539 7,205,602
Accumulated deficit (7,464,081) (6,285,343)
------------ ------------
Total stockholders' equity 1,330,290 983,791
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,533,425 $1,035,899
------------ ------------
------------ ------------
See notes to consolidated financial statements.
15
<PAGE>
SPATIALIGHT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------
1996 1995
------------ ------------
NET SALES $ 176,100 $ 95,857
OPERATING EXPENSES:
Cost of sales 141,290 32,786
Selling, general and administrative expenses 763,575 503,940
Research and development expenses 265,142 509,766
Goodwill write-off -- 1,475,965
----------- -----------
Total operating expenses 1,170,007 2,522,457
----------- -----------
OPERATING LOSS (993,907) (2,426,600)
----------- -----------
OTHER (EXPENSE) INCOME:
Interest income 63,776 63,427
Other expenses (13,252) (2,705)
Losses in investee companies -- (424,714)
Write-down of note receivable (233,405) --
----------- -----------
Total other expense (182,881) (363,992)
----------- -----------
LOSS FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES (1,176,788) (2,790,592)
INCOME TAXES (1,950) (1,398)
----------- -----------
LOSS FROM CONTINUING OPERATIONS (1,178,738) (2,791,990)
DISCONTINUED OPERATIONS:
Losses from operations of discontinued
subsidiaries, net of income taxes -- (1,796,757)
Loss on disposal of discontinued subsidiaries,
net of income taxes -- (66,636)
----------- -----------
NET LOSS $(1,178,738) $(4,655,383)
----------- -----------
NET LOSS PER SHARE:
From continuing operations $ (0.16) $ (0.44)
From operations of discontinued subsidiaries -- (0.28)
From disposal of discontinued subsidiaries $ -- (0.01)
----------- -----------
NET LOSS PER SHARE $ (0.16) $ (0.73)
----------- -----------
----------- -----------
Shares used in computing net loss per share 7,230,630 6,312,283
----------- -----------
----------- -----------
See notes to consolidated financial statements.
16
<PAGE>
SPATIALIGHT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
---------------------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL (DEFICIT) EQUITY
----------- ------------ ------------ ------------- --------------
<S> <C> <C> <C> <C> <C>
Balance January 1, 1995 6,043,648 $ 59,986 $6,411,425 $(1,629,960) $4,841,451
Issuance of common stock 354,543 3,546 794,177 797,723
Net loss -- -- -- (4,655,383) (4,655,383)
----------- ------------ ------------ ------------- --------------
Balance December 31, 1995 6,398,191 63,532 7,205,602 (6,285,343) 983,791
----------- ------------ ------------ ------------- --------------
Issuance of common stock, net 2,135,000 16,300 1,508,937 -- 1,525,237
Net loss -- -- -- (1,178,738) (1,178,738)
----------- ------------ ------------ ------------- --------------
Balance December 31, 1996 $8,533,191 $ 79,832 $8,714,539 $(7,464,081) $1,330,290
----------- ------------ ------------ ------------- --------------
----------- ------------ ------------ ------------- --------------
</TABLE>
See notes to financial statements.
17
<PAGE>
SPATIALIGHT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
- -------------------------------------------------------------------------------
1996 1995
------------- -------------
OPERATING ACTIVITIES:
Net loss $(1,178,738) $(4,655,383)
Adjustments to reconcile net loss
to net cash used by operating activities:
Depreciation and amortization 24,358 357,690
Losses in investee companies -- 424,714
Goodwill write-off -- 1,475,965
Write-down of note receivable 233,405 --
Loss on disposal of discontinued subsidiaries -- (41,791)
Changes in assets and liabilities:
Investments (trading securities) -- 571,714
Accounts receivable (40,021) 1,012,020
Inventories (75,401) 1,481,842
Other receivables -- 124,763
Prepaid expenses and other current assets (6,107) 89,001
Other assets (12,877) 65,072
Accounts payable 94,554 (592,032)
Accrued expenses and other current liabilities 56,473 (166,897)
Product warranty -- (182,930)
------------- -------------
Net cash used by operating activities (904,354) (36,252)
------------- -------------
INVESTING ACTIVITIES:
Purchase of short-term investments (1,172,900)
Proceeds from sales of short-term investments 1,172,900
Capital expenditures (26,311) (212,831)
Purchase of equity investment -- (375,000)
Payments received on notes receivable 51,526 --
Net proceeds from acquisitions/disposals -- 164,352
------------- -------------
Net cash provided (used) by investing
activities 25,215 (423,479)
------------- -------------
FINANCING ACTIVITIES:
Proceeds from the sales of common stock,
net of issuance costs 1,525,237 --
------------- -------------
Net cash provided by financing activities 1,525,237 --
-------------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS 646,098 (459,731)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 678,300 1,138,031
------------- -------------
CASH AND CASH EQUIVALENTS, END OF YEAR $1,324,398 $ 678,300
------------- -------------
------------- -------------
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Furniture received as payment on notes
receivable $ 15,069
-------------
Debentures in SOC converted to common
stock of SOC $ 466,105
-------------
Common stock issued in conjunction with
acquisition of SOC $ 797,723
-------------
See notes to consolidated financial statements.
18
<PAGE>
SPATIALIGHT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
- -------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS
Spatialight, Inc. and its subsidiary (the Company) develops, designs,
manufactures, and markets high content information display system components
for the optical computing, computer monitoring/projection, holography, and
multimedia industries.
2. GOING CONCERN UNCERTAINTY
The Company incurred significant operating losses in each of the last
five fiscal years and incurred a net loss in fiscal 1996 of $1,178,438.
Additionally, as of December 31, 1996 the Company's accumulated deficit
totaled $7,464,081. The Company has generated limited revenues to date
and the development, commercialization and marketing of the Company's
products will require substantial expenditures in the foreseeable
future. The successful completion of the Company's development program
and ultimately, the attainment of profitable operations, is dependent
upon future events. These events include the obtaining adequate
financing to fulfill its development activities, successful launching of
the commercial production and distribution of its products and achieving
a level of sales adequate to support the Company's cost structure. The
accompanying consolidated financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and
the satisfaction of liabilities in the normal course of business. These
matters discussed above, among others, may indicate that the Company
will be unable to continue as a going concern for a reasonable period of
time.
The consolidated financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset
amounts or the amounts and classification of liabilities that might be
necessary should the Company be unable to continue as a going concern.
In an effort to improve operating performance, the Company has been and
will be implementing certain programs and strategies in 1997. These
strategies include:
- Raising of additional capital.
- Outsourcing of all manufacturing activities, which will be monitored by
Company's manufacturing/quality control engineering staff.
- Developing strategic arrangements with potential customers to share
development costs and/or licensing of the Company's technology.
- Construction of engineering models to demonstrate proof of technology
for OEM's.
The Company's continuation as a going concern is dependent upon its
ability to generate sufficient cash flow to meet its obligations on a
timely basis, to obtain additional financing, and ultimately to attain
successful operations. Management is continuing its efforts to obtain
additional funds so that the Company can meet its obligations and
sustain its operations.
19
<PAGE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of Spatialight, Inc. (SI), and its majority-owned
subsidiary Spatialight of California (SOC). All inter-company accounts
and transactions have been eliminated in consolidation.
ESTIMATES - The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires that
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 consolidated financial statements and
the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
INVENTORIES - Inventories are stated at the lower of cost or market,
cost being determined on a first-in, first-out (FIFO) basis.
PROPERTY AND EQUIPMENT - Property and equipment are recorded at cost
while repairs and maintenance costs are expensed in the period incurred.
Depreciation and amortization of property and equipment is calculated
on a straight-line basis over the estimated useful lives of the assets,
generally 3 to 5 years.
REVENUE RECOGNITION - Revenue is generally recognized at the time
product is shipped.
INCOME TAXES - The Company uses the asset and liability method to
account for income taxes, in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes."
NET LOSS PER COMMON SHARE - Net loss per common share for 1996 and 1995
is based on the weighted average number of common shares outstanding
during the year; stock options and warrants were not included since
their effect would be anti-dilutive.
RESEARCH AND DEVELOPMENT - Research and development costs are charged to
expense when incurred.
CASH EQUIVALENTS - Cash equivalents include money market securities
stated at cost, which approximate market value, purchased with original
maturities of three months or less.
STOCK-BASED COMPENSATION - The Company accounts for stock-based awards
to employees using the intrinsic value method in accordance with APB No.
25, "Accounting for Stock Issued to Employees."
4. ISSUANCE OF COMMON STOCK AND RELATED LITIGATION
On July 11, 1996 the Company sold 1,585,000 shares of its common stock
to a private investor group at $1.125 per share, or $1,783,125 in gross
proceeds. In conjunction with the sale of common stock, the Company also
issued warrants to purchase an additional 1,585,000 shares of the
Company's common stock, exercisable at any time prior to July 15, 2001,
at an exercise price of $1.00 per share before July 15, 1997, $1.25
through July 1999
20
<PAGE>
and $1.50 thereafter. Net proceeds received by the Company related to
this placement were $1,525,237.
On November 11, 1996, in connection with the approval by the
above-mentioned investors of a future additional offering of
common stock (relating to the Company's planned stock for stock exchange
to acquire the remaining 20% of common shares of SOC owned by the
original owners), the Company entered into an Amendment Agreement which
repriced the July 11, 1996 sale of common stock from $1.125 per share to
$.8352 per share and issued an additional 550,000 shares to the
investors.
By letter dated January 13, 1997, counsel for Jalcanto, Ltd. and
Sabotini, Ltd. (the "Investors") notified the Company that these
Investors were electing to rescind the Share Purchase Agreements dated
July 10, 1996, as amended (the "Purchase Agreements"), under which on
July 11, 1996 the Investors purchased a total of 2,135,000 shares of
common stock in the Company, and were demanding a refund by January 17,
1997 of the purchase price of such shares, or $1,783,125, plus interest.
The alleged ground for rescission is the fact that the Company's
registration statement on Form S-3 pertaining to the resale of such
shares was not declared effective by the SEC on or before December 31,
1996. Subsequently, by letter dated February 3, 1997, counsel for the
Investors notified the Company that Jalcanto, Ltd. had retracted its
demand for rescission, with reservation of all rights. The letter
reiterated the rescission demand on behalf of Sabotini, Ltd., and the
request that the Company return $891,562.50.
On February 5, 1997, the Company was served notice that it has been sued
by each of the Investors in the Superior Court of the State of California
for the County of Marin. Each Investor filed a complaint for breach of
contract, specific performance and indemnification relating to the
alleged failure to timely complete the contractually required
registration statement. In addition, each complaint requests that the
court issue a preliminary and permanent injunction against future
issuances of shares of the Company's common stock or securities
convertible into common stock without the Investor's consent. The
complaint filed by Sabotini Ltd. also requests rescission and the return
of the full purchase price of its shares (approximtely $892,000). On
February 26, 1997, a hearing was held with respect to Sabotini's
application for a writ to attach the Company's funds in the amount of
$920,000 to ensure enforceability of any eventual judgment in Sabotini's
favor. By order dated February 28, 1997, the court denied the application
for the writ without prejudice.
The Company intends to defend itself vigorously in both actions and
believes that it is not probable that the Sabotini will prevail in
rescinding its Purchase Agreement. The Company may be required to expend
substantial funds and management resources in connection with the
defense and any settlement or judgment; accordingly, the ultimate
resolution of this litigation may have a material adverse effect on the
Company's business and financial condition taken as a whole. No provision
for any loss that may result from resolution of this uncertainty has been
made in the accompanying consolidated financial statements.
5. DISCONTINUED OPERATIONS
On July 1, 1995 the Company sold Surmotech, Inc., a wholly owned
subsidiary, for $188,000 in cash.
On December 29, 1995 the Company sold Sayett Technology, Inc., (STI) a
wholly owned subsidiary, to former management members of the Company for
$300,000 in the form of a note receivable. In 1996, the Company received
$51,526 in cash and $15,069 in furniture
21
<PAGE>
and fixtures. In the third quarter of 1996 the Company wrote
down the note by $121,702 based on their assessment of collectibility.
Based on events in the fourth quarter the Company wrote off the remaining
balance of $111,703.
As a result of the aforementioned sales, the Company is reporting the
results of the two subsidiaries as discontinued operations for the
period ended December 31, 1995 in the consolidated financial statements.
Net sales from discontinued operations were $5,462,000 in 1995.
6. PROPERTY AND EQUIPMENT
Property and equipment as of December 31 consist of the following:
1996 1995
--------- --------
Office furniture and fixtures $ 94,885 $57,513
Machinery and equipment 62,263 58,255
-------- --------
157,148 115,768
Less accumulated depreciation and amortization 88,331 63,973
-------- --------
$ 68,817 $ 51,795
-------- --------
-------- --------
7. INVESTMENT IN SUBSIDIARY
In November 1992, the Company entered into a Subscription and Stock
Purchase Agreement (the Agreement) with SOC (formerly WAH-III Technology
Corp.) a development stage company that develops, designs and
manufactures electronic display products, including a small, high
content liquid crystal display (LCD). Through the Agreement and
subsequent amendments, the Company purchased and held, as of December
31, 1994, notes receivable totaling $1,078,105. Additionally, the
Company made advances to SOC under a line of credit agreement totaling
$200,000 as of December 31, 1994.
On January 1, 1995, the Company converted its note receivable from SOC
and received 2,703,427 shares of SOC common stock which increased its
ownership of SOC to approximately 68%. On February 7, 1995, the Company
exchanged 354,543 shares of its common stock for 531,815 shares of SOC
common stock, which further increased its ownership to approximately
80.3%. The note receivable conversion and exchange of shares in 1995
gave rise to a difference between the Company's investment and the
underlying equity in the net assets of SOC. This excess of purchase
price over the net assets acquired ("goodwill") totaled $1,475,965.
The Company wrote off the $1,475,965 of goodwill in December 1995, based
in part on a comparison of the Company's best estimate of the undiscounted
cash flows of SOC to the carrying value of the goodwill.
22
<PAGE>
The operating results of SOC have been included in the Company's
consolidated financial statements since January 1, 1995. The absence of
a minority interest balance on the consolidated balance sheet as of
December 31, 1996 and 1995 is due to a deficiency in SOC's net assets
due to its recurring losses. Additionally, losses applicable to the
minority interest have been charged against the Company's interest, as
there is no obligation of the minority interest to make good such losses.
8. LOSS IN INVESTEE COMPANY
On March 26, 1994, the Company acquired 40% of the common stock of
InterVision Systems, Inc. (ISI), a newly formed Delaware Corporation
that produces head-mounted displays utilizing a wearable computer, for
$1,350,000. The Company accounted for this investment using the equity
method of accounting which required that the original investment be
recorded at cost and adjusted by the Company's share of undistributed
earnings or losses of ISI. ISI generated a loss of approximately
$925,286 for the period ended December 31, 1994. The Company lost an
additional $424,714 for the nine months ended September 30, 1995,
indicating that the Company's investment was and continued to be
significantly impaired. The Company measured the impairment of its
investment by recording 100% of the loss generated by ISI in the
consolidated financial statements since the Company essentially provided
100% of ISI's capitalization and therefore, had all the capital-at-risk.
As of December 31, 1995 Company's investment has been totally
written-off.
9. INCOME TAXES
The income tax provision including the effect of continuing and
discontinued operations in the accompanying consolidated statements
of operations is as follows:
1996 1995
-------- -------
Current payable, primarily state taxes $(1,950) $(1,398)
-------- -------
-------- -------
The income tax provision differs from those computed using the statutory
federal tax rate of 34%, due to the following:
23
<PAGE>
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Benefit at statutory federal rate $400,771 $948,801
State benefit (taxes) 36,175 (1,398)
Tax loss and credit carryforwards
due to sale of subsidiaries generating
those tax attributes (116,891) --
Increase in valuation allowance (327,677) (948,801)
Other 5,672 --
--------- -------
$ (1,950) $(1,398)
--------- -------
--------- -------
</TABLE>
The net deferred tax assets (liabilities) as of December 31, 1996 and
1995 are as follows:
CURRENT:
Inventory reserves $ -- $ --
Bad debt reserves 79,358 --
Warranty liability -- --
Other 17,261 --
Valuation allowance (96,619) --
---------- -----------
$ -- $ --
---------- -----------
---------- -----------
NONCURRENT:
Depreciation and amortization $ (3,397) $ --
Equity in losses of investees 1,168,908 1,168,908
State taxes, net 337,277 222,905
Operating loss carryforwards 1,584,608 1,515,752
Federal tax credit 51,227 --
Less valuation allowance (3,138,623) (2,907,565)
---------- -----------
$ -- $ --
---------- -----------
---------- -----------
A valuation allowance is provided when it is more likely than not that
some portion of the deferred tax asset will not be realized. The Company
has established a 100% valuation allowance at December 31, 1996 and 1995
due to uncertainty of realizing future tax benefits from its net operating
loss carryforwards and other deferred tax assets.
As discussed in Note 5, the Company sold two subsidiaries during 1995.
Any tax benefits arising from the disposal of these subsidiaries were
completely offset by an increase in the Company's valuation allowance.
At December 31, 1996, the Company had net operating loss ("NOL")
carry-forwards of approximately $4,700,000, available to offset United
States taxable income. The NOL carry-forwards will expire from 2005 to
2011.
Income taxes (refunded) paid in 1996 and 1995 totaled $5,330 and
$(1,912) respectively.
24
<PAGE>
10. STOCKHOLDERS' EQUITY
STOCK OPTION PLAN - The Company has various Stock Option Plans primarily
for employees and directors. The Plans authorize the issuance of
options to purchase up to 1,010,000 shares of the Company's common
stock. The Plans provide for options which may be issued as
nonqualified or qualified incentive stock options under Section 422A of
the Internal Revenue Code of 1986, as amended.
Under the 1991 and 1993 Employee Stock Option Plans, the Company may
grant options to purchase up to 915,000 shares of common stock to
employees at prices not less than the fair market value at the date of
grant for incentive stock options and not less than 85% of fair market
value for non-statutory stock options. These options expire 10 years
from the date of grant and become exercisable 50% in year one and 50% in
year two.
Under the 1993 Non-Employee Directors' Stock Option Plan non-employee
directors of the Company are granted options to purchase 10,000 shares
of common stock at the fair market value at the date of grant each year
that such person remains a director of the Company. These options expire
10 years from the date of grant and become fully exercisable after 2
years. The total number of shares authorized under the plan is 95,000.
Options under the Plans are granted at the discretion of the Board of
Directors. All options granted through 1996 have been granted at fair
market value.
The following is a status of the options under the Plans and a summary
of the changes in options outstanding during 1996 and 1995:
Number of Weighted Avg.
Shares Exercise Price
---------- ----------------
Outstanding, January 1, 1995 443,500 $2.82
Options granted 195,300 1.62
Options cancelled (428,800) 2.82
--------
Outstanding, December 31, 1995 210,000 2.42
Options granted 165,000 1.06
Options canceled (10,000) 1.19
--------
Outstanding, December 31, 1996 365,000 $1.84
--------
--------
Options exercisable as of December 31, 1996 and 1995 totaled
approximately 170,000 and 125,000 options at a weighted average exercise
price of $1.81 and $2.79 respectively.
25
<PAGE>
Additional information regarding options outstanding as of December 31,
1996 is as follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------- -------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life (Yrs) Price Exercisable Price
- --------------- ----------- ----------- -------- ----------- --------
$2.00-$3.13 140,000 6.2 $2.82 140,000 $2.82
$1.00-$2.00 160,000 8.9 $1.38 30,000 $1.69
$0.875-$1.00 65,000 9.2 $0.88 $0.88
------- ----------
365,000 170,000
------- ----------
------- ----------
At December 31, 1996, 605,000 shares and 40,000 shares were available
for future grants under the Employee Stock Option Plan and Non-Employee
Directors Plan, respectively.
ADDITIONAL STOCK PLAN INFORMATION
Statement of Financial Accounting Standards No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION, (SFAS 123) requires the disclosure of pro
forma net loss and loss per share had the Company adopted the fair value
method as of the beginning of fiscal 1995. Under SFAS 123, the fair
value of stock-based awards to employees is calculated through the use
of option pricing models, even though such models were developed to
estimate the fair value of freely tradable, fully transferable options
without vesting restrictions, which significantly differ from the
Company's stock option awards. These models also require subjective
assumptions, including future stock price volatility and expected time
to exercise, which greatly affect the calculated values. The Company's
calculations were made using the Black-Scholes option pricing model with
the following weighted average assumptions: expected life, 10 years;
stock volatility, 183% in 1996 and 183% in 1995; risk free interest
rates, 6.89% in 1996 and 6.59% in 1995; and no dividends during the
expected term. The Company's calculations are based on a multiple
option valuation approach and forfeitures are recognized as they occur.
If the computed fair values of the 1995 and 1996 awards had been
amortized to expense over the vesting period of the awards, pro forma
net loss would have been $4,714,233($.75 per share) in 1995 and
$1,299,513 ($0.18 per share) in 1996. However, the impact of
outstanding non-vested stock options granted prior to 1995 has been
excluded from the pro forma calculation; accordingly, the 1995 and 1996
pro forma adjustments are not indicative of future period pro forma
adjustments, when the calculation will apply to all applicable stock
options.
On February 25, 1997 the Company repriced the exercise price and extended
vesting period of all 365,000 outstanding options (originally granted from
$0.875 to $3.13) to $0.625.
26
<PAGE>
11. MAJOR CUSTOMERS
The Company had five customers during the year ended December 31, 1995.
Two of these customers accounted for 40% of the Company's sales.
12. COMMITMENTS AND CONTINGENCIES
The Company has various operating lease arrangements for equipment and
office space. Total rent expense under operating leases amounted to
approximately $32,000 and $35,000 in 1996 and 1995, respectively. The
office lease expires on April 30, 1997 and future minimum lease payments
under non-cancelable operating leases are $12,000. The Company expects
the lease to be renewed for one year.
CONTINGENT PAYMENT CONTRACTS - Prior to December 31, 1994, SOC entered
into certain contracts with service providers and with several employees
to lease space and obtain research, development, marketing, legal and
other services. These contracts provide for payments to these service
providers and employees as SOC achieves specified cumulative unit sales
or revenue levels. There are no required payments under the contracts
if minimum cumulative unit sales or revenue levels are not achieved.
The contracts do not have expiration dates. As of December 31, 1996 and
1995, services under these contracts have been provided to the Company;
however, no amounts have been accrued as a liability because achievement
of the minimum required cumulative unit sales or revenue levels is not
considered probable as of that date. As of December 31, 1996, the
maximum potential liability of the Company under these contracts is
approximately $1,100,000.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The information required by this Item is incorporated by reference from
the definitive proxy statement for the Company's 1997 annual meeting of
stockholders to be filed with the Commission pursuant to Regulation 14A
not later than 120 days after the end of the fiscal year covered by this
report (the "Proxy Statement") under the caption "DIRECTORS, EXECUTIVE
OFFICERS, PROMOTERS AND CONTROL PERSONS: COMPLIANCE WITH SECTION 16(a) OF
THE EXCHANGE ACT."
ITEM 10. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference from
the Proxy Statement under the caption "EXECUTIVE COMPENSATION."
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference from
the Proxy Statement under the caption "SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT."
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item is incorporated by reference from
the Proxy Statement under the caption "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS."
27
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits are filed as part of this Form 10-KSB:
Exhibit # Description
--------- -----------
3.1 Certificate of Incorporation
3.2 By-laws
10.1(1)* 1991 Stock Option Plan
10.2(1)* Form of Officers and Directors Agreement
10.3(1)* Employee Stock Option Plan
10.4(1)* Director Stock Option Plan
10.5(1) Agreement between Sayett Group, Inc. and InterVision
Systems, Inc. dated March 11, 1994
10.6(2) Agreement and Plan of Reorganization, dated January 26, 1995
10.7(2) Sayett Group, Inc. and WAH-III Technology Subscription and
Stock Purchase Agreement, dated November 25, 1992
10.8(2) Amendment to Subscription and Stock Purchase Agreement,
dated June 29, 1993
10.9(2) Second Amendment to Subscription and Stock Purchase
Agreement, dated April 27, 1994
10.10(2) Stock Purchase Agreement, dated July 19, 1994
10.11(3) Share Purchase Agreements dated July 10, 1996 between
the Company and each of Jalcanto, Ltd. and Sabotini, Ltd.
10.12(4) Agreement and Warrant to Purchase 792,500 Common
Shares of Spatialight, Inc. as issued to each of Jalcanto,
Ltd. and Sabotini, Ltd.
10.13(5) Amendment to Share Purchase Agreements dated November 11,
1996 with each of Jalcanto, Ltd. and Sabotini, Ltd.
10.14* Employment Agreement between the Company and William E.
Hollis dated July 1, 1996
10.15* Employment Agreement between the Company and Dean S.
Irwin dated July 1, 1996
10.16 Distribution Agreement between Spatialight of California
and Meadowlark Optics
10.17* Employment agreement between the Company and L. John
Loomis dated February 17, 1997
27.1 Financial Data Schedule
* Designates management contracts and compensatory plans.
(1) Incorporated by reference to the corresponding exhibit filed
with the registrant's Registration Statement on Form S-1 filed
February 13, 1992, as amended.
(2) Incorporated by reference to the corresponding exhibit filed
with the registrant's Current Report on Form 8-K filed
February 7, 1995.
(3) Incorporated by reference to exhibit 10.32 filed with
the registrant's Current Report on Form 8-KA filed September
24, 1996.
(4) Incorporated by reference to exhibit 4.5 filed with the
registrant's Current Report on Form 8-KA filed September 24,
1996.
(5) Incorporated by reference to exhibit 10.33 filed with
the registrant's Current Report on Form 8-KA filed November
11, 1996.
(b) No Form 8-K was filed during the quarter ended December 31, 1996.
A Form 8-KA was filed on November 11, 1996 reporting under
Item 5, and amending a Form 8-K originally filed on July 23,
1996.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
SPATIALIGHT, INC.
Dated: March 31, 1997 By: /s/ William E. Hollis
----------------------------------
William E. Hollis
President & Chief Executive Officer
Chief Financial Officer and
Chief Accounting Officer
In accordance with the Exchange Act, this Report has been signed below by
the following persons on behalf of the Registrant and in the capacities and
on the dates indicated:
Dated: March 31, 1997 By: /s/ William E. Hollis
----------------------------------
William E. Hollis
President & Chief Executive Officer
Chief Financial Officer and
Chief Accounting Officer
Dated: March 31, 1997 By: /s/ Lawrence J. Matteson
----------------------------------
Lawrence J. Matteson
Chairman of the Board
Dated: March 31, 1997 By: /s/ Michael H. Burney
----------------------------------
Michael H. Burney
Director
Dated: March 31, 1997 By: /s/ Edward J. Kelly
----------------------------------
Edward J. Kelly
Director
Dated: March 31, 1997 By: /s/ Thomas D. Stahl
----------------------------------
Thomas D. Stahl
Director
<PAGE>
EXHIBIT 10.14
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into as of July 1,
1996, by and between SPATIALIGHT, INC., A NEW YORK CORPORATION ("Company"),
and WILLIAM E. HOLLIS ("Employee") , with reference to the following facts:
RECITALS
A. Employee is currently employed by Company.
B. Company and Employee wish to enter into this Agreement to assure
Company of the services of Employee and to set forth the rights and
duties of the parties.
NOW THEREFORE, the parties agree as follows:
AGREEMENT
1. EMPLOYMENT.
(a) Company hereby employs Employee as its Chief Executive Officer,
and Employee hereby accepts and agrees to said employment by the Company for
the purpose of rendering on behalf of Company services as a Chief Executive
Officer, upon the terms and conditions set forth herein.
(b) Employee shall perform such services and duties with the
Company as are usually associated with the position of Chief Executive
Officer and as otherwise decided upon by the Board of Directors of the
Company. Employee shall report directly to the Board of Directors of
Company. Employee further agrees that, except during vacation periods or in
accordance with Company's personnel policies covering leaves of absence and
reasonable periods of illness or other incapacitation, Employee shall devote
substantially all of his time and services to the business and interests of
the Company. Notwithstanding the foregoing, Employee shall also be permitted
to serve on the boards of directors of other business corporations and may
participate in charitable, cultural, professional, civic and business
association activities. Employee shall perform the duties of his position
and those assigned to him by the Company's Board of Directors with fidelity,
to the best of his ability, in the best interests of the Company, in a
professional manner and at all times in compliance with all laws, rules and
regulations. Employee agrees that to the best of his ability and experience
he will at all times loyally and conscientiously perform all of the duties
and obligations required of him either expressly or implicitly by the terms
of this Agreement. Additionally, Employee agrees to comply with corporate
policies, standards and regulations adopted by the Company from
<PAGE>
time to time to the extent the same are reasonable and not in violation of law.
2. TERM OF EMPLOYMENT.
Employee's term ("Term") of employment by the Company as set forth
herein shall commence as of the date of this Agreement (the "Effective
Date") and shall continue thereafter for a period of three years unless
otherwise terminated pursuant to the provisions of Section 7 below.
Notwithstanding the foregoing, the Term shall automatically be renewed, upon
the same terms and conditions contained herein, for consecutive periods of
one year each (a "Renewal Term") upon expiration of the immediately preceding
term unless and until either party elects not to so renew this Agreement by
delivering written notice to the other party not less than thirty (30) days
prior to the expiration of the Term, or any then existing Renewal Term.
Nothing in this Section shall be deemed or construed as limiting or waiving
any of the rights of Company or Employee set forth in Section 7.
3. COMPENSATION.
a. Salary - Upon the Effective Date, the Company shall pay
Employee a salary ("Salary") at the annual rate equal to One Hundred Twenty
Thousand Dollars ($120,000). Employee's Salary shall be paid pursuant to
Company's normal payroll practices. Company shall have the right to deduct
from the compensation due to Employee hereunder any and all sums required for
social security and withholding taxes, and for any other federal, state or
local charge and/or tax which may now be in effect or is hereafter enacted or
required as a charge on the compensation of Employee.
b. Benefits - Employee shall be entitled to the following
benefits provided by the Company: (i) a suitable office and furnishings
commensurate with Employee's position and such related facilities as are
necessary for the performance of Employee's duties, (ii) medical and dental
insurance, providing coverage on terms no less beneficial than those afforded
other senior executives employed by the Company, (iii) 4 weeks of paid
vacation per year earned pro-rata over each year of the Term and (iv) 1 week
of paid sick-leave per year earned pro-rata over each year of the Term.
Employee acknowledges and agrees that some of the benefits provided to
Employee by Company hereunder may be taxable to Employee, and that Company
may be required to make payroll withholdings in respect of such taxable
benefits.
c. Bonuses - Employee shall be entitled to receive bonuses from
time to time in such amounts, as the Company's Board of Directors may
determine in its sole and absolute discretion.
<PAGE>
4. EMPLOYEE EXPENSES.
Employee shall be responsible for payment of all personal business
expenses incurred by Employee, including entertainment, automobile and travel
related expenses and expenses relating to professional organizations.
Subject to Company's prior approval, and upon submission of a detailed
accounting supported by receipts, Company shall reimburse Employee for all
expenses incurred by Employee at Company's specific request.
5. CONFIDENTIAL INFORMATION.
a. Within the scope of his employment hereunder, Employee will
have access to confidential information and trade secrets relating to
Company's business. This confidential information and trade secrets
includes, but is not limited to, know-how, research and development,
marketing strategy, sales methods and expertise, customer lists, confidential
records and data pertaining to Company's customers and other customer
information, and all other information owned by Company and regularly used in
the operation of the business of Company, including, without limitation, all
lists, books, records, files documents and similar items relating to the
business or products of Company, whether prepared by Employee or otherwise
coming into Employee's possession; all of the foregoing being deemed
"Confidential Information". Employee and Company agree that all such
Confidential Information consists of protectable trade secrets and
confidential information within the meaning of California Civil Code Section
3426 ET SEQ. and all other applicable provisions of California law. Employee
agrees that, during the term and continuance of his employment by Company, and
for the 2 year period commencing on the date of termination of said
employment for any reason whatsoever, he will not directly or indirectly make
known, disclose or divulge to any person, firm, entity or corporation any of
the Confidential Information described herein unless Employee is specifically
authorized to do so in writing by Company. The provisions of this Section
apply to all Confidential Information of Company which Employee may develop,
obtain or learn about during or as a result of his employment by Company,
whether such Confidential Information is prepared by Employee or comes into
Employee's possession in any other way and whether or not it contains or
constitutes trade secrets owned by Company.
b. Employee acknowledges and agrees that all Confidential
Information is and shall remain the exclusive property of Company and shall
not be removed from the premises of Company under any circumstances
whatsoever (provided that if such removal is necessitated to perform
Employee's duties hereunder, then such removal shall be permitted on a
temporary basis to perform such activities) without the prior written consent
of Company. Upon termination of employment for any reason, all such
Confidential Information, whether prepared by Employee or otherwise coming
into
<PAGE>
Employee's possession, shall be immediately returned to Company by Employee.
c . Employee acknowledges that he has not disclosed, and is not
required as a condition of employment to disclose, to Company any
confidential information which is owned by any of his prior employers.
d. If Employee should materially breach any of his covenants
under this Section 5, then in addition to all other rights or remedies
provided for hereunder or at law or in equity, Company shall have the
immediate right to terminate Employee's employment with Company (such
termination to be deemed for "cause" as set forth in Section 7.a. below)
and/or Company shall be entitled to injunctive relief without the posting of
bond or other security, since the remedy at law would be inadequate and
insufficient. In addition, Company shall be entitled to such damages as it
can show it has sustained by reason of Employee's breach. Furthermore,
Employee agrees to defend, indemnify and hold Company and its shareholders,
directors, officers, agents and employees, and their successors, assigns and
heirs, harmless from and against any and all claims (including third-party
claims) arising from or in connection with any breach or default by Employee
in Employee's covenants under this Section 5, together with all costs,
expenses and liabilities incurred in, or in connection with, each such claim
or action or proceeding brought thereon, including, without limitation,
reasonable attorneys fees and costs. The provisions of this Section 5 shall
apply to any breach by Employee occurring during the term of his employment
and/or during the 2 years after termination of his employment for any reasons
whatsoever.
6. DEVELOPMENT/OWNERSHIP OF NEW PROCEDURES.
a. All know-how, expertise, procedures, processes, products,
inventions, patents, copyrights, trademarks, service marks and other
intangible rights (hereinafter collectively "inventions") that may be
conceived or developed by Employee, either alone or with others, during the
term of Employee's employment, whether or not conceived or developed during
Employee's working hours, and with respect to which any equipment, supplies,
facilities, know-how, expertise or trade secret information of Company was
used, or that relate, at the time of conception or reduction to practice of
the invention, procedure, process, or item subject to patent, copyright or
similar protection, or other intangible right, to the business of Company or
to Company's actual or demonstrably anticipated research and development, or
that relate to or result from any work performed by Employee for Company,
shall be disclosed to Company during the term of Employee's employment and
for 2 years thereafter. To the extent the Company does not have rights
therein hereunder, such disclosure shall be received by the Company in
confidence and does not extend the assignment made in Section 6(b) below.
<PAGE>
b. All inventions which Employee makes, conceives, practice or
develop (in whole or in part, either alone or jointly with others) during his
employment by Company shall be the sole property of the Company to the
maximum extent permitted by Section 2870 of the California Labor Code, a copy
of which is attached hereto as Exhibit "A", and to the extent permitted by
law shall be "works made for hire". Company shall be the sole owner of all
patents, copyrights, trade secret rights, rights with respect to mask works
and other intellectual property or other rights in connection therewith
unless agreed in writing to the contrary by the Company. Employee hereby
assigns to Company any rights he may have or acquire in such inventions.
Employee agrees to perform, during and after employment with Company, all
acts deemed necessary or desirable by Company to permit and assist it, at
Company's expense, in obtaining and enforcing patents, copyrights, trade
secret rights, rights with respect to mask works or other rights on such
inventions and/or any other inventions Employee have or may at any time
assign to Company in any and all countries. Such acts may include, but are
not limited to, execution of documents and assistance or cooperation in legal
proceedings. Employee hereby irrevocably designates and appoints Company and
its duly authorized officers and agents, as his agents and attorneys-in-fact
to act for and in his behalf and instead of him, to execute and file any
applications or related filings and to do all other lawfully permitted acts
to further the prosecution and issuance of patents, copyrights, trade secret
rights, rights with respect to mask works or other rights thereon with the
same legal force and effect as if executed by Employee.
c. If Employee should breach any of his covenants under this
Section 6, then in addition to all other rights or remedies provided for
hereunder or at law or in equity, the Company shall have the immediate right
to terminate Employee's employment with the Company and/or the Company shall
be entitled to injunctive relief without the posting of bond or other
security, since the remedy at law would be inadequate and insufficient. In
addition, the Company shall be entitled to such damages as it can show it has
sustained by reason of Employee's breach. Furthermore, Employee agrees to
defend, indemnify and hold Company and its shareholders, partners,
directors, officers, agents and employees, and their successors, assigns and
heirs, harmless from and against any and all claims (including third-party
claims) arising from or in connection with any breach or default by Employee
in Employee's covenants under this Section 6, together with all costs,
expenses and liabilities incurred in, or in connection with, each such claim
or action or proceeding brought thereon, including, without limitation,
reasonable attorneys fees and costs.
7. TERMINATION.
a. Company may terminate this Agreement and Employee's employment
at any time prior to the expiration of the Term or any
<PAGE>
Renewal Term for "cause". For the purposes of this Agreement, "cause" shall
mean:
(i) Employee's continued willful and habitual neglect of his
duties following notification of such neglect by Company's Board of
Directors and failure by Employee to cure such neglect within 30 days
after such notification.
(ii) Employee's conviction, after the date hereof, of a
felony which, by its nature, would materially injure the reputation
of Company as determined by Company's Board of Directors acting in
good faith and upon reasonable grounds.
(iii) Employee's incapacity to perform the duties required
of him hereunder as a result of mental or physical illness, which
incapacity continues for a period of 180 days in any 12 consecutive
month period.
(iv) Company ceases or fails to continue to do business.
(v) Death of the Employee.
Termination of Employee's employment for cause shall not be in limitation of
any other right or remedy Company may have under this Agreement or in law or
equity.
b. Notwithstanding the termination of this Agreement pursuant to
Section 7a herein or as a result of the expiration of the Term or any Renewal
Term, this Section 7b and Sections 5, 7a, 8, 9, 10, 11, 12, 13, 14, 15, 161
17 and 18 herein shall remain in full force and effect.
8. NON-COMPETE.
As a material inducement for Company to enter into this Agreement,
Employee agrees that for a period of 2 years following the termination of
this Agreement for any reason whatsoever, Employee will not directly or
indirectly (i) solicit, or agree to service for his benefit or the benefit of
any third-party, any of Company's customers whether or not serviced directly
by Employee during the term of this Agreement and (ii) disrupt, damage,
impair or interfere with the business of Company, whether by way of breaching
any obligation under this Agreement, interfering with any customer of
Company, Company's employees, disrupting Company's relationships with
customers, agents, representatives or vendors or otherwise.
9. REASONABLENESS.
The parties recognize that this Agreement contains conditions,
covenants, and time limitations that are reasonably required for the
protection of the confidential information, trade secrets and
<PAGE>
business of the parties or a particular party. If any limitation, covenant
or condition shall be deemed to be unreasonable and unenforceable by a court
or arbitrator of competent jurisdiction, then this Agreement shall
thereupon be deemed to be amended to provide for modification of such
limitation, covenant and/or condition to such extent as the court or
arbitrator shall find to be reasonable and such modification shall not affect
the remainder of this Agreement.
10. REMEDIES.
No remedy conferred by any of the specific provisions of this Agreement
is intended to be exclusive of any other remedy given hereunder or hereafter
existing at law or in equity. The election of any one or more remedies by
any party shall not constitute a waiver of the right to pursue other
available remedies.
11. SEVERABLE PROVISIONS.
The provisions of this Agreement are severable, and if any one or more
provisions may be determined to be judicially unenforceable, in whole or in
part, the remaining provisions shall nevertheless be binding and enforceable.
12. INJUNCTIVE RELIEF.
Employee acknowledges that, in the event Employee breaches this
Agreement, money damages will not be adequate to compensate Company for the
loss occasioned by such breach. Employee, therefore, consents, in the event
of such a breach, to the granting of injunctive relief against Employee by
any court of competent jurisdiction.
13. BINDING AGREEMENT.
The rights and obligations of the parties under this Agreement shall
inure to the benefit of and shall be binding on their successors and assigns.
Notwithstanding the foregoing, Employee may not assign his rights or
obligations hereunder.
14. NOTICES.
Any notice to be given to the Company under the terms of this Agreement
shall be addressed to the Company at the address of its principal place of
business, and any notice to be given to Employee shall be addressed to him at
his home address last shown on the records of the Company, or at such other
address as either party may hereafter designate in writing to the other. All
notices shall be in writing and shall be delivered personally, sent by United
States certified or registered mail, return receipt requested, first class
postage prepaid, or by private messenger or courier service. Any such notice
shall be deemed to have been received on
<PAGE>
the earlier of (i) five (5) business days after it is mailed or (ii) the date
it is actually received.
15. WAIVER.
Either party's failure to enforce any provision or provisions of this
Agreement shall not in any way be construed as a waiver of any such
provision, or prevent that party thereafter from enforcing each and every
other provision of this Agreement.
16. TITLE AND HEADINGS.
Titles and headings to sections in this Agreement are for the purpose of
reference only and shall in no way limit, define, or otherwise affect the
provisions of it.
17. ATTORNEYS' FEES AND COSTS OF LITIGATION.
In any action at law or in equity to enforce any of the provisions or
rights under this Agreement, the unsuccessful party, as determined by the
court in a final judgment or decree, shall pay the successful party all
costs, expenses and attorneys' fees actually incurred by the successful party
(including, without limitation, the costs, expenses and attorneys fees on any
appeal) and if the successful party shall recover a judgment in any such
action or proceeding, the costs, expenses and attorneys, fees shall be
included as part of the judgment.
18. GOVERNING LAW.
The parties hereto agree that it is their intention and covenant that
this Agreement and performance under it, and all suits and
special proceedings that may ensue from its breach, be construed in
accordance with and under the laws of the State of California, and that in
any action, special proceeding, or other proceeding that may be brought
arising out of, in connection with, or by reason of this Agreement, the laws
of the State of California shall be applicable and shall govern to the
exclusion of the law of any other forum, without regard to the jurisdiction
in which any action or special proceeding may be instituted.
19. WAIVER OF JURY TRIAL.
Company and Employee hereby agree to waive their respective rights to a
jury trial of any claim or cause of action raised upon or arising out of this
Agreement. The scope of this waiver is intended to be all encompassing of
any and all disputes that may be filed in any court and that relate to the
subject matter of this transaction, including without limitation, contract
claims, tort claims, breach of duty claims, and all other common law and
statutory claims. Company and Employee each acknowledge that this waiver is
a material inducement for Company and Employee to enter into a business
relationship, that Company and Employee have
<PAGE>
already relied on this waiver in entering into this Agreement and that each
will continue to rely on this waiver in their related future dealings.
Company and Employee further warrant and represent that each has reviewed
this waiver with its legal counsel, and that each knowingly and voluntarily
waives its jury trial rights following consultation with legal counsel. This
waiver is irrevocable, meaning that it may not be modified either orally or
in writing, and this waiver shall apply to any subsequent amendments,
renewals, supplements or modifications to this Agreement. In the event of
litigation, this Agreement may be filed as a written consent to a trial by
court.
EMPLOYEE'S INITIALS COMPANY'S INITIALS
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
"Company" "EMPLOYEE"
.SPATIALIGHT, INC.,
A NEW YORK CORPORATION
------------------------
WILLIAM E. HOLLIS
BY:
NAME: LAWRENCE MATTESON
TITLE: CHAIRMAN OF BOARD
<PAGE>
EXHIBIT A
2870. APPLICATION OF PROVISION PROVIDING THAT EMPLOYEE SHALL ASSIGN OR
OFFER TO ASSIGN RIGHTS IN INVENTION TO EMPLOYER.
(a) Any provision in an employment agreement which provides that an employee
shall assign, or offer to assign, any of his or her rights in an invention to
his or her employer shall not apply to an invention that the employee
developed entirely on his or her own time without using the employer's
equipment, supplies, facilities, or trade secret information except for those
inventions that either:
(1) Relate at the time of conception or reduction to practice of the
invention to the employer's business, or actual or demonstrably anticipated
research or development of the employer.
(2) Result from any work performed by the employee for the employer.
(b) To the extent a provision in an employment agreement purports to require
an employee to assign an invention otherwise excluded from being required to
be assigned under subdivision (a), the provision is against the public policy
of this state and is unenforceable.
<PAGE>
EXHIBIT 10.15
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into as of July 1,
1996, by and between SPATIALIGHT, INC., A NEW YORK CORPORATION ("Company"),
DEAN S. IRWIN ("Employee"), with reference to the following facts:
RECITALS
--------
A. Employee is currently employed by Company.
B. Company and Employee wish to enter into this Agreement to assure
Company of the services of Employee and to set forth the rights and
duties of the parties.
NOW THEREFORE, the parties agree as follows:
AGREEMENT
---------
1. EMPLOYMENT.
(a) Company hereby employs Employee as its Vice President Engineering,
and Employee hereby accepts and agrees to said employment by the Company for
the purpose of rendering on behalf of Company services as primary engineering
manager, upon the terms and conditions set forth herein.
(b) Employee shall perform such services and duties with the Company as
are usually associated with the position of Vice President Of Engineering
and as otherwise decided upon by the President of the Company. Employee
further agrees that, except during vacation periods or in accordance with
Company's personnel policies covering leaves of absence and reasonable
periods of illness or other incapacitation, Employee shall devote
substantially all of his time and services to the business and interests of
the Company. Notwithstanding the foregoing, Employee shall also be permitted
to serve on the boards of directors of other business corporations and may
participate in charitable, cultural, professional, civic and business
association activities. Employee shall perform the duties of his position and
those assigned to him by the Company's Board of Directors with fidelity, to
the best of his ability, in the best interests of the Company, in a
professional manner and at all times in compliance with all laws, rules and
regulations. Employee agrees that to the best of his ability and experience
he will at all times loyally and conscientiously perform all of the duties
and obligations required of him either expressly or implicitly by the terms
of this Agreement. Additionally, Employee agrees to comply with corporate
policies, standards and regulations adopted by the Company from
<PAGE>
time to time to the extent the same are reasonable and not in violation of
law.
2. TERM OF EMPLOYMENT.
Employee's term ("Term") of employment by the Company as set forth herein
shall commence as of the date of this Agreement (the "Effective Date,) and
shall continue thereafter for a period of two years unless otherwise
terminated pursuant to the provisions of Section 7 below. Notwithstanding
the foregoing, the Term shall automatically be renewed, upon the same terms
and conditions contained herein, for consecutive periods of one year each (a
"Renewal Term") upon expiration of the immediately preceding term unless and
until either party elects not to so renew this Agreement by delivering
written notice to the other party not less than thirty (30) days prior to the
expiration of the Term, or any then existing Renewal Term. Nothing in this
Section shall be deemed or construed as limiting or waiving any of the rights
of Company or Employee set forth in Section 7.
3. COMPENSATION.
a. Salary - Upon the Effective Date, the Company shall pay Employee a
salary ("Salary") at the annual rate equal to Ninety-six Thousand
Dollars ($96,000). Employee's Salary shall be paid pursuant to
Company's normal payroll practices. Company shall have the right to
deduct from the compensation due to Employee hereunder any and all
sums required for social security and withholding taxes, and for
any other federal, state or local charge and/or tax which may now
be in effect or is hereafter enacted or required as a charge on the
compensation of Employee.
b. Benefits - Employee shall be entitled to the following benefits
provided by the Company: (i) a suitable office and furnishings commensurate
with Employee's position and such related facilities as are necessary for the
performance of Employee's duties, (ii) medical and dental insurance,
providing coverage on terms no less beneficial than those afforded other
senior executives employed by the Company, (iii) 4 weeks of paid vacation per
year earned pro-rata over each year of the Term and (iv) 1 week of paid
sick-leave per year earned pro-rata over each year of the Term. Employee
acknowledges and agrees that some of the benefits provided to Employee by
Company hereunder may be taxable to Employee, and that Company may be
required to make payroll withholdings in respect of such taxable benefits.
C. Bonuses - Employee shall be entitled to receive bonuses from time
to time in such amounts, as the Company's Board of Directors may
determine in its sole and absolute discretion.
<PAGE>
4. EMPLOYEE EXPENSES.
Employee shall be responsible for payment of all personal
business expenses incurred by Employee, including entertainment,
automobile and travel related expenses and expenses relating to
professional organizations. Subject to Company's prior approval,
and upon submission of a detailed accounting supported by receipts,
Company shall reimburse Employee for all expenses incurred by
Employee at Company's specific request.
5. CONFIDENTIAL INFORMATION.
a. Within the scope of his employment hereunder, Employee will have
access to confidential information and trade secrets relating to Company's
business. This confidential information and trade secrets includes, but is
not limited to, know-how, research and development, marketing strategy, sales
methods and expertise, customer lists, confidential records and data
pertaining to Company's customers and other customer information, and all
other information owned by Company and regularly used in the operation of the
business of Company, including, without limitation, all lists, books,
records, files documents and similar items relating to the business or
products of Company, whether prepared by Employee or otherwise coming into
Employee's possession; all of the foregoing being deemed "Confidential
Information". Employee and Company agree that all such Confidential
Information consists of protectable trade secrets and confidential
information within the meaning of California Civil Code Section 3426 et SEQ.
and all other applicable provisions of California law. Employee agrees that,
during the term and continuance of his employment by Company, and for the 2
year period commencing on the date of termination of said employment for any
reason whatsoever, he will not directly or indirectly make known, disclose or
divulge to any person, firm, entity or corporation any of the Confidential
Information described herein unless Employee is specifically authorized to do
so in writing by Company. The provisions of this Section apply to all
Confidential Information of Company which Employee may develop, obtain or
learn about during or as a result of his employment by Company, whether such
Confidential Information is prepared by Employee or comes into Employee's
possession in any other way and whether or not it contains or constitutes
trade secrets owned by Company.
b. Employee acknowledges and agrees that all Confidential Information
is and shall remain the exclusive property of Company and shall not be
removed from the premises of Company under any circumstances whatsoever
(provided that if such removal is necessitated to perform Employee's duties
hereunder, then such removal shall be permitted on a temporary basis to
perform such activities) without the prior written consent of Company. Upon
termination of employment for any reason, all such Confidential Information,
whether prepared by Employee or otherwise coming into
<PAGE>
Employee' s possession, shall be immediately returned to Company by Employee.
c . Employee acknowledges that he has not disclosed, and is not required
as a condition of employment to disclose, to Company any confidential
information which is owned by any of his prior employers.
d. If Employee should materially breach any of his covenants under this
Section 5, then in addition to all other rights or remedies provided for
hereunder or at law or in equity, Company shall have the immediate right to
terminate Employee's employment with Company (such termination to be deemed
for "cause" as set forth in Section 7.a. below) and/or Company shall be
entitled to injunctive relief without the posting of bond or other security,
since the remedy at law would be inadequate and insufficient. In addition,
Company shall be entitled to such damages as it can show it has sustained by
reason of Employee's breach. Furthermore, Employee agrees to defend,
indemnify and hold Company and its shareholders, directors, officers, agents
and employees, and their successors, assigns and heirs, harmless from and
against any and all claims (including third-party claims) arising from or in
connection with any breach or default by Employee in Employee's covenants
under this Section 5, together with all costs, expenses and liabilities
incurred in, or in connection with, each such claim or action or proceeding
brought thereon, including, without limitation, reasonable attorneys fees and
costs. The provisions of this Section 5 shall apply to any breach by
Employee occurring during the term of his employment and/or during the 2
years after termination of his employment for any reasons whatsoever.
6. DEVELOPMENT/OWNERSHIP OF NEW PROCEDURES.
a. All know-how, expertise, procedures, processes, products,
inventions, patents, copyrights, trademarks, service marks and other
intangible rights (hereinafter collectively "inventions") that may be
conceived or developed by Employee, either alone or with others, during the
term of Employee's employment, whether or not conceived or developed during
Employee's working hours, and with respect to which any equipment, supplies,
facilities, know-how, expertise or trade secret information of Company was
used, or that relate, at the time of conception or reduction to practice of
the invention, procedure, process, or item subject to patent, copyright or
similar protection, or other intangible right, to the business of Company or
to Company's actual or demonstrably anticipated research and development, or
that relate to or result from any work performed by Employee for Company,
shall be disclosed to Company during the term of Employee's employment and
for 2 years thereafter. To the extent the Company does not have rights
therein hereunder, such disclosure shall be received by the Company in
confidence and does not extend the assignment made in Section 6(b) below.
<PAGE>
reduces to b. All inventions which Employee makes, conceives, practice
or develop (in whole or in part, either alone or jointly with others)
during his employment by Company shall be the sole property of the
Company to the maximum extent permitted by Section 2870 of the
California Labor Code, a copy of which is attached hereto as Exhibit
"A", and to the extent permitted by law shall be "works made for hire".
Company shall be the sole owner of all patents, copyrights, trade secret
rights, rights with respect to mask works and other intellectual
property or other rights in connection therewith unless agreed in
writing to the contrary by the Company. Employee hereby assigns to
Company any rights he may have or acquire in such inventions. Employee
agrees to perform, during and after employment with Company, all acts
deemed necessary or desirable by Company to permit and assist it, at
Company's expense, in obtaining and enforcing patents, copyrights, trade
secret rights, rights with respect to mask works or other rights on such
inventions and/or any other inventions Employee have or may at any time
assign to Company in any and all countries. Such acts may include, but
are not limited to, execution of documents and assistance or cooperation
in legal proceedings. Employee hereby irrevocably designates and
appoints Company and its duly authorized officers and agents, as his
agents and attorneys-in-fact to act for and in his behalf and instead of
him, to execute and file any applications or related filings and to do
all other lawfully permitted acts to further the prosecution and
issuance of patents, copyrights, trade secret rights, rights with
respect to mask works or other rights thereon with the same legal force
and effect as if executed by Employee.
C. If Employee should breach any of his covenants under this
Section 6, then in addition to all other rights or remedies provided for
hereunder or at law or in equity, the Company shall have the immediate right
to terminate Employee's employment with the Company and/or the Company shall
be entitled to injunctive relief without the posting of bond or other
security, since the remedy at law would be inadequate and insufficient. In
addition, the Company shall be entitled to such damages as it can show it has
sustained by reason of Employee's breach. Furthermore, Employee agrees to
defend, indemnify and hold Company and its shareholders, partners, directors,
officers, agents and employees, and their successors, assigns and heirs,
harmless from and against any and all claims (including third-party claims)
arising from or in connection with any breach or default by Employee in
Employee's covenants under this Section 6, together with all costs, expenses
and liabilities incurred in, or in connection with, each such claim or action
or proceeding brought thereon, including, without limitation, reasonable
attorneys fees and costs.
7. TERMINATION.
a. Company may terminate this Agreement and Employee's employment
at any time prior to the expiration of the Term or any
<PAGE>
Renewal Term for "cause", For the purposes of this Agreement, "cause" shall
mean:
Employee's continued willful and habitual neglect of his duties
following notification of such neglect by Company's Board of Directors
and failure by Employee to cure such neglect within 30 days after such
notification.
Employee's conviction, after the date hereof, of a felony which, by
its nature, would materially injure the reputation of Company as
determined by Company's Board of Directors acting in good faith and upon
reasonable grounds.
Employee's incapacity to perform the duties required of him
hereunder as a result of mental or physical illness, which incapacity
continues for a period of 180 days in any 12 consecutive month period.
(iv) Company ceases or fails to continue to do business.
(v) Death of the Employee.
Termination of Employee's employment for cause shall not be in limitation of
any other right or remedy Company may have under this Agreement or in law or
equity.
b. Notwithstanding the termination of this Agreement pursuant to
Section 7a herein or as a result of the expiration of the Term or any Renewal
Term, this Section 7b and Sections 5, 7a, 8, 9, 10, 11, 12, 13, 14, 15, 161
17 and 18 herein shall remain in full force and effect.
8. NON-COMPETE.
As a material inducement for Company to enter into this Agreement,
Employee agrees that for a period of 2 years following the termination of
this Agreement for any reason whatsoever, Employee will not directly or
indirectly (i) solicit, or agree to service for his benefit or the benefit of
any third-party, any of Company's customers whether or not serviced directly
by Employee during the term of this Agreement and (ii) disrupt, damage,
impair or interfere with the business of Company, whether by way of breaching
any obligation under this Agreement, interfering with any customer of
Company, Company's employees, disrupting Company's relationships with
customers, agents, representatives or vendors or otherwise.
9. REASONABLENESS.
The parties recognize that this Agreement contains conditions, covenants,
and time limitations that are reasonably required for the protection of the
confidential information, trade secrets and
<PAGE>
business of the parties or a particular party. If any limitation, covenant
or condition shall be deemed to be unreasonable and unenforceable by a court
or arbitrator of competent jurisdiction, then this Agreement shall thereupon
be deemed to be amended to provide for modification of such limitation,
covenant and/or condition to such extent as the court or arbitrator shall
find to be reasonable and such modification shall not affect the remainder of
this Agreement.
10. REMEDIES.
No remedy conferred by any of the specific provisions of this Agreement
is intended to be exclusive of any other remedy given hereunder or hereafter
existing at law or in equity. The election of any one or more remedies by
any party shall not constitute a waiver of the right to pursue other
available remedies.
11. SEVERABLE PROVISIONS.
The provisions of this Agreement are severable, and if any one or more
provisions may be determined to be judicially unenforceable, in whole or in
part, the remaining provisions shall nevertheless be binding and enforceable.
12. INJUNCTIVE RELIEF.
Employee acknowledges that, in the event Employee breaches this
Agreement, money damages will not be adequate to compensate Company for the
loss occasioned by such breach. Employee, therefore, consents, in the event
of such a breach, to the granting of injunctive relief against Employee by
any court of competent jurisdiction.
13. BINDING AGREEMENT.
The rights and obligations of the parties under this Agreement shall
inure to the benefit of and shall be binding on their successors and assigns.
Notwithstanding the foregoing, Employee may not assign his rights or
obligations hereunder.
14. NOTICES.
Any notice to be given to the Company under the terms of this Agreement
shall be addressed to the Company at the address of its principal place of
business, and any notice to be given to Employee shall be addressed to him at
his home address last shown on the records of the Company, or at such other
address as either party may hereafter designate in writing to the other. All
notices shall be in writing and shall be delivered personally, sent by United
States certified or registered mail, return receipt requested, first class
postage prepaid, or by private messenger or courier service. Any such notice
shall be deemed to have been received on
<PAGE>
the earlier of (i) five (5) business days after it is mailed or (ii) the date
it is actually received.
15. WAIVER.
Either party's failure to enforce any provision or provisions of this
Agreement shall not in any way be construed as a waiver of any such
provision, or prevent that party thereafter from enforcing each and every
other provision of this Agreement.
16. TITLE AND HEADINGS.
Titles and headings to sections in this Agreement are for the purpose of
reference only and shall in no way limit, define, or otherwise affect the
provisions of it.
17. ATTORNEYS' FEES AND COSTS OF LITIGATION.
In any action at law or in equity to enforce any of the provisions or
rights under this Agreement, the unsuccessful party, as determined by the
court in a final judgment or decree, shall pay the successful party all
costs, expenses and attorneys' fees actually incurred by the successful party
(including, without limitation, the costs, expenses and attorneys fees on any
appeal) and if the successful party shall recover a judgment in any such
action or proceeding, the costs, expenses and attorneys, fees shall be
included as part of the judgment.
18. GOVERNING LAW.
The parties hereto agree that it is their intention and covenant that
this Agreement and performance under it, and all suits and
special proceedings that may ensue from its breach, be construed in
accordance with and under the laws of the State of California, and that
in any action, special proceeding, or other proceeding that may be
brought arising out of, in connection with, or by reason of this
Agreement, the laws of the State of California shall be applicable and
shall govern to the exclusion of the law of any other forum, without
regard to the jurisdiction in which any action or special proceeding
may be instituted.
19. WAIVER OF JURY TRIAL.
Company and Employee hereby agree to waive their respective rights to a
jury trial of any claim or cause of action raised upon or arising out of this
Agreement. The scope of this waiver is intended to be all encompassing of
any and all disputes that may be filed in any court and that relate to the
subject matter of this transaction, including without limitation, contract
claims, tort claims, breach of duty claims, and all other common law and
statutory claims. Company and Employee each acknowledge that this waiver is a
material inducement for Company and Employee to enter into a business
relationship, that Company and Employee have
<PAGE>
already relied on this waiver in entering into this Agreement and that each
will continue to rely on this waiver in their related future dealings.
Company and Employee further warrant and represent that each has reviewed
this waiver with its legal counsel, and that each knowingly and voluntarily
waives its jury trial rights following consultation with legal counsel. This
waiver is irrevocable, meaning that it may not be modified either orally or
in writing, and this waiver shall apply to any subsequent amendments,
renewals, supplements or modifications to this Agreement. In the event of
litigation, this Agreement may be filed as a written consent to a trial by
court.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
"COMPANY" "EMPLOYEE"
SPATIALIGHT, INC.,
A NEW YORK CORPORATION
DEAN S. IRWIN
By:
NAME: WILLIAM E. HOLLIS
TITLE: PRESIDENT & CEPO
<PAGE>
EXHIBIT A
2870. APPLICATION OF PROVISION PROVIDING THAT EMPLOYEE SHALL ASSIGN OR
OFFER TO ASSIGN RIGHTS IN INVENTION TO EMPLOYER.
(a) Any provision in an employment agreement which provides that an employee
shall assign, or offer to assign, any of his or her rights in an invention to
his or her employer shall not apply to an invention that the employee
developed entirely on his or her own time without using the employer's
equipment, supplies, facilities, or trade secret information except for those
inventions that either:
(1) Relate at the time of conception or reduction to practice of the
invention to the employer's business, or actual or demonstrably anticipated
research or development of the employer.
(2) Result from any work performed by the employee for the employer.
(b) To the extent a provision in an employment agreement purports to require
an employee to assign an invention otherwise excluded from being required to
be assigned under subdivision (a) the provision is against the public
policy of this state and is unenforceable.
<PAGE>
EXHIBIT 10.16
MEADOWLARK OPTICS AND WAH-III
DISTRIBUTION AGREEMENT
This agreement is made and entered into as of the twenty-first day of
September, 1995, by and between WAH-III Technology Corp., having offices at
16 Digital Drive, Suite 202, Novato, California 94949 (hereinafter referred
to as "Manufacturer"), and Meadowlark Optics Inc., having its principal place
of business at 7460 Weld County Road 1, Longmont Colorado 80504 - 9470
(hereinafter referred to as "Distributor").
In consideration of the mutual covenants and conditions herein contained, the
parties mutually agree as follows:
1. PREAMBLES:
-- WAH-III (Manufacturer) and Meadowlark Optics
(Distributor) agree to enter into this Distribution
Agreement applying to Manufacturer's Display and Spatial
Light Modulator (SLM) technology. As a component of this
agreement, both parties would like to establish a
distribution agreement from which we can utilize the
Distributors' established and future customer contacts as
well as their established sales and marketing
infrastructure to promote the product sales and increase
industry awareness of Manufacturer's technological
capabilities.
2. PRODUCTS:
-- AWH-III Display or SLM modules.
-- Drive electronics, and applicable software, manuals and
accessories for driving Manufacturer's Display or SLM
modules, if applicable.
-- A list of the products and their specifications is
provided in Exhibit 1A.
3. TERRITORY:
Manufacturer grants Distributor on a world wide
nonexclusive basis the rights and authorities to solicit
orders for the sale of Manufacturer's products pursuant
to Section 5 (Distribution Rights and Obligations).
4. PRICING AND PAYMENT:
-- Manufacturer will sell products to Distributor at prices
according to the current Manufacturers price list
provided in Exhibit 1B.
-- Manufacturer will offer Distributor the same or lesser
pricing for quantity and product as any other distributor.
-- Manufacturer reserves the right to change prices by
giving thirty (30) days written notice to Distributor.
All services provided by Distributor will be subject to
thirty (30)
<PAGE>
days written notice of change. It is understood that
Manufacturer relies on services provided by Distributor for
the fabrication of the products.
-- Payment terms shall be net 50 days, payable in U.S. dollars
within fifty (50) days from the date of invoice or 3 days from
receipt of payment by Distributor's customer, whichever comes
first. If Distributor secures pre-payment from customer, then
that percentage of payment shall be due Manufacturer within
three (3) days of that payment.
-- Distributor will not be required to stock, or keep inventory
of Manufacturer's products.
-- Manufacturers agrees not to undersell Distributor unless
Manufacturer had entered into an agreement, or commitment,
prior to this agreement. Distributor recognizes that
Manufacturer had a commitment prior to this agreement for
lower pricing.
5. DISTRIBUTION RIGHTS AND OBLIGATIONS:
-- Distributor agrees to pay all of its incurred expenses
associated with promoting and closing sales, i.e., sales
literature, advertisements, travel, lodging,
entertainment, etc.
-- Distributor is obligated to put forth reasonable efforts
to promote and obtain sales of Manufacturer's products,
including data sheets to customers, calls, quotations,
trade shows, demonstrations on site and at customers' site.
-- Distributor has the rights to distribute and represent
other like or similar products to those provided by
Manufacturer.
-- All customer contacts that are initiated by Distributor
are deemed to be Distributor's exclusive customer and at
no time, without written consent of Distributor, will
Manufacturer circumvent that linkage either directly or
through other indirect means.
-- Any disputes that arise with regard to multiple
distributors or distributor exclusivity will be
arbitrated by a mutally agreed upon third party. Time is
of the esssence in resolving such disputes.
6. DISCONTINUATION OF PRODUCT:
-- Manufacturer shall have the right to discontinue the
availability of any product or to make design changes or
improvements at any time without incurring any obligation
to apply such changes or improvements to the products
previously purchased or in use in the Territory.
-- Manufacturer will notify, in writing, Distributor with
three (3) days of any decision to discontinue, add, or
change a product offering. Any material stocked by
Distributor will receive full refund or upgrade by
Manufacturer at Manufacturer's expense.
-- [Quotations will be valid for forty five (45) days.]
Obsolete products will be available for 45 days after
obsolescence.
7. PRODUCT DEVELOPMENT:
-- All NRE charges or other costs associated with product
development work performed by Distributor for
Manufacturer, will be executed via purchase orders. The
terms and
<PAGE>
conditions that govern those purchase orders
will be negotiated on an individual basis, and further
they will be independent from this Agreement.
8. PATENT INDEMNIFICATION:
-- Manufacturer shall indemnify, and defend at Manufacturer's
expense, Distributor against any claims as they pertain to the
product, with the exception of any claims that pertain to the
process steps performed and provided by Distributor.
-- Distributor shall indemnify, and defend at their expense,
Manufacturer against any claims that specifically relate
to Distributor's manufacturing processes performed to
yield the product.
-- Example, if WAH-III directs Meadowlark Optics to
flatten and polish backplanes then WAH-III will
indemnify and defend Meadowlark Optics against any
infringements that deal with the broad scope of
flattening or polishing a Display or SLM backplane.
However, the specific processes or procedures
utilized by Meadowlark Optics to flatten or polish
the backplanes is their liability and they must hold
harmless and defend WAH-III against any claims made
with respect to those procedures.
-- Manufacturer provides no representations or indemnification
covering product applications.
-- In the event that any product or any part thereof is held
to constitute infringement, the Manufacturer shall, at
its own expense and discretion, either procure for the
Distributor or subsequent purchaser the right to continue
using said product, or part, or replace the same with a
non-infringing product, or part, or modify it so that it
becomes non-infringing, or refund the purchase price,
less depreciation thereof.
9. PRODUCT WARRANTIES:
-- Manufacturer warrants that the goods sold to Distributor
hereunder are free from defects of material and
workmanship for ninety (90) days from date of sale to the
ultimate consumer by Distributor except for products or
component warranties that have been clearly identified to
have a shorter warranty period.
-- Manufacturer will repair or replace defective products at
Manufacturer's discretion within twelve (12) months from
date of purchase at Distributors discretion.
-- Distributor warrants all products and services integrated
into Manufacturer's products for ninety (90) days from
manufacture, and repair or replace products and service
at Manufacturers discretion within twelve (12) months
from date of manufacture.
10. TERM AND TERMINATION:
-- This Agreement shall expire three (3) years from the date
of execution.
<PAGE>
-- This agreement may be terminated in the event Distributor
becomes insolvent or files an application in bankruptcy,
or if Distributor makes a general assignment for the
benefit of creditors.
-- This Agreement may be terminated in the event
Manufacturer becomes insolvent or files an application in
bankruptcy, or if Manufacturer makes a general assignment
for the benefit of creditors.
-- This Agreement may be terminated immediately by the
non-defaulting party, if such party is not itself in
default of the Agreement, if the other party breaches any
covenant or warranty made by it in this Agreement and if,
after ten (10) days written notice to cure any such
default, the default is not cured.
-- In the event that the controlling ownership of either the
Manufacturer or the Distributor changes, then either
party to this Agreement may terminate this Agreement,
upon giving the other party at least forty-five (45) days
prior written notice of such termination.
-- This agreement may be terminated by either party for any
reason or no reason with with 90 day written notification
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
DISTRIBUTOR MANUFACTURER
- ---------------------------- -----------------------------
Anthony Artigliere Dean Irwin
Sales & Marketing WAH-III Technology
SIGNED 9-22-95 SIGNED 10-13-95
- ---------------------------- -----------------------------
Date Date
<PAGE>
EXHIBIT 10.17
EMPLOYMENT AGREEMENT
This Employment Agreement is made and entered into by and between
Spatialight, Inc. (the "Company") and L. John Loomis ("Loomis") as of February
17, 1997 (the "Effective Date").
1. POSITION AND DUTIES:
1.1 Effective February 17, 1997 (the "Commencement Date"), Loomis
will be employed by the Company as its Senior Executive Vice President and Chief
Operating Officer ("COO") reporting to William E. Hollis, President and Chief
Executive Officer. It is expected that at the next regularly scheduled meeting
of the Company's Board of Directors (the "Board") Hollis will be appointed
Chairman of the Board. If this occurs, the Company will recommend that the
Board approve Loomis for employment as the Company's President and COO, and will
further recommend Loomis for a seat on the Company's Board.
1.2 Loomis agrees to devote his full business time, energy and skill
to his duties at the Company. These duties shall include, but not be limited
to, assisting in all efforts to raise equity financing, assisting with
presentations to shareholders and the Board, providing technical marketing
expertise to the Company, assisting in the development of the Company's business
plan and any other duties consistent with Loomis' position(s), as well as any
other duties that may be assigned to Loomis from time to time by the Board.
1.3 Loomis further agrees to undertake his best efforts to induce
Paul Beard, to accept employment with the Company.
2. COMPENSATION:
2.1 BASE SALARY: Loomis will be paid an annual salary of $175,000,
less applicable withholding, in accordance with the Company's normal payroll
procedures. Loomis' salary will be reviewed by the Board on an approximately
annual basis, and may be subject to adjustment based upon various factors
including, but not limited to, Loomis' performance and the Company's
profitability.
2.2 PERFORMANCE BONUS PLAN: Loomis will be eligible to participate
in the Company's performance bonus plan (the "Bonus Plan"), which currently
provides for a bonus of twenty (20) percent of salary upon achievement of
pre-established goals. Under the Bonus Plan, all bonuses, if earned, are
paid at the end of the fiscal year. Any bonus will be governed by the terms
of the Company's standard Bonus Plan in effect at the time.
2.3 EQUITY STAKE: The Company will recommend that its Board
approve the issuance to Loomis of options to purchase 400,000 shares of the
Company's common stock (the
1
<PAGE>
"Option") in accordance with the Company's Stock Option Plan (the "Plan").
The Plan provides that fifty percent of options vest upon the completion of
one year's service and the remaining fifty percent of options vest upon the
completion of the second year's service. However, in the event that the
Company files for bankruptcy protection pursuant to the United States
Bankruptcy Code, the parties agree that all of the options issued pursuant to
the Option shall become fully vested as of the date the Company files its
Petition for Bankruptcy Protection. Except as otherwise provided herein, the
Option shall be subject to the terms and conditions of the Company's stock
option plan and the Company's standard form of stock option agreement, which
Loomis shall be required to sign as a condition of the issuance of the
Initial Stock Option.
2.4 SIGNING BONUS: Immediately upon execution of this Agreement,
the Company shall provide Loomis with a signing bonus in the amount of
Twenty-Five Thousand Dollars ($25,000.00)(the "Signing Bonus"). The Signing
Bonus is not payment for any labor performed by Loomis and consequently does
not constitute "wages" under the California Labor Code. In the event that
Loomis voluntarily terminates his employment with the Company prior to the
expiration of twelve months following the Commencement Date, Loomis shall
reimburse the Company for the Signing Bonus.
2.5 BENEFITS: Loomis will be entitled to participate in all of the
Company's benefit plans, as those plans may change from time to time, on the
same terms as all other employees of the Company.
3. TERM OF EMPLOYMENT: Loomis' employment with the Company
pursuant to this Agreement is for a three-year period, commencing on the
Commencement Date, subject to the provisions regarding termination set forth
below (the "Term"). If neither party gives the other written notice of
termination or a desire to change the provisions herein, on or before the
thirtieth (30th) day prior to the expiration of the Term, this Agreement
shall be automatically renewed for an additional one (1) year period (the
"Renewal Term"). Thereafter, if neither party gives the other written notice
of termination or a desire to change the provisions herein, on or before the
thirtieth (30th) day prior to the expiration of each Renewal Term, this
Agreement shall be renewed for an additional one (1) year period.
4. BENEFITS UPON TERMINATION:
Notwithstanding paragraph 3 above, Loomis' employment may be terminated
by Loomis or the Company at any time, with or without notice and with or
without cause. In the event that either party elects to terminate this
Agreement prior to the expiration of the contract term, benefits shall be
provided as set forth below.
4.1 VOLUNTARY TERMINATION: In the event that Loomis voluntarily
resign from his employment with the Company, or in the event that Loomis'
employment terminates as a result of his death or disability, Loomis shall be
entitled to no compensation or benefits from the Company other than those
earned under paragraph 2 above through the date of his termination.
2
<PAGE>
4.2 INVOLUNTARY TERMINATION: In the event of the termination of
Loomis' employment by the Company for the reasons set forth below, Loomis
shall be entitled to the following:
TERMINATION FOR CAUSE: If Loomis' employment is
terminated by the Company for cause as defined below, Loomis shall be
entitled to no compensation or benefits from the Company other than those
earned under paragraph 2 through the date of Loomis' termination.
For purposes of this Agreement, a termination "for cause"
occurs if Loomis are terminated for any of the following reasons:
(1) theft, dishonesty, or falsification of any
employment or Company records;
(2) conviction of a felony or any act involving moral
turpitude;
(3) consistent poor performance, as determined by the
Board in its sole discretion;
(4) improper disclosure of the Company's confidential
or proprietary information;
(5) any intentional act by Loomis that has a material
detrimental effect on the Company's reputation or business; or
(6) any material breach of this Agreement, which
breach, if curable, is not cured within thirty (30) days following written
notice of such breach from the Company.
b. TERMINATION FOR OTHER THAN CAUSE: If Loomis'
employment is terminated by the Company for any reason other than cause,
Loomis shall be entitled to continuation of Loomis' salary and all other
benefits, including, but not limited to, vesting in all stock options, for
six months following the termination of Loomis' employment.
5. CONFIDENTIAL AND PROPRIETARY INFORMATION: As a condition of
Loomis' employment with the Company, Loomis will be required to sign the
Company's standard form of proprietary information and assignment of
inventions agreement. As a further condition of Loomis' employment, Loomis
will be required to cause the assignment of all patents issued in relation to
the wireless technology for the home environment (the "Patents") to the
Company.
6. ATTORNEYS' FEES: The prevailing party shall be entitled to
recover from the losing party its attorneys' fees and costs incurred in any
action brought to enforce any right arising out of this Agreement.
3
<PAGE>
7. INTERPRETATION: This Agreement shall be interpreted in
accordance with and governed by the laws of the State of California.
ASSIGNMENT: In view of the personal nature of the services to be
performed under this Agreement by Loomis, Loomis shall not have the right to
assign or transfer any of his obligations under this Agreement.
9. ENTIRE AGREEMENT: This Agreement, along with any agreements
referred to in paragraph 2, relating to stock options and paragraph 5,
relating to proprietary information and assignment of inventions, sets forth
the entire agreement between Loomis and the Company regarding the terms and
conditions of Loomis' employment, and supersedes all prior negotiations,
representations or agreements between Loomis and the Company regarding
Loomis' employment, whether written or oral.
10. NO REPRESENTATIONS: Loomis acknowledges that his is not
relying, and have not relied, on any promise, representation or statement
made by or on behalf of the Company that is not set forth in this Agreement.
11. MODIFICATION: This Agreement may only be modified or amended
by a supplemental written agreement signed by Loomis and an authorized member
of the Board.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year written below.
SPATIALIGHT, INC.
Date: By:
--------------------- ----------------------------
Its:
---------------------------
Date:
--------------------- -------------------------------
L. John Loomis
4
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,324
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<RECEIVABLES> 40
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<CURRENT-ASSETS> 1,452
<PP&E> 157
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0
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<COMMON> 8,794
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<TOTAL-LIABILITY-AND-EQUITY> 1,533
<SALES> 176
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