Document:

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                                                                    Exhibit 10.3

                           PRINCETON VIDEO IMAGE, INC.
                           PLACEMENT AGENCY AGREEMENT

                                                                October 13, 1999

Allen & Company Incorporated
711 Fifth Avenue
New York, New York  10022

Gentlemen:

                  Princeton Video Image, Inc., a New Jersey corporation (the
"Company") hereby confirms its agreement with you as follows:

         1. The Offering. The Company is offering to persons who qualify as
"accredited investors," as that term is defined in Regulation D under the
Securities Act of 1933 as amended (the "Act"), up to 1,634,547 shares of the
Company's Common Stock (the "Shares"). The foregoing offer and sale of the
Shares is hereinafter referred to as the "Offering." The Company has the right,
in its sole discretion, to reject or cut back any subscription or any offer to
purchase shares.

         2. Appointment of Placement Agent. You are hereby appointed the
exclusive placement agent of the Company (the "Placement Agent") during the
Offering Period (as defined herein) for the purpose of assisting the Company in
identifying qualified subscribers to purchase Shares (the "Subscribers"). The
"Offering Period" shall commence on the date the Offering Materials (as defined
herein) are first made available to you by the Company for delivery in
connection with the Offering and shall terminate on or before the close of
business on the earliest to occur of the closing of the sale of Shares or the
termination of this Agreement. You hereby accept such agency and agree to assist
the Company in identifying qualified Subscribers on a "best efforts" basis. Your
agency hereunder may not be terminated by the Company, except upon termination
of the Offering, upon the Placement Agent's failure to perform its obligations
hereunder in all material respects, upon the Placement Agent's material breach
of any of its representations and warranties contained in Section 7 hereof or
upon gross negligence or willful misconduct on the part of the Placement Agent.
It is understood that the offering and sale of the Shares is intended by all
parties to be exempt from the registration requirements of the Act pursuant to
Section 4(2) thereof and the rules and regulations of the Securities and
Exchange Commission thereunder, including Rule 506 of Regulation D (the "Rules
and Regulations").

         3. Offering Materials. The Company has prepared and delivered to the
Placement Agent a reasonable number of copies of (i) the Company's Annual Report
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Form 10-KSB for the fiscal year ended June 30, 1999; (ii) the Company's Current
Reports on Form 8-K since June 30, 1999; (iii) the Company's press releases
since June 30, 1999; (iv) certain risk factors relating to the transactions
contemplated hereunder which are attached as Exhibit A to the Subscription
Agreements relating to the Shares (the "Subscription Agreements"); and (v) such
other documents, including exhibits to the foregoing reports on Forms 10-KSB and
8-K, as Subscriber (and Subscriber's attorney, accountant and/or other advisors)
deemed pertinent in order for Subscriber to make an informed investment
decision. Such documents are referred to herein as the "Offering Materials,"
except that if the Offering Materials shall be amended, the term "Offering
Materials" shall refer to the Offering Materials as so amended from and after
the time of delivery to you of such amendment. The Placement Agent shall deliver
the Offering Materials to each Subscriber prior to investment.

         4. Closing; Delivery; Placement Fees.

                  (a) It is anticipated that the closing of the purchase and
sale of the Shares to Investors may be effected at a closing (the "Closing"),
which shall take place at the offices of Allen & Company Incorporated, 711 Fifth
Avenue, New York, New York 10022 at 10:00 a.m. on three business days' notice or
such other time, date or place as shall be agreed upon by you and the Company
(the "Closing Date").

                  (b) At the Closing, there shall be delivered to the Company on
behalf of each applicable Subscriber executed copies of the Subscription
Agreement to be entered into by the Company and each such Subscriber (the
"Purchasers") as of such Closing Date, and there shall also be delivered to the
Company on behalf of each applicable Purchaser the proportionate share of the
purchase price of the Shares which such Purchaser is to purchase. Upon the
Closing, the Company will deliver, or cause to be delivered, to the Purchasers
certificates representing the Shares purchased by them.

                  (c) Simultaneous with the Closing, as provided in paragraph
(b) above, the Company shall pay or cause to be paid to the Placement Agent a
placement fee equal to 5% of the aggregate purchase price paid for the Shares by
the Subscribers and warrants exercisable for 200,000 shares of the Company's
Common Stock on terms mutually acceptable to the Company and the Placement Agent
(the "Warrant") and shall reimburse the Placement Agent for its out-of-pocket
expenses as provided in Section 6(c) hereof, against the presentation of bills
therefor. If such bills are not available for presentation at the time of the
Closing, then the Company shall reimburse the amount of the Placement Agent's
reasonable estimate of such out-of-pocket expenses; in such event, the Placement
Agent shall promptly provide the Company with an accounting of actual expenses
when known, and the parties shall reconcile any amounts still owing among them.

         5. Representations and Warranties of the Company. The Company hereby
confirms for the benefit of the Placement Agent the representations and
warranties

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made by it to the Subscribers in the Subscription Agreements, to the extent
applicable, and hereby further represents and warrants that this Agreement and
the Warrant have been duly authorized, executed and delivered on behalf of the
Company and constitute valid and binding agreements of the Company, enforceable
against the Company in accordance with their terms, subject to the effect of any
applicable bankruptcy, insolvency, reorganization, moratorium or similar law
affecting creditors' rights generally and to general principles of equity and
except as rights to indemnity or contribution hereunder may be limited by
Federal or state securities laws.

         6. Covenants of the Company. The Company covenants and agrees with the
Placement Agent that:

                  (a) During the Offering Period, the Company will notify the
Placement Agent of any event of which it is aware as a result of which any of
the Offering Materials would include an untrue statement of a material fact or
omit to state any material fact necessary to make the statements therein in
light of the circumstances under which they were made not misleading; and it
will provide you with any amendment or supplement to the Offering Materials
during the Offering Period. The Company will conduct the Offering in compliance
with Section 4(2) of the Act and the Rules and Regulations and all applicable
state securities laws and regulations.

                  (b) If required by law, the Company will use its best efforts
to qualify the Shares for offer and sale under the Blue Sky or securities laws
of such jurisdictions as you may designate and to continue such qualifications
in effect for so long as may be required for purposes of the private placement
of the Shares, except that the Company shall not be required in connection
therewith or as a condition thereof to qualify as a foreign corporation or to
execute a general consent to service of process in any state or to subject
itself to taxation in any jurisdiction where it is not already subject to such
taxation.

                  (c) The Company covenants and agrees with you that it will pay
all expenses, fees and taxes in connection with (i) the preparation and delivery
of the Offering Materials and all other materials delivered to prospective
Subscribers, (ii) the furnishing of opinions of counsel for the Company and
closing documents, and (iii) the qualification of the Shares for offer or sale
under the securities laws of such jurisdictions as you may reasonably designate.
The Company also agrees that it will reimburse you for your out-of-pocket
expenses in connection with the Offering, and will pay the fees and expenses not
to exceed $50,000 in the aggregate of Heller Ehrman White & McAuliffe, special
counsel to the Placement Agent.

                  (d) The Company agrees to cooperate with the Placement Agent
and its special counsel with respect to their due diligence investigation.

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         7. Representations, Warranties and Covenants of the Placement Agent.
The Placement Agent represents, warrants and covenants as follows:

                  (a) This Agreement has been duly authorized, executed and
delivered by the Placement Agent and constitutes a valid and binding obligation
of the Placement Agent, enforceable against it in accordance with its terms,
subject to the effect of any applicable bankruptcy, insolvency, reorganization,
moratorium or similar law affecting creditors' rights generally and to general
principles of equity and except as rights to indemnity or contribution hereunder
may be limited by Federal or state securities laws.

                  (b) The Placement Agent will not make an offer of Shares by
any form of general solicitation or general advertising in violation of Rule
502(c) of Regulation D under the Act, and the Placement Agent will conduct the
Offering in accordance with all Federal and state securities laws applicable to
the offering of the Shares.

                  (c) The Placement Agent shall not deliver to any offeree
without the consent of the Company any information concerning the Offering other
than the Offering Materials. The Placement Agent shall deliver, or cause to be
delivered, the Offering Materials to each offeree prior to the sale of any
Shares to such offeree.

                  (d) The Placement Agent is a registered broker dealer in good
standing in every state in which offers and sales of the Shares will be made.

                  (e) The Placement Agent acknowledges that the Company has the
right, in its sole discretion, to reject any Subscriber.

         8. Conditions of the Company's Performance. The sale by the Company of
the Shares and the obligations of the Company as provided herein shall be
subject to the following conditions:

                  (a) The Company shall not have terminated the Offering, which
shall be the decision of the Company in its sole discretion;

                  (b) The representations and warranties of the Placement Agent
contained in Section 7 hereof are true and correct in all material respects as
of the date hereof and as of each Closing Date (as if made on and as of such
Closing Date); and

                  (c) The Placement Agent shall have performed its obligations
hereunder in all material respects.

         9. Conditions of Placement Agent's Performance. The purchase and sale
of the Shares and the obligations of the Placement Agent as provided herein
shall be subject to the accuracy in all material respects, as of the date hereof
and each Closing

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Date (as if made on and as of such Closing Date), of the representations and
warranties of the Company herein, to the performance in all material respects by
the Company of its obligations hereunder, and to the following additional
conditions:

                  (a) You shall have received the opinion of Smith, Stratton,
Wise, Heher & Brennan, counsel to the Company, in form and substance acceptable
to your counsel; and

                  (b) You shall have received a certificate, dated as of each
Closing Date, of an authorized executive officer of the Company to the effect
that:

                  (i) The representations and warranties of the Company in this
         Agreement and in the Subscription Agreements are true and correct in
         all material respects as if made on and as of such Closing Date; and
         the Company has complied with all the agreements and satisfied all the
         conditions in all material respects on its part required by this
         Agreement and the Subscription Agreements to be performed or satisfied
         at or prior to such Closing Date; and

                  (ii) Except as set forth in the Offering Materials or in the
         Subscription Agreements and subsequent to the date of the most recent
         financial statements included with the Offering Materials, there has
         not been any material adverse change in the condition (financial or
         otherwise), business or results of operations of the Company and its
         subsidiaries taken as a whole.

                  (c) The Company shall have furnished to you such certificates,
in addition to those specifically mentioned herein, as you or your counsel may
have reasonably requested, as to the accuracy and completeness at such Closing
Date of any statement in the Offering Materials (other than statements provided
by the Placement Agent for the Offering Materials) and as to such other matters
as you or your counsel may reasonably request.

                  (d) You shall have received the Warrant in form and substance
acceptable to you and your counsel.

         10. Indemnification. (a) The Company will indemnify and hold harmless
the Placement Agent, the directors and officers of the Placement Agent and each
person, if any, who controls the Placement Agent within the meaning of the Act
against any losses, claims, damages or liabilities, joint or several, to which
the Placement Agent or any such directors, officers or controlling persons may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon (i) any untrue statement or alleged untrue statement of any material fact
contained in the Offering Materials, as of their respective dates, or arise out
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not

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misleading; or (ii) the Company's engagement of Allen & Company Incorporated as
Placement Agent or any service the Placement Agent performs for the Company or
on its behalf pursuant to this Agreement, except to the extent that any such
loss, claim, damage or liability is found by a court of competent jurisdiction
in a judgment that has become final (in that it is no longer subject to appeal
or review) to have resulted directly and primarily from such Indemnified
Person's gross negligence or willful misconduct. Subject to subsection (c)
below, the Company will reimburse the Placement Agent or any such directors,
officers or controlling persons for any legal or other expenses reasonably
incurred by the Placement Agent or any such directors, officers or controlling
persons in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Company will not be
liable in any case to the extent that any such loss, claim, damage, liability or
action arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in the Offering Materials, as of
their respective dates, in reliance upon and in conformity with written
information furnished by and with respect to the Placement Agent specifically
for use in the preparation thereof. The Company shall not be required to
indemnify the Placement Agent or any such directors, officers or controlling
persons for any payment made to any claimant in settlement of any suit or claim
unless such payment is approved by the Company, which approval shall not be
unreasonably withheld or delayed. This indemnity agreement will be in addition
to any liability which the Company may otherwise have, but in no event shall an
indemnified party receive more than the amount of his claim.

                  (b) The Placement Agent will indemnify and hold harmless the
Company, its officers and directors and each person, if any, who controls the
Company within the meaning of the Act against any losses, claims, damages or
liabilities, joint or several, to which the Company, or any such directors,
officers or controlling persons may be or become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Offering Materials, as of
their respective dates, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Offering Materials in
reliance upon and in conformity with written information furnished by and with
respect to the Placement Agent specifically for use in the preparation thereof;
and (subject to subsection (c) below) will reimburse the Company or any such
directors, officers or controlling persons for any legal or other expenses
reasonably incurred by the Company or any such director, officer or controlling
person in connection with investigating or defending any such loss, claim,
damage, liability or actions. The Placement Agent shall not be required to
indemnify the Company or any such directors, officers or controlling persons for
any payment made to any claimant in settlement of any suit or claim unless
payment is approved by the

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Placement Agent, which approval shall not be unreasonably withheld or delayed.
This indemnity agreement will be in addition to any liability the Placement
Agent may otherwise have, but in no event shall an indemnified party receive
more than the amount of his claim.

                  (c) Promptly after receipt by an indemnified party under
subparagraphs 10(a) or (b) of notice of the commencement of any action or other
proceeding (including governmental investigations) in respect of which indemnity
may be sought, such indemnified party will, if a claim in respect thereof is to
be made against the indemnifying party under such subparagraphs, promptly notify
the indemnifying party in writing of the commencement thereof; but the omission
to so notify the indemnifying party will not relieve it from any liability which
it may have to any indemnified party otherwise than under such subparagraph. In
case any such action shall be brought against any indemnified party, and it
shall promptly notify the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, assume and control the defense thereof with counsel chosen by it
and after notice from the indemnifying party to such indemnified party of its
election so to assume and control such defense with counsel chosen by it, it
shall bear all expenses of such defense. Any such indemnified party shall have
the right to employ separate counsel in any such action and to participate in
the defense thereof, but the fees and expenses of such counsel shall be at the
expense of such indemnified party unless:

                  (i) the indemnifying party has agreed to pay such fees and
         expenses; or

                  (ii) the indemnifying party shall have failed to assume the
         defense of such action or proceeding and employ counsel reasonably
         satisfactory to such indemnified party in any such action or
         proceeding; or

                  (iii) the named parties to any such action or proceeding
         (including any impleaded parties) include both such indemnified party
         and the indemnifying party, and such indemnified party shall have been
         advised by counsel that there may be one or more legal defenses
         available to such party which are different from or additional to those
         available to the indemnifying party (in which case, if such indemnified
         party notifies the indemnifying party in writing that it elects to
         employ separate counsel at the expense of the indemnifying party, the
         indemnifying party shall not have the right to assume the defense of
         such action or proceeding on behalf of such indemnified party).

         The indemnifying party shall not, in connection with any one such
action or proceeding or separate but substantially similar or related actions or
proceedings in the same jurisdiction arising out of the same general allegations
or circumstances, be liable for the reasonable fees and expenses of more than
one separate firm of attorneys at any

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time for the indemnified party, which firm shall be designated in writing by the
indemnified party.

         11. Contribution. In order to provide for contribution in circumstances
in which the indemnification provided for in Section 10(a) or 10(b) hereof is
for any reason held to be unavailable to any party entitled to such
indemnification, each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of losses, claims, damages and
liabilities of the nature contemplated by such indemnification provisions
(including any investigation, legal and other expenses incurred in connection
with, and amounts paid in settlement of, any action, suit or proceeding or any
claims asserted) to which the Company and the Placement Agent may be subject, in
such proportions so that the Placement Agent is responsible for that portion in
each case represented by the percentage that the respective placement fee
appearing in Section 4(c) of this Agreement bears to the offering price of the
Shares, and the Company is responsible for the remaining portion; provided,
however, that no person guilty of fraudulent misrepresentation shall be entitled
to contribution from any person who was not guilty of such fraudulent
misrepresentation. For purpose of this Section 11, each person, if any, who
controls the Placement Agent within the meaning of Section 15 of the Act shall
have the same rights to contribution as the Placement Agent, and each person, if
any, who controls the Company within the meaning of Section 15 of the Act, each
officer of the Company and each director of the Company shall have the same
right to contribution as the Company, subject in each case to the prior
sentence. Any party entitled to contribution will, promptly after receipt of
notice of commencement of any action, suit or proceeding against such party in
respect of which claim for contribution may be sought, promptly notify the other
party or parties in writing of the commencement thereof, but the omission to so
notify such party or parties shall not relieve the party or parties from whom
contribution may be sought from any other obligation it or they may have
hereunder or otherwise than under this Section 11. No party shall be liable for
contribution with respect to any action or claim settled without its consent.

         12. Representations and Agreements to Survive Delivery. All
representations, warranties or agreements of the Company or of the Placement
Agent herein or in certificates delivered pursuant hereto shall remain operative
and in full force and effect regardless of any investigation made by or on
behalf of the Placement Agent or any controlling person, the Company, or any of
its officers, directors or controlling persons, and shall survive delivery of
the Shares.

         13. Termination. Each of the Company's and the Placement Agent's
obligation to proceed hereunder is conditioned upon its continuing judgment that
market conditions in general, and as they relate to the Company's securities in
particular, are such as to continue to make appropriate the offering and sale of
the Shares in the manner provided for herein. Notwithstanding the foregoing,
this Agreement shall terminate if the

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sale of all of the Shares is not completed on or before November 15, 1999,
unless extended by the mutual agreement of the Company and the Placement Agent.
Upon any termination of this Agreement whether by the Company or the Placement
Agent, the obligations of the parties set forth in Sections 6(c), 10 and 11
shall survive termination of this Agreement.

         14. Notices. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and if sent to you shall be
mailed, delivered or telegraphed and confirmed to you c/o Allen & Company
Incorporated, 711 Fifth Avenue, New York, NY 10022, Attention: Enrique Senior,
with a copy to Heller Ehrman White & McAuliffe, 711 Fifth Avenue, New York, NY
10022, Attn: Guy N. Molinari, Esq., or, if sent to the Company, at 15 Princess
Road, Lawrenceville, NJ 08648, Attn: Brown Williams, with a copy to 600 College
Road East, Princeton, NJ 08540, Attn: Richard Pinto.

         15. Benefits of the Agreement. This Agreement shall inure to the
benefit of and be binding upon the Company and the Placement Agent and their
respective successors and permitted assigns. This Agreement may not be assigned
by any party without the consent of the other party.

         16. Applicable Law. This Agreement shall be governed by, construed and
enforced in accordance with the laws of the State of New York.

         17. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.

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                                         Very truly yours,

                                         PRINCETON VIDEO IMAGE, INC.

                                         By:/s/  Lawrence L. Epstein
                                            ------------------------
                                            Name:  Lawrence L. Epstein
                                            Title: Vice President of Finance and
                                                   Chief Financial Officer

ALLEN & COMPANY INCORPORATED

By: /s/ Kim M. Wieland
   -------------------------
   Name:  Kim M. Wieland
   Title: Managing Director and
          Chief Financial Officer

10<PAGE>   1
                                                                    Exhibit 10.4

                     THESE SECURITIES HAVE NOT BEEN REGISTERED
                     UNDER THE SECURITIES ACT OF 1933 OR THE LAWS
                     OF ANY STATE. THEY MAY NOT BE SOLD OR
                     OTHERWISE TRANSFERRED UNLESS THEY ARE
                     REGISTERED UNDER SUCH ACT AND APPLICABLE
                     STATE SECURITIES LAWS OR AN EXEMPTION FROM
                     REGISTRATION IS AVAILABLE.

                                                    200,000 Warrants

                           PRINCETON VIDEO IMAGE, INC.

                               WARRANT CERTIFICATE

                  This warrant certificate ("Warrant Certificate") certifies
that for value received in consideration for certain services rendered, and for
other good and valuable consideration, the sufficiency of which is hereby
acknowledged, Allen & Company Incorporated or registered permitted assigns (the
"Holder") is the owner of the number of warrants ("Warrants") specified above,
each of which entitles the Holder thereof to purchase, at any time on or before
the Expiration Date (hereinafter defined), one fully paid and non-assessable
share of Common Stock, no par value ("Common Stock"), of Princeton Video Image,
Inc., a New Jersey corporation (the "Company"), at a purchase price of $6.60 per
share of Common Stock in lawful money of the United States of America in cash or
by certified or cashier's check or a combination of cash and certified or
cashier's check (subject to adjustment as hereinafter provided).

                  1. Warrant; Purchase Price

                  Each Warrant shall entitle the Holder initially to purchase
one share of Common Stock of the Company and the purchase price payable upon
exercise of the Warrants (the "Purchase Price") shall initially be $6.60 per
share of Common Stock. The Purchase Price and number of shares of Common Stock
issuable upon exercise of each Warrant are subject to adjustment as provided in
Article 6. The shares of Common Stock issuable upon exercise of the Warrants
(and/or other shares of common stock so issuable by reason of any adjustments
pursuant to Article 6) are sometimes referred to herein as the "Warrant Shares."

                  2. Exercise; Expiration Date

                  2.1 The Warrants are exercisable, at the option of the Holder,
in whole or in part at any time and from time to time on or after the date
hereof and on or before the Expiration Date, upon surrender of this Warrant
Certificate to the Company together with a duly completed Notice of Exercise, in
the form attached hereto as Exhibit A, and payment of an amount equal to
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the Purchase Price times the number of Warrants to be exercised. In the case of
exercise of less than all the Warrants represented by this Warrant Certificate,
the Company shall cancel the Warrant Certificate upon the surrender thereof and
shall execute and deliver a new Warrant Certificate for the balance of such
Warrants.

                  2.2 The term "Expiration Date" shall mean 5:00 p.m. New York
time on the seventh anniversary of the date hereof, or if such day shall in the
State of New York be a holiday or a day on which banks are authorized to close,
then 5:00 p.m. New York time the next following day which in the State of New
York is not a holiday or a day on which banks are authorized to close.

                  3. Registration and Transfer on Company Books

                  3.1 The Company shall maintain books for the registration and
transfer of the Warrants and the registration and transfer of the Warrant
Shares.

                  3.2 Prior to due presentment for registration of transfer of
this Warrant Certificate, or the Warrant Shares, the Company may deem and treat
the registered Holder as the absolute owner thereof.

                  3.3 Neither this Warrant Certificate, nor the Warrants
represented hereby, may be sold, assigned or otherwise transferred voluntarily
by the Holder, other than to successors, partners, officers or directors of the
Holder (a "Permitted Transfer"), without the consent of the Company. The Company
shall register upon its books any Permitted Transfer of a Warrant Certificate,
upon surrender of same to the Company with a written instrument of transfer duly
executed by the registered Holder or by a duly authorized attorney. Upon any
such registration of Permitted Transfer, new Warrant Certificate(s) shall be
issued to the transferee(s) and the surrendered Warrant Certificate shall be
canceled by the Company. A Warrant Certificate may also be exchanged, at the
option of the Holder, for new Warrant Certificates of different denominations
representing in the aggregate the number of Warrants evidenced by the Warrant
Certificate surrendered.

                  4. Reservation of Shares

                  The Company covenants that it will at all times reserve and
keep available out of its authorized capital stock, solely for the purpose of
issue upon exercise of the Warrants, such number of shares of capital stock as
shall then be issuable upon the exercise of all outstanding Warrants. The
Company covenants that all shares of capital stock which shall be issuable upon
exercise of the Warrants shall be duly and validly issued and fully paid and
non-assessable and free from all taxes, liens and charges with respect to the
issue thereof, and that upon issuance such shares shall be listed on each
national securities exchange or automated over-the-counter trading system, if
any, on which the other shares of such outstanding capital stock of the Company
are then listed.

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                  5. Loss or Mutilation

                  Upon receipt by the Company of reasonable evidence of the
ownership of and the loss, theft, destruction or mutilation of any Warrant
Certificate and, in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to the Company, or, in the case of mutilation, upon
surrender and cancellation of the mutilated Warrant Certificate, the Company
shall execute and deliver in lieu thereof a new Warrant Certificate representing
an equal number of Warrants.

                  6. Adjustment of Purchase Price and Number of Shares
                     Deliverable

                  6.1 The number of Warrant Shares purchasable upon the exercise
of each Warrant and the Purchase Price with respect to the Warrant Shares shall
be subject to adjustment as follows:

                  (a) In case the Company shall (i) declare a dividend or make a
         distribution on its Common Stock payable in shares of its capital
         stock, (ii) subdivide its outstanding shares of Common Stock through
         stock split or otherwise, (iii) combine its outstanding shares of
         Common Stock into a smaller number of shares of Common Stock, or (iv)
         issue by reclassification of its Common Stock (including any
         reclassification in connection with a consolidation or merger in which
         the Company is the continuing corporation) other securities of the
         Company, the number and/or nature of Warrant Shares purchasable upon
         exercise of each Warrant immediately prior thereto shall be adjusted so
         that the Holder shall be entitled to receive the kind and number of
         Warrant Shares or other securities of the Company which he would have
         owned or have been entitled to receive after the happening of any of
         the events described above, had such Warrant been exercised immediately
         prior to the happening of such event or any record date with respect
         thereto. Any adjustment made pursuant to this paragraph (a) shall
         become effective retroactively as of the record date of such event.

                  (b) In the event of any capital reorganization or any
         reclassification of the capital stock of the Company or in case of the
         consolidation or merger of the Company with another corporation (other
         than a consolidation or merger in which the outstanding shares of the
         Company's Common Stock are not converted into or exchanged for other
         rights or interests), or in the case of any sale, transfer or other
         disposition to another corporation of all or substantially all the
         properties and assets of the Company (any such event, a "Triggering
         Event"), the Holder of each Warrant shall thereafter be entitled to
         purchase (and it shall be a condition to the consummation of any such
         reorganization, reclassification, consolidation, merger, sale, transfer
         or other disposition that appropriate provisions shall be made so that
         such Holder shall thereafter be entitled to purchase) the kind and
         amount of shares of stock and other securities and property (including
         cash) which the Holder would have been entitled to receive had such
         Warrants been exercised immediately prior to the effective date of such
         reorganization, reclassification, consolidation, merger, sale, transfer
         or other disposition; and in any such case appropriate adjustments
         shall be made in the application of the provisions of this Article 6
         with

                                      -3-
<PAGE>   4
         respect to rights and interest thereafter of the Holder of the Warrants
         to the end that the provisions of this Article 6 shall thereafter be
         applicable, as near as reasonably may be, in relation to any shares or
         other property thereafter purchasable upon the exercise of the
         Warrants. The provisions of this Section 6.1(b) shall similarly apply
         to successive reorganizations, reclassifications, consolidations,
         mergers, sales, transfers or other dispositions.

                  (c) Whenever the number of Warrant Shares purchasable upon the
         exercise of each Warrant is adjusted, as provided in this Section 6.1,
         the Purchase Price with respect to the Warrant Shares shall be adjusted
         by multiplying such Purchase Price immediately prior to such adjustment
         by a fraction, of which the numerator shall be the number of Warrant
         Shares purchasable upon the exercise of each Warrant immediately prior
         to such adjustment, and of which the denominator shall be the number of
         Warrant Shares so purchasable immediately thereafter.

                  6.2 No adjustment in the number of Warrant Shares purchasable
under the Warrants, or in the Purchase Price with respect to the Warrant Shares,
shall be required unless such adjustment would require an increase or decrease
of at least 1% in the number of Warrant Shares issuable upon the exercise of
such Warrant, or in the Purchase Price thereof; provided, however, that any
adjustments which by reason of this Section 6.2 are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
All final results of adjustments to the number of Warrant Shares and the
Purchase Price thereof shall be rounded to the nearest one thousandth of a share
or the nearest cent, as the case may be. Anything in this Section 6 to the
contrary notwithstanding, the Company shall be entitled, but shall not be
required, to make such changes in the number of Warrant Shares purchasable upon
the exercise of each Warrant, or in the Purchase Price thereof, in addition to
those required by such Section, as it in its discretion shall determine to be
advisable in order that any dividend or distribution in shares of Common Stock,
subdivision, reclassification or combination of shares of Common Stock, issuance
of rights, warrants or options to purchase Common Stock, or distribution of
shares of stock other than Common Stock, evidences of indebtedness or assets
(other than distributions of cash out of retained earnings) or convertible or
exchangeable securities hereafter made by the Company to the holders of its
Common Stock shall not result in any tax to the holders of its Common Stock or
securities convertible into Common Stock.

                  6.3 Whenever the number of Warrant Shares purchasable upon the
exercise of each Warrant or the Purchase Price of such Warrant Shares is
adjusted, as herein provided, the Company shall mail to the Holder, at the
address of the Holder shown on the books of the Company, a notice of such
adjustment or adjustments, prepared and signed by the Chairman of the Board,
Chief Financial Officer or Secretary of the Company, which sets forth the number
of Warrant Shares purchasable upon the exercise of each Warrant and the Purchase
Price of such Warrant Shares after such adjustment, a brief statement of the
facts requiring such adjustment and the computation by which such adjustment was
made.

                                      -4-
<PAGE>   5
                  6.4 The Company shall give notice to the Holder by registered
mail, if at any time prior to the expiration or exercise in full of the
Warrants, any of the following events shall occur:

                  (a) The Company shall authorize the payment of any dividend
payable in any securities upon shares of Common Stock or authorize the making of
any distribution to the holders of shares of Common Stock;

                  (b) The Company shall authorize the issuance to all holders of
Common Stock of any additional shares of Common Stock or of rights, options or
warrants to subscribe for or purchase Common Stock or any of any other
subscription rights, options or warrants;

                  (c) A dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation, merger, or sale or conveyance of
the property of the Company as an entirety or substantially as an entirety); or

                  (d) A capital reorganization or reclassification of the Common
Stock (other than a subdivision or combination of the outstanding Common Stock
and other than a change in the par value of the Common Stock) or any
consolidation or merger of the Company with or into another corporation (other
than a consolidation or merger in which the Company is the continuing
corporation and that does not result in any reclassification or change of Common
Stock outstanding) or any sale or conveyance to another corporation of the
property of the Company as an entirety or substantially an entirety.

Such giving of notice shall be initiated at least 10 business days prior to the
date fixed as a record date or effective date or the date of closing of the
Company's stock transfer books for the determination of the shareholders
entitled to such dividend, distribution, or subscription rights, or for the
determination of the shareholders entitled to vote on such proposed merger,
consolidation, sale, conveyance, dissolution, liquidation or winding up. Such
notice shall specify such record date or the date of the closing of the stock
transfer books, as the case may be. Failure to provide such notice shall not
affect the validity of any action taken in connection with such dividend,
distribution or subscription rights, or proposed merger, consolidation, sale,
conveyance, dissolution, liquidation or winding up.

                  7. Conversion Rights

                  7.1 In lieu of exercise of any portion of the Warrants as
provided in Section 2.1 hereof, the Warrants represented by this Warrant
Certificate (or any portion thereof) may, at the election of the Holder, be
converted into the nearest whole number of shares of Common Stock equal to: (1)
the product of (a) the number of shares of Common Stock then issuable upon the
exercise of the Warrants to be so converted and (b) the excess, if any, of (i)
the Market Price Per Share (as determined pursuant to Section 9.2) with respect
to the date of conversion over (ii) the Purchase Price in effect on the business
day next preceding the date of conversion, divided by (2) the Market Price Per
Share with respect to the date of conversion. For example, if the Market Price
per Share on the date of conversion is $4.00 and the Purchase Price is $2.00,
then the

                                      -5-
<PAGE>   6
Holder would be entitled to receive 15,000 shares of Common Stock upon
conversion of 30,000 Warrants.

                  7.2 The conversion rights provided under this Section 7 may be
exercised in whole or in part and at any time and from time to time while any
Warrants remain outstanding. In order to exercise the conversion privilege, the
Holder shall surrender to the Company, at its offices, this Warrant Certificate
accompanied by a duly completed Notice of Conversion in the form attached hereto
as Exhibit B. The Warrants (or so much thereof as shall have been surrendered
for conversion) shall be deemed to have been converted immediately prior to the
close of business on the day of surrender of such Warrant Certificate for
conversion in accordance with the foregoing provisions. As promptly as
practicable on or after the conversion date, the Company shall issue and shall
deliver to the Holder (i) a certificate or certificates representing the number
of shares of Common Stock to which the Holder shall be entitled as a result of
the conversion, and (ii) if the Warrant Certificate is being converted in part
only, a new certificate of like tenor and date for the balance of the
unconverted portion of the Warrant Certificate.

                  8. Voluntary Adjustment by the Company

                  The Company may, at its option, at any time during the term of
the Warrants, reduce the then current Purchase Price to any amount deemed
appropriate by the Board and/or extend the date of the expiration of the
Warrants.

                  9. Fractional Shares and Warrants; Determination of  Market
                     Price Per Share

                  9.1 Anything contained herein to the contrary notwithstanding,
the Company shall not be required to issue any fraction of a share of Common
Stock in connection with the exercise of Warrants. Warrants may not be exercised
in such number as would result (except for the provisions of this paragraph) in
the issuance of a fraction of a share of Common Stock unless the Holder is
exercising all Warrants then owned by the Holder. In such event, the Company
shall, upon the exercise of all of such Warrants, issue to the Holder the
largest aggregate whole number of shares of Common Stock called for thereby upon
receipt of the Purchase Price for all of such Warrants and pay a sum in cash
equal to the remaining fraction of a share of Common Stock, multiplied by its
Market Price Per Share (as determined pursuant to Section 9.2 below) as of the
last business day preceding the date on which the Warrants are presented for
exercise.

                  9.2 As used herein, the "Market Price Per Share" with respect
to any class or series of Common Stock on any date shall mean the average
closing price per share of Company's Common Stock for the 20 trading days
immediately preceding such date. The closing price for each such day shall be
the last sale price regular way or, in case no such sale takes place on such
day, the average of the closing bid and asked prices regular way, in either case
on the principal securities exchange on which the shares of such Common Stock of
the Company are listed or admitted to trading or, if applicable, the last sale
price, or in case no sale takes place on such day, the average of the closing
bid and asked prices of such Common Stock on NASDAQ or

                                      -6-
<PAGE>   7
any comparable system, or if such Common Stock is not reported on NASDAQ, or a
comparable system, the average of the closing bid and asked prices as furnished
by two members of the National Association of Securities Dealers, Inc. selected
from time to time by the Company for that purpose. If such bid and asked prices
are not available, then "Market Price Per Share" shall be equal to the fair
market value of such Common Stock as determined in good faith by the Board.

                  10. Registration Rights

                  10.1 No sale, transfer, assignment, hypothecation or other
disposition of the Warrant Shares shall be made unless any such transfer,
assignment or other disposition will comply with the rules and statutes
administered by the Securities and Exchange Commission (the "Commission") and
(i) a registration statement under the Securities Act of 1933, as amended (the
"Act"), including such shares is currently in effect, or (ii) in the opinion of
counsel satisfactory to the Company a current registration statement is not
required for such disposition of the shares.

                  10.2(a) The Company agrees that the Holder shall have the
one-time right, beginning on the first anniversary of the date of this Warrant
Certificate, upon written notice to the Company, to require that the Company
prepare and promptly file a registration statement, as may be required under the
Act, in connection with the public offering, on a time-to-time basis or
otherwise, of not less than 50% of the then outstanding Warrant Shares. In
connection therewith, the Company shall be obligated to prepare and file such
registration statement within 45 days of receipt of any such initial notice and
shall be further obligated to use its reasonable best efforts, including the
filing of any amendments or supplements thereto, to have any such registration
statement declared effective under the Act and the rules and regulations
promulgated thereunder as soon as practicable after the filing date thereof. The
Company shall also use its reasonable best efforts to keep any such registration
statement, and the accompanying prospectus, effective and current under the Act
at its expense for such period of time as is not otherwise burdensome to the
Company, in no event to exceed 90 days.

                  (b) Notwithstanding the foregoing, the Company shall not be
required to effect any registration pursuant to paragraph (a) above (i) during
the twelve (12) consecutive months following the effective date of a
registration statement filed in connection of any previous registration pursuant
to Section 10.3 below, or (ii) at any time when another registration statement
(other than on Form S-8) of the Company (A) is reasonably foreseen by the Board
to be filed with the Commission within thirty (30) days after the request
pursuant to paragraph (a) above, (B) has been filed and not yet become
effective, or (C) has become effective less than six (6) months prior to the
date of the request for registration pursuant to paragraph (a) above.

                  (c) The Company may postpone for 180 days the filing of a
registration statement pursuant to paragraph (a) above if the Company has
delivered a certificate to the holders of the Warrant Shares stating that the
Board, acting in good faith, has determined that pursuance of such registration
statement would be seriously detrimental to the Company and its shareholders;
provided, however, that in the event of any such postponement the Holder(s)
shall

                                      -7-
<PAGE>   8
be entitled to withdraw the request for such registration and, if such request
is withdrawn, such request shall not count as exercise of the Holder's one-time
right pursuant to paragraph (a) above.

                  10.3 In addition to the rights of the Holder pursuant to
Section 10.2, the Company agrees that, at any time or times hereafter, as and
when it intends to register any of its securities under the Act other than
pursuant to a registration requested pursuant to Section 10.2 hereof, whether
for its own account and/or on behalf of selling stockholders (except in
connection with an offering on Form S-8 or an offering solely related to an
acquisition or exchange on a Form S-4 or any subsequent similar form) the
Company will notify the Holder of such intention and, upon request from the
Holder, will use its reasonable best efforts to cause the Warrant Shares
designated by the Holder to be registered under the Securities Act. The number
of Warrant Shares to be included in such offering may be reduced if and to the
extent that the underwriter of securities included in the registration statement
and offered by the Company shall be of the opinion that such inclusion would
adversely affect the marketing of the securities to be sold by the Company
therein; provided, however, that the percentage of the reduction of such Warrant
Shares shall be no greater than the percentage reduction of securities of other
selling stockholders, as such percentage reductions are determined in the good
faith judgment of the Company. The Company will use its reasonable best efforts
to keep each such registration statement current for such period of time as is
not otherwise burdensome to the Company, in no event to exceed 90 days.

                  10.4 Any registration statement referred to in subsection 10.2
or 10.3 hereof shall be prepared and processed in accordance with the following
terms and conditions:

                  (i) The Holder will cooperate in furnishing promptly to the
         Company in writing any information requested by the Company in
         connection with the preparation, filing and processing of such
         registration statement.

                  (ii) To the extent requested by an underwriter of securities
         included in a registration statement referred to in Subsection 10.3
         hereof and offered by the Company, the Holder will defer the sale of
         Warrant Shares for a period commencing twenty (20) days prior and
         terminating one hundred twenty (120) days after the effective date of
         the registration statement, provided that any principal shareholders of
         the Company who also have shares included in the registration statement
         will also defer their sales for a similar period.

                  (iii) The Company will furnish to the Holder such number of
         prospectuses or other documents incident to such registration as may
         from time to time be reasonably requested, and cause its shares to be
         qualified under the blue-sky laws of those states reasonably requested
         by the Holder.

                  (iv) The Company will indemnify the Holder (and any officer,
         director or controlling person of the Holder) and any underwriters
         acting on behalf of the Holder against all claims, losses, expenses,
         damages and liabilities (or actions in respect thereof) to which they
         may become subject under the Securities Act or otherwise, arising out
         of or

                                      -8-
<PAGE>   9
         based upon any untrue or alleged untrue statement of any material facts
         contained in any registration statement filed pursuant hereto, or any
         document relating thereto, including all amendments and supplements, or
         arising out of or based upon the omission or alleged omission to state
         therein a material fact required to be stated therein or necessary to
         make the statements therein contained not misleading, and will
         reimburse the Holder (or such other aforementioned parties) or such
         underwriters for any legal and all other expenses reasonably incurred
         in accordance with investigating or defending any such claim, loss,
         damage, liability or action; provided, however, that the Company will
         not be liable where the untrue or alleged untrue statement or omission
         or alleged omission is based upon information furnished in writing to
         the Company by the Holder or any underwriter obtained by the Holder
         expressly for use therein, or as a result of the Holder's or any such
         underwriter's failure to furnish to the Company information duly
         requested in writing by counsel for the Company specifically for use
         therein. This indemnity agreement shall be in addition to any other
         liability the Company may have. The indemnity agreement of the Company
         contained in this paragraph (iv) shall remain operative and in full
         force and effect regardless of any investigation made by or on behalf
         of any indemnified party and shall survive the delivery of and payment
         for the Warrant Shares.

                  (v) The Holder will indemnify the Company (and any officer,
         director or controlling person of the Company) and any underwriters
         acting on behalf of the Company against all claims, losses, expenses,
         damages and liabilities (or actions in respect thereof) to which they
         may become subject under the Securities Act or otherwise, arising out
         of or based upon any untrue or alleged untrue statement filed pursuant
         hereto, or any document relating thereto, including all amendments, and
         supplements, or arising out of or based upon the omission or alleged
         omission to state therein a material fact required to be stated therein
         or necessary to make the statements therein contained not misleading,
         and, will reimburse the Company (or such other aforementioned parties)
         or such underwriters for any legal and other expenses reasonably
         incurred in connection with investigating or defending any such claim,
         loss, damage, liability, or action; provided, however, that the Holder
         will be liable as aforesaid only to the extent that such untrue or
         alleged untrue statement or omission or alleged omission is based upon
         information furnished in writing to the Company by the Holder or any
         underwriter obtained by the Holder expressly for use therein, or as a
         result of its or such underwriter's failure to furnish the Company with
         information duly requested in writing by counsel for the Company
         specifically for use therein. This indemnity agreement contained in
         this paragraph (v) shall remain operative and in full force and effect
         regardless of any investigation made by or on behalf of any indemnified
         party and shall survive the delivery of and payment for the Warrant
         Shares.

                  (vi) Promptly after receipt by an indemnified party under this
         subsection 10.4 of notice of the commencement of any action, such
         indemnified party will, if a claim in respect thereof is to be made
         against the indemnifying party, promptly notify the indemnifying party
         of the commencement thereof, but the omission so to notify the
         indemnifying party will not relieve it from any liability which it may
         have to any indemnified party otherwise than under this subsection
         10.4. In case any such action is

                                      -9-
<PAGE>   10
         brought against any indemnified party, and it notifies the indemnifying
         party of the commencement thereof, the indemnifying party will be
         entitled to participate in, and, to the extent that it may wish jointly
         with any other indemnifying party similarly notified, to assume the
         defense thereof, with counsel reasonably satisfactory to such
         indemnified party, and after notice from the indemnifying party of its
         election so to assume the defense thereof, the indemnifying party will
         not be liable to such indemnified party under this subsection 10.4 for
         any legal or other expenses subsequently incurred by such indemnified
         party in connection with the defense thereof, other than reasonable
         costs of investigation or out-of-pocket expenses or losses or cost
         incurred in collaborating in the defense.

                  (vii) Except as set forth in subsection 10.4(viii), the
         Company shall bear all costs and expenses incident to any registration
         pursuant to this Section 10.

                  (viii) The Holder shall pay any and all underwriters'
         discounts, brokerage fees and transfer taxes incident to the sale of
         any securities sold by such Holder pursuant to this Section 10, and
         shall pay the fees and expenses of any attorneys or accountants
         retained by it.

                  11. Governing Law

                  This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York.

                                      -10-
<PAGE>   11
                  IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed by its officers thereunto duly authorized and
its corporate seal to be affixed hereon, as of this 20th day of October, 1999.

                                          PRINCETON VIDEO IMAGE, INC.

                                          By: /s/ Lawrence L Epstein
                                              ------------------------------
                                              Name:  Lawrence L. Epstein
                                              Title: Vice President and Chief
                                                     Financial Officer

[SEAL]

Attest:

ALLEN & COMPANY INCORPORATED

By: /s/ Kim M. Wieland
   ----------------------------
   Name:  Kim M. Wieland
   Title: Managing Director and
          Chief Financial Officer
<PAGE>   12
                                                                       EXHIBIT A

                               NOTICE OF EXERCISE

                  The undersigned hereby irrevocably elects to exercise,
pursuant to Section 2 of the Warrant Certificate accompanying this Notice of
Exercise, _______ Warrants of the total number of Warrants owned by the
undersigned pursuant to the accompanying Warrant Certificate, and herewith makes
payment of the Purchase Price of such shares in full.

                                     Name of Holder    ________________________

                                     Signature         ________________________

                                     Address:          ________________________

                                                       ________________________

                                                       ________________________
<PAGE>   13
                                                                       EXHIBIT B

                              NOTICE OF CONVERSION

The undersigned hereby irrevocably elects to convert, pursuant to Section 7 of
the Warrant Certificate accompanying this Notice of Conversion, _______ Warrants
of the total number of Warrants owned by the undersigned pursuant to the
accompanying Warrant Certificate into shares of the Common Stock of the Company
(the "Shares").

The number of Shares to be received by the undersigned shall be calculated in
accordance with the provisions of Section 7.1 of the accompanying Warrant
Certificate.

                                     Name of Holder:   ________________________

                                     Signature:        ________________________

                                     Address:          ________________________

                                                       ________________________

                                                       ________________________

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