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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] 15, ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED JUNE 30, 1996
[ ] 15, TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _______ to _______
COMMISSION FILE NUMBER 1-11857
MULTICOM PUBLISHING, INC.
(Name of small business issuer as specified in its charter)
WASHINGTON 91-1551337
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1100 OLIVE WAY, SUITE 1250
SEATTLE, WASHINGTON 98101
(Address of principal (Zip Code)
executive offices)
Issuer's telephone number: (206) 622-5530
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class: Name of each exchange on which
registered:
COMMON STOCK, $.01 PAR VALUE BOSTON STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Exchange Act:
COMMON STOCK, $.01 PAR VALUE
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
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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. []
Revenues for the fiscal year ended June 30, 1996: $7,053,416
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The aggregate market value of voting stock held by nonaffiliates of
the registrant as of July 24, 1996: 7,440,000
The number of shares of Common Stock outstanding as of July 24, 1996: 5,612,169
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the definitive Proxy Statement to be filed for the 1996
Annual Meeting of Stockholders are incorporated by reference in Part
III.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Multicom is a leading interactive multimedia company concentrating on new media
products and services in the home/family/lifestyle category. New media
delivers information and entertainment to users in interactive digital form
through media such as CD-ROMs, the Internet, the World Wide Web, proprietary
online services, TV-based systems, interactive kiosks and laptop PC
presentations. The Company publishes software that typically incorporates
materials licensed from established companies with broad consumer acceptance
and substantial brand equity. The Company also creates and sells interactive
advertising and develops custom publishing projects for major consumer product
and publishing companies. The Company seeks to capitalize on the consumer
trend to increasingly use new media as a source of information and on the
business trend to direct more marketing resources to interactive advertising,
the Internet, the World Wide Web and other types of new media.
The Company's strategy is to acquire established, quality content with consumer
brand recognition and to use its in-house producer-led teams to create robust
new media productions through the application of advanced technology and
high-level multimedia design. Using modular design and development techniques,
the Company has created high-quality, award-winning, innovative products.
Since the release of its first title in 1992, the Company has published 31
individual titles on CD-ROM under license from Meredith Corporation, American
Express Publishing and Simon & Schuster, among others. Three of the Company's
recent titles incorporate embedded online access to specified Web sites on the
Internet and proprietary online services for real-time information and direct
advertiser contact.
The Company designs, creates and sells interactive advertising for its clients
in the home/family/lifestyle arena. Customers for the Company's interactive
advertising development include DuPont, General Electric, Armstrong and
Thomasville. Multicom's interactive productions feature animation, customer
surveys and connectivity to the clients' Web sites. In addition, the Company
sells space for interactive advertisements in the Company's CD-ROM titles and
its Web site. The advertising development customers listed above, as well as
companies such as Andersen Windows, Toyota and Nutrasweet, have purchased ad
space in the Company's CD-ROMs.
Multicom's custom publishing division provides additional new media
opportunities to its customers. The Company's custom publishing projects
include creation of new media marketing and publishing products, interactive
kiosks, comprehensive corporate training programs, corporate Internet Web sites
and interactive advertising. Customers for these projects have included First
Alert, Better Homes and Gardens Real Estate Service, Robert Half International
and MacMillan Digital USA, a Viacom company.
Multicom has gained important strategic advantages from its relationship with
Meredith, the publisher of Better Homes and Gardens products. Meredith has
licensed branded material for many of the Company's CD-ROM titles and has
helped the Company to establish key relationships with The Home Depot and
several mass-market advertisers.
The Company was incorporated in Washington on January 2, 1992. The Company's
principal corporate offices are located at 1100 Olive Way, Suite 1250, Seattle,
Washington 98101, and it has its principal executive offices in San Francisco,
California. The Company's Web site can be located at
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http://www.multicom.com. Information contained in such Web site is not a part
of this Form 10-KSB.
INDUSTRY
In recent years, tremendous advances in computer hardware and software, as well
as online access, have significantly enhanced the ability of a broad base of
computer users in both home and business environments to take advantage of new
media products and services. Digital multimedia technology permits the
delivery of a wide range of media and information, including full-motion video,
animation, sound, photos and text. Such media and information are delivered
via a wide variety of methods, such as databases and hyperlinks, and platforms
such as CD-ROMs, the Internet, the World Wide Web, proprietary online services,
TV-based systems, interactive kiosks and laptop PC presentations. These digital
formats are interactive and allow a user random access to any information
contained in the multimedia product.
The increasing availability of new and more sophisticated tools and
technologies and the emergence of alternate delivery platforms, including
CD-ROM, online and enhanced cable television services, have heightened the
demand for digital interactive media. The Company believes that there will be
an increasing convergence between CD-ROM and online distribution of multimedia
content, with CD-ROMs increasingly providing connectivity to online information
sources to update and supplement the CD-ROM experience.
The increasing level of demand for high-quality interactive multimedia provides
a favorable environment for companies that are able to capitalize on evolving
trends. This demand is expected to increase as technical advancements permit
greater exploitation of existing multimedia capabilities in such emerging media
as the Internet and other online services. The Company believes that the
following trends are driving the new media arena:
- Consumer Adoption of New Media. Consumers are adopting new
technologies to help them obtain, quickly and efficiently, the
home/family/lifestyle information they desire.
- Migration of Content from Traditional Media to New Media. As the
consumer demand for new media has expanded, leading providers of
traditional media, such as magazines, books and video, have begun
to seek digital formats for their brand franchise that will enable
them to leverage their content, editorial resources and brand
identification into the education, game and home/family/lifestyle
categories.
- Business Adoption of New Media Communication Strategies. The
growing acceptance of new media by consumers, as well as the
emergence of new media communication vehicles such as the World
Wide Web, the Internet, proprietary online services, CD-ROMs,
laptop PC presentations and interactive kiosks, is driving an
increasing number of businesses to integrate new media into
corporate communication strategies.
STRENGTHS AND STRATEGIES
Multicom intends to leverage its strengths in order to efficiently provide the
highest quality interactive solutions to its customers. Multicom's core
strengths include the following:
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- Strategic relationships. Multicom's strategic relationships
provide the Company with a number of significant competitive
advantages, including a source of branded, evergreen content for
product development, high-level access to other potential
publishers, entry into new distribution channels, introductions to
major advertisers and advertising agencies, low-cost advertising
space and access to large customer bases. Multicom's strategic
relationships include Meredith Corporation (publisher of Better
Homes and Gardens), The Home Depot, American Express, America
Online, AT&T and BBDO, an international advertising agency.
- Experienced in-house development teams. Multicom has six
producer-led internal development teams, which are skilled in
leading edge development tools and software. Multicom's
investment in personnel, tools and advanced technology allows the
Company to retain greater control over the creative process and
maintain high product quality and efficiency.
- Modular architecture. In both the title development and custom
publishing arenas, the Company designs its products to maximize
the reuse of both its software development assets and internally
developed creative assets in order to reduce product development
costs, increase quality, decrease time-to-market and maintain
flexibility as new digital platforms emerge. Multicom attempts to
maximize the functional reusability of its software code through
its modular product architecture.
- Creative excellence. Multicom places a priority on the
development of high-quality productions that meet and exceed
industry and consumer standards for creativity and functionality
in interactive media.
Multicom's objective is to exploit its core strengths to become the leading
producer of interactive digital multimedia products targeted at the
home/family/lifestyle market. To achieve this objective, Multicom publishes
branded material provided by third parties, producing interactive products
available in CD-ROM, the Internet, the World Wide Web or other online formats,
and provides multimedia advertising and custom publishing services for clients.
The Company seeks to maximize its reusable assets and to leverage its
relationship with publishers and others. Multicom's strategy includes the
following key elements:
- Focus on Home/Family/Lifestyle. The Company's main focus is the
delivery of all types of new media in the home/family/lifestyle
category. This focus places the Company in an arena that is one
of the largest markets for traditional media worldwide, as well as
one of the largest categories of consumer products.
- Leverage Brand Equities. A fundamental element of Multicom's
strategy is to obtain high-quality branded materials which have
already been successful in other media (e.g. Better Homes and
Gardens cooking products and The Home Depot home products). The
Company believes that, as digital multimedia products increasingly
become mass market items, consumers will seek new media products
with the same brand names that they have learned to trust over
many years of use of traditional media products.
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- Concentrate on Evergreen Products. Multicom strives to continue to
maximize the value of the assets which it licenses by focusing on
subjects such as cooking, gardening, home, hobbies and travel,
where the majority of the underlying content remains current for
an extended period of time. This "evergreen" product model is
designed to have less risk over the long term than the
shorter-term model for games and "edutainment" products.
- Develop Portable Assets. Multicom strives to develop digital
multimedia content which can be utilized across multiple digital
platforms as they emerge. The Company's modular product
architecture also helps to make its products and code more easily
portable from one platform to another as well as enabling it to
reduce the cost of producing products and the length of the
development cycle, while maintaining the quality of new products.
The modular architecture also enables Multicom to more easily
update its products to new technologies as they emerge.
- Expanding Advertising and Custom Publishing Services. Multicom's
objective is to leverage its internally developed content,
technology assets and expertise in developing digital multimedia
products by providing advertising services and interactive custom
publishing projects primarily to home/family/lifestyle
advertisers. These include in-store kiosk and custom promotional
products, delivery of "advertorial" information to the consumer on
its titles and connectivity from its titles to an advertiser's Web
site and other projects designed to use new media to connect
advertisers more closely to their customers.
- Expand Distribution Channels. Multicom's strategy is to continue
to expand its distribution beyond traditional software channels
and to seek to leverage its branded materials, its strong
relationship with key publishers and its expanding base of
technology assets to develop its own brand recognition and
maximize the shelf space its products receive.
PRODUCTS AND SERVICES
Multicom's ongoing goal is to develop robust digital multimedia products that
provide consumers the information to enhance their lives and to provide
advertisers and publishers with ways of reaching these consumers. The Company
has targeted the home/family/lifestyle market, which includes food, home,
family, gardening, travel, crafts, personal improvement, nature and hobbies.
Building on its existing product lines and core strengths, the Company now
sells interactive advertising in certain of its titles; provides connectivity
from certain of its titles to advertisers' or publishers' Web sites; and
provides custom publishing services to traditional publishers, advertisers and
others on CD-ROM, the World Wide Web and other delivery systems.
Titles. Multicom has published 31 multimedia titles on CD-ROM, 23 of which are
available on hybrid discs that run on both MPC and Macintosh platforms. Some of
these titles are listed below:
Better Homes and Gardens Healthy The Home Depot Home Improvement
Cooking CD Cookbook 1-2-3
Exploring America's National Parks Better Homes and Gardens
Better Homes and Gardens Planning Complete Guide to Gardening
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Your Home Wines of the World Deluxe
Better Homes and Gardens Presents Better Homes and Gardens
Great American Cooking Cooking for Today Series
Astrology Source Americans in Space
Interactive Advertising and Sponsorships. Multicom sells advertising space and
sponsorships on certain titles which will entitle sponsors to use space on the
title, as well as to include promotional materials in the title packaging.
These sponsorships are generally targeted to the special interest nature of the
title, and Multicom's relationship with the advertiser frequently arises out of
the advertiser's relationship to the primary licensor of the title. Some of
the companies advertising on Multicom titles are listed below:
Andersen Windows Nutrasweet
General Electric Toyota
Thomasville Furniture DuPont
Armstrong
Custom Publishing. Multicom's experience in CD-ROM and other digital
multimedia product development has enabled it to offer and provide custom
publishing services to publishers, advertisers and other business users. The
Company's custom publishing activities include custom development projects that
result in the creation of new assets and interactive advertisements, support
Multicom's advertising placement business, create reusable software code
modules for future advertisements and other products and develop additional
strategic relationships. Some of Multicom's custom publishing projects are
listed below:
Consumer title development with Interactive advertising
American Kennel Club for development for DuPont
MacMillan Digital USA Internet site design for
Multimedia sales presentation major entertainment company
for Better Homes and Gardens Corporate training program
Real Estate Service
DISTRIBUTION AND SALES
Multicom distributes its titles primarily to traditional software distribution
channels through distributors such as Ingram Micro, Navarre and MicroCentral.
In addition to traditional software distributors, Multicom distributes its
products through certain of its licensors, such as American Express Publishing,
The Home Depot and Meredith. The Company also directly markets its products to
specialty markets such as wine stores, national parks and ski product
retailers. Multicom is exploring opportunities for distribution of certain of
the Company's titles for sale in mass market consumer locations, such as
grocery and drug stores and intends to continue to use consumer registration
cards to market title updates and related products directly to purchasers.
Multicom has dedicated sales people who are responsible for selling its
interactive advertising and custom publishing services. In addition, certain
of the Company's officers participate in the marketing and sales of interactive
advertising and custom publishing services, including negotiation of contracts
for major custom publishing projects.
MARKETING AND CUSTOMER SUPPORT
As digital multimedia products are increasingly being targeted to a broader
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base of consumers, effective product marketing to create consumer demand is
essential to the Company's success. In addition to joint marketing efforts
with its publisher, Multicom employs a wide range of consumer marketing
techniques to promote the sale of its products. These include: direct mail;
advertising in catalogs, computer magazines and licensors' publications;
special channel promotions; and product-related contests.
Multicom has established a Web site which describes and promotes its products
and services. The Company's Web site can be located at http://www.multicom.com.
Multicom also includes an interactive advertisement for its products on most of
its titles.
To provide additional value to customers and to differentiate its titles from
competitive products, Multicom introduced the concept of a CD-ROM/Book Bundle,
which bundles the Company's stand-alone CD-ROM with a book which provides
information directly relevant to the title subject matter. This bundle is
offered at a price that is less expensive than separate purchases of the book
and the title. These product offerings have captured shelf space and achieved
significant retail sell-through.
Multicom emphasizes customer satisfaction and, as part of this effort, provides
consumers with toll-free telephone assistance seven days a week at no
additional charge. Customer feedback is shared among other support
representatives and the development teams to assist in enhancing current and
future products.
COMPETITION
The markets for the Company's products and services are intensely competitive,
and the Company expects competition to increase in the future. The Company
believes that the principal competitive factors affecting the markets for its
titles include content, quality, brand recognition, price, marketing,
distribution, channel exposure, access to shelf space and critical reviews. In
the advertising and custom publishing markets, the Company believes that the
principal competitive factors also include the quality of services and the
reputation of the service provided among customers and potential customers. In
addition, the Company expects to encounter increasing price competition.
Competitive pressures could result not only in sustained price reductions, but
also in a decline in sales volume.
The consumer multimedia market is highly fragmented with products offered by
many vendors. The Company faces competition from large and established
software companies, such as Broderbund, which may expand their product lines or
increase their focus to compete more directly with the Company's products. Such
competitors have greater financial, technical, marketing, sales and customer
support resources, as well as greater name recognition and access to consumers,
than the Company. In addition, the Company faces direct competition in the
home/family/lifestyle market from companies such as Microsoft, Expert Software
and Softkey, each of which has greater resources than the Company, as well as
from numerous smaller privately-held companies. In the future, the Company may
face competition from publishers, such as Time-Warner, Hearst or Disney, who
may seek to produce competing products using their own content or that of other
providers. Furthermore, the Company anticipates that there will be a
consolidation of the consumer multimedia market around a smaller number of
vendors who may be better positioned and have greater resources to compete than
the Company.
In the advertising and custom publishing markets, the Company faces competition
from a number of interactive advertising agencies, as well as from the in-house
multimedia department of potential customers. The Company
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will also face increased competition as it seeks to deliver multimedia content
through other new media, such as the World Wide Web, the Internet and online
proprietary services.
PROPRIETARY RIGHTS AND LICENSES
The Company regards its products as proprietary and relies primarily on a
combination of trademarks, trade secrets, copyrights, contractual rights and
employee and third-party nondisclosure agreements to establish and protect its
proprietary rights. There can be no assurance that third parties will not
assert infringement claims against the Company, or against other parties (such
as distributors and publishers), which the Company has agreed to indemnify,
with respect to current or future products. As is common in the industry, the
Company has from time to time received notices from third parties claiming
infringement of intellectual property rights of such parties. The Company
investigates these claims and responds as it deems appropriate. There has been
substantial litigation regarding copyright, trademark, and other intellectual
property rights involving computer software companies. Although the Company is
not currently, and has not been, the defendant in any material intellectual
property rights claims, there can be no assurance that the Company will not
face claims, with or without merit, in the future. In the future, litigation
may be necessary to enforce the Company's proprietary rights, to protect
copyrights, trademarks and trade secrets and other intellectual property rights
owned by the Company or its licensors, to defend the Company or parties it has
agreed to indemnify against claimed infringements of the rights of others and
to determine the scope and validity of the proprietary rights of the Company
and others. Any claims or litigation, with or without merit, could be costly
and could result in a diversion of management's attention, which could have a
material adverse effect on the Company's business, operating results or
financial condition. Any settlement of such claims or adverse determinations
in such litigation could have a material adverse effect on the Company's
business, operating results and financial condition. Adverse determinations in
such litigation could result in the loss of the Company's proprietary rights,
subject the Company to significant liabilities or require the Company to seek
licenses from third parties or prevent the Company from selling its products,
any of which could have a material adverse effect on the Company's business,
operating results and financial condition.
Policing unauthorized use of the Company's products is difficult, and, while
the Company is unable to determine the extent to which piracy of its software
products exists, software piracy can be expected to be a persistent problem.
The Company does not include in its products any mechanism to prevent or
inhibit unauthorized copying. In selling its products, the Company relies
primarily on its rights under applicable copyright and trademark laws.
Further, the Company distributes its products in countries where intellectual
property laws are not well developed or are poorly enforced. Legal protection
of the Company's rights may be ineffective or difficult to enforce in such
countries. Software piracy and ineffective legal protection of the Company's
software in foreign jurisdictions may cause substantial losses of sales by the
Company, which could have a material adverse effect on the Company's business,
operating results and financial condition.
Multicom is a trademark of the Company. "Better Homes and Gardens,"
"Meredith" and the red and white plaid design on Better Homes and Gardens
Healthy Cooking Deluxe and Better Homes and Gardens Presents Great American
Cooking are registered trademarks of Meredith Corporation. Food and Wine is a
registered trademark of American Express Publishing Corporation. The Home
Depot is a registered trademark of Homer TLC, Inc. This Prospectus also
contains brand names, trademarks and service marks of other companies, which
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are the property of their respective holders.
RESEARCH AND DEVELOPMENT
Multicom's in-house development teams have designed and produced a significant
number of titles and custom publishing projects utilizing modular design
technology that enables Multicom to establish a library of reusable product
components, design product engines that can be reused in the development of new
products by substituting content into the existing engine and modify existing
titles for efficient use on different platforms. Multicom uses and develops
leading-edge multimedia technology to enhance the functionality of its
products. The Company's programming staff is experienced in HTML, Visual
Basic, SGML, C/C++, and object-oriented languages such as JAVA and ScriptX.
The Company has also integrated third-party, off-the-shelf software into its
reusable modules to provide specialized cross-platform capabilities.
The online and Internet markets have grown rapidly over the past year, and the
Company expects the trend to continue. To deliver information via online
conduits, Multicom has begun a rapid online development strategy. The first
phase defines online links to Web sites from multimedia CD-ROM titles. Through
a single point-and-click operation the user can be connected to a Web site that
has relevance to the material being reviewed on the CD-ROM. The second phase
consists of transferring files or data between local workspaces and an online
repository. The third and final phase entails seamless online linkage of both
data and functional components which takes advantage of a wide variety of
available platforms and technology.
The Company believes a key factor for presenting reference-based material is
the ability to apply or utilize the information being presented. Based on that
premise, Multicom is designing and developing a cross-platform computer-aided
design ("CAD") tool intended to support end-user visualization in the areas of
home planning and remodeling, gardening, and decorating. Multicom intends to
leverage technological advancements in this area to provide 3D walk-throughs,
real-time texture-mapping, and online connectivity. Furthermore, the Company
plans on supporting the new VRML 1.0 (Virtual Reality Mark-Up Language)
specifications for Internet delivery and downloading of visualization-based
material.
In connection with the expansion of its in-house experience, asset and code
libraries and online expertise, Multicom has expended $2,394,589 and $2,377,286
in fiscal 1996 and 1995, respectively.
PRODUCTION
For each published CD-ROM product, the Company prepares master software discs,
camera-ready user manuals and collateral materials. The Company's disc
duplication, packaging, printing of manuals, manufacture of related materials,
warehouse, assembly and shipping are performed by multiple outside vendors. To
date, the Company has not experienced any material difficulties or delays in
the manufacture and assembly of its products or significant returns due to
product defects. Books that are included in the CD-ROM/Book Bundles are
purchased from publishers or distributors, frequently in large quantities to
obtain volume discounts and maintain inventory.
EMPLOYEES
As of June 30, 1996, Multicom employed 63 people on a full-time basis, and 5
people on a part-time basis.
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EXECUTIVE OFFICERS OF THE REGISTRANT
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Name Age Position or Office and Principal Occupation
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Tamara L. Attard.........37 Chief Executive Officer and Chairman of the Board of the Company since its inception
in 1991. Prior to that time, Ms. Attard was a founding partner of Bayseng Spice
Company, a spice producer, where she was the Vice President of Operations from 1985
to June 1991. From 1981 to 1985, Ms. Attard was the Associate Director of
Experiential Research, a film production company. From 1980-1981, she was the
Associate Editor of Shooting Commercial Magazine and On Location Magazine, film
industry trade publications.
Paul G. Attard...........42 President of the Company since March 1996 and Chief Operating Officer and director
of the Company since October 1992. Prior to that time, from 1989 to October 1992,
Mr. Attard was the Vice President of OWL International, Inc., a division of
Matsushita which developed interactive multimedia and online tools and custom
solution software. Mr. Attard was a Director of Reseller Channel/VAR Sales at
Informix Software, a database software company. From 1984 to 1988, he served in
various positions, including Vice President of Sales, at PacTel InfoSystems, a
division of Pacific Telesis, a Regional Bell Operating Company.
Ellen R.M. Boyer.........36 Vice President of Finance and Administration and Chief Financial Officer of the
company since March 1996. She joined the Company in March 1994 as Director of
Finance and became the Vice President of Finance in April 1995. Prior to that time,
Ms. Boyer was an Audit Senior Manager at Price Waterhouse LLP, where she held a
variety of positions during her 12 years with the firm.
Edward J. Cummings.......37 Vice President of Licensing since July 1996 and Vice President of Licensing and
Legal Affairs from April 1995. Mr. Cummings joined the Company in February 1994 as
General Counsel. Prior to that time, Mr. Cummings was a senior associate in private
practice at Culp, Guterson and Grader, a law firm, from 1989 to January 1994. From
1986 to 1988, he was an associate in private practice at Mackall, Crounse and Moore,
a law firm.
Patricia E. Hart.........50 Vice President and General Counsel since joining the company in August 1996. From
November 1985 to August 1996, Ms. Hart was Corporate Counsel for Tandem Computers
Incorporated.
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KEY EMPLOYEES
- -------------
Maleea Barnett...........33 Director of Sales since July 1996. Ms. Barnett joined the company in April 1995 as
Director of Channel Sales. From July 1994 to March 1995, Ms. Barnett was the Director of
Sales of Phoenix Technologies, a software developer. Ms. Barnett was the Regional Sales
Manager at Knowledge Adventure, a multimedia software developer, from August 1992 to July
1994. From August 1990 to August 1992, she was the North-Central Sales Manager for Trak
Engineering, a hardware and software turnkey solution provider.
Lance T. Biggs...........33 Vice President of Development Operatons since July 1996. Mr. Biggs joined the
Company in July 1995 as Director of Quality Assurance. From March 1994 to June
1995, he was the Director of Quality Assurance and Technical Support at Knowledge
Adventure, a multimedia software developer. Mr. Biggs was the Director of Quality
Assurance and Technical Support for Compton's New Media, a developer of interactive
encyclopedia from January 1991 to March 1994.
Kelly D. Conway..........45 Vice President of Sales and Marketing since August 1995. Mr. Conway joined the
Company in May 1995 as the Vice President of Marketing. Prior to that time, he was
the Director of Affiliate Labels at Electronic Arts Distribution, a distributor of
software from May 1992 to May 1995. From April 1989 to May 1992, Mr. Conway was
the Director of Marketing for Macamerica, a division of Merisel, Inc., a distributor
of software.
Tim Fletcher.............34 Vice President of Interactive Advertising and Executive Producer since July 1996.
Executive Producer from July 1995 to June 1996. Prior to joining the Company in July
1993 as a Producer, Mr. Fletcher was a Producer for Hanna-Barbera Studios, a leading
animation production company, from 1989 to 1982.
Brad Grob................36 Vice President of Business Development since April 1995. Mr. Grob joined the
Company in August 1994 as the Director of Business Development. Prior to that time,
he was the Group Director of Market Development of Baker & Taylor, a distributor of
books, video and multimedia software from May 1993 to August 1994. From 1990 to May
1993, Mr. Grob co-founded and served as the Vice President of Marketing and Sales
for AIM, Inc., a manufacturer of consumer packaged products for
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<S> <C> <C>
the mass merchants and the direct response channels. From 1988 to 1990, Mr. Grob was
the Indirect Channels Marketing Manager for Xerox Corporation.
Scott L. Pehrson.........29 Director of Online since March 1996. Prior to joining Multicom, Mr. Pehrson was co-
founder and Vice President of Medio Multimedia, Inc., an online/CD-ROM magazine
developer and multimedia title publisher, from February 1994 to December 1995. Mr.
Pehrson also founded VTS Marine Computing, a software product developer for the
marine industry in 1993. From August 1989 to January 1994, Mr. Pehrson managed the
design and development of the Visual Basic product line for Microsoft Corporation.
Barbara J. Perry-Lorek...31 Director of Channel Marketing since joining the Company in March 1995. Ms. Perry-
Lorek was a marketing consultant from July 1994 to March 1995. From January 1992 to
July 1994, she was the Director of Channel Marketing, Merchandising Manager and
Senior Sales Representative at Knowledge Adventure, a multimedia software developer.
Ms. Perry-Lorek was a Sales Representative/Marketing Representative for Lotus
Development Corporation, a developer of business software applications, from June
1988 to January 1992.
Kurt E. Rolland..........35 Vice President of Engineering and Chief Technical Officer since April 1995. Mr.
Rolland joined the Company as Director of Development in June 1992. Prior to that
time, he was a Senior System Engineer at OWL International, Inc., a division of
Matsushita, an interactive multimedia tool and custom solutions developer, from 1990
to May 1992. From 1985 to 1995, Mr. Rolland was a Senior Systems Engineer at Ashton
Tate, a database software company.
John F. Sackley..........46 Director of Sales, Interactive Advertising and Custom Solutions since January 1996.
From 1986 to 1995, Mr. Sackley was employed by Meredith Corporation, where he was
involved in the sale of both magazine advertising and custom publishing projects.
Dennis F. Tanner.........43 Vice President of Product Management since April 1995. Mr. Tanner joined the
Company in September 1993 as the Director of Product Management. Prior to that
time, Mr. Tanner held several positions, including Director of Strategic Software
Marketing, for Tandy Corporation from 1980 to September 1993.
</TABLE>
Aside from Paul and Tamara Attard, who are married to each other, there are no
family relationships among the officers and directors of the Company. All
<PAGE> 14
executive officers of the Company are full-time employees of the Company.
ITEM 2. DESCRIPTION OF PROPERTY.
Multicom's research and development, customer support and administrative
offices are located in approximately 6,800 square feet of space (expanding to
11,300 square feet in September 1996) in Seattle, Washington. Multicom's
sales, marketing and principal executive offices are located in approximately
5,800 square feet of space (increasing to 11,600 square feet on November 1,
1996) in San Francisco, California. Both spaces are leased, with the Seattle
lease expiring on June 30, 2000 and the San Francisco lease expiring on October
31, 2000. The Company also maintains a 400-square foot sales office in Chicago
on a short-term lease.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) On May 30, 1996, by unanimous written Consent of Shareholders in Lieu of
Special Meeting of Multicom Publishing, Inc., all of the shareholders of record
took the following actions:
(i) Amended and restated the Amended and Restated Articles of
Incorporation of the Company to, among other things, (a) effect
a reclassification of Common Stock by eliminating the "Series A
voting" and "Series B non-voting" designations; and (b) effect
the addition of certain provisions regarding the management of
business and the election and removal of directors.
(ii) Approved a reverse stock split whereby each five shares of
issued and outstanding Class A and Class B Common Stock were
converted into four fully paid and nonassessable shares of Common
Stock (the "Reversed Split").
(iii) Approved the Company's Form of Indemnity Agreement.
(iv) Amended the Company's Amended Option Plan to include the share
reserve of 1,400,000 shares (after the Reverse Split) of Common
Stock.
(v) Amended the Company's Directors Plan to include the share
reserve of 100,000 shares (after the Reverse Split) of Common
Stock.
(vi) Authorized the filing with the United States Securities and
Exchange Commission registration statements on Form S-8
pertaining to shares issuable pursuant to the Company's Amended
Option Plan and Directors Plan.
(b) On June 18, 1996 by unanimous written Consent of Shareholders in Lieu
of Special Meeting of Multicom Publishing, Inc., all of the shareholders of
record amended and restated the Amended and Restated Articles of Incorporation
of the Company to further change certain provisions regarding the management of
business and the election and removal of directors.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
<PAGE> 15
Since the effectiveness of the Company's initial public offering on June 24,
1996, the Company's Common Stock has been traded on the National Association of
Securities Dealers Automated Quotation System (NASDAQ) Small Cap Market under
the symbol "MNET" and on the Boston Stock Exchange under the symbol "MPB". Set
forth below is the range of reported closing quotations for the Company's
Common Stock as reported on the NASDAQ Small Cap Market.
<TABLE>
<CAPTION>
Price Per Share of Common Stock at Closing
------------------------------------------
<S> <C> <C>
Period June 25 to June 30, 1996 High $6.75
Low 6.50
</TABLE>
Holders. As of July 24, 1996, the Company, to its knowledge, had approximately
548 shareholders of record of its Common Stock.
Dividends. The Company has never declared or paid any cash dividends on its
capital stock. The Company currently intends to retain its future earnings, if
any, to fund the development and growth of its business and, therefore, does
not anticipate paying any cash dividends in the foreseeable future. The
Company's bank line of credit agreement and its loan agreement with Sirrom
Capital Corporation prohibit the payment of cash dividends.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Overview
Multicom was founded in 1991 to develop interactive multimedia products from
content that has broad consumer appeal, substantial brand loyalty, long
commercial life-cycles and a history of commercial success in other media.
Since its initial product release in 1992, the Company has expanded its
business through the release of consumer multimedia titles and the completion
of custom publishing projects. The Company has established relationships with
five distributors to replace its now-terminated affiliated label relationship
with Electronic Arts Distribution ("EA"), a division of Electronic Arts, Inc.
The Company is also developing other channels for distribution of its products,
such as sales of the Home Improvement 1-2-3 product through The Home Depot
stores.
The Company's net sales include revenues from title sales (less allowances for
estimated returns and promotional discounts), licensing revenues and custom
publishing provided to other entities. The Company's net sales also include
non-refundable royalty advances to the extent that the Company has completed all
significant performance obligations under the terms of the license agreement.
Royalties from and product sales to computer manufactures, who provide the
Company's products to purchasers of computers, represented 36% of the Company's
net sales in the year ended June 30, 1995. Revenues from this source declined
in the year ended June 30, 1996, but this decline was offset by increasing
revenues in other areas of the business. The Company believes that this decline
is due to changes in the sales and marketing practices of computer hardware
manufacturers, and the Company does not expect significant revenues from such
sources in the future. The allowance for estimated returns is established by
taking into consideration historical return rates, sell-through information, the
competitive environment and information concerning the mix of products in the
distribution channel. Returns are typically highest in the first two quarters
of the calendar year, as distributors and retailers adjust the mix of products
in their inventories following the year-end holiday buying
<PAGE> 16
season. The Company enters into certain agreements whereby it provides custom
publishing for other entities. Revenues from such agreements are accounted for
on a percentage of completion method, based upon a ratio of costs incurred to
total estimated costs. Losses are recorded when they become known.
The Company's cost of sales include all direct manufacturing costs (disc
duplication, packaging and assembly), warehousing and freight, as well as
royalties and amortization of capitalized software development costs. Direct
manufacturing costs and royalty expenses have accounted for a majority of the
cost of sales. Research and development expenses consist primarily of
personnel, equipment and content/asset (e.g. video, photos, sound) costs. The
Company has expensed a substantial portion of its software development
activities, capitalizing only those expenditures that are incurred after a
product is determined by the Company to be technologically feasible. Such
capitalized expenditures amounted to approximately 7.6% and 5.0% of research
and development expenses in the periods ended June 30, 1996 and 1995,
respectively. While this is determined on a product-by-product basis, in
general, technological feasibility has been considered to occur near the end of
the product development cycle. Other operating expenses consist of sales and
marketing and general and administrative expenses.
The Company's operating results have fluctuated on a quarterly basis and are
highly seasonal. Due to the increased demand for the Company's products during
the year-end holiday season, net sales, gross profit and results of operations
are typically highest during the second fiscal quarter. Operating results have
also been affected by the timing of product releases and the related
development effort. The increasing pace of product development activity has
already affected the Company's operating results, as a substantial percentage
of product development costs associated with new titles have been incurred and
recognized in periods prior to the generation of revenues.
Fiscal 1996 Compared with Fiscal 1995
Net sales. Net sales during fiscal 1996 increased 80% over fiscal 1995
primarily due to the increase in the number of titles as well as the increase
in custom publishing projects. In the year ended June 30, 1996, eleven
products were released, compared to five in the year ended June 30, 1995.
Allowances for product returns were 26.6% and 26.7% in the years ended June 30,
1996 and 1995, respectively. In fiscal 1995, returns were negatively impacted
by the Company's decision to terminate the EA distribution agreement. The
ongoing impact of the termination of the EA distribution agreement, as well as
increased competition and a general slowness of the market, continued to impact
product returns in fiscal 1996.
Cost of sales. The Company's gross profit as a percentage of net sales
increased slightly to 49.1% in the year ended June 30, 1996 from 48.5% in the
year ended June 30, 1995. The lack of significant change is a result of a
consistent mix of products with varying profit margins.
Research and Development. Research and development costs decreased $45,000 in
the year ended June 30, 1996. At the same time, the Company released 11 titles
in fiscal 1996, compared to five titles in fiscal 1995 as a result of Multicom
being able to reuse much of its asset and code base that had been developed in
prior years. Additionally, certain of the Company's in-house resources were
used to complete custom publishing projects that were finalized during fiscal
1996. In the years ended June 30, 1996 and 1995, $182,000 and $120,000 of
software development costs were capitalized,
<PAGE> 17
respectively. The Company anticipates that it will continue to make
significant investments in this area for future title and Internet development.
For additional discussion on the risks associated with these statements and
other forward-looking statements, refer to the Outlook and Risk section below.
Sales and Marketing. Sales and marketing expenses increased $1,094,000 for the
year ended June 30, 1996. These increased expenditures primarily reflect the
growth of the in-house sales organization in anticipation of the termination of
the distribution relationship with EA and the development and implementation of
targeted marketing plans. Beginning in June 1995, the Company began selling
certain products to distributors other than EA, and in September 1995 reached
an agreement to suspend the affiliate label distribution agreement with EA,
after which time no significant sales were made to this distributor. In March
1996, the Company reached a final settlement with EA and terminated the
distribution agreement. As a percentage of net sales, sales and marketing
expenses were 46.5% and 55.9% for the years ended June 30, 1996 and 1995,
respectively The Company expects that sales and marketing expenditures will
continue to increase; however, as a percentage of net sales, a decrease is
anticipated. For additional discussion on the risks associated with these
statements and other forward-looking statements, refer to the Outlook and Risk
section below.
General and Administrative. In comparison to the prior year, general and
administrative expenses increased $801,000 and increased as a percentage of net
sales. The increase were primarily due to the growth of the Company and legal
expenses of approximately $120,000 incurred in connection with the termination
of the EA distribution agreement.
Liquidity and Capital Resources
Since its formation in 1991, the Company has financed its operations primarily
through its working capital, proceeds received from the issuance of debt and
the sale of stock. The Company's operating activities used cash for operations
of $1,279,000 in fiscal 1995 and $6,217,000 in fiscal 1996.
Accounts receivable and inventories have increased $1,739,000 and $619,000 from
June 30, 1995 to June 30, 1996, respectively. Accounts receivable have
increased due to the increase in net sales, as well as longer payment terms
which have been granted to distributors. The Company believes that these new
terms reflect typical practices in the CD-ROM industry. In fiscal 1996, the
Company increased its allowance for doubtful accounts as a result of one of its
distributor's financial difficulties and subsequent filing for bankruptcy.
Inventories have increased to support an anticipated increase in net sales, as
well as and as a result of increased numbers of books used in CD-ROM/Book
Bundles to reduce production delays. As returns have continued at higher than
expected levels, inventories have also begun to increase.
The decrease in trade payables from June 30, 1995 to June 30, 1996 was due to
repayment of certain payables with the proceeds from the initial public
offering (the "Offering") described below. Accrued liabilities increased as a
result of increased production and sales and marketing activity at the quarter
end.
In July 1995, the Company completed a $2,000,000 financing with Meredith, the
proceeds of which were used to fund operations. Interest is payable quarterly
in Common Stock and principal is payable quarterly based upon an established
formula. As of the effective date of the Offering, Meredith exercised its
conversion option, at a conversion price of $6.07 per share, by canceling
$1,500,000 of the note to purchase 247,219 shares of Common Stock. This
<PAGE> 18
subordinated note bears interest at 15%.
On March 29, 1996, the Company completed the issuance of $3,000,000 in
subordinated debt in order to repay a bridge loan and meet other working
capital requirements. This subordinated debt carries a debt discount of
$805,015 related to warrants to purchase 163,791 shares of Common Stock issued
in conjunction with the debt which will be amortized over five years beginning
in the quarter ended June 30, 1996. This subordinated debt bears cash interest
at 13% and is due in March 2001.
In June 24, 1996, the Company issued 1,028,600 shares of stock in an initial
public offering and received $5,209,000 in net proceeds which were used to pay
off certain subordinated debt and reduce trade payables.
The Company increased its credit facility for $1,500,000 to $2,000,000
available under a revolving line of credit, with advances available up to 75%
of eligible accounts receivable. The credit facility is secured by all the
assets of the Company and bears interest at prime plus 3/4%. At June 30, 1996,
the Company had drawn $1,000,000 against this line of credit. This credit
facility expires on July 5, 1997 and requires compliance with various financial
covenants and restrictions, including maintenance of minimum levels of net
worth and profitability, and restricts the Company's ability to pay dividends.
At June 30, 1996, the Company was in compliance with its covenants.
The Company believes that existing sources of liquidity will satisfy its
projected working capital, capital expenditure and capitalized research and
development requirements for the next 12 months. For additional
discussion on the risks associated with these statements and other
forward-looking statements, refer to the Outlook and Risk section below.
Outlook and Risks
The Company's future operating results and many of the forward looking
statements contained in this document are dependent upon a number of factors,
including the reversal of the general slowing trend in the software market and
the Company's ability to address the impact of the Internet, to expand
successfully into new markets, to react to changing technology and to
effectively manage resources.
During the past few months of 1996 and continuing into 1997, the industry has
experienced a general slowing in the sale of multimedia products in the retail
software channel. As a result, the Company has experienced higher product
returns and lower product sales. Allowances for returns at June 30, 1996 were
increased due to the returns that have been authorized during the slow summer
months.
Multicom has been expanding its markets into alternate channels (e.g. mass
merchandisers, specialty chains and grocery stores), however this new business
has not yet offset the effect of declining software channel markets. The
Company believes that these alternate channels may provide a significant
revenue stream for its CD-ROM business in the future. The management team has
been reviewing Multicom's business opportunities and strategic direction to
address this industry trend, as well as the impact the success of the Internet
may have on the business. The impact that the market trends and the Company's
actions may have on Multicom's operations cannot be fully measured at this
time.
A key challenge to the Company's continued growth is selling increased unit
volumes of CD-ROMs at competitive prices. There is a significant amount of
<PAGE> 19
competition in the lifestyle arena and the Company's success is dependent upon
continued demand for existing products, timeliness to market with new products
and its ability to meet the pricing and functionality requirements of the
consumer.
Management believes that its strategy of combining the graphic intensive
presentations on the CD-ROM with the real-time information available on the
Internet will add significant value to the consumer. The Company's ability to
effectively provide this seamless online linkage and market the increased
efficiency of this delivery vehicle cannot be predicted or the impact on
operations fully measured at this time.
ITEM 7. FINANCIAL STATEMENTS.
The following financial statements are furnished as part of this Annual Report
on Form 10-KSB:
<TABLE>
<CAPTION>
Index to Financial Statements Page
- ----------------------------- ----
<S> <C>
Report of Independent Accountants
Balance Sheets as of June 30, 1995 and 1996
Statements of Operations for the Years
Ended June 30, 1995 and 1996
Statement of Changes in Shareholders' Equity
(Deficit) for the Years Ended June 30,
1995 and 1996
Statements of Cash Flows for the Years
Ended June 30, 1995 and 1996
Notes to Financial Statements
</TABLE>
<PAGE> 20
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders of
Multicom Publishing, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, of changes in shareholders' equity (deficit), and of cash flows,
present fairly, in all material respects, the financial position of Multicom
Publishing, Inc. at June 30, 1995 and 1996 and the results of its operations
and its cash flows for the years ended June 30, 1995 and 1996 in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Seattle, Washington
September 17, 1996
<PAGE> 21
MULTICOM PUBLISHING, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1995 1996
------------ ------------
<S> <C> <C>
ASSETS (Notes 4, 5 and 6)
Current assets
Cash $ 604,132 $ 3,476,879
Accounts receivable, net of allowances 564,882 2,303,591
Inventories (Note 3) 321,565 940,595
Other current assets 92,282 198,221
------------ ------------
Total current assets 1,582,861 6,919,286
------------ ------------
Property and equipment, net (Note 2) 621,220 937,066
Software development costs, net of accumulated amortization
of $88,991 and $164,364, respectively 151,587 258,686
Other noncurrent assets --- 168,928
------------ ------------
Total assets $ 2,355,668 $ 8,283,966
============ ============
LIABILITIES, MANDATORILY REDEEMABLE STOCK AND SHAREHOLDERS'
EQUITY (DEFICIT)
Current Liabilities
Trade payables $ 2,094,014 $ 625,010
Accrued liabilities 483,604 1,211,689
Accrued royalties (Note 11) 200,380 321,882
Accrued stock appreciation rights and other deferred
compensation 143,850 137,450
Bank borrowings (Notes 4 and 10) 1,000,000 1,000,000
Current portion of long-term debt (Note 5) 6,250 ---
Current portion of shareholder debt (Note 6) 65,330 317,500
------------ ------------
Total current liabilities 3,993,428 3,613,531
------------ ------------
Long-term debt, net of current portion and debt discount
(Note 5) --- 2,217,894
Shareholder debt, net of current portion (Note 6) 85,177 93,006
------------ ------------
Total liabilities 4,078,605 5,924,431
------------ ------------
Commitments (Note 11)
Mandatorily redeemable stock (Note 9) 825,000 ---
------------ ------------
Shareholders' equity (deficit) (Note 10)
Preferred stock --- ---
Common Stock
Common Stock --- 13,797,896
Series A 219,727 ---
Series B 4,916,747 ---
Notes receivable (81,290) (81,538)
Unearned royalties (1,672,728) (1,335,577)
Accumulated deficit (5,930,393) (10,021,246)
------------ ------------
Total shareholders' equity (deficit) (2,547,937) 2,359,535
Total liabilities, mandatorily redeemable stock and
shareholders' equity (deficit) $ 2,355,668 $ 8,283,966
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 22
MULTICOM PUBLISHING, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
JUNE 30, JUNE 30,
1995 1996
------------- -------------
<S> <C> <C>
Net sales $ 3,912,438 $ 7,053,416
Cost of sales 2,016,076 3,588,450
------------- -------------
Gross profit 1,896,362 3,464,966
------------- -------------
Operating expenses
Research and development 2,257,486 2,212,117
Sales and marketing 2,186,496 3,280,592
General and administrative 695,070 1,496,538
------------- -------------
Total operating expenses 5,139,052 6,989,247
------------- -------------
Loss from operations (3,242,690) (3,524,281)
Interest expense (23,559) (567,766)
Other income 4,395 1,194
------------- -------------
Net loss $ (3,261,854) $ (4,090,853)
============= =============
Net loss per share $ (.66) $ (.83)
============= =============
Weighted average number of common shares and
common share equivalents outstanding 4,925,492 4,917,485
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 23
MULTICOM PUBLISHING, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED JUNE 30, 1995 AND 1996
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------- ---------------------------------------
COMMON STOCK - VOTING COMMON STOCK - SERIES A VOTING
40,000,000 SHARES AUTHORIZED 50,000,000 SHARES AUTHORIZED
- ------------------------------------------------------------------------------------------- ----------------------------------------
SHARES SHARES
ISSUED AND COMMON NOTES UNEARNED ISSUED AND NOTES
OUTSTANDING STOCK RECEIVABLE ROYALTIES OUTSTANDING SERIES A RECEIVABLE
----------- ------ ---------- --------- ----------- -------- ----------
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1994 --- --- --- --- 2,515,619 $ 204,155 $ (65,718)
Exercise of options in exchange for a
note receivable --- --- --- --- 15,572 15,572 (15,572)
Exercise of options --- --- --- --- --- --- ---
Earned royalties --- --- --- --- --- --- ---
Accretion related to mandatorily redeemable
stock (Note 9)
Net loss for the period --- --- --- --- --- --- ---
---------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1995 --- --- --- --- 2,531,191 219,727 (81,290)
Earned royalties --- --- --- --- --- --- ---
Interest paid in common stock (Note 6) --- --- --- --- --- --- ---
Exercise of options --- --- --- --- 80,189 20,189 (248)
Warrants issued to note holder (Note 5) --- --- --- --- --- 805,015 ---
Warrants issued for services (Note 5) --- --- --- --- --- 49,485 ---
Conversion of mandatorily redeemable stock --- --- --- --- 825,000 825,000 ---
Conversion of debt to equity --- --- --- --- --- --- ---
Stock reclassification (Note 10) --- --- --- --- 1,028,600 5,209,216 ---
Issuance of Common Stock for cash,
net of $1,476,684 of expense (Note 10) 5,612,169 $13,797,896 $(81,538) $(1,335,577) (4,464,980) (7,128,632) 81,538
Net loss for the period --- --- --- --- --- --- ---
---------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1996 5,612,169 $13,797,896 $(81,538) $(1,335,577) --- $ --- $ ---
=======================================================================================
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK - SERIES B VOTING
25,000,000 SHARES AUTHORIZED
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL
SHARES SHAREHOLDERS'
ISSUED AND UNEARNED ACCUMULATED EQUITY
OUTSTANDING SERIES B ROYALTIES DEFICITS (DEFICIT)
----------- -------- --------- ----------- -------------
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1994 824,000 $ 4,913,183 $(1,944,831) $ (2,561,801) $ 544,988
Exercise of options in exchange for a
note receivable --- --- --- --- ---
Exercise of options 15,144 3,564 --- --- 3,564
Earned royalties --- --- 272,103 --- 272,103
Accretion related to mandatorily redeemable
stock (Note 9) --- --- --- (106,738) (106,738)
Net loss for the period --- --- --- (3,261,854) (3,261,854)
---------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1995 839,144 4,916,747 (1,672,728) (5,930,393) (2,547,937)
Earned royalties --- --- 337,151 --- 337,151
Interest paid in common stock (Note 6) 40,767 247,398 --- --- 247,398
Exercise of options 20,059 5,119 --- --- 25,060
Warrants issued to note holder (Note 5) --- --- --- --- 805,015
Warrants issued for services (Note 5) --- --- --- --- 49,485
Conversion of mandatorily redeemable stock --- --- --- --- 825,000
Conversion of debt to equity 247,219 1,500,000 --- --- 1,500,000
Stock reclassification (Note 10) --- --- --- --- 5,209,216
Issuance of Common Stock for cash,
net of $1,476,684 of expense (Note 10) (1,147,189) (6,669,264) 1,335,577 --- ---
Net loss for the period --- --- --- (4,090,853) (4,090,853)
---------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1996 --- $ --- $ --- $(10,021,246) $ 2,359,535
=======================================================================================
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The par value of the Common, Series A and Series B common stock is $.01 per
share.
The Board of Directors have authorized 300,000 shares of Preferred stock with a
par value of $.01 per share. At June 30, 1996, there are no issued or
outstanding preferred shares.
The accompanying notes are an integral part of these financial statements.
<PAGE> 24
MULTICOM PUBLISHING INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
JUNE 30, JUNE 30,
1995 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (3,261,854) $ (4,090,853)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation 168,757 249,493
Amortization of software development costs 49,418 75,373
Amortization of debt discount --- 22,909
Issuance of common stock for interest payable to shareholder --- 247,398
Earned royalties 272,103 337,151
Increase in accounts receivable, net (290,131) (1,738,709)
Increase in inventories, net (235,389) (619,030)
Increase in other current assets (79,307) (66,039)
(Increase) decrease in other noncurrent assets 12,893 (9,325)
Increase (decrease) in trade payables 1,751,957 (1,469,004)
Increase in accrued liabilities 177,936 728,085
Increase in accrued royalties 105,939 121,502
Increase (decrease) in accrued stock appreciation rights and
other deferred compensation 48,299 (6,400)
------------ ------------
Net cash used in operating activities (1,279,379) (6,217,449)
------------ ------------
Cash flows from investing activities
Additions to property and equipment (466,288) (565,339)
Additions to software development costs (119,800) (182,472)
------------ ------------
Net cash used in investing activities (586,088) (747,811)
------------ ------------
Cash flows from financing activities
Sale of common stock for cash, net --- 5,209,216
Proceeds from bank borrowings 1,100,000 1,930,000
Proceeds from issuance of long-term debt and warrans --- 3,000,000
Cash paid for debt issue costs --- (150,018)
Proceeds from notes payable to shareholders 200,000 2,484,516
Collection of notes receivable from shareholder 900,000 ---
Repayment of notes payable to shareholders (49,493) (724,517)
Repayment of bank borrowings (100,000) (1,930,000)
Repayment of long-term debt (110,597) (6,250)
Exercise of stock options, net of expenses 3,564 25,060
------------ ------------
Net cash provided by financing activities 1,943,474 9,838,007
------------ ------------
Net increase in cash 78,007 2,872,747
Cash, beginning of year 526,125 604,132
------------ ------------
Cash, end of year $ 604,132 $ 3,476,879
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for interest $ 23,276 $ 323,465
============ ===========
</TABLE>
See Note 12 for supplemental information of noncash investing and financing
activities.
The accompanying notes are an integral part of these financial statements.
<PAGE> 25
MULTICOM PUBLISHING, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1995 AND 1996
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Business
Multicom Publishing, Inc. ("Multicom" or the "Company") was incorporated on
January 2, 1992 under the laws of the state of Washington and is a vertically
integrated multimedia company engaged primarily in acquiring the content for
developing and publishing multimedia products. These products are primarily
distributed throughout the United States.
Multicom consummated its initial public offering ("IPO") on June 24, 1996
through the sale of 1,028,600 shares of its Common Stock (Note 10).
Revenue recognition
Titles
Revenue from the sale of products is recognized when the product has been
shipped, the Company has the right to invoice the customer, collection of the
receivable is probable and there are no significant obligations remaining.
While the Company has no other obligations to perform future services
subsequent to shipment, the Company provides telephone customer support as an
accomodation to purchasers of its products for a limited time and as a means of
fostering customer loyalty. Costs associated with this effort are
insignificant and, accordingly, are expensed as incurred.
Advertising is charged to expense as incurred and includes product related
advertising and marketing. Advertising expense for the years June 30, 1995 and
1996 totaled $275,256 and $864,505, respectively.
Allowance for product returns and price protection
The Company maintains a return policy that allows distributors and
retailers to return CD-ROM products according to negotiated terms relating to
overstocking or defective products. Additionally, the Company may grant price
protection credits to distributors and retailers. The Company records an
allowance for returns and price protection as a reduction of gross sales at the
time of product shipment. The allowance, which is included in accounts
receivable, is estimated based primarily upon historic experience, analysis of
distributor and retailer inventories of the Company's products and analysis of
market conditions. The allowance for product returns and price protection
totaled $614,805 and $1,087,438 at June 30, 1995 and 1996, respectively.
Software licenses
Software license revenue and royalty advances are recognized as revenue at
the time the Company has completed all significant performance obligations
under the terms of the license agreement and when any amounts advanced or
received are non-refundable.
Custom publishing
The Company enters into certain agreements whereby it provides development
services for other entities. Revenue for such agreements is accounted for on a
percentage of completion method, based upon costs incurred to total estimated
costs. Losses are recorded when they become known.
Allowance for doubtful accounts receivable
The Company performs ongoing credit evaluations of its customers and
records an allowance for doubtful receivables to the extent that credit losses
are expected. At June 30, 1995 and 1996, the allowance for doubtful accounts
receivable was $20,001 and $215,001, respectively.
Inventories
Inventories, which consist of packaging materials, books and finished
goods, are stated at the lower of cost or market, cost being determined based
upon the average cost of individual product titles.
<PAGE> 26
Property and equipment
Property and equipment acquired is recorded at cost. Depreciation and
amortization are recognized using the straight-line method over the estimated
useful lives of such assets ranging from one to five years. Development assets
consist of purchased and internally developed video, images and sounds which
can be utilized in multiple products.
Software development costs
Software development costs are capitalized once technological feasibility
has been established. All other research and development costs are expensed as
incurred. These costs are amortized using the greater of the straight-line
method over the estimated useful lives of the titles (12 to 60 months) or the
ratio of current sales to total current and projected sales. Amortization for
the years ended June 30, 1995 and 1996 totaled $49,418 and $75,373.
Income taxes
Deferred tax assets and liabilities arise primarily as a result of
differences in the method of accounting for allowances for product returns and
doubtful accounts receivable, software development costs, depreciation and
stock compensation plans between income tax and financial statement reporting
and net operating loss carry-forwards.
Net income/loss per share
Net income/loss per share is computed using the weighted average number of
common and dilutive common stock equivalent shares outstanding during the
period, after applying the treasury stock method. For periods in which the
Company reports a net loss, common stock equivalents do not include stock
options and warrants as their effect would be anti-dilutive. For the period
prior to the effective date of the Company's initial public offering of Common
Stock (Note 10), common stock equivalents include the impact of the issuance of
options and warrants granted within one year of the initial public offering, at
exercise prices less than the initial public offering price, whether or not the
effect is anti-dilutive.
Fair value of financial instruments
Statement of Financial Accounting Standards No. 107, Disclosures About Fair
Value of Financial Instruments, requires disclosure of the fair value of
certain financial instruments. Cash, accounts receivable and payable, customer
advances, accrued liabilities and trade notes payable are reflected in the
financial statements at their estimated fair value because of the short-term
nature of these instruments.
The fair value of the Company's long-term and shareholder debt is estimated
using discounted cash flow analysis, based on the Company's current incremental
borrowing rate, and approximates the carrying value.
<PAGE> 27
New accounting pronouncements
Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation, has been issued by the Financial Accounting Standards Board and
establishes financial accounting and reporting standards for stock-based
employee compensation plans. This standard is effective for the Company
beginning July 1, 1996. Management intends to adopt the disclosure
alternative for stock compensation and does not anticipate that the adoption of
this standard will have a material impact on the financial statements.
Management's estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Estimates
significant to these financial statements include allowances for product
returns, price protection and doubtful receivables, useful lives of capitalized
software costs, the valuation allowance for deferred tax assets and provisions
for inventory obsolescence.
Reclassifications
Certain balances previously reported have been reclassified to conform with the
presentation of the June 30, 1996 financial statements.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1995 1996
----------- ----------
<S> <C> <C>
Computer hardware $ 520,241 $ 839,396
Development assets 222,883 416,841
Furniture and fixtures 111,944 140,131
Purchased computer software 67,178 102,217
Vehicles 11,000 ---
----------- -----------
933,246 1,498,585
Less: Accumulated depreciation (312,026) (561,519)
----------- -----------
$ 621,220 $ 937,066
=========== ===========
</TABLE>
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1995 1996
----------- -----------
<S> <C> <C>
Finished goods $ 162,753 $ 464,790
Books 62,065 300,128
Raw materials 96,747 175,677
----------- -----------
$ 321,565 $ 940,595
=========== ===========
</TABLE>
<PAGE> 28
4. BANK BORROWINGS
The Company has a $2,000,000 line of credit agreement with a bank which
bears interest at prime plus .75% and expires on July 5, 1997. At June 30,
1996 the Company's borrowing rate was 9.75%. The outstanding balance on this
line of credit at June 30, 1996 was $1,000,000. The line of credit is secured
by all assets of the Company, except property and equipment owned prior to June
28, 1995. In connection with this agreement, the Company is required to comply
with certain covenants, including maintaining certain financial ratios and a
restriction on the payment of dividends.
During the year ended June 30, 1996, the Company borrowed $1,000,000 under
the terms of a short-term note with the same bank, which was paid in full on
March 29, 1996.
5. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1995 1996
----------- -----------
<S> <C> <C>
Note payable to lender, net of $782,106
discount, bearing cash interest at 13%
payable monthly. Due in full on March 29,
2001. --- $ 2,217,894
Other $ 6,250 ---
----------- -----------
6,250 2,217,894
Less: Current portion (6,250) ---
----------- -----------
$ --- $ 2,217,894
=========== ===========
</TABLE>
The note to lender is secured by a third position in all assets of the
Company. In connection with the issuance of this promissory note, the Company
granted warrants to purchase 268,338 shares of Series A common stock at an
exercise price of approximately $.01 per share through March 29, 2001. Upon
the closing of the Company's IPO (Note 10), the number of warrants was reduced
to 163,791. A debt discount of $805,015 has been recorded related to the
warrants based upon the fair market value at the close of the debt transaction.
The discount is amortized using the effective interest method over the life of
the debt. Additional warrants to purchase 16,480 shares of Series A common
stock at an exercise price of $.01 per share were also issued as a finder's fee
to the broker of this transaction. These warrants were valued at $49,485 and
have been included in other assets as a deferred loan cost and will be
amortized over the life of the debt using the effective interest method. As
discussed in Note 10, all Series A common shares were reclassified to Common
Stock upon the closing of the initial public offering.
<PAGE> 29
6. RELATED PARTY TRANSACTIONS
Shareholder debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1995 1996
----------- ----------
<S> <C> <C>
Note payable to Meredith, bearing interest
at 10%. Principal and interest
payable in monthly instalments of
$6,453. Due in full on August 15,
1997 secured by property and equipment $ 150,507 $ 90,506
owned as of June 28, 1995.
Convertible note payable to Meredith,
bearing interest at 15%, payable
quarterly in Common Stock (Note 10).
Principal repayments are due quarterly
and due in full on July 31, 1998. --- 320,000
----------- ----------
150,507 410,506
Less: Current portion (65,330) (317,500)
----------- ----------
$ 85,177 $ 93,006
=========== ==========
</TABLE>
On July 31, 1995, the Company issued a promissory note to Meredith in the
amount of $2,000,000. The promissory note was convertible at the holder's
option into Series B Common stock at $6.07 per share via a partial exercise of
Meredith's option (Note 10) at any time prior to the payment in full of the
promissory note or the expiration of Meredith's option. On June 24, 1996,
Meredith exercised its option and converted $1,500,000 of the outstanding debt
to Series B common stock at $6.07 per share. The balance of the option expired
upon the consummation of the IPO. Principal payments, calculated based upon
8% of certain sales for a quarter, as defined in the Meredith license
agreements, with a minimum amount of $60,000, are due quarterly and the balance
is due in full on July 31, 1998. The note bears interest at 15% and is payable
quarterly in Common Stock at a price of $6.07 per share. The note is secured
by a second security interest in all assets of the Company.
In February, 1996 the Company issued an unsecured trade note to Meredith
Corporation in the amount of $484,516, bearing interest at an annual rate of
8.25% with monthly payments of interest and principal of $21,969. The note was
due in full on February 28, 1998. On June 28, 1996 the Company paid the note
totaling $465,878 with proceeds from the Company's IPO(Note 10).
The notes payable to Meredith are subordinate to the bank borrowings.
These notes mature as follows:
<TABLE>
<CAPTION>
Year ending June 30,
--------------------
<S> <C>
1997 $ 317,500
1998 93,006
</TABLE>
Transactions with Meredith were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30,
1995 1996
----------- -----------
<S> <C> <C>
Purchases of raw materials $ 321,000 $ 752,000
Sale of product --- 85,000
Sale of services 140,000 468,000
</TABLE>
See discussion of licensing agreements with Meredith at Note 10.
<PAGE> 30
At June 30, 1996 the Company has notes receivable and accrued interest of
$81,538 from the majority shareholder. These were received in connection with
the sale of Series A common stock. The notes bear interest ranging between 4
and 6 percent. Principal and interest is due in full on December 31, 1996.
The notes are secured by shares of Common Stock (Note 10).
7. MAJOR CUSTOMERS
The Company's major customers are primarily distributors of the Company's
product. Approximate gross sales to these customers are as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30,
1995 1996
------------ ------------
<S> <C> <C>
Customer A $ 2,390,000 $ 655,000
Customer B $ 830,000 $ 3,121,000
Customer C --- $ 973,000
</TABLE>
The major customers for the years ended June 30, 1995 and 1996 also account
for 77% and 66% of the gross outstanding accounts receivable at June 30, 1995
and 1996, respectively.
On March 29, 1996, the Company terminated its distributor relationship with
Electronic Arts, its largest distributor through June 30, 1995.
8. INCOME TAXES
At June 30, 1996, Multicom had net operating loss (NOL) carry-forwards of
approximately $8,062,000 which expire from 2008 to 2012. Should there be
significant changes in ownership, this NOL may be subject to annual
limitations.
Deferred taxes are as follows:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1995 1996
------------ ------------
<S> <C> <C>
Deferred tax assets
Net operating losses $ 1,539,000 $ 2,741,000
Stock appreciation plan 46,000 44,000
Allowance on returns 188,000 363,000
Allowance for doubtful receivables --- 73,000
Accrued promotions 29,000 20,000
Other 30,000 33,000
------------ ------------
1,832,000 3,274,000
Deferred tax liabilities
Amortization of software development
costs (58,000) (98,000)
Depreciation (10,000) (33,000)
Other (5,000) (11,000)
------------ ------------
1,759,000 3,132,000
Less: Valuation Allowance (1,759,000) (3,132,000)
------------ ------------
$ $
--- ---
============ ===========
</TABLE>
<PAGE> 31
A 100% valuation allowance has been recorded due to the limited operating
history and significant losses incurred to date by the Company, and therefore
lack of certainty about future taxable income. For the years ended June 30,
1995 and 1996, the valuation allowance increased by $1,113,000 and $1,373,000,
respectively.
9. MANDATORILY REDEEMABLE STOCK
In 1993, the Company issued 675,000 shares of Series A preferred stock for
$583,832, net of expenses. In the period ended June 30, 1994, the Company
issued an additional 150,000 shares of Series A preferred stock for $134,430,
net of expenses. All preferred stock was converted to Series A common stock in
fiscal 1995. In addition, the holders of this stock received the right of
first refusal to purchase Series A common shares should the Company offer such
shares for a sales price less than $1.50 per share. This right expired upon
the consummation of the Company's IPO (Note 10).
These shares had a put option, whereby after August 31, 1996 the holders of
these shares could request that the Company repurchase the shares up to a
maximum of $825,000. The mandatorily redeemable stock increased by $106,738
for the accretion of this redemption feature during the year ended June 30,
1995. This put option expired upon the consummation of the Company's IPO (Note
10) and all mandatorily redeemable shares were converted to 825,000 Common
shares at that date and are outstanding at June 30, 1996.
10. SHAREHOLDERS' EQUITY (DEFICIT)
On June 24, 1996, the Company consummated its initial public offering of
its Common stock and sold 1,028,600 of its Common shares raising gross proceeds
of $6,685,900. In conjunction with the IPO, the Company effected a 4-for-5
reverse stock split of common stock. All information in these financial
statements pertaining to shares of common stock and per share amounts have been
adjusted to give retroactive effect to this action.
Common stock
Prior to June 24, 1996, the Company had two classes of common stock, Series
A and Series B, authorized, issued and outstanding. The Board of Directors
authorized 40,000,000 of Common Stock and upon the effective date of the IPO,
the Series A and Series B common shares were reclassified to Common Stock.
Holders of Common Stock are entitled to one vote per share. The Common Stock
has no preemptive, redemption, conversion or other subscription rights.
Series A common stock was entitled to one vote per share. In connection
with the transaction below, the Series B nonvoting stock was eliminated and a
revised Series B common stock was established which is entitled to one vote
per share and has certain rights and preferences including the following: 1)
proportional representation on the Board of Directors, 2) approval of and
participation in certain financing and equity transactions and 3) conversion
option to Series A common stock on a share-for-share basis.
On June 4, 1994, the Company issued common stock under a Stock Purchase
Agreement, representing 20% of the then outstanding common stock to Meredith in
exchange for $2,000,000 in cash, a $900,000 note receivable (Note 6) and
$2,100,000 in unearned royalties. Meredith also received an option to purchase
an additional 823,532 shares of Series B common stock, representing 13 1/3% of
the then outstanding common stock of the Company, at a purchase price of $6.07
per share which expired upon the earlier of June 30, 1999 or the date of an
initial public offering. On June 24, 1996, Meredith exercised its option, in
part, in conjunction with the conversion of $1,500,000 of its convertible debt
to Series B common stock (Note 6). The remaining option expired upon the
closing of the IPO.
<PAGE> 32
In connection with this transaction, Meredith received certain
anti-dilution privileges, so that it would have the right to purchase Series B
common stock sufficient to maintain an agreed upon ownership percentage. Upon
the closing of the IPO, Meredith no longer receives anti-dilution privileges on
equity transactions.
As a condition of this transaction with Meredith, on June 9, 1994 the
Company called the then outstanding mandatorily redeemable Series A preferred
stock. Effective July 29, 1994, the Series A preferred stock shareholders
elected to convert their shares to mandatorily redeemable Series A common stock
as a result of this call (Note 9).
As discussed in Note 6, on June 24, 1996, Meredith executed a partial
exercise of its option to convert $1,500,000 of convertible debt to Series B
common shares.
Preferred stock
Upon consummation of the Company's IPO, 300,000 shares of preferred stock
with a par value of $.01 were authorized by the Board of Directors. This
preferred stock allows for certain rights and preferences to be established by
the Board of Directors. At June 30, 1996, there are no issued or outstanding
preferred shares.
Unearned royalties
The Company entered into certain licensing agreements for the licensing of
content provided by Meredith. Under these licensing agreements, the Company
incurs royalty expenses based upon a percentage of net sales. As stipulated in
the Stock Purchase Agreement, royalties owing under these licensing agreements
are applied against the $2,100,000 unearned royalty amount discussed above.
Royalties incurred through March 31, 1997 will be so applied to the unearned
royalty amount; thereafter royalties incurred shall be paid in cash as outlined
in the licensing agreements. Any remaining unearned royalty amount at March
31, 1997 shall be forgiven and the number of common shares shall not be
adjusted. For the years ended June 30, 1995 and 1996, royalties of
approximately, $272,000 and 337,000, respectively, have been incurred under
Meredith license agreements.
Stock options
The Company has a Stock Option Plan (the "Plan") which provides for the
granting of incentive stock options to employees, non-qualified stock option
plans which provide for the granting of stock options to certain employees and
consultants and an Outside Directors Stock Option Plan (the "Directors Plan")
which provides for the annual granting of 2,500 stock options to each director.
At June 30, 1996, the Company has reserved 1,249,400 shares of Common Stock for
issuance under the Plan. Incentive and non-qualified stock options have ten
year terms, and vest over periods determined by the Board of Directors,
generally four years. A total of 100,000 shares of Common Stock have been
reserved for issuance under the Directors Plan. Director Plan stock options
vest and are exercisable in four equal annual installments and must be
exercised within ten years after the date of grant.
Prior to the June 1994 agreement with Meredith, options were generally
granted at the fair market value of Multicom's stock on the date of grant and
became exercisable under the terms of the agreements. Meredith however, placed
certain limitations on the exercise price of options granted. Options granted
from June 1994 to the date of the IPO were granted at the higher of the
exercise price set by Meredith or the fair market value of Multicom stock on
the date of grant. Subsequent to the IPO, Plan options will not be granted
with an option exercise price of less than 85% of the fair market value of the
Common Stock on the date of grant. The exercise price of all options granted
under the Directors Plan will be equal to the fair market value of a share of
Common Stock on the date of grant. In the event an option holder's employment
is terminated, unexercised options will expire and any shares outstanding from
the exercise of such options must be offered for repurchase by Multicom at
their then fair market value, as defined by the agreements.
<PAGE> 33
A summary of stock option transactions for Common stock under the Plan,
individual option agreements and the Directors' Plan, is as follows:
<TABLE>
<CAPTION>
TOTAL COMMON TOTAL SERIES A
STOCK OPTIONS OPTIONS OPTION PRICE PER
OUTSTANDING OUTSTANDING SHARE
------------- -------------- ----------------
<S> <C> <C> <C>
June 30, 1994 680,264 $.25 - $1.00
Grants 568,544 $1.00 - $6.07
Forfeitures (237,844) $1.00 - $5.00
Exercises (15,572) $1.00
----------
June 30, 1995 995,392
Grants 338,200 $2.30 - $6.50
Forfeitures (163,800) $1.00 - $6.07
Exercises (80,248) $.25 - $1.00
----------
June 24, 1996 1,089,544 $.25 - $6.07
Reclassification of Series A common
stock options to Common Stock options 1,089,544 (1,089,544) $.25 - $6.07
Grants 7,500 -- $6.50
--------- ----------
June 30, 1996 1,097,044 -- $.25 - $6.50
========= ==========
</TABLE>
Common Stock options vest as follows:
<TABLE>
<CAPTION>
OPTIONS EXERCISE PRICE
------- --------------
<S> <C> <C>
Vesting on or before June 30,
1996 514,286 $.25 - $6.07
1997 212,361 $1.00 - $6.50
1998 162,011 $1.00 - $6.50
1999 139,761 $1.00 - $6.50
2000 68,625 $1.00 - $6.50
---------
1,097,044
=========
</TABLE>
As of June 30, 1996, approximately 658,608 and 92,500 shares were available
for grant under the Plan and Directors Plan, respectively.
During fiscal 1995, the Company issued non-qualified stock options to
purchase 64,000 shares of Series A common stock at an exercise price of $1 per
share under a consulting agreement with a member of the Board of Directors.
Although options are generally granted at an exercise price in excess of or
equal to the fair market value of Multicom Common Stock, the Company has
expensed approximately $60,000 and $31,000 for the years ended June 30, 1995
and 1996, respectively, in connection with the issuance of options at an
exercise price less than the estimated fair market value at the date of grant.
<PAGE> 34
Additionally, warrants to purchase 24,720 shares of Series B common stock
at an exercise price of $6.07 were issued to the bank in connection with the
short-term bank borrowings discussed in Note 4. These warrants expire in June
2000. No value was assigned to these warrants.
Subsequent to June 30, 1996, stock options to purchase 30,000 shares of
Common Stock were issued to an employee under the terms of the Plan. These
stock options carry an exercise price equal to the closing price of Multicom's
Common Stock on the grant date.
11. COMMITMENTS
Leases
Multicom leases office space and certain computer hardware and furniture
and fixtures. Future minimum rentals under these lease agreements are
approximately as follows:
<TABLE>
<CAPTION>
Year ending June 30,
--------------------
<S> <C>
1997 $ 393,000
1998 484,000
1999 517,000
2000 534,000
2001 323,000
------------
$ 2,251,000
============
</TABLE>
Rent expense for the years ended June 30, 1995 and 1996 was $107,000 and
$203,000, respectively.
Royalties
Multicom has numerous exclusive and nonexclusive licensing agreements in
connection with certain content included in its products. These agreements
extend over various periods of time and generally bear royalties of .5% to 15%
of net sales as defined by the agreements. For the years ended June 30, 1995
and 1996, royalties of $554,000 and $633,000, respectively, have been expensed.
401(k) Plan
The Board of Directors approved the establishment of a 401(k) plan for all
eligible employees. The plan was implemented subsequent to June 30, 1996.
12. SUPPLEMENTAL CASH FLOW INFORMATION
The following items are supplemental information of noncash investing and
financing activities:
In fiscal 1995, the Company issued 15,572 shares of Series A common
stock for a note receivable in the amount of $15,572.
In fiscal 1995, accretion of $106,738 was recorded on mandatorily
redeemable stock.
In fiscal 1996, Multicom issued 40,767 shares of Series B common stock
in exchange for interest payable of $247,398.
In fiscal 1996, warrants to purchase 16,481 shares of Series B common
stock were issued in exchange for services rendered with a fair value
of $49,485.
In fiscal 1996, Multicom issued warrants to purchase 268,338 shares of
Series A common stock in conjunction with debt issued to a lender
(Note 5), with a fair value of $805,015.
<PAGE> 35
In fiscal 1996, Multicom issued 247,219 shares of Series B common
stock in conjunction with the conversion of $1,500,000 of shareholder
debt to equity (Note 6).
In fiscal 1996, mandatorily redeemable stock totaling $825,000 was
converted to Common Stock (Note 9).
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
Directors. Reference is made to the information regarding directors appearing
under the caption "Election of Directors" in the Company's definitive Proxy
Statement to be filed for the 1996 Annual Meeting of Shareholders (the "Proxy
Statement"), which information is incorporated in this Form 10-KSB by
reference.
Executive Officers. Reference is made to the information appearing under the
captions "Executive Officers of the Registrant" and "Key Employees" in Part I,
Item 1 of this Form 10-KSB, which information is incorporated herein by
reference.
Section 16(a) Beneficial Ownership Reporting Compliance. Reference is made to
the information appearing under the caption "Section 16(a) Beneficial Ownership
Reporting Compliance" in the Proxy Statement, which information is incorporated
in this Form 10-KSB by reference.
ITEM 10. EXECUTIVE COMPENSATION.
Reference is made to the information appearing under the caption
"Compensation of Executive Officers and Directors" appearing in the Proxy
Statement, which information is incorporated in this Form 10-KSB by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Reference is made to the information appearing under the caption
"Stock Ownership and Beneficial Owners" in the Proxy Statement, which
information is incorporated in this Form 10-KSB by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Reference is made to the information appearing under the caption
"Certain Relationships and Related Transactions" and "Beneficial Owners" in the
Proxy Statement, which information is incorporated in this Form 10-KSB by
reference.
<PAGE> 36
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits required by Item 601 of Regulation S-B. Reference is
made to the information appearing in the "Index to Exhibits"
on pages through of this Form 10-KSB which information
is incorporated herein by reference.
(b) Reports on Form 8-K during the fourth quarter: None.
<PAGE> 37
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.
MULTICOM PUBLISHING, INC.
September 27, 1996
By: ELLEN R.M. BOYER
----------------
Ellen R.M. Boyer
Vice President of Finance and
Administration and Chief
Financial 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.
<TABLE>
<S> <C>
By TAMARA L. ATTARD September 27, 1996
--------------------------------------
Tamara L. Attard
Chief Executive Officer and Chairman of the Board
(Principal Executive Officer)
By PAUL G. ATTARD September 27, 1996
--------------------------------------
Paul G. Attard
President and Director
By ELLEN R.M. BOYER September 27, 1996
--------------------------------------
Ellen R.M. Boyer
Vice President of Finance and Administration
and Chief Financial Officer
(Principal Financial and Principal Accounting Officer)
By LARRY D. HARTSOOK September 27, 1996
--------------------------------------
Larry D. Hartsook
Director
By WILLIAM H. LUDEN September 27, 1996
--------------------------------------
William H. Luden III
Director
By HENRIK N. VANDERLIP September 27, 1996
--------------------------------------
Henrik N. Vanderlip
Director
</TABLE>
<PAGE> 38
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Page
- ------ ------- ----
<S> <C> <C>
3.1 Amended and Restated Articles of Incorporation of Multicom
Publishing, Inc., a Washington corporation.
3.2* Restated Bylaws of Multicom Publishing, Inc., a Washington
corporation, filed as Exhibit 3.2 to the Company's Registration
Statement on Form SB-2 (File No. 333-4704-LA) (the "Registration
Statement on Form SB-2").
4.1* Form of Certificate for Common Stock, filed as Exhibit 4.1 to the
Company's Registration Statement on Form SB-2.
10.1* Form of Indemnity Agreement for officers and directors, filed as
Exhibit 10.1 to the Company's Registration Statement on Form SB-2.
10.2*# The Registrant's 1994 Stock Option Plan, as amended, Nonqualified
Stock Option Agreement and Incentive Stock Option Agreement, filed
as Exhibit 10.2 to the Company's Registration Statement on Form SB-
2.
10.3*# 1996 Outside Directors Stock Option Plan, filed as Exhibit 10.3 to
the Company's Registration Statement on Form SB-2.
10.4* Standard Form of Multicom Publishing, Inc. Nonstatutory Stock
Option Agreement for Outside Directors (Initial Option) and
Multicom Publishing, Inc. Nonstatutory Stock Option Agreement from
Outside Directors (Annual Option), filed as Exhibit 10.4 to the
Company's Registration Statement on Form SB-2.
10.5* Lease, dated July 28, 1992, between Multicom Publishing, Inc., and
Benaroya Capital Company, LLC, as amended, filed as Exhibit 10.5 to
the Company's Registration Statement on Form SB-2. (Seattle)
10.6* Lease, dated November 10, 1995, between Multicom Publishing, Inc.
and Bayside Plaza Associates, filed as Exhibit 10.6 to the
Company's Registration Statement on Form SB-2. (San Francisco)
</TABLE>
<PAGE> 39
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Page
- ------ ------- ----
<S> <C> <C>
10.7* Stock Purchase Agreement dated as of June 4, 1994 among Multicom
Publishing, Inc., Meredith Corporation and Tamara L. Attard, as
amended, filed as Exhibit 10.7 to the Company's Registration
Statement on Form SB-2.
10.8* Employment and Non-Competition Agreement, dated October 15, 1995,
by and between Multicom Publishing, Inc., and Tamara L. Attard,
filed as Exhibit 10.8 to the Company's Registration Statement on
Form SB-2.
10.9* Employment and Non-Competition Agreement, dated October 15, 1995,
by and between Multicom Publishing, Inc. and Paul G. Attard filed as
Exhibit 10.9 to the Company's Registration Statement on Form SB-2.
10.10*+ License Agreement, dated August 11, 1992, by and between Multicom
Publishing, Inc., and Meredith Corporation, as amended, filed as
Exhibit 10.10 to the Company's Registration Statement on Form SB-2.
10.11*+ License Agreement, dated August 30, 1993, by and between Multicom
Publishing, Inc. and Meredith Corporation, as amended, filed as
Exhibit 10.11 to the Company's Registration Statement on Form SB-2.
10.12*+ License Agreement, dated March 31, 1994, by and between Multicom
Publishing, Inc. and Meredith Corporation, as amended, filed as
Exhibit 10.12 to the Company's Registration Statement on Form SB-2.
10.13*+ License Agreement, dated January 31, 1995, by and between Multicom
Publishing, Inc. and Meredith Corporation, filed as Exhibit 10.13
to the Company's Registration Statement on Form SB-2.
10.14* Subscription and Securities Purchase Agreement between Henrik N.
Vanderlip and Multicom Publishing, Inc. dated as of August 27,
1993, filed as Exhibit 10.14 to the Company's Registration
Statement on Form SB-2.
10.15* Subscription Agreement dated as of January 14, 1994 between
Multicom Publishing, Inc. The Vanderlip Children's 1988 Trust,
filed as
</TABLE>
<PAGE> 40
s
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Page
- ------ ------- ----
<S> <C> <C>
Exhibit 10.15 to the Company's Registration Statement on Form SB-2.
10.16* Conversion Agreement dated as of July 29, 1994 between Multicom
Publishing, Inc. and John Zeiler, Henrik N. Vanderlip, and the
Vanderlip Children's Trust, filed as Exhibit 10.16 to the Company's
Registration Statement on Form SB-2.
10.17* Voting Agreement dated as of July 29, 1994 between Tamara L. Attard
and Henrik N. Vanderlip, filed as Exhibit 10.17 to the Company's
Registration Statement on Form SB-2.
10.18* Loan Agreement between Sirrom Capital Corporation and Multicom
Publishing, Inc. dated as of March 29, 1996, with Stock Purchase
Warrant to Sirrom Capital Corporation, Security Agreement, Patent
and Trademark Security Agreement, and Copyright and Royalty
Security Agreement, filed as Exhibit 10.18 to the Company's
Registration Statement on Form SB-2.
10.19* Stock Subscription Agreement dated as of January 1, 1994 executed
by William H. Luden III, with Note, Pledge and Share Rights and
Restriction Agreement, filed as Exhibit 10.19 to the Company's
Registration Statement on Form SB-2.
10.20* Letter Agreement Regarding Resignation between Multicom Publishing,
Inc., William H. Luden III and Paul and Tamara L. Attard with
Notice of Exercise, Warrant Agreement, Note payable to Multicom
Publishing, Inc. and Stock Pledge Agreement, filed as Exhibit 10.20
to the Company's Registration Statement on Form SB-2.
10.21* Stock Purchase Agreement, Assignment and Assumption Agreement,
Assumed Promissory Notes, Promissory Note and Stock Pledge
Agreement dated as of March 31, 1995 between Paul and Tamara Attard
and William H. Luden and Tamara L. Attard as Trustee, filed as
Exhibit 10.21 to the Company's Registration Statement on Form SB-2.
10.22* Voting Agreement between Tamara L. Attard, Meredith Corporation and
Multicom Publishing, Inc., dated as of June 8, 1994, filed as
Exhibit 10.22 to the Company's Registration Statement on Form SB-2.
</TABLE>
<PAGE> 41
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Page
- ------ ------- ----
<S> <C> <C>
10.23* Loan and Security Agreement, dated June 28, 1995, by and between
Cupertino National Bank & Trust and Multicom Publishing, Inc.,
Collateral Assignment, Patent Mortgage and Security Agreement,
Registration Rights Agreement, Amendment to Loan and Security
Agreement, Amendment to Loan and Security Agreement, Warrants to
Purchase Stock and Antidilution Agreements, filed as Exhibit 10.23
to the Company's Registration Statement on Form SB-2.
10.24* Form of Voting Trust Agreement, filed as Exhibit 10.24 to the
Company's Registration Statement on Form SB-2.
10.25*+ Distribution Agreement, dated July 25, 1995, by and between Ingram
Micro Inc. and Multicom Publishing, Inc., filed as Exhibit 10.25 to
the Company's Registration Statement on Form SB-2.
10.26* Promissory Note payable to Meredith Corporation in the principal
$2,000,000.00 dated July 31, 1995, Allonge and Security Agreement,
filed as Exhibit 10.26 to the Company's Registration Statement on
Form SB-2.
10.27* Promissory Note payable to Meredith Corporation in the principal amount of
$200,000.00 dated August 1994, Allonge, Security Agreement and
Amendment to Security Agreement, filed as Exhibit 10.27 to the
Company's Registration Statement on Form SB-2.
10.28* Promissory Note payable to Meredith Corporation in the principal
amount of $484,516.07 dated February 4, 1996 and Allonge, filed as Exhibit
10.28 to the Company's Registration Statement on Form SB-2.
10.29*+ Exclusive License Agreement between Meredith Corporation and
Multicom Publishing, Inc. dated November 1, 1995, as amended, filed
as Exhibit 10.29 to the Company's Registration Statement on Form
SB-2.
10.30*+ Exclusive License Agreement between Meredith Corporation and
Multicom Publishing, Inc. dated November 1, 1995, as amended, filed
as Exhibit 10.30 to the Company's Registration Statement on Form
SB-2.
</TABLE>
<PAGE> 42
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Page
- ------ ------- ----
<S> <C> <C>
10.31*+ Exclusive License Agreement between Meredith Corporation and
Multicom Publishing, Inc., dated November 1, 1995, as amended,
filed as Exhibit 10.31 to the Company's Registration Statement on
Form SB-2.
10.32* Employment Agreement dated March 1, 1994 and Stock Option Agreement
between Multicom Publishing, Inc. and Ellen R.M. Boyer, filed as
Exhibit 10.32 to the Company's Registration Statement on Form SB-2.
10.33* Employment Agreement dated as of January 31, 1996, Stock Option
Agreement, Deferred Compensation Agreement and Stock Option
Agreements between Multicom Publishing, Inc. and Edward J.
Cummings, filed as Exhibit 10.33 to the Company's Registration
Statement on Form SB-2.
10.34 Employment Agreement dated as of August 26, 1996 between Multicom
Publishing, Inc. and Patricia E. Hart.
11.1 Calculation of Earnings Per Share.
23.1 Consent of Independent Accountants.
27 Financial Data Schedule (available in Edgar format only).
</TABLE>
All other schedules are omitted because they are not required, are not
applicable or the information is included in the Financial Statements or notes
thereto.
___________
*Incorporated by reference.
#Director or officer compensatory plan.
+The Company has been granted confidential treatment with respect to these
exhibits.
<PAGE> 1
CERTIFICATE OF INFORMATION
TO
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
MULTICOM PUBLISHING, INC.
This Certificate of Information accompanies and is submitted in
connection with the filing of Amended and Restated Articles of Incorporation of
Multicom Publishing, Inc., a Washington corporation, pursuant to RCW
23B.10.070(4).
FIRST: The name of the corporation is Multicom Publishing, Inc.
SECOND: The amendments to the Amended and Restated Articles of
Incorporation of the corporation are as follows:
(1) Article III is deleted in its entirety and replaced
with the following provisions:
ARTICLE III
AUTHORIZED CAPITAL STOCK
The aggregate number of shares which the Corporation shall have the
authority to issue is as follows:
A. Forty Million (40,000,000) shares of common stock, with a par
value of $0.01 per share ("Common Stock").
B. Three Hundred Thousand (300,000) shares of preferred stock,
with a par value of $0.01 per share ("Preferred Stock").
The transfer of any shares of this Corporation shall be subject to
restrictions, if any, contained in the corporate bylaws or any shareholder
agreement.
Unless the context requires otherwise, the term "share" and
"shareholder" shall include shares and holders of both Common Stock and
Preferred Stock.
Each share of the Corporation's Series A Common Stock and Series B
Common Stock outstanding shall, without any action on the part of the holder
thereof, be reclassified as one share of Common Stock. Pursuant to approval of
the Board of Directors and the shareholders of the Corporation, each five
shares of the Corporation's Series A Common Stock outstanding has previously
been changed into four shares of Series A Common Stock and each five shares of
the Corporation's Series B Common Stock outstanding has previously been changed
into four shares of Series B Common Stock.
<PAGE> 2
Common Stock
Each share of Common Stock shall be entitled to one vote at
shareholders meetings.
Dividends may be paid to the holders of Common Stock in theretofore
unissued shares of authorized Common Stock or any authorized series of
Preferred Stock.
Preferred Stock
The shares of Preferred Stock may be divided into and issued in
series. The Board of Directors of the Corporation shall have the authority to
establish series; to fix and determine the variations in the relative rights
and preferences as between series; to amend the relative rights and preferences
of any series that is wholly issued; and to designate the number of shares of
each series and the designation thereof. The Board of Directors of the
Corporation may, after the issue of shares of a series, amend the resolution
establishing the series to decrease (but not below the number of shares of such
series then outstanding) the number of shares of that series, and the number of
shares constituting the decrease shall resume the status which they had before
the adoption of the resolution establishing the series.
The rights and preferences which may be established by the Board of
Directors may include, without limitation:
1. The right to vote, or limitations upon the right to
vote, and in the absence of such provision with respect to a particular series
no shares of that series shall have any right to vote, and no right to vote as
a class, for any purpose except as may be required by law;
2. The right of the Corporation to redeem any of such
shares at a price and upon terms fixed by the resolution establishing the
series, including sinking fund provisions, if any;
3. The right to receive dividends including whether any
such dividend is cumulative, noncumulative, or partially cumulative;
4. Preference over any other class or classes of shares,
or over any other series of this or any other class or classes of shares, as to
the payment of dividends;
5. Preference in the assets of the Corporation over any
other class or classes of shares, or over any other series of this or any other
class or classes of shares, upon the voluntary or involuntary liquidation of
the Corporation;
6. The right to convert the shares into shares of any
other class or into shares of any series of the same or any other class, except
a class having prior or superior rights and preferences as to dividends or
distribution of assets upon liquidation.
(2) Article IV is deleted in its entirety and is replaced
with the following provision:
<PAGE> 3
ARTICLE IV
PREEMPTIVE RIGHTS; CUMULATIVE VOTING
Shareholders of this Corporation shall not have the preemptive right
to acquire additional shares issued by the Corporation, nor shall they have the
right to cumulate votes in the election or removal of directors.
(3) Renumber Articles V through VII as Articles VII
through IX, respectively.
(5) Insert the following provisions as Articles V and VI,
respectively:
ARTICLE V
MANAGEMENT OF BUSINESS
A. The business and affairs of the Corporation shall be managed
by or under the direction of the Board of Directors. In addition to the powers
and authority expressly conferred upon them by statute or by this Certificate
of Incorporation or the Bylaws of the Corporation, the directors are hereby
empowered to exercise all such powers and do all such acts and things as may be
exercised or done by the Corporation.
B. The directors of the Corporation need not be elected by
written ballot unless the Bylaws so provide.
C. Special meetings of shareholders of the Corporation may be
called only (1) by the Board of Directors pursuant to a resolution adopted by a
majority of the total number of authorized directors (whether or not there
exist any vacancies in previously authorized directorships at the time any such
resolution is presented to the Board for adoption) or (2) by the holders of not
less than ten percent (10%) of all of the shares entitled to cast votes at the
meeting.
ARTICLE VI
NUMBER, ELECTION AND REMOVAL OF DIRECTORS
A. The number of directors shall initially be set at five (5)
and, thereafter, shall be fixed from time to time exclusively by the Board of
Directors pursuant to a resolution adopted by a majority of the total number of
authorized directors (whether or not there exist any vacancies in previously
authorized directorships at the time any such resolution is presented to the
Board for adoption). Subject to the rights of the holders of any series of
Preferred Stock then outstanding, vacancies in the Board of Directors may be
filled by a majority of the directors then in office, though less than a
quorum. Directors so chosen shall hold office for a term expiring at the next
annual meeting of shareholders, and until their respective successors are
elected, except in the case of the death, resignation, or removal of any
director. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
<PAGE> 4
B. Subject to the rights of the holders of any series of
Preferred Stock then outstanding, any directors, or the entire Board of
Directors, may be removed from office at any time, with or without cause, but
only at a special meeting of the shareholders held for that purpose, and only
by the affirmative vote of the holders of at least a majority of the voting
power of capital stock of the Corporation entitled to vote generally in the
election of directors, at which a quorum is present.
(6) Delete Articles VIII through XI.
(7) Insert the following provisions as Articles X through
XIII, respectively:
ARTICLE X
AMENDMENT OF BYLAWS
The Board of Directors is expressly empowered to adopt, amend or
repeal Bylaws of the Corporation. Any adoption, amendment or repeal of Bylaws
of the Corporation by the Board of Directors shall require the approval of a
majority of the total number of authorized directors (whether or not there
exist any vacancies in previously authorized directorships at the time any
resolution providing for adoption, amendment or repeal is presented to the
Board). The shareholders shall also have power to adopt, amend or repeal the
Bylaws of the Corporation. Any adoption, amendment or repeal of Bylaws of the
Corporation by the shareholders shall require, in addition to any vote of the
holders of any class or series of stock of the Corporation required by law or
by this Certificate of Incorporation, the affirmative vote of the holders of at
least a majority of the voting power of capital stock of the Corporation
entitled to vote at which a quorum is present.
ARTICLE XI
REGISTERED OFFICE AND AGENT
A. The street address of this Corporation's registered office is
1100 Olive Way, Suite 1250, Seattle, Washington 98101.
B. Tamara L. Attard is the Corporation's registered agent at such
office.
ARTICLE XII
Notwithstanding the provisions of RCW Section 23B.10.030, Section
23B.11.030, Section 23B.12.020, and Section 23B.14.020, or any successor to
those statutes, any action on a proposal to: amend these Articles of
Incorporation; approve a plan of merger of share exchange; approve a sale,
lease or exchange of all, or substantially all, of the property of the
Corporation, other than in the usual and regular course of business; or
dissolve the Corporation, shall be approved if it receives a majority of all of
the votes entitled to be cast on the action proposed.
<PAGE> 5
ARTICLE XIII
INCORPORATORS
The names and mailing addresses of the original incorporators are:
Tamara L. Attard 2301 Fairview Ave. E.
Suite 111
Seattle, WA 98102
Roy W. Olivier 2869 Clary Hill Drive
Roswell, GA 30075
<PAGE> 6
THIRD: The amendments and the Amended and Restated Articles of
Incorporation were duly adopted by the Board of Directors by unanimous consent
on June 17, 1996 and the shareholders by unanimous consent on June 18, 1996,
pursuant to the provisions of RCW 23B.10.030 and 23B.10.040.
DATED as of this 27th day of June, 1996.
By:/s/ Tamara L. Attard
--------------------------------
Tamara L. Attard,
Chief Executive Officer
<PAGE> 7
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
MULTICOM PUBLISHING, INC.
Pursuant to the provisions of the Washington Business Corporation Act,
RCW 23B.10.070, the following Restated Articles of Incorporation of Multicom
Publishing, Inc. are submitted for filing:
ARTICLE I
NAME
The name of this corporation is Multicom Publishing, Inc. (the
"Corporation").
ARTICLE II
PURPOSE
This Corporation is organized for the purpose of conducting any and
all business activities which a corporation may conduct under applicable law.
ARTICLE III
AUTHORIZED CAPITAL STOCK
The aggregate number of shares which the Corporation shall have the
authority to issue is as follows:
A. Forty Million (40,000,000) shares of common stock, with a par
value of $0.01 per share ("Common Stock").
B. Three Hundred Thousand (300,000) shares of preferred stock,
with a par value of $0.01 per share ("Preferred Stock").
The transfer of any shares of this Corporation shall be subject to
restrictions, if any, contained in the corporate bylaws or any shareholder
agreement.
Unless the context requires otherwise, the term "share" and
"shareholder" shall include shares and holders of both Common Stock and
Preferred Stock.
Each share of the Corporation's Series A Common Stock and Series B
Common Stock outstanding shall, without any action on the part of the holder
thereof, be reclassified as one share of Common Stock. Pursuant to approval of
the Board of Directors and the shareholders of the Corporation, each five
shares of the Corporation's
<PAGE> 8
Series A Common Stock outstanding has previously been changed into four shares
of Series A Common Stock and each five shares of the Corporation's Series B
Common Stock outstanding has previously been changed into four shares of Series
B Common Stock.
Common Stock
Each share of Common Stock shall be entitled to one vote at
shareholders meetings.
Dividends may be paid to the holders of Common Stock in theretofore
unissued shares of authorized Common Stock or any authorized series of
Preferred Stock.
Preferred Stock
The shares of Preferred Stock may be divided into and issued in
series. The Board of Directors of the Corporation shall have the authority to
establish series; to fix and determine the variations in the relative rights
and preferences as between series; to amend the relative rights and preferences
of any series that is wholly issued; and to designate the number of shares of
each series and the designation thereof. The Board of Directors of the
Corporation may, after the issue of shares of a series, amend the resolution
establishing the series to decrease (but not below the number of shares of such
series then outstanding) the number of shares of that series, and the number of
shares constituting the decrease shall resume the status which they had before
the adoption of the resolution establishing the series.
The rights and preferences which may be established by the Board of
Directors may include, without limitation:
1. The right to vote, or limitations upon the right to
vote, and in the absence of such provision with respect to a particular series
no shares of that series shall have any right to vote, and no right to vote as
a class, for any purpose except as may be required by law;
2. The right of the Corporation to redeem any of such
shares at a price and upon terms fixed by the resolution establishing the
series, including sinking fund provisions, if any;
3. The right to receive dividends including whether any
such dividend is cumulative, noncumulative, or partially cumulative;
4. Preference over any other class or classes of shares,
or over any other series of this or any other class or classes of shares, as to
the payment of dividends;
5. Preference in the assets of the Corporation over any
other class or classes of shares, or over any other series of this or any other
class or classes of shares, upon the voluntary or involuntary liquidation of
the Corporation;
6. The right to convert the shares into shares of any
other class or into shares of any series of the same or any other class, except
a class having prior or superior rights and preferences as to dividends or
distribution of assets upon liquidation.
<PAGE> 9
ARTICLE IV
PREEMPTIVE RIGHTS; CUMULATIVE VOTING
Shareholders of this Corporation shall not have the preemptive right
to acquire additional shares issued by the Corporation, nor shall they have the
right to cumulate votes in the election or removal of directors.
ARTICLE V
MANAGEMENT OF BUSINESS
A. The business and affairs of the Corporation shall be managed
by or under the direction of the Board of Directors. In addition to the powers
and authority expressly conferred upon them by statute or by this Certificate
of Incorporation or the Bylaws of the Corporation, the directors are hereby
empowered to exercise all such powers and do all such acts and things as may be
exercised or done by the Corporation.
B. The directors of the Corporation need not be elected by
written ballot unless the Bylaws so provide.
C. Special meetings of shareholders of the Corporation may be
called only (1) by the Board of Directors pursuant to a resolution adopted by a
majority of the total number of authorized directors (whether or not there
exist any vacancies in previously authorized directorships at the time any such
resolution is presented to the Board for adoption) or (2) by the holders of not
less than ten percent (10%) of all of the shares entitled to cast votes at the
meeting.
ARTICLE VI
NUMBER, ELECTION AND REMOVAL OF DIRECTORS
A. The number of directors shall initially be set at five (5)
and, thereafter, shall be fixed from time to time exclusively by the Board of
Directors pursuant to a resolution adopted by a majority of the total number of
authorized directors (whether or not there exist any vacancies in previously
authorized directorships at the time any such resolution is presented to the
Board for adoption). Subject to the rights of the holders of any series of
Preferred Stock then outstanding, vacancies in the Board of Directors may be
filled by a majority of the directors then in office, though less than a
quorum. Directors so chosen shall hold office for a term expiring at the next
annual meeting of shareholders, and until their respective successors are
elected, except in the case of the death, resignation, or removal of any
director. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
B. Subject to the rights of the holders of any series of
Preferred Stock then outstanding, any directors, or the entire Board of
Directors, may be removed from office at any time, with or without cause, but
only at a special meeting of the shareholders held for that purpose, and only
by the affirmative vote of the holders of at least a majority of the voting
power of capital stock of the Corporation entitled to vote generally in the
election of directors, at which a quorum is present.
<PAGE> 10
ARTICLE VII
DURATION
The duration of this Corporation shall be perpetual.
ARTICLE VIII
DIRECTOR LIABILITY
A director of the Corporation shall not be personally liable to the
Corporation or its shareholders for monetary damages for conduct as a director,
except for liability of the director for (i) acts or omissions that involve
intentional misconduct or a knowing violation of law by the director, (ii)
conduct which violates RCW 23B.08.310 of the Washington Business Corporation
Act, pertaining to unpermitted distributions to shareholders or loans to
directors, or (iii) any transaction from which the director will personally
receive a benefit in money, property or services to which the director is not
legally entitled. If the Washington Business Corporation Act is amended to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the
Washington Business Corporation Act, as so amended. Any repeal or
modifications of the foregoing paragraph by the shareholders of the Corporation
shall not adversely affect any right or protection of a director of the
Corporation existing at the time of such repeal or modification.
ARTICLE IX
INDEMNIFICATION
The Corporation shall indemnify its directors against all liability,
damage, or expense resulting from the fact that such person is or was a
director, to the maximum extent and under all circumstances permitted by law;
except that the Corporation shall not indemnify a director against liability,
damage, or expense resulting from the director's gross negligence.
ARTICLE X
AMENDMENT OF BYLAWS
The Board of Directors is expressly empowered to adopt, amend or
repeal Bylaws of the Corporation. Any adoption, amendment or repeal of Bylaws
of the Corporation by the Board of Directors shall require the approval of a
majority of the total number of authorized directors (whether or not there
exist any vacancies in previously authorized directorships at the time any
resolution providing for adoption, amendment or repeal is presented to the
Board). The shareholders shall also have power to adopt, amend or repeal the
Bylaws of the Corporation. Any adoption, amendment or repeal of Bylaws of the
Corporation by the shareholders shall require, in addition to any vote of the
holders of any class or series of stock of the Corporation required by law or
by this Certificate of Incorporation, the affirmative vote of the holders of at
least a majority of the voting power of capital stock of the Corporation
entitled to vote at which a quorum is present.
<PAGE> 11
ARTICLE XI
REGISTERED OFFICE AND AGENT
A. The street address of this Corporation's registered office is
1100 Olive Way, Suite 1250, Seattle, Washington 98101.
B. Tamara L. Attard is the Corporation's registered agent at such
office.
ARTICLE XII
Notwithstanding the provisions of RCW Section 23B.10.030, Section
23B.11.030, Section 23B.12.020, and Section 23B.14.020, or any successor to
those statutes, any action on a proposal to: amend these Articles of
Incorporation; approve a plan of merger of share exchange; approve a sale,
lease or exchange of all, or substantially all, of the property of the
Corporation, other than in the usual and regular course of business; or
dissolve the Corporation, shall be approved if it receives a majority of all of
the votes entitled to be cast on the action proposed.
<PAGE> 12
ARTICLE XIII
INCORPORATORS
The names and mailing addresses of the original incorporators are:
Tamara L. Attard 2301 Fairview Ave. E.
Suite 111
Seattle, WA 98102
Roy W. Olivier 2869 Clary Hill Drive
Roswell, GA 30075
<PAGE> 13
CERTIFICATE
These Restated Articles of Incorporation contain one or more
amendments to the Corporation's Articles of Incorporation and were adopted by
the Corporation's Board of Directors on June 17, 1996 and the Corporation's
shareholders on June 18, 1996. These Restated Articles of Incorporation
supersede the original Articles of Incorporation and all amendments thereto.
IN WITNESS WHEREOF, the Corporation has caused these Restated Articles
of Incorporation to be executed on this 27th day of June, 1996.
MULTICOM PUBLISHING, INC.
By: /s/ Tamara L. Attard
--------------------
Tamara L. Attard
Chief Executive Officer
<PAGE> 1
EXHIBIT 10.34
EMPLOYMENT AGREEMENT
This Agreement is made as of _____ 1996, by and between Patricia E.
Hart ("Employee") and Multicom Publishing, Inc., a Washington corporation
("Employer").
BACKGROUND
A. Employer is in the business of developing and selling
multimedia products for the consumer and other markets in all formats and
delivery media, and providing multimedia production services in general.
B. Employer desires to employ Employee, and Employee
desires to be employed by Employer, on the terms and conditions of this
Agreement.
AGREEMENT
1. Employment. Employer agrees to employ Employee as
Vice President and General Counsel, and Employee accepts such employment, on
the terms and conditions of this Agreement.
2. 30-Day Notice; At-Will Employment. The term of this
Agreement shall begin on August 26, 1996 and shall continue so long as Employee
is employed by Employer. Employee shall be entitled to thirty (30) days' notice
(with continuing compensation) of termination, except if termination is for
cause. EMPLOYEE SHALL PROVIDE EMPLOYER WITH THIRTY (30) DAYS' NOTICE PRIOR TO
TERMINATING THIS CONTRACT, OTHERWISE EMPLOYEE WILL BE DEEMED TO BE IN BREACH OF
THIS CONTRACT. Some provisions of this Agreement shall survive Employee's
termination. See paragraph 12.
EMPLOYEE UNDERSTANDS AND AGREES: (1) THAT HIS/HER EMPLOYMENT WITH
EMPLOYER IS AT-WILL EMPLOYMENT, AND MAY BE TERMINATED AT ANY TIME FOR ANY
REASON, IN THE DISCRETION OF THE OFFICERS OF EMPLOYER, UPON THIRTY (30) DAYS'
NOTICE THEREAFTER; (2) THAT EMPLOYER IS A START-UP COMPANY, AND CAN ONLY EMPLOY
EMPLOYEE ON AN AT-WILL BASIS; (3) THAT NO REPRESENTATIVE OF EMPLOYER HAS MADE
ANY CONTRARY REPRESENTATIONS OR PROVISIONS, AND IF SUCH REPRESENTATIONS OR
PROVISIONS ARE MADE, EMPLOYEE SHALL IMMEDIATELY REPORT THEM IN WRITING TO THE
CHAIRMAN AND CEO OF EMPLOYER.
<PAGE> 2
3. Duties. Employee shall serve as General Counsel. Such duties
shall include, but not be limited to, those outlined in the attached job
description. Employee shall report to the Chairman and CEO of Employer and
will be a member of Employer's executive committee. Employee's supervisor and
Employer's Chairman and CEO may from time to time enlarge or curtail the
responsibilities and duties to be performed by Employee. Employer and Employee
agree that Employee's duties shall not require that Employee, and Employee
shall not, disclose to any officer or employee of Employer any confidential or
proprietary information concerning any of Employee's former employers.
4. Extent of Services. Employee shall devote the
Employee's entire work time and attention to the business of Employer. During
the time of Employee's employment, Employee shall not engage in any other
business activity, regardless of whether such activity is engaged in for gain
or profit without prior written consent of the Chairman and CEO.
5. Compensation. For services rendered by Employee
pursuant to this Agreement, Employer shall pay to Employee, and Employee agrees
to accept the following:
a. An initial annual salary in the One Hundred
and Ten Thousand Dollars ($110,000) payable in installments according
to Employer's customary pay schedule;
b. Participation in all health plans adopted by
Employer, subject to the eligibility and other terms of such plans.
c. Salary and all other cash payments shall be
subject to withholding, other applicable taxes and all other lawful
deductions. If upon termination of Employee's employment there are
any amounts owed by Employee to Employer, Employee authorizes Employer
to deduct such amounts from Employee's final paycheck(s).
d. Employee's salary and other compensation shall be
reviewed, and adjusted if necessary, at the time of Employee's semi-
annual review in June of each year.
e. Employee shall be eligible for an initial annual
bonus of Sixteen Thousand and Five Hundred Dollars ($16,500),
generally payable in quarterly installments based upon satisfactory
achievement of MBOs.
f. Employer shall pay for monthly parking of the
Employee.
<PAGE> 3
6. Other Employee Benefit Plans. Employee shall be
entitled to participate in any benefit plans provided by Employer for all of
its employees, subject, however, in all cases to the eligibility and other
terms of such plans.
7. Agreement Not to Disclose. Employee shall not,
either during the time of his employment by the Employer or at any time after
Employee shall leave the employ of the Employer for any reason whatsoever, use,
reproduce, copy or disclose, directly or indirectly, Confidential Information
to any other person, firm, partnership, corporation or any other entity, other
than in the discharge of the duties of Employee under this Agreement. For
purposes of this Agreement, "Confidential Information" shall mean know-how,
trade secrets and confidential and proprietary technical, business and
financial information, personnel, sales and statistical data, information
concerning Employer's and Customer's products and services, plans for future
development, computer programs and information with respect to various
techniques, procedures, processes and methods and any other confidential or
proprietary information obtained, learned or created by Employee in carrying
out the business of Employer, or its affiliates, or its duties under this
Agreement during his employment by Employer whether prior to or after the date
of this Agreement (and any continued employment), other than information which
has become public other than by a breach of this Agreement. Confidential
Information shall also include any patents, trademarks, data, knowledge, ideas,
concepts, creations, sketches, process, specifications, schematics, source
code, object code, technology or other information relating to:
a. The business, operations or internal
structure of Employer or its affiliates;
b. The Customers of Employer;
c. The products and services offered, carried,
bought or sold by Employer;
d. The past, present or future research done by
Employer respecting the business or operations of Employer, such as analyses,
systems, flow charts, programs, techniques, or any other matters concerning any
work done by Employer, whether for purposes of developing existing products or
future products;
e. Employee's work performed for Employer, or
any Customer of Employer; or
<PAGE> 4
f. Any method or procedure (such as records,
programs, systems, correspondence or other documents), relating or pertaining
to projects developed by Employer or contemplated by Employer to be developed
for its past, present or actively solicited Customers.
8. Protection from Disclosure. Employee understands and
agrees that all Confidential Information, and all media containing Confidential
Information, whether or not authorized by Employer, are the sole and
proprietary property of Employer and includes Employer's legally protected
trade secrets.
a. Upon leaving the employ of Employer for any
reason whatsoever, Employee shall surrender and deliver to Employer all
documents, correspondence, manuals, programs, reports, tapes, photographs,
listings and any other data, of any type whatsoever, and any copies thereof,
emanating from Employer or any of its agents, servants, employees, suppliers,
and existing or potential customer (including Employee), that came into
Employee's possession, by any means whatsoever, during the course of
employment.
b. In accordance with Employer's obligation to
preserve and protect Confidential Information and recognizing that Employee's
use or disclosure of Company's Confidential Information would be inevitable if
Employee were to be hired by a competitor of Employee, Employee hereby agrees
not to seek or accept employment (or a contracting or consulting relationship)
with a Customer or Competitor of Company during the terms of Employee's
employment, and for a period of six months after the termination of Employee's
employment with the Company.
c. As used in this Agreement, the term "Customer
of Employer" means any supplier of media or services to Employer or any
purchaser of media, products or services from Employer during the term of this
Agreement, or whom Employer or any of its employees, officers or agents
solicited for such purposes during the time Employee is employed by Employer.
"Competitor of Employer" means any person or organization engaged in the
production or sale of consumer-oriented optical/digital products directly
competitive (i.e. with products in the home, family, lifestyle or reference
market) with any product or service produced or sold by Employer.
9. Intellectual Property Rights. Employee further
agrees that:
a. All work produced by Employee pursuant to or
related to this Agreement, pursuant to or related to Employer's products, and
pursuant to or related to Employer's services for its Customers, whether or not
produced by Employee at Employer's offices, whether produced solely by Employee
or jointly with any other person or persons, whether or not produced during
normal business hours, and whether or not produced by Employee (or any other
employee, contractor, officer or agent of Employer) at the direction of
Employee's supervisor (or any other employee, contractor, officer or agent of
Employer) (such work shall be known hereinafter as "Work Product;" it shall not
include any product of Employee's efforts not related in any way to the
Employee's duties or Employer's business, and which are produced on Employee's
free time not using any Company assets, personnel, or resources of any kind)
is, and shall be, a work for hire within the meaning of
<PAGE> 5
the trademark, patent, trade secret and copyright laws of the United States,
any country and all applicable state and local laws, and shall be the sole and
exclusive property of Employer.
b. Employee has no right of any kind in the Work
Product, and if Employee ever has or had any rights in the Work Product,
Employee hereby assigns to Employer any and all rights Employee has or may have
in such Work Product, including but not limited to the right to claim or
register any patent, trademark or copyright of such Work Product for any
purpose anywhere in the world; or the right to license the Work Product, the
right to claim or collect a sales price, royalties, license fees, or any other
revenue from such Work Product; the right to claim infringement of any such
rights, including the right to bring an action, collect damages and costs and
obtain injunctive relief; the right to sell or assign the foregoing rights; and
the right to incorporate the Work Product in any product or service of Employer
or anyone else.
c. Employer shall have all the rights in and to
the Work Product described above in subparagraph (b), without limit and to be
exercised in Employer's sole and absolute discretion. Employee shall promptly
and completely cooperate with Employer in Employer's exercise of such rights
anywhere in the world, including executing any and all applications,
registrations and documents, and providing any necessary instruction,
information, demonstration, testimony or analysis. Employee's obligations
under this paragraph shall continue beyond the termination of Employee's
employment for any reason whatsoever, but in such case Employer shall
compensate Employee at a reasonable rate for time actually spent at Employer's
request for such assistance.
10. Remedy. Employee agrees and acknowledges that a
violation of any of the covenants contained in paragraphs 7, 8 and 9 will cause
immediate and irreparable injury to Employer and to its successors and assigns
and it is and will be impossible to estimate and determine the damage that will
be suffered by the Employer and its successors and assigns in the event of a
breach by Employee of any such covenant. Employee further agrees that Employer
shall be entitled to an injunction restraining any further violation of such
covenants or covenants by Employee, her employers, employees, partners, agents
or other associates or any of them, such right to injunctive relief is
cumulative and in addition to whatever other remedies Employer or its
successors or assigns may have.
11. Survival. The provisions of paragraphs 8 through 10
of this Agreement shall survive termination of Employee's employment for any
reason whatsoever.
12. Savings Clause and Severability. All provisions of
this Agreement are severable and if any of them are determined to be invalid or
unenforceable for any reason, the remaining provisions and portions of this
Agreement shall be unaffected thereby and shall remain in full force to the
fullest extent permitted by law. Without limiting the foregoing sentence, it
is specifically agreed with regard to each of the covenants in this Agreement
that they are severable and if any of them are held invalid or unenforceable by
reason of length of time or activity covered, or any combination thereof, or
for any other reason, any such covenant shall be
<PAGE> 6
adjusted or reduced to the extent necessary to cure any invalidity and to
protect the interests of Employer to the fullest extent of the law.
13. Termination for Cause. This Agreement and Employee's
employment hereunder may be terminated immediately, without the advance notice
specified in paragraph 2 hereof (or any renewal period) at any time by Employer
for cause, in which case all obligations of Employer under this Agreement shall
cease immediately. For purposes of this Agreement, "Cause" shall mean
violation by Employee of any of the provisions of this Agreement, dishonest,
insubordinate or disloyal conduct by Employee, conviction of Employee for a
felony or a crime of moral turpitude, or failure of Employee to perform his
assigned duties.
14. Payment of Continuing Compensation. Employee shall
be entitled to a lump sum payment equaling twelve months of Employee's base
salary and one year's continued health and life insurance benefits and all
unvested employee options would immediately vest should there be a "Transfer of
Control" and the Employee is terminated or Employee terminates his/her
employment for Good Reason within twelve months of that Transfer of Control.
"Transfer of Control" for purposes of this agreement shall mean a transaction
in which:
(i) all or substantially all of Employer's assets are sold to
an entity and the majority of the equity interest in such entity is
not owned or controlled by Paul or Tamara Attard or their affiliates;
(ii) a merger of Employer and another entity, following which
a party other than Paul and Tamara Attard (or their affiliates) owns a
greater voting percentage interest in the surviving entity than the
combination of Paul and Tamara Attard and their affiliates; or
(iii) a transaction or series of transactions in which a party
other than Paul and Tamara Attard (or their affiliates) acquires a
majority of the voting stock in Employer.
"Good Reason" for purposes of this agreement shall mean termination by Employee
due to:
(i) a material reduction in Employee's position (status,
offices, titles or reporting requirements), authorities, duties or
responsibilities;
(ii) a reduction in Employee's annual base salary or annual
bonus, other than a reduction comparable to reductions generally
applicable to similarly situated employees of Employer imposed as part
of a company wide cost-savings initiative; or
(iii) a requirement for Employee to move his/her principal
office in excess of 30 miles from the present location of Employer's
San Francisco office."
<PAGE> 7
provided, however, that such continuing salary and benefits shall terminate
immediately upon the date that Employee accepts full time work, by employment,
consulting, contracting or otherwise.
15. Notices. Any notice and other communications
required or permitted to be given by this Agreement shall be in writing and
shall be delivered in person or by registered or certified mail, return receipt
requested, postage and fees prepaid. Notice by mail to Employee shall be sent
to the last known residence address in the records of Employer and notice by
mail to the Employer shall be sent as follows:
Attn: Tamara L. Attard
Multicom Publishing Inc.
1100 Olive Way, Suite 1250
Seattle, WA 98101
All notices under this Agreement shall be deemed to be given when received if
delivered in person if posted in the mail, three days after such posting.
16. Successors. This Agreement shall bind and inure to
the benefit of the heirs, successors and assigns of the parties. Employee may
not assign his interest in this Agreement or any part hereof and any attempt of
assignment contrary to this provision shall be void.
17. Entire Agreement; Amendment. This Agreement
constitutes the entire Agreement between Employer and Employee with respect to
the matters covered herein and supersedes all prior or contemporaneous
agreements, negotiations, representations or discussions with respect to such
subject matters. No amendment to this Agreement shall be effective unless
reduced to writing and executed by Employer and by Employee.
18. Waiver. The waiver by either Employee or Employer of
any breach or failure to enforce any of the terms and conditions of this
Agreement at any time shall not in any way affect, limit or waive either
party's rights thereafter to enforce and compel strict compliance with every
term and condition of this Agreement.
19. Governing Law. This Agreement shall be governed by
and interpreted under and in accordance with the laws of the State of
Washington.
<PAGE> 8
20. Attorneys' Fees. In the event of a lawsuit between
the parties, the prevailing party shall be entitled to an award of its
reasonable attorneys' fees, in addition to any other amounts to which it may be
entitled.
21. Captions. The paragraph captions in this Agreement
are for convenience of reference only and do not define or limit the scope of
this Agreement or any part thereof and shall not be considered in any
interpretation of this Agreement.
IN WITNESS WHEREOF, Employer and Employee have signed this Agreement
on the day and year first above written.
Employer: Employee:
MULTICOM PUBLISHING, INC.
By:
------------------------ ----------------------------
Tamara L. Attard, its Patricia E. Hart
Chairman and CEO
<PAGE> 1
EXHIBIT 11.1
MULTICOM PUBLISHING, INC.
COMPUTATION OF NET LOSS PER COMMON
AND COMMON EQUIVALENT SHARES
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1995 JUNE 30, 1996
------------- -------------
<S> <C> <C>
Net loss $ (3,261,854) $ 14,090,853)
Applicable common shares:
Average outstanding during the period 3,460,415 3,409,434
Average mandatorily redeemable stock outstanding
during the period 825,000 825,000
Outstanding stock options(1) 640,077 683,051
------------ ------------
Weighted average number of common shares 4,925,492 4,917,485
============ ============
Net loss per common share $ (.66) $ (.83)
============ ============
</TABLE>
(1) Based on the treasury stock method.
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-08417) of Multicom Publishing, Inc. of our
report dated September 17, 1996 included in this Annual Report on Form 10-KSB.
PRICE WATERHOUSE LLP
Seattle, Washington
September 26, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 3,476,879
<SECURITIES> 0
<RECEIVABLES> 3,607,485
<ALLOWANCES> 215,001
<INVENTORY> 940,595
<CURRENT-ASSETS> 6,919,286
<PP&E> 1,498,585
<DEPRECIATION> 561,519
<TOTAL-ASSETS> 8,283,966
<CURRENT-LIABILITIES> 3,613,531
<BONDS> 2,310,900
0
0
<COMMON> 13,716,358
<OTHER-SE> (11,356,823)
<TOTAL-LIABILITY-AND-EQUITY> 8,283,966
<SALES> 5,617,284
<TOTAL-REVENUES> 7,053,416
<CGS> 2,790,906
<TOTAL-COSTS> 3,588,450
<OTHER-EXPENSES> 6,989,247
<LOSS-PROVISION> 205,000
<INTEREST-EXPENSE> 567,766
<INCOME-PRETAX> (4,090,853)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,090,853)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,090,853)
<EPS-PRIMARY> (.83)
<EPS-DILUTED> 0
</TABLE>
