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As filed with the Securities and Exchange Commission on June 30, 1997.
REGISTRATION NO. 33-
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SECURITIES AND EXCHANGE COMMISSION
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
MULTICOM PUBLISHING, INC.
(Exact name of Registrant 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, 12TH FLOOR
SEATTLE, WASHINGTON 98101
(206) 622-5300
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
TAMARA L. ATTARD
CHIEF EXECUTIVE OFFICER
MULTICOM PUBLISHING, INC.
188 EMBARCADERO, 5TH FLOOR
SAN FRANCISCO, CALIFORNIA 94105
(415)777-5300
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
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<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
MAXIMUM MAXIMUM
AMOUNT TO OFFERING AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE BE PRICE PER OFFERING REGISTRATION
REGISTERED REGISTERED SHARE(1) PRICE(1) FEE
- -------------------------------------------- - ---------- ----------- --------- ------------
<S> <C> <C> <C> <C>
Common Stock ($.01 par value).......... 1,275,091 $1.00 $1,275,091 $386.39
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</TABLE>
(1) Estimated solely for the purpose of computing the registration fee and based
on the average of the high and low prices of the Common Stock of Multicom
Publishing, Inc. as reported on the Nasdaq SmallCap Market on June 27, 1997.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SUCH SECTION 8(A), MAY DETERMINE.
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1,275,091 SHARES
MULTICOM PUBLISHING, INC.
COMMON STOCK
This Prospectus includes 1,275,091 shares of Common Stock of Multicom
Publishing, Inc. ("Multicom" or the "Company") of which up to an aggregate of
800,000 may be acquired upon conversion of the Company's Series B Convertible
Preferred Stock (the "Conversion Shares"), up to an aggregate of 320,000 may be
acquired upon the exercise of warrants (the "Warrant Shares"), and 128,597 are
outstanding shares of Common Stock (collectively, the "Shares") that may be sold
from time to time by or on behalf of certain shareholders (the "Selling
Shareholders") of the Company described in this Prospectus under "Selling
Shareholders." The holders of the Conversion Shares acquired the Conversion
Shares from the Company in a private offering made in reliance upon Regulation D
under the Securities Act of 1933, as amended (the "Securities Act"), and the
holders of the Warrant Shares received the Warrant Shares in a private
transaction pursuant to Section 4(2) of the Securities Act. The Company has
agreed to register the Conversion Shares and the Warrant Shares under the
Securities Act, and to use its best efforts to cause the registration statement
covering the Conversion and Warrant Shares to be declared effective and to
remain effective for between two (2) to four (4) years following the closing of
the sale of the Conversion Shares on March 31, 1997. The remaining Selling
Shareholders acquired the Shares from the Company in separate private
transactions, on February 7, 1997 and March 31, 1997, pursuant to Section 4(2)
of the Securities Act. The Company has agreed to include these shares in any
registration statement being filed by the Company by other holders of Company
stock. The Company will not receive any of the proceeds from the sale of the
Shares by the Selling Shareholders.
The Company has been advised by the Selling Shareholders that they intend
to sell all or a portion of the Shares from time to time in the Nasdaq SmallCap
Market, in negotiated transactions or otherwise, and on terms and at prices then
obtainable. The Selling Shareholders and any broker-dealers, agents or
underwriters that participate with the Selling Shareholders in the distribution
of any of the Shares may be deemed to be "underwriters" within the meaning of
the Securities Act, and any commission received by them and any profit on the
resale of the Shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. The Company and the Selling
Shareholders have agreed to certain indemnification arrangements.
The Company will bear all costs and expenses incident to the offering and
sale of the Shares to the public, including without limitation, printing
expenses, filing fees, legal fees and disbursements of counsel for the Company,
accounting fees and "blue sky" expenses, but excluding any underwriting
commissions or similar charges and legal fees and disbursements of counsel for
the Selling Shareholders in excess of $10,000.
THE SHARES HAVE NOT BEEN REGISTERED FOR SALE UNDER THE SECURITIES LAWS OF
ANY STATE OR JURISDICTION AS OF THE DATE OF THIS PROSPECTUS. BROKERS OR DEALERS
EFFECTING TRANSACTIONS IN THE SHARES SHOULD CONFIRM THE REGISTRATION OF THE
SHARES UNDER THE SECURITIES LAWS OF THE STATES IN WHICH SUCH TRANSACTIONS OCCUR,
OR THE EXISTENCE OF ANY EXEMPTIONS FROM SUCH REGISTRATION.
The Company's Common Stock is listed on the Nasdaq SmallCap Market. On
June 27, the last sales price of the Company's Common Stock as reported on
the Nasdaq SmallCap Market was $1.125.
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SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR INFORMATION
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS
OF THE SHARES OFFERED HEREBY.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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The date of this Prospectus is _________, 1997.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements, and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the Commission's public reference room at 450 Fifth Street, N.W.,
Washington, D.C. 20549, as well as at the Regional Offices of the Commission
located at Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60611 and 7 World Trade Center, Suite 1300, New York, New York
10048. Copies of such material can be obtained by mail from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
upon payment of the fees prescribed by the Commission. Reports, proxy statements
and other information which the Company has filed electronically with the
Commission can be found at the Web site maintained by the Commission at
http://www.sec.gov. Multicom's Common Stock is traded on the Nasdaq SmallCap
Market. Reports and other information concerning Multicom can also be inspected
at the offices of the National Association of Securities Dealers, Inc., Market
Listing Section, 1735 K Street, N.W., Washington, D.C. 20006.
The Company has also filed with the Commission a Registration Statement on
Form S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act. This Prospectus does not contain all of
the information set forth in the Registration Statement, certain parts of which
are omitted in accordance with the rules and regulations of the Commission. For
further information, reference is made to the Registration Statement, copies of
which may be obtained from the Public Reference Section of the Commission, 450
Fifth Street, N.W., Washington, D.C. 20549, upon payment of the fees prescribed
by the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission pursuant
to the Exchange Act are incorporated herein by reference:
1. The description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A dated __________, 1996;
2. Form 10-KSB for the fiscal year ended June 30, 1996;
3. Form 10-QSB dated September 30, 1996;
4. Form 10-QSB dated December 31, 1996;
5. Form 8-K dated February 7, 1997;
6. Form 8-K dated February 11, 1997; and
7. Form 10-QSB dated March 31, 1997.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of this offering shall be deemed to be incorporated by reference
herein and to be a part hereof from the date of filing of such documents. Any
statement incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this Prospectus
is delivered, upon written or oral request, a copy of any or all of the
foregoing documents incorporated by reference in this Prospectus (other than any
exhibits thereto). Requests for such documents should be directed to Multicom
Publishing, Inc., 188 Embarcadero 5th Floor, San Francisco, California 94105,
Attn: Secretary.
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THE COMPANY
Multicom Publishing, Inc. ("Multicom" or the "Company") 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, DVD, DVD-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 develops custom publishing projects for major consumer
product and publishing companies, including the development of DVD-ROM products.
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 the Internet, the World Wide Web and other types of new
media.
The Company continually upgrades its technology to maintain its leadership
in the industry. Multicom is making a significant investment in the development
of its DVD capabilities. In early 1997, the Company became the first to release
a DVD product, Warren Miller's Ski World '97, which can be played on consumer
DVD-Video players and computer DVD-ROM drives. Multicom plans to continue to
develop multimedia products using its in-house assets and expertise and to
develop DVD products for others on a custom publishing basis.
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 increased the total number of multimedia titles
it sells and markets to 50 individual titles under licenses from Meredith
Corporation, HarperCollins Publishers, American Express Publishing and Simon &
Schuster, among others. Twenty-two of the Company's titles incorporate embedded
online access to specified Web sites on the Internet and proprietary online
services for real-time information and direct advertiser contact.
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, Great Chefs Publishing, Pulte
Homes Corporation, Robert Half International and MacMillan Digital USA, a Viacom
company. The Company also designs, creates and sells interactive advertising for
its clients in the home/family/lifestyle arena. Customers for the Company's
interactive advertising development include Armstrong, DuPont, General Electric
and Thomasville. Multicom's interactive productions feature animation, customer
surveys and connectivity to clients' Web sites.
Multicom has gained important strategic advantages from its relationship with
Meredith Corporation ("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. As of June 30, 1997, Meredith
owns 15.7% of the Company's outstanding common stock.
The Company was incorporated in Washington on January 2, 1992. The Company's
principal corporate offices are located at 1100 Olive Way, 12th Floor, Seattle,
Washington 98101, and it has executive offices in San Francisco, California. The
telephone number at its principal corporate offices is (206) 622-5530. The
Company's Web site can be located at http://www.multicom.com. Information
contained in such Web site is not a part of this Prospectus.
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RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be carefully considered in evaluating the Company and its
business before purchasing the Common Stock offered hereby. This Prospectus
contains forward-looking statements and actual results could differ materially
from those projected in the forward-looking statements as a result of the risk
factors set forth below and elsewhere in this Prospectus.
Continuing Operating Losses; Fluctuating and Unpredictable Operating
Results; Seasonality. Except for the quarter ended March 31, 1996, the Company
has incurred operating losses in each quarter since its inception. At March 31,
1997, the Company had an accumulated deficit of $14,342,827. The Company expects
to experience operating losses until such time as product sales generate
sufficient revenues to fund its continuing operations. Additionally, there may
be significant fluctuations in operating results due to a variety of factors,
including (among others) the size and rate of growth of the consumer and
business new media markets, the level of product returns, the timing and size of
licensing and custom publishing transactions, high manufacturing and shipping
demands at the end of the quarter, development and promotional expenses relating
to the introduction of new products or new versions of existing products, the
timing and success of product introductions, changes in pricing policies by the
Company and its competitors, and the accuracy of retailers' forecasts of
consumer demand. Further, the consumer new media software market is highly
seasonal. The Company's net sales historically have been higher during the first
and fourth calendar quarters, due primarily to higher sales of consumer
multimedia and software during the year-end holiday buying season and follow-on
software sales in the winter months. The Company expects its net sales and
operating results to continue to reflect significant seasonality.
The Company's expense levels are based, in part, on its expectations
regarding future sales and, as a result, operating results would be
disproportionately adversely affected by a decrease in sales, a failure to meet
the Company's sales expectations or the inability to fill orders. Additionally,
as a result of the timing of customer orders, the Company often ships its
products, representing a majority of its revenues for a quarter, in the last few
weeks of the quarter. This shipping pattern increases the risk of unanticipated
fluctuation in quarterly sales because, in the last few weeks of a quarter, the
Company has limited opportunities to take corrective action in
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the event orders do not materialize. Moreover, to meet anticipated customer
orders at the end of a quarter, the Company is often required to begin
production sooner than would otherwise be the case. As a result, the Company may
face increased inventory levels if its projections of future sales at the end of
a quarter do not materialize. The Company's products are generally produced and
shipped as orders are anticipated or received, and, accordingly, the Company
generally operates with little backlog. In the past the Company has been, and in
the future the Company could be, forced to accept substantial product returns in
excess of allowances provided to maintain its relationships with retailers and
its access to distribution channels, which could have a material adverse effect
on the Company's business, operating results or financial condition. In
addition, the Company has set its staffing levels and budgeted expenditures
based upon the expectation that certain custom publishing projects will be
obtained and completed. If these expectations are not realized, it may be
difficult for the Company to redirect its internal resources and revise its
expenditures to address the reduced revenues. The Company's custom publishing
businesses (including DVD development, online activities and interactive
marketing) often involve fee-for-service contracts. The Company assumes greater
financial risk on fixed-price type contracts than on either time-and-materials
or cost-reimbursable contracts. Failure to anticipate technical problems,
estimate costs accurately or control costs during performance of a fixed-price
contract may reduce the Company's profit or cause a loss.
The timing of achieving profitability is primarily dependent upon the
Company's continued ability to execute its strategy to penetrate the
mass-consumer channels, to increase the level of custom publishing activity, and
to reduce its operating expenses and improve cost controls. There can be no
assurance that the Company will achieve consistent profitability on a quarterly
or annual basis. As a result of the foregoing risk factors, it is likely that in
one or more future quarters the Company's operating results will be below the
expectations of public market analysts and investors. In that event, the price
of the Company's Common Stock would likely be materially adversely affected.
No Assurance of Ability to Replace Existing Line of Credit and to Comply
with Covenants of Loan Agreements. Multicom has a working capital line of credit
with Cupertino National Bank entered into during 1995, as amended on June 28,
1996 and March 31, 1997 (the "Line of Credit Facility") that allows for
borrowings of up to $2,000,000. As of March 31, 1997, $1,629,000 was outstanding
under the Line of Credit Facility. Borrowings under the Line of Credit facility
may not exceed the eligible borrowing base, calculated as the sum of percentages
of eligible accounts receivable. During April 1997, Cupertino National Bank
informed the Company that it would not advance funds in excess of the $1,629,000
that was outstanding and that it would not renew the Line of Credit Facility
when it expired on July 5, 1997, primarily due to the default situation
discussed below.
Funds under the Line of Credit Facility are subject to certain lending limit
conditions and financial covenants unless otherwise waived heretofore. These
covenants include a covenant that mandates the maximum amount of quarterly
operating losses permissible of $350,000 through March 31, 1997 and then
profitable quarters thereafter (the "operating loss covenant"), a covenant that
Multicom maintain its tangible net worth at or above $3,000,000 (the "tangible
net worth covenant"), a
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covenant that mandates a maximum allowable ratio of total liabilities to
tangible net worth at or below 3.0 (the "liabilities/TNW covenant") and a
covenant that Multicom maintain a minimum quick ratio of 1.0 during the term of
the Line of Credit Facility (the "quick asset covenant"). The Line of Credit
Facility also provides for limitations on Multicom's ability to enter into
future merger, acquisition or debt agreements and restrictions on Multicom's
payment of cash dividends and repurchase of common stock. Borrowings under the
Line of Credit Facility are secured by substantially all of the assets of
Multicom. Interest on borrowings is charged at the lender's prime rate plus 3%
(11.5% as of March 31, 1997). These covenants are measured quarterly and
Multicom was in default of certain of these covenants at December 31, 1996 and
March 31, 1997. The bank agreed to forbear in connection with these defaults.
Multicom also has debt agreements with Meredith Corporation and Sirrom
Capital Corporation. Meredith Corporation has a second position in all the
Company's assets under two separate loan agreements with Meredith Corporation.
At March 31, 1997, the balance owing under these two loan agreements (the
"Meredith Loans") was $249,316. Sirrom has a third position in all of the
Company's assets under a loan agreement dated March 31, 1996 as amended on
February 7, 1997 and on February 11, 1997. The balance owing under this
agreement (the "Sirrom Loan") at March 31, 1997 was $1,825,000.
A default under the Line of Credit Facility would result in cross defaults
under the Meredith and Sirrom Loan agreements. The exercise of rights and
remedies under the Line of Credit Facility, Meredith Loan agreement of Sirrom
Loan agreement could prevent or delay the continued development and marketing of
the Company's products, require curtailment of the Company's operations and
could result in the bankruptcy or insolvency of the Company.
Need for Additional Funds and No Assurance of Available Financing. Multicom
has historically experienced negative cash flow from operations and it is
expected that Multicom will continue to experience negative operating cash
flow. Even with the net proceeds from the Common Stock Financing, Debt
Conversion and Preferred Share Financing (defined below), the funding of future
operations may require further infusion of capital. There can be no assurances
that adequate revenue growth and reduction of operating losses will be achieved,
and even if they are, management of Multicom may choose to supplement the
Company's cash position. Potential sources of additional funding include private
equity financing, mergers, or strategic marketing partnerships. If additional
funds are raised by Multicom through the issuance of equity securities or
securities convertible into or exercisable for equity securities, the percentage
ownership of the then current Shareholders of Multicom will be reduced. Multicom
may issue an additional series of preferred stock with rights, preferences or
privileges senior to those of the Multicom Common Stock. Multicom does not have
any commitments or arrangements to obtain any funding and there can be no
assurance that any required financing of Multicom will be available on
acceptable terms, if at all. The unavailability of any required financing, the
inability to renegotiate current debt financing arrangements or the risks
affecting financial performance referenced herein may require curtailment of the
Company's operations and could result in the bankruptcy or insolvency of
Multicom.
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On February 7, 1997, the Company sold, pursuant to a Common Stock Purchase
Agreement, an aggregate of 697,368 shares of Common Stock at $2.28 per share for
an aggregate of $1,590,682 of which 109,649 shares were issued in exchange for a
software accounting system valued at $250,000 and the remainder were issued for
cash (the "Common Stock Financing"). The shares sold in this transaction were
sold in reliance upon Section 4(2) of the Securities Act, have not been
registered with the Securities and Exchange Commission and carry a restrictive
legend.
On February 7, 1997, the Company converted $750,000 in long-term debt held
by Sirrom Investments, Inc. ("Sirrom"), to 150,000 shares of Series A Preferred
Stock and on February 11, 1997, the Company converted an additional $425,000 in
long-term debt held by Sirrom to 85,000 shares of Series A Preferred Stock (the
"Debt Conversion"). The Series A Preferred Stock carries annual cash dividends
of $.65 per share, payable monthly, and is convertible to Common Stock at a
price of $2.28 per share, or one share of Series A Preferred Stock for 2.19
shares of Common Stock. The shares issued to Sirrom have not been registered
with the Securities and Exchange Commission and carry a restrictive legend. In
connection with the February 11 transaction, the loan agreement on the
remaining debt was amended to include a financial covenant whereby Sirrom
Investments, Inc., will be issued warrants to purchase 15% of the outstanding
Common Stock on a fully diluted basis at February 11, 1997, at an exercise
price of $.01, upon breach of the covenant.
On March 31, 1997, the Company issued, pursuant to a Letter Agreement,
106,667 shares of Common Stock to Sonic Solutions at $1.25 per share in
connection with the acquisition of DVD equipment. The shares were issued
pursuant to Section 4(2) of the Securities Act.
On March 31, 1997, pursuant to Convertible Preferred Stock Purchase
Agreements between the Company and GEM Management Limited and the Company and
Vitaloon Inc., the Company issued an aggregate of 400 shares of Series B
Convertible Preferred Stock at $1,000 per share for an aggregate of $400,000
("Preferred Share Financing"). The Series B Preferred Stock is convertible to
Common Stock at the lesser of the price of the Common Stock as of the date of
the closing, $1.25, or 75% of the last ten days closing bid price prior to the
conversion date (the "Conversion Shares"). The Series B Preferred Shares were
offered and sold in reliance on the exemption from registration under the
Securities Act set forth in Regulation D under the Securities Act. In connection
with the issuance of the Series B Preferred Shares, warrants to purchase up to
320,000 shares of Multicom Common stock were issued to the placement agent and
related parties (the "Warrant"). The Warrants are exercisable over a two-year
term and have an exercise price of $1.125 per share. In accordance with the
registration rights agreements between Multicom and the purchasers of the Series
B Preferred Shares and with the provisions of the Warrant to Purchase Common
Stock, Multicom will use its best efforts to effect a "shelf" registration of
the Common Stock issuable upon conversion of the Series B Preferred Shares and
exercise of the Warrants and to keep such registration statement effective for
up to two (2) years after the closing.
Uncertainty of Market Acceptance; Need for New and Updated Product
Introduction; Product Delays. Consumer preferences for multimedia and software
products are difficult to predict, and few consumer software and multimedia
products achieve sustained market acceptance. The Company's future success is
dependent upon the introduction of new products
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which achieve market acceptance, the market acceptance of its existing products,
and the ability to retain consumer and reseller interest in the Company's
existing products. There can be no assurance that the Company's existing
products will continue to obtain market acceptance, or that new products
introduced by the Company will achieve any significant degree of market
acceptance or sustain any such acceptance for any significant period. The
multimedia industry is characterized by products having a relatively short
commercial life. The Company, as part of its overall business strategy, focuses
on home/family/lifestyle subjects where the underlying content and, to a lesser
extent, the related products developed by the Company are intended to remain
current over an extended period of time, but there can be no assurance that the
Company will be successful in carrying out this strategy. The success of the
Company is dependent on the acceptance by retailers and distributors of products
with a longer shelf life. Failure of the Company's new and existing products to
achieve and sustain market acceptance would have a material adverse effect on
the Company's business, operating results and financial condition.
The Company also seeks to retain interest in its products by offering
up-to-date technological features and platforms, an ongoing product mix that
meets consumer/reseller demands and continued marketing efforts which support
the product line. The Company's current strategy is to meet these needs through
the upgrade and enhancement of existing products as well as the acquisition of
other titles which fit within its home/family/lifestyle line of products. A
significant delay in the introduction of, or the presence of a defect in, one or
more these products could have a material adverse effect on the ultimate success
of such products and on the Company's business, operating results or financial
condition, especially if a product introduction is delayed beyond the year-end
holiday buying season. Further, because of the revenues typically associated
with initial shipments of a new or upgraded CD-ROM product, delaying a product
introduction expected near the end of a fiscal quarter may materially adversely
affect operating results for that quarter. In the past, the Company has
experienced delays in the introduction of certain new products, and the Company
anticipates that there may be similar delays in developing and introducing new
products in the future. There can be no assurance that all or most new products
will be introduced on schedule or that new products will achieve market
acceptance or generate significant revenues. Additionally, should the
acquisition of products be delayed, revenue performance of acquired products be
less than projected or difficulties arise in the introduction of the product
into the channel under the Multicom label, the Company's operating results or
financial condition may be negatively impacted.
Need for Broad Acceptance of New Information Delivery Vehicles. Although
consumers have widely accepted books and magazines as a source of
home/family/lifestyle information, the delivery of such information through new
digital media (such as CD-ROM, DVD, DVD-ROM, the Internet, the World Wide Web,
proprietary online services, TV-based systems, interactive kiosks and laptop PC
presentations) while growing has yet to gain a comparable degree of acceptance
among consumers and advertisers. The Company's success will depend upon the
willingness of consumers to acquire the equipment needed to access the
information provided by the Company and their willingness to use this equipment
and the Company's products to supplement or replace traditional information
delivery methods. There can be no assurance that commerce and communication
through new media will continue to grow. The use of new
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media in advertising and communications, particularly by those individuals and
enterprises that have historically relied upon traditional means, generally
requires the acceptance of a new way of conducting business and exchanging
information. In particular, enterprises that have already invested substantial
resources in other means of conducting commerce and exchanging information may
be particularly reluctant or slow to adopt a new strategy that may make their
existing resources and infrastructure less useful.
Critical to the Company's strategy is the adoption by the consumer of DVD
technology as well as the successful integration of the Company's products with
the Internet. Consumers must accept the improved performance and quality of DVD
products, resulting in the investment in the necessary hardware and software.
The Internet is being used at varying levels for the transfer of information as
well as for transactions. Because global commerce and online exchange of
information on the Internet and other similar open wide-area networks are new
and evolving, it is difficult to predict with any assurance whether the Internet
will prove to be and remain a viable commercial marketplace. Critical issues
concerning the commercial use of the Internet (including security, reliability,
cost, ease of use and access and quality of service) remain unresolved and may
impact the growth of Internet use. As a result, there can be no assurance that
these new media delivery methods will obtain a broad level of consumer and
business acceptance or that the Company's products will be able to provide
competitive information through these mediums.
Dependence on Publishers. The Company believes that its relationships with
two of its publishers, Meredith and HarperCollins Publishers ("HarperCollins"),
are material. Meredith is one of the Company's principal shareholders and is
represented by one of the five members of the Company's Board of Directors.
Meredith has provided the Company with content for the Company's Better Homes
and Gardens titles, introductions to other licensors, insight into market
developments and equity and debt financing. Sales of products based upon
copyrighted material provided by Meredith have constituted a substantial portion
of the Company's revenues to date. In July 1995, Meredith entered into an
exclusive licensing agreement with Readers' Digest Association ("RDA"),
granting RDA rights to certain Meredith trademarks in direct marketing
channels, which include a broad range of methods where products are sold
directly to consumers rather than retailers. These channels have not been
significant sources of revenue for the Company to date. As part of this
agreement, Meredith agreed not to renew or extend its commitment to use its
best efforts to license to Multicom content for at least four titles per year or
to use reasonable efforts to utilize the Company as its principal
optical/digital publisher, when these obligations expire in June 1999.
Thereafter, the Company will compete and negotiate for content from Meredith
without benefit of these commitments. In October 1996, the Company expanded its
product line through the acquisition of publishing rights to twelve CD-ROM
titles from HarperCollins. Any adverse change in, or breach in the relationships
with, Meredith or HarperCollins could have a material adverse effect on the
Company's business, operating results or financial condition and could inhibit
the development of relationships with other major publishers.
The Company's relationships with its publishers are fundamental to its
business strategy. Certain of the Company's license agreements with publishers
allow those providers to exercise approval rights with respect to the
development and release of titles subject to the licenses. The licenses are
generally terminable after five to ten years. To obtain content licenses or
licenses for completed titles from third parties, the Company is frequently
required to guarantee royalties or to pay fees in advance before products
incorporating such copyrighted material have been introduced or have achieved
market acceptance. In addition, the Company is dependent upon the cooperation
and expertise of these publishers in the development and distribution of its
products and has experienced, and may in the future experience, production
delays which are beyond the ability of the Company to control. There is no
assurance that the Company will be able to obtain rights to all of the
copyrighted material required to develop and market successful
10
<PAGE> 11
products based on such copyrighted material. Furthermore, the Company has
experienced in the past, and may in the future continue to experience, disputes
with publishers over various aspects of their relationships with Multicom. Any
adverse change or early termination of a significant number of such
relationships could have a material adverse effect on the Company and its
business, operating results or financial condition and could inhibit the
development of relationships with other major publishers.
Dependence on Distribution Channels; Change in Distribution Relationships.
The Company currently sells its CD-ROM products directly and through
distributors to major computer and software retailing organizations, consumer
electronics stores, discount warehouse stores, mail order companies and
bookstores and other specialty retailers. Sales to a limited number of
distributors and retailers have constituted and are anticipated to continue to
constitute a majority of the Company's net revenues. Sales to the Company's
distributors accounted for approximately 78.6% and 75.7%, respectively, of the
Company's net sales during the fiscal year ended June 30, 1996 and the nine
months ended March 31, 1997. The Company sells on a purchase order basis, and
there are no minimum purchase obligations on behalf of any principal distributor
or retailer. The loss of, or significant reduction in sales attributable to, any
of the Company's principal distributors or retailers could materially adversely
affect the Company's business, operating results or financial condition. There
is no assurance that the Company's distributors will continue to order products
from the Company. Distribution and retailing companies in the computer industry
have from time to time experienced significant fluctuations in their businesses,
and there have been a number of business failures among these entities. The
insolvency or business failure of any significant distributor or retailer of the
Company's products or delay in the collection of receivables could have a
material adverse effect on the Company's business, operating results or
financial condition. Further, certain mass market retailers have established
exclusive relationships under which such retailers will buy consumer software
only from one or two intermediaries. In such instances, the price or other terms
on which the Company sells to such retailers may be materially adversely
affected by the terms imposed by such intermediaries, or the Company may be
unable to sell to such retailers on terms which the Company deems acceptable. In
addition, other types of retail outlets and methods of product distribution,
such as online services, may become important in the future, and it will be
important for the Company to effectively anticipate and utilize these channels
of distribution. There can be no assurance that the Company will be able to do
so.
Product Returns. Consistent with general industry practice, the Company
maintains a return policy that allows distributors and retailers to return
products according to negotiated terms or pursuant to promotional terms then in
effect. The Company also accepts returns of defective, shelf-worn and damaged
products at any time in accordance with negotiated terms. At the time of product
shipment, the Company establishes reserves, including reserves under the
Company's policies for overstocking, price protection and returns of defective,
shelf-worn or damaged products, which estimate the potential for future returns
of products based on terms of sales, distributor and retailer inventories of the
Company's products and other factors. In the past the Company has, and in the
future the Company may, experience product returns that exceed the Company's
reserves and which could materially adversely affect the Company's business,
operating result, cash flows or financial condition.
11
<PAGE> 12
Competition; Competition for Shelf Space. 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 products include content,
quality, brand recognition, price, marketing, distribution channel exposure,
access to shelf space and critical reviews. In the custom publishing markets,
the Company believes that the principal competitive factors also include the
quality of services and the reputation of the service provider among customers
and potential customers.
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, and direct competition in the
home/family/lifestyle market from companies such as Comp U Card Software, Expert
Software and The Learning Company. Such large and established 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 the future, the Company may face competition from licensors and publishers
who may seek to produce competing products using their own content or that of
other providers. Furthermore, the Company anticipates that the consolidation of
the consumer multimedia market will continue around a smaller number of vendors
who may be better positioned and have greater resources to compete than the
Company.
In the custom publishing markets, the Company faces competition from a
number of companies focusing solely on custom publishing projects and from
interactive advertising agencies, as well as from the in-house multimedia
departments of potential customers. The Company 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 proprietary online services. There
can be no assurance that the Company will be able to compete effectively against
existing and potential competitors, many of whom have substantially greater
content, financial, technical, marketing, sales and customer support resources
and name recognition than the Company.
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, which would have a material adverse effect on the
Company's business, operating results and financial condition.
In addition, retailers of the Company's CD-ROM products typically have a
limited amount of shelf space and promotional resources. The Company expects
that, as the number of consumer multimedia and software products and computer
platforms increases, the intense competition among consumer multimedia and
software producers for adequate levels of shelf space and promotional support
from retailers will intensify. Due to increased competition for limited shelf
space, retailers and distributors are increasingly in a better position to
negotiate favorable terms of sale, including price discounts and product return
policies. Retailers often require software publishers to pay fees or provide
other accommodations in exchange for preferred shelf space. The Company's
products constitute a relatively small percentage of each retailer's sales
volume,
12
<PAGE> 13
and there can be no assurance that retailers will continue to purchase the
Company's products or provide the Company's products with adequate shelf space
and promotional support. Increasingly, retailers are requiring specific
product mixes as well as establishing rigid programs which mandate certain
packaging and pricing. The Company must meet these demands to ensure continued
presence on the shelf. As a result, new form factors (packaging) of product are
continually being developed, which may lead to higher inventory levels,
packaging obsolescence and pricing conflicts from product currently in the
channel, but in a different form factor, any of which may have a material
adverse effect on the Company's business, operating results or financial
condition.
Dependence on Key Personnel. The Company's success depends to a significant
extent on the performance and continued service of its senior management and
certain key employees, many of whom are solely or principally responsible for
maintaining the Company's relationships with key publishers or distributors.
Competition for highly skilled employees with technical, management, production,
programming, marketing, sales, product development and other specialized
training is intense, and there can be no assurance that the Company will be
successful in attracting and retaining such personnel. The Company may
experience increased costs in order to attract and retain skilled employees. In
addition, there can be no assurance that key employees will not leave the
Company or compete against the Company. The Company's failure to attract
additional qualified employees or to retain the services of key personnel could
materially adversely affect the Company's business, operating results or
financial condition. The Company does not maintain life insurance policies on
any of its key employees other than the Chief Executive Officer and the
President.
Changes in Technology. The consumer multimedia and software industry is
undergoing rapid changes, including evolving industry standards, frequent new
product introductions and changes in consumer requirements and preferences. The
introduction of new media technologies, including new digital media such as the
Internet, new optical media technology such as DVD, and advanced video
compression standards such as MPEG, could render the Company's existing products
obsolete or unmarketable. The development cycle for products utilizing new
operating systems, microprocessors or formats may be significantly longer than
the Company's current development cycle for products on existing operating
systems, microprocessors and formats and may require the Company to invest
resources in products that may not become profitable. There can be no assurance
that the Company's product offerings will keep pace with technological changes
or satisfy evolving consumer preferences or that the Company will be successful
in developing and marketing products for any future operating system or delivery
format. To maximize the potential market for its titles, the Company will need
to develop its titles for the primary interactive operating systems or delivery
formats available to consumers at any given time. Many of the Company's licenses
with publishers limit the Company's rights to use that copyrighted material in
other platforms. Failure to develop and introduce new products and product
enhancements or to obtain the necessary licenses in a timely fashion in response
to technological developments could result in significant product returns and
inventory obsolescence and would have a material adverse effect on the Company's
business, operating results and financial condition.
13
<PAGE> 14
Risk of Product Errors or Failures. Multimedia products as complex as those
offered by the Company may contain undetected errors, particularly when first
introduced or when new versions are released. The Company has in the past
discovered errors in certain of its product offerings after their introduction.
Any similar errors in the future may result in shipping delays or lost revenues
during the period required to correct these errors and may damage the Company's
competitive position. In addition, the PC hardware environment is characterized
by a wide variety of non-standard peripherals (such as sound cards and graphics
cards) and configurations, all of which make pre-release testing for programming
or compatibility errors very difficult and time-consuming. The Company has
experienced delays resulting from quality assurance testing and additional
technical support expenses in connection with system compatibility requirements
associated with its products. There can be no assurance that, despite testing by
the Company, errors will not be found in new products or releases after
commencement of commercial shipment, resulting in loss of or delay in market
acceptance or liabilities through indemnification obligations, which could have
a material adverse effect on the Company's business, operating results or
financial condition.
Reliance on Third-Party Suppliers and Manufacturers. All of the titles
distributed by the Company are replicated by third-party manufacturers.
Third-party subcontractors are also involved in the assembly and packaging of
retail products. Capacity limitations of existing manufacturers or
subcontractors or delays in their delivery schedules, especially during a period
of heavy shipments at the end of a quarter or in preparation for the year-end
holiday buying season, could have a material adverse effect on the Company's
business, operating results or financial condition. The Company purchases books
from publishers and distributors to assemble its CD-ROM/Book Bundles. Books
typically have a longer lead time to manufacture than stand-alone CD-ROMs and
are subject to discontinuance. The Company purchases books in larger quantities
to obtain volume discounts and to maintain inventory in stock. There can be no
assurance that the Company can continue to purchase these books at a reasonable
cost or that such books can be received on a timely basis. Additionally, the
Company may have significant quantities of books held in inventory, which
utilizes cash resources and increases the risk of a material impact to earnings
due to obsolescence, should sales of the related CD-ROM/Book Bundles not reach
expected levels.
Limited Protection of Intellectual Property and Proprietary Rights; Risk of
Litigation. 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 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 the subject
of any material intellectual property rights claims, there can be no assurance
that the Company will not face future claims, with or without merit. In the
future, the Company may
14
<PAGE> 15
also find it necessary to initiate litigation 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 ascertain 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, in turn, could have a material adverse effect on
the Company's business, operating results or financial condition. Also, any
settlement of such claims or adverse determinations in such litigation could
have a material adverse effect on the Company's business, operating results or
financial condition. Adverse determinations in such litigation could result in
the loss of the Company's proprietary rights, subject the Company to significant
liabilities, 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 or
financial condition.
Product Liability. Many of the Company's products address "how to" projects,
such as home repair and skiing instructions. There can be no assurance that the
Company will not be subject to claims by consumers regarding damages allegedly
caused by the consumer's application of the instructional content of the
Company's products or that any such claim will not result in adverse publicity
for the Company or monetary damages, either of which could materially adversely
affect the Company's business, operating results or financial condition. The
Company currently maintains product liability insurance in an amount based on
the perceived potential risks and costs of coverage. There can be no assurance
that the cost of this insurance will not increase substantially or that the
amount of coverage will be adequate to protect the Company against claims and
the related costs of defense.
Concentration of Share Ownership. As of June 27, 1997, directors and
officers of the Company and their affiliates owned or had the right to vote
approximately 70% of the Company's outstanding Common Stock in the aggregate,
assuming no exercise of outstanding stock options and warrants. The holders of
the Company's Common Stock do not have cumulative voting rights. As a result,
the Company's directors, officers and their affiliates have the voting power
required to elect all directors and to approve all other matters requiring
15
<PAGE> 16
approval by the shareholders of the Company, including transactions involving a
change of control of the Company.
Volatility of Stock Price. The market price of the Company's Common Stock
continues to be subject to significant fluctuations in response to variations in
quarterly operating results and other factors such as announcements of
technological innovations or new products by the Company or its competitors or
other events. In addition, the stock market and particularly the market prices
for many software and multimedia companies have in recent years experienced
significant price and volume fluctuations. These fluctuations often have been
unrelated to the operating performance of the specific companies whose stocks
are traded. Broad market fluctuations, as well as economic conditions generally
and in the software and multimedia industries specifically, may adversely affect
the market price of the Common Stock.
Listing of Multicom Common Stock on The Nasdaq SmallCap Market. There can be
no assurance that the Company's securities will continue to meet the criteria
for continued inclusion on the Nasdaq SmallCap Market. If the Company fails to
maintain its qualification for its Common Stock to trade on the Nasdaq SmallCap
Market, the Common Stock will be subject to the rules of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), relating to penny stocks (the
"Penny Stock Rules"). Under the Penny Stock Rules, unless a transaction in a
"designated security" is exempt (e.g., a transaction in which the purchase price
of the security is $5.00 or more, a transaction in which the purchaser is an
institutional accredited investor or "established customer," a transaction not
recommended by a broker or a transaction by a broker who is not a market maker
in the stock and who derives 5% or less of its income from transaction in
designated securities), a broker must approve the customer's account for the
transaction in "designated securities" in accordance with mandated procedures
and obtain from the customer a written agreement particular to the transaction
setting forth the identity and quantity of the securities. These procedures make
it more difficult for brokers to sell "designated securities" to certain people
and many brokers have decided not to trade securities subject to the Penny Stock
Rules because of such procedures. Accordingly, purchasers of the Common Stock
offered hereby may have difficulty in selling such securities in the future.
In May 1997 the Company received notice from Nasdaq indicating that the
Company's shares of Common Stock had failed to maintain a closing inside bid
price greater than or equal to $1.00 for a period of 10 consecutive trading
days. If, (x) the closing inside bid price for shares of the Company's Common
Stock fails to reach a price equal to $1.00 or more for a period of 10
consecutive trading days by August 28, 1997, and (y) the Company is unable to
submit a plan for compliance with all Nasdaq SmallCap Market continuing listing
requirements acceptable to Nasdaq, Multicom's Common Stock would be delisted
from The Nasdaq SmallCap Market. A delisting of Multicom from The Nasdaq
SmallCap Market could adversely affect the value and liquidity of the shares of
Multicom Common Stock and restrict the Company's future ability to raise equity
capital and trigger the warrants issued to Sirrom. See "Need for Additional
Funds and No Assurance of Available Financing."
16
<PAGE> 17
ITEM 7. SELLING SHAREHOLDERS
The Selling Shareholders holding the Series B Convertible Preferred
Stock acquired the Shares from the Company in a private offering pursuant to
Regulation D under the Securities Act. The sale was consummated on March 31,
1997. (See "Risk Factors--Need for Additional Funds and No Assurance of
Available Financing").
The Selling Shareholders holding the Warrant Shares, acquired the
Warrant Shares from the Company pursuant to a Warrant to Purchase Common Stock
dated as of March 31, 1997 issued in connection with the Series B Convertible
Preferred Stock purchase in reliance on Section 4(2) of the Securities Act.
(See "Risk Factors--Need for Additional Funds and No Assurance of Available
Financing").
The Selling Shareholders holding Common Stock acquired the Common Stock
from the Company pursuant to either the Common Stock Purchase Agreement dated
February 7, 1997 or the Letter Agreement dated March 31, 1997, both in
reliance on Section 4(2) of the Securities Act. (See "Risk Factors--Need for
Additional Funds and No Assurance of Available Financing").
The following table lists the Selling Shareholders, the number of
shares of the Company's Common Stock which each owned or had the right to
acquire as of March 31, 1997, the number of Shares expected to be sold by
each, and the number and the percentage of the shares of the Company's Common
Stock which each will own or have the right to acquire after the offering
pursuant to the Registration Statement, assuming the sale of all the Shares
expected to be sold.
<TABLE>
<CAPTION>
Shares Shares Shares Percentage
Owned To Owned Owned
Selling Stockholder(1) Before Be After After
- ---------------------- Offering Offered Offering Offering
-------- ------- -------- --------
<S> <C> <C> <C> <C>
GEM Advisors, Inc.(2) 240,000 240,000 0 --
GEM Management Ltd(3) 600,000 600,000 0 --
Peter Hairston, Jr.(4) 48,424 21,930 26,494 --
Stuart Sundlun(2)(5) 80,000 80,000 0 --
Sonic Solutions(6) 106,667 106,667 0 --
Vitaloon Inc.(3) 200,000 200,000 0 --
</TABLE>
- ----------
(1) The persons named in the table have sole voting and investment power with
respect to all shares of Multicom Common Stock shown as beneficially owned
by them.
(2) Represents Shares issued upon exercise of Warrant Shares. (See "Risk
Factors--Need for Additional Funds and No Assurance of Available
Financing").
(3) Represents Shares estimated to be issued upon conversion of Series B
Convertible Preferred Stock. The number of Conversion Shares were
calculated using an estimated conversion price of $.50 per share, the
lowest conversion price before the Company has an option to purchase the
Series B Convertible Preferred Shares. (See "Risk Factors--Need for
Additional Funds and No Assurance of Available Financing").
(4) Represents Shares acquired pursuant to the Common Stock Purchase
Agreement. Mr. Hairston and his company, Viking Capital Partners, Inc.
("Viking"), a private investment firm, are engaged to provide financial
advisory services to the Company. Mr. Henrik N. Vanderlip, a member of the
Company's Board of Directors, is the Chairman of Viking.
(5) From time to time Mr. Sundlun provides financial advisory services to the
Company.
(6) Represents Shares acquired pursuant to the Letter Agreement. (See "Risk
Factors--Need for Additional Funds and No Assurance of Available
Financing").
17
<PAGE> 18
PLAN OF DISTRIBUTION
The Company has been advised by the Selling Shareholders that they, or their
respective pledgees, donees, transferees or successors in interest, intend to
sell all or a portion of the Shares from time to time on the Nasdaq SmallCap
Market at prices and at terms prevailing at the time of sale or at prices
related to the then current market price, or in negotiated transactions. The
Shares may be sold by one or more of the following methods: (a) a block trade in
which the broker or dealer so engaged will attempt to sell the Shares as agent,
but may position and resell a portion of the block as principal to facilitate
the transaction; (b) purchases by a broker or dealer as principal and resale by
such broker or dealer for its own account pursuant to this Prospectus; (c) an
over-the-counter distribution in accordance with the rules of the Nasdaq
SmallCap Market; (d) ordinary brokerage transactions and transactions in which
the broker solicits purchasers; and (e) in privately negotiated transactions.
There is no assurance that any of the Selling Shareholders will sell any or all
of the Shares offered by them.
In effecting sales, brokers or dealers engaged by the Selling Shareholders
may arrange for other brokers or dealers to participate. Brokers or dealers will
receive commissions or discounts from the Selling Shareholders in amounts to be
negotiated prior to the sale. Such brokers or dealers and any other
participating brokers or dealers may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. The Company will
pay all expenses incident to the offering and sale of the Shares to the public
other than any underwriting commissions or similar charges and legal fees and
disbursements of counsel for the Selling Shareholders.
The Company has agreed to indemnify in certain circumstances the Selling
Shareholders and any underwriter and certain control and other persons related
to the foregoing persons against certain liabilities, including liabilities
under the Securities Act. The Selling Shareholders have agreed to indemnify in
certain circumstances the Company and certain related persons against certain
liabilities, including liabilities under the Securities Act.
The Company has agreed with the Selling Shareholders to keep the
Registration Statement of which this Prospectus constitutes a part effective for
up to two (2) years following the closing of the Convertible Preferred Stock
Purchase transactions on March 31, 1997.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Shares by the
Selling Shareholders.
LEGAL MATTERS
The legality of the Shares is being passed upon by Gray Cary Ware &
Freidenrich, A Professional Corporation, Palo Alto, California.
EXPERTS
The financial statements as of June 30, 1996 and 1995 and for each of the
two years in the period ended June 30, 1996 included in this Prospectus have
been so included in reliance on the report (which contains an emphasis of matter
paragraph relating to the non-renewal of the bank line of credit as described
in Note 13 to the financial statements) of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing
and accounting.
18
<PAGE> 19
MULTICOM PUBLISHING, INC.
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Accountants........................................ F-2
Balance Sheet............................................................ F-3
Statement of Operations.................................................. F-4
Statement of Changes in Shareholders' Equity (Deficit)................... F-5
Statement of Cash Flows.................................................. F-6
Notes to Financial Statements............................................ F-7
F-1
<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.
As discussed in Note 13 to the financial statements, during April 1997, the
Company was informed that its lender did not foresee renewing its line of
credit, due July 5, 1997, primarily due to the continuing events of
non-compliance with certain terms of the borrowing agreement.
PRICE WATERHOUSE LLP
Seattle, Washington
September 17, 1996, except as to Note 13 which is as of June 27, 1997.
F-2
<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.
F-3
<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.
F-4
<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
40,000,000 SHARES AUTHORIZED
----------------------------
SHARES
ISSUED AND COMMON NOTES UNEARNED
OUTSTANDING STOCK RECEIVABLE ROYALTIES
----------- ----- ---------- ---------
<S> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1994 -- -- -- --
Exercise of options in exchange for a note -- -- -- --
receivable
Exercise of options -- -- -- --
Earned royalties -- -- -- --
Accretion related to mandatorily redeemable
stock (Note 9) -- -- -- --
Net loss for the period -- -- -- --
--------- ----------- -------- -----------
BALANCE AT JUNE 30, 1995 -- -- -- --
Earned royalties -- -- -- --
Interest paid in common stock (Note 6) -- -- -- --
Exercise of options -- -- -- --
Warrants issued to note holder (Note 5) -- -- -- --
Warrants issued for services (Note 5) -- -- -- --
Conversion of mandatorily redeemable stock -- -- -- --
Conversion of debt to equity -- -- -- --
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)
Stock reclassification (Note 10) -- -- -- --
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 A VOTING
50,000,000 SHARES AUTHORIZED
----------------------------
SHARES
ISSUED AND NOTES
OUTSTANDING SERIES A RECEIVABLE
----------- -------- ----------
<S> <C> <C> <C>
BALANCE AT JUNE 30, 1994 2,515,619 $ 204,155 $(65,718)
Exercise of options in exchange for a note 15,572 15,572 (15,572)
receivable
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 -- -- --
Issuance of common stock for cash, net of
$1,476,684 of expense (Note 10) (4,464,980) (7,128,632) 81,538
Stock reclassification (Note 10) 1,028,600 5,209,216 --
Net loss for the period -- -- --
---------- ----------- --------
BALANCE AT JUNE 30, 1996 -- $ -- $ --
========== =========== ========
</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 DEFICIT (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
Issuance of common stock for cash, net of
$1,476,684 of expense (Note 10) (1,147,189) (6,669,264) 1,335,577 -- --
Stock reclassification (Note 10) -- -- -- -- 5,209,216
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.
F-5
<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 warrants -- 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 period 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.
F-6
<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
accommodation 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.
F-7
<PAGE> 26
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.
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
F-8
<PAGE> 27
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.
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
</TABLE>
F-9
<PAGE> 28
<TABLE>
<S> <C> <C>
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>
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>
F-10
<PAGE> 29
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.
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 owned as of June
28, 1995
$ 150,507 $ 90,506
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.
F-11
<PAGE> 30
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.
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 JUNE YEAR ENDED JUNE
30, 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.
F-12
<PAGE> 31
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:
- -------------------------------------------------------------------------------
JUNE 30, JUNE 30,
1995 1996
- -------------------------------------------------------------------------------
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)
----------- -----------
$ -- $ --
=========== ===========
- -------------------------------------------------------------------------------
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
F-13
<PAGE> 32
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.
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).
F-14
<PAGE> 33
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.
F-15
<PAGE> 34
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 OUTSTANDING OPTION PRICE PER
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>
F-16
<PAGE> 35
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.
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>
F-17
<PAGE> 36
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.
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).
F-18
<PAGE> 37
13. SUBSEQUENT EVENT REGARDING FINANCING ARRANGEMENTS
The Line of Credit Facility described in Note 4 contains financial
covenants to be measured each calendar quarter. As of December 31, 1996 and
March 31, 1997, the Company was not in compliance with certain covenants
primarily due to operating losses incurred in those quarters. During April 1997,
the Bank informed the Company that it would not advance funds in excess of then
outstanding amount of $1,629,000 and that it was not presently considering
renewing the Line of Credit Facility upon its expiration on July 5, 1997.
Default under the Bank Line of Credit results in cross defaults under
the convertible notes payable to Meredith Corporation described in Note 6 and
the term debt described in Note 5 that have balances of approximately $177,000
and $1,825,000, respectively as of June 1997.
The Company is currently seeking an alternative line of credit;
however, the ultimate resolution of this matter cannot be determined at this
time.
F-19
<PAGE> 38
- --------------------------------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING DESCRIBED HEREIN,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES,
OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, IN ANY JURISDICTION
IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information .................................................... 3
Incorporation of Certain Documents by Reference .......................... 3
The Company .............................................................. 4
Risk Factors ............................................................. 5
Selling Shareholders ..................................................... 17
Plan of Distribution ..................................................... 18
Use of Proceeds .......................................................... 18
Legal Matters ............................................................ 18
Experts .................................................................. 18
</TABLE>
1,275,091 SHARES
MULTICOM PUBLISHING, INC.
COMMON STOCK
-----------------
PROSPECTUS
-----------------
___, 1997
19
<PAGE> 39
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses in connection with the
sale and distribution of the securities being registered, other than
underwriting discounts and commissions. All of the amounts shown are estimates
except the Securities and Exchange Commission registration fees and Nasdaq
filing fee.
<TABLE>
<CAPTION>
To be Paid
By The
Registrant
----------
<S> <C>
SEC Registration Fee............................................ 386
Nasdaq filing fee............................................... 7,500
Accounting fees and expenses.................................... 10,000
Printing........................................................ 4,000
Transfer agent and registrar fees and expenses.................. N/A
Blue Sky fees and expenses (including counsel fees)............. N/A
Legal fees and expenses......................................... 15,000
Miscellaneous expenses.......................................... 3,114
Total................................................... 40,000
</TABLE>
The Company will pay all expenses of registration, issuance and distribution
of the shares being sold by the Selling Shareholders, excluding underwriting
commissions and similar charges and legal fees and disbursements of counsel for
the Selling Shareholders in excess of $10,000.
15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 23B.08.510 of the Washington Business Corporation Act (the
"Corporation Act") provides in relevant part that "[a] corporation may indemnify
an individual made a party to a proceeding because the individual is or was a
director against liability incurred in the proceeding if (a) The individual
acted in good faith; and (b) The individual reasonably believed: (i) In the case
of conduct in the individual's official capacity with the corporation, that the
individual's conduct was in its best interests; and (ii) In all other cases,
that the individual's conduct was at least not opposed to its best interests;
and (c) In the case of any criminal proceeding, the individual had no reasonable
cause to believe the individual's conduct was unlawful." In addition, pursuant
to Section 23B.08.530 of the Corporation Act, "[a] corporation may pay for or
reimburse the reasonable expenses incurred by a director who is a party to a
proceeding in advance of final disposition of the proceeding if (a) The director
II-1
<PAGE> 40
furnishes the corporation a written affirmation of the director's good faith
belief that the director has met the standard of conduct (specified in the
preceding sentence); and (b) The director furnishes the corporation a written
undertaking, executed personally or on the director's behalf, to repay the
advance if it is ultimately determined that the director did not meet the
standard of conduct." Similarly, Section 23B.08.570 of the Corporation Act
permits a corporation to "indemnify and advance expenses to an officer,
employee, or agent who is not a director to the extent, consistent with law,
that may be provided by its articles of incorporation, bylaws, general or
specific action of its board of directors, or contract."
The Company has included in its Articles of Incorporation provisions to
eliminate the personal liability of its directors for monetary damages resulting
from breaches of their fiduciary duty to the extent permitted by the Corporation
Act and to indemnify its directors to the fullest extent permitted by law,
except for liability resulting from the director's gross negligence. In
addition, Article VIII of the Company's Bylaws provides that the Company may
indemnify each person who is or was a director, officer, employee or agent of
the Company to the full extent permitted by applicable law.
The Company intends to enter into Indemnification Agreements with its
directors and executive officers providing coverage greater than that afforded
by these statutes and charter provisions.
These indemnification provisions may be sufficiently broad to permit
indemnification of the Company's officers and directors for liabilities
(including reimbursement of expense incurred) arising under the Securities Act
of 1933, as amended (the "Securities Act").
In addition, the Company has a directors' and officers' liability insurance
policy that provides coverage for certain liabilities asserted against the
Company's directors and officers, as well as the cost of defense.
ITEM 16. EXHIBITS.
The following exhibits are filed with this Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------ -------------
<S> <C>
4.1* Form of Certificate for Common Stock, filed as Exhibit 4.1 to the
Company's Registration Statement on Form SB-2.
4.2* Registration Rights Agreement dated as of March 31, 1997 between
Multicom Publishing, Inc. and Vitaloon, Inc., filed as Exhibit 4.2 to
the Company's Quarterly Report on Form 10-QSB for the period ended
March 31, 1997.
</TABLE>
II-2
<PAGE> 41
<TABLE>
<S> <C>
4.3* Registration Rights Agreement dated as of March 31, 1997, between
Multicom Publishing, Inc. and GEM Management Ltd., filed as Exhibit 4.3
to the Company's Quarterly Report on Form 10-QSB for the period ended
March 31, 1997.
4.4* Letter Agreement dated March 31, 1997, between Multicom Publishing,
Inc. and Sonic Solutions, filed as Exhibit 4.4 to the Company's
Quarterly Report on Form 10-QSB for the period ended March 31, 1997.
4.5* Common Stock Purchase Agreement dated February 7, 1997, among Multicom
Publishing, Inc., Tamara L. and Paul G. Attard; Friar, Harper & Arndt
LLP; Peter Hairston, Jr.; Meredith Corporation; and Henrik N.
Vanderlip, filed as Exhibit 10.1 to the Company's Quarterly Report on
Form 10-QSB for the period ended March 31, 1997.
4.6* First Amendment to Loan Agreement and Loan Documents dated February 7,
1997, between Multicom Publishing, Inc. and Sirrom Investments, Inc.,
with Amended and Restated Secured Promissory Note payable to Sirrom
Investments, Inc., filed as Exhibit 10.2 to the Company's Quarterly
Report on Form 10-QSB for the period ended March 31, 1997.
4.7* Series A Preferred Stock Securities Purchase Agreement dated February
7, 1997, between Multicom Publishing, Inc. and Sirrom Investments,
Inc., filed as Exhibit 10.3 to the Company's Quarterly Report on Form
10-QSB for the period ended March 31, 1997.
4.8* Second Amendment to Loan Agreement and Loan Documents dated February
11, 1997, between Multicom Publishing, Inc. and Sirrom Investments,
Inc., with Amended and Restated Secured Promissory Note payable to
Sirrom Investments, Inc., filed as Exhibit 10.4 to the Company's
Quarterly Report on Form 10-QSB for the period ended March 31, 1997.
4.9* Series A Preferred Stock Securities Purchase Agreement (II) dated
February 11, 1997, between Multicom Publishing, Inc. and Sirrom
Investments, Inc., filed as Exhibit 10.5 to the Company's Quarterly
Report on Form 10-QSB for the period ended March 31, 1997.
4.10* Convertible Preferred Stock Purchase Agreement dated as of March 31,
1997, between Multicom Publishing, Inc. and Vitaloon, Inc., filed as
Exhibit 10.6 to the Company's Quarterly Report on Form 10-QSB for the
period ended March 31, 1997.
4.11* Preferred Stock Purchase Agreement dated as of March 31 1997, between
Multicom Publishing, Inc. and GEM Management Ltd., filed as Exhibit
10.7 to
</TABLE>
II-3
<PAGE> 42
<TABLE>
<S> <C>
the Company's Quarterly Report on Form 10-QSB for the period ended
March 31, 1997.
4.12 Warrant to Purchase Common Stock of Multicom Publishing, Inc. dated as
of March 31, 1997.
4.13 Warrant to Purchase Common Stock of Multicom Publishing, Inc. dated as
of March 31, 1997.
5.1 Opinion of Gray Cary Ware & Freidenrich, A Professional Corporation.
23.1 Consent of Price Waterhouse LLP, independent accountants.
23.2 Consent of Gray Cary Ware & Freidenrich, A Professional Corporation
(included in Exhibit 5.1).
24.1 Power of Attorney (included in the Signature Page contained in Part II
of the Registration Statement).
</TABLE>
- ----------
* Incorporated by reference.
ITEM 17. UNDERTAKINGS.
A. The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3)
of the Securities Act of 1933 (the "Securities Act");
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or decrease
in volume of securities offered (if the total dollar value of securities offered
would not exceed that which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20% change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in
II-4
<PAGE> 43
periodic reports filed by the Registrant pursuant to Section 13 or Section 15(d)
of the Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
B. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
C. The undersigned Registrant hereby undertakes to deliver or cause to
be delivered with the prospectus, to each person to whom the prospectus is sent
or given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
D. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers, and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
E. The undersigned Registrant hereby undertakes that:
(1) For the purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the
Securities Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this Registration Statement on Form S-3 to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of San Francisco,
State of California on the 30th day of June 1997.
Multicom Publishing, Inc.
By: /s/ Tamara L. Attard
----------------------------------------
Tamara L. Attard
Chairman and Chief Executive
Officer
II-5
<PAGE> 44
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of Multicom Publishing,
Inc., hereby severally constitute and appoint Tamara L. Attard and Ellen R.M.
Boyer, and each of them singly, our true and lawful attorneys with full power to
them, and each of them singly, to sign for us and in our names in the capacities
indicated below, the Registration Statement on Form S-3 filed herewith and any
and all pre-effective and post-effective amendments to said Registration
Statement, and generally to do all such things in our names and behalf in our
capacities as officers and directors to enable Multicom Pulbishing, Inc. to
comply with the provisions of the Securities Act and all requirements of the
Securities and Exchange Commission, hereby ratifying and confirming our
signatures as they may be signed by our said attorneys, or any of them, to said
Registration Statement and any and all amendments thereto.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on June 30, 1997 by the following
persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Tamara L. Attard Chief Executive Officer and
- ----------------------------- Chairman (Principal Executive Officer)
/s/ Ellen R.M. Boyer Vice President of Finance and
- ----------------------------- Administration and Chief Financial Officer
/s/ Paul G. Attard President and Director
- -----------------------------
/s/ Larry D. Hartsook Director
- -----------------------------
/s/ William H. Luden III Director
- -----------------------------
/s/ Henrik N. Vanderlip Director
- -----------------------------
</TABLE>
II-6
<PAGE> 45
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Page No.
- ----------- --------
<S> <C>
4.1* Form of Certificate for Common Stock, filed as Exhibit 4.1 to the
Company's Registration Statement on Form SB-2.
4.2* Registration Rights Agreement dated as of March 31, 1997 between
Multicom Publishing, Inc. and Vitaloon, Inc., filed as Exhibit 4.2
to the Company's Quarterly Report on Form 10-QSB for the period
ended March 31, 1997.
4.3* Registration Rights Agreement dated as of March 31, 1997, between
Multicom Publishing, Inc. and GEM Management Ltd., filed as Exhibit
4.3 to the Company's Quarterly Report on Form 10-QSB for the period
ended March 31, 1997.
4.4* Letter Agreement dated March 31, 1997, between Multicom Publishing,
Inc. and Sonic Solutions, filed as Exhibit 4.4 to the Company's
Quarterly Report on Form 10-QSB for the period ended March 31, 1997.
4.5* Common Stock Purchase Agreement dated February 7, 1997, among
Multicom Publishing, Inc., Tamara L. and Paul G. Attard; Friar,
Harper & Arndt LLP; Peter Hairston, Jr.; Meredith Corporation; and
Henrik N. Vanderlip, filed as Exhibit 10.1 to the Company's
Quarterly Report on Form 10-QSB for the period ended March 31, 1997.
4.6* First Amendment to Loan Agreement and Loan Documents dated February
7, 1997, between Multicom Publishing, Inc. and Sirrom Investments,
Inc., with Amended and Restated Secured Promissory Note payable to
Sirrom Investments, Inc., filed as Exhibit 10.2 to the Company's
Quarterly Report on Form 10-QSB for the period ended March 31, 1997.
4.7* Series A Preferred Stock Securities Purchase Agreement dated
February 7, 1997, between Multicom Publishing, Inc. and Sirrom
Investments, Inc., filed as Exhibit 10.3 to the Company's Quarterly
Report on Form 10-QSB for the period ended March 31, 1997.
4.8* Second Amendment to Loan Agreement and Loan Documents dated February
11, 1997, between Multicom Publishing, Inc. and Sirrom Investments,
Inc., with Amended and Restated Secured Promissory Note payable to
Sirrom Investments, Inc., filed as Exhibit 10.4 to the Company's
Quarterly Report on Form 10-QSB for the period ended March 31, 1997.
4.9* Series A Preferred Stock Securities Purchase Agreement (II) dated
February 11, 1997, between Multicom Publishing, Inc. and Sirrom
Investments, Inc., filed as Exhibit 10.5 to the Company's Quarterly
Report on Form 10-QSB for the period ended March 31, 1997.
4.10* Convertible Preferred Stock Purchase Agreement dated as of March 31,
1997, between Multicom Publishing, Inc. and Vitaloon, Inc., filed as
Exhibit 10.6 to the Company's Quarterly Report on Form 10-QSB for
the period ended March 31, 1997.
4.11* Preferred Stock Purchase Agreement dated as of March 31 1997,
between Multicom Publishing, Inc. and GEM Management Ltd., filed as
Exhibit 10.7 to the Company's Quarterly Report on Form 10-QSB for
the period ended March 31, 1997.
4.12 Warrant to Purchase Common Stock of Multicom Publishing, Inc. dated
as of March 31, 1997.
4.13 Warrant to Purchase Common Stock of Multicom Publishing, Inc. dated
as of March 31, 1997.
5.1 Opinion of Gray Cary Ware & Freidenrich, A Professional Corporation.
23.1 Consent of Price Waterhouse LLP, independent accountants.
23.2 Consent of Gray Cary Ware & Freidenrich, A Professional Corporation
(included in Exhibit 5.1).
24.1 Power of Attorney (included in the Signature Page contained in Part
II of the Registration Statement).
</TABLE>
- ----------
* Incorporated by reference.
<PAGE> 1
Exhibit 4.12
VOID AFTER 5:00 P.M., NEW YORK TIME ON MARCH 31, 1999
WARRANT TO PURCHASE 240,000 SHARES OF COMMON STOCK
WARRANT TO PURCHASE COMMON STOCK
OF
MULTICOM PUBLISHING, INC.
THIS WARRANT AND THE SHARES OF COMMON STOCK
ISSUABLE PURSUANT TO THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD,
PLEDGED OR OTHERWISE TRANSFERRED UNLESS
REGISTERED UNDER THE ACT OR AN EXEMPTION FROM
SUCH REGISTRATION IS AVAILABLE.
FOR VALUE RECEIVED, Multicom Publishing, Inc., a Washington
corporation (the "Company"), grants the following rights to GEM Advisors, Inc.,
a New York corporation with an office at 1330 Avenue of the Americas, 33rd
Floor, New York, NY 10017 ("Holder").
ARTICLE 1. DEFINITIONS. As used herein, the following terms
shall have the following meanings, unless the context shall otherwise require:
(a) "Common Stock" shall mean the common stock, par value
$.01 per share, of the Company.
(b) "Corporate Office" shall mean the office of the
Company (or its successor) at which at any particular time its principal
business shall be administered, which office is located at the date hereof at
188 Embarcadero, 5th Floor, San Francisco, California 94105.
<PAGE> 2
(c) "Exercise Date" shall mean any date upon which the
Holder shall give the Company a Notice of Exercise.
(d) "Exercise Price" shall mean the price to be paid to
the Company for each share of Common Stock to be purchased upon exercise of this
Warrant in accordance with the terms hereof which shall be $1.125 per share.
(e) "Expiration Date" shall mean 5:00 p.m. (New York
time) on March 31, 1999.
(f) "SEC" shall mean the United States Securities and
Exchange Commission.
(g) "Transfer Agent" shall mean American Stock Transfer &
Trust Company, as the Company's transfer agent, or its authorized successor, as
such.
ARTICLE 2. EXERCISE.
2.1 Exercise of Warrant. This Warrant shall entitle Holder to
purchase up to 240,000 shares of Common Stock (the "Shares") at the Exercise
Price. This Warrant shall be exercisable at any time and from time to time prior
to the Expiration Date (the "Exercise Period"). This Warrant and the right to
purchase Shares hereunder shall expire and become void at the Expiration Date.
2.2 Manner of Exercise.
(a) Holder may exercise this Warrant at any time and from
time to time during the Exercise Period, in whole or in part (but not in
denominations of fewer than 5,000 Shares, except upon an exercise of this
Warrant with respect to the remaining balance of Shares purchasable hereunder at
the time of exercise), by delivering to the Company at its Corporate Office (i)
a duly executed Notice of Exercise in substantially the form attached as
Appendix 1 hereto and (ii) a bank cashier's or certified check for the aggregate
Exercise Price of the Shares being purchased.
(b) From time to time upon exercise of this Warrant, in
whole or part, in accordance with its terms, the Company will cause the Transfer
Agent to countersign and deliver stock certificates to the Holder representing
the number of Shares
2
<PAGE> 3
being purchased pursuant to such exercise, subject to adjustment as described
herein.
(c) Promptly following any exercise of this Warrant, if
the Warrant has not been fully exercised and has not expired, the Company will
deliver to the Holder a new Warrant for the balance of the Shares covered
hereby.
2.3 Termination. All rights of the Holder in this Warrant, to
the extent they have not been exercised, shall terminate on the Expiration Date.
2.4 No Rights Prior to Exercise. Prior to its exercise
pursuant to Section 2.2 above, this shall not entitle the Holder to any voting
or other rights as holder of Shares.
2.5 Adjustments. In case of any reclassification, capital
reorganization, stock dividend or other change of outstanding shares of Common
Stock, or in case of any consolidation or merger of the Company with or into
another corporation (other than a consolidation or merger in which the Company
is the continuing corporation and which does not result in any reclassification,
capital reorganization, stock dividend or other change of outstanding shares or
Common Stock), or in case of any sale or conveyance to another corporation of
the property of the Company as, or substantially as, an entirety (other than a
sale/leaseback, mortgage or other financing transaction), the Company shall
cause effective provision to be made so that the Holder shall have the right
thereafter, by exercising this Warrant, to purchase the kind and number of
shares of stock or other securities or property (including cash) receivable upon
such reclassification, capital reorganization, stock dividend or other change,
consolidation, merger, sale or conveyance as the Holder would have been entitled
to receive had the Holder exercised this Warrant in full immediately before such
reclassification, capital reorganization, stock dividend or other change,
consolidation, merger, sale or conveyance. Any such provision shall include
provision for adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 2.5. The foregoing
provisions shall similarly apply to successive reclassifications, capital
reorganizations, stock dividends and other changes of outstanding shares of
Common Stock and to successive consolidations, mergers, sales or conveyances.
3
<PAGE> 4
2.6 Fractional Shares. No fractional Shares shall be issuable
upon exercise or conversion of this Warrant and the number of Shares to be
issued shall be rounded down to the nearest whole Share. If a fractional Share
interest arises upon any exercise or conversion of the Warrant, the Company
shall eliminate such fractional Share interest by paying Holder the amount
computed by multiplying the fractional interest by the closing bid price of a
full Share on the date of the Notice of Exercise.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
3.1 Representations and Warranties. The Company hereby
represents and warrants to the Holder as follows:
(a) All Shares which may be issued upon the exercise of
the purchase right represented by this Warrant shall, upon issuance, be duly
authorized, validly issued, fully-paid and nonassessable, and free of any liens
and encumbrances except for restrictions on transfer provided for herein or
under applicable federal and state securities laws, and not subject to any
pre-emptive rights.
(b) The Company is a corporation duly organized and
validly existing under the laws of the State of Washington, and has the full
power and authority to issue this Warrant and to comply with the terms hereof.
The execution, delivery and performance by the Company of its obligations under
this Warrant, including, without limitation, the issuance of the Shares upon any
exercise of this Warrant have been duly authorized by all necessary corporate
action. This Warrant has been duly executed and delivered by the Company and is
a valid and binding obligation of the Company, enforceable in accordance with
its terms, except as enforcement may be limited by applicable bankruptcy,
insolvency, reorganization or similar laws affecting enforceability of
creditors' rights generally and except as the availability of the remedy of
specific enforcement, injunctive relief or other equitable relief is subject to
the discretion of the court before which any proceeding therefor may be brought.
(c) The Company is not subject to or bound by any
provision of any certificate or articles of incorporation or by-laws, mortgage,
deed of trust, lease, note, bond, indenture, other instrument or agreement,
license, permit, trust, custodianship, other restriction or any applicable
provision of any law, statute, rule, regulation, judgment, order, writ,
injunction or decree of
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<PAGE> 5
any court, governmental body, administrative agency or arbitrator which could
prevent or be violated by or under which there would be a default (or right of
termination) as a result of the execution, delivery and performance by the
Company of this Warrant.
ARTICLE 4. REGISTRATION UNDER THE ACT.
(a) On or before June 30, 1997, the Company shall prepare
and file with the SEC a registration statement under the Act covering the resale
of this Warrant and the Shares and/or any securities issued in lieu or
substitution thereof (collectively, the "Registrable Securities") and shall use
its best efforts to cause such registration statement to become effective by
July 31, 1997. In addition, the Company shall not permit any securities other
than the Registrable Securities and the securities set forth in Schedule A
annexed hereto to be included in the Registration Statement.
(b) Until such time as the Registration Statement shall
become effective and except as may be required by applicable law, this Warrant
and the certificate(s) evidencing the Shares shall contain a restrictive legend
restricting the sale, pledge or transfer of this Warrant and such Shares.
(c) Registration Procedures. Pursuant to the provisions
above, the Company will:
(i) prepare and file with the SEC a registration
statement with respect to the resale of the Registrable Securities, and use its
best efforts to cause such registration statement to become and remain effective
for such period as may be reasonably necessary to effect the sale of such
securities, not to exceed four (4) years;
(ii) prepare and file with the SEC such amendments to
such registration statement and supplements to the prospectus contained therein
as may be necessary to keep such registration statement effective for such
period as may be reasonably necessary to effect the sale of such securities, not
to exceed four (4) years;
(iii) furnish to the Holder and to the underwriter of
the securities being registered, if any, such
5
<PAGE> 6
reasonable number of copies of the registration statement, preliminary
prospectus, final prospectus and such other documents as such underwriter may
reasonably request in order to facilitate the public offering of such
securities;
(iv) notify the Holder, promptly after it shall
receive notice thereof, of the time when such registration statement has become
effective or a supplement to any prospectus forming a part of such registration
statement has been filed;
(v) notify the Holder promptly of any request by the
SEC for the amending or supplementing of such registration statement or
prospectus or for additional information;
(vi) prepare and file with the SEC, promptly upon the
request of the Holder, any amendments or supplements to such registration
statement or prospectus which, in the opinion of counsel for the Holder (and
concurred in by counsel for the Company), is required under the Act or the rules
and regulations thereunder in connection with the distribution of the
Registerable Securities by the Holder;
(vii) prepare and promptly file with the SEC and
promptly notify the Holder of the filing of such amendment or supplement to such
registration statement or prospectus as may be necessary to correct any
statements or omissions if, at the time when a prospectus relating to such
securities is required to be delivered under the Act, any event shall have
occurred as the result of which any such prospectus or any other prospectus as
then in effect would include an untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein, in the light
of the circumstances in which they were made, not misleading; and
(viii) advise the holder, promptly after it shall
receive notice or obtain knowledge thereof, of the issuance of any stop order by
the SEC suspending the effectiveness of such registration statement or the
initiation or threatening of any proceeding for that purpose and promptly use
its best efforts to prevent the issuance of any stop order or to obtain its
withdrawal if such stop order should be issued.
(d) Expenses.
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<PAGE> 7
(i) With respect to the registration under the Act
pursuant to Article 4(a) of this Warrant, all fees, costs and expenses of and
incidental to such registration shall be borne by the Company.
(ii) The fees, costs and expenses of such
registration shall include, without limitation, all registration, filing, and
NASD fees, printing expenses, fees and disbursements of counsel and accountants
for the Company. Fees and disbursements of counsel and accountants for the
selling security holders and any other expenses incurred by the selling security
holders not expressly included above shall be borne by the selling security
holders.
(e) Indemnification.
(i) The Company will indemnify and hold harmless the
Holder, its directors and officers, and any underwriter (as defined in the Act)
for such Holder and each person, if any, who controls such Holder or such
underwriter within the meaning of the Act, from and against, and will reimburse
such Holder and each such underwriter and controlling person with respect to,
any and all loss, damage, liability, cost and expense to which such Holder or
any such underwriter or controlling person may become subject under the Act or
otherwise, insofar as such losses, damages, liabilities, costs or expenses are
caused by any untrue statement or alleged untrue statement of any material fact
contained in such registration statement, any prospectus contained therein or
any amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading; provided, however, that
the Company will not be liable in any such case to the extent that any such
loss, damage, liability, cost or expense arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission so
made in conformity with information furnished by the Holder, such underwriter or
such controlling person in writing specifically for use in the preparation
thereof.
(ii) As a condition of the Company's obligations
under this Article 4, the Holder will indemnify and hold harmless the Company,
its directors, officers and employees, any controlling person and any
underwriter from and against, and
7
<PAGE> 8
will reimburse the Company, its directors and officers, any controlling person
and any underwriter with respect to, any and all loss, damage, liability, cost
or expense to which the Company or any controlling person and/or any underwriter
may become subject under the Act or otherwise, insofar as such losses, damages,
liabilities, costs or expenses are caused by any untrue statement or alleged
untrue statement of any material fact contained in such registration statement,
any prospectus contained therein or any amendment or supplement thereto, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading, in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was so
made in reliance upon and in strict conformity with written information
furnished by or on behalf of the Holder specifically for use in the preparation
thereof.
(iii) Promptly after receipt by an indemnified party,
pursuant to the provisions of paragraph (i) or (ii) of this Section 4(e), of
notice of the commencement of any action involving the subject matter of the
foregoing indemnity provisions, such indemnified party will, if a claim thereof
is to be made against the indemnifying party pursuant to the provisions of said
paragraph (i) or (ii), promptly notify the indemnifying party of the
commencement thereof; but the omission to so notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
otherwise than hereunder. In case such action is brought against any indemnified
party and it notifies the indemnifying party of the commencement thereof, the
indemnifying party shall have the right to participate in, and, to the extent
that it may wish, jointly with any other indemnifying party similarly notified,
to assume the defense thereof, provided, however, if the defendants in any
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there is a conflict of
interest which would prevent counsel for the indemnifying party from also
representing the indemnified party, the indemnified party or parties have the
right to select separate counsel to participate in the defense of such action on
behalf of such indemnified party or parties. After notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such indemnified party
pursuant to the provisions of
8
<PAGE> 9
said paragraph (i) or (ii) for any legal or other expense subsequently incurred
by such indemnified party in connection with the defense thereof other than
reasonable costs of investigation, unless (A)the indemnified party shall have
employed counsel in accordance with the provisions of the preceding sentence or
(B) the indemnifying party has authorized the employment of counsel for the
indemnified party at the expense of the indemnifying party.
The Company's agreements with respect to this Warrant or the
Shares in this Article 4 shall continue in effect regardless of the exercise and
surrender of this Warrant.
9
<PAGE> 10
ARTICLE 5. MISCELLANEOUS.
5.1 Transfer. This Warrant may not be transferred or assigned,
in whole or in part, at any time, except in compliance with applicable federal
and state securities laws by the transferor and the transferee (including,
without limitation, the delivery of an investment representation letter and a
legal opinion reasonably satisfactory to the Company), provided that this
Warrant may not be transferred or assigned such that either the Holder or any
transferee will, following such transfer or assignment, hold a Warrant for the
right to purchase fewer than 5,000 Shares.
5.2 Transfer Procedure. Subject to the provisions of Section
5.1, Holder may transfer or assign this Warrant by giving the Company notice
setting forth the name, address and taxpayer identification number of the
transferee or assignee, if applicable (the "Transferee") and surrendering this
Warrant to the Company for reissuance to the Transferee (and the Holder, in the
event of a transfer or assignment of this Warrant in part). (Each of the persons
or entities in whose name any such new Warrant shall be issued are herein
referred to as a Holder").
5.3 Loss, Theft, Destruction or Mutilation. If this Warrant
shall become mutilated or defaced or be destroyed, lost or stolen, the Company
shall execute and deliver a new Warrant in exchange for and upon surrender and
cancellation of such mutilated or defaced Warrant or, in lieu of and in
substitution for such Warrant so destroyed, lost or stolen, upon the Holder
filing with the Company evidence satisfactory to it that such Warrant has been
so mutilated, defaced, destroyed, lost or stolen. However, the Company shall be
entitled, as a condition to the execution and delivery of such new Warrant, to
demand indemnity satisfactory to it and payment of the expenses and charges
incurred in connection with the delivery of such new Warrant. Any Warrant so
surrendered to the Company shall be canceled.
5.4 Notices. All notices and other communications from the
Company to the Holder or vice versa shall be deemed delivered and effective when
given personally, by facsimile transmission and confirmed in writing or mailed
by first-class registered or certified mail, postage prepaid at such address
and/or facsimile number as may have been furnished to the Company or the Holder,
as the case may be, in writing by the Company or the Holder from time to time.
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<PAGE> 11
5.5 Waiver. This Warrant and any term hereof may be changed,
waived, or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
5.6 Governing Law. This Warrant shall be governed by and
construed in accordance with the laws of the State of the
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<PAGE> 12
Company's incorporation, without giving effect to its principles regarding
conflicts of law.
Dated: March 31, 1997
MULTICOM PUBLISHING, INC.
Attest:__________________ By:___________________________________
Name:Tamara L. Attard
Title:Chairman and CEO
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<PAGE> 13
APPENDIX 1
NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase ______ shares of
the Common Stock of Multicom Publishing, Inc. pursuant to the terms of the
attached Warrant, and tenders herewith payment of the purchase price of such
shares in full.
2. Please issue a certificate or certificates representing
said shares in the name of the undersigned or in such other name as is specified
below:
_______________________________
(Name)
_______________________________
_______________________________
(Address)
3. The undersigned represents it is acquiring the shares
solely for its own account and not as a nominee for any other party and not with
a view toward the resale or distribution thereof except in compliance with
applicable securities laws.
_______________________________
(Signature)
________________________
(Date)
13
<PAGE> 14
SCHEDULE A
WARRANT TO PURCHASE COMMON STOCK
<PAGE> 1
Exhibit 4.13
VOID AFTER 5:00 P.M., NEW YORK TIME ON MARCH 31, 1999
WARRANT TO PURCHASE 80,000 SHARES OF COMMON STOCK
WARRANT TO PURCHASE COMMON STOCK
OF
MULTICOM PUBLISHING, INC.
THIS WARRANT AND THE SHARES OF COMMON STOCK
ISSUABLE PURSUANT TO THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD,
PLEDGED OR OTHERWISE TRANSFERRED UNLESS
REGISTERED UNDER THE ACT OR AN EXEMPTION FROM
SUCH REGISTRATION IS AVAILABLE.
FOR VALUE RECEIVED, Multicom Publishing, Inc., a Washington
corporation (the "Company"), grants the following rights to Stuart Sundlun,
____________________________ ("Holder").
ARTICLE 1. DEFINITIONS. As used herein, the following terms
shall have the following meanings, unless the context shall otherwise require:
(a) "Common Stock" shall mean the common stock, par value
$.01 per share, of the Company.
(b) "Corporate Office" shall mean the office of the
Company (or its successor) at which at any particular time its principal
business shall be administered, which office is located at the date hereof at
188 Embarcadero , 5th Floor, San Francisco, California 94105.
(c) "Exercise Date" shall mean any date upon which the
Holder shall give the Company a Notice of Exercise.
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<PAGE> 2
(d) "Exercise Price" shall mean the price to be paid to
the Company for each share of Common Stock to be purchased upon exercise of this
Warrant in accordance with the terms hereof which shall be $1.125 per share.
(e) "Expiration Date" shall mean 5:00 p.m. (New York time)
on March 31, 1999.
(f) "SEC" shall mean the United States Securities and
Exchange Commission.
(g) "Transfer Agent" shall mean American Stock Transfer &
Trust Company, as the Company's transfer agent, or its authorized successor, as
such.
ARTICLE 2. EXERCISE.
2.1 Exercise of Warrant. This Warrant shall entitle Holder to
purchase up to 80,000 shares of Common Stock (the "Shares") at the Exercise
Price. This Warrant shall be exercisable at any time and from time to time prior
to the Expiration Date (the "Exercise Period"). This Warrant and the right to
purchase Shares hereunder shall expire and become void at the Expiration Date.
2.2 Manner of Exercise.
(a) Holder may exercise this Warrant at any time and from
time to time during the Exercise Period, in whole or in part (but not in
denominations of fewer than 5,000 Shares, except upon an exercise of this
Warrant with respect to the remaining balance of Shares purchasable hereunder at
the time of exercise), by delivering to the Company at its Corporate Office (i)
a duly executed Notice of Exercise in substantially the form attached as
Appendix 1 hereto and (ii) a bank cashier's or certified check for the aggregate
Exercise Price of the Shares being purchased.
(b) From time to time upon exercise of this Warrant, in
whole or part, in accordance with its terms, the Company will cause the Transfer
Agent to countersign and deliver stock certificates to the Holder representing
the number of Shares being purchased pursuant to such exercise, subject to
adjustment as described herein.
2
<PAGE> 3
(c) Promptly following any exercise of this Warrant, if
the Warrant has not been fully exercised and has not expired, the Company will
deliver to the Holder a new Warrant for the balance of the Shares covered
hereby.
2.3 Termination. All rights of the Holder in this Warrant, to
the extent they have not been exercised, shall terminate on the Expiration Date.
2.4 No Rights Prior to Exercise. Prior to its exercise
pursuant to Section 2.2 above, this shall not entitle the Holder to any voting
or other rights as holder of Shares.
2.5 Adjustments. In case of any reclassification, capital
reorganization, stock dividend or other change of outstanding shares of Common
Stock, or in case of any consolidation or merger of the Company with or into
another corporation (other than a consolidation or merger in which the Company
is the continuing corporation and which does not result in any reclassification,
capital reorganization, stock dividend or other change of outstanding shares or
Common Stock), or in case of any sale or conveyance to another corporation of
the property of the Company as, or substantially as, an entirety (other than a
sale/leaseback, mortgage or other financing transaction), the Company shall
cause effective provision to be made so that the Holder shall have the right
thereafter, by exercising this Warrant, to purchase the kind and number of
shares of stock or other securities or property (including cash) receivable upon
such reclassification, capital reorganization, stock dividend or other change,
consolidation, merger, sale or conveyance as the Holder would have been entitled
to receive had the Holder exercised this Warrant in full immediately before such
reclassification, capital reorganization, stock dividend or other change,
consolidation, merger, sale or conveyance. Any such provision shall include
provision for adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 2.5. The foregoing
provisions shall similarly apply to successive reclassifications, capital
reorganizations, stock dividends and other changes of outstanding shares of
Common Stock and to successive consolidations, mergers, sales or conveyances.
2.6 Fractional Shares. No fractional Shares shall be issuable
upon exercise or conversion of this Warrant and the number of Shares to be
issued shall be rounded down to the nearest whole Share. If a fractional Share
interest arises upon any
3
<PAGE> 4
exercise or conversion of the Warrant, the Company shall eliminate such
fractional Share interest by paying Holder the amount computed by multiplying
the fractional interest by the closing bid price of a full Share on the date of
the Notice of Exercise.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
3.1 Representations and Warranties. The Company hereby
represents and warrants to the Holder as follows:
(a) All Shares which may be issued upon the exercise of
the purchase right represented by this Warrant shall, upon issuance, be duly
authorized, validly issued, fully-paid and nonassessable, and free of any liens
and encumbrances except for restrictions on transfer provided for herein or
under applicable federal and state securities laws, and not subject to any
pre-emptive rights.
(b) The Company is a corporation duly organized and
validly existing under the laws of the State of Washington, and has the full
power and authority to issue this Warrant and to comply with the terms hereof.
The execution, delivery and performance by the Company of its obligations under
this Warrant, including, without limitation, the issuance of the Shares upon any
exercise of this Warrant have been duly authorized by all necessary corporate
action. This Warrant has been duly executed and delivered by the Company and is
a valid and binding obligation of the Company, enforceable in accordance with
its terms, except as enforcement may be limited by applicable bankruptcy,
insolvency, reorganization or similar laws affecting enforceability of
creditors' rights generally and except as the availability of the remedy of
specific enforcement, injunctive relief or other equitable relief is subject to
the discretion of the court before which any proceeding therefor may be brought.
(c) The Company is not subject to or bound by any
provision of any certificate or articles of incorporation or by-laws, mortgage,
deed of trust, lease, note, bond, indenture, other instrument or agreement,
license, permit, trust, custodianship, other restriction or any applicable
provision of any law, statute, rule, regulation, judgment, order, writ,
injunction or decree of any court, governmental body, administrative agency or
arbitrator which could prevent or be violated by or under which there would be a
default (or right of termination) as a result of the
4
<PAGE> 5
execution, delivery and performance by the Company of this Warrant.
ARTICLE 4. REGISTRATION UNDER THE ACT.
(a) On or before June 30, 1997, the Company shall prepare
and file with the SEC a registration statement under the Act covering the resale
of this Warrant and the Shares and/or any securities issued in lieu or
substitution thereof (collectively, the "Registrable Securities") and shall use
its best efforts to cause such registration statement to become effective by
July 31, 1997. In addition, the Company shall not permit any securities other
than the Registrable Securities and the securities set forth in Schedule A
annexed hereto to be included in the Registration Statement.
(b) Until such time as the Registration Statement shall
become effective and except as may be required by applicable law, this Warrant
and the certificate(s) evidencing the Shares shall contain a restrictive legend
restricting the sale, pledge or transfer of this Warrant and such Shares.
(c) Registration Procedures. Pursuant to the provisions
above, the Company will:
(i) prepare and file with the SEC a registration
statement with respect to the resale of the Registrable Securities, and use its
best efforts to cause such registration statement to become and remain effective
for such period as may be reasonably necessary to effect the sale of such
securities, not to exceed four (4) years;
(ii) prepare and file with the SEC such amendments to
such registration statement and supplements to the prospectus contained therein
as may be necessary to keep such registration statement effective for such
period as may be reasonably necessary to effect the sale of such securities, not
to exceed four (4) years;
(iii) furnish to the Holder and to the underwriter of
the securities being registered, if any, such reasonable number of copies of the
registration statement, preliminary prospectus, final prospectus and such other
documents
5
<PAGE> 6
as such underwriter may reasonably request in order to facilitate the public
offering of such securities;
(iv) notify the Holder, promptly after it shall
receive notice thereof, of the time when such registration statement has become
effective or a supplement to any prospectus forming a part of such registration
statement has been filed;
(v) notify the Holder promptly of any request by the
SEC for the amending or supplementing of such registration statement or
prospectus or for additional information;
(vi) prepare and file with the SEC, promptly upon the
request of the Holder, any amendments or supplements to such registration
statement or prospectus which, in the opinion of counsel for the Holder (and
concurred in by counsel for the Company), is required under the Act or the rules
and regulations thereunder in connection with the distribution of the
Registerable Securities by the Holder;
(vii) prepare and promptly file with the SEC and
promptly notify the Holder of the filing of such amendment or supplement to such
registration statement or prospectus as may be necessary to correct any
statements or omissions if, at the time when a prospectus relating to such
securities is required to be delivered under the Act, any event shall have
occurred as the result of which any such prospectus or any other prospectus as
then in effect would include an untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein, in the light
of the circumstances in which they were made, not misleading; and
(viii) advise the holder, promptly after it shall
receive notice or obtain knowledge thereof, of the issuance of any stop order by
the SEC suspending the effectiveness of such registration statement or the
initiation or threatening of any proceeding for that purpose and promptly use
its best efforts to prevent the issuance of any stop order or to obtain its
withdrawal if such stop order should be issued.
(d) Expenses.
(i) With respect to the registration under the Act
pursuant to Article 4(a) of this Warrant, all fees, costs
6
<PAGE> 7
and expenses of and incidental to such registration shall be borne by the
Company.
(ii) The fees, costs and expenses of such
registration shall include, without limitation, all registration, filing, and
NASD fees, printing expenses, fees and disbursements of counsel and accountants
for the Company. Fees and disbursements of counsel and accountants for the
selling security holders and any other expenses incurred by the selling security
holders not expressly included above shall be borne by the selling security
holders.
(e) Indemnification.
(i) The Company will indemnify and hold harmless the
Holder, its directors and officers, and any underwriter (as defined in the Act)
for such Holder and each person, if any, who controls such Holder or such
underwriter within the meaning of the Act, from and against, and will reimburse
such Holder and each such underwriter and controlling person with respect to,
any and all loss, damage, liability, cost and expense to which such Holder or
any such underwriter or controlling person may become subject under the Act or
otherwise, insofar as such losses, damages, liabilities, costs or expenses are
caused by any untrue statement or alleged untrue statement of any material fact
contained in such registration statement, any prospectus contained therein or
any amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading; provided, however, that
the Company will not be liable in any such case to the extent that any such
loss, damage, liability, cost or expense arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission so
made in conformity with information furnished by the Holder, such underwriter or
such controlling person in writing specifically for use in the preparation
thereof.
(ii) As a condition of the Company's obligations
under this Article 4, the Holder will indemnify and hold harmless the Company,
its directors, officers and employees, any controlling person and any
underwriter from and against, and will reimburse the Company, its directors and
officers, any controlling person and any underwriter with respect to, any and
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all loss, damage, liability, cost or expense to which the Company or any
controlling person and/or any underwriter may become subject under the Act or
otherwise, insofar as such losses, damages, liabilities, costs or expenses are
caused by any untrue statement or alleged untrue statement of any material fact
contained in such registration statement, any prospectus contained therein or
any amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was so made in reliance upon and in
strict conformity with written information furnished by or on behalf of the
Holder specifically for use in the preparation thereof.
(iii) Promptly after receipt by an indemnified party,
pursuant to the provisions of paragraph (i) or (ii) of this Section 4(e), of
notice of the commencement of any action involving the subject matter of the
foregoing indemnity provisions, such indemnified party will, if a claim thereof
is to be made against the indemnifying party pursuant to the provisions of said
paragraph (i) or (ii), promptly notify the indemnifying party of the
commencement thereof; but the omission to so notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
otherwise than hereunder. In case such action is brought against any indemnified
party and it notifies the indemnifying party of the commencement thereof, the
indemnifying party shall have the right to participate in, and, to the extent
that it may wish, jointly with any other indemnifying party similarly notified,
to assume the defense thereof, provided, however, if the defendants in any
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there is a conflict of
interest which would prevent counsel for the indemnifying party from also
representing the indemnified party, the indemnified party or parties have the
right to select separate counsel to participate in the defense of such action on
behalf of such indemnified party or parties. After notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such indemnified party
pursuant to the provisions of said paragraph (i) or (ii) for any legal or other
expense subsequently incurred by such indemnified party in connection with
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the defense thereof other than reasonable costs of investigation, unless (A)the
indemnified party shall have employed counsel in accordance with the provisions
of the preceding sentence or (B) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party.
The Company's agreements with respect to this Warrant or the
Shares in this Article 4 shall continue in effect regardless of the exercise and
surrender of this Warrant.
ARTICLE 5. MISCELLANEOUS.
5.1 Transfer. This Warrant may not be transferred or assigned,
in whole or in part, at any time, except in compliance with applicable federal
and state securities laws by the transferor and the transferee (including,
without limitation, the delivery of an investment representation letter and a
legal opinion reasonably satisfactory to the Company), provided that this
Warrant may not be transferred or assigned such that either the Holder or any
transferee will, following such transfer or assignment, hold a Warrant for the
right to purchase fewer than 5,000 Shares.
5.2 Transfer Procedure. Subject to the provisions of Section
5.1, Holder may transfer or assign this Warrant by giving the Company notice
setting forth the name, address and taxpayer identification number of the
transferee or assignee, if applicable (the "Transferee") and surrendering this
Warrant to the Company for reissuance to the Transferee (and the Holder, in the
event of a transfer or assignment of this Warrant in part). (Each of the persons
or entities in whose name any such new Warrant shall be issued are herein
referred to as a Holder").
5.3 Loss, Theft, Destruction or Mutilation. If this Warrant
shall become mutilated or defaced or be destroyed, lost or stolen, the Company
shall execute and deliver a new Warrant in exchange for and upon surrender and
cancellation of such mutilated or defaced Warrant or, in lieu of and in
substitution for such Warrant so destroyed, lost or stolen, upon the Holder
filing with the Company evidence satisfactory to it that such Warrant has been
so mutilated, defaced, destroyed, lost or stolen. However, the Company shall be
entitled, as a condition to the execution and delivery of such new Warrant, to
demand indemnity satisfactory to
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it and payment of the expenses and charges incurred in connection with the
delivery of such new Warrant. Any Warrant so surrendered to the Company shall be
canceled.
5.4 Notices. All notices and other communications from the
Company to the Holder or vice versa shall be deemed delivered and effective when
given personally, by facsimile transmission and confirmed in writing or mailed
by first-class registered or certified mail, postage prepaid at such address
and/or facsimile number as may have been furnished to the Company or the Holder,
as the case may be, in writing by the Company or the Holder from time to time.
5.5 Waiver. This Warrant and any term hereof may be changed,
waived, or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
5.6 Governing Law. This Warrant shall be governed by and
construed in accordance with the laws of the State of the
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Company's incorporation, without giving effect to its principles regarding
conflicts of law.
Dated: March 31, 1997
MULTICOM PUBLISHING, INC.
Attest:___________________ By:____________________________________
Name:Tamara L. Attard
Title:Chairman and CEO
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APPENDIX 1
NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase ______ shares of
the Common Stock of Multicom Publishing, Inc. pursuant to the terms of the
attached Warrant, and tenders herewith payment of the purchase price of such
shares in full.
2. Please issue a certificate or certificates representing
said shares in the name of the undersigned or in such other name as is specified
below:
__________________________________
(Name)
__________________________________
__________________________________
(Address)
3. The undersigned represents it is acquiring the shares
solely for its own account and not as a nominee for any other party and not with
a view toward the resale or distribution thereof except in compliance with
applicable securities laws.
_________________________________
(Signature)
______________________
(Date)
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SCHEDULE A
WARRANT TO PURCHASE COMMON STOCK
<PAGE> 1
EXHIBIT 5.1
To be filed by amendment.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Prospectus
constituting part of this Registration Statement on Form S-3 of our report
dated September 17, 1996, except as to Note 13 which is as of June 27, 1997,
relating to the financial statements of Multicom Publishing, Inc., which
appears in such Prospectus. We also consent to the reference to us under the
heading of "Experts" in such Prospectus.
Price Waterhouse LLP
Seattle, Washington
June 27, 1997
