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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(X) Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required]
For the fiscal year ended December 31, 1996 or ( ) Transition
report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required]
For the transition period from ________ to ________
Commission File Number 1-11624
HYPERMEDIA COMMUNICATIONS, INC.
(Exact name of Registrant as specified in its charter)
California 94-3104247
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
901 Mariner's Island Boulevard, Suite 365
San Mateo, California 94404
(Address of principal executive offices)
Registrant's telephone number, including area code: (415) 573-5170
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes (X) No ( )
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. (X)
The aggregate market value of the voting stock held by non-affiliates of
the registrant, based upon the closing sale price of the Common Stock on March
5, 1997 in the Nasdaq SmallCap Market, was approximately $4,300,000. For
purposes of this disclosure, shares of Common Stock, Series E Preferred Stock
and Series F Preferred Stock held by each officer and director of the registrant
and by each person who owns 5% or more of the outstanding voting stock have been
excluded in that such persons may be deemed to be affiliates. This determination
of affiliate status is not necessarily a conclusive determination for other
purposes.
As of March 5, 1997, the registrant had 3,200,137 shares of Common Stock,
8,064,516 shares of Series E Preferred Stock, and 82,250 shares of Series F
Preferred Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant's Proxy Statement for the Annual Meeting of Shareholders to
be held on May 22, 1997 is incorporated by reference into Part III of this Form
10-K to the extent stated herein.
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TABLE OF CONTENTS
Page
PART I ............................................................. 2
ITEM 1. BUSINESS.................................................. 2
ITEM 2. PROPERTIES................................................ 9
ITEM 3. LEGAL PROCEEDINGS......................................... 9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS....... 9
PART II ............................................................ 10
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED SHAREHOLDER MATTERS.............................. 10
ITEM 6. SELECTED FINANCIAL DATA.................................. 11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS...................... 12
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.............. 18
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE...................... 18
PART III ............................................................ 19
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT....... 19
ITEM 11. EXECUTIVE COMPENSATION................................... 20
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT............................................... 20
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........... 20
PART IV ............................................................ 21
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K ............................................. 21
REPORT OF INDEPENDENT ACCOUNTANTS.......................................... 24
BALANCE SHEETS............................................................. 25
STATEMENTS OF OPERATIONS................................................... 26
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)............................... 27
STATEMENTS OF CASH FLOWS................................................... 28
NOTES TO FINANCIAL STATEMENTS.............................................. 29
SIGNATURES................................................................. 37
INDEX TO EXHIBITS.......................................................... 38
1
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PART I
ITEM 1. BUSINESS
This Business section and other parts of this Annual Report on Form 10-K
contain forward-looking statements that involve risks and uncertainties. Actual
results may differ significantly from those anticipated in these forward-looking
statements as a result of the factors set forth below and in "Factors Affecting
Operating Results and Market Price of Stock" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
The Company
HyperMedia Communications, Inc. (the "Company" or "HyperMedia"),
incorporated in California in August 1989, publishes NewMedia Magazine
("NewMedia"), the first periodical publication dedicated solely to the
professional market for new media technology. "New media" is a term applied to a
wide array of digital communications technologies, including Internet
development tools and services, desktop and portable personal computers,
workstations, servers, audio/video compression and editing equipment, graphics
hardware and software, high-density storage devices, and video conferencing
systems. The professional market for such products is estimated to grow from $10
billion in 1995 to $60 billion by the year 2000 according to a study published
by Link Resources in 1995, with a compound annual growth rate of 48 percent.*
This 48 percent growth rate is approximately three times higher than the 15
percent annual growth rate estimated by the same study for the consumer market
for new media technology, consisting primarily of home personal computers,
CD-ROM titles, and interactive electronic services.* Professional new media
technology is actively employed in a broad range of communications-related
businesses and disciplines such as publishing, advertising, sales, marketing,
film production, broadcasting, game development, education, and training. Many
large multinational technology corporations are developing and marketing
products specifically targeted to the professional market.
NewMedia is published 16 times per year and is distributed to more than
215,000 professionals who develop new media content and applications for the
business, government, education and consumer markets. According to a recent
analysis conducted by the Company of NewMedia subscriber demographic data, the
average subscriber to the publication has represented that they are personally
involved in the purchase of over $500,000 worth of new media-related hardware,
software, and services in a twelve-month period.* The magazine's primary mission
is to rate and review new professional-level products used in the development of
new media content and applications. The magazine also contains industry news,
expert commentary, profiles of organizations that employ new media technology,
examples of new media content and applications, and techniques for using new
media hardware and software tools. Revenue from NewMedia is derived primarily
through the sale of advertisements in the magazine.
HyperMedia also publishes Hyperstand, an electronic service on the
Internet for professionals who develop new media content and applications,
particularly World Wide Web sites. The Company also produces an annual awards
competition, the NewMedia Invision Awards program, which honors professionals
who employ new media technology in the development of communications
applications. HyperMedia is also exploring opportunities to expand its business
by developing new magazines and other print and electronic media targeted to the
professional new media market, additional professional new media-related events,
and other related products.*
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* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the future results will meet the Company's
current expectations. Investors are strongly encouraged to review the sections
entitled "Business", "Factors Affecting Operating Results and Market Price of
Stock" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of factors that could affect future
performance.
2
<PAGE>
Market Background
Computer-Related Periodicals
HyperMedia's primary product, NewMedia, is a controlled-circulation
periodical publication serving professionals in the computer-related field of
new media technology. NewMedia competes in the market segment of
computer-related periodical publishing, which in 1996 was the second largest
segment of the U.S. periodical publishing market. In 1996, according to the
Publishers Information Bureau, the largest publication in the U.S. market in
terms of advertising pages was the computer-related periodical entitled PC
Magazine. The field of computer-related periodical publishing grew by 12.7
percent in 1996 over the previous year, compared with a growth rate of 9.5
percent for the total periodical publishing market during the same period.
Computer-related periodicals typically adopt a strategy either to serve
subscribers in the broad consumer market or to reach subscribers in the more
targeted professional market. Whereas the consumer segment accounts for a high
volume of potential buyers of computer-related products and services, the
Company believes that the value of this segment is limited by the relatively low
volume of purchases made by each individual consumer, by the intense price- and
profit-margin pressures which characterize the segment, and by competition from
broad-based media such as television, radio, general consumer magazines, and
newspapers.
By contrast, the Company believes the professional segment is
characterized by higher volume purchases per individual versus the consumer
segment, with potentially higher profit margins for computer-related product
vendors due to the professional nature of the products, and with relatively few
competing advertising media beyond other professional periodical publications.
According to a study of 53 computer-related publications published by the
publishing industry newsletter Computer Publishing and Advertising Report, in
1996 professional computer-related publications accounted for over $983 million
in advertising revenues versus $825 million for consumer computer-related
publications during the same period. The newsletter reported 1995 revenues of
$882 million from professional publications versus $790 million in revenues from
consumer publications for the same period. The Company believes that, in the new
media market, professional publications will enjoy a pronounced advantage over
consumer publications, due to the high degree of segmentation between consumer
and professional products in this market and the divergent growth rates which
are forecasted for these two market segments.*
Periodicals are generally marketed as either paid-circulation
periodicals or controlled-circulation periodicals, such as NewMedia. A
paid-circulation periodical is purchased by the reader, either through
subscription or by paying the newsstand price, and the publisher establishes no
other criteria for receipt of the publication. Paid-circulation publications
frequently compete on the basis of total audience size and on lowest cost, or
efficiency, in reaching the publication's readership.
A controlled-circulation periodical, by contrast, is generally provided
without charge to respondents who meet certain demographic criteria established
by the publisher. Publishers typically solicit subscriptions to
controlled-circulation periodicals through direct-mail campaigns targeted to
lists of subscribers of similar publications or customer lists of buyers of
related products. These lists are generally rented from mailing list rental
firms or product vendors. To qualify to obtain a controlled-circulation
periodical, the respondent must complete a questionnaire and meet certain
criteria. Upon return of the questionnaire, the publisher analyzes the responses
and determines whether the respondent has the desired characteristics to become
a qualified subscriber.
Since qualified subscribers exhibit a set of demographic
characteristics selected by the publisher for appropriateness to the advertising
client base of the publication, controlled-circulation magazines generally
command higher advertising rates than paid-circulation magazines and compete on
the basis of offering their advertisers the most effective means to reach their
target customers. According to an analysis of NewMedia subscriber demographic
information conducted by the Company, the average subscriber to NewMedia during
1996 has represented that they will be personally involved in the purchase of
over $500,000 worth of new media-related hardware, software, and services during
a twelve-month period, which the Company believes is the highest purchase
criterion established among new media-related publications in the U.S. market.
In addition, in an independent study conducted in 1996 by the market research
firm IntelliQuest, the average NewMedia subscriber reported greater purchase
involvement for a wide variety of professional digital hardware and software
products than the average reader of other leading publications, including
Infoworld, PC Week, Macweek, PC Magazine, Internet World, and Wired.*
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* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the future results will meet the Company's
current expectations. Investors are strongly encouraged to review the sections
entitled "Business", "Factors Affecting Operating Results and Market Price of
Stock" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of factors that could affect future
performance.
3
<PAGE>
Periodical publications also compete on the basis of publication frequency,
which refers to the number of editions or issues of a publication which are
published in a year. Generally, higher frequency publications enjoy higher
market share in their markets. NewMedia was published 13 times in 1995 and 16
times per year beginning in 1996, which is expected to establish it as one of
the highest frequency periodical publications serving the professional new media
market in the U.S.*
The New Media Market
"New media" is a term applied to a wide array of digital communications
technologies, including Internet development tools and services, desktop and
portable personal computers, workstations, servers, audio/video compression and
editing equipment, graphics hardware and software, high-density storage devices,
and video conferencing systems. Taken together, these technologies are generally
thought to represent a major new stage in the evolution of information
technology, due to the impact they have had upon a broad range of
communications-related businesses and disciplines, such as publishing,
advertising, sales, marketing, film production, broadcasting, game development,
education, and training. Many large multinational technology corporations,
including Adobe, Apple, Avid, AT&T, Autodesk, Corel, DEC, Fujitsu, Hewlett
Packard, IBM, Intel, Macromedia, Matsushita, Microsoft, Mitsubishi, Motorola,
NEC, Netscape, Oracle, Philips, Sharp, Seagate, Silicon Graphics, Sony, Sun
Microsystems, Tektronix, 3M, Toshiba, and Yamaha, are developing and marketing
products specifically targeted to this market.*
According to a report issued in 1995 by the market research firm Link
Resources, the total market for new media technology is expected to grow to $80
billion by the year 2000.* The consumer segment of this market, consisting
primarily of home personal computers, CD-ROM titles, and interactive electronic
services, is expected to grow to $20 billion during this time period, with a
compound annual growth rate of approximately 15 percent.* By contrast, the
professional segment of the new media market is expected to grow to $60 billion
by the year 2000, with a compound annual growth rate of 48 percent.* This growth
rate is approximately three times higher than that estimated for the consumer
segment of the new media market. Furthermore, certain product categories
associated specifically with professional new media development, such as video
and media servers, video editing software, audio editing software,
three-dimensional graphics software, and animation software, are expected to
grow at rates faster than the market average.
The rise of the Internet as a commercially viable communications medium
has spawned the emergence of several new Internet-specific companies, such as
Netscape, and has resulted in several major new technology initiatives on the
part of established corporations such as AT&T, DEC, Macromedia, Microsoft,
Oracle, Silicon Graphics, Sun Microsystems and others. The Company believes that
this phenomenon will generate additional demand for technical information
concerning the development of Internet-related new media content and
applications, and furthermore that the target market for such information can be
reached effectively through non-traditional publishing strategies, such as the
creation of electronic information services on the Internet itself.*
Business Strategy
NewMedia Magazine
Recognizing the importance of the professional market for new media
technology, the Company launched NewMedia in January 1991. A
controlled-circulation periodical, NewMedia targets professionals who develop
new media content and applications for the business, government, education, and
consumer markets. The Company's business strategy is to position NewMedia as the
leading periodical publication serving the professional market for new media
technology and to leverage this leadership position by developing and launching
related products for the professional new media market.* The Company's strategy
for NewMedia includes an emphasis on editorial position, circulation size and
demographic characteristics, publishing frequency, and branding programs.
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* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the future results will meet the Company's
current expectations. Investors are strongly encouraged to review the sections
entitled "Business", "Factors Affecting Operating Results and Market Price of
Stock" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of factors that could affect future
performance.
4
<PAGE>
Editorial Position
New media technology is actively employed in a broad range of
communications-related businesses and disciplines such as publishing,
advertising, sales, marketing, film production, broadcasting, game development,
education, and training. Professionals who employ new media technology purchase
a wide array of digital communications hardware and software products, including
Internet development tools and services, desktop and portable personal
computers, workstations, servers, audio/video compression and editing equipment,
graphics hardware and software, high-density storage devices, and video
conferencing systems. Because changes in professional-level new media products
occur at a rapid rate and because the investment cost in these products remains
high relative to products targeted to the consumer market, the Company believes
that a high demand exists for reliable technical information which assists
professionals to select new media products with confidence.*
The primary mission of NewMedia is to rate and review new
professional-level products used in the development of new media content and
applications. In 1994, the Company established a product testing facility, the
"NewMedia Lab," with the express purpose of developing test suites and
conducting comparative analyses of popular professional new products. The
results of these product tests are published in each issue of NewMedia. The
magazine also contains industry news, expert commentary, profiles of
organizations that employ new media technology, examples of new media projects,
and techniques for using new media hardware and software tools.
Circulation
The Company's strategy for developing the subscriber base of NewMedia
has been to achieve a level of circulation, or measured readership, consistent
with maintaining a dominant position in the new media market.* Since its launch
in 1991, NewMedia increased its circulation base from 17,000 qualified
subscribers to a guaranteed average circulation base of 250,000 qualified
subscribers for 1995. This increase established the publication as the highest
circulation periodical directly serving the new media market. For 1996, as part
of its publishing strategy to emphasize the professional market for new media
technology, the Company reduced the guaranteed circulation base of NewMedia to
215,000 qualified subscribers and simultaneously increased the demographic
criteria that potential subscribers are required to meet in order to qualify to
receive a subscription to the periodical.
As a result of this strategy, the Company believes that NewMedia
remains the highest circulation periodical serving the professional market for
new media technology, and also that its subscriber base has been qualified
according to the highest purchase criteria established among professional new
media-related publications in the U.S. market.* According to a recent analysis
of NewMedia subscriber demographic information conducted by the Company, the
average subscriber to NewMedia during 1996 has represented that they will be
personally involved in the purchase of over $500,000 worth of new media-related
hardware, software, and services during a twelve-month period.* To the Company's
knowledge, no such similar purchase criteria exist for competing publications
serving the new media market, such as AV Video/Multimedia Producer, Computer
Graphics World, DV Magazine, Interactivity, Interactive Week, or 3D Design. In
the field of computer-related publications, periodicals exhibiting similar
purchase criteria include Infoworld and PC Week, which are generally considered
the leading periodical publications serving the office computing market.
The Company intends to pursue this strategy by making a substantial
investment in direct mail solicitations to its target audience.* The Company
generally rents lists of potential subscribers from mailing list rental firms or
product vendors at prices ranging from $75 to $150 per 1,000 names. The Company
has determined, through test mailings and analyses of the results of previous
mailings, which lists tend to generate higher numbers of qualified respondents.
To qualify to subscribe to NewMedia, the respondent must complete a
questionnaire and meet certain criteria. Upon return of the questionnaire, the
publisher analyzes the responses and determines whether the respondent has the
desired characteristics to become a qualified subscriber. The Company is a
member of BPA International, an independent auditing organization which verifies
the Company's guaranteed average circulation base. There can be no assurance
that the Company's circulation strategy will be successful.
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* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the future results will meet the Company's
current expectations. Investors are strongly encouraged to review the sections
entitled "Business", "Factors Affecting Operating Results and Market Price of
Stock" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of factors that could affect future
performance.
5
<PAGE>
Publishing Frequency
As part of its strategy to serve the professional market for new media
technology, in 1996 the Company increased the publishing frequency of NewMedia
from 13 times per year to 16 times per year and is maintaining this publishing
frequency in 1997.* The Company believes that higher frequency publications
achieve greater acceptance in the professional market than do lower frequency
publications, by permitting a publication's editorial staff to report on new
technology developments and advertising clients to market new products with
greater timeliness. To the Company's knowledge, this increase in frequency has
positioned NewMedia as one of the highest frequency periodicals serving the
professional new media market. Of 32 professional computer-related publications
measured by the industry newsletter Computer Publishing and Advertising Report,
the top seven publications by 1996 advertising revenue were published on a
weekly frequency schedule. The Company believes that, as the professional market
for new media technology continues to grow and mature, the opportunity may exist
to further increase the frequency of NewMedia.* There can be no assurance that
the Company's publishing frequency strategy will be successful.
Branding Programs
To support the primary mission of NewMedia to rate and review new
professional-level products used in the development of new media content and
applications, the Company has developed a number of branding programs which have
the effect of supporting its leadership position in the professional new media
market.
First, companies whose products achieve certain performance goals in
product ratings published in NewMedia magazine are permitted to use the
magazine's rating symbols within their advertisements and collateral marketing
materials. The Company believes that the magazine's "Awesome" rating symbol,
which signifies the highest rating a product can achieve in a NewMedia product
review, is widely accepted among professionals who purchase new media products
as a symbol of product quality and value.
Second, on an annual basis the magazine confers its "Hyper" awards for
technical excellence to companies whose products achieve certain technical
criteria as established by the magazine's editorial staff. A branding program
similar to the "Awesome" award program exists for "Hyper" award winners.
Finally, the Company also sponsors an annual competition designed to
honor professionals who employ new media technology in the development of
communications applications. The NewMedia Invision Awards program is cosponsored
by leading new media companies such as Macromedia and Microsoft, which pay a
sponsorship fee and receive certain marketing considerations in return. From
1994 through 1996, the NewMedia Invision Awards have been presented at the
computer industry trade event Comdex/Spring. In 1997, the Company intends to
expand the awards program into an independent event for which the Company can
charge attendance fees and generate other forms of revenue beyond sponsorship
fees.*
Advertising Sales
Revenue from NewMedia is derived principally from advertisers. The
Company's published advertising rates are based upon the number of qualified
subscribers for NewMedia and include discounts for multiple insertions. From
1991 to 1995, the Company increased the circulation base of NewMedia from 17,000
subscribers to a guaranteed average circulation base of 250,000 qualified
subscribers. This increase in qualified circulation enabled the Company to
increase the price it charges for a one-time, full-page, four-color
advertisement from $6,125 to $17,845. In 1996, as part of its publishing
strategy to emphasize the professional market for new media technology, the
Company reduced the guaranteed circulation base of NewMedia to 215,000 qualified
subscribers and simultaneously increased the demographic criteria that potential
subscribers are required to meet in order to qualify to receive a subscription
to the periodical. This increase in qualification criteria permitted the Company
to maintain the advertising rates for NewMedia at 1995 levels, which had the
effect of increasing the cost per subscriber which advertisers pay per
advertising page in NewMedia.*
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* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the future results will meet the Company's
current expectations. Investors are strongly encouraged to review the sections
entitled "Business", "Factors Affecting Operating Results and Market Price of
Stock" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of factors that could affect future
performance.
6
<PAGE>
The Company currently sells advertising in NewMedia through a direct
sales force of six sales representatives, an associate publisher, and a
publisher. The sales staff is organized primarily on a geographical basis,
although some key accounts are handled by management. Formatted fractional
advertising space is sold through a nationwide telemarketing effort. Sales
presentations are made both to marketing staffs within client organizations and
to the advertising agency staffs which advise these clients, develop their
advertising programs, and often decide which publications to include in their
advertising schedules. Direct sales are supplemented by direct-mail marketing
campaigns, trade show promotions, special events, and the publication of the
Company's results of research regarding the demographic profile and purchase
intentions of NewMedia's subscribers.
Companies that have regularly advertised in NewMedia include: 3M,
Adobe, Aimtech, Apple, Asymetrix, Compaq, Corel, Data Translation, Elo Touch,
Epson, Fujitsu, Hewlett-Packard, In Focus, Intel, Intergraph, Iomega, LaCie,
Lockheed Martin, Macromedia, Microsoft, Mitsubishi, NEC, NetPower, Oracle,
Panasonic, Philips, Pioneer, Proxima, Quark, Sharp, Silicon Graphics, Sony,
SyQuest, Texas Instruments, and Truevision. The advertising agreements entered
into by these companies generally commit the advertiser to place from four to
sixteen (or more) pages of advertisements in NewMedia within a 12-month period.
The number of paid advertising pages increased from 12 in the April 1991 issue
to 67 in the November 18, 1996 issue.
Production
NewMedia is produced in-house on a desktop publishing system which
creates page layouts of editorial material electronically. Desktop publishing
allows for high quality publishing at minimal cost. This editorial material is
then shipped on disks to outside service bureaus for production and assembly
with advertising material. The output from the service bureaus is then checked
for quality and accuracy by the Company's editorial and production department.
Once all corrections have been made, the output from the service bureaus is sent
to outside printers for printing, assembly and processing for distribution. The
printer labels and mails the magazine to NewMedia's subscriber list. The
subscriber list is provided by a specialized data processing house. A small
percentage of copies of the issue are also forwarded to a newsstand distribution
center for direct sales at newsstands. The balance of the issues ordered, plus
any overruns, are shipped to the Company for use in-house.
Competition
The computer-related periodical publishing field is highly competitive.
Many of the Company's competitors have substantially greater financial, sales
and marketing resources than the Company.
A number of periodical publications serve the professional market for
new media technology. These publications include AV Video/Multimedia Producer,
Computer Graphics World, DV Magazine, Interactivity, Interactive Week, Internet
World, and 3D Design. In addition, a number of magazines serve the consumer
market for new media technology. These publications include Computer Life,
HomePC, Family PC, Yahoo! Internet Life, NetGuide, and Wired.
Computer-related periodicals that serve the office computing market
also report upon new media topics and therefore compete with NewMedia. These
publications include paid-circulation magazines such as PC Magazine, MacUser,
Macworld, Byte, PC World, and Windows, and controlled-circulation magazines such
as Infoworld, PC Week and MacWeek.
In an independent study conducted in 1996 by the market research firm
IntelliQuest, the average NewMedia subscriber reported greater purchase
involvement for a wide variety of professional digital hardware and software
products than readers of other leading publications, including the new
media-specific and computer-related publications mentioned above which were
measured in the study. This distinction was particularly pronounced in
measurements of purchase involvement for Internet development tools and
services, where NewMedia subscribers reported higher purchase involvement in a
majority of categories.
- ------------------------------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the future results will meet the Company's
current expectations. Investors are strongly encouraged to review the sections
entitled "Business", "Factors Affecting Operating Results and Market Price of
Stock" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of factors that could affect future
performance.
7
<PAGE>
The Company expects that its greatest long-term competition for
advertising market share will come from computer-related periodicals, as they
attempt to address the growing new media market.* Moreover, because new media
technology is comprised of such a broad array of related technologies and
because new media has been found useful to address a wide variety of
organizational problems, the Company believes that advertising clients will
prefer to advertise in publications which have a broad circulation base.* In
order to compete effectively, the Company adopted a strategy to position
NewMedia as the highest circulation periodical serving the professional market
for new media technology.* Although the Company believes that it would take
significant resources and/or time for its competitors to obtain a qualified
subscriber base comparable to that of NewMedia, there can be no assurance that
computer-related publications serving the office computing market will not
successfully compete for advertising revenues in the new media market.
NewMedia is a controlled-circulation periodical publication serving
professionals in the computer-related field of new media technology. The
computer industry has historically been characterized by business cycles. To the
extent that the computer industry experiences a significant economic downturn,
the Company would expect a similar downturn in its business. The market for new
media products is in the early stages of development and predictions as to its
size and the factors which will affect it are inconclusive. The Company's
revenue and income projections are based on a rapidly developing market for new
media products. To the extent that the new media market does not develop as
quickly as the Company anticipates or that it experiences a significant downturn
following growth, the Company's ability to generate revenues and profits may be
materially adversely affected. Furthermore, even if the new media market does
develop as anticipated, there can be no assurance that the demand for NewMedia
will also increase.
New Product Development
In September 1995, HyperMedia launched Hyperstand, an electronic
service on the Internet for professionals who develop new media content and
applications, particularly World Wide Web sites. The Company believes that the
market for Internet services such as Hyperstand, although still nascent, will
expand rapidly in the coming years.* The Company expects to devote resources in
1997 to develop the potential of Hyperstand as an advertising-supported
electronic publishing medium for the professional new media market.* There can
be no assurance that this plan will be successful.
In addition to publishing NewMedia and Hyperstand, HyperMedia is
exploring opportunities to expand its business by developing new magazines and
other print and electronic media targeted to the professional new media market,
professional new media-related events, and other related products.* There can be
no assurance that such ancillary products will be developed, or if developed,
that they will be profitable.
The rise of the Internet as a commercially viable communications medium
has spawned the emergence of several new Internet-specific companies, such as
Netscape, and has resulted in several major new technology initiatives on the
part of established corporations such as AT&T, DEC, Macromedia, Microsoft,
Oracle, Silicon Graphics, Sun Microsystems, and others. The Company believes
that this phenomenon will generate additional demand for technical information
concerning the development of Internet-related new media content and
applications, and furthermore that the target market for such information can be
reached effectively through non-traditional publishing strategies, such as the
creation of electronic information services on the Internet itself.*
The Company may also acquire complementary products or businesses as
opportunities arise, although there are no current agreements or negotiations to
do so.*
- ------------------------------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the future results will meet the Company's
current expectations. Investors are strongly encouraged to review the sections
entitled "Business", "Factors Affecting Operating Results and Market Price of
Stock" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of factors that could affect future
performance.
8
<PAGE>
Employees
As of December 31, 1996, the Company employed 33 people on a full-time
basis. The Company believes that its relations with its employees are good. None
of the employees is represented by a labor union or covered by a collective
bargaining agreement.
ITEM 2. PROPERTIES
The Company's executive office is located in approximately 7,526 square
feet of space at 901 Mariner's Island Boulevard, Suite 365, San Mateo,
California 94404. The Company leases the facility pursuant to a lease which was
renewed in March 1997 and expires in April 2000. Under the terms of the renewed
lease, the Company will pay monthly rent of approximately $22,500 starting in
May 1997.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
9
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
The Company's Common Stock is traded on the Nasdaq SmallCap Market under
the symbol "HYPR." The Company's Common Stock was first listed for trading in
March 1993. The high and low sales prices are as reported by the Nasdaq SmallCap
Market.
Fiscal Quarter High ($) Low($)
----------------------------------------- -------------- -----------
First quarter ended March 31, 1995 5 1/2 3 1/2
Second quarter ended June 30, 1995 5 1/4 4 1/4
Third quarter ended September 30, 1995 6 1/4 4
Fourth quarter ended December 31, 1995 5 1/4 2 3/4
First quarter ended March 31, 1996 4 3/16 2 1/2
Second quarter ended June 30, 1996 3 5/8 2 7/8
Third quarter ended September 30, 1996 3 3/8 2 1/4
Fourth quarter ended December 31, 1996 2 9/16 1 3/8
As of March 5, 1997, there were approximately 600 holders of the Company's
Common Stock.
The Company has never paid cash dividends on any shares of its capital
stock and the Company's Board of Directors intends to continue this policy for
the foreseeable future. In addition, pursuant to the terms of the Company's
$1,000,000 line of credit, the Company may not declare or pay any dividends
without the bank's prior approval. The Company's ability to pay dividends on its
Common Stock will also be limited by the preferences of the Series E Preferred
Stock and Series F Preferred Stock and may be limited by the terms of future
Preferred Stock issuances or indebtedness. Earnings, if any, will be used to
finance the development and expansion of the Company's business. Future dividend
policy will depend upon the Company's earnings, capital requirements, financial
condition and other factors considered relevant by the Company's Board of
Directors.
10
<PAGE>
<TABLE>
ITEM 6. SELECTED FINANCIAL DATA
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------
1992 1993 1994 1995 1996
---------- --------- --------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues ........................ $ 2,306 $ 6,245 $ 9,284 $ 9,754 $ 8,618
--------- --------- --------- --------- ---------
Expenses:
Editorial .................... 637 904 1,386 1,309 1,228
Production ................... 899 1,803 2,377 2,745 2,373
Circulation .................. 796 1,291 2,414 2,275 2,072
Sales and marketing .......... 1,133 2,118 2,922 2,522 2,269
Product development .......... -- 246 103 36 29
General and administrative.... 888 1,433 1,692 1,318 914
--------- --------- --------- --------- ---------
Total expenses ............. 4,353 7,795 10,894 10,205 8,885
--------- --------- --------- --------- ---------
Loss from operations ............ (2,047) (1,550) (1,610) (451) (267)
Related party interest expense .. (109) -- -- -- --
Interest and other expense, net
(74) (241) (6) (11) (24)
-- -- -- -- --
Net loss ........................ $ (2,230) $ (1,791) $ (1,616) $ (462) $ (291)
========= ========= ========= ========= =========
Net loss per share(1) ........... $ (1.58) $ (0.65) $ (0.54) $ (0.15) $ (0.10)
========= ========= ========= ========= =========
Weighted average common shares
and equivalents(1) ........... 1,408,367 2,758,407 3,010,730 3,153,786 3,019,004
</TABLE>
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------
1992 1993 1994 1995 1996
---------- --------- --------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital (deficit)......... $ (1,853) $ 2,543 $ 750 $ 396 $ 442
Total assets ..................... 1,419 4,344 3,285 2,247 2,584
Long-term obligations, excluding
current portion ............... 19 -- -- -- --
Mandatorily Redeemable
Convertible Preferred Stock (2) 5,449 1,049 -- -- --
Shareholders' equity (deficit).... $ (6,853) $ 2,106 $ 1,547 $ 1,085 $ 1,068
<FN>
- ----------------------------
(1) See Note 2 of Notes to Financial Statements for an explanation of the method
used to determine the number of shares used to compute per share amounts.
(2) See Note 6 of Notes to Financial Statements.
</FN>
</TABLE>
11
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations section and other parts of this Annual Report on Form 10-K
contain forward-looking statements that involve risks and uncertainties. Actual
results may differ significantly from the results discussed in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed below and in "Factors Affecting
Operating Results and Market Price of Stock" and "Business." Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of there date hereof.
Results of Operations
The Company is engaged primarily in the development, production, marketing
and sales of its magazine, NewMedia, and its Internet World Wide Web site,
Hyperstand, and in the development of new publications serving the professional
market for new media technology. The Company also produces an annual awards
competition, the NewMedia Invision Awards program, which honors professionals
who employ new media technology in the development of communications
applications.
The 1996 publishing plan focused NewMedia on serving the professional
market for new media development platforms and tools, including Internet
products and services. The guaranteed average circulation base was decreased in
1996 to 215,000 as compared to 250,000 in 1995 and 1994. Advertising rates per
page remained unchanged. The 1996 publishing plan also required the magazine's
subscribers to meet significantly more stringent qualification criteria. As a
result of these new criteria, the purchasing power of new media products and
services of the average subscriber increased to more than $500,000 at the end of
1996 from less than $200,000 for 1995, an increase of approximately 150 percent.
NewMedia increased its annual publishing frequency to 16 times in 1996 as
compared to 13 times in 1995 and 1994 to increase the timeliness of coverage of
the professional new media marketplace, including the Internet. The Company
intends to continue a publishing frequency of 16 issues to a guaranteed average
circulation base of 215,000 in 1997.*
To facilitate the 1996 publishing strategy focusing NewMedia on the
professional market for new media development platforms and tools, including the
Internet, the Company employed strong cost controls during the transition. Total
expenses were reduced by $1,320,000, or 13 percent, in 1996 as compared to 1995.
These expense reductions more than offset the decline in revenues, enabling the
Company to decrease its net loss by 37% in 1996 as compared to 1995.
The following table sets forth for the periods indicated the percentage of
revenues represented by certain items reflected in the Company's statement of
operations.
Year Ended December 31,
------------------------------
1994 1995 1996
---- ---- ----
Revenues ................................... 100% 100% 100%
Expenses:
Editorial ............................... 15 14 14
Production .............................. 26 28 28
Circulation ............................. 26 23 24
Sales and marketing ..................... 31 26 26
Product development ..................... 1 -- --
General and administrative .............. 18 14 11
---- ---- ----
Total expenses ........................ 117 105 103
---- ---- ----
Loss from operations ....................... (17) (5) (3)
Related party interest expense ............. -- -- --
Interest and other expense, net ............ -- -- --
---- ---- ----
Net loss ................................... (17)% (5)% (3)%
==== ==== ====
- ------------------------------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the future results will meet the Company's
current expectations. Investors are strongly encouraged to review the sections
entitled "Business", "Factors Affecting Operating Results and Market Price of
Stock" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of factors that could affect future
performance.
12
<PAGE>
Revenues
Revenues decreased to $8,618,000 in 1996 from $9,754,000 in 1995 and
$9,284,000 in 1994 primarily as a result of decreases in advertising sales in
NewMedia. This decrease was primarily attributable to a decline in advertising
from companies serving the consumer market segment in categories such as
multimedia upgrade kits and CD-ROM titles. The 1996 publishing plan focused
NewMedia on serving the professional market for new media development platforms
and tools, including Internet products and services. This transition to an
exclusive focus on the professional new media marketplace required NewMedia to
replace advertising from the consumer market segment.
Editorial Expenses
Editorial expenses, comprised principally of salaries and fees paid to the
writers for the Company's publications, were $1,228,000 in 1996 compared to
$1,309,000 in 1995 and $1,386,000 in 1994. Editorial expenses decreased slightly
in 1996 and 1995 as a result of general cost controls. The Company expects that
editorial expenses will increase during 1997 as a result of higher paid
contributor and staffing costs associated with NewMedia and the expansion of the
Internet World Wide Web site, Hyperstand.*
Production Expenses
Production expenses, consisting primarily of the costs for design,
materials and printing of NewMedia, were $2,373,000 in 1996 compared to
$2,745,000 in 1995 and $2,377,000 in 1994. Production expenditures were lower in
1996 primarily as a result of a decrease in guaranteed average circulation from
250,000 to 215,000 and declining paper costs, which were partially offset by the
increased publishing schedule of NewMedia. Production expenditures rose in 1995
primarily as a result of higher paper costs. Production expenses are expected to
remain relatively flat in 1997 as the result of a projected increase in
advertising pages, if any, which will be offset by decreased year-over-year
paper costs.*
Circulation Expenses
Circulation expenses, consisting primarily of costs associated with
subscription fulfillment, mailing and the direct mail promotions of the
Company's publications, were $2,072,000 in 1996 compared to $2,275,000 in 1995
and $2,414,000 in 1994. The reduction in 1996 is primarily attributable to cost
controls partially offset by increased fulfillment and mailing costs associated
with the increased publishing schedule of NewMedia. The decrease in 1995 was due
to costs associated with the guaranteed average circulation base of NewMedia
remaining at 250,000 in 1995 and 1994. The postal rate increases in 1995
partially offset the cost savings associated with the unchanged 250,000
guaranteed average circulation base. The Company capitalizes its circulation
development expenditures and amortizes them over a 12 month period. As of
December 31, 1996 and December 31, 1995, the unamortized portion of these
expenditures was $471,000 and $157,000, respectively, which is included in
prepaid expenses on the balance sheet. As part of the Company's publishing
strategy in 1996, the minimum readership qualifications to receive the magazine
were significantly more stringent. As a result of these new criteria, the
purchasing power of new media products and services of the average subscriber
increased to more than $500,000 at the end of 1996 from less than $200,000 for
1995, an increase of approximately 150 percent. The Company intends to maintain
the higher minimum readership qualifications to receive the magazine in 1997. *
Circulation expenses are expected to increase in 1997 as the result of the
impact of a projected expansion in advertising pages on mailing costs and higher
circulation development expenditure amortization associated with the more
stringent minimum qualifications to receive the magazine.*
- ------------------------------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the future results will meet the Company's
current expectations. Investors are strongly encouraged to review the sections
entitled "Business", "Factors Affecting Operating Results and Market Price of
Stock" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of factors that could affect future
performance.
13
<PAGE>
Sales and Marketing
Sales and marketing expenses were $2,269,000 in 1996 compared to $2,522,000
in 1995 and $2,922,000 in 1994. The reduced expenses in 1996 were primarily
attributable to cost control measures and lower trade show expenditures. These
reductions were partially offset in the second half of 1996 by expenditures on
marketing programs in the areas of the 1996 IntelliQuest Computer Industry Media
Study (CIMS(TM)), a newly revised media kit, branding programs, and other tools.
The lower expenditures in 1995 were the result of stronger expense controls on
the NewMedia Invision Awards program and reduced sales compensation costs. When
the enhancement of the sales force with more experienced Senior Account Managers
was completed in the first quarter of 1996, the Senior Account Managers averaged
over 10 years of magazine selling experience. Sales and marketing expenses are
expected to increase in 1997 with larger commission costs associated with
increased advertising pages, if any, higher sales and marketing management
compensation expenses, and more expenditures on sales and marketing programs.*
Product Development
Product development costs totaled $29,000 in 1996, as compared to $36,000
in 1995 and $103,000 in 1994, and consist of costs incurred in the development
of new products, including the Internet World Wide Web site, Hyperstand. The
Company plans to continue its product development efforts during 1997.*
General and Administrative
General and administrative expenses were $914,000 in 1996 as compared to
$1,318,000 in 1995 and $1,692,000 in 1994. The lower expenses in 1996 and 1995
were primarily generated by the Company's cost control measures and stronger
credit and collection procedures which resulted in a smaller bad debt expense.
The Company also had a lower average headcount in this area at the end of 1995
as compared to 1994. General and administrative costs are expected to grow in
1997 with expected increases in general and administrative expenses that
accompany anticipated revenue growth.*
Interest and Other Income and Expenses
Interest and other expense was $24,000 in 1996 compared to $11,000 in 1995
and $6,000 in 1994. Interest expenditures rose in 1996 due to working capital
requirements associated with the 1996 publishing plan. Interest costs remained
relatively low in 1995 as improved credit and collection procedures decreased
the average receivable payment period.
Net Loss
The Company incurred net losses of $291,000, $462,000 and $1,616,000 in
1996, 1995 and 1994, respectively. The 37 percent reduction in the net loss for
1996 as compared to 1995 was substantially the result of reduced spending plans
implemented to accommodate the transitional reduction of revenue associated with
the 1996 publishing plan targeting the professional new media marketplace. The
$1,320,000 in reduced expenditures across all departments more than offset the
$1,136,000 decrease in revenue enabling the net loss to be reduced by $171,000,
or 37 percent. The 71 percent decrease in net loss in 1995 as compared to 1994
was primarily the result of increased revenues combined with strong expense
controls.
- ------------------------------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the future results will meet the Company's
current expectations. Investors are strongly encouraged to review the sections
entitled "Business", "Factors Affecting Operating Results and Market Price of
Stock" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of factors that could affect future
performance.
14
<PAGE>
Income Taxes
At December 31, 1996, the Company had net operating loss carry forwards for
federal income tax purposes of approximately $10,613,000. Net operating loss
carry forwards can be used to offset federal taxable income during a 15-year
period from the date of loss, which may be utilized to reduce future taxable
income through 2003, subject to certain limitations. One such limitation is
imposed under Section 382 of the Internal Revenue Code of 1986, as amended. Upon
a change in control, as defined therein, the Company can utilize only a portion
of its tax loss carry forwards to reduce taxable income in any year. Such a
change of control occurred in connection with the Company's initial public
offering in 1993. As a result of the ownership changes, the potential benefits
from utilization of the tax carry forwards related to the period from inception
through the date of its initial public offering, totaling approximately
$5,600,000, will be limited to an annual usage of approximately $700,000. The
exact limitation may change. Other conditions may also occur in the future which
would cause the Company to lose, or further limit the use by the Company of some
or all of these net operating loss carry forwards.
Liquidity and Capital Resources
The Company financed its operations and capital requirements through the
date of its initial public offering in March 1993, principally through private
sales of debt and equity securities and cash generated from operations. Since
inception, the Company has raised approximately $5,413,000 through the issuance
of Preferred Stock, including $209,000 Series F Preferred Stock (net of issuance
costs) sold in March 1996 to its largest shareholder, MK Global Ventures in
association with its MK GVD Fund. In its initial public offering in March 1993
(including the subsequent exercise in April 1993 of the underwriter's option to
purchase an additional 210,000 shares of Common Stock), the Company received
proceeds of approximately $6,350,000, net of underwriting discounts, commissions
and issuance costs. Proceeds from the offering were used to repay bridge loans
totaling $1,500,000, plus interest and loans from a shareholder totaling
approximately $562,000. The remaining net proceeds from the Company's initial
public offering were added to working capital to be used for financing
operations.
At December 31, 1996, the Company had approximately $442,000 in net working
capital, and its principal source of liquidity consisted of approximately
$107,000 in cash, a $1,000,000 line of credit limited to 70 percent of qualified
accounts receivable, and an agreement with MK Global Ventures to purchase up to
$250,000 of the Company's Series G Preferred Stock at the Company's request.
Other than operating results, two additional factors impacted the change in net
cash position at the end of fiscal 1996 as compared to fiscal 1995. First, in
the fourth fiscal quarter of 1996, the Company spent approximately $450,000 in
circulation development as part of the 1996 publishing plan for more stringent
qualification criteria. Second, two of the four issues published in the fourth
quarter of 1996 were mailed in December 1996 as compared to one of the four
issues published in the fourth quarter of 1995. With net thirty payment terms, a
higher percentage of the fourth quarter of 1996 receivables were received in the
following year as compared to the fourth quarter of 1995. At December 31, 1996,
there was $335,000 outstanding under the line of credit. As a result of the
conditions of the line of credit and the financial results of the 1996 fourth
fiscal quarter, the Company had unused borrowing capacity of $422,000. Partial
usage of unused borrowing capacity could be restricted by financial operating
covenants. The bank extending the line of credit waived the covenant requiring
the Company to maintain a certain maximum ratio of total liabilities to tangible
net worth as of December 31, 1996 so that the Company's actual ratio of total
liabilities to tangible net worth did not violate such covenant. In March 1997,
the $1,000,000 line of credit secured by 70 percent of qualified accounts
receivable was renewed with similar terms, conditions and covenants for a period
through March 1998.
- ------------------------------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the future results will meet the Company's
current expectations. Investors are strongly encouraged to review the sections
entitled "Business", "Factors Affecting Operating Results and Market Price of
Stock" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of factors that could affect future
performance.
15
<PAGE>
The Company signed an agreement in July 1996 with its largest shareholder,
MK Global Ventures in association with its MK GVD Fund, to invest in additional
capital of the Company to finance operations. Under the Series G Preferred Stock
Purchase Agreement, MK GVD Fund agreed to invest up to $250,000 on or before
December 31, 1996 (subsequently extended to June 30, 1997 in exchange for a
warrant to purchase 1,724 shares of the Company's Common Stock). The price per
share of this Series G Preferred Stock, which the Company has not registered
under the Securities Act of 1933, as amended, was 85% of the fair market value
of the Company's common stock based on the average of the closing bid price per
share for the ten trading days ending five business days before the closing of
the investment. The Company had not drawn on this capital commitment as of March
4, 1997.
The Company expects that it will continue to require significant amounts of
cash to finance future operations.* The Company has not made or committed to
make significant capital expenditures, but may make such expenditures in the
future.* The Company believes that the existing cash balances, together with
cash generated from operations and borrowings available under its line of
credit, will be sufficient to meet its cash requirements for at least 12
months.* There can be no assurance that the Company's anticipation of its cash
requirements for the next 12 months will be correct. Thereafter, the Company
anticipates that it may need to raise additional working capital, primarily
through sales of debt or equity securities.* In addition, the Company may seek
to raise additional working capital prior to the end of 1997 if it can raise
such capital on acceptable terms.* The terms of the Series E Preferred Stock,
Series F Preferred Stock, Series G Preferred Stock and outstanding warrants
grant the holders thereof certain preferential rights including conversion
and/or registration rights which may have a dilutive effect on existing
shareholders and may therefore limit the availability of financing, particularly
equity financing. The Company has no commitments for any such financing and
there can be no assurance that any such debt or equity financing will be
available on terms acceptable to the Company or at all. The Company's ability to
borrow under the line of credit is subject to compliance with certain financial
covenants, including, but not limited to, quarterly profitability beginning with
the third fiscal quarter of 1997 and maintaining a minimum $1,000,000 tangible
net worth. There can be no assurance that the Company will be successful in
complying with these financial covenants. The Company's failure to comply with
the financial covenants could preclude it from utilizing the line of credit
which would have a material adverse effect on the Company's liquidity and
financial condition. In addition, the Company's inability to raise capital, if
required, could have a material adverse effect on the Company's business and
results of operations.
- ------------------------------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the future results will meet the Company's
current expectations. Investors are strongly encouraged to review the sections
entitled "Business", "Factors Affecting Operating Results and Market Price of
Stock" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of factors that could affect future
performance.
16
<PAGE>
Factors Affecting Operating Results and Market Price of Stock
This section and other parts of this Annual Report on Form 10-K contain
forward-looking statements that involve risks and uncertainties. The Company's
actual results may differ significantly from those anticipated in these
forward-looking statements as a result of the factors set forth below and in
"Business" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations." Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of there date hereof.
Limited Operating History; History of Losses and Accumulated Deficits
The Company has a limited operating history and is subject to all the risks
and difficulties experienced by any new business. The Company's prospects must
be considered in light of the risks, expenses and difficulties frequently
encountered in the establishment of a new business and a continually evolving
industry characterized by intense competition. The Company incurred total net
losses of $10,518,000 from inception to December 31, 1996, including net losses
of $291,000 for the year ended December 31, 1996. The Company expects to incur
losses for at least the first quarter of 1997 as it continues to promote and
expand its current publications and develop and launch new products.* There can
be no assurance that during 1997 or thereafter the Company will be able to
increase its revenues or become profitable. The Company's potential future
growth depends on many factors, including the ability of the Company to attract
sufficient advertising customers for NewMedia, maintain the circulation base of
NewMedia, control its costs and successfully implement its marketing and product
strategy.* There can be no assurance that the Company will be successful in any
of these efforts.
New Publishing Strategy; Sales and Marketing Strategy
The key elements of the Company's publishing strategy are to focus on the
professional market for new media technology, to publish at a frequency of 16
times per year, to maintain the stringent minimum qualification criteria that
potential subscribers were required to meet in 1996 in order to qualify for a
subscription, and to maintain the guaranteed circulation base of 215,000
qualified NewMedia readers.* There can be no assurance that the Company's
publishing strategy will result in increased revenues or in profitability.
Certain components of production, circulation and editorial expenses associated
with this publishing strategy will increase.* The Company has been undergoing an
advertising category transition since the second half of 1995 away from the
consumer market toward the above mentioned professional market for new media
technology. To replace these consumer market advertisers and to grow advertising
revenues, the Company needs to sell advertisements oriented to the professional
market for new media technology. There can be no assurance that the Company will
be able to sell a sufficient number of advertisements to the professional market
to make its strategy successful. Until the circulation direct mail (and
associated) campaigns for qualified readers using the qualification criteria is
completed, there can be no assurance that the estimated purchasing power of new
media products and services will be maintained with a reasonable level of
circulation expenditures. As a result, the Company does not expect growth in
advertising revenues until at least the second quarter of 1997, if at all.*
- ------------------------------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the future results will meet the Company's
current expectations. Investors are strongly encouraged to review the sections
entitled "Business", "Factors Affecting Operating Results and Market Price of
Stock" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of factors that could affect future
performance.
17
<PAGE>
Highly Competitive Market
Revenues from NewMedia are derived primarily from the sale of advertising
in the magazine and will continue to be derived primarily from such sales in the
foreseeable future.* The technology publishing industry is highly competitive.
Many of the Company's competitors have substantially greater financial, sales
and marketing resources than the Company. Although the market for new media
products is an evolving market, the Company competes for advertising revenue
with numerous magazines and newspapers, including personal computer magazines.
There can be no assurance that the Company will not experience increased
competition from new or existing technology periodicals or other media, such as
the Internet. Such increased competition, if experienced, would have a material
adverse impact on the Company's ability to increase its advertising revenues.
Growth of New Media Market
NewMedia is targeted toward professionals users of new media products and
services in connection with computers. The computer industry has historically
been characterized by business cycles. To the extent that the computer industry
or professional new media market experiences a significant downturn, the Company
would expect a similar downturn in its business. The professional market for new
media products and services is in the early stages of development, and
predictions as to its size and the factors which will affect it are
inconclusive. To the extent that the professional new media market does not
develop as quickly as the Company anticipates or that it experiences a
significant downturn following growth, the Company's ability to generate revenue
or profits may be adversely affected. Furthermore, even if the professional new
media market does develop as anticipated, there can be no assurance that the
demand for NewMedia will also increase.
Dependence on Key Personnel
The Company's success depends to a large extent upon the efforts and
abilities of key managerial employees, including without limitation, Richard
Landry, Todd Hagen and Dan Ruby, the Chief Executive Officer, Chief Financial
Officer and Vice President, Editorial, respectively, of the Company. The loss of
certain of these key managers could have a material adverse effect on the
Company. The Company has not entered into employment agreements with its
executive officers and carries no key man insurance on their lives. The success
of the Company's business will also depend upon its ability to continue to
attract and retain qualified employees. There can be no assurance that the
Company will be successful in attracting or retaining such personnel.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14(a) for an index to the financial statements and supplementary
financial information attached hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
- ------------------------------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the future results will meet the Company's
current expectations. Investors are strongly encouraged to review the sections
entitled "Business", "Factors Affecting Operating Results and Market Price of
Stock" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of factors that could affect future
performance.
18
<PAGE>
PART III
Certain information required by Part III is omitted from this Form 10-K in
that the Company will file a definitive proxy statement within 120 days after
the end of its fiscal year pursuant to Regulation 14A of the Securities Exchange
Act of 1934 (the "Proxy Statement") for its Annual Meeting of Shareholders to be
held May 22, 1997.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company are as follows:
Name Age Position with the Company
--------------------- ---- ----------------------------------------------
Richard Landry 40 Chairman of the Board of Directors, President,
Chief Executive Officer, Publisher,
and Director
Todd Hagen 37 Vice President, Finance and Administration,
Chief Financial Officer, and Secretary
Dan Ruby 44 Vice President, Editorial
Patrick Ferrell 40 Director
John Griffin (2) 48 Director
Michael Kaufman(1)(2) 55 Director
Greg Lahann(1) 38 Director
- --------------------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
All directors hold office until the next annual meeting of shareholders of
the Company or until their successors have been elected. There is no family
relationship between any director or executive officer of the Company.
Richard Landry joined the Company in January 1992 as its President and
Publisher; he also became a director of the Company at that time. In July 1992,
Mr. Landry became Chief Executive Officer of the Company. In February 1997, Mr.
Landry also became Chairman of the Board of Directors. From 1988 to 1991, Mr.
Landry was Editor-in-Chief and Associate Publisher of PC World, a publication of
PCW Communications, Inc. From 1986 to 1988, Mr. Landry was Managing Editor and
Editor of PC World.
Todd Hagen joined the Company in July 1995 as its Vice President, Finance
and Administration, and Chief Financial Officer. In February 1997, Mr. Hagen
also became Secretary. Previous to this position, Mr. Hagen was Vice President
of Finance and Chief Financial Officer at Coactive Computing Corporation, a
computer networking company, and Resumix, Inc., a human resources software
company.
Dan Ruby joined the Company in January 1997 as its Vice President,
Editorial. Previous to this position, Mr. Ruby was Director of Online Publishing
for CMP Publications and Editor-in-Chief and Associate Publisher at Active
Media, Inc., a division of International Data Group. Previous positions included
Editor-in-Chief of NeXTWorld, Editor of InfoWorld, Editor of MacWeek, Executive
Editor of PC Week, and Associate Editor of Popular Science.
John Griffin became a director of the Company in April 1994. Since
September 1990, he has been the President of the Magazine Division of Rodale
Press, Inc., Emmaus, Pennsylvania, a publisher of consumer magazines in the
areas of health, fitness, gardening and crafts, including Prevention, Runner's
World and American Woodworker. Mr. Griffin has also been a director of Rodale
Press since October 1990. From January 1988 until April 1990, Mr. Griffin was
Chairman of the Board of Directors, President and Publisher of PC World.
19
<PAGE>
Michael Kaufman became a director of the Company in July 1991. Since
October 1987, he has been the General Partner of MK Global Ventures, Palo Alto,
California, a venture capital firm specializing in early-stage and start-up
financing of high technology companies. From August 1981 until October 1987, Mr.
Kaufman was a general partner of Oak Investment Partners, a venture capital
firm. Prior to August 1981, Mr. Kaufman was President and Chief Operating
Officer of Centronics Data Corporation, a manufacturer of computer peripherals.
Mr. Kaufman serves on the board of directors of Davox Corp., a
telecommunications company, Document Technologies, Inc., a computer software and
systems company, Document Imaging Systems Corporation, a manufacturer of
computer mass storage systems, Asante Technologies, Inc., a networking products
company, and Proxim, Inc., a wireless communications company.
Greg Lahann became a director of the Company in August 1990. From October
1987 through December 1993, he was the Chief Financial Officer of MK Global
Ventures, and since January 1990, he has been a General Partner of MK Global
Ventures II. From 1981 to 1987, Mr. Lahann was employed by Price Waterhouse LLP,
in various positions, the last of which was as manager in the Audit Department.
Mr. Lahann is a Certified Public Accountant.
Patrick Ferrell became a director of the Company in February 1997. Mr.
Ferrell is currently a business strategy consultant and is the CEO/President of
Infotainment World, Inc., a diversified subsidiary of IDG Communications. Mr.
Ferrell was also the founder of GamePro magazine, the leading consumer
publication serving the interactive entertainment market.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
Proxy Statement under the heading "Executive Compensation and Other Matters."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this Item is incorporated by reference to the
Proxy Statement under the heading "Record Date and Principal Share Ownership."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to the
Proxy Statement under the heading "Executive Compensation and Other Matters."
20
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(a) 1. Financial Statements
The following financial statements of HyperMedia Communications,
Inc. are filed as part of this report on Form 10-K:
Page Number
-----------
Report of Independent Accountants.......................... 24
Balance Sheets--December 31, 1995 and 1996................. 25
Statements of Operations--Years ended
December 31, 1994, 1995 and 1996........................... 26
Statements of Shareholders' Equity (Deficit)--
Years ended December 31, 1994, 1995 and 1996............... 27
Statements of Cash Flows--Years ended
December 31, 1994, 1995 and 1996........................... 28
Notes to Financial Statements.............................. 29
2. Financial Statement Schedules
The Company is not filing any Financial Statement Schedules because the
information required to be set forth therein is not applicable or is included in
the Financial Statements or notes thereto.
21
<PAGE>
3. Exhibits
Exhibit
Number Description
------- -----------
3.1(1) Articles of Incorporation of the Registrant, as amended.
3.2(4) Certificate of Determination of Preferences of Series F
Preferred Stock of the Registrant.
3.3(1) Bylaws of the Registrant.
4.1(1) Specimen Common Stock Certificate.
4.2(1) Common Stock Warrant, dated December 18, 1989, issued by
the Registrant to MK Global Ventures.
4.5(1) Common Stock Warrant, dated March 16, 1993, issued by
the Registrant to David Bunnell.
4.6(1) Common Stock Warrant, dated March 16, 1993, issued by
the Registrant to Dr. Eugene Duh.
4.7(1) Form of Subscription Agreement entered into in
connection with the Bridge Financing.
4.8(1) Form of Common Stock Warrant issued to investors
pursuant to the Bridge Financing.
4.9(2) Representative's Warrant, dated March 9, 1993, issued by
the Registrant to Barington Capital Group, L.P.
4.10(1) Modification Agreement, dated October 30, 1990, between
the Registrant, MK Global Ventures, MK Global Ventures
II and Edward Alpern, as amended by First Amendment to
Modification Agreement and Written Consent, dated
September 15, 1992, Second Amendment to Modification
Agreement, dated October 15, 1992 and Third Amendment to
Modification Agreement and Written Consent, dated
December 1, 1992.
4.11(1) Co-Sale Agreement, dated April 18, 1990, between the
Company, MK Global Ventures, MK Global Ventures II,
Davison Associates, Edward Alpern, Louis Casabianca and
Harry Miller.
4.12(3) 1991 Stock Plan and forms of agreements thereunder, as
amended.
4.13(3) 1993 Director Option Plan and form of agreement
thereunder, as amended.
4.14 Common Stock Warrant, dated February 9, 1994 and as
amended March 19, 1997, issued by the Registrant to
Imperial Bank.
4.15(3) Common Stock Warrant, dated September 14, 1994, issued
by the Registrant to MK Global Ventures II.
4.16(4) Series F Preferred Stock Purchase Agreement, dated March
12, 1996, between the Registrant and MK GVD Fund.
4.17 Common Stock Warrant, dated November 26, 1996, issued by
the Registrant to MK GVD Fund.
22
<PAGE>
10.1(1) Form of Indemnification Agreement for directors and
officers.
10.2(1) $5,000.07 Subordinated Promissory Note, dated April 18,
1990, issued by the Registrant to Edward Alpern.
10.3(1) $5,000.07 Subordinated Promissory Note, dated October
22, 1991, issued by the Registrant to Amerinda Alpern.
10.4 Lease Agreement, dated February 21, 1991 and as amended
February 20, 1997, between the Registrant and Spieker
Partners.
10.5(2) Amendment #1 to Lease Agreement, dated June 11, 1993,
between the Registrant and Spieker - Singleton #68
Limited.
10.6(2) Consulting Agreement with Barington Capital Group, L.P.
10.7(1) Shareholder's Voting Agreement.
10.8 Security and Loan Agreement, dated March 19, 1997,
between the Registrant and Imperial Bank.
11.1 Computation of net loss per share.
23.1 Consent of Independent Accountants.
24.1 Power of Attorney (see page 37).
- ---------------------
(1) Incorporated by reference to the exhibit filed with the Registrant's
Registration Statement on Form S-1, as amended (No. 33-60548),declared
effective on March 9, 1993.
(2) Incorporated by reference to the exhibit filed with the Registrant's
Annual Report on Form 10-K filed March 25, 1994.
(3) Incorporated by reference to the exhibit filed with the Registrant's
Annual Report on Form 10-K filed March 29, 1995.
(4) Incorporated by reference to the exhibit filed with the Registrant's
Annual Report on Form 10-K filed March 29, 1996.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
December 31, 1996.
(c) Exhibits -- See Item 14(a)3 above.
(d) Financial Statement Schedules -- See Item 14(a)2 above.
23
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders of
HyperMedia Communications, Inc.
In our opinion, the accompanying balance sheets and the related statements of
operations, shareholders' equity and cash flows present fairly, in all material
respects, the financial position of HyperMedia Communications, Inc. at December
31, 1996 and 1995, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
San Jose, California
February 7, 1997, except for Note 5,
which is as of March 19, 1997
24
<PAGE>
<TABLE>
Hypermedia Communications, Inc.
Balance Sheets
=======================================================================================
<CAPTION>
December 31,
1996 1995
Assets
<S> <C> <C>
Current assets:
Cash $ 107,000 $ 275,000
Accounts receivable, net of allowance for doubtful
accounts of $180,000 and $338,000 1,294,000 925,000
Prepaid expenses and other current assets 557,000 358,000
----------- -----------
Total current assets 1,958,000 1,558,000
Property and equipment, net 622,000 668,000
Intangible assets 4,000 21,000
----------- -----------
$ 2,584,000 $ 2,247,000
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 822,000 $ 691,000
Accrued liabilities 326,000 284,000
Deferred revenue 33,000 187,000
Note payable 335,000 -
----------- -----------
Total current liabilities 1,516,000 1,162,000
----------- -----------
Commitments (Note 11)
Shareholders' equity:
Convertible Preferred Stock, $.001 par value;
10,064,516 shares authorized; $1,250,000 and
$1,000,000 aggregate liquidation amounts; 8,146,766
and 8,064,516 shares outstanding 1,209,000 1,000,000
Common Stock, $0.001 par value; 50,000,000 shares
authorized; 3,019,004 and 3,011,433 shares
outstanding 10,377,000 10,375,000
Shareholder note receivable - (63,000)
Accumulated deficit (10,518,000) (10,227,000)
----------- -----------
Total shareholders' equity 1,068,000 1,085,000
----------- -----------
$ 2,584,000 $ 2,247,000
=========== ===========
</TABLE>
25
<PAGE>
Hypermedia Communications, Inc.
Statements of Operations
================================================================================
Year ended December 31,
1996 1995 1994
Revenues: $8,618,000 $ 9,754,000 $ 9,284,000
---------- ----------- -----------
Expenses:
Editorial 1,228,000 1,309,000 1,386,000
Production 2,373,000 2,745,000 2,377,000
Circulation 2,072,000 2,275,000 2,414,000
Sales and marketing 2,269,000 2,522,000 2,922,000
Product development 29,000 36,000 103,000
General and administrative 914,000 1,318,000 1,692,000
---------- ----------- -----------
Total expenses 8,885,000 10,205,000 10,894,000
---------- ----------- -----------
Loss from operations (267,000) (451,000) (1,610,000)
Interest and other expense, net (24,000) (11,000) (6,000)
---------- ----------- -----------
Net loss $ (291,000) $ (462,000) $(1,616,000)
========== =========== ===========
Net loss per share:
Net loss per share $ (0.10) $ (0.15) $ (0.54)
========== =========== ===========
Weighted average common shares
and equivalents 3,019,004 3,153,786 3,010,730
========== =========== ===========
26
<PAGE>
<TABLE>
Hypermedia Communications, Inc.
Statements of Shareholders' Equity
====================================================================================================================================
<CAPTION>
Convertible Shareholder Preferred Total
Common Stock Preferred Stock Note Stock Accumulated Shareholders'
Shares Amount Shares Amount Receivable Accretion Deficit Equity
--------- ----------- --------- ---------- -------- -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 3,010,050 $10,367,000 - $ - $(63,000) $(49,000) $ (8,149,000) $ 2,106,000
Issuance of Common Stock for cash 1,383 8,000 - - - - - 8,000
Conversion of the Series E
Mandatorily Redeemable
Convertible Preferred Stock
to Series E Convertible
Preferred Stock - - 8,064,516 1,000,000 - 49,000 - 1,049,000
Net loss for the period - - - - - - (1,616,000) (1,616,000)
--------- ----------- --------- ---------- -------- -------- ------------ -----------
Balance at December 31, 1994 3,011,433 10,375,000 8,064,516 1,000,000 (63,000) - (9,765,000) 1,547,000
Net loss for the period - - - - - - (462,000) (462,000)
--------- ----------- --------- ---------- -------- -------- ------------ -----------
Balance at December 31, 1995 3,011,433 10,375,000 8,064,516 1,000,000 (63,000) - (10,227,000) 1,085,000
Repayment of shareholder note
receivable - - - - 63,000 - - 63,000
Issuance of Common Stock for cash 7,571 2,000 - - - - - 2,000
Issuance of Series F Convertible
PreferredStock for cash, net of
issuance costs - - 82,250 209,000 - - - 209,000
Net loss for the period - - - - - - (291,000) (291,000)
--------- ----------- --------- ---------- -------- -------- ------------ -----------
Balance at December 31, 1996 3,019,004 $10,377,000 8,146,766 $1,209,000 $ - $ - $(10,518,000) $ 1,068,000
========= =========== ========= ========== ======== ======== ============ ===========
</TABLE>
27
<PAGE>
<TABLE>
Hypermedia Communications, Inc.
Statements of Cash Flows
================================================================================================
<CAPTION>
Year ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(291,000) $(462,000) $(1,616,000)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 240,000 342,000 404,000
Provision for doubtful accounts (90,000) 201,000 349,000
Change in assets and liabilities:
Accounts receivable (280,000) 540,000 (237,000)
Prepaid expenses and other current assets (199,000) 181,000 (271,000)
Other assets - 11,000 -
Accounts payable 131,000 (268,000) 463,000
Accrued liabilities 42,000 79,000 (239,000)
Deferred revenue (154,000) (289,000) 225,000
--------- --------- -----------
Net cash provided by (used in) operating activities (601,000) 335,000 (922,000)
--------- --------- -----------
Net cash used in investing activities for purchase of
fixed assets (176,000) (162,000) (396,000)
--------- --------- -----------
Cash flows from financing activities:
Proceeds from line of credit 335,000 - 100,000
Repayment of line of credit - (100,000) -
Proceeds from issuance of common stock 2,000 - 8,000
Repayment of shareholder note receivable 63,000 - -
Proceeds from issuance of Convertible
Preferred Stock, net of issuance costs 209,000 - -
--------- --------- -----------
Net cash provided by (used in) financing activities 609,000 (100,000) 108,000
--------- --------- -----------
Net increase (decrease) in cash (168,000) 73,000 (1,210,000)
Cash at beginning of year 275,000 202,000 1,412,000
--------- --------- -----------
Cash at end of year $ 107,000 $ 275,000 $ 202,000
========= ========= ===========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 23,000 $ 12,000 $ 14,000
========= ========= ===========
</TABLE>
28
<PAGE>
Note 1 - The Company and its Business:
HyperMedia Communications, Inc. (the "Company"), incorporated in
California in August 1989, publishes periodicals, including NewMedia
("NewMedia"), a magazine covering the field of emerging media technologies and
the Internet. Hypermedia also publishes Hyperstand, a World Wide Web site,
serving the information needs of developers of Internet web sites and new media
projects and services. Substantially all of the Company's revenue to date has
resulted from the sale of advertising in NewMedia.
Note 2 - Summary of Significant Accounting Policies:
Use of Estimates
The preparation of these 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.
Revenue Recognition and Deferred Revenue
Deferred revenue represents cash received in advance for subscriptions and
advertising. Deferred revenue is recognized as revenue upon the release of the
related magazine.
Cash and Cash Equivalents and Short-Term Investments
All highly liquid investments purchased with an original maturity of three
months or less are considered to be cash equivalents.
The Company accounts for its investment securities in accordance with the
provisions of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." At December 31, 1996 and 1995, the
Company did not hold any investment securities.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets which
range from two to seven years.
Intangible Assets
Intangible assets, consisting of purchased subscription lists, are
amortized over 60 months.
Promotional Expenses
Certain promotional expenses, consisting primarily of direct response
campaigns to obtain subscribers to the Company's publications, are capitalized
and amortized over the estimated useful life, generally one year.
29
<PAGE>
Income Taxes
The Company accounts for income taxes under the asset and liability
approach that requires the recognition of deferred tax assets and liabilities
for expected future tax consequences of events that have been recognized in the
Company's financial statements or income tax returns.
Net Loss Per Common Share
Net loss per common share is based upon the weighted average number of
outstanding shares of Common Stock and dilutive Common Stock equivalent shares
outstanding. Common Stock equivalent shares include Convertible Preferred Stock
(using the if-converted method) and stock options and warrants (using the
treasury stock method).
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of accounts receivable. The
Company performs ongoing credit evaluations of its customers' financial
condition and maintains an allowance for uncollectible accounts receivable based
upon expected collectibility of accounts receivable. During the years ended
December 31, 1996, 1995 and 1994, the Company wrote-off approximately $72,000,
$205,000 and $222,000, respectively, of accounts receivable balances. The
Company's magazine, "New Media," is only distributed in the United States. At
December 31, 1996 and 1995, one customer accounted for 14% and 11%,
respectively, of accounts receivable.
Stock Based Compensation
The Company applies Accounting Principles Board Opinion 25 "Accounting for
Stock Issued to Employees" (APB 25) and related interpretations in accounting
for its stock-based compensation plans, as permitted by the Financial Accounting
Standards Board's No. 123 (SFAS 123), "Accounting for Stock-Based Compensation."
SFAS 123 defines a "fair value" based method of accounting for an employee stock
option or similar equity instrument and encourages, but does not require,
entities to adopt that method of accounting for their employee stock
compensation plans. The pro forma disclosures of the difference between
compensation cost included in net loss and the related cost measured by the fair
value method are presented in Note 8.
Note 3 - Capitalized Promotional Expenses
Capitalized promotional expenses consist of direct response campaigns to
obtain subscribers to the Company's publications. The capitalized costs of the
campaigns are amortized over a twelve-month period which represents the period
for which a recipient is entitled to receive the Company's publications.
At December 31, 1996 and 1995, $471,000 and $157,000 of such promotional
expenses are included in prepaid expenses and other assets. Related amortization
for the years ended December 31, 1996 and 1995 was $409,000 and $446,000,
respectively.
30
<PAGE>
Note 4 - Short-Term Note Payable:
In October and November 1992, the Company issued $1,500,000 of Senior
Secured Convertible Promissory Notes (the "Bridge Notes"). The Company incurred
$271,000 of costs related to the issuance of the Bridge Notes, which were
deferred and were being amortized over the one year term of the Bridge Notes
using the interest method. In 1993, the Bridge Notes were repaid with funds
received from the initial public offering and accordingly, the costs related to
issuance were charged to operations.
Holders of the Bridge Notes received five year warrants to purchase a
total of 281,255 shares of Common Stock at an exercise price of $3.44 per share.
The Company may redeem the warrants, in whole but not in part, for $0.028 per
warrant, if, subsequent to the initial public offering (March 9, 1993), the
Company's Common Stock trades at least four times the exercise price of the
warrants for a period of 30 consecutive trading days ending within 15 days of
the notice of redemption, or if the Company effects a private placement of
Common Stock aggregating at least $4,000,000 at a price per share equal to at
least four times the exercise price of the warrants. The value of these warrants
at the date of issuance was immaterial.
Note 5 - Bank Credit Facility:
In March 1997, the Company renewed its credit agreement with a commercial
bank. The agreement provides for borrowings of up to 70% of eligible accounts
receivable not to exceed $1 million. The revolving credit facility is secured by
the assets of the Company and requires the Company to maintain certain quarterly
financial ratios and be subject to certain covenants and other usual and
customary provisions. Partial usage of unused borrowing capacity could be
restricted by financial operating covenants. Borrowings are subject to the
lender's references rate of prime plus 2%, which at December 31, 1996 was
10.25%. The renewed credit facility expires in March 1998. In conjunction with
the original credit agreement entered into in fiscal 1994, the Company issued
warrants to purchase 6,897 shares of Common Stock. In conjunction with the
amended agreement, the exercise price of these warrants was changed to $3.70 per
share. The value of these warrants at the date of the amendment was immaterial.
These warrants expire in February 1999. At December 31, 1996, $335,000 was
outstanding under this agreement.
Note 6 - Convertible Preferred Stock and Common Stock:
Upon the effectiveness of the Company's initial public offering in March
1993, all of the Company's Mandatorily Redeemable Convertible Preferred Stock,
except 8,064,516 shares of Series D, was converted into 1,157,117 shares of
Common Stock. The 8,064,516 shares of Series D were converted into 8,064,516
shares of Series E Mandatorily Redeemable Convertible Preferred Stock.
In September 1994, the sole holder of the Company's outstanding Series E
Mandatorily Redeemable Convertible Preferred Stock irrevocably waived its right
to cause the Company to redeem these shares pursuant to the Company's Articles
of Incorporation. In consideration for this waiver, the Company issued a warrant
to the holder to purchase 15,985 shares of Common Stock of the Company at a
price of $6.75 per share. This warrant expires in September 1999. The value of
this warrant at the date of issuance was immaterial.
As a result of the waiver, the Company classifies the Series E Mandatorily
Redeemable Preferred Stock on its balance sheet as Series E Convertible
Preferred Stock which is included in "Stockholders' Equity."
31
<PAGE>
The holders of Series E have a liquidation preference per share equal to
$0.124 per share. Shares of Series E are redeemable for cash at the Company's
option (at $0.124 per share) or convertible into such number of shares of Common
Stock equal to the liquidation value of the Series E divided by $5.00 (200,000
shares of Common Stock at December 31, 1996). The shares of Series E may be
converted into Common Stock, at the option of the holder, any time after
December 31, 1999.
In March 1996 the Board of Directors designated 175,000 of Preferred Stock
as Series F. In June 1996, the Board of Directors designated an additional
175,000 shares of Preferred Stock as Series G. Shares of the Series F and Series
G rank pari passu with respect to liquidation rights associated with the Series
E Preferred Stock. The liquidation value is equal to the initial sales price per
share plus all declared but unpaid dividends thereon. Each share of Series F and
Series G may be converted into Common Stock at the option of the holder and
automatically converts in to Common Stock if at least 67 percent of the
authorized, issued and outstanding shares of the Series elect to convert to
Common Stock. The Series F and Series G have voting rights equal to Common Stock
on an as-if converted basis. In March 1996, the Company issued 82,250 shares of
Series F stock at $3.04 per share.
As of December 31, 1996
Authorized Issued and Outstanding
------------ ----------------------
Convertible Preferred Stock:
Series E 8,064,516 8,064,516
Series F 175,000 82,250
Series G 175,000 -
Undesignated 1,650,000 -
----------- ----------
10,064,516 8,146,766
=========== ==========
Dividends for all classes of Preferred Stock and Common Stock are
noncumulative.
Note 7 - Warrants:
The following warrants were outstanding at December 31, 1996:
o A warrant, held by an officer and director of the Company, to purchase
181,133 shares of Common Stock at an exercise price of $0.28 per
share. The warrant vests over a three-year period ending January 1996
contingent upon the officer's continued employment by the Company. At
December 31, 1996, all shares were vested. The value of this warrant
at the date of issuance was immaterial.
o Warrants issued in conjunction with the Bridge Notes (Note 4).
o A warrant, expiring in 1997, to purchase 45,339 shares of Common Stock
at an exercise price of $3.44 per share. The value of this warrant at
the date of issuance was immaterial.
o A warrant, held by the underwriter of the Company's initial public
offering, to purchase 140,000 shares of Common Stock. This warrant is
exercisable through March 1998 at an exercise price of $7.75 per
share. The value of this warrant at the date of issuance was
immaterial.
o Warrants issued in conjunction with the Bank Credit Facility (Note 5).
32
<PAGE>
o Warrants issued to the holder of the Series E Mandatorily Redeemable
Preferred Stock in conjunction with the holder waiving its redemption
rights (Note 6).
o A warrant, issued in conjunction with the possible financing of Series
G Preferred Stock, to purchase 1,724 shares of common stock at an
exercise price of $2.25 per share. As of December 31, 1996 the Company
had not issued any Series G Preferred Stock. The value of this warrant
at the date of grant was immaterial.
Note 8 - Stock Compensation Plans:
Stock Option Plan
In December 1991, the Company adopted the 1991 Stock Option Plan (the
"Option Plan"). The Option Plan, which expires in 2001, provides for incentive
as well as nonstatutory stock options and stock purchase rights. The Board of
Directors may terminate the Option Plan at any time at its discretion.
Options and stock purchase rights under the Option Plan are granted at
market value and are subject to certain conditions more fully described in the
Option Plan. Generally, these conditions require that the exercise price of
options granted may not be below 85% to 110% of the fair value of the stock at
the date of the grant, depending upon the type of the award and the number of
shares of Common Stock held by the employee or consultant at the date of the
award. Options and stock purchase rights to be issued under the Option Plan will
expire over varying terms from five to ten years.
Options generally vest over a 48-month period. Options are adjusted pro
rata for any changes in the capitalization of the Company, such as stock splits
and stock dividends. In addition, the outstanding options issued under the
Option Plan will terminate within a period set by the Board of Directors after
termination of employment.
During 1995, the Company increased the number of shares of common stock
reserved for issuance under the 1991 Stock Option Plan from 500,000 to 700,000
shares. At December 31, 1996, 260,661 options were exercisable.
In April 1994, the Company adopted the 1993 Director Stock Option Plan.
The option plan provides for the automatic, nondiscretionary grant of
nonstatutory stock options to the Company's nonemployee directors. The terms of
the plan are substantially similar to those for nonstatutory options granted
under the Company's employee stock option plan. The automatic grant applies to
each nonemployee director upon the initial appointment to the board, and
annually upon re-election of each nonemployee director by the shareholders.
Initial grants were for 25,000 shares and annual grants shall be for 5,000
shares. The shares will vest over four years. During 1995, the Company increased
the number of shares of common stock reserved for issuance under this plan from
100,000 to 150,000 shares. At December 31, 1996, 120,000 shares were issued, of
which 46,250 were exercisable.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1994, 1995 and 1996, respectively: dividend yield
of 0.0%, expected volatility of 70.0% and expected lives of five years for all
years and risk free rates of 6.0%, 6.3% and 6.4%.
33
<PAGE>
<TABLE>
Activity under both the 1991 Stock Option Plan and the 1993 Director Stock
Option Plan is as follows:
<CAPTION>
1994 1995 1996
------------------------ --------------------- -----------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------- ------ ------ ----- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 241,065 $2.12 393,565 $4.01 442,565 $4.43
Granted 161,500 6.95 99,000 4.46 165,000 2.60
Exercised (1,361) 5.88 - - (7,571) 0.28
Canceled (7,639) 6.17 (50,000) 5.51 (45,450) 5.74
------- ------- -------
Outstanding at end of year 393,565 4.01 442,565 4.43 554,544 3.83
======= ======= =======
Options exercisable at year end 173,904 278,434 306,911
======= ======= =======
Weighted-average fair value of
options granted during the year $4.05 $2.86 $1.66
======= ======= =======
</TABLE>
<TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1996:
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------- -------------------------
Weighted- Weighted- Weighted-
Number Average Average Number Average
Range of Outstanding Remaining Exercise Exercisable Exercise
Exercise Prices at 12/31/96 Contractual Life Price at 12/31/96 Price
----------- ---------------- ------ ----------- -----
<S> <C> <C> <C> <C> <C>
$0.28 64,089 5.0 years $0.28 64,089 $0.28
$2.38 - $4.63 286,099 8.5 2.87 95,015 2.88
$5.00 - $8.50 204,356 7.5 6.28 147,807 6.18
-------- -------
554,544 7.7 3.83 306,911 3.93
======== =======
</TABLE>
During the years ended December 31, 1996 and 1995, respectively, no compensation
costs were recognized in connection with option grants. Had compensation cost
for the Company's option plans been determined based on the fair value at the
grant dates, as prescribed in SFAS 123, the Company's net loss would have been
as follows:
Year ended December 31,
1996 1995
Net loss:
As reported $ (291,000) $ (462,000)
Pro forma $ (368,000) $ (489,000)
Net loss per share:
As reported $ (0.10) $ (0.15)
Pro forma $ (0.12) $ (0.16)
34
<PAGE>
The fair value of each option grant is estimated on the date of grant
using the minimum value method with the following assumptions used for grants
during the applicable period: dividend yield of 0.0% for both periods; risk-free
interest rates of 6.0% to 6.7% and 6.2% to 6.4% for options granted during the
years ended December 31, 1996 and 1995, respectively; and a weighted average
expected option term and volatility of five years and 70.0%, respectively, for
both periods.
Because additional option grants are expected to be made each year, the
above pro forma disclosures are not representative of pro forma effects of
reported net income for future years.
1996 Employee Stock Purchase Plan
During 1996, the Company adopted an Employee Stock Purchase Plan (the
"Purchase Plan"). The Purchase Plan allows eligible company employees to
contribute up to 15% of their base compensation to purchase Common Stock of the
Company at 85% of fair market value and still subject to approval by the Board
of Directors. The maximum number of shares of the Company's Common Stock which
shall be made available for sale under the Purchase Plan shall be 150,000
shares, subject to changes in the Company's capitalization. As of December 31,
1996, no shares were issued under the Purchase Plan.
Note 9 - Details of Balance Sheet Components:
Property and equipment consisted of the following:
December 31,
1996 1995
Equipment $1,092,000 $ 938,000
Furniture and fixtures 270,000 267,000
---------- ----------
1,362,000 1,205,000
Less: accumulated depreciation and amortization (740,000) (537,000)
---------- ----------
$ 622,000 $ 668,000
========== ==========
Intangible assets at December 31, 1996 and 1995 consisted of purchased
subscription lists, net of accumulated amortization of $4,000 and $38,000,
respectively.
Note 10 - Income Taxes:
No provision for federal and state income taxes has been recorded as the
Company incurred net operating losses through December 31, 1996. At December 31,
1996 the Company had net operating loss carryforwards of approximately
$10,500,000 for federal income tax purposes which may be utilized to reduce
future taxable income through 2011, subject to certain limitations. Under the
Tax Reform Act of 1986, the amounts of and the benefit from net operating losses
that can be carried forward may be impaired or limited in certain circumstances.
Events which may cause changes in the amount of net operating losses that the
Company may utilize in any one year include, but are not limited to, a
cumulative stock ownership change of more than 50% over a three-year period. As
a result of prior financings which resulted in such an ownership change in April
1990, approximately $500,000 of the Company's net operating loss carryforwards
are limited to usage of approximately $50,000 per year.
35
<PAGE>
Further, the initial public offering in March 1993 triggered another
ownership change of greater than 50% and the potential benefits from utilization
of tax carryforwards generated from April 1990 through the date of the offering,
totaling approximately $5,600,000 will be impaired. The approximate annual
limitation on the utilization of those carryforwards is $700,000 provided that
this amount is reduced to the extent that the net operating carryforwards
generated through April 1990 are utilized.
Deferred tax assets (liabilities) are comprised of the following:
December 31,
1996 1995
Net operating loss carryforwards $ 4,000,000 $ 3,691,000
Accounts receivable reserves 70,000 215,000
Other 40,000 32,000
----------- -----------
Gross deferred tax assets 4,110,000 3,938,000
----------- -----------
Gross deferred tax liabilities (190,000) (68,000)
----------- -----------
Deferred tax asset valuation allowance (3,920,000) (3,870,000)
----------- -----------
Total net deferred tax asset $ - $ -
=========== ===========
The deferred tax asset valuation allowance is required because of the
uncertainty regarding the realizability of the deferred tax assets.
Note 11 - Commitments:
The Company leases office space under a noncancelable operating lease which
expires in April 1997. In February 1997, the Company renewed its noncancelable
operating lease. Future minimum lease payments under noncancelable operating
leases, including the February 1997 renewal are as follows:
Year ended December 31,
1997 $ 231,000
1998 277,000
1999 286,000
2000 96,000
Thereafter -
---------
$ 890,000
=========
Total rental expense under operating leases was $174,000, $173,000 and
$168,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
36
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
HYPERMEDIA COMMUNICATIONS, INC.
Dated: March 24, 1997 By: \s\ Todd Hagen
-----------------------------------------
Todd Hagen, Vice President of
Finance and Administration,
Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Richard Landry and Todd Hagen, or either
of them, his attorneys-in-fact, each with the power of substitution, for him in
any and all capacities, to sign any amendments to this Annual Report on Form
10-K, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
<TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates indicated.
<CAPTION>
====================== ================================================= ================
Signature Title Date
- ---------------------- ------------------------------------------------- ----------------
<S> <C> <C>
\s\ Richard Landry Chairman of the Board of Directors, President March 24, 1997
- ---------------------- Chief Executive Officer, Publisher and
Richard Landry Director (Principal Executive Officer)
\s\ Todd Hagen Vice President of Finance and Administration and March 24, 1997
- ---------------------- Chief Financial Officer (Principal Financial and
Todd Hagen Accounting Officer)
\s\ John Griffin Director March 24, 1997
- ----------------------
John Griffin
\s\ Patrick Ferrell Director March 24, 1997
- ----------------------
Patrick Ferrell
\s\ Michael Kaufman Director March 24, 1996
- ----------------------
Michael Kaufman
\s\ Greg Lahann Director March 24, 1996
- ----------------------
Greg Lahann
</TABLE>
37
<PAGE>
<TABLE>
INDEX TO EXHIBITS
<CAPTION>
Exhibit Description Sequentially
Number Numbered Page
<S> <C> <C>
3.1(1) Articles of Incorporation of the Registrant.
3.2(4) Certificate of Determination of Preferences of Series of F Preferred Stock of the
Registrant.
3.3(1) Bylaws of the Registrant.
4.1(1) Specimen Common Stock Certificate.
4.2(1) Common Stock Warrant, dated December 18, 1989, issued by the
Registrant to MK Global Ventures.
4.5(1) Common Stock Warrant, dated March 16, 1993, issued by the Registrant to David
Bunnell.
4.6(1) Common Stock Warrant, dated March 16, 1993, issued by the Registrant to Dr. Eugene
Duh.
4.7(1) Form of Subscription Agreement entered into in connection with the Bridge Financing.
4.8(1) Form of Common Stock Warrant issued to investors pursuant to the Bridge Financing.
4.9(2) Representative's Warrant, dated March 9, 1993, issued by the Registrant to
Barington Capital Group, L.P.
4.10(1) Modification Agreement, dated October 30, 1990, between the
Registrant, MK Global Ventures, MK Global Ventures II and Edward
Alpern, as amended by First Amendment to Modification Agreement
and Written Consent, dated September 15, 1992, Second Amendment
to Modification Agreement, dated October 15, 1992 and Third
Amendment to Modification Agreement and Written Consent, dated
December 1, 1992.
4.11(1) Co-Sale Agreement, dated April 18, 1990, between the Registrant, MK Global
Ventures, MK Global Ventures II, Davison Associates, Edward Alpern, Louis
Casabianca and Harry Miller.
4.12(3) 1991 Stock Plan and forms of agreements thereunder, as amended.
4.13(3) 1993 Director Option Plan and form of agreement thereunder, as amended.
4.14 Common Stock Warrant, dated February 9, 1994 and as amended March 19, 1997, issued
by the Registrant to Imperial Bank.
4.15(3) Common Stock Warrant, dated September 14, 1994, issued by the
Company to MK Global Ventures II.
4.16(4) Series F Preferred Stock Purchase Agreement, dated March 12,
1996, between the Registrant and MK GVD Fund.
4.17 Common Stock Warrant, dated November 26, 1996 issued by the Reigistrant to MK GVD
Fund.
10.1(1) Form of Indemnification Agreement for directors and officers.
10.2(1) $5,000.07 Subordinated Promissory Note, dated April 18, 1990, issued by the
Registrant to Edward Alpern.
10.3(1) $5,000.07 Subordinated Promissory Note, dated October 22, 1991, issued by the
Registrant to Amerinda Alpern.
10.4 Lease Agreement, dated February 21, 1991 and as amended February
20, 1997, between the Registrant and Spieker Partners.
10.5(2) Amendment #1 to Lease Agreement, dated June 11, 1993, between
the Registrant and Spieker - Singleton #68 Limited.
10.6(2) Consulting Agreement with Barington Capital Group, L.P.
10.7(1) Shareholder's Voting Agreement.
10.8 Security and Loan Agreement, dated March 19, 1997, between the Registrant and
Imperial Bank.
11.1 Computation of net loss per share.
23.1 Consent of Independent Accountant
24.1 Power of Attorney (see page 37).
38
<PAGE>
<FN>
- ---------------------
(1) Incorporated by reference to the exhibit filed with the Registrant's
Registration Statement on Form S-1, as amended (No. 33-60548), declared
effective on March 9, 1993.
(2) Incorporated by reference to the exhibits filed with the Registrant's
Annual Report on Form 10-K filed March 25, 1994.
(3) Incorporated by reference to the exhibits filed with the Registrant's
Annual Report on Form 10-K filed March 29, 1995.
(4) Incorporated by reference to the exhibits filed with the Registrant's
Annual Report on Form 10-K filed March 29, 1996.
</FN>
</TABLE>
39
EXHIBIT 4.14
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE STOCK
Corporation: Hypermedia Communications, Inc., a California corporation
Number of Shares: 6897
Class of Stock: Common
Initial Exercise Price: $ 2.97 per share
Issue Date: February 9, 1994
Expiration Date: February 9, 1999 (subject to Article 4.1)
THIS WARRANT CERTIFIES THAT, in consideration of the payment of $1.00
and for other good and valuable consideration, IMPERIAL BANK ("Holder") is
entitled to purchase the number of fully paid and nonassessable shares of the
class of securities (the "Shares") of the corporation (the "Company") at the
initial exercise price per Share (the "Warrant Price") all as set forth above
and as adjusted pursuant to Article 2 of this Warrant, subject to the provisions
and upon the terms and conditions set forth of this Warrant.
ARTICLE 1. EXERCISE
1.1 Method of Exercise. Holder may exercise this Warrant by delivering
this Warrant and a duly executed Notice of Exercise in substantially the form
attached as Appendix 1 to the principal office of the Company. Unless Holder is
exercising the conversion right set forth in Section 1.2, Holder shall also
deliver to the Company a check for the aggregate Warrant Price for the Shares
being purchased.
1.2 Net Exercise. In lieu of exercising this Warrant as specified in
Section 1.1, Holder may from time to time exercise this Warrant, in whole or in
part, for the number of Shares determined by dividing (a) the aggregate fair
market value of the Shares or other securities otherwise issuable upon exercise
of this Warrant minus the aggregate Warrant Price of such Shares by (b) the fair
market value of one Share. The fair market value of the Shares shall be
determined pursuant to Section 1.5.
1.3 Omitted
1.4 Omitted
<PAGE>
1.5 Fair Market Value. If the Shares are traded regularly in a public
market, the fair market value of the Shares shall be the closing price of the
Shares (or the closing price of the Company's stock into which the Shares are
convertible) reported for the business day immediately before Holder delivers
its Notice of Exercise to the Company. If the Shares are not regularly traded in
a public market, the Board of Directors of the Company shall determine fair
market value in its reasonable good faith judgment. The foregoing
notwithstanding, if Holder advises the Board of Directors in writing that Holder
disagrees with such determination, then the Company and Holder shall promptly
agree upon a reputable investment banking firm to undertake such valuation. If
the valuation of such investment banking firm is greater than that determined by
the Board of Directors, then all fees and expenses of such investment banking
firm shall be paid by the Company. In all other circumstances, such fees and
expenses shall be paid by Holder.
1.6 Delivery of Certificate and New Warrant. Promptly after Holder
exercises this Warrant, the Company shall deliver to Holder certificates for the
Shares acquired and, if this Warrant has not been fully exercised and has not
expired, a new Warrant representing the Shares not so acquired.
1.7 Replacement of Warrants. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, or surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor.
1.8 Repurchase on Sale, Merger, or Consolidation of the Company.
1.8.1. "Acquisition". For the purpose of this Warrant,
"Acquisition" means any sale, license, or other disposition of all or
substantially all of the assets (including intellectual property) of the
Company, or any reorganization, consolidation, or merger of the Company where
the holders of the Company's securities before the transaction beneficially own
less than 50% of the outstanding voting securities of the surviving entity after
the transaction.
1.8.2. Assumption of Warrant. If upon the closing of any
Acquisition the successor entity assumes the obligations of this Warrant, then
this Warrant shall be exercisable for the same securities, cash, and property as
would be payable for the Shares issuable upon exercise of the unexercised
portion of this Warrant as if such Shares were outstanding on the record date
for the Acquisition and subsequent closing. The Warrant Price shall be adjusted
accordingly. The Company shall use reasonable efforts to cause the surviving
corporation to assume the obligations of this Warrant.
2
<PAGE>
1.8.3. Nonassumption. If upon the closing of any Acquisition
the successor entity does not assume the obligations of his Warrant and Holder
has not otherwise exercised this Warrant in full, then the unexercised portion
of this Warrant shall be deemed to have been automatically exercised pursuant to
Section 1.2 and thereafter Holder shall participate in the acquisition on the
same terms as other holders of the same class of securities of the Company.
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
2.1 Stock Dividends, Splits, Etc. If the Company declares or pays a
dividend on its common stock (or the Shares if the Shares are securities other
than common stock) payable in common stock, or other securities, subdivides the
outstanding common stock into a greater amount of common stock, or, if the
Shares are securities other than common stock, subdivides the Shares in a
transaction that increases the amount of common stock into which the Shares are
convertible, then upon exercise of this Warrant, for each Share acquired, Holder
shall receive, without cost to Holder, the total number and kind of securities
to which Holder would have been entitled had Holder owned the Shares of record
as of the date the dividend or subdivision occurred.
2.2 Reclassification, Exchange or Substitution. Upon any
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive, upon exercise
or conversion of this Warrant, the number and kind of securities and property
that Holder would have received for the Shares if this Warrant had been
exercised immediately before such reclassification, exchange, substitution, or
other event. Such an event shall include any automatic conversion of the
outstanding or issuable securities of the Company of the same class or series as
the Shares to common stock pursuant to the terms of the Company's Articles of
Incorporation upon the closing of a registered public offering of the Company's
common stock. The Company or its successor shall promptly issue to Holder a new
Warrant for such new securities or other property. The new Warrant shall provide
for adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article 2 including, without limitation,
adjustments to the Warrant Price and to the number of
3
<PAGE>
securities or property issuable upon exercise of the new Warrant. The provisions
of this Section 2.2 shall similarly apply to successive reclassifications,
exchanges, substitutions, or other events.
2.3 Adjustments for Combinations, Etc. If the outstanding Shares are
combined or consolidated, by reclassification or otherwise, into a lesser number
of shares, the Warrant Price shall be proportionately increased.
2.4 Omitted
2.5 No Impairment. The Company shall not, by amendment of its Articles
of Incorporation or through a reorganization, transfer of assets, consolidation,
merger, dissolution, issue, or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed under this Warrant by the Company, but shall at all times
in good faith assist in carrying out all the provisions of this Article 2 and in
taking all such action as may be necessary or appropriate to protect Holder's
rights under this Article against impairment. If the Company takes any action
affecting the Shares or its common stock other than as described above that
adversely affects Holder's rights under this Warrant, the Warrant Price shall be
adjusted downward and the number of Shares issuable upon exercise of this
Warrant shall be adjusted upward in such a manner that the aggregate Warrant
Price of this Warrant is unchanged.
2.6 Certificate as to Adjustments. Upon each adjustment of the Warrant
Price, the Company at its expense shall promptly compute such adjustment, and
furnish Holder with a certificate of its Chief Financial Officer setting forth
such adjustment and the facts upon which such adjustment is based. The Company
shall, upon written request, furnish Holder a certificate setting forth the
Warrant Price in effect upon the date thereof and the series of adjustments
leading to such Warrant Price.
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) The initial Warrant Price referenced on the first page of
this Warrant is not greater than the fair market value of the Shares as of the
date of this Warrant.
(b) All Shares which may be issued upon the exercise of the
purchase right represented by this Warrant, and all securities, if any, issuable
upon conversion of the Shares, shall, upon issuance, be duly authorized, validly
issued, fully paid and
4
<PAGE>
nonassessable, and free of any liens and encumbrances except for restrictions on
transfer provided for herein or under applicable federal and state securities
laws.
3.2 Notice of Certain Events. If the Company proposes at any time (a)
to declare any dividend or distribution upon its common stock, whether in cash,
property, stock, or other securities and whether or not a regular cash dividend;
(b) to offer for subscription pro rata to the holders of any class or series of
its stock any additional shares of stock of any class or series or other rights;
(c) to effect any reclassification or recapitalization of common stock; (d) to
merge or consolidate with or into any other corporation, or sell, lease,
license, or convey all or substantially all of its assets, or to liquidate,
dissolve or wind up; or (e) offer holders of registration rights the opportunity
to participate in an underwritten public offering of the company's securities
for cash, then, in connection with each such event, the Company shall give
Holder (1) at least 10 days prior written notice of the date on which a record
will be taken for such dividend, distribution, or subscription rights (and
specifying the date on which the holders of common stock will be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to in (c) and (d) above; (2) in the case of the matters referred to in
(c) and (d) above at least 10 days prior written notice of the date when the
same will take place (and specifying the date on which the holders of common
stock will be entitled to exchange their common stock for securities or other
property deliverable upon the occurrence of such event); and (3) in the case of
the matter referred to in (e) above, the same notice as is given to the holders
of such registration rights.
3.3 Information Rights. So long as the Holder holds this Warrant and/or
any of the Shares, the Company shall deliver to the Holder (a) promptly after
mailing, copies of all communiques to the shareholders of the Company, (b)
within ninety (90) days after the end of each fiscal year of the Company, the
annual audited financial statements of the Company certified by independent
public accountants of recognized standing and (c) within forty-five (45) days
after the end of each of the first three quarters of each fiscal year, the
Company's quarterly, unaudited financial statements.
3.4 Omitted
ARTICLE 4. MISCELLANEOUS.
4.1 Term: Notice of Expiration. This Warrant is exercisable, in whole
or in part, at any time and from time to time on or before the Expiration Date
set forth above. The Company shall give Holder written notice of Holder's right
to exercise this Warrant in the form attached as Appendix 2 not more than 90
days and not less than 30 days before the Expiration Date. If the notice is not
so given, the Expiration Date shall automatically be extended until 60 days
beyond the Expiration Date.
5
<PAGE>
4.2 Legends. This Warrant and the Shares (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) shall be
imprinted with a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED
WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO
RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
4.3 Compliance with Securities Laws on Transfer. This Warrant and the
Shares issuable upon exercise this Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company).
4.4 Transfer Procedure. Subject to the provisions of Section 4.2,
Holder may transfer all or part of this Warrant or the Shares issuable upon
exercise of this Warrant (or the securities issuable, directly or indirectly,
upon conversion of the Shares, if any) by giving the Company notice of the
portion of the Warrant being transferred setting forth the name, address and
taxpayer identification number of the transferee and surrendering this Warrant
to the Company for reissuance to the transferee(s) (and Holder, if applicable).
The Company shall have the right to refuse to transfer any portion of this
Warrant to any person who directly competes with the Company.
4.5 Notices. All notices and other communications from the Company to
the Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first-class registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company or the
Holder, as the case may be, in writing by the Company or such Holder from time
to time.
4.6 Waiver. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
6
<PAGE>
4.7 Attorneys' Fees. In the event of any dispute between the parties
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorneys' fees.
4.8 Governing Law. This Warrant shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to
its principles regarding conflicts of law.
HYPERMEDIA COMMUNICATIONS, INC.
By: /S/ Todd Hagen C.F.O.
----------------------------------
Name: Todd Hagen
--------------------------------
7
<PAGE>
APPENDIX 1
NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase _________________ shares
of the Common/Series ______ Preferred [strike one] Stock of __________ pursuant
to the terms of the attached Warrant, and tenders herewith payment of the
purchase price of such shares in full.
1. The undersigned hereby elects to convert the attached Warrant into
Shares/cash [strike one] in the manner specified in the Warrant. This conversion
is exercised with respect to ____________of the Shares covered by the Warrant.
[Strike paragraph that does not apply.]
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)
8
<PAGE>
APPENDIX 2
NOTICE THAT WARRANT IS ABOUT TO EXPIRE
__________________________ , __
(Name of Holder)
(Address of Holder)
Attn: Chief Financial Officer
Dear ____________________________:
This is to advise you that the Warrant issued to you described below
will expire on _________________________, 19__.
Issuer:
Issue Date:
Class of Security Issuable:
Exercise Price Per Share:
Number of Shares Issuable:
Procedure for Exercise:
Please contact [name of contact person at (phone number)] with any
questions you may have concerning exercise of the Warrant. This is your only
notice of pending expiration.
----------------------------
(Name of Issuer)
By
--------------------------
Its
-------------------------
9
Exhibit 4.17
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OR CONVERSION
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY APPLICABLE STATE LAWS, AND NO INTEREST THEREIN MAY BE
SOLD, DISTRIBUTED, ASSIGNED, OFFERED, PLEDGED OR OTHERWISE TRANSFERRED
WITHOUT (i) AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO, (ii)
AN OPINION OF COUNSEL FOR THE HOLDER THAT SUCH REGISTRATION IS NOT
REQUIRED OR (iii) RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND
EXCHANGE COMMISSION TO THE EFFECT THAT REGISTRATION UNDER THE ACT IS
NOT REQUIRED.
No. 1 HyperMedia Communications, Inc. November 26, 1996
COMMON STOCK PURCHASE WARRANT
This certifies that, for value received, MK GVD Fund (together with any
registered assignee(s), the "Holder") is entitled, upon the terms and subject to
the conditions hereinafter set forth, at any time on or after the date hereof
and on or prior to the Expiration Date (as defined below), but not thereafter,
to acquire from HyperMedia Communications, Inc., a California corporation (the
"Company"), in whole or from time to time in part, up to 1,724 fully paid and
nonassessable shares of Common Stock of the Company ("Warrant Stock") at a
purchase price equal to $2.25 per share (the "Exercise Price"). Such number of
shares, type of security and Exercise Price are subject to adjustment as
provided herein, and all references to "Warrant Stock" and "Exercise Price"
herein shall be deemed to include any such adjustment or series of adjustments.
1. Term
If not earlier exercised, the Warrant shall expire on November 26 ,
2001 (the "Expiration Date").
2. Exercise of Warrant
The purchase rights represented by this Warrant are exercisable by the
registered holder hereof, in whole or in part, at any time and from time to time
on or prior to the Expiration Date by the surrender of this Warrant and the
Notice of Exercise form attached hereto duly executed to the headquarters office
of the Company at the address set forth on the signature page hereof (or such
other office or agency of the Company as it may designate by notice in writing
to the registered holder hereof at the address of such holder appearing on the
books of the Company), and upon payment of the Exercise Price for the shares
thereby purchased (by cash or by check or bank draft payable to the order of the
Company or by cancellation of indebtedness of the Company to the holder hereof,
if any, at the time of exercise in an amount equal to the purchase price of the
shares thereby purchased); whereupon the holder of this Warrant shall be
entitled to receive from the Company a stock certificate in proper form
representing the number of shares of Warrant Stock so purchased, and a new
Warrant in substantially identical form and dated as of such exercise for the
purchase of that number of shares of Warrant Stock equal to the difference, if
any, between the number of shares of Warrant Stock subject hereto and the number
of shares of Warrant Stock as to which this Warrant is so exercised.
<PAGE>
3. Conversion of Warrant
The Holder shall have the right to convert this Warrant, in whole or in
part, at any time and from time to time at or prior to the Expiration Time by
the surrender of this Warrant and the Notice of Conversion form attached hereto
duly executed to the headquarters office of the Company at the address set forth
on the signature page hereof (or such other office or agency of the Company as
it may designate by notice in writing to the Holder at the address of such
Holder appearing on the books of the Company), into shares of Warrant Stock as
provided in this Section 3. Upon exercise of this conversion right, the Holder
shall be entitled to
x (A-B)
Y = -------
A
receive that number of shares of the Company's Common Stock computed by using
the following formula:
Y = the number of shares of Common Stock to be issued
to the Holder.
A = the Fair Market Value (as defined below) of one share
of the Company's Common Stock on the date of
conversion of this Warrant.
B = the Exercise Price for one share of the Company's
Common Stock under this Warrant.
X = the number of shares of Common Stock that the
Holder desires to purchase pursuant to complete or
partial conversion of the Warrant.
If the above calculation results in a negative number, then no shares
of Warrant Stock shall be issued or issuable upon conversion of this Warrant.
"Fair Market Value" of a share of Common Stock shall mean:
(1) if the conversion right is being exercised in
connection with an a bona fide acquisition of the
Company (an "Acquisition") (i.e., not a mere
recapitalization, reincorporation for the purpose of
changing corporate domicile, or similar transaction),
regardless of the form of the transaction (e.g.,
merger, consolidation, sale or lease of assets or
sale of stock), the price per share to be paid to the
holders of the Company's Common Stock by the
acquiring entity.
(2) if the conversion right is being exercised other than
in connection with an Acquisition, then (i) if the
Company's Common Stock is listed on a national
securities exchange, the last sale price for the
Company's Common Stock for the fifteen (15) trading
days prior to the date the Company receives the
Warrant and duly executed Notice of Conversion (the
"Notice Receipt Date") or (ii) if the Company's
Common Stock is listed on The Nasdaq Stock
-2-
<PAGE>
Market, the average of the average bid and ask price
for each of the five (5) trading days prior to the
Notice Receipt Date.
(3) in all other cases, the fair value as determined in
good faith by the Company's Board of Directors.
Upon conversion of this Warrant in accordance with this Section 3, the
Holder hereof shall be entitled to receive a certificate for the number of
shares of Warrant Stock determined in accordance with the foregoing, and a new
Warrant in substantially identical form and dated as of such conversion for the
purchase of that number of shares of Warrant Stock equal to the difference, if
any, between the number of shares of Warrant Stock subject hereto and the number
of shares of Warrant Stock as to which this Warrant is so converted.
4. Issuance of Shares; No Fractional Shares or Scrip
Certificates for shares purchased hereunder or issuable upon conversion
hereof shall be delivered to the Holder promptly after the date on which this
Warrant shall have been exercised or converted in accordance with the terms
hereof. The Company hereby represents and warrants that all shares of Warrant
Stock which may be issued upon the exercise or conversion of this Warrant will,
upon such exercise or conversion, be duly and validly authorized and issued,
fully paid and nonassessable and free from all taxes, liens and charges in
respect of the issuance thereof (other than liens or charges created by or
imposed upon the holder of the Warrant Stock). The Company agrees that the
shares so issued shall be and shall for all purposes be deemed to have been
issued to such holder as the record owner of such shares as of the close of
business on the date on which this Warrant shall have been exercised or
converted in accordance with the terms hereof. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise or conversion
of this Warrant. With respect to any fraction of a share called for upon the
exercise or conversion of this Warrant, an amount equal to such fraction
multiplied by the Fair Market Value of a share of Warrant Stock on the date of
exercise or conversion shall be paid in cash or check to the Holder.
5. Charges, Taxes and Expenses
Issuance of certificates for shares of Warrant Stock upon the exercise
or conversion of this Warrant shall be made without charge to the Holder for any
issue or transfer tax or other incidental expense in respect of the issuance of
such certificate, all of which taxes and expenses shall be paid by the Company,
and such certificates shall be issued in the name of the Holder or in such name
or names as may be directed by the Holder provided, however, that in the event
certificates for shares of Warrant Stock are to be issued in a name other than
the name of the Holder, this Warrant when surrendered for exercise or conversion
shall be accompanied by the Assignment Form attached hereto duly executed by the
Holder.
6. Rights as Shareholders
No holder of this Warrant, as such, shall be entitled to vote upon any
matter submitted to shareholders at any meeting thereof, or to receive notice of
meetings, or be deemed the holder of Common Stock until this Warrant shall have
been exercised or converted in whole or in part and the Warrant Stock
purchasable upon such exercise shall have become deliverable, as provided
herein.
7. Transfer of Warrant or Warrant Stock
-3-
<PAGE>
The Holder shall not sell or otherwise transfer this Warrant or any
shares of Warrant Stock (other than a sale or other transfer to an "affiliate"
of the Holder, as such term is defined in Rule 405 under the Securities Act of
1933, as amended) without the prior written consent of the Company to any such
sale or other transfer.
8. Market Stand-Off Agreement
The Holder hereby agrees in connection with any registration of the
Company's securities (other than a registration of securities in a Rule 145
transaction or with respect to an employee benefit plan), upon request of the
Company or the underwriters managing any underwritten offering of the Company's
securities, not to sell, make any short sale of, loan, pledge (or otherwise
encumber or hypothecate), grant any option for the purchase of, or otherwise
directly or indirectly dispose of the Warrant or the Warrant Stock (other than
shares of Warrant Stock included in the registration) without the prior written
consent of the Company and such managing underwriters for such period of time,
not to exceed ninety (90) days, as the Board of Directors establishes pursuant
to its good faith negotiations with such managing underwriters; provided,
however, that such Holder shall not be subject to such lockup unless the
officers and directors of the Company who own stock of the Company shall also be
bound by such restrictions.
9. Exchange and Registry of Warrant
This Warrant is exchangeable, upon the surrender hereof by the Holder
at the above-mentioned office or agency of the Company, for a new Warrant in
substantially identical form and dated as of such exchange. The Company shall
maintain at the above-mentioned office or agency a registry showing the name and
address of the registered holder of this Warrant. This Warrant may be
surrendered for exchange, transfer, exercise or conversion, in accordance with
its terms, at such office or agency of the Company, and the Company shall be
entitled to rely in all respects, prior to written notice to the contrary, upon
such registry.
10. Loss, Theft, Destruction or Mutilation of Warrant
On receipt by the Company of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant, and in
case of any such loss, theft or destruction of this Warrant, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of any such mutilation, on surrender and cancellation of such
Warrant, the Company will execute and deliver to the Holder, in lieu thereof, a
new warrant in substantially identical form, dated as of such cancellation and
reissuance.
11. Saturdays, Sundays and Holidays
If the last or appointed day for the taking of any action or the
expiration of any right required or granted herein shall be a Saturday or a
Sunday or shall be a legal holiday, then such action may be taken or such right
may be exercised on the next succeeding business day.
12. Adjustment to Number and Type of Securities, Exercise Price
-4-
<PAGE>
The type and number of securities of the Company issuable upon exercise
of this Warrant and the Exercise Price are subject to adjustment as set forth
below:
(1) Adjustment for Stock Splits, Stock Dividends,
Recapitalizations, Automatic Conversion, etc. The Exercise Price and the number
and type of securities or other property issuable upon exercise of this Warrant
shall be appropriately and proportionately adjusted to reflect any stock
dividend, stock split, combination of shares, reclassification,
recapitalization, automatic conversion, redemption or other similar event
affecting the number or character of outstanding shares of Warrant Stock so that
the number and type of securities or other property issuable upon exercise of
this Warrant shall be equal to that which would have been issuable with respect
to the number of shares of Warrant Stock subject hereto at the time of such
event, had such shares of Warrant Stock then been outstanding.
(2) Certificate as to Adjustments. In case of any adjustment
in the Exercise Price or number and type of securities issuable on the exercise
of this Warrant, the Company will promptly give written notice thereof to the
Holder in the form of a certificate, certified and confirmed by an officer of
the Company, setting forth such adjustment and showing in reasonable detail the
facts upon which adjustment is based.
13. Notices of Record Date, etc.
In the event of:
(1) any taking by the Company of a record of the holders of
Warrant Stock or securities into which the Warrant Stock is convertible for the
purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution,
(2) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company, or any
transfer of all or substantially all the assets of the Company to, or
consolidation or merger of, the Company with or into any person,
(3) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company, or
(4) a sale of substantially all of the outstanding capital
stock of the Company or the issuance of new shares representing the majority of
the Company's right to vote,
then and in each such event the Company will mail to the Holder a notice
specifying the record date for voting or the date of closing , as applicable, of
any event (a)-(d) above. Such notice shall be delivered to the Holder at least
fifteen (15) days prior to the date of the relevant event.
14. Representations and Warranties
The Company hereby represents, warrants and agrees that:
(1) during the period this Warrant is outstanding, the Company
will reserve from its authorized and unissued Common Stock a sufficient number
of shares to provide for the issuance of Common Stock upon exercise or
conversion of this Warrant;
-5-
<PAGE>
(2) the issuance of this Warrant shall constitute full
authority to the Company's officers who are charged with the duty of executing
stock certificates to execute and issue the necessary certificates for the
shares of Warrant Stock issuable upon exercise or conversion of this Warrant;
(3) the Company has all requisite legal and corporate power to
execute and deliver this Warrant, to sell and issue the Warrant Stock hereunder
and to carry out and perform its obligations under the terms of this Warrant;
and
(4) all corporate action on the part of the Company, its
directors and shareholders necessary for the authorization, execution, delivery
and performance of this Warrant by the Company, the authorization, sale,
issuance and delivery of the Warrant Stock and the performance of the Company's
obligations hereunder has been taken;
(5) the Warrant Stock, when issued in compliance with the
provisions of this Warrant and the Articles, will be validly issued, fully paid
and nonassessable, and free of any liens or encumbrances, and will be issued in
compliance with all applicable federal and state securities laws; and
(6) the issuance of the Warrant Stock will not be subject to
any preemptive rights, rights of first refusal or similar rights.
15. Governing Law
This Warrant shall be governed by and construed in accordance with the
laws of the State of California.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by a duly authorized officer.
Dated: November 26, 1996
HyperMedia Communications, Inc.
Signature: /s/ Todd Hagen
------------------------------------
Name: Todd Hagen
------------------------------------
Title: CFO
------------------------------------
Address: 901 Mariner's Island Boulevard #365
------------------------------------
San Mateo, CA 94404
------------------------------------
-6-
<PAGE>
NOTICE OF EXERCISE
To: HyperMedia Communications, Inc.
(1) The undersigned hereby elects to purchase __________ shares of
Common Stock of HyperMedia Communications, Inc. pursuant to the terms of the
attached Warrant, and tenders herewith payment of the purchase price 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 that the aforesaid shares are being
acquired for the account of the undersigned for investment and not with a view
to, or for resale in connection with, the distribution thereof and that the
undersigned has no present intention of distributing or reselling such shares,
except in compliance with applicable federal and state securities laws.
- ------------------------------------ ------------------------------------
(Date)
<PAGE>
NOTICE OF CONVERSION
To: HyperMedia Communications, Inc.
(1) The undersigned hereby elects to convert that portion of the
attached Warrant representing the right to purchase ________ shares of Common
Stock into such number of shares of Common Stock of HyperMedia Communications,
Inc. as is determined pursuant to Section 3 of such Warrant, which conversion
shall be effected pursuant to the terms of the attached Warrant.
(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 that the aforesaid shares are being
acquired for the account of the undersigned for investment and not with a view
to, or for resale in connection with, the distribution thereof and that the
undersigned has no present intention of distributing or reselling such shares,
except in compliance with applicable federal and state securities laws.
- ------------------------------------ ------------------------------------
(Date)
<PAGE>
ASSIGNMENT FORM
(To assign the foregoing Warrant, execute this form and supply required
information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to
-----------------------------------------------------
(Please Print)
whose address is
---------------------------------------------------------------
(Please Print)
Dated:
-----------------------------------------------------
Holder's Signature:
-----------------------------------------
Holder's Address:
-------------------------------------------
-------------------------------------------
Guaranteed Signature:
-------------------------------------------
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatever, and must be guaranteed by a bank or trust company. Officers of
corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.
Exhibit 10.4
LEASE AMENDMENT #2
ORIGINAL LEASE DATE: February 21, 1991
LEASE AMENDMENT DATE: February 13, 1997
LANDLORD: SPIEKER-SINGLETON #68 LIMITED PARTNERSHIP
A California Limited Partnership
TENANT: HYPERMEIDA COMMUNICATIONS, INC.
A California Corporation
Landlord and Tenant, by executing this Lease Amendment a provided do hereby
amend the Original Lease referred to above as follows:
1. TERM
36 Months 05/01/97 - 04/30/2000
2. RENTAL
Months 1 - 12
(05/01/97 - 04/30/98) Base Rent $ 17,912.00
Op. Exp. (est. '97) $ 4,666.00
Total Rent $ 22,578.00 per month
Months 13 - 24
(05/01/98 - 04/30/99) Base Rent $ 18,664.00
Op. Exp. (est. '97) $ 4,666.00
Total Rent $ 23,330.00 per month
Months 25 - 36
(05/01/99 - 04/30/2000) Base Rent $ 19,417.00
Op. Exp. (est. '97) $ 4,666.00
Total Rent $ 24,083.00 per month
3. DELETION OF LEASE AMENDMENT PARAGRAPH #5 - TENANT IMPROVEMENTS
Upon execution of this Lease Amendment #2, paragraph #5 - Tenant
Improvements, of Lease Amendment #1 shall be null and void. Tenant to
accept the Premises in "as-is" condition.
4. DELETION OF LEASE ADDENDUM #2 - OPTION TO RE-LEASE PREMISES
Upon execution of this Lease Amendment #2, Addendum #2 - Option to
Re-lease Premises, of the original Lease Agreement shall be null and
void.
5. DELETION OF LEASE ADDENDUM #3 - PRIOR RIGHT OF REFUSAL
Upon execution of this Lease Amendment #2, Addendum #3 - Prior Right of
Refusal, of the original Lease Agreement Shall be null and void.
6. SECURITY DEPOSIT
Tenant's Security deposit shall increase from $11,816.00 to $22,573.00.
<PAGE>
All other terms and conditions of the original Lease Agreement and
Lease Amendment #1 shall apply to this Lease Amendment #2. Agreed to
this 28 day of February, 1997.
LANDLORD
Spieker-Singleton #68 Limited Partnership
A California Corporation
By: /s/ Peter H. Schnugg
--------------------------------------
Peter H. Schnugg
Its: Agent for Owner
Date: 2/20/97
TENANT:
HyperMedia Communications, Inc.
A California Corporation
By: /s/ Todd Hagen
--------------------------------------
Todd Hagen
Its: Vice President of Finance & Administration,
Chief Financial Officer
Date: 2/18/97
EXHIBIT 10.8
IMPERIAL BANK
Member FDIC
SECURITY AND LOAN AGREEMENT
(accounts receivable)
This Agreement is entered into between HYPERMEDIA COMMUNICATIONS, INC.
, a Corporation
(herein called "Borrower") and IMPERIAL BANK (herein called "Bank").
1. Bank hereby commits, subject to all the terms and conditions of this
Agreement and prior to the termination of its commitment as hereinafter
provided, to make loans to Borrower from time to time in such amounts as
may be determined by Bank up to, but not exceeding in the aggregate unpaid
principal balance, the following Borrowing Base:
70% of Eligible Accounts
and in no event more than $1,000,000.
2. The amount of each loan made by Bank to Borrower hereunder shall be
debited to the loan ledger account of Borrower maintained by Bank (herein
called "Loan Account") and Bank shall credit the Loan Account with all
loan repayments made by Borrower. Borrower promises to pay Bank (a) the
unpaid balance of Borrower's Loan Account on March 18, 1998 and (b) on or
before the tenth day of each month, interest on the average daily unpaid
balance of the Loan Account during the immediately preceding month at the
rate of two percent (2.0%) per annum in excess of the rate of interest
which Bank has announced as its prime lending rate ("Prime Rate") which
shall vary concurrently with any change in such Prime Rate. Interest shall
be computed at the above rate on the basis of the actual number of days
during which the principal balance of the loan account is outstanding
divided by 360, which shall for interest computation purposes be
considered one year. Upon uncured Event of Default, Bank may demand
payment of any or all of the amount due under the Loan Account including
accrued but unpaid interest at any time. Such notice may be given verbally
or in writing and should be effective upon receipt by Borrower. Bank is
hereby authorized to charge Borrower's deposit account(s) with Bank for
all sums due Bank under this Agreement.
3. Requests for loans hereunder shall be in writing duly executed by
Borrower in a form satisfactory to Bank and shall contain a certification
setting forth the matters referred to in Section 1, which shall disclose
that Borrower is entitled to the amount of loan being requested.
4. As used in this Agreement, the following terms shall have the following
meanings:
A. "Accounts" means any right to payment for goods sold or leased, or to
be sold or to be leased, or for services rendered or to be rendered
no matter how evidenced, including accounts receivable, contract
rights, chattel paper, instruments, purchase orders, notes, drafts,
acceptances, general intangibles and other forms of obligations and
receivables,
B. "Collateral" means any and all personal property of Borrower which is
assigned or hereafter is assigned to Bank as security or in which
Bank now has or hereafter acquires a security interest.
C. "Eligible Accounts" means all of Borrower's Accounts excluding,
however, (1) all Accounts under which payment is not received within
90 days from any invoice date, (2) all Accounts against which the
account debtor or any other person obligated to make payment thereon
asserts any defense, offset, counterclaim or other right to avoid or
reduce the liability represented by the Account and (3) any Accounts
if the account debtor or any other person liable in connection
therewith is insolvent, subject to bankruptcy or receivership
proceedings or has made an assignment for the benefit of creditors or
whose credit standing is unacceptable to Bank and Bank has so
notified Borrower. Eligible Accounts shall only include such accounts
as Bank in its sole discretion shall determine are eligible from time
to time.
The obligations of the Borrower hereunder are secured by that certain
General Security Agreement dated February 4, 1994 and the Borrower agrees
that where the term "incurred in connection with the Loan and Security
Agreement dated March 1, 1994 " appears in the first paragraph of the
General Security Agreement it shall refer to this Security and Loan
Agreement.
Page 1 of 3
<PAGE>
8. Borrower represents and warrants to Bank: (i) If Borrower is a
corporation, that Borrower is duly organized and existing in the State of
its incorporation and the execution, delivery and performance hereof are
within Borrower's corporate powers, have been duly authorized and are not
in conflict with law or the terms of any charter, by-law or other
incorporation papers, or of any indenture, agreement or undertaking to
which Borrower is a party or by which Borrower is found or affected; (ii)
Borrower is, or at the time the collateral becomes subject to Bank's
security interest will be, the true and lawful owner of and has, or at the
time the Collateral becomes subject to Bank's security interest will have,
good and clear title to the Collateral, subject only to Bank's rights
therein; (iii) Each Account is, or at the time the Account comes into
existence will be, a true and correct statement of a bona fide
indebtedness incurred by the debtor named therein in the amount of the
Account for either merchandise sold or delivered (or being held subject to
Borrower's delivery instructions) to, or services rendered, performed and
accepted by, the account debtor; (iv) that there are or will be no
material defenses, counterclaims, or setoffs which may be asserted against
the Accounts; and (v) any and all financial information, including
information relating to the Collateral, submitted by Borrower to Bank,
whether previously or in the future, is or will be true and correct in all
material respects.
9. Borrower will: (i) Furnish Bank from time to time such financial
statements and information as required under the Credit Terms and
Conditions dated March 19, 1997; (iv) Promptly notify Bank of any
attachment or other legal process levied against any of the Collateral and
any information received by Borrower relative to the Collateral, including
the Accounts, the account debtors or other persons obligated in connection
therewith, which may in any way materially affect the value of the
Collateral or the rights and remedies of Bank in respect thereto; (v)
Reimburse Bank upon demand for any and all legal costs, including
reasonable attorneys' fees, and other expense incurred in collecting any
sums payable by Borrower under Borrower's Loan Account or any other
obligation secured hereby, enforcing any term or provision of this
Security Agreement or otherwise or in the checking, handling and
collection of the Collateral and the preparation and enforcement of any
agreement relating thereto; (vi) Notify Bank of each location and of each
office of Borrower at which records of Borrower relating to the Accounts
are kept; (vii) Provide, maintain and deliver to Bank policies insuring
the Collateral against loss or damage by such risks and in such amounts,
forms and companies as Bank may require and with loss payable solely to
Bank, and, in the event Bank takes possession of the Collateral, the
insurance policy or policies and any unearned or returned premium thereon
shall at the option of Bank become the sole property of Bank, such
policies and the proceeds of any other Insurance covering or in any way
relating to the Collateral, whether now in existence or hereafter
obtained, being hereby assigned to Bank; and (viii) In the event the
unpaid balance of Borrower's Loan Account shall exceed the maximum amount
of outstanding loans to which Borrower is entitled under Section 1 hereof,
Borrower shall immediately pay to Bank, from its own funds and not from
the proceeds of Collateral, for credit to Borrower's Loan Account the
amount of such excess.
10. Upon an Event of Default which is not cured within the applicable cure
period, Bank may at any time, without 5 days prior written notice to
Borrower, collect the Accounts and may give notice of assignment to any
and all account debtors, and Borrower does hereby make, constitute and
appoint Bank its irrevocable, true and lawful attorney with power to
receive, open and dispose of all mail addressed to Borrower, to endorse
the name of Borrower upon any checks or other evidences of payment that
may come into the possession of Bank upon the Accounts to endorse the name
of the undersigned upon any document or instrument relating to the
Collateral; in its name or otherwise, to demand, sue for, collect and give
acquittances for any and all moneys due or to become due upon the
Accounts; to compromise, prosecute or defend any action, claim or
proceeding with respect thereto; and to do any and all things necessary
and proper to carry out the purpose herein contemplated.
Page 2 of 3
<PAGE>
12. Should an Event of Default (as defined in the Credit Terms and
Conditions dated March 19, 1997) occur and be continuing after the
applicable cure period; then in any such event, Bank may, at its option
and without demand first made and without notice to Borrower, do any one
or more of the following: (a) Terminate its obligation to make loans to
Borrower as provided in Section 1 hereof; (b) Declare all sums secured
hereby immediately due and payable; (c) Immediately take possession of the
Collateral wherever it may be found, using all necessary force so to do,
or require Borrower to assemble the Collateral and make it available to
Bank at a place designated by Bank which is reasonably convenient to
Borrower and Bank, and Borrower waives all claims for damages due to or
arising from or connected with any such taking; (d) Proceed in the
foreclosure of Bank's security interest and sale of the Collateral in any
manner permitted by law, or provided for herein; (e) Sell, lease or
otherwise dispose of the Collateral at public or private sale, with or
without having the Collateral at the place of sale, and upon terms and in
such manner as Bank may determine, and Bank may purchase same at any such
sale; (f) Retain the Collateral in full satisfaction of the obligations
secured thereby; (g) Exercise any remedies of a secured party under the
Uniform Commercial Code as in effect in the State of California. Prior to
any such disposition, Bank may, at its option. cause any of the Collateral
to be repaired or reconditioned in such manner and to such extent as Bank
may deem advisable, and any sums expanded therefor by Bank shall be repaid
by Borrower and secured hereby. Bank shall have the right to enforce one
or more remedies hereunder successively or concurrently, and any such
action shall not estop or prevent Bank from pursuing any further remedy
which it may have hereunder or by law. If a sufficient sum is not realized
from any such disposition of Collateral to pay all obligations secured by
this Security Agreement, Borrower hereby promises and agrees to pay Bank
any deficiency.
13. If any writ of material attachment, garnishment, execution or other
legal process be issued against any property of Borrower, or if any
assessment for taxes against Borrower, other than real property, is made
by the Federal or State government or any department thereof, the
obligation of Bank to make loans to Borrower as provided in Section 1
hereof shall immediately terminate and the unpaid balance of the Loan
Account, all other obligations secured hereby and all other sums due
hereunder shall within 10 days become due and payable without demand,
presentment or notice.
14. Borrower authorizes Bank to destroy all invoices, delivery receipts,
reports and other types of documents and records submitted to Bank in
connection with the transactions contemplated herein at any time
subsequent to four months from the time such items are delivered to Bank.
15. Nothing herein shall in any way limit the effect of the conditions set
forth in any other security or other agreement executed by Borrower, but
each and every condition hereof shall be in addition thereto.
16. Additional Provisions: To the extent of any conflict between the terms
hereof and the terms contained in the letter agreement dated March 12,
1997, (and accepted and agreed to March 12, 1997) and the Credit Terms and
Conditions with Addendum dated March 19, 1997, the terms of the Credit
Terms and Conditions will prevail.
Executed this 19th day of March, 1997
HYPERMEDIA COMMUNICATIONS, INC.
IMPERIAL BANK By:/S/ Todd Hagen C.F.O
-------------------------------
(Authorized Signature and Title)
By:/S/ Erin Haney A.V.P. By:
--------------------------------- -------------------------------
(Title) (Authorized Signature and Title)
Page 3 of 3
EXHIBIT 11.1
HYPERMEDIA COMMUNICATIONS, INC.
<TABLE>
COMPUTATION OF NET LOSS PER SHARE(1)
<CAPTION>
Year Ended December 31,
--------------------------------------------
1996 1995 1994
----------- ------------ -------------
<S> <C> <C> <C>
Net loss......................................................... $ (291,000) $ (462,000) $ (1,616,000)
=========== ============ ============
Weighted average shares outstanding:
Common Stock........................................... 3,019,004 3,011,433 3,010,730
Preferred Stock........................................ - - -
Common stock equivalents from options and warrants..... - 142,353 -
----------- ----------- ------------
Weighted average common shares and equivalents................... 3,019,004 3,153,786 3,010,730
=========== =========== ============
Net loss per share............................................... $ (0.10) $ (0.15) $ (0.54)
=========== =========== ============
<FN>
- ------------
(1) This schedule should be read with Note 2 - NET LOSS PER COMMON SHARE in the Notes to Financial
Statements.
</FN>
</TABLE>
EXHIBIT 23.1
HYPERMEDIA COMMUNICATIONS, INC.
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-67172) HyperMedia Communications, Inc. of our
report dated February 7, 1997, except for Note 5, which is as of March 19, 1997,
appearing on page 24 of this Annual Report on Form 10-K.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
San Jose, California
March 24, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Article 5. Fin. Data Schedule for the Fiscal Year 10-K.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 107
<SECURITIES> 0
<RECEIVABLES> 1294
<ALLOWANCES> 180
<INVENTORY> 0
<CURRENT-ASSETS> 1958
<PP&E> 1362
<DEPRECIATION> 740
<TOTAL-ASSETS> 2584
<CURRENT-LIABILITIES> 1516
<BONDS> 0
<COMMON> 10377
0
1209
<OTHER-SE> (10518)
<TOTAL-LIABILITY-AND-EQUITY> 2584
<SALES> 8618
<TOTAL-REVENUES> 8618
<CGS> 0
<TOTAL-COSTS> 8885
<OTHER-EXPENSES> 24
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24
<INCOME-PRETAX> (291)
<INCOME-TAX> 0
<INCOME-CONTINUING> (291)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (291)
<EPS-PRIMARY> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
