<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
(MARK ONE)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: SEPTEMBER 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
------------ ------------
COMMISSION FILE NUMBER: 0-22212
IVI PUBLISHING, INC.
----------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS
SPECIFIED IN ITS CHARTER)
MINNESOTA 41-1686038
-------------------------- -------------------------
(STATE OR OTHER JURISDICTION (IRS EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION)
7500 FLYING CLOUD DRIVE
MINNEAPOLIS, MINNESOTA 55344-3739
---------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(ZIP CODE)
612-996-6000
---------------------------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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
-------- --------
APPLICABLE ONLY TO CORPORATE ISSUERS:
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
CLASS OUTSTANDING AS OF OCTOBER 23, 1996
---------------------- ----------------------------------
COMMON STOCK 7,608,475 SHARES
PAR VALUE $.01 PER SHARE
1
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IVI PUBLISHING, INC.
Securities and Exchange Commission Form 10-Q
for the Third Quarter Ended September 30, 1996
INDEX
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Page
Number
------
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Condensed Statements of Operations
(Unaudited) Three months ended September 30,
1996 and September 30, 1995; Nine months ended
September 30, 1996 and September 30, 1995..................... 3
Condensed Balance Sheets September 30, 1996
(Unaudited) and December 31, 1995............................. 4
Condensed Statements of Cash Flows
(Unaudited) Nine months ended September 30,
1996 and September 30, 1995................................. 5
Notes to Condensed Financial Statements (Unaudited).......... 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 8-12
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings............................................. 13
Item 2. Changes in Securities......................................... 13
Item 3. Defaults Upon Senior Securities............................... 13
Item 4. Submission of Matters to a Vote of Security Holders........... 13
Item 5. Other Information............................................. 13
Item 6. Exhibits and Reports on Form 8-K.............................. 13
SIGNATURES:............................................................. 14
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
IVI PUBLISHING, INC.
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
---------------------------- ----------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net revenues $2,249 $1,201 $7,003 $6,959
Cost of revenues 1,090 1,391 3,525 4,047
------------ ------------ ------------ ------------
Gross margin 1,159 (190) 3,478 2,912
Costs and expenses:
Product development 1,574 2,100 4,610 6,203
Sales and marketing 679 1,661 2,078 6,113
General and administrative 2,834 1,750 5,052 4,370
------------ ------------ ------------ ------------
Loss from operations (3,928) (5,701) (8,262) (13,774)
Interest income 28 130 177 537
------------ ------------ ------------ ------------
Net loss ($3,900) ($5,571) ($8,085) ($ 13,237)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net loss per share ($0.51) ($0.74) ($1.07) ($1.77)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Weighted average number of common
shares outstanding 7,608 7,478 7,580 7,478
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
See notes to condensed financial statements.
3
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IVI PUBLISHING, INC.
CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
September 30 December 31
1996 1995
------------ -----------
<S> <C> <C>
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $1,403 $7,759
Accounts receivable, net 3,602 3,208
Inventory 421 821
Other current assets 464 446
------------ -----------
Total current assets 5,890 12,234
Furniture and equipment 6,736 7,342
Less allowances for depreciation (3,319) (2,524)
------------ -----------
3,417 4,818
Long-term receivables and other non-current assets 1,941 1,300
------------ -----------
Total assets $11,248 $18,352
------------ -----------
------------ -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $3,490 $2,363
Other accrued expenses 861 1,264
------------ -----------
Total current liabilities 4,351 3,627
Convertible Redeemable Preferred Stock 1,892 1,845
Shareholders' equity:
Common Stock, $.01 par value:
Issued and outstanding shares-7,608 at September 30,
1996 and 7,524 at December 31, 1995 76 75
Paid-in capital 70,486 70,297
Accumulated deficit (65,557) (57,492)
Total shareholders' equity ------------ -----------
5,005 12,880
------------ -----------
Total liabilities and shareholders' equity $11,248 $18,352
------------ -----------
------------ -----------
See notes to condensed financial statements.
</TABLE>
4
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IVI PUBLISHING, INC.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended September 30
------------------------------
1996 1995
------------ -----------
<S> <C> <C>
Operating activities
Net loss ($8,085) ($13,237)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization 1,059 1,035
Changes in assets and liabilities:
(Increase) Decrease in net receivables (394) 1,402
Decrease in inventories 400 376
(Increase) in other current assets (18) (304)
(Increase) in other long-term assets (641) (860)
Increase (Decrease) in accounts payable and
accrued liabilites 634 (1,453)
------------ -----------
Net cash used by operating activities (7,045) (13,041)
Investing activities
Purchase of short-term investments (4,500)
Maturity of short-term investments 20,000
Gross furniture and equipment additions (180) (627)
Gross furniture and equipment disposals 522
------------ -----------
Net cash provided by investing activities 342 14,873
Financing activities
Proceeds from exercised stock options 347
------------ -----------
Net cash provided by financing activities 347 -
Net (decrease) increase in cash and cash equivalents (6,356) 1,832
Cash and cash equivalents at beginning of period 7,759 2,823
------------ -----------
Cash and cash equivalents at end of period $1,403 $4,655
------------ -----------
------------ -----------
</TABLE>
See notes to condensed financial statements.
5
<PAGE>
IVI PUBLISHING, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1996
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the nine month period ended September 30, 1996 are
not necessarily indicative of the results that may be expected for the
year ended December 31, 1996. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1995.
NOTE B -- PRODUCT DEVELOPMENT COSTS
Product development costs consist principally of compensation to Company
employees, interactive design costs paid to outside consultants, travel
and supplies. All costs are expensed as incurred.
Costs related to research, design and development of products are charged
to product development expenses as incurred. Under Statement of Financial
Accounting Standards No. 86 (SFAS No. 86), software development costs are
capitalized beginning when a product's technological feasibility has been
established and ending when a product is available for general release to
customers. The Company has not capitalized any software development costs
since such costs meeting the requirements of SFAS No. 86 have not been
significant.
NOTE C -- NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of shares
of common stock outstanding. Common equivalent shares from stock options
and warrants are excluded from the computation as their effect is anti-
dilutive.
6
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NOTE D -- REVENUE RECOGNITION
The Company's revenues consist of product sales and licensing revenue,
contract development revenue, fees relating to the licensing of its
content for use on cable TV, and fees for online services.
Product sales and licensing revenues are made up of retail distribution
sales, direct mail sales, and product sales and royalties on licenses to
original equipment manufacturers. These revenues are recognized upon
shipment of the product or when the Company's obligations under the
licensing agreements are complete. Allowances for returns are recorded at
the time revenue is recognized.
Contract development revenue is generated through the use of the Company's
personnel and facilities for the creation of custom multimedia products.
This revenue is recognized by contract on a percentage-of-completion
basis.
Revenues are generated through the licensing of the Company's health and
medical content for use on cable channels. The Company recognizes revenue
under its cable network agreement ratably over the life of the contract.
Revenues were also generated through the Company's online agreement with
AT&T. Revenues generated by the online service were recognized as they
were earned.
NOTE E -- STREAMLINING OF BUSINESS AND CHANGE IN ACCOUNTING ESTIMATE
The Company recognized charges in the quarter ending September 30, 1996
relating to efforts to streamline its operations, and relating to a change
in estimate for bad debt expense. These charges totaled $2,136,000 and
were made up of $562,000 for the loss on lease and leasehold improvements
related to space vacated by the Company, $738,000 for severance payments
to employees who were terminated from employment, and $836,000 for the
write-off of bad debt.
The Company also recognized similar charges in the quarter ending
September 30, 1995. These charges related to the Company's shift in
emphasis towards its own CD-ROM titles. As part of this shift in
emphasis, the Company recorded a provision of $929,000 for current and
future sales returns and allowances and a $180,000 provision for cost of
sales, principally related to its affiliate label products. Additionally,
the company recognized charges of $1,088,000 relating to efforts to
streamline its operations. These charges included severance payments for
personnel reductions and charges related to the downsizing of facilities.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This report contains forward-looking information that is subject to certain
risks and uncertainties that could cause actual results to differ materially
from those projected. Those risks and uncertainties have been articulated in
the Company's Form 10-K for the year ended December 31, 1995, and other SEC
filings made in 1996.
OVERVIEW
In the first three quarters of 1996, the Company's strategy was to emphasize
the distribution of health and medical information through an integrated
network involving online, cable television, and CD-ROM platforms. The Company
continues to expect to place more emphasis on the online market in the future.
With the discontinuance of the AT&T Healthsite in August 1996, the Company now
intends to pursue and enter non-exclusive online distribution agreements with
multiple partners in efforts to allow as many internet users as possible access
to the Company's content. The first of such agreements was signed in September
1996 with Time Warner Cable. Under this agreement, Time Warner Cable has the
non-exclusive rights to offer its online cable service customers access to the
Company's digital version of THE MEDICAL ADVISOR, a definitive medical
guidebook, developed in collaboration with Time Life.
In the cable television market, America's Health Network (AHN), the Company's
partner, continues to add subscribers ahead of plan. Additionally, the Company
has continued to recognize cable royalty revenues ratably each quarter.
In September 1996, the CD-ROM, TAKING CONTROL OF YOUR HEALTH, which is the
electronic version of THE MEDICAL ADVISOR, was released. Although the
Company's strategy calls for additional focus on the online market, the Company
will continue to publish its flagship CD-ROM, MAYO CLINIC FAMILY HEALTH, as
well as other reference titles.
During the quarter ended September 30, 1996, the Company recognized charges for
efforts to reduce future operating costs. These efforts included downsizing
its personnel and facilities. The charges totaled $1,300,000 and were made up
of $738,000 for severance payments, and $562,000 for the loss on lease and
leasehold improvements related to space vacated by the Company as a result of
the downsizing. The Company also recorded a significant change in estimate for
the quarter of $836,000 for the write-off of bad debt.
8
<PAGE>
During the quarter ended September 30, 1995, the Company recognized charges
related to a shift in emphasis towards its own CD-ROM titles. As part of this
shift in emphasis, the Company recorded a provision of $929,000 for current and
future sales returns and allowances and a $180,000 provision for cost of sales,
principally related to its affiliate label products. Additionally, the Company
recognized charges of $1,088,000 relating to efforts to streamline its
operations. These charges included severance payments for certain personnel
reductions and charges related to the downsizing of facilities.
The charges described above affected the respective quarters as shown below:
<TABLE>
<CAPTION>
Third Quarter Third Quarter
1996 1995
------------- -------------
<S> <C> <C>
Reduction of net revenues $929,000
Cost of sales 180,000
Product development expenses $312,000 423,000
Sales and marketing expenses 10,000 380,000
General and administrative expenses 1,814,000 285,000
------------- -------------
Total Charges $2,136,000 $2,197,000
------------- -------------
------------- -------------
</TABLE>
At September 30, 1996, the remaining accrual for future cash payments related
to the charges above was $715,000. Approximately $260,000 will be paid in
1996, $170,000 will be paid in 1997, $200,000 will be paid in 1998, and $85,000
will be paid in 1999.
The Company expects to experience future operating cost savings of
approximately $1,550,000 annually as a result of the fiscal 1996 streamlining
efforts. Approximately $1,100,000 will be saved in payroll expenses, while
$450,000 will be saved in rent expense.
RESULTS OF OPERATIONS
Net revenues for the third quarter of 1996 were $2,249,000, compared to
$1,201,000 for the third quarter of 1995. For the nine months ended September
30, 1996 and 1995, net revenues were $7,003,000 and $6,959,000, respectively.
Net revenues for the third quarter of 1996 and 1995 were comprised as follows:
9
<PAGE>
<TABLE>
<CAPTION>
Third Quarter Third Quarter
1996 1995
------------- -------------
<S> <C> <C>
CD-ROM Retail $387,000 $8,000
CD-ROM OEM and License 938,000 643,000
Contract Development 370,000 459,000
Amortization of Cable Royalty 493,000
Other Revenue 61,000 91,000
------------ ------------
Total Net Revenues $2,249,000 $1,201,000
------------ ------------
------------ ------------
</TABLE>
Net revenues for the nine months ended September 30, 1996 and September 30,
1995 were comprised as follows:
<TABLE>
<CAPTION>
Nine months Nine months
ended ended
September 30 September 30
1996 1995
------------ ------------
<S> <C> <C>
CD-ROM Retail $1,222,000 $2,234,000
CD-ROM OEM and License 3,102,000 2,910,000
Contract Development 1,021,000 1,177,000
Amortization of Cable Royalty 1,479,000
Glencoe Settlement 400,000
Other Revenue 179,000 238,000
------------ ------------
Total Net Revenues $7,003,000 $6,959,000
------------ ------------
------------ ------------
</TABLE>
The increase in revenues for the third quarter of 1996 and the nine months
ended September 30, 1996 as compared to the same periods in 1995 was due to an
increase in OEM and cable revenues offset by a decrease in CD-ROM retail sales.
The increase in OEM revenues for the third quarter of 1996 as compared to the
third quarter of 1995 was the result of two OEM contracts that were signed
during the quarter where the Company recognized the minimum guaranteed revenues
under each of the contracts. Third quarter 1995 consumer retail sales were
affected by a provision of $929,000 for returns and allowances, principally
related to the Company's affiliate label products. The decrease in 1996 retail
sales as compared to 1995 retail sales prior to the provision was attributable
to the timing of the release of new products. Cable revenues increased for the
three and nine months ended September 30, 1996 as compared to the same periods
of 1995 as a result of the cable television license agreement with AHN.
Gross margins as a percentage of net revenues for the three and nine months
ended September 30, 1996 were 52% and 50%, respectively, compared to (16)%
10
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and 42% for the comparable periods of 1995. Third quarter 1996 revenues
consisted of a higher percentage of cable royalty and CD-ROM OEM and license
revenues than in the third quarter of 1995. These revenue categories produce
higher margins. Additionally, 1995 margins were affected by the provision
recorded for returns and allowances as previously discussed.
Product development expenses were $1,574,000 and $4,610,000 for the three and
nine months ended September 30, 1996, respectively, compared to $2,100,000 and
$6,203,000 for the same periods of 1995. Third quarter 1996 and 1995 included
unusual charges related to product development of $312,000 and $423,000,
respectively, as previously discussed. Excluding the unusual charges, the
decrease in product development expenses in the third quarter of 1996 was due
to fewer CD-ROM titles being developed. The Company's strategy is to
concentrate development efforts on its online and cable television content, as
well as updating its family reference CD-ROMs. As the Company further
implements this strategy, it is anticipated that product development costs will
continue to decline.
Sales and marketing expenses for the third quarter and nine months ended
September 30, 1996 were $679,000 and $2,078,000, respectively, as compared to
$1,661,000 and $6,113,000 for the comparable periods of 1995. Unusual costs
incurred for sales and marketing during the third quarter of 1996 and 1995 were
$10,000 and $380,000, respectively, as previously discussed. The decrease
after the unusual charges in the third quarter of 1996 was due principally to
the delegation of retail product distribution to Davidson and Associates, Inc.
at the end of the third quarter of 1995.
General and administrative expenses increased in the third quarter of 1996 to
$2,834,000, as compared to $1,750,000 for the third quarter of 1995. The
unusual charges for general and administrative expense recorded for these
quarters were $1,814,000 in 1996 and $285,000 in 1995. General and
administrative expenses for the nine month period ended September 30, 1996 and
1995 were $5,052,000 and $4,370,000, respectively. The overall increase was
partially due to management's decision to streamline future operating costs.
This decision resulted in downsizing of the Company's facilities, which
resulted in a loss recorded on the sublease of office space and employee
severance charges totaling $978,000. Additionally, there was a write-off of a
$836,000 receivable to bad debt expense in the three months ended September 30,
1996. The receivable was for licensing rights granted on certain CD-ROM
titles. Finally, general and administrative expenses were higher due to
increased professional services.
Net interest income was $28,000 and $177,000 for the three and nine months
ended September 30, 1996, compared to $130,000 and $537,000 for the comparable
periods of 1995. The decrease in net interest income resulted from having less
cash available for investing purposes.
11
<PAGE>
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Capital asset expenditures for the nine month period ended September 30, 1996
totaled $180,000 and consisted principally of computer and studio equipment.
At September 30, 1996, the Company had cash and cash equivalents totaling
$1,403,000. Total cash used during the nine months ended September 30, 1996
was $6,356,000. In order to be able to continue its operations past December
1996, the Company believes that it will require additional debt or equity
financing. There is no assurance that such financing would be available or, if
available, that the financial terms would be reasonable. An equity financing
of any kind is likely to be significantly dilutive.
12
<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information under the caption "Legal Proceedings" in the Company's
1995 10-K and the Company's second quarter 10-Q is incorporated herein by
reference.
ITEM 2. CHANGES IN SECURITIES
During the period covered by this Report, the constituent instruments
defining the rights of the holders of the common stock were not materially
modified, nor were the rights evidenced by the common stock materially
limited or qualified by the issuance or modification of any other class of
securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
During the period covered by this Report, there has been no material
default with respect to any indebtedness of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
During the third quarter, the Company hired Timothy J. Walsh as the Vice
President of Sales and Marketing. He was also appointed as an officer.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included herein:
10.1 Employment Agreement dated August 7, 1996 with Joy A. Solomon
11 Computation of per share loss.
27 Financial Data Schedule (filed with electronic version only)
(b) Report on Form 8-K - None.
13
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SIGNATURES
Pursuant to the requirements 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.
IVI PUBLISHING, INC.
By /s/ Charles A. Nickoloff
--------------------------------
Charles A. Nickoloff
Vice President and
Chief Financial Officer
Date: November 11, 1996
14
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EXHIBIT 10.1 - EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated August 7, 1996, by and between IVI PUBLISHING, INC.,
a Minnesota corporation (the "Company") and JOY A. SOLOMON, an individual
resident of Hennepin County, Minnesota ("Executive").
WHEREAS, The Company and Executive have previously entered into an
employment agreement dated June 9, 1995 (the "Prior Agreement"),
WHEREAS, The Company has promoted Executive to the positions of President
and Chief Executive Officer, and Executive has been elected a member of the
Board of Directors of the Company, and
WHEREAS, The Company and Executive desire to cancel the Prior Agreement
and enter into a new employment agreement (the "Agreement") on the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the premises, Executive's promotion to
President and Chief Executive Officer and the respective undertakings of the
Company and the Executive set forth below, the Company and Executive agree as
follows:
1. EMPLOYMENT. The Prior Agreement is terminated as of the date hereof,
and the Company agrees to continue to employ Executive in the capacity set
forth below and Executive accepts such employment and agrees to perform
services for the Company for the period and upon the other terms and conditions
set forth in this Agreement.
2. TERM. Unless terminated at an earlier date in accordance with
Section 7 of this Agreement, the term of Executive's employment hereunder shall
be for a period of two (2) years, commencing on the date of this Agreement.
Thereafter, the term of this Agreement shall be automatically extended for
successive one (1) year periods unless either party objects to such extension
by written notice to the other party at least three (3) months prior to the end
of the initial term or any extension term.
3. POSITION AND DUTIES.
--------------------
3.01 SERVICE WITH COMPANY. During the term of this Agreement,
Executive agrees to serve as President and Chief Executive Officer of the
Company and to perform such other reasonable employment duties, consistent with
Executive's position and as the Board of Directors shall assign to her from
time to time. In addition, Executive shall serve as a member of the Board of
Directors of the Company until the next annual meeting of the shareholders of
the Company or until her successor has been duly elected and qualified.
3.02 PERFORMANCE OF DUTIES. Executive agrees to serve the Company
faithfully and to the best of her ability and to devote her full time,
attention and efforts to the business and affairs of the Company during the
term of this Agreement. Executive shall not, directly or indirectly, render
services to any other person or organization including being a member of the
board of directors of any other entity (excluding volunteer services) without
the consent of the Board of Directors or otherwise engage in activities which
would interfere significantly with the performance of her duties hereunder.
4. COMPENSATION.
-------------
-1-
<PAGE>
4.01 BASE SALARY. As compensation in full for all services to be
rendered by the Executive during the term of this Agreement, the Company shall
pay to Executive a base salary of $170,200.00 per year (or such higher amount
as may be determined at the discretion of the Board of Directors) (the "Base
Salary") which salary shall be paid in accordance with the Company's normal
payroll procedures and policies. The Board of Directors shall review
Executive's Base Salary each January.
4.02 INCENTIVE COMPENSATION. In addition to the Base Salary,
Executive shall be eligible to participate in any incentive compensation plan
established from time to time by the Board of Directors of the Company.
4.03 PARTICIPATION IN BENEFIT PLANS. Executive shall also be
entitled to participate in all employee benefit plans or programs (including
vacation time) of the Company to the extent that her position, title, tenure,
salary, age, health and other qualifications make her eligible to participate.
The Company does not guarantee the adoption or continuance of any particular
employee benefit plan or program during the term of this Agreement, and
Executive's participation in any such plan or program shall be subject to the
provisions, rules and regulations applicable thereto.
4.04 EXPENSES. The Company will pay or reimburse Executive for all
reasonable and necessary out-of-pocket expenses incurred by her in the
performance of her duties under this Agreement, subject to the presentment of
appropriate vouchers in accordance with the Company's normal policies for
expense verification.
4.05 OPTIONS. Executive and the Company hereby consent to the
cancellation of those certain option agreements by and between Executive and
the Company dated July 16, 1993, November 23, 1993 and January 22, 1996, which
granted in the aggregate the right to Executive to acquire up to 100,000 shares
of the Company's common stock on the terms and conditions set forth therein.
In addition, Executive and the Company have as of the date hereof entered into
an amendment to that certain option agreement by and between Executive and the
Company dated June 9, 1995 to reduce the number of shares of the Company's
common stock which Executive can acquire thereunder to 30,000 shares. As of
the date hereof, the Company and Executive have entered into three separate
option agreements which in the aggregate grant the right to Executive to
acquire up to 180,000 shares of the Company's common stock on the terms and
conditions set forth therein.
5. CONFIDENTIAL INFORMATION. Except as permitted or directed by the
Board of Directors, during the term of this Agreement or at any time thereafter
Executive shall not divulge, furnish or make accessible to anyone or use in any
way (other than in the ordinary course of the business of the Company) any
confidential or secret knowledge or information of the Company which Executive
has acquired or become acquainted with prior to the termination of the period
of her employment by the Company (including employment by the Company or any
affiliated companies prior to the date of this Agreement), whether developed by
herself or by others, concerning any trade secrets, confidential or secret
designs, processes, formulae, plans, devices or material (whether or not
patented or patentable) directly or indirectly useful in any aspect of the
business of the Company, any customer or supplier lists of the Company, any
confidential or secret development or research work of the Company, or any
other confidential information or secret aspect of the business of the Company.
Executive acknowledges that the above-described knowledge or information
constitutes a unique and valuable asset of the Company and represents a
substantial investment of time and expense by the Company and its predecessors,
and that any disclosure or other use of such knowledge or information other
than for the sole benefit of the Company would be wrongful and would cause
irreparable harm to the Company. Both during and after the term of the
Agreement, Executive will refrain from any acts or omissions that would
-2-
<PAGE>
reduce the value of such confidentiality, however, the foregoing shall not
apply to any knowledge or information which is now published or which
subsequently becomes generally publicly known in the form in which it was
obtained from the Company, other than as a direct or indirect result of the
breach of this Agreement by Executive.
6. NONCOMPETITION COVENANTS.
-------------------------
6.01 AGREEMENT NOT TO COMPETE. Executive agrees that, during the term
of her employment by the Company and for a period of one (1) year after the
termination of such employment (whether such termination is with or without
cause, or whether such termination is occasioned by Executive or the Company),
she shall not, directly or indirectly, engage in competition with the Company
within the Territory in any manner or capacity (e.g., as an advisor, principal,
agent, partner, officer, director, stockholder, employee, member of any
association, or otherwise) in any phase of the business which the Company is
conducting during the term of this Agreement, including the design,
development, manufacture, distribution, marketing, or selling of products or
services being developed or sold by the Company.
For the purposes of this Section 6, the "Territory" shall mean the
geographic area in which the Company (a) has engaged in business during the
term of this Agreement through production, promotional, sales or marketing
activity, or otherwise; or (b) has otherwise established its goodwill, business
reputation or any customer or supplier relations.
6.02 SOLICITATION OF EMPLOYEES. Executive agrees that during the
term of her agreement not to compete set forth in Section 6.01 above she will
not, directly or indirectly, hire or attempt to hire any person who is employed
by the Company or any person who was employed by the Company at the time of the
termination of Executive's employment with the Company.
6.03 INDIRECT COMPETITION. Executive further agrees that, during the
term of this Agreement and for the period of her agreement not to compete set
forth in Section 6.01 above, she will not, directly or indirectly, assist or
encourage any other person in carrying out, direct or indirectly, any activity
that would be prohibited by the above provisions of this Section 6 if such
activity were carried out by Executive, either directly or indirectly; and in
particular Executive agrees that she will not, directly or indirectly, induce
any employee of the Company to carry out, directly or indirectly, any such
activity.
7. TERMINATION.
------------
7.01 TERMINATION OF EMPLOYMENT BY THE COMPANY. Executive's
employment with the Company and this Agreement may be terminated by the Company
prior to the expiration of the initial term set forth in Section 2 above or any
extension thereof as follows:
(a) Upon the death of Executive, or
(b) Upon the Disability (as defined below) of Executive, or
(c) Upon breach of this Agreement by Executive in any material
respect, which breach is not cured by Executive within thirty (30) days after
written notice of such breach is delivered to Executive, or
(d) If Executive has engaged in willful and material misconduct
which shall mean the willful engaging by Executive in illegal conduct that is
materially and demonstrably injurious to the Company, or
(e) At any time within twelve months after a Merger (as defined
below), or
-3-
<PAGE>
(f) For any reason other than those referred to in the preceding
Sections 7.01(a), (b), (c), (d) and (e).
For the purposes of this Agreement, the Disability of the Executive shall occur
in the event that Executive shall fail, because of illness or incapacity, to
render services of the character contemplated by this Agreement over a period
of ninety (90) days during any one hundred eighty (180) day period.
7.02 TERMINATION OF EMPLOYMENT BY EXECUTIVE. Executive's employment
with the Company and this Agreement may be terminated by Executive prior to the
expiration of the initial term set forth in Section 2 above or any extension
thereof as follows:
(a) Within ninety (90) days after an Adverse Event (as defined
below), or
(b) Within nine months after a Merger, or
(c) At any time more than nine months after a Merger, or
(d) At any time other than those listed in Sections 7.02(a), (b) or
(c) above.
For the purposes of this Agreement, an "Adverse Event" shall mean (i) an
adverse change in position or duties of Executive or (ii) a change in the place
of employment of Executive requiring relocation of Executive to a state other
than Minnesota or (iii) a reduction in Base Salary without Executive's consent
or (iv) any other material breach of this Agreement by the Company; provided,
that in the event of a Merger a change in position or the duties of Executive
shall not be considered an Adverse Event. For the purposes of this Agreement,
a "Merger" shall mean any transaction in which the Company is merged with or
into another entity, all or substantially all of the assets of the Company are
sold or one or more parties acting in concert acquire shares of common stock of
the Company representing more than fifty percent of the shares of common stock
of the Company then outstanding.
7.03 EFFECT OF TERMINATION. Notwithstanding any termination of
employment of Executive with the Company or termination of this Agreement
pursuant to Sections 7.01 or 7.02 above, the parties hereto shall remain bound
by the provisions of this Agreement which specifically relate to periods,
activities and obligations upon or subsequent to such termination including
without limitation the provisions of Sections 5, 6 and 7 hereof.
7.04 SURRENDER OF RECORDS AND PROPERTY. Upon termination of her
employment with the Company, Executive shall deliver promptly to the Company
all records, manuals, books, blank forms, documents, letters, memoranda, notes,
notebooks, reports, data, tables, calculations or copies thereof, which are the
property of the Company or which relate in any way to the business, products,
practices or techniques of the Company, and all other property, trade secrets
and confidential information of the Company, including, but not limited to, all
documents which in whole or in part contain any trade secrets or confidential
information of the Company, which in any of these cases are in her possession
or under her control.
7.05 PAYMENTS TO EXECUTIVE AFTER TERMINATION OF EMPLOYMENT. Subject
to the provisions of Section 7.06 below, the Company shall continue to pay
Executive her Base Salary as in effect at the time of her termination of
employment with the Company in the following events for the following periods
of time:
(a) In the event of a termination of Executive's employment with the
Company pursuant to Section 7.01(a) above, the Company shall continue to make
regular payments of Executive's Base Salary to her estate for a period of three
months following her death.
-4-
<PAGE>
(b) In the event of a termination of Executive's employment with the
Company pursuant to Section 7.01(b) above, the Company shall continue to make
regular payments of Executive's Base Salary to her for a period of six months
following such termination of employment.
(c) In the event of a termination of Executive's employment with the
Company pursuant to Section 7.01(c) or (d) or in the event of a termination of
Executive's employment with the Company because either Executive (other than
after the nine month period immediately following a Merger) or the Company
(other than during the twelve month period immediately following a Merger)
objects to an extension of the term of this Agreement pursuant to Section 2
above, the Company shall continue to make regular payments of Executive's Base
Salary to her for a period of one year following such termination of
employment.
(d) In the event of a termination of Executive's employment with the
Company pursuant to Section 7.01(e) above, the Company shall continue to make
regular payments of Executive's Base Salary to her for the longer of (i) the
period commencing on the date of such termination of employment and ending on
the date eighteen months following such termination of employment or (ii) the
period commencing on the date of such termination of employment and ending on
August 7, 1998.
(e) In the event of a termination of Executive's employment with the
Company pursuant to Section 7.01(f), 7.02(a), 7.02(b) or 7.02(d) above, the
Company shall continue to make regular payments of Executive's Base Salary to
her for the longer of (i) the period commencing on the date of such termination
of employment and ending on the date twelve months following such termination
of employment or (ii) the period commencing on the date of such termination of
employment and ending on August 7, 1998.
(f) In the event of a termination of Executive's employment with the
Company pursuant to Section 7.02(c) above or in the event of a termination of
Executive's employment with the Company because either Executive more than nine
months after a Merger or the Company during the twelve month period immediately
following a Merger objects to an extension of the term of this Agreement
pursuant to Section 2 above, the Company shall continue to make regular
payments of Executive's Base Salary to her for a period of eighteen months
following such termination of employment.
7.06 CESSATION AND REDUCTION OF PAYMENTS TO EXECUTIVE AFTER
TERMINATION OF EMPLOYMENT.
(a) The payments required to be made to Executive by the Company
pursuant to Section 7.05 above shall be reduced by any compensation received by
Executive from any party other than the Company for services rendered by
Executive either as an employee or consultant. On or before the fifth day of
each calendar month during which Executive is to receive payments pursuant to
Section 7.05 above, Executive shall provide to the Company a written report
indicating any compensation received or earned by her during the preceding
calendar month.
(b) In the event of the termination of Executive's employment with
the Company pursuant to Section 7.01(c), 7.01(d), 7.02(b) or 7.02(d) or as a
result of Executive's election not to extend the term of this Agreement
pursuant to Section 2 above (except if such extension would be effective more
than nine months after a Merger) or as a result of the Company's election not
to extend the term of this Agreement pursuant to Section 2 above (except at any
time after a Merger), the Company may elect by written notice to Executive
within thirty days after such termination of employment not to make the
payments required by Section 7.05 above.
-5-
<PAGE>
Provided, however, immediately upon such election the provisions of Section 6
above shall immediately become null and void.
8. MISCELLANEOUS.
--------------
8.01 GOVERNING LAW. This Agreement is made under and shall be
governed by and construed in accordance with the laws of the State of
Minnesota.
8.02 PRIOR AGREEMENTS. This Agreement contains the entire agreement
of the parties relating to the subject matter hereof and supersedes all prior
agreements and understandings with respect to such subject matter, including
without limitation the Prior Agreement, and the parties hereto have made no
agreement, representations or warranties relating to the subject matter of this
Agreement which are not set forth herein.
8.03 WITHHOLDING TAXES. The Company may withhold from any benefits
payable under this Agreement all federal, state, city or other taxes as shall
be required pursuant to any law or governmental regulation or ruling.
8.04 AMENDMENTS. No amendments or modifications of this Agreement
shall be deemed effective unless made in writing and signed by the parties
hereto.
8.05 NO WAIVER. No term or condition of this Agreement shall be
deemed to have been waived, nor shall there by an estoppel to enforce any
provisions of this Agreement, except by a statement in writing signed by the
party against whom enforcement of the waiver or estoppel is sought. Any
written waiver shall not be deemed a continuing waiver unless specifically
stated, shall operate only as to the specific term or condition waived and
shall not constitute a waiver of such term or condition for the future or as to
any act other than that specifically waived.
8.06 SEVERABILITY. To the extent any provision of this Agreement
shall be invalid or unenforceable, it shall be considered deleted herefrom and
the remainder of such provision and of this Agreement shall be unaffected and
shall continue in full force and effect. In furtherance and not in limitation
of the foregoing, should the duration or geographical extent of, or business
activities covered by, any provision of this Agreement be in excess of that
which is valid and enforceable under applicable law, then such provision shall
be construed to cover only that duration, extent or activities which may
validly and enforceably be covered. Executive acknowledges the uncertainty of
the law in this respect and expressly stipulates that this Agreement be given
the construction which renders its provisions valid and enforceable to the
maximum extent (not exceeding its express terms) possible under applicable law.
8.07 ASSIGNMENT. This Agreement shall not be assignable, in whole or
in part, by either party without the written consent of the other party, except
that the Company may, without the consent of Executive, assign its rights and
obligations under this Agreement to any corporation, firm or other business
entity with or into which the Company may merge or consolidate, or to which the
Company may sell or transfer all or substantially all of its assets, or of
which 50% or more of the equity investment and the voting control is owned,
directly or indirectly, by, or is under common ownership with, the Company.
After any such assignment by the Company, the Company shall be discharged from
all further liability hereunder and such assignee shall thereafter be deemed to
be the Company for the purposes of all provisions of this Agreement including
this Section 10.
8.08 INJUNCTIVE RELIEF. Executive agrees that it would be difficult
to compensate the Company fully for damages for any violation of the provisions
of this Agreement, including without limitation the provisions of Sections 5
and 6. Accordingly, Executive specifically agrees that the Company shall be
entitled to temporary and permanent injunctive relief to enforce the
-6-
<PAGE>
provisions of this Agreement and that such relief may be granted without the
necessity of proving actual damages. This provision with respect to
injunctive relief shall not, however, diminish the right of the Company to
claim and recover damages in addition to injunctive relief.
IN WITNESS WHEREOF, Executive and Company have executed this Agreement as
of the date set forth in the first paragraph.
IVI PUBLISHING, INC.
By: /s/ Timothy I. Maudlin
____________________________________
Its: Chairman of the Board
__________________________________
/s/ Joy A. Solomon
_______________________________________
Joy A. Solomon
569209
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<PAGE>
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF PER SHARE LOSS (UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended September 30 Nine Months Ended September 30
------------------------------- ------------------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Average common shares 7,608 7,478 7,580 7,478
Net loss ($3,900) ($5,571) ($8,085) ($13,237)
---------- --------- --------- ----------
Net loss per share ($0.51) ($0.74) ($1.07) ($1.77)
---------- --------- --------- ----------
---------- --------- --------- ----------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,403
<SECURITIES> 0
<RECEIVABLES> 3,602
<ALLOWANCES> 0
<INVENTORY> 421
<CURRENT-ASSETS> 464
<PP&E> 6,736
<DEPRECIATION> 3,319
<TOTAL-ASSETS> 11,248
<CURRENT-LIABILITIES> 4,351
<BONDS> 0
0
0
<COMMON> 76
<OTHER-SE> 4,929
<TOTAL-LIABILITY-AND-EQUITY> 11,248
<SALES> 2,249
<TOTAL-REVENUES> 2,249
<CGS> 1,090
<TOTAL-COSTS> 1,090
<OTHER-EXPENSES> 5,087
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,900)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,900)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,900)
<EPS-PRIMARY> (.51)
<EPS-DILUTED> (.51)
</TABLE>
